Other[Music][Music][Music]great to be here by the way so thanksgreat to be here by the way so thanksgreat to be here by the way so thanks for coming herschel is uhfor coming herschel is uhfor coming herschel is uh recently become the leader of ty austinrecently become the leader of ty austinrecently become the leader of ty austin he's he's the president of the chapter ihe's he's the president of the chapter ihe's he's the president of the chapter i invited him over to my place for tea ainvited him over to my place for tea ainvited him over to my place for tea a few a few days agofew a few days agofew a few days ago and i thoughtand i thoughtand i thought a cup chai peeinga cup chai peeinga cup chai peeing we'll have one cup of tea togetherwe'll have one cup of tea togetherwe'll have one cup of tea together butbutbut he drank several cups of teahe drank several cups of teahe drank several cups of tea not one cupnot one cupnot one cup you knowyou knowyou know tilltilltill i told him harshalam out of teai told him harshalam out of teai told him harshalam out of tea you know but anyway uh i think it'syou know but anyway uh i think it'syou know but anyway uh i think it's because you know i make killer assam teabecause you know i make killer assam teabecause you know i make killer assam tea sososo what do you call a womanwhat do you call a womanwhat do you call a woman whowhowho only has one cup of teajust one thingthrough a slow hair audiencewhat do you call a woman who pushes herwhat do you call a woman who pushes herwhat do you call a woman who pushes her fatherfatherfather pushpapushpapushpa [Laughter][Laughter][Laughter] sososo anywayanywayanyway thank you for laughing at my jokesthank you for laughing at my jokesthank you for laughing at my jokes i have another one which is unrelatedi have another one which is unrelatedi have another one which is unrelated maybe i'll give you one more joke youmaybe i'll give you one more joke youmaybe i'll give you one more joke you might like that a little bit bettermight like that a little bit bettermight like that a little bit better and this is actually one of reagan'sand this is actually one of reagan'sand this is actually one of reagan's jokes reagan used to have a bunch ofjokes reagan used to have a bunch ofjokes reagan used to have a bunch of jokes about the soviet union so backjokes about the soviet union so backjokes about the soviet union so back before the soviet union had collapsed
Questionerbefore the soviet union had collapsed only like one in seven russian families had a car you know kind of like in india also it was like a 10-year waiting list to get a car so you basically went to buy your car you paid for it and then they'd say okay come back in 10 years and you can take your car so this guy goes over pays the money the car guy tells them okay i'll see you in 10 years so he says shall i come in the morning or the afternoon so the guy says how does it matter it's 10 years out he says well the plumber's coming in the morning so anyway we'll get back to the subject at hand which is you know basically getting your startup off the ground without external funding so in the united states every year we have about a million businesses that get formed approximately and actually one of the huge benefits we had during the pandemic was that in in 2020 and 2021
Otherwas that in in 2020 and 2021was that in in 2020 and 2021 that business formation rate went to 1.4that business formation rate went to 1.4that business formation rate went to 1.4 millionmillionmillion so it actually went which is a veryso it actually went which is a veryso it actually went which is a very significant increase so you know we hadsignificant increase so you know we hadsignificant increase so you know we had the great resignation and all of thatthe great resignation and all of thatthe great resignation and all of that so the labor market has actually comeso the labor market has actually comeso the labor market has actually come back almost to where it wasback almost to where it wasback almost to where it was but you have this extra 40 percent newbut you have this extra 40 percent newbut you have this extra 40 percent new businesses that got formedbusinesses that got formedbusinesses that got formed and i think we will see the echo of thisand i think we will see the echo of thisand i think we will see the echo of this 40 percent40 percent40 percent probably in the next 10 15 years in theprobably in the next 10 15 years in theprobably in the next 10 15 years in the form ofform ofform of some very large businessessome very large businessessome very large businesses that got created during the pandemic sothat got created during the pandemic sothat got created during the pandemic so there's actually a lot of good newsthere's actually a lot of good newsthere's actually a lot of good news there's a lot of good news that came outthere's a lot of good news that came outthere's a lot of good news that came out of the pandemic it was a terrible eventof the pandemic it was a terrible eventof the pandemic it was a terrible event for humans but there's a silver liningfor humans but there's a silver liningfor humans but there's a silver lining and on a number of fronts you know weand on a number of fronts you know weand on a number of fronts you know we become more efficient in how we work thebecome more efficient in how we work thebecome more efficient in how we work the locations we work at reduction inlocations we work at reduction inlocations we work at reduction in business travel and just less frictionbusiness travel and just less frictionbusiness travel and just less friction in being able to do business and so onin being able to do business and so onin being able to do business and so on so i think there's huge amount of
Questionerso i think there's huge amount of benefits but if you go back to the million number less than well under uh one percent maybe even close to maybe one tenth of one percent are venture-backed startups so 99.9 99.9 99.9 of businesses that get formed are not venture-backed you know that's the overwhelming majority of startups of course the venture-backed startups get a lot of media play and all of that but what really is uh important and what makes the economy grow and thrive in the u.s and elsewhere is the mom-and-pop non-venture-backed startups and this this area of the non-venture-backed startups is it's understudied and really when people people start their different businesses in many ways they're reinventing the wheel even though there are some very definitive frameworks and i'll talk about some of those we don't have that much time so i'll just go into three or
Questionermuch time so i'll just go into three or four areas in the time we have but basically if you adopt those frameworks then you get a huge head start in terms of the likelihood of the startup making it so one of the most important things is that in a week there are 168 hours and if you have a full-time job and you don't live too far from work you know maybe 40 hours or 50 hours is what you're dedicating towards your employer and even when you take out time for eating sleeping shaving whatever you easily have another 40 hours that can be dedicated to a second activity of course what bunch of people did in the pandemic is they've got a 40-hour job and then they said i can have a second 40-hour job and i can do two jobs at 20 hours each and they both won't know the difference and that's you know that's going on uh quite a bit there's another
Questionergoing on uh quite a bit there's another benefit you know we've got that kind of benefit you know we've got that kind of benefit you know we've got that kind of extra productivity going on which is extra productivity going on which is extra productivity going on which is actually great for the economy if they actually great for the economy if they actually great for the economy if they can pull it off but basically because can pull it off but basically because can pull it off but basically because the second 40 hours is available it's a the second 40 hours is available it's a the second 40 hours is available it's a very important weapon very important weapon very important weapon in getting your startup off the ground in getting your startup off the ground in getting your startup off the ground because because because the most important thing when you start the most important thing when you start the most important thing when you start a business a business a business is to make sure that someone else is is to make sure that someone else is is to make sure that someone else is paying still paying for your rent paying still paying for your rent paying still paying for your rent still paying for your groceries still still paying for your groceries still still paying for your groceries still paying on your utility bills so you paying on your utility bills so you paying on your utility bills so you don't have a burn don't have a burn don't have a burn and so to the extent you can keep your and so to the extent you can keep your and so to the extent you can keep your employer and your in your job employer and your in your job employer and your in your job you basically have another 40 hours to you basically have another 40 hours to you basically have another 40 hours to kind of play around with kind of play around with kind of play around with and what has happened in the last few and what has happened in the last few and what has happened in the last few years is years is years is not only are not only are not only are a lot of the a lot of the a lot of the possibilities for people in thai possibilities for people in thai possibilities for people in thai kind of digital type businesses but in kind of digital type businesses but in kind of digital type businesses but in the last few years the last few years the last few years they've gone more towards apps and you they've gone more towards apps and you they've gone more towards apps and you know kind of converting
Otherknow kind of converting in different ways atoms into bits right so there's a whole bunch of different businesses that have been formed and will continue to be formed that are effectively converting atoms into bits and when you're trying to do these so you come up with an idea of some kind of atom to bit conversion you have your job we have aws so you don't need to buy a server you don't need to buy a computer anything you can just rent everything from from jeff and he'll rent it to a very low price which is great and you can give it a shot right and so you come up with some app or you come up with some business the amount of capital it needs is very low because it's mostly between your years what you're thinking about and and such so capital is really not required you've got someone paying your bills and you give this a shot
Questionerand you give this a shot and let's say it doesn't work it's okay no big deal you go back to the drawing board come up with a second idea and give that a shot and if that doesn't work that's also okay so as long as you keep your job you can keep like you know firing bullets from this gun 50 times 30 times right i mean so and eventually if you pay attention to some of the rest of the things i'm going to tell you by the third time you might hit pay dirt you might need not even need to get to the 10th time you might get there the third time and then you know when the revenue curves cross where you've got enough cash flow coming you can uh tell your employer you know see you later and move on so you know when i when i started my first business i didn't have any money and i definitely needed my job and so what i was doing is basically i used to get great performance reviews
Otheri used to get great performance reviews and all of that i said you know all that is out the window we're not interested in great performance reviews anymore my model was i need to work just enough so i don't get fired so what i did is i just took it way down right i said they're going to get 40 hours they're not going to get 40.1 hours gonna be 40 hours and before i went to work i'd work a couple hours on my business and after i came back at work and the weekends at work and then if i had you know client meetings whatever i'd take half a day off and then go to those meetings then about nine months after i was doing all of this i had the first client and then i think by the 10th month i had like three clients and of course there's a big pipeline that had been building so i knew a lot more so by that time i had enough cash flow so it exceeded my salary
