Invest Like the Best with Patrick O'Shaughnessy - Stephanie Cohen – The Evolution of M&A and Corporate Strategy - [Invest Like the Best, EP.131]

Episode Date: May 7, 2019

My guest this week is Stephanie Cohen, who is the chief strategy officer for Goldman Sachs and a member of their management committee. Prior to her current role, she spent the majority of her career in the investment banking and M&A divisions at Goldman.  We discuss lessons learned from her career in M&A and the many initiatives she now leads at the firm. I really enjoyed her perspective on how a big, established firm like Goldman can balance innovation with improving existing businesses. Please enjoy our conversation. 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 1:15 - (First Question) –  Motives on both sides for doing M&A 3:26 – Most difficult deal she worked on 4:50 – Biggest value add she brought from her seat on the Fiat deal 5:59 – Biggest changes since she started to today 8:31 – Smartest ways for companies who want to be acquired to be prepared 10:14 – Best M&A banker she’s seen 11:13 – What should businesses looking to make an acquisition be thinking about 15:16 – What does a strategy from her perspective mean 17:16 – Tension between innovation and change 19:46 – Difference between bottom-up and top-down components of strategy 22:15 – Exploration vs exploitation 26:28 – Submission process within accelerate 29:37 – Next step after you see a good idea 31:05 – Her take on FinTech and Industrials and their collision 35:15 – Lessons from elite early stage investors 37:21 – The origins of the LAUNCH program 40:06 – Important pieces beyond just the capital 42:42 – How they market to women starting business 44:56 – Lessons that she has learned about narrative and communications 47:07 – How she handles developing talent internally 49:28 – Managing her time 59:28 – Biggest concerns about OKR’s? 52:09 – Kindest thing anyone has done for Stephanie 53:07 – Kids in the area of competing   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'Shauncee Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunossey Asset Management Management Management Management May may maintain positions and the securities discussed. My guest this week is Stephanie Cohen, who is the chief strategy officer for Goldman Sachs and a member of their management committee.

Prior to her current role, she spent the majority of her career in the investment banking and M&A divisions at Goldman. We discussed lessons learned from her career in M&A and the many initiatives she leads now at the firm. I really enjoyed her perspective on how a big established firm like Goldman can balance innovation with improving existing businesses. Please enjoy our conversation. You mentioned this idea of synergies. I'm very interested in the M&A side to know sort of the pure and impure motives from both sides, acquirer and acquiree, for doing these sorts of deals.

So there's some literature that suggests that the average M&A deal is not good for the acquiring company. I'm curious to hear your thoughts on that, having been on the inside. That's a very like quant take, not a company. company by company take. So what do you think the right reasons are where the most value is created for a big, let's say, merger or acquisition? And then the second question will be, what are the wrong ways to do this? The one comment on your original thesis, which is, are people putting together information appropriately on the buy side and the sell side? The one thing about M&A is it's an

experience-based business. So if you're an advisor, you're constantly doing M&A. By the way, with many of the same people. Generally, if you're a company, you're not one and done. It's quite unlikely that you're going to do one deal, whether that's a divestiture or a buyside, and then you're never going to enter the M&A market again. So I actually think people spend more time than you think doing the right thing. I understand the comments, but I actually think people spend more time. And some of that can just be selfish, which is they know they're going to meet these people again on why to do M&A. So I'll talk a little bit actually at my current seat, which is more the strategy seat, which is M&A is just a method of executing strategy. It's not the reason. And we'll talk about strategic M&A. And we'll talk about strategic

MNA versus more financially oriented financial sponsor related M&A. But if you're a strategic buyer, M&A is a way to achieve your strategy. So I think it's really important that you actually have a strategy. And so you know where you're headed. And then you know whether or not you can achieve things organically and organically and how to compare the two. And so I think people who are doing M&A well are just doing it as part of their everyday business in terms of trying to drive their strategy. And we find more and more companies actually have those two things together in the same place. The bad reasons to do M&A are the obvious, which is that you feel like your core business isn't growing. And so then you're doing M&A to make up for that. And we certainly have examples in history where people have had a hard time keeping up with the

market's expectations of their own growth. And then they're doing M&A to chase that rather than doing it for strategic reasons. What's the most difficult deal that you were ever a part of? I worked on Fiat Chrysler, which was when Chrysler paid off the, the, the U.S. government. And so that was very hard time for the world. And it was really important to the company to get out from underneath the U.S. government and to basically give them a return on their investment and to be a private enterprise and to be able to move forward. And it was a time from an economic perspective where it wasn't clear where the world was headed. It certainly was complicated because there were multiple governments actually in there, the Canadian government and the U.S.

government was there in addition to the pension having a perspective. And so the number of parties at the in order to make those decisions was difficult. And just a little comic relief, we would get emails that said, POTUS doesn't want to do that. And I don't really know what you do with like that kind of negotiating strategy when you're trying to get a deal done. But it was certainly hard, but it was the most rewarding deal I've ever done. So when I think people had bearing views on the bailouts of the automotive manufacturers after the financial crisis. But sitting in Chrysler's headquarters on Saturdays trying to get this deal done. and seeing the people there and how hard they were working.

And the fact that we were able to pay off the U.S. government with a return and that the company was able to move forward and continue to produce product that people wanted and continue to employ a lot of people, I think it would change a lot of people's views. What were the lever points that mattered most in that deal? So you mentioned all these different people at the table, a lot of people to satisfy. What was sort of the most value add from your seat that you did to facilitate the transaction? I think a lot of people believe that M&A is. a zero-sum game. So people believe that I win you lose and that that's what a

negotiation is like. And so that for every point, there's a winner and there's a loser. And I think that's just not true. Actually, I think that's, there are ways particularly in M&A where what ultimately matters is what does the pro forma combined entity look like and is that going to drive value ultimately going forward. I think there are ways to create value for both. Whether that's through capital structure, whether that's through making sure that when you're marketing the story to new investors or rating agencies that you're telling the story in a way that gets the optimal outcome for the company. I think you end up creating value for the company, which ultimately allows them to provide more return to the shareholders or the people that are getting cashed out.

