By playing, you agree to uListen's Terms and Privacy Policy and YouTube's Terms of Service.
My First MillionRanking The Best And Worst Businesses To Start w/ Billionaire Investor Andrew Wilkinson (#386)
Summaries, chapters, transcripts, and FAQs on this page are made by uListen, not YouTube.
EVERY SPOKEN WORD
90 min read · 18,170 words- 0:00 – 2:30
Intro
- SPShaan Puri
What are easy businesses that you've, you've started, where you're like ... 'Cause I, for me, Milk Road was a way easier business than any business I had ever started. Um, what, what's been an easy business for you?
- SPSam Parr
And where does desi-
- SPShaan Puri
Um-
- SPSam Parr
Where does the, where does agencies rank on the easy to hard scale?
- AWAndrew Wilkinson
I'd say it's medium. I mean, the hardest, let's just say the hardest possible businesses are brick-and-mortar or th- where you have to move physical goods and you have a lot of employees. [upbeat music]
- SPSam Parr
All right, Andrew Wilkinson, you're back. What's going on?
- AWAndrew Wilkinson
Not too much. Good to be here.
- SPSam Parr
Uh, Shaan, did you know that, that Sahil, one that ... We did, we had Sahil Bloom on the other day. Two things were interesting to me. One, people thought when we were making fun of him that we disliked him. They thought I disliked him, which is not true. And two, it was shockingly popular. Did you see that?
- SPShaan Puri
Well, that part's not that surprising. The first part's surprising. I mean, we were all making fun of each other, I thought. I thought it was a fairly even give and take, but maybe not. Maybe we were a little too harsh.
- AWAndrew Wilkinson
It was a bit of a roast battle.
- SPShaan Puri
[laughs]
- SPSam Parr
But you don't, you only do that with people you like.
- SPShaan Puri
Yeah, exactly. [laughs] If you actually don't like somebody, you don't just come out and start busting their balls. [laughs] That's not really like-
- AWAndrew Wilkinson
To be, to be fair, the guy is, like, stupidly handsome. I met him, uh, when I was in New York. Very, very handsome guy, so we gotta shit on him.
- SPShaan Puri
Yeah, he's perfect.
- SPSam Parr
Yeah. I mean-
- AWAndrew Wilkinson
Like, he's very tall
- SPShaan Puri
... you gotta break down the handsome guys.
- SPSam Parr
You want ... And you, the worst part is you wanna hate those guys, but if they're nice, it's almost worse. He was very nice.
- AWAndrew Wilkinson
Yeah.
- SPShaan Puri
Yeah, the one thing that was really good is he's pretty prone to, like, taking a pretty, like, a cookie cutter response to things, 'cause he's like, he's got, like, a good image. He wants people to generally like him. Like, he's, you know, he's on TV sometimes. He's got his, like, book deal, so he's, like, doing things where, you know, public perception kinda matters, whereas if you're just an entrepreneur who owns some business, like, you don't need everybody to like you. But for his things, you know, it, it's good when people like him. It, it's good for business. But he came on and he was, like, super honest, super open about everything, and was not giving us politician answers, even though I do think he's a future president. He wasn't doing that, though, so I thought, you know, mad props to him for, uh, for just being normal. Like b- like, if we were normally hanging out, that's how he was on the pod. It was perfect.
- SPSam Parr
What do you wanna start? You wanna start with some postmortem stuff? You wanna s- Where, where do you wanna go with this?
- SPShaan Puri
Andrew, Andrew always sends us the best topics in advance, where we can just, we can just pick and choose, like, what's this word mean, and we can riff off that. But Andrew, I bet you have a sense of what you think the most interesting topic is, so let's not bury the lead. What do you think is the most interesting topic that you have?
- 2:30 – 5:50
Mr. Business Builder
- AWAndrew Wilkinson
When I started my business, um, I was, like, Mr. Business Builder. Like, I'd say yes to absolutely everything. I'd be in the shower and have the idea of, like, oh, you know, why doesn't this exist? And then that day I would start it, and I would just constantly be starting new businesses, like, every single month. And I think it was really good, because it was like throwing spaghetti against the wall, right? So it was like seeing what a, a good business model is via pain. So it was just constant pain. And then also running an agency, you get to see all of these startups make mistakes and learn from them. And I had this really painful experience of starting an agency, getting really, really lucky that my first business was actually profitable, 'cause I think one of the things that happens is people start their first business and fail, and then they just say, "I, I don't like this entrepreneurship thing. I'm out." And so I was able to keep going, and started another five to 10 other businesses, um, and almost all of them failed. Like, it was incredibly, incredibly painful. And after that, I kind of swore off starting businesses, and I've only just come back to it over the last three years. Um, so I can talk a little bit about my experience in some of those businesses. Sam was texting me before, and he's like, "Well, you've started all these businesses. You've, like, tweeted out all these businesses."
- SPShaan Puri
Mm-hmm.
- AWAndrew Wilkinson
"What actually happens to them?" Um, so I was gonna go through a couple of those.
- SPSam Parr
And by the way-
- AWAndrew Wilkinson
Okay
- SPSam Parr
... for the, for the listener, this is Andrew Wilkinson. You, you're on, he's on the pod all the time. Owns this thing called Tiny. Although, are you guys ... Do, do you wanna go by Tiny Capital now or just Tiny?
- AWAndrew Wilkinson
Just Tiny. I hate Tiny Capital.
- SPSam Parr
Yeah. I, I know you, I, I know you hated it, but everyone was, like, using it. But he owns Tiny, which is, I think one person called you online the Warren Buffett or Berkshire Hathaway of internet companies. So you basically buy, uh, and hold a bunch of internet companies that collectively are now doing hun- 100 north or hundreds of millions of dollars in revenue, whatever the number is that you say publicly.
- SPShaan Puri
An- Andrew, how much did you pay your friend to say that about you? [laughs]
- AWAndrew Wilkinson
I actually ... It's really funny, because there's been all these, uh, uh, uh, like, on the cover of Newsweek or whatever, it'll be like, "The next Warren Buffett," and Sam Bankman-Fried was one of those people. And so everyone's sharing all these covers from all these things. So being called the next Warren Buffett is not good. Uh, I, and I'm, I'm different from Warren Buffett, but I've copied a lot of his ideas.
- SPSam Parr
Well-
- SPShaan Puri
Yeah, like the, the next Steve Jobs, that was, uh, Elizabeth Holmes from Theranos. That was a-
- SPSam Parr
Mm
- SPShaan Puri
... another, another one you didn't wanna get tagged with. I think Chamath was calling himself the, the, the n- the new Warren Buffett or, like, the brown Warren Buffett or [laughs] something like that for a little while.
- SPSam Parr
He called himself that?
- SPShaan Puri
He called himself, uh ... Or I don't know if he called ... I don't know. I don't wanna put, like, the quote on it, but he definitely insinuated it and he definitely said, "We're trying to build, you know, the next Berkshire Hathaway," blah, blah, blah. And so, you know, he w- he was given that or he named himself that way.
- AWAndrew Wilkinson
My, my favorite thing about Chamath, um, [tsks] was that in his annual shareholder letters, he would, uh, he would compare himself to Berkshire Hathaway. So he would track Social Capital's results versus Berkshire, and then one year he just stopped.
- SPSam Parr
Oh.
- AWAndrew Wilkinson
And I think it was the one year that it, he didn't actually beat them. I think.
- SPShaan Puri
[laughs]
- AWAndrew Wilkinson
I don't recall. That might be unfair characterization, but that's my recollection.
- SPSam Parr
So where are you going with this? You wanna do the postmortem thing?
