Luca Ferrari, Bending Spoons: Compounding Through Operational Excellence and Acquisitions

Alright friends, today's episode is brought to you by Portrait, the AI research platform built by fundamental investors, four fundamental investors. For founding Portrait, David Plan spent a decade as a by-side analyst at some of the world's leading investment firms, including our friends at SlatePath Capital and the BALPOST Group. Now even as some of the best resource firms in the world, David kept bumping into a reality that may resonate with many of you, never having enough time to research all the compelling ideas across his desk. This tension inspired him to build Portrait. The research platform that delivers the equivalent of an army of capable analysts, ready to help you focus on the most actionable ideas with unprecedented speed and depth. Portrait isn't about replacing judgment, it's about giving you back time for the work you actually love, developing novel ideas and building conviction through deep, creative value added research. Portrait assesses the same qualitative attributes we value as investors, to identify businesses that fit your specific mental models. Portrait also gives you custom research reports, it generates comprehensive primers and lays out bull bear cases in minutes rather than days or weeks. The system is trained to help you process pressing research questions, delivering final outputs at the caliber you would expect from a member of your team. So visit portraitresearch.com to start your free trial and see how David and his team can help add productivity and creativity into your team's process. In this show we talk about the joys of compounding not just as an investment phenomenon but as a principle for your life. Now we're convinced that sleep is actually one of those high leverage repeatable decisions that has the power to improve your physical, emotional and psychological well-being. So if you care about trying to be the best version of yourself every day, how you're approaching your nights matters a lot. By now you know we're huge fans of 8 sleep. We've had the company's founder Mateo on the pod and we and our families have been obsessed with their products for years. We just released the sixth generation of the pod. A smart mattress cover that fits on any existing bed. The hub which is the piece of hardware that runs the temperature system is 50% smaller than the previous version and now fits under most bed frames. The thermal engine is 20% faster to your set temperature. The cover now embeds 9 times the biometric sensors of pod 5 tracking heart rate at 99% accuracy versus a standard ECG. All of this is aided by their AI called autopilot that learns your patterns and adjusts accordingly every night to give you the best possible sleep. Since I started using the pod many years ago, my amount of deep sleep and RAM have increased. Improving my overall quality of sleep. The pod 6 now starts at just $1,999 which is the lowest starting price 8 sleep has ever offered. Use code joys@h sleep dot com backslash j o y s for up to $200 off the pod 6. Hello and welcome to the joys of compounding. We're still on the same mission to study greatness in order to help you find and compound your life's work as fast as possible for as long as possible. I'm Paul Buuser and I'm Rick Berman. We're your hosts. In each session our teachers will be some of the world's most compelling people from across the vast range of human achievement. This show is brought to you by Pine Grove Studios in collaboration with Colossus. The hosts of the show Rick Berman and Paul Buuser are the co-founders and co-CEOs of SATA Grove holdings and co-CEOs of SATA Grove management company. All opinions expressed by any of Rick, Paul or their podcast guests are solely their own and do not reflect the opinion of either SATA Grove holdings or SATA Grove management company. This podcast is intended for informational purposes only and should not be relied upon as the basis for investment decisions. SATA Grove holdings or clients and SATA Grove management company may maintain positions and securities discussed in this podcast. Luca, it's great to be with you. Our obsession at joys of compounding in our holding company SATA Grove is finding people who are doing their life's work who are crazy enough to actually structure it in a way that give it a shot to endure. I think a lot of people that we've come across maybe say they're doing their life's work, some components of it, but I had the good fortune earlier this year to stop by and meet you here in Milan. We were here for a different subject but what came across to me and it was the reason why I wanted to come back here and do this interview was it's just so rare to know down to the core that were you and your co-founders have built is done in a way that actually is a shot to endure. One of these multi-multi-decade compounders, I want to unpack that today. I think there's a lot of components to that. You've been in the press a lot lately. It's amazing to see the coverage of bending spoons but there are a few things that I think maybe the world doesn't understand fully or not enough around some of that structuring and then very selfishly for us. This is how we like to learn. I'd love to start with what is it you're actually aiming at? What are you trying to build at bending spoons? How did you structure this in a way that gave you a shot of doing that? Well started at least with bending spoons I have a some failed entrepreneurial pursuit before that but with bending spoons it started with the conviction that if we could become the best ideally or at least among the very best operators of in our case digital businesses in the world then would be pretty much guaranteed to be able to compile capital very efficiently for a very long time through acquisitions and the reason is that if you can operate a business better than almost anybody else if a business is better off as part of your group in our case once it's integrated into our platform then it would be with the previous ownership then you should be able to offer a price to those owners that's appealing and at the same time deliver high returns cash returns you can then take that extra cash and redeploy toward new acquisitions and reins and repeat and that's compounding so on that thesis we have built in our company for the past 13 years interestingly let's say the capital locations other things the at least when it comes to acquisitions is the relatively easy part once you have that platform once you are that outstanding operator. So most of our focus and efforts have gone into establishing ourselves as ideally as provisionally by far the best operator in the world. Yeah it's interesting thinking about what you're aiming at is being the best operating company in the world oftentimes if you think about a public company it could be you want the biggest revenue or biggest team or other metrics out there if there's one thing that you could measure over the next 20 or 30 years what maybe comes upstream from best operations best people what's the metric that you look at maybe not every quarter but year to year a decade to decade that shows that you're succeeding in what you were aiming to do. Did downstream metric probably the one that's closed us to capturing whether we're being effective or not would be earnings per share or free cash per share they should approximate more or less the same thing over time upstream well it's there's probably no single number that would capture what we're doing a good job because I think a lot of the enablers of the strong performance we've had over at this point 13 years have been somewhat qualitative in nature for example by far the most important aspect has been the quality of our team and our culture and so do you measure that obviously there are many proxies that give you a sense of whether you're trending in the right direction how many people are applying to work here what's the average performance one or two years into someone's tenure is it going up or is it going down the technologies that's also been an absolute crucial element of what we do also you were talking about maybe we're not being fully understood I think very few people know just how sophisticated and extensive our set of proprietary technologies is and it's one of the big