SPEAKER_01: hey everybody we've made it through another week it is friday i can confirm that right yay don julio

SPEAKER_00: friday we have an epic friday episode for you by the way though i know everybody's slowing down for the holiday but we're not because this is a big one it's a fantastic episode we got what are we

SPEAKER_03: still calling him honorary fifth bestie of course brad garson the honorary bestie from the all-in pot he hasn't been able to sneak into an all-in episode so i thought let's get him over here i

SPEAKER_05: i was so excited i was like let's adopt him of course of course we can't leave a bestie outside

SPEAKER_03: here and we chopped it up we talked about the economy inflation you know the changes that happened in silicon valley this year getting fit just so many topics and it was just a great round

SPEAKER_09: table so fun so fun brad gersner of altimeter capital coming up that's the whole show because

SPEAKER_10: it is a great conversation stick with us this week in startups is brought to you by odoo odoo is a fully customizable and fully integrated suite of business apps that lets you build and scale your stack as you build and scale your business your first app is free forever and right now odoo is offering a thousand dollar credit at odoo.com twist and linkedin marketing to redeem a hundred dollar linkedin ad credit and launch your first campaign go to linkedin.com this week in

SPEAKER_03: startups all right everybody it's friday here on this week in startups and it's been a heck of a

SPEAKER_13: year so we brought in brad gerstner our friend from altimeter capital brad welcome to the program

SPEAKER_16: good to be here all right molly there's a lot of things we can talk to brad about he brought some uh amazing slides with him where do we want to start here i mean i love a guest who does all the

Jason Calacanis: prep for us which is outstanding uh but yeah like we really just wanted you to come on and talk about not only the sort of recap of this last year overall writ large but specifically the part where it turned into a whole different year at the back half and that now we find ourselves in a downturn that we expect to be continuing into 2023 what that means for startups right now you had a tweet that

SPEAKER_18: we thought could kick us off right away about basically the metric immediately right that every

SPEAKER_19: startup should be focused on right now yeah i mean so i think i think context setting you know i think

SPEAKER_20: a lot of people look at this year where you know the stock market's down a lot it's been a tough year for venture and they they think that it's an aberration but really this is normalization right the aberration

SPEAKER_22: was 2020 and 2021 when the cost of money was free when helicopter money was spraying out of congress and so what happens during that moment you know we've talked a lot about the the age of excess right

SPEAKER_20: is that people start using proxies molly for valuation um that get further and further away from the truth so over the course of last 18 months we've heard a lot about multiples of revenue right multiples of revenue for software companies multiples of of revenue um for internet companies but what we have to remember is multiple of revenue or multiple of ebitda is just a proxy for distributable

SPEAKER_22: free cash flow sometime in the future ultimately this all boils down to i'm giving you money how

SPEAKER_20: much can i get back in the future in terms of distributable free cash and so what i was reminded of and you know tweeted about this morning is that you know it's that free cash flow less stock-based compensation which is another topic i want to hit on today right which is something that in a world of

SPEAKER_22: of free money everybody largely ignores because everybody's making money right everything's going up so you can ignore stock-based comp but ultimately if we want to know cash on the barrelhead i own a

SPEAKER_20: hundred percent of this business how much can i take out as a return on my investment every year you got to look at your free cash flow less what you're paying your employees all in um and i said that's the new ebitda because forever we've been talking about ebitda is kind of this proxy uh for for multiple

SPEAKER_22: and while i said for early stage companies stock options can be powerful one of the things i'm really frustrated with and think attention needs to be paid to and i think listen investors have a lot to do with this is now we're giving established companies right that are growing at 10 or 20 percent

SPEAKER_25: rsu's restricted stock units to everybody in the company right these are just cash they're a call

SPEAKER_22: option to the upside but they're cash to the downside but they come out of the owner's pocket right and so you know we have to look at you know while stock options maybe make sense for early stage companies it may even make sense for a lot of public companies you know if you're giving away

SPEAKER_20: 40 billion in irsus the way facebook has over the course of the last six years right then then shareholders expect and should expect to earn some return and so you you finish that tweet for those

Jason Calacanis: who are not watching by saying that rsu is basically obfuscate or hide what is effectively salary inflation because like you said they're just cash so it as so this sort of argues generally for what we've heard a lot lately which is a return to austerity but you're pointing out that stock-based comp is maybe not needs to be a bigger part of that conversation a hundred percent so you know like again at the

SPEAKER_20: end of the day let's keep it simple um you know if we went to omaha and and and uh we we asked uh

SPEAKER_22: uncle warren hey what's your measure of you know uh how a company's doing he would say well i put in uh a certain amount of money and i want to know what is my yield how much can i take out every year whether it's seized candy he talks about i put in just a little bit of money and for you know uh 30 years since then i've been able to pull out an enormous amount of money every year it doesn't take a lot of capital investment i don't give stock options away that's returned right and so i think we're re-entering a period where the cost of money is now on the front end of the curve about five

SPEAKER_33: percent so you can earn five percent risk-free risk-free that's a hurdle rate so if you want to

SPEAKER_26: compete for my money right you have to compete with that hurdle rate as opposed to zero percent

David Friedberg: interest which is what we lived through for some period of time or just one or two percent so then any investment looked good but there's a distinction here um rsu's at a big company like a google or a facebook somebody's making a quarter million dollars and we we talked about i don't know which hedge fund wrote that letter that like hey you're overpaying everybody and it's not just developers which we understand developers get massively overpaid but everybody's getting overpaid then on top of that people were getting a bunch of rsus which are just cash there's no risk to it whereas at a startup company if you get stock options 70 80 of the time or more it equals zero dollars so those are lottery tickets rsu's are cash right stock options out of startup are lottery

SPEAKER_13: tickets is is that the fundamental misunderstanding people are having here um absolutely and i just

SPEAKER_20: think that you know even at a company like facebook uh jason which is no longer a startup

SPEAKER_47: right it would be one thing if we gave away or if they issued 20 billion dollars worth of stock options over the last few years because they would all be underwater because the stock is

SPEAKER_20: lower explain that yeah explain right so if if i issue you a stock option and the the stock's currently trading at 200 then your strike price is 200 molly you'll make money if you help us build a

SPEAKER_22: company that's worth more than 200 yeah and if we fail to do that then these won't be worth anything okay that's a that's a uh creates alignment with the shareholders with the owners with the people putting the money up for the company to grow um because they all win together now imagine i issued

SPEAKER_25: you an rsu at 200 okay so if the company appreciates to 300 that unit i gave you is now worth 300 but if it goes down to 150 the shareholder has now lost 50 a share but you still made 150 a share

SPEAKER_00: it's misalignment of incentives and i don't care i feel like alignment is actually the key concept there

