Palo Alto Networks’ Nikesh Arora: Why Context Switching is a CEO’s Most Critical Superpower

Summary

Podcast Summary

Podcast: Long Strange Trip: CEO to CEO with Brian Halligan
Episode: Palo Alto Networks’ Nikesh Arora: Why Context Switching is a CEO’s Most Critical Superpower
Host: Sequoia Capital – Brian Halligan (with Dharmesh Shah co-hosting/participating)
Guest: Nikesh Arora, CEO of Palo Alto Networks
Date: January 8, 2026

Overview

This episode explores the evolving “CEO rulebook” through Nikesh Arora’s unconventional journey to leading Palo Alto Networks. Nikesh shares candid insights on M&A (mergers and acquisitions), transforming point products into platforms, learning outside his comfort zone, managing executive stress, and the “superpower” of context switching. The conversation, driven by Brian Halligan and Dharmesh Shah, centers on actionable advice for CEOs and founders—from early-stage builders to scale-up leaders—especially in the high-velocity tech and cybersecurity landscapes.

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Key Topics and Discussion Points

1. The CEO's Superpower: Context Switching (56:58)

• Nikesh credits his ability to rapidly shift gears and focus across vastly different topics as a core “superpower” for the modern CEO.
  • “My superpower is context switching and being able to focus…I’m the best consumer of slides or PowerPoint that you can find. I can absorb 20 in under a minute and tell you what the problem is.” (57:05, Nikesh Arora)
• He stresses rapid pattern recognition, handling streams of input (emails, meetings, decks), and decisiveness as critical for today’s leaders.

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2. Platformization: From Point Product to Ecosystem (12:10 & 16:00)

• Nikesh describes Palo Alto’s own evolution from a firewall company to a multi-platform security leader—an archetype for others:
  • “We didn’t start as a platform company. We started as a firewall company…over the course of the last seven years, we launched six others. So we have 11 subscriptions now that can be sold on the platform…all $11 billion lateral markets that get consolidated on the platform.” (12:10 and 14:40)
• Driving “platformization” means building trust with one product, then expanding laterally with combined value.
  • “Let’s make sure now that we have 24 great products, we stitch them, that they work better together. Which became sort of the next push behind platformization.” (16:00)

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3. M&A Philosophy & Integration Best Practices

How Palo Alto Approaches Acquisitions (02:33, 06:12, 07:27)

• M&As are core to Palo Alto’s rapid innovation strategy, especially for solving 3–5 year-out strategic gaps.
• Nikesh insists that acquired founders run the combined business and guide legacy teams, inverting the usual power dynamic.
  • “These guys kicked our ass in the market with less resources, moved faster than us. So they must know things better than us. So they have to come and run this instead of our people. Traditionally companies say…let the senior VP of crypto they bought report to him. Well, he should have kicked their ass. The founders become the bosses.” (06:12)
• Joint roadmaps and founder-centric vesting:
  • Pre-signing, they lock down a mutual roadmap (07:41).
  • Founders typically must re-vest half their stock over three years, with sweeteners (top-up equity) for alignment (08:09–08:22).

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4. Listening to Customers vs. Leading with Vision (17:24–21:31)

• Nikesh argues for founder conviction and product vision, not over-reliance on customer requests—especially in cybersecurity:
  • “My customers are not going to tell me that browser’s next…They would tell me the 27 reasons why browsers never worked … but now I tell them…you don’t think in 6–12 months from now you’ll have multiple agentic browsers who want to take over credentials and do tasks for you and you don’t want to find a way to control them?” (17:30)
• Founders fall into the trap of “speeds and feeds” by over-indexing on advisory boards of large enterprise customers—building tools, not products.
  • “So many founders get trapped in this idea that I should get customers as fast as I can…I think it’s worthwhile. The best founders should actually spend some time, build the product based on their own vision, show an end-to-end point of view…” (19:05, 20:23)

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5. Second Acts, Reinvention & Taking Big Swings (12:10, 32:47)

• Nikesh shares how Palo Alto’s second act began with laser focus on a vital pain point (DNS security) and how "platform mentality" followed. He champions the value of bold bets:
  • “Every CEO or founder is in the early part: swing big, swing big. You fail big…If it works out, it’s gonna work out spectacularly. If it doesn’t work out, pack your bags and move.” (32:47)

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6. Learning On the Job & Managing Imposter Syndrome (21:05–32:56)

• Nikesh entered Palo Alto with “zero” security experience, reflecting openly on self-doubt and the process of learning by relying on his leadership team and constant outreach.
  • “Let’s be clear. You don’t have to be polite. I didn’t know anything. I literally thought cyber security was two different words.” (21:58)
  • “I had to keep my insecurities inside me. Sort of be like a duck, you know — be serene on top, but paddle furiously underneath and try to get my shit together.” (27:07)
• He advocates for putting a confident face forward to the company, while having a small circle of confidantes for questions and vulnerability (32:03).

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7. Balancing Product and Go-To-Market: CEO as “Athlete” (38:00–39:37)

• While many see Nikesh’s background as go-to-market, he maintains a 50:50 split with product and views CEO excellence as cross-functional athleticism.
  • “I did all kinds of stuff. I was an analyst, CMO, product guy…I gotta do everything.” (38:25)

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8. Mentors, Role Models, and Common Threads in Great Leaders (42:24–48:34)

• Nikesh draws lessons from Larry Page, Eric Schmidt, Masayoshi Son, and others:
  • Larry Page: Single-minded on product, not distracted by sales (43:43).
  • Eric Schmidt: The “interface” between founders and organization; a masterful, self-effacing translator (44:55).
  • Masayoshi Son: Extreme risk appetite—willingness to double down relentlessly (45:09–46:08).
• Common thread: High risk appetite, focus, willingness to ignore norms, and being authentically themselves.

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9. Managing Compensation as a CEO (49:05–52:52)

• Nikesh discusses why he took the Palo Alto job with a seven-year vest—all in options, benchmarking against the prior CEO, and why comp needs to reflect both retention and upside.
  • “You have to have enough on the table that the CEO or the employee…doesn't feel like they can leave and go if things don't work out…at the same time, there should be adequate reward for hitting a home run.” (50:47)
• Boards must balance “reasonable money” at base, but outsized rewards for outsized impact.

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10. Work-Life Balance, Rituals, and Board Management (53:12–59:33)

• Nikesh stands out for prioritizing family, friends, and outside interests—even as a public-company CEO:
  • “I try not to do work dinners…But sitting and talking business after having worked the whole day…is not my cup of tea…It was a rule at Google…every event for customers would have to have with spouses so I could bring my spouse to dinner.” (54:39, 55:25)
  • Attempts to limit work to “60 hours a week” and keep weekends and dinners largely for family and friends.
• His daily rhythm includes early gym, time with kids, dense scheduled days, and power-through energy driven by purpose—not stress (56:06–56:58).

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11. The 996 Hustle vs. Smarter Work (58:22)

• Nikesh critiques the “996” (9am–9pm, 6 days a week) culture as shortsighted, advocating for smarter—not just harder—work:
  • “…working smarter might be better in balance than working harder. You run the risk of burning out…don’t see the value of manliness.” (59:21)

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Notable Quotes & Moments

• On Platformization:
  “Either you are a platform, or you get eaten by a platform.” (11:42, Dharmesh Shah)
• On Empowering Acquired Founders:
  “The founders become the bosses of our people as opposed to the other way around, which our people find a little unnerving … but the founders find that rewarding.” (06:56, Nikesh Arora)
• On Product Vision vs. Customer Requests:
  “The best founders should actually spend some time, build the product based on their own vision, show an end-to-end point of view, and solve a real problem.” (20:23, Nikesh Arora)
• On Work-Life Balance:
  “I try not to do work dinners…You can’t do that if you don’t invest in [friendships]. So I like to invest in my friendships. I spend time with my friends. I check on them, they check on me. They know I’m there for them.” (54:01–54:39, Nikesh Arora)
• On Learning & Imposter Syndrome:
  “Sort of be like a duck...serene on top, but paddle furiously underneath and try and get my shit together.” (27:07, Nikesh Arora)

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Timestamps for Key Segments

| Time | Topic/Quote | |------------|--------------------------------------------------------------------------| | 02:33 | M&A integration—acquired founders lead, not legacy SVPs | | 12:10 | Platformization—transition from point product to platform | | 14:40 | Lateral expansion into new feature markets | | 17:24 | Product vision vs. listening to customers | | 21:05–22:33| Nikesh’s hiring – arrived as a non-security outsider | | 27:07 | Managing insecurity as a leader (“be like a duck…”) | | 32:47 | “Swing big, swing big. You fail big.” | | 38:25 | Cross-functional CEO “athlete” mindset | | 43:43 | Lesson from Larry Page: ignore sales, obsess over product | | 45:09 | Masa Son’s risk appetite | | 50:47 | CEO comp philosophy: retention, skin in the game, upside | | 54:01 | Investment in relationships/friendships | | 56:58 | “My superpower is context switching…” | | 58:22 | Critique of the “996” hustle culture |

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Actionable Advice for Founders & CEOs

• Platformize, or be commoditized: Start with a focused product, but have a vision for how to expand and “stitch together” value.
• M&A learnings: When selling, negotiate for comp structure, future equity, and post-acquisition role. As a buyer, let acquired founders lead and roadmap jointly.
• Swing big—early and often: Don’t play small; take calculated, platform-defining risks.
• Balance product & GTM (go-to-market): Great CEOs are “athletes” capable of spanning product, sales, and operations.
• Work-life integration is a force multiplier: Invest in relationships; avoid hustle culture burnout.
• Be yourself, draw from many mentors: Learn from others’ best qualities, but authenticity drives impact.
• Pattern recognition and context switching: Build this muscle to absorb high signal, filter noise, and make decisive calls.

