Unicorn Founder on Unseen Arbitrages, the Paradox of Wealth + Charlie Munger Wisdom

Import Genius (0s)

• Ryan Peterson is an entrepreneur who has experienced both bootstrapping and Silicon Valley success, having started out working at Domino's Pizza, flipping scooters on eBay, and building Import Genius, a bootstrap company that made millions, before running Flexport, a multi-billion dollar company (0s).
• Peterson's journey in entrepreneurship involved learning from his experiences, including frustrations with freight forwarders and customs brokers, which ultimately led to the creation of Flexport (1m48s).
• Import Genius was created to solve the problem of finding good factories and suppliers, and it works by taking public data about shipping manifests, organizing and structuring it to show who a business's supplier is and who a supplier works with (3m0s).
• Peterson used Import Genius to find a factory for his e-commerce business, which has now done over $50 million in revenue, and he credits the platform with helping him find a good supplier (2m17s).
• Peterson's experiences have taught him valuable lessons, including the importance of negotiation, which he learned about in business school and still uses today (24s).
• He also learned from his friendship with Charlie Munger, who taught him about the Paradox of Wealth, which suggests that instead of chasing money directly, one should focus on something else, as money will follow (18s).
• Peterson's story is one of relatability, having done both the bootstrapper game and the Silicon Valley game, and his experiences can provide valuable insights for entrepreneurs (1m9s).
• The founder of Import Genius started the business out of frustration with using Alibaba to find factories in China, only to discover that many listed factories were fake or middlemen (3m26s).
• The founder's experience with Alibaba led them to create Import Genius, which they believe is a better way to find factories, and their brand is centered around identifying and solving problems that others take for granted (4m21s).
• The founder has a tendency to analyze and identify bottlenecks in various systems, such as restaurants, and think of ways to improve them, which is related to the concept of "schle blindness" coined by Paul Graham (4m47s).
• Paul Graham, the founder of Y Combinator, has described the founder as an "armor-piercing shell," a founder who can overcome obstacles that would make others give up, likely due to their hard work and perseverance (5m17s).
• The founder has a long-standing relationship with Paul Graham, who has seen them since the early days of their entrepreneurial journey (5m35s).

Paul Graham's superpower (5m36s)

• Paul Graham's superpower is his ability to see what's possible and how valuable or big a startup could be if everything works, ignoring other possible outcomes, which is beneficial in seed investing in a power law world (6m42s).
• Graham's approach helps him find the most promising startups and sell their story to other investors and candidates, as seen in his support for Flexport (7m4s).
• Graham was a great adviser to Flexport, providing confidence, clarity, and helpful advice during uncertain moments, and his support was crucial in the company's early days (6m17s).
• Graham would send emails to top engineers, saying great things about Flexport, and helped the company get press coverage, demonstrating his ability to sell the story of a startup's potential (7m15s).
• Graham is also a big supporter of Flexport.org, Flexport's humanitarian relief logistics division, and has donated millions of dollars to the cause (7m42s).
• Having a first believer, someone who believes in you more than you believe in yourself, is crucial for entrepreneurs, and Graham played this role for Flexport (7m51s).
• Being a YC partner or leader is a hard job, as most startups will fail, and it requires a certain level of "fail blindness" to focus on what could happen rather than what will likely happen (8m21s).
• Graham's approach to seed investing is beneficial, but it can be psychologically challenging, and he may need to write an essay on "fail blindness" for investors (8m35s).

Data-as-a-service framework (9m34s)

• A successful business model involves taking publicly available data, structuring it, and making it useful, as seen in the case of BuildZoom, which was born out of the frustration of finding a contractor and utilizes public data sets of building permits to provide a useful service to homeowners (9m35s).
• The underlying framework for thinking about business ideas like this involves identifying public data sets that are hard to access and organizing them in a useful way, as seen in the case of building permits, which are largely public record but difficult to access (10m16s).
• Another example of this business model is an app called Oasis, which tracks water quality by utilizing publicly available testing data from cities and bottled water companies, and presents it to consumers in a useful way (11m53s).
• The key to success in this type of business is not necessarily defensibility, but rather distribution, network effects, and brand, as seen in the case of BuildZoom, which layers reviews on top of its data set to create a useful service (11m23s).
• Defensibility can be overthought, and it's possible to build a successful business even with publicly available data, as long as you can execute high velocity and create a strong brand and network effects (11m41s).
• The idea of a "moat" or defensive walls around a business is not as relevant in today's fast-paced business environment, where high velocity attack and execution are more important than defensive strategies (13m24s).

