5 Startups That Looked Dumb—Until They Were Worth Billions

Shaan Puri

The headline here is: they made the investments. It's not like they passed; they made the investment. Their best case scenario they wrote was $400,000,000 as an exit value. Now it's $140,000,000,000.

Sam Parr

Let me tell you about something that I've been thinking about. I thought it was really cool. Our friend Sheel just shares the best stuff, and so I'm really sharing this.

Shaan Puri

Man on X.

Sam Parr

The most interesting man on X, the most interesting man I know, actually does a lot of amazing stuff. He shared something, and I have to give him credit. I saw this Jeff Bezos quote, and I want to know what you think about it. He said something along the lines of, "I think it's generally human nature to overestimate risk and underestimate opportunity." He went on to say that entrepreneurs, in general, would be well advised to try and bias against that. The risks are probably not as big as you perceive, and the opportunities may be a lot bigger than you perceive. The interviewer was like, "You seem really confident," and he responded, "Well, you call it confidence, but maybe I'm just accepting that human bias and I'm trying to compensate against it." I thought this was interesting. I've been thinking about this for weeks. Every time I reflect on it, I'm like, there are so many businesses or opportunities that I see where I'm like, "I can't believe that thing is that big." I fight this as well, where I think something can't be that big. I've said this multiple times about different products that I thought would never work, and they become huge. Even Jeff Bezos, by the way, fell victim to this. There's a quote where he said, "When I was driving packages to the post office myself and taping up and typing up all the listings, I thought maybe, if I'm lucky, this can be a hundred million dollar revenue company someday." So, everyone has this bias. I saw this amazing thing where Scheele shared a memo from Bessemer. Bessemer is a VC, and I think they're a fantastic VC, but they're a big VC. They created a part of their website where they release old memos. If you don't know, a memo is where whoever wants to invest in a company at a VC makes a memo justifying their thoughts. Typically, the partners agree on it, saying, "Yeah, that was a persuasive argument; we're on board." They did a cool thing by releasing memos from past deals, and they had an amazing memo on Shopify. This was when Shopify was raising $5,000,000 at a $20,000,000 valuation. The company was doing $5,000,000 in revenue. I want to show how bad Bessemer, who is a professional VC with tens of billions under management, is at predicting stuff. They said, and these are direct quotes from the memo, "In 02/2010, Shopify had $32,000,000 in GMV, which would put Shopify in the top 50 online retailers." At the time, that is how small the category was.

Shaan Puri

Let's say the other numbers because that sounds like a big number, right? So, they had 5,000 customers total, and they were doing $5,000,000 in revenue themselves. The $5,000,000 in revenue is the company's revenue. Then, all the shops on Shopify had total sales of $132,000,000, right?

Sam Parr

That's GMV. Do you know how many customers they had? Do you actually know how many they have now?

Shaan Puri

I know that they add more than 10,000 paid customers every week. Now, I think there's multiple million customers.

Sam Parr

They have multiple millions, and I believe the company is now worth **$130 billion**. I believe they do something like close to **$1 trillion** in GMV (Gross Merchandise Volume). So, I can't even tell you what that math is or what the multiple is.

Shaan Puri

They're probably doing this amount, like $132 million, every hour.

Sam Parr

Like an hour... stupid. Yeah, every hour. Yeah.

Shaan Puri

You're saying we underestimate the upside of these things. We underestimate the market size, and the headline here is they made the investment. So it's not like they passed; they made the investment. Their best-case scenario they wrote was **$400,000,000** as an exit value. And now it's **$140,000,000,000**.

Sam Parr

They said, "If all things work out, we think in four to six years this company could sell for $400,000,000," right? And we will 20x our money, something like that, 15x our money. Obviously, that's wrong; the company's worth $130,000,000,000. But they had all these other stats that were wrong. In the memo, they even have updated quotes. The person who wrote the memo will give you an update, and he wrote in the memo, "A few months after we invested, Oracle had acquired one of Shopify's competitors for $500,000,000." I remember emailing Toby, who's the CEO of Shopify, about how great it would be if someday we could achieve that outcome. But I thought it was just a little bit too aspirational. Then he has this other line where he goes, "Some of the other employees and advisers at Shopify, when we made our investment, thought to themselves, 'You know, I think like this company at best is gonna be worth around $50,000,000.'" So the associate at Bessemer who made this deal goes, "Look, Toby, these guys are saying $50,000,000. Can we put something in the contract that says you're not allowed to sell the company for less than $50,000,000?" Because this guy was like, "That's all it's gonna be worth." And Toby was like, "Dude, I'm not agreeing to anything like that, but I'll give you a handshake offer. I promise you I won't sell until at least $75,000,000." So it's just funny that this is how small the best of the best, presumably the top 1%, are thinking about different opportunities that today are so obvious to us, but back then were really hard to predict.

