Empire Building: Entrepreneurship, Success, and Disrupting Industries with Keith Rabois, OpenStore

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My view of startups is you start with a vision and then you build it and then you market it and you sell it. To me, it's exactly the same as producing a movie. You don't produce a movie by asking consumers what movie do they want to watch? What actor and actor should you cast? It's totally opposite. You have a story, you have a narrative, you have a script. And then you have to cast characters that can bring that script to life. You have to produce it, finance it, you have to cut a trailer that interrupts people and makes them excited about it, and then they buy tickets. That's what building a startup is to me. I need some traction. You need some traction. Let's get some traction.

Hey, what's up innovators, entrepreneurs, visionaries and disruptors. This is your Traction podcast host, Lloyd Lobo. We're a community of over a hundred thousand people just like yourself on a mission to help you get the methods, the money and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio, Asana, and many more.

Our guest today on the Traction podcast is a legend in Silicon Valley in the tech scene. He was instrumental to the success of PayPal, LinkedIn, Slide and Square. Five companies he helped build are now publicly traded with market caps of greater than a billion. Three others have been acquired for greater than a billion or are publicly traded IPOs. He served on the boards of Zoom, Yelp, Reddit, Affirm and others. He's an investor in several iconic multibillion dollar brands including YouTube, Airbnb, Palantir, Eventbrite, Lyft, Quora, and the list goes on and on. He's a GP at Tier 1 Venture Capital Fund, Founders Fund. He's the co founder of Opendoor, which went public, and more recently, the CEO of Open Store. What haven't you done? Welcome to Traction. Keith, thank you for joining us.

Pleasure to be with you. I've got a lot more to do.

So you've had a terrific journey beyond anyone's imagination. Give us your backstory. How did you get to where you are today?

Well, I'm not sure I'd replicate this backstory, but I started as a lawyer, so I went to law school. I clerked for a well known federal appellate court judge. I practiced law for about three and a half years and then I quit cold turkey at the height of the Internet bubble. She joined the Internet revolution. So I wasted Basically all my 30s in law school preparing to be a lawyer, practicing law. So not necessarily the most conventional path, nor necessarily the best path, but it somehow or another worked, which maybe there's a lesson there.

How did you get to PayPal? How did you make that transition from being a law school student and then saying, forget it, I'm going to move into tech.

So I jumped into a startup at the height of the Internet bubble. In February 2000, the market collapsed and the Internet revolution bubble was blown apart in late March of 2000. Said about six weeks to buy into new jobs sort of thing. And as the Internet was crashing and my startup was starting to show signs of turmoil and stress and inability to potentially raise money as the world corrected, somewhat akin to what we saw recently, in October 2021, I called up my friend from college, Peter Thiel, and said, what do you think I should do next? And Peter had been recently re energized as interim CEO of PayPal. And I was just asking for advice or what he thought was still possible to achieve in the Internet and where you could direct me to. And he said, direct quote, I can introduce a lot of people once, just come work for us. So he was about six weeks into his job as interim CEO. I was living on east coast, wound up flying cross country, moving starting four days later, and joined PayPal. This is roughly around November 2000.

When you joined, did you know or was there an energy that made you feel it's going to be this big global phenomenon that it would end up.

Being yes and no. So the company was burning a lot of money, $10 million a month, pretty recently, which back then was a ton of money. Secondly, Peter was the third CEO in five months, which is usually not a good sign, but the brand resonated. PayPal at the time, I remember reading a study, was the eighth most recognizable brand in the Internet. So I thought at a minimum, people would know where I worked, not the success criteria, but certainly better than failing. And then secondarily, I knew some of the people that worked with Peter from college. Many of us went to Peter from Stanford as an undergrad. So I thought there was definitely smart people there and there's a recognizable brand and one way or the other, maybe this could work out. But no is not obviously going to work. Peter was, as I said, interim CEO. People on the board hadn't even had enough confidence to install them as permanent CEO yet. So there's a lot of work to do. But I said, you know what? I don't have any better ideas. Let's go roll the dice. At least they're smart people now. That said, once I showed up in the office four days later, the energy and vibe was very different and completely distinct from my prior startup. People were universally smart, talented, ambitious and work their ass off and then you.

Stuck out the whole ride till the exit and whatnot.

Yeah. So I stayed with Eightbow. We went public in February 2002 and then we decided as a public company to be acquired by ebay. Agreed to terms over July 4th weekend that summer in 2002 and then closed the transaction. Was officially acquired by eBay in November 2002. I left a few weeks later in December 2002.

And then how did LinkedIn and then Stripe happen from there on?

Reed knew once we were negotiating this transaction with ebay that he was going to want to work at ebay. So he started thinking about ideas and contemplating various versions of the future that he wanted to build. He had two or three ideas he was working on. Soon as the transaction closed, he left and started working on the best of the Ideas, which is LinkedIn. In early 2003, put together a small team to build it, shipped it in May 2003. I was an angel investor in LinkedIn at first, maybe almost a year and a half later, as the company started to get some traction, I joined the company full time to run business in corp dev, basically generating revenue for the company. Strive is a lot later. At least 10 years went by and Patrick Ajad Carlton had an idea that PayPal was already outdated, is already run by a bunch of buffoons and bureaucrats and that there's opportunity to build a developer first modern technology, stack innovative products which turned out to be right now.

