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Mohnish Pabrai: FASTEST Way To Financial Freedom! Proven Playbook For Quitting Your 9-5 In 9 Months! — Transcript

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0:00Why do they call you the Dhandho
0:01Investor? It's a way of doing business
0:03and making money without taking risk.
0:06Like for example, Mr. Gates, Mr. Walton,
0:08Mr. Branson, all of these people
0:10followed these simple mental models. So,
0:12if they won, they would win big. And if
0:15they lost, they'd lose nothing. So, I
0:17want to know everything. Okay, let's
0:19start with this. Mohnish Pabrai is the
0:21self-made millionaire who built one of
0:23the most respected investment firms in
0:25the world, managing over a billion
0:27dollars. And now, he's giving us the
0:29simple tools and frameworks to create
0:31life-changing wealth. If humans
0:33understood that if I embark on a
0:35business in a format where the risk is
0:37close to zero, more people would do it.
0:40And that's what these mental models do.
0:41For example, cloning. We are taught, if
0:44you want to start a business, you need
0:46to come up with something new. But
0:47actually, if you are a great cloner, you
0:50will be 90% ahead of the rest of
0:53humanity. And in fact, everything that
0:55Microsoft has done well at has come from
0:58copying someone on the outside. And
1:00then, there's time. When you're starting
1:02a business, don't quit the day job
1:04because some other yo-yo is paying your
1:06rent. But it does mean that you need to
1:09find time to work on your business. But
1:11I will show you the perfect way to
1:13allocate your time. And that's not all.
1:15There's models like low-hanging fruit,
1:17skin in the game, givers versus takers,
1:19and the circle of competence. And I'll
1:21I'll explain all of them. What about
1:23investing? Cuz you're very well known
1:25for being an excellent investor. There
1:27are three things that matter with
1:29investing. And there's also something
1:31known as the rule of 72, but I wish they
1:33would teach it more in high school. And
1:35it tells us how long it takes money to
1:38double. Now, this is exciting.
1:43I see messages all the time in the
1:45comment section that some of you didn't
1:46realize you didn't subscribe. So, if you
1:48could do me a favor and double-check if
1:50you're a subscriber to this channel,
1:51that would be tremendously appreciated.
1:52It's the simple, it's the free thing
1:55that anybody that watches this show
1:56frequently can do to help us here to
1:58keep everything going in this show in
1:59the trajectory it's on. So, please do
2:01double check if you subscribed and thank
2:03you so much because in a strange way you
2:05are you're part of our history and
2:07you're on this journey with us and I
2:08appreciate you for that. So, yeah, thank
2:10you.
2:14Mohnish Pabrai,
2:16with the work that you do and the sort
2:18of public educating that you've done
2:20more recently in your career,
2:23what is the message you're trying to
2:25convey? If you had to summarize that
2:26message and exactly who you're trying to
2:28convey it to?
2:30It really depends on
2:32uh
2:33what message.
2:35There are uh a few different mental
2:39models that I've figured out
2:42over the last few decades. When you have
2:45uh you know, clarity on these mental
2:47models and especially
2:49when you can start overlaying them,
2:52that's when you get 1 + 1 becomes 11.
2:55And uh so, these mental models are not
2:58all in the same direction or in the same
3:01genre. So, just to pause there for a
3:03second. So, the the word mental models
3:05Yeah.
3:06>> means it's basically a framework for
3:08thinking.
3:09>> Yes.
3:09>> So, one framework for thinking is this
3:11idea of cloning
3:12>> Yes.
3:12>> um as one such example. Yes. Let's take
3:15the mental model of cloning. Cloning.
3:18>> Cloning, right? So,
3:20um
3:22what we are taught is that if you want
3:25to start a business,
3:27you need to come up with something new.
3:29Something that hasn't been done before.
3:31But, the reality is that the world will
3:35very easily accept three of the same
3:37thing
3:38or five of the same thing. And usually
3:41it is an advantage
3:43to look at something that already exists
3:46and say,
3:48"Can
3:49another one of those exist?" For
3:51example, or can I take what's there and
3:54tweak it a little bit? So, there's
3:57something peculiar in the human psyche,
3:59maybe going back into our history and
4:01our ancestral evolution,
4:04where humans look down upon cloning.
4:07But, if you look at it, so for example,
4:09two of the greatest cloners, I think, in
4:11human history,
4:13were Bill Gates and Sam Walton.
4:16Now, we think of Bill Gates as an
4:19innovator.
4:20And we think Sam Walton created Walmart,
4:22which was also new. But, actually,
4:25they're both me-too models.
4:28And
4:29Microsoft would not have existed
4:32without being a great cloner.
4:34So, when we look at um Microsoft Word,
4:39it came from WordPerfect. Which was a
4:41company
4:42>> Which a competitor that he took out.
4:45Uh we look at Excel, it came from Lotus.
4:48Uh we look at Bing, came from Google.
4:51And you know what Bing is, but it's not
4:53Google.
4:54Everything that Microsoft has done well
4:56at
4:56has come from copying someone on the
4:59outside.
5:00And when we look at Sam Walton, who's,
5:04you know, the Walton family, if you
5:06pull them all together,
5:08it's the richest family in the world.
5:10It's richer than
5:12uh Elon and everyone.
5:13And Sam Walton, by his own admission,
5:16would tell you that he has no original
5:18ideas.
5:19So, originally, Walmart
5:22cloned Sears and Kmart. For my
5:25international listeners, these are two
5:26big supermarket chains.
5:28>> Yeah, and they're both gone. They're
5:30They're And in fact, Walmart buried
5:32them.
5:33And um
5:34and Sam Walton
5:37was one of the most intense cloners
5:39ever.
5:40So, if he was driving on vacation with
5:43his family,
5:45and he's passing some retail store, he
5:47would tell his family to stay in the car
5:49and he would go in the store just to
5:51check it out. And he said that there is
5:54there is no human who has lived in
5:56history or will live in the future
6:00who has visited more retail stores than
6:03he has.
6:04One time there was a manager of his and
6:07he would go in with his managers to
6:08these stores. Retail is one of the most
6:11transparent businesses. You can go into
6:13your competitor's store and you'll
6:16figure out the entire business model in
6:1710 minutes. You don't need to talk to
6:18them. Okay, it's beautiful. So, he went
6:21into this retail store and the manager
6:22says to him, "Oh, what a terrible
6:24operation. The the whole store was
6:26topsy-turvy. It's really bad." And Sam
6:28says to him, "Yeah, but did you see the
6:30candle display?"
6:32The candle display was fantastic. So,
6:34Sam felt that he could learn from
6:36anyone.
6:38It didn't matter if you were a useless
6:39operator or a great operator or
6:41whatever, anyone in the middle. Walmart
6:43is just an amalgamation
6:46of ideas from other places. If we look
6:49at If you look at a company like
6:51Starbucks,
6:53we think of Starbucks as innovative, but
6:56actually what Howard Schultz did is
6:58he saw a concept in Italy
7:01and his idea was that I think this is
7:03work in the US, right? And so, he cloned
7:07he cloned that idea from Italy and
7:09brought that coffee shop experience to
7:12the US. If you are a great cloner,
7:16you will be
7:1890% ahead or 95% of the rest of
7:22humanity.
7:23Now,
7:25another mental model,
7:27humans have this
7:28perspective
7:30that starting a business
7:34is risky. In reality, entrepreneurs do
7:38not take risk.
7:40They do everything in their power to
7:43minimize risk. And in many cases, when
7:46they embark on a business,
7:49the risk approaches zero.
7:51What is extremely risky
7:54is a 9:00 to 5:00 job.
7:57Because we have one life.
8:00Right? And it goes away. And you may not
8:02get to do what's in your heart. You may
8:04not get your music out. Right? And so,
8:07getting our music out is really
8:08important. So,
8:11so this notion, which is drilled into
8:13us, that
8:15if you're an entrepreneur, you're taking
8:17risk, really kind of does a big
8:20disservice
8:21to
8:22most humans. And if if humans understood
8:26that if I embark on a business, I can do
8:28it in a format where the risk is zero or
8:31close to zero.
8:33And I can clone an existing business.
8:37Right? Now you've
8:39combined two mental models.
8:41And we can start adding more to them.
8:44But two has become 11. 1 + 1 has already
8:47become 11. It's non-linear. And
8:52why is it
8:54that why is why am I saying
8:57that entrepreneurs do not take risk? So,
9:01if I take my own case as an example, and
9:04I can give you 100 cases like that, but
9:06if I take my own case as an example,
9:08I was working
9:109:00 to 5:00 at a company.
9:12And I had a business idea.
9:15My employer expected me to work 40 hours
9:19a week, right?
9:21There's 168 hours in the week. So, I
9:25felt like there must be at least another
9:2830 40 hours that I could work
9:31on my startup. Could you show me this in
9:35context?
9:35>> Right. So, if you look at our whole
9:37week, for example, these beautifully
9:40arranged LEGOs. If I take one of these
9:43blocks of LEGOs, so each one of those
9:46blocks in there is 2 hours. So, 8 hours
9:49a day, we're sleeping 8 hours a day,
9:51right? And uh and we're doing that 7
9:54days a week, right? So, basically we've
9:56got 7 days a week, 8 hours a day, we're
9:59sleeping.
10:00The blue LEGOs are showing our 40 hours
10:04a week.
10:05Uh 8 hours a day, 5 days a week, we're
10:07working, right? Then we get to
10:12other, you know,
10:14uh preparing dinner and showering,
10:17shaving, getting ready, whatever else.
10:20So, that's about 4 hours a day on the
10:23weekdays, which is including commute
10:26time.
10:27And about 8 hours a day on the weekend.
10:29Then we get to free time, you know,
10:31social media and watching Netflix and
10:33hanging out with friends, going for
10:34dinner.
10:35And we've got
10:37quite a bit. We've got about 4 hours a
10:38day of doing that. And about 8 hours a
10:41day on the weekend. So, this is kind of
10:42typical what a typical week for most
10:45people would look like, right? Mhm. Now,
10:49when you're starting a business, the
10:51important thing
10:53is don't shut off the cash flow.
10:56Some other yo-yo is paying your rent.
10:59And some other yo-yo is paying your
11:01groceries. So, we don't want to rock the
11:02boat.
11:03But we're going to make one change to
11:05blue. Which is the amount of hours I'm
11:07working for my 9-5.
11:08>> Now, before I started my startup, um I
11:12used to
11:14get top reviews as an employee.
11:17Uh you know,
11:18I was very focused on doing a great job
11:20for my employer, all in, right?
11:22The day I decided I'm going to run do my
11:24startup, I decided I need to be just
11:27above firing level.
11:29My performance needs to be just good
11:32enough
11:33so they don't can me.
11:35But nothing beyond that because I need
11:38all my energy to go into my startup. So
11:40that's the only tweak I'm making is the
11:43blue stays, but we're not doing extra
11:45blues like we were doing before, right?
11:48And blue for anybody that doesn't can't
11:49see cuz you're listening on audio is
11:51work. Exactly. Yeah. Blue is work,
11:54exactly.
11:55Now
11:57when we embark on a startup,
12:00we should never do a startup to make
12:02money.
12:04It's the worst reason
12:06to start a company.
12:08The purpose of business is not to make
12:10money.
12:12The purpose of business is to deliver
12:15an incredible product or service to
12:17humanity.
12:19If you do that, the money is a side
12:22effect.
12:23It'll happen. We don't need to focus on
12:25it. So what we are looking for is
12:30do we have a product or a service that
12:33we're thinking about that we could bring
12:35into this world
12:36that is going to improve the world in
12:39some way. How do I know if it's a good
12:41idea?
12:42Whatever idea you have come up with
12:46is not going to work.
12:48Okay?
12:51Because you came up with it in an ivory
12:53tower between your ears.
12:56Okay? And that's not really a great
12:58place to find great ideas.
13:02What's going to happen is we're going to
13:04be doing what I call rapid prototyping,
13:07which is we take this idea
13:10and show humans what it is. And when you
13:14show it to humans, you will get
13:17feedback. So I'll I'll I'll
13:19um maybe I'll just give it in more
13:21practical terms.
13:22Uh
13:23when I was um
13:25uh when I was starting my first
13:26business, uh it was going to be a IT
13:29services business. Okay, information
13:31technology services. And I was going to
13:33be providing these services to very
13:35large businesses.
13:36Companies that are, you know, billion
13:38dollars or more in in earnings or cash
13:40flows.
13:41Um,
13:43I was in a meeting with a, uh, senior IT
13:46guy at a very large bank in Chicago.
