The Knowledge Project with Shane Parrish - How to Win by Being Right and Contrarian: Lessons from Zappos to DoorDash

Episode Date: January 21, 2025

Alfred Lin shares strategies for navigating startup challenges, building resilient teams, and creating long-lasting value. Lin explores lessons from companies like Zappos, Airbnb, DoorDash, and Amazon, offering actionable insights on topics like hiring for potential, managing crises, and fostering innovative cultures. Learn how first-principles thinking, customer focus, and disciplined growth can transform challenges into opportunities, even in the face of unprecedented disruptions. Lin is a partner at Sequoia Capital. He represents Sequoia on boards like Airbnb and DoorDash. From January 2005 to December 2010, he served as Chairman of the Board and Chief Operating Officer of Zappos. He has a Bachelors in Applied Mathematics from Harvard and a Masters in Statistics from Stanford. Newsletter - The Brain Food newsletter delivers actionable insights and thoughtful ideas every Sunday. It takes 5 minutes to read, and it’s completely free. Learn more and sign up at https://fs.blog/newsletter/ -- Upgrade — If you want to hear my thoughts and reflections at the end of the episode, join our membership: ⁠⁠⁠⁠⁠⁠⁠https://fs.blog/membership/⁠⁠ and get your own private feed. -- Follow me: ⁠⁠⁠⁠⁠⁠⁠⁠https://beacons.ai/shaneparrish⁠⁠⁠⁠⁠⁠⁠⁠ -- Watch on YouTube: https://www.youtube.com/@tkppodcast (00:00) Intro (03:20) Personal Journey: From Taiwan to Entrepreneur (04:51) School Days: Lessons in Creativity and Discipline (06:21) Infinite Games: Shaping Life's Philosophy (08:12) Core Values and Life Principles (10:09) Work-Life Balance and Family Insights (12:13) Inputs vs Outputs: Daily Routines and Priorities (13:56) First Order Issues: Problem Solving in Business (18:46) Early Career: From LinkExchange to Zappos (44:01) Facing the 9/11 Crisis (44:24) Building a Profitable Company (44:50) Creative Financing Strategies (45:55) Customer Service Focus (48:53) Handling High Return Rates (53:31) Zappos' Unique Culture (55:47) Holacracy Management System (56:53) Maintaining Growth and Culture (58:37) Avoiding Complacency (01:10:21) Crucible Moments (01:13:28) First Principles Thinking (01:14:17) Navigating the Pandemic (01:27:37) The Essence of Company Values (01:28:04) Pros and Cons of Remote Work (01:29:52) Building Company Culture in a Hybrid World (01:33:11) Investment Strategies in Changing Markets (01:37:37) The AI Revolution and Its Future (02:01:56) Balancing Standardization and Customization (02:04:44) Working Backwards vs. Forwards (02:10:53) Defining Success: The Importance of Process Learn more about your ad choices. Visit megaphone.fm/adchoices

One of the things that we talk about at Sequo is you can't just be better. You have to be different, too. Whether you want to be conventional or contrarian, you have to be right. If you're right and conventional, it's probably a less interesting solution. But if you're right and contrarian, you probably won't be able to make a lot more money because nobody's going after that opportunity. I often find that it's interesting. There are people who just want to be contrarian, but if you're contrarian wrong,

That's not a great situation. I try to put things in these two-by-two matrices of right and wrong and conventional and contrarian. Welcome to the Knowledge Project. I'm your host, Shane Parrish. In a world where knowledge is power, this podcast is your toolkit for mastering the best what other people have already figured out. Today's episode will transform how you think about building and scaling transformative companies. companies. My guest is Elford Lynn, one of Silicon Valley's most successful operators turned investors. After meeting Tony Haish at Stanford over a pizza arbitrage scheme, Elfort went on to

help build and sell link exchange to Microsoft. Then scaled Zappos from startup to its $1.2 billion acquisition by Amazon as the COO and CFO. Now he's one of tech's most influential people. Like a lot of outliers, Lynn struggled in school, preferring to hack solutions. together than follow instructions. Sound familiar? That changed with one of his teachers who made him realize the importance of enduring impact over short-term gains. Whether you're building a company, scaling operations, or making complex, strategic decisions, Elfer breaks down the frameworks and mental models that have guided him through multi-billion dollar outcomes. We explore everything from his unique approach to company culture and hiring that helped make Zappos legendary

to how he evaluates opportunities at Sequoia. To the crucible moment, that shaped his decision-making philosophy. This conversation goes deep into specific practices around scaling, competing with giants, and navigating technological disruptions, while revealing the deeper principles that have guided him through multiple successful chapters in tech. His insights on building and during impact over short-term gains are more relevant than ever as we enter the AI era.

And of course, we talk about AI. It's time to listen and learn. there are too many podcasts and not enough time what if you could skip the noise and get just the insightful moments even from shows you didn't know existed that's what overlap does overlap is an AI driven podcast app that uses large language models to curate the best moments from episodes imagine having a smart assistant who reads through every transcript finds just the best parts and serves them up based on whatever topic you're interested it in. I use Overlap every day to research guests, explore, and learn. Give it a try and start discovering the best moments from the best podcast. Go to joinoverlap.com. That's joinoverlap.com. You've had a remarkable journey from entrepreneur to investor, and I want to know more about this story, but I want to start with some of your early life experiences that changed you and impacted you in the future? I guess I was born in Taiwan, the two parents who were both

commercial bankers. In an early age, from what they tell me, I was always a little, I saw the world a little differently and did things a little different. The story that they like to tell about me being different was when I was about two years old. There's a new dresser that was delivered to our apartment in Taiwan, and I figured out a way to get to the top by pulling out the first drawer, crawling into it, then pulling out the second drawer, crawling into that, and then getting all the way to the top. And when I got up there, I thought I could fly, so I jumped off. And so they left telling that story because they rushed me to the hospital, and they were very concerned whether there was any permanent damage and things like that.

And my mom kept bringing me back to the hospital again and again, and the doctor said, don't worry, I think he's fine, I think he's fine. And eventually he said, well, there are going to be any problem with his development? He's like, well, he's either going to be a genius or he's going to be an idiot. He's one or the other. I mean, so that's how my parents would describe me, high variance and high beta. And throughout school and throughout life, I was very much like that. I like to hack things and not do the work until one day.

And this was in, you know, in elementary school, I just try to not do the work and hack my way through things and got suspended a few times, one of which was just coming up with a creative idea of taking chairs from the second floor to the first floor. I went down a slide instead of following the teacher's directions. I got suspended for that. And so I didn't never really like school all that much because it was so rigid until I used to hack my way through things. And one of the teachers that I had, Mrs. Einstein, had this way of teaching where she would put up a problem. She would then have us try to solve that problem or do the assignment and try to understand why she put the reading up there. And I would always bet with her, if I knew the answer or if I knew the conclusion,

of the lesson, then I wouldn't have to do the homework. She let me get away with that once or twice, and then she said to me once, you know, you're very smart. I've seen a lot of people waste their talent. So do you want to, do you want to start first or do you want to finish first? And I think I retorted back saying, well, I like to start first and finish first with the least amount of work possible. And then she said to me, that's a great answer for a sixth-grade but what happens in life when there's no finish line? What are you going to do then? And that sort of put me back.

And I didn't quite understand it until maybe now that this is the whole concept of having an infinite game and thinking through not some thing, some finish line, some goal, but just think about what you want your enduring impact to be and what you want to do and what you want to accomplish. And when the world doesn't give you a finish line, We all have the same 24 hours in the day.

What do you want to decide to accomplish in that 24 hours? We have an unknown number of years on this planet. What do you want to get accomplished? That sort of shaped the way I sort of started thinking about the world. Did it hit you then at the time, or was it something you reflected on later? I think it hit me then, but I don't think I understood it then. And so then that led to a number of explorations on what I did want to accomplish

why was it important to think about this concept of like infinite games how do you win an infinite game when there are no set rules you're making the rules for yourself in an infinite game and the rules change you get to change some of the rules

the world changes some of the rules how do you how do you navigate that and then you quickly realize it's not about winning in a finite game chess there's a winner, there's a loser. In an infinite game, there are a lot of different people in the world. They play the game differently. And in some ways, they're all trying to get on with the world

and trying to do the best they can. But some people are more successful than others. And the reason they're more successful, I think, is because they really know what their values are, and they really know what impact they want to have on the world. What are your values? Over the years, I've thought through, and this has changed over time, but I think the values for me are when you want to accomplish something, it's about the inputs. It's about the process by which you go about getting the outputs.

I think it's very, very important to have that. And I value that clarity of input eventually leads the output and focus on the input. I value consistent compounding and just getting up every single day and just making small improvements every single day and compounding that. I value honesty and truth and just being very direct with people. I don't try to sugarcoat anything.

I value I value people for who they are. My father, I learned this from my father where he told me once because I was like, oh, I'm just so much smarter than everybody else because I was a little cocky little kid.

And he said, well, actually, you can learn anything from, you can learn many things from every single person on this planet. I think I was probably six or seven at the time, and he'd show me all the different people that he learned from and that the collection of these lessons from many, many different people is what you become. And that was a pretty important lesson.

So I value people for who they are and trying to learn as much as I can from each individual person. I value family and friends. Pretty important to me. You talked a little bit about work-life and work-life balance. As you said, for many of us, it's work-life integration. And if you don't have some grounding with people who see you for who you are, call out when you're not being a good person or you're not doing the things that you said you were going to do,

what is there in life besides that? Oh, hi, buddy. Who's the best? You are. I wish I could spend all day with you instead. Uh, Dave, you're off mute. Hey, happens to the best of us. Enjoy some goldfish cheddar crackers.

Goldfish have short memories. Be like goldfish. The white chocolate macadamia cream cold bird from Starbucks is made just the way you like it. handcrafted cold foam topped with toasted cookie crumble it's a sweet summer twist on iced coffee your cold brew is ready at Starbucks how do you want somebody to call you out in those situations

or how do you call out other people the way I do it is try to be fact-based and just give examples specifically of what has been working and what has not been working and that tends to work pretty well And there are times when Rebecca, my wife, would say, hey, this is not working for us. So what do you want to do about it?

You can try to keep going the same way down the certain path, or we can try to change it. If we don't like something, we just change it. And it's just much easier to have those kinds of conversations. My son a few days ago was being quite negative about his school, and, you know, he's 13. He's going to be 14 this year. He's starting to be like me when I was younger and think that he's smarter than the whole rest of the world.

And he said, hey, Atticus, do you want to be, do you want to have a negative attitude because you'll spin into this negative spiral? And by the way, if you have a negative attitude, the world just looks worse. When you have a positive attitude, the world just looks better. And we played this, let's use yes and for a bunch of things and let's create options.

