This is Dolphin Plus Michael. Today we're going to talk about predictions that turned out way better than we ever could have imagined. Specifically ones that maybe in hindsight look a little bit more obvious, but at the time, one or both of us didn't quite rock.

I remember one of YC's LPs, very large LPs said to me, historically, the venture market, something like 97% of returns are generated in the US market. And I remember thinking to myself, like I always do, like, that doesn't really align with my current thesis, so I don't believe it.

Opinion discarded.

It's a zoom power for a sort of founder.

I'm embarrassed I didn't realize how good the US was. It was so privileged to live in a market that is kind of just really big, that I could just blind myself, my own privilege and be like, no, it's just as easy to build a billion dollar company somewhere else. And it's like, is it? No, it's not. Not so you can't do it. It's just not just as easy.

It's definitely not.

It's not just as easy. What were your thoughts, by the way, back then? Because we invested a lot in the international company. Some of them are doing really well.

Yeah, we did. Some of them are. We just had a bunch of Indian companies doing phenomenal growth. Just one public, which was a really big deal in India, counter example. But yeah, I think you're right. I just didn't know. I think that a lot of folks that are investors are basically specialized finance people. I don't mean that in a negative way, but I just am stating the truth, which is if you're like a stock trader or like a private equity person, I think you're more attuned to this. We were just startup founders. There was never a time at our startups that we had to worry about capital markets in India and our US based startups.

We were just trying to fund smart people.

But really, I think that's why we got to fund growth. And razor pay. And Misha, like all of these Decker corns in India. I think it's because we weren't sophisticated enough to know that we're not supposed to fund that stuff. Like we didn't get the memo. Not to fund these companies. And so there's something beautiful about being naive.

Well, I'm so happy we did it. Right? But this was researchable.

We didn't have chat GBT then.

All right, well, that's my first one. How about you? What's one that sticks to your head?

One thing I remember is right when I was starting at YC. Very, very, very beginning. I remember this is when PG was still in charge of everything. I remember sitting down with Sam, who I knew. And Sam was like, oh, I'm leaving and I'm going to go work on nuclear power. I'm going to do a nuclear power startup. I've met all the small, smartest researchers in the world working on nuclear. And I remember being like, oh, why? And again, I don't mean that a negative way, like as if I knew a lot about it. I'm just like, that's random. Like, didn't you have the like social network for boost mobile phones?

And this was during the like gig economy cycle.

This was like in 2013. So in 2013, and he was just like, electricity and power is everything. And that it's a total L that nuclear got basically banned by governments. And that the key to the future is to have unlimited electricity. And I remember, again, not in a negative way, just being like, Oh. Like, I think I just filed it away and neither was pro or anti. I was very neutral about this statement. And then a few months later, he came back to YC and then he funded some nuclear companies, which was pretty smart. And like now they're huge companies. And I think he was right.

Well, and even despite like regards to the companies he funded, The narrative today is...

Electricity is really important.

Yeah, is the limiting factor for AI, which we'll see.

And for intelligence.

Yeah, exactly.

As it turns out, I think Sam was kind of thinking about exactly the correct, most important thing.

Yeah, just from a zoomed-out perspective. No, I think that's a really good one.

Another one that you bring up that kind of resonates with me is this one around like smart people win. And I spent a lot of time thinking about this. I think that we don't talk about this enough, but a lot of the people we interact with were not cool in high school.

I find that hard to believe. You're kidding me. Wait, really? The prom king and prom queen.

A lot of compensation for that. I daresay some of them weren't even cool in college.

Shocking, shocking.

And I think that like a lot of people were smart and they worked really hard and they tried to get good grades and da, da, da, da. When for a long time it wasn't clear, the payoff was right in front of them. But then like you come to the Bay Area and it does feel like this weird community of smart people winning. It has all these awkward side effects, like probably the general quality of sports is less good here or there are other interesting side effects, but like, You do feel something different about this place. So you flesh this out a little bit more. Like, what was the kind of not obvious thing here?

I feel like what I was taught was, you know, A, there's no such thing as intelligence 😉.

🤨

You know, like, hey, let's just let's it doesn't exist. And then number two, you know, smart people, whatever, but they're just nerds. And ultimately, yeah, everyone is special in their own way. And, you know, there's a lot of factors that go into having an interesting life. And intelligence is maybe in there somewhere, but it doesn't really matter. And I don't think that's true, Michael. That's my point is, and this isn't even something that's restricted to just tech.

Fair.

Think about people that go into law, what people are going to medicine, what people are going to finance, like, kind of seems like the most ambitious and smartest people to do the coolest stuff.

I would extend that further to say, I think when you look at the people who are actually winning in the macro, you might be surprised at how uncool they were for how long. And it's like the people who you think are cool now, we're not cool in high school. And so it's so interesting how something changes. We're like the population of cool people completely swaps and like smarter people seem to have much more of an advantage later.