There'S something about intuition though. You talked about the team being super smart, the brand, those are all signals that you gotta stick through the right because a lot of founders or even like early employees, they don't stick. And so if you had to prioritize what those signals were, that hey, I'm going to stick around because this is going to be massive. What are those signals?

Velocity Velocity of shipping, velocity of identifying challenges, resolving the challenges. Density of talent, people around you you can learn from that's easier to detect. And the most important thing you can do early in your career is learn, learn, learn, learn. Learning compounds. So the more you learn, the faster you learn, the better you're going to be ultimately. And then the reality was back in our payball days was easy to get people stuck because were no other jobs. In chat, the entire Internet bubble collapsed. It was basically described as a nuclear winter technology which was moderately out. So once we hired somebody, if they were doing their job, they in practice we're not going to leave because there was no other opportunities. There's exactly one talented person who left me all during my error voluntarily because there really weren't alternatives. That's very rare. Obviously a more modern era of technology, there's lots of options, including starting your own company. That is a very real choice for employees. So what's your learning curve? What I would basically recommend is that you stick if you believe in the velocity of the company and you're continuing to learn and challenge yourself. And when you plateau or the company plateaus in terms of learning and challenge, then you might consider other options.

That's great advice. Now, through your journey, what has been the most fun or exciting memory along the way and maybe the scariest thing you went through?

Oh my God. So lots of scary moments. People, sometimes from afar, don't realize how fragile these successful companies actually are in practice. There was a day when we were a very fragile small company at square when a large direct competitor or large at the time called the three $4 billion market capital company directly attacked us, complained that we were insecure, dangerous and unfortunately I was in the middle of presenting a speech to Visa and Jack was at a conference. All this was going live and so trying to coordinate and respond, it was a little tricky, intelligent. I felt like the President being ambushed with a first strike by the Soviet Union or something. But we did. We made it through the first few hours and thoughtful set of responses and then basically that company is basically dead. And that was their last desperate move in any relevance. So it turned out to be really good for us. But didn't feel the first hour to maybe three hours. Certainly didn't feel that way.

A lot of founders now, given what's happened, the roller coaster of the card market are going through chaos in many ways. What advice do you have from them from your past learnings of dealing with scary moments, chaos, fun rides along the way.

I think the first thing is to Remember that the roller coaster ride is part of the journey. It's intentional. So if you think about the metaphor roller coaster, what do you do when you go on a roller coaster? You actually pay money to people to terrify you, make you scream. So it's times like that you're paying money or sweating with your time, volunteering with your time to go through terror. But if you know that it becomes part of the challenge of the war, is living through it. Piece of practical advice is typically when things are never really as big as they feel, when you're all the way at the top, and you're usually not as bad as they feel if you're all the way at the bottom. So remembering that is pretty critical for psychological sort of satisfaction. But that is what you get paid for as an employee, as an executive, as a founder is navigating the roller coaster ride. So when you have momentum, you're going this way. You want to preserve momentum and amplify the momentum as long as you can. And there's going the other way. You want to act as fast as you can to reverse sort of inertia.

Now switching gears to Open Store. You've had a very successful career. Investments, unicorns. Why start Open Store? Given your successful background as an investor.

Operator, there's probably four components to starting a company again from scratch. One was the idea itself was pretty compelling, which is making E commerce easy for everybody in the West. We can talk about what that means. Why, number two, why other people haven't been able to achieve that addition. Number two, there was people I wanted to work with. There was very specific set of people that I was looking forward to working with. Mentor is not the best way to scale an organization to work with a lot of people. You're typically working with a very small number of people all the time. So I was excited to go back into team building and mentoring. Third is we tried to move the entire technology landscape to Miami, the center of gravity here. And so I was pontificating that people should build their companies in Miami. I felt it'd be a really good sign to build a company in Miami to showcase that it's possible that companies here thrive, et cetera, the proverbial eat your dog food kind of thing. And then fourth was the specific challenges associated with Open Store. Two or three of the core initial challenges were related to problems I had solved previously. So I felt it was like a company for me. I actually give this advice and counsel to executives all the time that they choose opportunities where their unique skill set of DNA is directly down the middle of what the company needs the most. And that's why I joined Square. Originally Jack needed an entrepreneurial executive to add some financial services background. At the time. There's very few of those people in the world, so it's perfect for me, which was very motivating and challenging. And the same thing is called openstore, which directly down the middle of my sweet spot.

So what is your vision for Open Store? Give us the background of it, how does it work and these challenges that you talked about.