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Tone & Style

Conversational, candid, and tactical—with anecdotes from Silicon Valley, humility about failures, and direct learning-from-experience language.

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Additional Resources

• Brian Halligan teases a follow-up segment on “how to get acquired” with lessons drawn from Nikesh’s M&A approach.
• Key frameworks (product vision vs. customer pull, M&A integration, comp philosophy) repeated through the episode for reinforcement.

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For CEOs or founders:

• This episode offers a distilled playbook on modern leadership: how to lead through uncertainty, reinvent legacy giants, and keep perspective—both inside and outside the boardroom.

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End of Summary

Transcript

[Nikesh Arora]

So many founders get trapped in this idea that I should get customers as fast as I can, I should ask them what they want. I think it's worthwhile. The best founders should actually spend some time, build the product based on their own vision, show an end to end point of view, and solve a real problem for everyone who's listening or every CEO or founder is in the early part. Swing big, swing big. You fail big.

[Dharmesh Shah]

Your new new CEO, why not swing

[Nikesh Arora]

as hard as you can, right? Take three things. Who cares? At the end of the day, if it works out, it's going to work out spectacularly. If it doesn't work out, pack your bags and move.

[Dharmesh Shah]

If you want to hear a master class on how to be a CEO, listen to this pod with Nikesh Arora, the CEO of Palo Alto Networks. We go behind the scenes on Nikesh, the man, his remarkable career, the lessons he learned from Larry Page, Eric Schmidt and Masasan. How he became a CEO, how he actually does the job, and how he earns hundreds of millions a year doing it. We go deep into one of my favorite topics, second acts and how great companies become platforms, which is often the difference between a really nice outcome and a legendary one. And they're pulling the legendary side off. And we go very deep on M and A. And we go deep on M and A from his side, the buyer side, with some really smart acquisition practices. I really like that. But this podcast is much more for the entrepreneur. So when I come back at the end, by the way, I'm going to get back at the end with a bunch of takes on this. But one interesting take I'm going to have is I'm going to flip it around and I'm going to talk about best practices on getting acquired from the entrepreneur's perspective based on what we learned, how Nikesh does it. So I'll see you in a bit. Hope you enjoy the podcast. Going to be great. Okay, Nikesh. About 27 companies. Things I get questions on from startups and we ask ourselves at HubSpot. Like we buy a company and sometimes we kind of throw a lot of it away, keep the domain expertise and the talent and rebuild it on our platform because we're a platform company and kind of our differentiation relative to Salesforce and other companies is we are kind of all in one. Do you ever kind of throw out a lot of it and rebuild it or do you kind of keep it all and just keep pushing it in the market?

[Nikesh Arora]

Look, if you think about acquisitions, they take on different forms. Now cybersecurity is so fragmented that they're actually four or five swim lanes. So you could actually build a platform in every swim lane. For example, you can build an endpoint platform, you can build a SOC platform, you can build a network platform. And these don't talk to each other as much. You can move data from one to the other. But yeah, you shouldn't build an endpoint stack with five different technologies. You shouldn't be in a network satisfactory. So there it matters if you're rewriting on your stack or not. Now, you know, if you think about what inspires you to go buy something versus build it yourself, you know, it becomes an essential feature. You believe you can take the innovative lead in doing that. And the process of integration is three months or four months in that you're willing to take that hit. Take for example we were never a player in sase, which is, you know, a form of accessing your infrastructure remotely. We saw that AI is coming. There are certain use cases which are not satisfied. People have third party contractors and they try and access your systems. You have to give them a laptop and you have to be secure. And we saw the emergence of companies building an agentic, sorry, a secure browser island or Talon for that matter. Right, yes. And I said to my team, hey guys, this is going to be important. There's a browser coming, there are people building it. I know we've had browser fakes, as in head fakes in the market. People have thought about browser going to take over the enterprise many times. But I said this time it feels real. So my team is always like you'd expect from any engineering team. What came in and showed me a plan saying 60 engineers, nine months, we'll give you a great browser. We'll be, you know, we'll get to where these guys are. And I said, what do you expect? These guys just hang out, wait for you to catch up in the next nine months. Yeah, they'll be again nine months ahead and their team's working, they're going to add more people. So we ended up acquiring talent. Now we spend some time refactoring it, aligning it with our platform. Because remember, the browser has two parts. The one part is the browser itself, which is the refactoring of chromium, et cetera. The second part is attaching security services for it to be an enterprise browser. And what both Talon and their competitors are doing is they're buying third party security service and whoever give it to them so they could do focus on browser part. We had the third Party security services. So we have premium third party security services which we can connect to the browser. So we did that in the case of talent, and then we combined that with our SASE product. So we were able to go off the races from the go to market perspective saying, listen, we have a comprehensive solution. You can get remote browser isolation, you can get the browser, you can get a VPN client, you get all of them with one security fabric across the board that allows us to be differentiated from our competition for a long time. Now, as you can see, perhaps it was the right bet or the market believes the right bet because the competitors valued so highly that for anybody else in our space to compete, they had to put out eight to $10 billion to compete with us. So that allows us a leg up now. And I think where it's a comprehensive solution requirement, there's nobody but us. If somebody's willing to take just a browser, then there's another option in the market.

[Dharmesh Shah]

Okay, in that particular case, you buy a very hot company.

[Nikesh Arora]

Yes, hot technology. What was not clear, we paid a lot less than what the current value is. We paid like $600 or so.

[Dharmesh Shah]

Okay. In the current market, anyone you're buying, it's expensive and the talent's expensive. One thing we ask ourselves at HubSpot is we buy this company, we want to retain this talent, and they're incredibly valuable outside and it's incredibly valuable to them to start a new company. Are you doing creative things, compensation wise to the founding teams, the engineering teams, to try to lock them in so they don't jump at the next huge pay package?

[Nikesh Arora]

Yeah. So we've had experience now doing this north of 25 times. And we have a simple rule. And we've learned this over there. This is not the first time we did it. The first time we did it, we were fumbling through this. But there are some fundamental principles which I think distinguish ourselves from what people have traditionally done in M and A. Okay, one, I have a simple rule. These guys kicked our ass in the market with less resources, moved faster than us. So they must know things better than us. So they have to come and run this instead of our people. Traditionally companies say, oh, meet my senior VP of crypto and he bought a crypto company, going to report to him. Well, the senior VP of crypto should have kicked their ass. We have given the resources they wanted. So the founders become the bosses of our people as opposed to the other way around, which our people find a

[Dharmesh Shah]

little, unless unnerving to be fair, I would imagine.

[Nikesh Arora]

And but the founders find that rewarding. That's 1, 2. We say, how can we help you accelerate your business? Because we are going to have a drag on them for sure. We're a larger company. We will slow them down in some cases, perhaps with our processes, perhaps it's all the way. So the first question is, how do I accelerate your business? Typically is get me more engineers. Right. I want to move faster or let me do this. Now the third thing we do is we spend the diligence period designing a joint product roadmap. We didn't do that the first two times.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

So when we bought the company, the founder said, dude, thanks for the money and thanks for letting me come here, but I want to build what I want to build. Like, dude, no, I just paid you a lot of money. You're going to build what we agree. I'm happy to agree with them. And if you don't agree, good news is you don't have to sell to me.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

So we design an agreed product roadmap before we sign the final term.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

And the most importantly, asked the question on talent. Right. Again I say we're buying half product and most talent because these things are three years in two and a half years. And I think it takes four to seven years to build a good product in tech. So we still have two or three years to go. I think the shelf life or half life of founders is about three years.

[Dharmesh Shah]

And do you do a three year vest or something?

[Nikesh Arora]

So we do it. Invest.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

We tell the founder we're buying your company.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

You have to invest half your stock.

[Dharmesh Shah]

Oh, that's brutal.

[Nikesh Arora]

Three years. But we will top it off between 25 to 40% depending on the economics that are at play.

[Dharmesh Shah]

I see. Okay.

[Nikesh Arora]

So we'll give more equity to them. That's the only time I can give them tremendous amounts of equity. Because part of a structured deal.

[Dharmesh Shah]

And what about a frontline engineer who's just really good like you've got. You'll buy a company that's got 30 engineers. The founder is one thing, but all those engineers are really smart and have domain expertise. Do you do clever things with them? Do you roll them back?

