This Week in Startups - Pipe's Co-Founders step down, Apple's China-based iOS update, Black Friday's BNPL boost | E1621

Episode Date: November 29, 2022

TechCrunch's Alex Wilhelm joins to break down the news! First up, the trio covers Pipe's Co-Founders abruptly stepping down (7:06) and the lessons learned. (26:29) Then, they discuss Apple's China-based iOS update impacting AirDrop (40:31) before Alex leaves. J+M finish the show with more thoughts on China and react to Black Friday's ATH sales volume and the BNPL boom. (1:11:01) (0:00) J+M tee up today's topics and special news guest! (2:21) J+M catch up on their Thanksgiving breaks with TechCrunch's Alex Wilhelm! (7:06) Intense velocity of notable tech stories, teeing up the Pipe situation (12:05) LinkedIn Marketing -  Get a $100 LinkedIn ad credit at https://linkedin.com/thisweekinstartups (13:34) Breaking down the Pipe Co-Founders abruptly stepping down (25:02) Supergut - Get 30% off with code TWIST at https://supergut.com  (26:29) Pipe's expansion into media and crypto, lessons learned from the "speculative asset bubble" (37:21) Fitbod - Get 25% off at https://fitbod.me/twist  (38:39) Alex on running a subscription-based media business within an ad-based media business (40:31) Protests in China, Apple's recent China-specific iOS update, which impacting AirDrop (59:59) J+M wrap with thoughts on China after Alex departs (1:11:01) Black Friday spending hits an all-time high, BNPL sees huge bump y/y FOLLOW Alex: https://twitter.com/alex 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, welcome back. It is Monday. You're shaking off that hopefully you don't have any more leftovers in your fridge. I ate the last of the stuffing this morning. We're back. It's going to be a big week. We had so much news and there was a potential that I was maybe having to go on a secret trip, but I didn't. But we booked Alex Wilhelm from TechCrunch to join us today.

So we chopped it up first. We talked about Pipe's co-founders abruptly stepping down, all these rumors online of malfeasance, Harry responding to the rumors and just breaking down the lessons. of these kind of situations for investors and founders. Yeah, exactly. How we get there and how we avoid it in the future. Then we have a great conversation about what's been happening in China with all of those protests. And then Apple's involvement in arguable misstep in its new iOS rollout,

but what the future might look like in China and for the Xi Jinping regime. You might not know this, but Apple's been building iPhones in another country. We'll tell you which one. And then we're going to end with some interesting statistics about. out this year's Black Friday spending, two services are surging in their usage and a couple of older legacy services are collapsing. We'll explain the trends in consumer spending on today's show. It's going to be a great show. Stick with us. This Week in Startups is brought to you by LinkedIn Marketing. To redeem a free $100 LinkedIn ad credit and launch your first campaign,

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It's Monday. Hope everybody had a great thanks. Thank you, Molly, how's your Thanksgiving? It was epic. It was an epic. It was like a, it was like a March my Thanksgiving. I hosted three dinners and a brunch. And I did the turkey trot.

It was a whole, it was three dinners and a brunch. Wow. Yeah. I met and a baby. This was like one of the, it was a weird year because like some people got COVID and then there was like a family situation. So I had to kind of spread out the dinners instead of having one big one. I had three smallish dinners and then a big ladies' brunch with bagels and locks.

And it was just a whole freaking delightful. So great. And I'm tired. Well, yeah, we knew you're going to be tired. I'm exhausted after my Dallas trip. So we brought Alex Wilhelm in here from the tech crunch.

How are you, Alex? How was your Thanksgiving? It was good. It was just me, my spouse, uh, in-laws and five dogs. So,

yeah, on the whole, lovely. How many dogs do you now have? And how many of the in-laws dogs? We have three. They have two, but their two dogs are, are Weimarons. So they're small horses.

And so it was like three little dogs and then two horses. And trying to keep all five of them from eating one another is, is brutal. But it's fun. It's like hard fun, you know, like not that annoying sort of thing. Yeah. It's like when you have five kids running around. At times, you're, it turns into chaos and other times it's fun. I went to Dallas to see the in-laws.

There was some grumbling. How was it? it rained for five days straight. And when I say rain, I mean torrential rain to the level that at three or four in the morning, it's so hard on the roof that you will wake up. You know, that level of rain. Yes.

So I wasn't able to go work out, wasn't able to go on hikes or anything. So I basically ate meat, Korean barbecue, then, uh, where they call that, uh,

Brazilian, uh, oh, yeah, um, yeah, I know you meet at the side day. It wasn't phogo to chow.

It was a, another one that was exceptional, like a high-end version of that. And then I went to the best Italian restaurant, which on the top floor, a place called Monarch in Dallas was very nice. But I would say, you know, everything is very large in Dallas, is my perception. Every guy looks like a linebacker from the Dallas Cowboys. The serving sizes are absurd. And when I say absurd, Alex and Molly, you know, we ordered a creme brulee for one, for five.

It was absurdly large. Yeah. It's like a pumpkin pie. It basically was like they served it in a pie dish. Yeah, exactly correct. The highways are absurdly large. The off ramps are bigger than the 405 freeway. You mean, it is.

And then the airport, Dallas-Fort Worth Airport is ginormous. So everything is bigger in Texas. Has, in fact, been confirmed. That's because it's flat. There's nothing there. You can just build. There's no pesky mountain ranges or rivers. Nick really wants to know if you saw the world's largest highway intersection, which is, I think we may have to take a field trip because Nick has a lot of feelings and obsession with the world's largest highway intersection.

I mean, every one of these intersections, I kid you not. It's like the 101. It'd be like you take the 101 or the 280 here in the Bay Area, and those are the exit ramps. I mean, it's just the scale of things is crazy. And then there's all these houses in Dallas that cost $600 a square foot. I was starting to have like, what is it? They call it like the Zillow porn kind of thing where I visited somebody's house and they had like a 15,000 square foot house on like a just a walking street. And the house just goes on and on and on.

And then they told me a joke. Which was the price. No, yeah, $600 square foot. It was but pretty amazing. Yeah. They said, hey, Alex, you ever think of building your own home? Like having a movie theater and a massage room and like a Japanese tub? You ever think about like designing your own home?

I mean, if I'm particularly high at that moment, maybe, but. Yeah. And so Molly, like, you ever think like, like, oh, wow, I could have like a yoga room and like a proper studio and a guest house? And, you know, maybe like an extra kitchen, like a commercial kitchen. That house is waiting for you in Dallas. Like, you don't have to build it. It's there. They've just done it.

Yeah, but then I have to live in Dallas. And that's the other problem. your in-laws, but I'd sooner move to, like, the bottom of Antarctica. Yes. Oh, come on. You know, I like Austin. Sounds like the food's pretty good. The food was pretty great.

Everything, and just nice to see family. And I literally did about a third of the amount of work I usually do on these weekends. But that didn't stop our chat from going off at just a violent velocity. Alex, Molly and I have been talking about us on the program. Is there something going on that in the last year? the pace of news seems different than the last 20. Oh, I'm very curious. Acceleration or deceleration?

Just the number of stories and the velocity of the stories and the absolute insanity or seeming insanity of the stories. I mean, just maybe on the news cycle, are we experiencing like a tsunami of news right now? Yeah. I think it's just the hangover from last year. I mean, we saw so much crazy stuff happened last year in terms of like deal size, valuations, lack of diligence. and so forth. And now we're seeing kind of the comeuppance for that. So I'm not shocked that's crazy, but I will say waking up to bankruptcy filings on Monday morning does feel like an apparition from where we were up until early this year. So yeah, it's different. I agree.

So, Molly, you're, I think this rollercoaster theory, like, you know, those super rollercoasters where it's like straight up and you're like, oh my God, this is insane. This is insane. You're just saying this is insane. And then you get to the top and then you really actually see what insanity is about. It's the way down. That is truly. It's also not political news. It's news in our wheelhouse. So it probably feels like for years and years, there was just an intensity of political news. And that was like nonstop. And so on marketplace, that was all we would, you know, we would talk about economics and politics and COVID. And now there's the same, almost the same, you know, volume of water coming over the waterfall. But it's all our stories. So it's like, whoa, whoa, man. I don't like the spotlight. Someone get me out of here. Well, I think the great thing to do at times like this is where journalists and commentators can be helpful is breaking down this news and the lessons learned inside of the news.

How did we get here? What can you learn from it? What can you take away from it in your day to day? I met the Pipe founders many times over the last couple years, Pipe.com, really smart cats. Harry Hurst being the leader of the group. And I thought a very innovative business model. A couple of my friends. I think Chamoth and Sachs both invested in Pipe.

I'm not sure which rounds. But a very clever idea as pitched to me, hey, you have reoccurring revenue. We'll take that reoccurring revenue and not factor it and give you an advance like a bank might, but we will put it on a marketplace and let people who are looking for a return bid for it. They can pay 90 cents on the dollar for next year's subscription revenue, whether that subscription revenue was a Netflix service or a Slack service. But something went wrong on the way to heaven. you tee this up, Molly. And then, Alex, you can give us your thoughts on what happened here.

