The Pomp Podcast - #1423 Keith Rabois & Mike Shebat | How To Build A Successful Business

Episode Date: October 18, 2024

Keith Rabois is the Managing Director at Khosla Ventures & CEO at OpenStore. Mike Shebat is the Co-Founder & CEO at Traba. This conversation was recorded at the BUILD Summit in New York. In this conversation, we discuss how elite entrepreneurs stand out, the importance of an ambitious culture, how to build a great team, utilizing AI, their current investing themes, and more.  ======================= Buy book: https://www.amazon.com/Live-Extraordinary-Life-Anthony-Pompliano/dp/0857199927/ ======================= Xapo Bank, the world’s first fully licensed Bitcoin-enabled bank, offers military-grade security with an unmatched blend of physical and digital security, as well as pioneering regulatory oversight, so your funds are always protected. Beyond secure storage, they enable you to grow and use your Bitcoin. Earn daily interest in Bitcoin, spend with zero FX fees using a global card, and make instant payments via the Lightning Network for unrivalled access and convenience. Visit https://www.xapobank.com/pomp to join. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat

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mike shabbat who runs a company called traba which is the fastest growing company in multiple tier one venture capitalist portfolio i'm very excited that you are here do you have a microphone no is it underneath you oh there we go that'll help don't scare me like that um let's start with you keith uh you are famous for finding many of the best investments over the last 20 years and investing in them really early. I think your claim to fame is that you have never met with a founder who then went on to build a multi-billion dollar company

and not invest. So you've never missed in terms of meeting the founder. There's now one. I don't want to distract you. At the low end of the spectrum, $1.8 billion acquisition, but it would have been a series B, so not that much.

Talk just quickly. You've honed this like human algorithm of meeting people, understanding who's a winner, who's not. what do you look for in a 15 to 30 minute meeting with a founder that really allows you to make a decision at a conceptual level it's pretty straightforward if you think about it when you start a company you're irrational completely like the idea that you're going to reinvent an entire industry from scratch financial services staffing supply chain whatever it is is like

borderline irrational to crazy so the only people who have a non-zero chance of changing the world are people who have an unfair advantage that you never see, which is you have to be in the top 10 basis points on some trait. You could call it a superpower if you like. It's a little buzzy. But fundamentally, unless you have some trait, the chance rounds to zero, which means it's a very bad investment. There's another version of that,

which is you have an unusual combination of two skills that you never see in tandem. That also is basically a top 10 basis points kind of situation. So unless I feel that, and usually you can't miss it, it's like three minutes or less. You either have the superpower or you don't. There's no reason to invest. What's an example where people would have two different skills you usually don't see together? So Max Levchin, now from PayPal days, Affirm, et cetera, is a first-rate business strategist and a truly first-rate technologist. Those usually don't go together. And this isn't

even with the benefits of hindsight. I remember January of 2001, dating myself, when I was at PayPal. Reid Hoffman came up to me and I was preparing for my first meeting with Max Levchin. And he said, you know, Max is a first rate business strategist and a first rate technologist. And there's less than five of those people in Silicon Valley. Turned out to be Reid was, as usual, pretty brilliant. That's pretty cool. We're going to really crank on the ambition here. Mike, you tell every single person that joins your company that you're going to build a trillion dollar company. I heard that the first time I said, oh, that's ambitious. Literally every single person in the organization repeats it over and over and over again how are you going to do that

and why do you harp on such a big audacious goal good question so i i believe that when you start a company you want to really set the frame of what the ambition of the company is going to be kind of like athletics where say you're in middle school or high school and you have a favorite sport say you're a figure skater if you want to go to the olympics for figure skating you're just going to operate on a different cadence than everyone else especially people that say you know what i'm going to do figure skating but i'm going to do all this other stuff in life too so anything that is massively ambitious you're just on a different frame like different cadence and that feeds into every micro decision you make every single day so if you're building a trillion

