8. Persistence and quitting

The next principle, doesn't show up in manyentrepreneurial textbooks or courses, and I'm not sure why. Here we go.Everything, you start needs a way to finish every partnership. Every customer,every employee, every project, sooner or later. It's going to end, are youbuilding a business so that you can sell it?

[00:00:34] If your plan is to sell itorganized from the beginning? So it's easier to sell. Are you hiring someone towork for you for the rest of their life? Because it's unlikely that they willwhen they don't then what happens and most important. Understand the depth. Sowe'll begin with the dip. The dip is the part of our work, the part of ourjourney that separates one side from the other winners from non winners.

[00:01:06] Here's how it works. Theenvironment is competitive. There are lots and lots of choices when customershave choices and they do, they pick the best one. Why wouldn't they, who wantsto pick the second best one? What does it mean for something to be the bestone? Well, it doesn't mean it's the cheapest or the fastest or the highestperforming.

[00:01:31] It simply means it's the bestfor them right now, right here, the best in their world by their measure. So ifyou're a, gluten-free the best pizza in the world. Isn't some pizza joint inArizona. If you're gluten free, the best pizza in the world is probably thatgluten-free pizza in your freezer. Why because that one is available to you ofall the choices you have.

[00:01:59] That's the best one. Okay. Thatmakes sense. So once we pick our smallest viable audience, while we have tofigure out is how do we be seen? How do we be understood? How do we be knownand trusted as the best available option in their world? Well, here's whatwe're going to need to do. We're going to have to quit being average.

[00:02:22] We're going to have to quittrying to fit in and we're going to have to become peculiar. Instead. We'regoing to have to quit. All the other things we're doing that are distracting usbecause our competition isn't distracted by those things. And we are in orderto get to the other side of the dip, we're going to have to quit a whole bunchof places where we are average.

[00:02:44] So what exactly is the depth?Well, when we start a project, any project we're launching a new line of stuffwe're incorporating, we're bringing in new people. It's always exciting at thebeginning. And then it's a slog. It's a slog because if it wasn't a slog, thenno one would give up along the way. But it's only because most people give upalong the way that there is another side.

[00:03:07] And it's on the other side ofthat slog. After you've gotten through the dip that people will see you. As thebest in the world. When we talk about early adopters, who wants to mean it'snew and the mass market that wants something that's proven, then why isn'teverything proven? Because most things that come to the market.

[00:03:27] Give up before they get to theother side. And so the determination is we are going to lean into a specific,not a generality, but a specific, and we are going to have the resources. Toget through the slog because we know there's going to be a slog to walk inthere with shiny eyes and expected there isn't going to be a slug.

[00:03:51] It's going to be an incrementalself-financing step-by-step March forward is naive and really going to lead youto trouble. Instead we overfunded, we overstaff it and mostly we are patientbecause we know that we're not going to quit in the middle. It is fine to quit atthe beginning to look at a project and say, no, we don't have the resources todo that.

[00:04:19] So you're looking at the cellphone market in the United States and there's huge dissatisfaction. It seems tome that there is room for someone to come in with a great product at a greatprice, with a great plan that simply works, but I can't do that. And you can'tdo that because if you don't have access to billions of dollars, you're notgoing to make it through the depth.

[00:04:39] And lots of small companies havetried a Kickstarter here, a small startup there, but they're under-capitalized,and there's no way they can make it through the dip, even though the other sidehas huge upside.

[00:04:59] And the same thing is true formuch, much smaller institutions. If you want to open a business in a littletown selling, I don't know, ice cream cones. When you first opened up, a wholebunch of people are going to show up if they're going to show up because you'renew because it's fun because it's a novelty and then winter is going to comeand in winter you need the cashflow and you won't get it in winter.

[00:05:25] People aren't going out for icecream, for fun, at least where I live. And so a dip appears, and it's only fiveyears later that you were the beloved, local ice cream. The one that's beenthere through thick and thin, the one that sponsors the local sports teams, theone that offers free coffee to veterans who come here by, it took a long timeto get through that dip.

[00:05:48] And it's easier. To get througha dip. If you go in with your eyes open, knowing that there's a reason thatmost organizations aren't on the other side, and if you can find the smallestpossible place to get through a dip it's easier. And once you get through onedip, then you get a chance to do it again.

[00:06:15] We can apply similar thinking topartnerships. There are partnerships that are available to your organizationearly, but the ones that you can get easily, aren't worth that much back to theidea of early adopters, the kind of person who says, yeah, I'll get you somecustomers. If you pay me a royalty that person's doing deals with everybody allday long as a result that people they send you aren't worth that much.

