248. Scaling Rackspace, The Evolving Responsibilities of a Venture-Backed CEO, and Confronting Big Tech Monopolies (Lanham Napier)

Full Ratchet Lanham Napier BuildGroup

Lanham Napier of BuildGroup joins Nick to discuss Scaling Rackspace, The Evolving Responsibilities of a Venture-Backed CEO, and Confronting Big Tech Monopolies. In this episode, we cover:

  • You took on capital from Sequoia, Norwest, and others while at Rackspace.  What was the biggest challenge to taking on venture capital?
  • How were you able to move from the early product-market-fit days to true scale… what were the defining decisions/actions that helped you expand exponentially?
  • As a company leaves the product-market-fit stage and reaches scale, what is the job of the CEO or how does the job of the CEO change as the company scales?
  • You’ve talked about investing “long-term capital”… what do you mean by that?
  • How have you created a fee-light model, where management fees are eliminated?
  • How do you guide CEOs that have been conditioned to think in 12-18 months cycles, when the long-game is much more critical?
  • You’ve hired and developed a lot of folks over the years.  What advice do you have for young CEOs with regards to selection and/or development of people?
  • Leadership — great ones emerge in hard times.  What are some of the most important lessons you’ve learned about leadership?
  • We’re in an environment where the largest tech companies have monopolized a lot of the upside in the market.  Of course, recently many of the CEOs appeared in front the house judiciary committee.  Where do you stand on the position of large tech companies and how that impacts emerging startups?
  • Do you think China is a threat to the U.S.’s position as world power and tech leader?
  • What would suggest we do about it?

Guest Links:

Key Takeaways:

  1. Lanham’s biggest challenge when building Rackspace was his own personal growth. If his company was growing 70% YoY, he needed to exceed that with his individual growth.
  2. He offset this by understanding how to identify people more skilled and talented than he was. It’s difficult to rapidly grow in so many areas, so the best way to combat this is by developing a team at a high rate.
  3. When it comes to coaching, Lanham has a core belief that people are talented. With the right conditions and environment, people shine. A diagnostic or understanding of talents and strengths allows for those situations to be recreated.
  4. It’s important to be intentional about the amount of stretch or strain applied. Everyone’s relationship with stress and how it affects performance is unique. Understanding what the right amount of stress is to maximize performance is key for long term success.
  5. BuildGroup holds permanent positions on a startup’s cap table. This allows them to play a much more strategic long term game with their portfolio companies. BuildGroup believes that transformational companies are built past the typical, 5-7 year lifespan that most founders and investors opt for. BuildGroup aims to be there as a complimentary channel for founders who choose to go the distance.
  6. BuildGroup’s management fee structure decreases over time. Their thesis champions high efficiency and a deep sense of alignment with their shareholders.
  7. Lanham believes that product market fit never ends. Markets are dynamic and there are always emerging qualities and desires that the founder needs to satisfy. In order to scale successfully, one needs to continuously solve for product market fit. There is always a diminishing return and the need to innovate never ends.
  8. One of the keys to scaling is building a strong internal growth system. By anticipating what talent, skills or systems are needed to fulfill future demand, one can reverse engineer how much time and resources is needed. 
  9. Breaking things is a natural byproduct of scaling. Embracing that and building systems in advance to account for that can help with the growing pains.
  10. Growth is a complex system. There are many variables and points that have varying weights. For example, it’s important to understand that removing various friction points won’t necessarily accelerate the system. Think about growth as a holistic system.
  11. ย When it comes to relationships, there is no neutral. Only forwards or backwards. Either, a relationship is actively being nurtured and improved upon, or it’s falling and declining.ย 

Transcribed with AI

Intro 0:02
Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is the full ratchet.

Nick Moran 0:19
Lanham Napier joins us today from Boston. Lanham is CEO and co founder of build group which has invested in companies including dignified benefit, focus and Cybrary, amongst others. Prior to build group Landon was CEO of Rackspace and founder of Project 23. Lanham. Welcome to the show.

Lanham Napier 0:35
Thank you.

Nick Moran 0:37
Yeah, tell us about your backstory and your your path to tech.

Lanham Napier 0:40
Sure, my path to tech started at my home, I am actually the son of a computer science professor. And so my dad was a computer science professor at Rice University. He then went on to found the entrepreneurship program at Rice University. So at the age of 40, I finally discovered I’m only doing what my dad programmed me to do. That is basically you know, this tech entrepreneurship thing. So I’ve been at it for a while now. And then look, my first investment I ever made. I used to have a paper route and middle school and I’m kind of old. So call this the mid 80s. And I plowed all my paper out money into two names Microsoft and Intel. Just got lucky dude. That’s when I was six or seven computer science professors playing around Microsoft products. I’m like, Hey, that’s pretty good. You know, made. I think that’s a total like 1000 bucks each, because that’s all you know, papers. were cheap back then. And I still have that stock today. Well, that’s what got me rollin.

Nick Moran 1:33
Wow, you’re good picker. That could help. You’re just lucky. That

Lanham Napier 1:38
was pure luck, I think really didn’t want to have that guy picks. My dad bought a apple brought it back to the house. We loaded some Microsoft software on us like, well, this is cool. Let’s buy that. That’s all it was. Wow, that’s simple. How

Nick Moran 1:52
did your path take you to Rackspace?