Yes. So, well, I think you set it up pretty well, which is this was the startup darling, this marketplace where companies with recurring revenue could sell that future ARR. What seems to have gone wrong, and let's go through a little bit actually, before I get to what went wrong, what was going right was that pipe was raising tons of money. The valuation was ballooning. In September 2020, they raised a $66 million dollar seed round. 26 million of that was from VC, 40 million was debt at 166 million dollar valuation led by Kraft by July 2021.

And you did say seed round. Seed round. Seed round. $66 million. $66 million. They raise a Dallas size seed round. Seed. Seed.

Seed. At a 166 million dollar valuation. Got it. And then, you know, a little over a year later in July, not quite a year. $250 million they raised at a $2 billion valuation. So their series A, I assume, was a $2 billion valuation that was led by Greenspring. And then again, according to Pitchbook in October, 2021 pipe raised an undisclosed amount at an undisclosed valuation. So that's obviously when everything was going awesome.

And then last week, all three founders quit. Like abruptly stepped down is the way. to put it according to a TechCrunch article. Hey, we know them. First said the following over email. Pipe's founders have, quote, always known that the next phase of Pipe's growth would include a veteran operational leader.

So they said that they initially started a search for a C-O in the second quarter and then realized the role that they were defining was actually that of a CEO. Oh. And that the whole point of them stepping down was to help the company reach true long-term potential. Hearst added, quote, we're zero to one builders, not at scale operators, said traction, not the problem. He said, Pipe is on track to triple revenue in 2022. And then Pipe told TechCrunch, who we know, that 22,000 companies have used Pipe and $7 billion of AARR has been connected to the platform.

Hey, everybody. I'm here with my pal, Tom Eshbacher. He is the senior sales manager at LinkedIn Marketing Solutions. And today, we're going to talk about marketing for startups. And LinkedIn did a great new internal report called today in startup marketing. Welcome to the program, Tom. Thanks, Jason. One of the main topics covered in the report is validating product market fit.

That's so essential. So how does marketing play a role in validating PMF? One of the challenges from the pandemic was it disrupted normal feedback loops that startups get. And particularly when trying to scale assumptions based on small sample sizes. You can't go to conferences anymore. You can't do events. And so we've seen a clever adoption of LinkedIn's free analytics tools here. And one that's become table stakes, and I mean, 92% of Series A startups are using it,

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Way to go, Tom. Do we buy this story? There's another story from TechCrunch coming. By the time people hear this on a podcast, it might be out. I went ahead and pre-read the draft with permission from my dear colleague, Marianne. And, you know, Molly, there were some tweets about some possible improprieties or some possible bad decisions made involving tens of millions of dollars. And then there was a Twitter storm from, I think Harry himself, talking about kind of a response to it. what I'm really curious about is from your guys' kind of venture perspective, where does this net out between the allegations of, you know, bad loans to crypto mining firms, taking too much money off the table, loans against shares to the rebuttal? Where do you guys now sit in vetting this company's health and ethics?

Okay. So a lot to unpack here. This was obviously a great idea. The allegations, by the way, we didn't. I didn't get to that more specifically. Yeah, maybe we could just, yeah, give us the bullet, a high level bullet points on the allegations. Right. So then a tweet popped up from Tyler Hogg saying for, you know, because of course, everybody on Twitter was like, what is actually happening? Right. And this is a now deleted tweet in which, exactly, in which the four people supposedly shared what had happened and that that included the pipe CEO loaning $80 million to a Bitcoin mining company and didn't tell the board about it.

lost it all. The board reportedly fired the CEO months ago. They had all sold a bunch of secondaries and may have taken

out personal loans as well. And I want to reiterate that that tweet has since been deleted. But then Harry did respond with this long tweet storm

responding, basically in saying that these rumors have become so outlandish that I need to come and defend what's happened. Yeah.

So he, he said that. By the way, as a scout for A16 Z. Okay. The board didn't fire us months ago, Harry says.

We haven't loaned $80 million to a Bitcoin-money company and lost it all. We do have some customers in the space, but none of them have gone to zero.

Okay, so there's some truth to that. Whenever you see these rumors, typically it's somebody with an axe to grind. And in this case, it might be somebody who's an angel investor

or a smaller investor who feels pipe screwed them, and this was a big part of their portfolio. So I would say, if you're going to pin the leak, and we're all experienced journalists here, it's either a former management team member who had some inside information or an investor who feels Harry wronged him.

So when things come apart and people lose money, then people start talking. And if they have an axe to grind, they're going to grind it and they're going to sharpen that axe to make the other person look terrible. Here he says, we haven't loaned $80 million to a Bitcoin mining company and lost it all. We do have some customers in the space, okay,

so there's some truth to it. But none of them have gone to zero. Okay, that's not very good. it does mean there probably is some investment. That went bad. Now, did they loan it to a mining company? Or did they use their cash reserves to then give them or to buy some of their future revenue?

It might have been that Harry looked at, hey, the future revenue of this big coin mining company looks really good. I'll take that action, right? You could buy future revenue. So maybe he used the house money to buy future revenues. And maybe that people feel was unethical. I'm just purely speculating here of what's the difference between Harry's comment and the leak.

And that's really what we do as journalists is try to triangulate, hey, what's the truth here? If this thing was still growing, it would be fine. Now, the other possibility here is with the secondary offerings, and that's going to be really

the story that's going to be unpacked in a major way for this era of Silicon Valley. It's totally fine, and we've talked about this before on the program, to take a little secondary, pay for your home, pay down your mortgage, you maybe have one or two million dollars in the bank. What happened during this last period

is you have things like the Popin CEO selling nine figure, hop in CEO rather, selling nine figures worth of shares in the company, and then the company collapsing or having troubles, headwinds, whatever you want to describe it. So here, what probably happened is there's some resentment. The founder sold, who knows how many tens of millions of shares. I'm going to guess it was in the tens of millions, because that would be the amount that I would consider maybe too much. Egregious, maybe.

But listen, people bought them. So these are sophisticated investors who offered to buy their shares. So there is that as well. The board and the governance is the underlying issue here and the imbalance. So what probably happened here, there are investors who didn't get to sell in secondary. These founder shares happened in that person's mind covertly. Now, they may have happened with the blessing of the board, but they're not under obligation to tell those seat investors.

Those people are like, hey, you got to sell at $2 billion. Now the company I perceive is worth $500 million, a billion, whatever it's worth. It's still growing. It's going to be here. It's not a zero. Why didn't I get to sell at that peak valuation? And you did these other things. So they're kind of building a case against the founders.

That's really just so people understand what's happening here. There's your version of the truth. There's my version of the truth. There's the actual truth. Roshamon is the famous Kurosawa film. And that's what we're seeing here. Harry's got his version. The disgruntled person has theirs.

This other third party is the proxy sharing the information. Okay. Let me clarify here with a question for you guys. If you were in a startup and all the founders quit and they came to you and said, look, we need to find someone who can run this thing. Do you say, great, maturity? People used to bring in operational CEOs back in the day. Google had one. A good idea. Or are you guys freaking out if you get that phone call from my portfolio company? Because to me, it sounds in this climate like an insanity. The idea that founders would give up control for a better CEO who is

more operational experience lost all of its end market standing. I think it's a concept in the last couple years. Molly, did you say that the leak claimed he was pushed out months ago? He's claiming he moved up to vice chair and he did it. He's claiming he moved up to vice chair and was looking for something operational. I mean, I can tell you, I don't, and again, I'm somewhat new here, but we're clearly seeing the pendulum swing back toward, you know, away from founders of the god kings of the universe and can do no wrong until they do so many wrong things that we all of a sudden

have to revert to bring in the grownup. So I don't think that it's taken at face value. I don't think that it's a negative sign for founders to say we want to bring in somebody operational as a CEO. If they quit first, right? There's like, this is just a, there's just too much smoke here. If they've all stepped down and then said, we're looking for an operational leader, there's a question.

If all of a sudden it's, you know, some allegations have a. merged and the and and and harry is writing this tweet storm that's like well yeah 100% sold a bunch of stuff on the secondary i support that i wrote a piece saying it's the right thing to do saying it's the right thing to do right uh i didn't lose a ton of money on bitcoin loans but i made some like it's all of a sudden you have smoke that's unrelated to do you need an operator as a CEO so all right we don't know if he was pushed out uh if he voluntarily moved out of the position. They or not.

There's him, but there's two other, all three co-founders. That's what's such a big deal here. They're all like... So this reads to me like there was, the company was, there were feelings from the investors the company was being not managed properly. And so I'm just going to put it gracefully. Some investors might have thought it's been completely mismanaged in a debacle.

