Big Technology Podcast - The Economy is Fine?, VC Funding Declines, Non-Negotiable Expectations

Episode Date: April 14, 2023

Square co-founder and Invisibly founder Jim McKelvey joins Ranjan Roy and Alex Kantrowitz for our weekly news recap show. We cover: 1) The state of the economy and markets 2) Fears of a credit crunch, or is it a credit tightening? 3) The state of the commercial real estate market 4) How commercial real estate's struggles impact small and regional banks 5) The decline in VC funding in Q1 6) What is 'dry powder' anyway? 7) Reflecting on Uber again 8) What is AutoGPT? 9) Regulating AI 10) Sell your data for money? 11) The Square reader's founding story 12) "Non-negotiable" expectations. ---- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [e-mail]

Welcome to Big Technology Podcast Friday edition, where we break down the news in our traditional, cool-headed, and nuanced manner. I am joined this week, as always, by Ron John Roy. Ron John, welcome. Hello. And we also have a very special guest, Jim McKelvey, friend of the show, co-founder of Square, and founder of Invisibly is here. Jim, welcome.

Thank you. It's going to be fun. Yes, it will. So you are also an independent director on the Federal Reserve of St. Louis. I'm currently the chair of the St. Louis Board of the Federal Reserve. Okay. So that gives you a great amount of perspective on what's going on in the economy, which is awesome because I have no idea what to make of this and I don't think a lot of people do. So here are just a couple of factors that we're dealing with. We have inflation that's high, close to 5% core, which is double what the Fed wants. Yep.

Yet the S&P is rising. It's up about 7% this year. We have banks failing. Anybody who listens to this show knows that well, and the Fed is continuing to hike rates. And then, of course, we have slowing growth, but we're still growing as an economy. And I put this all together and I say, huh? So I'm just kind of curious what you make of all this and how people should be thinking about it. I honestly think things are fine.

I mean, I've been in the meetings. You have a very smart, very dedicated group of economists and central planners and central bankers who are doing as well as we can, given we had to jam a couple extra trillion dollars into the economy to stop a global health crisis from cratering the world economy. So let's not forget, you know, kind of that everything was great. And then we had to shut off the economic engine, not just of the United States, but of the world. world and that in doing so, we cause this, you know, sort of one-time spike. And that's, that's sort of what's brought us to where we are. Now, I say sort of because we don't know precisely the effects of it, because we've never done it before. Like we've never taken in human history a functioning world economy and shut it down for health reasons. But that's exactly

what we did during COVID-19. So uncharted territory, but from within, from within the Fed, I think it's going pretty well. Like, I disagree with some of the decisions that are implemented. I agree with others, which is kind of how it should be. Like, we don't want unanimity. You want a bunch of people like me and the people who matter. I don't matter. I chair a regional Fed board, but we report in the Midwest and the St. Louis sort of Fed is five-state region.

But I'm just one voice of many, but you want different voices, and that's what we got. All told, it's not great. We would like to see inflation coming down. We think we are. We think we've seen that. That's probably why you saw the S&P jump. But we are also seeing some persistent core inflation, as you mentioned. So that's kind of a bummer.

And we're working on that. And the great thing is that the FOMC and, you know, Powell in particular have been very trustworthy, which is to say they do what they're going to do. And that gives the markets a lot of confidence. It doesn't necessarily improve the markets because if he says, we're going to raise interest rates in markets tank. But like the fact is that this guy's been 100% credible for his whole tenure. So, you know, trust. I think that point about it's fine.

That's actually the weirdest feeling right now for everyone who's been watching the kind of like utter chaos of the last few years. because in a way, as Alex is you're saying, the numbers are pretty fine. Like inflation is decelerating. Job growth is not decelerated slightly, but it's still good. We're in one of the best job markets, you know, in history. At every level, everything actually looks like they might do this soft landing and we might maintain growth and we might maintain inflation might come down and the economy might be okay. But I think, is that, is that why everyone's so scared because we're just not used to things functioning properly? No, things have been properly functioning for over a decade. And I'd say we properly functioned in the course of a pretty major economic disruption.

Like, now, it didn't function perfectly, you know, but that's like, oh, the fire department had to respond and they put out the fire. This doesn't mean the building didn't partially burn. Right. So you don't have, I mean, COVID-19 was a. massive economic shutdown. I mean, the skies over Mumbai were clear blue for months. That's how badly we were impacted. And, you know, we tend to say, well, but I wish everything was perfect and we didn't have a pandemic. And I'm like, yeah, I wish we didn't have one either, but we did. And I think we did pretty good job. And more than that, you know, having been on the inside the entire time, I can tell you that the team who wrestles with these problems, these are great people. They are not politicians.

As a matter of fact, when you join the Fed, as I did, you give up politics. So I'm politically neutral now. I'm neither Republican or Democrat. I vote against or for both sides. You know, it's just not this thing that gets caught up in politics, which almost happening during the banking shutdown. Like if you want to talk about the, you know, the sort of the scary thing, which was you say all these bank failures, well, all right, not too much has impacted.

people or businesses. We've had a couple of banks that have changed hands. And SVB was a big, scary deal. Okay. But to bail out SVB, as they did, I thought was the perfect solution. And, you know, we can talk about that if you want, but that was an example of the system working, right? Something went wrong and the people who were in charge fixed the problem. Okay. That's kind of what you want, you know. You want the paramedics to show up. up, defibrillate, patient goes, oh, okay, yeah, I'm a lie. Yes, but defibrillation doesn't always work, though. It's got like probably a lower percentage chance.

