· David Senra, Peter Rahal
[00:00:00] S0: Yeah, duplication of efforts. [00:00:00] S1: But to me, the main design objective is speed. And so if it's speed, you're designing for speed, you're going to pay extra people to do that. [00:00:00] S0: Me and Rob had this exact same conversation yesterday. [00:00:00] S1: Yeah. Speed's important. Like, it's always been important, and it's really important, especially in our market we're in, where we're dealing with people with mega, mega scale. Our ability to bring product to market fast is... I don't want to lose that. And honestly, if we lose that, I'm like, I'm done. [00:00:00] S0: What do you mean you're done? [00:00:00] S1: Like, if we lose our entrepreneurial, and I say this to the company, if we lose our values and the way we operate, our culture, I'm fucking leaving. [00:00:00] S0: Why do you just grit your teeth? [00:00:00] S1: Grit my teeth? [00:00:00] S0: You just grit your- [00:00:00] S1: Because it makes me angry. Because it makes me angry. I hate big, fat, stupid- [00:00:00] S0: I'm fucking leaving. [00:00:00] S1: I hate big, fat, stupid things, and I don't want to be a big, fat, stupid company. The problem is it's actually inevitable as you get bigger. Like, my job is to fight bureaucracy, fight the bullshit.
· Peter Rahal, David Senra
[00:00:00] S1: I hate big, fat, stupid things, and I don't want to be a big, fat, stupid company. The problem is it's actually inevitable as you get bigger. Like, my job is to fight bureaucracy, fight the bullshit. [00:00:00] S0: It doesn't have to be. I mean, you even kind of stumbled upon, or maybe not even stumbled upon, you were probably very intentional about the way you operated this. I just did this episode of my other podcast, Founders, about Henry Singleton, and he led one of the most successful conglomerates of all time. In many cases, a lot of the ideas that we ascribe to Buffett and Munger were actually things they learned from him. And his whole thing is, I think at the time- In the '70s, he owned like 130 businesses, 129 of them were profitable. [00:00:00] S1: Jesus. [00:00:00] S0: And essentially, same thing, they ran their own operations. The only thing he centralized was compensation and capital allocation. [00:00:00] S1: Yeah. [00:00:00] S0: So, you're on your own, you're making cash, I'm going to leave you alone. [00:00:00] S1: Yeah, performance equals freedom. [00:00:00] S0: Yeah, exactly. And then you just send your cash, and then I make the capital allocation decisions for us. [00:00:00] S1: Yeah. [00:00:00] S0: So I don't think... And he didn't have a big, fat, stupid, ugly company. So it doesn't have to be the outcome. [00:00:00] S1: No, I know. But it's like the nature of these organizations. The more people they want, nature pulls it in together. It almost wants to be that, a group of people.
· Peter Rahal, David Senra
[00:00:00] S1: No, I know. But it's like the nature of these organizations. The more people they want, nature pulls it in together. It almost wants to be that, a group of people. [00:00:00] S0: I mean, Luca Ferrari just did the exact same thing. [00:00:00] S1: Yeah. [00:00:00] S0: Because he acquires these companies, and in some cases, they have like hundreds of... These are software companies, so he's like, "How are they all making money?" [00:00:00] S1: Yeah. [00:00:00] S0: It's like, how are you unprofitable as a software company? [00:00:00] S1: The best gross margin business there is. [00:00:00] S0: And it's like, what are these 400 people doing? And in one case, he bought a company that had 400 people, and he got it down to 20. And now it went from losing money to it's a cash printing machine. He's almost making every year in profit what the acquisition cost was- [00:00:00] S1: Wow [00:00:00] S0: ... originally. But that was his whole thing, it's like it's in human nature to- [00:00:00] S1: Yes [00:00:00] S0: ... add layers and complexity. [00:00:00] S1: Yeah. [00:00:00] S0: And I think he said the company value of his is like, anybody in the company can raise their hands like, "I don't want to add this complexity." And he goes, "It's on the person wanting to add the complexity." It's like, you can just raise your hand. You don't have to say anything else. [00:00:00] S1: Yeah. [00:00:00] S0: But the person who wants to add this has to be the one in the company to justify it. [00:00:00] S1: Yep, so you got to fight it.
· Peter Rahal, David Senra
[00:00:00] S1: Yep, so you got to fight it. [00:00:00] S0: Okay, so you have the Medici level, you have all these semi-autonomous business units. How much power does the person running the individual business unit have? [00:00:00] S1: Quite a bit. [00:00:00] S0: These are typically former founders? [00:00:00] S1: Yeah. [00:00:00] S0: Okay. [00:00:00] S1: Either former founders or they have to be product leaders. That's like a credential, meaning they have to be back to my, like, they have to pick up the phone to fix the product, they're the wrong guy. So they have to be product first. Ideally, a founder or someone who has that experience, but not necessarily. But product leaders. [00:00:00] S0: Okay, tell me more about the organization now.
· David Senra, Peter Rahal
[00:00:00] S0: Okay, tell me more about the organization now. [00:00:00] S1: So at Medici is product, cash, people, law, regulatory. So, that sits there. I sit there, and we serve the BUs, right? And then there's a lot of collaboration in general. We're all in the same office. There's a cross-functional team at each BU, so it's supply and demand. So demand is sales and marketing, demand is finance and supply. And CPG, it's very cross-functional. So the typical business units are organized around sales, which is working with the retailers, marketing, and that's really demand, right? They generate demand. Marketing can be mostly e-commerce, but it's also all social, digital. And then there's the supply side, which is supply chain, which is end-to-end, so raw materials to fulfillment and warehousing, and then finance, which is forecasting, pricing. And so finance is the referee. So that cross-functional team runs the business. [00:00:00] S0: Wait, what do you mean finance is the referee? [00:00:00] S1: Meaning they define the framework for pricing, they define the budget. They're sort of the ones... Because there's inherently tension between supply and demand, right? Like, there's always a healthy tension there. The finance is the referee in terms of they define the rules of the game, and they ultimately run the P&L, in my view. [00:00:00] S0: Explain the tension between supply and demand.
· David Senra, Peter Rahal
[00:00:00] S0: Explain the tension between supply and demand. [00:00:00] S1: Supply people are really driven by accuracy and efficiency. Sales and marketing people are really more charismatic and want to generate demand, and maybe that requires less accuracy. So they have a conflict of interest sometimes because one just wants to grow as fast as possible, the other one wants to make sure the supply is there appropriately and accurately. [00:00:00] S0: I'm still not understanding, though. Say more about the accuracy. You're using the term accuracy. [00:00:00] S1: Why would someone be interested in supply chain? Generally, you like to know what you need, where is it- [00:00:00] S0: You're talking about the personality types. [00:00:00] S1: Personality types, yes. [00:00:00] S0: Okay. [00:00:00] S1: And their function is to make sure what do we have, where is it, when do we need it, how much do we have? And then sales is like, "I want to go win." And often they will outkick their coverage or there will be issues, and ultimately supply has to go fix those problems. [00:00:00] S0: Okay, so how many business units do you currently have at Medici? [00:00:00] S1: One, two, three, four. [00:00:00] S0: You said something earlier that I wanted you to expand on, too. You said, "It's very important for me to be aerodynamic as I go through things." [00:00:00] S1: Yeah, just like efficiency and simplicity. I think the best design is the simplest design, and just I think my nature.