Best of This Week: March 4th

You know, your team is only as good as you challenge them to be. And so they'll, you know, if you're not challenging your team and you're asking them, what do you think you can do? They're only going to achieve a fraction of what's possible. Great coaches and great leaders need to kind of, and technology leaders in particular have this unique ability to, I think, understand the technology and leap several iterations forward. To speak to the team about where we're headed and then bring the timelines in. And that makes for, you know, an incredible sense of urgency and outcome.

It's a really important question. So one of our principles at TPB is dare to dream. So it's all about creating that audacious perspective. You know, how big can this be? How big should we be? And what happens when you set a big goal, like let's say I have to go climb to the top of a mountain and I can't see the path from here to the top of the mountain. There's 100 permutations or 1,000 permutations on how you might get up that mountain. And you don't know which path is going to work. Most people that are smart have been successful, and most people that have been successful are not used to not succeeding. And so the orientation at that point is that success is all about doing something. And getting an action that you expect out of what you just did. And so you want— you are inclined naturally as a smart person, as a successful person, to only do things that you know what you're going to get as an outcome. And guess what that does? That limits your horizon. So then you end up saying, I'm not going to take the more circuitous, challenging route or path that might get me to the top of the mountain. But I can see that this particular path gets me, you know, a quarter of the way up the mountain. And that may not— and you might know, however, that that means you're giving up going to the top of the mountain, but at least you know for sure that if you do X, you're going to get Y. And I see this all the time. I see this all the time at businesses where the teams end up compromising on their big vision and they compromise on the moonshot because they're more likely to succeed and they feel more comfortable taking a shorter range narrower horizon and minimizing the opportunity set significantly and saying, I'm just going to go do this because I know if I do X, I'm going to get Y and that feels comfortable and I know it's going to happen. And so they minimize the dare to dream circumstance and then they always say, well, you know what, we'll come back and dream big later. But guess what happens? Let's say you're thinking about— I'll give you a very specific example because this relates to the business we're announcing this week, Cana.com, which is our, our molecular beverage printer. But early on, there was a hard push to say, look, we know restaurant owners will buy this device. I don't know if every consumer is going to buy this device. It might be too expensive. It might not taste good enough. Consumers are so, you know, fickle. If we make a device for restaurants, we know that there's an economic advantage. There's an ROI enterprise-based sale. Let's go sell in restaurants and we'll make a bigger device so it can hold more. And we don't have to worry about shrinking and getting all the technology into a tiny form factor that fits on a kitchen countertop. The problem is if you do that and you start selling to restaurants, you've now significantly minimized the opportunity to go into the consumer channel because you now have a customer and the customer is the restaurant and the restaurant's going to say, I want this feature and I want this feature and I want this feature and I want you to do this for me. And all of a sudden your whole team is going to be inundated with product and feature requests that focus on that much smaller, much narrower market. You're going to end up going deeper and deeper into that market and you're going to lose out on the opportunity to go build for the big market, to go build for the 100x market that can actually change the world and improve the problems that we're trying to address with this business. And so, I've seen this at many different businesses where taking on a lot of technical risk, taking on a moonshot project is often foregone and you end up trading into a much smaller pie and a much smaller opportunity, and then you often miss out on that bigger opportunity. And so, I think it's really important for entrepreneurs to continue to dream big, and find aligned capital and aligned shareholders to let you dream big and shoot for those bigger, higher-risk opportunities. Because if they work, they're 100x bigger.

You know, you notice certain characteristics like crypto tends to be exponential in price. So you put it on the logarithmic chart, it starts to make sense. You know, you look at things like copper and lumber, they tend to be mean reverting assets because they get met by excess supply with high prices lead to excess supply. So right now with oil at $100, everybody wants to make as much oil as possible. So, the price comes down over time. It doesn't happen with crypto because you can't. So, you need to understand the structure of markets, where the sentiment is. Is it overly bearish? Like a day like today, it got overly bearish. And so, suddenly, you start to see a reversal. So, these kind of things are interesting. But my big discovery and why I really started loading up on Ethereum was another chart, which was an understanding that Metcalfe's Law. Was the primary driver of all crypto markets, and in fact, almost all of the tech stocks that we've known today. And once you realize that these are basically networks, and once you realize that crypto are networks where you actually own the network— so Facebook is a great network stock, and it works perfectly on a log chart, and it's an exponential, does all the things as you imagine. You can value it in Metcalfe's Law terms. But the fundamental difference is shareholders and network users are not aligned. The shareholders make the money, the network users get the utility. Along comes crypto, you marry the network user with the owner. Okay, now you've got network effects upon network effects. This is like behavioral economics, right?

