Here's What It Takes to Make a Great Company

Summary

Odd Lots Podcast Summary: Here's What It Takes to Make a Great Company

Release Date: February 24, 2025
Hosted by: Joe Weisenthal and Tracy Alloway, Bloomberg
Episode Title: Here's What It Takes to Make a Great Company

---

Introduction: Announcing a Live Recording in Washington D.C.

At the beginning of the episode, hosts Tracy Alloway and Joe Weisenthal share exciting news with their audience. They announce that for the first time, they will be conducting a live public recording of Odd Lots in Washington D.C. on March 12th at the Miracle Theater. Although specific guests are yet to be revealed, listeners are encouraged to stay tuned for ticket information available through Bloomberg.

Notable Quote:

Tracy Alloway [02:00]: "We are very excited to announce that Odd Lots is going to Washington."

---

Discussion on Company Dynamics and Literature

The conversation kicks off with Joe and Tracy delving into their reading habits. Tracy suggests Margaret Atwood’s science fiction novel, Oryx and Crake, highlighting its portrayal of a future society where companies play a role traditionally held by nations, providing essential services like healthcare and housing. This leads to a broader discussion on the evolving significance of corporations in modern society.

Notable Quote:

Tracy Alloway [03:23]: "It's sort of a sci-fi thing, but I think about it quite a lot nowadays because she has this vision of society in the future..."

---

Guest Introduction: Ben Gilbert and David Rosenthal from Acquired Podcast

Tracy introduces their guests, Ben Gilbert and David Rosenthal, co-hosts of the renowned Acquired podcast. Ben provides an elevator pitch, explaining that Acquired delves deep into the histories of major companies, analyzing their rise to prominence and uncovering the unique factors that contributed to their success.

Notable Quote:

Ben Gilbert [05:21]: "We really try to, through conversation, tell the entire history of the company from founding to today, analyze it and really try to answer the question, why did the company that we are studying work and work at such extreme scale?"

---

Exploring Company Singularities: The Case of TSMC

The guests discuss Taiwan Semiconductor Manufacturing Company (TSMC), emphasizing its unique position as the world’s leading chip manufacturer that solely operates as a foundry, never competing with its customers. This singular business model has positioned TSMC as indispensable in the global tech ecosystem.

Notable Quote:

Ben Gilbert [08:10]: "TSMC are the only company that doesn't ever compete with their customers. They're purely a foundry."
David Rosenthal [09:52]: "There is nobody else in the world that has the capability to make the incredibly powerful chips at the leading edge that they do."

---

The Importance of Corporate Culture and Knowledge Preservation

A significant portion of the discussion centers on how companies like TSMC preserve collective knowledge and maintain operational excellence without relying on individual expertise. The conversation touches on the pitfalls faced by American manufacturers who frequently lay off employees, leading to a loss of institutional knowledge and operational inefficiencies.

Notable Quote:

Joe Weisenthal [14:14]: "TSMC may be the best in the world at producing chips, but there is no individual at TSMC that knows how to build chips."
David Rosenthal [15:55]: "It is the closest thing to magic in the modern world."

---

Management vs. Leadership in Building Great Companies

Ben Gilbert differentiates between management and leadership, arguing that while management stabilizes companies, it’s visionary leadership that propels companies to greatness. Examples include leaders like Mark Zuckerberg of Meta and Forrest Mars of Mars Inc., whose unique visions and stubborn adherence to their principles have been pivotal in their companies' success.

Notable Quote:

Ben Gilbert [20:35]: "Management tends to play a role in stabilizing companies... leadership is how to create great companies."
David Rosenthal [19:24]: "Meta and I'm sure Mark would say it's just like TSMC a collection of all the people and knowledge and processes."

---

Founder-Led Companies vs. Institutional Leadership

The conversation delves into the advantages of founder-led companies, where founders retain significant control, allowing them to uphold the company's original ethos and strategic direction without external pressures from shareholders or consultants. This tight control often leads to sustained uniqueness and long-term success, as illustrated by companies like Hermes and Ikea.

Notable Quote:

Ben Gilbert [32:35]: "If your goal is how do I start a trillion dollar company... Founder led companies have a much higher probability of being that."

---

Sustainability and Longevity of Companies

Tracy Raises the topic of company longevity and the factors that determine whether a business can sustain success over decades. The guests discuss how adaptability, maintaining a unique value proposition, and the ability to navigate crises are crucial for a company's long-term survival. They contrast historical companies like General Electric with modern tech giants, emphasizing the role of continuous innovation fueled by advancements like Moore's Law.

Notable Quote:

Ben Gilbert [37:37]: "The most successful companies are created by leaning into the thing that makes them special, not by trying to be like everyone else."
David Rosenthal [43:54]: "As long as Moore's Law holds, the world will find uses for that increased compute power and demand for it."

---

The Role of Moore's Law in Tech Growth

David Rosenthal introduces the "Moritz Corollary" to Moore's Law, positing that as long as computing power continues to double, the demand and applications for technology will also grow exponentially. This principle underpins the sustained growth of tech giants and explains their unprecedented expansion compared to historical companies.

Notable Quote:

David Rosenthal [43:54]: "As long as Moore's Law holds, the world will find uses for that increased compute power and demand for it."

---

Conclusion: Emphasizing Unique Strengths Over Imitation

In wrapping up, the hosts and guests agree that the key to creating and sustaining a great company lies in embracing and enhancing what makes it unique rather than conforming to external standards or trends. Whether through visionary leadership, unique business models, or exceptional corporate culture, maintaining distinctiveness is essential for long-term success.

Notable Quote:

Ben Gilbert [35:49]: "The lesson is the most successful companies are created by leaning into the thing that makes them special, not by trying to be like everyone else."

