Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. Hello, I'm
Speaker 1: Jason Kelly and I'm Carol Masser. Welcome to the weekend
Speaker 1: edition of Bloomberg Business Week. Over the next couple of hours. Well,
Speaker 1: we've got a special couple of hours in fact for you,
Speaker 1: because we spent Jason spent some time in Atlanta and
Speaker 1: we really got to check in with some of the
Speaker 1: academic leaders, the business leaders that are there and really
Speaker 1: got a taste of what's going on in that city,
Speaker 1: because it has become quite a hot spot. You know, Carol,
Speaker 1: I told people in Atlanta. I wasn't just being flattering
Speaker 1: that if you want to get a look at the
Speaker 1: American economy sort of where it is and where it's going,
Speaker 1: what a future city of America looks like, you really
Speaker 1: need look no further than Atlanta. As you say, the
Speaker 1: academic element, the tech element even talked a little bit
Speaker 1: about Jamba. Yeah, exactly. And of course we've got insights
Speaker 1: from the magazine. It's a double issue, so we continue on.
Speaker 1: Among those stories is one called Faked Alaska. It's the
Speaker 1: promise of a trans Arctic data a cable that would
Speaker 1: speed up the web for much of the planet. It
Speaker 1: raised hopes, it created dreams and attracted investors, and created
Speaker 1: a company that was just Jason built on fraud. We're
Speaker 1: also going to look at the world of fees going
Speaker 1: way down, really down to zero when it comes to
Speaker 1: your brokerage account. But how are those firms making money.
Speaker 1: We're going to tell you the secret they're making money
Speaker 1: on you. And we've got a company called Suited No Jason.
Speaker 1: It's not about a cool company that's making nice jackets
Speaker 1: and pants, sorry, but it's actually about a company that's
Speaker 1: using AI and algorithms to recruit for Wall Street. And
Speaker 1: we're also gonna have some of those fun conversations I
Speaker 1: had down in Atlanta. But first we got to talk
Speaker 1: about the global economy and when you try to understand
Speaker 1: where the US may be going, where other major economies
Speaker 1: are going. One of the cautionary tales out there is Japan.
Speaker 1: So we talk often about the low rate and negative
Speaker 1: right world that we live in what happens after it.
Speaker 1: So we've got a country that really ernear to all
Speaker 1: of this to look to. Yeah, it's probably not something
Speaker 1: that you want to brag about necessarily, but Japan has
Speaker 1: been in this state for quite some time, and where
Speaker 1: they go next may portend what the rest of the
Speaker 1: world does next. Christina Lyndblad is here with us. It's
Speaker 1: a great story in this week's edition of Business Week,
Speaker 1: all about Japan Mr Kuroda and what he may end
Speaker 1: up doing next. What's going on there? Well, I kind
Speaker 1: of think of Banko Japan now is a center of
Speaker 1: desperate innovation because it's sort of like by necessity, they're
Speaker 1: leading the world, um, you know, into this new area
Speaker 1: and trying to basically, you know, nudge up growth. And
Speaker 1: so this is a country that brought us negative interest
Speaker 1: rates and QUI quantitative easing UM and now they're doing
Speaker 1: something that some people say may actually be impossible. Well,
Speaker 1: don't tell us that yet, because just remind us about
Speaker 1: how long Japan has been why they are the poster
Speaker 1: child for negative rates and kuwi, because they're they've been
Speaker 1: doing this for a long time, right, So they tried
Speaker 1: uh sending the UM sorry rates negative, you know, and
Speaker 1: then when they didn't succeed, they did QUIE in two
Speaker 1: thousand one, right, so way ahead of everybody else. Right,
Speaker 1: And remind us also because I think it's important the
Speaker 1: economic backdrop for Japan because you know, when we think back,
Speaker 1: you go back to the early nineties, the late eighties,
Speaker 1: early nineties, I mean, this was an economic beheamoth that
Speaker 1: Americans were terrified of in many ways, and the intervening
Speaker 1: couple decades have been ugly economically, right. I mean there
Speaker 1: was a big property bubble that burst, and acid bubble,
Speaker 1: and then you know, deflation set in. And basically, I
Speaker 1: mean they've been fighting deflation and it's not just deflation,
Speaker 1: but the country is aging rapidly, so it's basically kind
Speaker 1: of downshifted. Growth has down shifted in a permanent way. Um.
Speaker 1: So they've been trying into you know, kind of you know,
Speaker 1: sort of juice the economy by any means possible. Uh.
Speaker 1: And they've succeeded somewhat. I mean there used to be
Speaker 1: sort of this pattern of falling into recession you know,
Speaker 1: every other year almost um. But um. So this latest attempt,
Speaker 1: you know, basically is designed to to attack a problem
Speaker 1: that is basically is twofold. One is confidence, the confidence
Speaker 1: of the consumer, consumer and business. So the issue is
Speaker 1: that yields on low on long term bonds have fallen
Speaker 1: to a level where basically the message that that's that
Speaker 1: that gives you know, to the market, to consumers. Is
Speaker 1: that out in the long term, we still don't see
Speaker 1: any inflation, we don't see much growth. So Bank of
Speaker 1: Japan wants to nudge up long term meals. Also for
Speaker 1: another reason, there are forty million pensioners in Japan and
Speaker 1: that number is only going to keep growing. So those
Speaker 1: people are being penalized in their savings by those very
Speaker 1: low low yields. The question, though, is how can you
Speaker 1: nudge up long term yields on long term you know,
Speaker 1: um maturities well at the same time telling the markets
Speaker 1: that you are, you know, in a stimulus position and
Speaker 1: you want to keep short term rates low. So it's
Speaker 1: an experiment, it is, but some people believe that it
Speaker 1: really cannot be done because the thing is that so
Speaker 1: by O j has said they're willing to even stop
Speaker 1: buying certain kinds of bonds with twenty maturities of twenty
Speaker 1: years or and over. But the feeling is though when
Speaker 1: when they do that, though, other actors may step into
Speaker 1: the market to buy so then basically that will be
Speaker 1: just foiling their attempts, you know, to sort of you know,
Speaker 1: have prices go down and you'ld go out. I mean
Speaker 1: the concern is too that by keeping long term rates
Speaker 1: so low, the signal or message that sends to the
Speaker 1: world at large and certainly to their folks in their
Speaker 1: economy that the outlook is not great. So they tend
Speaker 1: to be savers rather than spenders. Which that's right. You
Speaker 1: can't jump start the economy there. Yeah, if you feel
Speaker 1: like the economy's can't flat on its back for that long,
Speaker 1: you're going to think, like, you know, is my retirement safe?
Speaker 1: Like you know, I shouldn't be spending. But everybody's watching, right,
Speaker 1: because I think about how often we talk on our
Speaker 1: show about this low rate or negative rate world in
Speaker 1: places we never thought would happen. The US hasn't quite
Speaker 1: gotten there yet, but we do wonder how do we
Speaker 1: come out of this period of either negative rates or
Speaker 1: low rates and how what what's the outcome? And I
Speaker 1: guess we're all watching Japan. Well, I think what you
Speaker 1: said is we all used to be afraid of Japan
Speaker 1: as a competitor. I think now we're all afraid that
Speaker 1: we will become Japan. And that's Christina Lynn lad talking
Speaker 1: about Bank of Japan Mr Kuroda. We talked to Kathleen
Speaker 1: Hayes about him a lot. He's got a tough job. Yeah,
Speaker 1: he absolutely does. But when we're looking for maybe what
Speaker 1: does it mean to come out of a low rate
Speaker 1: or negative yield environment, we're all kind of keeping an
Speaker 1: eye on Japan to see how they do. I want
Speaker 1: to make sure our investors get the best deal passable,
Speaker 1: and that's called free free trade. And so I've been
Speaker 1: on that pursuit a mission basically for almost forty years
Speaker 1: because I cut the commission's way back when when the
Speaker 1: regulation was permissible. And I've been on that quest for
Speaker 1: now forty years. So now we finally made it happen
Speaker 1: in zero commission for transactions. Now you might have to
Speaker 1: pay for other thing, but for transactions it's zero. And
Speaker 1: that's Charles Schwab. We caught up with him earlier this week.
Speaker 1: He's a pioneer clearly in the discount brokerage space, and
Speaker 1: now there are some questions about how they make money
Speaker 1: going forward. For more on that fee fight, we bring
Speaker 1: in Mike Reagan to talk about his story and what
Speaker 1: the elimination of fees really means. So Mike break it
Speaker 1: down for us. No one was shocked here, but there
Speaker 1: are some big implications. Yeah. I mean it certainly has
Speaker 1: been trending towards zero for years. I mean, when you
Speaker 1: think back to the seventies, it costs twinter bucks and
Speaker 1: commissions to trade of stock. I mean it's mind boggling
Speaker 1: when you think of it today. And Schwab came in.
Speaker 1: There was start it with a really a regulation change
Speaker 1: in the seventies that sort of ended this what they
Speaker 1: called fixed commissions, you know, fixed price commissions, and it
Speaker 1: allowed brokerages to set their own commissions. So Schwab said,
Speaker 1: I'm gonna cut mine. Uh. He was a newsletter writer
Speaker 1: by then, he was running a brokerage. He said, I'm
Speaker 1: gonna cut mine a seventy dollars, and the discount brokerage
Speaker 1: era was born. Obviously, when computers took over later in
Speaker 1: the nineties, it just chiseled away at those fees. I
Speaker 1: think it's like thirteen bucks to trade on Schwab in
Speaker 1: two thousand and five is less than five bucks most recently.
