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CZ and Friends
Risk, Calibration, and 5,000 Bad Haircut Lawsuits with David Schellhase, 3x GC and Okta Board Member
00:56:33
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- [00:00]
A
We had 5,000 lawsuits against us in Brazil of people claiming that they had gotten bad haircuts.
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B
Today my guest is David Schellhase, the entrepreneur in residence at Ballistic Ventures and board member at Okta and Next Chapter. David spent decades as a general counsel of some of the most important companies in Silicon Valley. Salesforce for nine years, then Groupon, then my personal favorite and where we do all our work on GCI Slack. He also served as of council at Sullivan and Cromwell. And today he does lots of fun things that I'll let him get into today. David has a set of views about how in house lawyers should think about risk prioritization working with amazing founders. His views are a little different than what you'll typically hear. He also has great stories from Groupon including why happy hours are apparently criminal in New York, not criminally fun in the cheesy way, and how a bad haircut in Brazil got the company sued. That's the story I want to get into. Let's go. David, welcome to the show.
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A
Thank you, Cecilia Decades. That makes me sound old, which I guess I am, but I'll own it.
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B
All right, so before we get into it, what are you up to today?
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A
So I am doing five different things and I'll see if I can remember them all. As you mentioned, I'm an entrepreneur in residence at a venture fund called Ballistic Ventures that specializes in cybersecurity. And there I'm exploring some problems that I might want to start a company around or fund a company to solve. And so that's one of the things I'm building doing. The second thing you mentioned is I'm serving on board. So I'm on the board at Okta, which is the leading identity company. I'm also on the board of a nonprofit called Next Chapter whose mission is to try to get formerly incarcerated people jobs in technology companies. So that's an interesting thing. Right now I am an adjunct lecturer at Stanford, co teaching a class in the School of Management Science and Engineering. And I'm going to say the name of the class and I hope I get it right. It's called Ethical Issues in Global Technology Product Design, which is a ton of fun. I also advise a few private companies and that's everything from giving legal advice to sometimes executive coaching and psychological counseling, although I'm not a licensed psychologist. And then I've got a new project that I'm working on that I actually can't talk about because I don't want to run afoul of any SEC solicitation rules. So I need to be very careful about that. Okay. So that's a mouthful of stuff. It all kind of comes together and they these sort of interlocking threads in my life build a fabric that's actually I think kind of good for me anyway.
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B
So there's a lot of. I talk with a lot of general counsel friends and they asked me about kind of moving over to the business side and now I'm at CEO. But one of the things that I think is a through liner, it sounded like from there is that you know, when you like work you tend to get really busy. Is, is that, is that the case? I mean five things in sort of. You're clearly not retired, do you.
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A
No, I'm not retired. Yeah, I like, I do like to be busy. You know, I think I would be bored if I weren't busy. And I like a portfolio of opportunities. I've sort of treated my career as a portfolio a little bit and we can maybe get into that a little bit later. But I do like a variety of things. I'm never going to leave the law. I enjoy legal work and legal issues, but there's a whole big world out there that doesn't involve the law that I'm also exploring and that's been a lot of fun as well.
- [03:35]
B
Let's start with something you believe that I haven't heard on this podcast before. Certainly we're techno optimists. You mentioned the through line in your work being law technology policy. You've said before that tech has increased stress in the legal profession. So little story. I remember when I was paralegal at Yahoo. In order to be, to get access to a BlackBerry you had to be a certain level director and above in that case, which I was not. And I remember thinking one day I will have email at home. And so that was kind of my like, you know, clearly times have changed and I do have email, you know, a million times a day and Slack and whatever. But where did that conviction that tech has made our lives worse as lawyers come from? Or what have you seen?
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A
I guess not quite from the very beginning. I'm not a digital native, right. I'm 62 years old, so technology was not part of my very, very young life. But I think the first time I realized that technology was increasing the stress of lawyers and would make their lives much worse was probably my first in house job when I was at Oracle. And I'll never forget one day and it was in the, I guess the early to mid-90s and I was sitting in my Office. And the office had a glass wall that was open to the hallways. We all did. We were sort of in a fishbowl, so to speak. And I was sitting there on the phone, okay, so I'm dealing with a client on the phone. I've got a dedicated email terminal behind me, because at the time Oracle would give you a dedicated email terminal and a computer. So I was getting email. Email was sort of stacking up behind me on this dedicated terminal. Other people were using a different email account to send me email on my laptop. There was a guy outside my office who could see that I was in my office, waving at me, holding a contract that he needed to get reviewed. And my assistant was slipping a fax contract under my door. And I looked at all of this and I said, oh, my God. You know, there are so many different vectors to get to me, and there is only one me. And I don't know, like, this cue is insane, right? Because I don't know, should I be looking at the terminal of the emulator behind me for my email? Should I be looking at the laptop for my email? Should I pay attention to the guy in front of me? Should I read the fax that's just come in? Should I hang up the phone? What should I do? Right? And I think we've created a world where that. And this is 1993, okay? So this world has existed for quite some time. We don't really fax a lot anymore, but there are many other ways to get us right. There's text. Like, when did it become acceptable, for example, for you to text just, for example, your outside lawyer and say, hey, I need to talk, or hey, here's an issue that I need you to opine on right now.
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B
I mean, some of you say that because we're interviewing insurance brokers, we're up for renewal. And I, you know, as the former GC and now, you know, guardian for the company, like your broker matters. And I said, if they don't do text, I'm not hiring them.
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A
Right?
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B
So I actually, literally, you're right, that. That is absolutely the expectation. But from my standpoint, if you want my business, I'm going to be the most important thing to you. And I popped to the top of your communication stack. So, yeah, very, very, very similar, absolutely.