So our goal is to make E Commerce easy. That means for consumers and for brands. So people who build a brand online and for consumers. So the brands online. The challenge of running a Shopify store is extremely stressful. It's like a 247 operation. You're on this treadmill constantly fighting trends in new customer acquisition, keeping up with retention. There's many, many, many challenges. And so we make it brain dead simple for some set of brands and owners. That means they sell the business to us. So they convert the traction, the momentum, the brand they've created into money and then they can use that money however they like for the rest of their lives. Others say, I don't want to sell microbial baby, but I don't want the stress. So we have a new product called Drive where we'll run the business for you and guarantee you next year's cash flow so you get all the benefits with none of the drive coefficients psychologically. So we have two products designed to make Shopify brand owners their life easy. On the consumer side, the biggest friction is discovering products that you don't know about. So if you have search intent, you know exactly what you want. I know I want a stealthiest drink, I know how to find that. That's been a solved problem since the late 90s in the US but when I go to shopping, let's say to decide to shoot down here in Miami, I actually discover apparel that I didn't know I wanted. Shoes and shoe brands that I may not be familiar with. So I serendipitously discover cool, new, interesting things. And that's what makes life fun right now. There's no destination, there's no starting point or entry point for consumers in the US and the west to find things that appeal to them specifically, that really resonate, but they had no idea existed even. That's what we're going to solve for consumers is serendipitous magical discovery.

And then do you work with physical stores that want to go online or do you take on E Commerce stores. You do a combination. It seems right now we only acquire.

Businesses that are primarily based on Shopify.

Okay, because your website says start a store or we run the store for you or we buy a store. So what does we run the store for? You mean?

That's openstore's Drive product. And what we do with Drive is we will literally do everything for you from customer acquisition, retention, marketing, fulfillment, customer support. You have nothing you need to do except you get passive income. We're going to guarantee you next year's cash flow and you can sit at home, you can go to the beach, you can start a new brand, do whatever is most important to you. We've had brand owners who have health issues they want to take care of in their family. We have others who want to take some time off, some who want to study a new field. We allow you to do anything.

And what is the ideal customer for that? How does one transact with you or get you to do business with them?

Typically, we're looking to either buy or drive brand that's selling at least, let's say $500,000 worth of product a year annually, up to about $10 million of sales. That's the sweet spot of where OpenStart probably be most helpful. And all you have to do is go to our website, you connect your shop data and we can give you an offer on business day, either a proposal for Drive or an acquisition offer.

And Drive, of course, they keep the store, they pay you X amount. Is it a rev share or how does that work?

So we will predict and model your next year's cash flow 12 months out. And if you like, and if that's an accurate model, then we will take 10% of your profits as a fee for being successful in running your store for a year. You can renew at the end of the year or not, depending upon how satisfied you are.

How did you get your early customers? This is a very interesting idea. And I guess one company at least tried to do the financing piece of IT financing for E Commerce. And there's a couple of those Clearbank that popped up that didn't do so well ultimately. But it seems like you're managing the whole supply chain there.

That's correct. I don't think a little piece of the puzzle is going to work very well. I think companies are going to suffer from massive adverse selection. There's a lot of challenges to just doing a financing piece. However, if you're vertically integrated, you can make the economics work. So we do everything. That's why we're vertically integrating. It was painful the first year to set up all the vertical integration to be able to do fulfillment, customer support, new customer acquisition. We give all our brands iOS app, none of the brands we acquired out of the iOS app. There's a lot of benefits to having your loyal customers have an iOS app, et cetera. So I think it's just very differentiated. But it did take a lot of time, a lot of people hard work, sweat to build out all these functions.

And did you build your own warehouse facility or have to contract a 3 PL?

We have a kind of a hybrid where we have a contract relationship that's very customized for our needs because we, for example, will sell products from multiple brands to one consumer. Ideally, we want those products to arrive in one box. Unless you build out your fulfillment operation to contemplate taking brands and SKUs from multiple places and putting them in one box, it's virtually impossible.

This is a big idea though. Is it a problem you experience? What led you to this?

My friend Jack Abraham, who runs a venture studio in Miami named Atomic, led me to the idea where he basically pointed out over the last decade, the biggest phenom apps in all technologies been Shopify. At the time, Shopify was about $165,165 billion market cap that not a lot of people had been paying attention to. I was pretty familiar with it. So he's there's 1.7 million shop stores. It's growing at this rate. And nobody's paying attention to the long tail side of Shopify, meaning not famous large brands. You're selling hundreds of millions off stuff. The typical Shopify merchant does not sell hundreds of millions of dollars of stuff. They sell hundreds of thousands to millions of dollars. And these brands have no access to capital. Venture capitalists aren't going to give the money. Local bank definitely isn't going to give them money. These debt providers are terrible, all this stuff. So what we provide is liquidity. And we're the only ones really providing liquidity to the long top part of the market. And then we could stitch these businesses together into a pretty compelling value proposition for the consumer. One way to think about consumer ledge that does apply to me is the Design District in Miami is about a mile and a half from my house. And I go there moderately frequently. But every time I go there, I have to figure out traffic patterns, parking patterns. It just takes a lot of time to go back and forth. And so if I thought through what drives me to go to Design District, why am I going There. Why am I putting up with this friction? The hours that open even are not particularly compelling for someone that has a job. So how do I solve this digitally? And the real reason I go there is typically to find things that I don't know I need. It's like I want to walk around and wander and be exposed to new ideas, new products, new palettes, even new color palettes or error. And so if I could recreate that digitally, then I would cut my design district trips in half and that would be great. Or what happens Sunday night at 10pm The Design District's not open, but maybe they were 9pm Maybe it's the best time for me to shop instead of interrupting by day to trek over there. So that definitely resonated with me as a Target customer.