---

Final Thoughts and Takeaways

Joe and Tracy conclude the episode by reflecting on the importance of understanding both successful and failed companies to mitigate survivorship bias. They emphasize learning from how companies like TSMC avoid the pitfalls of cyclical layoffs and maintain their competitive edge through unique operational strategies.

Notable Quote:

Tracy Alloway [47:08]: "The point about TSMC and the idea of, well, when you're in an extremely cyclical industry, maybe, yeah, don't do layoffs."

---

Additional Resources and Announcements

Listeners are encouraged to follow Ben Gilbert and David Rosenthal on their respective platforms and to explore more content related to Odd Lots and Acquired. The hosts also tease future episodes and upcoming content, promising continued deep dives into the stories of great companies.

Notable Quote:

David Rosenthal [44:58]: "We do little hints on our emails. When we release episodes, we do a little riddle of what the next episode is going to be."

---

Summary:
In this episode of Odd Lots, Joe Weisenthal and Tracy Alloway engage in a comprehensive discussion with Ben Gilbert and David Rosenthal from the Acquired podcast about what defines a great company. Using TSMC as a primary example, they explore the importance of unique business models, visionary leadership, and robust corporate culture in sustaining long-term success. The conversation also touches on the critical role of Moore's Law in driving the exponential growth of tech giants and the necessity for companies to preserve collective knowledge to navigate industry cyclicality. Ultimately, the episode underscores that embracing and enhancing a company's unique strengths is paramount for enduring greatness.

Transcript

[Tastytrade]

Old trading walks into a bar. New trading raises it. Unlike some guys, tastytrade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser. Or maybe you just need that top rated app right by your side. However you do it, tastytrade's got the advanced tools you need to tackle stocks, options, futures and more all in one place. Chart your heart out with over 300 indicators. See opportunity differently with interactive curve analysis. Use backtesting to learn from the past and plan for the future. The platform is only the beginning of better trading. You'll also find low pricing, lots of education and backup from a support team that really gets how traders trade. It's no Wonder Investopedia named tastytrade the best broker for options in 2024. Genius loves company, so get moving at tastytrade.com RideWithUs tastytrade Inc. Is a registered broker, dealer and member of finra, NFA and sipc.

[Oracle]

AI is rewriting the business playbook with productivity boosts and faster decision making coming into every industry. If you're not thinking about AI, you can bet your competition is this is not where you want to drop the ball. But AI requires a lot of compute power and with most cloud platforms, the cost for your AI workloads can spiral. That is, unless you're running on oci. Oracle Cloud Infrastructure this was the cloud built for AI, a blazing, fast, enterprise grade platform for your infrastructure, infrastructure, database, apps and all your AI workloads. OCI costs 50% less than other major hyperscalers for compute, 70% less for storage and 80% less for networking. Thousands of businesses have already scored with oci, including Vodafone, Thomson Reuters and Sunoai. Now the ball's in your court.

[Tastytrade]

Right now, Oracle can cut your current cloud bill in half if you move to OCI. Minimum financial commitment and other terms apply.

[Ben Gilbert]

Offer ends March 31st.

[Tastytrade]

See if your company qualifies for this special [e-mail] strategic that's oracle.com hey there odd Lots listeners.

[Tracy Alloway]

It's Tracy Alloway and Joe Eisenthal. We are very excited to announce that Odd Lots is going to Washington.

[Joe Weisenthal]

That's right. For the first time we are going to do a live public Odd Lots recording in our nation's capital. That's going to be March 12th in Washington D.C. at the Miracle Theater and guests will be announced in the coming days. But in the meantime you can find a Ticket [e-mail] Odd Lots Bloomberg Audio Studios Podcasts Radio News.

[Tracy Alloway]

Hello, and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracy Alloway]

Joe, you told me you read a fiction book last year, right? Just one.

[Joe Weisenthal]

I read it. So I read too much nonfiction. Like a lot of dudes, I think it's nonfiction. It's very bro coded. My goal for 2025 was to read at least one novel, and I did it. I already satisfied my goal. It's not even the end of January yet. So back to reading random history and philosophy and all that stuff.

[Tracy Alloway]

Very ambitious, your one fiction book. Can I make a suggestion for another fiction book you should read?

[Joe Weisenthal]

Please.

[Tracy Alloway]

So there's a book by Margaret Atwood called Oryx and Crake, and it's sort of a sci fi thing, but I think about it quite a lot nowadays because she has this vision of society in the future, and in that society, companies are the most important part of it. It's not about countries anymore. It's all about what company you work for. And the companies are kind of the ones providing all the social services like healthcare and housing. Basically, you're a citizen of a company instead of a country. And I kind of think about it a lot because I feel like we're sort of moving in that direction where companies are becoming more powerful, they're becoming more interesting in many ways, and more important to society than ever.

[Joe Weisenthal]

I'm looking it up right now. I hadn't heard of it. It came out in 2003. Maybe at that time it was sort of seen as futuristic, but in 2025, it does not even sound futuristic or controversial at all. And we could go on about what that means, but I just, like, basically accept the premise that that's true now in 2025.

[Tracy Alloway]

Okay, great. So you have your second fiction book to read. But the reason I bring it up is because I think we should do more on these stories of companies in general. And so I am very pleased to say that we do, in fact, have the perfect guests to discuss this. I'm very excited about this. I'm a fan of their podcast. Lots of people are fans of their podcast. We're going to be speaking with Ben Gilbert and David Rosenthal, the co hosts of the acquired P.O. so, Ben and David, thank you so much for coming on Oddbots.

[David Rosenthal]

Thank you.

[Ben Gilbert]

Great to be here. Thanks for having us.

[David Rosenthal]

All right, Tracy, I love that intro. Mark. What a career she is.

[Tracy Alloway]

Oh, thank you.

[David Rosenthal]

Oh, my goodness.

[Joe Weisenthal]

Tracy and I were talking about, like, who should start this one? And I was like, ah, Tracy, you do it. And I was much better than what.