13:50And I was going through my PowerPoint
13:52deck with them.
13:54I came to the 10th slide,
13:57said my spiel, went to slide 11.
14:01So, the boss who was sitting in the
14:03meeting said, "Go back to slide 10."
14:06So, I went back to slide 10, again gave
14:08my speech that I had for slide 10, and
14:10took it to 11.
14:12He said,
14:13"Go back to slide 10, and do not change
14:17the slide.
14:19I don't have an interest in any other
14:21slide.
14:22Okay? So, I took it back to slide 10.
14:26And all he wanted to talk about was what
14:29was on slide 10.
14:31My deck was talking about
14:34seven things we could do.
14:37Slide 10 was one of those seven.
14:40It was an extreme pain point for him.
14:44He needed help on that one thing.
14:48He didn't need help on all the other
14:50riffraff stuff I was talking about.
14:52So,
14:54when you're doing a startup,
14:56you have to be
14:58listening very carefully.
15:01Your customers or potential customers
15:05will tell you exactly what you need to
15:08do.
15:09Whatever you came up with maybe 80%
15:12right or 70% right or 40% right, but
15:16your customer will tell you what is 100%
15:18right. Okay, because that's a real pain
15:21point. So, I went back and thought about
15:22it
15:23and I realized that his pain point
15:27and I could see it was a severe pain
15:29point because he gave me a purchase
15:31order at the end of that meeting.
15:32Um was going to be a pain point for a
15:35lot of people.
15:37So, I went back.
15:39I took slide 10,
15:41blew it up into 20 slides, and that
15:44became the deck.
15:46Okay, everything else got thrown out.
15:49Right now, I couldn't have done that
15:51without him.
15:53My brain is too small to have figured
15:56that out. So, anytime you're doing a
15:59startup of any kind
16:01and you have a prototype or a early
16:04product or something going on,
16:07your users are going to tell you exactly
16:10what
16:12tweak they want. You've just reminded me
16:14of a conversation I had this morning.
16:16Okay. Where I interviewed someone
16:17because much of what you're saying is
16:18orientated towards startups, but it's
16:20actually every single day of everyone's
16:22life because I interviewed someone this
16:23morning for a really critical role in
16:25the company. And this person has spent
16:2720 years at one of the biggest companies
16:29in the world. And
16:31when I was doing the interview, she was
16:32telling me about lots of things she's
16:34done during those 20 years. And I was
16:35just trying to get to this one thing,
16:37can you put on events? And she was
16:38telling me about this and that and the
16:40other thing and this and this and the
16:41other thing. And I was just actually I'd
16:42only come to this interview to figure
16:44out if she could do put on big scale
16:45events. So, we spent over an hour
16:48conversation. We spent 55 minutes
16:50talking about a bunch of things I wasn't
16:51interested in. And actually as she was
16:53speaking, I was going, "Do you know what
16:54she could have done at the start of that
16:55conversation? She could have gone,
16:56'Steven, can I ask you one question?
16:58What is the What are you looking for
17:00from from this person?'" And if And then
17:02I would have gone, "I just want someone
17:03that can put on events." And then the
17:05next 55 minutes could have been
17:06persuading me that she can do that.
17:08Sure. And it just applies to what you
17:10just said there. How could you of this
17:12as the sales person that day in that
17:14meeting,
17:15with what you know now, how could you
17:17have done a better job without going
17:19through all of those slides?
17:21Well, I think what what I would do now
17:24if I were doing something like that is
17:26that my my radar
17:29on listening would be 10x.
17:33You know, we don't learn when we speak.
17:37We learn when we listen. So, I would
17:40really be trying to talk less and
17:43extract more. Mhm. And I wouldn't even
17:47rely so much on slides. I'd like to
17:50really try to bring them in into into
17:52what they are trying to say. And uh
17:55And and so, basically in uh if if you
17:59study if you study businesses, you know,
18:02venture back, non-venture back,
18:04whatever, this is a very
18:06common thing. There are almost no
18:08businesses
18:10who end up with the business model that
18:13was originally conceived. I mean, that
18:15just is would be such an anomaly.
18:18It's really the interplay between the
18:20founding team and the early customers,
18:24which really leads to taking this wet
18:26clay
18:27and making into something that people
18:30want.
18:30>> Mhm.
18:31You know, and so, you know, if you think
18:33of something like Google Glass, you
18:35know, when they came up with those
18:37glasses that they thought the whole
18:39world was going to wear. Yeah. So,
18:42it didn't work.
18:43Well, why didn't it work?
18:45Well, the reason it didn't work is
18:47you're talking about something extremely
18:49personal. Okay? Like, for example,
18:52Wrigley's chewing gum. Okay?
18:55My mouth is a very personal space.
18:58I'm not going to put Glotz chewing gum
19:00in there. What's Glotz chewing gum?
19:03Exactly.
19:04>> Okay. Okay? Yeah. You're not going to
19:06put some brand that's half the price of
19:08Wrigley's in there.
19:11Because you don't want to go there.
19:12That's not of interest to you. So, when
19:14we wear glasses or sunglasses or
19:17anything we wear,
19:18that's very personal.
19:20So, the the ergonomics and the human
19:23factors are very important. If it's
19:26slightly off, now
19:28Meta
19:29is trying to do the same thing. But,
19:31they went to Ray-Ban.
19:33Right? They did a JV with Ray-Ban.
19:36Those glasses look like normal glasses.
19:39Mhm. I think there's a higher chance.
19:41Well, I've got some.
19:43I used them, yeah. You don't have any
19:44Google Glass. No, no, no, no.
19:46I think they they cut the project,
19:48didn't they? Yeah. So, so what I'm
19:49trying to say is that we we have to pay
19:52very close attention to the customer. Uh
19:55I mean, Steve Jobs was right. The
19:57customer doesn't know what he wants.
19:58Okay? But, if you put it in front of
20:00them,
20:01then they can now tweak and tell you
20:03exactly what they want. Right? So, so
20:06that and that's another mental model,
20:08which is uh now we get to the third
20:10model, which is that you're not smart
20:13enough. If whatever founding team you
20:14have is not smart enough to figure out
20:16what people want. Period. So, you have
20:19to have very good listening skills.
20:21And you have to be have the flexibility
20:25to and again, when you're listening,
20:27separate the signal from the noise.
20:29Right? Take in what is real signal
20:32and
20:33leave out what is the noise. And then
20:36you're starting to get down a path which
20:38is going to make more sense.
20:40The other kind of a model maybe woven
20:43into there was this idea of just like
20:45attention to detail. I'm not even sure
20:46if that's a model, but when you told me
20:48about the Walmart founders laying
20:50between the aisles to measure the exact
20:52centimeter of length. The model there
20:54for me was just like precision and
20:56detail.
20:57It's a game of inches. I mean, what I'm
21:00saying is that
21:02uh when
21:04when Sam Walton was
21:07trying to figure out the name of the
21:08company.
21:09One of the reasons he went with Walmart
21:11was it was seven letters.
21:14And he was looking at the cost of
21:16putting up signage
21:19in stores, and he was trying to come up
21:22with a name with the fewest letters
21:24because it cost less.
21:26Okay? And so, I mean
21:30cost
21:31cost sensitivity is all over the place
21:34in Walmart. Right? I mean, that's just
21:36front and center with what they do,
21:37right? I mean, they just really squeeze
21:39blood out of a rock, you know? So,
21:41basically, I mean, I think that was and
21:43that's the reason why they became so
21:45successful. One of the things you can
21:47always control in business is your
21:50costs. You You may not be able to
21:52control your margins and selling prices
21:55and a lot of other things, but you can
21:56always control costs. So, that's another
21:59model where you have to have discipline.
22:02You have to have very strong discipline
22:04on the cost side. If you look at
22:05something like LVMH, you know,
22:08the guy who runs it,
22:10I mean,
22:11he's in luxury goods. He's in high-end.
22:15LVMH make Louis Vuitton and
22:16>> Yeah, yeah, yeah. I mean, everything,
22:18you know? It's you know, they've taken
22:21over Tiffany's and everyone. Um
22:23but when you look at how the company is
22:25run, it's very tight.
22:28He spends money on the best real estate
22:32because that's important. But the deals
22:35he negotiates on those real estate is
22:37mind-blowing. You know? So, it's it's a
22:40very tightly run operation
22:42on a product category that doesn't
22:46necessarily need it. Hm. But that's why
22:48they That's why he's become the
22:50wealthiest guy in Europe. Because that
22:51mentality will then apply to every
22:53decision.
22:54>> Absolutely.
22:55>> And if you apply it to 100 things, it
22:56does matter.
22:57>> Oh, it does matter big time. Yes. So, I
22:59have these
23:00yellow blocks here which represent
23:02working hours working on your own
23:04business. So show me how you would take
23:06some of these blocks away Yes. and
23:09introduce hours working on your own
23:11business. Yeah, so basically it's it's
23:13really quite simple. We're not really
23:15not going to mess with our sleep cycles.
23:17We're going to leave that alone. Sleep
23:19staying the same. And we we need our
23:21blue, which is our work work space 40
23:24hours. We need that to continue.
23:27One of the changes we're going to make
23:28is we're going to live close to work. So
23:30we're going to cut down commute time as
23:32much as we can. Okay. Because every hour
23:35matters. Okay, so the area that we're
23:38going to focus on
23:39is the free time. Okay. And the reason
23:41why taking out the free time
23:45is not a problem is because what we are
23:47embarking on, like we just discussed, is
23:49not about making money
23:51is getting our music out. Getting our
23:53music out. What do you mean by that?
23:54Which means that we
23:57have something in us that we know the
24:00world needs.
24:01And we want to bring it to that world.
24:04We want to bring it to the world. And
24:06because we want to bring it to the world
24:08it's not work. I think the audience
24:11might be challenging themselves in the
24:12head and saying but I love my the thing
24:14I do for work.
24:16I'm I'm one of maybe the rarer group of
24:17people that I get to work with puppies
24:20every day.
24:21And I love that. Yeah, so I think that I
24:23think this is not for everyone.
24:26So I think you have to ask yourself who
24:27you are.
24:29If you are truly excited about
24:32your 9-to-5 job and what you're spending
24:34your main working main waking hours on
24:38awesome.
24:39That's great. I mean, everyone's not
24:41going to be an entrepreneur. Everyone's
24:43not going to have a startup. Everyone
24:45they they may be getting their music out
24:47in a different way on someone else's
24:49platform, which is perfectly fine. And
24:52but but if if that is not you, where
24:55when you go to work, you're not super
24:57excited to get up in the in the morning
24:58and you're not tap dancing to work every
25:01day. If that's not happening, then
25:03there's something wrong. And you have to
25:05ask yourself, well,
25:08is there something else that is that
25:11you're passionate about, that you want
25:13to do?
25:14And this is not something that should
25:16take a lot of
25:19effort. So, if we go back
25:22and look at, for example, Bill Gates and
25:25Paul Allen, right? I mean, Bill Gates is
25:28at Harvard
25:30and he sees
25:32a magazine which shows a very early
25:36personal computer
25:37and he realizes that there's a paradigm
25:40shift.
25:41And he realizes that he needs to be part
25:44of it.
25:45And Paul Allen is the one who sent him
25:48that magazine and he told Bill,
25:51"We got to go do this. Now, this is our
25:54time." Now, and for Bill,
25:57it was a very easy decision.
25:59Very easy decision, very
26:02difficult for his parents. His parents
26:05were in shock that he's going to abandon
26:08his degree. And, you know, he he told
26:11his parents, "Don't worry about it.
26:13I'm going to come back and I'll finish
26:15the degree."
26:16And several decades later, Harvard gave
26:19him an honorary degree.
26:20And his parents were in the audience and
26:22he told them, "I told you I'd come back
26:25and finish it off, right?" So, let's put
26:27some numbers to this. 12% of people,
26:30according to the stats that are
26:31listening right now, are explicitly
26:33unsatisfied with their job, which means
26:34they hate it. 85% of workers globally
26:38are disengaged, meaning they're not
26:39fully invested or happy at work. So,
26:41it's a huge number of people. More than
26:43half of the US workers are at least
26:45somewhat satisfied, but engagement
26:47remains worryingly low. So, So, we look
26:50at that 85% number, 85% of workers
26:52globally are disengaged,
26:55meaning not fully invested or happy at
26:57work. So, it's really those Sure.
26:59people.
27:00And and the thing is it's not it's not
27:02just enough to be unhappy at work.
27:06That's one piece of it. I
27:08The unhappiness can be a symptom.
