Speaker 1: Hey, they're aud Loots listeners. It's Tracy Alloway.
Speaker 2: And Joe Wisenthal.
Speaker 1: We are very excited to announce that Audlots is going
Speaker 1: to Washington That's right.
Speaker 2: For the first time, we are going to do a
Speaker 2: live public odd Lots recording in our nation's capital. That's
Speaker 2: going to be March twelfth in Washington, DC at the
Speaker 2: Miracle Theater and guests will be announced in the coming days,
Speaker 2: but in the meantime you can find a ticket link
Speaker 2: at Bloomberg dot com slash odd.
Speaker 3: Lots, Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 1: Hello and welcome to another episode of the Aught Thoughts podcast.
Speaker 1: I'm Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal.
Speaker 1: Joe, you told me you read a fiction book last year, right,
Speaker 1: just one.
Speaker 2: I read it, so I read too much nonfiction Like
Speaker 2: a lot of dudes. I think it's nonfiction is very
Speaker 2: bro coded. My goal for twenty twenty five was to
Speaker 2: read at least one novel, and I did it. I
Speaker 2: already satisfied my goal. It's not even the end of
Speaker 2: January yet, so back to reading random history and philosophy
Speaker 2: and all that stuff.
Speaker 1: Very very ambitious. You're one fiction book can I make
Speaker 1: a suggestion for another.
Speaker 3: Fiction book you should read, please.
Speaker 1: So there's a book by Margaret Atwood called Orx and Craik,
Speaker 1: and it's sort of a sci fi thing, but I
Speaker 1: think about it quite a lot nowadays because she has
Speaker 1: this vision of society in the future, and in that society,
Speaker 1: companies are the most important part of it. It's not
Speaker 1: about countries anymore. It's all about what company you work for,
Speaker 1: and the companies are kind of the ones providing all
Speaker 1: the social services like healthcare and housing. Basically you're a
Speaker 1: citizen of a company instead of a country. And I
Speaker 1: kind of think about it a lot because I feel
Speaker 1: like we're sort of moving in that direction where companies
Speaker 1: are becoming more powerful, they're becoming more interesting in many
Speaker 1: ways and more important to society than ever.
Speaker 2: I'm looking it up right now, I hadn't heard of it.
Speaker 2: It came out in two thousand and three. Maybe at
Speaker 2: that time it was sort of seen as futuristic, but
Speaker 2: in twenty twenty five it does not even sound futuristic
Speaker 2: or controversial at all. And we could go on about
Speaker 2: what that means, but I just like basically accept the
Speaker 2: premise that that's true now twenty five.
Speaker 1: Okay, great, so you have your second fiction book to read.
Speaker 1: But the reason I bring it up is because I
Speaker 1: think we should do more on these stories of companies
Speaker 1: in general. And so I am very pleased to say
Speaker 1: that we do, in fact have the perfect guests to
Speaker 1: discuss this. I'm very excited about this. I'm a fan
Speaker 1: of their podcast. Lots of people are fans of their podcast.
Speaker 1: We're going to be speaking with Ben Gilbert and David Rosenthal,
Speaker 1: the co hosts of the Acquired podcast. So Ben and David,
Speaker 1: thank you so much for coming on all thoughts.
Speaker 4: Thank you great to be here, Thanks for having us
Speaker 4: all right, may it was so good career.
Speaker 5: Thank you.
Speaker 2: Tracy and I were talking about like who should start
Speaker 2: this one, and I was like, Tracy, you do it,
Speaker 2: and it was much better than what.
Speaker 1: I Well, thank you everyone. That's very nice. Ben and
Speaker 1: David maybe give us the uh, the elevator pitch for
Speaker 1: the podcast just before we begin.
Speaker 4: Well.
Speaker 5: Acquired is a ten year old podcast that started, like
Speaker 5: many company journeys in obscurity, with nobody listening, and slowly
Speaker 5: doubled year over year over year. Now I bet, I bet,
Speaker 5: uh Yeah, we're now fortunate to be one of the
Speaker 5: top few off of the number one tech podcast on
Speaker 5: Apple and Spotify. Which is a little funny because we
Speaker 5: study these companies that are very often not tech companies now,
Speaker 5: but we look at companies like TSMC and Bars, the
Speaker 5: company behind M and M's ikea, Meta ermez Costco, and
Speaker 5: we really try to through conversation David and I tell
Speaker 5: the entire history of the company from founding to today,
Speaker 5: analyze it and really try to answer the question why
Speaker 5: did the company that we are studying work and work
Speaker 5: at such extreme scale?
Speaker 4: And Tracy it's the reason we do it is literally
Speaker 4: just like you said, you know, the institutions that these companies,
Speaker 4: the biggest companies you know around the world have become
Speaker 4: are you know, they're quasi governmental at this point. You know,
Speaker 4: you can make an argument they're more important than government.
Speaker 4: Somebody said to Ben a few months ago when when
Speaker 4: talking about acquired you know, in two hundred years, I
Speaker 4: don't know if people are going to know the name
Speaker 4: Joe Biden, but they're sure as hell going to know
Speaker 4: the name Mark Zuckerberg. We're like, WHOA, that's that's a
Speaker 4: crazy idea but might be true.
Speaker 2: Yeah, I mean I can't. They're a bunch of random
Speaker 2: presidents from one hundred years ago that I certainly I
Speaker 2: couldn't name, or if I could name them, wouldn't know
Speaker 2: anything about them. Going back to Tracy's fantastic intro, you know,
Speaker 2: there's sort of two things I guess about companies, which
Speaker 2: is one is I guess the business model, the product
Speaker 2: that they sell. You know, you build something and then
Speaker 2: you try to sell it for more money that you
Speaker 2: built it for. And then there is this sort of
Speaker 2: like the internal empire, and there's the culture, and there's
Speaker 2: just the way they work. And these are fundamentally sort
Speaker 2: of like different questions. Do you how do you think
Speaker 2: about like what a company is? Because I get they're
Speaker 2: really portrays it's intro. There are multiple ways to describe it,
Speaker 2: like what is a company that is?