Anything they do even if it's strange. Like even if it's...

Yes. Well, and I would even say strangely because like I'm a huge basketball fan People talk about this in basketball a lot. We're like the best players have high IQ and you start looking at interviews like there was this great LeBron James interviewer who was like Hey, we're gonna run this play and look like the team was prepared for it So let's just flip it around on the different side of the court and he was like some my team members just couldn't draw that in their head and do and it's like 🤨.

Even as investors sometimes, I don't think I appreciated, like I think I thought who raised the most money mattered more or like, I don't know, I thought a lot of factors mattered, but it does kind of just seem like the most aggressive, ambitious, just smartest people that can see things other than people can't see tend to do better.

They tend to do better. They have an advantage. Yeah. Well, and they have an advantage that might overcome things like, did you grow up in a rich family? Other kind of weird starting conditions, especially out here, like especially out here. One that I am still having trouble grasping. So when I came out to the valley, there were some companies that were kind of obviously losing out here, right? Yahoo would be a good consumer example. Maybe HP would be a good enterprise example. At the time, it was kind of obvious to me. What's happened over the last 15 years is it's very hard for me to really identify the companies that kind of look strong today, but are slowly rotting. But I know they exist, right? Because like those companies, HP Yahoo, we can name others, looked incredibly strong. We're incredibly strong, but kind of rotted from within.

And We have all these startups that are so intimidated about these big companies, but sometimes I think to myself, which one of them is a fatter top of this fair? It's like a watermelon, green on the outside, red on the inside. How do you think about this concept of companies right now that looks strong, great valuation, public doing great, but like We're going to tell us a story 10 years from now. This was the time.

I think the lesson is just it's a topsy-turvy world. And until you've seen it happen a bunch of times, the things that seem unassailably number one can just go away and be gone in 10 years. All of internet 1.0, so much of that stuff just evaporated. And so companies like Google could become completely irrelevant. Or they could just become gyronauts even more. They're not like institutions that are going to last no matter what happens. That's what I'm trying to say. I think they seem like infallible. They felt less, I don't know.

They have to keep winning.

Yes.

Well, and there's some institutions.

Intel versus Nvidia.

Yeah.

Intel was like, what, an institution?

Yeah, until it wasn't. And I think that maybe this is different in other industries or other parts of America. When I started thinking this way, Microsoft became so much more of an impressive company. Because I mean, during this time, when HP and Yahoo were kind of declining, if you had told me, hey, Microsoft is going to be declining too, I would have believed you.

They did really good with cloud stuff.

Really good. Well, and also they became like, remember when VS Code came out, remember when they bought like GitHub, and you're just like, what? I'm so used to big companies making the wrong decisions, and then like just you string a couple of wins together, and you're just like, oh God, and Microsoft scale. So no, I think this is kind of like an interesting one. I think if I was a smarter founder, I'd be trying to figure out Are the incumbents in my space rotting from the inside? Are they way more vulnerable than they look?

Another one, I think that's kind of fun. You touched on this. Let's talk about hype cycles. Because we've gone through so many hype cycles. What's not obvious about hype cycles? What are some hype cycles that works and that didn't?

Yeah, I think You know i remember being a teenager and being on stock trading message boards during the dot com boom. And do you remember the company that made zip drives and jazz drives.

Yeah. That's a good ones.

it was like one of the hottest stocks of all time and they made like basically floppy disk drives

but i don't know what that is either.

Yeah, you can just ask chat gpt.

Yeah, like they got like like USB keys a bit better.

Yeah, sure.

Yeah, but not no USB keys are better, but like a version of that.

imagine Dropbox if it worked offline. Anyway, it was one of like the hottest stocks. I remember reading about it. And of course that went to zero. That was not a good stock.

So look, I've seen so many cycles, you can start to recognize that this is just part of reality, is that there are hype cycles. And you go through these different emotions about this, which is to be angry about it or resentful or judgmental. No, it's just like, it's like being mad about the weather. Like, oh, I'm mad at the weather. It just happens. And you want to identify the things on the way up and the things all the way down. I think when you acknowledge this stuff, you can just be a lot more zen about the world.

It does seem like people get angry. Hype cycles are very predictable. You can't tell which one is necessarily, but you know that there's always a hype cycle or two going on. People get very angry about it, which I agree. If it's always going to happen, it's kind of...

Yeah, it's just kind of part of the environment that we're in. And there's often nice side effects of it, and there's not nice side effects to them. And so I think it's just like a neutral phenomenon. And so I would advocate Neutrality.

Yeah, yeah, yeah. Yes, versus anger.

Yeah, I think the last one for me, and I think you brought up Sam before, I've got a good Sam one. I think I used to think a little too mechanically about what it takes to build a company. You need a big market, you need a good product, you need to price it correctly, any people who are great founders. And I think that like Sam, one of the things that he said that kind of stuck is that like, You have to have kind of an ambition or a mission or a goal that people can rally around. That fundamentally like a great company has to attract a lot of great talent and all kinds of talent, whether it's investing talent or technical talent or talent from a customer who's going to pick you.

