Better Doesn’t Win. Different Does. | Mike Maples Jr.

If I'd said yes to Airbnb, I would have made 6,000 times my money.

But probably about 85%, because if I'm world class, I'm 85% likely to lose money. And so it's like what they call in statistics, conditional probability, right? It's like given that it's 85% likely that I'm wrong, how big does it have to be in the case that I'm right?

20 times my money on the first check about 15% of the time, and 100 times my money on the first check about 5% of the time. If I can do that, I can be really good. People who change the future have to be more brave, and they get subject to a lot of ridicule. And so I think it's good every now and then to just pause for a half step to imagine, well, what if they're right? I would say the hardest part about startups to figure out is the timing. There's an efficient market for startup ideas. And so the question becomes, when is it going to happen? Why now? Why is now the time?

Okay, really quick. So I was born in Oklahoma. My dad worked for IBM, so we moved all the time. My first job was professional calligrapher. Went to college at Stanford, got into computers, Silicon Graphics, a couple of startups, and then started Floodgate for the last 20 years.

We'll get to that.

Let's see. So Twitter was a little bit of a forward fumble. You know, growing up in Oklahoma, I was a Sooner fan, and so we watched college football a lot. And I started out by investing in this company called Odeo. And Odeo was a podcasting company. And the week after my check cleared, Apple decided to give podcasting away on iTunes. And so Ev tried to make a business of it and he couldn't. So he gave everybody their money back. And so he said, 'You know, I'm going to give you your money back.' And I said, 'You know, you don't owe me anything. You win some, you lose some. I took a risk. It didn't work out.' But some of his investors were disenchanted, so he decided to just give everybody their money back. So one day I watched Twitter take off, and it was really hard to watch at first because he had told me about it. He said he's got this new thing he's working on. He's either going to call it Voicemail 2.0 or TWWTR. And I asked him, 'Okay, well, what is Voicemail 2.0? What does TWWTR do?' And he says, 'You say what you're doing.' And I'm like, 'Okay, well then what happens? What do you do after that?' He said, 'Oh, that's it. Oh, I forgot, it's you say it in 140 characters or less.' And I said, 'Okay, and what's the revenue model?' And he says, 'There is no revenue model.' And I said, 'Well, what's the roadmap, you know, after 140 characters?' He said, 'There is no roadmap.' And I was like, 'Well, Ev, you know, why do you think this is a business, much less even a product?' He said, 'Oh, I have no idea if it is.'

But you know, before I was doing podcasting, I did blogging software, and about a million people wrote blogs. And I thought if I made it really easy, maybe 10 million people would do this. And if that happens, then the burden of proof is on people who are negative. And so I was like, 'Okay, yeah, that's kind of cool.' And so then it blew up at South by Southwest, and I just thought I wasn't going to get into it. I thought it had a life of its own. And one day he called me and said, 'You know, did you mean it when you said you wanted to invest in Twitter?' And I said, 'Hell yeah,' because then it was pretty obvious. And he said, 'Okay, well, now's the time.' So that's how I got in, and you know, it ended up going up from there. We invested at a $20 million valuation, and it got about 600x on top of that. So that one, that was a good one.

Yeah, I call that a thunder lizard. That counts. Yeah.

Oh, well, yeah. I don't want to... Okay, yeah, because that was before I had a fund. So that was just my own money. So yeah.

Yeah.