And the name Open Store, your previous company was Opendoor. Was that a coincidence? Opendoor did really well public company.

It's a moderate coincidence. My friend Daniel Gross actually gave me the name and as he mentioned, the name that's actually pretty good. I just on opensea, it's actually a pretty good name too. I claim that one as well. But generally I love the formulation.

How did your first 10 or so customers come about for Open Store? What was that like?

There is a challenge in alerting whereas Shopify Store owners that we exist, that our value proposition exists. It's new. Nobody was buying these businesses before, certainly not offering to drive these businesses. And there's 2 million of these Shopify stores. Trying to get the attention of, let's call it the 30, 40,000 that are the right size for us was a little tricky at first. I think we're finally figuring out how to do it well. So what we're basically doing is using the media, see what we're doing, podcasting what we're doing, and that someplace stores would find us. I think if there's real world conferences, Covid suspended a lot of the real world commerce conventions and stuff, I think then there'd be a congregation that'd be really easy to explain our value proposition. Walk through the brand owners one by one what we could do to for them. You know, it's not a personalized wealth. For the last two years, that hasn't really been a scalable opportunity. So I think fortunately that'll start accelerating. We do use some versions of paid marketing, but since there's 2 million Shopify stores trying to figure out which ones are the 20, 30, 40, 50,000 that we really want through paid marketing is a little bit of a complicated endeavor.

At what point do you felt like, hey, you know what, there's product market fit or maybe a signal of it, or perhaps there are some ideas you truly believe in and you're like, it's a big idea. I'm going to raise a lot of money and just go on this journey because I know it needs to happen.

My view of startups is you start with a vision and then you build it and then you market it and you sell it. So to me it's exactly the same as producing a movie. You don't produce a movie by asking consumers what movie do they want to watch, what actor and actor should you cast? It's totally the opposite. You have a story, you have a narrative, you have a script, and then you have to cast characters that can bring that script to life. You have to produce it, finance it, you have to cut a trailer that interrupts people and makes them excited about it and then they buy tickets. That's what building a startup is to me.

Now what do you think of the notion then? Because there was a lot of theory on our product market fit and watching signals of product market fit and how should founders think about that? Because this is a contrarian view to probably 80% out of the startup knowledge there. But 80% of the people is not Keith for a boy.

No, that's why 80% fail is that they follow the bad advice. So I think it's actually you build a product and then you market and sell it. That's the goal is like you have a vision of how the world can be better and it's your job to build it and then convince people that the world would be better if they use it. And if you can't do that, maybe you shouldn't start a company. I love that.

How is open store able to achieve such a high valuation in relatively short amount of time?

This is where you cast attention to my life because I'm actually part time VC too. So obviously the world's corrected a lot of valuations over the last two years. I think we did raise money at Openstor historically under a different world order, like many companies. And so we need to grow into our valuation, meaning we need to out execute the velocity that would be expected two or three years ago. We need to get rid of every potential yellow flag in our business now. So the security that venture capitalists apply to startups is just 3 to 10x greater than it was two years ago. And so that applies to my company just the same way I apply it to other companies I've looked at that want Checks for founder funds.

I think also your past successes, which is more than most founders out there predicates that.

What resonated with investors like to decompose it though was scale of ambition. Could you build a horizontally broad e commerce destination site in the west for the first time since the late 90s? That's obviously something that if you can succeed at is very valuable, period. So that's very critical for investing. Second is the quality of the team. We have an amazing team. The density of talent is off the charts. Investors are very savvy and very experienced at Grady team quality. And so we were able to marshal an incredible team. And then there were some things that we solved early. I believe in the Elon school of life, which is you take your biggest risks first and you try to solve them in some order. And so we were able to address some of the risks. Not all the risks, but some of the risks pretty quickly.

Building a startup is like making a movie. You come up with a vision, you cast characters, you market it, you get people excited. But movies also do fail, right? In a big endeavor like Open Store, what are some things you do to mitigate those risks of potential failure?

What you do is you catalog your biggest risks to start and there's usually about three of them, plus or minus. And then you want to assign somebody who has an unfair advantage in conquering those risks and that's how you build your team. Like in a movie, there are movies that absolutely would have failed but for the right character being cast correctly. For example, Devil Wears Prada without Meryl Streep be pretty challenging to pull off that movie actually. And then there's inspired and there's sometimes miscast movies that fail probably where with a different actor, actress, maybe they would have thrived. So it's taking your key roles and getting the right person who has the highest probability of success. And that's the best way to avoid failure. But startups are challenging. I think for example, as an early stage investor flipping the mirror on myself, would I make seed investments in series A investments I want to be right, let's say about 40% of the time. So it's still going to be wrong. Roughly 60%. So I think startup building is a lot like baseball. 40% is like Ted Williams. And you're going to the hall of.

