Invest Like the Best with Patrick O'Shaughnessy - John Collison – Growing the Internet Economy - [Invest Like the Best, EP.178]

Episode Date: June 16, 2020

My guest today is John Collison, the Co-Founder of the digital payments company Stripe. Stripe’s mission is to increase the GDP of the internet, a lofty and deeply interesting pursuit. John is clearly a voracious learner across business and investing, which you’ll hear instantly. He started Stripe with his brother Patrick when he was just 19 years old, and has grown it to, at last valuation, a $36B business. In our conversation, we discuss conglomerates, the internet economy, the power of writing, and why board members are like Pokémon characters, each with different powers. It’s a lively and wide-ranging conversation with one of the entrepreneurs I’ve most enjoyed speaking with. Please enjoy.   For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes (1:30) – (First question) – Interest in industrial conglomerates (9:10) – Their thinking on acquisitions vs starting new companies (11:42) – How the payment landscape looked when Stripe was started (15:55) – View on the internet economy (20:09) – Exciting possibilities for the future of the internet economy (22:11) – The forces of size vs speed among startups (26:53) – Driving reasons why employees choose Stripe starting with clear communication (28:55) – Tips for better internal communications (30:09) – The importance of rigor in Stripe’s corporate culture (32:15) – Investors and investing styles that are most intriguing to him (36:02) – Teaching vs experiencing business lessons (37:56) – Lessons from going to market with new ideas (50:58) – Allowing teams to explore new ideas at Stripe (44:11) – Best startup companies to study to understand the history of this space             (44:52) – Softwar: An Intimate Portrait of Larry Ellison and Oracle             (48:18) – Cable Cowboy: John Malone and the Rise of the Modern Cable Business (48:43) – Infrastructures of internet businesses that are missing (52:03) – Does general accounting practices need to change to capture the true value of a company like Stripe (1:01:53) – Shared playbooks in Silicon Valley (1:02:02) – The transition to the no code movement (1:08:22) – Other businesses that pique his interest outside of software (1:10:21) – Future trends that excite him (1:11:10) – First memory when he felt like he was participating in the tech economy (1:12:46 – The role of board members (1:15:48) – Kindest thing anyone has done for him (1:18:49) – Advice for young people Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on Twitter at @patrick_oshag

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, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of 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 Oshonosi asset management may maintain positions and the securities discussed in this podcast. My guest today is John Collison, the co-founder of the digital payments company Stripe. Stripe's mission is to increase the GDP of the internet, a lofty and deeply interesting pursuit. John is clearly a voracious learner across business and investing, which you'll hear instantly. He started Stripe with his brother Patrick when he was just 19 years old, and a lot of has grown at two at last valuation, a $36 billion business. In our conversation, we discuss conglomerates, the internet economy, the power of writing, and why board members are like Pokemon characters, each with different powers. It's a lively and wide-ranging conversation with one of

the entrepreneurs I've most enjoyed speaking with. Please enjoy. So, John, I think a fun place to begin this conversation would be probably unexpected to the audience, which is with industrial conglomerates. I'd love you to explain why you've been interested in industrial conglomerates and some of your research. And then I want to talk about some of these principles applied to technology companies. But first, explain why you're so interested in this interesting niche of public companies. Oh, gosh, that's an interesting place to start. Well, I think, look, most of the technologists, I know, are really interested in studying the history of technology because you want to not just be a one-h-winder, you want to not just have one product that works and then passes by, but you want to

be able to surf multiple waves. I think all the kind of people have been talking recently about how much of the S&P 500 is now made up of the Google's Facebook's, Microsoft's companies like that. I think if you look at all those companies, what's impressive about them is how they've managed to surf multiple waves and have multiple successful independent lines of business. And so Facebook making the move to mobile successfully, integrating acquisitions successfully, Microsoft missing the jump to the internet and kind of browsers, but initially, but now having many, I think it's six or seven independent, the dollar revenue businesses. And so most of the technologists I know are really interesting this topic. What I find interesting to look at

is how it tends to be different outside of technology and the different dynamics you get in conglomerates and kind of enduring businesses in other industries, because we're kind of used to the particular way in which technology likes to do it. You talk to investors and they'll often be following successful companies like Transdime in aerospace or Danahar, the industrial conglomerate, LVMH in the luxury business. They own Louis Vuitton and somewhere, the champagne brand and things like that. What I have found interesting in looking at these, first off, as you probably know from these, there are tons of really spectacularly successful companies that have grown at high

rates for years and years and years outside of technology. Domino's Pizza is another one that people like to talk about because it's actually grown more impressively than all the technology companies. And that sounds incredibly obvious to say, but sometimes you have to remind people in Silicon Valley that this is the case. And the way they tend to do that is somewhat different to what happens in technology. And in particular, you get a lot of these, if you look at single industry conglomerates, the classic conglomerates are maybe the Berkshire Hathaway is very famous for just having so many different intellectual hobbies of Warren Buffett under one corporate structure. are in Nabisco is probably the classic multi-industry conglomerate. It's like what is a cigarette manufacturer and literally a cookie, you know, an anchor of Orios doing under one corporation. But if you just look for a second at kind of the single industry conglomerates, like some of the ones I mentioned,

like LVM Agent Beauty or Trans-Time or something like that, it's actually pretty interesting. Vail Resorts might be another one actually. Probably that owns many of the ski properties in Vail and Heavenly and places like that. It's really interesting how they work, which is, Firstly, you have, there are very aggressive acquirers. A lot of their growth has come through selective acquisitions, made at good prices. What's interesting is that then they often give the managers of the acquired companies still a loss of latitude in how they operate and how the companies work. And so it's not the case that they're really deeply, tightly integrating them to the one platform. They're not kind of slurping up all the employees and making them work in a whole new

way, they actually are going to buy these companies and then don't integrate them that tightly, but have still driven really interesting performance as a result of that. And it's interesting because in tech, it feels like we only really have one of two modes. One mode is, there are certainly companies that have done acquisitions really, really well. I mean, Salesforce is probably one of the, or Cisco, maybe. Those are two of the most prominent examples where they've made acquisition after acquisition. Salesforce will acquire a company. They acquire desk.com and turn to you.

it into service cloud. They'll make one of these acquisitions and they'll very tightly integrate it with the rest of Salesforce. And then maybe on the other end of the spectrum, you can kind of think of venture capital as the much more loose version of this where they're actually not part of the same company at all, but maybe there's kind of common elements in how they're done. But no one really has within technology done what you actually see pretty commonly in the rest of the world, which is one holding company for a whole bunch of independent businesses that are sharing expertise, they're sharing management styles, they're maybe rotating managers across them. There's one counter example, which we probably both know, Constellation Software, which at this

stage owns, do you know how many independent businesses? It's like 500 businesses. I was going to say four or 500, yeah, yeah. Vast number of independent businesses. And so one will sell like software to golf clubs and the other will sell plumbing software. And the managers will trade notes, things like that. But other than that, they're on more or less completely. Why it's not the case that's we don't have this in technology. I mean, I'm curious, do you have any theories? I don't know. When you and I first talked about this,

I think we were trying to pick apart the sort of jobs to be done for the selling or controlling owners of the businesses. And you made the great point that perhaps Berkshire is a beautiful off-ramp for those that are of a certain stage of their career or have certain priorities. It's a great home to stick a business and have an exit of sorts. And perhaps that there are far too many very young founders in technology, perhaps valuations, have something to do with this. The prevailing public valuations

of SaaS companies or whatever else are so high that it just doesn't make sense to run the classic old Henry Singleton issue at a high price, buy it a low price strategy that made that conglomerate so interesting. I'm curious if any of those resonate with you. Yeah, I think those are some of the natural phenomena to talk about. I think venture capital feels like it must have something to do with this, both the fact that, as you say, valuations of technology companies tend to be fairly healthy and best. This strategy in a way works because all those kind of serial acquires, we mentioned, are able to just do loads and loads of acquiring of businesses at essentially reasonable prices. The other thing that maybe is interesting to think about is, is there a platform

for common knowledge and best practices that you need in other industries, but actually is provided by venture capital in tech. A classic thing that's Danaher, the industrial conglomers will do. They were really big into, I mean, especially in the early days of their growth, at rolling out the lean manufacturing, you know, originally from Japan, these lean manufacturing techniques with classic American industrial companies. And so this was a way in which they could have a set of best practices such that when they acquired a business, it would be better, it would perform better as part of Danher, as opposed to as an independent business where maybe didn't have these best practices. And as I look at kind of the tech landscape with venture capital, one thing

that's striking is you can be an eight-person firm. And you actually have really good access to best practices. Our main VC is Sequoia Capital, and there's a huge amount of expertise in that firm that you get to kind of unlock when they invest in you. And that's the case across lots of other of the venture firms in Silicon Valley. Some of them even have in-house recruiting and executive recruiting and things like this, like actual in-house functions built out, such that in a way it's, you're getting a little bit towards that common platform that maybe the conglomerate would have had, but it's a VC firm and it's kind of provided on a service model. And so that's maybe another reason is that you actually don't need a condomerate to achieve that best practice sharing.

