Joys of Compounding
00:43:47 · Paul Buser
[00:43:47] S1: How do you avoid the law of large numbers? Like everything, you seem to have thought deeply about them and and usually have a flip on the typical orientation towards these things. But if you 10 x the number of people from here, if you go from 4,000,000,000 of revenue to 40,000,000,000, generally, things creep in. Maybe you do start to eat away the TAM even though we just talked about it being enormous. Why stop at software? Are there things outside of software? I know you've done a little bit of hardware now, but I'm I'm in very far afield from there. What is it rationally in your playbook if you look out twenty years that's possible to not fall prey to the kind of organizational rot that usually comes as size grows? Yeah.
00:44:27 · Luca Ferrari
[00:44:27] S3: It's certainly a concern. The good news is that we haven't been able to see any of that happening yet, which is reassuring, but I fully expect that there will be some saturation and some deterioration on your returns, maybe because you need to deploy more and therefore you can be less discerning. And so yes, we can talk about expanding the addressable market, but unless you do that, there's certainly some level of downward pressure on returns because you need to buy a bigger percentage of whatever is available. We have been, I think, offsetting that well by improving our talent density, culture, our technologies, but it's not written in the stars that will continue to suffice. And in fact, I would expect returns to compress a little bit at some point going forward. It's only reasonable. Now the good news is that we have to the best of my knowledge and hearing from investors who have studied us the best relative to our scale over time. Have delivered returns that are better than maybe any serial acquiring history. I don't know. That's what I've heard by from two separate investors. I haven't studied enough that I can say I'm sure that right. But at least the fact that two extremely professional competent investors told us at these different scale points have always been the most efficient, fastest compound compiler in history, at least all the companies they knew. Even being in that conversation, I think that's a testament that we've done something right. There is a pretty wide margin between where we are or have been up to now. And let's say where returns would start being. Do we want to do this? Or do we start paying dividends? It's good to know your model. It doesn't hinge on razor sharp and razor thin margins. And so that's good. Naturally, will continue to work hard to make sure that such compression doesn't occur or occurs as slowly and as limited a fashion as possible. And the tools are strengthening the team, the platform more broadly, the data, the technologies and the people. By the way, the AI especially is now very powerful tailwind in making sure that we can 10x revenue while not 10x ing headcount. Very confident we can do that. I suspect we can 10x revenue by increasing headcount 3x at most, something like that. So that helps. So there's a lot of investment and effort going into that.
00:46:38 · Luca Ferrari, Paul Buser
The other big lever is certainly trying to expand the addressable market early so that we never find ourselves in a point of saturation hardware being a first, but also with Airtable, more enterprise SaaS. I believe that a lot of our platform would port nicely to other industries, ultimately access to superior talent, a culture of high performance and truth seeking, excellent technological savvy and powerful proprietary technology. Those things, I think deploy nicely across many, many industries, but I'm equally sure that they will not port perfectly. So expanding the addressable market early so that we don't find ourselves that in five or six years, we're like, oh, damn it. There's nothing more to buy unless you accept crappy returns is something we certainly worked toward. I don't know if John Wooden. [00:47:24] S1: Yeah, from Indiana where we went to college. [00:47:27] S3: Is definition of success was you have done 100% of what you could? Even if I knew, and I don't, I'm quite optimistic, but if I knew that there's only another eight years runway, and then there's nothing else we can ever do again, it's not a good reason not to go all the way for eight years to the best of our abilities. We can still have 10x the company or hopefully even more. And then maybe we start paying dividends or if the stock price is low, we can buy back. It's great. Nothing is forever anyway. It's not that Google. It was a bad idea to build Google because search couldn't be an infinite business at some point it starts to raise. You still build it.
