a16z Podcast - a16z Podcast: M&A and Innovation, Inside Out

Episode Date: November 17, 2018

with Stephanie Cohen and Martin Casado (@martin_casado) As chief strategy officer of Goldman Sachs (and former global head of financial sponsors M&A), Stephanie Cohen has seen it all when it comes to the ins and outs of M&A. And what it means to innovate from within, especially at a large company. Given Cohen's unique vantage point and nearly 20-year tenure at Goldman Sachs, Casado -- himself a veteran of both an acquisition (Nicira) and big company innovation (VMware) -- interviews Cohen in this episode of the a16z Podcast, on the ways that big companies navigate innovation... both inside and outside. How do they make the decision to build vs. buy? How does one diversify perspectives? And so on.  This episode is based on a fireside chat that originally took place at our annual a16z Summit event in November 2018.

Hi, everyone. Welcome to the A6 and Z podcast. Today's episode is what Stephanie Cohen, chief strategy officer at Goldman Sachs, in conversation with A6NZ general partner, Martine Casado. The discussion, which originally took place at our annual A6&Z summit in November 2018, covers everything from the ins and outs of M&A to the always hot topic of build versus buy, as well as other things top of mind in big company innovation. Okay, great. So thank you so much for joining us. So broadly we're going to be talking about innovation in large companies. You know, you can kind of frame the problem in two ways.

There's inorganic and there's organic, right? I mean, there's not a lot of options at the most macro level, and Stephanie has been involved on both sides. She's done almost two decades of M&A, and now she's the true strategy officer of Goldman Sachs, so involved in strategy and innovation broadly. broadly. So I thought to start off, it would be great because the audience probably isn't as familiar with your background as, for example, I am. So if you could kind of give maybe

the long form of your bio, and then we'll kind of jump into M&A first. We'll talk about that, and then we'll kind of streamline that into kind of more internal innovation. Cool. Great. So I started at Goldman Sachs almost 20 years ago, so out of preschool. And it's the only full-time job I've ever had. I started in our M&A group. I ended up. then transferring to our industrial group. I ran our general industrial business. I spent seven years on the West Coast doing non-tech M&A, so the least cool person in Silicon Valley doing non-tech M&A,

flying to Portland and Washington and Los Angeles, for that matter. And then I started and ran a new business inside the firm, which was M&A for financial and strategic investors. So that was included venture capital, but it was also private equity, pension funds, stopping wealth funds, family offices. and then I was asked to be chief strategy officer, and that I started in January.

All right, great. So to start off with, maybe we'll start with the M&A side. You know, having been in a large public organization and kind of struggling with this, I think M&A was kind of one of like the hairier topics because there's always this checklist, do we do it in-house, we're not doing in-house, this and that. So I thought maybe we provide some framing for like at a high level,

how do you think of the tension between kind of M&A versus kind of internal or organic? Great. I don't think about it as tension. I think about it as the way that we think about it is that we want strategy and M&A to be in the same place. So instead of having a group of people that goes off and does strategy and a group of people that goes off and does M&A, and by the way, incentivizing a group of people in the M&A group just to get deals done, our view is that they should be in the same place. And the idea really is, is you need to know what your strategy

is. So first you have to decide where you want to go, where you're trying to head. And then the question is, do you do it organically or inorganically? And I don't think it's in either or, it's a both. And in many cases, when we're looking at it, we look at opportunities and say, if we could buy a business, what would that business be? And therefore, how much would we ultimately be willing to pay for that business? And is it available? And if it wasn't available, how do we do it organically? And we kind of run those things right next to each other. And in many cases, as we're going after new initiatives and one example would be

we recently over the last couple of years has gotten into consumer banking through a brand that we call Marcus and if you look at that business we've actually done it both ways so we've bought a couple of businesses but we've also built it organically and I think that mix of doing things together

in exactly the same place is what's helped us succeed so for the M&A side I think the broad view has been that it almost always fails right like this is kind of like the academic view certainly there's a number of examples for that my experience has been quite different actually so was acquired built a large business and so i thought maybe it would be great to hear your thoughts on like are there like the right preconditions for

success or are these exceptions is this survivorship bias so so one thing on the studies when i first started in m&A i started reading those studies and they were too depressing for me so i stopped because i was an analyst i've been doing MNA for 20 years for other companies and now responsible for doing it for us. And when I've seen companies do MNA well, and by the way, I have seen, I have helped companies buy businesses that they've ultimately ended up selling. So I've certainly seen some of the round trip. When companies decide to do something for strategic reasons, when everyone gets together and decides, it's the right thing to do. And by everyone, I mean, it doesn't mean everyone has to agree

