WEBVTT - Bloomberg Businessweek Weekend - September 21st, 2019 0:00:02.520 --> 0:00:06.320 This is Bloomberg Business Week from Bloomberg Radio. Hi, I'm 0:00:06.360 --> 0:00:08.880 Jason Kelly and I'm Carol Masser. Welcome to the Bloomberg 0:00:08.880 --> 0:00:11.480 Business Week Weekend podcast. We're gonna bring you news of 0:00:11.520 --> 0:00:13.600 the week, insights from the magazine and more. And Jason, 0:00:13.840 --> 0:00:16.840 what I love about this week's issue is there are 0:00:16.920 --> 0:00:19.959 a bunch of deep dives into companies that you all 0:00:20.079 --> 0:00:23.560 know about, asking some big questions about moves that they've 0:00:23.600 --> 0:00:25.919 made and whether they're going to make sense really in 0:00:25.960 --> 0:00:28.920 the future. Plus, we catch up with CEO and chairman 0:00:28.960 --> 0:00:32.640 of Blackstone Steve Schwartzman, a fixture on Wall Street for 0:00:32.640 --> 0:00:34.840 a number of decades. He's got a new book out 0:00:35.080 --> 0:00:38.159 that really takes us inside what it's like to build 0:00:38.479 --> 0:00:40.920 one of the most influential investing firms in the world. 0:00:41.000 --> 0:00:42.599 And I love when you have someone who's so well 0:00:42.640 --> 0:00:46.440 known in the financial community taking us back to where 0:00:46.479 --> 0:00:49.760 he grew up, his family and all these experiences that 0:00:49.800 --> 0:00:52.320 really shaped him. So it's a really fun interview and 0:00:52.440 --> 0:00:55.440 very comprehensive. Plus, this week's cover story, it's all about 0:00:55.520 --> 0:00:58.440 GM What a timely piece with its workers going on 0:00:58.600 --> 0:01:01.480 strike this week. But first, the U S sanctioned Iran 0:01:01.600 --> 0:01:04.319 Central Bank and Sovereign Well Fund on Friday. It was 0:01:04.360 --> 0:01:07.360 a move aimed at retaliation for last weekends attacks on 0:01:07.480 --> 0:01:10.600 key Saudi Arabian oil facilities now and the Oval Office. 0:01:10.600 --> 0:01:13.720 President Trump spoke to reporters about the new sanctions. We 0:01:13.800 --> 0:01:15.920 want to see if it works out, and if it 0:01:15.959 --> 0:01:18.200 works out, that's great, and if it doesn't work out, 0:01:18.280 --> 0:01:21.600 that's great. In the end, it always works out. That's 0:01:21.640 --> 0:01:24.680 the way it is. It always works out. So you'll 0:01:24.720 --> 0:01:27.840 be seeing certain things happening. But a very major factor 0:01:27.959 --> 0:01:30.120 is what we did. These are the highest sanctions ever 0:01:30.200 --> 0:01:33.840 imposed on a country. We've never done it to this level. 0:01:33.920 --> 0:01:35.720 Let's say to our televie bureau now and speak with 0:01:35.800 --> 0:01:38.600 Ben Harvey for Macro view of the Middle East tensions. Ben, 0:01:38.920 --> 0:01:41.680 you say that Iran is holding the world economy hostage? 0:01:41.680 --> 0:01:44.240 How so? Yeah, as we see in this UM in 0:01:44.240 --> 0:01:46.960 the most recent attack on Saudi Arabia, what they've done 0:01:47.040 --> 0:01:48.880 is they've they've struck at the heart of the the 0:01:49.000 --> 0:01:52.520 global energy infrastructure UM. This is the world's biggest refiner. 0:01:53.000 --> 0:01:56.559 When they attacked this Ramco site with with a single attack, 0:01:56.600 --> 0:01:58.920 they managed to knock out about half of Saudi Arabia's 0:01:58.920 --> 0:02:02.880 production and about five percent of global production alright, so 0:02:03.200 --> 0:02:06.760 that certainly was noticed big deal by the global stage, 0:02:06.760 --> 0:02:09.480 certainly by the energy markets. What I think is interesting, though, 0:02:09.960 --> 0:02:12.680 is how you talk about that the pressure specifically by 0:02:12.720 --> 0:02:15.320 the United States that has been put on Iran. It 0:02:15.400 --> 0:02:19.040 is certainly created havoc in their economy, but it has 0:02:19.080 --> 0:02:22.400 put them in kind of a powerful position explain that, Yeah, 0:02:22.639 --> 0:02:25.720 Iran's economy is under massive stress, but for the past 0:02:25.960 --> 0:02:29.720 several decades, iron has invested in these essentially non state 0:02:29.800 --> 0:02:33.320 armies around the region. Um So, whereas this is a 0:02:33.880 --> 0:02:37.120 pretty cost effective investment for them, they invest in these 0:02:37.120 --> 0:02:41.240 nonstate actors that can are basically forces of disruption um 0:02:41.320 --> 0:02:44.280 and when Iran feels pressure to connectivate them and as 0:02:44.360 --> 0:02:47.480 we see saw in this attack in Saudi create massive damage. 