I mean, I know it's an analogy, but it has a lower percentage chance of working than a lot of people think it does. And now when we talk about fine, we're like thinking, okay, are we going to hit, everything that I'm hearing now, like that you sort of take into account all the rumblings. And it seems now that people were like saying, okay, previously we're going to have a soft landing or even no landing and the economy is just going to sink. And now the consensus seems to be just, you know, the, you know, that's the magic. That's the double backflip.

It's happened like two out of the last 12 recessions. So how bad do you think if we're, if we are going into a recession, do you do think we're heading there and how bad will it be if we go there? I mean, recessions suck except they do cure inflation, right? And if you're unwilling to accept a recession, then it's very hard to fix inflation because the market says, well, they'll never let it turn down. And therefore, the market never cools off. And therefore you got inflation forever. And that's way worse.

Okay. So I'm not minimizing the effect of a recession on people because, you know, I've lived through several and they suck. That said, inflation, systemic inflation erodes every. money like you're getting poorer every day until we fix this you don't want to get poorer every day and you're getting passively poor which means your bank account looks the same so you feel okay but it's like this cancer so i mean i'd rather not have cancer same here so let me ask you then look if given the option i'm not take there at the cutting edge of this podcast yeah so let's talk about, though, some of the side effects that we might find as we end up making our way there

if we end up there. So there's a lot of people that are now talking about the fact that we might have a credit crunch where banks are more reticent to lend. This is from Reuters. Credit crunch fears may already be taking shape. Here's directly from the article. A year of rising interest rates has already put smaller banks under pressure, competing for deposits that were leaking into treasury bonds and money market funds that paid more interest. The response, less lending, tighter credit standards and higher interest on loans was already taking shape, officials are now watching for signs that this has kicked into overdrive. So I'm curious from your perspective what you think about the potential for credit crunch. What really that means? I mean, is it just

that like banks don't lend anymore? And how significant is that side effect of these rate raises if we end up hitting it? So that's what's supposed to happen. Okay. What you described to me was exactly what is supposed to happen. So to me, I'm like, yeah. Now, does that impact certain people? Sure, but nothing you said was scary. Now, what would be scary would be a, you know, a death spiral where you get this, you know, wage price inflation or some sort of perpetual recession like they have in Japan, you know, or something where like we never come out of it. But the U.S. economy is very vigorous. Employment is still kicking ass.

I mean, that's the one thing that we look at and we're kind of going, wait a second. There's still way too many jobs open. And so everything you described, I mean, you can whine and complain about it, but I'm telling you it's like winter. Yes, the leaves fall off the trees and it gets cold. And, you know, Ron is talking about how nice it was in New York today. it's beautiful spring like spring comes but don't whine about winter or like then move to Miami where you know we don't have it so big the tech scene is really blossoming in Miami Jim so I'm going down to speak in two weeks so yeah okay but I think that's exactly

the point that is it a credit crunch or is it just credit tightening because rates are going up exactly well I mean look and I think so oh sorry go ahead no no but I think you're making the exact point that we're just so not used to this that this is how it's supposed to work, but people haven't seen it work in so long that I think that's where every little movement feels like it's much bigger than it potentially is, where it's just, this is normal business cycle stuff. Yeah. It's normal. And by the way, I would add that the banking cycle we've been through the last 15 years has been abnormal in that banks haven't been lending during that time.

Like all that upswing, the banks weren't lending. Like, I built a company that does a, like, like does billions of dollars of lending in the bank's faces. Now, how could we do that? Well, the answer is they abandoned the small businesses. I mean, Square Capital lends out tremendous amounts of money at very fair rates. We make a return. And everyone loves it. And the reason that market exists is because the banks abandoned it, not like in the last

couple of months or years, but like over a decade ago, they stopped lending to small businesses because I actually, I don't know why. I won't fill in the blank there, but I can tell you that that's what allowed us to build, you know, sort of a massive lending business on top of a massive payments business. What's your guess as to why? I think it was too easy to make money just parking it at the Fed. Huh. Like you used to be able to just get this spread from the government and, you know, it's easy living on the government. Lending's messy and risky and challenging and the Fed's really.

safe. So if you've got a positive return by just parking cash, then that's what you do. And if you, and, you know, it's a great oversimplification. I think it got too easy for banks. And they just stopped doing the tough work. Believe you, lending is tough. Banks stopped banking. Yeah. I'm kind of. I'm going to keep reading different points of evidence to show that it might not be fun and let you tackle them. Jim. I'm getting a sense of like the dynamic. of this show, which is that we have Jim and Ron John teaming up against me, which is fine. This is sort of how it goes usually. But let's just go through some of these things.