Yeah. So Lyft came around as Zimride in 2010, and it was introduced to us by Leah Busque, who was the founder of TaskRabbit. So Ann's first investment was TaskRabbit. So Leah introduced Zimride to Ann, and we invested $750,000 at a $5.5 million valuation. About two years in, they had this new idea. The iPhone 4S came out, and for those of you who remember, the iPhone 4S had a GPS locator chip in it. And so the Lyft guys said, 'Hey, we've got an idea. We could go straight to peer-to-peer. We don't have to be a corporate campus commuting service like Zimride had been. So we're going to do this new thing called Lyft, and it's going to be great. People love it. Its early riders are really liking it, the drivers.' And Ann's like, 'Okay, well, do we have any concerns?' And the only concern is it's illegal. And Ann goes, 'Well, is it legally ambiguous or is it just kind of straight up in your face illegal?' And they go, 'No, it is absolutely categorically illegal. No question.' And Ann's reply to that was pretty good. I think she was like, 'Okay, well, do you think it's going to rock people's world?' And keep in mind, this is before Uber pivoted to UberX, right? They were still doing black cars. And so Logan, who's the quieter of the two founders, is like, 'I've never been more sure of anything.' So Ann says, 'Well, I guess we'll just have to get the law changed then.' And so we launched this illegal service and got cease-and-desist letters every day from the CPUC in San Francisco. But it did turn out that it rocked people's world, and it turns out it's hard to shut down a service everybody loves. That was a case where to ask permission would have been to seek denial. You know, if we'd asked, 'Can we launch this?' they would have said no, and there'd be no Lyft, there'd be no ride sharing. And so we had to negotiate with the government where they were taking something away from the citizens. They weren't quite ready for the shenanigans we were going to pull. So yeah, that's what we had to do.

Oh man.

Yeah, so that's easy. So probably my biggest miss is, at the time it was a company called Airbed and Breakfast, and so it gets even worse. So I'd looked at this company the prior week called Mojo Mix, and Mojo Mix sells cereal online. So you pick your ingredients and it assembles them and ships it to you in a box. Mojo Mix. And so we're meeting with this company, and Ann, to her credit, said, 'Maples, what are you thinking? Like that is not the business we're in. We don't do cereal deals, right? We're a tech platforms company, not a cereal investor, not a consumer packaged goods investor.' And I was like, 'Well, but it's technology-enabled cereal.' She's like, 'Come on, dude. You're just off the reservation.' So I was like, 'Okay, that's fair.' So now it's a week later. We walk into the conference room and it's full of cereal boxes. And some of you may not remember this, but the way they funded the company in the early days of Airbnb is they were selling Obama O's and Captain McCain Crunch cereal because they didn't have any money, and Brian was a designer. And so they hand-assembled these cereal boxes. So we walk into this room full of cereal boxes, right? A week after Ann categorically said we're not doing cereal deals. And she just kind of looks at me like, 'Maples, what the hell? You know, you've gone off the rails again.' And I'm looking at her like, 'I don't know. I thought it was Airbed and Breakfast, right? I have no idea that it was a cereal company.' So I'm like, 'Okay, Brian, you know, what's up with the cereal?' And he goes, 'Well, we're funding the company by selling cereal boxes. Would you like to buy one? They're $35 each.' And I said, 'No, I'm good.' But that was my first mistake because now they go for like a thousand bucks or something ridiculous on eBay. So then I say, 'Okay, well, Brian, you know, what does Airbed and Breakfast do?' And he says, 'You go to somebody's place, they give you an air mattress, they feed you Pop-Tarts, you know, the next morning, Airbed and Breakfast.' And I was like, 'Okay.' And I'd been introduced to him by this guy named Michael Seibel, who was a co-founder of Twitch and ended up being one of the heads of Y Combinator. And so I said, 'Okay, great. Airbed and Breakfast, and you're funding it selling cereal boxes.' And he goes, 'Michael Seibel tells me that you don't like slides, you prefer demos. You'd like to see the product.' So I'm like, 'That's true. Let's see the product.' He tries to fire up the product. He can't get it to work. Server's crashing for some reason. So I'm like, 'That's okay. We can just do slides.' He's like, 'I didn't bring any slides.' 20 minutes into this meeting in a room full of cereal boxes just looking at each other, right? Like, and you know, it was so discombobulated that I just wasn't awake to the possibility of what it could be, you know? And so my failures aren't swinging and missing. If I invest $500,000 and it goes to zero, I could only lose $500,000. But if I had said yes to Airbed and Breakfast, I would have made 6,000 times my money.

