From Barista to Billionaire
Learnings from Never Enough by Andrew Wilkinson
I have been reading books for more than 4 years now and I have read a lot of books ranging from business theory to investment theory to physics to psychology and there is one thing I understood for myself.I love stories. Whenever there is a book which has a good story I could not stop reading. To me whenever I find those type of books it makes me feel like I am getting to know another person without ever meeting that person. It really is something else. The feeling one gets when there is a book which cannot be put down is a special one. You feel some sort of a connection with the world. I don’t know how to explain but it makes me feel serene.
Never enough was one such book. It’s been a long time since I have enjoyed reading a book this much. The last time I felt like I could not put the book down was Red Notice and that was a thriller. This book was not as much of a scary thriller as Red Notice but it was very interesting in a different way.
The idea of getting rich is something that everyone chases. Everyone wants to know ‘how to make it’. It’s natural. But this story actually portrays the real problems one faces after making it.
Early life
Andrew Wilkinson was a skinny kid from Canada who in his childhood was raised by a family which was certainly not financially well off but they lived in a neighbourhood which was rich.
The Wilkinson household was a very conservative household. His mom was a stay at home who was very frugal and always looked for a way to save money. She was very particular about everything. They did not spend on anything. No junk food, No trips, No new gadgets, and they took extra care to make sure that they did not break anything in the house. Since they lived in a very rich neighbourhood all of Andrew’s friends used to have expensive cars and all the new gadgets. While there were a lot of benefits to living in a good neighbourhood when it came to getting the best education, best facilities, etc. there were major drawdowns like feeling socially out of place because the others were just so different.
His Dad used to work very hard and come back as he was made to work long hours in his job. He used to come back for dinner and he used to be very tired and depressed. He thought that this was hard work and some day this would pay off. Then Andrew went to his friend Nick’s house where his dad was chilling with his family making dinner for them. He had made a lot of money in real estate and now had a system where he did not need to work to make money.
That is when it hit Andrew you don’t need to work for money you need your money to work for you.
Andrew had an obsession with computers since the age of 7. He got obsessed with them. He used to go to the Apple store and started spending time there.
“While most boys my age dreamed of being captain of the rugby team or going out on a date, my singular obsession was computers.”
He ended up spending so much time that he started trying to get people to buy Macintosh’s by explaining the features to them. He sold a computer to a old woman who then offered him a job to help her understand how to use the computer. He was more than happy to help. He started his first company. ‘New trick's’ and the tagline of his company was ‘teaching old dogs new tricks.’
His Dad looking at the passion for computers ended up buying Andrew a computer one fine day. Andrew was very happy but his mom did not like the fact that his father bought the computer without discussing it with her as their financial problems were not getting any better. Eventually it came to a stage where they had to move to a new place moving from Vancouver’s best neighbourhood to Victoria, Canada. That summer was a very hard summer to deal with for their family.
“That summer we moved was the worst to ever happen to our family. While my parents tried to make the best of it, obviously they were depressed. And if that wasn’t enough, life dealt them multiple crippling blows to ensure it. Within weeks of moving, my dad’s brother Geoff suddenly dropped dead at the age of forty-four, which was especially hard given that his older brother had also died suddenly just five years earlier, leaving my father as the last remaining son. Shortly after that, my maternal grandmother was diagnosed with stage four ovarian cancer. Our new home in Victoria was like the world’s saddest silent meditation retreat.”
Andrew started spending a lot of time on his computer. He met a few people like him online and they decided to start a blog where they started writing about everything related to Apple. News, Rumours, Reviews.
Then he started emailing companies which made these products and asked them if he could get to review their new products and he noticed that these companies did not hesitate in sending their products. This was a gold mine for Andrew. He could get all the new gadgets and he did not have to pay for it. Their site had become somewhat of a hit. As they kept publishing reviews. As he made some money he decided to email the Apple PR team and asked if he could interview Steve as he was going to be at Macworld. They replied saying no which was expected but they did offer him to get a tour of the new Apple store in Soho. This was great for Andrew as he was fully expecting to get nothing but asked for a lot and got something. A shot in the dark paid off.
“I had asked for something amazing and gotten something great in exchange. If I’d asked for a tour of the Apple Store, I probably would have gotten a “nice try, kid,” but by shooting for the moon and asking for something that was hard to give, I was met with a compromise that was better than I could have hoped for. It’s a strategy I went on to use throughout my career: there’s no harm in asking.”
He also eventually got a chance to ask Steve a bunch of questions with other reporters. He was asking the most questions when there were reporters from CNBC, New york times, etc.
College/Early adulthood
After the success of the blog ‘Macteens’ Andrew decided that writing was his calling and he enrolled into Canada’s top journalism school. This was as he very soon got to know a big mistake. He realised that the school was not teaching them to do anything digital.
