Luca Ferrari: The Operating System Behind Bending Spoons

0:00 I I think people would be surprised by how poorly graduating from Harvard or Stanford predicts performance. Like people think, "Oh, you must be a genius." No, actually, yeah, you're probably a little bit stronger than, you know, people graduating in other universities, but but not so much stronger. and and often we find that people tend to lose some of that potential raw talent edge by being a bit more entitled and thinking too highly of themselves.

0:37 >> >> Okay, today we have Luca Ferrari on. I wanted him to have him on for a long time because he runs Bending Spoons, which is this fascinating company. It's like a little bit of a private equity rollup company, but it's really a tech platform company and it's unique. I can't find any other company that sort of rhymes with it. He is very unique in the way he thinks and the way he builds and the way he CEOs. Hope you like it.

1:09 Okay, Luca, welcome to Long Strange Trip. Thanks for coming on. >> Thank you for having me. My pleasure. Okay, I think by this point most of the listeners have heard of bending spoons, but I doubt they understand the model and what the magic is. So, if you wouldn't mind educating us like two three minutes on how it works and what's special about it. >> Yeah, sure. So we I mean the entire thesis on which the company is built is that if we can build a machine a system whereby we can operate digital technology businesses better than almost anybody else then we are pretty much guaranteed to be able to compound capital efficiently for a very long time through acquisitions. And the reason is that if a lot of businesses are basically better off once they're integrated into the system what we call our platform than being operated as standalone companies by someone else then we should be able to offer prices to people that are appealing and so they will sell their businesses to us and we still deliver a high return for shareholders. So that's the you know the the thinking behind it. Of course the difficult part is to to build you know to build that system that platform so that we can operate these businesses better than almost anybody else and that's what we have poured our hearts and minds for into over the past well 13 years technically.

2:32 and so we have tried to have an amazing team of people strong culture powerful proprietary technologies lots of proprietary data and what we do we buy these businesses we integrate them very deeply into this platform. So we have a shared R&D, marketing, GNA team that that can fluidly move across all of our businesses. We basically replatform the acquired businesses so that they based on the same technological foundation. We some investor at some point called it an operating system. I think it's a pretty apt comparison or metaphor. and then we transform them pretty deeply. So we can rebuild the org rewrite big chunks of the codebase, rearchitect cloud infrastructure. we try to launch a you know useful new features fix bugs improve performance rethink monetization and marketing so the you know there is a serial acquire component that you will find in private equity you'll find in companies like Bergkshire Haway or transdime the big difference certainly visav private equity is that we are not a fund we never you know we buy off our balance sheet we've never sold a material business we don't intend to sell one in the future so we buy to hold and operate forever. And the other very big difference is definitely visav private equity but also certainly you know the bers of the world is that we transform these businesses pretty deeply and we integrate them all together. so they're much simplified a bit like they go from being a company to being a product installed on the same foundation basically. So that's the model. I've been doing it for for 13 years at this point.

4:07 >> Yeah, it's going remarkably well. You went public. What's what's roughly the market cap? at the time of IPO a few months ago, $18 billion, I think, equity value. >> Congratulations. I'm a huge fan of the model. It's really unique. I was comparing in my heads at Berkshire Hathaway, but it reminds me when I was in my 20s, I worked for a US tank company called PTC, and they moved me to Japan to set up the Japanese operations when I was very young. And my office was inside of Mitsubishi headquarters. And so I dealt with Mitsubishi headquarters people, but like all the different divisions. It feels more like Mitsubishi or Samsung than it does like some big PE firm or like Birkshere. Is that how do you how how would you describe it?

4:56 >> Yeah, I don't I don't know those companies that well, so I can't say for sure. But again the the distinctive features are we we buy to hold and operate forever. So I think that kind of strikes out P firms. and and then again this very deep integration. Most companies that acquire other companies serially in my experience try to run them somewhat separately for the most part. At least that's what I've seen. We take the completely opposite approach where we again we we make sure they have the same technological foundation broadly speaking the same core team that moves fluidly across to go after R&D opportunities and we draw when those are exhausted. and then we we a lot of serial acquirers keep these companies you know broadly speaking the same way they were before we we change them completely from the ground up and it's very timeconuming and challenging but the the the upside you know the bright side of that is is we generally deliver very high returns so I don't know I think I don't really know of any company that does it this way out there but >> it's kind of an end of one I agree it's kind of an end of one is the magic Luca in the picking or in the operating and what percentage would you give it?

6:10 >> No, I mean it's almost completely in the operating. I'd say the platform I describe we couldn't do what we what we do. So, I I'd like to think we've gotten pretty good at, you know, selecting the right businesses, but it's it's almost it's it's relatively easy to deliver high returns if you if you have access to our platform because, for example, we have we have been enjoying exceptional an inflow of exceptional talent. We got 800,000 applications. Last year, we had hired fewer than 300 people. So when you have amazing engineers, designers, product managers, general managers, it's much easier to take a business and rethink it from the, you know, from the ground up and run it much more successfully. Anyone who's run a certainly a digital business, probably any business, but certainly a digital business for a sufficiently long period of time will tell you that headcount matters not a lot, but it's it's just how good the people are in the culture you've established. And so we when you have access to this caliber of people, you can run a business with 20 people that someone else would need 200 people for.

7:08 And so that alone will give you both cost efficiencies and opportunity to innovate faster, improve monetization faster. so that's an element for instance of of our advantage visav these companies being run as standalone or businesses being run as standalone companies. we have invested a lot over the past decade in building powerful proprietary technologies to do everything pretty much I mean across the board that you need to to run a a digital business. they're natively integrated with one another and and they just makes everything so much more effective and faster. If I were to run one of these businesses on a standalone basis, I don't know that I would be well certainly wouldn't have the resources to build this these technologies. Wouldn't it wouldn't even know where to start.

7:49 and so, you know, that's also kind of a cheat code. So, definitely the the operational part is far more important than than the picking. But we try to pick well obviously. Why why do it poorly if you can do it well? And Luca, let's just I want to click on the hiring. So I spend most of my time with CEOs these days and everyone talks about being have high talent density, being a talent magnet, and a lot of them pull it off early, but as it scales it, it kind of inevitably waters down. You seem to have almost industrialized this talent density idea and you have some very unique ways of pulling in applications, pulling in interest, the top of the funnel of qualifying the interest.

