Billionaire Compresses 20 Years of Wisdom Into 75 Minutes - Dharmesh Shah

I'm doing okay. I'm doing okay. Uh, thank you.

If all you do is spend 100% of your time converting your labor into value and do not increase your leverage, you're not going to get anywhere.

Never in my mind has it been easier to get to that first million than right now. There was no good way to squeeze this in, but I can't not say it. I'm going to, I know I'm going to regret...

Okay, let's start with opening remarks. The first is what I'll call an unhidden agenda. And my unhidden agenda, so I have a picture of a Venn diagram. I love Venn diagrams. Circle number one, I want to talk about things that I think I have useful things to say and some expertise. Uh, so we'll definitely talk about AI and agents and things like that. But the other circle is things that I think are borderline guaranteed to increase the probability of you, the audience, making your first million. Thing number two is that in order to do that, uh, you know, we have at HubSpot, we have a culture of, uh, humility. That's one of the core five values at HubSpot. And I said this particular line, uh, to employees at HubSpot. I don't think I've ever said it outside of HubSpot, but I'm going to, uh, solve for utility over humility. So if there's a way to say something that's going to be more useful as a result of... and but in order to do that, I'm going to have to say something that's non-humble. I'm going to go and say it even though it's non-humble because it increases the utility of it. And there will be a couple of moments, um, that are completely non-utility and non-humble as well. So that's a couple of twists in there.

Not, not everything. Um, so confession, on this particular, in this particular case, not only did I watch my prior episodes, read through the comments, but in the process of that, I saw the leaderboard on my First Million YouTube channel and I'm number five. And you don't know this about me yet, but you will. It's like I've never met a leaderboard that I didn't want to get on the top of, right? It's like, okay, what, what happened here?

So let's, and I'm not going to give you an auto bio. What I'm going to do though is I'm going to take us back in time a little bit because in order to kind of understand some of the lessons that I thought now in hindsight were sort of the most valuable for me, I didn't know this at the time I was living it because we often can't pick that up, but I think will be useful. So I'm going to go back to where I first immigrated to the US. I was in my early 20s, um, and I was here just on a visit to my parents who were living there. I was in Indiana and applied for a job at Pizza Hut, rejected. Applied for a job at Big Lots, rejected. Applied for a job at Red Roof Inn, and because I was Indian and my parents were actually running, like, they automatically assumed that I, like, I'd known things. I'd, like, only been in the country for like three and a half days.

Yes, motel. And that's exactly what we had. We had a motel, like, yes. Um, and it was not even like a franchise motel. It was one of those. Anyway, um, and so this was for the night shift, right? So that might be partly why I got it. So it's like 11:00 p.m. to 7:00 a.m. And that's the only thing that would work for me because I was taking classes, uh, during the day. And, uh, so a couple of things out of that particular experience, and this I think will relate for a lot of folks. So in the early parts of most people's career, um, you're working retail, you're working some sort of job, um, and you have what I call your currency. And your currency is what's the kind of time value of your time. It's like, oh, you're making $3.65 an hour, which is what I was making the kind of early, early periods. Um, and you're taking that kind of currency value, multiplying it by how much time you, how much labor you expend, how much time you spend doing whatever it is that people are paying you money for. And that's pretty much the production value. That's how you create, you know, create some money in the, in those early years. So mathematically, in that particular equation, there's only two ways to make more money. One is work more hours, and the other one is to raise the currency, raise the price that people are willing to pay for your time.

