Amanda Dixon is the cofounder of Barney, a mid-market M&A firm that helps entrepreneurs buy and sell digital businesses. They boast a database of more than 15,000 buyers and a dynamic portfolio of past mergers and acquisitions.
Before starting Barney, Amanda had previously started and sold two businesses. After successfully selling both businesses, Amanda became painfully aware of the challenges associated with selling a business worth less than $20 million. Now, Amanda leverages her learnings to helping others exit their business in a way that is simple, focused and financially advantageous. You can see the companies that are currently for sale through Barney on their website. When she's not working, you can find Amanda with her husband and daughter at the beach or watching Frozen for the 1,000th time. In this episode, Amanda and Aaron discuss how digital businesses get valued, why you shouldn’t share your customer list during due diligence, and what she learned selling her own businesses. Sign up for a Weekly Email that will Expand Your Mind. Amanda Dixon’s Challenge; Make a stranger smile this weekend. Connect with Amanda Dixon
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Barney Website If you liked this interview, check out episode 269 with Brent Beshore where we discuss selling family businesses and the unique models of private equity.
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Piper Creative makes creating podcasts, vlogs, and videos easy. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube Subscribe on iTunes | Stitcher | Overcast | Spotify Watson: Amanda, welcome to Going Deep with Aaron Watson, I'm excited to be talking with you. Dixon: Thanks Aaron, happy to be here. Watson: So you have a really interesting business that you're running, and it is, I mean, a little inside baseball because I run a digital agency so it would make sense that this would be hyper relevant. But I think that this is representative of a kind of larger theme that I see coming across a bunch of different markets, which is using, you know, creating these marketplaces, bringing digital tools and digital connective tissue to arenas that otherwise wouldn't be there. So I'm excited to have you on the show. And I wanted to basically just kick things off with having you explain Barney. And then maybe we can talk a little bit about how you got to starting this company. Dixon: Yeah. So we're an M&A firm, for lack of a better term. We feel like we fit that perfect void in helping entrepreneurs sell their business, sometimes buy a business, that it feels like they're too big and too sophisticated to go with the local business broker that's maybe selling a refrigeration company down the road. But also, they're just not quite big enough or quite sophisticated enough where they're dealing with that kind of private equity investment banker that's ready to help them. So we're filling that void of selling businesses between 500,000 and 20 million. We typically work just with digital companies. And what we're seeing a lot is, you know, really a unique shift in the people that are buying and selling businesses, you know, in our parents' generation people sold their business when they were ready to retire. And what we're really seeing now is a massive shift in people, you know, working a business for two or three years, growing it up, bootstrapping it from the ground up and then saying, you know, Hey, this has been really fun, but I'm ready to try something else and become an expert in something else. So that's really where we come in and help either buyers take advantage of acquiring what those people have built or sellers who want to exit and have some cash to show for it. Watson: Anf the way that we actually got connected was through a cold email that came from your team to me. And I was just fascinated by the outreach about, Hey, we can either help you sell business, or if you're in the market to buy. And then you, you come to the website here and maybe we can link this for people so they can check it out at the, in the show notes, but there's like the list of these different companies. There's a web design company that, you know, they have the income stated and the revenue and what the asking price is. And they've got another one that is doing UX and UI design. And like you're saying here, so some of these companies, you know, two, three years old and someone looking to flip it, other ones have been in business maybe a little bit longer, but the narrative here is if it's a digital agency, it's unlikely that it was founded by someone at the latest stages of their career. It was probably created by someone, you know, earlier on in their career that understood the digital opportunity. Maybe they had built that skill set in some capacity and then went and built a business on the back of that ability. Dixon: Yeah. And you know what we're seeing, especially in the digital agency space, I think this really rings true with a lot of industries, buyers are really looking for businesses that are hyper niche. Now, as the market has gotten so big and kind of oversaturated that businesses that sell the best, especially on the digital space, are hyper hyper niche. So what that translates to from an entrepreneur side is people were doers. They were maybe coders. They were really good at outbound. They were really good at emails. They were really good at one skill and were able to turn that into a business 10 or 15 years ago that wasn't a full advertising agency. Now I just, I talked to a seller this morning. They only get backlinks for people and they're making a million dollars a year. Their only businesses getting backlinks. So we love that that shift has, has come and with that comes the need to be able to, you know, more easily connect buyers and sellers without having to go through some of the old school, super strenuous ways to buy and sell businesses. Watson: Yeah. And we talked in the past with, you know, companies that are providing liquidity to people with like land rights and these other kind of difficult businesses. Part of the reason the investment banker exists, part of the reason the private equity investor exists, part of the reason that those characters are there is because it is messy and there's complicated terms to every single deal. And there is a degree to which not all of it can be automated away, but by, you know, finding the right targets and collecting the right info off the bat, you can hopefully reduce some of that friction and make it a simpler transaction to complete. Dixon: Exactly. And yeah, I definitely don't mean to say that we have this totally automated because we're still in a very, very high touch business. You know, we, when we're selling a business, we talk to those sellers almost every day until that business is sold and the same thing when we're representing buyers and helping them go acquire other businesses. It's not a hundred percent automated, but because we're, so hyper-focused in the digital space, we know how this business operates kind of inside and out, so where we can utilize automation technology we certainly do so. Watson: And it's safe to assume that most of the listeners out there will have not successfully sold or bought a business before. I'm sure there's a minority that have, but just, you know, in terms of other forms of sales, like when we get new clients for Piper, it's funny how often, like the sales, the best sales, but just the sales in general, they close on a relatively quick turnaround. You have a qualified buyer. They know that they have the budget for it. They know that it, you know, they have a kind of, a couple of filters just decide whether or not it's right. And then they're ready to act. And sometimes like the characters are tire kickers. They're slow moving. So can you create a framework for us? Not universally across the board, but with having facilitated these transactions, how long it might take from someone first, you know, identifying something that they want to buy to that transaction being completed, or to some degree, like, you know, final signed copies and everything and they're now the owner of that business? Dixon: Yeah. So if you're working with an advisor who understands your industry, that process should take four months. If you're working with just kind of a generic business broker or maybe MNA advisor who works all across the board, they might not have a buyer pool or a seller pool that's as specific or hyper niche as maybe you would like, and then I would expect it to take closer to six months. And I can walk you through the process kind of from start to finish, if that would be helpful. Watson: Yeah. That's all super educational. Yeah. We'd love that. Dixon: Okay. So I'll just talk about from the sell side, you know, if we're representing a seller, that process starts with a valuation. So the big question is how much is your business worth? And a lot of times it's really fascinating, especially with people that have never sold a business, they don't know that their business is actually worth something to someone. If you're making a salary or you're paying yourself money out of the business, it's worth something to someone. So generally speaking and of across the board and every industry's a little bit different and we're going to use tech and SAS kind of as an outlier that we won't talk about. I'm talking about more service businesses or, you know, other maybe brick and mortar businesses. You're looking at a multiple of net profit or EBITDA. And that's kind of what you make at the end of the year and the standard multiple for businesses making under a million dollars is going to be somewhere between two and three times your net profit or EBITDA. So if you're making at the end of the year, $250,000, you could expect to sell your business for somewhere between $500,000 and $750,000. Once you get above that million dollars in EBITDA or net income, net profit, your numbers are going to be a little bit, your multiple is going to be a little bit higher. Again, once you, once you hit that million dollars in money that you're bringing home, you become just a heck of a lot riskier for buyers. Watson: If you're under that number, that's what you're saying? Dixon: If you make more than a million dollars a year, you are a lot less risky. So we're going to see your multiple go out from two - three to maybe five - six. So if you're making a million dollars a year, again in profit, not in revenue, not top line number. If you're bringing in a million dollars a year, you could expect to sell for five, six, $7 million. Watson: And on the valuation front, you know, like we just saw an IPO here a couple of weeks ago snowflake, which helps people implement like cloud databases. They're getting like a hundred X multiple on revenue. And they're like not even profitable yet, which is kind of a different game. We're really talking about businesses that are like, actually bound there, not just balance sheet, but their PNL. And it is a basis of that profit and loss, which is 99% of businesses. Dixon: Exactly. Once you, again, we're talking about businesses under $20 million too, so once you get above that point in valuation, multiples are all over the place. and people are paying for a lot of factors other than just the bottom line numbers. And a lot of factors do go into that, you know, the type of revenue stream. Again, I'll just use the digital space because that's what I know really well. If we're talking about a website development company that's 100% project based and 100% recurring revenue based paid media agency, where they have everyone on retainer that peat paid media agency, where everyone's on retainer is going to trade at a higher, multiple than somebody whose revenue comes in at project-based, even if they're making the exact same amount. And those are idiosyncrasies for every industry, but generally speaking under a million, you're going to trade for two to three times your profit over a million, you're going to start to slowly creep back. And again, tech and SAS is just, it's a whole nother, it's a whole other world that we don't have to get into today. Watson: And so we've got the valuation in place. What's the next step? Dixon: Okay. So after the valuation the most important thing from our standpoint as your advisor is to make sure that we're on the same page with that. So, the way that traditionally business brokers or M and a advisors get paid is at close. So you're not paying us until the business closes. So if it doesn't close, nobody wins. So we want to make sure that you're realistic about what it's worth and that we think we can get it sold for that amount. And then we have a really serious discussion about terms, because when I say, Hey, your business is worth $5 million, that doesn't necessarily mean you get a $5 million check at close. So it's really important for people to understand the way that deals are financed when you're talking about a small business transaction like this. So again, businesses under $20 million are either purchased through debt financing, which would be like a bank loan where they have either it's under five and a half million they could use SBA financing, if it's over that maybe they have some private funding or they're cash heavy. Traditionally the way that we see deals structured is 20-30, maybe 40% of the deal is going to be cash at close. So again, in that million dollar business, maybe you get two, three, $400,000 at close, and then that other portion is going to come and payments that are going to be spread out over three, four or five years, depending on the amount of the term. So that's also really important for people to understand, because when they think, okay, I'm ready to sell my business, I'm going to go buy a big house and retire. The reality is most of the time you don't get paid all of that cash upfront like you would, if you were selling home. So we have that discussion. If everyone is on the same page, we take it out to our buyers. We take it out to the market and kind of see what's out there. In any business a broker M&A advisor is going to, you know, take that four to six week period to really test the market and start providing feedback from their buyers are going to start submitting offers. And those offers are just going to normally just be emails and, you know, outline, Hey, this is the amount that we think the business is worth just based on looking at, you know, financials and some basic information. And then from there, you know, if it seems like they're on the same page, they would submit a formal letter of intent. And a letter of intent is kind of like when you're buying a home, it's like that initial contract, it's not legally binding. You can still get out of it. They can still get out of it. But at the end of the day, it's a starting point. It's it at least gets the conversation going and you can, at that point, sell to anyone else, they have kind of the first right of refusal. From there you work into due diligence, which again, using the home analogy is kind of like a home inspection. It's really the buyer's opportunity to look under the hood. Assuming everything checks out, they're good to go with close. Watson: Right on. And it sounds like if, you know, I'm applying the lens that I have from other types of businesses, the real kind of leverage point,the real challenge, is finding buyers. Everyone's looking for consumers, customers, clients, whatever the terminology is. And really it's the same thing. Here. You need people who are willing to open up a pocket book. And start spending some money on these things that you're facilitating the sale of. And so can you talk a little bit about how you thought about building that pool of buyers and how that's- and maybe if I'm right or wrong about that really being kind of like the ratchet of, Hey, if we can say we have all these buyers, you know, on our list or, you know, waiting in the wings, you're going to get some seller volumes and people wanting to sell it out. Dixon: Exactly. You're 100% right. Having 10 really great agencies to sell for us or 10 really great businesses for someone else in a different industry to sell. Yeah. It doesn't do any good if you don't have anyone to buy them. So absolutely for us, again, being hyper niche was the only way that we were able to really effectively advocate on behalf of our sellers and truly build up a buyer database. So for us, it's just been, you know, we've been doing this for about four and a half years. It's really just outreach. We just did outbound outreach. We do it every day. Just building that buyer pool, Hey, if you're ever interested in acquiring, you know, we can either represent you as a buyer and/or you can just join our buyer database and be in the loop. You would be shocked at how many people just are really interested in growth through acquisition. So over the years we've built a massive, you know, a massive buyer database. And it's really interesting because we're hyper niche. There's not that many buyers out there. So, you know, in the grand scheme of things, having a database of 15 or 20,000 really well qualified buyers in this space, we feel like it's a really good, you know, strong hold on the market. Watson: Absolutely. Talk to me about how you came to realize this opportunity. Because there's multiple layers here of, you know, understanding the world of M&A, understanding the world of digital agencies, understanding even just like the kind of metrics of facilitating a marketplace like this since seeing the potential opportunity, like, can you paint a picture for people of how you would come to even realize that this was something? Dixon: Yeah. So I started, after college I started a business, and I honestly want to say, I got a little lucky in that exit. I sold and, you know, I didn't come from any money. I don't have a business background. I have a college degree, but you know, in nothing, I, I don't feel like I learned a lot about anything that I'm doing today for my college degree. And then. I met my husband. We started a business together. We worked really, really hard on that one, but did exit and got a little bit lucky on that one too. And then we started another business. This will be my third one. And we were in, it was more in the digital tech space and we were approached about an acquisition. It was much larger than our other two. And, I looked everywhere, everywhere for an advocate. Someone who could be on my side, who could tell me, you know, how to structure deals. What's right. What's wrong. Am I selling myself short? What should I do? I couldn't find anyone who could help me. Like I said, at the beginning, I found a lot of business brokers who, you know, said they understood the digital or tech space, but then, you know, you asked about their past listings. Maybe they had sold one agency or one technology, but they also sold, you know, the taco restaurant down the street. And then I reached out to the big M and a folks that work predominantly in that space. And they're like, you're under $20 million. We're not even talking to you until you're three times that size. So I went through that acquisition and it, it did end up working out well, but I have learned so much by just going through three of those on my own. Because of that last experience and really being in that, in-between what we call the middle market. It's really still very, you know, these are still small businesses when in the grand scheme of things, but we call it the mid-market. And there's just there wasn't anyone there. So that's really why we founded this business. My husband and I are co founders and he handles really the buy side of things. I really handle the sell side of things. And we fill that void that we so desperately needed that advocate for when we were going through that acquisition of our own business. Watson: What were the previous two businesses? The first one you made out of school and then the one you guys started first? Dixon: Yeah. So the first one was a mechanical contracting company. So I had worked for an air conditioning company after college, just doing like outbound sales and marketing, nothing, you know, an entry level, like $35,000 a year desk job. I got promoted a couple of times. And then I was traveling a lot on the road and my husband who's from a, you know, from Southern California, has seen kind of the power of entrepreneurship, like really, you know, pushing me off the ledge. Like you should start a company, you should start on me. So I did, and I did that one on my own. And at that time, you know, we were living in South Carolina. I think our mortgage was like, 800 bucks a month. We lived in like a 4,000 square foot house. A different, you know, back then a different time. Andhe just kinda pushed me off the edge and, and I ended up selling that company 18 months later. And that really spring-boarded me. Like, I don't think I could ever go back to working for someone else again. And then the second one was a real estate brokerage that actually was pretty tech heavy. And we grew that one to 30 agents and then sold it to the largest brokerage in that, in that market. Watson: Wow. Okay. I mean, I, I love that too, because the listeners are going to almost be like nodding along. They know what's coming, but they're like stair-step approach to these businesses where you kind of learn like the basics. Like the first time you were just like, how do I even not go out of business in any way, shape or form. And then you kind of start to learn how to create more leverage for yourself and these opportunities. And I'm sure you've already alluded to you're partially kind of scratching your own itch that you couldn't find that partner for a sale. But there's also a degree to which you recognize how many of these businesses are getting sold and your model, which is taking a piece of that deal for facilitating it. If you hit scale with that marketplace, and it becomes the de facto place that someone wants to go, if they need to sell. And like someone saying, like, you got to go to Barney, if that sells, that are going to occur, then that becomes this really kind of virtuous flywheel. One sec, it's going. Exactly. Dixon: Totally. You know, something else we really discovered along the way was many people in my position are much older. There are people that sold a business in their fifties, maybe sixties, and then said, okay, I've done this retired, but I want to help. I want to consult other people that have done that. And what we realized is we are people that aren't going to be doing the same thing for the rest of our life. We're going to do things. Our life is not this linear upward path until we're working in towards retirement. And I don't feel like we're alone in that. I feel like there's this whole generation of folks that really acknowledge the fact that you want to learn something and get really good at it. And then maybe you want to do something a little bit, a little bit different. So for right now, yes, we want to become that de facto place where people go and they're looking to sell a business. And if you're an entrepreneur looking to buy or sell a business, that's really where we want to go. But the key word for us is entrepreneur. And that mindset is totally different than someone who started a business 30 or 40 years ago and has run it for 40 years. And, you know, and is looking to exit. Those typically are not the folks that, that we work with. Watson: And so another thing that I wanted to, to help you to discuss too, was a lot of these digital agencies have almost no tangible assets on their balance sheet. So you were talking about that delineation between project based clients and clients that are on a retainer. And that's kind of a more familiar way of analyzing something. But when you're talking about the non-specialized broker, they're used to selling, Hey, well, we've got this building, we've got this machinery, we've got these kind of very tangible valuation elements that will inform our evaluation. And then you've got someone who just has a track record of, you know, putting websites at the top of a Google search. And that's a big deal. Like this is a massive amount of value, but it's not even remotely close to the same type of levers that a standard person doing a valuation might do. Dixon: Exactly the buyers in this particular space are super, super unique. They really, really, you have to understand that digital space before you can come into it. We have seen since COVID just a huge influx of buyers trying to get into the digital space, especially when we list any e-com anything. I listed an e-com development agency last night, and it's under contract last night. People are going crazy about anything. Anything dealing with e-com, buyers are hopping in like crazy. And then we get down the road in due diligence and we do talk about deal structure and they just, they just are not comfortable in the digital space. They just don't understand the way that assets are classified. To your point when we classify assets in the digital space, you look at obviously client base, you look at, you know, the way that your revenues coming in, you look at the way that your team is structured. A lot of these teams are structured with freelancers that are located all over the world. Oh God, anyone traditional, they're running for the Hills when you hear that. So we have to classify everything as Goodwill, and again, it takes, it takes the right type of buyer who's used to operating in this space. Watson: Yeah, that seems like the other big part of it. I see these different threads of people talking about like small businesses and you can use an SBA loan to help with the buying. You can do seller side financing where like you're saying, they get those payouts over different periods of time. And it's like this great way for someone who feels like a high paying corporate gig, but they don't want to be in that role. And when they want to transition to something where they have a little more autonomy, it's kind of pitched as this great avenue for that. And there's a ton of people that do that and they find success and it's the right fit for them. But there also is that kind of skills gap as well. And I guess that'd be kind of another lever of evaluation, which is how much of this business is able to, I don't wanna say run autonomously, but run with like, Minimal management because it has processes and systems in place versus something where it's basically a big hustle where, you know, there's multimillion dollar businesses that are really, you know, held by a string by a single person and then they leave and that valuation or that value can evaporate. Dixon: Yeah. So, you know, listen in the digital agency space, a lot of times it's still held on by a string. The businesses that aren't are SAS and technology. And that's why they're getting those massive valuations, because there is a point where the product is created and then you just sell it. In the digital agency space, even if it's a hundred percent recurring revenue, somebody who just does, you know, SEO on retainer for clients or something like that, there's still such a human element. And anyone listening, who's an entrepreneur, who's started a business, knows that they work their butts off to get to this point. So what happens a lot of times is when buyers want to come into this space, there's this misconception, especially with digital, that it's going to be glamorous and easy and it's tech. And you can work from anywhere. And it's so fun because you can be in Mexico working on your laptop. And anyone who's started a business and who has run a business, and including those in the digital space knows that that's just not how owning a business is. It doesn't ever really run itself. So when we're looking at buyers, we really, for the most part outside of financial buyers, we really look at two types. You've got your solo preneurs, who you just said, those folks leaving corporate America. They maybe want to try and get a massive loan and pay it off over 10 years and take over the role of kind of the founder without having to bootstrap it up, makes them feel more comfortable about leaving something steady. And then you have a strategic buyer who's an agency who wants to just use this new acquisition that's kind of a bolt on to their existing services. When we're looking at success rates one year, two years, three years down the road, those strategic buyers by far are outpacing or more successful than those solo preneurs who are coming in kind of thinking they're going to live this magical dream life of entrepreneurship. Watson: And there's also in this family that we talked about, you know, having the pool of buyers for your own platform there's a similar thing where if it is bolt-on and they're almost able to value the thing differently because they know they already have, you know, client ABC and D all could use whatever bolt on service there is. And now we're able to kind of facilitate that connection in addition to whatever assets were already there in place. Dixon: Yeah, strategic buyers either come in one or the other way with valuations, they're either saying, Hey, we're just basically buying your portfolio, that's not worth that much to me. And it's an undervalue or they're valuing it, you know, with an upcharge and exactly what you said. They can upsell their existing clients. There's a lot of synergies there. Again, let's say you have like a front page SEO company who just does, you know, on page SEO. And then you've got a backlink SEO company. They may be a perfect one, might be perfect to buy the other because there's a lot of synergies there. If they were to buy a video production agency, not sure there's, there's really a whole lot that makes sense there. Watson: Yeah. So tell me, tell me on the other side, the sellers, they come to you and you maybe like you help them understand the valuation. And it's not one of the characters that, you know, it's like, wow, I didn't know it was valued so much, but the opposite. They think it's inflated and you kind of have to bring them back to reality. I would imagine that some folks say, 'for that price I can't make it happen, but I still want to figure out how to, how to unwind this thing, how to get out of it eventually.' What advice or what kind of metrics will you point them towards to help them maybe better prepare the business to be sold? Like, you know, some people they'll put a fresh coat of paint on their house and they'll, you know, find the other kind of superficial things that can be amended, or they'll fix the roof or fix the basement or the thing that's like actually, you know, sending buyers in and then immediately back out. Dixon: Yeah. That is such a good question. To your point, that's most of the time when people say their business is worth more. Watson: Yeah. Everyone has the inflated self, right? Dixon: The same thing with your house. So that's a great question. I'm so happy you asked that. So a couple of things that buyers are always looking for: staff, people in place leadership team. So depending on your size, obviously this is gonna, this is gonna fluctuate dramatically, but having us. Staff in place that can take over the business once you cash out is really, really advantageous to getting top dollar. From a buyer standpoint, they know that once they pay you, even if it's 20%, 30% cash, there's a chance that you may not be as engaged. So having a really good leadership team with processes in place really helps. When you're looking at staffing your business and where to staff. Buyers look most commonly at business development, that process, how is business development running? Are leads coming in consistently? Are you able to capitalize on those leads and are those people in place doers? Again, in our space, that's coders and writers. That's easily outsourced. That's easy to add on. It's not easy to systemize business development processes. And that we think is kind of universal across all businesses. So I would say one is leadership team and two is making sure that you have the business development staff. Three isshoring up your revenue. So in our space project-based versus retainer, obviously retainer's training and a much, much higher, higher rate. What we do when we help branding agencies or web development agencies that are almost all project-based come to us and they're just not quite happy with the valuation, we suggest that they shift their clients to a retainer-based contract. Even if that just means they're getting paid over the course of 12 or 18 months versus all upfront, and showcase that you can implement a retainer based model. And then come back to us in 12 or 18 months. So working on your revenue stream, if you have contracts, making sure that people are, they're actually legal and working, that that's really important to buyers. They're going to dive into that. And then I would say, lastly is making sure that you are happy and you know you're happy with the exit number that you have in mind. So if you've got an exit number in mind, working towards that and then selling. People sometimes say, 'I'm making good money, I don't think I'm ever going to exit.' And then they wait until the business has bottomed out. Unfortunately we're getting a lot of things right now. Not because of their own doing, but because of COVID. So selling when you feel like, 'okay, I I've met my number and I'm going to be happy with that. I think it's time.' I think it's time to do that. Watson: Makes sense. And I would imagine like, I'm just even realizing now, I hadn't thought about it in these terms, but there's so many analogies to the selling of a home and the selling of a business. Like you were saying, like the employment of certain characters or these other kind of like, they're just be like little warts. Like the same way I wouldn't show my house if like the bed wasn't done. And like I had my shoes left out everywhere. Like you want to kind of just tidy up everything, even if that's not necessarily how you've been living in the space, but to create that appearance for the person that is basically getting their first impression. Dixon: Exactly. And you know, the more that you can systemize and document the better. We don't necessarily say to document because buyers are looking for this huge manual like we kind of read about in books, like the E-Myth or things like that. That's not as tried and true, I don't think any more today. But with that being said, systemizing and documenting really helps you dive into your own processes and find the holes in the words, because buyers are gonna find those during due diligence. So it helps to acknowledge them and then fix them pre going to market. Watson: Gotcha. Cool. Can you talk a little bit more about the due diligence process? How that actually works? Like I'm sure there's NDAs signed, but what else goes into that? Dixon: So before we ever bring a buyer to a seller, and really, I think this is pretty standard in the M&A world, NDAs should obviously always be signed. We take it a step further and we have, you know, LinkedIn verification. We verify your business address. If you don't have a business address, we verify your personal address before we give any information, because we are dealing with, you know, confidential, confidential things. So obviously the NDA assigned, the due diligence process typically involves tax returns, bank statements, credit card statements, and all of those things compared to your financial documents that you've already provided them. So they're going to compare your bank statements and your credit card statements to your P and L, balance sheet and cashflow reports. All of those things are pretty standard. From there they typically want to dive into customer lists. It's really important that even doing the due diligence process, it doesn't matter what industry you're in, you never give buyers your customer list. So if they say we want to see your customer list and how much each customer has spent over the last year, two years, three years, five years. That's great. Export it from QuickBooks, but then change the name of your customer to the industry that they work with them. Or, you know, if you're a different type of business, maybe it would be like customer 1, customer 2, customer 3. That's super, super important. We have seen some things go sideways because folks provided a full customer list there. So they're going to want to know customer lists. They're going to dive into other things in our industry, like churn rate. For some buyers, things like geographic location are going to matter. If you have like a lease or any sort of legal documents, contracts that you're in, they're going to want to dive into all of those and make sure that it's nothing that they're going to be binding. Any debt that you have, any personal debt that you run through the business or debt that the business has, they're going to want to look at that. And most of the time they're going to want it paid off out of the money at close. So it depends on the, you know, the transaction, but those are kind of the generics. Watson: I don't know if I have any other questions, it's been incredibly educational. I'm sure that you've kind of clarified it and help people understand the space a lot more. Anything else that you're hoping to share about Barney specifically, or this space of selling these types of firms that you were hoping to share? Dixon: You know, the only thing I do want to share with your listeners is that it's, you know, one of the things we're trying to do is to downplay the stigma of you know, doing multiple things throughout your life. And our generation, you know, really is the first generation to embrace that. But we still see some hesitation with people selling their agencies and, and fighting that kind of internal demon of, 'Oh God, I thought I was going to do this forever. I don't really like it anymore. I don't really want to do it, but I should.' You know what we're trying to tell people is this process isn't that scary, selling is not bad. It's a really fun process. If you have an advocate on your side throughout the process, and it's great to end up with, you know, enough cash to be able to keep learning and doing something else in your life. So big part of our mission is trying to, you know, tell people that, that linear path just, it doesn't have to be for everyone. And that's okay. Watson: Right on. Well, if people want to learn more about Barney, check you guys out, check out some of the businesses that are currently for sale and it's changed. Like even literally, since we booked this interview, I see new ones up there. So I know you guys are making moves. Where can we direct people who want to learn more? Dixon: Yeah. Our website, we are barney.com spelled just like the dinosaur. Watson: Right on. You guys are going to have a tough go of eventually, you know, owning that name of that IP. Dixon: Hey, we've made offers on it. I think it's actually owned by Mattel. Watson: That'll be tough. That won't be an easy one. Dixon: That's not going to happen. That's okay. We're fine with just, "We are Barney." Watson: Well, that's all going to be linked at the show notes. I'm also going to link some of the socials and, and Amanda's LinkedIn profile. It's in the podcast notes where people are by listening to this on their phone, or at goingdeepwithaaron.com/podcast for this and every episode of the show. Amanda, before we let you go I want to give you the mic one final time to issue an actionable personal challenge for the audience. Dixon: Okay. So this is not in any way related to anything that we've talked about, but I think it's important given our world today. So my challenge to your listeners is to make a stranger smile Saturday and Sunday. This weekend go out and make a stranger happier than they were before you interacted with them. Watson: I love that challenge. That is so good. Dixon: Good. Thank you. I thought about it actually last night it woke me up like, 'Oh shit, I don't have that figured out. I got to think through this one.' Watson: I mean, so there's multiple layers to this. Cause if people are wearing masks, you're going to have to like, get the visual comfort confirmation. Maybe they can like smile with their eyes. And there is the degree to which like you can't, you know, they used to be like, I used to be like the high five to like a stranger type of guy. I'm not going for that anymore. But there's other ways to make people smile, you know, basic common courtesies, you know, other things like that. Dixon: Yeah, that's my favorite right now, because of all the things you just said, it's hard. It's just at the grocery store, just like the person in line behind me or in front of me and or the checkout person just being like extra nice. Because you just never know what people are going through right now. And I just think it's important for everybody to just stay as positive as we can. Watson: Totally. And we had like, kind of a weird phase where I would say the first couple of weeks, you know, you're at the grocery store, you're anywhere, every stranger was just kind of like check it in with each other. Like they were giving each other smiles cause everyone was so stressed out. And then we like crossed a threshold, I don't know if it was like late May sometime, I think it was sometime in May. And then everyone just kinda like settled back in and you stopped getting like the thumbs up from like the stranger across the street. So let's bring that back. Dixon: I love it. Let's bring back the thumbs up. I love it. Watson: Awesome. Amanda, this was great. Thank you so much. I learned a ton. I know the audience did well. Dixon: I really appreciate you coming on. Awesome. Thanks, Aaron. Talk to you soon. Watson: We just went deep with Amanda Dixon. Hope everyone out there has a fantastic day.
