Business & Money

During times of crisis, fairweather investors get shaken out if things for which they lack conviction. I try to think about this fact in both good times and bad. When I’m making a buy decision, I ask myself, “will I hold, or perhaps even add to the position, when times are bad?”

With clouds overhead, here are where my convictions remain unchanged.

The first is software. Software is permeating every corner of every industry in every geographic region. One can never be sure, but it seems likely this trend will continue. (holdings: CRM, CNSWF, SHOP)

The second is e-commerce. People will continue to buy more and more things online. Feels like another safe bet. (holdings: AMZN, BABA, SHOP, MELI)

Third is gold. One of the most constant and predictable financial realities is the continued inflationary policy of the Fed. Fiat currencies, since the dawn of time, have suffered from continuous debasement. Thus, in a world of paper money and infinite QE, gold feels like a necessary component of a sound portfolio. (GLD, BTC)

Finally, is an investment in oneself. This takes countless forms, but for me it means reading books, interacting with people smarter than me, and exploring avenues to grow our company.

And on that last point, I can think of 2 factors that make it, far and away, the most important investment of all.
First, the measuring stick is internal (hopefully). You’re putting in work to be a better version of yourself.
Second, there’s no cost of entry. Whatever your station in life, you have the ability to invest in yourself, at least to some degree.

(I don’t have a clean categorization for 2 of my largest individual positions, both of which I’ve been adding to. Those are BRK.B and MKL. These are anchor positions due to impeccable leaders, impeccable discipline, impeccable track records, and bulletproof balance sheets.)

Human Progress

Some say people don’t change, while others say they do. I tend to lean towards the latter camp, but one thing is for sure. Human nature doesn’t change.

One aspect of that has to do with emotion. We’re emotional creatures through and through. You can see it in yourself, you can see it in other people, you can see it in Washington, and you can see it on Wall Street.

So, knowing that we cannot change our nature, the fruitful course of action, from where I sit, is to get to work understanding those emotions.

One way to do that is by cultivating a mindfulness practice. One technique that has been particularly helpful for me has to do with noticing how emotions physically manifest in experience.

Take anger for example. I usually feel a tightness in my forehead as my brow furrows. My breath shortens and I begin speaking at an increasing rate. This, of course, leads to an increase in heart rate which no doubt kicks off a whole new series of physiological responses.

But when I pay attention to the physical phenomena as they occur, I can more quickly recognize them for what they are, and subsequently remind myself to resume normal breathing and relax the muscles in my forehead. Once I do that, I’m in a much better position to have a calm conversation. The angry moment ends after a few seconds rather than turning into something that has the chance to ruin an afternoon.

Philosophy

Related to understanding our emotions is understanding motivation. You might even say that emotion and motivation are one and the same.

An executive coach once suggested that I work hard because I fear failure, because I fear not being good enough. We’ll save the psychoanalysis for another day, but she drew a straight line from emotion to motivation.

I point this out because I think the present moment affords a unique opportunity. Many find themselves with more time on their hands than normal. Perhaps work has slowed down. No commutes. No sports. Less social commitments.

So what to do with the extra time?

Spending some dedicated to thinking about my emotional state and motivations always proves beneficial for me.

Blake Crouch captured the sentiment well in a question he posed in Dark Matter, an incredible novel I just wrapped up with the gentlemen of Excelsior.

“How do you feel about your place in the world?… Are you happy in your life?”

So I’ll ask you.

Are you mindful of how you spend your time? And with whom? And on what you spend your financial and emotional capital?

My Latest Discovery

Whatever your answer, it’s important we spend time being mindful, not only of our own place in the world, but of the people around us. A friend recently pointed out something profound.

This is the first time in our lives, and perhaps the last, when we will be impacted by something that equally impacts every other person on the planet.

Rich or poor, black or white, young or old, the current moment touches everyone. If that’s not a call for solidarity, I don’t know what is.

In times like these, each one of us must find ways to take decisive action and contribute to something outside of ourselves.

For me that means making our software free for small businesses indefinitely.

It means sending groceries to family members. And telling the TaskRabbit delivery person that I ‘ll cover her groceries as well if she just adds them to my total.

It means continuing to pay our cleaning lady and telling her to stay home and stay safe.

It means backing a couple of GoFundMe campaigns, one towards getting more PPE to our medical professionals and one toward The Yoga Room, a local yoga studio that Hana has frequented here in Long Island City.

Whether you have $500K, $500, $5, or 50 minutes of time, figure out a way to be helpful.

Good morning folks!

We wake up this morning and find ourselves in the midst of a pretty precarious situation. Globally, COVID-19 cases have exceeded 134,000 with 5,000 people dead.

But why is one of the co-founders of an online security company writing to you about a global pandemic this morning? He is not an epidemiologist, nor does he play one on TV.

I’m writing to you because my wife asked me an interesting question last night.

With anxiety levels so high about the coronavirus, it seems every website and news source is coming out with a list of recommendations on how to avoid infection. And topping the list almost every time is wash your hands regularly. I’m confused. Have people not been washing their hands this whole time?

Ok, my wife has OCD and washes her hands 10x as much as the average person, but I thought she asked a great question. Why does it require a global pandemic for most people to regularly wash their hands? A while back, I wrote on my personal blog (here) about how I regularly see men fail to wash their hands when leaving the bathroom. I don’t understand; not even a quick rinse!

Stepping away from hand washing and the coronavirus, this is incredibly emblematic of what it means to be human.

When I was in high school, I went to a party at a friend’s house. Everyone was drinking and having a great time. At some point, a few friends decided to go on a joy ride. A few hours passed and they had yet to return. We were worried so we gave them a call. No answer. We waited for 5 hours until we got a call from the hospital. There had been a serious accident. That was the night that one of our friends lost their life.

