Mike Maples Jr., founding partner at Floodgate (early investor in Twitter, Twitch, Lyft, Okta), walks Sam and Shaan through his framework for identifying breakthrough startups — starting with four macro inflections he’s betting on: blockchain, the shift from office culture to cloud culture, America Next (tech-forward infrastructure), and consumer cloud/metaverse. He explains why great startups create movements rather than markets, why founders should “force a choice, not a comparison,” and how network capitalism is displacing industrial capitalism across every sector of the economy.
Speakers: Sam Parr (host), Shaan Puri (host), Mike Maples Jr. (guest, founding partner at Floodgate)
Cold Open + Intro to Mike Maples [00:00:00]
Sam: Let’s say everybody’s selling bananas. You can’t say “I’m a 5x better banana.” Instead, you should come out and say “I’m an apple.” Not everybody’s gonna want your apple, but a hundred percent of the people who prefer apples are gonna want what you have.
Recap of the Previous Episode [00:00:30]
Sam: All right. Yeah, Shaan — this was a pretty good podcast. How’d you feel?
Shaan: It was good. It was like we showed up with no context. Like, what are we going to talk about? Do I need to talk about bitcoin? Do I need to have something smart to say about bitcoin? Because I kind of just — you know, I believe, I buy, I hold. I’m like a monkey in this space. I’m not one of these experts. But we talked about solopreneurs — biggest solo capitalists, solopreneurs — and some of the different things around that. So I thought it was actually a pretty good conversation. Ben was there and he said, “I liked this one because I feel like everything you said in this was something new that I had never heard you say before.” He said, whereas once you listen to somebody for like hundreds of hours you kind of hear the same greatest hits over and over again, this felt like new stuff.
Sam: Speaking of listening to us for hundreds of hours — or at least listening to you — we had a good episode. We just interviewed this guy named Mike Maples. Mike was pretty cool.
Shaan: So Mike is a little under the radar, but he started Floodgate, which is a really big venture capital firm. Fascinating guy. What have they done?
Sam: They’ve done Lyft, Twitch, Twitter, Okta — which is like a giant public enterprise company. A bunch of big winners that he was an investor in pretty early. Considered one of the best venture capital firms there is.
Shaan: Really insightful guy. He had a hint of biology — I mean, he was high IQ. I’ve been using the phrase “high functioning.” He was a high-functioning southerner. He had this disarming way of talking because he’s got this sort of southern or midwestern accent. Very relatable, very likable, but then the things he was saying — each one was like a bullet, a real insight. He definitely had a few refined ideas about where he thinks the puck is going. I appreciate that. I like that he gave us basically these four waves. He was like, “I believe these four inflections are happening right now, and that’s going to create a bunch of opportunity.” That’s what I look for: how is the world changing, and what’s going to be new because of these inflection points?
Sam: I was taking notes. The four things are: blockchain, cloud office, America Next, and cloud culture for consumers. Those are the four things. And we went into each one, though we didn’t fully cover all of them. He talked about cloud office and the opportunities there. I thought it was great.
Shaan: I loved it. I loved the way he had phrases for things. I thought at the beginning he was a little too intellectual for me — I was like, okay, where do I go with this? I didn’t know how to attach it to a concrete idea. But that was maybe the first 25 minutes, and then the next 75 I thought were fantastic, where it really came down to earth.
He has this amazing way of talking — I’m kind of jealous. You know, I try to be like that, and when I see somebody who’s really good at it I’m like, “Man, you’re good at this.” He had these little coined phrases for his philosophy, his mental models. He’d say things like, “A startup is like a jazz band, not a marching band,” and then he’d explain the analogy. Or he’d say, “I want people to choose, not compare.” It’s hard to understand at first, but once he explains it it’s like — oh, that’s a wonderful mental framework. Like that Kanye song: you don’t know exactly what it means, but it sounds provocative and you lean in. That’s how I felt with a lot of his phrases. And then he’d explain them. So anyway, I thought it was really good. Super nice guy, very humble, very likable. Great episode.
Sam: I agree. And he offered to come back. I couldn’t tell if he was just being nice.
Shaan: We’ll have to have him back. He was awesome. How did you feel about when you hit him up for some intros?
Sam: I thought it was pretty smooth. Yeah, I gave him the opportunity to be a hero, and if not it was totally okay.
Shaan: What was the angle?
Sam: I’m gonna start asking every guest: “Who do you think would be an awesome guest for this podcast, and what’s the best way to get in touch with them?” Then they have the opportunity to say, “Yeah, just reach out, he’s a nice guy,” or “Let me shoot him a note right now and intro you guys.” I thought that was a great angle.
