The Prof G Pod with Scott Galloway - Prof G Markets: Scott’s Nine Businesses

Episode Date: November 27, 2023

Scott tells the story of his career in entrepreneurship, from starting a video rental company before business school, to going public with Red Envelope, to founding Prof G Media. He shares what was most meaningful about those experiences, and what was most surprising. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. This week's number, $47 billion. That's the value of the mormon church's stock portfolio true story i was dating a mormon girl and we checked into a hotel and she said i hope the porn in this room is disabled to which i said no it's just regular porn you weirdo that's good. Okay, Ed, how are you? By the way, Ed, I fucking love Mormons. Have I told you that? You have told me that, yeah.

I grew up with Mormons. My best friend, Brett Jarvis, I used to hang out with him and his family on Monday nights, family night. and they were kind and really into their family and really into country and really into God. Never tried to convert me or never proselytized, which is strange because Mormons are known for that. I played on all their softball and football league teams. My first kiss was with a Mormon girl. Not a lot more than that. Not a lot more than that. By the way, if you want to lose your virginity at 19, just hang out with Mormons. That was my strategy. Ed, have you ever dated a Mormon? Do you have any exposure to the church? No, I don't think I know any Mormons. I'm surprised you knew so many growing up. Yeah, I live near the church in Westwood. Really decent people. Very fun. Anyways, all right, what's going on? What's going on this week? So for this week's episode, we're going to do something different, Scott. We're going to take a look at your career, specifically your career as an entrepreneur. You started nine businesses.

Your first was a video store you started when you were roughly my age. And your last was this company, ProfitG Media. Some have been major successes, others less so. We're going to look at all of them. Sound good? Yeah, it sounds like therapy, but yeah, let's do it. Yeah, that's what it is. So let's start in 1990. You're living at your mom's house in California, and you have an idea for a VHS delivery business. Tell us the story of Stress Busters.

So right out of UCLA, I kind of got the brass ring. I got a job at Morgan Stanley by lying about my grades. And it was a two-year analyst program. I think I was the first analyst hired out of UCLA into the program. Great experience, attention to detail, worked really hard. But I was terrible at it and I hated it. And that's a blessing when you're in your 20s. You want to workshop kind of what you're good at. I was not good at investment banking. I also realized that I wasn't good at working at big companies. People romanticize entrepreneurship. I went into entrepreneurship because I realized I didn't have the skills to be successful at a big company. To be successful at a big company, you have to have – I thought every time people went into a conference room, they were talking about me. I couldn't handle all the little injustices you have to endure at a big company. I needed access to all the information. I needed to be in charge. And so I've always told people

when they come to me and ask about being an entrepreneur, I'm like, no, go to work for a big corporation if you have access because you'll get rich slowly and on a risk-adjusted basis, it's the way to go. Anyways, left Morgan Stanley, was at home, needed to do something. And I walked into my video store where I rented videos on VHS. And it was strange. And I said, what's going on here? And they said, well, the FBI seized the store because they were money laundering and were having a clearance sale. And they were selling VHS tapes of Cousins and Turner and Hooch and Apollo 11, I think it was, whatever the big hits were in 1990, for $5 instead of $20. So I called my friend, Lee Lotus, my closest friend who was also kind of in the midst of doing nothing. And I said, I have a business idea. And I bought 220 of these videos for $1,100. And Stress Busters was born. Initially, it was home delivery of videos. We mimeographed or photocopied a bunch of stuff, put it on doorsteps. And people would call us and say,

send me Turner and Hooch. And we'd deliver it to them. And that was difficult, logistically complex, not enough scale. So I saw these twin towers in Century City, and I thought, that's the key. And so I had to pay. I bought a Rubbermaid cart, stacked it full of 120 videos, and paid off the security guards 20 bucks, and they let me into the offices. And I just went door to door to all the law firms, entertainment firms and agencies and accounting firms and said, hi, we're stress busters. Would anybody here like to rent videos? And about, it felt like 80% of the time, it was probably 50% of the time, the person at the reception would say, you need to get out of here or I'm calling security. And they would literally chase me out of their office. And occasionally

they'd be like, oh, okay, you seem nice. That's a great idea. And I'd give the receptionist a free video or free video rentals. And at one point they'd say, Stress Busters is here. And people would come to the front and pick their videos. And you would hope, the business model was you hope they forget to bring it back the next day so you could charge them more money. It was a shitty business, really hard, really stressful, humiliating at times, which is a decent description of entrepreneurship. And we used to store the videos in my mom's storage locker in her garage. And one day I showed up and I think I forgot to lock it and all the videos were gone. And I'm like, oh, fuck, I don't know how I'm going to tell Lee. And my mom said, well, you know, I'm insured. My mom on a secretary salary bought insurance. And so I think it was Allstate basically said, you know, how many videos did you have? I think I had like 400 at that time. And they said, we'll give you $8,000. And I'm like, oh my God, I called Lee and I said, our business is being acquired for $8,000 by Allstate Insurance. And we high-fived each other and said, okay, let's apply to business school.