0:02:47.800 --> 0:02:49.800 So Ben talked to us a little bit about because 0:02:49.840 --> 0:02:52.160 you do reference and you know, right out of the gate, 0:02:52.400 --> 0:02:54.120 you talk about the art of war, and this is 0:02:54.160 --> 0:02:57.880 certainly uh you know, something that has been quoted an 0:02:57.880 --> 0:03:01.120 awful lot throughout the year. But it's interesting you talk 0:03:01.200 --> 0:03:05.240 specifically about is asymmetrical warfare, which is what Iran is doing, 0:03:05.360 --> 0:03:08.200 and that is making it very powerful in the Middle 0:03:08.240 --> 0:03:11.760 East region. Even though it doesn't have the largest armies, 0:03:11.760 --> 0:03:14.040 are the most organized armies. It's made it a very 0:03:14.040 --> 0:03:17.520 powerful presence. Yeah, that's exactly right. I mean, Iran's main 0:03:17.639 --> 0:03:20.680 rival in the Middle East of Saudi Arabia. Iran cannot 0:03:20.680 --> 0:03:23.520 compete with Saudi Arabian conventtional ground. Saudi Arabia is the 0:03:23.560 --> 0:03:27.200 world's third biggest purchaser of military equipment after the United 0:03:27.240 --> 0:03:31.640 States and China. It's significantly higher spender than than uh 0:03:31.760 --> 0:03:34.600 than Russia. Is Iran can't compete with that. So instead, 0:03:34.639 --> 0:03:37.480 what they're doing is investing in, as you say, asymmetrical warfare. 0:03:37.800 --> 0:03:41.240 So they have small forces that can create havoc, whether 0:03:41.280 --> 0:03:44.960 it's on global shipping lanes, whether it's in in Iraq, 0:03:45.240 --> 0:03:47.520 whether it's in on the border of Israel, and also 0:03:47.600 --> 0:03:50.240 now of course in Yemen, where they have essentially gained 0:03:50.280 --> 0:03:54.400 a foothold in the Arabian Peninsula, which is Saudi Arabia's backyard. 0:03:54.560 --> 0:03:56.080 All right, So then what does this mean for some 0:03:56.120 --> 0:03:58.760 of the world's global powers, very developed powers like the 0:03:58.880 --> 0:04:02.640 United States. I mean, we know President Trump withdrew from 0:04:02.640 --> 0:04:05.200 the Joint Comprehensive Plan of action. That was an agreement 0:04:05.520 --> 0:04:09.400 to contain Iran's military, specifically it's nuclear ambitions. But by 0:04:09.440 --> 0:04:12.400 pulling out of that, now what needs to be the 0:04:12.480 --> 0:04:15.760 role of the United States here, because it's very tricky. 0:04:15.800 --> 0:04:17.760 It is very tricky, and it's a very hard position 0:04:17.800 --> 0:04:20.240 for the US administration to be in. Right now, they've 0:04:20.320 --> 0:04:23.520 essentially backed Iran into a corner. UM. Iran is playing 0:04:23.520 --> 0:04:25.920 the role of disruptor. They want to get it wrong. 0:04:25.960 --> 0:04:29.159 Back to the negotiations. Iran is refusing to come. So 0:04:29.240 --> 0:04:31.320 the question is how long do you do? Does the 0:04:31.360 --> 0:04:33.400 world put up with this? What you're seeing right now 0:04:33.480 --> 0:04:36.479 is a very interesting dance. For many years, the both sides, 0:04:36.800 --> 0:04:39.360 Iran and other sides that we're trying to counter Iran 0:04:39.440 --> 0:04:43.000 have benefited from this sort of UM strategy of plausible deniability. 0:04:43.480 --> 0:04:48.440 UM attacks would occur through Iranian affiliated proxies and then 0:04:48.680 --> 0:04:52.120 Iran could disclaim responsibility so that these were independent actors. 