Invest Like the Best with Patrick O'Shaughnessy
00:55:29 · Luca Ferrari
[00:55:29] S2: Since some of best are really good at understanding people, at discerning who is really smart and not promotional, from those who are not so smart but very good promoters. And so when you see a business has a strong track record and someone explains to you in a way that makes sense, it's not just a good story but it makes logical sense, that's a huge indication that probably there's something there. First of all, you now know why things have worked out and you can determine whether they're likely to continue working out and secondly, if you're investing in someone who's made good decisions for the right reasons, not just out of luck, they're just more likely to navigate the future variables that will be thrown at them better than most. I know investors who invested, for example, in Amazon in the early days, who told me one particularly, who told me that the main reason why he did, and he made a big bet on it, and it was a huge success. He did believe in the e commerce model and all that, but he believed that very few people he had ever met had the clarity of thought, the rationality of just Bezos. And so a model he believed had legs coupled with a person he thought was a brilliant leader, very bright problem solver, that alone set that opportunity apart from a lot of other stuff. Yes, it would be difficult to have wide margins for a long time, but it was confident the company would be much better than at least it was priced at the time. So I think understanding people and their cognitive abilities is quite difficult. It requires in and of itself great cognitive abilities. I find that if someone is eight out of 10 smart, they can only discern the sevens from the sixes from the fives, but the eight and a half, the nine, the tens for them look like the same, like a big batch of Oh, they're so smart. And so to be able to distinguish the tens from the nines and the eights, need to be probably close to a 10 yourself. Of course, experience and other elements too, which make it very difficult. And not just brilliant from a point of view of logic and analysis, but also rationality. Trying to really ignore this person is really pleasant or charismatic. Yes, park it. What's really beneath that? It's difficult.
00:57:30 · Luca Ferrari, Patrick O'Shaughnessy
We as humans have been evolutionists, made us animals of gut, of emotion, but emotion investing, they're not good friends I think, or at least good investing. [00:57:38] S0: Another thing that you have to deal with in a unique way is this cocktail of incentives and motivation for different parts of the business. You have business units where a team is running an Evernote, for example, that's different than a spooner that's in the home office that's being moved around and doing lots of different things. What have you learned about setting incentives for people to get the outcomes that you want? Fairly complex structure.
00:58:00 · Luca Ferrari
[00:58:00] S2: I don't know if this will disappoint you, but we don't. Everybody is paid a fixed salary. No variable pay, no stock grants, nothing. They can choose to invest part of their cash pay at a discount not crazy but a pretty generous discount at the topco level and that's it. The way we maximize alignment of effort is by hiring people who believe are high integrity, that have great professional pride and then just treating them with the utmost respect. And I think most people will try to do what's right and do what's right for the business along the lines of the mandate you gave them. So if you ultimately are optimising for Bending Spoons, not Evernote, nine out of 10 people, if you're hired well and the culture is right, will take it to heart and do that. In fact, I believe sometimes setting financial incentives, of course if people do well, they're likely to get more responsibility, higher salaries. Certainly there's that, but it's not as immediately tied to a results next quarter or something very measurable. Through observation in time, if you're great at your job, you'll probably get more, do more. I think that sometimes when you set typical incentive plans with KPIs and whatnot, first of all, it's very costly. It takes a lot of time. For that to be ROI positive, it's not enough that it adds value. It needs to add more value than the cost that's implied. It's absolutely guaranteed to create at least some perverse incentives because nobody can set perfect incentives. The world is too complicated, it changes too fast. For sure. So even if you are a genius, whatever you set as incentives will be imperfect. So there is an additional inefficiency that whatever extra efficiency it needs to overcome before even into black territory as opposed to red territory. I think also those kind of incentives tend to hinder relationships. They tend to make things more transactional. It's more difficult to have a proper problem solving session where all we're thinking about is how do we win together? I think most people will have it in the back of their minds. Okay, how do I get the better bonus? It's difficult to be entirely resistant to that feeling. And so I'm sure it could be done better, but we chose the simple way, which is treat people respectfully and just get rid of all that stuff and assume you'll do the best you can.
00:59:59 · Patrick O'Shaughnessy
[00:59:59] S0: I'm sure you're always dissatisfied with the state of things and want things to get better all the time. What about Bending Spoons today are you most dissatisfied with?
01:00:07 · Luca Ferrari
[01:00:07] S2: I'm that kind of person, by the way. I'm perennially unhappy, which I think sounds awful because in a way I feel very fortunate. It's just I feel very fortunate, am I perennially unhappy For some reason. Discontent, which is a huge superpower and a curse at the same time. You could imagine. What is not good, or at least not as good as it could be? One of the things that is critical for our growth is hiring and coaching. I'm absolutely positive we offer literally one of a kind level jobs, some of the best on the planet, absolutely certain. Incredible talent density, you learn faster than anywhere else. You get an opportunity to take on responsibility. That's crazy. Most of our general managers run businesses on average $50 $100,000,000 in revenues. If they were a scale up, they would be considered a large scale up. Many of these people are like $27 $28 Most of them are, I think very few are above $30 Unique opportunities, excellent financial opportunities too, whether it's very good salaries and investment opportunity in a company that's growing fast. We feel very privileged of getting a ton of great applications, like I said, a huge number. I think we should be getting more better and we should be better at identifying the raw talent. I know we're rejecting a lot of great applicants who are actually better of some of the people we hire because we're just not good enough at spotting that talent in someone who has such a short track record, maybe a student, a new graduate. That's an area of massive frustration in a way. At the same time, I'm very proud of what the team has done there and frustrated we can't yet do better. And I know that's one of the keys to growing fast and achieving what we sought to achieve. So it's certainly a major area. I'm always frustrated with our societies, there's too much regulation, we're really working on the wrong stuff at the institutional level. People try to create economic growth and prosperity through more rules, just telling you, Yeah, if we tell them exactly where to go with lots of rules, surely we'll be prosperous. They don't understand that it's quite the opposite. You've got to get out of the way and create as free and open a playground as you can. We keep adding rules. Elon Musk once said something that I thought was brilliant and I fully subscribed to it.
01:02:11 · Luca Ferrari, Patrick O'Shaughnessy
He said, We should have a rule that every new law is automatically removed, say three years later, unless someone can make a really good case that's created a lot of value. So we wouldn't have 10,000, 1,000 page long civil codes or whatever. We're basically trying to prevent rare corner cases, unpleasant, sometimes tragic corner cases, while making ninety nine point nine nine percent of the normal cases less efficient, more painful, some utterly impossible. But because they are not as newsworthy, because they are typically widespread and normal, those inefficiencies are not as interesting to talk about. In aggregate, are just a massive tragedy, a much bigger tragedy than the one individual tragedy of one corner case. Ultimately, when it comes to regulation, the corner case wins and we regulate it away, but we make life much worse for everybody else 99% of the time. This frustrates me because I think we're just shooting ourselves in the foot as society essentially. What's your [01:03:03] S0: balance of time around this idea of being constantly discontent? What's your balance of time of what I'll call maintenance hours of the business? Things that are repetitive, meetings with teams, internal stuff, keeping the trains running versus space that you create to tinker with the business, try new things, stretch that comfort zone that you were talking about earlier. The question behind the question is like, what does your week look like? Like how do you spend your time?