27:11And one of the
27:13one of the
27:15causes can be
27:17that you have a different calling in
27:19life.
27:20And you are not following following your
27:23calling. Now,
27:25sometimes for someone like Bill Gates,
27:27for example, and Paul Allen, they
27:29figured out their calling.
27:31And they just went, right?
27:33For many of us, it may not be that easy.
27:36So,
27:37what we have to do is we have to
27:41um
27:42try a few things. You know, you try on
27:45different shoes to see what fits.
27:47And so,
27:50you know, have some thought experiments,
27:52talk to your friends,
27:53you know, say, "Okay, you know,
27:56I'm a UPS driver. This is what I do. And
28:00I really like playing the guitar, or I
28:02like to make these art figurines or
28:05something at home, whatever else, right?
28:08So, you have to figure out
28:10what your calling is. And
28:13I'm probably not the best person to tell
28:15you how to figure out what the calling
28:16is. Maybe another guest of yours can can
28:18can help them with that. Do you think
28:20everyone has a calling?
28:23Yeah, I mean, I think I think we are all
28:27unique children of God. And I think we
28:31uh we all have some music we want to get
28:33out.
28:34And
28:35uh
28:36knowing what that is and getting it out
28:39may not be the easiest thing, but it's a
28:41worthwhile journey
28:43to try to get there.
28:44Right? So,
28:46we can't do this just because we're
28:48dissatisfied, and we can't do this just
28:50because we want to make money and get
28:51rich. We've got to have something that
28:54we think the world would be interested
28:56in.
28:57And
28:59you know, in my case, I I'd gone through
29:01this uh
29:03session with a couple of industrial
29:05psychologists, and they told me,
29:08"Monish, you like to play games. You're
29:09a game player." And actually, they
29:11couldn't be more accurate. So,
29:15when I was doing my startup,
29:17um
29:19I'm I'm a numbers guy and a math guy, so
29:23I actually like that. So, what I used to
29:26do is
29:28because I had no money,
29:30I used to send 200 letters a week to the
29:33senior IT people
29:36at 200 different companies. But what I
29:38did is, so all these people I was
29:39sending this letter to,
29:41they had a gatekeeper, some secretary
29:44etc., whose job was to not let anything
29:48through.
29:49And my whole purpose was I need this
29:51letter to get through.
29:53It needs to get through the gatekeeper.
29:55So, I was using mail merge, which was
29:58mass producing these letters, but there
30:00was a
30:01customization the mail merge where if
30:03person some person name was David Smith,
30:07it said, "Dear Dave." Okay? And then
30:09throughout the letter, it talked Dave
30:11Dave's name came up like three four
30:13times. When the assistant got the
30:15letter, she couldn't tell whether I know
30:18Dave or not. Because you used his
30:20shortened name.
30:20>> His shortened name, and she doesn't want
30:22to throw a letter that is somebody that
30:24he knows.
30:26So, the letter would go through
30:28Mhm. enough times, right? Now, what I
30:31also did is uh 1 week after those
30:33letters were delivered,
30:36I called I made 200 calls. I called all
30:39200 people.
30:41And basically, if I got voicemail, left
30:43a message, whatever else, right? Now
30:45they have entered the sales funnel.
30:48Okay, so
30:49Dave Smith is in the sales funnel.
30:52If I get no response from Dave Smith
30:55after 1 week there's one more call.
30:58Then the calls start getting spaced out
31:02double time, 2 weeks out, then 4 weeks
31:04out, then 8 weeks out, then 16 weeks
31:07out, but
31:09Dave never leaves that funnel.
31:11Okay, until he tells me
31:15"Do not bother me anymore
31:17and I have no interest." They're going
31:20to stay in that funnel. So the second
31:22week I send out another 200 letters,
31:24make another 200 calls, right? And now
31:28I've got the first week, second week. So
31:31you can see as time goes on
31:34I'm calling nonstop, right? Because this
31:36thing is
31:37but what I was tracking
31:40because I'm a math guy, what I was
31:41tracking is, "Okay, these 200 letters
31:43went out. How many people did I get any
31:46kind of positive response from?" Right?
31:48Because not everyone's telling me to get
31:50lost. Okay? And how many meetings am I
31:53having?
31:55And what is the ratio of calls to
31:57meetings, meetings to close, etc. And
32:02my ticket size of the item I was selling
32:05was very large, hundreds of thousands of
32:06dollars, right?
32:089 months after doing this, where now
32:12let's go back here. So we're going to
32:13take our free time. So what I've tried
32:16to describe is that what I'm doing
32:19is actually more exciting than the
32:22orange. The yellow
32:25is more exciting
32:27than the orange. So basically we are
32:30>> The yellow is our startup. So that's
32:33working on your startup.
32:34>> So on on the weekends
32:37I'm going to do 10 hours a day because
32:38I'm not working, right?
32:41And on the weekdays, I'm going to do 4
32:43hours a day because I've got other
32:44things to do.
32:46Because I have a job and whatever else
32:47is going on. So, there's my weekdays.
32:525 days there when I'm putting in 4 hours
32:54a day.
32:55And then I'm putting in 10 hours on the
32:57weekend. And the free time,
33:01this is not as exciting
33:04as pounding Dave.
33:07Pounding Dave continuously till he says
33:09either get off my back or here's your
33:11purchase order
33:13is very exciting.
33:15It's way more exciting than playing some
33:17social media or watching Netflix or
33:19whatever else. Which is what people
33:21currently do with their free time.
33:22>> Right. So, one of your one of the litmus
33:25test of whether
33:27you need to you should be doing a
33:30startup or not is yellow
33:33needs to be more exciting than orange.
33:37Your startup needs to be more exciting
33:39than your free time.
33:40>> should be so painfully boring for you.
33:44And going on Facebook or Instagram or
33:48whatever should be very boring for you.
33:49Compared to This is exciting. Compared
33:52to building your company. Yes.
33:58So, you know, um the Pink Floyd's song,
34:01"We don't need no education." Yeah. "We
34:03don't need no thought control." Yeah. We
34:05don't need none of this.
34:07This is so useless. You understand how
34:09useless this is? Yellow is where it's
34:11at.
34:13It's not It's not with the orange stuff.
34:15You don't need this. Thank you. See you.
34:18So, we don't need any free time.
34:21This is better than free time. Building
34:23your business. You having an orgasm
34:25every hour.
34:28So, what can you What can be better than
34:30this?
34:31Much of what I do here when I'm having
34:33these conversations is I'm trying to put
34:35myself in the shoes of the person who is
34:37currently sat in a in a 9-5 job and
34:39they've they've got an idea and their
34:41idea is isn't really hasn't really gone
34:43anywhere yet necessarily and the the
34:44pressure they're feeling in their lives
34:46is is probably now a financial one. Like
34:48they want financial freedom. They want
34:49more optionality in their lives to be
34:51able to go on holiday, make more choices
34:53and have more freedom. If you're that
34:55person,
34:56um, what are the mental models that we
34:59haven't discussed yet that you need to
35:01be thinking about to get from zero to
35:02one? So one of the things to keep in
35:04mind is that we live in a world now
35:07where most things that you would want to
35:09do in terms of starting a business
35:13are not capital intensive. What does
35:15that mean?
35:16Doesn't take much money.
35:18In fact, what's been happening over time
35:20is startups need less and less and less
35:24money because they need more and more
35:26and more brainpower.
35:27Right? So the good news is
35:30that
35:32a gating factor
35:34is not that you need money.
35:36When when I started my business, I took
35:40on
35:41I signed up for every credit card that
35:43would come to me. So I had 70,000 in
35:46unused credit lines
35:48in a probably a dozen Visa and
35:50MasterCards, right?
35:52I had about $30,000 in my retirement
35:54account, my 401k, which I also took out
35:56at like 25, I can make that up later,
35:58right? So basically I had $100,000 of
36:01capital.
36:02And
36:03that 100,000 got used because once I got
36:06going, I needed working capital and so
36:08on.
36:09And but then the business was the
36:11business was actually cash flow positive
36:139 months after I was doing this,
36:17I was able to get rid of this.
36:21So after 9 months, my business was
36:23producing
36:24enough cash flow
36:26that I went and resigned.
36:29Okay? And uh yeah, we can we can put
36:32that in here as well. So, what happened
36:35is that
36:37I went to my boss and his boss and
36:38basically told them that
36:41I'm
36:43started a business. It's not competitive
36:45with the company and
36:47I'm going to be leaving in 2 weeks and
36:49this is my two weeks notice. And
36:51basically, that was that, right?
36:53And
36:55you know, they they sat me down and
36:56said, "You know, Monish,
36:58we were so confused for the last 9
36:59months
37:01because
37:02we met several times because we saw big
37:05drop-off in your performance.
37:07But it was never so low that we wanted
37:10to fire you." I said, "Exactly.
37:13That was exactly what I was trying to
37:14do. I was trying to stay just above
37:16firing level." He said, "Well, you
37:17mastered it because we we met several
37:20times, but we couldn't get rid of you."
37:22So, they what they told me is
37:24they said, "Look, when your business
37:26fails,
37:27not if your business fails, when your
37:30business fails,
37:31please come back.
37:33We'll give you more money.
37:35You're going to get a promotion.
37:37And we'd love to have you back."
37:39I could immediately come back. So, I
37:41said, "I got one free shot Yeah. where I
37:45leave my job, I go,
37:47I do this thing, and if it doesn't work,
37:50I'm back to almost exactly where I was.
37:52Almost no change, right?
37:54>> type one, type two decision making.
37:56Yeah. Yeah. And so, and this is not just
37:59me. What risk does Bill Gates take?
38:02Okay, Bill Gates, what is his value
38:05as a Harvard freshman in the job market?
38:10Zero. Okay? He Nobody would pay him
38:13anything.
38:14And he could come back anytime and
38:16finish that degree. So, let's say he
38:18went to New Mexico. Things didn't work
38:20out. He's got wealthy parents in
38:22Seattle, okay? He just comes back,
38:25graduates a year later, and he goes on.
38:28So, what was the risk? There was no
38:30risk. And if you study entrepreneur
38:34after entrepreneur after entrepreneur,
38:35what you're going to find So, if we look
38:38at Sir Richard Branson,
38:41he wants to start an airline.
38:44Okay? Now, to start the airline, you
38:46need a jumbo 747.
38:49That costs like 150 million. The plane?
38:51The plane, right? That's some serious
38:54money.
38:55Richard Branson got Virgin Atlantic off
38:58the ground with zero.
39:00And with zero risk. So, here's what he
39:02did.
39:03You replace capital with creative
39:07thinking.
39:08So, he calls
39:10206-555-1212,
39:13which is directory assistance in
39:15Seattle, Washington.
39:16And he asks for the phone number for
39:18Boeing. Okay? So, he calls the main
39:21Boeing switchboard.
39:23>> Boeing sell the planes, right? Yeah,
39:24Boeing makes the 747. So, he calls the
39:27main switchboard of Boeing, giant huge
39:29company,
39:30and says,
39:31"Uh I'd like to lease a jumbo."
39:33And they hang up on him. Okay?
39:37He calls about 30 times, and they keep
39:40hanging up. And finally, they get tired
39:43of his calls, and the lady says, "Let me
39:46put you in touch with somebody who's in
39:48charge of leasing, and they can tell you
39:50to get lost." Okay? So, she transfers
39:53him to a person who's
39:56actually leasing jumbos.
39:58This person tells Richard, says, "Look,
40:01Mr. Branson, in every country, we have
40:04one customer.
40:06And in the UK, that is the British that
40:08is British Airways. So, we have nothing
40:10to talk about." So, he said, "Well, just
40:12humor me for a second." He said, "If
40:14British Airways called you and said that
40:16they wanted to lease
40:18a old used jumbo.
40:20Do you have one lying around? So, the
40:22guy said as a matter of fact we do, but
40:24that's academic.
40:26He says, well, what would you lease it
40:28to British Airways for just since we're
40:30having a conversation.
40:32What ended up happening is
40:34Boeing leased him that jumbo.
40:37And the reason they leased him that
40:38jumbo is they had one just sitting
40:39around.
40:40So, they didn't really have any risk
40:42because they said the moment the guy
40:43doesn't make any payments, we're going
40:45to pull the plane. Mhm.
40:46>> Right? So, now when you have an airline,
40:50you sell all the seats 4 months in
40:51advance. The cash has already come in.
40:54You pay for the fuel 30 days after the
40:57plane lands and you pay for the lease
40:59after the plane lands.
41:02You don't need any capital.
41:04Virgin Atlantic got off the ground with
41:06zero capital.
