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Why do they call you the dando investor? It's a way of doing business and making money without taking risk. Like for
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example, Mr. Gates, Mr. Walton, Mr. Branson, all of these people followed these simple mental models. So if they
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won, they would win big and if they lost, they'd lose nothing. So I want to know everything.
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Okay, let's start with this. Monish Pabry is the self-made millionaire who built one of the most respected
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investment firms in the world, managing over a billion dollars. And now he's giving us the simple tools and
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frameworks to create life-changing wealth. If humans understood that if I embark on a business in a format where the risk is
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close to zero, more people would do it. And that's what these mental model do. For example, cloning. We are taught if
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you want to start a business, you need to come up with something new. But actually, if you are a great cloner, you
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will be 90% ahead of the rest of humanity. And in fact, everything that Microsoft has done well at has come from
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copying someone on the outside. And then there's time. When you're starting a business, don't quit the day job because
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some other yo-yo is paying your rent. But it does mean that you need to find time to work on your business. But I
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will show you the perfect way to allocate your time. And that's not all. There's models like lowhanging fruit,
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skin in the game, givers versus takers, and the circle of competence. And I'll I'll explain all of them. What about
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investing? Cuz you're very well known for being an excellent investor. There are three things that matter with
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investing. And there's also something known as the rule of 72, but I wish they would teach it more in high school. And
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it tells us how long it takes money to double. Now, this is exciting. I see messages all the time in the comment section that some of you didn't realize you didn't subscribe. So, if you
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could do me a favor and double check if you're a subscriber to this channel, that would be tremendously appreciated. It's the simple, it's the free thing
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that anybody that watches this show frequently can do to help us here to keep everything going in this show in the trajectory it's on. So, please do
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double check if you've subscribed and uh thank you so much because in a strange way, you are you're part of our history
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and you're on this journey with us and I appreciate you for that. So yeah, thank you
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Monish Pabry. With the work that you do and the sort of public educating that you've done more recently in your career, what is the message you're trying to
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convey? If you had to summarize that message and exactly who are you trying to convey it to?
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It really depends on uh what message. There are uh a few different mental models that I've figured out over the
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last few decades. When you have uh kind of clarity on these mental models and especially when you can start overlaying
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them, that's when you get 1 + 1 becomes 11. And uh so these mental models are not all in the same direction or in the same genre. So just to pause there for a second. So
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the the word mental models Yeah. means it's basically a framework for thinking. Yes. So one framework for thinking is this idea of cloning. Yes. Um as one such example.
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Yes. Let's take the mental model of cloning. Cloning. Cloning. Right. So um what we are taught is that if you want to start a business, you need to come up
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with something new, something that hasn't been done before. But the reality is that the world will very easily
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accept three of the same thing or five of the same thing. And usually it is an advantage to look at something that already exists and say can another one
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of those exist for example or can I take what's there and tweak it a little bit.
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So there's something peculiar in the human psyche maybe going back into our history and our ancestral evolution
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where humans look down upon cloning. But if you look at it so for example two of
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the greatest cloners I think in human history were Bill Gates and Sam Walton. Now, we think of Bill Gates as an innovator and we think Sam Balton
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created Walmart, which was also new. But actually, they're both meto models. And Microsoft would not have existed without being a great cloner. So, when we look
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at um Microsoft Word, it came from Word Perfect which was a company which a competitor that he took out. Uh we look at Excel, it came from Lotus. Uh
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we look at Bing, it came from Google. And you know what Bing is, but it's not Google. Everything that Microsoft has
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done well at has come from copying someone on the outside. And when we look at Sam Walton, who's you know, the Walton family, if you pull them all together, it's the richest family in the
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world. It's richer than uh Elon and everyone. And Sam Walton, by his own admission, would tell you that he has no original ideas. So, originally Walmart
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cloned Sears and Kmart. For my international listeners, these are two big supermarket chains.
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Yeah. And they're both gone. They they And in fact, Walmart buried them. And um and Sam Walton was one of the most intense cloners
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ever. So if he was driving on vacation with his family and he's passing some retail store, he would tell his family to stay in the car and he would go in the store just to check it out. And he
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said that there is there is no human who has lived in history or will live in the
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future who has visited more retail stores than he has. One time there was a manager of his and he would go in with his managers to these stores. Retail is one of the most
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transparent businesses. You can go into your competitor's store and you'll figure out the entire business model in
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10 minutes. You don't need to talk to them. Okay? It's beautiful. So, he went into this retail store and the manager
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says to him, "Oh, what a terrible operation. The whole store was topsy tur." And Sam says to him, "Yeah, but did you see the candle display? The candle display was fantastic." So, Sam felt
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that he could learn from anyone. It didn't matter if you were a useless operator, a great operator or whatever,
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anyone in the middle. Walmart is just an amalgamation of ideas from other places. If we look
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at if you look at a company like Starbucks, we think of Starbucks as innovative, but
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actually what Howard Schultz did is he saw a concept in Italy and his idea was that I think this is work in the US, right? And so he cloned he cloned that
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idea from Italy and brought that coffee shop experience to the US. If you are a great cloner, you will be 90% ahead or 95% of the rest
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of humanity. Now another mental model humans have this perspective that starting a business
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is risky. In reality entrepreneurs do not take risk. They do everything in their power to minimize risk. And in many cases when they embark on a
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business the risk approaches zero. What is extremely risky is a 9 to-ive job because we have one life, right? And it goes away and you may not get to do what's in your heart. You may
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not get your music out, right? And so getting our music out is really important. So, so this notion which is
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drilled into us that if you're an entrepreneur, you're taking risk really kind of does a big disservice to most humans. And if if humans understood that
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if I embark on a business, I can do it in a format where the risk is zero or close to zero and I can clone an
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existing business. Right now you've combined two mental models and we can start adding more to them. But two has become 11. 1 plus 1 has
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already become 11. It's nonlinear. And why is it that why is why am I saying that entrepreneurs do not take risk? So if I take my own case as an example and
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I can give you a hundred cases like that but if I take my own case as an example I was working 9 to5 at a company and I
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had a business idea my employer expected me to work 40 hours a week right there's 168 hours in the week so I felt like
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there must be at least another 30 40 hours there that could work on my startup. Could you show me this in context of right? So if we look at our whole week for example these beautifully arranged
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Legos if I take one of these blocks of Legos. So each one of those blocks in there is 2 hours. So 8 hours a day. We sleeping 8 hours a day right?
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And uh and we're doing that 7 days a week. Right? So basically we've got 7 days a week, 8 hours a day we're sleeping. The blue Legos are showing our
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40 hours a week. Uh 8 hours a day, 5 days a week we're working. Right? Then we get to other, you know, uh preparing dinner and
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showering, shaving, getting ready, whatever else. So that's about 4 hours a day on the weekdays, which is uh including commute time, and about 8 hours a day on the weekend. Then we get
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to free time, you know, social media and watching Netflix and hanging out with friends, going for dinner. And we've got
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quite a bit. We've got about 4 hours a day of doing that and about 8 hours a day on the weekends. So this is kind of
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typical what a typical week for most people would look like. Right now, when you're starting a business, the important thing is don't shut off
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the cash flow. Some other yo-yo is paying your rent and some other yo-yo is paying your groceries. So, we don't want to rock the boat, but we're going to make one change to blue,
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which is the amount of hours I'm working for my 9 to5. Now, before I started my startup, um I
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used to get top reviews as an employee. uh you know I was very focused on doing a great job for my employer allin right the day I decided I'm going to run do my startup I decided I need to be just
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above firing level my performance needs to be just good enough so they don't can
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me but nothing beyond that because I need all my energy to go into my startup so that's the only tweak I'm making is the blue stays but we're not doing extra
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blues like we were doing before. Right. And blue for anybody that doesn't can't see because you're listening on audio is
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work. Exactly. Yeah. Blue is work. Exactly. Now, when we embark on a startup, we should never do a startup to make money. It's the worst reason to start a
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company. The purpose of business is not to make money. The purpose of business is to deliver an
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incredible product or service to humanity. If you do that, the money is a side effect. It'll happen. We don't need to focus on it. So, what we are looking for
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is do we have a product or a service that we are thinking about that we could bring into this world that is going to improve the world in some way? How do I
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know if it's a good idea? Whatever idea you have come up with is not going to work. Okay?
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Because you came up with it in an ivory tower between your ears. Okay? And that's not really a great place to find great ideas. What's going to happen is we're going to
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be doing what I call rapid prototyping which is we take this idea and show humans what it is and when you show it to humans you will get feedback. So I'll
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I'll I'll um maybe I'll just give it in more practical terms. uh when I was um uh when I was starting
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my first business uh it was going to be a IT services business okay information technology services and I was going to be providing these services to very large businesses companies that are you
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know billion dollars or more in in earnings or cash flows. Um, I was in a meeting with a a senior IT guy at a very large bank in Chicago
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and I was going through my PowerPoint deck with them. I came to the 10th slide, said my spiel, went to slide 11. So the boss who was sitting in the meeting
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said, "Go back to slide 10." So I went back to slide 10 again gave my speech that I had for slide 10 and took it to 11. He said go back to slide 10
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and do not change the slide. I don't have an interest in any other slide. Okay. So I took it back to slide 10 and all he wanted to talk about was
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what was on slide 10. My deck was talking about seven things we could do. Slide 10 was one of those seven.