Shaan: I wanted to call it out because our listeners are getting this behind-the-scenes look. As I heard you say it, I was like, smooth, Sam — going for the intro. We didn’t get the kill this time but we’ve built enough rapport with him that I can email Mike and maybe he’ll hook it up.
Introducing Mike Maples Jr. [00:09:00]
Sam: So Mike — I was connected to you because my good friend Noah Kagan said, “You gotta talk to this guy, he’s pretty interesting.” I’d also heard about you from Tim Ferriss, who lived near me and was a friend. He told me there are like two or three people whose advice he listens to when it comes to investing: one is Naval, the founder of AngelList; one is Scott Belsky, who started Behance and is now probably going to be CEO of Adobe; and three was you. I looked you up and you kind of keep a low profile. You started Floodgate, which invested in Twitter, Twitch, Lyft, all types of amazing stuff. So here we are. Let’s give it a shot.
Mike: Thanks for having me. I’ve listened to your podcast a bunch of times — the episode with Kevin Systrom from Instagram is one of my favorites.
Sam: Starting Greatness, right?
Mike: Yeah, Starting Greatness. It’s kind of a labor of love. Some of the people who work at Floodgate would have hallway conversations or meetings and say, “I wish we could have recorded that.” So in many ways the guests help bring the key ideas of starting greatness to life, because I think there are some counterintuitive lessons of starting a great startup that are not obvious.
Sam: You have a good voice and your intros are great on the pod. They always have something — I don’t know how much time you spend on that, but the intros are really good.
Mike: Thanks.
Sam: Compare that to us — we’re sort of famous for barely doing an intro. You’ll be ten minutes in and be like, “Who the hell is this guest?” And sometimes at the end we do the Irish goodbye, where we’re like, “Okay, that’s it.” We just end it and go about our day. People have started making fun of us and making shirts about the Irish goodbye.
Mike: I love that. I also hate saying goodbyes. I hate the unwind of a conversation. I like how you guys just leave.
The Four Inflections Mike Is Betting On [00:12:30]
Sam: So we could talk about all the great stuff you’ve invested in, but I’m more curious about what’s got you excited now. What trends are you seeing where you’re like, “I don’t fully know what’s there, but there’s enough for me to be interested”?
Mike: That might be a good segue into how I think about what the next big thing will be. There’s this thing I say to founders which is very counterintuitive: if you want to start a great startup, don’t try to think of a startup.
The reason is that great startup founders are like time travelers. They get out of the present and they visualize different futures that break free from the present. When you try to think of a startup right now, you tend to orient yourself in the world of the present, and you end up with incremental, conventional ideas rather than breakthrough ideas that change the arc of the present to a different future.
So what I encourage founders to think about: what are the inflections? What are the waves of change that are going to be so massive that they’ll allow an entrepreneur to change the subject about the future? These waves are like the gathering power of the ocean — you gotta catch the right wave to have a chance to do great things. Only with big inflections does an entrepreneur go from being disadvantaged relative to incumbents to having a fundamental advantage over them.
So the areas I’m interested in tend to follow the inflections. One is obviously blockchain and crypto. If I was starting a startup today, that’s probably where I’d spend most of my time.
Another area is what I call the transition from office culture to cloud culture. In the past, the cloud was more of a delivery mechanism and a business model for application software. But now what we see happening is that Microsoft Office is literally a metaphor for the office — files, memos, file drawers. That’s what our desktop looks like. But now it’s not the editor that matters as much as the comment system and the versioning. It’s more like GitHub meets knowledge work. And when you have cloud culture rather than office culture, you can take advantage of a lot of arbitrage — time arbitrage, talent arbitrage, geography arbitrage.
The other thing I’m interested in I loosely call America Next. I think 2020 was the first real year of the 21st century. There were a lot of issues people were paying lip service to, a lot of stagnation. 2020 helped people understand that our military needs to become more agile and tech-forward, that our ability to get life-saving remedies to market faster — we need to take that seriously. China as a geopolitical challenger. As a result, I think the United States and the western world are going to decide they need to invest, for real, in tech-forward infrastructure. And on the flip side, people are going to realize our infrastructure is vulnerable to cyber hackers and ransomware, whether organized by rogue gangs or nation states.
And then the fourth area is cloud culture applied to consumers — which some call the metaverse.
Shaan: For the cloud office one, what products excite you?