Shaan Puri

So, I have a bunch of follow-ups on this because this is a subject I've literally been thinking about. I'll tell you why I was thinking about this simultaneously, but let me first start with a little bit of humbling. Here's a list of products that I was totally wrong about, meaning they were already working. So forget the scenario of "that'll never work," but like, "yeah, that's working, but that's probably small, probably niche." Okay, so here are products that I personally was wrong about over the last fifteen years: Calm and all the meditation apps. My buddy Alex was doing it. He was in my peer group, he's in our mastermind group, and I was like, "That's cute. You know, that's cute. I hope, you know, I don't really understand what you're doing here. Maybe you'll make some money; it'll be like a job." I didn't really fully understand it. Now, meditation is like... there are multiple meditation apps that are billion-dollar companies, which seemed implausible at the time.

Sam Parr

He was also really successful already.

Shaan Puri

Yeah, and he... yeah, exactly. So, I didn't doubt him. I thought he was awesome, and I didn't even think, like, it wasn't going to work. It's like, "Oh, it'll work," but it just seems like a market that's too small. Okay, other markets I thought were too small. On Snapchat, my username has the word "test" in it still to this day because I was like, "Yeah, cool, but this is never gonna be a thing." You know what I mean? This is just like a goofy kind of sexting thing. How big is the market for that? Another one: Airbnb. So, I met the founder of Couchsurfing before I heard about Airbnb. We hung out at my office, and I was like, "Wow, Couchsurfing, what a crazy idea! Go sleep in someone else's house on the extra couch or air mattress that they have." Alright, cool. So, Airbnb comes out, and I'm like, "Wow, great! You're trying to be Couchsurfing. How ambitious of you!" I think Couchsurfing topped out at like $50 million or something like that. Maybe it was maxed at like $100 or $200 million. And you know, Airbnb today is a... you know, like a $100 billion company.

Sam Parr

So, I read that in America, one out of every $30 spent on travel is on Airbnb. That's a cool stat.

Shaan Puri

I like.

Sam Parr

That stat, right? It's insane. I want that stat. Insane, yeah.

Shaan Puri

In America, one minute out of every day for every entrepreneur, on average, is spent listening to our podcast. I bet there's a number like that that's true, right?

Sam Parr

Yeah, like they said it in one of their pitch decks, but it's just absolutely astounding that you and everyone else—me too—thought that it was just couch surfing. But it's not 10 times better; it's not a hundred times bigger; it's **10,000 times bigger**.

Shaan Puri

Uber was another one. Black Uber was like black car limos. I was like, "Cool, rich people in San Francisco who take black cars." It's a small idea. I don't understand why the founder of StumbleUpon is doing this, but okay, whatever. I guess rich guys just lose touch and they start working on niche things that nobody... it's going to be too niche. Another one is Musical.ly. I remember we were at the office trying to build social products, and Morgan, this guy who worked with me, was like, "Hey, my daughter loves making these lip sync videos on Musical.ly." It was actually maybe even a different thing besides Musical.ly, but the idea was like you record yourself on video, and then there's music mixed in. You're kind of lip syncing and dancing, making little dance videos. I was like, "Okay, okay, cool, Morgan, but can we get to work now? We're trying to build the next big thing here." You know, stop distracting us with this. Has anyone ever just shown you a briefcase full of cash and then you accidentally kick it into the gutter? That's what we were doing. Okay, so those are things that I was totally wrong about.

Sam Parr

Well, hold on. Let me tell you one more thing. Alex Lieberman shared a DM that he got from the founder of Cursor. So, Cursor is a company that, in two years or something like that, accrued $10 billion. The guy emailed Alex Lieberman asking for advice on what he should do. It left him off.

Shaan Puri

Yeah, it left him off read. Hey, we all miss. In fact, Bessemer has a part of their website called the "Anti-Portfolio." Have you ever seen this?

Sam Parr

No, they were the first.

Shaan Puri

I think that they created, if you go to Bessemer's website at bvp.com/anti-portfolio, it's basically a page that honors the companies they missed. It lists companies like Airbnb, Apple, eBay, and Google. These are all the companies they had the opportunity to invest in but passed on for varying reasons. They humbled themselves with this. So, this is the opposite of the "Hey, let me show you our memos of how smart we were." This is like the other side of the coin.

Sam Parr

It's crazy, man.

Shaan Puri

For anybody who's worth a damn in business, your anti-portfolio is going to be much bigger than your portfolio. It's just a bizarre situation. If you're any good and you're in the game for a decent amount of time, your anti-portfolio is much bigger.

