NVIDIA's Unusual Bets That Made Them The Biggest Company In The World

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0:56Eric Siu:year.

0:59Neil Patel:You cut out during half the thing. So you're saying, would I forgo my whole year's profit to forgo my ideal customer or my core customer? What would you say?

1:10Eric Siu:First of all, I didn't cut out, Neil. You cut out because you have shitty internet because you're at Legoland. So I don't cut out because I'm hardwired in. Let's make that clear. So let me repeat what I said. So imagine your NVIDIA. Your profit is$200 million. a year at the time, okay, at the time,$200 million a year. Now, you are hellbent on this new way of doing things. But this new way of doing doesn't serve your core customers anymore. And it's largely unproven. And by the way, you launched this new thing, you've already invested hundreds of millions of dollars already, it doesn't work for the first year, and investors are calling for your head, right?

1:48Eric Siu:Is that something you would do?

1:49Neil Patel:Well, I don't have investors. And the reason that they probably did it is because they believe whatever that new thing was, was a future. And a lot of the existing stuff may not be around for a long time. In essence, they pivoted. And sometimes you have to make those hard choices. Another example of this is Intercom. Intercom was doing okay. They weren't doing amazing. They weren't, you know, declining like crazy or anything like that. But let's just say, I don't know the revenue numbers, but let's just say somewhat struggling as a startup and they raise a lot of money. They created a fin, pivoted, tried this whole new product, focus all their energy on it.

2:26Neil Patel:And then they sold to Salesforce for, I believe, was it three point something billion dollars? Ended up paying off. Yeah. And there's a lot of examples of it working out. NVIDIA is a great example because you can see their stock price and their revenue and their EBITDA because it's all public information. And there's also examples of companies that have probably pivoted that we don't hear too much about that haven't done well. you know like you look at Motorola and the Razr they brought it back I don't know who the heck buys the Razr I was at Petco Park for one of their baseball games the Padres versus the Giants the other day they had Razr ads all over I don't know one person that owns one of those flippable Razr phones and I'm not saying that's the same thing as them pivoting but companies try to adapt and change their strategy all the time and sometimes it doesn't work and sometimes it does we remember the great ones.

3:16Neil Patel:We don't remember the failures too much. And the same goes with Apple. I once Googled Apple's list of products that failed. They have so many products that you and I don't remember or can't recall that they thought were great ideas that failed. And I think the question is, is if it doesn't work out, can you keep going because you have enough reserves in the bank or can you revert back? Sometimes you can. And for those businesses that can, good for them. The businesses that can't, it can create a real big issue. And when NVIDIA did this, the example you're giving, if NVIDIA takes one year's worth of profits and reinvest it off, remember, if it doesn't work out, they can always go back to the same old business.

4:01Neil Patel:It doesn't mean the same old business will be the same size. It could have shrunk because they didn't focus on their core customer. But you have a profitable business. You probably have cash in the bank account because it was profitable before. So you have a lot of optionality. And I don't think it's actually that tough of a call when you have that much optionality. I do think it is tougher because they're publicly traded. I think it's really tough when you only have one swing and you're betting the farm on it, right? The NVIDIA example, they were always, or not always, for a long time, they were a very healthy company from a financial aspect.

4:34Eric Siu:That's actually not true. So if you look at the beginning of NVIDIA And even Jensen has said for 15 years.

4:40Neil Patel:No, no, I'm not talking about 20 years ago. I'm talking about the last 10 years before this AI boom. It was a very healthy company financially.

4:46Eric Siu:No, even with that too. So you didn't even let me give the story and you reacted to it. So let me give you the story. Now, there's a couple of examples in the beginning where, by the way, they fulfilled on their – this is in the very beginning, by the way. I'm going to give a couple of stories here. So when you look at, they had a deal with Sega to do the NV2 chips for the Sega Saturn, right? And I actually had one of those devices before. They fulfilled on the initial set, and then they're supposed to do, I think, sorry, it was NV1 for a Sega Saturn, and I think NV2 for the next version. But they didn't have enough money to make the NV2, right?