8:35 let's just talk about the top of the funnel and talk about them the qualification process and talk about it like roll the clock back when you were nobody's. No one had ever heard of you. You had no employer bl brand. You had no inbound interest. How did you get the talent flywheel kind of rolling? >> Yeah, so we we we basically believe that if you have a strategy that works or can work, then almost all that matters is is the talent you you deploy toward the execution of that strategy and the culture meaning like the the rules of the game, how people interact with with one another, what they choose to do and how. that you know that those are the areas we've obsessed over pretty much since the beginning. Now, you're right.

9:18 I mean, you start with nothing. And so, that's what founders or early team members need to to do well. That's, you know, basically punching above their weight. I remember early on spending at least 50% of my time, probably more for at least the first two, three years, on on recruiting among other, you know, talent related things. And I I and a couple others managed to find the the lists of of of the best graduates or of some in that yeah at the time we hired pretty much only in Italy. Now we're international but some of the you know the the best Italian universities we managed to find the lists of graduates and we kind of tracked them down and I remember calling hundreds of them poorly harassing a few until they accepted to join us. and later later we built a pretty substantial talent team. These days we we have you know scientists, researchers and we treat the selection of of of of talent within our pipeline probably in in similarly to how a a quantitative trader would picking stocks. So we we we look for all signals and then test signals against future performance to determine whether they're predictive or what combinations of signals are and keep iterating. It's a very rigorous and sophisticated system. At this point we we assess hundreds of signals in each in each application. so that you know that helps you select potentially dramatically better given the same level of employer brand and ability to attract applications and you know half the game is also attracting very good applications because if you if only geniuses you know apply then it's easier to to to have to build a good team. and so there I think we we have a kind of kind of an unfair advantage with our model. We found that a lot of engineers, designers, product managers absolutely love the idea of being able to work at a company where they can say spend nine months helping rebuild say Vimeo's video infrastructure and then six months rethinking advertising on AOL and then maybe a year building a platform technology all with the same employer broadly speaking with the same colleagues with the same culture. the track record they're building does not get, you know, diluted as you when you change employer, obviously a lot of that is lost. You have to reestablish credibility. and so that's a that's a very powerful point of attraction.

11:52 and the other one is because we've been so systematic and uncompromising on having extremely high levels of talent density pretty much from the beginning, of course, compatibly with with our appeal to candidates at each point in time. Once that's in place, it's a powerful means of retaining excellent performance and attracting more of those because you know when people find that they love their colleagues, they never leave. We have essentially zero regrettable churn.

12:23 We had6% regrettable churn of spooners, the members of our core team last year. and you know, trust me, they get there are poaching attempts from big tech all the time. So it's not for a lack of opportunities. and equally these people will tell their you know former fellow students or you know whatever oh it's amazing here you should apply. So it makes your life easier but it's very difficult to get to a very high level of talent density late in a company's history. You need to establish it from the beginning and just be completely obsessed with it and never giving up even when it means hiring way fewer people than you'd like to for prolonged period periods of time.

13:04 parting ways with people who are being helpful just because you think you have better people. It's quite painful both because you know we are nobody's a sociopath here and as in most companies you don't like to to to to to tell someone who's a perfectly good contributor that they should look for for another job. and also you're you're losing on on good capacity in the short term to look for amazing capacity down the line. So those are difficult things to do, but if you do them consistently, I think you you develop a very powerful flywheel.

13:34 >> Sounds like you get kind of a data science type team that is looking at all the inbound and is looking for signals. What are the signals that are most strongly correlated with success? The R squar's high. And then once you get beyond that, I assume there's a human interview. What are the questions that tease out what you're looking for that maybe aren't obvious? >> Yeah. So we are fairly fairly secretive about you know the details.

14:00 I guess you got a similar answer from my quantitative trader again that was my my metaphor earlier. But no I can share some some of this there there are some obvious signals in people's applications. You know the their GPA for example it's not super strong but it's helpful. the university graduated from. I I think people would be surprised by how poorly graduating from Harvard or Stanford predicts performance. Like people think, oh, you must be a genius. No, actually, yeah, you're probably a little bit stronger than, you know, people graduating in other universities, but but not so much stronger. and and often we find that people tend to lose some of that potential raw talent edge by being a bit more entitled and thinking too highly of themselves.

14:49 but it's still predictive. I mean all else been equal. Someone from Harvard will do a little bit better than someone from a less well-known university. So some of those are probably somewhat obvious. there are many that are not. one I I can share is you know relatively predictive. I was surprised when this came up. We found that if someone is politically active in as a as a as a as a teenager but but ceases to be in their early 20s that that tends to correlate highly with with with someone's drive and and and entrepreneurial appro mindset and and the way we have explained it is which of which at least of Dennis are highly valued qualities.

15:33 The way we've explained it is is is that if you are 17 years old and school is not enough, you want to you feel like you need to do more. That shows agency, that shows productivity, that that shows a level of not settling for the status quo, that's generally healthy. But if you still do that when you're 25, 26, 30, it means it's probably a life mission, which is perfectly fine, but likely incompatible with your job, your career being, you know, top priority.

16:02 your job is probably probably takes a backseat to to your political aspirations. >> How do you find that signal? Do you ask them that question in an interview? Do you look through their old Instagram? Like how does that signal even arise in the process? >> Thankfully, people think they need to include leadership experiences in their CVs because that gets you a job at you know consulting company or something. So most people we find would include something significant in that area if they did it. But in any case, we we do ask later in the process whether it's an interview or written assessments questions that would very clearly lend themselves to to people sharing this sort of thing. So we and and with this I'll get to the other thing you can do which is you shouldn't be passive in accepting whatever signals are present in someone's application. You can be very proactive. We find that a lot of the best signals in our case come from the the practical tests, the things we do or ask candidates to go through.