reasons why we've been able to do so well we keep investing aggressively in making those better and better potentially one KPI that somewhat captures whether we're progressing there could be arriving you for spooners spooners are the members of our core team people will go through a very selective hiring process we went from about a million dollars three years ago to over four million dollars annualize these days part of that is the scale economies a lot of that is technology particularly with AI so presumably if we do well there that KPI should keep improving but there are ways to cheat on that KPI we could just not hire people or fewer than we should just to make it high so I'm a big fan of data but at the same time I'm always extremely wary of data you can manipulate almost any data so yeah the handle we care I guess there are so many pieces to dive into there before we do I remember when we were talking I think it's just over 13 years now since you've launched the founding stories been told Indonesia Evertail and then kind of a flip on not necessarily trying to find product market fit but be rational about how to build operations the one thing I think they really struck me and then our our team is that you had at least a decade where not that many people knew about you and you were able to think about these various things without a lot of noise if you had been born instead of in Europe and here Milan been Silicon Valley odds are there would have been capital flowing at you maybe one way to frame a question is what would not have been possible with your mentality if you had a hundred million in funding back then instead of there was a 40,000 or 10,000 or some derivation there of a fraction of a hundred million and yet it gave you a decade to try to figure this out we were very fortunate nobody gave us a hundred million dollars maybe it would have been better to have someone give us a hundred million dollars it's hard to you doing get to a B test live. So I don't know what would have happened. There are things we could have done or done bigger or faster or sooner had we had that access to that sort of capital. There's value in having less. First of all, it forces you to be resourceful and frugal. I believe that in the long run, those qualities are paramount. It's easier to make them part of your DNA if you started there and didn't have much for a long time. That's certainly helpful. Also, I believe that much of our competitive advantage we enjoy today, which we can talk about if you want, but there'll be that core team of, I believe, exceptional talent in their city and very strong culture and our proprietary technologies. It can't really shortcut the development of those through money. You can probably shortcut it a little bit. It's taken us 13 years to get to this point. I'm sure that with access to infinite money, maybe we would have done it in 907, but mostly the bottleneck is when it comes to technologies, you need to know what to build and exactly how. To do that, to acquire that knowledge, you need to work over time and solve problems and fail and find that the way you succeed is different. You don't go to Wikipedia and read what proprietary technologies do you need to build? What exactly do they look like to achieve? What benefits has achieved? It's just a massive amount of knowledge that's developed in micro increments over a long period of time and solving many, many problems in our case acquiring companies and trying to transform and improve them and run them on an ongoing basis. Similarly, with people, you don't get to build a very strong employer brand overnight. It's not advertising. It's many years of some of the best students graduating at a certain university coming to work here and then telling their former fellow students, "It's amazing. You should actually work at Benizboons and it's two becomes four and four becomes eight and over time, it's thousands of amazing people or tens of thousands or maybe even hundreds of thousands applying and you have high credibility. Equally with culture, we are the person spent a lot of time working with that person to really align on the principles of what we value and then it's two people and then four people. Sure, you can do it a little bit faster. I'm sure if you're more experienced you have more money, but there's no way to hire 500 or a thousand amazing people overnight and have that being a unit of common purpose, a uniform playbook as just a recipe for disaster. We needed a time and I think having had the money wouldn't have been a problem per se, but I suspect that the pressure to get to a certain result earlier or different types of result from say a VC potentially could have derailed our progress. Now, we've always operated with an insane sense of urgency. I just don't think you should be doing anything in life unless it's leisure without an insane sense of urgency. Then don't do it because if it's worth doing, it's worth getting it done as well as and as quickly as possible. There's only advantages to that really. You can apply that sense of urgency towards slightly different objectives and one could be, let's just show 10% more revenue this year and other one is let's build up a better employer brand. Let's figure out how to predict future performance in an experienced hires and the latter types of pursuits are maybe less appealing to someone who's looking to see a return on their investment quickly. So I wouldn't change our background necessarily just because it's being good for the most part, but there are worse things in life than having someone throw a hundred million dollars ahead of you. Where does that mentality come from? And I asked that because you were 27 or so when Benning Spoons was launched, you had already had a failed startup for a couple of years. You worked in McKinsey, but going back even before that, this seems extremely, I'll say odd or unique that you and your co-founders could have this sort of mentality. And the way I would view in one way is inverting the typical company building mindset or venture building mindset, wanting to go as fast as possible, but paradoxically, meaning that you have to go slow to build the foundation the right way where there influences from your parents, childhood, or otherwise, anything that came to you all at that age, where you were able to kind of flip the typical company building path. I don't know. I think it's probably just a mix of extreme ignorance, slash narrow horizons. And then I'd like to think first principle logically sound thinking our motivation was to try to build one of the most successful companies of all time. We knew we had close to zero percent permeability of achieving that, but we also thought, OK, we're probably not going to starve anyway in learning engineers, good degrees, you know, we'll find a job if need be. If we are to try to build something from scratch, less than ambitious about it, it's just more fun. Probably we get to attract better people. There's very modest downside to being wildly ambitious. If you think that way, then you're pretty much guaranteed that if you do what everybody else is doing, you will fail to achieve that objective. Maybe it is more this path to a reasonable outcome, the more mediocre outcome, because you're likely also not to make massive mistakes if you emulate others. But if you look for a way to be outstanding in terms of your outcomes, then very likely the means will have to stand out to at least in some ways. We decided to explore the vast universe of possible solutions to that problem and each underlying little problem hiring, culture, technology, marketing and whatnot. And that took longer and we made mistakes that were probably avoidable, but I'm confident we stumbled upon ideas, solutions that turned out to be distinctive and powerful. So I'll consider I like it this way. It's been good, but it's been painful and long. And so I can empathize with someone who's looking maybe for a for an accident three to four years by applying a tried and tested playbook or following input from a VC that maybe works. I don't think you get to build a Berkshire Hathaway that way. Now that you are guaranteed to, if you follow what I just described, but at least you have a chance. So inspirational. I mean, we've been teaching for 15 years at Notre Dame and I've seen a thousand