5 Startups That Looked Dumb—Until They Were Worth Billions
the headline here is they made the investment. So it's not like they passed. They made the investment. And their best case scenario, they wrote, was $400 million as an exit value. $400 million. And now it's $140 billion.
I feel like I could rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.
Let me tell you about something that I've been thinking about, and I thought it was really cool. And our friend Shiel, just shares the best stuff.
And so I'm sharing— The most interesting man on X?
The most interesting man on X. The most interesting man I know, actually. He does a lot of amazing stuff, but he shared something. But so I got to give him credit. But basically, I saw this Jeff Bezos quote, and I want to know what you think about it. And he said something where he said, I think it's generally human nature to overestimate risk and underestimate opportunity. And then he went on to say, and so I think entrepreneurs in general would be well advised to try and bias against that. The risks are probably not as big as you perceive. The opportunities may be a lot bigger than you perceive. And so, uh, the interviewer was like, you seem really confident. And he goes, well, you call it confidence, but maybe I'm just accepting that human bias and I'm trying to compensate against it. And I thought this was interesting. I've been thinking about this. I saw this like weeks and weeks ago, and every time I've been thinking, I'm like, there's so many businesses or opportunities that I see where I'm like, I can't believe that that thing is that big. And I myself fight this as well. And where I think this thing can't be that big, you know, I think I've said this multiple times for different products that I said that will never work and it becomes huge. And even Jeff Bezos, by the way, he fell victim to this. There's this one quote where he was like driving packages. He says, when I was driving packages to the post office myself and taping up and typing up all the listings, I thought, maybe if I'm lucky, maybe this can be a $100 million revenue company someday. And so like everyone has this, but I saw this amazing thing where it was Scheele sharing a memo from Bessemer. So Bessemer is a VC. I think they're a fantastic VC, but they're a big VC. So they created this part of their website where they release old memos. And if you don't know what that is, a memo is where whoever wants to invest into a company who works at a VC, they make a memo justifying their thoughts. And then typically the partners like agree on it. They're like, yeah, that was a persuasive argument. We're on board. And so they did a cool thing where they released the memos from past deals and they had this amazing deal or this amazing memo on Shopify. And this was when Shopify was raising $5 million at a $20 million valuation. The company was doing $5 million in revenue. And I want to show how bad Bessemer, who is a professional VC— I think they have tens of billions in, uh, under management. I wanna show how bad they are at predicting stuff. So they said, this is straight, these are quotes from the, the memo. They said in 2010, uh, Shopify had $132 million in GMV, which would put Shopify in the top 50 online retailers. And so at the time, that is how small the, the category was.
Let, let's, let's say the other numbers, cuz that sounds like a big number, right? So they had 5,000, uh, they had 10,000 customers total. And they were doing $5 million of revenue themselves. So the $5 million of revenue, that's the company's revenue. And then all the shops on Shopify, their sales total was $132 million. Right.
And now, do you know how many, you know, how many customers they have? Do you actually know how many they have now?
I know that they add more than 10,000 paid customers every week now. I think there's, there's multiple million customers.
They have multiple million. And I believe, so the company is now worth $100 $30 billion, I believe, uh, at $1.2 billion. I believe they do something like close to a trillion dollars in GMV. So I can't even tell you what that math is, what the multiple is.
They're probably doing this amount, like the $132 million, like every hour. Like an hour. That's stupid.
Yeah. Every hour.
Yeah. You're saying we underestimate the upside of these things. We underestimate the market size. And the headline here is They made the investment. So it's not like they passed. They made the investment. And their best case scenario, they wrote, was $400 million as an exit value. And so $400 million. And now it's $140 billion.
They said, if all things work out, we think in 4 to 6 years this company could sell for $400 million. Right. And we will 20x our money, something like that. Uh, 15x our money. Obviously that's wrong. The company's worth $130 billion, but they had all these other stats that were wrong. And in the memo they even have updated quotes. So the person who wrote the memo will give you an update. And he wrote in the memo, he goes, a few months after we invested, Oracle had acquired one of Shopify's competitors for $500 million. And I remember emailing Tobi, who's the CEO of Shopify, about how great it would be if someday maybe we can achieve that outcome. But I thought it was just a little bit too aspirational. And then he has this other line where he goes, um, some of the other, uh, employees and advisors at Shopify, when we made our investment, they thought to themselves, you know, I think like this company at best is going to be worth around $50 million. And so the associate at Bessemer who made this deal, he goes, look, Toby, These guys are saying $50 million. Can we put something in the contract that says you are not allowed to sell the company for less than $50 million? Because this guy was like, that's all it's going to be worth. And Toby was like, dude, I'm not agreeing to anything like that, but I'll give you a handshake offer. I promise you I won't sell until at least $75 million. And so it's just funny that this is like how small the best of the best, presumably, you know, top 1% are thinking about different opportunities that today are so obvious to us. But back then were really hard to predict.