The other thing that people are saying that could be a systemic risk is the fact that commercial real estate is not in a good point, not in a good place, that all these companies had long leases in these buildings, and these buildings had all their money tied up in regional, small and regional banks. and if companies break their leases or just can't pay because they don't they're not going back to the office, then this will eventually fall on the banks. Let me just read a short thread from Zach Collius, who is a friend of the show, venture capitalist in San Francisco. He says, my good buddy, Jay Seiden at Cushman, just posted his latest Q1 San Francisco commercial real estate

roundup. He is not on Twitter, but it is good stuff. So posting below, it's incredibly grim. employee office attendance continues to track right around 40% of its pre-pandemic level at this rate it'll be years before any sense of vitality returns to downtown overall vacancy is now 24.8% the highest on record and up slightly from last quarter San Francisco is sitting on 21.1 million square feet of vacant office space now I know that this you know VCs like to talk about San Francisco because for many of them their point of focus doesn't extend beyond that 800,000 person city and so I'm curious though if this does seem like it's something going on around the country and so I'm curious like what you think in terms of the bigger threat over

here in terms of the commercial real estate issue. Yeah well I mean we abandoned our office in San Francisco moved it to Oakland so that's a vote for the region and a vote against San Francisco. San Francisco was a disastrous place to build a company. I mean, if I won't say that I regret what happened at Square because Square was very successful. And we don't know how much of that was due to our location. But I will tell you the way we were treated as an employer was horrible. And eventually we had to leave. So it was not a good place. And I think a lot of tech companies are finding out that there are other places to go from San Francisco that aren't as dysfunctional, not to mention the fact that a lot of my friends in

San Francisco just flat I won't go there anymore. Like they're just afraid of the city and it's just kind of devolving. That's San Francisco. So, I mean, if your stats from there. But look, office market in general, of course. Like, duh. Like, you're at your house. I'm at my house. I've never been to Ron's house, but I don't, I don't guess you've got a bed and three guitars, you know, in your office. if you do that's Elon Musk does If you got a frigging bed In your office

Then you are my HR hero You know But yeah I mean You know Here's three votes for working at home Yeah but I do think I mean

How do we conflate The commercial real estate Like whatever pressures it's facing I mean The work from home is only part of it right There's also just the overall economic cycle that it's also contending with so it's getting hit on both sides i think the more interesting thing to me here is how much how many sectors are inflated in their value and they're trying to do

whatever they can to pretend they're still there because i'm guessing every commercial real estate company is trying desperately and will do whatever it can to just keep those values appearing like they're still high the same way any late stage venture yes i'm about to use the analogy of like Yeah, yeah, yeah, that's where I was going. That's where we could just extrapolate from the last funding round and everything's great, Stan. We just won't be able to give you any money back. Sure. Look, it's a double whammy.

I think the real question is, you know, what happens to that real estate? Because real estate's interesting because it doesn't disappear. It gets repurposed, you know. And maybe it turns into housing. Maybe it turns into, you know, indoor farming. You know, maybe it turns into, you know, maybe it turns into, you know, maybe it turns into, you know, space to put small fusion reactors. I mean, like, I don't know.

And I sort of bet on this, you know, a little bit because I bought some buildings during the downturn, just empty commercial buildings because they were, you know, kind of buy one, get one free. And because I kind of think that people are going to come back. because I've met with a lot of companies. This has been sort of my sort of side gig right now. It's just, you know, talking to CEOs about like, are you making your people come back? And if so, how and why? And, you know, it falls into two camps.

Some are the, hey, we figured out remote work and it works great in our business and therefore we don't ever need an office. Okay, cool. And, you know, Block is kind of that way. Like we have offices and we love the offices, but they're not as full as they used to be and probably never will be. So we don't need as much office as we did. So that's, you know, that's kind of one option. I'm seeing a lot of companies. One of my other companies forced everybody back.

And when I say force, it's like, get your ass into the office. And that company has had this sort of creative renaissance. And I think it was because people are bumping into each other the way they used to. So I don't think the office market is dead. I think it's cyclically bad, which means it's a good time if you got, you know, crazy guts to buy office, you know, buy, go, yeah, I mean, you'll look like a genius or an idiot. So, you know, don't take it best. One or the other. So you don't see any broader risk, though, to the regional banking system for holding the loans on these buildings.

No, they're going to get blooded, you know. They're going to, oh, they are going to get hit by it. Yeah, yeah. But the banking system is designed for stuff like this. Like cyclicality is not a unheard of problem. It is something. we deal with. And again, like the question is, okay, let's say the banking system is going to get hit. What do I as an individual care? And the answer is, well, not really that much. Like, my money's safe. We've proven that. So now as an investor, do I care? Well, yeah, that depends on what I'm betting on, right? But as a banker and a consumer, I'm cool. Right. So a product of all this economic uncertainty is that venture capital funding is down.

We have a story that Ron John picked up looking at global VC funding in the first quarter. It was $76 billion, which is nice, but it's 53% down from last year's Q1, which was $162 billion. And that's even with $10 billion going to Open AI. So that makes up more than 10% of the entire amount of money going to startup. companies was just that one investment there. So I'm curious what, what do you think about this decline in VC funding? I would think that that funding would continue to be robust because they have all this dry powder that they need to spend that they've raised from LPs on long, you know, long running funds, but it doesn't seem like that's making its way to startups. Well, and I have a

VC fund that's got, you know, close to a billion dollars that we, move around, or I should say funds. Our funds tend to be smaller, but we have a lot of them. And yeah, things have tightened up a lot and we're happy about it. I mean, I think it's a good time to be in the venture capital business. I thought the last several years were ridiculous. We had founders getting funded for like really terrible ideas and really ludicrous business plans. And I mean, I could list them, but that's just gratuitous. I think the basic, the basic We would welcome that. Well, I mean, it's fun.

I guess it's good commentary. But like, here's the question you have to ask, do good ideas die now because they don't get funded? And there's just, no, absolutely not. If you got a good idea, I'll fund you. Like, my fund will fund you. Like, if not, I've got dozens of, you know, friends at funds who would fund you as well. And VC is just a hobby for me. Like, I do this, you know, on the side.