- AWAndrew Wilkinson
Sure. Um-
- SPSam Parr
Is that, is that where you're going? I don't know.
- AWAndrew Wilkinson
Yeah, let's do it. We can go through a couple of those. I think it's kind of interesting.
- 5:50 – 11:35
Automatic revenue - Pixel Union
- AWAndrew Wilkinson
Um-
- SPSam Parr
Can you start with Pixel Union? I think that's incredibly interesting.
- AWAndrew Wilkinson
Yeah. So, um, was running Metalab, and I, uh, was, like, an early Tumblr user, and I met David Karp just- Via Tumblr. Like, he was, he was the CEO of Tumblr, and he kind of knew all the early users and stuff. And I ended up making a Tumblr theme that I wanted to use myself, and he was like, "Hey, this is really, really cool. I would love it if you could create some more of these, and we're gonna make a premium marketplace where other people can pay to buy Tumblr themes." And so I'm kind of thinking, like, "Oh, this is a favor for a friend, and this is a really small platform." I'm not thinking of it as a business, but I end up going to a bunch of my designers and saying, "Hey, look, you know, over the weekend, would you be able to whip up some themes?" And so, um, I go to one of my interns, like, like, literally, uh, a guy who is, like, um, my brother's friend who had, like, just finished, like, doing a, I think, a philosophy degree, and I was like, "Hey, like, turn this into whatever you, you want." And so we ended up calling it Pixel Union, and it started doing, like, $10,000 a month of revenue, and it was my first taste of automatic revenue. Like, I would go to sleep, and I'd wake up in the morning, and we would've sold, you know, 500 bucks worth s- worth of these Tumblr themes. And, uh, Shopify noticed what we were doing for Tumblr, and they said... And at the time, they were a tiny company. There were about 15 people, and they said, "Hey, can you guys also do the same thing for us?" And so we got into the theme world, um, for Shopify and Tumblr. Tumblr obviously died post Yahoo acquisition, um, and the business still exists today. Um, it's a really interesting story, actually. So we... So I, I started, incubated the business, didn't raise any outside capital, spun it out of Metalab, became its own independent company. Um, we ended up selling it in 2014, and then I stayed on the board. I kept 20% of it, and then a couple years ago, I bought it back. And then we ended up taking it public, and that became Wi Commerce.
- SPSam Parr
What did you sell it for? Like, 10 or $15 million? I think I, I read about it publicly.
- AWAndrew Wilkinson
I sold it for 7 million.
- SPSam Parr
$7 million. Why would you sell that?
- AWAndrew Wilkinson
Well, at the time, it was doing, I think, 500K of net profit, and I didn't... I... To be honest, it was one of those things where I didn't know how good the business was, and I hadn't read anything about investing yet, and so I didn't know how to value a business. And so it was d- a double-edged sword because I sold this incredible business for, um, you know, a good amount of money. It allowed me to kind of have a sense of comfort and retirement and all that kind of stuff. But doing so, I suddenly had this pile of cash, and I had to learn how to invest it. And so I started reading about Warren Buffett and reading all the investing books and going, "Oh my God, I can't believe I just sold that incredible business." You know, it was growing at 50% a year, and, you know, I thought it was great to get a 14X multiple, but not when it's growing that fast. Um, so I regretted it.
- SPSam Parr
And then what did you guys pay for it when you bought it back?
- AWAndrew Wilkinson
So we bought it back for 26 million, and then we, um, did a bunch of acquisitions, and then we took it public at two hundred and-
- SPShaan Puri
And what, what was it doing when you bought it back?
- AWAndrew Wilkinson
Sorry.
- SPShaan Puri
How, how, how big was it when you bought it back?
- AWAndrew Wilkinson
Uh, I think it was doing about $4 million of annual profit, so it'd grown a lot. Um, and we paid 26, and then we bought 460 and a couple other businesses, and then we took it public at a $260 million valuation.
- SPShaan Puri
And when you, uh, you said, "I didn't know anything about investing," and blah, blah, blah at that time. I think today people look at you as somebody who knows a lot about investing, and they wanna be like you when it comes to investing or buying businesses. Um, h- what year was that when you said that state- when you felt that way? 'Cause I, I'm guessing it wasn't, like, that long ago. Is that 10 years? Is that 12?
- AWAndrew Wilkinson
Yeah, it was eight years ago, 2014.
- SPShaan Puri
Yeah, so, so that's basically eight years. So less than a decade going from, "I feel like I know nothing about any of this," to, you know, I don't know, what... You're, like, in the top percentile, uh, you know, in our, in our industry and have had phenomenal success. I think that's just sort of a, a nice thing. It's like y- if you're willing to put in a decade, um, you can go from literally the bottom to the top, and that's pretty cool.
- AWAndrew Wilkinson
Yeah, I think it was, you know, getting obsessed, right? I think that, um, when you... There's no better feeling than, you know, picking up a book about something and just desperately reading it. Like, you can't stop going through it, and I spent probably two full years just reading every single book I could get o- I could get about value investing. Um, so yeah, I think with intensive time, you can do it. And the nice thing is there's that great Buffett quote where he says, "I'm a better businessman because I'm an investor, and I'm a bes- better investor because I'm a businessman." And Chris and I, we were natural investors within our own business. We knew how to allocate capital within the business to drive growth and profits and margins and all that kind of stuff. So when we became investors, we were much better at it, I think, because we had the operational lens. We could look at a business and say, "Oh, that's really hard," or, "Hey, they're not doing these three easy things that we did at our company."
- SPShaan Puri
So-
- AWAndrew Wilkinson
And I think one of the big problems with investors these days is they're often what I call spreadsheet investors. They look at a business like a spreadsheet, and they go, "Oh, it's easy. We'll just increase margin by 20%," not realizing that in order to do that, you have to convince 100 people to change.
- SPSam Parr
Um, what, um, what-
- SPShaan Puri
L- l- let me piggyback off that real quick.
- 11:35 – 16:30
Warren Buffett letter
- SPShaan Puri
So have you... Did... Sam, did we talk about this Warren Buffett See's Candy letter? I know I had it on our list. I don't know if we ever did it on the pod. Did we, did we talk about this?
- SPSam Parr
You... It's been on your list. You've never, you've never d- brought it up.
- SPShaan Puri
So Andrew, you're, like, a, you know, Warren Buffett PhD, so you, you probably know this, but may- maybe not. I had never seen this before. So there was a letter in 1972 that Warren Buffett wrote to the CEO of See's Candy after they had bought Sees Candies. And, um, have you read this before? If not, I just put it in the, in the chat 'cause it's kind of amazing-
- SPSam Parr
No
- SPShaan Puri
... and I, I wanna talk about it. This was, this was very surprising to me, so I put it in the chat here on Riverside. But, um- Okay, so I think of Warren Buffett as this like kind of like what I see today. There's this guy who's super smart, really like, you know, likable storyteller. He's an investor. He's a, you know, he's not, doesn't look like an operator. He's like a geezer, right? He's just sitting there at his, at his, at his table, and he reads all day, and, you know, he makes investment decisions. He's, he's a capital allocator. But when you read this letter, you realize like how detailed and in the weeds he was and how business savvy he was. So I actually wanna read out parts of this real quick so that, you know, people who aren't reading it can, can follow.
- AWAndrew Wilkinson
Dude, this is, this is terribly... I mean, sorry, this is incredibly well-written.
- SPShaan Puri
Yeah, he-
- AWAndrew Wilkinson
He's got, he's, he's got such a good voice.