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Dawn Dickson is a serial entrepreneur that has launched four successful cash flow positive companies since 2002. Most recently, she splits her time between Flat Out of Heels (rollable flats for women to get relief from painful heels) and PopCom (a software solution to
make vending machines more intelligent). Dawn has an expertise in raising traditional and non-traditional business capital. In 2019, Dawn became the first female CEO globally to raise over $1 million using equity crowdfunding. This style of fundraising was made available by the JOBS Act, which was signed into law in 2012. In this conversation, Dawn and Aaron get into a deep discussion of the stairstep approach to entrepreneurship. By starting as a consultant, graduating to a product business, and then moving on to software, Dawn has been able to build upon the knowledge, reputation, and capital she earned in each business. Sign up for a Weekly Email that will Expand Your Mind. Dawn Dickson’s Challenge; Hop on an equity crowdfunding platform and make an investment. Connect with Dawn Dickson
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Medium Follow PopCom Popcom.shop If you liked this interview, check out episode 445 with Pierre Laguerre where we discuss how he is using technology to improve the lives of truck drivers. Text Me What You Think of This Episode 412-278-7680
In 2017, Amira Valliani created Backyard Cambridge, a podcast about the City Council election in Cambridge, Massachusetts. She interviewed the candidates, produced the episodes, and built a small audience.
When she attempted to turn the show into a viable business, she found that there was no easy solution for collecting subscription revenue from listeners willing to pay for content. So, she founded Glow. Glow makes building podcast memberships easy and has raised more than $2 million in seed funding. In this episode, Amira and Aaron discuss why podcasters can make more money from subscriptions, Amira’s experience selling ads, and how startup life compares to the Hillary State Department. Sign up for a Weekly Email that will Expand Your Mind. Amira Valliani’s Challenge; Reconnect with someone you haven’t talked to in a while. Connect with Amira Valliani
Pierre Laguerre is the founder & CEO of Fleeting, a startup building a digital platform to increase flexibility, dynamism, and efficiency for trucking companies and commercial truck drivers.
Pierre previously built two successful trucking companies operating trucks and staffing for other trucking companies. He’s been involved in trucking for nearly two decades and has learned the industry inside and out. Since launching Fleeting in June 2019, Pierre and the team have generated over $1.5 million in revenue and raised more than $1.8 million. Additionally, Pierre became the first black man to ever max out a crowdfunding campaign by raising the $1.07 million SEC max, via Republic. In this conversation, Pierre and Aaron discuss how he got into trucking to escape poverty, the forces changing the trucking industry, and the harsh conditions that drivers deal with on a regular basis. Sign up for a Weekly Email that will Expand Your Mind. Pierre Laguerre’s Challenge; Look at the world like you only have 24 hours left. Connect with Pierre Laguerre
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Fleeting Website Book Referenced What the CEO Wants You To Know by Ram Charan If you liked this interview, check out our past interviews covering trucking and logistics. Cetin Mericli talks about building self-driving semi-trucks. Kristy Knichel talks about building a 3rd party logistics company to over $80 million in revenue. Hayden Cardiff talks about saving lives with software.
25 years ago, Gene Leyzarovich came to Pittsburgh as a refugee from Russia. Within two years, he founded Advanced Computer & Network Corporation to build data storage systems for clients.
Decades later, AC&NC has installed their JetStor RAID (redundant array of independent disks) systems for over 4,000 clients around the world. Those clients include NASA, the US State Department, and a majority of the United Kingdom’s police force. Now, ACNC does over $10 million in annual revenue and assembles its devices in Pittsburgh, PA. In this conversation, Gene and Aaron discuss how he’s gone from selling 4-gigabyte units to multiple petabyte units for clients and how the business of hardware has evolved. Sign up for a Weekly Email that will Expand Your Mind. Gene Leyzarovich’s Challenge; Set a weekly goal and commit to achieving it. Connect with Gene Leyzarovich
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ACNC Website sales@acnc.com If you liked this interview, check out episode 361 with Jason Wolfe where we discuss building multiple software companies in the gift card space. Text Me What You Think of This Episode 412-278-7680
Blake Dube is the founder and CEO of Aeronics and the inventor of Pawprint Oxygen. Pawprint Oxygen is the world's first rescue oxygen supply for pets.
Blake studied oxygen as a chemical engineer at the University of Pittsburgh and expected to develop products for human medical applications. However, a chance encounter with his landlord revealed an exciting market opportunity to bring an oxygen tank product to market for animals. Now, his tanks are manufactured in the US and sold in veterinary clinics around the country. In this conversation, Blake and Aaron discuss the origins of the company, how Blake found the right manufacturing partner, and the ongoing improvements that are made to their product. Sign up for a Weekly Email that will Expand Your Mind. Blake Dube’s Challenge; Treat customer service representatives with kindness and respect. Connect with Blake Dube
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Aeronics Website Pawprint Oxygen website If you liked this interview, check out episode 340 with Craig Markovitz where we discuss spinning a company out of a university, selling a company for $300 million, and finding purpose in your work.
Mike Cleary is the co-founder and CEO of Huemor, a Web Design Agency that helps B2B and DTC brands communicate more clearly, connect with their target audiences, and generate revenue. His company has helped some serious brands, including Revlon, Live Nation, GEICO, United Nations, Centivo, Net2Phone, Briogeo, Glow Recipe, Square One Justice.
Mike has been in business for nearly a decade and has learned a lot about the systems of business and how to implement them as you grow. In this conversation, Mike and Aaron discuss how Mike got started with Craiglist customers, how Mike has implemented processes for everything, and why he moved the company to Pittsburgh. Sign up for a Weekly Email that will Expand Your Mind. Mike Cleary’s Challenge; Try something new that makes your uncomfortable. Connect with Mike Cleary
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Huemor Website If you liked this interview, check out episode 438 with Ben Wilson where we discuss commercial real estate, digital agencies, and grit.
Over a decade ago, David Kane realized that there was a painful gap in cybersecurity. He built Ethical Intruder to fill that gap.
Today, Ethical Intruder helps clients across financial services, DoD, healthcare, and nonprofits reproduce vulnerable paths a hacker may take, so they can shore up their defenses. David’s ethical hacker teams conduct simulated malicious breaches of a wide variety of business applications and web-accessible entry points. David has built his firm to be technology-agnostic, which comes with two benefits. First, they aren’t selling a specific solution regardless of its relevance. Second, they are accustomed to evaluating a dynamic collection of tools to identify the primary point of weakness. In this conversation, Aaron and David discuss how to seel cybersecurity to any firm, why nonprofits need to keep their data secure, and the Sign up for a Weekly Email that will Expand Your Mind. David Kane’s Challenge; Find a way to build someone else up. Mentioned Csoonline.com Connect with David Kane
Brent Johnson is a wealth manager at Santiago Capital and a General Partner of the IceCap Strong Dollar Fund. Brent has had a multi-decade career in finance and has been responsible for managing billions of dollars.
Brent is well-known for his Dollar Milkshake Theory, where he expects a rapidly appreciating US Dollar over the next few years, relative to other world currencies. Because the world is completely run by fiat currencies, cash whose value is not backed by some physical good such as gold or silver, Brent expects a massive devaluation of currencies across the board. Because of the U.S. is a relatively safer, stronger economy, he expects capital to flood into its domestic markets. There are a lot of implications to the theory. In this interview, Brent explains to Aaron what the Dollar Milkshake Theory is, how Brent’s career has unfolded, and the implications of a rising dollar for business owners and entrepreneurs. Brent Johnson’s Challenge; Find someone you vehemently disagree with and have a conversation with them. Connect with Brent Johnson
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Santiago Capital Website brent@santiagocapital.com If you liked this interview, check out all of our past interviews with finance thinkers, investors, and advisors.
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Piper Creative makes creating podcasts, vlogs, and videos easy. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube Subscribe on iTunes | Stitcher | Overcast | Spotify Watson: Brent. Thanks for coming on the podcast, man. I'm excited to be talking with you. Johnson: Yeah, it's going to be fun. I appreciate you inviting me. Watson: So we have this kind of weird problem that we have to navigate, which is half the people, more than half the people that navigate to see this, are probably already familiar with you, maybe that's what attracted them to checking out this episode. And they're aware of the dollar milkshake theory, but then we have this other constituency of regular listeners who maybe are not as kind of in the investing world and might not be aware of this theory for which you are well known. So I want to kind of start things off, just set this up with basically this acknowledgement that a lot of people are coming to realize the U S dollar is not a particularly great currency. But as we survey the landscape and we look across the world at, you know, the Euro, the Japanese yen and the British crown, the Swiss Franc, on and on down the line, they all have some serious problems. So as you kind of survey the landscape, can you talk about what you see and what that leads you to believe will happen in the future? Johnson: Yeah, sure. So, you know, I, first thing I should say is I always remind people that I called this the dollar milkshake theory. I didn't call it the dollar milkshake fact, you know. It's possible that I'm wrong, but I've done a lot of work on it over a number of years. And the more I look at it and the more I think about it, the more I become convinced that I'm correct. It doesn't necessarily guarantee that I'm correct, but I think that I am, and I have not yet seen anything that would make me change my mind. And so the theory is that Fiat currencies, which is basically a currency that's not backed by anything other than the full faith of the government backing it or the tax revenue of the, of the citizens of the country behind it, all Fiat currencies have enormous problems. They're all currently debt-based. In other words, money gets loaned into existence. It's not a commodity that already exists in nature and they have a fundamental flaw and this fundamental flaw virtually guarantees that they will fail at some point. Now maybe some countries' currencies will last five years. Maybe some of them will last 50 years. Maybe some of them will last two or 300 years, but they have this flaw that will cause them to fail. And I think we're moving towards that time period where Fiat, quote-unquote, starts to fail. And the dollar is one of these currencies with enormous problems, enormous problems. And I think, you know, its days are numbered. But the issue that I see is that most people who call for the end of the dollar don't apply the same level of scrutiny to the other currencies out there that they do to the dollar. Because all the other Fiat currencies out there have the same problems, and none of the other currencies out there have the same advantages that the U S does as the holders of the world reserve currency. And so I think as we move towards this quote-unquote end game, that the dollar will reign Supreme of the other Fiat currencies. Now it doesn't mean that things like Bitcoin and gold and other hard currencies, for lack of a better word, won't go up in value and maybe go up more than the dollar. But I think if you're just, if you just line up 10 Fiat currencies, and even if they're all falling, one of them will fall slower than all of the others. And so then I have some people who will say, well, why even mess with Fiat currencies? Why not just buy gold or just buy Bitcoin or whatever it is. And you can do that. But I don't want to have 100% of my portfolio in anything, whether it's gold or Bitcoin or dollars or yen or stocks or whatever it is. I want some diversification. And the point that I like to make to people is that even if you think all Fiat currencies are falling, You can make a killing if you figure out which one is going to fall the slowest by playing them against each other. And I think that's where we're at. I think we have the opportunity where everybody should own gold. And if they have the ability to own some Bitcoin, because I think those are some asymmetric plays that are going to extremely well, but I think there's also an opportunity to make an incredible amount of profit by playing Fiat against each other. And so that's kind of the Genesis quote-unquote of the dollar milkshake theory. Watson: And so one of the things that as people approach, and I'll just speak candidly, I said this before my interview with Ben Hunt was, you know, I still find myself at times getting confused by some of the terminology that is part and parcel to high finance and the folks that operate in this world. But as you're trying to navigate your way into it, it can become inaccessible very quickly. So I think that, you know, whether it's because of Dave Portnoy, Or Robinhood or some of these, you know, very kind of user-friendly experiences. People are generally familiar with the concept of buying or selling an equity. Hey, I own Apple and Amazon. And as you spend more time in this space, you realize, okay, there's equities, there's bonds, and I can kind of, you know, figure out how to deal with those two types of securities in terms of a mechanism by which you quote-unquote, would play the U S versus these other currencies. Can you just talk maybe at like a one-to-one level about how that's actually executed and if that's accessible to the average person out there in the same way that those equities and bonds might be? Johnson: Yeah. So, the answer is somewhat relative to one's Net worth and a level of access to different securities, right? If you are just a, you know, a working class person who has maybe, you know, a side fidelity account where they do some stock trading and stuff, the options are somewhat limited to what you can do. But the first thing you could do is you could just own U.S. Dollar based assets rather than owning international assets. Right? In my opinion, over the next couple of years, U.S Assets are going to do better than emerging market assets and do better than international based assets. So in some ways that may just be avoiding the problem areas as opposed to profiting from the potential chaos. But if you have a higher net worth and you have access to some different types of vehicles, some options, you know, options, strategies, maybe perhaps some derivatives or private funds that do these types of trades. Then you can get into things like betting on the Hong Kong dollar peg breaking or betting that Turkey will have a currency crisis. It's very hard to do that as an individual in a regular brokerage account. But so the realm of possibilities is kind of broad, so it really kind of depends on your own personal situation? What I would say is that, you know, I think it's important to consider that, this war amongst Fiat currencies, because if nothing else it'll help you avoid the problems. And then if you also have some excess capital where you can try to speculate and bet on it, well, then that's an additional benefit perhaps. But I think the main thing is just to kind of be aware of what's happening. And the other thing that people will often say to me is currencies don't really move that much. Right? And if the dollar goes up 10%, you know, versus the other currencies and it causes all this chaos around the world. You know, 10%, it's nice to make 10%, but it's not going to change your life. Well, my point is, when you kind of get into the more sophisticated trades, you don't just buy dollars and hold them versus Euro. You can play the knock on effects of the dollar getting stronger. So as the dollar gets stronger versus the Euro or the yen or the Australian dollar or whatever it is, there are knock on effects of that happening. And that's where you can, if you can figure out what the second or third derivative knock on effect of one currency strengthening versus another, that's where you can make some very nice profits. And that's one of the things that I kind of try to do for my clients is we offer a fund, for lack of a better word, that plays some of those asymmetric opportunities. We do it in a way that would not normally be available to the traditional individual in their fidelity accounts, so to speak. Watson: That's the icecap strong dollar fund? Johnson: That's correct. Watson: And so that's kind of another element of the story here, because in another part of the show is kind of piecing apart careers, how a career evolves. And you started Credit Suisse and you move into this space where you're now running your own fund, running your own firm. And one of the vehicles, part of that is just reputation, consistency, skill building, but also the ability to navigate the complexity of macroeconomics and making these kind of really big, frankly, high stakes types of financial decisions. Can you talk a little bit about the, you know that there's like the Steve jobs quote from the Stanford commencement speech, he goes, you know, you look back at your life and you can see how it all connects, even if you can't necessarily see how those things step forward. What about your pathway to your current role with Santiago Capital led you to be able to see this opportunity and kind of have the legibility to make sense of these different currencies, where you said some people don't necessarily apply that same scrutiny to other markets? Johnson: Yeah. You know, it's been a pretty interesting progression. I'll kind of tell the story, the progression as a story, and hopefully it won't be too long and boring, but hopefully it'll help kind of bring it all to you. I guess the story probably starts in 2006 or 2007, and I was, you know, I was living in San Francisco. I was working for Credit Suisse, and I literally had my dream job. I mean, I have a picture of myself in college standing on a bridge in Switzerland. And behind me, it was all these big Swiss banking firms. And there, you know, are their logos and stuff. And at the time I wanted nothing more than to work for a big global investment bank and, you know, be involved in the markets and, you know, fast forward 10 years later. And I actually had that job, and I couldn't have been happier. I was making good money. I, you know, I'd gotten married a few years earlier. We had a son, and I had my dream job. It's like, you know, it's like I had everything and. In 2007, I had a very kind of a fortuitous meeting for lack of a better word. I met this young couple who had sold their video game company that they had started in their dorm room. And now they had, you know, a lot of money. And my job was to go out and find people like this and convince them to invest it with Credit Suisse, rather than investing with Merrill Lynch or Goldman Sachs or Morgan Stanley or whoever it was. And so I met them and we kind of hit it off on a personal level. And I figured out pretty quickly that they were two of the smartest people I'd ever met, but they didn't know a lot about finance. But what I thought, but what really struck me was that they knew what they didn't know and they weren't afraid they didn't know. And they weren't afraid to ask questions about things they didn't know. And so anyway, I convinced them to come into the Credit Suisse headquarters in San Francisco. And I said I would introduce them to our chief investment officer and the head of wealth management and the head of equities. You know, we could give this big dog and pony show and I thought we were just going to wow them. You know, we have this beautiful office that looks over San Francisco Bay. You know, it was just, it was all set up perfectly. And so, you know, we come into this meeting and about five minutes into this meeting, I realized that this was not going to go the way that I thought it was going to go, because, you know, the young couple, they were, again, they were so smart and so polite and so nice, but they didn't, they asked very simple, but very pointed questions. And, you know, these managing directors couldn't answer the questions. And they had the questions were like, what do you think the real inflation rate is? What do you think about the national debt? What do you think about the budget deficit? How do you think the real estate market is going to affect the stock market? You know, just, you know, not crazy hard questions. Actually, very smart, intelligent questions, but. But they wanted specific answers. They didn't want just the, you know, one sentence reply, they really wanted to learn this stuff. And, you know, at first I was just kind of sitting back and watching it. Right? And the embarrassing thing was, is I didn't know the answers either. And it was probably the first time I was like, Holy cow, I'm supposed to be a smart guy. And I don't know these, the simple answers either. So I immediately knew I needed to figure out the answers, but I thought my colleagues, my bosses, I thought surely they'd be able to answer them, but they couldn't. And then when I knew that it was really over was when the wife said, 'could you explain to us what's a derivative?' And, you know, one of the guys said, Oh yeah, there are these complex, you know, options, contracts that are traded on anything from real estate to stock futures, to currencies. And, and she said, 'well, do you guys trade, does Credit Suisse trade any of those?' And they said, yeah, we trade them. And she said, 'well, do you carry them on your balance sheet?' And they said, 'yeah, we do, but, but you don't need to worry about that.' And she said, 'well, why not? And they said, 'well, we hedge them out.' And she says, 'well, what does that mean?' He said, 'well, we offset those trades with Goldman Sachs and Merrill Lynch and Morgan Stanley. So while we carry them on our books, we, you know, we hedge them out with other wall street firms.' And she kind of sits back and she says, 'huh, that's interesting. Cause we met with Morgan Stanley and Merrill Lynch and Goldman Sachs last week. And they told us that they do the same thing, but they hedge it out to you.' And these guys had no clue what to say, just absolutely nothing. And so, you know, at that point I was just like, Ugh, this is, this is just a disaster. Right. But none of the questions were particularly hard. These guys we're not used to being challenged. And so, you know, the meeting was over and the thing is, I'm still friends with these people today. They did not become clients, but I'm still friends with them today and they're very successful and they're super nice and they're super smart. And we kind of stayed in touch, but after this meeting, I went back to my desk and I was like, you know, this is unacceptable. And the fact that I didn't know these answers, I just, you know, I need to know the answers. And a lot of times when, and even today it's even more so, you know, you start talking about billions and trillions. It kind of all gets fuzzy. So what I did was I got out a piece of white paper, a pencil, and I went on to Google and I started, I looked up the national debt and I wrote it out longhand. I looked up the budget, I wrote it out longhand. I looked up the tax revenue and I wrote it out. Basically I did a back of the napkin analysis on the U S fiscal situation. Looked up, you know, interest rates, and I looked up Credit Suisse's balance sheet and the amount of derivatives that we had. And I didn't spend enough time to come to a full answer, but I came, I spent enough time. And because I did it longhand that I looked at all these numbers, it made me very aware that this problem was very big, and bigger than most people realized. And it made me realize that even though I didn't have the solution, I knew it wasn't going to end well. And so that kind of started a period of self discovery. And I started, I couldn't ask my colleagues and my bosses, these questions. So I started, you know, going reading, you know, Textbooks and going into chat rooms and going onto obscure blog posts about economics and finance and derivatives and all this stuff. So, you know, I learned more over the next 12 months than I had in the previous 35 years of my life or whatever it was. And so when we got into 2008, I won't say that I predicted the financial crisis, cause I didn't, but I was ready for it. And when it started to happen, I kind of knew why it was happening. And you know, that led me to ultimately decide that I no longer wanted to work for a large global investment bank because I felt that they were putting the needs of the firm in front of the needs of the clients. So that led me to basically, so I had to give up my dream job. I had my dream job and I realized that, You know, even though I had everything I'd always wanted that I couldn't keep doing it. So then I had to make the decision, well, what do you do next? And I loved the job. I just didn't love who I was doing it for. So once I came to the conclusion I needed to leave, you know, I talked to a couple of other wall street firms and a couple independent