I can dabble in real estate, dabble in venture capital. But I don't define myself as either as a professional. But in both cases, yeah, things are getting tighter. And that's kind of good. Like if you have real value as a founder, now's a great time to be a company founder. Fantastic. I love downturns. Love it, love it, love it.

But how do you see the dynamic of the dry powder playing out? Like, can venture funds be as patient as they need to be, whether that's like, you know, reducing investment for a year or two or three or whatever it takes? and just sitting on it? Because I think that's like the tension right now. We're on one side. You see these insane numbers that VC and PE is sitting on however many hundreds of billions of dollars of dry powder. But on the other, it's tight and things are going to get more selective and slowing down, which also, I love your serenity. That's a good thing. But how do those two things get reconciled? Well, I mean, you know, this reminds me of the Stephen Wright joke. I bought powdered water,

but I don't know what to add. like what is this powder um because if you think about how a fund is funded like it's not like i write a check to sequoia and say here roll off go crazy you know um he calls capital as he finds and sequoia finds opportunity so yes i've committed you know say a million dollars to a vc fund that doesn't mean they've taken a million dollars uh so yeah they can they can say they've got a million dollars but they haven't deployed it until they deploy it they don't need me to write the check and a lot of the people who are writing these checks are now you know kind of cash tight and some of them are missing their payments so there might be a little ripple there but the

other thing is the vc world is tightening up in general so you're getting better deals as a funder so like it's all kind of balancing out there's there's a you know a couple of invisible hands you know sort of simultaneously at work here but but it does work you know so i i personally think, again, don't care that much about the VCs. They kind of had a nice run for a while when capital was super cheap and anything that had potential yield could get investors. And so, you know, they rode on really mediocre overall performance. Like the, you know, look at the industry as a whole and, you know, you'd be better in T-bills, right? But there were some funds that did exceptionally well and of course those are the ones that we talk about you know sort of like all my friends

who come back from Vegas are winners because the only people who won talk about it like the people who lost you know lost the Ferrari at the crap table uh they don't they don't brag about that you know it's the guy that beats the house so um there's true selection bias in those stories but if you look at the overall industry i think it's healthy i think it's fine um my question is if i have a good idea or a great idea is money available? Absolutely. Now, you'll, I'm going to get a bunch of calls from this that people start texting me and go, Jim, you said you'd find a great idea and I just now, shh, shh, they have great ideas. You have to go through the process where we determine if we think it's a great idea, we're wrong like 60% of the time, even with very, very smart

people on it. But, you know, it's, I've never seen a company with a truly great idea not get money and square funded in the middle of the worst like a real recession not this thing that might or might happen in sometime now you know like now 2008 2009 like that was dark actually what when was the launch again it was right around there yeah 2009 it was like okay as the as the economy was then scraping the bottom um that's when we launched and everyone's like well there's no money available we're like well that's great and people say salaries expectations are lower and we can hire the best talent, which we did. And then, and then lo and behold, we had a pile of money thrown at us forever because we had a good idea.

So I don't, I mean, this is this is sort of the thing I go into in the book, which is, you know, if you, if you read the innovation stack, you're going to hear me harp on this again and again again. But like, I think if you're inventing something, a recession is a great time to start, just the best time in the world. I would agree. I mean, big technology came out of, like, the depths of the COVID recession and ended up being a good time to start. So, especially because the burn rate was low because you couldn't go outside. You're a survivor.

Exactly. You're a cockroach. Nobody kills you. I mean, I'll take that. Yeah. No, it's a great. It's good. It's good.

It's good. I got out of the way of a cockroach the other day. Like, there was this cockroach walking down. the street. And it just had such swagger that I moved. Well, come to New York. I just had a rat run over my foot yesterday. And everyone around me looked and no one even left. I didn't even laugh. I just kept walking. So, my God. Sat down and finished your entree, huh? Yeah. This was not, this was not on our list of topics to cover, but New York has a, once you brought up the roach, I figured I'd bring up the rat. No, New York has a rat czar now. It's actually pretty

exciting. So she's a former school teacher. Her name is Kathleen Karate. This woman is my hero already. Her introductory press conference featured this line. You'll be seeing a lot of me and a lot less rats. I mean, does you have a better intro conference than that? She rules. I love it. She's amazing. Yeah. So you just, but obviously the week that she comes into power, Ranjan gets a first hand, first foot encounter. That's because she's right. Last rat. She would not have seen. Exactly. They're getting their last run-ins.

Exactly. So, Ron John, should we touch on the Uber story before we go to break? Yeah, yeah, I just read it. I liked it. Okay, so let me just. It triggered me earlier. Yeah, so I'm actually curious to get Ronjin's perspective on this. So last week on the podcast, actually this week on the podcast a couple days ago,

Emil Michael, who's the former chief business officer of Uber came on. We talked a little bit about this article in the Wall Street Journal that had the CEO of Uber, Derek Kastrasari, driving for the first time in his nearly six-year tenure and finding all these problems in the app. And I wrote about it this week in a big technology story called What the Heck is happening at Uber and basically looked at it in terms of what's going on, what it means about DARA's leadership, but also the fact that like they could keep throwing bonuses at drivers because of zero interest rate policy and that's dried up. And now they need to focus on the app itself versus just the bonus pool money.

