Finding the 100 highest-quality public businesses in the world with Will Oliver and Will Barnes, founders of In Practise
This week’s podcast guests are Will Oliver and Will Barnes, the founders of In Practise. They aim to help investors build conviction with their portfolios through in-depth interviews with former and current company operators.
In this conversation, we talk about how they saw the opportunity to start this business in a mature niche industry: expert networks. Coming from their experience interviewing thousands of executives, they reveal their tactics for conducting successful interviews. We also discuss how they are building a system to understand what quality means in a business.
Key ideas from the episode:
Expert Network incumbents are quite expensive, and take a HUGE rake.
Will Oliver and Will Barnes tailored In Practice services to fit their own expectations as if they were the customers, and found a niche among smaller hedge funds and investors.
You can’t buy conviction from someone else. Building conviction takes time and it mainly comes from conversations and debates with friends and other investors.
Conviction is a key component to compound capital. You can analyze a business as much as you want, but you need conviction to hold on during the tough times.
Visa’s Dee Hock had a concept that effectively removing obstacles to innate problem-solving capabilities of people is the best way to grow the company.
Conversation should not be about extracting information, but taking the conversation to where both persons experience some form of value from it.
To create something that is of high quality, it has to be authentic to you. You should build something that is a reflection of who you are and what you believe in.
Trust is the hardest thing to build over time but it is also the foundation of a community
Interviewers should be willing to probe and dive and actively listen. Listening well is truly hard.
When you help the executive you are interviewing get to the edge of their competence, that’s where real epiphanies come from.
An example: Don’t ask “how a company could improve the gross margin”: rather, ask “what are the drivers of the gross margin?”
Learn more about Will Oliver and Will Barnes:
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Phil Huber: Crazy Alternative Assets, Crypto for Financial Advisors & the Book Writing Process
Jason Hitchcock: Your Guide to Web3 (DeFi, NFTs, and The Metaverse)
Shane Mac: Building Messaging Protocol for Web3 (XMTP), Company Culture, and Scaling Trust
Podcast Transcript:
Eric Jorgenson: Hello again, my friends, and welcome to Jorgenson Soundbox. This show is a series of conversations where I try to just learn something from all my smart friends. Today, my guests are Will Oliver and Will Barnes. They're co-founders of In Practise, a company that conducts interviews with executives and sells them to investors looking at the companies and building conviction in their portfolio. They have each individually done thousands of one-to-one interviews in pursuit of finding some of the best investment opportunities on the planet. And we talk about how they saw the opportunity to start this business in a very mature industry of expert networks. We talk about how they structured a business to align authentically with them and how they wanted to spend their time over the whole course of their lives. And we talk about tactics for conducting successful interviews. If you enjoy conversations like this and want to be a part of a community who talks about and learns about stuff like this all the time, please go to ejorgenson.com, subscribe to my newsletter. But please enjoy this conversation arriving at your ears in three, two, one.
So, I'm psyched to jump into this with you guys. I think you have one of the most interesting kind of sets of backgrounds in business and perspectives of all the people I've met. We met through a really, I don’t know, high signal channel, I guess, in my life, which is like Bos and Latticework and the whole kind of like Charlie Munger mafia/fanboy club. And so, I have learned a ton from you guys already and love your business, and I'm really excited to kind of dig more into all of it. I want to start with what is becoming my favorite opening question for each of the Wills that we have here, Will Barnes and Will Oliver, which is who are your heroes?
Will Barnes: Wow. Big question.
Eric Jorgenson: We should proceed alphabetically. So, Will Barnes, who are your heroes?
Will Barnes: It's a weird one because I think in a way my old man, my father, probably is one in a way. But then I also found Munger, Buffet, that whole way of living and I guess building a business and living the life because of my old man. Not because he knew- my old man doesn’t really know Munger. He probably wouldn’t even know who Munger is if I asked him. I mean, probably now he would through for me, but previously he wouldn't. And he kind of lived his life in a way that, yeah, it was nowhere near what kind of Buffet and Munger were kind of preaching in a way. So, in a weird way, I had two heroes in different ways, one that would teach me character, morals, and maybe the life. And then also how I wanted to live my life through learning and finding Munger and Buffett, and beyond that, all these other great leaders and people. So that's the kind of paradox of an answer.
Eric Jorgenson: I remember picking up Poor Charlie’s Almanac off my dad's bookshelf, but I think even if I hadn't- even if it hadn't been that explicit, I think like what you're saying, I was still like attuned to the values of Munger from my upbringing. And so, that felt like a very natural fit to kind of carry the intellectual and moral baton forward.
Will Barnes: Well, it's weird because my old man, he's been bankrupt a couple of times. He's never really had a proper corporate job, never really- doesn't invest. And looking back now, I think – Will, you and I have spoken about this a few times – like I'm probably emotionally scarred somewhere along the line in terms of the bankruptcies and just the pressure, and just me thinking maybe, probably unconsciously, like why is this happening? Like what can you do to stop that? And then eventually found, I guess, different ways to live your life or think about business and spend your time and then obviously your money so that stuff like that couldn't happen. And so that's a weird way that it comes from having a hero in your dad and then actually that leading to something else. Which obviously, I never met Charlie Munger or Buffett yet. I probably learned more from them or just as much from them then I have from my old man.
Eric Jorgenson: That's awesome. Okay, interesting, I have a pattern of friends whose families went bankrupt when they were kids and it really inspired them to understand finance and swing that pendulum the other way the next generation. Will O, who comes to mind for you?
Will Oliver: So, there's some, as you might expect, there are some parallels in our story. So, although- and Will and I, originally, I think the first phone call we had we literally spoke about Munger. I was working at this Third Bridge business, one of the major expert networks, and he was asking me, well, how do you spend your day? What does this work involve? And within minutes we were talking about some of Munger’s ideas and putting those into practice in studying business. And so, it's kind of this is like a mirroring, I feel, in our stories where our fathers actually haven't met but would get along extremely well, speak the same language. I have a sense that Will's father has- Yeah, it's very interesting to explore how that also brought us together.
Eric Jorgenson: What was that background? Like where did you guys come from and how did you come to meet each other?
Will Oliver: So, on a phone call. We were hiring at Third Bridge.
Will Barnes: It's a funny story actually.
Will Oliver: I was introduced to this guy by like the division head. It's like, hey, I don't- like the phone call is like I don't get this guy. He was like doesn't fit into any box, but I think you'll like him. And that was part of the- this guy who, he actually was the first one to start this or was the first employee of the business unit. We ended up growing into, I don't know, 30, 35 million unit at Third Bridge within six, seven years. And his genius was to kind of spot people, although in ways he couldn't articulate it, he had an intuition. And so, passed the phone to me, he's like I don't get this guy, have a word with him. And I think when I told Will that the work that we were doing and the way we'd set up the process involved interviewing executives and reading for four or five hours a day, he's just like fuck off, I don't buy it, like this is not- I mean, I think I've shared this elsewhere, but I didn't sign my employment contract for the first month because I also couldn't imagine that what they described to me in this work was actually possible.
Eric Jorgenson: So, you guys met as a result of- which one of you was interviewing the other, is that how it worked?
Will Barnes: Yes. So, I was actually- he was interviewing me.
Will Oliver: We were hiring for analysts.
Will Barnes: And the funny story is that I had a job. I was already working. I was actually working at a hedge fund at the time, like a decent hedge fund in London and didn't actually tell Third Bridge and Will and the guys there that I took another job, which is also really weird because I took a job and everyone was really congratulating me and saying when are you going to this great fund, this great job, but I didn't reject Third Bridge. I didn't tell them. And this is obviously something in my conscious that went, actually, this is what you should probably be doing.
Eric Jorgenson: Interesting. So, will you tell us what is Third Bridge? What were you guys doing there?
Will Barnes: Third Bridge is, well, they would call it an expert network started by two former Bain guys. Long story short is that two consultants pretty much built a GOG version in Europe, which is how Third Bridge kind of started. And the business is very simple. It's connecting mainly investment companies, but frankly, anyone, corporates or consultancies that want to speak to operators, industry experts. And so, the original business in the industry is private one-to-one phone calls. So roughly, the customer will pay a thousand dollars, get access to speak to an industry executive for an hour, but they were private. And then what Third Bridge was doing, and this is what Will and I eventually met and started to build, was the content side of the business, which is very simply we were conducting the interviews internally and then recording them, transcribing them, and sending subscriptions to hedge funds and private equity funds globally to read and learn about businesses.
