Sunday, August 11, 2024

Strong Governance Actually Makes Weak Companies

I’ve spent a lot of time in recent years thinking about governance: its role in the current state of the markets and society, the way it functions in individual companies and also as a powerful collective force, and how we can approach it in a less monolithic way when we sit down to structure companies from the ground up.

Over and over, I’ve seen founders succumb to the idea that their governance has to be the same as everyone else’s in order to succeed – or even to get their company off the ground. Just as many times, I’ve seen them regret making that decision at some point down the road for any number of reasons.

I was intrigued to read about this study on the effects of what we traditionally think of as “good” governance in a recent Bloomberg column by Matt Levine. It makes the argument that so-called strong governance, which prioritizes shareholders, is actually bad for companies and bad for competition. By comparing what the authors call “separate” versus “common” (ie, institutional) ownership, it looks at the ways in which “common owners indirectly, and perhaps unintentionally, exert market power by delegating control rights to other shareholders through the broad implementation of “strong” governance structures across their portfolio firms.” 

It goes on, highlighting the scourge of activist investors: “These delegated control rights are then leveraged by non-diversified investors, such as activist hedge funds, which pressure managers of their target firms to reduce investments. The aggregate effect of lower investments reduces the demand for labor and wages. Importantly, even though activist hedge funds do not internalize externalities across firms, the cumulative impact of their interventions contributes to anti-competitive outcomes, manifesting as a monopsony in the labor market.”

They have plenty of data to show that the rise of common ownership over the last thirty years has broken the “feedback loop between wages and governance,” thereby disturbing the cycle of losing and regaining equilibrium that is a hallmark of a truly competitive environment.

Of course, this kind of activist behavior is not only bad for investment and competition. It’s also one of the main mechanisms for gutting companies entirely, often even ousting the very founders who had no idea they were planting the seeds of their own demise in the early days (see above: governance set-up regrets). 

There are many better ways to create governance structures than what’s currently deemed acceptable by the lawyers who seem to crank out the same charter for every single company. All it takes to do it is the willingness to take a leap of faith for the long-term sake and health of the organization. A tall order right now, perhaps, but one that I hope will become the normal way of doing business.

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Monday, October 18, 2021

Honesty and Optimism in the New York Times

I recently spoke with the New York Times about an issue that's both very much in the news and on my mind: building a company honestly.

The temptation to "fake it 'til you make it" in business is real. For some, it's overpowering. The pressures to succeed are immense and come from both within and without. It should go without saying--though apparently not since so many people are now having to say it--that it's our solemn duty as entrepreneurs and investors to resist the temptation to make things look better than they actually are for the sake of buying more time and raising more cash.

As I told the Times, "You have to come clean about what you’re doing and why. Otherwise, your customers might come to rely on something you said or a promise that you can’t deliver that would harm them. And that’s not only morally wrong, it’s bad business to build that reputation."

It's easy to blame entrepreneurs for giving in to the lure of wealth by way of dishonesty. But we also need to look at the systems that induce this behavior. They're really not very different from the incentives that public companies face. To pick just one fairly recent example, Under Armour inflated their numbers one quarter by borrowing from the next quarter. Then the next quarter they had to borrow a little more from the quarter after that. One white lie led to another and eventually it became a massive scandal. What often starts small with a decision that seems like a one-off can snowball faster than anyone might think possible into ruin. We need to fix the systems companies are operating within in order to make it not just easier but routine to start off with integrity and then stay on that path long-term.

If you'd like to read the whole interview, you can find it here.







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Thursday, August 26, 2021

A letter to our future



 

 

Ten years ago, I first put forth the idea of a stock exchange that could help reimagine capitalism as a force that serves not just some of us, but all of us. A group of deeply committed people coalesced around my outlandish idea, and together we built the Long-Term Stock Exchange.

Today, LTSE has its first two listings: Asana and Twilio. The chance to partner with these exemplary companies in our first foray into the markets is deeply meaningful not just for LTSE, but for the future they’re working to shape. I’m so grateful to every person who contributed their time, expertise, talent and good will to this achievement.

I wrote the Letter to Our Future above to commemorate this bold step forward. It’s a marker and also a pledge. The time to start building a better future is now. Let’s get to work.


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Tuesday, May 25, 2021

Out of the Crisis #27: Eren Bali of Carbon Health on public health, COVID vaccinations, and working as a unified society to solve problems

Eren Bali arrived in Silicon Valley from Turkey in 2010 hoping to relaunch Udemy, his online education company. He spent a few years working at the tech startup SpeedDate before following through with his original plan, after which Udemy went on to be enormously successful. When his mother became ill and Eben spent some months accompanying her to doctors in order to get the right diagnosis and treatment, he had a realization that led him to his true mission.
 
"I just directly observed that the technology for doctors was really far from what they needed to operate at a high productivity level," he told me. "And that idea stuck in my head--that the largest, the most expensive resource of any country was one of the worst utilized." His first instinct was that "somebody" should rethink how a doctor operates, how they communicate with the patient, and basically how the whole concept of care delivery works. Then he realized that somebody was him.
 
Now, as CEO and founder of Carbon Health, Eren is leading one of the country's fastest growing healthcare startups. It's mission is to provide really high quality healthcare to the entire population, with a special focus on underserved demographics. A provider of low-cost health clinics across the country, Carbon Health was also on the frontlines when the COVID pandemic hit--and even understood what was coming long before most people in the U.S. did. They pivoted to monitoring patients for COVID, then testing. Ultimately, the company partnered with the City of Los Angeles, and as Eren recalls, "seven days after the original handshake and launch into a scheduling website, we helped launch Dodger Stadium, which was the single largest mass vaccination site in the country." From there, Carbon Health fully reinvented themselves as a full-stack public health company.
 
Eren and I talked about why, when so many companies shut down in the face of the crisis, his "decided to just go to the other direction." We also discussed what it was like to arrive in Silicon Valley, why a private startup ended up playing such a vital role in the vaccination rollout, and what the fact that it did says about the future of public health, public private-partnerships and the civic fabric that we all inhabit. We also discussed the role every citizen can play in fighting the pandemic "at a time when "more people are getting medical advice from Joe Rogan than Fauci." 


You can listen to our discussion on Apple, Google, or wherever you like to get podcasts.




 




A full transcript is beneath the show resources below.


Highlights from the show:

Eren introduces himself and talks about his background (3:34)
Coming to Silicon Valley and Speed Date (5:08)
Eren's first impressions of Silicon Valley (7:17)
The differences between Silicon Valley and other places as he immersed himself in the culture (8:48)
Moments he felt he didn't fit in (10:53)
Eren's words of advice for Turkish listeners (12:01)
Entering the Silicon Valley state of mind (13:15)
Eren on using Lean Startup to launch Speed Date before Lean Startup was known (14:45)
Building Carbon Health and the Minimum Viable Product version (17:21)
Translating leadership from one context to another (19:04)
How Eren decided to pivot to healthcare (20:04)
The sketch he made in 2013 that led to Carbon Health (22:20)
How he decided he was the one to take on the problem (24:59)
Carbon Health's mission (26:25)
Carbon Health's position just before the pandemic hit (28:09)
Eren's mindset as he became aware that COVID was spreading but most of the US was not (31:15)
Some of the "crazy ideas" Eren came up with that ended up being implemented (34:51)
How Carbon Health became a critical part of the vaccine infrastructure and response (37:34)
Partnering with local government for a fast vaccine rollout (39:29)
Reconfiguring Carbon Health's platform for vaccine distribution (40:39)
What Eren thinks it will take to get to herd immunity (43:08)
How everybody can mobilize to help now (47:33)
Uniting to solve the problem (48:25)
On not leaving the job half-done (52:22)
Balancing Carbon Health's core business with its Covid response (54:35)
The future of public health in America (56:23)
Problems for founders to consider taking on (58:47)
The long-term impact of the pandemic (1:00:39) 

 

Show resources: 


Transcript for Out of the Crisis #27, Eren Bali

 

Eric Ries: I'm Eric Ries. This is Out of The Crisis. It's been a long 18 months, hasn't it? And during that time we have seen it again and again: unlikely people thrust into the spotlight for their work fighting the pandemic, and even more, tirelessly working away out of the limelight. One such person is Eren Bali. However, if you went back in time and told Eren a few years ago that he would one day be at the center of one of the largest public health responses in history, I don't think he would have believed you. Eren came to the US from Turkey to work at a Silicon Valley tech startup, which is actually where I first met him a few years ago. But now as CEO and founder of Carbon Health, Eren is leading one of the fastest growing healthcare startups.

Carbon Health is a provider of low-cost health clinics across the country. As you'll hear, COVID arrived unexpectedly and directly on their doorstep. They had to decide whether and how to respond. What happened next was entirely unexpected, even by those of us who've admired Eren for a long time. Carbon Health is now running some of the largest vaccination sites in California, most famously at Dodger Stadium, in partnership with the City of Los Angeles. During the pandemic, Carbon Health fully reinvented themselves from an affordable care provider into a full-stack public health company. This raises the question: how did Eren go from building apps on top of Facebook to ensuring that hundreds of thousands of Americans got their vaccines? We've seen this story before, even on this podcast with stories like Curative. Why did a private company, a startup, wind up playing a vital role in the vaccination rollout? What was it about Carbon Health that made them ready and able to step into this vital civic responsibility? What can this tell us about the future of public health, about public private-partnerships and about the civic fabric that we all inhabit?

In this conversation Eren and I talked about his journey from a small town in Turkey to founding the education startup Udemy, also quite successful, to Carbon Health and eventually Carbon Health's vaccination efforts. Eren spoke openly about his growth as a founder and leader, as well as gave candid advice for future founders. His number one takeaway is one we have heard again and again. Put the mission first, think long term, and everything else will fall into place. Here's my conversation with Eren Bali.

Eren Bali: My name is Eren Bali. I'm the founder and CEO of Carbon Health. We are a technology enabled healthcare provider, and most recently we have been helping the vaccine rollout and we run some of the largest mass vaccination sites in the country, including Dodger Stadium in Los Angeles. Before Carbon Health, I was the founder and CEO of Udemy, which is now the largest online education platform in the world.

ER: Eren, thank you so much for coming on. How have you been? How's your family? How's your team? How have you been weathering the storm?

EB: I think I have been doing fine because of Carbon Health. We have been really the front lines of the pandemic. When you're very busy with something it's actually like, it  helps you stay strong. I have three small toddlers. I mean,  that’s a lot when working from home quite a bit.

ER: I know the feeling. Share a little bit about your background. You've done some really, really interesting things in the tech industry, including going back to when we first met, but I also think it's not the usual path people would imagine to running a healthcare company. So, talk a little bit about your background. How did you first get into tech and come to Silicon valley?

EB: If you go really back, I was born in a small village in South-east part of Turkey. That's the kind of lowest income part of the country, which had a lot of accessibility issues. So, I grew up where we had all the one teacher for the entire school, rotating between classes. Where healthcare education access was really limited. So, was the 80s, and I was able to break out of it because I was very interested in mathematics, and to everyone's surprise, ended up winning the silver medal in the International Math Olympiads, which was one of the first time somebody from the Eastern part of Turkey had really participated and won a medal.

But the main reason this happened in my mind was that the access to internet really made a big change in my life, because even when you're in the place of lowest access to education having access to other people online, mathematic problems, it allowed me to self-study. This innovation would not be possible probably 10 years before. So, I studied computer science and mathematics in Turkey and then decided to start a platform for everyone to be able to teach online. But, I was really inspired with platforms like YouTube and Blogger, and I thought somebody should have, should do the same thing for online education, and started the company in Turkey first. That didn't work. I shut it down.

We had to move to Silicon valley. So, it was a really long story. I guess it took three, four years to get Udemy off the ground. But yes, I migrated from Turkey to Silicon Valley in 2010 and started Udemy. But before that, actually,  there was this a couple of years break where, when Udemy did not work in Turkey, I met this Silicon Valley entrepreneur who wanted to build online, like speed dating, a video-based speed dating application. So, we actually took the original live customer application, converting their live video dating application. So, that's how I came to Silicon Valley in the first place.

ER: I remember Speed Date. That's one of the very, very early companies that I was talking to Lean Startup about. What was that, 2009, 2010?

EB: Yeah. I think it was 2009 and 10.

ER: Yeah. Wow. That was, that's a blast from the past. Say a little bit about what drove you to want to come to Silicon Valley in the first place.

EB: Honestly, I wasn't even aware of Silicon Valley or this whole concept of startups and tech companies until 2005. I thought these were just websites built by some amateur hobbyists. So, I was really interested in programming, design development, but I didn't  realize the kind of business aspect for a very, very long time. When we started at Udemy, in Turkey in 2006 and 2007, there was no funding available. Eventually I started working at nights as a contractor for Silicon Valley companies as a way to fund a project in Turkey. Then eventually, they asked me to come to Silicon Valley and maybe just work in person, and then while I was visiting Silicon Valley, I realized that there was this complete new world of technology companies. They are businesses. They're professional, and they do things differently. So, I got involved. I went back and forth and eventually I realized that to really build the vision we had for Udemy, we had to be in Silicon Valley.

ER: What was it like the first time? I remember even just, I grew up in San Diego, so not nearly as far as Turkey and yet, even for me, the first time that I drove around Silicon Valley and saw the headquarters of all the companies that I had had all these relationships with as a customer, as a developer, it was a profound thing. What was it like for you?

EB: It was a very interesting experience as in, it wasn't what I was thinking Silicon Valley is. I thought I would come and there would be just massive buildings, really like technology infrastructure and squeeze everybody. So, I was imagining it more like an Asian, Hong Kong type of city.

