Palo Alto Networks’ Nikesh Arora: Why Context Switching is a CEO’s Most Critical Superpower

18:56And now you're suddenly working backwards, creating backward compatibility. So you got to watch out for what the right balance is between sort of, you know.

19:04Brian Halligan:Don't listen too hard. Yeah, you have to adapt to their requirements to some degree. so you can make that stuff work. But you got to be careful about getting full feature knowledge about the future because you take the example. The reason, by the way, this is pertinent to cybersecurity. Cybersecurity founders have this strange affliction. They will start building and they want to go out there and talk to customers as quickly as they can. It's like literally three, six months in, they're talking to their buddy Cecil. They have these customer advisory councils. They bring all these people in, give them some advisory shares.

19:34They ask them, what do you think? Now, typically people who have their free time are large enterprise C-sourts or CIOs. So they'll hang out with you. They'll come to your offside. They'll give you advice. Large infrastructure people don't want UI. They want speeds and feeds. So typically they point the founders towards speeds and feeds. Founders feel very happy. Oh, my God. I'm building speed and feeds. And look, this bank is using me because the bank's got 15 ,000 engineers. They want speeds and feeds because you found some threat factor. And they'll take the speed and feed and put it in their system.

20:03The problem is that's not a product. That's not a product an enterprise can deploy or work with or use effectively. So many founders get trapped in this idea that I should get customers as fast as I can. I should ask them what they want. I think it's worthwhile. The best founders should actually spend some time, build a product based on their own vision, show an end-to-end point of view, and solve a real problem.

20:23Brian Halligan:That was the case with HubSpot. We built stuff that, first of all, investors thought we were stupid. The VCs didn't. I'm sure they love you now because you did a great outcome for them. We did our Series A. It's easier to change their mind. Customer is a little harder. Yes. We did our Series A. It was five on a six pre. Giveaway a lot of the company on Series A. That sounds like an angel check right now. Yeah, totally. As I listen to you and I think about your journey, there's a couple of things I think are great and unusual about you. One is they hired you from the outside, and you weren't a security guy.

21:03Brian Halligan:And you had to figure it out. I wasn't an enterprise CEO either. Right. And so I have a lot of questions along this line, but you figured it out. You're in meetings with the team, and I'm sure in a lot of meetings you didn't know what the hell they were talking about. I still have that sometimes. Right, yes. How do you walk that line? How did you learn? How did you not lose credibility and have them eye roll at you? I think all of that has happened. I'm pretty sure. I'm pretty sure the eye rolling's happened. I'm pretty sure some people left. It's still happening. Well, you know, a little less now.

21:39Yeah. Because, like you said, the stock's done well. The company has done well. So people like to win. And they figured that somewhere in my madness, there is a way to win. So they go with it and give me the benefit of the doubt because it worked out so far. But yes, if it doesn't work for a while, they start wondering what the hell is this guy doing again.

21:53Brian Halligan:Yeah. When you first came in, though, like, you didn't know a lot about it. Like, what was it? Nothing. Let's be clear. You don't have to be polite. I didn't know anything. Okay? I literally thought cybersecurity was two different words. So I didn't know just one word. And I walked in and I'm talking about executive security or whatever. I didn't know what cybersecurity was. And I'm sitting there and talking to our friend Jim Getz or Ashim Channa, who were part of the hiring committee. I think I got hired because he had risk-taking venture capitalists on the nomination committee, which is a good lesson, by the way, for companies.

22:22They should have some people who have a higher risk appetite in their non-gov committees to hire people. Because otherwise you fall into the trap of very traditional people who are checking boxes to hire people.

22:33Brian Halligan:I violently agree with that. Yes, I think so. That's kind of an interesting, you know, and of course. And generally, non-gov people are not risk-seeking types of people. Boards are not, right? They're not. Public company board, you're getting paid nothing, right? You have zero appetite to take risk. You can only get into trouble for making a bad decision. You don't get rewarded for making a good decision. So what do you do? you risk manage. And risk management, the most risk managed portfolio is the S &P 500. It gives you market returns. So your risk management hiring, you end up with market returns.

23:03Brian Halligan:That's a good outcome. We have a section in our board meeting once a year. It's the ERM, Enterprise Risk Management. Yes. And my co-founder made a joke. He said, those are your three least favorite words in the English language. I think we have one of those too. Yeah. You didn't know what you were doing. You joined. I mean, what the hell were you doing? First of all, why did you take the gig? You know, I was home for a year and a half. And you'd be surprised. Not many people want a CEO from the outside for a substantive business. Usually they're very broken. And you sit there and say, why would anybody touch this job?

23:41Because you don't want those. Or they have currently, in the current tech environment, usually there's a founder who doesn't like doing certain parts of the job and they want to hire someone to do that part of the job. but they still want to be around and run the company. I've been there, done that, tick the box. And then sometimes you find these gems which are fully public, there's no controlling shareholder, the founder has never been CEO, doesn't want to be CEO, he wants to be a technologist. And it's a well-run company, recently run company. Mark McLaughlin, my predecessor, was an amazing guy.