Eric Jorgenson: Yeah. So that was the business unit at Third Bridge where you guys met and started to work and were living this dream of like, oh my God, I get to interview interesting people and read all day, and people pay me to do it, like this is awesome. What was the story of the transition between we're living the dream but working for somebody else versus like, oh my God, we've got to go fight the fight and do this thing ourselves? Because you founded In Practise, but I guess I don't know how long it was, how long you were doing that before you spun out, what was the motivation to spin out? Kind of that concept.
Will Oliver: I was there for a total of five years, Will for three. He joined me two years into that experience of building this unit for Third Bridge. And really quickly, just for a tiny bit of context on the industry, so it's around a $2 billion industry. The majority of the volume of work that takes place consists of one-to-one interviews. And that is a mix of everything from your McKinseys and Bains on the consulting side to private equity funds to credit funds, distressed funds, debt investors, and then the whole equity investing world, public market equity investing. The industry is dominated by, as Will mentioned, GLG, and probably the top five, six players have two thirds of the market. So, it's reasonably- it's not super concentrated, but there's a few dominant players and there are meaningful advantages to scale. And so that is a-
Eric Jorgenson: Yeah, there's a little bit of a network effect there because they have all the executives signed up, they have the kind of contracts on the customer side. Yeah, that makes sense.
Will Barnes: Well, I guess we'll find out in the next ten years.
Will Oliver: This is part of the context for what led us to be maybe insane enough to start something and in an industry that's reasonably mature. It's been around, these services have been around since the nineties. The established players, they're reasonably sticky relationships that these businesses have with their customers. There's a really meaningful compliance component in the way customers look at these services. There's a good degree of risk aversion with new providers. And so, yeah, to have a shot, we can speak a little about what right we have or we feel we have to exist, and the story has yet to be written for the most part.
Eric Jorgenson: The story is being written every day. The blows are still falling. It's a beautiful- it's an exciting time to be talking about it.
Will Oliver: Yeah, by all means. And so, I think one thing we asked ourselves very early on, the work is just so much fun, so one of the first questions was like how can we create a system to do this forever? Like is there a way? That was the sort of instinctual unconscious, like I have no control over that drive kind of thing, which is just like if we could do this for a really long time, that would be a lot of fun. And then there was, I think, thinking about the industry structures, participating in the industry, thinking about what room was left for basically different forms of niche providers, and then getting on, embarking on that whole adventure of like how do you match the market opportunity for what we came to feel was a lower price high quality offering for a subset within our customer universe at Third Bridge in the public equity investing space and what is authentic to ourselves. It's something that we're still going through right now, which is what's really us? And there's the theoretical market opportunity then there is like what are we here to do? There's plenty of things that we could do that we're not made for. And that's ego gets in the way, all sorts of, yeah. So, that's something that we deal with. Like we're dealing with right now actually a lot is what's really deeply authentic to who we are and how can we make that contribution in a way where authenticity is aligned with hopefully correctly diagnosed market opportunity.
Eric Jorgenson: Yeah. So, tell me maybe in a little more detail the opportunity that you saw. I know kind of one of the things that's endemic to the industry, mature though it is, is like a huge take rate. There's also kind of a homogenous approach. Like there's a real brand difference between GLG or kind of those other handful of leaders, as far as I can tell; I'm an outsider to the industry. And then you mentioned kind of niches within the demand side. So, was there something specific that you were like, oh, that's our in to the industry, like that's where we're going to kind of put the tip of the spear?
Will Barnes: I think one thing that is worth just discussing is that the industry's very different based on the customer. So, a private equity fund, a consultancy, and a hedge fund are obviously very different entities. They use the services in different ways, specifically the hedge fund on the public equity side. Private equity and consultancies kind of work together. But on the hedge fund side, it's a very different ball game. And we were obviously producing the content of Third Bridge; we were conducting the interviews. We were also going out and selling the subscriptions with the sales team. So, we were actually going on the ground, meeting funds, pitching the products, understanding what they wanted, understanding why they wouldn't sign subscriptions. And so, we had this hypothesis that, well, [inaudible 17:07] kind of new, because we were still in the [feedbag 17:09] that a lot of these services were getting quite expensive, especially for relatively smaller hedge fund managers, so startup funds, one- or two-man shops, but also even up to like ten-man shops. It's paying 50K, whatever, 100K, is expensive. So, we knew there was a long tail of a market out there of people that would be willing to pay for high quality content. And we could produce the content. So, we knew how to run the business. We knew how to produce the content, and we kind of had an understanding of what the customer- And also, frankly, we just love doing this work. We want to understand how the world works, and this is the perfect opportunity to do that through business and studying great businesses. So, what we realized was actually we love doing this work and we want to build a system that can sustain this work for decades to come. But we also knew that a much more affordable solution would be attractive to many. And then we just wanted to decide on kind of what we wanted to explore. And so really this is where we came to In Practise, which was a much more affordable solution plus studying what we believe are high quality typically owner-operated businesses that we believe are just fantastic. That's kind of what we do.
Eric Jorgenson: Yeah. The ability to kind of direct your own attention too because you don't have to guess what the hedge funds are doing or just research what's assigned. Like you guys, I assume, get to kind of pick what rabbit holes you want to go down now.
Will Barnes: Exactly. And the forum business at Third Bridge was particularly interesting because it was the first time that an expert network was their own client, if you understand what I mean. So, for example, we were conducting the interviews internally, whereas historically, you’d wait for Bain or a hedge fund to come and say I want to speak to someone at Google. Actually, we were internally being the client. So, we were taking a stance on what we thought was interesting. So, we were pretty confident that we could pick up particularly interesting companies, also just understand how to analyze them. And we spent years refining the approach of just, I guess, business analysis, reading through filings, doing all that kind of grunt work, and then also finding the executives, connecting with people, and understanding how to interview them, which we can get onto later on. So, we kind of had all the ingredients, but obviously you just never know if people want to pay for it.
Eric Jorgenson: Absolutely. And it turns out, they do.
Will Barnes: Well, so far, so good. We’re still here, so we must be doing something right.
Eric Jorgenson: And you're coming in on kind of the low end of the market too, right? I heard you mention affordability in there and kind of a price strain that some of this puts on-
Will Barnes: The interesting point is that as we have done these things, you have a hypothesis, you find an effective or efficient way to test it. We thought we had a somewhat efficient way even at Third Bridge from the data that we had and the feedback that we were getting, and also Third Bridge just wouldn't serve those clients. It just wasn't worth their time to set up 10K subscriptions. So, we knew there was a market out there. But then as with all these things, the market evolves, [Tagus 20:35] and Mosaic had a better mouse trap than Third Bridge. And so, you've got to adapt and you've got to pay attention to what customers want, how their expectation of services evolve. And so, our original hypothesis may have been tested, but we've also evolved in what we think is a solution that we want. And frankly, a lot of it comes from what we would just want ourselves as customers.
Eric Jorgenson: Yeah. That's one of my favorite things about this. Like I have such a- I get really excited when I find businesses that are solving multiple problems at once and just like, I think to Will Oliver’s point, like the authenticity, like when the founders' interest and the customer's interest and like quality business all kind of overlap in the same thing, I feel like you two were both kind of already driven by this question and curiosity and appreciation for the work and then found a way to build a business around and on top of it, and that aligned with your values and your interests and the way you want to spend your time. I think there's one question that summarizes this to me that we have talked about before and is in a lot of these docs that I think like In Practise may be best explored as a potential- as a vehicle for answering this question, which is what are the hundred highest quality public businesses in the world today? Like that is a question everyone should want to know the answer to, and millions of people do. And the answer is maybe less interesting than all of the different ways to specifically go about it. And I think you guys have like arranged your lives in your business to solve this problem in a way that's super interesting. And every word carries weight in that sentence, Like I know you guys have thought so much about quality and so much about quality in business, and I just want to like pull your string on that and have you show us that world in the context of that question.