ER: Almost like Blade Runner.

EB: In my head I was like Silicon Valley, and I came in and it was a bunch of suburban houses.

ER: Yeah. It's very boring.

EB: It was a lot of boring, like visually, but I loved the Valley. I loved the fact that it wasn't intimidating. It was just a bunch of people, smart people, very welcoming, very open to people from other cultures. So, the surprise was how un-intimidating it was for a newcomer. But I think the, I just quickly adapted and I realized it wasn't just about writing software, things like customer service, marketing growth, those ideas were ... they were very refreshing, because those ideas are very unique to Silicon Valley, or back in the day, they were very unique to Silicon Valley.

ER: How would you contrast the difference? I think one of the things that we, who are, you have the privilege of being here, in America, in California, in Silicon Valley. We don't even see and appreciate the water that we swim in, so sometimes it takes an outsider with an outsider's eyes to help us understand what is distinctive about it. So, what were those differences that caught your attention when you first immersed yourself in the ecosystem here?

EB: I was really shocked at how collaborative the whole ecosystem was. I mean, I was observing our founder, Simon, he would ask for help and they would meet us and just give us all the information we needed. So, it was weird like, you could just literally ask help from anybody and they will try to help. And yeah, I think most other countries have more a cynical approach to businesses and every company is thinking of each other as a competitor. So, Silicon Valley just felt super open. It also made me think that there was opportunity for people, for newcomers to come in and be successful there. But then on the negative side, the whole world of raising money, investors, that part felt intimidating. So, there's definitely the feeling that you just, sometimes you didn't belong. Like when you, when essentially I interacted with money, then I felt a little more foreign. But, if you talk to the people in the ecosystem, starting companies that was very open.

ER: That's really interesting. That is a common experience we hear from outsiders that there's only two cultures of Silicon Valley, and when we get into the funding and financing of companies, that that's really where the bias can come in. Was there a particular moment you remember, or a particular story of just feeling like you didn't belong, or someone treated you in a way that you look back now, you realize was about that difference?

EB: I remember two things. One is, occasionally we would sit down at the table, like the small talk is the hardest thing for immigrants. So, you talk about American sports and American sports are also very different than the rest of the world's sports. Trying to adapt that to, that was always a tough challenge for me to just be a part of, trying to be a part of it. I also, I mean, I'm still a man and I just also understand if you don't even enjoy sports, like those small talk subjects were always like the most challenging. I would feel most stressed in the first couple minutes of discussion. So, and then the second thing is like, occasionally, a lot of people would assume I'm a technical, like CTO of a company. So, most people would make the assumption like that I'm not the CEO of the company, even after we started Udemy.

ER: Yeah. I've heard that story from a lot of folks. I'm sorry. You know, we actually have a lot of listeners of this podcast in Turkey. It's actually consistently one of the top countries for reasons I don't totally understand, but I'm curious given that we have a lot of listeners from Turkey, if you have words of advice for them, or if there's anything you'd want them to know if there's folks listening right now, who hope to emulate your footsteps someday?

EB: Yeah. I think most people from Turkey ask me whether they should move to Silicon Valley. Is this the requirement? My answer's really it isn't, that is, since 2005, a lot has changed. The reason we have so many listeners from Turkey is a good proof that the information is more democratized at this point. So, you don't have to be physically in Silicon Valley or San Francisco to honestly get access to the best advice. Also, the funding has also been democratized. I have made several investments in Turkey. I mean, when we first started somebody had asked me in a conference, whether they thought there would ever be a billion dollar company from Turkey.

I guess in fairness, I started Udemy in Silicon Valley, formally. But it is, in fact, a company started by Turkish people. Then, there were also two other companies started in Turkey, which were multi-billion dollar exits. There's another one I’m watching, which is on the path to be a 10 to $20 million company.

ER: Incredible.

EB: So, I think the last 10 years, the Turkey ecosystem has, I guess like the cost of Silicon Valley has been less about the physical location at this point and more about-

ER: The state of mind.

EB: The state of mind industry we are in.

ER: Yeah. That is a hard thing for folks who've never experienced it directly and who tend to mythologize this physical place. It's not like the sunshine and the low-rise buildings you were describing and the strip malls is the thing that makes it magical. It is a certain ethos about innovation and about people, and that kind of cross cultural collaboration has been emulated now by people all over the world. I think that's actually an incredible positive development.

EB: I think Eric, you've been a part of this idea that if you really democratize the advice and then choose your starting companies and everything else, funding and physical space and talent, those things are actually solved over time.

ER: Yeah. Well, I appreciate you saying that. That certainly has been part of my mission now for a number of years. So, thank you. I’ve got to ask you one question about SpeedDate. I'm really curious, for now and when founders encounter Lean Startup, it's a famous old idea for most folks. Yet when you were at SpeedDate, you were the head of engineering there, I think, at a time, that was before the book had been published before even Lean Startup was especially famous. What was it like to be on the receiving end of that advice at a time when it wasn't very popular??

EB: I was actually, I remember actually the first time the Lean Startup ideas came, and it immediately resonated with me because we had spent 18 months building the first version of Udemy in Turkey, which was a live education platform for learning. We spent all this time building, and we obsessed about a lot of details and we launched it, and we realized there's no way a live marketplace for online learning is going to work. Like literally after 18 months and 10 days, it became obvious that by the time people schedule a session to participate, we were losing 95% of people, and most people were really horrible at live teaching. Unfortunately, we did not have any resources to do take two so I had to shut down the company, move to Silicon Valley full-time. And then we came to Silicon Valley, and we launched the first version of a SpeedDate, I think in seven days total.

We had to raise some seed capital. I literally took the original Udemy live video platform, converted it to live with a dating application. In seven days, we launched the application. Like we literally did not have a forgot password button, and the app has like a million bugs and issues. But we just launch it and started having users and iterated with the user feedback. So, that was the polar opposite of what we had intuitively done in Turkey. Then, I think that was right when you and Steve had this idea of iterating with customer feedback. To me, I just sucked in all of that knowledge, because back in that day, it was like a very refreshing concept. At this point I think it is so mainstream. So, people default.

ER: Yeah.

EB: So, back at the time, it wasn't default. The default was spending two years trying to perfect an application and doing a big launch and demo day, or I mean, TechCrunch Disrupt. The goal was that in the first day of launch, it was getting so much press. It was getting a bunch of customers, and some of those customers would be retained. That used to be the playbook back in the day.

ER: Yeah. It's actually such a short time that this has changed, that a lot of new founders can't believe it, and so I'm glad to get you on the record, just as a testimonial about what it was like, it was only 10 or 11 years ago that we're talking about.

EB: Exactly.

ER: Yeah. It's been a wild time.

EB: And I think one of the things, I'm going to jump to Carbon, but, I think since then actually the concepts have evolved quite a bit, so we are now realizing it's not a single playbook, but when we first studied carbon health, so in healthcare space, it's not easy to just build an application in seven days and launch it, right?

ER: Of course.

EB: Because we were trying to be a technology enabled primary care provider, but to be a healthcare provider, you have to get the license, and you have to incorporate, you have to have a physical location, you have to be able to prescribe medication, you have to be able to order labs, medical imaging, referrals, insurance, billing, the bar is fairly high, but we didn't launch the first version in seven days. I think it took us 10 months to launch the first version, but there is still some similarities.

When we launched the first version, what we tried to prove at first was that patients would actually want this technology driven, mobile app driven, customer experience, and to prove that, we started accepting patients, but we couldn't tell them that the service was going to be free. So we literally did not have an actual billing infrastructure, but we didn't tell people at first, we sort of just acted like we were going to submit their claim to their insurance company. We just never actually did it, just so that we can prove some of the thesis earlier, right?

ER: Mm-hmm.

EB: It wasn't, I guess that wasn't your typical, let's launch an application and mold an iterate model, but then even healthcare does it similar. I think the concept has actually evolved, the methodologies are just getting better, like are changing based on the industry.

ER: Yeah, of course. I mean, I think that's one thing that people miss often is that leadership is a philosophy, it's a set of principles. It has to be translated into specific tactics and strategies that are very context sensitive. And so yeah, when you're in a highly regulated industry like healthcare or finance, the playbook is going to look really different, but the mindset is really what we're trying to cultivate. So I actually think it's really an interesting example of you taking something, that was learned in online education and online dating and then to take it into a much more, if you forgive me for saying, a much more serious problem domain of healthcare. I'm of course really honored to have played even the smallest part in that, that was my aspiration in writing the book originally. But I'm curious why you made that choice to make that switch. How did you... Tell us how Carbon Health came about, why it's a much more difficult problem to tackle? What inspired you to do it?

EB: Honestly, I think from Udemy to Carbon, in my perspective, I had a very linear approach, but I can totally see how it feels non-linear. So we started, I was at SpeedDate, left to start Udemy in Silicon Valley, again in 2010, and Udemy became, I would say, widely successful. We grew quite a bit in the first five years. I was a founder and CEO and Udemy's mission was really making online education more accessible, but broadly I was fascinated with this idea that you can use technology to make something really essential accessible to more people. And I was really thinking Udemy was a great example of techno-optimism. I assume, when you build the platform, a lot of people who are not your typical, ideally college professors can be teachers can make your living, but also they can actually share their expertise with hundreds or thousands of other people.

And then I started thinking about "what other industries need this type of transformation?" And healthcare was really top of the list for me. And then, while I was thinking about it, my mom had this disease called Neurosarcoidosis, so she had this full-body stroke, which was completely unexplained. She's back in Turkey so I moved back to Turkey for a couple of months. My sister is a physician. We were going from doctor to doctor and trying to understand what was happening, and we were carrying thousands of pages of documents, lab results, DVDs with MRI, CT scans, and I think we kind of just jumped around thirteen really kind of specialized physicians.

And there's no sad story here, so the physician number fourteen diagnosed it and the treatments worked fairly well, but I just directly observed that the technology, the tooling, for doctors were really far from what they needed to operate at a high productivity level.

And I actually made a sketch back in 2013, I think, so three years before I started a Carbon. And the story here is, if you're going from doctor to doctor, every doctor would look at these pages, and they just go through hundreds of thousands of pages, and write some things in their notebook, and then they use the notebook to understand what might be happening. And I asked my sister, I said, "What are they writing on their notebooks?" And she said, "They're making a chronology of the case". And my immediate naive reaction was, "Why don't we give the whole content in the chronology format in the first place, if that's how they are thinking about the problem". And I made a sketch about it, how I would design the physicians interface, if I was building a new kind of healthcare software platform, and I just left it sitting around. When my Mom recovered, I came back to Silicon Valley and continued to be the CEO of Udemy.

But that idea did kind of get stuck in my head that the largest, the most expensive resource of any country was one of the worst utilized, and I said somebody should really rethink how a doctor operates, how they communicate with the patient, how that whole concept of care delivery works. And I and a couple friends, we kind of sat down and started making some sketches, and I realized that this was one of the thorny problems, with a lot of regulatory challenges that most funders were not wanting to work at.

There were healthcare funders, but they always wanted to take a slice of the problem, and what I really wanted to do was just bring the strongest technology product physician, kind of clinical-operations people, together to figure out whether we can use technology to make great healthcare accessible to more people. So what really was disappointing for me was that the rare healthcare companies and technology, were using technology, but they were all exclusively focused on young affluent, high-income patients. And I hadn't really seen even a single company who's trying to serve the average retail worker, average teacher in this country. That domain was almost completely unserved from the technology space, and understanding how complex this problem was, I thought somebody should spend 10 years of their lives just obsessing on this problem.

ER: So how did you get from "somebody should really do something about this" to you're going to do something about this?

EB: I initially tried to look for funders to invest, so I met bunch of funders. I didn't realize the intersection of the funding team who's technical enough, was product driven enough, with intersection of the funders who are open to learning this new concept. Just not making any assumptions about how healthcare works, we were willing to just come in and learn from some of the people in the industry, as well, and, the intersections, part of the intersection is people who are willing to work on a thorny problem, right? Like mass market healthcare delivery--I literally couldn't find anybody that I thought was doing it the way I thought it should be done, and I decided that... At that time, Udemy was already at the maturization phase, I think we were a fairly sizable company, and we had a strong executive team, and I thought just hiring a CEO for Udemy, and then me taking on this new challenge, sounded like the right thing to do.

ER: So what is the mission of Carbon Health?

EB: It is very simple. It's all about how you can provide really high quality healthcare to the entire population, and especially focusing on the demographics which are not being served. So really it's just combining this very software driven, very technology driven approach with day-to-day healthcare. But more tactically, we decided that we have to start from the front door of the healthcare system, because that's a consumer decision. So things like primary care, urgent care, virtual care, maybe even mental health, these are decisions that consumers make, so we theorized that if you provide an amazing experience, without increasing the cost at all, you could really dominate as that front door. And if you can become a very sizable healthcare provider in the front of the healthcare system, what happens is the rest of the healthcare system like specialists, and hospitals, and imaging centers, things like that, so those really rely on your patients to really, I mean, to feed their business.

If you become their primary customer acquisition channel, you can now use your influence with the front door of the healthcare system to create a more democratized marketplace for the rest of the healthcare. So that's really kind of the thing, it's a little more complicated, in reality, but it's truly owning the primary care with high quality, low cost, very modern care, and then really trying to pressure the rest of the healthcare system to have the highest, best clinical outcomes at the lowest cost possible.

ER: So take me back in time to right before the pandemic, the start of 2020, where was Carbon Health at that point? How big had it gotten, how many clinics did you open? And just give us a sense of the stage of the company as you wound up facing the pandemic.