students every 20-year-old comes with very similar questions every time. And for them to hear this kind of message that I mean, a way we think about is make time your friend. While you want to be in a hurry, you want to work and be ambitious as possible, you actually have a lot of time in front of you. And you need the time if you're going to build the next Berkshire Danher or whatever company it is. In many ways, it's like delayed gratification. There are paths for someone who's, let's say, talented, especially if you're born in the right places. But generally speaking, there are paths to very high level of say gratification and success with a much higher probability on a shorter time frame. Again, you could go into investment bank or consulting or a joint of successful scale up or be an entrepreneur in more conventional ways. And that's perfectly fine if you're aiming for something truly massive. And you need to have that urgency and work your ass off just as much if not more and for longer, but you have to be patient on the timelines. You are basically building an engine, a rocket ship that will take you longer to take off. But once it does, it'll move 100 times the speed of your more rudimental vehicle that you're using for the other careers. But if you measure yourself one year in two years, seeing three years in, you look like you're training in many ways. Not everybody wants to work hard anyway, but even among those who want many are impatient in they need to see an immediate gratification occurring. And if that's your path and more like sometimes the private equity path that I want a bigger bonus this year, no moral judgment perfectly easily understood what you're unlikely to be an exceptional outlier 20, 30 years down the lie. I love the framing. Often it's so hard for someone young to realize they don't actually have to wait 20 years for something good to happen to them. They're not going to starve generally if they're in this case coming out of university, have some options. But being willing to do something just a little bit differently, we think it leads to one thing you talk about a lot, which is this ownership mentality and that people just care. And I think maybe there is a connection. If you want to de-risk not to lay gratification, you can't really think like an owner because you're not planting the seeds for a much longer term, potentially bigger outcome. How have you found this many people that think like I think you and David Centro are talking about extreme ownership that think that way, everything we're doing, we've helped to build something like 14 other holding companies. We have a lot to learn from you on centralization of a lot of things and we want to get into that. But what we find is that incentives are aligned and the team, the founders act like it's their life's work. I think you're potentially the best example we've seen at scale, getting a crew of now close to 1,000 people all thinking that way. Where does that come from and how did you end up doing that? It starts by realizing that it's almost the most important thing. Basically it boils down to, if you have a strategy that makes sense, which is a big if by the way most companies don't. But if you do, it's almost all about talent and culture and cultures almost all about caring, what we call extreme ownership. I think if you've talented people who care tremendously about their job, the company, and they're pursuing the implementation of a strategy that's likely to succeed, you're already 80% there. Everything else kind of takes care of itself for the most part. If you end up understanding that almost all that matters, you need to work hard toward accomplishing it. So it starts with recruiting. You want to promote the company as a company where we all care tremendously, we work hard, we're dedicated, and that will certainly lead you to missing hours on certain candidates, maybe extremely competent. In some cases brilliant, but for whom maybe work is not at priority any longer. There is a whole slew of companies that are trying to attract the Phase two Googlers, you know, people who are now okay now. I'm in the face of my life I don't really want to work hard. I'm still a serious professional, you know, but I want to feel that the CV I've built up means something but I don't want to work too hard I want to do my part of the job. I want to be more of a leader than when I get my hands dirty There's probably people out there very competent very intelligent to will do that But I don't think you can succeed really not in a competitive environment if that's your typical profile So you give up on some of those by saying here everybody's hands on starting with the CEO everybody's hands on in doing primarily individual contributor work We work hard. It doesn't it's not investment banking, but still, you know, we push hard. We have a sense of urgency Dedication focus. We don't do passion projects. We do what's needed for the company to succeed So you have to promote this thanks to your missing out on certain types of candidates But you attract a higher density of those who are likely to buy into this model And then you need to develop good tools to predict or better understand what these people bring to the table It's very difficult, especially these more qualitative aspects and especially for people with a short track record So we have made it to science really it's an entirely different discussion if you want we can get into it But we've invested heavily over time to develop the tools to predict future's behavior in people who apply Once you have the people hopefully a lot of people that are predisposed toward behaving like owners It becomes very important to maximize their potential in that regard Part of the problem is solved by creating a high density of people with this sort of high levels of care because caring is contagious But also negatively contagious. So if almost everybody cares the one person who cares Slightly if they have the potential to care the poorly care Myselfers if almost nobody cares all those who are in the middle line could care or not care and up not caring You want to have a very high level of gravitational pull toward the caring pull and so hiring well and that's part of it And then you try to retain accordingly. So if someone doesn't care you want to part ways with them You want to preach constantly. This is important and first of all most You as an individual especially if you're in a position of greater visibility You need to embody that quality no matter what so Every time you get a chance to demonstrate in our case extreme ownership If you don't especially as a manager as a leader that's your greatest failure I'd rather have someone make a bad decision But consistently demonstrate extreme ownership than vice versa Because when people see that people who progress in the organization get more responsibility to better pray The one trait everybody has is that they care tremendously If you have the potential to care that will be very powerful in maximizing that potential It's never going to be perfect But if you do all this things well over time You'll be at 80 out of 100 where most companies are 20 out of 100 Ultimately in life almost everything is relative Nothing is perfect you just want to win relatively speaking If it's almost like basketball nobody shoots the three perfectly But if you shoot at 45% Whenever it's your team and most other teams are at 38 You're very likely to win vast majority of matches So you shoot for the highest possible average not 100% which is impossible It's so fascinating how you're talking about The individual unit of a spooner the teammate When you go from five of you to 50 to 500 Eventually to 5,000 or maybe not I don't know where it goes How do you keep a grip on the organization? Feels like actually what you described could be one answer that If every individual unit individual person feels ownership You could have an unlimited amount if you actually could do that But the history of corporations and law of large numbers Tends to fight against that on average as you grow the team What sort of management system do you use? Do you either keep control of that? Maybe defuse it stay centralized do you control it really? I'm more worried about our ability to find enough great people But not so much about the