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

Episode Date: November 17, 2018

with Stephanie Cohen and Martin Casado (@martin_casado) As chief strategy officer of Goldman Sachs (and former global head of financial sponsors M&A), Stephanie Cohen has seen it all when it comes to the ins and outs of M&A. And what it means to innovate from within, especially at a large company. Given Cohen's unique vantage point and nearly 20-year tenure at Goldman Sachs, Casado -- himself a veteran of both an acquisition (Nicira) and big company innovation (VMware) -- interviews Cohen in this episode of the a16z Podcast, on the ways that big companies navigate innovation... both inside and outside. How do they make the decision to build vs. buy? How does one diversify perspectives? And so on.  This episode is based on a fireside chat that originally took place at our annual a16z Summit event in November 2018. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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

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

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

And then I started and ran a new business inside the firm, which was M&A for financial and strategic investors. So that was included venture capital, but was also private equity, pension funds, stopping wealth funds, family offices. And then I was asked to be chief strategy officer, and that I started in January. All right. Great. So to start off with, maybe we'll start with the M&A side.

You know, having been in a large public organization and kind of struggling with this, I think M&A was kind of one of like the hairier topics because, like, there was always this catalyst, do we do it in house, we not do it in house, this and that. So I thought maybe we provide some framing for like at a high level, how do you think of the tension between kind of M&A versus kind of internal or organic? Great. So I don't think about it as tension. I think about it. And the way that we think about it is that we want strategy and M&A to be in the same place. So instead of having a group of people that goes off and does strategy and a group of people that goes off and does M&A, and by the way, incentivizing a group of people in the M&A group just to get deals done, our view is that they should be in the same place.

And the idea really is, is you need to know what your strategy is. So first you have to decide where you want to go, where you're trying to head. And then the question is, do you do it organically or inorganically? And I don't think it's in either or it's a both. And in many cases, when we're looking at it, we look at opportunities and say, if we could buy a business, what would that business be? And therefore, how much would we ultimately be willing to pay for that business? And is it available?

And if it wasn't available, how do we do it organically? And we kind of run those things right next to each other. And in many cases, we're going after new initiatives. And one example would be we recently, over the last couple of years, has gotten into consumer banking through a brand that we call Marcus. and if you look at that business, we've actually done it both ways. So we've bought a couple of businesses,

but we've also built it organically. And I think that mix of doing things together in exactly the same place is what's helped us succeed. So for the M&A side, I think the broad view has been that it almost always fails, right? This is kind of like the academic view.

Certainly, there's a number of examples for that. My experience has been quite different, actually, so was acquired, built a large business. And so I thought maybe it would be great to hear your thought, on, like, are there, like, the right preconditions for success, or are these exceptions? Is this survivorship bias? So one thing on the studies, when I first started in M&A, I started reading those studies,

and they were too depressing for me. So I stopped reading them because I was an analyst. I've been doing MNA for 20 years for other companies and now responsible for doing it for us. And when I've seen companies do M&A well, and by the way, I have seen, I have helped companies buy businesses that they've ultimately ended up selling, so I've certainly seen some of the round round trip. When companies decide to do something for strategic reasons, when everyone gets together and decides, it's the right thing to do. And by everyone, I mean, it doesn't mean everyone has to agree because getting to consensus in some of these situations may actually not be the right answer.

But what I mean is the people at the table are not just the deal guys and gals. It's also the people have to integrate the transaction. When both of those people are at the table from the beginning and understand what they're buying, understand what it's going to take for the acquisition to succeed, I find you have a better chance of it succeeding, not because they're always right, but because they're there together as a team. The second thing, and this happens more with more innovative businesses than more old-line industrial companies, a lot of times you're buying the business not just for the product or the technology, but it's for the people. And being humble enough to actually leave those people alone to continue to innovate and succeed. And in some

cases, the people that you have bought in a much smaller company become the leaders in the large organization. It's recently, I've been working with a woman who was acquired by a very large company, and her entire tech team has basically become, for a much larger organization, the CTO, the head of marketing. All of those people from a much smaller company have now taken over those positions at a larger company, and that's been a recipe for success. And as you've made this kind of evolution, like earlier in your career, there's kind of more mature markets, which in my experience is largely about kind of finances and cash flows and things I don't know very much about for sure.