- [07:10]
A
But, you know, so. So let me. Let me extend off that thought for a minute, right? So. So here are all these vectors to get to us, right? And we're. And we're more available than ever. In fact, we're available all the Time lawyers have kind of lost sight of something that they might have invented called time, place and manner restrictions. And so we're very bad at saying no. That's another characteristic of lawyers, especially if you're a billable lawyer. You constantly want to say yes. Right. You don't want to turn down any business. You are a yes person in essence. And embedded within that yes is the permission for people like you or me when I'm in house to call at any hour of the day or night, regardless of circumstance, regardless of anything. Right. And so that I think has created a lot of stress because there is the notion that you can never really tune out. My best works at Big Law. He's a partner at Big Law. He does insurance coverage litigation, and he feels as though he's on call 24 hours a day. And it's hard for me to picture like an emergency insurance coverage matter. Right. These things play out in the courts and take years and years and they're like, you know, like brain damage when you kind of get into it. And here you are saying to your broker, your insurance broker, I need you to be available to me all the time. Right. So you're creating stress in that person's life. And I think all lawyers feel that stress because they want to be responsive to their clients. And it's really hard, I think, for them to differentiate, especially when they're outside counsel and everything. Every billable hour is the same as every other billable hour. Right. It's not. They don't, they typically don't charge a premium for high value work. And so it's really hard for them to turn anything down, ever turn off. And they have more scrutiny than they've ever had. Right. They're more subject to review. And this goes for in house lawyers and outside lawyers as well. They're more subject to the review than they ever have been. Right. Like people are feeding, like clients are feeding their briefs into the AI tools and saying, improve the brief for me. Right. And if the brief gets improved by the AI tool, eventually the client is going to say, well, why am I just not using the AI?
- [09:27]
B
So is there a solution? I actually think in House is a great. You know, I remember when I first went in house and from the firm and I had lunch with a friend from the firm and told her what all I was working on. Very exciting stuff. It was at early Amazon on Alexa and devices and I had gotten the opportunity or I had been the advisor for a variety of different devices. And as I explained it to her, she said Something to the effect of like, well, how do you get everything done? And the funny thing is, you know, former litigator, I'm like assumes facts not in evidence. Like you don't like it literally is like, okay, like that's not the goal. And I actually quite liked that. The ability to. And Amazon actually very intentionally, Amazon legal intentionally, basically understaffed in legal so that you were not over lawyering and you were able to take a little bit of risk of like not doing everything. But the litigator in me of like, okay, I'm used to having like a thing on my desk and I write the brief and it is capital D done and it is capital F filed. That was not my experience. And like you had deadlines and launches and things. But it was always kind of that like there was always something to be stack rank prioritized. So that was my story. Was that the solution? And then I have to imagine Slack, you were there for, you know, a long time through huge growth global stuff, partner program becoming really a cultural, you know, certainly a work cultural icon. What, how did you deal with it there? And then, and then is there a solution and what do you tell your teams?
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A
I don't know if there's a solution, but I think we need to be better as a profession. And that includes in house and outside lawyers about saying certain things are more important than other things.
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B
Right.
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A
And maybe that includes how we bill, how we charge for our services if we're outside lawyers. There are some things that are hard and complex and usually in the past, okay, the senior partner does that and the simple things are done by a paralegal or by a junior associate or something like that. I think, I think we need probably better pricing differential and also we probably need ways and technology can help here, by the way. Ways to signal prioritization in like a text is a very poor signaler of priority.
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B
Right?
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A
It like every text, whether you're getting it from your grandma because she needs you to drop off some milk, or whether you're getting from somebody whose life is in danger carries exactly the same weight.
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B
Right?
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A
And so maybe we need better than just yes or no. Maybe when you send a text to your insurance broker which you've required them to receive, there could be a button that says, oh, this is a 6 on a scale of 10. And what 6 basically means is, hey, don't drop whatever you're doing. You know, it's Friday afternoon. Have a nice weekend. If you can get to this Monday morning and get it on my desk by Monday at like 2. That's great. Whereas a 10 is a house is on fire. Get out of the house.
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B
Right.
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A
And a one is we're never going to get to it anyway, to your point about being in house. And I think that's like so many of the, of the lessons that I learned in house I learned at Oracle in the early days because I had a boss who was really good at prioritizing. And I'll get to the part about Slack in a minute. I know you want to talk about that, but, you know, but he was a fierce, fierce prioritizer and he would like, sometimes I would be dealing with a vexation client with some like, outlandish request and he would say to me, oh, David, don't worry about that. That guy's getting fired next week anyway. So the whole project is going to go away. And you know what? And there's nothing more relieving to you
- [13:15]
B
than put the pencil down. Like, you know, you're good. Yeah, it is fascinating because I think there is this thing where, you know, there used to be a lot of memes of like there was, it was like grittyassociate.com or something, really dating myself. But there was like memes about like, oh, partners, they change their mind all the time and they're so terrible to work with. And now I'm literally, literally on the other side of it where we needed some data for some meeting with some meetings with investors and I really did need it that day. Like the meeting was that day, the next day, it's not really relevant and like, you know, so the team like gets it all ready and it's not quite ready anyway. The point is it's like that ability to absorb what's going on and prioritize not only on a day to day basis, but literally on a minute basis. Like that's business. And so I agree with you that like it's a skill you gotta build and you know, but it is tough like, because I think a lot of the, like, you know, I came from Morrison and Forrester. It was like legendary client service. And you know, it doesn't matter if it's Memorial Day or whatever it is, like you get the job done. So that's amazing. Wow, good. It's so many good, good story opportunities. I can't, I can't wait to dive
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A
in there, in, you know, and I think therein lies a lot of opportunity because, you know, if you're, if you're a law firm, for example, and it's, let's take let's take this month. Okay. It was Easter Sunday earlier this month, right? Okay. Now if you're dealing with a partner at Big Law and you've got a big project and that partner says, hey, you know what, I'm a Christian and I want to go celebrate Easter Sunday with my family and blah, blah, blah, do you mind dealing with my partner over here who's Jewish, or my partner over here who's Muslim, or my partner behind me who's an atheist. Hey, they can carry the ball this weekend while I'm trying to do something that's meaningful to me. You know, I think like it's really. Have you ever had a lawyer say that to you?
