Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg
Speaker 1: Radio this week. My guest to somebody you probably never
Speaker 1: heard of, but yet when you hear what he's accomplished
Speaker 1: and what he's done, he's he's been a fascinating uh character,
Speaker 1: a fascinating player behind the scenes. His name is Nick Hanauer.
Speaker 1: I don't want to spoil anything, but let me at
Speaker 1: least give you enough background about him so you'll you'll
Speaker 1: want to hear the whole thing. Uh. He was the
Speaker 1: first outside investor into Amazon outside of Jeff Bezos's immediate family,
Speaker 1: the first non family investor. Uh. That worked out pretty
Speaker 1: well for him. Became interested in the uh Internet in
Speaker 1: the early nine nineties and and was right there. Actually,
Speaker 1: he's the guy who convinced Bezos to open up Amazon
Speaker 1: in Seattle as opposed to New York or or elsewhere. Uh.
Speaker 1: He's done a number of other fascinating things. He's running
Speaker 1: family business that's the largest pillow and linen business in
Speaker 1: the United States. UM. He runs a venture capital shop.
Speaker 1: He also sold one of his companies, a quantive, to
Speaker 1: Microsoft for six point four billion dollars in cash. That
Speaker 1: was a pretty uh, pretty lucrative transaction. Really interesting guy,
Speaker 1: not the sort of stuff that that people um no
Speaker 1: uh know him by his name or know him by
Speaker 1: these accomplishments A little bit behind the scenes. However, a
Speaker 1: couple of years ago, he became interested in income inequality
Speaker 1: and he wrote an article for Politico that just went
Speaker 1: completely viral and it was called to my fellow fellows, zillionaires,
Speaker 1: Beware the pitchforks are coming for US plutocrats, and it
Speaker 1: went completely viral. He ended up doing a TED video
Speaker 1: on this, which was not broadcast and not created this
Speaker 1: giant backlash, and ultimately he did a second video for
Speaker 1: Ted that that was broadcast and that went viral. UM.
Speaker 1: I think you'll find Nick to be a really insightful,
Speaker 1: interesting guy who sees the world from a very specific,
Speaker 1: uh perspective, and it's really quite um, quite interesting, quite fascinating.
Speaker 1: I think you'll enjoy our conversation without any further ado,
Speaker 1: my conversation with Nick Hannaur. This is Masters in Business
Speaker 1: with Barry Ridholts on Bloomberg Radio. My special guest today
Speaker 1: is Nick Hannaur. Am I pronouncing that right? I was, yeah, perfect?
Speaker 1: And Nick is a very interesting guy. Let me give
Speaker 1: you the short version of his curriculum Vita University of
Speaker 1: Washington with the philosophy degree. Took over the family owned business,
Speaker 1: Pacific Coast Feather Company as chairman and CEO. This is
Speaker 1: a business that's been around for a hundred plus years, right, Well,
Speaker 1: my family has been in the business since four My
Speaker 1: my great my grandfather and my great uncle bought Pacific
Speaker 1: Coast out of bankruptcy in nineteen forty after moving from
Speaker 1: Germany to the United States. And and you're probably best
Speaker 1: known for a couple of things. You were the first
Speaker 1: non family investor in Amazon dot com. And you founded
Speaker 1: a company that was eventually called a Quantive that was
Speaker 1: eventually sold to Microsoft for six point four billion dollars. Correct.
Speaker 1: We'll speak about both of those as well as being
Speaker 1: um a venture capitalist in Seattle at Second Avenue Partners. Correct.
Speaker 1: So let's talk a little bit about that diverse background.
Speaker 1: So when people ask you, uh, hey, Nick, what do
Speaker 1: you do for a living, how do you answer that? Well,
Speaker 1: I mean, you know, today I devote myself to uh,
Speaker 1: you know, a lot of my time is devoted to
Speaker 1: civic issues, policy, politics, philanthropy and so on and so forth.
Speaker 1: But in my work life. I'm a serial entrepreneur and
Speaker 1: venture capitalist. And you know, it was fortunate enough to
Speaker 1: grow up in a family business, the family pillow business
Speaker 1: Pacific Coast, and my uh my dad was a great mentor,
Speaker 1: and my dad hired another guy to run the company,
Speaker 1: frankly named Roy Clothier, who was was an incredible mentor
Speaker 1: to me and my brother, and so I had that
Speaker 1: great experience. But but you know, my folks were very supportive,
Speaker 1: and so I started starting other companies in my early twenties,
Speaker 1: um both outside the business and and also within the business.
Speaker 1: We started diversifying and I helped to run a retail
Speaker 1: business that we ended up buying, and a bunch of
Speaker 1: other things, and so you know, at a very you know,
Speaker 1: I started working for this family business when I was
Speaker 1: seven years old. I ran every machine and the factory.
Speaker 1: I worked all through junior high school, high school, college,
Speaker 1: and so I just had this foundation that was very,
Speaker 1: very broad. So you became CEO of the family business
Speaker 1: in the early two thousands. Yeah, I was never CEO
Speaker 1: of the family business. I became co chairman, co chairman
Speaker 1: with uh my brother who sadly passed away in a
Speaker 1: car wrect a long time ago, and um, and I
Speaker 1: transitioned out of the business when the Internet stuff came around.
Speaker 1: I'm co chairman of the board today. So let's let's
Speaker 1: talk about how the business led you to sort of
Speaker 1: discover the Internet. Yeah, so that's a that's actually a
Speaker 1: great question. So, um, so you wouldn't think that running
Speaker 1: sales and marketing for pillow company would lead you to
Speaker 1: the Internet, but in a very strange way, it did, because, Uh,
Speaker 1: when I led sales and marketing for the for the company,
Speaker 1: what I did is I broke our customers up into
Speaker 1: into groups, into groups of companies that had the same strategy, uh,
Speaker 1: and so such as Hoste Yeah, exactly precisely. So we
Speaker 1: sold the wholesale club's, mass merchandiser's depart in stores, uh,
Speaker 1: specialty stores, mail order catalogs, so on and so forth.
Speaker 1: And what I did is I reasoned that every single
Speaker 1: one of those companies basically deployed a different kind of
Speaker 1: strategy to connect themselves profitably with customers. And if I
Speaker 1: customized our approach by channel, we could deliver more profit
Speaker 1: for those companies than our competitors could. And so we
Speaker 1: stopped really selling pillows and started selling profit. And what
Speaker 1: that process did is it taught me more about the
Speaker 1: dynamics of retail than you could ever believe. And the
Speaker 1: beautiful thing about pillows is that they're little white squares.
Speaker 1: So what's happening in the retail channel really really matters.
Speaker 1: So there was a point at which I probably knew
Speaker 1: more about the competitive dynamics of retail by channel than
Speaker 1: virtually anyone in the country. I knew how many dollars
Speaker 1: per square foot every one of those channels generated, and
Speaker 1: and and every every detail of how it worked. And
Speaker 1: so when the Internet came along in the very early nineties,
Speaker 1: I could do strategic arithmetic that almost nobody else could do,
Speaker 1: because I could compare what the Internet would become to
Speaker 1: what department stores and mass merchandisers and wholesale clubs we're doing.
Speaker 1: And it was unbelievably obvious that the Internet was going
Speaker 1: to be an enormously powerful channel of distribution for goods
Speaker 1: and services and and you know, and so I started
Speaker 1: looking around for a way to exploit that, you know,
Speaker 1: that that awareness, and as luck would have it, uh,
Speaker 1: a friend of mine had the same insight, and his
Speaker 1: name was Jeff Bezos. Tell me a little bit about
Speaker 1: Second Avenue Partners. What do you do with that entity? Yeah,
Speaker 1: so Second Avenue Partners is an early stage. You know,
Speaker 1: we're a venture capital business. Although although it's a slightly
Speaker 1: different from the conventional model because my partners Pete Higgins
Speaker 1: and Mike Slaide and I only invest our own money.
Speaker 1: We didn't raise a fund limited partners investor. Know, that
Speaker 1: gives you an ability to really think very long term, right,
Speaker 1: and to do whatever we want. And what we didn't
Speaker 1: want to do is go to work for the man,
Speaker 1: which is where exactly we didn't want to go to
Speaker 1: work for the man, which is what you're doing if
Speaker 1: you're raising a pot of money from insurance companies and UH,
Speaker 1: pension funds and stuff like that. Uh. And by by
Speaker 1: only deploying our own capital, gives us the freedom to
Speaker 1: be frankly more experimental, so longer term horizon. So how
Speaker 1: does that manifest itself with your investments? What sort of
Speaker 1: things do you in the last minute we have in
Speaker 1: the segment, what sort of things are you putting your
Speaker 1: money into? You know, a broad variety of things and
Speaker 1: and and you know, the beauty of the model is
Speaker 1: that we don't have to be we We didn't we
Speaker 1: didn't have to persuade somebody that we were experts in
Speaker 1: something and focus our attention on that. What we can
Speaker 1: do is simply look for really, really interesting opportunities. So
Speaker 1: we've we've made investments in in U a V technology,
Speaker 1: unmanned aerial vehicles very successfully, and internet software and medical
Speaker 1: services and and you know, and all of it somehow
Speaker 1: magically works. I'm Barry Ridhults. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio. My special guest today is Nick Hanauer.
Speaker 1: He is a venture capitalist and one of the earliest
Speaker 1: investors in Amazon dot Com. Let's let's talk just for
Speaker 1: a moment about Second Avenue Partners. So you own such
Speaker 1: an strange and different mix of companies, some of which
Speaker 1: I assumed through Second Avenue Partners, others directly Seattle Bank, Marshacks,
Speaker 1: news Vine, q Alliance. It seems like these are wholly unrelated. Yeah,
Speaker 1: they are unrelated. And uh, you know, I can't prove
Speaker 1: beyond a shadow of a doubt that it is wise
Speaker 1: to invest in a broad array of uh companies and industries.
Speaker 1: It certainly seems interesting, it's super interesting to do um
Speaker 1: and you know, My thinking about investing UH is fairly simple,
Speaker 1: and what I try to follow is what I call
Speaker 1: Nick's rule of transformational value, and that is that you know,
Speaker 1: my view is that all transactions, all consumers seek to
Speaker 1: maximize the value of the products that they buy, and
Speaker 1: value really is best understood as a ratio of the
Speaker 1: benefits the product delivers, divided by the cost, and things
Speaker 1: that have high value have a high ratio of benefits
Speaker 1: to cost versus the alternatives. And it's been my experience
Speaker 1: that in every case where you find a breakout investment,
Speaker 1: a company that really builds an extraordinary franchise, they start
Speaker 1: with what I call transformational value, which is the ratio
Speaker 1: of the benefits they deliver the consumer to the cost
Speaker 1: is someplace between ten and a hundred times higher than
Speaker 1: the alternative, and one to two orders of magnitude higher.
Speaker 1: So let me give you an example, So Amazon dot com.
Speaker 1: So when Amazon dot Com came along, the best way
Speaker 1: to buy a book in the world was to go
Speaker 1: to a superstore where perhaps us there were fifty or
Speaker 1: seventy five or a hundred thousand titles, and you would
Speaker 1: have to get in your car, you have to drive
Speaker 1: to that store you have to paw through that, you know,
Speaker 1: find the right book. And so Amazon dot Amazon dot
Speaker 1: com comes along and the day we open, we we
Speaker 1: offered I'm going to get this slightly wrong, but over
Speaker 1: a million titles, so ten times the selection that you
Speaker 1: could find at the biggest superstore if you lived in
Speaker 1: a big city. We sold them for I think less
Speaker 1: than the suggested price, so almost half of what you
Speaker 1: would have to pay at a normal retail store. And
Speaker 1: you don't have to drive there, you don't have to
Speaker 1: you don't have to use your time, take your car
Speaker 1: park and go do it. And so it was very
Speaker 1: clear that we were offering consumers who were looking for
Speaker 1: books and you know, an immense amount more value than
Speaker 1: they could get using the usual channels. And as a consequence,
Speaker 1: from the first day onward, sales exceeded our wildest expectations.
Speaker 1: That people really really appreciated the value we delivered to
Speaker 1: them and they preferred to buy books in that way,
Speaker 1: and the rest is history. So you had mentioned earlier
Speaker 1: that when you were involved with the family business, it
Speaker 1: led you to a start exploring what was available in
Speaker 1: terms of the Internet and early nineties. You tell a
Speaker 1: story about the two jeffs and how ultimately you found
Speaker 1: Amazon dot Com. What what is the story of this?
Speaker 1: So so I talk a lot about how I became
Speaker 1: successful and stuff like that, and you know, I feel
Speaker 1: very strongly that the most you know, it's been my experience,
Speaker 1: certainly my case and in the case of almost everyone
Speaker 1: I've ever met, that the extraordinary success is usually a
Speaker 1: confluence of extraordinary skill and extraordinary luck. It's both, it's both,
Speaker 1: And there are no extraordinarily rich people who weren't also
Speaker 1: extraordinarily lucky. For every extraordinarily rich, talented person, there's another
Speaker 1: equally talented person that just didn't have the brakes. And
Speaker 1: my favorite story to prove that point about myself is
Speaker 1: that I had this very early interest in the Internet,
Speaker 1: and I had two incredibly talented friends who simultaneously started
Speaker 1: internet retail businesses. One was Jeff Bezos, who started Amazon
Speaker 1: dot Com focused on books, and another was an equally
Speaker 1: talented guy named Jeff Tobber, who was a divisional merchandise
Speaker 1: manager at Bloomingdale's, which at that time was the number
Speaker 1: one retailer in the country, who started in online um
Speaker 1: uh superstore. Yeah, it was. It was an online department
Speaker 1: store and to make a very long story, short books
Speaker 1: are a pure commodity, and you know, a copy of
Speaker 1: Warren Pieces, a copy of Warren Peace, you know exactly
Speaker 1: what you're gonna get. And in the early days of
Speaker 1: the internet, Uh, people didn't trust what they'd get. So
Speaker 1: it was much easier to get people to purchase books
Speaker 1: than it was a suit or a pair of shoes
Speaker 1: or something like that. Is that the genius of Bezos
Speaker 1: is that he came across something that everybody knew, everybody
Speaker 1: was familiar, and but there was a long tail effect
Speaker 1: that hey, we could offer you two million of these,
Speaker 1: the local stores got twenty thousand. Come shop at us.
