The SIMPLE Way To Make Money WITHOUT Any Risk — Transcript

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1. 0:00You've been referred to as the the Dando
2. 0:01Investor and uh I've I've got a book
3. 0:05here which you wrote called the Dando
4. 0:08Investor. What what what does this word
5. 0:12Dando mean and why do they call you the
6. 0:13Dando investor?
7. 0:15>> Dando is actually a word from Gujarat
8. 0:18which is on the on the western coast of
9. 0:21India where Gandhi came from. They are
10. 0:23extremely astute business people and
11. 0:26dando if you translate it directly in
12. 0:29Gujarati
13. 0:31it means business but it doesn't really
14. 0:34mean business what it means is it's a
15. 0:36way of doing business
16. 0:39where the downside is non-existent
17. 0:44we already discussed how Mr. Branson
18. 0:49is a dando investor. He had no downside.
19. 0:54Uh Mr. Gates was a dando investor. He
20. 0:56had no downside. Mr. Walton is a dando
21. 0:59investor. They had no downside. So all
22. 1:01of these people embarked on businesses,
23. 1:04built huge fortunes
24. 1:06without taking risk. And so the dando
25. 1:10investor was written from the
26. 1:11perspective of how can we minimize risk
27. 1:17while keeping the returns intact.
28. 1:19>> You use this example of the Patels.
29. 1:21>> Mhm.
30. 1:22>> What is what is that story?
31. 1:24>> The Patels uh went to Uganda
32. 1:29more than 100 years ago. Maybe close to
33. 1:32130 years ago.
34. 1:33>> It was a family.
35. 1:34>> It's a ethnic group in India. And so
36. 1:38this ethnic group came to Uganda to
37. 1:40build the railroad
38. 1:42and
39. 1:44but they are very savvy business people
40. 1:47and
41. 1:49over the course of the last 100 odd
42. 1:52years uh when they were in Uganda
43. 1:55through their dando methods of doing
44. 1:57business they became very successful
45. 2:00entrepreneurs
46. 2:01and they controlled large parts of the
47. 2:04Ugandan economy and Idi came to power in
48. 2:09Uganda in the 1970s
49. 2:11and he said Africa is for Africans. So
50. 2:15what he did is he threw all the Patels
51. 2:18out and he nationalized all their
52. 2:20assets.
53. 2:22So now the Patels
54. 2:25were stateless.
55. 2:27The US took them in, the UK took them
56. 2:30in, Canada took some of them in. And
57. 2:33when they landed in the US, they
58. 2:35basically really didn't have any skills
59. 2:38that would allow them to get good jobs,
60. 2:40white collar jobs in the US. And
61. 2:45what a few of them started to do was
62. 2:48they realized
63. 2:50that if they bought a motel,
64. 2:53a small 10 or 20 room motel,
65. 2:57uh the family could live in one or two
66. 2:59of the rooms and they could use the
67. 3:02money they got out and get a bank loan
68. 3:06and run the motel. Now motel are very
69. 3:09labor inensive businesses. So what they
70. 3:11did is when a patel took over a motel,
71. 3:14they fired all the staff
72. 3:16>> and the family took over all the jobs,
73. 3:19you know, the cleaning and front desk
74. 3:21and everything else, right? And the
75. 3:24Patels are vegetarians and they are very
76. 3:28they live a very simple life. So when a
77. 3:32Patel took over a motel in an area, what
78. 3:35they were able to do is they were able
79. 3:37to undercut the prices of all the other
80. 3:40motel in the area because they have no
81. 3:42labor. They have no payroll. They have
82. 3:45no workers comp, none of those things.
83. 3:47And so they were if everyone else is
84. 3:49charging $25 a night, they're charging,
85. 3:51you know, 19 a night. So the occupancy
86. 3:54was higher than everyone else. And they
87. 3:57saved their money. And then what they
88. 3:59would do is buy the next motel, send the
89. 4:02nephew to run it, and then buy the next
90. 4:05motel. And this started happening in the
91. 4:08early '7s. And when you fast forward to
92. 4:10today,
93. 4:1280% of all the motel in the US are in
94. 4:17the Patel ownership.
95. 4:1980%. So the Patels make up.1%
96. 4:27[snorts] of the US population.
97. 4:30Indians make up about little over 1%
98. 4:33maybe 1.2 1.3%.
99. 4:36Just onetenth of that is the Patels. And
100. 4:38this.1% population
101. 4:41is controlling 80% of the motels in the
102. 4:45country. And um
103. 4:49it's because of the Dando way.