Other people might be, hey, there's headwinds in the industry. We need to get somebody in here to steady the ship. you know, just like Peloton did, right? So when I look at this, I think it's a dereliction of duty for the founders to leave without the CEO in place. Yes. Why leave before? It's a derelition of duty. Now, exactly. That's if they chose to leave. We don't know that yet. So if they were forced out, then they weren't able to fulfill their duty, which is to stay with the ship until the ship makes it to dock or they're the last people to get off the ship. And if there's no room in the life, boats, they sink with it, right? You know, that's, I'm hardcore, I'm old school. You don't

leave the ship. That's like the pilots leaving the cockpit and not handing the controls over. You hand the controls over. You move to the co-pilot seat, then you move to the jump seat, the navigator seat, you know, and then you give them one less. Are you sure we can leave the ship here and go on the board? We're kicking it in the back by the bathroom having many bottles of vodka, but we are looking for a new pilot. And again, we don't know the details yet. So, yeah, vice chairman. But we still know. But we still know. that the order is wrong. The car is way ahead of the horse here in terms of leadership of this company.

And people spin this stuff, right, Alex? So you'll, as a journalist, have had this experience, Molly, as well. The CEO will tell you, this was totally voluntary. The leaker will say, yeah, you know what? The board was at their wits end, you know, and they gave them an ultimatum, get somebody on board, and then on mass, they said, okay, well, we'll just all resign. And so the truth is probably between these two extremes. Yeah.

What I will say is there's two things to note here. they started to search for a CEO. So just in terms of lessons, if we may move to the lesson part of this, if you're a founder, a co-founder, you have three co-founders, and you're searching for like a COO to do operations, one of the three you need to buck up and get the operations dialed in. Stop with this like CEO-C-O stuff. There's three of you, get control of the ship, stop going to parties,

stop living the life in Miami, go to the office, don't leave the office, work 18 hours a day, seven days a week, seven days a week until the ship is tight. That didn't happen here. I can assure you that these three founders were not at the office seven days a week for 18 hours a day. Be dogging. Is that your Miami Party Moore? You got to be hardcore when your ship is having a problem. Again, back to if people are, if the ship is, if the plane is hitting turbulence, if there's an engine out, that's when you become the goddamn CEO, C-O-O. That's where you do what,

it takes. And I don't feel like, I know based on what I'm reading here, that there was not a hardcore, let's write the ship. And this idea that we're zero to one builders, not at scale operators, if you can do zero to one, you can do the operating stuff. Okay? It's just a focus issue. It is your personal preference. So I don't want to say there's some entitlement here, but this feels a little bit, this screams a little bit of entitlement. I want to do the zero to one fun stuff. I want to build product, but I don't want to put out the fires. I don't want to figure out what's wrong with the engines. I don't want to fly through turbulence. You know what? what, Henry, Harry, buck up. If in fact, he did bail. If they all jumped out with

parachutes, golden parachutes, in fact, not cool. If they were pushed out with golden parachutes, okay, that's not their issue. So I'm going to give both messages. If it got pushed out, not your issue. And that's why. Either way, there's an issue. Yeah. Something wrong with the management to the company to get to this point. But I mean, exactly. Your board doesn't push you out for no reason either. No, because the board doesn't want to be known as a group that pushes out. That's true. And not get a very small chance. Right.

Like these days, especially, people are not getting pushed out for no reason. No. No. Anyway. It's disappointment. I thought it was a cool model. All right, listen, the holidays are almost here. And for many of us, this is a hard time.

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That's the best deal you're going to get. Supergut.com and use the promo code TWIST to save 30%. But I want to say, though, there was a focus issue with the company itself because we're talking about here, pipe selling, ARR on its marketplace for other companies. They expanded it into entertainment. They expanded into media. Sectors that have done not great since that came out, I think it was in February. So I'm curious also if there's an overall marketplace quality issue at play here.

Because if I bought media revenue in February, I'm pretty peevish about what it looks like today. And they went into crypto. Oh, God. There it is. Anytime you get that contagion, you know, it's literally, it's so toxic. It's like, oh yeah, and by the way, we brought some radioactive material onto the plane. It's like, oh, really?

Stupendous. There's going to be two lessons overall. So I'm going to put pipe over here for a second and Harry over here for a second. I like Harry. Seems like a jovial guy. It does seem like a creative entrepreneur. I think it's a great idea. And it was great execution for some period of time.

and it could still be a very big win. So this is not a company that's gone to zero like fast or something like that, where we can look at it and be like, oh, wow, that was a disaster. There's really going to be two lessons of the speculative asset bubble, the speculative asset recession that we're in. The two lessons are going to be a lack of focus and entitlement. These are going to be the two lessons. Now, the lack of focus, you described perfectly.

They were in, what, eight categories here? Like, stick with your knitting, you know, and don't expand too fast. Make sure you're on safe footing, right? When you start walking out on that ice and you hear a crack, that's when you walk back a couple of steps or when you're going skiing and you see like a little mini avalanche, that's when you turn around and go the other direction. Other people keep going down and they're like, oh, it's just a little avalanche. Oh, it's just a little crack in the ice.

When you start hearing the ice crack, that's your signal to move back to the core. So focus. Now when we talk about entitlement, this is, and people are like, Oh, you're talking, somebody was challenging me when I talked about this on Twitter. Oh, you're talking about the employees and free food? No, I never mentioned employees. Entitlement starts with VCs and founders. That's the dance.

And then the management teams. That's where entitlement happened. Not the employees. The employees are around for the ride. You give employees free food. They eat the free food. That's not the employees problem. You put the free food in front of them.

You gave the employees a massage. You know, with massages at the, you had a massage food. We know what you made. Don't massage your employees yourself. Yes. No massages. Okay, just writ large, no massages. No dry cleaning, no coddling. You did the coddling. You embraced that. You created coddling culture. So you can't blame the employees for being like, well, you told me bring my dry cleaning. So I brought my dry cleaning to work. That's the fault of management. It's the fault of founders. And it's the fault of VCs ultimately who enabled this. And the VCs couldn't have said no. Exactly. It is that. And we, to go all the way back to your original question, Alex, about like, what does this mean for, Look, there are always going to be VCs who are going to fund something at $166 million valuation at seed round. I suspect that we will see far fewer of those. And I am happy to work at a shop where we have a rule about that,

which is if you have a $100 million valuation and no revenue, you're probably a scam. Like there's just... No. Or we can wait. We can wait. Or we can wait. Yeah. Well, revenue multiples today are what, like 6x for...

you know, mid-growth SaaS, so you only need $25 million. Sorry, no, less than that. I can do math on the air. You need a large amount of revenue you don't have to earn that valuation. Yeah. They probably, you know, that one of the things was the mislabeling of rounds. I think the seed round was just mislabeled. It was like a big Series A or Series B.

Yeah. So I'm guessing Sacks, you know, who's very disciplined. There was actual real revenue here and it was growing at a particular velocity. Was it a high valuation, I'm sure. Was the Green Spring valuation? We're in business with them, by the one of our LP? there are fund of funds, very smart people. Did they pay a high price?

I'm sure they paid a high price, but I'm sure the growth was there as well. So these were high prices for high growth. And who knows? He said the company tripled in revenue this year, so maybe it's still a strong company. Maybe this is a company that will do even better in a down market because more people will be looking for solutions

for alternate fundraising. And remember those, yeah, two lessons. Yeah, well, and Nick makes a point that's... Sachs invested when Pipe was only for, focused on SaaS and high margin subscription revenue. Ah. Right. So it is so that, so it,

you had a company that was presumably making money that was fully focused on high margin solid growth, SaaS software companies and lost. So it's almost a, it's a, and look, I don't know and I suppose I will learn over time. I don't know how you identify a founder who is likely to get to lose his damn mind,

right? Or three founders who are likely to lose their damn minds when they have too much. success. Like it, this feels less like a collapse of something in a Ponzi way where they were trying to keep it alive, but it was, you know, and more like a high on your own supply situation. Like they did too well too soon and then lost focus and we're cashing out and making and getting into Bitcoin because he couldn't help it. So excited. You know, and just like like chickens with like the heads got cut off the chickens and they lost their minds. This is what it feels like. It's too much money. I mean, if you raise nine figures,

when you don't need it, and everyone last year was doing this, they told me it made sense, you're going to have a problem with focus and discipline, and you're going to make some wacky choices. Like, just imagine back when you guys were like super paycheck to paycheck, and you made like a 10K year raised to your salary. That at the time felt enormous, and you started to spend dumb money on dumb things.

Now, imagine that time's like 10,000. It's tough. You have to have real discipline to not screw up a real big bag. And I don't think a lot of us had it last year, period. This is going to be the grand shift from distraction and entitlement to focus on austerity. That's what the suffering and pain people are feeling at this time. To answer your question, Molly, you said, how do you identify the founders, you know, who could come off the rails? I actually would say, don't create an environment in which people don't go off the rails.

In other words, if you're at a party and you're enjoying a nice bottle of, you know, red wine, you go out to dinner. Right. We went to Miller & Lux. we have a nice dinner. Maybe we order a bottle of wine. Everybody's enjoying it. And then somebody says, let's get shots. Right.

And you know what I do as the leader? I say, no. No, thank you. Enjoy the wine. We're not doing shots. We're at work. I have people do this all the time in a corporate setting. Let's order shots.

