Welcome to the third episode of Newcomer.
I'm Eric Newcomer.
Excited for you to listen to an interview with John McNeil,
a former chief operating officer at Lyft
and a former top executive at Tesla.
He knows Elon Musk.
Well, now he's an investor at DVX,
which is a hatch investor.
John is also on a bunch of boards.
We talk about CrossFit, Lulu Lemon.
So someone who really sees the breadth of the business world.
So we talk a lot about the management
that he learned at Lyft and Tesla.
I think he's a little spicier about Lyft.
And interesting to hear his thoughts on Musk for sure.
And then we talk a little bit about blitz scaling
and sort of the challenges of that model
in a world where interest rates are higher.
I thought it was interesting, particularly,
in light of our first episode with Reed Hoffman,
who has been a big proponent.
Give it a listen.
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And now here's our episode with John McNeal.
Welcome to the newcomer podcast.
Thanks for coming on, John.
Yeah, glad to be here.
I feel like the first time we really spent time together,
you were the chief operating officer of Lyft
and I was following you around in Las Vegas
as you were setting up driver operations stuff there.
Yeah, I think so.
We got some quality time when I was in that role.
Yeah.
2018, 2019.
So, yeah.
Three, four years ago.
Yeah.
So we're going to jump around your story
and there's so much I want to talk about.
But I mean, you were at Tesla, very senior there.
Obviously I met you through the Lyft context.
Now you're an investor with a strong thesis.
We're going to talk about that.
You're on a bunch of boards.
You're on the what GM board.
Are you also CrossFit?
Is that right?
Or you're a role?
That's true.
A whole thing.
Yeah.
And the lemon.
How do you CrossFit?
I don't know the story at all.
I don't know what I'm opening up.
But what is the story with the CrossFit one?
So it's kind of a fun story.
One of the guys I worked with my first job out of college,
his life was changed by CrossFit.
And so much so.
And he's such a good manager that way back in 2010,
he and I were having a breakfast together
and I said, you had to buy that company
because you'd be just the right person to run it.
And so, through a series of events,
he got to know the founder
and didn't go anywhere.
It almost went somewhere, but it didn't go anywhere.
And then in 2019, 2020,
the founder needed a buyer.
And so he reached back out to my friend
and my friend ended up winning the deal
and asked me to join the board.
And I'm not a CrossFitter,
but I've kind of become one in the process.
You're like a all-purpose entrepreneur at this point.
I mean, there's deep focus in auto,
which like with Tesla, Lyft,
I think you have a company now sort of in that space.
And GM board, obviously.
But like, you really started with entrepreneurship first.
My stuff as an entrepreneur kind of started as a kid.
I grew up in this household that was awesome,
but we didn't have much money.
So we had to figure out how to buy our own clothes and shoes.
And so I started landscaping business
when I was eight years old,
so I could buy a pair of shoes.
And that experience was seminal for me
because I kept it all through high school
and it paid for my first car.
It paid for a big chunk of my college.
And I got to college and I knew the only things I learned
about business were things that I had learned
between eight and 18 myself and reading a lot of stuff.
So my first job out of college was at Bain Consulting.
And I happened to sit outside of the conference room
where Bain Capital was
and this little group called Information Partners,
which was basically what is now Bain Ventures.
And I started to work with them
and knew some of the guys very closely.
And it was through that process,
I discovered or rediscovered I was entrepreneur.
And so one of the guys handed me a business plan
and said, I think this could be really interesting for you.
And it turned out it was.
So I hopped out of venture capital
and started my first company with Bain Ventures
as a backer, which was awesome.
And was that a startup?
It was a PR star.
You're starting.
Okay.
It was a software company that sold software
that runs call centers.
Call centers were a new thing in the early 90s
and people hadn't written much software to help run them.
And so we did, we wrote the software
and we were computer scientists.
So we said to ourselves, we only want one set of code.
We want to run off one server
and we want to serve all these clients.
So we want multi-tenant single set of code,
which today you know is SAS,
but we weren't smart enough to make a name out of it.
And so we started this company,
was right place, right time, it took off.
And it was called First Notice Systems, Ref and S.
And 18 months later, we sold it to a public company.
And then I started a second company
that really came out of this experience my wife had.
Her car was hit by one of our neighbors.
It was a terrible experience getting it fixed.
And as I got to know the industry,
I figured out that the collision industry
was a $50 billion industry with like no modern manufacturing
or supply chain approach at that time.
And so we started a company that today is
the largest collision repair company in the country.
It's owned by Carlisle.
And it was another heck of a ride.
And that was bought by an auto insurance company,
Allstate.
And then I stayed at Allstate for two years
and saw all kinds of opportunities
to write software for insurance companies.
So started a third company out of that experience
called Inservio, which was a SAS platform
that served the insurance companies.
So yeah, you've sat at this intersection
between tech and the real world.
And I wanted to touch a couple just so people
can sort of get some flavors of that.
And I wanted to just frame this up
with sort of a big question, which is just like,
do you believe in blitz scaling?
I had Reid Hoffman on the podcast.
He's been a big advocate of that.
Like Lyft and the Uber Wars, which I wrote a ton about,
felt like all about blitz scaling.
And certainly some of these electric car companies,
like a Rivian or something, it's like,
okay, we're gonna raise so much money
to compete with the likes of Tesla.
You know, Tesla probably had a slower ramp up
there in terms of spend.
How do you think about blitz scaling?
And do you believe in it?
And did you ever, do you now?
Yeah, what do you think about it?
So I love Reid too.
And he's given me some similar advice as a friend
and as an investor over time.
I think blitz scaling is appropriate
when interest rates are zero,
when capital's free.
How's that for an answer?
People are gonna hand you free capital,
then you make different decisions.