Sam Parr

Alright, so I've built a few companies that have made a few million dollars a year, and I've built two companies that have made tens of millions of dollars a year. I have a little bit of experience launching, building, and creating new things. I actually don't come up with a lot of original ideas. Instead, what I'm really good at—what my skill set is—is researching different ideas, identifying gaps in the market, and reverse engineering companies. I didn't invent this, by the way. We had this guy, Brad Jacobs, on the podcast. He started four or five different publicly traded companies, each worth tens of billions of dollars. He is actually the one from whom I learned how to do this. With the team at HubSpot, we put together all of my research tactics, frameworks, and techniques on spotting different opportunities in the market, reverse engineering companies, and figuring out exactly where opportunities are—versus just coming up with a random silly idea and throwing it against the wall, hoping that it sticks. If you want to see my framework, you can check it out; the link is below in the YouTube description. Part of this is underestimating the size of markets. There are many things here. Another part is not understanding math. Because 10,000 times or 1,000 times—whatever—that's actually really hard to estimate. To put it in really simple terms, I remember working with my financial adviser. There was a line item for $250,000 in eighteen years, and I was like, "Griffin, what is this?" He goes, "Well, I just baked in college expenses." I was like, "But I'm not going to pay for all four years upfront! Are you thinking we're going to have triplets? What's the deal here?" He was like, "No, I just took the trailing twenty-year growth rate of college education and assumed that they're going to go to a top 75% cost school. I just applied that number to the future, and that's just what it came out to: $250,000 a year." It's really hard to understand what like 5% growth is per year or whatever it is. A really good way to understand this, though—beyond the math—is that I've been really obsessed with Thrive. Josh Kushner hosted this event, and we had the founder of Oscar come. You had Mario come, and I thought he was the most impressive, smartest guy there. I was going down the rabbit hole, thinking, "Alright, you partnered with Josh Kushner, and Josh Kushner is now leading all these amazing things." Josh Kushner recently invested in OpenAI at a $250 billion valuation, which is astoundingly expensive. That number is hard to comprehend. Someone was questioning Josh Kushner, and he was like, "What I learned in the real estate days—his parents are real estate tycoons in New York City—is that you can't really overspend on Park Avenue real estate." Park Avenue is on the Upper East Side; that's where the Louis Vuitton store and the Tiffany store are. He said, "There have been so many examples where someone said in the fanciest part of New York City that this building is way too expensive. But when you buy the best, typically it's never too expensive. There's always going to be someone in ten years who wants to pay more for it." So my logic is: I'm going to find the Park Avenue of startups—OpenAI, Cursor, whatever it is—and I'm willing to spend what people think is a crazy amount of money. I don't care about the valuation because I just think that those will outperform the other ones. I've been really trying to embrace that, even though it's very challenging to actually do.

Shaan Puri

Do that. This is Michael Saylor's argument about Bitcoin. His argument is basically that of all the digital assets, Bitcoin is **digital Manhattan**. There are only **21 million** blocks; that's the real estate, that's the land. You want to get as many of the **21 million** as you can at basically any price because this is **digital Manhattan**. Over the next hundred years, that's all that's going to matter: how much of that did you own? Now, I shouldn't say that's all that's going to matter, but basically, you don't look for the third best thing. You buy Manhattan, right? You don't go try to figure out what's going to be the seventh thing because it's cheaper right now. No, no, no. The move is always to buy the Manhattan thing and just plan to hold it over the long haul when you know it's a scarce, rare asset. This whole thing with crypto is that it's a scarce, rare asset.

Sam Parr

Which is conceptually way easier to understand than 1,000 times, you know? Like, I see Manhattan real estate and I'm like, "Yeah, this is bumping. This is great." Then it goes to the next stage, which is having the courage to believe that your opinion is right. For example, someone like you, who's in the Bitcoin or crypto industry, and you do believe in it. It's like, well, if you believe that to be true, why aren't you borrowing every dollar you can to invest in it? That is where courage comes into play, and that's really hard to buy into this concept. So I say I buy into this concept conceptually, but I'm not truly acting on it, at least not in a percentage type of way.

Shaan Puri

There are also other factors. For example, I have a very funny goal. My last goal on my annual goals list just says "avoid ruin." My life is great, and one key thing at all times is to avoid ruin. This means not doing extremely dangerous things, taking care of my health, and not making disastrously risky financial investments. Even if I believe in something, even if I have conviction, and even if the upside is there, I really just don't need to risk ruin at any given time. I think it's the Kelly criterion: just do not risk ruin. Keeping yourself in the game is always important. You don't need to borrow every dollar, even when you have conviction.

Sam Parr

But I think that's what separates not all the best. I don't think Buffett has ever, like, risked... you know, he famously has said, "Don't risk what you have or what you don't need," or something like that. Or "Don't risk what you need for what you don't want." I forget exactly the quote, but it's about needlessly risking things. Yeah, but my brother John, who I'm visiting in Missouri, he's not into startups. He was like, "Why are you still doing this? Why don't you risk anything?" I was like, "Well, I don't really risk anything." But he's like, "But do the really successful, like the Elons, risk everything?" And I was like, "A lot of them, I think, do." I think that, like, the 10 out of 10, the best of the best, the crazy Elons of the world, when they say, "I was sleeping on couches," I think you don't really want to believe that because their friends are billionaires or whatever.