Before that night I was cavalier about seatbelts. Since, I wear them every time.

Everyone buys a home security system after a burglary. We all rush to get flood insurance after the hurricane.

It’s so human to wait until something bad happens to take precautions.

Often times, we still fail to act. In the world of cybersecurity, there’s no shortage of crazy things that have happened (Crypto AG, Stuxnet, Equifax).

Yet, let me ask you a question. What steps do you take to protect yourself online? How much do you spend every year on digital security-related products and services? I imagine the answer for the vast majority of you is $0.

Don’t wait for the digital equivalent of COVID-19 before you take this seriously.

Wash your hands. Wear your seatbelt. Get insurance. And protect yourself while you browse the internet.

If Idenati can play a small part in helping you do so, then we are on the right path to achieving our mission as a company.

Stay healthy and safe everyone!

It’s hard to say goodbye!

Friday was my last day at Datorama (Salesforce). It still doesn’t feel quite real. Datorama has, without question, been the highlight of my professional career. The learning, the growth, the relationships, the economic result, all were more than I could ever ask for. Probably more than I deserve.

And so, at such a transitional moment in my career, or more accurately my life, I’ll take a moment to reflect.

One thing I learned…

If you had asked me to define leadership before 2015, I might have said something about work ethic, the will to win, or putting the team on your back. I might have described the ability to deliver consistently stellar results. But today I have a different perspective. I’m not even sure what words to use, but I’ll offer up a few emblematic moments that capture the idea.

When Datorama was acquired by Salesforce in August of 2018, we had a company-wide all hands to celebrate the milestone. My boss stood up to talk about what the moment meant to him. But before he could muster up any words, he began to cry. I’m not sure I heard anything that he said after the tears began to flow. The tears said everything. For me, those tears represented how deeply he cared. How deeply he cared about our employees, our customers, and our families that often carried the load at home while we were on the grind trying to accomplish the impossible. 20 years from now, I won’t remember any of the deals we closed or how much money we made. But I will forever remember those tears and how much he cares.

I love Halloween! The love partially stems from the fact that my birthday falls on November 1st, so Halloween celebrations always feel like birthday parties. But there’s another reason. Our Monday sales meetings at the office following Halloween are always some of my favorites. My boss has 4 young girls and he always puts up pictures of their family Halloween costumes. I think my favorite over the years would probably be when all of the girls, he, and his wife all dressed up as different sized Russian dolls. Incredible!

The pictures were fun and comedic, but they also said something more important. They said that being a good dad matters. They said that family is important. They said that we are all much more than our sales results or performance reviews. We are whole human beings and or support systems are crucial if we are to do anything of significance. Those pictures taught me more about leadership than any management book ever will.

I recently met Magic Johnson in Las Vegas during our annual sales kickoff.

He told a story about playing for the Dream Team (the 1992 Olympic gold-winning US men’s basketball team, arguably the greatest team ever assembled). According to Magic, the coach asked Michael Jordan if he wanted to be a team captain. Surprisingly, he said that Magic and Bird (Larry) were the obvious choices, and that those guys should share the responsibility. Magic was clear about who lead the team when they hit the floor (MJ), but in that moment, he felt that Jordan’s humility and respect for two greats of the game demonstrated that the team came before his ego. That set the tone.

Coming back to my boss, he’s the best salesperson I’ve ever met. He built the sales machine from scratch and single-handedly closed the first $5 million in revenue. Yet, I never once saw him beat his chest or seek out the spotlight. The only time he sought attention was when someone needed to take responsibility for missing our numbers, or when someone needed to speak to an irate customer. It’s a really special combination when someone celebrates other people’s success over their own, while regularly diving on grenades for other people at the first sign of trouble.

I guess what I’m saying, after rereading what I just wrote, is that there aren’t really any adjectives that describe leadership adequately. Rather, it’s all about the small actions, steps, and behaviors that a leader demonstrates repeatedly over time that define their significance to the organization.

So how would I define leadership? Tyler Sandler.

Why it’s time to leave…

One of my favorite people at Datorama has a great question for anyone leaving a job.

“Are you running away from something or running toward something?”

To be clear, there are times when you need to escape a situation. Mental or physical abuse, discrimination, unethical behavior, a generally toxic environment. All can be reasons to pull the rip cord.

However, broadly speaking, it seems to me that it’s preferable to be running towards something as opposed to away.

At Datorama, there’s not much to run away from. The company is growing faster than it ever has. 75% of the sales organization is hitting their numbers, including everyone that reported to me. We have a stellar management team. We have built-in distribution in a large base of existing Salesforce customers. The stock is up 70% in the last 2 years. What’s not to like?

But remember, I am running towards something. In my annual letter this year, I wrote about the driving force of my life. I wrote about the desire to achieve economic and intellectual escape velocity. Taking a shot at building a company is the next step on that journey.

On the intellectual front, building this company will be an infinitely harder intellectual challenge. It falls on my shoulders to define the sales process, marketing strategy, pricing model… everything to do with our go-to-market. My partner’s area of responsibility is all things product and technology. To be honest, it’s actually a bit anxiety-producing when I think about it. But I think that anxiety is natural. Your heart is supposed to beat faster and your palms are supposed to sweat before you ask the girl to dance.

Further, even if this doesn’t work out, I believe that the learnings that I take from the experience will be invaluable. You can read all of the books and take all of the classes, but some things in life are trial by fire. I don’t want to look back at today when I’m 50 and say that I never took my shot.

