Sam and Shaan explore the second and third-order business effects of the coronavirus pandemic, covering opportunities in drive-through coffee, RVing, outdoor travel, and church live-streaming. They profile Mark Leonard and Constellation Software as the “Satoshi Nakamoto of boring businesses,” then close with a deep dive on the Pinduoduo group-buying model and how it could be applied to Shopify stores.
Speakers: Sam Parr (host), Shaan Puri (host)
Cold Open and Catching Up [00:00:00]
Shaan: What’s up, how are you, man?
Sam: Oh yeah, your video went blank for a second. I’m great. I upgraded my internet — hopefully it looks better. I called Comcast, paid 60 bucks a month — just called them and with a click of a button I paid them more money and my internet was supposed to improve. We’ll see if it happens.
Shaan: Mad. Great business to be in.
Sam: I’m excited to talk to you. I feel like it’s been a little while. I’ve got a bunch of random topics to talk about. Do you have anything that was top of mind for you?
Shaan: Yeah, well, I know about all this stuff that you have — or a lot of the stuff you have in here. I know it to the point where I wasn’t sure if I wrote it or you wrote it.
Sam: That’s for the best. Okay, great. So I’m gonna start — let’s pick one that’s interesting.
Second-Order Effects of COVID-19 [00:00:45]
Sam: How about we start with this one. Somebody tweeted this and I saw it and I was like, this is pretty smart. So a lot of people right now are talking about coronavirus — how is the world going to change? There’s lots of speculation. I think everybody sort of agrees: handshakes might go out the window for a bit, live sports are gonna be a little tough. There are some things we know are gonna change and some things you can’t really predict — they’re sort of second-order effects.
Sam: So somebody reached out, and they had put together — a group of people had put together this thing called “Second-Order Effects of COVID.” I thought it was great. I’m gonna find the PDF and link it in the description. One of the creators was this guy I’ve met once — super, super smart guy. Are you a Harry Potter fan?
Shaan: No, but I know what you mean. I’m not not a fan, but I don’t buy the stuff.
Sam: So he created this site back in the day called MuggleNet, which was —
Shaan: Oh yeah, I know that guy. He also created —
Sam: Oh my god, what was it — he’s a viral guy — yeah, yeah, yeah. I know all about him. Tell me his name, I’m trying to find it. I can’t believe I forgot it. He started sports media.
Shaan: Yeah, I know about him. I think his business is the one you’re thinking about.
Sam: That’s right. So he started a chain of viral websites and they got really popular, but like everything in that era I bet it just crapped out. But I met this guy once and I was like, oh my god, if I could just bet on this guy’s lifetime earnings I would bet right away. This guy’s really, really sharp.
Shaan: He’s kind of like a little genius, yeah.
Sam: I like when you say that. I think he’s gonna be one of those people who transitions from — yeah, first he created these viral websites, then he created this viral Twitter account and these viral meme websites, and then like, he solves climate change. That’s what this guy’s career should look like, right?
Sam: Anyway, he and a group of people created this thing that laid out second-order effects. The idea is: everybody knows a first-order effect — coronavirus hits, it’s wild. First-order effect: you shelter in place. Okay. But the second-order effect of that is: are people gonna have more babies? Are divorces going to go up because you’re at home? Is grocery delivery going to take off?
Sam: And then there’s a third-order effect. If grocery delivery takes off, they need to hire hundreds of thousands of delivery people — instacart hires hundreds of thousands of people. What happens when all those people go to that job? Now a healthcare system for gig workers becomes more important. So there are these knock-on effects. And from a business perspective, you want to think about where are the biggest opportunities — they’re often in the second and third-order effects. You can start doing work now, and as this plays out, those markets are growing rapidly but you can kind of predict them.
Sam: A classic example is the highway system. It was built for military purposes or something like that, but the second-order effect was Walmart — people are gonna pull off and want to get food, get drinks. So the whole retail system took off because now there’s a highway interconnected system. Second-order effects.
Drive-Through Coffee and Drive-In Theaters [00:05:30]
Sam: One thing I thought was kind of interesting was this idea of drive-through and drive-in. Movie theaters are on the verge of going bankrupt — all their chairs are so close together that people aren’t gonna go back. Movies were already kind of struggling and this might be the knockout blow. So people are talking about drive-in theaters — could that be a thing?
Sam: And on top of that, you have drive-through. How do you minimize contact? Drive-through caffeine. There are some coffee shops — the photos I saw on Twitter, the line is out the door. I’ve never seen a line this long except for Chick-fil-A. And it’s basically just drive-through caffeine.
