3 Genius Business Ideas We're 'Borrowing' From Syed Balkhi

24:06Is that generally like a good, like I like blueprints when it comes to business. Somebody told me about a blueprint. They were like, just superhuman for X. The way superhuman just took one piece of work software and was like, pay 20 bucks a month, but I'm going to make it like really slick and like incredible UX and just way better design. And like Linear was a good example of that. Linear was basically superhuman for Jira, for the ticketing system. And it worked. It's like a very successful company. Is a successful blueprint in your mind, like popular thing, but open source? Does that work? Absolutely.

24:39I think you take something that has a large TAM. and then you make open source version out of it that is cost-effective, affordable, and now you grow with the community. Over long term, I don't think anybody could build what WordPress did as a proprietary software. But the reason why WordPress was so successful was because all the other website building platforms or all other hosting companies, as you say, that didn't want to have their own website builder started contributing to it. so go daddy instead of building their own website builder i mean they have one but they went in wordpress and started contributing to wordpress uh and and many other hosting companies did too so shopify which is essentially a hosting company uh same thing with wix at the core of it they're hosting um they have their own proprietary platforms versus wordpress is built by and built on top of by many many many other hosting companies and the sheer number of contributors are a lot.

25:35And you see the same thing in Chrome as well and others. But can't you say that... Okay, so WordPress powers how much? 35 % of the internet? Probably a little more, like 40%. Okay, so 40%. Okay, so Shopify has... Today, they're worth$100 billion. I don't know what WordPress is worth. I don't know what their revenue is because they're a privately held company. But for controlling 30 % or 40 % of the internet, you should be making tens of billions of dollars a year in revenue. Do you think that WordPress has over a billion in revenue? I would think no. So I think when you think about WordPress, WordPress is a community project.

26:12And there is a proprietary company that the founder of WordPress, Matt Moenlike, started called Automatic. Automatic has good-sized revenues. They're a private company, so I don't know what those revenues are. But it would be fair to say that it's not as high as Shopify. But when you look at the collective ecosystem of WordPress and all the companies that are in it, you take GoDaddy, how big is GoDaddy? You take many, many, many other hosting companies or WP Engine and so on, and you put collectively together, I would say that the market cap will be bigger. Yeah, so Automatic was valued at 3 billion and it was valued at 7 billion at some point and it's private.

26:50These are, I don't know if this is rumors or confirmed, but it's like published in a bunch of different places. And so that's what the, Automatic is kind of the company that like kind of, what would you call it? The steward of the open source program or the open source project? I'm not sure what you would call it. They're essentially the Red Hat. What Red Hat was for Linux, Automatic is that for WordPress, right? They have the same powers, yes. Yeah. And plus, Sam, you get all the developer street cred, bro. Like, I mean, Matt Mullenweg, that guy's, he's a made man. He's untouchable. There's no doubt that it's awesome.

27:21I think actually, when I think of like internet heroes, I think Matt Mullenweg is up there. I actually use WordPress. So check this out. Let me explain the difference in business models. I used WordPress for the hustle. The hustle ended up being worth tens of millions of dollars. It reaches hundreds of millions of people. And we are small compared to many of the others on WordPress. So I know I had a friend that had a WordPress site that was doing 100 million monthly uniques. And so there's no doubt that it's the best. But check this out. I bought WordPress's software called WooCommerce. WooCommerce was$300 a year.

27:54I had a business on there that was doing$5 million a year in recurring revenue. And I paid them$300. every single year. If this were Shopify or something else, I would have been paying them, I believe, 50 ,000. I think, is it 10 % or 5 %? So I'd been paying them 25 to 50 grand a year. And I was like, this is a fucking steal. I'm stealing from these guys. And I was like, I don't understand this business. I'm getting all of the value and they're getting virtually none. Well, I think the value is disproportionately favored for the consumer. And that's what you want in a business, right? You want your users to have disproportional value coming from you.

28:30I think when you look at products, and this happens when you're studying long-term, when your product can't be 10x better in a specific space, it really becomes all about the brand and the value that you're delivering when customers aren't using your product actively. So having that value being so disproportional makes your business far more stickier than your competitor who might be charging an arm and a leg. I have a bad idea for you, Saeed. So where else have we seen this where the customer is just getting an incredible deal? One idea that comes to mind is Costco. And Costco is basically like, hey, we'll sell you the goods at cost plus 10%.