Speaker 4: You know, we typically spend four to six hours on
Speaker 4: an episode trying to answer that question.
Speaker 1: You know.
Speaker 4: It's what we've tended to find is the only pattern
Speaker 4: that tends to really exist across these greatest, biggest companies
Speaker 4: in the world is that they are each totally idiosyncratic
Speaker 4: in some really one or multiple really really really important
Speaker 4: to mentions. And so I think I would say, you know,
Speaker 4: for those incredibly successful, you know institutions of our time,
Speaker 4: what they are is they are something unique that no
Speaker 4: other institution, you know, company, corporate, governmental, otherwise can well.
Speaker 4: TSMC that we just covered, we just interviewed the founder
Speaker 4: of Morris Chang in Taiwan, which is an incredible experience.
Speaker 4: You know, they make all the leading edge chips in
Speaker 4: the world, so you know, to the extent that computing
Speaker 4: and compute is important in our world, like all of
Speaker 4: it flows through TSMC. There is nobody else in the
Speaker 4: world that has the capability to make the incredibly powerful
Speaker 4: chips at the leading edge that they do.
Speaker 5: I think our episodes tend to hinge on this question,
Speaker 5: in what way is this company singular? Because nothing gets
Speaker 5: to five hundred billion dollar trillion dollar scale without being
Speaker 5: the only one that can do X. And in TSMC's case,
Speaker 5: they're the only company that doesn't ever compete with their customers.
Speaker 5: They're purely a foundry. They are not also a chip designer,
Speaker 5: and they're the only ones capable of doing what is
Speaker 5: the current technology generation two nanometer process the most sophisticated
Speaker 5: leading edge chips, and almost every big company you look
Speaker 5: at that has been successful over in a long period
Speaker 5: of time or reached outlier status is singular in some
Speaker 5: way like that.
Speaker 4: And TSMC, it's like it's wild because of that, that
Speaker 4: is the only thing that matters there. They are in
Speaker 4: this you know, island nation of you know, depending on
Speaker 4: who you ask, disputed sovereignty. It's insane. There's something like
Speaker 4: six or seven percent of the country's GDP and like
Speaker 4: I think, like fifteen percent of the stock market you know,
Speaker 4: of the equity value of companies in the country. Yet
Speaker 4: it exists, and yet the world order, you know, at
Speaker 4: least thus far, has reorganized itself around it.
Speaker 1: So the way I kind of think of your podcast,
Speaker 1: the analogy that I use is you're the business equivalent
Speaker 1: of Dan Carlin's hardcore history. Like these are long episodes
Speaker 1: where you are digging very deep into the profile of
Speaker 1: a particular company. But as you mentioned, you also do
Speaker 1: interviews or you weave interviews into your company profiles, and
Speaker 1: you just did that one with Morris Chang, the TSMC founder.
Speaker 1: One of the things that really surprised me in that
Speaker 1: interview was he said he never fired people and never
Speaker 1: did performance reviews. What did you guys, think of.
Speaker 5: That, it's really interesting. So David and I got to
Speaker 5: read an unauthorized translation of his Chinese only memoir to prepare,
Speaker 5: and he went into great length in the memoir explaining
Speaker 5: the philosophy, and the idea is that performance reviews are
Speaker 5: entirely separate from the idea of who should get laid
Speaker 5: off if there's a layoff. Performance reviews are specifically about
Speaker 5: coaching you on how to be a better employee for
Speaker 5: the company next year, so both the employee and the
Speaker 5: company benefit if there is a layoff. There should be
Speaker 5: an entirely different way of determining where we need to
Speaker 5: trim to cut budget versus looking at people's performance reviews.
Speaker 5: And Morris goes so far as to believe that in
Speaker 5: his industry, with his business model, you should actually never
Speaker 5: lay people off. And I think that comes from the
Speaker 5: fact that, a if you believe the economy or your
Speaker 5: industry is going to turn around within twelve or eighteen months,
Speaker 5: you know it's not actually worth it to lay people off,
Speaker 5: pay a whole bunch of severance, need to hire people back,
Speaker 5: need to retrain them. But the other big part is
Speaker 5: Moore's law marches on and so.
Speaker 4: If you believe in Moore's law, you will always need more.
Speaker 5: Yes, and you'll need more people, you'll need more machinery,
Speaker 5: you'll need more capacity. And the semiconductor industry is so
Speaker 5: cyclical that part of the way that he believes you
Speaker 5: can kind of avoid these huge gluts and then you
Speaker 5: know bubbles. Basically this boom and bust of the semiconductor
Speaker 5: industry is to sort of behave less in this whiplash
Speaker 5: like fashion where oh no, there's a little bit of
Speaker 5: an asset bubble and you know, stocks are in a
Speaker 5: draw down, so we need to lay off people.
Speaker 4: Oh my god.
Speaker 5: And I think he sort of blames layoff as a
Speaker 5: piece of the massive cyclicality of the industry.
Speaker 4: And he had a really scarring experience around this back
Speaker 4: when he was at TI Texas Instruments. So, I mean,
Speaker 4: the crazy thing about Morris he didn't start TSMC un
Speaker 4: till he was fifty six years old. He's not Taiwanese's.
Speaker 4: He was born in China but then became an American citizen.
Speaker 4: He had a whole incredible career in the semiconductor industry
Speaker 4: in America. Long before starting TSMC, he ran TI's semiconductor
Speaker 4: group and before Intel and.
Speaker 5: Really what you might chuckle about, like TI they make
Speaker 5: those calculators for high school students, right.
Speaker 4: But before Intel and for the first like ten years
Speaker 4: of Intel's existence, they were the pipsqueak and TI was
Speaker 4: the semiconductor giant, and Morris ran the semiconductor division at TI.