And then you're going through the no-but situation and it doesn't work. So let's try to just change your attitude about some of these things. And I thought that was quite an interesting conversation where just by simply changing the framework, he became much more positive. When you talk about inputs versus outputs, what inputs do you think about in life? Well, I think the inputs I think about are, you know, it depends on what I'm trying to get accomplished. But if the inputs are just thinking about hard work, do I get up every day? If I want to stay healthy, do I get up every single day and work out? I hear that you work out every single day because instead of trying to figure out which days you're going to work out,

and it's always a negotiation with which days and some days you don't feel like exercising, you just work out every day. I have the same philosophy. You just get up every single day and do the things that are important. So the inputs I have is I get up every morning, I work out, I look through, I read through my email, and I try to think about what's the most important thing that I have to get right today. And think about first order issues. What is the first order issue that I have to solve? What is the first order issue of a company that needs to get fixed?

what is the thing that I need to do to influence an outcome for a founder? And, you know, that's very, very clarifying. Often we can create a very, very long to-do list, and then you've got to pop up a level and just look at the do list. What's the most important things I have to get accomplished? Because if you just list all the to-doos,

you probably will not be able to get to all of them, and the most important thing might be the last one you list. And so you can't just go down that list and do them one by one. Often it's by popping up a level where you sort of look at the whole list and it's like, okay, well, most of this is not important. Is that what you mean by first order issue? I think you mean something a little more nuanced. Some people talk about the most important thing. And I think about first order, if I get this problem, I have a problem on my And if I get to the first order issue and get to the root cause of that,

usually that helps solve that problem. And there are other issues that are not first order. And that concept is quite important. And we also sort of navigate that into other situations where they are crucible. So as an example, like you have situations where, the website's not working fast enough. Atapolis, we had a situation where the website's not fast enough. Is the first order issue that we have too many pictures?

Well, we want the pictures. We have lots of photos. We want to show those photos. Is the first order issue that we need to trim the number of search results? Well, customers want longer search results. It's like, no, it's none of that. We need to figure out how to make the website go faster. And so we start caching the,

the search results. We start caching things. And so you start developing the technologies that solve the speed issue. But the first order issue is that we need to solve this with technology, not with a bunch of either-or solutions. That's an example that I learned a long time ago. Another situation is the distribution at Apple's was not flowing well. And we couldn't figure out which process was broken. Was it the picking process? Was the, was the, the ordering process broken? What was broken about it? And we went and just look through the flow, and the flow was broken. And so there was too many handoffs across all of these different discrete processes. And so we had to sort of pop up a level and figure out what the flow

of, from when a customer orders something, when it gets through the distribution center, how is it going to be pick, pack, and packaged and shipped. And when you look at that from a flow perspective, you start thinking about new solutions that allowed there to be much better flow throughout the distribution center than to batch things for picking, batch things for packing, batch things for shipping. So that's what you mean by first order.

I want to get into more of your experience, not only at Sapo's, but I, being on the board of some of the companies that everybody has heard of today are being involved. But before we get there, I want to come back to the school for a second. Are there any other experiences that you had during school with teachers that might have impacted you? You know, earlier on in junior high school, I was suspended from the computer lab because I built, this was very old. So they're a Radio Shack, TRS 80s.

So we call them trash 80s today. and there was the computer lab you had to rent time in our computer lab to use the computer and I built this game and the central server at the time was literally a floppy drive where all of us saved our programs there and one day a bunch of the students

in the computer lab all found the game in our program and then started playing with it. The teacher and the principal just happened walk in and saw that we're all playing this game. And I was told that computer lab is valuable time, and you should be doing something much more productive than producing a game. So I was no longer allowed to work in the computer lab.

And the computer lab teacher was Mrs. Potosa, and she also ran the math team. And she said, well, I'm sorry, the principal wants you out of the computer lab, but you should join the math team. And I joined the math team there, and one of the things I was very good at was math. And she told me that if you want to be a leader

and you want the team to win, it's not good enough for me to just solve the problems. I figure out how I get the rest of the team to perform. And so I started teaching the rest of the math team some of the reasons why I was able to solve some of these problems more quickly than they were. They're very talented, but I had figured out tricks that they had not figured out.

And they had taught me tricks that I had not figured out. So we got better and better by riffing off each other. And so I learned the value of teamwork by just being thrown into a situation like that. You started a company before you joined Zappos. What was that? I started a bunch of things. I started a lemonade stand when I was younger. Those were not interesting.

I started a long-mooring service in junior high school. I did it myself and realized it was not fun. It was too hot in New York City. So I got the contracts and then asked some of my friends from school if they would help me do the work. I had a few odd jobs here and there. And it was just never as fulfilling as working at a company from the ground up.

When Tony Shea left Oracle to start this company that was originally called Internet Marketing Solutions because they were building websites. He asked me to join that company. I said, no. Then they found out that they couldn't get anybody to go visit these websites so that he connected all of them. And that became link exchange. And I joined that company soon after Sequoia invested in that company.

And it was a banner advertising exchange that was one of the largest banner advertising exchanges in 1998, 1999. We saw that to Microsoft for $265 million. And that was quite the experience. Did you know at the time we were sort of in a bubble? How did you think about it back in the late 90s? I mean, we had a business. We had $15 million in revenue. You can kind of tell that we're in a bubble

when someone would be willing to buy a company that had $15 million in revenue for $265 million. But also, you know, it was the third largest acquisition at the time. So I think when you're in it, you don't realize you're in a bubble, but popping up, like the numbers don't make sense. Yeah. So that's why I think it's valuable to have people who are slightly outside of where you work to keep you accountable. It's like, hey, how does this work?

Just by simply asking questions, you get into a situation where like, wait, I can't explain that question. I can't answer that question 60th thing. I can't explain it. Maybe that person's question has more insight than I would have expected. What are some of the lessons you learned from link exchange? Boy, that was so many, there are many, many lessons because it was the first time we're doing anything that was at scale. And you hear this all the time that you should hire slowly

and make sure you really, really understand who you're hiring for. And often when someone's not working out, you should, it's probably time to let them go. We always gave people too long, and I think the company's velocity didn't go any faster because we didn't hire as well as we could have. We didn't let people go when they weren't working out, and those are very, very important things to get right. I often sort of think about the velocity of a company.

Velocity, and I measure that in two ways. You use the word velocity. Velocity as opposed to speed, because speed is just how fast you're going, but velocity velocity also has direction and think the combination of two is quite important but the whole speed of a company generally doesn't get any faster unless you're pushing

and the best companies they keep pushing and otherwise you're just going to go slower and slower and slower. I think building a real business is really important. Many of the companies

that were founded in 1999, in 1998, 2009, 2000, they were not real businesses. They had lots of eyeballs. They had lots of users. Um, but that's not really enough. And at Sequoia, we often talk about the fact that we own shares in a company. We don't own shares in the founder. We don't own shares in the product. We don't own shares in their go to market strategy. We own shares in the company and that company needs to have a business one day.

My partner, Pat Grady, loves to say that free cash flow equals freedom because eventually a real business generates real free cash flow. And the freedom being that... The freedom that allows you to not have to raise money, the freedom to allow you to invest in new areas, the freedom to continue to grow, because you can invest in growth, invest in new novel technologies and new product lines,

the freedom to not worry about the quarterly sort of pace of having to do more and more sales. You just, you generate free cash flow and it just generates a lot of freedom. Let's go back to the push pole, the thing for, you know, you said companies don't generally increase velocity without force. How do you think about the difference between adding force or removing obstacles? That's a very, that's very, very insightful of you. I think many times applying force is what what leaders try to do, which is just, it's just, to apply a forcing function and make you make a choice.

And often I think removing obstacles are just as important as applying the pressure to keep going on and on and on. But often, you know, when you apply force, you realize where the obstacles are because you butt against that obstacle. And then you realize, okay, I keep budding against this. Maybe I have to figure out a way around it. And I, you know, my job as a board member is to help you identify obstacles and help you remove it. But sometimes you just need to be pushed against it. Is there an example that comes to mind when you say that where you push and it helped you identify an obstacle? Maybe in the early days of Airbnb, I think people forget it was much more of a listing service.

And it was less of a marketplace. And if you sort of take the definition of a marketplace, you have to complete the transaction. And you just not only have to complete the transaction, you have to remove as much friction as possible. And so Airbnb in the early days had a calendar, held the money, paid out the money. But there was this big friction, big friction. And it was because there was not enough trust between the host and the guest. And so the early days of the removing of that friction was to get, connected through

Facebook Connect so you can check someone out and check out their Facebook pages and who they are and to see if this is an authentic person. But even that, checking that out took 24, 48, 72 hours.

It's just too long. And you just kept pushing. This is not going to work long term because there's only so many people that can book travel and wait 24 to 72 hours. before they know that they can go there.

And so it started out, many great companies started out as a fringe sort of activity, and you have to figure out to make it more mainstream. Often that is about removing obstacles or removing friction. But you butt against this, and you're like, what's the solution here?

And you keep applying for us. This is going to limit our growth if we don't solve this. And eventually, Brian and the team and the product team figured out that we need an instant book. We needed to figure out how to instantly book people. Well, you have a whole set of hosts now that are used to not accepting guests just because

they book them. So how are you going to remove that obstacle? Well, you start with new hosts. It's like, let me show you that Airbnb can be trusted. We're going to, as new hosts, we're going to send you some customers, and you should just book them automatically. and eventually more and more of the host realized that Instant Book is just the way to go

and that's an example where you just have to be pushed against that for a bit of time to find the solution. Was DoorDash sort of fringe too and went mainstream? Did they start in like the suburbs or something? DoorDash started more fringe than even the suburbs. It started on a college campus. And the reason we passed, cast on the seed around at Sequoia was were concerned that this is like just something that

college students did with their parents' money. And then they started out focusing on Stanford and then Palo Alto and they went to other suburbs. And it turned out that that was a very smart thing to do because everybody was going after the cities. And one of the things that we'd talk about at Sequoia is you can't just be better. You have to be different too. And if it's easy to say and hard to implement, because when everybody is chasing after the cities, because conventional wisdom tells you that that's the right thing to do, it's very, very hard to do something slightly different. But if you just hear Tony and the team talk about their business,

you realize that they had way more than just, oh, I'm going and doing something contrarian. they actually had real reasons why the suburbs were actually a better place to start. The value for someone who lives in the suburbs and have to drive 20 minutes to go get their food is higher than someone that can go from their apartment, go downstairs, and walk a few blocks and get the food and bring it back home. So that was like pretty interesting. The other one was, well, is there enough density around the suburbs? And it turns out, yes, there is density. You just might not think about it, and they had examples where in Palo Alto, there was University Avenue and there was California Street, and both of those places, that's where all the restaurants were. And so there's density where you can go to those restaurants and you can radiate out from there.