So Rondon, I do feel like this is kind of in your wheelhouse, and I'm curious what your reaction is to the story. I was amazed because when the Wall Street Journal story came out, again, you know, Dara has gotten into a car and, you know, actually did some driving and suddenly found out that it's a clunky experience and it's terrible. As you said, six years in, I don't know who in the corporate communications team thought this was a good idea to push.

But what was also interesting was there was probably, this is one of those moments, there's like a few hour period where you saw people celebrating the story and being like, this is a CEO. This is a real CEO, you know, who's willing to get his hands dirty and drive. I think, and it's kind of odd to me because, again, Uber is such an interesting company of where it's going to go. Because on some side, you know, the stock has not performed amazingly, especially since its IPO. I think it's flatter down. But again, on the other side, Uber Eats is solidifying itself as a big competitor. You know, the rides business is at least stabilized, even though, I mean, competitors like Lyft are just seemed to be disappearing. So overall, they seem in a fine place, but I don't know. I was just shocked that they would actually put him out there like that and think it was a good idea. That's why the story seems so weird. It was like the nice headline and the splashy photo up top and then you start reading it. I think all the celebration is people that didn't read it.

Sometimes, some journalists are amazing at kind of like not, you know, communicating one thing on the headline and then very quietly, you know, communicating something else in the subtext of the article and it felt a little bit like that. Yeah. Jim, did you see that story of Dara driving Uber for the first time? No, but man, I would have ridden more if I don't. He was driving last week. Yeah.

Okay, let's go to break and come back and talk about a few more topics. We'll talk about some of this AI regulation going through Congress or the talk of it at least and who owns the rights to content, which is very interesting, something that Jim could weigh in as the founder of Invisibly. And then we will talk about some more issues. So stay tuned. We're here on Big Technology Podcasts with Ron John Roy. He writes margins on substack.

Go to subscribe to it. And we're also here with Jim McKell. be the co-founder of Square, founder of Invisibly, also the author of the innovation stack, which you can get on Amazon, the innovation stack, building an unbeatable business, one crazy idea at a time, also director of the St. Louis Fed. All right, back right after this. Hey, everyone, let me tell you about the Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than two million professionals read The Hustle's daily email for its irreverent and informative takes on business

and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So, search for The Hustle Daily Show and your favorite podcast app, like the one you're using right now. And we're back here on Big Technology Podcasts with Ron John Roy and Jim McElvey. We're going to talk a lot about AI in this next segment, but also it's We got a real good fun story of the week, so that will be at the end here. So stay tuned for that. And we're also going to talk a little bit about Square and its founding and like what the future of financial tech might look like.

In the world of AI, we have a very interesting development. This is something called Auto-GPT. Okay, if you thought GPT4 was crazy, auto-GPT is even more nuts. So this is, according to Harsh McKeda on Twitter, it's an experimental open-source attempt to make GPT4 fully autonomous. The program driven by GPT4 chains together large language model thoughts to autonomously achieve whatever goal you set. So basically people have set these large language models and given them access to their computers so they can download things and just keep acting in terms of trying to accomplish the tasks. And people have this warning when you start using

these auto GPTs like monitor this closely because we have no idea where it's going to go if you let it running. And basically you can shut it. down if it starts doing things you're not happy with. So I'm curious what you both think about this new wave of AI and whether auto-GPTs, like is this, is this scary? Is this exciting for entrepreneurs? Jim, what do you think? I think it's kind of fun. I mean, I wouldn't run it, but hey, man, I feel the way I feel about biohacking. You know, they're guys that are like jamming chips into their head and gulping down all sorts of, you know, crazy peptides. and whatever.

I love the fact that they're experimenting on their bodies and not mine. I, you know, have a pretty locked down, boring old computer. I don't put a lot of important stuff on it. And if you steal it, I don't care, except for a couple of photos that I lose. So I love the experimentation. I love the idea because it's going to be messy. Like AI is a new thing. It's going to be messy.

So the folks who think that we can control it by completely avoiding the mess are probably unrealistic. That said, it's dangerous to think that we would give control over certain systems to, you know, some sort of sentient non-human. And I don't know where that's going. I'm not an AI expert. My wife and I are working a lot on AI safety. We're funding a lot of, you know, sort of AI safety initiatives. And we do have investments in, you know, some of the companies who are, you know, potentially doing great stuff or doing dangerous stuff.

Like we just don't know yet. But we think it's a, I mean, it's not something to ignore. It's something to engage in. So yeah, have fun. Experiment. Try it out on your machine. I'm not touching this stuff. Ron John, how about you?

What do you think? I'll admit, I don't quite understand what the difference between auto GPT and traditional traditional GPT is from the explanation. And my 4U tab on Twitter has become all auto-GPT threads about how powerful it is. And I mean, I'd spent like, I read a couple of articles. And even then, I didn't quite get what's significantly different about it. And I think, I mean, this is where in terms of the hype cycle of AI, just the level of where we've gotten to, I think is it's amazing. I keep going back to chat GPT launched on November 3rd.