[Ben Gilbert]

I would have done.

[Tracy Alloway]

Well, thank you everyone, that's very nice. Ben and David, maybe give us the, the elevator pitch for the podcast just before we begin.

[Ben Gilbert]

Well, acquired is a 10 year old podcast that started, like many company journeys in obscurity with nobody listening and slowly doubled year over year over year. I bet, I bet.

[Joe Weisenthal]

Yeah.

[Ben Gilbert]

We're now fortunate to be one of the top few, often the number one tech podcast on Apple and Spotify, which is a little funny because we study these companies that are very often not tech companies now, but we look at companies like TSMC and Mars, the company behind M&MS. IKEA, Meta, Hermes, Costco, and we really try to, through conversation, David and I tell the entire history of the company from founding to today, analyze it and really try to answer the question, why did the company that we are studying work and work at such extreme scale?

[David Rosenthal]

And Tracy, the reason we do it is literally just like you said, you know, the institutions that these companies, the biggest companies, you know, around the world have become are, you know, they're quasi governmental at this point. You know, you can make an argument they're more important than governments. Somebody said to Ben a few months ago when talking about acquired, you know, in 200 years, I don't know if people are going to know the name Joe Biden, but they're sure as hell going to know the name Mark Zuckerberg. And we're like, whoa, that's. That's a crazy idea. But might be true.

[Joe Weisenthal]

Yeah, I mean, I can't. There are a bunch of random presidents from 100 years ago that I certainly, I couldn't name or if I could name them, wouldn't know anything about them. Going back to Tracy's fantastic intro, you know, there's sort of two things, I guess, about companies, which is one is, I guess, the business model, the product that they sell. You know, you build something and then you try to sell it for more money that you built it for. And then there is this sort of like the internal empire and there's the culture and there's just the way they work. And these are fundamentally sort of like different questions. Do you, how do you think about, like, what a company is? Because I get there really, per Tracy's intro, there are multiple ways to describe it. Like, what is a company that is.

[David Rosenthal]

You know, we typically spend four to six hours on an episode trying to answer that question. You know, it's what we've tended to find is the only pattern that tends to really exist across these greatest biggest companies in the world is that they are each totally idiosyncratic in some really one or multiple really, really, really important dimensions. And so I think I would say, you know, for, for those incredibly successful, you know, institutions of our time, what they are is they are something unique that no other institution, you know, company, corporate, governmental, otherwise can. Well, TSMC that we just covered, we just interviewed the founder Morris Chang in Taiwan, which is an incredible experience. You know, they make all the leading edge chips in the world. So, you know, to the extent that computing and compute is important in our world, like all of it flows through tsmc. There is nobody else in the world that has the capability to make the incredibly powerful chips at the leading edge that they do.

[Ben Gilbert]

I think our episodes tend to hinge on this question. In what way is this company singular? Because Nothing gets to $500 billion trillion dollar scale without being the only one that can do x. And in TSMC's case, they're the only company that doesn't ever compete with their customers. They're purely a foundry. They are not also a chip designer. And they're the only ones capable of doing what is the current technology generation 2 nanometer process, the most sophisticated leading edge chips. And almost every big company you look at that has been successful over a long period of time or reached outlier status is singular in some way like that.

[David Rosenthal]

And tsmc, it's like, it's wild because of that. That is the only thing that matters. There they are in this island nation of, depending on who you ask, disputed sovereignty. It's insane. There's something like 6 or 7% of the country's GDP and like, I think like 15% of the stock market, you know, of the equity value of companies in the country. Yet it exists. And yet the world order, you know, at least thus far, has reorganized itself around it.

[Tracy Alloway]

So the way I kind of think of your podcast, the analogy that I use is you're, you're the business equivalent of Dan Carlin's hardcore history. Like these are long episodes where you are digging very deep into the profile of a particular company. But as you mentioned, you also do interviews or you weave interviews into your company profiles. And you just did that one with Morris Chang, the TSMC founder. One of the things that really surprised me in that interview was he said he never fired people and never did performance reviews. What did you guys think of that?

[Ben Gilbert]

It's really interesting. So David and I got to read an unauthorized translation of his Chinese only memoir to prepare, and he went into Sort of great length in the memoir explaining the philosophy. And the idea is that performance reviews are entirely separate from the idea of who should get laid off if there's a layoff. Performance reviews are specifically about coaching you on how to be a better employee for the company next year. So both the employee and the company benefit if there is a layoff. There should be a entirely different way of determining where we need to trim to cut budget versus looking at people's performance reviews. And Morris goes so far as to believe that in his industry, with his business model, you should actually never lay people off. And I think that comes from the fact that a, if you believe the economy or your industry is going to turn around within 12 or 18 months, you know, it's not actually worth it to lay people off, pay a whole bunch of severance, need to hire people back, need to retrain them. But the other big part is Moore's Law marches on.

[David Rosenthal]

If you believe in Moore's Law, you will always need more.

[Ben Gilbert]

Yes. And you'll need more people, you'll need more machinery, you'll need more capacity. And the semiconductor industry is so cyclical that part of the way that he believes you can kind of avoid these huge gluts and then bubbles, basically this boom and bust of the semiconductor industry is to sort of behave less in this whiplash like fashion where, oh, no, there's a little bit of an asset bubble and stocks are in a drawdown. Need to lay off people. Oh, my God. And I think he sort of blames layoff as a piece of the massive cyclicality of the industry. Yeah.

[David Rosenthal]

And he had a really scarring experience around this back when he was at ti, Texas Instruments. So, I mean, the crazy thing about Morris, he didn't start TSMC till he was 56 years old. He's not Taiwanese. He was born in China, but then became an American citizen. He had a whole incredible career in the semiconductor industry in America. Long before starting tsmc, he ran TI Semiconductor Group and before intel.

[Ben Gilbert]

And really, you might chuckle about, like, ti, TI Group, they make those calculators for high school students. Right.

