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How PayPal & Trulia Navigated Downturns: David Sacks, Craft Ventures + Co-Founder of PayPal
The NFX Team ·@NFX
Apr 2020 ·Fintech
David Sacks

Guest Bio:

Today we’re talking with David Sacks about how to lead a company through an unforeseen downturn, and what it takes to adapt and survive in an unpredictable economy. David is a general partner at Craft Ventures and previously a Co-Founder of PayPal & Yammer. Both David and Pete founded iconic companies and led them through unstable markets to emerge with high growth and success.

In this episode, we discuss:

  • The Founder mindset during a downturn
  • The Investor mindset during a downturn
  • Tactics/frameworks for founders
  • Happy Talk vs Hard Talk
  • Silicon Valley during COVID-19


Christen O’Brien (00:04):

This is Christen O’Brien, and you’re listening to the NFX podcast. Today, we’re talking with David Sacks and Pete Flint, founders who have each navigated two companies through two downturns and emerged stronger. David with PayPal and Yammer and Pete with LastMinute and Trulia. Each of these companies went on to become market leaders, but not without hard-fought lessons. In this remote podcast, David and Pete share the specific tactics they learned about leading through hard times, the mindset founders need to adopt in order to survive, and what as VCs, they’re advising their portfolio companies to prepare for. David is now a co-founder and general partner at Craft Ventures, which like NFX, invests in early-stage entrepreneurs. Let’s jump in.

Pete Flint (00:51):

David, thanks so much for joining us today. I’m really excited to connect. We’ve both been in somewhat similar kind of fortunate or unfortunate positions, building companies through recessions and ultimately the companies became more successful for it. So you founded Yammer in 2008, just in the kind of heat of the global financial crisis and before that PayPal, during the dot-com crash, so kind of a wealth of experience there. And then my background in online travel in 2001 in Europe and then running Trulia in 2008, so there’s a wealth of experience. So hopefully in this podcast we’ll have a chance to really pull out some insights and give founders some thoughts about how to navigate the really changing situation. Maybe just from your own perspective during your experiences in leading companies through a downturn, what are some of the things that you felt you did right and perhaps some of the things that you felt you’d do differently during that time?

David Sacks (01:43):

Good to be with you, Pete. I think these types of downturns can be great times to build companies. Like you said, PayPal was mainly built right after the dot-com crash. The product launched at the end of ’99 and three or four months later we had the whole dot-com crash and the company was mostly built in 2000, 2001. And then was the first company to IPO in 2002 and kind of ended the dot-com bust. And then like you mentioned, Yammer began in 2008, 2009 and we are in the midst of the great recession then. So I think these can be obviously difficult and trying times, but also very good times to build a company. Innovation doesn’t stop just because there’s an economic downturn, there’s always need for innovation. And assuming you can get funding, which is the one thing that gets much harder during a downturn. Everything else gets easier, there’s fewer copycats, fewer competitors, the war for talent and recruiting gets an easier. So most things get easier. It’s just fundraising gets harder.

Pete Flint (02:48):

Talking about cash position and I shared a post, 28 steps, just from my experience and that’s certainly kind of a dose of realism, plus understanding your cash position is paramount. I’m hearing I think every day, the amount of cash companies need on the runway seems to be extending not shortening. I guess, what are you thinking about and what are you advising your companies and what did you do when you were in this position?

David Sacks (03:12):

We’re recommending to our portfolio companies to have two years of runway. I mean, at least eight quarters and really 10 quarters would be better because when you think about it, what’s happening right now is everyone’s businesses is getting disrupted. Well, I’d say 80% of startups are getting disrupted. There’s 10 or 20% that actually are seeing an increase in demand because we’ve got one startup that’s doing e-commerce and another one that is a nursing marketplace and both those companies have seen a huge spike in demand post COVID.

David Sacks (03:44):

But I would say that the other 80% of companies are going to be disrupted to some degree. A good number, anything touching for example, the restaurant industry or travel or anything like that, the disruption is 80, 90, 100%. I mean revenues has just gone to zero. Then there’s sort of the ones that are disrupted, not because they’re in an industry that’s kind of gone to zero, but because deal cycles are taking longer, there’s less business confidence, everyone’s kind of cutting costs and taking a wait and see.

David Sacks (04:18):

And so we’ve kind of color-coded our companies based on COVID impact. There’s kind of red, yellow or green. And red are the ones which have kind of revenue’s gone to zero. Green are the ones that have actually been accelerated, but I think most companies are probably yellow, which is to say that their pipelines have been disrupted, but they don’t even know by how much yet. And so because of that you’re going to need probably two or three quarters just to adapt and make the changes you need.