As you get more into innovation, a lot of the acquisitions happen, say, pre-revenue, or really early revenue. And it's much harder to value the assets at this point. Like strategic value is enormous because if you don't do it, maybe you'll go out of business, so that's a big number. But on the other side, like, it doesn't really make sense just from the numbers. So, like, how do you think about putting a dollar on, like, the value for a company or an M&A in these kind of more strategic and early? So a couple of things. You know, we deal with this question, not just an M&A, but also on the organic side. Because if you think about things that we're building internally, they're definitely pre-revenue.

They're, like, way pre-revenue. They're years and years and years away from pre-revenue, and they may never get there. And so this question of how you value that is not just a question for the M&A side, but is also a question on the organic. And what I find is that in most big companies, people do want numbers. And so you do what you'd expect, which you learned if you went to business school, which you do the really long DCF analysis to get to a place where something actually has revenue and actually has earnings. And then you get yourself in a lot of trouble when that gets to a single answer. It's like $1.25 billion. Right.

That, inevitably that's wrong. What the math teaches you is what do you need to believe in order for it to succeed. So do you need to believe that the company is going to grow at 100% on the top line for the next 20 years? Probably not happening. Do you need to believe that it only needs to grow at 10% and down to 5 and that seems more rational? And that type of conversation, even if you get into a room with a company or with executives that haven't dealt with these higher growth businesses, that's a debate that you can have rather than is it worth 1.25 or 1.4. So I have kind of a funny experience with this, which is, you know, Nassir was acquired for a dollar, out much higher than our revenue, like very high multiples. I actually found that that was a huge

asset post-acquisition, because it's one thing to acquire a company. It's an entirely different thing to digest it. I think this is a real hard thing to do, and I'd like to talk about that next. But having a high price tag on it actually really helped with a commitment to do that, just because it was so material. So I don't know if this is a totally self-serving work way to think about it, but I'd like to argue that high valuations are actually pretty good in this. But I'm wondering, like, if this matches with your experience? This gets to people, everyone being at the table. So if you're going to buy something for a couple million dollars, you probably don't have very many senior people at the table, and therefore who

actually has a vested interest in the success. Rather, if you buy something for something that is a lot more zeros than that, there's a lot of people at the table, and there's a lot of people who have decided to do it, and whether they all agree or not, at that valuation, they're going to get behind it. So there's just a higher cost to failure, and when there's a higher cost of failure, tend to focus. I don't think it's a reason to get people to pay more. But when I was on the, when I was on the sell side, it raises this, there are these deals where there's kind of no value, meaning it could be worth anything, depending on how much you need it, and even more importantly, how much you think someone else needs it. When I was on the south side, my favorite thing was to find the buyer who not only

wanted to win, but was afraid to lose. When you had the guy or the gal who thought that their, their, their, their biggest was going to buy something, that was how you actually got them to pay a lot. So I try not to be that person now. So this is great from the sell side, right? Maybe let's talk about it from the buy side, which is like, you know, a lot of acquisitions, and especially mergers do fail because it is difficult to kind of digest something that large, right? And so, like, how do you think about kind of the preconditions for a successful acquisition

post-sale, right? And you talked a little bit about that from, like, you know, being humble about, acquiring the team, et cetera. But not being in a reactive state also seems so like, you know, I mean, how do you think at a macro level when it comes to strategy making sure they're successful? Yeah. So it's helpful if you're right at the beginning, meaning you understand, you understand, one, it's helpful if you don't end up, you haven't bought a big innovative business and the market turns. But the second thing is you know what you bought. And what I mean by know what you bought, that's particularly important in the enterprise space where it's more confusing, right?

you're a company, you sell a lot to a certain sector, and then you buy another product that you think goes into that exact same sector, and then you actually find out that the sale is made by two different people for two totally different reasons, and there's actually not the synergy that you thought was going to be there. And so being right about that, I find, is really important, but even if you're wrong about that, then the question is what happens.