16:59 and so you you can elicit signals that way. interviews are of all the typical elements in a selection process, at least in our experience, they are the worst predictors. but you can make them decent if you give interviewers extremely precise questions they need to ask and you tell them to ask them exactly in the same way and then you you make sure that the answers are recorded and assessed separately. So you what's completely useless pretty much is having someone talk to someone else with essentially no guidelines or just a high level agenda and then tell you I like the guy, I didn't like the guy. that's noise pretty much. so if you structure it a lot and you try to separate the actual conducting of the interview from the evaluation of the responses, then it can be somewhat predictive.

17:56 >> Can I tell you about HubSpot unlocked on the sales side a good process for doing this where we scaled our you know inside sales or from 10 to a thousand where lots of we're kind of like you. We we had a better hard it was harder to get into HubSpot than Harvard. So we had lots of inbound and we would look at all the resumes and we would look for people who went to a a state school, you know, went to University of Vermont, University of Wisconsin. We weren't looking for Harvard and MIT and we look for person who had done a sport who was athletic and competitive. And we didn't think too much about it. We didn't interview them in a standard way. We just said if they look kind of like this, let's give them a half an hour. And we give them a half an hour with a person. And what that person would do was set up a role play. So I would be the HubSpot employee, you'd be the potential. I'd set it up and then I'd have you sell to me and I give you 12 minutes to sell to me. So selling me whatever and I'm hearing, I'm giving you objections. We finish it.

19:01 Then I would give you feedback, Luca, on how you did. I give you a minute to think about it. And then we do the exact same thing again. And if the person absorbed that feedback and did a halfdecent job at the you know at the pitch, we would do a couple blind references. Boom, we hired them. That actually really ended up scaling for us. we didn't do the normal interviews that really worked on the sales side because I kind of agree with you. The other thing I wanted to ask you about, but it's just blind references like where is that in your signal? Yeah, we do that as the very last step. Well, so no, we don't do actually blind references. We do references. We don't do blind references because they're illegal in Italy. So, you can't ask and so we figured, okay, let's just have a a method that works across jurisdictions. Even though I know in the US you can call people and ask, oh, how was this team member? But, we do reference is the it's the the candidate who presents a few names. we try to guide it toward okay give me people who you know had plenty of exposure. We we try to get at least one person for at least you know the couple of biggest experiences someone had so they and you know and ideally their manager if possible but ultimately it's their call and and we we we structure those interviews with references quite quite a lot as well and we find that they can be predictive but again you need to be scientific about it. If you leave it to someone picking up the phone and calling then almost always it's positive. You know very rarely do people give you names of people who will will criticize them and so you need to be very specific in your questions and ask to make hard grading decisions.

20:41 You know, for example, we ask them, okay, of the 20 people you have worked with the most, say something like this. I'm just would you say this person is is the best or top five? And and then you you try to ask a few follow-up questions to make sure there's a little bit of substance behind that response. And and you find that people who are enthusiastic, often they will tell you, well, it's above average. And you're like, you know, hold on a sec. It sounded like this person was a genius, and you're telling me it's maybe, you know, ranked eight out of 20. It's which is nice, but you know, so you you can make it predictive, but you you need to put in the effort and the structure before you get there.

21:18 >> Okay. I love that advice. I get a lot of blind references when people do that to me. It's I think it's brilliant when they Is that the best person you've ever that's ever worked for you? Well, no. Then they say, "Why?" And okay, that opens things up. I want to talk about you. I You're the 20th CEO I've interviewed. It's been really fun. And honestly, my thesis when I started this podcast was I'm gonna figure out kind of the common thread what everyone's doing and I'm going to write it down. I'm going to kind of standardize it. The truth is there's no not even close to a common thread. Everyone does it differently and there is no playbook and the playbooks are changing extra fast right now. In my last two interviews are emblematic of it. I interviewed TK from Kshi and he and his co-founder have I forget 200 employees.

22:13 There's no levels of management. They all report to those two. And he referred to it in the podcast as management by chaos. My last interview was with Aliot from Data Bricks and he's got eight direct reports. It's, you know, very structured. His direct report team, he has three meetings a week with his direct reports. He has a QBR once a quarter and then he has offsite strategy session once a quarter. So like polar opposites both doing extremely well.

22:44 Where do you fit in that spectrum? >> Probably somewhere in between. I I think these things are generally like is more formal approaches to management. I think they are they're greatly overestimated in the impact. I think if you you know in in a company's outcome I think almost all of the outcome depends on essentially your strategy what people sometimes call product market fit but also the modes you have and you know that that's overwhelmingly what drives it I always ask myself if to me a business is a good business if it would do well even if management was mediocre maybe not awful but mediocre so that's you know that's the first thing and the second thing that matters to me is talent levels and culture which culture is really like you know How do you make decisions? What matters? What doesn't? what do we value? What do we not value? Then everything else, you know, reporting lines, whether you have OKRs or you keep it fluid and and informal span of control. I'm sure it it does matter on the margin, you know, making things a bit better, a bit worse. And I'm sure different solutions would be optimal depending on the people involved because ultimately a a manager a CEO is some sort some sort of a leader or should be and and and the same strategy the same approach to to working with others depends on the human capital you have different people react different on the culture you're trying to to to to foster but I think that within reason that doesn't make a huge difference maybe like a plus minus 10% kind of impact so I think you're much better of obsessing over well first and foremost the strategy but then once that's in place the quality of the people and the culture you establish so if if you know if the 200% organization chaotic super high I I I don't know them but assuming you know super high talent density a culture of business orientation rationality hard work you know even if a little extra structure I theoretically could be helpful I think you know the talent and the culture will mostly trump any such gap or close any such gap and vice versa you know maybe in the other extreme a little bit more fluidity and flexibility with ADL but if you have very good people and and a great culture of let's get it done for the benefit of the business people will not get stuck because there is a little extra structure so extra structure so I don't I haven't thought a lot about these things I I'm convinced they're not the most important thing to be honest in in excelling in business >> fascinating when I was a CEO go.