And there was an era like you just described
where capital was free.
And so you could go out and burn capital
to acquire customers in a business
that didn't have its economics figured out yet.
And right here was a good example of that.
And you could burn through a lot of investor capital
because basically every time you raised,
it didn't cost you much in terms of valuation
because just the way valuations work,
when you value a terminal value and divide by zero,
it's free money.
Now when you divide by 5% or 6% or 20%
depending on what the rate of capital is,
it would lead you to a different conclusion.
So when interest rates are now non-zero,
I don't believe blitz scaling is appropriate
because you can't afford the cost of capital to go do that.
So you actually have to make the business work.
And one of the things that I loved about working with Elon
was because I had been an entrepreneur before we met,
I had this mindset of like really success,
this had been burned in my brain by a mentor.
Really successful entrepreneurs can run a business
on minimal cash.
It'd be creative and you have to have the best people
and you gotta get a lot out of those people.
But that was an ethos that I shared when I joined Tesla
and I totally got the culture because that was it.
It was like minimal capital, maximum talent applied
to big problems and get as much out of that talent as you can.
And therefore blitz scaling isn't appropriate.
Do you think the companies that were blitz scaling,
however, conjugating that word?
Do you think they can make the transition
to this interest rate environment?
I mean, I guess what challenge with blitz scaling,
if it only works in a zero interest rate environment
and you learn the wrong lessons
for any other interest rate environment
and most of human financial history,
there are interest rates above zero,
then maybe it seems dangerous,
even in that brief wonderful moment of free money
that you're gonna learn the wrong lessons.
Or can companies escape blitz scaling?
That's the question.
I mean, yeah, they can and you have to have
super talented leadership to do it.
And so like let's use Uber and Lyft as a case study here.
So you get this professional manager that comes in Dara
and Dara comes into Uber and is able to create a market cap
above the amount of capital raised
because starts to rationalize costs,
gets rid of all the cash burners that he can.
So gets rid of autonomous, which is burning a ton of cash,
gets rid of international markets,
which are burning a ton of cash,
turns those into investments on the balance sheet,
that end up helping the P and L as they get liquid.
And so in contrast, you've got Lyft,
which is raised far more capital than its market cap.
It raised somewhere between 15 billion.
How much is it?
What is somewhere between 15 and 20 billion
and its market cap today is less than five
and deduct the cash that's on the balance sheet.
It's way less than five.
And so I think to have a successful business
over time you have to have really professional managers
that come in that are capable of taking a company
from blitz scaling into positive flu freak ash flow,
which Dara has done.
And to read between the lines a little bit on this
for the listener, you were the chief operating officer
of Lyft for what a little under two years,
the professional management.
Like what would you have liked to see them do
that they haven't done since you've left?
Yeah, just there were a number of at the time
who were arguing that we really needed to address
the expense base, get pricing discipline
so you get more revenue on the top line,
address the expense base on the bottom line.
There are still more engineers at Lyft
than there are Tesla.
Tesla is approaching $100 billion in actual revenue
and hardware and then diversify into other lines
of business that would leverage the driver base
like food delivery.
And so a number of us lost those arguments
and left as a result.
And unfortunately, the scoreboard reflects the outcome.
Yeah.
Do you think anybody would buy Lyft or like?
I think you can just, it's a costly.
The challenges you've got.
Yeah, it's very costly.
There are a lot of bargains in the market today.
And in this case, you've got founders
with super voting shares, which is sort of
a very difficult issue to get through
and maybe a non-starter for most buyers.
The founders have been at it so long.
I don't know, I would think at some point
they would be willing to relinquish power for.
Yeah, maybe they get tired at some point.
Maybe.
We'll come back to Tesla maybe a little bit more Lyft,
but I wanted to talk about your investing firm, DVX.
Like, it seems born out of this idea
that we're not in a zero interest rate environment anymore,
right?
Right.
Or can you talk a little bit about sort of the firm
and sort of your ideas behind create like,
are you calling it a venture firm?
I guess that's, you know, the length of the venture firm.
It's not.
I call it a Hatch platform for this reason.
We only work on our own ideas.
We really, really research the heck out of these ideas
and prove them out.
And then we take that idea and start with a little nugget,
an MVP, a minimum buy product, put that out in the market,
start to learn, start the feedback loop.
And we run these companies through a series of stage gates
that then once we've proven that they've got product market fit
and go to market fit, then we really launched the scaling
chapter of the company and bring in a team
and let them at it in terms of running the company.
How many partners do you have?
I have three other partners, so they're four of us.
We create companies, some people call it this adventure studio,
some people would call it an incubator.
I just call it a Hatch platform.
In two years, we've launched seven companies
and four are externally funded,
which is our validation point.
When somebody else comes in and says,
hey, we think you've got something here
that's worth investing in.
Now, how much capital are you investing?
We started with the first trunche capital of 50 million
to start these seven companies.
So it gives you a sense of the capital efficiency
as we're getting them to investable quality
because we're kind of applying what we've been talking about,
which is let's not hyper spend.
Let's prove that we've got a business here
and then we'll add capital to the fire, but not until.
And as an investor, like a big advantage of this
is that you own a much larger percentage of the company
going into series A that is where
a seed investor or what are the dynamics?
Yeah, when we start the company, we own 100% of it.
And so this is very different economics than venture
where you're trying to own somewhere between five and 20%.
It gives us a lot of leverage as we work
through the funding cycle on these businesses.
And how do you attract sort of a CEO in that situation
where, I mean, obviously they haven't come up with the ideas.
So I imagine they're happy to have this great company,
but what's the dance there in terms of attracting a CEO?
It's a really good question.