Sam: So I’m pretty bullish on this. If somebody right now had nine franchises and they were doing well with a drive-through coffee concept, I would now be very very bullish on this thing expanding — going from nine to 200 locations over the next two years. Because I think the need for this is gonna go up. What do you think about that?
Shaan: Okay, so first of all — are people gonna change their behavior forever? Let’s talk about that. Like, are handshakes going away? I don’t know. What’s in and out? What can we compare this to? Like World War Two, September 11th?
Shaan: When I see low planes I get scared. So, no TSA clearance — like you used to be able to just walk into an airport, take a ticket that didn’t even have your name on it, board any plane, five minutes from check-in to the gate. And now it’s like, yes, security, you need your ID, it’s gotta have your name on it, if your name sounds a little sketchy — hope you’re ready to go to the special room. The world changed forever from that.
Shaan: But we’re also talking about something different. September 11th was definitely forced change — TSA was forced. But what we’re discussing is unforced: when you and I see each other, are we gonna hug? Are we gonna high-five? Are we gonna bow? So yeah, some of these consumer behaviors are a little bit more analogous, right? I’m not sure.
Sam: I think so. At least for three years, something is gonna change. The question is what’s gonna change and how long — or is it gonna be a temporary precaution that goes away?
Shaan: How long did you live in China?
Sam: Two years, maybe.
Shaan: Not long enough. When they went through — I don’t know if they’ve had pandemics but they’ve had a variety of outbreaks of things like this. Has their behavior changed? Like, masks are a great example. Masks are quite common in Asia — something you just generally wear out, and nobody even bats an eye. Seasonally, when it’s flu season, everyone masks up: I’m not trying to get the flu. You don’t see that here. But will you? Maybe.
Shaan: I go to crowded movie theaters. There are crowds everywhere in China — you can’t avoid a crowd with a billion people in a small city. But people do behave quite differently than they do here. Gloves are very common there that people here don’t wear on a day-to-day basis.
Shaan: Yes, I do agree things are gonna change. I think specifically big cities are gonna — I mean, I’m biased because it directly impacts me — I think cities are gonna be different. I do think work is going to be different. We’re getting rid of our office.
Sam: Exactly. So there are all these second- and third-order effects. An example of a second-order effect of the TSA: the first-order effect is TSA; the second-order effect is people selling toothpaste in three-ounce bottles because that’s what you need to get through security. Before, who wants a tiny little bottle?
Sam: From a business perspective — I know from a medical, scientific, and cultural perspective you should listen to other people, but from this perspective — it is worth taking a pen, going to a whiteboard, and starting to map out: if this, then that, and if that, then what. The “what” is where your business opportunity lies. And even if you’re not going to go do those things, it’s a good way to get your gut good. The only way to get your gut right is to predict a bunch of times and be wrong or right. I often do these role-playing predictions.
COVID’s Impact on Gyms, Suburbs, RVing, and Churches [00:14:20]
Sam: Let’s talk about some of these predictions. I pulled it up. Some of them are: gyms are gonna go away or significantly go away, which means innovation in home exercise —
Shaan: That’s not even a question, right? That’s like —
Sam: Well, I don’t think gyms are gonna go away necessarily, but people are gonna — whatever the home exercise market was versus gyms, it’s gonna eat more share. Are you exercising at home?
Shaan: Yeah, but you know, I exercise at home as much as I do at the gym, which is like weak on both fronts.
Sam: Funerals? Cities will become less popular. Suburbs and rural become more popular. Like, I just read something today — camping and RVing is gonna be on the rise, because people still want to travel but they’re not gonna want to travel in dense areas, staying in hotels or maybe uncleaned Airbnbs.
Shaan: Yeah, I just rented an RV. I’m gonna do a three-week cross-country trip for my birthday in June. I love that. I completely agree. I’ve never understood the appeal otherwise anyway. Americans are kind of interesting — whenever they want to do a gap year or travel for a honeymoon, they always want to go outside the country. I’m like, dog, let’s explore here. It’s way easier and we have everything. America is one of the only countries that has every geography, every climate.
Sam: Another thing he talked about is virtual tours and virtual museums. On Trends we had talked about a company that was crushing it with virtual museums, and also a company doing the VR thing — Sandbox VR, I think.
Shaan: Yeah, sandbox VR. You have to go to a physical place, wear a headset that somebody else wore an hour before. They’re in malls, they’re supposed to rely on mall foot traffic, and foot traffic is dead. Nobody wants to wear a device that somebody else just wore. It’s kind of a fringe behavior anyway. I talked to them — they had to be really conscious about how they were gonna survive. They did some layoffs and whatnot. They have to figure out what the new world looks like.
Shaan: Unfortunately, some great ideas and great businesses — some markets got punted back a year or two. And some markets got pulled forward.