So I have a bunch of follow-ups on this because this is a subject I've literally been thinking about. I'll tell you, I'll tell you why I was thinking about this simultaneously, but let me first just, uh, let's start with a little bit of humbling. So, um, here's a list of products that I was totally wrong about, meaning they were already working. So forget the scenario of, ah, that'll never work, but like, yeah, that's working, but that's probably small, probably niche. Okay. So here's products that I personally was wrong about over the last 15 years. Calm and all the meditation apps. My buddy Alex was doing it. He was in my peer group, he was in our mastermind group, and I was like, that's cute. You know, that's cute. Like, I hope, you know, I don't really understand what you're doing here. Maybe you'll make some, some money. It'll be like a job. I didn't really fully understand it. Do I— meditations now, like, like there's multiple meditation apps that are billion-dollar companies. That seemed implausible at the time.
He was also really successful already.
Yeah, exactly. So, so I didn't doubt him. I thought he was awesome. And I didn't even think like it wasn't going to work. It's like, oh, it'll work, but it's just small. It just seems like a too small of a market. Okay. Other markets I thought were too small. On Snapchat, my username was like, has the word test in it still to this day because I was like, yeah, cool. Like, but this is never going to be a thing. And I mean, this is just like a goofy kind of sexting thing though. How big is the market for that? Another one, Airbnb. So I met the founder of Couchsurfing before I heard about Airbnb, and we, we hung out at my office and I was like, wow, Couchsurfing, what a crazy idea. Go sleep in someone else's, just go sleep in their house and they're in the extra, you know, couch or air mattress that they have. Um, all right, cool. So Airbnb comes out and I'm like, wow, great. You're trying to be Couchsurfing. How ambitious of you. And, um, I think Couchsurfing topped out at like $50 million or something like that. Like maybe it was max like $100 or $200 million. And, you know, Airbnb today is a, like a $100 billion company.
That's a cool stat. I like that.
It's insane, right? It's insane. I want to say. Absolutely insane. Yeah.
In America. Yeah, 1 minute out of every day for every entrepreneur on average is spent listening to our podcast. I bet there's like a number like that. That's true, right? Yeah.
Like they said it in like one of their pitch decks, but it's just absolutely astounding that you and everyone else— me too— thought that it was just Couchsurfing. But it's just— it's not 10 times better. It's not 100 times bigger. It's 10,000 times bigger.
Uber was another one. Black— Uber was like black car limos. I was like, cool, rich people in San Francisco. Who Takes Black Cars, small idea. I don't understand why, you know, the founder of, uh, of StumbleUpon is like doing this, but okay, whatever. I guess rich guys just lose touch and they just start working on niche things that nobody— no, it's going to be too niche. Another one, Musical.ly. I remember we were at the office trying to build social products and Morgan, this guy who worked with me, he was like, hey, my daughter loves making these lip sync videos on Musical.ly. And it was actually even maybe even a different thing besides Musical.ly, but this, the idea of like You record yourself on video and then there's music mixed in and you're kind of lip syncing and dancing. Uh, you make little dance videos. And I was like, okay, cool, Morgan, but can we get to work now? Like, we're trying to build the next big thing here. And like, you know, stop distracting us with this. And, uh, you know, has anyone ever just like showed you a briefcase full of cash and then you like accidentally kick it into the gutter? That's what, that's what we were doing. Um, okay. So those were things that I was totally wrong about.
Well, hold on. Let me tell you one more. Alex Lieberman shared a DM that he got from the founder of Cursor. So Cursor is a company that in 2 years or something like that grew to $10 billion and the guy emailed Alex Lieberman asking for advice or like what he should do.
It left him a little rough. Yeah, left him on read. Hey, we all miss. In fact, Bessemer has a part of their website called the Anti-Portfolio. Have you ever seen this? No. They were the first VC, I think, that did this. So they created— if you go to bvp.com/anti-portfolio, it's basically just says honoring the companies we missed. And it's just like Airbnb, Apple, eBay, Google, like it's all the companies they had the opportunity to invest in but passed for varying reasons. And they just like humbled themselves with this. So this is like the— this is the opposite of the, hey, let me show you our memos of how smart we were. This is like, you know, the other side of the coin.
And it's crazy, man.
For any— anybody who's like worth a damn in business, your anti-portfolio is going to be much bigger than your portfolio, which is just a bizarre situation. If you're any good, if you're any good and you're in the game for any like decent amount of time, your anti-portfolio is much bigger.