And of course, this is, by the way, something we're trying to do at scale with Stripe, which is we think about what are those Silicon Valley best practices and how do we get them out to the millions of internet businesses over the internet with things like Stripe Press and increment magazine and stuff like that that we can do. Yeah, there's an interesting two-prong thing here where you're both trying to increase the ease of starting an internet-based business, but also obviously running a large business yourselves where making smart acquisitions of other businesses could be a great strategy. So I guess I would turn the question into just how you think about it.

As someone allocating capital inside of Stripe, I'm sure you've made acquisitions and have opportunities to make others. I guess the way I would frame it is, why haven't you made more? If you're running a business, being able to get into the point where you can run it by acquisitions, not being in that kind of business myself, it seems like a very pleasant way to run a business, because you have this fairly easy way that you can take capital and turn it into incremental growth, for the business. I can imagine Stripe will get more acquisitive later on in its development. I think as we look at where Stripe is and what we need to do on the product side, honestly, there's just lots

of really low-hanging fruit that we kind of have to do ourselves internally. And so as we think about expanding Stripe internationally or making it even easier to get up and running with Stripe, that's one of the core ways that we have always differentiated the product since we got started is, You know, we want you to come along and in five minutes set up a business by signing up for strike. If we want to make that three minutes, that's not something we can really acquire a business to do. Whereas as companies get more mature, it tends to be about platform breadth. I think you can then augment that platform breath with acquisition. So I think it's probably a bit of a stage of life thing.

The other thing that's maybe relevant here is, again, what we've been building. I actually think it's been helpful that up to now, we haven't grown it with acquisitions. This is a little bit getting into the kind of payments industry, wonkishness, but the previous generation of companies that people had to use to accept online payments were often assembled through strings of acquisitions. The global platform that people would be using was actually kind of seven different platforms knit together by various acquisitions. What that meant was that for the end customers.

It was incredibly painful if they were going to expand to region. They would have to change the integration. They would have to even more engineering work to do that. I think, again, part of what's helped Stripe get to this stage, is the fact that we made a decision very early on that we're going to start from the ideal API and work backwards. And so what is the API I want to be able to accept money from people all around the world? And then we'll do the tough work to standardize that and not expose it to our customers. And so I think in a way it's been valuable that we haven't provided too much on

acquisitions for international expansion. I think if you're going to have an acquisitive business, certainly in technology, you need to have a plan for integrating them well. I think we have a neat opportunity here to do a quick crash course on payments more generally. I don't want to take for granted that everyone in the audience understands exactly how this works because everyone pays for stuff all the time. Probably very few have thought about what's going on behind the scenes. So I'd love you to lay out maybe what the landscape looked like when you guys first incorporated Stripe. Getting into some of the details, I like the wonky details around facilitators and processors and banks, card networks. Some of these

are the best performing stocks, Visa and MasterCard of the last decade, really. So I'd love you to lay out what it looked like when you got there, and then I'll ask some questions around the evolution since you guys have been building. Oh, I was hoping you were going to provide the crash course in payments. I'm still figuring it out. I mean, that seriously, but we can talk about how the industry works. I mean, the first thing that I think you have to step back and realize is just how crazy, inefficient and immature payments on the internet still are. And that sounds like a funny place to start, especially from kind of someone who runs the payments company. You'd think maybe would be better at messaging or branding at this point. But you can imagine when we were starting

stripe, it was actually really hard, say, when you're raising money for the company, one of the biggest obstacles we faced was people thinking, this is just a solved problem. Aren't there already ways to accept money on the internet? It's the year 2009. I'm pretty sure we got this thing figured out. And having to kind of repeatedly explain to people, no, this is actually still unsolved. That took some effort. That's the first place to start, is if you contrast how mature the internet is essentially as an information exchange network where we have a majority of people in the world now with some access to the internet, especially with all the recent smartphone growth, and it's highly interoperable. We're all, I mean, with some exceptions, we're all using the same

internet. You can WhatsApp your friend in South Africa or Pakistan or India, and the whole thing just works. Now, if you look at the systems we have for economic exchange, basically we have a highly complex, heterogeneous, and increasingly fractured and fracturing landscape. And so in the United States, people rely kind of mostly on credit cards, except for there's lots of places where bank debuts or checks are the primary way of working. In China, as a lot of people like to talk about, there was a lot of China Union pay growth credit cards early on, but that has since all flipped over to AliPay, WeChat, things like that. In India, it's really different. People were really predicting the growth of the Chinese super app model all across Asia and Southeast Asia especially.

And that hasn't happened quite as much as people expected, certainly not with those companies. And so in India, for example, you actually have the government taking a very active role in technology development, which is certainly for people in the United States, is not something they expect to see or at least see work, but it's worked quite well. So Adhah was the first their identity scheme and then UPI, which is their kind of universal payments interface, really, really cool, interoperable, and kind of built on top of a real-time switch for payments. And so that's a different system still. You don't even have to go that far afield. If you look at somewhere like the Netherlands, people online there don't actually buy with

a Visa or MasterCard. They predominantly use this thing called Ideal, which is a local Dutch bank transfer mechanism. And so the reason I bring all that up is if you want to start an internet business, say you wanted to start podcast monetization is the hip topic. you want to make a paid invest like the best. And I presume your audience is relatively global. Do you actually know the audience competition? Yeah, it's very global in most countries. Exactly.

And so you just want to be able to accept money from people all around the world. But actually historically have been, certainly when we started Stripe, no good ways for you to do that. And so that is the problem that we set out to address. And it's been really fun. As you can tell, I mean, weirdly, I've ended up passionate about this problem. we get really excited about kind of the long-term second-order effects that it drives, but we've been expanding Stripe a lot by not just building this global economic interconnectivity, but actually

over time handling more and more of the tasks that businesses find themselves faced with. But that's really how we got our start, the fact that it's really hard to accept payments on the internet. I love the idea that you guys are trying to extend the GDP of the internet specifically, which obviously payments is a critical component of that, but programs like Atlas that help companies form much faster than they could have also obviously contribute to this mission. I'd love for you to describe your view just on the internet economy, generally speaking, in terms of its size, its maturity, its quote-unquote market share. How early do you think we are in this transition? I love Toby