It's religion meets capitalism. Basically, what it is. So, that is incredibly powerful. So, I start looking at the fact that Bitcoin and Ethereum charts just at different points when they— at the same point in the adoption cycle were remarkably similar. And then it dawned on me is they're all the bloody same thing. They're all about adoption. So, if you look at it, and if you're honest with yourself, Ethereum, if you think about Metcalfe's Law, it's about the number of users, and then the connections between the users and the applications built to create those connections. Well, Bitcoin's a one-sided one, which is a bunch of people own it as a store of value, like gold, nothing wrong with that. But there's not many applications built in it. When you look at Ethereum, it's like, holy shit. I mean, this is like the internet. That moment is like, okay, this is far superior of bet. And so, that's why I took that bet. And then I eventually shifted majority into Ethereum and then took other bets in the space to express macro views.

Yeah. It's funny. I have 1/10 of the intelligence of you, but I did the exact same pattern. So, I heard about it in 2013, bought a little bit, dabbled, sold during— when I went to a wedding and my aunt was telling me about how great Bitcoin and Ethereum was, I was like, ah, it's probably a bubble, 2017, 2018. Sold for a nice profit, was patting myself on the back. You know, in retrospect, worst trade I ever made. I should have just held everything, you know, but started buying back in, in 2020, 2019 or 2020. I kind of announced that I've— I had moved 25% of all my liquid net worth into the thing, but that was right before, you know, another, another run-up. And so that became quickly 50%, 60%. And, and, you know, peers and some people are telling you you're crazy. I'm sure you had the same. And same thing, you know, why are you betting on this? Are you just kind of speculating? And I said, no, like basically I spent my whole career studying the power of network effects, right? I'm trying to build marketplaces and social networks in Silicon Valley because I know that a network effect is the most powerful force imaginable. And, uh, and then I see this chart, this adoption chart of this new money network. I said, well, if the, if the, if the social network was worth X and the information network was worth Y. And then the, you know, the merchant network, which is like, you know, basically Amazon, um, it was worth, you know, Z, then, then this thing is gonna be, the money network's gonna be worth a lot. I can tell you that. And so I was like, I didn't know much more than that, but I just knew if you can bet early in a, in a network effect that's still going through its kind of like ex, you know, adoption curve, um, you know, you'll do pretty well. And so that was kind of my, my, my bet. Um, coming from a comp, you know, sort of a different different take, but ended up at sort of the same conclusion. And I remember being impressed that you were talking about network effects because I didn't really see a lot of people in kind of traditional finance talking about that at all.

Okay. So this starts— I'm reading a thing, so you're going to see me look off. This starts on November 3rd, 1995, in a remote Siberian town called Surgut. Basically what happened in this small cabin, an auction took place for the right to lend the cash-strapped Russian government tens of millions of dollars. So basically in '95, the Russian government wasn't doing so hot and they needed money. And so they got these banks to come to this meeting and they said, we need some money, we need to borrow some money. And also as collateral, we're going to put up shares of some of the large state-owned companies because at this point Russia was basically going from being a communist nation to being a private country. And so they still had some like state-owned oil companies, mineral companies, basically like if you think of ExxonMobil, they like the government like owned that. And at this point they were trying to figure out how do we make this so private individuals can do this. And so at this meeting, basically only 2 bidders showed up. And if more bidders wanted to come, it was kind of a pain in the ass because conveniently there were no more flights. The airport shut down and you couldn't even book a flight to come into, into this small town. By the way, your camera's okay. You're there. And so basically what happened at this, like, small cabin is one company made a bid to buy a— or to loan money to the government. They loaned it. They loaned something like $500 million, and that was like $100,000 above the opening bid. So people were bidding to loan money. And so this bank loaned money to the government, and then the government had to pay back the loan at a certain point, like something like a year later. And if they didn't, the bank then was given the collateral. So the shares in this company to auction off and they could keep 30% of the profits. So obviously the government didn't pay back the money and there's like a lot of like wondering why they didn't pay up, pay it back. Basically, the idea is that the current president was like, obviously this is all like we're all planning this, so don't pay this back and give us a little bit of whatever. So they don't pay it back.