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It was an extreme pain point for him. He needed help on that one thing. He didn't
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need help on all the other riff raff stuff I was talking about. So when you're doing a startup, you have to be listening very carefully.
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Your customers or potential customers will tell you exactly what you need to do. Whatever you came up with may be 80% right or 70% right or 40% right, but
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your customer will tell you what is 100% right. Okay? Because that's a real pain point.
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So I went back and thought about it and I realized that his pain point and I could see it was a severe pain point because he gave me a purchase order at the end of that meeting um was going to
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be a pain point for a lot of people. So I went back I took slide 10 blew it up into 20 slides and that became the deck. Okay. Everything else got thrown out
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right now. I couldn't have done that without him. My brain is too small to have figured
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that out. So, anytime you're doing a startup of any kind and you have a prototype or a early product or something going on, your users are going to tell you exactly
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what tweak they want. You've just reminded me of a conversation I had this morning.
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Okay. Yeah, where I interviewed someone because much of what you're saying is orientated towards startups, but it's actually every single day of everyone's
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life because I interviewed someone this morning for a really critical role in the company. And this person has spent
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20 years at one of the biggest companies in the world. And when I was doing the interview, she was telling me about lots
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of things she's done in those 20 years. And I was just trying to get to this one thing. Can you put on events? And she
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was telling me about this and that and the other thing and this and this and the other thing. And I was just actually I'd only come to this interview to
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figure out if she could do put on big scale events. So we spent of an hour conversation. We spent 55 minutes
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talking about a bunch of things I wasn't interested in. And actually as you were speaking I was going you know what she could have done at the start of that conversation. She could have gone
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Stephen can I ask you one question? What is the what are you looking for from this person?
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And if and then I would have gone I just want someone that can put an event and then the next 55 minutes could have been persuading me that she can do that.
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Sure. And it just applies to what you just said there. How could you of the as the saleserson that day in that meeting
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with what you know now, how could you have done a better job without going through all of those slides?
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Well, I think what what I would do now if I were doing something like that is that my my radar
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on listening would be 10x. You know, we don't learn when we speak. M we learn when we listen. So I would really be trying to talk less and
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extract more. And um I wouldn't even rely so much on slides. I'd like to really try to bring
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them in into what they are trying to say. and uh and and so basically in uh if if you study if you study businesses you know ventureback non-benture back
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whatever this is a very common thing there are almost no businesses who end up with the business model that was originally conceived I mean that just is would be such an anomaly it's
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really the interplay between the founding team and the early customers which really leads to taking this wet clay and making into something that
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people want, you know, and so you know, if you think of something like uh Google Glass, you
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know, when they came up with those glasses that they thought the whole world was going to wear. Yeah. So, it didn't work. Well, why didn't it
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work? Well, the reason it didn't work is you're talking about something extremely
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personal. Okay? Like for example, Wrigley's chewing gum. Okay. My mouth is a very personal space. I'm not going to put Gloss Chewing gum in there.
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What's chewing gum? Exactly. Okay. Yeah. You're not going to put some brand that's half the price of Wrigley's. Yeah. In there. Because you don't want to go there. That's not of interest to you. So
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when we wear glasses or sunglasses or anything we wear, that's very personal. So the the ergonomics and the human factors are very important if it's
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slightly off. Now Meta is trying to do the same thing. But they went to RayBan, right? They did a JV with Rayban. Those glasses look like normal glasses.
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Mhm. I think there's a higher chance. Well, I've got some. We used them. Yeah. You don't have any Google Glass?
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No, no, no, no, no. I mean, I think they they cut the project, didn't they? Google. So, so what I'm trying to say is that we we have to pay very close
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attention to the customer. Uh I mean Steve Jobs was right. The customer doesn't know what he wants. Okay. But if
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you put it in front of them, then they can now tweak and tell you exactly what they want.
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Right. So, so that and that's another mental model which is now we get to the third model which is that you're not smart enough if whatever founding team you have is not smart enough to figure
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out what people want. Period. So you have to have very good listening skills and you have to be have the flexibility to and again when you're listening
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separate the signal from the noise right take in what is real signal and ex leave
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out what is the noise and then you're starting to get down a path which is going to make more sense.
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The other thing that's kind of a model maybe woven into there was this idea of just like attention to detail. I'm not
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even sure if that's a model, but when you told me about the Walmart founders laying between the aisles to measure the
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exact centimeter of length, the model there for me was just like precision and detail.
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It's a game of inches. I mean, what I'm saying is that uh when when Sam Walton was trying to figure out the name of the company, one of the reasons he went with
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Walmart was it was seven letters and he was looking at the cost of putting up signage in his stores and he was trying to come up with a name with the fewest letters
00:21:24
because it costs less. Okay. And so I mean cost cost sensitivity is all over the place in Walmart, right? I mean that's just front and center with what they do,
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right? They just really squeeze blood out of a rock, you know? So basically, I mean, I think that was and that's the
00:21:44
reason why they became so successful. One of the things you can always control in business is your cost. you you may
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not be able to control your margins and selling prices and a lot of other things but you can always control cost so
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that's another model where you have to have discipline you have to have very strong discipline
00:22:04
on the cost side if you look at something like LVMH you know uh the guy who runs it I mean he's in luxury goods
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he's in high-end LVMH make Louis Vuitton and yeah yeah I mean everything you know is
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you know they've ten over Tiffany's everyone. Um, but when you look at how the company is run, it's very tight. He spends money on the best real estate
00:22:32
because that's important. But the deals he negotiates on those real estate is mind-blowing, you know. So, it's it's a
00:22:40
very tightlyun operation on a product category that doesn't necessarily need it. M but that's why they that's why he's become the wealthiest guy in Europe because that mentality will then apply
00:22:53
to every decision. Absolutely. And if you apply it to 100 things, it does matter. Oh, it does matter big time. Yes.
00:22:59
So I have these yellow blocks here which represent working hours working on your
00:23:04
own business. Yes. So show me how you would take some of these blocks away. Yes. And introduce hours working on your own
00:23:11
business. Yeah. So basically it's it's really quite simple. Well, we're not really not going to mess with our sleep cycles.
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We're going to leave that alone. Sleep staying the same. And uh we we need our blue, which is our
00:23:22
work work space 40 hours. We need that to continue. One of the changes we're going to make is we're going to live close to work. So, we're going to cut down commute time as much as we can.
00:23:33
Okay? Because every hour matters, okay? So, the area that we're going to focus on is
00:23:40
the free time. Okay? And the reason why taking out the free time is not a problem is because what we are embarking on like we just discussed is not about making money. Is getting our music out.
00:23:52
Getting our music out. What do you mean by that? Which means that we have something in us
00:23:59
that we know the world needs and we want to bring it to that world. We want to bring it to the world and because we want to bring it to the world, it's not work. I think the audience might be
00:24:11
challenging themselves in their head and saying, "But I love my the thing I do for work. I'm I'm one of maybe the rarer
00:24:17
group of people that I get to work with puppies every day and I love that." Yeah. So, I think that I think this is
00:24:24
not for everyone. So, I think you have to ask yourself who you are. If you are truly excited about your 9-to-five job and what you're spending your main
00:24:35
working main waking hours on, awesome. That's great. I mean, everyone's not going to be an entrepreneur. Everyone's not going to have a startup. Everyone they they may be getting their music out
00:24:47
in a different way on someone else's platform, which is perfectly fine. And but but if if that is not you, where
00:24:55
when you go to work, you're not super excited to get up in the in the morning and you're not tap dancing to work every
00:25:01
day. If that's not happening, then there's something wrong. And you have to ask yourself well is there something
00:25:09
else that is that you're passionate about that you want to do and this is not something that should take a lot of effort. So if you go back and look at
00:25:24
for example Bill Gates and Paul Allen, right? I mean, Bill Gates is at Harvard and he sees a magazine which shows a very early personal computer and he
00:25:38
realizes that there's a paradigm shift and he realizes that he needs to be part of it and Paul Allen is the one who sent him that magazine and he told Bill, "We
00:25:52
got to go do this now. This is our time now." And for Bill, it was a very easy decision. Very easy decision. Very difficult for his parents. His parents were in shock
00:26:05
that he's going to abandon his uh degree. And you know, he he told his parents, "Don't worry about it. I'm going to come back and I'll finish the degree." And several decades later,
00:26:18
Harvard gave him an honorary day. and his parents were in the audience and he told them, "I told you I'd come back,
00:26:25
finish it off." Right? I put some numbers to this. 12% of people according to the stats that are
00:26:31
listening right now are explicitly unsatisfied with their job, which means they hate it. 85% of workers globally
00:26:38
are disengaged, meaning they're not fully invested or happy at work. So, it's a huge number of people. More than
00:26:43
half of the US workers are at least somewhat satisfied, but engagement remains worryingly low. So if we look at
00:26:50
that 85% number, 85% of workers globally are disengaged, meaning not fully invested or happy at
00:26:57
work. So it's really those sure people and and the thing is it's not it's not just enough to be unhappy at work. That's one piece of it. the the
00:27:08
unhappiness can be a symptom and uh one of the one of the causes can be that you
00:27:18
have a different calling in life and you are not following following your calling. Now
00:27:25
sometimes for someone like Bill Gates for example and Paul Allen they figured out their calling and they just went
00:27:32
right for many of us it may not be that easy. So what we have to do is we have to um try a few things. You know you try on
00:27:45
different shoes to see what fits. And so you know have some thought experiments.
