#65 - Q&A with Andrew Wilkinson, Co-founder of Tiny

okay today is a special episode with andrew wilkinson andrew wilkinson the founder of tiny which a a holding company venture capital firm i don't know what you exactly you wanna describe it but he'll tell you but basically they own about ten different software companies and andrew was on the show a few days ago and people loved him including sean and i we really liked him a lot too yeah we have you know he was such a popular guest that the only way to do better was to just remove me and sam from the podcast altogether and let andrew sit with a microphone and your questions and do an ama so enjoy an ama with andrew wilkinson okay so this is my first ever asked me anything i've never done one of these before and i was supposed to be on a different podcast but ended up getting reschedule and so i decided to go on twitter and see if anybody had questions for me and sean and sam from my first million of kindly said that they're gonna put this on their feed so happy to answer everybody's questions and if this goes well maybe i'll keep doing these let's get started so rand asks i know that you outright by majority stakes and companies and hire ceos to manage them how do you find these ceos that you can trust there's two things that we do generally we start by sourcing people through our network we're typically looking for people who we have some connection to already which is a great way to vet people so what we'll do is go to our existing ceos and executives across all of our companies and say hey we're acquiring a company it's in this space who do you know who's the best executive or ceo that you know in that space and that usually yields a lot of really interesting candidates the other thing that we do is we try and recruit people that have already done the thing that we want if you were gonna go and build a new deck on your house you wouldn't hire somebody who you'd thought could probably figure it out you would go and hire a red seal carpenter who had built hundreds of decks who is super confident and so what we look for in a ceo to run one of our businesses is somebody who's already done it before somebody who's been at a larger business in a similar industry and can come in and basically follow the same repeatable pattern that they used to grow the other business where they've already lived through that stage of growth and then we put them in place and when someone's done something a million times they know exactly what to do and you really don't have to oversee them that much kevin asks i've heard you mention warren buffett often are there any other leaders that you emulate or look up to i'd love warren buffett i'm a huge fan of his and that's how i discovered investing but i actually find his business partner charlie mu far more fascinating than buffett i'm mean buffett amazing and everybody should read warren buffett letters and stuff but mu is kind of quietly in the background he's his minority partner mu has what he calls a lattice work of mental models it's a large collection of rules and ideas and heuristic kind of ways of thinking about problems that help you shortcut your thinking so that you can say oh that's one of those an example of that would be availability bias so if i've just been def i'm going to apply that experience to all my experiences in the short term for the next month i might be far more suspicious of everybody because it's available in my brain or i might apply that and see that everywhere i might think everybody's trying to steal for me incentive caused bias so you know an example of that would be all these ceos who have done all these crazy share buy backs are now left with no money in the bank a nice interpretation of that would be that they're simply just trying to return capital to their shareholders in a more tax efficient manner than dividends but if you look at it with a skeptical guy a lot of ceos are compensated based on share price because they get stock options so their stock options become more valuable when the share price goes up and what makes the share price go up but share buy backs so when you buy back shares there's fewer shares and each individual share is worth more and so it's actually a way for the ceo to put money in his or her own jeans not necessarily always and i wouldn't say that's a blanket rule but you could look at that and go that's one of those that's incentive caused bias now there's endless numbers of these mental models that they're fascinating we actually made a video at tiny that i'll link out on my twitter that's kind of a animated version of one of charlie mu speeches about them they're very simple concepts but i've spent god hundreds of hours in my car just listening to speeches that mu has given a listening to audiobook quote compilation by mu he's just absolutely fascinating and then if i had one recommendation it would be just to read warren buffett and charlie mu writing speeches and interviews because it really covers everything you need to know about running a great business and investing in general iran asks after building and owning dozens of companies do you think company building is a repeatable process what percentage of it can you automate by technology or process so i think that starting a company is kind of black it is repeatable and there's obviously a process to it that includes validating the market validating that there's demand for it validating that you can make money in projections but so much of that stuff is future casting and guessing but that said i think growing companies is a much more repeatable process brent sure from permanent equity calls that the everything tastes like chicken part of business and what i mean by that is that every business looks kind of the same in many different ways one example is pricing strategy so looking at a business and saying is this really the fair price for the product is it overpriced is it under priced can we tweak the structure of the pricing can we make this monthly so that it's a less burdensome amount of money can we get people to prep for it you know there's just there's so many different ways to tweak that marketing best practices or another area we look at when we're looking at growing a company search engine optimization copywriting conversion optimization