Part of this is underestimating the size of markets. And the other— there's many things here. The other part is not understanding math because 10,000 times or 1,000 times, whatever, that's actually— it's really hard to estimate. And so like to put it in really simple terms, I remember working with financial— my financial advisor and they— there was like this line item for $250,000 in 18 years. And I was like, Griffin, what is this, man? He goes, well, that's— I just baked in like college expenses. And I was like, but I'm not going to pay for all 4 years upfront. Or are you thinking we're going to have triplets? What's the deal here? And he was like, no, I just took the trailing 20-year growth rate of college education and I assumed that they're going to go to like a top 75% like cost school. And I just applied that number to the, to the future. And that's just what it came out to, $250,000 a year. And I was like, it's just, it's, it's really hard to understand what like 5% growth is per year or whatever it is. And a really good way to understand this though, that I'm trying to like get beyond the math is I've been really obsessed with Thrive. So Josh Kushner and one of the reasons why I'm into it is you hosted this event and we had the founder of Oscar come. You had Mario come and I thought he was, I thought he was like the most impressive, smartest guy there. And so I was like, go down the rabbit hole. I'm like, all right, you partnered with Josh Kushner, and Josh Kushner is now leading all these amazing things. And Josh Kushner recently invested in OpenAI at a $250 billion valuation, which is astoundingly expensive. That's just— that number is hard to comprehend. And someone was questioning Josh Kushner, and he was like, what I learned was in the real estate days, you know, his parents are real estate tycoons in New York City. He was like, I've learned that you can't really overspend on Park Avenue real estate. So Park Avenue is on the Upper East Side. That's where like the Louis Vuitton store, the Tiffany's store. He was like, there's just been so many examples where someone said in the fanciest part of New York City that this building is way too expensive. But when you buy the best, typically it's never too expensive. Like there's always going to be someone in 10 years who wants to pay more for it. So my logic is I'm going to find the Park Avenue of startups. So OpenAI, Cursor, whatever it is. And I'm willing to spend what people think is a crazy amount of money. I don't care about the valuation because I just think that those will outperform those, the other ones. And I've been really trying to like embrace that, even though it's very challenging to like actually do that.
By the way, this is Michael Saylor's argument about Bitcoin. So his argument about Bitcoin is basically that of all the digital assets, Bitcoin is digital Manhattan. And there's only 21— there's only 21 million, uh, million blocks. That's, that's the real estate. That's the land. You want to get as many of the 21 million as you can at basically any price because this is digital Manhattan. And over the next 100 years, that's all that's going to matter is basically like how much of that did you own? You know, I shouldn't say that's all that's going to matter, but basically you don't look for the third best thing. You buy Manhattan, right? Like you don't go try to figure out what's going to be the 7th thing because it's cheaper right now. Like, no, no, the move is always you buy the Manhattan thing and you just plan to hold it over the long haul when you know it's a scarce, rare asset. And like, that's the whole thing with crypto is like there's—
it's a scarce, rare asset, which is conceptually that is way easier to understand than 1000x, you know, like because I see Manhattan real estate, I'm like, yeah, this is like bumping, this is great. Then it goes to the next stage, which is having the courage to believe that your opinion is right. Yeah. And so like, for example, someone like you who's, who's in the Bitcoin or was or is in the crypto industry and you do believe in it, it's like, well, if you believe that to be true, why aren't you borrowing every dollar you can to do it? And that is where courage comes into play. And that's really hard to buy into this concept. So I say I buy into this concept conceptually, but I'm not truly acting on it, at least not in, not, not in a 100% type of way.
There's also other factors. So for example, I have a very funny goal. My last goal on my, like, you know, annual goals is just called— it just says avoid ruin because my life is great. And so actually, like, one key thing at all times is avoid ruin. Like, do not do extremely dangerous things, take care of my health, and don't make disastrously risky financial investments that, like, even if I believe, even if I have conviction, even if the upside is there, I really just don't need to. I just don't need to risk ruin at any given time. I think the Kelly criterion, just do not risk ruin, keep yourself in the game, is always important. So like, you don't need to borrow every dollar even when you have conviction, right? There's like, there's—
but I think that's what separates, not all the best. So I don't think Buffett has ever like risked, you know, he famously has said, don't risk what you have for what you don't need or something like, or don't risk what you need for what you don't want. Or I forget exactly the quote where, but it was like risky. Needlessly risking things. Yeah, but my brother John, who I'm visiting in Missouri, he's not into startups. And he was like, why do you— why are you still doing this? Like, why don't— don't risk anything? I was like, well, I don't really risk anything. But he's like, but do the really successful, like the Elons, risk everything? And I was like, a lot of them I think do. I think that like there are like the 10 out of 10, the best of the best, the crazy Elons of the world. I think that when they say I was sleeping on couches, I think you don't really want to believe that because their friends are billionaires or whatever. Yeah. I've been around enough of these. Yeah. It's a really nice couch, but I've been around enough of these like crazy, crazy, crazy, like 1% of the 1%, the freaks amongst the freaks. Some of them I actually do think don't avoid ruin.
Correct. I just don't think they're wise. I don't think it's, I don't think, I don't think a lot of them are very wise. I think they're great achievers, but they're not necessarily wise.
I don't think they're wise and I don't want to do that. But don't you agree with that though? That like, have you, who have we met? Do you think?