If what you're doing isn't interesting, if it isn't something that people can get excited about, it's hard to rally that talent. It's hard to rally those humans. And it was like so funny because in my mind before that, I was just kind of like, well, obviously, you know, two plus two equals four, if this company is a good product, we're going to work at it. And then you start realizing like really talented people have a choice of where they put their time. And like, are you telling them, we're going to do something super exciting that might change the world? Or are you not?

Are you going to do ad targeting stuff?

And the counterintuitive thing that Sam really got embedded in my brain is like, sometimes all it takes for us to do things that look impossible is for them to be attractive enough to attract the smartest people. like the smartest people can make the impossible happen. And if you can't attract the smartest people, you can't even make the possible happen.

It's like the Apollo moon landing. When you think about it, that was a miracle. But those people were pretty pumped to be putting a man on the moon. Like that was like a cool project. That people worked really hard.

Dude, a cool project? That was the coolest project in the world to work on. Literally.

And it was like really hard. And what's funny is like, obviously he was telling us this stuff and he went and lived that advice.

He did. He did with open AI, right? Like let's create intelligence. In hindsight, it just kind of sounds a little hokey, but it's like, oh, you should have a mission, right? Like that kind of.

Yeah.

It's not that. I think it's just like, sometimes we have to remind founders to just set their ambitions higher. Like something that gets you more excited, it's going to get other people more excited. Like, how can you be excited about this for 10 years? versus how can you be excited about this in the amount of time it takes you to raise your next round? And sometimes I think that we feel like founders are being too safe. Whereas I think in the past, I might have given people too safe advice. I might have given people advice. I'm like, this is the safest way to get to the series A. It's like, is that the end that we're going for here?

All right, so another one, and I think that you and I have experienced this so often, we'll have a company come in and they'll be like, well, if a startup, I'm sorry, if a software company buys our product. It allows them to not hire five incremental engineers. Those engineers cost a million dollars a year. So like that means that like we can charge a hundred thousand, the company saves 900,000. This is incredible. The company should make this trade every day of the week. And so therefore, I guess theoretically a sizable software company should have 200,000 different software vendors who each save them a million dollars a year.

It's just that easy. It's just that easy.

And we're just one of them. Yeah. I think I did not quite understand.

Yeah. It's one of those things where in a vacuum, that is a reasonable first principles argument, but in no way does that resemble actual buying behavior.

it's defeated by all the facts.

Like reality calls. They say no. I'm not even saying I would have intuited that myself, right? I'm not being like, haha, how do you know they think that? But for whatever reason, customers like things that increase their revenue and cause them to grow faster and are willing to spend money on stuff that causes them to grow faster. And for whatever reason are not that interested in cost cutting type software, especially hard to measure cost cutting type software.

I didn't understand this until I was on a public company board. And then it became so clear, I just, like I kind of one day I was just like, oh no, I didn't understand a fundamental truth about business as a startup investor. Fundamentally, the market is going to reward revenue generation over cost cutting because the market is always betting on how much bigger you can get over time. And what's the potential for you to be a company that's 10x bigger? and it's very hard to cost cut yourself into being 10x bigger.

The even more counterintuitive thing, the market will value your attempts to become 10x bigger. Just trying, you will get a boost in your stock price versus not trying. So a lot of spending is rewarded because like the market wants you to be 10x bigger, right? Fundamentally, once you appreciate this, It's actually an eye-opening opportunity because whereas there are probably a thousand ways to help a company save a million dollars when they're sufficiently big, there aren't that many ways to help them make a lot more revenue. And so you can kind of like massively cut down the idea of space. Or if you want to save them a lot of money, you have to realize how much money would you have to save them to be in a top five conversation when we're trying to...

have a measurable and immediately provide value, not just vibe space, saving money. It has to be like..

oh, right, tangible. And one could argue, maybe AWS made that argument, right? Like, oh, like, we can save you so much more money than if you're running your own data sectors.

AWS is more expensive. but it was less logistically complex. And often customers will choose to pay more to reduce problems. And so they do not have to deal with servers and hard drive failures and all that. So they paid more for AWS. But man, it just obviated the need for all this other complexity.

Well, and it's interesting that you say they paid more, but I'd argue if you're setting up a data center, you have to think about the flow of money. Right? Like way less upfront investment to get the benefit on AWS. that's a great way to have like rain more opportunity to offset those additional money with, with profits. And it doesn't mean like every company to be a good speed to be company. I forgot to make someone more money. It's just Surprising how much easier it is and surprising how often in large companies, people are not asking, how do we save five engineers? Like how does often that's not the conversation. And there's really no world where those five engineers would then be fired. They just put in something else. So just a different set.

Long story short, I know we make these videos. There are a lot of things that we didn't know. That other people knew. That's the way it goes.