- [14:57]
B
I haven't, no, I don't. I mean the, the closest thing I can, I can come up with is actually parental leave. So I feel very strongly about parental leave. I got, you know, I have kids and whatever and I, you know, it's one of these things where I think that's an area that it is a long term investment in your people. And you know, coming back and seeing the team actually operate, you know, when I had reports during one of my leaves, seeing them step up and do great, that was awesome. But you're right that, that kind of like in the moment of like. And I think it's fear actually I do, because if you hand off to the colleague who, you know, doesn't have the, the, you know, has that weekend free, you know, are they going to become their client? And like now I see it as the client. That's, that's not the thing. Like, you know, and so I would actually much appreciate if people did that. So you've called this always be calibrating on patient. So, so I love always be closing, of course, you know, and I've come into, into sales. But what does always be calibrating mean? And then if I'm an in house lawyer, how do I, how do I take that advice and what do I do?
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A
So I think always be calibrating. It's actually two somewhat different concepts. So one is ruthlessly prioritize everything you do. And we can talk about that a bit. Always be calibrating is really understanding your client. And when you're in house you only really have one client at the end of the day. Understanding your client's risk profile and trying to, and risk appetite and trying to understand that as deeply as possible. And the only way you can do that is just over communicate with executives, with your colleagues and with anybody at the company who understands risk. And so because Every company has a slightly different way of looking at risk and a slightly different appetite for risk. And that changes over time, you know, because I've taken three companies public and obviously the risk appetite of a private company, of a small private company is very different than the risk appetite of a public company. And the bigger a company gets, the less risk it's willing to take on. That's a cliche, but it's also very true. And so you've got to sort of as an in house practitioner, you gotta be flexible and you gotta move with the company. But knowing where you are at any given point in time allows you to make better decisions, right? If you say, hey, you know, we're at the beginning of our company's life and we have almost no revenue and we're up against these massive competitors, guess what, if you don't take a ton of risk at that stage, you're never gonna get anywhere as a company. Right? That's when you're at, then as the company matures, gets a higher profile, is more scrutinized by others, especially like around a public offering event, then you've got to understand, hey, that's where the maximum scrutiny is going to come and that's where we're going to try to minimize our risk. And so always be calibrating is really a process of trying to talk to as many people as possible to have in your mind at any given time what the company's risk profile is. Therefore you can make the right legal decisions because almost all, always the decisions we're making are in a gray zone, right? If it were clear, if things were abundantly clear about which way to go, then they wouldn't need a lawyer to opine, they wouldn't need your advice, they would just go, right. It's like, this is easy, but when it comes to us in house, that's when it's really gray. And so making a decision in a legal gray zone, you really do have to understand the risk profile of your client deeply.
- [18:27]
B
Yeah, I mean, so much wisdom there, I think on this security side. I used to be kind of product counsel for privacy security, you know, IP issues. And of course the thing is, you know, I had a CISO who's quite a good friend at this point and it was like the most secure software does nothing, right? And so like at some point you basically have to assess like, right. You know, you have to make that decision and you know, even stuff like, you know, on early Alexa it was like there was a, essentially a bug. Everybody there's Bugs like that's just a thing. But it was recognized and it only was triggered on access to the physical device in a certain circumstance. And essentially, you know, it was a P0 we fixed it. But the question was like, okay, if somebody has broken into your house, you know, you got bigger problems than them effectively hot wiring your Alexa in a certain situation. So it was like, it was very much a call of like, you know, in the abstract, like yes, that's bad, it's a risk, it should be fixed. But the question was like, do we pull it off the shelves kind of thing. And you know, in that scenario the answer was no. But maybe for, you know, further along or for iPhones or whatever. Of course it would be a different answer, but I love that. So how did you, David, be the same person through that arc? Right. So presumably you got to know Stuart Butterfield quite well. So Stuart Butterfield is one of my kind of founder role models and CEO role models. Talks about this metaphor of the service of Slack being a restaurant where every area of the company has to be firing on all cylinders. Not only the food, but the service, the ambiance, the this or that. And I found it an incredible kind of rallying cry for a product forward company where everyone in the company has something to contribute. And so anyway, I love Stuart, but. But how did you make that adjustment of like presumably you weren't with SOC through, you know, so it got pretty big. Right. So not it didn't go public. So give us the from to. And then how did you personally keep that calibration going in that period of explosive growth?