[David Rosenthal]

But before intel, and for the first, like 10 years of Intel's existence, they were the pipsqueak and ti was the semiconductor giant. And Morris ran the semiconductor division at ti. And at some point, part of how they really lost the crown to intel was the corporate. You know, the CEO decided we need to have a layoff. You know, for whatever reason, you know, gyrations were going on in the stock market or whatever, they ended up as a Result of that, I don't know if they're directly laid off, but as a result, the MOSS team, mos, Metal Oxide Semiconductor. Some of the sulfate.

[Ben Gilbert]

I'll look it up.

[David Rosenthal]

Yeah. Which was sort of the next generation of silicon. That team within TI left the company, started a new company called mastec. And then anybody who knows anything about semiconductors knows, you know, MOS was like the key technology that intel leveraged and like, you know, really helped expand Moore's Law. And TI just totally missed out on that because they, you know, parted ways with this really important group and like, who knows what's going to be really important in the future.

[Joe Weisenthal]

So this actually gets to something that is a very recurrent odd lots theme. And of course, when I described what companies are sort of in the theoretical sense, you know, one thing I didn't mention is their preservation of collective knowledge and memory. Right? So TSMC may be the best in the world at producing chips, but there is no individual at TSMC that knows how to build chips.

[David Rosenthal]

Right.

[Joe Weisenthal]

It's a collective process and there's no one person that stores it all in his head and just can walk across. And you see this in the failings of certain American manufacturers. They do have these layoffs and then they're like out of practice and they get rusty. And we talk about it a lot in the nuclear industry and in the plant industry, etc. Talk to us maybe TSMC, but also other examples of the company as this sort of knowledge preserver.

[David Rosenthal]

Totally. Well, TSMC is so vivid in our minds right now because we just were there and we toured the science park, Hinxu Science park in Taiwan, where not only TSMC but the whole semiconductor ecosystem is located. Like MediaTek's there, ARM's there, you know, Apple's there. Like, you know, it's like a.

[Ben Gilbert]

It's like all of this Qualcomm, it's.

[David Rosenthal]

All right there, right together. You are so incredibly correct that there is no one person. There's not even a group of a thousand people who know how to make chips or know how to. What TSMC is, you can't just like airlift. You could take all the buildings, you could take a bunch of people out of there. And like, you cannot recreate this. It's a. It is a whole ecosystem contained in one physical location.

[Ben Gilbert]

I think it's fair to say it's the most complex process that humankind has created and the most complex product like the science and technology and R and D that goes into etching a 2 nanometer wafer for use in whether it's AI chips from Nvidia or the chips in our MacBooks or iPhones from Apple. That is. You know, there's a joke in the semiconductor industry that this is a technology given to us by aliens. That's how sort of insane it is.

[David Rosenthal]

It is the closest thing to magic in the modern world.

[Ben Gilbert]

Yes, I think that's exactly right. And so I think lots of industries have examples of what you're talking about. This idea that the culture of the company contains this sort of fabric of knowledge that not one person can have, but is blown out to its extreme. In semiconductors.

[Tastytrade]

Old trading walks into a bar. New trading raises it. Unlike some guys, Tastytrade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser. Or maybe you just need that top rated app right by your side. However you do it, tastytrade's got the advanced tools you need to tackle stocks, options, futures and more all in one place. Chart your heart out with over 300 indicators. See opportunity differently with interactive curve analysis. Use backtesting to learn from the past and plan for the future. The platform is only the beginning of better trading. You'll also find low pricing, lots of education and backup from a support team that really gets how traders trade. It's no wonder Investopedia named Tastytrade the best broker for options in 2024. Genius loves company, so get moving. @tastytrade.com RideWithUs tastytrade Inc. Is a registered broker, dealer and member of finra, NFA and sipc.

[Stifel]

Success. It's discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. It's the best in each of us, made better by the best in all of us. Whatever success looks like to you, Stifel is invested in yours. That's why Stifel is one of the fastest growing global wealth management firms in the country. So when you're ready to chase success, our financial advisors are ready for you. At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row. If you're an advisor or an investor, choose Stifel. Where success meets success. Stifel, Nicholas & Co. Incorporated member SIPC and NYSE for J.D. power 2024 award information, visit J.D. power.com Awards compensation provided for using, not obtaining the award.

[Tracy Alloway]

So if we agree that companies are sort of collections of institutional knowledge more broadly, I guess I'm wondering like how much of a role does management play then like are there instances that you've studied where management has made a real, real difference?

[David Rosenthal]

Yes, I'm laughing. Meta Facebook is like such an extreme example of this. Like yes, Metta and I'm sure Mark would be the first to say is just like tsmc a collection of all the people and knowledge and processes. And if Mark were to go start another company, he couldn't recreate, you know, Meta and Facebook. But there have been so many moments in the history of that company where a decision or a set of decisions made solely by Mark have completely changed its course and enabled it to become what is it? You know, before this most recent drawdown, one and a half trillion dollar market cap company.

[Ben Gilbert]

I would say I draw a distinction between management and leadership. I think management tends to play a role in stabilizing companies and creating companies that are maybe 1, 2 standard deviations away from the mean. On the positive side, you know how to create good companies and leadership is how to create great companies. These founder led companies, Jensen and Mark Zuckerberg and Forrest Mars in the case of The M&M's, Snickers, Candy Corporation, Bill Gates in the case of Microsoft, D Hawk in the case of Visa. These are people that are visionary, that have an idea of the way the world should work. John Collison has this great quote that when you look around the world is a museum of passion projects. And I think it's the leadership of these true visionaries that when they first started you didn't know for sure they were going to be right or not. But in hindsight it was their leadership, their stubbornness, their stick to itiveness and their insistence that their way of arranging the world around them was correct that ended up actually shaping the world and creating the biggest companies on earth.