So I think you can show up at the table and decide that it's just about winning and losing, or you could decide that we have great companies and we're going to try to figure out a way for them to have the right capital structure to grow while providing appropriate return to the previous. What do you think has changed the most from when you first started in M&A, maybe towards the end, or even towards through today, even in your new role, about how deals are done, consummated, sourced, et cetera. What are the big trends? A couple things have changed and a couple of things have amazingly stayed exactly the same, which I'll go to at the end. So one, the velocity of MNA is just so much greater like everything. So last quarter was not even the largest quarter for M&A,

and it was over a trillion dollars of MNA was done in the first quarter, right? So just a number of deals done. And obviously, the size of those deals has really changed the dynamic. in the market. The second thing is there's been a real growth in private equity. And so that's just, if you think 20 years back, just the amount of capital in private equity. So we're at a point in time where there's $700-something billion of capital just in private equity, $2 trillion in private assets. And that means private equity is $1.5 trillion of buying power. So every time there's a company to be sold, there is a potential private equity buyer, which I think fundamentally changes how people decide whether to divest businesses or if you're a private company to sell it. So when I first

started, you basically needed a strategic buyer. You needed someone to feel like buying your business was a strategic imperative for them. Now you may have that, but you also can just talk about why it's a good business on its own and therefore sell it to a financial party. So I think that fundamentally changes the speed with which M&A gets done and the amount of MNA that gets done. Then the last piece, of course, is cross-border, Asia, China, in particular. or if you go back 20-some years, there was almost no activity in China. Now they're a major player, even despite some of the geopolitical dynamics today. So I think all of those things mean that the market's going to continue to grow and that they'll continue to be more volume. What hasn't changed is amazingly,

so I talked about the data room thing. Yes, that happens electronically. But M&A is amazingly analog today still. So my favorite example is, so when I was an analyst and I wanted to go uptown and have dinner with my friends, I would have to look on the computer, find the restaurant, find the address, like maybe print it out, actually order a car by phone, like get in that car, like hope they actually knew how to navigate the streets and get there. And now that's just one swipe on a phone. That whole exercise is one swipe. But when we do M&A, it's still a lot of it is person to person. And some of that is because it's the most important thing that someone is doing. And so they want to do it that way. But some of it is just that we're going to see continued evolution of the ability to put digital capabilities into the M&A process. Two questions that are sort of advice for different constituencies. The first is for companies that want to sell themselves, what are the smartest and best ways for them to prepare to be acquired? Like what things would improve their outcomes, the likelihood of a deal happening,

the right kind of terms, et cetera. So are I allowed to say they should call their Goldman Sachs? And Mr. Baker, thank you for the softball. Sure, it's implicit. One of the things that I tell people, we tell people, is don't wait too long. And so what I mean by that is there are companies who decide that they have assets that they don't no longer own and they're no longer strategic. And the reality is the longer you wait, the longer you don't invest, the longer it's the last item on the list of things where you're

putting new innovation or your best people in, the more that that business is going to atrophy. So having really proactive portfolio management of your business, I think is really important. It would be one. Two, to build relationships early on with people who you think are potential buyers of those businesses, whether they be financial buyers or strategic buyers. One of the more awkward conversations is to set up a lunch with someone you've never met and say, hi, I have this business. Would you like to buy it? That's not what you want. And so spending time with people who can be partners or ultimate buyers. And you may find yourself building those relationships so early on that it is about partnership. It is about ways for the two businesses to work together, but it ultimately

turns into buying or selling the business. So I think the most important thing is, be on about whether or not you're an owner of your own business and to build relationships. On the first point, you always say, if you're not a seller, you're a buyer. So if you own either investments or you own companies in a portfolio, every day you're deciding to not sell your business. You're basically deciding to buy your business. Who's the best M&A banker you've ever seen? So of course, this is going to have to do like the Goldman Sachs thing. So when I first started at Goldman Sachs, I worked with Tim Engrasia, who is amazing. He was an analyst at Goldman Sachs and he's still here. And then when I was a partner on the M&A team, he actually sat right next to me. And the great thing about Tim is that he's amazingly creative. So despite the fact that he's been doing this for well north of 20 years, he actually comes to each deal and says, how am I going to get to the best solution for these two parties or these few parties? While he has all the experience in the world to just run a playbook, he doesn't run a playbook. And then the other thing he's done amazingly well is build great relationships, whether those are with corporations or

or with financial buyers. When he's doing deals, he's doing deals with friends. He's doing deals with people that he knows, and that includes, by the way, the legal community and other people who support M&A. And ultimately, I find that he gets to a better outcome because people like Tim. The next question is a bridge into strategy, right?

So now that'll open up a whole bunch of different avenues for us to discuss, which is kind of the same question for businesses that are acquiring other businesses, whether it be part of the strategic sort of long-term plan or just a single one-off. Same idea. Like, what things should they be thinking about most carefully, whether it's price or terms or how they think about businesses fitting together, cultural, like I'm interested in all of these kind of evaluation points from the acquirers seat. One of the hardest ways to do M&A is to get a call from a financial advisor and say this company is for sale.

Do you want to buy it? And you've never actually done any work on it. I think in today's day and age, I think is really hard to compete by doing that. So taking yourself out of the deal mode, figuring out what your strategy is, figure out who the companies are that you'd want to buy, and what the alternatives are. So you may have a specific strategy. You'll have what is my organic version of this?