Jason Calacanis: because that has always been the the justification for paying tech workers more was the idea that they're all bought into these companies so they might get a package that includes a lot of stock options and those options might turn out to be a winning lottery ticket and we all you know knew people who just would it's like a lottery winner pop up over here and over here and over here and that seemed

SPEAKER_00: to be feeding this kind of funny money concept but at some point that was not enough for employees because you might not win well the person next door might win and so you went to rsu's who was responsible

SPEAKER_61: for the rsu concept coming in why did they do that instead of so i would say um you know this in my

SPEAKER_20: mind jason is part of the grift that comes with free uh low cost of capital right and because shareholders aren't going to complain so long as the stock price is going up right because everybody feels like they're winning so everybody focuses attention on this um when stock prices go down because what they realize is that the people in possession of the rsu's are still getting paid right and so part of

SPEAKER_22: the age of austerity needs to be just a real conversation i i am a firm believer in stock options

SPEAKER_25: they are an essential part of silicon valley yeah they do create a line yeah right um and i even believe in it with respect to public companies um but you know i want to see leadership who have skin in the game like me so they either have stock options that are struck kind of where i'm coming in as an investor or we give you an rsu grant but it's predicated on you getting the value of the company up not just you know you get rsu's no matter what happens so i think satya for example at microsoft has an rsu package but is performance based um and so again let's say that you decide not to have a performance-based system of rsu's again like that's fine that's your choice you run the company but we have to look at all of that as simply cash compensation to the employees out the door and

SPEAKER_64: we need to calculate the multiples uh that you know determine valuation accordingly looking for a

SPEAKER_66: better way to manage your company without tons of expensive disconnected software then you need odoo odoo is an affordable all-in-one management software with a massive suite of fully integrated applications designed to handle any unique business need sounds great right well it gets even better odoo is now offering all of their award-winning applications services and maintenance for under 25 dollars that's right for less than 25 bucks you get 100 of odoo for 90 less than the average market price and odoo is so much more than a world famous erp that's enterprise resource planner odoo has over 80 applications for everything your company will ever need we're talking crm marketing accounting manufacturing inventory you name it odoo's got it so as your business grows and your needs change odoo will be there every step of the way with dozens of user-friendly solutions to choose from and you get it all for under 25 to learn more go to odoo.com twist that's odoo.com twist get more done in less

Jason Calacanis: time for a fraction of the price with odoo all right you brought some slides for us um let's jump into them one is this explain this slide to us about covid zero rates stimmy induced inflation

SPEAKER_18: and how you're breaking that and how you're breaking this down specifically and how it relates to core

SPEAKER_20: cpi and i think we have five slides here and let me back through these pretty quickly because they're all part of a narrative you know jason and i were talking about hey let's look ahead and then look

SPEAKER_22: look forward so when we look at look backwards um you know what what jumps out at you is inflation skyrocketed this year okay so in the year 2020 2022 was inflation skyrocketing why did it skyrocket when it hadn't really moved up in 20 years because we did something that was totally abnormal we put five six seven trillion dollars helicoptered it into the economy we took interest rates to zero and we dared

SPEAKER_33: people not to take risk and guess what they did they took a lot of risk right people loaded up on their second house their third house they bought more cars they they extended their credit card like they

SPEAKER_25: went out and they spent money um and it turbocharged the economy if you go to the next slide you know

SPEAKER_22: what we did in response to that in 2022 the fed made a mistake in 2021 i've tweeted about the fact that

SPEAKER_20: we need to get a real-time uh a data stream going to the fed with more more machine learning because

SPEAKER_22: we should have spotted this earlier but we didn't we stayed zero rates for too long in 2021 so we got to 2022 and the alarm bell sounded we've got a problem we've got an inflation problem we're worried that

SPEAKER_20: this is going to become embedded so we had the single greatest move in the yield curve in the last 40 years so if you're an investor like we all are when rates go from zero to four and a half percent that is

SPEAKER_22: incredibly dislocated because you don't know what to underwrite to the cost now i can get paid five

SPEAKER_20: percent just leaving my money in a risk-free account um so your propensity to want to leave money there

SPEAKER_25: is a lot lower go to the next slide you know the multiples for companies risk assets move inversely to interest rates so multiples collapsed so this just happens to be the software index you know but we went from an all-time high in multiples right 18 months ago to a 10-year low in

SPEAKER_77: multiples today that is public companies private companies venture-backed companies give us the

SPEAKER_39: numbers on that explain that to people who you know are new to this um like why does that happen or just

David Friedberg: what the percentages are because if they're not watching the show right now and they're listening to sure sure we'll see you know in 20 you know in the 2014 to 2018 era it looks like the multiple uh was six to seven times right uh for the value of a of a software company so explain what that's a multiple

SPEAKER_20: of revenue revenue yep so we're looking at a basket of high-growth software companies that for the better part of 10 years traded at an average of seven to eight times revenue now remember that seven to eight times revenue is just a proxy for those future cash flows we're going to be able to take off the barrel

SPEAKER_22: and put in our pocket okay well the cost of money went down in 2021 what you were willing to pay for those future cash flow streams went up right so we were willing to pay 15 times i mean we had many rounds that you guys know were getting done at a hundred times for an early stage company a hundred times revenue because people were discounting those cash flows back at very low interest rates or no interest rates we woke up this year interest rates went higher and as interest rates go up for every one percent change in interest rate you have about a 10 to 20 percent compression in the multiple multiple goes

SPEAKER_93: down so what your week of 18 we had like a peak of what 18 19 20 for this highest cohort uh for the high

SPEAKER_22: growth stocks so now we're down to about five and a half times uh revenue for these companies um and

SPEAKER_20: again that moves inversely uh with interest rates if you go to the next slide and so to say that again

SPEAKER_96: just right now we are trading well below the seven eight average we are correct right almost half of it

SPEAKER_20: and it's about a 10-year low despite the fact that these software companies have largely been continuing to perform this isn't just a software issue this impacted all risk assets right and so you see this with chinese internet companies u.s internet companies that are both at 10

SPEAKER_100: year lows as this slide shows and then if you go to the next slide what i think is important here is 90

SPEAKER_102: of the uh of the fall in stock prices or the value of private companies has been driven by interest rates

SPEAKER_22: so this wasn't that my revenue fell out of bed or i stopped making as much money 90 of it again this is an average came from those rates going higher so that was the story of 2022 inflation skyrocketed interest rates were playing catch up and multiples that were from at all-time high prices that were at all-time highs now moved below the average near 10-year lows so as we look ahead what is the world what are we worried about today um and and what's the setup look like for 2023 we're always sitting around the poker table jcal like you know we beat ourselves up for things we could have done in 2022 but we're