And you know what I say? I just say, pose me, it's not the right environment for shots. I should save the shots when you're rich, Brad brothers. We're good. No shots. I have had this conversation with people. Yeah. Let's keep this thing on the rails here.

Everybody's going to bed early. I'm watching two bottles of wine, eight people, that's enough. Everybody has two glasses. I hate to be the hall monitor here. You didn't have, you didn't have Don Julio instead of Lickroy? No. No, everybody pumped the brakes here. Pump the brakes.

And again, VCs, management teams, you know, they created management teams, including the founders, they created this environment where founders were enabled to be distracted. probably they came and said, hey, you know, things are going so great in SaaS. We think we should go into movies and start doing, you know, advances against, you know, people who are celebrities in Hollywood because I met a celebrity when I was out of party in Miami. And they said, you know what else has future revenue? My residuals from my superhero film. And they said, oh, yeah, we'll give you an advance on those.

Sure, we'll auction off Robert Downey Jr's future revenue. I'm making this up here. Yeah. Everything seems like a great idea. Yeah. But you need to focus. It's enough with the distraction. If something's working, double it and then double it again.

If you're, you know, as an investor, if your accelerator's working, okay, do two accelerated classes a year instead of one. Okay, it worked, go to four. Oh, if you're an editor and your deep dive worked, Alex, and you did one deep dive last month, this month, you're going to do three. And you're going to assign people to do three deep dives, right? You look at what's working, you double down on what's working, not be, you know, spread in like peanut butter across a big, wide piece of sourdough. Yeah. Yeah. I want to go back to the speculative asset bubble comment from earlier because I've been thinking a lot about this. So last year, people were trading everything. I mean, I understand trading cards have always had a market. It got much bigger. Shoes have always had a market. The shoe we sell market got a lot bigger, et cetera, et cetera, et cetera. And as a very boring non-collector, I didn't quite understand this. But I thought, you know what cultural moment? I'm here for it. I'm not here to yuck anyone's yama. This is the jam. It's the jam. But it seems like a lot of that was just what you said, a speculative asset bubble. And I'm very curious. What's going to happen to the companies that would look simply phenomenal. And I'm thinking about stock X, I guess, other companies like that, this year.

I wonder what their numbers look like. I don't know how they're going to survive because it does seem to have kind of a, there's all the heights got out of that souffle, you know? Mm-hmm. You need to have buyers. Yes. If you don't have buyers and you have too much supply, what happens, Molly? Solana.

Prices crater, exactly, of Solana. But consumers, I mean, the consumer is still strong. But yeah, 100%, like the marketplace. Yeah, I mean, what do you think of the consumer model? I think the consumer is still pretty strong. Strong, but how are they strong? Well, yeah, they're strong. They're financing their lives right now on credit cards and buy now, pay later.

So that is a problem. They're still buying. But I think what we're going to, you know, I think we may see that some of these darling business models, all of it will will be more care, right? doesn't mean like SaaS is over as a business model. No. Marketplaces are over as a business model. Those will still be solid business models, but with a lot more care.

Because of marketplace, just like you said, we're like, oh, yeah, that's a slam dunked business model. Assuming that your marketplace has two sides, both of which are robust. Yes. And like for a long time, nobody made those assumptions. It was like, yeah, I'm sure there's, I'm sure there's somebody on the other side to buy it. I'll just say the consumer, which has been having a wonderful full time on the ice. dancing around. Yeah.

They're starting to hear the cracks. They're starting to hear the cracks. I would advise consumers who are hearing cracks in the ice, their balance sheet, maybe come back to the thick ice, right? Let's go, let's stay on the thick ice, not the thin ice of modern life, right? It's a little too thing. Cancel subscriptions. I've been canceled subscriptions like a beast lately.

Just don't cancel TechLch Plus. I need your money. Never. It doesn't be ridiculous. It's the best thing on the promo code twist to get 25% of it. I will go try to set that up after we were finished recording this. Okay, you know I've been on a health kick over the past year or so, and you know I care about optimization and data-driven solutions. So if you listen to this podcast, I bet you do too, right?

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me slash twist. F-I-T-B-O-D. Dot M-E slash twist for 25% off. One of the great companies in my portfolio, some of the greatest founders I've ever worked with. Go check out FitBod.com slash twist for 25% off. I find it very ironic that I've always been a big fan of SaaS and now I'm tasked with running a SaaS business. and I am stuck listening to things I used to say to people. Like, why aren't you growing faster? Why haven't you fixed churn? And I'm just like, oh, I should have been nicer. This is brutal.

I mean, also you have an ad-based business at TechCrunch that is super robust. And when you have an ad-based business under the umbrella and you have a subscription-based business, then every part of your life becomes the ad group saying, I need more impressions. And then the subscription people saying, oh, this is great content. Put it behind the firewall. Oh, my gosh. How do you know my day today? That's literally, I just...

I mean, for this week in startups, we started a Patreon, and they're like, hey, J-Cal, I'm getting four episodes a week with you and Molly. I got the all in, I get this. Like, I'm going to pay for the fifth or six or seven. Like, you either have to be three articles and you're done, subscription, or you got to go for advertising and trying to do both at the same time. It's tough. That's like running a fine dining restaurant at the same time having an all-you-can-eat component,

you know, like buffet. You got a buffet over here, all you can eat, on one side of the business, that's the ad business. And then you got fine dining over here where you're expecting $300 ahead and you're like, hey, we're Jean-George. And you're like, everything's like really precious and amazing. And they're like, yeah, but you got the same things over there. And I could just put eight of those on my plate for, you know, 1995.

Like, which one is it? Alex is like, uh-oh. No, no. Sorry. I don't mean to be a bummer. They're like, take this clip back to management. No, no, no. I'm just trying to think about how I can respond to this without getting my, my job removed

before I go on print to leave. I would say, Jason, that is a fascinating analogy to describe the tensions between an ad-based business and a paywall-based business at the same publication. And I would say, I feel those tensions, and we are working every day to resolve them. And now I'm going to become the vice chairman. Goodbye. I just pushed himself upstairs. All right, listen, the other thing that was coming across my feed.

Yeah. And I have been a, you know, I had been predicting this for years having lived through Tiananmen Square. And I remember it in my youth covering that. and then watching Hong Kong, I know authoritarian's. And authoritarian squeeze. And the tighter they squeeze, the more galaxies will slip

through their fingers, as Princess Leia pointed out. And sure enough, China apparently is squeezing their citizens a bit too hard. And there have been a lot of videos, Molly, circulating on Twitter. Again, who knows which ones are real?

Sometimes people will publish old videos from previous riots, but it's been confirmed now, I think, across many publications, including the New York Times and Washington Post, that there are significant protests going on in China. Maybe you could fill us in on the details. Yeah, we should probably note that any protest in China is significant because it is so rare. But I will once again give a plug for my friend Jennifer Pack, who is the Marketplace Shanghai correspondent, J.PAC Radio, J-P-A-K radio, on Instagram. I mean, first of all, her chronicles of all of the times that she attempted to travel, all the times that she was put into quarantine, had to stay. You know, it was like she went out to brunch with some girlfriends. One of them had walked by someone who had COVID. All of them had to go into quarantine for 10 days. She would chronicle like the food that they would give you in what are

effectively these like dorms. You could see, like if you are actually following somebody with boots on the ground in China, you could see the point at which things were going to inevitably break because no one wants to live like this. And then on top of that, she has been posting from some of these protests, which look really real. And again, I cannot say, you know, strongly enough. Is Instagram? Your friend J-P-P-A-C or TikTok. Yeah, yeah, Instagram. And it's J-P-P-A-C. J-P-A-K radio. J-P-Radio. Yeah. And so her images from these protests are startling. There have been, of course, videos all over Twitter, but these protests seem to be related to a fire in Urumqi, which killed, they think, at least 10 people, if not more, injured nine people who were sealed inside an apartment building.

There's, you know, and firefighters couldn't get to them. They weren't allowed to leave. I mean, they're literally locking people into apartments and their homes and have been for years. And so you have a confluence of things, right? like the removal of rights that people in China are somewhat used to. But now, you know, there was somebody made the comment that they're like watching the World Cup now and seeing how completely. I mean, these videos are, this does not happen. This is so crazy to see.

So crazy. She Xin Ping stepped down. Like, that does not happen. Do you remember that one guy who posted the sign on the bridge in Beijing a couple weeks back with the little fire and how big of a disturbance? that was online because someone made a protest publicly in Beijing. This is that times a thousand. I mean, I just keep watching this on repeat.

It's edifying and very encouraging. Is it? I think it's terrifying. I think China will. I think it will kill all these people. I'm, you know, revolution is a bloody and painful business and a process,

but sometimes it results in democracy and freedom. And so for the people who are living under authoritarian regimes, if I was one of them, I would fight. and I would, you know, that would be my choice. It's people's choice and, you know, people get squeezed to a certain point. They would rather, you know, die on their feet than live on their knees. I'm not telling them not to fight for their freedoms.

