In this episode, we are joined by Rohit Krishanan to talk about EA, the value of management consultants, the common traits of companies that last a long time, and where all of the Beethoven's went.
Rohit blogs at:
Transcript:
William Jarvis 0:05
Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways that is worse in the past, or it's a better, more definite vision of the future. I'm your host, William Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com. Row it, how are you doing this afternoon?
Rohit 0:40
I'm doing fantastic. It's a lovely day. It's the end of the day. It's wonderful.
Will Jarvis 0:44
How are you? Doing great doing great. Thank you so much for taking the time to come on the show absolute pleasure. Do you mind giving us a brief bio and some of the big ideas you're interested in?
Rohit 0:55
Oh, that's a tough one brief bio. Um, I guess. Professionally, I work as a venture capitalist. So my day job is defined and investing in interesting companies and interesting entrepreneurs. Before that, I used to be a consultant. And before that I did a bunch of different things, including running a hedge fund at one point in time. Personally, I'm the dad of two kids, two sons, ages one and four and a half, which is important. And the husband to shoot my lovely wife. In terms of ideas that I think are important that says the next is normally if I don't know how to define it, I usually think of it as a nexus between tech and culture. Although that's broad enough that it probably encompasses anything and everything. I initially started thinking quite a lot about how organizations are created, how they evolve over a period of time. And I've written about that a fair bit in the past. I guess one of the big things that I'm thinking about at the moment is what are the different forms of information transmission within organizations that actually make some of them more stable, and some of them less stable? I don't know whether that is considered a large idea, or a big idea. Now that I say it out loud. But it's definitely big in my imagination, that's for sure.
Will Jarvis 2:21
Gotcha. Gotcha. Thank you so much for giving that that bio, I kind of want to hop in, you know, you tweeted that something recently, he said, you know, the biggest lesson I had, from my time at McKinsey was that a 23 year old with zero knowledge of an industry can walk into a company and can surprisingly often make it better. What's your theory of why that is the why do organizations get stuck in these these weird kind of, you know, loops of a bad or like local minima or something weird like that, where they just can't get over the next hop and actually improve?
Rohit 2:53
Oh, man, that that tweet definitely did get away from me, what was supposed to be an interesting observation, definitely stirred up a fair bit of controversy. People seem to really have very strong opinions on consulting, which is also interesting. Consulting in general works, because it takes fairly smart. And, you know, ambitious people kind of direct them towards solving a problem that oftentimes companies just don't have the resources or the ability to do internally. So there's a there's a wonderful new article that written by sort of a friend of mine, Paul, Paul Millard, called too big to think, where it kind of talks a little bit about how as consulting firms have evolved over the years and grown much, much larger, they've stopped having a lot more intellectual heft and dominance. And now, a lot of it is just because you just sort of happen to have a coterie of fairly smart people that other companies would find difficult to attract and retain, because they're not giving them new, exciting challenges every three months to go and solve. So part of the reason is, like large companies have a lot of different types of problems, which are very difficult to solve inside out, right? Because people inside the companies oftentimes have particular biases, they're part of different decision making hierarchies that are not taken very seriously there, they have a lot more skin in the game, funnily enough, which means that like their decisions are colored by the fact that a lot of them might actually get benefits from other people making the decisions, not to mention the usual politics, which should by no means be underestimated. What that effectively means is that somebody from the outside walking in saying like if I have these sets of data points, I analyze them in this fashion and output does fall out and then we can decide from it, it becomes surprisingly exceedingly valuable. I move back and forth about whether this should be the case or not. We can talk about, you know, hypothetical utopian scenarios where this is not the case. But today, it most definitely is the case. And that holds true in a vast number of types of companies. The caveat that I would make is that almost all of the times the impact that is made is by solving a problem, which is not the company's core problem to solve, if that makes sense. So you're not usually helping create prop trading strategies for Goldman Sachs, you're not trying to create, you know, ad market optimization for Google, you're solving somewhere where the company is not putting all of its, you know, resources, manpower focus, and therefore, external folks coming in with a fresh perspective can oftentimes add a tremendous amount of value.