[00:06:40] If you want to get to the nextlevel or the level after that, or the level after that. There's a depth, anexample, you run a dialysis center, you are helping people who have kidneytrouble, but the only way you're going to grow well is if the local hospital ordoctors in the community start recommending you to their patients, is thatgoing to happen in a week or a month?

[00:07:03] No, it's going to take longerthan that. So again, what we're looking at when we're talking about somethinglike a partnership is the ones that are worth the most. Are often the ones thattake the longest.

[00:07:20] So we're tempted asentrepreneurs to seek out shortcuts all the time. What's the hustle. What's theshortcut. No one likes being hustled and the shortest cut turns out to looklike the long way. Step-by-step earning the privilege of being trusted, goingsideways here for a minute, you might have a business partner.

[00:07:41] Your business partner goes inwith eyes open, just like you do eager to get started. And it's so tempting tosay, well, there's two of us. It's a 50 50 split. But then what happens? Whathappens when inevitably one person does more than the other? What happens ifinevitably life gets in the way? And one person has to step away for a littlewhile, what happens if you disagree about something and you can't figure out away to adjudicate your argument?

[00:08:12] Because after all it's 50 50,here's what we know in the United States. About half of all marriages end indivorce. But in business, every partnership ends sooner or later, sooner or later,there are kids or heirs sooner or later, the business hits a speed bump sooneror later, something changes. When is the best time to plan for that?

[00:08:35] Right now to write it up, tofigure out how to find mediation when either of you needed to agree to informalbinding arbitration, which simply says, we both agree on somebody who's goingto be a tiebreaker on an issue. And then we each write up our point of view. Wehand it to that person and whichever one they pick is the one we're going to do.

[00:08:59] You come up with ways toallocate equity over time, as opposed to getting the conversation over with.None of these things match. Why you signed up to listen to this, but all ofthese things will be important to you in the future. Because as we walk intopromises made, we have to understand that the world is going to change thatpeople don't always see what we see.

[00:09:25] Don't always want what we want.And now when we're filled with enthusiasm and possibility is the moment todescribe. What will happen when it's not that way.

[00:09:39] Okay. More about this idea ofendings. Some businesses are built to run. What that means is they createcashflow that every single month there's more money than there was the monthbefore. That's one symptom that you're building something that's working. Ifyou are building that sort of business, please don't spend one minute thinkingabout selling it because it's really hard.

[00:10:09] To sell a business like that.People who buy businesses are coming at it from one or two points of view. WhenStarbucks bought a small bakery chain for more than a hundred million dollars,there was just no way to do the math to multiply the profit. This chain wasmaking in a way that would get you to a hundred million dollars Starbucksdidn't buy them because of their cashflow.

[00:10:31] They bought them because oftheir potential because of their growth. If you think about it, Starbucks had alock, the bakery had a key opening. The lock was worth a lot to Starbucks. Soif you want to build a business to sell, so you were written up in thenewspaper for selling it for a lot of money.

[00:10:50] You're building a businessthat's designed to grow. That has a collection of assets that are worth farmore to the buyer. Than they are to you, but that's almost no businesses fewerthan 1%. The other businesses they get bought tend to get bought by someonewho's buying a job by someone who's multiplying your free cash flow by a smallnumber and saying, yeah, I'll advance some of the money that I'm going to getfrom owning this thing to you right now.

[00:11:20] And then I'll get to take overthe flow. That kind of business needs to be funded differently, organizeddifferently, measured differently. You are building something worthwhile somethingyour customers really want. You're getting paid fairly for the work you'redoing, but no Starbucks. Isn't going to show up and give you a hundred milliondollars.

[00:11:41] And so we have to make a choiceas we go into our project and the choices, what is it even for? And for mostsatisfying entrepreneurs, what it's for. Is to build something to leadsomething, to create something you're proud of and to show up for it day afterday, serving your customers, not to focus on how you flip it, build to stickbuilt to last.

[00:12:06] Not built to flip

[00:12:11] so much of this has to berubbing people the wrong way, because the myths, they go back all the way.Tangshan Greece. They include Cortez. They include modern times. You'resupposed to burn your boats. You're supposed to show up with no recourse, allin that's the only way forward. I don't think that's true.