This was inspired by, as I was a CEO,
I was in different CEO groups, ran across a lot of CEOs
who would say, I'd love to start a company,
but I don't have an idea.
And there are a lot of those people walking around
that are super talented.
And so we come to people like that with not only an idea,
but an idea that's been de-risked.
Because we've already done the work
to prove product market fit, go to market fit,
make sure the unit economics work,
that we've got a big TAM for them to go attack.
And so then we can bring a CEO,
a really cool early stage company
that if they're wired to start something early,
but don't have an idea, we're kind of an answer for that.
And for all these companies,
the goal still is to raise a Series A from a venture fund.
Is that right?
Or are there some that will never need capital
or other sources of capital?
Well, no, the goal is for us to get the right investors
in alongside us at Series A.
And sometimes earlier, but generally in Series A,
because we want to A prove that we're not
smoking our own product and think we've got a great company
and keep pouring capital in, but others aren't willing to.
So this is a check for us, a check in balance
to make sure that we've got something
that others see value in to,
and that they're willing to validate that
by writing a check and investing inside it.
These are generally venture groups.
All right, so which companies for this long?
Are you said seven, four, raise money?
Yeah, walk us through a couple of the faves.
So we've got, you'll see how completely different
these ideas are, but they generally come out
of experiences we've had.
So Alana is in cyber insurance,
and what we saw there was an opportunity
in a very large market that's growing very fast
to come at the problem very differently.
Everybody else in the industry was focusing
on the outside in.
So mainly what they do is test a company's defenses
and see how effective they are.
Come from the outside.
We wanted to start from the inside out
and say, what's the tech stack?
Is it effectively configured?
Is it turned on for all users, et cetera?
In getting that data, we knew it was gonna be really hard,
but potentially in mode.
So we figured out how to get that data,
how to price cyber insurance
and make it super easy for people to understand.
So it's a little bit like car insurance.
So you get today, you know, you put an app on your phone,
you get a driver's score, and you get car insurance.
In this case, you put our software in,
you get a score, you get cyber insurance.
So that's a company called Root,
and we've got several VCs in alongside us.
It's a huge market, one I'm really excited about.
For something completely different in the auto space,
we took the team that invented mobile service for cars
at Tesla.
One of the things we discovered at Tesla
was that 80% of what needed to be fixed on a car
could be done in the customer's driveway
or in their office parking lot.
And one day we woke up and said,
there's a much bigger market for this,
much bigger, damn, and that's all cars.
So why don't we take that team and apply that to all cars.
So this is a company called Kirby,
and it's in 29 markets right now in Northern California,
and now it's moving into Arizona
and it's starting its multi-state expansion.
But what they do is they provide
onsite mechanical services for cars.
You wanted to do that, a similar idea at Lyft too, right?
I mean, this sort of mobile, right?
There was an opportunity to serve,
we did, the driver's cars, right?
Exactly, because every time a driver's car
is down, they're not making money.
So the idea was we could send cars out
to get these cars fixed.
It was in service of a long-term vision.
We have this long-term vision for Kirby,
which is autonomous vehicles are gonna operate in cities.
Cities have largely been gutted
of places to get your car fixed.
And autonomous vehicles are gonna largely be electric,
so you don't wanna drive them into a central depot
and waste the charge to get them fixed or serviced.
You want something to come to them.
And so the long-range vision for Kirby
is they become the service platform
for autonomous fleets in cities.
But along the way, we're serving regular consumers
who need to get their cars fixed too.
Mostly electric cars or any kind of car?
Any kind of cars, yeah, any kind of cars.
What do most people need?
Is it like an oil change situation?
Yeah, you can do anything from an oil change
to swap out somebody's brakes, to belts,
and other things in a customer's driveway.
So anything you don't need to basically put a car up
on a lift for and get underneath,
you can do in a customer's driveway.
So literally we'll road trucks to take care of
just about anything that needs to be
fixed on a customer's car.
When I launched my newsletter at first,
I feel like I had five, 10 stories I really wanted to do.
I'd been thinking about them for a long time.
And then you come out of the gate,
eventually you write those stories,
and then you're like, oh man,
I have this story creation machine,
and I need to have more than just the ones
that I had a couple of years to stew about
when I didn't like what my boss at Bloomberg thought.
I'm sure some of these ideas clearly came out of learnings
at Tesla and Lyft and elsewhere.
How do you get the confidence that you'll keep coming up
with ideas and do you have any sort of, I don't know, method?
Or how do you generate a new business idea
if you have to keep pumping them out for new founders?
We have a total method around this.
So we have a method around our entire process,
and at the beginning of the process,
it's coming up with these ideas.
And so we have an ideation session once a month at DVX,
where it's not just partners, it's the whole firm
that comes together and says, I got an idea,
what do you think about this?
And we literally will riff on these ideas.
And that's one source.
And we've got 35 to 50 ideas at a time,
we're looking at that basically are internally generated.
Then we'll also do some proactive work,
where we'll say, hey, there's a big theme
happening in the economy, like electrification.
And what are some of the non-obvious things
that are gonna happen five to 10 years from now,
if we electrify the big chunks of transportation, for instance?
And then we'll go looking for ideas proactively
within that theme, and we'll research the themes.
And then as I mentioned, we'll come up with an idea.
If one comes to the forefront, it's really, really attractive,
and it's got a big market.
So three things we look for are very large markets,
profitability, opportunity above 50% gross margins,
and a unique way for us to win, like a moat.
And if we got all three things,
then we'll work into launching a company.
And we run these companies through stage gates,
and so far we've launched 10 companies,
seven have made it through all of the stage gates,
three were killed along the process,
where we either couldn't get product market fit,
we thought it was there,
we thought we were gonna be able to get it, we couldn't,
or we couldn't get the internet economics to work.