30 of last year. Like we're only a few months into this and we're already on, as we were saying, like I was on vacation for two weeks and I, when I came back, we were an entirely new world around what AI and generative AI was doing. So I don't know. I think like this stuff, to me, the biggest disconnect right now is I want to see real products. And I know this is almost like a broken record, but like even Adobe yesterday or I think this morning made these big announcements around generative AI video editing and premiere. kind of excited and I was like all right I'm going to go try these out but they're not actually public yet and they're going to be debuted at a conference at the end of april and then later this

spring they will be available to users with no specific date so like demo i feel again having worked with this stuff a good amount like we're so far past the demo phase that companies should be launching real products or if auto gpt is amazing show me something let me use a like a program let me improve my life somehow with it. I think the cool thing about it is that you're able to give it a task and it can literally go and download programs to accomplish that task so you can be like, paint me a picture in Photoshop and it goes in and downloads Photoshop and gets painting. But I might be getting ahead of myself.

It'll actually get me a Photoshop license and it'll, I know, I mean, that's the specific, that's what I'm saying, that this stuff like theoretically versus in practice, that's exactly the kind of thing that, you know, like downloading a program to your computer and installing it and running it and creating a login and stuff like. Imagine how many things don't work in that process. Yeah. Especially if it's an Adobe product. Oh, Jesus. Especially if it's an Adobe product. God, the creative suite. It's terrible. Creative Cloud just updates my computer every few hours, I feel. Oh, yeah. I truly miss the days when you. you could just get a copy of Illustrator and install it.

That was it. So I did, yeah, I did download an Adobe video editing program and, oh, my God. Yeah, it downloaded all that stuff to my, I mean, more, probably more hardware, more software at my computer than it had originally. And I couldn't uninstall it. No, you can't get rid of it. You have to download an uninstaller from Adobe that's dozens of megabytes and then it will, only then will you be able to install it.

It took me an hour to get rid of Adobe. And you know somebody at Adobe puts a hook in. So, like, well, what if they want to change their minds and want an undo button? Exactly. It's like all there. It's just like, you know, commented out or something. It's, I, yeah. Well, we're on the same page here on this topic.

So, Jim, what do you think the right regulation mix is on AI? There's an axiostory here. I mean, the Senate, this is what always happens, that there's a big technology issue when, when it comes to policy. And the Senate is always confident they're going to get something done. So Chris Murphy from Connecticut, he's a senator. He said, something is coming. Oh, he's talking about the boom, and we aren't ready. So at least they're admitting that.

And finally, we're at that point. But there's an Axiostory here that talks about how Senator Chuck Schumer is spearheading the congressional effort to craft legislation regarding AI, unregulating AI, circulating a broad framework among experts in recent weeks. The push is being treated as urgent and time sensitive, with the U.S. not wanting to be left behind as other countries, particularly China, race ahead with developing the technology and shaping its rules. The goal would be to develop resilient regulations that can adapt to the advancement of

AI technology and balance the need for security, accountability, and transparency with facilitating innovation. I mean, I've seen them swing and miss at trying to do anything with Facebook. That seemed, what that ambition seems impossible to me. I was going to say, yeah, they should go do that. like I'm I'm for them doing that now would I bet that that will result in something that's successful I do not look it's very hard to regulate something you don't understand and I have access to some of the world's greatest minds in the field of AI and I've had conversations with some of them and hopefully more of them and they are not unanimous. It's not a clear answer among the people who are in there doing it and actually understand it. So I would give the odds of senators not, you know, to malign anyone in particular.

I'd love them for the effort and interest, but I think the best they could hope to do is watch it carefully. I mean, heck, there are many, many examples of government just failing to regulate even the most basic things that we all agree should be regulated and we can't do it, you know, um, so I don't think we're going to get, but what do we do in the meantime? Because even like on the copyright issue and I know like, uh, I mean, in terms of like what kind of regulation could actually come about, but should something it feels like has to be decided relatively soon, right? Because otherwise, if every, like a subsequent model ingests every article, picture, and there's absolutely no regulation or no kind of general understanding and accepted norm around what's okay, it completely changes copyright law. It completely changes the way all these existing regulations on the books function without any real discussion or without any actual kind of like civic society engagement.

So how do we, do we just have to wait till we get it or like what should people be doing right now? Man, you hope there's not some giant negative externality wrapped in. And I say hope. Like sometimes the market dynamics destroy things. So, you know, we destroyed most of the press by some bad math in the internet, which wiped out the newspaper. which wiped out basically all the reporters who collectively watched our backs, which now lands us in the situation where there's a ton of bad behavior that's not being exposed because we just don't have the culture of news gathering and fact-checking and all that stuff

that we used to, right? For a bunch of economic reasons, and that was just one where, you know, the invisible hand just raised its invisible middle finger. It didn't correct the situation. so I'm and I'm not hopeful I am still forming my opinion as to whether to be hopeful or pessimistic I guess I am an optimist by nature but I'm also a cynic so you know that makes me bad at cocktail parties and I think this is a scary topic I'm glad people are talking about it and maybe that's the best we can do we can talk intelligently about it and try not to be to, you know, Terminator 2 about our prospects for humanity. But look, understand that we got to ask these questions. And I have no answers.