Speaker 4: And at some point part of how they really lost
Speaker 4: the crown to Intel was the corporate you know, the
Speaker 4: CEO decided we need to have La off for whatever reason,
Speaker 4: you know, gyrations were going on in the stock market
Speaker 4: or whatever. They ended up as a result of that.
Speaker 4: I don't know if they're directly laid off, but as
Speaker 4: a result, the Moss team mos metal oxide semi conductor
Speaker 4: some of the uh yeah, which was sort of the
Speaker 4: next generation of silicon. That team within TI left the
Speaker 4: company started a new company called Moss Tech. And then
Speaker 4: anybody who knows anything about semi conductors knows, you know,
Speaker 4: Moss was like the key technology that Intel leveraged and
Speaker 4: like you know, really helped expand More's law and t
Speaker 4: I just totally missed out on that because they you know,
Speaker 4: parted ways with this really important group and like, who
Speaker 4: knows what's going to be really important in the future.
Speaker 2: So this actually gets to something that is a very recurrent,
Speaker 2: odd lotch theme. And of course when I described what
Speaker 2: companies are sort of in the theoretical sense, you know,
Speaker 2: one thing I didn't mention is their preservation of collective
Speaker 2: knowledge and memory.
Speaker 5: Right.
Speaker 2: So TSMC may be the best in the world at
Speaker 2: producing chips, but there is no individual at TSMC that
Speaker 2: knows how to build chips, right, It's a collective process
Speaker 2: and there's no one person that stores it all in
Speaker 2: his head and just can walk across. And you see
Speaker 2: this in the failings of certain American manufacturers. They do
Speaker 2: have these layoffs and then they're like out of practice
Speaker 2: and they get rusty. And we talk about it a
Speaker 2: lot in the nuclear industry and the plan industry, et cetera.
Speaker 2: Talk to us maybe TSMC, but also other examples of
Speaker 2: the company as this sort of knowledge preserver.
Speaker 4: Totally. Well, TSMC is so vivid in our minds right
Speaker 4: now because we just were there and we toured the
Speaker 4: science park Kinschy Science Park in Taiwan, where not only TSMC,
Speaker 4: but the whole semiconductor ecosystem is located. Like media texts there,
Speaker 4: arms there, you know, Apple's there, like, you know, it's
Speaker 4: like a it's all all right there, right together. You
Speaker 4: are so incredibly correct that there is no one person.
Speaker 4: There's not even a group of one thousand people who
Speaker 4: know how to make chips or know what TSMC is.
Speaker 4: You can't just like airlift, you could take all the buildings,
Speaker 4: you could take a bunch of people out of there,
Speaker 4: and like, you cannot recreate this. It is a whole
Speaker 4: ecosystem contained in one physical location.
Speaker 5: I think it's fair to say it's the most complex
Speaker 5: process that humankind has created and the most complex product,
Speaker 5: like the science and technology in R and D that
Speaker 5: goes into etching a two nanimeter wafer for use in
Speaker 5: whether it's AI chips from Nvidia or you know, the
Speaker 5: chips in our MacBooks or iPhones from Apple. That is,
Speaker 5: you know, there's a joke in the semiconductor industry that
Speaker 5: this is a technology given to us by aliens. That's
Speaker 5: how sort of insane it is.
Speaker 4: It is the closest thing to magic in the modern world.
Speaker 5: Yes, I think that's exactly right, and so yeah, I
Speaker 5: think lots of indust have examples of what you're talking about,
Speaker 5: This idea that the culture of the company contains this
Speaker 5: sort of fabric of knowledge that not one person can have,
Speaker 5: but is blown out to its extreme in semiconductors.
Speaker 1: So if we agree that companies are sort of collections
Speaker 1: of institutional knowledge, more broadly, I guess I'm wondering how
Speaker 1: much of a role does management play? Then, Like, are
Speaker 1: there instances that you've studied where management has made a real,
Speaker 1: real difference?
Speaker 4: Yes, of laughing, Meta Facebook is like such an extreme
Speaker 4: example of this, Like, yes, Meta, And I'm sure Mark
Speaker 4: would be the first to say, is just like TSMC,
Speaker 4: a collection of all the people and knowledge and processes.
Speaker 4: And if Mark were to go start another company, he
Speaker 4: couldn't recreate you know, Meta and Facebook. But there have
Speaker 4: been so many moments in the history of that company
Speaker 4: where a decision or a set of decisions made solely
Speaker 4: by Mark have completely changed its course and enabled it
Speaker 4: to become what is it, you know, before this most
Speaker 4: recent draw down one and a half trillion dollar market
Speaker 4: cap company.
Speaker 5: I would say I draw a distinction between management and leadership.
Speaker 5: I think management tends to play a role in stabilizing
Speaker 5: companies and creating companies that are maybe one two standard
Speaker 5: deviations away from the mean. On the positive side. You know,
Speaker 5: how to create good companies, and leadership is how to
Speaker 5: create great companies. These founder led companies Jensen and Mark
Speaker 5: Zuckerberg and Forrest Mahers and in the case of the
Speaker 5: Eminem's you know, Snickers Candy Corporation, and Bill Gates in
Speaker 5: the case of Microsoft, Dehak in the case of Visa.
Speaker 5: These are people that are visionary, that have an idea
Speaker 5: of the way the world should work. John Collinson has
Speaker 5: this great quote that when you look around the world
Speaker 5: as a museum of passion projects, and I think it's
Speaker 5: the leadership of these like true visionaries that you know,
Speaker 5: when they first started, you didn't know for sure they
Speaker 5: were going to be right or not. But in hindsight
Speaker 5: it was it was their leadership, their stubbornness, their stick toitiveness,
Speaker 5: and their insistence that their way of arranging the world
Speaker 5: around them was correct that ended up actually shaping the
Speaker 5: world and creating the biggest companies on Earth.