And he applied to UCLA and got in. I applied to nine business schools because I had a 2.27 GPA. I got into UCLA and Cal, and I went to Cal chasing a woman I was in love with. Anyways, that was the end of Stress Busters. Did you think that Stress Busters was actually going to make you money? I mean, it feels like such a— Stupid idea. I mean, I guess you could brand

it as like some sort of early Netflix, but... Here's the thing though, Ed. No business before it starts, I would argue, makes sense. Otherwise, it would already exist. And I didn't have a lot of skills. I didn't have a lot of capital. And it just struck me as something that could be interesting. I wasn't that strategic. I wasn't that well-versed. I didn't have that many skills. I had $1,100 I could spend on VHS tapes. I had some gumption. The thing I took away from that is that it gave me a sense of resilience. Being chased out of offices was humiliating. And I would recover, and then I would go to the next office and go into that office. And I think that if you want to score above your weight class professionally and romantically,

you have to be willing to endure rejection and subject yourself to rejection. So then you go to business school and you have this professor, David Archer, who's this guru of brand strategy and you have an idea for a consultancy. Take us through the story of profit. So the myth is that people who go to business school know what they want to do, and they're there just to get a springboard into what they want to do. And the reality is the majority of people who go to business school are the elite and the aimless, and that is they don't know what they want to do. All they know is they don't want to do what they were doing, and they want to make more money, and business school can kind of give you a pivot into something and a bump in salary. Business school is remarkable when you

think about it. And you meet all the investment bankers in your first year class and they're like, I want out of investment banking and I think I'm going to go into consulting. And you meet all the consultants and they're like, I want out of consulting. I think I'm going to go into investment banking. And you think at some point in our first year, we'd all meet and go, hey, it sucks over here. My second year, I took this class with David Ocker, and he would talk about the importance of yellow and caterpillar heavy moving equipment that would have been left in Germany, and then it meant rebuilding an American democracy and prosperity, and how, you know, Jiffy Peanut Butter was about maternal love. And I just thought, shit, this is what I want to do the rest of my life. I just think this is so interesting,

an interesting mix of quantitative and qualitative. And I approached David and I said, I'm going to start a business based on the principles that you teach here called profit. And I started in my second year. And for a student project in his class, we're supposed to find a brand and do a brand strategy consulting engagement. I pitched Yamaha Motors and they said, we'd love it. And then I went back to them and said, you need a real engagement here. I'm going to go out and survey thousands of young people. They wanted to understand how to reinvigorate the motorcycle market or the ATV market among youth. And I said, I'm going to, using new technology and this thing called a laptop, get thousands of surveys, do some analysis. And they

said, fine, write us a proposal. And I said, but it's going to cost some money. They said, fine. And I wrote a proposal. I called my friend at BCG and he sent me a proposal they had written. And I basically copied the proposal for brand strategy engagement from, was it BCG or Bain? I think it was BCG. But they charged a half a million dollars. And I said, okay, I'm not BCG, so I'll charge a quarter of a million dollars. And so I submitted this proposal to Yamaha and I didn't hear back. And I thought, well, no shit. The guy I was starting the business with, Ian Chaplin, my business partner, said, well, no shit, Scott. You have no credibility, and you just asked Yamaha Motors for a quarter of a million dollars. And I rolled up to my apartment in Rockridge. I was paying $280 a month, and I opened the

mailbox, and there was a check for $125,000 from Yamaha Motors. And I got a voicemail from Matt Takazawa at Yamaha saying, Scott, sorry it's taken so long. I've been in Japan. We're excited about the project. You should have already received the first installment. And I remember when I saw that check, Ed, I remember thinking, did I just commit fraud? Could I go to jail for this? And the lesson there is that nobody is really qualified to do anything they ever do. And that's what it means to be an entrepreneur. And we worked our ass off. We did a great job for them. And that kind of launched. So I launched Profit in my second year. And ultimately, David ended up joining our firm as vice chairman, where he still serves. It's now, I think, a 500-person firm with offices all over the world. But Profit was sort of my firstborn. I still feel very fond of it.

And then eventually you hired a new CEO to come in and run it for you. How did that go down? Yeah. So I've always thought the thing about a services company is it's great in the sense it doesn't take a lot of capital. It's an incredible test of your athletic skills. You have to be able to present, establish relationships, sell, manage people, analytics, qualitative. It really is an interesting, it's got a lot of positives. The downsides are it's incredibly hard on your lifestyle. I remember commuting, we got our biggest client, I think our third year in business was Audi. And the CMO of Audi would call me and say, can you be in Ingolstadt tomorrow? And the answer would have to be yes. So I would get on a plane with a team of people, another super talented guy, Sterling

