This Week in Startups - Interest rates, inflation and “getting fit” with Brad Gerstner | E1639

Episode Date: December 16, 2022

Brad Gerstner of Altimeter Capital joins Molly and Jason for an epic Friday show. They chop it up about the state of the economy, what it actually means to be founder friendly and discuss which big tech companies are“fit”. (1:24) (0:00) J+M Kick off the show (1:24) Brad Gerstner joins Molly and Jason (10:28) Odoo - Get your first app free and a $1000 credit at https://odoo.com/twist (11:38) Brad presents on interest rates, inflation and business multiples (26:32) LinkedIn Marketing - Get a $100 LinkedIn ad credit at https://linkedin.com/thisweekinstartups (28:05) The Fed’s core mission (37:54) Being founder friendly (39:42) Brad’s letter to Meta (48:33) Companies that need to get fit (53:00) Google and Meta’s fitness (58:08) The curse of the money-printing machine (1:00:01) Google vs ChatGPT (1:05:05) Is Uber fit? FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Hey, everybody. We've made it through another week. It is Friday. I can confirm that. Frye. Yay. Don Julio Friday. We have an epic Friday episode for you, by the way, though. I know everybody's slowing down for the holiday, but we're not because this is a big one. It's a fantastic episode. We got, what are we still calling him honorary fifth bestie? Of course. Brad Gersh. The honorary fifth bestie from the all in potty hasn't been able to sneak into an all in episode. So I thought, let's get him over here. I was so excited. I was like, let's adopt him. Of course, of course. We can't leave a bestie outside. So we brought in here. And we chopped it up. We talked about the economy, inflation, you know, the changes that happened in Silicon Valley this year, getting fit.

Just so many topics. And it was just a great roundtable. So fun. So fun. Brad Gersoner of Altimeter Capital coming up. That's the whole show because it is a great conversation. Stick with us. This week in startups is brought to you by Odu.

Odu is a fully customizable and fully integrated SWEEEEEE of business apps that lets you build and scale your stack as you build and scale your business. Your first app is free forever, and right now, Odu is offering a $1,000 credit at Odu.com slash twist. In LinkedIn marketing, to redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash this weekend startups. All right, everybody, it's Friday here on this week in startups. And it's been a heck of a year.

So we brought in Brad Gersner, our friend from Altimeter Capital. Brad, welcome to the program. Good to be here. All right, Molly, there's a lot of things we can talk to Brad about. He brought some amazing slides with him. Where do we want to start here? I mean, I love a guest who does all the prep for us, which is outstanding. But yeah, like we really just wanted you to come on and talk about not only the sort of recap of this last year overall writ large,

but specifically the part where it turned into a whole different year at the back half and that now we find ourselves in a downturn that we expect to be continuing into 2023, what that means for startups right now. You had a tweet that we thought could kick us off right away about basically the metric immediately, right, that every startup should be focused on right now. Yeah, I mean, so I think context setting. You know, I think a lot of people look at this. year where, you know, the stock market's down a lot. It's been a tough year for venture. And they,

they think that it's an aberration. But really, this is normalization, right? The aberration was 2020 and 2021 when the cost of money was free, when helicopter money was spraying out of Congress. And so what happens during that moment, you know, we've talked a lot about the age of excess, right, is that people start using proxies, Mali, for valuation, that get further and further away from the truth. So over the course of last 18 months, we've heard a lot about multiples of revenue, right? Multiple of revenue for software companies,

multiples of revenue for internet companies, but what we have to remember is multiple of revenue or multiple of EBITDA is just a proxy for distributable free cash flow sometime in the future. Ultimately, this all boils down to, I'm giving you money. How much can I get back in the future in terms of distributable free cash? And so what I was reminded of and tweeted about this morning is that, you know, it's that free cash flow,

less stock-based compensation, which is another topic I want to hit on today, right, which is something that in a world of free money, everybody largely ignores. Because everybody's making money, right? Everything's going up so you can ignore stock-based comp. But ultimately, if we want to know cash on the barrelhead, I own 100, percent of this business, how much can I take out as a return on my investment every year? You've got to look at your free cash flow, less what you're paying your employees all in. And I said, that's the new EBITDA because forever we've been talking about EBITDA is kind of this

proxy for multiple. And while I said for early stage companies, stock options can be powerful, one of the things I'm really frustrated with and think attention needs to be paid to. And I think, listen, investors have a lot to do with this, is now we're giving established companies, right, that are growing at 10 or 20 percent. RSU's restricted stock units to everybody in the company, right? These are just cash. There are a call option to the upside, but they're cash to the downside, but they come out of the owner's pocket, right? And so, you know, we have to look at, you know, while stock options maybe make sense for early stage companies, it may even make

sense for a lot of public companies, you know, if you're giving away 40 billion in IRSUs, the way Facebook has over the course of the last six years, right, then shareholders expect and should expect to earn some return. And so you finish that tweet for those who are not watching by saying that RSUs basically obfuscate or hide what is effectively salary inflation, because like you said, they're just cash. So this sort of argues generally for what we've heard a lot lately, which is a return to austerity, but you're pointing out that stock-based comp is maybe

not needs to be a bigger part of that conversation. 100%. So, you know, like again, at the end of the day, let's keep it simple. You know, if we went to Omaha and we asked Uncle Warren, hey, what's your measure of, you know, how a company's doing? He would say, well, I put in a certain amount of money and I want to know, what is my yield? How much can I take out every year?

Whether it sees candy, talks about it put in just a little bit of money. And for, you know, 30 years since then, I've been able to pull out an enormous amount of money every year. It doesn't take a lot of capital investment. I don't give stock options away. That's return, right? And so I think we're reentering a period where the cost of money is now on the front end of the curve about 5%.

So you can earn 5% risk-free. Risk-free, that's a hurdle rate. So if you want to compete for my money, right, you have to compete with that hurdle rate. As opposed to zero percent interest, which is what we live through for some period of time, or just one or two percent. So then any investment looked good. But there's a distinction here. RSUs at a big company like a Google or a Facebook.

Somebody's making a quarter million dollars. And we talked about, I don't know which hedge fund wrote that letter that like, hey, you're overpaying everybody. And it's not just developers, which we understand. Developers can get massively overpaid, but everybody is getting overpaid. Then on top of that, people were getting a bunch of RSUs, which are just cash. There's no risk to it. Whereas at a startup company, if you get stock options, 70, 80% of the time or more,

it equals $0. So those are lottery tickets. RSUs are cash. Stock options out of startup are lottery tickets. Is that the fundamental misunderstanding people are having here? Absolutely. And I just think that even at a company like Facebook, Jason, which is no longer a startup, right, it would be one thing if we gave away or if they issued,

$20 billion worth of stock options over the last few years because they would all be underwater because the stock is lower. Explain that. Yeah. So if I issue you a stock option and the stock's currently trading at $200, then your strike price is $200. Molly, you'll make money if you help us build a company that's worth more than $200. Yeah. And if we failed to do that, then these won't be worth anything.