Speaker 2: You know, I have a question since you started off
Speaker 2: by talking about performance reviews, and here's something that I
Speaker 2: think about some time, which is that let's say you
Speaker 2: have like a Mark Zuckerberg starting Facebook in his dorm room,
Speaker 2: or Larry and SERGEI and Google in their garage and
Speaker 2: they have this cool technology and they're growing, and that
Speaker 2: it's eventually they hit a point where someone comes to
Speaker 2: them and says, you know what, we really need to
Speaker 2: like write an HR manual, we really need to like
Speaker 2: come up with all this stuff. And I think about myself,
Speaker 2: that would be the point where, like, you know what,
Speaker 2: I'm selling the company I hate. I hate dealing with.
Speaker 1: Like Joe, I hate paperwork.
Speaker 2: I don't want to like write a manual. I don't
Speaker 2: want to start having performance reviews. I don't want to
Speaker 2: like come up with all these like HR policies. This
Speaker 2: sounds like a headache. I'm curious, though, like, because you
Speaker 2: talk about these visionaries, how do they sort of accept
Speaker 2: the fact that as they get bigger, certain aspects of bureaucracy,
Speaker 2: which they probably find kind of annoying to are sort
Speaker 2: of must haves.
Speaker 5: With scale hm, I would push back that it's must have.
Speaker 5: I think it is most common to have it. But
Speaker 5: I am of the opinion that you can accomplish the
Speaker 5: same set of tasks through process and through culture.
Speaker 2: They all have, right, they all have rules, they all
Speaker 2: have like man, I mean, eventually, like they all have
Speaker 2: a HR department, and they have a specialization all that stuff.
Speaker 5: One hundred x more than others like you. Look at Nvidia,
Speaker 5: and I honestly believe this is true from speaking with Jensen,
Speaker 5: from interviewing him, from speaking with a number of directs,
Speaker 5: from spending time at headquarters. It is a pretty unstructured
Speaker 5: environment with comparatively few people. I think, what's in Nvidia's
Speaker 5: head count, David something and.
Speaker 4: I don't know, compared to the other tech giants.
Speaker 5: Five to ten x less less than the other big
Speaker 5: tech companies, way less process.
Speaker 2: Small, Yeah, according to twenty nine thousand people, twenty nine thousand,
Speaker 2: six hundred, All right, keep going, keep going, And.
Speaker 5: What's Apple somewhere in one hundred thousand, Microsoft's like one
Speaker 5: hundred and sixty seventy thousand. I mean, it's a comparatively
Speaker 5: small headcount company. And I really do think you can
Speaker 5: accomplish tasks through incredibly strong culture or process, and usually
Speaker 5: it's the sum of both. But it's always interesting to
Speaker 5: see which companies are able to lean much more heavily
Speaker 5: on You would just never violate some tenet of our culture,
Speaker 5: and therefore we don't need rigid process around it.
Speaker 4: And it's funny, you know, it's not you can kind
Speaker 4: of go one way or the other or somewhere in
Speaker 4: the spectrum. So with Jensen, and in Nvidia's case, clearly
Speaker 4: that's how he loves to operate. Forest Mars at the
Speaker 4: Bars company was the total opposite end of the spectrum.
Speaker 3: You know.
Speaker 4: Forrest was one of the most idiosyncratic entrepreneurs in American history.
Speaker 4: And because the company is so private and the family
Speaker 4: is so private, it's not as well known. We did
Speaker 4: an episode audit.
Speaker 5: By the way, I said, Candy and Pet company worth
Speaker 5: probably over one hundred billion dollars, totally privately held.
Speaker 4: Totally owned by the family one hundred percent. Forrest was
Speaker 4: so extreme on process, so he just instituted this set
Speaker 4: of rules that were completely crazy to the outside world
Speaker 4: at the time, but like we're how he wanted to
Speaker 4: organize things, and then everybody in the company just fell
Speaker 4: in line with the rules. So stuff like they're no office,
Speaker 4: there's no conference rooms. Well there are a few conference rooms,
Speaker 4: they don't have doors on them, they're made of glass.
Speaker 4: Everybody open floor plan. This is in the nineteen thirties.
Speaker 4: Imagine this, like no executive offices, no perks.
Speaker 5: A large bonus is determined if you are on time
Speaker 5: to meetings or not.
Speaker 4: And everybody punched a time card, including him, the CEO.
Speaker 2: By the way, Tracy, I can think of another privately
Speaker 2: owned company with open floor plans and all glass windowed offices.
Speaker 4: Yeah, do you guys punch a time card? We don't.
Speaker 1: We kind of do, yeah, kind of, kind of.
Speaker 2: Some of this sounds from it. We don't get a
Speaker 2: bonus for showing up at a meeting time. Some of
Speaker 2: this sounds familiar anyway, keep going.
Speaker 4: Sorry, And the way that he did this is you know,
Speaker 4: again these were radical, radical concepts for like you know,
Speaker 4: pre war and post war America and Europe at the time. Uh.
Speaker 4: He just said, like, we are all about performance here.
Speaker 4: We're all about the company's bottom line, and if the
Speaker 4: company performs well, you will make an sane amount of money.
Speaker 4: And so his goal was, like, assuming we outperform our targets,
Speaker 4: everybody you know, on their salarly base should make three
Speaker 4: times what an average salary for their job would be
Speaker 4: elsewhere in the industry. And so like, you just set
Speaker 4: up those incentives and you set up those hard rules,
Speaker 4: and you're going to get people to follow them.
Speaker 1: Wait, so I don't know that much about the Mars
Speaker 1: company other than you know, Eminem's are delicious and all
Speaker 1: of that. But when you're researching a privately held company,
Speaker 1: like that's what's the actual research process for you? Like
Speaker 1: how do you dig up information on a company where
Speaker 1: you know there aren't as many like public publicly available
Speaker 1: documents and financial statements.