00:48:00 · Paul Buser
[00:48:00] S1: It's great. John, was he famous for telling his team, let's practice putting on our socks over and over again until we get that right? This is fun. I wonder what the the corollary is for you guys. Just the blocking and tackling the little things. Before recording, we were talking about Mitch Rails, who's a very close friend of ours and super important in what we're building, and he's influenced us a lot on how we think about business. And, especially, we actually met via Will Thorndyke. But I had never met Mitch. And within a day, he became our biggest shareholder and we've been building a lot of companies together. I think that one of the common factors was this obsession with duration. In our old lives, helping to manage an endowment fund, our biggest frustration with the institutional investing world was that super well intentioned people hadn't thought enough about structure. They were incredible learners, but the learning was actually just kind of a waste. They weren't able to implement it. Everything I've heard about you, I'm hearing right now is the opposite. And I think Mitch has taught us to take it to another level, which is every decade, expect to reinvent yourself almost completely. The first ten years for Bending Spoons, you were in the wilderness. Not a lot of people had heard of you. I know there's some Italian media that was finding you. Then all of a sudden, you read The Outsiders. You've heard of Constellation by then. Still don't really try to match yourself with anybody. You're midway through the second decade now. What is it that you think could be reinvented or has to be reinvented, say, year 2025 without losing the soul of bending spoons. What can
00:49:28 · Luca Ferrari
[00:49:28] S3: you see already that could be a big pivot point for you? The basic principles of what we do has stayed roughly the same from the beginning. Basically by product market fit, bring exceptional operational excellence, largely through structure, being able to integrate all these businesses together, transform them very deeply, use the same underlying operating system, a shared team of people. But the way that's looking and more so, I think if I have to imagine the next five or six years is changing quite a lot. It's boring. Everybody's talking about it, but I think frankly, AI is right now for this phase, the big difference maker. We have invested aggressively in technology for as long as I can remember, but never before have we found ourselves in a situation where productivity could spike just so much through incremental efforts here. For example, internally, we have recently launched something called diagram, which is if you've used co op design, there are some similarities. It's deeply embedded and integrated into our broader toolkit so that when you ask the tool to design something, it needs zero context. It already knows all the products, databases. It knows the design guidelines that the lead designer had on each business or product has laid out. It is in contact with all the right people if it needs feedback or approval. So it's a far more efficient way of designing within Bending Spoons. The productivity gains we're getting from something like that are extraordinary. First of all, designers are much faster, but also the percentage of team members who can now design effectively on their own without having to bother other people. And every time people have to collaborate, there's information loss as you exchange comps and then the delays and frustrations. It's just mind boggling. So that's just one I could bring many, many examples. So I think looking forward five years, let's say, I expect that what we'll be able to do in a vastly automated fashion will be just sci fi like. We're trying to be trailblazers along that path. The underlying principles will be similar, but I think what you'll see us do will be just shocking. Evernote when we bought it, it had three fifty team members approximately. After twelve to eighteen months from when the acquisition was completed, it had maybe 60, something like that. And now it's been run by 20 people.
00:51:45 · Luca Ferrari, Paul Buser
And those 20 people launched in January, February this year, by far the biggest update to the product in maybe a decade, certainly five or six years. And part of that is we've spent a couple of years cleaning up the code base, improving the cloud infrastructure so that the code base is more maintainable. It was easier to expand the product, add new features, but a lot of that is just incredibly powerful AI automations. And so I think we're just scratching the surface of that. And the advantage of it for us is not so much that we can further optimize costs. It's more that we can acquire more companies, which means we can deploy the same amount of capital across smaller tickets if we want to, which means the universe of realistically attainable opportunities is bigger, which means that saturation effect on returns is further pushed out. [00:52:35] S1: What is the limit to keeping this ownership mentality with these AI gains? What comes to mind is, say, the team running AOL, they might have a mindset of transformation, but then there's sort of maintenance. AI, in a way, to me, seems like it just pushes the boundary of everybody at their edge at all times. Bending Spoons already has this culture. Now this is just multiplying it in an exponential fashion. How do you envision... Are there examples of how you move team members more quickly? Or like you were kind of alluding to the team's sizes get smaller. How do you keep people interested at the cutting edge on what they're able to do?