Okay. That's a, that's a creates alignment with the shareholders, with the owners, with the people putting the money up for the company to grow because they all win together. Now imagine I issued you an RSU at $200. Okay. So if the company appreciates to $300, that unit I gave you is now worth $300. But if it goes down to $150, the share is now lost $50 a share, but you still made $150 a share. It's misalignment of incentives. And I don't care. I feel like alignment is actually the key concept there because that has always been the justification for paying tech workers more was the idea that they're all bought into these companies.

So they might get a package that includes a lot of stock options and those options might turn out to be a winning lottery ticket. And we all, you know, new people who just would, it's like a lottery winner would pop up over here and over here and over here. And that seemed to be feeding this kind of funny money concept. But at some point, that was not enough for employees because. you might not win. And the person next door might win.

And so you went to RSU's... Who was responsible for the RSU concept coming in? Why did they do that instead of the options? I would say, you know, this in my mind, Jason, is part of the grift that comes with free, low cost of capital. Right? And because shareholders aren't going to complain so long as the stock price is going up, right? Because everybody feels like they're winning. So everybody focuses attention on this.

when stock prices go down because what they realize is that the people in possession of the RSUs are still getting paid. And so part of the age of austerity needs to be just a real conversation. I am a firm believer in stock options. They are an essential part of Silicon Valley. They do create a line. Right? And I even believe in it with respect to public companies.

But, you know, I want to see leadership who have skin in the game like me. So they either have stock options that are struck kind of where I'm coming in as an investor, or we give you an RSU grant, but it's predicated on you getting the value of the company up. Not just, you know, you get RSUs no matter what happens. So I think SOTHA, for example, at Microsoft has an RSU package, but is performance-based. And so, again, let's say that you decide not to have a performance-based system of RSUs. Again, like, that's fine. That's your choice. You run the company. But we have to look at all of that as simply cash compensation to the employees out the door. And we need to calculate the multiples that, you know, determine valuation accordingly. Looking for a better way to manage your company without tons of expensive disconnected software than you need Odo. Odo is an affordable all-in-one management software with a massive suite of fully integrated applications designed to handle any unique business.

need. Sounds great, right? Well, it gets even better. Odu is now offering all of their award-winning applications, services, and maintenance for under $25. That's right, for less than $25, you get 100% of O-Doo for 90% less than the average market price. And O-DU is so much more than a world-famous ERP, that's Enterprise Resource Planner. O-DU has over 80 applications for everything your company will ever need. We're talking CRM, marketing, accounting, manufacturing, inventory, you name it. O-Doo's got it. So, as your business grows and your needs change, O-D-W-W-W-W-W-W-W-W-W-T-E-E-E-E-E-E-W-W-W-T-E. Every step of the way, with dozens of user-friendly solutions to choose from, and you get it all

for under $25. To learn more, go to O-D-O-O-O-O-O-D-W-T. Get more done in less time for a fraction of the price with O-D-U. All right, you brought some slides for us. Let's jump into them. One is this explain this slide to us about COVID zero rates, stimmy-induced inflation, and how you're breaking this down specifically and how it relates to core CPI. And I think we have five slides here. And let me bang through these pretty quickly

because they're all part of a narrative. You know, Jason and I were talking about, hey, let's look ahead and then look forward. So when we look at, look backwards, you know, what jumps out at you is inflation skyrocketed this year. Okay. So in the year 2020, 2020 was inflation skyrocketing. Why did it skyrocket when it hadn't really moved up in 20 years?

Because we did something that was totally abnormal. We put $5, 6, 7 trillion, helicoptered it into the economy. We took interest rates to zero. And we dared people not to take risk. And guess what they did? They took a lot of risk, right? People loaded up on their second house, their third house. They bought more cars.

They extended their credit card. They went out and they spent money. And it turbocharged the economy. If you go to the next slide, you know, what we did in response to that in 2022, the Fed made a mistake in 2021. I've tweeted about the fact that we need to get a real-time data stream going to the Fed with more machine learning because we should have spotted this earlier. but we didn't. We stayed zero rates for too long in 2021. So we got to 2022 and the alarm bells sound. We've got a problem. We've got an inflation problem. We're worried that this is going to become embedded. So we had the single greatest move in the yield curve in the last 40 years. So if you're an investor like we all are, when rates go from zero to four and a half percent, that is incredibly dislocating because you don't know what to underrate to. The cost, Now I can get paid 5% just leaving my money in a risk-free account. So your propensity to want to leave money there is a lot lower.

Go to the next slide. The multiples for companies, risk assets, move inversely to interest rates. So multiples collapsed. So this just happens to be the software index, but we went from an all-time high in multiples 18 months ago to a 10-year low in multiples today. That is public companies, private companies, venture back companies. Give us the numbers on that. Explain that to people who are new to this.

Like, why does that happen? Or just what the percentages are. Because if they're not watching the show right now and they're listening to it, we see, you know, in 20, you know, in the 2014 to 2018 era, it looks like the multiple was six to seven times. for the value of a software company. So explain what that's a multiple of revenue, top line revenue. Yep, so we're looking at a basket of high gross software companies that for the better part of 10 years traded at an average of 7 to 8 times revenue. Now, remember that 7 to 8 times revenue is just a proxy for those future cash flows.

We're going to be able to take off the barrel and put it in our pocket. Okay. Well, the cost of money went down in 2021. what you were willing to pay for those future cash flow streams went up. Right? So we were willing to pay 15 times. I mean, we had many rounds that you guys know were getting done at 100 times for an early stage company, 100 times revenue because people were discounting those cash flows back

at very low interest rates or no interest rates. We woke up this year. Interest rates went higher. And as interest rates go up for every 1% change in interest rates. you have about a 10 to 20% compression in the multiple. Multiple goes down. From this peak of 18, we had like a peak of what, 18, 19, 20? For this highest cohort for the high growth stock.

So now we're down to about five and a half times revenue for these companies. And again, that moves inversely with interest rates. If you go to the next slide. And so to say that again, just right now we are. trading well below the 7-8 average. We are almost half of it. Correct. And it's about a 10-year low, despite the fact that these software companies have largely been continuing to perform.

This isn't just a software issue. This impacted all risk assets. Sure. Right? And so you see this with Chinese internet companies, U.S. internet companies that are both at 10-year lows, as this slide shows. And then if you go to the next slide, what I think is important here is. is 90% of the fall in stock prices or the value of private companies has been driven by interest rates.