29:14And that's just going to cover the carrying cost of putting these items on the shelf. So whatever that bag of rice actually costs, it's that plus 10%. That's always the price. And we're going to negotiate the shit out of these vendors, by the way, to get the lowest possible version of that price. And we're going to use our scale to do that. And all you got to do is pay us$120 a year. That's like$120. I'm saving that in one grocery trip, two grocery trips. This is a no brainer. And they've built a huge subscription business off this. Do you think somebody could do that in the software world? because I've seen a couple examples of this where I bought this screenshotting tool that's really good.

29:49It's called CleanShotX. And free shout out for those guys. So it's really good screenshot tool. But one of the ways you can buy it is off some service that like, it's like it has all the random software tools put there on the shelf, like a Costco or like an Amazon for random software tools. And it's usually at a lower price than if you go by direct than on the site. And I think it's, if you have a membership to the overall thing, then you can just get these tools for free. I kind of wonder if somebody could do this with the open source community and just say, all right, pay us$1 ,000 a year, and then you're going to get WooCommerce.

30:26You're going to get all these things at the lowest possible price. So you're just going to go round up all of the software and say, hey, you're going to be selling at cost plus 10%, and we're going to have this subscription revenue for our members who want to shop there. How bad? On a scale of one to terrible, where is that idea? Two-sided marketplaces are generally a tough business to build. So there are challenges in the model. But you can try it. And I think there are companies doing it. I think if you focus it on maybe a subset, let's say agencies, and you say, hey, development agencies, we can get you access to these softwares at a lower price, probably that's where I would start.

31:11And then you try to make it broader versus saying we have every software under the sun because you have to do some backend integration, the best decay. A lot of indie softwares don't have the ability to have reseller models and versus like, hey, here's my thing. Take the payment, give me money in the backend. That's generally not how software provisioning works. So there's a little bit more nuance there than what Costco has. So what is this OSS Capital doing? They basically, you said they go through GitHub projects and they look at like which things have like some commendation of engaged users, large TAM, and what do they do?

31:43They invest in them or they build products for them? They're investing in them. And I think they're investing in... The open source community, he's like, what, they just give them hugs and shit? Where's the money in this whole business? What's going on? They invested five high fives. No, actually they're investing capital in those businesses and helping them come into market. Like, I mean, if you look at GitLab, for example, It's like$11 billion market cap right now. So like AppFlow going after the Notion market or like Cal.com going after the scheduling market, I think we're going to see many of these established companies that might be unicorns right now in the project management spaces and such get disrupted by an open source solution.

32:28And then what's going to happen is like you and I can take AppFlow and say, we're making Notion for doctors. and we can take the code, fork it, make it better, and then contribute back to it because the way the licensing is done, so there will be flavors of these open source softwares that will get created. There are flavors of WordPress that are created and that's what makes it so disruptive because a doctor who might be using Notion will say, I want to go use this tool because it does the extra 5 % that Notion won't do. Well, which categories and products do you think this model would work for?

33:03where you're like, you see a particular product category, you say, if we attacked that category with this open source blueprint or framework, I think that could be a winning combination. I think the open source CRM, that does a well enough job, will be quite disruptive. Perfect segue to our sponsor. Play the ad, baby. But I think you take any large TAM market and software and you add open source component to it. Like Sam, do you know Stability AI? They're basically open AI, but open source. They're the ones who make stable diffusion, right? How big are they? They're multi-billion dollar. AI hype cycle, they're very big, right?

33:46But people actually use stable diffusion a lot, right? It's a big project. We invested, I think Sam, you invested with me, right? In Cal.com, which is like the Calendly, but open source competitor because Calendly is like really expensive and the Cal.com guys have done a good job of building the open source version of that. I really like this thesis. In fact, I think this OSS capital thing is really smart. There's a few strategic venture fund ideas that I really liked. This is one of them. Another one that I had heard was somebody who's just taking pro ratas. So they're like, oh, you do all the work of finding the company.