And so taking a group of people internally who have experience with M&A, who know the internal business, who know how to get things done from your internal engineering team, from compliance, having an internal team and pairing them with the company, I think is really important. You know, we talk about it a little bit as the bat phone. Like, who's the bat phone to the person inside corporate to actually get something done? Because those first 100 days tend to be really important for someone who comes new to a job, for a new company that you've bought.

and what can really kill you is if you're sitting off trying to get stuff done, you can't get access to the internal. So if you've bought something where you want to leave it off to its own devices, but you want to make sure that they don't sync, you've got to give them a bad phone. Do you think there's a responsibility for like the banker or even the investor in these? Or is it kind of one of these? Okay. We haven't even let me get to my whole strategy point. So when we talk about strategy, I'll talk about clients being at the center of

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

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

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

Like, a lot of the other ones, like, you kind of work your way out of in some way or another. But these, and so I was petrified for, like, the first kind of few M&A deals that I was involved in. And so, you know, you've overseen hundreds of billions of dollars worth of these deals over, you know, two decades. So like, how do you prepare or maybe prepare CEOs or business leaders for like the mental wrath of doing MNA? Yeah, you can't hide when you close a deal and you own it, right? You can't hide from the outcome. One of the things that I've seen companies do, which I think works, particularly for large businesses, is they do a red team, green team at the end, at some point in the process. And what I mean by that is you get to a point where you've decided what your strategy is, you really

want to buy this business, know what you want to pay, and you're there, and there's nothing that's stopping that train. And if you stop and actually have a group of really smart people internally and maybe with your external advisor, say, we're going to show up for one day, for two hours, and we're going to make the case on the other side. And in the process of making that case, I've seen, by the way, very large companies change their mind and avoid mistakes, but I've also seen them, they figure out what are the pinch points for where there might be failure. And it also, it helps to embolden you to say,

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

M&A because I felt like, oh my God, I haven't done a deal this year. I have to do something. So no, Goldman Sachs is not doing deals just because Stephanie really, really likes doing M&A. So that's one. The second piece of this is. is, because I've just recently started in the strategy job, and we have a new CEO, COO, and CFO, we are really more focused on the strategy side of the equation than we are on the M&A side of the equation. And what I mean by that is that we're just figuring out exactly

what our long-term strategy is going to be. We've been around for 150 years, so certainly we have a strategy, but we're really, you know, we've talked about this publicly. We're really looking at every business from a front-term. Quebec perspective, all of the end markets that we're in and not in, and figuring out where the best places are for us to compete where we feel like we have real superpower. So interestingly, even though the world believes that, oh, we must be doing a lot of M&A,

I've actually spent more time thinking about strategy and innovation than I ever did in my old job. And just before we get into that, what type of M&A does Goldman Sachs do internally, or focus on internally primarily? So recently, most of our M&A has been in the consumer business, which is more. which is a newer business for us in our investment management division on the asset management side. And the reason for that is that you can do smaller, either more tech-focused or tuck-in acquisition. So just as an example.

So we've been building a consumer business. We bought the GE deposit platform. We bought Clarity Money, which is a personal financial management tool. And we bought Bond Street, mainly that was an aquire. We basically hired the people. And we bought Final for some of the IP and for the people. So that is kind of the full spectrum of how we're going to think about M&A, which is buying things that are pre-revenue product, buying things that have revenue,

that would be GE deposits, and then buying things more for talent or for IP. And then on the asset management side, we've done, again, smaller, more tuck-in asset manager deals. If you go way back to some of the deals we've done, we also bought Jay Aaron. And, you know, this whole idea about being humble, our last CEO came from, Jay Aaron. So that was an acquisition. actually our CEO and the CEO came from Jay Aaron, which was a commodities trading business. So that was

a much, you know, what the people from that deal would say, they started in the garage, right, in the basement, and they ended up in the top of the building. Do you have a geography bias when you do M&A? So my entire team is based in New York City, if you, so there you go. We're working on this problem.

The answer is that we have, we are global business, we have big business in Asia and in Europe, we tend to be relatively New York-centric from an operations perspective. And again, I talked to you about how we're transitioning our management team. You know, as we're doing that, I think there's more of a need to spend some time internally. But, you know, when I first started my job, I actually went to Asia in the first couple of months because it's really important.

It's really important to our business. It's really important to the future. And I thought it was important that they see me. Fantastic. All right. So now you're in the Chief Strategy Officer role. You're not a traditional background for this type of role. So I was wondering if you had any insight into kind of the selection process and kind of their expectations.