dollar business that's way different than building a billion dollar business or a million dollar business and that feeds into the targets that you set it feeds into the people you have to hire it feeds into the investors that you seek to give you your first check. And trillion, like it is actually possible. So there's $7 trillion companies today. If you were to wake up two decades from now and you look around how many trillion dollar companies you think there'll be, there's probably a lot more than seven. So the fact that it is possible, there's no reason why one of those many trillion dollar companies in the future wouldn't be any of you all or us. So we want to hire a group of people that don't see that as impossible and actually want to push for something

big. And the reason why it's a trillion dollar market cap is because we actually do have a goal as a venture backed company to IPO and have a real market cap. So that feeds into the impact that you're making and the decisions that you're making. Also, you have to care about revenue, unit economics, all the things that matter when you're a publicly traded company as well. So that's why everyone that signs up doesn't see that as impossible. They're actually stoked by the ambition of the company and they want to learn a lot through that process so we could take your question and when i met mike i could tell you like what immediately sparked so um mike's the most persistent person i've ever met maybe the most persistent person on the planet um it was

pretty obvious like from day one he told me this anecdote of when he was thinking he had this bad idea of going to business school um that he took the gmat eight times so i actually didn't think there's like legally possible to even get anywhere near eight i probably would have guessed like you could take it two or three times, but like eight times and they're not even going. Another classic illustration is when Mike was working at Uber, you know, some of his colleagues were competing or, you know, joining this triathlon for the weekend. And with no training whatsoever on Thursday, Mike decided to do it. Not that he finished it, but he didn't have a bike at the time. So he just borrowed a city bike. So that's like the kind of mentality that leads to an unfair

advantage in building a company from scratch. Now, to recruit talent, you also do what I'm going to call kind of a filter right up front. You tell them, hey, we're going to work 996, which is 9 a.m. to 9 p.m. six days a week. You sweat all of the details and culture and the attitude of people. Some would say from external, oh, you're micromanaging. I think people who know how to build very large companies say you care enough about all these details to hold people to a standard talk a little bit about the filter and then also how you continue to kind of keep that bar of excellence once they join the company yeah it's a good question so it all starts with the goal remember so if you want to build a trillion dollar business you look at the actual

trillion dollar businesses out there like amazon microsoft apple and then you look back into the first 100 employees there and all of them were just like really really pushing very hard and they all have a lot of challenges like every single day there's challenges with company building that's never up and to the right so you want to have a team of people around you that are going to be really building the company with you uh being world class and not clocking out at six or not thinking that startups are easy because they're definitely not so the best way to do that is just to be up front with the team that you're about to hire like look we're signing up to do something really bold and ambitious you can pull multiple examples of any anyone including outside

of building a tech company that is like chewing glass to get through all the hard times so we just anti-sell people and we're like we started the company right after the vaccines were distributed where everyone was remote and startups there's interest rates were super low so people were just like hiring people that didn't hold them accountable and no one like really was rowing in the same direction and then you look at all the big giants of our time and they're like in the trenches together late nights at the office solving problems and when everyone buys into that it unlocks something awesome like if you if only part of the team buys into that it's like a 20 cohort that's like pushing pulling the weight for everyone else and because with company building

you literally are up against the clock you have to make a certain amount of revenue and then this the investors like keith will be like okay you made that much revenue how much did you spend to get there and that needs to like move in the right direction so the number one line item to spend is human capital like how many what the salaries are so with every single person on the team you actually just have to break it down okay salaries this much a year divide that by 12 this is how much i'm it's coming out of the company bank account every single month is like that much what i pay that much to get the value that this person is contributing including ourselves like as the founder so that's why we do anti-selling like crazy before someone joins and it's completely

fine like if you don't want to if you're not at a phase of your life to give it all you got to a startup then don't join in the same way that if you were in high school and there was like some crazy varsity coach that was like, we're going to do two days on Saturday, but we're going to win the championship. People will self-select out of that. They're like, no way. Like I have things to do on Saturday. So that's just what we've done from the beginning. And it's really paid dividends with all the decisions that are being made at the company. Can you explain a little bit PayPal Square? I mean, you worked at so many of these companies. What were the things that were true then that are still true today around company culture and kind of getting these