Charlie Munger's worldly wisdom (13m51s)

• Charlie Munger's essay, "The Art of Worldly Wisdom," emphasizes the importance of learning a few big ideas from various disciplines to gain a broad understanding of the world, with the idea that knowing two or three key concepts in each discipline can provide 80% of the knowledge in that area (14m18s).
• The essay suggests that there are only a few hundred disciplines, and learning the key ideas in each one can make someone "worldly wise," with Munger listing examples of these ideas, such as the concept that things often gravitate towards a "win or take all" scenario (16m13s).
• The application of mental models from one discipline to another can lead to innovative ideas, as seen in the example of physicist Richard Feynman, who applied ideas from physics to biology and made groundbreaking discoveries (16m38s).
• The concept of learning big ideas from various disciplines inspired a journey of reading hundreds of books and searching for key concepts in different areas (15m52s).
• Charlie Munger's essay is not just a concept, but also provides examples and lists of big ideas, making it a valuable resource for learning (16m25s).
• The idea of being "worldly wise" is not just about learning ideas, but also about applying them in different contexts and disciplines (16m30s).
• The importance of being number one or number two in a field is also emphasized, as it often pays to be at the top (16m19s).
• The essay "The Art of Worldly Wisdom" can be found on Paul Graham's website, and it is recommended reading for young people trying to figure out their way in the world (14m32s).
• The story of meeting Peter Kaufman, the author of "Poor Charlie's Almanac" and a close friend of Charlie Munger, began with a conversation about the book "Worldly Wisdom" at a party, where the individual expressed their admiration for the book, not knowing the author was present (17m17s).
• Peter Kaufman was amused by the individual's enthusiasm for the book and introduced them to Charlie Munger, leading to a dinner invitation and the start of a friendship (17m36s).
• Charlie Munger's advice for success in business is to find "dumb competition," which he believes is a key factor in achieving success, as seen in his experience working with freight companies (18m8s).
• Applying this principle, it is suggested that instead of competing directly with others in a crowded field like AI startups, it is better to apply AI to an old-school industry or find an area with less competition (18m19s).
• This idea is compared to table selection in poker, where choosing the right table can greatly impact one's success, and sitting at a table with weaker players can lead to better outcomes (18m41s).
• The importance of finding the right environment or competition is highlighted, as even the best players can struggle in a highly competitive setting (19m0s).
• The story of Ben and Jerry's founders meeting in a PE class, where they bonded over their shared dislike of running, is used to illustrate how unexpected alliances can form (19m27s).

Prioritizing adventure (19m45s)

• The decision to move to China was driven by the country's booming economy and the opportunity to learn about Chinese culture, history, and economics (19m45s).
• Prior to moving, the individual had experience living in South America, where they learned to speak Spanish and Portuguese, and believed they could also learn Chinese (20m16s).
• The move to China was not planned with a specific exit strategy, but rather with the intention of learning and experiencing the culture (20m39s).
• For those in their 20s considering an adventurous path, it's essential to introspect and identify personal values, as this will guide decision-making (21m0s).
• The individual's top value at the time was adventure, which led them to try new experiences and travel to new places (21m10s).
• This value of adventure is not for everyone, but for those who share it, achieving it can be relatively easy by traveling to affordable destinations (21m40s).
• The experience of living in China and navigating unfamiliar situations helped build problem-solving skills and confidence (22m22s).
• Learning a foreign language in its native country can be a valuable experience, despite not being a lucrative investment, as it teaches humility and helps develop relationships with others (22m36s).
• While in China, the individual was involved in a scooter business, sourcing products from local factories, and handling various aspects of the business, including marketing and customer service (23m38s).
• The scooter business was moderately successful, generating a salary-level income, but not enough to be life-changing (23m55s).