Will Jarvis 5:41
Gotcha. Say you're not, you know, teaching fishermen how to fish. It's more like there's the specialized problems that are outside of their their given skill set. And then you come in and you can you can, you can find alpha in solving those problems, because they haven't spent time focusing on it. It's not the key area of expertise, if that makes sense. Yeah,
Rohit 5:58
I mean, a fisherman will normally know how to fish. But there's a whole set of questions about I don't know, taking the analogy too far. Like, what type of rod should they use? Where should they actually go? And do what are other fishermen doing? What type of tackle should they use? What are the right types of bait, from what we have seen some of these things in something like fishing is very, sort of a much more locally determinate. I mean, over a period of time, people kind of develop these kinds of intuitions, so all fishermen will know it far better than young. Not always, though, I mean, the world changes, you have carbon fiber fishing rods. And I'm pretty sure that like from 40 years ago, you might not exactly know how to use these things. So it's not about the core of the activity that the people are doing necessarily where the value is actually being added. It's everything else. But the funny thing is, everything else is essential, right? I mean, without that you don't really have a company to run, you don't really have a business to run. I should perhaps also point out like a lot of the there are the normal political answers right there, we are hired to kind of push through an agenda that already exists to rubber stamp something to fire people to take ideas from like five levels below in the company and surface it so that the people can make a decision, all of which have a grain of truth to it. But I do find it instructive for it to not purely be a cynical take on it. Because value is actually created. It's a fact.
Will Jarvis 7:24
Right? It's there's more to the story than it's just like, This person comes in, you know, say it's young you you're a McKinsey consultant. McKinsey is a good badge, there's some credential there that okay, like that smart people have okayed this, you know, the boards like well, McKinsey said it was okay, so it's not we're not gonna go, you know, nobody got fired for hired McKinsey kind of kind of a thing. But that's not the whole story. There is actually value and kind of advice that's given that matters.
Rohit 7:49
It's almost rarely the case that it's that simple. And the one piece of evidence is the fact that like there's McKinsey teams would often work 80 hour weeks, and there is no reason to work. If your job is to rubber stamp someone else's thing, right? You can lend out that reputation pretty easily. Even if you wanted to all you had to do was to justify the decision that someone else had made. There's obviously like a bias toward solving for problems that people actually do find becoming more more important problems, right? I mean, that's just part of life, right? I mean, you, you're in a client service job, which means making the client happy is kind of what you're paid for. But at the same time, you're not going to continue getting paid for long periods of time, if all you're doing is trying to make the client happy, if that makes sense. Like you do have to bring some independent perspective. Again, not a panacea, it is a client of his job. And ultimately, you can even think of it as a load bearing load balancing job, right. I mean, does a company want to employ, I don't know. 50, extremely well paid consultants sitting around just in case they had a problem for them to solve? Or would they rather call them when it's actually needed in and just make sure that the benefits that they bring exceed the price stack, which is a reasonably good forcing function? Gotcha. Gotcha.
Will Jarvis 9:08
You mentioned one other interesting thing you mentioned, the consultants may not exactly have skin in the game, like people who are inside the firm do, which reminds me, I used to work at an enterprise software, machine learning stock startup. And one thing I realized was that most people that bought like software within a large organization are often in some sense, trying to raise their status with the company's money or something like that. They're trying to get ahead with the company's money. And that's probably is that your sense of like, that's a better model of how to think about like how people make decisions within organizations is more like a public choice perspective than that someone is usually optimizing on trying to make the firm better.