And that time I was looking for all the hours I could get. It's like, I, I want to work more hours. And if someone cancels, someone like, I will be there. Just give me the hours. Like, put me in, coach. Um, can't believe I made a sports reference. I don't do sportsball, but anyway, um, it worked. So, so here's sort of the kind of the lessons. Like, you start there and you're going to end up spending a large part of the early part of your life, let's call it the first half, converting time into money in various shapes and flavors. That's effectively what you're going to be doing. And then you're going to spend the latter half of your life, approximately, desperately trying to convert money back into time. That's, that's what happens. That's, that's life. Um, and so we go back to why I'm converting time into money, expending the currency. There's going to be, um, this automatic increase that happens in your currency simply as a result of tenure. As it turns out, companies pay more for experience than they were. So even if you're the same job doing roughly the same thing, you're going to get some marginal increase, not much, but it's going to go up. Now, my argument here is that in order to really kind of break into, like, you're going to start to have to kind of accrue money. If you're in debt, you're going to have to get out of that first. Um, but you're going to need to get some sort of leverage. Leverage says, okay, what can I then not leverage in the kind of leverage buyout, but leverage in the kind of Archimedes sense. Uh, the guy quote, Archimedes quote is the, give me a lever long enough and a fulcrum on which to place it, and I will move the world, or I shall move the world. And what's interesting about that, that quote particularly, and that's a physics thing. I love, uh, math and physics-y things, is that, okay, so that fulcrum is actually very, very necessary. You need a point on which the, the lever is going to pivot. Um, and the degree of kind of amplification you get for your force, that's what leverage creates, is how far you are from the fulcrum. So the kind of the lesson is, as you're spending your time, if all you do is spend 100% of your time converting your labor into value and do not increase your leverage, you're not going to get anywhere. So what you have to do is you have to allocate some percentage of your time to say, even though someone's not paying for this particular time, I'm going to go read a book, I'm going to go do this, I'm going to do a seminar, I'm going to meet a friend, whatever it happens to be. You have to kind of make that investment. You have to carve it out. Otherwise, you never get the leverage necessary in order to make it that first million. That's like the number one lesson. And the thing that I did that was, uh, very, very useful that I still carry to this day is that you sort of have to carve out literally some amount of, uh, dollars for yourself. And time and money are equal to me back then. It's like, and what I mean by that is like, I'm going to take 10% of all the money that's coming in right now, I'm going to spend it on books, on things or whatever that's going to kind of improve my value. It's funny because even in my first job, and we'll talk about this in a little bit, is like they wouldn't get me like a fast enough computer, wouldn't get a... It's like, I don't care. I'm not looking for approval from anyone or whatever. Like if something's in the way that I think will improve like who I am and increase my currency, I will spend that money. I won't expense it. I don't, I don't care.

Books were the highest, um, and I read, uh...

So there was, um, there was an author called Harvey Mackay who wrote some very kind of pedestrian business books. Now, by today's standards, not sophisticated at all, but realized like at that age for me, it's like, this is brilliant. It makes so much sense. It's, uh, one of the books was titled How to, uh, Swim with Sharks Without Being Eaten Alive. I think that was one of his, um...

Yes, exactly. Uh, there was another one that was less about business, but still, it's like Everything I Need to Know I Learned in Kindergarten. And these are like basic, very, very like basic, basic things. But it's one of those that it's like, if you're an alien from another planet, which is what I felt like a large part of my life, it's like, oh, so this is how the world works, kind of thing. It's like, you know, it seems shockingly obvious right now. It just wasn't shockingly obvious to me at the time. All right, so that's kind of lesson number one. You need to go and get lesson number two. So after my Red Roof Inn, where I was night shifter, they had a computer there, which was one of the nice things to do their accounting and had to close the books. That was part of my jobs. That was some of my early exposure to computers. But then I was able to get a job at U.S. Steel.