Speaker 1: Selection mattered, but it was a pure commodity. It's a
Speaker 1: very unusual, very unusual combination. I don't think people really
Speaker 1: perceived Amazon that way in the early days, because I
Speaker 1: remember was either my college roommate, I'm already out of
Speaker 1: school for fifteen years. My college roommate for my birthday
Speaker 1: gave me an Amazon gift certificate. And so you start
Speaker 1: playing around on the site and there are views not
Speaker 1: only from professionals but from other readers, and there's a
Speaker 1: huge juge tale of product. Plus it was music and
Speaker 1: video and other stuff. And but we did that quite
Speaker 1: quickly afterwards, very justly. I'll never forget. We had this,
Speaker 1: remember a conversation in Jeff's office and way back up
Speaker 1: a sex. So you were on the board though, weren't
Speaker 1: you on the board of advisors? Yeah? So I was
Speaker 1: his first investor, you know, I mean, you know, when
Speaker 1: Jeff decided to start Amazon, he you know, as luck
Speaker 1: would have he was living in New York City and
Speaker 1: he were work working at d Shaw. And I know
Speaker 1: Jeff because he was dating a very very close friend
Speaker 1: of mine named and Dinning, who was another vice president
Speaker 1: at d Shaw. And you know, he, you know, among
Speaker 1: other reasons, I suppose because I begged him to ended
Speaker 1: up starting Amazon in Seattle, and there was some very
Speaker 1: good reasons to do it, because it was close to
Speaker 1: Microsoft where there were lots of developer talent, and it
Speaker 1: was close to a large book distribution center which was
Speaker 1: in Rosberg, Oregon at the time. And you know, so
Speaker 1: he ended up sending his stuff from New York to
Speaker 1: my house and off we went. And so I was
Speaker 1: not actually formally on the board. I was a board
Speaker 1: advisor for the first six or seven years of the
Speaker 1: of the company's exists until two thousand or something like that.
Speaker 1: So so yeah, we you know, in the early days,
Speaker 1: you know, as my friend Eric Dillon said, we Jeff
Speaker 1: would call us to decide what kind of pop to
Speaker 1: put in the the pop machine. But you know, after
Speaker 1: after a while, Jeff is a brilliant guy, got his
Speaker 1: management legs under him, and he doesn't need a lot
Speaker 1: of help today. But but I want to emphasize something
Speaker 1: about Amazon dot com, the Amazon dot COM's success that
Speaker 1: almost nobody understands. That that that that that contributed more
Speaker 1: than anything to it, and it is something called the
Speaker 1: negative cash conversion cycle. And what that means is that
Speaker 1: because our terms with our with our suppliers the book,
Speaker 1: the book resellers was sixty to ninety days, and because
Speaker 1: they could ship to us within a day, we could
Speaker 1: collect cash from our customers sixty to ninety days before
Speaker 1: we had to pay our suppliers. And what that means
Speaker 1: is the bigger you get, the more cash flow you have.
Speaker 1: I'm Barry Retults. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Nick Hanauer, a
Speaker 1: venture capitalist, early investor in Amazon and let's talk about
Speaker 1: one of your big successes, the company you had founded
Speaker 1: called Avenue A Media. Where did the idea for that
Speaker 1: come from? Yeah, so Avenue a Media morphed into this
Speaker 1: company a quantive uh and uh, you know we had
Speaker 1: this again. This goes back to the very early days
Speaker 1: of the Internet. We had at the Pillow Company, Pacific Coast.
Speaker 1: We had this idea that we would have a website,
Speaker 1: and um, we had the idea that we would build
Speaker 1: essentially what what we now know as a click network
Speaker 1: to drive traffic to the website. Define define click network.
Speaker 1: But basically, we we gave people an incentive to send
Speaker 1: traffic to us from their website by giving them a
Speaker 1: commission or an affiliate affiliate network. Basically, and sort of
Speaker 1: by accident, we built an affiliate network which at one
Speaker 1: point made my company's stupid website one of the highest
Speaker 1: trafficked sites on the Internet, the pillow the Pillow Company
Speaker 1: website is in the early days, we realized that we
Speaker 1: either had to shut this thing down or go turn
Speaker 1: it into a business, and we decided to turn it
Speaker 1: into a business, and so we spun it out of
Speaker 1: the Pillow Company. Basically, the early idea was to expand
Speaker 1: this into a into a a click network, and that
Speaker 1: didn't really work. And again, to make an incredibly long
Speaker 1: story short, we ended up being essentially an internet advertising agency.
Speaker 1: What we did is we built one of the early
Speaker 1: web servers, and what we enabled our customers to do
Speaker 1: was to place as with a variety of publishers and
Speaker 1: then measure the relative effectiveness of those averages of that
Speaker 1: advertising quatives exactly, and and and and drive better results
Speaker 1: as a consequence. And that and that company became, you know,
Speaker 1: very successful. It was a big company when we finally
Speaker 1: sold it, generating a huge amount of cash flow. And
Speaker 1: what sort of revenues was doing. I think it was
Speaker 1: approaching I mean, we're growing it like fifty percent a year,
Speaker 1: but I think it was approaching three quarters of a
Speaker 1: billion dollars in the real revenue and a hundred and
Speaker 1: fifty million in cash flow. Yeah. So Microsoft comes along
Speaker 1: and said, here's six point four billion in cash What
Speaker 1: was that negotiation? Like? That was a crazy negotiation. So
Speaker 1: what happened was that Google bought double Click. That was
Speaker 1: a huge, huge acquisition. So Google bought double Click for
Speaker 1: three billion dollars and we were twice as big as
Speaker 1: as as terms of a double click. Yeah, in terms
Speaker 1: of revenues, yea A Quanti was doing double the revenue
Speaker 1: and volume. We felt double click was much better known
Speaker 1: if it was they started before us, UM. But we
Speaker 1: had an agency business and we had a bunch of
Speaker 1: other businesses going and we were, you know, we felt
Speaker 1: like we were worth about twice as much UM but
Speaker 1: we and we had been doing a lot of strategic
Speaker 1: work with Microsoft in their in their in their ad
Speaker 1: business all along. But and when Google bought double Click,
Speaker 1: that started to make it made it made Microsoft nervous,
Speaker 1: It made Yahoo nervous, and it made a bunch of
Speaker 1: the big agency holding company nervous. And within weeks we
Speaker 1: were in a process. Uh. And and did it come
Speaker 1: about from Microsoft directly or did you approach them? I
Speaker 1: you know, you know, did your wife ask you out
Speaker 1: the first time or did you ask her? Well? I
Speaker 1: think it was slightly more nuanced and complicated in the
Speaker 1: case of a quantum in Microsoft. I can't remember exactly
Speaker 1: who did what first, but I think somebody asked a
Speaker 1: leading question and somebody else followed up with a leading answer,
Speaker 1: and before you knew it, we're in a process so
Speaker 1: this was pretty quick. This was well, I mean, you know,
Speaker 1: I think within sixty or ninety days or I can't remember,
Speaker 1: bere I should remember. But not that long after Double
Speaker 1: Click was purchased. We were in a process and before
Speaker 1: you knew it, there were a lot of suitors because yeah, yeah, yeah, yeah,
Speaker 1: a lot of people were very very interested, which is
Speaker 1: anyone who had a network, anyone who had an interaction
Speaker 1: with a lot of advertisers. She sat in between everybody
Speaker 1: and the advertisers, right, So it was a very stratetigue
Speaker 1: position to be in. And uh, and the company was
Speaker 1: generating a huge amount of cash and growing like a weed,
Speaker 1: and so it was very attractive business and a very
Speaker 1: attractive strategic acquisition and uh there you know, and uh,
Speaker 1: you know it ended up as a you know, a
Speaker 1: pretty crazy bidding more uh and yeah exactly, And you know,
Speaker 1: to be honest, a lot of the Microsoft people are
Speaker 1: our friends, right, you know, I just felt like a
Speaker 1: good thing. Yeah, we we had. It was six point exactly. No, no, no, no,
Speaker 1: it was good. Yeah, it was good. Yeah. Yeah. So
Speaker 1: how did how did that? What was that transaction? Like?
Speaker 1: When the papers are signed, where do you go for
Speaker 1: dinner that night. What the heck is that? Like? That
Speaker 1: has to be a crazy you just sold you did
Speaker 1: you say I'm going to Disneyland? How does you you
Speaker 1: respond to a six billion dollar sale for what essentially
Speaker 1: was a spin out of a click network from a
Speaker 1: pillow company. Yeah, you know, it was a great moment.
Speaker 1: I won't lie u uh. And you know, the thing
Speaker 1: about that company was that we built, you know, it
Speaker 1: was it was really the highlight of my business career,
Speaker 1: mostly because the team that we built. Uh, it was
Speaker 1: such a great team and people liked each other and
Speaker 1: worked so well together. So just a super fun, super
Speaker 1: fun thing. I don't I can't even remember. I mean,
Speaker 1: my wife and I think had dinner with another couple
Speaker 1: who owned a little bit of the stock and they
Speaker 1: made a whole bunch of money too, And it was,
Speaker 1: you know, it's very next thing. I'm Barry Ridhalt. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My special
Speaker 1: guest today is Nick Hanauer. He is a venture capitalist
Speaker 1: and UH investor, UH and business person and also an author.
Speaker 1: So let's spend the segment talking about a very famous
Speaker 1: article you had written for Politico called a memo to
Speaker 1: my fellow fellow zillionaires, the pitchforks are coming for us plutocrats.
Speaker 1: How did that come up out? Well, you know, Verry,
Speaker 1: I write a lot, I write a lot. Uh and uh.
Speaker 1: You know, my main area of interest is political economy
Speaker 1: and economic inequality and the connection between growing inequality and
Speaker 1: a variety of problems, including a crappy business environment. And
Speaker 1: you know, my very strong feeling is that concentrating all
Speaker 1: of the wealth and power in the hands of a
Speaker 1: tiny minority of people at the top is not going
Speaker 1: to end well, particularly for the people at the top.
Speaker 1: Well that's what history is. Yeah, you know, there are
Speaker 1: no exceptions to France. There's a lot of a lot
Speaker 1: of beheadings back in the day. Eventually it ends badly
Speaker 1: and uh. And you know, my view is that with
Speaker 1: just a tiny bit of moderation, with just a tiny
Speaker 1: bit of policy change, we can build an economy that
Speaker 1: doesn't just isn't just fairer and work better for uh,
Speaker 1: you know, people at the bottom, but ultimately will be
Speaker 1: more you know, essentially a richer opportunity set for people
Speaker 1: like me who build companies. You know, when workers have
Speaker 1: more money, people like me business people have more customers,
Speaker 1: and and the exactly and the worst thing about economic
Speaker 1: inequality is you're basically in the you're you're systematically destroying
Speaker 1: your customer base, which eating your seed coin. Yeah, it
Speaker 1: makes no sense. So let me throw some numbers out
Speaker 1: from your article. You noted during the past three decades,
Speaker 1: compensation for chief executive officers grew one hundred and twenty
Speaker 1: seven times faster than it did for workers. CEOs used
Speaker 1: to earn thirty times the median wage. Now it's five
Speaker 1: hundred times and back in the top one percent controlled
Speaker 1: eight percent on the national income. Now their share is Yeah,
Speaker 1: what was that? What was the thinking behind that data?
Speaker 1: How what sent you looking for those numbers in the
Speaker 1: first place. Oh, you know, just to generalize concern about
Speaker 1: the ends and the You know this this data isn't
Speaker 1: hard to find. You can you know, you can look
Speaker 1: it up pretty easily. And the trade you know, it's
Speaker 1: not the fact that we have economic inequality that's the problem.
Speaker 1: Some economic inequality is indispensable to having a high functioning
Speaker 1: capitalist demo economy. And the problem better because they're contributing
Speaker 1: more blah blah blah, Right, all good, The problem is
Speaker 1: increasing amounts of economic inequality over time. Right. You know,
Speaker 1: in nineteen eighty the top one percent had about eight
Speaker 1: percent of national income. Today it's it's it's closing in
Speaker 1: on the bottom. Fifty percent of Americans in nineteen eighty
Speaker 1: shared about eighteen percent of national income. Today it's down
Speaker 1: to eleven percent, down down a third. Right, So here's
Speaker 1: the thing. All you gotta do is put that data
Speaker 1: in a in a in a an Excel spreadsheet and
Speaker 1: just run the extrapolation out thirty years. The numbers are scary, right,
Speaker 1: because the top one percent will control in the in
Speaker 1: the mid thirties thirty seven percent of national income and
Speaker 1: the bottom of Americans will share five or six percent
Speaker 1: of national income. At that point, you don't have a
Speaker 1: capitalist democracy anymore. You have some kind of feudal system.
Speaker 1: And yeah, and and it's just not gonna work out
Speaker 1: for anybody. It's just not going to work out for anybody.
Speaker 1: And there's no reason for it. We it's it just
Speaker 1: makes no sense. So what was the pushback that everything
Speaker 1: you're saying sounds perfectly valid. Hey, when income inequality gets
Speaker 1: to great extremes, bad things happen in society. You're not
Speaker 1: providing opportunity, you're not providing a solid education, the roads
Speaker 1: and bridges fall apart, etcetera, etcetera. So you would think
Speaker 1: there wouldn't be a whole lot of pushback to that,
Speaker 1: but there was. Yeah, And so there there, you know,
Speaker 1: there's a lot of there's a lot of consternation and
Speaker 1: and and quite rightly, a lot of rich people don't
Speaker 1: feel like this is their fault. It feels like they're
Speaker 1: being blamed for economic inequality. And obviously a lot of
Speaker 1: rich people didn't set out to make other people poor,
Speaker 1: right And and so when you raise the issue of
Speaker 1: economic inequality of lots of rich people feel like they're
Speaker 1: being attacked unfairly. And there's a legitimate that and that
Speaker 1: feeling is legitimate. But the simple truth is that wealth
Speaker 1: is concentrating and fewer and fewer hands and and the
Speaker 1: average family in our country is struggling more and more.