On the economic front, starting a technology company is not rational. The overwhelming majority of companies fail. However, the upside potential is far greater than working for other people. And that’s not only with regard to the outlier companies that ring the bell at the stock exchange or sell for hundreds of millions of dollars. When you hold substantial equity ownership in even modestly sized businesses, seemingly small outcomes become meaningful.

And again, to come back to the very real possibility that it doesn’t work, the economic downside is limited. We have sufficient money in the bank to take a chance. My beautiful wife has an incredible job with great health benefits that I can attach to. I’m confident I could get another job down the road if it came to that.

In short, it’s worth taking a shot when you have limited downside with unlimited upside.

So what comes next? What are we building?

I spent many of my childhood years in a town called Elkins Park on the border of northern Philadelphia. It was a quiet and safe neighborhood. We often left the door unlocked when we left the house for a few hours. When at home, it was often wide open. I don’t remember having a curfew and no homeless people were wandering the streets. Most of my time was spent at home, at school, or somewhere in my immediate neighborhood.

Now I live in New York City. In a big urban environment, everything changes. The options for how to spend your time are infinite. Our doors are always locked. I meet my wife at the subway station if she finishes work late. If it’s later still, Uber or a cab wins out over public transportation and she uses “Find My iPhone” to share her location.

Urbanization, more broadly, is a macroeconomic trend. People everywhere increasingly choose to live in and around big cities, and that requires different rules and protocols for how you navigate the world. It’s not good or bad per se, just different.

You might think about the internet in similar terms. Back in the year 2000, if I was spending time online, I was sending an email, chatting with friends via AIM, or playing a game. A couple of years on, I had an iTunes account and wasted a bunch of time on Facebook. A handful of accounts on a handful of different services.

Today, we operate in the digital equivalent of New York City. My phone has 75 different apps on it all requiring unique accounts. 9 finance apps, 5 social, 8 travel, 5 transportation, and on and on.
At work, there’s a completely different set of apps you use. There’s your work email, CRM, expense platform, and many more.

But despite leaving the digital countryside for the big city, many people (and businesses) haven’t made any changes to how they navigate the digital world. They spend virtually no time or energy worrying about the internet’s version of locking your doors and safely navigating to different digital destinations.

In slightly more literal terms, we’re building a software company called Idenati (pronounced “identity”) to help businesses and everyday people be a bit more thoughtful about their security when using the internet.

You can click here to sign up for free if you want to check it out and join us on our journey!

Business & Money

Over the last decade, Warren Buffet, my favorite investor and arguably the best of all time, has slightly underperformed the market.

Carl Icahn, another legendary investor, has achieved less than half of the market’s return over that same period.

Ray Dalio, who runs Bridgewater Associates, the largest hedge fund in the world, has done worse still.

One thing to note is that these heavyweights rely on very different investing strategies (value, activism, and global macro, respectively).

I could continue rattling off names of storied money men, but I think you get the point. Basically everyone has underperformed the benchmark.

The question that I frequently hear tossed around is, “have these legends lost their touch?”

I think a far more interesting question might be, “what information is to be gleaned from the fact that many of the greats have struggled of late?”

Perhaps we should focus less attention on the investors and more attention on the time period in question. After all, the last decade is an anomalous period. It is the period following the worst financial crisis since the great depression.

In my person personal portfolio, I’ve continued to aggressively increase my position in Berkshire Hathaway. I find it telling that Buffet is sticking to his guns, sitting on hoards of cash, and increasing investments in the energy sector (energy being one of the worst performing sectors of the last decade).

It’s important to remember that, just like the market’s performance following the last crash, the best bull markets always follow the worst bear markets. In other words, it seems that the probabilities would be in Buffet’s favor after a period of underperformance.

Perhaps this bull market goes on for another 1, or 5, or even 10 years. Who knows. But I’m skeptical that “this time is different.”

The proverbial chickens never fail to return to their place of birth.

Human Progress

Speaking of the energy sector, I’ve taken quite an interest of late.

Tree-hugging is in vogue. Every popular media outlet dedicates reams of articles, if not entire sections, to climate change. Tesla is now valued at more than Ford, GM, and Chrysler combined 🤣.

Don’t get me wrong, I welcome these developments and they are overdue. There is considerable evidence that would suggest that we’re careening towards a climate catastrophe sooner rather than later. And even if later wins out over sooner, reducing our greenhouse gas emissions and planetary destruction can only be a good thing for the progress of humanity.

However, this point doesn’t necessarily eviscerate the investment case for energy companies, particularly those in oil & gas. I know this isn’t the “Business & Money” section, but I can’t help it. I’m a dollars and cents kinda guy, and thus am interested in whether or not oil companies might offer attractive investment prospects.

On the surface, it would seem that they might. Oil majors like Chevron & Exxon Mobile are trading at 2008 levels. Dividend yields are hovering around 5 or 6%. Shares have been treading water building long bases.

Geopolitical issues notwithstanding (impossible to forecast), it would seem as though the real question is a basic economic one. What does the supply and demand equation look like? On the supply side, there seems to be plenty of black gold sloshing around. So much so that OPEC is discussing another output cut to prop up prices. On the demand side, it seems that global consumption continues to climb (please chime in here if I am mistaken).

I guess it comes down to whether the growth in supply will outpace growing consumption to create an environment of persistently low oil prices.

Or perhaps, when will EVs cause the growing consumption curve to turn downwards? I recently learned that the “road” sector (passenger and freight vehicles) accounts for about half of oil consumption.

So where does the market go?

On the product side, we need oil for lots of things and for moving people and things around. It seems likely that this will be the case for a good while longer.