And that was my first real programming job. And they would hire, they hired me as an actual software developer at U.S. Steel. I was still going through school, working on my undergrad. Um, and it was great. I loved, uh, you know, loved the work. And the U.S. Steel plant that I was working at was in Gary, Indiana. And I don't know, things may have changed now. I don't know. Uh, Gary, Indiana was at the like top of the list of like the place you did not want to be, as it turns out. Indiana overall was, you know, fine state, but it's like very northish, uh, and very cold. And I had just come over from India. And so I did a very me thing to do, which was it's like, okay, well, I have a job at U.S. Steel. It doesn't really matter. You know, I'm talking to a mainframe. I'm writing my code or whatever. Do they have other places? Like it's a big company. As it turns out, U.S. Steel has a plant in Birmingham, Alabama. Did not know where it was. Never been to Alabama. But one thing I did know was like, oh, it's more south than here. Thing number one. And number two is like, it's not Gary, Indiana. So the mathematical odds of it being a worse place, because I looked this up, is like, are slim to none. So Birmingham, Alabama, still not one necessarily at the time, um, best places to be. But I'm like, so I requested a transfer. It's like, hey, I'm working at software. I know I'm new, but I see that you have a plant down in Birmingham, Alabama. Can I go work down there? And they said, sure, knock yourself out. So I get down to Alabama. I'm working for U.S. Steel. And I'm an impatient person, but I was like working like, okay, well, and I was making, uh, I think it was like around $27,000 a year, which was a lot better than I used to be making at Red Roof Inn. And it was a full-time job, like because I didn't have to like grovel for hours or anything like that. It was an actual salary, which was awesome. The thing I learned though is like, okay, so how do I like progress? Like, how do I kind of grow? And the thing I figured out, um, and this was said to me by kind of my manager, he almost said it in these kind of words, which is, look, if you're not making steel, shipping steel, transporting steel, moving steel, or selling steel, you're overhead. And like, that's the like the time that the epiphany like sort of hit me. It's like, well, I don't want to be overhead. Like, I don't want to do that. And so then like, this is once again, I'm a very, very simplistic guy. It's like, okay, well, my thing is software development. Where do I need to work where I'm not overhead, right? And so then the kind of extrapolation is, oh, well, I need to work at a company where software is the actual product, just like steel is the actual product for U.S. Steel. I need to get closer to kind of what the actual value is. So I opened the Sunday paper, which is what we did back then. This is pre-internet days. And I'm like, look for jobs at companies that are software companies. And so I applied for a job at a software company that happened to have a job ad in the paper in Birmingham. And it was a place called Sylard Data Systems. It was a software, bona fide software company. Applied for a job there, um, got that job, which is awesome. And that was life-changing of itself. It's like, okay, software companies when it comes to software developers are much better treating developers than non-software companies, as it turns out, as a rule. So like, this is awesome. And so the kind of the file away lesson here would be, um, your value is kind of inversely proportional to the distance from the actual value creation, whatever it happens to be. So if you're not in there, find a way to get there, whatever. I'm not saying you have to be in software development, but like the guy, like my manager had said, you have to be making steel, selling steel, or shipping steel, whatever. Everything else is sort of meta and just overhead. And once again, this was the 90s, right? I think people have a more nuanced approach to how value gets created. But if you have a chance to get closer to the actual customer, closer to the actual product, uh, you should take that. That will kind of increase your leverage, increase your currency. So I'm working at Sylard as a software developer. Um, and this is a good story I'll share. There's high utility in this story. So I'm working there and I'm making, I think it's around $40,000 a year, um, at that time, which this is 90s, early 90s, give or take. And believe me, that was actually pretty good money. Um, so they paid me. And the thing I was doing, um, is that, uh, Sylard software product was like a mainframe product. So it had the character mode terminals that you guys see in the movies now. Well, there's still mainframes out there, but most normal people don't have to interact with them. But anyway, but they were in the process of trying to build a graphical user interface, which is the latest thing back then that interacted with their mainframe. They wanted to offer like a Windows kind of GUI on top of their mainframe. So my job was to take this character mode screen and create using this drag and drop tool, a GUI equivalent of that particular screen. There were hundreds of screens in the Sylard product. It was a big kind of multi-million dollar product. And I'm like, well, this is stupid easy. And we had consultants on there because they were trying to kind of accelerate the development. And the consultant, I remember this vividly, was making $125 an hour to do this, uh, what I thought of as being relatively rote work, right? I'm like two months into the job. Um, so I go to my boss and I'm like, you know, we're paying these guys $125 an hour and all they're really doing is dragging, dropping based on this character mode screen or whatever. This is not software development. And by the way, this is so trivial. My brother, who has not graduated high school yet, he works at the Piggly Wiggly, which is a grocery chain down the South. Even he could do this like in a day. That's how... Why are we paying these people $125 an hour? Does not make any sense. And so my boss said, bring him in. So I brought my brother in. He's 17, uh, still hasn't graduated high school. Showed him what we're doing. He like, okay, look at the screen over here, do this over here. You drag and drop in here and I'll review your work at the end of the day. We didn't know what to pay him. Uh, so we paid him $5 an hour. So my brother starts working there. I'm there and we're cranking along kind of building this new product. Uh, I hired all my classmates, uh, from undergrad because that team is growing. We're kind of doing this new product, uh, at Sylard. And I continually kind of get, uh, impatient. I'm like, okay, well now I'm at a software company. Now I know the value that I'm creating. It's like, okay, like what gives? And I'm so I'm like constantly kind of going back to them. It's like, like what do I have to do? I'm still an individual contributor, by the way. I don't, not managing anybody, but I'm like, I get the way this stuff is working. And so they were actually super, super nice and generous. And so they kind of bumped me and kept bumping me. And it was only there for like, I think it was like 14 months or something like that. Um, and so eventually they were paying me like a quarter million dollars a year in Birmingham, Alabama in the early 90s. And I've only been there a year and a half because I was able to kind of connect the dots on the value being created. And then I sort of got tired of, because I think it was just kind of wrong of me to keep going back to them because they were paying me like really well, right? It's like, okay, well, like I sort of hit my ceiling of what's reasonable now for me to ask of this software company, um, to pay me. He like, okay, well, what do I have to do? It's like, well, I have to get closer to the value creation or whatever. It's like, like start my own software company. That was the kind of, I had no product idea. That's like, oh, this is the thing I need to do. Like, like that thought that went into my head is like, oh, in order for me to like do better and kind of get more leverage on my time, I'm going to now have to leave Steward and go do my own thing and figure out like software to build and go do this. And the one thing I do know like how to do is make developers happy because I hired, you know, I hired all my friends. I like, I know what makes a developer click. And that was the genesis of my first startup. And the lesson here is that I'm going to have to share this, this one story. I'm going to regret this because, uh, I'm going to share it. It's a good story. Um, so in one of those kind of discussions, um, with my manager, what I'm going back, it's like, okay, like what else do I have to do? Uh, I didn't have any particular number.