Speaker 1: And that's a consequence of a bunch of policy decisions
Speaker 1: that we have made in this country of the last
Speaker 1: thirty or forty years that we need to reverse. And
Speaker 1: give me a few examples, we have let the we
Speaker 1: have let the minimum wage fall to historic, historically low levels,
Speaker 1: right If the minimum wage had tracked inflation, it would
Speaker 1: be ten and a half dollars. If the minimum wage
Speaker 1: had tracked productivity gains in the country, it would be
Speaker 1: twenty one dollar and seventy cents. If the minimum wage
Speaker 1: had tracked the wages of the top one percent, it
Speaker 1: would be twenty eight dollars. Instead, it's seven twenty five
Speaker 1: but two dollars and thirteen cents plus tips for tip workers. Right,
Speaker 1: and remember, most tip workers don't work in some fancy
Speaker 1: New York state restaurant where they make huge amounts of money.
Speaker 1: Working some Sherry's or Denny's in a small town and
Speaker 1: they don't make anything in tips. And you know, the
Speaker 1: truth is that if we we need to dramatically increase
Speaker 1: the minimum wage, and if we did, not only would
Speaker 1: those workers and their families be better off, but the
Speaker 1: economy would work better because those people would now be
Speaker 1: able to afford to buy stuff from the companies that
Speaker 1: I start. Right, Which is the problem is you've got
Speaker 1: this giant industry of free riders. Right. The McDonald's pays
Speaker 1: their workers poverty wages, and not one of the people
Speaker 1: in McDonald's can buy the products that the companies that
Speaker 1: I start products, right, all of my employees can afford
Speaker 1: to go to McDonald's every day, right, but not vice versa.
Speaker 1: All of my employees pay taxes. All the McDonald's employees
Speaker 1: they don't pay taxes. In fact, they need public services
Speaker 1: like food stamps and Medicaid that my employees pay. And
Speaker 1: none of this makes sense. Look, when we look nationally, fairly, consistently,
Speaker 1: state by state, fast food workers or Walmart workers are
Speaker 1: consistently the biggest group getting federal aid and it's not
Speaker 1: a coincidence. They basically set their salary levels. Look, McDonald's
Speaker 1: run into a lot of heat for their micbnefits phone
Speaker 1: line where they literally were walking their employees through how
Speaker 1: to gain the system so we don't have to pay
Speaker 1: you a living wage. We'll pay you seven bucks and
Speaker 1: you'll get another six dollars an hour. And there no
Speaker 1: earthly reason where why giant, profitable corporations can't pay their
Speaker 1: workers enough so that they can be robust participants in
Speaker 1: our economy. I want every single worker at Walmart to
Speaker 1: be able to earn enough money to buy the products
Speaker 1: that the people that I employ make. It's just not
Speaker 1: fair that their people can't afford to buy my stuff,
Speaker 1: but my people can afford to buy their stuff, and
Speaker 1: my people have to pay taxes and their people don't.
Speaker 1: So now let's talk a little bit about how this
Speaker 1: became a TED speech that generated a little bit of controsty.
Speaker 1: So you did a TED video, did I've done too?
Speaker 1: But the first one I did on this exact subject,
Speaker 1: I mean basically it was called raise uh, you know,
Speaker 1: raise taxes on the rich to rule the true job creators.
Speaker 1: Because if you understand a capitalist economy in a twenty
Speaker 1: one century way, which you have to see, is it's
Speaker 1: really it's it's essentially an ecosystem, and it's characterized by
Speaker 1: a circle of lifelike feedback loops. And the true job
Speaker 1: creators in a capitalist economy are consumers. When and then
Speaker 1: when the middle class thrives, people like me get to
Speaker 1: start companies and sell them stuff, and the more stuff
Speaker 1: they buy, the more people we we employ. And I
Speaker 1: gave that speech at TED some years ago, but it
Speaker 1: was before the issue of economic inequality was one that
Speaker 1: was you know, yeah, yeah, it was. It was. It
Speaker 1: made people uncomfortable, and as a consequence, they didn't want
Speaker 1: to post the talk, and that created a lot of
Speaker 1: controversy and they chucked me out of the conference and
Speaker 1: blah blah blah blah blah. But uh, you know how
Speaker 1: did that resolve? Uh? The beautiful news is it after
Speaker 1: a couple of years, Chris Anderson, who's a great guy,
Speaker 1: and I kissed and made up, uh because Chris is
Speaker 1: a good guy and realized that, you know, this was
Speaker 1: a very important issue and something that Ted had to
Speaker 1: tackle head on, and so he asked me to do
Speaker 1: another talk, which I did last August based on the
Speaker 1: Plutocrats piece, by the way, and uh, now we're good
Speaker 1: friends again, and I'm going to the conference and you
Speaker 1: did you did that plutocrat video went fairly viral. I
Speaker 1: mean a lot of Ted videos go viral, but this
Speaker 1: came right time, right right actually, and it just blew up. Yeah. Yeah,
Speaker 1: and so and because this is a very important issue,
Speaker 1: and I think that uh, you know, most smart even
Speaker 1: rich people agree that the economic inequality is something that
Speaker 1: we're going to have to deal with some how. Obviously,
Speaker 1: when it comes to what to do, uh, it gets
Speaker 1: the conversation becomes more difficult because it involves trade offs
Speaker 1: that people often don't want to make. Let me throw
Speaker 1: you a quote from Actually, my guest last week was
Speaker 1: n while you professor two weeks ago, and while you
Speaker 1: Professor Scott Galloway said, it's never been easier to become
Speaker 1: a billionaire, and it's never been harder to become a millionaire.
Speaker 1: Do you agree or disagree with that? And I think
Speaker 1: there's a touch of hyper Yeah, there's a touch there.
Speaker 1: He's obviously being hyperbolic. But I think he's making an
Speaker 1: interesting point, which is true, that we have an economy
Speaker 1: today which in many ways is a winner take all
Speaker 1: economy and where great success really is great success where
Speaker 1: just just wildly insanely rewarded. But to be moderately successful
Speaker 1: actually is becoming harder and harder and harder because the
Speaker 1: society is bifurcating, because we're turning into a into a
Speaker 1: society and economy of a tiny number of winners when
Speaker 1: everybody else is a loser. So, Nick, if people want
Speaker 1: to find your writings or your work, where do they
Speaker 1: go to to see you that? Just put my name
Speaker 1: into Google Nick Hannaur. There'll be a thousand links. We've
Speaker 1: been speaking with Nick Hannaur of Second Avenue Partners. If
Speaker 1: you enjoy this conversation. Be sure and check out the
Speaker 1: rest of our talk. You can find that on Apple iTunes, SoundCloud,
Speaker 1: or Bloomberg dot com. Be sure and check out my
Speaker 1: daily column on Bloomberg View dot com. Follow me on
Speaker 1: Twitter at Rid Halts. I'm Barry Ridhults. You're listening to
Speaker 1: Masters in Business. I'm Bloomberg Radio. I'm Barry rid Halts.
Speaker 1: Welcome to the podcast half of our show. I'm here
Speaker 1: with Nick Hannaur Am I pronouncing that right? I feel
Speaker 1: like I'm saying that wrong. So let's let's get back
Speaker 1: into the finance side of things because there are so
Speaker 1: many other questions. We keep hearing all this chatter that
Speaker 1: we are in a technology bubble. What are your thoughts? Uh? Yeah,
Speaker 1: gotta be tech tech bubble. Well, I mean, you know
Speaker 1: tech tech is everything now, right? What's not tech? Uh?
Speaker 1: Um zuber tech? Honestly, uber tech. It's a taxi service.
Speaker 1: Forgot the taxis. Taxis are free agents. Uber is a
Speaker 1: software that connects them with the ride, right, But you
Speaker 1: know it's a taxi for now the service that's going
Speaker 1: to be delivering packages or dinners or that's theoretically what
Speaker 1: they're where there, But it's different than tech was thirty
Speaker 1: forty years ago. I mean, technology and enables so many things.
Speaker 1: My point simply is that you know, there's a whole
Speaker 1: bunch of companies out there that are valued in the
Speaker 1: billions or tens of billions, where a little tiny thing
Speaker 1: goes wrong and it's worth hundreds of millions, you know.
Speaker 1: And you know, I think we're riding the ragged edge
Speaker 1: on a lot of those valuations. So and you have
Speaker 1: this weird thing right as you know that the that
Speaker 1: the public markets and the private markets have flipped a
Speaker 1: little bit. Yeah, where we have Uber is private. And
Speaker 1: you know, I have a ton of friends now who
Speaker 1: are who who are complaining about the fact that their
Speaker 1: companies are public because if they were private, they'd be
Speaker 1: worth twice as much as they are. Well, they chose
Speaker 1: to go public. They took the cash that wasn't not
Speaker 1: You don't get to go back in time and call
Speaker 1: for two over. Yeah. So so when we look at
Speaker 1: other companies, let's let's look at some of the public companies, Apple, Google, Amazon,
Speaker 1: how do these line up in terms of We always
Speaker 1: hear people say Amazon is overvalued because they're not thrown
Speaker 1: off a whole lot of profits. Yeah, you know, I'm
Speaker 1: I've all, you know, having grown up with Amazon, I'm
Speaker 1: I'm more sympathetic to their market cap than I am
Speaker 1: to a lot of companies because, um, I h I
Speaker 1: am so sure that if Jeff wanted to generate tons
Speaker 1: of free cash flow and you do it a minute,
Speaker 1: he is now and has been from the day we
Speaker 1: opened the doors, the metaphorical doors. Uh. Uh been after
Speaker 1: maximizing growth and market share, and uh, there's clearly been successful. Absolutely,
Speaker 1: And there's a trade off between growth and profit. And
Speaker 1: if you wanted to raise the prices on every product
Speaker 1: at Amazon three percent, no one would notice, really and
Speaker 1: and he would generate a just a ton of cash flow. Uh.
Speaker 1: And so something you could do, I mean, you could
Speaker 1: literally do with the push push of the So what
Speaker 1: what is their secret sauce? What has we talked about
Speaker 1: how they're negative cash flow, negative cash conversion cycle? Conversion
Speaker 1: cycle was really a secret weapon for them in the beginning,
Speaker 1: but they seem to be way past that now and
Speaker 1: between Amazon Cloud and there's so many different services they're offering.
Speaker 1: What is the future of Amazon look like? Where you know,
Speaker 1: I'm I you know, I'm not an authority on Amazon.
Speaker 1: I haven't been involved in the company in ten years,
Speaker 1: so you know, are you still an investor? No, I'm
Speaker 1: not even an investor anymore. I'm not a big public
Speaker 1: company investor. I invest in private companies and when they
Speaker 1: go public, I sell my stock and I move on.
Speaker 1: So so let's let's go down that list, because you
Speaker 1: have some interest in I'm pulling up my my list here.
Speaker 1: So we talked about a quant of six point four
Speaker 1: billions of Microsoft to bowing. What did in Situ do? Oh?
Speaker 1: This is a fantastic company. So and a great story.
Speaker 1: So in Situ makes unmanned aerial vehicles for surveillance and combat.
Speaker 1: Perfect and you're happy to be right there. And yeah,
Speaker 1: and so here's the great story is that a couple
Speaker 1: of UH aeronautical engineers who were also windsurfing freaks, wind
Speaker 1: up in it in a place called bingein Washington, which
Speaker 1: is across the street from Hood River, Washington on in
Speaker 1: the Columbia Gorge on the Columbia River, which is one
Speaker 1: of the windsurfing capitals of the Earth. And they start
Speaker 1: looking around for a thing to do. And this guy,
Speaker 1: ted Tad McGear had had been doing experiments with u
Speaker 1: a v S and these guys get together and they
Speaker 1: start building this UA V company and their early ideas
Speaker 1: that they're going to build these small unmanned vehicles with
Speaker 1: cameras on them that can help tuna fisherman find tuna
Speaker 1: without helicopters. This was our big idea. And uh so
Speaker 1: we thought that's a whole lot of battery power that no,
Speaker 1: it's not. It's not battery power. They're little. They're just
Speaker 1: like little r C engines, right, little gas engines, right.
Speaker 1: And so they build some of these things and they
Speaker 1: and uh, you know, we had some interest in it.
Speaker 1: And then nine eleven happens and you realize that U
Speaker 1: a v s are going to be a big part
Speaker 1: of the military apparatus, and so we made this investment
Speaker 1: and uh, you know in Situ was lucky enough to
Speaker 1: grab um. Uh you know, some really really incredible managers,
Speaker 1: some really visionary man managers. H in particular guy named
Speaker 1: Sleeve Steve Sliwa, who was one of the best CEOs
Speaker 1: I've ever come in contact with. And they built this
Speaker 1: thing into an incredible company with incredible technology. And you
Speaker 1: know that these U A these were so effective that
Speaker 1: the Marine Corps you know, through giant fits with the
Speaker 1: Department of Defense to get this stuff through the supply
Speaker 1: chain way. Oh my god. And they were just like, no,
Speaker 1: you will do it right now, um during during exactly
Speaker 1: all that time to put around, we need it regular
Speaker 1: exactly go by this problem. So this is a ten
Speaker 1: foot wingspant third three pound plane that launches via catapult
Speaker 1: from the from the ground. You just launch it via catapult.