Fame with all of this though. I mean you've been an expert in building teams. You said it. It's putting the right characters. Devil's Wear, Prada wouldn't have been anything without Meryl Streep. So what are some learnings in your journey? PayPal, LinkedIn, Square, Open Door. How do you build teams?

The most important lesson I learned from Peter Thiel, the first week of my job at PayPal, we went for a little jog around the Stanford campus. And his lesson was you need to build teams based upon, predicated on undiscovered talent, meaning people who haven't yet proven that they can do X, Y and Z. The reason why is there's always going to be big companies that will throw lots of money and other benefits and perks. People who've already proven Alex. And you cannot sell a startup competing with Google's Cash, Apple's Cash, Amazon's Cash and all that stuff. You need people who these large homogenous organizations do not know how to evaluate, which typically means younger. So you want to basically develop a magnet for undiscovered talent, a technique for assessing them. So a little bit like be like sports, you're drafting athletes, let's say in Major League Baseball or the NBA right out of high school. And the art is being right. So I kind of love reading old scouting reports. I read for example, Derek Jeter's scouting report from high school and the scout somehow or another at 17 years old, like pretty much predicting everything about Derek from this at the time, very lanky, 62 or so kid. He predicted almost everything. Exactly right. And that's the art of building a company.

How do you find and attract them?

I don't think most startups are actually chasing after purely what I'd call undiscovered talent. Going to Stanford with a CS degree is not undiscovered talent. Undiscovered talent is going to us at University of San Francisco or UC Santa Cruz or somewhere not with central casting resumes. So I think that's part of the art is how do you find these people, how do you assess them? They know that you found someone special with a non conventional background. Usually these people spike in some way and you can still see the spike. So they have a trait that they're just extraordinary at. That's the most obvious. That really does stand out quickly. It's very difficult to do, not in person, to be fair, I think it's virtually impossible on a zoom call and even figuring out who to meet by definition from a profile like LinkedIn, these people, by definition that doesn't show up. So I think you need to have an environment where you meet a lot of people. That is tricky because your time is your scarcious, most valuable resource. And so the art I Think is actually once you have an assessment capability developed and devised and proven validated, is how do you put yourself in front of a lot of people? So some of the best people I've ever hired, some of the best people I've ever funded, actually I played soccer with this year. I'd recommend this for everybody. But my soccer team was a great way to recruit founders.

And they probably have networks, the alma.

Maters, and that actually works. You find one or two great soccer players to be good founders. Not surprisingly, they might know some other people.

Is that also another reason for Miami? I guess the move there a lot of undiscovered talent, no major schools like Stanford. In the public eye, it definitely helps.

Not have its federal people who've been affected by bad ideas, infected by bad ideas for the last five years. That is an advantage. Secondly, Miami is a real world culture. People here do not do remote meetings. They never did. They never really shut down during COVID So if you believe that you need to meet with people in person to detect their potential, this city has been great for that. From the day I moved here, I was doing real world meetings starting December 10th of 2020.

Wow, that's unbelievable. And there is something to be said, right? If we were doing this conversation in person, in a studio, perhaps you will go longer. You build stronger connections, right? Anytime you engage more than two senses, like taste, touch, sound, smell, you start to build stronger bonds.

Oh, absolutely. I hate, for example, doing board meetings by Zoom. I've basically come to the conclusion that I'm going to opt out of board meetings that are done by Zoom. I'll fly across the country to attend board meetings if they're done in person. I was just flew to San Francisco last week. I attended a board meeting yesterday. So I think if you care about the results, you need to be there in person.

Key hires to make from 0 to 1 million and let's say 1 to 10 and then 10 to 100. What are those one or two key hires that are crucial?

It really does vary. Consumer company and enterprise company. A deep tech company. You may be hiring very different people at very different stages. Typically you have a team that's building something. Just say across all these areas or sectors, building. So people with the skills to build, which may be engineering, design, possibly data science. Once you have something, then you're definitely going to need to showcase that. You can call it marketing, but like one way or the other, getting in front of people and seeing how they interact with it, making sure that you're delighting them. If you're delighting them. You want to amplify that and that's definitely marketing. So I think building, let's say validating delight and then amplifying and then rinsing and repeating, rebuilding, fixing things that could be better, improving, remarketing, all of that's like a loop, but there's now one size fits all Answer because consumer businesses typically will be driven by products later, have product metrics and financial metrics. A deep tech company might have no revenue metrics for a while. It's all about building for sustained period of time, validating that you can create the performance attributes that the market needs or wants or resonate. And then there's other companies where the enterprise you may be selling pretty quickly actually.

So let's say for a traditional B2B.

SaaS company, yeah so typically there you're going to build something, but you're going to try to get customers pretty damn quickly, maybe even before you finish building, whether you have alpha beta customers, development partners. So you're going to be going to market pretty quickly typically at enterprise, especially at the SaaS. But layer of enterprise infrastructure may not be able to do that. You're building a new database and stuff, you may have to complete it before someone buys it. But fundamentally there's an interaction dynamics. You may have a first go to market leader manager contributor as early as the 14th, whereas that may get layered in a lot later in other types of companies. And those people can channel feedback from the customers to the product team in some rank order and the art is ranking the order correctly. Customers will say a lot of things, but they usually only really care about one or two.