41:08Okay, now if you can start an airline
41:10which needs a jumbo with zero capital,
41:14you can start any business with zero
41:15capital. Okay? So,
41:19so basically
41:21when you look at business after business
41:22after business,
41:24all of them what they do is they start
41:26small, they're embryonic, they minimize
41:29risk, they get a few customers, and then
41:32after they just roll with the customers,
41:34right? And then that's how they get
41:35going. So,
41:38so the important thing is that when we
41:40take the blue out, when blue is no
41:42longer here, Which is what?
41:44>> with the work is gone, yellow's going to
41:46almost double or triple because this is
41:49where all the orgasmic activity is. So,
41:52we move the work, we quit the 9-5 job
41:54and we move that time over to work on
41:55our startup time.
41:56>> I was working on my startup like from
41:597:00 to 9:00 in the morning, and then I
42:01would come back 6:00 p.m. and work till
42:0310:00 or 12:00 in the evening. When you
42:05had a job.
42:06>> When I had my job, and then I'd work on
42:07the weekends. And I was so desperate
42:10to just go full-time into it because I
42:12just said if you just let me go full
42:14time,
42:15I can tear it up. And that's exactly
42:18what happened. I mean, we
42:20in about five first year we did 400,000
42:23revenue, second year 1.4 million, third
42:26year 3 million, and by the 6th or 7th
42:28year we were at about 15, 17 million. It
42:31just grew because basically then I had
42:34no shackles on me.
42:35You know, I could just go full out,
42:37right? And the engine I I knew all the
42:39statistics of these letters, so many
42:41calls, so many this, so much this means
42:43this and all of that. And uh it works.
42:47So,
42:48and and if if it doesn't work, you can
42:51go back to your 9:00 to 5:00 and give it
42:53another shot, you know? So, you actually
42:55could do this a few times. I think
42:57that's a really unappreciated framework,
42:59as you call it, or mental model, which
43:01is
43:02cuz you said you sent 200 letters. I So
43:03many times kids come up to me in the
43:05street and they say, "Look, I've been
43:06looking for a job. I've sent
43:09six emails." Yeah. And they go, "No
43:11one's got back to me." Yeah. And you can
43:13see that it's hit hit their confidence.
43:15And now they've actually arrived at the
43:16conclusion that getting a job is like
43:18harder or impossible cuz they sent six.
43:21Now, when I interview people like you,
43:22they all give me much bigger numbers.
43:24They say 200, 300, five, you know?
43:26And there's something in this sort of
43:27law of averages,
43:29which is just like just take more
43:30swings. You know, you see it in like
43:32cricket.
43:32>> My my daughter, when she was graduating
43:36from Berkeley, came to me and I was
43:37really surprised. She said, "I want to
43:39work at a hedge fund." And so I I said,
43:42"Okay." And her degree was not in
43:45business. So, she was not a natural
43:47candidate to be even considered. I said,
43:50"Uh can you make a list
43:52of every hedge fund in New York and LA
43:55and put it in Excel,
43:58managing partner's name, address." Now,
44:01we don't know people's email addresses,
44:04but we know everyone's mailing address.
44:07Okay, the mailing address is a public
44:09piece of data. The address. The address
44:12is easy, right?
44:13And I I said that uh so she she got a
44:16list of about
44:181,200
44:19funds in LA and New York. And I said
44:22what you're going to do is
44:23uh you're going to ask for the job, but
44:26you're going to have two pages behind
44:27that giving them a stock tip.
44:30You're going to give them a pitch that
44:32you have written up of a company that if
44:35they invest in
44:36they're likely to make money.
44:38We sent the 1,200 letters, physical
44:41letters, okay? All physical letters, no
44:43email, right?
44:45And um
44:47there's a 85-year-old guy in New York
44:50who gets the letter. He's retired, the
44:51fund doesn't exist, it shouldn't have
44:53been on the list, whatever. But he has a
44:55friend in LA. He says, "Hey Jamie, why
44:57don't aren't you looking for an
44:58analyst?"
44:59And this girl, she seems to have the
45:01perfect kind of background. And she ends
45:05up with a higher salary
45:08than anyone who went to Berkeley
45:11business school
45:12with a much higher GPA than hers.
45:15I was thinking about
45:17what you're saying um and I made a video
45:20the other day which I think is somewhat
45:22relevant where I was trying to describe
45:24to people how to send a message to
45:26someone
45:27in a way that creates impact. And the
45:31framework that I came up with, which
45:32I'll I'll well animate on the screen,
45:35but is basically
45:36so this axis here is the signal versus
45:40noise of the channel you're using. Mhm.
45:42So a high signal channel is one where it
45:45gets past the PA. Mhm. It's less
45:47saturated, less busy.
45:49A high noise channel, which is the
45:51opposite, would be sending a an email to
45:53the like [email protected]'s
45:56email. So like everyone goes through
45:58that path and it doesn't get doesn't get
45:59to the person. And then the other axis
46:00is basically the emotional impact of the
46:02message.
46:03>> Yeah. So, high emotional impact is doing
46:05what you said, put a stock tip in there,
46:07you're going to stand out, they're going
46:09to think you're a little bit strange, or
46:10what you said about like shortening the
46:11name, that creates more emotional
46:13resonance. And then low would just be
46:14Yeah. AI slop, copy and paste jargon.
46:18And really like the most successful
46:19messages are up here. Absolutely.
46:21>> High like high signal channel, high
46:22emotionally resonant. Absolutely. But
46:24what happens is people send loads of
46:26messages down here
46:28and then they get depressed and
46:29demotivated and say no one's getting
46:30back to me.
46:30>> Yeah.
46:31Like Michael Jordan used to say, you
46:34miss every shot you don't take.
46:36Yeah. Yeah. Yeah.
46:39So, basically, it is
46:41I mean, I think one of the things about
46:43entrepreneurs is that you need to have
46:46resilience.
46:47Um
46:49like for me
46:50for me, what the data I was looking for
46:54is that
46:55if I send 5,000 letters, okay, which
46:59takes 25 weeks, 6 months,
47:03how many
47:04meetings does that
47:06end up in? If that ends up with
47:0910 meetings or 20 meetings,
47:12well, now I have my number, right? And
47:14then the second part is the meeting to
47:16close ratio, right? And so, to me as a
47:19math guy,
47:21I I was just interested to know that
47:24it's not zero. Okay, I just want to make
47:26sure.
47:27And I could see very quickly it was not
47:29zero. Literally within the first 2 3
47:31months I could see it's not zero.
47:33Every business needs a competitive edge,
47:35and if you're great at hiring, that edge
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48:33I think one of the the most formative
48:35experiences you can give your children,
48:37which I got at 16, through through 16 to
48:4019 years old, which is what I did, was
48:42working in cold tele sales.
48:44So, my job at 16 years old was to call
48:46people at 9:00 p.m. cold and try and get
48:49them to buy windows and doors. And it
48:50taught me the exact lesson you're
48:52describing, which is yes, 80% of people
48:54tell you to off. 98% say no, but it
48:57doesn't matter. I always say like 80 80%
48:59told me to off. 15% said it in a
49:01nice way, and then 5% were at least
49:03receptive to what I had to say. Yeah.
49:06Maybe 1% close, but when you understand
49:08that, you think of life through that
49:10lens.
49:11And actually, Stephen I had the almost
49:13same experience. So,
49:15my father was an entrepreneur. He was
49:18really smart at identifying what I call
49:20offering gaps, like things that should
49:23exist in the world, but didn't.
49:25And he would get these businesses off
49:27the ground with no money. I saw him do
49:28it repeatedly.
49:30His downfall was he was very aggressive
49:32in growing the businesses. And so, they
49:34didn't have staying power. There was
49:36almost no equity, always very leveraged.
49:38So, I he went bankrupt eight or nine
49:42times, right? Repeatedly.
49:45When I was um
49:47when I was about 11 or 12 years old, my
49:49brother and I,
49:51we were like his board of directors,
49:52okay? Because he had nobody else.
49:54The three of us would sit down at night
49:57to figure out how to make the business
49:59last for one more day.
50:01Okay, everything's caving in, the
50:03creditors are craving in, the business
50:04is collapsing. How do we make it
50:07work for one more day?
50:09And then the next night we'd get
50:10together and how do we get it work for
50:13one more day again, right?
50:17At 16, and I don't know why my dad did
50:19this, but I'm so grateful that he did.
50:22He was at that time he had a gold
50:23jewelry factory in Dubai.
50:25And he was
50:28going cold calling
50:30in person to jewelry shops to buy his
50:33jewelry that he was manufacturing.
50:35So he took me with him on many of these
50:37trips. And I was 16 just like you,
50:39right? So we would
50:41take the taxi from Dubai to Abu Dhabi.
50:44And now there's all these
50:46gold shops.
50:48He doesn't know any of them, right? And
50:51he's going one after the other after the
50:53other after the other.
50:54And I would be stunned that
50:58fifth shop he makes a sale. Yeah. And
51:01it's a very small sale because he has no
51:03trust and all that, but he's made the
51:05sale.
51:06Then I noticed that after 3 months we go
51:08back to that same shop we made the
51:10little sale to.
51:12The guy brings out tea.
51:14He there's a there's a lot of chemistry,
51:17bigger order.
51:18And then I saw the orders increase,
51:20right? And then he's continuing to do
51:22that. I I went with him to Doha, Qatar.
51:24Uh Qatar. And again, the same thing. It
51:27was like, you know,
51:29I saw how those doors opened. Mhm. And I
51:32saw how it didn't matter to him when
51:34they closed.
51:36That was irrelevant to him.
51:38You know? Really interesting new way to
51:41think about it because what you're
51:42saying there is actually, when you get
51:44that one yes, it's actually a seed
51:47that's being planted that can grow into
51:49something We just care about the ratio
51:52and the number. Okay, so what effort did
51:55it take? Like I was saying, if I send
51:565,000 letters and I get 20 meetings,
52:01it's awesome. Mhm. I mean, that's a
52:03fantastic ratio because one sale is
52:06going to get me about 200,000 or
52:07300,000. It's a significant amount,
52:10right? I mean, so that I don't need
52:11large numbers. And But the lifetime
52:14value of that can huge. Yeah, yeah. I
52:16mean, I mean,
52:17uh these uh these relationships I got
52:20then, they're still with me. Mhm. You
52:22know, so it's uh it's it's like forever.
52:25Here's a philosophical way to think
52:26about that for just everybody, which is
52:29you can remember probably conversations
52:31you had in your life that you thought
52:32were totally inconsequential, but then 8
52:35years later, that seed became a business
52:38relationship. The example I always give
52:40is when I was 14, I applied for The
52:41Apprentice. They did this like junior
52:43apprentice on the BBC. And it's a long
52:46story. 35,000 kids in London and across
52:48the UK applying. I met a kid in the line
52:51while I was queuing up for my audition,
52:53and he said to me, "Oh, my dad runs this
52:55um
52:56500 million-dollar company." And I was
52:58like, "Yeah, whatever. Like, not
52:59interested." I went through the
53:00auditions. I didn't end didn't end up
53:02getting on in the show for whatever
53:03reason,
53:04but then I ended up cuz we were waiting
53:07in the queue that day, I was really nice
53:08to this kid and I added him on Facebook.
53:105 years later, I get a message on
53:12Facebook. Hey, 5 years later, although I
53:15didn't get on the show, which would have
53:16got me about $25,000 investment in my
53:18company if I'd won,
53:205 years later, I'm working on a startup.
53:22That kid from the line says, "Hey, um my
53:25dad has sold his business for a billion
53:27dollars, and I've been watching you on
53:29Facebook for the last 5 years. My dad
53:31would love to meet you." It was a an
53:33Indian family, the Aluwalias. They'd
53:35sold a business called Euro Car Parts.
53:37They took me to London when I was
53:38literally so broke I was like
53:39shoplifting food to feed myself. And his
53:41dad invested double what I would have
53:43won on the show into my business. Um and
53:46I would and that always reminded me that
53:47like every conversation
53:49that I have is like planting a seed that
53:51at any point in my life Sure. could turn
53:53into something.
53:55Well,
53:56I mean, you know, um I always bring up
53:58Adam Grant's book uh
54:00Givers and Takers. I don't know if
54:02you've seen that.
54:04All humans on the planet fall into one
54:06of three categories.
54:08They are either a giver
54:11or a taker
54:13or a matcher.
54:15Okay? These are There are no other
54:17categories of humans. There's just these
54:18are the three categories.
54:20Now, the matchers
54:23are relatively simple to understand.