Mike: One company I’m involved with is called Almanac. It allows teams of people to create documents collaboratively. This has already happened in code and design. In code, you had GitHub — in the past you just had code snippets that you shipped around, but GitHub made code social. You could branch and fork and collaborate as a team at the center, rather than as an afterthought. Then Figma did the same thing with design.
So what we believe is that in a world where talent can live anywhere, it’s going to matter more that you write things down and get consensus, with a paradigm that’s cloud-centric rather than office-centric. Why shouldn’t you be able to branch and merge and fork documents? Know every version that ever existed? If somebody forks an employee handbook and uses it for their next company, why not know that? That’s just one example of where I think you’re going to see a lot of products that presuppose people will collaborate remotely.
Cloud Culture vs. Office Culture [00:20:00]
Mike: Here’s what I think will happen: if it can go in the cloud, it should. If it can be asynchronous, it should. Because if I put things in the cloud and make them asynchronous, I can take advantage of all those different forms of arbitrage to run my company better. Whereas if I’m a meeting-centric culture, I have to be in the room where it happened when a decision was made. I think that’s an outmoded way of thinking about things.
Sam: Shaan and I are the same age. When we started working, we used Google Docs right away. But you’re a bit older than us. When Google Docs first came around, that was kind of interesting to you, right? So when you say “what needs to be in the cloud,” in my head I’m thinking — isn’t everything already like that? What specifically are you pointing to?
Mike: For example, there are startups doing virtual offices. The thinking is: everybody’s remote, there are all these advantages to remote work, but what do you miss out on? The ability to socialize, get to know each other, build trust — the conversations that used to happen in the break room. There are startups saying, “Here’s a virtual office. You can literally walk around, bump into people.” Things like Online Town. I don’t know if any of these fully work, but they’re taking stabs at moving the physical office into the cloud.
Sam: So it’s not just docs in the cloud, but hanging out is in the cloud. Co-workers in the hallways, in the cloud.
Mike: Right. And the problem with most cloud offerings today is that they’re basically re-hosted office culture. Zoom is a meeting — but it’s a meeting online. It’s not asynchronous in any way. You’re just re-hosting the meeting rather than redefining how work happens. With Zoom you can take advantage of geography arbitrage, which is good, but you’re not taking advantage of time and talent arbitrage as easily.
What I believe happens at the limit: in office culture, everybody has a job description. In cloud culture, people have already talked about this, but there’s this idea of jobs-to-be-done theory. Take a very simple example — let’s say I work at a flower shop. I might type things into the computer to manage customer records, I might take reservations, some parts of the day I might arrange flowers. The principle of comparative advantage would suggest that any of those jobs to be done that could be done asynchronously or in the cloud, you should try to do that. You could take advantage of labor arbitrage, time arbitrage, and geography arbitrage. And then if I’m a great flower arranger, that’s what I should be spending my time on.
What I think cloud culture lets people do at the limit is broadcast their comparative advantage to the world and get paid by the network for giving the network what it wants. Who says everybody has to work at a company? People said robots are gonna eat the jobs, but I think that’s precisely the opposite of what’s true. I think software is going to reduce the need for people to think they need to work at companies, because all the things I would have had to possess to have a job — I’m not gonna need those things by working at a company anymore. I’m going to be able to have them on my own. So I think more and more people are going to realize that really there’s an aggregate of jobs that each person does, and all of them could be assembled in different ways, moved to the cloud, or specialized.
Shaan: Tell me if I misunderstand this, but one thing you just said is that the idea of one person belonging to one firm is potentially now an outdated and sub-optimal idea. That instead, a person basically contributes to the network and gets paid for that contribution. One person might belong to multiple firms. Firms might change. So what does that look like? You’re the time traveler. Let’s fast-forward ten years. Smart guy like me — today my company got acquired by Twitch, I have a day job at Twitch. Ten years from now, what does my situation look like?
Network Capitalism Replacing Industrial Capitalism [00:28:00]
Mike: Maybe I should start from the beginning. What I think really underlies all my investing is: starting around 1850, we had centralized means of production — mass distribution, mass production. What that allowed us to do was create the modern corporation. In 1870 there was no accounting, no org charts, none of this stuff we take for granted. Mass production and mass distribution had a tendency to centralize things because you got supply-side economies of scale.
What started to happen, probably in the late seventies and early eighties with the microprocessor, is that now the economy is animated by mass computation and mass connectivity. And those two attributes tend to decentralize the means of production. We’ve moved from the River Rouge plant for Ford Model Ts to personal 3D printers in the future. We’ve moved from peak centralization — three TV networks in the late fifties and early sixties — to now anybody can be their own publisher or media company that goes direct.