because getting to consensus in some of these situations may actually not be the right answer. But what I mean is the people at the table are not just the deal, guys and gals. It's also the people have to integrate the transaction. When both of those people are at the table from the beginning and understand what they're buying, understand what it's going to take for the acquisition to succeed, I find you have a better chance of it succeeding, not because they're always right, but because they're there together as a team. The second thing, and this happens more with more innovative businesses than more old line,

industrial companies, a lot of times you're buying the business not just for the product or the technology, but it's for the people. And being humble enough to actually leave those people alone to continue to innovate and succeed. And in some cases, the people that you have bought in a much smaller company become the leaders in the large organization. It's recently, I've been working with a woman who was acquired by a very large company, and her entire tech team has basically become, for a much larger organization, the CTO, the head of marketing, all of those people from a much smaller company have now taken over those positions at a larger company, and that's been a recipe for success. And as you've made this kind of evolution, like earlier

in your career, there's kind of more mature markets, which in my experience is largely about kind of finances and cash flows and things I don't know very much about for sure. As you get more into innovation, a lot of the acquisitions happen, say pre-revenue, really early revenue, and it's much harder to value the assets at this point. Like, like, strategic value is enormous, because if you don't do it, maybe you'll go out of business, so that's a big number, but on the other side, like, it doesn't really make sense just from the numbers. So, like, how do you think about putting a dollar on, like, the value for a company or an M&A in these kind of more strategic and early? So a couple things. You know, we deal with this question,

not just an M&A, but also on the organic side, because if you think about things that we're building internally, they're definitely pre-revenue. They're like way pre-revenue. They're years and years and years away from pre-revenue, and they may never get there. And so this question of how you value that is not just a question for the M&A side, but is also a question on the organic side.

And what I find is that in most big companies, people do want numbers. And so you do what you'd expect, which you learned if you went to business school, which you do the really long DCF analysis to get to a place where something actually has revenue and actually has earnings. And then you get yourself in a lot of trouble

when that gets to a single answer. It's like $1.25 billion, right? That, inevitably that's wrong. But what the math teaches you is what do you need to believe in order for it to succeed? So do you need to believe that the company is going to grow

at 100% on the top line for the next 20 years? Probably not happening. Do you need to believe that it only needs to grow at 10% and down to 5, and that seems more rational? And that type of conversation,

even if you get into a room with a company or with executives that haven't dealt with these higher growth businesses, that's a debate that you can have rather than is it worth 1.25 or 1.4. So I have kind of a funny experience with this, which is, you know, Nassir was acquired for a dollar amount much higher than our revenue

in like very high multiples. I actually found that that was a huge asset post-acquisition because it's one thing to acquire a company. It's an entirely different thing to digest it. I think this is a real hard thing to do, and I'd like to talk about that next. But having a high price tag on it actually really helped with a commitment to do that,

just because it was so material. So I don't know if this is a totally self-serving work way to think about it, but I'd like to argue that high valuations are actually pretty good in this. But I'm wondering if this matches with your experience. This gets to everyone being at the table. So if you're going to buy something for a couple million dollars, you probably don't have very many senior people at the table, and therefore who actually has a vested interest in the success.

Rather, if you buy something for something that is a lot more zeros than that, there's a lot of people at the table and there's a lot of people who have decided to do it and whether they all agreed or not at that valuation they're going to they're going to get behind it so there's just a higher cost to failure and when there's a higher cost of failure people tend to focus i don't think it's a reason to get people to pay more but um when i was on the when i was on the the sell side it raises this there are these deals where there's kind of no value meaning it could be worth anything depending on how much you need it And even more importantly, how much you think someone else needs it.

When I was on the South Side, my favorite thing was to find the buyer who not only wanted to win, but was afraid to lose. When you had the guy or the gal who thought that their biggest rival was going to buy something, that was how you actually got them to pay a lot. So I try not to be that person now. So this is great from the South Side, right? Maybe let's talk about it from the buyer's side, which is like, you know, a lot of acquisitions, and especially merger.

do fail because it is difficult to kind of digest something that large, right? And so, like, how do you think about kind of the preconditions for a successful acquisition post-sale, right? And you talked a little bit about that from, like, you know, being humble about acquiring the team, et cetera, but, like, not being in a reactive state also seems so, like, you know, I mean, how do you think at a macro level when it comes to strategy making sure they're successful? Yeah, the – so it's helpful if you're right at the beginning, meaning you – Okay.