Yes. He was basically said to these 8 or 10 businessmen, I'm going to hook you up. You guys hook me up when I'm, when I'm, when I'm in office, hook it up. I'm going to hook you up, whatever. So that's one theory. The second theory is that they wanted experienced managers in, in to run these companies. And the third theory basically is even though these 8 to 10 oligarchs put bids on these companies and basically they bought the equivalent of ExxonMobil. So we're talking about like a company that's worth billions of dollars. They paid $100 million for this company. And so these managers, these oligarchs, these 8 to 10 folks, a lot of them were mildly successful, but they were all in on the government. They were all friends and friends. You know, they're all homies. They basically— they did take on risk. So like these companies did have debt and like they had to go and like collude with other people and fire the rest of the managers of the company. So it was basically almost like a PE thing, but it was like pretty dirty. And the government was like, yeah, we need— we want like these mercenaries to be in power, because if they make these companies better, our, you know, our government's going to be better, Russia is going to be better. And so they basically— profits after this whole deal, profits to these companies grow by 50x, market caps go up by 100x. And so there's— here's an example. The reason I got interested in this is there's this guy named Roman Abramovich. What's his name, Ben? How do you say his last name?

Oh, Roman's famous. Roman owns— we're just going to call Roman. He owns Chelsea, the soccer team. So he's like a famous guy and he owns like this, like, you know, 200-foot yacht. He's like a big deal. And basically he paid $100 million. Him and his partner Boris paid $100 million and they've just— they came up with a little bit of money and then they went and hollered at like other rich people and they said, hey, loan us some money, let's buy this company. They paid $100 million for a company that is now like the 8th or 10th largest oil company in the world. So imagine paying in the mid-'90s, imagine paying $100 million for ExxonMobil, right? Insane. And so these companies explode. Now, they explode partially because basically what these owners did, these 8 to 10 oligarchs, what they did was they purposely tanked the company. So it sucked for a long time and then they bought out the rest of the minority shareholders. So it was again, cronyism there. And second, these were government-run companies, so they're shit. And so these private individuals, they did a pretty good job of making them better and they became far more profitable. And this created like 8 to 10 guys that were worth like up to $40 billion. So at one point, one of them was worth $83 billion. And, you know, things have changed, but it created so much wealth between these few folks and it also like trickled down. So here's the craziest part is that a bunch of the managers of the company. So basically there was like the— there was like the minister of oil or something like that as a government official. He becomes— he sets up this— one of these companies. He eventually becomes president of one of the companies and now is worth $8 billion, even though he was like a government official. So I thought it was interesting because I actually wanted to read a book about these folks because I'm like, oh, who's this like rich guy that owns Chelsea Football? Let me like go and learn from him. And what I realized is like, I pretty much can't learn from him. I mean, I could maybe learn some stuff, but like his process is not like replicable. I can't replicate it because he was like 38 and Russia had just fallen and he basically turned $0 into He's worth now like $20 billion all through this cronyism. But I thought it was incredibly interesting. Have you not heard about these folks?

Yeah, it's like the mugshot, but it's, like, literally a cage that sits on you, and people can come and, like, take pictures. It's weird. And anyway, this guy was worth, at the time, like, $15 billion. And Putin arrested him for not paying taxes, things like that, and put him in jail for 14 years. And he goes to the other guys, he goes, you want that to happen to you? No? All right, let's play. And so a lot of people think that Putin is the richest man in the world, right? And he owns one of the most expensive homes in Russia and in the world. It's like a billion-dollar, $2 billion house. And people are like, well, how'd you do that?