Speaker 1: But on the margins, new startups were coming in robin Hood.
Speaker 1: The robin Hood app allowed investors to trade for free. Uh.
Speaker 1: Some of the brokerages started allowing certain ETFs to be
Speaker 1: traded for free. So it's clear that this pressure was building.
Speaker 1: UM to me, I think that the interesting thing if
Speaker 1: you're a customer of one of these firms is the
Speaker 1: important thing to ask is, well, how are they making
Speaker 1: money exactly if they're not charging me a commission. So
Speaker 1: that's a little bit of what we get into in
Speaker 1: the story there. Well, I think that was the question
Speaker 1: everybody asked when it first hit. We did definitely see
Speaker 1: their stock prices, you know, go down, but it's like, okay,
Speaker 1: so how are they making money? They do have other
Speaker 1: ways that yeah, don't worry. Don't worry about them, they're
Speaker 1: not you know. And the sort of line we use
Speaker 1: in the story is that if you don't know how
Speaker 1: company is making money, chances are you're the product. Right.
Speaker 1: It's what's been true of Facebook and Google, you know,
Speaker 1: free services, but it's you, your eyeballs and your personal
Speaker 1: data that is valuable to the companies. So for Schwab,
Speaker 1: one of the most and for all the discount brokerages UM,
Speaker 1: one of the most important ways they make money is
Speaker 1: on the cash that you currently do not have invested
Speaker 1: in the stock. They make money with your money they
Speaker 1: make money with with your spare money, your cry powder
Speaker 1: as they called on the wall streets. So Swab has
Speaker 1: something like three point seven trillion dollars in client assets
Speaker 1: on its platform as of August, that is, and you know,
Speaker 1: about two sixty five billion of that is just cash.
Speaker 1: It's not invested in the markets, so a small chunk
Speaker 1: of a huge pie that allows job to to invest
Speaker 1: it out um and make money off of that idle cash. UM.
Speaker 1: And they do pay the customer client's interest on that cash,
Speaker 1: but it's a it's a relatively low as much as
Speaker 1: about half of one percent for big balances, is low
Speaker 1: as about zero point one percent, so one tenth of
Speaker 1: one percent. Obviously, yields are low. Um. You can make
Speaker 1: better return on your cash elsewhere and money market funds
Speaker 1: in traditional bank deposit accounts um. But it's not convenient
Speaker 1: then for a trader. So um. You know, people will
Speaker 1: keep some amount of cash in there in case they
Speaker 1: see a stock and all of a sudden they want
Speaker 1: to buy, and Schwab is happy to take it and
Speaker 1: reinvest it. UM. And there's other ways. Uh. They make
Speaker 1: money when they make loans to write to folks who
Speaker 1: want to do trades too, if that part is right. Yeah,
Speaker 1: marginal lending. Uh. You know, if you if you want
Speaker 1: to lever up, there's services like that. If you want
Speaker 1: a short at stock, they will loan you the securities
Speaker 1: and charge you a percentage on on that. UM. But
Speaker 1: what are the really interesting ways that all these companies
Speaker 1: make money? UM. And it's been somewhat controversial in the industry,
Speaker 1: but it's called payment for order flow. So basically what
Speaker 1: they do is if if you or I place orders
Speaker 1: to buy and sell certain stocks. UM. There are companies
Speaker 1: like Citadel, like Virtue Financial, financial electronic market makers or
Speaker 1: wholesalers they call them. Uh. A few years ago, they
Speaker 1: would be referred to more as high frequency traders. They
Speaker 1: will basically buy up the order flow from these companies
Speaker 1: and match it internally, so they don't even take it
Speaker 1: to the stock market. Uh. Say Jason, you want to
Speaker 1: buy a stock for ten dollars and Caroline you're selling
Speaker 1: it for. Well, they'll internalize that trade and they'll make
Speaker 1: a cent per share. Uh. It doesn't sound like a lot,
Speaker 1: but if you do it enough over and over again,
Speaker 1: it at those pennies add up. You see something like that,
Speaker 1: you start thinking about flash bullys, and you started thinking
Speaker 1: about all these different sort of elements of Wall Street
Speaker 1: that are a little bit more mysterious to the everyday investor,
Speaker 1: less mysterious to you because you know so much about
Speaker 1: the markets. But play this out for us, I mean,
Speaker 1: where does this end and does it lead to a
Speaker 1: different kind of collection of of firms that have the
Speaker 1: most power on Wall Street? Well, it certainly is a
Speaker 1: super competitive industry right now, um, And it's that sort
Speaker 1: of electronic market making is very much a black box.
Speaker 1: It's hard to understand exactly what's going on it, but
Speaker 1: you have to sort of, you know, step back and
Speaker 1: compare it to again back in the days when it
Speaker 1: costs two dollars to trade, and stocks were quoted in
Speaker 1: UH fractions rather than decimals, so you were paying a
Speaker 1: much bigger spread than one cent. You know, where you're
Speaker 1: paying the difference between an eighth and a quarter or
Speaker 1: whatever the quotes were UH price. And so the overall
Speaker 1: trend I think has been great for the average show
Speaker 1: for the investor. There are still questions on the margin
Speaker 1: about how this all works. Um. But again, if you
Speaker 1: if you're paying zero dollars for a service, um, how
Speaker 1: much can you really complain? Uh, there is a question
Speaker 1: on Uh, Like I said, how are they making money?
Speaker 1: And think it's just important for the users to know
Speaker 1: to understand how the companies are making money off of them,
Speaker 1: and that's what we try to set out to do
Speaker 1: in the well. And I do think especially the comparison
Speaker 1: you make with Facebook and Google and others probably does
Speaker 1: make people set up a little straighter these days, sort
Speaker 1: of knowing what we know about candidly how our data
Speaker 1: is being used and listen to you talk and I
Speaker 1: feel like this is totally a lesson in scale and users, right,
Speaker 1: the Amazon model, right, for how long did they not
Speaker 1: make money? But look at all of the users they
Speaker 1: now have and can tap into them for so many
Speaker 1: different things. And that's what this is about, right. It's
Speaker 1: it's making a little bit of money on a large
Speaker 1: chunk assets, which is you know, that's why it's so competitive.
Speaker 1: They want to have They want to gather all those
Speaker 1: assets as much as they can, and their power is
Speaker 1: in having as many users and as much assets, right, Absolutely,
Speaker 1: And sort of one interesting angle as up as a
Speaker 1: result of this is all of a sudden if it costs, uh,
Speaker 1: someone zero to trade of stock is not going to
Speaker 1: influence on the trade more. Right, then that than that
Speaker 1: order flow that they're selling to these other firms gets bigger,
Speaker 1: they make a little bit more money on that. A
Speaker 1: lot of financial planners will say, you know, being a
Speaker 1: sort of hyperactive trader isn't necessarily the best thing for
Speaker 1: your long term results. That's Mike Reagan. He keeps a
Speaker 1: watch on the financial markets, equities, in particular for us
Speaker 1: here at Bloomberg. He wrote this story with Annie Massa
Speaker 1: and Uh. I think it's fascinating to kind of look
Speaker 1: at what's going on in the digital social world to
Speaker 1: get an idea of maybe what these online brokerages are
Speaker 1: up to. Yeah, I really understood the business more after
Speaker 1: talking to him, and where they're going to be able
Speaker 1: at least they think make some money. It probably won't
Speaker 1: come as a surprise. It has more Wall Street firm
Speaker 1: stress diversity and inclusion in hiring that someone has come
Speaker 1: up with an app for that. Well, it's not really
Speaker 1: an app, but it is an AI powered recruiting tool. Well,
Speaker 1: it's bringing the world of online dating to hiring bankers.
Speaker 1: Eric Shatzker joins us from London with this story. It
Speaker 1: spans the globe, as you do, Eric, but really taking
Speaker 1: technology to a very human centric business. Tell us about suited. Well,
Speaker 1: it's about time, you might say, Jason and Carol, that
Speaker 1: somebody brought artificial intelligence to the Wall Street recruiting process.
Speaker 1: Because this industry, for all its efforts to become more
Speaker 1: diverse and to become more inclusive, UH is still dominated
Speaker 1: by white men who are typically elite, college educated, and
Speaker 1: that's going to need to change. It needs to change
Speaker 1: not just because we live in changing times, but because
Speaker 1: these firms, like so many other companies, recognize that the
Speaker 1: bigger your talent pool, the better the quality of your recruiting,
Speaker 1: and ultimately the better your employees. We're talking about investment bankers.
Speaker 1: Here are people who do mergers and acquisitions, people who
Speaker 1: do capital markets, people who do restructuring. But the same ladge,
Speaker 1: because I say that applies the companies worldwide, applies to
Speaker 1: Wall Street. The challenge, of course, is volume. It's very
Speaker 1: difficult to fan out across hundreds of universities in the
Speaker 1: United States and open up the recruiting process to the
Speaker 1: degree that it can capture everybody unless you put technology
Speaker 1: to work. And that's what this tool is designed to do.
