- As The Notorious B.I.G. said,
"More money, more problems",
and if that's the case,
no one has more problems than Google.
They've got so much money,
they don't know what to do with it.
A $135 billion to be exact.
Here's a clip of Peter Thiel confronting CEO at the time,
Eric Schmidt, about that very issue in 2012.
- Google's a great company, it has 30,000 people,
they have, you know, or 20,000, whatever the number is,
they have pretty safe jobs.
On the other hand,
Google also has 30, 40, 50 billion in cash.
It has no idea how to invest that money
in technology effectively.
And so it prefers getting 0% interest from Mr. Bernanke.
Effectively, the cash sort of gets burned away
over time through inflation,
because there are no ideas that Google has
about spending money. - Go ahead, Eric.
- I have news for you.
Google is not a tech company anymore.
It's a tech holding company with $135 billion worth of cash
and not a lot of ideas.
In this video I'm going to explain why this is
and how we are actually living in the most
growth mindset era in history.
And as a founder and future founder,
you've got a role to play in that world.
They might be out of ideas, but we aren't.
Let's get into it.
$135 billion.
That's how much money Google has in the bank right now.
Why? It's simple.
It's a big company and there are limits to how much risk
a big company can take before it turns that just into waste.
- What you discovered running these companies
is that there are limits that are not cash.
And there are limits of recruiting,
limits of real estate, limits of regulatory limits,
as Peter points out.
There are many, many such limits.
- And this is why I don't like working at big companies.
The bureaucracy, the drama, the politics.
When you're Google, you have a real thing to protect.
You've got revenue, real cashflow, real moats, uh,
maybe a monopoly.
Anyway, it's hard to build teams and manage people.
Managing resources is damn hard.
Here's the former CEO of Waze who sold this startup
to Google for a billion dollars, and this is what he said
when he finally quit his job at Google.
"The amount of time and effort spent on Legal,
Policy, Privacy - on features that have not shipped
to users yet, meant a significant waste
of resources and focus.
I'm not saying this is not important,
but this has zero value to our users.
An ever increasing percent of our time went
to non-user value creation tasks
and that changes the DNA of the company quickly,
from customer focused to corporate guidelines focused."
Notice what he said.
The focus was on corporate things,
not actually creating value for users.
Link in the description for the full post by Noam.
And that's where a small startup can beat
even the largest companies on the planet.
You care a lot more, you can hire better,
you can deliver a better product.
Eric Schmidt, at the time, or any big company CEO,
has to spend most of their time just trying
to keep all the plates spinning.
You, as a founder or creator,
you only have to spin one plate really well.
I think it's one of the real reasons
why smart people should consider starting companies,
and it's one of the big reasons
why those very smart people seem to avoid it.
They think they have to beat the big guys like Google,
and that's impossible, right?
I'm here to tell you you can.
The big companies aren't invincible.
They're usually way too big and too slow
to really get anything done,
and that's why you shouldn't always be afraid
to take them on.
They might have infinite resources,
but as Eric mentioned, there isn't a way for them
to properly harness those resources.
But there is a company that is as big as Google
that has done it right.
Jeff Bezos and Amazon.
But before we get to that, I wanted to quickly tell you
about an awesome portfolio company of mine, Berbix.
It's the fastest, most accurate way
to integrate identity checks into your app or site,
and I thought that instead of me telling you about it,
I'll let a real Berbix customer tell you their story.
- Weedmaps, for example,
doesn't ask you for your real name
when you sign up for an account.
That's not going to be good enough for us to be compliant
and record that order and actually know
that we're sending our driver to a safe delivery.
So we quickly implemented Berbix
across all of our channels because we had a few,
maybe two driver incidents, let's call them,
when we hadn't verified the customer's identity.
And so now that we are doing it across all channels,
that problem has essentially gone away.
- That was George Durzi of SF weed delivery startup, Amuse,
who uses them for validating deliveries
without losing any customers to the ID check process
and that's a big thing.
With pure software, you can check IDs
without losing conversions instantly just in the flow.
It's safer for drivers, it's better for everyone.
You know what those other ID check guys do?
They send it to a mechanical Turk-like system
for some human being to look at it,
kind of like a bouncer, and bouncers are not very accurate.
They're slow as hell too.
So there are billions of dollars worth
of new transactions that can exist now
because Berbix, this software,
exists and that couldn't exist without it.
Maybe one of your startups will be enabled by it.
Berbix is great, they've built the best software by far,
and if you want to learn more, check it out,
link in the description below, berbix.com.
Now back to what we can learn from Jeff Bezos.
In a sea of companies with 12 figure cash stacks,
there's one whale that doesn't seem to swim the same.
Amazon.
Founded in 1997, Amazon barely turned a profit
for almost 20 years despite growing revenue every year.
This is what a company that reinvests profits looks like.