Shaan Puri

Yeah.

Sam Parr

I've been around enough of these. Yeah, it's a really nice couch, but I've been around enough of these like crazy, crazy, crazy people—like 1% of the 1%, the freaks amongst the freaks. Some of them I actually do think don't avoid ruin, correct?

Shaan Puri

I just don't think they're wise.

Sam Parr

I don't think it's I.

Shaan Puri

I don't think I...

Sam Parr

Don't think.

Shaan Puri

A lot of them are very wise. I think they're great achievers, but they're not necessarily...

Sam Parr

I don't think they're wise, and I don't want to do that. But don't you agree with that though? Have you... who have people?

Shaan Puri

Do... do things definitely take it to that extreme, right? Like, there are levels. So, like, Buffett actually has been very concentrated at many times. I think he's recently had 50% of his portfolio just in Apple stock. That's a very concentrated thing. He believes in concentration, but concentration is not the same thing as, you know, risking ruin. In a way, even somebody like Elon, you know, the ruin for him isn't losing his money because he's a money-making machine. He's an achievement machine. At any given time, even if he lost it all through SpaceX and Tesla and whatever, he'd be rich again in ten years. I think he knows that deep down too, right? So, like, the risk of ruin for him might be reputational. There's a great leaked email where OpenAI is talking about their path forward. This is when Elon eventually got sort of kicked out or left the project of OpenAI. He's a co-founder; he put the first $40 billion in. But along the way, they realized they needed a lot more money. The leaked email basically shows the brainstorming that they were doing: Sam Altman, Greg, and Elon. Basically, Elon's idea was... so they all came to the realization, "Holy shit, this kind of works, but we need way more money." Like, this is going to be way more money to train these models. We're talking $100 million+ just for a single training run, let alone operating the business, the project, and paying all the salaries.

Sam Parr

And now it's for what? Like servers or something like that?

Shaan Puri

Like, literally, the GPUs, the compute, and the electricity to train one model... and then you're not going to stop there; you're going to train a better model, right? So once they realize, "Shit, we need a hundred million and we're a nonprofit. This is not going to really work." Who's going to just give us money? Elon's giving us this, but like, are you Elon? Are you just going to give us billions? That's probably not going to happen. But that's where this is going. When they realize that, they're like, "We need a way forward." So Elon's suggestion was, "Let's make OpenAI a part of Tesla. Tesla will be the commercial machine, and then we'll take some of that profit as R&D and put it into OpenAI. We'll fund it that way." Now, Sam and Greg didn't like that because they're like, "Well, yeah, but then you control everything, and we're just kind of like your little bitches. We don't really love that idea." So they were exploring other ideas. They had a Microsoft idea, which is what they ended up doing. So he's like, "Microsoft is really interested in giving us, you know, potentially multi-billions of dollars and free compute." But then, you know, we'd have to work out a deal of what's in it for Microsoft. Then Elon basically replies, being like, "Ew, like lame, being a part of Microsoft." That was like in his reply, basically. He's like, "Why not Tesla?" Then Sam Altman, there was an email that referred to Sam as exploring the idea of an ICO, so to do a token launch. And like, what if we... it was during the crypto heyday, and they're like, "I guess you could just raise a ton of money for kind of nothing, like a promise, if you just do an ICO." Elon's reply is basically like, "I am against the ICO. I think it's reputationally disastrous, and I will not be a part of the project if you guys pursue that path. I will take my name off this project because even if that would succeed, I just do not think the risk is worth it." And so it's interesting, right? Because like, the guy is willing to risk, you know, certain things, all of his money, but not necessarily others, right? Like, you may not owe... there might be other risks.

Sam Parr

It's intriguing that he thinks the ICO thing is the risky aspect, but not the political thing.

Shaan Puri

Well, he did even.

Sam Parr

With the political things.

Shaan Puri

Initially, he was saying, "I won't endorse a candidate and I won't be donating to them." That was his initial stance. It's the same thing as Michael Jordan, you know? "Oh, you'd like my opinion on this? Sorry, no comment. Republicans buy shoes too."

Sam Parr

Yeah.

Shaan Puri

And like, one of the great lines in history... Initially, Elon did have that stance. He got pushed over the edge due to a number of factors that maybe only he can truly describe. Some people think it's because his companies were getting overly regulated, and he just felt, "We can't do SpaceX and Tesla if there's this much regulation." Some people were basically pushing back on capitalism or attacking him. So, it's unclear what all the motivations were for why he decided to then throw his weight into it. But when he did, he threw all his weight into it. Initially, he did not want to take that risk because it seemed... you only take as much risk as you see necessary. What's cool about Elon is, once he sees it's necessary, he's willing to do it. Whereas most people will still dilly-dally or hesitate to do it.

