Legendary Investor Bill Gurley on Investing Rules, Finding Outliers, Insights from Jeff Bezos and Howard Marks, Must-Read Books, Creating True Competitive Advantages, Open-Source Strategies, Adapting Mental Models to New Realities, and More (#651)

Artist's rendering of Bill Gurley. — Illustration via 99designs

“The minute you set a very hard rule, you might be setting yourself up for a mistake. And venture, I have found, is a world where that happens frequently.”
— Bill Gurley

Bill Gurley (@bgurley) has spent more than 20 years as a general partner at Benchmark. Before entering the venture capital business, Bill spent four years on Wall Street as a top-ranked research analyst, including three years at Credit Suisse First Boston.

Bill also maintains a blog on the evolution and economics of high-technology businesses called Above the Crowd.

Over his venture career, he has worked with such companies as GrubHub, Nextdoor, OpenTable, Stitch Fix, Uber, and Zillow.

Bill has a BS in computer science from the University of Florida and an MBA from the University of Texas. He is also a chartered financial analyst. Bill is a board trustee at the Santa Fe Institute, a research and education center focused on the study and understanding of complex adaptive systems.

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Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Stitcher, Amazon Music, or on your favorite podcast platform. You can watch the interview on YouTube here.

Brought to you by AG1 all-in-one nutritional supplement and Shopify global commerce platform providing tools to start, grow, market, and manage a retail business.

The transcript of this episode can be found here. Transcripts of all episodes can be found here.

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#651: Legendary Investor Bill Gurley on Investing Rules, Finding Outliers, Insights from Jeff Bezos and Howard Marks, Must-Read Books, Creating True Competitive Advantages, Open-Source Strategies, Adapting Mental Models to New Realities, and More

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Want to hear another podcast episode with a world-class investor? Have a listen to my most recent conversation with Oaktree Capital Management’s co-founder Howard Marks, in which we discussed navigating unprecedented uncertainties, crowded versus uncrowded opportunities, the state of the American economy, finding higher-signal sources of information, and much more.

#431: Howard Marks on the US Dollar, Three Ways to Add Defense, and Good Questions

What was your favorite quote or lesson from this episode? Please let me know in the comments.

SCROLL BELOW FOR LINKS AND SHOW NOTES…

SELECTED LINKS FROM THE EPISODE

Connect with Bill Gurley:

Twitter | LinkedIn

SHOW NOTES

[05:51] The book Bill calls “the most efficient short-form MBA one can find.”
[07:31] Sell-side analysts vs. buy-side analysts.
[09:45] Financial models, rules of thumb, and making (sometimes wrong) decisions.
[17:28] Howard Marks and Stan Druckenmiller.
[19:26] Micro vs. macro investing.
[20:40] Institutional Investor’s All-America Research Team.
[24:16] Expanding distribution.
[27:04] Return On Invested Capital (ROIC).
[33:10] Repurposing good ideas for alternative applications.
[37:01] The conviction of network effects.
[38:58] SaaS and open source.
[42:40] Bet sizing.
[44:04] Equal partnership over hierarchy.
[50:08] Lessons learned from partners.
[52:57] Recommended resources.
[58:46] Problems open source can solve.
[1:09:28] Building a better network with the interest graph.
[1:13:42] Dissecting Bill’s Twitter thread about risks and sudden valuation resets.
[1:23:50] The Metaverse.
[1:29:00] Revenue and earnings quality matter.
[1:31:02] Undervalued competitive advantages.
[1:35:02] Jeff Bezos: corporate mad scientist?
[1:40:42] The counterintuitive condemnation of company camaraderie.
[1:45:37] Tobi Lütke.
[1:48:51] Books Bill has gifted frequently.
[1:52:29] The Santa Fe Institute.
[1:54:35] Bill’s board.
[1:56:32] Cultivating anti-tribalism.
[1:58:13] Twitter: what is it good for?
[2:01:14] Newsletters and other resources Bill relies on.
[2:03:05] Bill’s book in progress.
[2:04:12] Regulatory capture.
[2:09:10] Predicting what America will look like in 10-20 years.
[2:10:50] Parting thoughts.