34:2230 % of them are going to die or whatever before they raise their next round. But of the ones that raise the next round, you have pro rata. You could top up and keep your percentage, but most investors don't want to do it or don't have the capital to to do it. So these guys are just pro rata and that's pretty smart. I think there's a few like strategic venture funds. One I really wanted to do was just a flipper. So you basically, you would say, Hey, I want to invest, but I'll be out when you raise your series A. I'm going to do, I'm really helpful in this zero to one, but as soon as you get to your series A, I'm out because a normal venture fund is like seven to 10 years and you're hoping for this like thousand X outcome.

34:57But the seed to series A valuation lift is like three X and it's usually in 12 to 18 months. And so if you could just pick well of like what seed startups are most likely to get to a series A, or you're just in an environment where a lot of companies are able to raise their next round, you can flip. And for the founder, it's great because you're like, cool, I could take this capital today, but it's actually non-dilutive. Like they're going to be out by the next round and those same shares go to the next investor. So it's actually less dilutive than normal capital. But wouldn't you be accused of like a pump and dump?

35:26You're not pumping it though. Like when somebody buys a home and then sells it a year later, is that a pump and dump? Like, no. Well, no, because, well, I would argue a home has, like, realized value, which is... But that's what happens from a seed startup when you invest or pre-seed startup, 18 months later, they've now built a product, they have customers, they have some traction, their story is so much better, right? Like, they are a de-risked startup in some way if they're able to raise. Theoretically, but not always. Usually. You're right, you're right, But the risk goes a little bit lower.

36:00And you entered the riskiest stage at seed. The problem is it's just like a faux pas. Like startup investing is supposed to be this like true believers. I was in and I'm here for the long haul. And like you're going to change the world. Whereas when you sell at the Series A, you're like, oh, you might change the world, but probably not. All I know is you changed my bank account, you know, by 3x if I sold this right. And so I think that's the problem is it's so like it's an anti-signal. Like nobody wants to see that your first investor wants out right away. It's such a bad signal. So you would have to first build your brand of this is what we do.

36:38It's not like for any company we do this. It doesn't mean anything about them. We do this with every company we invest in. And you'd have to frame it not as like a quick flip because that sounds like self-serving. You'd have to phrase it as like non-dilutive. It's like we're the early stage guys. We're really helpful early. We don't know anything after that. and we want you to not dilute yourself so much. So take our capital because we're going to basically give you back those shares to sell to the next guy rather than just losing more and more equity as you go. Yes, still a very, very high risk.

37:06You have to be a very good picker and say, yes, this is going to go from C to A. But I looked at my portfolio. So I looked at like 100 companies. I don't remember the exact numbers off the top of my head, but basically it was like out of 100 angel investments that I did, that I looked at what percentage of them raised the next round and what was the average multiple of the companies that raised the next round. You just multiply those together and you'll tell you what's your expected value. And the math mathed when I did it last time, which was basically that enough companies raise the next round at enough of a multiple where you would be getting a good return.

37:38I think it was like 30%. The math was basically that I would be making 30 % on my money, which was fantastic and better than almost every venture fund out there. But I didn't actually do that strategy because I thought of it later. And also, it's really hard to get around that perception problem. I thought of it when one of my companies raised a series A and I was like, this company is not going to work. I wish I could just sell right now. Bro, you're proving my point. You've just proven my point. There's no point. No, that proves my point. Well, you're not pumping. You are dumping, though. Yeah, you're dumping.

38:17Yeah, exactly. Yeah, that's what you should call it. Your dumping schemes. speaking of numbers i tweeted this out this morning i want i'm curious what you guys will guess so i asked a question i'll tell you like i guess i'll give you the background so i was talking to i heard this like coach like a exec coach or whatever and i was telling him i was like yeah i'm trying to do he's like what are your goals for the year so i was like yeah i'm trying to do this this and this and one of the things i said i was like yeah if i sell this business i think i'll make and i don't know what i said i was like i think i could make 20 million bucks and i was like and i was like that'll be great because then i paused i was like i was like I don't actually, I have no idea.

38:50Well, I have no idea what will change. And I was like, I was like, cause no, it'll be cool. Cause then I can, um, then my life will be better because I'll, uh, what will change? And I was like, wait, what am I doing? What, is there any benefit to incremental? And so I, I started thinking about this. I was like, I do want this. However, I do think it's a little silly that I can't point to maybe an area of life that I want to improve using the money. Money's a tool. I believe that, but I have no idea what I'm going to use this tool for? I'm just going to Home Depot trying to get a tool. And it's like, what do you need this drill for?