What's my top target? And then what are the three other things I could do or a couple other things I could cobble together that would be like that? Because when you get into the deal moment and people are telling you what you have to pay and you're hearing rumors about what other. people are going to pay, I think it's very difficult to be clear-eyed on how you're thinking about

the deal. So getting it away from the actual transaction, having a view on what you want to buy, having a view on what it's worth to you, and then bringing that into the deal mode. The second piece of it is you'll ultimately have to think creatively about the business. So, for example, you may have a perspective on the talent, how you're going to retain the talent. So how do you design the right compensation package? so that when you acquire the business, you can bring them in, and then you take that into account once you've done the deal. How do you think about what the integration strategy is? This is one of the things that despite the fact that I was an M&A advisor, you've learned very quickly that your clients

who are really good at buying businesses are not just thinking about the deal. They have the integration people sitting next to the deal people so that they know what's hard and what's easy, what synergies they can count on, what synergies you can't count on. And so having those integration people helps you get to the right answer as it relates to valuation. The other piece of it is I would make sure that you have what I would call a charm offensive as part of your M&A strategy. And so what I mean by that is ultimately most sellers will make decisions about who they sell companies do based on valuation. But so people just assume, well, it doesn't matter. If I pay the highest price, then I'm going to win. The reality is those two things are linked in a way that's hard to understand unless you're

sitting in the deal dynamic, which is if you've developed a good relationship, with the seller, chances are you're going to learn things that will help you get to the right answer for you, whether that's a higher or lower price. You'll just get more information. And then depending on the situation, whether it's a private company or otherwise, there may be situations where the seller actually does get to pick the home for the business. So the charm offensive is not soft and fluffy. It's really important. And you need to be pretty tactical about who the person is. And sometimes it's the CEO and sometimes it's the head of the business. and sometimes it's someone unexpected for various reasons. And so there is a whole psychological,

non-financial component to this. And then the last comment I'd make is my clients who are quite good at M&A know what their walkaway price is. So they know at the point where it's gone too far, but they also know how to take into account strategic value because it's very hard. No one is a crystal ball. No one knows what that business is going to achieve. No one knows what your core business is going to chief, no one knows what the synergies are going to be. So to assume that there's one singular right answer for what the value is, I think is naive. But when you have a matrix of different growth rates and different margins or whatever the right things are to vary, you know at what part of the matrix, it's just not believable anymore. So having the management team all agreed on how you think about

at what price were gone and being very careful about communicating that to anyone, by the way, I think is important. A friend of mine talks about this as a, he calls it relational alpha. which is like in my world, people don't talk about the value of, I'm going to call it the charm offensive from now on. That's a much better term. But the point is great. And it's a great bridge into strategy. So you talk about all of these kind of industrial businesses, which tend to be relatively speaking straightforward businesses. And now you're dealing with maybe a more complex world. Goldman itself, I want to talk about fintech and things like this. When you think about strategy, maybe just highlight at a high level what that even means to you. So what does it mean

to the business? What does it mean to you? And where do those two things intersect? So having a strategy for Goldman for me is if I walk in the cafeteria and I pick a random person and I ask them, what is Goldman's access strategy or what do you think we're focused on? And they can say something to me that's coherent. And then if I ask four or five other people, they say something that's similarly coherent and is consistent. And same thing. The general person walking down the street are investors. I think it's important that people have a perspective on where we want to go. And so that's important to me from a strategy. perspective, that's as much strategy as it is communication. And so we bring those things together. The second thing is, I think it's important for people to understand how would they do every day

influences impact and is related to this strategy because it has to be. Because people, I think, want to show up at work every day and feel like they're part of the overall mission. They're part of the story. Right. Exactly. So that's the second piece. And so that's more complicated than you think in a company of 37,000 people all over the world in multiple different businesses. And then the last piece, strategy for me, there is the, we want to have leading total shareholder return. Very important. I also think we want to marry our strategy with the societal value that we're created alongside that. And I say that partly because I believe our people want that. I certainly want that as someone who works here, but I also think that's how you build sustainable businesses.

So we've been around for 150 years. And I think if we're going to be around successfully for the next 150 years, what we're doing has to be related to broadly where society is going. So one of the things you always see in big companies is this tension between innovation and change. Everyone loves innovation and hates change. How would you outline that in today's terms? So if we went down to the cafeteria, what would be the more specifics of people's answers today? What people would say is the first part they would talk about is they would talk about growing and strengthening our existing businesses. So that would not sound a lot like change. There'd be some innovation on it. So that would be a very safe place for people to talk about our strategy.

They would talk about expanding the footprint in the investment banking division, which is basically just covering more clients, particularly clients that are a little bit smaller. They would talk about in the securities division business focusing on asset managers, in addition to hedge funds. So they talk about things that are very adjacent to our business, but they would have innovative components to them. Then the next piece that people would talk about is they would talk about our business mix. And they would talk about making sure that our business has more stable, recurring fee-based revenue. Again, people would probably still be very happy innovation focused, which would be around things like cash management, which is providing cash

management services to our existing corporate clients. They talk about growing our alternatives business, which is our investing business, particularly as it relates to outside funds. And they would talk about our consumer business, which everyone is really excited about, given what we're building on the market side of the business. And then the last piece that people talk about as operating more efficiently, which again would not be read as cost cutting would be read as literally operating more efficiently. So part of that would be running the business is what we would call front to back, which means that the sales and trader is equal to the operations and tech person in our securities business, meaning you have to actually not only make

the trade for the client, but you actually have to close it out. So they would talk about all those things, but on that third, they would start to feel the tension that you're talking about between innovation and change because when you're asking people to operate more efficiently, you're asking them to operate differently. And so that's uncomfortable for people. And so one of the things that we spend a lot of time on is it's not just the strategy and the communication, but it's also the training and the skills and change management. And how do you give people the skills so that you say to yourself, well, if we want you to run your business more efficiently, like, how do you actually understand that? How do you actually understand the different layers of management that you have? How do you

understand how to think about our high value locations. So what skills can we move to someplace like Salt Lake City or to Warsaw in Europe? And so understanding that in a way that's exciting, not scary for the organization, I think is where we, the rubber throat on that point. How do you think about the difference between the sort of bottom up versus top down components of strategy where you made an interesting comment, which is a push towards more recurring revenue-based business away from maybe transactional based business? So what's behind that? Is that like a observation that the recurring revenue businesses are doing better, so we should lean into those, or is it an observation that we think that's the case that we're mandating it from the top down?