Now there's a lot that has been said and a lot of advice around specialists and the timing of that versus Swiss army knives or generalists. What's your advice there? How to think about how long to stretch a Swiss army knife, which is probably someone you hire in the early days versus specialists or even if there.

Is such a thing. I don't really like specialists. I try to avoid them whenever possible. But there are times and places and the criteria I use for when you want some degree of expertise is are you trying to create value or protect value that's already been created? So on the value creation step I don't believe in expertise. On the value protection step I typically do. For example, if you're doing really well, there are things that can go wrong. Typically what experts can do is prevent you from an unforced error and so that's where the expertise helps. But creating something that is 10x more value. Experts almost always can't help you and they may retard you.

In terms of executives and when to hire, like I see this happen a lot. People raise money, let's say they're 20, 30 people growing really fast. All of a sudden raise maybe 50, 100 million and then start hiring massive company execs logos but not the right fit. How should startup founders think about it? Raise my series A. What are the execs I need in the right seat? Because sometimes hiring those big company execs.

Don'T always work out. The big company execs don't work out for several reasons. One is a healthy, well run, high growth company is not a microcosm of a large publicly traded company. So it's not like you take an atomic unit and decompose it. They're very different animals. That's the biggest just pure challenge. Sadly, a lot of successful executives don't have the energy, tenacity, they don't really have somebody to prove they're a little too complacent. Not all, but a lot do. So you have to make sure if you're going to hire from a large company that this person still has somebody to prove, still wants to achieve their life's work or itas. Then third is culture. Different companies have different cultures and different ways of making decisions. And if you're going to hire from a large company, make sure that company culture is a close cousin to the culture you're building. So for example, Apple's a top down driven company, it's not a data driven company. Google is a bottom up for the most part driven company and is more data driven. If you're going to be a top down company, you don't want a lot of people who think bottom up. If you want to be a design driven company, you don't want a lot of people who think for data. So you have to match me the kind of company that close you're building for your company with people who learned reasonable proxies of how to make decisions in a similar vibe buyer environment.

Now as you grow and scale, you say you got the right people in the right seats, stages, seats, state specific. But then you want to go beyond that a hundred million mark. You want to go IPO like you did at Opendoor. What are the key ingredients to build a company that eventually goes public? What were your key lessons there?

With Opendoor it's not that dissimilar than the early stage in the sense of one marshall incredible density of talent. The team you build. Like other than this from Benoit Khosla at KB when he's on my board at Square, the team you build is the company you build. That's true at the beginning and it's true at the end. So talent density. Second, what are the key challenges? Every year the top one, two or three challenges may change. And so you may want to edit the team to make sure that you have the right person to tackle the three challenges in front of you that year and not 10 years out, but not last year either. So that is one thing I always keep in mind. If you're going to go public, some of the key challenges might shift. And so make sure you have the right person to navigate those challenges with the highest probability of success. That's the basic change is just what's in front of you in the next year is probably going to be different.

A lot of what you say is about people in general. I guess people build companies, not the other way around. A lot of this conversation has been around people crowding the right people. How do you maintain that the team you build is the company you build? How do you maintain that culture though, as you grow from a 0 to 1 company to a 50 to 100 million to IPO, how do you maintain that? That's really hard, right?

It's definitely challenging, period. Okay, so let's not try to gloss over how difficult it is. There are some techniques. One is you can promote people who have the highest slope. There will be a lot different slopes. How fast do they learn? Find the people who have the highest look, promote them, challenge them constantly. Rinse and repeat. Number two is figure out where you're editing too much, constantly, consistently, where do you have to make corrections. And then try to find a person who can quarterback that function, that challenge a little bit better. So opportunistically dipping into the free agent market, so to speak. And then third is you have techniques like management leadership training, which is the way we make decisions that our company is this way. This is how we groom up and coming leaders, managers, if you like managers fundamentally to teach.

And then eventually or sometimes it's inevitable. You can't promote from within all the time.

Right?

You have to probably find sometimes that external expertise you have to top somebody. What is the best way to have that conversation when you've had this person help you throughout and now needs to be top.

Every organization is going to have a different ratio of homegrown talent that's promoted and external imports. I don't think you want to be zero And I don't think you want to be a hundred percent of either poll. If you get it right in terms of internal promotions, maybe you can go run with 70% internal portions. That's really good. That's like having really talented people grooming them, mentoring them and letting them run 50. 50 is a pretty good mix actually for a high growth company, that's pretty damn good because you have to compare the slope of an individual with the slope of the company. And the faster the company's growing, unfortunately, the harder it is for any individual to keep up. And you don't really want to suppress your growth, so allow people to exceed them. So one way to think about it is if you're a baseball fan is you have started pitchers and the starter pitchers are really valuable. They're going to get you a lead. And then the odd days diet when your starting pitcher is tiring before they give up into the home run and calling for your relief pitcher. And in the last 30 years, the baseball people have realized the relief pitchers can be equally valuable and perhaps sometimes more valuable than starting a pitcher. That does change and a pretty radical change baseball. And so the art is partially knowing when it's time to call for your relief pitcher, but you don't want to do that too often.