Speaker 5: We rely heavily on the or at least historically. We're
Speaker 5: now getting more primary source access, but historically on the
Speaker 5: writing of great journalists and so usually there is a
Speaker 5: canonical book of someone who got close, like in the
Speaker 5: case of Renaissance Technology, the ultra Secretive Asset Man out
Speaker 5: of uh Stocket, New York.
Speaker 4: I think that's right, David.
Speaker 5: There's a great book by Greg Zuckerman called The Man
Speaker 5: Who Solved the Market. Like pretty investigative journalism work, David,
Speaker 5: there's one here in the Yeah.
Speaker 4: For Mars, there's a book written by Joel Glenn Brenner.
Speaker 4: She was a reporter at the Washington Post in the
Speaker 4: eighties and nineties. It's called Emperors of Chocolate. It's so good.
Speaker 4: She got access to Mars by calling them, calling headquarters
Speaker 4: every single day for a year and then finally they
Speaker 4: relented and gave her access. It's the only book ever written.
Speaker 4: It came out in like the late eighties early nineties,
Speaker 4: so we used that and then and then we talked
Speaker 4: to her. So we talked to her from Mars, We
Speaker 4: talked to Greg for Rentech. We talked to these people,
Speaker 4: and we say like, okay, like you know, tell us
Speaker 4: about this, like what was the process of getting access?
Speaker 4: You know, what are you sure about? What are you
Speaker 4: not sure about? What do we really need to highlight
Speaker 4: what's happened since? And also is.
Speaker 5: Even if a company, for example, when we did Envidia
Speaker 5: in early twenty twenty to which gosh, what a ride
Speaker 5: it's been since we covered the company. Back then there
Speaker 5: wasn't a book yet There's about to be two books,
Speaker 5: and so that requires sort of piecing together the story
Speaker 5: over a lot of different ways. David's favorite is finding
Speaker 5: industry talks that have been posted to YouTube, and so
Speaker 5: there's usually some mid level manager that is talking about
Speaker 5: something like in a presentation. They all excited because they
Speaker 5: get to go and present to their peers. There's always
Speaker 5: gold in there, and I don't think it's like investment
Speaker 5: Alpha necessarily, and I'm not sure it's competitive information where
Speaker 5: the company's like, oh, we wish this wasn't presented, but
Speaker 5: it really does. If you're trying to understand the story
Speaker 5: of how the company became successful, really helps you find that.
Speaker 4: And it's often the founders themselves too. I mean, gosh,
Speaker 4: in that Nvidia case, there was a talk that Jensen
Speaker 4: gave at against the State University on the setting of
Speaker 4: OSU and it was recorded I don't know, probably sometime
Speaker 4: in the nineties, early two thousands, and he's, you know,
Speaker 4: it's a totally different Gensen, it's a totally different company,
Speaker 4: and he's completely candid, straightforward talking about his journey. And
Speaker 4: you know, when we found it, it had like I
Speaker 4: don't know, a couple hundreds views on YouTube. This stuff
Speaker 4: is out there.
Speaker 2: There's an obsession among a lot of investors with the
Speaker 2: idea of founder led companies, and that's really exciting someone
Speaker 2: who's still there, who still has that original vision. But
Speaker 2: you know, obviously a lot of companies are just too
Speaker 2: old to still be founder led, or companies thrived through
Speaker 2: multiple CEOs. Regardless, what patterns have you realized is there
Speaker 2: a real difference with founder led companies or is this
Speaker 2: sort of just a survivorship virus. Some founder led companies
Speaker 2: have done really well, and we remember all of those,
Speaker 2: some flame out and no one talks about them, et cetera.
Speaker 2: I'm curious what patterns or anti patterns you observe.
Speaker 5: Okay, well, first of all, it's all survivorship bias. Everything
Speaker 5: we've talked about so far. Actually, I'm glad, yeah, I
Speaker 5: was gonna follow anyway.
Speaker 4: Past performance is not an indicator of future success here.
Speaker 5: We have not brought up a single company on here
Speaker 5: that A has failed or B is a middling success. No,
Speaker 5: ten billion dollar companies have sort of crossed our lips
Speaker 5: this conversation. We have decided on acquired. We love understanding
Speaker 5: what made the extreme outliers work so well. The great
Speaker 5: irony is that is not a playbook that you can repeat.
Speaker 4: You know.
Speaker 5: It's like holding that lottery ticket up in the air
Speaker 5: and professing to everyone. Like the great webcomic x XKCD.
Speaker 5: There's this amazing comic where he's holding the lottery ticket
Speaker 5: on a stage saying I just kept playing and if
Speaker 5: you keep playing too, you too can win the lottery.
Speaker 5: And I think it is you know, we should wave
Speaker 5: our arms around and say, if you run Mark Zuckerberg's
Speaker 5: exact decision process will not create case BRI. I mean
Speaker 5: that it's just you weren't there at that exact time
Speaker 5: and that exact place.
Speaker 2: I always think about those Twitter threads where it's like,
Speaker 2: this is the daily routine of the CEO. He gets
Speaker 2: up at flour am, it takes a cold shower, and
Speaker 2: then meditates for half an hour, and then eats raw
Speaker 2: oats and then takes his kids to school, et cetera.
Speaker 2: You're not going to start a billion dollar company by
Speaker 2: following what you saw on a Twitter.
Speaker 4: Humans are really really bad at distinguishing correlation from causation.
Speaker 1: Yes, that's another now xCD comic, isn't it.
Speaker 4: Yeah?
Speaker 5: Oh yeah, x XKCD.
Speaker 1: Oh sorry XKCD. Dyslexia strikes again.
