https://open.spotify.com/episode/0Ok2HlpJ06C8c2Wrhm8Nkv
Context: John Collison is the cofounder and president of Stripe. John is being interviewed by Patrick O'Shaughnessy, the CEO of O'Shaughnessy Asset Management and host of the Invest Like the Best podcast.
Stripe's mission is to increase the GDP of the internet. John started Stripe with his brother Patrick when he was just 19 years old, and has grown it to, at last valuation, a $36bn business.
These are my abbreviated (lol...) notes from Patrick O'Shaughnessy and John Collison's interview. Everything is from the perspective of John Collison.
// @blakeir
Book Recommendations:
The Outsiders : Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
Softwar: An Intimate Portrait of Larry Ellison and Oracle
Cable Cowboy — John Malone and the Rise of the Modern Cable Business
Table of Contents
1:30 Interest in industrial conglomeratesMost technologists are really interested in studying the history of technology because you want to not just be a one hit wonder, you want to not just have one product that works and then passes by, but you want to be able to surf multiple waves.
I think all of the kind of people have been talking recently about how much of the S&P 500 is now made up of the Googles, Facebooks, Microsofts, companies like that. If you look at all those companies...what’s impressive about them is how they’ve managed surf multiple waves and have multiple successful, independent lines of business.
Example: Facebook integrating acquisitions successfully (Instagram, WhatsApp, etc.) and making the move to mobile succesfully.
What I find interesting to look at is how it tends to be different outside of technology and the different dynamics you get in conglomerates and kind of enduring businesses in other industries, because we’re kind of used to the way technology likes to do it.
However, there are tons of really spectacularly successful companies that have grown as high rates for years and years and years outside of technology.
Class multi-industry conglomerate:
Berkshire Hathaway — the different intellectual hobbies of Warren Buffett
RJR Nabisco — What is a cigarette manufacturer and the maker of Oreos doing under one corporation?
Single industry conglomerate (outside of tech):
Examples:
TransDigm (Aerospace)
Danaher (Industrial)
LVMH (Luxury goods)
Domino's (Pizza) — grown more impressively than all the technology companies
Vail Resorts (Hospitality)
If you just look at the single industry industry conglomerates, it's actually pretty interesting how they work. At first, they are very aggressive acquirers. A lot of their growth has come from selective acquisitions made at good prices, but...what's really interesting is that they often give the managers of the acquired companies a lot of latitude in how they operate and how the companies work.
They are not really deeply, tightly integrating them to the one platform. They actually kind of buy these companies and then don’t integrate them that tightly, but they’ve still driven really interesting performance as a result of that.
This is in contrast to how technology companies typically handle acquisitons. Companies like Salesforce or Cisco make a ton of acquisitons but they deeply integrate them within the rest of their company
Example: Salesforce acquired desk.com and turned it into service cloud.
No one within the technology industry has done what you actually see pretty commonly in the rest of the world, which is one holding company for a whole bunch of independent businesses that are sharing expertise. They are sharing management styles and rotating managers across them.
Counter-example: Constellation Software, which owns around 500 businesses. They own a wide range of independent software businesses. John uses the example that one will sell software to golf clubs and the other will sell plumbing software, but the managers will trade notes and things like that.
Venture capital is the much more loose version of this, where they're actually not part of the same company at all but maybe they share some common elements of things are done across companies.
Why aren't there more conglomerates in tech that operate like Constellation Software?
I think venture capital must have something to do with it.
Valuations of technology companies tend to be fairly healthy, but maybe the reason this strategy only works in other industries is because those serial acquirers mentioned (above) are able to a lot of acquisitions at reasonable prices.
The other thing that is interesting to think about: Is there a platform for common knowledge and best practices that you need in other industries, but is actually it’s provided by venture capital firms in tech?
The Danaher acquisition strategy doesn't apply to tech. The classic thing that Danaher did was rolling out the lean manufacturing techniques originally from Japan with classic American industrial companies. And so this was a way in which they could have a set of best practices such that when they acquired a business, it would be better. It would perform better as part of Danaher as opposed to as an independent business where maybe it didn’t have these best practices.
However, as I look at the tech landscape with venture capital, one thing that’s striking is you can be an eight person firm and you actually have really good access to best practices. Our main VC is a Sequoia Capital and I mean, there’s a huge amount of expertise in that firm that you get to kind of unlock when they invest in you, and that’s certainly the case across lots of other of the venture firms in Silicon Valley. Some of them even have in-house recruiting and executive recruiting and things like this, like actual in-house functions built out such that in a way it’s, you’re getting a little bit towards that common platform that maybe the conglomerates would’ve had, but it’s in a VC firm and it’s kind of provided on a service model and so that’s maybe another reason is that you actually don’t need a conglomerate to achieve that best practice sharing.
And of course, this is by the way, something we’re trying to do at scale with Stripe.
We try to think about what Silicon Valley's best practices and how do we get them out to the millions of internet businesses over the internet with things like Stripe Press and Increment Magazine and stuff like that, that we can do.