So this wasn't that my revenue fell out of bed or I stopped making as much money. 90% of it. Again, this is an average, came from those rates going higher. So that was the story of 2022. Inflation skyrocketed, interest rates were playing catch up, and multiples that were at all time high and prices that were at all time highs now moved below the average near 10-year lows. So as we look ahead, what is the world, what are we worried about today and what's the setup look like for 2023? We're always sitting around the poker table, J-Cal, like, you know, we beat ourselves up for things we could have done in 2022, but we're mostly focused on, you know, how do we position ourselves for the next six to 12 months. So it's, you know, the Fed has acknowledged, you know, we had a CPI print and inflation print this week that came in lighter than expected.

It's now pretty clear. We've had two months in a row where inflation is rolling over. Chairman Powell had a speech and he said, hey, I think that we've peaked on inflation. Goods inflation's coming down, housing inflation's coming down. But we have the sticky thing called wage inflation we continue to be worried about. So I suspect in 2023, the consensus belief is that inflation's going to come down. If you go back to that first slide, Goldman Sachs thinks it's going to 3%. Morgan Stanley thinks it's going to 2.5%. So that's a better setup, the 22, where it was skyrocket.

marketing. Okay. Right. And this is experienced by consumers in the form of buying the form of milk and eggs, their mortgage payment, homes, gas, all that. Correct. All those things. You were going to say something, Molly? I was going to say two things. One, the journal, in fact, the Wall Street Journal is even publishing articles now saying investors are having hopes of a soft landing. There, you know, there's like a little bit of a sentiment change about how bad 2023 might be. The only thing I would add to this four context that I think is sort of interesting is that one, inflation, no question, driven by a zero interest rate environment. But, and I think, like, this is removed from what we do as investors.

Sure. Also driven by the exogenous factor of extremely constrained supply chains and extremely high consumer demand because you have a lot of people at home shopping for stuff that they could not get. So you had demand, demand, demand, nothing coming in. Price is going up because the price of renting a container on a ship, you know, tripled, quadrupled, quintupled. And some of the stubbornness that we've seen in terms of inflation coming down is because that inflation is unrelated to interest rates. Like, you can't do anything about ships being, I can look out my window and there's a still a traffic jam at the port of Oakland. But, and then you had all of those. And then you had all of those

sort of price driving fact, valuation multiple factors that were interest rate related and they have been, they've proven a little more stubborn and they've been unrelated to those fundamentals of can I get a thing or not? And even the like dip in multiples is unrelated to fundamentals. As you said, these are still high performing software companies that are now trading arguably below what you would say they're worth. Right. And you know, again, to keep it simple. I mean, if Stan Drucken Miller has said, this is the hardest moment to forecast from a macro perspective in his lifetime. So let's just be humble in the face. If our friend Bill Gurley was on the show with us right now, he would make fun of me for even talking about macro because

he would say none of us have any idea what's going to happen to macro. But I'm taking a shot. I think inflation has peaked and continues to go down next year. And interest rates, I'm just taking the Fed at their word. They said, listen, folks, we're taking them to 5%. And they're going to to sit there and we're going to put our foot on the throat of this economy until we see wage inflation break. And we're not taking our foot off that until we see the white. Is that the only thing left is wage inflation? That's the last, that's the last city to fall?

That's the bucket that the Fed is worried about because that's something that gets embedded. There's a lot of talk from the 70s about wage price spirals. I think we have a lot of post-traumatic stress from that period of time. So this means in plain English. people's salaries go up and they can keep buying stuff. And if their salaries keep going up, they keep buying stuff, then they keep inflation going because supply demand? Am I in the ballpark?

No, yes. That forbid people have more money to spend, even though 80% of GDP is consumer spending. So, Molly, this is a, this is a good point. At some level, we've been complaining for the last decade that wages wouldn't go up. Right. Okay. And then, lo and behold, but what? we'd like to see, right, because we all want to fine tune, we'd like to see wages go up just a little

bit faster than inflation, but we don't want to see them gaping up. We don't want to see haircuts go from 20 bucks to 50 bucks in a year because that impinges people's ability to live, right? Because their wages, their cost of living is going up faster than their wages are going up. And so that's the tuning that the Fed's trying to do. So step back again, 2022, inflation down, interest rate stable, that's radically different, or that's 23, that's radically different than 2022, where they were both skyrocketing and there's a lot of uncertainty. So the rate inflation backdrop is way more concealatory next year. What is way more uncertain next year is whether we're heading into the teeth of a massive recession. Okay, so we're trading one uncertainty

for another uncertain. What would the worst case recession? scenario look like based on what people are saying. What happens? Because the thing that I found concerning being on the board of companies and investing in companies and actually seeing the numbers and knowing the plans before they happen is people are making cuts. People are planning on making more cuts. People are looking at every single item. And they're saying, oh, we have this SaaS software, we have 12 different SaaS softers. Let's go to seven. Okay, how many seats are we paying this company? Okay, we want three people to log in with the same login, go from 10 seats, for sure. Okay, we have this many people in customer support. We're going to outsource it to

Manila. Or we're going to use AI and try to be more efficient. Then, everybody was making fun of tech. Oh, look, tech's getting their comeuppance. Everybody's making cuts. You did the, you know, hey, it's time to get fit asking Facebook to make cuts and they did whatever 60, 30, 60 days later. Now media is getting hit as predicted. CNN, the mighty Washington Post, theoretically with an unlimited cash supply. They announced their cuts to a lot of, you know, aggressive, really aggressive town hall if you saw the clip. And so this is a white collar recession and blue collar jobs, service jobs.

We can't get enough of them. We can't pay high enough wages. Uber, $36 an hour. So I'm very confused as to what is happening with employment and why it's an issue. Because from where I live, my address is media and tech. And it's a disaster. or people are looking at, as I said, I think the last thing is pay cuts. Like to go to your employee base and say, we're going to cut pay.

Hiring freezes. I saw one of the accounting firms said we're not doing bonuses, even though we had our best year because next year is going to be so bad. People are just batting down the hatches. I'm confused. Well, this is where the debate is. I think there are a lot of people who agree with you, Jason, and they see it happening in the real economy.

This is no longer quarantined to tech or quarantine to media. Like, just take one example. I grew up in this town of northern Indiana where all the RVs in the country are produced, Elkhart, Indiana. This town was often a bellwether in the 70s where national news would come to say, because it was on the leading edge. When people stopped by in RVs, they knew economic cycle was happening. Okay. Now the factories in Elkhart are shutting down. They're going to three-day work weeks, right?

The town is really slowing down. So RVs, if you remember, during 2021, there was six, nine, 12-month waiting lists to get an RV. Why? Two reasons. Number one, to Molly's point, we're in the middle of this really weird thing called COVID. Nobody wanted to be around other people. Hoping your RV go. But number two. Exactly.