54:25Their
54:26mental framework is
54:28if Stephen does me a favor
54:31I'm going to try to do something similar
54:32for him.
54:33You know, one-to-one. They can do the
54:35matching in the math in their heads.
54:37The takers
54:39who you don't have anything to ever do
54:40with are trying to scam and screw
54:44everyone.
54:45And always take and never give. Okay?
54:50The takers basically go nowhere. Okay?
54:52And if you have any takers in your life,
54:54get rid of them. Okay?
54:56Now, the givers
54:58what the givers do is the givers
55:01um are not focused on what comes back to
55:04them.
55:06They just want to help you.
55:08They want to help humanity.
55:10And what end up happening is
55:13the universe conspires to help them.
55:15Mhm. So, the givers
55:18become the most successful.
55:21Everyone is trying to give to them
55:25even though they're not asking for it.
55:28So, basically
55:31when we and that's the book that Adam
55:33Grant Grant wrote, Givers and Takers, is
55:37one of the mental models with is a great
55:39mental model to have, is to be a giver.
55:42Don't play math games, you know, always
55:45try to make sure the other guy gets the
55:47better end of the deal.
55:49And just keep going through your life
55:51that way, and that goodwill
55:54will compound.
55:56And it will take care of itself.
55:59And the time horizon, you don't worry
56:01about the time horizon.
56:01>> You're not doing it for getting
56:03something back. That's the key. You're
56:06not doing any mathematics, like I'm
56:07going to do you're not calculating.
56:10I'm going to do this so XYZ happens.
56:14You're just doing it, end of story.
56:17I was sat with my girlfriend last night.
56:18She runs a breath work business, so
56:20she's essentially a solopreneur.
56:22Um, and she's at that point where she's
56:23trying to scale. In fact, I just meet so
56:25many I think I I actually ran a survey
56:27before. And the vast majority of
56:30business owners are in that SME
56:31category, that small small sort of
56:34business category. The back startups are
56:35the backbone of our economy, but they
56:36they come to me with the same problem,
56:38which is
56:39maybe I started as an individual, I've
56:41got high demand, and now I'm a
56:43bottleneck. And I don't know how to get
56:45out of being like a freelancer. How does
56:47the freelancer become an agency? And the
56:50the thing I was chatting to my
56:51girlfriend about last night was um
56:54the step she hasn't taken yet is to hire
56:57someone exceptional.
57:00And so many founders come to me, these
57:01early stage founders are like
57:03like I I I my customers like me, I do it
57:06better, I don't trust anybody. I I
57:08wondered if you had a like a mental
57:10model for thinking about
57:12>> the thing is, so if you look at people
57:13like Elon Musk and Steve Jobs,
57:18they believe their number one job is
57:21recruiting.
57:22The first 3,000 people who joined SpaceX
57:27all personally interviewed by Elon.
57:30Just think about that. Those are 3,000
57:33hires.
57:34Think about the number of interviews to
57:37get the 3,000 hires, okay?
57:40He
57:42did not believe there was any other way.
57:46And
57:47what Steve Jobs used to say is that
57:50A players
57:52want to work with A players.
57:55The moment you start introducing B
57:57players,
57:59B players will hire B and C players.
58:03They will never hire an A player. So,
58:05your downhill the journey's already
58:08started the moment you get a B player.
58:11And so,
58:12as an entrepreneur,
58:14you know, we have a lot of demands on
58:16our time, right?
58:18But, recruiting
58:21has to be at the top.
58:24And you've got to be willing to spend
58:26inordinate amounts of time
58:29on recruiting.
58:31Okay? And um
58:34There's you know, there are tools that
58:36you can use. We use uh There's a company
58:38called Caliper we use for pre-employment
58:41testing.
58:42And the thing is that
58:44between the genetics of a human and the
58:47first five years of the life experience,
58:49who they are,
58:51their traits are hard-coded.
58:54That is not going to change from 5 to
58:5795, okay? So, it's not like you're going
59:00to change a human. Human is the way they
59:02are, okay? Now, these pre-employment
59:06testing tests
59:08can get you data that you're not going
59:10to get in an interview.
59:12One of my companies I'm building at the
59:13moment is called culturetest.com.
59:15It's exactly this. Okay. Um
59:19I mean, you're just like preaching
59:21preaching to the choir here.
59:22>> But, what I'm saying is that It It was
59:24the most
59:24>> we need to get really good at
59:26recruiting. Yeah, it's my absolute
59:28absolute obsession. And what I found out
59:31is that, funnily enough, from doing
59:32these culture tests. So, I've kind of
59:33culture tested tens of thousands of
59:35people in the general population now.
59:37And the shocking part was, just to give
59:39you some context on what it does, it
59:41benchmarks our best-performing people
59:43and how they make their decisions. The
59:44assumption here is that culture isn't
59:46the thing you come up with at the
59:47offsite. Culture is how you would behave
59:50on Christmas Eve when you get a text
59:52message from a client. Like, what you do
59:54there is your company culture.
59:56Basically, it creates these questions
59:58which simulate optimal culture in that
1:00:02team.
1:00:03And it puts you in that scenario and
1:00:04says, "What do you do?"
1:00:06This is probably a good point to talk to
1:00:07you guys about culturetest.com, which is
1:00:09the website we're about to launch for
1:00:11anyone who has the responsibility of
1:00:13hiring someone, which is probably
1:00:14everybody listening. One bad hire can
1:00:16destroy your entire company. So, we made
1:00:18culturetest.com
1:00:20so that you guys at home can spot those
1:00:22red flags and avoid those hires that
1:00:24might be the end of your business.
1:00:26Culture Test will make you your own
1:00:27personalized culture test so that you
1:00:29can screen every single person that
1:00:31wants to be in your team and your
1:00:32current team members and people that
1:00:35have left to see how they align. Just go
1:00:37to culturetest.com
1:00:39and put your email address in. And the
1:00:40minute we launch, I'm going to send you
1:00:42an email so you can try it before
1:00:43anybody else.
1:00:45So, recruiting is really important. And
1:00:47I think the other thing is uh
1:00:50we're willing to
1:00:52hire people
1:00:54who may not do things as well as we do.
1:00:55But actually also what I have also found
1:00:57is I have so many people on my team who
1:01:00are better than me.
1:01:02You know, they're better at many of
1:01:04these things because it's not my natural
1:01:06bent to do those jobs. So, that's really
1:01:10when you get a huge bang for the buck
1:01:13is you end up with team players that are
1:01:15way better than you.
1:01:17How do you think about firing people?
1:01:19Cuz this is the other thing I've found
1:01:20is slow, fire fast.
1:01:26Founders really struggle with the fire
1:01:28fast thing. And uh
1:01:31it is very important
1:01:34to fire fast.
1:01:36I think fire fast is more important than
1:01:38hire slow.
1:01:41And you're doing the person a a service
1:01:44because they may be exceptional in
1:01:46another role
1:01:48at another place.
1:01:49So,
1:01:51you are helping them
1:01:54try to find that.
1:01:56If
1:01:57>> And you're helping your other team
1:01:58members.
1:01:59If I was trying to work for your
1:02:01companies, it what is the one
1:02:03non-negotiable? Like what is the trait
1:02:05that I would demonstrate where you would
1:02:06immediately not even consider me?
1:02:08The most important is integrity.
1:02:11Mhm. You know, I mean
1:02:14we we want three traits, right? We want
1:02:17intelligence,
1:02:19we want integrity, and we want
1:02:21willingness to work hard.
1:02:23Right? And none of these three are
1:02:25really negotiable. And what does
1:02:27integrity mean in your definition? Well,
1:02:29it's absolute honesty. It's pretty
1:02:31simple.
1:02:32You know, it's black and white.
1:02:34And you conduct yourself with the
1:02:35highest level of ethical standards.
1:02:39So, on all fronts, when you're dealing
1:02:40with a customer or
1:02:43internally or externally, it's the moral
1:02:46standards need to be very high.
1:02:48When you think about your wealth, how
1:02:49much of it has come from building
1:02:51businesses versus being a great investor
1:02:54of the capital that you managed to make
1:02:56from those businesses?
1:02:57I think currently most has come from
1:03:01the investing side.
1:03:03You're very well known for being a
1:03:04really excellent investor over many many
1:03:07many many many years.
1:03:09I'll put a graph on the screen that I
1:03:11found which I think shows
1:03:12the returns of your investment strategy
1:03:15versus the the Dow Jones. This graph,
1:03:18Have you seen that one before?
1:03:19I haven't seen it this way, but people
1:03:21put up all kinds of things. Yeah. I
1:03:23mean, all this says is that you're
1:03:24extremely good at investing.
1:03:26So, I want to know if I if I'm in
1:03:29starting my investing career, I'm
1:03:31working in a 9-5 job at the moment. I've
1:03:32got a couple of thousand dollars in my
1:03:34my bank account. How should I be
1:03:36thinking about investing? Should I be
1:03:37investing?
1:03:39So,
1:03:41there are um
1:03:45there are three things that matter
1:03:48in terms of getting a great outcome with
1:03:51investing.
1:03:52Um
1:03:54starting capital,
1:03:56how much the amount you start with,
1:03:59length of the runway,
1:04:01how long
1:04:02are you going to invest the money, Mhm.
1:04:05and the rate of return.
1:04:07Okay, so
1:04:08before I answer your question,
1:04:11I want to
1:04:13tell you a story.
1:04:15So,
1:04:16and this is a true story.
1:04:18Um in 1623,
1:04:22in New York, the
1:04:25Native American Indians in New York who
1:04:28owned the island of Manhattan,
1:04:30the Dutch settlers wanted to buy the
1:04:32island.
1:04:33And so, they went to the Indians and
1:04:35said, "We'd like to buy the island of
1:04:36Manhattan. Great natural
1:04:38harbors. It can be a great place for
1:04:41us."
1:04:43And the Indians and the Dutch reached an
1:04:45agreement to sell the island of
1:04:48Manhattan for $23.
1:04:50And when people hear that, they think,
1:04:54"Oh, the Indians got taken."
1:04:56You know,
1:04:57island of Manhattan for $23 is
1:04:59ridiculous.
1:05:00But, let's say
1:05:03let's say the Indians had a trust
1:05:05officer who they said, "Invest this $23
1:05:09for the benefit of the tribe
1:05:11and try to do a decent job, right?
1:05:14Now,
1:05:15there's something known as the rule of
1:05:1672.
1:05:18And the rule of 72 is a is a very
1:05:20important rule and I wish they would
1:05:22teach it more in high schools and
1:05:25elementary school.
1:05:27It tells us how long it takes money to
1:05:30double and it's a kind of a mathematical
1:05:32hack. So, for example,
1:05:34if I'm going to get a 7% return
1:05:37and I do 72 / 7,
1:05:40that's approximately 10.
1:05:43And at the 7% return, it's going to take
1:05:4610 years for the money to double. 7%
1:05:48compounded will take 10 years.
1:05:50If I have a 10% return,
1:05:53it will take 7 years.
1:05:5572 / 10 is 7. If I have a 15% return,
1:06:00it will take 5 years. 72 / 15 is 5,
1:06:03approximately.
1:06:05And if I have a 20% return, it'll take 3
1:06:08and 1/2 years.
1:06:10So, this rule of 72 is a nice hack and
1:06:13it's very important to know how long
1:06:15money takes to double because then we
1:06:17can start doing a lot of math in our
1:06:18heads.
1:06:19So, when we look at these Indians with
1:06:21the $23, if they were getting a 7 7%
1:06:25return,
1:06:26it would become $46 in 10 years.
1:06:30And then it would become $92
1:06:32in 20 years.
1:06:33And
1:06:35$184 in 30 years
1:06:38and so on.
1:06:40Now, if you go 100 years,
1:06:43right? It's 10 periods of 10.
1:06:47And 10 periods of 10 is 2 to the power
1:06:50of 10.
1:06:52And 2 to the power of 10 is 1,024.
1:06:55So, we throw away the 24 because we
1:06:57don't want to complicate the math.
1:06:59So,
1:07:00at 7%
1:07:03for 100 years,
1:07:05you would have 1,000 times what you
1:07:07started with.
1:07:08And this is why because compounding
1:07:10becomes non-linear, people have a hard
1:07:12time getting their hands around it. So,
1:07:14Non-linear meaning? It's not going up in
1:07:16a straight curve. It's going up in a
1:07:19Hockey stick.
1:07:20>> Hockey stick club, yeah. So,
1:07:23in 1723, the Indians would have 23,000.
1:07:27It had gone up a thousand.
1:07:29And then if they continue at the 7% in
1:07:321823, they would have 23 million.