scalability of the model per se I think what we find Consistently is that the best antidote to handle let's say complexity and scale is The combination of talent and city and extreme ownership That beats rules processes centralization of decision-making any day I've heard people say that benefits is highly centralized And that's completely true or completely false depending on how you define it Centralization is a broad concept and devil is in the details If we talk about decision-making for example We're extremely decentralized at any point in time each of our businesses is run But also our platform teams are run by a dedicated team of spooners and acquired team members if it's a business At any point in time they have a complete mandate to do whatever is needed to help Not that business, but bend is for us as a whole succeed which Generally is start by running that business well I and others monitor oversee Progress by being immersed in all the different slack channels and threads and looking at dashboards and analysis But no decision has to go through us to be let's say quality executive team whatever that means to be approved Other than a super small set of decisions for example related to pricing But we're talking maybe decisions that are made once a year 99% decisions The teams are trusted to take them We sometimes joke that we buy a selfish companies when we bring them back to startup mode And we really do I mean these small talent and teams with massive mandates to just go and get it So decision-making is extremely decentralized And I don't think we'd be able to scale otherwise Because centralized decision-making has multiple flaws Obviously can be slower because you don't have time and people have to wait You may not have enough context to decide well And especially if you have an inflated sense of ego Then you're probably still going to think that you can make up for that lack of context out of your Extraordinary intellectual abilities But then guess what often you don't But the most important flaw of centralized decision-making is that it deprives people of that Precious sense of ownership is difficult to feel Excited about the work and responsible for the work If ultimately all the important decisions someone else is to Place a sample approval or even make them then destroys productivity on a daily basis So we don't do that And other way people define centralization is rules So very specific rules for how things are done And I think that's partly a way that Management teams try to Implement their decisions at scale They believe they know best they decide and then rules are the way that those decisions are imposed throughout the And rules become a bureaucracy obviously could be more or less Complex and more or less rat-taped Sometimes rules are just an enabler for centralization meaning If you strongly standardize how people operate And report then you make it more feasible for this supposed central management team to make their decisions If they had the heterogeneous information will be more difficult We don't do that either. We actually tell our teams Don't report in a way that makes me happy Use slack channels to talk to the team. I'll use the same info for the most part If the info is bad it's because it's bad for everybody I'll tell you but not because it's bad because I don't like it structured that way for the most part What we massively but say centralize I don't have centralization is the right word is we standardize the toolkit So the underlying technological foundation is the same for everybody But that's something we bring in on almost on day one after a new acquisition Takes a few months and then it's done and by the way businesses still have control We are like an open source community internally So you if you find that there is a bug or a missing feature you build it and that benefits all the other businesses So it's not where you're limited necessarily and then we give you a set of principles good ideas and lessons learned That hopefully you follow but they're not prescriptive. They're not rules We have a massive homogeneity We make sure that the toolkit and the principles are homogenous across the group But that operationally and transfer decision-making on a daily basis teams are completely autonomous and for us That's worked pretty well so far How has the chat you PT moment influenced that I know I have heard you say that You were doing AI back 13 years ago when you launched this even your previous company Now these tools have become much more useful at scale How does that figure into this equation of centralize versus decentralized and ownership by people I mean I is having a massive impact on productivity for us It's enabling people to do more faster better work It helps in the context of scalability I think it helps in a bunch of ways Again, if each person can do more work you need fewer people to say absorb the same number of companies or larger companies Which in terms makes a lot of challenges easier for example You don't need to hire as many amazing people or people who are capable of extreme ownership Which is a win check Alternatively, you could do more acquisitions in parallel or bigger acquisitions Which is good for growth It also helps keep the organization function on its scale Because it makes producing the documentation much faster Now writing a memo or describing say an experiment becomes 10 times faster than before Potentially We're trying to automate it fully by the way, it's mostly automated Already a banish problems Similarly, if I need to follow progress across different businesses I need other people less I can be more autonomous In the past I had to ask to be granted access to the relevant database I would need to query data or ask a data scientist to query for me Have them run an analysis do it myself Now I go on Slack We have built a set of technologies and automations The superficial layer of which we call alternative spooner And I've got my own alternative spooner I will ask it to run that analysis And then it will go and automatically request access to the relevant database Access will be automatically granted for say five minutes The amount of time the agent needs to review the data It will compile the analysis It will share it with me whether it's a plot or in textual form And so I can be autonomous and even though I don't have time to follow everything in detail I can very quickly catch up indirectly through the agent So it is a a boon, it makes us even more bullish that a call it centralized model, but I think it could be a slightly misleading word, can scale massively much more so than what would have been possible in a more traditional, technologically speaking, set of boundary conditions. - If you take it to the next logical conclusion, all of this internal work for 13 years, my mind is now decided it makes you a better owner of a lot of these companies than just about anybody else. Can you take me through why M&A is part of the strategy, link to that, and then what the market gets wrong? I don't know, I think some people label used to be kind of an acquire of apps then it's private equity and software. I think there's probably other companies you mentioned Berkshire or Dan or her constellation, other companies that really are permanent holders of companies, but if you're aiming to be the best operating company, you get people who think like owners, you're able to scale them and have a large team and now 50 proof points of companies, how do you think about deserving to be the best owner of a whole swath of companies now? - I don't think we deserve anything. We just try to work our ass off to be that. It's not about deserving, it's just either you are or not, but you ask why M&A, first of all, because we could also launch competing products from scratch, there are a couple of issues with that. First of all, we like to own businesses with some modes, with some stain power precisely because these businesses already exist in certain segments. If you launch something from scratch, you're very unlikely to greatly erode their market share. If it were so easy to do so, we probably wouldn't be that interested in participating in that market anyway. So that kind of rules out the follower strategy and existing segments. The other launch from scratch potential pathway, which would be radical