Speaker 5: It's not the easiest name to remember or pronounce. But
Speaker 5: I will say, though, I think if your goal is
Speaker 5: how do I start a trillion dollar company? How do
Speaker 5: I start one of the thirty forty to fifty most important, largest,
Speaker 5: most successful, durable companies on the planet. Founder lead companies
Speaker 5: have a much higher probability of being that, And as
Speaker 5: you point out, time has a lot to do with that.
Speaker 5: You look at Arimez. This is a you know what
Speaker 5: is one hundred and fifty year old company. The original
Speaker 5: founder is not going to be the person running that,
Speaker 5: but close control is a key to the success of
Speaker 5: that business and so many others where they control their
Speaker 5: own destiny, they don't have to answer to the whims
Speaker 5: of shareholders ike as another great example. Mars is a
Speaker 5: great example. It might be a hired CEO in the
Speaker 5: case of Mars, or it might be a close family
Speaker 5: member in the case of Aermez. That David, you're common
Speaker 5: on the sixth generation family member. But there is a
Speaker 5: flexibility to adhere to the ethos of what makes the
Speaker 5: company special. That either founder control, family control, or just
Speaker 5: sort of tight original shareholder control lets you do in
Speaker 5: a way that if you're publicly traded, eventually the specialness
Speaker 5: gets beat out of you. You start believing that the
Speaker 5: consultants are right when you hire that and they say
Speaker 5: you should be like everyone else, or that the public
Speaker 5: equity investors that are trying to compare you against your
Speaker 5: comps and use the same numbers to compare you, but
Speaker 5: not really understand actually the way my business works you
Speaker 5: should analyze it in a completely different way, because that
Speaker 5: is what makes it special. You just you lose the
Speaker 5: ability to keep your search.
Speaker 4: This amazing story from Ermez's history of Jean Louis Dumat
Speaker 4: who was I think the third either the third or
Speaker 4: fourth generation family member to run the company in the eighties,
Speaker 4: late seventies, early eighties, and Mez it kind of I
Speaker 4: don't want to say fallen on hard times, but they
Speaker 4: were much much smaller relative to their peers in the
Speaker 4: luxury industry, and Gucci was on the rise. You know,
Speaker 4: it was the tom four Days at Gucci and they
Speaker 4: were everywhere, and they brought in some consultants. I don't
Speaker 4: know which firm, you know it recommended like, oh okay,
Speaker 4: I mes should basically throw in the talent, follow the
Speaker 4: Gucci Plight book of like machine production, high volume, lots
Speaker 4: of skews, be everywhere, license your brand, license your brand. Yeah,
Speaker 4: things you could never imagine them as doing today. And
Speaker 4: Jean Leus just said like basically, no, an f you
Speaker 4: and we will never work with consultants ever again, and
Speaker 4: we're going to double down on hand crafted, you know,
Speaker 4: unique history, scarcity, and that's what they did and so
Speaker 4: they built up, you know, over the ensuing decades they
Speaker 4: have seven eight thousand artisans that hand make the majority
Speaker 4: of their items in France. Like what other company is is,
Speaker 4: you know, a one hundred plus billion dollar company where
Speaker 4: everything is handmade by artisans.
Speaker 5: This was a dead craft. They spent thirty years reviving
Speaker 5: the number of craft people, and.
Speaker 4: They started schools, to trade schools to teach people to
Speaker 4: do this because it wasn't getting passed on, you know,
Speaker 4: through generations anymore, because all the other luxury companies had
Speaker 4: moved to machine production.
Speaker 5: I think, when it comes down to it, the lesson
Speaker 5: is the most successful companies are created by leaning into
Speaker 5: the thing that makes them special, not by trying to
Speaker 5: be like everyone else.
Speaker 1: I like the idea that in some alternate reality they
Speaker 1: listen to the consultants and I in fact have a
Speaker 1: burken bag, but I guess, I guess it wouldn't be
Speaker 1: as special, all right. So the other thing that people
Speaker 1: are obsessed with, in addition to founder led companies is
Speaker 1: the idea of disruption, right and disruption is certainly in
Speaker 1: the news right now, given the Deep Seek sell off
Speaker 1: and stuff like that. And Joe and I recorded an
Speaker 1: interview with Howard Marx a little while ago, and one
Speaker 1: of the things he talks about is how there's no
Speaker 1: guarantee that the big or best companies of today are
Speaker 1: going to be around forever. So if you go back
Speaker 1: and look at some businesses that were big in the
Speaker 1: s and p. Five hundred, like back in the sixties,
Speaker 1: they aren't there anymore. So names like Kodak or Avon,
Speaker 1: remember the Avon lady and Simplicity pattern was in the
Speaker 1: s and p. Five hundred. That's a company that made
Speaker 1: patterns so people could make their own clothes. Like it's
Speaker 1: kind of hard. Yeah, it's hard to imagine that now.
Speaker 1: But in the podcast you're discussing successful companies, But how
Speaker 1: do you view, I guess a company's longevity, Like what
Speaker 1: factors determine whether a business is sustainable for decades versus
Speaker 1: being just a flash in the pan.
Speaker 4: It's funny.
Speaker 5: Not only is this a great question, it's actually the
Speaker 5: most important question because if let's say something compounds at
Speaker 5: a fixed rate, and let's even say that rate is low,
Speaker 5: it's a five percent per year growth company, what actually
Speaker 5: matters is your growth in years twenty eight, twenty nine
Speaker 5: and thirty on a thirty dollar horizon. And it's if
Speaker 5: whether or not you're able to grow ten percent this
Speaker 5: year in year two or three or four and wildly
Speaker 5: exceed your targets, that's completely irrelevant, versus can you survive
Speaker 5: till you're twenty eight and do five percent two percent,
Speaker 5: you know, like a modest growth at scale in case.
Speaker 4: One hundred and nine, year one hundred and ninety, you know.
Speaker 5: Yes, yes, and we've experienced this.
Speaker 4: It acquired.