David Sacks (04:45):

If you’re kind of in the red, you’re going to need maybe a year to pivot and move to a lower burn model and then you’re going to want to have another year after that to show that the new model is working. And then you need time to go run a fundraising process, so you really want to have two, two and a half years if you’re a business that needs to retool or pivot or make major changes because of what’s happened.

Pete Flint (05:11):

We’ve done exactly the same process and similar recommendation. I think reflecting on my own experience at Trulia, we raised in Q2 of 2008 $15 million in today’s language, a Series B, and we didn’t get an upround for more than three years. We essentially had to go public to get an upround. Yet we were growing, at least doubling year over year during that period if not more. So I think not only is there kind of the fundraising window to open up, but also evaluations coming down. So I think it’s certainly going to be a really challenging time. And for all the same reasons I think particularly for network effects businesses, if you could use this as a time to build market share, then you are really sometimes the last man standing. Many of these marketplaces that came out of 2001 or 2009 really were the last man standing and they’d just build a network against a relatively uncompetitive environment and come out extremely strong. Is there anything, just as you think about what are the hardest things, the real challenges, and is there anything that comes to mind, what is super hard for founders to execute on that you feel is paramount for them to do at this time?

David Sacks (06:26):

The hardest thing is always layoffs. Everybody hates doing it, they don’t want to do it. And so they tend to wait or if they do it, they don’t cut deep enough and then they have to go back and do it again. And so that’s the one. Burn reduction is the hardest thing and then specifically the layoffs that are the biggest part of that typically.

Pete Flint (06:47):

I would agree and then the other component I think is communication. I think in this environment your team is scared, you’re worried and we’ll talk about your “hard talk” post in a moment, but just the level of communication needs to be significantly increased. If you’re doing weekly all-hands, maybe do them twice a week. If you’re doing daily stand-ups, maybe twice a day, particularly in this remote setting and that all, I think that will really separate a number of leaders, not just companies from others.

David Sacks (07:19):

I agree with that. One of the points I make in the “hard talk “post is that when you have to do the tough things, it has to be accompanied with a plan, otherwise you’ll just freak your team out. If you make layoffs but then don’t communicate and keep communicating what the plan is moving forward to be successful, then people will just be deeply anxious. And so, yeah, I think the communication’s a huge part of it.

David Sacks (07:45):

Maybe a third thing that’s hard for founders to do, but it’s really important at a time like this is, is to get all the legacy thinking out of their heads. I think that there’s so much that changes in a time like this and one of the biggest mistakes is to just be too anchored on the past and what the old plan was, and what the old organization looked like, and the old burn rate, and the old roadmap, and all that kind of stuff. And the big advantage a startup has is that it can adapt, it can pivot, it can change, it can throw away all those plans. But if founders don’t kind of let go of that legacy thinking, then they won’t be able to take advantage of that.

Pete Flint (08:28):

We obviously talk a lot about product-market fit as investors and founders need to realize the market is fundamentally shifted for 80% of the companies. And that kind of means that your priority in your company may have to fundamentally shift. It’s case by case but this is where kind of stubbornness, while it is an asset for founders, adaptability is more important in helping companies get through this.

David Sacks (08:55):

I just had a conversation with a couple of founders the other day and I mean their original plans have been completely disrupted by COVID because they’re basically selling to college students and all the college students are home right now. So there’s just no distribution and they were outlining a plan for the business that involved a pivot. And the point I made to them is, “Look, you’ve still got $5 million in the bank. If you were a company that graduated from YC, you would love to be in that position. You’ve got a great team of engineers, you’ve got $5 million in the bank, your original plan now has been totally disrupted but you can do anything you want.” The new plan shouldn’t just be a rationalization of the old plan. It should actually be the absolute best plan, the thing that you would be most excited about going all in on.

David Sacks (09:43):

I think at a time like this, founders should always be all in on their best idea and you just can’t afford to be kind of hedged or pursuing a bunch of different things. You really need to figure out what is our best idea? And just how do we focus on that. If you don’t have product market fit either because you never had it or because of the disruption that’s happening now, don’t be afraid to take your startup down to the studs effectively, because it’s a lot easier to manage and adapt and find product market fit as a seed stage company. And that’s one of the big mistakes that Series A, Series B companies make is they keep operating with all of this Series B type headcount and burn even though they don’t have Series B product market fit anymore. And in a lot of cases it’d be better off going back to it being a seed stage company.

Pete Flint (10:35):

Yeah and a bunch of companies have made this pivot successfully, but the majority of them don’t. This sort of persistence and adaptability, companies that get through this period almost have a…It’s really about a narrative almost about persistence. Kind of never giving up in the face of adversity. There are founders that they may just throw in the towel if they come to realize they’ve lost product market fit. In your experience coming across hundreds of thousands of founders over your career, where do you think the psychology of that persistence is and what’s the sort of kernel at that persistence that separates founders that get through this and the founders that don’t?