And we'll kill something if we don't think it's gonna work,
but it all starts at that first idea stage,
and we've gotta have a very big robust funnel of ideas.
How do you figure out that the gross margins
for something like Kirby will be above 50%?
You get into the business and you start to test it.
So literally we got into a few markets in the Bay Area,
and the team's first goal was prove product market fit,
and once we got to our metrics on product market fit,
then it was prove gross margins.
And when they were able to prove a path to gross margins,
then we said, okay, now let's prove the CACs and LTVs,
let's prove our go-to-market economics.
And once they prove all three of those things,
they're off to the races, which Kirby did.
But a couple of our companies couldn't get through
those stage gates and we had to kill them.
I mean, back to sort of the big blitz scaling zoom out.
So there was the blitz scaling,
which is just, we can put a lot of cash into something,
even if it's like an Airbnb or more clearly software,
sort of platform business to make it work.
But I think there's a related phenomenon to blitz scaling,
which is also just, we can do things in the real world.
It's like Travis at Uber saying,
Adams instead of bits or whatever, right?
It was sort of that idea that you can make real world
stuff work because you're willing to throw enough money at it.
And I think some people now, it's like,
okay, there was too much money,
but there's also a questioning about sort of the real world
piece of tech in a higher interest rate environment.
You know, everybody's excited about AI now.
It's like the least in our sort of tangible,
physical real world thing.
I mean, yeah, do you think the venture model
can still sustain something like Kirby or something?
Like, does that make sense as a venture business
in this higher interest rate environment?
Or do you think VCs are gonna move on from anything
that really tries to move Adams?
I think, you know, you've got to have a skill set
that helps a business get started
that can deal in the real world.
And those are generally operators
that have been in the real world.
And maybe the best example of that is biotech.
Biotech, you're moving molecules and you're getting molecules
and proteins to do things that haven't been done in history.
And that's real world science getting applied.
And I don't think any of us would argue that like Moderna
wasn't a good investment from like, it was.
Like ships very much like us.
They start companies from scratch.
They work them through a series of stage gates.
And they do that in the physical world.
Not all of our businesses move Adams,
but we're not afraid of businesses that do move Adams
because we've run these kind of real world businesses at scale.
And we know what good product looks like,
what good teams look like, what good go-to-market looks like.
And so we feel like we're uniquely kind of skilled
to help in a business like Kirby that could be very large.
Annually people spend more than $200 billion
getting their car fixed.
It's a very big market.
So if you can attack a very large market
with a high gross margin model that people love,
yeah, that's pretty, that's investable.
So Tesla, let's go back.
How did you connect with Elon in the first place?
Or how did you get to Tesla?
So as we talked about, I was a serial entrepreneur.
I had just started my sixth company,
which was basically the software that powers
all of the driver scores you see
insurance companies now talking about.
So if you see the State Farm app or the All State app
or the Progressive app or Geico app that scores your driving,
that's our technology that's driving that.
So I just started that company.
And through a series of crazy events,
Sheryl Sandberg introduced Elon and we hit it off
because I think our backgrounds is entrepreneurs,
but I had had experience in manufacturing
and a lot of experience in auto.
And so we immediately just hit it off.
When we met each other, Elon said,
hey, I want your perspective on this problem
I'm having in the factory.
And so I've seen that kind of problem before.
We broke down the problem and said,
like here probably where you're gonna find
the constraints and then the solutions.
And so we talked through it.
He went and applied what we talked about.
It worked.
So we got on a second phone call, similar thing,
but very different.
He said, here's a problem I'm having in my distribution
sales channel.
What do you think?
And so we worked through that problem together.
Were you interviewing in your mind or?
No, like we were just getting to know each other.
Like I was getting to know somebody.
And I really like, he's got a fascinating mind.
He's got a super unique intellect
and is very deeply involved in the business still.
And so we were able to get into the depths of a problem,
not at a theoretical level, but at a factual level
because he had the facts
because he was involved in the business.
And whether it was a manufacturing problem,
a distribution problem, a marketing problem, whatever,
we just kind of started to brainstorm about these,
started to talk more often.
And then eventually he said, hey, would you join Tesla?
And I said, what did you join us?
I haven't had a boss in 20 years.
Like it is good.
I don't even know how to do this.
But if you're willing to take the risk,
like I'm going to because I, for me,
I felt like I was gonna get a chance to learn
from the best practitioner of my craft.
As an entrepreneur, you can't point to anybody
in our space who has created as much value as Elon Musk.
What was your title when you came in?
President.
Yeah.
And you were the number two, basically, at the time.
Well, I was on a team of five or six people,
senior leadership team,
all of which we kind of joined arms
and we really didn't treat each other
like we had titles or roles.
We were trying to solve big props and big opportunities
and we did it together.
So I didn't feel like a number two, three, four, or five.
I felt like I was on this team
with Greg and Jerome and Doug and Deepak and Franz, et cetera
and we were arm and arm trying to do the impossible.
What was the impossible at that time
or while you were there?
What was the four challenges?
When I joined, the first challenge we had was to make a quarter.
They hadn't really made a quarter since they've been public.
And we were more than halfway through the quarter
and halfway through the sales goal
and not even close to halfway through the sales goal.
And so the first challenge was like,
how do we sell enough units
to actually make planned?
That was the first challenge.
And business hadn't thought about a funnel before.
So I introduced this concept of a funnel,
sales funnel, where we had to pull people
through the sales funnel and really change our conversion rates.
First of all, we had to know our conversion rates
and then change them.
In an engineering environment,
that went a long ways for credibility.
Because people said, this is the first time
we've had an executive look at the problem,
break it down mathematically
and show us how we can actually hit plan with math.
