#42 - Adam Nash: Tech, Finance, Leadership, Philanthropy

25:52It started with just basic tools, right? How amazing was it that first time you could open up a web browser and actually place a trade for a stock. The ability to move money around, the ability to buy something online. But everyone was so scared. I mean, I remember in the 90s, just the anxiety people had at typing in their credit card into an online site. At eBay, we considered any purchase over$250 a high average selling price, a high ASP purchase, because the idea was, oh, that's too much to ask of someone, that they would just buy something sight unseen on the internet that costs more than$250.

26:30You're right. It is about that simplicity. I mean, at Wealthfront, we tried to make it incredibly simple, right? To the point where it just did the right thing, right? We were really, we built Wealthfront with this idea that technology and people's trust in technology had gotten to the point where we could actually design systems where we just did the right thing for our clients. So for example, someone comes in and deposits money, we didn't ask them which ETFs they wanted to buy or what asset mix or what they thought was up or down or et cetera. We already had, based on their risk score, a portfolio designed based on research that we updated on a regular basis.

27:11We knew based on the day's trading, whether they were overweight or underweight, stocks or bonds, US, international, other asset classes. And so that basic idea that, oh, if you were in some sort of split, let's oversimplify it, 60, 40 stocks and bonds, the right thing to do if you put$1 ,000 in was not to put$600 in stocks and$400 in bonds, but to actually use that deposit to rebalance the portfolio. Or when they withdrew money, making sure that we not only used it to rebalance the portfolio, but also only sold the shares that had the highest cost basis. I mean, these are very arcane terms. They're not difficult per se, but if you haven't spent time on it, you might not know them.

27:53But the best products and services take that away from you, right? They focus on your actual goal. What is the actual goal? That person was saving money. Make it easy to save money. Help them do the right thing, right? You might have done the research that doing it this way ekes out an extra 0.1, 0.2 % return over long time periods. Humans like you and me, we're very bad at doing the right things day in and day out. We just don't have the attention span for it. And one of the beautiful things about technology is that computers do not get bored. They will do the same thing. They will check that math every single time.

28:30And so this is why, you know, we see this in so many disciplines. You know, a person alone is only so good at things. And by the way, computers by themselves only so good at things. But the combination, working together really phenomenal. And so I think, I think building products and services that leverage that, especially for something as important as helping people with their money, helping people invest towards their goals. I just think it's phenomenal. Well, one of the challenges in the financial industry is it's extremely complex and the transparency typically isn't there. And so it lends itself to an industry where you could have the players essentially take advantage of the customers because of that lack of transparency and complexity.

29:17And so how do you distinguish between the businesses and the financial industry that are truly looking out for their clients and their investors versus those that are prioritizing personal gain and covering it up with fancy marketing? I don't know if there is an answer because unfortunately, as long as there are people with money, earnest, et cetera, there will be those who try to take advantage of the situation. And every few years, one of these things becomes sensationalized and you end up seeing the documentary, the movie, the court cases about it. But it's really about those famous situations.

29:56To your point, it can be every day, right? How do you trust an accountant, a lawyer? How do you trust a doctor? How do you trust a financial advisor? When I was at Wealthfront, this is one of the things that surprised people was that I was, you know, actually, in some ways, I know this is unusual for technology, but I took a very strong pro-regulatory posture that people don't realize how much of the trust and how much of the, for lack of a term, you know, liquidity in the business around money is because we have systems that people trust. People do believe that if you do the wrong thing with money, sucks, et cetera, that you can't lie about things.

30:41Or if you do, you'll get in trouble for it, right? You can't take your money. I mean, how many people have learned about, you know, FDIC insurance or, you know, what a fiduciary advisor is? I mean, I was a very big advocate for the fiduciary system. I actually looked to strengthen it in a number of ways and apply it elsewhere. Because how can you trust someone with your money to make decisions on your behalf. And by the way, that system isn't sufficient, right? Just because there are laws, there's police, but there's still crime, right? And so learning people, learning what's reasonable, this is why in my class, I try to teach some of the data, right?

31:20You know, if people are promising investment returns that don't make sense on a historical basis, it's right to ask questions, right? You know, there's old expressions, you know, I go back to my grandparents, et cetera, Or, you know, my grandfather, trees don't grow to the sky or, you know, the natural limits on things. Even knowing historically, you know, that, you know, what a fair stock market return might look like or what bonds have done or real estate can help keep you from these systems. But, yeah, I mean, some of this is just, you know, common sense about knowing people. If someone's telling you that there's a way to make countless millions with no money down investing in real estate, I'm not going to be the one to say it's impossible or it's never happened.

32:06But is that a good set of risks to take? Is that likely to be successful for you? having that combination of humility and kind of breaking system to not get suckered into some of these aggressive plays to make money. I mean, we just saw this. We see waves all the time, right? You know, I've seen, you know, three or four at this point, market crashes kind of come and go based on, to borrow the phrase, irrational exuberance about, you know, a number of different ways. But a lot of, if you look at the core cause, some of the positives when you see these kind of booms happen. I'm in the technology space, right?

