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Infinite Loops
Jay Reno — Making A Point (EP.247)
01:15:12
My guest on Infinite Loops this week knew he wanted to be an entrepreneur from the time he was buying and selling things on eBay. Jay Reno claims he didn’t know what the word ‘arbitrage’ meant back then, but if you tug on the colourful threads...
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- [00:02]
A
Hi, I'm Jim o' Shaughnessy and welcome to Infinite Loops. Sometimes we get caught up in what feel like infinite loops when trying to figure things out. Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started. The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that to avoid going in infinite loops of thought. We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens, including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis. And through these discussions, help you not only become a better investor, but also become a more nuanced thinker. With each episode, we hope to bring you along with us as we learn together. Thanks for joining us. Now, please enjoy this episode of Infinite Loops.
- [01:14]
B
Well, hello everyone, it's Jim o' Shaughnessy with another Infinite Loops. I have a very special guest today. Disclaimer. I am an investor in his company, so I might not grill him to the extent that I often grill others. Actually Jay, I'll probably grill you more just to show no favoritism at all. My guest is Jay Reno, the co founder of Point Hound, which helps you earn and redeem credit card points for free flights. I know and knew nothing about this when Jay convinced me that oh, there's a huge arbitrage opportunity available here. But more importantly, Jay, you're also a multi time founder. You're successfully exiting, et cetera. You also are an investor. You lead seed and series a Investments for 645 ventures. And so if you don't mind, my first question is we got a lot of younger people who aspire to be entrepreneurs and I love one of your lines. You knew you were an entrepreneur all of your life and your first thing was on ebay. But if you don't mind, we're going to start with. A lot of young people want to be founders. They have great ideas, they have great skills, but they never get there. As a coach player, what advice would you give on how to actually take the idea and get it funded and move to an actual thing like Point Out? That is a really, really cool idea.
- [02:45]
C
And.
- [02:45]
B
And first, welcome.
- [02:47]
C
Well, yeah, thank you First Jim, for having me on your podcast. Big fan of yours and of the podcast. Yeah, I mean, I think first, really, the reality is a lot of people end up getting tripped up on just getting started. It's funny ideas are a dime a dozen. Why? Because we all have generally good to great ideas. But what sets I guess an entrepreneur apart is from just the average person is we actually just take action on the thing we care about now because we take action, does that mean that it's going to be successful 100% of the time? Absolutely not. No. I mean, the reality is like, I have tried false started and failed at a variety of different things in my life, in my career, but the reality is you just need to take that first step or those first few steps to see if your thing has any legs. I don't think we talk about this enough in public. The news certainly doesn't talk about this because they really only want to report on the things that either are spectacular successes or spectacular failures. Something that's going to be interesting. It's not interesting to most people to hear, oh well, I actually, I tried starting a food Delivery company in 20, 2010 that, you know, I just like put a website together and saw if anyone gave a shit and it turns out no one gave a shit. So I closed the thing down. Right. Like who knew about that thing? Probably nobody, you know, maybe a few of our customers did, of course. But, but yeah, I guess just to, to answer your question, really getting started, just making those first few steps is weirdly the thing that holds most people back, I've found.
- [04:31]
B
Yeah. And I work with a lot of younger people who are really interested in being founders and that seems to be the number one thing. The number one thing is the fear of making a mistake in public. Right. And like I went so far as to actually write a piece called Mistakes Were Made and yes, by me. And I've never met a really, really successful founder or really anyone in life who had not made huge mistakes. And I always try to guide the people I'm chatting with to the understanding that, listen, novel mistakes are the most learning rich environment that you can find yourself in. And if you, if you want to like have a perfect record, you won't have a record at all because you won't have made any mistakes. You won't, and therefore you will have done nothing. What advice do you give for getting over that hump when you're talking to younger people? Yeah, I mean, older. Let's not, let's not make it an age issue.
- [05:35]
C
Yeah, yeah. Older people have, you know, by definition had to have failed more times than younger people. Right. I mean, you've been around longer to, to have more successes and failures. Yeah, I mean for me, like that first that first company I poured probably 80% of my savings, though, you know, it wasn't that big at the time into this company. You know, it goes to zero. My savings at that point were, you know, a little above zero. And what was a better learning experience than, than trying running, failing at a company? I learned more than I could have ever imagined at the time. Right, because those things become much more ingrained in your psyche when you realize, okay, don't do that thing again, or definitely do that thing again, because it was very, is very good. You take that with you to the next step or the next company or the next product or job or whatever it is that you want to do. Those things become much more ingrained. So I guess the first, the first thing I would suggest is again, there's like, it's really more of a mental barrier that people have around getting started or doing something. Like you said, failing in public feels very uncomfortable. I think the reality though is your thing is probably not going to become very public for the first year that you're doing it. Two years, right? Like, even with Pointhound, we've been around for a bit over a year and I would say we are still not like a company that everyone has heard of yet. And so if this company tries and fails, even after we've raised some capital and have gotten to, to, you know, tens of thousands of users, most people aren't going to look at me and be like, oh shoot, you started and you failed this thing. So backing up, I guess like the first thing you can do to get started is just commit to yourself that you want to do the thing and you want to try and you want to put your effort into it. Getting over that hump is the, that that mental hump is the biggest obstacle that I find because the fear of failure in public is so strong and real. Again, the reality though, for those taking those first steps, no one cares like, no one cares like you do. No one's looking at your thing or you like you are. No one is as self critical. Like, you know, you walk around in public being like, am I having a bad hair day? Or whatever. And no one is looking at your hair. No one cares like, how's, how's my, how's my dress? Like, is my shirt on right? Like, no one's looking at that. No one cares but you, you are hyper aware. So I think like having some level of awareness of these, like, psychological, you know, situations you're in is a helpful way to just try and put some of that aside. Knowing that we're human and are going to be so self critical.
- [08:28]
B
I was very lucky I had a mother and when I was a teenager I was not immune from, I mean, especially when you're a teenager, that hyper awareness of how other people perceive you and the, you know, it's this hat screwing up my hair, etc. And my mom would always say when I was like obsessing over some little thing, she'd look at me and she'd say it's nothing a man on a galloping horse would notice.
- [08:53]
C
Yeah. Or even just anyone who's like staring at you for 15 seconds. Which most people don't do anyway, you know.
- [09:00]
B
Right.
