The 3 Biggest Business Opportunities Of 2024 w/ Syed Balkhi
Open Source, Acquisitions, and Compounding Goodwill - February 21, 2024 (about 1 year ago) • 01:08:05
Transcript:
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Shaan Puri | Alright, we've got our buddy **Saeed Bolkion** today. If you don't know Saeed, he is one of the few people on earth who has bootstrapped a company to unicorn status—a $1,000,000,000 company—without ever taking outside money. The guy's a legend! He's in his thirties and he's done all this.
What I liked about this episode is that most people we talk to, a lot of guys who have made it, are kind of just like, "You ask them what would you do today?" and they kind of just shrug, like, "I don't know, that's what worked for me back then, but good luck to you." And you're like, "Shit, alright, I gotta figure this out myself."
Saeed's the opposite. He didn't close the door behind him; he kind of just puts a ladder down and he's like, "Hey, here are three specific opportunities that I see."
What I liked about these opportunities is he's very specific. He says exactly what he would do and that he's actually looked into doing some of these things. The second thing is that these are not like moonshot ideas. It's not like, "Oh, invent the next big AI thing." These are just ideas that will work. If you execute them well, they will work.
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Sam Parr | And this is one of those episodes where I actually was writing down what he was saying. I was like, "Oh, I should do that."
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Shaan Puri | I literally slacked Ben. I was like, "Hey Ben, call me when you're free. I gotta talk about some of these ideas."
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Syed Balkhi | and by the | |
Sam Parr | Way at the end, we talk about money and we ask a little bit about what people's numbers are. You'll understand when we get to that part about what your number is.
I want you guys to do me a favor. If you're listening on your podcast app, go to our YouTube page. Obviously, you have to subscribe because that's the gentleman's agreement. You subscribe when we create valuable content for you. All we ask is just for a subscribe.
But tell us in the comment section what your number is. You'll understand when you get to that part. Also, you can view what other people's numbers are, so this will be like a little bit of a social experiment.
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Shaan Puri | Saeed, I don't know if you've seen this. Do you recognize this from the camp? I haven't seen Saeed since camp MFM. I don't know if you see this... Yep, Aquapono.
So, Sam, when we were at the camp, first of all, microplastics are all the rage right now in rich guy circles. People are like, "Oh yeah, I had my gut tested. My microplastics are like off the charts." And they're like, "What? But you're so conscious about it!" And the person was like, "Yeah, I know, and I'm conscious about it, and I still have like a credit card in my belly of plastic." We were like, "Damn!"
Then I noticed Joe Gebbia, the Airbnb guy. We were all drinking from Fiji water bottles. They had like a thousand Fijis, and I was like, "Dude, I'm living large! Everywhere I look, I could just grab ice-cold Fiji." But Fiji comes in plastic. I noticed he's only drinking from his own bottle that he sourced from somewhere. I was like, "Does this man bring his own water on the trip?"
He doesn't say anything, of course. He's not preaching to anybody, but I noticed he's only drinking that. I asked, "Is there something good about that?" He's like, "I just try to avoid, you know, plastics."
And you know, everywhere I was like, "He only drinks glass water." I only drink glass water. Immediately, I went home and ordered it. Since then, I've only been drinking this.
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Sam Parr | And we have to do an intro, Sean.
So, Syed was on the podcast like 6 months ago. You were a hit; people loved you! Basically, the gist of the pod is you have this empire that you own and that you've not raised money for. It mostly started as a WordPress blog called WP Beginner.
Then you saw which WordPress plugins, among other types of businesses, were most popular. You bought them or invested in them. Now your empire is doing something like over $100,000,000 in revenue. I think you were somewhat vague, but I believe you said over $100,000,000 for the whole thing.
You own gas stations, and I think you own tons of real estate. So, you kind of have your hands in everything.
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Shaan Puri | The title last time, the catchy title, which I thought was really cool, said: "Sai is one of the very few people on Earth who is a bootstrapped billionaire." This means he has built a $1,000,000,000 company without taking external money. He did it kind of slow and steady, in a really unique way, where he grew inside the WordPress ecosystem.
WordPress turned out to be really big. Andrew Wilkinson came on and called this strategy "the barnacle on the whale." So, there's a whale, and it's a growing whale. If you can be the right barnacle, you can actually just kind of grow with it. You can ride that wave and build a large business yourself.
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Sam Parr | And by the way, for the record, we have to protect Syed here. He never said "billionaire." I think we said that, so that's on us. He doesn't have to deny or confirm it.
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Syed Balkhi | I tend not to focus on the valuation. The goal is to keep building cool things that our users are loving, with the team that I enjoy working with, and to have a good time.
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Shaan Puri | And if you want Saeed's backstory, you know, from when we were talking about like when he was a kid, what he was doing in his teens, to how he built this empire, we did that episode.
So this one, we're going to do something different. We were like, "Hey, come back on." You're like, "Well, I kinda told my story already." But we said, "Actually, just come in and hang out with us like we do a normal MFM."
We're going to talk about five different things. It'd be great to have you here just to talk about those, whatever random things that come up along the way. So if you want the backstory, go there. If you want to hang out, come here.
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Sam Parr | So, Syed, where you made this amazing document, you have another topic on here that I know is just going to make Sean super excited because he's going to be able to promote his own thing.
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Syed Balkhi | What do you have here?
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Shaan Puri | About this product... Up while you do this, go ahead. I'll scratch.
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Syed Balkhi | Well, I see, you know, there's a massive opportunity in productized services within the offshore market, especially in industries where the Total Addressable Market (TAM) is really, really high. I believe this is greatly underestimated.
Everybody's trying to build this massive, big idea business and spending years—years—building software that may or may not work. If you're good at sales and you have some sort of audience, taking this model and going to town works.
As a matter of fact, I was evaluating a business earlier today that just came to my table that’s doing productized services. | |
Sam Parr | Alright everyone, a quick break to tell you about HubSpot. This one's really easy for me to talk about because I'm going to show you a real-life example.
I've got this company called Hampton (joinhampton.com). It's a community for founders doing between $2,000,000 all the way up to $250,000,000 a year in revenue. One of the ways that we've grown is by creating these cool surveys. We have a lot of founders who have high net worth, and we'll ask them all types of questions that people typically are embarrassed to ask but that provide a lot of value.
So, things like how much the founders pay themselves each month, how much money they're spending each month, what their payroll looks like, and if they're optimistic about the next year in their business. All these questions that people are afraid to ask, but we ask them anyway, and they tell us in this anonymous survey.
What we've done is create a landing page using HubSpot's landing page tool. It basically has a landing page that says, "Here are all the questions we asked. Give us your email if you want to access it." I shared this page on Twitter, and we were able to get thousands of people who gave us their email and told us they wanted this survey.
I could see where they came from—social media, Twitter, LinkedIn, basically everywhere else that they could possibly come from. I'm able to track all of that. Then, I can see over the next handful of weeks how many of those people actually signed up and became members of Hampton. In other words, I can see how much revenue came from this survey and how much revenue came from each traffic source.
The best part is I can see how much revenue came from it. A lot of times, it takes a ton of work to make that happen, but HubSpot made that super, super easy. If you're interested in doing this, you could check it out at hubspot.com. The link's in the description, and I'll also put the link to the survey that I did so you can actually see the landing page and how it works and everything like that.
I'm just going to do that call to action then, and it's free! Check it out in the description. Alright, now back to MFM. What's an example? Yeah.
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Shaan Puri | Give an example because I don't think most people know about product size, service, and offshore market. That's a lot of words. | |
Syed Balkhi | Sure, sure. So, look, we took an investment stake in a company called Seahawk Media. They offer custom WordPress development, website maintenance, and basically other webmaster-related services at affordable prices.