Speaker 1: It's a screening process that surfaces candidates regardless of their
Speaker 1: skin color, background, or any other traits that might sway
Speaker 1: a campus recruiter. So what specifically tell us a little
Speaker 1: bit more eric about this algorithm? I mean, all right,
Speaker 1: as you said, it takes out um any kind of
Speaker 1: you know, what color, their ethnic backgrounds, what sex. But
Speaker 1: what conscious Biascious is the word that's used in the
Speaker 1: recruiting industry because if you sit down with someone, you
Speaker 1: might find that person appealing for reasons other than qualifications.
Speaker 1: That person may sound like you, that person may enjoy
Speaker 1: some of the same things you enjoy. That person may
Speaker 1: have played lacrosse, and if you played lacrosse, then you
Speaker 1: might be more inclined to want to hire that person,
Speaker 1: to want to work with that person. But that person
Speaker 1: may not have all of the right attributes to become
Speaker 1: a top performing banker. He or she might just be
Speaker 1: appealing to you as a human being, and that's not
Speaker 1: really a good way to recruit. And so you bring
Speaker 1: artificial intelligence into the process by designing a model, and
Speaker 1: the model is built using the characteristics of the top
Speaker 1: performing employees at each firm, having candidates fill out comprehensive
Speaker 1: profiles and then running those profiles against the models. That
Speaker 1: is the algorithm in action, and it spits out a score.
Speaker 1: The higher the score, the better the fit the candidate
Speaker 1: is for that individual firm, and the models vary by firm.
Speaker 1: Not every firm is looking for the same things, not
Speaker 1: every firm values the same things. Not all bankers at
Speaker 1: one firm do the same things as bankers at another firm,
Speaker 1: and so you need to customize it to make it effective.
Speaker 1: And so Eric tell us about some of the founders
Speaker 1: here and where they came from, because it feels notable
Speaker 1: that these folks are coming from firms who are trying
Speaker 1: to be competitive, maybe with some of the bigger bulge
Speaker 1: bracket banks, trying to get an edge, which is how
Speaker 1: so many good ideas come about. Right, that's a very
Speaker 1: good point. We know that firms like JP Morgan and
Speaker 1: Goldman Sacks and Bank of American City Group have gigantic
Speaker 1: recruiting operations, but the smaller firms, firms, like more specialized
Speaker 1: investment banking firms like Mulis and Company, for example, or
Speaker 1: PJT Partners or Hulahan Loki Uh need to find different
Speaker 1: ways to compete, uh, in order to win those you know,
Speaker 1: M and A mandates or corporate finance mandates away from
Speaker 1: the bulge bracket banks. And so that's why they've embraced
Speaker 1: this artificial intelligence powered recruiting tool, perhaps sooner than some
Speaker 1: of the larger firms might have. They're a little more nimble,
Speaker 1: they're a little more creative. We've seen that, and that's
Speaker 1: how they've been successful in taking market share away from
Speaker 1: the big banks. And now they're taking this leap perhaps
Speaker 1: a little earlier than others might, in an effort to
Speaker 1: be that much further ahead of the game and to
Speaker 1: raise their talent game so that so that they are
Speaker 1: in fact as good as they want to be. There
Speaker 1: are nine firms in total on the Suited platform. It's
Speaker 1: likely to grow, but all of them qualify as independent
Speaker 1: investment banks. There aren't any bulge bracket firms. They're just yet.
Speaker 1: You know what's interesting about this, Eric, and I think
Speaker 1: how often Jason nine, I know you do too. We
Speaker 1: increasingly talk about the role of technology in the financial
Speaker 1: community on Wall Street, whether it's trading algorithms, you know,
Speaker 1: having a bigger, bigger role. But when it comes to
Speaker 1: investment banking, you still need people involved, right, So what
Speaker 1: you want is you want the best people that hopefully
Speaker 1: are doing the biggest deals that ultimately bringing the most
Speaker 1: fees to the firm. This is a human capital business.
Speaker 1: There is no killer app, there's no shiny new product.
Speaker 1: You know. The tantalizes the client. The client is persuaded
Speaker 1: uh to do business with a firm and ultimately to
Speaker 1: do repeat business with the firm by the quality of
Speaker 1: the advice that that company gets. And that's Eric Schatzker
Speaker 1: talking about suited, really taking us inside how Wall Street
Speaker 1: is thinking about a really important issue, which is how
Speaker 1: not to be a bunch of old white dudes. Yeah, exactly,
Speaker 1: create diversity, bring diversity into the recruiting pool, and potentially
Speaker 1: maybe get a better return when it comes to some
Speaker 1: of those investment bankers. The promise of a trans Arctic
Speaker 1: data cable that would speed up the web for much
Speaker 1: of the planet raised hopes, attracted investors, and made a
Speaker 1: company that was built on dreams and fraud. This is
Speaker 1: a story that will come blow your mind a little bit.
Speaker 1: It will, and it's pretty complicated, to be honest. Austin
Speaker 1: Carr wrote it. He's here, he has traveled the globe
Speaker 1: in many ways the story have gone to places that
Speaker 1: probably none of the rest of us have been. Are
Speaker 1: very few the rest of us have been. But let's
Speaker 1: start with a very basic question, Austin, which is what's
Speaker 1: this cable all about? What's the dream that everybody is pursuing.
Speaker 1: So I think that's one of the biggest misconceptions about
Speaker 1: the web is that everything is in the cloud. It's
Speaker 1: actually all underwater. The vast majority of the Internet, anything
Speaker 1: you're streaming on Netflix or YouTube, it all goes underwater
Speaker 1: from different servers around the planet. So all these massive
Speaker 1: companies like Google and Facebook and Amazon have spent billions
Speaker 1: building undersea fiber optic cables that connect Asia to the
Speaker 1: America's to Europe, and that's how all the data gets
Speaker 1: around the planet. They also all go along similar paths.
Speaker 1: They go through the Atlantic, in the Pacific, places that
Speaker 1: are easier to construct. This company that I'm writing about,
Speaker 1: called Quintillion, came up with this idea to build through
Speaker 1: the Arctic, just like Shackleton wanted to build through the
Speaker 1: Northwest Passage, because that's actually shorter than other routes around
Speaker 1: the planet. Um and that would speed up web speeds
Speaker 1: way fast than than what you see from traditional route.
Speaker 1: So that was a big opportunity. And it sounds really logical,
Speaker 1: but you're dealing with the Arctic. You're dealing with the Arctic.
Speaker 1: And and and so I spend time up in Barrow, Alaska,
Speaker 1: which is the northernmost community in the US. Um like
Speaker 1: it's freezing up there. I mean it's ice for year round.
Speaker 1: In fact, that one of the only reasons you can
Speaker 1: build this cable through the Arctic is because of climate change,
Speaker 1: which is unfortunate, but you know, it warms open a
Speaker 1: little bit longer in the year. So they have a
Speaker 1: couple of months to actually build this thing. But they
Speaker 1: have to use massive ships. It took fifteen ships of
Speaker 1: fourteen ships to build this thing. They have this plow
Speaker 1: that's fifty five tons that they had to trench under
Speaker 1: underwater bury a cable four meters deep into the seabed,
Speaker 1: which was quite difficult to make sure that fishing boats
Speaker 1: and and icebergs don't disrupt this thing. And and you're
Speaker 1: also dealing with blizzards and freezing temperatures, and you don't
Speaker 1: want to get stuck, right, don't want to get stuck. Yeah,
Speaker 1: it's called pancake ice. Essentially, when it looks like a pancake,
Speaker 1: it starts forming in the seabed around the boat. And
Speaker 1: that's how Shackleton got got crushed in there on his
Speaker 1: ship a hundred years ago in the Arctic. Was ice
Speaker 1: formed around his boat, and that creates a prison of
Speaker 1: white you can't get out. Wow. So to do something
Speaker 1: like this, it's quite an audacious goal. Usually need an
Speaker 1: entrepreneur with a big vision. There was one, but again
Speaker 1: it's a complicated story. Tell us about Elizabeth Pierce. Elizabeth
Speaker 1: Pierce is an unlikely founder for a company. She had
Speaker 1: a background in Alaska telecom companies UM, but she was
Speaker 1: also working in HR. She wasn't necessarily the someone who
Speaker 1: had a lot of executive experience who had done startups before.
Speaker 1: But she saw this opportunity and she went after. And
Speaker 1: if there's one thing that I talked to about three
Speaker 1: dozen people for the story who know her, they say
Speaker 1: that she's incredibly tenacious, just works around the clock fourteen
Speaker 1: hours a day, to the point that she would get
Speaker 1: frequently sick because she was working so much UM at
Speaker 1: the same time. It doesn't just take a tenacious entrepreneur.
Speaker 1: It takes hundreds of millions, if not more than a
Speaker 1: billion dollars to build this network through the Arctic, to
Speaker 1: connect the America's to Asia to Europe um. And that
Speaker 1: was the one thing that she didn't have going into this.
Speaker 1: She had to raise upfront about two hundred and seventy
Speaker 1: billion dollars just to build the Alaska segment of this
Speaker 1: subsee Internet cable alone. And I think that's really where
Speaker 1: this story begins, all right, But she did get the money.