Lanham Napier 1:55
Well, so when I I’ve kind of come full circle. So my first job out of undergrad I actually went to Wall Street did investment banking, and loved it, but you know, did not find fulfilment in it. For me, it was really about me, and I wanted to stay with the money and go build the company instead of just cut a deal. So after I got out of graduate school, I moved to San Antonio, Texas, and this fellow by the name of Kitt. Goldsberry gave me a job. And I worked for him for a couple of years in his family office making investments. And then Rackspace started down the street. It’s a small world, and I gave a good pitch. And they hired me.

Nick Moran 2:30
Unreal. So how long was your your tenure there? As CEO?

Lanham Napier 2:34
Oh, gosh, now’s the right. I was blessed to be part of that company. I mean, I was there for 14 or 15 years. And we went from, you know, 2 million in sales to 2 billion crazy. Oh, dude, that’s incredibly look for a business nerd like me. I mean, that’s how I don’t know what else would have been better. What an incredible blessing. Yeah, that’s the funniest thing. So you know, I started the company I was, my wife was pregnant with our son, who’s our oldest instant, like, my son was born about the same time I went to Rackspace. And there’s an incredible parallel between the development of a human in the development of a company, which shouldn’t be a surprise, because companies are just an amalgamation of humans. I mean, I remember my son, he’d have these amazing moments, it like three say, like, Hi data, like, Oh, this is incredible, then Right? Or that you go knock over everything over, say, my blood, my company, dude, you have this amazing moment when it customer next moment, all the electricity goes out. It’s the same kind of same kind of stuff.

Nick Moran 3:33
I’ve been there. I’ve been there. I hear you. So you know, when you were taking that journey, I know that you took venture capital, right? So you’re not just a founder, you’re not just somebody who built a unicorn company, so to speak. But you also took on outside funding from you know, big tier one, Sequoia, Norwest and others. What was the biggest challenge? You know, in growing sort of that venture scale company?

Lanham Napier 3:58
Biggest challenge, you know, there were so many. So I would say the number one challenge was probably me, in elevating my game to be up to the task, Miss Horde, Romania, we were a company growing 70% of yours. So if I want to stay ahead of it, I’d have to do my own personal development greater than 70. The only hack I figured out for that is I got to head to get really good at identifying talent in hiring talent that were better and more talented than I was, and just figuring out how to keep those things aligned in a way that we would move forward. You know, I figured if anybody listened to show is in a leadership position, man, it’s hard to truly develop one’s own skills at a high rate. Or I mean, you know, most of us aren’t blessed with that capability. So the way to do it is just a developer team at a high rate, and just, you know, have our skills, go through those team members and have those team members pull it so it’s like, yeah, figured when you’re the leader, your job is to build the team, the team’s gonna build the company. What sort

Nick Moran 4:56
of takeaways would you leave the audience with on how to select the right folks? for your business. Okay,

Lanham Napier 5:01
so man, there’s some great bodies of work out there. So rule number one, never create something that somebody else already did it. Okay. So when it comes to talent selection, there’s some gurus out there to figure this out, you know and so forth. Yeah. Okay, so I use a structured interview process. Okay, I follow the top grading method created by Jeff smart, Rainey Street. Okay, friends of mine. Alright, as far as the diagnostic, you know, I tend to use gallops method around strengths finders, yep. So you can pay Gallup? Yeah, depending on how many interviews you do, you may have to pay a couple grand or whatever, but they’ll really, they’ll really get into the details on somebody. And then my favorite data source is actually all the references, you know, because it’s, for me, what happens is, when I’m sitting across from you, and I want to work for you, man, I’m selling dude, I’m selling, okay, and everybody is. So my tactic there is we’re gonna start at 9am, we’re probably going to go till 9pm. So we’re going to have a couple of meals together in my gift, I got high endurance. So after about three hours of that structured interview stuff with me, you can’t really bullshit me anymore. And then we’re gonna start doing case studies, and we’re going to really get into it, then afterward, whatever references you provide, I’ll probably call half of them. But really, what I want to go do is figure out all the people you haven’t provided, right? And LinkedIn is an amazing tool for that now, right? I mean, you know, God bless that thing showing up, you can figure it out whoever anybody ever worked with. And it’s just about you got to get people that were junior people that were peers, people that were bosses, I find the most valuable stuff. The peers, the peers. Yeah. Yeah. Here’s tend to be more constructive in their feedback. Right? Because the subordinates, they’ve had a great experience or a bad experience. Yep. For the boss, the boss had had a great experience or a bad experience. The peers are like, Okay, here’s what’s really going on. Right, Jack? Yeah, yeah, the peers are cool, you know? Because look, man, people suck up to the boss trick the boss all the time.

Nick Moran 6:55
Right politicking and everything. Yeah, man.

Lanham Napier 6:58
People are amazingly skilled at that stuff. Interesting. So

Nick Moran 7:02
do you apply that same approach with the startup founders, you’re investing in? You know, checking references?

Lanham Napier 7:07
I do. Yeah, I do. I mean, I, look, I’m a nerd. Man. I like that stuff. Because the, here’s one of my biggest weaknesses. Turns out, I really actually like people. Turns out some of them I even love them. And so I have great empathy for what, you know, visionary founders are trying to do, man. There’s a lot of glare in that conversation for me, I want to believe you. I’m a sucker. I’m like the Forrest Gump of wanting to

Nick Moran 7:34
love somebody doesn’t mean you could work

Lanham Napier 7:35
with them. Right? Exactly. So I gotta go get the data afterward. Very

Nick Moran 7:39
good. Very good. Well, how about the development side? You know, how do you think about coaching up developing and making sure people will kind of fulfill that potential they get?