[Joe Weisenthal]

You know, I have a question. Since you started off by talking about performance reviews and here's something that I think about sometime which is that let's say you have like a Mark Zuckerberg starting Facebook in his dorm room or Larry and Sergey and Google in their garage and they have this cool technology and they're growing and then it's eventually they hit a point where someone comes to them and says, you know what, we really need to like write an HR manual. We really need to like come up with all this stuff. And I think about myself. That would be the point where, like, you know what? I'm selling the company. I hate dealing.

[Tracy Alloway]

I hate dealing with, like, Joe hates paperwork.

[Joe Weisenthal]

I hate paperwork. I don't want to, like, write a manual. I don't want to start having performance reviews. I don't want to, like, come up with all these, like, HR policies. This sounds like a headache. I'm curious though, like, because you talk about these visionaries, how do they sort of accept the fact that as they get bigger, certain aspects of bureaucracy, which they probably find kind of annoying too, are sort of must haves with scale.

[Ben Gilbert]

I would push back that it's must have. I think it is most common to have it. But I am of the opinion that you can accomplish the same set of tasks through process and through culture.

[Joe Weisenthal]

They all have, right? They all have rules. They all have, like, manuals. I mean, eventually, like, they all have a HR department and they have specialization, all that stuff.

[Ben Gilbert]

100X more than others. Like, you look at Nvidia, and I honestly believe this is true from speaking with Jensen, from interviewing him, from speaking with a number of directs, from spending time at headquarters. It is a pretty unstructured environment with comparatively few people, I think. What's Nvidia's headcount, David? Something in the head.

[David Rosenthal]

I don't know. Compared to the other tech giants, 5.

[Ben Gilbert]

To 10x magnitude less than the other big tech companies. Way less. Process.

[Joe Weisenthal]

Oh, small, yeah. According to 29,000 people. 29,600. All right, keep going, keep going.

[Ben Gilbert]

And what's Apple? Somewhere in 100,000. Microsoft's like 160, 70,000. I mean, it's a comparatively small headcount company. And I really do think you can accomplish tasks through incredibly strong culture or process, and usually it's the sum of both. But it's always interesting to see which companies are able to lean much more heavily on. You would just never violate some tenet of our culture. And therefore we don't need rigid process around it.

[David Rosenthal]

And it's funny, you know, you can kind of go one way or the other somewhere in the spectrum. So with Jensen in Nvidia's case, clearly that's how he loves to operate. Forrest Mars and the Mars company was the total opposite end of the spectrum. You know, Forrest was one of the most idiosyncratic entrepreneurs in American history. And because the company's so private and the family is so private, it's not as well known. We did a episode on it, by the way.

[Ben Gilbert]

It's a candy and Pet company worth probably over a hundred billion dollars.

[David Rosenthal]

Totally privately held, totally owned by the family, 100%. Forest was so extreme on process, so he just instituted this set of rules that were completely crazy to the outside world at the time, but like, were how he wanted to organize things. And then everybody in the company just fell in line with the rules. So stuff like there are no offices, there's no conference rooms. Well, there are a few conference rooms. They don't have doors on them. They're made of glass. Everybody open floor plan. This is in the 1930s. Imagine this like no executive offices, no perks.

[Ben Gilbert]

A large bonus is determined if you are on time to meetings or not.

[David Rosenthal]

And everybody punched a time card, including him, the CEO.

[Joe Weisenthal]

By the way, Tracy, I can think of another privately owned company with open floor plans and glass windowed offices.

[Tracy Alloway]

Yeah, me too.

[David Rosenthal]

Do you guys punch a time card?

[Joe Weisenthal]

We don't.

[Tracy Alloway]

Well, we kind of do. Yeah, kind of, kind of.

[Joe Weisenthal]

Some of this sounds familiar. We don't get a bonus for showing up at a meeting on time, but some of this sounds familiar. Anyway, keep going. Sorry.

[David Rosenthal]

And, and the way that he did this is, you know, again, these were radical, radical concepts for like, you know, pre war and post war America and Europe at the time. He just said like, we are all about performance here. We're all about the company's bottom line. And if the company perform, you will make an insane amount of money. And so his goal was like, assuming we outperform our targets, everybody, you know, on their salary base should make three times what an average salary for their job would be elsewhere in the industry. And so like, you just set up those incentives and you set up those hard rules and you're going to get people to follow them.

[Tracy Alloway]

Wait, so I don't know that much about the Mars company other than, you know, M&M's are delicious and all of that. But when you're researching a privately held company like that, what's, what's the actual research process for you? Like, how do you dig up information on a company where there aren't as many publicly available documents and financial statements?

[Ben Gilbert]

We rely heavily on the. Or at least historically, we're now getting more primary source access, but historically on the writing of great journalists. And so usually there is a canonical book of someone who got close. Like in the case of Renaissance Technology, the ultra secretive asset manager out of Setocket, New York. I think that's right, David.

[David Rosenthal]

Yeah.

[Ben Gilbert]

There's a great book by Greg Zuckerman called the man who Solved the Market. Like pretty Investigative journalism work. David, there's one here in the chocolate book.

[David Rosenthal]

Yeah, for Mars. There's a book written by Joel Glenn Brenner. She was a reporter at the Washington post in the 80s and 90s, it's called Emperors of Chocolate. It's so good. She got access to Mars by calling them, calling headquarters every single day for a year. And then finally they relented and gave her access. It's the only book ever written. It came out in like the late 80s, early 90s, so we use that. And then we talked to her. So we talked to her for Mars. We talked to Greg for Rentech. We talk to these people and we say like, okay, like, you know, tell us about this. Like, what was the process of getting access? You know, what are you sure about? What are you not sure about? What do we really need to highlight what's happened since?