I think that is really important. What I'm saying is I do not, I am not one of the people who thinks this is going to result in the overthrow of Xi Jinping or the CCP. I think they will kill as many people as they need to kill to stay in power. Now, the question will become whether the economics of the situation are what are really driving this, right? So like the people who are used to living handsomely and getting paid well are not going to keep having that experience. China is experiencing a real recession whether or not they're cooking the books on it and they seem to be.

And that's not, that's where things start to get really real. Like that's where Xi Jinping could have a problem. Again, I'm going to say, I highly doubt it. The majority chances they lose. Majority revolutions are squashed. Yeah. But then once in a while. Yeah.

I bet on it for fun. In this case, the CCP has the willing help, though, of a big American tech giants. That was my segue. I was going to take us there. Okay. All right, Alex, good. You do it. Okay.

So part of this unrest is not just the fire in Irrimqi or the locksdowns in Shanghai. There's also been a lot of unrest at various Foxconn facilities because when there is a COVID crisis in and around one of those areas, they just put the factory onto a closed loop setting, which means that you can't leave, but you can still work because you're in a door. formatory attached to the factory. You get really, really close to the forced labor issue here pretty quickly, I think, if you can't leave and you're forced to work. And a lot of these factories make electronics that we, listeners to this show included, use. And so I'm starting to wonder if there's a way to do business ethically in China. And if there isn't, I wonder how many American corporations will begin to fully displace themselves

from it. And if that happens, Chinese economy is going to be in a lot of trouble. Right. And the short term, what we're saying, and we should point out that the video we were watching earlier was actually from the Foxcon plant. That wasn't even some of these are Roomtey ones. That was the Foxcon protests, which have gotten so intense that, you know, I think the government has started to offer people like $1,800 to stay and $1,400 to leave.

And there were reports that Apple could be losing up to a billion dollars a week because it was going to delay shipments of the iPhone 14. Also, earlier in November, like, as some of this was starting to bubble up, Apple released iOS 16.1.1. And it had a specific feature change that only rolled out in mainland China, which was that users could not use the everyone option in AirDrop for more than 10 minutes. Currently, under iOS 16, and if you're not in China, you can just turn on this everyone feature in AirDrop,

which means anybody can send you files all. all the time. As it happens, this is a way, this is one of the few, if not only ways in China, that people have been able to share files and information about protests or material that might otherwise have been censored. And now, all of a sudden, and what, what frankly, if Apple had rolled it out to everybody could be portrayed as a pretty good security feature, because like, you know, you don't want people to be able to air drop you anything any old time, but only in China, that is now restricted. to 10 minute periods.

Is it possible to do business ethically with China? Exactly. Not so far. Well, here's what I'll say. The messier, the more convoluted, the more conflicted the situation is, the more progress is likely being made. Progress is messy. And engagement as a strategy with these authoritarian regimes, although is not a strategy I would

personally want to deploy, is going to, result in some amount of progress. The fact that so much is at stake for both parties and Apple being the number one company that has this much at stake, Amazon probably being number two, you know, in terms of all those products being shipped from there, this is causing a massive amount of tension for Xi Jinping. He now has to deal with the fact that these people are revolting against him, founders of companies have revolted against him, and he now faces Apple saying, you know what, We're going to start by building semiconductors and buying them in Arizona. The United States has passed the CHIP Act.

Oh, they're going to start making medicines in other places. Oh, Japan is paying businesses or giving them big, juicy loans with low interest rates or no interest rates to move to Vietnam, to India. Oh, if we squeeze too hard, people are going to start pulling out. Now, if we weren't there to begin with, then that cost would not be there. So if you start thinking big picture, the cost of losing engagement is now going to lead to Xi Jinping being in a very bad place. If all of a sudden Foxcon can't make iPhones, what are all those people who move from the north from farms who were living, you know, not great lives, you know, under the poverty line,

but perhaps not as painful a life as losing your factory job and having no safety net in a major city with, you know, some amount of rent cost and, you know, whatever. and already a population that is declining and now people are like, well, I'm definitely not going to have a child now or a second child if I have no job at Foxcon. This could be the complete collapse of the Chinese economy.

Where do these hundreds of millions of factory workers go if the jobs move to China in India? And so it's messy. Revolutions always are. Rebellions are always messy. Being an authoritarian leader is the hardest tightrope you could ever walk.

Look at Putin in Russia. How does he deal with mothers in Russia who have their sons being conscripted, while Germany is now going to get off oil and do more nuclear or find other sources, the Middle East to get them natural gas, it's always messy. And I think the engagement,

as much as I hate to say it, the engagement of Apple could be the linchpin that moves towards better conditions for humans in China. That would be a win for capitalism. And I'm a capitalist at my core. So I would like to see that. I think Apple's been insufficiently leadershipy on this. I would say in the last couple of years.

This didn't all come up in 2022, right? This is not the first time we've seen issues with facilities management of Foxcon, for example. And we all keep buying iPhones. Yeah. Apple didn't start trying to divest from, and to be clear, like, even if this ends in all of the places that you have predicted, Jason, it's going to be a 10 to 20 year process, right? Like all of these new foundries that company, a foundry takes 10 years to build.

It's not, you don't just pop up a new, you know, chip manufacturing facility, the size of TSMC. And you don't just move all of your operations. Like Apple has let a lot of things happen at Foxconn. It certainly did not have to introduce a hardware level restriction

that only applies to mainland China that happens to stop protest right now. Like, there's going to be, you know, the moral, yes, it's messy. The moral compromise is real and will go on for as long as this regime stands. And China, we should be clear, too, even if Apple pulls out and Tesla pulls out and everybody's like we're doing this business, China still has plenty of buyers for its own goods. And with the China 2025 initiative has actually started to create a high tech economy for itself. I'm not saying the economy is going to be okay.

but it's not like, it's not going to be an overnight collapse, I don't think. I think I'm a little more pessimistic about the Chinese construction market and how that's going to ripple over into other parts of its economy and how much debt there is.

But I will say that I don't disagree, Molly. You don't knock over a mountain overnight. It does take time. But there have been mounting issues in China for long enough now that I wonder if we're closer to an earthquake than a rumble. I think the economy is way worse than,

I mean, it's way worse. than they're letting on. Like, I think it's a, I think it's a very bad scene, for sure. Yeah. China cannot grow or evolve or thrive or any of those things

in an isolated fashion. They must continue to do trade with the rest of the world. They can't turn inward and be isolated. They need to put a billion people to work. They've got too many people. I don't think they can just be...

Right, but I'm just saying they've got, they've got Russia, they've got India, they've got, you know, United Arab Emirates, like a lot of Saudi state, like plenty of, we're pretending that what you're saying is they can't thrive without the U.S. I'm saying they can't thrive without the wires. China, 50% of the world is a democracy.

Germany is doing huge deals with China right now. Yeah, well, that's, that's a slight nuance. If you lose the EU and you lose the North American block, China's economy does not recover in 50 years, if ever, just because there's such an export-based economy model. I mean, there's not enough money in Saudi Arabia and running. Russia to, I think, to sit some plant. Well, Indian has some issues. A competitor.

Yeah, they see them as a competitor more than a, you know. Look up that border disputes. You know, it's, may you live in interesting times. Like, I think what we're witnessing is, you know, it's been 100 years of communism in China. All right. And I think what we might be witnessing is the slowly, the slow, painful unraveling of that. where individuals would like some freedoms. Yeah.

And they tried it, right? They gave them taste of freedoms. They let them move from the north to the south. They let them become middle class. They let them have a taste of technology. They let them become entrepreneurs. And this is the problem of authoritarian space. It never should have done that.

And you start giving them that taste. And then you take it away because they like it too much or because it destabilizes you. And then you're in the trap. You're in the trap. And it winds up being like Cuba. North Korea, you know, or any other authoritarian regime where your growth is capped. Your growth is capped.

And this is where capitalism plus democracy always wins. Yes. Do you think the COVID lockdowns are actually about COVID? Or are they about population? Because now, I mean, there's sort of a couple. I've heard that theory. I think about this. Explain that theory that's happening.

Because this is a controversial theory about COVID. I think you're going with the one of like, why aren't old people being vaccinated? Why isn't the push to vaccinate old people? because then they don't have to open. Because then they don't have to open. And when you don't open, you can't, you know, in theory, you think, I guess, that you can't get revolt. Like, I just think it's, or have they caught themselves in such a trap now? Because the thing is, they're not going to be able to reopen, right?

If they, if they're, because it is going to rip through, you have a mostly unvaccinated population. Well, not mostly, but less. Less vaccinated. Yeah. I think it's not majority vaccinated, is it? Oh, I thought it was. I'll check that for us. I don't know.

And the, and even if that, even if that's, even if that's, you know, the case, the vaccine is the one that's like, at least said to be not as effective. But so you have this sort of like almost virgin population. Like, if you reopen, yeah, I mean, it's just, it's incredibly, I thought they were getting close to 50% vaccinated. Yeah. I read that it was the, the elderly population that was majority unvaccinated. And the younger folks tend to be more vaxed. Lovely. But it's the older folks that are more vulnerable. I don't even want to play with that conspiracy theory. Well, I mean, this was

65% was talking about this on Face the Nation this weekend or meet the press. I had heard it on one of the Sunday shows yesterday that like, wait, what is their strategy here?