“It felt like I was a guy training to develop film and print photos onto 4x6 photo paper, right when digital photography had just hit. Even then, I was consuming news on blogs like Engadget and Gawker, not in print newspapers. Even if I was struck by journalistic lightning and was one of the few people on the planet who became a successful journalist, there was a 0.0001 percent chance I’d ever be a reporter at The Times. Forget riches, I’d be lucky to graduate with a paying job.”
So Andrew dropped out. His parents were distraught because they could not support him financially but not only that they also were scared because Andrew did not have any plan as to what he had to do. His parents kept reminding him how he was adding to their expenses but not contributing with income. Eventually they started charging him rent of $500 a month. They would evict him if he did not pay on the first of every month. Eventually he ran out of savings and since he knew his parents were dead serious he decided to apply for a job to become a Barista. He was very fond of coffee (you will see later how he does encounter coffee again).
I find western culture to be very interesting. Andrew’s parents actively wanted to let their son find his own way. They did not care. They did not sit there and baby sit him. They asked for rent. Since most of my exposure is to Indian culture I find this to be very intriguing. I can’t imagine anything like this in India. Here we are all welcomed home with grace. We get pressure to do something with our life but moving out in itself is something that our parents dread. It is something which in our culture is just something I can’t imagine. I think there are pros and cons to this approach but in Andrew’s case I definitely think it helped.
Being a barista earning $6 an hour ended up unlocking serendipity in his life. He saw a lot of people working in the cafe with their laptops and thought to himself that he does not want to be a barista. He tried doing a lot of things on the side like reading books, getting a writing job, etc. He wanted to up skill himself. He then met two people in the cafe who were web designers and made a lot of money by charging money to make a website which took them a week to make. After work Andrew decided he wanted to do something like this so the first step for him was to learn how to code. So he picked up a few books, took a few online courses and tried reverse engineering websites.
“I realized that with a few manic nights and a couple of good books, I could basically learn anything. I had found college brutally boring, offering too little of the information I actually wanted to learn. Now, reading these books and learning on the fly, I realized I was an “autodidact,” a pretentious way of saying I preferred teaching myself to being taught. It was all in a book.”
This is a wonderful thing which I can relate to very well. I feel like being an autodidact is one of the best things in the world. The freedom and pure enjoyment one can get by simply following their curiosity with passion and learning new things which make you more curious about newer things and then newer things it’s a never ending pursuit and a lifelong journey. It truly is something special. I find that people who are not autodidacts are shallow people who think that the world is a different place than it actually is.
Starting MetaLab
After learning how to code Andrew thought that he would list his services on a platform where someone could sign him to design a website. He got an offer from Kavin Stewart to design two pages for $2500. After getting this money he thought it would be a good decision to move out of his parents house, quit his barista job and live on his own. He did not have enough money to survive easily but that is what he wanted. He wanted to struggle at that point as it would drive him to work harder.
Who is going to hire a guy from Victoria who has only made one project on his site??
Andrew decided perception is reality. He created a website for himself. Named it MetaLab and said he has a professional team which helps people design cool stuff. He boot started his fake little company until it became real. He got a client who liked his work and asked him to code in JavaScript. Andrew did not have any idea how to code on Java script but he said yes. He asked one of his friends how much he would charge for writing the code. He said a $1000. Andrew went to the client and asked for $2000. Pocketing half of the sale as profit for simply connecting the developer’s code to the client. His business started flourishing as he started finding more clients and eventually he hired people as well. He used to send cold emails to businesses to work together. All of this worked and the risk that he was taking was reaping rewards. The people who worked for him went after a steady stream of earnings.
“My sales technique was simple: be fun to drink with and ask a ton of questions about whomever I happened to be talking to. It worked surprisingly well.”
He found most of his clients while he was out drinking with them. He used to buy a round of drinks for them but after some time they used to reach out to him saying they needed his business. This slowly started becoming a snowball and he kept getting client after client.
“Unfortunately, I was too young and inexperienced to realize I was being greedy, or to align our incentives so we both made more money as the company grew. Instead, I quelled his concerns with a small raise and started going on spending sprees.”
He made a deal with a company which offered him $20,000 a month. This would mean that the work would also increase but Andrew would be making more money. He did not realise the power of incentives and the power that sharing this wealth with the people who worked for him would create immense value for him. He simply did not understand the value of his employees. Over time it did change and his business did scale up but this is a very important reminder about the fact that value creation requires keeping in mind the incentives of all stakeholders. One more big mistake Andrew made was spending on himself. He was deprived of money and he had a lot of ‘desires’ but at the end of the day going on shopping sprees buying anything and everything you want ends up leaving you feel shallow. It also sets you on the hedonic treadmill. You keep chasing materialistic things as after some time you lose value for the thing you bought and find something new which holds more value and it is an endless cycle. A vicious cycle.