Lukie's line that COVID has kind of pulled us 10 years into the future. I'm curious if you agree with that and how much room there is to run for internet businesses. Yeah. Again, just like people kind of had a hard time believing that we weren't done with the payment. systems that we had at the time. Similarly, I think people don't really intuit that, I mean, if you look at the raw numbers, the internet economy is a very small fraction of the overall economy, five, six percent, something like that. The vast majority of economic activity is not internet enabled. I think it's fairly clear to all of us that that is going to flip. We're going to end up with actually a majority that's internet enabled. But that means we're really at a shockingly

early point in that sigmoid growth curve. The thing that gets me, side. And one of the things that we spend a lot of time thinking about at Stripe and trying to drive is what the second order effects are of that shift. And I think people spend lots of time thinking about first order effects of technology changes. And so if you were an analyst looking at the growth of computers in the 50s and 60s, what are the effects going to be of computers getting faster? Presumably, you'd say, well, banks are going to be able to run their calculations faster and airlines are going to be able to handle even more routes in the route calculation computers. You'd look at what computers were already used for and just kind of project that forward more and

faster. You would never forecast video games. I mean, to someone in the 50s, it would seem absurd the notion that you could have so much excess computing power, and it's so cheap that we're just going to use this for this wildly wasteful rendering of triangles. I don't know if you saw the Unreal 5 demo. Oh, yes. But imagine showing that to someone in the 1950s. their brain might have exposed. Or, you know, similarly with smartphones, I think people thought that's going to be, okay, salespeople are going to be able to do more email on the road, I mean, not predicting Uber. And so, similarly with us, we think a lot about what are the exciting second order effects

of more commerce and moving online. I think some of those we're already seeing. One is more globalization. We see this all the time with Stripe, but with Stripe Atlas, as you mentioned, which makes it even easier to start a company. We're trying to lower the barriers to creating a company. in particular, we're doing something where we're making it really easy for anyone to start a Delaware company in the US, even, no matter of where they themselves happen to be. But that means you get

way more people in countries that are not, the United States or Western Europe or somewhere like that, able to participate really meaningfully in the internet economy. And so we've seen all sorts of interesting businesses built on strike from, I mean, literally India to Venezuela to the Gaza strip. I mean, you name it. We've probably seen people building businesses on strike there. I grew up in somewhere that can charitably describe the middle of nowhere in Ireland, and I feel like the internet was a really big part of getting to where I am today. And so, again, we get really excited about commerce moving online as a global equalizer and delivering more opportunity.

That's certainly one. The second is just more innovation as you shake things up a little, change the distribution channels. I mean, over the top is a term originates in media, but I think you can apply to lots of things, is the idea of going over the top of the existing distribution channels, the existing gatekeepers, the existing strictures. We see a ton of over-the-top e-commerce where people starting stores, they have a product they're passionate about, and now they can sell to people all over the world.

As a result, you're seeing more niches possible. People starting products that they would never have had a big enough audience for that product in Limerick, Ireland. But if they can address a global audience, then there's actually a pretty big total audience for that product. And so we get really excited about the increased specialization. The benefit that it delivers to upstarts or their speeds is actually an advantage. Those feel like trends worth betting on. As you think about the sort of fringe of the second order effects, so maybe we were a few glasses of wine deep or something and sort of almost speculating about what might happen as a result of this

transition. What are some ideas that you have there? What are some exciting possibilities? One that people love to argue about is, I haven't fully made my mind up on how I think about it, but I think it is very interesting, is what happens to the dominance of Silicon Valley, in that we've certainly made a lot of, over time, Patrick and I moved to Silicon Valley to start Stripe. I think that was really beneficial for the company and where it was then. Over time, the company has been growing much more outside of Silicon Valley than within Silicon Valley. And so most people at Stripe are actually not based in the San Francisco Bay Area. Last year, we actually tripled the number of remote engineers of the company.

They're now a very significant fraction of the engineering core. But especially with COVID and, you know, companies making a temporary move to the cloud, essentially. I think this is really interesting debates as to how much of that is permanent. And certainly as we look at what's happening with our customers, with how we work, it doesn't feel like it's going to go back to the same equilibrium as it had before. The second is just one trend we pay a lot of attention to is in which industries do the incumbents get good at digital, faster than the digital native companies can grow, and in which companies do the digital native companies just outpace all the incumbents and not give them a chance? And so obviously, Amazon, we can call that the digital native one. Netflix versus Disney, that's actually maybe a bit more of an even battle.

We see a ton of our Warby Parker, obviously one of the very famous original successful digital native e-commerce success stories where they took an advantage they have of operating online, which is the lower cost structure they're able to deliver due to the direct consumer model in such a way that the incumbents actually can't really follow them. That's true Christensen disruption. But we spent a lot of time thinking about which are the industries that go which ways because it's not all this obvious to tell that hindsight. One of the things that I'm so interested in is legacy traditional kinds of competitive business advantage like size. So you mentioned incumbents. They typically have size. They often have scale economies versus what I would call an advantage that doesn't get

talked about in, say, like Porter's Forces or something, which is speed. I'm curious how you think the world is changing and how you compare size versus speed as a company that's, I think, been very fast, but it's also now getting very big. when we started, a lot of people told us that payments is a scale business. You'll never make it son and only the very large companies can survive. We're like, no, no, no, you don't realize things are different, whatever. Now that we've gotten a chance to actually become familiar in our operating, we're like, wow, this really is a scale business in that as you look at it, as you look at what's required in operating, payments is a business where you make literally pennies on a per transaction basis,

and you have to have an enormous number of them to actually be able to operate with any modicum of profitability. And you would not believe, I mean, it's fairly obvious that it's a fixed cost business and then you need to get enough business flowing through you to make the economics work. I think what's interesting is as things have moved online, the fixed costs have gone way up compared to what was needed to run a domestic-only payments business. If we think about just again going back to your invest like the best premium model where you got access to exclusive content, the smart people that Patrick interviews are only available on the paid product. And so as we think about that business and again, what just strike has to do to unlock the payment system for that, we have engineers who are based in Singapore.

They have built custom integrations with the local Malaysian bank transfer system. And they actually are now friends with the people, the engineers at the local Malaysian bank transfer system. Asian bank transfer system because it's still work in flight itself. And so they're kind of working with them on some of the functionality that's needed. And so that way, if you have someone, a listener who's from Malaysia, they can pay the way that they're used to doing so, not just with a credit card, but with, you know, a bank account in Malaysia. Stripe as engineers in Ireland, who are similarly, the French local card switch is actually different to Visa MasterCard and you need to be able to support that to be able to properly serve French customers. And so we've just been shocked the degree to

which if you want to be able to reach every global customer, there really are very large economies of skill with that. All that said, I think where it gets interesting is when you have technology shifts that happen, where, again, Microsoft had very nice lock-in and network effects with its operating systems business that helped us, while that was the dominant paradigm, I think when the paradigm changes, that's when speed is of the essence and speed is a really defensible trait in companies. And so now, okay, it's all about browsers or it's all about mobile. The question is, how good are you these days at really quickly building an operating system because it turns out to win mobile? That's what has to be the case. And by the way, I think the common

narrative is just that it's a fairly simple regression with size where small startups are fast and large companies are slow. I don't think that's necessarily the case at all where I think Facebook's a good example of a company that's really remarkable at executing quickly from a technology point of view. And they've been fairly determined in a new trend will come along, say, live video. And Facebook will decide this is something that we want to own as part of our platform and execute very quickly from a technology point of view to be able to build highly scalable products for that. Google similarly, I think they do a good job of bringing to bear all the in-house technology they've built.

that is oftentimes quite a bit better than maybe the open source alternatives that are available and using that to drive product development. And so what we think about with Stripe as we grow is, I mean, there's some elements in which we're operating in a business that benefits from scale, but you cannot have that be an excuse to let your guard down. You constantly have to be testing yourself, checking yourself, like the military runs exercises, you need to be confident that you can really quickly roll out products. two reasons. One is there's a business need to actually be able to do it. And oftentimes, in certain

parts of our business, we are competing with startups. The second is that I actually think people find it much, employees find it much more enjoyable to work at a company that's moving quickly rather than working for IBM. And so we really think about speed as a quality of life improvement of working at strength. I'd love to talk about that concept that you sort of ended with there, which is the idea that Stripe is holding out a certain product to potential employees as well, not just to customers that are going to use your tooling, but you need great people to come work there. And to hear what you think are the driving reasons why people choose Stripe and how you've refined that over the years. I'll throw one example out there, which is this commitment that you guys clearly

have to extremely clear communication, both internally and externally, often in documentation and writing form? Is that something that you do deliberately to attract more talented people? And beyond writing, what else is important? The great philosopher, Pateau Levin said, Stripe is a celebration of the written word, which happens to be incorporated in the state of Delaware. I'm not sure I go quite as far as Patrick, but it is a pretty important part of the culture. And we're almost shocked that the returns to writing well are really high, and it feels like the world hasn't fully internalized that certainly when you have a 3,000-person global company as Stripe is, we're going to need to do lots of asynchronous communication, and also, obviously not everything is going to the entire company,