SPEAKER_20: mostly focused on you know how do we position ourselves for the next six to 12 months so it's

SPEAKER_22: you know the fed has acknowledged you know we had a cpi print an inflation print this week that came in lighter than expected it's now pretty clear we've had two months in a row where inflation is rolling over chairman powell had a speech and he said hey i think that we've peaked on inflation goods inflation's

SPEAKER_25: coming down housing inflation's coming down but we have the sticky thing called wage inflation we continue to be worried about so i suspect in 2023 the consensus belief is that inflation's going to come down if you go back to that first slide goldman sachs thinks it's going to three percent morgan

SPEAKER_22: stanley thinks it's going to two and a half percent so that's a better setup than 22 where it was

David Friedberg: skyrocketing okay right and this is uh experienced by consumers in the form of buying the form of

SPEAKER_113: milk and eggs their mortgage payment homes gas all that correct all those things i was going to say

Jason Calacanis: two things one the journal in fact the wall street journal is even publishing articles now saying investors are having uh hopes of a soft landing there you know there's like a little bit of a sentiment change about how bad 2023 might be the only thing i would add to this for context that i think is sort of interesting is that one inflation no question driven by a zero interest rate environment but and i think like this is removed from what we do as investors sure also driven by the exogenous factor of extremely constrained supply chains and extremely high consumer demand because you have a lot of people at home shopping for stuff that they could not get so you had demand demand demand nothing coming in price is going up because the price of renting a container on a ship you know tripled quadrupled quintupled and some of the stubbornness that we've seen in terms of inflation coming down is because that inflation is unrelated to interest rates like you can't do anything about ships being i can look out my window and there's a still a traffic jam at the port of oakland but and then you had all of those sort of price driving fact valuation multiple factors that were interest rate related and the they have been they've proven a little more stubborn and they've been unrelated to those fundamentals of can i get a thing or not and even the like dip in multiples is unrelated to fundamentals as you said these are still high performing software companies that are now trading arguably below what you would say they're worth right and you know again to keep it simple

SPEAKER_20: i mean if stan druckenmiller has said this is the hardest moment to forecast from a macro perspective in his lifetime so let's just be humble in the face if our friend bill gurley was on the show with us right

SPEAKER_22: now he would make fun of me for even talking about macro because he would say none of us have any idea what's going to happen to macro but i'm taking a shot i think inflation has peaked it continues to go down next year and interest rates i'm just taking the fed at their word they said listen folks we're taking them to five percent and they're going to sit there and we're going to put our foot on the throat of this economy until we see wage inflation break and we're not taking our foot off that till we see the

SPEAKER_124: whites the only thing left is wage inflation that's the last that's the last city to fall that's the

SPEAKER_22: bucket that the fed is worried about because that's something that gets embedded there's a lot of

SPEAKER_76: talk from the 70s about wage price spirals i think we have a lot of post-traumatic stress from that

David Friedberg: period of time but this means in plain english people's salaries go up and they can keep buying

SPEAKER_84: stuff and if it keeps their salaries keep going up they keep buying stuff then they keep inflation going because supply demand am i correct in the ballpark no it's a concern forbid people have more money to

Jason Calacanis: spend even though 80 percent of gdp is consumer spending so molly this is saying that this is a

SPEAKER_130: little this is a good this is a good point at some level we've been complaining for the last decade

SPEAKER_25: that wages wouldn't go up right okay what we'd like to see right because we all want to fine-tune we'd like to see wages go up just a little bit faster than inflation but we don't want to see them gapping up we don't want to see haircuts go from 20 bucks to 50 bucks in a year because that impinges

SPEAKER_22: people's ability to live right because their wages um their their their cost of living is going up faster than their wages are going up and so that's the tuning of that the feds trying to do so step back again 2022 inflation down interest rate stable that's radically different or that's 23 that's radically different than 2022 where they were both skyrocketing and there's a lot of uncertainty so the rate

SPEAKER_137: inflation backdrop is way more conciliatory next year what is way more uncertain next year is whether we're heading into the teeth of a massive recession okay so we're trading one uncertainty for another

SPEAKER_16: uncertainty what would the worst case recession scenario look like based on what people are saying

David Friedberg: what happens because the thing that i found uh concerning being on the board of companies and investing in companies and actually seeing the numbers and knowing the plans before they happen is people are making cuts people are planning on making more cuts people are looking at every single

SPEAKER_16: item and they're saying oh we have this sas software we have 12 different sas softwares let's go to seven okay how many seats are we paying this company okay we want three people to log in with the same login go from 10 seats for sure uh okay we have this many people in customer support we're going to outsource it to manila and or we're going to use ai and try to be more efficient then everybody was making fun of tech oh look tech's getting their comeuppance everybody's making cuts you did the you know hey it's time to get fit asking facebook to make cuts and they did whatever 60 30 60 days later now media is getting hit as predicted cnn the mighty washington post theoretically with an unlimited cash supply there they announced their cuts to a lot of um you know aggressive a really aggressive town hall if you saw the clip and so this is a white collar recession and blue collar jobs service jobs we can't get enough of them we can't pay high enough wages uber 36 an hour so i'm very confused as to what is happening with employment and why it's an issue because from where i live my address is media and tech and it's a disaster people are looking at uh as i said i think the last thing is pay cuts like to go to your employee base and say we're going to cut pay hiring freezes

SPEAKER_140: i saw one of the accounting firms said we're not doing bonuses even though we had our best year because next year's going to be so bad people are just so this is where the hatches i'm confused well this is

SPEAKER_142: where the debate is um i think there are a lot of people who agree with you jason and they see it

SPEAKER_137: happening in the real economy now this is no longer quarantine to tech or quarantine to media like just take one example i grew up in this this town of northern indiana where all the rvs in in the country are produced elkhart indiana okay um this town was often a bellwether in the 70s where national news would come to say because it was on the leading edge when people stopped buying rvs they knew uh economic cycle was happening okay now the factories in elkhart are shutting down they're going to three-day work weeks right the town is really slowing down so rvs if you remember during 2021

SPEAKER_22: there was six nine twelve month waiting lists to get an rv why two reasons number one to molly's

SPEAKER_33: point we're in the middle of this really weird thing called covid nobody wanted to be around other people hop in your rv ago but now i was following exactly close this close but number two you could

SPEAKER_22: borrow money for free yep the rv was free okay and so we had this perfect storm with all this activity i don't think this is quarantine detect the debate that's going on right now that you see playing out

SPEAKER_25: on twitter and other places there are certain people who think the fed is way over their skis have