1:07:36And in 1923, they would have 23 billion.
1:07:41And in 2023,
1:07:43they'd have 23 trillion.
1:07:45Okay? Now,
1:07:47the entire wealth of every man, woman,
1:07:49and child in the United States is 150
1:07:52trillion.
1:07:541/6 of that is not
1:07:57undeveloped land in Manhattan.
1:08:00So, if the Indians had invested at 7% a
1:08:02year for the last 400 years,
1:08:06they would have more money than owning
1:08:08the land.
1:08:10So, they were not taken.
1:08:12They were given a fair deal.
1:08:15But they just didn't have a good trust
1:08:16officer who could actually make it
1:08:18happen for them.
1:08:19So, the
1:08:22magic of compounding
1:08:24is that we started with $23.
1:08:28And we end up with 23 trillion.
1:08:31Without having a great rate of return.
1:08:33It's just an okay 7% is just okay. It's
1:08:36not great. It's not bad, but it's okay.
1:08:39Now, if you go back a hundred years. So,
1:08:41we started at 1623, go back a hundred
1:08:43years to 1523.
1:08:45We had 2300 cents in 1623.
1:08:502300 cents? $23 is 2300 cents.
1:08:54>> Oh, okay. If If they'd got it Just
1:08:56convert it to cents instead of dollars,
1:08:57right? Now, if you
1:08:59make it 1/1000 of that. So, just so I'm
1:09:02clear here. So, if you're saying if you
1:09:03went back 100 years from that point and
1:09:06you gave them just 23 cents.
1:09:08>> If you gave them 2 cents. If you gave
1:09:10them 2 cents. 2.3 cents to be exact.
1:09:13But, if you just gave them 2 cents Yeah.
1:09:16100 years later, they would be $20.
1:09:19If you gave them 2.3 cents, 100 years
1:09:22later they'd be $23 and now it would be
1:09:25the 23 trillion, right? So,
1:09:28what I'm trying to say is that
1:09:31if the runway is long enough,
1:09:34the starting capital doesn't matter.
1:09:37Even the rate of return doesn't matter.
1:09:40If the runway is long enough. Now, so
1:09:42when people are thinking about
1:09:43investing,
1:09:45they have to keep a few things in mind.
1:09:47The first thing is spend less than you
1:09:49earn.
1:09:51So,
1:09:52always try to
1:09:54save the first dollar rather than the
1:09:57last dollar.
1:09:59So, if you are making $50,000 a year,
1:10:03put 5,000 into savings to start with and
1:10:05then
1:10:06do the rest of your expenses after that.
1:10:09Now,
1:10:10it's very important when we saw with
1:10:12this example, you start young.
1:10:15So, when people start working at 22 or
1:10:1723, whenever they start working,
1:10:20they have to be saving then.
1:10:22Because that early money at 22
1:10:26can compound for 50 years.
1:10:29And that's what we want. So, we don't
1:10:31need to do heroic things
1:10:34with finding the next Nvidea or whatever
1:10:36else.
1:10:37We can just put it into an index
1:10:40and the important thing is spend less
1:10:42than you earn and keep putting that 5,
1:10:447, 10,000 every year
1:10:47into the savings. Don't go have a
1:10:50vacation on Hawaii with it.
1:10:52Let it keep compounding and just put it
1:10:54into a broad index
1:10:57and we don't really
1:10:58So, for someone who has never invested
1:11:00before, Yeah.
1:11:01>> which would probably be the majority of
1:11:03the audience, how do we simplify even
1:11:05further in terms of just put it in an
1:11:07index? What does that mean? So,
1:11:09basically,
1:11:11you could open an account at
1:11:14Fidelity or Interactive Brokers or
1:11:16Robinhood, any of these places. You
1:11:19could open a brokerage account for very
1:11:21little money. And there's lots of them
1:11:22in every country. Yeah, and then you
1:11:24could just uh
1:11:27ask them to give to buy you the S&P 500
1:11:31index, for example. And they will get
1:11:34you invested in that.
1:11:36>> And the S&P 500 is basically the top 500
1:11:39companies in
1:11:40>> It's the Yeah, the 500 dominant
1:11:42businesses in the US.
1:11:45Like Nvidia's in there and Microsoft and
1:11:47Apple and so on. And you're going to get
1:11:49your 10% a year if it if the trend holds
1:11:52over the last century. The S&P has
1:11:55plenty of periods where it does nothing.
1:11:58Uh it's somewhat overheated right now.
1:12:01Uh but I think if you have a long enough
1:12:03time of time horizon and you're dollar
1:12:04cost averaging in, it's perfectly okay.
1:12:07Uh
1:12:08what you could also do as an alternative
1:12:11is buy Berkshire Hathaway.
1:12:14So, that's a stock, BRKB. So, you could
1:12:16again tell these people that just put it
1:12:18into Berkshire Hathaway. It's like an
1:12:20index.
1:12:21And And again, it's like set it and
1:12:23forget it. You don't need to think about
1:12:25the investing side. You
1:12:27focus on yellow,
1:12:29okay? And keep putting this little money
1:12:31away on the side,
1:12:33and it's going to compound. And so, at
1:12:3518,
1:12:37if you put away $5,000,
1:12:40and you fast forward to when you're 68,
1:12:4450 years later,
1:12:46right?
1:12:47Now,
1:12:48if if you got a
1:12:5110% return on that money. Every year?
1:12:54Let's say.
1:12:55Every 7 years it would double.
1:12:58Okay, 72 / 10 is 7.
1:13:0250 years
1:13:04is seven doubles. 7 * 7 is 49.
1:13:08And
1:13:112 to the power of 7
1:13:13is 128.
1:13:15Okay.
1:13:16So, we can throw away the 28. Keep it
1:13:19simple.
1:13:21You're going to have 100 times what you
1:13:22started with.
1:13:24So, the 5,000 at 18 is going to be
1:13:26500,000.
1:13:28Okay.
1:13:30At 19, if you put money away, that's
1:13:32another 500,000.
1:13:3420, you might have 10,000 you can put
1:13:37in.
1:13:38So, you can start seeing that over a
1:13:40lifetime,
1:13:41you know, you're going to be
1:13:44having too much money.
1:13:47As you might have been able to tell, I'm
1:13:49absolutely fascinated by the psychology
1:13:52behind high-performing sports teams. I
1:13:54think it started with my love for Sir
1:13:55Alex Ferguson as a Manchester United
1:13:57fan. So, when I was told about a new
1:13:59Netflix series that covers the rise of
1:14:01the Dallas Cowboys, it immediately
1:14:03piqued my interest. And this isn't
1:14:05because I'm mad about American football.
1:14:07I'm not. I don't even watch it. But I do
1:14:09know about the Dallas Cowboys, and for a
1:14:10lot of Texans, they're much more than a
1:14:12sports team. I watched this series, and
1:14:15it is absolutely
1:14:17brilliant. It centers on Jerry Jones, an
1:14:19oil businessman with no football
1:14:21background, who bought the Cowboys in
1:14:23the late '80s and transformed them into
1:14:25the most valuable sports franchise in
1:14:27the world. It's all about how one guy
1:14:29assembled a powerhouse team in the 1990s
1:14:33made up of legendary players and
1:14:34coaches, and through fearless
1:14:36decision-making led his team to three
1:14:38Super Bowl victories. And I really
1:14:40enjoyed it, and I think you might, too.
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1:15:59You've been referred to as the the
1:16:00Dhandho investor. And uh I've I've got a
1:16:03book here which you wrote called
1:16:06the Dhandho investor.
1:16:08What what
1:16:10What does this word Dhandho mean? And
1:16:12why do they call you the Dhandho
1:16:13investor?
1:16:14Dhandho is actually a word from Gujarat,
1:16:17which is on the on the western coast of
1:16:19India, where Gandhi came from. They're
1:16:22extremely astute business people. And
1:16:25Dhandho,
1:16:26if you translate it directly in
1:16:28Gujarati,
1:16:30it means business.
1:16:32But it doesn't really mean business.
1:16:34What it means is it's a way of doing
1:16:36business
1:16:38where
1:16:39the downside is non-existent.
1:16:43We already discussed how Mr. Branson
1:16:49is a Dhandho investor.
1:16:51He had no downside.
1:16:53Uh
1:16:53Mr. Gates was a Dhandho investor. He had
1:16:56no downside. Mr. Walton was a Dhandho
1:16:58investor. They had no downside. So, all
1:17:00of these people embarked on businesses,
1:17:03built huge fortunes
1:17:05without taking risk. And so, the Dhandho
1:17:09investor was written from the
1:17:10perspective of
1:17:12how can we minimize risk
1:17:16while keeping the returns intact. You
1:17:18use this example of the Patels. Mhm.
1:17:21What is What is that story? The Patels
1:17:24uh
1:17:25went to Uganda
1:17:28more than 100 years ago, maybe close to
1:17:30130 years ago. It was a family? It's a
1:17:34ethnic group in India.
1:17:36>> And so, this ethnic group came to Uganda
1:17:39to build the railroad.
1:17:41And
1:17:43but they're very savvy business people.
1:17:46And
1:17:48over the course of the last 100 odd
1:17:51years, uh when they were in Uganda,
1:17:54through their Dhandho methods of doing
1:17:56business, they became very successful
1:17:59entrepreneurs.
1:18:00And they controlled large parts of the
1:18:03Ugandan economy. And Idi Amin came to
1:18:07power in Uganda in the 1970s.
1:18:10And he said Africa is for Africans.
1:18:14So, what he did is he threw all the
1:18:16Patels out.
1:18:18And he nationalized all their assets.
1:18:21So, now the Patels
1:18:24were stateless.
1:18:26The US took them in.
1:18:28The UK took some in. Canada took some of
1:18:30them in.
1:18:32And when they landed in the US, they
1:18:33basically really didn't have any skills
1:18:37that would allow them to get good jobs,
1:18:39white-collar jobs in the US.
1:18:42And
1:18:44what a few of them started to do was
1:18:47they realized
1:18:49that if they bought a motel
1:18:52a small 10 or 20 room motel
1:18:56uh the family could live in one or two
1:18:57of the rooms and
1:19:00they could use the money they got out
1:19:02and get a bank loan.
1:19:05And run the motel. Now, motels are very
1:19:08labor-intensive businesses. So, what
1:19:10they did is when a Patel took over a
1:19:11motel
1:19:13they fired all the staff.
1:19:15And the family took over all the jobs,
1:19:18you know, the cleaning and front desk
1:19:20and everything else, right?
1:19:22And the Patels are vegetarians
1:19:26and they have very they live they live a
1:19:28very simple life. So,
1:19:31when a Patel took over a motel in an
1:19:33area, what they were able to do is they
1:19:36were able to undercut the prices
1:19:39of all the other motels in the area
1:19:40because they have no labor.
1:19:43They have no payroll, they have no
1:19:44workers' comp, none of those things.
1:19:46And so, they were if everyone else is
1:19:48charging $25 a night, they're charging,
1:19:50you know, 19 a night. So, their
1:19:52occupancy was higher than everyone else.
1:19:55And they saved their money and then what
1:19:58they would do is buy the next motel.
1:20:01Send the nephew to run it.
1:20:03And then buy the next motel.
1:20:05And this started happening in the early
1:20:07'70s and when you fast forward to today
1:20:1180% of all the motels in the US
1:20:16are under Patel ownership.
1:20:1880%. So,
1:20:21the Patels make up
1:20:23.1%
1:20:26of the US population.
1:20:29Indians make up about
1:20:31little over 1%. Maybe 1.2, 1.3%.
1:20:35Just 1/10 of that is the Patels. And
1:20:37this 0.1% population
1:20:40is controlling 80% of the motels in the
1:20:44country.
1:20:45And um
1:20:48it's because of the Dhandho way.
1:20:51So, if I want to steal from the Dhandho
1:20:53way, you told me it's good to be a
1:20:54copier.
1:20:55Um what are the principles of the
1:20:57Dhandho way that I need to be thinking
1:20:58about? Cuz I think there was
1:21:01Was there nine? Yeah, there was nine
1:21:03principles in total in the book.
1:21:05>> Well, the most important one is heads I
1:21:08win,
1:21:09tails I don't lose much.
1:21:13Everything we discussed today, Stephen,
1:21:16is heads I win, tails I don't lose much.
1:21:19When I started my business,
1:21:22when Bill Gates started, when Sam Walton
1:21:24started, and when Richard Branson
1:21:26started,
1:21:27that was the formula.
1:21:30If they won, they would win big. And if
1:21:33they lost, they'd lose nothing.