That's close. This close. But number two, you could borrow money for free. Yep. The RV was free. Okay. And so we had this perfect storm with all this activity. I don't think this is quarantine to tech.

The debate that's going on right now that you see playing out on Twitter and other places, there are certain people who think the Fed is way over their skis have already gone too high, are throwing us deep into a recession that's going to smack us in the face in Q1 and Q2. The Fed has said, you know what, that's a risk we're willing to take. Because this thing got so overcooked, so overbaked, that we worry more about embedded wage inflation, then we do a modest recession. And we know if the recession hits, we can always turn down interest rates a little bit. But we are not going to give one inch, right? This is very clear. Chairman Powell is determined. And he's a big fan of Paul Volker, right? The head of the Fed who broke

inflation back in the early. In the 80s. There is no way he's taking his foot off the throat. And that's what's being interpreted by the market. If you're a B2B marker, that's business to business. your needs are unique. We all know that. B2B buying cycles are long and your customers face really complex decisions, right? Most of the time, traditional marketing channels don't work. You know, if you're doing B2B sales, it's not like people are buying some impulsive purchase of a gadget. No, got to be thoughtful. Traditional channels don't work for it. But here's the good news. LinkedIn ads is specifically built for B2B marketers. That's you. Here's the only stat you'll ever need on why you have to have to market. on LinkedIn. LinkedIn ads gives you direct access to 875 million members, 180 million senior level executives, and wait for it, 10 million C level executives. No other platform in the world can offer these kind of elite eyeballs. And LinkedIn is going to help you reach your audience in a respectful environment. It's about business. You think about LinkedIn, you think about business, okay? Here's some other amazing stats for you. Audience is exposed to brand messages on LinkedIn are six

times more likely to convert. Yes, you heard that right, six times. And audiences on LinkedIn have twice the buying power of the average internet audience, right? That's critical too. So here's your call to action. Make B2B marketing everything it can be. And get a $100 credit on your next campaign, a hundee. If you go to LinkedIn.com slash this week in startups, go get that credit. You have to type in LinkedIn.com slash this week in startups. No spaces, no dashes, none of that nonsense. Terms and conditions do apply because they're giving you a hundee. And there, I mean, the Fed has been very clear on the risk of recession being worth, like, very explicit. Because inflation hurts everybody.

And unfortunately, recessions don't, right? You will see layoffs in certain sectors, in certain areas. And so breaking inflation is still the Fed's core mission regardless. But I think, like, to your point about a big fan of Volker and the hangover from the 70s and the, you know, breaking inflation in the 80s, the large like our economy is what 50, 100 times bigger than it was in the 70s. Like the, it's just a, the economy is weird right now. And it's, it is, we're just as likely, I would say, to have a recession as not. I mean, it's sort of, it is this weird debate, but we're all working with, you're always working with the last recession. You're always tackling the last problem. And I will say,

though, I think that the Fed, there was a period in, you know, 2018, 2019 where it was like looking like things might be a little bit economically rocky, but because interest rates had been so low for so long, the Fed, that's the tool. That's the arrow in the quiver for the Fed is to manipulate interest rates either up or down. And if they're stuck at way, way, way down or near zero, there aren't that many tools. And so I actually don't expect the Fed to take their foot off the gas for all of the reasons you've articulated, and because frankly, a higher interest rate is a buffer

for the next time that you need to address policy with interest rate changes. You know, listen, we've had a great technology investing scene during periods of four or five, six percent interest rates. Right. That was the regime we had in the early 2000s. That's not the problem here.

Because we just reprice our entry. We repriced the asset, right? Yeah. We're just not going to pay as high for a Series B or a Series C venture company at a 5% or 6% interest rate as we would at 2% interest. The entry price matters. The entry price matters. So that to me markets can adjust to. What they can't handle Mali is massive uncertainty.

What we can't handle is this. Right. But unfortunately, we still have. Right. And so I think if you're grading the Fed, right, in 2020, I actually give the Fed an A, maybe an A plus. They saved us from an economic collapse, right? Let's remember where we were in March and April of 2020. The economy stopped, okay?

I would give them for 2021. It's mind-boggling. I think it's like they all went on vacation having survived 2020. I give them a D or an F. 2021 was a disaster. Everybody, everybody on this show, everybody we talked to, we knew inflation was rampant. You couldn't buy anything. The waiting list for everything,

from a Tesla to an RV to a second home. And it's bonkers, okay? So the fact that Neil Kashgari, the president of the Minnesota Fed in June of last year, June of 2021, said we will not raise rates until at least the end of 2023. This was when a freight container from China to the West Coast cost $20,000. Okay? That's an F.

Okay, I'm sorry. That is an F. I'm just again, I'm looking at the ship piled up out. side. There was every reason for them to think that everything that everybody wanted to buy was just stuck and that once that dam was loosened and this is the true, this was the transitory argument at the time, there were lots of good reasons for them to think. You know one way to loosen the dam? That demand would be eased by a sudden influx of supply and that if anything, prices would

collapse. There was that argument at the time. Who could look at China closed in the middle of 2021 and think that we were going to have a sudden influx of supply and goods. That was ridiculous. That's a number of 60 ships out my window that hadn't been unloaded. Right. Because, right, because we had so, uh, uh, we had created so much stimmy. Everybody had money in their bank account. They didn't need to go to work. I mean, right. You know, this was determinable. That's a little bit burned off now. I mean, I'm not saying they were right. I'm just saying that at the time, that was an argument that was. Okay, Molly, I'll meet you have. sense. I give him a well-intentioned F. Okay. I don't think that's a real grade.

But 22, but 22, okay, despite how painful it's been, right? I would bring him back to a day. Right. So this is a student that I just think went missing in 2021. Jason, you had a question. Well, you know, there's so many curveballs. We haven't even brought up Ukraine or China. COVID policy. And so the world is so interdependent right now that it's not as simple as Volker's job. I mean, when you look back what happened to Volker, they, I believe the prime rate raised to 20 percent. People getting mortgages were paying 20 percent. So let's all pause and think about how insane that would be. Right now, people are not buying cars. The demand for cars have gone down because of the six, seven percent interest rate. Demand for homes has flatline because of six, seven

percent rate. This could be 15 percent. This could be 20 percent. And inflation, I mean, that also got well out of control during that period. And then there's politics that plays into this. Reagan, I read Volker's biography as keeping at it or something. It's incredible. Like Reagan came to him and they like had like this little clandestine meeting and whoever Reagan's like henchman was, I forgot who it was, said, like the president would really like you to not raise interest rates anymore. And so there is also politics playing into this, correct, Brad? All of those factors, you know, play into it. I mean, listen, we've talked about this.