Shaan: Like my friend Chris from First Base. They do remote work setup — you know, everybody’s now at home. When I started advising him it was like, hey, I think companies are going to be going more remote, and if you have a remote employee they need a desk, a chair, a webcam, a microphone. Maybe companies will pay to give them a home office setup. I wasn’t sure. And then boom, this thing happened, and his waitlist has exploded — thousands of companies signing up and he can’t handle the demand.
Shaan: Now every company has someone at the head of HR planning how to manage so many remote employees. And also — hey, this remote thing actually kind of works. Why are we paying so much for our office? Let’s just do this, it’s way cheaper. The world has changed for him. His market got accelerated by four years.
Sam: That’s incredibly fascinating. I think we should just link to this document. There’s no way we can cover it all. But I think it’s cool that they published it as a Google Doc that anybody can access.
Sam: One more that I like on here: church. Church was one of the super-spreader places — everybody congregates, people hug, shake hands, and it can spread throughout a community rapidly. So how are people going to do this? Is church gonna go away? No. Are people gonna go in six-feet apart? Maybe.
Sam: I’m of the opinion that church live-streaming is going to be a very big deal. I’ve been in the live-streaming space for a while, so maybe to a hammer everything’s a nail, and for me everything can be live-streamed. But church is one of those things that’s every Sunday, so people can build a habit. And the experience of a livestream sermon is pretty much just as good as being there — it’s not that much worse. In fact, in many ways it’s more convenient, and you have all the community features like chat or donations. That’s what the Twitch product is, for example.
Sam: There’s a platform called Church Online Platform — some horrible name like that — built by a pastor who was also programming in his spare time, sat in the pews and coded this thing up. It’s unbranded, backwards in a way, but they have 7 million members or something crazy. And I guarantee that’s not the best thing that’s out there.
Sam: So for me, digital faith is a big thing. Whether that’s like a Nextdoor for churches — I don’t know what that means but it sounds provocative. Is it Twitch for churches? What is it? If that meant something to me, if religion meant something to me, I’d be like: now is my time. I need to combine technology with community building and religion and bring these real-world institutions online.
Outdoorsy and the RV Rental Market [00:24:00]
Shaan: Speaking of this coronavirus stuff — you have Outdoorsy on our sheet. I’d love to talk about that. I don’t really know anything about it, I just put it on there because I’m like, interesting. I didn’t do any research. You tell me about it.
Sam: Okay, let me pull it up. The description: peer-to-peer marketplace to disrupt the $32 billion recreational vehicle industry. They’ve raised $75 million. It’s to rent your RV — like what you said, you just rented one.
Shaan: Actually I haven’t rented one yet — I think I’m gonna drive from San Francisco to New York and then maybe fly back. I have a lot of outgoing quotes.
Sam: For Outdoorsy, it’s kind of like Airbnb where you submit it and sometimes you gotta get approved. If you want to learn about this industry, there’s this guy who’s on a TV show called The Profit — Marcus something.
Shaan: Marcus Lemonis, yeah.
Sam: Anyway, a lot of people don’t know this, but Marcus is actually the CEO and chairman of Camping World, Good Sam Enterprises, Gander Outdoors, and the Houseboat Shop — basically all of it is around RV and camping. You can go read about this company and a lot of their information is public — huge business, many hundreds of millions of dollars in revenue, maybe even hundreds of millions in income.
Sam: What Outdoorsy is doing is basically kind of disrupting that model, and I love it. Do you know what their revenue is?
Shaan: I don’t know Outdoorsy’s revenue. Let me do a quick check. Yeah — $125 million in 2019.
Sam: Jesus Christ.
Shaan: Okay, but there’s a difference between revenue and — is that their revenue or gross bookings? That might be their GMV, because marketplaces love to do that.
Sam: Let’s say you take 10% of that, so maybe $12 million is their cut. They’re just exploding right now.
Shaan: Yeah, this is a great business. Marketplaces are great — what are the fringe or niche marketplaces? This is one of them. Renting RVs. And now is the time. I think they’re gonna ride a wave of interest as people crave being outdoors, crave travel, but need to be away from others.
Hipcamp, KOA, and the Outdoor Hospitality Ecosystem [00:27:00]
Shaan: How about Hipcamp? Are you familiar with it?
Sam: Yeah, they’re like the same idea, right? Like turnkey glamping?
Shaan: Camping experiences — camping in the way that I don’t do, where I’m like, do I want to learn how to camp and go get a REI membership and buy hundreds of dollars of stuff and then be wet all night? No, I’m not into that. But this is like an Instagram-worthy tent experience.
Sam: It can be as easy as that or as difficult as you want, right? You could rent a cabin or just get a plot of land. And apparently they’re booming. They’ve raised about $50 million.