So it was not as random as any restaurant can be anywhere and any home can be anywhere. And it turned out when you go look and look at the data, small towns all have this. There's the reason why small towns, there's a main street where everything happens. And so then you start realizing that the density problem is not as complicated as you might think. And they won because they were able to take the profits of the suburbs to go into the cities. I often think about that as, you know, there are people who think of the, world and they just follow conventionalism and there are people who want to be contrarian. Well, in either case, whether you want to be conventional or contrarian, you have to be right.

If you're right and conventional, it's probably a less interesting solution, but if you're right and contrarian, you probably won't be able to make a lot more money because nobody's going after that opportunity. I often find that it's interesting. There are people who just want to be contrarian, but if you're contrarian wrong, that's not a great situation. I try to put things in these two-by-two matrices of right and wrong and conventional and contrarian. You know the term I use for that is advantageous divergence. Advantageous divert. Tell me more about that. Well, that's it. It's exactly what you just said, right? It's not enough to be contrarian. You have to be right. So you have to diverge from the crowd, but you also have to be correct. Yeah. It sounded like it's kind of

the Walmart strategy, right? Where it's like, we're going to go in this area which has less competition. We're going to get really good at what we do. And then we're going to use the money or profits and we're going to funnel into maybe the more desirable area. Like when Walmart started competing with Sears, they didn't go into cities and Camer. You know, they went into the suburbs where nobody was, where the contrast, I think, between their ability and what they were competing against was much higher. Yeah. And, and, And I think that that's what all startups should focus on. You don't want to compete with someone bigger than you head on

because they have more money, they have more people, they have more history, wherever they have more abilities. You just want to compete with them where they're not competing. Double click on that for me. Well, your example about Walmart where the example about DoorDash focused on the suburbs, there's an example about DoorDash where you want to win McDonald's. or do you want to win the top 100 merchants? And it's not just about one or two.

Yes, McDonald's is one of the largest merchants, but winning a whole suite of them is actually more valuable. Google, the long tail, keywords, more valuable than, you know, the head. And most of advertising was broadcast advertising. You start from the top. then this is a bunch of like long-tail keywords. And I think a lot of great companies, whether it's intentional or not,

try to do things very differently than what exists today. Apple, they weren't the first to many things. They were, you know, they didn't make the first personal computer. They just made the user, their focus was always about the user experience, whether it was the computer, the phone, the watch, everything they do is about having a great user experience. That was not the conventional thing that people thought about. In the early days of the PC, it was about processing speed,

and which processor was the fastest, etc., etc. When the phone came out, it was about the keyboard. We don't use the keyboard anymore. The Apple thing is fascinating, so was the BlackBerry thing because they really hung on to that keyboard thing. But I remember when they came out with their new, I forget what the device was called. It was like their Apple killer, and I used it as a demo, and I couldn't figure out how to get on the internet, and I was like, they're done.

So user experience is so important. It took a demo to, like, figure out how to use the internet. Once you figured it out, it was great, but I was like, oh, man, this is so not intuitive. Yeah. Let's go back to hiring and firing a little bit. Was there any moments sort of at Sappos or earlier with link exchange where you thought you had the wrong fit, but it turned around? round? That's a great way of asking that question.

I would say probably not. In the early days of link exchange, we hired, and back to like conventional, and, you know, we hired the conventional right person. We were looking for a marketing person or looking for a marketing person that marketed to small and medium-sized businesses. They understood the internet. They fit all the specs that you would have in a job description. But they didn't fit the way we operated.

They didn't fit the way what we valued. And it's easy to sort of limit it down to like they're just a professional marketer and they're mercenary and not a missionary. That's how Tony would tell the story. But at the end of the day, they didn't value what we were trying to build. They didn't have the same values that we had. And which is why when Zappos started, Tony, spent a lot of time to find the values. This is Tony Shea of Lake Exchange and Zappas, the values of

the company. And it's something that I talked to founders about. If you don't have the same mission, you don't have the same values, you don't have the same operating understanding of the company, it's very, very hard to work together. And then, you know, you're asking someone to change when they fundamentally don't fit to the company and how the company works. That is generally the issue. Then the other issue on the flip side,

on the functional side, when your company is growing really, really fast, and you see someone who is growing, but they're not growing as fast at the company. Every single day, the delta between how far the company is moving or how fast the company is moving versus how fast or how far

the person is moving, the delta gets bigger and bigger and bigger. So it gets very hard to turn around. And so we have this concept that a lot of people have at Sequoia. We hire for slope, not intercept. So experience obviously

matters, but if you just hire for the experience and their slope is not fast, that's going to become a problem at some point. And so we really, really ask founders to think about what is the person's potential? What is their slope? And we'd much rather bet on someone with high slope and low intercept because in startups, in companies that are new, the experience is helpful, but you're doing something different

and new, and you need to reinvent. But bring a playbook over from somewhere else is helpful up to a degree. But usually many of the problems that you need to solve are just different. And that's why you hear a lot of founders talk about first principles thinking and don't reason by analogy, etc. Because you do have to solve the problem a different way. What's the difference between slope and potential? It's just, well, slope is just the, is pretty much the same thing, slope and potential.

But having a high, high rate of learning, high rate of, you know, sort of being able to move fast. And so if someone has a lot of potential, they're over here, their potentials up here. That slope, when you draw that line, is pretty high. How do you gauge somebody's potential? It's like, you might be able to do this job and you might be able to grow into it. But, like, coming into it, it's like they're not going to check the boxes. They're going to look different. The future does not look like the past, but you have nothing else to go on but the past.

And you can see whether someone move really, really quickly in the previous situation, where they promoted three times in the same year at a different company that was moving very, very quickly. Do they have a sense of urgency? You can test for some of these things. You can ask about these things. But, yeah, you don't know whether they have the potential to grow into the next stage of the company until you put them in that position. often I think the challenge is the company is moving so fast and you're hiring someone that has done the job before and you know that they can do the job for the next year or two and that's maybe good enough if you hire something you have to let them go in three months that was a that was a messire there's almost no reason why that person was not going to be able to do the job for three months they either were not a cultural fit they didn't have the right skills if they stick around for a year or two it's usually because they've done the job before and they're

picking up a bunch of low-hanging fruit. But I look at, you know, Tony and Dorash, many of the people who work for him have worked for him for a long period of time. He likes to grow people from within. He obviously hires from outside as well. But many of the people who have been around the company have been around for a long time. Amazon, many of the senior VPs that were around Bezos had been around the company for a long, long time. Now that Jassies were, you know, they're now as CEO, he's trying to develop people

also for a long period of time. If you look at great companies, they're very, very good at developing talent both from within and hiring from outside. Is it a red flag if the turnover is too high then? Is it like a sign that people don't know how to hire, right? I think it's a, it's a red flag and you look at it and you don't want to, so the issue with metrics is people start managing to the metrics. And so if you start telling them, hey, your turnover is really high. They start managing to the turnover number.

And that's another thing. You have to manage the turnover of regrettable. What is the regrettable turnover? Why you're not able to retain your best people? And if you have unregrettable turnover, then why did you hire these people in the first place? And so if you break the problem down that way, you can't find our reads on what the issue is, what the turnover.

I really like thinking about it in terms of regrettable versus unregardable turnover. A lot of people, when they're hiring, they sort of, we need this job. I want to know somebody who's done it at the next level, because that's where we're growing to. So they're trying to anticipate where they're growing. And one of the problems that I hear commonly is that people run into, well, that person might have done the $100 million to $300 million growth, but they had a different team than we have. They have a different system, different resources. How do you think about that when it comes to hiring?

My observation is that when you try to hire someone that is from a company that is one chapter or two chapters ahead, they tend to work out better. And part of that is because they're only one or two chapters ahead of you. If you try to hire someone who you're over here and you're trying to hire someone that's 10 chapters ahead, that usually is a problem because you don't know whether they understand the problem a few chapters before. It's been too far away. On your particular point about the system, I do think that if you hire people who are 10 chapters ahead and they have a whole system in place,

even though they took it from 100 to 300 in a product division inside of a large, large company, they probably had a lot of guardrails that allowed them to not make a bunch of mistakes. And so you have to dissect whether that operating system works the same way as your operating system.

Most startups don't have an operating system. So the thing that you have to sort of assess is how well can this person operate when it's just more nebulous. It's just less clear. Are they going to put the operating system in place? Dive into this story behind Zappos from sort of the initial idea in the early days, just high-level five-minute version to the exit with Amazon. Maybe from the start, Zappas was, this is this weird idea, I can't even believe we funded it because this was originally founded by Nick Swimmer. He had called and left a message on our answer machine. This is how old and back we were going in 1999. And Tony and I were running a seed fund, a venture fund, an incubator called Venture Frogs. And Nick, Nick, said, hey, I have this crazy idea. I'm a webmaster at AutoBital, which is an auto website. I'm the webmaster there. I think it would be great to just start something for shoes

because I went to one store, I couldn't find the right size, went to another store, I couldn't find the right color, went to another store, they didn't even have this style that I'm looking at. And he had already searched the web and found a whole bunch of websites where people were basically trying to sell specific shoes on the internet. And we thought it was the craziest idea. And we almost, I think one of us had our finger on the delete button to that voicemail. And then he said that you might think this is crazy. But mail order is already 5% of sales in the U.S. for shoes.

I'm like, okay, 5% is still small. but the shoe industry is 40 billion and 5% is 2 billion and it just wasn't rocket science to understand that the internet was going to be bigger than mail order and so we took a meeting

we decided to make an investment and we funded the company $500,000 at a time when we were venture frogs. I had to done leave to go work at a company called Tell Me Networks and Tony joined

Zappos relatively early on as an advisor and then became co-ceo and eventually CEO. But the most important thing back then was because it was an e-commerce company and we were going from 1999 to 2000, it was growing from 2000 to 2001. I was like, uh-oh, we have a situation. And the day after 9-11, the company had zero on sales.

Zero. You went from whatever it was, which was small to zero. And that was the first crucible moment. Well, using the term, because Sequoia uses terms crucible one, what we're going to do about that. So I shook the company, and we basically went back to basics and we wanted to build a company that was profitable. And so we ran, so Tony ran the company at break even and continued to grow the company for a long period of time until Sequoic came in in 2004, 2005 to make the first investment. Most of, and so most of the company was financed from a small seed round. Tony invested $10 million of his own money,

but most of it was financed through being very, very creative, figuring out how to get merchants that we ordered from to give us credit and to increase the credit line. We had eventually got a line of credit from Wells Fargo, but the company burned very little cash. And for a company that went from zero, when we sold the company, you know, had $1.6 billion in sales. that really didn't have a lot of equity financing was pretty incredible.