Rohit 9:48
Yeah, I think skin in the game is important. But it also makes you liable to talk your own book, which is the flip side of it. So you might have a You know, if you ask me, for example, for stock picking advice, and I gave you advice, and I told you these are good, because I happen to have bought them, you would rightly look at that and go, either you can say, wow, you know, we're off, it's kind of clearly doing what he thinks is right, so I should believe him. Or you can say he already bought these things. So he's just trying to talk his own book. And they're both valid perspectives. So I don't think of either of these things as a panacea, inside larger organizations, definitely happens that people raise their status by talking about different things that they can actually do. I mean, in many ways, within any large organization, especially if you're somewhere a few levels down, and procurement or whatever, and you're trying to kind of purchase a piece of software. There's the object level question of does this solve for something that I want it to solve? And there's also the meta question of, am I gonna get credit for being the person that brought it in? Or like, get blamed for being the person that actually brought it in? I think these are, these are both questions that the person would have to do. And these questions are semi independent of whether they are the people signing the check or not. I mean, other other complications come into play if the purchasing party and the using party are not the same, as we saw in use at enterprise software that used to happen all the time, right? In the old days, where the procurement team would decide on price and some list of features that you have to take costs. And then the people inside the company who have used the pieces of software, basically hate it, because it's not built for them. It doesn't matter what you decide or not, someone else is saying yes. But the way they're saying yes, by buying I don't know, IBM, or Oracle, or whomever, is governed also by the fact of not just does it do the job, but also by the fact that if I'm the person who buys it, or if I'm the person who gets experts on discount, am I going to be seen better? Am I going to be seen as worthwhile, you know, person who can kind of do this job? So yeah, I mean, there's all these internal pressures when you're trying to kind of create something or build something inside a company, right.
Will Jarvis 12:12
Make sense? I'm curious, you might have kind of answered that question that this question. Next question there. What is common knowledge within kind of elite consulting firms that lay people might find surprising?
Rohit 12:25
Well, good question. Um, I don't know, there's a lot of drain from consulting to the rest of the world, because consultants do keep quitting and the rest of the world. In fact, you know, I used to joke that everybody at McKinsey at any given point is looking for a new job, right. And they're they're always about a week away from quitting, whether that's like a first year analyst, or like a senior partner who's been there for 25 years, they're all about a week away from quitting. In, in many ways, like, there used to be a lot of common knowledge that was built before like frameworks and things like that, or how to think about companies, I feel like that now, they almost don't exist in terms of sort of differentiated knowledge, because everybody knows it. Some cultural things do stand out, though. Things like I mean, one of the things I appreciated quite a bit was like, at least in the firm, you had something called an obligation to dissent, which meant if you're in a team meeting scenario, you're discussing a bunch of ideas, problems, solutions, whatever, what have you, and you have a different perspective to everybody else, you're supposed to stand up and say it, regardless of where you are in the hierarchy, right. And that, I feel is a, it's actually practiced, which kind of blows people's minds still, maybe not 100%, it's not everywhere, but at least it is practiced enough that it is a reasonably important thing to point out. And I think in generally bringing that to real life is a it's a fantastic thing to bring with you, right. And regardless of anywhere else you go, and it does. The other is a bunch of other regular things that I don't know if this is common knowledge or not, but like couple of the other things that I took away is how to run meetings, you know, something fairly simple and straightforward, you know, have an agenda, run people through it, ask people for feedback. I mean, there's a lot of these basic, you know, blocking and tackling kind of stuff that the consulting firms do kind of teach you that I find shockingly absent in the rest of the universe once you come out of it. That's great.
Will Jarvis 14:27
That's great. I I'm curious, you mentioned that kind of the really high attrition rate. Why do you think that is like like, what lens the lens these firms to having such a high attrition rate where everyone is constantly looking for a job even though on the outside everybody's trying to get in? You know, I remember in college like, you know, this is immense pressure for for kids to try and like get into kind of an elite consulting firm, but at the same time, everyone that ends up there, it sounds like it's trying to get out at some level.