- [09:01]
C
Look at the thing where you're like, oh no, I have a zit, you know, or whatever. Like they're not. No one's hyper aware of you. Like you are. So working through that is the best way to get started aside from just like actually incorporating a company or actually trying to design or mock up the first thing yourself. Even if it's complete dog shit, like just do it. Just try and see if anyone cares. That's the step one that I think people get hung up on is they think they need to go out and raise a million dollars and hire three engineers and a designer and whatever in order to make the thing. But there are a lot of ways you can build a minimum viable product or an MVP without having to, you know, raise a bunch of money or have it be perfect on, on day one.
- [09:52]
B
And you've been successful with Y Combinator. Do you think that for first time founders taking that route is preferable to like trying to raise the money in a, in a direct to the investor type model? And I'm by investor I mean, you know, seeking out VCs and trying to build it that way versus the Y Combinator model?
- [10:15]
C
I would say yes, I think so. Two items there, raising money from investors. I don't think I have ever successfully got an investor on board who I have reached out to first. And I've spoken to hundreds and hundreds of investors over my. More than that, I don't know, over my, over my lifetime. And it's always the ones that come to you who are already interested in you for some reason or interested in your company for some reason that get over the hump of whatever their fears are about the company and realizing that this could go really well. So I would generally say that putting yourself out to attract interest in a variety of different ways, where you're not necessarily sending a bunch of cold emails to investors, but Maybe putting yourself in a position where they will see you is generally the way I've found to be successful at raising capital. Now that could be through an accelerator program like Y Combinator where you have this three month period of working together with a bunch of other companies and your group partners and really figuring out what the core problem is that you're solving, how to address that with a product and see if you can get your first few users or customers or whatever. And then when you finish that program or programs like it. Yeah, you have these demo days that attract people to want to come and see what you're working on. Well, Y combiner being a very good example of that. You have thousands of people who are looking at that, who are generally investors, either angel investors or venture capitalists looking in on your thing. And while Jim may look at, you know, a company doing AI, AI for SaaS, whatever that is like, Jim may be like, that's not interesting to me. But Jim might be like, okay, this company that is addressing a problem I have or something that I know about, this is really interesting to me. I'm going to go pursue that. That, that company. That's where you'll have a lot more success than just kind of, you know, cold emailing or cold reaching out to folks.
- [12:26]
B
That also just brings up an interesting follow up question you've identified. You know, the biggest hump is just getting started for the entrepreneur. What has been your experience in identifying investors that are going to be great to have on the cap table and investors who you would actually really not want to have on the cap table?
- [12:48]
C
Yeah, well, earmuffs. Jim, you can't hear this. Okay, yeah, you've got your earmuffs on. Hopefully those things. No, actually the reality is for most founders, anyone who believes in your company who will write you a check is someone you should probably take money from in the earliest days, at your earliest stages as you start to have the ability to be more discerning, whether that's because you've been a founder who's had an exit or your company is growing like wildfire already and people know that and think it's a great company or product or you seem really great, whatever, things start to change and you can, you can, you know, choose your investors more than in other situations. So that, I mean, that being said, what I always look for and the most important thing in my last company where we raised a seed series A series B and talked to a lot of different folks, it was really the human behind the fund. Fund names don't tend to matter very much unless what you need is the PR of that brand fund name to help you drive sales of your core product. Now, if you are a B2B SaaS company, having Sequoia in your cap table is really nice because other startup founders know who Sequoia is. As an example, if you're building a consumer business, no consumer knows or gives a shit who Sequoia is. Right. Like one of the better VC firms just using them as an example could be anyone else. No one gives a shit. So really what matters at the end of the day is, is actually not the name of the fund. It's really the human who you would be working with on a day to day, week to week, month to month basis that I've found to be what matters most. Now, having a network that they can intro you to is kind of table stakes for most investors. Like, all right, I can provide you value. Well, at the end of the day, as an investor where we. I'm an investor too. You're selling, you're selling money, right? Hi, I have money. Will you buy my money? It's like, sounds like such a weird thing, but that's, that's the reality of what's happening is you're like, my money is different than his money is different than her money. So yeah, in the end, like, who you are is what differentiates you more than what you can do from. For people usually. And I think people get generally tripped up over the fund name or the investor's name because they've invested in Google.
- [15:27]
B
Or Uber or whatever.
- [15:29]
C
And therefore if they invested in you, that means you're going to be the next Google or Uber. That's not how, it's not how it works. So again, ultimately, like the human behind the money is what I care most about. And so this is why I wanted you to earmuff. I didn't mean to praise you on your own podcast, but like, you know, we had offers for other, from other funds and decided to work with o' Shaughnessy Ventures because of the humans behind the firm and not the like brand name, you know. So I think as an investor, yeah, you gotta, you gotta bring your, your best self to the table and your honest self and people, people will notice that.
- [16:17]
B
Well, being as susceptible to flattery as anyone else. Jay, I thank you for that. But no doubt we will crush those excellent expectations by really fucking something up in the future. Great.
- [16:30]
C
Well, you've got a strike or two, so go ahead, use it.
- [16:34]
B
Exactly. Now let's get into what intrigued me about Point Hound, like, that was a world I knew nothing about. I knew zero about it. But I had an unusual situation that my daughter Kate knows everything about how to do. She is like a magician, right? And in fact, when we were considering Point Hound, she was my go to. And it helps that she is married to one of my senior guys on our venture team, Chris Denny Brown. But she picked everything apart. She pointed out, like, this might not work. This might not work. But then the list was much longer for every. Wow, this is really cool. But she said something interesting to me. She said, I just hope this doesn't ruin it for those of us who actually know how to use these point systems. I, I, I, you, Are you hearing that from anyone else or is that unique? For my daughter?
