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The Tim Ferriss Show
#651: Legendary Investor Bill Gurley on Investing Rules, Finding Outliers, Insights from Jeff Bezos and Howard Marks, Must-Read Books, Creating True Competitive Advantages, Open-Source Strategies, Adapting Mental Models to New Realities, and More
Jan 25, 2023
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02:17:04
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Quick takeaways
- Open source software has revolutionized the tech industry by providing a secure and reliable platform for continuous improvement.
- Open source enables entrepreneurs to bring their ideas to life without significant initial investment and fosters collaboration and innovation.
- Open source principles extend beyond software and can be applied to various domains, democratizing access to technology and empowering individuals and organizations.
- Open source has become crucial for solving complex problems and is embraced by big players like Google and Facebook to gain leverage in the industry.
- The tech industry is shifting towards valuing startups based on free cash flow and earnings quality, challenging the previous focus on revenue and hype.
Deep dives
The Power of Open Source Software
Open source software, such as Linux, has revolutionized the tech industry. Linux, the most well-known open source operating system, is not only widely used but also considered one of the most secure. Its open nature allows a community of developers to continuously review and improve the code, making it highly reliable and resilient. The success of Linux serves as a testament to the power and effectiveness of open source software in transforming the industry.
Open Source's Impact on Entrepreneurship
Open source has also had a profound impact on entrepreneurship. Startups like WordPress, led by Matt Mullenweg, have leveraged open source frameworks to build highly successful companies. By providing a stable and customizable platform, open source software enables entrepreneurs to bring their ideas to life without the need for significant initial investment. Additionally, the open nature of these projects encourages collaboration, innovation, and adoption, fostering a vibrant ecosystem that fuels further growth and development.
Expanding the Reach of Open Source
While open source has undoubtedly made significant strides in the software industry, its potential extends far beyond that. The principles and benefits of open source can be applied to various domains, including hardware, data, and even social movements. By embracing the open source philosophy and leveraging collaborative communities, we can uncover new opportunities for collective knowledge sharing, problem-solving, and societal progress. Open source has the potential to democratize access to technology and empower individuals and organizations around the world.
Continuing the Open Source Movement
As the world becomes increasingly interconnected, the importance of open source software and its impact on entrepreneurship and innovation cannot be understated. By fostering an environment of openness, collaboration, and collective intelligence, we have the potential to unlock new possibilities, address complex challenges, and drive positive change at a global scale. By embracing and expanding the open source movement, we can shape a future in which technology is accessible, inclusive, and continually evolving for the betterment of society.
The Shift Towards Open Source and Complex Problem Solving
Open source has become a crucial approach for solving complex problems that would be challenging for individual companies. This shift began with the success of open source software frameworks like MySQL, MongoDB, and Elastic. Companies like Google and Facebook have also embraced open source initiatives to gain leverage. For example, Google created Kubernetes and gifted it to an open source consortium to compete with Amazon's AWS. The involvement of big players like AT&T, China Mobile, and Facebook in open standards development further highlights the importance of open source in various industries.
Valuation Realignment in the Tech Industry
The tech industry is experiencing a valuation realignment where previous all-time highs and valuation multiples are being reconsidered. Startups are now valued based on free cash flow and earnings quality, rather than revenue or hype. The example of Facebook trading at a relatively low multiple compared to its growth and earnings highlights the shift towards focusing on fundamental financial indicators. This realignment challenges the 10x revenue mindset and encourages a more critical assessment of a tech company's financial health.
The Dangers of Tribalism and the Need for Intellectual Consistency
One of the pressing issues in today's society is the rise of tribalism and the decline of intellectual consistency. Bill emphasizes the importance of avoiding tribal affiliations and encourages individuals to think critically and objectively. He highlights how political bias and tribal affiliation can hinder constructive discussions and lead to a lack of intellectual growth. He suggests that people challenge their own biases, be more open-minded, and seek out diverse perspectives to foster a more nuanced understanding of the world.
Undervalued competitive advantages
Undervalued competitive advantages mentioned in the podcast include network effects, switching costs, product uniqueness, and strong performance. Network effects create a competitive advantage by making it difficult for competitors to replicate the user experience due to the large number of users. Switching costs make it hard for customers to leave a product or service, increasing customer retention. Product uniqueness, such as offering features or capabilities that no other product offers, can give a company a competitive advantage. Lastly, strong performance, where a company excels in delivering superior results, creates a competitive advantage by making it challenging for customers to find alternatives.