39:24And I'm like, I have no idea. Well, that was a little silly. So I tweeted out a question today. I said, how much money do you think you need to live your desired lifestyle? Because I think I'm very close to just living the exact desired lifestyle. I don't really have any more like desires of what I want to change. So what is money good for in that sense? And so I asked people, I said, zero to 1 million, 1 to 10 million, 10 to 50, or more than 50, 50 plus. And I said, how much money do you think you need in your bank account in order to be living your desired lifestyle? One of the answers got 47 or 48%.

39:56Which one do you think it is, Saeed? And what's your answer? Yeah. Well, I think if you're looking at between those four choices, most people probably said 10 to 50. That's what I would have guessed. that's what I would have said myself also I think that's like the like kind of my not utopia where somebody's feeding me grapes and shit like that but like what I actually want what I actually care about I think is totally achievable in that range so do you and so Sam's question was a good one what would your answer be like you've surpassed all these great but what do you think actually made a difference in your lifestyle where you're like oh I now have the money to live the lifestyle I want I call it the threshold number You know, I have a very simple life.

40:40I don't have these crazy desires of wearing the fanciest clothes or any of those things. For me, the$10 million number was more than enough to have a good life. You know, I do what I do because I enjoy it. I'm going to be a productive member of society and this is fun for me. But, you know, people might say their number is more. Do you think anything changes? like maybe like as you go, as you go up, what gets unlocked at those levels of the game? The only ones I could think of, I'll just give you my answer. So I was like, I think if you go above 50 or go above a hundred, you know, private travel is like, you know, the big unlock where, you know, you don't have to think you just fly private everywhere, do it, do all that.

41:24I think that's the biggest one. And the second one is if, if you really care about you being the one to give to charitable causes, I think that's the other thing that you can do is you make large charitable donations. I don't really know what else gets unlocked past that, but you might have other ideas. Am I missing anything? What gets unlocked over 50? I think it's just the level of convenience that you get, whether it is through private travel, whether it is through private help at home and so on. And then the level of that that you can access, just get elevated. Also... Do you think there's a difference between 50 and 500?

42:06Is there a number where you think the level of convenience is mostly quite similar? Is it more convenient to have a significantly larger plane than a smaller private plane? Yeah, I mean, it makes a difference on how far you're trying to go. The poor rich guy in a small plane just puttering out and couldn't make it across the Atlantic. I mean, yeah, you can spend any amount of money that you want. If you have money, you can spend it. Do you really need it? I don't know. And that's based on each person. But even if you look at Taylor Swift, she took a private jet, but it was not hers. She contracted a service to fly from Japan or wherever she was to Super Bowl because her own jet can't fly that far.

42:53Does that mean that she can't afford a bigger jet? No, I'm pretty sure she can. But it just doesn't make financial sense for her to maybe have a global 8 ,000 or something like this. What was your number, Sean? Mine was in the 10 to 50. I thought 10 to 50, like that is, past that, there's very few things that are as appealing or just like big diminishing returns. But this is my perspective today. That range is too big. My number, my perspective 10 years ago would have been 1 to 10. You know, I would have been like, oh, 10? Past 10, what does it matter? and now past that you're like, that kind of matters and maybe that same thing happens again.

43:28I'm not sure. That's why I kind of, like I say, I want to ask other people's opinions because again, I think A, it doesn't get talked about much but clearly we're all acting on it. Everybody who's listening to this podcast, everybody on Twitter, you're all playing a money game and you're spending a huge portion of your life earning money and it is probably worth knowing where does money really improve the quality of your life and what are those thresholds? What are the things you can unlock? And so you could decide for yourself if it's really worth devoting this much energy and this much time to accumulating more.

44:02I think 10 gives you a base. You've got your fortress of solitude. 10 is enough that you can tell most people to fuck off because you don't need much from anyone. I actually still think you can lose 10 if you make a handful of bad investments. What, Syed, do you want to look at me stupid? because I don't lose 100 if you make a handful of that investment. No number you can't lose. That's true. And I think a threshold is 10. I think another threshold is 50. That's my current thinking. What do you think happens at 50? What's the difference? I think at 50, you can fly private safely. Like it's no big deal.