In 2008 when the financial crisis hit the world had to cut on spending which they thought they can cut. What is the first thing that you would cut?
The fancy design firm you are paying month after month to make a new fancy website.
That is exactly what happened. Meta lab had made a lot of money but what was not realised was the fact that he thought nothing could go wrong in his business as he was getting recurring revenue. He ended up spending most of the money the company made, there in lies a great business lesson. The world is a complex adaptive system you don’t know what will happen. There are end number of things which are not in your control. So you have to ensure that you have a huge margin of safety as a business. What happened with Andrew though?
He blew all his money which he had on himself. Not only that. One of his clients which went on to become very big ended up suing him and he had to refund their money leaving him with nothing. He was left with a few hundred dollars. As Buffett says, “You don’t know who’s swimming naked until the tide goes out.”
There were two things that saved Andrew and kept MetaLab running. Without these two he would have not been in business today. The first was a gift from his uncle. Apple stock. The value of those shares had grown to $20,000 from a few hundred dollars. It was a wonderful gift. (It was a bad idea to sell but he had to otherwise he would be bankrupt.) Those shares would be worth many millions today. The second thing that kept him alive was one hair removal clinic in Arizona which gave him business.
This period of uncertainty and near bankruptcy was something all of the competitors faced as well. But survival in this situation led to capturing the business of the competitors who went bankrupt. Survival in itself led to growth. This is Anti- fragility. If Andrew had a strong cash position in his company he would thrive even more. After his near bankruptcy experience he decided that he would never spend more than 10% of the profits. Cash was king.
“My spare hours on the weekend were usually filled with expensive nights out that left me feeling vapid and empty, followed the next day by a shopping spree that made me feel vapid and empty in the sunlight as well. Everything else was business. If I wasn’t doing business, I was reading about it. My bedside table was stacked with endless business books, biographies of famous business people, and magazines about…business.”
While Andrew was building Meta Lab one thing that was going well was his business. Everything else was not. This is a really interesting thing about startup founders and people who build business or perform an art form or sport. Their life is consumed by the thing they work on. Almost always the only thing they can thinking about in life is their art form. It has an adverse effect on their life but that is something that does not seem to bother them while they are building or performing. If you see Whiplash, Miles Teller’s character thinks about nothing but drumming. Everything else in life whether it is relationships, money,etc takes a back seat. There is an obsession.
What is more interesting to me is what drives a person to go to such an extent? What makes a person so obsessed with their art form, business or sport? In Andrew’s case as far as I can tell it was insecurity. He felt like he could not rest because the business would blow up and if it did he would go back to his old life as a barista. For a lot of people the drive comes from their hardships in their childhood. It shapes them as a human being. There is no ‘single answer’ to the question but for every person who is obsessed there is a deeper reason behind it which is very intriguing.
Andrew knew that one of the ways to find new businesses to build was to figuring out the problems you face and solving them. Because if you face the problem others also are likely facing the same problem. So he decided it would be a good idea to do just that and he started a cat furniture business. He put some of his money into this business and in no time he started losing money. He kept losing money and after a year of crippling losses he lost more than $200,000. He had to shut it down. He had over estimated his business prowess and realised that his first business was very different and had a lot of factors which helped him grow. It was not easy to build businesses. Especially in the online retail space. He failed in many businesses going forward also but the most important thing was whenever he started a new venture he had to make sure he did not go all in. He had to survive. Survival is the most important thing in business.
One of the reasons that Andrew was so keen on building other businesses as well was because his main business MetaLab was very special. It was growing very fast but it did not need a lot of capital to fund this growth. All of this growth which was coming ended up giving them a lot of surplus cash flow. You had tremendously high returns on capital as there was effectively no capital being employed in relation to the crazy profits being earned. If you see most platform businesses or consulting businesses are like this. They are a special kind of business.
After putting long hours into the business and constantly only doing business, one of Andrew’s friend had approached him to go backpacking to Europe and he took him up on that deal. He decided he needed a break. This forced him to let someone else take care of the business while he is gone. He went to Europe and got piss drunk everywhere around Europe and it turns out that the person he asked to look after the business did a good job. He figured out that the business he had created did not need him the entire time.
He also realised that all the things he did not like doing Mark the person who stepped in for him loved. He realised “There is always somebody who else who loves the job you hate.” It is a very powerful quote.
Selling his Business
“Choosing the right business partner is as important as who you marry.”