- [17:38]
C
Yeah, no, I think I'll give a quick overview of what points are and, and address the question, which is how would we, if Point Hound is extremely successful, does this ruin the points game for everybody else? So first of all, what is the points game or what are points? You know, probably everyone has heard of credit card points. Most people have a credit card, and if you don't, you're probably thinking about getting one. Or if you have one, you're probably thinking about getting another one. The best way to earn credit card points is by swiping your card and earning points, you know, in multipliers that you get from swiping credit cards. So if you have an Annex Gold, it gives you 4x points on groceries and restaurants when you spend at grocery stores or restaurants. Whereas if you spent that amex Gold card at a, you know, an online store buying a shirt, you would only get 1x point. While there's another card that might give you 2x points for online shopping, right? So there's this whole kind of world around earning points and making sure you have the right credit cards so that you're earning points. Point out helps you do that part. On the other side is once, once people accumulate points, they end up, which a lot of people have, they have maybe 50, 100, 150, 200,000 points just kind of sitting in their Chase account or their amex account or their Capital One account. And once you have those points, there are a variety of ways for you to redeem those points. You could turn those points into statement credit. Let's say you had 100,000 points, you could turn 100,000 points into about 600 to $700 of statement credit. That's nice. You could turn those 100,000 points into gift cards worth about 750 to $900. Okay, that's fine, that's not bad. Or you could use those points inside of the bank's travel portal. So if you're in Amex's Travel portal, your 100,000 points would be worth $1,000 for flights booked through the travel portal. Well, it sounds even better than all the other ones, right? Well if you were to take those points and transfer those points to an airline and book literally the exact same flight with an airline, you may be able to get 8,000 to $15,000 worth of value out of those 100,000 points, which of course is a lot more than $1,000 worth of value by using them inside of the travel portal. So people like your daughter Kate have figured this out and said, wait, why don't I just find a flight with an airline where I can transfer my points from the credit card to the airline and book with that airline? Sounds kind of, sounds somewhat straightforward, right? I would say about 1% of the population has figured this out, or 1% of the American population anyways figured this out. And of course by simple math that would mean 99% of people have not figured this out yet. So what we're trying to do with Point Hound is make it extremely easy for people to get free flights for free by transferring your points from your credit card issuer to an airline and helping you facilitate that whole process. And we built a search engine that searches 150 different airlines and returns the results in points so you don't have to try and go on every single airline and see how much something's going to cost. It's kind of like Google flights, but for points. Now hopefully you're still with me here. But what Kate is saying is, well, if the whole 99% of other people, or let's say even 10% of people were to move over and actually figure out how this works, what happens to the, to the industry as a whole? Does it break it? The reality is no. Why is that? Well, the airlines are pretty tied to the government in a lot of different ways. They used to be government run organizations like back in the 60s and 70s. These airlines are, you know, like government funded now. They're private companies. But during the pandemic we found out that the government literally stepped in to keep the airlines alive because no one was allowed to travel. And as it turns out, airlines are treated a lot like banks now. So they're too big to fail banks. There's actually like, can you imagine if Delta or United or American went under like, the government actually won't allow that. So in this points game, the reason why this is the case is because airlines right now are flying planes at a significant loss, and they make a significant amount of profit by issuing points and credit cards to their customers. So if you have a Southwest card or an American Airlines card, and you're swiping that all the time because you're earning points, you're actually propping up the airline and making the airline profitable while flying the planes, which is what airlines are supposed to do, is extremely unprofitable for them. So this industry can't actually change. If we start extracting value and helping the average user get more value out of their points, it's going to slowly devalue the value of the airline's points programs. But what's going to happen is they're just going to change the pricing and the structure of the points a little bit over time. So this game won't go away. The dynamics will change in that airlines will release more award availability to be booked with points, and that additional award availability may be slightly higher in price, slightly lower in price. But ultimately, kind of the way you can think about booking flights with points is it's kind of like an outlet store. So there might be like the Nike store on Broadway in Soho, and you're paying top dollar if you walk in the Nike store to buy your Nike basketball shoes. Nike also has outlets all over the country where you can go to a strip mall in, like, Topeka, Kansas, and buy that same shoe for 50% off at the outlets. Well, that's what airline points is for, is to put butts in seats at a substantially discounted rate because they're flying planes quarter full, half full, three quarters full, and want to actually fill the plane. So there's still a lot of room to go for them to the airlines to optimize through billing planes and utilizing the planes that they already have through this point system. That the 10%, 20%, 30% influx of people using points for airlines is actually going to help everyone in the end.
- [24:54]
B
The thing that attracted me to your company and you is I saw you as somebody who really was able to see arbitrage opportunities and then more importantly, take advantage of them. And the second question I had is that in finance, if there is a purely mathematical anomaly, for example, you used to be able to buy Royal Dutch, I think it was, which was co listed on the New York Stock Exchange and on the London Stock Exchange. And one of the oldest arbitrages in the world was the prices were very different often. And like. So if it was selling at 10 bucks in London, but selling at 12 bucks in New York, you bought in London and you sold in New York. Well, as communication got faster, that disappeared. Right. Because that was a pure mathematical anomaly that you could arb away. And as you've just explained, this is an arbitrage opportunity. But I think that it's much more difficult for the reasons you just stated, to arbitrage it away. It also leads me to the next question, is why is it, like, everybody joining Point Hound or joining other arbitrage opportunities that entrepreneurs have identified that you can see will persist even if people are taking advantage of it? Like, why is. Is that. Is that a hard sale? And if it is, why is that the case?
- [26:32]
C
Yeah, I think everything comes down to consumer psychology. In the end, doing something new and novel presents another opportunity to fail for people. They're the early adopters in tech who will just latch onto anything new and just try it because they love trying new technology or new, whatever it could be in retail. People who love new shirts. I know I keep using shirts as the example here today, but here we go. We'll just keep. We'll go with it. There are people who love trying the new thing, right? And that's probably again, like 1%, sub 1% of people who are those early adopters. It's then the mass market who gets hung up about doing things differently than they've done before. Because it is challenging to do things differently when most people are on a similar track and know what they do. Like, having to alter that track means I can't go out and have fun. And at the. With my jet ski on the lake tomorrow, I'm thinking about doing something new where I'd rather just keep the blinders on. This is what I've learned about consumer psychology and building. My prior company, Feather, which is a furniture rental business, and it makes renting your furniture when you're in your 20s and 30s makes a lot of sense mentally. And almost everyone who heard the idea was, like, wait, instead of having to buy and sell my furniture, I can just have it ordered, delivered to my house or my new apartment. It could stay there for a year or two like me, and then get picked up and move away when I'm. When I'm done, I don't have to, like, deal with selling it for nothing or moving in or whatever. The answer is yes. The core challenge with that business was changing behavior, changing consumer behavior. And even though it was a lot easier, simpler, and Actually more cost effective for people to rent their furniture versus buy it and try and sell it. A lot of people are just like, I love that idea, but it's not for me. You're like, but you literally just said all the reasons why it's perfect for you. Why is it not for you? And they'd be like, yeah, it just, you know, sounds tough. Like there's no good answer. They've just described why it makes sense for them. So I think the same is true with a lot of things that, that try and change behavior for people. I would say point hound included, to some, to some degree. Where people today, they might have a credit card or two and they're just happily swiping away on the card. They have their Southwest Airlines card that's just earning them Southwest points, even though they're losing significant value, like five to 10 times the value that they could be getting, which would be like 5 to 10 times more economy or business class flights for free, that they could be getting five to 10 more vacations per year if they wanted to, if they could take that time off work, even, like by just doing one thing differently, which is instead of using this card, you use these other two cards in place of that card to earn lots of points, or as another example, taking the points that you're earning and transferring them to an airline to book with the airline directly or with one of their partner airlines versus using those points inside of their. Their credit cards travel portal to save them 5 to 10 times the value or to give them 5 to 10 times more value for their points. So that's. Yeah, it's a funny core challenge, which is to just be able to teach people the nuances and slowly pull them in the right direction. And that's generally what I've seen work best, is to create those simple education moments and to give them the carrot so that they. They end up just kind of like realizing it themselves and doing something about it themselves versus just keeping things the way that they're used to.