firms. And then I realized I can't go to another Wall Street firm because then I'll just be doing the exact same thing with the new business card. So, the first transition was to go from my dream job, working for a big global firm to working for a smaller, independent firm. AndI did that at the end of 2009, beginning of 2010. And there's a little bit of an entrepreneurial aspect to that because when you do that, you know, you have to go to all your clients and you have to say, I'm leaving Credit Suisse this 150 year old, you know, global powerhouse. And I'm going to go work with a couple of my buddies and we're going to go from managing, you know, a couple of billion to managing a couple of hundred million. And you think your clients are gonna say yes, but you never know, right? You know, until they actually sign on the dotted line and said, it's pretty scary. And so, but when you're an entrepreneur, that's kind of, at some point, if you're going to start your own company, you've got to, you know, you're betting on yourself rather than betting on the company that you used to work for. So there was that aspect of it, and that was kind of exciting. And so I did that and as I continued to- This is getting to be kind of long. I hope it's making sense. Watson: And there's an element of your story that's kind of a through line between previous episodes. So I'll hop in and then you can keep rolling with it, which is this idea that at some point it's almost like an idea grabs you as opposed to you grabbing the idea. Like people kind of think, at least I can remember thinking that this way, it's like, Oh, I'm going to be like looking down at the ground and I'm going to see it and I'm going to pick it up and I'm going to run with it. As opposed to almost like, it sounds like this interaction with the couple that were at least intuiting their way into what was going on with real estate markets back in '07/'08, was that like, almost like compelled you, you couldn't let it go. You couldn't pay attention to anything else other than absorbing. Johnson: Well, and that's the thing. And people often use the matrix as an analogy. And like, you know, once you see the matrix, you can't unsee it. Right? And I'm a little embarrassed to admit this, that, you know, growing up, I was always pretty much a straight arrow. I wasn't necessarily a contrary and I was pretty much a consensus guy. You know, I had the All-American childhood and I thought that the president of the United States was the greatest person in the world and all our governors and the senators they were honorable. And the people on Wall Street were very smart and they were trying to do well for their clients. And, you know, that's not necessarily the case in the real world. Right? And I probably didn't realize that until the financial crisis. And I probably didn't realize it until money was involved. And this is kind of embarrassing to admit that because it's in a way, like I'm a capitalist, and I think that, you know, the search for profit is a very good and powerful and ultimately altruistic force for the world. But money's not the most important thing in the world. And I've never thought money was the most important thing in the world, but many people on wall street think that money is the most important thing on the world. And so when, when we had this global financial crisis and it, and it affected the money of not just wall street, but it started trickled down to affecting all the moms and the pops and the businesses and the people who, you know, houses and the - yeah. It was money that made me realize the rot in the system for lack of a better word, maybe that's the right way to say it. And it kind of made me start questioning everything that I thought I knew. All the walls that I had built up, you know, in, in my life basically came tumbling down and I had to rebuild those up. You know, I had to build a new foundation and rebuild the walls and it took me a long time to do that. And I did that, you know, as my career was progressing. And so it was that continual study of the monetary system, how it actually works, how money flows through it, the incentives of both sides of both the customers and the banks and the central banks and the governments and how they all interact. And, you know, it was through that continual study that I really kind of got to see the structural problems with it. And because I'm not somebody who just thinks money is the most important thing, it's important, but it's not the only thing, that, you know, I'm not somebody who can just manage the money and not think about my clients. Like I've always managed the money for individuals. I'm not managing a big mutual fund where I don't know the end customer or an endowment fund where you - like, I actually see the individual people of whose money I'm managing. I have to sit across the table from them and look them in the eye and say, we either made money or we lost money. And it affects their individual life on whether we're successful or not. And so, you know, as a fiduciary, I felt like I had to understand things better than the average person. And because we were, I became more convinced we are moving towards this end game quote-unquote of the Fiat monetary system. It needed to have a better understanding of how the system actually worked. And as I became more familiar with how the system actually worked, I became convinced that clients needed to own gold as part of their portfolios. So, you know, for a number of years, I've been a big proponent for gold. I think everybody should own gold in their portfolio and it's through. It's through studying the system and understanding the role of gold that I really kinda realized early on that the us dollar had a big problem. But it took me several years to realize that I had done a very good job of analyzing the U S dollar, but I had not done a good job of analyzing the Chinese Yuan or the Japanese yen or the Euro. And the fact of the matter is, is that the world runs on a Fiat monetary system, and the Fiat currencies trade relative to each other. So if you do, you can do the best analysis in the world on the dollar, but if you don't see how it trades in relation to these other currencies, it's like analyzing it in a vacuum. You're missing an incredible, incredibly important part of that analysis. It's like, you know, it's like you're building a car and all you focused on was the tire. You forgot to look at the fenders and the, in the engine and the roof and all that other stuff. And so once I started looking at it as a whole, then I realized. Or at least I came to the belief that as we move forward in time, and as these problems in the Fiat monetary system start to be exacerbated that the dollar would rise versus all these other currencies. And I thought that that would lead to great chaos. And so that kind of brings us to today. But it was in that process that I discovered the opportunity existed that if my belief is right, there are the number of asymmetric plays out there that could help protect client portfolios and could help make a lot of money. And so that was intriguing to me. And we set it up in a way that clients could allocate a portion of their portfolio to this, not their entire portfolio. You should never bet your entire portfolio on any one thing you should always have, in my opinion, always have some diversification. But we figured out a way that we could make an allocation to some of these asymmetric bets. And if we're even a little bit right, we have the opportunity to make some money. So, that kind of brings us to the day. And that brings, you know, the whole dollar milkshake theory. It came up as a way to explain to my clients a very complex topic. You know, basically I think the U.S. Is going to suck up capital from around the world. Kind of like, you know, the whole world mix this crazy milkshake with all the stimulus and the bailouts. And now one country, which I believe is the United States, is going to suck up the majority of that, that milkshake. And that's where it comes from. And that, that kind of leads us to today. So that was a very long explanation. I apologize. Watson: Do not apologize because that context is what this format is all about. And I know that another thing that my editor, Dan, who's going to be putting this together will love is that you name that after there will be blood, when he comes in the bowling alley, he's like I came and I sucked up your milkshake. Johnson: That's exactly where it came from. Yeah. That's exactly where it came from. Daniel Day Lewis was one of my favorite actors and that was an amazing movie. And I think it's very appropriate because, you know, I think Daniel Day Lewis was this ruthless, you know, operator who did anything to get all the oil. And, you know, whether you look at them this way or not, but countries are kind of the same way, you know, this is for all the marbles, right? And I think in many ways, the U.S. has it set up to where it's kind of rigged in their favor. And before it's all said and done, I think the dollar is going to go a lot higher. Watson: So, where I want to take this now and, and there's, you know, a ton of great resources that people can go to online to learn more about the kind of nuances from a high finance perspective of the dollar milkshake theory, because you've done all sorts great interviews across YouTube. But where I kind of want to take this is, and also in that spirit of, of diversification, there's a reality that, particularly for business owners, it's harder to be more diversified because they might have a lot of their net worth tied up in the firm or the entity that they built. Maybe, you know, private equity comes in, buys a slice and it takes some chips off the table, but there's, there's still a significant kind of concentration, concentrated bet there generally. And so they're obligated to be great stewards of that asset for themselves, for their loved ones, just the nature of where they're best placed, and kind of taking this down. If we're talking about the interactions in a global macro environment between these different currencies, I would almost make the metaphor there, like, you know, the amount of ships coming in, in and out of the port and, you know, Hong Kong or new Orleans or somewhere crazy like that. And then you could go to the intersection in a small town and there's a whole lot less traffic. It's a whole lot less in terms of quantity. But, you know, you're looking at these like massive flows and we've got these, you know, business owners and operators who are kind of down there, they're seeing their own flows. It's just a different scale and a different scope. So how does that tangibly get translated into action for someone that's, you know, whether it's running a retail experience or an agency, a service provider of some way shape or form? Johnson: Well, It's kind of a difficult question to answer, but the truth of the matter is it really does what's going on now is going to affect everybody on the planet. You know, we've gotten into a situation where, long story short, there is just too much debt in the world. I don't have time to explain it all, but there's no way that all of this debt can ever be paid off. And all of this debt is massively deflationary on the global economy. If more of your money is going to service debt, that means that there's less money to go towards a new and profitable and maybe, you know, growth toward growth type opportunities. And so the only way to get out of this is to inflate those debts away. And so that's what governments around the world are trying to do. They're trying to figure out a way to keep interest rates lower than inflation. Well, they're trying to get inflation. There's so much deflationary pressures. They're doing everything they can to try to get inflation, and then they want to hold interest rates low. So that inflation rate will be higher than the interest rate. And this debt will get deflated or inflated away over time. And whether they are successful or whether they are not successful, it's going to affect everybody because it's going to affect your purchasing power. There's either going to be a big inflationary wave in which case your dollar loses value over time or your currency loses value over the time. And so you need to factor that into your cost of living in the future. Or, you know, there's going to be, they're not going to be successful and there's going to be this massive deflationary wave in which case maybe your businesses or your own personal assets come under pressure. And so you need to be prepared for it for that way at all. But one way or the other, it is going to affect everybody on the planet. Watson: And just to hop in there, there is no status quo. Like it's pretty stark. It has to go in one direction or another. Johnson: Yeah. There can be status quo for short periods of time, six months. A year that maybe they can stretch this out over another two to three years before, you know, the play, you know, the central banks have the plates spinning, right. And they are masters at keeping these plates spinning. And maybe they can keep it going for another couple of years. I don't know. But I think we're getting very close to the point where it's going to go one way or the other. Watson: Gotcha. Johnson: And so I think, I just think it's important to understand that dynamic and understand what it's under. It's important to understand what they're trying to do, which is inflate everything away. And it's important to understand what they're capable of doing, because just because you want to do something doesn't necessarily mean you're going to be able to do it. And so we are skeptical that the central banks will be able to manage their way through this crisis as well as many other people think that they're going to be able to do. Watson: And another nature, too, I mean, we're conducting this interview across the country. There's a, you know, because of everyone having to stay home for the lockdown or the coronavirus, people are learning how to do business at a distance. And so maybe another kind of like tangible, actionable implementation of this is, are you doing your transactions in U.S. Dollars or a different currency? Do you have the capacity to change how that banking gets done, how that payment processing gets done and kind of reorient yourself to, I don't know if de-risk is necessarily the right word, but kind of rebalanced the way cash is flown in your business? Johnson: That's right. I mean, I think that, you know, I think it's a time where, you know, if all of the central banks of the world are having to do all this extraordinary measures, it's obviously not a quote- unquote, safe time to do business. Right. But at the same time, if you are being offered financing at 0% and you have, or 1% or whatever it is, and you have a very strong business and you have a big belief in it, and you have a, you know, you feel like you have an edge over your competitors, then it's also an opportunity to maybe take some of that fine. I'm not encouraging people to go into debt. I actually hate debt. But if you know how to use it, you know, This is also a time where, you know, great, you know, there's that same chaos is a ladder, right? Watson: Yeah. Johnson: And , if you can use that takes us to move further up the ladder, and because you see that you have an edge in your particular field, then maybe this is the time to take that risk. Watson: One other question that I had kind of back to the identity of Brent Johnson and this associated idea that you're well known for, which is the dollar milkshake theory. You gave a great caveat at the beginning, that it's a theory. It is not some sort of law of nature that you've inaccurate or anything like that. How have you gone about this, it's like two Dumbo's like opposite extremes. Number one to be known for anything is great from a brand building standpoint, from a capacity to people want to have conversations with you, people may be once you to provide service to them in some way, shape or form. But at the same time, there's this risk of the ego being tied up in the thing that you've created. It's very easy to become detached from that book over there that someone else wrote. But when it's your baby and you want to maybe have that instinct to hold it dearly, how do you navigate that and probe that and make sure that you're not falling blind to a bias like that? Johnson: Well, first of all, it's very hard. Nobody ever likes to be wrong. And so whenever you have a, you know, there's a kind of saying in our business that, you know, you should have strong opinions, loosely held, right? And so I think if it, and I think this applies to any business, not just my business, but, you know, especially my business. But in order to, I mean, my job, it's really kind of a, it's kind of a ridiculous job thinking that you can predict the future. Right? And I'm the first to admit it. It's fun. And it's interesting and it's challenging, but the idea that you can predict accurately predict the future on a ongoing basis is the height of hubris, right? So you always have to kind of either control your risk on the downside or constantly review your opinion and your view. And, and it's not always easy to do, but that's why, you know, you have to build some risk parameters into your business. I think that and you have to stay true to that. So that's part of it. So there's a big risk to doing it, but there's also a great benefit to do it because I think if you don't have a strong view, then you're going to be too wishy-washy to ever make any money or to ever really be successful. So I think it's important to have a roadmap of where you're going, right? You know, if you just get in the car and start driving, well, you might have a good time, but you know, you're probably not going to get anywhere. but if you're driving from San Francisco to Los Angeles, You know, you're going to head South, right. And maybe you start off on 101 and your plan is to drive most of the way on 101, but you also know at some point you're going to stop off to go to the bathroom or get some food, or, you know, you want to go see a sight. But you need to have, so you need to, you need to be flexible, but you need to have a plan. You need to have an idea of where you're headed. So I think that's what I see that the dollar milkshake as, is that this is my plan for how I see the world developing over the next two or three years. Now I haven't bet a hundred percent of everybody's money on this theory. Right? And you know, the other thing is that it's possible that I get part of the theory right and the other part completely wrong. And I think it's important to have that built in there as well. In many ways, this dollar milkshake theory is a hedge against everything else. We're not making asymmetric bets with entire portfolios. What we're doing is we're using this framework to create diversified portfolios and to protect, use this framework, to protect against some chaos that we see coming. And then with a portion of the portfolio or allocating that towards these asymmetric plays, where we can benefit from the chaos. Now, if we get it wrong and there is no chaos, And the main part of the portfolio just kind of continues to do not fantastic, but well, and doesn't have this chaos doesn't come and hurt it. Well, then we're still making money on that part of the portfolio. And if the hedge or the insurance policy, however you want to, you know call that, doesn't pay off. Well, then we're still, we're fine. Right? But if we're right and the theory plays out even a little bit correct, we can still make a lot of money. And if it plays out exactly correctly, we can make a lot of money. But again, I think it kind of depends on how you implement this idea. Or you're again, we can use the dollar milkshake theory as an example here, but it doesn't really, it applies to everybody. You know, you can, you, if you have safeguards built into your system, you don't have to be 100% right all the time. Cause you're never going to be 100%, right all the time. You know, in our business a lot of times what we try to say is that it matters how much you make when you're right and how much you lose when you're wrong. And if you can make more when you're right than lose when you're wrong over time, you're going to make money. And so it will not feel good if this dollar milkshake theory turns out to be wrong, right? It will be a blow to my ego. Well, you know what I've had blows to my ego before and I've gotten over it and I think you have to get, you have to have the ability to get over it. And so it's possible that if this just proves to be wrong, that we will have to adjust our portfolios and adapt to the new environment. But it's important to have that view in the first place or else you're never going to know whether you're on track or not. And if we turn out to be even a little bit right, we think the opportunity to make money is really high. And if we turn out to be really right, then it can potentially be life-changing. And if we could turn out to be completely wrong, we have our client's portfolio structured in a way that it doesn't kill them. So we kind of feel like we've, we've built that into the overall process. But, you know, again, you know, there comes a time when you just have to say, you know, I got it wrong. And then the other thing is there's two types of wrong in our business. There's two types of problems. One is that there's, you can be early in which case it hurts and it's annoying and it's frustrating, but it eventually pays off. And the other one is that you're just completely wrong. Right? And you're just wrong altogether and you know, you're never going to be right. And that's a fine line to walk, too. I think again, if you, if you position the trade appropriately, or if you structure the trade appropriately, if you structure your portfolio appropriately, you can kind of build some safeguards into it upfront. I don't know if that answered your question or not. Watson: It did, and I think that even the way you broke that out in like the types of wrong and the way you're managing it from an ego perspective, versus the way you're practically implementing it to manage it from a risk perspective, all that's really helpful. And I could probably, frankly, you know, Sit you down for another hour and like break apart all the nuances of that. But we got to aim towards wrapping up. You've been very generous with your time. So if folks want to learn more, you know, see what other stuff you're paying attention to or get other access to your work, where can we point them in the digital world to do so? Johnson: I think there's a couple of ways to do it. You know, I appreciate you having me on your podcast. So hopefully people will, I'm happy to send this around and hopefully people will watch it and listen to it. You know, if you go into YouTube and you just type in 'Brent Johnson milkshake theory,' or 'Santiago capital milkshake theory,' you'll get a lot of links. So that's one way you can do it. I have a website it's just just SantiagoCapital.com. So www.SantiagoCapital.com. All that's on there is my contact information, but if people want to send me a question or, you know, send me an email, I always try to get back to everybody. I don't know, I'm not always successful. I get a lot of emails and direct messages and stuff, but, if I don't get back to you, feel free to send it again. You know, I promise you, I don't think that you're bothering me. I can't promise I will get back to you right away, but I will do my best. I'm pretty active on Twitter, so you can send me a direct message on Twitter, or you can follow me on Twitter. The handle is @SantiagoAuFund. But you can also just look it up by Santiago capital or Brent Johnson and I think you'll be able to find it. So that's the main way. Watson: Beautiful. We're going to link all that in the show notes, you can find it goingdeepwithaaron.com/podcast or probably in the app where you're listening to this right now. But before I let you go, I want to give you the mic one final time to issue an actionable personal challenge for the audience. Johnson: Wow. Oh, you know what? Okay. I got a good one, and I think this is something that I try to do all the time and it's helped me enormously and it's not easy. It gets easier the more you do it, but it's not easy. So my challenge to the audience is find somebody you absolutely vehemently disagree with, and then go talk to them and consider what they have to say. And then go back a week later and talk with them again. And in between, think about what they said. You don't necessarily need the debate in that first conversation, but go talk to them. Be polite, even if you think they're out of their mind, listen to what they have to say. Go back for a week and consider it and then go back and talk to them a week later. I think that's the only way you're going to learn. And I think that's the only way you're going to discover new things. I think it's very easy, so this is going to tie into social media a little bit. I think social media is an incredibly powerful tool. But it can also be extremely dangerous if you only follow people and you only interact with people who you agree with. It's very easy to get caught in an echo chamber on social media I purposefully follow and interact with and have conversations with people that I absolutely think are idiots. I shouldn't say idiots. That's not the right way to say it. That I absolutely disagree with. But, you know what? I have had some incredible conversations. I've made friends out of it and I've learned a lot by doing it. So my that's my personal challenge to go get in a fight with somebody in a very polite way. Watson: Absolutely. I mean, that's a great way to steelman your ideas by playing them up against the folks that disagree. And I was trying to look up the quote, cause I just heard a great example of it, it was like, 'He, who only knows one side of the argument barely knows that,' was effectively the quotes. I think it's a beautiful one to live by in that spirit. Brent, thank you so much for coming on the podcast. I really enjoyed speaking with you. Johnson: Absolutely. I'm happy to come back anytime and I appreciate you inviting me in the first place. Watson: Yeah. We just went deep with Brent Johnson. Hope everyone out there has a fantastic day.
Dan Green is the founder and CEO of HomeBuyer, a mortgage lender designed for first-time homebuyers. It’s his 3rd company he’s built in the mortgage industry.
