Invest Like the Best with Patrick O'Shaughnessy - Jeff Green - Modernizing Advertising - [Invest Like the Best, EP.315]

Episode Date: February 7, 2023

My guest today is Jeff Green, the CEO and co-founder of advertising platform, The Trade Desk. The Trade Desk is the second advertising exchange Jeff has built, having sold his first venue to Microsoft in 2007. He started The Trade Desk in 2009 and has built it into a $30 billion public business. In our discussion, we talk about the parallels between The Trade Desk and an equity exchange, why Jeff chose to align with ad buyers not sellers, and how he shapes the culture of his firm. Please enjoy my conversation with Jeff Green.   For the full show notes, transcript, and links to mentioned content, check out the episode page here.   Listen to Founders podcast   Founders Episode #136 A Success Story: Estee Lauder    Founders Episode #288 Ralph Lauren Invest Like the Best with David Senra: Passion & Pain   -----   This episode is brought to you by Tegus, the modern research platform for leading investors. I’m a longtime user and advocate of Tegus, a company that I’ve been so consistently impressed with that last fall my firm, Positive Sum, invested $20M to support Tegus’ mission to expand its product ecosystem. Whether it’s quantitative analysis, company disclosures, management presentations, earnings calls - Tegus has tools for every step of your investment research. They even have over 4000 fully driveable financial models. Tegus’ maniacal focus on quality, as well as its depth, breadth and recency of content makes it the one-stop, end-to-end research platform for investors. Move faster, gather deep research to build conviction and surface high-quality, alpha-driving insights to find your differentiated edge with Tegus. As a listener, you can take the Tegus platform for a free test drive by visiting tegus.co/patrick.   -----   Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:03:09] - [First question] - What he’s learned about human behavior and how it’s impacted his business [00:05:45] - Big differences in generational and perennial behavior  [00:06:56] - The strong link between vulnerability and creativity   [00:07:42] - The necessary preconditions that allowed him to build Trade Desk the way he did [00:10:53] - What it would have felt like as an early stage employee at Trade Desk  [00:12:43] - The hardest parts about maintaining his type of company culture [00:14:05] - How much of his company culture is interwoven systemically or whether it arises naturally based on talent choices [00:15:59] - Defining what talent means to him and the dimensions of it that matter [00:22:03] - What he’s learned about delivering messages effectively   [00:23:49] - The founding story and history of Trade Desk  [00:28:33] - How he thinks about the key stakeholder groups around Trade Desk’s platform [00:30:50] - Figuring out who Trade Desk’s key customers were and identifying them writ large [00:34:55] - The composition of the universe and market of those who buy advertising  [00:36:11] - Practical product implications based on their choice of service  [00:40:16] - Building inventory legibility and its dimensions and importance  [00:47:55] - The time between the first line of code to a multi million dollar revenue stream [00:50:29] - Markers for technology companies he’d look for that could achieve a similar scale  [00:53:35] - How not being able to simulate poverty or hunger translates into his parenting  [00:57:10] - Describing the margin differences between Trade Desk and Google [00:59:00] - What stands out as the defining moment in his firm’s history  [01:01:50] - The kindest thing anyone has ever done for him

This episode is brought to you by Teegas, the modern research platform for leading investors. I'm a longtime user and advocate of Teegis, a company that I've been so consistently impressed with that last fall, my firm, Positive Sum, invested $20 million to support Teegis's mission to expand its product ecosystem to unify and streamline investor research processes. In addition to the library of 55,000 transcripts, Teagis now combines at-cost, on-demand calls with a full suite of financial workflows, whether it's quantitative analysis, company disclosures, management presentations, earnings calls, TECIS has tools for every step of your investment research. They even have over 4,000 fully drivable financial models. TECIS's maniacal focus

on quality as well as its depth, breadth, and recency of content makes it the one-stop end-to-end research platform for investors. Move faster, gather deep research to build conviction, and surface high-quality alpha-driving insights to find your differentiated edge with Tegas. As a listener, you can take the TIGS platform for a free test drive by visiting tegis.co slash Patrick. Before we transition to the episode, I want to highlight the Founders podcast, which is part of our Colossus network. David Senra, who hosts founders, has devoted his life to learning from history's greatest entrepreneurs, and every week he distills the lessons of a different founder. If you want an entry point, I highly recommend starting with episode 136 on Estée Lauder

or episode 288 on Ralph Lauren. I hosted David on Invest Like the Best last summer, and it's hard not to walk away insanely energized after listening to any episode with him. You can find a link to founders and those episodes in the show notes of this conversation. You can also search all past transcripts on our website, join colossus.com. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like The Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transatlases,

scripts, show notes, and other resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaunacy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Shaunacy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. clients of positive sum or Oshonese asset management may maintain positions in the securities discussed in this podcast. My guest today is Jeff Green, the CEO and co-founder of advertising platform, The Trade Desk.

The Trade Desk is the second advertising exchange Jeff has built, having sold his first venue to Microsoft in 2007. He started the Trade Desk in 2009 and has built it into a $30 billion public business. In our discussion, we talk about the parallels between the Trade Desk and an equity exchange, why Jeff chose to align with ad buyers and not sellers and how he shapes the culture of his firm. Please enjoy my conversation with Jeff Green. So, Jeff, in many ways, this conversation is like a bizarre, full circle one for me. Because as I was describing to you before we hit record, the very first conversation I ever had on the topic of pure technology investing was with Jerry Newman, one of your earliest investors

and just a wonderful guy that I know you and I both think, extremely highly of. And when I talked to him, the first case study he talked to me about was the trade desk. And I think that it's so cool that it was him back in 2009 or 2000, then, thinking through a specific problem in technology, hypothesizing what kind of company might solve this problem and arriving at an investment with you, in you, and in the trade desk. So I'm just really thankful that I get to bookend this seven years later, whatever it is, and have been really excited to talk to you. And because of the unique story here, I thought we'd begin. somewhere totally away from the trade desk, which is on the topic of your interest in psychology,

consumer psychology, economic psychology, we might call that macroeconomics, and how your learnings there govern your business life. Because I do think, like, at the end of the day, it's easy to forget, we're just serving people and people are complicated. So what have you learned about what drives people in psychology and how has it impacted your business? First of all, thank you so much for having me. I'm honored and flattered and intimidated because of just so many of the amazing guests that you've had before. In a way, I think of myself as a people first kind of person or kind of leader, a kind of technologist where it's all about people. Companies are all about people. To me, life is all about people. If you can understand why people do things, then you can motivate them.

