How Big Tech Offloaded The Risk Of AI

27:00Well, don't forget Brian Segual is at Raymond James's price target of 800. He thinks the company is worth$10.4 trillion. He should really be writing the fiction. By the way, just on your community adjusted EBITDA point, Semi-Analysis put together some research on Anthropic, and they talked about, not ironically, by the way, the new community adjusted EBITDA, which is called EBTIT, which is earnings before training interest and taxes. This is, quote, the new default metric for library investment and the best source of truth of where cash economics sit for the inference business. So it's happening.

27:42That wasn't in an SEC report. And to be clear, I don't want to throw shade at them because I actually like a lot of those guys and I enjoy having them on the podcast to hear about what they think about things, but EBTIT reinventing accounting metrics to make inference and training make sense. Come on, enough of this shit. I mean, we've seen this before. No one's buying it. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts.

28:46Scott Galloway:Thank you.

29:01Scott Galloway:Thank you.

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31:49We're back with Prof G Markets. Two of the biggest contributors to inflation appear to be getting worse. Tariffs and oil prices. Last week, President Trump announced a new slate of tariffs, reigniting concerns about a broader trade war. First, he imposed a new 25 % tariff on exports from Brazil that went into effect on Wednesday. And then he also announced a 50 % tariff on Canadian goods, which will go into effect on August 19th. At the same time, the Iran war is not showing any signs of slowing down. Last week, oil prices hit$100 a barrel as the Houthis attacked two Saudi Arabian tankers in the Red Sea.

32:31Meanwhile, traffic in the Strait of Hormuz remains extremely low, and the U.S. has continued its strikes on the country. So, Scott, we have here tariffs ramping back up, which we can get into, and obviously that's going to be a problem when we're thinking about inflation because we've already seen the inflationary impacts, because of course, U.S. consumers are paying close to 90 % of the costs of those tariffs. It isn't these foreign countries that Trump seems to think that he's punishing every time that he slaps these tariffs on them. But I think probably the more significant news when it comes to the economy and its impact on inflation would have to be the price of oil, Brent crude surged up to beyond$100 a barrel last week.

33:17It's up 30 % since the beginning of July. Goldman Sachs says if these disruptions in the Strait of Hormuz don't ease up, then oil could surpass$120 a barrel by next quarter, at which point we have to start thinking about the implications that we'd see in the CPI and in overall inflation. I mean, last month we had 4.2 % when oil prices were where they're at basically right now. It came down to 3.5%, which is still bad, by the way, but seems like it'll just go up again. Your reactions to what seems to be the continuous shooting of our feet when it comes to economic policy?

34:01Scott Galloway:I think you can make an argument that the investment in the war on Iran will be the best investment of the last 50 years. Unfortunately, the entity registering the return on the investment is China. And that is, we're trying to manage our own inflation while China quietly banks the geopolitical dividend here. And Fareed Zakaria nailed this. China's gained more from this crisis than any in three decades. You have a Middle East hedging away from us, a world more dependent on Chinese tech. And then every nation in the world is thinking we not only can't afford to be dependent on fossil fuels economically, geopolitically, it presents a defense risk to be so dependent on other countries that can, for whatever reason, have the artery of flow into our nation of fossil fuels have a boot stepped on it.

34:57Scott Galloway:So what do we do? We move to renewables and clean energy. And oh, who dominates clean energy, who has 91 % of solar manufacturing, 89 % of lithium-ion battery capacity, 70 % of clean energy tech production, 70 % production of EVs globally? You guessed it, China. So we're hemorrhaging credibility and our treasury on tariffs and strikes, and China's spending nothing and picking up the reputation for being the adult in the room. I mean, this stat is so upsetting. Pew reports that more people globally think that China is a force of good in the world than the United States. In sum, we're spending money to buttress China's reputation.

35:49Yeah, just to expand on that data, China is now viewed more favorably than the U.S. This is according to Pew Research. More favorably than the U.S. across the globe, across 20 different countries between 2023 and today, the favorability of America has fallen from 58 % to 35%. and China's favorability has risen from 32 % to 46%. So we've seen a flat-out flippening when it comes to the favorability of both China and the US and then also just Donald Trump and Xi Jinping. And I think it's hard to say that that doesn't have to do with what we've seen on the tariff front. I mean, these new tariffs, it seems like this is his way of just trying to bully other countries.