And so, you know, like Warren Buffett used to say, rule number one is don't lose money. Rule number two is don't forget rule number one. In my business, rule number one is don't pass on Airbnb, right? Because like, you know, you think about all the people who've invested in Floodgate, the entire 20-year relationship would have been justified by that one decision. Like I get a kick out of these investors who say they knew what was going to happen or they saw the trends or they could see buying because I can just tell you it's wild at the time, right? Like most of the ones, even the ones that work, there are times along the way if you told me I could get even my money back, I probably would have taken it. There were times like with Twitter, I was like, 'Oh man, this is...' Am I allowed to swear on the show? I was like, 'This is...' or like, 'Oh my god, if I could get even my money back, I might take it.' You know, this is like, hey, studies, they try to make it look tidy and stuff, but like in my experience, startups are wild, right? They're like capitalist mutations, and every single one of them's different, and every single one of them is like only that time for the first time and the only time.

Probably about 85%. Yeah. Yeah.

Yeah, we'll probably do somewhere between 12 and 15 investments in a year, and we'll invest between three-quarters of a million and two and a half million per investment.

For me to be world class, I need to make 20 times my money on the first check about 15% of the time, and 100 times my money on the first check about 5% of the time. If I can do that, I can be really good.

About 15%. Yeah. So yeah, a little more than... Yeah.

A little bit less. Yeah. So two out of 20 is one out of 10. So a little more than one out of 10.

It is. What I like to say is you are making incredibly risky, higher-upside bets. So like my business is about having a 10% chance at 100x, which is a different way of thinking about stuff, right? Like when I do an investment thesis for a given company, it would be silly of me, it would be dishonest of me to have a memo that says I think this company is going to be worth X, Y, and Z, because if I'm world class, I'm 85% likely to lose money. And so it's like what they call in statistics, conditional probability, right? It's like given that it's 85% likely that I'm wrong, how big does it have to be in the case that I'm right? Like that's what I care about, right? And that's why strikeouts don't matter for me in my business, but base hits don't either. Only grand slams matter, right? Because I have to get paid for the risk I take. I'm taking crazy high risk, right? So in the rare event that I'm right, I have to be really right, not just kind of right.

Boy, so well, the good news is I'm not hawking books tonight, right? I'm kind of just giving them away. So like, but I talk about a lot of this stuff in the book. But here's my basic theory on it: is that like most businesses are like normal companies, and a normal company tries to create sustainable competitive advantages and a moat and, you know, sort of compounding advantages. A startup doesn't have any of that stuff, right? A startup has nothing to compound. They don't have a moat. They're outside of the castle, right? They're the upstarts. And so what does a startup capitalist have? It's a different kind of capitalist. And so I believe that startup capitalists win by changing the subject. So a startup capitalist doesn't win by being better. Better doesn't matter with startups. You have to be radically different to make a radical difference, right? And so I'm looking for that person who's not going to allow the premise of the current rules to define the competition. They refuse the rules, right? They show up seemingly out of nowhere and just disorient the incumbents. They turn the strength of the incumbent into its weakness, right? They say to Four Seasons... you know, Brian Chesky says to Four Seasons Hotel, you know, Four Seasons is awesome. It's great in Paris. It's great in Austin, Texas. Great in San Francisco. But, you know, when you're in Paris, wouldn't you like to live like a Parisian? And when you're in Austin, wouldn't you like to live like a Texan? And when you're in San Francisco, wouldn't you like to live like a San Franciscan? You can't do that in the Four Seasons. And so you think about it: all the stuff that the Four Seasons has done over decades to be good at what they do, all of a sudden they have to apologize for. That's how startups win, right? So like startups win by finding the biggest strength in the status quo and then finding the weakness in that strength and then using that to reposition them. Now all of a sudden, rather than being able to compound my advantages, I'm stuck with a boat anchor that I can't get out from under. And does Brian Chesky ever have to say Four Seasons sucks, death to Four Seasons? No. You can say Four Seasons is awesome at what they do. And if that's what you care about, great, stay in the Four Seasons. If you want to have the same experience in every city you travel, they're awesome at that. But if you want to live like a person who's a local in the city that you're traveling in, we're Airbnb. And like, I don't know why they would criticize me. I'm not criticizing them. I don't describe their business badly. They don't need to describe my business badly. So it's kind of this... it's counterintuitive. Most people try to attack their competitors by talking about their weaknesses, but I think it's much more powerful to take the weakness in their strength. Everybody knows the Four Seasons is a good hotel, so you're not giving anything away by saying, 'Hey, yeah, they're a good hotel.' The problem is they can't be anything other than a good hotel. That's the place I think you want to be when you're a startup.

