How to Win Deals & Grow a $250B Business | Nikesh Arora, Palo Alto Networks

1. 0:00 – 8:45

   The Oculus deal he almost did with Egon Durban

   1. DSDavid Senra0:00

      [electronic tuning] Did you read Ari Emanuel's new book?

   2. NANikesh Arora0:04

      No.

   3. DSDavid Senra0:04

      You've heard that you're in it, though?

   4. NANikesh Arora0:06

      No, I did not.

   5. DSDavid Senra0:06

      Okay. He says the way he met Egon Durban was that he got introduced to Marc Andreessen.

   6. NANikesh Arora0:11

      Yeah.

   7. DSDavid Senra0:11

      And Marc Andreessen told Ari that him, Nikesh, and Egon had this, like, affiliated, like, group of essentially angel investors-

   8. NANikesh Arora0:20

      Yes

   9. DSDavid Senra0:20

      ... that were working together.

   10. NANikesh Arora0:21

       Yes.

   11. DSDavid Senra0:22

       Tell me w- w- about, a little bit about that.

   12. NANikesh Arora0:24

       So I met Egon when Egon had just come to Europe, and, uh, he was a Silver Lake partner there, and he reached out to a common friend saying, "Listen, I wanna hang out with some people, get to understand the tech scene over here, and see if he'd get an advisor to us at Silver Lake." And I just... I was early thirties. I used to run Google Europe. So Egon and I had lunch, and I said, "Listen." I said, "Why are you so reluctant on this conversation?" I said, "Look, I, I tried to do this. They really don't want advice. They make you come for a two-day offsite. They present a whole bunch of stuff to you. The last thing I need is more PowerPoint in my life and free coffee."

   13. DSDavid Senra0:59

       [chuckles]

   14. NANikesh Arora0:59

       He says, "You know what? This resonates with me. I'm gonna call you, and if you tell me that's a good idea, I'll obviously independently consider if it's a good idea or not because I have to make the decision. If you tell me it's a bad idea, I'll think about it similarly. But don't worry, you'd add as much value in telling me what to invest and what not to invest in, so then we'll have fun." So I said, "Sure," and I did that for about fifteen years. So that's when I met Egon, uh, when he was in Europe.

   15. DSDavid Senra1:27

       You're just investing your personal money.

   16. NANikesh Arora1:28

       Yeah, of course. But I'll tell you, there's a funny incident. What happened was one time I flew back from CES with Marc Andreessen because Marc rarely travels, but when he does, he goes to CES, and he hosts a dinner, and he had me come. We spoke. I spoke a little bit over there. I flew back, and I sent him a note saying, "Hey, Marc, is there any cool company that you're working on right now that I could put some money in?" He said, "Oh, the guy who spoke at dinner at CES." I said, "It was Oculus."

   17. DSDavid Senra1:58

       Palmer Luckey.

   18. NANikesh Arora1:59

       Yes. Well, Brendan, to be fair.

   19. DSDavid Senra2:01

       Okay.

   20. NANikesh Arora2:01

       Brendan Iribe and Palmer Luckey, of course. I said, "Great," so I-- So he gave me a number. So I text Brendan and say, "Hey, we met at the dinner. I'd love to make an investment." He's like, "Great, but you have to come see this. This, this, this stuff's real cool." I said, "Okay." So I'm in LA, and I said, "Uh, Brendan, I'm coming to LA. Can we take a look at your technology?" It's me and my wife. He goes, "Yeah, but you have to drive an hour outside of LA because we have this industrial park. We're gonna go." I said, "Fine." So I take a car, I go to the industrial park. The lights are out, so this stuff's not gonna work. So we're kinda hanging out, waiting for the lights to come back on. We go in, he puts this contraption on our face, and it's got this little virtual reality type situation going on. I said, "It's really cool. This is very cool. What's gonna happen?" "Well, it's gonna be cool because, you know, all the promise of visualization, all the promise of gaming, et cetera, et cetera." I said, "Great. Can I write a check?" He's like, "Sure." He's like, "It's you and Blake Krikorian and Vivi Nevu, and I have room for one more." I said, "Well, Egon and I do this together," and Marc was already in the company.

   21. DSDavid Senra3:03

       Mm-hmm.

   22. NANikesh Arora3:03

       So I say, "Okay, so me and Egon." So we agreed to do the deal. He sends me some docs. Uh, oh, he sends me an email. He's been working on the docs. Doesn't respond. Egon says, "What's going on? Why haven't we heard from him?" So I send him an email. He says, "The docs are just coming. They're gonna be here with you anytime soon." No docs, and boom, you wake up one morning, and he's just been sold to Facebook.

   23. DSDavid Senra3:28

       [laughs] Before you were able to invest.

   24. NANikesh Arora3:30

       [laughs] Right.

   25. DSDavid Senra3:31

       So this group that Ari writes about-

   26. NANikesh Arora3:33

       Well, we ended up being the technology advisory board to William Morris when it was acquired by Silver Lake.

   27. DSDavid Senra3:38

       Okay, so-

   28. NANikesh Arora3:39

       Marc and I.

   29. DSDavid Senra3:40

       Okay. Well, I don't even know about this. So what were you guys advising on?

   30. NANikesh Arora3:43

       Whenever he had a question on technology, like advisories around Egon and Ari are very straightforward. Ari does the fifteen-minute phone call. You give Ari the-
2. 8:45 – 11:44

   "I thought cybersecurity was two words"

   1. DSDavid Senra8:45

      When you got recruited to become the CEO of Palo Alto Networks-

   2. NANikesh Arora8:49

      Yeah.

   3. DSDavid Senra8:49

      They had essentially one product, right?

   4. NANikesh Arora8:51

      Yes.

   5. DSDavid Senra8:51

      The firewall.

   6. NANikesh Arora8:52

      For the most part, yeah.

   7. DSDavid Senra8:52

      Okay. Did-- Wa-was your-- This expansion that has since occurred in the last eight years, is that-- Did you come in with that plan? Or you're just like... W-what was the conversation like?

   8. NANikesh Arora9:00

      I didn't have a plan when I came in.