Sam Parr

Which is the gap that I was talking about. You know, it's like courage is a hard thing. But I also think that we underestimate how different the outliers are in terms of personality compared to normal people. What I mean is, you and I are living on coasts. We work in a weird tech world where it's pretty fringe. But then there are people that are 50 times that. Do you know what I mean in terms of how strange and unique their thinking is? For example, the Collison brothers of Stripe. I'll hear their opinions on things, and even to me, I'm like, "Wow, that's just way different." It's like they're so out there in terms of how they frame things or how they believe. It's just so logical, and you totally buy into that. That's really challenging for me to understand. But imagine to someone who is right in the mean of understanding how different people are in terms of their thinking.

Shaan Puri

Yeah, there are levels to this. There are levels to everything: levels to intelligence, levels to craziness, levels to risk-taking. There are levels to all of that, and it can be pretty hard to comprehend until you get closer and closer to that edge. You realize, like, "Oh, what I thought was level 10 was not level 10; it was seven." And this is what 10 is. Just imagine the extent to which Brian Johnson goes for his health. There are people who live, you know, 30 miles within my radius here that are doing that in ways they're just not publicly broadcasting. But not just in health; they'll do it in finance, in their obsession over specific technology, or in lifestyle choices they make. Whether it's a polyamorous lifestyle or the extent to which they delegate—extreme delegation. We were laughing when we were hanging out with Mr. Beeson. He had a runner outside. It's like, "Wait, so you have kind of like a personal DoorDash guy that just waits around in case you need something?" But yeah, there's that. There are a lot of people that have these lifestyle quirks. For example, Peter Thiel, when he flies to a place, has a mattress shipped to that hotel so that he gets the right sleep because that's his favorite mattress. Some hotels even store the Peter Thiel mattress in the lobby or in their storage facility in case he's going to come because that's his demand. So, yep, there are people that do that. It's like, "Oh wow, I thought taking my sleep seriously was like wearing this Whoop band." I guess there are levels to this, right? I guess there are infinite levels to this.

Sam Parr

It's a Honda Civic versus a NASCAR. Or it's like making the junior varsity (JV). I was telling my brother, he was comparing me to someone, and I was like, "I don't think you understand. I'm one of the best on JV at a big high school, and these guys are Olympians." That is the gap. You know, I think the guy from... you told me this story about the redhead basketball player in the Celtics. What's his name? Scalise Scaramini? Yeah. He was joked as being the worst NBA player, but he would go to blacktop games and just crush everyone. He was like, "You don't understand that I'm closer to LeBron than you are to me." Yeah, and that made... that's sort of like what we're describing here. You want to do something else.

Shaan Puri

Well, I do have one other thing, but I want to go back to the market size thing because I have something that I think is a pretty sick example of this. Alright, so there is an amazing story about this from Uber. I remember when I was living in San Francisco, Uber had just come out. I think I moved there in 2012, and that was like, it was all pretty new then.

Sam Parr

And I think Uber... dude, that was such a fun era! That was such a fun era, wasn't it? That was like...

Shaan Puri

You know, our version of the dot-com boom, right? It's like mobile. It was so exciting. I remember getting in my friend's car. He lived in San Francisco and said, "Yeah, our ride's here." Then we got into a stranger's car, and I was like, "What the hell is this?" It was actually a Sidecar, which was the third company after Uber and Lyft that just died. It didn't make it. I remember Uber started getting a pretty big investment, and it just seemed pretty crazy. It just kept getting crazier and crazier. They would raise, like, you know, first it was tens of millions, then hundreds of millions, then billions of dollars in valuation. I remember reading this Bill Gurley blog post that really changed my thinking. The blog post is called "How to Miss by a Mile." That's the name of the blog post.

Sam Parr

And Bill Gurley was one of the early believers and early investors, right?

Shaan Puri

Yeah, he's a legendary VC and now retired. He was one of the main investors in Uber, and famously, at the end, they ended up kicking Travis out. It got messy at the end, but he was one of the early and biggest believers. So, basically, he talks about this guy. I don't know how to say his name exactly, but I think it's Aswath Damodaran or something like that. This guy is just a well-known thinker on valuations. He's a professor at NYU Stern and teaches finance and economics there. He wrote an article that said Uber is not worth $17 billion. This was when Uber raised at a $17 billion valuation. He was right, by the way; Uber was not worth $17 billion. It is actually 10 times more than that. But he was making the opposite argument. He was like, "I think Uber is vastly overvalued." Bill Gurley sort of breaks down this argument, and this totally changed my thinking on how to think about startups. What he said was that this professor wrote this article, and I wrote this blog post. It seems really well thought through, and he's a very respected expert. I'm not saying anything about the guy, but I think his analysis is wrong. He starts with the funny thing about any analysis with hard numbers like this: it gives you a false sense of security. He talks about how anyone who's in math knows the difference between precision and accuracy. Precision would be, "Oh wow, you've really forecasted this down to the second decimal," and accuracy is like, "Yeah, but it's just wrong." It's precise but wrong; it's not on target. He was basically saying he makes two arguments. One argument is about the TAM, or Total Addressable Market, of what Uber's market potential is, and then market penetration—how much of it Uber will get. He basically says the TAM mistake is the mistake of thinking that the future will look quite like the past. The arrival of a new product or service will have a non-zero impact on the overall car-for-hire market. He gives a story: once upon a time, AT&T paid McKinsey a million dollars to forecast how big the cell phone market would be. They wanted to know if AT&T should become a cell phone manufacturer or if they should care about that market or not. The top analysts at McKinsey, who were getting paid, predicted that the market in February of that year would be 900,000 people using cell phones, which was less than 1% of the actual number. It was 9 billion.