0:04:52.600 --> 0:04:54.800 The world would sort of accept that and move on 0:04:54.839 --> 0:04:58.320 because there's also very little appetite for UH for a 0:04:58.320 --> 0:05:01.279 direct conflict with Iran. UM Right now, what you're seeing 0:05:01.360 --> 0:05:04.200 is is a lot of caution and actually putting this 0:05:04.320 --> 0:05:07.279 attack directly on Iran's doorstep, even along those who have 0:05:07.320 --> 0:05:10.839 been strong advocates of attacking Iran because the cost of 0:05:10.839 --> 0:05:13.000 doing so would be so high. I also think the 0:05:13.040 --> 0:05:15.240 timing is just kind of impeccable. Ben, I don't know 0:05:15.240 --> 0:05:16.960 how you see it, and I know you address this 0:05:17.040 --> 0:05:20.720 as well. You know, Saudi Arabia has been moving towards 0:05:21.040 --> 0:05:24.080 the I p O of Saudi Aramco for a couple 0:05:24.080 --> 0:05:27.880 of years now. It's been usually anticipated. Uh, that's certainly, 0:05:28.200 --> 0:05:31.800 you know, kind of what happened this past week cast 0:05:31.839 --> 0:05:33.800 a different light on maybe the prospect of that, at 0:05:33.839 --> 0:05:35.919 least at this point. And I also think just the 0:05:35.920 --> 0:05:38.520 global economic picture, right we have a lot of question 0:05:38.640 --> 0:05:42.120 about global economic growth right now. So to see this 0:05:42.200 --> 0:05:46.080 kind of potential energy shock is a big deal. Sure, yeah, 0:05:46.080 --> 0:05:49.600 this this came into sensitive time for the global economy. UM, 0:05:49.839 --> 0:05:53.200 A lot of a lot of countries across the world 0:05:53.200 --> 0:05:55.599 are trying to find ways to stimulate their economies. They're 0:05:55.600 --> 0:05:58.560 lowering interest rates. UM. A supply like shock like this 0:05:58.600 --> 0:06:00.960 would be very hard to deal with if this were sustained. 0:06:01.040 --> 0:06:03.280 The question now is how big of an impact is 0:06:03.320 --> 0:06:06.120 this going to have. Ken's already get its production back online, 0:06:06.120 --> 0:06:09.240 immediately or will this take monster even longer to to 0:06:09.360 --> 0:06:12.560 solve um. And the other question, of course is you know, 0:06:12.720 --> 0:06:14.520 is this a one off event or could this continue 0:06:14.560 --> 0:06:17.160 to happen? Yeah, Ben, your remarks this week certainly reminding 0:06:17.160 --> 0:06:19.480 all of us it is as much a political, global 0:06:19.520 --> 0:06:22.279 political story as it is a global market story. Ben 0:06:22.320 --> 0:06:24.880 Harvey and Tel Aviv, Thanks so much, thank you very much. 0:06:25.200 --> 0:06:28.320 So very newsy story this week involving General Motors, because 0:06:28.360 --> 0:06:30.520 of course they had a strike which we feel like 0:06:30.800 --> 0:06:33.440 came out of nowhere. Uh, and we haven't seen GM 0:06:33.440 --> 0:06:36.560 workers go on strike in a long, long time. Another 0:06:36.640 --> 0:06:39.000 challenge for Mary Barr, right, the CEO of General Motors. 0:06:39.040 --> 0:06:41.840 She's already led that company through a lot of job 0:06:41.880 --> 0:06:44.479 cuts and she's really got a new focus when it 0:06:44.480 --> 0:06:46.880 comes to GM right now. And in this week's magazine, 0:06:46.880 --> 0:06:50.320 a deep dive into Mary bar and her strategy. David Well, 0:06:50.400 --> 0:06:53.479 Charge Detroit, your chief joins us from that fine city, 0:06:53.600 --> 0:06:56.800 rock city as they call it. So David, tell us 0:06:56.839 --> 0:07:01.920 what's going on, as Carol said very timely at General Motors. Sure, 0:07:01.960 --> 0:07:04.680 so we have this this strike right now that that 0:07:04.800 --> 0:07:07.119 as you mentioned, the union hasn't walked out on GM 0:07:07.120 --> 0:07:11.040 in a long time. And look, whenever you try to 0:07:11.160 --> 0:07:14.280 really overhaul a company or bring about great change, you're 0:07:14.280 --> 0:07:17.960 gonna have people who resist or react in in you know, 0:07:18.520 --> 0:07:22.320 kind of negative ways. And in this case, what GM 0:07:22.320 --> 0:07:24.720 has been doing for the past really five or six years, 0:07:24.760 --> 0:07:27.200 they've been downsizing things in the core business. They sold 0:07:27.200 --> 0:07:30.120 their European operations, they fled Russia, they fled some of 0:07:30.120 --> 0:07:35.120 the Southeast Asian markets, India. They've they've downsized by getting 