And so we went out to the team worldwide
and we made our first quarter.
And that was a big challenge.
And then we made another quarter and then another quarter.
But then we had to do things like introducing new models
and doing that with no cash basically
and creating manufacturing lines out of tents
so we could get these cars out
and get the cash generated to get...
Were you there when Elon said,
he looked back and said we could have gone bankrupt?
Were you there at the time?
Yeah, for more than two years,
we operated the company and we just had a quarter's worth of cash.
So that was for real.
Like we could have without the work of all the people
who were a Tesla and on the team at that time,
for sure bankruptcy was a reality.
And when you're peering over the edge of death,
like creativity starts to happen in really unique ways.
And we had a bunch of creative people
that really helped us get through that time.
Elon clearly likes the sort of pressure cooker environment, right?
Like, I don't know.
It feels like, you know,
for most CEOs, you wouldn't want a company that close to death,
especially a public company that has some goodwill.
Like the company could have been running away
that it wasn't as close to death, right?
Or do you think it was intentional to motivate?
Well, you have to capitalize a company completely
that has never shown positive cash flow.
And so there was only so much capital you could raise
on the way to each new product launch.
But each new product launch takes billions of dollars.
So there's only so much capital where you can raise.
And so it's a bit of a pressure cooker.
And it's a super hard business.
I've never seen a business as hard as the car business,
car manufacturing business.
And it's why nobody's really created
a new successful car company in almost 100 years.
It's really hard.
And you almost have to be maniacal and crazy to attempt it
and to get through it.
So by its nature, it's a pressure cooker.
And there are different ways people manage through the pressure.
And Elon's got his way and I had my way.
And that was a largely complimentary
and the rest of the people on the team too.
We had this melded kind of approach.
It was somewhere in the continuum of a frenetic
and somewhere on the continuum of calm.
And between calm and frenetic, we found a path through.
Now I was super proud to be a part of that.
Is he the CEO?
Like, you know, he has space decks.
I mean, now it's a different,
but he was, you know, doing most of the CEO things
you would expect and not just some public figure.
Yeah, absolutely, public figure.
Yep.
I mean, he's one of the most famous people in the world,
certainly the most, I think, famous business person.
I mean, what is sort of the genius, like, inside the company?
I think people see the sort of salesman aspect
and sort of the beable sort of cell division.
But like, what's his sort of strength,
yeah, from inside a company like Tesla?
I think people were read books about this someday.
But he's got a company that has an operating cadence
of seven days, a weekly operating cadence.
And what I mean by that is,
if you're an engineer working on a problem,
and there are several problems that really matter,
and they just presented this at their investor day.
So manufacturing really matters.
Energy density per dollar really matters.
And so there are a few of these big problems
that if you're working on,
you're in front of the CEO every week showing progress.
And if you're not showing progress,
you know, there's obviously trouble.
And running a company on a weekly cadence like that,
a weekly release in hardware is very unique
to the auto industry.
It's a software approach in hardware,
and maybe one of the toughest hardware businesses in the world.
And that is a key part of the secret sauce,
where you've got a CEO challenging viewpoints,
challenging physics, challenging manufacturing theory
on a weekly basis, and the whole company
is getting better as a result of that weekly.
Do you borrow from that?
Do you think many people can?
That cadence requires sort of a lot of effort,
and it means that you turn more people,
you were there three years.
A lot of people do turn out of Tesla.
Do you think like, I mean, the celebrity
and sort of the mission, certainly the mission,
the ability to recruit people to something they believe in,
like do you think like, you know,
I don't know your average like software business
can replicate sort of the Elon management style without.
I think it's really like, it's,
all of us as managers have a style.
Like we have a personal style,
you got a communication style, you got a management style.
And I believe everybody should really find their optimal style
for the way they're wired.
Elon has that for him.
I have that for me.
It's different.
If I tried to replicate his, it wouldn't work.
I don't think mine works for him,
but he's got a capability of doing this model with intensity
in a really effective way.
And it's unique to him,
and that's why he's uniquely successful, I think.
Have I tried to apply it?
Heck yeah.
Like we run on a weekly cadence at DVX,
and we run on a process,
and we're continually pushing that process
and pushing each other.
And when we recruited people into Tesla,
we would use this analog that you're not getting recruited here
for regular army.
You're signing up for special forces.
What does that mean?
That means you're gonna be on a small team
of highly capable people doing highly intense things.
So there is not gonna be much downtime.
There's gonna be a lot of untasked time,
and your talk do ratio has to be way inverted
from maybe where you've been before.
You've got it to work.
But when you deliver, I guarantee you,
you will be doing the best work of your life.
And that's what's addictive about working at Tesla
is because you know you can go other places in code,
you can go other places in engineering,
you can go other places in manage,
but you probably won't be doing the best work of your life
because you're not gonna be part of an organization
that has that push in cadence,
but we try to do this at DVX too.
Say if you're here, we want you to be all in
and doing the best work of your life,
and this is a method that we use to get there.
Do you think that story is still true today for Tesla?
I do.
When I watch the investor day,
I'm gonna watch the guys that are on that team today
who were there and more junior when I was there,
but I've worked with all of them.
I see that they're continuing that,
raise the bar, raise the bar, raise the bar, raise the bar.
I mean their aim is to take 50% of the costs
out of the manufacturing base over the course
of what I think is probably two years.
That is super intense, super hard to do,
and nobody has done that in their industry
and they're setting out to go do it.
So yeah, that process on that outcome
is definitely perpetuating today.
But they're gonna need a new vehicle, right?
Yeah, when you take 50% of the cost out,
you're gonna have a new vehicle.
You're gonna have a mass market vehicle
that is very different from the Model 3 today.