David Sacks (11:15):

I think there’s a greater sense of urgency on the part of the founders who make it for some reason they’re just more finely calibrated, almost sort of more high-strung in a way. They’re able to react much quicker to the changing circumstances and sort of throw away the old plan and figure out a new plan. And the ones who don’t make it, there’s just this lack of urgency. There’s always kind of like a wait and see. Give me an example, I’ve got a company that we invested in the Series A, the founder had three years of runway. He’s been running it very frugally and he asked me, “Well, is three years runway enough?” I said, “Yeah, you’re actually in pretty good shape compared to a whole lot of other people.” And he still went back and got his team to all, including himself, take a 20%

David Sacks (12:03):

pay cut, and he figured out how to cut some costs. Now he’s got four years of runway. I mean, that’s just like a tremendous sense of urgency and sort of finally calibrated in reacting to the changing circumstances.

David Sacks (12:15):

Then I’ve got a lot of other founders who their reaction is, “Well, we’re going to wait and see how things shake out over the next three months, and then if things look bad, we’ll make cuts then.” I guess that can work, too, but it’s just much less urgent somehow. There’s always a reason to postpone the tough things that need to be done.

Pete Flint (12:36):

Right. I see the same thing. Of course, the founders that delay are basically burning cash during this time, with very low revenues, and that shortens their runway.

David Sacks (12:47):


Pete Flint (12:48):

It also essentially makes it much harder for them to motivate the team. If they’ve tried something and tried something and tried something, then I think it’s just sort of a slow death, as opposed to being responsive and being fast.

David Sacks (13:02):

At a certain point, when all the companies around you are cutting costs, your employees will actually have some sense of what’s happening, and they know if the burden is too high. At a certain point, if you could just keep procrastinating it, they’re all just kind of looking around at each other, saying, “When is the axe going to fall?”

David Sacks (13:22):

So, in a weird way, you don’t get rid of the anxiety by procrastinating. You’re better off figuring out what the plan is going to be. I mean, you don’t want to just cut willy-nilly. You do want to figure out what the sort of go forward plan is, but you then make those changes as quickly as you can so that the people who are remaining with the company feel safe and comfortable, and they understand that we only needed to do this once. To your point about communication, they buy into the new plan. The longer you procrastinate doing all those things, the more anxious people actually become.

Pete Flint (13:59):

When I was running Trulia, you probably remember that time the Dow dropped a thousand points. Sequoia sent out the memo that was widely distributed. I was in that meeting at their offices, and ended up calling a management team meeting on the Sunday afternoon. We basically came in on Monday morning and presented the plan: Talk about the market, talk about what’s happening to the economy, talk about what’s happening to the industry, and then talking about our specific plan and what were some of the changes, in terms of people, that we had to make. Then also, just almost person by person, how they fitted into our business model, in the sense that this is explaining the financial details, saying, “Team by team, if you could move this metric from here to here, then the compounding impact of these changes from everybody will lead the company to profitability.”

Pete Flint (14:58):

Being very explicit, almost overly explicit, at this time is necessary to give people the transparency and kind of comfort that there’s a very explicit plan, and then they can see their role in achieving that success. “How do I contribute to this company’s success?” and knowing what everyone else is doing I think is a very clear way to do that.

Pete Flint (15:20):

I’m curious. From your experience in Yammer and PayPal, any experiences or specific tactics that you did or you had to navigate that might be helpful for the audience?

David Sacks (15:31):

Yeah. I mean, so as I think back on PayPal, it sounds a lot like what you went through at Trulia, in the sense that the PayPal business model could be expressed as a formula very easily. I mean, it was very, very straightforward. It was basically transaction volume times the price, the transaction fees, minus fraud, minus funding costs, minus customer support. So everything could be traced back to that. So we showed everybody how they fit into that and where we needed to move the numbers to.

David Sacks (16:03):

The PayPal story really was a story of a series of life and death struggles. Everyone in the PayPal Mafia now has gone on to so many other things, and PayPal’s $100 billion-plus company, but people don’t realize how close it came to dying multiple times. At one point in, I think, mid-2000 or mid- to late 2000, the company had about $40 million left in the bank, and we were burning $10 million a month. So it doesn’t take a genius to figure out that you’ve only got about four months of runway, and the company is about to run out of cash and die.