0:07:35.200 --> 0:07:37.480 rid of certain models, certain plants in the US that 0:07:37.560 --> 0:07:40.600 makes small cars are thinly profitable models. That's where the 0:07:40.680 --> 0:07:42.920 Union gets angry. But what GM is really doing here, 0:07:42.920 --> 0:07:45.600 what Mary Borrows strategy really is, is getting out of 0:07:45.640 --> 0:07:48.760 low margin or money losing businesses that GM and other 0:07:48.800 --> 0:07:52.960 carmakers have just participated in for decades simply out of 0:07:53.000 --> 0:07:55.880 corporate inertion because car companies always thought they had to 0:07:55.920 --> 0:07:59.000 sell every vehicle to everybody across the globe. She's getting 0:07:59.000 --> 0:08:01.239 out of that stuff, and with the money she saves, 0:08:01.320 --> 0:08:04.400 she's putting it into electric cars autonomous vehicles, because she 0:08:04.440 --> 0:08:07.360 sees that as the real future of the company, and 0:08:07.880 --> 0:08:12.640 it really is. Let's call it strategically, and then in 0:08:12.760 --> 0:08:17.120 terms of actual capital spending financially transformative for the company 0:08:17.160 --> 0:08:19.760 if she can pull this off. Because the endgame for 0:08:19.840 --> 0:08:23.680 bar is sell cars to individual owners where you make 0:08:23.720 --> 0:08:27.960 a lot of money, right, build a service, robot taxis 0:08:28.120 --> 0:08:30.800 to to you know, se you're selling transportation by the 0:08:30.920 --> 0:08:33.959 ride with a self driving electric taxi at some point 0:08:34.720 --> 0:08:38.400 to other people. GM will become part manufacturer, part service. 0:08:38.840 --> 0:08:40.439 If all of this happens, it will take time. But 0:08:40.480 --> 0:08:42.800 if she succeeds, that's what's going on. But your point 0:08:42.840 --> 0:08:45.480 is she's plowing a lot of money into you know, 0:08:45.840 --> 0:08:48.240 the GM what she expects to be the GM of 0:08:48.240 --> 0:08:50.960 the future. Uh. You know, you've got a company that's 0:08:51.000 --> 0:08:53.520 making money, right, and I think workers at this point, 0:08:54.320 --> 0:08:56.560 David are saying, wait a minute, we should get some 0:08:56.600 --> 0:08:58.640 of that as well. Yeah. What I really loved about 0:08:58.640 --> 0:09:01.920 working on this story is that, uh it sort of 0:09:02.160 --> 0:09:05.880 touches on a big point within the Americans cause right now, 0:09:05.880 --> 0:09:09.520 which is questioning has capitalism gone too far? And when 0:09:09.600 --> 0:09:13.160 Mary Bara cuts models or plants because even if they 0:09:13.200 --> 0:09:16.480 make money, they don't make great money, uh, getting out 0:09:16.480 --> 0:09:20.280 of low margin businesses, or she moves a model like 0:09:20.360 --> 0:09:25.280 see the Chevy Blazer to Mexico A SUVs make good money. 0:09:25.320 --> 0:09:27.000 You don't need to make it with Mexican labor to 0:09:27.040 --> 0:09:30.040 make that profitably. The union reacts by same Wait a second, 0:09:30.360 --> 0:09:33.520 you've made record profits what's called record operating profits for 0:09:33.520 --> 0:09:36.559 the last three years. The company is guided to match 0:09:36.640 --> 0:09:39.079 or beat that this year. So the money's coming in. 0:09:39.480 --> 0:09:41.040 Why do you have to keep cutting? Why do you 0:09:41.040 --> 0:09:43.360 have to keep sending vehicles to Mexico. You need to 0:09:43.400 --> 0:09:45.920 take care of us. That's what that fight is really about. There. 0:09:45.920 --> 0:09:48.840 There's similar sentiments among the salary workers too. They just 0:09:48.880 --> 0:09:51.160 don't have a public platform and the union to really 0:09:51.320 --> 0:09:55.079 bring that voice to the foe. Well, and speaking of voices, me, 0:09:55.200 --> 0:09:59.080 Mary Barra has been seen as someone who is considered 0:09:59.240 --> 0:10:01.280 kind of one of them, right, I mean, she rose 0:10:01.360 --> 0:10:04.560 up through the ranks. She's part of the family, to 0:10:04.720 --> 0:10:09.319 say the least. How much eyebrow raising is there about 0:10:09.320 --> 0:10:14.199 her performance or what she's delivered on again for the workers. 