   9. DSDavid Senra9:01

      You had a hilarious line where it's like, "I thought cybersecurity was two words," or something like that. [chuckles]

   10. NANikesh Arora9:04

       Yeah. You know, honestly, in my interview, I ended up talking a lot more about executive security 'cause I thought that was an important topic, and then I realized it was a very small market. But-

   11. DSDavid Senra9:11

       [chuckles]

   12. NANikesh Arora9:11

       ... you know, sitting and talking about how each of us need to be secure, it's like, no, that's a consumer business. You don't want to get involved in that. That's a lot of marketing, a lot of error. So I came in with more of an enterprise framework study than I did the cybersecurity framework study. I sat there and looked and said, "Which are the largest companies that exist in enterprise?" And you look at them and say, I don't know, Cisco or Salesforce at that point in time. These were hundreds of billions of dollars market cap. We were an eighteen billion dollar market cap company. I'm like: How do I go from an eighteen billion dollar market cap company to north of a hundred? That was the original expectation. So then I say, "If you look at the P&L of any enterprise company-

   13. DSDavid Senra9:50

       Mm-hmm

   14. NANikesh Arora9:50

       ... most companies spend fifteen to eighteen percent in product development. That's kind of where R&D sticks around. Everything else, administrators to six to ten percent. So the entire difference between your operating margin and your gross margin is sales and marketing and customer support. If you can find a way of taking sixty percent of your costs, which typically live in sales, marketing, customer support, take them down to twenty, you can be a forty percent operating margin business. That was my insight. I'm like, so how do I get sales and marketing amortized over time? And you figure out the biggest expense in enterprise is customer acquisition. That's the maximum. That's, that's what costs the most. So if you have a low revenue product, which you can only sell one product to a customer, it's really hard to build a big business. And if you look at the largest businesses, Microsoft enterprise business or Salesforce or, you know, take your largest businesses, they sell a lot to the same customer. That was the insight. I'm like, "Well, if you're gonna be big at Palo Alto, we gotta find a way of selling a lot to a customer." You only have one thing to sell. So you go knock on the door, you knock on twenty doors, you spend all the time, and fifteen people say, "I'm sorry, don't need it. I already have it," you're stuck with five. If you knock on the door, you have a truck behind you saying, "What do you want? Do you want this? You don't want this. You want this? You want this?" It's like, you know, the world's your oyster. What can I get you? Armed with that insight, I'm like, "Well, we need to figure out a way that we can find adjacencies to our business, which the customers will trust to buy from us, so that we can keep expanding what we sell to customers, so we can go serve the top ten thousand customers in the world and increase the amount of money we can get from them." You only get that if you earn their trust. You only get that if your shit works. You only get that if it's kind of best in class, because nobody wants to buy the second-best product of cybersecurity. It kind of sucks. So you want to buy the best, and our, our need was you gotta be the best. Now, that's kind of one part of the insight. The other part of the insight is, which is still true,

3. 11:44 – 14:33

   Why he buys instead of builds

   1. NANikesh Arora11:44

      it takes four to seven years to build a good technology product. It doesn't matter who you are, what you are, where you are. If you look back and say, "Hmm, this thing was not fully ready. It's been seven years. This thing looks closer to being ready." Whether it's an Uber, it's a YouTube, it's a- Facebook, it's Google Search. It took four to seven years, sometimes longer, to build a useful product that the customers found exciting and interesting. And that's true in enterprise as well. So I sat there and say, "Holy shit, and I just joined this company. We don't have a large product pipeline. It's gonna take me four to seven years to build real products. What am I gonna do?"

   2. DSDavid Senra12:17

      You're gonna acquire them.

   3. NANikesh Arora12:18

      That's right. But you gotta be careful about it because generally, um, history is littered with bad acquisitions, and companies destroy acquisitions for the most part, whether it's the enterprise or consumer. So you gotta figure out and say, "So I spend the next time s- next sort of part of my life studying that, and like what makes for a good acquisition and what makes for a bad acquisition?"

   4. DSDavid Senra12:36

      What were you studying? Like, how are you learning about this?

   5. NANikesh Arora12:38

      You go back to look at patterns, right? Like how many companies did company X buy? How many did company Y buy? Why do they work? Why do they not work? Which ones worked? What are the key characteristics? Was it a failure of the market? Was it a bad idea? You shouldn't have done it. Was it bad execution? Was it bad leadership? You go and figure out and say, "Great. These are the seven reasons why they failed. How can I minimize the risk of failure?" And you minimize that by saying, "Okay, let me control five variables in a different way, and then I only have two risks. I have r- risk of I picked the wrong idea. So I bought the right company, the market didn't show up." Right? We had one of those. We bought a company. We thought the market was going in this direction. Market ended up going there.

   6. DSDavid Senra13:15

      What was that company and how much did you pay for it?

   7. NANikesh Arora13:17

      That company was called Operato. We thought the world was going to go to IP-based segmentation, but it never went there. But we bought it, and we cut our losses quickly. Once we decided it wasn't gonna go there, we moved on. So it's kind of like almost like portfolio business, right? It's like marginal venture capital. It's like product development. The, the pharma companies do it, right? They try a whole bunch of drugs. They take them to a certain phase and say, "Cut bait. It's not gonna work." Gotta do the same thing. I've been in, you know, companies where somebody says, "You know what? We should do this. We should build this. We should buy this." I was like, "No, we can't buy it. We can build it." I was at Google when, you know, I said, "Let's go buy Netflix." And was like, "No, no, we have YouTube. We can build same capabilities, same thing." So video serving platform is going to get professional content instead of consumer content. That's easy to do technically. Great. Give us ten million dollars, give us twenty engineers, we'll solve it. Never works like that, right? So I had the same thing at Palo Alto. If I tell my team of engineers, saying, "We need to buy this." I say, "No, we can build it." Once you build it, you have two or three problems. One, the guys we're seeing succeed are already a year and a half ahead of us. They have a functioning team of fifty to seventy-five people who are working on it. You wanna go hire fifty engineers. By the time you hire the right people, get your shit together, you start building, you have version one, and they'll be

4. 14:33 – 16:21

   Why the acquired founder becomes the boss

   1. NANikesh Arora14:33

      two years ahead.

   2. DSDavid Senra14:33

      Why do you think so many other CEOs make the mistake? They just-- Is it, is it like a, an ego thing where it's like, "No, I can build this"?

   3. NANikesh Arora14:39

      I don't think so.

   4. DSDavid Senra14:40

      What is it?