36:42That's basically what it is. I mean, this Canada tariff, 50 % tariffs on Canada. Supposedly, Canada is discriminating against the US. That is the argument. So he's putting these tariffs on Canada. Obviously, he's not accounting for the fact that it actually is self-defeating, because it ultimately makes prices higher in America. And we had Peter Harrell on the podcast earlier in the week. And he made the point that he thinks that maybe the Trump actually just doesn't really realize that or doesn't know that, or at least his advisors are just kind of intentionally ignoring that fact in order to just do whatever he wants and to just play the sick and fancy game, which sounds absurd.

37:20But I think that it actually is a genuinely possible scenario that is playing out right now. And, yeah, you have to ask what that what that does to an economy long term. You have to ask yourself if we can maintain any semblance of a relationship with any of these other nations and trading partners. And increasingly, it seems like, I don't know, that's not possible anymore.

37:47Scott Galloway:So you want to know my theory on Trump? Yeah. He's a fucking idiot. And surrounds himself, opts for fealty over competence, gets very poorly advised and makes just a series of poor decisions that the CCP and the GRU couldn't have dreamt of in the wildest. I mean, they just, whether it's taking oil up such that Russia can further escalate or continue this fight, whether it's hemorrhaging credibility to the IRGC from the U.S., whether it's giving the CCP just an unbelievable layup across the world, whether it's dividing, taking 66 percent of GDP that used to be sitting on the operating system that is American law, economy, our Navy, our military, our bases, our trade agreements, wanting us to win, generally feeling good about us, and dividing it in half by giving comfort to our enemies and then alienating our allies such that they begin working with some of our adversaries or with each other, creating a, you know, a tripolar world where we're now in the minority.

38:56Scott Galloway:The real costs of the Trump administration aren't going to be felt for 20 or 30 years. I think when you are, you know, when you are, have kids, when you're thinking about your kids in college, you're going to have just ridiculously high interest rates and inflation trying to pay off the extraordinary debt that an irresponsible boomer generation of which I'm part of, technically I'm Gen X, but anyways, everyone calls me boomer online, so I'll just lean into it. You're going to continue to pay the debts off or for the mistakes of my generation in this administration. And you're going to see an inability to form great alliances, defense threats, more terrorism, more insecurity, more nuclear proliferation, a reduction in our growth rates because other nations don't want to trade with us or don't trust us, a lack of human capital flowing into the U.S.

39:52Scott Galloway:because people no longer feel the good will towards us. We're going to be paying the price. We're going to be paying off the extraordinary debt that this administration is registering, both literally economically, but also reputationally. We're going to be paying off that debt for decades. A lot of people would hear what you said. A lot of people would agree with you, and then a lot of people would disagree with you and say that you have Trump derangement syndrome and that your hatred of Trump is clouding your understanding of what's really happening to the economy. I know that people will say that, but I can also tell those same people there is a very important group of people who agree with your comments right now, and that is the bond markets.

40:34So we can look at the 10-year yield right now. It's above 4.7%. It's higher than the yields we saw after the Liberation Day crisis. the 30-year yield, and that's the timeframe you're talking about, is above 5%. It's been stuck above 5 % for 27 days this year. It's been stuck above 5 % for 12 days in a row. That is the longest consecutive run of more than 5 % yield on the 30-year treasury since 2007, which is, of course, right as we were gearing up for the great financial crisis. But even compared to 2007, bond investors right now are pricing in more long-term risk as it relates to America and its financial standing than they did at the beginning of the financial crisis.

41:22This is, according to the bond markets, one of the riskiest positions that the United States of America has ever been in. And you ask yourself, okay, why is that? Like, is it the AI concerns maybe. Is it Iran? Is it inflation? Yeah, it's kind of all of these things together. But to your point, I think the biggest concern is the fact that we have almost$40 trillion of debt. We've got a nearly$2 trillion annual deficit that seems to be growing every year. We've got annual interest costs of more than a trillion dollars also seems to be growing every year. And all of these decisions that contribute to those deficits and that overall debt load, they're all being commandeered by an administration that appears to have actually lost its mind.