[Nikesh Arora]

We roll some of them back. Some of them are newer to the company than the founders, so usually they have an area or two remaining. We generally try to lock them in for the first three years.

[Dharmesh Shah]

Three years, yeah. And then what percent do you think leave after three years? Roughly?

[Nikesh Arora]

You know, if you think about founders, some bizarre reason there's typically more than one in Tech they usually do on average. Usually one of them works harder than the other one.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

And you'll find that. Look around you, think about, think about all the tech companies which have gone through the process of multiple founders and eventually success. Whether it's a Facebook, whether it's, you know. Yeah. YouTube. You look around you, all these companies where there were multiple founders, eventually there's one founder front and center and the other founders sort of don't want to do that and they go off and do different things. So typically you'll find that in every stage of a company you'll find a four year old company where one founder is working hard. Rarely do you find a company with all two or three founders are working equally hard. But anyway, let's assume that there's one or two. It doesn't matter in this. For this, for these purposes. Right. Those founders are the ones we will then find a way to work with to find the identify the engineers that are needed. I think at Palo Alto, I want to say the primary founders have almost all lasted the three years we've asked them to last and there are a few have lasted longer. There's some founders who've made more money being part of Palo Alto than in the seven years they ran the.

[Dharmesh Shah]

Incredibly well. Yes.

[Nikesh Arora]

Yeah, but if you get a lot of stock at Palo Alto, we say you can't sell it for two years. Sometimes you do a lot better than they would have done if they'd hung onto it.

[Dharmesh Shah]

Yeah. Okay. Related to this, like at HubSpot we do some version of Horizon planning and H1 near term, H2, H3. How do you guys do that and how do you do it when like shit's changing so fast right now, like it's really sped up. How do you guys think about that? Where does M and A kind of fit into all that? Or do you not do it at all?

[Nikesh Arora]

I'm trying to interpret your version of horizon planning in terms of.

[Dharmesh Shah]

Well, like at HubSpot we look at our. Like what is HubSpot going to look like in a year? We want 70% of our resources on. This is the next year. We want 20% on stuff that's two, three years out. We actually want 10 on stuff that's going to be five years out. Got it, Got it.

[Nikesh Arora]

Yeah. We do it because we have now multiple platforms in each platform. There's a core part of the platform which is where typically 60 to 70% of resources are deployed because they're constantly adding features, constantly adapting to certain customer requirements. There's 10, 20% of the people who have to be working on new features to be launched. Right. I want to see a 12 to 18 months rolling roadmap saying what cool thing are they going to show me? Because if you're not working on some cool thing, somebody else is. So there's a team that works on the cool things and then there's the. The 5% is the hardest part. The 5 year out problem is the hardest problem. Because that's where I think is where we end up relying on M and A. Yeah. Where there are people out there. Thanks to the thriving venture community. You guys are doing such a wonderful job in seeding all these research labs that I still see a few hundred companies a year. And the good news is they're so great, they come and share what they're working on, their ideas. Because, you know, I share the view. If I was so smart that I could take something from a startup and go build it faster than them, then they shouldn't be in that business anyway.

[Dharmesh Shah]

Fine. A lot of the founders I coach are building apps and are trying to go on to their second app and want to build a platform. And there's the saying kicking around. Either you are a platform, you get eaten by a platform. I feel like under your watch, Palo Alto became a multi platform company. Advice to founders, thinking about second acts, thinking about going from, you know, a point solution to a platform.

[Nikesh Arora]

Look, we didn't start as a platform company. We started as a firewall company.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

When I came to Palo Alto, you know, the last major innovation that was launched to the markets was four years before I arrived. And they hadn't done a lot of launches because they're very happy with the fact that firewalls were selling and we had four subscriptions and there was amazing organic growth.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

And I said, then what's the next act? What are you going to build?

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

Now that's where it becomes important to have some guidelines as to what's useful, what is not useful. So I tell you a funny story. I was sitting in the room and I knew nothing about cybersecurity. And I'm sure we'll talk about this.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

And I said to the head of product, Lee Claritz, I said, so what are people working on? What's going on? What are people working on? We haven't launched anything for a while, so. Well, you know, we have this big release we do every year which is a software release for all of our firewalls. I'm like, that's great. So what are we what these people doing this must be like 5, 600 engineers. So Jesse Ralston, our head of engineering, came in and he brought two of his colleagues, is meeting the new CEO and is going to tell him what to do. So I said, what are you working on? I was very excited. Okay, I'm working on 60 new features for our new software. For a new software upgrade for the firewall. I'm like, that's cool. Is that going to help you sell more firewalls? I don't know. That's kind of like sounds like a lot of work for 600 people. And I go make money. So you know, we're going to sell more firewalls. Okay, as you me a favor to you if you're working on it six months. Like I said, here's the marker whiteboard. Just write down the 60 features. So they got exhausted after 37.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I said, you do realize we've got a problem. He said, what's the problem? I said, I got salespeople out there, they gotta sell this stuff. You're building it, you're smarter. You can't remember past 37. How the hell are my salespeople gonna learn 60 new features which are gonna be for free?

[Dharmesh Shah]

No way.

[Nikesh Arora]

This is a problem. And this just tells you how marginally competent I was in on that 37 things. There were seven lines which said DNS on them. That seems to be a bit thematic. Talk to me about DNS security. So they told me about DNS security, told me about info blocks, told me about all the stuff that was going on. I said, so can we replace a DNS security vendor if you do this? Oh, no. We've solved 60% of problem. But the other 40% is harder and requires a little more work than what we can do in the OS. I 60% not good enough. But like, what am I going to do with the other 40%? So that day we redirected the rest of the effort for the next four months into making the DNS security more robust. That was the first piece of innovation we launched about.

[Dharmesh Shah]

That was your second act.

[Nikesh Arora]

That was my first.

[Dharmesh Shah]

Your first act company second act.

[Nikesh Arora]

Well, that was the beginning of the company's second act.

[Dharmesh Shah]

Got it.

[Nikesh Arora]

The reason I tell the story is that was the beginnings of the idea of a platform which means if you have a firewall which is being deployed by our customers, they trust us to go in and get in line. They buy four subscriptions from us. What other sliver feature industries as part of our ecosystem can we eliminate by giving them a 5th, 6th, 7th, 8th, 9th and 10th. So actually, over the course of the last seven years, we launched six others. So we have 11 subscriptions now that can be sold on the platform, I. E. You buy the hardware box. And now I can do 11 different things, which are all $11 billion, you know, lateral markets that get consolidated on the platform. So that was kind of the beginning of the idea of a platform. But I sat there and said, look, how many cybersecurity products are there? And there are a lot. There are five SIM lanes. There are many products. And I said, we're only in one Magic Quadrant. Looks like this is something important. I was like feeling my way through cybersecurity through enterprise, like, why can't we be on more Magic Quadrant? So today we're north of 24 Magic Quarters. That was great. So very good, very well done. Lots of point products sold, produced by Palo Alto. And they said, by the way, I promise, each of these require their own validation, their own specialist, their own convincing the customer. I said, this is not how we're going to do it. Let's make sure now that we have 24 great products, we stitch them, that they work better together. Which became sort of the next push behind platformization.

[Dharmesh Shah]

So when was that?

[Nikesh Arora]

This was about three years ago when we started stitching them into three platforms. Our network security platform, our cloud platform, and our Cortex SIEM platform. And then you discovered that when you talk to customers about the platform, it was open season. There was nobody else in the conversation because we were going and saying, listen, we don't want you to buy just a point solution. Look, these things work together. And once you get people convinced on the platform, then they start a journey and moving to Palo Alto, which is great because we have very low churn on our platform sales and their customers are happy. They get deployed and they would never rip out a platform, go back and say, oh, let me go build six point products and go to place Palo Alto with those six point products. So it kind of worked out, but you can't start there. Yeah, you have to start with an mvp, with something that's innovative, that's going to make you win. And then customers, you get their trust and say, by the way, I also do this and what I do here is also as good as everybody else, if not better.

[Dharmesh Shah]

Yes. You have to get the table stakes at some level.

[Nikesh Arora]

That's right. And that's where if you're building the next app, if you have one app, the question is, what is a lateral app? Where to use the cliche one plus one is three. If your app and this other app works together, does it create a better outcome and does it allow me as a customer, customer replace that.

[Dharmesh Shah]

When you're, you're planning this stuff, how much of Palo Alto is you or your team looking around a corner versus you know, we just gotta listen to customers. Both customers want.

[Nikesh Arora]

That's a tough one. You know, you want to say we listen to customers, so we do.

[Dharmesh Shah]

Yes.