32:45We really do have technologies that are millions of times better than they were before. I mean, that phone you have in your pocket is so much more powerful than the supercomputers I used at NASA in my first internship, right? It is actually true. It's not 10 % faster. It's not 100 % faster. It's millions of times faster, which is just phenomenal. So there really are things in the world that have gotten better at that rate. But, you know, in finance, you tend to, that's one of the problems that people coming from technology have with finance is they're so used to a world where, wait, we used to be able to not handle hundreds of users.

33:24That used to be a hard problem. Now we can handle hundreds of millions, billions of concurrent users, right? We can handle billions of devices. Sometimes people quickly get mapped into, oh, that must be possible to just like that, you know, turn a dollar into billions, etc. And certainly there are a few in Silicon Valley who have done something like that. But, you know, the recognition that actually, no, like financial products and services move slowly, that actually a lot of the things that we invest in have not changed. The human emotions around investing have not changed significantly. And so having that ability to just take a step back and say, if it sounds too good to be true, it probably is, or what's reasonable, or what even makes mathematical sense, I think it's a hard problem for a lot of people.

34:11But I don't think there's any guaranteed answer to keep people from getting in trouble with their money other than some of the basics. I mean, my class, a lot of the basics, how do we end the class? Same way we started. Just the basics of the idea of spending less than you make, saving money, investing that money, you know, keeping fees low, staying diversified, and being smart about taxes. This is not rocket science. And it doesn't feel like you're learning the secret to something that everyone's been keeping from you. Yeah, this is what the rich people know that they won't tell you. By the way, any pitch that goes like that, just that actually is a good start.

34:57But it's going to be proven, but you have to keep an open mind, right? Things do change, you know, like things do progress. ETFs really are, I think, in many ways, a better financial product than mutual funds were in many dimensions. I think mutual funds themselves were a relatively new way for individuals to access pooled investments. My current fund, donor advised funds, putting money aside for charity, really is an account that's been around for decades that many people haven't heard of. And so that balance of humility with the willingness to learn and study and just go slowly, not jump in with both feet on the next thing that promises you to double your money.

35:34Incredibly important. It's so interesting. So earlier I said it's a very complex industry. In many ways, it's extremely simple. It's spend less than you earn, save your money, and invest it and benefit from compounding over time and try to minimize taxes and fees. That's like 90 % of it. And it's really hard. Those are hard things to do for some reason. Yeah, you know, it's funny. I'll get the quote wrong, so I apologize to everyone involved. But I believe there was an interview, you know, years ago, where Jeff Bezos had the chance to kind of interview Warren Buffett. You know, and of course, you know, famously, Warren Buffett writes his annual letter for Berkshire Hathaway.

36:16Jeff Bezos would write these letters for Amazon as well. And some people don't realize that Jeff Bezos came from finance, that he crossed over. And so he asked Warren, you know, you've been so clear with how you invest and how you think about investing, etc. Why don't more people do what you do? Why do you think so many people struggle as investors? And he said, well, and of course, I think at this time, Warren was already 80 or something. So he's been around the block, decades of experience. And he said something to the effect of, you know, in my experience, you know, there's very few people who want to get rich slowly.

36:54There's something to that, right? It's our impatience, right? You know, everyone wants to be above average. No one wants to accept, you know, a small percent. And by the way, as humans, we're not very good with small percentages, right? You know, the idea of something going up 5%, 6%, 7 % every year feels like nothing, right? That'd be a terrible tip. No one wanted that for a whole year. It's terrible. In our human psychology, we don't appreciate how these things compound over time. And even more psychologically, it's very hard to get people to care deeply and authentically about their future selves.

37:33I joke in my class, because my class is filled with people in their late teens and early 20s. I was like, the 70-year-old version of you actually cares a lot about what you're doing right now. It's very hard to get you to care so much about your 70-year-old self. And so I do think there's all these challenges to it. But like I said, I think these challenges come from the fact it's a little bit of the human condition. We want the good things now. We want to help people now. It's not all selfish, by the way. There's a lot of things that people want to do early on. But, you know, accepting the fact that the economy, that money doesn't work that way, that those numbers aren't, you know, going to go up that way, at least risk adjusted, right?

38:20And even getting people to understand that just because the lottery ticket comes in doesn't mean that that was a good bet, right? That separating kind of the math of statistics from just the nature of people to like gambling or to take that risk and be that one winner. It's very difficult. I think financial advisors have to work very hard. Like I said, they usually have to walk people through it on a journey and start with the basics. Get people to focus really what they're trying to do, which very often is not just making the number go up. Actually, this is one of the fields I find really interesting.

38:56You know, Meyer Statman talks about this sometimes around behavioral finance. You know, what are the risks that people really care about? Are they, is the risk really volatility in the markets? Or is the risk that you won't have enough to pay for your kids' college? They get into school, right? Like, is the risk really that, you know, you want to hit a certain number so you can be in the top 1 %? Or is the risk really that you want to make sure that you have a home to live in? And if something happened, someone's health or some other situation happened, that you would have the wherewithal to handle that.