Some people do definitely take it to that extreme, right? Like, uh, there's levels, right? So like Buffett actually has been very concentrated at many times. I think, you know, recently had 50% of his portfolio just in Apple stock, right? So like that's a very concentrated thing and he believes in concentration. But concentration is not the same thing as like, you know, risking ruin in a way. Even somebody like Elon, you know, the ruin for him isn't losing his money because he's a money-making machine. He is an achievement machine. At any given time he could have, even if he had lost it all through SpaceX and Tesla and whatever, he'd be rich again in 10 years. And I think he knows that deep down too, right? So like the risk of ruin for him might be reputational, right? There's a great leaked email where OpenAI is talking about, um, their path forward. And this is like when— this is when Elon eventually got like sort of kicked out slash left the project of OpenAI, right? He's a co-founder. He put the first $40 billion in. But along the way, they realized they need a lot more money. And the leaked email basically shows the brainstorming that they were doing. Sam Altman, Gregg and Elon. And basically Elon's idea was, so they all came to the realization, holy shit, this is like, this kind of works, but we need way more money. Like this is going to need way more money to train these models. Like we're talking $100 million plus just for a single training run. Like let alone operating the company, operating the business from operating the project and paying all the salaries.
And that was for what, like servers or something like that?
Like, like literally the GPUs and the compute and the electricity to train one model. And then you're not going to stop there. You're going to train a better model, right? So once they realized, shit, we need $100 million and we're a nonprofit, this is not going to really work. Who's going to just— Elon's giving us this, but like, are you— Elon, are you just going to give us like billions? That's probably not going to happen. But that's where this is going. And so when they realize that, they're like, we need a way forward. So Elon's suggestion was, let's make OpenAI a part of Tesla. Tesla will be the commercial machine, and they will take some of that profits as R&D and put it into OpenAI. We'll fund it that way. Now, Sam and Greg didn't like that because they're like, well, yeah, but then like you control everything and we're just kind of like your little bitch. We don't really love that idea. So what if we, uh, and they were exploring other ideas. So they had a Microsoft idea, which is what they ended up doing. So he's like, Microsoft is really interested in giving us, you know, like, you know, potentially like, you know, multi-billions of dollars, uh, and free compute. But then, you know, we'd have to work out a deal of what's in it for Microsoft. And then Elon basically replies being like, ew, like lame being a part of Microsoft. You know, that was like in his reply, basically. He's like, why not Tesla? And then Sam Altman, then there was like an email that referred to Sam has been exploring the idea of an ICO. So to do a token launch. And like, what if we— like, it was during the crypto, like, heyday. And they're like, ah, I guess, like, you could just raise a ton of money for kind of nothing, like a promise, um, if you just do an ICO. And Elon's reply is basically like, uh, I am like, I am against the ICO. It is like, I think, reputationally disastrous. And I will not be a part of the project if you guys pursue that path. Like, I will take my name off this project because even if that would succeed, I just do not like— I don't think the risk is worth it. And so it's interesting, right? Because like the guy's willing to risk, you know, certain things, all of his money, but not necessarily others, right? Like you may not always— there may be other risks.
It's weird that—
well, not weird.
I mean, it's just like intriguing that he thinks the ICO thing is the risky thing, but not like the political thing or not like—
well, he did even with the political thing. Initially he was saying, I won't endorse a candidate and I won't be donating to them. That was his initial stance. Because same thing. It's like the Michael Jordan. You know, oh, you'd like my opinion on this? Sorry, no comment. Republicans buy shoes too. Yeah. And like one of the great lines in, you know, in history. And so initially Elon did have that stance. He got pushed over the edge, you know, due to a number of factors that maybe only he can truly describe. Some people think it's because his companies were getting like overly regulated and he just was like, we can't do SpaceX and Tesla if there's this much regulation. Some, you know, people were basically pushing back on, on, you know, capitalism or attacking him. So like, you know, it's unclear what all the motivations were of why he decided to then throw his weight into it. But when he did, he throws all his weight into it. But he initially did not want to take that risk because it seemed unnecessary. You know, you take, you only take as much risk as you see necessary. What's cool about Elon is once he sees it's necessary, he's willing to do it. Whereas most people will still dilly-dally or hesitate to do it.
Which is the gap that I was talking about. You know, it's like courage is a hard thing. And then I also, but I also think that we underestimate how different the outliers are in terms of personality to the normal people. And so what I mean is, is you and I are, live on coasts. We work in a weird tech world. It's pretty fringe. But then there's people that are 50 times that. Do you know what I mean? In terms of how strange and unique thinking they are. So, so for example, the Collison brothers of Stripe, I'll hear like their opinion on things and I even to me, I'm like, wow, that's just like way different. That's like, he's so out there in terms of how this framework or how you believe that it's just so logical and you totally buy into that. That's really challenging for me to understand. But imagine to someone who is right in the mean, like, just like of understanding how different the different people are in terms of their thinking.