Lanier, also by this time, Lee Lotus had joined us. And we'd be on a plane in coach to fucking Munich on this 12-hour flight. And we would be in the back in the galley trying to come up with slides and ideas. And this was back when you had PowerPoint and I'd have to go. They didn't have projection. I'd then have to go to Kinko's in Munich and print out this presentation. And we would be trying to turn chicken salad into chicken shit to present to the executive management team in a few hours as we were flying over the Atlantic. I mean, it was, and then we'd be there a day, go out, have some beers and sausage, and then try and get sleep and get back on a plane back to San Francisco. And it was very hard. I can't blame my failed first marriage totally on that, but it didn't help. And it was just very stressful. And I've

always said, if you want to be in the services business, fine, but just keep in mind, you're always going to be someone else's bitch. They get to tell you when to show up. And I was good at it and I enjoyed it. It's a great way to get wealthy. It's not usually a good way to get real economic security because these firms generally don't get bought for a lot of money because the assets go home in the elevator. But I decided I wanted out. And so I thought, okay, I'm going to bring in a CEO. I think this was 97 or 98. I'd gotten intoxicated with the internet and I took the first floor of profit, the basement, and I started internet companies. I thought I want to monetize the intellectual capital we're garnering, helping other companies build internet sites or e-commerce sites. I want to take some of the profits from profit and put it into these e-commerce ideas. So I kind of created a mini incubator in the basement, and then I would give equity in all of those companies to the brand strategists at profit based on them staying. Because the problem was all these firms were losing their best people to internet startups. So then in 1996, you start this company called Aardvark, which is like a online pet supplies company.

Was that one of those basement brands? Yeah, Aardvark. I'm crazy about my dog. And wherever I go to retail, it bifurcates into big box, very not aspirational retail, like a Walmart, like a Petco or PetSmart, or small mom and pop pet stores that smell funny. I'm like, there's no Williams-Sonoma pets. And so I thought, I'm going to do it online, start at Aardvark, and AA for alphanumeric. So we'd come up top in the AOL marketplace, which was where all e-commerce was done back then. This was way back in the early days. And then we were offered $3

million for Aardvark and we took it. And my partner, Ian Chaplin, was much smarter than me, said, let's take half in cash. And I said, no, it's the internet. It's going to the moon. And he said, no, let's take half in cash. So effectively, we got a million and a half cash, a million and a half in stock. 12 months later, I think it was pets.com. It was either pets.com or one of them went out of business, but we got a million and a half bucks. I'd invested half a million dollars. So on an IRR basis to triple our money in 18 months, I think it's probably my most successful startup. Jason was saying something last night, which I found pretty funny, related to

the insurance situation with stress busters where the insurance company pays you $8,000 and then same with this company. It's like, you do have a knack for just sort of accidentally falling in piles of money. Well, yeah, I've also, I've also had some pretty serious fuck ups. I mean, we're three, we're three into the nine. Wait, it's coming. We'll be right back we're back with proftree markets so let's let's do the next one then which which is Red Envelope. It actually started as 911 Gifts. You started this in 1997. Take us through that. I went to this seminar, Kleiner Perkins and John Doerr, who was kind of the god of the internet, said that the internet's all about saving time and it's all men. And I thought, okay, how do I save men time on the internet? And I thought, men are terrible gift

givers. I'll build a database-driven merchandising platform where you type in someone's demographics, how much you want to spend, the occasion, and it spits back five or six great gift ideas. You click on, okay, it's a bridal shower. She's 25. I want to spend a hundred bucks. It comes back and says, here's a Nambe salad bowl. And I thought, okay, 911gifts.com. 911 back then didn't mean 9-11. It meant emergency. And I got Sequoia Capital involved. There is a shit ton of money. How did you have the relationships with Sequoia to do that at that point? I had a shaved head and I was fearless and I lived in the Bay Area. I could get a meeting with anybody.

And people knew you as the profit guy? I had run a successful strategy firm and was starting e-commerce companies and it was the 90s. And also I was born a white heterosexual male, which meant I had unfair advantage. But if you were a graduate of the Haas School and you'd started a strategy firm and you had ideas

and you had met with a lot of these people or they'd seen you in board meetings and you had ideas for the next big thing on the internet, I could raise a ton of capital. That was the easiest capital raising I've ever done. And about a year into it, we did a survey and we found out recipients hated the brand because it meant that the giver was thinking about them last minute. I'm like, oh, fuck, I really fucked up here. Because the number one source of referrals and growth is recipients. They get a gift and they're like, I love it. And this was like, okay, you thought of me last minute. So I had to go back to my investors and say that the

brand guy really screwed up here. We need to change the name. And we changed the name to Red Envelope. A few years later, I sold Profit. I doubled down. By the time I split it with my ex-wife, paid taxes, I had two or three million bucks proceeds from Profit. I poured all of it into Red Envelope. The market got difficult. Sequoia Capital, the guy who took my job as chairman, was a guy named Mike Moritz, who's arguably the most successful venture capitalist. It was under the impression he really understood retail and brand. And he and I clashed. I was young, obnoxious, aggressive, didn't know the difference between being right and being effective, and it was just war. And we had just an incompetent CEO who, when we went public, we were the only public IPO of 2002, overestimated gross margins by 1,000 basis points and had to announce that on an earnings

call, and we lost like 40% or 60% of our value. I got into a war with Mike and Sequoia. It erupted in the New York Times. I handled it really poorly. It was just awful. And I kept putting more money in. I ultimately ran a proxy fight. I'm like, this firm is so poorly run. I wanted to get rid of Mike and get rid of the CEO. And on the way to the airport, I got a call.