39:28I think that great financial advisors really dive into the actual risk and the actual goals that their clients have. Rather than just purely like, this is the way risk adjusted to generate the best return. This portfolio has the best sharp ratio. There's all these ways to measure these things. And they are valid. And they do have real use. But I think the best advisors know that they're actually working with people on some of the most important problems in their life, the ones that really either could keep them up at night or let them sleep sound. One concept that we talked about, which is related to your work as CEO of Wealthfront, is this notion of automated investment management.

40:09And I know Wealthfront tends to target younger investors who may trust technology over human advisors. How do you think about that and what does that tell us about what the future may hold? it's funny now, it's 2024. These debates were so heated 10, 12 years ago. And I'm not, you know, trying to, you know, be the technology that says like some things are inevitable. But the reality with Wealthfront was just confronting the fact that two things that weren't going to change. One is, is that actually having a financial advisor, a person to help you, is a very expensive thing to do. It turns out financial advisors can only take on so many clients, right?

40:54And there's only so much that people can afford and are willing to pay for financial advice. And what that means is that financial advisors, for the most part, end up working with a very small sliver of people who actually need help. And so the idea of using computers of automated systems like Wealthfront, like Acorns, to help people and take some of those best practices and automate them so that everyone has access to them is obviously a benefit and obviously the path to the future. I think we did see back in 2010, 2012, 2015, that millennials, young, we used to focus very much on 30-something households was where the center of our product design was.

41:37A lot of that focus had to do with just the basics of disruption. Clay Christensen's original theory more than 25 years ago, this idea that you can look at the customers that the traditional industry focuses on, who their best customers are. And the truth is that in the advisory industry, you know, the average advisor is around 50. And then the average client is around 50. That actually hasn't changed in a very long time. And that's not surprising, because it turns out that people who get to that age are dealing with a harder set of financial goals and constraints, right? They're getting closer to retirement, they've had more success, they have more money.

42:13And also, it's not surprising that it takes time to address that market. And so Wealthfront focused on what they felt was this underserved market. It's very hard for the 32-year-old to get a financial advisor to work with them when they only have a few thousand dollars, tens of thousands of dollars, etc. But a lot of the core of Wealthfront was based on deep insights that came from the advisory industry. If you do a good job with your clients, they'll be with you for decades. That was the idea of Wealthfront. Now, I think the pandemic has changed everything. And I think I've written about this even five years ago.

42:48I think fintech has moved on at this point. People trust technology enough. They're using apps enough. I don't think this is a market for, you know, young adults anymore. I see startups and technology focusing on how retirees can better manage their income and withdrawals and handle Social Security. I see technology helping people in their middle ages deal with their children, multi-generational. I'm an active angel investor. Some of my portfolio companies make products that actually help middle-aged people actually help manage the finances or help work with their aging parents as they go on. I mean, Daffy, my current platform and current company focuses on charitable giving, helping people put money aside for charity.

43:33So I think that that's moved on. But I think that in some ways, this is all inevitable, which is that computers aren't. Everyone focuses on the computer piece. Yes, computers are getting faster and faster. Networks are getting faster and deeper. And we're learning more and more things we can do with computers. But the reality is we're all changing, too. our trust, our understanding of automated systems of computers is also improving, right? You know, my generation grew up with video games and feels differently about entertainment than the generations that came before. My kids who are now mostly teenagers, you know, grew up, not just with social media and, you know, always connecting.

44:14Trying to explain to my children that there was a time where computers were not connected by default to all the other computers in the world is actually very difficult, let alone why the Wi-Fi would be down. There's going to be a new class for parenting. I'm actually convinced that every parent now is part IT director trying to deal with their kids' devices and that sort of thing. Anyway, so I think that moves on. I think that the best financial advisors are using technology to help their clients. They're up-leveling what they can do. Not only can they handle more clients, but all of a sudden, you can give your clients better and more sophisticated financial projections.

44:51You have the ability to do research on financial products and services that would have been hard to do before. It used to be that advisors were almost captured by the technology stack and the products and services of whatever large broker-dealer or platform they were on. And now, actually, advisors can reach out and find other solutions for their clients. And so I think as long as you embrace the fact that technology is in some ways, you know, productivity is really a form of productivity, you know, materialized, right? These should be systems that help you do what you do better. And I see the best financial advisors and platforms doing this.

45:30You get better, your clients' expectations go up, but also their needs go up as well. And so I think we're living in a world now where thanks to technology, we're going to see a much, much larger group of people actually benefit from some of these best practices and financial advice. And at the same time, I think the quality of what financial advisors will be able to do at the high end continues to increase. And so hopefully this is really a win for everyone involved. It seems like the first stage of that technological boom was providing information easily accessible to the world. And the next stage is taking that information, in many ways, information overload, and simplifying it and directing it to the customers, the investors, the clients, to exactly what they think they need and ways to help them figure out this entire puzzle.

46:27That's exactly right. And you have to go down that path, right? The knowledge itself isn't sufficient, let alone, I'm assuming that you can actually convince anyone these days that there is objective knowledge. But in any case, knowing, for example, that something is simple, right? Giving money to charity, the charitable deduction, knowing the facts that, oh, you can deduct up to 60 % of your AGI with cash kind of donations to charitable institutions, 30 % if you donate property like stock. Great. Knowing even further, right, that when you donate stock, it's a great win because you get to deduct the market value of the security and you never pay the capital gains.