There is this wonderful quote from Buffet, "If you have to create a prenup, you're making a deal with the wrong person" It is so important to get into business with the right kind of people. If you get into a deal with a bad person you get affected in so many ways that you cannot imagine. There is a saying you cannot make a good deal with a bad person and that stands true in all relationships. In Andrew’s case he got into business with a person known as Richard who he sold one of his businesses to which was really successful. He sold the business to Richard for $7million. But in the process there were a lot of problems where they even threatened to sue Andrew.
You need to have a bullshit detector. Many people show themselves as something they are not.
She was fascinated by people. It had become second nature to take the bits and pieces someone told her about themselves and build a unified life story, which she analyzed and checked for consistency. After meeting one of the characters, she said, “He’s greedy, insincere, and you can’t trust him.”
“How do you know this?” I asked.
She said, “You can see he’s greedy from the way he drives. The insincerity comes out when he smiles. His eyes don’t really smile, too; they mock you. And his wife has a sad look in her eyes that doesn’t add up. The face she sees at home isn’t the one he shows the world.” - Ed Thorp ‘A man for all market's’
Think how much better your life can get if you avoid people who are untrustworthy. My opinion is that you should have a very strong criteria and be very harsh with who you get close to and who you deal with because one person also that you go wrong with can make your life go to hell.
I would rather miss out on a few good friends than go out and make bad friends. My thinking here aligns with Pulak Prasad. I would make the error of omission and live with it. But I won’t make an error of commission.
“It felt a bit like he’d proposed I sell my newborn baby for liquor money. My businesses were to me, and I had never even contemplated they would be sold.”
A founder has a great level of attachment to the business. Right now I am reading the Art of living by Epictetus and he has some wonderful quotes on how we attach value to things.
“When something happens, the only thing in your power is your attitude toward it; you can either accept it or resent it….. It is not things that disturb us, but our interpretation of their significance.” - Epictetus
“Things and people are not what we wish them to be nor what they seem to be. They are what they are.” - Epictetus
Building a business for sure is a daunting task. You create something which adds value to others and you are rewarded for adding value. That is the basis of every business. For the person creating a business it is almost like you are creating something of your own. It’s your own child almost. You attach yourself to the business and due to whatever circumstance or situation when you do have to sell the feeling you get is the value you have attached to the business. As epictetus says, to us it is almost like a piece of ourself is going away but in all honesty that comes from the value we are attaching to it. It is very hard to be detached to something you spent a lot of hard work on creating. So I don’t think being detached is the right answer but of course some extreme level of attachment can be harmful.
“Building businesses was fun. I loved the act of creating something that didn’t exist before.”
Growth
“What people fail to realise is that businesses are like tapeworms — they hve to grow in order to stay alive. Without growth, there’s no additional revenue to increase salaries over time.”
Growth is a very interesting concept in and of itself. Here Andrew is arguing that for a company to survive it has to grow. It is very true. If a company is not looking to grow than it is not going to be around a long time. You need to have a mindset of growth to keep running your business. Adapting with times and innovating is key to being there for the long term. There are so many examples of businesses which did not adapt with technology and grow and ended up dying. Growth is key.
In business the opposite is also true though. Businesses which require a lot of capital to grow end up destroying value. If you have a Return on Capital employed which is low and the cost of capital is the more you grow the more value destruction there is and the death becomes inevitable.
But now think in terms of your own life. Growth is neccesary for humans to survive. If you don’t keep learning and improve and grow as a human you will not be able to survive anywhere. Even from inside the idea of not growing in the long term would eat you up alive. Everyone strives for growth. It is natural.
Thinking about the opposite in life also. Growth everywhere is not the key. There are a lot of cases where growth is bad. Like when you spend more and more time with people who drain energy instead of create energy are places where you should look to reduce spending time. Growing in the wrong areas in life is value destructive.
Grandma on the roof
This is by far one of the craziest things i’ve heard anyone say. Brian who was their friend and advisor since their company got acquired by Richard had started helping them more and more with Meta Lab. Their recently acquired business was being run by one of their developer friends Luke (a great developer but had no prior experience or qualification managing a business) was asked to be fired by the person acquiring the company Richard. Andrew and his partner Chris fought him on this but eventually had to cave in to his demand as it was not their business anymore. They had to fire Luke but did not know how to as they had never fired anyone.
They went to Brian with this problem and when they approached him he said, “this is an opportunity to put grandma on the roof here.”
So what exactly does this mean? Andrew and Chris asked.
“Brian laughed and went on to explain, ‘It’s an old business saying: Sometimes grandma get’s really old and fragile, and she’s your grandma, so you obviously want to kill her kindly. You can’t just unceremoniously push her off your roof. First you get grandma really comfortable and make her a lovely cup of tea inside the house. Then you tell her, ‘Grandma, I want to give you a tour of the house.’ You walk her upstairs and say, ‘Oh it’s such a beautiful view out on the deck. Let’s go look.’ And then when grandma is on the roof, admiring the view, you push her off the roof — THUD!’