Will Barnes: It's not even the answer that only matters. It’s how you get there. It's like how do you build a system that can make me understand what quality means in business? And then more importantly, for our customers, our investors, like how do you build conviction to allocate capital to those companies? So, what we think about is that process of if you think it's that one how do I source companies or stuff to research, how do I build an understanding? And then towards the end of the process, it's how do I really build conviction? And back to how In Practise and these things evolve, it’s that just executive interviews, it's not the solution. You don't just do interviews from executives and then find out everything you need. A lot of it comes from conversations with other investors, whether that’s private or on the phone or with your friends. So, we're always thinking of new ways to help people learn in this format because it's more about actually us building a system for people to find those-
Eric Jorgenson: Especially because that answer is going to change all the time. You’ve got to be able to re-find that answer constantly.
Will Barnes: And you can't buy conviction from someone else. If I give you a hundred companies, like so what? You can't buy the conviction you have in that. And so this is also what we think part of the- another hypothesis that we have is that, especially in the industry now, no one focuses on helping investors really build conviction. Like arguably, expert networks could argue that, I mean, a lot of the sales side could argue that as well, but frankly, that's more on the kind of we call it the pre conviction stages, pretty much analysis, making them, helping them understand. Really building conviction takes time, but it can come from mainly conversation and debate and dialogue with others, mainly friends and other investors is what our hypothesis is.
Eric Jorgenson: Yeah. Maybe you can rent conviction, but you can't buy it. Or what's the Bezos quote? Like I can explain it to you, but I can't understand it to you.
Will Barnes: Big difference. And this is also- conviction is the foundation to really compound capital. And actually, you can analyze as much as you want. If you don't have conviction and find a way to help your customers build conviction or just find conviction yourself, then it's going to be difficult to really hold on in those tough times of Amazon having a 90% draw down in the early 2000s or whatever.
Eric Jorgenson: Yeah. I'd be willing to hold it for 20 more years. There’s a fund, I can't remember the name off of the top of my head, I think I have it in my notes that managed to hold Amazon. And it's like somewhat of a legendary investment in these circles because they actually- it is the perfect example of like simple idea executed incredibly well. Nick Sleep and Zak Zakaria.
Will Barnes: Yeah, Nick Sleep, I think Bill Miller held it for ages as well.
Eric Jorgenson: Will Barker I think was in there too for a long time.
Will Barnes: But that, and this only comes from conviction. Which is almost the hardest. It's the hardest service to sell to someone. But what we're interested, mainly just for ourselves because we're curious about it, is like how do you build a system? We think we have one ingredient, which is executive interviews today. We do stuff on the outside, we do some weekly write-ups, we do some other dialogues that we're ramping up, but this kind of all falls into the somewhat analysis stage. And so, we think a lot how do we help investors really build conviction in some of the companies that we're studying.
Eric Jorgenson: How do we want to unpack the concept of the highest quality public businesses? I know this is something Will always thought a lot about, and I have received many earfuls about the concept of quality. And I think I want to dig into this, the concept and the systems that you guys have.
Will Oliver: Well, I mean, the first thing is it's a really hard topic to get your hands on. It's like talking about try defining truth, try defining value. It's a rabbit hole type topic that you can approach from a, and I don't know if you've come across Iain McGilchrist’s work, a British academic that talks about ways of seeing the world and the left versus right hemisphere ways of seeing things. And that's one framing. You could look at, both hemispheres or each hemisphere offers a slightly different take on reality. The left hemisphere is more practical, analytical, rational. You could look at it in terms of psychodynamically as the seat of your ego. The right hemisphere is open awareness. It's the awareness that a bird uses to scan the environment for predators. The left hemisphere is looking for food, trying to distinguish an object from its background. So, two fundamental- that analogy I think is quite helpful. There's that open awareness from the right hemisphere. So, to bring that into quality, there is on the right hemisphere side, you get into [Pursik 28:30] and the Dow and are almost a religious tradition in answering the question. It's this sense of an intuition. You know quality when you see it. You have these quips. But when you see it, part of the joke is that you can't articulate what it is – I just feel it. There's something about a resonance. Quality, you sense it. It relates to authenticity in interesting ways. And then you could- I think one way I've come to see it from that maybe more right hemisphere perspective is quality, if you imagine a multi-party stakeholder model, where you have- you can look at it in a business context where you have customers, employees, shareholders, maybe the local community, maybe society at large, the ecology, and then if you want to go really far into multi-stakeholder, future generations. And I think I've come to see quality in business as win-win dynamics in those stakeholder relationships. We can get into why win-win matters and how that relates to quality. But to get to the point quickly and then we can unpack it, is it's a business embedded in win-win dynamics at multiple levels of that stakeholder hierarchy. The higher the quality, the more win-win dynamics you see the business embedded in.
Eric Jorgenson: The less interfaces, the less places that the business conflicts with the environment, the longer the entity can be assumed to be around, and that is the source of all of the returns, the long-term nature of it.
Will Oliver: Right. And that's the sort of 20,000-foot view around resonance, I think about quality, I think about biology. I think about natural systems. I think about Redwood groves. I think about something that's stood the test of time that is so deeply resonant with its environment.
Eric Jorgenson: Yeah, alligators, cockroaches, Redwood trees.
Will Oliver: Right. What can we learn about them and the way they're so- and then, I mean, that whole right hemisphere lens on things invites more abstract questioning around authenticity, around the edges of what can really be described about quality. Left hemisphere is more- left hemisphere wants to put things in a checklist and wants a sort of more scientific, rational, sort of local definition, which is super practical. And I think it's not the one- I think what we're trying to do really in our business is a synthesis of both perspectives. It's how do we take some sort of more metaphysical description of quality and bring that into really practical approaches to understanding and exploring quality in its extremely practical manifestations in competitive environments in business.
Eric Jorgenson: Yeah, I think the people- It is an interesting theme that some of the most interesting- some of the people who are divergently successful all sort of seem to have their roots in studying nature. And somebody that you introduced me to that fits this is Dee Hock, who I am like obsessed with now that you've introduced me, the founder and CEO of Visa. And you go read his book and it is not what you are expecting it to be. It's very almost natural philosophy. Like I would love to hear kind of what you guys have learned from him and what you've applied to In Practise that came from him, or even in the case of Visa, like what is it about his insights that made Visa the incredible company that it is?
Will Oliver: And the business is insane. I mean, to zoom right into an extremely practical- We may get into Visa, but I think one thing that I'd be very excited to share is around Hock’s concept of educing. And actually, I suppose, you can't really talk about that without alluding to the way Visa was structured. But for us practically, we think about this in interviews and in conducting conversations, and it's really foundational for us, this idea of in interviews, removing barriers to the free flow of information. Effectively, what Dee Hock did with Visa in structuring that business in a trustless environment, a business whose fundamental right to exist is trust in the 1960s banking system in the US was he had an insight through his study of natural systems as to how humans function, their innate creativity, innate possibility, innate gifts. So, there's really something that I think- it's a very constructive worldview, a view that harnesses human instincts for cooperation as much as competition. And what Dee talks about in building Visa was he talks about effectively removing obstacles to innate problem-solving capabilities that we have in order to create, and then you've got his hierarchy of the purpose for the organization. But it's philosophically the underpinnings of Visa are this idea that you remove obstacles to a very natural inclination that human beings have to contribute towards hopefully, and the more clearly articulated the purposes, the more chances of success you've got. And for us really practically, that idea has carried all the way through into interviewing and is at the foundation of our process in an industry that frankly looks at the interview process as an extractive process. You even have- it's very common, and it's not to judge, but people talk about picking brains. People talk about extracting information in finance. And while that- digging in. And that's all fine, but what's implicit in that view is a subject object relationship, an almost adversarial relationship that people can very easily fall into where it's like I've got you, and especially in our business, I'm paying for your time as an executive, and I'm going to take all I can get. As opposed to we're here together, let's go somewhere together, let me understand what you would like from this interaction, how you can experience some form of value or participate in the value that's being created. How can I really put- and how can we go somewhere together? And that can really transform obviously the way people- the way you can relate to people, what you can talk about, where you can go, their willingness to volunteer information. And I think it's over the years as we've- by the way, I don't think we came into this work, I think maybe with an implicit or some sort of maybe appreciation for this, but we have to cultivate that because it's through trial and error, really through making mistakes and through being extractive, being aggressive in our line of questioning, of not investing enough time trying to understand what a win is for the person we're interviewing, not enough time trying to understand who they are because everyone's under pressure to- Yeah, but a lot about Hock is incredible. There’re so many things.
Eric Jorgenson: Is the left and right hemisphere a reasonable metaphor for like you two and the division of labor in In Practise? Like Will Barnes, are you the left hemisphere and Oliver is the right?