42:12Not just the president, but all of the people who are enabling his decisions, who are enabling the decisions on tariffs which are contributing to higher inflation, enabling the decisions on Iran. And Hillary Clinton in our conversation brought up a great point. She questioned whether they had even considered the possibility that the Strait of Hormuz might even be blockaded. That was their big what if that they had talked about and strategized about for decades. They just go ahead and bomb the thing. They don't make any contingency plan. They come up with this memorandum of understanding, which we said was BS from the get-go.

42:46And back then, that was a month ago. And we saw oil prices go down to 70, as everyone, for whatever reason, believed that there was actually a deal to be had here. And then when we said that wasn't a deal, people again said, TDS, TDS, TDS. We're back to no deal, and we're back to 100 on the price of oil, which means that inflation's going back up above 4. And that's a runaway train at that point.

43:13Scott Galloway:I thought what you said was really an interesting means of communicating the issue when you reverse engineered and made a solid cogent argument for, okay, 4 % inflation, about 1 % of that can be attributed to the war in Iran and the spike in energy prices, and about 1 % can be reverse engineered to inflation, or excuse me, to tariffs. Now, people don't realize, societies fall because of inflation. If the Fed is the key entity in terms of a society's economic health, they're there to manage two things, job growth and keep inflation in check. And by the way, that is in reverse order of importance.

43:54Scott Galloway:If you said to the Fed, okay, the board of governors, You can either have weak job growth, right? Or you can have inflation with strong job growth. They would pick weak job growth and low inflation. Societies crumble, not when people are unemployed, but when people have two jobs and can't afford their rent. And let's just talk a little bit about inflation. And the numbers are misleading because when you hear three or 4%, you're like, oh, there's no difference. No, there's a big difference. Let's talk about the G7, the inflation rates, Japan, 1.5%. France, 1.8%. Italy, 2.4%. Canada, also 2.4%. Germany, also 2.4%.

44:33Scott Galloway:The United Kingdom, 2.6%. And the highest inflation rate among the G7, which is supposed to have the most robust economy and the most competitive economy, which should keep prices low. We come in at the highest inflation rate of any G7 nation at 3.5%. And that's down from 4 % because of the temporary decline in the price of oil. Now, what does that mean? Let's keep it. Let's be optimistic and say it doesn't go back to 4%. It sticks at 3.5%. That means, say, wages go up 3 % a year. Optimistic, but let's say it across the entire G7 because of demographic growth and productivity gains. That means in 10 years, Japan's going to register prosperity increases of wages above of inflation of about 20, 25%.

45:25Scott Galloway:That means in 10 years, you're not gonna be able to take your kid to Disneyland, Tokyo Disneyland once every four years, but once every two years. That means you're gonna be able to borrow or need to borrow a quarter less to send your kid to college. It means you're gonna be able to eat out four times a month instead of three times a month. This has a material impact on your well-being and your prosperity. And because of own goals, we are dramatically reducing the prosperity of Americans. And this is when they're going to get angry. And again, we can manage and the American public can manage a four and a half or a four percent inflation rate in the short term.

46:09Scott Galloway:Sure, it's hard for them. They see it. But in 10 years, if this shit keeps compounding because of the poor fiscal policies and structural shifts in our economy and our alliances that result in stubborn inflation, including the massive debt problem we have because of irresponsible spending on both sides of the aisle, you just end up with a society where, I mean, the reason my parents came here was not for religious freedom. It wasn't to express their First Amendment rights. They weren't fleeing religious prosecution from Glasgow and London. They came here because they wanted, as a middle-class household, to be able to buy a home in Laguna Niguel.

46:52Scott Galloway:And when they stood on their tippy-toes on the second floor, they could actually see the ocean. That was a life they just never dreamt of. and be able to go to this amazing restaurant called The Sizzler, hashtag awesome, you don't remember it, incredible restaurant. And they had just this, my dad could join a country club. I mean, I remember him saying to me, I used to go watch him play golf. And he was like, he's like, you don't understand. This is a dream of mine to be able to join a country club. I just, the idea, he played golf growing up. But every year that wages cannot keep pace with this inflation, you're going to see a compounding of a decline in the prosperity of Americans.