- [30:44]
B
Yeah. I've long studied our human operating system, and one of the things that I've concluded is that we habituate virtually our entire life. And getting away from a habit is. I was rereading Nikola Tesla's autobiography, and he had concluded that he himself, he said, I am an automaton, meaning a robot. Right. I do everything because I'm programmed to do it that way. And so for me, there's a universal unlock here that you're getting at. If you can understand that and you can understand that as weird as it sounds, people will literally say, yep, no thanks. Hey, do you want 10 times the.
- [31:29]
C
Value on your money?
- [31:30]
B
Yep. Nope, thank you. I don't. And when I say that to people, they're like, oh, Jim, you're exaggerating. That's crazy. And I'm like, no, it is absolutely true. And then I actually use you as one of my examples with like, why isn't everyone doing this deal here? And when they go through it, they're like, you mean like, this is hard to get people to sign up? And I'm like, well, he's doing a great job, but you would think that people would be falling all over themselves to maximize that benefit, right? We are not optimizers. We are much more comfortable doing what we've already done. So what did you learn from Feather, where you also had to kind of break through those habituated ways that younger people were doing furniture that you were able to port over to point out?
- [32:23]
C
Yeah, that's a great question. I think that's like the core insight as to why I'm one of the right people to build this company is I've spent a lot of time understanding the consumer psyche. Right. Which is an absolutely irrational being. It is an irrational being. Working with businesses, on the other hand, they are completely rational, like you could. They don't care how something feels. They're just, they'll just do it if it saves them money or if it saves them time, time and money even. Whereas with the consumer again, yes, it takes, it takes, it takes tugging on their emotional strings to get something. So what I learned and what we've applied at this new company is in order to get them to do this new thing, you need to make them feel the value themselves and they need to have it click themselves in whatever way they think. So I'll give an example. We do these one on one point sessions with our users every day. We have requests for like eight of them a day. But I can't spend all my time talking to our users all day, every day. We've spoken to about 300 of them and I've given them feedback and guidance on which cards to get and then how to use points. After that 30 minute session that I have with them, they're in a much better place because they feel heard and understood. And if you can make someone feel heard and understood, then they are, they are yours forever in a lot of ways. Happily, they're like, okay, I just needed to voice this to someone and they would literally just. They just need to say it out loud, something that they've read or seen on our website. And they're like, just tell me that I'm, I'm good, that I'm doing this right. And I'm like, you are you, you just follow the steps that we have on the website about how to transfer your points or whatever. And they're like, okay, good. I was just worried about doing it wrong. And so rewarding people along the way with these little like, nuggets of like, you did it great is the reinforcer where they're like, I did okay, okay, good. All right. I was worried that I didn't do it right and therefore all of my money is gone. You know, like my bank account just closed and someone siphoned all my money away. It's like, well, that wouldn't happen, but that's how we feel. So showing those little reward moments is extremely valuable. And building specifically talking about like building a consumer business where you need to get someone to, you know, do a new behavior or have a new behavior. I'd say the other example is just like people, you need to get them to have the realization in the way that they think. So example of that is people on our site. Often when I have our point sessions, they come onto our point sessions and they might need to see something visually or they might need to hear something, or they might need to read something in a certain way or they might need to actually see that the like, there is an actual flight that does what we say it's going to do. Like, they see the results and they're like, wait, the retail price of that flight is $5,000, but I can get it for 50,000 points. Like in my Annex portal it says it's 400,000 points. I'm like. And they're like, but here it says 50. And we're like, yeah, we've been trying to tell you that all along. But for some reason right now you're getting it. And figuring out that like, moment of like their aha moment and bottling that and bringing that as early as possible in the user journey is critical to getting people to use your thing long term because they have that aha moment sooner and don't drop off before they actually get to the place where you might, they might have that aha moment.
- [36:26]
B
Yeah. And you know, I was a fan of the Neuro linguistic programming tribe that sprung up in the late 60s, 70s and they make that point again, again and again. You have to learn how to communicate with people in their preferred mode of communication. And when you first read that, you're like, what do you mean? Right. And then they go on to say, listen, most people are visual communicators, but there are others, like auditory, kinesthetic, the way it makes you feel. And then they would say, like saying to somebody who is an auditory listener or communicator, can't you see? The big picture is they literally can't, but they can hear the bell ring. Right. And, and the kinesthetic types, which are the smaller of the cohorts and the way people communicate and understand things, you know, it's how it makes them feel.
- [37:23]
C
Right.
- [37:24]
B
And so I, I suspect also that the doing the thing that doesn't scale, like doing these sessions, scales in another way. And that is are you creating ambassadors for Point Hound that go out and proselytize? Like, when I find something that is really cool, like, I will not shut up about it to the point where like my friends will be. All right, stop. Is that the same experience that, that the people who participated in the sessions have?