You understand, one, it's helpful if you don't end up, you haven't bought a big innovative business and the market turns. But the second thing is you know what you bought. And what I mean by know what you bought, that's particularly important in the enterprise space where it's more confusing, right? So you're a company, you sell a lot to a certain sector, and then you buy another product that you think goes into that exact same sector, and then you actually find out that the sale is made by two different people for two totally different reasons,

and there's actually not the synergy that you thought was going to. going to be there. And so being right about that, I find is really important. But even if you're wrong about that, then the question is what happens? And so taking a group of people internally who have experience with M&A, who know the internal business, who know how to get things done from your internal engineering team, from compliance, having an internal team and pairing them with the company I think it's really important. You know, we talk about it a little bit as the bat phone. Like, who's the bat phone to the person inside corporate to actually get something done?

Because those first 100 days tend to be really important for someone who comes new to a job, for a new company that you've bought. And what can really kill you is if you're sitting off trying to get stuff done, you can't get access to the internal. So if you've bought something where you want to leave it off to its own devices, but you want to make sure that they don't sing. you've got to give them a bad phone. Do you think there's a responsibility for like the banker

or even the investor in these, like, or is it kind of one of these? Okay. So you haven't even let me get to my whole strategy point. So when we talk about strategy, I'll talk about clients being at the center of everything we do. And I don't think we'd have very many clients if all we cared about was getting deals done.

So I think if we'll do my, you know, my pitch for being a good investment banker, but if you're a good investment banker, you understand your client, you understand the types of things that are going to work for them or not, and you help them when it's not, when it's not working. I think I wanted to kind of probe, which is there's this adage at least in tech, at least in Silicon Valley, that like you go after the premier property. And like, some people believe that's the case because it's the best thing you have. And then there's this other view that this is overvalued.

So you actually want to be in the number two either as an investor or that's what you want to acquire because let's say you own distribution or whatever is maybe there's value. So how do you think about this question of like premier property versus like the number two and like how that fits within the strategy? Yeah, I think it depends. I think there are certain places, there's certainly some industries where it's more of a win or take all, winner take most. And getting the premier property really matters.

But if you're a big company and you have access to, for example, clients and distribution, maybe the party that's a number two is a number two because they don't have access. to that. And so then they have the same product, but they don't have access. So then you should buy the number two and not the number one. And maybe the number one has a much better product, but it only takes a small tweak to make it better. But when you're going after product and technology, my hunch is that paying for the number one makes sense. I mean, I think in general, like this question is terrifying for a lot of business leaders. Like, it certainly was for me. And I remember thinking, like, buying a company, when you're running

a large business, it's like, one of the few decisions you really have to live with. Like, a lot of the other ones, like, you kind of work your way out of in some way or another. But these, and so I was petrified for, like, the first kind of few M&A deals that I was involved in. And so, you know, you've overseen hundreds of billions of dollars worth of these deals over, you know, two decades. So, like, how do you prepare or maybe prepare CEOs or business leaders for, like, the mental wrath of doing M&A? Yeah, you can't hide when, you know, you close a deal and you own it, right? You can't hide from the outcome. One of the things that I've seen companies do, which I think works,

particularly for large businesses, is they do a red team, green team at the end, at some point in the process. And what I mean by that is you get to a point where you've decided what your strategy is, you really want to buy this business, know what you want to pay, and you're there, and there's nothing that's stopping that train. And if you stop and actually have a group of really smart people internally and maybe with your external advisor, say, we're going to show up for one day, for two hours, and we're going to make the case on the other side.