[Nikesh Arora]

But my customers are not going to tell me that browser's next. Yep, right. Literally we had our summit last week in Napa and we had a bunch of CIOs there and literally showing them the browser, showing them the value of the browser. And you know, they were, oh my God, this is cool. Can you spin up one for me? Literally spinning up tenants for our customers to try the browser and they look and say, holy shit, why are we not doing this stuff? So they wouldn't be telling me because they would tell me the 27 reasons why browsers never worked in the enterprise for many years, but now I tell them, really? You don't think in six to 12 months from now you'll have multiple agentic browsers who will want to take over credentials and do tasks for you and you don't want to find a way to control them? Oh shit, you're right. We better go get our act together and go figure the browser stuff out. So I think many cases end up with customers who either will tell you incremental features. Like I had a customer once, I was sitting there and saying, listen, we'd like you to take this network security platform from us. And by the way, we have telemetry, we have metering, we have observability in the platform and we have all this cool thing that SD wan. He says, where do I manually do traffic steering in your platform? I'm like, you want to do what? So I want to do manual traffic streaming. You run a very large network, you actually believe you have the mental capacity in your team to do manual traffic switching. There's no such option. Now the problem is the risk is sometimes this one was obvious. But the problem is there are many times the customers ask you for stuff that is something they're used to doing in a different product or a different way. And now you're suddenly working backwards, creating backward compatibility. So you got to watch out or what the right balance is between sort

[Dharmesh Shah]

of, you know, don't listen too hard.

[Nikesh Arora]

Yeah, you have to adapt to their requirements to some degree so you can make that stuff work. But you gotta be careful about getting full feature knowledge about the future because you take the example. The reason, by the way, this is pertinent to cybersecurity. Cybersecurity founders have this strange affliction. They will start building and they want to go out there and talk to customers as quickly as they can. It's like literally three, six months in, they're talking to their buddies, CISOs, they have these customer advisory. They bring all these people in, give them some advisory shares and ask them, what do you think? Now typically people who have their free time are large enterprise, C source or CIOs. So they'll hang out with you, they'll come to your off site, they'll give you advice. Large infrastructure people don't want ui, they want speeds and feeds. So typically they point the founders towards speeds and feeds. Founders feel really happy. Oh my God, I built speed and fees. And look, this bank is using me because the bank's got 15,000 engineers. They want speeds and fees because you found some threat vector and they'll take the speed and feed put in their system. The problem is that's not a product. That's not a product an enterprise can deploy or work with or use effectively. So many founders get trapped in this idea that I should get customers as fast as I can, I should ask them what they want. I think it's worthwhile. The best founders should actually spend some time, build a product based on their own vision, show an end to end point of view and solve a real problem.

[Dharmesh Shah]

That was the case with HubSpot. We built stuff that first of all investors thought we were stupid.

[Nikesh Arora]

I'm sure they love you now because you did a great outcome for them.

[Dharmesh Shah]

So yeah, we did our series.

[Nikesh Arora]

It's easy to change their mind. Customer a little harder.

[Dharmesh Shah]

Yes, series A was 506 pre give away a lot of the company on series A.

[Nikesh Arora]

That sounds like a, like a angel check right now.

[Dharmesh Shah]

Yeah, totally. As I listen to you and I think about your journey, there's a couple things I think are great and unusual about you. One is they hired you from the outside and you weren't a security guy and you had to figure it out.

[Nikesh Arora]

I wasn't an enterprise CEO either.

[Dharmesh Shah]

Right. And so I have a lot of questions along this line. But you figured it out like you're in meetings with your team, with the team and I'm sure a lot of means you know what the hell they were talking about.

[Nikesh Arora]

I still have that sometimes, I guess.

[Dharmesh Shah]

How do you walk that line? How did you learn how did you keep, how did you not lose credibility and have them eye roll at you?

[Nikesh Arora]

I think all of that has happened. I'm pretty sure, I'm pretty sure the eye rollings happen. I'm pretty sure some still have left. It's still happening. Well, you know, a little less now because like you said, the stock's done well, the company has done well. So people like to win and they figured that somewhere in my madness there is a way to win so they go with it and give me the benefit of doubt because it's worked out so far. But yes, if it doesn't work for a while they start wondering what the hell is this guy doing again?

[Dharmesh Shah]

So yeah, when you first came in though, like you didn't know a lot about it.

[Nikesh Arora]

Like what was nothing. Let's be clear. You don't have to be polite. I didn't know anything. Okay. I literally thought cyber security was two different words. So I didn't know there's one word.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

Right. And I walked in and I'm talking about like executive security or whatever. Like I didn't know what cybersecurity was. And I'm sitting there and talking to our friend Jim Goetz or Ashim Chandna who were part of the hiring committee. Yeah, I think I got hired because he had risk taking venture capitalists on nomination committee. Which is a good lesson by the way for companies. They should have some people who have a higher risk appetite in their non gov committees to hire people because otherwise you fall into the trap of very traditional people who are checking boxes to hire people and they don't.

[Dharmesh Shah]

I violently agree with that.

[Nikesh Arora]

Yes, I think so. That's kind of an interesting. You know and of course, and generally

[Dharmesh Shah]

nomin gov people are not risk seeking types of people.

[Nikesh Arora]

Boards are not. Right. They're not public company board. You're getting paid nothing. Right. You have zero appetite to take risk. You can only get into trouble for making a bad decision. You don't get rewarded for making a good decision. So what do you do? You risk manage. So and risk management, you know the, the most risk managed portfolio is the S&P 500. It gives you market returns. So you risk management hiring, you end up with market returns. That's a good outcome.

[Dharmesh Shah]

We have a section in our board meeting once a year. It's the erm, Enterprise Risk management.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

And my co founder made a joke. He said those are your three, those are your three least favorite words in the English language.

[Nikesh Arora]

I think we have one of those too. Yeah.

[Dharmesh Shah]

You didn't know you were doing. You joined. How did you, how did you, what the hell were you doing? First of all, why'd you take the gig?

[Nikesh Arora]

You know I was home for a year and a half and you'll be surprised. Not many people want an outside from the outside for a substantive business. Usually they're very broken and you sit there and say why would anybody touch this job?

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So you don't want those or they have currently in the current tech environment usually there's a founder who doesn't like doing certain parts of the job and they want to hire someone to that part of the job but they still want to be around and run the company. I've been there, done that, tick the box. And then sometimes you find these gems where which are fully public. There's no controlling shareholder. The founder has never been CEO, doesn't want to be CEO. He wants to be a technologist. And it's a well run company, decently run company is you know Mark McLaughlin, my parents was amazing guy. He built this on a very high integrity culture. So you had something great to work with from, from sort of the bones of it. And then you're in a market which is going to be amazing because cybersecurity is a market which is going to keep grow as tech keeps growing. Cybersecurity is going to keep growing and then sort of the icing on the cake is like it's got one and a half percent market share which means this is an industry ripe to consolidate in some way shape or form. Why can't there be a 10 or 20% share player in this space which is traditional for most tech. That was my thesis walking in. So I actually didn't study cybersecurity to understand Palo Alto. I sat there and say how does enterprise companies work? If you do enterprise math it kind of falls into two very simple places. Right. So any founder who's thinking about scaling their company has to think about two different scenarios. One scenario is it works in the I call it product led growth model where you build a great product, people adopt it, your cost of sales are de minimis Whether the Atlassian's the world or the Adobe one part of their business or the Dropbox is the world there's there and they usually struggle to do the larger enterprise deals because the product's not designed for that as well. The enterprise guys want way more features, want way more adaptation so usually end up doing really well in the packaged software package solution business and it with some sort of little dials but a UI is Pretty, because you want to convince customers, you know, almost like a consumer company in a product that's kind of one part of the business. That's good. Because if you look at the other side, I have very simple math. So I'm like looking and saying, look, if you look at the enterprise business sub billion dollars, your cost of sales, marketing and support is 60 to 80%.

[Dharmesh Shah]

Yeah, it's huge.

[Nikesh Arora]

That's what it is. The rest of it is only 20 to 30%. And even at scale that goes down to 18 to 25%. So there's not much spread there. All the profit is made in optimizing that 80%.

[Dharmesh Shah]

How do you do that without crushing growth?

[Nikesh Arora]

That's a good question.

[Dharmesh Shah]

Thank you.

[Nikesh Arora]

You don't crush growth. You need to be of a certain size and scale. So the first thing I did, amongst many things, is I took our operating margin down from 20 plus percent to 17%. I actually invested 500 basis points more into growth. We're not investing enough. Right. So that coupled with no knowledge of cybersecurity, really made people's eyes roll. Oh shit. This guy just walked in and wants to hire more engineers, buy more companies, use up the company's cash and reduce their operating margin. That sounds great.

[Dharmesh Shah]

Yep.

[Nikesh Arora]

Okay, let's start.

[Dharmesh Shah]

Really popular, very popular.

[Nikesh Arora]

And then I walk in, I literally just walk in the company saying, what am I doing here? To your point, the first six months

[Dharmesh Shah]

I didn't feel that way.

[Nikesh Arora]

I did. Yeah, I walked in. But remember, I'll tell you a different story. So this was taught to me by a fund manager. My first job in the United States. Well, my first job, which I loved was I was a buy side analyst. And I walked in and my job was to analyze stocks in front of, stand in front of very opinionated portfolio managers and tell them why to buy the stock.

