Invest Like the Best with Patrick O'Shaughnessy
00:29:54 · Luca Ferrari, Patrick O'Shaughnessy
These are the criteria and they have remained the same, but the level of sophistication, our understanding of these criteria over time, it's incomparable. [00:30:02] S0: Maybe we could talk about Evernote as a great case study because I used to use it all the time. It was my, like, place of record for keeping my notes and book highlights and all these things, and people have heard of the brand. It was a big acquisition for you. I'm curious what you think of as like the milestone acquisitions in the history of Bending Spoons. I'd love to dive into that one. Just to hear an example of the whole story soup to nuts of how you found it, what you saw, what you did, how you thought about price, what your team did, what's happened since.
00:30:26 · Luca Ferrari
[00:30:26] S2: I mentioned earlier at the beginning, was all what we would call asset deals, individual apps and whatnot. And then we had a period of maybe three, four years where we saw that very basic small scale model work was going to saturate at some point in the not too distant future. And we figured we should do this at a bigger scale with structured companies with management teams and large teams of professionals and institutional investors. But will we be able to do as well or at least enough there? And we were quite... I think we lacked the confidence to take the leap immediately and so we started losing a bit of focus and looking at alternative strategies while taking tentative baby steps into that next level of the same thing really, but just... I guess it's a bit like I played locally now when I do an international tennis tournament to go back to the tennis. Will I be able to compete? And probably yes, if you're doing super well locally. Of course, you'll not be the best at that yet, but I think it's... You can empathize with there being a little bit of hesitation insecurity. And I think Evernote was the first such company like clearly within that definition. And it was very successful and so it gave us... And so was it for the sellers, by the way. I think it was a great deal for both parties. My guess is that we paid 50% more than the next best offer. So it was really a win win. Any good strategy needs to be somewhat win win otherwise it will not go far. We were invited to that process. At the time it wasn't something we took for granted because we were not so well known. So many times we missed out on sales processes that happened and took a look at it. I think we were very fast in making what turned out to be the winning bid. And we just saw a very good brand, although certainly slightly tarnished, but still a quarter of a billion people had used Evernote. You can say that of a lot of products.
00:32:07 · Patrick O'Shaughnessy
[00:32:07] S0: Wow. Yeah.
00:32:08 · Luca Ferrari
[00:32:08] S2: A strong brand, an important use case, a lot of customers with thousands or tens of thousands of notes using Evernote to run their lives really. So that means potentially good retention. The product had not probably kept up with the times as well as you as a customer would have loved to see. Of course, you can only realize that fully once you're on the inside and really open hood and you get a sense of that as a user. I was a user actually before I acquired it. I've been a user since 2014, I believe. And so we bid, we won it. We began our usual transformation process on a different scale, but essentially had a team of some of our best experts, functional experts, growth product design and engineering. Going, we met everybody. We spent a lot of time with everybody on the team and worked on projects and really got acquainted with the nitty gritty details of the business, broadly speaking. And then developed a roadmap for how to make Evernote more successful and got to work. It's a completely different business today. I think in two and a half years, we have released probably about two fifty significant product improvements. It's difficult to be a 100% quantitative of product improvements because there's no perfect definition, but my... In my estimation, we have been improving and innovating probably three to five times faster than before. We've been able to do this with a smaller team, really working on keeping all the positions that were critical, getting rid of projects and initiatives that we thought were tangential and really not adding a lot of value, working on talent density, the culture of impact orientation and rationality, really trying to make sure that what we do moves the needle. It's a million things you bring in as a business with our platform. But we rebuilt almost entirely code based, the cloud infrastructure. There's almost nothing, at least nothing of the core components. It's now far higher performance. Nodes sync up in less than 10% of the time, in some cases 1% of the time.
00:33:53 · Patrick O'Shaughnessy, Luca Ferrari
[00:33:53] S0: I remember that being a problem when I was using it. That's why I stopped. [00:33:56] S2: It is super fast. You would not tell the difference at all compared to the products you probably consider the best in the broader productivity. Maybe you think Notion is top notch in the broader productivity. I think if you tried Evernote today, you would consider... They do different things, but the quality of the experience you consider probably on par. So we had to close a big gap there. Retention is at an all time high despite prices being higher because now Evernote is substantially more expensive. It varies by country and it's probably on average, say 60% more expensive. So it's substantially more expensive than before, but sure retention is better because yeah, we did lose 10% of customers who were already not so sure and once the price goes up, okay, I'm out of here. But all the more engaged loyal customers are still on board and customer satisfaction by any quantitative metric is better than it's ever been before. But it was a very time consuming effort, not something, I think completely beyond what say a private equity could do without having its own [00:34:53] S0: R and D team and everything. [00:34:54] S2: Yeah. And having to maybe be ready to sell within a few years. And again, can't do it a 100 companies each year, but we could do three or five or six.
00:34:54 · Luca Ferrari, Patrick O'Shaughnessy
[00:34:54] S2: Yeah. And having to maybe be ready to sell within a few years. And again, can't do it a 100 companies each year, but we could do three or five or six. [00:35:02] S0: How do you know when there's pricing power? If prices are 6% higher, you've made it a better product so maybe that's why the price can go higher. But how do you think about price charge to end users across your universe of applications that you own?