social media we found businesses where they have millions of email subscribers and they just don't send emails these simple best practices that can grow a business just ignoring channels and stuff incentives can drive a business in a big way i used to get frustrated because the people that i hired is salespeople at some of the businesses they never seem to be as excited to close deals as me and i couldn't figure out why which was ridiculous because and the obvious reason was they were not incentivized to do that if we closed the deal it was actually just more stress for them they didn't get a big bonus they didn't have variable compensation we had been reading the wrong business books and didn't understand incentives and so often incentives are like a magnet that drives your employees and your team to the result that you want negotiation is often something that we think is repeatable so an example of that is we once bought a business where the founders didn't really like tough business negotiation and so they'd left a lot of their contracts and not renegotiate them for five plus years when we bought the business we're able to renegotiate it with much more favorable terms and that worked out very well for us and then the other thing is just identifying new business lines that are proven out by other companies you know that goes back to that email example of you could have a business that's very successful that is a web site and they don't have an email newsletter adding that email newsletter that's a whole other branch of potential advertising revenue and opportunity so adding that could be this sort of thing that grows the business significantly sun need asks could you also recommend your favorite business biographies so i don't just read business biographies i like to read all sorts of different ones these are mostly business but there's a few other ones so i really loved shoe dog which is phil knights auto he's the founder of nike that was really incredible buffett the making of an american capitalist by roger lowe which is i think the best biography of warren buffett the tiger woods biography that just came out by jeff benedict i guess a year or two ago but that was phenomenal one of the one of the things i love about biographies is that often all you see is the success so you see somebody who's profoundly successful and you go man i wish i was like them and what you don't see is the sacrifice that these people often have to go through to get what they want or they thought they wanted another great sports one is open by andre ag again it turns out he actually hates tennis and the only reason he became a tennis star was because his dad was brutal and forced him to do it business wise i also really liked the gambler which is about kirk kirk cor who is the longtime owner of mgm and a lot of hotels and a lot of interesting businesses just a crazy story about a guy who starts out with nothing and builds an empire by taking a lot of big gamble maybe not the kind of gamble i would take but it's a great story and i can i can link some of these on my twitter hand asks what is your biggest failure and what did you learn from it i think the dumbest thing that i've ever done is started a restaurant i'm originally a designer and i have always loved food and loved restaurants and i've always said man it would be so fun to design a restaurant and so i got together with a couple friends my business partner chris and my best friend raj achieve and we decided we're gonna start a new york pizza restaurant in victoria canada where we live and you know it's really funny i think people often don't realize what the true sacrifices is to achieve something and running a restaurant is no different people think about how fun it will be to design the menu to taste the food to design the space and choose the lighting and all that kind of stuff and it's a little bit like saying man it's gonna be so much fun to have a baby all i'm gonna do is kiss its little feet and take photos of it and ignoring the reality of diapers crying no sleep now with a baby obviously it's meaningful and pays a million intrinsic dividends with a restaurant i would say it's one of the hardest most brutal businesses to be in and we had so much hub risk coming into it we're tech entrepreneurs we'd always been successful in that world and so we thought well it can't be that complicated i'm sure that we can bring our business expertise to it and what we learned was that real businesses and what i mean by real is brick and mortar grind out businesses are incredibly incredibly difficult we were shocked by how low the margins were we would have a one to five percent net margin at the end of the day we realized that you can't scale infinitely like a tech company if you wanna expand in any way and you often had to buy equipment and that equipment had a lot of cost it was really really difficult to attract the right talent and this is true of the restaurant service industry in general it's a very transit people often are doing it because they're between jobs or they're going to school or they can't find another job and so it was very very difficult to get in place that were bought into the vision and excited to be there and really that it's high touch as a owner of a restaurant if you're not in there every single day watching things training your staff building process you lose everything you lose your margin because it's just so razor thin the difference between making money and losing money in the restaurant industry is like how many towels you buy for the bathroom so it was actually an incredible experience because while we lost a lot of money and ultimately it was a complete embarrassing failure it actually made me really appreciate and doubled down on internet businesses and you know with business biographies there's this huge benefit of seeing what other people have done seeing their mistakes and then avoiding those same mistakes for yourself but the this is one of those ones where i just had to stick the fork in electrical socket so nina asks what is one core personal attribute that you look for when you hire somebody so for me it's scrap ness do they move things forward quickly or do they get stuck in the mud off and do they figure stuff out do they google stuff do they just keep moving one of