[Ben Gilbert]

And David's view is even if a company, for example, when we did Nvidia in early 2022, which, gosh, what a ride it's been since we covered the company back then, there wasn't a book yet. There's about to be two books. And so that requires sort of piecing together the story over a lot of different ways. David's favorite is finding industry talks that have been posted to YouTube. And so there's usually some mid level manager that is talking about something. Like in a presentation they get all excited because they get to go and present to their peers. There's always gold in there. And I don't think it's like, like investment alpha necessarily. And I'm not sure it's competitive information where the company's like, oh, we wish this wasn't presented. But it really does. If you're trying to understand the story of how the company became successful, really helps you find that.

[David Rosenthal]

And it's often the founders themselves too. I mean, gosh, in that Nvidia case, there was a talk that Jensen gave at Oregon State University on the steps of osu and it was, you know, recorded, I don't know, probably sometime in the 90s, early 2000s. And he's, you know, it's a totally different Jensen, it's a totally different company. And he's completely candid, straightforward, talking about his journey. And you know, when we found it, it had like, I don't know, a couple hundred views on YouTube. Like it's. This stuff is out there.

[Tastytrade]

Old trading walks into a bar, new trading raises it. Unlike some guys, Tastytrade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser, or maybe you just need that top rated app right by your side. However you do it, tastytrade's got the advanced tools you need to tackle stocks, options, futures and more all in one place. Chart your heart out with over 300 indicators. See opportunity differently with interactive curve analysis. Use backtesting to learn from the past and plan for the future. The platform is only the beginning of better trading. You'll also find low pricing, lots of education and backup from a support team that really gets how traders trade. It's no wonder Investopedia named Tastytrade the best broker for options in 2024. Genius loves company, so get [e-mail] RideWithUs tastytrade Inc. Is a registered broker, dealer and member of finra, NFA and sipc.

[Mikaela Shiffrin]

I'm alpine skier Mikaela Shifrin. I've won the most World cup ski races in history. But what does success mean? To me, success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stifel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.

[Stifel]

At Stifel, we invest everything into our advisors so they can invest everything into their clients. That's that means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row.

[Mikaela Shiffrin]

If you're an advisor or investor, choose Stifel.

[Stifel]

Where Success Meets success stifel Nicklaus & Co. Inc. Member SIPC and NYSE for J.D. power 2024 award information, visit jdpower.com Awards compensation provided for using not obtaining the award.

[Joe Weisenthal]

There'S an obsession among a lot of investors with the idea of founder led companies and that's really exciting. Someone who's still there, who still has that original vision. But you know, obviously a lot of companies are just too old to still be founder led or companies thrive through multiple CEOs. Regardless. What what patterns have you realized? Is there a real difference with founder led companies or is sort of just a survivorship bias? Some founder led companies have done really well and we remember all of those. Some flame out and no one talks about them, et cetera. I'm curious what patterns or anti patterns you observe.

[Ben Gilbert]

Okay, well first of all, it's all survivorship bias, everything we've talked about so far. I'm glad you found it.

[David Rosenthal]

Major caveat.

[Joe Weisenthal]

Yeah, yeah, I was going to follow anyway.

[David Rosenthal]

Past performance is not an indicator of future success here.

[Ben Gilbert]

We have not brought up a single company on here that A has failed or B is a middling success. No $10 billion companies have sort of crossed our lips this conversation we have decided on acquired. We love understanding what made the extreme outliers work so well. The great irony is that is not a playbook that you can repeat. You know, it's like holding that lottery ticket up in the air and professing to everyone, like the great webcom at xkcd. There's this amazing comic where he's holding the lottery ticket on a stage saying, I just kept playing and if you keep playing too, you too can win the lottery. And I think it is, you know, we should wave our arms around and say if you run Mark Zuckerberg's exact decision process, you will not be Mark Zuckerberg. I mean, it's just you weren't there at that exact time in that exact place.

[Joe Weisenthal]

I always think about those Twitter threads where it's like this is the daily routine of the CEO. He gets up at 4am and takes a cold shower and then meditates for half an hour and then eats raw oats and then takes his kids to school, et cetera. It's like, man, you're not going to start a billion dollar company by following what you saw on a Twitter.

[David Rosenthal]

Humans are really, really bad at distinguishing correlation from causation.

[Tracy Alloway]

Yes, that's another XCD comic, isn't it?

[Joe Weisenthal]

Yeah.

[Ben Gilbert]

Oh yeah, xkcd.

[Tracy Alloway]

Oh, sorry, xkcd. Dyslexia strikes again.

[Ben Gilbert]

It's not the easiest name to remember or pronounce. But I will say though, I think if your goal is how do I start a trillion dollar company, how do I start one of the 30, 40, 50 most important, largest, most successful durable companies on the planet? Founder led companies have a much higher probability of being that. And as you point out, time has a lot to do with that. You look at Hermes, this is a, you know, what is it, 150-year-old company. The original founder is not going to be the person running that. But close control is a key to the success of that business and so many others where they control their own destiny. They don't have to answer to the whims of shareholders. Ikea is another great example. Mars is a great example. It might be a hired CEO in the case of Mars, or It might be a close family member in the case of Hermes. David, your comment on the 6th generation family member. But there is a flexibility to adhere to the ethos of what makes the company special that either founder control, family control, or just sort of tight original shareholder control lets you do in a way that if you're publicly traded, eventually the specialness gets beat out of you. You start believing that the consultants are right when you hire them and they say you should be like everyone else, or that the public equity investors that are trying to compare you against your comps and use the same numbers to compare you, but not really understand actually the way my business works, you should analyze it in a completely different way because that is what makes it special. You just, you lose the ability to keep yourself.

[David Rosenthal]

There's this amazing story from Hermes history of Jean Louis Dumas, who was I think the third, either the third or fourth generation family member to run the company. In the 80s, late 70s, early 80s, Hermes had kind of, I don't want to say fallen on hard times, but they were much, much smaller relative to their peers in the luxury industry. And Gucci was on the rise. It was the Tom Ford days at Gucci and they were everywhere. And they brought in some consultants, I don't know which firm, and recommended like, oh, okay, Hermes should basically throw in the talent, follow the Gucci playbook of machine production. High volume, lots of SKUs be everywhere.