We can also do it white-labeled. So, if you're a small business and you can't afford to hire a full-time developer, you can go here and basically get a developer for hire at very low rates because the team is based out of India.
There's a white-label offer as well, so other agencies and businesses can add on revenue by reselling Seahawk. Another example could be taking a very large market like bookkeeping. There's this company called Bench.
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Sam Parr | I use them.
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Syed Balkhi | Yeah, they charge you between **$299** and **$499**, and then more, right, per month to do your bookkeeping. They're really, really slow. One of our portfolio companies was using it and was super annoyed, so we brought this thing in-house.
But I know that many accounting firms now have offices in Pakistan, India, LATAM, etc., where they're doing this fractional CFO-ing task. It's very, very basic tasks like bookkeeping and basic P&L at super low cost. So someone can go in and say, "Hey, we will do the bookkeeping for you at this rate." I know, of course, like Shepherd, right? This is one of the companies I'm talking about.
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Shaan Puri | The of this. | |
Syed Balkhi | I think that there's a large opportunity here. You take a market where the Total Addressable Market (TAM) is really high, especially in a services market, and then you turn it into a productized service. You offshore the talent and then you add a reseller or a white label model.
I think the one that I was looking at was bookkeeping, and I believe the TAM there is so, so large. The key is the reseller and white labeling model, which is what we learned from Seahawk Media.
So let's talk about Seahawk, right? Because we have a tactical example here. Seahawk is basically an outsourced WordPress development agency. | |
Sam Parr | **And how much does it cost, roughly?**
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Syed Balkhi | Let's say it costs around **$1,000** to build a website. I'm just making this up. You're a web hosting company, and a bunch of your clients are coming to you saying, "Hey, I want you to maintain my website." You're like, "Well, we just do hosting. I don't want to build a services department."
So, they will go to Seahawk and partner with Seahawk, saying, "Hey, can you manage these clients for me?" We do a rough split. Now, there are many web hosting companies that are effectively white labeling Seahawk Media's team and offering add-on services to their customers, like custom website design, maintenance by the hour, site optimization, hack site repair, and all sorts of these services that have been productized and delivered without you ever building your own team.
In that same way, by the way, this is something that we're going to do on WPBeginner. I know the team is working on it, and it's going to go live. We will start offering professional websites, so anybody who comes to WPBeginner can get a website done and so on.
But you can do the same exact thing in every space. For example, in bookkeeping, I can go to all the smaller CPA firms that don't have the economics to build their own bookkeeping and just say, "Why don't you just white label my services?" This is like, you know, now Joe's CPA bookkeeping. You're getting all the clients, you charge whatever markup you want, and you're paying me X.
So, on the back end, it still works the same way. If you're like, for example, Shepherd, you can, instead of doing a traditional affiliate model, do this white label model where other people just become your lead generation.
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Sam Parr |
Question for both of you guys, Sean with Shepherd and Syed. I'm sure you know a bit about this as well. When you guys are out... So I think Sean, you guys have people in Latin America, I think you also have people in Asia. When you are going out and - I don't know how many people you guys have, but let's just say 100 - when you're going out and you're finding these people:
1. How hard is it to find them?
2. How hard is it to train them?
3. How hard is it to keep the quality high?
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Shaan Puri | I mean, it's the main thing, right? If you don't provide quality talent, or if you're not able to provide higher quality talent than somebody could easily search for, then you don't really have a business.
For example, with Shepherd, they have 100 recruiters. I remember when I was doing the investment, I was like, "Hey, what's this giant payroll thing? I thought there was nobody here. What are these 100 people? Where's your office?"
He said, "We have an office in the Philippines and we have an office in LATAM." What's in that office is just recruiters who are constantly searching for talent, testing them, filtering them, and trying to find the best candidates.
The whole game is that people want to hire overseas for cost savings, but what you don't want is the average person in the Philippines or the average developer in LATAM. You want the top 1% or the top 5%. So, who's going to do that filtering? That is the whole service of what Shepherd does: they go out to find that talent.
But to do that, is it hard? I don't know if I would say it's rocket science, but it did take someone on the ground in the Philippines to start an office with 100 recruiters. They have a whole system and process for how they intake talent. They’re getting thousands of resumes and then trying to filter down.
When someone comes to us asking for a designer or a bookkeeper, how do we give them the best and not the average person? You do want to have that.
So, what Sahid is saying is you've already built that hard infrastructure. Now you could go to Joe, the CPA, and say, "You need a bookkeeper? Well, I actually already have good bookkeepers here." You already have a customer relationship, so why not create an add-on service that's extra revenue for you without extra work? That's really smart, right?
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Syed Balkhi | Yeah, and for, you know, the same to echo Sean's point, quality is very, very important. If you can't deliver quality, it doesn't work.
But the good thing over the years that we're seeing is that talent across the world is getting better. If you go back 10 years ago and you're trying to hire overseas, whether it's the Philippines or India, you may not have had that same level of talent.
But the new generation has much better English, you know, and they are more technologically adept, and so on.
So when we're hiring at Seahawk, for example, this is, you know, super vetted talent. We know they can build WordPress websites.
Or, you know, if you're a business owner, you're like, "How do I know when I go to Upwork that this person actually knows what they're doing?"
Because anybody can go make a profile on Upwork, and there's not a lot of vetting being done there. You know that this is a vetted person who can do it.
It's in Seahawk's best interest to vet that person because if that person is working on a client's website for some big hosting company, you're not just going to lose that one client; you might lose a contract for white labeling the service for that big hosting company.
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Sam Parr | And so, are you saying, are you going to start this for accounting? Up the productized service of accounting or bookkeeping?
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Syed Balkhi | No, I'm not actively looking to start it, but I'm studying it right now. I talked with one of the influencers in the accounting space to see if there's a joint venture (JV) potential. | |
Sam Parr | I bet that guy's just a thrill to be around.
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Syed Balkhi | Accounting influencers... yeah, it's like, "Oh, he's got his..." | |
Sam Parr | Got his top button undone. Do you like to party? That guy's just a thrill.
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Shaan Puri | So, you have another one here, which is ecosystems. Now, this is the kind of "barnacle on the whale" idea that we were talking about.
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Sam Parr | About earlier. | |
Shaan Puri |
So you were like, here's what you wrote. You go:
> "I'll be the first to admit I've benefited tremendously off WordPress and the growth of WordPress, and I'm grateful for that."
Andrew has talked about how he, with WooCommerce, benefited from the growth of Shopify. He got in early, started making Shopify themes, and then as Shopify grew, his themes business grew, and then they bought more Shopify apps.
You said, "There's gotta be more of these." Basically, that this... there's not just those two, there are more. So what are some other ecosystems that you see that you think are exciting?
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Syed Balkhi | The one that I'm excited about is QuickBooks and the Xero apps. These accounting platforms are very, very sticky. I missed a deal here; it was a really, really good business. They're kind of like $3,000,000 in revenue and extremely profitable.
I believe there's a lot of value in someone acquiring multiple QuickBooks apps or Xero apps, or maybe QuickBooks apps and then porting them over to Xero, and so on. Then, you can cross-sell. It doesn't matter if the user switches from QuickBooks to Xero or vice versa; you're still keeping that customer.
You can even multiply that effect by tying multiple ecosystems together. For example, you can say QuickBooks and Shopify, or QuickBooks and WordPress, and so on. I think there's serious potential here when looking at these businesses.
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Shaan Puri | This episode... I know this episode is good because Saeed is sharing ideas, and I'm literally opening up an email thread, thinking, "We gotta do this! We gotta do this right now!"