00:27:52
Talk to your friends. You know say okay you know I'm a UPS driver. this is what I do and I really like playing the guitar or I like to make these art
00:28:05
figurines or something at home and whatever else, right? So, you have to figure out what your calling is and I'm
00:28:13
probably not the best person to tell you how to figure out what the calling is. Maybe another guest of yours can can uh can help them with that.
00:28:20
Do you think everyone has a calling? Yeah, I mean I think I think we are all unique children of God and I think we uh we all have some music we want to get
00:28:33
out and uh knowing what that is and getting it out may not be the easiest thing but it's a worthwhile journey to try to get there. Right? So, we can't do
00:28:47
this just because we're dissatisfied and we can't do this just because we want to make money and get rich. We've got to
00:28:53
have something that we think the world would be interested in. And you know, in my case, I I'd gone through this uh session with a couple of industrial
00:29:05
psychologists and they told me, "Monish, you like to play games. You're a game player." And actually, they couldn't be
00:29:12
more accurate. So when I was doing my startup, um I'm I'm a numbers guy and a math guy. So I actually like that. So what I used
00:29:26
to do is because I had no money, I used to send 200 letters a week to these senior IT people at 200 different companies. But what I did is so all
00:29:39
these people I was sending this letter to, they had a gatekeeper, some secretary etc. whose job was to not let
00:29:47
anything through. And my whole purpose was I need this letter to get through. It needs to get through the gatekeeper. So I was using mailmerge which was mass-
00:29:58
prodducing these letters. But there was a customization the mail word where if person some person's name was David Smith. It said dear Dave. Okay. And then
00:30:09
throughout the letter it talked Dave. Dave's name came up like three four times. When assistant got the letter she
00:30:16
couldn't tell whether I know Dave or not because you used his shortened name. His shortened name. And she doesn't want
00:30:22
to throw a letter that somebody that he knows. So the letter would go through enough times. Right now what I also did is one week after those letters were
00:30:34
delivered I called I made 200 calls. I called all 200 people and basically if I got voicemail, left a message, whatever else
00:30:45
right now they have entered the salesunnel. Okay. So Dave Smith is in the salesunnel. If I get no response from Dave Smith, after one week there's
00:30:56
one more call. Then the calls start getting spaced out double time. 2 weeks out, then four weeks out, then 8 weeks out, then 16 weeks out. But Dave never
00:31:10
leaves that funnel. Okay? Until he tells me, "Do not bother me anymore and I have
00:31:18
no interest," they're going to stay in that funnel. So the second week I send out another 200 letters, make another
00:31:25
200 calls, right? And now I've got the first week, second week. So you can see as time goes on, I'm calling non-stop, right? Because this thing is
00:31:38
But what I was tracking, because I'm a math guy, what I was tracking is, okay, these 200 letters went out. How many people did I get any kind of positive response from? Right? because not
00:31:49
everyone's telling me to get lost. Okay. And how many meetings am I having? And what is the ratio of calls to meetings, meetings to close, etc. And
00:32:02
my ticket size of the item I was selling was very large, hundreds of thousands of dollars. Right?
00:32:09
9 months after doing this where now let's go back here. So we're going to take our free time. So what I'm trying
00:32:16
to describe is that what I'm doing is actually more exciting than the orange. The yellow is more exciting than the orange. So basically
00:32:29
what is the yellow? The yellow is our startup. So that's working on your startup.
00:32:34
So on on the weekends I'm going to do 10 hours a day because I'm not working, right? And on the weekdays, I'm going to do four hours a day because I've got other things to do because I have a job
00:32:46
and whatever else is going on. So there's my weekdays, 5 days there where I'm putting in 4 hours a day and then I'm putting in 10 hours on the weekend. And the free time,
00:33:01
this is not as exciting as pounding Dave. Pounding Dave continuously till he says either get off my back or here's your purchase order is very exciting. It's
00:33:15
way more exciting than playing some social media or watching Netflix or whatever else
00:33:21
which is what people currently do with their free time. So one of your one of the litmus tests
00:33:26
of whether you need to you should be doing a startup or not is yellow needs to be more exciting than orange. Your startup needs to be more exciting
00:33:39
than your free time. Netflix should be so painfully boring for you and going on Facebook or
00:33:47
Instagram whatever should be very boring for you compared to this is exciting compared to building your company.
00:33:53
Yes. So you know um the Pink Floyd song, we don't need no education. Yeah. We don't need no thought control. Yeah. We don't need none of this. This
00:34:07
is so useless. You understand how useless this is? Yellow is where it's at. It's not It's not the orange stuff.
00:34:15
We don't need this. Thank you, Stephen. So, we don't need any free time. This is better than free time. Building your business. You're having an orgasm every hour.
00:34:28
So, what can you what what can be better than this? Much of what I do here when I'm having these conversations is I'm
00:34:34
trying to put myself in the shoes of the person who is currently sat in a in a nineto-five job and they've got an idea
00:34:41
and their idea is isn't really hasn't really gone anywhere yet necessarily and the the pressure they're feeling in their lives is is probably now a
00:34:47
financial one like they want financial freedom. They want more optionality in their lives to be able to go on holiday,
00:34:52
make more choices and have more freedom. If you're that person, um what are the mental models that we haven't discussed yet that you need to be thinking about to get from zero to one?
00:35:03
So, one of the things to keep in mind is that we live in a world now where most things that you would want to do in terms of starting a business are not
00:35:13
capital intensive. What does that mean? Doesn't take much money. In fact, what's
00:35:18
been happening over time is startups need less and less and less money because they need more and more and more brain power, right? So, the good news is
00:35:30
that a gating factor is not that you need money. When when I started my business,
00:35:39
I took on I signed up for every credit card that would come to me. So, I had 70,000 in unused credit lines in probably a dozen Visa and Mastercards,
00:35:51
right? I had about $30,000 in my retirement account, my 401k, which I also took out. I said 25, I can make
00:35:57
that up later, right? So, basically, I had $100,000 of capital and uh that 100,000 got used because once I got going, I needed working capital and so on. And but then the business was the
00:36:11
business was actually cash flow positive. 9 months after I was doing this, I was able to get rid of this. So after 9 months, my business was
00:36:23
producing enough cash flow that I went and resigned. Okay. And uh yeah, we can we can put that in here as well. So what
00:36:35
happened is that I went to my boss and his boss and basically told them that I'm started a business. it's not competitive with the company and I'm going to be
00:36:48
leaving in 2 weeks and this is my two weeks notice and basically that was that right and you know they they sat me down
00:36:56
and said you know monish we were so confused for the last 9 months because we met several times because we saw big drop off in your performance but it was
00:37:08
never so low that we wanted to fire you. I said, "Exactly. That was exactly what
00:37:14
I was trying to do. I was trying to say just above firing level." He said, "Well, you mastered it because we we met
00:37:20
several times, but we couldn't get rid of you." So, they what they told me is they said, "Look, when your business
00:37:26
fails, not if your business fails. When your business fails, please come back. We'll
00:37:34
give you more money. You're going to get a promotion, and we'd love to have you back." I could immediately come back. So I said I got one free shot. Yeah.
00:37:44
Where I leave my job, I go, I do this thing and if it doesn't work, I'm back to almost exactly where I was. Almost no change. Right. Amazon's type one, type two decision-m.
00:37:56
Yeah. And so, and this is not just me. What risk did Bill Gates take? Okay. Bill Gates, what is his value as a Harvard freshman in the job market?
00:38:10
Zero. Okay. He nobody would pay him anything. And he could come back anytime and finished a degree. So let's say he went to New Mexico, things didn't work out. He's got wealthy parents in
00:38:23
Seattle. Okay? He just comes back, graduates a year later, and he goes on. So what was the risk? There was no risk. And if you study entrepreneur after
00:38:34
entrepreneur after entrepreneur, what you're going to find, so if we look at Sir Richard Branson,
00:38:41
he wants to start an airline. Okay? Now, to start the airline, you need a jumbo 747 that costs like 150 million. The plane. The plane, right? That's some serious
00:38:54
money. Richard Branson got Virgin Atlantic off the ground with zero and with zero risk.