24:09He built this on a very high integrity culture. So you had something great to work with from sort of the bones of it. And then you're in a market, which is going to be amazing because cybersecurity is a market which is going to keep growing. As tech keeps growing, cybersecurity is going to keep growing. And then the icing on the cake is like, it's got one and a half percent market share, which means this is an industry ripe to consolidate in some way, shape, or form. Why can't there be a 10 or 20 % share player in this space, which is traditional for most tech? That was my thesis walking in. So I actually didn't study cybersecurity to understand Palo Alto.

24:44I sat there and say, how do enterprise companies work? If you do enterprise math, it kind of falls into two very simple places, right? So any founder is thinking about scaling their company has to think about two different scenarios. One scenario is it works in the, I call it product-led growth model, where you build a great product, people adopt it, your cost of sales are de minimis, whether the Atlassian is the world or the Adobe one part of their business, so the Dropbox is the world, there's that. And they usually struggle to do the larger enterprise deals because the product's not designed for that as well.

25:17The enterprise guys want way more features, want way more adaptations. So you usually end up doing really well in the packaged software, packaged solution business. And it with some sort of little dials. But your UI is pretty because you want to convince customers you're almost like a consumer company in a product-led world. That's kind of one part of the business. That's good because if you look at the other side, I have very simple maths. So I'm like looking and saying, look, if you look at the enterprise business, sub-billion dollars,

25:43Brian Halligan:your cost of sales, marketing, and support is 60 % to 80%. Yeah, it's huge. That's what it is. The rest of it is only 20 % to 30%. And even at scale, that goes down to 18 % to 25%. So there's not much spread there. All the profit is made in optimizing that 80%. How do you do that without crushing growth? That's a good question. Thank you. You don't crush growth. You need to be of a certain size and scale. So the first thing I did, amongst many things, is I took our operating margin down from 20 % plus percent to 17%. I actually invested 500 basis points more into growth. So we're not investing enough.

26:22So that coupled with no knowledge of cybersecurity really made people's eyes roll. It's like, oh shit, this guy just walked in and wants to hire more engineers, buy more companies, use up the company's cash and reduce their operating margin. That sounds great.

26:35Brian Halligan:Yeah. Okay. Really popular. Very popular. And then I walk in, I literally just walk in the company and say, what am I doing here? To your point. The first six months I didn't - Did you feel that way? I did. Yeah. I walked in. But remember, I'll tell you a different story. So this was taught to me by a fund manager. My first job in the United States, well, my first job which I loved was I was a buy-side analyst. And I walked in and my job was to analyze stocks and stand in front of very opinionated portfolio managers and tell them why to buy the stock. Yep. And it didn't really matter. I mean, come on.

27:09You're reading about the stock. There was no chat GPT to summarize stuff for me. there was no Google search then. You had to go read a bunch of financial reports, put it together, do a spreadsheet, put a model together and tweak some numbers and say, I think we should buy this talk. And you have to do that based on some speeches of the CEO and CFO had made or you'd met them once for half an hour. That's kind of like pretty out there to go do that stuff. Anyway, we did that. The problem was two weeks later, they would do something different than your thesis. Now you had a choice. You could change your opinion based on that and get buffeted by that and go to the portfolio and say, hey, I was wrong.

27:42I changed my opinion. and then two weeks later do something else. Or you could have to deal with all the uncertainty inside and still maintain your thesis in some way, shape, or form. So you had to decide what a long-term thesis was and deal with the uncertainty amongst yourself without making it visible. That's what I learned when I was way younger than today. I said, it's kind of like walking into politics. I felt the same way. I said, I had to keep my insecurities inside me. I had to keep my convictions inside me. So be like a duck, you know, like be serene on top but paddle furiously underneath and try and get my shit together.

28:11which is what I was trying to do. And I used to call Nir Zook, our founder, either in the morning or in the evening on my way to or from work. And I used to call Lee Kladic, the chief product officer, the other time. And I'd spend half an hour, 45 minutes asking them all kinds of questions. And then I'd call Mark McLaughlin sometimes because he was still available as an advisor, a board member. I'd call Ashim, I'd call Jim. I'd be calling these people all the time. I don't know how many phone calls I've ever made. I saw 300 plus cybersecurity startups in the first six months I was there. Because I was just trying to learn, absorb.

28:39So that allowed me to start building a mental framework as to how this thing should work. But I knew we were subscale, less than$2 billion in revenue with SBC north of 15%. We were not set up as a good long-term public company. And watching the half cycle of a cybersecurity company is 10 years. In 20 years, they're gone. So we're already past our halfway mark. So I'm like, oh my God, this is a known formula. You take a look at the semantics, the McAfee's of the world, there's a whole bunch of carcasses in enterprise which didn't cross the 10, 15 billion dollar Rubicon of market cap. So we got to go get past that.

29:17The only way to get past that is to grow our way out of our space in the market. We were one of seven companies below 20 billion dollars, above 10. We got to get past this 20, 30, 40 billion mark because the only way to get there is through revenue growth. Once you get revenue growth, then you can start worrying about optimizing your sales and marketing costs because then you can see how to. So my only focus when I started buying stuff was, listen, when you walk into a customer and you have an expensive salesperson, most expensive resource, and they walk and say, hey, would you like a firewall?