5:22Eric Siu:So they actually went to Sega, and they're like, hey, can we just give you equity in the company? And you guys are like, can we just keep the money? Because if we need to return the money, we're bankrupt, right? So they gave them the equity there. Now, that was when they were stupid in terms of how they, because they have to make these new chips all the time, but they made an error in that bet on the NV2, right? We'll just leave it at that. And so they've made tons of architecture issues. They had tons of architecture issues with their chips as they continue to grow. Now, leading up to maybe 10 years ago, maybe 15 years ago, actually, Neil, they bet on CUDA, which is this unproven technology.

5:56Eric Siu:Now, what happened here was they originally were catering to gamers, right? Like I used to buy, one of the best customers you can have is a gamer. Why? Because they're addicts, right? They will always be upgrading their devices and things like that. So their core audience is gamers. Like they're upgrading for playing Quake, Doom, and things like that, okay? So what happened was they started to see that scientists were using it for intense calculations for maybe like protein folding and things like that. So they started going that direction. They're like, whoa, maybe this is a novel use case. And then scientists started to use it in different ways.

6:31Eric Siu:And they're like, maybe we should go in this direction. And Jensen started to see more and more people talk about this, talk about machine learning and things like that. right and then that's when he's like oh well if we need if we want to get more people to use this stuff we need to lock him into some type of like our architecture which is cuda so he bet hundreds of millions of dollars not just one year's profit but hundreds of millions of dollars on this thing and then what happened was turns out that nobody was interested in the first year right and then actually for the next two three years after that nobody was really interested it was lukewarm but it took a lot of effort and thank god i think he had the he had the majority like voting shares right?

7:06Eric Siu:They had voting rights. So he can continue to make that bet. But he saw it moving in that direction. A lot of his engineers and architects saw it moving in that direction. So he stayed with that bet. And thank God it worked out for them because that's a situation where it was getting really bad. In fact, he set aside$200 million just for returns. And all of the critics were getting pissed. It's like, this is NVIDIA is about to die. In fact, Dell, which had a deal with NVIDIA, they're like, we're not going to work with you anymore. We're going to work with ATI. And so, but to Jensen's credit, he stuck with it and he had the conviction to stick with it for like four or five plus years.

7:44Neil Patel:So let me just give you some financials so you can see or people can realize where they were at. I'll give you the 15 years versus 10 years ago because 10 years ago, they were much better than 15 years. I could give you the 10 years if you want. In 2011, they did$3.54 billion in revenue and$253 million in profit. it. Totally agree with what you're saying. They can spend more than that. But at that time, they had a surplus cash of$2.49 billion in their bank account. So all I'm getting at is, I totally agree with you. It is a hard bet, but it's different than a startup making a bet when you're at that size and scale, right?

8:23Neil Patel:I totally get it's risky and you got the boulder to deal with and people want your head and stuff like that. Maybe he had voting rights like you're saying. But it's a different situation than you and I betting the farm because he still had two point something billion dollars in cash in the bank account in 2000. Hold on, Neil.

8:39Eric Siu:You said 10 years ago, 15 years ago? I gave you 15, 2011. I can give you 10 years numbers as well. You said 2011, right? Uh-huh. Yeah. So do you know when CUDA came out? I'm basing it on the 15 years that you told me 2007 it was even beyond that all right so let's see 2007 so 2007 created in 2004 and in 2007 nvidia revenue and profit 2007 let's see

9:14Neil Patel:a or use okay uh 2007 303.07 billion in revenue 448 billion and 448 million in profit with$3-ish billion in revenue,$448 million in profit in 2007.

9:28Eric Siu:The thing I'd be interested in diving in on is how was the stock trading for these years? Because I know there's a period of time with CUDA that they're trading sideways almost, and they weren't really growing, right? Versus the years before that, they were crushing it. And so the thing to call out here too, and then we can move on, is when you look at CUDA right here, it was released, okay, officially in 2006, you look at the timeline, public SDK was 2007 or so but cuda was the thing that they bet on that really if we look at it how long did it take to get traction and how did their stock price track with it i'm actually curious around that um yeah i think what i'm really getting at here is a is a conviction thing for the for the audience right it took roughly six to ten years to gain massive conversion uh commercial traction and uh the stock remained relatively uh volatile and effectively flat to negative between late 2006 and late 2012 So six years, bouncing 30 cents and 80 cents, right?