You hear about companies raising hundreds of millions of dollars to get to $1.6 billion in GMV or in sales, and here's a company that basically raised $10 million. And it probably was undercapitalized, but it really did highlight that you can't build a company by having CAC be profitable on the first order, by being focused on customer service and not focus on marketing. With Amex Platinum, access to exclusive Amex pre-sale tickets

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You can get protein at home or a protein latte at Tim's. No powders, no blenders, no shakers. Starting at 17 grams per medium latte, Tim's new protein lattes, protein without all the work, at participating restaurants in Canada. Talk to me a little bit more about that

because you didn't have a huge budget for marketing. You had to get, you know, within the first month, you basically had to pay back yourself for marketing. How do you think about that not only back then? And then what's different now in a world, where there's a lot more money and maybe all the players aren't rational about how they're spending money to grow.

Back then, we thought that that was a, you know, we probably thought it was a curse that we couldn't raise more money because you probably would rather run the business a little bit looser so we can grow a little faster, et cetera. But being tight led us to find solutions

that was, again, non-obvious or divergence, to use your term. And the divergent idea we had was if we can only spend money that was profitable on the first order, we needed other ways to grow. And the focus was to become much better at customer service. We noticed that it was much easier to keep a customer and ordering, getting that customer to order more than it was to acquire a new customer. And then we just went down the line of what we can do for the customer. We we tried to make the website load as quickly as possible. We tried to pick back and ship within four hours.

The solution to pick back and ship in four hours was to solve a operations flow issue and not batch the operations, which I don't think anybody else figured out in e-commerce back then besides Amazon. We decided to work very, very closely with UPS in particular, and then FedEx and USPS to figure out how to get the shipping rates as low as possible. We started shipping so that it was, you know, five to seven days ground shipping to eventually overnight shipping so that the customer got it the next day. We figured out logistics, reverse logistics, so we're bringing the shoe to your home. We heard lots of reasons why people didn't want to order shoes on the internet. We knew that before we invested, and we knew that we needed to bring the store to your home,

have you tried on, and then return the things that you did not, that didn't work for you. You did not want it anymore. And by doing all those things, we provided much better customer service. When we, on any given day, the orders that we had, 80% of it was from repeat customers. And we grew the business, some with marketing, but the majority would by providing great customer service, having high repeat rates, having high LTV, and having customers basically tell everybody else how great that business was, how well they were treated, et cetera, et cetera. I read somewhere, and this was counterintuitive when I came across it, so correct me if I'm wrong, that your best customers returned the most shoes. Yeah, that was a very contentious discussion because every year the return rate would go slightly higher

and it would slightly higher. Well, we kept growing. So one way to look at it is, well, it's not really hurting us. And then the other way is, well, the return rates are high and the most expensive process in the distribution center was managing the returns. You had the return shipping. You have to open up the boxes.

You have to look at the product and figure out whether it's ready to go back on the shelf, it's damaged, I need to fix it, or it can no longer be sold again. Because if you put something that cannot be sold again on the website and make it available and that gets ordered, it's freaking going to come back and be returned again. We then did this analysis, and this is the type of analysis I really enjoy doing. I was like, let's take our best customers and let's take our worst customers. and look at their return rates.

And it turned out their best customers that the highest LTVs return the most. And I'm like, that is crazy. How is that possible? Well, it turns out because they understood how to use Zappos. They just ordered more. Yes, they returned more,

but they kept more too because they would be willing to try things. If you never returned anything, that means the only thing you buy are the things that you're super comfortable with. You know the size. You know the style. So we were trying to help people open up the aperture, try new things. So we did this analysis on the extremes and compared them and realized our best customers have the highest return rate. So then you say, well, the board doesn't like the fact that we have such expensive return policy and is costing us a bunch of money. So then the solution is not to reduce the return policy and make it less liberal. You want to keep the return. return policy as liberal as you can, but make the cost of processing as low as possible. And so the first order issue there is exactly going back to first order issue. The first order

issue is not the return rate. The first order issue is making the return process as cheap and efficient as possible. It's so counterintuitive, right, when you think about it because you actually like, no, we're okay with people returning shoes as long as they're buying more and then they're trying them on at home, which is exactly what we want and sending back what doesn't work. I think we changed the whole industry. And it originally was just a competitive response. We had a liberal return policy in 30 days. Other people copy 30 days. Then it was 90 days. Other people copied 90 days. And then we made it 365 days. And not everybody can copy that. Some did. But by doing that, it would put a stake in the ground that we want people to try the

Zappos experience and have a great experience. Why do you think it works for shoes, but does doesn't seem to get as much traction when it comes to clothing. No, I think it got a lot of traction for clothing. It was an understood problem by the time we got into clothing that you wanted to have for high returns. You're going to have high returns, and therefore you need better processing for clothing. I think for clothing, for shoes, and for a variety of soft goods, return rates are high because you need to try it on and try it out. I'd also point out that shoes, the difference in sizing really does matter. I mean, you wear a small or a medium, both could probably fit,

and you may look more buff when you wear small, and it's a loose fitting when it's a medium and whatever size you want to use. But for shoes, the difference between seven and seven and a half or 12 and 12 and a half is a big difference. And did you guys do things, and I don't know, I was never a Zappos customer, so sorry, but like, did you do things where it's like, hey, last time you're ordering a 10.5 or 11, last time you ordered a 10, we're just letting you know as an effort to, like, reduce returns, like maybe you hit the wrong button.

Yeah, we let people know those things. We also let them know that this brand, you're used to buying this brand, like A6 running shoes, and Nike fits a little looser, so you might want to up the size. We had this measure of like, does this fit true to size or does it fit a little looser or a little tighter? You guys also had like an incredibly unique culture. What went into the thinking behind that? The culture of Zappas was very special. And it was something that we wanted to preserve partly because Tony Shea had this experience at Link Exchange where we didn't define the values of the company.

we started hiring people that were conventionally right for the positions in the job. And one day he woke up and realized the company that he had founded and built was no longer the company he wanted to work at. And he wanted to make sure that the company that had this special culture that was Zappos kept the culture. In the early days, it was not very well defined. What is the culture of Zappos? well, you know, that was more nebulous in the early days.

And then the company grew and people asked, well, what is the culture? We don't have it written down. How do you know someone's a culture fit? Well, does Tony like them? Does Fred like him? Does Alfred like him after the interview? And I don't like the term the word like. Like could mean so many different things.

It was just not well defined. And at some point, Tony decided to just ask the company, what do you think the values of Zappos are? What are your personal values? And what do you not like about Zappos? And just parsing through that, we got a lot of responses. And in his book, Delivering Happiness, he talks about the fact that we started with 38 different values that, yeah, these are all Zappos values. And combined them, shrunk them, we ended up with 10 core values. the problem with 10 is that

there are probably a handful of people that remember all 10 most people remember the first one or two or three of them and the first one was to deliver well through service it was in some sense the most important core value

but we meant it in the way not just to deliver well through service to customers but also to employees to our partners our business partners and to investors. You had a different management system as well.

Talk to me about, was it holistic management? Holocracy. Holocracy, yeah. So the management philosophy was different, partly because we wanted to hire people that could just self-run and self-sustained. And so there was an element of allowing people to do what they love the most and pair them with other people who love other things and make it sort of homegrown.

I think Tony's perception of his job was that he was to create, his idea of creating a operating system for the company was to basically build a greenhouse, was his analogy, and he's going to try to help every single person grow as tall and as strong as possible. And so he very much focused on allowing people to focus on their strengths and hire other people for their weaknesses

to supplement them. Is there an ideal growth rate, do you think? Like, can you grow too fast? The answer depends. I think the easy, if you're growing so fast and the customer experience starts to degrade, you're hurting yourself.

And so, yes, you can grow so fast that it's just a complete mess. You're losing customers because you're not servicing them correctly. And at Zappos, we were very mindful that whatever customer experience that we delivered, it was the best customer experience that we can deliver at that growth rate. And I think if you ask Tony Shoe at DoorDash or Brian Chesky at Airbnb, they would probably say the same thing. It's like, we want to grow as fast as possible with the constraint that we want to make

sure that there's a great customer experience. And maintain the internal culture? Yeah, and maintaining the internal culture is one way of thinking about it, and you may have to grow the culture over time. You have a company, it's growing. Do you think the culture that was on day one is going to be the culture that's going to work five years, ten years in? It's not a static thing.

It's not a static thing. Cultures should not be static. Every year you do a strategic plan and a financial plan, you figure out what your next year's revenue is going to be, you're hiring a plan, your marketing plan, you have all these plans. You should also have a plan for culture and how to grow that. I think the best companies think about that. Like, how does our company change? How do we grow up? How do we become one year older and better and faster at the same time? How, when you're having so much success scaling, like going from a million dollars in sales to a billion, do you not sort of get complacent? I think that... Because you were dominating the market at the point in time. You were the leader clearly in that space. You're talking about Zappos? Yeah, well, in general, either.

In general, I think for every company, if you read Jim Collins' book, Why the Mighty Fall, or if you... It's the first sign is the hubris of much success. And we, you know, at Sequoia, we're just never complacent. But you've only worked not to be complacent. We actively work not to be complacent. And almost every single company to make sure that you're not complacent. Successful companies just think that way. At Sequoia, we talk about you're only as good as your next investment at Sequoia.

As Apple's, we talked a lot about how easy it is to ruin a good reputation. The next order, if that's not good for a customer, you've built all this effort to build a good reputation with a customer and one bad order on an important order, like their wedding day, and you ruin that reputation. And so I think a lot of companies have different ways of thinking about that. And Brian Chesky thinks about what's the next thing? What's the transformation that we're going to create?

What is the next thing for the customer experience? That's going to be great. Tony Shue-type thinks about the next product to power the local economies. What's the next set of people that we're going to help? And I think, you know, if you sort of go back in the history of any business, you notice that customers are just enormously impatient. They're enormously unsatisfied. Everything that becomes, that is new and novel, becomes standard. And Bezos said this line about how customers are just always, always dissatisfied.

I want to kind of go deeper. on that. It's almost like there's a natural entropy to create more sediment inside an organization. Toby Lucan, our interview, used the word sentiment. Like, you start building up the bureaucracy. And entropy being, like, that's the natural result of growth and scale. And then you actually have to apply a lot of energy to make sure that it doesn't happen. What are the early signs that you see that... Of sediment? Yeah. Well, there are a lot of examples. of this. When you, you know, the reason I always take a snapshot of when I, when I go into a company for the first time, just see how fast they're moving. And then I tell them, you probably, today is a great day. This, hopefully you will move faster than today. And I hold that as a bar. And if you don't have that mentality, it will start to slow down. And so what, What's the sentiment?

Like, the process becomes, instead of making fast, good fast decisions, the thing that people value is having a good process that slows you down to make sure you have the right decision. You have to make high-velocity decisions at scale. And I look for that. Like, are we able to make high-quality fast decisions as quickly as possible?