EB: So we were in a very interesting phase because I started Carbon Health in 2016, so we were a four year old company, and we had spent the first several years really nailing the unit economics, the customer experience, really this software operations finance, and we had finally come to a place where the numbers were just undeniably working. So we had managed to provide a really modern healthcare experience with very high NPS score, very high retention, while still having a very strong provider experience. And lastly, innovate where we were seeing very good profitability with Medicare reimbursement rates. So essentially we had finally hit the benchmark, which I considered as the benchmark, to just start scaling the company like crazy. It was several years of optimization and then we were actually scaled at that moment. I think January of 2020 was when we said, "Okay, now we are going to just take this and scale it as fast as humanly possible".

And I think we had seven clinics just at that moment, but we also had a pipeline of 20 clinics for 2020, and the pandemic hit us actually fairly early because we have the system that takes the details of the patient's problem. And, when we started seeing the news from China, we put some additional questions to screen for COVID risk, and, as early as January, we started seeing patients who were coming from, literally from Wuhan, China to California, and they were coming to our clinics with respiratory symptoms. So we caught this really early and then started really getting into this crisis management mode in January, so by the time it was considered a pandemic, in March, we had decided that this is going to be our focus for the year, for the foreseeable future.

ER: Did I read correctly that the first case in California was found in a Carbon Health clinic?

EB: So it was one of our patients, which we couldn't get tested, but then, eventually, because CDC, well only CDC was providing testing at that point. With that patient, we were monitoring a lot of patients, not just one patient, we were monitoring thousands of patients remotely. So we were asking them to stay at home, we would actually check back with them daily, and then, if their symptoms get worse, we would actually then suggest to go to other places. So I think one of those patients went to ER and then got tested by the CDC at a community hospital, and was considered one of them. I think it was considered the first community spread patient.

ER: Talk a little bit about your mindset as this information was rolling in. This was before the general public really had an awareness of this, and obviously the American response and kind of our level of alertness to this crisis was very slow. What was it like having that information? How did you know what actions to take? What did you view as your guiding light as you started to navigate those difficult waters?

EB: So there was a lot of uncertainty, I would say the CDC guidance honestly was very weak. It didn't really tell us anything substantial about what we should be doing as a healthcare provider, and there were some people who, in the company even, who said, "This is going to be a massive problem. We have to just put all of our resources to fight this pandemic." And then there were all sorts of people who thought this might be a three-month kind of problem, and it might be gone by the summer, and I had to make the final call as the CEO. And there was also just massive PPE shortage. We were literally short of N-95 masks, and I just discussed with our clinical leadership and we made the decision to just be on the front lines of this pandemic and offer testing as soon as possible.

Essentially, I and our clinical leadership said, "We just have to be in the solutions part of this problem". Because, just going to put that, at that time, most healthcare providers, some, pretty much all of them, were trying to shut down clinics, who'd use ours. They were mostly trying to reduce their risk factors, and they were hoping that the government, the public health departments, would actually take ownership of the response there.

So we decided to just go to the other direction, and I remember talking to my wife about this because I felt really horrible, I guess. I mean, the analogy I give my wife is I said, "I feel like I'm a general sending soldiers to the front lines" because we really did not know what the real risk factor is. And, for all we know we could have, I don't know, 10% of our staff getting infected. And, because, in Italy, the news about healthcare providers were very, I mean, they were not good, but our clinical leadership actually had a lot of experience in front of the original SARS pandemic, back in the day, so they thought that, if you have the right protection, rights, protocols, we could actually safely help our communities. But as I said, I think our clinical leadership made the final decision to just lean in. And I felt horrible. I was so--for our employees, I mean, I just, we started like trying to, I just said like the entire team now your job is to support our frontline workers. And as the situation became more and more dire around the end of February, and we had this executive meeting and our head of product Ayo said, "Let's just think about what we wish we would have done if we knew that this is going to be a devastating pandemic.” And I had brought it actually a list of like really crazy ideas for the meeting. And my goal was just to...kind of inspire some other ideas. And I kind of had this list of 10 crazy ideas that we could consider if you really want to kind of take this pandemic very seriously. And I think what happened is over the next 18 months, we have implemented every single one of them.

ER: Give some examples.

EB: So the first one was just building, the simple one, was building a risk assessment system to evaluate Covid risk. The second one was I think, just buying a bunch of trailers and converting them into mobile testing centers and going to underserved communities. Another one was partnering with companies to help them operate safely, if they are essential companies. I think that another one was really kind of partnering with local governments on this part and trying to help them. And one of the most immediate things was going to residential. Not residential, assisted living centers and registered nursing homes and try to screen them on a weekly basis. So, I mean, in retrospect these look like straightforward ideas, but I think the only thing we haven't done in that original list was kind of building a makeshift ICU center. 60 hospital ICU beds really, like gets completely booked so we were considering to work with the military to be able to build a kind of a portable ICU kind of system. So I think like aside from that, everything else became necessary. Actually one more was doing at-home testing. All those kind of original, crazy ideas became reality like in the last, next year or so.

ER: If you could go back in time and give yourself a piece of advice from those early days, is there something now, you go back, and you wish you had done or had done differently?

EB: I think the only thing that we didn't anticipate was how long this was going take. So, we funneled off our resources into responding to the pandemic, assuming it's going to, it was going to be a three to six months problem. And then after, I guess like, a little more than a year, we are in better shape. But I honestly don't think we would have done much differently because it's just like, there were certain solutions we built that we realized wasn't the most important solution, but like, I think our attitude was correct because we just decided to take this more seriously than pretty much anybody else in the country.

ER: So fast forwarding a little bit, you wound up becoming a critical part of the vaccine infrastructure and

EB: So the story of vaccine, our involvement with vaccine actually just started last summer. So when we, when I was observing how to counter how we were so unprepared to do testing on scale, then seeing that vaccines might come in sooner than people expect. So I had actually written an article and I said like, we have to start preparing the infrastructure for vaccines like from today. We should just have to build them as if the vaccine is going to be ready six months later.

ER: Really smart.

EB: So, and we were opening these pop-up clinics, the trailers. And my goal was that when vaccines were available, we will be using pop-ups as the kind of core vaccine distribution infrastructure. But when the vaccines actually came out, there were two things that like, I hadn't calculated. Number one, the storage requirements are very strict, like shipping them at minus 80 celsius was not going to something you can do in a small clinic or pop-up. And the number two is for especially older high-risk patients, you had to, you had to monitor them for 30 minutes. So, I realized that vaccinating somebody takes two minutes, but the monitoring is 30 minutes. So your main bottleneck is going through the physical space. So we quickly pivoted from this mobile clinic base model to like, thinking about how we could do mass vaccination.

And I sketched something over the New Year's. And I think early January, the vaccine rollout in California was really bad. I think California was one of those kind of...diverse states in terms of the vaccine distribution and Los Angeles was particularly struggling. It was a fairly sizable city and there was a state launch system, which was not working very well. And they were really struggling. So we quickly showed them what we thought should be available to do vaccine distribution on scale. And, to the credit of the mayor's team and the LA fire department, they saw what we had built and sketched, and they said, "What's the fastest you could imagine launching this?"

And we asked them for two days and two days later, two days after our first meeting...we launched a website to just get people to sign up or get joined to the waiting list for getting vaccinated in LA and then, we launched the front-end scheduling system first. And then like in seven days after we built our first version of the provider platform.

And this is not completely from scratch to be fair. Like, so, because we own our entire technology stack, we had all the infrastructure for scheduling and triaging patients like the private platform, registering medication administration. We already had the infrastructure, we just built a new, a skin on top of our existing software platform. It's like we had a bunch of those pieces, but we had to bring them in a different structure so that it's the most efficient you can imagine. Because the staffing was very limited back in that time. So, yeah, so we launched this and then seven days after the original handshake and launch into a scheduling website, we helped launch Dodger Stadium, which was the single largest mass vaccination site in the country.

And that was another, just like amazing example of, I think like being lean and just iterating because I had to go there with 30 or 40 people from our technology team: executives. We all just physically went to Dodger stadium, stayed there. We actually like, built some of the software on the ground there. And then the first version was working fine. It was better than what existed before Carbon, but it was far from perfect. It was not very accessible. It was not a great first. I mean, as an example, if you're using a landline, you couldn't use it because we required SMS verification.

So we knew about the issues when we launched it, but it was still better. And then every day since mid- January, we have been making iterations on the platform. After a couple months, I would say like, it's now like a state of art vaccine distribution platform.

ER: Do you know how big of a fraction of the California vaccine rollout you guys have been?

EB: I think we have done 1.3 million vaccines.

ER: Wow.

EB: California should be 30 million. So around 4%. And I would say like, we have capacity to do at least three times more than what we did if we had enough supply. So there were, there was definitely a supply shortage. So we had capacities like, we had, we built enough to do 40,000 vaccines a day. Everything went well but then like around like one week ago--until like last week, we were barely able to kind of handle the demand and supply was the main constraint. I think last week it changed from supplies to the demand.

ER: So we've been talking about getting to that tipping point now for, for a couple of months, you know, that some point it would, we would switch from demand to supply constraint. So what do you think needs to happen next? Now that we're going to enter into a period of being demand constrained, what's your view about what needs to happen to eventually reach herd immunity?

EB: I mean, what has to happen is...we need to vaccinate roughly 30% more of the population. I think give or take like 50% are getting vaccinated or are-

ER: We have to get to about 80%, right?

EB: We need to get around 80% because 15% of the population is, strictly like, against vaccination. I think those are really hard to convince otherwise. And there's another 4 to 5% which are immunocompromised. So they can't get the vaccine or even if they did, like, it was, it's not going to be as effective for them.

So, if you really completely want to go back to normal, like no masking, no social distancing, if you want to forget about this, we roughly need 75% of the population to have to vaccinate them.

So, really the challenge right now is, how do we convince that remaining 25%? And I think we have to change our approach here. So the paternalistic approach, where we act like people are being dumb for not getting vaccinated, that's wrong because that's what we are missing is like, there's still an accessibility issue.

And the accessibility issue has gone from physical space accessible to now information accessibility. So you and I are always like following the beats of this. We track the latest developments and we know the CDC needs guidance, we are aware of that. But a lot of the population actually doesn't have this like, as fast of...I mean, essentially they're not on top of the news cycle, as much as we are.

ER: Of course.

EB: We just have to push the information that vaccines are indeed very reliable, fairly low risk, and most people like, the majority of people in the clinicals are all getting vaccinated. That's actually that, like, we really have to push the information to the rest of the population who are not actively like, on Twitter, kinda following the news cycle.

ER: Are you optimistic that we can reach that threshold?

EB: I am optimistic, but I think the remaining 20% is going to take a lot of initiative from not just local governments and Department of Health and clinical providers, but we will also need the help from other community leaders, maybe religious groups. We will need help from celebrities, athletes, sports teams. To just really help the public pass the message. There's definitely a lot of confusing information. So, people need to hear this from the people that they trust. And honestly like, clinical or the CDC or the local governments are not always the ones that the entire population trusts completely. I mean-

ER: Yeah. Well, we live in an era where we're trust in institutions is at an all time low, really with the exception of the private sector.

EB: Exactly. I think the--I mean...unfortunately like more people are getting medical advice from Joe Rogan than Fauci at this point.

ER: Lord help us. Well, you know, it's interesting though, we had Ron Klain on in an earlier episode of this podcast from before the election even, and for those who haven't heard, it was fascinating now to compare what's happened to his predictions and his philosophy.

But one of the things that he has been going on about quite a bit in public is the idea that there was going to be a whole of government response to COVID and people kept asking him, "Well, is that, does that include FEMA? Does it include the military?" And he kept being like, "What part of whole of government are you not understanding? We're going to mobilize every resource and asset," leaving aside the question of how well they've done. You know, obviously, the jury is still out, but it seems like it's going pretty well.

I kind of feel like we are still missing the kind of whole of society response. Like we're now at a moment where, you know, elites and leaders of companies, of communities, of religious leaders, like all of us who have a privileged position in society, it seems to me ought to be coming together to try to reach this goal. It's not just so that we can have the convenience of the old normal back. It's much more so that we're talking about still quite a lot of lives to be lost or saved.

And I wonder if you have a view kind of having been on the front lines, if you had an ask, you could say, "Hey, if there are people out there who are listening to this right now, what would you want them to do to mobilize and to help even now in this late date?"

EB: I would say we are in the phase where, now everybody can have a sizable impact on this. So because when it's all about just a hesitation to get vaccinated, or maybe not evaluating the importance of it. So I think this is where everybody can play a role.

Like three months ago, the person in a church, like, was not very relevant to the response because it was all about scaling distribution and administration of vaccines. So companies like Carbon Health had a more central role. But at this point, when you, when it comes to convincing and educating the population and like, this is one place where we have to work as a whole society. And honestly, when people look at the response in Asia that's one of the differences. I think like they have worked really as entire society together to solve this problem.

I think that United States, it's still a bit more fragmented. There's a lot of, this problem has been just very unnecessarily politicized. So, and now we couldn't have discussions about, "Should you shut down? Should they just reopen everything and schools?" Like, I mean, I know a lot of people have opinions about these subjects, as they should. But, that kind of inner fighting is really becoming an obstacle when we are about to solve the problem completely.

ER: Yeah, this is, I mean, it's literally one of those unite or die moments. You know, if we can find the unity, if we can find a sense of common purpose we can beat this thing. But if we don't all the energy we face, we spend on, on ancillary issues, I just, it feels like such a waste.

EB: Yeah. Look, I was always very optimistic about just beating the pandemic because this must be the first time where major total civilization just like worked towards the same goal.

