Startup Advice, Stock Market Rebound, and US/China Relations | Keith Rabois on TWiST with Jason Calacanis

Check out the TWiStartups Episode page and show notes

Key Takeaways

  • “When you confront a new problem that’s never been confronted before you need first principle thinkers more often than not”Keith Rabois
    • To be a first principle thinker, ask a series of why not questions until you get to one that’s thoughtful and a grounded truth
  • If you’re aren’t a first principle thinker, it’s an important skill to learn
    • “It’s a technique that a lot of executives who are very successful apply” – Keith Rabois
      • Anytime someone says, “We can’t do X” apply first principle thinking:
        • Is it that we can do X but it will require a lot of work?
        • Is it that X is literally impossible to do?
      • “What tends to get one promoted and leads to success in Silicon Valley is constantly asking the next question which is why not?” 
  • Unpacking Keith’s tweet: “Formula for startup success: Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.”
    • Find a fragmented market that has a poor customer satisfaction
    • Then figure out how to improve the experience by creating an end-to-end solution
  • Outsourcing manufacturing is smart because it’s economically efficient, but isn’t always the smart move strategically because you become dependant on another country
    • “We’ve basically not been paying attention to vulnerabilities that we created by using economic efficiency”
  • “China suppressed every piece of information designed to get to the origin of the virus”Keith Rabois
    • “Clearly there’s something to hide that they’re hiding and masking”
      • “Anytime the government expels all the journalists, bans scientific research, and jails people who are trying to whistleblow, it’s not because the government has nothing better to do”
  • Keith views the unemployment of millions of Americans more as a healthcare catastrophe than an economic one
    • A lot of people’s psychological well-being and happiness depend on meaningful work; without work, a person’s health begins to plummet
      • “We need to put people back to work, we need to allow people to engage with friends and family” – Keith Rabois

Intro

Books Mentioned

  • Keith enjoyed reading David Sinclair’s book Lifespan
    • The author looks at aging as a disease and discusses ways to prevent aging, such as taking metformin  
  • Keith recommends the book High Growth Handbook by Eliad Gil, for founders considering an Initial Public Offering (IPO)

Silicon Valley & Investing

  • It’s a lot harder to read people, especially founders, over Zoom calls than it is over in-person meetings
    • Jason’s analogy is that a Zoom call is like online poker while an in-person meeting is face-to-face poker
  • Keith views the COVID pandemic in a similar light to the 2000 recession
    • A lot of great companies will emerge from the pandemic just as LinkedIn, PayPal and several other well-known startups emerged from the early 2000s
  • Since software is eating the world, anything that affects the economy, like this pandemic, will also affect entrepreneurs, investors, and employees
  • Many of the founders that Keith invests in, don’t have domain expertise in the industry they’re in
    • This is actually an advantage because if you have less knowledge about an area, you have a fresh perspective and ask, “Why can’t we do X”
      • Out of the 254 people who worked at PayPal, only 3 had a financial services background
      • Out of the 300 people who worked at Square, about 2 people had a financial services background

Be A First Principle Thinker

  • The companies that were most unprepared for pandemic were the incumbents because they had never seen anything like this
    • Meanwhile, smaller companies moved faster and adapted to the new situation
      • “When you confront a new problem that’s never been confronted before you need first principle thinkers more often than not”Keith Rabois
        • To be a first principle thinker, ask a series of why not questions until you get to a thoughtful answer and a grounded truth
  • If you’re aren’t a first principle thinker, it’s an important skill to learn
    • “It’s a technique that a lot of executives who are very successful apply” – Keith Rabois
      • Anytime someone says, “We can’t do X” apply first principle thinking:
        • Is it that we can do X but it requires a lot of work?
        • Is it that X is literally impossible to do?
      • “What tends to get one promoted and leads to success in Silicon Valley is constantly asking the next question which is why not?” 