- SPShaan Puri
He goes, "Dear Chuck, uh, I was at Brandy's a couple days ago and have a few strong impressions to pass along." So he visited the store, and here's his, here's his impressions. He goes, um, "People are going to be affected not only by how our candy tastes, but obviously what they hear about it from others, as well as the retailing environment in which it appears. This means, like the class of the store, the method of packaging, the condition it appears, the surrounding merchandise. Just like The New Yorker cr- creates a different editorial environment for Lord & Taylor ad than it does for Village Voice, so do the surroundings of our candy, uh, affect the way that our potential customer's mental and gastronomical impression of our quality. You know of cour- you know of course, you of course know this better than I." Right? So that, that was the first piece, which he's basically talking about like, you know, the, the store environment. You know, like the way that Apple, you know, sort of recreated the, the retail store. He's already thinking about this and sending this like more like an operational, and almost like it's like a design note, right? He's not talking about margin. He's not talking about like, you know, debt. He's talking about the, the, the merchandising of the store and how it feels and how that's gonna affect how people taste, uh, uh, taste the stuff. Um, then he goes and he talks about, um, uh... Let's see. What's the next, uh, good bit? So he's like-
- AWAndrew Wilkinson
Number three.
- SPShaan Puri
Yeah. He goes, "At Brandy's our product suffers i- in comparative way against Stover's." He goes, "They have extremely well organized, well displayed, attractive area put, uh, featuring nothing but their candy. Um, we've taken a number of our boxes, put them on the counter with 25 other offerings offering cheap bulk candy and other run-of-the-mill products. And they..." You know, and so he's talking, he's like basically comparing this, the store design. And then if you go down, he goes, um... So he's talking about the merchandising for a while, and then he goes, um, he's like, "We may well wanna have a d- have descriptive material, maybe our own little booklet called The Most Famous Kitchen in the World, or something of that sort. Coors gets a lot of mileage out of the fact that all their beer comes from one brewery, and I do think there's certain mys- there's a certain mystique attached to products from, with a geographical uniqueness. Maybe grapes from a little part of Italy or France, um, are really the best in the world. But I've always had a suspicion that 99% of it is just in the telling about it and 1% is in the drinking." Right? So he's talking about-
- AWAndrew Wilkinson
[laughs]
- SPShaan Puri
... like, you know, like sort of this marketing psychology about the, you know, giving him like ideas for catchphrases and slogans. This is way more active and sort of like the brain switched on in terms of operating than I had thought. W- uh, what... Is this a, was this a surprise for you too, Andrew, or is this-
- AWAndrew Wilkinson
Yeah
- SPShaan Puri
... something you knew about?
- AWAndrew Wilkinson
That's one of the things I found really inspiring about Buffett, is everybody... Uh, like to be honest, my impression was always like, okay, entrepreneurs are the people that do the work, the investors are people that shuffle paper around on Wall Street. And what I realized with Buffett is that he actually was someone who, yes, he owned the businesses, but he influenced the businesses massively, and he made them grow and, you know, brought them together and did acquisitions. There's so many ways where he built value, right? Which you can't say about a lot of people. Like BlackRock doesn't build value. They just index. They own a bunch of pieces of paper. Warren Buffett actually grows stuff. What's fascinating though, and I'd be curious to know whether he would still write a letter like this, is Chris and I had dinner with Charlie Munger a couple years ago, and we asked him, "How involved do you get with the CEOs?" And he really said, um... I'll never forget this. He goes, "I've never been able to change someone's mind. If someone has a s- uh, an idea about something they wanna do, um, I've never been able to talk them out of it." And so, you know, he said there's always opportunities within their businesses to tweak them and make changes and all that kind of stuff, but it's just very hard to actually get CEOs to do stuff. CEOs are not puppets. They have their own brains, and they wanna do their own things. And, you know, to men with a hammer, everything looks like a nail.
- 16:30 – 23:13
Bored of investing / AeroPress
- SPShaan Puri
Do you ever get bored just being an investor?
- AWAndrew Wilkinson
Yeah. Very.
- SPShaan Puri
[laughs] That's why he starts all those businesses. [laughs]
- AWAndrew Wilkinson
Yeah, exactly. I, honestly that's-
- SPShaan Puri
Dude, it's so boring. I, that's why I don't like doing it.
- AWAndrew Wilkinson
It's really boring.
- SPShaan Puri
It's so boring.
- AWAndrew Wilkinson
I totally-
- SPShaan Puri
It's like, um... It's like, yeah, it's like imagine if, you know, someone came along and was like, "Hey, look, you don't have to work, and you can have all this free time and just read all day." And it sounds like a luxury when you're a stressed out entrepreneur, but actually doing it in practice, you have to find new things to fill your time with, and you don't get your hands on the tools, right? So you don't get the sense... So like for example, you know, we bought AeroPress, and when we first bought it, I helped drive the redesign of the website, which, you know, I was proud of. But I very quickly had to let go of it. I knew I couldn't keep, you know, holding onto the business. And so I h- you know, we hired a CEO, and I had to pass him the baton and let go. And yes, I get a sense of like pride of ownership, but as the business progresses, I don't feel the lifts. I don't feel the gains.
- AWAndrew Wilkinson
C- can we talk about that acquisition?
- SPShaan Puri
Sure.
- AWAndrew Wilkinson
So the background here is AeroPress for like... It's almost like a coffee snob product. Uh, I, I owned it. I loved it. It was basically like a more convenient French press that you could travel with. I, I loved it. I us-
- SPShaan Puri
Sorry, owned?
- AWAndrew Wilkinson
I, I still-
- SPShaan Puri
Owned or own?
- AWAndrew Wilkinson
I still own. I s- I own two of them.
- SPShaan Puri
Okay. Good, good.
- AWAndrew Wilkinson
I have one that I j- I have one that I travel with, and I have one that just stays in the cabin. I use it every morning. Uh, I love it. But it was only sold... I'm almost positive I would only see them in mom-and-pop coffee shops, and maybe Amazon? I don't even know if they were on Amazon, but I, like I... The, so the retail wasn't that great. Uh, but like, it was clearly like a good product. One of those products that like consumers can buy for 20 bucks, but even the coffee snobs are like, "This is the best way to do it." Uh, and, and you guys purchased it recently, which it's not exactly an internet business, but you're trying to make it a little bit more internet related. But, uh, are you happy with this deal? I know you guys paid it seemed like a lot of money. You paid a premium for it. Absolutely. I mean, I think, um, when I look across all the businesses that we own and I think about what business could exist in 50 years, there's a very, very small number. I mean, most businesses die, and I think that AeroPress is something that has, um, potential lasting impact and can be around for decades. Uh, and it was just an incredibly unique business. I mean, when do you get the opportunity to buy a way of making coffee? It's like, how do you value buying Kleenex, right? The word for the way of making coffee that's written on grinders and is a verb almost.
- SPSam Parr
No, I think it's sick, man. Shaan, did you see he bought this?