104. 4:52>> So if I want to steal from the Dando
105. 4:54way, you told me it's good to be a
106. 4:55copier. Um what are the principles of
107. 4:58the Dando way that I need to be thinking
108. 4:59about? Cuz you I think there was was
109. 5:02there nine? Yeah, there was nine
110. 5:04principles in total in the book.
111. 5:06>> Well, the most important one is heads I
112. 5:09win, tails I don't lose much.
113. 5:14Everything we discuss today, Stephen, is
114. 5:17heads I win, tails I don't lose much.
115. 5:20When I started my business,
116. 5:22when Bill Gates started, when Sam Walton
117. 5:25started, when Richard Branson started,
118. 5:28that was the formula.
119. 5:31If they won, they would win big. And if
120. 5:34they lost, they'd lose nothing. So
121. 5:37everything has to be in business
122. 5:40about risk reduction. Everything has to
123. 5:43be about free lunches. We love free
124. 5:45lunches. Okay. So, we always have to
125. 5:48think about how do we get this done
126. 5:52without capital, without risk. Free
127. 5:55lunches.
128. 5:56>> Do you think there's an opportunity for
129. 5:57people because everybody's at the moment
130. 5:58thinking about AI and technology and
131. 6:01these like really advanced um new
132. 6:03innovations as an opportunity? But does
133. 6:06that create an opportunity in the boring
134. 6:09in the motel in the laundry? Matt.
135. 6:13>> Yeah. So you know the reality is so
136. 6:16entrepreneurship is not studied much in
137. 6:19business schools because there's nobody
138. 6:21going to give you consulting project for
139. 6:23studying entrepreneurs.
140. 6:25If we really study startups in the US or
141. 6:29actually anywhere in the world, 99.99%
142. 6:34of startups are non venturebacked.
143. 6:37>> What what does that mean?
144. 6:38>> What I what I mean by that is those are
145. 6:41your laundromat, your Chinese
146. 6:43restaurant,
147. 6:44your you know eBay seller, whatever,
148. 6:48Amazon seller so on, right? The small
149. 6:51businesses.
150. 6:52None of those companies were formed
151. 6:55because of venture capital. So the media
152. 6:58focuses on all the venture capitalled
153. 7:02businesses. And so people think that oh
154. 7:04if I have to do a startup I got to do
155. 7:06something in technology. Well that's
156. 7:09like onetenth of 1% or less. You can
157. 7:12ignore it. You don't need to really
158. 7:14worry about it.
159. 7:15uh the important thing is to be an
160. 7:19observer
161. 7:21and to look at uh what what uh my dad
162. 7:25would call offering gaps. So let me
163. 7:28explain an offering gap, right? So let's
164. 7:31say there's a town we let's call it town
165. 7:35A. Town A. There's a barber shop in town
166. 7:39A. Okay? And the barbers,
167. 7:42one of many barbers doing well, etc.
168. 7:45There's another town about 30 mi away,
169. 7:47town B, which also has barbers. They're
170. 7:50also doing fine.
171. 7:52There's a new township coming up in the
172. 7:54middle of these two towns called Town C.
173. 7:58Town C doesn't have much of a
174. 8:00population, but it's growing fast.
175. 8:03So, the barber in town A goes to see
176. 8:06what the all the hoopla or town C is all
177. 8:08about. So he makes a takes a trip there,
178. 8:11sees that there's some increase in
179. 8:13population. People are moving in and he
180. 8:15notices there's no barber shops. Why
181. 8:18would there be any barber shops? Because
182. 8:20it's brand new, right? So he's thinking,
183. 8:23how do I do this without taking risk?
184. 8:26And what he does is he rents a subleas
185. 8:30leases a small storefront,
186. 8:33buys some used barber equipment,
187. 8:36and then decides that one day a week
188. 8:39he's going to go into that town and cut
189. 8:41hair every Wednesday and puts up a note
190. 8:44board saying I'm available Wednesdays.
191. 8:47And what happens is people start coming
192. 8:51in.
193. 8:53They come in because they have no
194. 8:55choice. if you don't go to this barber,
195. 8:57you got to spend half an hour driving to
196. 8:58one of the other two towns. Now, he
197. 9:01normally charges 30 bucks for a haircut.
198. 9:04But here, he doesn't need to charge 30
199. 9:07because there's an opportunity cost of
200. 9:09the time you're saving. So, he can
201. 9:11charge 45.