Will Barnes: I think you've hit the nail on the head.
Eric Jorgenson: Just a hunch.
Will Barnes: It's also just back to this point on quality because, and I'll get to the point in a second, but it's whether you're a founder or an investor, it has to be authentic to you. Like we're in this business because it's us. If we were selling pet food online, we would have failed 18 months ago. It's like there’s a deep rooted, authentic side of this that needs to align to actually create something that is high quality. And we focus on that a lot and bringing both of our worldviews together, whether that's right side, left side, or you name it, to bring it together and build something that is a reflection of what we both- who we both are and what we believe in.
Eric Jorgenson: Something I found in your guys' notes that I think is interesting because I think it's a truism, but it's one of these things that you expect to be kind of arbitrage is general practices in the investment management industry are generally poorly designed for the pursuit of truth. And I want to- from your guys' view, like why is that? What are the blockers? Because I think part of what you did in escaping a traditional fund was in order to be able to design your own processes, but everyone in that investment industry is in pursuit of truth. So, why are we- why does that arbitrage still exist? Like what are people stuck doing?
Will Barnes: Maybe they are not in pursuit of it; maybe they are not.
Eric Jorgenson: Yeah, I guess the declaration that one is in pursuit of truth is very different than the practicality of it.
Will Barnes: I think a lot of it is down to the institutional structure of funds themselves. And it's the classic career risk. And you end up a [inaudible 38:51] for a couple of years, good luck keeping a lot of your clients in this business. And so that just unconsciously pushes people towards a mentality or a way of working, of investing that is probably very far from Buffet and Munger and those types they actually worship.
Eric Jorgenson: So, I'm just trying to understand the structure, I guess, and the incentive. At In Practise, you learn a ton about and pursue sort of- you are incentivized to pursue this truth and this question of what are the highest quality public businesses in the world, but In Practise is not an investment fund, but the work that you do and the things that you learn enable you to better invest your own capital personally where you do have an indefinite time horizon and can sort of freely pursue truth. But that those are very- those are synergistic, but very distinct and deliberately distinct things. Is that true? How much of like an intentional decision was that?
Will Barnes: I think it's completely intentional. I think also again, it comes from why we're doing this work. So, I used to cover distress debt at Third Bridge. I was covering the shittiest companies in Europe you could find, pretty much, that have over levered balance sheets and bonds trading at 30 cents.
Will Oliver: I would add though what we couldn’t keep Will from doing while he was in distress, was the odd interview on [inaudible 40:20] or Burford Capital, or there'd be like we'd review the monthly output as a team and it'd be like hold on, wait, what is this here? And he just sneaks in like a compliment to the distress company, some quality midsize compounder.
Will Barnes: Some distress guy studying like Berkshire. But I think, and this is kind of why we're doing this work, not specifically because we want to invest our money now. And I think the way we look at this is that we need to be as close to our customer as possible. And actually, if we just behave and act, and frankly we see ourselves as the customer anyway, but also, we believe if we can be as close to the customer, we will build the best service in the industry for our core target customer. And if we do that, then the system will evolve and eventually we'll have the knowledge from the work that we do to go and allocate capital to those founders and operators that we've been studying for a long time.
Will Oliver: Just briefly on that, there's something about an interest in building a system that united both of us from a very early stage from really like the very first few days we met and started exchanging ideas. There's this sense of building a system to surface truth and high-quality information, and then an attraction that both of us had that we kind of live in in slightly different ways, but markets just being this amazing testing ground for ideas where you actually have a feedback loop. And so, there's how do we learn? How do we- there's like an element of self-discovery for both of us. Like what are we made of? Who are we? What do we love? Why am I here? What is- how do I experience some kind of meaning in life as a participant in this golden lotus safari shit show, whatever you want to call it. And so, there’s this system that we were interested in and then the- and I think – and Will, maybe you can articulate it differently if you see it differently – but there's something about building the system and investment results as an output of inputs. And Will has been investing for a number of years. I'm really a student of his, for the most part. I have no original ideas. What I invest in is I look through his stack and stuff that I can understand that I could really grasp and where I sense there's some- I'm big on my win-win dynamics. I'll filter through his pile. But really that is an output of the system and learning. And I think that's where there is a big difference. Although, we see ourselves as our own customers, there is something about the primacy of the system and the inputs that go into that system that produce outputs and that those outputs will be performance of the businesses that we put our capital in.
Eric Jorgenson: So, let's talk through the blueprint of the system. We've kind of talked around it a little bit, but let's start with maybe the micro or the macro of the components of In Practise and do a section on that and then probably end up with the mechanics of the conversations themselves. I think you guys are world-class experts in dialogue and review and sort of learning in one-to-one conversations. But let's start with the system as you think of it, this system for divining truth and filtering down to a filter on a filter on a filter, like how do you run that process? Where does it start?
Will Barnes: The first place that we've started, and actually, it’s not necessarily the best first place to start, it's just kind of also what we've been used to. Like we come from a business that was learning from operators. And so naturally we left, and we've been doing what we know, which is I guess what everyone does, which is interviewing executives. So, the core of our offering is a library of interviews we've operated, as we've discussed. But going back to this process of what the customer wants and how- we did other work on how people learn about businesses – what are the process and the stages of how you first discover a company? How do you dive in? How do you learn? What do you need to understand? And eventually, how do you build conviction? And so, what we think about from a kind of higher level point of view of putting aside our position in the industry, which we can talk about later on if you're interested, but just how we think about our solution is making sure that when someone comes into In Practise, and whether they're searching for a company or they know a company, they can get up to speed very quickly. If I'm looking at Wayfair, for example, I can understand what they do, who their management are, the shareholder structure, really kind of condense the filings and all that kind of grunt work that you need to do to really get to what really matters. So that's the first part of it. And then beyond that, we have this kind of analysis phase, which is, again, expert interviews. We do some In Practise dialogues right now, investor dialogs, which is a group of investors come together and discuss the company. We do weekly analysis. All these different types of content help you analyze and understand. And then, we can experiment with new features going forward, user to user engagement, more of a forum-based type experience to help people learn from each other. Which a big part of how we learn is from each other, from other investors, debating our ideas and actually asking people to pick holes in our hypothesis about a company. So that's what we really focus on on a micro level, understand exactly how do people think? How do people learn about companies? What is missing for them? How can we better serve them? And that's how our solution will evolve. And then operationally, it's a whole other question, about the kind of shit show of actually just doing this work and speaking to thousands of executives and finding great people and organizing people to find those great people, like all of that behind the scenes, there's a lot of work that we have to organize ourselves for to actually get the outputs.
Eric Jorgenson: Yeah. I imagine it's a tremendous amount of work. Is the information that comes from executives, like if there's a pie chart of conviction, how much comes from the standard public investment docs and just kind of like reading what's available? How much comes from information that is proprietary to your conversation?
Will Barnes: That is a great question. And it also depends on the person, depends on the investor. I mean, and it depends on the company. Like for example, if you go study Constellation Software, like if you understand broadly how these serial acquirer type businesses work, you can probably get pretty good conviction just from reading Mark Leonard’s letters and looking at the numbers and the performance. You can probably get quite a conviction. Whereas other companies, like good luck, you need to speak to many people. So, it's tricky. It depends on the person and their style, and it also depends on the experience that you have in different sectors, but also the company itself. All we know is that it's not only one thing. We know it's not only executive interviews. It's not only different investors. And again, it's a mosaic of different pieces of information.
Will Oliver: And to bring in just the most overused word, one of the most overused words in the English language today, community. And that is part of a way we solve problems. There's something about- we've been reluctant to use it much because there's so much baggage associated with it, so much bullshit, frankly, around we are a learning community. I mean, what does that even mean? There's so much- there's a lot of big claims made by many businesses around community. And then there's, to Will's point and maybe echoing some of what you said, that there's many ways to learn about something. And there's something that I think resonates for both of us around building a space, a container for, well, for the flow of information and really building structures that will surface the highest possible common denominators in people, ideas, and matters for studying that really communities are incredibly good at. You have communities of practice, high quality learning communities are incredible tools. And we share a connection to Blas and to the Latticework, and everything for me, from the people I've met through, we met through Lattice and have been learning from each other since. I have the number of people I've met through that community as well as the raw material that's provided as fuel for engagement.