Rohit 14:54
Yes. The best way that I found to describe it is that it is like a university, it's closer to like an MBA school rather than a job, if that makes sense, very hard to get into, you gotta try and hustle and you know, do your best to get in. Once you're in, you think of it as a shorter term sentence, right? I mean, you're here for a little while, you learn a bunch of things, you'll meet a bunch of great people, you'll have long, long lasting friendships, and, you know, all of the rest of it. But at some point, you gotta graduate and move on to your real life, which is what most people do end up trying to do. There are object level factors, like, you know, a lot of travel and, you know, no work life balance, etc. That does, that is part of it. But part of it is also that the business model for most of these firms in corporate a certain amount of attrition, because that's their model, they hire large numbers of extremely bright people, give them quote, unquote, an education and a bunch of different sectors that they might be most interested in, gain value from them during their learning process. And at the end of it, most people have a decision to make that like, do I want to stick around and try to make, you know, partner or senior partner and, and be in the firm for a long period of time, because I happen to love the work or love the people, you know, some combination thereof. But mostly people do realize, just like with the universities, that after a couple of years, they kind of know what they want to do. They like some things more than other and therefore, they're like, once I know what I want to do, I might as well just go do it. And for some people it does, it happens to be consulting, although it's not right there. The the, when I joined, one of my friends came and told me like it's, you know, it's not outer up, it's sorry, it's not, up or out, it's actually outer up. So if you don't get out in time, you turned up, you do end up moving up. I mean, I feel like it's obviously a joke. But there is a grain of truth to it, that there's a certain type of person for whom the combination of answering a bunch of different questions, meet deep relationship with a specific set of clients customers, is what they want to do, and the rest of the pack is going to comes along with it. For most people. That's not the key goal in life. Got it? Got
Will Jarvis 17:11
it. I want to move on a little bit now and talk about genius grants. It's something you've written a bit about. What's your theory on? Why genius grants work? And should we have more of them on why they work? Is it some is it about the money? Or is it more about getting the signal and like this kind of hero license to do something incredible? Or is there something else going on?
Rohit 17:33
So it's a good question. I think I first wrote about it sort of a while ago. And since then, there's been a flourishing of genius grants that actually come up, which I take to mean that my thesis was right, even if it's not causally relevant. I think the way to think about it is a little bit like if you roll back the clock, I don't know, 100 years, then you had a certain group of institutions or places that placed emphasis on the type of person you were right. I mean, they didn't really have formal standardized admission processes. It was highly biased in the in the extreme negative way. But it also meant that when Vidkun Stein decided to get his PhD, he could just get it based on the work that he had done, as opposed to having to jump through several hoops. He even declined to write, I think, the 300 word summary of his thesis of Tractatus, and I think Ramsey wrote it for him, which is one of my interesting tidbits that you could just do that, at that point in time. Roll the clock forward to today, we just have a much larger number of people, in some ways, a much larger number of eligible people for sure. And as a consequence, we all have to jump through 75 hoops, right? Talk about getting into a consulting job, or talking about getting into business school or talking about getting into any school for that matter. You have to write essays and like you gotta go to extracurricular activities, and you have to be pretty extraordinary before you're able to actually do anything. One of the weird things here is like if you ask people who are at the top of their fields in, I don't know, academia, tech, science, whatever. They often say that like, I wouldn't have made it today because like what it required, what it requires of me to be at the 99th percentile with zero mistakes over a 15 year time frame is just something that nobody can do. As a consequence of all of this, I feel alright felt, and I still do that. There is a large contingent of people who are yes, they're bright, but they also have a high potential for achieving extraordinary things in the world, which is just not being capitalized on. It's a discovery problem to a large