00:39:02
So here's what he did. You replace capital with creative thinking. So he calls 2065551212 which is directory assistance in
00:39:15
Seattle, Washington, and he asked for the phone number for Boeing. Okay. So he calls the main Boeing switchboard. Boeing sell the planes, right? Yeah. Boeing makes the 747. So he calls
00:39:27
the main switchboard of Boeing, giant huge company, and says, "Uh, I'd like to lease a jumbo." And they hang up on him. Okay. He calls about 30 times. And they
00:39:40
keep hanging up. And finally, they get tired of his calls and the lady says, "Let me put you in touch with somebody who's in charge of leasing and they can tell you to get lost." Okay. So she
00:39:53
transfers him to a person who's actually leasing jumbos and this person tells Richard says look Mr. Branson in every country we have one customer and in the
00:40:07
UK that is the British that is British Airways so we have nothing to talk about. So he says well just humor me for
00:40:13
a second. He said, "If British Airways called you and said that they wanted to lease a old used jumbo, do you have one
00:40:21
lying around?" So the guy says, "As a matter of fact, we do, but that's academic." He says, "Well, what would
00:40:27
you lease it to British Airways for?" Just since we're having a conversation, what ended up happening is Boeing leased
00:40:35
him that jumbo. And the reason they leased him that jumbo is they had one just sitting around. So they didn't
00:40:41
really have any risk because they said the moment the guy doesn't make any payments, we're going to pull the plane,
00:40:46
right? So now when you have an airline, you sell all the seats 4 months in advance. The cash has already come in. You pay for the fuel 30 days after the
00:40:57
plane lands and you pay for the lease after the plane lands. You don't need any capital. Virgin Atlantic got off the ground with zero capital. Okay. Now if you can start
00:41:10
an airline with needs a jumbo with zero capital, you can start any business with
00:41:15
zero capital. Okay. So, so basically when you look at business after business after business, all of them what they do is they start small, they're embionic,
00:41:28
they minimize risk, they get a few customers and then after that they just roll with the customers, right? And then
00:41:34
that's how they get going. So, so the important thing is that when we take the blue out, when blue is no longer here, which is work, which work is gone, yellow is going to
00:41:47
almost double or triple because this is where all the orgasmic activity is. So, we move the work, we quit the 9
00:41:54
toive job and we move that time over to work. I was I I was working on my startup like
00:41:59
from 7:00 to 9:00 in the morning and then I would come back 6:00 p.m. and work till 10 or 12:00 in the evening.
00:42:05
when you had a job? When I had my job and then I'd work on the weekends and I was so desperate to
00:42:10
just go full-time into it because I just said, "If you just let me go full-time,
00:42:16
I can tear it up." And that's exactly what happened. I mean, we in about five first year we did 400,000 revenue, second year 1.4 million, third year 3
00:42:27
million, and by the sixth or seventh year we were at about 15 17 million. It just grew because basically then I had
00:42:34
no shackles on me, you know, I could just go full out, right? And the engine I knew all the statistics of these
00:42:40
letters, so many calls, so many this, so much this means this and all of that and uh it works. So and and if if it
00:42:49
doesn't work, you can go back to your 9 to5 and give it another shot, you know. So you actually could do this a few
00:42:56
times. I think that's a really unappreciated framework as you call it or mental model which is because you
00:43:02
said you sent 200 letters. I so many times kids come up to me in the street and they say look I've been looking for a job. I've sent six emails.
00:43:10
Yeah. And they go no one's got back to me. Yeah. And you can see that it's hit their confidence and now they've actually
00:43:16
arrived at the conclusion that getting a job is like harder and possible cuz they sense six.
00:43:21
Yeah. Now when I interview people like you they all give me much bigger numbers. they say 200, 300, 5, you know, and
00:43:26
there's something in this sort of law of averages which is just like just take more swings, you know, you see it in
00:43:32
like cricket. My my daughter when she was uh graduating from Berkeley came to me and
00:43:37
I was really surprised. She said, I want to work at a hedge fund. And so I I said
00:43:42
okay. And her degree was not in business. So she was not a natural candidate to be even considered. I said,
00:43:50
uh, can you make a list of every hedge fund in New York and LA and put it in Excel, managing partner's name, address? Now, we don't know people's email addresses,
00:44:04
but we know everyone's mailing address. Okay. The mailing address is a public piece of data. The address, the address is easy. Yeah. Right. And I I said that uh so she she got a list of
00:44:17
about 1,200 funds in LA and New York. And I said, "What you're going to do is uh you're
00:44:25
going to ask for the job, but you're going to have two pages behind that giving them a stock tip. You're going to
00:44:30
give them a pitch that you have written up of a company that if they invest in, they're likely to make money." We sent the 1200 letters, physical letters,
00:44:42
okay? all physical letters, no email, right? And um there's a 85 year old guy in New York who gets the letter. He's retired. The fund doesn't exist. It shouldn't have been on the list, whatever. But he has a friend in LA. He
00:44:56
says, "Hey, Jamie, weren't aren't you looking for an analyst?" And this girl, she seems to have the perfect kind of
00:45:02
background. and she ends up with a higher salary than anyone who went to Berkeley business school with a much higher GPA than hers. I was thinking
00:45:16
about what you're saying um and I made a video the other day which I think is somewhat
00:45:22
relevant where I was trying to describe to people how to send a message to someone in a way that creates impact and
00:45:31
the framework that I came up with which I'll I'll we'll animate on the screen but is basically so this axis here is
00:45:38
the signal versus noise of the channel you're using. Mhm. So a high signal channel is one where it
00:45:45
gets past the PA. Mhm. It's less saturated, less busy. A high noise channel, which is the opposite, would be sending an email to the like press at your company.com's email. So
00:45:57
like everyone goes through that path and it doesn't get doesn't get to the person. And then the other axis is basically the emotional impact of the
00:46:03
message. Yeah. So high emotional impact is doing what you said, put a stock tip in there, you're going to stand out, they're going
00:46:09
to think you're a little bit strange. or what you said about like shortening the name that creates more emotional resonance and then low would just be
00:46:15
AI slop copy and paste jargon and really like the most successful messages are up here.
00:46:20
Absolutely. High like high signal channel high emotionally resonant. Absolutely. But what h ends up happening is people
00:46:26
send loads of messages down here and then they get depressed and demotivated so no one's going back to me. Yeah. Like Michael Jordan used to say
00:46:34
you miss every shot you don't take. Yeah. Yeah. Yeah. So basically it is I mean I think one of the things about entrepreneurs is that you need to have resilience.
00:46:48
Um like for me for me what the data I was looking for is that if I send 5,000 letters okay which takes 25 weeks 6
00:47:01
months how many meetings does that end up in? If that ends up with 10 meetings or 20 meetings, well, now I have my number, right? And
00:47:14
then the second part is the meeting to close ratio, right? And so to me as a math guy, I I was just interested to know that it's not zero.
00:47:26
Okay, I just want to make sure and I could see very quickly it was not zero. Literally within first two, three months
00:47:31
I could see it's not zero. Every business needs a competitive edge. And if you're great at hiring, that edge
00:47:38
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00:48:31
code diary. I think one of the the most formative experiences you can give your children,
00:48:37
which I got at 16 through through 16 to 19 years old, which is what I did, was working in cold teley sales. So my job
00:48:45
at 16 years old, was to call people at 9:00 p.m. cold and try and get them to buy windows and doors. And it taught me
00:48:51
the exact lesson you're describing, which is yes, 80% of people tell you to off. 98% say that, but doesn't matter.
00:48:58
I always say like 80 80% told me to off. 15% said it in a nice way. And then 5% were at least receptive to what I had
00:49:05
to say. Maybe 1% close, but when you understand that, you think of life through that
00:49:10
lens. And actually, Stephen, I had the almost same experience. So my father was an
00:49:17
entrepreneur. He was really smart at identifying what I call offering gaps, like things that should exist in the
00:49:23
world but didn't. And he would get these businesses off the ground with no money. I saw him do it repeatedly. His downfall
00:49:31
was he was very aggressive in growing the businesses. And so they didn't have staying power. There was almost no
00:49:36
equity, always very levered. So I he went bankrupt eight or nine times, right? Repeatedly. When I was um when I was about 11 or 12
00:49:48
years old, my brother and I, we were like his board of directors, okay? Because he had nobody else. The three of
00:49:55
us would sit down at night to figure out how to make the business last for one more day. Okay? Everything's caving in,
00:50:03
the creditors are caving in, the business is collapsing. How do we make it work for one more day? And then the
00:50:09
next night we'd get together and how do we make get it work for one more day again? Right
00:50:17
at 16 and I don't know why my dad did this but I'm so grateful that he did. He was at that time he had a gold jewelry factory in Dubai and he was going cold
00:50:29
calling in person to jewelry shops to buy his jewelry that he was manufacturing. So he took me with him on
00:50:37
many of these trips and I was 16 just like you, right? So we would uh take the taxi from Dubai to Abu Dhabi and now there's all these gold shops.
00:50:48
He doesn't know any of them, right? And he's going one after the other after the other after the other. And I would be
00:50:55
stunned that fifth shop he makes a sale. Yeah. And it's a very small sale because he has no trust and all that, but he's made the sale. Then I noticed that after
00:51:08
3 months, we go back to that same shop. We made the little sale to the guy brings out tea. He there's a there's a
00:51:15
lot of chemistry, bigger order, and then I saw the orders increase, right? And then he's continuing to do that. And I I went with him to DohaQatar uh Qatar and again the same thing. It
00:51:27
was like, you know, I saw how those doors opened and I saw how it didn't matter to him when they closed. That was irrelevant to
00:51:37
him. You know, really interesting new way to think about it because what you're saying there is actually when you get that one,
00:51:44
yes, it's actually a seed that's being planted that can grow into something. We just care about the ratio and the number. Okay. So, what effort did it take? Like I was saying, if I send 5,000
00:51:57
letters and I get 20 meetings, that's awesome. Mhm. I mean, that's a fantastic ratio because one sale is going to get me about 200,000 or 300,000. It's a significant
00:52:09
amount, right? I mean, so that I don't need large numbers and but the lifetime value of that,
00:52:15
it's huge. Yeah. Yeah. I mean I mean uh these uh these relationships I got then they're still with me, you know, so it's uh it's it's like forever. Here's a philosophical way to
00:52:26
think about that for just everybody, which is you can remember probably conversations you had in your life that
00:52:32
you thought were totally inconsequential, but then 8 years later that seed became a business
00:52:38
relationship. The example I always give is when I was 14, I applied for the apprentice. They did this like junior apprentice on the BBC. And it's a long
00:52:46
story, 35,000 kids in London and across the UK applying. I met a kid in the line
00:52:51
while I was queuing up for my audition. and he said to me, "Oh, my dad runs this um $500 million company." And I was
00:52:58
like, "Yeah, whatever." Like not interested. I went through the auditions. I didn't and didn't end up getting on in the show for whatever
00:53:03
reason. But then I ended up cuz we were waiting in the queue that day. I was really nice to this kid and I added him
00:53:09
on Facebook. 5 years later, I get a message on Facebook. Hey, 5 years later, although I didn't get on the show, which would have got me about $25,000 investment in my company if I'd won. 5
00:53:20
years later, I'm working on a startup. That kid from the line says, "Hey, um, my dad has sold his business for a billion dollars and I've been watching you on Facebook for the last five years.