   5. NANikesh Arora14:42

      I don't think it's an ego thing. I don't think CEOs set out to make mistakes. No CEO stands up saying, "Let me try and make a mistake this morning." They believe whatever they're doing is right, and they most likely identify the right company. I think often M&A fails because of bad execution. Your tendency is you're too busy, you're doing a lot of stuff. You buy the company and say, "Great, I have a guy or gal who manages this topic. Okay, this person does video streaming. He or she has been trying to do video streaming for the last five years. I'm gonna buy a video streaming company and give it to him or her."

   6. DSDavid Senra15:09

      And you instead put the founder of the company.

   7. NANikesh Arora15:12

      Yeah, I'm like, "Whoa, wait a minute. This person just got their ass kicked with all the resources and all the money we had-

   8. DSDavid Senra15:16

      [laughs]

   9. NANikesh Arora15:17

      ... to that guy who got funded by venture capitalists and who went out and, you know, lived in a crummy warehouse, hired people, blood, sweat, and tears, built something that has product market fit, and he or she should work for the empire? That's not gonna work. He should be part of the empire. So I switch it. I say, "Okay, this person did really well. This person is now gonna be the head of video streaming. Everybody can learn from him. He can work for him." That sometimes doesn't go down well with some of the people who have to end up working with him.

   10. DSDavid Senra15:43

       In the existing organization-

   11. NANikesh Arora15:44

       Of course

   12. DSDavid Senra15:44

       ... they wind up leaving or whatever.

   13. NANikesh Arora15:46

       It doesn't matter, right? They, they were the ones who were chartered with winning. They had access to resources, they didn't come-

   14. DSDavid Senra15:51

       And they didn't

   15. NANikesh Arora15:52

       ... and they didn't. You can't reward that behavior by giving them a prized asset and run the risk that they destroy the prized asset. So that's kind of one, one failure mode. The other failure mode, people saying, you know, I always say this like, you know, my innovation is my genius. Theirs is pure dumb luck, right? Which means I'm a founder, I created something cool. These guys are not smart. I'm just gonna buy number two or number three. I'm gonna spit and shine it, make it look like new, and I'm gonna kick their ass. That never works. I wanna buy number one.

   16. DSDavid Senra16:20

       Well, you talk

5. 16:21 – 19:30

   Why he only buys number one or number two

   1. DSDavid Senra16:21

      about this a lot. Why is number one and number two so important to you?

   2. NANikesh Arora16:24

      If you look at most markets, number one and number two end up with disproportionate share of the profits in the category.

   3. DSDavid Senra16:31

      This is what you were trying to get out of me before we started recording.

   4. NANikesh Arora16:33

      [laughs]

   5. DSDavid Senra16:34

      Which we'll talk about after.

   6. NANikesh Arora16:35

      Okay, fine.

   7. DSDavid Senra16:35

      That's exactly what's happening right now.

   8. NANikesh Arora16:37

      Right.

   9. DSDavid Senra16:37

      Yeah.

   10. NANikesh Arora16:37

       So, you know, number one and number two end up with disproportionate share of the profits. Three gets close sometimes, but never. So if you're gonna go win, you wanna be number one and two in the long term. If you're not gonna be number one and two, you got a problem. Now, if you go buy number two or number three, remember, number one still exists. More than likely, you're gonna slow down whatever you buy because you're still a large enterprise and you can't control every variable. There'll be somebody from finance saying, "I'm here to help." Somebody from HR saying, "I'm here to help." Some guy says, "Dude, let me go build the product." And you have this whole onslaught of people who show up saying, "I'm from the mothership and I'm gonna help you." So you have to figure out how to keep-- maintain momentum for number one.

   11. DSDavid Senra17:15

       You don't have an acquisition team, right? I, I read somewhere that she's like, "It's just fuck me." [laughs]

   12. NANikesh Arora17:19

       Well, no, there's a, there's a set of people who are very good at what they do, and they work with me, so it's not like I work alone. But no, eventually, every acquisition ends up with me being involved.

   13. DSDavid Senra17:29

       Let's say you figured, okay, this-- we wanna go extend to this product. You look at both one and two-

   14. NANikesh Arora17:33

       Yes

   15. DSDavid Senra17:34

       ... right? Can you get into the difference? Like from the outside, maybe two looks similar to one.

   16. NANikesh Arora17:40

       Yes.

   17. DSDavid Senra17:40

       I think on clo-- when you get deeper and closer, like, do you notice-- Can you explain like what you typically find?

   18. NANikesh Arora17:46

       Sometimes there are small differences between one and two, right? And sometimes, you know, we've had a situation where we bought what we thought was number one, and number two went around us and became number one because we screw up the execution. That happens, too. You know, we buy thirty-five companies, not everything works out as per plan. But- Typically, both one and two have product market fit. And if you think about product development and you say, "This is what the end product will look like in four years," number one could have started with this as their primary task, and number two could have started with this part as their primary task. They both look like they're winning in the product category. But it becomes, sometimes becomes apparent later that you should have started here because that's the primary need, and the customer wants this to work really well before they take the second half. But it's hard to tell in the early days when both of them are about thirty or forty customers that effectively pro-prove product market fit. So you'll find it's a strategy question, it's an execution question, it's a product market fit question, it's a business model question. All those things are somewhat different, but they're hard to project how they're gonna pan out over the next two or three years. So you have to sit back and look at their, both their positions and say which one is more likely to succeed. Then you have to add to that which one is more likely aligned with our product direction. So, you know, I made a mistake early. The first company or sec-second company I bought, they were spending six months trying to debate product direction after we bought them. I said, "Well, wait a minute, this is a problem." So these guys started a company, and rightfully the founder's like, "I started a company with this vision in mind." I've already sold the company. Now it's my vision. [laughing] It's like, no, but-

   19. DSDavid Senra19:16

       What did you think the money was for? [chuckles]

   20. NANikesh Arora19:18

       Exactly. It's like, "No, no, but I sold the company, but I still want to build what I wanted to build." I'm like-

   21. DSDavid Senra19:21

       Does it-

   22. NANikesh Arora19:22

       "It doesn't work like that." But it took me a while to get to realize it doesn't work like that. I felt like, oh my God, I'm gonna like, you know, cripple a founder. But I had to sit down and say, "Dude, it doesn't work like

6. 19:30 – 33:38

   The 30-day test before every acquisition

   1. NANikesh Arora19:30

      that." So then we changed our model. So what I do now is when I sit down with a founder, I agree a deal, and I, I insist on agreeing the deal with the founder. I don't involve bankers and others 'cause I'm like, "You are gonna work with me for the next four years. Do you really want somebody else in the middle negotiating on our behalves so that there's eventually, "Oh, wait, that's not what was sold to me?" We used to have that problem. So we had that. The moment we agreed the deal, I tell the founder, "Listen, let the, let the finance guys, let the legal guys, let the lawyers figure out all the paperwork. Go figure it out. Your job is now to sit down with me and my product guys and design what our joint house is gonna look like, and we have thirty days to do it." So we literally go back and forth on product direction, product integration-

   2. DSDavid Senra20:06

      Before the acquisition is closed?