And in the process of making that case, I've seen, by the way, very large companies change their mind and avoid mistakes. But I've also seen them, they figure out what are the pinch points for where there might be failure? And it helps to embolden you to say, we understand the risks, we know what we're doing, and we're going to go forward,

but we know where the mistakes may happen. I mean, you're now moving into a separate role, which is on innovation, which is fantastic. I'm wondering, like, do you think that this is going to kind of impact your views on M&A now that you're kind of in, like, basically the driver's seat for innovation? The, you know, everyone, when I first started in the job, everyone said, oh, Goldman Sachs must have been to do a ton of M&A because I put an MNA banker in charge of strategy. Are you open for business? Yeah, exactly. So I kept a couple of. clients on my old job, mainly so I wouldn't have this real itch to do M&A and then just do

M&A because I felt like, oh, my God, I haven't done a deal this year. I have to do something. So no, Goldman Sachs is not doing deals just because Stephanie really, really likes doing M&A. So that's one. The second piece of this is, you know, because I've just recently started in the strategy job and we have a new CEO, CFO, we are really more focused on the strategy. side of the equation than we are on on the M&A side of the equation. And what I mean by that is that we're just figuring out exactly what our long-term strategy is going to be. We've been around for 150 years. So certainly we have a strategy, but we're really, you know, we've talked about this publicly. We're really looking at every business from a front-to-back

perspective, all of the end markets that we're in and not in and figuring out where the best places are for us to compete where we feel like we have real superpower. So interestingly, even though the world believes that, oh, we must be doing a lot of M&A, I've actually spent more time thinking about strategy and innovation than I ever did in my old job. And just before we get into that, what type of M&A does Goldman Sachs do internally, or focus on internally primarily? So recently, most of our M&A has been in the consumer business, which is a newer business for us in our investment management division on the asset management side.

And the reason for that is that you can do smaller, either more, tech-focused or tuck-in acquisition. So just as an example. So we've been building a consumer business. We bought the GE deposit platform. We bought Clarity Money, which is a personal financial management tool. And we bought Bond Street, mainly that was an aqua-hire. We basically hired the people. And we bought final for some of the IP and for the people. So that is kind of the full spectrum of how we're going to think about M&A, which is buying things that are pre-revenue product, buying things that have revenue. That would be GE deposits. And then buying things more for talent or for IP. And then on the asset management side, we've done

again, smaller, more tuck-in asset manager deals. If you go way back to some of the deals we've done, we also bought Jay Aaron. And, you know, one of the, this whole idea about being humble, our last CEO came from Jay Aaron. So that was, that was an acquisition. Actually, our CEO and the CEO came from, from Jay Aaron, which was a commodities trading business. So that was a much, you know, what the people from that deal would say, they started in the garage, right? And in the basement, and they ended up in the top of the building. Do you have a geography bias when you do M&A? I mean...

So my entire team is based in New York City, if you... So there you go. We're working on this problem. The answer is that we have... We are global business. We have big business in Asia and in Europe. We tend to be relatively New York-centric from an operations perspective. And again, I talk to you about how we're transitioning our management team.

You know, as we're doing that, I think there's more... more of a need to spend some time internally. But when I first started my job, I actually went to Asia in the first couple of months because it's really important. It's really important to our business. It's really important to the future. And I thought it was important that they see me. Fantastic.

All right. So now you're in the chief strategy officer role. You're not a traditional background for this type of role. So I was wondering if you had any insight into kind of the selection process and kind of their expectations. So I was totally surprised. so much so that when they called and asked me for the to do the job,

I was at home because I was traveling all week and I was about to go to the airport, and I paused for long enough when I was asked that the person asking me said, you know it's a really big job. I get it. I know what my answer is supposed to be. I just wasn't expecting the phone call. So I think the reason why

I'm going to see this. Historically, Chief Strategy Officer Goldman Sachs really did special projects. So the last person is now the CFO and started and helped build the Marcus business, there was a desire at $100 billion in market cap for us to build a world-class strategy and M&A function, and the view was that I had seen that, given my previous experience.

And then I also had built a business inside Goldman Sachs from a clean sheet of paper. We like to call it startup inside Goldman Sachs, and not many people had done that. And so when I got the job, they handed me a white sheet of paper and said, go tell us what your job is. Do you actually believe you can do startups inside big companies?

I think you can do certain things. inside big companies. So I'll talk to you about what we're doing and you'll tell me. So when I first started, we announced a thing called Accelerate, which was the idea that we thought the people of Goldman Sachs had really good ideas, but they were having a hard time getting them through our organization. So we went out to all 40,000 employees and said we're open for ideas. And so we got almost 1,000 ideas. And that was a lot more than we expected. and we developed a system, and we got them down to about 150, and we had them pitch, and we've gotten them down to 10 to 15 that we're going to fund. So we're going to figure out if you can