Why wouldn't you have asked? And is it, oh, because we want to keep young people working in the factories or something more sinister. Maybe we older people are on overhang and we don't need to protect them

because they're a cost of society. I mean, the mind does wander to very dark places. I mean, to be honest, Florida kind of did that. 65% at the end of 2021 reading over

70% according to Nick. I'm sorry, but not only did they like straight up do that, but when I tell people like, well, I just literally had an argument with a friend. I was like, Florida had the highest among the highest deaths per capita in the United States. And she literally said to me, well, that's because I have so many old people. Yeah. I'm like, yeah, wouldn't you try harder to protect that? Yeah. Wouldn't you put up more? Oh, you made a really older than ones? Like, anyway, yeah. Let them die. I mean, listen, there's, there's, there's, there's a hindsight in the pandemic is super valuable and China has the value of hindsight. They now can look at what happened here and in Europe and deploy a strategy based upon

all the mistakes we made here and politicizing all of this. Anyway, this is, and I, Apple operating there and obeying the rules there, you know, I don't agree with, but I also, I now look at Apple's involvement in China as being, having reduced mass of suffering, I do appreciate the things that Apple's involvement has done. They brought more human rights and more worker protections to people who were essentially slave labor before Apple, you know, because of bad press in Foxcon in the United States and in the West, that led to Apple going there and saying, hey, we need to have some standards here. This blowback is causing us problems in our country.

This is the power of engagement. I'm not saying I'm for engagement. I mean, you've heard me say Disney and, you know, the NBA should pull out. But now that Apple is entwined, they have an amount of leverage that is not insignificant. And they prove they have that leverage. Remember when the people were jumping off the roofs of factories? Right. And they said, hey, this is way too much bad press.

And this is where the Western press, Apple's involvement creates massive, massive leverage against Xi Jinping. He can't ignore it. He can't say, oh, the factory conditions can't improve. If they got to actually go in there and Tim Cook and the Chinese Communist Party have to collaborate on making these stories go away. And look at the pressure on Tim Cook today on Twitter. People are going crazy on Tim Cook today on Twitter. This is going to be very uncomfortable for them. And they'll be pulled before Congress, senators, whatever.

They'll be the talk of the Sunday morning shows this Sunday. There's going to be massive pressure on Apple to explain what they're doing in China from the coming months. Yeah. It gets even harder if you happen to own a social network. and do business in China. It's going to be an interesting combination of factors there. It's going to be hard for everybody who's got engagement over there. 100%.

Back to my question. Is there a way to ethically engage in China? I have to go do therapy in a minute or two. Yeah, well, it's a bad knee, which is important. Oh, no. Talking therapy. Yeah, yeah, yeah, because I was born with a brain. This hasn't been enough or this is triggered you and you're just going to go into an emergency.

I'm running. I was, I didn't know what we're going to talk. about today. And I just want to say that this is not where I thought we were going to go. And I'm very glad that we sat and had a conversation that I think we would have had over coffee or a drink, but we did it as a podcast. So like if we didn't get something right in that, it's because we're trying to talk through it. We're chilling. Yeah. Yeah. We're working it out. We're working it out together. Alex, thank you. We appreciate it. A pleasure as always, guys. And I appreciate the care for individuals. Go to subscribe. TechCrunch.

premium. Pay the money, people. Pay money, the fee. Make me look good internally. It's more than my baby can afford to go have her nanny. Congrats in advance. Congrats in advance on the baby. Thanks. All right, let's keep moving, Molly.

Anything else here on the, uh, listen, I am, and I am the isolationist China hawk of all hawks, but yeah, I'm kind of liking that Tim Cook is going to have to deal with this because they are such a virtue signaling, high end. our reputation matters company. Are they? That, oh yeah. I mean, they are,

I think Tim Cook is legitimately a do the right thing kind of person and also they are ruthless, the most ruthless business people. I mean, come on. Like, stopping people from jumping off of the top of your building is arguably the literally least you can do.

Yeah, exactly. They're still basically made by kids. kid gloves they are here in the United States. You know, if there is a cause, they're going to be on it, right? And they care about their reputation. So like, they care about their reputation. I think if there's, I mean, if Zuckerberg was in there,

he'd be like, I don't care what you'd think. To the extent that if there's a cause, I don't think they just like jump on it. I don't, I don't know. I dispute that characterization ever so slightly. Okay. But I think Apple wants to be, I don't know that they want to be all the way to the good guy,

but they want to be the brand preservation is very important. They want to be the good guys and gals, yes, for sure. They want to be looked at. They want you to never think

about the little tiny children hands that made that iPhone. I don't think kids are building iPhones. No, I don't think he would allow that. That's my point. Holly, that's dark. Now,

is the age of working in China 16 or 17? Are there people working in the supply chain that feed Foxconn? Do they have 15 and 16? 16-year-olds working in the arc of history, does a communist country care if a 14 or 15 or 16-year-old is working full-time and out of school? I mean, to be clear, we just had a giant child labor scandal in America.

We did? Yes, all the meatpacking. The meat-packing industry is like a vertically integrated, disgusting doopoly at best. And yes, there was a huge child labor scandal. I'm reading from the New York Times, one of the largest food safety companies in the United States illegally employed more than two dozen children in at least three macing plants, several of whom sort of chemical burns from the corrosive cleaners

they were required to use overnight shifts. So I'm just saying, and we're doing it. So Foxcon's doing it. And here in the United States, ranging in age from 13 to 17. So here in the United States, when that happens,

people go to jail, companies get in big trouble. One 13-year-old, one 14-year-old who worked from 11 p.m. to 5 p.m. A.m. 5 to 6 days a week. School records show the student fell asleep in class or missed class because of a job.

How did they ever do this? Did the person have papers? Because that's illegal. They must have had papers. They must have faked it or something or they turned a blind eye. Wow. It sounds like they were mostly immigrants. They boys and boys and boys and girls were not fluent English speakers and were interviewed mostly in Spanish.

So yeah, so here's the difference. Like in China there might be a thousand, 14 and 15 year olds in a supply chain somewhere. or a million or they could be hiring and it's totally legal here in the United States. If it happens, somebody did something really wrong and they're going to be in big trouble. So. Yeah. Anyway,

I'm just saying that when I make that comment, like there's, I don't, I'm being a little bit wrongly cavalier. But I think what I'm trying to say is this happens. When business gets big enough, bad things happen. And at the end of the day,

the business is the priority. And for Apple, the business is the priority and has been and the pressure you know the pressures that are pushing Apple to get out of China have less to do with society and more to do with it suddenly being an unreliable factory I don't think I mean I don't think they're getting out of China to be the good guy it's like oh we can't count on untenable there

I think if it becomes untenable because of social pressure or geopolitics makes it impossible because of the Taiwan you know if God forbid a Taiwan conflict happens

it could become untenable for that reason and I think you know dealing with a communist country with a god king that might just be too high

of a risk factor for somebody who's obsessed with the supply chain as Tim Cook is Tim Cook is probably looking at this going it was good while it lasted yeah we cannot have

dependencies, he must have seen this, you know, 10 years ago, and he must have identified it. And I guarantee you they have, you know, buttons and plans and plan Bs and plan Cs to do this in India. They've been, I know they do some things in India. Vietnam, other places. Yeah. Yeah, no, we totally agree there. I think that. I mean, that's exactly. It's a supply chain risk. It's a supply chain risk. And he's on that. They do the older models of the iPhones already in India. So. Yeah. I mean, it's a hundred percent. interesting times. Like, I agree with Alex that I think this is one of the bigger developments to happen.

In a sea of noise, this is news. And in fact, actually, I just saw it here. In September, Apple announced that they are making the local for Vosia, the current lineup for the first time in the same calendar year in India. So they have actually made that change. This is the escape valve. This is the escape hatch. the great uncoupling.

It's the great uncoupling. And you know what? That is going to be, I predict, China is going to have to address the human rights concerns and they're not going to be able to afford to lose the business. And so I actually think we're going to look back

on the arc of history. And I know this sounds crazy. I think Apple and Amazon because they are so dependent and they have so many other options now and they're doing it. Because remember we talked about in this program, there was that

a Solimo there was some house brand that Amazon was doing that we were yeah really into

Salimo Solimo that was an Indian brand we had done the research on it so Amazon

and Apple have already addressed this they're already in India India sees themselves as the big rival to China

India has blocked all those Chinese apps including TikTok from being there India is gangster

they'll take the oil from the lowest price place. They are not, they're not, I don't think they defer to the United States or China. I think they see themselves as contemporaries and rightfully so. And as contemporaries, that creates the counterbalance, which is, hey, if China doesn't want the West business, India does, Vietnam does. What is China going to do? Lose the jobs and then have more civil unrest? I mean, he's got people chanting to oust Xi Jinping. That's the first way for.

heard of it. But yes, all of that, 100%. That is one way this could go. I just would be hesitant to assume that the value system is the same. Like, you and I have decided that like capitalism is the right. Like I have decided that when it comes to climate solutions, which I am 100% ruthless about, capitalism is the best way forward. Yeah. I don't like none of that value system is shared. So if you look at Cuba and how long cast-trust. kept Cuba in the dark ages rather than give up this philosophy. If you look at North Korea,

if you look at the times that China has allowed millions of its own people to starve, like Stalin doing the same thing. I just, I think that the, we're assuming that pressures that would work on us will work on Xi Jinping and the CCP in China, and I don't know that they care.