And I believe that's really important as we're going forward, especially as you look at the difference between millennials and the youngest generations that are in the workforce right now, they're just different. I think it's largely because they're motivated by making a difference. If you compare them to baby boomers who, you know, if you want to caricature them, there was just a mindset of, I want to get my white picket fence, my 2.2 children, as much land as possible, play as few taxes as possible. and this mindset of get my slice of the American dream, if you will. And I think the youngest part of the workforce is especially motivated by making a difference, by being a part of something bigger than themselves. I think understanding what motivates people is at the core of leadership today in a way that it wasn't before.

When you've studied some of the literature books, whatever it is you're doing to learn on this topic, I'm interested in two segments. So the first segment you've highlighted, which are actual generational differences. And the second segment would be like perennial base level human stuff that like Gen Z and Baby Boomers doesn't matter. They're born different. Like they're still humans and the same rules apply. What have been the big influences on you in those two categories?

Whether it's like man search for meaning or whether it's Bray Brown, to me, they all appeal to me. And the anomalies too, the sociopath next door or studying narcissism, like all of it is interesting to me because it's all just different forms or different proven and repeated tracks of developing the human mind. I do think Bray Brown's work on vulnerability is game-changing partly because she popularized it. And I think she's done a great job of showing the connection between vulnerability and creativity. And when you think about Silicon Valley, I don't think the first thing that comes to mind is vulnerability. You might think of innovation, but you don't usually think of vulnerability and making people feel safe.

Why are those two things necessarily link? Why does one be get the other? Well, only when you feel safe and when you've created an environment where you can be vulnerable, and especially you can be wrong, can you really create something. I'm not sure that I'll ever be able to articulate it as well as she does, but there is a very strong link between vulnerability and creativity that I think has to do with being wrong, which correlates to maybe my favorite TED talk ever. Karen Schultz, she calls herself a wrongologist and just the ability to be wrong and that the

power of the human mind is not to see the world as it is, but to see the world as it isn't. That's where we're often wrong, but that's also where creativity comes from. That's where innovation comes from. Those are all very connected concepts. Can you map that onto your own experience? Because this notion of vulnerability to me is a very negative or weak sounding word. vulnerable, I think of like an Achilles heel or like a soft underbelly that spear could hit or something. It seems like a negative connotation, whereas saying something like cultivating being yourself, whatever that is, seems more like obvious and just neutral. Do you think some of this is a language problem? The whole notion of vulnerability, like, I'm not vulnerable, like I'm strong. The opposite of

vulnerability is strength or something. I'm curious how this manifested for you. Obviously, you've done something very creative. You've built a very unique business over the last decade plus. So maybe go back to the origins. What were the necessary preconditions for you to be able to create something like this that you think it's important that others have too? One way that I look at a company differently than others is I do think of it similar to a family. I've actually had a lot of debate with some of my Toby probably and others. Yeah, yeah. I talked about this with David Wells, who's on our board, who's the former CFO of Netflix. And he mentioned to me at one point that Reed Hastings at Netflix was pretty explicit to not use this paradigm and just say that you never fire someone from your family or things like that.

So let's not overreach. But I've always looked at it as even if you do have to fire someone, they're still part of the family. They were still part of the journey. When you talk about things like bring your whole self to work or lean in, those concepts of bringing your whole self to work, I think are about vulnerability. I think they're about family. I think they're about being yourself. And if you can create an environment where people are not afraid to be wrong, but especially to go deeper, they're not afraid to be themselves.

And I'm not afraid to get to know them on a much deeper level than just what you can do for me at work. When we have that level of investment in each other, I think that's where we get the best out of each other. I think that's how we get people to give more than just 40 hours. a week because they're invested in doing something much, much bigger and they care much more deeply. So I think we've created a company where people care about each other much more deeply than in the average company. I think that's largely because I sort of started that way in the sense that I was carefully assembling people in a culture that I believed in that I wanted to work with. We said from the very beginning, we have a zero asshole policy. I don't care how competent you are.

I am going to spend more of my waking hours with you than I am my family for the foreseeable future. So why would I waste the only commodity I'm really trading in, which is my time, with people that I don't want to spend time with? So I want to choose carefully. I want to cast a very wide net and make certain that I'm inviting people that disagree with me to the table. But I want to do it in a way where we may have disagreements on everything except for our values and our values of what we care about, what's most important to us, especially morally, becomes a very important common ground for us to then challenge each other on really everything else.

My experience is that when something sounds good like that, for it to actually work and happen becomes very hard work. It sounds great, hire really nice people and get to know them. Sounds simple, but probably is very hard in practice because most companies just aren't like that. Sometimes explicitly so. People have said, we're a sports team, not a family. This is a performance team, not a family. How would that have felt to me if I was the 10th employee or something at the trade desk?

I mean, we can talk about how you maintain this at thousands of employees as a public company. It's a different question, but had to start somewhere. So what would that have felt like to me if I had been an early employee? What does that mean practically? Every year we have an event we call Paloosa where we bring everyone together from all over the world. We've done it since we were 20 people. do it in a couple weeks with 3,000 people. The entire company will come together for a week. And I speak for an hour and a half or so at the beginning of that event. And I've used the same

slide for 12 years now. Our greatest asset is our people. Always has been, always will be. And I'm extremely committed to getting to know them. And being vulnerable for me sometimes means that on that stage, I'll get emotional or cry or let people know that I care about them. there's not really anything that's off limits in terms of things that we'll talk about. But I think in order to foster an environment that really creates productivity and rallies around a vision, you also have to have an environment where people are understanding and accepting each other. And then if you do that, you just have an above average commitment to the organization. And if you can express a very clear vision in that sort of environment,

you get energy, you get the flywheel spinning in your favor. I don't know how to do it any other way. What have been the hardest parts about maintaining that kind of culture? Every type of culture comes with pros and conf. There are some technology companies that have, we're going to be intellectually honest and check your emotions at the door kind of policies. And those you have to worry about being cutthroat. You have to worry about building trust.