It looks like I'm sitting on my toes, ready to sprint because he's saying things that immediately show me the opportunity. This is good!
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Sam Parr | Sean, do you know how many users... this is shocking. Do you know how many customers QuickBooks has?
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Shaan Puri | I would guess like **2,000,000**. I would just guess a crazy number.
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Sam Parr | Syed, do you...? | |
Syed Balkhi | Go ahead.
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Sam Parr | I believe it's 30 million. I think it's 30,000,000 people. Wow, 30,000,000 customers QuickBooks has, which is insane. What does Xero have?
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Syed Balkhi | It's smaller, but it's in the millions as well.
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Sam Parr | Am I right? Is it about 30, or is it even more? My number could be old.
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Syed Balkhi | I think you're spot on there.
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Shaan Puri | What do you think is the play? Is it software plug-ins or is it agencies that manage services?
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Syed Balkhi |
I think the software play... the one that I was looking at was a software play, and I've seen other software plays in this. Not like the one that I really wanted. I missed it. It's so stupid, I...
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Shaan Puri | I can see the regret in your face. Dude, I've never seen you have like FOMO. This is amazing.
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Syed Balkhi | But, like, you know, there are other implementation partners around these that have built adjacent apps. You can go in and then use that as distribution. This is a very essential tool; you're not going to get rid of it.
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Shaan Puri | Sayeed has had two great loves in his life: his wife and then whatever this app is that got away.
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Syed Balkhi | I know.
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Shaan Puri | He'll never stop thinking about this app.
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Syed Balkhi |
No, I'm studying the ecosystem and I think in this ecosystem you can find wonderful businesses that are not going to have venture growth. They're not going to have venture-style growth, but they're going to be extremely profitable. You know that people are going to keep using QuickBooks or Xero because, as long as they have a business, they'll need these tools.
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Sam Parr | Okay, so what you're talking about is QuickBooks. I just Googled "QuickBooks plugins," so you're just talking about something like that. So, there's like...
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Syed Balkhi | That's right.
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Sam Parr | There are a variety of plug-ins that you can buy. I imagine they cost money.
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Syed Balkhi | Yes.
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Sam Parr | How much are you the biggest WordPress plugin business on WordPress?
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Syed Balkhi | I think collectively, when you look at it after automatic, we would be the biggest.
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Sam Parr | Who... okay, I and I... we promised that we're not going to dive deep on numbers. Can you say, like, the second or third place? Like, how big of a business would they have? Also, tens of millions of dollars?
Yeah, and so how big of a business do you think you could build just on the QuickBooks platform or the QuickBooks ecosystem?
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Syed Balkhi | I think if you look at the app store, because you know, just like Shopify has an app store, QuickBooks has an app store.
If you take a couple of apps that might be doing $3,000,000 to $6,000,000 in that range, and you exit by 5, and you buy 5 of those doing $2,000,000, you just built a $10,000,000 ARR business.
That may not be cross-selling enough, so you can unlock more value. They might be mismanaged gems. By the way, if someone wants to do it, reach out to me. I would like to invest in that.
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Shaan Puri | Yeah, yeah. | |
Syed Balkhi | I was telling you that if you have a quick exam... | |
Shaan Puri | Sean at dot com. I'll forward you to Sahid. Don't worry.
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Syed Balkhi | Yeah, you're going to be. | |
Sam Parr | Like the mafia, "Where's my cut?" | |
Shaan Puri | Bitch, yeah, yeah, yeah. It was... there's no direct access here.
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Syed Balkhi | Yeah, yeah, yeah. What? What? | |
Sam Parr | So, like, when you do... I imagine that there's software, like Jungle Scout, I think, for Amazon, where you can see which services or products are selling the highest. I imagine there's the same for Shopify.
When you're studying QuickBooks, I can't imagine that that software exists. What does studying mean?
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Syed Balkhi | I think you're looking at the number of reviews that the specific app has. You know, all the signals that they might be featuring something that's popular.
Looking at what's new, you can Google or search in QuickBooks like a category. You know the tags they're using and see how many solutions show up in that.
Gauge by, okay, if only 3 or 4% of users are going to leave a review, that's probably how many users they actually have. So if somebody has like 100 reviews, that's only 4% of their user base essentially.
You can sort of make a hypothesis there and say, okay, this category or this keyword, maybe it's receipt management or whatever it may be, has 20 apps. That's how big the market size is for a receipt app in QuickBooks, if that makes sense.
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Sam Parr | Makes sense. You're basically a billionaire building these plugins. I think that's awesome! It's just so funny because the people listening to this, you guys should actually go to the YouTube, because you're smiling as if it's too good to be true. You're like, "No one's talking about this! I can't believe it! Why is no one talking about this?" That's kind of the vibe I'm getting from your facial expressions.
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Syed Balkhi |
I enjoy the game of business, and I enjoy finding these opportunities that allow us to compound. That's what's exciting.
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Sam Parr | Dude, anytime I hear a billionaire talking about where he's compounding, I'm like, "Talk dirty to me, baby." Yeah, like, you're...
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Syed Balkhi | Fat... I keep saying billionaire, which... which... | |
Sam Parr | Is not a by the... | |
Syed Balkhi | way if | |
Sam Parr | I'm completely making that up. I want to respect that. I was being hyperbolic there. It's a...
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Shaan Puri | **State of mind, baby. It's a state of mind. It's not a...**
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Syed Balkhi | Yeah, state of mind.
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Shaan Puri | So, yeah, let's do open source. I was reading today that Y Combinator put out a request for startups. They kind of update this once a year, and one of the top requests they had was for more for-profit open source companies.
They mentioned, "We funded GitLab," and they named like five others. They said, "We funded 150 of these, and we want to do more. We like this model; this is a good model."
I was reading it, and I thought, "I think I know what it is, but I don't know why it's particularly interesting or why it's unique and special."
So, tell us about the open source stuff. What is intriguing to you about open source?
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Syed Balkhi | I believe that **open source** is one of the most powerful ideas of regeneration because it gives you many freedoms. Anyone from anywhere in the world can look at the code and learn from it.
Imagine having some of the best programmers in the world writing code, and then you, some new kid in India, Pakistan, or wherever you are, can read that code. When you see something that sparks an idea, you want to contribute back to it. You can just write a patch and commit that patch.
Then, the project maintainers can say, "Okay, this is great." They can adapt your code, and all of a sudden, your code is now being used on millions of websites.
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Shaan Puri | Can you explain? Because this is a kind of counterintuitive idea, right?
Normal business would be: it's our product, we hire people, they build the product. We would never want others to see our secret sauce, our code, or be able to use it or fork it, which means just basically remix it for themselves.
So, I don't know, is there anything interesting about the origins of this? When it came out, was this a controversial idea? Because to me, it's pretty anti the way you would normally build a business.
Can you paint that picture kind of from first principles?
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Sam Parr | And why would anyone want to contribute?
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Syed Balkhi | So, well, one, it's very, very controversial in the beginning, right? It was "copy left." You have copyright, and this is "copy left," like, "Hey, everything we're building is for the good of society, for progressing technology, for innovation."
So there's a lot of people that get behind that vision. The freedoms that it offers in countries—like, a lot of people can't afford some of the more expensive enterprise tools. Maybe they're in Pakistan or maybe they're in Africa, somewhere where they don't have the resources to have those kinds of tools to build their business.
Now you have this open-source platform, let's say WordPress. It gives you the freedom to publish anywhere. Maybe there's censorship happening on any other social media platform or publishing platform, and you can self-host your own WordPress site and put your take out there.
So that vision becomes really, really important. I think when you look at the long term, anybody can write code. You can hire developers anywhere, so most markets will get competitive, and your vision becomes a unique selling proposition (USP).