26, 25.

Yeah, roughly 27 somewhere in my, yep, 25 or 30. Um, and so pay was starting to get ridiculous. So he came back like, Dharmesh, do you really think you're going to find that many companies that are going to pay you X amount of, you know, like $200,000 or whatever it was that would have you taken in that conversation? And this kind of came to me in the moment. Um, and the line I came back with was, well, as it turns out, this is the very kind of mathematical side of me. It's like, I really don't need to find that many companies that will pay me $200,000 a year. I just need to find one. And I think there's one out there. That's all. It wasn't on a threat. It was a very, just a very measured, like logical, like a Spock-like response, right? Like, like that's not the function we're solving for. We're not solving for, you know, what is the local maxima in terms of how many companies are out there that will pay, you know, and what's the standard distribution. None of that matters. Like, I don't need to find like a hundred of them. Like, I'm mobile. I'm willing to go anywhere. It's like, I'm willing to bet money that if I looked, I could find one, right? Like, that's, um, like the most.

Like, no, but the good news is I didn't need 100. I need one. And I believe that there's one out there. And that, you know, that applies to dating. That applies to being successful at one bit, you know, making one business work will do enough to change your life. And so that there's two lessons to draw from that. Uh, one is you, the power of negotiation, uh, which is one of my other, like one of my favorite books, most recommended books is, um, uh, Getting to Yes, which from the Harvard Negotiation Project. And that's the one book I think I've read like four times now. I reread it, um, like every few years.

Most people, when they think of a negotiation, they think about this kind of adversarial, it's me as a zero-sum game. This is what's happening. And as it turns out, most negotiations, uh, both in life and in business, um, are actually not like that. And that first-order thinking in terms of like, oh, like, you know, my objective is to get the lowest price and their objective is to get the highest price for the thing I'm trying to buy for them, whether it's a house or whatever. And that's not the way to think about it. The way to think about it is to identify what your actual needs are. What's truly the thing are, if you're solving for price, fine, but recognize that and do your best to identify what the other party's needs are, because there is often, very, very often, a path that actually will optimize for both of you. And that's actually a better path than just try to divide the pie and fighting over price or whatever. There might be something else that's actually more important, right? Um, and so this applies to so many different situations. And we like, I'll give you like a tangible example that I think a mistake companies make building their operating system in terms of how they run was something that HubSpot has taken to heart is that we automatically think that what you people are solving for is like compensation, number one, and autonomy and discretion and scope. Like, and those are all important. As it turns out, the number one on the feature list of what people want is actually flexibility. Like if they would trade a lot of other things in exchange for flexibility, right? If you can just get to the bottom of that, if you understand that, then you can sort of trade off other things that might actually have a higher price to you. Like, but flexibility, like, okay, like we can do that. Yeah, there's a cost to it, but the cost of not providing that flexibility is actually much higher because the talent density is going to be lower. We're going to have to pay more, all things being equal. Um, but anyway, that's the big lesson from, uh, Getting to Yes. There's a bunch of other ones. It's an easy read too, by the way. It's not a particularly like dense, heavy read. Um, I even if you're not in business, if you're just in life, uh, it's a book worth reading.