And so we dealt with that. We had to be found as more where we were all united in fighting against this pandemic and this virus. And I think we made like a ton of progress and we are about to knock it off for good. But, it's just like, we need a, like, it's just, it's the last quarter, but we still have to play the last quarter. Because otherwise this is just going to just stay as endemic, it's going to be persistent and people will, like people will learn how to live with it, and that might be okay, but you know, what would it be better than learning how to live with it? It's just really eradicating it.

ER: Indeed. I don't know why, maybe this will seem cheesy, but I have had Lord of the Rings on my mind quite a bit lately. And this idea that if we can find common purpose and not waste our energy, we can defeat this thing.

It's really magical. And so for those who kind of have been on the sidelines or have been knocked out of the fight, you know, I always think about, and we don't have Sir Ian McKellen here to deliver the line properly. But the idea that when Gandalf returns, he says, like, "I come back to you now at the turn of the tide." And this is that moment. So any one of you can be Gandalf the White and be a hero now in the fight to get us through this last push. And if we do that, if we come together to make that happen, think about the story we'll be able to tell our children and grandchildren about a world that is free of this kind of disease. But also hopefully not just COVID-19 is eradicated, but we learn what is necessary to defend ourselves against these kinds of threats in the future too.

EB: Yeah, absolutely. And, to be more practical, if you're an employer, if your employees just- give them time off to get vaccinated.

ER: Yes, please, please do that.

EB: I think one of the things we are observing is if you're affluent just a lot easier for you to take time off go get vaccinated. So that's number one, and just good knowledge for everybody, at this point there's so much vaccine and supply you can just go get vaccinated same day. It really will take less than an hour, just drive somewhere. At this point they no longer even require scheduling, so you could just come in, register yourself, onsite, get in and out in half an hour or so. So that is easy. So, and also if you know people who don't have a car who needs some maybe companion to get vaccinated, just do all those things. If everybody brings one or two people to get vaccinated, we'll be able to just honestly do large gatherings faster.

But otherwise I'm slightly worried that- There's a fatigue in dealing with the pandemic, and if you just assume it’s completely gone and revert that, there will at least be one more comeback. It is going to come back. Because right now the kids are doing well because we are still in semi quarantine mode. But if you had reopened completely without the remaining...

ER: Yeah, yeah. If we leave the job half done, we will certainly regret it. And we have seen that pattern through the pandemic multiple times, how many geographies, countries, cities have had a really effective response to the pandemic during some phase, and then relax, because they feel like they won. It's beaten. And conversely ones that have had really disastrous responses sometimes bounce back much stronger for the next wave because they really learn their lesson. So we have this one chance, this one chance to get this right. And now is the moment to be in action. And I know the fatigue is real and I know people have struggled, but one final push and we can eradicate this for good.

EB: And by the way, I'm not saying that like we should continue to quarantine. At this point it's safe to be outside and have dinners and a haircut, and you should just enjoy these things. But if we completely divert, it's going to come back because we haven't vaccinated enough people yet. But if we do this in conjunction with also getting our neighbors and our friends who are maybe just feeling lazy. It's just, if you have a friend who's not vaccinated, just get together, go get vaccinated. If you do these things while we are reopening, I think it will be fine if we do not get the remaining 20, 30%. But, I mean the remaining 50%, but I'm assuming that there is 15% that we want people to reach out to us. And so we need to get essentially 60% of the remaining people or so. But if you open 100%, if you forget about the virus completely, it is going to come back. But we slowly transition and do our job, then I think we can just forget about this problem, like next year, or even like by this fall, we should be able to really just act as if COVID no longer exists.

ER: That would be truly a miracle. Talk a little bit about how you've balanced and how you see yourself balancing the work of this COVID response with the core business of carbon health. Has that been a challenge and have your investors understood and been able to comprehend that you have this dual mandate? What's it been like trying to do that balancing act?

EB: It certainly has been difficult, and there's no perfect answer here. But luckily our board and investors have been very supportive. So they generally know what we are on a daily basis. So we understand, but the company has grown quite a bit since the pandemic started. So I think we were roughly 200 people in the beginning of 2020. And if COVID never happened, you'd like to be six or seven hundred by the end of the year. But instead we have gone from 200 people to 2000 people in 14 months. And I think we might be one of the fastest growing companies who actually have physical operations, and some of it has been really good specific vaccine rollout testing type of efforts. But you have also gone from 10 clinics, 13 clinics, to 67 clinics right now.

So it's a dual mandate and we keep balancing resources. For example, when vaccine rollout was really problematic, we put almost all of our efforts to it for at least a month. And then after a month we were able to pull back resources to like primary care and our more longer term health care initiatives. So again, it's a constant kind of balancing act. It's all about if there's a truly urgent problem in our communities, we feel like we have to in response. If not we tried to invest in more longer term core business.

ER: What do you think is the future of public health in this country, especially how do you see the relationship between the government and private industry? You've kind of had to straddle both during this response. Has it changed your view about what public health might look like in the future?

EB: It has certainly changed. So, we are now formally building a public health division within the company. So if you think about Carbon Health, so we have our consumer division working with clinics direct to consumer, and then we have an enterprise division working with companies, and I'm now formally incorporating a public health division. We'll have a GM. We'll have dedicated product people, engineers, operations support, all of those things because I was able to observe, observe firsthand that to the traditional model where the government and local government puts a big RFP and then bunch of contractors respond to that RFP, that model is not working well because it just like the RFP ends up really convoluted and bloated, and then the contractors are building really software they think as a one-time software they have to build. So they don't think of this as a living organism.

So what we are trying to do differently at Carbon is, I especially want to replicate what we did for vaccine rollout and some other public health problems. So we want to be technology but a public health partner. And there are- If COVID completely goes away, there are a lot of public health challenges from healthcare in rural areas to healthcare or maybe unsheltered populations. Essentially, if we want to fix healthcare for the most underserved communities, it's very hard to do that purely as a for-profit entity. And we actually kind of saw that there's nothing wrong with a private for-profit private company to partner with the local governments and nonprofits to focus on all the same problem. And I think that that type of partnership worked extremely well when we helped with the vaccine rollout with multiple counties and cities. And I think that was like a really magical set up. I want to continue that set up for other public health problems in the future.

ER: If we have some founders who are listening, any issues or problems in the space that you have learned about or noticed since you've been doing this that you'd encourage them to work on?

EB: So I would say even in places like Los Angeles county, there are big healthcare deserts, places where you don't have good healthcare access in 50 miles. And that problem is not solvable purely from virtual care, so you need still some physical access points. So there's some kind of outstanding problem. I assume I would say working with schools- In the school systems, there's huge disparity between the resources of different school districts, and some of them require more like local governments help. So yeah, honestly, I would just generally suggest that this whole public health project is not something exclusively for large defense contractor-type companies. Even smaller startups can actually operate fairly well, just help- as long as they listen to the local governments and understand their problems, because some of the best solutions I've seen in COVID related public health efforts, they're actually coming from technology startups. They were not Google, Amazon coming in to save the day type of issues. If anything, actually, I was really disappointed with the response from large companies. I don't think those massive companies have made a significant role in the pandemic, but then some smaller tech startups, smaller other entities have actually probably done it a lot more than the kind of Googles of the world in this pandemic response.

ER: It definitely was surprising. I spent a lot of time on the phone with companies large and small the past year and yeah, the results absolutely speak for themselves. So what do you feel like the longterm impact of the crisis will be?

EB: I think the silver lining is like 20 years later, we will actually be in a far better position because so many more people are now entering the healthcare space. There are a lot more strong technical product people coming into the healthcare space. So it's really between the funding, the interests from talent- I think actually it might end up becoming a net positive for healthcare because of especially the increased number of people working in the space. You were not very involved in public health or healthcare in general. You're now putting a lot of minds into how technology companies can help you out. So I think that is actually very promising. Definitely increased usage of virtual care. But I think what you're seeing is that the omni-channel care idea is going to become more dominant. Essentially patients are now expecting their healthcare providers to work with them both online and offline. So that fragmentation, I think, is going to mostly disappear in the future because now every single healthcare provider has learned how to do virtual care. And then I think they will continue to do this as a part of their practice.

So, lastly I think some of the industries which went digital first won't be coming back. I'm really hoping a lot of investor meetings will now be virtual first, so you won't have to travel as much, which might cause the capital to be more democratized around the world. I think there's interesting implications for healthcare and also the broader industry.

ER: Absolutely. Well, Eren, I want to say, thank you first for coming on and sharing the story with us. As well, thank you for all of the work that you've done as a founder and as a leader, especially here in California during COVID. But also how lucky we feel that you chose to immigrate from Turkey and to do what you have done here in the valley. It's just been awesome to get to see all come together for you. So congratulations and thank you.

EB: Yeah. Thank you very much, Eric. And honestly, I'm mostly a spokesperson for the frontline role because we have the people work in the product teams and technology teams and support teams. They will have done all the work. I'm merely just helping get people in the same direction. So, but thank you very much.

ER: Well, a true servant leader as we always look for. Let me ask you one final question, which is simply how do we get out of the crisis?

EB: I think we are close. We really need to just stop politicizing this a little bit and realize that we are about to be all over with it. And everybody's on the same side here. Increase vaccine information and reduced the current things, but still have some minor protections until we are fully over the hump. And I think just to kind of really just like work as a whole society just together for the next- I think, three more months and we are completely over this problem.

ER: Eren, thank you so much for coming on.

EB: Thank you very much, Eric.

ER: This has been Out of the Crisis. I'm Eric Ries. Out of the Crisis is produced by Ben Erlich edited by Zach McNeese and Sean Maguire. Music composed and performed by Cody Martin. Hosting by Breaker. For more information on ways to get involved, visit helpwithcovid.com. If you or someone you know, is leading an effort to make a difference. Please tell me about it. I'm at E-R-I-C-R-I-E-S on Twitter. Thanks for listening. Please rate and subscribe wherever you like to listen.

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Tuesday, May 4, 2021

Out of the Crisis #26: Brian Armstrong of Coinbase on cryptocurrency, being mission-oriented, and institution building

A few weeks ago, Coinbase , which facilitates buying, storing and purchasing cryptocurrency and also operates a cryptocurrency exchange, went public. It was one of the year's most successful IPOs so far, and has been heralded as a "landmark moment" for cryptocurrency's entrance into mainstream investing.

Just before the IPO, I had a far-reaching conversation with co-founder and CEO Brian Armstrong as he approached this major milestone for the company he co-founded back in 2012. We talked about a wide variety of topics, including what the decline in public trust of institutions means for companies, how to codify company culture and intentions, remote work, the concept of the ICO--initial coin offering--and his side company, ResearchHub, which he founded to counter his belief that "there's a crisis happening in scientific research, that is just slowing down human progress."

We also talked about why he took a very public stance on the role of corporate leadership in social issues, and how it relates to fulfilling Coinbase's mission. It's a controversial subject, but one that so many companies are coming to terms with right now. Though Armstrong wasn't looking for the attention he got, he says "I wanted to stand up in front of the company and say, 'This is why we're here This is why I started this company. I want us to go solve this really important thing in the world." And I knew that that would upset some people."

 

You can listen to our discussion on Apple, Google, or wherever you like to get podcasts.


 




A full transcript is beneath the show resources below.

 

Highlights from the Show:

What is Coinbase? (:33)
Brian on his personal and professional pandemic experience (2:46)
On deciding to make Coinbase's pandemic planning for employees public (3:20)
On remote work and its future (4:23)
The moment when Brian became aware of crypto and the original Bitcoin whitepaper (7:17)
His thoughts on who Satoshi (the author of the paper) is and why it doesn't matter (13:21)
How Brian got into computers and coding (14:08)
How he got the idea for Coinbase while at Airbnb (17:44)
The company's first minimum viable product (MVP) (21:05)
Finding a co-founder and adding the "killer feature" that created product-market fit (24:42)
On being mission-driven (27:06)
Coinbase's mission: to create an open financial system for the world (29:51)
Institutionalizing intentions (32:21)
The value of marrying skillsets to form a company that's both innovative and compliant (37:20)
Building a company that lasts while also accepting the reality of creative destruction (40:43)
The role of business leaders in the creation of our civic fabric (42:07)
Fear of the new and mitigating risk (45:39)
The political dimensions of working on economic freedom (47:06)
Brian's thoughts on the firestorm he created by separating politics from the company mission and his advice to other CEOs (48:34)
The current lack of trust in institutions (55:28)
Creating the ICO (Initial Coin Offering)  (56:47)
ResearchHub, Brian's company for accelerating scientific research (1:05:32)
Brian's thoughts on the long-term impact of the pandemic and his hopes for the future (1:09:28)

 

Show resources:



Transcript for Out of the Crisis #26: Brian Armstrong 

 

Eric Ries: I'm Eric Ries. This is Out Of the Crisis.

What are institutions for? Can we build better ones? What is the role of public and private organizations in governing our shared civic fabric? These questions have come up again and again, as we've seen this crisis unfold. As you'll hear, BA became an entrepreneur without expecting to have to address such questions, but that's not how it's turned out. Brian is the CEO of Coinbase, a successful tech company, and one of 2021's most successful IPOs. Coinbase was founded in 2012 and operates a cryptocurrency exchange. The company's market cap at the time of their entry into the public markets topped $100 billion dollars. Coinbase's IPO reflects the massive growth in interest and investment in cryptocurrencies, such as Bitcoin and Ethereum around the world. However, cryptocurrencies raise fundamental questions about what the future of our institutions will hold. Can institutions be totally distributed or should they be rooted and loyal to a certain community or geography?