00:53:31
My dad would love to meet you." It was an Indian family, the Alawalias. They had sold a business called Euro Car
00:53:36
Parts. They took me to London when I was literally so broke. I was like shoplifting food to feed myself. And his dad invested double what I would have
00:53:43
won on the show into my business. Um and I and that always reminded me that like every conversation that I have is like
00:53:50
planting a seed that at any point in my life sure could turn into something like you know
00:53:56
I mean you know um I always bring up Adam Grant's book uh uh givers and takers. I don't know if you've seen that all humans on the planet fall into one
00:54:07
of three categories. They are either a giver or a taker or a matcher. Okay, these are there are no other categories of humans. Just these are the three categories. Now the matchers
00:54:23
are relatively simple to understand. Their mental framework is if Steven does me a favor, I'm going to try to do something similar for him. You know, one
00:54:34
to one. They can do matching in the math in their heads. The takers who you don't have anything to ever do with are trying to scam and screw
00:54:44
everyone and always take and never give. Okay? The takers basically go nowhere. Okay? And if you have any takers in your life, get rid of them. Okay? Now, the
00:54:57
givers, what the givers do is the givers um are not focused on what comes back to
00:55:04
them. They just want to help you. They want to help humanity. And what ends up happening is the universe conspires to help them.
00:55:16
So the givers become the most successful. Everyone is trying to give to them even though they're not asking for it. So
00:55:29
basically when we and that's the book that Adam Graham Grant wrote givers and takers is
00:55:37
one of the mental models. This is a great mental model to have is to be a giver. Don't play math games, you know,
00:55:45
always try to make sure the other guy gets the better end of the deal and just keep going through your life that way and that goodwill will compound and it
00:55:57
will take care of itself. And the time horizon, you don't worry about the time horizon. You're not doing it for getting
00:56:03
something back. That's the key. You're not doing any mathematics like I'm going to do. You're not calculating. I'm going
00:56:10
to do this so XYZ happens. You're just doing it. End of story. I was sat with my girlfriend last night. She runs a breath work business. So, she's essentially a soloreneur. Um, and she's
00:56:23
at that point where she's trying to scale. In fact, I just meet so many I think actually ran a survey before and
00:56:28
the vast majority of business owners are in that theme category, that small small sort of business category. It's the back
00:56:35
startups are the backbone of our economy. But they they come to me with the same problem which is maybe I started as an individual. I've got high
00:56:41
demand and now I'm a bottleneck and I don't know how to get out of being like a freelancer. How does the freelancer
00:56:48
become an agency? And the thing I was chatting to my girlfriend about last night was um
00:56:54
the steps she hasn't taken yet is to hire someone exceptional. And so many founders come to me, these early stage founders, they're like, uh, like I I my customers like me, I do it better. I
00:57:07
don't trust anybody. I I wondered if you had like a mental model for thinking about the the thing is, so if you look at
00:57:13
people like Elon Musk and Steve Jobs, they believe their number one job is recruiting. The first 3,000 people who joined SpaceX
00:57:27
all personally interviewed by Elon. Just think about that. Those are 3,000 hires. Think about the number of interviews to get the 3,000 hires. Okay?
00:57:40
He did not believe there was any other way. And what Steve Jobs used to say is that A players
00:57:53
want to work with A players. The moment you start introducing B players, B players will hire B and C players. They will never hire an A player. So
00:58:05
your downhill the journeys already started the moment you get a B player. And so as an entrepreneur, you know, we have a lot of demands on
00:58:16
our time, right? But recruiting has to be at the top and you've got to be willing to spend inordinate amounts of time on recruiting. Okay? And um
00:58:34
there's, you know, there are tools that you can use. We use uh there's a company called Caliper. we use for
00:58:40
pre-employment testing. And the thing is that between the genetics of a human and the first 5 years of their life experience, who they are, their traits are hardcoded.
00:58:55
That is not going to change from 5 to 95. Okay? So it's not like you're going to change a human. Human is the way they are. Okay? Now, these pre-employment
00:59:06
testing tests can get you data that you're not going to get in an interview. One of my companies I'm building at the moment is called cultureest.com. It's exactly this. Okay.
00:59:17
Um I mean, you're just like preaching preaching to the choir here. But what I'm saying is that
00:59:24
it we need to get really good at recruiting. Yeah. It's it's my absolute absolute
00:59:29
obsession. And what I found out is that funnily enough from doing these culture tests. So I've I've culture tested tens
00:59:34
of thousands of people in the general population now. And the shocking part was just to give you some context on
00:59:40
what it does. It benchmarks our best performing people and how they make their decisions. The assumption here is
00:59:45
that culture isn't the thing you come up with at the offsite. Culture is how you would behave on Christmas Eve when you
00:59:51
get a text message from a client. Like what you do there is your company culture. So it basically creates these
00:59:57
questions which simulate optimal culture in that team and it puts you in that scenario and says what do you do? This is probably a good point to talk to you guys about culture test.com which is the
01:00:09
website we're about to launch for anyone who has the responsibility of hiring someone which is probably everybody
01:00:15
listening. One bad hire can destroy your entire company. So, we made cultureest.com
01:00:20
so that you guys at home can spot those red flags and avoid those hires that might be the end of your business.
01:00:26
Culture Test will make you your own personalized culture test so that you can screen every single person that wants to be in your team and your
01:00:32
current team members and people that have left to see how they align. Just go to cultureest.com
01:00:39
and put your email address in and the minute we launch, I'm going to send you an email so you can try it before anybody else. So recruiting is really
01:00:46
important and I think the other thing is uh we're willing to hire people who may
01:00:54
not do things as well as we do but actually also what I've also found is I have so many people on my team who are
01:01:00
better than me. You know they're better at many of these things because it's not my natural bent
01:01:07
to do those jobs. Mhm. So that's really when you get a huge bang for the buck is you end up with
01:01:14
team players that are way better than you. How do you think about firing people? Because this is the other thing I hear
01:01:20
from founders. Hire slow, fire fast. Founders really struggle with the fire fast thing and uh it is very important
01:01:34
to fire fast. I think fire fast is more important than high or slow and you're doing the person a a service because they may be exceptional in
01:01:46
another role at another place. So you are helping them try to find that and you're helping your other team members.
01:02:00
If I was trying to work for your companies, what is the one non-negotiable? Like what is the trait
01:02:05
that I would demonstrate where you would immediately not even consider me? The most important is integrity.
01:02:12
You know, I mean we we want three traits, right? We want intelligence, we want integrity, and we want willingness to work hard, right? And
01:02:24
none of these three are really negotiable. And what does integrity mean in your definition? Well, it's absolute honesty is pretty
01:02:31
simple. You know, it's black and white. and you conduct yourself with the highest levels of ethical standards.
01:02:39
So on all fronts when you're dealing with a customer or internally or externally, it's the moral standards
01:02:46
need to be very high. When you think about your wealth, how much of it has come from building businesses versus being a great investor
01:02:54
of the capital that you manage to make from those businesses? I think currently most has come from the
01:03:01
investing side. You're very well known for being a really excellent investor over many many many many many years.
01:03:09
I'll put a graph on the screen that I found which I think shows the returns of your investment strategy versus the the
01:03:17
Dow Jones. This graph, have you seen that one before? I haven't seen it this way, but people put up all kinds of things. Yeah.
01:03:23
I mean, all this says is that you're extremely good at investing. So, I want to know if I if I'm in starting my
01:03:30
investing career. I'm working in a nineto-five job at the moment. I've got a couple of thousand dollars in my my bank account. How should I be thinking
01:03:36
about investing? Should I be investing? So, there are um there are three things that matter
01:03:48
in terms of getting a great outcome with investing. um starting capital, how much the amount you start with,
01:03:59
length of the runway, how long are you going to invest the money and the rate of return. Okay. So before I answer your question,
01:04:11
I want to tell you a story. So and this is a true story. Um, in 1623 in New York, the Native American Indians in New York who owned the island of
01:04:29
Manhattan, the Dutch settlers wanted to buy the island. And so they went to the Indians and said, "We'd like to buy the island of Manhattan, great natural harbors. It can be a great place for
01:04:41
us." And the Indians and the Dutch reached an agreement to sell the island of Manhattan for $23. And when people hear that, they think,
01:04:54
"Oh, the Indians got taken." You know, I don't know of Manhattan for $23 is ridiculous. But let's say let's say the Indians had a trust officer who they
01:05:07
said invest this $23 for the benefit of the tribe and try to do a decent job. Right now there's something known as the rule of 72.