   3. NANikesh Arora20:07

      Before the acquisition is closed. We don't sign the definitive-

   4. DSDavid Senra20:10

      I don't think I've ever heard that idea before.

   5. NANikesh Arora20:11

      I don't sign the definitive term sheet until I get the founder to sign on a joint product roadmap. I'm like, "If you don't wanna build what I wanna build, then we shouldn't do this."

   6. DSDavid Senra20:20

      It's natural for a founder to be, to, uh, like, want autonomy and to think that they have the right answers.

   7. NANikesh Arora20:25

      But you know what? You-

   8. DSDavid Senra20:26

      So how, like, how difficult are these con-these conversations?

   9. NANikesh Arora20:27

      You'll be surprised when there's a large check hanging on the other side of thirty days, how much more amenable founders are to aligning their product vision than after they've got the proceeds.

   10. DSDavid Senra20:36

       [laughs]

   11. NANikesh Arora20:36

       It's unbelievable. It's night and day.

   12. DSDavid Senra20:38

       [laughing]

   13. NANikesh Arora20:40

       And by the way, they have the choice to pull the rip cord. They don't have to do it.

   14. DSDavid Senra20:43

       How many have backed out at that stage?

   15. NANikesh Arora20:46

       Nobody backed out. We backed out twice.

   16. DSDavid Senra20:50

       Why?

   17. NANikesh Arora20:51

       Because in the process, we figured out it'd be hard to get consistent alignment of the product. We figured out it would be hard to manage the founding team thereafter because they were-- they had a very strong opinion on where they wanted to go. We could sense that they were playing ball because they knew that they had to play ball-

   18. DSDavid Senra21:11

       To get the money?

   19. NANikesh Arora21:12

       ... to close the deal, to close the deal. And we just didn't feel that that was gonna be the, the right outcome. Uh, in one case, we, we, you know, as in the thirty days, as we kept digging deeper and we kept pushing harder, we figured out that the substance was not as strong as we had sensed in our diligence early. So as you dig deeper, you start looking at architecture, saying, "Look at the bioarchitecture." I'm like, "Oh, wait."

   20. DSDavid Senra21:35

       Do the founders typically stay on long after?

   21. NANikesh Arora21:39

       Some do. So one of the other things we do is, you know, because when you buy something like this, you're buying a team. You're buying a team, you're buying the vision, you're buying the execution. So it's very hard if the founder says, "I'm out." So we don't buy companies the founders say, "I'm out." If you're out, you should go, which means you could kill the company anyway if you're gonna be done. So you gotta be want-- you gotta wanna be around. What'll happen is typically if there are two or three founders, one will slack off because they're doing biz dev. So maybe we don't need biz dev. We do better biz dev. Once we go to market, we don't need that. So you'll find founders fall off depending on the function that they bring in. But it's never the product guys or engineering guys who fall off because that's what we're buying. We need them. We still have many founders who work at Palo Alto. Some have converted to continuing to work at Palo Alto. Some have the founding itch and after three years they leave. But the other thing which we always do is when we buy a company, we reinvest the founders for three years, ideally four.

   22. DSDavid Senra22:29

       Why is that so important?

   23. NANikesh Arora22:30

       We want continuity. We want the continuity from the execution of vision perspective, right? Because they built something, as I've said, it takes four to seven years to build, build a great product. Typically, we buy these product companies three years in, two years in, four years in. We think there's another two, three years of consistent product development that needs to be done, and we want that consistency and con-continuity of the founder and the founding dean to keep driving that. So if they're not there to lead it, then there's disruption. Disruption could cause, you know, us to lose the lead as the number one in the category. We want them to continue to execute in that direction.

   24. DSDavid Senra23:00

       I spent the last decade reading more than four hundred biographies of history's greatest founders, and if I had to distill what I learned down to a single word, it would be focus. The best founders spend all their time on the thing that makes them great. They spend their time building products, serving customers, and growing their companies. The greatest founders would not spend time rebuilding authentication infrastructure. That is why more than three thousand of the fastest-moving and most important companies in the world use WorkOS. Companies like Anthropic, OpenAI, and Cursor all use WorkOS. WorkOS makes it easy for you to sell your products to enterprise customers. If you build software and you wanna sell to the largest companies in the world, there are some requirements that you cannot ignore, like single sign-on, SCIM, role-based access, audit logs, and more. You could spend months building all this yourself, or you can use WorkOS. WorkOS provides the infrastructure to make your software enterprise-ready. Go to workos.com and get started today. That is workos.com. I wanna go back to this idea of like looking at the number one and number two, and then you get really close to them, and is there anything else that you're surprised But again, they may look similar from the outside, but the more you dig in, you see why number one is in the position they're in

   25. NANikesh Arora24:17

       You know, what's interesting is the hardest thing to put your arms around as a larger company is sometimes number ones also win because the sheer will of the founder, right? Some founders are just, what do you call them? Alpha killers or whatever they are.

   26. DSDavid Senra24:35

       We're talking about [laughs] we gotta... We need context here.

   27. NANikesh Arora24:38

       Yes. [laughs]

   28. DSDavid Senra24:38

       'Cause like-

   29. NANikesh Arora24:38

       Oh, you don't wanna be... Okay, go ahead.

   30. DSDavid Senra24:39

       We've... No, no. We've run into each other a few times.
7. 33:38 – 42:32

   Egon Durban and the 29-round cricket auction

   1. DSDavid Senra33:38

      valuable to that.

   2. NANikesh Arora33:38

      Well, Egon and I, Egon and I bought a cricket team together in London.

   3. DSDavid Senra33:41

      I thought you did that with Devesh.