The paradox of wealth (24m9s)

• The concept of making the first million is discussed, with the idea that money is a tool to improve the quality of life, but it can also become a measuring stick or something people accumulate over time (24m9s).
• When making the first million, the initial steps taken were paying off student debt, investing wisely in a wealth front Index Fund, and buying real estate cash-generating properties, although some poor investment decisions were also made (24m59s).
• The idea that money stops improving life at a certain point is disputed, and it's believed that the more people have, the more they want, making money a desirable thing (25m26s).
• The Paradox of Wealth is introduced, which states that focusing too much on making money will cause people to make less money, as others perceive them as greedy and self-interested (26m8s).
• Instead of focusing on money, it's suggested to focus on the things that are upstream of making money, such as solving problems for people, learning, and developing skills and capabilities (26m30s).
• Solving problems for people involves learning what the problems are, developing skills to solve them, and creating win-win situations, which is the opposite of the perception of salespeople as pushers who try to get people to buy something they don't want (26m36s).
• Great salespeople are consultative, good at asking questions, diagnosing problems, and understanding how their product or firm can solve the problem, which leads to win-win situations (26m51s).
• The common perception of salespeople is often negative, with many people viewing them unfavorably, which has led to the term "salesperson" being rebranded as "account executive" in some cases (27m14s).
• Despite the negative connotation, sales is a crucial part of many jobs, with around 10% of all jobs in the world being sales-related, and everyone having to sell their ideas in some capacity (27m47s).
• Many universities do not offer a major in sales, with only three universities in the United States offering such a program a few years ago (27m41s).
• The ability to sell is a key driver of a company's success, with many good tech companies failing due to their inability to sell their products, and some companies succeeding despite having inferior technology but being skilled at sales (28m3s).
• Studying the generation of wealth, rather than just its correlation with money, can be a more effective way to acquire wealth, and it is not inherently bad to want money, but one must be aware that an overemphasis on it can be counterproductive (28m21s).
• The pursuit of wealth can be likened to the pursuit of love, in that an overemphasis on finding it can be unattractive and counterproductive, and it is often more effective to focus on personal development instead (28m38s).

Charlie Munger's student experiment (28m51s)

• Warren Buffett conducted an experiment in a classroom where he asked students to choose a classmate, not themselves, and they would get 10% of that person's earnings for the rest of their life, and write down the name and reason for their choice (28m52s).
• The students did not choose the person with the best grades, indicating that academic performance may not be the most valuable trait (29m27s).
• Only a few students chose the person with the highest IQ, and no one chose the person who could throw a football the farthest (29m41s).
• The characteristics that the students ultimately chose were energy, integrity, and intelligence, which are the same qualities that Buffett looks for when picking people (29m56s).
• Energy refers to people who are obsessed with things, never give up, and have endless energy towards a project (30m2s).
• Integrity is important because owning 10% of someone's future earnings is not valuable if that person is in jail or acts out of bounds (30m13s).
• Intelligence refers to someone who is good at figuring things out, not just having high grades or IQ (30m25s).
• Buffett's experiment suggests that if you want to be successful, you should strive to have the qualities that you would look for in others (30m35s).
• This idea is related to the Paradox of wealth, which suggests that the person who will become the wealthiest is not the one who only chases money, but rather the one who has a combination of valuable traits (30m42s).

Negotiation masterclass (31m0s)

• A negotiation class is highly recommended, as it provides valuable experience in negotiating with others under set conditions, allowing for comparison with peers in the same situation (31m1s).
• In a negotiation class, students are given a case study with slightly different rules to play, and they negotiate with each other under those conditions, providing a unique learning experience (31m14s).
• The outcome of a negotiation class can be tracked over time, as the people who were the best negotiators in a classroom environment may not necessarily be the most successful in real life, as they may be too good at extracting too much in a one-off negotiation (31m41s).
• In real life, there are repeat games, and it's essential to let the other party win sometimes, as taking advantage of someone can lead to them not wanting to do business with you again (31m50s).
• Working with family members, such as a father, can provide a unique perspective on their strengths and weaknesses, and can be an interesting experience in various ways (32m9s).
• A person's strength and weakness can sometimes be the same trait, as seen in the case of the speaker's father, who was a good negotiator but also too tough (32m28s).
• In high-stakes negotiations, being stubborn and irrational can sometimes lead to winning, as the other party may realize that they need to play by the stubborn person's rules (33m7s).
• However, taking too much in a negotiation can lead to the other party feeling forced and having nothing to gain, ultimately leading to a deal that may not be sustainable in the long run (33m33s).
• A key lesson learned from a past negotiation is that both sides need to leave a little wanting, or give back at the end, for the agreement to be sustainable, especially in repeat games (33m57s).
• Running a global logistics company involves a huge amount of negotiation, particularly in procuring and selling ocean and air freight, as well as providing custom services (34m19s).
• The logistics industry is very short-term focused and transactional, but playing the long game and building trust with people can lead to significant profits (34m34s).
• A framework for evaluating any company involves considering the six stakeholders at the table: customers, vendors, employees, investors, regulators, and the communities where the company operates (35m5s).
• The goal is to create a win-win scenario for each stakeholder, with a score of at least a C, and ideally an A, for each group (35m40s).
• Airbnb is a good example of a company that has created a win-win scenario for most of its stakeholders, including guests, homeowners, investors, and employees, but has struggled with regulators and communities (36m9s).
• This framework can be used by job seekers to evaluate potential employers and by investors to assess companies before investing (36m57s).
• High returns as an investor often come from holding onto investments for a very long time, allowing the compounding machine to work effectively, but this approach may not be sustainable in the long term and risk accumulates over time (37m7s).
• The accumulation of risk may not be a problem immediately, but it eventually becomes a significant issue (37m18s).
• The individual is also a partner at an unspecified organization (37m22s).