Or do you let the process determine the decision? how do you judge a decision's quality you can't necessarily at the the moment in time um you can think about things at the moment in time is how reasoned how reason how deep have you thought about the problem how much research have you done and you can sort of at least say well you researched the problem you understood it deeply and you've picked a course and hopefully that's the right decision And in hindsight, you can always look back and look at whether those decisions are right or wrong. And I don't think enough companies look at that enough. Instead of projecting next year's revenue and next year's strategic plan,

part of the strategic plan should be about looking backwards. What decisions do you get right? What decisions do you get wrong? Why do we need to course correct? You guys also had an element of, I think it was even specific back before it became popular, but getting 1% better. Talk to me a little bit about that and what it meant, practically speaking.

There are two things at Zappos that I push very hard and popularized. One was the power of and, because I found too many people trying to figure out ways to do either or. And it wasn't like, okay, we're going to ship product more quickly, but the website's going to be slower. Like, those are, you've got to do both. And if you, if you think about the little things that we do at Zappos, it was about just compounding 1% every single day.

And it used to write on the whiteboard 1 plus 1% to the 365. Because if you take a dollar and compound it 1% every single day, you get this ridiculous result, which is, you get $37, $38. And so when I hear about, you know, making a leap forward, one to 38 is a big leap. And it's on a scale of figuring out what's a 10x idea. It's even bigger than a 10x idea.

I hear founders talk all the time about, I only want 10x ideas because those are the things that move to the needle. And it turns out just simply compounding 1% every, single day moves the needle even more than a 10x idea. Where do people tend to go astray, right? So you have a great core product, and I'm just imagining you start building a team, you start getting out of your focus. Like, where do companies go wrong? A number of places. If you just look at great companies, they compound at a very high rate for a long period of time in their core business. Google for a long period time was search.

Amazon for a long period time was e-commerce. And there's a difference, I think there's a difference between Act 2 and Category Expansion. So in Amazon, they went from books to music, to electronics, to a whole bunch of, they just went category by category. But it was the same real, like, core business,

which is getting product to the distribution center, pick, pack, and ship the products that you want and shipping it to you. And it could be books, it could be music, it could be electronics, it could be shoes, it could be tools, it could be a hammer. But that's one core business. And I think founders start their company because they have novel and compelling insights into the world and specifically for their company. And they like the new shiny penny. I'm not saying that you shouldn't focus on the new shiny penny that is adjacent to your business. I'm just saying that you shouldn't focus on a new shiny

penny that is way out, away from your business. Eventually, all companies need an act two. AWS was an act two. That was very different than the e-commerce business. But even the way that Amazon thought about their web services business is like, well, we're very good at building distribution centers. Originally, the distribution center that we built was for physical things. And here we're building

a distribution center for electronic things, for bits. Like, even the way to sort of think about it was quite interesting. They didn't think this was a this is a high margin business. They thought of it's like, okay, this will be a low margin business too, and we like low

margin businesses. And that was Bezos's famous quote, right? Your margin is my opportunity. I like the idea of Act 2. For a lot of companies, Act 2, is the founder steps down, professional management that sort of comes in. Talk to me the difference between, as you see, a founder-led company and a professionally-led company. And I use the word professionally loosely because founders are

professionals, but I just want people to get the distinction in their head. Well, there's a lot, there's a lot being said about the difference between founder mode and manager mode. And I would go back to the question, the question is shouldn't it be and? Shouldn't you want, don't you want to be both? I have a concept of fire and ice. The best company is above the security. huge fire. They have this entrepreneurial spirit and they run hot because the idea is so compelling and interesting. But they also have this icy side. It's just cold facts. It's management. It's about getting to the details. And the best companies have both. And it pains me to see that you have to choose one or the other because the best companies do have, they figure out how

to make sure that both are in this, in the company. What are the different strengths, I guess, then maybe that's a better way to think of this question between founder mode and management mode. What are the weaknesses and strengths of each? Like, how do they work symbiotically together? I would say that there are many different modes of a founder or a manager. You know, the beginning days, you're a creator. You're finding zero to one.

you're creating something that the world has not seen before and the mode there is to be a creator and instead of calling it a founder you're creating something that the world has never seen once you create that sometimes it gets into you know sort of operator mode and many founders are fine operating

and making their creation better it's about understanding the inputs and outputs how do I sort of make the system how do I make the system better I create something I need to sort of go-to-market with it. How do I systematically make the go-to-market happen? And you're trying to just operate the thing in a way that sort of scales the business. And many founders are very, very good at the scale.

Then you get to a mode where you need to manage. You're trying to figure out resources, resource allocation. And it's like, should I invest a dollar in the core business, or should I invest that dollar in a new project and sort of having a framework on how to make management decisions like that. That's what a lot of companies at scale that the CEO needs to figure out.

And then there's just a level of leadership around how do you lead the organization and think about it from an organizational standpoint. So some of that is manager mode and some of that is founder mode. but let's just break it down to what it is and not talk about one contrast over the other. Well, I want to go back to something you said earlier

about crucible moments. What are they, and how do you identify them? Crucible moments is the term we use at Stap, as Sequoia, for things that are basically very important type one decisions. And I've had to do as an operator before Sequoia, we didn't

call them crucible moments, but I've gone through a fair share of crucible moments. You know, link exchange, do we want to sell the company to Microsoft? Tell me networks when we're burning $60 million a quarter. How do we get through that?

And how do we pivot the company from a consumer business that wasn't working into an enterprise business? These are decisions that change the trajectory of a company. At Zappos, it was, what do we do after 9-11, when sales went to zero? What do we do during the financial crisis when credit became very, very difficult? And we were borrowing $60 million. We had $60 million of debt.

We did nothing wrong, but we needed to let the banks didn't have the liquidity anymore. They're calling the loan. And how do you go through these things? At Airbnb, there have been a number of crucible moments as well, one of which started very early on that Brian Chesky talks about a lot, which was the PR crisis with a guest trashing a host, and that led to host guarantees. But there were many of those.

There was a fight to win Europe, and a competitor called Windu that copied the Airbnb website pixel by pixel. or Dornash's decision to go after suburbs and not the cities. They didn't forego the cities, but we're going to start with suburbs first. Jordan Ash's decision to focus on merchants and selection over speed. And, you know, you can have a situation where you can increase speed of delivery by just having a smaller radius, which then, you know, if I only showed you the restaurants that are close to, to your home, you'll get them faster, but it doesn't give you the breadth of selection that

you may want. And these decisions change the trajectory of the company and their choices that many of the times, they're one-way doors. Once you make this decision, you can't go back. And I think they're very, very important to get right. And so at Sequoia, we have a podcast about it, partly because we want to highlight how to founders and the management teams puzzle through these decisions. And then another characteristic about crucible moments is every one of them doesn't look like the other. So you're presented with a new problem, and you're trying to figure that out for first principles, how to solve that problem. That's the second or third time you brought up first principles thinking. What does that mean?

For me, it means start from a blank sheet of paper and you have a bunch of frameworks that you have that help you sort of triangulate the answer. Throw those out. Maybe you need a new framework for this particular situation. You're the king of mental models. To me, their frameworks. We love them because it instantly helps us think about the world and narrow down the options. Some situations, you want to generate more options and more ideas. And in those particular situations, you don't want to run your thinking. If we're on board together and we get a problem with imagine, and it comes up, and how do you think through that in first principles thinking? How would you do that in that setting? I'll give you an example from Airbnb. You know,

when the pandemic hit, you can decide to do a variety of things. And, you know, there's all these pressures. There's the investors who want you to raise enough capital so that you can you can go through and weather the storm. There are employees that want to know that they're going to be employed. There are hosts that want to know that even though guests can't travel, that they have a non-refundable cancellation policy, they're going to get the money. You have guests who want to figure out how to get their money back because they're not traveling. You have a business that went from a business that was growing 20, 30, 40% a year to a business that declines and you lose 80% of your revenue.

There's all these pressures. It's a complete mess. And the solution that you had yesterday doesn't work for today. because Airbnb before the pandemic was a lot of cross-border travel and today, after the pandemic, there is no cross-border travel. How do you think about this problem? Where do you start? Well, it's a mess.

Everybody is yelling at you from all these different angles and Brian just one of the most important things is to stay calm and look at the problem that we have at hand and figure out what the most important problems to solve for second and third. And he had principles that he had outlined. He, you know, we used to have these emergency board meetings and it was just always discussing, well, what's the emergency this week, this week, this week. And then he leveled up and decided to say, hey, we need principles to decide what we're going to do. And he decided that we have a once in a generation pandemic, one in a hundred years.

that's outside the building. There's nothing that he can do to fix the pandemic. But what he can do is to make sure that Airbnb survives for the next generation. And he had principles by which he wanted to make sure that when we get out of this, we're seen as someone who created Airbnb for the next generation and not something that wasn't going to survive this generation. Then he went to work. And he had these great plans of, like,

we're going to reduce our burn by doing all the things in this order. We're going to cut marketing. Nobody's traveling anyway. Easy decision. We're going to cut contractors. We don't have enough work for that. Easy decision.

We're going to have to raise money, and we're going to do it in a way that doesn't burden previous investors. So we're not going to raise money at a low valuation. We're going to raise debt. Why do we need to raise the money? To survive this crazy situation where both the guests and the hosts want their money back. We have $3 billion of capital on the balance sheet of Airbnb, but we have $3 billion or $4 billion of customer deposits. We can give all of that to one side and one side will be pissed at us.

Give it also host, the guests will be pissed. If we give it to the guests, we give it to the guests, the host will be pissed. And we won't have a business when we emerge from the pandemic. So it goes out and raised $4 billion, $2 billion of debt. So two plus our three is five. We can cover both sides and then take total both sides. Okay, we can pay both sides. Instead of paying it out, why don't you just calm down, you'll get this money, you know you can get this money. And let's see how the system works itself out. And so he had to sort of project confidence and imagine your way out of this thing. And you imagine a solution, which is, okay, well, we're in New York right now.

Not a lot of people want to stay in their apartments in New York. They're traveling upstate. In San Francisco, where I was, not a lot of people want to be in San Francisco. They went to Napa. And so slowly but surely, it didn't happen in March. It didn't happen in April. But in May, you found resilience in the business model where people started to, travel again, just in their own

backyards, in their own country. And that allowed the company to come out of that. And the thing that he did last was to lay off employees. He knew that the employees were going to have a harder time finding another job

during that time, during the pandemic. And so that was the, you just had these principles on how he's going to go solve this problem. Nobody would have told them to do that in that order. That's an incredible example. Thank you. And then on the flip side, this is the craziest thing.