Sam: What’s interesting is if you told me about Hipcamp two years ago I’d be like, this is not interesting. But it actually is. And I always like to look at comparables. Do you know what KOA is?
Shaan: Never heard of it.
Sam: Okay, so KOA — I don’t know what it stands for — but it’s a campground chain throughout the country. If you go to Colorado, you’ll be on the highway and you’ll see signs for KOA. What that means is: if you’re a member — I think it’s like $20 a year, super cheap — you can camp there either for free or for five bucks a night. I used to use it all the time when I was traveling.
Sam: According to some analysts, they do about $40 million a year in sales and they charge like five bucks. It’s dirt cheap. If you want to learn about this market, look up KOA — that’s probably the best comparable.
Shaan: I can’t believe I’ve never heard of KOA.
Sam: I know! It seems like an obvious, fantastic idea. But what I love doing is looking at these older things — like KOA, like Boy Scouts — and saying, show me the demand. That gives me an idea, and if you just add add-ons and operate it in a way where you prioritize revenue and profit, things get super interesting.
Sam: I also think in terms of RV, I would look at Marcus Lemonis’s companies. A lot of that information is out there.
Shaan: I love hearing about businesses I’ve never heard of that are successful. I feel like my brain is organized like a set of hangers, and every hanger I can just hang another business or business model onto. That’s mapped in my brain, and when I see something new I’m like, is this a new hanger or do I attach this to one that already exists? I start to see patterns. Oh yeah, there are five things just like this. That’s what I love about hearing about new things — just another thing to hang in my brain.
Home Upgrades and Pandemic Spending [00:32:00]
Shaan: Have you upgraded your home at all while you’ve been at your house?
Sam: I had built a home office right before COVID because I was planning to work remotely anyway for the month of March — which happened to be right when COVID hit. So that’s been the only home upgrade. And then stuff started breaking — my dishwasher broke and my dryer broke.
Shaan: That’s not an upgrade, yeah.
Sam: I started going to the park every single day and I bought these little fold-out park chairs. I’ve actually seen several friends buying this same product called CliQ. It’s a park chair — you know, the kind you’d take to a soccer game. The key is how small and discreet you can make the fold. I’ve seen like three different people I know mention this thing, and I bought it myself too.
Sam: Before that I began spending — I think I’m saving like, actually ever since the stock market crash I have refused to log into my accounts. Everything is right there and I could check it, but I haven’t logged in.
Shaan: I sold though. My philosophy was — man, there’s gonna be like dead bodies in the streets of New York and that’s gonna scare Wall Street. Someone’s gonna take a picture of a body in an open van and people are gonna flip out. And that happened — there were videos of ice trucks with bodies. And nothing happened. That day I saw that picture I was like, I’m out. It took off a week after. So I’m still sitting on a lot of cash and I’ve lost money that way. If it goes down again I’ll get back in.
Shaan: Anyway, I haven’t logged in. I usually use Personal Capital and I check my finances all the time — I have not logged in. But the other day I went and bought like eight or maybe a thousand dollars of artwork because I’m like, I haven’t bought anything in forever. I’m just gonna buy what I want, because I’m normally pretty cheap.
Sam: Have you been buying like crazy?
Shaan: Dude, because I shop online and I’ve lost track of time and space, I’m just buying things. There’s stuff arriving and it’s like — if you can’t go anywhere, the next most interesting thing is someone comes to your door and leaves a mystery box. And you’re like, oh what did I order nine days ago? I don’t know, I’m excited. It’s like giving yourself a gift. So I keep doing that.
Shaan: Also all the delivery stuff is super expensive. I’m Postmating and Instacart-ing and it’s like $400 for groceries or something crazy. I don’t know if that’s just an SF thing.
Sam’s Inspiration Wall [00:38:00]
Sam: Can we — alright, I want to talk about this Mark Leonard guy you have. But before we get to that I have a good segue. I’m gonna get rid of these maps I have on my background. Little people listening: I have a background and I’ve got maps, which apparently is like a super basic thing to do. I didn’t know that.
Shaan: Yeah, it’s basic with a capital B.
Sam: St. Louis, Nashville, New York, San Francisco — me and my wife are from those areas. I’m gonna switch it up. I have a wall of people who I like to be inspired by. So let me tell you who I have.
Sam: I have Steve Prefontaine. You know who that is?
Shaan: Never heard of who’s that.