Inside Founders Fund (37m23s)

• Founders Fund is a unique venture capital firm that refuses to follow the herd and thinks for itself, which is why it was the only fund considered for joining, due to its independent and contrarian approach (37m55s).
• The firm's approach is largely influenced by Peter, who believes that people are mimetic and will chase the same outcomes, goals, and objects, and that avoiding this behavior can lead to huge arbitrage opportunities (38m46s).
• Founders Fund's team has been trained to think independently and avoid mimetic behavior, which is reflected in their investment approach (39m7s).
• The firm has a high-paying job structure with compensation tied to outcomes and performance, which is unusual in the venture capital industry (39m12s).
• The incentive structure in the venture capital industry can lead to a focus on avoiding getting fired rather than taking risks and making bold investments, as performance is difficult to measure and can be influenced by luck (39m54s).
• To avoid getting fired, some venture capitalists may double-check their decisions with other firms to ensure consensus and avoid being seen as having no opinions, which can stifle independent thinking (40m32s).
• Founders Fund is different from other venture capital firms in its approach and structure, and its focus on independent thinking and contrarian investing is what sets it apart (40m26s).
• Venture Capital firms often engage in a massive collusion, where they double-check and reference each other to avoid taking risks, leading to a regression to the mean and a herd mentality, which is contrary to the true spirit of Venture Capital that should be about risk-taking (40m45s).
• Founders Fund is good at not participating in this collusion and instead focuses on unique ideas and risk-taking, as seen in their conference called Hereticon, which is about heretical ideas that challenge the mainstream narrative (41m19s).
• Hereticon is a conference where speakers share unconventional ideas that might get them "canceled" or are at odds with the generally accepted opinions, and the talks are not published online due to their sensitive nature (41m45s).
• The definition of a heretic is a person holding an opinion at odds with what is generally accepted, and Hereticon embodies this spirit by encouraging speakers to share their unconventional ideas (42m0s).
• The conference has had talks on a wide range of topics, including the probability of alien existence and conspiracy theories, and is one of the few conferences where attendees would arrive early and stay late to engage with the ideas (42m6s).
• Founders Fund has an impressive track record of picking successful founders and making bold bets, but there is no formula for their success, as they focus on the unique qualities of each founder and their vision (42m44s).
• Founders Fund writes large checks with conviction, but without being overly reliant on spreadsheets and analysis, instead focusing on the founder's character and vision (43m0s).

Being in a crowd v following a crowd (43m16s)

• A great man is someone who can maintain their independence and individuality even when surrounded by a crowd, as stated in a quote, and this concept can be applied to everyday life with practical examples (43m25s).
• When entering a stadium, people often mindlessly follow the crowd, but taking a moment to think can reveal alternative entrances with shorter lines, illustrating the benefits of independent thinking (43m50s).
• A similar example can be seen at ski resorts, where parking attendants often direct people to park in areas that are farther away from the chairlift, but ignoring their instructions and searching for a closer spot can be more efficient (44m6s).
• Applying this concept to everyday life can help individuals move through crowds more efficiently and avoid herd mentality (44m47s).
• Public speaking can be terrifying for many people due to evolutionary instincts, but learning to overcome this fear and become a leader can take time and practice (45m0s).
• Even experienced leaders like Bruce Springsteen can get nervous before performances, but they learn to harness their nerves as energy to deliver a better show (45m41s).
• As a founder, having a strong mindset and developing hacks to manage emotions is crucial, as the emotional rollercoaster of entrepreneurship can be intense and painful (45m55s).
• Founders need to have release mechanisms and ways to get themselves back up after facing setbacks and failures, as the emotional lows can be very low (46m16s).