Speaker 1: How did she get the money? Through Forge contracts? You
Speaker 1: could say basically what happened was for a couple of years,
Speaker 1: she was just really staking her career on this. She
Speaker 1: really just wanted to build this network, but couldn't find
Speaker 1: the funding. UH, they'd partner with larger companies. They had
Speaker 1: sought funding from smaller Alaska telecoms, but never enough that
Speaker 1: that would reach a major capital level, you know, hundreds
Speaker 1: of millions dollars of injected capital. At the same time,
Speaker 1: a New York investor comes along, Cooper Investment Partners, which
Speaker 1: are is backed by Ukrainian oligarch named Len Blotton vic Uh.
Speaker 1: It's it's run by Stephen Cooper, who is the CEO
Speaker 1: of Warner Music Groups, so pretty high profile investors, and
Speaker 1: suddenly they're taken by Elizabeth And what is the reason
Speaker 1: for that? Because she starts showing them contracts that are
Speaker 1: worth hundreds of millions of dollars six hundred million dollars
Speaker 1: in aggregate, a billion plus of guaranteed revenue for ring
Speaker 1: revenue stream of just people feeding off this network and
Speaker 1: what the r o I would be. And suddenly you
Speaker 1: have these massive investors funneling tens and hundreds of millions
Speaker 1: of dollars into the startup. But for two years it
Speaker 1: seemed like it was real. I think that was the thing. Basically,
Speaker 1: Elizabeth Pierce, in addition to being tenacious, she's also incredibly
Speaker 1: protective and defensive of her business. Uh. There's a wonderful
Speaker 1: scene in the story where at a telecom conference someone
Speaker 1: raised doubts. They joked at Elizabeth pierce project sound like
Speaker 1: it was out of a Jewels Verne novel. And Elizabeth
Speaker 1: heard this through the grapevine and ran up to this
Speaker 1: attendee and just really ripped him apart. And and and
Speaker 1: that was the type of defensiveness that both people admired
Speaker 1: but also came to raise a lot of doubts about
Speaker 1: what this project was really about. And so ultimately it
Speaker 1: was kind of a good old fashioned scam. I mean
Speaker 1: she was literally forging the signatures and then facts and
Speaker 1: in these contracts and saying, hey, we won the deal,
Speaker 1: amazing exactly. And this went on for several years where
Speaker 1: no one had any idea. This is a small team
Speaker 1: in Alaska, but they even the other employees at Quintillion,
Speaker 1: the startup, did not know anything was going on. She
Speaker 1: really she was the only one talking to investors. She
Speaker 1: would keep all her documents and a private filing cabinet,
Speaker 1: which one employee was scolded for one's opening. She used
Speaker 1: her personal Google Drive to share all these contracts with
Speaker 1: their investors in New York, and no one else had
Speaker 1: the password to it. Um so she very much was
Speaker 1: secretive about this at the same time that secrecy is
Speaker 1: very common at companies like Tesla and and and Apple.
Speaker 1: You know, this hasn't raised too many eyebrows. It's just
Speaker 1: a it's a fast moving, fast paced move fast and
Speaker 1: great things startup that Elizabeth Pierce was broughtuct part of,
Speaker 1: and no one had really realized anything was awry until
Speaker 1: the bills start going out, all right, and I want
Speaker 1: to get into that, but I do think about the
Speaker 1: big or wider like kind of internet telecom industry watching
Speaker 1: this happening, and I'm just wondering if there was a
Speaker 1: lot of scrutiny about what she was doing from the outside.
Speaker 1: You know that that's the most insane part of this
Speaker 1: because if you look at the different communities that they
Speaker 1: were serving in Alaska. You know, the place that I
Speaker 1: went to and Barrow, this is a tiny place. They
Speaker 1: have basically two or three restaurants. Um. You know, one's
Speaker 1: called Arctic Pizza, and it's just that that's right. It's
Speaker 1: very expensive, I will say, for the quality of pizza. UM.
Speaker 1: At the same time, you know, they somehow convinced these
Speaker 1: investors that there was massive tens of millions of dollars
Speaker 1: from these tiny native communities that was going to be
Speaker 1: poured back into the network before was built out the
Speaker 1: larger Asian Europe pipeline UM and and for some reason,
Speaker 1: this didn't raise doubts with investors. With competitors that did.
Speaker 1: I talked to a lot of competitors, including g c A,
Speaker 1: which is one of the massive telecoms there, and Martin Carey,
Speaker 1: who runs the VP of business there. He just said
Speaker 1: the math made no sense. They thought it was crazy.
Speaker 1: How could you justify spending hundreds of million dollars to
Speaker 1: service essentially six or seven tiny Arctic communities in the
Speaker 1: North slope of Alaska. It just made no sense of them. Well,
Speaker 1: and that leads to another interesting element to this, which
Speaker 1: is this was not a classic, you know, big institutional
Speaker 1: investors kind of getting hoodwinked. There were a lot of
Speaker 1: people who you know, put part of their life savings
Speaker 1: into this that Elizabeth Pierce also took advantage of company. Right.
Speaker 1: There was at least two individual investors. These are not
Speaker 1: you know, high profile institutional investors, but just you know,
Speaker 1: people who knew Elizabeth Pierce, who were family friends or
Speaker 1: there was one former uh we use a pseudonym in
Speaker 1: the story, Erica Blair, who had basically she doesn't have
Speaker 1: a lot of money, but she cobbled it together for
Speaker 1: family and friends. She really believed in this Alaska pipeline
Speaker 1: for closing the digital divide in Alaska, and she invested
Speaker 1: about forty dollars. Elizabeth Pierce promised that she that that
Speaker 1: would be enough for to get her two and five
Speaker 1: shares in the company. It turns out those shares just
Speaker 1: never existed. She just deposited in her personal bank account.
Speaker 1: If actually you do, you might There's just one part
Speaker 1: of the passage which I really love in the story,
Speaker 1: which is this other investor that she took advantage of. Uh.
Speaker 1: On the same day that he wrote a check for
Speaker 1: a hundred thousand dollars to Elizabeth Pierce, she opened up,
Speaker 1: according to court documents, a Wells Fargo account in her
Speaker 1: own name, her own retirement account. So she took his
Speaker 1: retirement savings and just made it her intention. She invested
Speaker 1: ten thousand dollars in her own, uh, you know, construction
Speaker 1: business that she ran on the side, paid off her
Speaker 1: credit card bills. At one point, wrote her adult son
Speaker 1: a check for five hundred dollars and put in the
Speaker 1: memo just because so where is miss Pierce. Well, the
Speaker 1: jig was up after these bills went out. There's there's
Speaker 1: only so long you have on paper. Hey, this this
Speaker 1: telecoms is gonna pay us a hundred million dollars. This
Speaker 1: Telecom's gonna pay us six hundred million dollars. And so
Speaker 1: all these investors at a certain point say, all right, well,
Speaker 1: we're gonna turn on this network. Let's get it ready.
Speaker 1: Let's start sending out these invoices. They were building out
Speaker 1: this thing in Alaska. They actually got it built, and
Speaker 1: so another employee, unbeknownst to him that this was actually
Speaker 1: a fraud, starts sending out the invoices. Suddenly customers get
Speaker 1: them and they think, what we never signed for this.
Speaker 1: There was one company in Alaska called m t A
Speaker 1: that got hooked into this, and Elizabeth had committed them
Speaker 1: two hundreds of millions of dollars in revenue commitment that
Speaker 1: would have bankrupted the company. So you can imagine that
Speaker 1: the shock of these small little teleco's that many some
Speaker 1: of them are nonprofits, suddenly getting these bills thinking whoa wa,
Speaker 1: whoa what? Where did this agree to this? To this?
Speaker 1: Did I actually sign this? Um? And that's when her
Speaker 1: plot starts to really unravel, and very quickly. And yet
Speaker 1: this is still a company that exists. It's got a
Speaker 1: new CEO, guy with the military background. Uh I believe,
Speaker 1: pretty serious individual. Absolutely. Um. So, basically, once the FBI
Speaker 1: got involved, they arrested Elizabeth Pierce, she tried to cover
Speaker 1: up her crime. Court document show she actually that Google
Speaker 1: a drive account that she shared. She dragged all of
Speaker 1: the contract files to the trash overnight, and so when
Speaker 1: they logged on to see where the contracts were, it
Speaker 1: just said Elizabeth Pierce has deleted seventy eight files, which
Speaker 1: is a pretty bad paper trail. Um. But after she
Speaker 1: went away, they did bring aboard this new CEO, George
Speaker 1: tron Su, who was a former Army vet very season
Speaker 1: telecom executive, who I got to spend time with, and
Speaker 1: I was super impressed. I mean, for as much as
Speaker 1: difficulties as they have to deal with. He he came
Speaker 1: aboard just days after she. She resigned from the company
Speaker 1: and was later arrested. UM and essentially had to complete
Speaker 1: the fiber Arctic network in Alaska, which took a ton
Speaker 1: of ships and you know, all that laying of the
Speaker 1: cable underground, and then get all their customers back, go
Speaker 1: out to them and say, look, I know this is complicated.