Sam: There’s a movie about him that’s really great — you don’t have to be a runner to like it. He was a runner at Oregon. He was the first person to wear Nike — Bill Bowerman was the coach of Oregon track, his athlete was Phil Knight, they partnered and made shoes together. Steve Prefontaine was probably the first sponsored athlete, and he was kind of a badass. He was like — he would say, “to give anything less than your best is to sacrifice your gift.” He said all this inspiration stuff. But he died when he was 24, died in a car crash — he was drinking and driving, flipped his car and suffocated. Pretty tragic. He’d gotten fourth at the Olympics when he was a favorite at 23. It was a big deal. He was also really good-looking, so it’s easy to admire him.
Shaan: Props to you for admitting that’s part of the appeal.
Sam: Yeah, it’s like a romantic kind of thing. Anyway. Then I have Eazy-E and Dr. Dre. Eazy-E, when he was only 23 or 24, created Ruthless Records, which went on to become a huge business — hundreds of millions of dollars a year in sales. He was a kid from Compton who on paper had no reason to be there. Dr. Dre changed culture in a variety of ways.
Sam: Then I have Felix Dennis and Ted Turner. Ted Turner started CNN. Felix Dennis started a media company and was like Richard Branson but more vulgar. Google him.
Sam: Then I’ve got Mike Tyson. I love Mike Tyson. He screwed up so many times in his life, but he’s done a good job of being ferocious and coming back. Then I’ve got Tupac. And then that’s it.
Shaan: That’s amazing. You have like the Intimidators’ road — the majority of your people fight for a living, or like, should fight.
Sam: I’m incredibly fascinated with people who on paper should have done nothing and they did really well, and were also having fun along the way. Like Ted Turner — he was a southerner who stuck out, but he had a bold idea and he laughed along the way. I’m always fascinated by that.
Sam: I went to our friend Suli’s house — he had this wall of photos, like “why are these pictures here, they’re not your family?” The first one I saw was Hillary Clinton. I was like, why do you have Hillary Clinton on your wall? He said, “these are people I admire.” He had seven photos — I only knew three of them. He told me the rest and it was like, Hillary, Malcolm X, Martin Luther King or something.
Shaan: What did he admire about Hillary Clinton?
Sam: Hillary Clinton, Suli — look, I have no idea. I guess she’s admirable. I’m not gonna sit here and hate on Hillary, I don’t hate Hillary. But I am so surprised she made it to your wall. That doesn’t make any sense. She’s not — I don’t know. Like, maybe mediocre? Let’s move on.
Billionaire of the Week: Mark Leonard and Constellation Software [00:44:00]
Sam: Let’s talk about this guy. Constellation Software. Shaan put this on here as the Billionaire of the Week. His name is Mark Leonard — Constellation Software. We sometimes do this: billionaire of the week.
Shaan: So I had heard about this from a few people. You had Andrew Wilkinson on here, and he buys internet businesses and has this conglomerate of small internet businesses that he’s collected — now worth, let’s call it, a hundred million dollars or thereabouts. That’s a fantastic success. This guy Mark Leonard did that like he’s Andrew’s daddy. His company is worth $31 billion.
Shaan: What they do is they buy software companies and roll them up. They try to be a perpetual owner — they’re not like private equity doing a leveraged buyout and trying to flip it. They just own the thing for a long period of time and hold the cash flows.
Sam: What I like about this guy — what I thought was cool — is this guy is like the Satoshi Nakamoto of boring businesses. Nobody knows anything about this guy. You can’t find a photo.
Shaan: What’s that reference?
Sam: The Bitcoin guy. You just don’t know a lot about him. So this guy, you can’t find photos of him, he doesn’t do public appearances, he doesn’t really talk. He writes his annual letter. I was reading the definitive piece on him, and it’s like: all we know is this guy was born in 1956, maybe in South Africa, maybe in England. I was like, what the hell? We don’t even know where this guy’s from.
Sam: On his bio he wrote: “I was a VC, but before that I was a banker, evaluator, Mason, gravedigger, dog handler, bouncer, sapper, and wind energy researcher. I particularly enjoyed the bouncing, but an early retirement was necessary.” I don’t even know this guy but I love him.
Shaan: I think half of those are a joke.
Sam: Here’s their business: in the early days they bought businesses with two to four million dollar acquisition targets — very small acquisitions. On paper you’d say that’s asinine. Small ball. But small ball has turned into big league returns. This data is out of date now, but when I was reading the article: they had 1.2 billion in sales, 20% margins, doing 10 to 20 acquisitions a year. At the time the market cap was $5 billion. I looked it up while reading the article — it’s now $31 billion.
Sam: Their sales were only three billion dollars. A lot of money, but that’s not a huge multiple for a $31 billion market cap.
Shaan: I wonder why they’ve had such a run-up.