You have to worry about this being a place where everybody wants to work. so that you don't only have assholes in that environment. If you have an environment that is like ours, you have a lot of nice people, and that in and of itself can be a weakness. I've sometimes said, if our competitors really wanted to sabotage our company, they would get us to hire a bunch of incompetent nice people, because we will let them stay here for years. We have to recognize that there is a big difference between being nice and being good.

And nice often means that we don't want to be the bad guy. We don't address difficult topics, never fire anybody. But good is we're looking at the system holistically. And we're saying, I actually have to let this person go, or hundreds or thousands are going to suffer as a result. And only when you have that big picture view, can you really parse between niceness and goodness? But there's often a desire in a culture like ours for people to gravitate towards niceness instead of goodness. And that can be cancerous in the same way that being an asshole can. How much of this have you built structurally or tactically into the business where like a manager is expected to do X, Y, and Z, which we know fosters this kind of environment that we want to have versus a purely decentralized organic, just hire the right people and it'll sort itself out.

Where do you sit on that spectrum? Every successful entrepreneur I know has some amount of contempt or authority. There's some amount of frustration and or anger for the status quo. We want to change. I definitely don't love process. I don't love people telling me what to do. So I have a natural tendency not to create that. But as I've said to the team before, I get the aversion to process and standards and things

like that. I have that same proclivity. But if you went to the airport and we're like, we don't like process. Just board whatever plane you want, whenever you want, no assigned seats. It would be chaos, and then you would really love process. What we all really hate is unnecessary process. We hate process that is not compassionate. We hate process that discards the way that we feel or our comfort or our well-being.

How can we create a process that honors all of those things and still gets us on the plane? So in everything we do, we are trying to create an ensure. compassion so that our team can do more work and advance the cause of the open Internet and all the things that we do at the trade desk. And if you do that with compassion, you win just a tremendous amount of loyalty in places where most other companies fail because it's much, much harder to do that. It's much harder to implement a process with compassion than to just focus on efficiency and say, to hell with how you feel. I'm just trying to get shit. that. You mentioned not falling into the trap that nice equals good. So on the good side,

what does talent mean to you? When I say talent, assuming that you're hunting for nice, talented people, what are the dimensions of talent that you think matter? It's interesting because I don't think most of the conventional markers are very good. My oldest is going through the college application process. And I just think about the criteria by which they're selecting students, GPAs and test scores. It's just such a flawed system in the corporate world. I haven't spent more than five minutes in the history of this company talking about GPAs, yet it was at the core of all the choices that were being made around education,

where you went, how parents thought about your prospects in life, yet we don't talk about that. So somebody's wrong. Either I'm wrong for not talking about it all the time in the candidates that I look at, or schools are wrong and thinking that that's the primary indicator of how people are going to be successful. I think there's lots of research to suggest that EQ is way more important than IQ. So how well do you get along with other people? How humble are you? How good are you at asking questions matters more to me than your subject matter expertise because you'll learn way faster than somebody else, especially if you're early in your career. Now, of course, there's some fields

where if you're a very senior manager, I want to see what you've done. If you're a very senior data scientist, I want to see what you've done. And of course, we're looking for skills and expertise and testing that. But I find that that's much easier to assess. What's much more difficult to assess is how do you interact with other people, especially if you're surrounded by other really smart people, then it's more about how do we surface the best ideas, how do we dialogue, how do we create,

room to be wrong, but also how do we challenge each other? I think that's where most systems fail is that in the discussion, you make decisions hierarchically or you make decisions on criteria that are just horrible. And even if you abstract those to just a decision tree and ones and zeros and data, it's a really bad way to make choices, but especially because we're all emotional creatures. And so if we can basically get the emotions either not out of the way, but recognizing that we are emotional, and how do we make it so that that is working for us and not against us? Generally, I think it is working against us. And in the best environments, you get it working for you. You mentioned the power of a well articulated vision amongst a culture of people with the characteristics you've described.

So what is a good, compelling vision to you? I know you've done investing. You've obviously built one of these companies yourself from scratch, from the ground up, a very big business now. And one of the primary roles of the leader is determining and communicating the vision. So before we get to your specific one, which I'll ask about next, what to you just in a general sense, like if you were meeting with 10 entrepreneurs or something, how would you teach them about what belongs in one of these things and how you most effectively communicated to a team? First, you have to be small and the Tam has to be big. I think a lot of people get that wrong and sometimes misjudge where they're at in the process. I would argue a company like GoPro should have never gone public because the tam isn't that big. After sports action cameras, where do you go? If you're saying, oh, we'll build regular cameras. My response to that is, I think you're in trouble because I think Canon perfected this a long time ago. I don't know how to make it better than what they did.

So I don't know that you have a big tam. And when you go public, you're saying, I have a Tam and 10 plus years to go grow and still be chasing that Tam. Unless you have that, I think it can be really hard to have a long growth strategy. Now, I'm not saying GoPro didn't have that. I think GoPro had an amazing business and they tackled it really well. And the mistake wasn't created the company. Of course, it's a phenomenal company. The mistake potentially was going public with that particular company and misjudging how big the Tam was.

So just an honest assessment of how big the TAM is, and then you have to articulate how you're going to get there and how you're going to have a unique impact on that and why your approach is different. But you have to appeal to the team's desire to have an impact. Going back to psychology for a minute, there's a division of psychology called existential psychotherapy, fairly famous psychologist with last name, Yalom. he talks about how all human beings are really struggling with four existential concerns. Death, loss of freedom, meaninglessness, and loneliness.

