Long Strange Trip: CEO to CEO with Brian Halligan
00:03:42 · Luca Ferrari, Brian Halligan
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 Halligan
[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 Ferrari
[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 Halligan
[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 Ferrari
[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.
00:10:58 · Luca Ferrari
And so there, I think we have a kind of a kind of an unfair advantage with our model, we found that a lot of engineers, designers, product managers absolutely love the idea of being able to work at a company where they can say spend nine months helping rebuild, say Vimeo's video infrastructure, and then six months rethinking advertising on AOL and then maybe a year building a platform technology, all with the same employer, broadly speaking with the same colleagues with the same culture, the track record they're building does not get diluted. As you when you change employer, obviously, a lot of that is lost, you have to reestablish credibility. And so that's very powerful point of attraction. And the other one is because we've been so systematic and uncompromising on having extremely high levels of talent density, pretty much from the beginning, of course, compatibly with our appeal to candidates at each point in time. Once that's in place, it's a powerful means of retaining excellent performance and attractive more of those because, you know, when people find that they love their colleagues, they never leave. Have essentially zero regrettable churn. We had point 6% regrettable churn of Spooners to members of our core team last year. And, you know, trust me, they get, there are poaching attempts from big tech all the time. So it's not for a lack of opportunities. And equally, these people will tell their, you know, former fellow students or whatever, Oh, it's amazing here, you should apply. So it makes your life easier, but it's very difficult to get to a very high level of talent density late in a company's history. You need to establish it from the beginning and just be completely obsessed with it and never giving up even when it means hiring way fewer people than you'd like to for prolonged periods of time parting ways with people who are being helpful just because you think you have better people. It's quite painful both because you know we are nobody is a sociopath here and as in most companies you don't like to to to to to to tell someone who's a perfectly good contributor that they should look for for another job. And also you're losing on good capacity in the short term to look for amazing capacity down the line. Those are difficult things to do. If you do them consistently, I think you develop a very powerful flywheel.