but generally documents have many more readers than they have writers, and so it behooves you to put time into pure communication. And so we have always been shocked to the degree of the under-emphasis that people place on kind of crisp written communication, and we try to do that both internally in artifacts and externally, where we often talk about this on, say, the marketing side or something like that, that one of our principles when it comes to doing marketing at Stripe is that we speak up to the reader, not trying to dumb things down for someone who isn't familiar or something like this. You are speaking to an intelligent person who is busy, but knows what they're talking about, knows what they're doing, and it's your job to kind of

help educate them on this. We've certainly made that a big part of the culture early on, and I think, I mean, like any culture, it's self-perpetuating. I think people for whom that's in important, tend to be drawn to us. Any tactical tips on what you think makes for good writing of this style? I'm especially interested in the internal communication component of this, which as companies get more and more distributed, which now seems even more likely to be the case for a lot of businesses, this is just going to get more and more important. So anything that you've learned or improved since you originally made a commitment to this

that you think others might be able to adopt? The classic one is still, I mean, I do a lot of editing of written material. at Stripe, and I still find myself leaning on that it must be a cliche at this stage, but the, how would you explain this to your friend in a bar? I presumably wouldn't in this day and age X, you're not allowed to go to bars, but how would you explain it to your friend over Zoom, say? And people somehow adopt a voice that is full of complex filler corporate jargon when writing in a corporate environment, and then if you ask what does Stripe Radar actually do, oh,

it prevents fraud for businesses. Why don't you just say that? I found that as a really useful device. Another device I tend to use is get people to read something and then just tell me everything they can remember for it and then basically delete everything they can't remember. I mean, not literally. But I think people, most things tend to be too long

and not edited tightly enough. I mean, there's plenty more, but I find those are some of the tactics I keep coming back to them. What other key cultural elements of Stripe do you actively nurture like you do the emphasis on writing? When we talk a lot about, is rigor. And this shows up, I think, in different places, in different formats. But a lot of what we're doing, there's no playbook for. It's interesting. I mean, as you look at any business, what are the

parts of their business where they can just take the best practice from everywhere else versus what are the parts of the business where you genuinely have to invent and genuinely be novel? And in our case, certainly the API for Stripe, a huge amount of the internal payments engine, that's new and requires invention. And so as you go work on that, there's probably a thicket of existing ways that it happens, beliefs people have about it that may or may not be true and may or may not serve you. And so what we've tried to get is having people five whys, the problems that they're working on, and really get down to the root cause. and that's proved from a product development point of view, that's proved really useful for getting the right products out there. And so, I mean, to give you a trivial example,

when we started Stripe, we were told many times that it was not possible to offer instant setup for a product like this. And so again, imagine Stripe part of the value is that you can come along in five minutes, sign up for a Stripe account and get up and running. Many people within the banking industry and payments industry told us, well for compliance checks and underwriting and AML and, you know, various scary sounding acronyms. It was just simply not possible. And I think the rigor piece comes from continuously chipping away at why is that the case?

What's the underlying reason? Where is this written down? But kind of constantly drill-bitting. And that's something that we broadly try to teach from a product development perspective at Stripe because that sort of rigorous product development methodology writ large is how you get original thought in a product development organization. Seems to me like you've studied investing as much as anybody in a position like yours. And I'm curious which investors or investing styles have taught you the most lessons.

I think it's certainly useful to study investing because what is it, but the act of allocating capital to the most productive uses. And that is what the stock market does. I think that's what the American stock market does, a remarkably good job of doing is this incredibly efficient engine for allocating capital to the most productive uses. When you're running a small company, that's not really what you're doing. And I remember the first time I read the book, Outsiders, you've presumably read of these case studies of agents and CEOs that did remarkable jobs of capital allocators. Remember the very first time I wrote that book. It

didn't really resonate. And the reason was because striped is a small company and we're only just we're doing one thing. And so I don't get this book. We're just working on our business. As the business grows, what happens is you have multiple different investment opportunities. And then it becomes very like investing, where again, the name of the game is allocating scarce resources. In the public markets, that's capital. Internally, a company tends to be a little different. Maybe it's scarce engineering resources or scarce management bandwidth, something like this, towards the most productive use. And I think when companies that are really successful are the ones that internalize this lesson and operationalize it. And so Amazon, if you, I mean, they're, you're, you, you're, you,

well cited here for a reason. But I think they are probably the tech company that are closest to being pure capital allocators in how they work, where they have a very strict and intellectually rigorous framework for funding new bets and allowing people to try out new things. And then the initiatives that are working, they really pour gas on. Alexa has thousands or maybe tens of thousands of people working on it these days, because it's one of the things that works. the initiatives that don't work, just get resources withdrawn from them or eventually get shut down or something like that. And so I think as a company grows, the outcome for the company really depends on how good a job they do at putting resources towards the most productive use of them.

And by the way, I've often found that investors, when giving advice to operating companies, have a really good knack for saying intelligent-ish-sounding things that are completely non-actionable. An example of this is an investor at a board meeting who's like, well, you really want a deep moat around your business. and you're like, we're just trying to run the business here. How do I do that? And so similarly, I think placing resources towards the area of highest future return, I mean, that is the framework for what all businesses are trying to do. It's actually not that actionable when you think about it,

both for two reasons. When you tend to have competing time horizons, should I be looking for a return over one year or over 10 years from now? And there's no great answer to that. And it's hard to know without the benefit of hindsight what the best return is going to be because you're dealing with so much uncertainty. But I find that a useful framework for thinking about that with Stripe because we are really fortunate to have a huge number of potential areas in which we can expand. One area in which we're expanding is internationally.

And so we just launched, I mean, just last week, we launched Stripe in Romania and Bulgaria in a handful of other new countries. And we continue to invest resources in making Stripe available to businesses in more countries. But then we have all these interesting software products that we're developing that solve additional problems for businesses. We have our Stripe radar for fraud prevention, or we recently started lending to businesses on strike. And so that's another potential use of resources. And so again, you are making these essentially capital allocation decisions, which is should the marginal team work on fraud prevention or lending or international expansion? And it starts to give you a framework for thinking about that. How much of that do you think can be studied and then applied versus you have

to learn it through experience? Actually, another way in which strike tends to operate is we think a lot of this stuff can be studied. And that's not to say that, I mean, the experience isn't useful. It absolutely is. But as we develop our frameworks for thinking about these things, we try to at least come at them from an informed perspective. And so as we've looked at something, say like how you do company planning, how you plan what the company will do in 20 or something like that. This is the bane of our existence. I think it's the bane of our existence. I think it's the of every larger company's existence where it's just a bear of a process and we continue to tweak it and try to make it less of a bear. But one of the things we did is we were putting this process

in place is we went out and we studied how do Apple do it, how do Google do it, how do Amazon do it, how do lots of other companies that have been this before do it, and what can we learn from those? Because I think an interesting thing that's happening in the technology industry is since there's so many employees who've been at different companies or things like that, there's almost a shared playbook that's being built on how we work. Companies wouldn't like to hear it as described that way because they're like, wait a second, that's our IP. But that's basically what's happening is there's a collaborative playbook that's being built in Silicon Valley, which is kind of the set of best practices for how we do things. Google imported lots of, Google is famous for OKRs. Google

invent OKRs. They took them from Intel. Facebook really built a lot of its advertising engine based on the prior arts that Google had established. And so I think if you are operating a technology business, you would be mad not to study all the companies that have gone before you. And that's not to say you just get fork their processes and run like they do, but you study them, you see what you like, you see what they don't, you see the set of tradeoffs they made for their business, but probably mightn't be the right set of tradeoffs for your business and you go from there. So we certainly tried to come from a place of being informed. You mentioned that you recently launched in a bunch of new markets in Europe, Bulgaria, Romania, etc.

I'm curious what you've learned about going to market with new things. So we've talked about speed and the sort of range of things now that Stripe offers in this mission to help internet businesses grow and begin life. What have you learned about effective ways of having a successful launch of something new? Not just a new country, a new anything. A new anything. One funny thing that happens is new things at Stripe are almost always started by really tiny teams.