Speaker 1: This has been terrible pr for you. We've gotten you
Speaker 1: embroiled on a lot of legal issues, but like, please
Speaker 1: believe in this network. It actually does work, and for
Speaker 1: what it's worth, it does work. That's Austin Carr. I
Speaker 1: love Jason when he does a story. Because it's such
Speaker 1: a deep dive, we tend to send him to a
Speaker 1: lot of cold places around the world, and that included
Speaker 1: for this story, but not something that we had heard
Speaker 1: a lot about. Uh and it and the story really
Speaker 1: isn't over right because they are starting to provide internet
Speaker 1: service for those folks in Alaska. We'll see where it
Speaker 1: ultimately goes. It's such a fascinating tale, clearly a very
Speaker 1: strong character at the center of it all. But it's
Speaker 1: not a story that's over yet. Still more to come
Speaker 1: for sure, all right, So continuing my little road trip
Speaker 1: here to my hometown Atlantat this is a special interview
Speaker 1: in part because I grew up rooting for Georgia Tech
Speaker 1: and admiring the school. My dad went there low those
Speaker 1: many years ago. And we've got the new boss with us,
Speaker 1: uh Dr President I should say President Uncle Cabrera. He
Speaker 1: is the president of Georgia Tech, the Georgia Institute of
Speaker 1: Technology here with me in our Atlanta bureau. And not
Speaker 1: a far commute for you. You're just across uh um
Speaker 1: and new in the job, coming back to the place
Speaker 1: where you did your graduate studies. You had been the
Speaker 1: president of George Mason, and so, what have you learned
Speaker 1: one month into your new job. I thought I knew
Speaker 1: a lot about Georgia Tech having graduated from here. I
Speaker 1: have a son who just graduated in UH in May
Speaker 1: from in computer science. I've been involved with the Georgia
Speaker 1: Tech Advisory Board for years, and what I realized is
Speaker 1: that there is a lot more than I even imagine.
Speaker 1: Every week I find out a new thing and you
Speaker 1: lay your research project, student activity that just blows me away.
Speaker 1: It's been unbelievable this last six weeks. I've been just phenomenal.
Speaker 1: So a lot of moving parts. And I do think
Speaker 1: when you're president of a prestigious you know, institute university,
Speaker 1: UM like yourself, how do you prioritize, um, what needs
Speaker 1: to take up kind of you know what, what really
Speaker 1: gets your time? Especially when you come into a position.
Speaker 1: It is indeed a very intense job with multiple pressures
Speaker 1: that pulled you in many, many different directions. UM. But
Speaker 1: that's why this year and that one of the most
Speaker 1: exciting things that I'm working on is to produce a
Speaker 1: new vision and a new strategic plan for the school.
Speaker 1: So I'm having a lot of fun. I'm having meetings
Speaker 1: with deans, with faculty members, with students, with elected officials,
Speaker 1: with business leaders, to say, Okay, what do we all
Speaker 1: want to detect to become over the next decade. So
Speaker 1: in a way, I have given myself the most part
Speaker 1: of this year to to answer that question. And uh,
Speaker 1: it's funtime, stick because I'm getting to learn a lot
Speaker 1: more about the institute that I that I knew and
Speaker 1: I'm getting people quite excited. So, President Carbara, when you
Speaker 1: first came into the studio here, you and I were
Speaker 1: talking about literally where we're sitting. You know, our bureau
Speaker 1: is relatively over the past years recently relocated to this
Speaker 1: Midtown area and this is your neighborhood in a lot
Speaker 1: of ways. And one of the things that Georgia Tech
Speaker 1: has done is really expanded eastward into this part of
Speaker 1: Midtown and really helped revitalize it. Talk about what you're
Speaker 1: hearing from business leaders here about what they need from
Speaker 1: Georgia Tech. So we are so close that I actually
Speaker 1: rode my bike from my office to to come see you.
Speaker 1: And this is something that when I was a grad
Speaker 1: student here I would have not done. Not a chance,
Speaker 1: not a chance. And really the impact that Georgia Tech
Speaker 1: has had in Midtown and in Atlanta at large has
Speaker 1: been phenomenal. Even when when I was in Virginia, I
Speaker 1: would send some of my colleagues here to see what
Speaker 1: was happening uh in in Atlanta. And it's a combination
Speaker 1: of not just urban development and really triggering a revolution
Speaker 1: in what's going on in this area. But it's a
Speaker 1: revolution grounded on innovation and entrepreneurship. A beautiful piece of
Speaker 1: what happened in Midtown, in the area we called texts
Speaker 1: where was driven by some of the biggest employers in
Speaker 1: Atlanta who decided to open their innovation labs right there
Speaker 1: to tap the the the innovation that was happening at
Speaker 1: the institute. And how do you convince students to stay
Speaker 1: in Atlanta? I mean, how what what do you have
Speaker 1: to do? I know, you have a co op program
Speaker 1: that sort of gets them into those companies earlier, But
Speaker 1: you must worry a little bit about a little bit
Speaker 1: of brain drain after they graduate and go off to
Speaker 1: Silicon Valley or somewhere else. Right, I have a perspective
Speaker 1: on that which is not necessarily shared by a lot
Speaker 1: of people, which in my view, even when many of
Speaker 1: our graduates leave and go work in London or in
Speaker 1: the Silicon Valley or in in Boston. That is a
Speaker 1: net gain for Atlanta. Try the social capital that we're developing,
Speaker 1: personal connections that can translate into business connections in unforeseen ways.
Speaker 1: But the reality is that more and more of our
Speaker 1: graduates choose to stay in Atlanta. Atlanta has become an
Speaker 1: incredibly fun place to be in a place where many
Speaker 1: of our of our graduates, even the entrepreneurially inclined, would
Speaker 1: prefer to have their new ventures here. The cost of living,
Speaker 1: the cost of hiring talent in Atlanta is far superior,
Speaker 1: exactly lower than what you would find in places like
Speaker 1: Silicon Value or New York City. So so it's actually
Speaker 1: it's actually becoming a much better choice for many of
Speaker 1: our students. This whole college admission scandal, um, I'm just
Speaker 1: curious your perspective on it, uh I. It is It
Speaker 1: is sad that the you know that that people go
Speaker 1: through through that level of of even misconduct. There's this
Speaker 1: obsession with with getting their kids into a number of
Speaker 1: a number of schools. You know, this country is blessed
Speaker 1: with hundreds and hundreds of wonderful institutions with very different profiles.
Speaker 1: There is a school virtually for everyone, and people who
Speaker 1: go to all sorts of institutions can end up doing
Speaker 1: very very well. So I think it's a little bit
Speaker 1: of a reflection of an unhealthy aspect of the culture
Speaker 1: that we have created. And hopefully this will come down
Speaker 1: to UH to a much better place in the future.
Speaker 1: And that's Dr Unheld Cabrera. He is the president of
Speaker 1: Georgia Tech, Carol. We're lucky to get him, literally five
Speaker 1: six weeks into the job. He's not unfamiliar with the institution.
Speaker 1: He earned his graduate degrees here, but back from being
Speaker 1: the president of George Mason and learning a lot. One
Speaker 1: of the things that really captured a lot of what's
Speaker 1: going on in Atlanta. He actually rode his bite over
Speaker 1: from the Midtown campus to our office in Atlanta. I
Speaker 1: love that part start all right, So when you think
Speaker 1: about Atlanta increasingly, Carol, you're thinking about the tech scene
Speaker 1: and tech Square Labs. The co founder and partner, Dr.
Speaker 1: Paul Judge is with me. He and I were talking
Speaker 1: before we got started about the rich history of security,
Speaker 1: especially security related technology startups and beyond startups here in Atlanta.
Speaker 1: So give us, give us the scene because you're right
Speaker 1: in the middle of it. You have been involved in
Speaker 1: some incredibly successful companies. I was telling you that when
Speaker 1: we interviewed the CEO of a verdi Um yesterday, he
Speaker 1: was named checking pin Drop. You were the executive chairman,
Speaker 1: uh there, helped create that company very well known named
Speaker 1: Cipher Trust is another well known name here that you
Speaker 1: were involved in. What are you trying to do now,
Speaker 1: because now you've got the next generation on your mind? Absolutely?
Speaker 1: Do you know? After I co founded pen Drop with DJ,
Speaker 1: I sat around and looked around the block and said,
Speaker 1: at Georgia Tech alone, there's another twenty VJs, meaning a
Speaker 1: lot of bright individuals that want to go take the
Speaker 1: chance to bring their own dream and idea of life.
Speaker 1: And so I really set at a mission of how
Speaker 1: do we really encourage and support these aspiring entrepreneurs to
Speaker 1: go take that chance. You know what I said to
Speaker 1: Jason earlier, what I love about talking to individuals like
Speaker 1: yourself when you're making investments, because you invest as much
Speaker 1: in the company, if not more so, in the entrepreneurs themselves.
Speaker 1: But you see trends that will be dominant down the road.
Speaker 1: What do you see? You know, one of the biggest
Speaker 1: trends I'm excited about in in Atlanta is just really
Speaker 1: all of the raw ingredients that we have here. Right,
Speaker 1: I mentioned Georgia Tech, but more broadly, when we look
Speaker 1: at more House and Spellman and Emory, there's two college
Speaker 1: students here that are bright minds that want to go
Speaker 1: change the world. And then you look right down the street,
Speaker 1: right there's over twenty five four to one thousands in town.