Andrew and Chris were shocked and replied saying “That’s a fucked up metaphor” but they still let Brian fire Luke his way. He executed the plan in a disturbing way.
“Over the coming weeks, he built a mentorship relationship with Liam and gained his trust. He spent hours and hours with him at lunches, making him feel heard and listening to his concerns about how things could change now that we’d sold the business. After a few weeks, he told him that he really needed assistance, and that he’d help recruit an executive who could join the team. Of course, this was a Jedi mind trick. His search “found” Richard’s gray-haired executive, who then became COO of the business, and ultimately usurped Liam. Grandma got pushed off the roof. The whole time, Liam had felt like it was all his idea, until—THUD—it was too late.”
This story is a very jaw dropping story. Imagine how cold hearted one has to be to do this or even think of doing something like this. I know the world of business is harsh and it is not easy but pretending to be a well wisher to someone and manipulating him like this requires an evil person. Let’s leave the analogy aside (which is worse). In my head the correct decision would have been to fire Luke and telling him why.
More than Brian in my opinion Andrew and Chris are to blame. They outsourced something they should have been doing simply because they did not have the balls to do it. They heard the metaphor and still did not intervene and tell Brian that they would handle it differently.
Why? Is it because they don’t want to be hated/ disliked?
It could be a possible explanation. I am not jumping to conclusions but it can be a reason. They got Brian to do the dirty work while their focus was on learning about investing in business from their new gurus Warren and Charlie. But again end of the day the ownership lies with the leadership of the company. It is their responsibility to ensure things like this don’t happen.
Another very alarming mistake is the fact that even after this they continued working with Brian and considered him to be a good businessman. But maybe the incentives are a good place to start when you think about this problem. Brian at that time was helping the firm make millions of dollars and he was making their life easy. Why would they stop him?
This was a bad long term decision which paid them good short term dividends but as we will see going ahead bite them in their ass. The worst mistakes happen during the best times.
Impact of Charlie Munger
“My key insight at this time was one that would become the core of how I run my businesses today: It’s not enough to do what you love. You also have to stop doing what you hate. The goal isn’t—as many people think—to not work at all; it’s to only work on things that you enjoy doing. The stuff that you’d do even if you didn’t get paid for it. We soon rented our own little office. A modest room to provide a buffer from the daily demands of MetaLab and our other companies, where we could concentrate on our new investing-focused work lives. We ended up in the most generic space imaginable—a small, lackluster office with drab carpets, an old Keurig coffee machine, and a single window.”
Learning from Buffett and Charlie the two of them decided to look at life in a different manner. They found out the things they don’t like to do and eliminated them from their life. They similar to Warren wanted to ‘tap dance’ to work. Do the things they don’t mind not getting paid for as well.
They started reading up on investing and they actively tried to find companies to invest in. They found out that network effects were the moat that applied to their domain of expertise and they tried to find a company with that competitive advantage.
One of the first companies they wanted to invest was Dribble. It was kind of like a social network for web designers where they shared their work and they got feedback from other web designers. Andrew mailed the founder and got a reply saying they did not want to sell. Andrew kept mailing them every month though. He kept at it.
Brian bites
At his family dinner around Christmas they were discussing MetaLab and how Brian was doing a good job running the companies day to day. The company was doing well financially as well. Although Andrew’s brother Tim mentioned that Brian was great but recently he had told Tim to bribe someone to get the new office building which was planned get done quicker. Tim did not go through with the bribe which was a relief but this was a huge huge red flag for Andrew.
He called up a friend of his who was also friends with Brian as to why he would do something so stupid. He was a ‘multimillionaire’ after all. Brian’s friend responded to that saying he was not even a millionaire. Andrew at that point knew he was fucked. He had given MetaLab to a crook.
He called Chris up immediately. They had to fire him. But they could not do it immediately they needed more proof. They needed the ammunition to fire. So they started their investigation. They found out Brian spent hundreds of thousands of dollars on travel. They went to a lawyer with everything they found and were happy to know from their legal advise that they had enough grounds to fire him. Just before Andrew was going to fire Brian he met an entrepreneur friend of his who told him that he was being too hasty and Brian would spin his story into something as the cost of doing business. Andrew had to catch Brian red handed.
Even worse was the fact that Andrew had called his brother back from his vacation in Palm Springs with his girlfriend. He still had to meet Brian as he had set a meeting. They decided to give him a quarterly bonus check. They had to spend an hour with this crook and pretend he was good very well knowing what he was doing with their business.