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

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

We like to call it startup inside. Goldman Sachs and not many people had done that. And so when I got the job, they handed me a white sheet of paper and said, go tell us what your job is. Do you actually believe you can do startups inside big companies? I think you can do certain things inside big companies. So I'll talk to you about what we're doing and you'll tell me. So when I first started, we announced a thing called Accelerate, which was the idea that we thought the people of Goldman Sachs had really good ideas, but they were having a hard time getting them through our organization. So we went out to all 40,000 employees and said we're open for ideas. And so we got almost a thousand ideas. And

that was a lot more than we expected. And we developed a system and we got them down to about 150. And we had them pitch and we've gotten them down to kind of 10 to 15 that we're going to fund. So we're going to figure out if you can really do startups inside Goldman Sachs. But what we learned was that there are businesses that are critical to what we do and can only be built inside Goldman Sachs, meaning they're directly related to everything we do every day. They're linked to compliance and our balance sheet, and building them outside is going to be too difficult. But there's a whole, there's then levels of things that we have no business doing inside Goldman's Act. So I think companies get in trouble when they try to do things that should happen externally,

internally. And what I mean by that is I think there's certain types of talent that have no desire to work inside an organization that has 40,000 people that's highly regulated and is publicly traded. And so we need to harness those skills and that intellectual capital, and they're not going to harness it inside. And those types of things have to happen outside, which is why we need to partner with the venture community, with accelerators, with incubators, but we shouldn't be doing that stuff ourselves.

Awesome. So I want to dig into that a little bit more. And this is kind of the issue I always had with internal startups, which is like if I had a founder come to me and say, okay, listen, I have one customer, and I will always have one customer. I'm going to work with that one customer to create my product, and that's going to drive everything, including the economics.

I wouldn't be convinced that they're solving a real problem. They've got a product of market. It's almost like economic Darwinism has been brought to bear on this problem. Right. So how do you provide an environment where you're actually confident that the internal efforts are going to be solving real problems versus being these kind of ingrown. own inbred, in-house kind of efforts.

So some of that is your question on buy-verse build. So if you're competing your own internal projects with either buy and by buy, I mean just buy the product from a software or other perspective or buy, meaning buy the company, if you're doing that in a relatively systematic way, I think you're avoiding some of those those problems. The other point is there are certain solutions where did we build the exact perfect thing that would have been perfect for everyone else? No, but we build something that was perfect enough for us. And so that's the kind of, it's core to us, it's part of our DNA, we want to do it. And I'm sure we'll get to, you know, we have a long history of having built a lot

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

And I actually think that like within the startup community, there's this view that like Goldman Sachs is like the one that's not like the others. even including like the big banks. And so like, how do you manage that tension of like, do we kind of build this very unique, you know, Goldman Sachs-only thing versus kind of the broad, you know, partners? It's a good question. So a couple things.

So history, when I started in 1999, we had just stopped using the Word program that we had created for ourselves. Because Microsoft Word. A text editor? Microsoft Word didn't work for us internally. It does now. but that's okay. So that's what we started. So the way we're thinking about it is there are certain

things that are more commodity or exist, meaning the products exist out there. They work great. We should use that. We are using that. And one of the things that we've done in the past, which has not been great, is that we've then customized those products. So we've tweaked the things that are available. And the problem with that is that you stop getting upgrades when you tweak. And it's very hard on smaller companies when you do that. So we have a rule now against doing that. So I hope for that makes people feel better. We're going to stop the tweaking of the stuff that's generally available off the shelf. There are things that we believe are areas where we're not serving the customer well. They're really solving an unmet need for us. Our tech guys will tell me that's

more and middleware for us. We're going to build that stuff ourselves. We're open to ideas, but we're going to build that stuff ourselves. And then there's another layer. And this is what was talking about a little bit before, which is sometimes you just don't have access to the talent or the capability. So there are highly innovative solutions that we do think are differentiated, but we are also going to get those from the outside. And, you know, as I was talking to our team, before coming here, they mentioned to me pin drop as a great example of something that we thought was innovative and differentiated, but we were not going to build ourselves. Fantastic. I think rules around this are great ideas, like, you know, like don't build your own thing or whatever.

But, like, in my experience, like, organizations probably change a lot slower than the rules change. And in particular, and I've seen this a lot with, like, the large banks, actually particular outside of Goldman Sachs, where, like, there's an effort to do an internal project. And, like, it's, like, the cool thing for a few months. But then, like, the white blood cells come out. They kind of come in and they, like, you know, and it has a slow death and whatever. Like, have you thought about how, in addition to the rules, you actually protect these internal efforts from the momentum or, like, the, the, the broader? momentum of the organization? So a couple things.