Lanham Napier 7:49
Yeah, so that’s a good one. So I mean, first core belief, people are super talented. There’s a divine spark in them. And we just got to create conditions around them where they can play to things where they’re naturally strong. So step one, let’s get a real good diagnostic of where your talents reside. African a diagnostic we actually got agree on it. You know, cuz it’s, it’s, it’s amazing how people have denial about what they’re actually good at. You know, so we got to pierce through that veil of deniability. Once we’re through that veil and have a good diagnostic, then we can be intentional about how to stretch it. Part of that stretch is understanding the relationship between stress and performance. So increasing levels of stress, we all perform a little better. We hit some kind of point that when we start hit, Oh, crap, you know, stress out meltdown mode, continue to crank up the stress, and we will actually retreat. And everybody’s a little different. You know, some people like to have 20% stretch time, other people want to have 80% stretch time. You know, I think that’s really a personality kind of deal for folks. Alright, so for me, it says, look, let’s get the diagnose diagnostic on where we’re strong. Let’s agree to that. Let’s be intentional about how to stretch it. Let’s be intentional about how to invest in you.

Nick Moran 9:03
I like that a leader and a mentor. I learned quite a bit from Larry Colt Jr, who ran a company called Danaher for a number of years and now runs GE, he talked to us often about the difference between stretch and strain. And as long as you’re in that stretch mode, like you’re performing really high, but if Yeah, if strain goes on too long, that’s you know, that’s where you can, things can get tricky.

Lanham Napier 9:25
Yeah, the tendons gonna rip. I never heard stretching string before. I’m gonna use that. That’s good.

Nick Moran 9:30
There it is. All right. So let’s talk a little bit about build group. What’s What’s the investment thesis?

Lanham Napier 9:35
Oh, man. All right. So it’s super cool. All right. So here’s the deal. While building Rackspace, you know, we were fortunate to have amazing investors. What I wanted to create here at Build group, the mission and purpose is for every company to have a permanent piece of capital. So that company can achieve its potential. So we have great capital markets in our country. The problem is they’re geared to three and five years. So the first thing to build group is in every cap table. Let’s have a permanent piece of pieces won’t go 15 or 20 or 25 years, when we have that permanent piece, now we can strategically play a super long term game. Alright, so the stuff we’re interested in our growth, the SAS companies that we know a bunch about. And we’re also interested in situations where companies have plateaued, where we can apply our leadership chops, you know, our leadership experience to help re accelerate the growth, that’s where we hang out. So for most companies we’re looking at, they start, you know, 678 million of revenue kind of thing. You know, we just did a big pipe, which you referenced, you know, in your, in your opening remarks, and that’s a much larger company, that’s a publicly traded company, you know, but there, we feel like, hey, you know, I’ve been on the board for a while, I feel like we’ve got a good understanding, you know, we can do some good work there. All right. And so, so that’s us. I mean, the way to think about us is, we’ve got some awesome real scar tissue. We love companies and senior teams, we want to create the conditions where they play to their strengths, again, can play a long term game. And look, as you’re discovering I’m gonna acquire tastes me and I’m not for everybody. Right? There are plenty entrepreneurs out there that don’t want to play a long term game, and I get that, right. You know, I’m just, I’m 49 years old, I still feel like I got, you know, I’m only halfway through life, I can still play a long term game. Right? You know, I’m betting on what was Ricky Bobby’s quote, you know, between advances in medicine and this and that, you know, no reason to think I can’t live 150 may not get that good. All right. But I still feel like I’m at halftime. Okay, so let’s figure out how to play a long game and support these leadership teams to go do something special. Well,

Nick Moran 11:31
your points well taken, right? Because we see, there’s, there’s a disparity between these mission driven founders and the mercenaries out there, and some people are just on that quick hamster wheel, they want to keep flipping things every 1218 months, and Blitzscaling or whatever else just to get to the next level. And then there are those founders that you know, have true commitment, long term commitment, and can think of nothing else than to spend the next maybe decade of their life working on, you know, the business that they’re building.

Lanham Napier 11:59
Yeah, that’s right. That’s right. No, I think that if you think about human greatness, it requires the alignment of a lot of different issues, you know, and so our job as an investor, and just friends, coaches, mentors, is to create the alignment on those issues, man, then they can keep going, then they can pull it off. And greatness is very elusive thing, we capture it for a moment, and then it’s gone. Right. And then we got to struggle to find greatness again. Okay, we had a struggle to reproduce those conditions, to generate those outcomes. And that’s why this is so joyous.

Nick Moran 12:32
Well, and it’s amazing. I mean, just in this career, we get to partner with people that are, you know, we can help them fulfill their potential and their dream, you know, as a capital partner, and in some cases as a coach, or just a cheerleader, or just, yeah, you know, a sounding board.

Lanham Napier 12:50
Basically, yeah, to me what’s so what’s, if you really want to put the math to it, right? Talk statistics, all of us are completely irrational nut jobs. Right? It’s just how it goes, Man, every these irrational nut jobs happen to be right. And when they’re right, man, you get this asymmetric thing that climbs down the primordial soup. You know, this is us. I mean, this is the essence of entrepreneurship. You know, it’s human capital, financial capital, intellectual capital, all coming together to climb out of primordial soup to create this amazing, complex system, known as a successful company. I mean, I just think it’s fantastic. That’s good.

Nick Moran 13:33
That’s good. So when, um, you talked about permanent capital, and I’ve read, you know, some of your material about long term capital, what does that mean?