Will Barnes: It comes from trust. You trust Blas and Blas has built trust with all of those users. And I think we think a lot about the sequencing of a business, like how do you scale an organism like a business. And what are the different products or services you will roll out at what time? And I think what we've potentially or hope- One of our hypotheses was that if we can build trust with our users, professional investors, concentrated public equity investors, through our interviews, through high quality work, we will build trust. And then based on that trust, you then have the foundation of a community. And then it just depends on what the UI and the format and the level of- how do you want to engage the community? But I think it comes from trust, and that's the grunt work, that's the hardest thing to build over time.
Eric Jorgenson: Yeah, trust is earned and only through really the currency of like time, I think. It is very, very- Trust earned through a shortcut is really no trust at all, I think. And it is not always necessarily synchronous time. I think that's one of the really interesting things like available, like the leverage available to us now, hundreds and hundreds of maybe thousands of hours of writing and conversation and something all of us have shared that allows this sort of asynchronous built of trust, but it still comes from this reservoir of time that we invested in constructing something and writing it and sharing it and getting that out there.
Will Barnes: And it's harder to build online because there's just scarce attention. I mean, everyone's pulled in millions of different directions, and so you have to have something that's not only high quality, but also differentiated, that you actually- and if you just repeat that, week in, week out, hopefully again, the hypothesis is that you aggregate a group of people that trust you. And then what we're excited about is what we can do with that community.
Eric Jorgenson: Let's talk about the sort of microcosm of an individual conversation that you enter into with an executive or somebody who knows about a company and how you approach that. I know Will has shared with me a bunch of docs and research and sort of everything from very philosophical to very tactical stuff about the art of dialogue. How do you approach those conversations? What is your goal? Or is there explicitly not a goal? Like what do you do tactically and philosophically to approach that and sort of put that into your truth machine?
Will Barnes: How long do we have?
Eric Jorgenson: We could spend literally the whole podcast on just this question. I realize it’s annoying, incompressible.
Will Barnes: It is, and that's exactly why it's so fun. And like everything-
Will Oliver: And it's an awesome question because to bring in a left hemisphere, right hemisphere thing, you've got the left and I see it in myself, I want to put- when I'm thinking in that way, I want a checklist. I want something repeatable. I want- And then you have the reality of the human dynamic, which blows checklists to pieces the first chance it gets. And reconciling those two, I guess that's the kind of back drop to this work. It's how can I notice the patterns? And how can I also set myself free to go where the water is flowing once it starts flowing? And with that, I'll hand back over to Will.
Will Barnes: This is the paradox of doing this work, and with this work specifically, actually interviewing executives, is fairly specific work, it is former executives on a specific target company, and we're looking to have a conversation to truly understand more about the company. And there's many layers of different psychological bias and pressure baked into that, but just at a kind of higher level, the paradox is that you have to prepare, understand the business, understand what matters, i.e., what customers really care about, and understand that the executive can hit on that, but then be willing to kind of throw that all away and actually listen to the person. And this is the dynamic that is really difficult because you can't let the executive just stand up and preach and just let them say what they kind of want. You have to enduce. You have to allow the information to flow, but make sure that it's the right information that really matters. And so, this is the kind of paradox that you really face. It's understanding what matters, which is hard enough as it is. Just doing the work to get to grips with companies, a wide range of companies effectively is hard enough as it is. And then also finding the executive and making sure they understand that you're aligned on what really matters. And then actually when you're having the conversation, it's being willing to flow and go with the executive in ways that they actually suggest. Because a lot of the time actually, it's just, again, it's a hypothesis. I think I know what matters, but actually if they're trying to tell me something, then maybe I don't know, maybe I’ve got to listen.
Eric Jorgenson: Okay. So that was a very helpful kind of start. I'm going to do a few sort of rapid tactical questions. So new company, you're interviewing a first executive for a brand-new company, what is good preparation? How many hours do you put into understanding a company before you go to the first conversation with an executive?
Will Barnes: Depends on the company. At this point, I’ve kind of covered something similar at some point. But normally like 10, 15 hours on the company. I mean, it could involve like reading, obviously reading the tank of the filings, which you can do relatively quickly, looking at the numbers, and then also skimming through previous earnings transcripts or earnings calls, and then, previous investors, stuff like that. So, that takes a good chunk of time. But then also spending a lot of time- like there's company preparation, then there's actually interview preparation. So, there's two different things. So, you want to just understand the basics of how the business works and what really matters, you have a hypothesis, and then actually understand who the person is. What do they do? How do they spend their life? What are they really good at? Where's their competency? And hopefully, like the great interviews align perfectly. You have someone whose deep competence is exactly in what really matters, whether that's happening operationally or sales, selling certain products or whatever it may be. But getting those to align is obviously core ingredients to actually start off on a good point, and then obviously there's the conversation.
Eric Jorgenson: Which is where sort of the improv comes in, where you're like you come in with all these well-choreographed questions, and then all of a sudden, you're totally off in a different direction. And that's where all the extra work comes in that wasn't on the paper.
Will Barnes: Yeah. And we talk a lot about the line of questioning rather than just the questions. And actually, how do you craft a line of questioning that doesn't frame- at least try and be unbiased in how you frame questions. But also, be willing to probe and dive and actually just actively listen. This is the hardest thing to do. Like no one actually listens. Like I find myself all the time not listening and like focusing on what I'm going to say next and looking elsewhere and actually not truly listening to the executive. And I go back and read some of the interviews that I've done, I’m like this guy could have held up a sign about what really matters, and I still missed it, like I just was not listening. And so, yeah, you can do as much preparation as you want, if you're not truly listening, you’re only getting a fraction of the value.
Eric Jorgenson: How often do you gain the insight in the interview and have a oh shit moment during the conversation versus like you have to go back and listen to it again? Because then you're not thinking about your next step, the next move in the conversation. It’s truly almost easier to listen, purely listen to the recording. Do you go back and have more aha moments reviewing than you do actually in the conversation? Or do the epiphanies come to you in those?
Will Barnes: I think that the insights solidify in the review. Like you can- the real epiphanies come, and we've spoken about this a lot, actually recently about how do you even get to that point? What even is that feeling that you have? A lot of the time actually, it's when your original hypotheses are wrong. It is when you say actually, the scale effects really matters here, and it is actually like, no, that's bullshit. It doesn't matter. This is what matters. And you are like okay- And that's where you have to be happy to like go with it and actually dive into it and actually have a 45 minute conversation on that one specific point because you were originally wrong or actually argued why you might be right. And so, but what we've realized is that potentially the real epiphanies come when you help the executive get to the edge of their competence. And actually, a lot of the time, what we realize is that when we're having conversations with executives, sometimes they won't even realize they had that view or thought or idea, and actually you can take someone to a place in a conversation which they've never been before. You can kind of interweave years, decades of experience to a place where they might question some of the things about a company or if this would happen, you can bring someone to a place where it really creates truly differentiated insight and not just kind of reconfirming what you might've thought was important. And yeah, it's fun; it's really difficult.
Eric Jorgenson: Yeah. And as an investor, I mean, that's got to feel like you're digging, you're digging, you’re digging, you found a diamond in the dirt. Like you find that your hypothesis was wrong for reading, but you're the only one who's ever had this conversation and you've [inaudible 1:01:42] for the first time.
Will Barnes: You’ve got a completely handicap there. This is the big challenge because actually like, who is that person? What world view do they have? Like were they sacked? Did they hate the CEO? Like all these things have to be taken with a pinch of salt. And again, that comes back to like the conviction part, and it's just one data point.
Eric Jorgenson: One more maybe tactical thing, you mentioned in there constructing a line of questions, not just a collection of them. But when you are constructing a line of questions, how does that work? What are you driving for? Is that like almost a legal defense of you're trying to reconstruct the whole thing? Is this how you- are you pushing towards that edge of competence? What's the goal there?
Will Barnes: Yeah, exactly. And so typically what we've found is that only a couple of things really matter for certain companies, like if it gets to a certain level of understanding, like basic understanding about a company, there's only typically one or two, maybe three things that really drive the equity, really drive the returns of the business. And there's many ways to get to what really matters and actually understand what really matters. And what we found is that a lot of people will focus on the question – how can Fastenal improve their margin, their gross margin, like where do you see margins going? That's a question that gives you an answer, but it doesn't give you the fundamentals and the framework to actually understand what drives the gross margin. So, a lot of what we do is we would have a line of questioning that would lead towards an understanding of gross margin improvement. So that might be looking at the relationship with suppliers and the contracts they have and how inventory flows through the system or how you manage to store inventory and stuff like that. Like you go back to the actual first principles and construct a line of questioning that could actually get you to understand the principles or the core drivers of gross margin. Then you can kind of make your own decision if COVID hits.