47:35That's how economies stumble and then fall and then fail, is your wage growth doesn't keep up with inflation. That's happening right now. We just learned that that is the trajectory that we are on because of, crucially, not things, exogenous events that happened to America, but actual decisions that were made in Washington that created this inflation, that created that lack of prosperity and that decline in wages, in wage growth. So that's the thing that drives me nuts here, is that we're not talking about things. You know, tragedies happen. Like COVID happened, and that was really bad for a lot of countries and a lot of economies.

48:22and it was the contributor to inflation. That is why we saw such insane inflation back in 2022 that was a real problem for a lot of people that put huge economic pressure on millions of Americans. But again, that was an exogenous event. Now, you can argue as to whether the Biden administration did a good job of dealing with that exogenous event, whether they should have made different decisions, how they handled it, have at it, blame them all you want. But that wasn't a situation where we invented a problem out of thin air based on the decisions that came out of Washington. And as you've pointed out, and as I've said, we've had those two big decisions.

49:03One was the tariffs, boom, percentage point. And the other is Iran, boom, another percentage point. And it seems like that's not going away. I know a lot of traders keep on trying to be optimistic, and that's what we saw last month. But again, we're seeing what's happening here. We're seeing that the strikes are continuing. this is not getting better. And I want to just add one other very important decision that actively has harmed our economy. And it's kind of hard to do that. It's kind of hard to make a decision that specifically makes things worse. You have to make a pretty bold and stupid decision to do that.

49:38But here's one that I've got for you, which is crazy. As you know, our emergency oil reserves have been massively depleted because of the oil shortage that we're experiencing because of the war. Reserves have hit their lowest level since 1983. We're down to 311 million barrels. The operational minimum is 200 million. So we're getting into very precarious territory here when it comes to our oil reserves in America. Great time to have a big, bolstered and sophisticated clean energy industry, but Trump has canceled or delayed$83 billion worth of clean energy projects in the US so far. Why? Because he thinks that clean energy is woke and lame, and he'd rather be drilling for oil.

50:29And in fact, the administration is now actually paying companies to not build renewable energy projects. There's this company, Total Energies, a French energy company. They had planned to build a wind farm on the East Coast. Trump forced them to cancel that project and then paid them a billion dollars in compensation because he had canceled it and he had to now pay them. So we're actually paying money to companies to not build this stuff. And to your point about China, Who is building clean energy faster than any other nation in the world? China. They're responsible for 55 % of global clean energy investments over the past seven years.

51:09They are ramping up their clean energy investment, ramping up their spending. They're responsible for 80 % of the solar energy investment in the world. So they're speeding way ahead of us, and they're accelerating. They're increasing the amount that they are investing into renewable energies each year. we're decreasing ours because we think that it's woke.

51:31Scott Galloway:A myth on the right, they have somehow associated renewables with a woke ideology, the go woke, go broke, that somehow renewables are non-economic. You know what state is the number one producer of wind energy? I mean, it's Texas. Ding, ding, ding. A hundred percent. A hundred percent. And do you think it's because Texas leadership is woke? No, it's because economically, at a given point on a summer's day in Texas, 60 % of the electricity is being produced by wind. And they're not doing it because they're granola or kale-eating, Birkenstock-wearing progressives. They're doing it because it makes sense economically.

52:15Scott Galloway:So, again, we have attached, we have politicized economics here to an unhealthy extent where we've said, okay, renewables. And also, again, to both sides, Europe has probably gone too far in terms of politicizing nuclear power, politicizing fossil fuels, and the energy costs in Europe have been a real, real dampening or registered real dampening in economic growth because it has become energy, fossil fuels and nuclear become too politicized from the left. But both sides tend to do this. And this is an example of the right attaching an ideology that is just non-economic and irrational. On the both sides, I mean, I kind of agree.

53:01But part of me wonders if it's, I mean, you made this point like you want to be balanced here. I don't know why you even need to say that at this point. Because the extent to which the mythologies on the right are damaging the lives of millions to a degree that is unlike anything we've seen in a long time. The extent to which these very stupid mythologies—and to be clear, I agree with you that mythologies have existed on the left, and they've caused problems before. but i don't think we've any we've we've seen anything like the mythologies that we're seeing on the right specifically the anti-woke mythologies that's fair that are creating these ridiculous decisions so polam is kind of like why why even spend an iota of energy trying to be like balanced on it when it's so clear the size of the problem of the mythology on this one side And I don't know if Republicans even necessarily unanimously agree with the decisions that he's making.