David Sacks (16:39):

The big lever that we pulled at that time was PayPal was basically free, and we had promised the customer base that payments would be free. The thinking was that payments would be a loss leader to get people into these financial accounts, basically bank accounts, and we would ultimately make money by upselling various kinds of financial products. There was some amount of skepticism or disbelief that people would ever just pay for the basic payments product. But we ran out of time, and we realized that there is no Plan B here. We just need to go with the product we have and charge for what we’re already putting out into the market. We don’t have time to do some sort of upsell

David Sacks (17:19):

So, over a few week period, we basically forced all the users to pay transaction fees. We were very worried that this could lead to enormous churn. We could lose to competitors. But, as it turns out, people were willing to pay for the service, and, virtually overnight, we were able to slash the burn by turning on revenue. Things got a little more comfortable after that. It was still pretty tough.

David Sacks (17:43):

So I think this idea that raised prices can be a major lever, but this idea of there is no Plan B, there is no time for kind of elaborate multi-step plans. You’ve just got to be all in on whatever best idea, your best product is right now.

Pete Flint (18:00):

Necessity is the mother of invention. I’ve been speaking to founders that think, “Oh, okay, we’ll raise money next year or in sort of four months.” I think there’s that mentorship to say, “There is no money.”

David Sacks (18:12):


Pete Flint (18:12):

For some kind of more mature company, there is no kind of backstop. There is no alternative, almost like that movie, The Martian, where he’s got to figure it out.

David Sacks (18:22):


Pete Flint (18:23):

There is nothing like that to focus the mind …

David Sacks (18:26):


Pete Flint (18:26):

… and figure out how you navigate this path and figure out, “How do we get profitable?” Of course, that might not even be possible from kind of the earlier stage companies, but the thought process is often illuminating, and then you really drill in on, “Do I truly have a 10X product? Do I truly have product-market fit? Is this something that people will buy this when they’re feeling poor and almost unemployed?” Then it’s a pretty interesting product.

David Sacks (18:51):

Yes. So I think we’re about to find out how many products are actually mission critical, because everyone’s slashing their budgets, and any product that’s kind of optional, people just aren’t going to pay for. So, over the next few months, I think a lot of companies are going to find out that they will have more churn, or their deals will take longer to close. We’ll find out they just aren’t that mission critical.

David Sacks (19:15):

VCs, I think, are waiting for that data. So it makes it kind of a really bad time to be going out and raising. I think VCs want to know which businesses have been disrupted and which ones haven’t, and it’s going to take a couple more months for us to see that in the numbers.

David Sacks (19:31):

But I agree with what you said about that the money that you have in the bank. For 80% of startups, that is it. I mean, you have to assume that that is all the money you’re ever going to have. I think when times were frothy, there’s this assumption that every 12 to 18 months, you’ll just be able to raise an upround. There’s always a bigger, better deal a year or 18 months in the future.

David Sacks (19:52):

I think now, the situation we’re in, there’s about 10 or 20% of companies that have been accelerated by this, but the other 80%, just the money you’ve got in the bank is all you’re ever going to have. So how do you make that last, to give yourself enough time to find product-market fit and to have enough time to have enough game tape after you find product market fit for the number to reflect that? Because it’s not like you can just go out and raise a month after you supposedly find product market fit, you need to have three or four quarters of rapid growth after that moment to prove that you have it.

David Sacks (20:25):

So startups really need to make sure they have the time to be able to do that. I remember back in 2000, 2001, during the dot-com crash, it went on for two years. The stock market crashed, but then the stock market just kept going down gradually after that. I think the initial crash was about a 50% down in the dot-com stocks, but then they went down another 90% over the next two years. It was like this gradual erosion, and the startups just kind of, one by one, fell. Most of them did, just fell by the wayside and died.

David Sacks (20:59):

You have to ask, “Well, why didn’t they just make the cuts upfront? They could’ve given themselves years of runway,” and they were all just kind of constantly holding out hope that things would just get better. They weren’t making serious enough cuts to give themselves the runway they needed to essentially reinvent themselves.

Pete Flint (21:16):

Yes. Just to build on that, you recently published an article about happy talk versus hard talk, the willingness to ask tough questions. We talked earlier about kind of confronting this reality, really sort of digesting the gravitas of what’s going on. Can you just share a little bit about kind of the thesis and kind of what was the trigger point for that article and why, perhaps, many founders avoid hard talk? What are the intrinsic reasons they’re perhaps wired for happy talk?

David Sacks (21:46):

I guess the trigger is so happy talk is probably the number one killer of startups. I guess the trigger for that blog post was I have these meetings with founders all the time, where the meeting starts off, and everything is wonderful. They tell you how great they’re doing. By the end of the meeting, you realize that, actually, there’s only three months of runway left and they’re about to run out of money. I’ve just had so many of those meetings, where I’m just like, “There must be something here. There’s a deeper psychology to this.”