Questionercash flow so it exceeded my salary so i went in to see my boss to resign and i said you know i'm uh i've got this business i started it's getting going and so i'm leaving so when i went when i met my boss and his boss they said you know manish we were really confused for the last 10 months we were completely confused that your performance had really dropped off and we talked about it several times and we said you know he's not so bad that we want to fire him but it's just above that i said exactly that's exactly i said i'm glad we nailed it perfectly like you guys never even came and talked to me and then they said look when your startup fails not if your startup fails i said when your startup fails you come back okay and you've got a promotion you've got more money uh more responsibility i said you know this is fantastic because my concern was that if if things
Otherbecause my concern was that if if things failed i would have to scramble find another job you know i had good skills but still it might take a few months to get there i said done man like if i if it doesn't work in one day i'm back here and better than where i was so i said there's no downside and and of course the business never failed and things went on just fine so i have a friend of mine who i tried to explain this 168 hours deal and he was a hired gun ceo he had saved a couple of million dollars and he told me he had some idea for a startup i listened to the idea i said this is such a dumb stupid idea i said it's okay you want to try it you try it but please don't quit your job he said no no i can't do two things i have to go all in i said look man you got like a 400 500 000 lifestyle okay which is not going to go down and this 2 million isn't going to last very
Otherthis 2 million isn't going to last very long because you want to take office space and hire people and i was trying to tell him forget all that just you know scrounge yourself on the side on the weekends and keep doing keep doing your job he ignored me okay so he quits his job blows through the two million he's gone then he's scrambling to find a job which which he did find eventually but now the money is gone right so he was like you know like you didn't need to do that and it was such a stupid idea i don't even want to tell you the idea because you see how stupid it was you know like i knew it wasn't gonna work so anyway and and you know i tried to give all the frameworks of course he wasn't interested but that's okay he's designed to be a hired gun he'll be a great hired gun forever which is great so i want to give you some
Questionerso i want to give you some some frameworks which i think you guys might find interesting there's a book that came out maybe more than 20 years ago maybe close to 25 years ago it's called the origin and evolution of new businesses and it's written by a guy named amer bidet b-h-i-d-e and amer is now a good friend of mine i've known him for a few decades he used to be a professor at harvard i think now he's at tufts and he was at columbia before that so very very good guy like i told you that entrepreneurship really doesn't get studied in business schools and one of the reasons it doesn't get studied is because if you're a business school professor teaching or studying entrepreneurship you will not get any consulting okay because us entrepreneurs got no money to pay no business school professor any consulting money you know so if you do marketing or branding or
Questionerso if you do marketing or branding or organizational behavior or anything else sales whatever as a specialty in business schools you'll get a lot of consulting so the business school professors go where the consulting is so nobody goes into studying entrepreneurship plus it's very messy to study what are you going to study you know so what amer did is he went and interviewed 10 years worth of inc 500 ceo so he wanted to understand is there a framework that is common across all these businesses when they get started and can i interview and talk to a whole bunch of people who had very successful startups and go back to the formation of those startups and the kinds of things they were doing and can i distill that into a framework and so that's the book does an incredible job of doing that and the amazing thing is that these guys never talk to each other
Othernever talk to each other these people don't know each other but they had a lot of commonality in how they approach things and amer was able to distill all that commonality and lay out the framework so it actually made it like a blueprint you can use to improve the odds significantly that you'll succeed so one of the one of the things for example is all of these startups want to appear bigger right so you want to you're a one-man one-woman company but you want to project that you're bigger because nobody will give you business you're like one-man band you know and so they would put like international in the name of the company or global in the name of the company so they would make the company name appear like it's some big company and this wasn't like one or two of them like a third of them had done that another thing that what i did and i
Questioneranother thing that what i did and i found that many people in the in amers book had done that is i had two different business cards when i was starting out one said president and ceo which i never used and the other said vice president marketing which is the only card i used okay so whenever i'd go meet you know prospect for sales i'd give my vpo marketing card and they would think oh he looks pretty impressive it must be an impressive organization they just didn't know it was me in my bedroom and i don't even i'm not even full time i'm like doing this on the side on the weekends they didn't know any of that they didn't need to know that so basically the startups were doing things to appear bigger right and so that was a kind of common thing that they were doing one of the most important things is that almost every business that gets started
Questioneralmost every business that gets started is doingis doingis doing some form of arbitragesome form of arbitragesome form of arbitrage andandand arbitrage is extremely important soarbitrage is extremely important soarbitrage is extremely important so basicallybasicallybasically what happens is an entrepreneurwhat happens is an entrepreneurwhat happens is an entrepreneur notices an offering gapnotices an offering gapnotices an offering gap something that he or she thinkssomething that he or she thinkssomething that he or she thinks is something that the market wantsis something that the market wantsis something that the market wants but is not being provided right if therebut is not being provided right if therebut is not being provided right if there are noare noare no sushi restaurants in downtown austinsushi restaurants in downtown austinsushi restaurants in downtown austin that's an offering gap and that wasthat's an offering gap and that wasthat's an offering gap and that was there 25 years ago before yuchi showedthere 25 years ago before yuchi showedthere 25 years ago before yuchi showed upupup right and killed it right and soright and killed it right and soright and killed it right and so offering gaps exist all the timeoffering gaps exist all the timeoffering gaps exist all the time in all kinds of places right and so thein all kinds of places right and so thein all kinds of places right and so the the important thing is that as anthe important thing is that as anthe important thing is that as an entrepreneurentrepreneurentrepreneur the only thing you can hope forthe only thing you can hope forthe only thing you can hope for is so you know buffett and monger talkis so you know buffett and monger talkis so you know buffett and monger talk about these you know great moats and allabout these you know great moats and allabout these you know great moats and all of thatof thatof that you cannot see the moat on day oneyou cannot see the moat on day oneyou cannot see the moat on day one in 99.99 of cases you cannot start ain 99.99 of cases you cannot start ain 99.99 of cases you cannot start a business sayingbusiness sayingbusiness saying i'm going to build a deep moat likei'm going to build a deep moat likei'm going to build a deep moat like coca-cola and the rest will be historycoca-cola and the rest will be historycoca-cola and the rest will be history that doesn't work even doc pemberton who
Otherthat doesn't work even doc pemberton who started coke had no such ideas uh didn't even understand what he had he was just doing arbitrage with say hey this cola drink sounds cool nobody has it and maybe people will come to my shop to buy it that's all you understood offering gaps are really important and so as a entrepreneur you just have to keep your eyes and ears peeled and look at kind of what is available in the market and what might be an offering gap sometimes you don't even need an offering gap i'll get to that a little bit later when i talk about cloning but basically what you're really focused on is is these offering gaps so let me give you an example from umer's book of what an offering gap looks like right i think this was a company in the 80s there was a guy who was a college dropout tech in the army who had enough with the buzz haircuts and he quit quit
Questionerwith the buzz haircuts and he quit quit with the buzz haircuts and he quit quit the army trying to figure out what to do the army trying to figure out what to do the army trying to figure out what to do right so he's got a studio apartment right so he's got a studio apartment right so he's got a studio apartment in florida doesn't have too much money in florida doesn't have too much money in florida doesn't have too much money or anything and or anything and or anything and in his apartment the way the apartment in his apartment the way the apartment in his apartment the way the apartment was set up was set up was set up is his computer was in one end of the is his computer was in one end of the is his computer was in one end of the room and the printer was in the opposite room and the printer was in the opposite room and the printer was in the opposite end end end and he needed to connect them and he needed to connect them and he needed to connect them and at that time and at that time and at that time these interfaces between these interfaces between these interfaces between a specific compact computer and a a specific compact computer and a a specific compact computer and a specific hp printer specific hp printer specific hp printer were not standard were not standard were not standard everyone had their own proprietary plugs everyone had their own proprietary plugs everyone had their own proprietary plugs and everything else so he went to the and everything else so he went to the and everything else so he went to the computer store saying hey i got this computer store saying hey i got this computer store saying hey i got this computer and i got this printer and i computer and i got this printer and i computer and i got this printer and i need this need this need this 25 foot cable the guy in the shop tell 25 foot cable the guy in the shop tell 25 foot cable the guy in the shop tell them look i've got the cable i don't them look i've got the cable i don't them look i've got the cable i don't have that length but you can daisy chain have that length but you can daisy chain have that length but you can daisy chain them you can like daisy chain like four them you can like daisy chain like four them you can like daisy chain like four cables and you'll get your length cables and you'll get your length cables and you'll get your length so he says that's very expensive i don't so he says that's very expensive i don't