   4. NANikesh Arora33:43

      No, no. Egon and I are the equal owners. He and I came up with this together, and he called me. I was about to go play golf at the AT&T, and he called me. He says, "How's the auction going?" It's like 6:00 in the morning 'cause it's in London. I said, "The last auction went for two rounds. We're in round number 24."

   5. DSDavid Senra33:58

      [laughs]

   6. NANikesh Arora33:59

      He's like, "I know you're gonna want it cheap 'cause you like value. It's in your upbringing. This is sport. Welcome to sport."

   7. DSDavid Senra34:06

      [laughs]

   8. NANikesh Arora34:07

      "Don't stop bidding. I was still on the phone with you to give you moral courage."

   9. DSDavid Senra34:10

      [laughs] Wait, how many more rounds? You were at 24. How many did you have to go?

   10. NANikesh Arora34:14

       We went up at 29 rounds.

   11. DSDavid Senra34:16

       But once he said that, you're like, "Fuck it. We're getting this?"

   12. NANikesh Arora34:18

       He was like, "Yeah. What's the worst that... We're paying like half of it. Doesn't matter because this thing's gonna be a huge success, or it's gonna be a failure."

   13. DSDavid Senra34:24

       So he did it to you too. [laughs] He's like-

   14. NANikesh Arora34:26

       No, but I did the same thing, but I was-

   15. DSDavid Senra34:27

       Yeah

   16. NANikesh Arora34:27

       ... trying to be cute on the other one.

   17. DSDavid Senra34:28

       [laughs]

   18. NANikesh Arora34:29

       And he just reminded me that, you know, you say that in your professional life. Think about it in your personal life, too. So that's what we did, you know? I saw him at the range at 7:00, and he said, "Do we own the team?" I'm like, "Yeah, we own the team now."

   19. DSDavid Senra34:39

       [laughs]

   20. NANikesh Arora34:40

       It happened. So yeah. He's consistent in his, in his, uh, point of view.

   21. DSDavid Senra34:45

       I've heard this phrased differently, uh, before. I'm curious if you, if you agree with this characterization. You're not buying companies, you're buying founders.

   22. NANikesh Arora34:52

       You're buying teams. You're buying teams. You're buying their point of view. You're buying their strategy. You're buying their execution, right? A company is just a construct that is around the team that allows us to be held in some legal entity, protect IP, and eventually turn that into sort of a go-to-market capability. But effectively, what is a company? When you come up with an idea, your first instinct is not that I'm gonna start a company. Your first instinct is, I'm gonna go build something amazing.

   23. DSDavid Senra35:14

       Yeah.

   24. NANikesh Arora35:15

       When you go build, you call yourself a builder. You go find like-minded people who have shared the vision, and then you're the most charismatic person in the room because you're trying to convince people to get on the bandwagon for your story 'cause you had the idea, and it's typically one or two or three people. So you're doing everything. You're, you're a builder. You're building. You're, you know, validating your strategy every time you hire the next person. You're looking in their eye and telling them, "This is what we're gonna build." The person gets excited. And if you're s- hiring smart people, they also have to buy into it. So you're basically building a team. You're building a team of like-minded people. You're bashing out the edges. You're aligning the strategy and getting to the point and say, "Okay, now we all agree we're gonna build this. Now let's go at warp speed and build this shit because we are gonna beat everybody else to the punch." That's what you're doing. That... The company's just sort of a legal entity. If you think about most of these guys, they probably have one administrative person who does HR, finance, facilities, and brings coffee. So it's that... I mean, the company is a, is a construct in which you organize, but you're actually buying a well-functioning, cohesive team. That's what you test for. Can this team execute better than other teams out there? And when you think about it like that and say, "I'm gonna compete with that team that's spent an year and a half getting together and training together, and they're on the field every day. They live in the same house. They work 80 hours a week," and say, "I'm gonna beat them by hiring a bunch of-

   25. DSDavid Senra36:27

       Yeah, you know-

   26. NANikesh Arora36:27

       ... corporate people-

   27. DSDavid Senra36:28

       You know I'm-

   28. NANikesh Arora36:29

       ... by going through my HR team, going through four interviews, and going through internal process," and say, "Holy shit, you're never gonna beat them They're far ahead.

   29. DSDavid Senra36:36

       So there's a couple things that are popping in my mind while, while, um, I'm listening to you. Do you-- Have you ever heard this guy named Henry Singleton?

   30. NANikesh Arora36:41

       No.
8. 42:32 – 44:28

   Why nothing at work stresses him out

   1. NANikesh Arora42:32

      things.

   2. DSDavid Senra42:32

      You're like a, I don't... like more of like a stoic kind of person.

   3. NANikesh Arora42:35

      [laughs]

   4. DSDavid Senra42:36

      So you, like you seem like you don't get stressed, or you said like I, I read something like you said your business doesn't stress you, which is very unusual-

   5. NANikesh Arora42:42

      Yeah

   6. DSDavid Senra42:42

      ...thing to say for somebody who-

   7. NANikesh Arora42:43

      Life shouldn't stress you. You should wake up every morning, do the best you can, and then... Remember, if you grew up sort of in India with Hinduism, it was like there's a strong sense of fatalism All you can do is do your best

   8. DSDavid Senra42:55

      Okay, I don't know about this. Explain-

   9. NANikesh Arora42:56

      The rest is-

   10. DSDavid Senra42:56

       Explain how you grew up in, like, this fatalism thing

   11. NANikesh Arora42:59

       Remember, like, you've got one point eight billion people in the country, you've gotta make sure that they all understand that they can do their best, and eventually, there is a hand of God which dictates what eventually happens. Or it's the notion that it is uncertainty. You can't create full certainty. Things will happen to you which you can't control. The only thing you can control is what you do. And if you do what you do really well, then you should sleep well. 'Cause you can't get worried about everything that can happen to you from an uncertainty perspective. That is a sense of fatalism. That is what keeps society somewhat orderly

   12. DSDavid Senra43:27

       But you do understand it's easy to say that and very hard to apply for, for hum- for a lot of humans

   13. NANikesh Arora43:32

       Well, the, doesn't stop anyone from trying, right?

   14. DSDavid Senra43:34

       Yeah

   15. NANikesh Arora43:34

       We try and control every outcome that we can around us. We try and minimize risk around us. We do all, we all do that. But at some point in time, we gotta say, "I've done my best"

   16. DSDavid Senra43:41

       Did you have this, um, like, ability when you, you were younger and, like, early in your career?