25:17 I tried to get better and evolve as the business scaled. U and I got a lot of feedback and one of the pieces of feedback I got a couple times was Brian, you're a very good leader and a very bad manager. Are you where are you on that? >> I don't know. You know, I I I get a lot of feedback. I don't think anyone kind of rated me on those two against those two archetypes or job descriptions.

25:46 >> How about a little self-reflection here? >> I don't think Yeah, I I'm not sure if I'm a a good leader or a good manager. to be honest I generally feel that I I'm pretty privileged that I work with very good people and my I tend to be more self-conscious and and and question whether I'm I'm doing enough and I'm living up to expectations. so I'm I see I tend to see the h the glass half empty. So my instinctual reaction would be I'm I'm probably not terrible at either. I would be disingenuous if I told you I think I suck. I but I I I would probably rate myself something like okay at at both but but not necessarily amazing. I probably a better leader than manager if I understand what you're hinting at. I think I've generally done okay at setting a a vision that made sense and a compelling vision and and communicating that reasonably well.

26:49 If I've succeeded as a leader has been mostly through what I would call servant leadership, like be just working super hard and and helping people as much as I could. I don't think I'm the kind of William Wallace kind of leader, someone making a a grand speech and everybody, you know, get their hot and and get and get their hearts pounding and everybody, you know, gets to work. but when you work with someone who's walks the talk and is in the trenches and does their best, I think you tend to be inspired.

27:16 So maybe that kind of person. I try to be that kind of person. I don't think I'm a great manager. I don't think I'm the best at running one-on- ones or anything like that. >> Okay. one of the things I used to say to myself is actually I got this quote from Eleanor Roosevelt of all people. I wanted to keep my head in the clouds but my feet on the ground. And by that I meant I I wanted to be okay a JV William Wallace painting a picture of the future, getting everyone excited about where we're going, looking over the horizon. But being in the ground, it's like, "Holy crap, there are a lot of problems and we have to deal with all these freaking problems." and my glass was very half empty and I spent a lot of times a little negative looking at the problems. Where are you in the Eleanor Roosevelt quote?

28:02 >> I want to give myself a a little pat on the shoulder. I think if there's one thing I tend to do reasonably well is being able to see the big picture. so you know, I guess head in the cloud kind of thing. maybe I'm not the best at say articulating it again with the grand speech but I think I'm pretty good at you know in the substance at understanding what matters what doesn't where the opportunity is what logically we should be doing and what's just noise and I I think I've historically been very hands-on in the details in the trenches I think it's a it's a good quality that you want to have as an entrepreneur and CEO I don't think it's a it's not super widespread in the population But it's quite commonly found I think in entrepreneurs and CEOs and I think it's quite powerful because if you if you don't have the big picture you can't really set you know a directional strategy that's that's the winning strategy unless someone else bring it brings it to you which is always dice but you you can't count on that happening it's you know hope is not a strategy as they say but if you're not in the details in the trenches feet firmly planted in the on the ground then I think you're unlikely to be able to inform that big picture properly. you're unlikely to be inspiring to your colleagues. Very few people like working with with people who are in an ivory tower. They don't get their hands dirty.

29:21 It doesn't really scale. I think it's not good. you're you're not in a position to assess others, to coach others because you don't really know anything about the work at some point. So I I do believe you need both to be successful. and you know finding some sort of equilibrium. I find it's easier to sequence those activities and trying to run them in parallel. So I try to have times where I'm very much in the clouds thinking okay what are the big problems or big big opportunities how should you go about them and be more of an architect and then long stretches where I just get into execution mode and I'm you know mud head to toe just getting stuff done you know blood sweat and tears I think it's quite difficult to be both at the same time but you can be both in sequence >> let's talk about coaching for a second similar to me I had ever been CEO of a company with thousands of employees in public and I was figuring out as I went along and sometimes I just didn't feel qualified to coach some of my executives. Do you ever have that feeling? And kind of and also related to that so many of the CEOs I'm working with like they have a very talented person internally. They're on their way up. Should they bet on that person or find someone who's seen the movie before and has a little bit of experience? like that's happening everywhere across Silicon Valley right now. Should we hire the bet they were done that person or should we should should we make the person bet on the person who's on their way up and really hasn't seen anything close to this movie?

30:49 >> So on coaching I I'm certainly in inadequate as a coach at often with people I work with. I think at bend influence we work on of the assumption that our our managers should always be capable of solving or advising on on a solution across all problems that are experienced by by the direct report. we we just think that any one person may be able to coach any any other person on some things and they should do so regardless of reporting lines. I think a good a good manager would generally be someone very smart, a good problem solver. So at least they can provide kind of generalist support. They should be able to they should be emotionally supported and and ready to get their hands dirty. But ultimately, you know, being a someone's manager doesn't mean you're always better positioned to solve a problem for them. You know, like it's a there are so many skills needed in a business like like yours like like like ours that obviously you need to divide and conquer. In any case, I I've never been a big fan of I mean we do value experience, but I think we value experience a lot less than most people.

31:57 I I believe that yes, the being there done that helps, but there are a few big butts. The first one is the world changes pretty fast. So I'm not exactly certain that someone who did something seven years ago, that's still that still applies all that that well. and there is a huge risk that people will be blind as to the new context because they did it that way and they will just try to paste whatever solution they applied before. So maybe you know you buy some good but you also buy a lot of bad. I'm not sure which of the two is stronger for a company like Benoons also we have such a as far as I can tell distinctive culture that we found that every time we hired someone almost every time we hired someone very experienced they struggled to adapt. we're so hands-on no no politics, radically candid everybody needs to to carry their own weight and and it doesn't translate well. Often people who have been successful at large tech companies, they tend to be to have a different style to leadership which may very well be optimal at those companies. I don't know but it's not at at bending. So we also need to account for the cost of of that cultural change which is sometimes doesn't even happen and if it does it takes a long time.

33:11 and last but not least, I find that generally people lose motivation as they gain experience. And so you need to consider whether it's better to have someone with 20 years of experience but I don't know six out of 10 motivation or someone with two years of experience but 10 out of 10 motivation. I find often the latter is better. It depends on the situation. So we're generally we we're not big on on experience. We have hired experienced people occasionally. We prefer to hire. Has that changed as you've scaled? Have you changed your mind at all on that or you're like actually no?