extent, and the capitalization like they they have to be encouraged to kind of go and do something else. If you're the right type of person and the right type of environment like If you're a tech minded chap who was in Silicon Valley in the last 20 years, the world was okay. Right? I mean, he was encouraged for you to go build a company or join, etc. But most places in the world are not like that. And most types of excitement people have about different subjects. It's not like that. So genius groans effectively, the reason I came to it was I was looking at the teal fellowships. And I was struck by the fact that A, the teal fellowships have been extraordinarily successful. It is, it is annoying, how how well that has worked out, I would wager that if there was an equity component to it, it would have worked out better than TEALS investing career, it's pretty much that great. And as a consequence, when you kind of look at it, you're like, A, this is super small, right? I mean, that's kind of the one of the things that jumps out, it's like, he does one of 10 students a year for like, over a period of 20 years, it's minuscule, which means he has to be giving focus to actually doing this properly. So put these three things together, you have a discovery problem to find extremely bright people and encourage them to pursue their dreams. And the way to solve that discovery problem is for people to use, Khalid referred prestige, if you want, it might be a little bit of money, in some cases for them to go off and do their work. But mostly, it's a question of encouraging people to actually go and do things that they think can add value that normal life kind of holds you back from for a variety of circumstances. So I do think they're important. I wonder, in retrospect, whether Genius Grant was perhaps too extreme a name to give it, but in some way, or some shape, or form, I do feel like, yes, there, they are important, because if you want to capitalize on the people who are at, you know, 80, to the 95th percentile, call it 80 or 80, to the 99th percentile, who have high variance possibilities, that they can do extraordinarily things, maybe, but they are, they can also kind of go the other direction, who don't necessarily fit into the mold that makes people successful are not happy with it, they don't want to go become a, you know, a lawyer or a doctor or a banker, or even entrepreneur, then
we're losing potential as human race if you're not actually taking advantage of them. So you do need to create new platforms where they can possibly be successful. And funding is a part of it, you asked about money, I think that is a part of it for some of them. Because there are folks that I knew whose lead said, Oh, great, this means I don't have to go do the normal academic academia as my job right, I don't need to kind of write three papers and like a job market paper, go hunt for it. Instead, this provides me the freedom to actually write the way I like and sub stack or, you know, write an actual book that you know, a lot more people will be excited about, basically do scholarship in a way that is divorced from sort of the prestige of institutions that you happen to be associated with and kind of divorce that a little bit. So I think it's wonderful. That's, I guess, the lens, I put on it, that it's a solution to the discovery problem by using nodes, who already exist in different parts of the ecosystem.
Will Jarvis 23:13
So it's kind of it's kind of an answer about giving people some amount of slack, some like, it's a bit of a credentialing. And then it's also the money component, all it all kind of comes together to make something special happen and the selection effect on the other side.
Rohit 23:28
I mean, ultimately, what you want to have happen is that a person with potential to do X feels compelled or able to go into X, sometimes the lack is money, right? But quite often, the lack is somebody just saying you can do this. So go ahead and do it. So it's like, I don't think either I don't think these are completely independent variables quite often. But like, the amount of money is not that large. And the amount of push it takes is also not large, that large but combined together, as long as it can push somebody to go and pursue something that they want to pursue, then suddenly, I think we do better as a species if you're able to encourage a hell of a lot more, rather than kind of laying out the path and saying, you know, walk down this brick road. And you'll reach a destination. It used to work for a little while in the past, but I think that was a age bookended by both places where higher variance outcomes are what's most important. Got it.
Will Jarvis 24:30
Speaking about this higher variance outcomes. You've written extensively on EA grant funding and VC should a subset of VA great grant funders just be more aggressive and swing for the fences more in their giving kind of like early stage VCs do?