0:10:14.240 --> 0:10:16.880 So well, it's a quick, quick point. A lot that 0:10:16.920 --> 0:10:19.280 Wall Street likes are quite a bit. GM stock is 0:10:19.360 --> 0:10:20.839 one of the few auto stocks that have kind of 0:10:20.920 --> 0:10:23.280 held up in a year when the whole sector, including 0:10:23.320 --> 0:10:25.800 the suppliers, have kind of been battered because the world 0:10:25.840 --> 0:10:28.560 thinks we're at peak auto and you'll see sales soften. 0:10:28.679 --> 0:10:30.960 So in terms of earnings, the best it's already happened 0:10:31.000 --> 0:10:33.760 is sort of the market's reaction to this, and that's 0:10:33.880 --> 0:10:37.080 who she's been trying to serve. The workers not quite 0:10:37.080 --> 0:10:39.400 so happy. You go on the message board and they're 0:10:40.160 --> 0:10:42.920 I'm talking about salary people. Now you're reading things like 0:10:43.160 --> 0:10:46.719 I've given the company twenty five years no loyalty. Uh. 0:10:46.800 --> 0:10:49.719 The u A W workers on their message board or 0:10:49.800 --> 0:10:53.880 in person will say, hey, we gave during bankruptcy. We 0:10:53.920 --> 0:10:57.120 gave up a lot of traditional union benefits and safeguards 0:10:57.520 --> 0:11:02.000 to keep GM alive through bankruptcy, and now you're making 0:11:02.000 --> 0:11:04.400 a lot of money, So where we want some payback? 0:11:04.400 --> 0:11:06.400 Where's our reward? So there's a lot of that sort 0:11:06.400 --> 0:11:09.400 of thing directed uh, straight at Mary Barra, which has 0:11:09.440 --> 0:11:12.719 been on because she does have a very amiable persona. 0:11:12.920 --> 0:11:17.000 She's actually pretty well liked among the staff the union. 0:11:17.080 --> 0:11:20.040 She's kind of less of a figure because she has 0:11:20.080 --> 0:11:22.920 people beneath her that do the negotiating, but she still 0:11:22.920 --> 0:11:26.880 did have this this very amiable persona inside and outside 0:11:26.880 --> 0:11:28.800 the company. So David One of the questions I think 0:11:28.840 --> 0:11:32.400 at this point is Mary Bara the focus, the attention, 0:11:32.440 --> 0:11:37.679 the money that she's spending on electric vehicles, autonomously driving vehicles, 0:11:38.040 --> 0:11:40.640 you know, whether or not her time is right, Is 0:11:40.679 --> 0:11:43.920 it right or she too early? You know, and that 0:11:43.920 --> 0:11:47.360 that might be problematic down the road. That is the 0:11:47.360 --> 0:11:49.760 big risk because GM is spending a billion dollars a 0:11:49.840 --> 0:11:53.720 year on autonomous vehicles and many other billions developing electric cars, 0:11:53.960 --> 0:11:56.160 and really only Tesla has proven that they can sell 0:11:56.200 --> 0:11:59.280 electric cars right now. You see fi Quisly, you see Toyota, 0:11:59.360 --> 0:12:00.720 which has a lot of smart people and a lot 0:12:00.760 --> 0:12:03.920 of money, taking a very conservative approach to this. That's 0:12:04.280 --> 0:12:06.679 really GM's risk here, plowing a lot of money into 0:12:06.760 --> 0:12:09.760 this stuff, and you don't find buyers for the electric vehicles, 0:12:09.960 --> 0:12:14.880 or as we're already seeing, autonomous vehicles are delaying their 0:12:14.960 --> 0:12:17.920 launch to the public because they keep finding more let's 0:12:17.920 --> 0:12:20.760 call it cases or incidences in traffic that the cars 0:12:20.800 --> 0:12:23.280 can't handle just right yet, and and and that stuff 0:12:23.360 --> 0:12:27.080 keeps getting pushed out. So uh yeah, she spends a 0:12:27.080 --> 0:12:29.839 lot of money on this stuff, diverts people and resources 0:12:29.880 --> 0:12:33.360 from the core business, and it doesn't pan out for five, 0:12:33.480 --> 0:12:35.760 ten fifteen years. But this is the risk you take 0:12:35.960 --> 0:12:37.920 when you want to be a leader in both. And 0:12:37.960 --> 0:12:39.680 that's really what she wants to do. She wants to 0:12:39.679 --> 0:12:41.760 get big scale and electric cars and sell them more 0:12:41.840 --> 0:12:44.400 cheaply and profitably than others. She wants to lead in 0:12:44.480 --> 0:12:49.040 autonomous vehicle software and and let's call it robotaxi services. 