- [37:55]
C
Yeah, 100%. I mean, they are designed both for the user to have their questions answered in a 30 minute session and equally designed for us, the company, to one know what the hell people are worried about, what their problems are, where they get stuck. Right. And for us to then create these loyal ambassadors who are like, I spoke with the founder or I thought it was just going to be some rando I was talking to, but it was the person who, you know, one of the people who started the company and this was amazing. Like, I now get it. Did you know that? I get it. Hey, friends, I get this. I get it now. I get this new thing. And their friends are like, what new thing? And they're like, you know, you can fly, you can get free flights for free. And they're like, free flights for free? That sounds too good to be true. I know, that's what I thought. You know, it's this and then they just kind of go off and tell other people. So I mean, we're seeing this in our data, like We3X our user base from July to August with no paid advertising spend, probably because of, I mean all word of mouth. But I'm guessing a lot of it has to do with these hundreds and hundreds of sessions that we've given to people that are helping them find their aha moment in their, in their, hopefully in that 30 minute period or if not, then, then the next time they're on our website and they've had their questions answered. So yeah, the human psychology is Everything in building a consumer business. It's wildly important to understand that.
- [39:32]
B
Totally. And it's something that we did when we developed a way to customize portfolios called Canvas at osam. Look, we limited the early users to people that we knew would give us honest feedback. Right. First, number one. And then one of the failings I found in some entrepreneurs that I admire and everything, but they don't quite get there is they are so committed to their vision of the way this should work that it's almost like they have shields up. Even if they don't intend to, they might have shields up to ideas that conflict with the way they think it should be. And so I always believe that I'm generally wrong. Right. Most of the time. And so it helps to interact with people who are actually using, in our case, Canvas, in your case, point out. And one of the things we found was, boy, is that the right way to look at it, because things that we thought were going to be the North Star for why everybody used it didn't even make the list of the people who were actually using it. So at Point Hound, what have you learned from the sessions with users that surprised you? And then do you have a fast iteration cycle that incorporates that into, into the platform?
- [41:01]
C
Yeah, yeah, absolutely. I mean, what you're, what you're describing comes back to like as a founder even we're human and we want, we don't want to change the way we're thinking about things either. Right. Because that would mean we were wrong and we are failing. Which yes, you might, you are wrong and you might be failing. But like, if you alter course, it's possible that if you go over here now or if you speak about something in a different way or you build the product a little bit differently to address your customers problems, then you may not fail and you may actually be successful. But it's very hard to do that because I want to be right, I don't want to be wrong. It hurts. And bringing up the change piece, like, I don't want to change the path. Do you know what changing the path means? That's a lot of work. I'd rather just go down the path I'm going on and like, if it doesn't work, it doesn't work. But you know, at least I didn't try that other thing and failed that other thing too, because that might even be wrong, you know, I only failed at this one thing. Think about that. When we have these point sessions at Point Hound, the goal is to incorporate that feedback as best we can. Now I will share some bookends. So if you take every single piece of feedback and you try and implement every single piece of feedback, you're going to be running around like a chicken with your head cut off. Because someone's going to want, like, I want to be able to filter your search in this way. And someone will be like, I want it to filter this way. And you're like, that is directly opposing each other. But if you changed it, you're like, all right, cool. They want to filter that way. We'll make it for them. And this other person's like, we want to like this. Okay, well, great, we'll make it like that. Then you're just. You're all over the place. But I think the nuance, though is doing nothing is also bad, right? Make no changes is bad. Making all the changes is bad. So somewhere in between is the sweet spot. And that sweet spot is once you hear things multiple times over from a variety of different users in different use cases, that's when you're like, yeah, we should probably change that thing. Maybe you've had a hunch about it too, and they confirm it, or maybe you've heard it four times and you agree with them. That's when you actually start to implement that feedback. I think the other really important piece there is to mention that user type. Because your users are generally not, especially in a consumer business. They're not all coming with the same background, with the same needs. And maybe points beginners, or maybe they're points experts. And you can't. You have to kind of choose which company you want to build. Do you want to build for the expert, the intermediate, the beginner? Because if you're building for both sides, it's. You're going to build a product that is for no one. Because the experts are like, I want this extreme tooling and I want it to be able to. I want to do all these different things. And the beginner's like, I don't know what a point is. So, like, if you're talking to the expert, be like, all right, so here's what a point is. They're like, shut up. Get out of my face. And if you're talking. If you're talking to the beginner and you're like, but here's why you want to tweak and tune this thing. This is how you should search. They're like, I don't know why I should even not use my debit card. You're like, missing everything. So you got to gotta Just like focus on a core user, know who that user is too, who's giving the feedback and then incorporate that based on what you are trying to build and who you're trying to build for. That is one of the incredible nuances that I have taken a long time to learn and have only learned really at this company event.
- [45:00]
B
And what was, what are a couple of the things that met that criteria? Right? You heard them from different use cases, you heard them from different style users. What were a couple of the things that really surprised you? Like, fuck, I'm wrong and I can't believe I'm wrong. And I've got to change this.
- [45:19]
C
Yeah, yeah. We have this incredibly powerful search tool on our site that allows a user to put in their home airport and search a month's worth of flight inventory from that airport all in one like eight second search. So basically you can say, I live in San Francisco, show me all the places I could go and show me the cheapest points for all of the month of October or for this weekend in October or whatever, but just show me all the results. It's something that Google Flights doesn't have. It's like a very kind of unique feature to surface the best deals to the top. Well, once you get the results, you get tons of results that then need to be like filtered down by, you know, country. You could be like, all right, I want to. Or continent, I want to go to Europe. So like, let's get all this, you know, this, this South America stuff out of here and this North America stuff out of here. I just want to go to Europe. What a lot of people have told us is they want to be able to put in multiple origins. That's not just your home airport. But maybe they want to because their home airport might be, I'm just going to use Topeka, Kansas again. Their home airport might be Topeka, Kansas. And the results from Topeka, Kansas are generally less interesting because there aren't that many good direct flights and stuff from Topeka, Kansas. So maybe they want Chicago. I don't know if that's the closest airport, but let's just assume Chicago's the closest airport. They might actually want to put in Topeka and Chicago and then search both of those at the same time because their airport is smaller and doesn't have as many good results. That's one we've heard a bunch of feedback about where we're like, that makes sense. People want to use the tool. Beginners, intermediates and experts are all kind of saying this in unison. Where we're saying, okay, great, let's figure out a way to make that change. So that's one example. Another is round trip flights. In the points world, searching one way is really the best way to search for your flight because you may be there's really no such thing as like getting a discount from, for doing a round trip flight like there is with cash fares, when people are buying a ticket with cash, which is how everyone buys their flights, right? So people are saying, hey, can I get a round trip? Like, I want to be able to book this round trip. And what we say is we could build that feature for you. But having that round trip functionality is actually not going to help you because you might not want to fly back from the same airport that you flew into to get a really good deal on business class flight back to your home airport. You may want to fly from a different airport in Europe where you took a little tiny plane to get to that and then you took the long haul flight in business class all the way back or economy or whatever. So these are some of those things where we've heard from a variety of different user types, hey, this is what I want. And in some cases the answer is, yes, that makes sense. We get it. And multiple people are saying it across multiple user types. And sometimes we hear, okay, here's how we should do this, or here's what we want. But we, we have to figure out a way to say, yes, we can build this for you, but it might not be the most useful feature for you. Right. So that's kind of like, those are a few examples and where you can get into the nuances of user feedback being extremely useful, but also not something you should just always be running after to fix right away.