[Dharmesh Shah]

Yep.

[Nikesh Arora]

And it didn't really matter. I mean, come on, you're reading about this talk. There was no chatgpt to summarize stuff for me. There was no Google search. Then you had to go read a bunch of financial reports, put it together, do a spreadsheet, put a model together and tweak some numbers and say, I think we should buy this talk. And you have to do that based on some speeches of the CEO and CFO had made, or you'd met them once for half an hour. That's kind of like pretty out there to go do that stuff. Anyway, we did that. The problem was two weeks later they would do something different than your thesis. You had a choice you could change your opinion based on that and get buffeted by that and go to the portion of hey, I was wrong, I changed my opinion in two weeks later, do something else. Or you could have to deal with all the uncertainty inside and still maintain your thesis in some way, shape or form. So you had to decide what a long term thesis was and deal with the uncertainty amongst yourself without making it visible. That's what I learned when I was way younger than today. I said it kind of like walking into college. I felt the same way. I said I had to keep my insecurities inside me. I had to keep my convictions inside me. Sort of be like a duck, you know, like be serene on top, but paddle furiously underneath and try and get my shit together. That's what I was trying to do. And I used to call Nir Zook, our founder, either in the morning or in the evening on my way to or from work. And I used to call Lee Kladich, the chief Product Officer the other time. And I'd spend half an hour, 45 minutes asking them all kinds of questions. And then I'd call Mark McLaughlin sometimes because he was still available as an advisor board member. I'd call Ashima, I'd call Jim, I'd be calling these people all the time. I don't know how many phone calls I've made. I saw 300 plus cybersecurity startups in the first six months I was there because I was just trying to learn. Absorb.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So that allowed me to start building a mental framework as to how this thing should work. But I knew we were subscale, less than $2 billion in revenue with SBC north of 15%. We were not set up as a good long term public company. And watching the, you know, the light half cycle of a Cybersecurity company is 10 years. In 20 years, they're gone.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So we're already past our halfway mark.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So I'm like, oh my God, this is a, this is a known formula. You take a look at the semantics. The McAfee's the World, a whole bunch of, you know, carcasses in enterprise which didn't cross the 10, $15 billion Rubicon of market cap. So we got to go get past that. The only way to get past that is to grow our way out of our space in the market. We were one of seven companies below $20 billion. Above 10. Yep. Like we got to get past this 20, 30, 40 billion mark because we can that. The only way to get there is through revenue growth. Once you get revenue growth, then you can start worrying about optimizing your sales and marketing costs because then you can see how to. So my only focus when I started buying stuff was I'm listen. When you walk into a customer and you have an expensive salesperson, the most expensive resource, and they walk and say, hey, would you like a firewall? Guy said, I just bought one. I was like, oh, shit, I can't go back for seven years to this guy.

[Dharmesh Shah]

Totally.

[Nikesh Arora]

So your conversion rate is very low. But say you don't want a firewall, you want Endpoint security. If you don't want that, you want some cloud security, you want that, you want some sd. Wanna, I got something to sell you? Yeah, it just is higher conversion. Amortize my salespeople a lot easier. So that was a very simple insight. I walked in with saying, if I can sell more stuff to the same customer, there's a higher probability I can get through my operating margin dilemma.

[Dharmesh Shah]

Back to you.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

It sounded like you have a little, or at least had imposter syndrome and you hit it pretty well. I have it. I have it right now, actually. I'm nervous. I'm a little bit nervous interviewing you.

[Nikesh Arora]

Ah, you shouldn't be nervous. Like, we all have the fear of what we don't know and fear of making a wrong choice. There's a balance. There are some people you can show your willingness to adapt or uncertainty, if it depends on how you want to call it, or the respect for their superior knowledge. And then you have to hold it off from the others. So with Nir and Lee, I was very comfortable talking to them or Mark, I was very comfortable talking to them about what I was learning because they needed to understand. They were aware of it. And by the way, they were. They knew when I interviewed the first time when they offered me the job, I said, actually, I want another. Another set of interviews. They're like, what? I say, I want to go back and talk to Nir and Lee and Mark. So actually, when the job was offered to me, I said, hold the offer. I'm going to go back to talk to them. Because the last time they were interviewing me, this time when I interviewed them. So I went back and I said, listen, guys, you do understand what you're signing up for? I do not understand cybersecurity. You get it? They're like, yes, we get it. We have 5,000 people who do and we're still trying to make sense of it. I said, okay, that's good. 1. I said, 2, remember, this is going to be one company. It's not going to be one sales company and one product company. So I'm not coming to fix sales. I'm going to run the company. So I literally had Lee and Nir commit to the fact that they were signing up for the unknown entity known as Nikesh who didn't know anything about cybersecurity. And they'd guide me and work with me for me to get to a place where we can make this work. So I was very comfortable sharing with them what I was learning, what I didn't know. And that kind of gave me some comfort and courage. But you can still walk into meetings where you have a distinguished engineer sitting there saying who is this guy? Just pick why did he show up here and why does he get the big bucks to go tell?

[Dharmesh Shah]

Okay, so you showed it to a small circle, but to the company you didn't show that imposter syndrome.

[Nikesh Arora]

No. You showed a face of somewhat confident I was learning. Look, I joined in April, September, we did an analyst day and put out a target saying to a billion dollars of next generation security ARR. Which we didn't have a next generation product. We didn't have anything, you know, salespeople, we're going to build a billion dollar ARR business in three years. We built a larger than billion dollar business in three years. So sometimes, you know, you, I think, look in my rule is very simple. I did this before. I used to work at T Mobile, I took a job at Google, I took a pay cut and I didn't know how to sell advertising. I didn't know what adverts, how advertising was sold. Yeah, I ran Google Europe, we all sold advertising. I had to figure it out. And my view for everyone who's listening, every CEO or founder is in the early part, swing big, swing big. You fail big.

[Dharmesh Shah]

You're a new new CEO.

[Nikesh Arora]

Why not swing as hard as you can, right? Take three things. Who cares at the end of the day if it works out, it's gonna work out spectacularly. It doesn't work out, pack your bags and move.

[Dharmesh Shah]

Okay, let me ask it related. I have like a million more questions. But related to that when we would hire people at HubSpot.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

And we had this thesis like give them a lot of time, let them interview and slowly come up to speed. But actually the current CEO of HubSpot joined like the week before COVID and she got thrown into it and she did great. What is your sort of philosophy on that kind of thing? Like you got thrown in.

[Nikesh Arora]

Yeah.

[Dharmesh Shah]

And you went after it. You've got an amazing exec team there. You bring someone in from the outside, kind of slow roll them or you throw them in the fire.

[Nikesh Arora]

Look, it's very hard to fly a plane by sitting next to the person flying the person plane.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So if you are going to fly the plane, if you're competent, you know how to fly it, you got to go sit in the pilot's seat. So you can't like slow roll a CEO into the role. Now look, when I took the job at Google for three months, I didn't decide anything. I just said you guys keep doing what you're doing. Look, most companies will run for two, three months without interfering. Anyone interfering. Like the biggest decision I had to make when I walked in was, oh my God, it's performance season. We have this money left on our equity budget. We like to give it like in India. I said sure, go right ahead. And then I had to go fight SBC after. So I got, I had to pay for my bad decisions. But the point is I didn't have to make any important decisions. For the first three months. Things were working, people want to do their jobs and it ran in a very non interfering way. So I think most companies should be able to run three to six months on autopilot within reason. But after three to six months, the lack of, of strong decision making, those periods starts to show up, you starts having impact. So hopefully your predecessor set it up in a way that is still rolling on good decisions that were made before. Now you got to go jump in and see which decisions do I need to make. So I think there is some time that people can take to figure stuff out.

[Dharmesh Shah]

Just kind of back on you. Personally, you strike me as, I don't know you super well, but you strike me as being very calm and you don't seem stressed out. And I coach tons of CEOs. They're like all Sequoia CEOs. They're stressed.

[Nikesh Arora]

Stressed for what?

[Dharmesh Shah]

They're just stress. Like existential levels of stress. Like, am I correct? You strike me as a pretty cool customer.

[Nikesh Arora]

My work doesn't stress me.

[Dharmesh Shah]

Has it ever? Or did it at the beginning and now you kind of got your legs under you?

[Nikesh Arora]

No, my work's not stressed me and you know, even my wife wonders, where do you get the conviction from?

[Dharmesh Shah]

Like where do you get it?

[Nikesh Arora]

I know belief in myself that, where

[Dharmesh Shah]

did that come from?