Yeah, there's level— there's levels to this. Um, there's levels to everything. There's levels to intelligence, there's levels to crazy, there's levels to risk-taking, there's levels to all that. That is pretty hard to comprehend until, until you get closer and closer and closer to that edge and you realize like, oh, what I thought was level 10 was not level 10. It was 7, and there's that. This is what 10 is, right? Just imagine what Bryan Johnson— the extent Bryan Johnson goes to for his health. There are people who live, you know, 30 miles in my radius here that are doing that in just ways that they're just not publicly broadcasting that. But not in just health. They'll do it in finance. They'll do it in their obsession over specific technology, in a lifestyle choice that they make, whether it's, you know, a polyamorous lifestyle or it's a, you know, the extent to which they delegate, extreme delegation. Like, we were laughing when we were hanging out with MrBeast and he had a, he had his runner outside. It's like, wait, so you got kind of like a personal DoorDash guy that just waits around in case you need something? But like, yeah, there's that. Like, there's a lot of people that have these like lifestyle quirks where it's like, wait, you— Peter Thiel, when he flies to a place, has a mattress shipped to that hotel so that he gets the right sleep because that's his favorite mattress. And he just actually— some hotels store the Peter Thiel mattress in the lobby. Are like in their like storage facility in case he's going to come because that's his demand? It's like, yep, there's people that do that. It's like, oh wow, I thought taking, I thought taking my sleep seriously was like wearing this Whoop band. I guess there's levels to this, right? I guess there's like an infinite level, number of levels to this.
It's a Honda Civic versus a NASCAR, or it's making the JV. Like I was telling my brother, he was like, he was comparing me to someone and I was like, I don't think you understand. I'm one of the best on JV at a big high school. And these guys are Olympians. Like, that is the gap. You know, I think the guy from— you told me this story about the redhead basketball player on the Celtics. What's his name?
Scalabrine.
And he was like, he was like joked as being the worst NBA player, but he would go to like, you know, blacktop games and just crush everyone. And he was like, You don't understand that I'm closer to LeBron than you are to me.
Yeah.
And that made— that's sort of like what we're describing here. You want to do something else?
Well, I do. I have one other thing, but I want to go back to the market size thing because I have, I have something that I think is a pretty sick example of this. All right. So there is an amazing story about this from Uber. So I remember when I was living in San Francisco, Uber had like just come out. I think I moved there 2012 and I was like, it was all pretty new then. And I think Uber—
that was such a fun era. That was such a fun era. Wasn't it?
Yeah, that was like, you know, our version of like the dot-com boom, right? It's like mobile.
It was so exciting.
And so I remember getting in my— I got there and my friend who lived in San Francisco was like, yeah, here, our ride's here. And then we got into the stranger's car and I was like, what the hell is this? And it was actually a Sidecar, which was the third company after Uber and Lyft that just died. It didn't make it. I remember Uber started getting like a pretty big investment and it just seemed pretty crazy and it just kept getting crazier and crazier. They would raise it like, you know, first it was tens of millions and hundreds of millions, then billions of dollars valuation. And I remember reading, um, this Bill Gurley blog post that really changed my thinking. And the blog post is called How to Miss by a Mile is the name of the blog post.
And Bill Gurley, Gurley was one of the early believers and early investors, right?
Yeah, he's, oh, he's a legendary VC and now retired. And he was one of the main investors in Uber. Um, and like, you know, famously at the end, like, you know, they ended up kicking Travis out and there's, you know, it got, it got messy at the end, but he was one of the early and biggest believers. Okay. So basically he talks about this guy. Um, I don't know how to say his name exactly, but it's, I think it's Aswath Damodaran or something like that. This guy's just like a, he's a well-known thinker on valuations. He's a professor at NYU Stern and he teaches like, you know, finance and economics there. And so he had wrote an article that said Uber is not worth $17 billion. This is when Uber raised at a $17 billion valuation. He was right, by the way. Uber was not worth $17 billion. It is actually 10 times more than that. But he was making the opposite argument. He was like, I think Uber is vastly over, um, overvalued. And Bill Gurley sort of breaks down this argument. And this totally changed my thinking and how you think about startups. So what he said was, he goes, uh, this professor just did this, wrote this article, I wrote this blog post, and it seems really well thought through, and he's a very, like, respected expert. And I, you know, I don't— I'm not saying anything about the guy, but I think his analysis is wrong. And he starts with, he goes, the funny thing about any analysis with hard numbers like this is that it gives you a false sense of security. And he talks about like anyone who's in math knows the difference between precision and accuracy. Precision would be, you know, oh wow, you've really forecasted this down to the second decimal. And accuracy is like, yeah, but it's just wrong. It's precise but wrong. It's not, it's not on target. He was basically saying, he's like, he makes two arguments. So he makes one argument about the TAM. So the total addressable market of the, of the, of, of what Uber's market potential is, and then market penetration. So how much of it Uber will get. And he basically is like, he goes, the TAM mistake is the mistake of thinking that the future will look quite like the past, but the arrival of a new product or service will have a non-zero impact on the overall car-for-hire market. So he goes, basically, it's a new offering. It's got new levels of convenience, new price points. Which will open up new use cases. And he gives a story. He goes, you know, once upon a time, AT&T paid McKinsey $1 million to forecast how big will the cell phone market be. They want— AT&T want to know, should we become like a cell phone maker manufacturer? Like, should we, should we care about that market or not? And McKinsey's top, you know, analysts who are getting paid, predicted that the market in 2000, the year 2000, would be 900,000 people using cell phones. Which was less than 1% of the actual number. It was 109 million.