really do startups inside Goldman Sachs. But what we learned was that there are businesses that are critical to what we do and can only be built inside Goldman Sachs, meaning they're directly related to everything we do every day. They're directly linked to compliance and our balance sheet, and building them outside is going to be too difficult. But there's a whole, there's then levels of things that we have no business doing inside Goldman Sachs. So I think companies get in trouble when they try to do things that should happen externally internally. And what I mean by that is I think there are certain types of talent that have no desire to work inside an organization that has 40,000 people that's highly regulated and is publicly traded. And so we need to harness

those skills and that intellectual capital and they're not going to harness it inside. And those types of things have to happen outside and which is why we need to partner with the venture community with accelerators with incubators but we shouldn't be doing that stuff ourselves awesome so i want to dig into that a little bit more so if you know and this is kind of the issue i always had with kind of internal startups which is like if i had a founder come to me and say okay listen i have one customer and i'll always have one customer i'm going to work with that one customer to create my product and like that's going to drive everything including the economics like I wouldn't be convinced that a, you know, they're solving a real problem, they've got a

product of market, it's almost like economic Darwinism, you know, has, you know, been brought to bear on this problem, right? And so how do you, you know, how do you provide an environment where you're actually confident that the internal efforts are going to be solving real problems versus being these kind of, you know, ingrown, in-bred, in-house kind of, kind of efforts? So some of that is your question on buy-verse build. So if you're competing your own internal projects with either buy and by buy, I mean just buy the product from a software or other perspective or buy, meaning buy the company, if you're doing that in a relatively systematic way,

I think you're avoiding some of those problems. The other point is there are certain solutions where did we build the exact perfect thing that would have been perfect for everyone else? No, but we built something that was perfect enough for us. And so that's the kind of, it's core to us, it's part of our DNA. We want to do it. And I'm sure we'll get to, you know, we have a long history of having built a lot of stuff. Internally, we're trying to get better.

Can I put a little salt on that wound? Yeah. I mean, having had a lot of expansion to Goldman Sachs, and actually, I view Goldman Sachs is one of, like, actually, like, the leaders in tech, like, strictly from innovation. And so, I mean, I spent probably 10 years in various projects. And one thing that was very unique in addition to being such a leader. and technology was, like, they built, you built everything, like, from, like, your own white box switches to, I remember, like, you were the only big ESX customer that didn't use V-Sphere. Like, I mean, it was, like, really one-off.

And I actually think that, like, within the startup community, there's this view that, like, Goldman Sachs is, like, the one that's not like the others, even including, like, the big banks. And so, like, how do you manage that tension of, like, do we kind of build this very unique, you know, Goldman Sachs-only thing versus kind of the broad, you know? It's a good question. So a couple things. So history, when I started in 1999, we had just stopped using the Word program that we had created for ourselves because Microsoft Word.

A text editor? Microsoft Word didn't work for us internally. It does now, but that's okay. So that's where we started. So the way we're thinking about it is there are certain things that are more commodity or exist, meaning the products exist out there. they work great, we should use that. We are using that. And one of the things that we've done in the past, which has not been great, is that we've then customized those products. So we've tweaked

the things that are available. And the problem with that is that you stop getting upgrades when you tweak. And it's very hard on smaller companies when you do that. So we have a rule now against doing that. So I hope for that makes people feel better. We're going to stop the tweaking of the stuff that's generally available off the shelf. There are things that we believe are areas where we're not serving the customer well. They're really solving an unmet need for us. Our tech guys will tell me that's more and middleware for us. We're going to build that stuff ourselves. We're open to ideas, but we're going to build that stuff ourselves. And then there's another layer. And this is what I was talking about a little bit before, which is sometimes you just

don't have access to the talent or the capability. So there are highly innovative solutions that we do think are differentiated, but we are also going to get those from the outside. And, you know, as I was talking to our team, before coming here, they mentioned to me pin drop as a great example of something that we thought was innovative and differentiated, but we were not going to build ourselves. Fantastic. I think rules around this are great ideas, like, you know, like don't build your own thing or whatever. But like, in my experience, like organizations probably change a lot slower than the rules change. And in particular, and I've seen this a lot with like the large being actually particular outside of Goldman Sachs where like there's an effort to do an internal

project and like it's like the cool thing for a few months but then like the white blood cells come out they kind of come in and they like you know and it has a slow death and whatever like have you thought about how in addition to the rules you actually protect these internal efforts from the momentum or like the the broader momentum of the organization so a couple things one when I first started I spent a lot I still spent a lot of time but I directly went to Alicia Weisel, who is our CIO, and now George Lee, who's here, is co-CIO, and we agreed that there was no daylight between firm-wide strategy and tech strategy, meaning there was nothing, like the tech guys are off doing that, and firm-wide strategy wants to do that, and then when firm-wide strategy