0:12:49.240 --> 0:12:51.719 Build the best brand first, and when you stick your 0:12:51.720 --> 0:12:54.079 neck out, sometimes you get chopped and sometimes you get 0:12:54.080 --> 0:12:56.360 across the finish line first. That's the risk right there, 0:12:56.679 --> 0:12:59.319 we're talking about cars and talking about electric vehicles. If 0:12:59.320 --> 0:13:01.640 we didn't ask you about Tesla and how that figures 0:13:01.640 --> 0:13:06.280 into Mary Barra's strategy here, she's got to be thinking 0:13:06.280 --> 0:13:08.800 about Elon Musk. She's got to be thinking about everybody 0:13:08.840 --> 0:13:12.240 else who's chasing after evs. Yeah. Well, Elon Musk has 0:13:12.320 --> 0:13:15.760 dragged the automotive world kicking and screaming into electric vehicles. 0:13:16.120 --> 0:13:18.719 And that brand is so powerful now that it's kind 0:13:18.760 --> 0:13:21.680 of the iPhone of evs. And everybody wants to see 0:13:21.720 --> 0:13:24.079 if they can come up with the Samsung Galaxy five 0:13:24.679 --> 0:13:27.160 uh and the Android system to go head to head 0:13:27.200 --> 0:13:30.000 with it. And so far, even say we have German 0:13:30.040 --> 0:13:32.360 car makers out there, we've got portion and we've got autie. 0:13:32.400 --> 0:13:35.520 With evs, they're not selling that great and that's who 0:13:35.559 --> 0:13:37.559 Mary Barr is looking at, and that's who she needs 0:13:37.600 --> 0:13:40.920 to go up against. That's David Welch, our Detroit Bureau chief. 0:13:41.080 --> 0:13:43.760 And I love this story because I remember when Mary 0:13:43.760 --> 0:13:46.360 Barr first made those moves. Everybody was really applauding her 0:13:46.400 --> 0:13:48.960 because she was thinking about what does the general motors 0:13:49.000 --> 0:13:51.559 of the future need to be and took some drastic moves. 0:13:51.600 --> 0:13:54.120 But timing will be so key in terms of what 0:13:54.200 --> 0:13:56.679 she's done well. And I loved that part of the conversation, 0:13:56.720 --> 0:13:58.720 and you really push that with David, which was great, 0:13:58.720 --> 0:14:02.400 which was this is largely about timing rather than the 0:14:02.559 --> 0:14:05.160 right decisions. We all know where the industry is going, 0:14:05.440 --> 0:14:07.319 but if you get the timing wrong, the whole thing 0:14:07.320 --> 0:14:10.600 falls apart exactly. So nothing is immune from the sharing economy. 0:14:10.679 --> 0:14:13.840 That includes legal advice. So enter Twitches co founder. We'll 0:14:13.840 --> 0:14:16.880 get into how that connection works here with the story 0:14:16.880 --> 0:14:19.640 Max Chaffkin features that are a business week in our 0:14:19.720 --> 0:14:22.680 studio today. So what's going on here? As you said, 0:14:22.680 --> 0:14:25.680 Twitch founder Justin Kahn, who if you're sort of on 0:14:25.720 --> 0:14:28.440 the older millennial side. You may remember as the reality 0:14:28.520 --> 0:14:31.080 TV star of Justin dot tv. This was like a 0:14:31.200 --> 0:14:36.040 very early Web two dotto thing. Put a camera, tracked everything, 0:14:36.080 --> 0:14:38.320 put a camera on his head. He he walked around 0:14:38.360 --> 0:14:43.360 San Francisco doing twenty year old coder stuff. Um, it 0:14:43.440 --> 0:14:45.880 wasn't a huge hit. But he's back with a new 0:14:45.920 --> 0:14:50.120 company called Atrium, which is basically trying to, as you said, 0:14:50.200 --> 0:14:54.000 kind of bring the sharing economy to legal services, to 0:14:54.040 --> 0:14:57.880 replace your corporate lawyer with a five month subscription. I 0:14:57.880 --> 0:14:59.560 want to talk about that business. But the reason we 0:14:59.640 --> 0:15:02.200 care of the is that crazy thing putting the camera, 0:15:02.320 --> 0:15:05.360 which wasn't necessary big hit eventually kind of morphed into Twitch, 0:15:05.480 --> 0:15:07.240 which did become kind of a big deal. Yeah and 0:15:07.280 --> 0:15:10.240 so so Twitch also sounded kind of crazy because who 0:15:10.280 --> 0:15:12.600 wants to watch, you know, other people play video games. 