my biggest frustrations is when i hire somebody and i hear from them that they had gotten stuck on a step and it had happened two or three days ago and so they just kind of sat around aim i love people who have urgency where all they wanna do is push the business forward or the idea forward and they like tangible results now that's my personality i always go well why can't we move it this quickly or why can't we launch this business in a week i'm always very aggressive that said the downside to hiring those people is they're not often great at follow through and so i love hiring those people early on in an idea but i always know i'm gonna have to hire the steady eddy folks to actually do the operations and the fall through on it charlie asks you don't live in a tech hub how do you make connections with other entrepreneurs so i live in victoria canada i actually have a wonderful group of friends here that i've discovered over time and gotten to know and some of them have tech businesses and some of them have businesses completely outside of tech one thing i realized is that entrepreneurs and investors all seem to have the same problems i was in entrepreneurs organization which is like a business group about ten years ago and i joined a discussion group and the people are on the table owned wood woodworking shops one guy owned a puzzle company internet marketing all these things that actually didn't really relate to my business and going into it i was thinking i'm not gonna have anything i'm common with these guys i can't learn anything from them and i realized every single person had the same problem it was you know the bad employee process problems if issues with marketing you know whatever it was and that ultimately you can really connect deeply about these problems with anyone in any business so even though i don't live in a tech hub i can certainly talk to people in person about this stuff and i found over time that there's a lot of great tech entrepreneurs living in victoria and then the other thing has just been cold emails i've gotten pretty good at figuring out what people's email addresses are and when there's someone i admire i'll just write them to line email and say hey here's who i am i'd love to meet you one of the cool stories in that regard was i read a new york times piece about dan gilbert and i don't know if you guys know but dan runs quicken loans which is the largest mortgage business in the united states and he's also based in detroit and in two thousand eight when detroit went bankrupt dan went and bought a ton of downtown detroit real estate and really worked hard to rein the entire city and so i read about what he was doing and i thought it was super cool and so i just sent him a cold email two in the morning and like ten minutes later i got an email back and he said come to detroit let's meet and so about a month later chris and i fl detroit and we spent two days touring detroit and hanging up with dan and getting to know everybody that he worked with and you know dan's like dan billionaire dan's worth like six or eight billion dollars or something and he's this nice normal midwestern guy and so we've just had really cool experiences like that just by cold emailing people joel asks what percent of your investments are your own capital versus outside money and what type of outside capital so almost everything that chris and i own is our own capital from tiny we also have done bigger stuff where there's deals that were just a little too big for us at the time and so we brought friends along for the ride we at that point we never charge fees or carrier or anything it was more just you know hey let's experiment with working with other people that said we we've been in the process of raising a fund given what's happening in the world we think that in the next six to twelve months there's gonna be a lot more opportunities than we're gonna be able to tackle on our own so that'll be an interesting experiment we'll see how that goes zane asks during your time at meta lab what was the best way you acquired clients mu got this great quote which is the best way to get a good spouse is to deserve a good spouse so if you wanna find a good partner you wanna be a good partner you wanna earn a good partner and you wanna be a good person and treat people well and do all the things a good partner would look for and the same thing goes for clients and services businesses so for us it was do good work do what we say we're gonna do treat the client well and then find creative ways to share that work publicly and also we did this thing we we were always a little controversial so for example in two thousand nine i redesigned zappos dot com and i wrote this big post and basically he said hey look like zappos website websites it's kind of ugly it could be a lot better and i wrote an open letter to tony hs the ceo of zappos and that got us a lot of attention very early on and through that we ended up getting a bunch of larger companies as clients and we just kept moving up the food chain but we've never done traditional marketing or really until recently even outbound sales it's always been about building reputation and the other piece of advice is we always did the kind of work we wanted to do long term so one of the mistakes we see is a lot of agencies will say we're gonna start local and we're gonna work our way up i always think if you wanna work with the world's best companies you need to start by working with the world's best companies and really focusing and so we always stuck to only doing product design so building you know mobile apps and software and stuff and we only did it for companies where the portfolio we were building would resonate with our future customers so that meant working with startups showing that startup work to fortune five hundreds and then fortune five hundreds hiring us and then sharing that work on so it's kind of this virtuous feedback loop joaquin kim asks buffett suggests reading five hundred pages a day are you applying this and what are you reading what's your opinion on this so i i might read that much via twitter and news and that kind of stuff but unfortunately it's not deep reading it's not super focused reading i used to read two or three hours a day i would just p down on the couch from like five o'clock