Speaker 1: It doesn't need an airfield the land it actually flies
Speaker 1: into a rope to land. Is totally autonomous, flying totally
Speaker 1: invisible at three thousand feet um. And can you know,
Speaker 1: and can basically not quite read your watch, but but
Speaker 1: close enough. And just unbelievable intelligence for forward huge huge tactical,
Speaker 1: huge tactical adage. And so these and so these things, um,
Speaker 1: you know, we're really really really useful to the military,
Speaker 1: both on land in at sea. Right, these things are
Speaker 1: now deployed all over the place. Uh. And of course
Speaker 1: Bowing can scale it up and make it exactly And
Speaker 1: so we built this just an extraordinary company, and Bowing
Speaker 1: came along, Bowing was an integration partner and came along
Speaker 1: and finally says, no, we get on it. Something about
Speaker 1: it from US so. Um, but here's the great part
Speaker 1: this dollar acquisition. Yeah, here's the Here the best part
Speaker 1: of it is that, Um, this tiny town is a
Speaker 1: tiny it's a tiny. It was a tiny, crappy, poor
Speaker 1: town with like one sawmill, and uh it is it
Speaker 1: is I think one of the most This company has
Speaker 1: turned this county into one of the Washington State's most
Speaker 1: affluent counties today. Really. Yeah, they're like eight hundred you know,
Speaker 1: like PhD type aeronautical engineers now working in this tiny
Speaker 1: town building U A V s. And now you have
Speaker 1: all these spinoff, spinoff technology companies making wings and and
Speaker 1: the suppliers and all that stuff. And so it's just
Speaker 1: it's an extraordinary story of economic development, you know. And
Speaker 1: this is made made over there. UM. Market Leader sold
Speaker 1: to truly million dollars. What was market Leader? Market Leader was, uh,
Speaker 1: you know, market Leader was a company that sold leads,
Speaker 1: you know, much like Zillo to to real estate agents.
Speaker 1: We were an early entrant into that business, UM and
Speaker 1: basically connected real estate agents with people who wanted to
Speaker 1: either buy or sell their house. And uh evolved into
Speaker 1: a company that both did that but also built software
Speaker 1: uh to help age to manage their businesses and um,
Speaker 1: so truly A bought that and then Zillo bought Trulia.
Speaker 1: They described it as a merger, but well, well, well okay,
Speaker 1: uh that's what I was. Is that true? Yeah? I
Speaker 1: I always thought it was an acquisition, but you know,
Speaker 1: you never know who's got to save face for what
Speaker 1: gear dot com? What was geared? That was a great one.
Speaker 1: So that was an earth that was a really early
Speaker 1: internet company. And we had this again, this is in
Speaker 1: the oh my gosh, it's the late nineties, right before
Speaker 1: any of the stuff really really got going, and we
Speaker 1: had this insight, which of course is true, that there
Speaker 1: was a terrific opportunity to liquidate things on the internet,
Speaker 1: to buy um, to buy over stocks and so on
Speaker 1: and so forth, and and sell them to people via
Speaker 1: the internet. And we wanted to focus just on sporting equipment,
Speaker 1: in particular hard goods and stuff like that, reasoning that
Speaker 1: last year's tennis racket, uh as good as this year's
Speaker 1: tennis racket. But if I can buy it for twenty
Speaker 1: cents on the dollar and sell it to you for
Speaker 1: fifty cents on the dollar, everybody's happy. And so we
Speaker 1: went off to do that. Uh, but you know, like
Speaker 1: a lot of the companies in the early days. Uh
Speaker 1: you know, it was it was tough sledding because you
Speaker 1: may forget, but it wasn't that long ago when people
Speaker 1: were like, well, I'll never I'll never send my credit
Speaker 1: card on the internet, right. I remember those days. Yeah,
Speaker 1: I'm never going to buy anything on that. I remember
Speaker 1: when my friend, my college roommate, had given me that
Speaker 1: gift certificate to Amazon, putting all that information in it,
Speaker 1: and a box arrives in the mail. This I this
Speaker 1: was when I think we lived on less and and
Speaker 1: one of our neighbors said, what's that, Oh store online
Speaker 1: gave them your credit Yeah, it was just people were looking.
Speaker 1: Now basically everybody has everybody else's social security data everything.
Speaker 1: It's every from from gotten over it. So when you
Speaker 1: when you when you were trying to start these companies,
Speaker 1: when only one in ten consumers had access to the
Speaker 1: internet right in the early days, right, and when only
Speaker 1: one intent of those were willing to buy something on
Speaker 1: the internet, that's amazing. It was a much harder thing
Speaker 1: to get a business up to escape velocity than it
Speaker 1: is today. It was very difficult to scale when everyone's
Speaker 1: on the internet and everyone's willing to transact on the Internet,
Speaker 1: and so a lot of these early ideas like gear
Speaker 1: were hard to scale up, not because they were bad ideas,
Speaker 1: but because the market wasn't quite there before. How to
Speaker 1: overcome that consumer resistance people and that just took a generation.
Speaker 1: And now it's it's part of the fabric. Nobody thinks
Speaker 1: twice exactly and and so uh so we um so
Speaker 1: we built that company into something that was going pretty well.
Speaker 1: We got a big investment actually from Amazon dot Com
Speaker 1: to scale that thing up, and then we sold it
Speaker 1: to overstock dot Com? And uh what was the sale
Speaker 1: price to that? That was the one number I didn't
Speaker 1: have come. Was that a merger or was that a sale? Now?
Speaker 1: It was a sale, I think very I can't remember
Speaker 1: I made money, I know that. Uh, I'm embarrassed to
Speaker 1: tell you. It's been so many years. I don't that
Speaker 1: was late nineties, right, yeah, alright, so disens or something
Speaker 1: like that. I cannot well tell you what though, I
Speaker 1: bought an airplane with the money I made. Mark Cuban.
Speaker 1: Mark Cuban tells the story that he bought an airplane
Speaker 1: after we saw a soul Brookast dot Com on the Internet.
Speaker 1: It was at the time it was the biggest Internet
Speaker 1: purchase ever. Ever. It was like four million dollars or something,
Speaker 1: And now you don't even people are buying art for
Speaker 1: a hundred millions. Yeah, I know, I bought my first
Speaker 1: airplane with the proceeds of the overseas What plane was
Speaker 1: the citation five? Okay? Not a not a bad little rode.
Speaker 1: So you had this great negotiation with um Microsoft with
Speaker 1: a quantive What was your role the quant of when
Speaker 1: this was being So you were chairman, So you're more
Speaker 1: than just an outside investor. No, no, it was chairman
Speaker 1: of the board. You have you had to be pretty
Speaker 1: integral to the negotiation process. So the question is they
Speaker 1: used to have a Microsoft had a reputation for being
Speaker 1: a fearsome competitor, a very tough negotiator. It sounds like
Speaker 1: your deal with them was a little kindler and gentler.
Speaker 1: Then now have have they mellowed? Was this just a
Speaker 1: good fit or did all the parties sort of know
Speaker 1: each other? Uh? No, I mean it was it was
Speaker 1: a It was an arm's length deal. And you know
Speaker 1: the old Sawberry You don't sell a company. People buy
Speaker 1: a company, right, and especially when we're talking about billions exactly.
Speaker 1: And and the truth is that there were multiple bidders. Uh.
Speaker 1: And if Microsoft hadn't bought it, then then someone was
Speaker 1: yeahoo was absolutely going to buy it. Oh absolutely. And
Speaker 1: there were two others who were in the wings. Yeah.
Speaker 1: Who else was a couple of the giant um uh
Speaker 1: advertising holding companies right, Um, I can't remember which ones
Speaker 1: off the but Microsoft was the best fit. They were
Speaker 1: well I mean, and they were the high bidder uh
Speaker 1: and um although you know, I mean, as I recall,
Speaker 1: we could have done another round a bidding, but we
Speaker 1: felt like we had gone far enough and it was
Speaker 1: a fair price, and we just didn't want to you know,
Speaker 1: six point four exactly, Well, you weren't even that wasn't
Speaker 1: even that was more almost ten times sales, a little
Speaker 1: less than ten time sales. That's by any definition a
Speaker 1: good sale. Prob. Yeah, it was. It was a fantastic deal.
Speaker 1: And as we I have to tell you that we
Speaker 1: were very emotional about it because you know, we had
Speaker 1: built a great company, it was growing really fast, and
Speaker 1: we felt like there was a ton of runway left.
Speaker 1: But you know, as Brian mcanders, the CEO of the time,
Speaker 1: and I you know, as he said to me at
Speaker 1: the time, well you know this is a deal good
Speaker 1: enough so that we'll have no regrets. It's not like
Speaker 1: you look back and be like, well that was stupid.
Speaker 1: We should have kept it. Now, as it turned out,
Speaker 1: Microsoft UM is a toxic environment. It for anything that
Speaker 1: is not Microsoft, and within eighteen months they destroyed the business. Really,
Speaker 1: they wrote the whole thing off. Come on, they would
Speaker 1: have thought they integrate that into bing and that becomes
Speaker 1: they're so desperate to compete with Google at the time,
Speaker 1: they totally screwed it up. I am so shocked to
Speaker 1: hear that. I was thinking, well, it makes sense, it's
Speaker 1: a good fit. They totally botched it. Now that was
Speaker 1: under the bomber. Yeah, it just wasn't. Pretty much botched everything.
Speaker 1: But it could have been strategic because they were rolling
Speaker 1: out well, they miss social, they missearched, they missed mobile.
Speaker 1: This looks like, all right, we gotta participate in those things.
Speaker 1: They let's find a way to watch it. And you
Speaker 1: know what what they should have done is they should
Speaker 1: have rolled it out as a separate entity and had
Speaker 1: somebody had our team run it and and put a
Speaker 1: bunch of stuff that they were doing underneath our team,
Speaker 1: and if they had done that, they had a hell
Speaker 1: of a robust business. But inted, they tried to shoehorn
Speaker 1: it into the giant Microsoft octopus, and you know, it
Speaker 1: just didn't work. Can I tell you one of the
Speaker 1: most fascinating experiences I've had this year. So we're in
Speaker 1: Seattle in January. We get invited to present to the
Speaker 1: Microsoft Treasury Department, which is just a fascinating group of people.
Speaker 1: It's thirty folks in the room. I almost had thirty guys,
Speaker 1: but it's women, women, and they're in a room and
Speaker 1: you're you're basically discussing just they're fielding the thrown questions
Speaker 1: at you and responding. And then we took a tour
Speaker 1: of the campus and people just forget how immense Microsoft is.
Speaker 1: So we're in building five. We see Bill Gates's original office.
Speaker 1: They flip a panel, there's the phone he used to
Speaker 1: call in the to the board meetings, and it's just
Speaker 1: like all this unbelievable history. And then you they start
Speaker 1: walking around, We'll go to we gotta go here. So
Speaker 1: we were in the Microsoft office office. So you walk
Speaker 1: into an office and on the wall it's his Miccloft
Speaker 1: office because oh, this is where they make word Excel, etcetera.
Speaker 1: And so you start walking. You know, they're sending you
Speaker 1: from you going here, you're going there, going around the
Speaker 1: camp this, and like you're in building three, and then
Speaker 1: you're in building twelve, and then you're in building thirty seven.
Speaker 1: And the numbers just keep going up. And how many
Speaker 1: buildings do you, guys? Go? Campus goes about four miles
Speaker 1: that way, there's a hundred and four some crazy you know,
Speaker 1: three figures. It's so big, Like I'm not used to
Speaker 1: a company town. I go to a high rise and
Speaker 1: it's either the research department or the headquarters. To see
Speaker 1: a facility of this size was just mind blind. And
Speaker 1: when you look at the numbers, my my seven fifty
Speaker 1: million of sales or whatever it was. And it's just
Speaker 1: like it's a rounding air. And guys, as successful as
Speaker 1: Apple has become and other companies who have passed them,
Speaker 1: they're still a cash cow. There's still a behemoth. It's
Speaker 1: still the standard there. There isn't a laptop desktop tablet now.
Speaker 1: They made Office available for all the tablets. Everybody, not
Speaker 1: even talking about the database and all the back and
Speaker 1: stuff that consumers don't see. It was just one of
Speaker 1: the wildest experiences because you forget about them. It's like
Speaker 1: I remember in the nineties, Microsoft was front page news constantly.
Speaker 1: First it was this, then it was the litigation, the
Speaker 1: anti trust suit. But now they're just a big, mature
Speaker 1: company that just prints money. It was. It was just
Speaker 1: one of the most amazing things. Like as you look
Speaker 1: off to the horizon and that's still the campus, that building.
Speaker 1: A lot of software developers. We had called an uber
Speaker 1: to get back into town and the guy couldn't find us, like,
Speaker 1: well by building six. Well I'm by building sixteen, and
Speaker 1: now there's building three, and then it's twenty seven. Oh, well,
Speaker 1: they're not exactly in numerical order. Finds us very confusing.
Speaker 1: You've I assume you've been all over that campus. I've
Speaker 1: been a few places on that campus. But not only
Speaker 1: am I exaggerating astonishing, right, absolutely, absolutely astonishing. Let's let's
Speaker 1: talk a little bit about about some of the early
Speaker 1: pieces that that we missed. So I mentioned, um, I
Speaker 1: didn't get to mention the han Our Foundation. Tell us
Speaker 1: what you do with that? Yeah, my wife and I
Speaker 1: do a lot of philanthropy. I would say most of
Speaker 1: it is focused on stuff in the Pacific Northwest. How
Speaker 1: is that different from everywhere else other than the fact
Speaker 1: that you have a fifteen dollar minimum wage target and
Speaker 1: in Seattle now yeah, so so the difference is that
Speaker 1: most of the philanthropy that we do isn't sort of
Speaker 1: the traditional C three uh give to the university or
Speaker 1: whatever philanthropy. Most of the money on a building named
Speaker 1: after you. I regret that there probably will be buildings
Speaker 1: name named after us, but but the focus of what
Speaker 1: we do is more political that if you want to
Speaker 1: create that's policy, is Paul seeing in politics? And that's
Speaker 1: where most of our civic energy and investment goes. So
Speaker 1: what are your big three focuses? Um? What political economy?