54:07It's basically just him and his close circle. And that's the damage. That's what we need to get angry about.

54:19We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com.

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55:03Scott Galloway:Try for free today at odoo.com slash vox. That's odoo.com slash vox. Hi, Ryan Reynolds here for Mint Mobile. Are you looking for a beach read this summer? May I suggest your big wireless bill. It's got suspense, mystery, a slightly flat emotional arc, and a shocking twist where you realize you've been overpaying the entire time. Fortunately, though, Mint's story is better. Every plan,$15 a month, even unlimited. That's it. Happy ending. Zero tears. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required. $15 per month equivalent.

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56:17We're back with Prof G Markets. At first glance, it appears that we may be in the middle of a small business boom. According to the Census Bureau, Americans filed nearly 6 million applications last year to start new businesses. That is the most on record. But the data doesn't tell the whole story. Only 1.7 million of those applications were identified as high-propensity businesses, meaning that they intend to hire paid employees. The vast majority of the applications were for entrepreneurs with no plans to hire people. So, Scott, this really grabbed my attention because I've been seeing this argument that we're seeing this small business boom, which I was down to run with.

57:04It's a reason to be optimistic. the fact that small business applications, new business applications have exploded last year. They were up 10 % year over year, hit a record. It's continued into the first half of this year. But most of those businesses are, quote, likely non-employer businesses. So these are businesses with a very low likelihood of producing actual payrolls. And this is a methodology that the census uses. They include things like, have you indicated that you're hiring? Have you provided a first wages paid date? Are you in an industry with strong employment demand, etc.? And it turns out that more than 70 % of these new businesses that we're supposed to be celebrating are likely non-employers.

57:51So this seems like a little bit of a fake boom.

57:56Scott Galloway:This blew me away. So just in terms of how the sausage gets made here. We do editorial calls where the analysts pitch stories and Ed comments on them and I comment on them and we decide and our producer decides what stories we're gonna do or not do. And this just blew my mind because I have this whole AI optimist rap. And one of the stats I just love is that new business formation is at a record high. And this just punctured that argument because again, numbers can be misleading, right? Six million new business applications, which is a record. It sounds like a renaissance of the American entrepreneurial spirit, but as you guys pointed out, it isn't.

58:36Scott Galloway:Only 1.7 million, or about 30 % of them, were quote-unquote high propensity, meaning they have any intention to hire people. The other 4 million plus are one person, a laptop and an LLC. So when you try and start a restaurant, you're going to hire 10, 20, 30 people when you're starting a food blog as a side hustle. That's not great for the employment market. I mean, what the data shows is this isn't a small business boom. It's a side hustle economy dressed up in Census Bureau language. And it probably in some ways reflects something unhealthy about the economy. One in three adults say they're planning a business or side hustle in 2026, and that's up 94%, you know, year over year, which is okay.

59:21Scott Galloway:There's something very good about that. But the question is, is it entrepreneurial confidence or economic anxiety wearing a founder's hoodie? And people aren't starting companies because times are good. They're hedging because they can't afford to pay their rent with their main hustle. So this is one of those many times where I realized like, I don't know what I don't know. And this quote unquote new business boom as supported by new business applications isn't really a new business boom. Yeah, I think this is a really important data point. And I just want to just clarify for everyone. So as I said, 70 % of these new businesses are likely non-employers according to the census.

1:00:04You compare this to the mid-2000s, the share of likely non-employer businesses, so businesses that are probably not going to employ anyone, that share has doubled. So yeah, we're seeing new businesses, but most of them are not really contributing to the economy. Now, the question is, why is this happening? What's actually going on here? So one theory is that you're seeing like the rise of the AI-enabled solopreneur, that AI can sort of allow you to kind of form your own thing and you start your own business. That might be it. But when you look at the data, this trend began way before AI. This happened, it exploded in COVID.

1:00:42So this was a COVID development where suddenly all of these kind of like non-employee businesses just skyrocketed. There's another theory, maybe it's just a lot more people are self-employed now. People quit their jobs and now they're doing their own solo companies. But if you look at the self-employment rate and the number of self-employed Americans today, it is actually down. It has fallen quite significantly over the past few years. So that leads me to one conclusion that makes a lot of sense, which is that these are all kind of bullshit side gigs. This is, I'm bored at work, I'm still employed at work, but I work remotely, and I kind of want to start like a lifestyle brand, and I'm going to make an Instagram account, and maybe I'm going to make a sub stack.