Dan previously founded the consumer-friendly mortgage education company "The Mortgage Reports", which was later acquired in 2014 by Full Beaker. Dan Green is a 17-year mortgage lending veteran and was a multi-year, number-one loan officer before starting HomeBuyer. His current company utilizes intelligent personalization to deliver timely and precise advice through specific moments of a home buyer's journey and fulfills the buyer's mortgage. He was part of the Techstars accelerator in 2020. In this conversation, Aaron Watson and Dan Green discuss how he generated an enormous number of leads with a blog, why mortgage lenders don’t think long-term, and why private mortgage insurance is not the boogeyman. Dan Green’s Challenge; If you think you will buy a house, reach out to a mortgage loan officer and get a preapproval. Connect with Dan Green
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HomeBuyer AI Website dan@homebuyer.ai If you liked this interview, check out episode 361 with Jason Wolfe where we discuss starting multiple companies in the gift card space and building off of past successes.
Ben Wilson founded Rivers Agile in 2008, in the eye of the Great Financial Crisis. The software consulting firm started focusing on advanced quality assurance and expanded to offer custom software development.
Now, Ben is leading his team through the pandemic, an office change, and a shifting marketplace for software solutions. He believes he’s poised to take advantage of a trend of onshoring and digital reinvention that the circumstances will demand. In this podcast, Ben and Aaron discuss building a team, what makes for good QA, and the markets that Rivers Agile sells into. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Ben Wilson’s Challenge; Challenge your vendors to find better deals. Connect with Ben Wilson Rivers Agile website ben@riversagile.com If you liked this interview, check out our collection of interviews with Pittsburgh’s top entrepreneurs and leaders.
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify 437 First Generation High School Grad to Top Financial Advisor, The Mindset of Tyrone Ross7/13/2020
Tyrone Ross is a financial consultant, community builder, and entrepreneur.
He has been named to Investment News 40 under 40 (2019) and a top ten advisor set to change the industry by WealthManagement.com. Tyrone has focused on pushing a conservative, stodgy industry forward by focusing on young professionals, embracing financial technology startups, and acknowledging the role crypto assets play in a portfolio. Aaron and Tyrone talk about fighting financial jargon, why advisors fear crypto, and how Tyrone has never taken a vacation. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Tyrone Ross’s Challenge; Find our leaders. Mold the next generation of young minds. Connect with Tyrone Ross Website If you liked this interview, check out our back catalog of finance-focused podcast interviews.
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify 436 Deploying $750 Million into Established Businesses w/ Stephen Gurgovits of Tecum Capital7/6/2020
Stephen Gurgovits is the Managing Partner and co-founder of Tecum Capital, a $750+ million private investment firm based in Pittsburgh, PA. Tecum’s committed capital is deployed as mezzanine debt, subordinated notes, and private equity into lower middle market businesses across the US.
During his career, Stephen has been directly involved in over $1 billion of aggregate financial transactions, both public and private. Prior to spinning Tecum Capital out of First National Bank, he was President and CEO of F.N.B. Capital Corporation, a wholly-owned merchant banking subsidiary of FNB. Stephen currently serves on the board of directors for Western Allegheny Capital, Gibraltar Cable Barriers, Uncle Charley’s Sausage Company, Auburn Gear, Inc., Oberg Industries, and the Pittsburgh Chapter of the Association of Corporate Growth. In this podcast, Aaron and Stephen discuss launching the firm, how they allocate debt and equity investments, and Stephen’s interpretation of current market dynamics. Stephen Gurgovits’s Challenge; Make your bed and read the Wall Street Journal every day. Connect with Stephen Gurgovits
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Tecum Capital Website If you liked this interview, check out episode 269 with Brent Beshore where we discuss private equity investing in the lower middle market.
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify Watson: Steven. Thanks for coming on the podcast. I'm excited to be talking with you. Gurgovits: Thanks for having me here. I appreciate it. Watson: So I want to talk about this private equity fund that you are the co-founder, the managing director of, and a little bit about its origins and there's kind of two. Major plot points in the origin story. The one is the idea itself, or the kind of the catalyst itself, to start this type of investing. And then the point after about six years of doing that within First National bank that led to and catalyzed you to spin this company out of that much larger bank. Gurgovits: Sure. Yeah. Appreciate the opportunity to speak. That's a long winded question. That could be a very long answer, but I'll try to be reasonably brief. You know, I started to get interested in investing in the late nineties during the tech bubble, when everybody was making money on anything that had a .com after its name, and was fortunate to complete my MBA at the university of Pittsburgh and land a job with First National bank, actually FMB Corp, the parent company in their wealth management group. And it was really a great opportunity to get my foot in the door, into investing other people's money. And we were, you know, a traditional trust company and registered investment advisor buying publicly traded stocks, bonds, some mutual funds ETFs were kind of coming on the scene at the time and a chance to build and handle money for both high net worth individuals and institutional investors. But frankly, as you may recall, when the tech bubble burst the markets, you know, struggled for a couple of years in the early 2000s. And, you know, I got a little bit disenfranchised sitting across from a, let's say a 60 year old lady who we were managing her trust, and talking about how our portfolio was only down 20% when the market was down 23 and what a great job we did. Right. And so started to explore two things, really the concept of absolute returns and to alternative investments and was fortunate to partner with my mentor, gentleman named John Rose, who was on the board of FNB and had a long history of doing both investing in banks and some bank buyouts, as well as venture capital and private equity. And John and I worked together to craft a plan that we presented to the board of FNB about creating some type of private equity fund within FNBs wealth management. Number one, because I wanted to get into the space. But number two, I thought we could differentiate ourselves from maybe other bank trust companies or wealth managers that were out there. And long story short, it took a little over a year to convince the board it was a right thing to do, but the board justifiably thought without a track record, as a fiduciary, that we probably shouldn't solicit money from our clients to, to a new venture. Fortunately with the bank's blessing, we became a startup company inside the bank. It was technically called a merchant bank, not to be confused with credit card processing, but essentially the bank agreed to fund us to do private equity deals on a deal by deal basis. And so there's probably a whole nother interview and podcast around doing a startup inside a highly regulated, publicly traded bank, but that's how we got into the business. And under that umbrella, we ended up investing about $60 million in 17 different companies from our launch date in late '05 until the end of 2012. Getting to your question about the spin-out. What happened during the '08/'09 financial crisis was a lot of regulations came out under the Dodd-Frank legislation. In particular, there was one subset called the Volcker Rule and the Volcker Rule really, you know, one of the fallouts of that was they didn't want banks investing in private equity. I don't know why that is. I mean, private equity didn't necessarily cause a financial crisis. You know, it was more mortgage related and lending related, but at the end of the day, that's the rule. Fortunately, under that rule, there was one exemption and that is if our team could obtain a license from the SBA called an SBIC or small business investment company license, that license was an exemption under the Volcker Rule that would allow FNB and frankly, other banks. To invest into a pooled fund that we could then go manage and continue forward with our strategy under an independent umbrella. And so that's how that came about. As it relates to our strategy, you know, what we saw, particularly in the bank's footprint at the time, was there was a lot of family owned businesses where patriarchs were getting up in age. And they were facing succession issues, whether they recognize it or not, they needed to think through what was going to happen to their business when they weren't around or not capable of running that business anymore. And part of the idea and the pitch Def and B is having a dedicated capital source. To help facilitate those transitions would allow us not only to make a return on our capital, but hopefully facilitate keeping those businesses within the geographic and economic footprint of the bank. And so that's a long back wind away of how we became Tecum Capital back in 2013 when we spun out. Watson: And it's really tied to some kind of multitude of significant macro events. So there is the 2008 recession, Dodd-Frank legislation, and then this other kind of macro environment of this cohort this basically the boomer generation that is disproportionately larger that have, you know, nurtured, cultivated, built businesses over their careers, approaching retirement. And whether they want to hand off the reins to someone or just the liquidity, so they can go enjoy themselves and retire or whatever the motivation may be, there's an opportunity for capital to come in and kind of, you know, Provide a service of sorts to them. But also realize an opportunity where if this is a healthy business, it's not necessarily like you referenced venture capital, gonna go, you know, 2X your money in some sort of two year window, but it's going to have that kind of stability and value that you can otherwise realize. Gurgovits: Yeah. And when we position ourselves, we want to be different than sort of private equity, which sometimes gets a bad name. You know, acquiring a business, sort of gutting it, rightsizing it and flipping it. Yeah. Our plan was to recognize a lot of business owners, particularly in the Midwest. And you think Pennsylvania, Ohio in particular, you know, it's more than just about maximizing value. When they do go to transition or sell their business, there's usually an affinity, it's their baby, it's their legacy. And they often care greatly about the employees and what will happen to them under new ownership or new management. And so, you know, we recognize that early on that we wanted those transitions to be both comfortable for the seller, but also for the existing employee base. And I think that's been a differentiator to our team as a whole, going back to our days inside the bank. Watson: So another piece of advice, and it kind of ties into to that concept is also the notion of if you want to become wealthy, you want to be really concentrated. Maybe not over like a long-term, but if you're trying to get wealthy, you concentrate yourself in building a business or making kind of a very specific bet. But if you want to stay wealthy, which you know, these types of firms that you might be investing, it's lower mid markets. We're talking multiple millions in revenue and size and type of deal. There is also a risk to not having a lot of their wealth is concentrated in that asset that has built their capacity to even move those assets into other things in order to kind of protect that wealth. It's another part of their equation. Gurgovits: Yes. You said another way, a diversification strategy, right? Usually those privately owned businesses are not only a concentration of wealth, but they're oftentimes highly dependent on that owner or that family that's in charge. And so you're really double-dipping in terms of the risk profile. And how can they take some chips off the table and maybe preserve or protect future retirement, without having to take additional risks, you know, keeping that capital in the business. Watson: So when you spun out of First National Bank, they were one of the. Anchor investors in the first fund that you brought out. Can you talk about the, so you talked about the 17 investments, $60 million over about six or seven years while you were still within the bank. How did your rate of activity or just the kind of expression of that investing change upon leaving the confines of the bank and being that independent entity? Gurgovits: Yeah. I think we as a team grew independently as we left the bank, right. I mean, working under a bank and it's not meant to be negative to first national bank or any other bank, but it's a highly regulated entity. And those entities became even more regulated after the '08/'09 funding the great recession, right. They got clamped down. So in terms of getting things done, whether it's getting a, an investment approved and keeping in mind, the types of investments we make are certainly going to be more risky than let's say a traditional commercial loan that might be occurring within the commercial bank. So, you know, it's hard to get the credit culture of the bank comfortable with taking riskier investments coming out of a financial crisis. So in other words, it's hard to get things done. By going out on our own independently it gave us the entrepreneurial freedom to discover what the market would bear in terms of where we fit in that market. And then the levity to kind of move up and down the balance sheet in the different investments we were making, we had a lot more flexibility to how we approach the market. Watson: And one of the things that remained consistent is you were making investments, both for equity in the businesses, and then also offering mezzanine debt. Can you just talk maybe at a high level about how those types of decisions get made in terms of what you're comfortable offering to a business that comes to you, and simultaneously how they're evaluating, where their needs are? Gurgovits: Yeah. So inside the bank, we're probably skewed more towards mezzanine debt, which is really a derivative, another layer of sort of traditional commercial lending. It's subordinated to a traditional senior bank, but it's above the equity and the balance sheet. That's where it gets the mezzanine. It's a bridge capital sort of structure. And so it made a lot of sense to do a lot of mez inside the bank because of the credit culture. As we spun out, we had certain handcuffs of how much equity we could do inside the bank. That went away when we went into our independent SBIC platform at Tecum capital. So what we discovered was, yeah, there's a real need for mezzanine and transactions, but a lot of times there's a need for equity. And so what we often do is partner with family offices or what I'll call independent sponsors or operators. It might be a couple individuals with an operating background who want to go buy a business, and they may not have the personal net worth or the network to bring all the equity to the table. So they're looking not only for a financing partner who can provide something like mezzanine debt, but also an equity partner who can kind of help close the capital stack. And so, yeah. We really view ourselves as a true partner in the financing world. We sort of lead with our equity capabilities, with an opportunity to provide financing for those situations. Watson: Gotcha. Now, in the instances where you are pursuing that equity, can you talk about the time horizon or the window with which you're evaluating holding that equity? Because part of the reason for the bad rap, or the bad reputation of private equity is they have these kinds of terms that they have a compressed window in which to execute that return. So the reason that they default to something that is so short-term like loading up a company with debt or slashing headcount is because it's almost like the presumed incentives or structure of the way they're built. Gurgovits: That is true. And I, and maybe circling back to your question, when people approach us, is it equities or debt? It really depends on the individual situation, right? And so a lot of times, and at a portfolio level, we manage our fund to be about 75% debt, 20 - 25% equity. Most of the time our equity is going to be a minority equity position. So oftentimes even though we have a fund that has a defined life, in our case 10 years, which is pretty consistent with other private equity funds, we're often in a position where as the company grows or cashflow improves, they're paying down that debt. It may be step one in our ultimate exit is a refinancing of the debt, or you can bring in some lower costs, senior debt that takes our mezzanine back off the table. And then that second bite of the Apple is maybe another refinancing event to buy out our equity. And so w what's nice about our strategy is we don't necessarily have to put a for sale sign up on the company and say, okay, now you have to sell so we can get paid. We usually model and build out different mechanisms over the course of say a three to seven year period where we can get out. Which may be a multiple of events like refinancing versus ana outright sale. Gotcha. Makes sense. Watson: I'm always interested in the way that momentum translates into the growth of a business. And so we were talking a little bit beforehand about how the success of a first fund for an investment firm begets the second fund, then the third fund and they kind of work into this cadence of however many years they go to their limited partners. They talk about how the first, the most recent fund is executed and translate that. Can you talk about a little bit about how that's-? Gurgovits: Yeah, I mean, honestly, we had a big advantage having built a portfolio and a track record inside the bank. That was extremely helpful. But look, I wouldn't wish somebody, you know, your worst enemy, to go raise a fund. It's a challenge. And you know, the first one's the hardest one. Fortunately, as I said, the bank had supported us so we had a track record to present to the market. Where we are today ironically is, is we're about 75% through our second SBIC fund. And so probably later this year and early next, we'll be thinking about raising the next one. And that'll be both off our FNB track record, our fund one track record, and now are established a second fund track record. And so the more funds you do clearly, you know, you become more experienced. The returns are usually, you know, demonstrateable of that experience. And it's just a lot easier to raise, you know, your second, third or fourth fund versus that very first one. The other thing is you get a lot of reups, right? So people that you did get in fund one, They like what you did, they liked the lessons learned, they want to come in for fund two. So it's a lot easier because you have a list of current LPs and say, Hey, do you want to, you want to do this again with us? And some, you know, most say yes and some have reasons where they don't and then you go out and try to replace them. But there is clearly to your point, a momentum as you go from your first fund to future funds and assuming you perform. Watson: Yeah, you gotta be able to execute on the ground, but that's also just kind of a trope of sales of it's much easier to get the second, third or fourth sale from someone after the first one and try to build that relationship from the ground up. And also I'm probably sure there's people that you're talking to that like may invest at some point down the line, but they just still haven't necessarily decided to make a move. Gurgovits: You know, that's an interesting point you make, Aaron. We're always fundraising, right? I mean, you know, we don't have to say, okay, now it's official. We're officially fundraising. You're always having discussion and dialogue with folks either that are in a current fund or a prospective investor that maybe didn't come in that first fund for whatever reason. But you stay in touch knowing they have enough interest to stay in the communication pipeline and see if you can convert them into the being a future limited partner. Watson: I, as an outsider, but someone who is very interested, try to read a lot of financial headlines, try to, you know, at the most rudimentary level evaluate, like, what is this policy that was just enacted by the department of the treasury or the federal reserve or what have you. And one of the kind of narrative that pops up is this enormous growth in the amount of corporate debt that is on the balance sheet of these companies. And these, you know, one of the things is the zombie companies that have these enormous debt loads and, you know, profit margins that are exceeded by the payments that they're making on that debt. From your vantage point as someone who, like you said, 75% of the fund is involved in making some of these debt offerings. How does this environment compare to even, you know, back around the great financial crisis? And that the challenges, or maybe the, the appetites that these companies have to add more liabilities to their balance sheet? Gurgovits: Yeah. I mean, these things come in cycles, and clearly back to '08/'09, you know, rates were even back then, you know, historically low and people were getting bullish, and the animal spirits take over and leverage eventually creeps up and eventually it comes home to roost. When there's a downturn, be it from an exogenous event, like a pandemic out of nowhere or back in '08/'09, sort of the real estate crisis that that blew up or bubble that blew up. So they always come and ways, but it is interesting, you know, the past 30 years' rates have generally just gone to zero, right? And now given where we are in this pandemic and the feds made it pretty clear that they have no intent on raising rates over the next two years, as we start to try and recover economically, it's going to inevitably lead to more barring both at the government level, but the corporate level. And I think there's a lot of positives in the middle of this, you know, call it healthcare crisis initially. But when companies were able to access the debt markets and the fed made sure that would happen and could happen, and that markets were effectively working, that was pretty critical because when you're talking about shutting down the economy for what ends up being what? Two to three months, depending where you are, geographically companies are going to need liquidity to get through that. And I think the steps the government has taken both the federal reserve, from a monetary policy with rates low and some of their other stimulus, and then even at the congressional level with fiscal policy and the PPP loans. Those were, those were important to just keep everybody sorta semi alive, to hopefully we can get back to this reopening and get things started. So I think every, you know, '08/'09 today, they're all there, you know, unique circumstances. But the bottom line is when rates fall it becomes cheap capital and people are going to use it. Watson: And we saw a lot of headlines where these different kinds of larger corporations were discovered or found to have applied for a PPP loan. And people are like, yo, that's not meant for you. And a ton of firms went in and sent it back. But kind of the space that you play in at the lower end of the market is. Very much who those loans were intended for. Those loans were intended for that the classic main street businesses. And so I'm curious how that affects you at like the firm specifically that you're now in a way competing with the capital that the government has allocated for that type of debt. Gurgovits: Yeah. It's interesting. We helped every one of our outstanding portfolio companies get a PPP loan. I mean, almost all of them needed it at some level. They're generally smaller loans, but enough to provide some essentially payroll capital for the periods where they were either going to be shut down, or at least, you know, operating at a very low level. And now this, this next program is sort of rolling out the main street lending program, which isn't forgivable like PPP, but it is cheap financing, if you will. I think, you know, talking three or 4%. And so yeah, all of a sudden now it does compete a little bit, you know, in terms of new opportunities, but it's also really, you know, of course, I don't know yet because the rules are still to be written and they will likely change. Right? It's not really meant to be acquisition financing. Which is where we typically play it's more or less to be working capital, where maybe a company's, you know, underwater with the bank. And we'll need some help to get the bank comfortable that they can make it and buy them time. And similar to the PPP type program, the main street lending generally for, you know, small middle market businesses to again, provide liquidity until things can get back close to whatever the new normal will look like. Watson: And it makes sense that you would assist with the PPP loans or like in my case, the bank for my company, like reached out to me. He's like, Hey, here's exactly how you apply and what have you, because sure there was like a real business model to the banks, you know, issuing those loans, getting accredited in their kind of servicing fees associated with it, but also the fact that they want their companies to persist and survive and be healthy. So you want your portfolio of companies to be able to make it through this. Gurgovits: Yeah. I mean, the banks took a little bit a headline risk, but you can't blame them. Their primary goal was to help their existing customers. Right? And so certainly as this program gets stood up very quickly, there's no question about it. They were going to go to their incumbent clients and try to get them the liquidity they need. But I think banks still deserve a lot more credit because they help stand the program up. And many of them went beyond their existing clients and reached out and found some of these small businesses to help. And some banks did better than others. But I think collectively, when you think about the whole program, both at the government level and the SBA all the way through the banks, look, it's not perfect, but it was pretty amazing. What, what got stood up in a real short period of time and provided a lot of capital across the market. Watson: Yeah. So another part of valuing companies, and it's much more tangible in public markets, but there's kind of through lines in both public and private companies, is this notion that I look at Amazon, you know, in March or April in the midst of the pandemic, at least here in the United States and you know, things are terrible right now. How are they still so valuable? And it's the fact that this is a company that's valued. We're not just buying them because of what they're doing this month. We're buying them what they're going to do over the next 5, 10, 15 months, depending on your time horizon as an investor and your expectations for the company. And so when you're looking at different companies, say now in the midst of, you know, who knows the severity or how long prolonged this kind of economic correction will be, that's a very different investing climate than say three, four years ago when you're you know, coming up a cycle or back in 2008, when you were going through your last one. How does that change the types of companies or the industries that you and your team are most interested in deploying capital? Gurgovits: Yeah, that's an interesting question. I'm not sure the strategy for us has really changed. We skew towards, I'll say manufacturing, distribution, business services. And I don't see that going away. We're not tech investors per se. We don't do a lot in healthcare. We don't do any venture. We're not permitted under our license with the SBA. So, you know, we're going to stick to what we're good at and understand, but I think you do have to look at the individual investment opportunities in the context of what is going on. It may be a macro economic level. I mean, clearly, you know, leisure travel, I mean, those things have been hit. They've been hit hard. And I think it's going to be a long road back. I think you look at maybe manufacturing or those that are supplying some of those online platforms. Some of them didn't miss a beat and some of them, like we have an investment in Uncle Charlie Sausage, they can't make enough sausage. I mean, there was such a run on meat there when, when everybody was at home, you know, getting groceries, ordering groceries. So there's some dislocations, but you know, you got to look through the noise and understand sort of the fundamentals. The other thing, this is such a unique economic downturn. It's so fast and furious. We never really seen anything like it. I mean, a lot of recessions sort of play out over a number of quarters and then it happens. And then sometimes you look back and you say, Well, yeah, it happened. You didn't realize it happened until after it was over. I think everybody knew this was going to happen and it happened quick. And the markets, you know, kind of show that back in March and now they've rebounded and we haven't seen a lot of dislocation in the, in our portfolio. So it's generally been, you know, cautiously optimistic. It's been good news. Again I do think there are certain sectors though. You know, whether it's, you know, commercial real estate, you know, office space, hotels, restaurants, you know that that's, that's going to be a little bit of a struggle until people are confident that this virus is handled or under control to go back and, you know, live like we were doing six months ago. Watson: But a lot of the other things I've been reading is about this like fragility of a global supply chain. And the fact that everything is kind of just in time, the fact that you are involved in manufacturing, distribution companies that are located on shore in the world's largest economy is a pretty good position to be. Gurgovits: Well, we think positively things are going to come our way. There's two things, you know, it's always a great time to invest, you know, coming out of a recession and clearly we're in one right now here in second quarter. There's there's no denying it. It's, you know, how fast and when we come out, nobody really knows, but it's a great time to have a pool of capital to deploy. And to your point, because of where we skew both geographically and from a manufacturing distribution standpoint, I do think there'll be, you know, how big the move will be, but there'll be a move to onshore. I think people will be, you know the playbook isn't okay we immediately have to go to Asia and set up operations. I don't think that's going away, but I do think there'll be opportunities hopefully. And particularly when it comes to maybe, you know, technology enabled manufacturing to set up operations