Lanham Napier 13:40
Well, so here’s, here’s the deal. When we were putting dough group together, you know, I’m, I’m pretty pretty focused on playing the long game. It’s how I put it. And if you look at our capital markets, you know, most investors want to be in something, they’ll say, five to seven years. In my experience, as soon as things are going well, after three, everybody kind of wants to hit the exits. All right, or at least start contemplating the exits. And that’s okay, man. These the capital markets we have are amazingly effective, because they handle that kind of stuff. All right. And so my perspective on it, is I just wanted there to be another lane, a complimentary lane, that was able to go the distance, because I just think the time to build a truly great company extends beyond five to seven years, and that as the entrepreneur, we’re building a company, you bring on one chunk of money for five years, while you’re six and seven, they want out. So you gotta go do a deal to get them out. And all this stuff just creates friction and transaction costs. Now, I will tell you, I think those friction and transaction costs are worth it, because it keeps leadership teams focused and companies progressing. Alright, so I think this is important. I just think by having a permanent piece that’s there the whole time. We can build greater institutional context, and provide a tailwind for 15 or 20 years. Now. The reality is I’m human. I’m fallible. I’m mortal. nothing’s permanent dude. May not this person It All right, but the way we set up our company is that I went to a bunch of entrepreneurial families and said, Hey, man, 49 years old going on another 15 year mission. It turns out the only people that sign up for 15 year missions are people that already went on one. That’s it. Nobody’s been on a 15 year mission. Again, they’re like, What the hell is that I don’t want to go on a 15 year vision, I want to go on like a 15 month mission and buy an island. You know, that doesn’t I don’t know how to do that. But I know how to do is, you know, tortoise and hare, I’m more the tortoise for 15 years. Okay. And so when we talk about permanent capital, it’s an expression of Look, man, we’re here for the duration with you. And when you build a company, things are gonna go up and down, we understand that, just know that there’s this piece of your cap table that’s here the whole time, basically, until the CEO says, Hey, man, time to go. When the CEO says, Man, I’m taking this as far as we can go, we can’t go any further than, you know, information is asymmetric. I believe the Insider.

Nick Moran 15:53
What’s been the biggest surprise for you? And in the difference between running a company versus running? You know, an investment firm? Okay,

Lanham Napier 16:00
yeah, you know, there are a few things. The number one surprise is that you know, the company, they’re just more people. And maybe this is amplified in a COVID world. But she’s Louise do I miss being able to high fly people all day? I just friggin miss it. It was fun. It’s fun. All right. So now I’m in a much smaller thing. All right. So look, we have camaraderie, and kinship and all that kind of stuff. But it’s a little different. Right? So that’s been surprised. Number one, God knew I love the team. What I What has surprised me is I didn’t realize how much I miss, like the extended folks, and I missed them. Okay. So that that’s just kind of personal to me. I think the second thing, which has surprised me, is just how there’s this whole buzzword bingo thing going on and an investor land. Okay, where, man, it’s just they come up with these terms. I’m just like, What you talking about? You know? And then the third surprise I’d have is just the back to the irrational nutjob country. Okay, we’re we you and I hang out in and I’m an irrational nutjob I get it. Okay. But you know, I meet some of these entrepreneurs and God bless them. They’re just like a man, I met with this one fella. And he said, you know, the worst thing that can happen here is we might just sell to Google for 400 million. That’s like, that’s the worst thing. That’s like, yeah, that’s the worst thing. Like, you know, worst example to me today is I probably I just might get hit by a bus crossing the street, but I gotta watch. That would be a worse thing. I could fall down the stairs, that would be worse. Like, come on, dude. That’s the worst thing. So there’s a little bit of that. It’s like, Oh, my God. And I don’t know if it you know, I have to crank up my filter or my discount rate for when the guys just that passionate or just that full of it. Right. There’s plenty of that interesting thing. Yeah.

Nick Moran 17:47
I mean, there’s there’s plenty of people that hubris and everything else just kind of distorts reality. And you come across some strange stuff in this in this field? That’s for sure. Yeah. Yeah, a lot of good. But

Lanham Napier 17:59
it’s fun. It’s got to say this is, you know, you look at a bell curve distribution, the further you go out on that curve, right, the more interesting amplified outcomes. Yeah, right. That’s just all it is. Yeah. I mean, that’s all I mean, it takes that I think, for people to summon the courage yet to go take on an Amazon or a Google today, right? I mean, you know, it’s sort of like, our country has always been blessed with this frontier. I think part of our history is shaped where we are today. Okay. And I think part of one of the blessings the United States of America had was this frontier culture, that on the other side of the horizon was a new life you could go make for you and your family, you know, and I think that’s what entrepreneurship is today. That’s that frontier culture, man on the other side of Horizon, you can go start this other company, you can move your stores, you know, all that stuff is super powerful. It’s part of part of our ethos,

Nick Moran 18:51
love it, love it. So So How involved are you getting with the, you know, the founders and the companies that you guys back? You know,

