Luca Ferrari: Scaling to 500M Downloads, $360M in Reported 2023 Sales and a $2.55BN Valuation |E1127
15 Mar 2024 (8 months ago)
- Luca Ferrari shares his thoughts on market fit and acquisitions.
- He emphasizes the importance of letting others find market fit before acquiring their companies.
- Ferrari expresses his excitement about Bending Spoons, describing it as one of the coolest stories in recent times.
Luca’s Background (41s)
- Luca's teachers would have described him as shy, weird, and gentle.
- He struggled socially during his early years, which influenced his current approach to life.
- Ferrari initially felt like an outsider but eventually became an insider.
- In recent years, he has become more of an outsider again due to limited bandwidth and patience.
Early Days of Bending Spoons (2m51s)
- Luca Ferrari co-founded Bending Spoons with two other co-founders after the failure of their previous startup, Evertale.
- Lessons learned from Evertale's failure:
- The importance of building a good team.
- Being thoughtful about what to build and why.
- Bending Spoons was started when Luca got an offer from McKinsey and agreed to work part-time while starting the company.
- After about a year and three months, Luca left McKinsey and Bending Spoons was officially launched.
- Bending Spoons focused on building a platform of technologies, company culture, and employer brand rather than launching a specific product.
- The company acquires products that have shown market fit and then works to unlock their full potential.
- This approach was taken as a result of the failure of Evertale, where the founders realized they were wrong in assuming they knew what the market wanted.
Acquiring & Improving Products (7m33s)
- The assessment process for determining product-market fit involves identifying a user base, customer base, recognizable brand, or good positioning in a distribution channel.
- The first product acquired was a keyboard app for $155,000, which was then grown and reinvested into building a team, learning, and developing in-house tools.
- The company's initial funding came from the leftover capital from Evertail, and the venture capitalists preferred to sell their shares for a small amount rather than go through the liquidation process.
- The first few apps developed were simple, with one called "Fony" generating around $10,000 in all-time revenue.
Bootstrapping & Long-Term Vision (10m25s)
- Luca Ferrari and his co-founders aimed to build one of the best companies ever, despite their impressive achievements and constant self-doubt.
- Bending Spoons, a hybrid product and technology company and private equity firm, bootstrapped its growth due to Italy's weak VC scene, their unique strategy, and a desire for control.
- Unlike traditional private equity models, Bending Spoons completely revamps acquired companies' software, architecture, user experience, and marketing strategies.
- The company allocates resources based on improvement and value creation potential and has a history of killing underperforming projects like PlayOn.
- Emphasizing intellectual humility, Ferrari suggests lowering the odds and assuming a positive bias when creating new products.
- The acquisition of Evernote was driven by the belief in its improvement, monetization, and cost-effectiveness potential.
- Ferrari is excited and motivated to work on a widely used product like Evernote with a substantial user base.
Misjudgments & Lessons Learned (22m42s)
- Luca Ferrari, the founder of AppsFlyer, values assets based on projected free cash flows and makes quick and decisive offers close to the maximum they are willing to pay.
- AppsFlyer primarily uses retained earnings and debt to finance acquisitions, with a recent raise of $200 million over the past 10 months.
- The company has not mispriced any acquisitions but has made mistakes in both directions, with the most significant error being overly optimistic projections of future user acquisition rates.
- Projecting user acquisition is challenging and often inaccurate, leading to instances where AppsFlyer experienced worse returns than expected.
Challenges of User Acquisition (28m22s)
- User acquisition rate is difficult to predict due to factors outside of control.
- Unlike other key factors, user acquisition depends on more drivers that are harder to control.
- Making mistakes in user acquisition often cannot be fixed, unlike other areas where extra effort can be applied.
- Spending more on advertising to acquire users may not be feasible or effective.
- Network effects and cross-promotion within the product portfolio did not contribute to user acquisition in this case.
Building Margins of Safety (31m10s)
- Building margins of safety involves diversification of product lines and appropriate pricing.
- Margins of safety should be considered in individual capital allocations, acquisitions, R&D, and marketing.
- A broader portfolio of initiatives, such as multiple products or R&D projects, can further enhance risk management.
Taking Too Much Risk (31m51s)
- The speaker emphasizes the importance of risk mitigation and self-awareness when making significant capital allocation decisions.
- Overconfidence can lead to dumb mistakes, so it's crucial to retain a healthy level of self-doubt and acknowledge potential biases.
- The speaker reflects on a specific instance where they took on too much risk by acquiring an app without thoroughly studying the underlying factors driving user acquisition.
- They acknowledge that they were overly optimistic in their projections and admits to being lazy in their analysis.
Learning from Mistakes (34m59s)
- The speaker mentions that they regularly review and discuss past mistakes to remind themselves of their shortcomings and prevent complacency.
- They believe it's important to acknowledge past laziness and dumb decisions to avoid assuming they have become immune to such mistakes in the future.
Caring About Other’s Opinions (35m27s)
- Luca Ferrari admits to being too concerned about disappointing others, including colleagues and investors.