SPEAKER_20: have already gone too high are throwing us deep into a recession that's going to smack us in the face in q1 and q2 the fed has said you know what that's a risk we're willing to take because this thing got so overcooked so over baked that we we worry more about embedded wage inflation than we do a modest recession and we know if the recession hits we can always turn down interest rates a little bit but we are not going to give one inch right this is very clear chairman powell is determined and he's a big fan of paul volker right the head of the fed who broke uh inflation back in the early 80s there is no way he's taking his foot off the throat and that's what's being interpreted by the market if you're a b2b

Chamath Palihapitiya: marker that's business to business your needs are unique we all know that b2b buying cycles are long and your customers face really complex decisions right most of the time traditional marketing channels don't work you know if you're doing b2b sales it's not like people are buying some impulsive purchase of a gadget no gotta be thoughtful traditional channels don't work for it but here's the good news linkedin ads is specifically built for b2b marketers that's you here's the only stat you'll ever need on why you have to have to market on linkedin linkedin ads gives you direct access to 875 million members 180 million senior level executives and wait for it 10 million c-level executives no other platform in the world can offer these kind of elite eyeballs and linkedin is going to help you reach your audience in a respectful environment it's about business you think about linkedin you think about business okay here's some other amazing stats for you audiences exposed to brand messages on linkedin are six times more likely to convert yes you heard that right six times and audiences on linkedin have twice the buying power of the average internet audience right that's critical too so here's your call to action make b2b marketing everything it can be and get a hundred dollar credit on your next campaign a hundy if you go to linkedin.com slash this weekend startups go get that credit you have to type in linkedin.com slash this weekend starts no spaces no dashes none of that nonsense terms and conditions do apply because they're giving you a hundy and there i mean

Jason Calacanis: the fed has been very clear on the risk of recession being worth like very explicit because inflation hurts everybody and unfortunately recessions don't right you will you will see layoffs in certain sectors in certain areas and so breaking inflation is still the the fed's core mission regardless but i think like to your point about a big fan of volker and the hangover from the 70s and the you know breaking inflation in the 80s the large like the our economy is what 50 100 times bigger than it was in the 70s like the i it's just a the economy is weird right now and it's it is we're just as likely i would say to have a recession as not i mean it's sort of it is this weird debate but we're all working with you're always working with the last recession you're always tackling the last problem and i will say though i think that the fed there was a period in you know 2018 2019 where it was like looking like things might be a little bit economically rocky but because interest rates had been so low for so long the fed that's the that's the tool that's the arrow in the quiver for the fed is to manipulate interest rates either up or down and if they're stuck at way way way down or near zero there aren't that many tools and so i actually don't expect the fed to take their foot off the gas for all of the reasons you've articulated and because frankly a higher

SPEAKER_18: interest rate is a buffer for the next time that you need to address policy with interest rate changes

SPEAKER_142: you know listen we've had a great technology investing scene during periods of four five six

SPEAKER_25: percent interest rates right right that was the regime we had in the early 2000s that's not the

SPEAKER_20: problem here because we just reprice our entry we reprice the headset right we're just not going to pay

SPEAKER_167: as high for a series b or a series c venture company at a five percent or six percent interest rate as we

SPEAKER_25: would it's two percentage the entry price matters the entry price matters so that to me markets can adjust to what they can't handle molly is massive uncertainty what we can't handle is this right

SPEAKER_20: which unfortunately we still have right and so um i i i think if you're grading the fed

SPEAKER_25: right in 2020 i actually give the fed an a maybe an a plus they saved us from an economic collapse right let's remember where we were in march and april of 2020 we the economy stopped okay i would give them for 2021 it's mind-boggling i think it's like they all went on vacation having

SPEAKER_33: survived 2020 i give them a d or an f 2021 was a disaster everybody everybody on this show everybody we talked to we knew inflation was rampant you couldn't buy anything the waiting list for everything from a tesla to an rv to a second home and it's bonkers okay so the fact that neil kashkari the president of the minnesota fed in june of last year june of 2021 said we will not raise rates until at least the end of 2023 this was when a freight container from china to the west coast

Jason Calacanis: cost twenty thousand dollars okay that's an f okay i'm sorry that is enough i'm just again i'm looking at the ships piled up outside there was every reason for them to think that everything that everybody wanted to buy was just stuck and that once that dam was loosened and i'm this is the true this was the transitory argument at the time there were lots of good reasons for them to think you know one way a lot of this assumption that demand would be eased by a sudden influx of supply and that if

SPEAKER_119: anything prices would collapse there was that argument who could look at china closed in middle

SPEAKER_22: of 2021 and think that we were going to have a sudden influx of supply and goods that was ridiculous

SPEAKER_20: that's another 60 ships out my window that hadn't been unloaded right because right because we we had so uh uh we had created so much stimmy everybody had money in their bank account they didn't need to go to work i mean right you know this was determined burned off now i mean i'm not saying that we're

SPEAKER_187: right i'm just saying that at the time that was an argument that was okay molly i'll meet you halfway

SPEAKER_190: made sense i give him a well-intentioned f okay i don't think that's a real grade 22 but 22 okay

SPEAKER_102: despite how painful it's been right i would bring him back to a day maybe right so this is a student

SPEAKER_20: that i just think what went missing in 2021 uh jason you had a question well uh you know there's so

SPEAKER_16: many curveballs we haven't even brought up ukraine uh or china covet policy and so the world is so interdependent right now that it's not as simple as volker's job i mean when you look back what happened with volker they i i believe the prime rate raised to 20 percent people getting mortgages were paying 20 percent so let's all pause and think about how insane that would be right now people are not buying cars the demand for cars have gone down because of the six seven percent interest rate demand for homes has flat line because of six seven percent this could be 15 this could be 20 and inflation i mean

David Friedberg: that also got well out of control during that period and then there's politics that plays into this reagan i read volker's biography uh it's keeping at it or something is incredible like reagan came to him and they like had like this little clandestine meeting and whoever reagan's like henchman was i forgot who it was said like the president would really like you to not raise interest rates anymore and so

SPEAKER_202: there is also politics playing into this correct brad all of those factors you know play into i mean

SPEAKER_25: listen um we've talked about this we should erect a statue for senator mansion from having saved us from you know stimmy too that would have tossed this country country into a spin of hyperinflation and much more austere interest rates had we not had he not been the deciding vote there so um yeah i think that i think all those things are complicated factors but i really want to make sure everybody heard what i said i'm constructive the backdrop on 23 looks from a policy perspective from an inflation and

SPEAKER_33: interest rate perspective is constructive the problem we have what does it mean constructive constructive

SPEAKER_22: means we don't have these wild swings that make stuff on investable you and i can make an investment