Amazon has consistently invested this time
and money and it shows.
They're are now 50% of all e-commerce in the United States.
Walmart sells one-fifth of what they do online.
But what's even more impressive,
this book seller now owns 32%
of the cloud infra business out there.
These are servers that power not just Amazon,
but Netflix, Coinbase, NASA, Facebook, Comcast, and more.
You name it, and they probably pay Amazon for servers.
Amazon is dominating it all,
and with so much profit going back and reinvesting,
that's exactly how they've built the business they've built.
And all the while, Google,
instead of reinvesting their revenue,
just kept getting more and more profitable.
Five to $20 billion per year in profit
that they actually couldn't figure out what to do with.
It's not a picture that is building the future
in an aggressive way.
Don't be too mad at them.
They're having a hard time, which is crazy.
It's funny to feel sorry for a company
that is that profitable,
but that's what you can call innovation complacency.
Why aren't there more companies doing what Amazon is doing?
Jeff Bezos actually talked about this in 2014.
- Here's a job I would reject.
If somebody came up to me and said,
Jeff, I want your job to be to
drive up the Amazon stock price
and just manage that directly.
Now, this might sound ridiculous to some of you,
but many companies actually do this.
They actually go out and they try to sell the stock.
That's kind of the final output.
- Now, Bezos wouldn't take that job,
but that's exactly the typical kind of job
most public CEOs actually have.
Bezos goes on to talk about his philosophy for five whys.
Pay attention, because this is important.
- What are the inputs to a higher stock price?
And I said, okay, well,
free cashflow and return on invested capital
inputs to a higher stock price, okay.
So let's keep working backwards.
What are the inputs to free cashflow?
And you keep working backwards
until you get to something that's controllable.
- Now, for an established business,
most people think this means improving the business
one or 2% here or there.
And that's true, but there's another way.
Taking big risks on brand new products like AWS,
Kindle and Alexa.
Amazon has done it both ways.
So they've pointed the way on how to really
put capital to good use.
Now, if you take a little bit of risk,
you can get a little bit of reward.
That's what most big companies are actually doing.
Even though they have huge resources and capital
to do new things, they just aren't doing it.
And in order to do that, you've got to think
on a much deeper scale than what most people do.
You can't focus on just the things
that are 1% or even 5% better.
You've got to find things that are 10x better.
These things are compounding.
These days, we have a computer that's always on
with a broadband network that is now everywhere.
And that computer is now smaller than ever,
so we get big dislocations.
What used to be a fragmented and terrible taxi service
means Uber and Lyft, which now means cities
can be built around people instead of cars.
And it's happening around us every single day.
That's the amazing thing, it's not a secret.
Steve Jobs was talking about this in 1990,
more than 30 years ago.
In the '70s and '80s, he created personal computing.
A PC on every home on every desk.
But he could already see where computers were going:
interpersonal computing.
- As an example in an organization,
we're starting to see that as business conditions
change faster and faster with each year,
we cannot change our management hierarchical organization
very fast relative to the changing business conditions.
We can't have somebody working for a new boss every week.
We also can't change our geographic organization very fast.
Matter of fact, even slower than the management one.
We can't be moving people around the country every week.
But we can change an electronic organization like that.
And what's starting to happen is
as we start to link these computers together
with sophisticated networks and great user interfaces,
we're starting to be able to create clusters of people
working on a common task, you know,
literally in 15 minutes worth of setup.
And these 15 people can work together extremely efficiently,
no matter where they are geographically
and no matter who they work for hierarchically.
And these organizations can live for as long
as they're needed and then vanish.
And we're finding we can reorganize our companies
electronically very rapidly
and that's the only type of organization
that can begin to keep pace
with the changing business conditions.
- Steve was talking about the computer revolution,
and it is literally what is happening today
in every walk of life.
Every big startup you hear about today
is somehow connected to this mega trend
of computers embedding themselves
in every part of our working life.
Remember Eric Schmidt at the top of this video?
He was complaining about not being able to hire,
not being able to harness human capital necessary
to properly invest money into new things,
but it's happening before our very eyes.
Software's creating a new kind of management,
a new type of hiring, a new type of company,
and a new way to come together to create.
And you know what's the most exciting part?
We live in an accelerating tech world
combined with 0% interest rates,
which means technology will yield the largest returns
on your investment.
The type of return nobody has ever seen before
in their entire lives.
And if you're a great engineer,
if you're a great product person,
a great builder, it is up to you.
Let's go get it!
If you liked this video,
please be sure to click like, subscribe,
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be sure to share this link on Twitter, Facebook, LinkedIn,
and text it to your friends who want to start companies.
Let's make sure we can all find each other,
find these builders.
Let's make a community out here on YouTube and everywhere.
We live an absolutely truly astonishing times
and I'm super glad just to be able to share this story
with you today.
Have a great week, be well, and I'll see you next week.