1:21:35So, everything has to be in business
1:21:39about risk reduction.
1:21:41Everything has to be about free lunches.
1:21:43We love free lunches. Okay, so we always
1:21:47have to think about how do we get this
1:21:49done
1:21:51without capital, without risk, free
1:21:53lunches.
1:21:55Do you think there's an opportunity for
1:21:56people, cuz everybody's at the moment
1:21:57thinking about AI and technology and
1:22:00these like really advanced um
1:22:02new innovations as an opportunity, but
1:22:05does that create an opportunity in the
1:22:06boring?
1:22:08In the motel? In the laundry mat?
1:22:12Yeah, so, you know, the reality is so
1:22:15entrepreneurship is not studied much in
1:22:18business schools because there's nobody
1:22:20going to give you a consulting project
1:22:21for
1:22:22studying entrepreneurs.
1:22:24If we really study startups
1:22:27in the US or actually anywhere in the
1:22:29world,
1:22:3099.99%
1:22:33of startups
1:22:34are non-venture backed.
1:22:36What What does that mean? What I What I
1:22:38mean by that is those are your
1:22:40laundromat, your Chinese restaurant,
1:22:43your
1:22:45you know, eBay seller,
1:22:47whatever, Amazon seller, so on, right?
1:22:49The small businesses.
1:22:51None of those companies were
1:22:54formed because of venture capital. So,
1:22:56the media focuses on all the venture
1:22:59capital-led businesses.
1:23:02And so, people think that oh, if I have
1:23:03to do a startup, I got to do something
1:23:06in technology.
1:23:07Well, that's like 1/10 of 1% or less.
1:23:10You can ignore it. You don't need to
1:23:12really worry about it.
1:23:14Uh
1:23:15the important thing
1:23:17is to be an observer
1:23:20and to look at uh what what uh my dad
1:23:24would call offering gaps.
1:23:26So, let me explain an offering gap,
1:23:28right? So,
1:23:30let's say
1:23:32there's a town We Let's call it town A.
1:23:35Town A,
1:23:37there's a barber shop in town A.
1:23:39Okay, and the barber's
1:23:41one of many barbers doing well, etc.
1:23:44There's another town about 30 miles
1:23:46away, town B, which also has barbers.
1:23:49They're also doing fine.
1:23:51There's a new township coming up in the
1:23:53middle of these two towns called town C.
1:23:57Town C doesn't have much of a
1:23:59population, but it's growing fast.
1:24:02So, the barber in town A goes to see
1:24:05what the all the hoopla about town C is
1:24:07all about. So, he makes a takes a trip
1:24:10there, sees that there's some increase
1:24:12in population, people are moving in, and
1:24:13he notices
1:24:15there's no barber shops.
1:24:17Why would there be any barber shop?
1:24:18Because it's brand new, right?
1:24:21So, he's thinking, how do I do this
1:24:23without taking risk?"
1:24:25And what he does is he rents a
1:24:29subleases a small storefront,
1:24:32buys some used barber equipment,
1:24:35and then decides that one day a week
1:24:38he's going to go into that town and cut
1:24:40hair every Wednesday.
1:24:42He puts up a note board saying, "I'm
1:24:44available Wednesdays."
1:24:46And
1:24:47what happens is
1:24:49people start coming in.
1:24:52They come in because they have no
1:24:53choice. If you don't go to this barber,
1:24:56you're going to spend half an hour
1:24:57driving to one of the other two towns.
1:24:59Now, he normally charges 30 bucks for a
1:25:01haircut.
1:25:03But here, he doesn't need to charge 30
1:25:06because there's an opportunity cost of
1:25:07the time you're saving. So, he can
1:25:10charge 45.
1:25:12So,
1:25:13he's charging 45 over here, and then
1:25:15when he's in his own town, he's charging
1:25:1730. Now, what he what he notices is
1:25:19Wednesdays are filled up.
1:25:20So, he says, "Tuesday and Wednesday."
1:25:23Okay, and gradually what ends up
1:25:26happening is that that business
1:25:29is full-time,
1:25:31and he's making 45 bucks an hour per
1:25:33haircut.
1:25:35But the nature of capitalism is more
1:25:38barbers are going to show up.
1:25:41So, the second barber comes in, the
1:25:43third barber comes in. Eventually, the
1:25:46haircut there is going to be 30 bucks.
1:25:48It's going to neutralize. But in the
1:25:49meanwhile,
1:25:50he's doubled his business.
1:25:52Right?
1:25:53What risk did he take?
1:25:56So,
1:25:57going into town C was addressing an
1:26:00opportunity gap.
1:26:03When Howard Schultz started Starbucks,
1:26:07he saw an offering gap.
1:26:09He thought that what
1:26:11Italians love about cafes
1:26:14might be what Americans love, too.
1:26:17Didn't exist, right?
1:26:19And he went and did it. You know that
1:26:22barber that moves into town C first and
1:26:24they're really having a great time
1:26:25because there's no competition.
1:26:27One of your points when you're talking
1:26:28about the Dandam method is this idea of
1:26:30creating a durable moat. It's point four
1:26:33of the nine. So So sometimes what
1:26:35happens is
1:26:37that
1:26:38you start a business. Every business
1:26:40starts off without a moat.
1:26:43What is a moat?
1:26:46We have a castle.
1:26:49A knight in charge of the castle
1:26:52to keep the invaders away. And one of
1:26:55the ways to keep the invaders away is
1:26:57you put a moat of water around the
1:26:59castle.
1:27:00So when you put a moat of water around
1:27:02the castle, it makes it harder for
1:27:04anyone to take the castle.
1:27:06And a business with a moat around it is
1:27:09a business that competitors
1:27:12will have a difficult time take this
1:27:14taking business away from. So what can
1:27:16happen with our barber in town C?
1:27:19Humans are creatures of habits.
1:27:22We don't like to change our barber every
1:27:23month.
1:27:25We like the same barber.
1:27:26So if he's competent and good,
1:27:29what's going to end up happening is that
1:27:31his client base will stay with him. What
1:27:34about loyalty points? I was just struck
1:27:36the other day when I was shopping in LA
1:27:37at Erewhon, which is a supermarket here
1:27:39in LA, and I had someone who'd
1:27:41recommended to me on the plane, which
1:27:42actually goes to your point about
1:27:43actually give a great product cuz an
1:27:45airline hostess on my flight over here
1:27:47went, "Oh, you're you're on keto diet.
1:27:50You need to go check out Erewhon." I got
1:27:51to So that's the recommendation
1:27:53>> 10x more powerful than any ad or
1:27:55anything else they could run.
1:27:56>> And I went there Yeah. when I landed cuz
1:27:58I needed a supermarket and didn't know
1:27:59the place. But then interestingly, what
1:28:01I was at the checkout yesterday after my
1:28:02second visit, the lady at the checkout
1:28:04goes, "Hey, are you are you an Erewhon
1:28:05member?" And I was like, "Erewhon
1:28:07member?" And she was it does cost She
1:28:09went She was honest. She went, "It costs
1:28:11money, but here's what you get. She goes
1:28:13on this order today, you would have got
1:28:1410% off this entire order. It's
1:28:16expensive that one. And she goes, and we
1:28:18give you a drink every month. She listed
1:28:19all the things off.
1:28:21I signed up and bought the membership to
1:28:22L1. I tell you now,
1:28:24I'm not going anywhere else.
1:28:27I don't know what it is, but now that
1:28:29I'm a member and I have the app, I'm not
1:28:30going anywhere else. Well, that's Now,
1:28:32that's the hack that Amazon did, right?
1:28:35With Prime.
1:28:37And um
1:28:40two or three years ago, I was uh I was
1:28:42seated at dinner next to Bill Gates. You
1:28:45know, my middle name is Forrest Gump.
1:28:47These things happen once in a while.
1:28:49And Bill is Bill is describing to me how
1:28:54the business model of Costco
1:28:56and the business model of Amazon is
1:28:58illegal. Okay? So, I said, "Why is it
1:29:01illegal?" He said,
1:29:03"When you
1:29:04When you put a membership fee,
1:29:07what what you're doing to the consumer
1:29:09is you're locking them in.
1:29:11Mhm. Which means the consumer is no
1:29:13longer going after the lowest price
1:29:17because there is a distortion in their
1:29:18behavior." Yeah. Okay? So, now the FTC
1:29:23doesn't believe it's illegal, but Bill
1:29:24Gates does. And I was just thinking,
1:29:26"Well, that's because you're competitive
1:29:28with Amazon." Mhm. You know? Yeah, yeah,
1:29:30yeah.
1:29:31That Prime thing with Amazon is super
1:29:33smart.
1:29:33>> Yeah, and and that was taken from
1:29:34Costco.
1:29:36Oh, okay. I get it.
1:29:37>> But basically, yeah, the lock-in
1:29:39lock-in is very powerful.
1:29:42What one company I wanted to talk to you
1:29:43about was Apple.
1:29:44Because Apple I find is a really
1:29:46interesting company. You You talked
1:29:48about being a copycat, kind of arriving
1:29:50later to the party with new things.
1:29:53They've kind of been a story of both
1:29:55sides of the equation. They've been
1:29:56innovative, it seems, especially under
1:29:58Steve Jobs. And more recently,
1:30:00I mean, they were like copying other
1:30:02people, but now I'm not even sure what
1:30:04they are. Well, so Apple is a very
1:30:06unusual company in that
1:30:09everything emanated from one guy. Mhm.
1:30:12Okay.
1:30:13And that one guy has been gone for a
1:30:15long time. And if you look at Apple,
1:30:19basically nothing new has come out
1:30:22since he left.
1:30:24We don't have a Steve Jobs at Apple.
1:30:27We
1:30:28And and the same thing happened at
1:30:30Disney.
1:30:31You know, they had to buy Pixar
1:30:33because there was no Disney anymore. Mr.
1:30:35Disney was gone.
1:30:37And so, Apple actually I I find
1:30:43somewhat risky.
1:30:45As an investment? Yes, because
1:30:48if the form factor, so currently humans
1:30:51walk around with a brick in their
1:30:53pockets or in their hands.
1:30:56At some point that form factor is going
1:30:57to change. It may be integrated into
1:31:00something we wear or some other more
1:31:03ergonomic
1:31:05situation.
1:31:07That may or may not be Apple.
1:31:10And in fact, more likely not to be
1:31:12Apple. It's probably some guy in a
1:31:13garage somewhere.
1:31:15And so, if they are smart enough to
1:31:18find the guy in the garage early enough
1:31:20and buy them, they're okay.
1:31:23And bring them in as the next Steve
1:31:24Jobs, that's okay.
1:31:26But
1:31:27even there the odds are low.
1:31:29What does this say to you about
1:31:30founders?
1:31:33The specialness of founders. Are they a
1:31:35unique animal?
1:31:37Or can you swap them out and still be
1:31:40tremendously successful? Well, I would I
1:31:42would say that
1:31:45there's
1:31:46there are a lot of elements of luck.
1:31:49So, first of all, founders are all great
1:31:52at what I call offering gaps, right?
1:31:53They find something that the world
1:31:55doesn't have, that needs, etc. and they
1:31:57go after it.
1:31:59Sometimes what happens with these
1:32:00offering gaps is a moat gets built.
1:32:04Right? Someone starts Visa, it becomes a
1:32:06multi company or American Express and so
1:32:08on. And and it
1:32:10perseveres and scales. Like Apple with
1:32:13their ecosystem, the closed ecosystem.
1:32:15But
1:32:17100% of businesses
1:32:20eventually will go to zero.
1:32:23And so
1:32:25it very well could be that a business
1:32:27could last for 50, 100, 200 years, 150
1:32:31years.
1:32:32Uh could last well past the founder's
1:32:34lifetime.
1:32:36Those are businesses which were built
1:32:38with a lot of principles and lot of core
1:32:40great core values. You know, the founder
1:32:43of IKEA
1:32:45every decision he took
1:32:47was with a 500-year view.
1:32:50How many businesses think with a
1:32:52500-year view?
1:32:54And
1:32:56IKEA, you know, I was I was uh studying
1:32:58IKEA. Some very remarkable things about
1:33:00it. First of all
1:33:02he never ever took debt.
1:33:05Every single store they built, they
1:33:07built out of retained earnings and cash.
1:33:09He never took debt.
1:33:11And I've studied business failure quite
1:33:12a bit. The single biggest reason why
1:33:15businesses fail is leverage.
1:33:18They owe people money and they can't pay
1:33:20it back and then they're gone.
1:33:22So
1:33:24IKEA has never taken debt.