44:41You can fly private most every time you want. And that's the only difference? Well, you could have a, you know, with$10 million liquid, I wouldn't buy a$5 million house. A certain number, your nanny speaks Spanish. And the next number, she speaks English and Spanish. And the next number, she speaks English, Spanish and French, right? That's what else changes. But like Sean, where you live, you live in one of the most expensive, like 50 mile radius parts of the world. Like a really sick house is probably$6 million, right? Yeah. You're not going to buy that if you're worth 10, but you would buy that if you're worth 30 probably, right?

45:17Challenge accepted. Don't tell me I won't do something, I will. But no matter how big your house is, you'll only ever be sitting in one seat at a time. So it's important to have perspective to not let the goalposts keep moving forward. And for what? I mean, there's a house here that's$170 million for sale, not too far away from it. Somebody who was at the camp with us, I won't say their name, but they have probably a$15,$20 million home. And they called me yesterday and they were talking and they were like, oh, sorry, I've been like, because I called them. They were like, oh, sorry, I've been house hunting all day.

45:55House hunting? You just bought like your dream home last year. And you told me like, we went crazy on this house because it's our dream home. And it's what we've been working for all these years. Why we made all this money. And then they were like, he's like, God, he's like, yeah, but he's like, our HVAC broke. And he's like, he's like, you know, that's his 50 grand to fix that. He's like, my, the guy fixing our AC, he's got like engineering degrees. I pay two grand a month to our pool guy. Our pool guys make it two grand a month. He's like in another four grand for landscaping. He's like, it's just annoying.

46:26He's like everything that's, it's all my problem. He's like, he's like, yeah, it's great when we entertain people. But most of the time I'm like, you said, I'm just sitting in one chair. I'm sitting in the same chair and I have whatever, 10 ,000 extra square feet or 20 ,000 extra square feet of like empty house. And so it was just like such a visceral reminder of the, like the age old wisdom of like, first you own your things and then they own you. and it was like he was just explaining all the ways that his thing now owned him and he had this like reaction where he's like i gotta change this because like this is not my dream actually i thought this was my dream it is not my dream actually because i don't want to be owned by this where now my monthly nut is so high i have to stress about you know about all these things or when things break it's such a colossal break i feel so wasteful you know that i'm spending this much just fixing our whatever pool or whatever it is.

47:15When in reality, that money could, like I remember what that money could do for me. I used to live a whole year off that money. And now it's just, you know, going to one little thing. How many square feet was this place? I don't know. It's probably like 15 ,000 square feet or something like that. That's fucking insane. That is so insane. Is it? 15 ,000 people? It's more than 10, less than 20, I think. Dude, that's like, you need, that's a commercial property, basically. You need like a property manager. That's insane. I think it's important. One of the things that a lot of people don't think about is the holding cost of anything that you're acquiring, whether it's a property or a business or what.

47:50Understanding the holding cost, the real holding cost, may help you not make certain decisions. There's other hidden costs too, right? Holding cost is one. Opportunity cost is another that people usually discount. There's a great tweet that was going viral. I don't know if you saw it yesterday, but the guy said, he goes, I think making between$150 ,000 and$250 ,000 is the worst. worst. He's like, is he's like, it's the worst because it's too much money to just say, fuck it. I'm just going to go do this thing I really want. So it's like too much money to walk away from, but it's not enough to ever like actually get escape velocity financially.

48:24Cause you're paying like a huge amount of taxes and then you probably live in a, your lifestyle creeps up. And so, and I, and I saw, like, I see this so often, which is that there's some range. I don't know what the numbers depend on where you live and what industry you're in, but something like 200 grand to 500 grand is like, that's the real golden handcuffs. And that's the real like danger zone. That doesn't sound like a danger zone. It's a hit, but it's a hidden danger, usually. Because if you're making that much, you're probably very talented. However, it is so hard to walk away from that amount of money once you get to that and take a risk, maybe start a business or take another job that might give you all kinds of other things, but maybe have less certainty or less annual guaranteed pay.

49:04And I could see that tweet going viral because I think it resonated with so many people. The guy had like no followers, but the tweet had like 20 ,000 likes. You know, I mean, it also depends on your personality. My uncle who moved to US 40 years ago, he's a teacher. And you know, teachers in America don't make a lot of money, but he's still a retired millionaire. So I think it's all about how you invest that and compounding. I think that tweet is really fucking stupid. Why do you think that? I think that if you make$250 ,000 a year, you can live a very rich life. I think that you could have a beautiful, rich life.