A lot of very basic assumptions we have about companies are just 150-year artifacts of time. Somebody in 1820 wouldn’t recognize a normal company of today. There were hardly any companies with more than 20 people in the US in 1820.
So what I believe is that the social contract between a person and a big company — people assume it’s going to persist. I think it’s going to be radically different. In the 1900s, you had people wanting to be at a company for a very long time. That made sense because the coordination advantages of a large organization with supply-side economics was valid and created abundance. The same happened with the military, the government, media. All of our major institutions. But now I think the pendulum is swinging in the other direction toward a worldwide network where every individual is a node, and every individual as a node has a comparative advantage. They get paid by the network when they give the network what it wants. That’s true for money, for jobs, for everything in my view.
Sam: Are there examples of startups now that are executing on this?
Mike: In the early days, our investments were in pure-play networks — Twitter, Twitch, companies like that. A pure-play network would be: you’re not really reimagining a part of the economy. Twitch was a whole new thing. Then we started to get interested in this idea: perhaps every sector of the economy is going to be reimagined around the micro means of production. Rather than economies of scale, it’s going to be local economies of algorithmic computation and networks that span the globe.
Why did we invest in Lyft? Lyft was a more modern way to think about getting a ride. Taxis are command-and-control, top-down, dispatch-driven. Lyft says: riders and drivers can advertise their presence in real time on a network, and algorithms will form an ad-hoc connection. It’s kind of like a return of the invisible hand — only now the invisible hand is done by algorithms.
OhmConnect is another board I’m on. They’re trying to create incentives for people to use less electricity. They’re basically applying the ideas of software-defined networks to subtracting energy that homes use during certain times of the day.
What is Tesla, really? Tesla is a car company animated by networked capitalism, not industrial capitalism. It’s a software-defined car that’s updated over the air. It leverages machine learning, it leverages network effects with all the sensors in the network to help it self-drive better. Apple was a network-capitalist-centric phone compared to Nokia, which thought, “We need to sell the best widget.”
In sector after sector of our economy, software-defined, network-centric companies are going to keep winning. They’re going to keep displacing the companies that think of computers as the thing you did to make your industrial thing go faster. Burger King isn’t software-defined, even though it has computers. It uses computers to count how many hamburgers it sold today, but it doesn’t use computers to reinvent food in any fundamental way.
Sam: That’s a big idea. How can I make this more practical for myself and the listeners?
Mike: The tendency is to say, “What’s my career path going to be?” — through the lens of the 20th century. I’m going to make a progressive set of steps and get rewarded as I do the things I need to do in society. But I’d argue it’s more important in today’s world to figure out: what am I best at? What does the world value? What am I passionate about? The intersection of those things is where you want to develop your talents, because over time that’s where your comparative advantage will be highest and where the network will pay you the most.
Rather than thinking about what company to join, think of the entire world as a network. Everybody is a node on that network. How can I be the best version of myself as a node? How can I create the most possible value for that network so I’ll get recognized and paid for the value I deliver?
Mike’s Comparative Advantage at Floodgate [00:34:00]
Sam: Let’s take you as an example. What’s your comparative advantage?
Mike: My job is to be the very best partner for a super-ambitious founder in the zero-to-one phase. If you look at my podcast, people say, “Hey, why don’t you have this guest? Why don’t you have that guest?” But Starting Greatness is all about zero to one — awesome startup, super-ambitious, what was it like before they succeeded? There’s power in addition and subtraction. By saying what you’re not for, by niching down, you’re very powerful to the people who care about your niche. They say, “Where have you been all my life?”
So what you’re trying to do is find that set of like-minded co-conspirators for the niche you’ve really chosen to be great at. Don’t get preoccupied with the fact that you can’t do it all. You’re way better off understanding what you can stick the landing at and developing your talent so you can do it better and better over time.
Sam: Today, Floodgate is more like a traditional firm, right? You have a brand, multiple employees, a central fund, an LP base. It’s relatively static and you’re investing in a specific set of criteria. But the way you’re describing things, it sort of sounds like — if you were setting it up for the next 20 years, maybe you would have set up your investing differently? Like a one-person fund, or something like that?