That's what open source brings to the table, and it's going to disrupt basically every established market that exists. There are startups that are coming out. I was looking at this guy—I talked to this guy named Joseph. He runs OSS Capital, and he's deep into the open-source communities, looking at various GitHub projects.
He has a pretty cool method, right? He sorts them by the number of stars, which means how many developers are really liking that code, and then he gets behind them. One of the things that he invested in was AppFlowy, which is a Notion competitor but open source in a portal.
So now I can make my own Notion and use it. Maybe I can self-host it and significantly reduce costs in my business.
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Shaan Puri |
Let's do some examples. So there's Windows, the operating system, then you had Linux, the open-sourced counterpart. Linux is like... what, $20 billion or something like that? It's a very big, kind of enterprise-level system.
They make their money off just the services, right? Because the product is free. That's kind of the whole point of open source: you could just use a self-hosted version for free. But if you want the... Is that all that they do with Red Hat? Is it just services that generate so much revenue?
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Syed Balkhi |
Services, add-ons, you know, premium versions... all that. So, like **Nginx** for example:
- There's a free version of Nginx
- Then there's the pro version of Nginx, which gives you a lot more features, etc., to save you time and convenience
Same thing in **WordPress**:
- The core of WordPress is free and does many, many things
- Then there are plugins, and many of the plugins are free, which gives you a lot of cool things
- But then if you want more convenience, you pay for additional updates and support
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Shaan Puri | So, you have WordPress, which is the free, open-source publisher. I don't even know what the closed-source version of WordPress is; maybe it's just social media.
Then you have Android, which is open-source, and iOS, the Apple operating system, which is closed-source. There's always this kind of dual winner. People have this strategy of just like "X but open source," like Slack but open source, Notion but open source.
Is that generally a good idea? I like blueprints when it comes to business. Somebody told me about a blueprint; they were like, "Just superhuman for X," the way Superhuman took one piece of work software and was like, "Pay $20 a month, but I'm going to make it really slick, with an incredible UX and way better design."
Linear was a good example of that. Linear was basically "Superhuman for Jira" for the ticketing system, and it worked. It's a very successful company.
Is a blueprint like that a successful idea in your mind? Like, a popular thing but open source? Does that work?
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Syed Balkhi | Absolutely! I think you take something that has a large Total Addressable Market (TAM) and then you make an open-source version of it that is cost-effective and affordable. Now, you grow with the community over the long term.
I don't think anybody could build what WordPress did as proprietary software. The reason why WordPress was so successful was because all the other website building platforms, or all the other hosting companies, as you say, that didn't want to have their own website builder started contributing to it.
For example, GoDaddy, instead of building their own website builder—I mean, they have one—but they went into WordPress and started contributing to it. Many other hosting companies did too.
Shopify, which is essentially a hosting company, is the same. The same goes for Wix. At the core of it, they're hosting; they have their own proprietary platforms.
In contrast, WordPress is built by and built on top of by many, many, many other hosting companies. The sheer number of contributors is significant. You see the same thing in Chrome as well and in others. | |
Sam Parr | But can't you say that, okay, so WordPress powers how much? 35% of the internet?
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Syed Balkhi | Probably a little more like 40%.
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Sam Parr |
Okay, so 40%... Shopify is worth $100 billion today. I don't know what WordPress is worth or what their revenue is because they're a privately held company. But for controlling 30 or 40% of the internet, you should be making many tens of billions of dollars a year in revenue.
Do you think that WordPress has over a billion in revenue? I would think no.
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Syed Balkhi | So, I think when you think about WordPress, it is a community project. There is a proprietary company that the founder of WordPress, Matt Mullenweg, started called Automattic. Automattic has a good-sized revenue; they're a private company, so I don't know what those revenues are. But it would be fair to say that it's not as high as Shopify.
When you look at the collective ecosystem of WordPress and all the companies that are in it, you take GoDaddy—how big is GoDaddy? You take many, many other hosting companies, or WP Engine, and so on. If you put them all together, I would say that the market cap will be bigger. | |
Shaan Puri | Yeah, so Automatic was valued at $3 billion and at some point, it was valued at $7 billion in its private rounds. I don't know if this is rumors or confirmed, but it's published in a bunch of different places.
So that's what Automatic is. It's kind of the company that, like, I don't know what you would call it—the steward of the open-source program or the open-source project. I'm not sure what you would call it. They're essentially what Red Hat was for Linux; Automatic is that for WordPress.
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Syed Balkhi | They have the same founders, yes.
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Shaan Puri | Yeah, and Sam, you get all the developer street cred, bro. I mean, Matt Mullen, like that guy's... | |
Syed Balkhi | Right.
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Shaan Puri | He’s a made man. He’s untouchable.
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Sam Parr | There's no doubt that it's awesome. I think, actually, when I think of internet heroes, I think Matt is up there.
I actually use WordPress, so check this out. Let me explain the difference in business models. I used WordPress for The Hustle. The Hustle ended up being worth tens of millions of dollars. It reaches hundreds of millions of people, and we are small compared to many of the others on WordPress.
You know, I had a friend that had a WordPress site that was doing 100 million monthly uniques. So there's no doubt that it's the best.
But check this out: I bought WordPress' software called WooCommerce. WooCommerce was $300 a year. I had a business on there that was doing $5 million a year in recurring revenue, and I paid them $300 every single year.
If this were Shopify or something else, I would have been paying them, I believe, 10% or 5%. So I would have been paying them $25 to $50 a year. I was like, "This is a fucking steal! I'm stealing from these guys." I was like, "I don't understand this business. I'm getting all of the value, and they're getting virtually none." | |
Syed Balkhi | Well, I think the value is disproportionately favored for the consumer, and that's what you want in a business, right? You want your users to have disproportionate value coming from you.
I think, when you look at products—and this happens when you're studying long-term—if your product can't be 10 times better in a specific space, it really becomes all about the brand and the value that you're delivering when customers are using your product actively.
So, having that value being so disproportional makes your business far stickier than your competitor, who might be charging an arm and a leg.
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Shaan Puri | I have a bad idea for you, Sayid. So, where else have we seen this? Oh, the customer's just getting an incredible deal. One idea that comes to mind is Costco.
Costco is basically like, "Hey, we'll sell you the goods at cost + 10%." That’s just going to cover the carrying cost of putting these items on the shelf. So, whatever that bag of rice actually costs, it’s that + 10%. That’s always the price.
And we're going to negotiate the shit out of these vendors, by the way, to get the lowest possible version of that price. We're going to use our scale to do that. All you gotta do is pay us $120 a year. That’s like $120! I'm saving that in one grocery trip, two grocery trips. That’s a no-brainer.
They've built a huge subscription business off this. Do you think somebody could do that in the software world? Because I've seen a couple of examples of this.
I bought this screenshotting tool that’s really good. It’s called CleanShot X. Free shout out for those guys! It’s a really good screenshot tool. But one of the ways you can buy it is off some service that has all the random software tools put there on the shelf, like a Costco or like an Amazon for random software tools. It’s usually at a lower price than if you go buy direct on the site.
I think if you have a membership to the overall thing, then you can just get these tools for free. I kinda wonder if somebody could do this with the open-source community and just say, "Alright, pay us $1,000 a year, and then you're gonna get WooCommerce, you're gonna need all these things at the lowest possible price."
So, you're just gonna round up all of the software and say, "Hey, you're gonna be selling at cost + 10%," and we're gonna have this subscription revenue for our members who want to shop there.
Is that a... how bad? How bad on a scale of 1 to terrible? Where is that idea?
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Syed Balkhi | Two-sided marketplaces are generally a tough business to build.