Rohit 24:47
I think so. There are two major questions here are in order to kind of make that a reality. Question number one is that we see works because our returns are extraordinarily legible, right? Like it's a, it's one metric you have dollars out. So, you know, everything else is a byproduct, but like you can at least see, with dollars out what's been the most valuable thing or like, you know, who's been more successful. So that legibility is important with something like EA tries to do also by making like, you know, quality measurements, etc. But obviously, it's a little bit muddier than something as clean and crisp as as dollars out. I think that I think increased variance there is important, and to their credit, that they there is enough interest within EA or, you know, similar organizations to try and shoot for moonshots that they do try to pursue it a little bit, whether it's in things like longevity, long term ism kind of questions, or AI existential risk, and the questions, things where they think that the potential outcome lies somewhere far in the distribution. I think the question the second big question, apart from the legibility to me is, we see works because there are 1000 VCs, right? That means you have 1000, different firms creating their own PCs, finding companies on their own. And despite the, the crazy amount of like, you know, fighting for deals that happens within them, they do try and create some form of an independent perspective of what type of company is most important. And like, yeah, a lot of the times it might look like cookie cutter, because everybody kind of copies everybody else. But despite the mimetics, I think there is truth to the fact that there are people who think certain companies are important and fund them, and they go on to become, you know, some of the largest successes, the heterogeneity, there is something that he doesn't have still I mean, it has, it's basically equivalent to one large fund trying to run multiple strategies inside it, as opposed to multiple funds trying to pursue their own independent strategy trying to maximize a metric. And there's the they're slightly linked, because the availability of dollars as a metric is what helps you create multiple strategies to maximize the dollars. But similarly, if you had said, like, the availability of quality saved as a metric, and you had multiple ways to go off and do that, and the funding kind of broke down into multiple sub units, who are very independent, to be able to go off and do it, I think it could be interesting. There are the beginnings of it, of course, right? I mean, the FTX Future Fund kind of goes up in some directions and strives to fund stuff. Open fill, does its own thing. So there's, there's a few. But I mean, I don't mean this in any way negatively, because it's still the early stages of the movement. But you do want to fight for the tail of the spectrum. The contract thought I have to the exact same question as whether if you're able to have such radical improvements in the measure that you find most important by giving money directly like the gift directly, then perhaps we should just do that kind of continually, rather than worrying a heck of a lot about whether we're doing things that maximize the tail. So the spectrum. Part of the reason that works is because this is not exactly an efficient market, right? I mean, you've had measurable outcome driven and philanthropic investment that has happened from the time of Bill and Melinda Gates Foundation. So or even before where people have said, like, you know, we'll measure it, right. I mean, let's figure out what the right way to spend capital is. But it's a, the, the risk you take is not necessarily the biggest question here as much as like, are you trying to maximize Eevee? In some weird sense?
Will Jarvis 28:43
Gotcha, gotcha. So on the whole, should we have just, well, we can't wave our magic wand. But if we could, would we better if we had just more EAA funders, like just more diversity, if there are 1000 da funds that we're all trying to, you know, maximize? eV, you're the kind of the expected value that qualities or something like that, you think we'd be somewhat better off?
Rohit 29:02
I absolutely think we'd be better off if there were 1000 funds competing against each other. I think that's kind of what we should see in a weird way. That's kind of what we see from the NGO movement, right? I mean, there's a bunch of different NGOs that raise funding independently and try to go solve the problems that they feel are more important. We can argue about sort of whether they've been successful or not for a whole whole list of reasons. Some of it is just the basic principal agent problem that exists that like, you know, the incentive they have is to sustain and survive over a period of time, as opposed to sort of succeed in solving that problem. Because solving it means, you know, that particular organization doesn't really have a reason to exist. And even if it is not an explicit reason why some of them don't succeed implicitly. Yeah, you can kind of see why that would be the case, right? Because ultimately, that's not the way you know, double bottom lines are much harder to solve for than single bottom lines. But at the same time yet, I do believe that like a mark could be solution, such as it is would be far more intriguing because they can go off and solve things in corners that you might just not have seen before.
Will Jarvis 30:10
That makes sense. I want to talk about a related topic, venture capital investing something you work in. What's your theory on? Why the top quartile of firms do so much better than everyone else? Does the story have something to do with like, venture is a Keynesian beauty contest? So if you are at the top, you can put this like positive signal on the companies and then they have an easier time raising the future and hiring and things like that, or is it something different?