here. And I think there'll be a slow migration and we'll start to see some of that. And we think our fund will be in a good spot to take advantage of that as a source of capital. Watson: Yeah. So, another part of building a firm like this is leadership is running the business and cultivating talent, right? The way that you're able to scale yourself, you're able to improve deal flow, make better decisions is by training a cadre of brains to make those decisions. So when you and your business partners look at bringing new talent into the firm and filling out this office, How do you think not so much about who to bring in, but how to train and cultivate that talent once they are within your team? Gurgovits: Yeah. That's a great question. That's been my number one challenge. And if I look back personally in my career, since we started this inside the bank, I was probably not as prepared for that side of the business. I wanted to do deals. I like investing. I like learning about companies, meeting people, meeting management teams and putting structures together. Given how much growth we've had over the last seven years as an independent firm, and I spend now more of my time either working and communicating with our investors or prospective investors or running our business. And that means acquiring and training talent. And so, you know, that that's been my number one, got to get up to speed and do that better. And I think we've done a pretty good job. The most important thing for us, aside assuming you have some level of analytical skill, I mean, you can't be a complete novice, but it's gotta be a cultural fit. And where I think we differ maybe from some other private equity firms is we generally don't sorta knock on the doors of the big B schools. You know, the Ivy league schools, which a lot of private equity firms do. And there's certainly nothing wrong with that, but we recognize that our team's got to stand in front of a business owner, an entrepreneur who may be less financially savvy. But, you know, built a business usually from the ground up, or it's been family owned for a long time. And so I'm looking for individuals that can stand in front of that business owner and sort of speak the same language, you know, a little bit of grit, a little bit of entrepreneurial-ism and a, a little bit of a I'll call it realism. Not that, Hey, I got a degree from this great university I'm smarter than anybody here. You know, I'm not, not really looking for those kinds of folks, people that are, you know, if you hire for attitude, You can train for, for the knowledge base. And that's been our approach we built from the ground up. So we've taken a lot of quality, talented individuals who are very raw, and sorta shaped them in our culture and our way of doing business and then allow them to help put their stamp on what we do here is they grow and mature in their careers and it's worked really well. Watson: So you talked about wanting to do deals like in DTS. That's what kind of attracted you in the first place? What about, basically almost like the, I think this is like a universal human thing like that, the feeling of need for control. So whether you're running a small restaurant and you need to control the plate appearance of everything that goes out and sits in front of one of your, one of your customers to deploying hundreds of millions of dollars of capital, like every single business, there's this paradox of you're starting this thing because you want the kind of control and autonomy that is granted to someone entrepreneurial. And at the same time, you're making this balancing act of kind of letting go of the reins and releasing that and giving that trust to these other people. Gurgovits: Yeah, I think that's so true. And that's when we sit across from these business owners who are thinking about selling their business, or perhaps transacting with us, you know, we can relate. Because they have the same issues that I do. And I think it is hard. I'm a type A person in general, fairly neat and organized. And it's, you know, you come to a realization, you can't control everything. And most importantly, the old adage, Hey, if you hire good talent and then trust them, right. Trust, but verify, turn these folks loose, let them do what they're good at. Let them come to you. And I always tell the crew, Hey, come to me with your problems, but come with a solution. You know, don't, I'm not going to sit here and solve everybody's problem. You know, if you want to talk through a problem, give me a recommendation or two of how you think we ought to approach it or solve it. And then, you know, 90% of the time, probably more, I'm going to agree with you. And that's, that's been my approach to giving up the reins at some level, but I also have come to realize, as you do that, you also empower the people around you, and those technically, you know, beneath you, and it gives them an opportunity to grow in their career and contribute to the success of the firm and take a team-based approach. Watson: Right on that's about all the questions I got before we ask our standard last two. Anything else you were hoping to share today about vesting private equity or Tecum that I didn't give you a chance to? Gurgovits: No. Yeah, there's, there's a lot of information out on our website and I think, you know, the history is kind of laid out there, but I really am proud of our team what they've been able to accomplish. It's a young team, but they all work hard and we've been able to transition during this pandemic to semi remote working. As we were shut down here in Pennsylvania, we're just now starting to bring some folks back and, you know, they really did a great job working remote, working through these PPP loans and all the details and helping all these companies out. During the crisis, we were having weekly town halls with our CEOs across the portfolio, we have 33 active investments. Somehow in the last call, we had 275 people. So, you know, the word must have been getting out that we knew what we were doing and talking people through not only the details of say a PPP process, but just in general, what's going on in the pandemic. And sometimes the folks running these companies, you know, the old adage goes, it gets lonely at the top. I think a lot of them just neede to know that we had their back, that we're here to help and support them and be a good partner, even if it's just the shoulder to sort of lean on, and a couple of cases even cry on. I mean, the things were, things were a little, little hairy there in March and April at certain companies. And I think everybody was, was apprehensive and hopefully we helped them that our part to get through this and we can all come out the other side, both healthy and financially better off. Watson: Beautiful. Given that you get to touch all these different, whether it's Charlie's Sausage or manufacturing, distribution centers, or cybersecurity, these other firms that you involved in, like, what are some of the things that you've taken away from getting to, you know, maybe in a more traditional banking side, like walk the floor with these owners and also just kind of like actually get to walk around inside the business? Gurgovits: Yeah. You know, I think the biggest, first of all, I love meeting the people and learning about all these businesses. And then you forget sometimes in your daily life that, whether you see a product or a food item in a grocery store, you know, comes from somewhere, right. And there's a whole process for it to get there. And it's always fascinating to occasionally step back and revisit, 'wow, you know, that, that's where that comes from?' Right? But, you know, I think the biggest takeaway is, you know, we try to invest in people as much as businesses, right. Because if you've got a good management team and an average business it's going to do well. If you've got a great business, but a bad management team, there's a chance that that could go sideways. And so it really comes down to relationship based investing and the people that you're partnering with going forward. And that's pretty critical to our process. Watson: If folks want to learn more about you, follow along on the company, all that you're up to what digital coordinates can we provide people to check out? Gurgovits: Yeah, in terms of, of Tecum Capital, you know, we keep our website pretty active. We also have both a Twitter and LinkedIn page at the company level. Me personally, not a big social media guy, but I am on LinkedIn and try to broadcast different news items and keep it professional in there. Watson: Right on. That's the place to keep it professional. Yep. Get into some trouble elsewhere. We're going to link all that. It's in the show notes where you're probably listening to this right now in your podcast player or at goingdeepwithaaron.com/podcast for this and every episode of the show. But before I let you go, Stephen, I want to give you the mic one final time to issue an actionable personal challenge for the audience. Gurgovits: Yeah. You know, there's a lot I could think of, but somebody told me once to go out buy the Wall Street Journal and read it every day. And I'd never done that until B school. And you know, when you first start doing it, if you're not as familiar with finance or business, you know, it it's truly quality reporting. I'm not on their payroll. I don't get a commission, but, they take afairly objective approach. Certainly politically they leave the politics to the editorial page, and go deep, do some really deep. I have reporting on business and economic issues and even world issues. I think it's a great way for folks to get educated because at the end of the day, and certainly when we see and acknowledge what's going on in our country today, I think one of the things that is critical for young people's education regardless of your background, your race, those opportunities. And we as a country, I think need to do a better job of making sure we're providing those opportunities evenly for everybody at every socioeconomic level throughout the country. Because that that's really the foundation for future success, no matter what you want to be, whether you want to get into business or go to medical school or being an attorney or start your own business, or be a reporterer or podcaster, education is where it all starts. And so, you know, I think a good chore that you can get up and do is two things. Get up every morning and make your bed so you accomplish something, and go buy the Wall Street Journal and read it, you know, front to cover when you can, and learn as much as you can about what's going on in our world. Watson: I love it. I'm a reader of the Wall Street Journal and the degree to which it helps has helped me make sense of how these deals even get done. You know, you're not getting every sort of like line item or the contract, but that capacity by which the motivations and how these decisions get made is really fascinating. Okay, cool. Stephen, thank you so much for coming on the podcast. Gurgovits: Glad to help. Enjoyed it. Watson: We just went deep with Stephen Gurgovits. Hope everyone out there has a fantastic day.
Brian Burley is the founder of YNGBLKPGH, a book and community of talented black professionals in and around the city of Pittsburgh.
Brian came on Going Deep to discuss the absolute necessity of cities and corporations adopting more empathetic and diverse approaches to attracting and retaining talent. He has a distinct perspective that he has earned through writing his book profiling over 100 black professionals, working in economic development for the Pittsburgh region, and leading conversations about diversity at ADP. Aaron and Brian also cover the rise of Juneteenth into the national conversation and effective ways to market & message these important ideas. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Brian Burley’s Challenge; Go learn something new about someone else’s culture or experience. Try to put yourself in their shoes. Connect with Brian Burley Brian’s Instagram YNGBLKPGH Instagram If you liked this interview, check out episode 418 with Marco Marandiz where we discuss hip hop, branding a B2B company, and the future of online commerce.
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Henry Schuck founded his company, originally named DiscoverOrg, in 2007 at the age of 23. The company IPO’d on June 4th, 2020.
After acquiring ZoomInfo in 2019, they took the new name and consolidated their position as one of the leading sources of business information and now drive the go-to-market initiative of over 15,000 companies worldwide. Henry sees ZoomInfo changing the way every company goes to market, the way sales reps engage with buyers, the way marketing targets, and the way HR recruits. In this episode, Henry and Aaron discuss bootstrapping the company to $25 million, the IPO roadshow during a pandemic, and Henry’s skills as a sales trainer. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Henry Schuck’s Challenge; The professional you are today, isn’t who you need to be to accomplish your goals. Take an inventory of where you need to improve and go execute on it. Connect with Henry Schuck Website henry.schuck@zoominfo.com If you liked this interview, check out episode 361 with Jason Wolfe where we discuss building multiple businesses that earned 8-figure and 9-figure exits.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
Joe Hipsky’s long career in financial services have allowed him to identify and develop a solution to the pipes of the financial system.
His company, iraLogix, is aimed at reducing the administrative burden placed on financial service providers. In this conversation, Joe and Aaron discuss fundraising, why the financial services industry has been slow to adapt, and the regulatory climate for fintech. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Joe Hipsky’s Challenge; If you’re looking for investors, study the investment process and how venture capitalists make decisions. Connect with Joe Hipsky iraLogix.com If you liked this interview, check out episode 231 with Andy Rachleff where we discuss how he identified the opportunity to build Wealthfront.
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Charlie Dolan is the founder of Sequoia Waste Solutions, a technology company aimed at modernizing waste management.
When Charlie first looked at the waste management industry, he saw business still being run on paper with enormous inefficiencies needing to be addressed. So, he started building. Today, the firm employs more than a dozen people and offers a suite of software and hardware solutions that drastically reduce costs associated with billing for and hauling away garbage. In this conversation, Aaron and Charlie discuss the evolution of the company, the benefits of bootstrapping, and when to ‘build’ vs ‘buy’. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Charlie Dolan’s Challenge; Realize most of the world around you was designed by another human. Use that to build confidence in your own ability to make an impact. Connect with Charlie Dolan SequoiaWaste.com Discoveryapp.io If you liked this interview, check out more interviews with entrepreneurs and leaders that have vision, patience, and work ethic.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
John Feghali’s technology startup blends augmented reality, digital media, and animation to enable a new style of storytelling.
Most animated videos take thousands of hours of work and come with hefty price tags. For example, Frozen 2 cost $150 million and Toy Story 4 cost $200 million. John’s company, Toaster Pets Cartoons, allows children and adults to make their own animated cartoons by recording cardboard cutouts and using artificial intelligence to translate the live action into a digital cartoon. Explainer Video In this episode, Aaron and John discuss how he found this market opportunity, the technology powering the service, and the enormous potential of the Intellectual Property. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. John Feghali’s Challenge; Create opportunity for others. Connect with John Feghali ToasterPets.com Getpaperstudio.com If you liked this interview, check out episode 361 with Jason Wolfe where we discuss his string of enormously successful technology startups.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
Luke Glass is building a digital marketplace for land rights in the US. That means that any property owner can list their property’s rights to timber, solar, wind, or oil & gas for sale.
Luke’s company, RealX is aiming to unleash the trends of digitization, globalization, and virtualization on a marketplace that still operates on postcards and paper contracts. As vice president and general manager of ListHub, which was purchased by Move in 2010, Luke Glass grew the platform into the nation’s largest online real estate listing syndicator. In this podcast, Luke and Aaron discuss how this platform allows landowners to identify more buyers, why Luke believes solar will be more dominant over the next 20 years, and why he’s not the Garbage King of West Virginia. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Luke Glass’s Challenge; Find a local Food Bank and donate. Connect with Luke Glass RealX.io If you liked this interview, check out our interview with Matt Wieszczyk where we discuss natural gas land rights.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
Luke Skurman is the CEO and Founder of Niche.com. Niche is an informative website that provides insight and analysis from experts and neighbors to help people choose colleges, K-12 schools, and places to live.
Niche, formerly College Prowler, was founded in 2002 and recently raised $35 Million to expand its client base and grow its team. This Series C funding was led by the New York-based Radian Capital and San Fransisco-based Salesforce Ventures. Luke has been at the helm of this college resource dynamo since its founding and has led it through tremendous years of growth. In 2019, Niche grew its client-base by 60% and increased annual recurring revenue over 100%. In this episode, Aaron and Luke discuss the Series C funding, how to grow a tech business in Pittsburgh, and the future of remote work in lieu of COVID-19. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Luke Skurman’s Challenge; Increase your level of empathy for others. Connect with Luke Skurman Niche.com If you liked this interview, check out episode 303 with Luke Skurman where we discuss the origins on Niche.com and the first large raise.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
Keith Hamon has over 30 years of operational restaurant experience, with 10 years in active financial management and 7 years of direct experience owning, operating, growing, and stewarding a small group of restaurants.
His firm, Alchemy Financial, serves as a bookkeeper, financial planner, and CFO for clients in the hospitality space. Keith is committed to helping small restaurants and bars survive and thrive using better financial planning and thinking strategically about pricing. In this episode, Keith and Aaron discuss pricing strategy, how restaurants deal with food delivery, and Cloud Kitchens. Pittsburgh’s best conference to Expand your Mind & Fill your Heart happens once a year. Keith Harmon’s Challenge; Be mindful of everything. Connect with Keith Harmon We Live to Serve Twitter Alchemy Financial Website alchemyboston@gmail.com If you liked this interview, check out two interviews with award-winning chefs and entrepreneurs. Kevin Sousa’s Superior Motors was named one of the greatest places on Earth and Jamlika Borges is a James Beard semi-finalist.
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify 427 Ben Hunt of Epsilon Theory talks Seeing Through Fake Statistics, Hope, and Being a “Girl Dad”5/4/2020
Ben Hunt is the creator of Epsilon Theory and co-founder of Second Foundation Partners.
Epsilon Theory is a newsletter and website that studies markets using game theory and history. It is read by over 100,000 professional investors and allocators across 180 countries. Ben is the founder of two technology companies, a past professor of political science, and a successful investor. He’s worked in venture capital and subsequently on two long/short equity hedge funds. He evolved to blend his background as a portfolio manager, risk manager, and entrepreneur with academic experience in game theory and econometrics to improve client outcomes. In this conversation, Ben and Aaron discuss how Ben outlined the false numbers coming out of China in a blog post titles Body Count, how to channel anger into Hope, and how he thinks about fatherhood. Essential Reading Clear Eyes, Full Hearts, Can't Lose Things Fall Apart #1 Things Fall Apart #2 Ben Hunt’s Challenge; Take Action. Do not allow yourself to be convinced that it’s insignificant. Connect with Ben Hunt Epsilon Theory Website Frontline Heroes If you liked this interview, check out interviews with investors Andy Rachleff, Anthony Pompliano, and Morgan Housel.
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
Watson: “Thank you so much for coming on Going Deep! I'm really excited to be talking with you. It's great to be talking with you.”
Ben Hunt: “Aaron, thanks for having me on.” Watson: “I wanted to start off on just a little bit of a different tenor, and this is as much a cue for you as it is for the audience, but it's really an honor to be speaking with you because of how much I admire your writing and your blog and your capacity. I was even talking about this to a friend as I was prepping for the interview.. how you're able to put words and articulate some of the complaints or elements of this kind of wacky world that we're living in so clearly that it helps to make sense of all that's going on. It's why I really appreciate that, and I think that a natural starting point for that is to talk about how you were able to use this beautiful analogy of the statistics associated with casualties in the Vietnam War and to use that to assess and understand some of the first numbers and the first data that we saw indicating the fatalities associated with the coronavirus (COVID-19) so can you talk a little bit about what you saw and a little bit about how your background kind of enabled you to use what lens to parse through that information?” Ben Hunt: “Sure! Well thanks for the kind words there. You know I have done a lot of different things and I think that is what helps to communicate issues mostly around the world. I'm currently in the financial world and really try to communicate that to a broad audience, right? And this isn't just true of investing. It's true, okay. Everything in this world.. you feel like you're an outsider and that you have to have access to this secret language, you know, that the practitioners speak. If you're not aware of all the inside baseball lingo and, you know, ideas, it can be intimidating. I got to tell you that I think that's entirely intentional, frankly, because the ideas that really dominate the world of investing or the world of politics or whatever world your audience/listener happens to be in, you know, it frankly, it's not that complicated. It's the same things that human beings have been wrestling with for thousands of years. So I do think it helps to have a varied background, as my wife says, I can't keep a job, right? So I was a college professor for ten years, and I started a couple of software companies and then I got into the investing racket. I was gonna come with the business, that's a racket. I really built and ran up a pretty big sized hedge fund for for a long time, and now I'm I'm trying to write about all those experiences and tie them together to really help myself and help others see the world through these lenses which I hope are simplifying lenses and getting past the jargon. and I in the language so roundabout background to your ear to your very basic question which was that I started writing this at the end of January, so I published the first piece in 2019. I don't think we called it, coded my teeth, that first weekend in February, but I was focused on what I thought was the clear lying that was coming out of China around their numbers. They are jargon. The statistics that they were reporting coming out of their experience with the novel coronavirus, and the city of Milan in particular, the province of broadly, and when I was really drawing on there, was my academic background, you know? As a professor of political science of all oxymorons, I got my PhD up at Harvard, and talked at NYU. Then, I got this tenured spot down at SMU in Dallas in my field, you know, which is broadly political science, but more specifically, it was called we're on the science side of political sciences- really statistics econometrics. It makes sense of numbers and statistics, but also a lot of training and how governments, companies and people lie with statistics, as well. I defend that old saying lies damne. Lies and statistics, well what we were seeing coming out of the numbers being reported out of China, followed up a certain pattern. A couple of people were writing on it. There was a Reddit thread of all things trying to do a statistical analysis of that. A lot of statistical analysis that they were doing on Reddit was kind of silly, but I dug into the core insight, and it was that these numbers are being made up. These numbers are fake and he said, well, how can you tell right by looking at just the numbers? How can you tell if they're fake? And the reason you can tell? This is gonna have applications when we talk about markets. When we talk about politics, we talk about really anything else. We know the numbers were fake because we know something about the real world biology of any virus. The disease, the contagious disease, and what I mean by the real-world biology is that numbers can describe how contagion happens. The way numbers describe that is to use what we call an exponential function and an exponential growth in something. Are you lazy? We don't experience very much in our human lives, and so it's a difficult concept to kind of wrap your head around. There are lots of ways of growth, in which we are familiar with, the growth of a bank account, you know, the roots of a stock writer or what you have. Exponential growth is this really weird thing though because of the way it looks to a human observer. It makes it look like nothing is happening for quite a long time, and then you'll see as I transcribe it. If you see it as an exponential function in nature, it'll look like nothing and then you'll see a cluster, and then all of a sudden, boom, it just almost out of nowhere, it just explodes. That's why, when you see these exponential functions, you know, in some sort of chart or graph it'll just creep along the bottom for a long time, and it'll sharply go up. That's how a disease starts, and then of course you have the reaction to the disease. You have treatment. You have public policies like we're seeing with social distancing or a lockdown, or what have you, and it changes the trajectory of the disease by God. It doesn't make it into what we call a quadratic formula. It becomes what we call a sub exponential function. Again, I'm using this jargon but trying to explain what the jargon really means. What was clear was that from the data that China was reporting both in the cases they were reporting, and I think even more importantly in the deaths they were reporting from this disease, it was impossible to come up with any exponential function that a disease would take in the early stages and combine that with some sort of mitigation and to turn it into a sub exponential function. There was no combination of those two real-world things- the spread of a disease and the efforts to try to contain it- that could result in these numbers. The critique was afforded heavy in statistics. You talk about this notion they cut. You hear everyone asking what's statistically significant, and all that means is how likely is this explanation the numbers you're seeing? How likely is it that it could have occurred by chance/by something else? So when you run these kind of statistical significance tests on the data, in China, my rough estimate was that it would be more likely that our Sun would go Nova and destroy all life on Earth tomorrow than that these results that the Chinese government were reporting were, or what was really happening. So, I wrote about that in this note, and I called it body count. The reason I called it body count was that I think I know why China was lying about the numbers, and they were lying about it in a pretty simplified way. The numbers that they were reporting were really intentionally designed to show progress, right? They wanted to show competence and control on the part of the government. They didn't show that, sort of, exponential attack of the virus followed by a fight. It is a fight. It is a war against the virus. It really showed it kind of well. It's manageable, and now we're really managing it, because there’s a smarty word. What it reminded me so much of, so I'm 56 years old, I remember so vividly. I’m just a little kid, six/seven years old, you know? I'd be at home and parents would have the nightly news on. Walter Cronkite or one of those old-time guys right? This was soon the Vietnam War. I remember 1970-71, and I still remember vividly how they would always report exactly how many North Vietnamese soldiers had been killed or wounded. That was always like ten times the number of South Vietnamese soldiers, and the South Vietnamese was always like five times the number of Americans. What we know now is that those numbers that were being reported about the North Vietnamese casualties were made up, right? They were maybe, roughly kind of true but basically, they were being made up in exactly the same way that I believe the Chinese government was making up the numbers around the coronavirus to present this narrative the story. It created this illusion of competence and control that the US was winning the war in Vietnam the same way that China wants to present us this narrative of winning the war of the coronavirus. What's worse is that this is where I'll stop with this, because the story doesn't end with the Chinese government lying about the numbers. The kicker did this, and this was absolutely the case for the American experience with the Vietnam War. The tale begins to wag the dog, and what I mean by that, is that once you go down this path of creating a narrative and making up the numbers, you are meaning the government to fight the war again. Whether it's a war against a virus, or war against an enemy, you start to fight the war. Your policy becomes designed to support the numbers. You can down the numbers you've been making up, and in the US’s case, this was the source of what we call the village pacification policies. Most of the movies you see about Vietnam are really driven by the policy that came out of this perceived need to preserve every night because of these numbers of North Vietnamese soldiers dead, and that's why we're winning the war. I think that's absolutely what the Chinese government did. It's absolutely what organizations like the World Health Organization did after that, and sadly I think it's exactly what's happened in governments all over the world, both in Europe and in the United States.” Watson: “Yes. It's frustrating, and it brings me to the St. Augustine quote that you have in your Twitter bio, which is ‘Hope has two beautiful daughters- Anger and Courage. Anger at the way things are, and Courage to see that they do not remain as they are.’ One of the outgrowths of this, inevitably, will be anger. There will be anger at how it was handled. There might be misallocations of anger, and there may be misunderstandings in different kinds of corners. The populace like who is culpable or maybe will just be a difference of focus of ‘hey I see it here, you see it there’ and people going in their different directions. But what is, to me, dangerous is the anger and either a lack of courage to take the appropriate action or a lack of sophistication about the appropriate or the effective steps that one can take to channel that anger into good or into hope or something that positively will be born of it, and not just descend into Nihilism or Anarchy or something like that.” Ben Hunt: “Aaron, I think that's so right, and you know it's just my favorite quote ever, the St. Augustine quote. We're not sure St. Augustine actually said that. He said some similar stuff to it, but I prefer to believe that he said it, and if you recall, St. Augustine was watching the long-term decline and fall of the Roman Empire. That's the time period he lived in, so you're absolutely right. I think our goal has to be hope. There's a lot of anger around these days. I'm sure we've all got enough anger, but what it really requires is that twin sister of courage, and that you put those two together to channel the anger in a way that they can provide hope to avoid a long fall. Try to rebuild in a better way, and the way I suggest thinking about that is how I mentioned that it was the Chinese Communist Party lying about the numbers, and minimizing the severity of this disease to try to maintain control. I say international relations have done it and then, similarly, I think that's happened in the United States where the disease has been minimized and politicized by every institution. When I say every institution, yes, of course, I mean the White House. Of course I mean Wall Street. I also mean the media. This is, I think, and I use this word 'betrayal,’ and I don't use this word lightly, but all of these institutions who have told us a story of why they exist and why they are there for us. I think that the actual real world events of what they've done during this crisis over the last few months just gives the opportunity to lie, so when I say that our institutions, I believe, betrayed us, this is not a Left-to-Right thing. This is not a Republican or Democrat thing. To me, at least, at the heart of your point about well how do we channel our anger here? I think it would be a tragic mistake to channel our anger, to channel our belief, into the idea that the election this November will either fix what was wrong or will punish or reward the people who are to blame for this. The blame is not really in a particular institution, or a particular political party.The blame is in the system we have today, where again, we the people are being undermined from above right, where it's a financialized economy, where the wealth disparity and the income disparity just gets wider and wider. You see that in the response to this, this virus, even today, where everything is done on this trickle down basis, and it requires I think a rejection of the system. Whether it's from the Democrat side or the Republican side, both push this forward by rejection. I don't mean moving off the grid. I don't mean that I like to talk about burning it down, but what I mean is burning it from the inside. Burning it from the bottom and it by replacing it with community action. That doesn't get trampled by these elephant institutions who will absolutely trample you, but it really means reclaiming an autonomy of mind and an autonomy of spirit, so that you're not just cannon fodder or the wars that these institutions wage on each other. I think there's some very specific bottom-up things that we can all do in our lives that keep the ideals of what I'll call small-L liberalism and small C-conservatism alive because those are the ideals that I think we've lost you. We pledge our allegiance, we talked about freedom and justice for all, and those are the things that are lost when our institutions create these narratives and use data ‘to prove their narratives’ when they're just making it up. They're making this shit up Aaron!” Watson: “Yeah.” Ben Hunt: “Data. I think once we see things with clear eyes, and we embrace it with full hearts, you know, as the secret to the world man, is to see the world with clear eyes. Find other people who you can go to the world with full hearts and clear eyes. Full hearts can't lose. That's Friday Night Lights, the great TV show.” Watson: “Amazing series, yeah.” Ben Hunt: “That's the slogan, right? Yeah, it's about high school football in a small town in Texas. It's about life, without life, and that's how you get through life, with a team with your pack, and going after life with ‘clear eyes, full hearts, can't lose’ and I want to hang on to this.” Watson: “I want to hang on to the smaller liberal, small-C conservative idea because another one of your concepts is this widening guy, which is at the macro level, we have this pooling apart of extremes, and I would throw myself in that category. But, particularly younger, where we can't even necessarily remember a time when the the two poles of political thought were relatively close together, and there was a capacity to see elements of similarity and the person across the aisle. That becomes harder and harder and harder, but it in a lower case, or a small-L/small-C environment, I go back to a book by Sebastian Junger, where he talks about the healthy tribe and its imbalance of conservatism and liberalism, as well as the capacity to have empathy and care for that other person in the community and sacrifice yourself for them, but simultaneously a capacity to, with with clear eyes, from a calculating standpoint, might recognize the risk to the whole tribe brought on by the kind of weak core elements. Balancing it was see-sawing in any capacity. They had a hundred fifty people to, you know, three hundred million people, but the recognition that is actually a healthy balancing act strikes, as opposed to this thing that feels like it's pulling apart because of its extremism.” Ben Hunt: “Yeah, and look this has all happened before. Thanks to that St. Augustine quote, right? Does this pull a part of the three hundred years of a widening gyre? It is funny how how history it really doesn't repeat itself, but there are these patterns, and this is one of those patterns. I bet I can also give you examples of where people rediscover that fire that really binds them, that brought them together in the first place. I believe these small-L liberal ideas of liberty and justice for all, that's what the small-L liberal ideal is all about. It's about individualism- an auton of freedom of mind and that's what is whittled away by the use of narrative, technology, and social media. It whittles away at your autonomy of mind. Similarly, the small-C conservative idea ‘it's all about honoring the past,’ whether the past takes the form of your ancestors. It takes the form of your community. It's seeing value in tradition and the way things have been done in the past. It doesn't reject that things shouldn't change, but it recognizes that there is value in those ties that bind a community together, and that's similarly under attack from the stories and the narratives that we are told. It reflects itself in our politics, where again, the solution of the widening gyre that there is no median voter anymore. Now, we're getting more and more polarized as a society and that's entirely intentional. It's entirely intentional, and we're becoming more and more polarized in terms of our economics, as well again, entirely intentional. So many things though that once you see through it, and once you see things through a different lens, you want somebody to just point something out to you. You'll see the world differently, and that's why I think it's so important to begin to tell these old stories. Tell them in a new way so that people say ‘I am being lied to.I I am being betrayed, and it's not all those darn Republicans or those awful Democrats. It's a power thing, not necessarily a political party thing.’ Once you start looking for it, you'll start to see it everywhere, and then you can start to protect yourself from it. Then we can talk about how to do that.” Watson: “Yeah. I want to be super respectful of your time because we've already gone for thirty minutes here, and you've been so generous with that. I'm gonna aim towards wrapping up just to be respectful of that, encourage people, and link in the show notes for everyone to check out some of your writing that you've outlined. I do have two quick questions before we aim towards wrapping up.” Ben Hunt: “Sure.” Watson: “I heard you're an Alabama football fan. How do you think Tua is gonna do in Miami?” Ben Hunt: “Tua’s the real deal, man. He's not just an amazing quarterback right with a great release. He's a good person, and frankly, I feel the same way about Jalen Hertz, who transferred out of Alabama. I went over to Oklahoma for the season and the Eagles got him. I think you've got a Pennsylvania audience. They may go more Steelers than Eagles, but I think the Eagles got a great one in Jalen, as well as I'm just glad that the Patriots did not get him.” Watson: “Respect. I am engaged to a Patriots fan, so there's a household strife there.” Ben Hunt: “Rooting for the Patriots it's kind of like riding for Alabama. It's like reading for them the Death Star you know that.” Watson: “Yeah” Ben Hunt: “I was born into the Church of Bear Bryant, something grandfather played in Alabama, so it comes naturally for me but it's” Watson: “Yeah. It's a challenge, that's for sure. She was born in Boston, so comes by it naturally as well. My last thing and I apologize that we're going a little bit over here..” Ben Hunt: “It’s alright.” Watson: “One of the poignant moments for me of the year before the whole pandemic thing was the passing of Kobe Bryant, and on SportsCenter Elle Duncan gave this amazing monologue about Kobe Bryant. Not the basketball player, but the girl dad, and you are the daughter of four girls. I misspoke- the father of four girls, and part of the raising of them has been on your farm, so I'm curious if there's any or I'm sure there's countless, some of the kind of core things that you've learned about being a girl dad through the lens of raising your family on the farm?” Ben Hunt: “So like you, I was so moved by that particular remembrance of Kobe Bryant, and so much of what that article said about what it's like to be a girl dad. It rang true so much for me. I had to think about this. There have been realizations for me personally being a girl dad because I was raised in a boy family, you know, with a brother, and they say we were very much a male family that I was raised in. I've had a lot of I'll say personal growth by seeing my daughters deal with what is still a male world in some respects. It's helped me grow frankly by being a girl dad, but what I'm gonna say just in terms of the lessons and the life on the farm, there are only two things that I take care of on the farm right outside. I drive the tractor, and I and I take care of the bees. Everything else on the farm my girls do. They take care of the sheep, they take care of the horses, they take care of the goats, the dogs, the cats, the chickens. It's all on them, and when I say it's all on them, I really mean it. Whether those animals live or die is on them, and whether you're a boy or girl, I think that having that sort of responsibility and seeing that there truly is, as I say, that circle of life. The need to show these creatures respect and care and love- it's been everything. These are lessons that I think are difficult, not impossible, but difficult to teach in other circumstances. They are lessons of resilience, teamwork, empathy, care, and strength that you got to learn sometime. That's maybe not unique to being a girl, but it sure is gratifying to see my girls grow up into such strong women as they experienced these lessons.” Watson: “That's a beautiful note to wrap up on, Ben. It's inspiring for me, and I'm sure the listeners out there will try and continue to get access to some of those lessons. I'm gonna encourage them to read over Epsilon Theory and follow what you're doing with frontline heroes to get PPE and to healthcare workers who are critically in need. What digital coordinates if any do you want to make sure that people spend some time checking out?” Ben Hunt: “Well, thanks. I mention both of those so you know as far as my blog and research and writing. That is Epsilon Theory, so that's at @epsilontheory on Twitter, and that's epsilontheory.com on the web. You know, we make free articles available on the website, so I think there's some interesting observations there right for both politics and a lot of markets and in investing. I'm glad you mentioned frontline heroes because when I say that we can change the world from the bottom up through our own actions, separate from what political party do you support, that's really what I'm talking about. At frontlineheroesusa.org, that's the place you can learn more about it. Frontlineheroesusa.org. All one word. It's an example, I think, about how we can come together as just individuals, not to compete with the government, and trying to get masks and face shields for our frontline heroes, our doctors, our nurses, our EMTs, or first responders. Also, we're not going to wait for them either, right? Hey, we're not trying to get out there and buy a million masks and drive up the price of the stuff, but we're not going to wait either. What we've done, is we don't. I tell an underground railroad of PPE, where you know, we've got 20 people over in China who are buying this equipment, where it's cheap and plentiful. Shipping it over in small quantities, but then we bundle it up, and we should ship it straight into the hands of the doctors and nurses and first responders, to me. So today, we've raised over $800,000 we've already distributed 50,000 in 95 masks to about 600 individual clinics and hospitals and fire departments all across the country you know we're not there to send 10,000 masks to a hospital system but if you're uh if you're a nurse in a pediatric ward who needs a hundred masks for your team. If you're an ER doc, you need up to, you know, 200 masks for the team. We can do that. We can absolutely do that. Frontlineheroesusa.org. We're just getting started man. We can all do things like this. If you’re wondering, ‘what can we do?’ This is what we can do. We can do two things, Aaron. We can consume information differently, and by that I mean whenever I read a story, here's somebody on TV telling me about politics or economics or something, I always ask myself ‘why am i hearing this now?’ Hey, it's not just the what that you're hearing, it's the why, and that's not to be conspiratorial. It's just to ask the question, because so much of what we hear, has a purpose behind. They're telling us they're shaking their finger at us to try to give us stuff to think a certain way.” Watson: “The conspiratorial, or the notion of a conspiracy, that has one very specific connotation of the person out in the field with the tinfoil hat, but there's also the conspiracy of a plan that was concocted in a small group to achieve an aim. Like the nuance of understanding the difference in those two words and the fact that, you know, a large corporation I saw some ridiculous statistics about the number of communications professionals that are employed by Amazon relative to most media outlets, as an example of that.” Ben Hunt: “Right.” Watson: “That's it. In those terms, it's not a conspiracy. In the traditional sense, or in the kind of Internet sense, it's an explicit strategy by one of the larger strategies around.” Ben Hunt: “Right. It's absolutely a strategy, and I think if you just I guess one of the things where it's a good process, it's not an answer. It won't give you the answer, but it's just a healthy process to see the world more clearly. I think we can all do that. We can all look at the world and think more critically. Not to criticize, but think critically about the information that we are garaged with. Then the second thing is we can take action. Not in some grand stage, it really is action in your own community. Helping out a third debate, or yeah I'll call it food security. There's such a need for that. We all know something we can do to help. We all know we can do more. We are tricked into believing that those small acts of kindness and charity don't mean much in the big scheme of things, and that if you're not putting posters out your front yard to vote for an extra vote, you're not really changing the world. That's just sorry. It's just the small acts of community engagement that's everything. It really does change the world. It's the long game we're playing here, but that that's how we're going to get back on the right track and give those small-L liberal virtues and those small-C conservative virtues back up and going. We're our own individual actions and our own individual communities. Watson: “I believe it, and that's why we end the interviews on that note of action, so we can translate these ideas into something tangible. Ben, thank you so much for coming on the podcast.” Ben Hunt: “Really, my pleasure, Aaron. Thanks for having me. Watson: “We just Went Deep with Ben Hunt. I hope everyone out there has a fantastic day.”
Flori Marquez is the cofounder of BlockFi, a fintech firm that provides wealth management products to investors in cryptocurrency.
BlockFi currently offers interest-bearing crypto accounts, crypto trading, and crypto-backed loans. In the last year, Blockfi has raised an $18.3 million Series A and a $30 million Series B from investors like Morgan Creek Digital, Fidelity, the Winklevoss twins, and Valar Ventures. Flori has spent her career managing alternative lending products, including a $125MM portfolio for Bond Street (acquired by Goldman Sachs). In this conversation, Flori and Aaron discuss the founding of the company, the new customers BlockFi is targeting, and why banking people across the world is challenging. Text Me What You Think of This Episode 412-278-7680 Flori Marquez’s Challenge; Take $100 and invest in something new or different. Connect with Flori Marquez
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Website support@blockfi.com If you liked this interview, check out our past blockchain and crypto interviews with Anthony Pompliano, Brendan Eich, and Joe Lubin.
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify Watson: Flori, thank you for hopping on the podcast. I'm really excited to be talking with you. Marquez: Thanks. I'm really excited to be here. Watson: So BlockFi makes financial products for crypto, and that can almost be like crypto itself is thought of by some, as a financial product. But as I came across the company and as I've been kind of paying attention generally to the space for last couple of years, this hopped out to me as particularly interesting because it just very relevant, relatable, accessible products that helped take the concept of the cryptocurrency just one layer up to, 'oh, I'm actually seeing a little bit of utility here.' So can you talk a little bit about what those products are for BlockFi? Marquez: Yeah. So at a high level, you can kind of think of us as a Chase Bank powered by crypto. And most recently, what we're really excited about is up until a few months ago, you could only use our products if you had crypto, but now you can actually use our products with cash. So the three things that we offer are interest accounts. So you can earn 8% on cash equivalent assets. The second product is loans backed by crypto. So the same way that you can borrow against your home, a lot of people have been investing in Bitcoin and other assets for a while and they want to access liquidity. So we allow people to borrow against those assets so that they don't have to sell and they can access cash. And those interest rates start as low as 4.5%. And the third product is trading. So you can send us cash and buy Bitcoin for the first time. Or you can just leave that cash on BlockFi's platform and earn 8%. Watson: Awesome. So leaving aside the trading for a second, that, that basic functionality, like you said, Chase Bank, you know, Banks through time and Memorial have done these basic functions, right? Like I'm going to leave some money with you. You're going to get a small yield because of that. Or this is going to be the institution where I'm able to get money lent to me. Now, the big difference is, I guess there's two differences, but the big difference is, you know, my current bank I'm getting, like, if I'm getting 0.1%, interest, whereas this is the considerably higher percentage yield. Can you talk a little bit about how that's possible, why you're able to, offer more? Marquez: Yeah, so there's a lot of things that can be said about crypto, but one of the most interesting things is the ability to do more with assets than you can with cash. So the reason why we can offer such a higher yield is because we're able to take cash or other assets that are deposited through BlockFi, turn them into crypto and then relend out those assets. So we do it two ways. The first way is for stable coin. And for those of you who aren't familiar with stable coin deposits, is it's essentially like having a Venmo balance. It's not cash. It's crypto, when you want to withdraw it, we turn it back into cash and you get it back into your bank account. So that's the simplest way to explain it. So we take those deposits and then we make the U. S. Dollar loans with those assets. The loans charge anywhere from 4.5%, all the way up to 10%. And then we make the spread between what we pay depositors, 8%, and then what we charged borrowers 10%. So that's how we're able to pay such a high rate. And then with crypto assets or with Bitcoin and Ethereum, the majority of that yield comes from institutional trading. So banks actually have their own trading strategies with crypto now, too. And we're one of the leading providers of assets for banks that want to borrow crypto to fuel those trading strategies. So we'll lend it out to partners like Susquehanna or Fidelity is big and crypto they'll pay us a yield to borrow that Bitcoin. And then we'll flow that yield through to our clients. Watson: And that element of it is almost a more conventional business model. So it's cause I do this research and there's, you know, defy and all these new coins that are popping up every single day. And ICO's, and it's overwhelming. It's overwhelming for so many people. But this is, I don't want to say simple, but there's a science to those spreads that have been, you know, executed and learned and iterated upon by banks for a very long time. So you're not starting from ground zero, you know, square one to build this model, it's taking something that's already been developed and reapplying it to this new space. Marquez: Yeah, that's exactly right. And I think there's two ways to build a company, right? You can either build a technology that's never existed before, like a Facebook or an Instagram, or you can do what we do. And it's take a extremely old business model, which is banking and then apply a new technology onto it to just make capital more efficient so that you can offer your clients better yields. Watson: Makes sense. Now, talk a little bit about getting something like this started because, you know, there's always a source of inspiration. Like where did the idea come from? But then there's these additional challenges of, I would be hard pressed to think of a space with more regulatory obstacles then finance and banking and crypto all at once. Marquez: I'm glad you recognize that because I say it all the time. You don't just wake up and start a FinTech platform. That's not something you can just make up. So both me and my co-founder had experience working in financial services and FinTech before. The idea was very basic. My co-founder had a bunch of Bitcoin and wanted to access liquidity and he was like, I need this product and it doesn't exist. And then I knew him for a long time because we both worked in FinTech. So we partnered up and started building it. One of the things that we did that was very different three years ago in crypto was really simplified the business model and not build it on the blockchain. So a lot of companies that were started had, you know, did an ICO or built all of their technology on the blockchain. And instead we said, let's just treat crypto like an asset and let's build a traditional FinTech platform, like any other lender, like a sofi or lending club. And just use Bitcoin, Ethereum and other assets in the same way that lenders lend against a home or a piece of art. The challenging part about what we were doing, to your point, was that no one had done that before. No one in crypto had said let's build a regulated financial services platform. So we were one of the first companies to go out there and start interacting with regulators and try to get licenses so that we could build this the right traditional way. Watson: And that's another really big part of this story, which is, you know, it's a marketing principle, right? Like you have to know who your customer or your intended customer is. And the, you know, earliest of early adopters you know, deep in a Reddit thread or wherever they may have come across this thing, is very different than either an institutional investor or just a more conventional retail investor. And recognizing how it, this isn't necessarily the solution for everyone, it is a solution for a very specific demographic that otherwise maybe didn't have a place to go. Marquez: Yeah. And that's another good point that, you know, back when blockchain technology was first invented, most of the people that acquired crypto didn't have to verify their identity or go through a regulated process to buy it. And a lot of it was anonymous. Which is why it had a certain stigma. We realized that if we wanted to build a financial services platform, we would have to access debt capital to finance the loans. And the only way that we would be able to access that capital is if we had clean crypto. Right. And if we had audited each one of the individuals that interacted with our platform in the same way that a banquet, so that the people providing us financing could be assured that that crypto is clean. So we built the same structure that banks have to verify identity, and that allowed us to get licenses and build our model in a way that, you know, Took a bit more time than other blockchain companies that weren't doing any of this work. But, in the longterm it's allowed us to scale a lot larger than some of our other competitors. Watson: And when we talk about scaling, we'll talk a little bit about like the really sizable series A and B that you guys raised, but just in terms of growth of revenue, growth of size, I think I saw somewhere that you 20 x'd revenue from 2018 to 2019, and there's a lot of, you know, heat on the space in general. Can you talk a little bit about managing something that's growing so fast? Like I felt like I had a big year and I went from like two to four people on the team. You guys are doing something way, way, way beyond that. Marquez: Yeah, I think at this time last year we probably had 15 people on the team and today we have a hundred employees in three different countries. It's wild and now we're all remote, which is even crazier. But, yeah, it's been really exciting. I think we benefit from being the first of our kind. And so, as a company we believe in growing by making products that people want to use. And in general, free money is something that most people want to use. And so, we found that the more people know about the technology, the more they know, Oh, you can put as little as $10 on the platform and start earning an amazing interest rate. People just essentially convert themselves. But with rapid scale come many challenges, right? There's always the decision to balance between growth and then managing risk. One thing that we have never compromised on is the regulatory side of things. And we have also never compromised on building the systems to scale before we scale. So one example of that is for basically all of last year focused on building the backend systems to support hundreds of thousands of clients, even though at the beginning of last year, we only had a couple thousand. The sacrifice that we paid in order to do that was our front end. So our website today isn't nearly as powerful or sexy as the backend systems that are supporting it. But we really believe that we needed the system to manage that risk. Before we had a hundred thousand clients making deposits every second. So this year now that we built those backend systems, we're focusing on, you know, can we release a mobile app? Can we have a sexy website? And can we have the front end that allows people in as fast as our backend can handle it. Watson: Yeah. And as those folks come in, one of the things that I think a lot about is you meet some of these, you know, high-level developers, or maybe they're creating the cryptocurrency itself or some sort of novel technology. And we've talked to some of these folks in the past. And there's a high technical literacy, but there's almost another literacy in place that you have from that background in a more traditional finance field of being able to translate this stuff to an audience that, you know, understands economics, is savvy, like has a lot of experience with investing, but is, you know, to some way, shape or form treading in new grounds. So when you think about the messaging around BlockFi, to some degree, you know, free money is a pretty solid pitch on its face. But how else have you gone about talking about this company and positioning it for folks so that they can really wrap their head around it and not immediately turn up their nose because of whether it's the anonymity or some of the other kind of more negative storylines associated with this space or just frankly people's lack of sophistication? Marquez: Yeah. That's a really great question. So as a company, we really believe in being simple, transparent, and trustworthy in terms of simplicity. One thing that everyone in crypto was doing when we got started was, you know, speaking really technical blockchain terminology, right. You'd go on a crypto website. And it looked like something that was built by blockchain engineers for blockchain engineers. So one thing that we focused on is how can we simplify this product? How can we make sure that when you're interacting with us, you understand exactly what the risks are, what the rates are, and that if you want to dig a little bit deeper, one thing that we've invested a lot into is extremely high quality customer service, which was also something that no one in crypto had. If you call us, we'll pick up the phone and a extremely highly trained individual will be able to answer any question that you have about the platform risks, even how the products work. And so that kind of goes into, you know, transparency, simplicity. And in terms of trustworthiness, I think the thing that really builds trust is twofold. One, the team. So we would never be able to build this business model