On the financial side, depressed stock prices and oil prices mean many energy companies are struggling. The result is massive consolidation where majors that are flush with cash can scoop up distressed assets on the cheap. Therefore oil & gas majors should be well-positioned as a buyer of last resort, so to speak.

The jury is still out, but there might be something here…

Philosophy

A few weeks ago, I woke up on a Sunday to a conundrum. I had 4 loads of laundry to do, but only 2 dryer sheets. I guess it wasn’t so much a conundrum per se; I cut the dryer sheets in half and off to the laundry room I went.

This got me thinking though. How much of our consumption patterns are the result of sizing that is dictated to us by giant companies? I had never before considered cutting dryer sheets in half. But when I did, the smaller pieces seemed to do the job just fine.

I meant to turn this into a habit to get twice the mileage from a box of dryer sheets, but I unconsciously went back to using full sheets when the next shipment arrived.

Much of our consumption, whether considering consumer packaged goods, food, or alcohol, follow similar patterns. We do what we’re told, or what those around us have always done. And we give it all very little thought.

I have almost fallen asleep at the wheel while driving a few times in my life. That feeling when you jolt awake and correct the wheel right before careening off the road or into oncoming traffic is, quite possibly, one the most terrifying feelings imaginable.

If only falling asleep at the wheel of life produced a similar sensation?

It turns out that self-driving cars arrived ages ago…

My Latest Discovery

I visited an Amazon Go store last week for the first time. These are the convenience stores that use a plethora of cameras, sensors, and machine learning to obviate the need for cashiers and checkout lines. I walked in, scanned my Amazon app to enter through the turnstiles and was off perusing through the aisles. I grabbed a Cliff Bar, a banana, and a bottle of water, then headed for the exit. As I walked out slowly, I looked around to see if there was some gesture or scanner I was supposed to visit, or perhaps just someone close by that would acknowledge my departure.

Nothing. You just leave.

It felt like magic. It felt like the future.

Business & Money

Is it important to understand a thing, or simply to know how it behaves?

Concerning physical phenomena, understanding behavior is often sufficient. Take gravity; if an egg accidentally slides off the counter, it will break on the floor. It’s unimportant to know that the egg will accelerate toward the floor at 9.8 m/s squared, or that the egg exerts a gravitational pull on the earth just like the earth does on the egg.

In financial markets, technical analysis is akin to knowing that the egg will break on the floor. It involves looking at price trends and chart patterns to identify investment opportunities. Contrast that to fundamental analysis which looks at the fundamental attributes (financial statements and economic factors) of a business.

You might say gold is another example, at least as far as I’m concerned. I started adding gold to my portfolio in January. A few friends were surprised by this given how much I love the investing philosophy of Warren Buffet. Buffet often describes gold as an unproductive asset in that it produces no cashflows. But I didn’t add it to the portfolio in search of cashflow. I added it to my portfolio because gold generally rises in times of economic uncertainty. With negative interest rates, unprecedented debt levels, on-again/off-again trade wars, slowing growth, and the like, uncertainty seems rather high from where I’m sitting.

So you might say I’m buying gold, not because I really understand much about it, but rather because the egg seems dangerously close to the edge of the counter.

Human Progress

Gold, or more broadly money, is an interesting example of this notion of understanding a thing vs understanding how it behaves.

If you’ve read anything from Yuval Noah Harari, you’ll be familiar with the idea that money is a collective myth or a story. Its value lies in the fact that everyone agrees that it’s valuable. If you go to a store, the shopkeeper will trade you his latest styles for your money because he can use that money to in turn trade for more inventory or to open a new location.

Other examples of this collective myth-making or storytelling can be found in the form of political and religious ideologies. I am not interested in discussing the validity or benefits of any one ideology over the other, but rather in the recognition of the fact that all are stories.

You might say that the trajectory of human development since our earliest days on this planet have wrested on the success of these myths and stories. Individual and/or collective survival has often depended on which stories you subscribe to.

Philosophy

When enough people believe in a story for a long enough time period, sometimes that story starts being called a truth.

A religious fundamentalist might call their religion a truth. A citizen of a western democracy might call individual liberty and freedom a truth, or rather a truism. An entrepreneur might put capitalism and free markets in this same category.

But in reality, these are all stories (again, staying away from the validity or value of said stories). Myths. It can be really hard to remember that truths are just stories in disguise.

The problem with truths is that, once a story enters this category, it becomes less important to understand the true nature of the thing. If something is simply true, there’s less need for critical analysis (or so it might seem).

As we move through the world, we all adopt stories and myths that suit us. Some of these are adopted by choice, and others by mere circumstance.

Then, every so often, the rug is pulled out from under us. Suddenly you see a story standing naked and afraid where a truth had been only a moment ago.

While jarring, these moments stand as poignant reminders that our species are prolific storytellers and that we must remain critical and curious as stories come into contact with our sense-making apparatus.

My Latest Discovery

I’ve recently started a book that touches on these ideas called The End of History and The Last Man. I’m really enjoying it so far, and perhaps you will too. Cheers!

Business & Money

Do you remember when you learned about phase shifts in elementary school science class? At some point, you learned about what happens to matter when it goes from solid to liquid to gas.

I don’t remember all of the details, but I do recall a few of the basics. For example, I remember that heat has something to do with the amount of energy in a system and how fast the molecules are moving.

Take ice for instance. If you take an ice cube out of the freezer, the cube will immediately start to absorb energy from the warmer air around it. That means the water molecules start vibrating faster and faster as they absorb more energy. When you reach 32 degrees Fahrenheit (0 degrees Celsius), the bonds between molecules start to break apart as the ice melts into water.