Jeff Bezos' entrepreneurial prowess
Jeff Bezos is regarded as one of the best entrepreneurs due to his ability to build and lead Amazon. One often overlooked aspect of Bezos' success is his organizational framework that allows Amazon to operate consistently, even with Bezos in a chairman role. The framework ensures that the entirety of the company follows Bezos' vision and direction. Additionally, Bezos is known for his risk-taking and experimentation. Anecdotes, such as running same-day delivery experiments using Uber as a platform, highlight his willingness to push boundaries and challenge the norms. This approach to risk and experimentation sets Bezos apart from other entrepreneurs and contributes to Amazon's success.
1.
Introduction
4min
2.
The Tim Ferriss Show - Bill Gurley
2min
3.
Competitive Strategy: The Most Efficient Short-Form MBA That One Can Find
2min
4.
Buy-Side Versus Buy-by Analysts
2min
5.
How Do You Think About Rules as an Investor?
6min
6.
How Did You Revise Your Rules of Thumb After That?
2min
7.
Howard Marks and Stan Druckenmiller - What Makes Them Impressive?
2min
8.
Macro Is the Study of Economies Writ Large
3min
9.
What Made You a Good Analyst?
4min
10.
How Did You Meet the Food Analysts?
4min
11.
Is Michael Buffett Proselytizing?
3min
12.
How Do You Translate the ROIC From OpenTable?
4min
13.
OpenTable - You Have to Believe a Lot of Things
4min
14.
The All in One Formula by Athletic Greens
3min
15.
Benchmark Partners - What's the Format of a Successful Partner Meeting?
4min
16.
How Do Startups Compete With Big Companies?
2min
17.
What Have You Learned From Your Partners?
3min
18.
How to Be a Good Angel Investor or Venture Capitalist in Tech?
2min
19.
Is There a Framework for Entrepreneurship?
2min
20.
Shudog, the Rational Optimists and How Innovation Works
2min
21.
Open Source
3min
22.
Open Source Is the Next Big Thing
4min
23.
Kubernetes
2min
24.
The Open Source Map Group Is Going to Live on Top of Open Street Maps
3min
25.
Are There Any Companies That You Would Love to See Exist?
3min
26.
Is Twitter Really a Leaderboard for Every Topic?
4min
27.
How the World Works, Is It Normal?
2min
28.
The Keys to the 10x Revenue Club
2min
29.
Is Facebook Trading at 14 Times Gap EPS?
2min
30.
Why Did You Highlight Facebook?
2min
31.
Vr
2min
32.
Is Mark Zuckerberg a Man of Strong Conviction?
2min
33.
The Keys to the 10x Revenue Club
2min
34.
What Are Some Undervalued Competitive Advantages?
4min
35.
Jeff Bezos - The Best Entrepreneur Ever
4min
36.
The Correction Slash Implosion
6min
37.
What Do You Think the Future of E-Commerce Looks Like?
3min
38.
I Love Complexity by Mitchell Waldrop, and Mr. China by Tim Collins
4min
39.
Why Generalists Triumph in a Specialized World?
2min
40.
What if You Could Put Anything on a Billboard?
2min
41.
What Would You Like to Say About Anti-Tribalism?
2min
42.
How Twitter Incentivizes for Polarization?
2min
43.
Is There a Protection for High Profile People in DM?
2min
44.
What's Next for Twitter Tech Meme?
2min
45.
Are You Going to Give a TED Talk on Regulation Capture?
2min
46.
What if You Could Wave a Magic Wand and Reverse Citizens United?
3min
47.
Losing Party Pays
2min
48.
The Five Bullet Friday Podcast
4min
49.
Protect Dot Com Slash Tim P R O T E K T for 30% Off
2min
Brought to you by Protekt's REST sleep supplement, Athletic Greens's AG1 all-in-one nutritional supplement, and Shopify global commerce platform providing tools to start, grow, market, and manage a retail business.
Bill Gurley (@bgurley) has spent more than 20 years as a general partner at Benchmark. Before entering the venture capital business, Bill spent four years on Wall Street as a top-ranked research analyst, including three years at Credit Suisse First Boston.
Bill also maintains a blog on the evolution and economics of high technology businesses called Above the Crowd.
Over his venture career, he has worked with such companies as GrubHub, Nextdoor, OpenTable, Stitch Fix, Uber, and Zillow.