29:44I said, I just bought one. I was like, oh shit, I can't go back for seven years to this guy.

29:47Brian Halligan:Totally. So your conversion rate is very low. If I say you don't want a firewall, you want endpoint security. If you don't want that, you want some cloud security. You don't want that, you want some SD-WAN. I got something to sell you. Yeah. It's just, it's higher conversion. Amortizes my salespeople a lot easier. So that was a very simple insight I walked in with saying, if I can sell more stuff to the same customer. There's a higher probability I can get through my operating margin dilemma. Back to you. Yes. It sounded like you have a little, or at least had, imposter syndrome and you hit it pretty well.

30:16Brian Halligan:I have it. I have it right now, actually. I'm a little bit nervous interviewing you. Oh, you shouldn't be nervous. We all have the fear of what we don't know and fear of making a wrong choice. There's a balance. There are some people you can show your willingness to adapt or uncertainty, which depends on how you want to call it, or the respect for their superior knowledge. And then you have to hold it off from the others. So with Nir and Lee, I was very comfortable talking to them, or Mark, I was very comfortable talking to them about what I was learning because they needed to understand. They were aware of it.

30:53And by the way, they knew. When I interviewed the first time, when they offered me the job, I said, actually, I want another set of interviews. They're like, what? I said, I want to go back and talk to Nir and Lee and Mark. So actually, when the job was offered to me, I said, hold the offer. I'm going to go back to talk to them. Because the last time they were interviewing me, this time I want to interview them. So I went back and I said, listen, guys, you do understand what you're signing up for. I do not understand cybersecurity. You get it? They're like, yes, we get it. We have 5 ,000 people who do.

31:20And we're still trying to make sense of it. I said, OK, that's good. One. I said, two, remember, this is going to be one company. It's not going to be one sales company and one product company. So I'm not coming to fix sales. I'm trying to run the company. So I literally had Lee and Nir commit to the fact that they were signing up for the unknown entity known as Nikesh, who didn't know anything about cybersecurity. And they'd guide me and work with me for me to get to a place where we're going to make this work. So I was very comfortable sharing with them what I was learning, what I didn't know.

31:48And that kind of gave me some comfort and courage. But you can still walk into meetings where you have a distinguished engineer sitting there saying, who is this guy? Why did he show up here? And why does he get the big bucks to go tell me what to do?

31:58Brian Halligan:You showed it to a small circle, but to the company, you didn't show that imposter syndrome. No. You showed a face of somewhat confident. I was learning. Look, I joined in April, September. We did an analyst. We brought out our targets. We were going to do a billion dollars of next generation security, ARR, which we didn't have a next generation product. We didn't have anything. Salespeople were going to build a billion dollar ARR business in three years. We built a larger than billion dollar business in three years. So sometimes, you know, I think, look, my rule is very simple. I did this before.

32:28I used to work at T-Mobile. I took a job at Google. I took a pay cut. And I didn't know how to sell advertising. I didn't know how advertising was sold. I ran Google Europe. We all sold advertising. I had to figure it out. And my view for everyone who's listening, every CEO or founder, is in the early part, swing big.

32:46Brian Halligan:Swing big. You fail big. If you're a new CEO. Why not? Swing as hard as you can, right? Take three things. Who cares? At the end of the day, if it works out, it's going to work out spectacularly. If it doesn't work out, pack your bags and move. Okay, let me ask it related. I have like a million more questions. But related to that, when we would hire people at HubSpot, and we had this thesis like give them a lot of time, let them interview and slowly come up to speed. But actually the current CEO of HubSpot joined like the week before COVID and she got thrown into it and she did great. What is your sort of philosophy on that kind of thing?

33:18Brian Halligan:Like you got thrown in and you went after it. You've got an amazing exec team there. You bring someone in from the outside, kind of slow roll them or you throw them in the fire? Look, it's very hard to fly a plane by sitting next to the person flying the plane. Yeah. So if you are going to fly the plane, if you're competent, you know how to fly it, you got to go sit in the pilot seat. So you can't slow roll a CEO into the role. Now, look, when I took the job at Google, for three months, I didn't... Decide anything. I just said, you guys keep doing what you're doing. Look, most companies will run for two, three months without interfering, anyone interfering.

33:55The biggest decision I had to make when I walked in was, oh my God, it's performance season. We have this money left under our equity budget. We like to give it like an idiot. I said, sure, go right ahead. And then I had to go fight SBC after. So I had to pay for my bad decisions. But the point is, I didn't have to make any important decisions for the first three months. Things were working. People want to do their jobs. And it ran in a very non-interfering way. So I think most companies should be able to run three to six months on autopilot within reason. But after three to six months, the lack of strong decision-making in those periods starts to show up.

34:29You start to have an impact. So hopefully your predecessors set it up in a way that is still rolling on good decisions that were made before. Now you've got to go jump in and see which decisions do I need to make. So I think there is some time that people can take to figure stuff out.