Let's say you're negotiating something that I think is a, uh, what I would call a non-commoditized thing. It's hard to figure out the price. It's a unique property. It could be a house somewhere where there's not 100 houses on the street. That's just something that's unique and hard to find comparables on, whether it doesn't matter what it is. Uh, the temptation is to go in as a buyer and say, well, it's got this wrong with it, this is wrong with it, that's wrong with it. I'm going to have to fix that. And it's like, it's, you know, and to try to kind of drive the buyer's expectations down, that's actually not the optimal approach, uh, in, in this situation, these kinds of situations. And the reason is the visceral reaction most people have that are sitting on a unique property like that is, oh, like he doesn't actually understand the value. He's poking his holes all, but he doesn't get the fact that this, this, this and the other thing. What I need to do is find someone that actually appreciates the value of this thing and then I'll do better on the price, right? And there's no objective value because there's no comparable, like no one really knows what the actual fair value is. Now flip that on its head. Let's say I went to that same property. I'm like, this place is fantastic. I love it. Let me tell you the things I love about it. Let me tell you why. Like I am like all in love with this thing that you're selling right now. And you go through that and it has to be authentic, has to be genuine. I'm not making this up. Um, and then I put my price out there. It's like, you know, here's what it is. Now the seller has to say, okay, well, am I really going to fight? Like, I don't know what the price is. This person seems relatively clueful. He loves this place. Am I going to find someone else that loves it more than Dharmesh loves it? Probably not. Like he, so he gets this thing or whatever. So maybe his price is probably what the fair price should be, right? Like that he seemed like a reasonable guy. So that say it takes people's guards out. And this only works, by the way, when you have, well, those kind of rare is hard to find comps, whatever the price is not really objectively known. It's hard to kind of try relate to a like a quote unquote true price. Um, anyway, that's my, that's great. How negotiating tip of the day. So okay, great.

Let's say there was an objective truth function that says, okay, this was in this particular situation, the right decision to make in whatever, uh, situation you're in right now. That objective truth function, if we had run against all the decisions I made in that first startup, I think my hit rate was actually pretty high. And the hit rate of lots of founders, because our natural instincts in that situation actually turned out to be good instincts, like being like resourceful and not kind of spending too quickly or whatever, taking your time, doing all the things that kind of came as natural instinct. And I was not a natural born entrepreneur, was probably likely why I have the insecurity. But in something like a, like a startup or entrepreneurship, there's a bunch of decisions you're going to make. A lot of them maybe may or may not be optimal, but what was definitely suboptimal in hindsight was second guessing myself on the second, like I'm going to do the opposite of what I did my first one because it's like, like what a chump I was back then. Uh, so I'm going to go, I'm going to do a speed run. I'm going to do it faster. I'm going to write a $500,000 check to myself on day one to fund the thing or whatever. It's like, like who has time? We don't have time to go through those kind of cycles or whatever.

Yeah, yeah, well, yeah, yes. Um, I had, so it was a kind of Facebook before Facebook for small business. It was like effectively a CRM. Uh, so I've been working CRM now for a long, long time, built for small businesses. And this was right in like the 2000 timeframe. So right as the bubble was bursting. And the first company was not an internet company. This was, it was a web-based, uh, information management tool for small businesses, uh, around customer.

It was called Captivo. Uh, C-A-P-T-I-V-O.

Um, so once again, because I was going to do things differently this time, I wrote the first $500,000 check and I kept writing checks. I'm like, I have money. Why would I not like just fund it myself?