Otherso he says that's very expensive i don't want a daisy chain he said that's all iwant a daisy chain he said that's all iwant a daisy chain he said that's all i gotgotgot so he he used to make cablesso he he used to make cablesso he he used to make cables in the army so he said do you get peoplein the army so he said do you get peoplein the army so he said do you get people coming to you asking for differentcoming to you asking for differentcoming to you asking for different lengths of cableslengths of cableslengths of cables the guy said all the timethe guy said all the timethe guy said all the time he said what if i madehe said what if i madehe said what if i made all the different lengths that you don'tall the different lengths that you don'tall the different lengths that you don't havehavehave and i gave them to you to selland i gave them to you to selland i gave them to you to sell he said i'm not interested in unbrandedhe said i'm not interested in unbrandedhe said i'm not interested in unbranded weird stuffweird stuffweird stuff okay so i can't do that we can't sellokay so i can't do that we can't sellokay so i can't do that we can't sell like i can't take like some cables whichlike i can't take like some cables whichlike i can't take like some cables which have no brand or anything he said whathave no brand or anything he said whathave no brand or anything he said what if i give it to you on consignmentif i give it to you on consignmentif i give it to you on consignment he said consignment yeah put it on puthe said consignment yeah put it on puthe said consignment yeah put it on put it on the floor no problem so he goesit on the floor no problem so he goesit on the floor no problem so he goes back makes a matrix of all the missingback makes a matrix of all the missingback makes a matrix of all the missing cable lengths of all the differentcable lengths of all the differentcable lengths of all the different computers and printerscomputers and printerscomputers and printers and he starts making these cablesand he starts making these cablesand he starts making these cables and he gives them to this shop and heand he gives them to this shop and heand he gives them to this shop and he goes up and down the coast of floridagoes up and down the coast of floridagoes up and down the coast of florida finding all the computer shops same dealfinding all the computer shops same deal
Questionerfinding all the computer shops same deal consignmentconsignmentconsignmentplugs all the cables and gets going andplugs all the cables and gets going andplugs all the cables and gets going and super normal profit you know 80 marginssuper normal profit you know 80 marginssuper normal profit you know 80 margins because he's competing against those youbecause he's competing against those youbecause he's competing against those you know daisy chained kluge things andknow daisy chained kluge things andknow daisy chained kluge things and what would happen is thatwhat would happen is thatwhat would happen is that this thesethis thesethis these cables that he came up withcables that he came up withcables that he came up with the shelf life or the product life wasthe shelf life or the product life wasthe shelf life or the product life was three months or six months or eightthree months or six months or eightthree months or six months or eight months becausemonths becausemonths because either the computer would change or theeither the computer would change or theeither the computer would change or the manufacturer would come up with longermanufacturer would come up with longermanufacturer would come up with longer lengthslengthslengths some mix where eventually thatsome mix where eventually thatsome mix where eventually that particular cable no longer had a marketparticular cable no longer had a marketparticular cable no longer had a market but he kept up with what were the newbut he kept up with what were the newbut he kept up with what were the new computers coming out new printers comingcomputers coming out new printers comingcomputers coming out new printers coming out and he just kind of kept going fromout and he just kind of kept going fromout and he just kind of kept going from one curve to the next curve to the nextone curve to the next curve to the nextone curve to the next curve to the next curvecurvecurve trying to stay alive right justtrying to stay alive right justtrying to stay alive right just arbitrage betweenarbitrage betweenarbitrage between what because he was much more nimblewhat because he was much more nimblewhat because he was much more nimble than the bigger guysthan the bigger guysthan the bigger guys who are taking maybe six months or awho are taking maybe six months or awho are taking maybe six months or a year to come up with the cables and
Otheryear to come up with the cables and eventually that business morphed into cable installations for large companies and when i looked at this last they had 1800 employees okay so what i'm saying is that he starts off with this weird-ass business which doesn't have a moat doesn't have anything he's just jumping curves and just trying to stay alive and you know eventually hits on something which then becomes an enduring sustainable business and and when you when you read emer's book you'll see example after example after example where the original idea is kind of stupid and this is a stupid idea that this guy started with i'm going to do cable lengths you know you know it's in if you put a business cool hat you would have told him listen man this is all going to be going away in no time but he made it right and so so arbitrage is really important so if you
Questionerarbitrage is really important so if you follow the 168 hours and you follow the arbitrage you will sometimes be wrong about the offering gap you think there's offering gap it's not really there you know no one in austin like sushi something like that you know and then you say okay you know i'll try dim sum and see how that goes you know and take it from there so the arbitrage is very important the second thing that's really important is that whatever idea you come up with in your ivory tower is not going to work okay because you come up with something in your head which you think okay there's this offering gap i can go and i can do it and what will happen is that when you go talk to customers they'll say no i don't i don't need this right but the important thing that you have to do is that you have to really really pay attention to what your customers telling you so
Otherto what your customers telling you so what will happen is in the conversation that you're having they might make a passing remark i don't need this but if you had something like this i would be interested when they say something like that what you got to do is drop your stupid idea and go all in on what they are saying because they are going to tell you what the real offering gap is whatever you came up with is useless and doesn't exist what one customer tells you is this pure gold so i'll give you an example when i when i first started my i.t consulting firm this was 1991 and with my employer one of the things i had done is we were one of the first u.s companies that had set up r d in bangalore to actually do engineering work in a jv with bangalore at that time in bangalore when i used to go there would have been like three companies doing work offshore you
Otherthree companies doing work offshore you know texas instruments had just set up and a couple others there was nothing there but i could see and we had done a joint venture with indian telephone industry some pretty high end telecom equipment where we had sent some of our engineers over and all that i just saw that this is huge right so i said this is what i'm gonna do i'm gonna leverage all the great indian offshore talent so i had all this slide deck and everything and i remember i went to this very large bank in chicago first chicago which is now part of jp morgan and i'm meeting with the cio and he's he's kind of looking at my deck and i'm going through it and then i go to like slide 11 he says take it back to slide 10. so i again show on flight 10 again go to 11 he says do not move it from slide 10. i don't give any i you know you use the
Questioneri don't give any i you know you use the f word about anything else on any slide f word about anything else on any slide f word about anything else on any slide i only want to focus on the second i only want to focus on the second i only want to focus on the second bullet bullet bullet okay forget the rest of your deck so i'm okay forget the rest of your deck so i'm okay forget the rest of your deck so i'm looking at the second bullet looking at the second bullet looking at the second bullet and uh because i'm trying to figure out and uh because i'm trying to figure out and uh because i'm trying to figure out what is he interested in and it turns what is he interested in and it turns what is he interested in and it turns out out out the second bullet is talking about the second bullet is talking about the second bullet is talking about oracle oracle oracle okay okay okay and what had happened which i hadn't and what had happened which i hadn't and what had happened which i hadn't really honed in on really honed in on really honed in on is what happened in india was that in is what happened in india was that in is what happened in india was that in india in the 70s india in the 70s india in the 70s they threw ibm out you know they wanted they threw ibm out you know they wanted they threw ibm out you know they wanted to nationalize all these companies so to nationalize all these companies so to nationalize all these companies so they threw ibm out they threw ibm out they threw ibm out and so large indian companies when they and so large indian companies when they and so large indian companies when they wanted to run wanted to run wanted to run big it shops big it shops big it shops they no longer had the option of having they no longer had the option of having they no longer had the option of having a mainframe computer so they were forced a mainframe computer so they were forced a mainframe computer so they were forced india was one of the first countries was india was one of the first countries was india was one of the first countries was forced to go mini-computer forced to go mini-computer forced to go mini-computer for pretty high-end i.t work which would for pretty high-end i.t work which would for pretty high-end i.t work which would normally in the us would be a ibm normally in the us would be a ibm normally in the us would be a ibm mainframe mainframe mainframe and so and so and so relatively large indian companies were
Questionerrelatively large indian companies were running client server type architectures with databases like oracle etc way before it became mainstream in the us and what the problem he was facing with the with this guy the cio is facing is they were moving to oracle and he needed a lot of oracle experts to help him and he couldn't find them so i'm trying to tell him well we can do it in india he said i don't i have no effing interest in india can you bring me people here who can do oracle work i said how many do you want okay and the business got going and then i went back i took the one bullet and made that the whole deck okay everything else went away right and the business took off and basically what we did is we just said our middle name is client server that's that's it and and i figured out that in india there was this mother lode of talent and
Questionerthere was this mother lode of talent and the us there was none and we were able to scale right so i wouldn't have been able to figure it out but the customer i just had to pay attention when he told me especially when he told me don't move from that slide right i mean that's like you know god is talking to you right there i remember there's a there's a really good friend of mine in chicago viresh bhatia viresh is this kind of maverick kind of computer geek and and he had done a lot of different kind of software tools and different he was like 19 or 20 years old and he was going to the software tools trade show to show off all his different tools he had built like you know he was trying to do like google maps 25 years ago you know the computing couldn't handle it 30 years ago like it was gonna fail you know so but but he had all these ideas about different