202. 9:13So, he's charging 45 over here. And then
203. 9:16when he's in his own town, he's charging
204. 9:1830. Now, what he what he notices is
205. 9:20Wednesdays are filled up. So, he says
206. 9:22Tuesday and Wednesday. Okay? And
207. 9:26gradually what ends up happening is that
208. 9:28that business
209. 9:30is full-time
210. 9:32and he's making 45 bucks an hour per
211. 9:34haircut.
212. 9:35>> Mhm. [clears throat]
213. 9:36>> But the nature of capitalism is more
214. 9:39barbers are going to show up. So the
215. 9:43second barber comes in, the third barber
216. 9:45comes in, eventually the haircut there
217. 9:47is going to be 30 bucks. It's going to
218. 9:49neutralize. But in the meanwhile, he's
219. 9:52doubled his business.
220. 9:53>> Mhm.
221. 9:53>> Right.
222. 9:55What risk did he take? So going into
223. 9:59town C was addressing an opportunity
224. 10:02gap. When Howard Schultz started
225. 10:06Starbucks,
226. 10:08he saw an offering gap. He thought that
227. 10:11what Italians love about cafes
228. 10:15might be what Americans love too.
229. 10:18Didn't exist, right? And he went and did
230. 10:22it. you know that barber that moves into
231. 10:24town C first and they're really having a
232. 10:26great time because there's no
233. 10:27competition. One of your points when
234. 10:29you're talking about the Dando method is
235. 10:31this idea of creating a durable moat.
236. 10:33It's point four of the nine.
237. 10:35>> So, so sometimes what happens is that
238. 10:39you start a business every business
239. 10:41starts off without a moat.
240. 10:44>> What is a moat?
241. 10:47>> We have a castle.
242. 10:50a knight in charge of the castle to keep
243. 10:54the invaders away. And one of the ways
244. 10:56to keep the invaders away is you put a
245. 10:58motor water around the castle. So when
246. 11:02you put a motor water around the castle,
247. 11:04it makes it harder for anyone to take
248. 11:06the castle. [clears throat]
249. 11:07>> And a business with a moat around it is
250. 11:10a business that competitors
251. 11:13will have a difficult time take business
252. 11:15away from. So what can happen with our
253. 11:18barber in town C? Humans are creatures
254. 11:21of habits. We don't like to change our
255. 11:24barber every month. We like the same
256. 11:26barber. So if he's competent and good,
257. 11:30what's going to end up happening is that
258. 11:32his client base will stay with him. What
259. 11:35about loyalty points? I was just struck
260. 11:37the other day when I was shopping in LA
261. 11:38at which is a supermarket here in LA and
262. 11:41I someone had recommended to me on the
263. 11:43plane which actually goes to your point
264. 11:44about actually give a great product
265. 11:46because an airline hostess on my flight
266. 11:48over here went oh you're um you're on
267. 11:50keto diet you need to go check out air1
268. 11:52I got to so that's the recommendation
269. 11:54>> 10x more powerful than any ad or
270. 11:56anything else they could drive
271. 11:57>> and I went there yeah
272. 11:58>> when I landed cuz I needed a supermarket
273. 12:00and didn't know the place but then
274. 12:01interestingly when I was at the checkout
275. 12:02yesterday after my second visit the lady
276. 12:05at the checkout goes Hey, are you are
277. 12:06you an Air1 member? And I was like, Air1
278. 12:08member? And she goes, it does cost. She
279. 12:10went She was honest. She went, "It costs
280. 12:12money." Yeah,
281. 12:12>> but here's what you get. She goes, "On
282. 12:14this order today, you would have got 10%
283. 12:16off this entire order." It's expensive
284. 12:18one. And she goes, "And we give you a
285. 12:19drink every month." She listed all the
286. 12:21things off.
287. 12:22>> I signed up and bought the membership to
288. 12:23one. I tell you now,
289. 12:25>> I'm not going anywhere else.
290. 12:28>> I DON'T KNOW WHAT IT IS, but now that
291. 12:30I'm a member and I have the app, I'm not
292. 12:31going anywhere else. Well, that's now
293. 12:34that's the hack that Amazon did, right?
294. 12:36With Prime and um two or three years
295. 12:42ago, I was uh I was seated at dinner
296. 12:44next to Bill Gates. You know, my middle
297. 12:46name is Forest Gump. These things happen
298. 12:49once in a while. And Bill is Bill is
299. 12:52describing to me how the business model
300. 12:56of Costco and the business model of
301. 12:58Amazon is illegal. Okay. So I said, "Why
302. 13:02is it illegal?" He said, "When you when
303. 13:05you put a membership fee,
304. 13:08what what you're doing to the consumer
305. 13:10is you're locking them in."