Have you had challenges having this conversation.

Though with somebody who's brought you so far, but now you have to top that person? What is the conversation you have?

It depends on how obvious is the gap between excellent performance and what the company needs and their current performance. Sometimes it's really apparent to everybody. Sometimes it's more of a projection of where the world's going and where they are. And that's a little more complicated. The best way to do it, I think, is to find someone who is so extraordinary in solving this problem that the person in the seat currently understands recognizes the delta. That's by far the easiest as an.

Investor being a GP in a top tier fund here, with all the craziness that's going on in the market, or we've seen the up and the down, what is driving investment decisions in this current climate? And how should founders think about fundraising and valuations?

Look, the reality is most public companies are trading at 20% to 50% of where they were trading two years ago. And there is no way that the private markets can be completely disconnected from the public markets. So I would just divide any private valuation by probably three, maybe four or five, at least two. And that's probably the starting point for any investor conversation, with almost no exception and so I think people just need to appreciate that reality. Then secondarily there are people looking for good investments, but they expect the unit economics of these investments to be proven. And even at the expense of some growth dialing in the marginal economics versus artificially propping up the growth. Investors are very savvy about techniques to artificially prop up the growth and are going to be pretty intolerant of it right now.

And the metrics and expectations for valuations change though, like I'd say let's at seed, series A, series B, the valuations definitely have changed. But have the metrics that you look at dramatically change? Is it higher?

Not necessarily the metrics per se, but the multiple associated those metrics is definitely different. So for example, almost no company, it would take a extraordinary set of confluence of factors to get FedEx revenue on the valuation right now, whereas that was like the minimum amount that deals are getting done. So in the public markets right now there's very few companies that trade at 10x and that's been the historical normal for 50 years actually. But for the last three years or so people forgot that. So anybody who has $10 billion of revenue, it's really rare to be appreciated at more than 10x. And you'd have to have a really strong argument why you're one of a kind top 10 basis points company that should earning more than 10x revenue.

And so what are you seeing that at seed and series A? Predominantly seed.

Typically it's not a multiple because you don't really, you really haven't shipped anything or you may not ship. Sorry, not financial metrics. So typically a seed is an artistic judgment. Of the seeds I've recently been involved in, let's say over the last 12 months they've ranged from 8 million 10, 12 across three seed investments I made, those are posts. Series A's are back in the 20s, maybe 30 B's are more 40 to 80. And that's a pretty significant adjustment.

Yeah, given I personally know at least 20 founders in my network that have raised A's at 3, 4, 500 million valuations that are.

Yeah, they either better make that money last or do they be in for a really interesting correction.

You and I both are seeing a lot of shutdowns, a lot of asset sales, a lot of everything is happening the market is correcting, even in a big way. What are some common mistakes or pitfalls as you talk to more and more startups that you see that they should avoid?

I think the most important thing is reality, which is if a Founder hasn't recognized that $200 million valuation non starter and they want an introduction to me or they do a meeting with us, all I'm going to do is say, there's way too much brain damage here. We don't even want to take the meeting, we're just going to pass. So the thing you can do constructively as a founder is proactively reframe expectations. So you can say, I know we raised money, for example, at 200, I realize the world's different. Here's where we are as a business and I'm looking for someone who might Support us at 40 million. Then I'd say, oh, okay, that might be interesting. There's a shot that I could be excited about this at appropriate price and valuation, so I might take the meeting. But if you walk in just with blinders on, try to get a meeting at 200, it's going to lead to either, no, we don't really want to take the meeting, or automatic, which isn't helpful.

You've been a part of very disruptive companies like PayPal, Square, LinkedIn, Opendoor, now open Store. Very disruptive companies. How do you balance the need for innovation and disruption with the practicalities of generating revenue and business sustainability?

It depends on the business. One maybe component to that is how much money you're spending to get traction. In some companies it can be zero. Literally the marginal cost of growth can be zero, in which case you don't have to worry about what your revenue is. Your marginal cost of growth is zero because any $0.01 per user is going to be more than $0.00. If you spend any energy upfront, measured in dollars, to get traction, you need to figure out how fast you can pay that back. So if you spend a dollar to acquire a customer, enterprise, customer, consumer, whatever it is, you need to figure out how fast you earn dollar profits. And the faster that loop, the more that validates A that you have pretty good business, probably B that you have product market fit, C that you understand the levers in your business, all of which are good things. So I look at the payback side. That's the number one criteria for me. And if I was the founder, that's the number one criteria I'd be measuring is payback.

And if you keep spending like drunk sailors, like people did in the last couple years, then you are going to beat the fate that you are and the market is forcing you to what are some emerging trends or industries that you find super exciting or ripe for disruption in the near future? Maybe somebody takes an inspiration from here, from our conversation and builds something.