until nine o'clock and read a book but since having kids i have i found it a lot more difficult to work in that amount of reading so i do a lot of audiobooks books and podcasts i read a lot of long form journalism and then i often will read first say an hour or two before bed but if i'm being honest i just it's so hard to really get that deep reading time in and spend three or four hours a day as i would like to i hope as my kids get a little older i'll be able to do a lot more of that ryan asks as a person what are some ways that you've evolved over the years any insights or wisdom you've gained around perspective so i'd say i'm a lot less focused on external stuff like travel possessions clothing all that kind of stuff now that was a result of me really wanting that stuff i grew up in vancouver and i went to school with a lot of really rich kids and they always had all these fancy things their parents drove nice cars they had ski cha and nintendo and i really wanted all that stuff and so it motivated me to make money and once i started making money in my twenties i went out and i bought all that stuff i bought fancy speakers in not a nice car and fancy clothes i'd go traveling the europe and i actually found that i mean the clothes and stuff really had no impact on my happiness at all and the travel i found actually made me less happy i actually really love a routine and predictability and i love the challenge of not just always obsessively looking forward to the next trip and i also realized that when i was traveling i was i was very often much less happy i was poorly rested i would get sick i was stressed out i just i don't love traveling that much and i often one of the things i noticed was that before i'd going on the trip i was excited about it but anxious while i was on the trip i was kind of unhappy and stressed out and anxious and then after the trip i would mis remember so after the trip i go wow wasn't that awesome i had that great trip to europe but when i really thought about it i was like wow i actually didn't enjoy that that much so my fo has calmed down a lot now being a boring thirty five year old dad i've realized that you know really at the end of the day all that matters is friends family kids day to day habits community and you know the more i talk to people who are at the end of their life that are old you know the thing that brings them the most joy is not any kind of achievement of wealth or work or anything like that it really is having a close group of friends that they do activities with and having grandchildren and grandchildren to spend time with my wife is persian and her grandma hosts these huge dinners and they have a big persian family and she had five kids and then all those kids had a ton of kids and so she has like twenty five grandchildren or something crazy and i think she's cracked the code like she just looks happier than anybody else and so my hope is that you know i just have a lot of kids and they have lots of grandchildren and that everybody's healthy and happy on the money side i really just look at money as a way to protect the people i care about and protect my day to day life give myself freedom and to make the choices i want and spend my time how i want and i also love it because it allows me to get access to interesting ideas and exciting groups that i wouldn't otherwise have access to by starting new companies investing in companies by doing things publicly i just find i meet so many more interesting people and i get to work with them and collaborate that with them so that's kinda what drives me to make money it's about the protection of my freedom and my family and all that kind of stuff how are you able to start tiny capital with money from an agency which usually have very low margins compared to product companies answer to that is really simple we got really lucky and started an agency that serviced companies in san francisco where we could charge san francisco prices but from a location victoria that allowed us to have good margins so it was much more affordable for us to operate in victoria with the same number of people making the same amount of revenue based out of san francisco don't even know if we'd be in business i don't know if it'd be sustainable but doing it as a remote team or from canada has been much more profitable than a typical agency another question i don't know who wrote this one but what's the required mindset shift to go from running one business with a small team to owning twenty plus businesses with delegated management you know i often think about that great quote fish for a man and he'll eat once teach a man to fish and he'll eat for a lifetime and i think the same is true at delegation if you ask or employee to do something they don't do it well and you jump in and put out the fire they're never gonna learn and so what i found was that del something having the employee mess up and teaching them how to solve it and then from that point on you can really leave them to continue to do that i call that the delegation barrier when i broke that down for the first time i realized that i could actually just teach somebody something once or hire somebody who'd had already done it and let them do that thing on a go forward basis and it was just one less thing i had to worry about and yes sometimes the results are not quite what i would have hoped for but on a whole the performance is so much better than if i tried to do everything myself really the formula is good people who you trust plus an alignment on strategy so we all agree the the kind of general direction we're moving and the goals of the business and then incentives to make sure that when you win or the business wins they win as well and they're rewarded for that and that'll result in the outcome you want another question here we all know that you have kids if you were to have them internalize just one less idea what would that be i would say the habit of teaching yourself things when you're curious or you don't understand something instinctively googling it picking up a book watching a youtube and having the confidence to try and fail and try again until you get something i actually really didn't learn this until probably my twenties but this idea that with enough practice most people can get to a reasonable