innovation coming up with something completely new where the segment almost doesn't exist or you'd be disrupting it completely, which is how startups do gain market share when they succeed. The problem there is if you look at the statistics of this are absolutely these small, out of thousand startups, how many get to a level of, say, revenue just to pick the most obvious KPI that would move the needle for us at this point where assuming we close the acquisition of Miro we're at about $4 billion around rate revenue. So we need to believe that this new thing we launch, is gonna get to at least half a billion. And by the way, if it gets there, so there's probably a one in a thousand probability that it does if it's at the broader market's statistics apply to us too. Even if we were a little bit better, it would still be very small. And then generally these companies get to say half a billion dollars in revenue in 10 years. Maybe today with AI and a better distribution and more efficient markets a bit faster, but if it's in 10 years we're not interested. We would need it earlier. I was in 10 years probably wanna have it at five billions. It's just to statistically unappealing. I think there is a lot of hidden lost making investment in the world of startups in terms of the massive amount of time invested by very talented people, founders and early employees in projects that fail. And they do that for basically no money for a dream. Probably the expected value of that is awful. Naturally, there's selection bias, we see relatively few companies that succeed in a big way, but what's the overall investment that's gone into making those companies possible? I don't think it's appealing for an established business to go after that systematically. It would be different if you were Apple and you have an established customer base for a very particular type of product. You can build the ecosystem products around it. It's maybe much more predictable than you have a distribution channel. I can see that, but we own a diversified side of properties and launching it yet another completely from one. I don't think it would be particularly appealing in terms of expected returns. Instead we buy product market fit. Companies that hold great succeeded. And because we believe we can operate them better, we can offer a high price, what's perceived to be a high price and still believe a good return for our shareholders. Why do you think the market obsesses over organic growth? I think about some of the acquisitions you've made and maybe they're growing a little bit, maybe shrinking a little bit, depending on how you measure it. And then plenty of you're growing very quickly organically. What is it that you think the market is missing about the potential inside venting spoons in this platform, building something real and steady versus some organic growth rate? By the way, you're absolutely right. A majority of investors are focused on organic growth, even with venting spoons, which I initially found it odd given that the entire value proposition here is that we want to be the ultimate, ideally the perfect M&A and operating machine, organic growth should be. Shouldn't it be the same as an organic? - Yeah, just certainly a factor you want to understand, but it's a very secondary at best. I think there are two reasons for it. Part of it is just not all investors are Uber brilliant and there's a lot of pattern following. So overwhelmingly, companies in the market grow organically. Serial acquires are fewer and far between because in aggregate, I think it's a smaller opportunity. It's still a gigantic, if you add them all up, it's probably trillion sub dollars, but it's a rare type of opportunity. And so most investors have not done a lot of those investments. Some have done none. In any case, they've been trained to think about how do I catch the next Google? And that's more a product that scales organically. So there's just that more shallow approach. Several investors are extremely shrewd and perfectly understand the math and why organic growth in our case is, I wouldn't say completely irrelevant, but almost within reason. Some don't care at all and enthusiastically buy our stock even though organic growth has been lacklaster, let's say for the most part. Despite understanding it perfectly, would value our stock class because they are afraid there is kind of a vicious cycle where they think, well, I think many people out there in the market don't get it, they like organic. And so maybe Benispon will not be valued as much as I think it should. And I need to embed that in my own valuation and therefore I should value less. So there is also this phenomenon of various shooting investors who are second-guessing what everybody else may be thinking, which is fascinating. Any thrasional, if you're ultimately not holding forever, it is not irrational to think that way. I understand it. - Welcome to the world of public markets. This exists though in venture land. I remember just a couple weeks ago, a good close friend of ours who's been a influence on us as a gentleman named Ho-Nom. He helps to run Alta's ventures and he had put something out on X. They run an extremely successful venture firm but he's obsessed with Berkshire Hathaway. So he has this strange melding and almost like a Yoda like set of thoughts once in a while on X. And he just brought up the old story of the Voting Machine versus the Wayne Machine that Graham and Buffett popularized. And you see that a lot in venture land because everyone's worried about who is going to be the next buyer. So who's going to vote on it? I think your advantage, short of maybe a few of your public shareholders not realizing if they just hold on. They're going to be just fine. Is that you don't have to be the Voting Machine. By definition, you taking the company, expecting that essentially every company is going to stay within the bending spoons forever, all you're doing is weighing what the actual cash flows can be based on your model. Is that resonate with you? How important is it that you look at it through the lens of your model and how it could find a permanent home within you? It's only do pretty much when we choose whether we will acquire a company and what we'll price the offer for it. There is a set of more qualitative checks we go through, but then once those are cleared and we're happy to move forward, it's all about the math of IRR MPV Per Spooner, these KPIs of compounding and ways of accounting for opportunity cost. We barely, if ever talk about will the market like it? If we have two opportunities where IRR based on our own projections of free cash flow is compatible almost the same, then sure if we think the market will like and we can't do both, one more than the other will will lean because we're not a masochistic. But I think it would be dangerous to try to please the markets for a bunch of reasons. One is the markets change your minds in time. So you probably looked into teledine by Aaron Singleton and there was a decade or two where at the time we're called conglomerates. It's maybe a word we hear last today, but we're very popular. And so the guy who's one of my favorite entrepreneurs and investors of all time may be the favorite. I think it's absolutely exceptional. Also a great engineer by the way and chess player was aggregating assets under the same umbrella. And then at some point the markets decided that businesses that had a narrow, sharp value propositions were more appealing and started to optimize and spin off different business. And it kept compounding very efficiently just with exactly the opposite approach. You can't count on the markets to think the same way now. There I think it's no harm done. You bought them, you sell them. It's a little bit different if you bought a business you don't like, simple because other people like it. Then you're stuck with the business, right? So I wouldn't want to do that. Secondly, even if you were to assume that your, meaning our approach to selecting targets led to a portfolio mix, the markets like less, it's not even necessarily a thing, but let's assume you're certain that that's going to happen. And that will, all that's been equal afford you a lower multiple. Ultimately what you care about is valuation, which is the multiple times say your EBDA or some other factor