David Sacks (22:18):

I think it’s because founders have to be optimistic. The odds are so stacked against you as a founder that you have to be optimistic to create a startup. You encounter so much rejection in the early days of a startup, whether it’s prospects telling you no or would-be employees who don’t want to come work for you or investors who say no. There’s just so much rejection that an entrepreneur, I think, does have to be fundamentally wired for optimism.

David Sacks (22:48):

But if that wiring kind of locks them into this happy talk mode and they lose the ability to see ground truth, the reality of their situation, that’s where it becomes a huge problem. So I think the best entrepreneurs are able to maintain this dual state, where they’re very optimistic about the vision of the company and where it’s going and that it will ultimately prevail, but they have tremendous clarity about the day-to-day challenges and what they need to do right now and the existential risks. They work to systematically knock off those risks.

Pete Flint (23:23):

It’s the Andy Grove paranoia. So optimism is great, but paranoia is just necessary during this time. Sure, things might bounce back in six months’ time, but what if they don’t? Because the unemployment rate is through the roof, and we may be not social distancing, but the sort of downstream societal impacts are going to be way bigger. I think that this sort of paranoia is absolutely a key asset in good times and bad times.

David Sacks (23:52):

I think the whole “Only the paranoid survive” philosophy very much dovetails with this. What does it mean to be paranoid?

David Sacks (24:03):

I think what it means is that you are constantly seeking disconfirming evidence. So you’ve got a thesis that you’re optimistic about, but it doesn’t cause you to have kind of confirmation bias. You go looking for the reasons why it might not work. You go looking for the big existential risk factors, so that you can systematically eliminate them, so you that you can work the problem. And if you’re just not sort of intellectually honest about the ways in which the startup isn’t working, then you won’t be able to solve those problems. I mean the key is you have to, I guess you have to be paranoid in order to find the problems and you have to admit the problems or you won’t be able to fix them. And the reason why happy talk is so pernicious is that if you can’t even admit to yourself or your board or whoever, or your team, what the problems are, you’re definitely not going able to solve them.

Pete Flint (24:52):

I think from a paranoia perspective, I mean there’s also just automatic risk. I think you’ve seen how other conversations with founders who are saying, I think we’ll delay these cuts or these changes, because they think they’ll be in a position to raise money in the future. And I think this is not just the outcome of a failure of mistake here, it’s your company will go bankrupt.

David Sacks (25:17):

That’s right.

Pete Flint (25:18):

And I think there were very few examples of bankrupt companies in kind of in recent history. It’s just because we’ve been on this 11 year boom. But the bankruptcies are like you remember the kind of blocks, I mean the ticker of bankruptcies that went through in 2001 and in 2009 was just a daily occurrence of companies. And layoffs is one thing, but bankruptcies were a daily occurrence.

Pete Flint (25:43):

I think that seems so far from the truth. And so just managing risk of shore, of course you can sort of make some changes today. And if you don’t have precision on those, then the downside of the situation is not necessarily a down round, it is bankruptcy, which, it’s going to be a real viral situation.

Pete Flint (26:04):

And just from a communication perspective, we talked earlier how transparency with the team to get them to kind of have confidence in the plan, confidence of the team, is critical. That said, transparency can be a double edged sword. And what my sense is today, is that teams are looking for almost true transparency in what’s going on into an organization. And I’m curious to get your take in terms of the degree of transparency within the organization, how necessary is that from the average employee, not just to the board?

David Sacks (26:42):

I mean I think it’s very important. We dealt with this, I mean it’s a very different type of issue, but we dealt with it to some extent at Zenefits, when we actually had to do a turnaround there. To some degree, the employees already know that there’s a huge problem. If you don’t acknowledge it or admit it, speak to it, then it just again, makes everyone feel more anxious, because they feel like it’s not being addressed or it’s being covered up rather than cleaned up. So I think that the transparency is very important.

David Sacks (27:12):

And the only thing I would just add to it is that, you do have to kind of give people, I’ve called the hard talk, kind of the opposite of happy talk. It’s the, I’d say, harsh assessment of where things currently stand. I think it’s important to combine that with a plan moving forward that gives people some hope. I don’t think you just want to lay all the negatives on people without also giving them a highly actionable plan to let them know that if they do those things, there is a path to success.

Pete Flint (27:41):

Yeah, there’s a lot of talk about wartime CEO’s and we referenced Churchill in it, and it’s sort of giving almost every team a mission and an objective. And this is their mission to achieve. And if they succeed in that mission, then ultimately other people see it in their mission, then the company be successful. And like any mission, you’re going to have these unexpected surprises and unexpected changes along the way. And you don’t know necessarily, you don’t have all the direction of what to do. But it’s imperative that the teams go out and execute on those individual missions and innovate along the way. But that sort of clarity about what’s asked of people.