level of proficiency quickly but when it comes to cooking for example as long as you have a good sense of smell and taste and you can use your hands you can get to a point where you can be a pro chef it's just about spending the time one thing i get a lot of satisfaction out of is using the pareto principle which is this idea of getting eighty percent of the results with twenty percent of the effort so my favorite thing in the world is you know for a kitchen example i love cutting an onion in the wrong way and then going oh hey i'll go on google and i'll learn the perfect way to cut an onion the same way as chef does and i just saved myself you know a minute every time i cut it on onion you i i just love that kind of stuff so i'd love to really en enjoy that in my kids got another question here when you built your house what were the biggest frustrations you came across and what would you what would have made things easier man so many issues with the process of building a house there's a lot of incentives problems so if you think about it a general contractor who's the person you pay to basically run the project for you and get your house built typically they they work on a cost plus model which means that if the house costs a million bucks they're gonna get paid a percentage of that for managing it so let's say if it's a million bucks and they get five percent they get fifty grand so here you get into incentive caused bias where they wants to win the project in the first place so they have an incentive to give you the lowest bid possible to win the work and then they're actually incentivized to make the house as expensive as possible within reason they don't want you to hate them and you know i don't think they wanna do anything obvious but they generally if the project goes over budget it's really good for them because they're getting a percentage of that so another question here i wanna skip building an agency and directly build my own version of tiny knowing what you know how would you do that and what minimum resources would you need to make that happen i think that if i just started out when i was nineteen and somebody had handed me a million dollars and said go be an investor and invest this i would have burned my money and i wouldn't have known what i was doing i think that to be a good investor you often need to have had direct business experience and i think that you're so far ahead of other investors when instead of having an mba you've actually ran the race so i always think you you should really get in the trenches and experience real business before you start buying businesses because otherwise you might look at a really bad business and think it's a good business or think it's cheap we can often look at a business and instinctively know whether it's a good or bad business and we know what's simple on what's not i think a lot of investors do what i call spreadsheet business where they look at a business as a spreadsheet and they say oh okay well if we just increase the marketing budget by five hundred k and then we increase this sales budget by a million dollars revenue will increase by x percent and in reality business is just not like that businesses are complicated businesses are people businesses are a culture and it's the sort of thing that if you haven't been in the trenches and you haven't experienced that and run a business you just won't know so i would worry that you're gonna make some really bad decisions if you start now and i'd really recommend you get more experience before you go out and start buying businesses another question what is the worst advice you get from people in terms of how to live your life or be successful in business also what's the best advice one of the worst pieces of advice that i hear is that people should take risk while they're young while they're in their twenties and they can i see a lot of people taking absolutely insane risk with stock options and i really just don't think that they would do it if they understood the true odds they would never buy a house that had a ninety five percent chance of failure and if you think about your twenties they're kind of a precious time there an opportunity to work really really hard often before you have kids and a lot of different commitments and stuff and so it's kind of your human capital it's your time to invest in your future and if you invest into something that has a ninety five percent risk of failure like startup up stock options to me that seems totally insane you wanna be taking bets but you wanna be taking bets with good odds where if you lose you lose a little and if you win you win big so i always think that if you wanna start a startup up you wanna start a start up where you're quite confident that in the next two to four years you can make a hundred to two hundred thousand dollars of profit for yourself when people asking me this i always tell them just get that hundred to two hundred thousand dollars of profit because once you have that and it's sustainable you're just set for life there's no greater freedom than having your rent and your food and your basic needs taken care of especially in a business that's easy to run or automated and so my advice would be if you're a the sort of person that wants to start a business start a business that's boring predictable profitable and easy to run and even if you deem it a lifestyle business versus the you know we're gonna hit it out of the park and turn into a billion dollar business the other thing is just getting into the habit of reading constantly one of the things that blows my mind is i i meet all these people where they've been running a business for you know three or four years and they've just never picked up a book they've never realized that they can skip the line by reading about what other people do and what the best practices are for their industry and so often the difference between this successful entrepreneurs and investors and the ones who aren't successful is simply just getting into a habit of reading and learning all the time well that was that was really fun guys that's all the questions that i was able to get to you today so i didn't wasn't able to get to everybody but hopefully we can do this again sometime time and we'll get to the rest and to thanks so much for listening