people, not just the best people into the company, but things that you guys did to get them motivated and working hard every single day? So there are two key ingredients and they're very similar to Trava. People worked really hard and we had a critical density of talent and then we had no excuses. So for example, at PayPal, we held executive meetings at 10 a.m. on Saturday, every Saturday. And so if you wanted to be an executive, you were there on Saturday and everybody who aspired to be influential was there on Saturday. And it was just like a 24-7 culture. We had our headquarters in Palo Alto and later Mountain View. And it was so intense that even though all of us were in our 20s and early 30s, there's only three people in the company that lived in San Francisco, even though that's at that time more attractive.

It's just there wasn't any free moments to commute back and forth. Same thing at Square. You know, I worked every Sunday. I did most of my interviewing of candidates on Sundays. Anybody who wanted to be influential was in the office every Sunday. We started actually, this is pretty rare for Silicon Valley. We started all of our meetings at 8 a.m., which was actually an interesting rude awakening for me. I wasn't used to starting meetings, but all the engineers, the first 17 engineers, stand up 8 a.m. every day.

Mike, when you hire people, we're talking about a density of talent. They have to be smart, obviously. But if given the choice between do they buy into the mission versus are they smart, how do you evaluate kind of which end of that spectrum they end up on? Yeah. So we operate in a unsexy market. So we do staffing. Our first product is for staffing for the global supply chain. So I believe that people resonate with problems that they actually experience themselves. Like, for example, if someone really gets fired up to become a therapist someday, maybe they actually experienced something in high school that really sparked that. so i don't think anyone comes out of the womb being like i know exactly what i'm doing um but i do think that we you you can hire people that are passionate about solving very big problems that drive a ton of impact so i was at blackstone here in new york and i got a call from a company called mcmaster car which is an engineering supplier and i didn't also resonate

with the problem until i took that job and i was in this management rotation program there and i saw all the crazy inefficiencies and i became like wow there's so much we can do to drive ton of impact i mean all of us feel the impact from the global supply chain being constrained by labor inefficiencies like this came through the global supply chain you buy something online it takes a little bit longer like all of that is because labor inefficiencies are constraining that uh so what we do is we hire smart people that want to go do something big and create a lot of impact then they fall in love with the problem by actually meeting our customers seeing how much impact we have on this huge huge space like we have customers now on traba where you go get

tomatoes at Whole Foods, like they came through, they're using Trava to make sure that those can get delivered at a cheaper price faster. Or we also have another customer that they produce building materials that probably the apartments that are coming up in New York are using. So you can actually see the ripple effects of the changes we're making at Trava. But I don't expect anyone to tell me the complete truth if they're, oh my gosh, I'm so obsessed with the global supply chain when they're first interviewing for a job at Trava. Let's talk about barrels. It was something that I think a lot of people have learned from you. What is a barrel? How do you evaluate whether someone is a barrel? And then if somebody is not performing up to a standard inside

of one of these companies, how do you think about kind of performance improvements without having to go replace them? So I came up, I sort of derived this metaphor to answer a common question that CEOs ask and get frustrated by, which is I'm hiring more and more people, especially as Mike talked about during the alluded to the zero interest days. People just hire, hire, hire, and they'd get less done or they certainly wouldn't get any more done and not like exponentially more done and be incredibly frustrating like the burn rate would go from 100k a month to a million a month and less would get done and they said like why is that happening and all these people on paper would be fine candidates one of the fundamental reasons are like most people you

hire even if they're pretty talented or what i call ammunitions and very few people are barrels and you can only do an organization can only do as sequentially non-sequentially in parallel can only do as many things as you have barrels. And so a barrel is someone who could take an idea, a conceptual idea, and bring it across the finish line to success. And they will marshal the resources, they will motivate people, they will jump through hoops and hurdles to make that happen. Typically, you have very few barrels. So a ratio, let's say at PayPal, which was famous for its critical density of talent, we probably had plus or minus 15 barrels out of 254 people. A normal $2 billion company might have two or three.