[Ben Gilbert]

License your brand.

[David Rosenthal]

License your brand. Yeah, things you could never imagine Hermes doing today. And Jean Louis just said like basically no and f you and we will never work with consultants ever again. And we're going to double down on handcrafted, you know, unique history, scarcity. And that's what they did. And so they built up, you know, over the ensuing decades they have 7,8000 artisans that hand make the majority of their items in France. Like what other company is, is, you know, a hundred plus billion dollar company where everything is handmade by artisans.

[Ben Gilbert]

This was a dead craft. They spent 30 years reviving the number of craft people in the market school. They started to do this, they started.

[David Rosenthal]

School, trade schools to teach people to do this because it wasn't getting passed on through generations anymore because all the other luxury companies had moved to machine production.

[Ben Gilbert]

I think when it comes down to it, the lesson is the most successful companies are created by leaning into the thing that makes them special, not by trying to be like everyone else.

[Tracy Alloway]

I like the idea that in some alternate reality they listen to the consultants and I in fact have a Birkin bag. But I guess I guess it wouldn't be as special.

[David Rosenthal]

Yeah.

[Tracy Alloway]

All right, so the other thing that people are obsessed with in addition to founder led companies is the idea of disruption.

[Ben Gilbert]

Right.

[Tracy Alloway]

And disruption is certainly in the news right now, given the deep seek, sell off and stuff like that. And Joe and I recorded an interview with Howard Marks a little while ago and one of the things he talks about is how there's no guarantee that the big or best companies of today are going to be around forever. So if you go back and look at some businesses that were big in The S&P 500, like back in the 60s, they aren't there anymore. So names like Kodak or Avon, remember the Avon lady?

[Ben Gilbert]

Oh yeah.

[Tracy Alloway]

Simplicity pattern was in the S&P 500. That's a company that made patterns so people could make their own clothes. Like, it's kind of hard. Yeah, it's hard to imagine that now, but in the podcast you're discussing successful companies, but how do you view, I guess, a company's longevity? Like what factors determine whether a business is sustainable for decades versus being just a flash in the pan?

[Ben Gilbert]

It's funny, not only is this a great question, it's actually the most important question because if let's say something compounds at a fixed rate and let's even say that rate is low, it's a 5% per year growth company. What actually matters is your growth in years 28, 29 and 30 on a 30 how long your horizon and it's if whether or not you're able to grow 10% this year, in year two, or three or four, and wildly exceed your targets, that's completely irrelevant. Versus can you survive till you're 28 and do 5%, 2%, you know, like modest growth at scale or in this.

[David Rosenthal]

Case 109 year 190, you know.

[Ben Gilbert]

Yes, yes. And we've experienced this at acquire it. It's the craziest thing that you know, last year we grew from 500,000 listeners to a million listeners. Okay, it's 100% growth. That is high growth. Were we a public company, it's kind of like middling, pathetic growth if you are an early stage startup. And yet the fact that it happened in our 10th year is actually the thing that matters. I wouldn't have cared. I would take that over growing at 800% in year two any day. And so you're getting at the core ethos of like what really matters when you're creating something very valuable in the world is the out years of the compounding. Now to actually answer the question, David, you look like you've been thinking about it.

[David Rosenthal]

I love what you did there, but you did the setup and then you're like, oh, so the really hard thing that like, like if you actually knew, you would probably be the greatest investor.

[Tracy Alloway]

I'm gonna remember that for this podcast. Like, Joe, Joe, you look like you have something to say.

[David Rosenthal]

Oh boy, oh boy. I think it's, you know, every company without fail, I mean, look at this deep sea crisis right now is gonna face crises on some, you know, irregular pattern. You know, you don't know when they're gonna come over x many years. But like, if you're in business long enough, you will face crises. I mean, and we have faced crises with our little two person company here. And then it's just, can you navigate that crisis and emerge on the same or better compounding trajectory that you were before?

[Ben Gilbert]

And to your point earlier, David, that this. Okay, I'll try to really answer the question. Every company is special in some way, singular in some way. And the thing that gives any individual company its durability is different and related to its specialness. So for Hermes, it's the uncompromising commitment to craftsmanship and the durability of their products and protecting their brand and making the hard choice over and over and never, never making the easy choice. Such that it is instilled in the psyche of generations of customers, like customers who pass things down and word of mouth that they have this extreme premium luxury associated with their brand that, you know, if they made little trade offs like, ooh, let's, let's juice the price, let's raise Birkin bag prices 50% this year, or let's have a whole bunch of these get made in this machine that kind of looks saddle stitch but isn't saddle stitch. These would trade off against their sort of durability over time. But that's not the way every company does it. Like, like Microsoft, for example, does it through product bundling. The fact that they now have so many pretty good pieces of software that they can bundle together and sell in one enterprise agreement to a company and have a full solution versus needing to have the best individual widget to do the task for any given thing. This turned out over time to be an incredibly durable business model that, you know, really didn't exist before Steve Ballmer sort of invented it in the late 90s.

[Joe Weisenthal]

I just have one last question. Obviously if you're talking about the great, and this is something that we talk a lot about on the show, but if you're Talking about the great companies today, there are great companies in luxury, they're great companies in pet food, in candy, but the vast majority of them are going to be big tech giants. Those are the biggest, most successful companies in the world. And then to your recent point, what's really extraordinary to me, and I think to investors, is how big they still compound in the out years. So we're talking about companies that in many cases are more than 40 years old and yet still growing at just extraordinary clips given their size. Is this truly sort of ahistorical? Like if we looked at, like, you know, if we looked at the really big companies 30 years ago or something, you know, you have like oil companies or General Electric, etc. And they were big and they were doing really well, but they had slowed down quite a bit by the time they had like gotten to the whatever the equivalent is. And it seems like we're really in sort of uncharted territory by the speed with which these tech giants specifically can still grow at their level of maturity.