Questionerhad all these ideas about different things you wanted to do so he's making kind of the background for his booth and he had these seven tools he wanted to talk about so it was like four on one side four bullets and then three on the other side it wasn't matching so he wanted like eight bullets instead of seven bullets and so he comes up with a fictional product which doesn't exist and he makes that the eighth bullet okay and then two days in the trade show no one has any interest in any of his bullets okay this one guy who's got a booth across the aisle from him has spent two days looking at those eight bullets okay and after two days just before he's like wrapping up he comes across the aisle to talk to him he said i wanna i want that eighth bullet product okay so viresh said okay i can get it to you in about six weeks or like you know i can i can
Othersix weeks or like you know i can i can do it sure it turns out the eighthdo it sure it turns out the eighthdo it sure it turns out the eighth bulletbulletbullet became install shieldbecame install shieldbecame install shield okay the tool we all use to installokay the tool we all use to installokay the tool we all use to install anything on windowsanything on windowsanything on windows right so viresh basically createdright so viresh basically createdright so viresh basically created install shieldinstall shieldinstall shield because the guy across the aisle came tobecause the guy across the aisle came tobecause the guy across the aisle came to him and says i need that install tool tohim and says i need that install tool tohim and says i need that install tool to install my software so that's what iinstall my software so that's what iinstall my software so that's what i wantwantwant and so he goes backand so he goes backand so he goes back he creates install shield for this onehe creates install shield for this onehe creates install shield for this one customercustomercustomer and then he realizes no one has anyand then he realizes no one has anyand then he realizes no one has any interest in any other nonsense he'sinterest in any other nonsense he'sinterest in any other nonsense he's working on and then he goes all in onworking on and then he goes all in onworking on and then he goes all in on installed shieldinstalled shieldinstalled shield and viresh is nowand viresh is nowand viresh is now you knowyou knowyou know walked off into the sunsetwalked off into the sunsetwalked off into the sunset doing just great doing just fine i thinkdoing just great doing just fine i thinkdoing just great doing just fine i think he was he was retired in his 30s part ofhe was he was retired in his 30s part ofhe was he was retired in his 30s part of computer folklore you know great workedcomputer folklore you know great workedcomputer folklore you know great worked out great so i think the the reallyout great so i think the the reallyout great so i think the the really important thing is that your customerimportant thing is that your customerimportant thing is that your customer will always tell youwill always tell youwill always tell you they'll tell you what you need to dothey'll tell you what you need to dothey'll tell you what you need to do what happens with most of us is we are
Otherwhat happens with most of us is we are too headstrong to listen you you have to sometimes it'll just be a passing remark you know because they're not trying to tell you listen build this or do this they'll i wish i had this or something like that will come up in conversation and you have to really pay attention and i think that's really important because it's really difficult as an entrepreneur without having all the market know-how to really understand what is going on finally the last i mean there are many mental models the last one i'll talk about is this model on cloning right so there was this guru kind of a management guru in the 17th 70s and 80s called tom peters you know he was like kind of the jim collins of his of his time jim collins also probably before your time but tom peters was great he was a great writer he wrote a bunch of
Questionerwas a great writer he wrote a bunch of books like in search of excellencebooks like in search of excellencebooks like in search of excellence passion for excellence there was a storypassion for excellence there was a storypassion for excellence there was a story in and you know i read one of these onein and you know i read one of these onein and you know i read one of these one of these books when i was likeof these books when i was likeof these books when i was like 24 or 25 years old24 or 25 years old24 or 25 years old andandand tom was talking abouttom was talking abouttom was talking about these two gas stations in californiathese two gas stations in californiathese two gas stations in california with a true story so there were thesewith a true story so there were thesewith a true story so there were these two gas stationstwo gas stationstwo gas stations that were diagonal from each otherthat were diagonal from each otherthat were diagonal from each other and they're both self-serve gas stationand they're both self-serve gas stationand they're both self-serve gas station and at that time you guys may notand at that time you guys may notand at that time you guys may not rememberrememberremember but you couldn't just put your creditbut you couldn't just put your creditbut you couldn't just put your credit card and take gas you know you basicallycard and take gas you know you basicallycard and take gas you know you basically went in the in the shop andwent in the in the shop andwent in the in the shop and did your transaction and all of that wasdid your transaction and all of that wasdid your transaction and all of that was a kind of more cumbersome way to filla kind of more cumbersome way to filla kind of more cumbersome way to fill gas but that's the way it was thengas but that's the way it was thengas but that's the way it was then sososo this one gas station owner what he usedthis one gas station owner what he usedthis one gas station owner what he used to do with every hour hour and a halfto do with every hour hour and a halfto do with every hour hour and a half he would come outhe would come outhe would come out pick a random car and just tellpick a random car and just tellpick a random car and just tell the driver stay in the carthe driver stay in the carthe driver stay in the car i'll give you a full serve so i'll pumpi'll give you a full serve so i'll pump
Otheri'll give you a full serve so i'll pump your gas check your tires check your oilyour gas check your tires check your oilyour gas check your tires check your oil and you know clean your windshieldand you know clean your windshieldand you know clean your windshield whatever the guy diagonal from thewhatever the guy diagonal from thewhatever the guy diagonal from the street can see this happeningstreet can see this happeningstreet can see this happening and his perspective is well this isand his perspective is well this isand his perspective is well this is stupidstupidstupid you can't do it for everyoneyou can't do it for everyoneyou can't do it for everyone what what's the point rightwhat what's the point rightwhat what's the point right after a whileafter a whileafter a while the guy providing the random service isthe guy providing the random service isthe guy providing the random service is getting more customersgetting more customersgetting more customers and the guy who's not doing thisand the guy who's not doing thisand the guy who's not doing this diagonal across from himdiagonal across from himdiagonal across from him has seen that his business has gone downhas seen that his business has gone downhas seen that his business has gone down and also knows why his business has goneand also knows why his business has goneand also knows why his business has gone downdowndown and there's no behavior changeand there's no behavior changeand there's no behavior change so tom peter saysso tom peter saysso tom peter says you can sit down with your most directyou can sit down with your most directyou can sit down with your most direct competitorcompetitorcompetitor you can lay out all your trade secretsyou can lay out all your trade secretsyou can lay out all your trade secrets and everything to themand everything to themand everything to them they will listen to you carefully andthey will listen to you carefully andthey will listen to you carefully and there'll be no behavior changethere'll be no behavior changethere'll be no behavior change i said this guy must be on drugsi said this guy must be on drugsi said this guy must be on drugs this is like the most ridiculous thing ithis is like the most ridiculous thing ithis is like the most ridiculous thing i ever read i thought tom peters was hisever read i thought tom peters was hisever read i thought tom peters was his happening guy this is ridiculous i said
Questionerhappening guy this is ridiculous i said how can some guy who's losing money knowing why he's why he's losing the customers not make a change right so i said here's what i'm going to do i'm going to spend my life proving to tom peters wrong okay and i'm going to prove him wrong two different ways first if i see someone competitor or other industry or whatever doing something smart i'm going to force myself to copy that because that proves tom peters is wrong number one number two i'm going to release all my trade secrets to all my competitors you know there's a kind of academic streak to me where i'm not really particularly concerned about hurting myself just to prove the point so i said i'm going to really like go to bat on this and i'm going to make sure all the things i figured out about my why my company works is told to my competitors
Questioneris told to my competitors and then i want to see what they do and then i want to see what they do and then i want to see what they do right because i think tom peters is right because i think tom peters is right because i think tom peters is smoking smoking smoking whatever substance is he smoking right whatever substance is he smoking right whatever substance is he smoking right so in this in this it company i had so in this in this it company i had so in this in this it company i had we had a lot of 20 somethings right i we had a lot of 20 somethings right i we had a lot of 20 somethings right i mean i mean i was sometimes i was hiring mean i mean i was sometimes i was hiring mean i mean i was sometimes i was hiring three people a week i mean we were three people a week i mean we were three people a week i mean we were growing so fast and we have very high growing so fast and we have very high growing so fast and we have very high turnover turnover turnover because there's so much demand for these because there's so much demand for these because there's so much demand for these people people people that they would come in and say i got a that they would come in and say i got a that they would come in and say i got a job that's 40 more pay job that's 40 more pay job that's 40 more pay so here's my notice i'm leaving or they so here's my notice i'm leaving or they so here's my notice i'm leaving or they would come and tell me would come and tell me would come and tell me i'm going to compete with you i'm i'm going to compete with you i'm i'm going to compete with you i'm setting up my own company to compete setting up my own company to compete setting up my own company to compete with you so when they came and told me with you so when they came and told me with you so when they came and told me you know they come and resign you know they come and resign you know they come and resign i'd ask them you know i'd ask them you know i'd ask them you know what are you going to do where are you what are you going to do where are you what are you going to do where are you going and they would you know they would going and they would you know they would going and they would you know they would look at their shoes they wouldn't look look at their shoes they wouldn't look look at their shoes they wouldn't look at me they'd look at their shoes and say at me they'd look at their shoes and say at me they'd look at their shoes and say i'm going to set up a
Otheri'm going to set up a business
Otheri said what kind of business are you going to set up
Otherhe said i'm going to set up a business to compete with you still looking at issues right
Otheri said that's awesome man
Otheri said i want to help you i said sit down
Otheri said let me tell you everything i figured out there's a bunch of stuff in this business that is not visible to you i want to tell you everything