Speaker 1: Which is income inequality? And so my gang in Seattle
Speaker 1: that you know, uh, you know, a group of collaborators
Speaker 1: were behind a lot of the whole fifteen dollar minimum
Speaker 1: wage thing, which is sales in over how long? Uh?
Speaker 1: In Seattle it scales in over five years more or less.
Speaker 1: But it passed in Seattle, San Francisco, l A. I'm
Speaker 1: actually in New York with you bury today because I
Speaker 1: was asked to testify, uh, in front of the wage
Speaker 1: board that's considering the same thing here in New York State. UH.
Speaker 1: And so you know, a lot of energy and work
Speaker 1: goes into that work. Another one of my projects right
Speaker 1: now is the overtime threshold UH, an incredibly consequential piece
Speaker 1: of policy. What is that? What is the overtime So? So,
Speaker 1: the President UH of the United States, through a rulemaking
Speaker 1: process within the Labor Department, has has the power to
Speaker 1: change the threshold number, the salary number below which people
Speaker 1: are entitled to overtime if they work more than forty
Speaker 1: hours a week. And in the day when he let
Speaker 1: me make sure I didn't say this. So if you're
Speaker 1: making less than X a year on an annual basis
Speaker 1: and your salary, you get over time if you're work.
Speaker 1: But what are those numbers currently? So? So today, if
Speaker 1: you earn more less than twenty three thousand, six hundred dollars,
Speaker 1: which is basically a poverty way, yeah, you automatically are
Speaker 1: entitled to overtime no matter what. But if you earn
Speaker 1: more than twenty three thousand, six hundred dollars a year,
Speaker 1: let's say, and your employer pitches you a fake title
Speaker 1: like assistant manager, they can get they can force you
Speaker 1: to work seventy hours a week and not pay you
Speaker 1: for the extra thirty, claiming that you're now management, not
Speaker 1: labor exactly, and and uh, everyone knows that Americans are
Speaker 1: working their butts off more than almost any other It's crazy,
Speaker 1: the most absolutely. And and you know, in fact, there
Speaker 1: was a recent Gallop poll that showed that that the
Speaker 1: average full the average American full time worker works forty
Speaker 1: seven hours. And that's not counting the email. You're doing
Speaker 1: it at midnant, right, you know, right exactly, and so
Speaker 1: and and that and so here's the thing is that
Speaker 1: in the day very when we had a thriving middle class,
Speaker 1: something like sixty three of salaried workers were entitled to
Speaker 1: overtime if they worked more than forty hours a week.
Speaker 1: Today that number is like nine. It's some of it
Speaker 1: is the dearth of unions. No no, no, no, no no.
Speaker 1: This is all because this labor standard has been allowed
Speaker 1: to it just hasn't changed over decades. In other words,
Speaker 1: inflation is just exactly exactly, that's amazing. I just just
Speaker 1: him that was the the slow death of unions that
Speaker 1: causes that can that contributes to it, of course, And
Speaker 1: if you if you are an a union. Your your
Speaker 1: union has almost certainly negotiated that for you. But if
Speaker 1: you're not in a union, and people in America are
Speaker 1: not in unions, UM, that means that if you earned
Speaker 1: twenty five thou dollars a year being an assistant manager
Speaker 1: for Jack in the Box or whatever it is, Uh,
Speaker 1: your employer can work you seventy hours a week and
Speaker 1: not pay you for the extra thirty that you work.
Speaker 1: And there are two there. There are a number of
Speaker 1: things that are really terrible about that. Let's start with
Speaker 1: the fact that it recks your life. Um, we wonder
Speaker 1: why people, why why our schools struggle will when parents
Speaker 1: are working seventy or sixty hours a week, they're not
Speaker 1: helping their kids with homework, right, and so so there's
Speaker 1: the whole impact that this extra work has on the family.
Speaker 1: But the but the more insidious economic effects aren't just
Speaker 1: that you're getting cheated out of the pay of twenty
Speaker 1: or thirty extra hours of work. More particularly, what it
Speaker 1: allows people like me to do is take three jobs
Speaker 1: and turn it into two. Because if I can get
Speaker 1: two people to work sixty hours a week, I don't
Speaker 1: need three employees. They only need two employees. Right. And
Speaker 1: what that does is it obviously softens the labor market.
Speaker 1: It pulls a job out of the labor market. And
Speaker 1: by pulling a job out of the labor market, you
Speaker 1: increase the rate of unemployment, which in turn softens wages.
Speaker 1: So we have comes vicious it's a vicious cycle, right,
Speaker 1: It's a feedback loop. And so we have this persistent
Speaker 1: high level of unemployment. And a huge part of it
Speaker 1: is the fact that employers are using this loophole essentially
Speaker 1: to get workers to do the work of one and
Speaker 1: a half workers, rather than employing more workers to do
Speaker 1: that work. How many people in America would you gues
Speaker 1: estimate are doing this sort of excess work. Let's assume
Speaker 1: there's a hundred and fifty million plus in the labor pool. Yeah,
Speaker 1: I mean, you know half of them are, you know,
Speaker 1: sort of half of them are. If you're hourly, you
Speaker 1: automatically get over time. And I think there's sixty or
Speaker 1: seventy million hourly employees many, Yeah, but but I mean,
Speaker 1: you know, seventy five million or eighty million full time
Speaker 1: workers in the United States. Um, you know, the vast
Speaker 1: majority of us are working overtime. Now, I don't think
Speaker 1: everybody should get overtime. Very I don't think you should
Speaker 1: get overtime. Here's the thing, you know what. I wrote
Speaker 1: a piece that appeared in Politico a few months ago
Speaker 1: called you know, whatever happened overtime and which I argued
Speaker 1: that we should bring we we should bring the threshold
Speaker 1: back up to the high water mark, which would be
Speaker 1: sixty nine thousand dollars plus or minus today from where
Speaker 1: it once was fifty three exactly. So you're really just
Speaker 1: about the middle, maybe a touch a touch higher. So
Speaker 1: my reasoning is, look, if you earn more than two
Speaker 1: thirds of your fellow Americans, good for you. You're on
Speaker 1: your own. But if you were in less than the
Speaker 1: top third of Americans, you're working for somebody else. They're
Speaker 1: telling you what to do. And if you work more
Speaker 1: than forty hours, you should get paid for it. Uh
Speaker 1: And and so we went on a campaign to try
Speaker 1: to persuade the Obama administration in their rulemaking process to
Speaker 1: to to to bring that threshold back up to a
Speaker 1: reasonable level. And what you say, rulemaking process. So this
Speaker 1: doesn't require an Act of Congress. It's it's it's it's
Speaker 1: it's it's happening. And in about a week or two. Uh,
Speaker 1: the rule will be announced. Uh and um, if you
Speaker 1: just let the cat out of the bag. Uh. Well, no, there,
Speaker 1: there there. There have been some articles indicating this coming.
Speaker 1: But what does this mean for the middle class? What
Speaker 1: does this mean for that group oft in? In my opinion,
Speaker 1: a high a reasonable overtime threshold is to the middle
Speaker 1: class what a minimum wage is to low wage work.
Speaker 1: It's an indispensable labor protection. An indispensable labor protection. You
Speaker 1: can't have a thriving middle class unless, uh, you have
Speaker 1: a reasonable overtime threshold. Otherwise you soften the labor market
Speaker 1: and you get people to work for free, and and
Speaker 1: and and both of those things are incredibly corrosive. So now,
Speaker 1: how do you how do you respond when people say, Nick,
Speaker 1: you sound a lot less like a venture capitalist and
Speaker 1: a lot more like a labor organizer. You what I
Speaker 1: say to him is, you don't understand capitalism, right, so
Speaker 1: you want a robust middle class out buying your product, Yes,
Speaker 1: you don't understand capitalism. Being rapacious doesn't mean make you
Speaker 1: a capitalist. It makes you a sociopath and a jerk. Okay,
Speaker 1: that there's a difference. And that Twitter handle is what's
Speaker 1: that Twitter handle? Is? Uh? What your Twitter handle? Nick at,
Speaker 1: Nick Caner at Nick Hannah. So send those nasty tweets
Speaker 1: to being rapacious doesn't make you a capitalist. Well that part,
Speaker 1: by the way, that seems perfectly reasonable, and yet you
Speaker 1: get a lot of pushback. I do, and you know
Speaker 1: I understand it. But look, here's the thing is that,
Speaker 1: by the way, let me interrupt yourself my personal beef.
Speaker 1: And maybe it's because we're in the Northeast and we
Speaker 1: have such hideous winters, especially the past two winters have
Speaker 1: been insane. Is the gas tax has been stuck at
Speaker 1: the same level since Meanwhile, we have the price of
Speaker 1: oil dropped in half, gases a couple of bucks cheaper
Speaker 1: than it was three years ago. Just raise the gas
Speaker 1: tacks twenty or thirty cents. Pave all these roads that
Speaker 1: look like their disasters, fix these bridges that are falling down.
Speaker 1: You'll create all these good construction jobs. And you know,
Speaker 1: for people, it's a shame that two thirds of whatever
Speaker 1: the number is of the US that doesn't have a passport.
Speaker 1: When you leave the United States and you go to Europe,
Speaker 1: where you go to Asia, it's like, oh, that's what
Speaker 1: roads and bridges were like in the nineteen fifties in
Speaker 1: the United States, after we put the equivalent of trillions
Speaker 1: of dollars of infrastructure investment. To not do that seems
Speaker 1: so Unamerican. And yet people are horrified. How can I
Speaker 1: vote to raise a tax twenty cents a gallon because
Speaker 1: you need roads that are paid Yeah, yeah, no, it's
Speaker 1: it's it's extraordinary. And you know, the thing is is
Speaker 1: that we have this weird sort of mental disease in
Speaker 1: this country that is somehow like a whole bunch of
Speaker 1: us have confused suffocating collectivism, which is bad, with the
Speaker 1: need to solve collective action problems, which is what civilization
Speaker 1: depends on. Society exactly right, defends should we put our
Speaker 1: own fires out or should we have a fire department?
Speaker 1: Should I have to hack my way from my house
Speaker 1: to your house with a machete through the woods, or
Speaker 1: should we build a road in between our houses? Right? Confused,
Speaker 1: I have no idea. We go from a nation that
Speaker 1: was literally the shining city on the hill, the standard
Speaker 1: for everybody else. You can't name an infrastructure that the
Speaker 1: United States forget number one, where the United States is
Speaker 1: in the top ten, Whether it's whether it's cell connectivity, broadband,
Speaker 1: high speed trains, got mass transit. Going down the list,
Speaker 1: there is nothing that forget number. We're not even in
Speaker 1: the top ten. Yeah, I don't know. It's like this
Speaker 1: odd psycho pathology where you've got this minority of people
Speaker 1: who have convinced themselves that anything we do together is
Speaker 1: somehow is communism or a bad thing. It's just it's
Speaker 1: just for the military. Even then in Texas, the military.
Speaker 1: You must have read about this. The military was doing
Speaker 1: exercises in Texas and Greg Abbott calls out the National
Speaker 1: Guard to protect Texas against the U. S. Military or
Speaker 1: whatever it is. It's just not so just the shift.
Speaker 1: I'll tell you what I see is that shift is
Speaker 1: someone figured out that the low information voter some people
Speaker 1: who are uninformed, ignorance, and happy. That way you could
Speaker 1: spew whatever nonsense you want to them. And you know,
Speaker 1: my favorite example of that was the sign during one
Speaker 1: of the Tea Party um before it was co opted
Speaker 1: by the existing parties, but there was a sign, keep
Speaker 1: your government hands off my medicage. Yeah yeah, wait, you
Speaker 1: you really are the ultimate low information voters. So that
Speaker 1: so the minimum wage is a great example of that, right,
Speaker 1: the minimum wage is a way to solve a collective
Speaker 1: action problem. So from the point of view of the
Speaker 1: individual business, of course, paying poverty wages is awesome. I
Speaker 1: pay my workers nothing, my profits are high. But you
Speaker 1: have a business and you pay your workers good wages,
Speaker 1: so your workers can buy stuff from me. Now sadly, yeah, sadly,
Speaker 1: it won't work out the other way. My workers will
Speaker 1: not be able to buy anything from you. Uh. But
Speaker 1: what do I care? If I can get you to
Speaker 1: do that deal? Right? Your workers pay taxes. My workers
Speaker 1: don't pay taxes. In fact, they food stamps and medicaid
Speaker 1: that your workers will provide. Again, So who wouldn't want
Speaker 1: that deal? But the problem with that deal, Barry, of course,
Speaker 1: is that not everybody can have that deal. Because everybody
Speaker 1: have that has that deal, who will buy the stuff,
Speaker 1: who will pay the taxes? And the only way you
Speaker 1: can solve that problem, which is a collective action problem,
Speaker 1: is by requiring everybody to pay their workers at least
Speaker 1: enough so that they can participate in the economy and
Speaker 1: so they don't need government services. That the way that
Speaker 1: I've outraged, the way I've framed that argument so that
Speaker 1: it was palatable for my conservative friends has been Look there,
Speaker 1: I know you don't like wealth transfers, but there's a
Speaker 1: wealth transfer going on right now, and it's from taxpayers,
Speaker 1: of which you're one. Two fast food restaurants and and
Speaker 1: places like Walmart that basically have figured out how to
Speaker 1: pay people enough, and I understand the system is there.
Speaker 1: They're gaming it except in places where they've helped form
Speaker 1: the system them So there you can say, well, they
Speaker 1: just were confronted by a tax system and they hired
Speaker 1: an accountant to present the best tax situation. But here
Speaker 1: where they've helped form the system, they're gaming it. The
Speaker 1: bottom line is they're transferring wealth from taxpayers to themselves.