33:43 >> Yeah. Interesting. >> No. And I may be wrong. Look, we have tried. It's not that we never hired experienced people. We have hired some experienced people with great success, you know. It's not that we we were completely close-minded regarding that. no, we we keep investing in students or new graduates or people with a couple years of experience where we think that we can really help them mold their their skill set and and professional culture in the way that we believe will best serve them and the company in the long run. and and also there is a trade-off between talent and experience in a competitive labor market and and you know experience we can provide it to you. We just need to be a little bit patient. talent we can't and so we we we focus more on on talent than experience. So all considered we're happy with this. We we wouldn't change it necessarily. but we we have encountered difficult situations sometimes where maybe we have you know a 25year-old lead engineer or or something showing up at an acquired company and and essentially being the person in charge on on our end and and people with 20 years of experience thinking does this guy even know what what he's doing? and and I think our track record consistently shows yeah it does or she does but I can see how it's a more difficult sale than if we had a 50-year-old person with 30 years of experience come in and say the same things. It's much easier to assume that person is competent. You know I' >> I've spoken to a couple of the founders of companies you acquired and one of them said the person that replaced them was 25 and the other said the person who replaced them was 27.

35:22 they didn't seem bothered by it, but I thought that was kind of interesting. What I'm curious about is like, let's just say that 25-year-old that takes over, I don't know, mirror or whatever company you're buying. What are you looking for in that person who's going to run that show? Is there a certain quality you're looking for? I know you rotate them around, but let's say it's the first first go at it. What are you looking for?

35:46 >> Yeah. and and we we wouldn't put someone in that position who we haven't tested in a smaller version of it to be clear. So it's generally someone who led a team or a smaller business before. but yes it could be someone with just three four years of of experience very very junior. well on a high level we we look for smart and what we call extreme ownership. Being smart for us, I mean pretty obviously is you learn very quickly and we have evidence of that and you're capable consistently capable of high quality reasoning. So when you propose a solution or you you diagnose a problem consistently what you say or write makes a lot of sense. There's many of all the all the answers but your analysis always rational, accurate, logically sound. we think that works across the board and and in almost any position. Two, we want you to have extra extreme ownership, which means you are absolutely you care tremendously about being or becoming the best in the world at your job, bringing the the greatest possible contribution to your team and the company. It's you're almost fanatically about that. So when when you find an obstacle or you you you identify a shortcoming in your skill set, you'll be hellbent on on overcoming that. But then of course we look for more specific skills. But that's really like we find that that that's 80% of the of when when those are in place in big ways, those qualities that you're very very likely to succeed assuming you're you know you can communicate a little bit, you're you're a nice you're not an those you know hygienic factors. But the the core killer features are those two.

37:29 >> And when it doesn't work, so you put in the 25-year-old to run it and like I don't know, there's an immune system rejection or they just weren't up to it. What is it that that falls down? >> I think when that that's happened very rarely. I can only think of one or two cases, but when that's happened, I think it's been primarily one of two things. one the person while very very good so it could also be that we misjudged those qualities but so far it hasn't been because any of any such we haven't seen any such case at least for for our general managers what what we've seen is either the person we we basically we didn't pay enough attention at a person's ability to to to to lead others call it communication a certain level of common sense and empathy and so they were incredibly smart problem solvers.

38:24 They moved 100 miles an hour, but but they failed to notice when someone was a little bit off, had an issue. They didn't say the right thing at the right time, and that basically created a level of hostility or at least friction that ultimately made them untenable as leaders. The the other case was where enough people in the org for you know all sorts of reasons felt more competent and although this person was great and super nice and empathetic and communicative these people couldn't get over the fact that oh I'm so much more experienced I cannot take even if you know like I cannot be led by this person even if just formally that's been very rare but I can remember once one such case where that occurred and look and there we could do one of two things. We either move or part ways with you know these people who reject leadership or we change the leader and you know it depends on the context which of the two makes more sense.

39:25 >> How do you develop these people? Like do you actually train them, develop them, coach them or it's like they're smart, they're going to figure it out, you kind of throw them into it and they they're they're good. Yeah, we have training materials, but broadly I think 90% of of the outcome depends on you throw them into the deep end of the pool. You know, you give them way more responsibility that seems reasonable and and then you surround them with amazing colleagues. We find that we learn primarily by working with with amazing people. Almost invariably some of the people around you will be better than you at some things. And so if you are if you try to emulate those good traits, you'll learn from those. and also you know they will suck at some things and if you notice the weaknesses you can avoid you know falling into the same trap yourself. so the the the level of responsibility and and and the level of talent around you are the two things that we find drive growth the most.

40:21 but yeah I mean a little bit of formal training here and there and and active coaching certainly adds that 10 20% extra for sure. I can tell you the one thing that helped me on my journey. We did we decided we're going to do a 360 degree review for me, which was a good idea. And my co-founder volunteered, which is a strange thing because he's really introverted. And he's like, "How do I do this without talking to other homo sapiens?" And so he did a net promoter survey. First question is, on a scale of 1 to 10, how likely you to recommend Brian as the CEO of HubSpot?

40:55 And number two is why did you give that number? And then sent it out to like 25 people, the board, customers, employees, and like people wrote freaking novels. I mean, they really wrote long novels. And he spent some time, correlated it, showed me the histogram, very helpful. And then he did something clever like for each he had feature for each feature be like, "Here's a feature." And he would pull out direct quotes on what people said about the feature. So it really hit home to me that, "Okay, that's a feature." In the first 10 pages, I'm going through the report and I'm like feature feature. I got this. I am fantastic at the CO. I have this absolutely nailed. Page 11 is where the bug started. And there >> that's painful.

41:40 >> And the direct quotes in there, it was incredibly helpful to to help me get better. One of my ahas, by the way, was some of the features were bugs. You know, people didn't like that. I was really passionate and sometime I get really excited about things and so the first year I tried to fix all my bugs and then second, third, fourth year I'm like I'm going to pick one or two of the bugs that I'm going to work on. How do you personally go about getting feedback and getting better and how do you do that with your folks?