Otherfirst of all the guy thinks i've lost my mind
Otherokay doesn't know what's going on like i'm playing with him or he's like this guy i thought he was crazy but he's really crazy what's going on he's bullshitting me they wouldn't believe me
Otherright and i'd lay out everything i learned
Othereverything that i knew worked and i laid out says this is how you go and find
Otherthis is prospecting this is how it's efficient these are the metrics blah blah blah blah and i must have done this
Questionerblah blah blah and i must have done this for like you know 15 guys then i sit back and watch no one follows anything i told them i said i can't prove tom peter's wrong okay i tell them exactly what to do so now the inversion of cloning if if you understood to me cloning is one of the most powerful mental models and the reason it's powerful is for the tom peters reason that humans something like 98 of humans think cloning is beneath them they think it's somehow like copying or something below the belt they're not interested they want to come up with their own ideas okay so because most humans are not willing to do it it gives you a big edge so like for example buffett ran his investment partnership which was the most successful investment partnership ever in the history of the investment business from 1956 to 1970. and it had unusual set of rules he had
Otherand it had unusual set of rules he had no management fees all these things and when i was going to set up an investment partnership in 1999 which was almost 30 years after he shut down i could find no funds that had mirrored the buffett partnerships 30 years most successful partnership best guy in the business and and now i was such a you know disciple of tom peters oh i know why humans hate to clone they're not gonna clone warren buffett even though he's god they were not gonna do it because beneath them i said the indian guy is gonna do it okay so i so i i i i took i took the there was a i i took i took the there was a biography on buffett written by roger lowenstein i took that to my lawyer i mocked some pages i said convert this into a legal document okay and follow these rules on these pages don't make up your own rules these are the rules right i told them clone it
Otherare the rules right i told them clone it rightrightright andandand he did righthe did righthe did right and we set up papriya funds andand we set up papriya funds andand we set up papriya funds and barbariafans has no competitionbarbariafans has no competitionbarbariafans has no competition okay hallelujah okayokay hallelujah okayokay hallelujah okay andandand then you knowthen you knowthen you know i i think likei i think likei i think like my middle name is forrest gump my fullmy middle name is forrest gump my fullmy middle name is forrest gump my full name is monish forrest gumpname is monish forrest gumpname is monish forrest gump okayokayokay so then forrest gumpso then forrest gumpso then forrest gump ends up meeting warren buffett okay likeends up meeting warren buffett okay likeends up meeting warren buffett okay like what the hell right you end up beingwhat the hell right you end up beingwhat the hell right you end up being more and then then i end up meetingmore and then then i end up meetingmore and then then i end up meeting charlie munger from warren buffett rightcharlie munger from warren buffett rightcharlie munger from warren buffett right andandand when i meet themwhen i meet themwhen i meet them i tell charlie i said charliei tell charlie i said charliei tell charlie i said charlie you know those buffett partnership rulesyou know those buffett partnership rulesyou know those buffett partnership rules nobody followed them the indian guy wasnobody followed them the indian guy wasnobody followed them the indian guy was forced to follow them because nobodyforced to follow them because nobodyforced to follow them because nobody followed themfollowed themfollowed them he said well monishhe said well monishhe said well monish there were a couple of guys who followedthere were a couple of guys who followedthere were a couple of guys who followed them i said yeah but i couldn't findthem i said yeah but i couldn't findthem i said yeah but i couldn't find them he said yeah you are not going tothem he said yeah you are not going tothem he said yeah you are not going to find them they're too obscure to findfind them they're too obscure to findfind them they're too obscure to find and i explained to him thatand i explained to him thatand i explained to him that those rules gave methose rules gave methose rules gave me so what i did is my investors when i
Otherso what i did is my investors when iso what i did is my investors when i started getting investors some investorsstarted getting investors some investorsstarted getting investors some investors came to mecame to mecame to me because they hate the concept of payingbecause they hate the concept of payingbecause they hate the concept of paying feesfeesfees which are not linked to performancewhich are not linked to performancewhich are not linked to performance which is where the whole industry workswhich is where the whole industry workswhich is where the whole industry works rightrightright you know the way the industry works isyou know the way the industry works isyou know the way the industry works is you pay me one or two percent foryou pay me one or two percent foryou pay me one or two percent for breathingbreathingbreathing okayokayokay and then after that if i do well for youand then after that if i do well for youand then after that if i do well for you you pay me another 20you pay me another 20you pay me another 20 what a concept okay but that's the waywhat a concept okay but that's the waywhat a concept okay but that's the way the whole industry works so some peoplethe whole industry works so some peoplethe whole industry works so some people came to me because they just didn't wantcame to me because they just didn't wantcame to me because they just didn't want to deal with that rightto deal with that rightto deal with that right the ones that came to me because theythe ones that came to me because theythe ones that came to me because they just liked me i made sure theyjust liked me i made sure theyjust liked me i made sure they understood everything i brainwashed themunderstood everything i brainwashed themunderstood everything i brainwashed them that this these frictional costs arethat this these frictional costs arethat this these frictional costs are important i just kept brainwashing allimportant i just kept brainwashing allimportant i just kept brainwashing all my investors frictional costs aremy investors frictional costs aremy investors frictional costs are important and then finally they agreedimportant and then finally they agreedimportant and then finally they agreed yeah frictional costs are reallyyeah frictional costs are reallyyeah frictional costs are really important so they just stayed me then if
Questionerimportant so they just stayed me then if someone else approached them to invest with them they would not go because they said oh you have management fees i can't go there i can't pay management fees please take it to zero they say what what are you talking about take it to zero and um so i think the thing is that cloning is a really really powerful heuristic so if you fi and i think in you know from a startup point of view right you can listen to the customer and you can change direction even more powerful than that is clone an existing model right so someone's figured out something that's working set your ego aside just mirror it and it'll work it's even better than listening to the customer because it's already scaled and you might be able to do a little better than what they've done it at so anyway there are many more models but we are out of time
Otherwe are out of time
Otheri think herschel we need to go to q a
Otheryes sir okay so we'll go to q a
Questionerhi good evening everyone and i'm manish thank you i'm victor perezoli and i'm from argentina and i live in houston and i'm a member of the valley investors meetup and we get together once a month and we always listen to to your wisdom so you shared a lot of really amazing mental models and frameworks on entrepreneurship but i i have a question being from argentina which what's happening there is kind of crazy right now with hyperinflation and a lot of uh problems i wonder if you had any framework and recommendation on how to approach investing in a country that is going through through a mess like argentina i know you have experience investing in these different countries around the world
Warrenyeah i mean i think it's really hard well one of the things about about
Warrenwell one of the things about about argentina is that argentina is that argentina is that i think i think i think a large portion of the a large portion of the a large portion of the u.s dollar bills in circulation u.s dollar bills in circulation u.s dollar bills in circulation outside the united states are in outside the united states are in outside the united states are in argentina they're either in argentina or argentina they're either in argentina or argentina they're either in argentina or in iran in iran in iran you know those are two places that have you know those are two places that have you know those are two places that have all the dollar bills but it's a huge all the dollar bills but it's a huge all the dollar bills but it's a huge amount of it is in argentina and the amount of it is in argentina and the amount of it is in argentina and the reason is that reason is that reason is that a lot of transactions take place in a lot of transactions take place in a lot of transactions take place in dollars dollars dollars not only do they take place in dollars not only do they take place in dollars not only do they take place in dollars but like you know if you're buying an but like you know if you're buying an but like you know if you're buying an apartment apartment apartment they don't trust like a wire transfer or they don't trust like a wire transfer or they don't trust like a wire transfer or something you show up with the stacks of something you show up with the stacks of something you show up with the stacks of cash cash cash in dollars at the closing then you move in dollars at the closing then you move in dollars at the closing then you move the stacks over the stacks over the stacks over and so these people like you know have and so these people like you know have and so these people like you know have these stacks and then you've got false these stacks and then you've got false these stacks and then you've got false floors and you've got floors and you've got floors and you've got safes and all kinds of things and safes and all kinds of things and safes and all kinds of things and sometimes people forget about these sometimes people forget about these sometimes people forget about these stacks and they end up on the street and stacks and they end up on the street and stacks and they end up on the street and there's money flying around you've heard there's money flying around you've heard
Questionerthere's money flying around you've heard those stories right all these things going on so it's a wild place i have investments in in turkey which has about 80 annual inflation and basically the way i approached it was that i focused on businesses where the revenues were only in euros or dollars and the expenses were in lira and so the cfo one of the companies was explaining to me that he said monish every time the lira drops by 10 our earnings in euros go up by 3 percent i said hallelujah let's keep banging on that 80 till infinity okay because we don't really care about the 80 anymore we wanted to keep going so like for example i mean i didn't invest in this company but there was a there's a juice company in turkey where 98 is exported the revenues in euros and they have this dynamic so you know they were like a hundred investable businesses in