I forget who it was from saying, we're kicking you off the board. And it was one of those moments where I was at the airport. I was going back to New York. I think I moved to New York by that point where I drove up to Hertz and I got out of the car and I was like, literally like, I don't want to say paralyzed, but I didn't know what to do. I remember just sitting there or standing there outside of the car thinking, I literally just have no idea what to do here. Do I call a lawyer? Do I call other board members? I just didn't know. I was frozen with kind of like indecision. I'd just been kicked off of the board of the company I started. So what I decided to do was get really fucking angry and went and raised, I think another 10 or 20 million bucks, became the largest

shareholder, and began a three-year process of kicking the rest of the board off and then taking control of the company again. And effectively, I got control of the board, got back on the board just in time for the credit crisis in 2007, 2008. We had an operational mishap at the warehouse where we had these guns that would spit out addresses. They spit out the wrong addresses on 10,000 boxes, so 10,000 gifts got sent to the wrong addresses. And at the same time, there was a longshoreman strike off the port of Long Beach. All our inventory got caught sitting or floating 10 miles off the Long Beach coast. And a credit analyst at Wells Fargo decided to cut our credit line because he recently predicted a credit crisis. And within like two weeks, we went from a stock price of seven to chapter 11, and I lost everything in the matter

of like two weeks. So people introduced me and they're like, oh, Red Envelope. I remember them. I really liked them. It was a good concept, a good brand. I hear those two words in the same sentence and the lower part of my back starts to perspire and I feel nauseous. It was just, I lost so much of my personal wealth and it was so emotionally trying.

And I've always said to people, if you fail and it happens fast, like 24 months or less, that's a blessing. The worst thing that's a blessing. The worst thing that's happened to me professionally was Red Envelope because I failed really slowly. It took 10 years to play out. 10 years. So I was just going to say, sounds like that was your longest commitment to any company. It was a very stressful time about the time I had gotten divorced, which was financially very stressful. I lost everything in red envelope.

And then the great recession came in about the same time my oldest son had the poor judgment to come marching out of my girlfriend. That was probably my most stressful. I've led a pretty charmed life, but I was just so disappointed. I thought I've taken all this risk. I've taken a company public. I sold a successful strategy firm that I started at 26. I've had all of this, quote unquote, curb success or retail success, if you will. It looks like I've been really successful and I'm broke. I mean, I wasn't broke, but I was pretty close to it. And then when you're your age and you don't have money, it's disappointing, but it's not scary. When you have a kid, it's scary because, okay, it's no longer just about me. And I felt like, I remember thinking, Jesus Christ, it's one thing for me to fail myself, but now I'm feeling this kid. Well, a lot of other things happened in the meantime. So in two years after you started Red Envelope, you started this thing called Brand Farm. That was in 1999, I believe. What was Brand Farm? So I was living in San Francisco and I always

thought, I don't like it here. Everyone, I can't stand political extremism. And it really bothers me. People who are extremists on the right really bother me. People who are extremists on the right really bother me. People who are extremists on the left mildly bother me. And I thought San Francisco was just... So, I don't know. All these people who are washing you out and are rapacious business people during the day and then at night wanting to pretend they're saving the whales. And the fog and the weather. And I just didn't want to be in San Francisco any longer. I've never enjoyed San Francisco. I think it's a beautiful city, but I've never wanted to live there. And I got to New York and Ed, the bars are open till like 4 a.m. in New York. And I'm like,

I have found my people. It's about money. It's about drinking. I just love, I just came to New York. I'm like, this is it. So I moved to New York and had some credibility, see above shaved head. And I raised $15 million on a PowerPoint presentation to start an e-commerce incubator called Brand Farm. Similar to kind of like an ICG or an Idea Labs. And I was going to run a lot of space, have one business development, engineering, corp dev team, and I would punch out retail e-commerce concepts. And I got JP Morgan, Goldman Sachs, Barry Sternlicht, kind of this iconic real estate investor, AMB, Maveron, Howard Schultz's venture capital firm. I became close to the guy named Dan Levitan. He kind of ended up being sort of my rabbi. Nice man. Raised $15 million, started this e-commerce company, Incubator. We launched three concepts within like six months,

but then the dot bomb implosion happened Q1 of 2000. And there was just no capital available for an Incubator, much less retail e-commerce concepts. So the whole thing was over. We still had some money. So I called the portfolio. We had three portfolio companies, Gold Violin, Room 12, a travel concept,

and a software company started by my former business partner, Bitshift. And I closed Room 12 because there was no leadership there. And I went kind of built profit. Typically at all these companies I've started, there's one person that sort of built it and I get the credit. Connie was that person at profit. So I said, whatever you do next, I said to her, if you stay another two or three years of profit, help me get it sold. And ultimately we did sell it to Dentsu for about 28 million bucks. I said, I'll fund your next venture. She came to me and said, I'm passionate about seniors. She started a gold violin, multi-channel retailer. And I went to them when Brandfarm was, there was no more capital available for any commerce incubator. And I said, them when Brandfarm was, there was no more capital available for any commerce incubator. And I said, I will, if you cut your burn by 50%, I'll double the investment and it'll give you two years to get through this nuclear winter. And I called room 12 down and closed Brandfarm down. And that was the right thing to do. I think at that point,

I'd sort of picked up on some stuff. I had some muscle memory. I was starting to get, I think, a little bit more mature from a business standpoint. The thing is, Brandfarm was around less than a year, and I see it as a victory because I failed, but I failed fast. And then Gold Violin and Bidshift both went on to exits. Not big exits, but exits where the investors who ponied up in the B rounds in those companies actually made money. So I think a brand farm is sort of a kind of marks the era, but I look at it fondly because a couple of companies survived. And, you know, if you're going to fail, fail fast, there's nothing better than success.