Oh, you're saying sort of lower the costs
of the vehicles they're selling.
And they're gonna have a different design
and different mechanicals, different engineering,
probably different chemistry.
I don't know.
I mean, Elon, he's good at talking about these things
for so long.
I guess the media is so much expectations versus reality.
So on the one hand, we're super complicit.
It's like, oh, he's willing to set these super high
expectations we've been talking about.
Self-driving we've been talking about.
Cyber truck, he has a real truck,
the semi like allegedly.
So the media gets, and then we seem really negative
on Elon also because he got us excited
about those things early and we're like, where are they?
And then we seem sort of like scolds.
So I feel like we are unfortunately getting played
by Elon sort of on both sides and that we're
some of the biggest sort of boosters
and then also get to be his foil by being overly negative.
I don't know.
Are there other, it's a unique business in how much
they talk about, how much the company talks about things
it hasn't delivered on yet.
I mean, would you accept that?
That there's a lot of forward talk in terms
of what the company can deliver.
I think you're seeing in scale and in a very public way
the way a lot of entrepreneurs work.
And that is entrepreneurs tend to set really ambitious targets.
Entrepreneurs by nature are optimistic about how long
and how much capital it's gonna take to get to those targets.
They always think it's gonna be faster than it really is,
but they're setting these ambitious targets out
in front of an organization or maybe out in front of themselves.
And you sort of say, if I hit 80% of that
I'm gonna be super psyched, but it's probably not gonna be
on the timeframe that I think it's gonna be
but I'm gonna push for that.
Entrepreneurs are doing this every day.
I cut myself doing this in every one of my companies
that I built and people would complain.
They would say, you are way too ambitious.
You're crazy to think we can get this done this fast.
Entrepreneurs hear that constantly.
With Elon, you're seeing this in a very public way,
but he is unique in that he's not dialing that back
to please the public markets, to please the press, et cetera.
He's very much just being an entrepreneur.
And so I think it's a combination of setting
these ambitious targets, but at the same time
he's a rational business person and he says,
okay, here's how much cash flow I can get
from these different products.
Here's how much cash flow I can get from a Model Y
versus a Cybertruck.
So guess what?
I'm gonna choose to produce Model Y
across as many factories as I can
because the cash flow profile of that
is much higher than the Cybertruck.
Pickups are largely a North American
and South American product.
You don't see big pickups in Europe.
You don't see them in Asia.
But you see hatchback crossover SUVs
in every market.
So he's just making rational decisions
at the back end of his business too.
I see Mary Berra doing this at GM.
She's making very rational decisions
about the model lineups, which comes when balancing
her P&L and her cash flows and working with her team
on vehicle lineup as well.
She's doing a very similar, really rational,
logical approach to managing a balance sheet,
which is the other aspect that you have to do.
So sometimes the press gets that and sometimes they don't.
You wouldn't take much for the press
to size the market for Model Y,
size the market for Cybertruck,
and figure out this is exactly why he's delaying Cybertruck.
But I feel like the press doesn't do their whole thing.
Go with what's working.
The thing you know you can make money off.
Go with the thing that has a larger TAM
and a free cash flow profile.
And the thing that you're already producing
and make it produce more at scale,
yeah, you're gonna deliver a different...
I can't help argue a little bit.
But there are questions about the used car market
and the signal that that's sending about
Tesla's vehicles, right?
I mean, do you worry about...
I think when you're moving price around as much,
yeah, one of the downsides of moving price around
as much as Tesla's moved it around for the last few years
is the use car impacted that.
Or the value of the vehicle that somebody's
taking a loan out on or somebody's taking a lease out on.
And yeah, there are definitely downstream effects
to some of those decisions.
They're not positive for consumers.
Right.
I mean, but you don't think it hurts Tesla the company.
I would say it hasn't hurt demand so far.
It may in the future, but it hasn't hurt demand so far.
Self-driving cars, you experience them in some form of Tesla.
Certainly at Lyft there were partnerships and work.
You're on the board of GM.
You were saying, for Kirby, it's still premise
on a long-term self-driving future.
What's your sense of the timeline now?
The timeline has been slower.
I think than people thought.
And that's hurting to these businesses.
Do you have a sense of, I don't know how optimistic are you
that we're going to see real movement there?
I think we're now in the precipice.
Like GM is the majority shareholder of Cruz.
Cruz has deployed driverless autonomous cars
on the streets of San Francisco through the whole city,
one of the most difficult environments in the world.
They've now deployed them in Austin and Phoenix
and are deploying them across the country.
Waymo is doing something similar.
And I think although the solution's been a long time coming
in autonomy, now we're actually seeing the rollout
of this technology and the commercialization
of the technology.
So now you can go take a driverless ride
in a number of cities in the US
and it's as normal as hailing any other kind of red share.
They have full coverage of these cities?
Cruz has full coverage of the cities that it's in.
Yeah, so including San Francisco.
So it's wall to wall in San Francisco.
So I do think it's been a long time coming,
but now we're on it and the rollout is happening.
And that's really exciting for me,
I think a lot of people to see.
Because the goal isn't just the magical experience
of having nobody in the driver's seat.
The goal is eliminating the 50,000 deaths that happen
as a result of car accidents that are almost 95% plus
caused by human error.
So if we can get 50,000 families not to experience
a tragedy like a death every year.
Right, a big deal.
And that's just in the US.
Our roads are safer than the rest of the world.
So if you could roll this out worldwide,
you're talking about saving a million and a half lives
every year, it's a really big deal.
Right, I mean, it's crazy to me, the human being.
I really do think there will be a time where we look back
and it's crazy that we let human beings like drive around
at 70 miles per hour just like right next to each other.
And it will seem like totally.