[Nikesh Arora]

Maybe growing up, mom, dad, it's kind of like I was that kid, I was that kid who get home on time, get my homework done, not worry about my parents telling me to do it. You know, make my bed, be the good kid and get shit done. And it's kind of like in a way sometimes your parents actively encourage you, sometimes they don't interfere and they let you do your thing because you believe but you know, they have your back. So I think knowing that somebody has my back and I'm well protected, well covered is usually what's made me do better. And at Palo Alto, the best part is I have an amazing board and I know my board has my back. And I think that's kind of important in any management lesson. Whether it's a board, whether it's a CEO, their colleagues or, or whether it's whoever, you're a manager, your people need to know you have their back. Because if it's kind of like, think about it like if you're hanging out of a plane and if you're doing something and somebody else is holding a rope, you got to believe this person's going to pull me back in when things get rough. If I trust that person going to pull me back and protect me, I will go flail and do whatever I need to do. So I've always felt that when somebody's had my back, I can do well. What's the worst that could happen?

[Dharmesh Shah]

Got it. You're kind of a lot of your career, you're running sales organizations funnily enough, or go to market orgs.

[Nikesh Arora]

Well, let's see, I was an analyst.

[Dharmesh Shah]

You ran Google Europe. That was sort of go to market.

[Nikesh Arora]

Yeah, but it's kind of interesting. I did run Google Europe but when I inherited Google Europe we were 20% of the company's revenue. When I left, we were the largest business of Google which is very rare for an American company to have a larger European business than US business. So I had to come back here and increase the growth rate here in the US So but you don't do that by being just a go to market person. You have to run a cross functional play because it's kind of like if the marketing is not doing well, it's impacting my business. How do I get marketing? So as the only guy go to market guy at Google who marketing reported to ever before me marketing reported directly to, you know, my boss. And after me marketing reported to the post to the CEO. When I was at Google, both marketing and sales reported to me. So you have to be able to run a cross functional playbook if you want to be successful.

[Dharmesh Shah]

Okay. But I guess my Question to you is like I look across the industry. There's not a lot of kind of people who grew up and go to market. As CEO.

[Nikesh Arora]

I don't know if I'm growing up yet. But let's, let's go back. I started my

[Dharmesh Shah]

Bill McDermott at ServiceNow. I kind of throw you ish in that bucket. There's very few. Why do you think that is?

[Nikesh Arora]

Yeah. But I don't see myself as a go to market.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I can do go to market. I'm not a go to market person.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I am.

[Dharmesh Shah]

You're an athlete.

[Nikesh Arora]

I spend 50% of my time in product.

[Dharmesh Shah]

But you grew up running big go to market orgs. You did a lot of stuff.

[Nikesh Arora]

I did all kinds of stuff. I was a analyst. Is that the key Marketing officer. I was a product guy at T Mobile. I did it. I wrote code when I started Fidelity. So I kind of like did a whole bunch of things badly. And then eventually they decided I wasn't good at one thing.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I gotta do everything.

[Dharmesh Shah]

I'm a VP at XYZ company right now.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

And I want to be CEO of a scale company. I don't want to found a company. What advice do you have for me?

[Nikesh Arora]

Get lucky. I think I'm luckier than. Than good in some of these scenarios. But like on a more serious note, in Silicon Valley, most companies which do which lose sight of a product focus over time. Die.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

So that's why I'm fighting you and characterizing me as a go to market person because I don't see myself as a go to market person versus other people who name a lot of respect for Bill and Mark. They're probably the two the best sort of sales leaders in the world for the enterprise business. But I'm not them. I'm not as good as them at doing what they do. But I think I balance product and go to market well enough that allows us to run as a cohesive company. I build product. Half the time the acquisitions are done by me and a bunch of people. I don't have an acquisitions team.

[Dharmesh Shah]

It's me.

[Nikesh Arora]

I sit down with the CEOs, I look at the tech. I look at all the tech. So. But this is something I learned at Google. Larry Page had a very clear view. Companies that don't focus on product lose sight of product. And like, you know, the, the best compliment or the worst sort of compliment Larry ever gave me says, oh, no company in tech failed because of sales. You're running sales. I don't have two hours If I had two hours, I could make you do your job better. But I have to go focus on product because that's why companies fell. So he just told me to go away. I think it was a compliment. I think he meant doing my job well. But he did say that Bill Campbell and Eric Schmidt told me, do your job well. So go do what you're doing and don't waste my time because I'm focusing on product. But he kind of told me to go away. And I believe what he said. Like, if you don't make sure you're, you're obsessive paranoid about your product, you're going to fail in the medium term and you get complacent. And look, you know, I've been there for seven years. I'm still chomping at the bit. I'm still looking at companies, I'm still meeting. I met three today, right. Just to understand what they're working on, what's interesting. I go back and process my head, is that going to be big? Is that interesting? Is that a feature? Is that a platform of the future? Is that going to be big? And it's kind of interesting. There are many examples out there, even in cybersecurity, which people have generated billions of dollars of private valuations. We've gone back to nothing in some cases. I think there's a few out there, but I'm constantly evaluating them, trying to analyze will they get there, will they not be able to get there? And I think I have reasonably good hit rate in my brain in terms of what works, what doesn't work.

[Dharmesh Shah]

Just back to my question. I'm an up and comer.

[Nikesh Arora]

Oh, okay. You want to go talk about the vp? Yes.

[Dharmesh Shah]

And I need some advice from. You know, I'm a founder, I'm a little bit of a different animal than you, but I, I want, let's say I'm a up and comer and I want to be you. Like what, what do you do? Okay, you're 30.

[Nikesh Arora]

Yeah. Well, you have to have product savvy. If you don't understand product in your industry or product in where you want to be, it's going to be hard in Silicon Valley. Right. You don't need to understand product, you have to be able to sell. But at the end of the day, even my head of product sells.

[Dharmesh Shah]

Yeah, right.

[Nikesh Arora]

Because you're trying to solve a customer's problem. You can have great product vision, you can do a whole bunch of stuff, but if you're not able to sell, we don't need You. Right. So there's a combination of being able to sell and being able to build product. I think if you're in any other function in a tech company, we shouldn't make you CEO. Right. We shouldn't make the finance guy the CEO, we shouldn't make the marketing guy the CEO or Galaxy. We just have to make sure you have your deep technologists and you can go innovate your way out of everything. And we're going to be. People are going to be buying us, whether they like us or not, because we have the best innovation on the planet. Or you're able to balance that innovation with good ui, as in you're a good person, you can sell as well. And I think that's the magic formula.

[Dharmesh Shah]

Okay, you brought up Larry. You've worked for some interesting people.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

You work for Larry, you work for Eric. You were for Masa.

[Nikesh Arora]

Yep. Sergey Brin.

[Dharmesh Shah]

Yep. Is. What have you taken from them? Is there a common thread that we can share?

[Nikesh Arora]

The common thread is all of them to some degree have had high standard deviation.

[Dharmesh Shah]

Okay, what do you mean by that?

[Nikesh Arora]

What I mean by that is that they're not your run of the mill, down the middle people. They always have some things that they're so focused and say good at that they ignore the other part, they're obsessive obsessive where they have focus on one thing which then they can ignore the other thing, not worry about and somebody else takes care of it. And Larry was very obsessed about product and innovation. And like literally, you talk to him, you'd be going in there showing him a sales plan. He wants to talk about, you know, tunnels that we can run on 101 to reduce traffic. Or we were flying to Spain once and he literally came with the idea of Google Maps on the plane saying, oh, you know, how many miles of roads are there in the United States? Maybe instead of trying to get cartographic maps and being held to ransom by the mapping authorities of countries, we just go ride our own cars around the streets. We'll cover them. When he was doing the math, how many cars, how many drivers he needed or how many cameras do we need to buy to go take a photocopy of every book in every library in the world.

[Dharmesh Shah]

How about Eric?

[Nikesh Arora]

Eric, I think was spectacular for Google. I think what he did, being able to get the best out of founders and put some structure around them, Eric was the best interface between two young founders who had never run a company with people who were used to structure and used to companies. And he was the best kind of foil, interface, encourager, mentor. Because Eric was very true to what the founders wanted. He always found a way of exposing and capturing and encapsulating what they wanted and translating to the rest of the organization. So he was amazing at. I think he's the one reason, one of the many reasons why Google went from being that small sort of search white paper to being effectively what is now a multi trillion dollar company. I think his incubating it was amazing. And his ability to sort of take himself out of the equation in a self effacing way. Even then he has opinions and he would find a way of sort of couching his opinions, a way that it would feel like the founder's idea. So he did a really good job, I think, of translating their wishes and being able to get what they wanted at the same time.

[Dharmesh Shah]

Have you taken a lot from him in Palo Alto?

[Nikesh Arora]

I think so. Look, we all absorb certain behaviors from different people.

[Dharmesh Shah]

Sounds like you deserved a bunch of him.

[Nikesh Arora]

Him. Larry. Yeah, Masa.

[Dharmesh Shah]

Tell me about Masa. What'd you take from him? What can we all learn from Masa?

[Nikesh Arora]

Look, I told you we should hit hard and you know, hit big in the first.

[Dharmesh Shah]

Early. Yeah, early.