- [20:32]
A
Sure. I mean, you know, Stuart is a fantastic executive and one thing that he taught, which I think is crucial but sort of undervalued maybe especially in technology, is craft. You know, he uses that word a lot and it has a lot of connotations. One of it is it's really care about what you do. And so when you are presenting a thing and you mentioned like a brief capital B that gets filed capital F when you are doing a thing that is important, make sure that it includes you and that you have taken care to craft it properly, that you are a craftsperson and that's what you should do, that is a little bit sometimes the opposite of being an in house lawyer. Right. Because there are times when you need to apply craft. And he applied so much craft to Slack, which is one of the reasons it's so popular is because he is such a student of human psychology that sort of every pixel is carefully placed to sort of get humans to respond to it in a human way. When you are in house, you have to give perspective. And so I'll tell one story from Slack and then I can tell others, if you'd like. But it was a year before GDPR was coming into effect, right? So it had been published, but the EU gave a long period of time for people to sort of get used to it and sort of understand it, right? And Stuart was on a business trip. He was visiting our subsidiary in Dublin, Ireland. And it was the middle of the night and he couldn't sleep. And so he called me because it's like I'm in San Francisco and it was, I don't know, five or six at night or something. So I'm at my desk in San Francisco. He called me. He had been reading gdpr, okay, he'd been reading the regulation, the actual law he'd been reading, and he wanted to talk to me about it. And I was sitting there and I hadn't read the damn law. I mean, the law wasn't going to come into effect for a year. And so I had to say to him, you know, like, I could sound stupid and I could say, oh, Stuart, you know, or I could try to fake it, right? I could say, oh, Stuart, yes. You know, these things don't apply to us and blah, blah, blah. And I said, stuart, you know, I just decided to go for it. I said, stuart, this law doesn't even take effect for a year. You know, I haven't read it, to be totally honest, because I haven't needed to read it yet. The EU may change it, the EU may break apart. The EU may not exist in a year. And so I'm fighting like there are sharks, like, at my feet that I'm trying to get done. There are customer contracts. There's this, there's that, there's a million things, right? And so you've got to trust me enough. And this was pretty early in my time there, right? You've got to trust me enough to prioritize what's important for the company. And I will care about gdpr. I for sure will care about gdpr, but I'm not going to care for like six months. So if you're having insomnia and you just want to talk, let's talk. But I can't talk to you about the gdpr. And he laughed. He totally accepted that because that's kind of who he is. But like every other CEO, he sometimes obsesses about things. And he knew this thing was coming. He wanted us to comply. He knew it was going to be big, and so he became obsessed with it. And so one of the skill sets that I think you've got to have as a general counsel is the ability to convince your boss that you are right and he is right. But you're a writer, if you know what I mean.
- [24:04]
B
Yes. No, this is so. It is just such a fascinating. I had the GDPR thing, the same thing. It was like May 2016, May 25, or whatever it was happened to be the CEO's birthday that I work for at the time. And it was like we hadn't quite finished what we needed to finish. You know, let's say we got the register maybe two weeks later and it was fine. But at the time I said exactly what you said, which is like, the EU is going to be busy with Facebook for a couple of years. If we took three extra weeks to get our, like, register of processing activities, we're fine. And so, yeah, that idea. Now, on the other side of it, I've been the caller in that situation of calling our gc, who's amazing, and she's like, it's fine, you know, so it definitely is like. But that trust takes time to build. So kudos for doing that. And I love the graphical. I could just see him at some hotel in Dublin calling you. That's awesome.
- [24:57]
A
Yeah. I mean, these kinds of things happen and I think that is a big skill set in house. It's like understanding what's important. Because when you're a billable lawyer at a law firm, everything is important. Right. Because you're billing, to my point earlier, you're billing exactly the same rate. And we need to get to differentiated rates over time, and we probably will because technology now is changing. Right. So we're going from like a seat pricing to a success pricing where some companies are, and we'll see how that all shakes out. But I think some of the pricing around technology may drive some change in the legal. In the way legal services are priced and billed. I hope it does, because not all legal services are the same, even though they are built identically.
- [25:44]
B
So how are you thinking about AI? So obviously, you know, you're on the board of a company that that's, you know, using it. You were at Slack, which has, at this point now owned by Salesforce, does, is doing a lot with AI. Have you tried it for legal work? Have you tried it in your practice generally? How do. Where do you see it going?
- [26:03]
A
I'm a daily user of chatbots, for sure. They're Simple. If anything, it's underhyped, you know, how's that? AI is underhyped. You know, news flash, you already hear people are not.
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B
Not.
- [26:19]
A
Yeah, people are not going to want to hear that. I, like, I haven't built much, but I'm close to a bunch of people building a bunch of stuff. And I think it's fascinating to watch. It's like it's really hard to predict the future. But let's just say that the amazing things that AI in general can do to extend human functionality, or that's a bad word, to extend like human potential, I think are terrific. Like that. That is a terrific development. There are scary parts of it for sure and there are parts that need to be regulated, you know, for sure. Like I would be an advocate of a really simple law, right? And the really simple law would be all content generated by AI must be labeled as such. Like I would vote for that law all day long because I think a very big thing in the future, it's already a very big thing, let's face it, is being able to tell the difference between what's real and what's not. And truth has always been a somewhat precious commodity in society. And I think it will become even more precious in the future. There probably won't be less truth. But when the truth is contain, like right now, there's like a certain amount of truth and then there's a certain amount of falsity. The amount of falsity is going to go off the charts. The amount of truth is going to grow a little bit over time as it has historically. Maybe it's going to grow pretty quickly, but it will be less than the amount of falsity. And the amount of falsity that can be generated is massive. And so I would love to see a law like that, which helps I think bring things back into balance a little bit. And there are probably plenty of other areas of AI regulation that I believe should or that other people have good opinions about and should go do. That to me would be like a simple thing to address some of the content problems that we now have. Okay, that might not have answered your question. I don't know.