Yeah, hopefully it'll seem to run on the phone
while you're doing that, et cetera.
Yeah, totally.
But we didn't have the technology and now we do.
And so thank God, like some really creative people,
like Kyle Cruz, some really effective technologist
set out to solve this problem and they have.
I still feel like I would feel it more if it were so close
or it feels like they're, okay, they're deploying in cities.
But most people, you know, I feel like my friends
in San Francisco doesn't sound like they're taking
autonomous vehicles all the time or like,
what's the limiting factor for it to be a real like
economic mover for those cities and for society?
I think these cities have literally just opened up
over the past few months to this.
And so I think right now you've got folks
that were early adopter, including myself who are doing this.
And now you'll see it move to the mass market as,
you know, let's say that next time you and I get together
for a coffee in San Francisco and I say,
hey, I'm gonna have like Cruz,
how about you have like Cruz on me over here?
And that kind of morality is now just starting.
And so you'll now see this build over time.
It's really like, if you consider like when the first
Tesla roadsters were produced,
there was a handful of people in Silicon Valley
that had those and then you started to notice like,
oh, geez, Steve Jervitson's driving one of these things.
Jervitson, why are you driving this?
It's a fantastic car, hop in,
let me show you how fast this thing accelerates.
And little by little you had this virality start,
but it starts from a small base
and we're starting from the small base.
So I think with autonomous right now
and it will start to become a movement over time.
And I think it's not gonna take nearly as long
as it took for rideshare and some other technologies to.
I do, we were once in an autonomous vehicle together.
I think in that, in Las Vegas.
I forget what the partner was, right?
But that's emotional car that was a partner of lifts,
but you still had the driver in the seat of that car we were in.
And this now would be a very different experience
because now the car is caught.
But there's nobody in the first seats.
Yeah.
I mean, the ride sharing phenomenon,
I mean, I look back at, to me like lift line and pool
and then autonomous at some point were so key
to the like technological vision of ride sharing.
And that there really would be these efficiency gains
by building up the networks.
Yeah. That didn't happen, right?
Why do you think carpooling didn't work?
And does that undermine sort of the case that,
you know, ride sharing was a step change over,
was it any more than taxi with a phone
if you can't make the carpooling
or autonomous features work?
I think we were interrupted by this crazy externality,
a pandemic.
And so the carpooling worked until we had a pandemic.
And then like this externality came in that nobody anticipated
and wisely both Uber and Lyft killed their carpooling product
during the pandemic
because it would have been irresponsible to do anything else.
And now they're building it back,
but we were interrupted for like two years of adoption
when the adoption was super high.
And those products because the economics are great.
And the social aspects are kind of cool too.
But what happened during the pandemic was,
you know, obviously we didn't want to be in cars
with each other.
And so people went out and bought their own vehicle
as kind of PPE.
And so you remember that like these were record years
for car sales over the past two and a half, three years.
Because people were buying their own cars
so they wouldn't have to be in a car with somebody else.
And I think the whole movement towards far less cars
and cities got set back maybe by a decade or more.
And I say a decade because the average car park
is now 11 to 13 years old.
So that means somebody bought a car this year
probably didn't get in that car for another decade.
And therefore they're going to be in ride share less
and in carpooling less and in public transit less
because they have their own way to get around.
And they're on the hook for a 72 month loan on that thing.
So yeah, I think that externality of the pandemic
really set this vision back, unfortunately.
Which also speaks to why, you know,
having a delivery business on top of your ride sharing business.
I mean, hard to know that that was a pandemic hedge
for Uber, but then that ends up really hurting and being lived.
I mean, I feel like you can get the message like,
oh, you should focus on what you're good at.
And then it's like, oh, you should have like multiple lines
of business.
And how does an entrepreneur like sort of those are just
two irreconcilable pieces of advice?
Generally, I've found that if you have all your eggs
in one basket, that is not a very sound strategy.
So you need to have some other forms of income or revenue.
Because yeah, things can side swipe you like a pandemic
that you'll never see coming.
And that happens in the real world.
So you need to have other products of the revenue streams
that help you weather that storm.
And so like in Tesla's case today,
if the car market goes suddenly sideways
and they're selling a lot less cars,
they can fall back on their entire base.
They're selling insurance into that base.
They're selling infotainment into that base.
They have diversified revenue sources
just beyond selling the car.
And Uber did that too.
Uber said we need to have other revenue sources
because the world doesn't work straight up into the right.
And so if we're only having one egg in one basket,
that's a vulnerable position to be in as an entrepreneur.
Just related to the delivery and your general expertise
and some of these real world tech businesses.
I feel like the cloud kitchens, ghost kitchens thing
has fallen out of the conversation a little bit.
I mean, they operate more behind the scenes.
And I think I saw TikTok the other day,
someone was like, oh, I'm ordering from Denny's,
which has some rebrand as something else
I didn't even realize.
Anyway, so they're clearly still going.
But do you feel strongly about the sort of ghost kitchen,
cloud kitchen business or those companies doing well?
I don't know, I don't know what they are today
because they're pre opaque in terms of how large they are,
what sort of revenue they're generating,
what sort of profits they're generating.
So I just don't have enough fact-based
to even answer the question.
Yeah, it's not enough.
Yeah, people just aren't the vulging
kind of how the business is doing.
Have you thought about anything in food
in your sort of company idea generation
or that sounds like that?
Not yet.
Food does not hit the radar.
Like we're helping young families
with a company called Loop that allows them to rent
baby gear and it just had stuff that they need
so that in big cities where you don't have much room
in an apartment, you can't fill the apartment with stuff.
So we're working on problems like that.
We're working on high consideration shopping
with a platform that we've gotten beta.
We are working on HVAC.
What's high consideration shopping?