- [49:03]
B
Yeah, and as I was listening to you, I was, I was thinking about, you know, the balance of, for example, like the streamers. The streamers, okay, the streamers have destroyed their UX to the point where I get like really pissed off when, you know, on HBO now, for example, not just to pick on them. I'm including all streamers here. But the most recent irritation was with HBO or what, they spent, what, $30 million to change their name to Max again, just stupid. Anyway, my wife and I were rewatching the series on HBO and in the old days you could pause it when you wanted to pause it and shut it down. You're going to watch it again the next day, right? And you go back to HBO and boy, there are ones, you just hit play. Now what it does is they've turned into Grifter Central. They put you back to the beginning of the series, play it even though you're not watching it, so that they can gin up the numbers. And this kind of stuff just drives me crazy. Same thing. Just to prove that I'm not a universal hater of hbo. I'm not like, Apple Music, they so destroyed their user interface as to almost make it unusable by, like, I had all of my music on Apple Music, then I switched everything to Spotify. And because Apple Music was just so fucked up, like, why does that, why does that happen and why does that. Is it because engineers who have super deep domain knowledge know that by changing it this particular way, you could do that really one cool thing that no people like me either know or care about that one cool thing.
- [50:58]
C
I think in this particular example, what came to mind for me was the, you know, publicly traded company might need to up their user numbers this quarter. And they got that feedback from their CEO, then the coo, then the senior vice executive, vice president, then the senior vice president. There's a game of telephone that was like, you ultimately need to. We need to get these numbers up or our Stock goes down 20% and they're like, oh, shit, okay, well, how can we game that? Not like, how can we make the user experience great and organically attract more people to it because it's good product, but how can we juice the numbers or whatever? And so you see products at scale fall for that bait all the time, which I get on a short term basis. You're like, happy we made, you know, we increased our subscriber count by 10% and now wall Street's happy with us. But then you're like, next quarter is going to suck when we don't have that stupid lever to turn anymore. You know, I have a feeling that there's a. Not even a feeling. You can see it. A lot of this is going on behind the scenes.
- [52:07]
B
And like, how do you guard against that as a founder? Right? So let's just say we wave a magic wand, Jay, and like you have millions of users and then your engineers come in and they're like, hey, Jay, we can do this really cool thing. Is it just. Are you the final line of defense there? Are you and your senior team the final line of defense?
- [52:29]
C
I think it's ultimately making clear that you should be focused. Well, should be, I think looking at your business long term and thinking about the long term impacts of the decisions you make in the short term are, are how you kind of get around a lot of this. You know, the heroine that is a growth trigger or a growth lever. You know, if you're, if you're building a venture backed business and you, you know, you need to show growth up and to the right. I don't know which way that is for you on the screen, but you need to show that right. And so what, what are the shortcuts you can take to grow your business up into the, up into the right so that you can get your next round of funding so that you don't die. Right? That is happening at the venture level. And if you saw this little thing where you're like, well, retention would be shit. But we could drive a ton of traffic to our site if we just, you know, juice the advertising budget and just drove a ton of people. It's true. You could make your numbers go like this. Now any discerning investor might be like, okay, cool, like, let's look at the, let's see what, what your advertising spend was. Let's calculate the cac, right? The lifetime value to CAC and see like there are ways to, to look past just this headline number of like, we just went, we went to the moon, right? But when someone looks under the hood, they're like, you spent a lot of money to go to the moon. Like, is that sustainable? Probably not. You know, I've been tempted to do that with a variety of companies. In fact, like when you are, when you have raised venture capital, certain scale, you like, you have to keep growing otherwise your thing stalls out and dies. So you get, you know, you get, you get tempted to take those shortcuts all the time. Just like, you know, publicly traded companies are meticulously picked over for growth numbers and whatever where they're like, if we can just juice this little thing, no one will really notice except the user. But the user doesn't. The user isn't paying our bills. The user isn't making the stock go up 10%. I mean they are. But the user itself, the user experience isn't necessarily making the Stock go up 10%. It's the user numbers that drive, that drive everything. So I think like taking that long approach, that long term approach, which is, you know, I think Jeff Bezos did that really well, I think Steve Jobs did that really well to just like really think deeply about, hey, I know investors, like this is, you know, we're, it's 2002. Yeah, our numbers look like this, but we're actually making all of our decisions long term. The people who, who buy into that whether they're your, your investor stakeholders, your employees, your co founders, all of that is really important to, to, to build, so that you're building something for the long term. Yeah. If you're trying to quick get a flick, quick buck, like there's, you know, there, there are solutions for that, but it's going to come back to bite you in the ass next quarter or the quarter after that or whatever.
- [55:37]
B
Yeah. And I'm always intrigued by these lessons that can be extended universally across industries and across, you know, so for example, in investing, which is where I spent most of my career as an asset manager, hyperbolic discounting. Right. Every, every, everybody's just looking at the quarter gave me such an edge and like it was an edge that didn't go away. You could talk about it, I could go on CNBC and explain it quite simply like, hey, I'm not focusing on this quarter, I'm focusing on like the next 10 years. And people like everyone nod their head, oh yeah, yeah, of course, of course, of course. And it just continues to persist. It's one of those great kinks in human behavior that you can again, arbitrage and continue to arbitrage. I used to say, you know, the reason that I have any edge at all is because I can successfully arbitrage human behavior. And if you can do that and it persists like it's a, it can ultimately be a gold mine. But it doesn't look like a gold.