I don't want to overly disappoint you, but I don't really think in terms of trends very much. I'm in the business of backing founders who identify trends and have a calculated probability of mastering those trends and riding a weight. So I'm in the business of letting founders educate me. I very rarely have a macro idea that's worth pursuing to quantify that. I'd say every three to five years I have a provocative idea. So I just wait for people who have a brilliant insight about the world, have some secret the world hasn't appreciated, and have an unfair advantage in being successful and then excited, ecstatic to help propel them. So I don't spend a lot of time trying to come up with my own ideas.

Now, given you've invested in Airbnb and LinkedIn in the early days and YouTube Palantir, what was that spark in the founder that drove you to invest?

There's different sparks in each of those people. Brian, you could tell through the exit of that conversation, was a machine. He literally gave me a monologue in three minutes on why Airbnb was going to be successful. He had very specific data points prove it. From the earliest possible days. It resonated. As soon as you finished the primitive model, I said, this is cool, I need to invest. This is the best thing I've seen since YouTube. The direct quote is so obvious. Pallets here. As soon as I heard the vision, as Joe Lonsdale will tell the story, is actually the only person immediately resonated with everybody else had to be talked into it. So it's different LinkedIn. Because I had a more traditional background starting a law, I think I appreciated the potential value of LinkedIn more than most people in tech, that we're free agents, different career paths. So when Reid explained the future of LinkedIn as your online resume and your what he used to call shingle. Shingle actually for a lawyer, resonates really well. So the vision just was immediately sparked. Obviously I'd worked with Reid for a couple of years that they've all said confidence and disability to ship stuff, build stuff, recruit a team, et cetera. So it's all very different.

And a lot of investments you do. Is it more from the network like that people you know who've worked with other founders can vouch for them. Or have you done any cold email deals? Because you get probably cold emails all the time.

I definitely do both. I wish I could scale just investing people that I already know. The reason why is it's a lot easier to make an assessment the more data points you have. A 20 minute meeting is one data point you're trying to draw. You can literally draw an infinite number of lines through one data point. So it's not particularly easy. The more data points you have about somebody, the more you should be able to draw a line about the potential slope, where they're going to plateau, et cetera. It's just doing my job successfully is a whole lot easier with people that have a lot of common data points. That said, a lot of people start companies do really well are not people that I know. So I have to get proficient at meeting and identifying and assessing people that I have very limited context on. But that's really hard. So for example, fair was one of the better investments I made in my life. Two of the founders had played soccer with me, but also worked for me at Square. And the way I looked at their pitch was, look, I need to make this call 100% of the time correctly. Can these two people pull this off? And if I can't do that, I should quit now. On the other hand, if I just have coffee with someone for the first time, there's other people on the planet that you should be able to assess them well too, and so I don't have such an unfair advantage.

You seem to be super high energy. After two decades of doing startups, you seem to be in great shape. Any personal habits or routine that you believe have contributed to your ongoing success as an entrepreneur and investor?

I've been maniacal about getting 8 hours sleep working on all my life. There's no substitute for quality sleep in terms of health, fitness, brain power. So I'd prioritize sleep. Secondly, I do believe in discipline, meaning you want to do the same thing every day. So my plan is to make things that are not necessarily fun a habit and so they're never a conscious choice. So I do the same workout every single day for six or seven years with no excuses. If I was dying, I'd probably try to figure out a way to do the workout because once I skipped it once, then the next day is optional and I don't want anything important to become optional. So my brain's kind of wired that way. I think things compound that way. But basically turning discretionary decisions into non optional decisions creates the compounding network effect. That's been really helpful. And then B, truthfully things are fun if you find the right people. Even really challenging roller coaster rides are fun. Working with the right people Life and.

Business is not about the journey or the destination but the companions. And I can tell with your fitness level because your bicep vein is popping from and it's very rare to get to that level of body fat.

I'll keep working on it. I've been doing another workout.

Any unconventional advice you've seen founders ignore but shouldn't?

Yeah, the top down created movies obviously pretty controversial. I have another set of thoughts around trade offs between decisions. How to make those decisions. I learned from Reid Hoffman which is strictly rank your priorities. Do not do a pros and cons list. It's a long topic, but basically rank order everything first and then make a decision on the top priority. Then second, third not try to array into an accounting bookkeeping system and then third value time. Like Peter Thiel taught me this systematically. People undervalue their time. It's only resource that's completely scarce. Leverage it, think about how. And that requires some discipline. Be ruthless on your time being willing to say no. My favorite expression I borrowed from Margaret Thatcher is no no, no. So try to say no, no no to things so that you can say yes to the things that are really really important and energizing.

Yeah. If it's not a hell yeah, then it's always a no. You've been super active on Twitter. R A B O I S I think you single handedly probably drove the startup movement that shifted to Miami. Anywhere else you're active other than Twitter?

Not really. I try to concentrate most of my efforts on Twitter. I use new platforms. I posted a lot on Quora a while ago. A lot of those answers are still quite relevant to these topics, so I will send them around to founders people. Feel free to consult them, but Twitter is my primary content creation platform now.

Thank you so much for joining us Keith. Wishing you great success. Another IPO in short order. Thank you so much and have a good one. I need some traction.

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