01:05:18
And the rule of 72 is a is a very important rule and I wish they would teach it more in high schools and
01:05:25
elementary school. It tells us how long it takes money to double. And it's a kind of a mathematical hack. So for example, if I'm going to get a 7% return and I do
01:05:38
72 / 7, that's approximately 10. And at the 7% return, it's going to take 10 years for the money to double. 7% compounded will take 10 years. If I have a 10% return,
01:05:53
it will take 7 years. 72 divided by 10 is 7. If I have a 15% return, it will take 5 years. 72 divided by 15 is five approximately. And if I have a 20% return, it'll take
01:06:08
three and a half years. So this rule of 72 is a nice hack. And it's very important to know how long money takes to double because then we can start doing a lot of math in our heads. So
01:06:20
when we look at these Indians with the $23 if they were getting a 77% return it would become $46 in 10 years and then it would become $92 in 20 years and $184
01:06:36
in 30 years so on. Now if you go 100 years right it's 10 periods of 10 and 10 periods of 10 is 2 ^ of 10 and 2 ^ of 10 is 1,024.
01:06:55
So we throw away the 24 because we don't want to complicate the math. So at 7% for a 100 years you would have a thousand times what we started with. And
01:07:09
this is why because compounding becomes nonlinear. People have a hard time getting their hands around it. So
01:07:14
nonlinear meaning it's not going up in a straight curve. It's going up in a hockey stick. Hockey stick club. Yeah. So in 1723 the
01:07:24
Indians would have 23,000. It would have gone up a,000. And then if they continue
01:07:30
at the 7% in 1823 they would have 23 million. And in 1923 they would have 23 billion. And in 2023 they'd have 23 trillion.
01:07:46
Okay. Now the entire wealth of every man, woman, and child in the United States is 150 trillion. 16th of that is not
01:07:58
undeveloped land in Manhattan. So if the Indians had invested at 7% a year for the last 400 years, they would have more money than owning
01:08:09
the land. So they were not taken. They were given a fair deal, but they just didn't have a
01:08:16
good trust officer who could actually make it happen for them. So the magic of compounding is that we started with $23
01:08:28
and we end up with 23 trillion without having a great rate of return. It's just an okay 7% is just okay. It's not great. It's not bad, but it's okay. Now if you
01:08:39
go back a 100 years, so we started at 1623. Go back 100 years to 1523. We had 2,300 cents in 1623. 2,300 cents.
01:08:51
$23 is 2,300 cents. Oh, okay. If they had got it just converted to cents instead of
01:08:57
dollars, right? Now, if you make it 1,000th of that, so just so I'm clear here. So, if you're
01:09:03
saying if you went back a 100 years from that point and you gave them just 23 cents, if you gave them two cents,
01:09:10
if you gave them two cents, 2.3 cents to be exact, but if you just gave them two cents, Yeah.
01:09:16
100 years later that would be $20. If you gave them 2.3 cents, 100 years later, they'd be $23 and now it would be the 23 trillion. Right? So what I'm
01:09:29
trying to say is that if the runway is long enough, the starting capital doesn't matter. Even the rate of return doesn't matter
01:09:39
if the runway is long enough. Now so when people are thinking about investing, they have to keep a few things in mind. The first thing is spend less than you earn.
01:09:51
So, always try to save the first dollar rather than the last dollar. So, if you are making $50,000 a year, put 5,000
01:10:04
into savings to start with and then do the rest of your expenses after that. Now, it's very important when we saw with this example, you start young.
01:10:15
So when people start working at 22 or 23 whenever they start working they have to
01:10:21
be saving then because that early money at 22 can compound for 50 years and that's what we want. So we don't need to do heroic things with finding
01:10:35
the next Nvidia or whatever else. We can just put it into an index. And the important thing is spend less than you earn and keep putting that 5 7 10,000 every year into the savings. Don't go
01:10:50
have a vacation in Hawaii with it. Let it keep compounding and just put it into a broad index and we don't really care. So for someone who has never invested
01:11:00
before, yeah, which would probably be the majority of the audience, how do we simplify even
01:11:05
further in terms of just put it in an index? What does that mean? So basically, you could open an account at Fidelity or Interactive Brokers or Robin Hood, any
01:11:18
of these places. You could open a brokerage account for very little money. And there's lots of them in every country.
01:11:23
Yeah. And then you could just uh ask them to give to buy you the S&P 500 index, for example, and they will get you invested in that. And the S&P 500 is
01:11:38
basically the top 500 companies. It's the Yeah. the 500 dominant businesses in the US like Nvidia's in
01:11:46
there and Microsoft and Apple and so on. And you're going to get your 10% a year
01:11:51
if it if the trend holds over the last century. The S&P has plenty of periods where it
01:11:56
does nothing. Uh it's somewhat overheated right now. Uh but I think if you have a long enough
01:12:02
to time horizon and you're dollar cost averaging in it's perfectly okay. Uh what you could also do as an alternative is buy Burkshire Hathaway. So that's a
01:12:14
stock BRKB. So you could again tell these people that just put it into Burkshshire Hathaway. It's like an index
01:12:21
and and again it's like set it and forget it. You don't need to think about the investing side. You focus on yellow.
01:12:29
Okay. and uh keep putting this little money away on the side and it's going to compound. And so at 18,
01:12:37
if you put away $5,000 and you fast forward to when you're 68, 50 years later, right now, if if you got
01:12:49
a 10% return on that money, every year, let's say, every seven years it would double. Okay. 72 / 10 is 7. 50 years is 7
01:13:04
doubles. 7 * 7 is 49. And 2 ^ of 7 is 128. Okay? So, we can throw away the 28. Keep
01:13:19
it simple. You're going to have 100 times what you started with. So, the 5,000 at 18 is
01:13:26
going to be 500,000. Okay, at 19, if you put money away, that's another 500,000. 20, you might have 10,000 you can put
01:13:37
in. So, you can start seeing that over a lifetime, you know, you're going to be having too
01:13:44
much money. As you might have been able to tell, I'm absolutely fascinated by the psychology behind high performing sports teams. I think it started with my love for Sir
01:13:55
Alex Ferguson as a Manchester United fan. So, when I was told about a new Netflix series that covers the rise of
01:14:01
the Dallas Cowboys, it immediately piqued my interest. And this isn't because I'm mad about American football.
01:14:07
I'm not. I don't even watch it. But I do know about the Dallas Cowboys. And for a lot of Texans, they're much more than a
01:14:13
sports team. I watched this series and it is absolutely brilliant. It centers on Jerry Jones, an
01:14:20
oil businessman with no football background who bought the Cowboys in the late 80s and transformed them into the
01:14:26
most valuable sports franchise in the world. It's all about how one guy assembled a powerhouse team in the 1990s
01:14:33
made up of legendary players and coaches and through fearless decision-making led his team to three Super Bowl victories.
01:14:40
And I really enjoyed it and I think you might too. Check out America's Team, The Gambler and His Cowboys, which is
01:14:47
streaming right now only on Netflix, and they now sponsor this podcast. I've just invested millions into this and become a
01:14:54
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01:15:00
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01:15:59
You've been referred to as the the Dando Investor. And uh I've I've got a book here which you wrote called the Dando Investor. What what what does this word
01:16:11
dando mean and why do they call you the dando investor? Dhando is actually a word from Gujarat which is on the on the
01:16:19
western coast of India where Gandhi came from. They are extremely astute business people and dando if you translate it
01:16:27
directly in Gujarati it means business but it doesn't really mean business. What it means is it's a way of doing business where the downside is non-existent.
01:16:43
We already discussed how Mr. Branson is a dando investor. He had no downside. Uh Mr. Gates was a dando investor. He
01:16:56
had no downside. Mr. Walton was a dando investor. They had no downside. So all of these people embarked on businesses,
01:17:03
built huge fortunes without taking risk. And so the dando investor was written from the perspective of how can we minimize risk
01:17:16
while keeping the returns intact. You use this example of the Patels. Mhm. What is what is that story? The Patels uh went to Uganda
01:17:28
more than 100 years ago. Maybe close to 130 years ago. It was a family. It's a ethnic group,
01:17:35
okay, in India. And so this ethnic group came to Uganda to build the railroad. And
01:17:43
but they're very savvy business people. And over the course of the last 100 odd years uh when they were in Uganda through their dando methods of doing
01:17:56
business they became very successful entrepreneurs and they controlled large parts of the
01:18:03
Ugandan economy and Idi came to power in Uganda in the 1970s and he said Africa is for Africans. So what he did is he threw all the Patels
01:18:17
out and he nationalized all their assets. So now the Patels were stateless. The US took them in, the UK took them
01:18:29
in, Canada took some of them in. And when they landed in the US, they basically really didn't have any skills
01:18:37
that would allow them to get good jobs, white collar jobs in the US. And what a few of them started to do was they realized
01:18:49
that if they bought a motel, a small 10 or 20 room motel, uh the family could live in one or two of the rooms and they could use the
01:19:01
money they got out and get a bank loan and run the motel. Now motel are very labor intensive businesses. So what they did is when a patel took over a motel,
01:19:13
they fired all the staff and the family took over all the jobs, you know, the cleaning and front desk and everything else, right? And the Patels are
01:19:24
vegetarians and they are very they live a very simple life. So when a Patel took
01:19:32
over a motel in an area, what they were able to do is they were able to undercut
01:19:37
the prices of all the other motel in the area because they have no labor. They have no payroll. They have no workers comp, none of those things. And so they were if everyone else is charging $25 a
01:19:50
night, they're charging, you know, 19 a night. So the occupancy was higher than everyone else. And they saved their
01:19:56
money. And then what they would do is buy the next motel, send the nephew to run it, and then buy the next motel. And this started happening in the early '7s.