Speaker 1: Let's pull the taxpayer out of it. This is a
Speaker 1: relationship between the customers, the owners, and the employees. And
Speaker 1: if it means that you have to charge an extra
Speaker 1: fifty cents to selling McDonald's hamburgers, perfectly, why are we
Speaker 1: subsidizing that? Exactly? That's what I don't get perfect leave Look,
Speaker 1: you could, you could charge what you want, you could
Speaker 1: do whatever you want, just leave us taxpayers out exactly.
Speaker 1: And you know, I'm an old fashioned capitalist. I think
Speaker 1: that you know wages are the way that we do
Speaker 1: this in a capitalist system, Right, That's that, you know,
Speaker 1: Why should we have an E I T C that
Speaker 1: makes up the difference? Why should we have food stamps
Speaker 1: that make up the difference? Why can't Walmart paid to work?
Speaker 1: There's enough so that they can have healthcare and be
Speaker 1: able to buy stuff like the rest of us. There's
Speaker 1: just no reason for it. And and and you know,
Speaker 1: and and that's why I'm in New York toify, you know,
Speaker 1: because I think it's it's so it's a it's as
Speaker 1: economically idiotic as it is morally. So here's the interesting
Speaker 1: here's the interesting development that's just taken place. There's a
Speaker 1: new CEO at Walmart, there's a new head of retail.
Speaker 1: There's a whole bunch of changes that have taken place.
Speaker 1: After their most recent quarterly announcement, the company CEO had
Speaker 1: come out and said one of the big issues that
Speaker 1: they were having was a huge turnover. Right, they have
Speaker 1: almost two million employees in the United States and something
Speaker 1: like someway between a forty and at turnover rate and
Speaker 1: of course one and a half times the salary to
Speaker 1: actually go through that process on a on a regular basis.
Speaker 1: They started to say their their turnover rate has come down,
Speaker 1: their employee satisfaction as has improved, their customer satisfaction is
Speaker 1: going up. So it turns out paying people a reasonable
Speaker 1: wage and we're just talking about going to I think
Speaker 1: it was a nine dollar an hour. The announcement that
Speaker 1: he made is the nine dollar now wages having the
Speaker 1: intended effect they go to ten dollars and the CEO
Speaker 1: actually said, and we expect to take it higher than
Speaker 1: ten dollars new slash. When you stop treating people like chattel,
Speaker 1: things get better for everybody. Right. This is sort of
Speaker 1: an old lesson from humanity. You know, the better we
Speaker 1: treat one another, the better it goes for everybody in general.
Speaker 1: And again this comes back to my early statement, being
Speaker 1: rapacious doesn't make make you a capitalist, makes you a jerk.
Speaker 1: Uh And and and that's at Nick hann Hour on Twitter.
Speaker 1: So the this is your answering. The first part of
Speaker 1: what is the Foundation focus on? One thing was public
Speaker 1: policy and income inequality. What else do you guys? Look?
Speaker 1: And I just I just want to be on this one,
Speaker 1: this one point for for a minute longer, because the
Speaker 1: pushback on this has been Uh, the so called economic
Speaker 1: theory that if wages go up, employment will go down,
Speaker 1: right and fairly thoroughly debunked. A few months ago. I
Speaker 1: had Alan Krueger, who was Obama's chairman of the Council
Speaker 1: of Economic Advisors. He did a very famous study in
Speaker 1: the early nineties with I want to say, David Card
Speaker 1: where they just happen to have two towns on opposite
Speaker 1: sides of a state border. One raised the minimum wage,
Speaker 1: the other didn't. The impact was really modest. The takeaway is,
Speaker 1: if there's a gradual increase of modest amounts, the impact
Speaker 1: is a net positive. If you double the minimum wage tomorrow,
Speaker 1: you're gonna have a negative. It turns out that's not
Speaker 1: even true. Yeah, that's not true. So if we double
Speaker 1: in the in the in the forties, uh, late forties,
Speaker 1: we we the minimum wage went up, but it was
Speaker 1: frozen old during the war. Okay, but it went up
Speaker 1: eighty eight percent in one year, and and and employment
Speaker 1: plummeted from like five to two percent over the next
Speaker 1: couple of years. So to be clear, to be clear,
Speaker 1: there's abundantet evidence that the more money you pay workers,
Speaker 1: the better business will be in the more workers you'll need.
Speaker 1: But here's the point. Here's the point. Despite the fact
Speaker 1: that this has been totally discredited, it does not stop
Speaker 1: industry and political leaders from saying it again and again
Speaker 1: and again and again. If you get enough billionaires funding
Speaker 1: enough thing tanks to say stupid stuff, eventually people start
Speaker 1: to believe right exactly. And and you know, the reason
Speaker 1: I wanted to come to New York is to make
Speaker 1: it clear that the only thing that's true about the statement,
Speaker 1: the claim when wages go up, employment comes down, is
Speaker 1: that if people like me can get workers to believe
Speaker 1: it's true, it would be very good for people like me.
Speaker 1: Then claim is a scam. It's an intimidation tactic. That's
Speaker 1: what it is. It's a it's it's a it's a
Speaker 1: it's a way of controlling people's behavior because if I
Speaker 1: can intimidate you into believing it, if you get higher wages,
Speaker 1: I'll fire you. Then I then I you know, then
Speaker 1: I blunt the aggressiveness that you'll pursue higher wages. And
Speaker 1: that's what this is all about. In fact, in Seattle,
Speaker 1: which already pays way way we hire minimum wage uh
Speaker 1: than places like New York, any other place in the
Speaker 1: country for fast food workers. In particular, we don't have
Speaker 1: fewer restaurants per capita. We have more restaurants per capita.
Speaker 1: We have more restaurants per capita and Seattle, Washington than
Speaker 1: you do even in New York. The only major city
Speaker 1: in the country that has more restaurants per capita than
Speaker 1: Seattle is San Francisco that pays even pays even more
Speaker 1: than Seattle. And this is because when restaurants pay restaurant
Speaker 1: workers enough so that even they can afford eating restaurants,
Speaker 1: guess what, it's pretty good. It's pretty good for the restaurant.
Speaker 1: You know. There was a lot of pushback about Seattle
Speaker 1: about the minimum wage and restaurants where the focus, and
Speaker 1: we actually did some research and found out because people
Speaker 1: love anecdotal examples of pizza place, that was a headline.
Speaker 1: W we saw a piece of place closed in Seattle.
Speaker 1: But when you look at the numbers, but you look
Speaker 1: at the number of closings, they've been pretty steady over
Speaker 1: the past three years before the this went into effect
Speaker 1: earlier this year. The minimum wage before and after the
Speaker 1: number of closings are the same. But more importantly, when
Speaker 1: you looked at the permits for new restaurant openings. They
Speaker 1: have been climbing steadily and they continue to climb steadily.
Speaker 1: So there is this meme out that, oh, Seattle is
Speaker 1: killing their restaurant business booming, right. And by the way
Speaker 1: we were, I was just in Seattle, full disclosure everybody.
Speaker 1: The way I met Nick is we were meeting somebody
Speaker 1: who was a potential client and you just happened to
Speaker 1: be at that dinner and we started chatting, and I'm like,
Speaker 1: why is that name so familiar? Nick? I know I
Speaker 1: read something that he uh, I know, I read something
Speaker 1: that he wrote and it was somewhere but um, when
Speaker 1: we were in Seattle. That is a city on fire?
Speaker 1: Is it makes San Francisco and Silicon Valley look like it's,
Speaker 1: you know, a mature, slow economy, right, And and part
Speaker 1: of the reason it's on fire is that we pay
Speaker 1: our low wage workers more than other places pay them,
Speaker 1: so those workers can participate more robustly in our economy.
Speaker 1: How's the housing market in Seattle out of control? This
Speaker 1: is the you know, but even still, I find prices
Speaker 1: in Seattle's out of even reasonable compared to you know,
Speaker 1: NAPA and Silicon Valley. I think is insane. You guys
Speaker 1: are reasonable compared to that, compared to New York for sure,
Speaker 1: for sure, but it's still you know, the cities either
Speaker 1: grow or they shrink. If they shrink, you have one
Speaker 1: set of problems. If they grow, you have another set
Speaker 1: of those. Are that's a better, high quality set of problems,
Speaker 1: but it is a set of problems. And affordable housing
Speaker 1: is a big challenge for a geographically kind of contained place,
Speaker 1: like two different mountain ranges, and you're sort of in
Speaker 1: the right. It's it's well, that's always the issue is
Speaker 1: when you have a limited amount of time and space,
Speaker 1: you know, there's nobody to do with that is everybody
Speaker 1: wants to come. Everybody wants to come. Well, there are
Speaker 1: a lot of jobs, there's a lot of activity. It
Speaker 1: happens to be just a lovely climate. It's very different
Speaker 1: than we had a miserable winter this year. We had
Speaker 1: a terrible winter last year. I'm hoping that will mean
Speaker 1: revert a little bit. And you know now that I
Speaker 1: have in fact, in fact, after last winter, we moved
Speaker 1: to a new house and my driveway is this, you know,
Speaker 1: vertical snake. And I went out a lot. I got
Speaker 1: a jeep because it's the only thing that makes it
Speaker 1: up the driveway in the water. The old wheel drive.
Speaker 1: You know, a typical oil drive car has headaches. You know,
Speaker 1: it's when when four wheel drive doesn't get up to
Speaker 1: the driveway. It's like, all right, I gotta get something.
Speaker 1: And so I found this ridiculous. I actually it's it's
Speaker 1: my favorite value investment. It was a salvage title Jeep
Speaker 1: Rubicon in Orange. I would normally never buy an orange car,
Speaker 1: but it has hell of a deal on it. Big
Speaker 1: Beef paid half of what I figure half. I don't
Speaker 1: care if it's AREE got these big beefy not ere
Speaker 1: You're the only one in your neighborhood to have an
Speaker 1: orange Jeep. There is literally that. Not only is that true,
Speaker 1: although there are a million Jeeps in my neighborhood because
Speaker 1: of that exact reason, because of the hills. The only
Speaker 1: one that's A friend who actually had helped me do
Speaker 1: the research on the Seattle restaurants found a website. You
Speaker 1: can punch in a zip code and it will tell
Speaker 1: you all the cars in your zip code, and you
Speaker 1: could look up car per zip code and say how
Speaker 1: many Cheeps, and you're in the neighborhood, how many Chevy Luminous,
Speaker 1: how many Bentley g T you can look it up
Speaker 1: by whatever. And it's insane because all this data is
Speaker 1: public and people get get to play with it. I'll
Speaker 1: foward you and I'll post I'll post that. So, so
Speaker 1: we've spent time on income inequality. What else does the
Speaker 1: foundation look at before? So I go through a list.
Speaker 1: I got a list of questions. So we we've done
Speaker 1: a lot of work on gun, gun safety, gun responsibility
Speaker 1: and stuff. And how do you define gun responsibility policies
Speaker 1: that lead to fewer people getting killed with guns? Uh?
Speaker 1: And of course we have a we have a gun
Speaker 1: safety crisis in the United States. I mean the rate
Speaker 1: at which people are killed by guns here is some
Speaker 1: type of place between ten and a hundred times higher
Speaker 1: than it is and basically any other civilized place. I
Speaker 1: saw an interesting stat I don't I don't know if
Speaker 1: you're familiar with this. You have a gun in your
Speaker 1: house and it increases the possibility of a gun being used.
Speaker 1: What's what's the jata? I can't. It depends on the circumstance,
Speaker 1: but for sure, having a gun massively increases the risks
Speaker 1: that you or someone in your family will be killed,
Speaker 1: but with a gun. Yeah, yeah, so so particularly if
Speaker 1: you're a woman. So if you're a woman and your
Speaker 1: husband has a handgun, not a good not a good thing,
Speaker 1: not a good thing statistical statistically speaking, and you know
Speaker 1: that the you know, the the view is from a
Speaker 1: lot of people that feeling safer is the same as
Speaker 1: being safer. I realized that there are a lot of
Speaker 1: people who own guns who feel safer, which you're actually
Speaker 1: not safer, and the and statistically speaking, in fact, you're
Speaker 1: less safe and the people around you are less safe.
Speaker 1: A huge problem, of course is suicide. And people don't
Speaker 1: realize that. If you ask somebody in the United States randomly,
Speaker 1: what are are there more homicides or suicides? Most people
Speaker 1: will say homicide was more suicides than homicide. And and
Speaker 1: the reason that we're to do it yourself. Yeah, And
Speaker 1: the thing is is that is that having a gun
Speaker 1: within easy access, uh massively increases the rate of successful
Speaker 1: suicide because you don't miss with a gun. Um. And
Speaker 1: what people don't understand about suicide. Before I came to
Speaker 1: this work, I had really hadn't thought of it. But
Speaker 1: suicide to most people, you know, you conceptualize. Suicide is
Speaker 1: this very very planned out, rational thing where somebody says, uh,
Speaker 1: you know, I'm done with it all, I'm going to
Speaker 1: take my life and there's nothing you can do to
Speaker 1: stop them, and nothing could be farther from the tooth.
Speaker 1: Suicide is an emotional act in the moment, impulsive, it's impulsive.
Speaker 1: Almost no one relentlessly tries to kill themselves. So if
Speaker 1: you avoid that exactly exactly. So this is why if
Speaker 1: you put a fence up on a bridge, suicide dramatically
Speaker 1: is reduced because people get to the bridge and they're like, oh,
Speaker 1: this is too much trouble. I'm going home. I swear
Speaker 1: to god, you would think that a little fence wouldn't
Speaker 1: stop you if you wanted to kill yourself, if you're
Speaker 1: if you're gonna kill your decisions, I know, and you're like,
Speaker 1: it's too much trouble. They go home. So they've done
Speaker 1: this on the Golden Gates, You've done this in a
Speaker 1: number of places, and it actually works. It works, it works.