But I don't want to say a close second, but definitely well ahead of the third is failing fast. What you want to avoid is failing slowly. And then the sixth business was Firebrand Partners, which you started in 2005, which was an activist investment firm. Take us through that. Yeah. So I felt like I had a feel for brand. I was starting to learn about the markets. I had some time on my hands. I didn't know what to do. I was meeting a lot of hedge fund people. And I said... By the way, what do you do all day at this point in your career? I joined the faculty at NYU in 2002 and was teaching there. But mostly I would think about how I was going to go to some fabulous scene and try and drink a shit ton of alcohol to give me the confidence to meet strange women at a New York club at Lotus or Pangea or Double Seven.

So I was in full arrested adolescence mode. Like kind of mild alcoholism meets New York meets trying to to figure it out and i was having a great time it was a it was a ton of fun other than the fact i was going broke um but that was that was a very interesting time new york and the aughts whatever you want to call it but i was i felt like i understood brand i understood the markets a little bit and i found some companies that i thought were undervalued. And then I had some credibility because I'd run this activist campaign at Red Envelope. And even though it wasn't successful, people knew that I was crazy, but in a crazy good way. And a couple times, shareholders would call me and say, we have a large stake here. We need sort of a tip of the spear. Do you want to co-invest and do an activist campaign? Basically to kick people out. Yeah. Your job is to unlock value, which back then essentially meant go in and fire the CEO. I raised a bunch of money and bought 17% of Gateway Computer because I'm like,

the cow pattern is powerful and we have distribution through Best Buy. We'll go in, the stock had gone from 70 bucks to $1.70. That was a pretty big company at the time, right? Gateway was the second largest computer manufacturer in the world. At the time that we were selling three times as many computers as Apple, but our margins were like 8% and Apple's were 30. But anyways, raised a bunch of money, bought 17% of the company, went on the board. The chairman of the board was a guy named, oh God, Rick Snyder, who went on to be governor of Michigan. And Ted Wade had just gotten off the board and went in, blaze of glory. We need to sell this company for three bucks a share. We all went,

you know, get a 60% pop, stop the consensual hallucination. They were polite. They listened to my pitch and they said, Scott, we engaged Goldman Sachs two years ago to try and sell this company. And that was a key learning. And that is when you come into a strange situation, you should assume that you're not as smart as you think and they're not as dumb as you'd hoped. But we ended up selling to Acer, I think, for like $2.50. So it turned $70 million into $90 million. I struck a deal with a hedge fund to get 10% of the upside. So I ended up making like a million bucks.

I remember thinking, wow, this is fun. It fits to my personality because I'm angry and a bit of an asshole. So I enjoy going in and like stirring things up. And the most iconic one was I raised $600 million to become the largest shareholder in the New York Times company. Unfortunately, our timing wasn't great there. The great financial recession hit and I turned $600 million into 100 in about 14 months. The stock did recover, but that was a very, very intense time. But that was sort of my kind of five-year adventure in activist investing was Firebrand Partners. And then you started a new consulting firm called L2 in 2010. I think people

know more about that one, but take us through the beginning there. So I had at this time, by now I was expecting my second kid and I'd made some money, but it was lumpy, expensive to live in New York, two kids. And I thought, well, maybe I'll move to, you know, Chapel Hill or Charlottesville to a lower cost area, just be full-time faculty, try and write,

make a good living, cut my burn and just live happily ever after. And at NYU, the dean said, you either need to do research, peer-reviewed research, or write a book, or do something to establish yourself as a credible academic. I thought, okay, I'm not great at anything. I got to get back in the game. And I thought, I know I'll start a center on luxury. And I thought, well, the first thing I need to do is research. So I understood e-commerce. So I developed 1200 data points across digital, social, mobile, and e-commerce,

and then would apply those 1200 data points, currency conversion, multiple languages, how many clicks to product, ease of checkout, customer service, and all this shit, just measure everything. And I measured it for the 100 biggest luxury brands in the world and then issued a ranking. And I thought this will be a center. I'll run the luxury and retail center at NYU and I'll have credibility as an academic. And the head of the marketing department at the time came to me and said, we don't think of this as really like genuine academic peer-reviewed research. I had no interest in writing academic research for peer-reviewed academic journal. I was like, this is mental masturbation. It has no impact. I don't see anyone making any money here. That's not for me. So I said, I'll start a center. And the head of the department said, this isn't what we consider traditional academic research. They said, but you can have the IP. So I spun it out and that was the birth of L2. We issued a ranking and I bet 30 or 40 of the 100 companies called me within 48 hours and said, who are you and why are you doing this? And right then I knew there was a company in this. And at that business intelligence firm called L2 that benchmarks companies' digital performance. And we went kind of category by category.