How do you balance those two ideas? I think you're actually seeing this across different sectors. So I noticed the other day Caterpillar actually came out within an announcement and said they were focused on building their service revenue. And if you can think of any company that's had cyclical swings and it's big manufacturing, high fixed costs, I think everyone understands that by creating more repeatable fee-based recurring revenue that people can actually predict it's helpful from a valuation perspective. It's helpful from an investor perspective. So I don't think it's unique to Goldman Sachs. I don't think

it's unique to the financial services sector. I certainly think if you looked across the financial services sector, you would see that we certainly have, on a relative basis, if you look at our pie chart, more businesses on the market side, on the securities side of our business, which tend to be viewed as more volatile than other businesses. And so what we believe is it's not an either or. It's not one instead of the other. We, if you talk to people, we'll just do fixed income because it's the place where people spend the most time and the most focus on us because we do have a leading franchise there. If you talk to our clients in fixed income, they would talk to you in the same way that our

investment banking clients talk to you, which is they love our people, they think we're differentiated, they think we have great content. We have an amazing fixed income business. But that's not a reason why we can't have these other businesses that deliver more fee-based recurring revenue and support that business. I'll give you another example. If you think about our consumer business, which is Marcus, part of that business is growing deposits. So we're bringing in deposits, and that's relatively low-cost funding compared to other sources of funding. That low-cost funding certainly helps the consumer business, but it also helps, the sales and training business. It also helps the investment bank. It's the same thing for the cash management business. The cash management

business is about corporate clients, but also brings in really high-quality good deposits. And so we believe that that also helps these other businesses. So this is not a situation where we're saying we like this business and we don't like that business. We think we just need to create the right ecosystem that has the right mix of fee-based recurring revenue, has the right mix of deposits from a funding perspective, and therefore we continue to grow with the other businesses. One of my favorite ideas for business and investing these days is this dichotomy between exploration and exploitation, or exploitation sounds bad. What I mean by it is good, meaning you found a good business that you can really work on executing against.

As a chief strategy officer, I would love to hear your detailed thoughts on these two ideas. So how to even decide how much exploring to do to find the next business, the next strategy to pursue versus let's keep getting better at our existing franchises and allocating sort of financial and human capital to those two buckets. How do you think about those two? Yeah, I'm going to give you the obvious answer. So I think you got to do both. And as we, so we have new management team that has come in.

I would argue that today we're doing both. like in a comprehensive way. So we're doing what we call these front-to-back reviews. So that I would call more of the exploitation side of your equation, which is understanding the businesses we're in and how can we maximize those. And then the exploration side of the equation, I think probably happens at a more senior level

and takes people that have time away from their current job. So one, I think we need to do both. Two, I think today we're probably collectively as a whole doing both together. I think going forward, my own bias is the people who are running those businesses every day in many respects have the best perspective on how to exploit those markets. And as long as we have them client-focused, outwardly focused, talking to other people outside the firm, by the way, talking to each other across divisions, I think they're going to come up with a ton of great ideas. And so part of what I think is special about Goldman's Acts is that innovation happens actually all over the firm. People feel empowered to

have ideas, and I think people want to have ideas. And I'll come back to how we're trying to foster that with some programs. But I think that's natural inside the firm. I think the exploration part of this is hard. And I think it forces people to do things that are a little bit unnatural, particularly inside our culture. So we are a high energy culture, client driven, client calls, client asks for something. I think there's almost no one in the world better at client has a problem. We're going to solve it in a creative way. But the exploration side of this requires you to have quiet thoughts to spend some time thinking about it. So I think it's our responsibility to give leaders time away. But I also think it's important to have people inside the organization and make sure they're out in those communities

just having exploratory conversations. And so I'll give you some examples of what I mean by that. We have a world-class investment bank in the technology space. They spend most of their time with technology companies trying to help them grow, do deals, raise capital. But by being in that community, we are seeing the future. You are seeing the future of where the world is headed in various different industries. And so figuring out a way to give them enough time to bring those back and to have conversations about it is important. Same thing on the investing side. We do a lot of investing that is nothing to do with financial institutions. But every once in a while, as part of that, you're seeing trends in other businesses. You're seeing things that other companies are doing

that I think helped to inform where we want to go. And the last piece is, given how fast the world is moving, I have a bias that we can't do this on our own. And so we've got to figure out ways to partner with other companies to continue to drive forward innovation. I think the card we're doing with Apple is a really good example of that. On the, everyone has ideas inside the firm. One of the things we launched when I started in my job was something called accelerate. And the idea was very simple. We wanted people to feel like we were open to their ideas. We wanted a way to to capture them and we wanted a way to make sure that if they had ideas, we could actually turn them into businesses rather than have them get frustrated with having an idea and not being able

to do anything with it. And one of the things we learned from that, which we thought we knew was that, wow, we had ideas. So we went out, we gave people a couple of months. We got a thousand submissions and we ultimately have narrowed those down and we funded around 10 of those. And so I think innovation is alive and well inside the organization. So what we're going to focus the most on is actually making sure when you have an idea, we can help you execute it. Within Accelerate, what does that submission look like? What is the literal form that you have to submit an idea in? So we had a lot of debate about this, and our original form was very simple because we wanted

the barrier to entry to be very low, because we wanted to actually hear what people had to say, and we didn't want to waste people's time if we weren't going to actually do anything with their idea. Having said that, I think our barrier to entry is a little bit too low in the first round. It's okay. It was a good inventory of ideas. the second time we were more clear about big pillars of what we wanted. And we also are trying to help people find sponsors because what we found out was that, of course, it's about the quality of the idea. Of course, it's about the people, but it's also about the sponsorship. And so what we didn't want to do

was end up in a place where we were funding things that had great sponsors, but not funding the best ideas. And so we've tried to tweak a few things so that we can make sure the best ideas rise up. It's not just the ideas with the best sponsors. There should be a correlation, but there's not always a perfect correlation between those things. And so the thousand submissions was kind of a one-page form. We then narrowed it down to about 150, and then we had those teams pitch. So not really long presentations, relatively short presentations. It's very good for the organization.