47:15That's great knowledge. But how do you translate that knowledge into action? Well, that's how advisors then go, oh, I will talk to my clients about this towards the end of the year. Oh, it looks like you had a good year, big bonus. This would be a good year to put money aside for charity. Have you heard of a donor advisor? Even better is when you take technology to automate that behavior, right? Your client has a giving goal. There's a certain allocation in their budget of what they give to charity every year. And you make sure on a quarterly basis that you're taking those low-cost basis shares and putting them in a donor advised fund to save your client on taxes, help them meet their financial goal of giving, and then of course, keeping their investments balanced, et cetera, or using a technology platform that automates that, which I have written about, I think is now possible.

48:04That progress from the knowledge to the action to the automation is really what we should be thinking about in the industry for all these financial tasks and goals. That's actually the path not just to scalability for a financial advisor's practice, but also for a higher quality service for your clients and making it more likely that they'll hit their financial goals. So I tend to see things that way, the knowledge, the action, and then the automation. Yeah, that'll close a pretty significant inefficiency that currently exists. So given your experience with all these different great companies, I wanted to ask you a few questions about business and leadership.

48:44What's your general advice about creating a great product that actually adds value? Plus, because that's not enough, you have to be able to ensure people know about it, particularly those who would really benefit from it. So would you talk about advice in those two areas? Yeah, I'm happy to. And I think I mentioned this a little bit earlier, but it reflects a little bit of my own progression through my career, right? Starting as an engineer, how can I build this thing? That by itself is a very difficult problem, let alone make it operate quickly and easily and compatible with all the systems you're using.

49:22And I wish I could tell you that problem was enough. But it turns out to make a great product, it's not just about how you build it. It's about what you're building. And this is where design-centric thinking comes in, right? If you study design now, it's not just about color theory and spacing and all these other attributes, although those are all amazingly important and interesting. it's actually about deeply understanding what your customer what your client what the user is trying to do and how they think about things and meeting them there and delivering a product design so if you have the engineering right and the design right you can build a great product i truly believe that and the process that they teach now about how you can take a group of students who haven't done this before and take them through a process where in a matter of weeks they're actually generating designs of products that are really very useful for people and buildable.

50:13And I wish that was enough, but it isn't. To build a great business, you actually have to think about the market. You have to think about why. Why doesn't this product exist? There are all these big companies out there filled with people, incredible resources, distribution reach, right? Like Apple does not have a problem reaching customers. They have a lot of customers. Google has a lot of customers. why doesn't your product exist and usually when you get to the heart of it what you discover is like i said what clay christensen wrote about more than 25 years ago is that actually those companies are very good at focusing on their best customers but if there are best customers there are customers that are not considered great customers and their needs their desires that what what they want from product isn't being addressed for some reason.

51:06And so usually when you get to the heart of that, in my view, that's when you get to the heart of something that's not just a product, not just a feature, but could be a great business by itself. I mean, Daffy, the platform we're building, I mean, the donor advised fund has been around for decades, almost 100 years. And yet, even five years ago, six years ago, there were less than a million of these accounts in the US. There's 60 million households in the US that give to charity every a year. Giving is obviously important. It's more than a half a trillion a year. If you measure it as part of GDP, it's about 2 % of GDP.

51:39I mean, it's bigger than agriculture in some ways. Why does so few people, why does everyone have an IRA and a 401k, but doesn't have a donor advised fund? And you dig into it and you realize that actually it's not a technology problem at all. Why do all these donor advised funds not have apps in the app store? Why are they still emailing around PDFs? Why? They don't know how to hire engineers. They don't have design great products. They could. It might be a little slower than the typical Silicon Valley startup, but they could do it. No, the reason they don't do it is because they built their business similar in some ways to the investment industry, whereas because a lot of these big donor advisements came out of the investment industry, they borrowed the business model.

52:23they charge a percentage of assets, right? An AUM fee. And as a result, who can afford to put aside large accounts for charity? Six-figure accounts, seven-figure accounts, billion-dollar accounts. Well, it's not even the 1%. It's really the ultra-wealthy. And so you just have the whole industry focus on their best customers. I mean, when we founded Daffy, we're proud of our technology, right? We have amazing features that no other donor advice fund has, right? We have an app in the app store. You can do everything with a native app. We support crypto. We have a family plan. You can add your kids, your parents, your siblings.

53:01We support campaigns. All these features, gifts, all these things that other donor advised funds don't have. But probably at the core of what makes Daffy different and why we focus on the technology is because we went with a different business model. We decided, advisors, it makes sense for them to charge a percentage of assets for the value that they deliver. For us, we charge a flat membership fee, like most nonprofits,$3 a month for most of our members,$5 a month for families. And at the high end, if you're really contributing a lot of stock or crypto, etc., we charge$20 a month. And so we focus on technology because we built a business that benefits from having as many people as possible, put money aside for charity.