There's so many organizations that I think really are appealing to the angst in those four things. Increasingly, companies are filling the roles of that. In some cases, dangerously, when we talk about affinity groups that hurt built around our politics that we bring to work. Like that can create lots of division and then can separate us from building great tech or things like that. So we have to be really careful about the fact that companies are filling needs around that, especially the two around meaninglessness and loneliness. If you can make people feel a part of a group and you can make them feel like they matter and you can point them at something that if we do this, we will make the world better and what we're working on matters,

then I just think you're in a phenomenal position. If you can put your business in that paradigm, instead of we're going to make lots of money. I think that's the way you would have motivated baby boomers. But I don't think that's how you do it anymore. I think the way we do it today is that we appeal to people's desire to be a part of something bigger than themselves, that will have an impact and will make the world better. Most entrepreneurs start with some amount of contempt for authority. So if you can just point to what it is you don't like and you want to be better,

then I think you're in a phenomenal position. Yeah, a common devil has been a powerful motivator through history that can be harness for entrepreneurs. I like how you frame it as the key thing here is who's receiving the message and their motivations. And I'm curious, maybe even one level of detail lower what you've learned about doing that effectively. So like the words and the slides and the structure of the message that you're delivering is received with high fidelity with those motivations in mind. What are the sorts of things that you would encourage people to think about that are literally, standing on a stage or on a Zoom call or whatever to make it a higher likelihood that that message gets received. I think many human beings, the bigger the audience, the more likely we are

to not be vulnerable, to put on our corporate armor, not be emotional, make it more about the facts, as I'm sure you've seen in your past live in investing and banking. I feel like consultants and bankers are competing with each other to see who can get the most words on a slide. How many numbers and words can I put on a single slide? As if there's an award for that somewhere, maybe there is a secret award ceremony somewhere. There seems to be a lot of money. I would say almost do the opposite.

Make a slide more emotional. People won't remember what you said. They won't remember the number. They will remember how they felt. So make that slide about one point. Make a single point on that slide and then move on to the next. Of course, there's lots of cause and effect. and you want to be pointing to macroeconomics,

and you always want it to be grounded in data. But to me, the data is more about the homework that you do in order to make that point. That's how you know you're right. But when you're trying to make the point, I don't generally think that the best way to do it is with numbers. We've gone a sufficiently long way without talking at all about what your business actually does,

but I think it's probably now time to go there. Maybe you could take us back to the company's founding to begin and explain what, what it was as the entrepreneur that doesn't like authority that frustrated you about the way the world worked and why you arrived at the product solution that Trade Desk early on represented? I'll go back even before that. In my previous company, I was very frustrated by the fact that online advertising was transacted the same way traditional advertising was, which was over martini lunches. If you watch Mad Men, that's how it was at the beginning of the internet, too. More casual

close, but same process. It just frustrated me. Why couldn't the advertising ecosystem look more like the equities markets? Why couldn't we have a centralized exchange? In my 20s, I was young enough, naive enough, dumb enough, ambitious enough to try to create that and change all of it. And I happen to be lucky enough to be one of the people that perpetuated that movement and created that. So there were a number of us. I wasn't the only one, but there were a number of of us that created ad exchanges that now have changed advertising. So those are at the center of the ecosystem. And we no longer have a world where there's just stock brokerages, but no NASDAQ or no NYSE. So now we have those. We have ad exchanges, as we call them. But what I looked at was at the time,

I was running one of the ad exchanges. I saw a lack of sophistication in the buyers on the platform. It was kind of frustrating to me because here I had spent the last decade of my life trying to solve a problem that I had had as a media buyer where every ad is not worth the same as another ad. And I don't just want to hand over my money and hope I get good stuff. I want to choose every individual thing that I get. I want metadata on it so that I know what I'm getting. And I want to make better choices about that. So we created the exchange to do that.

And now you can bid whatever you want. And what do you want to pay? 50 cents, 50 cents again and again. People were bidding 50 cents for every impression, bidding the same price again and again and again. And it just can't be that way. It can't be that this impression is worth the same to you as the previous one. So sort of frustrated with how little people were utilizing the technology, I saw that as an opportunity to just add a new level of sophistication.

And I thought the way they were approaching it mathematically was flawed in that they were using technologies that were essentially built for search and not recognizing the difference of all the other types of ads on the internet and that those are much more multidimensional. And the way that they're more multidimensional is if somebody types in the phrase by Verizon phone in Google, well, you know the value of that combo of words. And that really is a one-dimensional product in the sense that you can assign value to those specific words and you bid on the click. And there's something genius about the fact that it's one-dimensional. It's simple.

It also has a customer who's come to you. That isn't usually how advertising works. You could even argue that's not advertising. That's the result of advertising. Now you're at the navigation part. if you define advertising as the process of winning hearts and minds, then that is already done when somebody types in by Verizon phone. So all the events that are upstream,

that's more of a push of a notification or a broadcast. I have something to say to you instead of, I'm listening, tell me what you want, which of course everybody would like more of those customers, but in order to get those customers, you have to say something first. And when you're saying something first, that's an act of pushing out a message.

And that's multi-dimensional. That's not a keyword. That's age, gender, income, top of the page, bottom of the page. Is it big? Is it small? Is it on the page for six seconds? Is it on the page for 11 seconds? Is it a video ad?

How many pixels am I getting in representation? What color is it? There's all of these variables that affect whether or not you're going to respond, whether or not it's compelling. And we have to look at every one of those. It's so far from one-dimensional that you can't, use the same technological architecture around one-dimensional, which is what everybody else was doing. So I looked at that as an opportunity to do something different, as well as to consider all of

those things so that we never bid 50 cents 10 times in a row, let alone 10 million. Maybe you can just describe, and we'll zoom to today, just so we don't leave anybody out, how you think about the key stakeholder groups around the trade desks business products platform. who are the people that it impacts and how? And then we can start to dive into some of the lessons learned about building a system like this. It's interesting how much I see the patterns in other industries. I love your dialogues with Daniel Eck, and I know we both think highly of him and I'm just now getting to know him. But there's a very similar dynamic in our industry where there's all these different constituents.