Lanham Napier 18:57
it depends, I tell you my preferred methodology, alright. And then my preferred methodology is driven by my personal constraints. Okay. So, you know, let’s just be, let’s just be straight. Alright. So for people that want help, right, they want me to show up and be supportive. In order for me to be at my best. It’s basically, you know, let’s have a call once a week, once a month, let’s meet for an afternoon, because I actually like to work, you know, I don’t want to contemplate and then every one of those third monthly meetings, let’s call it a board meeting. Okay, so for me, you know, I’ve been on a number of boards in my life, and I’m just gonna flat out tell you I think most board meetings stink, agreed. They aren’t value added. You know, some dude reads the book on his plane as a couple smart questions at the beginning goes back to do an email under the desk, and that’s all that kind of crap. Right? You know, gotcha, gotcha. Whoo. That was, that was a whammy question. You know, so, I just kind of feel like me and I just think a lot of that’s theater. All right, so for me, man, I really care about these things, I want to help folks. And so it’s about let’s actually do work together. So our rhythm is this weekly, monthly quarterly. And basically, we just turn that working session on a monthly one, every third one, we call it a board meeting and add a little corporate governance action to it. So that’s how I like to work, you know, now, for people that don’t need that kind of assistance or help, you know, and all this is on demand, right? I mean, this is not me, interrupting their day. I mean, this is, you know, what they desire. And you know, we can be a lot more passive, it’s just what I find, you know, back to my own sort of sweet spot back to a diagnostic of strength, I need to build up contextual information for awhile, and get used to seeing the numbers and the metrics for a while and meet people across the company for awhile, before I’m super value in those monthly meetings. You know, like, by the time I get to that third or fourth month, I know enough to where I can really help you. Prior that, you know, it’s just pattern recognition. And, and I have lots of friends with big brains. And you know, they sit on 10 or 12 boards, and they say, Look, man, it’s all pattern recognition. And I believe them. I mean, I do think there’s part of that. For me, though, I just desire a little bit more. Absent,

Nick Moran 21:12
you know, the situation with a pandemic, and COVID, do you have a preference on going to the entrepreneur and kind of seeing their business in their environment? Or, you know, meeting kind of just the two of you and connecting on that level? Doesn’t matter?

Lanham Napier 21:26
It does to me, I mean, I’m so sick of talking to screens. Alright, so so I’m just breaking bread with people. You know, I mean, I like to I mean, part of that recruiting, as we talked about earlier, I would bust out a bottle a truth serum. Well, once I got a couple glasses of vino down their throat, you know, the things the stories get more interesting changes. You know, so yeah, so, look, I don’t have a great answer for I mean, we’ve made a couple investments, you know, during COVID, and we’re doing it all digitally. Yeah. All right. But there were things I knew about. And clearly, you know, people are increasing trust levels, and getting comfortable with just digital interactions, which I find fascinating. Okay, and so, you know, and we’re doing the same. But I do look forward to actually seeing people and talking to them, and, you know, pressing the flesh.

Nick Moran 22:22
I couldn’t agree with you more. It’s funny you say it, because we just, we signed a term sheet with an entrepreneur two days ago. And he happens to be he runs his business in the area in Greater Chicago. And so we’re gonna do an outside close dinner, and it’s the first close dinner of have gone to and shit seven months plus, and it feels like this refreshing thing. It’s like, oh, we can get the whole the whole team is coming, which doesn’t always happen, but everyone’s just kind of excited to, you know, get together break some bread and of course, safe manner.

Lanham Napier 22:53
Yeah, man, put it under the big 10. There you go. Why don’t I just like salsa, probably. I mean, I think part of being alive is experiencing that stuff.

Nick Moran 23:03
Right? You know? Well, I mean, we’re all humans here. Right? This is not just a financial exercise. It says, especially venture. It’s a very Yeah, human business. You know, I want to ask you this before I forget. But how do you guys, I know you’ve got this fee, white model. I’m not sure I understand exactly how it works. But I know your management fees kind of either get eliminated or stepped down. How does that aspect work?

Lanham Napier 23:26
Okay, yeah, it made it we were still trying to figure it out to man. Okay. So it’s basically the way our structure works, is declining fees over time. All right, and the thesis there is that we’re gonna add so much value to companies that in some ways we could potentially get integrated into them. Right, in other ways, you know, we’ll have enough exits to pay for ourselves out of our carry. Okay, so that’s how we think about it. And so for Bill group, you know, our shareholders are all entrepreneurial families, you know, and so my family, you know, my family beat me. We, we invested a big chunk in the company, okay, at least is a big chunk for us. All right. So yeah, man, I like low fees. Alright, so it’s like, so it’s a little bit weird. I’m working for myself, but I don’t want to pay myself. You know, this gets a little bit confusing as we, as we have these midnight conversations. All right. But but the thesis is just, you know, how can we get super efficient? And how can we try to create a deeper sense of alignment with our shareholders by driving down fees?

Nick Moran 24:31
Very good. Very good. And then, you know, I, I was fortunate, so I pinged Ryan quarry over at Cybrary. Before the interview, some of those cool, he’s cool did. Some of the longtime listeners on the show might recognize Cybrary it was the very first deal that we invested in a new stack precede round back in 2015. Which was

Lanham Napier 24:50
that right? That was your first one. Yeah. Cool. It’s the right way to go. That’s a heck of a cool company.

Nick Moran 24:55
It is a very good one. Very happy Yeah. So yeah, we talked about it on an episode this year, I mean, five years ago, but episode number 30 of investor stories if you want to check it out, but Ryan asks for this, for this episode one want me to ask you, as a company leaves the product market fit stage and reaches scale? What is the job of the CEO? Or how does the job of the CEO change as the company is scaling?