53:44And by the way, that's our mission. And so when you get that alignment between the mission, what you're trying to build, the business model, the technology, and the people who can make that organization go. I mean, from my perspective, that's what great leaders have to balance. It's not enough just to have a technology strategy, not enough to have a product strategy. You have to have a people strategy, too. And most importantly, you have to have financial business strategy around why this company should exist, why it needs to exist. What hole does it fill in the market? And most importantly, what's keeping those large, well-funded competitors from turning their guns on you and aiming with full force?

54:29And guess what? No matter what hubris you have, it's not you being the genius founder. Everyone thinks they're Steve Jobs, whatever. Even Steve Jobs knew this, of course. even when he was training sites on the biggest platforms and companies. What really is your protection is if you're going after customers that the traditional incumbents do not believe are their best customers, they're never going to train their full force on you. It would be a distraction to them if they spent all their time on your customer and your business because they need to focus on their best customer and their business.

55:04And so I know this is a little disheartening for technologists and engineers who really want to believe that if they just work on the next generation of technology, implement features that haven't existed before, that that's enough to build a great company. And there have been, by the way, there have been examples in history of technologies that really did change the game and became companies and platforms by themselves. But a vast majority of the time, if you're trying to build a business, you're trying to lead a business, it's not enough to just focus on the product and technology. You have to also focus on where you fit into the market.

55:39You know, the great thing about Daffy, I will tell you, is our members love us. You know, we didn't invent the donor advised fund. I mean, granted, we have a cute name, donor advised fund for you. So there you go. But we didn't invent the donor advised fund. But when people learn like, wow, are you telling me I can put money aside for charity? I can contribute stock and crypto, get all these tax benefits, get the tax deduction for a given charity, and then the money's invested tax free. I can give it to any charity I want in the US. They think we've invented sliced bread. Like, we didn't invent any of this.

56:13But what we did is we brought it to a customer base that was largely ignored by the industry. And that freed us up to invest in features and technology that the traditional industry might not have gone to for decades. But you asked a little bit before about Wealthfront and companies like Acorns I've been involved with or LinkedIn, etc. etc. This is one of the things I find most rewarding about working in technology. It's a little bit like the four-minute mile. Once it gets done, everyone does it. High school students could do it. Once you show people what's possible with technology, they can't unsee it.

56:45And then very quickly over the next decade, it becomes standard for everyone. I used to tell my team at Wealthfront that millions of customers benefit from lower fees and better financial products because Vanguard exists, even if they're not Vanguard customers, because they force the industry to adapt and change and compete. So you start a great business. And as we know, running a business through time, you're going to face a series of problems, some big and mostly small problems. What's your approach to problem solving? It's very difficult. And there's a lot of different types of problems and different situations.

57:26So I don't know if there's a universal answer. For me, the struggle with leading has always come from these different disciplines, right? I'm always fascinated. Engineers in general tend to prefer systems that are decoupled, independent, right? Engineers don't like it. Like, they like to be able to just work and get things done, right? So they like systems that are fairly independent, bottoms up in some ways are described. Designers have a different sentiment. There's always a tastemaker with design. There's a reason why curators exist, why editors exist, tastemakers exist. It's coherence. If you want to build something coherent, you can't have everybody doing their own thing.

58:10There has to be some sense of what belongs and what doesn't belong, like what fits the pattern, what fits the emotion, what fits the design that you're going for. As a leader, actually, I see some inspiration from both of these. You know, sometimes the right answer, and I've given interviews on this fact, I'm a big believer in giving people information, of hiring smart people who are ambitious and trustworthy, giving them all the same data and giving them the same frameworks to make decisions, but letting them run independently and they will shock you with what they come up with. Right. And by the way, if you're not hiring people who can come up with ideas and opportunities that you can't, you should think about hiring better people.

58:56Right. Like you are you know, you are not the magical linchpin of every you not the magical solution to every problem. That being said, as a leader, that coherence is your responsibility. Right. You can't just have people rowing in different directions. Right. Part of being a leader is setting the goal, setting the priorities. Right. Having people understand that strategy and knowing that all those efforts aren't going to be in opposition to each other, but actually will flow together to build something and deliver something that no one on the team could do themselves. And so as a leader, I think that's the balance you have to pick is I see leadership a lot is making sure that your teams are empowered with both the data, the capabilities and the frameworks to actually succeed.

59:43and they need to know what their goals are and what success looks like. I wrote this post years ago that went viral that everyone talked about, but it was really simple. I said, product leaders, great product leaders, they tell their teams, what game are we playing and how do you keep score? And so many leaders fail to do one of those two things. And actually, a lot of the dysfunction I've seen at the companies that I've been at comes from the fact that people weren't clear on one of those two things, right? They knew what game they were playing, but they didn't have a set of metrics. They didn't have a goal.

1:00:14They didn't know how to measure success. Or they were so focused on metrics, they forgot what game they were playing. They were just trying to make numbers go up. So when you have those two things, I think, as a leader and you have a team aligned around a mission, it's always amazing to me what can get accomplished, etc. But it's hard. Like I said, knowing when to step in and say, no, we're doing this. This is the priority. This is the one thing. All that can wait till later. We're focused here versus letting your team bottoms up tell you what are the priorities? What are the things that actually will make your customers happy that will actually help take your business to the next level?