Speaker 1: They don't just not jump off that bridge. They don't
Speaker 1: commit suicide because it's an impulsive decision. Somebody's having a
Speaker 1: horrible day, something terrible happens to them. They're they're chemically
Speaker 1: imbalanced at that moment, and they make this split second
Speaker 1: decision to do it. If you don't have a gun
Speaker 1: with an easy access, the chances that they're going to
Speaker 1: actually kill themselves go down dramatically. And so that's why
Speaker 1: things like safe storage are so important, and that's why
Speaker 1: having guns laying around all over the place are terrible.
Speaker 1: Is terrible from that point of view, But you know,
Speaker 1: they're they're simply no doubt that there is a perfect
Speaker 1: statistically statistical correlation between the number of guns in the
Speaker 1: community and the amount of gun death. And we need
Speaker 1: to find ways to reduce the gun violence in our
Speaker 1: society back to civilized levels. Uh. And you know that's
Speaker 1: just gonna take a bunch of good new policies. So
Speaker 1: when you talk about gun responsibility, you're really not saying
Speaker 1: we want to get rid of handguns, we are against
Speaker 1: the Second Amendment. You're saying we want to work with
Speaker 1: gun owners and find a way to be more like So,
Speaker 1: for instance, we you know, we we we we uh.
Speaker 1: We passed a criminal background X bill in Washington State.
Speaker 1: And all that bill does is require anyone who buys
Speaker 1: a gun from anyone to go through the national check
Speaker 1: to find out if you're a criminal or a psychopath. Uh.
Speaker 1: Who could be against that? Who could be against that? Well,
Speaker 1: it turns out the n r A and all the
Speaker 1: people who manufactured are violently against that because it's terrible
Speaker 1: for the gun business. That that just doesn't seem to
Speaker 1: make any sense because when you see surveys of gun owners,
Speaker 1: they're overwhelmingly in favor of nuts. It's nuts, but violently
Speaker 1: opposed to a common sense, uh, piece of legislation like
Speaker 1: that where if you're going to buy a gun, we
Speaker 1: get to check and make sure you're not a criminal
Speaker 1: or a crazy person. Uh. You know. Another piece of
Speaker 1: legislation that we're trying to pass is something called an
Speaker 1: extreme Risk Protection Order. So this is a this is
Speaker 1: a this is a rule that allows a family to
Speaker 1: go to a judge and say, little Billy is super
Speaker 1: crazy and he's super dangerous and if somebody didn't take
Speaker 1: his guns away, he's gonna kill himself or he's gonna
Speaker 1: kill somebody else. So in a huge proportion of the
Speaker 1: mass killings that you find, the families knew, everybody knew,
Speaker 1: everybody knew what was gonna happen. There's a great case
Speaker 1: in Washington State, the Cafe Racer killings, where this kid
Speaker 1: was backed out bonkers. His family went to the police
Speaker 1: multiple times saying please please take his guns away. Their
Speaker 1: hands were tied and they're basically the police are like, look,
Speaker 1: until he kills somebody, there's nothing we can do. So
Speaker 1: the kid went out and he killed half a dozen people, right,
Speaker 1: And so you know, this is a common sense public
Speaker 1: safety protection that you should be that reasonable people should
Speaker 1: be able to pass. But of course the gun lobby
Speaker 1: is violently against it and away exactly. But there's just nuts, right,
Speaker 1: it's nuts to believe that we should And here's the
Speaker 1: real by the way, that's another thing that I would
Speaker 1: imagine that gun owners. You would think, you would think,
Speaker 1: but you have to remember at the gun lobby isn't
Speaker 1: about gun owners. They're gun factors, right, And that's become
Speaker 1: pretty Anyone who didn't understand that hasn't been paying attention.
Speaker 1: It's all about how many guns can you sell. And
Speaker 1: that's a big change though from what the n r
Speaker 1: A was. Like, absolutely, it's completely different. But you know,
Speaker 1: it's just it's it's a real shame that we can't
Speaker 1: as a society, you know, bake in some of these
Speaker 1: basic protections so we'll have a safer civil society in
Speaker 1: my state. In most states today, your chances are being
Speaker 1: killed by with a gun are higher now than being
Speaker 1: killed in a traffic accident. Really, yeah, that's amazing. So
Speaker 1: income inequality, gun responsibility. What's the huns and tons of
Speaker 1: stuff on public education policy and reform? I founded something
Speaker 1: called co founded something called the League of Education Voters
Speaker 1: in Washington State, which has pursued, you know, every manner
Speaker 1: of public education reform, funding, so on and so forth.
Speaker 1: So we're big supporters. What do you think about this
Speaker 1: national testing and the uh oh, I forget the name
Speaker 1: of other things that people complain about. You know, these
Speaker 1: are very complic common common core. You know, these are
Speaker 1: very complicated questions, and I wish I wish I wasn't,
Speaker 1: But I am of two minds about them. I mean,
Speaker 1: on the one hand, you want to have kind You
Speaker 1: certainly want to have a national standard of what we're
Speaker 1: trying to teach and some sort of national judge about
Speaker 1: whether we're teaching it right. Just because Alabama decides to
Speaker 1: give every kid a's doesn't mean that those kids in
Speaker 1: Alabama are actually learning the math uh that they're going
Speaker 1: to need to participate in the global economy. Uh and
Speaker 1: uh and you know, we we need to find a
Speaker 1: way somehow to decide as a country what we want
Speaker 1: kids to learn and to figure out as a country
Speaker 1: if they're learning it. Uh, and how to do that?
Speaker 1: As you know you run businesses, measuring things is very
Speaker 1: very hard because there are a lot of variables. But
Speaker 1: if you can't measure, you can't measure. So yeah, very complicated.
Speaker 1: So let's let's move to some of Um, we're just
Speaker 1: about through the questions we missed Amazon? What made Amazon
Speaker 1: of success? We did that, we did the Ted talk. Um,
Speaker 1: let's let's go through some of my my favorite questions
Speaker 1: that I asked ask everybody. So, so, who were your
Speaker 1: early mentors? So, for sure, the guy that ran the
Speaker 1: family business. Uh, what's his name was Roy clove Here.
Speaker 1: He passed away, you know, ten years ago or so. Um,
Speaker 1: and he was an extraordinarily shrewd business person. He just
Speaker 1: was as sharp and clearer thinkers you've ever met. What
Speaker 1: did he impart to you? What did you learn from him?
Speaker 1: You know, how to manage people, how to think about
Speaker 1: business problems, how not to over react, you know, you
Speaker 1: know that's probably understated. It took yeah, you know, like
Speaker 1: how to be strategic? Right, um uh, you know, I
Speaker 1: don't know, just a lot of a lot of great um,
Speaker 1: a lot of great lessons. You know. My dad was
Speaker 1: in many ways less strategic than Roy was, but he
Speaker 1: was a great moral uh mentor. And you know, so
Speaker 1: the funny thing about the pillow business is that it's
Speaker 1: characterized classically was characterized by immense amounts of cheating. Really yeah,
Speaker 1: so how do you cheat in the pillow business? How
Speaker 1: how do you not cheat in it? So, so a
Speaker 1: pound of downs costs it worth about thirty bucks, but
Speaker 1: a pound of crushed feathers is worth a buck. So
Speaker 1: if I put a pound of crushed feathers in a pillow,
Speaker 1: you will barry. You would never be able to tell
Speaker 1: the difference. Absolutely, I put him in the store, you
Speaker 1: look at him side by side, You can't tell this
Speaker 1: difference because there just is. Because there's well over time,
Speaker 1: you can tell the difference. But sitting in the store
Speaker 1: you can't tell. And and so there's an enormous temptation
Speaker 1: to put the wrong things in the pillows because obviously
Speaker 1: if you cheat a little bit, your margins go through
Speaker 1: the roof and you get a spot check and you
Speaker 1: get people checks. No, the retailers don't check. Why don't
Speaker 1: the real tailers check because they don't give a rip.
Speaker 1: This is like tailors don't care about quality. I care
Speaker 1: about his cash flow out, So nobody checks. And so
Speaker 1: the whole industry was characterized by cheating. And many of
Speaker 1: our biggest competitors were relentless cheaters. And my dad wouldn't cheat.
Speaker 1: He just wouldn't refuse. And he just felt strongly like
Speaker 1: doing it the right way over time would be the
Speaker 1: way to go. And did retailers recognized that? Oh yeah, yeah,
Speaker 1: yeah they did. And over time he was right. We
Speaker 1: kicked everybody's butt. Um. There was a big competitor in
Speaker 1: North Carolina or South Carolina, which was like the name
Speaker 1: brand in the space gone eventually went bankrupt. Were they
Speaker 1: were they cheaters? You know politexs to their credit where
Speaker 1: they did not cheat? So why did how did they
Speaker 1: get uh? You know, they you know, uh, they went
Speaker 1: out of they went out of business. I think just
Speaker 1: because they overreached. They you know, they they made some
Speaker 1: bad strategic decisions and got disfocused. Um, but the cheaters
Speaker 1: largely went away. And and short termam it's an issue.
Speaker 1: It's frustrating and compete with Yeah, but long term you
Speaker 1: can't survive that way. Yeah. Yeah. And it was a
Speaker 1: great you know, it was a great lesson and um,
Speaker 1: you know, it's a great life lesson. So those are
Speaker 1: the mentors. What investors influenced you investors? Well, you know
Speaker 1: my partners you know too, very Pete Higgins, who was
Speaker 1: one of the co presidents at Microsoft in the day
Speaker 1: with he was in the office of the President with
Speaker 1: res when when Jeff Raikes went on to run the
Speaker 1: foundation and Steve Balmer obviously uh ended up being the president.
Speaker 1: Unbelievably smart guy. And my partner Mike Slade, who went
Speaker 1: to Yeah. So Mike and Pete I believe were the
Speaker 1: first two MBA's Microsoft hired. They went to Stanford Business
Speaker 1: School together and they both you know, got offers from
Speaker 1: Balmer together and ear no, no, early early eighties eighty
Speaker 1: one or something like that. That's crazy, Yeah, long time ago.
Speaker 1: So both very very early Microsoft executives and Mike. So
Speaker 1: Pete stayed at Microsoft and went all the way to
Speaker 1: the top and Mike ended up running the Apple business
Speaker 1: for Microsoft, often befriended Steve Jobs, and then ended up
Speaker 1: as the vice president marketing for Next Computer I remember
Speaker 1: that right. And then after that came back and ran
Speaker 1: a big internet company, UM for Paul Allen Um one
Speaker 1: of the original oginal who left when he got a
Speaker 1: and then survived and has since become a philanthropist Flash
Speaker 1: VC as well. And then ventures is that Yeah, And
Speaker 1: then Mike went back as a sort of a consultant
Speaker 1: Apple and was a non he was he was a
Speaker 1: member of the Apple executive committee, but as a non employee,
Speaker 1: so and so sort of stayed close to that. But anyway,
Speaker 1: they're just they're incredibly smart people and I'm lucky to
Speaker 1: get to collaborate with them. What are some of your
Speaker 1: favorite books? Um? Well, business books. I don't think he
Speaker 1: can beat Michael Porter for strategy. I think his book
Speaker 1: Competitive Strategy is the best book on strategy ever written. Yeah,
Speaker 1: Michael Porter Competitive Strategy Techniques for Analyzing Industries and Competitors.
Speaker 1: Um and uh. But as a student of strategy, I
Speaker 1: think that you know, I've read a ton of military
Speaker 1: strategy books, and you know everybody read yeah, and all
Speaker 1: that stuff, But there's all sorts of great stuff available.
Speaker 1: In fact, one of my favorites is the is the
Speaker 1: is the Marine Corps book uh called just called war Fighting.
Speaker 1: It's an amazing book on strategy. Is yeah, really really fun.
Speaker 1: And then you know, I read a ton of uh
Speaker 1: I don't read much fiction, but I read a ton
Speaker 1: of nonfiction, nonfiction about the issues that interest me. And
Speaker 1: um uh you know a very interesting um ah book
Speaker 1: um that I just uh read as something called the
Speaker 1: End of Power, The End of Power moist is Nain
Speaker 1: and you know, and and and his thesis is that
Speaker 1: basically the nature of power is changing over time. So
Speaker 1: in the in the day, some people that in the
Speaker 1: good old days, people had real power, which is you
Speaker 1: will do this or I will kill you. Okay, that's
Speaker 1: good power. Today, um, it's more like, gosh, i'd love
Speaker 1: for you to do this, and by the way, it's
Speaker 1: your idea, and won't we all be happy if we
Speaker 1: do this together? So it's more from persuasive to persuasiveness, right,
Speaker 1: and and and and that is an extraordinarily interesting trend
Speaker 1: in terms of how we manage UH countries, enterprises, society,
Speaker 1: so on and so forth. And and and something really
Speaker 1: worth thinking very very carefully about, if you want to change,
Speaker 1: if you want to affect society, if you Since you
Speaker 1: like the military books, I'm gonna recommend an odd one
Speaker 1: that you may find interesting. It's less than ten years old,
Speaker 1: called a Genius for Deception, and it's the history of
Speaker 1: intel and counterintell and things like camouflage and counterspying, mostly
Speaker 1: about the Brits, but the US and the Germans, which
Speaker 1: also a Genius for deception. It's really a fat One
Speaker 1: of these fastening stories tells the story during World One
Speaker 1: and World War Two, all sorts of fascinating different stories
Speaker 1: about what happened. But there was one particular German I
Speaker 1: guess the World War One equivalent of a pans Ner
Speaker 1: panzer movement. Maybe it was early World War Two where
Speaker 1: they have these giant tarps there are three hundred yards square,
Speaker 1: and they're moving tanks and men during the so they're
Speaker 1: not seen by spotter planes. And it's how all camouflage
Speaker 1: came about. And some of the stuff is just you
Speaker 1: just it's always been here, so you assumed it's always
Speaker 1: been here, but it turns out that's not true. Some
Speaker 1: of the stuff didn't exist a hundred years ago. Someone
Speaker 1: had created It's really it's really quite fascinating. I'll send
Speaker 1: you I'll send you a link to the book on Amazon.