Speaker 1: And those real companies have real problems, and we could
Speaker 1: take those problems, we could spend them out into real startups,
Speaker 1: and so we've been doing that. And then the third
Speaker 1: thing that we've been chasing is Atlanta is known for
Speaker 1: his music history and his film history, the culture. And
Speaker 1: so if you look at these I called in the
Speaker 1: three cs, the companies, the colleges, and the culture. Right
Speaker 1: as those three worlds come together and start to do
Speaker 1: so around technology and innovation, it unlocks like, really the future,
Speaker 1: what the next decade of technology looks like here? All right, Well,
Speaker 1: I want to ask you about a different letter. It's M,
Speaker 1: and that's money and VC and venture capital because that
Speaker 1: historically I know just enough to be dangerous about the
Speaker 1: scene here and that for a while at least, was
Speaker 1: something that was lacking here, certainly the homegrown venture capital.
Speaker 1: You've got some inbound from Boston or Silicon Valley. How
Speaker 1: is that element coming along not just from a seed stage,
Speaker 1: but from those investors who can really take it through.
Speaker 1: You Know what has happened is, after you know a
Speaker 1: number of successful companies started to grow here, uh vcs
Speaker 1: start to call and say, hey, can we come to town?
Speaker 1: I want to meet more companies here. Right, So just
Speaker 1: last week I had you know, Chris Lyons from Andresan
Speaker 1: harrowz and and Kolbe from Upfront and Low from uh
Speaker 1: Plexo Capital here speaking at a conference called a three
Speaker 1: C that we did. This week, there's another hundred investors
Speaker 1: in town for Venture Atlanta, and so people are starting
Speaker 1: to make the journey and even do so on a
Speaker 1: monthly basis. Uh and even starting to have their companies
Speaker 1: that are based on the West Coast open second offices
Speaker 1: here because of how fertile the talent pool is here. UH. Now,
Speaker 1: we still don't have a called a top desktile, top
Speaker 1: quartile billion dollar fund as based in Atlanta. So we're
Speaker 1: working on that as one of our next missions. But
Speaker 1: there's certainly much more interest for investors to come to
Speaker 1: town to participate in ecosystem. Well, Paul, you know what's
Speaker 1: interesting too, is and I feel like when you talk
Speaker 1: to mayors or governors, um, everyone always talks about trying
Speaker 1: to create another Silicon valley, right or another startup community.
Speaker 1: Everybody says they're doing it, but it does sound like
Speaker 1: you guys actually are doing it, and there's it's having
Speaker 1: an impact. What's necessary for really a VC and a
Speaker 1: start up community to take off. What's necessary is I think,
Speaker 1: you know, real entrepreneurs. It starts, you know, really with
Speaker 1: your build companies that solve a real problem and create value, right,
Speaker 1: and create returns and create wealth, and then you make
Speaker 1: the next generation. Jason was just talking about, you know,
Speaker 1: some of my good friends Chris Clause and Tom Noon
Speaker 1: and who created I s S right, j Chaudry, who
Speaker 1: created Cipher Trust, and you know those individuals continue to
Speaker 1: give back, UH, invest in the next generation of entrepreneurs,
Speaker 1: not just go retire into the sunset. Uh. And then
Speaker 1: you need a rich pool of talent in which we're
Speaker 1: blessed with here in Atlanta, right. We have this younger
Speaker 1: generation always coming up with new ideas, and so as
Speaker 1: long as you continue to support them, invest back in them,
Speaker 1: and open up the doorways. I think that's what it
Speaker 1: comes down. Two is not Yeah, well, I was gonna say,
Speaker 1: you know what. The other interesting element and I've really
Speaker 1: seen this being on the ground here Carol, and I'd
Speaker 1: be interested in Paul's take on this is this notion
Speaker 1: that this I keep referring to it as this collision
Speaker 1: of industries. You know, the entertainment industry really come coming up,
Speaker 1: the music industry, which has been very strong for a
Speaker 1: long time. I mean Atlanta used to be and I say,
Speaker 1: this is a long time Atlanta like a little bit sleepy.
Speaker 1: But you know, you look at Midtown, you look at
Speaker 1: this area where we are. It's happened, you know, and
Speaker 1: you've got people who are living in town and they
Speaker 1: don't all look the same. You've actually got some real
Speaker 1: diversity of talent here. It feels like that's an element
Speaker 1: that maybe attracting more and more people. Do I have
Speaker 1: that right? Absolutely? I mean you could have a very
Speaker 1: multifaceted life here, all right. I find myself in a
Speaker 1: room the other day and you got at one moment,
Speaker 1: I can be talking to Halo, who's the CEO of
Speaker 1: the Metro Chamber, and twenty minutes later talking to two Chains,
Speaker 1: and twenty minutes later, you know, talking to the president
Speaker 1: of Morehouse. And you know, when you have those types
Speaker 1: of intersections happening, Yeah, it's it's an environment not only
Speaker 1: to kind of work, but to sort of create a
Speaker 1: family and have a good balance life. I gotta say, Carol,
Speaker 1: I think that is the first time we've had a
Speaker 1: two Chains name drop on this show. So that's I'm
Speaker 1: checking that box. It's sort of like you know when
Speaker 1: you popped up one John Oliver the other night, Like
Speaker 1: the things are happening here on this show and this
Speaker 1: is a big moment. But you're totally right. I mean,
Speaker 1: it is amazing when you start to see this sort
Speaker 1: of critical mass that it feels like it's happening here.
Speaker 1: So what's missing, what's next? What's next? I think it's
Speaker 1: really bringing those three worlds together. They exist here. Uh,
Speaker 1: we're rich in each one of them, but they're still
Speaker 1: kind of on the opposite sides of the dance floor,
Speaker 1: like at a high school dance, right, And so as
Speaker 1: they start to integrate more and you know, the large
Speaker 1: companies do more business with the startups, and the startups
Speaker 1: do more business with the you know, the the entertainment leaders.
Speaker 1: Those are things that are gonna unlock the future. I mean,
Speaker 1: if you think about how much culture drives consumer behavior
Speaker 1: and draws consumer technology acquisition. When those come together, I
Speaker 1: think that unlocks Atlanta's next part of his journey. That's
Speaker 1: Paul Judge, the co founder of tech Square Labs. And
Speaker 1: I love talking to these kinds of individuals because you
Speaker 1: get an idea of, you know, where investor money is going,
Speaker 1: what might be some of the technologies, the companies, the
Speaker 1: individuals that are really going to be shaping our future. Well.
Speaker 1: And it's interesting too because this is literally, in figuratively
Speaker 1: at the core of where Atlanta is going. It sits
Speaker 1: right in midtown, but it also has a bead on
Speaker 1: where future growth, future jobs, really the future of the
Speaker 1: local economy is coming from. Alright, So Carol, I have
Speaker 1: got the best variation on sipper sweat going on. This
Speaker 1: is like a hybrid because Jeff Henry is here. He's
Speaker 1: the president of Jomba back with us. He's here in
Speaker 1: Atlanta because that's where he's based. The last time Jeff
Speaker 1: was with us. As you recall, Carol, we were talking
Speaker 1: about I mean essentially a reboot or a really a
Speaker 1: renovation maybe of the whole Jamba bread. Tell us where
Speaker 1: you are in that process. Yes, So we were together
Speaker 1: about four months ago and it's been in an exciting summer.
Speaker 1: We are well into our kind of rebranding process. It's
Speaker 1: kind of a threefold process. One is kind of updating
Speaker 1: our menu in many regards to increase the number of
Speaker 1: plant based offerings as well as reduced sugar offerings. Uh.
Speaker 1: And we updated our menu in June, and then we
Speaker 1: updated again two weeks ago featuring oat milk, and oat
Speaker 1: milk again is a great plant based alternative milk lower
Speaker 1: in sugar, lower in cholesterol, and it's we've got a
Speaker 1: number of smoothies you can swap it in. So that's
Speaker 1: just one example of kind of where we're going on
Speaker 1: that kind of lower shirt so on the oat milk front,
Speaker 1: because as you know, as you learned last time, I'm
Speaker 1: a little bit obsessed with this. Do I have it
Speaker 1: right that it's like a little bit better for the
Speaker 1: environment to some would say that for sure, yes, But
Speaker 1: also we just think that just from an overall nutrition
Speaker 1: standpoint that it's just it's delicious tasting. It's a great
Speaker 1: plant based alternative, and again it's lower in sugar, So
Speaker 1: if you're looking to kind of cut back on the
Speaker 1: sugar in your diet, it's a great option. Hey, Jeff,
Speaker 1: what's really guiding you in terms of product innovation? Is
Speaker 1: it nutritional? Is it caloric? Like? What are the metrics
Speaker 1: that really drive what you guys want to offer on
Speaker 1: your menu? Yeah, So we're certainly our innovation is certainly
Speaker 1: science based. So we have in house culinary experts, we
Speaker 1: have in house registered dietitians. Uh. And so we are
Speaker 1: kind of pulling together a variety kind of insights and
Speaker 1: data to make those decisions. Um. Certainly it's about making
Speaker 1: sure that we have a great breadth of offerings because
Speaker 1: everyone's you know, in different places in their own wellness journey. Uh.