1:33:26If you never take debt as a retailer,
1:33:28you're going to grow slower. All right?
1:33:30You're going to keep
1:33:32uh kind of bringing in the cash, but
1:33:34it's a very solid foundation.
1:33:37Because
1:33:39it's it's on a rock solid balance sheet.
1:33:43Mhm. And and such. And um
1:33:46his second principle was
1:33:49no two IKEA stores can be the same.
1:33:53So, what he said is that whenever we are
1:33:55opening a new IKEA store,
1:33:58there has to be some innovation
1:34:01that is going into that store
1:34:04that does not exist in our previous
1:34:05stores.
1:34:07Because he says that if I don't keep
1:34:09innovating,
1:34:12I'm done.
1:34:13And so if you don't notice it because we
1:34:15think all the IKEA's are the same,
1:34:17but actually if you study them and look
1:34:19at when they were when they were built,
1:34:21etc., you start seeing these
1:34:24these incremental changes that they're
1:34:26making. That's a really interesting idea
1:34:28that I can implement
1:34:29into everything that I do, which is just
1:34:31make sure that every podcast I do,
1:34:33there's one new experiment or innovation
1:34:35or every piece of work you do, whatever
1:34:37team you're in, is just to run out one
1:34:39experiment and every
1:34:40>> Absolutely. But you have to make it
1:34:41measurable, right? Or else it's not a
1:34:43experiment. So
1:34:45And you also talk about making fewer big
1:34:47infrequent bets.
1:34:49Yes. Who who's that relevant for and in
1:34:51what context? So
1:34:54one of the things that Warren Buffett
1:34:55says, he says that you got a punch card
1:34:59which you can punch 20 times in your
1:35:01lifetime.
1:35:02And each time you buy a stock,
1:35:05it's one punch that's gone. So what what
1:35:07Warren is saying is
1:35:10if there was a rule which said
1:35:12that you cannot buy more than 20 stocks
1:35:15in your whole life,
1:35:17what would happen is you'd be very
1:35:19thoughtful
1:35:21about what you bought.
1:35:23Okay, and chances are those decisions
1:35:26might be good decisions because
1:35:28uh you only have 19 left and then you
1:35:31only have 18 left, etc.
1:35:33So
1:35:37in in venture investing,
1:35:40a very small sliver of companies that
1:35:42venture capitalists invest in
1:35:45do well.
1:35:46Right? There's a high
1:35:48high burnout rate.
1:35:50And if we look at the stock market,
1:35:534% of listed companies
1:35:57generate 90% of the return.
1:36:00So, most
1:36:02companies that we may think about
1:36:04investing in
1:36:06are likely not to do well
1:36:08for us. It's a 96% odds
1:36:12that that's why the index is so
1:36:14important. Is when you buy the index,
1:36:18you bought that 4%.
1:36:20And if you go pick stocks,
1:36:24you have one in 25 chance of getting it
1:36:27one of those 4%. You said earlier the
1:36:30punch card analogy of 20 things in the
1:36:32punch card. You got to pick 20 in your
1:36:33life. If you only had three of three to
1:36:35five things that you you would bet or
1:36:37back now,
1:36:39which I think is actually kind of what
1:36:40you do, what would those things be?
1:36:43Well, I mean, uh so
1:36:46I'm trying to resist going to specific
1:36:50big names.
1:36:50>> Yeah. Because I think that would hurt
1:36:52people more than help people. Okay, I
1:36:54mean, it's fair. What I
1:36:56would prefer that people do is focus on
1:37:00the other two variables, which is
1:37:02the amount you're saving and the length
1:37:05of the runway and focus on the index.
1:37:08So, I I I think that it's it's kind of
1:37:11like saying, I want to be a great AI
1:37:14developer because it's the way it will
1:37:18to be a great AI developer is going to
1:37:20take time.
1:37:21It does the nature of the situation.
1:37:23What do you think about these people
1:37:24that day trade? Cuz so many young
1:37:26people, specifically men, are being
1:37:28sucked in by these adverts that you can
1:37:30day trade your way to wealth. It's not
1:37:32good.
1:37:34I think I think it's uh
1:37:37the broker's going to make all the
1:37:38money.
1:37:39Robinhood will do well.
1:37:42Not you.
1:37:43Do you think anyone can make loads of
1:37:44money as a long-term day trader?
1:37:47I look at it this way,
1:37:49if you study the
1:37:51Forbes 400, the 400 richest people in
1:37:54the in the in the world actually,
1:37:58I don't see any day traders in there.
1:38:03One of the last things I want to speak
1:38:04to you about is this idea of um
1:38:07circling the wagons. Yes. What does
1:38:10circling the wagons mean?
1:38:12Warren Buffett
1:38:14um said that over um
1:38:1850-year
1:38:20period of running Berkshire Hathaway,
1:38:23he's made hundreds of investments.
1:38:27And only 12
1:38:31have moved the needle for Berkshire
1:38:32Hathaway.
1:38:34So,
1:38:35it's the same three or four percent rule
1:38:38where
1:38:39if we say that Warren made
1:38:43300 investments, he probably made more
1:38:45than 300, but let's say he made 300
1:38:47decisions.
1:38:49Only 12
1:38:51have resulted in
1:38:54what we see as Berkshire Hathaway today.
1:38:56And the important thing was not
1:39:00the buy decision on those 12.
1:39:04The important thing was never selling
1:39:06them.
1:39:07So,
1:39:09circle the wagons is a term that comes
1:39:12from
1:39:14the 19th century when these pioneers
1:39:17were moving west, the wagon trails
1:39:19moving west,
1:39:21and the native Indians would attack or
1:39:25bandits would attack these wagon trails.
1:39:28So, what they would do is they would put
1:39:31themselves in a circle. Mhm. They would
1:39:33circle the wagons, then defend that
1:39:37circle as best they could with their
1:39:39guns and so on. But the wagons being
1:39:41circled was the best possible possible
1:39:44way of trying to face off that attack.
1:39:48So,
1:39:49in effect, they circle the wagons around
1:39:51the Crown Jewels. So, when I'm talking
1:39:53about circle the wagons, what I'm saying
1:39:54is that
1:39:56in a lifetime of investing,
1:39:58there are very few times when you're
1:40:00going to actually have
1:40:02a huge multibagger. What's that? A big
1:40:05big winner.
1:40:06You know, something that goes up 10x,
1:40:0850x, 100x.
1:40:10And what you want to do is you want to
1:40:14effectively circle the wagons around
1:40:17that idea, so it doesn't get sold.
1:40:21So,
1:40:22we are not going to know
1:40:25before we invest
1:40:27whether something is going to be a
1:40:28multibagger or not.
1:40:30But, we may figure it out after we own
1:40:33it. Mhm. So,
1:40:35after we we're only going to know a
1:40:37business after we own it. We're not
1:40:39going to know it before we own it. After
1:40:40we own it,
1:40:41we may understand the business well
1:40:43enough to know that this is a great
1:40:44business. And when we figure out it's a
1:40:46great business,
1:40:48you don't want to sell that.
1:40:50When I meet people like you, I I'm
1:40:53always so inspired because we spend a
1:40:54lot of time thinking about the wins, the
1:40:56great decisions. We've talked about
1:40:57that. I've shown you the graph of your
1:40:58great decisions. What is the worst ever
1:41:00decision you made in terms of financial
1:41:01performance? Well, I've had so many
1:41:04zeros.
1:41:06I mean, uh Or the one that got away. I
1:41:08mean, uh
1:41:09Yeah. so there are there's mistakes of
1:41:12commission,
1:41:13which is uh
1:41:14things going to zero.
1:41:16And there's mistakes of omission. The
1:41:18mistakes of omission are
1:41:21far
1:41:23um far worse.
1:41:25Okay? So, the biggest mistakes I have
1:41:28made aren't the ones that have gone to
1:41:29zero.
1:41:30The biggest mistakes I've made are the
1:41:32ones that I sold and I shouldn't have.
1:41:35Where I should have circled the wagons
1:41:36and I didn't.
1:41:38And those have been very costly. Give me
1:41:40one example.
1:41:42Well, so of I think this was in about 13
1:41:44years back, 2012. I invested in uh
1:41:48company called Fiat Chrysler
1:41:49Automobiles.
1:41:51Um
1:41:52basically it was uh coming out of
1:41:54bankruptcy after
1:41:56the financial crisis. They'd gotten rid
1:41:58of all that debt and everything and the
1:42:00stock was very cheap. It was about 5 or
1:42:026 billion dollars. Uh
1:42:04the you could buy the whole business.
1:42:06One of the things I didn't pay too much
1:42:08attention to at the time was that 80% of
1:42:10Ferrari
1:42:12was inside Fiat Chrysler.
1:42:14And they owned Ferrari, 80% of it. And
1:42:19um
1:42:20but they had many other assets which are
1:42:21like they had the RAM trucks and Jeep
1:42:24and
1:42:25Maserati and so on.
1:42:27And
1:42:29when I looked at the business, I thought
1:42:31the business was worth many times the 5
1:42:33or 6 billion.
1:42:35Even ignoring Ferrari.
1:42:37And I was right. So, in the end, I made
1:42:42several times my money.
1:42:44And in 2017 or 2018, they took Ferrari
1:42:47public. So, they actually then listed
1:42:50the company.
1:42:51And
1:42:53um
1:42:54it looked like that they had captured
1:42:56all the value and so I sold. I used to
1:43:00own approximately
1:43:021% of Ferrari as part of that purchase
1:43:06that I'd made.
1:43:08So, 80% of Ferrari was in this 5
1:43:11billion-dollar company. Ferrari now has
1:43:14a market cap of almost 100 billion.
1:43:17And I
1:43:20would have about a billion more
1:43:23if I had not done that stupid thing.
1:43:26So, I I made a
1:43:28couple of hundred million on this whole
1:43:29thing, but it would have been a lot
1:43:32more. And all I needed to do was just
1:43:34not sell it.
1:43:35Do you deal in crypto at all? Do you
1:43:37invest?
1:43:38It's outside my competence. I don't
1:43:40understand it.
1:43:41>> I was going to say, one of the things I
1:43:42notice about you that's quite rare for
1:43:43someone that deals in bees, billions, is
1:43:46you have a smile on your face.
1:43:48You seem like a really genuinely happy
1:43:49person.
1:43:51Well, what would be the point of the
1:43:53bees without being happy? A lot of
1:43:55people aren't, as you know. Well, then
1:43:57they've lost their way somewhere.
1:44:00I mean
1:44:01on a daily basis, I specifically ask
1:44:05myself, how do I want to spend today?
1:44:08And I focus on spending it not with the
1:44:10focus on maximizing money.
1:44:13I focus it with maximizing what Monish
1:44:16loves.
1:44:18And that changes all the time, but
1:44:19that's the way it is, you know. What is
1:44:20that?
1:44:21Well, currently it's golf.
1:44:24Like one of the things I really
1:44:25struggled with today
1:44:28was there wasn't going to be any golf.
1:44:31So, I said, it's either Steven or golf.
1:44:34Should I go to Steven or should I go for
1:44:35golf? I said, you know what? Give the
1:44:37arms a rest.
1:44:41Let's go meet Steven. I'm glad you did.
1:44:44We have a Oh, you probably just answered
1:44:46this question. We have a tradition where
1:44:47the last guest leaves a question for the
1:44:48next, not knowing who they're leaving it
1:44:49for. And the question left for you is,
1:44:52if you could go anywhere right now,
1:44:55instantly, where would you go?
1:44:58I'd go to the golf course. Thank you so
1:45:00much. Oh, it's my pleasure.
1:45:01>> everything that you do. It's so
1:45:03incredibly important, and I now know why
1:45:04you're why people love listening to you
1:45:06and learning from you, and it's because
1:45:08you have this most remarkable ability to
1:45:09tell deeply engaging stories. Thank you
1:45:12so much.
1:45:14This has always blown my mind a little
1:45:15bit. 53% of you that listen to this show
1:45:18regularly haven't yet subscribed to this
1:45:20show. So, could I ask you for a favor?
1:45:22If you like this show and you like what
1:45:23we do here and you want to support us,
1:45:25the free, simple way that you can do
1:45:26just that is by hitting the subscribe
1:45:28button. And my commitment to you is if
1:45:30you do that, then I'll do everything in
1:45:31my power, me and my team, to make sure
1:45:33that this show is better for you every
1:45:35single week. We'll listen to your
1:45:36feedback. We'll find the guests that you
1:45:38want me to speak to. And we'll continue
1:45:40to do what we do. Thank you so much.

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