Lanham Napier 25:25
Okay, so I think that, let’s talk a little bit about scaling first, and how that impacts the CEOs job. So the first struggle prescale is man, how do I have something the world wants? Then once you hit scales, like, wow, the world really wants this? How do I fulfill that demand? Right? And how do I keep stoking that demand? So they continue to want it? Right? Right. So I kind of think, to say Product Market Fit ends is a bit of a mistake. Because markets are dynamic, these little complex system things out there, there are emerging qualities that we have to satisfy. So in order to scale and keep going, I think you’re always kind of solving product market fit. markets move markets want more, you know, Marcus, get conditioned to your current product and demand more from you to be to be engaged and loyal. Right. So I kind of feel like these things or, you know, you never get there. I think it’s like whenever you have today, there’s a diminishing return on it. And so we have to continue to continue to invest and innovate to do that. So the secret of scaling, in my view, is to embrace the fact that we always have to innovate and find better fit, to embrace the fact that the market is going to move on us and not get pissed off about it. But so yep, it moved on us, our cheese moved around a little bit, you know, we got to do something new. So that’s, that’s sort of the demand stuff. And that’s, that’s product work that’s go to market work. That’s customer care, work, all that work, then there’s this inside work of holy cannoli. We’re doing such a good job innovating with the market, how in the world do we keep up. And I think their CEOs need to get super intentional about their internal growth system. So here’s what I mean by that. I think the first thing to understand there is to anticipate what talent skills and systems one needs to fulfill next year’s demand, then figure out how long it takes you to build that kind of stuff and create that kind of stuff, and hire accordingly. And build a systems accordingly. And innovate processes accordingly. One of my coaches is spell out Carlist er, and who built Oh, and healthcare years ago, I used to go to them. I’d screw stuff up and break it all the time, and you feel sorry for myself and pout a little bit, okay, and I go talk to Carly, like, man, you’re an idiot, you don’t get it. As long as you’re growing fast, things are gonna break all the time, this is just how life goes, if you don’t want things to break grow slower. Interesting perspective. Okay, so, so this is my thing about scaling, it’s gonna break our job as CEO, try to anticipate it before it breaks. And, you know, swap out a process, improve a leader, you know, change a product dynamic, create a new tool, right? And so, so if you just look at a growth system as a multivariable equation, you know, as a complex system, the CEOs job thing is to really understand these interaction points, and to look at these friction points. And to understand that fixing one friction point doesn’t necessarily accelerate the system. Right? It’s actually really hard. It’s a you know, look, I’m old do summer, that stupid Whack a Mole game or mole wax up in your puts a set of resources to pop it, you know, that that’s actually not the right model. Right? That’s just the most urgent thing bugging you, right? And it just, it’s just you get past that little urgent thing in the next problem reveals itself. So to me, if you want to scale well become a systems a holistic systems thinker. And get really clear about your growth system. Understand these growth systems have customer issues, employee issues, it issues, go to market issues, macro environment issues, corporate culture issues. And when you can get a heuristic that wraps around all that, man, you can sustainably scale. I mean, look how Amazon’s done it. Right. I mean, you know, whatever Amazon is, was last year, it’s a lot different today. All over the place. I mean, you’ve got to innovate across all those vectors all the time. And this this relentless thinking that man, Whatever I am today is inadequate for my future. So I gotta keep and keep changing.

Nick Moran 29:42
I love it. I mean, it reminds me of a conversation I was having earlier this week with one of our LPS friend of mine named Seth, we were talking about sort of this evolution of, you know, wants and needs and how those become table stakes. Right? You go out and address the biggest problem. Great, yeah, good job. Attaboy, pat on the back and And then it becomes table stakes and you got to evolve. You got to find the next thing you know the next Yeah, because customer needs like, they don’t care what you did last year, they got new problems now.

Lanham Napier 30:09
These things are all relationships. Okay, so I’ve been married 26 years. And here’s what I know about being married 26 years in the relationship with my beautiful bride. So we were college sweethearts. I love this woman more than I love myself. And I can tell you in our relationship, we’re they’re getting stronger, we’re getting weaker, there’s no medium, there’s no neutral, right? It’s like that with my friends. It’s like that with my kids. And it’s like that with all of our customers. It’s like that with all of our employees. It’s like that with all of our partners, or colleagues. Either we’re getting better, or we’re going backwards. There’s no neutral. I think we trick ourselves like, oh, yeah, I’m still good with that. Dude, that was last time you call that guy? You know, you’re good. Right? Right. This is our minds want us to believe all this stuff is stable and unstable. Dude is dynamic. A bunch of carbon sitting on a rock flying through space at a high velocity. Okay, everything’s flying at high velocity all around us. And so let’s embrace the fact that things are moving. And let’s embrace the fact that every day, we got to get 1% better, we got to get a little bit stronger with all these constituents. We do that skill forever. And I’m trying to stay married at least 27 years.

Nick Moran 31:18
I just sent my my 11 year anniversary some Hey,

Lanham Napier 31:22
Congrats, man. No, that’s big time. Big time. Right?

Nick Moran 31:26
It’s great. certainly wouldn’t be here without without my better half. But, you know, how do you? How do you coach a CEO to maintain this pace, this hustle, this focus on getting better, while also having sort of that long term horizon long term vision and not sort of getting out in front of their skis?

Lanham Napier 31:45
It’s very interesting. It’s hard. It’s hard. You know, life has these beautiful mysteries in it. And this is one of them. Right? A mystery? How do we play a long term game and be obsessed about what we got done today? Right in that cool, right. I mean, this is ying and yang kind of stuff. Alright, so. So in my experience, the first thing is to make sure we have a Vulcan mind meld around what I would call a growth mindset. Right, in order to have a growth mindset that the back office needs to be open. Meaning we can we can process the accept data that conflict with our home movie, because we all have a home movie. You know, we’re walk around projecting that everywhere we go. All right, so if our feedback offices open, and we can pull in other data, you know, prerequisite number one for growth mindset. Prerequisite number two, is to be able to act on that data, opportunistically, not defensively. Right, but opportunistically, and so when I try to spend time coaching people on this stuff, most entrepreneurs you meet have have an opportunistic mindset anyway. Right? They’re going for it man. Or else they wouldn’t be you know, this is back to that frontier, thinking I mean, that wouldn’t be pursued if they didn’t have ambition, and pride and you know, be irrational nut jobs and all these things, these wonderful things. Okay. Now the trick is like, alright, we got to play a short term and a long term game at the same time. Yeah, man, this is level five leadership. This is the Stockdale paradox, I got to be super paranoid yet confident we will make it. To me, that’s the growth mindset thing. The super paranoid helps us understand that there’s plenty of data out there that conflicts with our home movie that we need to process and take into consideration drive up our probability of success, right? The the optimal long term optimism just means as we go through a J curve and get kicked in all sorts of places that hurts we’re not gonna quit, that we’re persistent little buggers. And this is where grit makes the difference. Because every every company has a J curve regularly. It’s just how it goes. Right? You’re on top and April you fall down in may know, right, this is that Frank Sinatra song My Way.