if it wasn't for the executive team that we have our chief chief risk officer built and managed structured lending a bank of America for 15 years prior to joining BlockFI. So what we've done is focused on bringing executives who have built similar platforms outside of crypto and bringing that talent into BlockFi so that they can build it within crypto. We have, you know, our chief growth officer was at Amex for decades. Our CTO has built and sold multiple companies before. Right. So we really believe in kind of bringing in experienced individuals into the space to help it grow. And the second was as a result of that, we've been able to bring in truly high quality investors and partners. Valar, who has led our series a and our series B has backed companies like TransferWise stash and 26. So we're honored to be a part of that club. Watson: There is this whole class of kind of FinTech centric investors that similarly bring a network or an experience or perspective from having played in that space for a while. And. I'd imagine also, you know, either do or don't take, at least a hand on the reins in terms of helping to steer where things go. Can you talk a little bit about that dynamic in terms of, you know, some investors being, you know, hands-off let it ride and others really try to take an active role in the development of the company? Marquez: Yeah, I think we're very lucky. You'll hear a lot of founders tell horror stories about having investors or board members that are very active in a way that's not necessarily constructive. You're exactly right. That we're lucky that our investors be it Valar or Fidelity or the Winklevoss family office. They've all built similar products and they've seen a lot of companies both succeed and fail. I specifically have a very soft spot in my heart for Volare because both of the partners that run the investment are operators. So they really think about building businesses. And they also, I think, strike a good balance of trusting our, experience as experts in the field while at the same time sharing knowledge in terms of key learnings that they've had from past investments. And they're also aggressive. They like plans that center around growing quickly, as long as it's intelligent growth. Watson: So what does that element of the plan look like? Where you're already experiencing a lot of growth and we can go back to the free money concept with these relatively higher interest rates, but from a product roadmap standpoint, from a, just breaking into new markets standpoint, what's that picture, it gets painted when you're in those conversations? Marquez: So, it's definitely a big focus on speed because the products, as we talked about before that we're making are not novel, right. We're taking an idea that has existed for centuries and applying a new technology to it, which means if. Someone had the right team, anyone could build it. And so a focus for us is making sure that we are the first to basically become a household name within this space. In order to do that, our focus for this year is to expand within the U.S. So making sure that as people are thinking about how to invest their own portfolio, especially right now, anyone that had a manage portfolio at, you know, Fetterman or Ally, your returns, depending on what your risk setting was, are probably not looking great. So our goal for the end of this year is, as people are thinking about those investments, that BlockFi comes into the mix. In the future, once we figured out, you know, how can we make sure we're known within the U S, a huge focus for us as international markets. We're actually live internationally today. We just don't actively market the product. However, 30% of our traffic comes from overseas without us even trying. And the reason for that is because, you know, while it's really cool that I can offer a better financial product for people in the U S. The real interesting impact that we can have is offering US grade financial services to residents in other countries like Argentina or India, where there's an unstable currency or lack of trust in the government. A lot of citizens of those countries haven't ever had access to a stable currency, let alone a savings account. And so our long-term goal is to be able to allow those citizens to just download US grade banking right on their phone and access it instantly. Watson: Yeah. And as an outsider, that seems like the, you know, probably multi-trillion dollar pie in terms of the direction that all these FinTech startups are looking at, as people call it the under-banked or the underserved and the capacity to be the right vehicle for these enormous populations that just don't have an alternative solution. It's very easy to take for granted as someone in the US. Marquez: Yeah. And there's two main blockers on why most startups, that claim that they're going to do that are going to have a hard time expanding overseas. One is international transactions. So if I only deal in cash and I'm a bank and I want to open an app in Argentina, I have to partner with a bank in Argentina to be able to onboard, you know, pesos onto my platform. Crypto gets rid of that, right? So with crypto, you can send transactions anywhere without an intermediary banker platform. So I can instantly onboard someone in Argentina, without having to have a partner bank. And the second reason is a little bit more complex, but the entire US financial system is built on the concept of credit scores. Credit score is maintained by third party, private companies. That does not exist in many other countries in the world. So for example, in Spain, your credit score is determined by the bank that you've worked with for the entire history that you've been banking. And if you work with Santander, and then you want to switch to a different bank, that other bank will think that your credit score basically doesn't exist. So if you're a US company, you know, there's basically no way for you to start offering products in Spain because there's no credit score that you can access. And in Argentina or in countries where banking systems aren't as developed, it's even more complex because most people are fully liquid and don't have any credit history. Watson: And so, because of your model of saying, Hey, you have five Bitcoin, therefore we're willing to loan you X amount, you can then I guess not necessarily rely upon some sort of credit rating system for the basis of those loans. Marquez: Exactly. I don't care about people's credit history at all. We don't pull it on any of our clients. It's all asset-based right. It's all do you have the assets to pay back this loan? If yes, we can make you alone. Watson: Gotcha. So when I was researching this, one of, the things that I've seen before is, you know, one of the folks that have been incredibly successful in, tech startups, like Jeff Bezos or Mark Zuckerberg, who has all these shares tied up in a company that is continuing conceivably to grow in the future. Instead of liquidating the shares, they would take loans against those shares as a way to get some liquidity and be able to buy the things they want to in the short term, while still maintaining that equity. And, you know, maybe the presumption is if I'm getting this led to me at 1%, but Facebook is growing at 10% a year, it's well worth that trade-off. Is that kind of the similar model to think about this lending that's going on? Marquez: Exactly. So that's one big part of it, right? So most people that own Bitcoin think that it's going to go up in multiples, over the next few years. And it's been proved out over the past decade. I think it's been one of the best performing assets in the US. And the second reason is capital gains tax, right? So if you bought something at $10 and then you sell it at a hundred dollars, you have to pay depending on your state, anywhere from 25 to 35% in taxes on those gains. If you borrow against those assets at a value of a hundred, you don't have to pay taxes on a loan. And in fact, if you're a business, the interest that you pay is tax deductible. If you're an individual, if you use those, assets to reinvest that interest is tax deductible. So on one end it allows you to access liquidity without selling an asset that you think is going to go up in value over time. And the second is avoiding a tax burden. Watson: Gotcha. One of the other questions that I had was there was this whole craze, like two and a half years ago of ICO's happening, new coins being launched. And it was an opportunity to, um, you know, for some really interesting projects to get launched and get funded in a novel way. And also a lot of fraud and scams and other kind of nefarious activities to go on. Is your kind of bent or leaning as an organization towards, you know, having some ties back to more traditional lean into finance and just frankly, seeing this space to be played as making it more accessible to a broader audience. Did that play a role in the decision to not necessarily go that route, but to go this route of doing these venture fundraises and not necessarily jumping in the pool with all that craziness? Marquez: Yeah. And I think this ties back to. One of the key themes in how I built this company, which was when we came down to making decisions, like, do we raise an ICO or do we go the traditional funding route? We asked ourselves, does this make sense? And an ICO, it similar to an IPO, right? A company could essentially sell shares in a future product in this case. So a lot of companies are promising to build something and people could invest in that. And the construct in which they were using was basically saying that, in exchange for buying that it was called a token, those clients would then be able to redeem that token and access services later on. We took a step back and we looked at this funding model. And one, it was very complicated. And so we thought, listen, like we're already trying to sell loans collateralized by crypto. If in addition to this, I'm asking clients to buy a token and then redeem the token to access the loan and pay interest and pan origination fee. It's a very, high friction sell. And we thought that it would make it harder for people to use our product. And second, there was a lot of regulatory uncertainty over whether or not raising funds that way was legal. So we thought, listen, we're already a crypto startup. We don't need to take the additional risk of being under the eyes of a regulator that's upset with us. So instead, you know, we did the traditional funding route, which takes a lot of time and it's very difficult. But you know, we bootstrapped it and six months later we got our seed round. And it was really well-timed because we closed it right before the crypto markets crashed at the end of 2017. And it was good timing because it gave us enough capital to kind of get through that slump and continue building our product. Watson: Right on. Where are some of the, assuming you weren't doing BlockFi or you're just speaking to somebody who might be listening in early 2020 that is not of a more technical skill set, but of a more storyteller sales, marketing type of skillset. When you survey the landscape for blockchain, cryptocurrencies, are there particular directions or spots that interest you or you point to and say, man, if we could apply some great storytelling there it would really change things or kind of create some momentum in a positive way? Marquez: Yeah. I definitely think that being able to tell the story of what Bitcoin is as an asset in a very simple way that doesn't, you don't even have to mention the word blockchain. It would be very powerful, right? So, if there was a, I'm not, I'm an operations person, unfortunately I'm not a storyteller. But there are a lot of metaphors to kind of explain, you know, this, this is something that allows people to send stuff across the world instantly. This is the same price everywhere in every country, and you can trade it 24/7, and being able to kind of explain the power of that. Not only for people in the US but people overseas and how that can change the way that we think about financial systems. It's why you end up with, you know, Crypto anarchists who are obsessed with it and want to burn everything down, but at a very high level, it's a very powerful asset that I do think can change things in the longterm. I think we're very early in the development of this technology. I think it's going to be years before you see blockchain powering anything that we really interact with today. You know, there's a version of reality where you can order your Uber on the blockchain, but I think we're very far away from that, but I think that makes it a really exciting time to invest. Watson: Yeah. And just frankly, to be learning more about it, just to be paying attention to it and see something start at a kind of more seedling stage and then eventually blossomed down the line and have that context is really powerful. Flori, this has been awesome. I'm really excited to see BlockFi continue to blossom and you guys continue to operate and expand. Anything else that you were hoping to share today that I didn't give you a chance to? Marquez: You know, I think that this is a really interesting technology. I would just tell listeners to not be afraid to dabble into something new. And one thing that I definitely encourage people to do is to think of any questions that you have about our platform and email it to support@blockfi.com, just because we have excellent client service and they also love tough questions. So please keep them on their toes and send them something interesting. Watson: Awesome. I'm going to link the supportive blockfi.com email for folks in the show notes who want to check that out. Any other relevant links or digital coordinates, where we should be pointing people? Marquez: You know, we have @TheRealBlockFi as our Twitter handle, I'm @FounderFlori feel free to send us a message we love hearing from you. And definitely please if you're struggling with just a lot of cash in your checking account, which to your point pays you 0.01% or something insane right now, you know, let your money do your work for you. Check out BlockFi, check out other solutions. Watson: Right on before I realized that there was one thing I wanted to ask you about, before I have you issued the closing challenge to the audience, this is not a pawn shop. This is a financial institution, but I was wondering if you could tell the story of early on in the conversations with regulators, why it was originally confused as a pawn shop? Marquez: Oh, man. Yeah. So. Early on we were the first people to ever go to the state of California and try to get a lender's license. And the regulators, when we first applied were really confused about why a lender would want to take custody of an asset. Right? So when we lend to someone, they give us their Bitcoin, we give them cash. When they pay back the cash, we give them back the Bitcoin. The regulators were like, well, when you lend against a car, the client can still use the car. So why would you take the crypto away? If you're taking something away, then you're a pawn shop. And they actually told me that I had to get a pawnshop license. I really wanted to get the business off the ground. So I looked up how to get a pawn shop license. And the answer is you call a police department. So I called the Sheriff's office in San Francisco and I talked to a police officer and he actually knew what crypto was. And told me that because crypto was not a physical asset, there was no way that I could be a pawn shop. So I had to go back to the regulators and, you know, for the next nine months, get more lawyers involved so that they could speak lawyer speak to the regulators, and kind of outline why since Bitcoin is essentially like cash, the only way that we can lend against it is to take custody. And nine months later, The regulators actually apologized to us, which I don't think happens very often. And they were like, sorry, it was our bad you're right. You're not a pawn shop. Here's your license. Watson: Wow. That is such a good story. I mean, that's like the, the lore of a company right there and the grit, frankly, to operationally get something off the ground. Marquez: Yeah. I mean, you don't want to find yourself on the phone with a police officer when you're starting your company, but we do what we have to do. Watson: Right on. So before we let you go, Flori, this has been fantastic. And I'm so excited for people to check out and learn more about BlockFi, but, I want to give you the mic one more time so that you can issue an actionable personal challenge to the audience. Marquez: I think that there are really interesting investment opportunities right now. You were talking about oil on your last episode. And my personal challenge for listeners is to take a hundred dollars and put that money to work. Watson: Right on. I love it. Take the challenge, try something new. And the nice thing I found, I've taken that challenge personally, a couple of times, and even in the instances where it doesn't work particularly well, there is a learning from if you're all of a sudden now, You know, investing in oil or crypto or whatever the thing may be the skin in the game to pay closer attention to it. And the learning that comes from that additional attention, is kind of a way to turn it into a win-win or at least a win slightly less loss. Marquez: Yeah. I mean, one, one that I did, I wasn't willing to buy any plane tickets just yet, but I did buy some Delta stock. Watson: There you go. I dig it. Well thank you so much for coming on the podcast again. Marquez: Thank you so much for having me. This was fun. Watson: We just went deep with Flori Marquez. Hope everyone out there has a fantastic day.
The Coronavirus (rightfully) gets most of the headlines. However, we are also living through an oil price war between Saudi Arabia and Russia that has worldwide ramifications.
Matt Wieszczyk is the Managing Member of Par City Holdings, a land services company that specializes in the acquisition of oil and gas mineral and royalty rights. At PCH, he has placed $15mm for various investors in SW Appalachia. Prior to Par City, Matt was Acquisitions Manager & General Counsel for San Jacinto Minerals. At SJM, he placed $39mm in 15 months, leading the mineral market in Washington and Greene Counties, in PA. In this interview, Matt and Aaron discuss the shale industry in Appalachia and how the price war could positively affect the region. They also discuss Matt’s business model and how he got into the industry. Matt Wieszczyk’s Challenge; Write someone a handwritten note. Connect with Matt Wieszczyk parcityholdings@gmail.com Mentioned Henry Hub Natural Gas Futures Eia.gov
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Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify
LBRY is a place where they can find great videos, music, ebooks, and more. How? LBRY started as a new protocol that allows anyone to build apps that interact with digital content on the LBRY network.
Apps built using the protocol allow creators to upload their work to the LBRY network of hosts (like BitTorrent), to set a price per stream or download (like iTunes) or give it away for free (like YouTube without ads). The work you publish could be videos, audio files, documents, or any other type of file. Traditional video (or other content) sites such as YouTube, Instagram, and Spotify store your uploads on their servers and allow viewers to download them. They also allow creators to make some money through advertising or other mechanisms. However, there are some well-known drawbacks, especially for people whose material is perceived as not being advertiser-friendly. Jeremy Kauffman created LBRY because he fell in love with the idea of shared, global content registry that is owned and controlled by no one. In this podcast, Aaron and Jeremy discuss how it works and the challenges of building a new model for media. Jeremy Kauffman’s Challenge; Bet on your beliefs. Connect with LBRY's Jeremy Kauffman
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LBRY.tv If you liked this interview, check out other blockchain interviews with Brendan Eich and Anthony Pompliano. LBRY sync with YouTube
Underwritten by Piper Creative
Piper Creative creates podcasts, vlogs, and videos for companies. Our clients become better storytellers. How? Click here and Learn more. We work with Fortune 500s, medium-sized companies, and entrepreneurs. Follow Piper as we grow YouTube TikTok Subscribe on iTunes | Stitcher | Overcast | Spotify Watson: Jeremy, welcome to Going Deep with Aaron Watson. Kauffman: It's great to be here with you, Aaron. Watson: We've known each other for a while, and I was thinking of there's so many different ways and places where we could start this conversation. But I think the most relevant for the audience is that back in November you had a very exciting launch. And that launch by my estimation, from some of the data that you've shared publicly has gone pretty well. So can you talk about specifically what launched in November within the context of this project that you're working on and why it was such a big deal? Kauffman: Yeah. So the simplest introduction to all this is exactly what you just asked, which is a LBRY.tv. LBRY.tv Launched in November. And the surface level of that is like a, I don't know, we could say it's like a YouTube that respects people, or YouTube that treats people like, you know, adults, that thinks people should be able to make choices for themselves. You know, rather than having one company with a, you know, with a thumb on the scale of in a sort of at times opaque and secretive manner. Watson: Yeah. And another element of this, and the buzzwords can start to fly here and we can start to like venture into, you know, buzzword soup, but it is involving blockchain technology to make a platform where these media assets are not censored by some central authority. There is more sovereignty and control placed in the hands of both viewers and creators. Viewers not having as much of their data taken and used for advertisers, creators with more sovereignty and more of a direct relationship with their viewers. What's the next point? Is that the best synopsis? Kauffman: Yeah, yeah. Yeah. So LBRY.tv is that, the friendliest way of using LBRY and LBRY.tv, you can think of as like, yeah, this YouTube, that's a little bit more open, that's a little bit more respectful. But as you said, it's backed by a much more, a much deeper technology than just a website. It's backed by a protocol called LBRY that's a technology that's been published to IEEE and is documented very thoroughly and technically at the LBRY.tech website. The core idea of LBRY is that we wanted to take publishing digital content and take it out of the realm of where you surrender your content and your audience to a silo like YouTube or Facebook or these places. And take it back into, actually sort of like the land of email, people can be in, can use different services, can use different models, right? And when I use Gmail, I'm working with a big company, but I can still talk to the Microsoft and I can talk to the self hosted guy and I can talk to everyone else. And I have the ability to, if I want to, to exit and to leave and to take my ball and to leave Google land and to leave Facebook land and go into other lands. Right. And with content creation, that's not the way that it's working. Everyone is fighting to lock things away. Everyone's fighting to get the content and then to keep it tight and hold it tight and not let other people get it. And the LBRY, I think, you know, whatever this is a Silicon Valley or whatever it flips the paradigm, man. It really changes. It turns things on its head, the entire design. And we can get into that. Watson: And, and so I can remember, cause since we've known each other for so long, I can remember when the project just first came out in a public way before the actual LBRY TV. And I remember downloading it and like trying to make sense of it. And frankly, like it's, it's, you know, an MVP earliest version of a product. Like I didn't really, I didn't see where the application was, but for me coming to LBRY TV, I think I even sent a message to you and Grin after, you know, playing around with it a little bit. It's like, Okay. I see the usability. I see the similarities in UX to a platform like YouTube. And I can see how as this continues to evolve and how you continue to invest and build, this really is a viable alternative versus what I'm sure it was just the initial stages of building the infrastructure, laying the pipes, laying the cables. So that that next layer could be built. Kauffman: Yeah, yeah. The thing about these web 3.0 app blockchain based protocols, whatever, I don't know what the favorite term is around these parts, but they're all kind of interchangeable to me there. You've got to compete against very normal- sorry. User experience has been well-established so it would have a lot of time to work them out. And you've got an underneath layer that's vastly different. And a lot of companies, and this is something here's, this is your real advice whether you check out LBRY or not, I think this is something to apply to other companies, these places claim they've made this protocol, and then you go and how can you use it? And it's just a website, like, okay, like that's not a protocol. If Bitcoin had launched and it was just like, okay, yeah, you go to bitcoin.com and you login and you create an account and you send money. Right. That's Coinbase. That's PayPal. Okay. Like it's, it's not Bitcoin. And I'm not against Coinbase. I love Coinbase. I use Coinbase. I have an account. LBRY TV is Coinbase, right? LBRY TV is taking the LBRY protocol, what it did and making it user-friendly so that you don't have to. Do the harder core stuff, right? The more serious tech person stuff, but that tech layer has to be there. If you just have the layer on top, you've just built, you know, I don't want a good metaphor is, you know, you've got a castle on a cloud. It's just going to fall eventually when it comes to checking and saying, well, is the real thing there? It needs to be there. And for a lot of these blockchain companies, it's not there. Yeah, and we built that there first. And then we built the Coinbase. We built the Coinbase later. And so I think that's really important. And I think that's something you can use that as a filter with a lot of these blockchain companies, like, you know, have they done something serious or not? Well, can I interact with it in a truly decentralized peer-to-peer way? Or can I only interact with it through a website? Watson: And I love the way you've thought about it. And another thing, so one of the conversations that you and I have had in the past that has always struck with me was we were at a conference trying to sell for the SAS company that you previously co-founded, that I worked at. And you were kind of talking about how the maybe complexity or the technical challenge associated with that SAS firm was waning. It wasn't quite the same hot, bright light that had previously been when you were building it and its initial stages and how attractive this project was to you as a way of problem solving and deep thinking, which is really how I understand you. I understand you as a builder, as a problem solver in a kind of perpetual way. So, my question there is can you talk a little bit about how this idea initially gripped you and how long it held you as an interesting idea before you acted upon it? Kauffman: Yeah. It's going to be tough to answer the second question concretely, because the time gets fuzzy, but I think everything you said is correct in terms of what I find interesting. I started learning about Bitcoin and blockchain. And I started, you know, when I learned about something, I studied physics at one point I ended up, you know, with a degree in it and I was attracted to physics because of, you know, you're trying to get things to the essence of things, you know, what's the most fundamental of something. And, so that's what I started doing with blockchain and Bitcoin and, you know, and I actually still think, I'm skeptical of so many, blockchain applications. And at the same time, think it's only the tip of the iceberg of what we can do with blockchain, which can seem contradictory, but it can do so much. And the reason is it allows us to reach consensus without having one single party, one authority in charge of reaching that consensus money. The tradability of them is necessary for that consensus to work, and money is a really logical application and other finance type, you know, decentralized finance. It's all interesting stuff, but there's so many things that could be done with that. Right? And one of the things that I hit on, that I couldn't stop thinking about was this idea of using it for digital content, right? This idea of building a decentralized library, right? A library. If we already have good tech for accessing content in a decentralized manner, right. We already have good. Good tech for that, but what we don't have as good tech for discovering content in a decentralized manner for providing identity in a decentralized manner and providing discovery in a decentralized manner. And blockchain allows the ability to solve that. You have a shared entry that anyone can publish something into and no one authority can own it. You know, I thought there was a certain, like beauty in that and I couldn't, I couldn't stop thinking about it. Watson: And was there, so was there a point in which you realized, like, my chips are all in, I'm going for this thing? Kauffman: Probably. I don't remember concretely. I mean, like I definitely,it was gradual, but there probably was a moment when I realized that I was all in, I would say, but, but it wasn't, it definitely wasn't zero to 100 overnight or in a month or something, you know. I started poking, I started talking to people and then I found it taking over my mind, you know. But it didn't take over my mind instantly. It started as just a little, like as just a little spark, you know? And then you start talking, you start reading and then you start thinking, maybe there's something here. You know, I'm a skeptic. I'm not someone, I have lots of ideas, but then I, a lot of times like, nah, actually that idea kind of sucks. So like I'm good at generating ideas, but I'm also really good at hating on ideas, you know? Like I'm not someone who is especially optimistic actually. I don't think, even in my ventures, even if I'm trying to do something big, I like kind of at the same time, understand that it's not necessarily high probability, you know? Which is an interesting position, I'd say, for a CEO to be in at times. Because you're, it's also your job to be, you know, the number one cheerleader, right. Watson: Be the optimistic, gotta be the cheerleader, but you also, like, there's the saying only the paranoid survive. Like you have to have that real clear-eyed view of the risks that you may be facing and not just charge for it blind. Kauffman: Yeah. Yeah. Watson: So talk to me, this was one of my basic questions about media on the blockchain, and this is, you know, totally lacking technical sophistication. One of the things that has been a part of me secondhand is this notion that blockchains are slower. So the positive side is that they are, you can create a consensus they're trustless, but the flip side is they're significantly slower than, you know, if