Questionera hundred investable businesses in turkey and about three of them had this type of dynamic and no one's interested in turkey because the inflation i just focused on the three percent and uh life is great and in in one case the market cap was 20 million and the liquidation value was 700 million and the liquidation value has gone up to close to a billion now so even with the inflation and all that made no difference in dollars i mean these are just in dollars in lira it went up crazy so i would say that to the extent that in argentina you can hone in on that type of a dynamic where the revenues because i think it with the inflation headwind like argentina has it's really hard the other thing that is an even better answer than that is don't invest in argentina you're in you're in austin man
Otherexactly yeah so you know there are two ways
Warrenways one is you know you can take the root canal and try to enjoy the root canal and the second is you just you know go have a pina colada you know and so that can work out just just as well
Warrenso other questions hello uh good afternoon so my name is sanjay i had a question about alibaba i know your great friend sir charlie munger and that's one of his favorite stocks he's been holding on to and i've been following it when it was 250 or something and now it's close to 100 less than that so i think alibaba is a great business i think ali express is great but with regards to china trying to take away stocks from american exchanges and putting them in hong kong and other countries how big of a risk do you think that is and uh what do you think overall of alibaba as a stock not as a company like just a stockholder kind of perspective
Questionerjust a stockholder kind of perspective well i mean i would just say that i
Questionerwell i mean i would just say that i think a business like like alibaba is unlikely to do things from a governance perspective which would hurt investors i think it's a very high quality operation from that point of view right from the original formation of the business it got its start because of foreign investors the earliest money that came in was not chinese and they have always respected their non-chinese investors and i don't think that will change if the listing changes and so on so i don't think i think that i don't think the risk with alibaba is related to a listing going from new york to hong kong or something i think that is a irrelevant data point i think that the key issue to ask yourself is what does the business look like five or ten years from now and if you have a view on what the business looks like
Questionerlooks like after five or ten years then you would have a view on what the stock price might be at that point and
Questioneri can't help you very much on that so not really in the stock tip business but i would just say it's a high quality business it's faced headwinds it has very good management it has a very it has multiple deep modes but it also has challenges so you have to sift through all that and see where you land on that only
Questionerdid you practice the 168 hours arbitrage stuff when you started the investment company or did you stop only when you started id consulting
Questioneryeah so the the investment company actually started as a hobby so i was actually running the it company uh when the when for iphone started but what had happened is i had all these friends i used to give them stock tips when i met them in the mid and late 90s and so from like 94 to
Questionermid and late 90s and so from like 94 to about 99 2000 i was just a private investor but i'd done really well i think north of 70 a year for like five six years and so i had a million that i'd gotten from selling a small portion of the business and that million had become 13 million so when i used to make investments i after i bought my position what do i care i would just tell my friend say i think this company is good and you should invest in it and so on so these guys would sometimes take me up on that but then you know some guys worth 5 or 10 million and they put 10 000 into whatever i told them and it would triple or quadruple or something and but it wouldn't move the needle for them right so a few of them came to me and said look this stock tip business is random you tell us something then we don't see you for a while and then we don't know
Ted Weschleryou for a while and then we don't know whether you've sold or what's happening so they said we want you to run money for us like a pool for the friends so i said okay if i'm going to you know manage your money wasn't going to be much more like a million dollars from all of them combined i want to do it in a manner which is going to make sure that it's you know in run done in a good way and so i that's when i copied the buffett rules and all of that and i was really concerned about that i didn't want them to have losses right so what i did was i gave them a personal guarantee on the principle and a guarantee of a six percent annual return what a country you know so because i i just couldn't i didn't want a situation where i went upside down and my take was i had you know 13 million outside my company and i was gonna run a million dollar fund
Otherdollar fund it didn't matter what happened you know it didn't matter what happened you know it didn't matter what happened you know wouldn't affect and the funds were just wouldn't affect and the funds were just wouldn't affect and the funds were just a hobby and then i think about a year a hobby and then i think about a year a hobby and then i think about a year later later later i had i had i had sold the business and sold the business and sold the business and i was looking at was really enjoying the i was looking at was really enjoying the i was looking at was really enjoying the investment management part of it and i investment management part of it and i investment management part of it and i wanted to scale the wanted to scale the wanted to scale the operations operations operations but i couldn't scale it with this but i couldn't scale it with this but i couldn't scale it with this guarantee right so i went to my investor guarantee right so i went to my investor guarantee right so i went to my investor in the first year we were up like 70 in the first year we were up like 70 in the first year we were up like 70 percent percent percent so i went to them and said hey listen i so i went to them and said hey listen i so i went to them and said hey listen i want to do an amendment where we remove want to do an amendment where we remove want to do an amendment where we remove the guarantees the guarantees the guarantees so they said no you know we like the so they said no you know we like the so they said no you know we like the guarantees you know guarantees you know guarantees you know we don't want any such amendment we don't want any such amendment we don't want any such amendment so i said okay so i said okay so i said okay i'm setting up a new fund i'm setting up a new fund i'm setting up a new fund and we're closing the whole fund and and we're closing the whole fund and and we're closing the whole fund and sending your money back sending your money back sending your money back and they all came into the new fund and they all came into the new fund and they all came into the new fund with no guarantee life went on you know with no guarantee life went on you know with no guarantee life went on you know still my friends yeah so i i did i did still my friends yeah so i i did i did still my friends yeah so i i did i did do do kind of a couple of things at the same kind of a couple of things at the same
Questionerkind of a couple of things at the same time and yeah i think the fabric funds was even more exceptional i think the amount i don't know i don't think i invested more than 500 in the business and there have been years when our earnings have been like 50 million so it's great it's a great great economic model worked well
Questionerother questions manish my name is pree patel and i'm actually a fund manager myself and so one of the questions i have for you is what is the most what's the best piece of advice you have and not necessarily for fund management but just in general to grow your business what was the piece of advice i was given to you that has flourished and allowed you to grow i
Questionerthink in terms of i would say the way i kind of go through life is i think in terms of what i would call is i think in terms of what i would call hacks and and you can also think of in terms of what you can also think of in terms of what munger calls you call them mental models
Questionermunger calls you call them mental modelsmunger calls you call them mental models and the thing is that once youand the thing is that once youand the thing is that once you understand a mental modelunderstand a mental modelunderstand a mental model and you go all in on it then what whatand you go all in on it then what whatand you go all in on it then what what starts happening is that especially whenstarts happening is that especially whenstarts happening is that especially when you haveyou haveyou have five or ten of them that you've gone allfive or ten of them that you've gone allfive or ten of them that you've gone all in on and they interplayin on and they interplayin on and they interplay with each otherwith each otherwith each other when you have an interplay betweenwhen you have an interplay betweenwhen you have an interplay between modelsmodelsmodels andandand most other humans are not functioningmost other humans are not functioningmost other humans are not functioning that way you get a big advantage so likethat way you get a big advantage so likethat way you get a big advantage so like for example i talked about cloning as afor example i talked about cloning as afor example i talked about cloning as a model right so that gives you that givesmodel right so that gives you that givesmodel right so that gives you that gives you an advantageyou an advantageyou an advantage another anotheranother anotheranother another mental model is there's amental model is there's amental model is there's a there's a book i read more than twothere's a book i read more than twothere's a book i read more than two decades ago it's called power versusdecades ago it's called power versusdecades ago it's called power versus forceforceforce andandand it's kind ofit's kind ofit's kind of a weird book i really like the book aa weird book i really like the book aa weird book i really like the book a lot it's written by a guy namedlot it's written by a guy namedlot it's written by a guy named david hawkins who's kind of like a newdavid hawkins who's kind of like a newdavid hawkins who's kind of like a new age ponytail guruage ponytail guruage ponytail guru in sedona arizona and he passed away ain sedona arizona and he passed away ain sedona arizona and he passed away a few years ago when i recommend that bookfew years ago when i recommend that bookfew years ago when i recommend that book to
Othertoto friends of mine friends of mine friends of mine i get two kinds of reactions i get two kinds of reactions i get two kinds of reactions one they want to throw the book at me one they want to throw the book at me one they want to throw the book at me and they hope it hurts me they're like and they hope it hurts me they're like and they hope it hurts me they're like so pissed off with the book so pissed off with the book so pissed off with the book or the second is they love it or the second is they love it or the second is they love it i don't get any reactions in the middle i don't get any reactions in the middle i don't get any reactions in the middle oh it's okay i never get it's just okay oh it's okay i never get it's just okay oh it's okay i never get it's just okay it's like one extreme or the other no it's like one extreme or the other no it's like one extreme or the other no one is in the middle just saying oh this one is in the middle just saying oh this one is in the middle just saying oh this is some okay book is some okay book is some okay book so so so david hawkins had this very weird idea david hawkins had this very weird idea david hawkins had this very weird idea and i think that's where i lose some of and i think that's where i lose some of and i think that's where i lose some of my rational friends my rational friends my rational friends he said that he said that he said that if i lie to you if i lie to you if i lie to you and in your conscious state and in your conscious state and in your conscious state you don't know that i'm lying to you in you don't know that i'm lying to you in you don't know that i'm lying to you in your subconscious state you do your subconscious state you do your subconscious state you do and and and for most humans for most humans for most humans there is a pipe there is a pipe there is a pipe between the subconscious and the between the subconscious and the between the subconscious and the conscious conscious conscious but it's mostly clogged but it's mostly clogged but it's mostly clogged and so and so and so the signal doesn't get through the signal doesn't get through the signal doesn't get through but it's not a hundred percent clogged but it's not a hundred percent clogged but it's not a hundred percent clogged for most humans it's not a hundred for most humans it's not a hundred for most humans it's not a hundred percent clogged percent clogged percent clogged most humans might be like ninety percent