And you see that in that industry where you're like, okay, I got to keep the labels happy. but I also got to keep the artist happy. And consumers want to watch it and they don't seemingly want to pay. There's a very similar dynamic on the internet. So the internet is mostly powered by ads. And you may say, is it really? Yeah, it is. That was perhaps, I think, cemented when the Wall Street Journal first put up its paywall

and saw subscribers struggle. So arguably, the richest audience in the world of any journalist outlet and the paywall deterred people from using the product. Of course, there's hybrids now, and there are definitely cases where that's being successful, but that's the minority of the time. Most of the internet is you get access to free content or services, and then you see ads as a result. Even in the cases where there are subscriptions, you're usually then getting both. So in terms of the constituents, you have the advertisers who want to sell more products. You have the content owners, the publishers, the New York Times of the world, or the Yahoo's of the world, or the Hulus of the world, who are content owners or publishers.

And then, of course, you have internet consumers in the middle. And then there's a whole bunch of different companies in the middle that I would call the supply chain that connect advertisers to publishers on behalf of consumers along the way. And that supply chain sometimes is quite convoluted, complicated. There's lots of services offered in the advertising ecosystem. And having complicated supply chains is one of the both beautiful things about our space, but also horrible and complicated things about it. When you were starting, how did you think about who your customer was? One of the complicated things in these multi-stakeholder systems is sometimes it can be hard to say,

like, wait a minute, who do we serve? There's that famous line that if you're not paying for it on the internet, you are the product, like the consumer is the product in this case, not the customer. So how do you think about properly determining who your customer is, both in your specific case, but also just more in general for entrepreneurs that live in one of these complicated ecosystems? It's interesting as I watch some of the recent documentaries on Robin Hood and GameStop and some of the phenomenon that has just been really interesting to watch from the sidelines

in the public markets. I think you could summarize many of the problems that have been. created in some of the case studies like that, as not sufficiently aligning your interest with your customers. Department of Justice filed a lawsuit against Google very recently. And one way to summarize the complaint is that Google has not sufficiently aligned its interest with its customers and has leveraged its search product, which could be constituted a monopoly. But I find that the best way to get loyalty from your customers is to as closely align your interest with them. So what I saw in our ecosystem was that everyone was trying to service both sides.

They saw that advertisers needed to be connected to publishers, so I will serve them both. And the ad network business model was just that. I'll connect advertisers to publishers. But the problem with that is that you're representing buyer and seller on the same transaction and the same way that anybody who's talked to a real estate agent who's representing buyer and seller, which one do you really represent? And even when they only represent one, you can worry that they're just really interested in the transaction. So how do you make it so that you sufficiently align? As I was putting together my business model, I saw that everyone was trying to service multiple people at the same time. And the way out of that was to align our interest with one side.

So we made a very clear decision to represent the buy side. We represent the buyers and the advertisers. And over time, it's fascinating how that has helped us grow as a company. And interestingly, it's actually helped us partner with the biggest companies in media, whether that's a Disney or an NBC or CBS or a Yahoo or a Spotify. We've been able to partner with all of them in part because they know we represent the buyer. They're our core constituent. And so they know clearly who we are, where when NBC partners with somebody like Amazon,

much more complicated, even when a company like Roku partners with Amazon, much more complicated. You're competing with us, but you also make products that we put on our device. That conflict of interest, I think, is something that small companies have to utilize the fact that they don't have conflict of interest and really highlight the fact that you have objectivity while others don't. And conflict of interest is often sold as a benefit when companies get big. Goldman will say, yes, we have buy side and sell side. We do have conflict of interest, but that's working for you. And that's part of the reason why every Treasury Secretary for the last 30 years

is working in our organization. They're selling conflict as a feature. And I'm not here to make commentary on whether they've siloed that well or not. and I think they do a lot of things really well. But it's really hard for a small company to argue that conflict of interest is working for you. There's no boutique bank in Connecticut saying, great news. We've got conflict of interest all over the place. So I think especially when you're small, it's really important to stay aligned and create as much

objectivity as possible and preserve that. In our case, I think we can preserve it forever. I think it's really important to preserve that as long as you can because I do believe that's strategic advantage. Can you teach us a little bit about that constituency, the demand side here, the buy side, the people buying advertisements in all these different venues? What is the composition of that universe? Is it super, super top heavy? What are the different types or like the taxonomy of those people? Just help us understand that market itself. It's interesting because the shape of the curve of the internet is kind of the same on the advertiser side as it is on the publisher side. There is

this very fat head and very long tail. The long tail seems to go on forever. Advertising spend, if you want to be really simplistic about it, half of it is spent by the top 500 or 1,000 advertisers, so that's half of everything, maybe even a little bit more of that. And then the long tail goes on for millions and millions. It's interesting how Google and Facebook, in particular, of largely focused on the long tail, and that's where they have lots of margin. And we tried to create a business that was very lean so that we could service that fat head without ever needing to take the sort of margins that a company like Google does in order to service that. We know that when you buy more of it, you buy in bulk.

You're always going to want a quantity discount. That's what we do. Maybe describe the practical product implications of that choice of service. So if you're servicing the Coca-Cola's of the world, who I imagine is one of the high advertising buyers, what does that mean functionally for the product you need to build and the things you need to consider versus what Google or Facebook had built that addresses that longer tail where it's like a self-served platform and sort of anyone can buy a $50 ad or something? To start with the simple one, if you're building a product for SMBs, which I think the best one in the world right now is Facebook's, where they made it possible for you to sign up and get

started in roughly 90 seconds. You can part ways with your advertising dollars with Facebook in two minutes or less. They've really simplified the process. And I do think in general, that's the best way to service small businesses, really small businesses, especially because those small businesses know what Facebook or Instagram is. If you're appealing to the largest advertisers, like a Coca-Cola or the largest advertiser in the world who's a very important client of ours, Procter & Gamble, they have over 200 brands. They advertise in almost every country. So if you're buying media in 180 countries and you're advertising for every brand and you're spending billions of dollars a year in advertising, you want a trading platform similar to what a professional

equities trader would want, where you're just looking at lots of data and insight and having lots of power and control. You're not looking for the Robinhood of trading. We power those sophisticated buyers. My concern with our product teams is always that we're flirting with the line of making it too complicated. We have a system that sometimes feels like the cockpit of a top gun fighter jet that just has a lot of power and capabilities, but to really sophisticated traders, and we employ hundreds of people in our company to help brands. And we call the traders and a third to a half of them came from equities trading. It's the same sort of mindset with just a different level of fungibility because one thing that's just inherently different