Speaker 1: Um what, um, what do you like to do during
Speaker 1: your downtime? Well, I have a family and a couple
Speaker 1: of kids, and so we rip around doing fun things.
Speaker 1: You know. I live in the Pacific Northwest, so we're
Speaker 1: very outdoorsy. We ski, we hike, We my son and
Speaker 1: I are fanatic fly fisherman. Oh really yeah, we do
Speaker 1: a lot of salmon and what else with trout and
Speaker 1: stuff like that. Um, uh and uh. I have a
Speaker 1: preponderance of boats, so we we we spent a lot
Speaker 1: of time on boat or power. I have a preponderance
Speaker 1: of boats because it turns out to be easier to
Speaker 1: buy boats than sail boats. Someone someone told me that
Speaker 1: a boater's favorite boat is his second to last boat.
Speaker 1: Maybe you should just keep working away up until you
Speaker 1: go too far. I have a little runabout. I keep
Speaker 1: over here. I love sailing, but in this part of
Speaker 1: the country, you got again in start the engine and
Speaker 1: go yeah, no, no, for sure. But you know, I
Speaker 1: just spent a week in the Caribbean with a bunch
Speaker 1: of my friends diving and fly fishing on what we
Speaker 1: were in the exumas in the Bahamas. Yeah, and uh,
Speaker 1: then then another week with my wife and three other
Speaker 1: couples messing around, you know, seeing stuff and that that
Speaker 1: sounds like fun. Yeah, doing We do a lot of
Speaker 1: stuff like that. So what sort of advice would you
Speaker 1: give to I keep using the word millennial, but just
Speaker 1: anybody graduating college and starting out their career, what sort
Speaker 1: of advice would you would you give to them? Today?
Speaker 1: That's a tough one people. You know what I was
Speaker 1: I was watching, uh rewatching the thing that they did
Speaker 1: on John Adams based on the David mcculloughbook. One of
Speaker 1: the guys in my office just finished it has not
Speaker 1: stopped raving about it. And John Adams said to his children,
Speaker 1: be good, do good words to live by, not not
Speaker 1: bad advice, bad advice, Be good, do good, you know,
Speaker 1: trying to make a difference in the world, Try to
Speaker 1: make a you know, try to leave the place better
Speaker 1: than you found it. Uh. You know, I just think
Speaker 1: that you know, I have a positive impact. Yeah, I
Speaker 1: have a positive impact. So since you don't be a sociopath,
Speaker 1: could be a juror. That's a relatively relatively simple, good
Speaker 1: advice for everybody. So you've essentially joined the VC industry
Speaker 1: twenty something years ago. So what's changed over the course
Speaker 1: of of your career as a as a venture capitalist. Well,
Speaker 1: there are a lot more people in it, uh, in
Speaker 1: various ways. You know, there's a lot more. I mean,
Speaker 1: one of the things that's happened to the world is
Speaker 1: that we we are living in an age of capital superabundance, right, Like,
Speaker 1: so here's a fascinating thing. Very so when I when
Speaker 1: I was born, the value of the entire SMP UH
Speaker 1: to the market capital r SMP to the population of
Speaker 1: the United States was a thousand dollars to one, Right,
Speaker 1: there was a thousand dollars of SMP market cap every man,
Speaker 1: woman and child in the United States. But when I
Speaker 1: graduated from high school, it was three thousand dollars and
Speaker 1: woman and child. Today it's sixty thou dollars and women
Speaker 1: and child. Yeah, that's amazing. Now, some of that clearly globalization.
Speaker 1: There are all sorts of factors at play, but that's
Speaker 1: that's a huge financialization of the economy of the economy,
Speaker 1: and and and and and and and that, by the way,
Speaker 1: that's just the SMP five right, that that's not the
Speaker 1: other capital available. And so what you have is an
Speaker 1: enormous amount of capital slashing around um the world uh,
Speaker 1: looking for uses for itself. And so there's a lot
Speaker 1: of people in the in the deploying capital business. And
Speaker 1: that's a good thing in a lot of ways. But
Speaker 1: certainly um the business has become more competitive in that sense.
Speaker 1: There there people you know below you know, above you
Speaker 1: who are deploying much bigger uh slugs of capital. And
Speaker 1: there are a million people below you who will do
Speaker 1: you know, any old thing from five bucks to you know,
Speaker 1: five thousand, whatever it is. So so there's that I
Speaker 1: would say that, you know, the one really the thing
Speaker 1: that's really changed about the world, and in particularly the
Speaker 1: internet powered world. That's a hard lesson to embed in
Speaker 1: your brain. If you started out a long time ago,
Speaker 1: which is it's so big, you'd be amazed what will work? Right?
Speaker 1: Things that twenty years ago sounded like insane tiny ideas
Speaker 1: and insane tiny niches turned into giant enterprises today because
Speaker 1: with six billion people online spending trillions dollars whatever it is,
Speaker 1: you can make a business out of the craziest stuff,
Speaker 1: and it is it never fails to surprise you what
Speaker 1: turns into a giant idea. I mean, for the life
Speaker 1: of me, I can't figure out how Pinterest became a
Speaker 1: thing for Can you imagine the first pitch on Twitter?
Speaker 1: And I are too old? Yeah, yeah, yeah, can you
Speaker 1: imagine the first pitch on Twitter? Right now? I use
Speaker 1: Twitter every day, as do you write? Well, can you
Speaker 1: imagine the first pitch which is like, well, it's short
Speaker 1: message servicing, but we're gonna take what people send back
Speaker 1: and forth on phones and posted publicly. Yeah, okay, thanks,
Speaker 1: next next, you know, like you know, you just and
Speaker 1: here it is, right, and now Twitter has its challenges,
Speaker 1: but it's still a twenty seven billion dollar company. It's
Speaker 1: a huge market gap, and the bed is somehow they're
Speaker 1: going to figure out how to monetize that and other
Speaker 1: than sell themselves to Google. So you often have to
Speaker 1: you know, I often have to catch myself thank you.
Speaker 1: It's the stupid tiny idea And then you think, oh
Speaker 1: my god. You know, like who knows the Internet teaches
Speaker 1: you humility? Humility if nothing else I've heard. I've heard
Speaker 1: many of VC say that, and I forgot which fairly
Speaker 1: well regarded VC firm publishes their lists every year of
Speaker 1: here's what we said no to, aren't we dumb? And
Speaker 1: it's like we passed on Apple, but we thought Cisco
Speaker 1: is terrible, and you know that sort of stuff. And
Speaker 1: those are real names from the list exactly, And for sure,
Speaker 1: anybody who's honest has that list, right, it's a random
Speaker 1: mass to what works and what anybody has a list
Speaker 1: of things where you're like, I passed on what, you know,
Speaker 1: like what was I thinking? Of course, because you looked
Speaker 1: at it and it sounded idiotic. And who's gonna wait,
Speaker 1: you expect people to pin stuff up that they've seen
Speaker 1: elsewhere and somehow that's gonna make money. Yeah, and you know,
Speaker 1: let let me give you an example, so of just
Speaker 1: you know, random luck. So, so, my wife and I
Speaker 1: three years ago decided that we needed to make a
Speaker 1: significant donation to our local children's hospital because we had
Speaker 1: never done it. It's a very important civic institution, and
Speaker 1: we just do these sorts of things. We say, you know,
Speaker 1: where should we send the money? Uh, my wife's one
Speaker 1: of my wife's very closest friends on the board. She
Speaker 1: sets us up with a meeting with the people who
Speaker 1: run research for children, including the guy in charge of
Speaker 1: cancer research. This guy makes his pitch. I see a
Speaker 1: lot of pitches buried, and I'm like, Okay, that guy
Speaker 1: is worth backing. So we give them like the it's
Speaker 1: like it's a million dollar donation or something like that.
Speaker 1: Given the money, and I'm like, but you know, look,
Speaker 1: I'm a venture capitalist, so I gotta ask who owns
Speaker 1: the I P And they're like, well, you know, it
Speaker 1: turns out there is this entity that you could invest in.
Speaker 1: So I throw some money in, right, Why wouldn't you like,
Speaker 1: because it's ammunotherapy and this guy and the and the
Speaker 1: and and and you know, we gave him money to
Speaker 1: pursue his research and go into human trials. But the
Speaker 1: pitch was so compelling that you were like, look, if
Speaker 1: if you're really going to your cancer here, like, surely
Speaker 1: I want to make a bet, right, So I make
Speaker 1: a bet. But I pitched this to my partners and
Speaker 1: I'm like, look, this is this thing. I know nothing about,
Speaker 1: nothing about this nothing. I've never made an investment, zero background.
Speaker 1: I really like the guy. I'm I'm making an investment.
Speaker 1: What do you guys think? They're like, you've lost your mind.
Speaker 1: You you're an idiot. Don't do it, but I did.
Speaker 1: Fast forward. They cured cancer. Okay, now, when you say
Speaker 1: they cured cancer, so this cured a specific type of
Speaker 1: so so so Mike Jensen's research at children. They have
Speaker 1: now treated thirty kids who were on death store with leukemia.
Speaker 1: In ninety five percent of the cases, these full remission,
Speaker 1: real remission for Is it just for that one? Yeah,
Speaker 1: these kinds of a couple of kinds of leukemia, full
Speaker 1: remission meantime. Meantime, the company gets reconstituted in this thing
Speaker 1: called Juno Therapeutics, and it's now worth six billions and
Speaker 1: your partners have no money, and well no, but they
Speaker 1: made a good They made a good they made a
Speaker 1: good venture capital decision. They have an expertise in that space.
Speaker 1: You know nothing about it. You've never made an investment
Speaker 1: in biotech. This is a random, idiotic bet based on
Speaker 1: an emotional response you had to a guy. Well, I
Speaker 1: was lucky at random luck. That was where we began.
Speaker 1: The conversation was with combination of skill plus lot, so
Speaker 1: there was a little bit of instinct. You saw something
Speaker 1: after look the whole I'm not a I love Malcolm
Speaker 1: Gladwell's writings, but I know a lot of them come
Speaker 1: with an asterisk. This was an outlier case where you've
Speaker 1: seen ten thousands of VC pitches and here's a guy
Speaker 1: that basically, this guy seems to know it's the real deal,
Speaker 1: and you basically went with it. And so I'm an
Speaker 1: investor in Juno Therapeutics at a very early stage. And
Speaker 1: a very early stage you may join the trace com
Speaker 1: uh you know group after all, for those of you
Speaker 1: who are in Fantasilicon Valley, it's a hilarious digression in
Speaker 1: the show. Um. And finally, my final question, which I
Speaker 1: asked all my guests, what do you know about your
Speaker 1: chosen field and let's call it investing and venture capitalist
Speaker 1: that you wish you knew when you began your career?
Speaker 1: Oh golly, uh, it's a question that provokes thought on
Speaker 1: a lot of people. So, you know, so the economy
Speaker 1: isn't money. I wish, I wish I understood better that
Speaker 1: the economy isn't money. It's people, right, explain that a
Speaker 1: little farther. That's interesting about people. It's about human capacity
Speaker 1: and capability, it's about human capital. Yeah, just like so
Speaker 1: you don't invest in a company, you invest in a
Speaker 1: group of human beings working together, and if you pick
Speaker 1: the right human beings who know how to work together
Speaker 1: in the right way, you know, the chances of success
Speaker 1: are much higher. And I think that just having better
Speaker 1: people skills, being able to read people better, being able
Speaker 1: to understand people that are, being able to understand their
Speaker 1: emotions better, uh, is you know, in investing, And I
Speaker 1: think in every domain in life an enormous advantage empathy,
Speaker 1: you know, just yeah, you know, just not like, oh,
Speaker 1: look at the spreadsheet, Look at the hockey stick. You know,
Speaker 1: the spreadsheet says it's gonna go here, but you know,
Speaker 1: but not noticing that those two hate each other, right,
Speaker 1: the two guys that just presented this plan hate each other,
Speaker 1: and they're gonna last fifteen minutes working together, like fifteen
Speaker 1: minutes after you put the three million in that they're
Speaker 1: going to be in some war and you're gonna get
Speaker 1: need to get rid of one of them, right, Like,
Speaker 1: not noticing that bad that that is that is a challenge. Nick.
Speaker 1: I can't begin to thank you enough for your time
Speaker 1: You've been You've been so generous. Give us a once
Speaker 1: over of where everybody can find you on Twitter or
Speaker 1: your website. Yeah, I'm an hour at Nick Hannahur on Twitter. Um,
Speaker 1: I do have a website. I think it's Nick han Our.
Speaker 1: You have a dash in the middle of Yeah, I
Speaker 1: think some some some other Nick Hannaur clown took you
Speaker 1: should be buying. I should? I should track that guy down.
Speaker 1: You should just be han out. You should? That should
Speaker 1: be your domain com. And then you know, we have
Speaker 1: my you know, I have a team of people who
Speaker 1: work on politics with me, and that entity is called
Speaker 1: Civic Ventures and it's very much like civil Ventures dot com,
Speaker 1: civic ventures dot org dot org and uh and our
Speaker 1: goal is to be do what we do in the
Speaker 1: financial in the in the in the business world, to
Speaker 1: be uh, you know, sort of disruptive in the civic sphere, right,
Speaker 1: creative disrupt creative destruction in the civic sphere. That sounds
Speaker 1: that sounds quite fascinating. So thank you again for being
Speaker 1: so generous with your time. Thank you for those for
Speaker 1: those of you who are here with us to the
Speaker 1: ends you and you're enjoying the sort of conversation and
Speaker 1: if you've toughed it out for this whole time, you
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Speaker 1: of our UM shows. You're coming up on a year,
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Speaker 1: six on the list of shows we've done. Be sure
Speaker 1: and check out my daily column at Bloomberg View dot com.
Speaker 1: Follow me on Twitter at rid Halts, or go to
Speaker 1: my blog at results dot com. I'm Barry Results. You've
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