in the equation, if by allocating capital more efficiently, the other factor say EBDA gets to grow much faster. And these are exponentials. So in a few years, any marginal difference really compounds, then even if the multiple is a little bit lower, you're much better off because the other factor is twice as big or three times as big. Also, I would argue the multiple will certainly depend on the market's perception of quality of the portfolio, whatever the market's the finance quality at a point in time. But it will certainly also depend on your growth rate. And so if my group. growth rate is way faster because we're allocating capital better. I don't even know that the multiple is worse net net. Maybe the perceived quality pushes it down a little bit, but then the faster growth pushes it up and maybe the net impact is a bigger multiple. So we think it's much wiser to stick to combining free cash flows as efficiently as we can. Maybe the markets will like us more, maybe less at different junctures, but in the long run, we're pretty confident. This is how we go as far as possible as quickly as possible. We've been joking about you internally that you're the accidental outsider. Been in hiding for a long time. Teladine was in Will Thornux book. The outside is a great book. I had a chance during business school to spend a year with Will, writing one of the chapters, not that one Bill Sturge chapter, and just learned a ton from Will and have built a lot of companies with him and he's taught us so much. So this is the plug, Will, if you're listening. It's another 15 or 20 years at least until he write the chapter on you. But everything you're saying, I know. That was companies were like 20, 20, 20, 20, 30 years and smiling at the feistyness and obsession with these metrics that are rational long term. By the way, in fact, I think if I could now sign a document, guaranteeing that we can buy shrinking companies forever at 65% IRR, where do I sign? I would sign immediately. To be clear, we're bought mostly growing companies, although people sometimes means represent Beniz Boom says we only buy dying companies, but actually 80% of our companies were growing when we bought them and have continued growing afterward. But if it could sign now, a document promising that we can deploy 5, 6, 7 billion dollars a year for next 20 years in shrinking companies at 65% levered IRRs, I would sign in a heartbeat. That would guarantee just an incredible run of compounding unbelievable. We have zero problems with even negative organic growth, let alone less than shine you're going to growth. On that note, Will is on our podcast last year. He came down to visit us and there are so many learnings every time we talked him. But one thing he said relates, I think, to this point in a lot of what we've just been talking about. And it's pretty simple. Like everything with Will, he's able to distill things down very simply and discreetly. He would just say the total addressable market for inorganic growth, far exceeds the one for organic growth. I know you alluded to before, maybe for the biggest organic growth companies, they can be massive. But I think he would say people continually underestimate that there's a slew of acquisition targets out there. If you built the right processes and the right system to find them and integrate them into whatever you're building, and they're still being built today, there's always a new refreshed group of them. I haven't heard someone so emphatically say I give me 65% levered IRRs and shrinking businesses. That's exactly what he's talking about. It's part of the same design. If everyone else is avoiding companies that look like organic growth is flatlined, it's probably an amazing place to fish and you can make them even better. And there's not any amount of these companies. I completely agree. Earlier I mentioned why we like M&A so much. And I kept it simpler by focusing on I think the ROI of launching from scratch, especially our scale, is not that appealing. And it looks deceptively appealing if you just look at the few winners because you're forgetting to really account for the massive human capital that's being deployed at the loss by people for free on their own time, hoping to be those winners. The other big reason is that I think an inorganic strategy scales more than 99% of organic strategies. Google is Google, but even extremely successful. Let's say single product or single segment companies. I think if you scale to a billion or two in revenue, if you're new today or starting a started, you get to one or two billion in that city, you would say, wow, that's better than almost anybody. Whereas I think what we do we're already at four billion and look, I don't know how much we can scale it, but it's obvious that it's more than five. There's a long way to go. How do you avoid the law of large numbers, and like everything, you seem to have thought deeply about them and usually have a flip on the typical orientation towards these things. But if you 10X the number of people from here, if you go from four billion or revenue to 40 billion, generally things creep in. Maybe you do start to eat away the tam, even though we just talked about it being enormous. Why stop at software? Are there things outside of software? I know you've done a little bit of hardware now, but I mean very far afield from there. What is it rationally in your playbook? If you look out 20 years, that's possible to not fall prey to the kind of organizational rot that usually comes this size gross. Yeah. It's certainly a concern. The good news is that we haven't been able to see any of that happening yet, which is your sharing. But I fully expect that there will be some saturation and some deterioration on your returns. Maybe because you need to deploy more, and therefore you can be less discerning. And so yes, we can talk about expanding the adjustable market, but unless you do that, there's certainly some level of downward pressure on returns, because you need to buy a bigger percentage of whatever is available. We have been, I think, offsetting that well by improving our talent density, our culture or technologies, but it's not written in the stars that will continue to suffice. And in fact, I would expect returns to compress a little bit at some point going forward. It's only reasonable. Now, the good news is that we have, to the best of my knowledge and hearing from the investors who have studied us the best relative to our scale over time. We have delivered returns that are better than maybe any serial acquiring history. I don't know. That's what I've heard by from two separate investors. I haven't studied enough that I can say I'm sure that right. But at least the fact that two extremely professional competent investors told us, at these different scale points, you have always been the most efficient fastest competitor in history, at least, all the companies they knew, even being in that conversation, I think that's the estimate that we've done something right. There is a pretty wide margin between where we are or have been up to now and let's say where returns would start being, eh, do we want to do this or do we start paying dividends? It's good to know your model. It doesn't hinge on razor sharp and razor thing margins. And so that's good. Naturally, we will continue to work hard to make sure that such compression doesn't occur or occurs as lowly and as limited as a fashion as possible in the tools are strengthening the team. The platform or broadly, the data, the technologies and the people, by the way, the AI especially is now very powerful pale wing in making sure that we can 10X revenue while not 10Xing headcount. Very confident we can do that. I suspect we can 10X revenue by increasing headcount 3X at most, something like that. So that helps. So there's a lot of investment and effort going into that. The other big lever is certainly trying to expand the address of the market early so that we never find ourselves in a point of saturation. Hardware being a first, but also we're table more enterprise as I believe that a lot of our platform would port nicely to other industries, ultimately access to superior talent, a culture of high performance and truth seeking excellent technological savvy and powerful proprietary technology. Those things I think