Bill has a BS in computer science from the University of Florida and an MBA from the University of Texas. He is also a chartered financial analyst. Bill is a board trustee at the Santa Fe Institute, a research and education center focused on the study and understanding of complex adaptive systems.
Please enjoy!
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This episode is also brought to you by Athletic Greens. I get asked all the time, “If you could use only one supplement, what would it be?” My answer is usually AG1 by Athletic Greens, my all-in-one nutritional insurance. I recommended it in The 4-Hour Body in 2010 and did not get paid to do so. I do my best with nutrient-dense meals, of course, but AG further covers my bases with vitamins, minerals, and whole-food-sourced micronutrients that support gut health and the immune system.
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[05:51] The book Bill calls "the most efficient short-form MBA one can find."
[07:31] Sell-side analysts vs. buy-side analysts.
[09:45] Financial models, rules of thumb, and making (sometimes wrong) decisions.
[17:28] Howard Marks and Stan Druckenmiller.
[19:26] Micro vs. macro investing.
[20:40] Institutional Investor's All-America Research Team.
[24:16] Expanding distribution.
[27:04] Return On Invested Capital (ROIC).
[33:10] Repurposing good ideas for alternative applications.
[37:01] The conviction of network effects.
[38:58] SaaS and open source.
[42:40] Bet sizing.
[44:04] Equal partnership over hierarchy.
[50:08] Lessons learned from partners.
[52:57] Recommended resources.
[58:46] Problems open source can solve.
[1:09:28] Building a better network with the interest graph.
[1:13:42] Dissecting Bill's Twitter thread about risks and sudden valuation resets.
[1:23:50] The Metaverse.
[1:29:00] Revenue and earnings quality matter.
[1:31:02] Undervalued competitive advantages.
[1:35:02] Jeff Bezos: corporate mad scientist?
[1:40:42] The counterintuitive condemnation of company camaraderie.
[1:45:37] Tobi Lütke.
[1:48:51] Books Bill has gifted frequently.
[1:52:29] The Santa Fe Institute.
[1:54:35] Bill's board.
[1:56:32] Cultivating anti-tribalism.
[1:58:13] Twitter: what is it good for?
[2:01:14] Newsletters and other resources Bill relies on.
[2:03:05] Bill's book in progress.
[2:04:12] Regulatory capture.
[2:09:10] Predicting what America will look like in 10-20 years.
[2:10:50] Parting thoughts.
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For show notes and past guests on The Tim Ferriss Show, please visit tim.blog/podcast.
For deals from sponsors of The Tim Ferriss Show, please visit tim.blog/podcast-sponsors
Sign up for Tim’s email newsletter (5-Bullet Friday) at tim.blog/friday.
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Past guests on The Tim Ferriss Show include Jerry Seinfeld, Hugh Jackman, Dr. Jane Goodall, LeBron James, Kevin Hart, Doris Kearns Goodwin, Jamie Foxx, Matthew McConaughey, Esther Perel, Elizabeth Gilbert, Terry Crews, Sia, Yuval Noah Harari, Malcolm Gladwell, Madeleine Albright, Cheryl Strayed, Jim Collins, Mary Karr, Maria Popova, Sam Harris, Michael Phelps, Bob Iger, Edward Norton, Arnold Schwarzenegger, Neil Strauss, Ken Burns, Maria Sharapova, Marc Andreessen, Neil Gaiman, Neil de Grasse Tyson, Jocko Willink, Daniel Ek, Kelly Slater, Dr. Peter Attia, Seth Godin, Howard Marks, Dr. Brené Brown, Eric Schmidt, Michael Lewis, Joe Gebbia, Michael Pollan, Dr. Jordan Peterson, Vince Vaughn, Brian Koppelman, Ramit Sethi, Dax Shepard, Tony Robbins, Jim Dethmer, Dan Harris, Ray Dalio, Naval Ravikant, Vitalik Buterin, Elizabeth Lesser, Amanda Palmer, Katie Haun, Sir Richard Branson, Chuck Palahniuk, Arianna Huffington, Reid Hoffman, Bill Burr, Whitney Cummings, Rick Rubin, Dr. Vivek Murthy, Darren Aronofsky, Margaret Atwood, Mark Zuckerberg, Peter Thiel, Dr. Gabor Maté, Anne Lamott, Sarah Silverman, Dr. Andrew Huberman, and many more.
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