I think that any announcement that you've seen from Stripe probably was a team of less than 10 people when it launched, and certainly it was a team of less than 10 people and often less than five people in the kind of core part of its gestation and its development. And I think that is really important. I think it's often easier to get fast work done with a small team versus a large team. And also, I think the classic big company mistake is to throw 300 people out a problem, and have them executing for three years before getting any market feedback. The case of the original version of Stripe, Patrick and I built the first version of Stripe, and we had the first customer using it within three months of writing the first line of code.

That was really helpful, because then we had actual validation, customer feedback. No, it's useful. No, it's not. You're not working on the wrong things. Some people call this the Lean methodology. Lean is a little bit different in a bunch of ways. I do agree with the basic spirit of it, which is when launching new things, you really need to start them small and make them earn their way, make them respond to customer feedback and see if they actually work. And again, this ties into the resource allocation, capital allocation framework that we were talking about a little bit there. So that's definitely anything

you see that has been launched from Stripe and probably a pretty core team. They might have gotten help from lots of different parts of Stripe, but it probably had a pretty core team that was working on it. That's one thing. The second thing, this is probably fairly obvious, but is, worth calling out is that most markets are not like the United States. And honestly, I think one thing that's been pretty helpful for us is, I'm obviously, as you can hear, not American, Patrick is not. Stripe has lots of people who are not from the United States, working in the United States, and now we have lots of global offices around the world. And so there really is a very global, diverse perspective within the building. And as you think about engineering products, Stripe as a

global economic infrastructure provider, it's really important to have those perspectives, because the product that succeeds in the United States is actually going to be very different from the product that succeeds. I mean, even in the UK, never mind Japan, never mind India. Commerce is very culturally nuanced, and a business in Indonesia is not going to buy from an American company who thinks that they can swan in without taking into account the local considerations. And so that's been really important in our international expansion actually working. I want to go upstream even a little bit from that with this idea of a 10 person or less team that's, let's say, trying something, a source of experimentation. How do you even decide what to allow

a team of that size to try to explore? There's two ways that product development happens at the stripe, tops down and bottoms up. And when you say, how do we decide what to let people at Stripe, explore. There's a ton of exploration that's going on, that no mandate has come. There isn't any kind of sign-off process that's being established for it. And so just recently, the team that works on credit cards with Stripe, I mean, remember when I said, this really is a scale business. And you can just go arbitrarily deep in improving the product in all sorts of incredibly detailed ways that would never be worthwhile for any individual business. And so an example of this that was very bottoms up was the team that manages our integrations with Visa. We're directly integrated

with all the card network. So we have our hardware sitting in their data centers. And we noticed these occasional blips in service coverage where just really for a moment, it would be interrupted. And what we realized was that it was a failover of hardware or switchover of hardware that was happening on their end, that as a result, a few transactions would get dropped. No one would notice this. No customers really even notice this because it was such a temporary blip. But it was bothering them. And so they went and they found a way to be able to predict when one of those failovers was going to happen and anticipate it and switch over to the new hardware before it happened, such that customers wouldn't see any interruption. You get a tiny increase in the number

of payments that will go through successfully for the business using Stripe. No business could ever afford to do this optimization themselves. But in aggregate, when you add up all these optimizations, they're really meaningful. That's an example of the kind of thing that really neat and happens in a bottom-up way. I think the top-down side of it comes from what is the strategy of the company. And I think what's probably painful for a lot of technology founders is their eyes are bigger than their bellies. And there's a huge number of enticing investment areas and more than they have resources to actually be able to go after. And so there we have to be fairly disciplined on, again, if you think about these two layers of how the strike business works. One is

this really powerful global payments and treasury network that makes it easy to move money anywhere around the world. We'll be fairly opinionated in a top-down way on one of the most important initiatives for, okay, we have to make it easy for businesses in around Europe and Southeast Asia, those are two of our priority markets. We're going to make it easy for those businesses to accept money. We'll do that in a fairly tops-down way

and then similarly for the software business. And so you end up marrying together those tops-down and bottoms up initiatives where you provide high-level guidance on this is how much effort, roughly speaking, will be spending on international expansion versus software to make the businesses life easier and kind of take some of the administratia off their place. But then what actually gets worked on within those constraints will often be determined by the teams. I know you're a huge student of startup history, just like we started with industrial conglomerates, that you've also studied some of the giants of technology companies. If someone wanted to

understand kind of how we got to where we are today in 2020. What technology companies would you encourage them to study and why? It spends a little bit on what aspect of technology you're interested in because stripe sales to businesses. So I probably index more on boring B2B behind the scenes content than maybe someone who's starting a consumer company. The history of Salesforce is quite interesting to look at. to be the history of Oracle is interesting book. There's a good book on Oracle called Soft War by, I can't remember the author, but the name of the book is Soft War, Software, without the E chopped off. It actually has this really interesting format that I've never seen

in the book, which is, a guy got lots of access to Larry Ellison while writing it, but the condition for getting that access was that Larry Ellison got a right of reply within the book. And so, kind of like, you know, newspapers, have a left to the editor or something. And so you'll literally kind of see him describing some situation that happened, and then a footnote at the bottom, and the footnote is Larry Ellison saying, this guy got it completely wrong. You know, he was an idiot. I was right to fire him or something like that. Larry Ellison, it's usually something like, this guy was an idiot. I've never seen that format. It's super interesting. But anyway, I probably index a little bit more on that. I would say there's obviously tons of content on Google, Facebook,

the super prominent mainstream companies. I think the interesting things to think about are, one, there's a lot of content out there that's essentially propaganda by these companies, the blessed accounts. And so it's not like there aren't interesting facts there, but they're probably not as interesting as the thing as the company really wish you didn't read because they go a little bit off script, the official accounts, and those can be a little bit harder to find. The other one is there's a number of technology transitions that are maybe a bit understudied compared to all the prominent major internet businesses these days. and perhaps two to highlight the telco bubble of the late 90s, early 2000s, people don't really

remember this, but by market cap, the 2000 bubble was really a telco bubble and not an internet bubble, in that the run-up of the WorldCom stocks and people like that, was much larger in terms of total size than all the internet companies and things like that. And so there's some good reading to be done on what happened with that, and I really drove a lot of then the, you basically had all this investment and optimism around the growth of the internet. And I think it was either it was WorldCon that kept going around with this talking point of the internet is doubling every four months. I felt like it was going to the moon and bandwidth and things like this. That ended up with this incredible oversupply of internet capacity, fiber especially, that then made

things really cheap and everything washed out in 2001, 2002. And as a result, it was a platform on which everything else could build during that period following. That's one that's probably interesting to study. The second is actually, I was pretty interested in the cable companies that emerged in the late 80s, early 90s. This is like a particularly American phenomenon. I don't think there was really quite as much of a scramble in other companies, but cable, this new technology laying, it was a new technology platform new technology paradigm laying coax cable to all these towns across America. And you had way more, I mean, television bandwidth, number of channels possible than previously was the case. When you read it, it actually,

rhymes a lot with some of the technology shifts that we see. And so, firstly, you had actually, in our discussion of serial acquirers, we left out John Malone, who's presumably one of the most successful serial acquires of all time with Liberty Media, where they basically continued to roll up small cable companies and built a very large company out of acquiring kind of small little local cable companies. But the second thing that was, of course, interesting is it was one of the original kind of new technology company from out of town versus local municipality. And it was funny as I was reading it, when I say it was the book, Cable Cowboys. Cable Cowboys, yeah, yeah, yeah.

But as I was reading this, they describe how one of the cable companies, I can't remember who, getting in a spat with a local Colorado town and changing the programming to just be, call your mayor and tell him you want cable in your town, exactly like the tactics Uber might have used during that period when they were getting into fights with local cities. And so, again, there's a lot of history repeating itself. Those are maybe two of the histories that's bring to mind. Back to this notion of internet businesses, and of course, you guys representing a big chunk of the infrastructure that will enable this wave of businesses, what other infrastructure chunks,

inside or outside potentially of Stripes eventual scope, do you think are still missing to really make this kind of vision that you have of internet business growth possible? What's the missing pieces? Well, you really have to contrast where we are with where we were 10 or 15 years ago in that it's it really is amazing that so much of that I mean stripe is obviously part of this but the stripe is absolutely not all of this the infrastructure that you have available on tap at a very affordable price so that you can reach a global audience whether it's I mean you mentioned toby from Shopify Shopify obviously a very big part of that the tools for software development in GitHub and all the deployment hosting platforms through cloud platforms things like

This is a radically different environment than we were in 10 or 15 years ago. And I'm young. I'm 29, but I'm already at the stage when I'm talking about, well, when I started in the technology industry, and I feel like I'm that guy, you young Kripper Snappers don't realize what it was like in my day. But it was much tougher. There's much less on demand.