- [28:27]
B
No, no, it does. I mean, I think it's the, having seen the evolution of law, we were talking about fax machines at the kickoff of the call through to, you know, Slack's got in the probably hundreds of millions of daily users and it's, it's, you know, what you said almost reminded me of There's a movie, Catch me if youf can, which is about this guy Abagnale that basically was a, was a fraudster, but a good one. And essentially he. There's a scene in the movie where there's a classmate of his wants to get out of going to school and brings like a, like a handwritten note from their parents saying you know, the kid's sick or whatever. And the kid walks up to like the secretary's desk and the lead in the movie, the fraudster is like no, no, you gotta fold it because you know a note would not have made it from your home to school without that fold. And so it's like okay, so that like verisimilitude of like okay, making something more real. Now with AI I mean you hear stories of people, you know, putting a fake nail in their tire using Photoshop or whatever or like you know, just the pot is like so high and so. But I don't know that this, what you said about there's going to be more falsity. I'm. I guess more prove less provably false things. I don't know. I'm wrestling with that bit of what you said.
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A
It's so easy to generate fake content, right? And that's incredibly convincing. And the ease will continue to get, get it will continue to get easier and you'll be able to do it at scale and one person can generate a whole fake movie or documentary. That's very convincing. That's already possible and will get even more possible and even cheaper in the next year. 2, 3, 4. And so I think the volume of slop that you're going to have to sort through to get to the truth is going to go up. You know that, that helps some people, right? It helps branded content. Like I trust the Wall Street Journal, I trust the New York Times. I have to read both of them with a certain lens on because they have their biases but I think they get their facts right. I decreasingly trust other content because I don't think they're putting money into reporting. I don't, you know, I think they're sort of secondhand reporters, et cetera. And so branded content I think will be, be. It's. It's always been important but it will probably be even more important going forward. Just one guess.
- [31:06]
B
No, I, it, it's fascinating and it ties back to what you're saying about future of work and kind of the, the I guess denaloosh of things that come to you as an in house lawyer or as an executive in general of like literally Twitter now is talking about how there's only four jobs in the company and one of them is slop cannon. So literally like pointing, pointing, you know, getting, directing that. And so I'm like, well, okay, I'm going to be, you know, an AI filter. And you know, being above the AI, we talk about that a lot at gcai that lawyers, we are in a position because we have been kind of filters of truth for a long time to actually play that. That role. So I'm energized by it, but I see the risk.
- [31:47]
A
As you said, I'm energized too. I mean, just I'm a techno optimist for sure, but I see the cracks that it creates in the universe. And I and you, in this course that I teach at Stanford or co teach, one of the characteristics of technology is it just flattens every law everywhere. And so you want to talk about a casino in your pocket, I. E. Your phone, as a device to gamble with or ubiquitously use prediction markets. There are plenty of societies where gambling is against the law. Right. But back to what I said about time, place and manner restrictions like the Internet and cell technology sort of eliminate all time, place and manner restrictions. Like 30 years ago or even 20 years ago or even 10 years ago, it was really hard to place a sports bet in this country, right? You had to fly to Las Vegas now. And that was a, you know, it was sin city. Right? Now every city is potentially sin city.
- [32:51]
B
And I talked with one in house lawyer and I asked her one of the more interesting projects she worked on. And she had been at a sports betting online company and said that it was a big issue crossing the Jersey tunnel because it was like, at what point do you actually shut off the gambling? Because at that time New York and Jersey had different laws. And it was literally like this like time, place and manner. All right, you cross the threshold under, you know, whatever the Hudson Bay or whatever it is. So fascinating. So now we're in New York. You have a fun Groupon story. All right, so Groupon was obviously had huge growth and they. The way. The basic way that worked for those of you who may not be familiar was you could buy credits or from local merchants for local experiences through the site. And it was sort of a little bit of like a, like a kind of a Yelp search type experience, but also this like, you know, for merchants, it was a way to reach a lot of users and get the word out and so on. All right, so two Groupon stories that you flagged, literally, I have in my notes that happy hours are criminal in New York. So, so what, what's the story and what happened?
- [34:01]
A
So, so in Groupon we were in every business and no business because we were sort of providing coupons or group coupons that were really marketing credits, as you, as you mentioned, for stuff everywhere. We were in 80 countries. It was insane. It was like crazy growth. And it happened almost overnight. And so we ran afoul of a ton of losses that we didn't even know existed. Right. And that most people probably didn't know existed. And I went to college in New York and it was back when you could drink when you were 18 and I was 17 when I went to college, but they let me drink anyway. But I didn't know that in the state of New York, actually it's illegal to vary the price of liquor intraday. So and a happy hour by definition where you get like drinks one third off from 4:00 clock to 5:00 clock or whatever on a Friday day that is varying the price of liquor intraday. And it's, it like, like most laws, it came from a good place, right? The, the state of New York, after prohibition was repealed, did not want drunks rolling around the city starting, you know, at any time. And they thought one of the ways to regulate drinking was to make it higher priced. Right? And so you can't like, can't offer discounted drinks.
- [35:17]
B
Ah, okay, okay, back to your Sin City syntax type of situation.
- [35:22]
A
But a groupon by definition is a discounted or was if you got it for a bar in New York was a discounted drink ticket, right? And so a groupon for discounted liquor was illegal and I had to fly to Albany and appear before the New York State Liquor Board and all this other stuff, you know, to defend ourselves. And we wound up settling and we wound up sort of making the group on only applicable to food. And that's another interesting thing about bars in New York. There is no such thing as a bar in New York City. There are restaurants that serve liquor. And so if you go to a bar in New York City, they have to provide you food if you ask for it. So if you go to a bar in New York and you say, hey, I'm hungry, they will like reach under the counter and there'll be like a rat encrusted menu that they will hand you and they will be forced to like order you in a pizza or a frozen burrito that they will microwave or something for you, because that's another law that comes from a good place, right? If people are going to drink, they ought to be able to eat and take some of the edge off the liquor anyway, so that's. So happy hours are a crime.