So they're really scarce. The way you can tell, you usually can't tell unless you've worked with them before until they're actually in your building, they're in your office, and you see them working with your colleagues. And you can tell who basically develops this soft kind of influential ability where people come to their desk and ask for advice. Not people who report to them, but just generally people are like, oh, this person can help me solve problems. And that's what you're looking for. And then you keep expanding their set of responsibilities, the degrees of complexity of challenges that you allow them, you know, to DRI. Most of them are not going to be barrels. So you're not really performance managing the rest.

I'll let Mike actually talk about performance managing because it's another one of his superpowers. But, like, fundamentally, you're just embracing the barrels you find and challenging them to take it to another step and another step and another step. so like for example i run a company a ceo the president of the ceo started as the one of the two most junior people in the company he's been promoted six times maybe one day he has a seventh promotion but that's pretty good in three years can you get a barrel to create other barrels or are they just like kind of born i think you can it takes time it's like learning by osmosis so maybe if you have a barrel and you pair them with a high potential up and you know potential person a year or two later mike talk about uh kind of performance management and how

you can get more out of people yeah so for one uh when we have barrels at travel we call them force multipliers because remember we're an in-person company so we're all here in new york and soho i think that sending a message to the organization that you're giving this person a lot more room to grow and a lot more authority at the organization then people are like oh actually i be a lot more like her or him and then they start embodying those behaviors so i think that force multipliers you want to like really give them a ton more rope because then people are like okay so that's the standard of this company but then with that comes a huge responsibility which is why we do sweat the details with performance as well so uh we have a value at traba uh then we

have we have values then we have tenants underneath the values one of the tenants of olympians work ethic is lead by doing so if you just imagine like a sports team and there's like a captain on the the team like people do look to that captain and start to like okay is that captain able to rally the organization in the same way the coach can what about people who want to do side projects outside of trapa yeah uh we don't do side projects and the reason for that it just goes back to like if you're doing something so ambitious like going to the olympics for example like you just can't really balance all this other stuff and when you're in when you're at home you're like showering for a hard day you want your whole team to be like really thinking about the problems that they're

going to go solve and if they have their mind all over the place with a bunch of other things that they're trying to do outside of work then they're they're compartmentalizing what your company is doing which is not it's not good it doesn't drive to like that true success that you need as an organization keith you're seeing all kinds of technology all the time you're seeing founders all kinds of different geographies what are like the key themes right now that you've noticed in your own investing that may surprise people? Well, personally, I don't really do thematic investing. I do founder evaluation, founder assessment, and that's really all I care about. But as a fund, across the fund, 40% of all our investments are AI driven. Another maybe 20%

are healthcare oriented stuff and a fair amount of financial services innovation, especially in New York. So those are the things that we're investing in. But to me, I'd invest in anything with the right founder or the right team what about geography you uh moved to miami so did sure mike i of five of my last or four of my last five investments have been in new york one in miami um i think we just invested yesterday i'm still trying to figure out where the company's based but um hopefully it's new york or miami but uh fundamentally you know i have a very important investment in berlin which i never would have guessed we we have seen fragmentation of all all the best companies are all over the place.

Like the best, maybe the best run private company in the planet is Ramp based in New York, but with a major office and co-founder in Miami. Trava started in Miami, is now in New York. So we have examples everywhere. I haven't made a material investment in the Bay Area since 2019 though. Do you feel like being outside of the Bay Area

gives some of these companies an advantage? Like obviously New York. Oh, definitely. For three reasons. First of all, the Bay Area is atypical. So your target audience probably is not people live in the bay area so being infused with people who are probably going to use your products and customers is an advantage secondly the bay area is culturally like a disaster nobody goes to work in