Andrew kept trying to find more and more evidence against Brian. He looked at his emails, slack everything. They found evidence to show that Brian was trying to set up his own design company using MetaLab’s resources. He approached their long term clients to shift to a spin off company and also got his assistant at MetaLab to find office space for his new venture. They stopped his spending spree first. After which Brian became a little more cautious. But then one day he set up a meeting with one of their key clients using their corporate account and then deleted the email thread.
He had created fake meetings to mask this meeting. Once he landed in San Fransisco they told him he was terminated and he was caught red handed in the lie. His co conspirators came clean about how he was trying to steal clients and start a new agency.
There was a court case and there was a lot of evidence against him. He denied a lot of accusations but there was ample evidence to prove the contrary.
Since Brian was fired Andrew became CEO of MetaLab again and his investments took a pause. Doing the things he did not want to do again. These are the consequences of working with a crook. You end up in court with a lot of stress you would have been much better off avoiding.
“Now I knew one thing for sure: I’d do anything to avoid working with someone like Brian ever again.”
Investing journey
Remember Dribble? The company which he kept emailing?
Their founders wanted to meet Andrew and Chris. They met in Boston and immediately hit it off. They then decided to do the Anti Goals list with the founders of Dribble. They figured out a way to let the founders do what they love at Dribble and handle all the things that they hated about their current job. They used leverage to finance the deal as they had to but in the end they pulled it off. They risked their own assets which was extremely risky but the company was too special in their eyes and they had a lot of conviction.
Doing this deal Andrew figured something out. His secret sauce.
“So, what was our secret sauce? I realized that we appealed to founders who didn’t relish the idea of selling their beloved company to some private equity firm run by people who viewed their business as a spreadsheet and would chop it up for parts then flip it to the highest bidder. Founders like us. We could come in, give the founders a huge payday, and do our best to solve all of their problems. Problems we’d learned to solve the hard way.”
They continued finding more tech companies like Dribble. Creating their own Berkshire Hathaway. They were very much got the investing drug in them. They had read up on Bill Ackman and when they got to know he was auctioning off a lunch they bid $57,000 and then went on to have lunch with him.
They hit it off with Ackman and then after that they made many investments together. Infact one of them was repurchasing the company they had sold for $7 million to Richard. (Pixel Union). They repurchased it for around 4x the price they had sold it for.
After a while Andrew had another realisation. Tech companies did not require a lot of capital to grow but this huge advantage came with a huge drawback. Disruption in technology was something which was too fast and unpredictable.
“But there was a catch to this reality. This incredible digital innovation, which had created hundreds of millions of dollars of wealth, bootstrapped from zero, was a double-edged sword: if we found ourselves on the wrong side of a technological innovation, one (or, depending on how groundbreaking the technology was, many) of the businesses we invested in could disappear in the blink of an eye. Yes, while tech can disrupt any traditional business market, like Uber did to taxis or Airbnb did to hotels, it can also destroy its own kind, as Google, Facebook, and Twitter have done to countless brilliant startups, simply by adding a small new feature.”
Moats existed but there was no guarantee of how long they would last. Sustainability of the moat was always a question.
They started looking for simple boring companies which would last for a long time. Andrew turned first to his passion coffee. He started doing some work on companies in the industry. He tried different kinds of machines, processes of making coffee everything. Then one day at MetaLab one of the developers made an Aeropress coffee in front of everyone. Andrew took a sip and loved the coffee. He asked the price and was shocked to know it only cost $29. He realised that this plastic gizmo was much better than his $5000 espresso machine. He was not only a consumer he was also an investor now. He started looking into the Aeropress.
He did some proper Peter Lynch type research. Getting attracted as a consumer and then looking at it as an investor.
Eventually he ended up meeting the founder and bought the company for $70million. Andrew and Chris had found the hack.
“We’d learned that you didn’t need to come up with a brilliant startup idea to get rich. You didn’t need to buy a broken business and rack your brain for how to fix it, either. All you needed to do was find something that you believed in, and loved, and then see where you could make it just a tiny bit better.”
They grew the companies online sales by 500% a little while after acquiring. 500%!
“Chris and I were taking all of these lessons and learning how to operate dozens of businesses at once, ironically, by not operating them at all. After the meddling that I had done myself, and the million dollars flushed down the toilet, we decided on a rather simple management philosophy. We summarized it as follows: when it came to mistakes, we would allow “flesh wounds, not mortal wounds.”
The last line is the most important thing. I think this is one of their most important learnings from Buffett and Munger. There will be failure when you are looking to grow and there will be ventures where you don’t get the optionality that you wanted but at the end of the day if this growth is coming without hurting you too much it is a risk worth taking. To think that you can run businesses without any failure is stupidity. Flesh wounds not mortal wounds is something I will be remembering for a long time whether it is my personal life or any business.