Mike: I like the way we’re set up because when you’re investing in these crazy risky startups — way too early, or legally ambiguously too early — it’s good to have friends. It’s good to have people to run ideas by. I don’t even think a startup is a company. I think a startup is the capabilities and talents of the founders and their insight about the future. What you’re betting on is two things: one, that their insights are right; and two, that they’re good enough to navigate the idea to a great product someday.
Lyft started as Zimride. Twitter couldn’t decide whether to call it Voicemail 2.0 or TWTTR. Twitch started as Justin.tv. Okta started as Saasher. So 90% of your profits come from things that started out different. My theory is that the way to succeed is to realize that a startup isn’t a company at all. It’s the insights and the founders. You make fun of your ability to predict what they’re going to come up with — that is false precision. But where you should be precise is: can these people do the job? And is this a powerful enough breakthrough insight?
Sam: I looked it up and I think it was your partner — Ann Miura-Ko — who was in the top 10 of CB Insights’ list of top VCs, sometimes number two or three, consistently across many years. What makes you guys good at spotting these opportunities?
Mike: It’s funny. If you had Warren Buffett on your show, when he talks about investments, he talks about a company’s operating history, their competitive moat — a set of factors that cause him to think a company is a good investment. What’s interesting is in our world, none of those mental models apply. A startup’s not a company. There’s no operating history. There’s no moat. They don’t even have a product yet. No customers.
What I think we’re better at than most is: A, understanding that’s true, and B, asking — okay, so what should the mental models be? If Charlie Munger and Warren Buffett have 90 mental models and none of them apply to startup investing, what are the mental models for startup investing? We’ve spent years as students of that question and we’ve probably developed about 30 or so.
Mental Models for Zero-to-One Startup Investing [00:39:00]
Sam: What’s a mental model that’s not so obvious? Something where 100 people in a room would nod their heads and say, “I already do that” — but you’d actually be surprised how many people don’t?
Mike: I’ll give a few examples. At a meta level, we have a set of mental models about founding teams and a set about insights.
For founding teams, a good example is: jazz band, not a marching band. In companies you have org charts, people who want sheet music and dance steps. If you don’t give them that, the organization is a chaotic mess. In a startup, it’s more like watching a jazz band in the French Quarter — the lead goes on a riff, everybody else goes with it, and you’ll never hear that tune the same way ever again. Nobody’s saying, “That’s not on my sheet music.” That’s what they’re in it for.
So when a startup starts, it goes through this breakthrough sequence. It has to have a great insight — something about the future that’s not obvious, that most people don’t know. Then a product breakthrough, where they get product-market fit and zero to one. Then a growth breakthrough, where they get escape velocity. And only then do they earn the right to someday be in the pantheon.
But it’s wrongheaded to give startup founders big-company advice at any of those stages. All of those stages are different. It would be bad to give growth advice to an insight developer — that would be precisely wrong.
On the insight side, the mental model would be: don’t be market-first, because there is no market yet. Rather than trying to think of a startup market, we want to arrive at startup markets by following inflections. We want to say: the cost of an AI prediction is going down exponentially — how is power going to shift in the industry because of that? What new markets might arise that had never existed before?
Inflections power your “why now.” With Lyft, for example — GPS got included for free in smartphones. And we believed that everybody was going to have smartphones someday, even though in 2010 only 10% did. So you could say, “I can see a world where drivers and riders will be able to locate each other on a network, and there will be a network effect because all these people have these phones.” You could have been right about that before, but you would have still failed because you wouldn’t have had enough people with the phones. They wouldn’t have been able to find each other.
So the other counterintuitive thing is: you can’t look at a company’s tangible operating history, because there is none. What you have to do instead is imagine a world where their inflections change the future dramatically — change the rules. And then ask: why do I believe this entrepreneur? What is it that they’ve discovered about the world that could cause me to take that bet?
Breakthrough vs. Cash-Flow Businesses [00:46:00]
Sam: What you’re describing is awesome, but it’s a narrow — though wonderful — outlook. What you’re describing about inflections and looking at the world twenty years out is all about disruption. These are the things that allow an Uber or an Airbnb to go from not even an idea to a fifty or a hundred billion-dollar company. But on the other side, we had a podcast today where Shaan interviewed this guy named Brian who owns 100% of 1-800-GOT-JUNK. Their revenue might be $400-500 million dollars, he owns all of it, so he’s probably worth two or three billion dollars, and he probably has a pretty calm life. He’s not doing anything particularly innovative — maybe micro-innovations, like the supply chain is a little interesting, or the way they dispatch people is a little interesting. But it could just be operational excellence. Do you ever look at the other side? Or for your job, do you only care about one side?