Pete Flint (28:22):

And I’ve seen 98% of the time that people rise to the challenge, they kind of get excited by this. They can see the path if it’s a realistic path. And then the sort of energy and ferocity and innovation comes out, and it can be inspiring for many teams. They go from deer in headlights, through to commandos, and really figure out that this is the part to success.

David Sacks (28:49):

I agree. That’s a very well said. I think you can focus people’s energy on missions on a concrete plan. They’re going to wallow in the negatives and the anxieties if they don’t have that. But if they have a tangible plan to execute on, I think they will enjoy that; they prefer that. And if you’re on the other side of whatever hard cut you’d make, then I think that it’s doubly true. Because this is the team that you’ve decided to stick with, and it’s very important to convey that obviously with any cuts that you have to make are very unfortunate, but the people who are remaining are the people who are the most important moving forward to accomplish the mission.

Pete Flint (29:32):

So to extend the Wartime CEO, you referenced Churchill, I’m a big Churchill fan as well. And he’s obviously a great kind of leader and an orator as well. So a lot of his quotes and stories kind of resonate. There’s many kinds of quotes from Churchill at this time from, “If you’re going through hell, keep going.” This is one of my favorites. Or , “Never let a good crisis go to waste.” Or “The empires of the future are the empires of the mind.” You referenced Churchill in your article, what was the reference there?

David Sacks (30:04):

Well, to me, he’s an exemplar of hard talk, which is the opposite of happy talk. And when you read his speeches, there’s a type of bracing clarity to them where he acknowledges what a dire situation they were in. There’s no shirking away from that. And he talks about how the British way of life is at stake. Not just that, but all of Western civilization. He talks about how if the Nazis win, it would take civilization back to some Dark Age. What did he say? Dark by the lights of a perverted science, or something like that.

David Sacks (30:45):

Anyway, there’s a lot of bracing language about the dire situation they’re in. But at the same time, there’s also a lot of inspiring language in there as well. That if they do face this menace, people will look back for a thousand years and say this was their finest hour. So he manages to find, I think, a really great combination of giving people the ground truth but also inspiring them.

Pete Flint (31:13):

Yeah, it’s remarkable. There’s a lot and some great movies as well. Given this kind of very strange set up where we’re remote working, we’re collaborating over Zoom and kind of online, I’m curious from your perspective, either sort of tips or tactics that you’re seeing from founders or teams? Or also, just how to manage tough conversations over this environment. It sort of feels that in some ways, the stress of this situation plus they’re sort of, frankly, they’re connecting personal nature of these platforms, almost makes it easier to have hard conversations, that you sort of forget with perhaps the niceties and the kind of chit chat, and you get down to the kind of the really hard issues.

Pete Flint (31:57):

What’s your perspective, given this strange working environment, you can’t look someone physically in the eye and kind of have these straight conversations. How are you seeing founders navigating it, either in the board conversations or in the team conversations?

David Sacks (32:12):

Yeah, I mean the idea of doing layoffs via Zoom, or I’d say even the post layoff conversations with the rest of the team gets so much harder because you can’t do it in person. That’s definitely true. I think that if you are going to do layoffs, I think there needs to be a communication plan that’s really well thought through, not just for the people who are being laid off but also for everybody else afterwards.

David Sacks (32:38):

And like you talked about, the reasons for why this is happening and what it means and what the path is moving forward have to be over communicated to everybody. Whereas some of these things might have happened in an all hands meeting before to some degree, now you may need to do an all hands via Zoom, but before that, you might want to just do more one-on-ones. Or if the CEO can’t do them all, then the exec team needs to run down a list and maybe every member of the exec team, every employee is talked to by somebody for 15 minutes, half an hour or whatever it is. So yeah, you really have to think through that.

Pete Flint (33:12):

I think that the human element of what’s going on, I think with the sort of stress and panic that’s company is seeing, if they forget the human element, then it’s very hard to recover from that. Just because so much of the success of helping a company rise from a challenging period is the culture. And it’s particularly hard to manage and curate cultures right now, but if you were able to figure it out or if you have a strong culture to begin with, then you’re going to be in a much better situation.

David Sacks (33:40):

I was going to say, we have a couple of startups that were fully remote. And I’ve always been a little bit skeptical of that, because the companies I’ve been involved in had a strong central headquarters. But they’re managing quite well with this, because they already had all the processes in place to kind of hold their teams together. So for them it’s been easy, it’s been no change. And then everybody else, they’ve had to figure out how to do it.

Pete Flint (34:05):

So maybe, let’s switch to COVID-19. So I guess in Silicon Valley, in the technology ecosystem broadly, where do you think we’re doing right and perhaps where do you think we’re not doing enough right?

