Joys of Compounding
00:03:07 · Paul Buser, S2
[00:03:07] S1: I'm Paul Buser. And I'm Rick Berman. We're your hosts. And each session, our teachers will be some of the world's most compelling people from across the vast range of human achievement. [00:03:17] S2: This show is brought to you by Pine Grove Studios in collaboration with Colossus. The hosts of the show, Rick Berman and Paul Buser, are the cofounders and co CEOs of Sata Grove Holdings and co CEOs of Sata Grove Management Company. All opinions expressed by any of Rick, Paul, or their podcast guests are solely their own and do not reflect the opinion either Sator Grove Holdings or Sator Grove Management Company. This podcast is intended for informational purposes only and should not be relied upon as the basis for investment decisions. Sator Grove Holdings or clients of Sator Grove Management Company may maintain positions and securities discussed in this podcast.
00:03:45 · Paul Buser
[00:03:45] S1: Luca, it's great to be with you. Our obsession at Joys of Compounding and then our holding company, Sadler Grove, is finding people who are doing their life's work, who are crazy enough to actually structure it in a way that give it a shot to endure. I think a lot of people that we've come across maybe say they're doing their life's work, have some components of it, but I had the good fortune earlier this year to stop by and meet you here in Milan. We were here for a different subject, but what came across to me, and and it was the reason why I wanted to come back here and do this interview, was it's just so rare to know down to the core that what you and your cofounders have built is done in a way that actually is a shot to endure. One of these multi, multi decade compounders, I wanna unpack that today. I think there's a lot of components to that. You've been in the press a lot lately. It's amazing to see the coverage of Bending Spoons, but there are a few things that I think maybe the world doesn't understand fully or not enough around some of that structuring. Then very selfishly, for us, this is how we like to learn. I'd love to start with what is it you're actually aiming at? What are you trying to build at Bending Spoons? How did you structure this in a way that gave you a shot of doing that? It all started, at
00:05:04 · Luca Ferrari
[00:05:04] S3: least with Bending Spoons, have some failed entrepreneurial pursuits before that. But with Bending Spoons it started with the conviction that if we could become the best ideally, or at least among the very best operators of, in our case, digital businesses in the world, then we'd be pretty much guaranteed to be able to compound capital very efficiently for a very long time through acquisitions. And the reason is that if you can operate a business better than almost anybody else, if a business is better off as part of your group, in our case, once it's integrated into our platform, then it would be with the previous ownership, then you should be able to offer a price to those owners that's appealing and at the same time deliver high returns, cash returns. Can then take that extra cash and redeploy toward new acquisitions and rinse and repeat and that's compounding. On that thesis we have built in our company for the past thirteen years, interestingly, the let's say the capital allocation side of things, at least when it comes to acquisitions is the relatively easy part. Once you have that platform, once you are that outstanding operator. So most of our focus and efforts have gone into establishing ourselves as ideally, aspirationally, by far the best operator in the world.
00:06:26 · Paul Buser
[00:06:26] S1: Yeah, it's interesting thinking about what you're aiming at as being the best operating company in the world. Oftentimes, if you think about a public company, it could be you want the biggest revenue or biggest team or other metrics out there. If there's one thing that you could measure over the next twenty or thirty years, what maybe comes upstream from best operations, best people? What's the metric that you look at? Maybe not every quarter, but year to year, decade to decade that shows that you're succeeding in what you're aiming to do?
00:06:59 · Luca Ferrari
[00:06:59] S3: The downstream metric, probably the one that's closest to capturing whether we're being effective or not would be earnings per share or free cash flow per share. They should approximate more or less the same thing over time. Upstream, well, it's... There's probably no single number that would capture whether we're doing a good job because I think a lot of the enablers of the strong performance we've had over at this point thirteen years have been somewhat qualitative in nature. For example, by far the most important aspect has been the quality of our team and our culture. And so do you measure that? Obviously, are many proxies that give you a sense of where you're trending in the right direction. How many people are applying to work here? What's the average performance one or two years into someone's tenure? Is it going up or is it going down? Technologies, that's also been an absolutely crucial element of what we do. Also, you were talking about maybe we're not being fully understood. Think very few people know just how sophisticated and extensive our set of proprietary technologies is. And it's one of the big reasons why we've been able to do so well. We keep investing aggressively in making those better and better. Potentially one KPI that somewhat captures whether we're progressing there could be revenue per Spooners. Spooners are the members of our core team, people who go through a very selective hiring process. We went from about $1,000,000 three years ago to over $4,000,000 annualized these days. Part of that is just scale economies. A lot of that is technology, particularly with AI. So presumably if we do well there, that KPI should keep improving, but there are ways to cheat on that KPI. We could just not hire people or fewer than we should just to make it high. So I'm a big fan of data, but at the same time, I'm always extremely wary of data. You can manipulate almost any data. So yeah, the handle we care, I guess.
00:08:50 · Paul Buser
[00:08:50] S1: There are so many pieces to dive into there. Before we do, I remember when we were talking, I think it's just over thirteen years now since you launched, the founding story has been told, Indonesia, EverTale, and then kind of a flip on not necessarily trying to find product market fit, but be rational about how to build operations. The one thing I think that really struck me and and our our team is that you had at least a decade where not that many people knew about you, and you were able to think about these various things without a lot of noise. If you had been born instead of in Europe and here in Milan, in Silicon Valley, odds are there would have been capital flowing at you. Maybe one way to frame a question is what would not have been possible with your mentality if you had a 100,000,000 in funding back then? Instead of there was a 40,000 or 10,000 or some derivation there of a fraction of a 100,000,000. And yet it gave you a decade to try to figure this out.