And they were predicting 20 years out, which is really freaking hard.
Correct. But it was, it was, look, it was hard numbers. It gave you a false sense of security. And so AT&T decided not to go, not to invest in that area. They ended up to make, you know, once it was, once they realized they were behind the ball and, you know, actually cell phones were going to be a big deal, uh, they ended up having to buy the cell company for $12 billion. It was like basically a $12 billion mistake. And by the way, now, like, You know, 5 or 6 billion people have cell phones. It's like just absolutely ubiquitous. Aaron Levie, the founder of Box, has this tweet where he said, sizing the market for a disruptor based on the incumbents market is like sizing the car industry based on how many horses there were in 1910. And so, uh, Gurley's talking about this. Now, of course, you might say, well, is this always the case? Like, you could always say, well, you know, forget the past. You're just being— you're stuck in that old way of thinking. Think about the bright future. And of course, no, that's not always true. In fact, it's probably usually correct that the, you know, the near future will look like the near past. But the funny thing about entrepreneurship or any tech investing is that it's a hits— it's a hits-driven game. So you only need one and you can actually be wrong 8 or 9 times out of 10 as long as you get the one right in a really, really big way. And that's not true in other businesses. Like, that's not true in school. You can't pass a test that way. It's not true at your job. You can't just like have one great day and then like have 9 duds. Like you can't do that in private equity. Warren Buffett famously was like, you know, picking stocks, rule number one, don't lose money. You know, VCs lose money all the time. Entrepreneurs get it wrong all the time.
It's a very distinct difference. And so like, and this is actually a distinct difference oftentimes in you and I's personality, which is Buffett is predicting that the future will repeat itself and that the past is the past won't change for the future. VC investing, tech investing is doing 100% the opposite. Correct.
Both are valid games, but you have to know which—
both are right.
You have to know they're right in their game. So like in the stock market, that's probably the right way to think about things. In value investing, that's probably the right way to think about things. In private equity is probably the right way to think about things. In entrepreneurship or tech investing, it's absolutely the wrong way to think about things. You won't make any money doing that other way. And so in our business, I have this phrase, which is that In our business, you know, the cynics get to be right and the optimists get to be rich. And so it's like the cynics will be right and you get to be right 8 out of 10 times. That might feel good, but the optimists are going to be the ones who get rich. And you have to just know that going in.
What are your, uh, what are your employees' reply to all that? Like, Sean, I'm just asking if you want pizza or hamburgers for lunch. Like, can you just tell me, like, please? Just want to know why I have insurance, but I have a podcast.
I think you nailed it.
This is a great, um, a great blog post. The guy who's like the, the, the antihero on this, like, where's he now? He's still there. He's still a professor. He's still a professor.
Of course he is. Because, you know, you know skin in the game, you can never really be wrong. Um, and so he, that guy had estimated the global taxi market to be $100 billion. So anyways, let me zoom it in. So I remember living in San Francisco and when this happened, Gurley pointed something out, which was that. In San Francisco, the taxi market size, whatever it was, let's just pretend it was like $150 million.
Uber didn't just have some percent share of that market. It was actually 3 times bigger than what the total taxi market was in San Francisco. It was a total, like, market expander of a force. And you see that over and over and over again. Any new product that's creating a new category, it doesn't just eat some share of the existing category. It just explodes and becomes bigger than that thing. So let me kind of like fast forward to, to another area that this came up. So I was watching these videos from Sequoia. Sequoia recently had an AI event and my invite must have gotten lost, but I was able to catch it on YouTube afterwards, luckily. And so I was—
I think, uh, Dharmesh was one of the speakers.
Yeah, yeah, I know. So, uh, again, maybe my speaker invite also was lost. I'm not exactly sure what happened., but, but it's all, it's all love amongst, amongst me and Sequoia. So the very first speaker, this guy, I think it's Pat Grady. He's a partner of Sequoia and he has a slide on the screen. I'm gonna show you the slide. It's maybe a top 5 ugly slide. Like this might be the worst slide I've ever seen in my life. Like not only is it ugly, it doesn't even make any, it's illegible. Like you look at this, it doesn't even mean anything, but he explains it. So, okay, so check out this slide. You see this thing right here?
Yeah. So like, I remember taking the ACT where it was like, showed you like 3 shapes or 3 numbers and you'd had to predict the 4th one based off of the pattern. I cannot do this with this.