One, when I first started, I still spent a lot of time, but I directly went to Alicia Wiesel, who is our CIO, now George Lee, who's here, is co-CIO, and we agreed that there was no daylight between firm-wide strategy and tech strategy, meaning there was nothing, like the tech guys are off doing that, and firm-wide strategy wants to do that, and then when from-wide strategy wants to do something, they can't get any tech resources, so no daylight, meaning that we don't, again, we don't always have to agree, but then we have to, but then we have have to debate what the priorities are going to be. And so it helps a lot of that problem. The second thing is you do have to let certain experiments just run on their own. And so we have an R&D function

inside of engineering, which is a good place for that. The accelerate team, which is in Frontwide Strategy, is a good place for that. But we basically have pockets where people are protected. And by protected, I mean protected from budget issues, protect. from the people whose jobs that they're impacting because you're absolutely right. This is the typical innovator's dilemma, which is certain businesses are easier for us to build because they're separate and apart from what we do on our do every day, which again, this is more the consumer business. But another thing that we're focused on that we've talked about is cash management and payments.

Well, this gets to the very core of what we do every day. It's our core investment banking clients. It's core to our internal payment functions. And so protecting that team is actually significantly harder than protecting a team that's just doing something totally new. Right, because everybody has an opinion. This is such an issue, actually, one of the banks. I feel like I've seen the entire gradient of solutions to this.

And the most extreme I've ever seen, like the bank literally created a new legal entity. They had a new, like, building, and then they hired people into this building. This was around this cloud effort because Core IT was going to kill it, et cetera. And actually turned to actually be quite successful, except it probably grew at half the pace. It normally would if it was internal and had access to the internal resources, et cetera.

I kind of had all the problems like a traditional startup has with access to the customer. So have you thought about to what level you can provide isolation to these efforts and still give them access? So the way that we like to think about it is in places where we're worried about that, we try them to treat the internal organization

like a customer. So first best customer. customer, right? So instead of treating them, so instead of creating conflict, you say, we're going to build this, how would you like us to build this? To your point on do you create things that are truly providing good customer service or you just because you have a monopoly? So it's the best way to do it, but honestly, the only way to really do it is for the top to be focused on this. So I'll just give you an example. So David took over recently at our very first meeting with the senior executives, he said that we have to get to yes faster and we need to learn to fail.

And that may not sound like genius, but to the Goldman Sachs organization that's been around for 150 years that prides itself on being the best at everything, you know, failure is not something that's super easy inside the halls of Goldman Sachs. But if you teach people that failure works and is okay, then they're much more open. Have you talked about how you do that without abdicating, like, or abdicating ownership or accountability. So we think the thing I talked about,

the accelerate idea that we talked about, one of the benefits of it is that we're going to fund some stuff that fails, for sure. And if the team does a bad job, the team is going to fail. And so we will make sure that that happens. But if the idea fails, but the team did a great job, then we're going to celebrate that.

And so it's only by example. To be perfectly honest with you, it's going to take us a while, because I think you've got to demonstrate that if you're, You do a good job, but for whatever reason, because lots of startups fail, your idea fails, it's okay. And do you maintain some metric for internal success for innovation? Is it like a line item?

Is it, you know, the number of users using new things? Are you still trying to figure this out or anything? Because we're investment bankers, we have to do crazy math around this stuff, right? Yes, exactly. So we try to, we've tried to institute what we term an ROI framework around innovation. And honestly, we're just working and we're just getting started. Okay, sure. So more more thing I wanted to touch before I want to talk more broadly about kind of how you view the role.

So, you know, you're doing your internal things, but you've also mentioned that you want to work with partners. And I think one of the macro trends that's actually impacting technology adoption is vendor consolidation, which is like if I talk to CSOs in particular, so CSO today can't answer all the emails that come in, let alone evaluate the product, let alone make a good decision. And so there's almost this tension between saying, okay, I want business efficiency of working with a few partners versus I want to kind of, you know, comb the landscape of innovation, talk to as many as possible. And like, have you explored kind of this tension as you move away from just doing internal efforts to working with partners? And then how can you trade off between, you know, this is Cisco and they do everything versus, you know, here 50 startups who knows what they do? So one of the benefits we have around innovation is that we are investors.