34:42Brian Halligan:Just kind of back on you personally. You strike me as, I don't know you super well, but you strike me as being very calm. And you don't seem stressed out. and I coach tons of CEOs. They're like, oh, Sequoia's CEOs. They're stressed. Stress for what? They're just stressed, like existential levels of stress. Like, am I correct? You strike me as a pretty cool customer. My work doesn't stress me. Has it ever or did it at the beginning and now you kind of got your legs under you? No, my work's not stressed me. And, you know, even my wife wonders, where do you get the conviction from? Where do you get it?

35:23I had no belief in myself. Where did that come from? Maybe growing up. Mom, dad? It's kind of like I was that kid. I was that kid who'd get home on time, get my homework done, not worry about my parents telling me to do it, make my bed, be the good kid, and get shit done. It's kind of like, in a way, sometimes your parents actively encourage you. Sometimes they don't interfere, and they let you do your thing because you believe, but you know they have your back. So I think knowing that somebody has my back and I'm well protected, well covered is usually what's made me do better. And at Palo Alto, the best part is I have an amazing board and I know my board has my back.

36:06And I think that's kind of important in any management lesson, whether it's a board, whether it's a CEO or their colleagues or whether it's whoever, you're a manager, your people need to know you have their back. Because if it's kind of like, think about it, Like if you're hanging out of a plane and, you know, if you're like doing something and somebody else is holding a rope, you got to believe this person is going to pull me back in when things get rough. If I trust that person is going to pull me back in and protect me, I will go flail and do whatever I need to do. So I've always felt that when somebody's had my back, I can do well.

36:37What's the worst that could happen?

36:39Brian Halligan:Got it. You're kind of, a lot of your career, you're running sales organizations. Funny enough. Or go to market orgs. Well, let's see. I was an analyst. You ran Google Europe. that was sort of go to market. Yeah, but it's kind of interesting. I did run Google Europe. Yeah. But when I inherited Google Europe, we were 20 % of the company's revenue. Yeah. When I left, we were the largest business of Google, which is very rare for an American company to have a larger European business than a US business. Yeah. So I had to come back here and increase the growth rate here in the US. But you don't do that by being just a go to market person.

37:16You have to run a cross-functional play because it's kind of like if marketing is not doing well, it's impacting my business. How do I get marketing? So I was the only go-to-market guy at Google who marketing reported to ever. Before me, marketing reported directly to my boss. And after me, marketing reported to the CEO. When I was at Google, both marketing and sales reported to me. So you have to be able to run a cross-functional playbook if you want to be successful.

37:41Brian Halligan:Okay, but I guess my question to you is, like I look across the industry. there's not a lot of kind of people who grew up and go to market as CEOs. I don't know if I'm going up yet, but let's go back. I started my life. Penny Hoff, Bill McDermott at ServiceNow. I kind of throw you-ish in that bucket. There's very few. Why do you think that is? Yeah, but see, I don't see myself as a go-to-market person. I can do go-to-market. I'm not a go-to-market person. Okay. I am. You're an athlete. I spend 50 % of my time in product. But you grew up running big go-to-market orgs. You did a lot of stuff. I did all kinds of stuff.

38:26I was an analyst. I was a chief marketing officer. I was a product guy at T-Mobile. I did IT. I wrote code when I started Fidelity.

38:35Brian Halligan:So I kind of like did a whole bunch of things badly. And then eventually they decided I wasn't good at one thing. I got to do everything. I'm a VP at XYZ company right now. Yes. And I want to be CEO of a scale company. I don't want to found a company. What advice do you have for me? Get lucky. I think I'm luckier than good in some of these scenarios. But on a more serious note, in Silicon Valley, most companies which lose sight of a product focus over time die. So that's why I'm fighting you and characterizing me as a go-to-market person because I don't see myself as a go-to-market person versus other people who have named.

39:17A lot of respect for Bill and Mark. They're probably the two of the best sort of sales leaders in the world for the enterprise business. But I'm not them. I'm not as good as them at doing what they do. But I think I balance product and go-to-market well enough that allows us to run as a cohesive company. I build product half the time. The acquisitions are done by me and a bunch of people. I don't have an acquisitions team. It's me. I sit down with the CEOs. I look at the tech. I look at all the tech. I see. but this is something I learned at Google Larry Page had a very clear view companies that don't focus on product lose sight of product and like you know the best compliment the worst sort of compliment Larry ever gave me says oh no company in tech failed because of sales so you're running sales I don't have two hours if I had two hours I could make you do your job better but I have to go focus on product because that's why companies fail so he just told me to go away I think it was a compliment I think he meant I'm doing my job well but he did say that Bill Campbell and Eric Schmidt told me do your job well so go do what you're doing and don't waste my time because I'm focusing on product but he kind of told me to go away and I believe what he said like if you don't make sure you're you're obsessive paranoid about your product you're going to fail in the medium term and you get complacent and look I've been there for seven years I'm still chomping at the bit I'm still looking at companies I'm still meeting I'm at three today just to understand what they're working on what's interesting I go back and process in my head, is that going to be big?

40:40Is that interesting? Is that a feature? Is that a platform of the future? Is that going to be big? And it's kind of interesting. There are many examples out there, even in cybersecurity, which people have generated billions of dollars of private valuations. We've gone back to nothing in some cases. I think there's a few out there, but I'm constantly evaluating them, trying to analyze, will they get there? Will they not be able to get there? And I think I have a reasonably good hit rate in my brain in terms of what works, what doesn't work.