Eric Jorgenson: Yeah, that’s interesting. So, don't ask how could it improve gross margin, but ask what are the drivers of gross margin? What are the rank order? What are they, how did they change?
Will Barnes: Go back to the principles of what makes up a gross margin. Like they buy- They source a part from a supplier, there's a wholesale price, there's effectively a retail price you sell it at, and then they turn a certain amount of it, and they're bronze. So you can, if you have a branch manager who's worked there for 20 years, I mean, he's seen a lot of gross margins. He’s seen 20 gross margins. And so it's like you can really piece that together and actually get an understanding of how Fastenal – I'm just using Fastenal as a random example – like how their gross margin truly works. And then if you do see COVID or management claim they can grow, you can understand how that works. And so again, that's just one example of a line of questioning. And it can be anything that's- what we used to do a lot was like the controversial stuff, especially in the distressed debt world, I mean, these are the companies that are going bust, what you want to know is like is the company going to go bust or not. Like no one wants to now that, so is it going to run out of cash. And so, there's various different ways that we learn to actually get to that answer without asking the really controversial question, because no one wants to say-
Eric Jorgenson: Yes or no, they can’t.
Will Barnes: Exactly. And no one wants to really- there's not really an answer a lot of the time.
Eric Jorgenson: Interesting. I want to, I don't know, probably not quite end, but do maybe a third quarter here, fourth quarter, which is talking through a few specific companies, and I've heard both of you use the phrase, “what really matters” a few times. And I think it'd be really interesting to go through a few of some of your favorite companies that you learned and talk through what is the company, what do they do, and what really matters? Like what are the insights that you've had that led you to there? And what are the few levers that drive this business? I know Will Oliver and I talk through Naked Wines before. I think Burford is another really interesting one. But you guys pick whatever ones you want to run with, then let's talk through some practical examples.
Will Barnes: Which one would you prefer to talk about?
Eric Jorgenson: Do I only get one? I want both.
Will Barnes: We can talk about Naked. I feel like I talk about Naked all the time, people always ask us. It's funny because Naked, in a weird way, it seems like Naked kind of put us on the map a bit. Like a lot of people ask us about Naked. I think the interview we've done with the CEO was one of the top- was the top interview we did last year in terms of people reading it. So, I mean with Naked, it's interesting because I came across this business five years ago when I guess most people probably wasn't following it when it was part of Majestic Wine. So, Rowan, the original founder, effectively had this idea that the value of the liquid in a wine bottle was just far below the actual fund, the consumer price. So, really the consumers were getting ripped off. And actually, there was a more effective way to build a business or a solution that would be win-win for consumers, winemakers, and effectively the business. And what I found originally interesting about Naked was that, and actually now the company is communicating it much more effectively than they used to when they first spun out of Majestic, was that there's a behavioral or call it emotional side of Naked, and there's like a rational side. So, the rational side is actually in a Naked bottle of wine, you're paying call it $10 and you're getting $7 of liquid value wine. So you get a much higher value because you're producing the kind of distribution and marketing. That's the rational side. So, a logical person would say okay, that's great value. But there's also like really the emotional side, which we believe kind of is the foundation of the company. It stitches together I guess the architecture of the business, which is the fact that the consumers, the angels are funding the winemaker. And there's a direct human relationship in helping winemakers do their craft.
Eric Jorgenson: Yeah, it feels better to pay a farmer and a winemaker and a vineyard owner with a name then a distributor, and nobody's ever been psyched to pay 30% margin to a distributer.
Will Barnes: Yeah, exactly. And again, with Naked, this is still a very small business, it’s still learning how to scale in the US is the big question. And again, there's various different levels of what matters for Naked right now. Also, different people probably have different views, but part of what we believe matters is kind of like two or three things. The first thing obviously is like, can they crack the US? And so another layer of that, okay well, my big question is how can they communicate their propositions to the US consumer? Because the US consumer is very different to the UK consumer because the market structure is completely different. It's consolidated on different ends. The big four grocers here practically own the market and just squeeze the winemakers. So you get kind of half cheap wine, but just from a few different wine makers. In the US, it is consolidated on the winery side with Constellation, all those other brands. And so, the consumers pay for the roof in the US. So actually, how do you communicate? What Naked would say is great value and low-priced wine, and you guys won't touch it. So, how do you communicate that to a US consumer who is already hesitant paying 15 bucks on a bottle of wine? And also what channels do you use in the US? Because they use the voucher in the UK. There's a whole communication/sales and marketing piece in the US like cracking that market and obviously understanding the difference in the structure of the market is a big piece that we're focused on. But then beyond that is that one of the big questions that I had originally when I looked at Naked Wine was that actually the lifetime value, CAC ratio is not actually high, it’s not particularly high at all, especially if you're used to like SaaS type metrics and stuff like that. I mean, you're looking at two and a half times over five years, maybe three times, it depends on different cohorts.
Eric Jorgenson: They say three is really- like if you have less than three, you may not have a business.
Will Barnes: Exactly. And so, this is what's particularly interesting about Naked and because someone could look at that and be like actually, they're just not that exciting, those economics. It's funny because the more companies I look at, actually the lower margin businesses I kind of get interested in more these days. Like I think it's more, again, it's these win-win dynamics where you are actually adding-
Eric Jorgenson: More aligned, less risk to disruption.
Will Barnes: You're adding more value. And so the way we looked at it is, yeah, like the economics are not earning seven, eight times CAC over years, but actually you're adding so much value. And again, the retention has to be there. It's pretty decent in the cohorts that they have, but also it could be- also is unknown for the next, for the future. But it's really understanding for us, okay, the lifetime value is not that exciting in terms of relative to other companies in different industries, but actually what is the long-term retention given that kind of rational and behavioral business model, plus also, what are the fixed- Well, what is the leverage, the operational leverage in the business that you can improve that? And I think that's one thing that is not communicated by management enough and is not understood by a lot of investors. And also, we don't completely understand it ourselves yet because you haven't seen it. But like what is the leverage of this business if you're selling 10 times the volume through the business? Like if you're a winemaker and you're producing 500,000 bottles, like what leverage do you get for producing 1.5 million? Because that could change the economics and you have a better business, sticky winemakers.
Eric Jorgenson: Do the winemakers scale? Do we need to add a ton more? Interesting. Okay. And what about Burford? What are the big levers of Burford? And we probably should start with an overview of that one because that one is a little more esoteric than direct to consumer wine.
Will Barnes: This one's pretty, yeah, it's pretty spicy. I mean, the history of Burford is pretty interesting. Really, I mean, where do you start? I mean, you should be hesitant about any new- any financial services business growing very quickly is also like a red flag to most people because you probably shouldn't grow those types of businesses as quickly. But historically, they're effectively defining a new asset class, which is litigation finance. In short, that means that if a corporate has a legal case on their balance sheet, Burford is a, call it, third-party provider of capital to unlock the value of that case. So historically, a corporate would work with a law firm, they would bring the case to court, and there'll be a resolution and a payout to either party. Burford now comes and takes part of that risk away from the corporate and is involved in effectively financing legal cases. So really, they're an investment business. They take investment risk on their balance sheet, and they also run a couple of funds. And the underlying asset is effectively legal risk.
Eric Jorgenson: It is kind of like factory receivables, right? Like it's not an insurance product. It is a like this thing already exists and we're kind of assuming the risk of it for you.
Will Barnes: Well, this is where it gets interesting because a lot of the time the corporate knows they have an asset. Now Burford is moving in to actually helping them release value from their balance sheet because they have all these potential cases, and actually, they're just sitting on the balance sheet. So yeah, the industry, again, this is an asset class that's evolving, but really the bare bones of it is just, yeah, it's just kind of-
Eric Jorgenson: So, the company can initiate a lawsuit and then because there's some expected value should they win that lawsuit, they can go get cash at some discount for that expected value from Burford?
Will Barnes: Exactly. And they do that because they don't want the binary risk. They would offload part of the risk.