49:40I think you can retire by a certain age. I think that that is an out-of-touch tweet. I think that tweet is true if your goal is to make tens of millions of dollars or be your own boss at a young age. I think it's true for the people it's true for, right? Which is if you want to be an entrepreneur or you want to be financially free and not have to trade your time for a salary, right? No, you can be financially free on$250 a year. When you're 60. I don't know. I live in California. I'm using California as my frame of reference here. Yeah. Where you live definitely changes things and what your burn is.

50:18New York, California, like a lot of places. I don't know. What's the amount of money you need, even if you're living in Texas? What do you think is the real amount of money? You make$250 a year and then you have taxes. So you're taking home, I don't know what the math is, but something like$175 or$180, something like that. And then you pay for life. and you might be stashing away 100K a year. How many years do you have to stash away 100K in order to be financially free? It takes a decade plus. Yeah, a decade. A decade, right? And even to get to 250, that takes you usually 7 to 10 years to get to making that much, right?

50:537 years to get to that salary threshold too, right? So now you're 17 to 20 years in. That's a lot. That's a long time. Syed, what are you going to say? You don't like what Sean's saying right now. I can tell. I think it's, there's certain something about the guaranteed payment and it really depends on your personality. Like the folks that are going to become an entrepreneur, they don't need to walk away from 250. A lot of times, like, I mean, when I started, I had nothing, no salary, right? So a lot of folks start out and they don't have a salary and they just kind of go and pursue it. If that's what you want to do, you go do it.

51:29You have to have conviction. And I think that's key to the success anyways, especially as an entrepreneur. I'll clarify one thing. I'm not giving advice to other people for what they should do or what the average person should do. I'm saying from my perspective of what I would want in my life, which is the only thing I can really speak on is the things that I know about myself. And I know that most of the people who listen to this podcast are going to be people who are like-minded. Otherwise, how did you get to episode 500 if you weren't into entrepreneurship or you weren't like-minded in some way with our ethos?

51:57And for people in our world, I think that it's a valuable message, right? I think there's I have a lot of friends personally who are in this situation. I know what they actually want out of life. I know where they live and the lifestyle they desire. And for them, that is a very dangerous thing. Of course, if I'm just speaking generically, that advice totally doesn't apply. It's totally out of touch. And it's a total overkill. I get that. I think that's fair. I wanted to give you an alley-oop. It's like I shot myself in the foot and then I put a Band-Aid on it at the very end. So it's all good.

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53:36Where do we want to go from here? Let's do a couple other ones that you have on this doc. So you have, let's go to the bottom here with the strong opinions or philosophies. And so you talked about acquiring a business versus paid marketing. I think this is kind of interesting. I think most people don't really think about this. I know when I was running my company, I never thought like, hey, let me grow through acquisition. That wasn't on my radar. What's your point here? What do you think is the takeaway? I think when you think about growing a subscription business, there's only three ways to grow it.

54:08You get new customers, you expand existing customers, you reduce churn. And in the new customer bucket, most of the people are always looking at PPC. And especially a certain scale, you might be spending a lot of money in PPC, pay-per-click, pay-per-click, exactly, pay-per-click advertising. And your CAC might be high, especially in a very, very competitive market. in that sense it makes sense to just go pay a revenue multiplier to buy a business that has the customers that you that you're targeting anyways and then cross out and i would say that that's that's something that more ceos need to think about when they're thinking about growth you know who knows about this your boy i sold the hustle to hubspot because I actually didn't know about this.

54:56They knew about it. What are you talking about? I know about it in that I know a guy. I know a guy. No, I know a guy who did this and they bought my business. That was the whole point of HubSpot. That was the whole point of this podcast. Now, I don't have too much information. I haven't been part of it forever. But I think it's working. So are you talking about buying other products or content sites? Anything and everything. I was looking at this publicly traded company and where I was looking to potentially establish a sizable stake. And their revenues were growing steadily, but not exponentially because they couldn't compete with the larger competitors.