David Sacks (34:17):

Well there’s been a weird dynamic over the past month, where I feel like tech Twitter has advocated for things and the so called experts have been against them. And then a week or two goes by, and then all of a sudden, the experts get on board with it.

Pete Flint (34:34):


David Sacks (34:34):

And so like mass is the latest example where, I mean I don’t feel like I’m an expert on anything, but I’ve been tweeting about the need for mass for over a week. And it was just crazy to me that that wasn’t part of the standard kit of things that we are doing. And, and then finally, the experts just got on board with that. There are other things, the use of blood serology tests as a way of doing at home finger prick testing. We were tweeting about that weeks ago, and now the FDA is finally gotten on board with approving it. The expansion of the right to try and use things like hydroxychloroquine. Don’t know if it’s going to work, but certainly makes sense to be trying these things. And all of these things have ultimately happened. It’s just, it seems like the experts have always been a couple weeks behind.

David Sacks (35:21):

I’m not sure exactly why that is, but I mean, I do feel like for us at Craft, I feel fortunate that I know a bunch of the people on Twitter who have been very early on this, and because I know them, I sort of trust them. And when I saw them tweeting about what was coming, we took it more seriously I think. And so at Craft, we started doing work from home on March 1st, it was about two weeks before the shelter in place. And that turned out to be a very important time for people to get ready and get whatever supplies they needed. And that happened because I was listening to Balaji and other folks who I know on Twitter.

David Sacks (35:56):

And so, it feels to me like tech Twitter’s done a decent job of being ahead of the curve on this thing,

David Sacks (36:03):

and I’m certainly grateful to all those people who were the early warning system for this.

Pete Flint (36:07):

Ror sure. I mean, when you’re in Silicon Valley, it can often describe it a bubble. And in this context, the echo chamber, it was very noisy weeks ago and I think in the good and the bad of Twitter. It sort of amplifies perspectives and it’s very true. I think that San Francisco and Mayor London Breed were ahead of the curve in many things. I’m not sure how much of that was influenced by the tech sector, but I’m feeling today, San Francisco is in a fortunate position. Silicon Valley is in a fortunate position relative to a number of other U.S. and international cities for sure.

David Sacks (36:42):

It seems like the one place that took it seriously before it was directly hit hard. It seems like the pattern, just about everywhere else in the U.S. and I’d say probably Western Europe as well, is that people haven’t really taken it seriously until their own social networks are impacted. When it was in Wuhan mostly we were seeing these videos of people in hazmat suits, the streets being empty and being disinfected by these white plumes of smoke. There was very little coverage of it in the U.S. It felt like something was just happening somewhere else in the world. And then it happened in Iran, and then it happened in Italy, and there was still this sense will that’s not going to happen here. And then it started happening in Washington state and even New York, they were very, very late to, to react.

David Sacks (37:34):

I was getting text messages from friends in New York and there was just no awareness of it happening there. And they were kind of dismissive of the crazy tech people on the West Coast who are paranoid about this. So it does feel like San Francisco was slightly ahead of the curve and again, we had these folks who were a little bit of an early warning system on Twitter. It’s been a great resource. The strength of Twitter is the ability to get de-centralized information routing around these experts who don’t seem to know what the hell they’re talking about. I mean, if you go to the WHO website and the things they’re saying on their website are just manifestly not true, that you don’t need a mask unless you’re taking care of someone who’s infected with COVID-19. That maintaining a three foot distance for someone who’s coughing and sneezing is sufficient. I mean, things like that it’s just crazy. The best part of Twitter is being able to get access to this decentralized information. I mean the worst part is the tweet mobs that you also get, but there is something very positive about it right now.

Pete Flint (38:33):

From your perspective, what do you see is some of the longer term impacts on society and Silicon Valley? With an investor hat on, what do you see as some of the opportunities?

David Sacks (38:42):

Well, it’s very hard to know the future. I sort of see it as scenarios and then you kind of assign a probability to the scenarios and I think right now there’s kind of three scenarios. There’s the V the U and the L, which kind of generally apply.

Pete Flint (38:59):

In terms of recovery?

David Sacks (39:01):

Yes, in terms of recovery. But I think you can also use that as a proxy for vital impact and geopolitics or a bunch of other things. I mean if the U.S. Doesn’t have a V or U shaped recovery and it gets into an L, then their applications are going to be huge. And we don’t even fully know all of them are going to be. So, I tend to think those are the scenarios.