Eric Jorgenson: It also feels a little like tempting fate. There's a little bit of a honeypot there that we might not want to- societal externalities are not zero there.
Will Barnes: Yeah. Well, I mean, I think part of the value they provide is basically accelerating the value that's being released from the balance sheet on both sides. And so, I mean, if you look at the kind of legal market, I think it's like 800 billion dollars a year that's been released in claims and settled value, Burford kind of manages like what, 4 or 5 billion at the moment. I mean, it's actually less than that in terms of the actual dollars they have out, 1.2 billion, I think they managed 4 billion. But yeah, in terms of the core business, there's a difference between law- They call it the legal fee business and like the corporate balance sheet business. So, they're effectively working, they're funding the law fees for corporates then taking part of the risk. Because if you're a corporate and you have a claim against you, you don't want to go and pay the fees. It's not your business. So, you go to Burford. Actually, you pay the legal fees, you take part of the risk. It's a win-win. If you lose, Burford for takes the hit, but you as a business, you release capital. It's kind of like similar to what you said, it's like releasing capital from the corporate so they can actually focus on their core business and actually then you have a settled case.
Eric Jorgenson: Interesting. And Burford could be on both sides?
Will Barnes: Yeah, they mainly do- Yeah, they mainly do claimant stuff now, but they're thinking about doing defendant work, yeah.
Eric Jorgenson: What are the like what really matters in the Burford case?
Will Barnes: Well, I mean, this is completely different. This is kind of like- I mean, it's like is this business a fraud? Because it's priced like it's going bankrupt. I mean, if you look at the recent investor data, management effectively came out and said that it is priced at liquidation value. And that was because of the big short report previously, yeah, and muddy waters and big short came and questioned the accountant and stuff like that. And I think this business gets back to actually what it does for most things – do you believe in the management? And do you believe in the people running the business? Do you believe they are aligned, they have high integrity? Do you believe in the economics? Which is kind of like every business. And you never truly know what's going on from the outside, looking in. And so, it is sort of a spectrum. And this situation, Burford management arguably has still stuff to prove to the market given where it strayed, and you won't know until, well, they have a big case coming up in May, the big YPF case, you'll see then potentially if investors will pay attention.
Eric Jorgenson: Did you have a stance on the- like your personal feelings on do you trust management, do you believe in the integrity, the alignment?
Will Barnes: I think it's hard to argue that the two guys running Burford don't have high integrity. Now, it depends- there are arguments that they really don't. I mean, if you go and look at the way that they monetized one of their big cases in YPF, if you look at the wages that they potentially paid themselves prior to listing to US where you don't have to- in the UK, you don’t have to declare how much you earn. But again, you can- it's all perspective, interpretation, of those things. Like if the guy's paid himself a couple million, is that unreasonable for the returns they have? It is your own personal opinion. Obviously, you want everyone to be completely aligned, but yeah. I think given how it evolved from the muddy waters stuff, given how the business has been built and the way they communicate and arguably the reputation they have in the market is, from my point of view, it's hard to argue that they haven't got integrity. We will find out.
Eric Jorgenson: Yeah, interesting. Well, it will be fun to see it play out. Okay. So, I'm going to ask you guys an impossible question, and I want an answer from both of you, even though you're both going to hate it. How many companies can you list that you believe are on the hundred highest quality public businesses in the world today? They're both just like flinching and holding their heads and like angry at me. A reasonable answer can be zero. If you say a hundred, I’ll think you're lying. But I think it's like-
Will Barnes: So, you're asking me how many of the hundred best companies do I know?
Eric Jorgenson: Yeah, how many do you feel like you could- yeah.
Will Barnes: But my version of a hundred could be different to yours, right?
Eric Jorgenson: Absolutely. This is a very- everybody's going to have a different answer, but I think-
Will Barnes: I mean, some of the best businesses, obviously, and again, it moves every day. It evolves every day, every year. But we're talking like Berkshire, Constellation Software, TransDigm, Microsoft, Google. These are some of the best businesses arguably. Amazon is probably one of the best businesses I've ever looked at, arguably. And these are some of the best businesses that the world has ever seen arguably. I mean, Microsoft probably has the- is probably one of the only businesses in the- Microsoft Office franchise is probably the highest value piece of software- of any business that has ever existed. I think that is probably the best business I've ever seen. And then, beyond that, there's many different emerging businesses that we look at that are truly high quality and that's excluding all the private ones, which we haven’t discussed.
Will Oliver: Which is a really interesting aspect of this conversation. There's the public realm that we can all participate in. And then there's the element of quality in the private sphere. And in my experience, I see a lot of really underrated, really long-term thinking and extremely coherent behavior, coherent at the level at that later stage of multi-party stakeholder that we were just talking about. It's businesses that are aligned and resonant with- businesses like Ikea taking your furniture back, the announcement they made the other week.
Will Barnes: Audi, Lidl, there’s a bunch of businesses like that.
Will Oliver: Yeah, these big retailers that, by the way, have low margins.
Will Barnes: And there's loads of German [inaudible 1:23:15] businesses that are high quality. There are loads of these family run European businesses that just have a craft, [Hermes 1:23:25] LVMH type businesses that just serve a very small niche that have exceedingly high quality. But then if you compare that to Amazon and Google, like these are just completely different beasts obviously in terms of scalability.
Eric Jorgenson: I like- the separation of quality is interesting. Like we can talk about quality without talking about whether it's a good investment or not. And Munger would say there maybe no difference. Like filtering for quality is probably a more interesting question, I think, for sure.
Will Oliver: Well, it takes you to interesting places, and especially, it takes you to interesting places when you really go I think as deep as you can on quality. I'm not sure there's that many businesses I could put on that list. I couldn't find anywhere near a hundred businesses that are coherent on the level of shareholders, employees, customers, local community, and future generations that are actually embedded in a categorical win-win dynamic with future generations. And there you get into- I think it's work in progress for us. It's these are the kinds of things that we're looking to dialogue on with some of the world's leading investors, some of the world's leading operators. This is what's so much fun is to bring people to the table and actually really explore what it means to be resonant with your stakeholders. Because I think it's associated- the higher quality time is a friend of quality. And I think there are really interesting ways in which- and it's a whole other, as you were saying-
Eric Jorgenson: Time is almost the proof of quality.
Will Oliver: Well, it is, and quality is a relationship between quality and something that is sustainable. Something that- if there's a win-loose dynamic, one party isn't coming back, unless it's coerced to do so. So that leads you down a rabbit hole of market power and how sustainable that might be. And in one economic regime, that might be sustainable, but over a series of economic regimes, in the US, the history of the US is the evolution of US capitalism. You've gone from an era of extremely high industrial and political- concentration of industrial political power to the dissolution of that under the New Deal, the explosion of an antitrust regime in full force until the 60s, 70s, AT&T, Standard Oil being broken up and increasingly a reconsolidation of industries. What really lasts is a part of the story, and that takes you into really interesting places in the debate.
Eric Jorgenson: Yeah. And I think the purest form of expression in this question is what can you build? And so, I think as a final question, I want to hear where you want to see In Practise in 40 years and how you guys will live this sort of appreciation of quality and alignment and interest in pursuit of truth.
Will Barnes: I hope it is alive. Step one, survive. And then it goes back to this thing, like this is why we focus a lot on what is authentic to ourselves because something that has to last that long has to be truly authentic to who we are, what we believe in, how we want to live our lives. We're not necessarily- we aren’t doing this to spin up something and sell it in a few years. And we haven't capitalized the business to do that. We haven't, wrongly or rightly, it's just the decision that we've made, and we're not in this for that reason. And so, we focus a lot on how do we want to live our life? What do we think the world needs? What do we think our customer needs? And what is truly a reflection of who we are? And it will be that. Who knows what that will be. It might be selling pet food online. Who knows, man, you never know. In Practise might be like the next Chewy.
Eric Jorgenson: Will Oliver is going to be, I don’t know-
Will Barnes: He'll be like the mascot.