SPEAKER_20: decision with the cost of money at five percent like i said look at the stuff that was funded 2000 to 2005 when we had interest rates there okay that's not the problem we just need stability and predictability and they've given it to us okay where we don't have that is around economic

SPEAKER_25: performance okay and this is a good transition to the conversation around austerity and meta we know that the top lines for all these companies for all the reasons you mentioned going to get a lot

David Friedberg: tougher right top line growth going to be hard consumers are going to be more precious and more thoughtful with their spending advertising has hit a major bump in the road companies are cutting

SPEAKER_84: advertising companies are cutting corporate spending and consumers are cutting spending all at the same

SPEAKER_20: time top line will slow how so so the only way that a company can bridge this period where we have

SPEAKER_25: higher interest rates slower economic growth is they have to tighten their belts right they say oh

SPEAKER_33: hey the household budget's gone down a little bit this year we're not going to be able to afford

SPEAKER_25: subscriptions to hulu disney paramount you know netflix etc we got to choose one or two okay that's what companies need to be doing but for some reason companies i think were very slow um not for some reason i have a lot of good ideas as to why they were slow but venture-backed companies

SPEAKER_20: and public entitlement having never been through to make the changes yeah i mean this is we have a

David Friedberg: generation brad if you're younger than 21 years old you don't even remember 2008 and if you're you know a ceo who you know started a company when you were 25 years old my lord like this is a this is new territory for you you don't understand how bad this gets yeah we haven't seen arian chairs

SPEAKER_16: people walking home from their office with an arian chair with their laptop and a box of books in it because the company shut down so violently that people just walked out with an arian chair on their laptop and didn't even get paid right like it was freaking chaos into that even more jason than the

SPEAKER_47: entrepreneurs are the investors okay it's us the investors yeah silicon valley is full of investors

SPEAKER_20: that are either too young or lack the courage to talk truth to founders for fear of not being loved this idea of founder friendly don't i know it became co-mingled right with always telling the founder what they wanted to hear there used to be this story about sequoia that you chose sequoia because they would they would drag you by the scruff of your neck to

SPEAKER_33: success okay that wasn't a friendly way to get you to success that they would be hard-hitting and

SPEAKER_22: drag you there including getting rid of the founder if they needed to to make the company successful

SPEAKER_25: that's what founder friendly meant in in that context but i would say over the last 10 years if anybody spoke up at a board meeting that in any way wasn't you know aligned with the founder people looked askance at that what i see returning now which i'm happy about is truth telling that's founder friendly

SPEAKER_22: helping companies avoid catastrophes that's founder friendly yeah right and so it took a little while not surprisingly because we've all been gaslighted for so long

SPEAKER_25: but what i see happening in public companies we talked about meta or google or amazon etc what i see happening in venture and there's a big effect here since elon took over twitter this elon effect i mean he's revered by a lot of founders everybody can say whatever they want about his a style his approach um you know etc he's far from perfect he's the first to admit it but the courage in making

SPEAKER_22: that level of change and everybody said the lights would turn off at twitter right it wouldn't work

SPEAKER_25: anymore you couldn't possibly do this and so for a company to say can i can i let go 10 can i let go 20 when they're letting go 70 and by the way 10 to 20 doesn't get most of these companies even back to

SPEAKER_33: the headcount they had at the start of 2021 or 2020 that's how incredibly fast they were growing so um this numerology where first everybody resisted any change they said we're we're an exception and then

SPEAKER_22: once they did their bottoms up review they all magically came up with 13 riffs it was also a joke

SPEAKER_20: okay no first principle thinking in that it was enough to get the people complaining off their back but not enough to really do anything uh that that changed the game for companies so um i start you know i'm

SPEAKER_22: seeing a lot of courage and a lot of founders starting to do the right things and ask the right

SPEAKER_25: question which is what is the number of people i need to optimize my success blank sheet of paper

Jason Calacanis: do you feel okay go ahead no you do you feel we had this debate on the show but you weren't here and uh you famously penned the letter to meta time to get fit do you feel like they took that medicine

SPEAKER_119: or did the not quite enough this i'm taking advantage of the fact that we have you here and

SPEAKER_20: no i don't have to answer it but no no of course i'm gonna answer it i don't come on the show and not answer stuff um you know first i would say when i when i wrote this letter and and jason and i talked about i think over poker but you know the week before you know i i i really was thinking about this and we've been talking about it as an open letter to silicon valley right i mean this applies what i said in here applies to almost every company in silicon valley at at facebook i thought they had

SPEAKER_22: a particularly acute challenge but a particularly interesting opportunity the acute challenge was they had gone from 25 000 to 85 000 employees in just a few years and at the same time they were making a massive and uncertain long-term bet more sizable than any bet we've seen in silicon valley on oculus and

SPEAKER_33: reality labs where i said you've confused investors which is hurting the company and so like let's just telescope out for a second and think about the parts of the business this business can do 40 billion in free

SPEAKER_25: cash flow instead you're going to do 15 billion in free cash flow right because you're making these

SPEAKER_22: massive investments so i said tighten your belt just go back to where you were at the start of 2021 in terms of numbers of employees okay i really think they should go back to where they were at the start start of 2020 but again these are my opinions i'm not telling the company what to do they get to do whatever they want to do and i sell the shares or i don't sell the shares the second piece i

SPEAKER_25: said is they're investing way more in ai than most people understand right the the magic of bite dance tick tock was that it was not a social network right they targeted my son to watch tick tock through ai

SPEAKER_22: and it worked so facebook has done a complete retooling over the last three years right has been one of the largest consumers of gpus right to really build an ai discovery engine okay the world doesn't even know that because they think that mark you know renamed the company you know meta and the only thing he's doing is running around with these glasses on and yet he's building a gold mine in ai quest right under their nose this other thing so you know i basically said hey tighten your belt on people you'll get more

SPEAKER_25: innovative this is the misnomer it's not about cutting it's not about killing investment it's about getting more innovative more productive okay those two things coexist so it's get more focused on that get more productive number two focus on ai in fact maybe invest more in ai and then on this third thing if i were doing this i'd do what google did which is i would say long-term bet more uncertainty i'm going to put this in something that looks more like waymo or verily right i'm going to make this another bet i'm going to capitalize it i don't know five billion a year which is what i suggested in the letter if you want to take outside investors take outside investors do whatever you want to do

SPEAKER_33: but that would allow each part of the business to i think perform much better that was that was a

SPEAKER_189: thought they can you know i think that they did the magical 13 right they made they made a cut

Jason Calacanis: they made a cut um and what i would say is i do think it's worth noting though what you just said though it's not as reductive as get rid of 6 000 of your 8 000 people it's get rid of more than you think you need to get rid of but also focus right cut the side quests and i think today they announced