Okay, exactly. So if you look at this slide, it basically is like a bunch of pie charts, but the pie charts have no annotations, just random numbers. And then there's an arrow and there's a question mark and it just says, so what at the top. All right. So let me explain what this is, because it's actually kind of insightful. So what he was saying was basically like, um, if you look at the, the let's say the 3 most recent waves of, of like tech. So you had software, which was like, I buy CDs, I put, I put the CD-ROM inside my CD, or I install software on my server at our office. That was like software 1.0. And then 2.0 was like the cloud. It was like, oh, the software just lives in the cloud. It's a SaaS, it's a service. You just kind of like use what you need. You don't need the servers and the CDs., and then he's like, now we have AI. And so he talks about like basically the software market at the time when cloud came out, when like Salesforce came out, the entire software market was $350 billion of revenue. Cloud is already $400 billion, right? Like, like just, just like the top cloud players are like more than $400 billion. So basically he's like, cloud didn't just take some percent share of the software market. It wasn't like, oh yeah, maybe like 10% of these applications will now go to the cloud. Or become SaaS. It was like SaaS became bigger than the entire software market before that. And it became bigger by, I think, I don't know why the numbers here are like, again, the pie chart is very confusing, but it was basically some order of like, it was like, you know, 2 or 3 times bigger. And then he's talking about like AI and he's like, AI actually is interesting because AI replaces software, but AI also replaces labor. Like you just, you don't need people to do those tasks. It's services and software. And so, um, he's like, the labor market is basically like, whatever, like $10 trillion. This is some ridiculous number. And he's like, we don't even know how big the AI market's going to be. Predicting that with any accuracy would be foolish. But it's probably a good bet that AI is going to be bigger than the entire cloud market today and the labor market in the future.
And so, um, because like, isn't the labor market like the market?
That's like the main one.
You know what I mean? Like, isn't that everything ever?
Yeah, kind of. And so, you know, in the same way that when Gurley was talking about Uber, he's like, you know, um, it's going to be bigger than taxis because it's more convenient than taxis, right? If you called a taxi, you didn't know when it was going to pick you up. You didn't know if it was going to pick you up. With Uber, you got precise, you know, precise timing. It'll pick you up anywhere. Before, taxis didn't really go to rural areas. Uber had more drivers, so it was available everywhere. Because it was available everywhere, you got lower price points because there was more liquidity in the system. So when it's a lower price point, maybe I wouldn't have called a taxi just to go from here to my friend's house. But if it's an $8 Uber, I'll actually do it. And because you get the price points, now you get new use cases. So like people use Ubers to like help their elderly parents travel or kids or like, and the big one was basically, he's like, the big use case I think people are missing is that some people just won't buy a car because they'll be like, ah, I'll Uber when I need it. So I just don't need to own a car, which is exactly what happened to me. I sold my car in San Francisco because I was like, why would I deal with this car? Parking issues, getting broke into, insurance, gas, all that. Like, I'll just Uber when I need a ride. And so he's like, it unlocked part of the rental, rental car market. It unlocked part of the car ownership market. And once you calculate those, you're like, oh shit, this is a trillion dollar market, not a $100 billion market. And so you're off by, you know, 10x if you had done the calculation wrong with the wrong assumptions. And so AI is going to do the same thing because I won't hire a person to do these little things that I'm basically like telling AI agents to do in my life, right? Like, you know, I'll build little, I build a little app for piano tracking for my piano practice or for my health tracking or I'll, uh, you know, I don't hire a concierge doctor, but I'll feed my lab results to ChatGPT and I'll pay them to like, I'll pay it to analyze all my blood results. And so things I wouldn't have otherwise hired people for, I'm willing to pay AI a little bit for it. And so there's a new market.
How many hours a week are you consuming information on just staying in the know on this topic?
On AI specifically?
Yeah. We had Greg Eisenberg on the pod and he was telling me things where I was like, I was almost— I found myself having fear. I had fear of like Oh, this is clearly the future. And if I'm not like in the know of this, it's going to come and destroy me. Therefore, I owe it to— like, that's how serious it was. It wasn't like I'm missing out on an opportunity to make my business better. I'm missing out on— it was like, oh no, I got to protect my family. Like, like, this is like my job. And so I felt extreme fear over— he was saying like Magnus. Have you heard of Magnus? Is that like the new Chinese, uh, like platform?
Yeah.
Yeah, yeah.
And there's no G, it's just like, I think it's like Manus.
Manus. And he was explaining, but he's like, 3 things where I'm like, how do I not know about this? Yeah. Like, do I need to sign up to like an AI trade magazine? Like, what's going on? Right. And his answer was horrible. When I said, Greg, how do I, how do you know? He's like, I just do. Or he said something like that. Or he was just like, I just hear about it. Like, I was like, well, that's like extremely not actionable for me. Thanks a lot, Dick. So how much time are you spending learning about this topic and where are you turning to?