Will Oliver: Yeah, there's a mascot under the desk of a hamster. No, but I think it's- like there's certain- because I think, Will, the joke speaks to something that I think is actually pretty important to us, which is just like let's start with like don't really know. And start with I actually don't really know. We have a set of principles, which I can articulate and Will can articulate, and I would be glad to do so now. And then there's the function of iterating on those principles and iterating in a way that's hopefully reasonably authentic, otherwise we'll get bored and I'm not sure anyone will be having much fun. And so, in terms of the principles, it's really around this journey of investigating quality, this journey- and it's also another cliche thing, it's really hard, I struggle myself to say, but this question of the pursuit of truth is how do you actually build a system to pursue truth? So that has components, and one thing that's reasonably likely is that the experience involves a community, a community of operators, a community of investors. You look at the stakeholders in the system, you have those operating, those providing the capital to those who are operating, you have educational institutions that are training people to move into both sides of that equation. And if we get this right, I think this will be a trusted space to bring people together to learn in ways that are better, faster, cheaper. That's a big- it's enhancing that flow. So, and I think then you can layer on sort of conceptually, well, what sort of business, what sort of models maybe are we attracted to? Can we make sure that we're giving a ton more value than we charge for? And there's that whole tactical dimension. But really, maybe what's most interesting is this quest for community, this quest for better conversations, better dialogue and creating a trusted space where people can actually exchange ideas, because I don't think it'd be such a bad thing if everyone for 20, 30 bucks a month could learn about how the best businesses in the world operate.
Eric Jorgenson: No, that feels like an incredible education, even if you're not placing bets on those companies. If we can even come close to answering that, it certainly will be fun and lucrative and educational. And of course, the real returns are the friends we've made along the way, which it's fun to bring people along, like one-to-one and one to many. And I've been very grateful to get to know you, and both Wills in this process and Blas and this whole community of people who are kind of attracted to questions like this and hang out in the places like Latticework and everything else that we do.
Will Oliver: Amen to that.
Eric Jorgenson: Well, I want to hear and maybe the last thing- we're well over, as I knew we would be because every time we've ever talked, we've exceeded the length of time that we set that we would talk because that's how we roll. What are those principles that you mentioned that are guiding In Practise? I think this is something I appreciate about you, how thoughtful you are about the long-term orientation, the win-win orientation, the consideration of all stakeholders, community, the pursuit of truth, not just in name but in structure, understanding that you have to kind of create the environment that educes, to use your word, and allows for the true uninhibited pursuit of truth. So yeah, talk me through some of these principles of In Practise. And then let us know where people can get involved in this community that pursues truth and what kind of help we can provide.
Will Oliver: I would articulate it as follows: There’s this North star of quality that, as we explored earlier, is like pretty hard to get your hands on, but there's something about like being committed to what are the most beautiful questions we could ask around quality? And what does that mean for each of the stakeholders we’re involved in. And that gets you pretty quickly to win-win. And so, there's quality win-win. There's a real effort to focus on inputs over outputs, and that is so hard. But when you start thinking about quality seriously, then it becomes a lot easier. And I think as we've gone on this journey, it's just our ability to focus on inputs over outputs and be careful about what we measure. We've grown a lot in that sense. And a lot of that's due to actually cultivating a shareholder base that can work with that, that's aligned. And I would say, I don't know if I would complicate it much more than that. I think if we get those things right around quality and win-win dynamics, in service of relationship between quality and truth, those are joined at the hip. And then, some degree of service. I mean, this came up a number of times, we're eating our own cooking and are excited to always find ourselves at the heart of the operation in terms of consumers of what we're trying to build. But my God, there are so many things we have no clue about. And that's where the community aspect is deeply exciting because I think there's something about- I mean, Dee Hock talks about community. He says, he has this line around it's not what a community can do for you, it's what you can do for a community. That's the basis of community. Communities that work are fueled by people that are more interested in giving then taking. And this is where I guess we've circled back to Munger, and you can get all metaphysical about quality, but actually the insights that he and the guys at Berkshire had are just pretty insane on that level. And that's what's he done? He's gone bottom up through biology and looked at systems and the whole Santa Fe angle, systems theory and what lasts ultimately.
Eric Jorgenson: Yeah. I mean, the idea of exploiting under-recognized simplicities, that what looks like genius is usually something simple taken very seriously over a long period of time.
Will Oliver: Right. And because I don't think, it's a bit to that point, I don't think anything we're doing is really unique. It's combining probably a few half decent ideas and-
Eric Jorgenson: That is what I love about learning about In Practise and becoming friends with you at this stage. I think we look back and idolize some of these companies like Costco or Nucor Steel or Glenair, and you look at a 40-year track record of compounding at 20%, you're like, wow, that's incredible. And it really becomes incredible when you see it over 30 or 40 years. And I think what's interesting now at our stage of life is kind of like looking around at the people who you think are actually in the first 10% of that journey who have that perspective and who you can imagine now going decades continuing to sort of practice those disciplined, simple, long-term compounding things, and I think In Practise is an amazing example of that. And you and Will, as a result, like your role in that. I can totally imagine sitting at Lake Como with you in 40 years and looking back and being like, hey, it worked, unrecognized simplicities over a long period of time. And I hope that's how this feels the whole time.
Will Oliver: Yeah. I hope, I think that's very generous of you and it certainly from the inside doesn't feel like we figured much out at all. But I mean, I don't think we have anything better to do than give it a good shot.
Eric Jorgenson: Yeah. Love it. And you’re living the truths that you're learning. Thank you guys both so much for taking all this time and then some extra time and teaching us everything that you can about what you've learned and how you've learned it. And I think I certainly learned some things about conversation and research and truth, and I'm excited to keep learning from In Practise and keep learning from you and be a part of this community. I've got to go finish my homework that you gave me on assessing quality, and hopefully we can keep chipping away at this important question.
Will Oliver: I look forward to chatting about that. We're going to be running a series of dialogues on that with some wonderful human beings over the next few months specifically on the topic of quality in a local business context, which is part of the In Practise offering. And then I think another project is getting a bunch of people together to have some conversations, to get deeper on these topics that I think we opened up today. Because, I mean, that's absolutely fascinating and it is such a slippery topic and making that- [Miguel 1:37:47] tries talks about making a right left right transition. That's the basic model. If you distill the core of his work, it's taking- you could almost look at it as a stage, maybe to end on this note, and I really owe a lot to Tom Morgan actually for drawing attention to this. He's written some beautiful, oh, a number of beautiful articles on [Miguel]. He talks about it so eloquently, and it's really helped me articulate the reading, which is the idea is to reach the simplicity on the other side of complexity. It is to have the open awareness, the creativity of a child, but after going through midlife and this sort of crisis reality sort of punching you in the face, the complexity of the world, the brutality of the world, and to come out on the other end with an integrated worldview that harnesses that sort playfulness and the genius, the creative genius and openness of a child to its environment whilst also being able or having deconstructed the system and having a sense for the more practical dynamics. So, that's the right hemisphere, the open awareness, takes in a situation, the left hemisphere deconstructs it, which is where your work comes in on leverage. And a lot of what you've published has been super helpful to us on that level, which is essential to then moving to an integrated perspective, or it's a gateway into a return to the right where you take what the left surfaces, reintegrate it, and then hopefully you have a deeply embedded sense of participation in the world, a sense of- and a very practical way to relate to it. So, you're combining, it's really another way to put it is combining sort of the science and the sacred. And not either or but both.
Eric Jorgenson: Yeah. Neither is sufficient by itself for I think a full life. So, tell us where we can go find you, find your work, follow up, and participate in some of this. So certainly, In Practise. Are you both on Twitter?
Will Oliver: I would say for our American listeners, In Practise is with an S. There's a story I'll share maybe some other time around why that is. We suffer its consequences. But In Practise.com with an S. Twitter underscore- or @_In Practise with an S, and those would be the two places.
Eric Jorgenson: Awesome, thanks so much, Will and Will. I'm excited to talk to you guys shortly and to see kind of what comes, how the community forges around this. And I hope we took another step of it today.
Will Oliver: It was great fun.
Eric Jorgenson: I appreciate you hanging out with us today. Thank you so much for listening. I encourage you to check out some of the essays and interviews on In Practise and also to check out some of Dee Hock the CEO of Visa’s books; they're deeply fascinating, nothing like what you are expecting, and I'll be reading more of them and refreshing in the coming weeks as well. If you liked this episode, you will also love my episodes with Andrew Finn, Phil Huber, and Andrew Wilkinson, also very thoughtful investors and life aligners. And that's my parting thought for you today – how aligned are you? How many purposes are each of your efforts serving? How can you find ways to overlap some of your favorite activities to serve your long-term goals?
I really appreciate you hanging out with us. This is all about laughing and learning, building leverage, and compounding our faces off.
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