0:15:12.640 --> 0:15:15.880 Turns out lots of people. Twitch helped create the whole 0:15:15.960 --> 0:15:18.760 sort of notion of e sports uh and sold itself 0:15:18.760 --> 0:15:22.000 to Amazon for a billion dollars. It's now part of Amazon. Uh, 0:15:22.040 --> 0:15:25.200 you know, part of this vibrant, growing industry. Uh. And uh, 0:15:25.320 --> 0:15:28.160 you know, Justin Kahn kind of wended his way. He 0:15:28.200 --> 0:15:30.600 was an investor for a while and then as as 0:15:30.600 --> 0:15:32.440 he explained to me in an interview, you know, basically 0:15:32.480 --> 0:15:35.240 started wondering why he was spending so much money on 0:15:35.320 --> 0:15:37.840 legal services. He realized he'd spent you know, something like 0:15:37.880 --> 0:15:40.720 two million dollars over the previous decade and didn't feel 0:15:40.760 --> 0:15:43.480 like he was necessarily getting enough for it. Okay, so 0:15:43.760 --> 0:15:46.000 enter a triam. So tell me how this works, because 0:15:46.040 --> 0:15:48.640 it's a little bit max of a tiered service, right, yeah, 0:15:48.680 --> 0:15:51.480 I mean it's it's pretty similar to we work honestly, uh, 0:15:51.800 --> 0:15:56.080 five dollars and you get access to a an hour 0:15:56.200 --> 0:15:58.920 a month of general legal advice. So so you have 0:15:59.000 --> 0:16:02.600 a normal corporate lawyer who um comes from a big 0:16:02.640 --> 0:16:04.920 corporate law firm, who gets paid to a very high 0:16:05.000 --> 0:16:08.120 hourly wage, etcetera, etcetera. UM, and then you get this 0:16:08.200 --> 0:16:12.400 software platform which supposedly is going to automate a lot 0:16:12.440 --> 0:16:15.360 of um these functions. So so they walked me through, 0:16:15.680 --> 0:16:17.720 you know, an offer letter where you type in the 0:16:17.720 --> 0:16:20.440 employee's name, you you check a few boxes and then 0:16:20.520 --> 0:16:23.400 outcomes a sort of legal document or they can do 0:16:23.440 --> 0:16:25.120 it for an NDA. And the idea is that's going 0:16:25.160 --> 0:16:27.640 to expand to include lots of stuff. So so in 0:16:27.680 --> 0:16:30.120 the long run, a lot of the legal services are 0:16:30.120 --> 0:16:32.880 going to be handled by software, by a computer. Your 0:16:32.960 --> 0:16:35.800 your corporate lawyer is going to be spending way fewer 0:16:35.840 --> 0:16:39.200 hours um doing general lawyer stuff. I feel like some 0:16:39.240 --> 0:16:40.520 of it makes a lot of sense because we would 0:16:40.560 --> 0:16:43.160 talked about, you know, legal work in getting a mortgage 0:16:43.240 --> 0:16:45.760 or something. So much of it is formula that there's 0:16:45.760 --> 0:16:47.920 no reason why you can't kind of involve some types 0:16:48.000 --> 0:16:50.640 of technology or computer system to kind of walk us 0:16:50.640 --> 0:16:52.160 through it. Yeah, and we've seen this kind of on 0:16:52.200 --> 0:16:54.800 the sort of personal end of legal services. Legal Zoom 0:16:54.800 --> 0:16:56.520 has been around for a long time. Their websites that 0:16:56.520 --> 0:16:59.120 will help you prepare a will. Um. There's also kind 0:16:59.120 --> 0:17:01.320 of an interesting start that's that's doing this in small 0:17:01.320 --> 0:17:03.760 claims court called do not pay, so so it's happening 0:17:03.800 --> 0:17:06.040 in all sorts of areas. Atrium is kind of interesting 0:17:06.040 --> 0:17:08.720 because it's going after sort of like the core of 0:17:08.760 --> 0:17:12.479 the legal industry, these big corporate law firms that you know, 0:17:13.160 --> 0:17:16.800 generate enormous amounts of revenue and and pay these you 0:17:16.800 --> 0:17:19.800 know very you know, very well educated lawyers, you know, 0:17:19.840 --> 0:17:21.840 in some cases millions of dollars a year, al right, 0:17:21.880 --> 0:17:24.600 So it's the corporate legal world say oh, great idea. 0:17:24.920 --> 0:17:27.199 I mean, this stuff has been tried before, and I 0:17:27.240 --> 0:17:29.960 think it's it's key to to to understand that Atrium 0:17:30.040 --> 0:17:32.280 is really aiming at the startup market. I mean, it 0:17:32.359 --> 0:17:35.399 is based in San Francisco, It is very much