42:10 >> Yeah. So we we we're big on feedback as a bit like you're just described. we have something called radical cander internally where basically the idea is you should always tell people when you see something good or bad as long as you don't share that because you're venting but because you believe there's a chance that they could improve or the team could benefit or the company could benefit you should share. Don't worry about the accuracy of what you're saying the wording whether you hurt feelings. Obviously try to be nice if you can but that's you know secondary to being honest. and so it's of course we're not perfect. Not everybody does it not all the time, but we try to have this environment where opinions and and and and observations flow very quickly and and abundantly. So that's a very good source of of learning.

42:58 >> face to face. You you make everyone do it face to face. >> Yeah, we try. But our recommendation is to if you if it happens in person, say it immediately. Even in front of everybody in a meeting. Don't delay. Just say it. Again, respectfully, empathetically, but just straight up. if it's if if it's something that you notice through asynchronous communications such as on Slack, then you can send them a message or whatever, like it's really secondary as long as you do it and you're fully candid. so that helps a lot. And then we have once a year we we have something a little bit like what you described where we'd give more structured feedback based on a bunch of assessors, not 25, but more like six to 10 depending on the person.

43:39 additionally, and and so that applies to me as well. I try to also once a year identify at least one major point of improvement. I I I went through exactly the same thing where I I had five and then I figured halfway through the year it's too many. If these are challenging to improve, it's it five is too many. So, I try to have one per year that I that I try to to get a lot better at.

44:03 >> what's your one right now, Luka? I happen to be someone who I told you earlier that I don't remember exactly the words I used but the the message I was trying to convey is probably the greatest privilege I feel I have in my life right now and I've had it for a while is the quality of the people I get to work with. I don't mean it and I I I really mean it. It's I really believe it to be the case. and as I I I appreciate their skills and talents and their contribution tremendously. I'm awful at saying that aloud. I'm very critical of myself too. To be clear, I generally at night when I call it a day, generally I'm disappointed in myself. Okay. So, it's not I'm I'm the same way toward myself as I am to others. Maybe more more more critical of myself, I'd like to think. But so, anyway, the point is even people I I hold in the highest esteem, I rarely tell them how amazing they are. And so I I decided that I need to be better at at telling them how much I appreciate them again in a fully honest way. You know, it's not like this is not being hypocritical, just voicing the what I know unconsciously, but don't really linger on. so I've tried to do that a lot more. I think it's been a half a success, half a failure, but certainly an improvement over past levels.

45:24 >> I had the exact same feedback all pretty much every year. And I would and I'm like I'm and there there's a there's a saying in in some old school saying that you should give five pieces of positive feedback to every one kind of you know correction. I was definitely the opposite point that out. >> Let's use all six slots for corrections. >> I was pretty close to that. And so I worked on that. I got slightly better.

45:51 And there's a point where I would put like a 15 minute slot on Friday afternoon like give compliments. to force myself to do it. so I hear you. Most CEOs have that same a lot of CEOs also get feedback from their teams that their trust circle is just small. They trust four people and they run everything through those four people and everyone else feels like they're very arms length. Do you get that? >> No, actually I haven't gotten this feedback. We are we're quite distributed in that way. There's no we don't even have we we don't have a an executive team or a leadership team. There's no clear I mean people could reconstruct it and say okay I think whoever leads product should be in there and whatever.

46:34 But we we never we did have it many years ago. We dropped it because we found the the precise definition of that group didn't help at all because it would lead to some people being involved in in discussions who shouldn't be involved just because they're part of the executive team and then some people missing in discussions because you know we needed to have a discussion at the executive team level. So now we're just okay you involve whoever needs to be involved no matter let's say the title or or the standing u the executive team we don't need an executive team. Yeah. Interesting. So, how is it organized? Like if you do, let's just say you're doing strategy offsite where you want to think big things and do some naval gazing.

47:14 Who's there? >> I would invite people I think can contribute the most or take away the most. Sometimes invite someone who in general I'm and I think this is not just me but the company. We we hate meetings and we hate big meetings. but there are cases where inviting someone who won't contribute to the meeting could still be a good thing if you think they can learn something. Inviting someone just so they feel good about themselves is never an option though. it has to be useful. I would try to invite the people who I think could could contribute the most. I would have to think about who those people are. some names come to mind but also depending on the precise say part of the strategy or angle like we buy different people. Luca, you it doesn't sound like you have an org chart. You're more like Kali. There's no I report to Luca.

48:03 >> No, we do. We do actually. It's an algorithm. So, we we have two it's a basically a matrix organization with functions and teams. U functions being in charge of the how things are done, you know, the the hard skills. I'm oversimplifying and teams being in charge of what we do. So, like the objectives, what we're trying to accomplish to make Ben successful. and then every person has a functional lead and a team lead. and it all all flows to a single node which currently would would be me is me. but you know it's basically whoever the CEO is at that point in time. so there is a pretty specific form of org and we use it to automate a lot of stuff but we we we remind people that it's only useful to the extent that it's useful. It's in no way they should feel limited by it or it's al quite fluid.

48:55 We've had many cases where someone is a lead for a while then goes back to being an individual contributor. yeah, >> you said something interesting whoever is the CEO at that point in time. I had a chance to chat with Jess Wong a year ago and he's got a unique style where he's got 60 direct reports and similar to you he does gives direct feedback positive and negative in public. He doesn't do one-on- ones. and I asked him like when if and when you ever retire, will the person who replaces you inherit that and use that system? And he said, "Oh, no. Hell no. This is kind of built for me specifically. It's the way I work.

49:36 Somebody else should come in and completely rewrite it." You said, "As long as you're CEO," what did you mean by that? And do you agree with Jensen? >> Yeah, absolutely. I mean I I think look as I said earlier it's it's almost like if you if you're coaching or or you know running a sports team I think you be a fool saying well the way to win is this and that and that's the only way to win or the best way to win no matter the the the people you have on the team right so the players and so yes u I mean if if and when we we change our CEO I would encourage her or him to to see whether any change is warranted I mean they don't have to change any, you know, anything if they like it the way it is, but they equally they should feel free to to change things if they thought that would improve things.