- [36:26]
B
Love that. It reminds me one of my law school girlfriends, entrepreneurial as well, she had actually looked into doing Uber, like the idea. Because ideas are cheap, right? It's the execution. But she had looked into doing Uber, but she lived in Manhattan at the time, and she figured out the taxi medallion and this and that and was like, yeah, no helpless cause because of. Because of the laws. And it turned out, of course, Uber got its start in San Francisco, which does not have a strong taxi presence the way Manhattan does. And even today there's still taxis in Manhattan. So it absolutely is like this, like, law and society kind of, kind of thing. So what a fun one. Interesting. All right, well, now I know. Get a frozen burrito at any bar in New York. I love it.
- [37:09]
A
Yes, exactly. I have one more comment on that, which is I have a whole thesis, which I'm sort of developing, and if I had time, I'd write a book on it, that innovation is crazy crime. And I think a lot of the innovations that we enjoy that have come about over the past decade, let's say, began their lives in a deep, deep, deep legal gray zone, almost black. And Uber is a great example of that. These prediction markets are a fantastic example of that. And you can go as deep as you want. Airbnb is. It's still a crime in Manhattan to rent out your apartment short term. Right. They have not settled that yet. And so a lot of things. And like, look at all of the. Look at legalization of marijuana, right? It's still a federal crime, right to use or possess marijuana for recreational purposes. And so, like, a lot of the things that we think of as either innovations or movements in society start their lives as crimes. And I have a whole thesis around that, which we do not have time to go into. Maybe I will write this book, but don't do it.
- [38:20]
B
I mean, I read Andrew Chen has an excellent book. He was early Uber, and he talks about this. I mean, Napster, YouTube, of course, you know, and even AI with the new York Times case of, you know, the copyrighted material. That's also honestly, like, why I went to law school and why I've loved being a lawyer in Silicon Valley is like. And. And, you know, and I think it also gets, you know, to some. Some of the stuff around the podcast of being in house where like, you gotta believe that Uber. Let's just pick Uber as An example is doing something good. And that product market fit of like being able to get a ride has obviously other societal benefits that the medallion system was not protecting. And so fascinating of this, like, how do you bring on societal change? We saw the same with Alexa. Right. We looked at F50 states of wiretap laws and, you know, wiretap law, you can see why it exists. But, you know, blocking a voice device is probably not what it was intended for. And now I think it'll be interesting to see with the meeting recorders what's going on with that.
- [39:20]
A
I agree.
- [39:21]
B
I don't, I'm curious how those will come out. Any, any predictions? Having, having, having, you know, some.
- [39:26]
A
Yeah, I mean, there's this concept. I, I do have some predictions. There's, there's this concept that's a political science concept called the Overton Window. I don't know if you're familiar with that.
- [39:36]
B
Yes.
- [39:36]
A
Yeah.
- [39:36]
B
So for our listeners.
- [39:38]
A
Yeah. For, for people who are not. The Overton Window basically says it is the, it's, it's the window of the policy positions that a politician can take a stand on and not be deemed like, crazy and unelectable. Okay. So, so 50 years ago, if you, if you said gay marriage should be permitted, you were crazy and you were not electable as a politician. Politician. Today, I think in many states and municipalities, if you say gay marriage should be prohibited, you are probably not elected or electable as a politician. So the Overton Window has shifted dramatically on that topic. It has shifted in the past 10 years dramatically on marijuana.
- [40:20]
B
Right.
- [40:21]
A
And now it's beginning to shift on other hallucinogenic drugs. It is clearly shifting on sports bets.
- [40:29]
B
Betting.
- [40:29]
A
Right. Because there's a massive sort of societal demand for that. And so things that are clearly illegal in the state of California, like sports betting, I can go do on these prediction markets because it is now not like completely beyond the pale to take for a politician to say, you know what this is? Okay. And so the Overton Window sort of suggests where politicians can be. And, and it, and, and, but it, but it's, it's, it's like a sociological concept as well, because it's saying what, what will, what behaviors will society accept?
- [41:05]
B
Right.
- [41:06]
A
And technology pushes that Overton Window so rapidly and without regard to state boundaries, country boundaries, religion, ethics, anything. Right. It just pushes all those boundaries away because it makes things available cheaply and easily, ubiquitously. And so that's why technology, especially right now, is and will be for the next 25 years, like a super exciting place. To be and why we have to think about these issues that we talked about earlier about regulating AI and just thinking these things through. But how that I think devolves into like making that tactile for in house lawyers is one of the other differences between an in house lawyer and a law firm lawyer is the in house lawyer has to be deeply comfortable to be in that world of gray and to make decisions. And you're right, if you believe fundamentally that your product is helping people, you really have to have that belief. And then it almost doesn't matter what the law is because you are going to push to change that law. You're going to push to change the world. I know that's a cliche, but you are going to push to change what's acceptable to society or meet society where it is. So there are dozens of examples of that and I think your taxicab example is a great one. Right. There simply weren't enough medallions in the city of San Francisco. Plus San Francisco is a pretty distributed town. And so hailing a cab in San Francisco was almost impossible unless you were right downtown in the financial district. And all people wanted, all society wanted was an easy way to get from A to B. Right. And so when Uber came along, irrespective of the massive weight of laws and regulations that said you cannot do this, this, they said, hey, we're just going to try to provide people a way to get from A to B very simply by calling on their phone. And you know what? Society really, really wanted that. And so the Overton window shifted immediately. Like any politician who came out and said I'm going to ban Uber, you know, would have been blown out of the water because it like people wanted to get from A to B. It was like that simple.