First, we did it in luxury. Then we did it in retail. Then we did it for CPG. It was called Luxury Lab initially. And then Procter & Gamble called and said, would you ever consider doing this for a CPG company? And I said, yes. And I hung up and I went to Catherine Dillon, who now runs this company company and said, and Maureen Mullen, who really helped build L2. And I said, okay, we're changing the name of the company from Luxury Lab to L2 because we want to go after bigger fish and bigger

companies. And that company, kind of all the moons lined up. We just had incredible human capital. The best time to start a company, I started in 2010, is in a recession because I got office space in New York for 34 bucks a square foot. I hired people at 20 bucks an hour. I think I hired Maureen for 20 bucks an hour. She had her consulting offer rescinded. She was a second year at Stern. I hired a bunch of students.

She joined us and I gave her 10% of the company. And, you know, the company ultimately got sold for $160 million. So she did really well. But we had this core group of just incredibly talented young women who really built this firm. And it was a combination of analytic rigor, and then Catherine bought sort of the creative juice. And that peanut butter and chocolate of kind of the academic rigor of academic research coupled with the aesthetics of like an ad agency the market just loved it and we moved to a recurring revenue model instead of charging consulting fees like profit we charged a recurring revenue model and said i'm just collect data on you png and then i'm going to show up every once in a while or my team is i'm

going to tell you why what tide needs to do and i had read this report from deloitte i thought this is my chance here i'm running out of time i need economic security and had read this report from Deloitte. I thought, this is my chance here. I'm running out of time. I need economic security. And I got this report from Deloitte that had evaluated exits of private companies. And they looked at the mean. The average mean of an analytics company or something was like two and a half times revenues. But there were some that were up six or eight times revenues. And it analyzed the companies that had outsized returns in terms of valuation. And it said they had a few key components. They own niches, right, which were more defensible. They were known for kind of dominating a niche. Two, they had recurring revenue. And three, they were international. And that kind of dictated our strategy around L2. I

went to a recurring revenue. We were going to own kind of luxury and retail as our niche and consumer brands. And I opened a London office almost right away. And ultimately, I think about seven years in, we raised some capital from General Catalyst. We were about to be sold for 30 million to WPP only four years into the business. They were going to give me 15 million upfront, 15 on the backend. They gave me like a 400-page indentured servitude contract that said, at any point in the future, if Martin Sorrell decides to sue you, he can for any reason. And I'm like, I'm not signing this. And my friend Paul Sagan had just joined General Catalyst. I was calling him for advice, and he said, don't sell the company. I'm joining General Catalyst

as a partner. This will be my first investment. They invested $17 million, I think, for a third of the company, or $12 million for a third of the company, I forget. And we invested a ton of money in technology such that we could expand the number of sectors we were in. And then 10 years in, in about, shit, I don't remember now, like 2016, 17, we sold to Gartner for, I think, 160 million for eight times revenue. So I knew at the outset, I want to sell a company at an irrational multiple. We'll be right back. We're back with Prof G Markets. I've heard about the L2 days from Catherine and others, and it sounded super intense.

And it sounds like your approach to management was, for lack of a better word, also just intense. And, you know, you're intense now, but it sounds like the pressure was on. What was your management philosophy like? And what was your mental health like at that point? I think my mental health was probably how most of America lives in that is they're just really worried about money. My management philosophy, I was on a panel with, I think, the CEO of a way, is it called a way, the luggage company and someone from Rent to Run? I forget who it was, two other unicorns. And I said, what's your management style? And one person was, well, it's about finding the right role. The other person is, I want to model good behavior. And I said, my management style is,

I'm all fucking over everyone all the fucking time. And the whole audience gasped because everyone wanted to hear about balance and bringing out your inner child or whatever. I wanted people who, like me, wanted to build something great and build economic security and do great work. We were doing great work. There was no balance. We were working all the fucking time. I'm not exaggerating. I used to go to the office all day Saturday and go in on Sunday for moral support of the people who showed up to the office on Sunday. And I'd walk into the office on Sunday and there'd be a dozen people in the office. We were all signed up to build something different and then hopefully recognize the upside. And I was in a position to do it. It cost me a lot of time with my kids, but they were very young, and I was very focused on economic security. And I don't think you're going to build a company that gets sold for eight times revenues in seven years without that kind of attitude, unless you're incredibly lucky or a genius, and I'm neither. I didn't want to bank on it. I know I'm not the latter, and I couldn't count on being the former. My fear, Ed, was I'd been blessed with so many opportunities. I'd been born in

California at exactly the right time. Through no fault of my own, the world wanted me to win because of my sexual orientation, my race, and my gender. I had all the advantages. I had all the wins in my back. I was talented. I had great certification from the University of California for no money. And I was right there about to get to the brass ring. And I wanted to do the right things with it. I paid my people well. I've always wanted people to be economically successful. I wanted to give money away. And I thought, fuck, I'm going to almost get there. And it's going to haunt me the rest of my life that I'm going to be the guy that got there, was right there, and fell flat on his fucking face. So when we sold L2 and kind of rang the bell, if you will, it was like I had a year-long exhale. It was just so meaningful. And the people around us at L2, we all signed up for the same thing, and we liked each other. I gave away a lot of equity. I wanted people to do well. It's a ton of fun to bring a 24-year-old into your office who has worked their ass off for two years and say, oh, your stake is worth $600,000 or your stake is worth $140,000. And these were kids that just weren't expecting it. They didn't really understand equity.