We should erect a statue for Senator Mansion from having saved us from, you know, Stimmy to that would have tossed this country into a spin of hyperinflation and much more austere interest rates had we not, had he not been the deciding vote there. So, yeah, I think that, I think all those things are complicated factors, but I really want to make sure everybody heard what I said. I'm constructive. The backdrop on 23, from a policy perspective, from an inflation and interest rate perspective, is constructive.

The problem we have on- What does it mean constructive? Constructive means we don't have these wild swings that make stuff uninvestable. You and I can make an investment decision with the cost of money at 5%. Like I said, look at the stuff that was funded, 2000 to 2005 when we had interest rates there. Okay, that's not the problem. We just need stability and predictability, and they've given it to us, okay? Where we don't have that is around economic performance, okay?

And this is a good transition to the conversation around austerity and meta. We know that the top lines for all these companies, for all the reasons you mentioned, going to get a lot tougher, right? Top line growth is going to be hard. Consumers are going to be more precious and more thoughtful with their spending. Correct. Advertising has hit a major bump in the road. Companies are cutting advertising.

companies are cutting corporate spending and consumers are cutting spending all at the same time. Top line will slow. So the only way that a company can bridge this period where we have higher interest slower economic growth is they have to tighten their belts, right? They say, oh, hey, the household budget's gone down a little bit. This year, we're not going to be able to afford subscriptions to Hulu, Disney, Paramount, you know, Netflix, etc. or we got to choose one or two, okay?

That's what companies need to be doing. But for some reason, companies I think were very slow. Not for some reason. I have a lot of good ideas as to why they were slow. But venture back companies and public companies were slow to make the changes. Yeah, I mean, listen, we have a generation, Brad. If you're younger than 21 years old, you don't even remember 2008. and if you're a CEO who, you know, started a company when you were 25 years old, my lord, like, this is a, this is new territory for you. You don't understand how bad this gets.

Yeah. You haven't seen Arian chairs, people walking home from their office with an Arian chair with their laptop and a box of books in it because the company shut down so violently that people just walked out with an Arian chair in their laptop and didn't even get paid. Right. Like, it was freaking chaos in 2000. But who am I doing even more, Jason, than the entrepreneurs? Are the investors. Okay. It's us.

The investors. Yeah. Silicon Valley is full of investors that are either too young or lack the courage to talk truth to founders for fear of not being loved. This idea of founder-friendly. Don't I know it. Becameled, right, with always telling the founder what they wanted to hear. There used to be this story about Sequoia.

that you chose Sequoia because they would drag you by the scruff of your neck to success. Okay, that wasn't a friendly way to get you to success. They would be hard-hitting it and drag you there, including getting rid of the founder if they needed to, to make the company successful. That's what founder-friendly meant in that context. But I would say over the last 10 years, if anybody spoke up at a board meeting in any way, wasn't, you know, aligned with the founder. or people look discants at that.

What I see returning now, which I'm happy about, is truth-telling, that's founder-friendly. Helping companies avoid catastrophes, that's founder-friendly. Yeah. Right? And so it took a little while, not surprisingly, because we've all been gas-lighted for so long. But what I see happening in public companies,

we talked about meta or Google or Amazon, etc. what I see happening in venture. And there's a big effect here, since Elon took over Twitter, this Elon effect. I mean, he's revered by a lot of founders. Everybody can say whatever they want about is a style, his approach, you know, etc. He's far from perfect. He's the first to admit it. But the courage in making that level of change and everybody said the lights would turn off at Twitter, right?

It wouldn't work anymore. You couldn't possibly do this. And so for a company to say, can I, can I let go 10%? Can I let go 20% when they're letting go 70%? And by the way, 10 to 20% doesn't get most of these companies. Even back to the headcount they had at the start of 2021 or 2020, that's how incredibly fast they were growing. So this numerology where first everybody resisted any change, they said, we're an exception. And then once they did their bottoms up review, they all magically came up.

up with 13% riffs. It was also a joke. Okay. No first principle thinking in that. It was enough to get the people complaining off their back, but not enough to really do anything that changed the game for companies. So I start to, you know, I'm seeing a lot of courage and a lot of founders starting to do the right things and ask the right question, which is, what is the number of people I need

to optimize my success? Blank sheet of paper. Do you feel, okay, go ahead. No, you, my. Do you feel, we had this debate on the show, but you weren't here. And you famously penned the letter to meta, time to get fit. Do you feel like they took that medicine? Or did the not quite enough?

I'm taking advantage of the fact that we have you here and don't have to answer it. No, no, of course I'm going to answer it. I don't come on the show and not answer stuff. You know, first I would say when I wrote this letter and Jason and I talked about, I think over poker, you know, the week before, you know, I really was thinking about this and we've been talking about it as an open letter to Silicon Valley, right? I mean, this applies, what I said in here applies to almost every company in Silicon Valley. At Facebook, I thought they had a particularly acute challenge, but a particularly interesting

opportunity. The acute challenge was they had gone from 25,000 to 85,000 employees in just a few years. And at the same time, they were making a massive and uncertain long-term bet, more sizable than any bet we've seen in Silicon Valley on Oculus and reality labs, where I said, you've confused investors, which is hurting the company. And so, like, let's just telescope out for a second and think about the parts of the business. This business can do $40 billion in free cash flow. Instead, you're going to do $15 billion in free cash flow. Right.

Because you're making these massive investments. So I said, tighten your belt. Just go back to where you were at the start of 2021 in terms of numbers of employees. Okay. I really think they should go back to where they were at the start of 2020. But again, these are my opinion. So I'm not telling the company what to do. They get to do whatever they want to do.

And I sell the shares or I don't sell the shares. The second piece I said is they're investing way more in AI than most people understand, right? The magic of bite dance TikTok was that it was not a social network, right? They targeted my son to watch TikTok through AI, and it worked. So Facebook has done a complete retooling over the last three years, right, has been one of the largest consumers of GPUs, right, to really build an AI discovery engine. Okay. Yeah. The world doesn't even know that because they think.

think that Mark, you know, renamed the company, you know, meta and the only thing he's doing is running around with these glasses on. And yet he's building a gold mine in AI right under their nose. And the whole side quest is this other thing. So, you know, I basically said, hey, tighten your belt on people. You'll get more innovative. This is the misnomer. It's not about cutting. It's not about killing investment. It's about getting more innovative, more productive. Okay. Those two things coexist. So it's get. more focused on that, get more productive. Number two, focus on AI. In fact, maybe invest more

in AI. And then on this third thing, if I were doing this, I'd do what Google did, which is I would say long-term bet, more uncertainty. I'm going to put this in something that looks more like Waymo or Verily, right? I'm going to make this another bet. I'm going to capitalize it. I don't know, $5 billion a year, which is what I suggested in the letter. If you want to take outside investors, take outside investors, do whatever you want to do. But that would allow each part, of the business to, I think, perform much better. That was a thought. They can, you know, I think that.