Speaker 5: It's the craziest thing that you know, last year we
Speaker 5: grew from five hundred thousand listeners to a million listeners. Okay,
Speaker 5: it's one hundred percent growth. That is high growth were
Speaker 5: we a public company. It's kind of like middling pathetic
Speaker 5: growth if you are an early stage startup. And yet
Speaker 5: the fact that it happened in our tenth year is
Speaker 5: actually the thing that matters. I wouldn't have cared. I
Speaker 5: would take that over growing at eight, you know, eight
Speaker 5: hundred percent in year two any day. And so i'
Speaker 5: you're getting at the core ethosis of like, what really
Speaker 5: matters when you're creating something very valuable in the world
Speaker 5: is the out years of the compounding. Now to actually
Speaker 5: answer the question. David, you look like you've been thinking
Speaker 5: about it.
Speaker 4: I love what you did there, and then you're like,
Speaker 4: oh so the really hard thing that like if you
Speaker 4: actually knew, you would probably be the greatest.
Speaker 1: I'm going to remember that for this podcast. Like Joe, Joe,
Speaker 1: you look like you have something to say.
Speaker 4: Oh boy, oh boy. I think it's you know, every
Speaker 4: company without fail. I mean, look at this deep seat
Speaker 4: crisis right now is going to face crises on some
Speaker 4: you know, irregular pattern. You know, you don't know when
Speaker 4: they're going to come over X many years, but like,
Speaker 4: if you're in business long enough, you will face crises.
Speaker 4: I mean, we have faced crises with our little two
Speaker 4: person company here, and then it's just you know, can
Speaker 4: you navigate that crisis and emerge on the same or better,
Speaker 4: you know, compounding trajectory that you were before.
Speaker 5: And to your point earlier, David, that this okay, I'll
Speaker 5: try to really answer the question. Every company is special
Speaker 5: in some way, singular in some way, and the thing
Speaker 5: that gives any individual company its durability is different and
Speaker 5: related to its specialness. So for Aermez, it's the uncompromising
Speaker 5: commitment to craftsmanship and the durability of their products and
Speaker 5: protecting their brand and making the hard choice over and
Speaker 5: over and never never making the easy choice, such that
Speaker 5: it is instilled in the psyche of generations of customers,
Speaker 5: like customers who pass things down and word of mouth
Speaker 5: that they have this this extreme premium luxury associated with
Speaker 5: their brand, that you know, if they made little trade
Speaker 5: offs like, oh, let's juice the price. Let's raise burkeinbag
Speaker 5: prices fifty percent this year, or let's have a whole
Speaker 5: bunch of these get made in this machine. They kind
Speaker 5: of look saddlestitch, but isn't saddlestitch? These would trade off
Speaker 5: against their sort of durability over time. But that's not
Speaker 5: the way every company does it, Like Microsoft, for example,
Speaker 5: does it through product bundling. The fact that they now
Speaker 5: have so many pretty good pieces of software that they
Speaker 5: can bundle together and sell in one enterprise agreement to
Speaker 5: a company and have a full solution versus needing to
Speaker 5: have the best individual widget to do the task for
Speaker 5: an given thing. This turned out, over time to be
Speaker 5: an incredibly durable business model that you know, really didn't
Speaker 5: exist before Steve Baumer sort of invented it in the
Speaker 5: late nineties.
Speaker 2: I just have one last question. You know, obviously, if
Speaker 2: you're talking about the great and this is something that
Speaker 2: we talk a lot about on the show, But if
Speaker 2: you're talking about the great companies today, there are great
Speaker 2: companies in luxury, they are great companies in pet food
Speaker 2: and candy, but the vast majority of them are going
Speaker 2: to be big tech giant. Those are the biggest, most
Speaker 2: successful companies in the world. And then to your recent point,
Speaker 2: what's really extraordinary to me and I think to investors
Speaker 2: is how big they still compound in the out years.
Speaker 2: So we're talking about companies that in many cases are
Speaker 2: more than forty years old and yet still growing at
Speaker 2: just extraordinary clips given their size. Is this truly sort
Speaker 2: of a historical like if we looked at like, you know,
Speaker 2: if we looked at the really big companies thirty years
Speaker 2: ago or something, you know, you have like oil companies
Speaker 2: or General Electric, et cetera, And they were big and
Speaker 2: they were doing really well, but they had slowed down
Speaker 2: quite a bit by the time they had like gotten
Speaker 2: to the whatever the equivalent is. And it seems like
Speaker 2: we're really in sort of uncharted territory by the speed
Speaker 2: with which these tech giants specifically could still grow at
Speaker 2: their level of maturity.
Speaker 4: Yes, uh, this is the consequence of Moore's law. Moore's
Speaker 4: law and what we like to refer to as the
Speaker 4: Meritz corollary to Moore's law, which is Michael Meritz, who
Speaker 4: was a longtime partner at Sequoia, invested in Google, YEAHO
Speaker 4: and Striper among others, and a journalist before joining Suoya
Speaker 4: for us, All, yeah, the folks probably know, you know
Speaker 4: Moore's law, but in this case, you know, the relevant
Speaker 4: and interpretation of it is that the both demand and
Speaker 4: supply for computing power you know writ large forgetting a
Speaker 4: specific definition of it, but like the ability to compute
Speaker 4: things will double every eighteen to twenty four months, and
Speaker 4: that spiritually has held true since gosh what nineteen sixty
Speaker 4: eight maybe, and so we're many many years down the
Speaker 4: compounding curve of that, and it is still relatively true.
Speaker 4: The Merits corollary to it is that as long as
Speaker 4: Moore's law holds, the world will find uses for that
Speaker 4: increased compute power and demand for it. And so if
Speaker 4: you believe that the market size for computing technology writ
Speaker 4: large is going to grow, if you look at like
Speaker 4: the entire technology market. It's going to roughly grow at
Speaker 4: the same pace as Moore's law, which is exponential. That's
Speaker 4: the reason it's exponential. And it's sixty plus years into
Speaker 4: compounding at this point, and the world has never seen
Speaker 4: anything like it.