deploy nicely across many, many industries, but I'm equally sure that they will not port perfectly. So expanding the dressable market early so that we don't find ourselves that in five or six years where like, uh, damn it. There's nothing more to buy. Unless we accept crappy returns is something we certainly worked toward. I don't know if John wouldn't. Yeah. From Indiana where we went to college is the finishing of success was you have done 100% of what you could. Even if I knew it, I don't, I might quite optimistically, but if I knew that there's only another eight years run away and then there's nothing else we can ever do again. It's not a good reason not to go all the way for eight years to the best of our abilities. We can still have 10X the company or hopefully even more. And then maybe we start paying dividends or if the stock price is low, we can buy it back. That's great. Nothing is forever. Anyway, it's not that Google, it was a bad idea to build Google because search couldn't be an infinite business at some point in such a race. You still build it. It's great. John, what is he famous for telling his team? Let's practice putting on our socks over and over again until we get that right. This is fun. I wonder what the corollary is for you guys. Just the blocking and tackling the little things before recording. We were talking about Mitch Rails, who's a very close friend of ours and super important where we're building and he's influenced us a lot on how we think about business and especially, we actually met via Will Thorndike, but he'd never met Mitch and within a day, he became our biggest shareholder and we've been building a lot of companies together. I think that one of the common factors was this obsession with duration in our old lives helping to manage an endowment fund. Our biggest frustration with the institutional investing world was that super well-intentioned people hadn't thought enough about structure. They were incredible learners, but the learning was actually just kind of a waste. They weren't able to implement it. Everything I've heard about you, I'm hearing right now, is the opposite. I think Mitch has taught us to take it to another level, which is every decade expect to reinvent yourself almost completely. The first 10 years for bending spoons, you were in the wilderness. Not a lot of people had heard of you. I know there was some Italian media that was finding you. Then all of a sudden you read the outsiders, you've heard of Constellation by then. Still don't really try to match yourself with anybody. You're midway through the second decade now. What is it that you think could be reinvented or has to be reinvented? Say, year 2025 without losing the soul of bending spoons? What can you see already that could be the big pivot point for you? The basic principles of what we do as they roughly the same from the beginning, basically by product market fit, bring exceptional operational excellence, largely through structure, being able to integrate all these businesses together, transform them very deeply, use the same underlying operating system, a shared team of people. But the way that's looking now and more so, I think if I have to imagine the next five or six years, it's changing quite a lot. It's boring, everybody's talking. about it, but I think frankly AI is right now for this phase, the big difference maker. We have invested aggressively in technology for as long as I can remember, but never before have we found ourselves in a situation where productivity could spike just so much through incremental efforts here. For example, internally, we have recently launched something called diagram, which is if you've used cloud design, there are some similarities. It's deeply embedded and integrated into our broader tool kit so that when you ask the tool to design something, it needs zero context. It already knows all the products, databases, it knows the design guidelines that the lead designer on each business or product has laid out. It is in contact with all the right people if it needs feedback or approval. So it's a far more efficient way of designing within bad newsrooms. The productivity gains we're getting from something like that are extraordinary. First of all, designers are much faster, but also the percentage of team members who can now design effectively on their own without having to bother other people and every time people have to collaborate, there's information loss as you exchange comms and then delays and frustrations. It's just mind-boggling. So that's just one I could bring many, many examples. So I think looking for five years, let's say, I expect that what we'll be able to do in a vastly automated fashion will be just sci-fi-like. We're trying to be trailblazers some on that path. The underlying principles will be similar, but I think what you'll see us do will be just shocking. Every note when we bought it, it had 350 team members approximately. After 12 to 18 months from when the acquisition was completed, it had maybe 60 something like that. And now it's been run by 20 people and those 20 people launched in general February this year launched by far the biggest update to the product in maybe a decade, certainly five or six years. Part of that is we've spent a couple years cleaning up the codebase, improving the cloud infrastructure so that the codebase is more maintainable. It was easier to expand the product, adding features, but a lot of that is just incredibly powerful AI automations. And so I think we're just scratching the surface of that. And the advantage of it for us is also much that we can further optimize costs. It's more that we can acquire more companies, which means we can deploy the similar amount of capital across smaller tickets. If we want to, which means the universe of realistically attainable opportunities is bigger, which means that saturation effect on the turns is further pushed out. What is the limit to keeping this ownership mentality with these AI gains? What comes to mind is say the team running AOL, they might have a mindset of transformation, but then there's sort of maintenance. AI in a way to me seems like it's just pushes the boundary of everybody at their edge at all times. Benning Spoon's already has this culture. And now this is just multiplying it in an exponential fashion. How do you envision are there examples of how you move team members more quickly or like you were kind of alluding to the team's size gets smaller. How do you keep people interested at their cutting edge on what they're able to do? I think it's actually easier. I mean, there's personal taste. Some people like some products more than others. And like less part that I think it's generally a minor. As for the least of Benning Spoon's where we try to have a culture that's not passion-driven, but more impact-driven, we want people who are excited when their work matters, when they improve product for a customer or improve monetization for the business. The main factor determining the level of motivation that people feel that extreme ownership in our experience is, or factors that'll give you to one is how much responsibility you have, more productive people are, the more responsibility they have, naturally. I mean, it's running a business. It's a fixed size of responsibility. If you're running with 10 people rather than 50, you could argue very simplistically that it have roughly five times as much responsibility. Two, by the level of talent and city in the team that are part of, because we don't want to be the lesser performer. If everybody around us is very good, we want to be at least as good. Most of us have a level of competitiveness. And just as are not to let people down. And so, if we have smaller teams managing the same surface of product or business or tooling or whatever that is, we automatically get higher levels of responsibility and higher talent and city, both of which I think if anything breed a sense of ownership and others are to make an impact. So I think AI makes our job easier in that regard now harder. How do you think just knowing how quickly this is all changing the second decade could be profoundly different than the first and then beyond? How do you cultivate the right shareholder base who gets on board with the way you're thinking? You've done that internally. Be