Meeting with Charlie and Buffett phone call
Charlie was facing some problems with Daily Journal and while discussing it with a group of friends one of the advisors suggested the names of Andrew and Chris. This got them a meeting with Charlie Munger.
I am getting chills even reading this. Imagine getting to meet your idol and he wants you to work with him or on his company. I would jump with excitement.
They were long time admirers of Munger and Buffett. When they had to go for the meeting they knew it was for something related to business. So they had to remain as rational as they could and play it cool with him and not get too excited. According to Andrew Munger lived like a wealthy dentist and not like someone who was worth more than the GDP of Monaco.
“When we entered the study, filled from floor to ceiling with old books, Munger was sitting in a La-Z-Boy chair, his legs crossed, a huge pile of books stacked on the table beside him, with two giant halogen lights beaming down on him like he was a sculpture in an art gallery. He had, I later learned, lost one of his eyes during a botched cataract surgery years earlier, and the lights helped him read.”
Munger was 97 when he met them but he was very sharp. Lucid as ever as he said. Munger in their conversation kept spitting some banging one liners. Which were amazing.
“Being in a business with bad economics is like being the shuttlecock in someone else’s badminton game,” he said as he took a bite of his steak. “When you understand how hard a problem is, it’s half solved,” he proffered as string beans dangled from his fork. In another aphorism, between bites of his mixed green salad, he exclaimed to me and Chris: “You only have to be right once to become very rich.”
Munger was one of those rare billionaires who actually did not pretend to be simple. He was simple. He flew economy, wore Costco shirts and the only thing he loved doing was reading and following his intellectual pursuit. He also loved betting heavily on things when the odds were in his favour. He was very opinionated in the things he knew. This is the key point. The things he knew. Everything he did not know he was humble enough to accept that he did not know.
Munger asked them about their businesses and calmly heard their story. After listening to them he spoke to them about the benefits of going public. Then after discussing the pros and cons of being a public company he spoke to them about his problem. He needed someone to run Daily Journal. He was too old and the CEO was 83.
That’s when Munger proposed a potential merger with Daily Journal where Andrew and Chris would be running the show. Becoming a part of Daily Journal was a big move he would be financially more secure. On top of that he would be in public spotlight as well. To prepare for all of this he wanted to meet business leaders who had experience and could also potentially be investors in their new venture. They met a lot of people who were worth a lot of money. They ended up realising one thing after meeting them.
“All of them seemed to be caught up in a game of Who Has What, and yet they had everything.”
They had everything but were too envious of the people who had more. There would almost always be someone richer.
“We had set out to glean some wisdom from these business titans, which we had, but had come away feeling that they lived in a bottomless pit of envy. There was something that I couldn’t get out of my head about these people. It seemed like, no matter what they owned, they were always comparing themselves to their increasingly wealthy peers. Looking up, never down. Never taking a moment to appreciate what they had, obsessively trying to add more zeros than the next billionaire. What could be more miserable than that? More disturbingly, I was starting to realize that maybe I was no different. Here I was, loudly criticizing yachts, while jetting around to my various homes. Grandiose humility. “I’m not like those other rich people—that’s just silly.” If I liquidated all my assets, I’d be worth close to $900 million, and yet I still wanted to be worth more. I could already afford to fly on a bigger jet if I wanted, but for what? There were already ten empty seats on the one I was currently flying in.”
He then thought about the Munger deal. The more public you become the more private you yearn to be.
He faced a dilemma. He did not want to walk away from a deal of a lifetime with his idol. But at the same time he did not want to be someone for whom was nothing was ever enough. They did not want to do the deal because if they went through with it they would be working for someone else. This deal would come at the cost of their freedom.
After looking at Daily Journal they found that the perfect person to do the job was one of their friends Steven- Myhill- Jones. They then had to tell Munger that they did not want to do the deal. He was understanding of the situation and respected their decision. They said they did not want to merge their business but they had the perfect CEO candidate for Munger. Steve and Munger hit it off and even now he is the Chairman and CEO of the company.
Buffett
Andrew had amassed a lot of wealth. Now the problem was he had no clue what to do with it. One option he had was to spend frivolously. But he had already had the realisation that it was a waste.
“I’d already learned the lesson of how it felt to spend it on frivolous and largely pointless things. It’s fun for a moment, and then a hollowness arrives.”
Then Andrew called Bill Ackman up. He asked him what kept him going. Bill’s response was he is not earning for himself now he was earning for the charities he was giving his money away to. His job was to work his ass off to make as much money as he could for society. Bill then told him about The Giving Pledge and told Andrew to sign it.