Sorry.
So that's been a high consideration purchase.
So like say an expensive purchase.
Like if you're gonna go purchase a washer and dryer
or a car, nobody's really attacked that problem
in a unique way.
And so we've got a team.
What's about financing or is it a,
no, it's mainly about discovery and comparison.
Like you compare washers and what really matters.
It turns out that 80% of washers that break
are front loaders, not top loaders.
So if you knew that one's act,
then that helps your discovery process.
It says, maybe I'm not gonna look at front loaders
or maybe I should look at top loaders
because they break down a lot less.
We've got a business working in HVAC
and commercial buildings and taking 50%
of the energy cost of those buildings out.
And so we're working across like a lot of these different
problems but none food related yet.
Okay.
Yeah, yeah, yeah.
But the business, like is that a consumer report
sort of like wire?
Is it like a media publication or is it?
Or in beta on this, we haven't really talked about a lot of it
but okay.
Yeah.
Like one of the things that led to this idea
was a few of us were shopping for stuff
like a washer and dryer and said,
isn't it interesting that when you go on consumer reports
that the products that they're recommending
when you go out to buy those products,
though they have the lowest review scores.
Like how could that be?
And it turns out that it looks like the quality
of the Consumer Reports research
and recommendations has gone down precipitously over time.
And so there's a vacuum in that space to go figure out
like could somebody fulfill this in a different way?
And so a guy on our team who's super talented,
Rich Hong who was part of the early Google shopping effort,
he and I kind of started to riff on this idea
and share a vision.
And so he's built the platform
and now we're out working on the minimum viable product
and testing it out in the market.
But yeah, it'll be some combination of media
and comparison tools that haven't existed before
and some magic that we're throwing into.
Your decision to get in this, you know,
the hatching business, did you think about sort of
the more traditional venture path and like,
I'm curious what, yeah, I mean,
you clearly went this direction,
but do you think the venture industry
is gonna be more challenged now?
Or was there anything about the venture side of things
that turned you away from it?
Or it was just the appeal of that?
There were a couple of things.
There are a couple of things that I thought
were ready to be kind of modernized in venture.
Like the current venture model of searching
for entrepreneurs,
you know, distributing capital on the part of LPs
for a 2% management fee and a 20% carry
has not changed in decades.
And I thought there was some of these,
they get three and 30, you know,
sometimes they get, yeah, when you get really good at it,
when you get really good at it,
like Sequoia and Benchmark and some others,
you can get three and 30.
But I thought maybe there's a more systematic way
to go about this.
What if there was a systematic way
that you could create companies out of great ideas
and so for me, it's just a different approach.
I had some friends, close friends who were
in the music business.
And when I discovered like how the music business
was kind of structured, this really made sense to me
and applies to DVX.
There are generally in the music business,
there are songwriters who are generating the content.
There are performers that proliferate that content
and there are distribution that take that content
plus performers and distribute it.
And there are these songwriters guilds
where you have people that have this like
awesome songwriting disease and they find each other
and they get together in places like LA and Nashville
and Berlin and other places around the world.
And they generate, they have this gift
of generating massive amounts of content, songs.
Then they're paired with performers.
Most performers aren't songwriters.
Most performers need content that somebody else writes,
hits that somebody else writes.
Right.
And I felt like we were kind of a songwriters guild
but in the business sense.
Like we have this disease where we see opportunities
where other people don't and we kick out a lot of ideas,
some are good, some are bad,
but we keep honing the best ones
and we've got the capability of turning those into hits.
So in that sense we're a singer songwriter.
And that's an approach that works for us.
It would more for every VC, I think it works for us
because we've been both idea generators
and we've been scaled operators.
It's a very uniquely kind of skilled
to attack a problem in a different way than most VCs are.
Does that mean like the VC 1.0 model is dead?
No, it doesn't.
But it's a mean that there is a different way
that we'll kind of flip right now.
I think so because you've got folks like us,
you've got flagship to generating, you know,
75 companies like Moderna and Indigo Ag,
you've got Sutter Hill, those generating companies
like Prism and Pure and Snowflake, exactly.
Systematically did generating companies.
And I think there is another way that's being created
but I would call that VC2.0.
Does it mean that's going to be at 100% of the market?
No, but is it going to be a significant percent
of the market?
I'd say probably isn't a decade from now.
It probably is a significant chunk
of the early stage market.
Yeah, if you have the idea,
you guys keep the economics.
If you don't, you're, yeah, you don't.
Yeah, if you own 50% of that company
at the end of the funding cycle,
50% beats a 20% carry every day of the week.
So I think just the capital, rational capital,
will follow down this path.
And you're much more invested in sort of
seeing the company through and working with it in a way
that if you don't, you're like,
ah, listen, I'm on to the next one.
You have my money, you know?
That's right.
And we're certainly seeing that at the downturn
where, you know, people are sort of
shrugging off their losses in some cases.
Yeah, I think our co-investors know
we're not locking away from this.
We're going to make them work.
And so that gives investors,
that invest a lot of us a lot of comfort.
Sweetie, John, this was great.
Thanks so much for coming on The Pie Guest.
Yeah, thanks for having me here.
It's been fun to talk to you.
Thanks a bunch.
That was my interview with John McNeil,
investor at DVX, former executive at Lifting Tesla.
Thanks for listening.
Shout out to our editor, Tom Herron,
my chief of staff, Riley Kinsella.
The wonderful music is brought to you by
Yung Chomsky.
I'm Eric Newcomer.
Like, comment, subscribe on YouTube.
Subscribe to the newsletter, newcomer.co.
See you next week.
Thanks.
Goodbye, goodbye, goodbye, goodbye, goodbye, goodbye, goodbye.
Good bye. Good bye.