Speaker 1: And so we just want to make sure that we
Speaker 1: have the right offering to reach as many people with
Speaker 1: a delicious product that we can. All Right, So tell
Speaker 1: us about what you're learning Visavi the consumer, And I'm
Speaker 1: especially interested in what you're learning here in Atlanta. You know,
Speaker 1: we're sitting here in midtown Atlanta, which I feel like
Speaker 1: and Carol, I'm sure it's just sick of hearing me
Speaker 1: say this, but it's it's a little bit of a
Speaker 1: microcosm I feel like of America in many ways of
Speaker 1: consumer days. You've got a bunch of companies big and small.
Speaker 1: You've got a big university, George Tech right around the corner.
Speaker 1: This has got to be an interesting lab for you.
Speaker 1: What are you learning? Yeah, it's Atlanta is a great marketplace. Again,
Speaker 1: I've been a resident of Atlanta for about thirteen years.
Speaker 1: But for us in john but you know, JOHNBA has
Speaker 1: about eight hundred stores in the US, uh and over
Speaker 1: four hundred of them in California, So our presence in
Speaker 1: the East is actually a lot less. And so we're
Speaker 1: looking at at Atlanta as a great opportunity to re
Speaker 1: enter a market in a new way and doing that
Speaker 1: through both company owned store a few company owned stores,
Speaker 1: as well as franchise ease. We're actually now franchised organizations.
Speaker 1: So we're heavily franchised UM and we actually are opening
Speaker 1: up a couple of stores here in Atlanta. We actually
Speaker 1: opened up one three weeks ago at Tech Square, and
Speaker 1: we're actually opening up one in three weeks right near
Speaker 1: the belt line, which is also a big major redevelopment
Speaker 1: here in Atlanta. Uh sorry, no, no no, no, go ahead.
Speaker 1: But what I'm curious about too, And I know we've
Speaker 1: talked about this, I think previously, but I do think
Speaker 1: about this space in general. Um, people are jumping on
Speaker 1: and rightfully so I feel like the wellness you know, bandwagon.
Speaker 1: So there are more and more choices out there for consumers.
Speaker 1: What do you make of the competitive landscape? Yeah, I
Speaker 1: think it's good to be in a competitive category. We
Speaker 1: certainly respect and appreciate our competitors. I think we differentiate
Speaker 1: our brand through kind of also our operations. Because we
Speaker 1: make great tastings movies, we can also do it in
Speaker 1: uh with great speed. And I think Jason, you mentioned
Speaker 1: you'd like to go to Jamba in the airport, so
Speaker 1: you probably see three four people online and you're starting
Speaker 1: to wonder do I want to get in that line? Right?
Speaker 1: So speed of service is critically important for us. Again,
Speaker 1: great tasting products are critically important for us. And just
Speaker 1: that the brand's positioning, I mean, Job has always been
Speaker 1: fortunate as the leader in the category. Next year will
Speaker 1: be our thirtieth year. We've been fortunate to always kind
Speaker 1: of get picked up in pop culture, be it you know,
Speaker 1: Hollywood movies or kind of music, and it gets a
Speaker 1: out of brand recognition to help us stand out in
Speaker 1: the crowd and help us differentiate ourselves. I want to
Speaker 1: just follow up, because you guys do Jamba at home, right, Yes,
Speaker 1: we do have a few licensed products as well, and
Speaker 1: certainly with focused brands now as our kind of parent
Speaker 1: corporation will continue to look at that space. But there
Speaker 1: are a couple of products for Jomba both at home
Speaker 1: as well as kind of fruit snacks on the go.
Speaker 1: Is that a big Is that big opportunity though for
Speaker 1: you guys, because I just think if you get people
Speaker 1: at home too, it just kind of translates back and
Speaker 1: forth to you know, your retail stores and so on
Speaker 1: and so forth. Yeah, we we definitely think it's an opportunity,
Speaker 1: and I think it depends upon kind of which category
Speaker 1: you're you're talking about. Is its smoothies, is it juices?
Speaker 1: But certainly helping build the brand outside the four walls
Speaker 1: of the store or the kiosk in the airport is
Speaker 1: definitely a big opportunity for us. All right, So geographically,
Speaker 1: where do you go next? So again we're fortunate to have,
Speaker 1: you know, a strong, strong brand presence in the western US.
Speaker 1: We've got about six hund stores or in the West
Speaker 1: coast or kind of southwest, with about two hundred here
Speaker 1: in the eastern US. So we are looking to kind
Speaker 1: of both grow store units in fill locations in the
Speaker 1: West and then a number of markets here in the east.
Speaker 1: Certainly Atlanta is one of them, but certainly the southeast.
Speaker 1: There's a lot of opportunity for JOHNBA to grow. And
Speaker 1: that's Jeff Henry, the president of JOBA, in such an
Speaker 1: interesting position, Carol, relatively new to the job, with some
Speaker 1: big vision. It's private equity backed for where this market
Speaker 1: could go. I mean, I love their smoothies, but he's
Speaker 1: gotten much more on his mind, all right. You know, Carol,
Speaker 1: Sometimes I really do get the best assignments, and I
Speaker 1: do wish you were here, because Jim Chestein is here
Speaker 1: with me. He's the CEO and this is the best
Speaker 1: title ever licensed bootlegger for a s W distillery. He's
Speaker 1: here with me in our Atlanta bureau. Jim, great to
Speaker 1: meet you. Thank you so much. Thanks for having me, Carol.
Speaker 1: It's a pleasure, all right. And I have to say, Carol,
Speaker 1: shout out to Dennis Kelly, my dad, who is a
Speaker 1: local here and he was the one who actually introduced
Speaker 1: me virtually to Jim because he tasted some of his
Speaker 1: whiskey and he's a fan. And as you know, Carol,
Speaker 1: Dennis Kelly has a discerning pallet. So Jim, tell us
Speaker 1: what you're up to, because this is super cool man.
Speaker 1: We have had just an awesome time. I'm I'm a
Speaker 1: former finance guy, used to be securities licensed and uh,
Speaker 1: my partner Charlie Thompson and I were roommates at Georgia
Speaker 1: and uh we uh allegedly had a little hobby making whiskey,
Speaker 1: and um we kind of figured out a way to
Speaker 1: turn it into a career and and just ended up
Speaker 1: at the apex of just a lot of trends that
Speaker 1: very candidly are much larger than us, that we we
Speaker 1: didn't see coming but have benefited from. You know, the
Speaker 1: rise in the craft movement. You've had craft beer and
Speaker 1: now craft spirits are coming along on the tail of that,
Speaker 1: the foodie culture, agriculture. Everybody cares where their foods coming from,
Speaker 1: and so the experiential nature of you know, meeting your
Speaker 1: dad and coming into a distillery and showing him how
Speaker 1: you make things and show them too beautiful hot stills
Speaker 1: here in the middle of downtown Atlanta. You would not
Speaker 1: have seen that if you were asking a distiller a
Speaker 1: hundred years ago. If that was possible, no way, not
Speaker 1: a chance. So the progress that's been made on these
Speaker 1: trends and just we've benefited from a ton of that stuff. Uh, well,
Speaker 1: that's a long answer. I mean, you've just got a
Speaker 1: lot of history in the South. Um, you know, it's
Speaker 1: kind of what we're known for. Is the people are
Speaker 1: very nostalgic about the forty forwards running from uh you know,
Speaker 1: the revenuers here. I mean that was a dirt road
Speaker 1: called Piedmont back in the day. I mean this was
Speaker 1: all happening yards from our current distillery where you had
Speaker 1: the trippers coming down from the mountains sending booze here,
Speaker 1: and now we're sending booze the opposite way, which is amazing.
Speaker 1: And so tell us about that that sort of megatrend
Speaker 1: that that you referenced, which is we are at this moment,
Speaker 1: and Carol, you and I talked about it so much,
Speaker 1: whether it comes to food or fashion, like we want
Speaker 1: to know where stuff comes from at this point, and
Speaker 1: we really value you understanding the story of our guests
Speaker 1: to our tour because they care about what we do.
Speaker 1: There's a something. It's just a big old chemistry set
Speaker 1: down the road. You know. We have a ton of
Speaker 1: Georgia tech folks in town that you know, took chemical engineering.
Speaker 1: We have a ton of ad guys from Georgia that
Speaker 1: want to come in and see how we you know,
Speaker 1: become alchemists and spend uh, you know straw in the
Speaker 1: gold Um. So yeah, I just think it's what people
Speaker 1: you know in the South is cool right now. People
Speaker 1: are watching what we're doing here and saying, man, the
Speaker 1: trends here food, beverage, restaurant in the South is just
Speaker 1: you know, really on a global stage right now, and
Speaker 1: we've benefited from that tremendously. Jim, how do you get noticed?
Speaker 1: So because I feel like there are a lot, like
Speaker 1: you said, kind of the craft trend that we're seeing
Speaker 1: when it comes to all kinds of alcohol. And how
Speaker 1: do you get yourself noticed in what is increasingly becoming
Speaker 1: a crowded space. Same thing we do in any you know,
Speaker 1: you get to distinguish yourself with quality. Um, it's a
Speaker 1: little bit overwhelming right now. But people lump us in
Speaker 1: with beer, but we're we're literally twenty five years behind
Speaker 1: craft beer. So there are a lot fewer distilleries out there,
Speaker 1: and uh you nationally, we entered uh these spirit competitions.