[Nikesh Arora]

There's the earlier than getting big every day. Right. I say that, I've said it before. You know, we bring up our kids and we teach them. We risk manage our kids. You know, our kids grew up saying, don't cross the street, be careful, look left, look right, don't jump at the pool without a floaty. Or literally constantly risk managing our children until they grow up and say, oh good, my kid's a good kid. He comes home and does homework like me, you know, and doesn't get into trouble. That's risk management. Masa does not do that. Masa is the opposite. Masa says, okay, we can borrow more money. Okay, let's go double down on this asset. Don't worry about this one, let's go do this one. And he's like a kid in a candy store. He will go bet big every day. And that's kind of how he operates. So his risk appetite is fundamentally different than anybody else I've met in my life. And that's kind of like, it's kind of like that kid who falls and stands up every time, takes another punch in the face because he knows of these punches going to land, not land, he's going to win.

[Dharmesh Shah]

My Mount Rushmore of CEOs are Steve Jobs, my dad and Jerry Garcia. Who do you follow? Do you follow like my Gener, I think we're similar ages. Like Steve Jobs was kind of the guy the younger generation seems to follow. Elon, is there someone, Is there a. You know, I think is there someone now you're learning from or watching?

[Nikesh Arora]

It's kind of like this. This is an interesting question. I struggle to encapsulate everything I want to learn into one person. And I think if you look at some of the great CEOs out there, each of them have some amazing set of attributes we can try to look at and say, oh my God, this person's crazy. I mean, look at Lila, like, you know, he's the most innovative person in the world. Now there are certain things I wouldn't want to sort of take from him, but his ability to think out of the box, his ability to think big, his ability to go solve a really hard problem. And as he's proving that, look, you solve a really hard problem, you go at it for five, seven, eight years. You find the resources, you're everybody else eight years behind. Yeah. The question, can you capitalize on that? Monetize that? Look at whether it's a car or whether it's Starling, whether it's neuralink, whether, I don't know. He saw a company yesterday that he's launched which is called Macro Hard. It's interesting, I don't quite know what it does, but so his ability to just think so far ahead and try and go after meaty big problems, very fundamentally different. Then half the founders show up saying, I've got an app which optimizes your sales flow, dude, how many more of those do I need? Right? So I think watching him think about trying to be a true entrepreneur, I think is bar none, right? You just named Bill McDermott and Mark Benny. How? I think they're the two best enterprise sales evangelists in the world. I mean you can learn from them because they know how to go take something, turn to a platform, how to work the system, how to build, go to market, how to lead their teams to greatness. Right. I mean, look at the other side. There are some amazing founders. I was with Ali Gutsi last week. I think he's amazing. He's doing a phenomenal job at databricks. He's hard nose, he knows what he wants, he's gunning it out and he's building something that's going, look at Sam Altman. And nobody in their right mind can imagine what he's up to. Right. Like what? Two and a half years ago, he just launched Chat GPT. Today we've got 100 billion dollar deals. I mean these are big deals by. Oh my God, any imagination like, and you do three in a row in a span of four weeks or six weeks. There's people out there doing big, gutsy, meaningful, meaty stuff. Some of this still remains to be seen where it's going to land. But it's just.

[Dharmesh Shah]

Is there a common thread?

[Nikesh Arora]

Appetite for risk.

[Dharmesh Shah]

They're all very different. Was when you went through them like, they're all very different.

[Nikesh Arora]

They're all very different. And I think that's the beauty of yourself.

[Dharmesh Shah]

Everyone else is taken.

[Nikesh Arora]

You know, it's kind of like you're very right in the way you say that. If you're not yourself, the risk is you're going to do a shitty job of trying to be somebody else. So you might as well keep doing a good job of being yourself. And if that works out, it's good.

[Dharmesh Shah]

When I was CEO of HubSpot, I had this ratio of the average HubSpot employee was X. And I didn't want to be more than 30x. Why was I wrong about that?

[Nikesh Arora]

30x of what?

[Dharmesh Shah]

The average. So if the average Hubspotter was making, you know, 100,000 bucks, I didn't want to be more than 30x. You're one of the best paid CEOs in history. Tell me your philosophy on well, actually,

[Nikesh Arora]

you know, funny you should. And I've never talked about this publicly, but I didn't set out to be.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

That when I met the board of Palo Alto, I said, listen, you pay your CEO 20 million bucks a year. I plan to be here for seven years. Just give me seven years worth of stock now and you can take it away. If I leave sooner at any point in time. That's the only thing I said it

[Dharmesh Shah]

was the seven year best.

[Nikesh Arora]

Yeah, it was a seven year rest. I see it's 20 million bucks here, which is what they paid Mark. So I didn't ask for any more than what they were paying Mark. Okay, I did add a twist. I said, listen, I don't need money. I want him to do it all on options. They got cold feet. They gave me half an option. Those half options turned down to, you know, tremendous amount of money because of the fact the stock moved up six times. But I set out to be exactly what they were paying somebody else relative to the benchmarks in the market.

[Dharmesh Shah]

That's how you did it. You're advising a CEO today. How should they think about comp? Like, should they be doing it like Elon like, you really pay a lot for great performance. You don't pay that much for mediocre performance. Should you be heavy on ISOs vs non quals vs PSU's? She have long vests, short vests, Like I think you're advising a board.

[Nikesh Arora]

You know, the balanced approach is that you have to have enough on the table that the CEO or the employee for that matter doesn't feel like they can leave and go if things don't work out.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

You want enough skin in the game that even in a reasonable scenario I'm going to make a reasonable amount of money. So I don't feel I need to go somewhere else.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

At the same time, there should be adequate reward for hitting a home run. I think that's the balance boards need to strike. There's lots of models out there in terms of how it's done. There's a combination of RSUs and PSUs that people do. There are three year vests, people do. There are cumulative vests, There are stock prices. So there's many different tools in the toolkit to make it happen. I think that's not, that's not kind of where it actually matters.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I think where it matters is I've seen this many times because obviously my packages are public. And I've had many CEOs call and say, how do you structure this? The CEOs actually have to have a conviction of what they believe the business is capable of. Right. Elon just didn't go ask for a package. He actually said, I believe I can do this to the business. He actually achieved that. And then he got into trouble because it wasn't fully done the right way. But he had a conviction. Many of the people who have taken package like Elon haven't fared as well because they didn't get there. So you have to have a very reasonable sense of scenario planning. How can my business get there? I can tell you high Palo Alto can go from now what is $140 billion company to half a trillion dollar company in 10 years if certain things work out right. I have a view as to how to get there. I know the math to get there. And the question can I execute to the math? If you have a math, you can execute the math. You'll get there. But I've seen CEOs who say, oh, my math is because I'm a, you know, thinly traded stock at 5% just went public, I think I can triple the frame very well. But that thing can go down as quickly as it goes up and it's fully 100% public. Go do the math. So I think many people don't do the math of what the feasible set of outcomes is and what the probability associated with them is. Once you do the math, understand the probabilities, then you can go take whatever.

[Dharmesh Shah]

I think the thing that's broken out of it is like most public companies, they look at your comps.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

Similar market size companies. Then every couple of companies says, we're going to the comps and we're going to pay you the 75th percentile.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

And.

[Nikesh Arora]

But after five years, the 70 percentiles moved up because everybody's now that's 50th percentile.

[Dharmesh Shah]

Absolutely.

[Nikesh Arora]

Don't tell everybody that. Yes.

[Dharmesh Shah]

Okay, last question.

[Nikesh Arora]

Yes, sir.

[Dharmesh Shah]

You've got a very. I don't know you well, but my sense from talking to Jim and others, you have a very vibrant, interesting life outside the spreadsheet. And I'm just going to rattle a few things off that I know about and I know there's a lot more. You purchased a cricket team.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

You won the AMEX Pro Am golf tournament pretty recently.

[Nikesh Arora]

Blind squirrel theory finds an acorn.

[Dharmesh Shah]

Yep. You married what seems like an amazing woman from an amazing family. Had an amazing wedding ceremony. Yes. And it kind of goes on and on. Most of the CEOs I work with, they're pretty obsessed with work and don't really have much of a vibrant life outside. Particularly now. Like, it seems like people are kind of following the Elon playbook and the996 playbook. Tell me about your life and how you think about it. Give me some advice.

[Nikesh Arora]

Oh, look, When I turned 40, I invited 40 of my friends for my 40th birthday. I took them away and we had a great time.

[Dharmesh Shah]

How old are you now?

[Nikesh Arora]

I'm 57. It's public, so there's no harm talking about it.

[Dharmesh Shah]

I'm the same.

[Nikesh Arora]

Okay. So. And I had, I actually spoke about every one of the 40 people who were there at my 40th birthday. And I found that amazing. And I said, I hope I can do that when I'm 50 and I can do that when I'm 60. And it's kind of like you can't do that if you don't invest in them. So I like to invest in my friendships. I spend time with my friends. I check on them, they check on me. They know I'm there for them. So that takes up a reasonable part of my life. I have three amazing kids making sure they get my attention.

[Dharmesh Shah]

I Met one of your kids at the airport.