1:00:50It's always a struggle, I think, for leaders to flip between those two modes when they have to. I've heard you describe three concepts in the past that I'd like for you to talk about a little bit. Number one is delighting the customer, this concept of delight. The second is this idea that there are products that improve with increased usage, like LinkedIn, for example. And then the third is this idea of virality. Would you talk about those? Yeah, I'm happy to. And these are all important elements, I think. As I explained to a lot of people, the technology industry is one of the most brutally competitive industries that have ever existed.

1:01:30I'm not saying that it has another great competition, etc., but I think it's very easy to look at products and services from Apple, Google, Facebook, etc., LinkedIn, all these companies you mentioned. And some of them assumed that it was always meant to happen. Someone just had to build these things, and they were going to work and get a billion users. And the reality is, if you go through the history, you realize that none of it was guaranteed. A lot of it involved a lot of innovation and navigation of the market, of systems, technology, competitors to make it happen. And so the three things you mentioned are incredibly important solutions in history.

1:02:04Delight is one that's close to my heart. And that's because I started my career at Apple. And everyone talks about Delight without really defining it. I remember once I went to a code conference. Kara Swisher was interviewing Tim Cook. And she was berating him. Like, are you guys doing a TV? Are you doing a car? Like, she just wanted to know, have them come out, maybe break some news about what they're doing. And of course, Tim gave the Apple answer, we don't pre-announce products. And Carol's like, why? You have fans. They want to hear. Tell them what you're doing, why you're doing it. Get them excited.

1:02:38You know, people talk about movies before they're released. Like, mark it. And Tim gave the very Apple answer, which was like, you know, at Apple, we believe that consumers value surprise. And I think that's at the core of delight. Like, to me, you know, I break product features into three buckets. I'm very well known for this. Metrics movers, customer requests, and delight. Metrics movers are things, there's always metrics that move your business. And if you don't do them, they're the reason you're funded. I don't care if you're at a big company or a small company, there's a reason someone allocated money to it.

1:03:11There are metrics to move. Your customers are giving you requests all the time. But delight is really the key, I think, to building an almost irrational bond with your customer. And the way you get delighted is by surprising them. Something they didn't expect, but they hadn't thought it. But once they see it, they can't unsee it and they want to show it to other people. It's so clever. And I think it's a little bit of narrative, a little bit of myth-making. People want to believe that the people making their products are special, are different, are brilliant, and coming up with things that no one else can come up with.

1:03:48People who love other forms of art and creative disciplines, that same feeling, right? They want to believe in that. So delight, I think, the problem with delight is that it has to be inspired. It is emotional. And it's very hard to generate on demand. Okay, everyone, let's delight people this week. It's not a thing. But when you have those insights, realizing that even though it doesn't move metrics, even though it's not something your customers are requesting, if you don't delight your customers on a regular basis. When I say regular, I mean, it could be just once or twice a year, but if you don't delight your customers, you will lose them to someone else who does.

1:04:28This is why people hate competing with Apple. Apple is not perfect. They do a lot of things wrong. They delight their customers enough that Apple customers give Apple more latitude and leeway than they would on a purely rational basis because they know that feeling. So delight's incredibly important. Products that improve with usage, network effects. Everyone talks about network effects. I mean, LinkedIn is the famous network effects business. Network effects were the answer to a very interesting problem, which is that most businesses have scale effects, right? Like volume discounts, right? Like you improve with scale, like making a thousand widgets, you can do it more efficiently than making them one at a time, right?

1:05:14And so there's scale. But the idea of network effects really were around this idea that what if the product itself got better, the more people who used it? I mean, this is a joke. How can you even start a company like LinkedIn? I mean, this is a joke. If you think about when LinkedIn launched in 2003, here's a new site. You can search for anyone on it. Actually, but there's no one there. Or wait, here's a great site. You can post your resume on this site, but no one's looking for it. Right? Think of eBay. How does eBay get started? How's a marketplace get started? You can post your items for sale, but no one's buying, right?

1:05:50Oh, you can go and buy stuff, but no one's selling. We all know that these marketplaces are incredibly valuable, that these businesses where the more people who use them, the better those platforms get. We know how valuable they are. They're very hard to dislodge, right? Because you can't just, I can't tell you how many companies tried to build a prettier LinkedIn or a better LinkedIn, et cetera. And where are they? They're nowhere because whatever innovation they came up with, the length of time it would take LinkedIn to implement that innovation versus the length of time it would take the new company to get all those users to move over and create accounts.

1:06:28I mean, it's just it's just it's a hard thing to do. I'm not saying it's impossible. It will happen someday. But it's a very difficult thing to do. So thinking deeply about your product and service and how it gets better the more people use it is not something that happens a lot. in the real world, in the physical world, because it's very hard to engineer, but it does. I mean, actually, in some cases, music and some creative arts are like this. Part of loving, you know, seeing movies and music, etc., is actually the conversations and connection you can have with other people. But it doesn't work if you all watch different things.

1:07:04This is the problem with streaming right now. So everyone's watching different things. It's become harder to have that conversation, you know, Friday morning about must-see TV, about what happened the night before you can't do it because everyone's watching different things. But thinking about network effects deeply and think about how your product gets better, actually in financial services, I would say this is largely an unsolved problem. There are very few fintech products that currently get better the more people who use them. Although even though the exchanges that we all trade stocks on, etc., have a lot of network effects to them.

