Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, William Hockey
[00:00:00] S0: You said earlier that building a company for the second time is a lot easier than the first time. [00:00:00] S1: Yeah. [00:00:00] S0: What are the most extreme ways that that's true? What are the things that you've done the most differently this time than the first time? [00:00:00] S1: Experience is valuable. I started Plaid right outta college. And I think Zach, who was my absolutely incredible co-founder, we both said like, "Man, if we would've just worked at a company for like nine months…" [00:00:00] S0: You would've learned a lot. [00:00:00] S1: Yeah. We probably would have saved three years. Because the amazing thing about working at a company, especially an early stage company, is you just fail forward all the time. And that's an incredible lesson. But when you fail forward as a founder, that's a lot of dilution. That's a lot of time, that's a lot of wasted resources. And if you can do that on somebody else's dime, amazing. Now I think it's a little bit easier because everybody has YouTube videos on YC startup school and there's some PDF for everything, and you can probably Gemini your way through the early stage part of a company. But experiences matter a lot. [00:00:00] S0: What about picking talent? What things do you optimize for now that have been honed because of your prior experience?
· William Hockey
[00:00:00] S1: People always think about employees in this kind of missionary mercenary framework. You have to look into an employee, like what do you want to do? There's the mercenary type, which is super smart, probably super pedigreed. And really what they're doing is they are using your company as a launchpad for something else. They are using your company to collect a bunch of two year vested options from the top five companies, and hoping one of them goes up. That can be a valuable employee, but you have to have a very specific type of company that is used to that churn and burn, in order to take advantage of them. Then you have the missionaries. Which is, this person is very mission focused. Inspiration is super important to them, and if you get that right, they will go to the ends of the earth for you, regardless of their short term benefits. These people also have some downsides as well, which is the moment maybe you want to be a little bit more commercially oriented, or the moment you have to maybe make tradeoffs on your mission or something like that, that can cause a lot of societal unrest inside of your company. Then there's the third category of employees, which are generally what I think are probably the best. They're a combination of everything, but really what they care about is they care about – yeah, we want a ton of upside but we also want some stability. We also want people that are like hey, I get to be friends with my coworkers. I like to be in an environment that is warm and welcoming, but also gives me the near term and long term financial value. And I'm willing to work really hard to get there. Everybody has personality types, everybody has different styles and you have to figure out what is right for your business. But I think it's very challenging to tell that on LinkedIn. Everybody's like, okay cool, you went to the right New York Prep school, thus you went to the right Ivy League school that happens to have this good engineering program. And then you have these couple of LinkedIn things that are good for me and boom, done. That can be super successful, but that is also not right for everything. And so just getting that hone for talent is super important.
· Patrick O'Shaughnessy
[00:00:00] S0: How much do you care about mission? It's an interesting part of the equation.
· William Hockey
[00:00:00] S1: You need a mission, otherwise people just go work at hedge funds. You need to say like hey, we are building something bigger. And I think we absolutely are. But I think mission can actually be a little bit distracting. I think a lot of times people focus a ton on, "Hey, what are the values of my company? What good are we doing?" And I think that's an important part of the equation, but I think it's – on a list of five things most important, I think it's probably on the bottom end of that five list. And I think a lot of times we can be kind of distracted by that. That's because, when you're pitching investors, investors want to feel like they are part of something. They want to feel that man, I'm not just recycling pension fund money into other capitalists. And that's what we do, we want to feel like it's bigger than that. And so I think we've taught people that, man, you need to focus on like the millennia journey. You need to focus on the impact that we're doing. And yes, numbers go up, but numbers go up is only one part of the equation. I think that's important for employees, but I think it's sometimes not the best. In the end, what do you want to do? You want to convince somebody to buy your product, and you deliver them enough of an experience that they can't build it themselves, and they're gonna pay a lot of their hard-earned money to you. That's the goal. And that person doesn't give a flying fuck about what your mission is. They just care about, does this product create value for me and am I willing to pay for it? That's it. And if you start to drink your own Kool-Aid too much, you kind of forget that.
· Patrick O'Shaughnessy
[00:00:00] S0: It makes me smile to think about your earnings and cash flows. It's such a novelty that a company like yours would have a bunch of this, so young in its life and at this scale. How do you pick your margins? How do you think about how profitable to be and why? You mentioned earlier that it's like having a funding round every year. Does that imply that you're actually spending it, so you're not paying taxes so that you can spend it on growth? How do you think about earnings in a high growth technology business?
· William Hockey
[00:00:00] S1: Our customers pay us for safety, and our companies pay us for longevity. It's a unique thing around financial services where – I'm gonna look at you as a customer, like I'm gonna be your best partner over like a 10 to 15 year period. Switching costs are really high. And they are putting a lot of like your customer trust and risk in you. So I am playing like a longevity and a risk game just as much for me as my customers. I take that extraordinarily seriously. And I think earnings and being profitable and sustainable, and not relying on somebody else's decision-making framework is extremely critical for our customers. And that's extremely important to me as well. I tell people, the risk falls on me. I can't pass my risk to some other venture fund or their LPs or something like that. I want you to be successful, because if we're not, I'm the one who takes the pain here. That's quite unique in Silicon Valley because at some point, your critical vendor could get acquired, or maybe the founder could get a $20 million offer from Anthropic. It's the rational decision for them to do that. In many ways, like we aren't competing with other Silicon Valley companies. We're competing against maybe them doing it themselves or maybe competing with them trying to build a patchwork of software vendors on top of like a legacy bank or something like that. And so I have to show that I am more sustainable than you. And I think that earnings is a critical part of that. And I think people are like oh, your margin is my opportunity type of thing. And my argument would be like, you run this business at a lot lower margins, you're going to be dependent on somebody else that you probably don't want to be dependent on. You also have to be introspective about your business. Is my business the type of business that, if I raise a bunch of money or I have a ton of earnings, I can throw all of that back on growth. And I think a lot of times enterprise software companies, they cannot ingest a huge amount of capital. If you give me a billion dollars right now, I don't know if I can grow it a thousand times faster than I am right now. And I don't necessarily think I should.