Sam: You can see the stock chart is just going up like crazy, and they use that to make acquisitions. This guy writes annual letters that are pretty interesting. If you’re like me — I like to read Bezos’s annual letters, I like to read Buffett’s — this guy is a new one I’m adding to the arsenal. He has a lot of interesting views on business, none of which are totally groundbreaking. But he does something that most people fail to do — the same thing Warren Buffett does: take a very simple principle that everybody would nod their head and agree with, and then actually stick to it and do it for 40 years. That’s the winning formula. Most people nod their head and then go do something else.
Sam: They have a focus on what they call vertical market software. Some companies are horizontal — like Slack, every company can use Slack as a messaging service. But what about vertical things? Software specifically tailored to, say, a golf club — managing bookings, tee times, memberships. Every golf club will use whatever the best software is, they’ll pay for it every month, reliable, they’ll never churn. So they buy things like that: golf club management software, healthcare software, public transit software, law software. They consolidate vertical market software.
Shaan: What do you think?
Sam: I love it. I love that he’s a mysterious character, I think that adds to it.
Incentive Design and the Operator Problem [00:52:00]
Sam: Here’s an interesting takeaway, and this actually kind of changed my business game. When Tim Ferriss invested in us, he told me — he goes, there’s this thing I learned from someone called inverse incentives. The idea is: when you incentivize employees to do something, you need to have an opposite incentive that makes sure it’s balanced.
Sam: For example, if you tell your sales team they have a huge quota, you also have to have an incentive for revenue collections — meaning you only go after quality customers who can pay their bills — or a retention incentive, meaning you only get paid fully if you sell people who want to come back. Counter-incentives. That actually changed the game for me, because with driven people, the right type of person will kill to hit that number. But you really need that second incentive to ensure you’re getting quality and quantity.
Shaan: I love this incentive. But what I want to know is: how on earth do they recruit all these people who are talented enough to run a business? I’ve hired CEOs for a handful of small businesses I’ve had, and most — except for one or two — have been horrible. Maybe I’m just bad at hiring, but it’s also just really hard to find these types of people. In my mind, Constellation is more like a recruiting company than an innovative software company.
Sam: Yeah, I think that is the make-or-break. You also invested in our friends who are doing Enduring Ventures, right? These guys are basically starting a modern-day version of Constellation — they’re buying companies to hold forever that have strong cash flows. They’ve already bought their first business — they bought UpCounsel, ironically.
Shaan: Which was somewhat outside the model. The thing I said earlier: say a simple thing, nod your head, agree, and then go actually do it. I think they didn’t quite do that with UpCounsel, because UpCounsel is a potentially great business but was in rocky waters at the time. But they structured the deal so smartly that I think they’ll still make a lot of money from it.
Shaan: Anyway, they’re doing the same sort of thing. And their biggest challenge is: how do you find operators? When they bought UpCounsel, the CEO they placed was someone Savir had worked with and knew very well. They brought in a team from personal networks. That’s what Andrew said he did too — he pulled from people he knew or had worked with before. But I think that is the largest challenge with this business model: maintaining a great business by having good operators in place. Because when you buy out the owner, sometimes you lose the great operations.
Sam: If this interests you, there are a few giants you can look up. One of them is Vista Equity — that’s Robert F. Smith, who’s the richest Black man in America. He’s the guy who paid the tuition of everyone at Morehouse at his commencement address. He said, “by the way, all your debt is paid off.” He’s cool. And look up Trilogy Software — look up Joe Liemandt, who we’ve talked about.
Excitement vs. Boring Businesses: The Tesla vs. Constellation Debate [00:58:00]
Sam: You want to talk about — okay, so there are companies like Tesla, and basically a lot of what Elon does, which is super sexy. I mean, I’m not personally interested in it, but it is quite sexy to say you’re gonna go to Mars or you’re creating these neat, fun cars. And whenever I think about these companies, they’re the coolest companies — you create a hype video at the end of the year and you see everything they’ve done and you’re like, oh my god, that’s so sick.
Sam: Constellation doesn’t do that. He doesn’t make a video of himself looking at his golf club software. It’s boring. But it’s still fascinating, like a fun puzzle.
Sam: Shaan, where are your aspirations? Do you want to do something full of excitement, or do you find excitement in the boring?
Shaan: I used to be pretty hardcore about this. I was like, dude, the only thing worth doing — I was really dismissive of people wasting their time on things that weren’t the peak of the peak. I was like: why would I do a job when I can own a business? Then, why own a small business when I can own a big business? They both take the same energy and time. Why do a boring thing when I can do an exciting thing? That train of logic made sense to me, and I did that.
Shaan: At Monkey Inferno, we were here to create the next hit consumer thing. We didn’t give a damn that those odds were low — we wanted to create something like Michael had created with Bebo, which almost became Facebook. It ended up in the Myspace pile and did well financially, but didn’t change culture. So we were like: we can do this. We tried messaging apps, live-streaming, all these different consumer things — and failed like crazy. Even things that kind of worked ultimately weren’t successful because they were so grand-slam-driven.