Sam Parr

And they were predicting twenty years out, which is really freaking hard.

Shaan Puri

Correct, but it was hard numbers. It gave you a false sense of security. So, AT&T decided not to invest in that area. They ended up making, you know, once they realized they were behind the ball and that cell phones were going to be a big deal, they had to buy this cell company for $12 billion. So it's like, you know, basically a $12 billion mistake. By the way, now, like 5 or 6 billion people have cell phones. It's absolutely ubiquitous. Aaron Levy, the founder of Box, has this tweet where he said, "Sizing the market for a disruptor based on the incumbent's market is like sizing the car industry based on how many horses there were in 1910." Gurley's talking about this now. Of course, you might say, "Well, is this always the case?" You could always say, "Forget the past. You're just stuck in that old way of thinking. Think about the bright future." And of course, no, that's not always true. In fact, it's probably usually correct that the near future will look like the near past. But the funny thing about entrepreneurship or any tech investing is that it's a hits-driven game. You only need one, and you can actually be wrong eight or nine times out of ten as long as you get the one right in a really, really big way. That's not true in other businesses. It's not true in school; you can't pass a test that way. It's not true at your job; you can't just have one great day and then like nine duds. You can't do that in private equity. Warren Buffett famously said, "Rule number one: don't lose money." You know, VCs lose money all the time. Entrepreneurs get it wrong all the time.

Sam Parr

That's a very distinct difference. This is actually a distinct difference oftentimes in your and my personality. Buffett is predicting that the future will repeat itself and that the past is the past; it won't change for the future. VC investing and tech investing are doing 100% the opposite.

Shaan Puri

Both are valid games, but...

Sam Parr

You have to know, but both are right.

Shaan Puri

You have to know they're right in their game. So, like in the stock market, that's probably the right way to think about things. In value investing, that's probably the right way to think about things. In private equity, it's probably the right way to think about things. However, in entrepreneurship or tech investing, it's absolutely the wrong way to think about things. You won't make any money doing it that way. In our business, I have this phrase: "In our business, the cynics get to be right and the optimists get to be rich." The cynics will be right, and you might get to be right eight out of ten times. That might feel good, but the optimists are the ones who get rich. You have to just know that going in.

Sam Parr

What are your employees' replies to all? Like, Sean, I'm just asking if you want pizza or hamburgers for lunch. Can you just tell me?

Shaan Puri

You want me to have.

Sam Parr

I have a podcast.

Shaan Puri

I think you nailed it.

Sam Parr

This is a great blog post. The guy who's like the anti-hero in this, where is he now?

Shaan Puri

He's still there.

Sam Parr

A professor.

Shaan Puri

He's still a professor. Of course he is, because, you know, he has skin in the game. You can never really be wrong. That guy had estimated the global taxi market to be **$100 billion**. So anyway, let me zoom in. I remember living in San Francisco when this happened. Gurley pointed something out, which was that in San Francisco, the taxi market size—whatever it was—let's just pretend it was like **$50 million**.

Sam Parr

Uber was.

Shaan Puri

Uber didn't just have some percentage share of that market; it was actually three times bigger than the total taxi market in San Francisco. It was a total market-expanding force. You see that over and over again. Any new product that's creating a new category doesn't just eat some share of the existing category; it explodes and becomes bigger than that thing. So let me kind of fast forward to another area where this came up. I was watching these videos from Sequoia. Sequoia recently had an AI event, and my invite must have gotten lost, but I was able to catch it on YouTube afterwards, luckily. So I was... I think...

Sam Parr

Dharmesh was one of the speakers.

Shaan Puri

Yeah, I know. One of...

Sam Parr

The guys.

Shaan Puri

Again, maybe my speaker invite was also lost. I'm not exactly sure what happened, but it's all love between me and Sequoia. So, the very first speaker, this guy, I think it's Pat Grady, he's a partner at Sequoia. He has a slide on the screen. I'm going to show you the slide. It's maybe a top five ugly slide; this might be the worst slide I've ever seen in my life. Not only is it ugly, it doesn't even make any sense. It's illegible! You look at this, and it doesn't even mean anything. But he explains it, so okay, check out this slide. Do you see this thing right here?