David Sacks (39:21):

And then I’ve got friends all across the spectrum. I’ve got some who are very optimistic and think it’s going to be like a V and that in April it’s going to be tough because of the lockdown, but that will arrest the exponentiality of the virus. And then starting in this summer, maybe June or May, we can start getting much more fine tuned in our policy and we can let people out of lockdown based on risk factors. And we have gloves and masks and ways of managing that aren’t as bad as locked down. And that by the summer you’ll have treatments and towards the end of the year you’ll have a vaccine. So they’re kind of on the optimistic side of this. And that would be kind of the V. And then there’s the U, which would say that basically the V story is largely correct, but the wound in the sense that we’ll get treatments this summer and we’re going to figure out an alternative to full lockdown and eventually we’ll get a vaccine in a ye,ar.

David Sacks (40:16):

But they would say that that narrative is largely right, but the wound we’ve suffered is more grievous than that. It’s going to take longer. It’s not going to be perfect. It’s going to take a few more months. And we’re probably likely to have 18 months, two year something recession. And then you’ve kind of got the case that’s worse than that, which is that actually we’ve never had a running stop of an economy like this. I was watching an interview with Kevin Warsh, former Fed Governor the other day and the way he put it was, “It may be possible to bring the economy to a sudden stop, but it’s unclear that we’re going to be able to do a restart of it.” And right now it does feel like the economy is sort of unraveling and the government is trying very hard with these massive bailouts, multi-trillion dollar bailouts to hold everything in place, hold it all together.

David Sacks (41:07):

But somehow if it just slips out of their fingers and you start to see ripple effects of distress, of people becoming insolvent, credit worthiness just sort of sequential ripples, you could really see a great unraveling. And so that would be kind of on the extreme end. And if that happens, we’d be looking at a whole new world order in which I think the U.S. would probably be compelled to pull back from many, if not just about all, of its overseas commitments. You could really see a change in the world order where China becomes the world’s biggest economy. It already is sort of at parity with the U.S., but in a world in which we were wounded or were crippled and they were still humming along that would be a huge geopolitical shift and there can be very big implications from that.

David Sacks (41:54):

I kind of call that the “Fall of Rome” scenario which might be out to edge of the L. And I’m not saying any of these things are going to happen, but I think they’re just scenarios. And the reason why the markets are so volatile right now is because these are the scenarios. I mean, you’ve got everything, a V shaped recession to a deeper recession, to a depression, to a new reshaping of world order. All these things are on the table. And when the scenarios are that extreme, every data point can swing the market wildly as people try to assess which of these scenarios they support.

Pete Flint (42:30):

Yeah. And it’s very unclear which of these three scenarios is right now, because there’s really no precedent for this. There’s no playbook. This is not an asset bubble driven recession and the intertwined global economy, it is very unclear which of these scenarios is going to happen. Obviously from our investing and technology perspective it seems, it’s almost very surprising that I think there are many sectors sort of principally education and healthcare, which have been almost like a VC shortcut is sort of avoiding education, avoiding healthcare because there’s really a lack of large number of successful startups in those areas. It does feel that maybe now is the time for education and healthcare companies that perhaps can get over the friction of regulation and kind of societal inertia that there now is a time for building quite interesting healthcare and education companies. Curious as you’ve clearly were a bit early on to be sort of enthusiastic about how this changes and how we used it in order to change society. But is there anything that you are seeing or obviously remote work is just an emerging trend that will be accelerated.

David Sacks (43:45):

Yeah, there’s a whole bunch of trends that were already underway that are just going to be turbocharged by this. Obviously the shift to remote work, e-commerce, death of retail and this shift to e-commerce, I mean that’s going to happen 10 years faster now. I mean it was already happening, but it seems like 80% of retailers are going to go out of business now. Everything that can be delivered will be delivered basically. I mean that was already happening. The shift from restaurants to delivery as well. We were a Series A investor in CloudKitchens. The whole idea of ghost kitchens, once the main consumption of restaurant food is delivery, then it changes your whole equipment that a restaurant needs. So that’s happening.

David Sacks (44:27):

You have the shift from movie theaters to streaming. I saw that Netflix and Disney now have roughly the same market cap which is just unbelievable. It’s extraordinary. So there’s a lot of these trends that are already happening, and I think now they’re just going to be accelerated. And then there’ll be hopefully, like you’re saying in the areas of health and education, we get a slacking of red tape. I mean, this is where I think the wartime mentality is very helpful, is that we can finally cut through a lot of those red tape. Telemedicine, letting doctors practice across state lines would help telemedicine.

David Sacks (44:58):

So there’s a lot of things like this that we still need the government to react in the right way, but I think there could be an opening up of these markets based on wartime realities.

Pete Flint (45:09):

Yeah. It’s so true. It’s the new reality that we’re in. Well David it was terrific to have you on today. Thank you so much for your time. Stay healthy, stay safe in this kind of crazy world we’re in. So thanks again for joining me today.

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