   17. NANikesh Arora43:47

       No. [laughs]

   18. DSDavid Senra43:48

       This is like-

   19. NANikesh Arora43:48

       This is, this is recently found [laughs] in the past five years, yes

   20. DSDavid Senra43:52

       You're saying this is, like, the last, like, five years. So you're working at Google. High stress? More anxious person?

   21. NANikesh Arora43:59

       No. Google's the best business. Like, you know? The, the search business keeps growing and-

   22. DSDavid Senra44:03

       Yeah, but you're still, like... That, that was like the greatest, uh, like, that, that seems to me, and maybe I'm wrong, is like you, you, you had, like, a lot of success before that, but you're, you know you're working on, like, you know, once in a hundred year company at that point

   23. NANikesh Arora44:15

       Yes

   24. DSDavid Senra44:15

       You had... And you were young. You were in your 30s, right?

   25. NANikesh Arora44:17

       Yeah

   26. DSDavid Senra44:17

       Like, I, I-

   27. NANikesh Arora44:18

       It can get to your head

   28. DSDavid Senra44:19

       Yeah

   29. NANikesh Arora44:19

       It can feel like you could, you could-

   30. DSDavid Senra44:20

       But I feel like y- the pressure to, like, this is a huge opportunity, this could be a once in a lifetime, this, this will change, this opportunity will change my life-
9. 44:28 – 49:42

   Selling Google ads without knowing the price

   1. NANikesh Arora44:28

      were there

   2. DSDavid Senra44:28

      Okay. Say more about this

   3. NANikesh Arora44:29

      It just felt normal. You just felt, "Wow, this is this great rocket ship that's working" And remember, you're 34, you've never actually worked in any other company of a similar ilk. You're now the center of attention of technology, and like, great, everybody's searching around you. Every morning you wake up, there are more searches. Every morning when you wake up, more people want to advertise, so it's an execution problem. It's like, how can I get... Like, there, when I joined, people were spending money at Google in Austria with an American credit card. That's the only way you could buy advertising in Europe. Can you imagine?

   4. DSDavid Senra44:56

      [laughs]

   5. NANikesh Arora44:56

      Can you imagine? He comes like, "I'm so sorry, I can't collect your money. You gotta go get yourself an American credit card in US dollars and then pay me"

   6. DSDavid Senra45:02

      And they're doing it

   7. NANikesh Arora45:02

      It's like, "Wait, let me do that" [laughs]

   8. DSDavid Senra45:03

      [laughs]

   9. NANikesh Arora45:04

      I'm looking, it's like, we're making $10 million in Austria. We don't accept local currency. How the hell is this happening?

   10. DSDavid Senra45:08

       [laughs]

   11. NANikesh Arora45:10

       That's a, that's, that's a different business problem, right?

   12. DSDavid Senra45:12

       Yeah

   13. NANikesh Arora45:12

       You're just basically, it's like, let me see if we can get out of the way. So you're trying to eliminate friction and trying to create scale, which was great learning for me. And I, I said, "Great, that I can do. I can eliminate friction and create scale. I don't have to worry about demand." Like, I used to joke, like, you know, I used to go to a customer and say, "What are you here for? What do you do?" Say, "I'm the head of sales for Google Europe" It's like, "Well, what does that mean?" Say, "Well, I sell advertising" "Great. So how much is it?" I'm like, "I actually don't know. Depends on what the last guy bid. Just gotta bid more than that"

   14. DSDavid Senra45:38

       [laughs]

   15. NANikesh Arora45:39

       "So you can't tell me what it's gonna cost me" I'm like, "Not really. It depends on how much you're willing to bid" "Great. How much can you take a day?" "I don't know, it depends on the number of people who search, because we can only serve ads when somebody searches, so you don't know volume, you don't know price"

   16. DSDavid Senra45:53

       Yeah

   17. NANikesh Arora45:54

       What kind of sales guy are you? [laughs]

   18. DSDavid Senra45:56

       [laughs]

   19. NANikesh Arora45:56

       Think about it

   20. DSDavid Senra45:57

       Yeah

   21. NANikesh Arora45:57

       I'm selling ads. I don't have, I don't have control on volume, I don't have control on price.

   22. DSDavid Senra46:01

       Yeah

   23. NANikesh Arora46:01

       Price is controlled by b- uh, bidders-

   24. DSDavid Senra46:03

       Yeah

   25. NANikesh Arora46:03

       ... and volume is controlled by s- people who search

   26. DSDavid Senra46:05

       Mm-hmm

   27. NANikesh Arora46:05

       I could tell you, when it rained in France, we used to get a lot more revenue, 'cause people sat home and searched. That's good. [laughs]

   28. DSDavid Senra46:10

       [laughs]

   29. NANikesh Arora46:11

       So you gotta s- go to customer saying, "Listen, the way it works is you work out an ROI, every search is worth something to you. If I send you a search, look at your conversion rate, if you convert that into an insurance sale or into an e-commerce transaction, you figure out how much you're willing to pay for a lead. My lead becomes conversion" So we used to sit and do ROI maths with our customers so they can understand what their maximum bid should be. And they say, "Now go, give us all your money, and just as long as it hits below your bid, take as much searches as you can"

   30. DSDavid Senra46:39

       Yeah
10. 49:42 – 51:58

    Coming to America with $200

    1. DSDavid Senra49:42

       When you think about your own childhood, where did your... Th-this innate drive that you had to achieve, largely internal, I would imagine. Did you get a lot of pressure from your parents?

    2. NANikesh Arora49:52

       No. My parents didn't tell me what to do. I used to come home from school, do my homework. My mom would be happy that I did it. She'd be chasing my sister around, trying to get her to find out what homework she had. I got my shit done. My dad didn't know how I got into university. He didn't know how I got into business school in the US. I just went to him and said, "I need $2,000." He's like, "I don't have that." I said, "Can I give me two hundred?" He's like, "Yeah, I'll take two hundred." I took two hundred and showed up here. Then he sent me two thousand afterwards to pay part of my tuition, and that was it.

    3. DSDavid Senra50:22

       You don't put any pressure on your kids?

    4. NANikesh Arora50:24

       No.

    5. DSDavid Senra50:24

       Like, how different are, are you as a parent than your parents were to you?