Sam Parr

Yeah, so, I remember taking the ACT where it showed you like three shapes or three numbers, and you'd have to predict the fourth one based on the pattern. I cannot do this with this.

Shaan Puri

Okay, exactly. If you look at this slide, it basically shows a bunch of pie charts, but the pie charts have no annotations—just random numbers. Then there's an arrow and a question mark, and it just says "So what?" at the top. Alright, let me explain what this is because it's actually kind of insightful. What he was saying was basically, if you look at the three most recent waves of tech, you had software, which was like, "I buy CDs, I put the CD-ROM inside my CD drive, or I install software on my server at our office." That was like Software 1.0. Then 2.0 was like the cloud. It was like, "Oh, the software just lives in the cloud. It's a SaaS (Software as a Service). You just kind of use what you need; you don't need the servers and the CDs." Now we have AI. He talks about the software market at the time when the cloud came out, when Salesforce came out. The entire software market was $350 billion in revenue. The cloud is already at $400 billion, right? Just the top cloud players are more than $400 billion. So basically, it's like the cloud didn't just take some percentage share of the software market. It wasn't like, "Oh yeah, maybe like 10% of these applications will now go to the cloud or become SaaS." It was like SaaS became bigger than the entire software market before that. It became bigger by, I think, I don't know why the numbers here are like... again, the pie chart is very confusing, but it's basically some order like it was two or three times bigger. Then he's talking about AI, and he's like, "AI actually is interesting because AI replaces software, but AI also replaces labor." You just don't need people to do those tasks; it's services and software. So he's like, "The labor market is basically like whatever—$10 trillion. This is some ridiculous number." And he's like, "We don't even know how big the AI market's going to be. Predicting that with any accuracy would be foolish, but it's probably a good bet that AI is going to be bigger than the entire cloud market today and the labor market in the future." So how does the labor move?

Sam Parr

Isn't the labor market like the market?

Shaan Puri

You know what?

Sam Parr

Isn't that everything ever?

Shaan Puri

Yeah, kind of. In the same way that when Gurley was talking about Uber, he said, "You know, it's gonna be bigger than taxis because it's more convenient than taxis." Right? If you called a taxi, you didn't know when it was gonna pick you up. You didn't know if it was gonna pick you up at all. With Uber, you got precise timing. It'll pick you up anywhere. Before, taxis didn't really go to rural areas. Uber had more drivers, so it was available everywhere. Because it was available everywhere, you got lower price points due to more liquidity in the system. So when it's a lower price, maybe I wouldn't have called a taxi just to go from here to my friend's house. But if it's an $8 Uber, I'll actually do it. And because you get the price points, now you get new use cases. For example, people use Ubers to help their elderly parents travel or their kids. The big use case I think people are missing is that some people just won't buy a car because they'll say, "I'll Uber when I need it." So they just don't need to own a car. This is exactly what happened to me. I sold my car in San Francisco because I thought, "Why would I deal with car parking issues, getting it broken into, insurance, gas, all that?" No, I'll just Uber when I need a ride. So he said it unlocked part of the rental car market and part of the car ownership market. Once you calculate those, you're like, "Oh shit, this is a trillion-dollar market, not a hundred billion-dollar market." And so you're off by, you know, 10x if you had done the calculation wrong with the wrong assumptions. AI is gonna do the same thing because I won't hire a person to do these little things that I'm basically telling AI agents to do in my life. For example, I'll build a little app for piano tracking for my piano practice or for health tracking. I don't hire a concierge doctor, but I'll feed my lab results to ChatGPT and I'll pay it to analyze all my blood results. So things I wouldn't have otherwise hired people for, I'm willing to pay AI a little bit for it. There's a new market emerging.

Sam Parr

How many hours a week are you consuming information just to stay in the know on this topic?

Shaan Puri

AI specifically.

Sam Parr

Yeah, we had Greg Eisenberg on the podcast, and he was telling me things that made me feel fear. I found myself having fear of, "Oh, this is clearly the future, and if I'm not in the know about this, it's going to come and destroy me." Therefore, I owe it to myself to take this seriously. It wasn't just about missing out on an opportunity to make my business better; it was more like, "Oh no, I have to protect my family." This is my job, and I felt extreme fear over what he was saying. He mentioned something called Magnus. Have you heard of Magnus? Is that like the new Chinese...?

Shaan Puri

Like agent platform? Yeah, yeah, yeah. Just like things like Manus.

Sam Parr

Manus was explaining, but he had like three things where I was like, "How do I not know about this?" Do I need to sign up for an AI trade magazine? What's going on? His answer was horrible. When I asked Greg, "How do you know?" he said, "I just do," or something like that. He was just like, "I just hear about it." I was like, "Well, that's extremely not actionable for me. Thanks a lot, Dick." So, how much time are you spending learning about this topic, and where are you turning to?