41:05Brian Halligan:Just back to my question. I'm an up and comer oh okay you want to go talk about the VP and I need some advice from you know I'm a founder I'm a little different animal than you but let's say I'm an up and comer and I want to be you like what do you do okay you're 30 yeah well you have to have product savvy if you don't understand product in your industry or product in where you want to be it's going to be hard in Silicon Valley right you don't need to understand product you have to be able to sell. At the end of the day, even my head of product sells. Because you're trying to solve a customer's problem, you can have great product vision, you can do a whole bunch of stuff.

41:45But if you're not able to sell, you don't need it. So there's a combination of being able to sell and being able to build product. I think if you're in any other function in a tech company, we shouldn't make you CEO. We shouldn't make the finance guy the CEO. We shouldn't make the marketing guy the CEO. or gal. We just have to make sure you have your deep technologists and you can go innovate your way out of everything and we're going to be, people are going to be buying us whether they like us or not because we have the best innovation on the planet.

42:15Brian Halligan:Yeah. Or you're able to balance that innovation with good UI as in you're a good person you can sell as well. Yes. And that's, I think that's the magic formula. Okay. You brought up Larry. You've worked for some interesting people. Yes. You worked for Larry. You worked for Eric. Yes. You worked for Masa. Yep. Sergey Brin. Yep. What have you taken from them? Is there a common thread that we can share? The common thread is all of them to some degree have had high standard deviation. Okay. What do you mean by that? What I mean by that is that they're not your run of the bill down the middle people.

42:56They always have some things that they're so focused and so good at that they ignore the other part. They're obsessive. obsessive where they have focus on one thing, which then they can ignore the other thing, not worry about it, and somebody else takes care of it. And Larry was very obsessed about product and innovation. And like, literally, you talk to him, you'd be going in there showing him a sales plan. He wants to talk about, you know, tunnels that we can run on 101 to reduce traffic. Or we were flying to Spain once, and he literally came up with the idea of Google Maps on the plane saying, oh, you know, how many miles of roads are there in the United States?

43:26Maybe instead of trying to get cartographic maps and being held to ransom by, the mapping authorities of countries. We'll just go write our own cars around the streets. We'll cover them. When he was doing the math, how many cars, how many drivers he needed, or how many cameras did we need to buy to go take a photocopy of every book in every library in the world? How about Eric? Eric, I think, was spectacular for Google. I think what he did, being able to get the best out of founders and put some structure around them. Eric was the best interface between two young founders who had never run a company with people who were used to structure and used to companies.

44:04And he was the best kind of foil interface, encourager, mentor, because Eric was very true to what the founders wanted. He always found a way of exposing and capturing and encapsulating what they wanted and translating to the rest of the organization. So he was amazing at, I think he's the one reason, one of the many reasons why Google went from being that small sort of search white paper to being effectively what is now a multi-trillion dollar company. I think his incubating it was amazing. And his ability to sort of take himself out of the equation in a self-effacing way, even then he has opinions and he would find a way of sort of couching his opinions in a way that it would feel like the founder's idea.

44:49So he did a really good job, I think, of translating their wishes and being able to get what they wanted at the same time.

44:55Brian Halligan:Have you taken a lot from him in Palo Alto? I think so. Look, we all absorb certain behaviors from different people. It sounds like you've absorbed a bunch of him. Him, Larry, Masa. Tell me about Masa. What did you take from him? What can we all learn from Masa? Look, I told you we should hit hard and hit big in the first. Early, yes. Early. There's no earlier than he's hitting big every day. Right? I said that before. Or we bring up our kids and we teach them, we risk manage our kids. Our kids grow up saying, don't cross the street, be careful, look right, don't jump in the pool without a floaty.

45:30We're literally constantly risk managing our children until they grow up. It's like, oh, good. My kid's a good kid. He comes home and does homework like me and doesn't get into trouble. That's risk management. Masa does not do that. Masa's the opposite. Masa says, okay, we can borrow more money. Okay, let's go double down on this asset. Don't worry about this one. Let's go do this one. And he's like a kid in a candy store. He will go bet big every day, and that's kind of how he operates. So his risk appetite is fundamentally different than anybody else I've met in my life. And that's kind of like that kid who falls and stands up every time, takes another punch in the face because he knows one of these punches is going to land, not land, he's going to win.

46:08Brian Halligan:My Mount Rushmore of CEOs are Steve Jobs, my dad, and Jerry Garcia. Who do you follow? Do you follow? I think we're similar ages. is like Steve Jobs was kind of the guy. The younger generation seems to follow Elon. Is there someone now you're learning from or watching? It's kind of like this. This is an interesting question. I struggle to encapsulate everything I want to learn into one person. And I think if you look at some of the great CEOs out there, each of them has some amazing set of attributes you can try to look at and say, oh my God, this person's crazy. I mean, look at Elon. Like, you know, he's the most innovative person in the world.