01:20:08
And when you fast forward to today, 80% of all the motel in the US are in the Patel ownership. 80%. So the Patels make up.1%
01:20:24
[Music] of the US population. Indians make up about little over 1% maybe 1.2 1.3%. Just onetenth of that is the Patels. And this.1% population
01:20:40
is controlling 80% of the motel in the country. And um it's because of the Dando way. So if I want to steal from the Dando way, you told me it's good to be a
01:20:54
copier. Um what are the principles of the Dando way that I need to be thinking about? Cuz you I think there was was
01:21:01
there nine? Yeah, there was nine principles in total in the book. Well, the most important one is heads I
01:21:08
win, tails I don't lose much. Everything we discuss today, Stephen, is heads I win, tails I don't lose much. When I started my business,
01:21:22
when Bill Gates started, when Sam Walton started, when Richard Branson started, that was the formula. If they won, they would win big. And if
01:21:33
they lost, they'd lose nothing. So everything has to be in business about risk reduction. Everything has to be about free lunches. We love free lunches. Okay. So, we always have to
01:21:47
think about how do we get this done without capital, without risk. Free lunches. Do you think there's an opportunity for people because everybody's at the moment thinking about AI and technology and these like really
01:22:01
advanced um new innovations as an opportunity but does that create an opportunity in the boring in the motel in the laundry mat?
01:22:12
Yeah. So you know the reality is so entrepreneurship is not studied much in business schools because there's nobody going to give you consulting project for studying entrepreneurs.
01:22:24
If we really study startups in the US or actually anywhere in the world, 99.99% of startups are non venturebacked. What What does that mean? What I what I mean by that is those are
01:22:40
your laundromat, your Chinese restaurant, your you know eBay seller, whatever, Amazon seller, so on, right? The small businesses. None of those companies were formed
01:22:54
because of venture capital. So the media focuses on all the venture capital le businesses. And so people think that oh if I have to do a startup I got to do something in technology. Well that's
01:23:08
like onetenth of 1% or less. You can ignore it. You don't need to really worry about it. Uh the important thing
01:23:17
is to be an observer and to look at uh what what uh my dad would call offering gaps. So let me explain an offering gap, right? So let's
01:23:30
say there's a town, let's call it town A. Town A. There's a barber shop in town A. Okay? Okay. And the barbers,
01:23:41
one of many barbers doing well, etc. There's another town about 30 mi away, town B, which also has barbers. They're also doing fine. There's a new township coming up in the
01:23:54
middle of these two towns called Town C. Town C doesn't have much of a population, but it's growing fast. So, the barber in town A goes to see
01:24:05
what the all the hoopla or town C is all about. So he makes a takes a trip there,
01:24:10
sees that there's some increase in population. People are moving in and he notices there's no barber shops. Why
01:24:17
would there be any barber shops? Because it's brand new, right? So he's thinking,
01:24:22
how do I do this without taking risk? And what he does is he rents a subleas leases a small storefront, buys some used barber equipment, and
01:24:36
then decides that one day a week he's going to go into that town and cut hair every Wednesday and puts up a note board
01:24:44
saying, "I'm available Wednesdays." And what happens is people start coming in. They come in because they have no choice. if you don't go to this barber,
01:24:56
you got to spend half an hour driving to one of those two towns. Now, he normally charges 30 bucks for a haircut.
01:25:03
But here, he doesn't need to charge 30 because there's an opportunity cost of the time you're saving. So, he can
01:25:10
charge 45. So, he's charging 45 over here and then when he's in his own town, he's charging 30. Now, what he what he notices is Wednesdays are filled up. So, he says
01:25:21
Tuesday and Wednesday. Okay? And gradually what ends up happening is that that business is full-time and he's making 45 bucks an hour per
01:25:33
haircut. Mhm. But the nature of capitalism is more barbers are going to show up. So the second barber comes in, the third barber
01:25:44
comes in, eventually the haircut there is going to be 30 bucks. It's going to neutralize. But in the meanwhile, he's
01:25:51
doubled his business. Mhm. Right. What risk did he take? So going into Town C was addressing an opportunity gap. When Howard Schulz started
01:26:05
Starbucks, he saw an offering gap. He thought that what Italians love about cafes
01:26:14
might be what Americans love too. It didn't exist, right? And he went and did it. you know that barber that moves into town C first and they're really having a great time because there's no
01:26:26
competition. One of your points when you're talking about the Dando method is this idea of creating a durable moat.
01:26:32
It's point four of the nine. So, so sometimes what happens is that you start a business every business starts off without a moat. What is a moat?
01:26:46
We have a castle. a knight in charge of the castle to keep the invaders away. And one of the ways to keep the invaders away is you put a motor water around the castle. So when
01:27:01
you put a motor water around the castle, it makes it harder for anyone to take the castle.
01:27:06
And a business with a moat around it is a business that competitors will have a difficult time take business away from. So what can happen with our barber in town C? Humans are creatures
01:27:20
of habits. We don't like to change our barber every month. We like the same barber. So if he's competent and good, what's going to end up happening is that
01:27:31
his client base will stay with him. What about loyalty points? I was just struck the other day when I was shopping in LA
01:27:37
at Airwan, which is a supermarket here in LA, and I someone had recommended to me on the plane, which actually goes to
01:27:43
your point about actually give a great product because an airline hostess on my flight over here went, "Oh, you're um
01:27:49
you're on keto diet. You need to go check out Air1." I got to So, that's the recommendation that's 10x more powerful than any ad or
01:27:55
anything else they could drive. And I went there. Yeah. When I landed cuz I needed a supermarket and didn't know the place. But then interestingly, when I was at the
01:28:01
checkout yesterday after my second visit, the lady at the checkout goes, "Hey, are you are you an Air1 member?"
01:28:06
And I was like, "Air1 member?" And she was, "It does cost." She went, she was honest. She went, "It costs money, but
01:28:12
here's what you get." She goes, "On this order today, you would have got 10% off this entire order. It's expensive one."
01:28:17
And she goes, "And we give you a drink every month." She listed all the things off. I signed up and bought the membership tow. I tell you now,
01:28:24
I'm not going anywhere else. I don't know what it is, but now that I'm a member and I have the app, I'm not
01:28:30
going anywhere else. Well, that's now that's the hack that Amazon did, right? With Prime and um
01:28:40
two or three years ago, I was uh I was seated at dinner next to Bill Gates. You know, my middle name is Forest Gump. These things happen once in a while. And
01:28:50
Bill is Bill is describing to me how the business model of Costco and the business model of Amazon is illegal. Okay. So I said, "Why is it illegal?" He said, "When you when you put a
01:29:05
membership fee, what what you're doing to the consumer is you're locking them in." Mhm.
01:29:11
Which means the consumer is no longer going after the lowest price because they the distortion in their behavior. Yeah. Okay. So now the FTC doesn't believe
01:29:23
it's illegal, but Bill Gates does. And I was just thinking, well, that's because you're competitive with Amazon,
01:29:29
you know. Yeah. Yeah. That Prime thing with Amazon is super smart. Yeah. And and that was taken from
01:29:35
Costco. Oh, okay. you know, but basically, yeah, the lock in lock in is very powerful.
01:29:42
One company I wanted to talk to you about was Apple because Apple, I find, is a really interesting company. You
01:29:48
talked about being a copycat, kind of arriving later to the party with new things.
01:29:54
They've kind of been a story of both sides of the equation. They've been innovative, it seems, especially under Steve Jobs. And more recently,
01:30:00
I mean, they were like copying other people, but now I'm not even sure what they are. Well, so Apple is a very
01:30:06
unusual company in that everything emanated from one guy. Okay? And that one guy has been gone for a long time. And if you look at Apple,
01:30:19
basically nothing new has come out since he left. We don't have a Steve Jobs at Apple. We And and the same thing happened at
01:30:30
Disney. you know, they had to buy Pixar because there was no Disney anymore. Mr.
01:30:35
Disney was gone. And so Apple actually I I find somewhat risky as an investment.
01:30:46
Yes. Because if the form factor So currently humans walk around with a brick in their pockets or in their hands, at some point that form factor is going
01:30:58
to change. It may be integrated into something we wear or some other more ergonomic situation that may or may not be Apple. And in
01:31:10
fact, more likely not to be Apple. It's probably some guy in a garage somewhere. And so if they are smart enough to find
01:31:18
the guy in the garage early enough and buy them, they're okay. And bring them in as the next street jobs, that's okay. But even there the odds are low.
01:31:29
What does this say to you about founders? The specialness of founders. Are they a
01:31:35
unique animal or can you swap them out and still be tremendously successful? Well, I would I would say that there's there are a lot of elements of luck. So,
01:31:49
first of all, founders are all great at what I call offering gaps, right? They find something that the world doesn't
01:31:55
have that needs etc and they go after it. Sometimes what happens with the offering
01:32:01
gaps is a moat gets built right someone starts Visa it becomes a multi company or American Express and so on and it perseveres and scales
01:32:12
like Apple with their ecosystem their closed ecosystem but 100% of businesses eventually will go to zero
01:32:23
and so it very well could be that a business could last for 50, 100, 200 years, 150 years uh could last well past the founders's lifetime.