Bill emailed him Warren’s phone number and told him to call Warren. Andrew was taken aback. He called Warren. Buffett asked about his life and business and spoke to him for about an hour. After which he explained,
“Look, if you just hand it all to your kids, you’re going to spoil them. They should have enough to do something, but not so much that they end up doing nothing. In my life, the money I’ve spent is much, much less than 1 percent of what I’ve earned. The rest, more than 99 percent, is going to others. It’s no use to me, so why not share it with the world? As long as I’m around, I’ll keep running my business. But when I’m gone, it all goes back to society. All of it.” - Warren Buffett
Andrew ended up signing the pledge. He had decided he had enough.
Problems with wealth
Andrew’s first sale was his spinoff shopify business Pixel union for $7 million. Before that he was rich but never felt financially secure. But after seeing more than a million dollars in his account for the first time he got the feeling that he could buy whatever he wanted to. He spent money on things like a Porsche 911, travelling in a private jet, eating fancy food, etc.
But did this make him happy?
“But strangely to twenty seven year old me, it didn’t take long for the high of each lifestyle upgrade to wear off. Just like great food only satiates temporarily, I quickly became hungry again I drifted into a miserable addiction, hooked on the fleeting dopamine spike that came with each notch up.”
“As I surveyed where I was spending, I thought about what had actually moved the needle for me. Across the board, almost everything I had purchased had made my life worse. Sure, it was nice to have a beautiful waterfront home and drive a fancy car, but I adapted to it so quickly. It was amazing how fast something luxurious just became the ordinary fabric of life. In reality, the things that had made me happy were simply moments of meaning. Pushing my sons on the swings at the park. Enjoying a sunset over the lake at my cabin. Laughing over dinner with old friends. A particularly challenging game of tennis. Chopping vegetables quietly while the kids laughed and played in the yard. These moments were becoming few and far between, often interrupted by stressful text messages, conference calls, and an endless stream of daily emails.”
All this reminds me of is this wonderful Munger quote,
“The fact that everybody’s five times better off than they used to be, they take that for granted,” Munger said. “All they think about is somebody else [has] more now, and it’s not fair that he should have it and they don’t.”
Think about how quickly we get accustomed to everything materialistic that we own and how quickly we take it for granted. You might work for something your entire life like a dream car or a dream house but once you get it very soon you will see someone get a better car or a different car and then you will want that car. Desires are never ending and the things driving these desires are envy. It doesn’t matter if you are rich or not. Think about Andrew he was a barista who used to wake up early in the morning and mop the floor. He now had freedom to do whatever he wanted. But he got consumed by the things which were becoming value destructive.
Impact on relationships
One realisation Andrew had was that as he made more money and became successful there was a negative impact on his friendships. Instead of making it stronger it actually became worse. When he used to go to dinner with his school friends he would want to pay because when he used to not have money they used to help him out. Naturally he would tend to pay the entire bill to show his gratitude but to his friends this was a sign of him showing off. They used to pass comments like since you have become a big shot you think we cannot pay for the fancy dinners? On the other hand if he did not pay the full bill he was considered to be a cheap skate. Even after having so much why would you ask for money from us?
“It triggered a cascade of weird dynamics of envy and jealousy, which caused all sorts of unspoken rifs and issues. I began hearing (soon to be former) freinds make passive aggressive comments.”
All this was relating to the friends he had. But there was one more problem there was a huge group of people who wanted to become friends with him to use him for his wealth. Long lost family friends, school bullies all wanted to reconnect with him to ask for something they wanted. Maybe funding for a new business, help with some problem , etc.
Relationships were hampered because of money.
Make no mistake. Money solves most of life’s problems but it also creates new ones.
“To me, the ultimate luxury was having the ability to cancel all my meetings on a whim and hang out with my kids, just because I felt like it.”
This is the luxury we all chase. Freedom of how you want to spend your limited time in this world. People often sway away from this and end up being miserable even when they can afford this luxury because they got caught up with the world.
The emptiness of making money taught me something I had been so slowly learning: that the payoff wasn’t the point—it was the process. The act of building something. Of designing the life you wanted. Scratching itches and solving problems. The struggle of creativity. Helping people reach their potential. The flow state. The journey itself. It’s all so obvious in retrospect. If a million dollars didn’t give me joy, why would a thousand more millions? We all know this. We’ve heard it a million times. And yet, everybody—myself included—seems to need to learn the lesson the hard way. As G. K. Chesterton put it: “To be clever enough to get all that money, one must be stupid enough to want it.”
The book is a must read. Andrew writes wonderfully and he had me hooked to his story. I know this post was very long I was trying to see how deep I can think about the book because I usually have a lot of thoughts but don’t try to jot them down. If you have made it till here thank you very much for reading. Hope it added some value.
Thank you,
Samvit.