    6. NANikesh Arora50:30

       Look, that was a different era. At that point in time, parenting was different. Parenting is different now. Parenting in India is different. Parenting in the US is different. So, you know, you obviously have all those differences that come into play. I have two younger kids who are eleven and ten, so more involved in their lives than I was with my twenty-nine-year-old.

    7. DSDavid Senra50:45

       Why?

    8. NANikesh Arora50:46

       More time. I consciously try and take out time, and I'm, I'm sure my kids will say it's never enough, and my wife will say it's not enough, but I try and take out time as much as I can. Uh, so it's different. No, I don't believe in putting pressure on my kids. The kids have to be able to express themselves and do what they believe is best. Look, I have seen s- it's like this sort of bizarre thing. I don't know how many people have been born since humanity started. Must be in the tens of billions, right?

    9. DSDavid Senra51:10

       No, I think it was l- I mean, I've e- we read about this a long time ago. It was, like, over a hundred billion.

    10. NANikesh Arora51:14

        Okay, a hundred billion people have been born.

    11. DSDavid Senra51:16

        Yeah.

    12. NANikesh Arora51:16

        It's a well-known problem. Every kid has a parent, by definition. And even now we struggle with parenting as a problem because there's probably so many variants of parenting that most people can get it wrong. So I just want my kids to be happy in their lives. If they're happy, my mission is accomplished, because I've seen so many scenarios where kids are not happy, and it's not clear whe-where, where things go wrong. It's not clear from a parenting perspective or it's in the DNA, it's in circumstances. So I just wanna make sure my kids are healthy, happy, and balanced. If I can achieve that, they can do whatever they want.

    13. DSDavid Senra51:49

        I love the framing you just put on there. It's like everybody's had a parent. [laughs] Parenting is a known thing. It's been around, and we're, we still don't have it figured out. Um-

    14. NANikesh Arora51:55

        No. You show me where's the ultimate guide to parenting.

11. 51:58 – 54:46

    Raising kids who didn't grow up poor

    1. DSDavid Senra51:58

       I'm particularly interested in this because most of the biographies I read, obviously the person usually starts out... There's some people that are born into wealthy families, and they wind up achieving a lot. Uh, obviously, most of humanity is not wealthy, so therefore, like, most of the people you're gonna read about weren't. And there is something that they almost universally struggle with, which is basically, "I was the son of a poor man. Now my kids are the son of a rich man. What do I do about this?"

    2. NANikesh Arora52:20

       Nothing. You created a distinction by yourself. When you were the son of a poor man, there were so many way poorer than you.

    3. DSDavid Senra52:28

       Mm-hmm.

    4. NANikesh Arora52:29

       And from their vantage point, you were the son of a rich man, right? So I, I think we all get born into a circumstance, and I think it's very dangerous to take that circumstance and keep reminding your children, "Remember, I was poor. You should be more grateful."

    5. DSDavid Senra52:42

       [laughs]

    6. NANikesh Arora52:43

       That's what happens, right? Especially for people who are very poor, not very, who are poor relative to where they are today. They feel this notion where they have to keep reminding the kids, "Well, it wasn't like this when we were born. You know, we used to do this, and we used to do that." I'm like, "Dude, get over it. They're born in this. Figure out a way that they can enjoy this and make sure that they learn how to yearn for more, how to go have drive, how to go get achievement, right?" You gotta be careful. So I think you have to be blessed if you can find a way that your kids want to achieve, they wanna build, they wanna make things happen on their own, and they just don't take their circumstances for granted. That's the hardest part in parenting, is to make sure that your kids have drive, your kids have ambition, your kids want to achieve. My son is obsessed with basketball. Great. Go for it. Let him follow his passion. My daughter wants to be a gymnast. She's got tremendous work ethic. She's great. She's extremely sort of, you know, friendly. He likes people. He likes hanging around people. He knows a lot about what he wants going. That's great. If my kids can have passion, they can go chase their passion, they can show ambition and drive, I don't care if he becomes a basketball player, a basketball commentator, as long as he wakes up every morning and is happy and felt that he gave it his best.

    7. DSDavid Senra53:51

       I completely agree with this perspective. Out of all the examples I've read about, I love what Sam Walton said in his autobiography, which he wrote when he knew he was dying. He had cancer all over his body. And he says, "I, I know I'm a fairly overactive fellow," which is the most understatement of a century. He's like, "I don't put pressure on my kids." This is like, "Let them do-

    8. NANikesh Arora54:06

       [laughs]

    9. DSDavid Senra54:07

       Why would I want them to be like me?

    10. NANikesh Arora54:09

        But it's kind of interesting. Uh, if you do it the right way, you know, your kids will watch your behavior. They watch more behavior than you think. They know, they know more about how we are, who we are, than we possibly can ever understand. And sometimes they will want to do certain things like you. But if you try and force them to do certain things like you, you're never gonna get there. I can see my kids would like to do certain things like me, and that's great. I'm very happy that they want to, and I'm sure sometimes they're looking and saying, "I never wanna do that thing that my dad does." So that's fine, too. As long as they can find out what parts of what I do they like to do and what parts of what I do they don't like to, they're fine. I'm okay with that.

12. 54:46 – 1:02:29

    Why AI hacking has been good for Palo Alto

    1. DSDavid Senra54:46

       I, I'm thinking back to, like, all the other people I've had on the podcast, and I'm like, I just feel, yes, AI is changing every single business. Toby Lutke was on this, this, this show earlier this year. I'm gonna see him again, uh, in, like, two weeks to record again, and his whole point was like, "We're gonna look back on the year two- twenty twenty-six where because of AI, like, every business is up for grabs." So every business is being transformed somewhat, right? But I feel like yours might be the most out of anybody else I've had on the show.