SPEAKER_31: what they had a 200 lift credit monthly credit for all their employees or something i saw on twitter

SPEAKER_25: that they killed that today like i imagine all of these companies listen here's another thing nobody

SPEAKER_137: wants to talk about yeah we have i think leaders in these companies who actually want to make changes but i actually think they become afraid of a lot of their employees who work in these companies because

SPEAKER_25: the threats these employees make on bulletin boards the accusations they make from a dei perspective it's you know if people are advising you they just say this is really dangerous territory to walk on so when they're really profitable i think it just becomes easier for them not to make the courageous

SPEAKER_20: but correct decision which is to get fit but the reality is uh as a country as companies as individuals right you only take the top podium if you have the courage to get fit and all these companies every single company there's room for 20 30 40 fitness in all of these companies again in the era of

SPEAKER_25: free money what did we what did we what did we tell these companies to do we told them unlimited hiring unlimited investment the cost of money is free just think about top line growth think about this

SPEAKER_224: apple this year if they were just investing in the risk-free rate could generate seven billion dollars of free of cash just off their cash hoard yeah okay bought back a ton of stock right didn't they do

SPEAKER_33: tons of stock buybacks yes but my point is this if i'm earning zero percent on my cash then what i may

SPEAKER_25: as well spend it but if all of a sudden i'm earning a real risk-free return now i say well maybe i

SPEAKER_97: shouldn't hire this additional person maybe i shouldn't make the tenth investment on my list right because there's an alternative use of the cash because if that person is not going to make me

Jason Calacanis: five percent then i'm going to put it into the three-month cds that i keep talking about on this

SPEAKER_13: show yeah i mean it makes total sense and now the age of austerity is upon us and i think when you're

David Friedberg: in a talent war and you become scared of your you know of of talent you know it's kind of like hollywood

SPEAKER_16: you know they were you know they're afraid to piss off an actor or something or a director so they make all these accommodations now the pen and the pendulum swung too far one way people were offered all kinds of perks now we're going to go the other way some people might even argue it feels sadistic or gleeful in the cuts that management are making um but the truth is uh coinbase and shopify i think you know both brian and toby said you know we're this is a business this is not the place for politics we you know we have like one mission you know uh cryptocurrency for the world to free the world and you know help people who want to build mom and pop shops like enough let's get focused and then i think what people are realizing is if you hire two years ahead well then you can cut half the staff or whatever it is and have uh more earnings while the top line suffers so here we are it's just going to

David Friedberg: be super painful are we at the point where we've taken enough medicine where we've corrected our diet where we've gotten our sleep where we've exercised and got our heart rate up that we can say we are in fact fit and that growth will come back when will we be fit brad we are first quarter second quarter

SPEAKER_22: we're just getting off the proverbial couch jason like we may be just on the one mile training

SPEAKER_272: um 5k okay i get it that's our metaphor for recovery so so i would say that 2021 was the year of abuse

SPEAKER_22: right that was pinnacle free month peak free money 22 was a transition year that was the year like

SPEAKER_20: holy shit everything's changing 23 is okay begin your exercise regime taking out okay but this is

SPEAKER_33: the important thing fitness is not one and done it is changing your behavior and creating consistent fitness right it's having an ongoing dialogue about how much stock are we giving out an ongoing dialogue on what should be the metrics that matter how many things should we be investing in i would say that

SPEAKER_278: this wasn't a problem created in one year it just peaked in a single year right this was a problem

Jason Calacanis: created over a pair we're yo-yo dieters so like i think it's going to be unlikely that these lessons stick because so far historically you know jake and i would talk all the time we've been through three

SPEAKER_283: of these like no here's i have i have hope springs internal but you can want something and then you

SPEAKER_16: can decide to do something i want it to be thinner and more fit and then at a certain point i decided to do it and i think with some companies they want to be fit they want to have their stock price go up they want to be more efficient but you have to make the decision and once you make the decision then there's some pain and suffering and behavior change and accountability top three companies in order brad i'll give you a minute to think about it who have gotten fit and you appreciate the most and the three companies that you're worried about that they haven't gotten the message yet just take a minute you're really doing you always have to name names on this show this is why we get the ratings it's because i force people to answer hard questions but i know who your number one fitness company is and then give me the two or three after that and then let's go to the other side

SPEAKER_140: well you can participate or two as well if you feel like it

SPEAKER_47: what what i'm going to say maybe not answered exactly the same way but i'll give you some examples

SPEAKER_167: of companies that i think uh are showing the way who who are okay right so you know uh one of our

SPEAKER_20: biggest investments is snowflake frank sleutman general sleutman frank sleutman uh you know when we brought frank on board to lead that company you know he said prepare for war right this for him is not a a one-day mission that's not a way a way to behave for a single

SPEAKER_25: day or a response to something it's a way of life right that the company's duty is to be fit every day right so he was making changes three four years ago right in terms of changing culture and now let

SPEAKER_137: me just give you one step that's just a mind-boggling step in 2021 snowflake did 1.2 billion in revenue thereabouts top line 1.2 billion in 2023 they they guided that they'll do 700 million in free cash

SPEAKER_25: in 24 months they converted they went from 1.2 billion in revenue to 700 million free cash like i don't

SPEAKER_20: think you've seen cash conversion off of revenue like that out of a software company ever that's

SPEAKER_167: what happens when you run a really tight ship with a really great product and everything is precision in its orientation and guess what they are absolutely every single day when we're talking with them

SPEAKER_224: they're looking for more ways to be more efficient to tighten the belt to do even better why because

SPEAKER_102: if you're the most fit person in the race you win the race and you've got to run the race every day

SPEAKER_302: discipline who else is in your top um that's one of you know so i would say that apple has been

SPEAKER_189: famously uh you know famously efficient relative to uh the other big companies like like facebook or

SPEAKER_25: google or microsoft and one of the things i would say about apple you know you might say well why do they have such fitness like what is it culturally i want to point to two things right the first

SPEAKER_102: is a design culture around minimalism and essentialism that is also an ethos for how they run the business got it right steve jobs says he says focus isn't choosing you know the thing that you like

SPEAKER_25: the most focus is saying no to a thousand things you like okay so that's embedded in the culture number two for the last five years i believe this is true they've distributed over a hundred percent of their free cash flow back to their owners back to warren buffett okay well one way not to waste your money is to give it back so they've returned that in the form of share buybacks and dividends right and that creates discipline in the business because you know they make that commitment it creates a financial framework for investors and owners they say you're our stakeholders we're selling these iphones

SPEAKER_20: right so that we can provide a return to our shareholders so i think both of those companies are