- This excessive caution has led to missed opportunities and slower progress in implementing strategies.
- Ferrari acknowledges that being overly concerned about others' opinions is a significant handicap in his role as a CEO.
- He is working on developing emotional resilience and a thicker skin to cope with criticism.
Resilience & Self-Criticism (37m39s)
- Luca Ferrari describes himself as very self-critical, possibly to an unhealthy extent.
- Despite this self-criticism, he has a strong determination not to give up, even in challenging situations.
- Ferrari recognizes that his business-related challenges are privileged compared to the truly difficult things some people face in life.
- He acknowledges that complaining about these challenges can be irritating, given the fortunate circumstances he and others in similar positions have had.
Talent & Motivation Density (39m29s)
- Luca Ferrari believes in focusing on talent and motivation density when building a team.
- Talent refers to an individual's potential to excel in a specific role.
- Experience represents cumulative exposure to relevant experiences that help unlock potential based on talent.
- Motivation acts as a multiplier, enhancing performance within the range determined by talent and experience.
- Ferrari and his team prioritize talent and motivation over experience when hiring.
- They believe experience can be provided, but motivation is inherent and difficult to change.
- This approach allows them to build a team with the best long-term potential.
Assessing Talent & Motivation (41m43s)
- Ferrari and his team use practical and measurable tests to assess talent.
- They focus on general problem-solving abilities rather than acquired knowledge.
- They believe someone can learn the necessary skills if they have the right work ethic, teamwork, and mentality.
- To assess motivation, they try to understand what triggers a person to give their best.
- They acknowledge that predicting motivation is challenging but strive to be better than most companies and improve over time.
Biggest Mistakes in Hiring (43m35s)
- Assigning too much weight to experience when hiring.
- Trading talent and motivation potential for more experience, resulting in a lower level of contribution in the long run.
- Working together physically tends to correlate with higher performance levels.
- It's unclear whether this is because people are in the same place or because intrinsically motivated individuals want to be with others.
- There are incredibly high performers who work remotely all the time, but it's slightly less probable.
- The company fully supports remote work to attract talent from a broader pool of candidates.
- Some of the best performers work almost entirely or completely remotely.
- Remote work comes with a price, but it's not clear-cut whether it's the right move for every company.
- The company keeps all options open and is happy with its remote colleagues.
- Currently, the company has the same salaries regardless of where employees are located.
Ambition & Hard Work (46m20s)
- Luca Ferrari believes that to be the best at something, one needs both talent and hard work.
- He has observed that successful people tend to have worked very hard for a long time.
- Ferrari emphasizes that hard work is not necessarily morally good or bad, but it is a personal choice.
- He acknowledges that there may be cultural differences in ambition and work ethic, but he has found hardworking and lazy people in every geography.
Building Strong Co-founder Relationship (49m47s)
- Ferrari attributes his successful co-founder relationship to luck rather than careful planning.
- He had long-standing friendships with his co-founders before starting their first startup.
- The co-founders went through hardships together, including a failed startup, which strengthened their relationship.
Choosing Investors (50m55s)
- Luca Ferrari and his team chose their investors with the help of advisors from Allen and Company, an equity M&A financing advisor.
- They considered the principles and behavior of investors during difficult times when making their selections.
- The process involved studying potential investors, talking to references, and ensuring a mutual fit.
Improving the Fundraising Process (52m18s)
- Creating a level of competition among investors can lead to better terms and faster closing.
- Investors may initially show enthusiasm but may try to reduce their commitment or alter key terms during due diligence.
- Maintaining competitive pressure and keeping a broader spectrum of parties involved until the end can help secure favorable terms.
Immovable Terms in Fundraising (53m45s)
- Luca Ferrari and his team prioritized equal economic terms for all shareholders, including employees and institutional investors.
- They resisted liquidation preferences to avoid a situation where some investors would benefit at the expense of others if the company faced difficulties.
Quick-Fire Round (55m6s)
- Luca Ferrari, the CEO of Bending Spoons, has shifted his focus from reading as many books as possible to selecting and analyzing them in depth.
- He recommends "Our Mathematical Universe" by Max Tegmark, "The Selfish Gene" by Richard Dawkins, and "A Gentleman in Moscow" by Amor Towles as must-read books.
- Luca's daily routine consists of waking up early, walking his dogs, going to the gym, and dedicating significant time to individual work.
- He promotes individual work at his company and keeps his meetings to a minimum.
- Luca believes that artificial intelligence will ultimately eliminate more jobs than it creates.
- He considers the most significant act of kindness he received to be the help he got in overcoming shyness and learning to socialize during middle school.
- Luca Ferrari envisions Bending Spoons continuing its successful business model on a larger scale, aiming to make a more substantial positive impact.
- He acknowledges the challenges of creating positive change in business and admires organizations like the Gates Foundation for their philanthropic efforts.
- Luca Ferrari expresses gratitude for the recognition of Bending Spoons' business model and appreciates the opportunity to share his thoughts.