The thing I find interesting about phase shifts like this is that they advertise themselves. If you can measure the amount of kinetic energy in the system, you can guess when the phase shift will occur.

From what I can tell, markets behave in a similar manner. During a trend, markets seem to have low volatility. When I think back about the last 8 years, a few hiccups notwithstanding, it’s been a steady climb higher. But over the last year, we’ve seen a ton of choppiness up and down.

Perhaps a secular shift is in store.

Human Progress

One of the things I love about the world of technology is that age is truly just a number. Not a day goes by without hearing about some 20-something-year-old creating some exciting new thing.

And while most people know this, even those that don’t work in tech, the idea does not seem to be fully embraced.

As I close in on 31, it’s natural to think about the facts of getting older. One thing that happens with most of us is that we want to be surrounded by people at a similar stage in life. People are getting married, starting to have kids, moving to the suburbs. It’s easy to start feeling left out if you aren’t doing the same.

But I would challenge that mode of thinking. One of the best pieces of advice I’ve ever received was to try finding a mentor that’s younger than me.

The common model of mentorship is to find someone older than you that has accomplished the sort of things you’d like to accomplish. And that’s all good and well.

But finding really admirable people that are younger than you might pay better dividends.

It’s that old Gretzky adage about skating to where the puck is going.

Philosophy

I read a post a while back called “One Big Thing.” It was about the power of reducing complexity. In it, the author writes about a thought experiment he once posed to a single male friend,

Imagine you had a list of 10 single women your age and you can only go on a date with 1 of them. However, you know nothing else about any of these women. Not what they look like. Not their personality. Nothing. If you could only have one piece of information on all of them (no photos), what would you ask for before making your decision?

The response he got was that his friend would want to know how often each woman went to the gym. Work out habits, he claimed, are indicative of many other positive attributes, like personal hygiene, motivation, and discipline.

I enjoyed the post and I like the idea of reducing complexity.

I bring this up because the last few weeks have been pretty busy. I’ve found myself working late into the night almost every night. And for some reason, these weeks have felt a bit different than other weeks. So, as I was walking the dog yesterday afternoon, I found myself asking a similar question related to reducing complexity. What one thing separates a good week from a bad one?

And I landed on a pretty simple answer. Planning. My weeks generally start on Sundays wherein I spend some time thinking about priorities for the upcoming week and how those should be mapped to each day. But the last few weekends have not had great planning sessions for one reason or another. I’m bucking the trend today to get back on track.

So I’ll pose the question to you: what one behavior would help you live a better life or make better decisions about how you spend your time?

My Latest Discovery

Succulents are super weird! Take a look at these things:

Look closer…

Apparently, you can snap off the leaves, put them on a bed of tiny pebbles, and they will sprout out these little alien-like leg looking things in an effort to birth a new plant.

Of course, Hana knew what she was doing when she started propagating these things, but I still think it’s weird!

Imagine if you could chop off a finger, leave it in a bowl of rocks, spray it with water for 6 weeks, only to come back to a baby in the bowl!

No reason to leave planet earth to look for extraterrestrials when they’re right here in my apartment!

Business & Money

I have a question for you: would you want to invest in the following company:

Fintech company revolutionizing the banking space (customers include Apple, Stash, Uber, and many others)

Recurring revenue model

Growing the topline (sales) at roughly 15% compounded over the last 5 years.

Growing the bottom line (profit) at an even higher rate of 25% compounded over the last 5 years.

I bet you’d guess this company was trading and pretty lofty valuation and was on everyone’s radar. But you’d be wrong. I’m talking about a company called Green Dot (GDOT) and I bet you’ve never heard of it.

One of the things I do whenever I make an investment is write a short blurb about my investment thesis. The idea is that I can come back to this document periodically to ensure that my thesis remains true, despite fluctuations in the price of the stock. This is that thesis regarding Green Dot.

I’ve had the company on my watch list for quite some time, but only recently made the investment. That’s because the stock is down 70% from its November high. And that’s despite the fact that the underlying business is doing incredibly well. The reason for the drop is because they recently lowered profit and EPS guidance for the full year. But that, in and of itself is not important. The question is ‘WHY did they lower guidance?’ They lowered guidance because they are making substantial investments in the business. They’ve set aside an additional $60 million to double down on the fastest growing segment of the business, namely the platform side of the business where the company enjoys a recurring revenue model. More on that in a moment.

So why do I like Green Dot so much?

They started the business over 20 years ago as a prepaid debit card business (now they are the world’s largest company in this space). You know those prepaid cards you can buy in a Walmart or CVS? Those are powered by Green Dot. But that’s not that interesting.

What is interesting is their “bank as a service” platform. This allows other companies to offer banking products, without becoming a bank themselves. Have you heard of Uber Cash? You can deposit money into Uber Cash, which basically acts as a bank account within your Uber app. So when you request a ride or order a meal via Uber Eats, you can pay with Uber Cash and receive discounts and other benefits. Or perhaps you’ve heard of Apple Pay Cash. That’s Apple’s answer to Venmo. People can send money to one another via Apple Cash, or you can pay with Apple Cash when you use Apple Pay in stores. Both are powered by Green Dot.

This second side of the business is what you call a “platform business.” That means that other companies can build products and services on top of the platform. Apple and Uber can offer banking services, without getting a bank charter or dealing with all of the other headaches involved in financial services. The reason I love platform businesses is because you don’t have to pick winners. I don’t know who will win the digital banking business, and I really don’t care. But I do feel rather confident that many more companies will move to offer digital banking services over the coming years. And I feel comfortable investing in the company building the underlying tools and infrastructure to power those services.