1:01:34And maybe if I'm feeling really excited about it, I'll also create an LLC because I'm interested in doing that. But to be clear, that's not a business that is actually contributing to the economy. It's basically like a hobby. It's basically like a more legit vehicle to express yourself based out of the boredom that you feel in your real job. and i think that this is becoming a real trend here especially among young people because i think young people are so disillusioned by the notion of traditional work by the notion of being an employee and receiving a salary and receiving a way receiving a wage i mean this is part of sort of the andrew tate philosophy of don't be a wagey don't be a wage slave you need to start your own business you need to be an entrepreneur you need to be a a hustler the the entrepreneurship mindset has become such a hot thing, especially among young people who are living in an increasingly digital and social media-driven world, to the point where I think we are all fantasizing about that by creating these little bullshit side hustles and saying, I'm an entrepreneur now.

1:02:47But in reality, you're not, because you still work for a company and you're not generating a livable income off of your side hustle, off of your business that you're saying makes you a founder and i think that that is the problem that we're running into and it's being reflected in the

1:03:04Scott Galloway:data in my 30 year career 40 um i've only i've only worked for another organization or a company for two of those years and i was right out of ucla and was morgan stanley in the analyst program and the rest it's been me starting my own businesses and so when kids when i say kids students come to me in my office hours. They don't want to talk about strategy or brand strategy. They want to talk about, they want career advice. And typically the most common thing I get is I have an offer from Google and JP Morgan, but I'm thinking about maybe trying to start my own business. And they come to me because I'm an entrepreneur that's registered some success, and they think I'm going to encourage them to start a business.

1:03:47Scott Galloway:And my answer is universally, don't be a fucking idiot. Go to work for Google. Entrepreneurship is romanticized. Six out of seven startups fail. There has never been a wealth creation machine like the American Corporation. It's not as sexy. It's not as romantic. There's a lot of bullshit. There's a lot of politics, but they will remove that mole on your back, and it is the best way to get rich slowly in history. And these platforms, the American corporation are the most unbelievable platforms. If you're so many of these dudes who work at the Alphabets, the JP Morgans, the Goldmans, the Snowflakes, the sales forces of the world think they're so badass and they should start their own company.

1:04:40Scott Galloway:and for most of them, I can look at them and say, fucking call Mark Benioff and say thank you because you have had access to a platform that has created millions of dollars in economic security. And guess what, boss? You are not that talented. You attached your cart to a fucking thoroughbred because you live in America and you had the right certification and you're probably very talented, but nothing leverages talent like the U.S. corporation. Some people aren't cut out for it. I didn't have the skills, not because I'm such a baller and needed to do my own thing, but I literally was too insecure to work at a corporation.

1:05:22Scott Galloway:Every time people went into a conference room, I thought they were talking about me. I was constantly in a state of anxiety because I just didn't know how to navigate the politics of an organization. I was too immature. and I resented people who I thought were not as smart as me, making more money than me. I hated not understanding why decisions were being made without my input. Okay, folks, that is a small price to pay for what is, with a great company, an unbelievable chance to increase your skills, have an HR organization trying to invest in you. I find most big companies have a certain paternal feel.

1:06:04Scott Galloway:I do think that most of them try to take good care of their employees for not only shareholder reasons, but they generally try to be good citizens. But everybody wants to be an entrepreneur. And then let me act like a real boomer here. My companies, I've always been, I think I have, I can rightfully say I'm great at working with young people and I appreciate and love working with young people. The average, I think the median age at Prop G Markets is 26. and the creativity and dynamism of this generation, this youngest generation is unparalleled. It's the most, I've worked with every 20 something, you know, that our economy has spit out since 1980, 1990, when I started my first company.

1:06:50Scott Galloway:This is the most talented generation of 20 somethings in history. Their facility with technology, their social responsibility, their willingness to work hard amongst a cohort of this cohort. What worries me is that when I was coming out of college, it was a given that you were gonna have to put on a suit, that you were gonna have to wake up at 7 a.m., that you were gonna have to commute downtown, that you were gonna have to navigate a corporation, that you were gonna have to behave a certain way, that you were gonna have to not go out on a Wednesday night because you had to be up at O Dark 100 hours on Thursday morning.