So we invest on the balance sheet. We have funds where we invest across the spectrum of size and stage of companies. And one of the benefits of that is some of this dialogue has a dual purpose, right? So there's the what makes sense for us from an internal innovation perspective. And by the way, it doesn't make sense for us to use it or there's no use for it inside the firm. There may be a place for us to invest inside the firm. And then, oh, by the way, we also have an advisory practice that cares a lot about building relationships with new companies. So I think some of that inbound inquiry is less destructive for us because we have all these

places where they can be potentially relevant to the firm, whether it's an investment banking and asset management and wealth management. We want the companies coming to us. We want new and native companies calling Goldman Sachs. So it's a little bit less of an issue. Certainly our tech and engineering team has to deal with it. The second thing is if you have a perspective around it's not buyer build, both, then you are going to force yourself to deal with individual vendors in a lot of cases

because you are looking for very specific solutions. Of course, like every big company, we have both. We have very big vendors and we have very small ones. But we are quite open to dealing with smaller companies. And one of the benefits of dealing with smaller companies is you do have an impact on how they're going to actually innovate. Right. It's actually interesting, right? So you guys do do investments. Actually, you've invested alongside us on a number of deals. including barefoot, which I'm actually pretty close to. But I've almost always viewed a Goldman Sachs investment company as entirely financial, right? But now there's an opportunity of doing strategic investments.

Like if a vendor makes an investment, you're like, oh, they're probably lining with their business and maybe they'll do an M&A later on. Like, have you turned that corner that now your investment committee is something that, or maybe you were there all along that is actually aligned with your role and your internal innovation strategy, or are they still pretty separate? So we have actually a long tradition of investing on the balance sheet in strategic investments. For the strategic investments. And some of it, some of them are companies where we're going to use their product. Some of them are companies where it does not make sense for us to own the whole business. But we want to be a key strategic partner.

There have even been places where we have built businesses and spun them off. We try to take a holistic perspective on this. There are, though, investing businesses that have nothing to do with the balance sheet. and strategic investing and they they're fiduciaries. Great. So I've been kind of drilling down to some specifics. It'd be great if you could kind of provide kind of like a broad view of your vision for the role and kind of some efforts that you've kicked off and just kind of bring it up a level. So started in January, we knew, new executive, so we won't go through the Goldman Sachs Grand Vision. But in terms of where I've been focused, it's basically on three things.

One is client centricity, and that sounds really obvious. but as a firm we're actually organized in a quite silo-divisional way. And the way that we talk about ourselves has not always been with the client first. And so one of the first things that we decided to do was really focus, make sure it was clear that we were focused on clients. So clients being at the center of everything we do and really looking at everything through that lens, whether there are corporates and governments, institutions, or individuals.

And when you take a really complicated investment bank and you wipe away all the complexity and just say, I care about other clients, it makes it a lot easier to think about what the innovative ideas are. The second thing is innovation, which I talked about through Accelerate. And then the third piece is around diversity. And by diversity, I don't mean the traditional view of diversity. I mean diversity of thought, diversity of ideas, diversity of geography, diversity of ways of doing business, diversity of ways of finding M&A and investing ideas.

The idea really is that we need to look at things from a new perspective. the things that we are running out of my team, which is related to this, is launch with GS, which is our commitment to invest $500 million in women founded, owned, and led businesses, and to invest client capital in women managers. And the idea behind that was actually quite simple. We felt that women were not getting the capital that they needed or deserved, and that it really meant that they were a good investment. So there's a lot of capital out there, which many people know, but in a place that's being underinvested, we thought there was a really good investment opportunity. And as you build out your organization, maybe you can talk a little bit about the team

structure, because this is one of these unending quagmires that nobody's ever figured out. Like, if you're like on top of it, maybe you drive too much influence and then you don't get the innovation. If you're an influencer, then maybe, you know, nobody will listen to you type things. So how have you thought about doing the organizational structure around this? So when I started the strategy team at Goldman Sachs, the 40,000 employees was five people. So we built the team. And actually not by design a little bit by accident, but because I wanted diversity of thought, we've actually built a very diverse team from background and just where they've come from in terms of experience. So it's

not all a bunch of investment bankers that worked in financial institutions. We have plenty of those, but we also have people of really broad backgrounds. The second thing, which is where we started, which is that M&A and strategy were going to be together, meaning that we weren't going to separate M&A and strategy that they needed to be together and that our investing on the balance sheet was going to be done also alongside us, meaning there's this idea of should you build it, should you buy it, should you partner. And so all of that decision making was going to happen together. The other thing we decided, and this was advice I got, I think I still agree with it, is that divisions should be responsible for their own strategy. So you weren't going around