They did the magical 13%. Right. They made a cut. They made a cut. And what I would say is, I do think it's worth noting, though, what you just said, though. It's not as reductive as get rid of 6,000 of your 8,000 people. It's get rid of more than you think you need to get rid of, but also focus, right? Cut the side quests.

And I think today they have. announced what they had a $200 lift credit, monthly credit for all their employees or something. I saw on Twitter that they killed that today. Like I imagine all of these companies. Listen, here's another thing nobody wants to talk about. Yeah. We have, I think, leaders in these companies who actually want to make changes. But I actually think they become afraid of a lot of their employees who work in these

companies. Because the threats, these employees, these employees, make on bulletin boards, the accusations they make from a DEI perspective, it's, you know, if people are advising you, they just say, this is really dangerous territory to walk on. So when they're really profitable, I think it just becomes easier for them not to make the courageous but correct decision, which is to get fit. But the reality is, as a country, as companies, as individuals, right? You only take the top podium if you have the courage to get fit.

And all these companies, every single company, there's room for 20, 30, 40% fitness in all of these companies. Again, in the era of free money, what did we, what did we, what did we tell these companies to do? We told them unlimited hiring, unlimited investment, the cost of money is free. Just think about just the top line growth. Think about this, Jason. Mm-hmm. Yeah.

Apple this year, if they were just investing in the risk-free rate could generate $7 billion of cash just off their cash hoard. Yeah. And they bought back a ton of stock, right? Didn't they do tons of stock buybacks? Yes. But my point is this, if I'm earning 0% on my cash, then I may as well spend it. But if all of a sudden I'm earning a real risk-free return, now I say, well, maybe I

shouldn't hire this additional person. Maybe I shouldn't make the 10th investment on my list, right? Because there's an alternative use of the cash. Because if that person is not going to make me 5%, then I'm going to put it in that the three-month CDs that I keep talking about on this show. Yeah, I mean, it makes total sense. And now the age of austerity is upon us. And I think when you're in a talent war and you become scared of your, you know, of talent, you know, it's kind of like Hollywood. You know, they were, you know, they're afraid to piss off an actor or something or a director. So they make all these

accommodations. Now the pen and the pendulum swung too far one way. People were offered all kinds of perks. Now we're going to go the other way. Some people might even argue it feels sadistic or gleeful in the cuts that management are making. But the truth is, Coinbase and Shopify, I think both Brian and Toby said, you know, this is a business. This is not the place for politics. You know, we have like one mission, you know, cryptocurrency for the world to free the world and, you know, help people who want to build mom and pop shops. Like, enough. Let's get focused.

And then I think what people are realizing is, if you hire two years ahead, well, then you can cut half the staff or whatever it is and have more earnings while the top line suffers. So here we are. It's just going to be super painful. Are we at the point where we've taken enough medicine, where we've corrected our diet, where we've gotten our sleep, where we've exercised and got our heart rate up that we can say we are in fact fit and that growth will come back. When will we be fit, Brad? We are not fit. First quarter, second quarter. We still not fit. We just, we're just getting off the proverbial couch, Jason. Like, we may be just on the one mile training. Couch to 5K. I get it.

That's our metaphor for recovery. So I would say that 2021 was the year of abuse, right? That was Pinnacle free money. 22 was a transition year. That was the year like, holy shit, everything's changing. 23 is, okay, begin your exercise regime. Take an out. But this is the important thing.

Fitness is not one and done. It is changing your behavior and creating consistent fitness. It's having an ongoing dialogue about how much stock are we giving out. An ongoing dialogue on what should be the metrics that matter. How many things should we be investing in? I would say that this wasn't a problem created in one year. it just peaked in a single year. Right.

This was a problem created over a decade. We're yo-yo dieters. So like, I think it's going to be unlikely that these lessons stick because so far, historically, you know, Jake Allen and I would talk all the time. We've been through three of these. I don't know. No, here's, I have a theory. Springs internal, but.

You can want something and then you can decide to do something. I wanted to be thinner and more fit. And then a certain point, I decided to do it. And I think with some companies, they want to be fit. they want to have their stock price go up. They want to be more efficient. But you have to make the decision. And once you make the decision,

then there's some pain and suffering and behavior change and accountability. Top three companies in order, Brad, I'll give you a minute to think about it, who have gotten fit and you appreciate the most. And the three companies that you're worried about

that they haven't gotten the message yet. Just take a minute to think this. You always have to name names on this show. This is why we get the ratings. It's because I force people to answer hard questions. But I know who your number one fitness company is, and then give me the two or three after that, and then let's go to the other side. Well, you can participate her two as well, if you feel like it.

What I'm going to say, maybe not to answer it exactly the same way, but I'll give you some examples of companies that I think are showing the way who are fit. Great. So, you know, one of our biggest investments is Snowflake. Frank Sleutman. General Sleutman. Frank Sloopman, you know, when we brought Frank on board to lead that company, you know, he said prepare for war, right? This for him is not a one-day mission. That's not a way to behave for a single day or response to something.

It's a way of life, right? That the company's duty is to be fit every day. Right. So he was making changes three, four years ago, right, in terms of changing culture. And now, let me just give you one step that's just a mind-boggling step. In 2021, Snowflake did $1.2 billion in revenue thereabouts, top line, $1.2 billion. In 2023, they guided that they'll do $700 million in free cash. In 24 months, they went from $1.2 billion in revenue to $700 million free cash.

I don't think you've seen cash conversion off of revenue like that out of a software company ever. That's what happens when you run a really tight ship with a really great product and everything is precision and its orientation. And guess what? They are absolutely every single day when we're talking with them, they're looking for more ways to be more efficient, to tighten the belt, to do even better. Why? Because if you're the most fit person in the race, you win the race. and you've got to run the race every day. Discipline.

Who else is in your top? That's one of your top. So I would say that Apple has been famously, you know, famously efficient relative to the other big companies like Facebook or Google or Microsoft. And one of the things I would say about Apple, you know, you might say, well, why do they have such fitness? Like, what is it culturally? I want to point to two things, right? The first is a design culture. around minimalism and essentialism that is also an ethos for how they run the business.

Got it. Right? Steve Jobs says it's, he says focus isn't choosing, you know, the thing that you like the most. Focus is saying no to a thousand things you like. Okay. So that's embedded in their culture. Number two, for the last five years, I believe this is true. They've distributed over 100% of their free cash flow back to their owners,

back to Warren Buffett. Okay, well, one way not to waste your money is to give it back. So they've returned that in the form of share buybacks and dividends, right? And that creates discipline in the business because, you know, they make that commitment. It creates a financial framework for investors and owners. They say, you're our stakeholders. We're selling these iPhones, right, so that we can provide a return to our shareholders. So I think both of those companies are terrific examples for companies to follow.