1:07:28Scott Galloway:And I needed that discipline and it served me well the rest of my life. And I worry that a lot of people of your generation never developed that level of discipline because of remote work, because of sometimes parents who indulge their quote unquote passion of pursuing a food blog or starting a jewelry line. and that we have a larger portion of young men and women in this cohort that are in for a bit of a rude awakening because they haven't been exposed to the requisite discipline of being really successful in this economy. Having said that, I appreciate how many young people have started their own business, worked their asses off, and are building something great.

1:08:12Scott Galloway:Entrepreneurship has served me well. But I think this is a double-edged sword. And a younger generation that has some of the most talented people in the history of the economy, but I worry that some of the gestalt of the zeitgeist is setting them up for failure. The trouble to me isn't the idea of someone thinking, I'm going to take a risk and I'm going to take a swing and I'm going to leave my job and start a company. You know, maybe they'll be right, maybe they'll be wrong, but they're assessing the risk and they're deciding to take the risk, and I kind of respect that. The thing that I don't respect is what we're increasingly seeing, based on this data, which is you actually don't leave your job.

1:08:51You stick around as an employee and then over on the side, you start your little company because not because you're actually like trying to change your life, but because you like the idea of being a founder. You like the idea of being a business owner. And if we look at the data, the way Gen Z thinks about this stuff, it's really striking. More than half of Gen Zs say they have seriously considered starting a business in the past 12 months. So one in two Gen Zs on the street, they want to start a business. 70 % of them say that business ownership is part of the American dream. And if you believe that most of us are trying to pursue the American dream, that means most of us think that the only way to be fulfilled and to live a successful life and have a successful career is to own your own business and to be an entrepreneur.

1:09:42But here is my favorite stat. Last year on LinkedIn, there was a 69 % jump in LinkedIn profiles who added the title founder to their bio. And this is the problem. This is the thing that I take issue with, where you like the idea of being a founder. You like the ethos and the culture, and you like to be able to call yourself a founder because founders are cool and they go on podcasts and they have interesting lives and maybe they have large social media followings. and they're kind of something of an influencer at this point, but you're not willing to take the actual risks that it takes to actually build a business, which, as you say, six out of seven times fails because it's really, really hard.

1:10:27And it's actually quite grueling and not very sexy when you live the actual life that is required to make that business successful. So we're just living in this limbo period, this paralysis of like, oh, I have my job, but I kind of want to be a founder. And then you'd end up just living your life without actually doing anything with it.

1:10:46Scott Galloway:So the notion that entrepreneurship takes a toll on you, Ed, let me just prove that. Look at me, Ed. Seriously, come closer. Look at me. Okay. I have a real bee in my bonnet around the whole founder thing. If you typed in the name on LinkedIn of every company I've started, you're going to find there are 30 or 40 co-founders of all these companies. Everyone has decided they're a co-founder of Red Envelope, of Profit. And people would call themselves co-founders, and I'd be like, fine, have at it. Titles are cheap. Have at it. But here's what a founder is. A founder signs the front of checks, not the back of checks.

1:11:32Scott Galloway:And the reality is the vast majority of people are not willing to put their own money. Here's what it means. L2, amazing, great company, smart people. We sold for$160 million. I got very lucky. Extraordinary. All the moons lined up. The first two years of L2 was me going home and telling my girlfriend, who had just given birth to our second son in about 36 months, oh, business is good. And I apologize. I can't be home for bath time. I am working 14 fucking hours a day, and I've got to work all day Sunday and just go in on Sunday to be emotionally supportive of the people who showed up on Sunday.

1:12:10Scott Galloway:And in exchange for that, on the first or the 31st of every month, we've got to take$100 ,000 out of our savings and put it into the company. And my girlfriend would literally look at me with this look of fear, like, what the fuck are you doing to our family? And I would have to sit there for an hour and explain to her why hopefully it was going to pay off. and not once, but twice, I came within a hair of losing it all, couldn't pay my lease on my office, was gonna have to shut the whole thing down and go home and not only lay off a bunch of people, but go home and tell my girlfriend and the mother of my children, oh, the$1.2 million or basically the majority of our savings is gone.