And platform businesses often come with recurring revenue, which is the best kind of revenue. When merchants build web stores on top of Shopify (you know how much I love SHOP), they pay Shopify a recurring fee and it becomes increasingly difficult to replace Shopify over time. Same goes for WordPress and Amazon Web Services. It’s really difficult to change the plumbing and foundation after you’ve built the house.

Another thing I love about the business in that they are making investments in areas where they are uniquely positioned to succeed. All of those prepaid debit cards and bank accounts means they have a ton of data about how people save and spend. As such, they are in the perfect position to role out a savings account with a 3% yield. And not only does this account have a 3% yield, it also comes with a debit card that gives you 3% cashback. You heard that right. a DEBIT CARD that offers cashback rewards. We’ve all heard about credit cards with cashback, but never a debit card. That’s 🍌🍌🍌!! It might even seem insane to some. But Green Dot might be the only company where this actually makes a ton of sense. Their unique history allows them to make unique investments and offer products that no one else can.

Finally, I love the underlying economics of the business. So many “growth” companies are allergic to profits. But not Green Dot. They are profitable and have been for a long time. And that’s not at the expense of reinvesting in the business. They continue to innovate and reinvest, but do so in a financially responsible manner. So refreshing!

Human Progress

I recently went to the doctor for a well-overdue checkup. Hana was tired of me putting it off forever so she scheduled it on my behalf (thanks babe 😍).

Everything seemed in order, with one exception. The doctor said that it sounds like I possibly have a slight heart murmur 😨. She reassured me that it sounded minor (1 out of every 6 beats) and that it 99% of cases, there’s nothing to worry about. That said, hearing that something sounds irregular regarding your heart is never a fun thing.

Later that night at home, I was telling Hana about my visit. As you might expect, she became a bit worried and started asking tons of questions. “What’s a heart murmur? What causes it? When are you going to the cardiologist? Should I schedule the appointment for you?” I did my best to recount everything the doctor said, but it was difficult to remember all of the details and nuances.

A couple of days later, I remembered that I had read a blog post about a company trying to solve this exact problem. The company is called Abridge and they’ve created a simple yet elegant app that records your visits with healthcare professionals.

You just open the app, let the doctor know that you will be recording, and click the giant pink record button.

A few moments after your recording, the app uses machine learning to produce a written transcript that calls out important medical terms in bold. Here’s a test recording I just made.

The thing I love so much is that it shifts power to the edge of the healthcare system, namely patients. And I think this might be one of the only ways to bring about a change in an industry that’s ripe with red tape and bureaucracy. You have payers over here, providers over there, hospital systems somewhere in the middle, and we haven’t even mentioned EMR companies, pharmacy benefit managers, and many other constituents. Patients are usually an afterthought, given that they aren’t the ones coughing up much money.

Hopefully, apps like Abridge might help to stem this tide by giving people better access to their health data.

Philosophy

Have you ever heard of lucid dreaming? It’s the ability to “wake up” within a dream, without actually waking up in real life. With this ability, you gain the ability to control what happens in the dream and are only limited by the confines of your imagination.

I’ve experimented with lucid dreaming over the years at different times. And as meditation has become a bigger part of my life, lucid dreaming has become easier to do. I can’t do it on a nightly basis, or even pick the nights it works, but I can do so with some regularity (perhaps once every couple months).

For some reason, whenever I am able to take control of my dreams, the first thing I often do is fly. Flying is an incredible feeling. To simply leap off the earth and woosh through the air is a feeling like no other (at least I imagine it to be).

The other day, while I was walking the dog, I found myself thinking about why I like to fly in my dreams. The thing about flying is that you can immediately escape any situation or circumstance. You can go anywhere and see anything. Frustrating things like traffic and crowds are no longer an issue.

And what’s interesting is that you might think of meditation as bringing this same ability to everyday life. Or more accurately, meditation brings greater awareness of what’s happening in each moment. And that awareness brings more volition into how you choose to respond to various stimuli.

In other words, as you meditate more regularly, you gain far better control of your emotions and reactions. And in this way, you gain an ability to escape emotional and psychological circumstances the same way that flying might allow you to escape physical circumstances in the real world.

So, you might see that meditation = flight.

My Latest Discovery

This weekend I rode a Revel electric moped for the first time. It was so much fun! And it’s so easy! You just open the app on your phone to locate a moped via the small blue icons.

When you get to the right spot, the scooter is there waiting for you.

You just take the helmet out of the container on the back, hop on, and you’re on your way. It cost me $7 for an 18-minute ride from Long Island City to Williamsburg. Not bad if you ask me!

Have you heard the Slack story? Stuart Butterfield and his team were working to build a gaming company. The team needed a system to easily communicate and collaborate, but one that also integrated with all the other apps and services they were using. So they built Slack to address that need. Before long, they realized the gaming company wasn’t going anywhere, but that the team loved using Slack. So they pivoted to focus solely on that. The rest is history.

Similarly, my partner Jake and I have been working together for about a year and a half to build a software company focused on knowledge sharing. The company is called Vectr, and the idea is to better facilitate the flow of information across groups of people by empowering individuals to ask important questions. But this post isn’t about Vectr.

In building the company, we’ve run into a challenge that I imagine most (if not all) startup companies face. In building software, you end up using a whole host of different products and services as part of the development process. We use AWS for compute and storage, Heroku for app development, Stripe for payments, Chase for banking, and many others. So, the question we faced was, how do we effectively keep track of and share access to all of these accounts between the two of us?

This trend & challenge is equally present with regards to personal accounts. The other day I set a timer for 60 seconds and tried to make a list of all the different apps and websites I use. I came up with 65, and that only includes the ones I use regularly!