10:23Eric Siu:Investors grew deeply frustrated with the capital drain. So a lot of pressure, but my point is he stuck with it.

10:30Neil Patel:Yes, but also stock price is very different than business economics. And 2005, before CUDA, because you said 2006, 2005, it was$2 billion in revenue,$100 million in net income. 2006,$2.38 billion in revenue and$300 million in net income. So they're still growing, but I get what you mean. You can get ups and downs and volatility and stuff like that as well. Yeah, okay.

10:59Eric Siu:So let's just have this tabled out so people can kind of see this and we can move on here. So 2006,$2.38 billion, right? Net income,$301 million, okay? And then 2007, it goes$3 billion. So it goes up. Revenue keeps going up to Neil's point, right? Let's just look at revenue. 2.38, 3 billion, 4 billion over here. And then in 2009, they started to go negative for two years.

11:23Neil Patel:What's that? Yeah, that was also the financial crisis. That's right. That's right.

11:28Eric Siu:Yep. But look at this over here. If you look at revenue after financial crisis, they're kind of trading sideways, right? And then not as profitable as before. Actually, no. 2012, they become much more profitable. Anyway, the point, guys, here is he had the guts to stick with it. And in a lot of situations, to Neil's point, you hear it's survivorship bias, right? Where you kind of see the survivors. But my point is, look, he's the longest lasting CEO for a reason. Some bets he's going to get right, some he's going to get wrong. And sometimes they made some really bad bets. And it's not always going to work out, but you have to have the speed and the guts to make those decisions.

12:04Eric Siu:Going back to the article that we talked about earlier.

12:10Neil Patel:and i don't know if he has superior voting rights or anything like that uh it's not easy for jensen wong to get voted out based on specialized voting rights so yeah people probably for his head but he's had specialized voting rights which makes it hard

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12:52Neil Patel:All right.

12:54Eric Siu:So I wanted to take a moment to tell you about my podcast co-host, Neil's agency called MP Digital. and they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as Ubersuggest and Answer to Public. All you have to do is go to npdigital.com to learn more and we'll see you on the other side. Yep.

13:14Neil Patel:So Neil, I'm curious, you're on this vacation now.

13:17Eric Siu:You went to the beach, you're at Legoland right now. You went to the Padres game and then yesterday you were talking to me on the phone saying you're enjoying this life. So let's hear more about that.

13:29Neil Patel:yeah so uh without getting into too many details it all ended up happening i'm i've to be clear i have two kids i've never actually been alone with my kids for more than like not even a day right i've never actually just watching myself with no help um when they were younger and my wife had to go do things or go somewhere we had nannies and all that kind of stuff to help out they're older They're now five and seven. So I don't really have, or not even really, I don't have nannies or anything like that to help out, which is fine.

14:03Eric Siu:Kids are really self-sufficient.

14:05Neil Patel:My wife had a family emergency on her side of the family. So I told her, just go, you know, do whatever you gotta do. I can watch the kids. And she assumed it was gonna be a day or two, but some things luckily fell into her favor. So she's staying a little bit longer. So maybe it'll be a week to two weeks. and I'm probably a day away from it being a week. I think tomorrow marks the week of me just watching the kids on my own with no help. And there's a few things that some of them already knew, but first off, it is way easier to work in the corporate world, run a business, grow a business than it is to be, I don't know what the term is, like a stay-at-home parent.

14:55Neil Patel:I think that is extremely difficult compared to running a business. This is just my two cents.

15:00Eric Siu:Or for you, that's for you. It could be different for someone else, who knows. Correct, yeah.

15:05Neil Patel:For some other people, I think they naturally do better playing with kids all day than running a business. But for me, it's easier to work than it is to raise kids all day. I'm not saying my kids are bad or hard or anything like that, it's just more so. I believe I'm more built or suited to build a company than to play with kids all day. And I think both are admirable things to do in life and there's so many other things that are admirable as well. But just playing with the kids, being with their, trying to do calls in between and work in between. You know, the family dynamics are really good where my kids, I can see where they love me, where they're missing a father figure because I travel so much for work and things that I can improve upon.

15:53And I came to the realization that I'm traveling and I know I'm traveling and I'll never stop