Nick Moran 33:54
Life is not hockey sticks up to the man

Lanham Napier 33:57
only and only in PowerPoint. Right? This is why companies are banding PowerPoint all over no more hockey sticks, right? Let’s just deal with the real stuff, man. So I just think that it’s how can we help people? To me, it’s a magical mystery. It really is. It’s about me, and we have to deal with reality. You have to be optimistic about our future, cast a vision that’s palpable, and knock down all this conflicting data to navigate it. It’s frickin awesome. It’s cool. Well,

Nick Moran 34:22
I’m glad you’d saw similar things in our friends Ryan and Ralph over at cyber that we did.

Lanham Napier 34:27
Oh, yeah. Cybrary is fantastic. For everybody that doesn’t know that company. Man, you should check it out and become a customer. Yeah.

Nick Moran 34:36
100%. So, hey, you mentioned you know, some of these big tech sort of monopolies gulyas before we’re in the business, of course, backing the upstarts out there that are trying to carve out their business. And we’re in an environment now where these large tech companies have monopolized you know, a lot of the market a lot of the upside. Of course, you know, recently the CEOs appeared in front of The House Judiciary Committee. And that was kind of an interesting exercise overall. But

Lanham Napier 35:04
you know, I didn’t watch it. Did you watch any of it?

Nick Moran 35:06
I saw Bezos. That’s it. Okay. You know, where do you stand on the position of large tech companies and how, you know, that impacts the emerging startups?

Lanham Napier 35:17
I think is bad for emergent startups. Yeah, look, I mean, I’ve just stated plainly, I think anytime somebody goes from not being the richest guy in the world, on a self made basis to being the richest guy in the world, there’s probably something that we need to check out there. All right. And to me, this is just 100 years later, we have modern day trusts. No, we had the trust barons, 100 years robber barons, 100 years ago with trust, we got the same thing now with the four horsemen or whatever we want to call them. These things are amazing companies. I don’t think they’re evil or anything. They’re amazing companies mean, you know, good on them, to create what they’ve created. Right? Fantastic. God bless them. They’ve made all of our lives better, and they’ve made fortunes for themselves. Right. I just think we’re at a spot now where competitively, man, you know, try to be a consumer internet company and compete today. Good, Lord. That’s rough. All right. So I think we need a 21st century approach to how to open up competitiveness and markets again. Now, whether it’s sharing the data, no, it’s got to be something like that. I mean, it’s no different than where we were before the Telecom Act. You know, they TNT, okay, then we pass that Telecom Act in the late 90s. And it made us 2000, we pass that, you know, in telecom had a revolution, I think it’s the same thing now. And I think we underestimate, I think regulators or, you know, leadership, whatever, doesn’t have its arm around the value of the data here, in how those insights just make it brutal for anybody else to show up and compete in how a lot of consumers, you know, shared their data without really knowing what’s going on. Sure. So. So I just think that I think it’s important for from an economic growth point of view, for us to open the landscape. If

Nick Moran 37:01
you had to predict how do you think this plays out? Do you think some of these companies get broken up? Or do you think they consolidate power and grow further and expand their their data Moats? Well,

Lanham Napier 37:12
you know, one of my favorite presidents is Teddy Roosevelt. He’s a trust Buster, he’s a hunter, you know, I like to go hunting too. I’m fifth generation Texan. This is what we do down here. Okay, so man, if we had, we could bust Teddy out of the, you know, the ice, wherever he is. And I think we have a good chance. You know, I don’t I tell you, I think like many of our fellow citizens, you know, I scratched my head around exactly how we’re going to pull this off. So I don’t have a forecast. But what I do know, is, look, I think you can always count on America do the right thing after we’ve exhausted every other possibility. And I think what we’re living through right now, is that every other possibility part. Okay, so I actually think that, you know, entrepreneurship runs deep. In our country, I think we will open the competitive landscape for people. I don’t know how to do that. I’m not sure what the right framework ought to be. That’d be a heck of a fun problem to go to work on for a few years. I mean, golly, that’d be awesome. All right. So I think it’s worth pursuing. Okay. And I think we’ll actually get there. When,

Nick Moran 38:11
um, what resources have you found particularly valuable that you’d recommend the listeners? I’m sure there’s a lot to pick from here. Yeah.