The early solution we came up with was simple. Use the same simple password across everything (I know 😂😂 two Einsteins over here)! I’ll refrain from elaborating on why this is a terrible approach given that you, dear reader, are smarter than we are.

Realizing we were being foolish and irresponsible, Jake and I sat down one evening and came up with a short list of ways we wanted to improve the way we manage our online identity as a company.

1. Passwords must be unique across every service we use.
2. Passwords must be virtually impossible to guess.
3. We will rotate passwords for core services once per quarter.
4. We’ll never write down passwords (on paper or digitally).

From there, we started to explore the existing solutions on offer.

At the low end of the market (with regard to complexity, capability, and cost), we came across password managers like LastPass and 1Password. We tested both, and to be honest, they work well. But they don’t fully integrate and enforce the principles we described above. If you log into a website and use the word “Password” as your password, these services will offer to save it. In fact, if your password is “Password” for every site and app you use, that’s perfectly acceptable to them. We wanted to find a solution wherein behavior like this is not an option.

Further, and perhaps this is the hippie iconoclast coming out in us, we didn’t love the idea of getting in bed with one company for something so important. What happens if their website goes down (Facebook, Slack, and Amazon Web Services have all experienced 12+ hour outages during the last year during which you could not use their services)? Then, of course, you have scarier things like hacks, data leaks, or companies storing passwords in plain text and unencrypted environments (cough, Facebook, cough, Google). So, we wondered if a more decentralized approach might make sense. (no blockchain talk today, I promise 😇).

At the high-end market, you have enterprise-grade identity management solutions. And while incredibly robust, the cost and complexity make these infeasible solutions for individuals and small teams.

After a few weeks of research, we couldn’t find what felt like the right solution. We just wanted to solve this challenge and be done with it. And what do you do when you can’t find what you want? Correction, what does Jake do when he can’t find what he wants? He builds it! And like the Slack story, we’ve absolutely fallen in love. At the start, we focused only on our most critical business apps. Then we added everything else. From there, because it was so easy to use and, to us, so valuable, we each started using it personally. I now manage 56 different accounts in one easy-to-use interface.

Naturally, we then told the women in our lives about it and they too fell in love. Now they both have their own accounts and are using it daily.

So, why am I telling you all this? Well, given how much value we take from the service, we thought other people might also find it valuable. So now we’re planning to roll out a limited beta to a small number of people to test the service and provide feedback. That’s where you come in! We’re hoping a small number of you (living in NYC) will join the beta! Anyone interested?

What’s in it for you? We’re planning to host a small “launch party” at my apartment in a few weeks and would love to have you there. We will, of course, give you food, drink, and a good time! We’ll spend about 20 minutes talking about the service, then I say we just kick back and get weird!

The total number of people will cap at 10, so don’t sleep!

What do you say??

Business & Money

A couple of weeks ago I was on a plane preparing for takeoff. As I set there in my seat, there were a few investment ideas swirling around in my head as the flight attendant droned in the background about oxygen masks. As I gazed out the window thinking about how I might reduce some risk in my portfolio (I’ve been shifting from growth toward value as valuations have continued to climb), there was a thunderstorm brewing on the horizon. There were horizontal lightning strikes flashing through the sky which I found remarkably beautiful.

The mix of lightning strikes and thoughts about risk reminded me of an analogy I heard a while back. I don’t remember exactly how it went or where I heard it, but I’ll do my best to convey the gist.

In a lightning storm, there is a chance that a specific lightning strike will ignite something on the ground and lead to a fire. Californians know this all too well.

But risk is not the probability of a lightning strike on a specific place. Rather, risk is better characterized by the amount of dry plant matter on the ground. When there is little dry plant matter, the probability of a lightning strike leading to a fire is fairly low. By contrast, if you have an extended period of drought, leading to the accumulation of dried plant matter, the chance of fire resulting from a lightning strike becomes far greater (irrespective of where the strike happens).

Equate that to today, and I’d say we have a lot of dried plant matter laying around. Political unrest at home. Political unrest abroad. Lofty valuations in public markets. A global bear market (with the exception of the US). Extremely low interest rates, meaning the Fed doesn’t have a ton of recourse to act should they need to. Inverted yield curves. And on and on and on. So I believe we have elevated risk levels.

As a result of the heightened risk, I’m playing a lot more defense than offense at the moment. My cash position has risen to 33% from around 15% a year ago. Add another 7% of what I’ll call extremely safe bets (GLD, BRK.B, MKL, DIS, AAPL, GOOGL). And of what remains, I’m putting more emphasis on healthy balance sheets, consistent earnings growth, and profitability. Don’t get me wrong, I’m still a techno-optimist and still own a number of growth names (ETSY, TTD, MELI, SHOP, TDOC), I’m just not adding to those names at the moment.

Human Progress

The web browser was an incredible thing for innovation and technological progress. Before it came onto the scene, Microsoft ruled the world because it controlled the operating system. And due to that control, app developers basically had no choice, but to develop apps on the windows OS. To develop for a different operating system was to severely limit your chances of reaching tons of end users and thus building a business of any significance.

But the browser changed that. It meant that it didn’t really matter what type of hardware you purchased and what type of OS came pre-installed. It leveled the playing field. As long as someone had an internet connection and a browser, they could access web-based applications. This state of affairs allowed for companies like Amazon, Google, Ebay, Facebook and many others to thrive and wrest some power from Microsoft (the fact that Microsoft is once again the most valuable company on the planet notwithstanding).

Keep this in mind as we slightly change topics. We’ll be circling back to the browser and its significance.