about advertising is you're essentially trying to predict human behavior. You're trying to predict what ad is more likely to create a response in somebody than another one. And because this all centers around human behavior, no two ads are the same. One ad on MSN can be worth a $10,000 CPM. And CPM means cost per mill, which is Latin for thousand, so somewhat confusing. But it could be worth a $10,000 CPM because this person's right about to buy the product and it's worth a lot. But one second later, it can be someone that you're not going to advertise to at all. So that impression is worth nothing. And so you contrast that with a share of Microsoft is the same as another share of Microsoft, but an ad on MSN can be worth something very different than the next

ad on MSN, which happens a millisecond later. And that volatility in a way is a trader's dream. Of course, that's what traders need in order to make money is they need movement in the market. But with all of these different interests and this has a different utility to every buyer, it becomes a very complicated thing to look through roughly 13 million ads available every second on the internet and choose which 1,314 should Procter & Gamble by or which 973 should Nike buy or Coca-Cola or anybody else. That process is extremely complex mathematically, but there's also just lots of room for humans to hypothesize about what will help people respond or what will be appealing. It's an amazing convergence of art and science that in order to

get allegiance, you really have to align your interests with either buyer or seller, and we chose the buyer. One of the things I love thinking about and talking about with others that have done it in software is this notion of inventory legibility. So you mentioned 13 million ads available at any given time on the internet. Obviously, part of the value probably that you bring to the buyers is just like an understanding of their options. These are all the places you can do it. Here's some features or dimensionality of these places, their performance in the past. I'm sure there's all sorts of information.

And you're trying to approximate me like the perfect state in the world. Like if I'm an advertiser, I probably want to know exactly who everyone in the world is and where they are right now and how I can get their attention. And you can't get that exactly, but you try to get that aspirationally. How did that part of this, like inventory legibility? How did you build it? Talk about its importance and like the dimensions of it as a key component. of your business. I just think so many interesting businesses through

internets and digital history have done something like that. It's still evolving. We are still in our infancy as an industry in particular. And it's largely because of that difference in fungibility. There's just all sorts of metadata about a specific impression and impression opportunity, an impression being just an ad showing up, that if I can know, of course, in a privacy safe way, anonymized identity, that's super helpful to know if this person's interested in cars or is interested in baseball equipment or anything else. It helps to, of course, understand what you might show them. But also, what content they're on. Oh, they're on Yahoo Finance right now. Oh, well, I know that they're

much more likely to be in the business of banking or brokerage or any of those sorts of things. If you listen, then you can create data hypotheses that you can test. And it's not that expensive to test them. and then you can find products that appeal to specific types of people, and you can look-a-like model forever. So on the advertiser side, it's largely about look-alike modeling. On the publisher side, it's largely about creating the right metadata so that people choose their inventory, and that metadata is something that is evolving all the time.

How many ads is a user seen? Is it top of the page or bottom of the page? What sort of content is it with? What sort of brand safety does it have? There's a lot of discussions right now happening around brand safety, largely because ownership of Twitter has changed pretty dramatically. Those instigate lots of conversations about the brand safety of user-generated content, for instance, where right now I would say the value of user-generated content has gone down

fairly dramatically, partly because of its brand safety, but also because of just the supply demand imbalances. 90 million hours get uploaded to YouTube every second or whatever makes it so that there is a ton of supply, and then a lot of it is stuff that advertisers don't necessarily want to be associated with. So there's market dynamics in supply and demand that make the price change in, for instance, user-generated content. But then there's also just, if we're selling premium content, what else can you tell me about it so that I can know that this is appropriate for Nike or for Coca-Cola or for Procter & Gamble? And that process just continues to evolve,

continues to get more detailed. And it does just like financial markets, that over time, if I don't know what's on Citibank's balance sheet, like we didn't in 2008, then it can be worth less than the sum of its real estate. I don't know what negative thing could be in there. That skepticism that comes from markets being burned becomes a very important dynamic to the ecosystem evolving and growing. And it's actually this topic when I first pitched Jerry Newman or a common friend, the deck was about price discovery. There is not adequate levels of price discovery in advertising. It's a trillion-dollar-plus industry that is in desperate need of price discovery. And our price discovery problems rival those of the worst financial markets. And that just

represents an opportunity to improve it, make it better. And that has been underway for the 13 years I've been doing this. But we saw tons of work and room to continue to make it better. I'd love to ask a few questions about what it's like building a business that you sort of know is going to serve primarily the biggest companies or the biggest enterprises in the world relative to a longer tail because there's just lots of big differences. You already mentioned, the margin differences that might exist between your margins and Googles or something. We'll come back to that in a minute. But the first one I would love to understand is just the path of your revenue as a business. This is something Jerry told me to ask you about, which is you have a relative to maybe a SaaS company that's selling. something that cost 10 grand or something like that. The revenue curve just looks different. So it's

probably lower for longer. And then when it takes off, can have this, everyone says hockey stick, but it almost can be something even more dramatic than that. I'm curious if that characterizes your revenue history, especially pre-being a public business and obviously had a lot of revenue. And just what that's like as a business leader to go a long time with knowing that that curve might look that way and how to manage all that. That just seems like an interesting experience. that you've had that not a lot of others have. I think it's all true, and it's so interesting to me that this relates back to the concepts that we were talking about at the very beginning.

If you're sitting in a CMO seat and you use our product, you spend $100,000 and it goes really well, and then you spend a million dollars, and it goes really well. Now you spend $10 million and it goes really well. I want to know who these people are. I want to understand it because before I put $50,000. $100 million on this. Now I'm betting my career. And we do have people in the biggest brands in the world that have bet their careers on our platform. I would say business is always in the business of building trust. We could replace the word business with trust building. That's all it is.

There are very few businesses that can acquire customers and retain them without trust. There are some. They don't have customers. They have hostages. But for the rest of us, we have to win their trust every day. And the only way I know to do that is hire great people who can connect with other people and try to do what's right for them so that they're willing to bet on you and that you're betting on them. When you get to that inflection point where it goes from 10 to 100, it's not about numbers, it's not about efficacy.