50:22 >> Okay. Just from talking to you, you're a very first principles person, it feels like kind of a big skepticism of conventional wisdom. I was sort of the same way back in the day. What is conventional wisdom right about that you do that maybe you were like, "This is wrong. We're going to rethink it, but it's on our wheels. We should just do what everybody else does." you know, we we've tried to build this company from the ground up. yeah, questioning everything, not because we thought we knew better, but because we believe that. So, we had this ambition of building one of the most successful companies of all time, knowing full well that we would very likely not succeed.

50:58 But we thought that if that were if that was the the how how high the bar was going to be, the only chance we had to to to achieve that level of ambition was to to to do something differently. if you if you emulate what everybody else is doing, you're guaranteed to be approximately mediocre. I mean, a little bit better, a little bit worse. and so we we never even bothered understanding what conventional wisdom was. We just try to to for each important problem, we just try to find the the optimal solution given our particular context and and and vision.

51:29 so yeah, I don't I don't know. I'm sure there are plenty of things in conventional conventional wisdom that that makes sense. I don't know like being nice to people. I I guess that I agree. One thing that's kind of interesting that people ask me about all the time is AI native companies seem to be running a little bit different than companies founded before Chat GBT. You're kind of famous for simplifying things. So I want to hear about that. A lot of people are just doing a lot of stuff at once. Like in year two they're going international. In year three they're starting. They're acquiring a business. Like things are just moving so much faster. Stuff that took HubSpot eight years people are doing in the first couple years. And in HubSpot, I was a big simplification guy. I even got myself a no hat.

52:12 >> Oh, that's awesome. >> I go to a big meeting. And good thing about HubSpot, everyone always got great ideas. We should do this. We And we would I would always we're definitely a company that was much more likely to die of overeating and starvation. And so I bought this for everyone, the no hat. Things seem to be changing. I've noticed these companies like they're wearing yes hats and they're getting a lot done and they're pulling it off. what's your reaction to that?

52:38 >> It's really a winning strategy to to be a radical simplifier. >> Yeah. >> because complexity means costs means being slower, being worse generally speaking. But there's no but the perfect balance depends on on on on your particular context. Obviously, if you were to build a business let's say in in the 1800s with no technology, no internet, you know, no no probably labor market that was way less efficient. Clearly you you should at the time you should have chosen to do a lot less than you know would have been reasonable in the 1990s. and so if with modern technology and AI and what we've learned we I'm not surprised we can do more given the same let's say resources than we could in the past. But I think as a general rule leaning less rather than more is a very very useful thing even in this day and age particularly because I think the fact that some of these companies are pulling it off is it doesn't mean that you know that that they've chosen the right path. We don't know how well they would have done had they done three but rather than than four things and dropping the smallest least important one. Maybe the the the biggest most important one would have been 35, you know, 35% better and and bigger and maybe it's a net positive.

54:04 So, you know, I'm I'm we're big on we have a value actually or quality that we call relentless simplification. We we we measure ourselves against and we demand >> you measure yourself. That's fascinating. >> Yeah. measure I meant like we we we yeah we we assess ourselves against it's not and frankly it's not very very quantifiable but we want people to every time so the rule goes like this every time someone recommends that we should add complexity whether it's a step in a process feature a team headcount to a team you know you name it any element of the system the burden of proof is on those making that recommendation those who believe it's a bad idea don't need to bother bring in any proof, they they're fine. and so if we choose to go forward, there needs to be very clear proof that it makes sense or it has to be revertible and the people who drive the initiative need to then determine whether it was a clear success and otherwise revert it pretty quickly. And the other part of the rule is that we need to stay alert and and question complexity that's been there for a while because we we you know we become blind to it as human beings. and and anyone who who does that should always be applauded even if it's a nuisance that oh my goodness again we're questioning this process or or this or this policy.

55:22 but yes if you have better technology AI is amazing and you know as someone who failed with AI startup in 2010. I mean I didn't fail 2010. We started in 2010 failed in 2013. Clearly I believe in in the power of technology I'm not surprised we can do a lot more today than we could 20 years ago. you decided to base a company in Milan. We were based in Boston. I felt like there were some big pluses and big minuses to being in Boston. A lot of people think just you can't create a great company out of Silicon Valley. That's obviously not me. What is your why did you do Milan? what are the pluses and minuses of building outside the valley? Do you do you perennally feel like you're like not a cool kid because you're in Milan?

56:06 >> You know, I actually couldn't care less about coolness. someone who buys a company like AOL cannot possibly care about cool, you know, >> if anything, or maybe I do care, but I think that the uncool is cool. You choose, but it's one or the other. I'm not certain. >> what are the pluses and what are the minuses? Like my my my thesis is San Francisco is the best place in the world to start a company, but holy crap is it hard to scale there. It's so expensive that there's not a lot of loyalty. It's just darn hard to scale. What's your thesis on it?

56:41 >> Yeah, I mean, look, I I haven't built a company in San Francisco, so I can't really tell for sure. it does strike me as a place if you have the coolest, highest potential, be best resourced company on the planet. I think that's where we want to build it. You can probably absorb the most talent the fastest there than anywhere else. If you are more of a midling project, and by the way, midling by Silicon Valley standards is a pretty high bar, then it may be harder there than in many other locations. In any case, we we chose Italy, Milan. Today, we're an international company. We're hiring way more people outside of Italy than in Italy at this point, but you know, including now more and more in the States. I think we'll probably open office there in the next year. But yes, we started it in Milan, Italy, on purpose. We actually were in in Denmark with my co-founders where we had completed our engineering studies and had launched and then shut down our our AI startup. we had two main reasons.

57:40 One was extremely you know commercial and selfish. Basically what you described, we thought Italy, 60 million people, excellent educ education, relatively few amazing companies, certainly very few if any upandcoming tech companies could be a win-win for us in the talent. Like we we brought a lot of ambition. We thought an idea that made a lot of sense, a project that we thought was exciting and and so a lot of people would would otherwise be relegated to joining a inferior business or or moving abroad, but they had their family there. they loved it there could actually stay and and have, you know, everything both an exciting job and and stay with with their families. and so we we thought we'd be able to have build a better team basically for the same dollars or, you know, or, you know, a a an equally good team for for cheaper, which I think has proven to be true.