So I am as confused and, you know, sort of worried as any person who reads. Can you talk about this from your perspective running invisibly, right? Where you're working on maybe fixing some of the economics that led to some problems. with the newspapers and you know it's kind of interesting because you might yourself now come into competition with the large language models delivering information that you're trying to with your app well what invisibly is trying to do is let people take control of their attention so fundamentally it's about an individual having control which i mean you should choose what you read i.e you should have access to everything and being able to access it whenever you want on your

terms. So you shouldn't be blocked by paywalls or disrupted by ads. But it's not like magic. It's not like this doesn't have to be paid for. So the question is, how do you pay for it? And sort of the cool thing that we've got going at Invisibly that I don't even know if you know about this yet because it was, you know, sort of developed in the last couple months. We figured out passive earning. And we're putting that into the product. It's not in the products. If you go download Invisibly app today, you won't. get this. But in, you know, four to six weeks, you will. And it's passive earning, which is to say you can hook up data streams. Like, let us look at your bank account. Now, we can't touch the

money, but we can look at the money. If we can just look at the money, we can actually sell that information, earn money, and then allow you to buy subscriptions to your favorite magazine. So you want to read, you know, the New York, not the New York Times, but like the Wall Street Journal, you You could read the journal. You know, that's normally, you know, a pretty expensive subscription and it's a great high quality magazine that you can get for free if you give us, but it's not really free. You're giving us access to your data. And the only thing that's weird about that is that these big companies have been accessing your data for years and not paying you. They're making money off your data. So in our case, we're saying, okay, well, we'll do the same thing they're doing. Sell your data, but we'll give you the money. So that's what Invisibly is sort of doing. And at the heart of it is this idea that the individual should be in control. That me is a, like, I should be the person deciding what I choose to read and what I choose and how I choose to pay for it. So I can pay by a number of ways.

But like passive payment to me is really cool because you hook it up once and then like you got a lifetime subscription to whatever you want. Wait, sorry, can you passive payment meaning like if I, can you go through that concept again? Yeah. So you've got a bank account. You've got a couple of credit card accounts, I'm assuming. Yeah. So let us look at them, i.e. give us the password to have a view of them, not that we can write checks or charge your card, but I just need to see where you're spending money. That financial data is very, very valuable.

So I package that up, invisibly packages that up and sells it, okay? And you get money for that. And that money comes back to you. Instead of like some of the kind of like traditional, let's say, hedge fund service providers that just pay the banks or pay the credit card companies directly for that package financial data, it's actually going directly to the user. Yeah, it's worth. Like with the bank account. Okay. We're still trying to figure out exactly what it's worth per month, but it's worth, you know, dollars.

per month and not cents per month. And so that's a revenue stream. Now the question is, well, what do you get from this revenue stream? And we did an experiment early where we let people just cash it out. We said, you know, here, take it on a gift card. And we found that that created massive fraud. Like all these people would come and like fake having all this financial data and all this stuff just to get the gift cards and it's like, okay, forget that. So now what we've done is we've said, I said, okay, you can have super valuable premium subscriptions to your favorite media sources. Turns out the fraudsters don't want to read The Economist. They don't have this hankering to open up the SF Times or read Barron's cover to cover.

So the fraudsters all go, well, we can't cash out. I mean, they're not interested. So we got rid of all the fraudsters. Now we're giving real value to real humans because like the idea, like, I spend hundreds of dollars a month in subscriptions, but what if I could cut that cost and still have access and still pay? I mean, it's not like I'm stiffing the journal. Like I will still pay the Wall Street Journal.

It's just it's going to go through this, you know, intermediary called Invisibly where they're packaging up and selling my data on my terms. And then this is the cool thing with Invisibly is that the user really. gets to set the term. So if you sit there and say, no, no, no, I am totally creeped out by the idea of you looking in my bank account. I don't argue with you. I don't say, well, you're dumb because everybody looks in your bank account. And I know this from founding block. No, I say, okay, cool. If that makes you uncomfortable, let's talk about another way you could pay. How about watching these ads? Like, how about doing these surveys? Like, there are other things that you can do

with your attention that will get you paid. And we take that money and give you. all the stuff that you want. So like we're hoping to start with journalism and the idea is to pay for the content that people really want. And right now, you know, the heartbreaking thing is that a lot of the best journalism, a lot of the best content is paywalled off because that's the model that they use to create it. And so a lot of people who would happily, you know, read these very high quality publications or watch, you know, great content can't because the paywalls. So we're trying to eliminate that. So we have like about 10 minutes left. So why don't we go to a question about Square. Ranjan, you can ask that. And then we'll end up with this

meme of non-negotiable expectations that some finance firm put out. Ron John? Yeah, I had heard on a different podcast and I would love you to kind of walk through the story of the first square reader. For context, I had left the U.S. I'd moved to Singapore in like 2009 and 10. I had lived in New York before that. I remember coming back and seeing like street vendors with square readers and what maybe was that 2012 or so. And it was the most mind-blowing thing because like you'd had street vendors in New York forever. And in terms of just like, okay, everything has changed.

That was one of those moments. But then I believe can you kind of walk through the first prototype you had built and then just kind of how it came to be from a design perspective? So I'm a glassblower. I used to be a professional glass. artist but basically I'm a guy who makes stuff that nobody needs it's called art and when I sell it I sell it for a lot of money but nobody needs it so I better take the money when they're interested and a lady came into my studio

actually she called and it was a phone order and I couldn't take her payment because she only had an American Express card coincidentally my friend and former employee Jack Dorsey had just been kicked out of Twitter for the first time and was had approached me about starting a new company so jack and i were trying to start a company trying to come up with an idea i lost this sale and the light went on in my head i was like i want to get paid and my attitude towards my iPhone was that it should magically turn into whatever i wanted it to turn into like that's my attitude towards my cell phone which is like if it's a phone if i want to be a phone it's a map you know this morning it was a chess board you know you know