Many of you know that I’m currently working with a friend to get a software business off the ground. And part of that equation involves a mobile strategy, given that mobile is taking an ever-increasing share of web traffic. And if you’re in the US, that means ensuring that your software shows up in the Apple App Store if you want to ensure easy access and maximum distribution.

If you’ve ever tried to publish an app to the App Store, you’ll know that it must go through a review process. An unbeknownst to many, this is a human review process wherein every app is reviewed by a human being. And broadly, I’d say this is a good thing. Apple is playing a gatekeeper role to protect consumers by ensuring that malicious software doesn’t make it into the store. But there’s also a downside. If you operate a company and you compete with Apple, your apps must also go through this review process. And not only does Apple get to review the apps, they also take a 30% cut of your revenues for providing this service.

This situation lies at the center of Spotify’s recent complaint against Apple filed with the European Commission. Spotify is suggesting that Apple is engaging in anti-competitive behavior because 1) it claims that Apple frequently rejects its app upgrades (degrading its customers’ user experience), and 2) Apple takes a 30% cut of Spotify’s revenues. It’s not that the 30% cut, in and of itself, is a bad thing (remember, the role that Apple plays as a middle man has value). But rather, Spotify’s main competitor is Apple Music. So given that both Apple and Spotify must pay a huge portion of their revenues to music labels and artists, as they should, to allow Apple to then take an additional 30% of revenues from Spotify does not leave them with much capital to operate the business, market to new customers, and the like. Thus, Apple has an inherent competitive advantage.

But let’s come back to the power of the web browser. It seems many developers these days are opting to build what are known as “progressive web apps,” as opposed to native mobile apps. From Wikipedia:

Progressive web applications (PWAs) are web applications that load like regular web pages or websites but can offer the user functionality such as working offline, push notifications, and device hardware access traditionally available only to native applications. PWAs combine the flexibility of the web with the experience of a native application.

There are a couple of important things to note about PWAs (likely many more, but I’m not a developer).

First, you usually install them by navigating to a company’s mobile site. When you land there, you get the “add to home screen” dialog box. This adds an icon to your phone’s home screen so it appears just like any other app. But importantly, you have circumvented the App Store and thus don’t have to give up any of your revenue to Apple.

Second, from a development standpoint, things are far more simple. You develop one PWA that works for every browser, OS, and device type. So you don’t have to worry about developing an Android app, iOS app, lengthy review processes, and accounting for older device models that only support older versions of the OS.

For these reasons, my technical co-founder has opted to build a PWA for our mobile experience. Makes a ton of sense to me.

So again, it seems the browser may be playing a key role to level the playing field and wrest power from the giants (the fact that the leading browsers are owned by the giants notwithstanding). And I think that is a good thing that will ultimately lead to more innovation and more competition.

Philosophy

I’ve been meaning to write about something for a long time. But I haven’t done so out of fear and shame. But reading The Gifts of Imperfection by Brene Brown has illuminated the fact that embracing shame and vulnerability are what courage is all about. So it’s time to get this weight off my chest.

To put it simply, I’ve lied to many of you for years. I feel terrible about it and it’s time to put an end to the lies.

Up until age 18, basketball was a big part of my life. I wasn’t some superstar athlete, but I took the sport seriously and was confident in my ability.

But that all changed when I went to college. There were a number of schools (primarily division 3s, a handful of division 2s, and one division 1) that recruited me aggressively and where I could have attended on a full ride and continued to have basketball play a major role in my life. But when I visited New York City, I was enthralled by the lights and the energy. I was spellbound. Smitten even. She had me before she said hello. 🤤😍🤩🤪

In other words, NYU was a no brainer. The fact that it offered a top 5 undergraduate business program was just a cherry on top.

Unfortunately for me, I wasn’t good enough to make the team. Plain and simple (I think this is the first time I’ve set this aloud to myself or written it down). But for a long time, I embraced a multitude of excuses.

First was the fact that the coach that “recruited” me was nowhere to be found when I arrived for freshmen year (still unsure if he left or was fired). I put recruited in quotes because I don’t want to embellish the facts any longer. I received a few recruiting letters and went on an unofficial visit to meet the team, but nothing glamorous.

Second was the fact that the head coach favored a “different style” of basketball. There weren’t many black guys on the team and shooting threes seemed more important than getting out in transition or playing the pick and roll. But again, just another excuse.

I just wasn’t good enough and the team was not in need of another guard.

And not only did I not make the team freshmen year, I again tried out sophomore year and didn’t make the cut. I largely kept this a secret to avoid the embarrasment of telling people about it, then failing.

At the time I didn’t make a big deal about it or spend much time reflecting. The story I told myself was that I would have more time for partying and more time for studying.

But the reality is that this was one of the biggest failures and disappointments of my life. And it was a huge blow to my confidence and my feeling of self-worth. So much so that I’ve lied about it ever since. To this day, many people believe that I played basketball in college (because that’s what I told them). For those closer to the story or with a better chance of finding me out, I told them I played, but got hurt early in my collegiate career and thus decided to focus on my studies. I wouldn’t be surprised if there are a couple of other fabricated versions of the story floating around that I no longer remember.

But long story short, lies, lies, and more lies. I lied because I was ashamed of my failure and have always struggled to embrace vulnerability.

I’m writing this to apologize for all of the lies and to take a small step toward better dealing with shame.

My Latest Discovery

If you subscribe to AT&T as your wireless carrier and you have an unlimited data plan, it includes free access to one premium entertainment service. The options include HBO, Cinemax, Showtime, Starz, Amazon Music Unlimited, or Pandora Premium.

I chose HBO. Duh! 😉