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

One of the things I say when I first started, if you're the CFO of Goldman Sachs, you get a calendar. People know what committees you're on, people know what you're supposed to do. No one knew what the chief strategy officer of Goldman Sachs was supposed to do because we never really run it that way, and so that's what we did the last eight months, which was we taught people when to call us. And the idea was, don't call us when your revenues are off by 3%, and you're just trying to tweak your business model. Call us when you're trying to fundamentally change how you're serving your customer, when you feel like you have a new, exciting idea, or call us when you're doing brainstorming around what your five-year plan is. Yeah, I've seen innovation used to solve

all sorts of ills, like maybe in the most pernicious case, it's like, oh, here's someone that's not very happy, why don't you go work on an innovation project and try and, like, you know, for whatever reason. It's a common thing. Otherwise, it's just like, you know, the company isn't doing very well. Like, maybe let's innovate and that'll solve the problem. Other ones is like, here's a very specific problem that we need to solve, right? How do you, at the highest level, think about prioritizing what you work on? I mean, the way that I hear you describe it, I love it. And I actually love this tension between, like, like, you come from an MNA mindset. It's almost like this free market thing. But, like, there's a lot of kind of organizational impacts that have. So, like, you know, as the

as the environment shifts and it will, how are you going to think about how you prioritize, which efforts to fund, which efforts to kill? Yeah, the way that we're focused on it, but we're still working through it, is where do you want to be? So where are you today? So where are you today?

We always have to do the math. Where are you today? What is the, if you look at all of the growth plans that exist, everyone's plans, where does that get you to in the next three to five years? And how big of a delta is that from where you actually? actually want to be. And in a regulated institution, actually, it's pretty complicated because you have strategy, you have finance, and then you have regulatory, all three, which you actually have to figure out to get you to the promise land of where you want to be. But if you don't have a

perspective about where you want to go, yeah, then you get stuck in like the individual details that are teaching you how you can grow a couple more percent when you're missing, when you're missing the big picture. So we try to, we try to focus on where we want to go. And then the other place is there's a lot of really important things that have to happen every day. So you talked about innovation being a vacation, innovation for fun, right? So you could get to a place where you actually distract the whole organization because in an organization of tens of thousands of people, there's a lot of people every day who just have to be with their clients, execute.

And they need to have fun doing that and not feel like they're not doing the fun stuff, that all the fun stuff is the cool innovation in the corner. And, you know, part of, again, this accelerate idea was around giving people the opportunity to do that while still allowing them to do their day job. All right. All right. All right. Listen, we only have a couple minutes. So one capstone question.

So not everybody here knows that you were a competitive figure skater, which is rad. I think that's fantastic. So I started skating when I was six. And one of the great things about skating is there's nothing harder than, like, the audience in front of you, like the judges behind you and you in the center of the ice alone, right? So there's nothing else that ever feels like that. So it was a really good learning experience. But one of the great things about skating, which you only learn as you get older,

and then you read a thousand books about grit and everything else, which is one of the things about skating and a lot like gymnastics is you fall a lot, like a lot, meaning like every time you're learning a new jump, you're like spending like the entire time like on the ice, like soaking wet, coming off, like pads all over the place so that you don't injure yourself. and so what you learn is you learn to get up. And so when you spend half of a practice session on the ground,

you learn to get up and you learn that failing, that the only way to learn is to fail. And again, when you're performing, you know, it doesn't always go perfectly and sometimes you fall, but that doesn't mean you're not going to win. Very early, I actually won, by the way, my parents tell me I would have quit figure skating

except for I got a first place trophy in my very first competition. So my parents are like, oh yeah, that's it, game over. I'm going to keep doing this. But pretty young, I actually, I messed up in a, you can, like, I could still see it. I messed up in a competition, and I still won. And it was because I, like, you couldn't tell, because I just kept going. And so that's what you learn. Learned to keep going.

Well, thank you so much for joining us. Please give it up for sessions. Thank you.