[00:12:31] I think what we need from you isresilience because the world is going to change. And when the world changes,failure is not your best friend. What we really want when the world changes isthe resources, the alacrity. To change course. And so what we need to do as theentrepreneur, as the person in charge is to be able to act like we burned ourboats, to be able to somehow work with our people, with our strategy, with ourchoices as if the boats are burned.

[00:13:08] But if we're wrong to be able toplay again another day, Over the course of my 35 years of being anentrepreneur, I have been in the media for a really long time computer gamesand then video games and then books, and then CD ROMs, and then email. And thenthe internet, you get the idea and along the way, the platforms keep changing.

[00:13:36] Early in the CD rom era, we wereone of the leading creators of CD ROMs. It would have been tempting in thatmoment to say, we are betting everything we have on this one. Ad if I had donethat, we wouldn't be talking today. So we have a conflict, like so many of theprinciples we've discussed so far, if there was an easy, obvious route, wewouldn't need to discuss them.

[00:14:00] The conflict is between thecommitment that is required to go forward, even though it's hard and theresilience that comes from leaving yourself some Slack. When we think about howwe're going to organize our team, are you organizing so that if everything isperfect, it works great. Or are you organizing so that when things aren'tperfect.

[00:14:29] It still works great because todo the second one, you need Slack. If you are staffing your parking garage withjust one employee and that employee calls in sick, the entire garage failsbecause you didn't build resilience into the system, you traded it forefficiency. If the day is perfect. So what we're seeking to do.

[00:14:54] Is not race to the bottom charges,little as possible, be the cheapest, figure out how to get as close to the boneas we can, because that works when it's working, but the minute it's notworking, it all falls apart. What we're actually seeking to do is to figure outhow to make a change happen, to get paid fairly for the work we do to createenough resilience and Slack in the system that we can be in it for the longhaul to plan from the beginning.

[00:15:24] On how to leave ourselves out,that what we know about driving is this, there are no accidents that if peopledrive according to the rules, cars will not crash by calling them an accident.What we're actually doing is letting ourselves off the hook for not leavingourselves out. If you are driving at high speed.

[00:15:47] And the only chance you have toavoid an incident is to be able to go to the right and suddenly there's a truckto the right. You haven't left yourself an out, you haven't left yourselfenough options to safely drive down the road. And so again, back to the conflictentrepreneurs, go to battle every day with the market, with the status quo,with the resistance that's out there.

[00:16:12] For us to make a difference.There's a culture that applauds the person who pulls off some heroic outcomewhile we diminish the person who day by day shows up and shows up and shows upand then build something that matters. When we think about PayPal, which led toso many of the other success stories in Silicon Valley, PayPal was weeks awayfrom being a total failure.

[00:16:38] It was only Reid Hoffman'sinnovation. That gave them the customer traction they needed to get to the nextlevel. And what's going on here is survivor bias. The stories that you hear,the stories of heroism of last minute, scrapes of someone who had everything onthe table, but just at the last second, pulled it off.

[00:16:58] We hear those stories from thewinners, because those are the only people who are busy telling the stories toooften. We come to believe that the only option we have. Is to go all in on onething completely to bet it all, but that's not the case, not if we are doingthe hard work of seeing who we seek to serve and showing up for them in a waythat they're glad that we did

[00:17:30] this principle covers a lot. Solet's go over the contradictions that are built into it because there aredecisions that every entrepreneur needs to make. First the dip, the dip isreal. There is a gap between the joy of starting and the triumph of getting tothe other side and being seen by somebody as the best in the world.

[00:17:49] That dip requires persistence toget through. Don't show up for the dip insufficiently funded don't show up,expecting it. Won't be there. It will be there. And the persistence is not thepersistence of yeah. Wearing the same person over and over again with youroffer, without learning anything, without changing things, without evolvingwhat you do and how you do it.

[00:18:14] Persistence is possible. If wehave. Resilience their resilience to shift gears, their resilience, to knowthat what we thought was true might not be true that we have to go left insteadof right. That we are not in this to flip it. We are in it to do the work, tofigure out how to get paid fairly. For the value we create and bring to thepeople that we serve.

[00:18:40] These decisions are far biggerthan I built myself a job. These are the choices that we make as we show up ina marketplace to build something that is thriving, because people have choicesand choices bring opportunity costs. If they pick you, they're not pickingsomeone else. If they pick you, they're changing from what they used to do.

[00:19:01] And so we are agents of change.We are showing up in the marketplace saying here, I made this and offeringpeople who seek it a chance to get what they want doing that again and again,with resilience and persistence is how we get across. Thanks.