55:34But the reseller side of their business was great. One of their resellers were actually making more money than this company was. What's a reseller? Can you give an example that isn't related to this company? Sure. So I could, for example, resell HubSpot or any other, you know, hosting, I can be a hosting reseller. I can make my own hosting company selling Amazon. I can be Amazon reseller and so on. So for this business, they basically just acquired one of their resellers and boosted their revenue. So it's just like the same customer that they had and bringing it in. I wanted to work with the management and just kind of fund the acquisition of the reseller because the margins, if it was in-house, will be much, much better.

56:17How can a reseller make more than the main thing? If you're just reselling and then presumably giving a cut back to the mothership, how does the reseller ever make more money? No, it all depends on the pricing and how you're licensing and what you're charging on your end. Okay. So let's say we both could be dropshipping the same thing and I could charge five times premium because I know how to market better and you're charging only 2x. Okay. But that's just one example that you can look into your own ecosystem start acquiring your resellers and bring that customer in-house. But also, what HubSpot did with the content site makes total sense.

56:54What Zendesk just recently did with Klaus makes total sense. And so on. So I think that when you're looking at acquisition and growth, I'm talking about acquisition from new customer acquisition. think about M &A as a viable option, especially when your PPC budget is high. Could your WordPress empire have existed without you owning WPBeginner? So WPBeginner for the listeners, by the way, it's like a blog. If you Google how to set up an email service on WordPress, WPBeginner, which Cyate owns, always shows up number one. So would your empire have existed without WPBeginner? Well, no, the answer is no, but for many reasons, no.

57:41I think you can't build solutions to solve problems that you don't fully understand. And for me to be able to build the best solution in the market, I had to communicate with the audience. I had to understand their pain points. And that, I believe, was our biggest advantage. Of course, the marketing and having the audience is very important too. Very, very important. But I think that understanding of the pain point is crucial. For example, in talking to their customers and also my various company founders and GMs, I realized that we were not happy with our help desk software. So we went and acquired a stake in Groove, which is a help desk software that will drastically reduce cost for anybody who's using Zendesk, for anybody using HelpScout.

58:30But now I know that like certain customers that are using Groove may also want our other solutions. And I know that many of our customers and agencies and so on, they're all using a help desk software. So I can cross promote Groove to them and say, hey, if you switch from Zendesk or whatever, you'll save 40%. If you're an agency, you're using front for your communication, switch here and you'll save 80%. So that level of synergy gets unlocked and can be quite lucrative. Can we finish with these two life lesson type things? I think they're both good. I know we're on time, but I want to do it anyways.

59:10Compounding goodwill is the best form of compounding. What do you mean by that? I think too many times we are very transactional in the relationships that we're in. We're doing something nice and saying, hey, do something back in return for me. I think just giving with no expectation return. A lot of us are very smart and sometimes in that we can be kind of you know, aholy and not so nice. So I think intellect is a gift and kindness is a choice and if we choose to be kind over long term this comes back multi-multi-multi-fold so not letting your ego or the keyboard warrior get to you and you know I'm smarter than you you're 100 % wrong just going along and trying to help out wherever you can even if you feel like you're in the right sometimes it's better to just be kind anyways yes you know sometimes I get stuck on that where I'm like this is but this is right that's what we said and actually it doesn't matter what we said I suggest in that moment it matters more to them than it does to me to just be kind and just go their way rather than mine I've learned that lesson the hard way a couple times absolutely you wrote this guy's name Guy Spear.

1:00:23I've seen this guy around, but I don't know him. Who is this guy? He's got something special. He hosts some conference thing, right? That people really like. Who is this guy? Why is he the example of that? Yeah. So he's a really good friend now and we're in a forum together. So his conference is called ValueX. Very well-known value investor. Has a book as well. And he talks about compounding goodwill in his book, An Intelligent Investor, or Educational Value investor actually um and i'm always really really amazed by his level of generosity the amount of like hey you need this let me just connect you with x and y and z and long term what he's been able to do is build this amazing network of super duper talented people that like you know if he rings they'll pick up and help out whatever and nothing nothing in returns i think he is an amazing example and uh i learned a ton from him even you know we were in chicago a couple months ago and he gave me an idea to acquire like a the very cool deal idea um of doing acquisitions and then long story short i was able to actually use it a deal came and used that exact tactic to make a make a purchase in a very tax efficient way so i think his ability to just you know do that is really good.