It was a good learning experience for people. It was good for the people who are watching them in terms of learning about the business. And then we narrowed it down further. Before we actually funded anything, we put all of the teams through what we call a sprint. Because the idea was we wanted to make sure that we hadn't chosen things that sounded like good ideas, but a week of intensive work would just tell you it wasn't a good idea. And so we ran a bunch of things through sprints. And what that did is it actually allowed us to tweak some of the ideas and get them to a better place so that they could be funded.

It almost sounds like a Ycombinator within Goldman. What are the early returns in terms of lessons learned about the different ideas? So is there any common thread across the 10 or 15 ideas that stood out? I think the common thread was what we wanted, which is that they tended to be cross-divisional ideas that were sitting in one division but were relevant to another division. And that those were the hardest things to get done because you had a situation where someone had a really good idea. The people on their team would say, yeah, that's a great idea, but it's nothing to do with my day job. And no one could actually help them get the idea done. So we achieved what we wanted, which was that we found things where they needed outside help

in order to get their ideas done. That would be the first thing. The second piece of it is by The obvious growth opportunity, so if you think about penetrating different clients with the same product, that we're doing. Like, people are doing that every day in their business. But if you find something where it was developed in compliance, but it's a system that's relevant somewhere else, that's harder. That's because you take a part of the firm that's not in a revenue generating division, and then you take their idea, but there is an aspect of it that could be a, applied to a revenue-generating division. We had people who could bridge that mentally, but that takes a lot of caring to actually take that product and move it over in a way that works for the organization. And then what's the next step in terms of you identify a list?

Let's say there's one perfect thing to pursue. Is that handed to the person that originated it? And how do you manage something like that? It's a very good question. And so we spent a lot of time on this. So the idea is if you, if it's your idea, it's a team's idea, you can go with the idea. So you quit your job and you go do it. And we have a bunch of protections around that to make that palatable for people. Or you can become the chairperson of the board and then you get someone else to do it. The vast majority of people went and did their idea. There's a few ideas where they didn't need to do it 100% of their time. But we generally have a bias that if you're going to do this, you're going to go do it. You need to be committed. The whole problem, the whole reason the

stuff wasn't getting done is because it was part-time. It was weekends and nights, right? It wasn't their job. And so you need to make this someone's job if we've decided that we're going to fund it. So the vast majority of people have gone to go with their idea. The other thing it's created is there's a group of people inside the firm who like this type of work. So they will work with one project, but they may want to then go to another project. And they have a specific skill set that allows them to grow new businesses. And it was important to us that we actually nurture and build that talent inside Goldman Sach that the talent actually existed here. There's plenty of places where maybe the talent doesn't belong here, it belongs somewhere else, and that's more of the partnering stuff

that I talked about earlier. But the idea that you can have a career inside Goldman Sachs that's about building new businesses, we think is important. So we've danced around the idea of finance and technology in those worlds sort of colliding. I'm really interested to hear your perspective on early stage, let's say, FinTech, the threat or opportunity that it represents the big established financial institutions. And then maybe differences, you mentioned helping big technology companies now from more of like an MNA advisory standpoint versus your role in industrials. Just your whole kind of take on these two massive gravitational fields sort of colliding with each other would be an interesting topic.

So we believe fintech is an opportunity for institutions like ours. So a couple points on that just to be totally direct. So historically, we've tended to build a lot of stuff on our own. We have excellent people in engineering and technology, and we've tended to build a lot of things on our own. I think our market's experience would show that we're doing a really good job of pivoting from that. And what I mean by that is, of course, we're going to build some stuff on our own, but we're going to figure out other places where we can partner, where we can buy things off the shelf. We don't have to do everything on our own. One of my examples is when I started.

We basically had our own version of Word, and so we figured out we actually don't have to code our own version of Word, and so we can actually get that from someone else. And so we've tried to work really hard to figure out what should we build versus what should we buy it. I don't mean in the M&A sense. I mean in the technology sense. And so what I hope that creates is an environment where fintech and other business feel like they can come to us and that we're a great partner. And so that's where I think the communities work best together. There are a lot of things that belong being built outside of a firm like Goldman Sachs,

whether that's because that's where the talent is, where the capability is, because from a cost perspective, it makes more sense. there's so much experimentation required that it's better done in an environment that is not a big organization like Goldman Sachs. I think there is a very large place for that. But financial services in particular, given how regulated it is and given the size and scale of a lot of the players, I think it's a place where uniquely there's going to be a lot of back and forth interaction between fintech businesses and a place like Goldman Sachs. And so I think they work best together when they feel like they can come to us and we can be helpful. It's not the infamous place so we're going to steal their technology.

You're reminded of the scene in the show Silicon Valley where they draw on the board and then they realize firmates steal their stuff and so they go running out of the room. That is the exact opposite of how we want people to view us. Because I think we've really helped our own innovation if people feel like we're the first best call when they're doing something new. The other thing that's unique, I think, in financial services relative to some other sectors is there are places where big institutions, whether they're company builders or other studios, actually have to get together to build stuff from the beginning, because if you don't do it that way,

they're going to build something that's not needed. If we try to build it, no one else is going to want to use it. And so I think financial services is one of these unique places where I think actually companies can get built together. And I think you're going to continue to see that. As it relates to big technology, there's some of it that's exactly the same as fintech, right, which is that they are building products and services every day that are relevant to us and how do we make it? So we're an easy customer. We're an easy co-partner. But then there's this question of how technology gets directly embedded into everyone's lives and how financial services gets directly embedded into everyone's lives, whether you're an individual or a corporation. So right now, people do most of their transacting on their phone. And it's still not seamless to transact your

financial life on your phone. So if you wake up and you say, I want to go on vacation, I want to go on a very large vacation in the next two years, like how do I think about that relative to my salary, my other expenses. We have a business called Clarity Money that's helping people manage their financial life. But I think there's a lot of work to be done around making that a seamless experience for people and whether that's buying a car, buying a house, retirement. Managing your financial life is one of the harder things for people to do relative some of the other transactions people do on their phones today. And I think that's where you're going to see a big technology begin to work together. And again, I think the Apple Card is a really good example around financial wellness and other things.