wants to do something, you can't get any tech resources, so no daylight, meaning that we don't, again, we don't always have to agree, but then we have to debate what the priorities are going to be. And so it helps a lot of that problem. The second thing is you do have to let certain experiments just run on their own. And so we have an R&D function inside of engineering, which is a good place for that. The Accelerate Team, which is in Frontwide Strategy, is a good place for that. But we basically have pockets where people are protected. And by protected, I mean protected from budget issues, protected from the people whose jobs that they're impacted. because you're absolutely right.

This is the typical innovator's dilemma, which is certain businesses are easier for us to build because they're separate and apart from what we do on our do every day, which, again, this is more the consumer business. But another thing that we're focused on that we've talked about is cash management and payments. Well, this gets to the very core of what we do every day. It's our core investment banking clients.

It's core to our internal payment functions. And so protecting that team is actually significantly harder than protecting a team that's just doing something totally. Right, because everybody has an opinion. This is such an issue, actually, one of the banks, I feel like I've seen the entire gradient of solutions to this, and the most extreme I've ever seen, like, the bank

literally created a new legal entity. They had a new, like, building, and then they hired people into this building. This was around this cloud effort, because Core IT was going to kill it, et cetera. It actually turned to actually be quite successful, except it probably grew, you know, at half the pace.

It normally would if it was internal and had access to the internal resources, et cetera, I kind of had all the problems like a traditional startup has with access to the customer. So have you thought about to what level you can provide isolation to these efforts and still give them access? So the way that we like to think about it is we like in places where we're worried about that, we try them to treat the internal organization like a customer. So first best customer, right? So instead of treating them, so instead of creating conflict, you say,

we're going to build this. How would you like us to build this? To your point on do you create things that are truly providing good customer service or you just because you have a monopoly? So it's the best way to do it. But honestly, the only way to really do it is for the top to be focused on this. So I'll just give you an example. So David took over recently at our very first meeting with the senior executives. He said that we have to get to yes faster and we need to learn to fail. And that may not sound like not sound like genius. But, to the Goldman Sachs organization that's been around for 150 years that prides itself on being the best at everything.

Failure is not something that's super easy inside the halls of Goldman Sachs. But if you teach people that failure works and is okay, then they're much more open. Have you talked about how you do that without abdicating responsibility or abdicating ownership or accountability? So the thing I talked about, the Accelerate idea that we talked about one of the benefits of it is that we're going to fund some stuff that fails, for sure. And if the team does a bad job, the team is going to fail.

And so we will make sure that that happens. But if the idea fails, but the team did a great job, then we're going to celebrate that. And so it's only by example. To be perfectly honest with you, it's going to take us a while, because I think you've got to demonstrate that if you do a good job, but for whatever reason, because lots of startups fail, your idea fails, it's okay. And do you maintain some metric for internal success? for innovation? Is it like a, it's a line item? Is it, you know, the number of users using new

things? Are you still trying to figure this out? Because we're investment bankers, we have to do crazy math around this stuff, right? Yes, exactly. So we, we try to, we've tried to institute what we term an ROI framework around innovation. And honestly, we're just, we're just working, we're just getting started. Okay, sure. So more one more thing I wanted to touch before I want to talk more broadly about kind of how you view the role. So, you know, you're doing your internal things, but you've also mentioned that you want to work with partners. And I think one of the macro trends that's actually impacting technology adoption is vendor

consolidation, which is like if I talk to CSOs in particular, so CISO today can't answer all the emails that come in, let alone evaluate the product, let alone make a good decision, right? And so there's almost this tension between saying, okay, I want business efficiency of working with a few partners versus I want to kind of comb the landscape of innovation, talk to as many as possible. And like, have you explored kind of this tension as you move away from just doing internal efforts to working with partners? Then how can you trade off between, you know, this is Cisco and they do everything versus, you know, here 50 startups who knows what they do? So one of the benefits we have around innovation is that we are investors. So we invest on the