- [56:47]
C
Mine when you're starting.
- [56:49]
B
God, no. It looks like, oh, who would ever want to walk down that path?
- [56:54]
C
Yeah, it's funny to think about it from a public equities perspective too, where you can look at a company, be like, I see what they're doing here and maybe what you're doing, you could be like, I'm going to go take a million dollar short on Apple's, you know, Apple's next user growth because I think they're juicing it. And next quarter or in the quarter after that is it's going to drop significantly because you can see through it. That's fascinating. Maybe I should get into public equities at some point because this is, Yeah, I feel like I have a lot of these insights at this micro startup level relative to putting hundreds of millions of dollars of capital to work on a tiny little short play. It's like, no, no, they're juicing their numbers. I've been there, I've seen it. Like, I'm a product person, I know they're what they're doing. It's not, it's not science. It's science to me. Just wait for two quarters from now, you know.
- [57:55]
B
Yeah. What do you think when you look around and without naming names, what do you think are the big mistakes that people make when they're designing a product for the consumer market? And we've covered all of the obvious or not so obvious ones, like human behavior is very difficult to change, all that type of thing. What do you see that you just would like, oh God, I want, if you know the person, I really want to text them and say, oh, don't do that. Or if you don't know them, like, oh, unless they're a competitor and you're like, yes.
- [58:29]
C
Yeah. I mean, I see this happening in our space too. I think paid ads, paying meta, Google, you know, Instagram for prospecting, for driving traffic to the site is that's like the, the clear indicator of we need to grow and we need to grow at all costs. Literally at all costs at high costs. That is a slippery slope. I mean, at, at Feather, we definitely spent 10 to 15 million dollars on paid ads over the course of our, of our company's history, which drives short term growth. But is it profitable and sustainable growth, right. Or are there potentially more creative ways you could acquire users who would be very happy using your product versus the people who you pay to come to your site and then just kind of churn relatively quickly because they, they may have been grabbed by the flashy thing on Instagram. You're like, you know, and then they get there and they're like, oh yeah, not for me. Or I don't, I don't know, I don't know why I would use this right now and then just move off. That is like, I've been there and I've, I have, yeah, we've spent too much money on that. I would like to spend as little money as possible on paid ads, mostly because I've seen what that, that heroin can do to you where you think you're everything's good because you're growing top line, but the reality is your margins are just shit. Or your LTV to cac lifetime value divided by the cost to acquire your customer is not very good because you're paying too much for people. You're having to like, you're taking like a machine gun and just like machine gunning fish in the water. You're like, you know, there are these things called a net, which it's pretty cheap to buy a net and throw in the water. Like, you don't need to use these M16 like caliber bullets to kill a fish. You know, you're like, have you tried a net? You know, So I think that's one of the, like, core learnings. Having built consumer companies over the last 15 years and invested in them too, is like, how do you build something and. Or invest in something that is growing organically or that can grow organically, and how do you put those levers in place to make that happen? The best company.
- [61:00]
B
Yeah. Part of your business model also involves getting people into the right credit card. And by right, I mean the maximum amount of points and benefits for what they're spending on does. Does like, prestige play any part in that? Like, you've got. Amex is the perfect example, right? Yes. Like, like, it used to be the platinum card was, ooh, he's got a platinum card. But then. No, I know, but then they did the black card, the. Which I don't even know its name. It's got some silly name, but. Oh, that, that one's like. And of course, I'm no doubt comes the diamond card or the whatever. And how do you deal with that? And like the, the prestige factor on credit cards.
- [61:52]
C
Yeah, that is funny. This is all, again, human psychology, and it's smart by the credit card issuers. Amex created this card called the Amex Platinum, which probably a lot of people have heard of. And what makes that card different? Well, it's $695 per year. It's basically like the highest annual fee of a credit card that exists. What's different about it? It's a metal card. It's heavy. So when you drop it at a restaurant and you accidentally drop it from too high, which is what you do, it clangs around and hits the silverware. And it means that you are a big person, a very important person who has made it right. No, anyone can, first of all, anyone can get that card. If you just apply for it and you are willing to pay $695 for it. That card is exactly what you're talking about, which is people be like, oh, you know, they'll come. They'll come to our point sessions and say, oh, yeah, I'm good at. I'm good at earning points. I use the Amex Platinum and I just need help redeeming the points that I earn. And then I'll ask them, well, what are you spending on? And they'll be like, well, I mostly spend on, you know, food, groceries, my utilities. I shop a lot. So online shopping and clothes and stuff like that. And Then I'll take, I'll like stay in hotels and fly randomly and I'll be like, nice. Well, that's great. The MX Platinum earns you one point for every dollar you spend in every single category, except one. So why are you using that card? Like for all the things you just mentioned? And it's like, well, because it's the best card. You're like, well, it's not the best card for you actually, if the one category that it earns 5, it earns 5x points on flights. So if you are booking flights with dollars, it's the best card for that, that one thing. And you should, you should use it for that if you have it for sure, but for literally everything else you get one point. Whereas if you used the amex Gold, which is, is, is not actually a lesser card, but people think of it as maybe a lesser card because there's Platinum and then there's gold. Maybe the gold will earn you forex points at restaurants and 4x points at grocery stores and 3x points on flights. And most people are spending on restaurants and groceries. So that card actually would earn them three times what this other card. It's more expensive, but it's gold, so it's not as cool, right? That is, that is the, that's the psychology that we have to get people over sometimes where they've, you know, ignorantly committed to the wrong card and are like, maybe a little bit too steadfast to say, well, yeah, yeah, I would like to take three more business class flights per year. Like, would you like to? Yes. If you get this card and you use, if you spend the same amount on this card instead of this card, you'll get three times more free flights. They're like, yeah, okay, I'll think about it, right? I'll think, think about it. It's half the cost. It's three times the benefit. All it takes is using the other ones. It's like there are those funny little, again, human psychology foibles, I guess, that we have that we just can't really, we can't really get over. And we, we don't like failing and we don't like being told we're wrong, which even in a good, kind, loving way is still really hard to hear. So I try and do my best to be like, you can, you know, you could do whatever you want with your money, right? Like, I'm not your financial advisor for sure, but if you do, you came to us and you know, you want, do you want to earn three times the Points at half the cost. And then you should probably do this thing.