What I would say on the other side of the ledger... You put Twitter on that list, I assume, as well. Twitter post-Elon? Yeah. I think juries out, to be perfectly honest, Jason. I hope that I can put them there. Listen, nobody can doubt Elon's credentials as a visionary, as a CEO, or as a courageous leader. I am rooting for his success. We need him to be successful. Okay. But I do, listen,

you're, you're close with him. I think all of us worry that he's taken on a lot. Yeah. And when you take on a lot, you get spread thin. So I want him to be successful, but I wouldn't put it on the list just yet. All right. Jerry's still out. But I expect it will be because I believe in him. On the bottom of the list, listen, I would put, I hate to say it, because I love both of these companies. I'm going to stick with the big companies to start. And I would say, you know, Google and Facebook. Google and Facebook.

And, you know, like they Google. Listen, Ruth Porat's an incredible CFO at Google. She made a bunch of great changes when she came aboard over the course of the last eight years. They've compounded. But the fact of the matter is the company is now at, I think, 185,000, 200,000 employees. And you saw, I think you saw that tweet a week or so ago, I think it's something like 10% of those employees, 20% of the 20,000 employees create something like 80% of the profits. Yep.

So the size of the groups at YouTube and search are actually relatively small. Yep. Right. But they basically are funding a gigantic research lab across the rest of the business. And so, you know, I would like to see Google be a hell of a lot more innovative, release a more products. I mean, the fact that we're still staring at 10 blue links, right, instead of them launching chat GPT, I think it's just an indictment of like too many people, too many things, not enough focus, et cetera. And I believe in the people there, like 201.

But what happens is not the will of the individuals. It's the, it's how all the pieces start mashing together. It's the architecture. You have the architect for success. And the architecture there is waste 80% of the dollar spent. 20% goes to what's making money. Where are those other 80% going? Where's the winning? Where's the next Chrome, Gmail, YouTube? Where's the next one?

And what's the last great new product from Google? Tell me. Well, I just told you that there haven't been in, right? Like, they're not in the product. That's how far back you have to go. Molly? What's the last big one? Go back to Chrome.

Chrome. Chromecast. That's not. Weirdly. Nice. Nice. But I'm just saying it was the last thing that they made I was like, oh, wow, that's amazing.

And then I just bought the same thing in the former Heroku TV. Nothing in streaming. Nothing in AI. Lex Friedman's interview. Even YouTube looks exactly the same. Friedman's interview of Caparthe. He asked him the question, like, how do you stay innovative at the scale of Tesla? And he stopped for a second.

And he said, well, Carthi goes, you need somebody who really believes with a giant hammer who runs the business. Yeah. Like the inertia, right, of just bigness. Excess. Inertia of like what we, I don't love the term. Scale kills great companies. It's like it really endangers these companies.

I would say the same thing happened. The same thing happened. Come on. That's not wokeness at scale. Like Google scaled and could not stay focused and organized. And that's been a problem at Google for, I mean, I was saying that as a journalist a decade ago. That you don't get, you don't get too attached to whatever Google. releases because they don't care about it, they let it go.

So I want to offer this up. It's probably not what, you know, most people mean by wokeness, but I want to define what I'm thinking about. The inertia that happens within these organizations, right, when everybody's getting rich for showing up, when we go from stock options to RSUs, it just feels like the whole damn things agrift, right, on shareholders. It's like your job is no longer to release stuff. Your job is not to get fired.

Yeah. Okay. So you keep your head down, you shut up, you do what everybody else is doing. And, you know, like I suspect if you, I suspect that most, in fact, we have lots of friends who've worked there, they'll tell you as much. Yeah. Right. Yeah. Don't get fired.

Keep the gravy train going. Rest invest. I think when you're making a lot of money and guess what, you're working in a long days, it takes, like, are you going to take on that Leviathan? Are you going to try to change, you know, that's a lot, right? It's with that founder authority to do that. And I would use that E word. I would call that entitled because I think that's more of an entitlement culture. Yeah, better than woke.

That's just too, that's just too complicated. Yeah, entitled is the work. You had literal entitlement. You had spoiled, you have spoiled people where life is too easy, right? We all know that you get tougher when life is tough. Yeah. But I would say this. Don't underestimate Ruth Bora.

And don't underestimate, you know, I think Zuck. Like, I'm, I'm a, I'm a, I'm a, believer. I think we're going to have a comeback here. I think momentum is in the right direction here. You wrote how to get fit. He announced the 10,000 three weeks later on a Sunday night, I put a buy water in for the stock when it was at 91. I think I got in at 94. It's been one of my best trades because once I think a founder realizes there that nobody believes in them again, when they believe the investment community and people have given up on them,

I think that screws with their head. And I think that makes them go, you know what, I want to be a winner again. And then that builds the courageousness up. And, you know, there is a curse of the money printing machine. I first saw this at AOL.

When they had that dial up, when it was churning, at that time they had peaked at like over 30 million people paying $30 a month. This was unprecedented to have a billion dollars and there was,

And this is, you know, this is in the late 90s, early 2000s, that people just didn't never understood a business at that high of a margin, throwing off that free cash flow from subscription month after a month. And they lost their creativity. They lost the need to innovate. And that's Google's curse. That's Facebook's curse. Until you recognize that you have a money printing machine distracting you, then how can

you pay attention to a machine that prints Nichols when you have a machine that prints $1,000 bills? So famous case study at, at, at HBS on AT&T. It was a monopoly. They hired cagillions of people. They behaved like monopolist. They actually have,

could you go on YouTube and search this? They lay out what they thought their vision of the internet was. I am telling you, they nailed everything. They nailed mobile phones. They nailed chat. They nailed social networks. GPS, everything.

And they didn't release any of it. Any of it. Yeah. And so, like, I think one of the, the magic things about Larry and Sergey when they started the business was this idea that we were going to run a really decentralized culture that disrupted itself. Right. And I just wonder, like, if that DNA, you know, can kind of resurface, I think that, again, there are a lot of

really great people, Philip Schindler, Ruth Porr, et cetera, Sundar, and like, if anybody can do it, they can. But I do think it's going to take intentionality about saying, and hopefully chat GPT is the existential threat that way, you know, that causes them to say, we have to, we have to change everything. Molly and I played chat GPT or Google search result in the last episode. And what we did was we took the information from the first, second or third, the best information from the first second or third result on Google, and compared it to the chat GPT result.