46:50Now, there are certain things I wouldn't want to sort of take from him. But his ability to think out of the box, his ability to think big, his ability to go solve a really hard problem. And he's proving that, look, you solve a really hard problem. You go at it for five, seven, eight years. You find the resources. Everybody else is eight years behind. The question is, can you capitalize on that and monetize that? Look at whether it's a car or whether it's Starlink, whether it's Neuralink. I don't know. I saw a company yesterday that he's launched. It's called Macro Heart. I don't quite know what it does.

47:17So his ability to just think so far ahead and try and go after meaty, big problems, very fundamentally different than half the founders show up saying, I've got an app which optimizes your sales flow. Dude, how many more of those do I need? So I think watching him think about trying to be a true entrepreneur, I think is bar none. You just named Bill McDermott and Mark Pennyhouse. I think they're the two best enterprise sales evangelists in the world. I mean, you can learn from them because they know how to go take something, turn to a platform, how to work the system, how to build go-to-market, how to lead their teams to greatness, right?

47:50I mean, look at the other side. There are some amazing founders. I was with Ali Goetzi last week. I think he's amazing. He's doing a phenomenal job at Databricks. He's hard-nosed. He knows what he wants. He's gunning it out, and he's building something that's going to work. Look at Sam Altman. Nobody in their right mind can imagine what he's up to, right? Like, two and a half years ago, he just launched at GPT. Today, we've got$100 billion. I mean, these are big deals by any imagination. And you do three in a row in a span of four weeks or six weeks. There's people out there doing big, gutsy, meaningful, meaty stuff.

48:22Some of this still remains to be seen where it's going to land. But it's just... Is there a common thread? Appetite for risk.

48:30Brian Halligan:They're all very different was when you went through them. Like, they're all very different. They're all very different. I think that's the beauty of it. Be yourself. Everyone else is taken. you know it's kind of like you're very right in the way you say that if you're not yourself the risk is you're going to do a shitty job of trying to be somebody else so you might as well keep doing a good job of being yourself and if that works out it's good when i was ceo of hubspot i had this ratio of the average hubspot employee was x and i didn't want to be more than 30x off why was i wrong about that 30x of what the average so if the average hubspotter was making and I'm 100 ,000 bucks, I didn't want to be more than 30X.

49:13Brian Halligan:You're one of the best paid CEOs in history. Tell me your philosophy on pay. Well, actually, funny you should, and I've never talked about this publicly, but I didn't set out to be that. When I met the board of Palo Alto, I said, listen, you pay your CEO 20 million bucks a year. I plan to be here for seven years. Just give me seven years worth of stock now. And you can take it away if I leave sooner at any point in time. That's the only thing I said. It was a seven-year best. Yeah, it was a seven-year best. I see. And it's$20 million here, which is what they paid Mark. So I didn't ask for any more than what they were paying Mark.

49:49I did add a twist. I said, listen, I don't need money. I want to do it all on options. They got cold feet. They gave me half an option. Those half options turned out into a tremendous amount of money because of the fact the stock moved up six times. But I set out to be exactly what they were paying somebody else relative to the benchmarks in the market.

50:06Brian Halligan:That's how you did it. You're advising a CEO today. How should they think about comp? Should they be doing it like Elon? You really pay a lot for great performance. You don't pay that much for mediocre performance. Should you be heavy on ISOs versus non-QALs versus PSUs? Should you have long vests, short vests? You're advising a board. The balanced approach is that you have to have enough on the table that the CEO or the employee, for that matter, doesn't feel like they can leave and go if things don't work out. You want enough skin in the game that even in a reasonable scenario, I'm going to make a reasonable amount of money so I don't feel I need to go somewhere else.

50:55At the same time, there should be adequate reward for hitting a home run. I think that's the balance boards need to strike. There are lots of models out there in terms of how it's done. There's a combination of RSUs and PSUs that people do. There are three-year rests people do. There are cumulative vests. There are stock prices. There's many different tools in the toolkit to make it happen. I think that's not kind of where it actually matters. Okay. I think where it matters is, and I've seen this many times because obviously my packages are public and I have had many CEOs call and say, how do you structure this?

51:31the CEOs actually have to have a conviction of what they believe the business is capable of. Elon just didn't go ask for a package. He actually said, I believe I can do this to the business. He actually achieved that, and then he got into trouble because it wasn't fully done the right way. But he had a conviction. Many of the people who have taken packages like Elon haven't fared as well because they didn't get there. So you have to have a very reasonable sense of scenario planning. How can my business get there? I can tell you how Palo Alto can go from now what is a$140 billion company to half a trillion dollar company in 10 years if certain things work out right.

52:05I have a view as to how to get there. I know the math to get there. And the question, can I execute to the math? If you have a math, you can execute to the math, you'll get there. But I've seen CEOs who say, oh, my math is because I'm a thinly traded stock at 5%. I just went public. I think I can triple the frame ever. Well, but that thing can go down as quickly as it goes up and it's fully 100 % public. Go do the math. So I think many people don't do the math of what the feasible set of outcomes is and what the probability associated with that is. Once you do the math, understand the probabilities, then you can go take whatever package you want.