1:07:33And then, of course, virality is another solution, which is most companies, most products can't afford to pay people to sell them. how do you make a product or service where your customers actually have an incentive to actually sell the product to someone else, to introduce it to someone else? By the way, this tends to go with network effects, right? You know, it creates an incentive, right? If I join LinkedIn, it turns out LinkedIn is more useful to me if my colleagues are on it, right, if the other people I know, because I can find more people, I can learn more about them. And so a lot of what drove, you know, virality, what we learned in Web 2.0 was how to build these systems.

1:08:15I mean, virality in Web 1.0 was basically, you know, you get$10 if you and your friend join PayPal. Like everyone gets money. I mean, and that worked at the time, although people kind of burnt out on kind of being bribed to do these things. But fundamentally, that idea of your customers, by the way, I think it's an old fashioned idea. And you go to a great restaurant. A lot of what makes restaurants work is the fact that if you get a customer today, how many of your customers not only will come back, but will bring a friend or tell other people about it? I mean, these are very word of mouth is a very old fashioned idea.

1:08:48Virality was just about automating that process, making it easier for people to tell their friends about services that they loved. But when you're competing in technology or in business in general, I will tell you, it's very hard to do all these things, delight your customer, create a true network effects business, and actually have a business with virality where your customers are selling your product for you. But I will also tell you that if you don't have those things and you're competing with someone who does, it's going to be rough. And that's where the state of the technology business has been for decades now, which is why, I mean, you know, as I'm an angel investor, I've invested in over 140 different companies.

1:09:32I had a chance to work at great venture capital firms. They will tell you the same thing, which is so many great founders will come to them with an idea for a product or even a business. But if they don't have some of these elements, it's not that you can't make it work. It's just so much harder. And the economic cost of doing it is so much higher that really, this is why a lot of very smart people spend their time thinking about how they could do this. When I was thinking about doing Daffy, I thought about these things. I think there's a question that listeners would be curious to hear your response to, which is, how did LinkedIn and eBay achieve escape velocity?

1:10:12How do they solve that problem? First of all, I wasn't there. I joined eBay after the bubble burst. So I don't want to pretend that I know other people's stories, but I think there is some reality to the fact that the Internet itself, new devices and new platforms can drive adoption. There's a problem in the industry called the zero start problem, right, which is you've built this feature. But if no one's using it, right, where's your network effect? That's what we're talking about with LinkedIn. Right. So I think for eBay, I think a number of the Web 1.0 giants, the truth was the internet was new enough.

1:10:46People were downloading a web browser and going, okay, now what do I do with it? Kind of like in 2007, well, really 2008. Apple didn't roll out the App Store until 2008. But it's like people would buy a new iPhone and go like, well, now what do I do with it? I'll download some apps. So there are these early times for new platforms where you can solve the zero-star problem because people are just trying whatever is available. There's not that much available. right like was angry birds the best game possible for the iphone ever probably not but like it was one of these great ones that it used touch it had funny noise it used it was just it was a wonderful experience so i think ebay benefited from a little bit of that web 10 wow what's one of the things you can now do on the internet wow there's this site where you can sell anything and buy anything that gave it some motion but they ebay did lean into categories and things, right?

1:11:36Like, did eBay create the Beanie Baby boom? Or did Beanie Babies help create eBay? It's a little both. Now, LinkedIn was different. Web 2.0 after the bubble burst, a lot of very smart people thought it was over. I mean, you had famous economists like, you know, Paul Krugman, etc, talking about how, you know, the internet wasn't going to be bigger than the fax machine. You had MBAs saying that maybe it'll be 10 % of retail kind of the way that catalogs were. It just was very down. And so LinkedIn, et cetera, what you had was people who had actually done work in Web 1.0. They knew what scaled and what didn't scale.

1:12:13Reid Hoffman had worked on social network, on PayPal, et cetera. These people had experience in designing these systems, and they knew what problems to focus on. And the truth is that LinkedIn, it was hard. I think LinkedIn took over a year and a half, over 400 days to get its first million users. right these days if a site didn't get a million users you know on day one everyone's ready to write it off like oh where did that venture capital money go but it took a long time and it was partially for that reason i mean the first linkedin didn't even have search didn't roll out for a year because what was the point there were not enough people there but the team spent a lot of time on the viral features right making it very easy to invite other people the team put a lot of themselves into it.

1:12:58Reed, the other founders spent a lot of time inviting other people, encouraging them to join, looking at the numbers, figuring out how to make, they even figured out things like, wow, like it takes about three invites for people to join LinkedIn. And one of them has to be from someone you know and respect. Can't just be three random strangers, et cetera. But it took a lot of time and it was hard. And so I think that, you know, when we look at some of these viral successes, Facebook, LinkedIn, etc., we underappreciate some of the techniques that they use to get there. I mean, Facebook famously would not roll out, back when it was only for college students, would not roll out to a university until they had about 20 % of the students requesting that Facebook come to their campus.