Othermost humans might be like ninety percent clogged because of a bunch of life experiences so there's a whole other session we could do on unclogging that pipe but that's a different talk for a different day but like let's say for example you're talking to a used car salesman okay and he's you know going a million miles an hour you know trying to close the deal right you don't know what part of what he's telling you is a lie but you know there's a lot of lies okay you just know that out of the 10 things he said at least four of them that are not true okay you just don't know which four and if you are interacting with the dalai lama like you've gone to dalai lama and you're hanging out with him and you're talking to him you're probably going to come to the conclusion that the dalai lama is not lying to you okay that and you feel good being around
Otherokay that and you feel good being around the dalai lama it feels great being around the dalai lama so what hawkins was saying is that humans emit these attractor fields and so what happens is when the used car salesman is talking to you what hawkins said is that if we put sensors on my muscles not the used car salesman person but my muscles listening to him it's going to pick up signals which say that and he talked in terms of going weak versus going strong so he said if someone's lying to you you're going to get a signal that says weak and someone's not lying to you and it's going to say strong basically what what he said is i mean so the the take away from that is if you if you just accept that now i've never done you know this these probes and tested all of that um but i said okay let's accept that as the gospel truth let's accept what hawkins
Othergospel truth let's accept what hawkins is saying is correct if you accept it's correct then what you would conclude is that there's no point lying what is the point of lying when the other guy is going to know that you're lying you may not he or she may not know exactly what you're lying about but they won't feel good being around you they they'll kind of take it down i decided i'm going to you know i like to test everything you know like you saw i want to test tom peters i said i'm going to test this theory okay and i spent about like you know probably 25 years testing this thing so let's say for example my wife now my ex-wife we're date night you know we're going to see a movie and and such right so as you're about to leave she says uh how do i look okay and i look at the dress and i'm like you know not crazy about the dress right right
Otherrightright now the old morning should have saidnow the old morning should have saidnow the old morning should have said awesome let's goawesome let's goawesome let's go okayokayokay the new monastery we're going to testthe new monastery we're going to testthe new monastery we're going to test this outthis outthis out i said i don't think i think you can doi said i don't think i think you can doi said i don't think i think you can do better on the dressbetter on the dressbetter on the dress and what would happen is that was theand what would happen is that was theand what would happen is that was the end of the movieend of the movieend of the movie okayokayokay there was no movie happening okaythere was no movie happening okaythere was no movie happening okay but what happened isbut what happened isbut what happened is the relationship became stronger now thethe relationship became stronger now thethe relationship became stronger now the thing is you knowthing is you knowthing is you know she's the ex-wife nowshe's the ex-wife nowshe's the ex-wife now but she's the largest investor i havebut she's the largest investor i havebut she's the largest investor i have okay andokay andokay and we splitwe splitwe split eight figureseight figureseight figures in 30 minutes with no lawyersin 30 minutes with no lawyersin 30 minutes with no lawyers i never never saw the inside of ai never never saw the inside of ai never never saw the inside of a courtroom we were done in 30 minutes youcourtroom we were done in 30 minutes youcourtroom we were done in 30 minutes you know so probably get almost the sameknow so probably get almost the sameknow so probably get almost the same amount of messages from her now thanamount of messages from her now thanamount of messages from her now than before marriage like what the hell youbefore marriage like what the hell youbefore marriage like what the hell you know so anyway so the thing is it's aknow so anyway so the thing is it's aknow so anyway so the thing is it's a good relationship you know it's agood relationship you know it's agood relationship you know it's a healthy relationship and i think one ofhealthy relationship and i think one ofhealthy relationship and i think one of the one of the reasons it's a healthythe one of the reasons it's a healthythe one of the reasons it's a healthy relationship is she has complete trustrelationship is she has complete trust
Otherrelationship is she has complete trust even now she has complete trust even now she has complete trust even now she has complete trust because because because of so what i did is what i eliminated of so what i did is what i eliminated of so what i did is what i eliminated from my life about from my life about from my life about two and a half decades ago two and a half decades ago two and a half decades ago was the small lies was the small lies was the small lies so the big lies we know of course that so the big lies we know of course that so the big lies we know of course that if you do that so if you do that so if you do that so then it's it's not going to work and the then it's it's not going to work and the then it's it's not going to work and the thing is that thing is that thing is that the world the world the world the world functions on trust the world functions on trust the world functions on trust it doesn't function on contracts it doesn't function on contracts it doesn't function on contracts people have to be people have to be people have to be have to have to be able to trust you have to have to be able to trust you have to have to be able to trust you they're not doing business with you they're not doing business with you they're not doing business with you because there's some contract that's because there's some contract that's because there's some contract that's going to protect you going to protect you going to protect you and you know one guy told me that if we and you know one guy told me that if we and you know one guy told me that if we ever have to look at the contract ever have to look at the contract ever have to look at the contract you know you're in trouble you know you know you're in trouble you know you know you're in trouble you know there's a problem you have to go back there's a problem you have to go back there's a problem you have to go back and look at the contract so and look at the contract so and look at the contract so i would say that that when i read i would say that that when i read i would say that that when i read hawkins hawkins hawkins and i adopted that model life became and i adopted that model life became and i adopted that model life became really easy no need to be diplomatic you really easy no need to be diplomatic you really easy no need to be diplomatic you know let it fall where it falls know let it fall where it falls know let it fall where it falls and just lay it out say things as you
Otherand just lay it out say things as you will and i think it might be one of the reasons like you know i i have a really good friendship with buffett but even better friendship with charlie you know i mean i probably see charlie four or five times a year for dinner at his place and in fact i told him and i was moving to austin i said charlie don't think about the fact that i'm not in i'm not in california when you think you want to have dinner i can just take a southwest flight so it's okay and and he did take me up on it so i got a call he said can you come on friday or saturday for dinner and i asked him is the pope catholic and i was there okay and and i think part of the reason is that like you know these are intimidating guys but the way i deal with it is if they ask me anything i'm just going to give them a straight answer you know
Otherto give them a straight answer you know i don't care what they think of thei don't care what they think of thei don't care what they think of the answer i'm going to tell them exactlyanswer i'm going to tell them exactlyanswer i'm going to tell them exactly the bestthe bestthe best most truthful way i can say things so imost truthful way i can say things so imost truthful way i can say things so i would say that if youwould say that if youwould say that if you if you follow that principleif you follow that principleif you follow that principle the problem is the small lies and thethe problem is the small lies and thethe problem is the small lies and the small lies is really what the the halfsmall lies is really what the the halfsmall lies is really what the the half truthstruthstruths is what is difficult but if you can gois what is difficult but if you can gois what is difficult but if you can go down that path i think the payoff longdown that path i think the payoff longdown that path i think the payoff long term is hugeterm is hugeterm is huge so that's what i would suggestso that's what i would suggestso that's what i would suggest okay so now the audience knows right whyokay so now the audience knows right whyokay so now the audience knows right why i had so many choice right with youi had so many choice right with youi had so many choice right with you i thought it was becausei thought it was becausei thought it was because i thought because i make great teai thought because i make great teai thought because i make great tea didn't you like the tea i love the teadidn't you like the tea i love the teadidn't you like the tea i love the tea and i have a lot of that here in theand i have a lot of that here in theand i have a lot of that here in the headliners club actually i can compositeheadliners club actually i can compositeheadliners club actually i can composite for thatbut now so to that point right thebut now so to that point right thebut now so to that point right the reason why i said that was we spokereason why i said that was we spokereason why i said that was we spoke about multiple things right one of themabout multiple things right one of themabout multiple things right one of them and i think you spoke aboutand i think you spoke aboutand i think you spoke about god's speaking right i think you'regod's speaking right i think you'regod's speaking right i think you're doing something on that lines as well do
Questionerdoing something on that lines as well do you want to touch upon that i mean i
Otheryou want to touch upon that i mean i
Otheryou want to touch upon that i mean i have a family foundation now it's a
Otherhave a family foundation now it's a
Otherhave a family foundation now it's a public charity really i think i get more
Otherpublic charity really i think i get more
Otherpublic charity really i think i get more credit for it than i should because
Othercredit for it than i should because
Othercredit for it than i should because basically you know
Otherbasically you know
Otherbasically you know if you spend less than you earn
Otherif you spend less than you earn
Otherif you spend less than you earn over a lifetime
Otherover a lifetime
Otherover a lifetime you will end up with assets that you