- SPShaan Puri
Yeah. I'm not a coffee guy. Like, I literally don't drink coffee, so even though I had heard of the brand, it didn't... I didn't know enough about it or didn't, sort of, didn't have too much of a, you know, opinion on it, uh, because it's not my thing. But it does remind me of, like, I was looking at Sodastream and I was like, I really love this type of, this category of product. I think it's a fantastic category where it's a thing that ge- you know, another device that gets in, that can get into every kitchen and has, like, this sort of consumable, you know, refillable component to it. So that's great. And then if you become the de facto device, like you said, I think you just said, like, the verb basically, like, if you could become a verb. I just read this recently with someone who was like, "You know, I learned 25 years ago, if something becomes a verb, just invest." And, uh, you know, it's, it's pretty true, right? Google it. We'll Uber there. You know, like, you, you, you, you realize that these verbs tend to become, like, de facto winners of, uh, of, of their category. And so I definitely, definitely, uh, think it's a good idea. I just don't, you know, drink coffee myself, so it's not something I-
- AWAndrew Wilkinson
It's the only business that I own that people... Like, when I tell people... And, you know, uh, you know, if I'm in tech and you say, "Oh, yeah, we own Dribbble," and they're a designer, like, they know what that is, they think it's cool. They might, like, give me a little nod or something like that. But if you tell, like, I'll talk to, you know, uh, the carpenter working at my house and say, "Oh, yeah, I own AeroPress," and if they know what it is, they are passionate about it and they're excited about it, and that is very rare. So, um, it's a really-
- SPSam Parr
And the guy-
- AWAndrew Wilkinson
... amazing business.
- SPSam Parr
I remember reading, uh, about this in Priceonomics. The guy who created it, he was like this... You know, now, now he's quite, quite old I think. I think he's in his 80s, and he was, like, an inventor. He was, like, a wacky scientist inventor, like, stereotype guy, where he also inc- created, like, uh, the Frisbee or, like, uh, what was the Frisbee that he was known-
- AWAndrew Wilkinson
Aerobie. Aerobie Frisbee.
- SPSam Parr
The Aerobie. Do you remember those commercials? There was like, "We could throw this Frisbee over a football field," or something like that. And he created all this amazing stuff, and he just ha- owned AeroPress that he created, but it, he wasn't, like, a business guy. Wasn't he just d- wasn't this kind of just sitting, uh, kind of just, like, on autopilot?
- AWAndrew Wilkinson
Uh, I wouldn't say it was on autopilot. He had a really great president who was running the business side, but they were both older guys and they were really focused on the retail channel, which you can see there's a reason why if you walk into 95% of gourmet coffee shops anywhere in the world, they sell AeroPress. But, uh, when we looked at it, just v- a very, very small percentage of sales were online. It just wasn't a focus for them. So we came in, and there's just a ton of best practices. And Shaan, it's funny you mentioned Sodastream. We actually hired the president of Sodastream US, who grew the business to 200 million in the United States. That's the new CEO of AeroPress. So, um-
- SPSam Parr
Oh, shit.
- SPShaan Puri
Yeah, I read about that person 'cause I was researching Sodastream and I was like, "Oh, damn, this person was like..." You know, they, they were, I don't know, the driver or the trigger of a lot of, a lot of growth that happened for Sodastream. 'Cause So- didn't Sodastream sell a couple times? Um, like, it's owned by who? Pepsi now, something like that?
- AWAndrew Wilkinson
I think it's owned by, um... What is it? Um, oh my God. I think it's, it's an Israeli company. I don't know if they've sold. They might have sold to JAB Holdings or someone like that. I forget.
- 23:13 – 25:05
Cat furniture
- AWAndrew Wilkinson
Um, okay, so some of the early stuff that I did, so, um, I had the idea that, um, ca- I had cats and I was like, "Okay, all cat furniture is hideous. Like, it just ruins your house. It looks horrible." And so I went out and I found a couple, like, kinda mom-and-pop brands that were doing this, and I said, "Hey, I'm gonna start an online store for cat furniture called HJ Muse." Spent a whole bunch of money designing an e-commerce website, and I, um, you know, poured probably 300 grand into it, which at the time was a lot of money for me. You know, my whole business was maybe making 800 grand of profit a year. And I just learned how brutal a business e-commerce was, that, you know, I was basically eking out these razor-thin margins, whereas in my agency or in Pixel Union, I was making 30 to 50% EBITDA margins. I was making, like, 2 or 3%. And the amount of work required to move physical goods around, buy inventory, I realized that while on paper I was profitable, I was constantly taking my profits and putting them into buying more inventory. And so I ended up shutting that business down and losing... I think I lost all the money I put into it. But it was a great lesson in, in just hard businesses. I didn't realize that- Different businesses were, um, harder than others, right? Like, you kind of just, when you, when you, when you're inexperienced in business, you stumble into these things, and I always go like, "God, I'm so lucky I didn't start a restaurant as my primary first business," right? Because it's so brutal, right? It teaches you so much, but it would be so easy to tap out and just think you don't like entrepreneurship.
- SPShaan Puri
A restaurant was my first business. Um, so [laughs] what-
- SPSam Parr
And then, and then he went into e-com.
- SPShaan Puri
[laughs] And then now I have e-com. You know, the, the road less traveled, baby. Uh, so, so what, uh,
- 25:05 – 33:44
Hardest to easiest business to start
- SPShaan Puri
what are easy businesses that you've, you've started, where you're like... 'Cause I, for me, Milk Road was a way easier business than any business I had ever started. Um, what, what's been an easy business for you? Um-
- SPSam Parr
And where does desi- where does the, where does agencies rank on the easy to hard scale?
- AWAndrew Wilkinson
I'd say it's medium. I mean, the hardest, let's just say the hardest possible businesses are brick-and-mortar or th- where you have to move physical goods and you have a lot of employees. So one of the hardest businesses I own is I own a bakery and deli in Victoria, BC, where I live, and I bought it because I, my, my brother had grown up working there. It was a neighborhood place. The owner wanted to sell. And, uh, I've owned it for about five or six years. And I mean, they have to have about 40 or 50 employees. Someone has to wake up at 2:00 in the morning and go into the basement of the bakery and bake croissants. And the amount of coordination that has to go right, where if a couple people are sick, how messed up the business can be, is just night and day compared to any internet business. Um-
- SPSam Parr
Dude, if the, if the, if the manager of that bakery bails, are you gon- who's gonna go out and find a new manager?
- AWAndrew Wilkinson
I have, I have a restaurant group, like a food and hospitality group, so I have a guy who runs that now. Before it was me. I mean, they would text me and say, "Andrew, the deep fryer's broken. I need an approval to buy a new one," or whatever it is. Um, so I've put people in place between there. Um, in the medium camp of challenge, I would say agencies. So agencies are beautiful in that they are asset light, so really, you, you don't even need an office these days, but you really just need an office, an internet connection, and a keyboard. And, um, you can hire generally the people as you need them, and so you don't really need any investment. Um, they're, they're, um, scalable, um, but they're hard in that you're constantly balancing supply and demand. So Metalab, for example, if Metalab was to do all the work that came to it at any given time, it could probably be five times bigger. But in order for us to get five times bigger, we would have to grow the company too fast, and we would ruin the culture. And so I would say that agencies are a little bit like a law firm or an accounting firm or, or a consulting firm, where you've got this kind of flat linear growth that happens over time. Um, so I think they're great businesses, but there's feast or famine, right? And you really have to be prepared for a downturn, um, and you need to be, unfortunately, ready to make radical changes in the business at the drop of a hat if your pipeline's not looking good, and that kind of stuff. So it's just very, um, very difficult in that way. Um, of course, every agency o- owner I know wants to own a SaaS software company, and every SaaS software company owner I want, or, or, uh, that I know wants to own, like, a consulting business or something that grows really fast, so, um, grass is always greener. The easiest business that I own, um, is a company called We Work Remotely. Um, this is a job board that we bought from Jason Fried and David Heinemeier Hansson at Basecamp. They had started it, and it was like the remote job board. Um, they had written a book about remote, and they had great SEO. They ended up ranking number one for mo- remote jobs. And as you know, remote work has taken off over the last five years, and so we bought that business from them. And it really was just kind of sitting idle. And so with some very simple best practices and a very, very small team, we were able to build it into a very large business.