[David Rosenthal]

Yes, this is the consequence of Moore's Law. Moore's Law and what we like to refer to as the Moritz corollary to Moore's Law, which is Michael Moritz, who is a longtime partner at Sequoia, invested in Google, Yahoo and Stripe, among others, and a journalist before joining Sequoia. Yeah, help for us. All the folks probably know, you know, Moore's Law, but in this case, you know, the relevant interpretation of it is that the both demand and supply for computing power, you know, writ large, forget any specific definition of it, but like the ability to compute things will double every 18 to 24 months. And that spiritually has held true since, gosh, what, 1968 maybe. And so we're many, many years down the compounding curve of that, and it is still relatively true. The Moritz corollary to it is that as long as Moore's Law holds, the world will find uses for that increased compute power and demand for it. And so if you believe that the market size for computing technology writ large is going to grow, if you look at like the entire technology market, it's going to roughly grow at the same pace as Moore's Law, which is exponential. That's the reason it's exponential. And it's 60 plus years into compounding at this point, and the world has never seen anything like it.

[Ben Gilbert]

And so I think if you take big tech writ large, it probably is true that big tech will continue to get bigger than ever, because the market cap of technology companies in some will continue to Follow the Moore's Law curve. However, I think it's a little bit disingenuous because every 10 years or so we have a new entrant to big tech who is surfing the wave of the most recent new market created by Morse. Exactly, exactly. And so whether it was mainframes or minicomputers or the PC or the Internet or mobile or AI, like, each one of these brought one or two or three brand new entrants. And we sort of liked that. We called them Fang and then we called them Mama, and now we call them the Magnificent Seven. But, like, these are actually different companies. And Nvidia was not a part of the conversation even three years ago.

[Tracy Alloway]

Can you give us a scoop and maybe tell us what you're working on next?

[Ben Gilbert]

David hinted to our listeners. What was your specific hint? A different type of TikTok.

[David Rosenthal]

Not that kind of TikTok. Yeah, we do little hints on our emails. When we release episodes, we do a little riddle of what the next episode is going to be. Yes, a different type of TikTok is our next episode, but we've got some a watch coming.

[Joe Weisenthal]

It's a Rolex. It's Rolex.

[Tracy Alloway]

Rolex.

[Joe Weisenthal]

That's my guess.

[Tracy Alloway]

Yeah. All right, well, Ben and David, that was so much fun. Thank you so much for coming on Odd Lots and yeah, everyone go listen to acquired and odd lots. Listen to both of us.

[Ben Gilbert]

Oh, we should say way back four years ago when we first did our TSMC episode, there was a great Odd Lots that we both listened to that was able to. Yes, with Tim to talk about tsmc. And in particular, I think it was the relationship with smic, the Chinese competitor.

[Tracy Alloway]

Oh, thank you.

[Ben Gilbert]

Thank you so much for having us on and thanks for being a part of our research process.

[Tracy Alloway]

That was so much fun. Thank you, Joe. That was really fun.

[Joe Weisenthal]

Well, I love talking to other podcasters.

[Tracy Alloway]

I know it's very easy because you can kind of just let them talk.

[Joe Weisenthal]

I know they're really good. That was really fun. I like the point, the sort of acknowledgment that, like, none of it's fun to listen to these stories of amazing outliers, but none of their playbooks are going to work for you, probably.

[Tracy Alloway]

Right. Well, here's where I almost think that looking at corporate failures like bad businesses is kind of more useful in some senses, because if you're trying to identify, you know, things like survivorship bias and other heuristics that we might all have in our heads, you kind of need to look at where people failed as well as where they succeeded. But anyway, I did actually learn a lot from that. So the, the point about TSMC and the idea of, well, when you're in an extremely cyclical industry, maybe, yeah, don't do layoffs. You don't want to lose a bunch of institutional skill and knowledge every like three or four years and then have to rebuild it.

[Joe Weisenthal]

This seems like something that has really plagued a lot of big American manufacturers. And I guess that, you know, obviously TSMC is a publicly traded company, but it does seem like this idea of sort of being able to ignore outside investors and the importance of close heldness within a company. And so obviously there's private companies like the Mars, but then there's companies like a lot of the American tech giants where the founders have a different class of share structure that gives them like 10 times more votes than the other public. And it does seem like to some extent, for better or worse, probably for corporate performance, often the better that the ability of the founders say no, we are really not going to do anything and you are never going to vote us off the board or whatever. We are not going to change how we do things. In many cases that seems to be an advantage. An advantage.

[Tracy Alloway]

Never go public, never do performance reviews, never write a employee manual. Just they all have employee manuals. I'm certain that's true.

[Joe Weisenthal]

Yeah.

[Tracy Alloway]

All right, shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guests Ben Gilbert, he's at Gilbert. And David Rosenthal, he's at Djrosent. Follow our producers Kerman Rodriguez at CarmenArmondaSho Bennett at Dashbot and Kalebrooks at Kalebrooks. For Odd Lots content go to bloomberg.com oddlots we have transcripts, a blog and a newsletter and you can chat about all of these topics 24. 7 in our Discord, Discord GG oddlots.

[Tracy Alloway]

And if you enjoy Odd Lots, if you like it when we talk about what what makes companies successful, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[Invesco]

Join Bloomberg in Chicago or via livestream on March 11th for the future finding the opportunities this 2025 event series will examine how companies are investing in their businesses to create create efficiencies, innovating their products and services, and improving the customer experience. This series is proudly Sponsored by Invesco. Q. Q. Q. Register at Bloomberglive. Com futureinvestorchicago that's Bloomberglive. Com futureinvestorChicago.