Shaan: So I backed off that. Maybe I’m just burnt — I just want to get wins. I don’t need to change culture. I need to change my bank account and my lifestyle. So I don’t know to what extent I’m — I can frame it either way. Am I more mature because I’m like, I don’t need the sexiness, I just want to build great businesses? Or am I just fearful and burnt out from failure? It’s hard to say.
Shaan: My view has definitely changed. Now I’m like, oh, that Elon path — I don’t know, that sounds like a lot of effort. Why don’t I just do this simple thing that’s gonna work?
Sam: And part of me agrees. I am the same. And then the other part is like, yeah dude, but you’re just kind of being a wimp. What would the twelve-year-old in you think is awesome? And every once in a while you gotta listen to that.
Sam: The other day I was thinking about making a purchase — I’m gonna sound like an entitled rich guy right now, which I’m not — but I was gonna buy like a cool car. It wasn’t expensive, like a $10,000 car, not practical. I was weighing the pros and cons, and then I was like, yeah, but this is fun and cool and I want it. And I’m like, what have I become? Such an old man where I’m not just doing stuff because it’s exciting?
Shaan: I think on some level Warren Buffett — he’s a capital allocator. He spends his time figuring out: do I put money into Pepsi or Coke today? And Elon’s like, yeah, that’s boring. I want to make cars electric so we don’t depend on fossil fuels. I want to get us to Mars so we’re an interplanetary species. I want to do Neuralink so our brains can download and upload information. I want to do Boring Company because I hate traffic.
Shaan: When you hear that you’re like, yeah, that does seem like the maximum of winning. But my views have broadened. When I hear myself saying “just do the practical thing,” I’m like, don’t be a coward. Come on. Go for it. Don’t do what you’d do at the beginning — don’t lose that dream just because of practicality.
Sam: I’m a fan of motorsports and motorcycles, old Porsches, all these exciting things. And I see these guys on YouTube like Ken Block, and he’s got this compound — or Travis Pastrana — just a grown-up playground. And I’m like, oh, one day that would be cool. And then I’m like, no, no — why can’t I just do that now? I constantly have to battle that in my head. So it is about prudent versus excitement and the balance between the two.
Pinduoduo: Group Buying for America [01:08:00]
Sam: Okay, let’s leave with one or two ideas. Are you familiar with Pinduoduo?
Shaan: No.
Sam: Okay, so Pinduoduo is one of the largest companies in China — I think like a $30 billion company that grew in the last four years or so. All those numbers could be wrong but you get the idea: big Chinese company. What is Pinduoduo? It’s like Groupon but with your friends.
Sam: You go on Pinduoduo and there’s an item — the number one selling item is tissue boxes, number two is like a vacuum or something. It’ll say: you can get these two tissue boxes for $20. But if you buy with your friends, you can all get them for $8. Create a team to buy.
Sam: The way you create a team: it just gives you a link and you share that link through WeChat or whatever your messaging app is. If your friends say yeah, cool, I’ll join the group, they contribute, you all get the lower price. These are team buys. This has become really really popular in China. I don’t think it’s become popular anywhere else. I know there are a couple of companies trying this in India as well — and God knows Indians love a good discount.
Sam: I was thinking: if I was an entrepreneur sitting at my desk with nothing on it, I would just write “Pinduoduo for X” and spend a day figuring out what X is.
Shaan: I love it. Can I give you some examples?
Sam: Sure.
Shaan: So, Tilt. It was called Tilt — Josh raised a lot of money, it crashed and burned. But Tilt wasn’t discount-based — it was like, we need $500 for a kegger, everybody pitch in $10. A way to collect money, not a group discount. So let’s get rid of that comparison. You know Drop, formally known as Massdrop?
Sam: Yeah, that’s similar.
Shaan: I think to make this work it’s all about the packaging and the positioning. Massdrop can offer the same technology, do the same thing, but you really got to get that angle exactly right. From my friends who have inside information, they claim Massdrop is booming. Massdrop has raised close to $50 million and everyone who knows the space says it’s a sleeper and it’s doing wonderful.
Sam: Also — something like Masterclass actually allows you to share passwords with one or two people. Someone in our Trends group said, “hey, does anyone want to split Masterclass with me?” And it was our most engaged post ever. So I completely see the validation here.
Shaan: Yeah. Back in the day I think Woot was like this, and there were some others. But the magic of this is that it’s your actual friend group. The problem with Groupon is you get deal hunters — there’s this population of deal hunters getting everything at a discount and they’re not necessarily great long-term customers. What’s cool about this is you know one of the challenges for any business is customer acquisition.