- [43:12]
B
Yeah, I mean it's fascinating. Like so much interesting, you know, so many threads to pull there. And this is when I get really techno obsolete optimist too of like this idea of like, you know, now there's almost a billion people using chat GPT on a weekly basis. You know, we, this did not exist less than three years ago. So the, the speed and the like, I don't, I think this stuff is so fun and I, you know, I think where it gets, sometimes it outpaces. Right. So I think that the kids in social media stuff is a thing I will admit we have, I have teenagers and one of them, basically her soccer season was over. She had a lot of extra time and we figured out how much time she was spending on a particular form of Social media. And I'm usually, you know, I come from the industry. I'm usually like, you know, pretty laissez faire about it. But I had a moment of like, oh, wait, is this a good thing? You know, clearly it's not. So we set, you know, to Apple's credit, they have the parental controls and everything. And we did that. But it was a great example of like, okay, it almost happens so fast that you're kind of, of like you don't. Until it becomes tactile. To your point, you don't have that experience of like, okay, how do I, how do I regulate it or stop it? And I had spent, you know, at that point, I'd been product counsel for companies for a long time doing the daily decisions. I always laugh too. You mentioned like, making the innovation and the sort of big societal issues very real and tactile. Like, I remember when I used to work on Alexa, I would get letters from law students all the time of like, I've written this like, you know, thesis on the theory of voice privacy, whatever. And I'm like, you know, literally I'm trying to advise if like we can do fart jokes. You know, it was like, that was like the, the kind of contrast which was funny. But anyway, so you had apparently a bad haircut, got you sued in Brazil. Let's do one more Groupon.
- [44:56]
A
I mean, like, this is like, I, I didn't realize this until I got to Groupon, but, but Brazil is a society much like America where anybody can sue anybody for anything. That should be like on the sign, when you enter Brazil or when you enter the United States, it should say anybody can sue anybody for anything thing. So we had, I think we had, so we did a Groupon for a bunch of barbershops in Brazil and, and, and people didn't want to pay. And their way to not pay was just to file a lawsuit saying that they'd gotten a bad haircut. So at one point we had 5,000 lawsuits against us in Brazil of people claiming that they had gotten bad haircuts and they didn't get a bad haircut. Bad haircut, 5,000 bad haircuts. They did not get a bad haircut. They just didn't want to pay for their haircut, which, which is a completely different thing. But yes, we had to settle all of those. Our charming in house lawyer in Brazil used to call them the litigations with an S. And we had 5,000 of the litigations about bad haircuts. But it kind of like, if you want to get cynical about the law, and lawyers just either hang out in America or in Brazil.
- [46:07]
B
In Brazil. That's amazing. All right, couple more things. So there's a two Silicon Valley phrases that you like. One is strong opinions, Lucy Held. The second is from an Amazon leadership principle, disagree and commit. So pick one and tell us about it.
- [46:23]
A
Okay. I think they're deeply related, so I'll just tell you about both of them. A strong opinion, loosely held is the essence of being in house, right? Because you are going to operate in a legal gray zone, and even your entire business model might be in that legal gray zone or might be, like, dubiously legal, at least at first. And so you've got to be able. You've got to have a strong opinion about a point of view about what you're doing and how to make it legal or how to legalize it or how to do it in the most legal manner possible. But because. Because you've got executives and because you've got employees and because you've got customers, that strong opinion sometimes has to be loosely held because the market is usually going to tell you whether you're right or wrong. Society will usually tell you. And you have to have kind of good instincts around that. But you have to be prepared. You have to have a point of view, but you have to be prepared to give that point of view up because there are a lot of other kind of countervailing points of view out there.
- [47:27]
B
There.
- [47:27]
A
And so that strong opinion, loosely held really is that. And it's related to disagree and commit, because you have to be able to disagree with the executives, with your customers, with your employees, all of those people. And oftentimes you will disagree with them. But if you're inside the company, you're committed to that company, its mission, its products, its services, or else you're gone. Right? And the way I express it is probably too crude. But. But almost all of us, the technology companies we work for, are neither curing cancer nor saving souls, right? So some of them are. So let's be clear about that. So if you're in the business of saving souls or curing cancer, don't listen to this part. But for those of you not saving souls and curing cancer, we're pushing bits and bytes on people, mostly. And the damages that you cause mostly
- [48:21]
B
are
- [48:24]
A
healable or repairable with dollars. And so the stakes are inherently a little bit lower than if you are saving souls or curing cancer, right? And so with that knowledge, coupled with the notion that you're calibrating the risk appetite of your company, et cetera, et cetera. But if you sort of know all of these things in a line and they become instinctive to you, then I think you're just better able to operate and provide good advice to your one client, the company, because you sort of see the big picture and you understand the stakes are a little bit lower than they might be if you were in a different business and you can like, you understand what the priorities are and what's important and you're prepared to compromise a little bit, which is another sort of important word for an in house house lawyer. Like you're not going to win 100% of the time. You've got to be prepared, you've got to be flexible, you got to sort of roll with it a little bit.
- [49:26]
B
I, I, I agree. I think the, this idea of like absorbing the bigger picture, I think it's both, it can be to your point earlier like a little bit, it takes some adjusting. I think when lawyers move in house where you'll do like really good lawyer things, you know, the capital B brief or whatever and like, like nobody cares.