It's not just individuals, though. It's companies as well. We talked before we started recording about some time we spent with our mutual friend, David, talking to some earlier stage technology investors, probably not just fintech specific. These investors are general purpose, early stage investors. What are some of the lessons you learned from spending time with some of these, we'll call them elite, very well-known early-stage investors that you think has become valuable, if anything, to your role in strategy?

They are very helpful to talk to people who are willing to be direct with you and who are going to give you real feedback. And so I think they've given us very good feedback on how to engage with them and how to engage with companies, how to make ourselves easier to deal with. But what really matters, right? Obviously, everyone would like for them to show up, have a product, us buy it, and that would be the end of the story and not have to go through compliance and legal

and cyber and everything else. But I think the ones who are quite thoughtful have really good feedback on how to make ourselves more attractive to them. So that's one comment. The second comment is actually around what I would call experience. experimentation. And so one of the things that I think big companies struggle with is this idea of experimentation. And what I mean by that is larger companies tend to spend a lot of time studying. Like, what's the future of X? As if it's like a singular answer. So, okay, what's the future?

Then what are the ways we can go after the future? And then what's the one answer? And then we're going to put a bunch of money into that one answer. And like, that's it. And then we're going to watch it. And I really hope it works. And the reality is, is the venture model of constant iteration, like constant, we may run out of money. I think that changes the dynamic, and that's very hard to do in a large organization. But I think you can learn a lot from talking to them around

how they think about pivoting businesses, how they think about running multiple experiments. I mean, the idea of taking an idea and saying, you know what, I don't know what the right answer is, but there's 10 ways for us to go after it, and I'm going to let 10 go. I'm going to let 10 actually. That is hard in a big organization.

but Venture does that every day. Every day they're putting down multiple bets across different spaces. And so I think I've learned a lot in terms of how to think about what we should do, but also be practical about what we should let other people do. Can you talk a little bit about the program launch? This is one that I'm really interested in hearing the details of, the origination story maybe, and what you hope to achieve with it. So Launch WhatGS is our commitment to closing the gender investing gap. And now we're also expanding it, which I'll get to. And we announced last June a $500 million commitment, to investing in women founded, own, and led businesses,

women investment managers, and building an ecosystem around it. So why? Where does this come from? A couple of things. One, over a decade ago, we created 10,000 women. And 10,000 women was built on the thesis that the economic empowerment of women was good for them, good for their families, good for the community, but actually good for the world. So dollars given to women actually had a magnifying impact on bringing actually whole communities out of poverty. And so we educated 10,000 women. We've partnered with the IFC and have a billion dollar loan facility.

And we now have curriculum available online for anyone to access in order to educate you on how to grow your business. And so we've believed this for a long time, how important this is. We then realized that there was an opportunity right here in the developed world and that if you looked, so 80 to 90% of all venture capital goes to all male founded teams. So we don't have to have a debate about whether or not women are as good as men. That's crazy. And it just tells you there's an investment opportunity, right? that tells you that the capital is going to the wrong place. And so it was kind of the light bulb of, yes, it's a good thing to do, but it's also a great investment opportunity. And we have a

world-class investing business. And uniquely, we invest directly in companies, we invest directly in managers, we have investment bankers and research and all these other things for an ecosystem to actually support these women, founders and managers. So we felt that we were uniquely positioned to actually help solve the problem. Because the original idea of just putting capital out was a good idea, but it's not going to be enough. Like, we could put lots and lots of capital out, but we're never going to change that 80, 90 percent statistic if we don't actually change the environment. So we wanted to say that we thought it was a good investment because we thought that was a good statement, and we do want to put money to work because we think it's a good investment. But we also

wanted to change the complexion on the investing side. So we wanted to add diversity of the investing side. And then the other thing we wanted to do was make sure we built an ecosystem because we're going to say no all the time, right? All the investors will know that you say no a lot more than you say yes, and we wanted to be able to support the community. And the only other thing I'd add is the thesis behind Launchwood GS is a diversity thesis, diversity of thought, background. It's not a gender-based thesis. It's just that women are half the population. And so it was the right place to start, but we've recently announced that we're going to expand that to include people of color, because what we're really trying to do is we're trying to say there are underrepresented groups of

people who are not getting capital. That's bad for the world, but it's also a great investment. What have you learned about what else is missing beyond capital? So capital is one big part of the equation, really important part, but what other elements leverage points, again, are important to focus on for those of us in the world that want this to happen and want to take action to make it happen beyond just providing full of capital to invest in businesses? The network is actually really important. So there's a lot of data around the importance of warm introductions. And so depending on the data you look at, I think it's something like investment is 13 times more likely to get through investment committee if it's a warm introduction.