Look, there's two minds about it. One, I would say I have no risk of overinvesting my time in this. I have a pretty big risk of underinvesting my time in this, but no risk of overinvesting my time in paying attention to what's going on with AI and being able to like play with the tools, understand what the companies are doing, like really think through like where this puck is going. At the same time, I'm not trying to drive myself insane. So, you know, like Uh, I do think there's a very unproductive version of this, which is the constant whiplash of new demo, new model, new this, new that, new whatever. And so what I'm doing is basically like an intermittent fasting style model where it's like I mostly not paying attention to it as in like, I don't, I'm not actively trying to like react to everything I see or go seek out or go read every single thing out there or sign up for every single tool. What I'm doing is I'm trying to make it very useful for me. So when I have a problem, I now add it into my like sort of solution list. Like, oh, do I think AI could solve this? So then whatever research I'm doing, it's actually like a just-in-time solution to a problem I actually have versus just like the kind of like intellectual jacking off of like just keeping up with everything, just like trying everything, just wanting to know everything, watching every podcast, listening to every YouTube video. It's like, No, I'm mostly trying to like, if I have a problem, I try to see, could I solve this with AI? Well, maybe yes, maybe no. But that's interesting. I learn a little bit each time I do that. But at least I'm trying to solve a problem I have. The second thing is I am carving out free time. So like last year, I think I told you what I did this. I did like an AI hack week, a think week where I just basically said, clear my calendar. The only thing I'm doing this week is just going in depth. And the beauty of that is it's kind of like checking your email. You're like, if you want, you could check your email every 3 minutes. And you might find a new email, but you'll just consistently, like, it'll just keep tearing your attention away. Whereas if you just batch your email and you just check your email once at noon and once at, you know, 8 PM or something like that, you're totally up to date on email, but you didn't have to like have this nervous energy just constantly doing it. And so I'm treating it more like that.
I agree with you. It was nice to, um, catch up with you. I'm getting all pumped about all this stuff. I, I'm currently in, um, St. Louis, Missouri. I'm about to go to the zoo, so I'm going to go to the zoo. I'm going to go see some family tonight. But I was happy I was able to do this podcast from this hotel and potentially reach hundreds of millions or hundreds of, or rather hundreds of thousands of people and hundreds of millions of red blood cells.
What are we counting here?
Well, because like you just started talking about this AI stuff and I'm like literally staring out the window right now, like Whenever you talk about this shit, I have notepads here and I like get flustered where I'm like, like I sometimes I think and I'm like, what should I say next? But then other times I'm like, oh, he's talking about this AI shit. Like, what am I going to do? What do I got to do this thing? I got to do that thing. Like, that's how I feel right now.
Yeah. Yeah, I definitely feel that. By the way, I have a couple of things I forgot to say on the Uber thing. They're great. This is the funniest part of the Uber thing. At the end of that professor's blog post, you know what he wrote after he wrote this huge, like, valuation tear down of Uber. He goes, as I attempt to attach value to Uber, I have to confess, I just downloaded the app and have not used it yet. I spend most of my life in the suburbs where I go for days without seeing a taxi, or if I'm in New York, I just use the subway. And so it's like the experts who are literally like, not only are they not betting on this, they don't have skin in the game, literally never even used the product. It's like, but—
He should have just ended it with like, P.S. But what the fuck do I know? Like, that would have saved him a lot of, a lot of, like, reputation there.
Like, there's some great quotes, by the way, from some CEOs who underestimated their market size. So Jan Koum, CEO of WhatsApp, he said, we're just trying to make messaging better, not build some big business. Sells for $20 billion. Um, somebody said, I thought I'd make a little side money, enough to quit my job. That's Sara Blakely, founder of Spanx.
Oh, Sara Blakely.
Wow. So, you know, female billionaire, you know, one of the, like, uh, first female billionaire entrepreneurs of this, like, generation. Mobile gaming. So one of the first mobile games ever was Snake on the Nokia phones, if you remember. So the head of Nokia, uh, Nokia's mobile gaming division, so this guy is in charge of mobile gaming, here's what he said. I think mobile games are just a small add-on. It's not a real market. Mobile gaming turns out to be $120 billion market. Here's another one. The Domino's CEO in 2010, the year I graduated from college, he said delivery is a convenience, not a game changer. At the time, delivery was $10 billion a year across food delivery. It's now, you know, more than 10 times that, more than 15 times that. In fact, I read a crazy stat that some— some— I don't know if this is legit, but some study came out or that somebody was doing some analysis and they said that for most local restaurants now, 70% of their order volume is delivery orders. They're no longer restaurants that do delivery. They're delivery machines that also happen to have a restaurant table, you know, like a table to sit down at if you want.
I go to restaurants all the time where I feel like I'm the only person there and drivers are coming in and out the whole time.
Yeah. Uh, Brian Chesky: We didn't know the size of the market because we were inventing it. If we listened to market research, we would have just made a better couch surfing app. And the last one is Elon: I don't care about the market size. I care about if we can make something fundamentally different, because if you make something great, The market will come.
This is sick. This is— this was like a little impromptu topic that turned into a whole thing. That was awesome.
I feel like I could rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.