00:04:13 · Luca Ferrari
[00:04:13] S2: It depends. So I think there are investors whose understanding of the math is not necessarily 10 out of 10, and so they do miscalculate the value of some of these things. And not just the math, but the causality between different, let's say, KPIs in the long run. But a lot of investors are actually very smart and what they're doing is they are including as a variable in the equation also what everybody else will think about the business. And so they... If they were to assume to never sell a share, never issue equity, but just live off the cash flows from that business, I think they'll take different decisions than those they try to push management to take if they're assuming that most of the value creation will come from a sale or for the rounds. So there is an element of psychology or speculation, which is very rational. And if account for that then they're not necessarily irrational in their weighing of the different factors. You could argue that the fact that broadly the market thinks that way is irrational, but sometimes there are equilibria in any complex system, including the market that you get to for historical reasons, and they are inefficient globally universally, but moving out of those particular local optima is actually expensive and unlikely to happen. So I think you're probably worse off with overall the world thinking this way, but now that we're here, it may be rational for a lot of investors to play by those rules.
00:05:52 · Anish Acharya
[00:05:52] S1: And how about founders? You know, if you're the founder of a single product unit company, you're the CEO, how much do you think you should sort of adhere to this sort of distorted view of where value accrues versus focus on simple profit maximization even if the investor doesn't feel like they get their full option on a potential sale?
00:06:12 · Luca Ferrari
[00:06:12] S2: It's just a problem to solve like old problems. You want to understand what your objective is, what the boundary conditions are and then once those are those are clear, you creatively list all the options and pick the best one. So if your goal is to say make much as much money as possible, then it may be smart to again accept or or play along with those with those expectations. As long as you know what you're trying to accomplish and why you're doing it, then you're fine. But there are alternatives and they may not necessarily lead to the greatest financial outcome or sometimes they may, it depends on the specifics. So you could choose to run a business without necessarily relying on issuing equity or selling your stake and trying to make it in the long run a great cash generative enterprise that will ultimately create value for you through for example dividends or alternatively you may work to maximize free cash flow and free cash cash flows in the in the long run-in a way that does not get you the biggest valuation today, but will in the very long run. I think you could argue this is a little bit what we did with Bending Spoons. There have been multiple instances where we knew that we could do things differently to get a better valuation in the moment. Do things that would please investors more, buy a certain type of asset, manage that asset in a different way, but we knew with at least we were very confident and I think so far history have proven us right that if we continue to optimize for the rate of compounding of free cash flows in the long run those would be much higher than they would have been following the other path and then if even if the multiple were to turn out to be lower, know, ultimately the multiple is just one factor in a multiplication. If the other factor is 10 times bigger than, you know, rest assured the overall result is gonna be bigger too. So again, just trying to understand what you're trying to accomplish, understand the boundary conditions, and then work back... Backward from those.
00:08:23 · Anish Acharya, Luca Ferrari
[00:08:23] S1: Yeah. It's interesting how much alpha there tends to be in being long dated in your thinking. No? Oh, yeah. We're... [00:08:29] S2: I mean TikTok shows you how we're not exactly as a species inclined to being patient and and attentive and and and long term oriented. Right. You can do that, that already sets you apart, I think. [00:08:46] S1: So I've got a few other questions for you maybe on behalf of our CEO founders out there. You know, at any incremental moment, you can sort of bet on invention or optimization. When you guys acquire something like a Miro or an Evernote, how do you decide? You know, do you have a rule of thumb? How do you tiebreak,
00:09:04 · Luca Ferrari
[00:09:04] S2: etcetera? Yeah. So I think that the the type of qualities and and the mindset you need to max out innovation or at least radical invention because I think you can be very innovative as you optimize, but I think, you know, like more radical step change innovation versus optimization incremental innovation are quite different. I would say that any company that's all in on one at the expense of the other is probably not doing as well as you can take. I think Apple, for example, historically has tried to be more of the on the big inventions of the things, but but not to the detriment of optimization excessively. I mean, famously, you know, team Cook was great at making sure operations were efficient. And so you wanna know... But but because the the qualities that you need and the mindset and the culture you need are different, I think you need to choose your camp. Like, we more like the radical innovators or more the incremental innovators? And I and I think both are very fine. Just know a pick one side and and stick to it. More radical innovation will lead to higher peaks faster potentially if you come up again with the iPhone and it can deliver on it, it could transform your company close to overnight. Or, you know, Google search back in the day. Still to this day, Google is vastly Google search. It's unbelievable. I mean, we're talking thirty years later and it's still 80% that's still what it is and they've invested tens of billions of dollars in all sorts of stuff acquisitions and it's still mostly search. That's right. So that's how powerful radical innovation is when it works, but it's highly it's not dependable. It's very difficult to like the median case is super awful, basically lose everything, but occasionally you're right and you win massively. I think incremental innovation is more dependable, more measurable, and if applied in the right with the right strategy in the right context, like I think Bending Spoons can compound over a very long period of time. So if you for example run a one a single product SaaS, I think incrementally optimizing ultimately there's only so much you can do. But if you do it in the context of Bending Spoons where you get a 100 in EBITDA, you turn it into 200 Yeah. And then you lever up three times and then you buy more that compounds exponentially into potentially a 100 x over time. Right?
00:11:30 · Luca Ferrari, Anish Acharya
So whether you choose radical innovation as your primary pursuit or incremental innovation depends on the broader strategy or you're you're implementing, I believe. [00:11:40] S1: It's interesting because we lionize radical innovation, but to your point about Google, it's almost as if once you've invented Google, it's so hard to do that. It's rational to just optimize it forever, actually. [00:11:52] S2: Oh, yeah. You could make... I I think Google is one of the best comp... Overall, one of the most impressive companies to to to to ever have been created. So, you know, we start from a place of incredible admiration. There... You could make a reasonable argument that overall shareholders would be even better off had they, you know, had the company focused fully on search and optimized search to the max. Because obviously Google is bigger and better because it's done more but you have to compare that with what the different shareholders would have been able to accomplish redeploying the excess capital into other pursuits. Yes. And I don't know that you can make I did the math a couple years ago, I think it was at least debate. Which of the two would have been better? [00:12:42] S1: Yeah, really interesting. Though we got the transformer paper out of Google. Oh, yeah. Which is the foundation of everything that's happening now, so I could definitely take the other side. As you think about managing your product portfolio, how much does customer feedback and customer love play into your thinking?