Yeah. And Nick, you kind of alluded to a question earlier, which was kind of, what's up with this 85% of your profits come from pivots? Like, are you just gambling, right? Are you just throwing darts? And to be honest, that thought has occurred to me a few times. And what I came to believe is that what the startup uses is what we like to call inflections. So a startup business is never a fair fight, right? The question is who gets to fight unfair, and the default is that the present is going to fight unfair, the status quo, because they have the advantage of incumbency. And so a startup needs a weapon, a way to wage asymmetric warfare on the present. If a startup buys into the premise of the current rules, they're unwittingly buying into a context which is that the rules as they're defined are the rules. So what the startup does is they use inflections to bend the arc of the present to a different future. Right? So like Lyft, we talked about a few minutes ago, the iPhone 4S had a GPS chip in it. Before the iPhone 4S, you could have had the idea for ride sharing, but it wouldn't have mattered because you couldn't have implemented it. But once the iPhone 4S came out, all of a sudden, for the first time, you could do something that you couldn't do yesterday. Like all of a sudden, what you could do tomorrow wasn't what you could do yesterday. Most people don't see that. Most people just follow their daily patterns. Most people think tomorrow is going to be similar to yesterday. They don't realize that the thing that's in their pocket is a new source of empowerment that could change the future, but occasionally somebody does. That's kind of what I'm looking for, right, in a pitch meeting. I'm looking for that person that feels like they saw something unexpected about the future that harnesses one of these inflections, and that you just can't unsee it. Like once they describe it to you, you're like, 'Of course, you know, that's right. That's what is going to happen.' But how do you know when to rely on your intuition?

Yeah. So I would say the hardest part about startups to figure out is the timing, because like I like to say, every startup idea has been tried. There's an efficient market for startup ideas for the most part. So I like to say, let's assume every idea has been tried, but I also like to say all of it will happen. And so the question becomes, when is it going to happen? Why now? Why is now the time? And inflections were the cheap code I started to use. So I realized that the inflection answered the why now, because the day before the iPhone 4S you couldn't do ride sharing, and every startup that had tried might have failed, but it doesn't matter because now all of a sudden they can succeed. There's a new mechanism to change the subject. And so that's what I came to believe is that there's a mechanics that could be understood, that incumbents leverage their brand power and their economies of scale, network effects and supply chains and all that stuff to compound their advantages. But what startups do is they harness inflections, right, to change the subject. But like, you know, the inflection happens regardless of the startup. And part of what's inspiring to me about it all is that inflections are all around us all the time, right? It's just most of us aren't looking. Most of us think tomorrow's going to be like yesterday. So we don't realize that something's right under our nose that could change the future. But sometimes people do. Sometimes people see that.