Mike: My view is that I want to go very focused on breakthrough startups and the zero-to-one phase. I like to say I’m a rocket fuel salesman. I go to founders and say, “Don’t take my fuel if you don’t want to achieve escape velocity with that rocket on the launch pad. Because if you’re not sure it’s a rocket, this fuel isn’t going to be good for your vehicle.”
If somebody said, “Hey, can you give me some advice on how to grow this laundromat business?” — I would say you should not listen to me. I don’t know what I’m talking about. I don’t know how to do laundromats at scale. It’s not even a question of whether I’m interested — it’s a question of whether I’m competent. And I’m not. I don’t try to be.
Shaan: I love your answer. I think one thing you’ve made me realize is that we’re building our comparative advantage through this podcast. We get on twice a week and shoot the shit — just me and Sam, or with a great guest like you. We talk about everything from the future of startups and cities and biology bending your brain with blockchain, to the next episode which might be the most listened-to, breaking down a side hustle where an entrepreneur has 27 vending machines and makes six figures of profit with very little capital. Our listeners like the breadth of that — how we can hop from blue collar to disruptive ideas to how AI impacts a space. Is it okay if we talk about biology for a minute? Because he’s amazing.
Cloud Cultures as Proto-Nations / The Decentralization Thesis [00:51:00]
Mike: So like I mentioned earlier with cloud culture — I think biology probably has the best handle on this of anybody I talk to. What I think happens at the limit is that all of these different cloud cultures are like their own societies. Right now the main organizing principle of society is the nation-state, which is also an economies-of-scale-centric model. But if you think about it — what is Bitcoin, really? Bitcoin is a society of people who care about sound money, and the protocol is what enables governance. These societies at the limit look more and more like the future version of countries. What is a country, really? It’s a bunch of people who decide what their boundaries are, who decides who gets in the club. They have a constitution where they decide how to separate powers and how to protect the rights of individuals against the mob and the tyrant. That’s exactly what Bitcoin does with its protocol.
Bitcoin is people with a cult-like, religious belief around sound money. Ethereum is people who believe in programmable money. Then you have WallStreetBets, which is like: let’s middle-finger the incumbents, let’s screw around with them and make profits while we do it — and we’ll call ourselves whatever names we want in our own culture. Burning Man is a pop-up culture that happens for one week in the desert where people behave totally differently than they do the other 51 weeks.
Shaan: Yeah, and there are historical parallels. In the Reformation, the Pope used to declare all the answers, and then the printing press comes out and Martin Luther can distribute the Bible to lots of people in a permissionless way. The merchants of Venice could trade with each other without a central authority because they had double-entry bookkeeping to keep track of IOUs.
Mike: Exactly. The internet and blockchain are so amazingly parallel to that. Society ebbs and flows — when it’s too decentralized it’s chaotic, so innovations come along that centralize production. But then it gets too centralized, and you see what’s happening now. WallStreetBets is the perfect example. The people at the edge are saying, “The network should decide, not the center.” If you read books like Revolt of the Public, you see a world where people at the edge are starting to say the people at the center are illegitimate — just like people at the edge of the Reformation started to say that about the Pope.
In the last couple of years, social media went from a fringe thing to pointing at mainstream media. “Mainstream media” is now synonymous with fake news. That wasn’t even a thing five years ago. It’s now used as a derogatory description, which is kind of crazy when you think about it.
I try not to be too judgmental about it. I’m just like — it’s inevitable that media is going to decentralize. It’s inevitable that money will. It’s inevitable that politics will. Arguing for or against it is like arguing against the direction of the wind.
Sam: And back to your listeners — what that means writ large is: if the 20th century was about being the organization man, following the rules, progressing up the hierarchy — that’s not it anymore. Now you have to take agency for your own life, own your comparative advantage, understand that that is your responsibility as a free person in this world. If you do that you’re going to be incredibly rewarded in the 21st century. But if you wish it’s like the 20th century, I’ve got bad news for you.
Media Companies, Refinery29, and What Wins Now [00:57:00]
Mike: Floodgate invested in Refinery29, right?
Sam: Yeah. For our listeners who don’t know, Refinery29 is a huge media company geared toward women. They were maybe $150-200 million in revenue. Then they sold or merged with Vice — which is probably a billion-dollar-a-year entity at this point.
Mike: I think there’s going to be a very rich ecosystem of all types of media companies. But to me the defining new characteristic will be that media is no longer a function of credentialed elites telling you what to think. That was the real problem that developed in media — you had a set of credentialed elites running these companies, of which there weren’t very many. These institutions became inherited rather than founded, so the people running them didn’t really understand what made them great in the old days. They got worse over time in their effectiveness and legitimacy.