The Pinduoduo for Shopify Idea [01:15:00]
Sam: Here’s how I would do this today: I think you can create Pinduoduo for Shopify.
Sam: There are, let’s call it, 100,000 Shopify stores. Every single one wants more customers. They try to get them through Google SEO or Facebook Ads — two primary ways. And they’ll pay $15 for a customer. If they want another customer, they pay another $15. That’s unfortunate.
Sam: You know what one of the big booms in Shopify is? Afterpay or Affirm — basically says, hey, at checkout, instead of paying $85 for this, you can do monthly payments for $9. That increases the checkout rate because people can pay $9 a month easier than they can do $90 upfront. Adding an Afterpay button increased sales.
Sam: I think if you added a “buy together, save together” button, you would also increase sales. The way it works: you’re about to check out, and it says, “great, you can have this item for $80, but if you get five friends to buy, you all get it for $60.” You’re basically saying: rather than me paying $15 per customer to Facebook Ads, I will pay $10 right now to discount this item for you, because you’re going to go acquire five customers for me.
Sam: If I reduce my revenue by $20 per customer, I’m able to acquire customers through a new channel besides Facebook Ads — which is steadily increasing in price. And if you get introduced to a product through a friend, you have a better relationship with that product, better experience, better retention than if you’re only being advertised to by the company.
Shaan: I think this is the best idea. It’s very hard, because you have to build something from scratch, and it’s all about getting the positioning exactly right. But I think if you do, you’re onto something. It’s kind of like live streaming — it’s not hard to make, there are so many of them, but you really got to find that angle.
Sam: The other thing I think is interesting: thinking about Shopify, what other buttons would you put at checkout? In mobile games they do this all the time — you run out of lives and it’s like, you can buy another life, you can share this with a friend and get a life, or you can watch a 30-second ad. The mobile games are like a little wizard sitting inside a slot machine just trying to figure out how to get your money, time, or attention. They’ve optimized the hell out of this.
Sam: What can you learn from that? Maybe if you have a Shopify store, there’s a plugin you can add to checkout which says: if you want an extra dollar or two off, click this button and like us on Instagram. Now my Instagram is growing with every customer that joins.
Shaan: There are definitely tools that allow you to do that. The most popular one is email — give us your email and you get 15% off. That’s level one. But the idea of team buying, sharing to Instagram, liking us — there are just more things you could do at the checkout page: how do I get your time, money, or attention in some way you’re not currently giving me?
Sam: And Shopify is so big now that if you build something that works on Shopify, you can build a $10 or $20 million business pretty quickly because every store will just adopt these best practices fairly quickly.
Shaan: I think the first thing — group buying — is incredibly interesting. I’ve always thought Groupon’s model has to have a better version somewhere. I love AppSumo, which does group discounting for software.
Sam: Where else could you do group buying? Kickstarter is this, right? You set a threshold and if you don’t cross it, the deal dies.
Shaan: Yeah, and I think it works better when the thing costs the maker nothing — software is great because every incremental sale costs zero. Versus a physical item, where the more people buy, the more you have to produce. So I think digital works better than physical. And probably higher-priced items, because the discount matters and there’s more margin to be captured even after the discount.
Sam: What about using it for things businesses buy? I want to buy PitchBook but it’s $20 grand a year and I’m not gonna use it that much. I would love to split it with someone.
Shaan: One weird idea: I’d want to figure out a way to use it for lawyers. Instead of having a legal firm be my lawyer, I split a lawyer with you and five other people. That’s a great name, actually — “Split It.” A company trying to do this: “hey, you can do this, or you want to split it with four others?”
Sam: You have to have a ton of volume to make it work. But here’s the thing: if the price is $100 and I’m gonna split it with five people, what ends up happening is everybody gets it for less than $100, but the total adds up to more than $100. It’s like how a personal trainer does group training: if you want one-on-one it’s $100 an hour, but if there are two of you, you each pay $70 and now I make $140 instead of $100.
Shaan: That’s a great idea. I love Split It. I’m never gonna create it because it seems way too hard. But I understand the need and the problem, and I would love to be involved as a customer in some capacity.
Sam: Split your brain some rain.
Closing [01:27:00]
Shaan: We’ll be back in a couple of days with another brainstorm. People say you can’t keep up this pace — how can you keep coming up with new ideas every week, twice a week? Are you crazy? But they don’t understand how this brain works. If you spend enough time doing it — which we definitely don’t always do, but a lot of times we do — it is not that hard if you lower the bar on what you call an interesting or good idea. Lower the expectations. Practice. That’s the criteria. That’s it.
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