I'm not that old. It still feels to me like the way we build and deploy software now is not what it's going to be 10 years from now. That's going to change. And in particular, we've actually regressed a little bit where it has gotten harder to build a consumer startup than it was 10 years ago, I think, because 10 years ago, it was, you were just on the web and you had, I mean, those WordPress 10 years ago, you could use some pretty simple frameworks to get a product out there broadly to people on the web.

Now, if you are starting a consumer company, you probably need a iPhone, app, you need an Android app, maybe there's some other platforms or mobile platform you need to take into account. Stay at the art for web has evolved and maybe kind of the expectations for real time or kind of the capabilities of your application. Those standards are higher. And so as a result, I think just launching a consumer service, the bar for that is a little bit higher than it was.

And I think you've seen this reflected in. It's a little bit harder to do like a really lean consumer startup than it was before. Maybe if you're doing anything involving video, again, I think that infrastructure is not where it's going to be 10 years from now. We have a lot of challenges there. And the other thing maybe is that obviously as much more if the internet becomes regulated, I think we haven't fully caught up with that

in terms of making it easy for the companies that are regulated. And so, again, there's not all the infrastructure we need there. One area of business that we've just started dabbling in is identity verification because there are so many different parts of the internet where you need to verify someone's identity. If you're going to pay out money to someone, that's one that's fairly close to Stripes business

then you need to verify people's ID, apply with all the AML rules. But even you think about it, if you're selling any kind of an age-restricted product, you check their ID as sort of comfort of their age. That's something that historically has been really, really hard. I mean, it kind of reminds us of payments before we started strike. And so we've started playing in that space, again,

to make it easy for if you're doing anything that involves verifying someone's identity, it should be easy to provide that. You and I are both really interested in public markets and public businesses, And one of the topics that I think is really of the moment is how different a business like Stripe is relative to the standard, let's say, public S&P 500 company for which the standard structure of an income statement and balance sheet kind of makes it easy to compare across those businesses. I'd love you to describe whether or not you think general accounting needs to change to accommodate the type of business that seems to be dominating today and likely will continue to dominate tomorrow. and maybe to pick a starting point, just the idea of the importance of your engineering talent as an asset and skill of the business. And how that really isn't captured inside of a, if I just looked at an income statement and a balance sheet, I probably couldn't really tell that. I'm curious your thoughts here on accounting and its need to change.

Yeah. Well, if you start with, it'll sound like a funny question. If we imagine we're the product manager for accounting, we're just hired as, I can't remember the name of the agency that that, that management. Gap, the accounting principles. Let's imagine that we're hired as a product manager there. And so like any good product manager, we start with, okay, well, what are the jobs to be done? Who's our target customer, target persona? It's interesting to think about it. We're actually trying to do a number of different jobs with accounting. We're trying to figure out how much profit we earn so we know how much tax we have to pay. That's one job we have. We're also trying to

help the business run itself. We're trying to provide a view of the business managers so that we can determine whether we need to invest in new machinery to be more efficient or something like that. We're also trying to solve for the needs of creditors, where people want to be able to evaluate the business and understand, will us have enough money to pay off its debt? And then we're also separately, importantly, trying to solve for the needs of equity holders where they're trying to understand what are the long-term cash flows for this business going to be. And the reason I bring that up is people think of accounting and gas. as these fundamentals that are etched into stone tablets.

I mean, accounting standards are invented by us humans to give us a view of a business. And they're up to us to choose. I mean, they're generally in kind of long, boring committees. But we humans choose how we look at businesses. And I think we should be able to reason about what's a better way, what's a worse way to look at businesses. And that's why I have absolutely no patience for the crowd that's always whinging about non-gap metrics because, I mean, you just, they're relatively arbitrarily chosen.

and constantly tweaked set of standards for looking at a business. And so if they're constantly tweaked, presumably you would expect that they can be improved upon. And one of the areas in which I think the standard way we look at businesses is just completely wrong is in reasoning about essentially research and development and intangible capital. And so capital obviously has really moved over the past 100 years away from heavy machines that you'll really hurt your foot if you drop one on them to intellectual capital and intangible capital. And so traditionally if you read a balance sheet and a company has a bunch

of stuff, has a bunch of assets on its balance sheets. What would that company have? Well, if you're a cafe, maybe your assets are the coffee machine because you bought a really expensive coffee machine. These days with technology businesses, what is the capital within the business? One of the assets that the business have. It's probably software that has been developed in-house by the business. Google, it is the search engine that now for 20 years, engineers have laboriously worked on to make good. And the case of Stripe, it is the payments engine along with Stripe Radar, the fraud detection engine, along with lots of process knowledge on how we all work together. And again, how we kind of make sure that the maximum number of payments go through online and we've all the hookups to various other

places. But again, the capital has come from something really tangible. An espresso machine doesn't change in value that much. You can reason about the value really easily. Why can you reason about the value really easily? It doesn't change that much over time. There's a clear market for it. You could go out and sell this espresso machine. You paid something for it.

You just bought this espresso machine. And so one of the accounting principles is you just carry things at cost for depreciation. But again, it's really easy to reason about the value of tangible capital like that espresso machine. it's really hard to reason about the value of intangible capital like Stripe Radar. What is the value of that system that we've built? I think the reason this gets interesting is because you and I might very reasonably want to think about what is the profitability of a business after you strip out all the investment in future growth.

Because as you look at the technology sector, the entirety of the technology sector, one of the things that kind of unifies technology companies is that they don't tend to produce kind of huge amounts of cash flows, certainly until later in their maturity, companies that are in their growth phase, either pre-public companies or recently public companies, tend to be mostly reinvesting that in growth. And so, okay, one question you might have is how much of this is a profitable underlying business versus how much of it is investment in future systems. The best answer that people tend to have is that they split out different lines of business and kind of categorize them as cash flowing or growth. So if you're looking at Amazon, you might say, okay, well, the retail business

produces money and then we plow this back into AWS as an investment area. And so we'll just kind of separate out AWS and the retail business and we'll look at the profitability of each and we'll treat AWS as an investment area. But of course, that's not quite right because the retail business is fractal. The retail business itself, as you look at it, they are expanding to new lines. They are expanding to new geographies and things like that. And so the retail business itself is composed of a cash flowing core business and then new expansion areas that they're planning that money into. And so as we look at how kind of accounting works for this, it's really basic. All you have is companies that are spending lots of money on operations, engineering salaries, operations, operations salaries,

lawyer salaries, kind of those general OPEX, and no real intelligent view on what is the capital that we're developing, what is the multi-year value that we're getting from this system that we're building versus what is the actual ongoing cost of operating the system. And so that's something that, I mean, we spend a lot of time at Stripe getting good internal management views into, at a system by system line by line level, how much are we investing in kind of the future potential of this system versus what is. the existing profitability of the system. But I'm always surprised, I mean, you must be too, as you read kind of the statements of various public companies out there, how unhelpful they are

at answering what is really the core question for a technology business, which is how much are you paying to operate this business versus how much are you investing in a long-lived technology advantage? Everyone will pay a lot of lip service to the concept of free cash flow. But I think for all the reasons you've pointed out, it's a very hard metric to get to. And then there's also just silly concepts like, I think you were the one that said it to me. What is the useful life of a piece of software? How do you even reason about something like that? And therefore, think about something like depreciation. A lot of what is registered as operating expenses in business is really kind of like what we used to call capital expenses, because it's going to be useful for a long time. It's a really

important topic for public investors with more of these businesses do to become public. It's interesting to hear someone running one of those businesses and their thoughts on it. I think ultimately, the best thing in the world would be for public investors to have whatever dashboard it is you use internally. You're the one that understands the company best and has built your own metrics and then have to back them to gap. I think it's very strange. And sadly, we don't even have kind of the metrics that we're fully happy with internally yet, but I think it's interesting that I have not seen a company publicly in how they kind of talk about things where I'm like, oh, that's clearly the answer and that's how we should do that. And I think what you see is a number of proxies that are maybe,