306. 13:12>> Mhm.
307. 13:12>> Which means the consumer is no longer
308. 13:15going after the lowest price because
309. 13:18there's a distortion in their behavior.
310. 13:20>> Yeah.
311. 13:21>> Okay. So now the FTC doesn't believe
312. 13:24it's illegal, but Bill Gates does. And I
313. 13:27was just thinking, well, that's because
314. 13:28you're competitive with Amazon,
315. 13:30>> you know.
316. 13:31>> Yeah. [laughter] Yeah.
317. 13:32>> That prime thing with Amazon is super
318. 13:34smart.
319. 13:34>> Yeah. And and that was taken from
320. 13:36Costco.
321. 13:37>> Oh, okay. I didn't know that.
322. 13:38>> But basically, yeah, the lock in lockin
323. 13:41is very powerful.
324. 13:43>> One company I wanted to talk to you
325. 13:44about was Apple because Apple I find is
326. 13:47a really interesting company. You talked
327. 13:49about being a copycat, kind of arriving
328. 13:52later to the party with new things.
329. 13:54They've kind of been a story of both
330. 13:56sides of the equation. They've been
331. 13:57innovative, it seems, especially under
332. 13:59Steve Jobs. And more recently,
333. 14:01>> I mean, they were like copying other
334. 14:03people, but now I'm not even sure what
335. 14:05they are.
336. 14:05>> Well, so Apple is a very unusual company
337. 14:08in that everything emanated from one
338. 14:12guy.
339. 14:13>> Okay. [clears throat]
340. 14:14And that one guy has been gone for a
341. 14:16long time. And if you look at Apple,
342. 14:20basically nothing new has come out since
343. 14:23he left.
344. 14:25We don't have a Steve Jobs at Apple. We
345. 14:29and and the same thing happened at
346. 14:31Disney. You know, they had to buy Pixar
347. 14:34because there was no Disney anymore. Mr.
348. 14:36Disney was gone. And so Apple actually I
349. 14:42I find
350. 14:44somewhat risky
351. 14:46>> as an investment.
352. 14:47>> Yes. Because if the form factor So
353. 14:51currently humans walk around with a
354. 14:53brick in their pockets or in their hands
355. 14:57at some point that form factor is going
356. 14:59to change. It may be integrated into
357. 15:01something we wear or some other more
358. 15:04ergonomic situation.
359. 15:08that may or may not be Apple and in fact
360. 15:11more likely not to be Apple. It's
361. 15:14probably some guy in a garage somewhere.
362. 15:16And so if they are smart enough to find
363. 15:19the guy in the garage early enough and
364. 15:21buy them, they're okay and bring them in
365. 15:24as an extreme jobs that's okay. But even
366. 15:28there, the odds are low.
367. 15:30>> What does this say to you about
368. 15:31founders?
369. 15:34the specialness of founders. Are they a
370. 15:36unique animal or can you swap them out
371. 15:39and still be tremendously successful?
372. 15:42>> Well, I would I would say that
373. 15:46there's
374. 15:47there are a lot of elements of luck. So,
375. 15:50first of all, founders are all great at
376. 15:53what I call offering gaps, right? They
377. 15:55find something that the world doesn't
378. 15:56have, that needs, etc., and they go
379. 15:58after it.
380. 16:00Sometimes what happens with the offering
381. 16:02apps is a moat gets built right someone
382. 16:06starts Visa it becomes a moti company or
383. 16:08American Express and so on and it
384. 16:11perseveres and scales
385. 16:13>> like Apple with their ecosystem their
386. 16:15closed ecosystem
387. 16:16>> but
388. 16:18100% of businesses
389. 16:22eventually will go to zero
390. 16:24and so it very well could be that a
391. 16:28business could last for 50, 100, 200
392. 16:31years, 150 years
393. 16:33uh could last well past the founders's
394. 16:35lifetime.
395. 16:37Those are businesses which were built
396. 16:39with a lot of principles and a lot of
397. 16:41core great core values. You know the
398. 16:43founder of IKEA,
399. 16:46every decision he took was with a 500y
400. 16:49year view.
401. 16:51How many businesses think with a 500year
402. 16:53view?