So because Airbnb was the poster child of the number one IPO possibility for 2020, and they had seen their revenue go down 80%. And then they came out of that and then went on to be the number one IPO of that year in December. And DoorDash, you know, sort of I had the opposite experience of Dorda. Ash, which was, boy, you know, they were also trying to go public that year, but instead of being beaten down by the pandemic, they really accelerated during the pandemic. And also, there, Tony's shoe had a lot of principles behind what he wanted to get accomplished. And it was, like anything else, during the beginning of the pandemic, it was very, very scary. Because around the

world, there are some places that were completely shut down. including restaurants. And if you shut the restaurants down because of his experience, having worked in a restaurant with his mom, by his mom's side, washing dishes, with his mom,

he knew that restaurants wouldn't survive. They had less than 30 days of cash. And, you know, that's less than 30 days of cash when they actually are running at full speed. So now they have less cash. The restaurant is shut down for a period of time,

people didn't know whether they can order food and it would be okay. As soon as we figured out that the restaurants shouldn't be shut down and the restaurants can remain open for delivery

and takeout, he went to full force and making sure that the business could help merchants bridge the gap. You know, this is not something that other companies

couldn't have done, but one of the things I really respect about Tony and the team is they decided it's like these merchants are going to be hurting and we need to help them. And so they proactively went out and uploaded menus from different merchants onto DoorDash and said, hey, I know you guys are hurting. The only thing you can do is delivery. We're here to help you. We've uploaded the menu, your menu. We found your menu, whether it's on the internet,

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Light the path to a brighter future with stellus lenses for myopia control. Learn more at SLOR.com. And ask your family eye care professional for SLOR Stellist lenses at your child's next visit. And that allowed DoorDash to grow very, very quickly during the pandemic. I thought that Dordash was a well-run company in 2019. And it was a process by which they grew very fast. They probably grew too quickly. The unit economics wasn't great.

They had a few hard-fund raising rounds for the C&D. They fixed the unit economics. So in 2019, it was a wild oil machine, and I saw this wild oil machine pushed to another level in 2020 during the pandemic when they really did help restaurants when they were in a world of hurt. So the pandemic is a crucible moment for every business. It was a crucible moment for every business. What differentiated the founders in Sequoia from the ones who, took advantage of that opportunity and sort of came out of it stronger

and the ones he didn't? I think we were, you know, I hate to say this and it's maybe tripe, but going through the pandemic, we all came out stronger. It was a shared experience. Sometimes when you go through crucible moments in crises, you don't have the shared experience. But to answer your question more

more succinctly. I think there are people who knew that the crisis was an opportunity, and then there are those who just thought of it as a crisis. And I think it was Andy Grove that says that, you know, good companies are get better, and they're defined by a crisis. Whereas, you know, there are a lot of companies that are destroyed by a crisis. And many great companies were defined, and they changed the way they did things in a way that you, they found solutions that you would not have imagined when the crisis didn't happen. And I think the founders that are, they realize they're in a crucible moment. They realize they need to do something differently. And they stay calm. They look, they stop. they look around and they figure out,

they look around 360 degrees and say, that's the direction of going. Even though the whole world is revolving around them and it's a complete whirlwind. And they imagine why they should go into that direction. And in most cases, they had to find a different solution, a different product,

a different way of operating, and then scale down into that direction. Those are the ones that come out, come out really, really successful. You know, in Airbnb's case, they had to change cross-border travel to local travel. They changed to long-term stays. They changed to having experiences. In DoorDash's case, they simply had to sort of do things that they've never done before.

It wasn't a new product change, but they had to imagine a different solution. They're not going to wait until merchants' cost. call them and say, negotiate a deal. They said, look, we've uploaded your menu onto the website into our app. These are our standard terms. Do you want to go or not? That wasn't a product that they had designed before the pandemic. Often, you need to find a completely different solution to, I mean, they seem so simple after the fact. But at that moment, is completely unclear that that was the right decision. But that's why you need to stay calm. That's why you need to look around. You need to stop, look around and find the right

direction that you want to go in and then accelerate. I think that's really an interesting approach, right, where you sort of stop, you don't panic, you evaluate what's going on as rationally as you can in the moment, despite everybody wanting things from you and all this pressure that you probably have from investors, but you also put on yourself to take care of your employees, to take care of your customers, take care of your family, and everybody's worried to put the same thing. So you're operating in a very amplified environment to begin with. And the Beth's founders are doing this day-to-day,

but here the timeframes are much, much shorter and much, much more compressed, and people's voices are much louder. Just recently, Tony, said that it's about many good decisions about sequencing. We all know what we need to do, but sequencing it right is actually what matters. And the sequence of how you do something often determines whether you're remembered or not remembered. In the example that we talked about for Airbnb, there was a sequence of like, what is the values that I have for the company?

And let's go through the sequence that most matches the values. So Brian wanted to take care of the employees the most. and so the layoff was the last thing that he did. You try to do everything else before the layoff. In Tony's case, the sequence was to make sure, because he had a heart for merchants, the sequence was to take care of the merchants. So there wasn't,

it's just when you have these well-understood values, it makes the sequencing a lot easier. And often people forget, they write down their values for a good reason. Because when you don't have a playbook anymore, all you have left is the essence of what the company is, which is the values of the company. Often that's the essence of the founder,

the values of that founder, and how they want to operate. But you forget that because it's noisy. Lots of people, lots of different parties, wanting your time and your attention. Work from home has become somewhat contentious. topic, but I really want to hear your thoughts on the pros and cons and how you see it. Pros and cons. I think it's very, very hard to build an early-stage company remote. And the reason

I say that is, unless you've worked with each other before, I view there to be a well of trust that is created when you work together in this, you know, The reason why people who have worked together for a long period of time can anticipate each other's movements and what they're going to do next is because they've been around each other for a long time. And as you know, most of our communication is not verbal. There's body language and how you sit, how you react. There's a lot of communications that we miss through work from home. And you just can't read it as well. on the screen versus in person.

Because there's only your, you know, on screen in Zoom, you only have your head, there's the rest of your body that you don't see. And so I think it's quite important for early stage teams to work together. I mean, they don't have an office. They find the coffee shop to work together at. Why do you do that? You can all work from home. But why do you get together a coffee shop to work together?

It's noisy. There are a lot of people around. There's a reason why you want to do some. of these things. And I think, you know, does it mean that every single day I'm more productive in the office? No, there are days when I'm writing a memo. It's probably better if I sit in the office or I'm at home and just cranking. It's also very, very hard to build culture if you're all separate and apart from each other. There's no ritual. Culture is the values, but how do you express those values? They're your behaviors. They're the rituals. They're the rituals.

They're the narratives that we tell each other. And those things are just a lot harder to do over Zoom. So I think all companies should go back to being in the office a certain number of days a week. It doesn't have to be five. I think that we can't put the genie back in the bottle on remote work. But at the same time, you know, we thought the world was going to be different when we were all online. and it turns out we actually enjoy seeing each other in person. We enjoy having dinner together.

I don't enjoy having dinner over Zoom with someone. I enjoy it when we're breaking bread right off right next to each other. Do you believe that you can please both sides? And that's sort of the hybrid model where people are going to work at the office two or three days a week and then you can work from home two or three days a week. Do you believe in that being effective? or do you believe you have to pick a predominant one and focus, like, because your operational back end,

your company culture, your cadence, they're all going to be determined by what you pick. And if you pick in the middle, you're probably making trade-offs on both sides and not getting maybe the advantages because you don't want to make trade-offs. I think it's best if you take a stance, take a side. Hybrid, I would cripple with the fact that hybrid doesn't work at all.

I think you can be in person, you can be remote, you can be hybrid, you just need the systems around it to make up for the fact that you're going to operate in this way. Every multinational corporation when they have multiple locations

was doing some form of hybrid, right? You have some people who are in this office, some people in this office, they're connected through telecommunications, and some people around the world, road and like any company that gets a certain scale the salespeople are in the field

they're not actually at headquarters and you are having an all hands those people call in but when you have an important all hands you call everybody in you have an important offsite you call everybody in and there are just certain things that should

be done in person and certain things that are okay to do over Zoom over over telecommunications over email. I think that there's a different medium to do different jobs, depending on the objective is, and you should understand

what the drawbacks and the advantages of each one. At Sequoia, I mean, we take a lot of first meetings over Zoom. And during the pandemic, when we were only doing meetings over Zoom, you just never got the right texture for the company, the cadence of how the company operated.

And yeah, we might still take first meetings over Zoom, but we're going to meet the team, you know, at some point in person. Did you analyze your investing during that period where you're meeting more over Zoom versus more in person when it comes as approaching the investment decision? Yeah, we can make those assessments, but the hard part is the environment is also different, right? So 2021 valuations were nutty.

Was it the issue of making those investment decisions over Zoom or was it the environments that drove valuations higher, so therefore the returns are going to be more difficult, more challenge when valuations are higher? Why do you play when the valuations are higher, when sort of like the game is loaded against you in a way? Why choose to keep playing? Why not back away and then come back when the odds are in your favor?

Well, historically, valuations have gone up. But if they keep going up, then you're, how does that work? I think our LPs pay us to make money during good times and bad times. And here's the thing that is most interesting to me. You can decide to shut down, but then you won't get the texture of those companies being developed. And sometimes it's, you got to keep meeting companies, right? So you don't shut things down. You can decide to invest fewer dollars.

when things are hot, and you could decide to invest more dollars when things are cold. But the market is also smart. So when things are hot, it's usually because something new is happening, and things are cold. Maybe it's just not a good time to invest, too. If you could identify when it's irrationally exuberant, yes, you decide not to invest in the irrationally exuberant situations. But in 1999, which was one of the, if you go back in history and look at megatrends in investing.

You know, I'm 52 years old right now. When I was in junior high school, one of the things I did as a business was to build PCs, clone PCs, because the IBM PC, XT, AT, they were really expensive. And so there is one, that was one. Megatrim, which is the PC revolution. Then there was the internet revolution. And then more recently, the cloud revolution, the mobile revolution, right now we're in the AI revolution. And the internet revolution, when I first started working professionally after college,

was the AdLink Exchange. And then we started investing in 1999. That's when Venture Frog started. And if you decided not to invest in that time, you would have missed out on Google, Salesforce, PayPal, Zappos Open Table There are a lot

of great companies that were still founded during that time and paying market prices for those investments would have been just fine and you can wait better than just fine

you would have been better than just fine but you could wait until 2001 and maybe you could invest in lower valuations but often in the public markets

you can wait because those companies are available when the multiples are low. In private companies, just because the valuations have come down, doesn't mean the company that you want to invest in is looking to raise around.