tonight it's going to be you know a tv you know whatever it's it turns magically into this thing except back in o nine it wouldn't turn magically into a credit card machine so i was like well let's magically turn this into a credit card machine so the reason you saw the little white square readers is that you know the mag stripe on credit cards used to be required for a safe transaction so you kind of had to read that so we sort of hacked the system and built a magstripe reader that was super cool and and super cheap. And so we just gave it away. And millions and millions of people, including many street vendors, decided that they wanted to get paid too. So that turned into Square. And then we had a bunch of other sort of brilliant people come up with other products that have actually even done

better than that original idea. But the original idea came from me losing a sale. How did you know, how are you connected to Jack Dorsey before that? Jack and I are both are both from St. Louis and Jack used to work for me at another company that I actually still own. Like the company that I first employed Jack at, Mira, I don't know, 30-some years later, is still making money and in business. So, but Jack and I both used to work together. Okay. Nice. Yeah. Be nice to your intern. I think he's, yeah. Like if you get an intern, you really know. Wait, was Jack your, Jack was your intern? Summer intern, yeah. Ah, all right. Yeah. Payback's a very

So let's end the show with this. There was a slide from a company, a, I think finance company that went around the internet last week about non-negotiable expectations. Oh, it was a law firm. Okay. So I'm just going to read these expectations and let's see if they're fair or not. it says ph is an american law 20 law firm you're in the big leagues which is a pressure which is a privilege act like it that's number one number two we are in the business of client

service you are the concierge at the four seasons a waiter at alina the client always comes first and is always right if a client wants a mountain moved we move it no questions and then so beyond that as as a junior your clients are the associates and partners of the deal team three you are on line 24-7 no expectations no exceptions no excuses for timelines slash quality clients expect everything to be done perfectly and delivered yesterday five someone is paying 850 dollars for one hour of your time think about that in everything you do all communication and work product needs to be prompt professional and polished six take ownership of everything you do once you touch a document slash work stream you own every mistake in it fair or not seven work from home is

luxury don't take advantage of it by a full home setup two monitors docking station keyboard slash mouse and a working phone or come into the office no poor connections no excuses three number three and five eight no questions until you've tried to figure something out yourself google unfamiliar concepts search the dms read statutes read instructions etc still can't figure out the answer talk to your classmates nine i don't know is never an acceptable answer 10. This is your career. Embrace the reality and always put your best foot forward, if not for the firm or your deal team for yourself. At the end of the day, it's your reputation that will carry you, whether that's here or in-house or somewhere else. Make it count. Okay. Some people were saying these are great expectations. Some people were saying they're unfair expectations. It's almost like this ro-shark test of people's beliefs in what happens inside companies. So where do we land on this one? It sounds like that was written by some senior partners who probably worked 20 hours a week.

And Bill 60, you know, I'm sure they still bill 60 hours a week. My guess is that they wrote that from home. And, I mean, I could go through it point by point. The one that really jumped out of me is, I don't know is not an acceptable answer. I don't know. It's incredibly liberating. now the question behind it is I don't care that's probably bad um but if the question behind is I don't know but I want to and we'll find out well that's good I mean I spend my whole career and I don't

know like everything I work on is an I don't know like I'm trying to build a company that's you know trying to make you put you in charge of your attention for the first time in your life we don't know how to do that we've been at it for six years we've vaporized tens of millions of dollars and we've got a pretty good early product but we don't know exactly that it works i mean i don't know is where i live so um i would hate to force that out of my vocabulary yeah i'm also on the side of non endorsing this set of expectations ronjohn i'll take the other side in just to take the other side but also it's a law firm it's probably a big corporate law firm and I think one of the big things that's been interesting is like how every how the nature

of work is kind of everything's getting conflated like you know again I worked in finance through the 2000s and there's a lot about it that sucked and that was just the way it was and you accepted it and you know it kind of that cycle continued um but it was finance And is the entire industry really going to change or is there just certain things that based on the nature of the job are consistent? And I think the main takeaway of this is like all the future of work, everything has changed stuff that came out of the last couple of years. It's a reminder that certain things have not changed in big corporate law firms. It's almost like if they are to change the way they operate and their behavior and their attitudes, the entire facade comes crumbling down. and then, you know, you have to rebuild something completely new from scratch.

So I think it makes sense. I feel like you'd be in favor for that tearing down and rebuilding. Well, I wouldn't be against it. Yeah. So we're, because we have a couple of companies that build software for law firms and the big firms are splintering into these smaller firms and they're, you know, it's all partners walking out with their book of business. And, yeah, the industry's in a shakeup as we speak.

And then I guess if that's the. case than trying to retain talent with these 10 beautiful non-negotiable expectations are probably not the right strategy. Yeah. Yeah, I mean, I think, brought me over back to your side then. Wow. Well, this is a good time to end that, right? Chalk up a victory.

Call it a perfect podcast. Okay, well, let's do that. And Jim, just want to say thank you. It's always great to speak with you. I really appreciate you coming on and sharing your insight. And I hope we can do it again soon. you can find jim's book anywhere you buy books it's called the innovation stack building and unbeatable business one crazy idea at a time you can find jim's app invisibly in your app store of choice

you can find ronjohn's newsletter margins in substack read margins dot com good thing you have that custom domain not blocked by elon you could also find mine at big technology dot com also not blocked for now we'll see what happens all right for jim mcalby and ronjon roy i'm alex kentrits we will see you next on big technology podcast.