SPEAKER_25: are terrific examples uh for companies to follow what i would say on the other side of the ledger

SPEAKER_76: you put twitter on that list i assume as well um twitter post elon yeah um i think jury's out to

SPEAKER_22: be perfectly honest jason i hope i hope that i can put him there i listen nobody can doubt elon's

SPEAKER_20: credentials as a visionary um as a ceo or as a courageous leader um i am rooting for his success

SPEAKER_25: we need him to be successful okay but i do listen you are you're you're close with him uh i think all

SPEAKER_20: of us worry that he's taken on a lot yeah and and and when you take on a lot you get spread thin so i want him to be successful but i wouldn't put it on the list just yet all right but i expect it will be

SPEAKER_25: because i believe in him um on the bottom of the list um listen i would put i hate to say it

SPEAKER_20: because i'll be candid i i love both of these companies i'm going to stick with the big companies uh to start and i would say uh you know google and facebook um google and facebook and you know

SPEAKER_25: like they um google listen ruth porat's an incredible cfo at google she made a bunch of great changes when she came on board um over the course of the last eight years they've compounded but the fact of the matter is the company is now at i think 185 000 200 000 employees and you saw i think you saw that tweet a week or so ago i think it's something like 10 of those employees 20 of the 20

SPEAKER_20: 000 employees create something like 80 of the profits yep so the size of the groups at youtube and search are actually relatively small yep right but they basically are funding a gigantic research

SPEAKER_25: lab across the rest of the business and so um you know i would like to see google be a hell of a lot

SPEAKER_33: more innovative release a lot more products i mean the fact that we're still staring at 10 blue links

SPEAKER_25: right instead of them launching chat gpt i think it's just an indictment of uh of of like too many

SPEAKER_33: people too many things not enough focus etc and i believe in the people they're like 201 um but what happens is not the will of the individuals it's the co it's how all the pieces

David Friedberg: start matching architecture it's the architect for success and the architecture there is waste 80 of the dollar spent 20 goes to what's making money although i will say 80 going where's the winning where's the next chrome gmail youtube where's the next one and what's the last great new product

SPEAKER_324: from google tell me well i mean i just told you that there haven't been in right like they they're

SPEAKER_111: not in the product how far back you have to go what's the last big one go back to chrome cast

Jason Calacanis: that's not weirdly nice but nice but but i'm just saying it was the last thing that they made that i was like oh wow that's amazing and then i just bought the same thing in the form of heroku tv

SPEAKER_330: nothing in streaming nothing in ai lex friedman's interview even youtube looks exactly the same of

SPEAKER_20: uh friedman's interview of kaparthi he asked him the question like how do you stay innovative at the scale of tesla and i and he stopped for a second and he said well probably goes you need

SPEAKER_33: somebody who really believes with a giant hammer who runs the business yeah like that like the the

SPEAKER_100: inertia right of just bigness excess inertia of like whoa kind of like what we i don't love the

SPEAKER_85: term scale kills great companies it's like it really endangers these companies i would say the

Jason Calacanis: same thing happened the same thing come on that's not wokeness it's scale like google scaled and could not stay focused and organized and that's been a problem at google for i mean i've been i was saying that as a journalist a decade ago that you don't get you don't get too attached to whatever google

SPEAKER_22: releases because they don't care about it they let it go so i want to offer this up it's it's probably not what you know most people mean by wokeness but i want to define what i'm thinking about

SPEAKER_33: the inertia that happens within these organizations right when everybody's getting rich for showing up when we go from stock options to rsus yeah it just feels like the whole damn thing's a grift right on shareholders it's like your job is no longer to release stuff your job is not to get fired yeah okay so you keep your head down you shut up you do what everybody else is doing and you know

SPEAKER_25: like i suspect if you uh i suspect that most in fact we have lots of friends who've worked there

SPEAKER_344: they'll tell you as much yeah right yeah don't get fired keep the gravy train going rest invest

SPEAKER_33: i think when you're making a lot of money and guess what you're working in a long days it takes like are you going to take on that leviathan are you going to try to change

SPEAKER_154: you know that that's a lot right it's like the founder authority to do that and i would use that

Jason Calacanis: e-word i would call that entitled because i think that's okay more of an entitlement culture better than

SPEAKER_348: work yeah more that's just too that's just too complicated yeah but you did you had a group you had

Jason Calacanis: literal entitlement you had spoiled you have spoiled people where life is too easy right we all know that you

SPEAKER_20: get tougher when life is tough yeah but i would say this don't underestimate uh and don't underestimate uh you know i think zuck like i'm i'm a believer i think we're gonna have a comeback here i think

SPEAKER_25: momentum is in the right direction here um how to get fit what he announced the 10 000 uh three weeks

SPEAKER_84: later on a sunday night i put a buy order in for the stock uh when it was at 91 i think i got in at

SPEAKER_16: 94 in one of my best trades because once i think a founder realizes their um that the that nobody believes in them again when they believe the investment community and people have given up on them i think that screws with their head and i think that makes them go you know what i want to be a winner again and then that builds the courageousness up and you know there is a curse of the money printing machine i first saw this at aol when they had that dial up when it was churning at that time they had peaked at like over 30 million people paying 30 a month this was unprecedented to have a billion dollars and there was and this is you know this is in the late 90s early 2000s that people just didn't never understood a business at that high of a margin throwing off that free cash flow from subscription month after a month and they lost their creativity they lost the need to innovate and that's google's curse that's facebook's curse until you recognize that you have a money printing machine distracting you then how can you pay attention to a machine that prints nickels when you

SPEAKER_47: have a machine that prints thousand dollar bills so famous case study at hbs on at and t it was a

SPEAKER_20: monopoly they hired kajillions of people they behaved like monopolist they actually have you can go on

SPEAKER_25: youtube and search this they lay out what they thought their vision of the internet was i am telling you they nailed everything now they nailed mobile phones they nailed chat they nailed social networks

SPEAKER_137: and they didn't release any of it any of it yeah you know and so like i i think one of the magic things about larry and sergey when they started the business was this idea that we were going to run a

SPEAKER_20: really decentralized culture that disrupted itself right and i just wonder like if that dna

SPEAKER_47: uh you know can can can kind of resurface i think that again there are a lot of really great people philip schindler ruth borat etc uh sundar and like if anybody can do it they can but i do think it's going to take intentionality about saying and hopefully chat gpt is the existential threat that way you know

SPEAKER_25: that causes them to say we have to we have to change everything molly and i played chat gpt

David Friedberg: or google search result in the last episode and what we did was we took the information from the first second or third the best information from the first second or third result on google and compared it to the chat gpt uh result so that it was you know text versus text and the producers stripped out all the stuff and just showed us the text and we read it to each other and i think we picked chat gpt in the majority of cases well this is should be alarming because the content farm system uh and the rankings