- SPShaan Puri
And what, what about SaaS? Where would you put, uh, you know, SaaS businesses that you've run?
- AWAndrew Wilkinson
Uh, well, I've lost a lot of money doing SaaS. I mean, I think a lot of people know the story of Flow, the project management software that I built, where I basically poured $10 million into it because I was competing with Asana and didn't understand the dynamic of when you're competing against, uh, you know, you're fighting an army that has unlimited budget. It's like Fiji fighting the United States, right? And I'm going like, "I'm gonna win this." It's ridiculous. And so I lost $10 million, uh, doing that, and that was a great lesson, but, um, incredibly painful, and I wish someone like me had tweeted, and I could have read it instead of losing all that money.
- SPSam Parr
How many agencies do you own right now?
- AWAndrew Wilkinson
Um, I think we-
- SPSam Parr
Or partially own
- AWAndrew Wilkinson
... probably own 10, 10 or 12.
- SPSam Parr
There was, um, there was, uh, what's the guy's name, who's the richest Black guy in America? Robert Smith, I think his name. V- uh-
- AWAndrew Wilkinson
Yeah
- SPSam Parr
... Vs- is it Vista Equity?
- AWAndrew Wilkinson
Vista Equity.
- SPSam Parr
Vista Equity. So basically, Vista Equity is a PE firm that owns... They're, they're mainly SaaS. And I think if I remember correctly, the article said that they own 200 million... Or sorry, was it 100 billion? I, whatever it was, it was, it was north of 100 billion of, of SaaS revenue, I think. It was second only to Salesforce in terms of their reach. And he had this, uh, thing where he was saying, "Look, on our companies, we're actually only seeing a 20% decrease from where we thought we would be this year," meaning, like, only a 20%, um... He's like, "We're growing at 20% a year. We thought we were gonna grow at 25%, so we're seeing a small decrease in the growth that we expected. Therefore, we actually are pretty bullish on the economy." With your agency, since you mostly sell to big companies like Slack and whoever else you sell to, are you seeing a slowdown from American companies buying services?
- AWAndrew Wilkinson
Yeah, absolutely. I think we're seeing softness over the next six months, and things are definitely slowing down. Or if they're not slowing down, people wanna achieve the same things, but for less money. Uh, and so there's these pressures, you know, like I said, it's this supplier demand problem, and you've got the labor market where people are demanding more and more pay, and then you've got your clients crunching you down, right? So right now, um, you know, I think that it's unclear. So the other problem is it's really hazy. And so you get into these situations like when COVID hit, we had a brutal three-month period where the pipeline dried up, and then everything was fine. It really depends on what the market sentiment is. Whereas if you own a SaaS business, what are the odds that someone's gonna take, especially a sticky one, what are the odds they're gonna rip it out of their company and retrain everyone on that? And plus, they're only being reminded they pay for it once a year, right? It's w- I always think it's better to have 10,000 people paying you a small amount of money than 100 people paying you a lot of money.
- SPSam Parr
And what, uh, what's Famous Original?
- AWAndrew Wilkinson
Huh. So, um, I would say the theme for me is that I will often do the wrong business before I find the right business. So, for example, um, I started a... I, I always, I'm a designer, and I always fetishize the idea of having brick-and-mortar businesses. I was so sick of doing all these internet things. I wanted to do something in my own city. And so I came up with this restaurant concept of, like, a bar and pizzeria called Famous Original, and me and some friends did it together. And we basically learned the hard way that restaurants are brutal. You know, we were, like, super egotistical. We're like, "Oh, we're great entrepreneurs. We're gonna be able to nail it in restaurants." And Shaan is, I, I've definitely heard you talk about your experiences here, uh, and nodded along. We just learned it was the most brutal business in the entire world, and we were shocked by how much money we could lose. And so we, you know, hired the wrong management. We got the incentives wrong. Uh, we overspent on the build-out to the point where we could never get our money back. Um, you know, labor shortages. We had slippage. There was, there was tons of issues. But what I learned from that was what does a badly run garbage restaurant look like? And then when the deli and bakery came up, I was like, "Oh, oh, this is a good one." Like, this has been around for 25 years, stable earnings, great general manager.
- SPSam Parr
What type of food were you selling?
- AWAndrew Wilkinson
I can just let it run. Uh, pizza.
- SPSam Parr
You could screw up a pizza place? I would've thought that'd been one of the easier places to-
- AWAndrew Wilkinson
[laughs]
- SPSam Parr
... easier of the hard.
- AWAndrew Wilkinson
Yeah. Yeah.
- SPSam Parr
'Cause, like, you don't need... It's, like, pretty simple ingredients. Uh, I, I, I wouldn't have thought you were gonna ruin that one.
- AWAndrew Wilkinson
No, we managed to do it.
- SPSam Parr
[laughs]
- SPSpeaker
[upbeat music] Our software is the worst. Have you heard of HubSpot? See, most CRMs are a cobbled-together mess. But HubSpot is easy to adopt and actually looks gorgeous. I think I love our new CRM. Our software is the best. HubSpot. Grow better.
- SPShaan Puri
You have a couple, on this list you got things you did in the past, you have things, new businesses you're doing now, but I'm curious, do you have, uh, I guess, like, we haven't talked to you in a little while, have you s-
- 33:44 – 37:13
Business idea to capitalize on
- SPShaan Puri
have you had any ideas for businesses that you're not starting currently, but you're like, "Someone could do that," or, "Someone should do that," or, "I wish someone is, you know, gonna capitalize on this opportunity or trend"? Is there anything that, that comes to mind, uh, for ideas that you're not currently acting on?
- AWAndrew Wilkinson
So I might have talked about this idea in the past, but I've had this idea for a long time. Um, I like the idea of a service that allows you to get on one person's radar, right? So I choose, let's say that I, let's say I wanna sell my company in the next two years, and I think the right buyer is this, you know, this ex- let's say HubSpot, right? I wanna target Dharmesh. So everywhere Dharmesh goes on the internet, I want him to see stuff about my company-
- SPShaan Puri
[laughs]
- AWAndrew Wilkinson
... and I want him to think we're huge. There's, I forget where the quote comes from, but there's this idea that if someone sees you five times, they think you're everywhere. So if you're on five podcasts they listen to, they deem you a huge celebrity and a success or whatever it is, right? So I think I want that, but hyper-targeted, and I think it's worth a lot of money. So I would pay $10,000 a month to be on Dharmesh's radar everywhere he goes. And so I don't know how it gets done. It's like a advertising sniper rifle, essentially, but I really like the idea of something like that.
- SPSam Parr
So I have a story about this. So my best friend, his name is Jack Smith. He sold his company called Vungle for $800 million right before the pandemic when he was, like, 29 years old. The way that he started it was he, uh, was in England, living in England as a college student, and he had this idea, and he wanted to go to a accelerator called... What was it called, Shaan? Do you remember?
- SPShaan Puri
I don't remember the name.
- SPSam Parr
Angel Pad? A-
- SPShaan Puri
Yeah, yeah
- SPSam Parr
... is it Angel Pad?
- SPShaan Puri
Angel Pad.