we're talking about like the Bitcoin example, the Visa or MasterCard database can go so much quicker process so much more, so much faster because it is that centralized point for processing and everything. So when it comes to building the eventual aspirations for LBRY, which is the, would be this enormous library of digital content and an enormous amount of storage required to do that, how does something like that still remain capable of performing at the speed that people are accustomed to when they're on the internet? Kauffman: Yeah. That's a great question. And you're right, right. In fact, what I'll even take this moment just to like briefly hate on blockchain before explaining how, how I think LBRY works. Despite these facts, like sometimes when I have to introduce blockchain to people, I say, well, okay, blockchain is the world's worst database technology. I actually usually curse, but I'm going to not do it on the show. You know? So it's awful. It's terrible. It literally has one good property. And to get that property, you have to give up a ton of other things that you want in a database technology, right. That one property is this ability to reach consensus without needing to trustma single party. You have to really, really want that to the point of tolerating, like a lot of other bad things, like slower transaction speeds, more expensive transactions. Watson: Right. Kauffman: And the answer is, in terms of payments, in my opinion, the answer is still unclear. There are promising technologies like lightning network and layer two solutions. To me, these are the most promising and library would expect to adopt those as well. When we're at, we have more capacity than some other blockchains, but we would have to adopt those kinds of technologies and maybe 2050X where we are right now. So it's not like an immediate problem in terms of scaling that part of it. In terms of data, the data is not in the blockchain, just the metadata is in the blockchain. So by that, I mean like the title and the signature of who made it and that kind of thing. So that's in the blockchain. The file itself is in a fairly standard, it's peer to peer based system. It's Bitcoin-like. We basically copied a lot from Bitcoin. And so in that regard, that scales, because that doesn't need to get into the blockchain. So just the metadata, how much does the metadata scale? Our current design would scale to somewhere between several hundred million to a billion published entries, which is still again, that's still a limitation. That's still less than say YouTube right now. We're only at about 3 million publishes. So got a ways to go before we'll be hitting our scaling limits, but we would, after again, we think, we think you can evolve the system and improve the design. But there are limitations to you, right? You can go wait, you can blow right past those numbers with other database technologies. Whereas with, you know, our design, you're going to have with blockchain based design too, it's going to be harder. And so there absolutely are trade offs. It turns out actually that this metadata thing is a really good problem space for blockchain, right? Like it doesn't require publishing and just the discovery aspect of saying, Hey, this thing exists. That doesn't require insane scalability, right? That doesn't require instant it needs to be acknowledged in three seconds and it needs to be right. So if we want to, if we sort of, we the people, I mean, and there is a sort of rebelliousness to this project, right? Like I'm someone who believes deeply in freedom of information and freedom of speech. And like this idea is kind of built of building this library of the people that you're taking back control of information on the internet, putting it back in the hands of the people, you know, rather than a small number of companies. And, and so I want that badly enough, but I think blockchain is a good solution for that problem here. Watson: So, like you said, you're slightly to the pessimistic and you do have this kind of sober acknowledgement of the limitations and the challenges associated with the technology. How do you then define success? Because one of the other interesting questions of these web 3.0 adapts to whatever, there's a more well-worn path of the successful startup that people have now kind of internalized in the entrepreneurial scene. It's either an acquisition or IPO, or it's, you know, fundraise after fundraiser, after fundraiser big, around, big, around, big around SoftBank. Or something like that. In the context of LBRY, my intuition is that you've thrown a lot of those kinds of standard markers out the window. But how do you evaluate or how do you goal set in that framework? Kauffman: Actually, we haven't. So we have some different ones and some new ones. So there definitely are some blockchain specific ones. And I can talk about those. A lot of them are pretty standard to what I would have done with a consumer SAS product, you know, a lot of people. So in order to get free rewards from us, you have to share your usage data with us. So we know how long people keep the app open for broadly in a statistical manner. Like what kinds of things people are watching, right. Just facts about usage behavior, right? We're not, we're not digging in and looking at, you know, what are people like specifically doing in that kind of fine-grained way, but where we are tracking a decent amount and people know this, we're all very clear about this, where we respect, you know, users rights in that way, but most people are willing to share. And so we do use that data a lot as both KPIs for how is the company doing? And to just see, Hey, was this a good change? Did this make the product better? Did this make the product question? But then there are blockchain specific ones, right? You're you've got this kind of token economy. So in our case, we might look at something like, because we also have this staking system, you know, how many tokens are being bound up versus used in terms of, and this may, we may be a weird company in this regard, we don't spend a lot of time looking at like the price of the token. Like in my view, a lot of these assets it's driven largely by speculation. We feel if we just continue to focus on like real users on the more traditional stuff than like, can I keep a hype cycle going, you know, that that will ultimately be where success comes from. That may be a minority perspective in the space. So we'll see where things shake out in a couple of years. But I think at this point, LBRY is one of the most used, you know, D apps out there. Watson: I mean, that's also the more durable, more anti-fragile mindset as opposed to the kind of quick trigger one. Kauffman: Yeah. Yeah. I don't know if you've ever done a, this is off topic for what we're talking about, I guess, but a business breakdown on like a AEDL versus MOU, like a case study and talking about that at some point it would be, I think a very interesting episode. Watson: Yeah. I've actually taken some space away from the professional Frisbee stuff, but it is something that, you know, falls under that similar category. Kauffman: Well, it's just, I guess I'll talk about briefly, cause it's a really interesting case study between you and one organization that did things very top down and like was really polished and everyone thought was really good. And then you had another organization that kind of people there's like kind of like scrappy and bottom up. And a lot of people thought it was like kind of insane. Watson: Yeah. Kauffman: And that was the one that won too. This is an interesting lesson. Watson: Yeah. Absolutely. No, I'm with you. I think that's the accurate assessment. So, one of the next questions I want to talk about is this framework for token economy. So you, you created a token. Can you talk a little bit, actually, let's start with the staking system. That's going to be a term that if I'm coming from a almost exclusively YouTube or standard social media experience, I'm not familiar with what it means to stake coins. I'm not sure how that's relevant to a media consumption experience. So can you kind of lay that out for people? Kauffman: That's a great question. And we also are honestly, still trying on our part to figure out how to both how to teach people about this stuff and how much to make it part of this part of the system. But one of the things that you run into in a decentralized system, and this even, this is like, there, whatever. I guess it'd be a computer science law at a law of economics around this stuff, but basically in, in decentralized systems, you're vulnerable to certain kinds of attacks. Basically like if people, how do you stop someone from creating a bunch of accounts? How do you figure out trust? How do you find out, how do you, if you want to set rules for like putting the best content at the top and putting what's interesting at the top, how do you do that without allowing people to cheat and game it and this kind of thing? Right? And so the tokens on the LBRY network, our scarce thing, we basically let people who have them use them as something like votes. So, and that's what staking is. You're basically saying I'm taking some of my token that I have, and I want to use it to boost Aaron because Aaron creates good content, right. And Aaron might take some of his tokens and boost someone else. Right. And that boost, when you're committing those tokens, the sort of technical term for that, which I said is staking them, and the specifics of the algorithm, honestly, they change. We're trying to figure out the right thing. We know it's an input, right? We know this says something. This staking communicates something about how the content should be trusted and how it's doing. We're still tuning those algorithms in terms of how they work. Watson: And that is probably one of the greatest challenges. If we're talking about the big, big, big macro picture of Disney+ just got their 50 million subscribers. Netflix has 120 million, whatever, however many they have, YouTube and they're, you know, enormous amount of users is their finely tuned algorithms are spectacular at ope. You open up that app, you open up that service and it serves you up two, three, four, five, six, seven things that are incredibly relevant based off of your viewing experiences, based off of your upvotes, your comments, all of these, you know, the language that they've created within their ecosystem. And so that notion within iLbrary of it on the platforms as a tip. So you tip a coin or two to this video that you liked is both simultaneously helping that video go get discovered by more people, but also informing LBRY 'hey, I like this and I like this and I like this.' Show me more things like that. Kauffman: That's right. That's right. And you're absolutely right that that discovery, ends up being a challenging problem. Right? Getting that working is definitely an active engineering effort for us. One but one, you know, And this is something we're kind of betting the business on. Right. But what, the fundamental difference that I think exists with library versus these other systems is like those systems, and we've seen this, I think that the systems have existed long enough. We're talking about more than a decade. They can only grow so complete before there is a sort of incentive to defect. Right? We've never seen, like Spotify has never, never gives you every song. Netflix is down from what it used to be. Right? In terms of how many movies that the completeness of its catalog. Right? It doesn't, it's weird. Like we should, we don't think that we don't realize that it's weird. It's really weird. And right. Like, it's really weird. Like imagine if like, like one day, like Walmart sold TVs, but then next year TVs weren't at Walmart and I have to go to Target. Right. Like, it's, it's weird. Like normally, like if stuff works, if we're allowed to like buy and sell goods, we expect there to be a store there or just have like, like there's no restriction, do you buy and sell things? Right. So how is it that there's not an online place where I can just go and watch everything? It's weird. Part of it that I think though is the incentives that end up being created by the, like both certain structures of IP and the economic incentives of the providers and the, and the rights holders actually creates an incentive to have these like multiple locked in places. Right. Also because we never own content. Right. So we can't really, even when you buy a movie on Amazon, you haven't bought anything because you can't sell to anyone else, which is generally what you can do with things you buy. And anyway, I think that the economics of LBRY are that like, that doesn't exist in the same way. There's if anything, there's an incentive to come on, right. Even if you don't want to, because you might be missing out on potential revenue, then there is to pull out and lock your content away. And so I think that a system with these properties, even if it's not ours, is likely to eventually overtime beat the design of the incentive design for like the Netflix and the Disney+. Watson: Yeah. I mean, there's so many different analogies that I could build off of that last statement of like, you know, the jujitsu, like use the momentum of the enemy to like your advantage, as opposed to like trying to just force it. Like allow yourself to be water to some degree. And there's a lot of different ways to think about cryptocurrencies and Bitcoin, all this stuff. But one of my favorites is what, you know, Anthony and Mark yous go over at Morgan Creek digital say is like, it's schmuck insurance. If everything goes wrong, if we've got schmucks running everything and you know, Shit hits the fan and I'm going to be glad that I had this. It doesn't need to be my entire portfolio, but like, I'm glad that I made that hedge. And in a similar way, that's how I'm thinking about syndicating all of our videos to library right now, which is like, I think we've made a hundred LBRY coins or something, which is like, a dollar, yeah, you go. So it's like, just like, it's not the business and it's not going to be the business next year. But, you know, given the far from non-zero chance that this thing really does work because you know, the ton of brain power behind it, but also just a really good idea. Then it's almost like that schmuck insurance for our media of if for whatever reason we get, You know, cut down or de-monetized or censored by one of those other platforms, like we have this other place to direct a piece of attention. And now I don't know why we would, but it changes everything down to the words that I would choose to say in this interview and every subsequent interview, knowing that there's a hedge there, as opposed to every single one of my eggs is in one single basket. Kauffman: Yeah. Yeah. I mean, I agree with all of that. I think publishing to LBRY is definitely a heads you in tales, nothing happens kind of proposition. So it's worth, it's worth taking. And we have a one-click sync process at LBRY.com/youtube for anyone on YouTube. One-click does everything for you. So again, super easy. It doesn't take you much time, but I would add, you know, and it's weird because I agree with you and like, why would YouTube ever ban you? It doesn't make any sense. And again, look at all the blockchain. Content that's gotten banned or blocked or demonetized repeatedly over the last several months. And so, I don't know, I don't want to speculate too much as to why YouTube ends up doing that. I'm not even claiming that it's like malicious or anything like that, but it's clearly happened. Um, we've seen when we've seen that because they've all been coming over to LBRY. Right. And then the other thing that I would say is. The upside of, of helping LBRY succeed is LBRY is fundamentally different, right? Like you're not, if you end up and we don't, we don't ask people to quit YouTube. All we do is say, Hey, co-publish and, and check in on it from time to time and, you know, maybe mention it to your audience and that kind of thing. And you are then, however, helping build something that is, again, fundamentally different. It's not hopping to going from YouTube to Facebook where you end up trapped in another monolith. Everything at LBRY is open source. Everything is designed in a way that's fundamentally like you're not going to get trapped. You're always going to have the ability to leave. The control is always going to rest with you. And the tokens that you're accumulating are basically like, you know, your say and your stake in the success of the system overall, which has a lot more skin in the game. And a lot, then, you know, YouTube is giving you and when you're making YouTube succeed, Right. So it's kind of a cool thing to be a part of, right? Like we're all building this together. There's thousands of us in a chat room. There's creators hanging out, you know, that our developers interact with the creators are like, try getting a hold of someone from YouTube. You can't do it. Try sending us a message. We're like, okay. Yeah. Awesome. Like, we love it. You know? So it's, it's also a chance to get like, just kind of be a part of something. And it's pretty fun. Watson: So another question that I think would be obvious to folks is if there isn't that central sensor, if there isn't that central blockage for content that does open the door foR whether you want to use the word elite goal or explicit, or these kind of we'll call it problem, a piece of media that could be created. And that can span a lot of different definitions for a lot of different people, but on the extreme end, that has to be a concern. Whether it's aimed at you as a point of leverage that a government could come and say. Kauffman: It's an extreme, personal, ethical concern. Let's start with that. Cause I think it's the most important one. Right? We can get into government aspects and so on, but like, right. It's something I'm spending my time building this and I don't want it. And, and it is a personal, ethical concern. The point that we even there's even like an ethicist that I consult with that's on our advisory team. The part of it is the bit the most fundamental and I'll get it. I can get into specifics of what we do, but first I want to just make sure we're getting the like conception right before we even get into the specifics. LBRY is like HTTP. Right. So it's partially or SMTP, which powers our email, right? Like there is no, so it's correct that there's no censorship layer at the protocol level, right? Yet nonetheless YouTube censors videos all the time, because YouTube is an application. Right. And so there will be tons of sensoring at the application level, right? The whole, and in fact, one of the beautiful parts of LBRY compared to YouTube and other ones is that we can have an even greater variety of experiences. We can have an experience that censors 10 times more than YouTube, right? If someone wants to have build one that way, Right. The right way to think of it though, is that library is a fundamental technology like HTTP or SMTP that the, at that layer, the censorship isn't there. LBRY.TV yeah. That's an app, right? That is something where we want to keep that clean. We don't want people to be seeing bad things, you know, on there. Right. So, and we don't want people to be doing bad things and spreading it around. Right. And so to that extent also, we do, receive complaints. So, if someone tells us that something is illegal or infringing in some way, our team validates that claim. We then put it on a blacklist. So software by default will not access content that's illegal. And we want people to have legal experiences. If someone does want to use LBRY in a way to do something illegal, can they still do that? They can, they're going to have to go a little bit out of their way to do it, but they can use HTTP and SMTP to do illegal things as well. And if they're ever doing something illegal, we will not be participating in it. We'll be doing everything we can to not let that happen. Watson: Gotcha. I'm sure that that's one of the most common questions. Kauffman: It is. It's a common question, but it has to be, it has to be asked. Right. And, and I, but I would suggest that, like this isn't all that different from any number of other technologies, right? Encryption is another one, right? Well, you know, yes. When you create encrypted text messaging, criminals will use it to send messages. They will so will normal people in oppressive countries so that the governments can't spy on them. So will normal people so that they can't be, you know, re-targeted by whatever spying software, it's on their phone, you know? So we'll normally like, so it's like, could, could library be used to do something bad? It's like, I mean, yes. So could like any number of other technologies. We have knowledge of like low amounts of copyright infringement. Like some people were posted some like music videos and stuff. There's really not much of it, you know, happening, right. It's not, LBRY is not this dark web den of, of stuff. We do see people who care about, you know, free speech who care about controlling their identity. We do see people who are on the fringes. Who are like, are getting blocked from YouTube because sometimes they say something that's a little bit offensive or whatever. We do see a lot of them. We also see tons of family content and normal people and like the most normal mainstream vanilla stuff, because everyone needs, you know, prefers technology that leaves them, you know, in control. Right? Watson: So my next question is how do you manage patience? Because there's, there's kind of this paradox of there's a real gap, there's a real need, like even, websites that you've referenced, like take back the net and this kind of concept of what is, what was the internet for? Like what are we here to do? And the need and the kind of fire that can be stoked by that versus the realities of nothing is like, you know, perfectly parabolic in the way that it just immediately goes up. And it has, you know, mass adoption in the blink of an eye. And even just the years of, of laying that protocol infrastructure we talked about before. So like, how do you process that in terms of, you know, perspective and advice for other entrepreneurs, builders, product managers, how do you think about that? Kauffman: Only via unhealthy practices. I don't know. I don't have good advice. I've been miserable honestly for like a while. I don't know if I handled it very well. I still, like, I feel like, I mean, I was always very excited about what we're doing, but like, you know, we had flat growth for a long time and like there's no. Like, it just doesn't feel good. You know, I don't know if there's anything, you know, and I don't know that it should feel good. Right. I don't know, like it, to me at least like a lot of, I guess try to find, you know, the unpleasant parts, like motivating, like try to take it as a, as a challenge. Something that helps is to understand the fundamental dynamics of growth. Also I want to pause here. Like I'm not, we're not, we are nowhere near out of the woods. Like we have a lot, I don't feel that it's like, we're not growing fast enough. Growth is a constant question here. And when I look at the fundamental rates of growth, which I'm about to talk about. I think that, yeah, like I definitely think we're not out of the woods. Right. But the, but the key is get to understand the fundamental growth. It's actually the same as tech. It's, it's easy because now you can consult every study of the coronavirus. Like that is the nature of success. It's the same thing as that. Like you, if Intel, while you're our zero is below one, you can't be successful. You can be temporarily successful by like taking a bucket of Coronavirus and like driving around town and dumping it out to like, you know, that's and that's marketing and paying people to try your product and these things, you can fake it, but until your fundamental growth is above one, or you're going to spend a hundred million dollars on marketing, you're not going to get anywhere. So you have to focus on what's the fundamental, what's that fundamental growth rate of my product. And you have to be tuning that to the point that it's above one for at least one cohort. It doesn't even have to be for everyone. So like maybe you found that, Linux users actually want to run desktop applications still put out and they're willing to go through more software headaches because they really care about free software. Okay. Like, let's just get them using it. And then that you've got some place where you're growing some ability to which honestly, again, that didn't even completely work for us, but that's an example of something that we're growing with Linux users much more now than we were 18 months ago. But, to understand that, like, well, how many people are coming onto my website or whatever, like that might just be the byproducts of like media attention or active marketing or something. Whereas like, if you're saying I want to build a sustainable business, you want to build a product that's like really hitting that fundamental success factor. And then if you hit that, a lot of other things will, I think, become easier. Watson: Yeah. Yeah. To address the first part, what you were saying, I think that it's important, like your honesty there was the thing that helps someone because it is the lack of complacency that gives it even a chance of succeeding. If there is complacency in the moment, There is someone else out there, there's some other team out there that does not have complacency and they're going to eat your lunch eventually. And so, I think that that is still helpful for people. And then the fact that you use, I didn't not plan this, but the fact that you took a marketing principle, it's like a level of like the natural world. I'm reading this book right now, how nature works, and, and I just think that's so fascinating how many through lines and metaphors of the natural world can be applied to business. Cause you know, we're beings. Kauffman: Oh, yeah. Watson: And we're our own biological system. I think that it's really helpful to jump out of whatever domain it is that you're focused on. If you are an engineer, if you're a marketer, if you're an accountant, whatever the thing may be and the capacity to find those metaphors across, across different areas. So, and connect those dots is such a powerful way for understanding the problem that you're addressing. Kauffman: Yeah, I completely agree, to look at at nature and lessons from nature, and you've got to build up from fundamentals. Yeah. And that's, what's more fundamental? Watson: Yeah. Right on. Well, Jeremy, as we aim towards wrapping up, is there anything in general that you were hoping to share today that I didn't give you a chance to? Kauffman: No, I thought, I thought this was great. Watson: Yeah. Talk a little bit about the like actual rate of growth though, because you did publish something exciting in March. Kauffman: Yeah. Yeah. So LBRY has we just last month we had a million unique visitors to LBRY.tv and that's after only launching it in November. It's definitely been, it's been going pretty fast,you know, doubling rate of the world from just 150,000, the first month in November to a million and. And the creator adoption has also been, you know, really big. The total reach of the YouTubers adopting LBRY is now it's like 250 million subscribers on YouTube. So that's been very big and, you know, I feel like it's still at the same time, like just just the tip of the iceberg. But there's been so much validation that this is something that well, one that people are enjoying using, and that also people really see the value in. They want to, you know, they want to be able to be content creators and not hand over the keys to someone in the middle. It's just a really cool idea. And it's been definitely for the first time after, at least a couple of years, several months have felt like pretty good. Like the more people are really getting this and seeing the value of assessment that's been pretty cool. And I would say to just, yeah, go check it out. I mean, right. Create an account. It's really easy. If you want to go whole hog and get into like desktop app and peer to PLN, you can do that, but everyone can sign up the LBRY.tv. It takes like three minutes and, you know, start to start getting some, some token for free for watching content. You're going to be on there right? People will be able to follow you? Watson: Yeah I'm already there. I've been syndicating stuff there for at least a month. I didn't actually, so I looked at it first and I was confused why I would like, not that I was losing LBRY coins, cause it's like these little things I had no previous attachment to. But I didn't, I didn't understand like what it meant that like I lost a 10th or a hundredth of a coin every time I publish. And I was like, should I not be publishing? Like, is this upgrading my resources? But once I can just spend like another day or two on there it made sense. Kauffman: Thanks. Yeah. And that kind of feedback is really helpful and we love stuff like that. So I'm also very accessible. So if you do end up using LBRY as part of this, you can always send me a little note, a little feedback. We're relentlessly working on the product. Watson: Cool. I'll link Jeremy's Twitter account there as well, LinkedIn, LBRY, TV address, all that good stuff can be found on the show notes for this episode, goingdeepwithaaron.com/podcast or in the app where you're probably listening to this right now. Before I let you go, Jeremy, I want to give you the mic one final time to issue an actionable personal challenge for the audience. Kauffman: Yeah. So have you ever talked about betting on your beliefs on the show? Watson: Maybe not explicitly. Kauffman: All right. So I'm a big fan of this and that it doesn't mean you have to make big wagers, but I think it's a great tool, both to sort fact from fiction among others and to help your own thinking be better. Right. Which is to try to make, you know, specific wagers around events. And we're at a time right now, and I'm not saying you have to make, you know, particularly provocative ones or anything like that. I'm not trying to say like the bad on everything, but we're in a time right now where the pundits get away, pundits and experts, I think get away with a ton, uh, with being wrong a lot. A lot. And betting on beliefs as a way to a powerful way to sort facts from fiction. So my challenges, the next time you find yourself in a disagreement with someone, you think someone might be, you're on two different sides of something. Find a way to bet on it. you can bet a six pack of beer. You can bet 10 bucks find conditions under which you would be persuaded that, Hey, that guy was right and vice versa, say, Hey, if this happens, you were right I was wrong, vice versa. And forcing yourself to put something concrete on it can kind of bring you out of fuzzy thinking land into a more concrete judgment land. Watson: Right on. Get some skin in the game. Kauffman: Yeah. Watson: Awesome. Well, Jeremy, thank you so much for coming on the podcast and sharing with us today. Kauffman: Thanks. It was great to be here with you, Aaron. Watson: We just went deep with Jeremy Kaufman, hope everyone out there has a fantastic day. |
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August 2023
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