1:13:43That's how they started the zero-start problem, right? It was like, day one, oh, all these people were on list. Uber to launch a new city, would get all the drivers set up, and they would do marketing so that everyone knew that Uber was opening that day in the city. And so everyone would get on their phones to look for a ride. But they had also done the work. They had dropped someone in that city months before to make sure that there were drivers to pick up the rides on that day with the belief that once you got that flywheel going, it would continue to go. And so I do think it's a hard problem.

1:14:12The only way to deal with hard problems in business is to name them. This is going to sound like a very traditional thing. Very, you have to name the problems that you have to solve. You have to spend time on them. The biggest mistakes I've made in my career around product launches, etc., is thinking too much about the product itself and not about the distribution. Right? You know, some of the scars I have from efforts that, you know, companies like eBay, etc., are building incredible products and not solving the problem or not spending time on the problem. Yes, this will be a great product. How will anyone know this exists?

1:14:46What link will they click to get here? What are they doing at that time? I have this talk on product I give publicly. It's actually the top of my feed on Twitter, etc., pinned there. But one of the things I talk about is that actually a lot of business owners don't spend enough time obsessing about their non-users, about the customers they don't have. And that's because growth only comes when someone who is not using your product somehow receives a piece of content about your product, checks it out, and then joins, and then starts using the product. But you'll find teams in Silicon Valley who spend every waking moment on the data about the small number of users they have, and almost no time thinking about that much larger market out there of people who don't even know about their product.

1:15:36And so you have to spend time on distribution. That's great. I'm going to ask you one question about philanthropy. We've spent some time talking about Daffy and what you've created there. Do you believe that democratizing philanthropy through Daffy and other solutions can change the way the masses view and appreciate the role of philanthropy in society? I mean, one of the reasons Alejandro and I built Daffy is because Americans already care deeply about giving and philanthropy. They may not call it philanthropy, but for the most part, people are raised to not be wholly selfish. Once again, I'm not saying everyone, but there's a reason why 60 million households give to charity every year.

1:16:19I talked to dozens, before we wrote a line of code at Daffy, I talked to dozens of people around the country about how they think about giving. And they do. They usually would talk about a parent, a teacher, a priest, or a rabbi, a mentor, someone who taught them at a very early age that it's not all for you, that there's people less fortunate than yourself and that you should put some money aside and support others and give to others. And so that's one of the great things. I think a lot of great technology products don't invent the problem or the human motivations to solve that problem. But what technology does is it gives you new ways to reach them and new ways to solve that problem.

1:17:01And so a lot of what is at the core of DAFI around giving is this idea that we can make giving better through technology. Classic example, DAFI for families. Most people will tell you that giving is something they want to teach their children or that was something that was important to their parents or something that their organizations that their families have supported for generations. Right. Why does no other donor advice fund have a family plan? Why? It's not a technical limitation. It's because they didn't frame the problem that way. And so our belief at Daffy is that by using technology, those same techniques that help people spend better, save better, invest better, can help people give better.

1:17:46And I will tell you, there's a lot of research to back this up. You know, you and I both know that people would not save well for retirement if it didn't just come out of their paycheck automatically, right? And there's good research, famous research, behavioral research that says that when you automate, when you set a goal, when you automate, you're more likely to hit your financial goal. And it turns out there's research that says the same about giving. If you set a goal for your giving, puts money aside practically, I don't care if it's a few hundred dollars, a few thousand dollars, a few million dollars, it turns out if you put money aside for charity, you end up giving more.

1:18:22And so I just told you the numbers were huge. I told you that, you know, 2022, I think it was$557 billion given to charity in the US, more than half a trillion dollars. The crazy thing about the DAFI team is we actually are not fighting for a piece of that large market, we actually think Americans want to give more. We actually think that if more people put money aside for charity proactively into something like a donor advised fund, that actually we would end up giving more than$100 billion a year more, an extra trillion dollars over the next decade. And so, yeah, we have some lofty goals and ideas.

1:19:01But what we would love to see is every donor advised... First of all, I'd love to see every financial services company offer a donor advice fund. We rolled out an API. All the traditional firms have donor advice funds. Very few of the new entrants do, if any. We want to be that donor advice fund for them. We think if every platform offered an account for charity, a tax-advantaged account for charity, and everyone knew about it, then not only would we end up giving more to charity. But here's the real kicker. People would feel better about it. When I talked to people about their giving, a lot of people had this qualm, this ugly kind of pause of reflection when they realized that they believed that people should give money to charity on a regular basis.

1:19:49Different numbers, by the way. No one agrees on how much, but something, not nothing. How many people realized that they weren't meeting their own goals for what they thought a good person would do, that they didn't give enough. And that may not be the same as not saving enough for retirement. That may not be the same as not saving enough for your kids' college education. But it's a very real feeling, a really, I think, an important financial goal. And so by building DAFI, we're hoping that we'll prompt and provoke the entire industry to help people give what they want to give. and in the process actually support millions of amazing organizations who really have teams that wake up every day trying to do good in the world.

1:20:34That's fantastic. Adam, I appreciate you sharing your insights today and spending some time with us. Thank you for joining me. Oh, absolutely. Thank you for having me. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening.

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