1:01:46But I don't know you that well. We're friends, but we don't hang out too much. If I had to guess, I would say that you're a very shrewd negotiator. And I would say that you're probably a very disciplined and firm manager. I think you're probably quite nice. But I think that you're a very disciplined person, which sometimes people would say, well, you're just being an asshole or something like that. If you have enough employees, Some of them are going to think that about you. How are you balancing being a nice person and also like trying to get the best of a deal or trying to capture a little bit more value for yourself than for the other person?

1:02:26I think not all juice has to be squeezed if you think about value on a very long term way. So part of the discipline is to say, OK, well, we don't have to squeeze all the juice today. you know you that's that's the whole point about compounding goodwill you know if if i acquire something from a founder um and let go of a few percentages because that helps me have a great long-term relationship with this person um that's a worthwhile decision rather than saying you know what you're down and i'm gonna like you know kind of crush it and that that's not good for reputation long term. But do you go into a negotiation saying, here's my threshold of I can no longer do that, or I won't do it at this number, but I will do it anything below this.

1:03:15And then you go with a number and you leave room for that negotiation or for that threshold. And then you just don't ever cross that particular number. You're talking about goodwill and you're like super calculating about it. You're treating it like a negotiation, like a trick. Well, because I know that he's a value investor and a value investor, at some point, they're like, You make money on the buy. You make money when you buy something at a low price. And so there has to be a threshold of, it doesn't make sense after this. And so I just can't be a nice guy anymore. Just because you're winning, it doesn't mean the other person has to lose.

1:03:48And I think that's a very important aspect of compounding goodwill. That's also the example. You're very smart. You don't have to prove the other person wrong. You can agree, disagree, or move on and just saying, okay, this is fine. Maybe it's worthwhile considering this and letting that conversation be and going away. But of course, in business, you have to be very, very disciplined, especially as a capital allocator. And that's that. Let me tell you guys a quick story as we wrap up here. That was like the best good guy story that I heard. I heard it on another podcast, but apparently Adam Sandler was in New York.

1:04:26He was taking acting classes. And the teacher was like, hey, I want to take you out for a beer. Let's talk. So the teacher takes him out and he goes, look, Adam, you don't have what it takes. And I just want you to quit doing it now because I don't want you to waste two decades and it's just not going to go your way. I want to show you love and respect by telling you now. Obviously, 10 years pass. Adam Sandler's still doing this. He's an epic star. He's at the top of his game. He's at a bar in New York. He's with his friends. He's with his buddies. He sees that professor, that teacher out. And I imagine in his head, he's thinking like, well, should I go rub it in this guy's face?

1:05:00and being like, told you, I win. He walks over to the guy and he brings his buddies with him. And Adam looks at his buddies. He goes, hey, I want you guys to meet Professor blankety blank. They were the only professor that was kind enough to take me out and buy me a beer. And I heard that story. And I was like, that is one of the best stories I've ever heard about treating people respectfully, even though you may be a little bit angry or you didn't like them at the time. But Sean, did you saw that clip? I saw that clip. I love that story. it's Brad Pitt telling the story by the way which just makes it even better you did good but Brad Pitt telling the story was a little bit better I saw Andrew Santino say it maybe it was somebody else I think Sam did an excellent job you're my Brad Pitt Sam both hot guys from Missouri I'll take it

1:05:54Syed thank you very much that's the pod thank you I feel like I can rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.

1:06:14All right. This episode is brought to you by Mercury. They are the finance platform of choice for over 200 ,000 companies. Shouldn't be surprised because I use it myself for not one, not two, but I have eight different Mercury accounts. I have seven for different companies that I'm a part of. And then I have my own personal account because now they have personal banking, which is a really cool feature. I highly, highly recommend it. Like I said, I use it myself. And the reason why is because the way that Mercury works is beautiful. It's very intuitive. And you could tell that it's actually made by a startup founder.

1:06:41It's an entrepreneur. You could tell it's made by somebody who used other banking products in the past and didn't like all the different rough edges and annoyances and decided to actually fix it himself. And really any type of entrepreneur you are, let's say you're an agency. Well, one of the things every agency has to do is be able to send invoices, easily create them, send them to customers and stay current on your balances with all your customers. Well, you can do that inside Mercury. And so I think that Mercury is great. Highly recommend you check it out. And thank you for sponsoring the show.

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