Maybe, you know, in 1999, you wanted to invest in Google. In 2001, they happened to be public. You could invest in Google, but if they were private, maybe you wouldn't be able to. Yeah. John Bragg said this thing in my recent interview with him

that I had never fully appreciated, I don't think, which was, He had a reputation for overpaying for all of the land he was acquiring. And I said, why do you do that? He's like, well, if we're easy to deal with, people want to deal with us. And he's like, these assets only go for sale once. And he's like, so maybe it takes 12 years instead of 10 to get our payback. But it doesn't really matter because there's no opportunity 10 years from now to buy it again.

Yeah, I think that's an example for us. It's the same as true in investing in private companies. it's still much better to pick the right company and slightly overpay than to invest in something that is cheap. You brought up AI as sort of like the next revolution. Where are we going with AI? Where do you see that?

And obviously the longer we go out on the horizon, the harder it is to predict. So maybe let's start with like, what do you see is the next 12 months in AI? And where do you think we sort of like, how do you envision sort of 12 months to five years. It's funny because I think

in the history of technology changes and then Bill I think Bill Gates said this. It's easy. We almost always overestimate what things are going to happen in a year and we underestimate what's happened in 10 years. Yes, it's harder to imagine 10 years out,

but in the business I'm in at Sequoia, we are paid to make investments and to hold them long term. and we do have to sort of imagine 10 years out. I think the next year, these foundation models are getting so good that you can see certain things being automated that we used to do that we're not going to do as much.

But I think, you know, the next step after that is if you think about, lots of people talk about customer service and how we can automate some of the customer service emails or calls and things like that, okay, let's. say we do that. What's next? Well, then you should reimagine the customer experience. And so AI will help us automate some of these things and there's be massive cost savings. But AI should also allow us to reinvent the customer experience. And that's why we're very excited about a company like Sierra. They're not just going to help you automate customer service tickets.

They're going to help you reimagine what customer service looks like. Just similarly to how, what happened in the internet, you could, in the internet, it happened, we could book things, we can book travel on the internet. We didn't have to call a travel agent. It changed the experience. We could search. That changed the experience. It broadened.

You know, I had to imagine where I wanted to go and call someone to get me a tech hour to get a hotel. Now, I can search. So my imagination could be broadened. And that just changed my experience of travel. And, you know,

the airlines didn't allow you to change tickets once you bought them. Because that was in some back-end system. They didn't want to open up that system. Now we can change flights on the website. Well, the same will be true with AI. Start with automation, start with new experiences, and the experience will completely change over time. And it always takes a little longer.

I mean, I remember we talked about autonomous vehicles probably 10 years ago, and today we have autonomous vehicles working in a few cities. with Waymo, people imagine that that would be solved very, very quickly. But where are we going? I think we're going in a world where many of the problems

that we have in the past will get solved through automation. Many of the things that, many new problems will get solved through AI because they're going to be as good as we are in doing analysis and being creative and things like that. And so I think it will be a very, very

productive mega trend. One way to explore this topic is to ask you

what you're looking to avoid with AI investments and I'm thinking maybe something that comes to

my mind is like it's a wrapper over chat GPT or something what are you

trying to avoid when it comes to making AI investments? So the wrapper is a good example

of something it just is just a different user interface on top of a foundation

model. But I think we're trying to make sure that something persists. And if it persists, it has its unique distribution, it's embedded into your workflow,

it has true ROI for a long period of time, and it changes the experience. Other things that I'd say we try to avoid is things that are roadkill along the way of

a company like OpenAI or Google or Amazon or meta. So small refinements into what the model doesn't do well today, that's just going to be real kill along the way. And then I think we're trying to avoid things that are, that sound good, but they're not good businesses. You know, back to 1999, there were a lot of things that had lots of usage that not had no revenue. And so right now there's, there's a different example where lots of, there's a lot of test revenue. But the turn is very high.

because people don't stick. So there are a lot of things where you see very, very fast adoption, but the turn rate is very, very poor. So we're trying to avoid those kind of companies. Do you think Google and Microsoft, like how do you think you compete with them on a foundational model basis?

Like, A, they can scale into enterprise overnight. B, they can spend $100 billion on GPS. How do you think about that? Are we going to end up in a world where there's like only a few, foundational models and we're all going to plug into them? To be honest, I don't know, but I'll tell you this. In the history of technology investing that I've been involved with, if you're afraid of

the incumbents, you should just punch out. But in 1999, you could have been afraid for Microsoft because they have lots of money, lots of servers, and yet they didn't win search. Someone else won't search. Microsoft won the browser war for a hot socket. It was Netscape against Internet Explorer. I don't know many people use Internet Explorer today. Most people I know use Chrome.

So this is not a static situation. I think you just have to sort of have an open mind on why you will win. And often the reason why large companies don't win is because they have their own internal issues. That slowed them down. So Microsoft during the internet, it was, it was the, it was the antitrust situation. And that slowed them down. They could no longer bundle IE into the operating system and so they had to break all those things apart. Google has its own regulatory challenges and so does Microsoft. So I don't presume that they're all just going to win because they have a lot more money and they have more, a lot more capital and they have a lot of

more people. And besides, if you thought that, then I would be out of a job. So how important do you see what Facebook's doing then, where they're spending, you know, 50 to 100 billion, but they're making it open source? I think open source is a very, very important aspect of what has happened in technology. And, you know, you have these religious fights between closed and open, and you have religious fights between Apple and Microsoft or Apple and IBM. let's go back to

and the world is built on end and and and you know open source in the internet days there are lots of things that were built on Oprah source and some of it was close source and some of it was open source and I think the same will be true with with

AI. There are going to be things where you just want to host it on a close source model because you know it has the breadth of functionality and there are things where you can only make it work if you use your specific data, train it very specifically for you, and you're going to use open source models for that. And just like Google built a great business that is pretty close source on open, on open source software, like Linux. I think the world of

AI is going to be canned as well. There'll be close source and they'll be open source. I want you to imagine for you're in charge of, let's say, Canada and the U.S. and maybe the U.K., and I tell you that we are optimizing to be the best in the world at AI, what are the policies that you think about? How do you approach this problem, and how do you encourage us to be the world leaders? I'm maybe overly optimistic about human nature. And so I believe that you want to have a little regulation as possible in the early days. Let people experiment, let people try things. And is it all going to be good? No. But if we had over-regulated the Internet, it would not have grown to the scale that it is today.

And do we have problems on the Internet? Absolutely. And so I believe in sort of having regulation that is more open than, not, and then slowly close off things that you know is not good, or the behavior is not good. Regulator is often worry about the fact that if you wait too long, you won't be able to regulate it. I don't know if I believe that. And then on the flip side is, it's always been, I don't know of a time that has ever worked to fight against technology and to overregulate technology. you could have over-regulated the fact that the scribes were going to no longer have jobs because we came with the printing press and go all the way back in time like that, or figuring out how to have a plow so that you need fewer people to sow seeds because the plow could do the work of three or four people all the way up to a tractor.

How have we done trying to regulate or over-regulate or control things that sort of make human beings much more productive? That's what we're talking about what technology, and that's what we're talking about with AI. And then, you know, if you want to start applying regulation, there's maybe a slightly different framework

that I would use, which is you want, you know, as an example, with the combustion engine, nobody regulated the engine. We regulated what engines can go on the streets, what can go into a plane. You regulated how,

is applied. But in a lab, and people were, you know, sort of doing research and trying to make the combustion engine even more powerful, being more fuel efficient. You don't regulate that. You regulate it when it gets in the hands of a consumer. So that was a, like, removing barriers almost, but like, what about amplifying? What about the push? How do we encourage more? How would you embrace this as a as a country? The market is pretty good at pushing when they see opportunity that more and more capital goes into it, more people go into school to, you know, in almost every single technology revolution I've been part of, there are two few people will understand that technology. So when there was a PC industry, there are some people

understand mainframes, very few people understand PCs. More and more people investment went into PCs, more more people bought PCs, more people start using PCs, more people start building applications for PCs. And so over time, there was just a lot more people and a lot more investment in it. People went to school to sort of write software specifically for the PC as opposed to the framework, the mainframe. That happened in the internet. Most people didn't know how to build a website. More and more people learn how to program in HTML and Python and and Linux and learn how to use Linux to build today, and that happened with cloud and mobile.

So today we have probably two few people who really, really understand the technology and its application. But you have so many people go into today because they see the future is going to be powered by AI. And so wait a year or two. I bet you there's plenty of push today. That's why the valuations are high for AI company.

and wait a year or two. There's going to be a lot of things that are going to be built. In fact, the hot take is that many things will be overbuilt. So maybe we're building too many GPUs for a year or two years out. Maybe there are too many data centers

that have GPUs a year or two years out. And maybe those things will get cheap. And when they get cheap, we'll find new applications when it gets really, really cheap. That would be sort of the history of market. Actually, it's interesting that you brought up

don't fight technology there's a saying in investing don't fight the Fed it's sort of the same sort of and then what

The Fed is way more powerful in many respects than technology no well I think the Fed can constrain

or can loosen money supply in a very dramatic way so it applies throughout the whole economy as opposed to

just about technology in Historically, businesses have cycles. We tend to overbuild when we're optimistic. And then, you know, you go through that phase you just talked about. Out of the large technology companies today, who do you think is best positioned? That's hard. Well, if you want to use Don't Fight the Tape, when I started in my technology career, Microsoft was the largest technology company, and today they're the largest company.

and so they seem to have figured out through their ups and downs how to stay relevant and stay on top I think Google's having some challenges with their own regulatory issues and Apple don't ever count Apple out because back to they weren't the first

to come up with the PC they weren't first to come up with the mobile phone there's so many other mobile phones they just wait until they can create a great customer experience and then when they do they pounce they weren't the first to come up with

an MP3 player or a phone or a phone how do you think of invidia of I think I think invidia is

is a very great company for a variety of reasons, one of which is it went from a graphics processing company to being the way we power all of AI. And they fought for so long about this idea of parallel processing where the CPU worked a certain way, the GPU worked a different way, and the GPU is Dell shown,

to be more powerful, but after we sort of got to the edge of Moore's law, the GPU is winning out because they can process things much more efficiently. But I worry about they've only had one leader in their whole cycle. I worry about what happens when Jensen decides not to be at the head of InVIDIA. Yeah, that is the question, I guess, right? I think that's the question a lot of people Yeah. Jensen's a remarkable sort of CEO. Jensen's a remarkable CEO, and he does

things very differently than anybody else. We had him speak at our base camp, which is our annual retreat for our founders, and he just came out with so many great stories about Nvidia, about his personal life, but also about his management style that is so different. I remember being there, and that was awesome. Yeah.