58:35 and and a significant advantage. The other reason was more missionary. We I believed and I think my co-founders did did too and we certainly believe so today that the world in general is a better place if knowledge, opportunity, wealth are a little bit better distributed. I think it's totally fine and probably even a good thing that you have one or two hubs like Silicon Valley that are one notch above. I think the world probably needs that to to achieve maximum you know prosperity. But I think if the gap becomes immense and basically everything that matters happens in one or two places, it's a really big problem including for the people who live in those places in the long run. And so we we wanted to do our part, you know, 1% make a 1% change by showing you can build a world beating company, massive ambitions in in a in a in unlikely place, Italy being one of many clearly, but you know, we are Italian. It was easy. We understood the culture better. so that was it. and we don't regret it. I think it was a good move. You can never AB test life, so I cannot definitively say that we would have done less well had we started in in Silicon Valley, but I I do suspect that this has been a better choice for us.

59:47 >> My last question, so I interviewed three of the founders, didn't interview, I called three of the founders of companies you acquired, and all three of them said the same thing. They said, "You are exceptionally high integrity." I don't hear that a lot about CEOs necessarily and I don't hear that a lot in preparation for these calls. Are there some principles around that you live by and what are they and what can we borrow from you?

60:18 >> Oh, I don't know that you know it's it's up to you to determine whether it's worth borrowing, but it's not a a point of expedience. It's a it's a moral point. So that morality is very personal. I at some point early in my adult life, I decided that I never so I mean I I can be transparent about it. It's not so in my early early 20s I I cheated on my girlfriend at the time and and I was so ashamed. Sometimes I think making a big mistake is a better way of learning than rationalizing how you should conduct yourself. I was so ashamed of myself that I made a promise to myself to never lie but also never omit something important that people should know even if it's to my detriment. And so I've tried to extend that to all aspects of my life. I I suspect that although it's sometimes costly in the short run, it tends to pay off in the long run.

61:20 I'm very glad you know I you just made my day sharing that feedback. I I didn't know you talked to them and but I'm glad you did and I'm glad they said that over you know praising my looks or something because >> No, because it really matters. No, jokes aside, it really matters to me. It's a it's a it's a it's a life mission I settled for myself to to be that kind of person you can trust is telling you things as they are. At least as as as I think they are.

61:48 and yeah, I think it does pay off in the long run when when you're you become known as someone who can be trusted. it's easier to to have a good life, you know, make good friends and relationships that that last that matter. Do you know do business, you know, like people will come to you and say, "Okay, we're looking to sell. We believe you guys. Your word means something." And so but but it's not a it's it doesn't come from a place of of seeking expediency. It's it's really just a moral point for me. And it's very subjective in that regard.

62:18 >> I love that. I'm going to leave it there. Congratulations on building something really special. Good luck to you on your journey to a trillion dollars, my friend. >> We'll do our best. Thank you. It's been a pleasure. Thank you for having me, Brian. >> Appreciate it. >> Okay. I thought Luca was really interesting. His company's doing really well and the guy beats to his own drummer. Just to stick on the ending there. I mean, for CEOs, integrity is really an underrated thing. you are what your word is. You've got a great reputation probably, but you do one stupid thing and you can kind of have that crash down. So, I like that. I like that he's like, I never lie and I never omit important info. And he could have just said that and I'd be like, that's a bunch of BS, but I had three of the companies he acquired kind of say the same thing. It reminds me of my last interview with Ali Goi from Data Bricks where he's like the worst thing you can be as a CEO is conflict averse and like if you're never going to admit important information when talking to someone, you're going to have conflict. And so that just sort of reinforces that in my mind. Other things I really thought were unique was like the way he does hiring is really unique along a lot of different levels. I mean, he's very conscious about the top of his funnel and how he brings people in. is very conscious about his employee brand. This does rhyme with HubSpot. We we had a woman named Katie Burke who who she was a marketer actually that we moved into run HR and she was excellent at it and she treated it like marketing like how do we how do we how do we create a flywheel? How do we pull people in and create a real employee brand and now she's the COO actually at Harvey.

63:59 but I think that's really important for scaling companies. Create a a hiring brand. Getting very good at hiring, I think, is important. He's got a whole darn data science team looking at hundreds or thousands of signals, trying to find the right candidates, and sounds like he does lots of interesting things in that process. One of the least interesting things it sounds like he does is the interview itself. I kind of agree with that. Like when I interview, everyone's good at being interviewed now. And so I discount that a little bit relative to other signals. So I thought that was I thought that was pretty interesting. I mean he's pretty obsessive on talent. He you know he said it he said it on this pod. I've heard him say it other times like you just can't drop the bar. And like as companies scale they they inevitably do drop the bar. And it sounds like he really hasn't and he's stuck on that and it causes a lot of suffering and a lot of people working very long hours.

64:52 but he he sticks with that. and you know, he weighed in on the the age-old battle that I hear from CEOs all the time. Should I hire for experience or slope? And he's at a pretty big scale and he's still like full-on slope over experience. I think his management teams probably other than his founders are all in their 20s and have high slope and it's working for him. I'm not saying that's the answer. I think for some people experience matters. also buys a lot of companies in the in like the PLG type sales motion where you know it's not necessarily enterprise sales or maybe some experience might be useful but that's where he comes in on that he talks so much about team team but then at one point he's like actually you can have a mediocre team if your strategy is really good which I thought hurt my head a little bit and then he also talked about when he buys a company is it more his picking or his operating so operating you know he's a really good operator I think the reality is you have to be really good at all of that stuff. You need to have a really compelling strategy and that's unique relative to your competitors and is compelling to your potential customers.

65:59 You need to be an amazing operator and you need to have an amazing team. There's not really any shortcut on any of that stuff. Anyway, that's Luca. I thought he was really interesting and smart and I hope you liked it.