Luca Ferrari: The Operating System Behind Bending Spoons

00:01:31 · Luca FerrariPlay from here

[00:01:31] S0: Yeah, sure. So we, I mean, the entire thesis on which the company is built is that if we can build a machine, a system whereby we can operate digital technology businesses better than almost anybody else, then we are pretty much guaranteed to be able to compound capital efficiently for a very long time through acquisitions. And the reason is that if a lot of businesses are physically better off, once they're integrated into the system, what we call our platform, then being operated as standalone companies by someone else, then we should be able to offer prices to people that are appealing. And so they will sell their businesses to us and we still deliver a high return for shareholders. So that's the you know, thinking behind it, of course, the difficult part is to build, you know, to build that system, that platform so that we can operate businesses better than almost anybody else. And that's what we have poured our hearts and minds for into over the past, well, years technically. And so we have tried to have an amazing team of people, strong culture, powerful proprietary technologies, lots of proprietary data. And what we do, we buy these businesses, we integrate them very deeply into this platform. So we have a shared r and d marketing g and a team that that can fluidly move across all of our businesses. We basically replatform the acquired businesses so that they based on the same technological foundation, some investor at some point called it an operating system, I think it's a pretty apt comparison or metaphor. And then we transform them pretty deeply. So we can rebuild the org, rewrite big chunks of the code base, re architect cloud infrastructure, we try to launch, you know, useful new features, fix bugs, improve performance, rethink when it's decision and marketing. So the, you know, there is a serial acquire component that you will find in private equity, you'll find in companies like Berkshire Hathaway or TransDigm. The big difference certainly vis a vis private equities that we are not a fund, never, you know, we buy off our balance sheet, we've never sold a material business, we don't intend to sell one in the future. So we buy to hold and operate forever.

00:03:42 · Luca Ferrari, Brian HalliganPlay from here

And the other very big difference is definitely vis a vis private equity, also certainly, you know, the Berkshires of the world is that we transform these businesses pretty deeply and we integrate them all together. So they're much simplified, a bit like a go from being a company to being a product installed on the same foundation basically. So that's the model I've been doing it for for thirteen years at this point. [00:04:07] S1: Yeah, it's going remarkably well. You went public. What's roughly the market cap? [00:04:12] S0: At the time of IPO a few months ago, dollars 18,000,000,000, I think, equity value. [00:04:19] S1: Congratulations. I'm a huge fan of the model. It's really unique. I was comparing in my head to Berkshire Hathaway, but it reminds me, when I was in my 20s, I worked for a US company called PTC, and they moved me to Japan to set up the Japanese operations when I was very young. And my office was inside of Mitsubishi headquarters. And so I dealt with Mitsubishi headquarters people, but like all the different divisions. It feels more like Mitsubishi or Samsung than it does like some big PE firm or like Berkshire. How would you describe it?

00:04:55 · Luca Ferrari, Brian HalliganPlay from here

[00:04:55] S0: Yeah, I don't know those companies that well. So I can say for sure. But again, the distinctive features are we buy to hold and operate forever. So I think that kind of strikes out PE firms. And then again, these very deep integration, most companies that acquire other companies serially, in my experience, try to run them somewhat separately, for the most part, at least that's what I've seen. We take the completely opposite approach where we again, we have made, we make sure to have the same technological foundation, broadly speaking, the same core team that moves fluidly across to go after R and D opportunities and withdraw when those are exhausted. And then we a lot of serial acquirers keep these companies, you know, broadly speaking, the same way they were before we change them completely from the ground up. It's very time consuming and challenging. Upside, you know, the bright side of that is we generally deliver very high returns. So I don't know, I think I don't really know of any company that does it this way out there. But [00:05:59] S1: it's kind of an end of one. I agree. It's kind of an end of one. Is the magic Luca in the picking or in the operating? And what percentage would you give it?

00:06:10 · Luca FerrariPlay from here

[00:06:10] S0: Doctor. No, I mean, it's almost completely operating. I'd say the platform I described, we couldn't do what do. So I'd like to think we've gotten pretty good at selecting the right businesses. But it's relatively easy to deliver high returns if you have access to our platform. Because, for example, we have been enjoying exceptional, an inflow of exceptional talent, we got 800,000 applications last year, we hired fewer than 300 people. So when you have amazing engineers, designers, product managers, general managers, it's much easier to take a business and rethink it from the you know, from the ground up and run it much more successfully. Anyone who's run a certainly a digital business, probably any business, but certainly a digital business for a sufficiently long period of time will tell you that headcount matters. Not a lot, but it's just how good the people are in the culture we have established. So we, when you have access to this caliber of people, you can run a business with 20 people that someone else would do 200 people for. And so that alone will give you both cost efficiencies and opportunity to innovate faster, improve monetization faster. So that's an element, for instance, of our advantage vis a vis this company is being run as standalone, or businesses being run as standalone companies. We have invested a lot over the past decade in building powerful proprietary technologies to do everything pretty much I mean, across the board that you need to run a digital business or natively integrated with one another. They just makes everything so much more effective and faster. If I were to run one of these businesses on a standalone basis, I don't know that I would be well certainly wouldn't have the resources to build this technology, it wouldn't even know where to start. And so you know, that's also kind of a cheat code. So definitely the operational part is far more important than the picking. But we try to pick well, obviously, why do it poorly if you can do it well.

00:08:00 · Brian HalliganPlay from here

[00:08:00] S1: And Luca, let's just, I want to click on the hiring. So I spend most of my time with CEOs these days. And everyone talks about being, have high talent density, being a talent magnet. And a lot of them pull it off early, but as it scales, it kind of inevitably waters down. You seem to have almost industrialized this talent density idea and you have some very unique ways of pulling in applications, pulling an interest at top of the funnel, qualifying the interest. Let's just talk about the top of the funnel and talk about the qualification process and talk about it like roll the clock back when you were nobody's, no one had ever heard of you. You had no employer brand. You had no inbound interest. How did you get the talent flywheel kind of rolling?

00:08:52 · Luca FerrariPlay from here

[00:08:52] S0: Yeah. So we basically believe that if you have a strategy that works, or can work, that almost all that matters is the talent you, you deployed toward the execution of that strategy and the culture, meaning like the rules of the game, how people interact with with one another, what they choose to do and how. And all that, those are the areas we have obsessed over pretty much since the beginning. You're right. I mean, start with nothing. And so that's what founders or early team members need to do well, that's basically punching above their weight. I remember early on spending at least 50% of my time, probably more for at least the first two, three years on recruiting among other talent related things. I and a couple others managed to find the list of the best graduates or some in that at the time we hired pretty much only in Italy now we're international, but some of the best Italian universities, we managed to find the lists of graduates and we tracked them down. I remember calling hundreds of them, probably harassing a few until they accepted to join us. And later, later, we built a pretty substantial talent team these days, have scientists, researchers, and we treat the selection of talent within our pipeline, probably not in similarly to how a quantitative trader would picking stocks. We look for all signals and then test signals against future performance to determine whether they're predictive or what combinations of signals are and keep iterating. It's a very rigorous and sophisticated system. At this point, we assess hundreds of signals in each in each application. So that you know, that helps you select potentially dramatically better given the same level of employer brand and ability to attract applications. And, you know, half the game is also attracting very good applications. Because if you if only geniuses, you know, apply it, and it's easier to, to build a good team.