aimed 0:17:35.440 --> 0:17:39.000 at companies like Atrium. And I think if you, if you, 0:17:39.000 --> 0:17:40.800 you know, take a few steps back, you might say, 0:17:40.880 --> 0:17:43.560 look like, this is never gonna you know, this is 0:17:43.600 --> 0:17:45.600 never gonna come for mergers and acquisitions. This is never 0:17:45.600 --> 0:17:47.840 going to come for the kind of like New York 0:17:47.960 --> 0:17:50.399 finance law, which is kind of a huge part of 0:17:50.400 --> 0:17:53.800 the legal industry. UM. But you know, justin Conn, the 0:17:53.840 --> 0:17:56.080 CEO of Atrium said that is their plan. They they're 0:17:56.320 --> 0:17:58.359 they're they're hiring lawyers and other cities. They want to 0:17:58.400 --> 0:18:02.400 eventually expand UM beyond Silicon Valley, but for now it's 0:18:02.400 --> 0:18:04.600 really startups for the most part. I gotta say I 0:18:04.600 --> 0:18:06.840 was pretty impressed because they already have what landed more 0:18:06.880 --> 0:18:08.439 than four hundred clients. Talked to us a little bit 0:18:08.480 --> 0:18:10.440 about because they've built up I mean, they have a 0:18:10.880 --> 0:18:15.359 pretty big number of employees already. Yeah, hundred and seventy employees, 0:18:15.400 --> 0:18:17.959 thirty of whom are lawyers. These are the kind of 0:18:18.000 --> 0:18:21.040 corporate law types um. So, and then the rest are 0:18:21.280 --> 0:18:23.280 mixed of engineers are working on the software, and then 0:18:23.320 --> 0:18:26.640 some legal assistants and and and paralegals and that sort 0:18:26.680 --> 0:18:29.840 of thing. Um. They had this pilot program for the 0:18:29.880 --> 0:18:33.760 past two years, uh, and now are launching, as we reported, 0:18:33.800 --> 0:18:37.240 this subscription which has these two tiers five dars a 0:18:37.240 --> 0:18:39.560 month as I mentioned, and then a fifteen hundred dollar 0:18:39.640 --> 0:18:42.120 a month you know, premium edition, and and it goes 0:18:42.200 --> 0:18:44.800 up from there. I mean they ideally, um, from their 0:18:44.840 --> 0:18:46.840 point of view, want to serve companies as they get 0:18:46.920 --> 0:18:49.240 larger and larger for the most part, now we're talking 0:18:49.480 --> 0:18:52.320 small companies handful of insize one, but they're not profitable yet. 0:18:52.359 --> 0:18:54.440 And then but they're what we've been around for two 0:18:54.520 --> 0:18:57.399 years two years, uh, not profitable and and that you 0:18:57.400 --> 0:18:58.919 know to to hear them talk about it as the 0:18:58.920 --> 0:19:00.800 whole point. I mean, they're their argument is that the 0:19:00.800 --> 0:19:04.040 problem with legal not to make money well for now anyway. 0:19:04.080 --> 0:19:06.080 The problem with legal services from their point of view 0:19:06.280 --> 0:19:08.800 is that it's basically a high end service business where 0:19:08.800 --> 0:19:11.399 you have the partners at the top pulling in huge 0:19:11.400 --> 0:19:14.879 salaries which is basically profit sharing from the from the 0:19:14.920 --> 0:19:16.760 from the rest of the business. So law firms are 0:19:16.800 --> 0:19:20.480 really profitable when they're successful. Um, the play here is 0:19:20.480 --> 0:19:23.040 is kind of the startup play to to grow really 0:19:23.080 --> 0:19:26.480 big and eventually generate profits, you know, once they've once 0:19:26.480 --> 0:19:29.560 they've amassed a huge client list, once the software, I 0:19:29.600 --> 0:19:31.520 guess is doing most of the work. The goal isn't 0:19:31.520 --> 0:19:34.159 to generate you know, profits on a per you know, 0:19:34.280 --> 0:19:37.560 engagement basis. And as a result, like the the actual 0:19:38.080 --> 0:19:40.439 costs that they're charging are are somewhat lower than a 0:19:40.520 --> 0:19:43.520 normal corporate lawer. And that's Max Chafkin. This was a 0:19:43.560 --> 0:19:48.240 fun story but also a reminder that not every industry 0:19:48.280 --> 0:19:50.760 has been totally disrupted yet, and they're coming for the 0:19:50.800 --> 0:19:53.160 lawyers exactly right. Folks are trying to make the legal 0:19:53.160 --> 0:19:57.000