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Shaan Puri | Look how nice! | |
Syed Balkhi | There are challenges in the model, but you can try it. I think there are companies doing it.
If you focus on a subset, let's say agencies, and say, "Hey, development agencies, we can get you access to these softwares at a lower price," that's probably where I would start. Then, you can try to make it broader, rather than saying, "We have every software under the sun."
You have to do some back-end integration. The best SDKs—many indie softwares don't have the ability to have reseller models. It's generally not how software provisioning works. Instead, it's more nuanced than what Costco has, where you say, "Hey, here's my thing, take the payment, and give me money in the back end."
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Sam Parr |
So, what is this OSS Capital doing? They basically, as you said, go through GitHub projects and look at which things have some combination of engaged users, large TAM [Total Addressable Market]. And what do they do? Do they invest in them or do they build products for them?
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Syed Balkhi | They're investing in them, and I think you're investing in... | |
Shaan Puri | The open source community... He's like, "What did you give them? Hugs and shit?"
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Syed Balkhi | What? Where's the money?
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Shaan Puri | This whole business... what's going on?
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Sam Parr | They invested five high fives.
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Syed Balkhi | No, I... no, actually, they're investing capital in those businesses and helping them come into the market.
I mean, if you look at GitLab, for example, it's like an $11,000,000,000 market cap right now. So, like Appflowy is going after the Notion market, or Cal.com is going after the scheduling market. I think we're going to see many of these established companies that might be unicorns right now in the project management space get disrupted by an open-source solution.
Then what's going to happen is you and I can take Appflowy and say we're making Notion for doctors. We can take the code, fork it, make it better, and then contribute back to it because of the way the licensing is done.
So, there will be flavors of these open-source software solutions that will get created, like there are flavors of WordPress. That's what makes it so disruptive because a doctor who might be using Notion will say, "Well, I want to go use this tool because it does the extra 5% that Notion won't do."
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Sam Parr | Well, which categories and products do you think this model would work for? Where you see a particular product category, you say, "If we attack that category with this open-source blueprint or framework, I think that could be a winning combination."
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Syed Balkhi | I think the open-source CRM that does a good enough job will be quite disruptive and perfect.
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Shaan Puri | Segue to our sponsor. Play the ad, maybe that.
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Syed Balkhi | But I think you take any large TAM (Total Addressable Market) in software and you add an open source component to it.
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Shaan Puri | Like Sam, do you use those Stability AI tools? They're basically OpenAI but open source. They're the ones who make Stable Diffusion, right? So how...? | |
Sam Parr | Big. Are they? | |
Shaan Puri | They're multibillion-dollar companies, but it's like the AI hype cycle. They're very big, right? But people actually use, you know, Stable Diffusion a lot. It's a big project.
I think, Sam, you invested with me, right, in Cal.com, which is like the open-source competitor to Calendly. Calendly is really expensive, and the Cal.com team has done a good job of building the open-source version of that. I really like this thesis. In fact, I think this OSS Capital thing is really smart.
There are a few strategic venture fund ideas that I really like. This is one of them. Another one that I heard about is someone who's just taking pro-rata. They're like, "Oh, you do all the work of finding the company. You know, 30% of them are going to die or whatever before they raise their next round." But of the ones that raise their next round, you have pro-rata; you could top up and keep your percentage.
Most investors don't want to do it or don't have the capital to do it, so these guys are just pro-rata, and that's pretty smart. I think there are a few strategic venture funds. One I really wanted to do was just a flipper.
You would basically say, "Hey, I want to invest, but I'll be out when you raise your Series A." I'm really helpful in this 0 to 1 phase, but as soon as you get to your Series A, I'm out. A normal venture fund is like 7 to 10 years, and you're hoping for this 1,000x outcome.
But the seed to Series A valuation lift is like 3x, and it's usually in 12 to 18 months. If you could just pick well which seed startups are most likely to get to a Series A, or if you're in an environment where a lot of companies are able to raise their next round, you can flip.
For the founder, it's great because they're like, "Cool, I could take this capital today, but it's actually non-dilutive." I'm like, they're going to be out by the next round, and those same shares go to the next investor. So it's actually less dilutive than normal capital.
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Sam Parr | But won't you be accused of like a "pump and dump"?
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Syed Balkhi | Well, you're not pumping it, though.
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Shaan Puri | Like when somebody buys a home and then sells it a year later, is that a pump and dump? Like, no... well, no, because the...
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Sam Parr | Well, I would argue a home has *realized value*, which is... but that's what happens with the...
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Shaan Puri | From a seed startup, when you invest in a pre-seed startup, 18 months later they've now built a product. They have customers and some traction. Their story is so much better, right? They are a derisked startup in some way if they're able to raise.
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Sam Parr | Theoretically, but not always. Usually.
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Syed Balkhi | You're right, you're right. But the risk goes a little bit lower. You entered the riskiest stage at seed, so the...
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Shaan Puri | The problem is just like a faux pas. Startup investing is supposed to be for true believers. I was in, and I'm here for the long haul, and like, "You're gonna change the world."
Whereas when you sell to Series A, you're like, "Oh, you might change the world, but probably not." All I know is you changed my bank account by 3x if I sold this, right?
So I think that's the problem. It's such an anti-signal. Nobody wants to see that your first investor wants out right away. It's such a bad signal.
You would have to first build your brand. This is what we do. It's not like for any company; we do this. It doesn't mean anything about them. We do this with every company we invest in.
You'd have to frame it not as a quick flip because that sounds self-serving. You'd have to phrase it as non-dilutive. It's like, "We're the early-stage guys. We're really helpful early. We don't know anything after that."
We want you to not dilute yourself so much to take our capital because we're going to basically give you back those shares to sell to the next guy rather than just losing more and more equity as you go.
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Syed Balkhi | Yes, still very, very high risk. You have to be a very good picker and say, "Yes, this is gonna go from C to A."
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Shaan Puri | But, like, I looked at my portfolio. I looked at about 100 companies. I don't remember the exact numbers off the top of my head, but basically, out of the 100 angel investments that I made, I then looked at what percentage of them raised the next round and what was the average multiple of the companies that raised the next round.
You just multiply those together, and it'll tell you your expected value. The math, when I did it last time, indicated that enough companies raised the next round at enough of a multiple where I would be getting a good return. I think it was around 30%. The math was basically that I would be making 30% on my money, which was fantastic and better than almost every venture fund out there.
However, I didn't actually implement that strategy because I thought of it later. It's also really hard to get around that perception problem. I thought of it when one of my proceeds raised a Series A, and I was like, "This company is not going to work. I wish I could just sell right now." You know?
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Syed Balkhi | That's ex... you're proving my... you're just proving my.
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Sam Parr | I.
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Shaan Puri | There's no... No, that proves my... that you could... you could... well, you're not.
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Sam Parr | Pumping, you are dumping though.
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Shaan Puri | Yeah, you're dumping. Yeah, exactly.
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Sam Parr | Yeah, that's what you should call it: your dumping schemes. Speaking of numbers...
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Shaan Puri | I tweeted this out this morning, and I want to know what you guys will guess. So, I asked a question. I'll give you the background.
I was talking to a coach, like an executive coach or whatever, and I was telling him, "Yeah, I'm trying to do this." He asked, "What are your goals for the year?" So, I said, "Yeah, I'm trying to do this, this, and this." One of the things I mentioned was, "If I sell this business, I think I'll make... I don't know what I said, but I think I could make $20,000,000."
I thought, "That'll be great!" Then I paused and realized, "Wait, I have no idea what will change." I was thinking, "It'll be cool because then my life will be better." But I asked myself, "What will actually change?" I started to wonder, "Is there any benefit to incremental change?"