52:35Brian Halligan:I think the thing that's broken out of it is like most public companies, they look at your comps. Yes. Similar market size companies. And then every couple of companies says, we're going to the comps and we're going to pay you at the 75th percentile. Yes. And. But after five years, the 75th percentile has moved up because everybody's now, that's 50th percentile. Absolutely. Don't tell everybody that. Yes. Okay. Last question. Yes, sir. You've got a very, I don't know you well, but my sense from talking to Jim and others, you have a very vibrant, interesting life outside the spreadsheet. And I'm just going to rattle a few things off that I know about, and I know there's a lot more.

53:11Brian Halligan:You purchased a cricket team. You won the Amex Pro-Am golf tournament pretty recently. Blind squirrel theory. Blinds and acorns. Yep. you married what seems like an amazing woman from an amazing family had an amazing wedding ceremony yes and it kind of goes on and on most of the ceos i work with they're pretty obsessed with work and don't really have much of a vibrant life outside particularly now like it seems like people are kind of following the elon playbook and the 996 playbook tell me about your life and how you think about it. Give me some advice. Oh, look, when I turned 40, I invited 40 of my friends for my 40th birthday.

53:59I took them away and we had a great time. How old are you now? I'm 57. It's public, so it's no harm talking about it.

54:05Brian Halligan:I'm the same. Okay. So, and I actually spoke about every one of the 40 people who were there at my 40th birthday. And I found that amazing. and I said, I hope I can do that when I'm 50 and I can do that when I'm 60. And it's kind of like, you can't do that if you don't invest in them. So I like to invest in my friendships. I spend time with my friends. I check on them. They check on me. They know I'm there for them. So that takes up a reasonable part of my life. I have three amazing kids, making sure they get my attention, my wife's attention. I met one of your kids at the airport. Yes, you did.

54:41You did. Yes, you did. And I have two others you have met, but all three of them are amazing and I want to be able to spend time with them. I also promise myself, I try, I try, I can't say I'm 100 % on this. I try not to do dinners. I don't do work dinners, which is hard because a lot of people want to do work dinners. But sitting and talking business after having worked the whole day is not my cup of tea. Now, once in a while, I have to do them. I was, last night, I went and spoke to 12 CEOs over at my wife's restaurant. So I had to go do that, but I asked her to come join me afterwards at dinner with her.

55:13So I always try and find a way. And by the way, this is not just there. At Google, it was a rule. And if you were to Google, in marketing, every event for customers would have to have with spouses so I could bring my spouse to dinner. Okay. So I find a way of making sure I'm not without my family at dinners. I try to do that. I kind of have a rule that I try not to work weekends, which is hard, which I still do about two, three hours a weekend. but I want to work my 60 hours between seven to six.

55:43Brian Halligan:Is it about 60 hours you figure you're working? I think so. I think so. Now my wife will tell you that probably my brain works way longer than that, 60 hours. And she always sort of questions me why I joined two different boards in addition to follow-up. So I'm on the board of Uber and Richemont. But it keeps me intellectually honest. I see other businesses. What's your day like? So tell me about today. What time did you get up? I woke up at 5.30. Why? I go to the gym at six. I watch CNBC for a little bit. Okay. I unwind. CNBC doesn't unwind me. Well, I watch it to see what's going on in the world so I can kind of keep track of what's going on.

56:21But I usually go to the gym. I'll go and work myself for five or six minutes. I'll do a little bit of weights. I'll do a little bit of stretching. I'll get myself stretched, team, et cetera. Work my way back to my kids at seven. They wake up at around seven. They're young. I'm going to chat with them a little bit.

56:37Brian Halligan:Yeah. Then I came to work at 8.30. Okay. And I talked to three different customers. I talked to two startups. In the day, is it you booked every half hour? You have big openings? You have time to think? I usually am booked every half hour. Sometimes it's an hour. I usually have a half an hour gap here or there. Do you get exhausted during the day ever? Or are you just up? I can power through the day. Look, my superpower is context switching and being able to focus for half an hour. I think that's a key thing. Yes. I'm the best consumer of slides or PowerPoint that you can find. I can absorb 20 in under a minute and tell you what the problem is.

57:14Brian Halligan:Oh, that's a... It's pattern recognition. That's a superpower. It's pattern recognition, yes. Lots of inputs coming into you, like millions of frigging emails and slacks and texts and phone calls and requests for your time. How do you manage just the hurricane of chaos? The good news is, unless it's a customer email, you can ignore it. Okay. Unless somebody really needs something You can ignore most of them. Half the inbox is full of junk. Probably 10%, 20 % is people telling me what's going on, and I'll read through them, and I'll get the gist of it. If it's a customer, I'll respond. I did learn a trick, which I do in my personal inbox, because my personal email is a lot less noise in them.

57:58Every time I've actioned an email or I don't need it, I will either archive it or delete it or file it. so my personal inbox is always less than 100 emails

58:06Brian Halligan:your inbox zero-ish 100 emails is pretty good and usually I'll go review it once in a while and some of them will go in I'll action them because that I keep pretty well managed and the work one I do it right then if I don't regret then there's a risk that it slips what advice do you have to the founders who are really committed to 996 and their teams on 996 what is 996? 996 is they require of themselves it's like a new Porsche or something No, no, no. They require everyone to work 9 a.m. to 9 p.m. six days a week in the office. That's kind of in fashion with the startups now. And it's most of them.