Do we need more regulation in this area or less? With a rise of cryptocurrency and its attendant freedoms be a boost to, or hamper the recovery that is just now underway? But beyond its products, Coinbase is an interesting company in itself. For many of us in Silicon Valley, one of the notable events of the crisis was Brian's public stance about the role of corporate leadership in social issues. Every company I meet these days is grappling with this topic, from ESG to employee activism, to so much more. The pandemic has brought these issues even more to the forefront of public attention. What are the responsibilities of corporations and leaders? In the years to come, are there limits and boundaries to politics or is everything political? Does our civic cohesion require some level of shared common ground? And if so, who gets to decide what that is? I spoke to Brian a few weeks before he took Coinbase public when many of these issues were at the forefront of his mind. Here's my conversation with Brian Armstrong.

Brian Armstrong: My name is Brian Armstrong. I'm the co-founder and CEO of Coinbase. Coinbase is the most popular way people can buy and sell and use cryptocurrency today in the United States and 33 other countries.

ER: Brian, thank you so much for coming on. Before we get into Coinbase and your history first, how are you holding up? We're having this conversation still in the midst of a seemingly never ending pandemic and lockdown. How has it been for you? How has your team been? How's your family? How are you weathering the storm?

BA: Yeah, thanks for asking. Well, I feel like we've been in a very fortunate position in that we've been able to run Coinbase in an entirely remote way. So I've been able to move to another location with my partner and another city, I should say. And just get a little bit more nature, not have as much time commuting and traveling around the world. And in some ways, it's actually been quite nice as an alternative way of working. So I feel very fortunate in that regard.

ER: Talk a little bit about the strain this has been on your team and as kind of the organizational challenge of having to make these shifts so rapidly.

BA: Yeah, well like everybody last year, we saw the pandemic starting to happen and got in a room and tried to think about what we should do. And of course, we started putting together a plan about how we might evacuate or get out of the office for day-to-day work and how we might start to provide services to employees. Our first thought was just, how do we take care of our employees? And we wrote up a plan about how to do that. One of the things I did was actually, I saw this great plan that was being written by the team. And I thought, you know, there's probably thousands of companies trying to figure out how to do this right now. Why don't we just put this plan on the internet? And I actually really liked doing this. It's one of those things that founders can do sometimes where other employees are afraid to do it.

But if I see a really great piece of work product, I generally will just try to, say hey, let's post this on the blog externally.

ER: Oh, if it's worth doing, it's worth blogging about.

BA: Yeah. And so I think we saved... We got so many positive inbounds from that. We got another bunch of other company's opinions saying, "Hey, thanks for posting that. You saved me a bunch of work I was going to have to do this week to try to put together our own plan." So it was good to collaborate a little bit during those times. And then after a few weeks of working remote, one of our employees came up to me and was like, would we ever think about keeping the company remote indefinitely? And my initial reaction was no way, like we would never do that. I don't see any big tech companies that have great cultures that are doing fully remote.

But I couldn't get it out of my head. And for the next couple of weeks, I kept thinking more about it, reading more about it. I got to hear some people speak about it. People like [inaudible 00:04:49] from WordPress who'd had a remote company for a long time. And eventually, I started to think about a few key points. One was, we're always trying to get top talents into Coinbase. And if you look at what percentage of the global population lives within commuting distance of one of our offices, it's a tiny fraction of the world, far less than 1%. And so, it had always been attractive to me. It'd be great if we could somehow hire people all over the world, that would be great. And then, the other thing I always thought about was, well then, are people going to actually be able to be creative, be collaborative? Have those sparks of innovation? Are they going to be able to build real true relationships at work and have friendships and be able to learn from their colleagues, if it's all just video conference?

And so it was a big question, but I eventually decided, you know what, we need to try this, or we're being forced to try it anyway because of COVID. So we might as well make the most of it. And as things started to work, I got more and more convinced that this was actually the future of work, that the benefits outweighed the drawbacks and that we were just going to go forward like that as a company. It was kind of more true to the ethos of crypto as well. And so far it's gone incredibly well. So I don't think we're ever going to go back. In a post COVID world, we're continuing to be a remote first company, which means people can go into an office if they want.

I understand some people have different work situations at home that make that easier and more difficult, but everyone, whether they're in an office or not is going to work as if they're in a remote environment, so that there's no disadvantage to being remote. And the executive team is going to set an example by never coming into one office in one location, because I think that would create a negative incentive for others to follow us there. So yeah, so far it's been great.

ER: That's really great. And I really applaud you for having that first impulse be about taking care of your employees. I mean, I think that's something that really has been a hallmark of the best companies during this time. And you can really tell even as a customer, as an outside vendor, which of the companies whose kind of first reaction was to take care of their key stakeholders and which reaction was kind of to look out for themselves first and people are paying attention in a crisis. They remember what you do.

BA: Absolutely.

ER: So let's go back. I want to talk about how you first got into crypto and how it first came on your radar. I can remember the first time I read the original Bitcoin paper and the kind of light bulb moment of seeing like a genuinely novel solution to a longstanding computer science problem, published anonymously and kind of in this unusual way was like a really dramatic... How did it come on your radar for the first time?

BA: Yeah, well, the first time I saw the Bitcoin white paper, I saw it on Hacker News, which is a website that YCombinator runs. It kind of aggregates technology content, I suppose. And yeah, I was just home for the holidays at my parents' house. I think it was December of 2010, and happened to just be reading that paper on the internet one day and just immediately captivated my attention. So that was my first interaction with it. I'm curious. What was your first reaction when you saw it?

ER: I couldn't believe it. I just thought it was so brilliant. And of course, I wasn't really interested in the finance side of it to me. So like the fact that it could be used... Obviously, the many things that it has subsequently been used for wasn't really foremost in my mind. I just thought it was a really brilliant solution to a problem that I had certainly spent a lot of time thinking about and on the computer science side and just how to do this kind of decentralized coordination. Maybe for those who are not as technical who are listening, maybe you can just give a brief description of what you took away from that paper that first time and what you thought it would be good for?

BA: Yeah. I studied computer science also, but when I first read the paper, my thought was, wow, this could be kind of like the internet. The internet was another global decentralized protocol that was being used to move information around and it kind of democratized access to that and publishing and moving information around. Well, this Bitcoin white paper was describing another global decentralized protocol, but instead of moving information, it was for moving value around. And that kind of captivated my attention in the sense of I'd always felt like the global financial system was a little bit inefficient and it had high fees and had these delays for no reason that something would work in one country and not another country, many countries had totally unstable currencies.

And so that the idea just initially made sense to me. I was like, that would be amazing if the world had a common set of standards for a monetary system or a payment system or whatever it ended up becoming that nobody could manipulate, nobody could abuse it. It was a decentralized common thing where we just had to trust in the laws of math instead of the laws of men. And it would be amazing. So from a pure computer science point of view, I had never really studied consensus algorithms in depth. I hadn't focused on that area of computer science, but the Bitcoin paper solved this long standing problem in computer science, which people refer to as the Byzantine General's problem. And basically, it's a coordination problem about how messages are passed and how do you know which ones are true and which ones aren't. And so the algorithm essentially proposes how using something called hashing power or proof of work. People can pass around these different transactions in a totally decentralized way.

And then the network can come to an agreed upon state that says, hey, this is a valid transaction. This one's invalid. And it prevents people from double spending crypto. I guess, an even simpler way to think about it is previously, if you had a digital thing like a photo or a message or something, you could make infinite copies of that photo. There wasn't anything that was digital that was provably unique. And in this crypto algorithm, they said, well, since we're all making this distributed ledger, we now have provably unique digital items that I can send  to you, Eric. And provably, we know that I didn't send the same copy of it to anybody else. So in that way, it was totally unlike a photo. It had scarcity. It could be used almost like digital gold or digital money.

And that was a breakthrough. Nobody had quite solved that problem before, and it's led to this entire massive industry now.

ER: What I think isreally interesting, when people hear that this was a novel computer science result, most breakthroughs in computer science, in kind of academic settings have to do with the kind of computational complexity of a problem or some kind of novel algorithm that takes advantage of some computational property that was really abstract, abstruse, and couldn't be figured out. What I thought was really brilliant about the Bitcoin paper was it was a novel result. Like this is a new way to solve a longstanding problem, but it relied on a kind of an understanding of what would be valuable to the many players. It almost had like a social engineering component to it, as much as it was an algorithmic breakthrough. And so introduced a new primitive into the world of computer science, which then people have built all kinds of remarkable things on. And I guess as I'm talking about that, it really is a lot like the early days of the internet. TCP and the other foundational technologies of the web had that same property, that there was something really computationally especially complicated about them, but it was their social value. When many people could agree on a common standard that unlocked all of the incredible value that has come into the internet and that we're especially now realizing how valuable those digital tools can be in navigating difficult times like that.

BA: Yeah, that's true. It had a number of kind of game theory elements in there that it really understood, if I'm trying to get this global group of people to come participate in this new thing, how do I align incentives so that they're aligned to be good actors in that and participate in it. And the early adopters would be rewarded. And so it attracted more people in. It really wasn't brilliant paper on a number of levels. The computer science part of it, the game theory part of it, the economics part of it. And I encourage everybody to go read it. Don't feel bad if you don't understand it the first time you read it. I didn't fully understand it certainly. And I had to reread it many times. It wasn't actually until when building the early version of Coinbase, I went and implemented a Bitcoin node in from scratch in Ruby of all languages, which was probably not the right choice.

But it wasn't until I actually implemented it and went through all of the details of the protocol, like after about 60 or 90 days, I was like, okay, I think I actually understand this protocol now, but that doesn't matter. Go read the paper, even if you only understand like a portion of it. It's really kind of a brilliant thing that was dropped onto the world. And it's an amazing artifact. And of course, we don't know who wrote it, which is another really fun and interesting point.

ER: You don't have to say who, but do you personally have a theory? Have you subscribed to one of the theories about who Satoshi really is?

BA: Well, I certainly don't know for sure. I've read about it quite a bit, of course. And it makes sense to me that it probably was some combination of Hal Finney or Nick Szabo and maybe others, I don't know, but it could have been a combination of folks like that. And the beauty of it is that, of course, that it actually doesn't really matter who Satoshi is, because the idea of it stands on its own. It's kind of like whoever discovered penicillin, you don't need to know their name. You can still go get a shot of antibiotics.

ER: So I want to go back. You compared discovering the paper to discovering the internet and the power of the internet. So tell me when you first had that realization, how did you first come online? When did you first learn to program computers? How did you come into this field in the first place?

BA: Yeah, well, I was fortunate enough to grow up in a household where computers were present and my mother actually worked at IBM. She was an early programmer there and she had started her career as a math teacher. And she kind of took a training course that IBM was providing to learn programming. This was as she explains it on punch cards and things like that back in the day. And so while she was at IBM, we were living in San Jose, California, where I grew up in the Bay Area. And so we had access to early IBM, 46 computers, things like that. And we got these in the house and I didn't really know what to do with  it at first. I played around a little bit with the command line and DOS and playing some simple games on the computer.

And it wasn't until the internet really came to our household, which, I remember having this thought, like I'm never going to be bored again. I remember I was always bored as a kid. I was trying to look at the same things in the house for the fifth time. And I would read books or run around my bike, the neighborhood or whatever, but we got the internet. I was like, I'm never going to be bored again. There's always something new to discover. And at that time again, my parents kind of exposed me to certain things where I got a chance to see what a programmer was, go do take your child to work day, things at IBM, places like that. And I got to meet other programmers.

And the first time I learned about programming, I thought it was very difficult and unapproachable. I remember trying to learn, like I had some books someone gave me, like learn Java in 30 days or something like that. And I was trying to read this book and I couldn't really understand it or get anything to work. And later when the web came out, there was HTML, which was a little more approachable, right? And I started to learn simpler languages like HTML, PHP. And I remember feeling like this was in high school now. I started to go to some community college classes on programming and things like that, and started to build early websites. And I remember feeling like this incredible feeling I had never really felt before. I imagine many people feel it when they find something that they really love, whether that's painting or art or whatever.

But I remember creating this early website. And I went to sleep and I woke up in the morning and I checked on the little counter or whatever. And like 500 people had looked at it or something while I was asleep. And that just felt like the coolest thing ever to me. It was like having replicated my brain or something. And I was able to help people, even while sleeping. It felt like a super power. And I thought maybe if I could do 500 people could help with this, maybe I could help a million people or something like that. And I basically just became obsessed with trying to start businesses. And with technology as a really important lever to improve the world.

And I had all kinds of little businesses I tried starting and things like that in high school that all failed spectacularly, but it was very educational.

ER: What was that first website that you created?

BA: I made a website for the middle school that I was attending, actually, in probably like seventh grade or eighth grade. And then in high school, I tried starting this little company that was reselling computer hardware with another friend of mine. And we ended up trying to find this like refurbished computers in the neighborhood or something like that. And we'd resell it online, like a very early e-commerce thing that was happening. So that was some of the first ones I built.

ER: So what were you doing when you had the idea for Coinbase and how did it start?

BA: Yeah, at that time, Coinbase really was founded in June of 2012. But the idea was germinating before that for about a year, a year and a half or so. I was working at Airbnb as one of their early employees. I was writing some software, I was doing some product management stuff. And I got a front row seat to see how difficult it was for them to move money to the 190 countries around the world where they were operating. It was so amazing, like we were trying to send payments into Uruguay to pay people who are listening to their homes on Airbnb. And I remember we were trying to work with this local payment provider there so that people could pick up cash and things and reading their API documentation. And it became clear that we had no idea how much money was going to show up on the other side of this API. We didn't know what the exchange rate was, we didn't know what their fees were.