Yeah. So the book's called Pattern Breakers. And I guess there's a couple of things that I hope people remember. I think the first is that the limits that most of us experience in this world aren't really limits of the world. They're limits of our own thinking. And so we have a tendency to limit ourselves with our own limiting beliefs. And so we need to come up with ways to find ways to break the chains of those limits. That would be the first thing, because most people think that the world imposes limits and they don't realize that they're imposing their own self-imposed limits for the most part. Right? And then the second thing I would say is be different always. Julie's a lot better of a skier than I am, and like a lot, lot better. And I kind of wanted a Cybertruck. So who wants a Cybertruck? I'm just curious. Who does not want a Cybertruck? Okay. Yeah. So I don't know about you all, but like when I first saw the Cybertruck, when I saw that announcement, I thought maybe Elon Musk was joking. I was like, there's no way he's going to ship that. Like that doesn't look like any kind of vehicle I've ever seen. Most people have the... so like, you know, Julie and I have kind of this agreement. I think she's ended up winning this thing in some ways, but because if I would ski more we could get a Cybertruck. But I think now I've changed my mind. I tend to change my mind a lot. So now I think I want something different. But anyway, that's another story. But like the Cybertruck to me is an interesting example of different, because you might like the Cybertruck, you might dislike the Cybertruck, you might think the Cybertruck is ridiculous, but I bet you never say, 'How does it compare to Ford F-150?' And so what Elon does, I like to say that a great startup forces a choice and not a comparison. Startups lose when they're compared. Why would you buy from a startup if you have any alternative? You wouldn't. So what you want to do when you're a startup is answer a simple question: what can I uniquely offer that people are desperate for? And you can only be unique if you're different. And then you navigate what's different to the desperate, right? But like that's the main thing, right? So like different is believable from a startup. Better is not. Why? Why is a startup going to be better at a big company at doing something that's already done? They don't have any people.

But it's like be different. Like I don't even care if you run the Corner Bakery. Like there was a guy in Boston who created the Cronut, right? And so I think all of us could benefit from just the idea that if you really want to make a difference, you got to be different. And society and life and pressure drifts you in the opposite direction, causes you to flinch, causes you to adopt comparison language. So I find startups all the time that say, 'I'm different,' and then they use comparison language to describe their idea. And I'm like, you have to escape the comparison trap because it's a trap. If you could be compared, you can be replaced, right? You have to defy comparison to be unique, to stand alone.

Yeah, he was awesome, and it's hard for me to talk. It's still pretty recent. So let's see. So one time, little kid, we're in Oklahoma. I was like four or five years old, and I was in this fishing competition. Fishing is kind of a big deal in Oklahoma. And it was an under-16 competition, and I could barely hold a fishing pole. And my dad says, 'Hey, I don't know if you can win this because there's a lot of luck involved, but I think your best chance is to pick one place, and we just stay there the whole time. And you're going to notice a lot of people are going to be impatient. They're going to run all over the lake, and they're going to cast their line and then not catch something and go somewhere else. They might beat you doing that, but I don't think that's your best chance.' So let's say we're going to pick one spot. How do we pick one? He's like, 'Do you think we should pick a shallow spot in the lake or a deep spot in the lake?' And I'm like trying to reason my way through it. I'm like, 'I guess deep, right? Because there's more fish can swim when it's deep than when it's shallow.' He says, 'I think I agree with you. Do you think we should locate under a shady tree or out in the middle where it's hot on the surface?' And I'm like, 'Well, I think that the fish probably like the shade better, just like people do.' And he's like, 'Yep, I like that thinking.' So we just parked at this shady tree in deep water and just sat there and ended up catching a carp almost as big as I was, and I end up winning this trophy, right? I'm like four and a half years old, right? But it was a great example of him and how he would just... this quiet way he had of leading people. You know, he made me... he kind of walked me through a Socratic set of questions, right? But he was also like, at the end, he's like, you know, this is really good because like it's a good example of how when you're focused and disciplined, sometimes you win even if the other guy is bigger than you or like, you know, has something you don't have. And you know, I was lucky too, but like it was kind of a good lesson to learn at a young age, you know, about focus.