SPEAKER_16: of content in google is so decrepit and it's so dysfunctional the relationship that people are putting tons of ads and using content farms to make long tail stuff and when we looked at chat gpts it had processed it enough to make it a cleaner and better experience molly maybe you could talk a little bit

SPEAKER_13: about what how eye-opening that was for you yeah i mean that was the first thing i said when we tried

Jason Calacanis: chat gpt was that i'm going to use this instead of google and what was so what prompted that in some ways was the reddit post i think that people were sharing where someone said i work at alphabet and you know this is just too expensive to do at scale and it's one thing to create something that some nerds can use but to make this at scale would just be impractical and i my immediate response to that was like what a disappointment i mean obviously this was likely not an executive at alphabet right clearly but the idea that anybody working at google is thinking in terms of impractical impracticality

SPEAKER_368: or even expense yeah they were like disappointing like i'm like no no no you're the nerds that do whatever you want yeah you're the moonshot people release it there is no universe in which they

SPEAKER_187: shouldn't have released jet go ahead jason i would just say sundar should be staring at the ceiling

David Friedberg: every night till 3 a.m he should be locking down everybody should be on the 10th floor everybody should hit a hardcore link at chat hey to you know shout out my guy but they need to get a group of people and get them hardcore on releasing a chat gpt competitor it's got to be out in the next 60 days and it's got to be better yeah you should be staring at the ceiling right now grinding your teeth

SPEAKER_182: it's also the other thing i would say though is it's a really interesting look at sort of who

Jason Calacanis: like i'm thinking back jason to your book right and you talk about secondary sales for founders and how like take two or three million dollars off the table fine you paid off your house you paid off your student debt you can fly on you know you can go to a nice vacation but if you take off 10 or 20 million dollars that's f it money yeah and all of a sudden you don't care and you can see where some companies hit f it money and lost discipline as a result and it's it's so fascinating that apple did not apple did the equivalent of like putting away the amount you're supposed to save every single month with the paycheck all at once which most people don't do and you could argue i think that meta and google hit that stage of and that's what that does happen to monopolies to monoliths they end up toppling themselves because of inertia i mean google has all the resource in the

SPEAKER_47: world like if you think about ai the ingredients for ai they've got the silicon they've got the data i mean think about they have more data on the planet they've been working on this problem for 10 years

SPEAKER_20: but most people think the reason they haven't released anything is because of the hallucination problem right so chat gpt right they can release something it can say with confidence something that's untrue okay in a big company google i'm sure has 150 people on their ai responsibility team

SPEAKER_25: so let's say that you're the product manager for their chat gpt equivalent and you say okay we want to let this we want to put this out in kind of a field test we want to release it we're not going

SPEAKER_147: to release it under the google brand we're going to call it something else it's going to be this chat

SPEAKER_33: bot and they say okay we're going to run a couple tests on it right and they're going to say describe to us what a successful engineer they're going to say to the chat bot describe to us what a successful engineer looks like okay and the chat bot may start describing a certain ethnicity and chat gpt has

SPEAKER_25: already done that people already run those tests correct but chat gpt doesn't you know like listen they're willing to take risks that a company like meta or microsoft or you know or such a good point are unwilling to take so it's not just about resource like that's a problem you are not you are not going to crack the hallucination problem right you're not going to get to perfection google as a search

SPEAKER_102: engine was not perfect when they launch it it was full of porn it was full of all these issues right

SPEAKER_33: yes and phishing spam but this became you know at that point in time they were risk takers now they self-censor why do you self-censor because of career risk so that becomes a cultural problem two final

SPEAKER_81: questions i got you warmed up you're in candid brad mode my uber you are uber are they fit enough

David Friedberg: what do they need to do they're doing great in terms of growth the product it feels great to me uber eats i've been ordering my groceries there so many things that we can appreciate that stock price is not

SPEAKER_390: one of them well said well said jake well the stock does the stock price ultimately is is uh i think um

SPEAKER_20: where truth is told um because people are greedy and they'll pay a higher price if they think it's going to earn more free cash flow in the future no it is not fit i referenced it in the letter to meta um obviously big fans of of dara i think the service is an incredible global service i think it's market

SPEAKER_25: leader uh all over the world and mobility increasingly so in delivery and local e-commerce but let me make two comments about it number one the main reason i invested in what bill gurley talked about for the better part of a decade is this idea of network effects right when you're a marketplace like this you ought to have 90 share of the market 90 share of the profit pool why didn't they accrue 90 share the profit pool well it turns out they had to issue discounts of four or five billion dollars a year because we had a bunch of venture capitalists who are willing to burn money and give it to their

SPEAKER_137: competitors who basically were making diseconomic decisions now the good news is okay that nonsense is over okay like that game is played because there's no more free money so when when dara says we're

SPEAKER_25: going to get to four or five billion dollars in profitability in 2024 i believe him because last year they had four or five billion dollars in discounts and all you have to do is stop giving

SPEAKER_22: people discounts and you have four or five billion in profits okay but that's not enough jason that's not enough right that's why a little more stock hasn't moved right and so i think you got to go after the cost structure of the business right and it's not because he's not a good leader it's not because

SPEAKER_33: anybody's done anything wrong it's just because we built these businesses at a moment in time okay when when when travis was was hearing 120 billion dollar valuations and when the with the tam that he was envisioning was much bigger etc like he just built a business that was sponsoring open source projects it was taking on a lot bigger surface areas v tolls right now that you've narrowed the focus you've got to narrow the surface area in terms of the people right 100 and so i'm i'm i'm a

SPEAKER_22: huge fan huge believer i think the company would do well uh but again my opinion i'm not an activist

SPEAKER_20: i'm not going to go you know bang on the company's uh you know head over this yeah but that's what i

SPEAKER_167: think they should do if i were running the business today i would i would you know figure out a way to

Jason Calacanis: uh get more fit all right that seems like the perfect place to leave it brad gerstman thanks so much and uh please come back quarterly updates quarterly every job right it's selfie time it's

SPEAKER_402: selfie time let's do it here we go absolutely i'm gonna get mine going there we go

SPEAKER_111: that's what i do listen uh you you're just so honest you're so insightful thanks for coming uh you

SPEAKER_84: were you were great today best brad episode ever a real treat for our audience as we wrap up the new year i wrap up this year and we're looking to have you on quarterly uh and just really getting this wisdom thanks again brad everybody follow what is your twitter's i i know it's alt cap at alt cap a-l-t-c-a-p if you want to get some great tweets that's where you're going we'll see you all next time bye-bye