I think if anything, they have demonstrated in the last three years, right? Like, nope. philosophy over power overall. Yeah, I mean, listen, an economy be damned. To your point, they rolled Hong Kong. They rolled Tiananmen Square before that.

And, you know, they have been keeping people, they have a million Uyghurs in concentration camps to slated labor. You know, yes, you're correct. And I think they will hold on to control. They got rid of, you know, the education startups. They moved D.D. from the public markets to the public markets in Hong Kong. So yes, they're going to keep squeezing.

And then until you can squeeze your people no more. And then you're fighting with them in the streets, and they're fighting with them in the streets now. And you know what? Tiananmen Square, it didn't work out. Hong Kong, the protest didn't work out. But I don't think they want this to be the standard way that they wake up every morning.

I don't think Xi Jinping wants to wake up to this every morning. And yeah, maybe he squashes it. That's the majority case, I agree. But I hold out hope that this could be the tipping point. point. I always hold that hope that there could be a tipping point. I think it's going to happen in Iran. I think it will happen in Cuba eventually. Just like the Berlin Wall fell, you know, and, you know, that's a good reminder. It just takes time. That did happen. Yeah, it takes time. It does. It just, it just is something that takes 50 years, 100 years. And what I hope is that Xi Jinping gives the people

some amount of rights that they didn't previously have and that we rebuild. our relationship with them and engagement increases with just some basic advancing even if it's slow of human rights that's what I would like to see that's what I'm hoping for and I think Apple and you know

capitalists and democracies in the West can play a role there and I think actually that was our strategy I think the engagement strategy was hey it's good for business and it's good for moving the world towards democracy I think we pursued it with them and we set a trap I think we set a trap with engagement

and now who loses in that trap? We're not going to lose. America's not going to lose. We're going to buy our goods and services, which are already too cheap to India. If Americans have to pay twice as much for a spatula, who cares? Like, the prices on Amazon are absurd.

We're paying less than it costs to make these things. Like, it's not, it was never sustainable. Certainly less than it costs to make them pay mainly. Right. So if I had to pay twice as much for a spatula, the average American did, Would it matter? No, you just don't buy as many spatulas.

Like, people are upgrading their shit constantly. If I have to drive a car for twice as long, or anybody has to drive a car for an extra year or two, it's not going to kill us. We are a consumer society gone wild. We've gone wild with our consumption. Oh, my God. What an amazing segue into our upsetting next story

about Black Friday shopping. Enough. I'm doing zero shopping. What I wanted to note specifically about Black Friday shopping is that our consumer society remains as strong as ever and we even brought this up earlier. So it was a, it was a record. 9.1, 2 billion dollars spent on line for Black Friday was. Yep.

A 2.3% increase year over year somewhere Jerome Powell's pulling his hair out. He's like, why can I not win here? Why can I not win? And you know we're in a recession because all the orders made using buy now, pay later jumped 78%. Whoa. 80. It was in the week of November 19th, over last year. In the week of November 19th through the 25th, buy now pay later revenue, spiked 81% compared

to the week before. Oh, to the week before. Got it. And then I think it was 78% over last year, the buy now pay later. That's extraordinary. Yeah. That feels bad. Well, here's what J-Po wants.

Or, right. J-Po wants you to extinguish your savings, get a little credit card debt and get a second job or work a little overtime or go back to work and he wants labor participation to hit 68 and a 69, 70%, and he wants those 10 million or whatever

9 million jobs to go down to 5. He wants unemployment to go up to 5 or whatever it is. He wants to slow the economy. So if you can't stop spending and you get in debt... He's just going to make it worse for you. He's laying... Again, he's laying the trap for you. Stop spending everybody. It's a trap or to trap.

As a trap. It is a trap. It is a trap. It is. Stop spending everybody. Pay down your bills. Be prepared for a long winter. I'm slowing down my spending.

My wife and I sat and we were like, you know what? No major purchases. Yeah. Off the table. Yeah. We, inside of my companies, show me every bill. We're tightening our belts. I'm just battening down the hatches.

I assume a storm is coming. I'm battening down the windows. Everybody's got to perform at a high level. Everybody work harder. Everybody spend less, do more with less. Let's be more resourceful. The end. Make your spatula at last, people.

Well, yeah. I mean, I just, the consumption is crazy. I have a garage full of stuff. And sometimes, like, I order something and somebody, I don't know if you have this happening around, so somebody opens it, puts it away. I forget I ordered it.

Yeah. And I'm like, where is that thing? And I forgot I ordered it. And then I reorder it. And then my life's like, oh, it's right here. And she pulls out this proverbial spatula. And I'm like, wait a second. Yeah.

And she's like, and then we're sending stuff back because I'm such an idiot. So now I'm checking my orders on Amazon to see if I ordered something previously. And I'm just being more thoughtful about all spending. And I'm trying to work harder. So I'm, I'm taking on the austerity personally. I love to hear it. I mean, honestly, as from a climate perspective alone, let's, you know, and also just the problem is, again, a stat that never stops astonishing me, what 80% of GDP is consumer spending.

At the end of the day, Jay Powell wants you spending. They want us buying. Remember when Bush W, right? W gave everybody like $1,000 to spend money to buy crap? Oh, did he? Yeah, it was like a tax credit. He a dollar the tax credit to all Americans. I remember that, yeah, no idea.

Patriotism shopping. Love it. No, you don't love it. I know, I'm just joking. I just, the buying of votes is just on both sides of the aisle. It's just crazy to me. Like, we need people in office. The capitalist country.

Like, why do we think, why are we surprised by this? I just think we got to get, like, big money out of politics, and we have to start thinking long term. It's just, I know our system is not designed for that, but can there be some adults who, like, I really think my issue for this next election, you know, after choice, like, I can't vote for somebody who's anti-choice. that's like a deal breaker for me. I kind of feel like we need to balance the budget

or control spending in some way. So if both parties could put somebody out there for me to consider who actually is looking at the amount of spending and saying, huh, what's reasonable here? I'm nervous. I'm nervous about the control spending.

And then I, what's going on with J-Pow? I mean, he seems to be like, he's on his own path where he's like, I'm going to slow this thing down. And then everybody on the other side is like, air drops. Let's air drop. Right.

Because nobody wants it to slow down because the stock market's going crazy and everybody. I mean, it's, yeah, I don't know. It's a lot. It's a lot. It's a lot. And excellence. Everybody in America who hears my voice, work harder and control spending. These two things will get us out of this.

We had a party. And now everybody's going to have to just have an alka-sals. go for a hike, hit the sauna, sweat it out a little bit, be focused at work. I started 8.30 this morning, you know, with a meeting. I'm just, I'm working until 8 o'clock tonight.

And it's my birthday. My wife's like, what are you doing for your birthday? I'm like, I have an 8.30 a.m. meeting, and I'm ending at 8.m. That's my birthday. 8.30 a.m. start time. Get in the game.

Emergency management team meeting. 8 p.m. punch out. out. Anybody who works for me, that's my day. Keep up. Let's go. You had like a little party on the weekend now, I hope, right? They gave me a kid. They got me a, they got me a, so I was pretty happy about that. I get to spend it with my daughters. All I care about, spend time with my family, have a lot of laughs with my daughters. Uh, you know, like traveling with my kids. I love it. I love it. We make a game out of it. It was so sweet. My 12 year old was like sleeping on my

shoulder. We had like the crack of dawn flight yesterday. Oh yeah. You ever do those? Yes, definitely. I kind of like this. I'm in coach, Crackadon. I think we had a 7.30 flight. We had to be there at 6 a.m. I got up a 4.30. I got the girls up of 5.

You know, they're like 6-year-olds, like 12-year-old. They're like dizzy. I'm like buckling them into an Uber to get to the airport. We got there early. Got them make sandwiches. That's adorable. Happy birthday. Ready to take a minute and wish Jason.

Yes, thank you. I feel like the luckiest guy on the planet. I take nothing for granted. I'm healthy. People I love working with, every day I wake up with a sense of purpose, we're great friends. Life is exciting.

I lost 25, 30 pounds. I look great. I feel great. Healthy. I might get to ski this year. I'm thankful for all the simple little things. As I said, on my Tim Ferriss podcast.

People are freaking out about my appearance on Tim Ferriss. Like a new side of J-Cal. The human side. You didn't listen to it. I haven't listened to it yet. Yeah, I'm listening. You get enough of me. I don't believe me.