Highs and lows (46m29s)

• A hack to maintain perspective is to keep a record of highs and lows, which can be done by posting updates in a private Slack channel, allowing for easy scrolling and reflection on past experiences to gain a more balanced view of current situations (46m29s).
• This method helps to avoid getting too high or too low, as it provides a reminder that past highs and lows were not as extreme as they seemed at the time, and that the current situation will also pass (47m3s).
• The Slack channel is shared with a co-founder, and this approach is applied across every business, serving as a personal perspective machine that helps to stay grounded (46m56s).
• Non-founders may struggle to appreciate the challenges faced by founders, and even those close to them, such as spouses, may not fully understand the difficulties until they experience it firsthand (47m36s).
• The wife of the founder, a former journalist and tech reporter, has gained a new appreciation for the challenges faced by founders after participating in the journey and wishes she had understood this side of the story when writing about tech companies (47m42s).
• Founders are often portrayed as powerful figures in the media, but in reality, they are often struggling against more powerful forces and trying to speak truth to power and fight for the underdog (48m10s).
• The narrative in the media often focuses on holding founders accountable, but it's essential to consider the larger corporations that founders compete with, which can be much more powerful (48m26s).

You can just do things (48m52s)

• A simple philosophy is that "you can just do things," which means not needing someone's permission to take action (48m58s).
• This idea is often hindered by the expectation that one needs permission, which can be attributed to the education system where everything is gated and rule-based (49m5s).
• However, in the real world, there is no authority figure waiting to give permission, and individuals can take initiative without needing approval (49m46s).
• Many people believe they need to raise venture capital to start a company, but an alternative approach is to think of an idea that doesn't require funding and just start (49m53s).
• Having a "victim mindset" can hold people back, and instead, they should take ownership of their actions and decisions (50m10s).
• The importance of understanding what is legal and what is not is emphasized, and taking a basic law class can be useful in this regard (49m9s).
• The education system can create a mindset that everything is restricted, but in reality, many things are possible without needing permission (49m32s).
• The example of the speaker's own experience is given, where they started companies without raising venture capital for 10 years and only raised VC later (50m5s).

Unseen arbitrages (50m16s)

• The Y Combinator (YC) application is not long, with only seven questions, and one of the questions asks for an example of a real-world system that the applicant has hacked, meaning finding a side door or an unconventional solution to a problem (50m17s).
• Ryan, the founder of Flexport, was known for finding creative solutions, such as buying AdWords for the keyword "Uber promo" and using his own promo code to get cheap Uber rides, earning him $10,000 in Uber credits (50m47s).
• This hack allowed Ryan to treat Uber as if it were free, and he likely spent more money than he saved, but it was a clever exploit of the system (51m3s).
• Another example of an unseen arbitrage was a man in India who discovered that Uber's credit system did not account for geographic differences, allowing him to sign up people in India, give them credits, and then sell those credits to Americans at a profit (51m45s).
• This man was able to make $15,000 per month by exploiting this loophole, which he knew would eventually be closed, but he was taking advantage of it while it lasted (52m33s).
• The concept of unseen arbitrages refers to finding creative ways to exploit differences in systems or markets to gain an advantage, often by finding unconventional solutions or side doors (50m26s).
• These arbitrages can be lucrative, but they often rely on the fact that others have not yet discovered them, and they can be shut down once they become widely known (51m32s).

50M Phone booths (53m0s)

• A side hustle involved creating phone booths for companies, which started as a simple idea at Flexport due to a lack of conference rooms. (53m0s)
• The initial phone booths were made by a carpenter found on Craigslist, but they were poorly ventilated, causing users to sweat. (53m40s)
• Despite the poor quality, people used the phone booths constantly, indicating a demand for the product. (53m52s)
• Henrik, the founder of Airel, ran with the idea and built it into a company, creating a better design with improved ventilation. (54m0s)
• The company sold thousands of phone booths, generating $50 million in sales, but ultimately failed due to mismanagement and poor unit economics. (54m43s)
• The intellectual property behind the successful phone booths was the use of three fans for ventilation, a simple yet effective hack. (54m33s)
• The idea of phone booths for companies may still be viable, but it has become a more competitive space, and someone could potentially reboot the idea and execute it better. (55m8s)
• Ryan, the founder of Flexport, uses Twitter handle @typesfast and invites people to visit flex.com for logistics solutions, including freight forwarding and direct-to-consumer fulfillment. (56m13s)