1:13:00Scott Galloway:That's what entrepreneurship is, folks. And by the way, that's a good story. It worked out. But back to this notion, people love to call themselves a founder. Have at it. Let me give you the sweet spot. If you think of going to work for a company, there's employee zero, the founder. There's employee 200 ,000 at IBM, right? Where's the sweet spot? My experience is the sweet spot is somewhere between employee 10 and employee, I call it 100 at a fast-growing, great firm with great founders. because the founder risk is so immense. It's like infant mortality in the 1500s. You just don't know what's going to take the baby out.

1:13:52You just don't know, right?

1:13:54Scott Galloway:They could catch typhoid, malnutrition. You just don't know what's going to kill this thing. It's kind of macabre. Anyways, once that risk has been starched out, if you find Mark Benioff and you got this guy worked at Oracle, this company is raising a shit ton of money. It's a great product. And I could be the 300th employee and be the VP of marketing and get a quarter of a point, that's the sweet spot. Because you will, every one of the first one, two, 3 ,000 people at Alphabet, at any of these companies, even the companies you don't think of, like Palantir, there were tens of millions of dollars and they registered a fraction of the risk and the psychic damage.

1:14:38Scott Galloway:The sweet spot is kind of employee 10 to 100 or 10 to 1 ,000 if it's Amazon. If it's Amazon and it's Series B and you meet Jeff Bezos and you're gonna be the 1200th employee managing their fulfillment centers and you're gonna get millions of options, go all in. That's an unbelievable. And then as an investor, I find that the sweet spot is actually way late. Basically the most successful businesses, the lowest failure rate of any startup is nursing homes because they're unsexy. I find the greatest returns I've registered and the greatest place to invest is in distressed, is in companies that have gotten the shit beaten out of it and everyone's written them off for dead, both in equities and in distressed debt.

1:15:23Scott Galloway:I find from an investor standpoint, from your own human capital, you want to be at letters B and C, not letter A, not letter D or E. And from an investment standpoint, you want to invest in a nursing home. All right. Let's take a look at the week ahead. We'll see earnings from Microsoft, Meta, Apple, and Amazon will also get the Federal Reserve's interest rate decision for July. Scott, do you have any predictions? So the number that is the number of the month is 58. And that is in January of 2025, the token usage from Chinese LLMs was 10%. In July, it's 58%. So there's now more token usage of Chinese AI firms than Frontier Model in the U.S.

1:16:10Scott Galloway:Now, the dollar volume is still much greater because, get this, Anthropic and ChatGPT are 35 times more expensive than DeepSeq. So what you're seeing here is a bifurcation in the market. I'm not catastrophizing that frontier models are going to go out of business. I think they're great businesses. I think their valuations are going to get crushed, but they're still amazing businesses. What's happening in the AI market is what happened in the automobile market, and we're becoming Germany. We have very high-end, aspirational luxury brands that are the best cars on the road, that are higher margin, higher price tag.

1:16:44Scott Galloway:But Chinese models are basically Honda, Hyundai, BYD. They're offering 80 % of Frontier models for 10 % of the price. And the reality is, and I hate to say this, I think China is winning the AI race because it's not about having the most expensive or even the best product. It's about putting the most AI in the most people's hands. and that's what china is doing the ai market is turning into germany versus japan and toyota is the most valuable automobile company in the world except for a meme stock called tesla that's where people will fill up the comments well what about tesla well it's down 15 in a week ai is becoming bifurcated into frontier models and into the models that get in everyone's hands and i would argue that if you look at the low-cost automobile producers they're more relevant than the high-end guys.

1:17:33All right. I like it. My quick prediction, we had inflation at 4.2. It went down to 3.5. People seem to think that's going to be the trajectory of inflation that's going to keep going down. I don't think so. I think we're going to go up above 4. We're going to be hovering around 4.5 for the rest of the year. I think I've said it before, but I'll say it again. I don't think we're getting out of this situation anytime soon.

1:18:01Benjamin Spencer. Our video editor is Jorge Corte. Our research team is Dan Chalon. Kristen O'Donoghue and Mia Saverio. Jake McPherson is our social producer. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.

1:18:32You help me in kind reunion As the world turns And the dark flies In love, love, love, love

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