[Nikesh Arora]

Yes, you did. You did. Yes you did. And I have two others you have met. But all three of them are amazing and I want to be able to spend time with them. I also promise myself, I try. I try. I can't say I'm 100% on this. I try not to do dinners. I don't do work dinners, which is hard because a lot of people want to do work dinners. But sitting and talking business after having worked the whole day, it's not my cup of tea. Now once in a while I have to do them. Last night I went and spoke to 12 CEOs over at my wife's restaurant. So I had to go do that. But I asked her to come join me afterwards, had dinner with her. So I will always try and find a way. And by the way, it's not just there at Google, it was a rule if you worked at Google in marketing, every event for customers would have to have with spouses so I could bring my spouse to dinner.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

So I find a way of making sure I'm not without my family at dinners. I try to do that. I kind of have a rule that I try not to work weekends, which is hard, which I still do about two, three hours a weekend. But I want to work my 60 hours between seven.

[Dharmesh Shah]

Is that. Is it about 60 hours? You figure your work?

[Nikesh Arora]

I think so. I think so. Now my wife will tell you that probably my brain works way longer than that, 60 hours. And you know, she always sort of questions me, why did I join two different boards in addition to Palo Alto? I'm on the board of Uber and Rishimon. But you know, it keeps me intellectually honest. I see other businesses.

[Dharmesh Shah]

What's your day like? So tell me about today. What time did you get up?

[Nikesh Arora]

I Woke up at 5:30.

[Dharmesh Shah]

Why?

[Nikesh Arora]

I go to the gym at 6. I watch CNBC for a little bit.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I unwind.

[Dharmesh Shah]

CNBC doesn't unwind me.

[Nikesh Arora]

Well, I watch it to see what's going on in the world so I can kind of keep track of what's going on. But I usually go to the gym. I'll go invert myself for five or six minutes. I'll do a little bit of weights, I'll do a little bit of stretching. I go to the get myself stretched team, etc. Work my way back to my kids at 7. They wake up at around 7. They're young and chat with them a little bit.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

Then I came to work at 8:30.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

And I talked to three different customers. I talked to two startups. I.

[Dharmesh Shah]

In the day is it. You booked every half hour. You have big openings, you have time to think.

[Nikesh Arora]

I usually am booked every half hour. Sometimes it's an hour. I usually have a half an hour gap here or there.

[Dharmesh Shah]

Do you get exhausted during the day ever or you're just up?

[Nikesh Arora]

I can power through the days. Pretty. Look, my superpower is context switching and being able to focus.

[Dharmesh Shah]

I think that's a key thing.

[Nikesh Arora]

Yes.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

I'm the best consumer of slides or PowerPoint than you can find.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

I can absorb 20 in under a minute and tell you what the problem is.

[Dharmesh Shah]

Oh, that's a pattern recognition. That's a superpower.

[Nikesh Arora]

It's pattern recognition. Yes.

[Dharmesh Shah]

Lots of inputs coming into you like millions of friggin emails and slacks and texts and phone calls and requests for your time. How do you manage the. Just the hurricane of chaos.

[Nikesh Arora]

Good news is unless it's a customer email, you can ignore it.

[Dharmesh Shah]

Okay.

[Nikesh Arora]

Unless somebody really needs something. Freaking ignoring. Most of them have to inbox it full of junk.

[Dharmesh Shah]

Yeah.

[Nikesh Arora]

Probably 10, 20% is people telling me what's going on and I'll read through them. And I kind of get the gist of it because the customer will not respond. I did learn a trick which I do in my personal inbox because my personal email is a lot less, you know, noise in them. Every time I've actioned an email or I don't need it, I will either archive it or delete it or file it. Okay. So my personal inbox is always less than 100 emails.

[Dharmesh Shah]

Your inbox 0ish.

[Nikesh Arora]

100 emails is pretty good. And usually I'll go review it once in a while and some of them will go away and I'll action them. Yeah. Because that I keep pretty well managed in the work. 1 I do it right, then if I don't write then there's a risk that it slips.

[Dharmesh Shah]

What advice do you have to the founders who are really committed to 996 and their teams on 996. 996 is they. But they require of themselves a new Porsche or something. No, no, no. It's they, they require everyone to work 9am to 9pm Six days a week in the, in the office. That's kind of in fashion with the startups now. And it's all. Most of them.

[Nikesh Arora]

Yeah. I, I think there is tremendous amounts of impatience out there because people somehow believe that every minute that they're not trying to further their objective, they're going to not win. And I think that's a fallacy. I think some amazing businesses have been built because their idea was so different. I don't think people have out competed Starlink even if they weren't working nice. Even though Elon does for the most part because he's trying to get somewhere. He's got six different companies to manage. But I just think working smarter might be better in balance than working harder. You run the risk of burning out. You run the risk of burning people out. I don't see the value of manliness.

[Dharmesh Shah]

Like I appreciate your coming on the pod. You're kind of the renaissance CEO. I just came back from Florence and you're kind of a renaissance man CEO. I appreciate you coming on.

[Nikesh Arora]

Thank you for having me. I appreciate it.

[Dharmesh Shah]

Thank you very much. Okay. Hopefully you like that episode with Nikesh. He's terrific. You probably noticed we talked a lot about M and A. It was a little self serving because HubSpot's done a bunch of M and A and I wanted to learn from him. He's done a ton of it and it's largely worked. But what I wanted to do for you guys is to kind of turn it around and use what he said as like, what would I do as a founder thinking about selling my company or getting interest in selling my company? How might I think about that and how might I negotiate with someone, for example, like the cash? Now first, there are several reasons you might consider selling. One is if you've got a big platform player like Palo Alto or Salesforce or whoever it would be and they come knocking and you pass on them, there's a decent chance they buy your competitor and if they don't do that, there's a decent chance they build it themselves. Can take them a while, but that big platform player could be hard to deal with down the road. And you know, one of my things is either either you become a platform or you get eaten by a platform and that could easily happen to you and so don't underestimate that. The other thing he said on the call that was interesting is if a sales rep selling his product and it's a platform, there's 10 different products on top of that platform. That 11th product, yours, Palo Alto doesn't need to be out innovate you doesn't need to be beyond you in terms of features and functions. It needs to be a table stakes and the buyer will want to continue to buy from that platform vendor. And so don't underestimate if you pass on it, the trouble that could come down the road. The second obvious reason is you make a ton of money, sell the company and if you're young, you can put that money to work and start another company.

[Nikesh Arora]

I'm old.

[Dharmesh Shah]

And the third really nice thing about selling your company is you get massive distribution for your invention. You invented this amazing thing. You're working on distribution, you're probably not enjoying that and you can get huge distribution from the platform better. And that certainly happens with Palo Alto. So those are kind of the reasons to do it. So let's say you're thinking about doing it. I think a mistake a lot of founders make is they overthink the headline number. Like we got bought for 5 billion, whatever the number is. And if you look at it from nikesh's side, there's other things you can negotiate other than the headline price. So let's dig into if I were negotiating with somebody to get acquired, some of the things I might want to do. First thing he said that was interesting is typically when they buy a co founding team, one wants to stick around and the other doesn't. And I found kind of the same thing when we acquire companies inside of HubSpot. So maybe one thing you negotiate is there's one comp plan for you if you want to stick around and one comp plan for your, for your co founder or one vesting schedule for that one that wants to get out. No matter where you are on that, I think you want different terms that might be one you want to work on. The other thing he said that's kind of interesting is when he buys a company he typically rolls back some of your shares and gives you a three year vest on them, which is a little harsh, but everyone kind of does it. But what he said on top of that was he typically sticks a bunch of new options on top of you from Palo Alto network up to 30%. So that's definitely something you can negotiate. He also said it's very hard to give massive grants to somebody during the normal board cycle. This is the time he can kind of get away with it. So you might think about that you're getting acquired. You also want to think about the position. Like most companies when they acquire you, you get knocked a few levels down in that org chart. I like the way he thought about it, like hey, we were trying to get into this space, you guys were crushing us. We're going to put you on top of our team. You might try to negotiate. That I think would be a very nice thing to do. And the last thing he said that was brilliant that I want to start doing in HubSpot is during the diligence process, you basically envision what the roadmap will look together so there's no big surprises. But during that, you might come up with some really good ideas that make you more excited about it. Those are some of the tricks. So if the headline number is important, it's good for your ego, but there's a bunch of other important things that you want to negotiate when you're going through the due diligence of someone.

[Nikesh Arora]

Okay.

[Dharmesh Shah]

One of the things I really like about Mukesh is, is he's he, unlike I was, he's very focused on work, life, balance. He works Monday through Friday, he tries to work 60 hours a week and he doesn't do business dinners. I think that's a pretty good hack. I do a lot of business dinners that I could. I don't need to. I wonder for myself and I wonder for you. If you took Nikesh's approach, like would your company split in two and fall apart or maybe would the company be better off? Would you give a little room for your brain away from the company and the day to day tactics to really think and concentrate? He talked a little bit about luck and I feel like I've been very lucky and I want to wish you the best of luck on your CEO journey and I'll see you on the next edition of the Long Strange Trip.