- SPSam Parr
And the guy who run it, run, ran it was his n- named Thomas, and Jack missed the deadline to join the incubator. And so what he noticed on LinkedIn, he goes, "Let's advertise just to Thomas." And he said, uh, on LinkedIn, the way it worked is you could advertise to, like, it said, like, "Only show this to people, uh, like, 100 people a day." And he's like, "Wow, you can go to 100 people a day? What if I just moved it to, like, 10 people a day?" And they allowed it, him to. And it says, "All right, only show this to 10 people a day, but make it so they have to work in San Francisco, and they have to work at Angel Pad." And the ad said, "Hi, we're trying to reach Thomas. Uh, please tell us to contact us." And he did that, and it worked. And they let him into the incubator, and six or seven years later, the company sold for $800 million. And we at The Hustle wrote an article about this. It went viral, and LinkedIn changed how they did it. You can't actually advertise. They won't tell you how many people you're gonna reach per day, or something like that.
- AWAndrew Wilkinson
Totally. Something like that would be amazing. Or even just figuring out, like, okay, what, let's, let's just do this. So, so I get Dharmesh's email, and I run it through some sort of database, and I go, "What email newsletters does he subscribe to? Or what podcasts?" Like, how do you, I don't know if it's possible, but what is his information diet, and then how do I appear in all those things?
- SPSam Parr
That's crazy. Yes, I think that would work wonderfully.
- AWAndrew Wilkinson
[laughs]
- SPShaan Puri
Yeah, there's a-
- SPSam Parr
So-
- AWAndrew Wilkinson
I, I would love it. If someone wants to start that business, please email me, 'cause I think it's a great idea. Um, but yeah, there's... I mean, again, like, I come up with tons of ideas, but that one has stuck with me for three years, so I feel like it's something good.
- SPShaan Puri
Yeah, what could go wrong? Just s- uh, targeting somebody wherever they go, [laughs] everywhere they look. [laughs] What, what, what, what, what can go wrong here? Um, okay. [laughs]
- SPSam Parr
Just buying a billboard by his house.
- SPShaan Puri
[laughs] So that's one. Uh, what about some other ones? I know you got more.
- 37:13 – 48:38
New business
- AWAndrew Wilkinson
Let me, let me talk about the new thing that we're doing. So, and this has been something that's been driving me crazy forever. So do you guys know what investment bankers are?
- SPShaan Puri
Yeah.
- SPSam Parr
I know-
- AWAndrew Wilkinson
Like, a lot of people-
- SPSam Parr
... people who call themselves that, yeah. [laughs]
- AWAndrew Wilkinson
Right. But a lot of people kinda go like, "Oh, that's like a stockbroker, or, you know, they work at a bank."
- SPSam Parr
It's confusing.
- AWAndrew Wilkinson
It's not clear. Investment bankers are realtors for businesses. They go and they represent you, and they sell your business for you, or they raise capital for you. And I didn't really understand that world at all. Um, so like I s- like I said earlier, I have only understood finance for eight years, and I would say really only over the last two or three years have I actually tapped the world of finance, like gotten proper banking, credit, learned how to sell businesses, learned how to use investment bankers. But I think those, that stuff is not really accessible to founders, and frankly, they don't speak the language of investment bankers. The investment bankers are the spreadsheet business people, right? They look at your business as a spreadsheet, and they want something that's simple and easy to understand. And frankly, like, I was kind of allergic to them because I didn't speak their language. They would come and talk to me, and they would use terms like EBITDA and, you know, gross margin and all these things I didn't really think about as a founder. And so I have been looking for a firm for years, um, that I can use to s- either sell small businesses, and when I say small, I mean, like, kind of $1 to $5 million of EBITDA, or help founders do secondaries or all these sorts of things, or even just finance M&A, and I'm yet to find someone. Everyone seems to specialize in larger businesses or they're too small. And so, um, last year, Chris and I met this young investment banker, and he was just a normal person. Like, we had him out for lunch and he was not wearing a suit, and he was saying how miserable he was and how much he hated hi- you know, his, his old job doing it. And we, we kept saying like, "Look," like, "you should quit your job and come work with us, and we'll start a modern investment bank for founders," really focused on bootstrap founders because they don't know how to access capital. And so we s- we're starting this business called Tenzing. We started like a month ago.
- SPSam Parr
What's Tenzing mean?
- AWAndrew Wilkinson
Um, and the idea is Tenzing Norgay is the most famous Sherpa of all time. So he helped Edmund Hillary climb Mount Everest. Um, and so basically the idea is, um, you can go to him and say, "Look, what are all my options," right? I, you know, can I get credit from the bank? Uh, can I raise debt to do M&A? Can I do a secondary? Can I sell my business? And they can basically walk you through all of that stuff in a way that's aligned and not fee-driven and more long-term focused. So we're basically starting our own little investment bank.
- SPSam Parr
Is that gonna work? Dude, 'cause-
- AWAndrew Wilkinson
[laughs]
- SPSam Parr
... if you are a s- if you're, if you're a startup and you're in the, if you use the word bank right now, I hate you.
- SPShaan Puri
[laughs]
- AWAndrew Wilkinson
No, it's not, I mean, it's not-
- SPShaan Puri
They're not taking your money
- AWAndrew Wilkinson
... the bank. I, I mean, I could just call it business- we're starting a business realtor firm, but the term is investment bank. There's no banking. We're not holding anyone's money. Uh, there's no tokens. I'm not going to Argentina.
- SPShaan Puri
[laughs]
- SPSam Parr
I mean, yeah, I-
- SPShaan Puri
You should consider it. Seems, seems to be pretty lucrative. [laughs]
- AWAndrew Wilkinson
Yeah. [laughs] Yeah. Yeah, yeah.
- SPShaan Puri
Could make tens of billions, turns out.
- SPSam Parr
Yeah. Do you like billions of dollars or not? [laughs]
- AWAndrew Wilkinson
I, I think, like, I don't know if you guys have experienced this, but, like, even here in Canada, so, um, for like five years I wasn't aware of this, but the government will actually pay 30% of your R&D when you're a small company, and I just didn't know about that. And so I literally lit a million dollars on fire. I could have gotten a million dollars of these tax credits, and I didn't, right? I could have used a credit line to buy ads for my SaaS business, but I didn't know how to do that. Um, I could have sold businesses that were working, but I didn't really want, that just kind of died. Like, I let them die, right? So I think it's about, like, how do you get, how do you get the most out of what you have, um, and giving people tools to do that, and it's just, I wish this had existed when I was starting out.
- SPShaan Puri
Yeah.
- SPSam Parr
What-
- SPShaan Puri
I, I totally agree.
- SPSam Parr
Go ahead.
- SPShaan Puri
You know, most, uh, investment bankers don't work with startups, um, because they're too small or the deals are too small or whatever. So how are you gonna get it to, how are you gonna, how are you gonna get the numbers to work? 'Cause I don't think they're doing it 'cause they discriminate. I think they're doing it 'cause the money's not there for them. So how do you make that work?
- AWAndrew Wilkinson
Well, it's not small businesses, right? I mean, like, we're really focused on bootstrap businesses 'cause that's where we come from, and these are companies that are doing, you know, $2, $3 million, maybe 500K of profit. Some of them are actually bigger. So we've talked to founders that are like, "Hey, I've got like a, you know, 10 million ARR business. I'm doing $3 million of profit. I was thinking I wanna sell 30% of my business." And we kind of go, "Okay, well, we have the network. We've gone and, you know, raised all these funds and met all the people in finance. Let's connect the dots between these people and be the financial translators."
- 48:38 – 1:02:26
Fraudsters
- SPShaan Puri
dip. Uh, the second thing is we talked about red flags and fraud, I think on the last time you were on here. We talked about people who were lying or, or partners who had screwed you. Uh, with the FTX thing, did you hear of anything or, or was there anything red flaggy that you had heard either along the way or once it started to come out that you're like Oh, that sounds pretty bad actually. That's, that was a bit of a tell now in, either in hindsight.