I mean, unsurprisingly, the proxies are perhaps overly generous to the companies where they say, okay, we're going to count all of this spend as R&D, something with a long-lived payoff. But I thought it was interesting. People talk about concept Buffett introduced in his 86 letter of owner earnings. And the more interesting thing about that definition for me was splitting out the two forms of CAPEX. CapEx spend that has a multi-year horizon or a multi-year payoff, but splitting out CAPX into what is just needed to tread water. Investment required for the company to keep its same competitive position, keep its unit volume, versus CAPX required to expand. We haven't fully chased this through, but I think that's a really interesting distinction,

because oftentimes you can have technology companies that really spend a lot of, I mean, Buffett obviously always talked about the example of the textile mills that Berkshire Hathaway got to start with and just being such an incredibly terrible business because you're always spending this CAPEX just to tread water, just to stay in place. I think similarly, it's important for companies to be honest with, I mean, not only external investors, but companies, to be honest with themselves on, is this spend just the cost of doing business, the cost of operating our business and we are maintaining our competitive position, or are we expanding in some way? Are we growing our share of market? Are we expanding to a new country? Are we

developing a new product that will monetize separately? But it's probably worth you being honest with yourself on the answer to that question. What topic do you not understand well yet that you wish you did? Payments. No, I mean, it's still learning. I mean, we're touching on it here, but I talked about this phenomenon of the shared playbooks that Silicon Valley is developing. And I really think this is what's going on. It's one of the things that is probably under-discussed, the notion that there is a common playbook that goes from company to company in people's heads. Maybe one of the most mature ones is the B-to-B sales playbook. I mean, there is really a set of best practices there, and Silicon Valley is on version 27 of the playbook, and it's always being updated. People took the playbook from

at Oracle and applied to sales force with improvements. And now all the up-and-coming B2B startups today are kind of modifying that and making improvements. But it really is a shared playbook. As we look at engineering, it is interesting to me, one kind of related to the measurement question we were just talking about, it is frightfully hard to measure engineering. And so within sales, there is measurability down to the level of the individual person and even down to the level of month by month on an individual person that you've probably seen these curves, but companies talk about time to productivity curves with salespeople, where it's actually a measure of a product's complexity that maybe in B2B SaaS, a standard time to productivity curve would be

people are at more or less their terminal productivity within six to nine months. That would be relatively standard. But that is the level of granularity you have on a domain like sales. Then meanwhile, you look at the domain of software engineering. Look, I come from, Patrick and I wrote the first version of Stripe, my first love, and to Mainehor, I spend a huge amount of my time. But it's incredible to me how hard it is to measure the output of software engineering. And you can measure it in, you can look at the goals that we set out to accomplish and how good a job we did at accomplishing them. But if you're trying to put any kind of overarching metrics to compare and contrast the productivity of different segments, that's something that we are

really interested in that we have not made that much progress on. We have found, I would say we do probably at Stripe a lot more surveying of engineers than other companies. And it's not the best system metrics, but I think it's better than nothing. It's kind of analogous to look at how all the media companies work. And it's lots and lots of, or any kind of advertising company, lots and lots of consumer survey. You get brand awareness and TV ratings and things like that. So that's how all those industries run. Similarly with Stripe, if you're an engineer at Stripe, you spend a lot time being surveyed because that way we get a sense for, okay, how productive are you in this domain versus where you were six months ago? How productive are you in this domain versus this

other domain where you used to work? And that can give a sense for when we're making overall a macro developer productivity improvements where we spend our efforts and stuff like this. So we are, I would say it's something we probably spend a lot of time on compared to other companies is developer productivity and getting scientific about developer productivity. And yet I still think we're really early in our journey compared to where we could be. I'm curious how you think about the transition to what's now being called the no-code movement. So the first part of the question is, how undersupplied is the world in terms of just talented software developers? But may that potentially not be as big a problem if we do get no-code tools that would allow someone like me that has dabbled,

but it's certainly not terribly technical on software, more so on data science, to build things for myself and not need engineers? What do you think that glide path looks like over the next, say, 10 years? So, I mean, the answer to how short stuff we are in engineers is still clearly loads in that Stripe is an investor in a company called Lambda School, and you've probably seen what they do. It's really nifty. But, I mean, they're essentially, they often explain themselves in financial terms of being an arbitrage play where they help people who are in software engineering is such a highly

compensated field that people who might be working some other job that want to make to jump into software engineering, they help them via. remote night courses over the course of, I think it's nine months, get trained up in a software, effectively a software engineering degree and then move into the field. And so the fact that they have had such success, I think speaks to the fact that we're still really short of software engineers. And again, that's our experience with Stripe doing lots of hiring in that field. And again, I think one of the really exciting trends for me that we touched on earlier is more and more software engineering moving outside the Bay Area. Like when I go back to Ireland,

it's crazy. It's night and day. The difference in the Irish technology industry and technology scene versus when I left back in 2009. That's the case. On no codes, I don't think no code is fully a panacea, because I think there's a set of, even when you're doing no code, you're still reasoning about the relations between different objects and data flows and things like that. And so I think when you're building an app with Zapier or something like that, you're still doing a form of engineering. You're just not necessarily writing codes. And so hopefully that's something that can give leverage to people without necessarily needing to spend quite as much time in it. And this is not new, by the way.

If you look at Excel, you know, no one calls it a no-code tool. But Excel, I think, is one of the most underappreciated programming environments in the world. The number of Excel programmers versus people using what we think of as more traditional languages is really something to behold. And actually there's lots of features of Excel that make it a really nice programming environment and really nice to learn in where the fact that it's continuously executed means that unlike you running your code and it doesn't work and you get some error that's hard to comprehend.

Instead, code is just continuously executed in the form of the sheet you see in front of you. And similarly, you know, the fact that it's individual cells means you kind of lay out the program spatially where the code and the data is interspersed together and no one part of it can get too big. Anyway, I think there are all these ways in which anyone who's developing a no code

or new software paradigm should look at Excel because so many people have managed to essentially learn how to do some light programming from looking at other people's models and other people's workbooks and kind of emulating what they see. But I mean, to answer to the direct question, I don't think no code will obviate the need for software programmers. I would hope that it can make many more people able to participate in software creation and kind of smooth the on-ramp, which is right now there's like a really sharp vertical part of that on-ramp. We've talked a lot, obviously, about software for the obvious reasons. I'm curious if there are

any other businesses or business types that you've studied and find interesting that really aren't built primarily on software? Everyone, of course, uses software and will continue to do so. Any other lessons from businesses as different from Stripe as possible? I mean, I still find technology one of the most interesting places to look, because what I find so exciting about technology is from a business point of view, it's positive sum. So many other businesses are essentially, I mean, they learn not to talk about them this way, but there's all these business euphemisms for the fact that there's a fixed amount of supply in this industry and we're getting really good price discipline. That's one of these investory euphemisms for not competing too much on price or revenue optimization and things like that. As you look at something like, I mean, real estate in many kind of parts of the world, barriers to building mean that part of what makes it a good business is the fact that there's a fixed number of assets that can be monetized. And so you are getting the, in the case of San Francisco, a huge amount of the wealth creation has flowed directly to landlords in San Francisco because it's

so hard for new construction to take place there. I think that's actually true for a lot of other businesses. I mean, banking is another classic one where there is not a giant number of new banks in the United States. So instead, what we've seen is a lot of consolidation of share in the industry. I mean, airlines, another classic example. And so, I mean, you can look at lots of these other industries and their structure and how they work. But part of what I found so exciting about technology by contrast is it is not a fixed pie that everyone's looking to find creative ways to redo the capital stack or do a roll-up or something like that. But instead, we can just create all sorts of new technology wealth and all sorts of new technology value. Someone will come along and do something

super interesting in payments. I'm like, well, that's awesome because it's not just kind of taking share away from Stripe. I love that. What about the future are you most excited about? I mean, it kind of has to be right now the increasing globalization that's been driven. I mean, COVID has certainly given it a fill-up, but it was a trend that was happening anyway. But from a product point of view, we're deeply investing in it. We didn't really cover this, but Stripe the company is very global, where we have engineers in Dublin and Singapore and Mexico City and all these places around the world, building for all the startups that are springing up in all these countries around the world.