And so what we're seeing is that diverse communities are not participating in the network because it's a casual network. It's a network of friends. And so what we need to do is create networks where it's not a woman's network and a black network, an Hispanic network. It's an everyone network. It's a network of people that have common desires as it relates to what they want to invest in. they have views around how to grow certain types of businesses. And so what we found is that the

network piece of it is really important because the network piece magnifies a bunch of things. So what do I mean by that? It's the warm introduction, but it's also what your investor deck look like. Who are the investors you're supposed to approach? Who are the ones that if you approach them and they say, yes, you're going to get 10 more? There's a group of people that actually know how the system works and there's a group of people that don't. You'll see it in cohorts of business school classes, right? You'll look at certain business school classes and see there are a bunch of really successful companies in those business school classes. So maybe it was the water they were drinking when they were in business school. But what it really is is that they were working together

and they were helping each other. And so what we're really trying to do is have these women, but also men, help. How does that look? Like what does the rubber meets the road network building look like? We had an event in San Francisco not that long ago. And we brought together very well-known founders and we brought together VCs who you would know. And then we brought women founders who are very early stage, just building their companies. We're very excited, but they wouldn't be in the room with those people. And then we also brought women who are working either in investing businesses today or trying to raise funds. We're bringing people together who wouldn't normally be in the same room. The other thing that we can bring together is we bring big companies to

that room. So for example, if you bring companies who could be customers to those businesses, what we're trying to do is we think that a lot of the events that happen are good around getting people together who are doing exactly the same thing, meaning getting together a bunch of women who are just starting their own business. I think that's helpful because they can help each other. What they really need is the broader communities. I love this kind of funnel, right? If you think about it as like an investment strategy, the top of that is sourcing. So what are you doing to market to women who are starting businesses so that you're damn sure that basically everyone is aware that this program exists and can get into that sort of funnel.

So a lot around the marketing. Part from this podcast. Yeah, exactly. This is very useful. Thank you very much. So a couple things. One, I think most people actually know who we are. They know who Goldman Sachs is.

What they don't know is that we're interested in them. And so what I mean by that is they say, no, no, no, I see. I see you do those $10 billion deals. So if my company is really successful, I'll be sure to call you. But they didn't feel like there was an open door around when it was earlier. And so one, it's literally just saying that. It's saying we're open for business. We're open to actually talking to you.

The second thing is just old, like old fashioned blocking and tackling. What I mean by that is word of mouth. So we can say all that. But when people call or email us, we ignore them. Oh, we're not helpful. Then people aren't going to come in. So what we've tried to do is in places, even in places where we're not investing, we've tried to be helpful. And so some of that is very analog. So people, hopefully people have

had this experience, but we've had people come to us for us to invest in them. It's not the right stage, not the right sector, whatever it is. But we give them feedback on their presentation, and we send them to five other people. Because one of the great things is so many people have called us, we've gotten well north of 3,000 inbound since we announced this in under a year time period. And so we actually know where people are in terms of what they're interested in. And then the last piece around this is going to be broader, more digital content, which we're just in the process of creating. And so one of the questions we get asked all the time is about boards, right?

I need a board member. We get, by the way, from all different places. I need board member. I'm a big company. I need more diverse board members. I'm a small company. I need someone with this specific skill. You are in front of boards all the time.

How do you manage boards? And so we think we can build a lot of content around that to be helpful. Yeah. It's a great idea. I mean, it's a powerful observation that, like, it's just a, it's white space that is completely, you could be completely selfish about it and still come to the same conclusion that you want to do something like this. So it sounds like a great program. I'd love to talk a little bit about the internal side of things here at Goldman. You mentioned the importance of narrative and communication and people being on the same page. What lessons can you offer that you've learned over the years about

communication and narrative building as an important part of the business process? So one of the things that I've recently learned is that you have to say things multiple times, which I actually, it's funny. So when I first started in the job, I came from the business and you're very clear-eyed around what it's like to be in the business and hearing from the management team. But it doesn't take that long before you spend every day thinking about Goldman Sachs' strategy where it becomes second nature and you forget that people don't do that every day. And so I learned and then I was recently reminded again how important it is. to keep repeating the same thing. And you basically need to keep saying it until you're completely

bored with it. And then you should probably say it 10 more times. And then maybe people have heard what you want to say. So that's one. The second piece I've learned is you actually have to really be open to feedback. And what I mean by that is there's an instinct when you start doing the narrative and you spend so much time making the narrative and it's all pretty. And then you go out and say it and then people give you feedback. And then you're like, crazy? Like you didn't understand this. or send that and you get very defensive. And then you just shut everyone down. And so it's a natural instinct, but it's really important because what you find is people

actually really understand the narrative when they're engaged with it, when they actually are allowed to debate it, when they're allowed to have a point of view around it. So I think it's really important that you're actually open to feedback. And then the last thing, and I will make an open call that we're open to ideas around this, actually the method of communication is almost as important as the message. And we have something like 60% of our population. is millennials. We have a wide range of people inside this organization who are going to consume communication and media in a different way. In addition to, by the way, everyone outside of Goldman Sachs,

whether that's our clients or what's the general public. And I think we have to remember that just because we communicated something in one way, we may have missed a whole population. So we're working on that. We'll take advice. The old medium is the message idea. It's really powerful. What about talent people development internally on that work for you specifically is I guess what I'm most interested in. What advice would you give or what have you learned about developing? I mean, I'm sure most people you hire are talented in some way sort of innately, but in terms of developing them internally, how do you think about that? A couple of things. One of the things I've learned actually from people outside the firm, which I think is a good lesson is we do hire. We hire amazing people. So we get a

tremendous number of applicants. We are blessed with that. And so we hire amazing people. But not everyone succeeds 100% of the time. And I think trying to figure out, are they not succeeding because they don't belong at Goldman Sachs or because you have them in the wrong job? So that's one of the things we're actually trying to get better at, which is this moving people around to make sure we actually put people in the right seat. The second piece of it is the obvious, which is you need to make sure that people feel supported and mentored. And there's a very traditional, you show up at the firm, you get a mentor, that's fine. That's good. But what I always try to tell people is, you haven't failed if you and your mentor don't hit it off. And you can't just have one. And so what I

always tell my team is that they should have what I call a board of directors. And a board of directors is you have something that comes up and you have a question. There's a group of people who you go to and ask the question to. And they're more senior, they're more junior, they're inside, they're outside. But you actually get a wide range of views on anything. And part of the benefit of the board of directors is you get a diverse perspective. But the other benefit is that you don't depend on one person. because one of the failures is that if you're working here and you have a guy, a gal, and then that person leaves or they get moved to another area, and then you feel abandoned, orphans.