We called them and they couldn't even answer the question themselves. And so we eventually just sent $100 through it and asked somebody in Uruguay to tell us how much money showed up on the other side. So we had all these kinds of situations like that. At one point we had to turn off all the hosts in Cuba, because US companies weren't allowed to work with Cuban citizens. And there was all these things about the global financial system. I always remember feeling like it was sort of inefficient. It was a barrier to innovation. Just to step back in history even more, of course so I had studied computer science and economics in college. I had tried starting another company in college that was a tutoring company. And we had just had massive challenges trying to move money to the different contractors we were hiring in different places.

I'd also spent a year living in Buenos Aires, Argentina. I had gotten to see what a hyperinflation economy looked like and what it had done to devastate the population there, especially the poorest people in that society, by the way. Because generally poor people hold their wealth in cash, which is the most affected by inflation. Whereas wealthy people can put their assets into inflation-resistant things like real estate or they can move their money overseas. And so I'd gotten a sense of what that could do to a population and it certainly wasn't unique to Argentina. Inflation had happened in various ways in many countries in the world. So I was sitting there as an employee at Airbnb, and I read that first Bitcoin white paper in December of 2010 was when I first read it, and that's when it kind of really kicked off this momentous thing, which now became Coinbase many years later.

But I guess what it really ended up doing was it caused me to start thinking about, "Am I ready to start another company? Is this the thing I want to start?" It sounded like a crazy idea trying to help people use cryptocurrency. It was such a new thing. All my friends thought it was kind of crazy or it might be a scam or something. I had tons of self doubt about, "Is this what I really want to do?" But my gut was telling me, "This is really exciting and this is going to be huge," or at least it could be. I thought there was a pretty high chance it could fail, but if it didn't, this would be enormous, like something on the scale of the internet. And so I kind of just couldn't get it out of my head. And I started working nights and weekends on a prototype, which I eventually submitted to YCombinator and that became Coinbase. So there's a lot more detail in there if you want to talk about it, but that was the journey.

ER: Talk about that first minimum viable product that you built.

BA: Yeah. So the first product that I had in mind was I wanted to build a hosted Bitcoin wallet that was easier to use. I didn't even have the idea to really make an exchange or a brokerage at the beginning to help people buy and sell it. But what I was thinking in my mind was SMTP is the protocol that powers email, and some people run their own email servers on their own computer, which is what people with Bitcoin were doing at the time. They were all running their own Bitcoin node on their own computer. But email quickly moved into the cloud. There was Gmail and services like that, where you could access it on your phone or your laptop. And if you lost your phone, it's not like all your email was gone. It was stored in the cloud.

And all the security and backups were being kind of managed by this company. So I had a thought like that, "Someone needs to make the Gmail for Bitcoin." And then I had another thought, if you look at Git, which is a tool that programmers use, which led to the company GitHub. Git is another decentralized protocol really for version control and software. It was difficult to use and all this and GitHub made it easy to use. So those were my two models, Gmail and GitHub kind of based around a new protocol that had come out. And so I thought, "All right, I'll make a hosted simple to use Bitcoin wallet." And that was the first thing I put out. And I posted it on Reddit and Hacker News, and some places like that. I got a couple of hundred people to come in and check it out, but they wouldn't really stick around and use the product at all.

And so my user adoption numbers were really kind of flat-lining. And I remember I just... In Y Combinator, they talk a lot about this idea, "Well, go talk to the customers." That's basically the loop of how you find product market fit is go talk to the customers, take their feedback, and go improve the product. Then talk to the customers, improve the product. You just keep doing that until you find product market fit. So as one of those surveys, I was basically emailed 10 of the people who'd signed up from Reddit. And I said, "Hey, I'm the founder of this app. I saw you signed up and you haven't come back to use it. Would you be willing to get on the phone with me and just talk about it?"

So I called some of these people, maybe three or four of them emailed me back. And I remember one of the people I talked to said, "Well, I kind of liked the product, but I didn't come back because I don't have any Bitcoin." And I thought, "Okay, well, if I put a button in there that said, 'buy Bitcoin' or something like that, would you use it?" And they were like, " Yeah, that would be better, because I think there's some way to buy Bitcoin, but there's these random exchanges like Mt. Gox in Japan and I'm not going to send a wire to Japan. If it was something easy then maybe I would do it." So I thought about that for a while and I basically started on the path to try to do that. And that was a simple feature to describe, but it was hard to build in the sense that I was now accepting payments from customers.

I had to think about compliance. I had to think about fraud and chargebacks, because I had read this book called PayPal Wars about the history of PayPal. And there were so many challenges with fraudsters and things. People would put in stolen credit cards and bank accounts and try to defraud the company. And luckily I had worked on that, a bit of that at Airbnb fraud prevention. So I knew how to build some of these systems. And through a process of just focus, and working 12 hour days, and calling banks, and trying to get the early bank accounts set up and integrating with the APIs of these bank accounts. I say we, at that time, right around that time, I found a co-founder finally, by the way, Fred Ehrsam. I had failed to find a co-founder to that point.

And I guess my main lesson from that was just keep making forward progress. I had reached out to probably 50, 100 people to try to find the right co-founder. None of them worked. And as Fred happened to move to Silicon Valley, he saw the prototype I had posted on Reddit, I think. And he reached out to me cold. At that time, the right co-founder reached out to me. Right around the time Fred joined the bank integration and all that was finally done, we flipped the switch so people could click 'buy Bitcoin', and that turned out to be the killer feature. But basically from that moment, we struggled to keep up with the demand as opposed to trying to create more demand. And that was the moment where we found product market fit.

ER: And the rest, as they say, is history. It's funny because founders always call me and ask for advice about whether they've hit product market fit or not. I always say, "If you have time to call me and ask me this question, I'm sad to say that you do not have product market fit. Because once it starts, you will know. I promise."

BA: Yeah. There's a great analogy I saw someone online wrote where it's, "You feel like you're pushing a boulder up a hill every day before product market fit. And then once you find it, it's like you crested the peak and the boulder is rolling downhill and you're chasing it as fast as you can." And we had some moments kind of like that where it basically became a working capital issue, because people would come into the site and buy Bitcoin. We would initiate a debit to their bank account, but we wouldn't receive the funds from their bank account for two to three business days.

And we had to make sure we bought the Bitcoin on the moment they clicked buy, because otherwise the Bitcoin price might be higher when their money finally arrived to us. So I think we had only raised maybe $600K or something at that point. And it quickly became where we were using maybe $500K of our raised money to serve the day-to-day, like basically as working capital to acquire the Bitcoin that we were going to receive the customer funds for in a couple of days. And we hit a point very quickly where we said, "All right, we're either going to have to turn off buys or go raise more money." And that was a good story to go raise money, by the way.

ER: My money printing machine is not able to keep up and I need money to keep my money printing machine going.

BA: Exactly.

ER: The best classic venture pitch. I want to talk a little bit about the organization that you built. We've been talking so much about the product and raising money for it and and finding product market fit with it, but I think one of the things that's really notable about the way that you've built the company is that you've always said that it was important to be mission driven and you've built a real culture and ethos around that. So, tell us what does being mission driven mean to you?

BA: Yeah. Well, I think it's important for every company to try to tackle something big and important in the world to try to improve the world. And the reason is, there's a bunch of reasons for this, but one of them is that doing a startup is just so difficult. Like your chances of failure are already so high. And basically, you're going to give up if you don't try to do something that's about more than, I don't know, just making money or something like that. Because usually the first couple of years of a startup are just moving from one setback to the next with enthusiasm. If somebody sues you, if somebody quits, somebody steals your idea, like whatever it is, and all these unanticipated crazy things happen. So I see people sometimes tell me, "Why are you doing this startup?" And it's like, "Well, it's such a good idea. The product is needed by people. It'll make a lot of money."

And I just keep thinking like, "You're going to burn out within the first two years, because you're not in it for the right reasons." So the first one is you got to be getting out of bed everyday for something bigger. The second reason is you got to be able to attract great people to come join you on this. And the best people want to work on really difficult important missions that are going to improve the world. I think it's hard to get great people to join a company just based on comp or even just based on learning or growth opportunities. They also have to feel like they're doing something important for the world. So, those are all important reasons to have a really big, ambitious, compelling mission. And I would say as the company, especially in Coinbase's case, as the company kept growing, we got over 1,000 people.

There was a moment where I realized we had sort of defined the mission a little bit ambiguously and almost euphemistically. And I realized the whole company wasn't even on the same page about what exactly was in scope for the mission. And this sounds like, "How could that possibly be?" But these things tend to happen.

ER: It's still common actually.

BA: Yeah, it's super common. And really anything, your values, a strategy document, everything. It's hard to get people to all really understand it in the same way. And so there's periods of time in Coinbase's history where I've had to kind of realign the company towards the mission and redefine it and re-clarify the definition of it. And so you want a lot of variety in the people that you hire. You want people from all different backgrounds and different skill sets around the table to get really an innovative and creative company, but you want everybody to be excited about the mission and have the same values that you articulate. So you want people to have the mission and the values in common, and you want them to be really different in every other dimension. That's how you create great companies. You got to get ready to keep rolling in the same direction.

ER: So what is the mission of Coinbase?

BA: So our mission is to create an open financial system for the world. And what we mean by that is we want to create a financial system that is powered by cryptocurrency. It's more fair, it's more free, it's more global, and it brings more economic freedom to the world, because that was one of those other big things I had noticed when I first read that Bitcoin whitepaper was I was thinking about, "How could this bring more freedom to the world?" I always felt like people want to do good things, they want to be able to keep the upsides of their labor. They want to have property rights. They want to have the ability to work at the company they want to work out and join the company they want to work at. And this term economic freedom, it's kind of an interesting one. You can go read about it on Wikipedia and whatnot, but it's sort of a metric that economists use to look at the various countries of the world and measure how economically free those places are.

And what's interesting about it is that economic freedom correlates with a lot of things you'd really want in society, not just higher GDP growth and things like that, but also higher self-reported happiness of citizens, better treatment of the environment, better literacy, and all kinds of things. So the insight that I had and kind of more crystallized the longer we worked on Coinbase was this invention of cryptocurrency might be the key, the secret to allowing us to create more economic freedom in the world and inject this reliable financial infrastructure, property rights, rule of law into these countries all over the world. And we do that by creating the open financial system. That's what we kind of have boiled down to as a phrase. So I think it's a really important mission. I think it can have all these downstream effects in society and it's really ambitious too. It's almost like saying we want to create a new alternative economy for the whole world. So that's certainly a big mission.

ER: I think it's so interesting that you were conceiving this while you were at Airbnb. And I had a conversation a little while ago with Brian Chesky where he was talking about the importance of institutionalizing your intentions, and I'm sure you have heard him talk about this ad nauseum, having worked there, but I mean, a big part of what he has tried to accomplish and in taking the company public is to take his view of what a 21st century company should be and bake it into the structure of the corporation, so that it remains true to his mission, which of course what he's trying to accomplish is in some ways different from what you're trying to accomplish. But I wonder if that resonates with you. What are the steps you've taken to institutionalize your intentions, so that as this organization grows, as more and more people come into it as eventually someday someone else may lead it, how can you be sure it will remain true to that mission?

BA: Yeah, absolutely. So there's a important moment every company goes through, I think where in the first couple hundred people or something like that you, as a founder, can interview all of them, you can evaluate them, you can go around and talk to all of them, have some kind of regular touch point with a couple of hundred and just make sure everyone's on the same page, moving in the same direction. If you see something that's off track, you can help correct it. As the company gets bigger. I don't know, let's say 500 or some kind of threshold like that, or 1,000, you pass Dunbar's number, the number of people you can really remember, everyone's name, and what they're all doing, and what their relationship is to each other, and some people think that's around 150 or so, but it varies depending on the person.
And so you quickly reach a point where you actually can't interview everybody who comes into the door and you can't check in on everyone. You can't even know everyone's name. And so how do you make sure everybody is still aligning in this larger structure? You do have to go institutionalize and memorialize some of those ideas. So I think that CEO's have a couple of different tools in their tool belt to do that. One of them is to go write down what are the values. And the values are what we use to hire and promote people. Coinbase's values are on our website, you can go look at those. We also wrote down a culture doc. And the culture doc kind of gets into more details about, not only how do we hire and promote people, but how are we going to operate and work day to day?

How are we going to treat each other? That was an important document to write. And we did that with a bunch of input from the company and the employees. And you always want to have this balance in the document of like are you just saying euphemisms that any company could say or are you saying things that are truly distinct to your culture? Like one way to test that is could you say another company that had the inverse of your value? So you've got the values, the culture doc. Of course you have the mission. And I don't know, I think if you think about even much longer term, like how does Apple continue on in the spirit of Steve Jobs, even though he's passed away. Like how do you make a company that is multi-generational or something that can persist on. That's, I think, probably one of the hardest things to do. A lot of companies, frankly, when the founder passes away or moves on, they do lose a little bit of that magic spark or something that made it what it is. Companies need to evolve, you don't want something to be frozen in time. That wouldn't be innovative, but it does need to kind of stick true to what made it unique and what made it special. And so I think you see people like Ray Dalio, he's writing that book, Principles or he's written it. I think that's my guess, I don't know, that's his way to sort of try to memorialize that for the next 100 years or something at Bridgewater and see what people might do there. But yeah, I don't know if anybody's found a perfect solution to that. If you think of one, I'm curious to hear what you, Eric, what other ways have you seen founders kind of memorialize what made a company special?