You know, that was hugely, and I've always been very crass about capitalism. I don't, I'm not here to build organizations that save the world. I'm here to build organizations that provide economic security for you and your family. That's what I wanted to do. And we did it there. That was your biggest exit. And I look back at your career and it's like, in terms of your reputation, you've had bigger wins. Like people, journalists are writing stories about you replacing people on boards and fighting with Sequoia guys. And then you were, you know, you went to the World Economic Forum and you were a leader of tomorrow. Like you've had a lot of glitzy success, but that was

the biggest financial success, it seems like. Was that more rewarding than all of the reputation building in the past? Yeah, again, it was a fear. I was like, okay, I'm the guy who went to Davos and was on the cover of Inc. magazine, but I can't buy my mom a house. You know, a key algorithm to being happy in a capitalist society is to be rich but anonymous. I didn't want to be famous and struggling economically. I don't, that was one of my fears.

I moved to Florida because I'm like, I can't afford the burn here to raise two boys in Manhattan. The lifestyle I was used to, you have to make high six figures, a million bucks a year. And I thought, I'm going to be that guy and it's going to haunt me because I'm naturally hard on myself. I struggle with anger. I struggle with depression. I'm like, okay, I'm going to be the guy who was given every opportunity, worked really hard, incredible blessings, and didn't get there. But that was – since 2017, I've decided to give all the money I make away because I'm now at a point – I don't believe in hoarding wealth. I'm now an economically secure. But entrepreneurship has been, I mean, it's been rewarding. But if I had it to do again, I don't advise people to do it.

It's on a risk-adjusted basis. If you have the skills to navigate a big company and put up with the bullshit, it's a better offering. The greatest wealth generator in history is the U.S. corporation. So I don't romanticize entrepreneurship. I think it is really difficult and really taxing on you personally and professionally. And I mean, I'll give you an example. Majority of people just aren't entrepreneurs. At L2, we had been offered $30 million for the firm. The firm was just jamming. And we gave options to everybody. And you could exercise your options, but you'd have to cut a check to the company. And then if you held onto the equity for

more than a year, you'd get much more favorable tax treatment. You know how many people actually wrote a check to exercise their options? And this is a company that was doing really well, such that they could get capital gains in a year instead of paying 47% current income. Do you know how many people actually wrote a check of say like 60 or 80 people at options? How many? Zero. I was willing to sign the front of checks, not the back of checks. I went to work 60 to 80 hours a week, such that at the end of the month, I could go home and tell my partner we needed to put 50 grand into the business. Very few people are willing to do that. And even when they're faced with the

possibility of a bigger outcome, people are not willing to reach into their own pockets to fund a company. They just aren't. They're not used to that. They're just not wired that way. They can't show up to work and put their own money to work. They just don't have that risk tolerance. That's not, you know, that's what it means to be an entrepreneur and a founder. And it creates sleepless nights. But the difference is the upside upside if it works, and only one out of Ed. This thing is the closest thing you have to a kid that's not your kid right now. And when these things do well, they surprise and delight you. They are emotionally very rewarding, also emotionally very disappointing when they don't work. But you become irrationally fond of them. You become emotionally invested in them.

And that's the key to building value is you become irrationally passionate about the well-being of this inanimate thing called a company. And you recognize that the other parents taking care of this kid are your coworkers. And you become fond of them because they, like you, love this thing and are trying to make it work. And your second-to-last company was Section. Why did you start Section? I actually don't know this. I think that higher education in the United States has become morally corrupt. I think we've adopted a luxury positioning where we artificially constrict freshman seats such that we can raise tuition faster than inflation, which has resulted in a transfer of wealth of a trillion and a half dollars to middle-class households, to university

endowments. And I think it's morally corrupt. So I thought that starting an ed tech company that was sort of 80% of a graduate elective at a world-class business school for 10% of the price, that there'd be a big market for it. And initially I was right. And I raised a bunch of money from General Catalyst. Everything I've done for the last 10 years. General Catalyst is back. They're wonderful people. We don't even talk about valuation. I just trust them a hundred percent. They made a bunch of money at L2 and some of the other stuff I've done. You don't discuss the valuation. They just gave you the time sheet and you were like, sounds good. Yeah, pretty much. I knew they'd be generous with me and I'd be generous with them. They said, what do you want to do next? I want to say, I had tech startup. They invested. I got some other people to invest. And the idea

was, again, kind of 80% of an elite school elective at 10% of the price. Got off to a very strong start. COVID hits. People have a ton of time. Company ran to 10 million in like no time flat. And once COVID ended, our revenues, we found ourselves, we'd overhired. And our revenues were off 40, 50% kind of overnight. And we've gone, we went from zero to 120 employees back to 30. And it's been, quite frankly, it's been very painful. But now we're growing again. We're focusing on AI.

And we're growing revenues again. And we've right-sized the company. But yeah, it's been really, really difficult. We're focusing on AI and we're growing revenues again and we've right-sized the company. But yeah, it's been really, really difficult. And then in 2020, you started Profit Media. And when you talk about why you started it and what you wanted to do, generally the theme that I've heard from you is that you just wanted it to be fun. You didn't want to go raise outside capital. Talk us through your approach to this company and why it's different to others.