Lanham Napier 38:18
You know, there’s sort of one of my favorite podcasts about investing is invest with the best. Oh, yeah. That’s pretty cool. Right. You know, everybody talks about, you know, how I did this and all that. I think those things are really well known. So yeah, I’m constantly searching the longtail right for new sources of wisdom. So lately, I’ve been doing a lot of The Economist podcasts to good one. Yeah. Which and I appreciate those. Look, I think for, for for things that I read, you know, I got to put this, I really enjoy sort of what I call cross fertilization, the idea of taking concepts in one discipline and applying them into a new one. Yeah, so So the notion of systems thinking into how to scale which we touched on a little bit earlier. That to me, that’s very interesting stuff. Okay. And so some of the things I read may have literally got a bag of books over here. Okay. It’s everything from history, because I’ve been thinking about the monopoly problems. So that’s why I’ve literally just reread Teddy Roosevelt’s biography not long ago. We just got several but one of them. Okay. You know, I like that. You know, Ray Dalio had a couple book recommendations. So I read his book. That was a big book. All right. Oh, you know a lot of pages in that one. Yeah. Okay. But but then he recommends another great one called the lessons of history by Will Durant? That one’s much shorter. Okay, so we’ll start with that one. All right. You know, enjoyed that one a bunch. You know, then on investing books, I’ve read everything from classic investing books, like you know, from Graham and Dodd. Okay, and you know, Jeremy Siegel kind of stuff, too much more modern monetary theory. stuff. Okay, so I kind of read all over the place. And what I’m doing intentionally is trying to select things that fit for me.

Nick Moran 40:08
When I’m What do you know, you need to get better at? Oh,

Lanham Napier 40:11
I got lots of blind spots. You know just how it goes. Okay. And so one of my, one of my blind spots is I’m stubborn, it may take you two times kicking in the door before you kick it in with me to get that feedback office open. I’m a stubborn little booger man, I got a high level of self assurance. And I think I’m right. The good news is, if you smashed me a couple times, I will actually change my mind. Okay, so you can’t change your mind. You can’t change anything. Alright, so that’s the blind spot. I’d like to get that down to one hard kick it to save a lot of it would relieve a lot of drama in my

Nick Moran 40:44
life. Maybe a kick with some data that might help. Yeah,

Lanham Napier 40:48
that’s right, man, show some data one good kick, right in the knee stead of the crotch, you know, appreciate it. Okay, so So that’s a blind spot. I mean, I think other blind spots, I have the, you know, I become more of a macro thinker and less of a micro thinker. As I’ve gone through life, I don’t know why, you know, just how it’s worked out for me. Okay. So, you know, I try to surround myself with better micro thinkers than I am. All right. Yeah, those are a couple of good ones. The other thing for me, you know, it’s just, I’m an emotional guy. I got to smooth that out, man. The valleys need to be a little higher, and the peaks need to be a little lower. You know what I mean? And it’s hard, dude. It’s hard for me. I mean, I know still people that are like, Cool as a cucumber all the time. I’m not a cat. You know, like, if I were a professional football coach. I mean, I’d be running around going bananas. You know, we’re some of those guys. Like, you know, the bell check or whatever. It’s just COEs ice old game. i That’s not me. You know. So I’m trying to understand how wizards like that pull that off. Yet,

Nick Moran 41:51
it seems like a hazard of the job. You know, a lot of people have those swings, any last pieces of advice that you would leave with the maybe the founders out there that are, you know, trying to build the next great defining tech company? Yeah, you know,

Lanham Napier 42:04
a couple of things just for them to chew on. Number one, I’d encourage you to play a long game. Number two, I’d encourage you to get a diagnostic around what you’re really good at, and intentionally construct your teams and company around your strengths. You know, amplifying your strengths is better than offsetting a weakness, you know, and so I think it’s the founders strengths and moments of greatness that will lead their company to produce incredible things. Number three, figure out how to put your soul into it. And what I mean by that is not work every minute of every day on it, but to inject, you know, into your life, intentional thought around what you want it to be, what I mean is, like all of us, least I’ll just own it. For me. I’m a pretty busy dude. And sometimes being busy, keeps me numb and keeps me from asking myself really hard questions. Okay, and I think as founders, we’re all super busy. But if we can ask ourselves a few hard questions, and we can align the answer those questions with what we do professionally. I think that’s a pretty joyous feedback loop. You know, and so just being intentional about how we want to measure our life, and I remember, I read Clayton Christensen’s book a few years ago, how to measure a lot. What how will you the question is, how will you measure your life? It’s very thought provoking. You know, and so I just kind of feel like, as founders, if you think about this, my last piece is man, I’d go for greatness on all of it. I’d go for greatness in your professional life. I go for greatness in the quality of relationships you have with other people. I go for greatness with your health. You know, I go for greatness with your family. And I would not, I’d encourage you not to settle. Right, so you’re doing the entrepreneurship thing. You know, you got a lot of courage and you got a lot of willpower. And I think you look across statistics in our country tends to be a lot of personal pain and sacrifice around being a founder. Some founders end up with that and some don’t. So I kind of think you can navigate that in a way to elevate greatness across all of it. So that’s how I got in courage people well said

Nick Moran 44:16
sir, and you know, what’s the best way for listeners to connect with you and follow Bill group?

Lanham Napier 44:20
So you know, we certainly go to our website, you want to connect to me you can connect with me on LinkedIn. Well,

Nick Moran 44:26
there it is. The man is Lanham Napier. The firm is built group. Thanks so much for spending the time with us today. I I really enjoyed the session and I look forward to finding more to work on not just Cybrary

Lanham Napier 44:36
alright man go Bears dude. Right.

Nick Moran 44:39
That’s right. That’s right.

Lanham Napier 44:40
If they can play right. Yeah, figure I think they need those that TV revenue. I bet they play.

Nick Moran 44:45
All right. I hope you’re right. All right. Take care.

Lanham Napier 44:49
Thank you for having me on. Well.

Nick Moran 44:54
That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved have further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us