Formula For Startup Success

  • Unpacking Keith’s tweet: “Formula for startup success: Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.”
    • Find a fragmented market that has poor customer satisfaction
    • Then figure out how to improve the experience by creating an end-to-end solution
      • Keith noticed that a lot of his best investments fell into this category of thinking
        • Healthcare is an example of a fragmented market with low customer satisfaction, which is why Keith invested in Forward

US & China Relations

  • The US first started working with China in the 1970s because they wanted to align more with China and have them on their side rather than the Soviet Union
    • The second part of the theory was that if the US traded with China, China would be less of a threat since they’d become a business partner
      • However, in practice, that theory doesn’t really hold up. Jason and Keith aren’t big fans of Trump, but they agree Trump was right about China being a threat to the US.
        • “On the China issue, he’s like dead-on” – Keith Rabois
          • Keith says 40-60% of his liberal friends agree with Trump on his views about China
  • Having supply chains in China has made a ton of products cheaper, but the pandemic showed how outsourcing can be a huge mistake
    • “We did take our eye off the ball on the manufacturing side” – Keith Rabois
      • Outsourcing manufacturing is smart because it’s economically efficient, but isn’t always the smart move strategically because you become dependant on another country
        • “We’ve basically not been paying attention to vulnerabilities that we created by using economic efficiency”
  • 70% of fentanyl is made in China
  • “China suppressed every piece of information designed to get to the origin of the virus”Keith Rabois
    • China basically jailed, murdered, or expelled anybody who was interested in researching the virus
      • “Clearly there’s something to hide that they’re hiding and masking”
        • “Anytime the government expels all the journalists, bans scientific research, and jails people who are trying to whistleblow, it’s not because the government has nothing better to do”
  • Keith believes US companies will leave China for other cheap-labor force countries or even bring jobs back to the US
    • Japan is already moving factories to Vietnam and Sri Lanka
  • American companies need to rethink their strategy of profits at any cost
    • If China isn’t treating its citizens with basic human rights, US companies should consider removing their business ties with China
  • If China has the power to censor or block US businesses (Google, Twitter, etc.), the US should have the power to censor Chinese companies, like TikTok

Thoughts on The Economy

  • Keith believes the recovery of the stock market will be repressed and protracted 
    • The stock market might go up for now, but there might be something that triggers another huge drop similarly to what happened in 2000 
      • “It wasn’t until the second drop that everybody agreed that this was a completely new world…so I think we may see another significant market correction even if right now everything looks great.”Keith Rabois
  • Why aren’t big companies acquiring startups and smaller companies right now since valuations are down across the board?
    • “I think people are scared and terrified to make big bets” – Keith Rabois
      • Another problem is that software companies often have trouble managing logistic companies since it requires better management of people
  • Keith really enjoyed reading High Growth Handbook by Eliad Gil and recommends it for founders considering an IPO
    • “There is no good reason not to go public” – Keith Rabois
      • As a public company, you have more access to capital and it’s easier to do Mergers & Acquisition (M&A)
  • Keith views the unemployment of millions of Americans more as a healthcare catastrophe than an economic one
    • A lot of people’s psychological well-being and happiness depends on meaningful work; without work, a person’s health begins to plummet
      • Even people who retire earlier are more likely to die earlier
      • Suicides are up 50% in Australia  
        • “We need to put people back to work, we need to allow people to engage with friends and family” – Keith Rabois
  • Universal basic income (UBI) isn’t the solution because people still want meaningful work
    • “That’s why I think things like UBI are really stupid, it’s like just giving people a check is not creating self-worth” – Keith Rabois

Additional Notes

  • Keith enjoyed reading David Sinclair’s book Lifespan
    • The author looks at aging as a disease and talks about ways to prevent aging, such as taking metformin 
  • Keith is a former lawyer, as his colleague, Peter Thiel
  • Keith is bullish on home-schooling
    • Nearly 4 million students were homeschooled last year
      • “I think the homeschooling movement will allow us to create more thoughtful, more original, more brilliant thinkers and allow parents to have more control” – Keith Rabois
  • Keith is also bullish on telemedicine
    • You can get a diagnosis for 30-40% of the cost and save time not commuting to the doctor’s office
This Week in Startups with Jason Calacanis : , , , , ,
Notes By Alex Wiec

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