Speaker 1: The biggest by far in North America is the San
Speaker 1: Francisco World Spirit Competition. Uh. Last year we came home
Speaker 1: with five medals, including a double gold for our duality
Speaker 1: double malt whiskey, which, as you know robust as the
Speaker 1: Georgia spirit making tradition is, that was actually the first
Speaker 1: time in Georgia whiskey had ever received that honor in
Speaker 1: San Francisco, which was huge for us. And then this
Speaker 1: year we came home with another five medals, including a
Speaker 1: gold medal for our single malt Burns Night, which is
Speaker 1: a traditional barley single malt, uh, similar to a Highland
Speaker 1: style whiskey. And you know too for a tiny little distillery,
Speaker 1: you know, under five year old distillery in Atlanta, Georgia,
Speaker 1: to win a gold medal for a single malt in
Speaker 1: the single malt category got us a little bit of
Speaker 1: attention and that was huge. So talk about distribution because
Speaker 1: I've slee if you want people to be fans of it,
Speaker 1: they gotta drink it, they gotta be able to find it.
Speaker 1: How do you pull that off? Well, Uh, the brewers
Speaker 1: and distillers a couple of years ago in Georgia got
Speaker 1: the laws change so we can now sell direct We
Speaker 1: were the last state and the union that couldn't sell
Speaker 1: directly out of a tasting room, and that is by
Speaker 1: far our biggest mouthpiece. If your dad's already brought friends in,
Speaker 1: you know, to show them that. And we look at
Speaker 1: at as it is a way to make money, but
Speaker 1: it's really more of a marketing strategy for us to
Speaker 1: bring people in. We love on them, We teach them
Speaker 1: something we never talked down to anybody. And that that
Speaker 1: I think from the laid back tradition of spirits has
Speaker 1: really been away that we've distinguished ourselves. As you know,
Speaker 1: we understand there are a lot of new spirit drinkers
Speaker 1: that need to learn something. And you would never walk
Speaker 1: into our tasting room and have somebody, you know, poo
Speaker 1: poo on something you said or a question you asked,
Speaker 1: or something like that. They would We're gonna try to
Speaker 1: emulate with the craft beer guys did an awesome job
Speaker 1: of which is to bring new consumers into the market
Speaker 1: by educating them and becoming fans. Part of the part
Speaker 1: of what you're selling. I think in some ways, and
Speaker 1: what's going on in Atlanta is it's a different lifestyle
Speaker 1: in many ways. And I've heard it, you know, and
Speaker 1: I think we've heard this all day long. There's something
Speaker 1: kind of special going on here where people are living
Speaker 1: kind of a different life. I agree with that, and
Speaker 1: this is purely just you know, me speculating, but I
Speaker 1: believe as a city we lost a lot of identity
Speaker 1: after the Olympics. There's so much of an influx of
Speaker 1: people from all over and we have benefited a ton
Speaker 1: from people moving here, but it kind of deluded the culture.
Speaker 1: And now what you're seeing is it fight its way
Speaker 1: back through the food community, through this beautiful nature that
Speaker 1: we have. I mean, you are in bag Land, you know,
Speaker 1: twenty or thirty minutes outside of town in in Atlanta, Georgia,
Speaker 1: and I do think that ties really well into our story.
Speaker 1: That's a sw distillery CEO Jim Chestein. Listen, I love
Speaker 1: talking to these individuals, Jason that have created um Spirits business.
Speaker 1: As he said, We're continuing to see so many different
Speaker 1: companies get into this business. I mean he's a financial guy, right, Yeah,
Speaker 1: he was. He had a financial background, and it's interesting
Speaker 1: to see all these different industries collide. Ilace. All right,
Speaker 1: So this is the perfect follow on, I feel like
Speaker 1: in many ways to the conversation we were having because
Speaker 1: this is next level in a lot of ways. The
Speaker 1: gathering spot. Ryan Wilson is the founder and CEO. He's
Speaker 1: here with me in our Atlanta of your run. Great
Speaker 1: to have you with us. All right, So I've wanted
Speaker 1: to talk to you since I started reading Atlanta Magazine
Speaker 1: and Fast Company. I believe sort of about what you're
Speaker 1: up to. This is the members only a set up,
Speaker 1: no jacket required. Uh. In a lot of ways. Um,
Speaker 1: but you're really, I think, an emblem of what's going
Speaker 1: on in this city right now, this collision of all
Speaker 1: these different industries. How did you get this idea? So
Speaker 1: the entire thing started when I was in college, right
Speaker 1: I there was a community that was there that I
Speaker 1: really didn't appreciate while I was in undergrad Buona went
Speaker 1: to law school. I really missed everything about the experience,
Speaker 1: and if you think about it, when you have people
Speaker 1: that are from all over the world that are studying
Speaker 1: different things, that network kind of just goes away immediately.
Speaker 1: And so with one of my college roommates, we started
Speaker 1: talking about that problem and the gathering spot was what
Speaker 1: resulted in the conversations. So tell us a little bit
Speaker 1: about how it works and who can be right because
Speaker 1: it's not just open to everybody, right, tell us a
Speaker 1: little bit about who gets to be a part of
Speaker 1: that community because it is still kind of selective. Right,
Speaker 1: it is selective, but I mean the litmus test for
Speaker 1: us is really not just what you do, but who
Speaker 1: you are. The most important question that we ask in
Speaker 1: our interview process is what animates you outside of the office,
Speaker 1: and like we really care about the answer to that question.
Speaker 1: You'll see a little bit of everybody in the club.
Speaker 1: The youngest members twenty three, the oldest members eighty eight.
Speaker 1: And so I tell people all the time, we are
Speaker 1: in the community business, not the space business. Um. We're
Speaker 1: looking for opportunities to bring the membership together for professional
Speaker 1: reasons and then a lot of times socially as well.
Speaker 1: And that's been part of the secretive success well. And
Speaker 1: part of what you do is you bring in interesting
Speaker 1: folks from you know, your broader network Stacey Abrams. Uh,
Speaker 1: you know, obviously someone very familiar to our listeners and
Speaker 1: certainly familiar to folks here uh in Atlanta. What are
Speaker 1: you trying to give them with those types of programs.
Speaker 1: I think it's important to explore what's going on in
Speaker 1: the city and going along on our nation, I mean
Speaker 1: the club. Because we're not tied to any particular industry,
Speaker 1: we have the ability to really explore any and every topic.
Speaker 1: And so absolutely right, Leader Abrams will come and give
Speaker 1: a conversation and then the next day we might be
Speaker 1: doing a midnight brunch. And for us, that's that's how
Speaker 1: communities are formed, both business reasons, but then also for
Speaker 1: social ones. Well. And it's interesting and you know, Jason,
Speaker 1: I spent so much time Ryan talking about the importance
Speaker 1: of diversity and whatever you do, diversity of thought, uh,
Speaker 1: and how important it is to really improving the operations
Speaker 1: and the outcome and the results of any institution. And
Speaker 1: it sounds like that's certainly a driving mission within you guys.
Speaker 1: I mean the future of communities for us, I mean
Speaker 1: they look different, um, and it's important for us as
Speaker 1: a as a business to make sure that we're super
Speaker 1: intentional about making sure that everyone really feels at home
Speaker 1: inside of the club. One statistic that I'm really proud
Speaker 1: of is that six of our membership based or women.
Speaker 1: To us, that's what the future of private clubs should
Speaker 1: look like. Um, these these spaces have not in spaces
Speaker 1: that traditionally've had an overrepresentation of women, and so we
Speaker 1: we go really out of our way to make sure
Speaker 1: that when there are groups, um even professions. We we
Speaker 1: look last year and found that we didn't have enough
Speaker 1: educators in the space and went out and made sure
Speaker 1: that there were there were more people that represented that
Speaker 1: space in the city inside of the club. And so
Speaker 1: that mix is a part of what again makes the
Speaker 1: club special in the day to day basis. And that's
Speaker 1: Ryan Wilson, CEO of the gathering spot Proud Hoia. He
Speaker 1: and I caught up about that are shared history at
Speaker 1: Georgetown University. Carroll, but such a great idea that he
Speaker 1: has and when you hear about all the different types
Speaker 1: of people who are intersecting at this place, you get
Speaker 1: a really good sense of what Atlanta is all about. Right,
Speaker 1: And he's coming to d C in l a so
Speaker 1: he's expanding. And that wraps up Bloomberg Business Week's weekend podcast.
Speaker 1: Thanks so much for joining us. I'm Jason Kelly and
Speaker 1: I'm Carol Mass. Be sure to tune into Bloomberg Business
Speaker 1: Week Radio Live Monday through Friday, starting at two pm
Speaker 1: Wall Street Time. And if you can't catch us live,
Speaker 1: get our daily podcast for the ride home. You can
Speaker 1: get that an iTunes, SoundCloud, and of course at Bloomberg
Speaker 1: dot com. And of course you can get this week's
Speaker 1: edition of the magazine. It's a double issue and it's
Speaker 1: on newsstands now. We'll be back right here next week
Speaker 1: at the same time. This is Bloomberg