Of course, you have to have those too. But the thing that keeps somebody from saying yes is whether or not they trust you, whether or not they believe in the vision. And that's why it comes back so much to the vision of what you're trying to create and how you're trying to help. Fortunately, we had a vision from the very beginning that was meant to service the byside so that when we sat down with the biggest marketers in the world, we said, we built this business for you.

You might not have known it, but six years ago, when we started writing code, it was so that we could sit down and have this conversation right now today. I don't have conflict of interest that the other players that are asking for your money do. And I'm willing to be very transparent and open as much as I can to show you that we're doing this for you and that we have your best interest at heart. And we believe just fundamentally, business is about win-wins. It has to be in order to be sustainable. Either you have to have a win-win or you have to have hostages, not customers.

That's it. Those are the only two ways to create sustainable business. How long was it from first line of code until you pick the substantial revenue amount, $10 million or something like that? How long of a period are we talking about that you had to have this? The revenue data is not going to be the thing that we're optimizing for because we're realizing we're building something complicated for very big buyers. It's going to take time.

I'm just so fascinated by this period. So I'm curious how long it was. It was probably like two and a half years before. We did like $15 million in revenue. I operated on the philosophy of raise as little money as necessary to get to profitability. Most of our competitors had raised $100, $200 million. We got to profitability on less than seven. And we kept it really lean.

I think we did that with 30-ish people. We were trying very hard to get to profitable. And then the second we were, our goal was to have $1.00. and profitability the next year, take every dollar and reinvest it in the business. It was in that phase where we were just starting to grow companies from the thousands to the millions. And that was about building trust. But managing the growth during that phase and then also growing the team from 30 to 40 to 50,

like 30 was such a sweet spot. It was really almost lucky in the sense that we could be highly effective with 30 people. And that's also where you have a camaraderie and you have a culture that is really easy to manage when you're at 30 people. It becomes much harder at 50 and 100. And 100 is a very interesting ceiling where things start to change. But managing at least 10 companies to above a million dollars a year in the first 50-ish people was a really fortunate byproduct of our business model that made it. So we developed good habits and were really good at building trust during that time so that we could do it as we scaled and made certain that the people that came in after 100, which I think for the

first 85-ish people that we hired, I made every offer myself. I was very careful about protecting the culture and making certain that we had people that we could trust. But having done that, now is when it's really paying dividends because those people are doing the interviewing. Those people guard it with the same protection, and they pass that on to the other people that are doing interviews that have only been here for a short time. We're coming out of an era where almost the exact opposite of the story you just told had become the norm, where because money was so freely available, companies raise tons of money. Often they'd raise as much as you raise to get to profitability in their first round, just like get set up. And I think obviously that's changed

in the last 12 months or so. Who knows what the next couple of years will look like. But if you're giving advice to people trying to build a profitable technology business with relatively few people and relatively little capital, what do you think the key ingredients of that were for you? What do you look for in a team? Let's say you were just an investor, which obviously you're not, but if you were investing only in companies that were young, it looked like you did in the early days, what would be the markers to you of a company that might be able to do this in this capital efficient way. You have to buy into the vision and you have to buy into the psychological profile of the founders. And it is more than just the CEO. I mean, I had an amazing co-founder from the

very beginning in Dave Pickles, our CTO. He and I made promises to each other that, one, we would keep conversations going as long as we need to to resolve any differences, even if that ended with us agreeing to disagree. And that as long as he and I would stick, to that, we could avoid what I think can destroy and has destroyed so many software and tech companies, which is that business and engineering eventually hates each other. Business thinks you've never had a date, you don't understand people, you don't listen to the customers like I do every day, you don't even know what to build. And the engineer says, well, you're the C++ history student who doesn't have any idea how amazing my product is. And if you just knew how to sell

and the contempt for each other just grows. Dave and I said, as long as we have the commitment to resolve that, we can solve anything. I would look for founders that had the psychological profile to be incredibly ambitious, to be open-minded and humble, to have a very clear vision, and to invest in people first. But that also has to come with an understanding of money. Like the values, when I say we have to have common values, You have to have respect for the value of money. And I find that often investors now are the problem of the way Sand Hill Road has grown and the way it's evolved.

And this swing for the fences mentality, I want to put as much capital to work as possible. That has killed as many companies as any other variable that's killed companies is abundance. I think about this concept all the time in parenting, which is you cannot simulate hunger. You cannot simulate poverty. If you can somehow harness the ambition that comes from either of those two things, you will go faster. That's something that we did early on. But it wasn't because we couldn't have raised more money.

It's because we were committed to owning our own future and not selling it before we did anything. How does this manifest in parenting? What does that idea translate to practically in how you've parented kids? With the concept of you can't simulate poverty or hunger, it's really hard as a parent when you have abundance to not give to your children. It's just super hard not to, especially if you grew up without, and if you were literally, like in my case, at times hungry, it's really hard not to give to them. I find that it just becomes really important and takes commitment to expose them to other

people who don't have what they have and to expose them to hunger and poverty, not just to observe it from the outside, but to interact with people, to understand them, to get to know them, to care about them. Only in that can you make up for what I imagine many people listening struggle with, which is you've created something that can help the people in your life have things and that often can rob them of the things you want most for them if we're not super deliberate. Fascated topic. We could probably do a whole separate podcast.

on that one theme so that we don't get completely off course here, although I'm tempted to. I'm curious, if you think about the business and imagine a whole room full of investors or something, what do you think the most interesting or perceptive question that an investor could ask you is about the business today? It's interesting. One of your previous guests, who I'm a huge fan of Gavin Baker, during our IPO Roadshow, he was saying, why doesn't Google win? Why do you even have a chance?

he and I went back and forth a lot on this. And I don't think anybody has a chance to compete with Google and search. But I do think they do in my neck of the woods, which is buying the rest of the internet. Gavin and I went back and forth on just the value of objectivity, of aligning my interest with the buy side. and explaining why I believe it's a buyer's market will be for the foreseeable future and why that puts us in a power position. But the value of objectivity and just debating that. I mean, it's part of the reason I'm such a fan of his is I feel like he honed in on teasing

out the very thing that I was struggling with when I decided to flip the S1 public. Like, am I sure that objectivity can really matter this much? and that if I have that objectivity and I continue to build trust, then I can get brands to trust me with their first party data. And then with their data and our decisioning technology, we then can compete with Google and their data. Do I really think I can compete with arguably the most successful company in the history of capitalism? That was keeping me up at night. It does become a psychological question when you're wrestling with that yourself and looking at the immense success. of a company like Google and the extreme dominance that they have in search in particular.