I'm gonna. I'm doing speaking gigs again, though. I took two speaking gigs. I was like, you know what? Back to austerity measures. I'm going to get on the road. I am on that hustle also. I know I'm like,

F it. People throwing me 50 dimes? I'm on the road. Let's go. Give me the 50 dimes and then I'll meet with QPs, get people for launch fund for, meet our founders. Let's go.

Send me on the road. I'm excited about austerity. Because the thing is, I mean, it's, I have no hope that a boom bus cycle is going to magically go away or whatever. But, and I'm happy that you pointed this out. It's the, it's the regular people who suffer, right? It's like every, it's like the people who go crazy or not the people. Everybody is sort of just like most people, right, 80, 20 rule are just kind of a long for the ride of whatever society is bringing to them. And so it's like, oh, it's awesome times.

Great. Thank you for like you said, the free lunch. And then they get, they're the ones get, they get canned. And it's like somehow it's their fault or like you're not spending enough. No, you're spending too much and whatever. And it's just sort of like, this recession is so weird.

We have so many jobs available. So many jobs available. Yeah. So much gig work at $36 an hour to drive for Uber. It's absurd. The Uber fees and the DoorDash fees are through the roof. The rent's too damn high. And yet we're kind of relying on gig work to keep people alive because we're still not.

You know, it's like that. No, no, we're not. People are still out here working. jobs. They need more. The reason they're paying work. We have 10 million jobs and also people are working two jobs. Like that's what I'm saying. No, they're not. The weirdness is everywhere. No, they definitely are. The latest labor report actually said. Oh, really? Maybe that's what we need. 61% labor participation. Down from 69, 70% in the 2000s. It's so weird. It's like you literally have some people quiet quitting. You have lots of people working two jobs just to pay the rent. Like,

it, I bring that up as weirdness, not even to disagree. It's like, both things could be happening at the same time. All of the, right. All the weirdness. happening. So weird. You know who's quiet quitting? A lot of VCs is quiet quitting. A lot of VCs are quiet quitting. We should do we should do some deals right now because there's a lot of VCs who are quite quitted. I'm like, hey, I got a deal for you. They're like, I'm good. I'm like, don't want to make any money. Like this is hot. And they're like, yeah, I'm kind of wrapping up for the winter break. I'm like, it's November. They're like, yeah, let's talk of the new year. I'm like, talking the new year.

We got 20 days. We can hustle. 22 days before the break. Let's go. Yeah. Nope. Nope. Quiet quitting seed funds, quiet quitting VCs, including the quiet quitting and explicitly quitting pounders. Kind of a quietly. You all got to stop quitting.

You all got to start quitting, by the way. Just because it's getting hard. It doesn't mean you should quit. I literally got a fortune cookie the other day that was like genius is shown in the hard times or whatever. And I was like, all right, let's do this. Well, people's character too. You know, you really start to find out people's character in a crisis.

I had a girl's brunch this weekend back to the thankfulness train. and we were like just all talking about our favorite time of day. And, you know, somebody was like, oh, I love my morning coffee. And like, I love the like the sunset. And I was like, I love all those things. And then I literally was like, really like doing my podcast with Jason. Like, I really genuinely do. Like there's the moment when you come out of the podcast and you're like,

you're kind of like gotten a little high. So the energy level is high. Yeah. We don't always agree. Delight. But we learn every day together. Here's something I learn from your stat. I like your buy now pay later story.

if we could zoom in on the chart that Molly provided, it shows the last three, these are three green bars, I'll describe it for people, and this is the share. Now, if we zoom in, you'll see credit card is going down, right?

From a peak lab, two years ago, 54.3% down to 49.4. And PayPal also coming down from 28.5 to 26.7. Okay, those are going down. Debit cards smashing up. I guess people want to use their cash.

They're a little concerned. That's one group of people. But here's the big I think is super interesting. Can we zoom in on Apple Pay and buy now, pay later? These are the two new kids on the block. Yeah. I'm using Apple Pay constantly. If I don't see Apple Pay, I'm infuriated.

When I'm on my mobile phone and I have to type in my credit card, I'm infuriated. Yeah. Apple Pay is going to be 30%, 40% of purchases. I think Apple's going to, this is going to be. Apple's new thing. Apple pay 12.7% of purchases Black Friday up from

7.8% last year, 8.2% last year. It's up 50% year over year, Molly. And look at that. Look at that compared to this slowly, slowly shrinking line of PayPal.

Apple pay is already up to almost half of the share of PayPal, which used to be the only way that you would check out online. Yeah, look at that. and look at Venmo. Venmo letting people

and look at Google pay. All of these services. I've done the pay with Venmo thing. It's so great because then, because I don't know about you, but I always have accidental money in my Venmo because my kid uses my card primarily to buy sneakers

and then he Venmoes me the money and then I always leave it there. But then I'm always excited when I see pay with Venmo because it feels like I got it for free because I just paid with my money that was still sitting there. All right.

Dummo's like your secret accidental checking account. Here's my advice. No more. Whatever your yearly salary is, keep your debt to no more than 5% of it. You make 50, 2,500. You make 1005K. It's my 5% rule.

No more than 5% of any of this kind of debt. And make sure you're looking at those interest payments. Yes. Oh, no, zero. You should not have credit card debt, too. But I'm talking to people who are these people who are doing that, now pay later. I'm just trying to give them a number and an easy heuristic.

Okay, fine. You're right, you're right. You're right. That's helpful. You and I are just going. You worked on marketplace. You know money. Abstinence doesn't work.

You're right. You've got to give them the protection version. Yes. This is more towards my team members. I know I got some producers here who maybe are going out on having a couple cocktails on the weekend and buying expensive lemonade. Rachel. Rachel,

I don't want to see you buying $12. dollar lemonade. Okay, I don't know kombucha for you. Water. You make ice tea at home. You don't eat kombucha. As well. The avocado toast producer, Rachel. Nick's like, I'm seeing ads from by now pay later on DoorDash orders. Who would pay for chicken parm with four installments of $3.50. You know, we are in a higher interest rate environment, though, I will say. Like, I, you know, I bought some three months CDs or whatever on 4% interest is free money. All right. So I don't want to see any more of this Wawa Lemonade. All right. It's enough already

What is that cost? What is a wah-wah lemonade cost? This seems expensive. What is a wah-wa lemonade? Is this a thing? $2? Oh yeah. Lemonade is sugar,

water, and lemon. Make it at home. I make lemonade at home. I'm rich. We squeeze lemons in the Cali-Canis household. I put my daughters to work. They love it. They got the manual lemonade press.

We make simple sugar. That's how we do it in the Cali-Canus household. Oh, my God. You can probably take this chart away now. We just squeeze lemons. We have food at home. I'm literally turning into Internet Dad. I'm Rachel's Internet Dad.

It's perfectly good. I talk to Rachel's dad this weekend. We're going to go over Rachel's expenses. No more Wawa. At Christmas. It's enough, Rachel. What are you saving, Rachel? I want to know what's in the wealth front account.

Enough with the Wawa? I feel like more water. And Brooklyn Water, Manhattan Water is delicious. It's the best water in the world. You don't need to buy it in a bottle. We're going to find out any. Brooklyn Water and they sell it to people in California. Rachel's actually fire.

Like, you just wait. Rachel's like in the fire movement. She's like, um, actually I save 70% of my income. I love it. I love it. Let's do it. All right, everybody. This been a great episode.

If you have ideas for the show at Molly Wood, at Jason, you got ideas, producers at this week in startups.com. If you're a fan of the show, if you're a PR person, we insta block you and we are canned response. Sorry, we do not take pitches for the pot. But fans of the pod, we will take your insights. We love your pitches. Just, go ahead.

It's going to be a great week, too. We got a good week coming up. I think the crypto boys are going to come back. We're going to be talking about the Block 5 collapse and the this and that. Wait, that happened too, right? We didn't talk about that on today's show. We saved that. Block 5 filed for bankruptcy production.

Log 5 filed for bankruptcy. And you missed the Miami Crypto story, which we could do tomorrow, which is so funny. Yeah, let's definitely do that one tomorrow. That's amazing. All right. So, I'll leave this in the show, Nick, including you're breaking in. People like when you break in. They do love it.

Do they love it? They love a producer, Nick. Oh, they love it. When I started listening. Bob Bob Bowie. I want you to keep this in and I want you to... Nick was when I started listening to the show as I was in the process of getting hired,

listening to it every single day. And then I was like, who's that guy? Yeah. A producer. Especially at the end. A break-in at the end is like a little piece of candy for everybody. I was enamored with producer Nick. Who's producer Nick?

Because he's the best. Prussian Nick's great. And he's like a mystery. So as producer Nick said, there is a crazy crypto bottle popping story. We got BlockFi. We have an address. We have a startup of the day.

we got We Live in the Future. Just so much to go over. We're back babies. We're back babies. See you tomorrow, everybody. Bye bye. Bye, bye.