balance sheet. We have funds where we invest across the spectrum of size and stage of companies and one of the benefits of that is some of this dialogue has a dual purpose right so there's the what makes sense for us from a internal innovation perspective and by the way if we don't it doesn't make sense for us to use it or there's no use for it inside the firm there may be a place for us to invest inside the firm and then oh by the way we also have an advisory practice that cares a lot about building relationships with new companies so i think some of that inbound inquiry is less destructive for us because we have all these places where they can be potentially relevant to the firm, whether it's an investment banking and asset management and wealth management. We want the companies coming to us. We want

new and native companies calling Goldman Sachs. So it's a little bit less of an issue. Certainly our tech and engineering team has to deal with it. The second thing is if you have a perspective around it's not buyer build, it's both, then you are going to force yourself to deal with individual vendors in a lot of cases because you are looking for very specific solutions. Of course, like every big company, we have both. We have very big vendors and we have very small ones. But we are quite open to dealing with smaller companies. And one of the benefits of dealing with smaller companies is you do have an impact on how they're going to actually innovate. Right. It's actually interesting, right? So you guys do do investments. Actually,

you've invested alongside us on a number of deals, including barefoot, which I'm actually pretty close to. But I've almost always viewed a Goldman Sachs investment company as purely financial, right? But now there's an opportunity of doing strategic investments. Like if a vendor makes an investment, you're like, oh, they're probably lining with their business and maybe they'll do an M&A later on. Like, have you turned that corner that now your investment committee is something that, or maybe you were there all along that is actually aligned with your role and your internal innovation strategy, or are they still pretty separate? So we have actually a long tradition of

investing on the balance sheet in strategic investments for the strategic investments and some of it some of them are companies where we're going to use their product some of them are companies where it does not make sense for us to own the whole business but we are we want to be a key strategic partner there have even been places where we have built businesses and spun them off we we try to take a holistic perspective on this there are though investing businesses that have nothing to do with the balance sheet in strategic investing and they they're fiduciary great so i've been kind of drilling down to some specifics it'd be great if you could kind of provide kind of like a broad view of your vision for the role and kind of some efforts that you've kicked off

and and just kind of bring it up a level so so started in january we knew new executive so we won't go through the golden sax grand vision but in terms of where i've been focused it's basically on three things one is client centricity and that sounds really obvious but as a firm we're actually organized in a quite silo-divisional way. And, you know, the way that we talk about ourselves has not always been with the client first. And so one of the first things that we decided to do was really focused, make sure it was clear that we were focused on clients. So clients being at the center of everything we do and really looking at everything through that lens, whether there are corporates and governments, institutions, or individuals. And when you take a really

complicated investment bank and you wipe away all the complexity and just say, all I care about other clients, it makes it a lot easier to think about what the innovative ideas are. The second thing is innovation, which I talked about through Accelerate. And then the third piece is around diversity. And by diversity, I don't mean the traditional view of diversity. I mean diversity of thought, diversity of ideas, diversity of geography, diversity of ways of doing business, diversity of ways of finding M&A and investing ideas. The idea really is that we need to look at things from a new perspective. But one of the things that we are running out of my team, which is related to this, is launch with GS, which is our commitment to invest $500 million

in women founded, owned, and led businesses, and to invest client capital in women managers. And the idea behind that was actually quite simple. We felt that women were not getting the capital that they needed or deserved, and that it really meant that they were a good investment. So there's a lot of capital out there, which many people know, but in a place that's being underinvested, we thought there was a really good investment. opportunity. And as you build out your organization, maybe you can talk a little bit about the team structure, because this is one of these unending quagmires that nobody's ever figured out.

Like, if you're on top of it, maybe you drive too much influence and then you don't get the innovation. If you're an influencer, then maybe, you know, nobody will listen to you type things. So how have you thought about doing the organizational structure around this? So when I started the strategy team at Goldman Sachs, the 40,000 employees was five people. So we built the team. And actually not by design a little bit by accident, but because I wanted diversity of thought,

we've actually built a very diverse team from background and just where they've come from in terms of experience. So it's not all a bunch of investment bankers that worked in financial institutions. We have plenty of those, but we also have people of really broad backgrounds. The second thing, which is where we started, which is that M&A and strategy were going to be together,

meaning that we weren't going to separate M&A and strategy that they needed to be together and that are investing on the balance, on sheet was going to be done also alongside us, meaning there's this idea of should you build it, should you buy it, should you partner. And so all of that decision making was going to happen together. The other thing we decided, and this was advice I got, I think I still agree with it, is that divisions should be responsible for their own strategy. So you weren't going around and telling people how to operate their business, but you were setting a broad strategic objective. Clients are

at the center of everything we do, innovation, diversity. And then there will be places. where you're building a new business or you need cross-divisional collaboration, and so that's where we get involved. We try to leave divisions to their own devices, however, we try to be helpful. So in places where we think there are new ways for us to help divisions drive their strategy, I'll send actually generally a more junior member of my team down into the division and basically offer their services for free, and they find it incredibly helpful, and it helps them build a relationship.