- [49:48]
A
Right.
- [49:50]
B
But I think the, the flip side of that though is that this like service of the higher goal of like okay, we're bringing taxis or you know, the ability to, you know, ride home. We've, we've got, I've got an elderly friend of the family who exclusively takes Uber now and has changed his life. Like he literally like now can, you know, do more his grocery shopping and what have you and like the idea that like contributing to that and maybe you get some things wrong along the way but, but you're ultimately, if you're doing a good job, it's because either the company is succeeding or you're, you're having that, that impact. That's how I adjusted to, to that I would say I like it. Good stuff. All right, lightning round three questions. A myth about the legal profession.
- [50:37]
A
I guess one myth is that we need more lawyers. I think maybe we need fewer lawyers and better law laws. I'm a big proponent of laws, not lawyers. And if we clearly wrote the laws and one could interpret them, a layperson could interpret them. I think that would be a huge benefit. So if we're into brute force solutions, maybe we should only hold the bar exam like every three years or every four years or something like that.
- [51:03]
B
No, no, I like the, I always point to the DMCA as an example of a really clear law. Actually that framework did not exist and now it does, does very operational and you know, it's not really a huge, like, obviously an AI it is, but for your average, you know, YouTube or whatever, I would say it works pretty well. Awesome. All right, founder book or idea that shaped you in a couple sentences, I think.
- [51:25]
A
I, I'm shaped by founders, I think. And so, and, and there have been sort of three influential founders for me. Marc Benioff at Salesforce, Andrew Mason at Groupon, and Stuart Butterfield at Slack. And each of them taught me a different thing. Like with Mark, it was like the importance of, of repetition, marketing, and also stamina. That guy, you know, no email, unreturned, call me anytime in the middle of the night. It doesn't matter. From Andrew, I learned, like, the importance of humor and play and giving human beings, like a sense of accomplishment, which, you know, he's like a couple decades younger than I am, but it took him to teach me that, which was great. And then we talked a lot about Stuart already, but from Stuart really sort of understanding that you need to care about what you do, and you should be a craftsperson in what you do, in what matters. Right. In, in like the, the, the capital B brief or whatever the thing is that matters. You need to care.
- [52:21]
B
I love that piece of advice you'd give your younger self.
- [52:26]
A
I think probably relax a little bit. You're too uptight.
- [52:30]
B
I love that. No, I, I, it's always funny because I might be the lawyer personality and might have been told in my life to relax. And I'm like, in the history of relaxation, has anybody ever relaxed being told to relax? It's like, yeah, no. Anyways, I try it. I see some of the same in my, I've got a daughter going to college. And I was like, you know, maybe you should do the fun thing and not take the 17 units or whatever your first semester. So we'll see. All right, last one. You have a contrarian view that is, I guess, a little fiery here. So you think in house lawyers should try to work for productive narcissists? So I'm like, oh, gosh, I don't know. Am I that? But anyways, let's make the case for that. What did you mean when you said that? Yeah, and, and what is, what is the advice?
- [53:17]
A
I, I, so I just mentioned three great founder CEOs, right? And, and I don't think they would be insulted if they heard me say this. I don't know, but I don't think so. They're, they're all highly productive narcissists. Right. And I think in order to, like, founders, CEOs are that way. And so in order to make something out of nothing, you have to be a narcissist a bit, right? You have to really believe in yourself because so many people are going to tell you no every step of the way. They're going to say, oh, that's never been done before, you can't do it, you're inadequate, it won't happen in the world, the world's all against you, blah blah, blah, there's a million dog ate my homework excuses for why you're not going to succeed, right? And so you've got to like to, to, to make something new in the world. You've got to have enough self love to resist all of the naysayers. So all of these CEO founders are narcissists, but you have to balance that. You can't be a complete narcissist, right? You have to balance that with high, high amounts of productivity. And that's also a common thread with Mark, with Andrew, with Stuart. Like they are incredibly productive. They rest, but they get a lot done when they're not resting. And the combination of productivity and narcissism I think really is kind of what drives the world forward, especially in tech, especially in the era in which we live. And so I can't, I wasn't there for other eras, but I'm here for this one. I've been in Silicon Valley for 35 years and that's what I deeply believe, believe. And so if you're a lawyer or anybody else, you want to find the product, you want to find your flavor of the productive narcissist and go work for her because she's going to drive the world forward.
- [55:10]
B
Yeah, no, it's a fascinating obviously you know, I guess in some ways on, on the other side of it and been, you know I have a founders coach and the woo woo founder therapy and everything and this like that necessity of the like just, I mean it's narcissism way to describe it but the just like people tell you no every day in every form and you know on LinkedIn people see the, you know, the success and the funding rounds and 1500 customers and you know, the pod and everything. But it definitely is like you have to have you know, screw a little bit loose to be able to deal with that. I, I 100% agree. Well also it's amazing like I worked for, for Amjad who says that he people Amjad Massad FOUNDER of replit, who's a great founder, all the lessons that you described but people said. He says that people had been telling him he had delusions of grandeur since the seventh grade, but he incredibly productive reaching, you know, hundreds of millions of people. This is amazing. David. This was such a great conversation. Glad you came on.
- [56:06]
A
Thanks Cecilia. I was happy to do it. I really enjoyed our talk today.
- [56:10]
B
Super fun. That was David Schellhayes, entrepreneur in residence at Ballistic Ventures and former General Counsel of Salesforce and Slack. To see how in house teams are using AI to do better work, to have more fun, to advise on capital B briefs, head over to GC AI and follow CZ and friends wherever you get your podcasts. See you next time. Thank you.