Well, Barry Rosenstein, the founder of Gena Capital, said something really profound to me. He said, the key to economic security, once you have it, is the following. Life is about three buckets professionally. There's things you have to do. And Barry said, if my biggest investor's in town, I have to have dinner with him. There's things you want to do. He's like this rock and roll aficionado. He goes to see the cars be inducted into the Rock and Roll Hall of Fame. He wants to. And there's things you should do. Well, I should go to my co-worker's daughter's wedding. I should go to this fundraiser and get FaceTime with some other powerful people. He said, the thing about being economically secure is that you get this incredible luxury, and that is you can eliminate the should bucket. And so now I'm like, okay, there's things I have to do, but there's things I want to do.

And I want the want bucket to get much bigger because I've spent a lot of my professional life doing things that were rewarding, but I didn't necessarily want to do. And I thought, okay, what do I want to do? I want to do stuff that's fun, that's creative. Really trying to extend and damage and build back stronger some creative muscles. And also have a positive impact specifically around some of the issues I'm passionate about. Struggling young men, income inequality, what I would describe as the war on the young. And the podcasts have been a ton of fun. Writing the newsletter has been a fantastic way to talk about relationships and express some creative muscles that I can get a chance to stretch and talk about things that are important to me. And it's been lucrative. We've built a really nice business. I don't think this business gets sold.

I think it's the kind of business that can be very profitable and do well, and we can enter into really great lucrative long-term relationships with distribution partners. But basically, we have our podcast revenue, we have our revenues from books, and then we get revenues from speaking. And there's sort of a flywheel effect there. And this is hands down the most profitable business I've ever been involved with in terms of just right away it started churning out capital. But we're sort of monetizing, to be blunt, my brand in the marketplace, but I think we pay people exceptionally well, do stuff we enjoy, but have fun and do something. You know, I'm not driving towards a nine-figure investment at the same time. I realize young people want to build economic security, so we're trying to figure out a way to share more of the profits, if you will.

But this is fun. I mean, you guys may not realize it. What we're doing here is, I think, incredibly not only rewarding economically, but we have a big impact. It's fun. Media is interesting. We get to talk about the issues we want to talk about. I get to meet super interesting people. I think some of our content resonates with people on a deeper level in terms of emotion, in terms of the relationships. So yeah, this is me rounding third. These are the salad days. This is incredibly rewarding. Nothing comes close in terms of, you know, I used to get up some mornings at L2 and a red envelope and a prop and think, fuck, this is going to be a hell of a day.

And I don't discern between the weeks and the weekends any longer. I just love, I love what we do. You know, Thursday night at 2 a.m. when I'm trying to turn the chicken shit you and Stavros have thrown over the wall with no mercy malice into chicken salad, sometimes I get stressed out. But for the most part, everything we do, I like it. I think it has importance. I think it has relevance. These are the salad days, Ed. You're the tongs in the salad of the days of the dog. Is this the last one? I think so. I want to really enjoy myself. I want to spend a ton of time with my kids and friends. I want to spend a lot of money. I want to give a lot of money away.

And I don't think I have the tread on my tires to start another business. I want to spend a lot of money. I want to give a lot of money away. And I don't think I have the tread on my tires to start another business. I just don't. I don't want to make that sort of sacrifice or commitment again. It takes a real toll on your relationships, on your mental and your physical health. I think it's a young person's game. I'll back people. If you came to me and don't get any ideas and said, or if anyone here came to me and said, I want to start a business, I would write them a modest check just to be supportive of it. But no, you need to be crazy. You need to be able to work 60 to 80 hours a week and just go so hard at something. And I'm just not willing to make those trade-offs anymore. As you look back at your career, what has surprised you most?

It's all been a surprise in the sense that I remember my grandmother telling me, everyone has their list for who they want in a mate, and then they fall in love and they tear up their list. At 19, I thought I was going to be a pediatrician. At 22, I thought I was going to be an investment banker. At 34, I thought I was going to be an investment banker. At 34, I thought I was going to be an activist investor. And you could write out a million scenarios. I guess some people grow up, they know they want to be a doctor their whole life. But yeah, I just ended up sitting here at the one hotel, having just spoken to Live Nation, heading to f1 knowing i'm gonna have to edit no mercy no mouse tonight after doing this podcast you know i wouldn't have guessed that i'd be divorced i mean

just like so many like everything's a fucking shock i think the key is to put yourself in a position to be lucky because i think luck is perfectly over the long term pretty symmetrical and that is yeah I've had some bad luck but I've also had some really good luck and you just want to put yourself in a position to be lucky and how do you do that you endure your company goes out of business you don't give up you go raise more money and you keep trying. You know, you get divorced, you don't give up. You go out and you try and meet another mate. You know, just, it's all been, that question sort of overwhelms me.

It's all like been shocking in a good way. I'm also shocked at how much fucking vacation time you take, Ed. That's what really surprises me. Anyways, I'm sort of, the bottom line is, I'm very grateful. That would be the word I would use. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavis and Catherine Dillon.

Mia Silverio is our research lead and Drew Burrows is our technical director. Thanks for listening to Profit Tree Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday. You held me in kind reunion As the world turns And the dove flies In love, love, love, love