So that it was, you know, text versus text. For sure. And the producers stripped out all the stuff and just showed us the text. and we read it to each other. And I think we pick chat GPT in the majority of cases. Wow. This should be alarming because the content farm system and the rankings of content in Google is so decrepit and it's so dysfunctional the relationship that people are putting tons of ads

and using content farms to make long-tail stuff. And when we looked at chat GPs, it had processed it enough to make it a cleaner and better experience. Molly, maybe you could talk a little bit about what how eye-opening that was for you. Yeah, I mean, that was the first thing I said when we tried chat TPT was that I'm going to use this instead of Google. And what was so, what prompted that in some ways was the Reddit post, I think, that people were sharing where someone said, I work at alphabet.

And, you know, this is just too expensive to do at scale. And it's one thing to create something that some nerds can use. But to make this at scale would just be impractical. And I, my immediate response to that was like, what a disappointment. I mean, obviously, this was likely not. an executive at Alphabet, right? Clearly. But the idea that anybody working at Google

is thinking in terms of impracticality or even expense is so disappointing. Like I'm like, no, no, no, you're the nerds that do whatever you want. You're the moonshot people. Release it. There is no universe in which they shouldn't have

released Jet. Go ahead, Jason. I would just say Sundar should be staring at the ceiling every night till 3 a.m. He should be locking down. Everybody should be on the 10th floor. Everybody should hit a hardcore link at chat. Hey to, you know, shout out my guy. But they need to get a group of people and get them hardcore on releasing a chat GPT competitor. It's got to be out in the next 60 days and it's got to be better. If you should be staring at the ceiling right now, grinding your teeth. It's also, the other thing I would say, though, is it's a really interesting look at sort of who, like,

Like, I'm thinking back, Jason, to your book, right? And you talk about secondary sales for founders and how, like, take two or three million dollars off the table. Fine. You paid off your house. You paid off your student debt. You can fly on, you know, you can go to a nice vacation. But if you take off $10 or $20 million, that's F it money. Yeah.

And all of a sudden, you don't care. And you can see where some companies hit FIT money and lost discipline as a result. And it's so fascinating that Apple did not. Apple did the equivalent of like putting away the amount you're supposed to save. every single month with the paycheck all at once, which most people don't do. And you could argue, I think, that Meta and Google hit that stage of, and that's what that does happen to monopolies, to monoliths. They end up toppling themselves because of inertia.

I mean, Google has all the resource in the world. Like, if you think about AI, the ingredients for AI, they've got the silicon, they've got the data. I mean, think about, they have more data on the planet. They've been working on this problem for 10 years. years. But most people think the reason they haven't released anything is because of the hallucination problem. Right. So chat GPT, right, they can release something. It can say with confidence something that's untrue. Okay. In a big company, Google, I'm sure, has 150 people on their AI responsibility team. So let's say that you're the product manager for their chat GPT equivalent. And you say,

okay, we want to let this, we want to put this out in kind of a field test, we want to release it. We're not going to release it under the Google brand. We're going to call it something. something else, it's going to be this chat bot. And they say, okay, we're going to run a couple tests on it. Right. And they're going to say, describe to us what a successful engineer. They're going to say to the chat bot, describe to us what a successful engineer looks like. Okay.

And the chat bot may start describing a certain ethnicity. And chat GPT has already done that. People already run those tests. Correct. But chat GPT doesn't, you know, like, listen, they're willing to take risks that a company like meta or Microsoft or, you know, or Google are unwilling to take. So it's not just about resource. Like that's a problem. You are not, you are not going to crack the hallucination problem, right? You're not going to get to perfection. Google as a search engine was not perfect when they

launch it. It was full of porn. It was full of all these issues. Right. Yes. Fishing, spam. But this became, you know, at that point in time, they were risk takers. Now they self-censor. Why do you self-censor because of career risk? So that becomes a cultural problem. Two final questions. I got you warmed up. You're in candid Brad mode. My Uber.

You are Uber. Are they fit enough? What did they need to do? They're doing great in terms of growth. The product, it feels great to me. Uber eats. I've been ordering my groceries there. So many things that we can appreciate that stock price is not one of them.

Well said, J-Kal. Well, the stock price ultimately is, I think, where truth is told because people are greedy and they'll pay a higher price if they think it's going to earn more free cash flow in the future. No, it is not fit. I referenced it in the letter to meta. Obviously, big fans of Dara, I think the service is an incredible global service. I think it's market leader all over the world and mobility, increasingly so in delivery and local e-commerce. But let me make two comments about it.

Number one, the main reason I invested in what Bill Gurley talked about for the better part of a decade is this idea of network effects, right? When you're a marketplace like this, you ought to have 90% share of the market, 90% share of the profit pool. Why didn't they accrue 90% share the profit pool? Well, it turns out they had to issue discounts of four. or five billion dollars a year because we had a bunch of venture capitalists who are willing to burn money and give it to their competitors who basically were making diseconomic decisions.

Now, the good news is, okay, that nonsense is over. I think I like that game is played because there's no more free money. So when, when Dara says, we're going to get to $4 or $5 billion in profitability in 2024, I believe them, because last year they had $4 or $5 billion in discounts and all you have to do is stop giving people discounts and you have four or five billion in profits. But that's not enough, Jason. That's not enough, right? That's why this stock hasn't moved.

Right. And so I think you've got to go after the cost structure of the business, right? And it's not because he's not a good leader. It's not because anybody's done anything wrong. It's just because we built these businesses at a moment in time. Okay. When Travis was hearing $120 billion valuations and when the Tam that he was envisioning was much bigger, et cetera, He just built a business that was sponsoring open source projects.

It was taking on a lot bigger surface area. V-TOLs. Right. Now that you've narrowed the focus, you've got to narrow the surface area in terms of the people. Right. And so I'm a huge fan, huge believer. I think the company would do well. But again, my opinion, I'm not an activist.

I'm not going to go, you know, bang on the company's, you know, head over this. Yet. But that's what I think they should do. If I were running the business today, I would, I would, you know, figure out a way to get more fit. All right. That seems like the perfect place to leave it. Brad Gersman, thanks so much. And please come back.

Quarterly updates? Quarterly updates? Great job, Brad. It's a selfie time. Let's do it. Here we go. Absolutely. Let me get mine going.

There we go. 20-year. That's what I do. Listen, you're just so honest. You're so insightful. Thanks for coming. You were great today. best Brad episode ever. A real treat for our audience as we wrap up the new year. I wrap up

this year and we're looking to have you on quarterly and just really getting this wisdom. Thanks again. Brad, everybody follow. What is your Twitter? I know it's ALT. Alt cap. At alt cap. A L-T-C-A-P. If you want to get some great tweets, that's where you're going. We'll see you all next time. Bye-bye.