Rohit 30:37
There is something to that. Some of it is just because so the kind of dirty truth have we seen some ways as fast, maybe the first few stages, a lot of it is competing for the best companies, where there is reasonable level of consensus often about who the best companies are, right? Or at least who the good companies are. What that basically means is, like, if you're looking at I don't know, stripe in 2016, there were a bunch of people who thought stripe was amazing. And then you're kind of competing with each other to say, you know, who gets to put in the cheque in this particular company. In any kind of scenario like that, if you have a brand or you know, you are known to be good, then naturally you do get an advantage. So the fact that you've succeeded before there's there's a very clear Matthew effect, that the fact that you've succeeded before means that you will be able to get into deals that you wouldn't have been able to get into otherwise. Not the only reason, but this is part of the reason that, you know, if you want to get into a deal Europe, if you're Sequoia, you want to get into a deal, there's a reasonably good chance that you can get into that deal. And that does tend to lend to their longevity. It does mean they can't screw it up, of course, right. I mean, you can kind of do that over a period of time. But it is definitely helpful to have that as your the wind in your sails. It also helps you with things like hiring, right? I mean, you get to hire better people, you actually are even the, you know, the best people, you can poach them if you want to, or you can groom them. Brand does help. The second thing is that there is still turnover, because if you fund counterintuitive investments and actually grow up, there can be new funds that, you know, show up at the top end of the curve. I mean, there have been a few right in the last sort of decades. I mean, one of my favorites is like Lux capital, which was founded sort of probably closer to 20 years ago now, but definitely not one of the originals that have kind of made their name over a period of time. And recent wasn't funded sort of all that long ago, I mean, they got funded, late 2000s, right into it, like you know, before before, you know, or a dish in that kind of timeframe. And they've done pretty well for themselves in terms of making some bold bets early, and then building on their successes while making sure they have an independent ethos. So yes, it's possible, you have to do something differentiated, if you want to break into the club. And if you do something and you do break into the club, it's usually not like a leaderboard, where you pop up and someone else falls down, it just means that all you're not competing with each other. Because when Andreessen popped up, it wasn't like, you know, Sequoia fell away, right? I mean, now they just bump heads and compete on deals the same as benchmark are the same as whomever so it does. It the reason for longevity in some ways is because the assets themselves take a long time to mature, which means like, if you're being a good fund, and you can kind of your company's doing well then over a period of time, you do continue to do well and invest more and more. So some reasons are intrinsic, like better people, better company selection, etc. And some people some features are extrinsic in the sense that like, if you're one of the good funds, larger funds that have been investing over a period of time, then you do have longevity, right? Because like you have at least like 10 years before your companies go public. And then people say like, oh, yeah, they weren't that good. Anyway,
Will Jarvis 33:58
that makes sense. You mentioned longevity there for firms. I'm curious about companies, you know, what are some of the common traits of companies that last a really long time? And how did they go about kind of solving the succession problem, which seems to be the very thorny?