kind of fun to think about. Could you use the mechanism to go from 800,000 applications to a couple hundred hires on the shareholder side? We first heard about you through our friends, Henry and Enuke and Cory over at Durable. You spent time before going public bringing together an amazing crew of shareholders. That has been unleashed now. How do you maintain that set of people around you that allow you to continue to do what you're doing? When you're a public company, you don't really get to choose your shareholders. People can buy and sell more or less as they please. Of course, you have some control. Maybe if you have a private placement, you can favor some investors, but broadly speaking, you don't control it. What you can do is you very clearly articulate what you're about, what you want to accomplish and how. We try to do that. And you do that, honestly. First of all, you need to know that and some people are confused, but assuming you have a clear idea of what you want to build and how, you need to articulate that honestly and clearly. That will tend to attract people. It's not the similar from recruiting we talked about before. If you laid out your vision and the mechanics of what you do well, you're more likely than not to attract people who are aligned with that. But still, you could attract people who misunderstand it or their force-pecular reasons. There's not much you can do in that regard, but hopefully over time as you keep preaching and telling the same story and conduct yourself consistently with that. A bigger and bigger percentage of your shareholder base will be aligned with your views, but I do have an effort to control that and so I just think control what you can control. There are so many problems to solve and this is not one of them, I think. Mitch has said it took 10 or 15 years to get that message out, cultivate the shareholder base, but it's never ending battle. But we were talking, I think, before recording, too, about how going public also creates so many positive tools for the company. Can you just describe that a little bit for internally, externally, how it's helpful? For us, as a serial acquireer, access to plenty of capital and good terms is paramount and we learned that public companies, in general, especially those who do well as a public company, tend to have access to more debt, cheaper debt, so that's great for us as a no-brainer to unlock that benefit. It's also easier to raise equity if you find that there's an opportunity, especially at a big scale, although some of these AI companies are now defined what we thought was reasonable in the private markets, but for most companies, I think, very clearly there's a semi-cap as a private company. I don't think we would have been there yet, but also you don't want to wake up one morning having left a lot of growth on the table for two years and go public. You want to go public when it's not a problem yet that you're not public, so we tried to do that a bit early. Obviously, there are other advantages that could be interesting. You can issue equity to the seller to pay for some acquisitions in ways that don't trigger immediate tax consequences, which can be appealing for some sellers. I mean, it's not impossible. That's a private company, but then people generally don't want to own ill-equid equity. It gets much more difficult to use it or use it in a way that's not discounted by the seller. You can do buybacks more easily. It's not something we have done in recent years. I'd be surprised if we didn't find a great opportunity for a buyback in the next 10 years. There will be a point where the stock is stupidly cheap. Maybe a buyback is even more appealing than the next acquisition. So there are all sorts of advantages, but also, obviously, some headaches that you'd rather do with now. Well, we'll see on this chapter of the outsiders that's written, I know anything about single-ten, he's known for buy-mex shares, Bill Anders, General Dynamics, only held the helm for a few years and sold the F-16 project. It seemed like essentially gutted the entire company, but turned a completely failing company into an incredible stock. So it'll be fun to see what twists and turns this take. I love this week. Come to a close here just to try to unpack why you're doing all this. And I mean, like you, Luca, what is it about this that makes it your life's work? Why do you want to spend your time doing this? I know you have a one-year-old at home and you've talked about how you want to be 10 out of 10 with your wife and family too, but what is it that drives you to want to spend your life doing this? My answer changes depending when you ask me. I wake up in the morning, but broadly speaking, there have been three drivers for me. The weight of each change is a little bit in fluctuates, but one is I'm just very competitive, and I think business in general is one of the most competitive arenas. You can really test yourself against half of humanity in many ways, and I find that exciting, interesting. Two, I love learning. I'm pathologically interested in learning, not just notions, although that too, but also just expanding my skillset. I struggle to imagine a situation where I would be able to learn as much as quickly, because we, in what we do, we are surrounded by amazing people, and you learn a lot from people. You get to learn skills and experiment in relation to human psychology, finance, engineering, science, organization, all sorts of things, even legal aspects, which is maybe not as interesting, but sometimes it's interesting. The breadth and depth Particularly in my position I feel I'm privileged, but I think in general I've been in sports where we have such broad mandates and such high levels of responsibility and autonomy. It's really staggering. I don't know that I'll be able to learn as much in almost any other pursuit that I could realistically go after. And then the third one, I liked the idea of building something great and generally positive. I'd like to think that with Ben in sports, we can reset the bar for what it looks like to run a business optimally. And I know that it's controversial because we often part ways with many team members that are core companies. And I do believe that the world is a better place if businesses have run exceptionally well, even though there are sometimes disruptive, painful, short term consequences. And so we're trying to reset the bar for what excellent looks like in the areas where we operate. And I believe that having built this with roots in Europe, particularly Italy places where we haven't seen almost any truly world beating companies coming out of. In decades, probably if we can succeed in a big way, that would probably inspire. And we're seeing that a little bit these days, more companies, more people to try and more investment to come here. And I believe that the world is a much better place if knowledge, wealth, opportunity are more broadly distributed. I'm perfectly fine with say, Silicon Valley or these coasts in the US being the hubs and one or two notches above. But I think when that gap becomes a vast ocean, it's a big problem, including for the people who live there. Because ultimately, there's no stability in the world without a level of inclusion. And what's perceived as a fair distribution of these assets. And so if we can tilt the scales, they're even slightly in a good way, I think that'd be important. So that gets me up in the morning and again, depending on the day, could be one or the other. That's beautiful. I loved the conversation you had with our friend, David Senderer. There was one thing he said at the end, which struck me. It was understandable that he said it, but I think I'd have a different take. He mentioned that every time he speaks with you, it's amongst the most unpredictable set of responses. He could get amongst a founder. I feel a complete opposite. When you think about how you've talked about what you're aiming at, how you're trying to live this integrative life by building this company with no other pursuit than excellence. Everything seems extremely rational and fits really well together and just knowing the essence that kind of you exude and then walking around these halls, you can sense it. So congrats on everything you've built and so good to spend time with you. Thank you, my pleasure.