ER: It's funny you ask me that, I literally have a deck of cards that I had made, which is sitting on my desk right now. If it wasn't for COVID, we could do this in person and I would take this deck out and show you, because I'm a collector of the structural things at the level of kind of governance, incentives, disclosure, economic alignment that companies can and do use to maintain this alignment. It's extremely difficult. And if you read the history of business and go back to case studies, and I think I've recommended this book on the podcast before, I'm not sure, there's a book called The Enlightened Capitalists, which is like 150 years of case studies of people who have tried to solve this problem and failed. So it's an old problem in capitalism, where people who find some more purpose-driven way of operating a corporation, if they don't have real alignment and institutional protections as it relates to their investors, usually, but their board and many other stakeholders, you wind up having these case studies.

There's a brutal story in that book about a founder who is literally on his deathbed. He built this purpose-driven company. He had run it for something like 40 years, built it into a behemoth, and then one day, some investment bankers in his board engineered a coup to kick him out, and take the company public, and basically strip-mine it and destroy what made it distinctive. And he was on his deathbed, had this regret, the regret of his life is that he hadn't required the board members he had stacked the board with to sign a pledge, a mission fidelity pledge, so that they were able to... They didn't even bother trying to justify that their actions were somehow in line with the company's mission.

So yeah, if you look at who is on the board, who has board power, who has voting control, how the company rewards and incentivizes its long-term investors versus its short-term investors, that's a common error that people make. And then, how does it engage employees and its other stakeholders? Brian Chesky is always trying to figure out how to put stock in the hands of his community and how to bring community input into the governance, because that's such an important part of the ethos of Airbnb. I could think of a lot of ways where the decentralized nature of crypto could give rise to other mechanisms that you could bring in that would be natural to think about.

And then, some of the stuff is just really brain dead simple, like make sure that you have a product and strategy committee of the board, somebody who is responsible for thinking about what the company strategy will be longterm, so it doesn't devolve into lawyers and lobbyists. Obviously, you have the mission pledge, obviously, what you do with voting control. So there are these mechanisms that people use, but what's so interesting to me, having worked with so many companies over the years, big public companies, private companies, companies going public, is how often, as the company grows, because the company is successful, everyone starts to get really overconfident about how this bad stuff is not going to happen to me.

And so then, the voices for the status quo start to get a lot more powerful, a lot, lot louder in the room. And so, all of a sudden, you have finance, and compliance, and bankers, and folks like that. Not that those people are bad by any means. I mean, they're incredibly important to build a compliant organization, to be able to successfully do something like an IPO. And yet, sometimes I meet with founders who are a little bit frustrated that this longer-term perspective of what is this going to look like 10 years from now, 50 years from now, 100 years from now, isn't really part of the everyday conversation. So I think creating mechanisms and fora for that are super important in an organization.

BA: Yeah, very well said. I mean, it's such a complex and interesting topic. I think you're right, that companies do best when they have this marriage of skill sets, or even you could call it a healthy tension, where there's a founder-CEO who wants to... The founder is a little crazy, right? They're contrarian. They think differently. They question why is that? They want to try ambitious things that look like toys today, but could be really big in the future. But on the other hand, founders can get a little too crazy and they can blow up companies. You need, really, steady hands operators, executives, and those other functions that you mentioned that are more like risk functions, legal compliance, HR.

And so, you can get a company that falls too far either way, right? We all can name some companies that probably the crazy founder blew it up a little bit too much. We also can name companies that they frankly just haven't innovated in decades because they're run by risk functions, more or less. And even if you look at... I'm not here to bad mouth any particular industry or anything, but if you look at some large banks in the US, most people would say they haven't innovated as much as they could. And they've almost become like quasi-government institutions in a way, and they're so focused on risk mitigation that it's not about innovation. There's the large banks and those are it. There haven't been really new upstarts or anything in that realm.

ER: Don't get me started about stock exchanges.

BA: Oh, yes. Yeah. I mean, so this is... Also, I'll just make one other final point. So I guess if you think about it, a company doesn't need to last a thousand years or something. I think it's nice. For the founder who created it, their ego is attached to it, and so it's nice to think about how do you make something that lasts. I think that's a very valuable pursuit. But there's also something beautiful about creative disruption, right? It's like, sometimes it's time for a new thing to come along. And if something does get too set in its ways, it stops innovating.

Jeff Bezos says it's always day one at Amazon, right? Steve Jobs, in his Stanford Commencement address, said, "Stay hungry and foolish." There's many versions of this. At Coinbase, we talk about repeatable innovation a lot. But whenever a company stops doing that, or a country for that instance, or just as another example, I think it's like they probably should be disrupted, right? That's better than never having anything new at all. And so, that process of something maturing, and then stagnating, and then something new coming along is kind of... It's the way we make progress to keep going forward as a human civilization.

ER: That's really well said. And bare survival should not be our goal. And I think we all have interacted with organizations that have become bureaucratic and who have no purpose anymore. They simply exist to preserve themselves. And when that happens, it's actually something like really genuinely dark. So I think trying to really find that spark of continuous innovation and to make sure that remains at the heart of our economic engine, both at the level of individual companies, and of course, as we think about the macroeconomics of our country, I think that that is really important. Talk a little bit about what you see as the role of civic leaders, business leaders, in advancing that for us, in terms of our civic fabric.

BA: Yeah. Let's just start with, I guess, the highest level, which is that I think if you want to improve the world, starting a company is one of the best ways to do that, especially a company that is trying to drive some kind of science, or engineering, or technology innovation in the world. There are some businesses you could think of that probably wouldn't be examples of that, but I think one of the beautiful things about capitalism and free markets is that if you want to... The only reason someone's going to part with their hard earned money is if you provided something that they really want and need, right?

And there's exceptions to that, right? You could think about addictive things, like cigarettes, or people that have monopolies, or whatever, but by and large, I think capitalism is a force for incredible good in the world. And let me give you an example. Some of the biggest problems in the world, let's look at climate change or something, governments all over the world have debated this endlessly. There's been so many papers written on it, the academics, there's the Paris Climate Accord, we're in, we're out, all these things.

And what's going to be the thing that actually potentially makes the most forward progress on solving climate change? It's probably one person who started a company, like Tesla, Elon Musk, and now, suddenly every car company has an electric car program. We're talking about solar in much bigger ways. So that's such a clear cut example. What other major problems are there in the world? Education, healthcare, financial services. I think if you want to solve education, look at things like Khan Academy. Khan Academy is actually a nonprofit. It's not a company. So start a nonprofit, too. I think those also can be very valuable. If you look at healthcare, I think technology is driving some of the most important innovations there. If you look at financial services, I think the same thing. FinTech is driving a lot of the most important changes.

ER: And we're all waiting in line for a vaccine that is a technological modern miracle.

BA: Absolutely. Biotech, longevity, energy, entertainment. I really think that there's a weird thing happening in the world now, which is that it's become fashionable to bash tech companies or something like that. And we see it in our media too. There's a lot of entertainment and stories that come out.

ER: Yeah. Well, not to say that we haven't had some deserved examples of mistakes, too. So yeah, fair enough.

BA: Sure. Sure. I mean, there's always... With any new tool, it can be used for bad or good. A scalpel could be used to kill someone or to save someone's life. Anyway, there's certainly... Nobody knows exactly how these things are going to evolve, too. If you latch on to some new technology, like Bitcoin or whatever other company examples are, you don't know exactly how it's going to play out in society. One of my views is that a vast majority of people in the world, 99% or more, are good. Yes, there's 1% of people who are going to try to abuse something. That doesn't mean we shouldn't keep making forward progress and building new things.

Do you need to mitigate the risks? Yes. Do you need to take that very seriously? Yes. But it shouldn't prevent us from trying and building new things. I think there's a bit of fear about change. There's a fear about new. There's a fear about how we'll be unprepared for that. And it's almost a negative message for young people to hear, I think, that these things are destroying society or whatever. If you want to advance society, I think that the best way to do it is, basically the best lever we have as a society is science technology, starting companies, building products that can help people. Yeah. I feel like that's a very important path forward.

ER: We've come a long way from the super optimistic message of Star Trek.

BA: Yeah, yeah. And Terminator, and all these things. Peter Thiel has talked about that. Why are the messages coming out of Hollywood often Terminator-esque, or Black Mirror, or kind of dystopian, I guess?

ER: Well, you see it in how people are responding to the pandemic, I think. Yes, we've had terrible bad news and it's been an awful year, but there's been some recent articles, and Zeynep, who we also had as a guest on, had a great article recently about why are people being overly pessimistic now, and why is there this tendency to downplay the good news that we're finally starting to see, and then the harms that that can cause. Because ultimately, it's our collective imagination and determination to make things better that is ultimately what is the driver of human progress.

BA: Yeah, absolutely.

ER: I want to go back to what you said about economic freedom for a minute, because I think that's such a really interesting concept, and it's such an unusual thing to have a CEO talk about as the mission of the company. But I think for some people who are listening, they're going to find it especially surprising, because one of the things that I feel like I'd be remiss if I didn't ask you about, one of the things that you've been... Those who follow the tech industry have noticed during the pandemic, that you came out and said that you did not want to talk about social issues and politics as part of what you're doing at Coinbase.

And yet, economic freedom, some people would say would be a very political agenda that, of course, the whole crypto movement is in some ways trying to push. So talk a little bit about what that experience was like being at the eye of that firestorm, why you felt the need to take that stand, and how do you reconcile that with the mission of the company and your political objectives in terms of rule of law and economic freedom?

BA: Yeah. So I think it goes back to what we talked about earlier with mission first, mission focused as a company. So I do think every company should have a very ambitious, important mission that is going to move the needle and improve society, and they should be pretty focused on that mission. So for us, that's about creating an open financial system. It's about creating more economic freedom in the world. And that certainly has political aspects of it. We engage with politicians, and regulators, and do all kinds of policy work around crypto for instance, and even economic freedom.

So to me, it's fine to do political work as a company as long as it's on mission. And one of the challenges that I went through last year was that I realized at a certain point, not everybody was aligned about what the mission of Coinbase was and what was in scope for that mission. And so, of course there were a number of challenging events happening in the world last year that were incredibly important, and rightfully so, many people were focused on it. I really wanted the workplace at Coinbase to be a refuge from that kind of division that was increasingly happening out there in the world.

And I felt like we already have a really important mission that's going to try to improve the world. And so, for us to really make progress on that, it's going to take years and years and decades of really focused and intent work. And if we try to boil the ocean and try to solve every problem out there, it's actually more likely we're not going to make progress on any of them. So that was my... It was a very difficult moment to go through. I think that it showed that I had not made that clear to the company. I had not done a good enough job of making sure everybody was aligned to the mission.

And so, that's one of the things about being CEO, I guess there's always something new to learn. And last year was my time to learn that, and go out and say, "All right. Let's clarify what the mission is, what we're all here to do." And I recognize that not everybody was going to be on board with that, so what we did was we made a pretty generous offer to anybody who felt that they had not signed up for that mission. And some people took us up on it, and they decided to leave. But as a result afterwards, I think the company is much more aligned. We're all moving in the same direction. I actually think it was probably the most important thing I did as CEO last year, even though it was kind of difficult and unpleasant to go through.

ER: Do you have any regret about picking that issue, that moment, to take that stand?

BA: I really, really wish it hadn't been that time, at that moment. I had no desire to get that kind of attention for that. I really felt that I just couldn't wait. I wanted to stand up in front of the company and say, "This is why we're here. This is why I started this company. I want us to go solve this really important thing in the world." And I knew that that would upset some people. And I was also worried that we're hiring people really quickly. When are we going to... The next 1,000 or 5,000 people join this company, I'm not doing them any favors by not making this clear.

And so, I just really felt like after three or four months went by, and I was like, "We can't wait. I've got to come out and say this." And I knew it would be somewhat controversial. I knew some people would misinterpret it. But it was one of those things where, looking back, I don't regret it. It was difficult, but it was important and necessary. Are there some ways that we could have done it better, in terms of how we wrote out the messaging? There's always some things we could have edited around the margin. But overall, I think it was the right thing to do, and in that sense, I don't regret it.

ER: Let me ask you, do you mind if we do one more follow-up about the politics thing? Because I think that's important for people to understand what you really meant by that. So, it certainly was a brave thing to do, and to put yourself really in the center of so much attention and emotion in that moment. Do you think all CEOs should take a similar stance? Or what advice would you give to other CEOs who are contemplating where they should net out on that question?

BA: Yeah, so I certainly wouldn't presume to say that every company should take such a mission focused approach, which is how I described it in that blog post. Just because, first of all, it's none of my business to tell them how to run their company. But also, I kind of like that there's a variety of ideas tried in business. That's part of what we find what works, and some people emulate it, some people don't. So I wouldn't presume to tell everybody to do that.

But if there are CEOs out there who are feeling like, "I just feel like the employees are becoming distracted, that they're focused on the wrong things." And if you just start to feel like something in my gut is wrong, maybe even that people feel afraid to speak up in the company because it's becoming a hostile environment or something like that, that's where I feel like maybe you have an obligation as CEO to stand up and say it.

And a lot of people did actually reach out to me, current employees and new employees who applied to Coinbase as a result of it, and others out there in the world who said, "Really, thank you for speaking up. I was increasingly feeling uncomfortable at work. This was a really unpleasant environment, and it was starting to affect my engagement." And I realized I was not the only one who was feeling that way.

And so, if you feel that way, either you're going to have to go as CEO or you're going to have to make it a company that you want to work in. And if you make it a place you want to work in, there's probably other people that want to work there too, from all different backgrounds and everything, by the way. So people from every different background want to work at a mission focused company that is trying to achieve something really difficult in the world, and it's a workplace that is a refuge from division.