Yeah. So the biggest challenge I have with AI is the inflections are there. Not only is there a lot of inflections, it seems like they happen every week and they leapfrog each other, and there's a new thing all the time. The problem that I've had with some of the AI stuff is I haven't seen enough what I call insights. I haven't seen enough ideas that are truly different. And so like, if you know, not everybody invests the way I do, but if I don't believe that the startup has a chance to be one of a kind, I don't do it. I don't invest. And so I see a lot of AI startups where I'm like, I can totally see why people are going to want this, and I can totally see why I would want it, but I can't see why Sam Altman's not going to do a demo in three months that makes it go out of business. In my case, I can't do those. I can't say yes to those. So that's been hard for me because there have been a lot of AI companies I've been really excited about. But AI has been helpful in another sense. It's like a force multiplier. So my fund is pretty small. My fund's only 150 million, and around us, right, we have funds that are six billion or more. And normally if they have like 900 employees and I only have 10, I'm at a disadvantage. But now I can use AI to like project offensive capabilities that I never could have before. I can have an agentic team of virtual people that can do things that I could have never dreamed of doing. And so it allows me to be a lot smarter at quickly coming to grips with an idea and figuring out if I should spend more time on it and pursue it. Whereas in the past, right, I mean, it's like you're getting thousands of inbound pitches.

Like, how can you ever sort through them all even to begin to think about that? So, it's been really compelling, I think.

Yeah. So we and that's a really good question and we have to get to the bottom of that. So the way we do it at Floodgate is we try to create a time capsule of these hundred-bagger startups. So I have the original pitch deck for Airbed and Breakfast. I have it for Pinterest. I have it for Plaid. I have it for, you know, every company I can get it for. I interview the founders. We talk to all the people who are involved. We need to understand exactly what it looked like at the time you would have had to decide, because you can misremember what really happened. Even the founders misremember what really happened. And so we want to create a time capsule of exactly what it looked like. And we want to know where was the signal, where was the thing that told us we should have said yes. For me, the signal for Airbnb was that Brian had an insight about trust. So, Brian understood that it wasn't about price, it was about trust. And that the internet allowed you to create a mechanism of trust that was a substitute for the brand that the hotels had built. And that's what I failed to see. And you know, in my somewhat defense, it was a discombobulated, screwed-up meeting. But, you know, Brian seems to have done okay without our investment, right? So, I was clearly the idiot in that exchange. And so, but I have to understand what was it that I could have seen that I didn't see, because you know what happens if the next one comes and I don't. And fortunately with Lyft, we were ready to take a walk on that wild side. It seemed like crazy that people would want to get in a stranger's car, but we had foolishly passed on people staying in a stranger's house. So, we're like, what the heck? Maybe they will. So, you know, Ann and I were much more awake to the possibility of what Lyft could be.

Okay, and I think I Antha, right? Okay, I think I signed your book, hey, so I remember your name. Okay. So the way I'm going to answer your question may be unsatisfying, but I come by it honestly, and that is that it's actually a good thing if most people don't like your startup idea. And when you think about it, it makes sense, like if you have to be different to make a radical difference, human beings are conditioned to like things. So if everybody likes your startup idea, that means it's too similar to what they already know, which means it's too incremental and too similar to the present. The best startup ideas polarize people, right? They have haters and fanboys at the same time. And so I like I pass on a lot of startups that'll be successful. And I tell the founder whether I say yes or no doesn't mean anything. It just means what I thought. And I'm a normal person just like most people, you know, prone to conventional thinking just like most people. Like all that matters is to find your tribe of early true believers who believe what you believe and to spend time with them and only them and nobody else. So like I don't know if the person who said you should throw your stuff away because of AI makes any sense or not. Like they may be a conventional thinker, doesn't know what they're talking about. I don't know, right? That doesn't make you know. So I like to say most people not liking your idea, that doesn't mean you're right, but it's a precondition for great success, right? Like it's like you have to be radically different to make a radical difference, which means you have to rub a bunch of people the wrong way at first and magnetize a set of true believers who believe what you believe. And so like my advice to you about your startup would be find your true believers and listen to only them, and only then can you know if it's worth pursuing.