The real question about media is not whether there’s one way it’s going to happen. I think the winners will be those that niche down, have a comparative advantage in the type of content they cover, and attract the attention of the people who care about that content. The credentials won’t define it. The old media companies had credentialed elites, but they also had a monopoly on distribution. All of that’s going to change.
Force a Choice, Not a Comparison [01:02:00]
Sam: You mentioned something that caught my attention. I didn’t realize you coined the term “thunder lizards.” I’ve heard many investors talk about thunder lizards — it’s the Godzilla-type companies that emerge every decade or so, and that’s what you really chase, because that’s where all the returns are. But you’re also the “rocket fuel” guy. You have a little gift for coining these little mind viruses — phrases that stick with people. Is that a skill you learned consciously, or did it just come naturally?
Mike: The way I look at things: you want to force a choice and not a comparison. If I say “we’re investing in particularly disruptive types of companies,” that’s not the same as saying “thunder lizards.” Why is that so important? If you’re trying to create a breakthrough, by definition it breaks free from the present. So by definition it can’t be compared to something in the present — if it’s comparable, it’s too incremental, too conventional.
So when I say “force a choice and not a comparison” — let’s say everybody’s selling bananas. You can’t say, “I’m a 5x better banana.” You should come out and say, “I’m an apple.” Not everybody’s gonna want your apple, but a hundred percent of the people who prefer apples are gonna want what you have. Forget the guy who wants the best banana. You should waste not an erg of energy on those people. You need to spend your time on the people who potentially value your advantage, and start a movement around that.
Earlier we talked about this: companies have markets that can be segmented and sub-segmented. Startups don’t. Startups create movements. They have a secret about the future. They get early believers who co-conspire with them to create a different future, and the market emerges as a consequence of the movement succeeding. In the early days, we just have to get people moving somewhere different — not better. Different. As a result, we must force a choice and not a comparison.
As a seed investor, I have to do the same thing. There are 2,000 seed funds now. It was innovative when I helped invent seed investing in 2006, but now there are 2,000 firms. So we have to come up with some way for people to say, “I can’t reconcile the choice of working with Floodgate versus brand X.” And we differentiate by being very, very specific about what we do and being the very best at that.
It relates to niching down. A lot of people would benefit from the idea of how to force a choice and not a comparison. It takes more courage and forces you to say no more than you say yes. But if you do it the right way, the stuff you say yes to — I like to say it’s “less, but better.”
The Most Formidable Founders and People Mike Has Known [01:07:00]
Sam: You’ve had amazing people on your podcast, invested in tons of amazing companies. Of all those people — if you were put on a stranded island, who do you think would come out on top? Who’s the most formidable person you’ve worked with?
Mike: A lot of it would be a function of who had the right idea at the right time. So much of this is what I call “founder-future fit.” When Andreessen did Mozilla, he was the perfect person in the world at the perfect time to do that idea. It’s not just how formidable is the person, but was the timing right? Were they the right person at the right time?
Sam: Is there anyone that fits the bill of being incredibly formidable — to the point where you think, “How can I be more like this person? I wish everyone thought a little bit more like this”?
Mike: I try to learn from everybody, but I never try to imitate or be like somebody else, because that defeats the purpose. Now I’m comparing myself to somebody else. I don’t believe people should compare themselves with anybody. I think they should learn from people, but not compare themselves or have heroes.
Information Diet: What Mike Reads [01:10:00]
Sam: You mentioned a couple of people you’ve learned from — biology being one, Tim Ferriss. Who are some other names you look to? What’s your information diet?
Mike: I like the Farnam Street blog a lot — with Shane Parrish. And just because I don’t invest like Buffett and Munger doesn’t mean I don’t study them like crazy. When I read how they look at the world, I’ll understand what’s different about how they look at the world, but I’ll also connect dots that will make the difference of my world more clear.
I read a ton. Probably one or two books a week. Some ones I’ve liked recently: one is called The Courage to Be Disliked, by a couple of Japanese authors. It’s amazing. Then I went down a rabbit hole on the psychiatrist Alfred Adler, who came of age at the same time as Freud and Jung but wasn’t as famous. I think Alfred Adler’s ideas about individual agency are perfectly timed for the 21st century.