Not everybody wants to work in that environment, but there's a great variety of people who do. And so far, it's actually, I would say... Initially, it sort of had a chilling effect on our hiring in the sense that some people were unsure, what is this, what does it mean? But I'd say, actually now, it's had a net positive effect on our hiring, and we have people joining who just understand what they're getting into, and they understand what the mission of the company is. And so, they're self-selecting in, and a number of them have been telling us, "Oh man, I was so frustrated at this at my past company. It was so hard to even get work done there." And that's the reason they came and applied to Coinbase. I don't know. If other CEOs are feeling similarly, maybe I would suggest something the same.

ER: It does seem like we're about to enter into an era that, I think when we were growing up, and certainly for our parents and grandparents, it might've seemed like science fiction where trust has gone down in almost all of our institutions as so many of the institutions that govern our civic life have decayed in our lifetimes. And we're starting to see a world where the civic values that really matter are increasingly being defended, not by journalists and not by universities and not by politicians, but really by corporations. And corporations, because they want to be mission-driven, because that is the new demand of people where they want to work, and also investors and customers, that's increasingly important to them, we're starting to see a diverse set of companies stand for the different elements of the kind of core values of our civic fabric.

I almost feel like even if other CEOs who disagreed with you or had a different value set than you did, you took a similar stand, it might actually be better for our civic health overall, because if Coinbase is really standing for economic freedom and a diverse set of other people have a chance to bring their ideas into the marketplace and to stand for the other important civic values, maybe as a whole, as a society, we're better off.

BA: Yeah. I mean, that's a big question. It's certainly possible. I agree with you. There is a lack of trust kind of happening in media and in government and I think there's fewer even religious people now, if I'm remembering correctly.

ER: That's right.

BA: There is a strange thing that I didn't quite anticipate starting a company where, frankly, maybe this was naive of me, I was thinking when I first started Coinbase, how we're going to build a great product and people are going to want to build that. And a lot of people have started looking up to me and saying, "What do you think about all these broader issues?" And I never really anticipated that, which might've been naive of me. But yeah, I guess a company, it is another tribe that people want to belong to just like a university or a sports team or something like that.

I've always been sort of uncomfortable in that position, to be honest with you. I never really thought about myself as a natural leader. I always thought of myself as sort of an engineer who likes to build new products. I'm sort of a reluctant leader in that sense, but I guess it's been working out okay and I've sort of made peace with it and it's fun.

ER: Join the club. As we're recording this, your IPO for Coinbase is imminent. And I know that limits, of course, the kinds of things that we can talk about, but talk a little bit about the choice to do an IPO versus, say, do an ICO for Coinbase.

BA: Oh yeah. Let's see. For those who don't know, an ICO would be an initial coin offering. There's a lot of different words around that, which basically are referring to companies, could they someday go public, on the blockchain. And when I first heard that term going public on the blockchain, I thought, "What does that even mean?" And I guess what it means in practice is companies have shares, which are securities like stocks that can be traded out there. And some people have made crypto tokens or crypto assets that represent those shares, and those crypto assets can be traded on crypto exchanges, just like any other crypto asset. Today, most of the crypto assets that are out there that are being traded. They're not securities, they are commodities, they're tokens of various types, rewards tokens, governance tokens. And there was actually a big question in the industry about, are any of these crypto assets securities? And the SEC has come out and opined on several of them, which I won't get into.

But when we thought about Coinbase going public, I certainly, that was one of the first thoughts that went through my mind is, "Hey, how cool would that be? If we could go public kind of in a crypto native way. We're trying to build the open financial system. Why don't we use our own exchange to create a crypto asset and go public that way with a crypto asset that represents shares of Coinbase?"

There was a bunch of consideration that went into which one, right? One argument in favor of doing a crypto IPO is that most of the early people who got super into crypto, they were retail customers. Like, the big institutions were initially quite skeptical on crypto. And then in a way it's kind of like going to our base, going to the audience that got us here and saying, "Hey, all of your crypto traders, now you can own Coinbase stock." Like how cool would that be?

Now, there’s an argument on the flip side, which is that most, if you look at most IPOs that happen, the majority of the shares are owned by institutions. They're not owned by retail. I think maybe like 20 or 30% is owned by retail, like on some of the stocks I've seen recently. And so would we be actually missing out on a larger segment of the institutional money out there that would want to hold a stock like that? And now of course, just in the last two years or so, institutions have started coming into crypto in a major way. That's starting to change, but there's still, I would say probably the majority of institutional money out there can not actually hold crypto assets. Due to their bylaws and LP agreements and things, they can only hold public securities, like in the traditional sense.

So then my next thought was, "Okay, well, why don't we do both?" Sometimes companies do a dual listing, right? They might list on the long-term stock exchange and another exchange, or they might list on like the Hong Kong exchange and the New York Stock Exchange or something. So why don't we call it a dual listing, but this time, instead one of the listings will be a traditional IPO, one will be a crypto token that trades on crypto exchanges.

That was kind of what I was initially planning to do. Now, as life goes, things turned out to be a little more complicated than that. One of the things that we would need to have gotten done to start to do the crypto IPO and actually trade security, which is, of Coinbase shares, a security token they would call it, was we needed to get some more licenses and regulation in place. So that would be, in our case, like a broker dealer license, we needed to operationalize it. There's a bunch of control environments that need to be in place approved by regulators. And currently there's no crypto exchange out there that I'm aware of that, at least in the US, is licensed to trade security tokens.

So, we started to look into that process about how to go do that. And long story short, it would have delayed our IPO by, I don't know, at least a year or so. We may still do it in the future. I think that would be exciting to try. And I think there's a lot of benefits to that. I can talk in a minute about what it might look like for other startups to do that once things are a little more developed in the crypto industry, the market structure and everything. That's basically the short story about why we decided to do a direct listing, not a traditional IPO, but we did that in the traditional public security sense.

I would love to keep exploring that and seeing if we can make crypto IPO as a thing in the future because I think that's one more piece of the open financial system that we can innovate on and get rid of a lot of the inefficiency, which I'm seeing bits and pieces of going through it the traditional way. Crypto has the potential to revolutionize a lot of different pieces of the traditional financial system. But one of those pieces is how companies get formed, how they raise money, how they manage their cap table and how they eventually go public.

There's already been some large fundraisers in crypto, crowdfunding if you will. And it shows the potential where, in a traditional fundraising environment, you typically have to go to one of a few locations in the world where venture capitalists live and pitch them. And if you don't live in one of those locations, or you're unable to fly there, a lot of entrepreneurs around the world struggle to raise money for their brand new ideas.

In a way it would be amazing to sort of democratize access to fundraising. And some of these crypto fundraisings have been enormous. They've, not for specifically raising money for securities, but for other reasons, they've been able to issue tokens and get thousands of people around the world to put in money in a matter of hours. Some of them have exploded in spectacular fashion by the way, in a negative way, because it's a new thing, but it shows the potential for fundraising. That's an important piece.

Now, once companies have raised some money and we crypto could democratize access to that fundraising, they then need to manage their cap table. And this turns out to be a pretty expensive process. Companies spend a lot of money on legal fees and lawyers, drafting agreements and share transfers, restrictions, and all kinds of things. It's basically all managed through very expensive lawyers instead of if it was just a crypto asset and I wanted to transfer some shares from a to B, you can just transfer that on the blockchain and it would be as easy as sending any other crypto transaction instead of requiring hundreds of pages of legal documents.

Now, the last part of that lifecycle is that someday companies might want to go public and there's a bunch of pageantry or whatever you want to call it around how companies go public. There's a lot of archaic pieces that might not be necessary if it were to be created again today. There's a lot of fees baked in that go to the current groups of players that bring these things to market.

There's a really interesting opportunity to make that whole process just much more seamless where we could even 10x, 100x the number of companies that get created that way, if you were to able to democratize access to fundraising and reduce the legal fees, the friction, and reduce the overhead in terms of how companies go public.

In the early internet area, there was this thing called the .com startup that came out and eventually you didn't need to say .com because every startup was using the internet. My guess is that within 10 years, most new startups will be using cryptocurrency in some way, shape, or form. You won't need to call them a crypto startup. They'll just be a startup. And they'll use crypto to raise money or manage the cap table or accept cryptocurrency payments, or build their community in some novel way or go public on the blockchain.

I'll give you one or two quick soundbites about things that could be novel in that space. One is you could actually reward your community with shares of the stock, the customers who helped you grow the business. Imagine the hosts of Airbnb or the drivers of Uber or whatever had gotten shares in the company. Those kinds of things could be more possible in a world of crypto securities and IPOs. You might even be able to do other kinds of governance innovation, which I know you're a student of and have innovated a lot on yourself, which is, for instance, you could make a security token that every year that you hold it, you get an additional vote in the governance of the company, right? That would incentivize long-term ownership of the token.

ER: Indeed.

BA: Things like that start to become possible with this new technology and the open financial system with programmable money and securities. Those are the kinds of things that I think we'll hopefully see in the years ahead for crypto.

ER: I'm sure you're familiar with Professor Lessig’s idea that code is law and that's never more so than in the governance of corporations eventually, that the software we currently write in English prose, which is prone to so much ambiguity, will obviously eventually be in machine readable code and therefore able to be executed in a much more transparent way.

BA: Absolutely. Yeah. Smart contracts are a brilliant invention. I think that's going to have profound implications for governance and government and whole kinds of things in the future.

ER: I want to talk a little bit about ResearchHub. Can you tell us a little bit about what that is?

BA: ResearchHub is a project company I've started on the side that is something I'm passionate about, which is accelerating scientific research. Scientific research today is incredibly inefficient, both in how funding happens, a lot of the papers are not reproducible, a lot of the papers are frankly not really read by anybody, it's difficult to prioritize them, find actionable insights from them, commercializable insights, if you're an entrepreneur. And so there's kind of a crisis happening, I think, in scientific research that is just slowing down human progress.

I mean, think about whenever you get a company that actually is founded on a major scientific breakthrough, it tends to be an incredibly valuable company. I mean, Genentech, Google, like those were both founded on research papers that came out of Stanford, right? Even Coinbase is really founded on the research paper written by Satoshi Nakamoto, the Bitcoin white paper, which was a computer science breakthrough. Space X, Tesla, go down ... It was really the most valuable companies in the world. But most companies are not like that. Most companies are created that are basically just repackaging. Think about beverage companies, consumer packaged goods, like makeup or something. Those companies are 90% marketing and 10% product. In fact, they're often sometimes manufactured by the exact same factory as a hundred other products that just, they've outsourced the creation of the product. It's all about marketing.

Similarly, you have scientists that are coming out with some amazing breakthroughs, but sometimes scientists don't know how to go commercialize those, or they don't want to go build big companies. That's not their skillset. And so I kind of want to try to find a way to ... How do you bring those two worlds together, the scientists and the entrepreneurs, so we get more of these Genentech's, Google's, Space X's.

That's sort of the idea behind it. And by the way, it scratches one other itch for me, which is I'd wanted to sort of see what it was like to create a crypto startup and ResearchHub does have a crypto asset called ResearchCoin associated with it, which we're using to help incentivize the community to come together.

It's been a learning ground for me because one of the goals at Coinbase is we want to help the whole crypto economy take off with thousands of companies. Well, I felt like, okay, to better understand the needs of that customer base, maybe I should try going to create one of these and seeing what the real pain points are.

ResearchHub is still very early days. We have a V1 product out there that's gotten some initial traction. If people are curious, I'd love for them to go check it out and basically sign up and check out the particular areas of research you're interested in and help us build a community. It's early days, but the potential is enormous.

ER: Having talked to a lot of scientists and public health folks and biotech leaders and just, a lot of people related to the pandemic response, a recurring theme has been research delays and the inability to share has caused really important consequences that we only really appreciate and see research delays, especially we see it in COVID when organizations and scientists were able to share data and genomic data, vaccine data, how important that has been just saving so many lives. And when that doesn't happen, the consequences as well.

BA: Absolutely. Yeah. COVID kind of showed us how inefficient the traditional process was of peer review in journals and it takes years to get your thing out. During a pandemic, it was like, "No, publish it to Twitter. I want the right to see your peer review on Medium." That's the kind of thing that why doesn't all research happen that quickly? There's no reason for the journals to charge like thousands of dollars for people to access this stuff that was often funded by public funding. It should be free and available. So many areas of improvement there, I'm hoping we can try to make a dent in that.

ER: Kind of zooming all the way out and looking at everything that you've learned, especially this past year, in such difficult times for so many people, what do you really hope will be the long-term impact of this crisis? What do you hope for our society? What will we learn in the new normal as we get out of the crisis?

BA: I'm hoping that people have optimism about the future and they feel determined to get there and to improve the world. I mean, it sort of shows you the great resilience of human civilization, which is we see these big challenges come at us and we're able to rise to the challenge, whether that's creating a novel vaccine or creating new companies to help people work remotely, or finding new ways to support the local neighborhoods and small businesses.

In a way, it brought the world together. It helped us focus on what mattered. It also just pulled the world forward five years in some ways. Why can't we do that all the time? It's really a matter of culture and perspective and determination and optimism.

There's an argument that we should have that every day that we live. People always say that that's kind of a cliche thing, like live every day like it's your last, but I guess it's kind of true when we find these things that create urgency, they propel us forward. And there's a great value in that. I hope we retain some of that.

ER: Amen to that, Brian. Thank you so much for taking the time. This was really great.

ER: This has been Out of the Crisis. I'm Eric Ries. Out of the Crisis is produced by Ben Ehrlich, edited by Zach McNeese and Sean Maguire. Music composed and performed by Cody Martin. Hosting by Breaker. For more information on ways to get involved, visit helpwithcovid.com. If you or someone you know is leading an effort to make a difference. Please tell me about it. I'm at E-R-I-C-R-I-E-S on Twitter. Thanks for listening. Please rate and subscribe wherever you like to listen.

 



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