403. 16:55and
404. 16:57IKEA, you know, I was I was uh studying
405. 16:59IKEA. Some very remarkable things about
406. 17:01it. First of all, he never ever took
407. 17:04debt. Every single store they built,
408. 17:08they built out of retained earnings and
409. 17:10cash. He never took debt. And I've
410. 17:12studied business failure quite a bit.
411. 17:14The single biggest reason why businesses
412. 17:16fail is leverage. They owe people money
413. 17:20and they can't pay it back and that
414. 17:22they're gone. So IKEA has never taken
415. 17:26debt. If you never take debt as a
416. 17:29retailer, you're going to grow slower,
417. 17:30right? You got to keep uh kind of
418. 17:33bringing in the cash, but it's a very
419. 17:36solid foundation
420. 17:38because
421. 17:40it's it's on a rock solid balance sheet.
422. 17:44>> Mhm.
423. 17:44>> And and [clears throat] such. And um his
424. 17:48second principle was
425. 17:50no two IKEA stores can be the same. So
426. 17:54what he said is that whenever we opening
427. 17:56a new IKEA store, there has to be some
428. 18:00innovation
429. 18:02that is going into that store that does
430. 18:05not exist in our previous stores because
431. 18:08he says that if I don't keep innovating,
432. 18:13I'm done. And so if we don't notice it
433. 18:16because we think all the IKEA are the
434. 18:17same, but actually if you study them and
435. 18:20look at when they were when they were
436. 18:22built, etc., you start seeing these
437. 18:25these incremental changes that they're
438. 18:27making.
439. 18:28>> That's a really interesting idea that I
440. 18:29could implement into everything that I
441. 18:31do, which is just making sure that every
442. 18:32podcast I do,
443. 18:34>> there's one new experiment or innovation
444. 18:36or every piece of work you do, whatever
445. 18:38team you're in, is just to run out one
446. 18:40experiment in every Absolutely. But you
447. 18:42have to make it measurable, right? or
448. 18:43else it's not a
449. 18:44>> experiment. So um you also talk about
450. 18:47making fewer big infrequent bets.
451. 18:50>> Who who's that relevant for and in what
452. 18:52context?
453. 18:53>> So one of the things that Warren Buffett
454. 18:56says he says that you get a punch card
455. 19:00which you can punch 20 times in your
456. 19:02lifetime and each time you buy a stock
457. 19:05it's one punch that's gone. So what what
458. 19:08Warren is saying is
459. 19:11if there was a rule which said that you
460. 19:14cannot buy more than 20 stocks in your
461. 19:16whole life,
462. 19:18what would happen is you would be very
463. 19:21thoughtful
464. 19:22about what you bought. Okay? And chances
465. 19:26are those decision might be good
466. 19:27decisions because uh you only have 19
467. 19:31left and then you only have 18 left etc.
468. 19:34So
469. 19:38in in venture investing,
470. 19:41a very small sliver of companies that
471. 19:43venture capitalists invests in do well,
472. 19:47right? There's a high high burnout rate.
473. 19:51And if we look at the stock market,
474. 19:544% of listed companies
475. 19:58generate 90% of the return.
476. 20:01So most companies that we may think
477. 20:05about investing in are likely not to do
478. 20:08well
479. 20:09>> for us. It's a 96% odds
480. 20:13that that's why the index is so
481. 20:15important is when you buy the index
482. 20:19you bought that 4%.
483. 20:22And if you go pick stocks
484. 20:25you have one in 25 chance of getting it
485. 20:28one of those 4% there. You said earlier
486. 20:31the punch card analogy of 20 things in
487. 20:33the punch card. You got to pick 20 in
488. 20:34your life. If you only had three or
489. 20:36three to five things that you you would
490. 20:38bet or back now, which I think is
491. 20:40actually kind of what you do, what would
492. 20:42those things be?
493. 20:44>> Well, I mean, uh, so I'm trying to
494. 20:48resist going to specific names.
495. 20:51>> Yeah.
496. 20:52>> Because I think that would hurt people
497. 20:54more than help people.
498. 20:55>> Okay, that's fair. What I would prefer
499. 20:58that people do is focus on the other two
500. 21:01variables, which is the amount you're
501. 21:04saving and the length of the runway and
502. 21:07focus on the index.
503. 21:09So I I I think that it's it's kind of
504. 21:12like saying I want to be a great AI
505. 21:15developer because it's the way it be
506. 21:18will to be a great AI developer is going
507. 21:21to take time. If you love the D CEO
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509. 21:24do me a huge favor. Become part of the
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