and what you find is that you get a lot of phone calls for people to ask your help. But one of the things I say when I first started, if you're the CFO of Goldman Sachs, you get a calendar. People know what committees you're on. People know what you're supposed to do. No one knew what the chief strategy officer of Goldman Sachs was supposed to do because we never really run it that way. And so that's what we did the last eight months,

which was we taught people when to call us. And the idea was don't call us when your revenues are off by 3% and you're just trying to tweak your business model. call us when you're trying to fundamentally change how you're serving your customer when you feel like you have a new, exciting idea or call us when you're doing brainstorming around what your five-year plan is.

You know, I've seen innovation used to solve all sorts of ills, like maybe in the most pernicious case, it's like, oh, here's someone that's not very happy, why don't you go work on an innovation project and try and, like, you know, for whatever reason. It's a common thing. You know, otherwise, it's like, you know, the company isn't doing very well. Like, maybe let's innovate and that'll solve the problem.

Other ones is like, here's a very specific problem that we need to solve, right? Like, how do you, at the highest level, think about prioritizing what you work on? I mean, the way that I hear you describe it, I love it. And I actually love this tension between, like, like, you come from an MNA mindset. It's almost like this free market thing. But, like, there's a lot of kind of organizational impacts that have. So, like, you know, as the environment shifts and it will, how are you? you're thinking to think about how you prioritize, which efforts to fund, which efforts to kill.

Yeah, the way that we're focused on, focused on it, but we're still, we're still working through it is where do you want to, where do you want to be? So where are you today? So where are you today? We also, we always have to do the math. Where are you today? What is the, if you look at all of the growth plans that exist, everyone's plans, where does that get you to in the next three to five years? And how big of a delta is that from where you actually want to be? And in a regulated actually, it's pretty complicated because you have strategy, you have finance, and then you have regulatory, all three, which you actually have to figure out to get you to the promise land of where you want to be. But if you don't have a perspective about where you want to go,

yeah, then you get stuck in like the individual details that are teaching you how you can grow a couple more percent when you're missing, when you're missing the big picture. So we try to, we try to focus on where we want to go. And then the other place is there's a lot of really important things that have to happen every day. So you talked about innovation being a vacation, innovation for fun, right? So you could get to a place where you actually distract the whole organization because in an organization of tens of thousands of people, there's a lot of people every day who just have to be with their clients execute. And they need to have fun doing that and not feel like they're not doing the fun stuff, that all the fun stuff is the cool innovation

in the corner. And, you know, part of, again, this accelerate idea was around, giving people the opportunity to do that while still allowing them to do their day job. All right. All right, listen, we only have a couple minutes. So one capstone question. So not everybody here knows that you were a competitive figure skater, which is rad.

I think that's fantastic. So I started skating when I was six, and one of the great things about skating is there's nothing harder than, like, the audience in front of you, like the judge is behind you and you in the center of the ice alone, right? So there's nothing else that ever feels like that. So it was a really good learning experience. But one of the great things about skating, which you only learn as you get older and then you read

a thousand books about grit and everything else, which is one of the things about skating and a lot like gymnastics is you fall a lot, like a lot, meaning like every time you're learning a new jump, you're like spending like the entire time like on the ice, like soaking wet, coming off like pads all over the place so that you don't injure yourself. And so what you learn is you learn to get up. And so when you spend half of the practice session on on the ground, you learn, you learn to get up and you learn that failing, that the only way to learn is to fail. And again, when you're performing, you know, it doesn't always go perfectly and sometimes you fall, but that doesn't mean you're not going to win. I got very early. I actually

won, by the way, my parents tell me I would have quit figure skating except for I got a first place trophy in my very first competition. So my parents are like, oh yeah, that's it. Game over. I keep doing this. But pretty young, I actually, I messed up in a, you can, like, I could still see it. I messed up in a competition, and I still won. And it was because I, like, you couldn't tell, because I just kept going. And so that's what you learn.

Learn to keep going. Well, thank you so much for joining us. Please give it up for such a fantastic. Thank you.