Speaker 5: And so I think if you take big tech writ large,
Speaker 5: it probably is true that big tech will continue to
Speaker 5: get bigger than ever because the market cap of technology
Speaker 5: companies in some will continue to follow the Moors Law curve. However,
Speaker 5: I think it's a little bit disingenuous because every ten
Speaker 5: years or so we have a new entrant to big
Speaker 5: tech who is surfing the wave of the most recent.
Speaker 4: New market created by more exactly.
Speaker 5: Exactly, and so whether it was mainframes or mini computers,
Speaker 5: or the PC or the Internet or emotion or AI, like,
Speaker 5: each one of these brought one or two or three
Speaker 5: brand new entrants and we sort of liked that. We
Speaker 5: called them fang and then we called them Mamma, and
Speaker 5: now we call them the Magnificent Seven. But like, these
Speaker 5: are actually different companies and n Video was not a
Speaker 5: part of the conversation even three years ago.
Speaker 1: Can you give us a scoop and maybe tell us
Speaker 1: what you're working on next.
Speaker 5: Dave, related to our listener, is what was your specific hint?
Speaker 5: A different type of TikTok, not that.
Speaker 4: Kind of TikTok. Yeah, we uh, we do little hints
Speaker 4: on our emails when we release episodes. We do a
Speaker 4: little riddle of what the next episode is going to be. Yes,
Speaker 4: a different type of TikTok is our next episode. But
Speaker 4: we've got some watch yeah guess yeah.
Speaker 1: All right, Well, Ben and David, that was so much fun.
Speaker 1: Thank you so much for coming on Odd Lots and yeah,
Speaker 1: everyone go listen to Acquired and Odd Lots. Listen to
Speaker 1: both of us.
Speaker 5: Oh, we should say, uh, way back four years ago
Speaker 5: when we first did our TSMC episode, there was a
Speaker 5: great Odd Lots that we both listened to that was
Speaker 5: yes with Tim to talk about t SMC and UH
Speaker 5: in particular, I think it was the relationship with Smith
Speaker 5: the Chinese competitor. Oh, thank you lots, Thank you so
Speaker 5: much for having us on and thanks for being a
Speaker 5: part of our research process.
Speaker 1: That was so much fun. Thank you.
Speaker 3: Joe.
Speaker 1: That was really fun.
Speaker 4: Well, I love talking to other podcasters.
Speaker 1: I know it's very easy because you can kind of
Speaker 1: just let them talk.
Speaker 2: I know, they're really getting. That was really fun. I
Speaker 2: like the point, the sort of acknowledgment that like none
Speaker 2: of them. It's fun to listen to these stories of
Speaker 2: amazing outliers, but none of their playbooks are going to
Speaker 2: work for you.
Speaker 4: Probably right.
Speaker 1: Well, here's where I almost think that looking at corporate
Speaker 1: failures like bad businesses is kind of more useful in
Speaker 1: some senses, because if you're trying to identify, you know,
Speaker 1: things like survivorship bias and other heuristics that we might
Speaker 1: all have in our heads, you kind of need to
Speaker 1: look at where people failed as well as where they succeeded.
Speaker 1: But anyway, I did actually learn a lot from that.
Speaker 1: So the point about TSMC and idea of well, when
Speaker 1: you're in an extremely cyclical industry, maybe yeah, don't do layoffs.
Speaker 1: Maybe you don't want to lose a bunch of institutional
Speaker 1: skill and knowledge every like three or four years and
Speaker 1: then have to rebuild it.
Speaker 2: This seems like something that has really plagued a lot
Speaker 2: of big American manufacturers, and I guess that you know,
Speaker 2: obviously TSMC is a publicly traded company, but it does
Speaker 2: seem like this idea of sort of being able to
Speaker 2: ignore outside investors and the importance of close held inness
Speaker 2: within a company. And so obviously there's private companies like
Speaker 2: a Mars, But then there's companies like a lot of
Speaker 2: the American tech giants, where the founders have a different
Speaker 2: class of share structure that gives them like ten times
Speaker 2: more votes than the other public And it does seem
Speaker 2: like to some extent, for better or worse, probably for
Speaker 2: corporate performance. Often the better that the ability of the founders.
Speaker 2: They know, we are really not going to do anything,
Speaker 2: and you're never going to vote us off the board
Speaker 2: or whatever. We are not going to change how we
Speaker 2: do things. In many cases that seems to be an advantage,
Speaker 2: an advantage.
Speaker 1: Never go public, Never do performance reviews, Never write a
Speaker 1: employee manual I have. Yeah, I'm certainly that's true. All right,
Speaker 1: shall we leave it there.
Speaker 2: Let's leave it there.
Speaker 1: This has been another episode of the Oudlots podcast. I'm
Speaker 1: Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 2: I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guests Ben Gilbert He's at Gilbert and David
Speaker 2: Rosenthal He's at DJ Rosent. Follow our producers Kerman Rodriguez
Speaker 2: at Kerman armand dash O Bennett at Dashbot and kill
Speaker 2: Brooks at Cale Brooks. From our odd Loots content, go
Speaker 2: to Bloomberg dot com slash odd Lots. We have transcripts,
Speaker 2: a blog, and a newsletter, and you can chat about
Speaker 2: all of these topics twenty four to seven in our
Speaker 2: discord discord dot gg slash hoblines.
Speaker 1: And if you enjoy odd Lots, if you like it
Speaker 1: when we talk about what makes companies successful, then please
Speaker 1: leave us a positive review on your favorite podcast platform.
Speaker 1: And remember, if you are a Bloomberg subscriber, you can
Speaker 1: listen to all of our episodes absolutely ad free. All
Speaker 1: you need to do is find the Bloomberg channel on
Speaker 1: Apple Podcasts and follow the instructions there. Thanks for listening.