Otheryou will end up with assets that you
Otheryou will end up with assets that you cannot consume in your lifetime
Othercannot consume in your lifetime
Othercannot consume in your lifetime and then in that case you only have two
Otherand then in that case you only have two
Otherand then in that case you only have two choices you either give it to your gene
Otherchoices you either give it to your gene
Otherchoices you either give it to your gene pool
Otherpool
Otherpool or you give it to society
Otheror you give it to society
Otheror you give it to society and
Otherand
Otherand given giving you to a gene pool is
Othergiven giving you to a gene pool is
Othergiven giving you to a gene pool is actually not a great idea
Otheractually not a great idea
Otheractually not a great idea so
Otherso
Otherso i think if it's a small inheritance it's
Otheri think if it's a small inheritance it's
Otheri think if it's a small inheritance it's fine you can you can help your kids out
Otherfine you can you can help your kids out
Otherfine you can you can help your kids out but i think large inheritances are a
Otherbut i think large inheritances are a
Otherbut i think large inheritances are a problem i think you'd actually cause
Otherproblem i think you'd actually cause
Otherproblem i think you'd actually cause more harm than good like you know
Othermore harm than good like you know
Othermore harm than good like you know buffett says that if you're jesse owens
Otherbuffett says that if you're jesse owens
Otherbuffett says that if you're jesse owens son the sprinter
Otherson the sprinter
Otherson the sprinter it's okay to start 100 meter dashes at
Otherit's okay to start 100 meter dashes at
Otherit's okay to start 100 meter dashes at the 10 meter line but not at the 40
Otherthe 10 meter line but not at the 40
Otherthe 10 meter line but not at the 40 meter line you're not going to become
Othermeter line you're not going to become
Questionermeter line you're not going to become the best printer starting at the 40 meter line i didn't set up the foundation for any other reason other than that i had no choice basically at some point i'm going to die and at some point there will be some assets and it's better to start early than late and if i'm going to give the money away because i'm comparative i want to try to make sure that it's utilized well and i actually didn't want to set up a foundation i was looking for a good place to write checks to and when i started looking around i was disappointed i was very disappointed with the way most non-profits operate they are usually run by people with great hearts great sense of purpose but they are not business people it's it's a big it's a big negative if you don't put on a hardcore businessman's hat when you're running a non-profit so you
Otherwhen you're running a non-profit so you kind of need a combination of heart and head and that's where i found that most nonprofits will fall flat they they do things that feel good but then they don't measure and they're just into the feeling good kind of thing versus trying to see what does the most good for society so dakshina took a very kind of holistic approach which said that we want to measure what we do we want to see what the outcomes are and we want to keep improving so it's actually worked out really well and i was lucky that i found a great team in india who executes they're way better than i would be if i were running the place so the good thing is i'm not running the place which is great so anyway go ahead
Questionerso hi my name is partha sharma i'm from houston i had a question uh so i read your book the thundo investor and one of the principles that you laid out was
Questionerthe principles that you laid out was investing in businesses which had a known limited downside and then on potential unlimited upside in funds when you invest what do you see the role of options for example do you use options because there's certain ways you can structure options when where your downside is very limited and your upside could be potentially you know very much high yeah you see that and do you see a use of that yeah i
Unknownmean i think i think options can be a way where you can reduce or minimize downside i think public funds was specifically set up one of the rules we have is we cannot go into derivatives we don't we don't use derivatives in general and one of the reasons we don't do that is most options expire unexercised right so the overwhelming number of options is that the premium collected is just just kept so i think but having said that it does
Questionerso i think but having said that it does have its place it can give you that downside protection but you can also get that downside protection in other ways so many times we're able to get it without actually having to have a specific we can get it by actually looking at the business and looking at the delta between what it's worth versus what is being traded at and that sort of thing but that's it's a valid it's a valid way to go if you want to go that way probably because you're the horizon the investment horizon's probably longer than what many people will sell options you know you can buy leaps probably for a couple of years but you're probably looking in terms of decades right so yeah and actually one of the things that took me a long time to figure out like they say all too soon and wise too late is that basically the best you know
Questioneris that basically the best you know there's a guy thomas phelps who wrote a great book 100 to one in the stock market his book came out like 50 years ago it's still i think pretty timeless but he said that i think it was phil fisher who said that he said that if the job is done right you never need to sell and i think that's a great way to approach it is that if you can i mean i think the holy grail is that if you can find yourself in the happy place of ownership of a great business that is compounding and growing at the long runway and you never need to touch it i think that's awesome it's a great way to go and so i used to practice that in the 90s then i moved away because of the bubble and then what i should have done is gone back to that by like 2009 but i went back to that more like 2018 and so now i'm pivoting more towards where
Questionerwhere i mean if i can get to the point where we have no buys no cells and just coast that'd be great finally one last question so can you please share how you came up with the idea of having lunch with warren buffett
Ted Weschleryeah i think it was pretty straightforward in the sense that he was willing to take a bribe to sit down for lunch buffett runs these annual charity lunch auctions once a year and this year was the last year that he did it i think this year it went for more than 19 million i think in 2007 my net worth i think at that time was like 84 million overwhelming portion of that was because of buffett's intellectual property you know he's published everything and i was leveraging that to learn how to invest and so on so forth and i saw i felt like there was a big tuition built to you so i said okay he has this
Ted Weschlerhe has this auction going on and all i wanted to do was win the auction and just look him in the eye and say thank you so i didn't have any of any other agenda item or anything so and you can take seven people to the lunch and i was gonna go with my family so there were still three seats and the only person i reached out to was a guy who actually didn't know that well at the time guy spear who's now a really close friend and i asked him if he wants to kind of bid on this lunch with me and at that time i said you know how much would i be willing to pay right i said well the tuition bill you know a couple of million should be fine right so i told guy listen if you come you know there'll be two of you and we have four of us so you can pay one third we'll pay 230 that monash i can't do a third of two million or whatever so i asked him i said okay what's your
Otherso i asked him i said okay what's your max he said i'm good for a quarter million i said so whatever i said whatever it ends at you're capped at a quarter million right and i'll i'll take care of the rest the bidding ended at 650 000 so he never hit his cap we met warren and the amazing part of that lunch was that so buffett's mindset with these lunches is that he wants to make sure that the winner thinks they got a deal you know so he's he's all about maximum value addition right so the first thing he told us when he met us was that i got nothing going on all afternoon you know like we were meeting in new york he said i'm completely free whenever you guys get sick and tired of me you let me know i'll leave right and so after three hours we said we have no more questions and then we took a bunch of pictures and he left and through that lunch you know
Questionerhe left and through that lunch you know like i was i was telling warren like i was i was telling warren that i told him that look my wife is a huge fan of yours but her true love in life is charlie and buffett got competitive he said charlie is a very boring guy he said i'm i'm the one who's exciting he's just a very old kamajan you know negative on everything you just want so he said listen i'm gonna set you guys up to meet charlie for lunch and then after you meet him you'll know who the real like amigo is here i thought he's just joking right and two days later i get an email from his assistant to charlie's assistant saying i met this couple really enjoyed it they seem to think you're more interesting than me i think they need to meet you and then they'll know i'm the guy and so then there was lunch it up with charlie you know and i said okay buy one get one free this is great
Questionerget one free this is great and and and i actually enjoyed the charlie lunch i actually enjoyed the charlie lunch i actually enjoyed the charlie lunch better than the warren lunch because better than the warren lunch because better than the warren lunch because charlie is like you know he's unplugged like you know he's unplugged like you know he's unplugged and then that one lunch became a friendship then that one lunch became a friendship then that one lunch became a friendship so it'd be converted to infinite lunches so it'd be converted to infinite lunches so it'd be converted to infinite lunches which is great so my my wife when i was bidding bidding bidding for the lunch she thought it's kind of for the lunch she thought it's kind of for the lunch she thought it's kind of weird and she said okay you know weird and she said okay you know weird and she said okay you know whatever and then later she said whatever and then later she said whatever and then later she said other than marrying me this is the best other than marrying me this is the best other than marrying me this is the best use of your money use of your money use of your money you know so like you know you're like you know so like you know you're like you know so like you know you're like collecting forever like on this yeah so collecting forever like on this yeah so collecting forever like on this yeah so i really had no agenda i really had no agenda i really had no agenda other than to just say thank you to him other than to just say thank you to him other than to just say thank you to him it morphed into it morphed into it morphed into something great and i and the way i something great and i and the way i something great and i and the way i looked at it is that it if you looked if looked at it is that it if you looked if looked at it is that it if you looked if you lived in the time of einstein or you lived in the time of einstein or you lived in the time of einstein or newton or gandhi newton or gandhi newton or gandhi and or any of your heroes and you had a and or any of your heroes and you had a and or any of your heroes and you had a chance to meet them chance to meet them chance to meet them what would be what would you be willing
Otherwhat would be what would you be willing to do to meet them and this was a pretty easy way to do it you know so it wasn't it was a no-brainer actually
Otherso the exact same thing here uh manish right so we know we never know what what is going to happen the next 20 years right so you're here and we have food here as well so let's go ahead and get that
Otherall right thank you very much