MORE BILL GURLEY QUOTES FROM THE INTERVIEW

“The minute you set a very hard rule, you might be setting yourself up for a mistake. And venture, I have found, is a world where that happens frequently.”

— Bill Gurley

“The process through which you actually put the words to paper and structure the paragraphs, structure the argument, you get smarter. Sometimes you decide, ‘Oops, I was wrong.’ You learn by putting it all together.”

— Bill Gurley

“If you’re starting a company because you think it’s going to be a good lifestyle, holy shit. You’re in for a rude awakening.”

— Bill Gurley

“Open source is way better at complex problems than simple problems.”

— Bill Gurley

“Why do we use government dollars to fund stuff that becomes proprietary?”

— Bill Gurley

“Be less tribal.”

— Bill Gurley

PEOPLE MENTIONED

Comment Rules: Remember what Fonzie was like? Cool. That's how we're gonna be — cool. Critical is fine, but if you're rude, we'll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration.)

5 Comments

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Paula A Thonney 27 Jan 2023
Does it bother you that your guests are predominantly white males? What could be gained by including more women & minorities? Just a thought. Thanks.
Judy Phelps 28 Jan 2023
Wow, what an informative interview, thanks Tim. My bookshelf just got a little bigger!
Krishna Gaurav 29 Jan 2023
This is such a fascinating free flowing interview.
Dan 9 Feb 2023
Hi Tim! Loved this episode. I really value the recommendations made during the episode and appreciate you and your team creating the list of links to different content / media. I've got an idea for how to make these recommendations more actionable. I'm going to put together an MVP and I'd love to show you how this works when ready. Cheers!
Joshua 30 Jul 2023
Regarding counter examples creating something for yourself as much as others: I tried to follow in your steps, but I kept creating things in highly competitive niches. My passion could not overcome getting stomped by the competition in spite of using every hack I could dream of. It didn’t help that I was bootstrapping with a measly bankroll of $1,000. The hacks did keep me from losing money though, and I survived to try another day. My first success came about 3 years in when I used my experience creating things to make a bespoke product for my wife after she gave birth to our daughter. I had enough personal experience to realize the available variations of the product had some major design flaws. She loved it and so did other women. Marketing costs were stupid cheap because, as I learned later, most of my new customers were referrals. My favorite part was hearing how much people loved it. If I ran out of stock I’d get e-mails asking for emergency orders. It didn’t make much money, but I couldn’t believe how good it felt to create something that made people’s lives easier. That kept me trying. And even when I found “better” products (higher profitability, larger customer base) I continued to keep the product in stock because it gave me so much energy to serve my customers. My money makers were other things I noticed were badly designed, in markets I had little experience with. A warning to the readers though: those first 3 years of failing were very emotionally painful and I nearly lost my marriage and my life. I quit my job to focus on creating the business leaving my wife as the only income earner. We were newly married and I can not say enough what a stupid decision this was on my part. She was more stressed than I could have predicted about being the only one bringing in income. Even worse I didn’t realize how attached I was to the idea of being a provider. After college I spent most of my extra income on preventing relatives from losing their houses during the Great Recession. I was extremely proud that I managed to get a job during a challenging time, and help others. When I quit my job I lost major parts of my identity. I didn’t make money, and I was terrible at my new job. I felt like a piece of garbage, and attempted to rush the process. I should have gone back to my old career while building the business. I developed an addiction to stimulants to deal with the crushing depression. If I hadn’t gone to rehab I probably would have died. Tim, thank you for all that you’ve done to help addicts. You’re a good man.

SELECTED LINKS FROM THE EPISODE

SHOW NOTES

MORE BILL GURLEY QUOTES FROM THE INTERVIEW

PEOPLE MENTIONED

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