And I think in a firm of 37,000 people, you can't have one person. You have to have a board of directors. And then the last thing is for managers, but also for the people at every level, you need to let people move around because people want to move around. And if you don't let people move around, they're going to get stale. and you can't make it harder to get a different job inside of Goldman Sachs versus getting a job outside of Goldman Sachs. And so whenever anyone comes to me and tells me that they want to leave and go do something new and I don't want them to leave, I always say, and I think it's a good opportunity for them. I have to say, I can sit here and try to convince you to say when I've been preaching this all along that we've got to let people move around.

The firm is a better place if people move. Back to strategy for a second and a couple closing questions. So the first is how just you manage your own time strategically? So we talked about a lot of very different things today, all of which you have your hands in or say on, how do you think about the marginal unit of your time and how you allocate it, both to satisfy your own interest, but also to achieve the strategic plan that you've laid out. So I'm still working on it. Again, an area I'll take advice, but a couple of things.

One, it's more important than it was in my previous job to find pockets of free space. So if I'm just back to back to back to back for weeks on end, I find it very difficult. to have a broad enough perspective to do my job. So I try really hard. I have like a little, some of it's just blocking stuff off on your calendar. Some of it is I will accept certain things that I know I'm not going to go to, but it looks like it's full. And so then no one actually schedules over it. So there's that piece of it, which I think it's really important to block off. Two, I do think you have to have a perspective on what are your objectives. What are you trying to achieve? There's a bunch of different ways to do this. Actually, some of my team is working on what everyone calls OKRs. But the,

the point is just clear, which is you need to have what are your main objectives that you're trying to achieve. So I have that list. And every once in a while, you just have to read it. Literally just read it. And so you make sure that you're actually achieving them. And then the last piece is around, and maybe this is because of my client days, I think it's really important to get outside the office and meet other people and just travel. And so that traveling in my current job is actually very expensive relative to my old job because it's much harder to do my internal job when I'm not here. And we'll continue to work on ways to make it easier for people to do that, but we tend to be a relatively in-person, less video culture. And so not being in the office is

harder than it was in my old job. But I think if you're not out talking to other people, hearing outside perspectives, we're just doing a bad job. So there's some, call it 20% of my time that has to be on talking to the outside world. What worries you most about using OKRs? I worry that we are 100% culture. So when I started as an analyst, I vividly remember this. People said, I know when you were in school that getting a 90% was an A, and so you didn't need to study the extra time to get the 95 or the 100, just so we're clear, here it's 100%. And what they meant by that was if you're doing a board deck and it had to be 100% right. Every number in the board deck had to be right. There was no room for error given what we were

working on. That's true. But in a culture, that's a 100% culture, having people put stuff together and then asking them to not achieve 100% I think is hard. But I think if we don't do that, then we're not pushing. We're not pushing ourselves hard enough. So my closing question for everybody is for the kindest thing that anyone's ever done for you. That is a super tough question because I feel really blessed. People have been very kind to me. I'm going to talk about my mom for a minute.

So I was a competitive figure skater growing up. And of course, you only realize this much later. You don't realize this when you're eight years old. But me skating was a real sacrifice. for my family in many ways. So I went at 545 in the morning. I got taken on to school. I went in the afternoon. And my mom did all that. And my dad, too, without really ever saying anything without talking to me about what she was giving up from a career perspective, from a monetary perspective. And then the other thing was, it was hard. Being a skater standing in front of the judges,

with the audience, like all that is actually taxing on a young person, but they were super supportive of that. and everything, all the drama and everything else that goes around it. And I think it's the most important thing I did. I think it's turned me into who I am today. So I'll always be grateful for that. I'm curious because we have kids in the same age we figured out before we started recording. How you think of it that with your kids, it's something that in this area, especially we live in sort of this pressure cooker area where kids often are super competitive very early on.

Any thoughts on that? I mean, obviously it was formative for you. So there's this moment that I remember. My parents always talk about it. I went to my parents and asked them to compete. I said, I want to compete. And I won... Opt-in.

I was an opt-in. And I won my first competition, which I think is like the whole reason why I did it, which is probably a bad reason, but it's probably true. And so we've tried to do the same thing with our kids. So six and two, the two-year-old, it's a little bit too young for it.

But my son, we've tried really hard to not push him and have him find something they loves. And I'll just give you the specific example because it's kind of fun. So we don't watch a lot of sports on TV. And so he's not big on soccer, basketball or baseball. At some point in time,

you have the New York City. anxiety around, you know, what's your kid going to do? But my, only the people in New York absolutely understand what I'm talking about, probably in California, too, for that matter. So my husband's a great skier. I am not a great skier because my skating coach just wouldn't let me ski, but I figured it out. And my son loves skiing. Of course, you find that out not that long ago, but he, like every chance he gets, he's going skiing. Like, no one's keeping a month. No one is forcing him to be on that mountain. He's on that mountain from the time it opens to the time it closed at a very short break for lunch. And so,

So we're trying to figure out a way to nurture that in a way that doesn't make it crazy. He's asked us if he can ski race and we'll do that if he wants to. But we've tried to make it very kid directed. Well, this has been wide ranging and a ton of interesting new stuff for me personally. So I appreciate the time and all the lessons. Great. It's great to be here. Thanks.

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 forward slash book club. After you sign up, you'll receive a full investor curriculum right away, and then three to four suggestions of new books every month. You can also follow me on Twitter at Patrick underscore Oshag, OSHAG. If you enjoy the show, please leave a quick review for us on iTunes,

which will help more people discover Invest Like the Best. Thanks so much for listening.