So, I began thinking about this. I do want this; however, I do think it's a little silly that I can't...
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Shaan Puri | To maybe an area of life that I want to improve using money... Money is a tool, I believe that. But I have no idea what I'm going to use this tool for.
I'm just going to Home Depot trying to get a tool, and it's like, "What do you need this drill for?" And I'm like, "I have no idea." Oh, that was a little silly.
So, I tweeted out a question today. I said, "How much money do you think you need to live your desired lifestyle?" Because I think I'm very close to just living the exact desired lifestyle. I haven't really had any more desires of what I want to change.
So, what is money good for in that sense? I asked people: "0 to $1,000,000, $1 to $10,000,000, $10 to $50,000,000, or more than $50,000,000?" I asked, "How much money do you think you need in your bank account in order to be living your desired lifestyle?" One of the answers got 47-48%. Which one do you think it is?
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Sam Parr | And what's your answer? | |
Syed Balkhi | Well, I think if you're looking at those four choices, most people would probably say 10 to 50.
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Shaan Puri | That's what I would have guessed. Okay, that's what I would have said myself also. I think that's like the kind of my... my nothing is not utopia, where somebody's feeding me grapes and stuff like that. But like, what I actually want, what I actually care about, I think is totally achievable in that range.
So, do you... and Sam's question was a good one. What would your answer be? Like, you've surpassed all these great... what do you think actually made a difference in your lifestyle where you're like, "Oh, I now have the money to live the lifestyle I want?" | |
Sam Parr | I call it the **threshold number**.
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Syed Balkhi |
You know, I have a very simple life. I don't have these crazy desires of wearing the fanciest clothes or any of those things. For me, the $10,000,000 number was more than enough to have a good life. You know, I do what I do because I enjoy it. What would you know, right? I want to be a productive member of society and this is fun for me. But you know, people might say their number is more.
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Shaan Puri | Do you think anything changes as you go up? What gets unlocked at those levels of the game?
The only ones I could think of... I'll just give you my answer. I was like, I think if you go above 50 or go above 100, you know, private travel is like the big unlock. You don't have to think; you just fly private everywhere and do all that. I think that's the biggest one.
The second one is, if you really care about being the one to give to charitable causes, I think that's the other thing you could do. You could make large charitable donations.
I don't really know what else gets unlocked past that, but you might have other ideas. Am I missing anything? What gets unlocked over 50?
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Syed Balkhi |
I think it's just the level of convenience that you get, whether it is through private travel or whether it is through private help at home and so on. The level of access that you can... you know, access just gets elevated. Also, do you...
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Sam Parr |
Do you think there's a difference between 55 and 100 [passengers]? Like, is there a number where you think the level of convenience is mostly quite similar? Is it more convenient to have a significantly larger plane than a smaller private plane?
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Syed Balkhi | Yeah, I mean, it makes a difference how far you're trying to go. The poor rich guy.
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Shaan Puri | In a small plane, just puttering out, we couldn't make it across the Atlantic. It's just...
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Syed Balkhi |
I mean, yeah... You can spend any amount of money that you want if you have money. You can spend it, but do you really need it? I don't know, and that's based on each person.
Even if you look at Taylor Swift, right? She had to take... she took a private jet, but it was not hers. She contracted the service to fly from Japan (or wherever she was) to the Super Bowl because her own jet can't fly that far.
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Shaan Puri | Right.
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Syed Balkhi | Now, does that mean that she can't afford a bigger jet? No, I'm pretty sure she can. But it just doesn't make financial sense for her to maybe have a Global 8000 or something like this. | |
Sam Parr | What was your number, Sean?
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Shaan Puri | Mine was in the $10,000 to $50,000 range. I thought, "10 to 50, that's past that." There are very few things that are as appealing or have such big diminishing returns.
But this is my perspective: 10 years ago, my number would have been $1,000 to $10,000. I would have thought, "Oh, past $10,000, what does it matter?" Now, past $10,000, you're like, "It kind of matters."
Maybe that same thing happens again; I'm not sure. That's why I kind of like to say I want to ask other people's opinions. It doesn't get talked about much, but clearly, we're all acting on it.
Everybody who's listening to this podcast, everyone on Twitter, you're all playing a money game. You're spending a huge portion of your life earning money. It is probably worth knowing: where does money really improve the quality of your life? What are those thresholds? What are the things you can unlock?
You could decide for yourself if it's really worth devoting this much energy and this much time to accumulating more. | |
Sam Parr |
I think $10 million gives you a base. You've got your fortress of solitude. $10 million is enough that you could tell most people to f*** off because you don't need much from anyone. I actually still think you can lose $10 million if you make a handful of bad investments. What? [Syed], you're gonna look at me stupid because I... yeah.
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Syed Balkhi | You can lose $100 if you make a handful of bad investments.
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Shaan Puri | No, no, no. Number you can't lose.
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Sam Parr | That's true, and I think a threshold is 10. I think another threshold is 50. That's my current thinking. | |
Shaan Puri | What do you think happens at 50? What's the difference?
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Sam Parr | I think at 50, you can fly private safely. Like, with that, it's no big deal. You could fly private most every time you want.
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Shaan Puri | And that's the only difference.
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Sam Parr | Well, you could have, you know, $10,000,000 liquid. I wouldn't buy a $5,000,000 house.
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Shaan Puri | A certain number... Your nanny speaks Spanish. At the next number, she speaks English and Spanish. The next number, she speaks English, Spanish, and French. Right? That's what else changes.
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Sam Parr | But, like Sean, where you live, you live in one of the most expensive parts of the world within a 50-mile radius. A really nice house is probably around $6,000,000, right?
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Shaan Puri | Yeah. | |
Sam Parr | You're not gonna buy that if you're worth $10, but you would buy that if you're worth $30, probably, right?
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Shaan Puri | **Challenge accepted.**
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Syed Balkhi | So don't. | |
Shaan Puri | Tell me I won't do something... I will.
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Syed Balkhi |
But you know, no matter how big your house is, you'll only ever be sitting in one seat at a time. So it's important to have perspective, to not let the goalpost keep moving forward. And then for what? I mean, there's a house here that's $170,000,000 for sale, not too far away from [where we are].
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Shaan Puri | Somebody who was at the camp with us—I won't say their name—but they have a home worth probably around $15 to $20 million. They called me yesterday and were talking. They said, "Oh, sorry, I've been house hunting all day."
House hunting? You just bought your dream home last year! You told me, "We went crazy on this house because it's our dream home. It's what we've been working for all these years, why we made all this money."
Then he said, "God, yeah, but our HVAC broke, and that's just $50,000 to fix." He mentioned that the guy fixing their AC has engineering degrees. He said, "I pay $2 a month to our pool guy. Our pool guy makes $2 a month. It's another $4 for landscaping. It's just annoying. Everything is my problem."
He continued, "Yeah, it's great when we entertain people, but most of the time, I'm just sitting in one chair. I have whatever, 10,000 extra square feet or 20,000 extra square feet of empty house."
It was just such a visceral reminder of the age-old wisdom: first, you own your things, and then they own you. He was explaining all the ways that his possessions now owned him. He had this reaction where he said, "I gotta change this because this is not my dream. I thought this was my dream, but it is not my dream. I don't want to be owned by this."
Now, my monthly expenses are so high that I have to stress about all these things. When things break, it's such a colossal expense. I feel so wasteful spending this much just fixing our pool or whatever it is. In reality, I remember what that money could do for me. I used to live all year off that money, and now it's just going to one little thing. How?
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Sam Parr | Many square feet was this place?
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Shaan Puri | I don't know, it's probably like **15,000 square feet** or something like that.
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Sam Parr | That's **fucking** insane, that is.