- AWAndrew Wilkinson
No, I mean, I, like you guys, um, I, I, um, I just haven't fol- I, I guess I hadn't followed it super closely, and I hadn't really spent a lot of time on that particular business. Um, I was quite shocked that he was known for risk management, and he had been talking, you know, was very assertive about talking about the security of the balance sheet, and it seems like there's a lot of, uh, loans going on between related party businesses where he's bailing out his own business and stuff. So very sketchy. What I find fascinating is, is this a bad actor? Right? Is he a psychopath who's building a Ponzi scheme, or is he just somebody who got in over his head and used too much leverage, uh, and messed up? And I, I don't really have an assessment of that yet. And to be honest, I'm not following it super closely. I'm kind of waiting to read the book. I find, like, waiting for this stuff to all blow up and wait four months for, like, you know, The Atlantic or New Yorker or someone to write, like, an amazing piece on it is always more interesting than following the day to day.
- SPSam Parr
My favorite, uh, Twitter feed, Autism Capital, who's been covering this whole story, has said that Michael Lewis, the guy who wrote The Big Short, has been, like, embedded with him for the past six months writing a book, and that he's still involved.
- AWAndrew Wilkinson
Whoa.
- SPSam Parr
And so I have a feeling we're gonna-
- SPShaan Puri
And it was meant to be positive
- SPSam Parr
... we're gonna, we're gonna have something good.
- SPShaan Puri
It was meant to be like The Blind Side.
- AWAndrew Wilkinson
Oh, wow.
- SPShaan Puri
It was meant to be this, like, you know, uh, this, like, rag, you know, sort of like this was, you know, one of those-
- SPSam Parr
Like The Blind Side?
- SPShaan Puri
... style story. What's that?
- SPSam Parr
You said it's supposed to be like The Blind Side?
- SPShaan Puri
Yeah, like a positive story, right? Big Short was basically like here's, you know, this thing that was, you know, destined to fail. I think he was following him not thinking FTX is destined to fail, but thinking, you know, these are the challengers, you know, and look at, look at the crazy craziness that's going on. But, like, not... I don't think he was following him, and I don't think SBF let him in because Michael Lewis was thinking, "It's just a matter of time until this blows up, and this will be the big fraud and the big scandal," like, just like The Big Short p- part two. Um, you know, so, so I think that that's the interesting part. It's like, well, here's your, here's your surprise twist ending, uh, that you got here. I will say, there's this one guy, Jason Choi, that wrote a Twitter thread that is the best. Uh, Andrew, if you want to read the equivalent of the book or the, The New Yorker piece, like, I wouldn't wait for them because, A, The New York Times put out a piece on, on SBF that was supposed to be the, um, you know, the sort of like the recap, and it was, like, incredibly soft on him. It was sort of just made him out to seem like a good guy and, um, you know, some s- oh, some bad things happen to happen. And, uh, this guy, Jason Choi, wrote out this Twitter thread that's very clear, and it has all of the evidence in a timeline, um, that we know so far, and it is, uh, it's pretty compelling. You, you should check that one out.
- AWAndrew Wilkinson
Have you guys-
- SPSam Parr
Cool, I just pulled it up.
- AWAndrew Wilkinson
Have you guys ever come... Have you guys ever had contact w- with someone who's now a famous fraud? I've, I've never, I've, like, never met someone who, like, was a blatant liar, uh, about things that, like, kind of became well known.
- SPShaan Puri
I've told the story about the guy I worked with, uh, the King of Coal in Indonesia who ended up in jail and, and passed away in jail and-
- AWAndrew Wilkinson
But he, he wasn't a fraud, was he? He was just a criminal.
- SPShaan Puri
[laughs]
- AWAndrew Wilkinson
I mean, he did ba- well, like, he br- he, like, like, like he wouldn't lie.
- SPShaan Puri
Tomato, tomato, right? Like [laughs]
- AWAndrew Wilkinson
Well, no, no, no, it's way different. It's like, uh, uh, someone you know who's like, like, "What do you do for a living?" "Uh, well, I f- I fucking rob people," versus, like, Bernie Madoff, who's like, "Well, I, I run a bank," you know?
- SPShaan Puri
People who, people who steal tend to lie. Um, a- and, and, you know, so I think that, yeah, this guy was bribing people, but it wasn't just, let's say, bribery. You know, there was obviously gonna be other things in an organiz- i- in an organization like that where your... If your primary agenda is to make as much money as possible as quickly as possible, and you have great success doing it, um, but you're not doing a ton of the value creation yourself, you know, there's, there's often a, um, you know, both, there's often both going on. And, you know, I, I was able to see a little bit of it. What I, what I saw mostly was just the sort of like the, the fact that, okay, I guess that's the way you do business in these countries. You kind of got to grease the, the, the guy in the middle, and that's how you get the thing. Uh, you know, the, the sort of bribery corruption is very common in India and Indonesia and a bunch of different places, and so that part was known. Uh, it was an open secret. Um, but I'm, you know, it's not like if you'd a- if you'd asked me at that point in time, "Is there anything else going on?" I wouldn't have been able to tell you anything specific, but I would have bet a lot of money that there was something else going on, and it's part of the reason why I wanted to, to leave eventually.
- AWAndrew Wilkinson
So, so I, um, most of the frauds that I've met have always been small time. So it'll be like I meet someone, and I ask around about them, and someone's like, "Hey," like, you know, they've gone through the city and got, like, $10,000 from all these investors and, like, defrauded them, but it's small time enough that they get away with it. Um, Charlie Munger calls them the rats in the granary. You can't really do anything about them because they're too small. They're always gonna be there, and if you, uh, you know, you hammer them once, they're just gonna come back in some other form. Um, I met a guy, um... This is a bigger one. So, um, in, in the Canadian stock market, there's tons of fraud, and there's very little enforcement, and, um, often what you'll see is something will get hot. So, like, you know, oh, uh, vertical farming is hot, so they'll find some, you know, guy with like five employees who has a vertical farming business. And some investment banker in the public market will say, "Hey, let's dress this up-
- SPShaan Puri
Make it public
- AWAndrew Wilkinson
... as the next great thing." And then what they do is they dump it to retail investors. So they go to mom and pop, and the investment banker calls them and says, "Hey, I've got this amazing deal. We're gonna IPO it. It's gonna pop," whatever, and they hand the candy out. And often what ends up happening is, you know, as the trend goes, so, you know, as marijuana stocks or fake meat or cubic farming or whatever it, uh, it is, it pops, and then it drops. And what happens is the investment bankers often make a killing because they get paid in warrants and they get paid a percentage of the money they raise. So if they raise $100 million, they might get paid $5 million plus warrants, and if it pops, maybe those warrants end up being worth $10 million. And this is all legal. This is totally legal. And so it's basically legal stealing, right? So they go out, they raise all the money from a bunch of, you know, grandmas and doctors and normal people. Stock pops, they sell, and then it goes to zero, and all the employees get laid off, and the company goes bankrupt, or it's kind of a shell of its former self. Um, and I met a guy at a party, um, you know, last, uh, last summer, and he was bragging to me about this IPO that he had done and how much money he made, and I started digging into it, and it was literally a, the equivalent of taking a corner store public. This was, like, a two-location business, and he dressed it up to match a trend.
- SPSam Parr
How much did they make from it?
- AWAndrew Wilkinson
And he probably made... I don't know. I could probably do the math, but it's, I would argue probably 5 to, 5 to $20 million doing this. And, you know, he's bragging about it, and the stock is down, I think, to, like, 10 cents or something, right? It just, it turned into nothing. And so it's crazy 'cause it's literally legal, it's legal stealing, right? Like, everything he did is technically legal. They do all the right documents. When they take it public, they disclose all the details. They just write it in the right way.