58:43Yeah, I think there is tremendous amounts of impatience out there because people somehow believe that every minute that they're not trying to further their objective, they're going to not win. And I think that's a fallacy. I think some amazing businesses have been built because their idea was so different. I don't think people have out-competed Starlink, even if they weren't working nice, even though Elon does for the most part, because he's trying to get somebody. He's got six different companies to manage. But I just think working smarter might be better in balance than working out. You run the risk of burning out.

59:17You run the risk of burning people out. Yeah. I don't see the value of 996.

59:22Brian Halligan:I appreciate you coming on the pod. You're kind of the renaissance CEO. I just came back from Florence, and you're kind of a renaissance man CEO. I appreciate you coming on. Thank you for having me. I appreciate it. Thank you very much. Okay. Hopefully you liked that episode when the cash is terrific. And you probably noticed we talked a lot about M &A. It was a little self-serving because HubSpot's done a bunch of M &A and I wanted to learn from him. He's done a ton of it and it's largely worked. But what I wanted to do for you guys is to kind of turn it around and use what he said as like, what would I do as a founder thinking about selling my company or getting interest in selling my company?

59:59Brian Halligan:How might I think about that? And how might I negotiate with someone, for example, like Nikesh? Now, first, there are several reasons you might consider selling. One is if you've got a big platform player like Palo Alto or Salesforce or whoever it would be, and they come knocking and you pass on them, there's a decent chance they buy your competitor. And if they don't do that, there's a decent chance they build it themselves. It can take them a while, but that big platform player could be hard to deal with down the road. and you know one of my things is either either you become a platform or you get eaten by a platform and that could easily happen to you and so don't underestimate that the other thing he said on the call that was interesting is if a sales rep selling his product and it's a platform there's 10 different products on top of that platform that 11th product yours palo alto doesn't need to be out innovate you doesn't need to be beyond you in terms of features and functions it needs to be at table stakes and the buyer will want to continue to buy from that platform vendor.

1:01:00Brian Halligan:And so don't underestimate if you pass on it, the trouble that could come down the road. The second obvious reason is you make a ton of money. It's sell the company. And if you're young, you can put that money to work and start another company. I'm old. And the third really nice thing about selling your company is you get massive distribution for your venture. You invented this amazing thing. You're working on distribution, You're probably not enjoying that. And you can get huge distribution from the platform better. And that certainly happens with Palo Alto. So those are kind of the reasons to do it.

1:01:33Brian Halligan:So let's say you're thinking about doing it. I think a mistake a lot of founders make is they overthink the headline number. Like we got bought for$5 billion, whatever the number is. And if you look at it from Nikesh's side, there's other things you can negotiate other than the headline price. So let's dig into if I were negotiating with somebody to get acquired, some of the things I might want to do. First thing he said that was interesting is typically when they buy a co-founding team, one wants to stick around and the other doesn't. And I found kind of the same thing when we acquire companies inside of HubSpot.

1:02:08Brian Halligan:So maybe one thing you negotiate is there's one comp plan for you if you want to stick around and one comp plan for your co-founder, one vesting schedule for that one that wants to get out. No matter where you are on that, I think you want different terms. That might be one you want to work on. The other thing he said that's kind of interesting is when he buys a company, he typically rolls back some of your shares and gives you a three-year vest on them, which is a little harsh, but everyone kind of does it. But what he said on top of that was he typically sticks a bunch of new options on top of you from Palo Alto Network up to 30%.

1:02:43Brian Halligan:So that's definitely something you can negotiate. He also said it's very hard to give massive grants to somebody during the normal board cycle. This is the time he can kind of get away with it. So you might think about that if you're getting acquired. You also want to think about the position. Like most companies, when they acquire you, you get knocked a few levels down in that org chart. I like the way he thought about it. Like, hey, we were trying to get into this space. You guys were crushing us. We're going to put you on top of our team. You might try and negotiate that, I think would be a very nice thing to do.

1:03:17Brian Halligan:And the last thing you said that was brilliant that I want to start doing in HubSpot is during the diligence process, you basically envision what the roadmap will look together. So there's no big surprises. But during that, you might come up with some really good ideas that make you more excited about it. Those are some of the tricks. So if the headline number is important, it's good for your ego. But there's a bunch of other important things that you want to negotiate when you're going through the due diligence of someone. Okay, one of the things I really like about Mikesh is he's, unlike I was, he's very focused on work-life balance.

1:03:48Brian Halligan:He works Monday through Friday. He tries to work 60 hours a week. And he doesn't do business dinners. I think that's a pretty good hack. I do a lot of business dinners that I don't need to. I wonder for myself, and I wonder for you, if you took Mikesh's approach, would your company split in two and fall apart? or maybe would the company be better off? Would you give a little room for your brain away from the company and the day-to-day tactics to really think and concentrate? He talked a little bit about luck and I feel like I've been very lucky and I want to wish you the best of luck on your CEO journey and I'll see you on the next edition of The Long Strange Trip.