And again, COVID drives it even further. But the fact that if you are a kid in one of these countries who grows up interested in technology, and previously you could look over the fence at the game that everyone else was playing but not participate, and now you get to really meaningfully participate in the entire economy, that's exciting. What was your first memory of feeling like you had started to participate? You mentioned growing up in the middle of nowhere in Ireland. Was there a moment or an episode that sort of was the transformation? Patrick and I, it was actually a little contemporaneous with Stripe, we had a set of iPhone apps

for the first, for the iPhone from the very start. You probably remember there was that one year between 07 and 08 when there was no app store. And so there were jailbroken apps. And Patrick and I ran a business that was offline Wikipedia for your iPhone. And so compress it. English Wikipedia was the largest by far. But if you stripped out tables and images and everything like that, you could compress it to have a fit on four gigabytes was the first release iPhone. You could have a fit on a four gigabyte iPhone. And it was especially popular overseas because unlike in the US, the iPhone didn't launch often with good data plans. And so you had people without internet access, I was really useful to have this

hichikers guide to the galaxy. But we were at the time when we started doing this. We were teenagers. We were selling it in the app store and we were making to, I mean, pop to teenagers felt like just raking it. I mean, just absurd amounts of money for kids at the time. And just the notion, and we would look at the app store, will give you these reports of where people are buying the app, and you have sales happening in Saudi Arabia and Mexico

and all these places of buying your app. But again, these two Irish hooligans running a multinational business. I mean, I think that was one of the first times for me where it was really striking to feel that. I've been to ask this earlier, so I'll ask it now as we wind down here, which is about board members. So as someone interested in being a board member for other companies in the future, it's an interesting role. It strikes me as one that would be tough

to be a really good board member. I'm curious what you think board members should do. And in your experience, if you've had a great one or two, what they've done for Stripe. I mean, we've been lucky to have incredible board members. And I think part of, they're all different Pokemon with different strengths and weaknesses and attacks and such like that. And so I think it's important to kind of for the board member to know what they are providing and for the company to know what they should be getting from the board member. First and foremost, obviously, it is a governance role. You are managing the management team. And I think there's a Buffett called this out in his letter this year complaining about the cozy relationship between board members and management at company. But I think

that is an important aspect of it, which is board members need to realize that they work for the shareholders and they are the boss of management and not the other way around. I think ones that internalize that relationship tend to be the most effective. And look, that's generally pretty friendly because oftentimes the best way to help the shareholders is to help the management, but there can be no confusion about that. There's some specific rules that exist within the board, the audit committee, the compensation committee, things like that, where the board member will actually be put to work inside the company to be a relatively high workload task.

So that's one set of responsibilities. Then, depending on the experience the board member has, I mean, generally you have people who are much more experienced at a certain set of things, and they're able to contribute that experience to the company and people who maybe are much less experienced in that. To give you a few examples, we're hiring a CFO right now, Jonathan Shadwick, who's on our board and previously with the CFO of VMware and Skype in various places like this,

has been extraordinary helpful to us as we run that search because he's actually done the role at a public company. And so he's much more experience in the domain than we are. Similarly, you see in lots of early stage companies we talked about with venture capital, this notion that you're getting a bundle of experience the partner can bring. So Mike Moritz is Sequoia Capital, and he invested in Stripe in 2010 and joined our board in, in 2011. And so again, it's been really fabulous from a company strategy and from a hiring perspective to have that experience, which is a totally different set of experience to Jonathan's experience that I just mentioned. It's been really helpful to have that as we've built out the

company. And so again, I think what you're looking for is in building a board is a set of experiences that would be really valuable to the company, both in building the company, but in occupying that governance seat, who are the people that you want ultimately accountable to shareholders. I love the idea of Pokemon. My six-year-old son is into that right now, so it definitely resonates as a great way to think about boards. Well, John, I've learned so much my closing question for everybody, which I'll ask you as well, is to ask for the kindest thing that anyone's ever done for you. You really set up with a high bar when you say kindest to run an expensive query over a large data set there. I was reflecting on this. So I grew up in Ireland. I spent all my years there until I moved out to the United States for college. and I feel very culturally Irish.

And there's something about acts of kindness I've experienced with Irish people that's maybe different to that I've experienced with Americans. And just there's something about kind of the culture there. Just to give you maybe two examples. One is first moving out to San Francisco, the person we stayed with was an Irish guy. And the way we got to know him is

how to kind of going away party at MIT. There was an Irish guy who came to the going away party. didn't know, Ian Patrick didn't know each other that well, but, oh, sure, you're in San Francisco, you can stay with my brother. So, I mean, barely met the guy, never met his brother, but this guy, Lorken, very Irish name, was willing to let us stay at his place for a week. And so we get there, and it wasn't one of his many guestrooms, get there into the studio apartment. And so he's like, okay, you can take the bedroom and he sleeps on the couch. But that was for me, kind of a very Irish act of kindness when first moving here. Or similarly, when I was in secondary school,

we just had this incredibly understanding principle where we always had various pursuits and weird things going on. And we know we were serious about academia, but we're taking maybe an unconventional path. And so this principal guy called Martin Wallace, who's since passed away sadly. But he was always incredibly understanding that we had a path in mind that we wanted to take. And it might not be fully aligned with all the rules that were written. down that they had for running a secondary school. And so I just dropped out of half a year of high school that I more or less skipped when we were running on a kind of a previous technology company prior to Stripe. And he just kind of made it work, despite the fact they had all their attendance

requirements and things like that. He was willing to enable that because he felt like it was a good thing. Or in the case of Patrick, Patrick just decided to skip the Irish end of school exams and do the British ones as well because he could shortcut and go to college earlier. This kind of of extremely benevolent oversight of us and flexibility and understanding in a very unassuming and quiet way where it never really came up as a big thing. It was just he almost assumes that of course I want to enable you on the path that you want to be on even if it makes my life hard and it's extremely different to what I might be used to. And so I think a lot of the acts of kindness that people have done for me and especially

the Irish-themed ones. Some of the most interesting ones are ones that are much bigger steps than certainly you would expect from someone in that position delivered really unassumingly. Your answer makes me think of just one more question, which is obviously a big part of your guys' success has been, now it's become an overused term of first principles thinking, but it just applies well. You mentioned the five Ys earlier as one sort of fun example. Is there any advice? And the stories you just told are also like the enablement of people just going their own. own way, which is really cool. Any advice that you would give to very young people that are kind of searching for what they want to do, given your success at following that unique path? There's so much

to say. Pathic actually wrote up a guide to this. It's actually pretty good that he put on his website of advice for youngsters. But I think for me, it is being willing to go down the rabbit hole, whatever your particular rabbit hole is, in that I think all the institutions are probably part of want to help you, want to bring you back on the normal track, as it were. And again, kind of Martin Wallace, the principal I mentioned, one thing that was remarkable about him is despite the fact that he was a principle, that's almost the perfect societal clip art of someone who brings you back on track and makes you do the dumb thing. Instead, he was incredibly supportive in us wandering in all our weird and wacky ways. And so we're really interested in

how you, or I'm really interested in how you help people wander and go down those rabbit holes. Similarly, actually, Stripe invested in a company called Pioneer, which is... I was with Daniel yesterday, yeah. Okay, you're spending time with Daniel. Daniel's fabulous. And again, it's Pioneer, I feel like, is going after the same opportunity, which is how do we help people go further down the rabbit holes rather than trying to bring them back on track. Fantastic.

Well, John, as always, when we talk, I learned a ton. I learned a ton today. Thanks so much for your time. It was really fun. Thank you. Hey everyone, Patrick here again. To find more episodes of Invest like the Best, go to investorfieldguide.com forward slash podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com

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