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Syed Balkhi | So insane, is it?
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Shaan Puri | 15,000 people. It's more than 10,000 and less than 20,000, I think.
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Sam Parr | Dude, that's like... you need a property manager for that. That's a commercial property. That's insane!
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Syed Balkhi |
I think it's important... One of the things that a lot of people don't think about is the holding cost of anything that you're acquiring, whether it's a property or a business or what. You know, understanding the holding cost—the *real* holding cost—may help you not make certain decisions. There's other...
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Shaan Puri | Other hidden costs too, right? Holding cost is one. Opportunity cost is another that people usually discount.
There's a great tweet that was going viral. I don't know if you saw it yesterday, but the guy said, "I think making between $150K to $200K is the worst." It's like, what? He's like, "It's the worst because it's too much money to just say, 'Fuck it, I'm just gonna go do this thing I really want.' So it's like too much money to walk away from, but it's not enough to ever actually get escape velocity financially because you're paying a huge amount of taxes. Then you probably live in a... your lifestyle creeps up."
I see this so often, which is that there's some range—I don't know what the numbers depend on, where you live and what industry you're in—but something like $200K to $500K is like... that's the real golden handcuffs. That's the real danger zone. That doesn't sound like a danger zone; it's a hit, but it's a hidden danger usually.
If you're making that much, you're probably very talented. However, it is so hard to walk away from that amount of money once you get to that point and take a risk—maybe start a business or take another job that might give you all kinds of other things but maybe have less certainty or less annual guaranteed pay.
I could see that tweet going viral because I think it resonated with so many people. The guy had like no followers, but the tweet had like 20,000 likes.
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Syed Balkhi |
You know, it also depends on your personality. My uncle, who moved to the US 40 years ago, is a teacher. Teachers in America don't make a lot of money, but he still retired a millionaire. So I think it's all about how you invest and, yeah, compounding.
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Sam Parr | I think that tweet is really **stupid**. Why do you think that?
I think that if you make **$250,000** a year, you can live a very rich life. I believe you could have a beautiful, rich life and even retire by a certain age.
I think that tweet is out of touch. It may be true if your goal is to make tens of millions of dollars or be your own boss at a young age.
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Shaan Puri |
I think it's true for the people it's true for, which is if you want to be an entrepreneur or you want to be financially free and not have to trade your time for a salary, right?
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Sam Parr | No, you can be financially free on $2.50 a year if you're 60.
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Shaan Puri | I don't know. I live in California. I'm using California as my frame of reference here, right?
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Sam Parr | Yes, the place where you live definitely changes things, and so does what you burn.
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Shaan Puri |
Definitely California, like a lot of places... Stuff I don't know, like what's the amount of money you need? Even if you're living in Texas, what do you think is the real amount of money?
You pay $250,000 a year, and then you have taxes. So you're taking home... I don't know what the math is, but like something like $175,000 or $180,000, something like that. And then you pay for life, and you might be stashing away $100,000 a year.
How many years do you have to stash away $100,000 in order to... like, be financially free? It takes a decade plus.
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Sam Parr | Yeah, a decade.
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Shaan Puri |
A decade, right? And even if it gets to $250,000, that usually takes you 7 to 10 years to get to making that much. Right? So now you're 17 to 20 years in. That's a lot... that's a long time.
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Sam Parr | Syed, what are you going to say? I can tell you don't like what Sean is saying right now.
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Syed Balkhi |
I think there's something about the guaranteed payment, and it really depends on your personality. The folks that are going to become entrepreneurs, they don't need to walk away from $250,000 a lot of times. I mean, when I started, I had nothing - no salary.
A lot of folks start out and they don't have a salary, they just kind of go and pursue it. If that's what you want to do, you go do it. You have to have conviction, and I think that's key to success anyway, especially as an entrepreneur.
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Shaan Puri |
One thing: I'm not giving advice to other people for what they should do or what the average person should do. I'm saying, from my perspective, what I would want in my life, which is the only thing I can really speak on. These are the things that I know about myself.
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Syed Balkhi | Right.
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Sam Parr | And I | |
Shaan Puri | I know that most of the people who listen to this podcast are going to be like-minded. Otherwise, how did you get to episode 500 if you weren't into entrepreneurship or didn't share some aspect of our ethos?
For people in our world, I think this is a valuable message. I know I have a lot of friends personally who are in this situation. I know what they actually want out of life, where they live, and the lifestyle they desire. For them, that is a very dangerous thing.
Of course, if I'm just speaking generically, that advice totally doesn't apply. It's completely out of touch and it's total overkill. I get that.
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Sam Parr | I think that's fair. I wanted to give you an alley. I wanted to give you an alley-oop.
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Shaan Puri | It's like I shot myself in the foot and then I put a band-aid on at the very end.
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Syed Balkhi | So, it's... | |
Sam Parr | All good. Where do we want to go from here?
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Syed Balkhi | Let's do a couple of other ones that you have on this document. So you have...
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Shaan Puri |
Let's go to the bottom here with the strong opinions or philosophies. You talked about acquiring a business versus paid marketing. I think this is kind of interesting. I think most people don't really think about this. I know when I was running my company, I never thought, "Hey, let me grow through acquisition." That wasn't on my radar. What's your... Here, what do you think is the takeaway?
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Syed Balkhi |
When you think about growing a subscription business, there are only three ways to grow it:
1. You get new customers
2. You expand existing customers
3. You reduce churn
In the new customer bucket, most people are always looking at PPC [Pay-Per-Click advertising]. Especially at a certain scale, you might be spending a lot of money on PPC.
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Sam Parr | Pay per click. | |
Syed Balkhi |
Pay-per-click, exactly. Pay-per-click advertising and your CAC [Customer Acquisition Cost] might be high, especially in a very competitive market. In that sense, it makes sense to just go pay a revenue multiplier to buy a business that has the customers that you're targeting anyway, and then cross-sell.
I would say that's something that more CEOs need to think about when they're considering growth strategies.
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Sam Parr |
You know who knows about this? Your boy. I sold The Hustle to HubSpot because I actually didn't know about this. They knew about it and they made the right... I know about it in that I know a guy. No, I know a guy who did this and they bought my business. That was the whole [point] of HubSpot. That was the whole [point] of this podcast.
Now, I don't have too much information. I haven't been part of it forever, but I think it's working. So, are you talking about buying other like products or like content sites?
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Syed Balkhi |
I was looking at this publicly traded company where I was considering establishing a sizable stake. Their revenues were growing steadily, but not exponentially, because they couldn't compete with the larger competitors. However, the reseller side of their business was great. In fact, one of their resellers was actually making more money than this company was.
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Sam Parr | What's a reseller? Can you give an example that isn't related to this company?
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Syed Balkhi | Sure, so like I could, for example, resell HubSpot or any other hosting service. I can be a hosting reseller, or I can create my own hosting company. I could also sell on Amazon and become an Amazon reseller, and so on.
For this business, they basically just acquired one of their resellers and boosted their revenue. It's just the same customer that they had, and they're bringing it in. I wanted to work with the management and just kind of fund the acquisition of the reseller because the margins, if it was in-house, would be much, much better. | |
Shaan Puri | How can a reseller make more than the main thing? If you're just reselling and then presumably giving a cut back to the mothership, does the reseller ever make a profit?
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Syed Balkhi | The money? No, it all depends on the pricing, how you're licensing, and what you're charging on your end.
Okay, so let's say we both could be drop shipping the same thing. I could charge a premium, like 5 times more, because I know how to market better, and you're charging only 2 times, right?
But that's just one example. You can look into your own ecosystem, start acquiring your resellers, and bring that customer in-house.