And although I read a lot of books, there’s always a subset I come back to over and over again, where I take notes, because I try to make sure I really understand something to the point where I could explain it to somebody else in a clear way. I’ve been reading a lot about Stoicism lately, which I find to be very misunderstood.
Sam: What’s the misunderstanding?
Mike: Most people think of Stoics as emotionless, turn-the-other-cheek when things go bad. But when you actually read about the Stoics and their actual philosophies, they’re quite optimistic and quite inspiring. So things like the lessons of Stoicism and the lessons of Alfred Adler — I find myself reading those books over and over again, trying to make a list of things to internalize and asking myself every day: am I exercising those muscles?
Wrap-Up and Teasing a Round Two [01:15:00]
Sam: All right, we’re coming up on the hour. Mike, thanks for joining — this was great. Where do people find you?
Mike: The podcast is Starting Greatness. On Twitter I’m @m2jr. Or floodgate.com.
Sam: You’re a tweeting machine. I’ve been following you since we talked years ago.
Mike: And if you guys want to cover any other topics, happy to. I know we kind of bounced around. I feel like America Next would have been an interesting one we could do a round two on.
Shaan: Yeah. And I think the whole blockchain theme — the future of money, currency governed by commons versus fiat government. The evolution of computing phases: mainframes, PCs, internet. They always start with an enabling technology and commoditize the prior. Mainframe computers were expensive, so PC computers were basically free. Proprietary software becomes valuable. Then the internet — software becomes open source, amassing lots of proprietary data becomes valuable. One way I look at blockchains: they’re the next wave of computing. They’re going to democratize data and control of things. And then what becomes the valuable thing? My instinct is it’s about governance.
Mike: Exactly. And America Next — all the stuff that’s going to have to happen for the military to be more agile, to upgrade our thinking. You know, when you were talking, I thought: this is what I could be like if I could just focus on three things I really believed in and just stopped thinking about other stuff for two years. I could have this level of clarity and insight. You’re making me want to focus.
Mike: There’s no one way. I like to say people are like a T. You want to be a mile wide and an inch deep so you can appropriate creative ideas from the world, but you also want to be a mile deep somewhere. That’s why you read several books at a time but also go deep on a small number of things that are truly great.
Sam: Who should we invite on next? Who are the best storytellers and prolific idea people?
Mike: Reid Hoffman, Naval Ravikant, Chris Sacca — always a good storyteller. Andy Rachleff — probably not as famous as some of your guests, but boy is he a clear thinker, a great communicator. And if you haven’t had Mark Cuban, I think he’d be really good.
Sam: What’s the best way to get in touch with Reid?
Mike: Just say that I’ve mentioned you guys and that it was a good show, and that I enjoyed it. The people I just mentioned — I’ll email them and say mike said you’re the guy.
Shaan: I showed up for Chris Sacca once — he texted me, said, “Hey, I gotta film a Shark Tank intro, we need some bodies in the background.” I left my job, showed up at nine in the morning, and I was an extra for his Shark Tank intro. So I’ll pull that favor card.
Mike: And by the way, you guys are using Zencastr — so does Shane Parrish. I was on his show, and after he listened to the episode he said, “There are so many follow-up questions I wish I’d asked you, can we do this again?” So we ended up having a lot of content that he cut down. If you find yourself in that position, let me know. Less, but better — if we’re going to ship a product, it might as well be awesome.
Sam: I love that. Where are you from?
Mike: Born in Oklahoma, moved all around because my dad was an IBM guy. Then worked at Microsoft.
Sam: How old are you?
Mike: Early 53.
Sam: I’m 31. You could be my uncle. I think that’s what the founders call me — the crazy uncle.
Sam: I can tell you’re from the Midwest or the South. I’m from Missouri.
Mike: Oh, nice! Show-Me State. My cousins live in Oklahoma — in Owens, Oklahoma, where they buck bulls. I have a feeling you and I could be distant cousins.
Sam: You never know, coming from Missouri and Oklahoma.
Shaan: Well, I appreciate this, man. This was awesome. Mike, thank you for coming on. I enjoyed that — that was good. And you’re in Austin?
Mike: I live in Marin County — Northern California.
Shaan: I thought you lived in Austin for some reason.
Mike: I helped Tim find his place when he decided to move. I used to live in Austin up until about fifteen years ago, and my family’s from there. You did the opposite of what everyone else is doing.
Sam: Everybody keeps asking when you’re moving back.
Mike: I don’t know. I’m pretty happy where we live. It’s a crazy time, so you never know. We’ll see.
Sam: Well, thanks for being here. We’ll talk soon.