I think Gavin challenging objectivity and really, really pushing on that to tease out whether or not that's sustainable and still there, I think anyone who's trying to understand our business or challenge us should really think through the chess match that relates to objectivity. And only then will you get really comfortable with our business model or the Trade Desk is an investment, for instance. We've alluded to a few times. I don't want to lose it this time, which is the margin structure difference between you and a Google.

Maybe just describe what that difference is and then what that feels like, like running a lower margin business than a higher margin competitor that in very simple terms is sort of doing something similar and just the implications of that for business because it's very hard for businesses to go into new lines that have lower margins than their current ones. You'd much rather go up the margin chain. Maybe just say a few words about margins compared to Google or just in general. To keep it relatively simple, Google makes most of its money from selling ads on Google.com or ads on YouTube. And when you upload a video to YouTube, you're essentially giving it to them.

So the cost of goods sold for Google is zero. When the trade desk buys ads on Hulu or on Peacock or on Paramount Plus or any, website or on Spotify. A lot of production went into that streaming content. Yellowstone was expensive. We show ads on HBO Max. Their content is super expensive. You have to make it.

So instead of a dollar came to us at Google, we ran ads on YouTube, and we gave somewhere between zero and a nickel to the content owners on YouTube. Well, in our case, roughly 80% of it goes to the content owner. That's the only way that premium content in the connected television world can sustain itself. And in fact, everyone is spending lots of time trying to figure out how to make it more. How do we make the ads more effective so that the CPMs can go up so that we can create more content? Everyone wins in that. Consumers like that, advertisers like that, publishers like that.

That is the ecosystem. If you're used to doing it at really high margins, you sort of have an inherent problem in playing in the open Internet. Yeah, it's a fascinating difference. and I just like the different orientation. It's a different game. If you're playing Google on their terms on their game, like you said, probably not a competition you want to be a part of, but if things are different, you have a chance to win over the long term.

If you think about the whole firm's history, what stands out as its defining moment? What is the story if there is one that pops to mind of a defining moment in the trade desks history? I'm not sure if there's any single moment. I mean, there's just so many milestones where when we first got funding, and we had investors that believed in us, that was a big moment. When we first got profitable a couple of years in, that was a very big moment.

We had a bunch of small customers, really tiny customers, but we managed to win millions of dollars. The very first client that we won millions of dollars for was Chili's restaurant chain. And our team was obsessed about it. They were eating there. They were stocking Chili's restaurant parking lots, trying to look for traffic patterns and get data insights that could be a applied to advertising campaigns, which actually that process is what gleaned insights that made it

so that they got rid of half the waste in their advertising budgets and were super effective in that scale, and created case studies that we then took to others and winning so many customers and then people believing in us at agencies and people taking risks. I'm so grateful for so many people who took a chance. And then I just love it when you get to pay them back by it working out in their favor too. We had just so many of those moments. And then when we went public, that was a big moment. When we hit a thousand people and employees like that was a big moment, there have been so many of them. I've been so proud of the partnership that we've established with Disney recently and just so many amazing milestones, even in that partnership were, like I said,

Procter & Gamble, the biggest advertisement in the world, and just so many milestones that we've reached with them and so many others, too. Well, we didn't have time to go into some of the really super interesting complexities and intricacies of the business just today on the call, I encourage everyone to go study the business as an example of how powerful price discovery can be. I actually remember thinking about this, Gabe Layden, who was a huge buyer at his prior company Machine Zone of ads, gave this interesting talk that maybe we can link to, basically admonishing people, like, if you don't give ad buyers the tools that the trade desk does, you're in the Stone Age.

We sort of demand more transparency, understanding, liquidity, like all the things that a good market system, price discovery system brings to a big buyer. And I think it's really interesting. It's a great little case study for how powerful that mechanism can be inside of a marketplace. And I wish we had another hour to talk about it. I'm thankful for everything you've talked about this. So interesting and can't wait to study more about the business. I think you know my traditional closing question, what is the kindest thing that anyone's

ever done for you? I love this question so much. I admit there have been some of your guests that I've skipped to the end to hear this question, to hear their response to this. It's an agonizing question, though, because there are just so many amazing things. And just in general, I just find one of the greatest things in the human experience to have people that believe in me, whether it's investors that have been here from the beginning when nobody else did or whether it's my aunt who went to her. financial advisor and said, I want to put money in the trade desk. And he said, don't do it. The multiples is too high. And she said, do it anyway and put more than she should have in in terms of just portfolio balancing. And then to see her do really well, it's hard not to get emotional thinking about how many people along the way have bet on me specifically or on the company. I find that just incredible. But to pick a specific incident, I'll actually go just outside of business. I know most of your guests answer with business, but I was in college leaving Vegas

and I had no money. I had this weird idea that if I could make it home in two stops without filling up my tank three times that I would save money. So I was running on fumes. I ran out of gas and on the side of the road at like 11 p.m. in the middle of the desert, a cop came over and my initial reaction was to say, oh, great. Now I'm in trouble. I don't have any money. I don't have any gas. And the cop put us in the back, was me and my girlfriend at the time, and drove us to his house to get a gas tank because that was much closer than a gas station and brought it back to the car and filled it with the gas container that he had for his lawnmower. Because I spent so much time studying people, I'm not usually that surprised by people, but he stunned me. Why would he

do that. He doesn't know me. Such a stunning act of kindness. It's hard not to think about it and not be inspired by and try to do something similar. So that's the one I'll pick. I love it. Wonderful closing story. Hopefully everyone can do their own version of that sometime today or something. Jeff, thank you so much for your time. Patrick, thank you so much. Really appreciate it. If you enjoy this episode, check out joincollasys.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.