Rohit 34:12
Oh, man, this is a long and perhaps slightly counterintuitive question. So I had this thought, like quite a while ago that we do things like measuring customer lifetime value, right, if you're in a company, etc. But similarly, if we measured company lifetime value, we will have some really weird things that actually pop out of it. Because there can be companies that all of a sudden come into the limelight, create an extraordinary amount of extraordinary amount of profits and then just sort of die out, essentially, you know, this is the sort of, if you look at s&p 500 over a period of time, I mean, there will be a crazy amount of turnover. But at the same time, if you look at companies that have actually survived for a long period of time, they kind of fall into a few different buckets, right? I mean, there's a, there's a few that are here, like, you know, in the UK, like financial services, institutions, insurance companies, Bank of England, Barclays, they've been around for a while, right, like, a few centuries. And they exist in some ways, because they provide, effectively what is a utility function, and they provide it with the backing of not the backing of the state, at least the blessing of the state. So there isn't, it's not a hyper competitive space where you have new entrants popping in left and right, because for, for us, as consumers for the government, as I suppose, you know, taking care of the consumers, everybody says, Yeah, we need to have a fairly stable banking system, and your guys are allowed to make, you know, profits, but you do need to provide the basic services that everybody needs. And in order to make sure that you provide it, we'll put a bunch of regulations on you. But at the same time, we will try and make sure that you're safe. And, you know, you're not any Joe can just sort of stand up and try to create a new competitor. So there's a bunch of them like that, right? That's one group. If you look in country, by country, in some countries, especially I think, if I remember correctly, in Germany, I think the oldest firm, again, a few centuries old, is I think, a brewery, or, you know, you start seeing these local businesses in Japan, it's again, quite, it's obviously the home of a large number of these types of companies. You have old construction firms that specialize in building temples or you know, motif firms who kind of stay in sides of pilgrimage and actually sell the sell the mochi to the to the travelers who come. And what's interesting about a large number of these firms is that they're almost anti growth. And they don't think of growing and expanding as the fundamental thing that they want to do. Right, they look at it a little bit more like a sacred trust that, you know, whatever, my 30 generations before me actually held his business, I want to do it as well. Now, some of they treat the succession battles differently, some of them have fairly strong familial ties, because a lot of them are family owned businesses, which kind of helps, right? I mean, keep it in the family, it's part of the trust, and everybody knows who you are, your identity is linked into that. Some of the law, other sort of Japanese firms also use this intriguing technique of like, finding strong operators, and bringing them into the family. So they might like, marry your daughter, and suddenly you make them into a Honda suddenly, you know, it stays in the family, but like the person running it is not technically related in the in the blood center, as you would imagine, otherwise, I found, I find these techniques to be interesting insofar as a, there's a very clear focus on ownership and continued running of the business. The reason a lot of these companies don't seem to fall off is because they continue doing exactly what they're did, like, tighten the times past and don't change anything about their performance at all, which I think is fascinating. Like, I mean, the motor shop doesn't automatically start selling slurries. You know, they kind of continue with what they're doing. It's more tea and green tea. And that's all you get. The it they they focus on longevity, specifically, as opposed to growth and sort of expansion effectively. It's an interesting way to look at the world.
Will Jarvis 38:21
Absolutely. So it's like, it's a story where if you, you probably get one thing to focus on, we talked about double bottom line earlier, and how difficult that is to hit two targets. If you're hitting one target, which is longevity, perhaps you can optimize around that. But if you're trying to do growth, and last long time, it's too difficult,
Rohit 38:39
or something 100%. Exactly. I do think so I think it's a you know, they have very different focus, because one of the things about growth is that ultimately, to grow, you have to kind of stretch yourself, you got to try things, you got to take on things like that you have to take risks effectively. And if you're not doing any of that, and just focusing on solving that one need, that doesn't really change because as long as the world doesn't change, this doesn't change. It's a different mode of solving that problem, right? Of course, the world can still change, like, you know, people stopped building Shinto temples, and suddenly, your business is not so booming anymore. Absolutely. But by barring those restrictions, it's a different way to think of what a business actually is.
Will Jarvis 39:23
I love that. I love that. Well, Rohit, thank you so much for taking the time to come on the show. Where can people find your work? Where should we send them?
Rohit 39:34
I write essays on www dot strange, loose cannon.com And I'm on Twitter at Christian Joe hit if you want to say
William Jarvis 39:41
hi. Awesome. We'll link it down in the show notes. I appreciate you coming on the show.
Rohit 39:45
My absolute pleasure.
William Jarvis 39:50
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Transcribed by https://otter.ai
120: Rohit Krishnan - Strange Loop Canon