    2. NANikesh Arora55:10

       No, no, no. Let's, so let's, let's break it down, right? Cybersecurity is Because I don't come from that, and I told you it was two different words in my mind eight years ago, so I'm still gonna treat it like that. It's somewhat straightforward, right? Cybersecurity is the idea that bad actors trying to get into your infrastructure and exfiltrate something important. Let's take that for a premise. If I know it's bad, I can stop it at the perimeter, right? Bad guy shows up at the door. We know he looks bad. He's got a- he's got a hood, he's got a gun. This is bad. We know how to stop them. So half of cybersecurity is stopping bad guys at the perimeter, bad things at the perimeter, okay? That's half of cybersecurity. Ten, twenty percent is analytics, how to get hygiene right once they're inside your house to make sure shit's sorted. The remaining twenty, thirty percent is if somebody gets in, what do I do? Things will get through your perimeter, inside your infrastructure. How quickly can I find the bad guy, and how quickly can I eject them out of my infrastructure before he or she can do harm? That's cybersecurity in a nutshell, okay. How does AI impact this? Okay, well, let's start with your comment about vulnerabilities. AI says, "I can find holes in your perimeter faster than anybody else in the world." Okay? It used to take days to find it. It used to take forever. I can find holes to enter your perimeter. Okay, great. My perimeter just became more porous. Right? Now, AI is not gonna patch the perimeter. I have to still go look through the infrastructure, find where the porous parts are, and patch them, right? I could be a software company. I could be a infrastructure provider because everybody's IT stack is made up of tens and thousands of vendors. So vulnerabilities exist in our software and software that's written by our customers themselves. So that's kind of the step one. That's what we're seeing right now. The likes of Mythos, the likes of the new models that OpenAI has, the likes of GLM 5.3, they have immense capability of finding vulnerability, and bad actors can rent them cheap and throw them at you and find everything that you have vulnerability around. So what is the call of the hour? The call of the hour is to find a way to patch these things swiftly, so these bad guys can't get in, okay? Guess who's building the service? We're building a service. It's called virtual patching. We write signatures. We put Band-Aid around the entire perimeter. We know where the holes are. These people can't get in. Over time, our customers will patch the underlying systems, and they'll be fine. So that's kind of one problem. Good news is our business has gone up since Mythos came in.

    3. DSDavid Senra57:27

       That's what I mean. That's what I'm trying to get to.

    4. NANikesh Arora57:29

       "Oh, holy shit. Can you help me patch it?" Now, guess what? "Yes, I can help you patch it." I inspect everyone's perimeter. So you've got a laptop somewhere. I live on a laptop. I charge you twenty-five bucks a year, and I watch a hundred and fifty megabytes a day, give or take, on your laptop to make sure nothing bad's coming in.

    5. DSDavid Senra57:46

       You told me you're hacking my phone calls.

    6. NANikesh Arora57:48

       I was just kidding.

    7. DSDavid Senra57:49

       [laughing]

    8. NANikesh Arora57:49

       I wouldn't know how to do it anyway. Remember, cybersecurity is two words.

    9. DSDavid Senra57:52

       [laughing]

    10. NANikesh Arora57:54

        So the marginal cost of inspection of traffic and laptop by me is zero, right? I don't charge you more the more traffic that goes through. AI is set up to charge you every time you run traffic through AI in terms of tokens. So if AI tried to do my job at your endpoint, it'll cost you five thousand dollars a day, or pick a number, right? Five hundred dollars a day, or pick a fifty dollars a day. They can't do what I do at twenty-five dollars an endpoint. If you go back inside and if the bad actor gets in, what happens? Yes, AI can help you analyze all the anomalous behavior quickly, but you still need harnesses. You still security expertise. You need data ingestion. You need infrastructure. So in a nutshell, our business is not at risk.

    11. DSDavid Senra58:37

        Yeah, from outside, that's what I was assuming was the case. That's what I-- That, that was like the-

    12. NANikesh Arora58:42

        You can always assume that CEOs are trying to maximize their businesses from the outside.

    13. DSDavid Senra58:45

        [laughing]

    14. NANikesh Arora58:45

        Generally, that's a good rule.

    15. DSDavid Senra58:46

        Yeah, but we talked about no one wakes up w- wanting to lose-

    16. NANikesh Arora58:48

        Exactly. Yeah

    17. DSDavid Senra58:49

        ... but, you know, a lot of people lose every day, so-

    18. NANikesh Arora58:50

        That's right

    19. DSDavid Senra58:50

        ... this is what I was trying to get to. Who do you go to when you wanna learn about, like, the frontier of AI?

    20. NANikesh Arora58:56

        Who do I go to when I want to learn more about AI? Um, there are different people. I spend, I wanna say, at least four or five hours a week with AI founders of some sort, 'cause these kids are young. They possibly worked at OpenAI. They probably worked at Google somewhere. They've got these companies. They're very kind. They spend time with me. They try and tell me what they do, how it works. So, you know, I learn about open weight models. I learn about training, learn about training data. I learn about, you know, guardian agents. I go around, I talk to tons of people. I try and- I talk to probably five or ten cyber startups a month, maybe fifteen, 'cause I'm trying to absorb how they're thinking about it because in a bizarre way, this is a new and developing science, for lack of a better word. There are no real experts. People know how to do their shit. Everybody else is trying to imagine the implications to everything else around them, and they're trying to build the mental models. They can build product and go win in this category, right? There, there's no concept of, you know, data labeling before. You know, you started having self-driving cars, people have to label data. Now let's turn into reinforcement learning, simulation models, neural networks that are trying to simulate data so we can train AI. So you literally have to stay in the conversation with tons of people to understand and absorb what people are talking about. So you just have to spend a lot of time on Twitter, spend a lot of time talking to people, spend a lot of time reading stuff. You're kind of like half I understand, half just gets through the other side, and I can't absorb everything. That's how I learn.

    21. DSDavid Senra1:00:24

        Oh, you brought up another thing I wanted to ask you about. What's behind your new presence-

    22. NANikesh Arora1:00:28

        [laughing]

    23. DSDavid Senra1:00:29

        ... on X?

    24. NANikesh Arora1:00:31

        Well, I think I said that, uh, I was giving shit to one of your fellow podcasters.

    25. DSDavid Senra1:00:37

        Harry?

    26. NANikesh Arora1:00:37

        Yeah. I was giving Harry shit saying, "This is great for you. You keep bringing all of us in. You build your own brand. All of us, like, are effectively props for your brand."

    27. DSDavid Senra1:00:44

        [laughing]

    28. NANikesh Arora1:00:46

        He's like, "Well, that's your fault, not mine." I'm like, "What do you mean?" He's like, "Well, you get the right to build your own brand if you want to. You just don't." I'm like, "How would I do that?" He's like, "Well, go tell people on X what you think. You have a lot to say in a podcast. Why do you wait for me to ask the question?" That's a good point. So then he told me to tweet every day. I'm like, "Okay." And then-

    29. DSDavid Senra1:01:05

        I'm enjoying your tweets.

    30. NANikesh Arora1:01:05

        [laughing]

Episode duration: 1:02:29