the office in the bay area rippling is the only company in the bay area at scale where every employee goes into the office i am involved in several really good barrier companies it's not true anywhere in the barrier except rippling and so we don't believe you can build a really iconic company unless you're working in person constantly and so the barrier you know just disqualified there third thing is you're going to get assaulted all the time in the bay area people are going to steal your car break into your home assault you on the street you're a step on a syringe and talk about distractions like let alone have a side project if if one of your colleagues is being shot every day like it's really hard to get work done i literally had colleagues at square that

were shocked um and that doesn't happen in miami none of my colleagues at miami have been assaulted Keith's just warming up favorite topic Mike you guys are using AI you're not an AI company but you're using AI internally the one product that I've seen is the robocalling which I think

is really fascinating talk about maybe that product and then also how you're using AI yeah so since we're a marketplace there's a lot of interesting use cases for AI that our engineers have been able to build out essentially taking all the manual things that are happening and then scaling it out So there's a few different examples.

One, like Paul mentioned, we do AI robocalling. So if you can imagine, if you don't have any data on a worker to bring them to a certain shift, you basically need to have conversations with that worker and pick up on subtle cues. Like, have you worked in a warehouse before? Have you driven a forklift? Where's the emergency switch on the forklift? Oh, the answer was wrong. They probably haven't been on a forklift.

So as a human, you're actually like figuring out the likelihood that this worker will actually go to the shift on time and be the right worker for that shift. So we have built out ai robo calling that interviews and vets hundreds of thousands of workers at scale which has been great for unit economics We also have an ai co-pilot that actually we have live live operations agents that see okay Here's all the workers on the travel platform. We're monitoring their location tracking to get to the shift Are they going to be there on time? Uh, are we going to send them another ai robo call to ask them if they're gonna be on time? Are we going to replace them with someone else? And then once they get to the shift or they have to clock in clock out all these kind of things

So today we've built something called Sentinel, which tells our operations agents, hey, here's all these different tasks. Here's flagging what's happening on the shift. Here's tasks that you could do. And then we're building out a big database of all the different things that they actually do when the shift is taking place. If you can imagine this data model we're building out at scale, it's just like you can just automate the entire function. And today, remember, staffing, there's like fifty five thousand brick and mortar offices or call centers all across the country. and they're still profitable they're like publicly traded staffing firms are six percent profitable so you can really scale that out uh there's machine learning that we've done in terms of fraud detection because you can imagine people are walking to facilities they're signing in on

paper time sheet people are leaving like the person doesn't know who they are so there's so they get paid two weeks later with a lot of like inaccuracies so we built a machine learning classifier that picks up on not only past behaviors but geo-fencing when do they walk in did they leave with other workers and then with that we can instant pay the worker because we know with very low risk that we're not going to lose money on that which just makes workers flood to our platform because they're all like a lot of our workers live paycheck to paycheck um so two weeks really they feel it and then there's all sorts of other things you've done computer vision with time sheets like you just think about like going into a time machine into a warehouse and like a

lot of these innovations just have they just haven't been disrupted so our engineers use a lot of ai machine learning computer vision to like really create tons of impact beyond just getting workers to the shift keith you're one of the most sought after board members every person i know that you're on their board they tell me two things keith gave me really good ideas i fucking hate talking to keith when things aren't going well because he holds me accountable um what is the thing founders should do with their board to get the most value everyone always talks about like who you take money from whatever but like how should a founder work with that board to get maximum value?

Well, first is selection of board members. I think, you know, my colleague Vinod Khosla says 95% of VCs aren't worth listening to and maybe he's being charitable. So I think being wise about who you pair and partner with, like you should take, as founders, you have a license to spend as much time with an investor as you want.

Like this is a very irreversible decision who you take money from, especially if you confer a board seat. So not only due diligence, but spend time and make sure you're making the right decision. So that's the first thing. If you get that right, most other things will take care of themselves.

Secondly, I think transparency is pretty critical. If founders aren't transparent with me, this just applies to me, my advice may be wrong. The higher the quality and the higher fidelity data, signal, anecdotes, exposure to the team I get, the more my brain can train on reality.