01:32:36
Those are businesses which were built with a lot of principles and a lot of great core values. You know the founder
01:32:43
of IKEA, every decision he took was with a 500y year view. How many businesses think with a 500y year view?
01:32:54
and IKEA, you know, I was I was uh studying IKEA. Some very remarkable things about
01:33:00
it. First of all, he never ever took debt. Every single store they built, they built out of retained earnings and cash. He never took debt. And I've studied business failure quite a bit.
01:33:13
The single biggest reason why businesses fail is leverage. They owe people money
01:33:19
and they can't pay it back and that they're gone. So IKEA has never taken debt. If you never take debt as a retailer, you're going to grow slower, right? You got to keep uh kind of
01:33:33
bringing in the cash, but it's a very solid foundation because it's it's on a rock solid balance sheet. Mhm. And and such. And um his second
01:33:47
principle was no two IKEA stores can be the same. So what he said is that whenever we opening a new IKEA store, there has to be some
01:33:59
innovation that is going into that store that does not exist in our previous stores because
01:34:07
he says that if I don't keep innovating, I'm done. And so if we don't notice it because we think all the IKEAs are the same, but actually if you study them and look at when they were when they were
01:34:21
built, etc., you start seeing these these incremental changes that they're making. That's a really interesting idea that I could implement into everything that I do, which is just making sure that every
01:34:31
podcast I do, there's one new experiment or innovation or every piece of work you do, whatever
01:34:37
team you're in is just to run out one experiment in every Absolutely. But you have to make it measurable, right? or else it's not a
01:34:43
experiment. So, um you also talk about making fewer big infrequent bets. Who who's that relevant for and in what context? So, one of the things that Warren Buffett
01:34:55
says, he says that you get a punch card which you can punch 20 times in your lifetime and each time you buy a stock, it's one punch that's gone. So what what
01:35:07
Warren is saying is if there was a rule which said that you cannot buy more than 20 stocks in your whole life, what would happen is you would be very
01:35:20
thoughtful about what you bought. Okay? And chances are those decisions might be good decisions because uh you only have 19 left and then you only have 18 left etc.
01:35:33
So in in venture investing, a very small sliver of companies that venture capitalists invests in do well,
01:35:46
right? There's a high high burnout rate. And if you look at the stock market, 4% of listed companies generate 90% of the return.
01:36:00
So most companies that we may think about investing in are likely not to do well for us. It's a 96% odds that that's why the index is so
01:36:14
important is when you buy the index you bought that 4%. And if you go pick stocks you have one in 25 chance of getting one
01:36:28
of those 4% there. You said earlier the punch card analogy of 20 things in the punch card. You got to pick 20 in your
01:36:33
life. If you only had three or three to five things that you you would bet or back now,
01:36:39
which I think is actually kind of what you do, what would those things be? Well, I mean, uh, so I'm trying to
01:36:47
resist going to specific names. Yeah. Because I think that would hurt people more than help people. Okay, that's fair. What I would prefer that people do is focus on the other two
01:37:00
variables, which is the amount you're saving and the length of the runway and focus on the index. So I I I think that it's it's kind of
01:37:11
like saying I want to be a great AI developer because it's the way it be. Well, to be a great AI developer is going to take time. It's just the nature of the situation. What do you think
01:37:23
about these people that day trade? Because so many young people, specifically men, are being sucked in by
01:37:29
these adverts that you can day trade your way to wealth. It's not good. I think I think it's um
01:37:37
the broker is going to make all the money. Robin Hood will do well, not you. Do you think anyone can make loads of money as a long-term day trader?
01:37:47
I look at it this way. If you study the Forbes 400, the 400 richest people in the U, in the world, in the world actually, I don't see any day traders in there.
01:38:03
One of the last things I want to speak to you about is this idea of um circling the wagons. Yes. What does circling the wagons mean? Warren Buffett
01:38:14
um said that over a 50-year period of running Burkshshire Hathaway, he's made hundreds of investments
01:38:27
and only 12 have move the needle for Burkshire Hathaway. So it's the same 3 or 4% rule
01:38:38
where if we say that Warren made 300 investments, he probably made more than 300 but let's say he made 300 decisions
01:38:49
only 12 have resulted in what we see as Burkshshire Hathway today. And the important thing was not
01:39:00
the buy decision on those 12. The important thing was never selling them. So, circle the wagons is a term that comes
01:39:12
from the 19th century when these pioneers were moving west, the wagon trails moving west and the native Indians would attack or bandits would attack these
01:39:26
wagon trails. So, what they would do is they would put themselves in a circle. Mhm. They would circle the wagons, then defend that circle as best they could
01:39:39
with their guns and so on, but the wagons being circled was the best possible possible way of trying to face
01:39:46
off that attack. So in effect, they circle the wagons around the crown jewel. So when I'm
01:39:53
talking about circular wagons, what I'm saying is that in a lifetime of investing, there are very few times when
01:40:00
you're going to actually have a huge multibagger. What's that? A big big winner. You know, something
01:40:07
that goes up 10x, 50x, 100x. And what you want to do is you want to effectively circle the wagons around that idea so it doesn't get sold.
01:40:21
So we are not going to know before we invest whether something is going to be a multibagger or not. But we may figure it out after we own it.
01:40:34
So after we we only going to know a business after we own it. We're not going to know it before we own it. After
01:40:40
we own it, we may understand the business well enough to know that this is a great business. And when we figure
01:40:46
out it's a great business, you don't want to sell that. When I meet people like you, I I'm
01:40:53
always so inspired because we spend a lot of time thinking about the wins, the great decisions. We've talked about that. I've shown you the graph of your
01:40:58
great decisions. What is the worst ever decision you made in terms of financial performance? Well, I've had so many zeros.
01:41:05
So, I mean, uh or the one that got away. I mean, yeah. I mean so the there's mistakes of commission which is uh things going to zero and there's
01:41:16
mistakes of omission. The mistakes of omission are far um far worse. Okay. So the biggest
01:41:27
mistakes I have made aren't the ones that have gone to zero. The biggest mistakes I've made are the ones that I
01:41:33
sold and I shouldn't have. Where I should have circled the wagons and I didn't. and those have been very costly. Give me one example. Well, so I think this was in about 13
01:41:44
years back 2012. I invested in uh company called Fear Chrysler Automobiles. Um basically it was uh coming out of bankruptcy after the
01:41:56
financial crisis. They had gotten rid of all that debt and everything and the stock was very cheap. It was about5 or 6
01:42:02
billion uh that you could buy the whole business. One of the things I didn't pay too much attention to at the time was
01:42:09
that 80% of Ferrari was inside Fiat Chrysler and they owned Ferrari 80% of it and um but they had many other assets which I like. They had the Ram trucks
01:42:23
and Jeep and Maserati and so on. And when I looked at the business, I thought the business was worth many times the five or six billion even ignoring
01:42:36
Ferrari. And I was right. So in the end, I made several times my money. And in 2017 or 2018, they took Ferrari public. So they actually then listed the
01:42:50
company. And um it looked like that they had captured all the value and so I sold I used to own approximately
01:43:02
1% of Ferrari as part of that purchase that I had made. So 80% of Ferrari was in this $5 billion company. Ferrari now has a market cap of
01:43:15
almost a hundred billion. And I would have about a billion more if I had not done that stupid thing. So
01:43:26
I I made a couple of hundred million on this whole thing, but it would have been a lot more. And all I needed to do was
01:43:34
just not sell it. Do you deal in crypto at all? Do you invest? No, it's outside my competence. I don't
01:43:41
understand it. I was going to say one of the things I notic about you that's quite rare for someone that deals in bees, billions, is you have a smile on
01:43:47
your face. You seem like a really genuinely happy person. Well, what would be the point of the
01:43:53
bees without being happy? Well, a lot of people aren't as as you know. Well, then they've lost their way somewhere.
01:44:00
I mean, on a daily basis, I specifically ask myself, how do I want to spend today? And I focus on spending it not with the focus on maximizing money. I
01:44:14
focus it with maximizing what Monish loves. And that changes all the time. But that's the way it is. You know what is that? Well, currently it's golf. Like one of the things I really
01:44:25
struggled with today was there wasn't going to be any golf. So I said it's either Steven or golf. Should I go to Steven or should I go for golf? I said, you know what? Give the arms a rest.
01:44:41
Let's go meet Stephen. I'm glad you did. We have a You probably just answer this question. We have a
01:44:47
tradition where the last guest leaves a question for the next not knowing who they're leaving it for. And the question left for you is if you could go anywhere
01:44:54
right now instantly, where would you go? I'd go to the golf course. Thank you so much for everything that you do. so incredibly important and I now know why you're why people love
01:45:06
listening to you and learning from you and it's because you have this most remarkable ability to tell deeply engaging stories. Thank you so much.
01:45:14
This has always blown my mind a little bit. 53% of you that listen to the show regularly haven't yet subscribed to the
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01:45:33
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01:45:38
to speak to and we'll continue to do what we do. Thank you so much. [Music] [Music]