- [65:48]
B
And the other thing that I know you spent a lot of time on is. And again, it's probably the same set of foibles that lead people to prefer the cash back type card versus the points card. And I remember when I originally was talking to you, I was like, really? I had no idea that that was the case. And so how do you educate and convert the type of people who are like, yeah, this looks really cool and I do travel a lot and yeah, I'll use the gold card instead of the platinum, but you know, for the visas and MasterCards of the world, I just want the cash back.
- [66:33]
C
Yeah, the cash back. The cash back Cashback is an interesting one because most people want a currency that they can use for anything that they want, right? Cash. And they want a currency that they understand, which is cash, at least U.S. american dollars. People know the value of a U.S. you know, a U.S. dollar. If you go to Mexico and you, you know, you get pesos, you know, you're getting whatever, like 40 pesos per dollar. I think it's probably a lot more than that. I don't even know. But you don't know what the value of a, of a hotel stay is in Mexican pesos. When someone says it's 50,000 pesos, you're like, I don't know. I don't know. Just like with points, you're like, it's 50,000 points to book this business class flight. They're like, I don't know what that means. So you do have to normalize a currency for people to get them to understand what it means by putting a retail price in dollars next to the price in points and teaching them that this is a really good deal or this is not a good deal. So to your question on cashback and how do you convert cash back or people who are using cash back to two points if you. It's simpler. It feels simpler to get cash back if let's say you spend $10,000 on a cash back card that earns you 2% or $10,000 on a points card that earns you 2% points back. 2% back of $10,000 spend is $200. I guess quick math, good. And 2x points on $10,000 spent is 20,000 points. 2 times 1, 10,000. Okay, so you're sitting here with either $200 of cash back that you could use for whatever that you know and is comfortable to you. I've got $200. I could, I could Buy a shirt, two shirts, you know, great. Or you have 20,000 points, which are fun play money. To most people. They're like points. Ah, I don't know. Whatever. It's just like fake money I have stored in an account that is. That is how points feel. They feel like they could just be used for fun things, which generally they can be used for. But 20,000 points could be a round trip flight, a round trip economy flight from, let's say JFK to Rome and back, or JFK to Paris and back. You could get that for under 20,000 points. Now, when you think about it in those terms, it becomes a bit more clear to someone when they're like, okay, I kind of know what the value of a round trip flight to Europe and back is relative to my other option, which is $200. I think that's worth a lot more than $200. Right. But so you have to, like, kind of frame things in a way that matter to people and in a way that they get versus saying, well, what do you want, 20,000 points or $200? You're like, I don't. I don't have any idea. I don't know. But if you're like, okay, well, do you want a round trip flight to Europe for $200? Then someone can say, okay, I can make that decision. So the cashback card is basically a like, cashback card. For a, like, points card. You're through our product, you're going to find way better, way better uses of your $10,000 of spend than you will getting cash back.
- [70:18]
B
You mentioned earlier that maybe you should try public markets.
- [70:21]
C
You.
- [70:22]
B
Maybe you should, Jay, because it seems to me that you have just a natural ability to find the arbitrage in a situation, and that is an incredibly useful skill, which is ubiquitous. Right. It can apply to points.
- [70:39]
C
Right.
- [70:39]
B
It can apply to a lot of different things, though. And yeah, maybe. Maybe in your next life you'll be a titan of Wall street as well.
- [70:49]
C
Maybe so.
- [70:50]
B
And what are the next things that you're looking forward to in the coming year for the company or just in general?
- [70:57]
C
Yeah, maybe get back to my roots buying and selling things on ebay. When I was like, 11, that was straight arbitrage. Like, I didn't even know what the word arbitrage was. But realizing that there was an opportunity to make a bunch of money to buy a car or do other things, I was like, I would love to do those things when I'm that young. So I just started doing that, I guess, and finding these little Arbitrage opportunities as a kid. It was fun and also rewarding because I needed a, you know, needed a car or whatever. Yeah, I mean, so in the next next year or two, I think for me, like, we're just trying to make. So going back to why Combinator's you know, motto is make something people want that, that's what I keep coming back to every day. I even have a mug that I usually drink coffee out of. I don't have it today that just says make something people want on it. And I sit next to them, look at it pretty much all day because it takes me a day to drink half a cup of tea. So that's it. It's continuing to iterate on the product and growing our user base as organically as possible. And hopefully we're teaching more and more people about the benefits of using your credit cards to earn points and to use those points for flights. I like our tagline. Our tagline is Free flights for free. Because we don't charge anything for all of this. It's all, this is all. This is all free as of the time of recording of this podcast. So.
- [72:35]
B
I love the caveat there. Well, we will make sure that in the show notes we have all of the links to the website and to your personal stuff. If you've listened to the podcast in the past, you know our final question, which is, we're going to make you the emperor of the world, Jay. You can't kill anyone, you can't put anyone in a reeducation camp, but we're going to hand you a magical microphone and you can say two things into it. And the two things that you say will incept the entire population of the world who's going to wake up whenever their next morning is and they're going to say, you know what? Unlike all those other times that I had these great ideas, I just had two of the greatest ideas, and I'm going to actually act on each one of these things. What are you going to incept into the world's population?
- [73:26]
C
Yeah, that's great. Number one is get started. So whatever it is you want, it could be anything. It could be company building, it could be making shirts. It could be any, could be anything. Just, just, just get started on something that you care about. And number two is be yourself, which is way harder than I ever thought, is to just be authentically yourself as much as you possibly can. And when you do that, you feel a lot better. Other people notice it. And I think good things come to those who are authentically themselves.
- [74:06]
B
I love both of those. The second one reminds me of Oscar Wilde's quip, you gotta be yourself because.
- [74:12]
C
Everyone else is taken. Yeah, that's a good one. That's a good one.
- [74:17]
B
Well, Jay, this was a lot of fun. Thank you for taking the time and really looking forward to seeing whether all these arbitrageable opportunities continue to persist. I think they will, because I think that they're far more the creatures of human behavior than some mathematical anomaly that people can say, oh, yeah, that's crazy, let's get rid of that.
- [74:41]
C
I think so, too. Yeah. Thanks, Jim, for having me on the podcast today. This has been fun.
- [74:46]
B
Absolutely. My joy. And a lot of fun for me as well. Thank you, Jay.