What HubSpot did with the content site makes total sense. What Zendesk just recently did with Klaus makes total sense, and so on.
So I think that when you're looking at acquisition and growth—I'm talking about acquisition from new customer acquisition—think about mergers and acquisitions (M&A) as a viable option, especially when your PPC budget is high. | |
Sam Parr |
Could your WordPress empire have existed without you owning WPBeginner?
So, WPBeginner, for the listener, by the way, it's like a blog. If you Google "how to set up an email service on WordPress," WPBeginner is the site that always shows up number 1.
Would your empire have existed without WPBeginner?
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Syed Balkhi | Well, no, the answer is no, but for many reasons. I think you can't build solutions to solve problems that you don't fully understand.
For me to be able to build the best solution in the market, I had to communicate with the audience. I had to understand their pain points, and that I believe was our biggest advantage. Of course, marketing and having the audience is very important too—very, very important.
But I think that understanding the pain points is crucial. For example, in talking to our customers and also my various company founders and GMs, I realized that we were not happy with the help desk offer. So, we went and acquired a stake in Groove, which is a help desk offer that will drastically reduce costs for anybody who's using Zendesk or Help Scout.
Now, I know that certain customers who are using Groove may also want our other solutions. Many of our customers and agencies are using a help desk offer, so I can cross-promote Groove to them and say, "Hey, if you switch from Zendesk or whatever, you'll save 40%. If you're an agency using Front for your communication, switch here and you'll save 80%."
So, that level of synergy gets unlocked and can be quite lucrative.
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Shaan Puri |
Can we finish with these two life lesson type things? I think they're both good. I know we're on time, but I want to do it anyway.
**Compounding goodwill is the best form of compounding.** What do you mean by that?
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Syed Balkhi | I think too many times we are very transactional in the relationships that we're in. You know, we're giving, doing something nice, and then saying, "Hey, do something back in return for me."
I think just giving with no expectation in return is important. A lot of us are very smart, and sometimes in that, we can be kind of, you know, a little holy... and not so nice.
So, I think intellect is a gift, and kindness is a choice. If we choose to be kind over the long term, this comes back multi, multi, multifold.
So, not letting your ego or the keyboard warrior get to you... and, you know, I'm sorry, but you're 100% wrong. Just go along and try to help out wherever you can.
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Shaan Puri |
Even if you feel like you're in the right, sometimes it's better to just be kind anyway. You know, sometimes I get stuck on that where I'm like, "This is right, that's what we said." And actually, it doesn't matter what we said. I suggest in that moment, it matters more to them than it does to me to just let it go, to just be kind and go their way rather than mine. I've learned that lesson the hard way a couple of times.
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Syed Balkhi | Absolutely. | |
Shaan Puri | Absolutely! You wrote this guy's name, Guy Spier. I've seen this guy around, but I don't know him. Who is this guy?
He's got something special. He hosted some conference thing, right, that people really like. Who is this guy? Why is he the example of that?
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Syed Balkhi | Yeah, so he’s a really good friend now, and we’re in a forum together. His conference is called ValuX. He’s a very well-known value investor and has a book as well. He talks about compounding goodwill in his book, "The Intelligent Investor," which is educational for value investors.
I’m always really amazed by his level of generosity. The amount of, "Hey, you need this? Let me just connect you with X, Y, and Z," is incredible. Long term, what he’s been able to do is build this amazing network of super talented people that, you know, if he rings, they’ll pick up and help out, whatever the case may be, and nothing in return.
I think he is an amazing example, and I’ve learned a ton from him. Even over in Chicago a couple of months ago, he gave me an idea to acquire a very cool deal—doing acquisitions. Long story short, I was able to actually use that idea. A deal came, and I used the exact tactic to make a purchase in a very tax-efficient way. So, I think his ability to do that is really good. | |
Sam Parr | But, you know, I don't know you that well. We're friends, but we don't hang out too much. If I had to guess, I would say that you're a very shrewd negotiator. I would also say that you're probably a very disciplined and firm manager.
I think you're quite nice, but I believe that you're a very disciplined person, which sometimes people might interpret as being an asshole or something like that. You know, if you have enough employees, some of them are going to think that about you.
So, how are you balancing being a nice person while also trying to get the best deal or capture a little bit more value for yourself than for the other person?
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Syed Balkhi | I think not all juice has to be squeezed if you think about value in a very long-term way.
Part of the discipline is to say, "Okay, well, we don't have to squeeze all the juice today." You know, that's the whole idea about compounding goodwill.
If I acquire something from a founder and let go of a few percentages because that helps me have a great long-term relationship with this person, that's a worthwhile decision. Rather than saying, "You know what? You're down, and I'm going to crush it," and that’s not good for reputation in the long run.
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Sam Parr |
Do you go into a negotiation saying, "Here's my threshold of what I can no longer do or won't do at this number, but I will do it at anything below this"? And then you go with like a number and you leave room for that negotiation or for that threshold, and then you just don't ever cross that particular number?
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Syed Balkhi | I'm sorry, but it seems that the transcription provided is incomplete and lacks context. If you have more content or a specific direction for the transcription, please share it, and I'll be happy to assist! | |
Shaan Puri | Super calculating about it. Like, do you do a negotiation like a trick? Well, because...
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Sam Parr |
I know that he's a value investor, and value investors, they like... at some point, they're like, "You make money on the buy. You make money when you buy something at a low price." And so there has to be like a threshold of "It doesn't make sense after this." And so I just can't be a nice guy anymore.
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Syed Balkhi | The just because you're winning, it doesn't mean the other person has to lose. I think that's a very important aspect of compounding goodwill. You know, that's also the example like, you know, just because you're very smart, you don't have to prove the other person wrong. You can agree, disagree, or move on. Just saying, "Okay, you know, this is fine. Maybe it's worthwhile considering this," and letting that conversation be and going away.
Of course, in business, you have to be very, very disciplined, especially as a capital allocator. And that's that.
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Sam Parr | Let me tell you guys a quick story as we wrap up here. This is like the best "good guy" story that I heard. I heard it on another podcast, but apparently, Adam Sandler was in New York taking acting classes.
The teacher was like, "Hey, I want to take you out for a beer. Let's talk." So, the teacher takes him out and says, "Look, Adam, you don't have what it takes. I just want you to quit doing it now because I don't want you to waste two decades. It's just not going to go your way. I want to show you love and respect by telling you now."
Obviously, ten years passed, and Adam Sandler is still doing this. He's an epic star, at the top of his game. One night, he's at a bar in New York with his friends. He sees that professor out, and I imagine in his head he's thinking, "Should I go rub it in this guy's face and be like, 'Told you I won'?"
He walks over to the guy and brings his buddies with him. Adam looks at his buddies and says, "Hey, I want you guys to meet Professor [blankety blank]. They were the only professor that was kind enough to take me out and buy me a beer."
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Syed Balkhi | And I heard that story, and I was like, "That is one."
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Sam Parr | Of the best stories I've ever heard about treating people respectfully, even though you may be a little bit angry or you didn't like them at the time, is about Sean. Did you see?
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Shaan Puri | That saw that clip? I love that story. It's Brad Pitt telling the story, by the way, which just makes it even better. You did good, but Brad Pitt telling the story was a little bit better, I think. | |
Syed Balkhi | Hey.
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Sam Parr | No, I saw Andrew Santino say it.
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Shaan Puri | Oh, okay. Maybe it was somebody else.
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Syed Balkhi | I think Sam did an excellent job.
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Shaan Puri | You're my Brad Pitt.
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Sam Parr | Sam, both hot guys from Missouri? I'll take it! Yeah, Syed, thank you very much. That's the pod.
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Syed Balkhi | Thank you.
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