Shaan Puri

Look, there's two minds about it. One, I would say I have no risk of over-investing my time in this. I have a pretty big risk of under-investing my time in it, but no risk of over-investing my time in paying attention to what's going on with AI. I want to be able to play with the tools, understand what the companies are doing, and really think through where this puck is going. At the same time, I'm not trying to drive myself insane. I do think there's a very unproductive version of this, which is the constant whiplash of new demos, new models, new this, new that, new whatever. So what I'm doing is basically like an intermittent fasting style model. I'm mostly not paying attention to it, as in I'm not actively trying to react to everything I see or go seek out or read every single thing out there or try to sign up for every single tool. What I'm doing is trying to make it very useful for me. When I have a problem, I now add it into my solution list. I ask myself, "Do I think AI could solve this?" So whatever research I'm doing is actually a just-in-time solution to a problem I actually have, versus just the kind of intellectual jacking off of keeping up with everything, trying everything, and wanting to know everything—watching every podcast, listening to every YouTube video. It's like, no, I'm mostly trying to solve a problem. If I have a problem, I try to see if I could solve it with AI. Maybe yes, maybe no, but that's interesting. I learn a little bit each time I do that, but at least I'm trying to solve a problem I have. The second thing is I am carving out three times. Last year, I think I told you what I did. I did an AI hack week, a think week, where I cleared my calendar. The only thing I did that week was go in-depth. The beauty of that is it's kind of like checking your email. If you want, you could check your email every three minutes and you might find a new email, but it will just keep tearing your attention away. Whereas if you batch your email and check it once at noon and once at 8 PM or something like that, you're totally up to date on email, but you didn't have to have this nervous energy constantly doing it. So I'm treating it more like that.

Sam Parr

I agree with you. It was nice to catch up with you. I'm getting all pumped about all this stuff. I'm currently in Saint Louis, Missouri. I'm about to go to the zoo, and then I'm going to see some family tonight. I was happy I was able to do this podcast from this hotel and potentially reach hundreds of thousands of people.

Shaan Puri

Hundreds of millions of red blood cells. What are we counting here?

Sam Parr

Well, because you just started talking about this AI stuff, I'm literally staring out the window right now. Whenever you talk about this, I have notepads here and I get flustered. Sometimes I think, "What should I say next?" But then other times I'm like, "Oh, he's talking about this AI stuff. What am I going to do? What do I have to do?" That's how I feel right now.

Shaan Puri

Yeah, I definitely feel that. By the way, I have a couple of things I forgot to say about the Uber thing that were great. This is the funniest part of the Uber situation. At the end of that professor's blog post, you know what he wrote? After he wrote this huge valuation teardown of Uber, he goes, "As I attempt to attach value to Uber, I have to confess I just downloaded the app but have not used it yet. I spent most of my life in the suburbs where I go for days without seeing a taxi, or if I'm in New York, I just use the subway." It's like the experts who are literally not only not betting on this enough, but they have no skin in the game. They literally have never even used the product. It's like, dude...

Sam Parr

You should've just ended it with, like, "P.S. But what the fuck do I know?" That would've saved him a lot of, exactly, a lot of reputation there. But there are some great points.

Shaan Puri

By the way, from CEOs who underestimated their market size: Jan Coombs, CEO of WhatsApp, said, "We're just trying to make messaging better, not build some big business." It sold for $20 billion. Somebody said, "I thought I'd make a little side money, enough to quit my job." That's Sarah Blakely, founder of Spanx.

Sam Parr

Oh, Sarah Blakely! Wow.

Shaan Puri

So, you know, female billionaires... One of the first female billionaire entrepreneurs of this generation is in mobile gaming. One of the first mobile games ever was Snake on Nokia phones, if you remember. The head of Nokia's mobile gaming division said, "I think mobile games are just a small add-on. It's not a real market." Mobile gaming turned out to be a **$120 billion** market. Here's another example: the Domino's CEO in 2010, the year I graduated from college, said, "Delivery is a convenience, not a game changer." At the time, delivery was **$10 billion** a year across food delivery. It's now more than ten times that—it's more than fifteen times that, in fact. I read a crazy stat that, I don't know if this is legit, but some study came out or someone was doing some analysis and they said that for most local restaurants now, **70%** of their order volume is delivery orders. They're no longer restaurants that do delivery; they're delivery machines that also happen to have a table to sit down at if you want.

Sam Parr

I go to restaurants all the time where I feel like I'm the only person there. Drivers are coming in and out the whole time.

Shaan Puri

Yeah, Brian Chesky said, "We didn't know the size of the market because we were inventing it. If we listened to market research, we would have just made a better couch surfing app." And the last one is Elon Musk. He said, "I don't care about the market size. I care about if we can make something fundamentally different. Because if you make something great, the market will come."

Sam Parr

It is sick! This was like a little impromptu topic that turned into a whole thing. That was awesome!