Sometimes you've said in the past that sometimes the path to greater efficiency is doing things sequentially and sometimes it's doing them in parallel. Can you explain that? Well, I think most people are trained to do things in cereal. They take a problem, they break it down into pieces, and they do one piece at a time. Step number one, solve the problem number one, to solve problem number two, because we need the solution to problem number one to feed into problem number two. And they eventually go down the path. And a lot of, like if you're an individual contributor, you write code, you just keep writing the code and you finish the code and you submit

it. But if you're managing a team, you need to break down this piece of software into components so that you can give it to your team members. You have all 10 of them working on it. As opposed to you write it yourself and even if you're a really good software writer, you literally have to be a 10x engineer on top of your 10x engineer, so you have to be 100x engineer to do it in the same time frame that 10 10x engineers can do it. And sometimes it's just more efficient to just break the problem down so that you can put them in parallel and stick them all together. How do you think about companies and time span, and specifically maybe with an angle towards positioning yourself to rapidly adopt to whatever the future brings versus trying to

predict the future and running ahead of it? I think the consensus would tell you that it's very, very hard to predict the future. And your ability to predict the future is uneven, because in the world that you know, you may be able to be very good at predicting the future. But the world is not stationary, and the world changes. And in this new world, trying to predict the future, you don't have many facts or many patterns that you can go against. It's much better to have a machine that knows when to pounce

than to try to predict what's going to happen. Go deeper on that, a machine. Well, your company is in some sense a machine, and so you're trying to figure out when you should pounce on an opportunity. You're building, you're building, you're building, and you decide, I'm going to take this path now. And you're going to make your company and go in this direction

because you see the opportunity in this path. Maybe make the example more concrete. Perhaps, you know, as an example, DoorDash started with food delivery, but specifically restaurant delivery, and they waited until they figured out an advantage that they can have in grocery. But the mechanism by which to deliver

restaurant food and grocery food were pretty much the same. And figuring out when to enter the grocery market had a lot to do whether the company was ready. The customers were ready. The market was ready. The groceries were ready. And you can predict that customers want this before they want it or you can just wait until you see lots of customers bang on the door writing into DoorDash, hey, can you also get my groceries? And so it's a matter of what, do you want to be pushing the customer to do what you want, or do you want the customer to pull you in the direction that they want to go? Is the biggest risk there that you try to tackle two problems at once?

Like, I'm assuming they knew they wanted to get into groceries. So part of the risk at the start is like if we're focusing on restaurants and groceries, all the time we're spending on one of those two things. And not all of it, but a lot of it's coming at the expense of the other. Or do you see that as no, it's not? It's a very sharp insight that you have. I think the one thing that you'll find is that there are lots of examples that I could use to support your conclusion there.

Because before DoorDash happened, there are plenty of other service solutions. And most notably, there was Grubhub that was just the website, and then they passed the order to the restaurant, and the restaurant delivered. And Tony's observation was that's not deep enough of a solution. And so why was it not deep enough? Well, there are a lot of restaurants out there that don't have their own delivery staff. Yeah. And why don't we just... You're creating problems for the...

them in a way. Exactly. And so the only restaurants that would be on Grubhub's website were all the companies that already had delivery staff available. So what DoorDash did was to expand the market. And by expanding the market, they were very focused on that problem because they're like, really, you'll deliver, you'll take the orders, I cook it, and you'll deliver it for me. I've never heard this before. So you were just like educating the market for a period of time because you're just focus on that problem. As opposed to, besides Grubham, which didn't do that, there was Postmates. Originally, Postmates wasn't just in restaurant delivery. They were doing anything. They would pick up from anywhere, and they would deliver it to anywhere, and they would even pick up something

from, I don't know, Bloomingdale's or from Walmart. But in that example, there's just too many different things that you could be, you could do, and it wasn't focused. And even more broadly than that, there was Task Rabbit where you can run errands. Well, one of the errands you can have them run, someone who's on Task Rabbit is to go pick up food from any restaurant. So simplicity of the solution is the reason why I think you want to start with a very focused problem. It's much easier to tell people, this is what Dornash does. And then, over time you expand that. You expand the remit because you've earned the trust of the customer to allow you to do more things. One of the problems when you were saying that is like how did

Dordash find drivers in those early days? Yeah, it was hard because if you, um, the one thing that, um, you know, if you sort of believe that it was more profitable to, to transport humans than deliver food, then you would come to the conclusion that Uber and Lyft would get all the drivers and Dordash would not get any of their drivers. And it turned out that, well, A, there are some people who would prefer to deliver food or package over delivering people. They didn't want to have to have social interactions. And then there's a set of people with perfectly fine cars, but they're not perfectly fine cars to transport humans. And so early on, and we thought it was going to be a problem,

but it was less of a problem than we had it originally imagined. One of the problems that I anticipate, or maybe from the outside, look me in, I can be completely wrong, is when you sign up a grocery store customer, they want to work with you in a particular way, but it might not be a standardized way. And then you might say yes, because you want to sign up that customer.

Maybe it's like Albertsons or something. But then you go to the next largest grocery store chain and they want to work with you in a different way. How do you think through the standard, standardization, which is like, no, we work in this way versus creating all of these one-offs. And I see a lot of startups do this, where they want to sign a customer, so they'll violate sort of like their standard procedures. And they'll create these one-off contracts and technical solutions. And then they go to, and they're trying to get revenue so that they can still exist.

How do you think about that tradeoff? It's a very, I think it's a, I use the accordion example, often, which is, you know, you pull the accordion too far and then you have to push it back in. And, you know, at some level, if you are super rigid, you're not going to win your first few customers. So at the very beginning, the accordion is completely folded and you do pull the accordion and you allow things that you may not have allowed, you may not want to allow in that very early days. And then it gets super far stretched. And you're like, oh, shoot, I need to standardize a bunch of things.

things. And then first, you're not going to go back on these customers or merchants, so you're going to go back, you're going to go into the next inning with a lot more standardization. Or you break up your 100 customers into three personas or four personas and try to have four different standardizations. But trying to be overly standardized at the beginning is generally not a great idea. And the opposite of that is have a standardized product and then allow customization

on the edges. And I think a lot of software companies try to do that. When build a platform, the platform is not changing. You're buying the platform. But on the edges, we allow for customization. And you do it at the beginning.

You find other developers who are willing to do the professional services on the side, and go from there. It's almost like you earn the right to do standardization when you're sort of trying to be the backend where you have to accommodate at the start and widen the accordion, and then as you get scale and network effects

and more and more benefits to the merchant or partner that you're partnering with, you sort of can more standardize. Is that true? That is true. And I also just think it's very, there's a lot of hubris in thinking that you can standardize the beginning when you don't even know whether that's the right solution for everyone to standardize on. And so bring some customers, they'll tell you your standardization doesn't work for

not only just because it doesn't work for them. It may be that it doesn't work for many people and at least learn from that. What's the difference between working backwards and working forwards? So working backwards is this idea that Amazon popularized, which was you start with the vision of the world that you want to imagine, and you think about if everything goes right, what is the world that we live in, and what does this product become that you're trying to build? And at Sequoia, we call that the pre-parade. And, you know, if everything goes right with this company, what does it become? And then you work backwards from there. what is, you know, one, one year before that, what does it look like?

Two years before that, what does it work look like? And Amazon popularized by working backwards, meaning that go from the future all the way to today. And I love that concept in a sense, but I've also seen lots of founders struggle to take it from the future, which they have this great vision of the world, and really map it all the way back to today. They map it somewhere five years out, ten years out, but they can't map it today. And I also tell founders, okay, that's the future that you're aiming for. Here are the realities of today. What does it look like one year ahead, two years ahead, three years ahead?

That's working forwards. And if the two don't match, you're not on the same trajectory. And so I believe in having founders work both backwards and forwards. Often when you work backwards and you think you have a great plan and then you mis-executes and you don't know that you don't, you're not executing, it's because you haven't worked forwards and what the year one, two, and three look like to be on that trajectory. What are the two or three mental models you keep coming back to most when you're making a decision? I'm going to ask you that question. This is your interview. Nobody's here to listen to me.

I want to know what your three, two or three mental models that you use. I think the one that I learned from Amazon is whether this is a type one or type two decision. And, you know, if it's a type one decision, I've learned from Brian Chesky to run out the clock because you can't go back as a type two decision. And, you know,

you just move forward, make a call and, of course, correct along the way. Type one being irreversible. I'm in type 2, yeah. So if it's irreversible, run out the clock, meaning like get all the information and make sure that that's a high confidence decision. Type 2, if you can always change it,

make a fast decision and keep iterating. That's one model. The other mental model I think about is, you know, working backwards, working forwards, that's also top-down versus bottom-up. is a similar sort of idea. Some problems are better solved, thinking top-down, some problems are more easily solved,

just working bottoms up. Another one generally is to break up hard problems into smaller and smaller bite-sized problems and solve each of those individually. And just the way I live my life, this is not a mental model, it's a lot about consistent compounding.

and just build, just every single day doing the little things that sort of improve myself or oneself or the company that I'm working with. Talk to me how you think through the breaking problems thing because you mentioned bringing it into smaller problems solving those and then you get the solution. How do you think of that versus the individual, like the optimal solution for that particular sub-provision,

might not lead to the optimal solution for the bigger problem. Yeah, so I think there is local optimization and global optimization you're talking about. That's a much better way to word. If you want to solve a global optimization problem, you need to pop up. And if you're trying to solve a local optimization problem, you want to go down. And so I think the problem first and foremost has to be at the right altitude. And then you can break the problem down from there. Is there an example that comes to mind where you're thinking?

If you're trying to climb a mountain and the top-down problem is, what's the path? So even before you climb the mountain, you're going to plot the path before you get onto the mountain. But once you're on the mountain, then you have a path. You're just going one step in front of the other on that path. and if you find that the path is not right, hopefully you've had some backup paths and backup plans that you can go one foot in front of the other. Path A doesn't work.

Well, Path B might be a little better because I plotted the alternatives plot to Path B. So that's an example of like planning top down on your path and your alternatives and doing a bunch of scenario analysis. And then when you're executing on a day-to-day period, you just literally just go execute. And I don't see that any differently than a company. You have a plan for the year.

You have some scenario planning around it. And so the more scenario plans that you have, the more easily you can course correct, you know you're supposed to be on Path A. You decide that you're still going on Path A. You're slightly off. Let's go back on Path A. Path A turns out not to be the right thing.

We're going to pick Path B because that's the second alternative. and if we're going to go right one foot in front of the other, plotting against PathB. We always end these interviews with the same question, which is, what is success for you? I know that this question was coming.

And to me, the success is just the process and having a good process. Because if you live, if you have a process, consistent to who you are and your values, and you live that every single day, and you get up every day and follow through on that process, you're already successful.

You know, lots of people talk about success is not the destination, it's the journey. I think it's just the process before the journey. Which direction you're going to go. Why did you decide to go in that direction? How fast do you want to go in that direction? Before you can go on that journey, hopefully you've planned things out and you have had a process to sort of plan that out. And if you did that right, you know you're going to be successful. Thanks for listening and learning with us.

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