- SPSam Parr
And it doesn't hurt his reputation-
- 1:02:26 – 1:25:08
non-binary term sheet
- AWAndrew Wilkinson
do you guys remember I did this thing called a non-binary term sheet a couple of years ago?
- SPShaan Puri
Yep.
- SPSam Parr
Yeah.
- AWAndrew Wilkinson
So, so I, I-
- SPSam Parr
You were, you were on that non-binary train before everyone else was, dude. [laughs]
- AWAndrew Wilkinson
Exactly, exactly.
- SPSam Parr
[laughs]
- AWAndrew Wilkinson
So, so I've always found, I've always found venture really tricky, right? Because someone will come to you and they'll say, um, you know, "I am going to revolutionize XYZ industry, and I'm gonna create a billion-dollar business." And I always say, "Okay, well, if you don't create the billion-dollar business, then I lose all my money," right? And to me, that, A, it sucks for the founder because if they, um, you know, get a bunch of money at a valuation that's too high, they can never make their investors happy, and it sucks for the investor because it's binary. Either they lose all their money or, uh, or it goes. And so when I was raising money for Supercast a couple of years ago, I wanted to get what the market rate was for valuation, but I also wanted it to be fair. Because for me, I didn't wanna feel like shit if the business didn't pan out. I knew that if the business didn't pan out to be a huge business, it could actually be a good smaller business. And so, uh, we raised at a $10 million valuation, which at the time was kind of a good, um, you know, angel, angel round valuation. But it was structured so that within two years, if the business doesn't do a million dollars of revenue, that turns into a $5 million valuation. And so it ended up we, we did, uh, close to a million dollars, but we didn't hit it, and so I crammed myself down by 50% to make it fair. Now, I know a lot of founders wouldn't wanna do this because why would you do this, um, you know, other than to be a Boy Scout and, you know, have a sense of fairness if no one else is doing it and if VCs expect this. But I think it's a really interesting structure, and we've been offering it to more and more founders as the environment changes, where we say, "Look, we'll invest, but it has to s- be structured so that if you don't deliver on what you say you're gonna do, we can still get our money back." What do you guys think about that?
- SPShaan Puri
I, I, I don't love it for two reasons. One is what you just said, which is, like, why would a founder do it? Uh, like, if I think about it from the founder's perspective, if I don't have to do that, I'm not gonna, I'm not gonna do that, right? Like, traditional venture would just be a better deal for me as a, as a founder in that case. Um, and then the other thing is I think it creates weird incentives, like, um, I like the concept behind it. Like, I like the spirit of it. But then I'm like, "Okay, who's gonna set these benchmarks? And then what happens when the thousand different things can happen in business?" And like you, you, you said it yourself, like, "We got close, but we didn't get there." And then there's, like, this crazy urge to, like, do something to nudge it over the top, but now you're doing something that may not be long-term, um, you know, right for the business. And so you create some weird dynamics. I wouldn't say it's worse dynamics than currently exist. [laughs] Um, it's just more like if I'm the founder, I would rather, um, I'd rather do that. And I also think I'd rather take the venture path where I'm getting a higher valuation and selling less of my business. I would also say there is a sort of like we're going for it or we're not. Like you would... If you're running a pro- Like e- uh, my e-commerce business, we run to maximize EBITDA. Like, yes, we wanna grow it, but it's like this thing needs to make profits every year. Whereas whenever you did venture things, it was like we don't think about that. We think about, you know, how are we gonna grow users, let alone revenue? Let... Forget about profits altogether. And so there is, like, sort of like a... There is a benefit in knowing which path, which blueprint of business you're trying to build, and then being able to go all in on a strategy that's aligned with that versus a strategy where you're hedging. But you're like, "Maybe we should-
- SPSam Parr
Yeah, because-
- SPShaan Puri
... try to have profits, but also try new things."
- SPSam Parr
I think about-
- SPShaan Puri
Sorry, go ahead.
- SPSam Parr
But Andrew, the, my whole... Like, I see all these... I think there's this, like... I've seen this, like, this thing called the, like, Hustle Fund and all, a few other funds, and they're like, "We're trying to do things differently." And my opinion on that is why? Like, the game isn't broken. The game works as it should. The, the, the thing that's broken is people who are joining and playing the game, and they maybe shouldn't be playing the game. But it works perfectly fine. Like-
- SPShaan Puri
Well-
- SPSam Parr
... we are getting our desired outcome
- SPShaan Puri
... let, let me give you an example, Sam, of where that's not true ne- necessarily. There are certain businesses that are good businesses, but they're not good venture businesses. Um, and then they have, they have a lack of access to capital. So I forgot the guy's name. I feel bad now. He's kind of like, it's kinda like an indie VC thing they're doing. They created some-
- SPSam Parr
Tyler.
- SPShaan Puri
Is it Tyler that... What's it called? The, the Seal Agreement or the s- something like that. They have, like, some new type of doc that's like the nine bo- no- non-binary term sheet type thing.
- SPSam Parr
But that's not, but that's not VC, right? I mean, you would consid- That's almost like PE. That's a different category in my mind.
- SPShaan Puri
Yeah, but I guess what I'm saying is it's a funding, it's a funding option It's an, it's an alternative funding option for a technology business, right? You could, you could say-
- SPSam Parr
Right, that's what I'm saying. It's alternative to VC. What I'm saying is venture capital as we know it, I think it works perfectly fine. Like, it's... The, the way it's supposed to work is, uh, some get it, uh, most don't. The... And the some that do get it, most fail, and very few become huge life-changing things. And-
- AWAndrew Wilkinson
But don't, but don't you think, like... Okay, so Shaan, let's say that you got really bullish about your e-commerce concept and you'd raised $10 million. Like, let's say, like, in the age of Casper when e-commerce is super hot and D2C is crazy and the valuations are high, and you go out and you raise $10 million, and now you're stuck, where you're going, "You know what I really want is to pivot this into a lifestyle business," 'cause that's what's logical for what you want. And imagine if there's a structure where you didn't have to feel like, feel like a piece of shit because you can never get your investors' money back, right? And what I've seen is the incentive creates this situation where the founder c- is sitting on a business that could make them happy and give them a great lifestyle, but they have a gun to their head, and so they continue down the venture path even when it's actually futile and won't work, and they drive the business into the ground. So it's worse for the employees, it's worse for the founders. It's worse for the investors as well, because the investors just go to zero instead of at least making a reasonable return. So, and it is kind of like private equity, but you gotta remember, private equity doesn't take risk on what could be, right? Private equity invests in what is. They, they will say, "Your business does $10 million EBITA. I'm gonna assume it's gonna be 11, 12, 13, 14." Not venture, which is your business does 200K revenue, you're assuming you're gonna get to two and then 20 over the next three years.
- SPShaan Puri
Right.
- AWAndrew Wilkinson
Right? So it's a different form of capital in my opinion.
- SPShaan Puri
But isn't the problem, like, let's say I take that 10 million and I take it where I sell, let's just say 10% of the company in that round. And what you're saying is that in the event that things don't grow as fast two years now, from now, um, that 10% becomes 30% for the same 10 million.
- AWAndrew Wilkinson
Yeah.
- SPShaan Puri
Or it becomes whatever.
- AWAndrew Wilkinson
Yeah.
- SPShaan Puri
Just s- numbers like that.
Episode duration: 1:25:08
In the uListen app, the transcript lights up word by word as you listen. Get uListen
Transcript of episode S_nJ-8U_gQk
