Carvana CEO & Co-Founder, Ernest Garcia: Building a $50B Company, Losing 99% and Coming Back

Excited to be here. Thanks.

Can we jump to the next question, please? Here's what I say. I think truth is often times like you can find a positive word or a negative word to describe almost anything. And I think it comes down to like, you know, what are you trying to get across? And I think sometimes it's more impactful to communicate with the surprising choice. And so I think that there's a lot of good that comes out of being stubborn. I think there's a lot of good that comes out of self-belief, which could also be, you know, restated as being an egomaniac. But I do think that's what entrepreneurs are. I think it's really hard to sit in a room with a bunch of people who tell you you can't and to believe that you can if you're not stubborn and if you don't have maybe a touch too much self-belief. So I think that is a characteristic of entrepreneurs in my opinion.

I think many, many times. So even if I go back to, you know, six months into the business, we were out trying to raise money. We went out to Silicon Valley, we talked to every fund that you could possibly imagine. And basically it was just like we were capital intensive, we were operationally intensive, we had like industrial components to our business and everyone wanted us to be software. And everyone would just ask the question like, can't you just be a software layer on top of dealerships? And I do think that there's a very good chance we actually would have been successful raising money had we made that choice. But I think that we kind of believe that vertical integration was very important. Honestly, I think every bit as much so for control over the entirety of the customer experience as for the economic benefits and strategic benefits that come from being totally stacked and having access to all the economics. But that was just like a core belief that we had. We were like, we don't believe you can give customers the experience that we want to give them unless you do it all. And I think, you know, you face like a really tough choice there. You're like, okay, you have really smart people that are proven, that have backed lots of companies that have done well before that are basically indirectly telling you they don't really think that what you're going to do is going to work. And you can kind of bend that and you can choose to kind of shift in that direction and build like a software layer or you can, you know, be stubborn and you can persist. And I think we chose the latter. And I think making that choice led to at least one extra near-death experience. But the truth is I think most companies that take a big swing generally have multiple near-death experiences and so I think avoiding one extra one to kind of sacrifice the things you deeply believe is not worth it. So we went ahead and just kept doing what we were doing.

Our stock went down 99% and our bonds were trading at like 40 cents on the dollar. And I think to the world that looked like a near-death experience. Honestly, from my perspective, I didn't ever think it was that, but I think it very clearly looked like that. And I think it was very public. And I think that kind of thing is rarely public. And so, I think that's probably the one that would be in most people's minds. But I think in my mind, like there were real near-death experiences early on where, you know, you're just kind of like you're struggling to get things built, you don't have the whole machine and you're struggling to get capital and at the end of the day like as a company taking a big swing you're not going to make money for a while and so you know you need capital that's the lifeblood of the business and of kind of having the option to even keep building and I think we really struggled to kind of get that capital so I think early on we had several times where we got very, very tight on capital, maybe two or three, but that were tough and so those to me were like the real near-death experiences that were hard to manage through.

I think you learn like how many stories have we all heard about, you know, somebody who had some injury where if the injury would have been one millimeter over, they would have died, right? We've all heard a hundred versions of those stories. I think that there's two things you can take away from that. One is, you know, maybe all these people are really lucky. The other thing you can take away from it is a lot of times when we reassess things in retrospect, we think it was closer than it was. And I think the reason for that is because you have more moves than you think. When you find yourself with your back against the wall, you can find action that you might not have found otherwise. I think it makes risk a little less risky than people think because like when you find yourself in that spot, if you have problem solvers around, you can usually do more than people imagine. And you know, whether that's fundraising or finding a way to make dollars go further, finding a way to be a little bit more efficient in the business. When you have to, you will, to some degree at least. And I think, you know, that to me was the lesson that I feel like I learned. It's like I think yeah, you need to take risk to do something meaningful. And I think risk is less risky than most people believe.

You know, when you're looking at what other people are doing and you see patterns that are emerging that are successful over and over again, it takes real conviction in some dimension to choose to kind of run against that. And I think at the time that we were trying to do our early fundraises, I think capital intensity, operational intensity were not popular. Marketplaces were very popular. That was kind of like the pattern people saw. Phoenix was not viewed as a market where you could build a company. And so I think we didn't fit the patterns. And I think that we didn't have the relationships that gave investors the opportunity, I think, to have deep enough conviction in some other way that would allow them to overpower the fact that we weren't fitting those patterns. So to me, like, you know, that would be my PC answer today. At the time when you're pissed off and you can't get money and you're like isn't the way this is supposed to work is that like venture capital is supposed to be risk takers. They're supposed to be the ones that fund risk in the economy. It's also a challenging business because you have to be so mentally plastic to see the transformation margin evolution over time and buy into that. You know what it is today in the very early days versus what it will be are two very different things and that you have to believe a lot is true for that margin transformation to be real and so you have to be very mentally plastic as an investor. The reality is people taking like layered risk like when you have to solve 10 problems in a row there's just not that many people that want to take that risk. I think there's people that'll take, you know, two or three risks in a row, but when you've got like 10 in a row, it's just very hard to find that match of someone who wants to take that risk. And I think given what I feel like I've seen and observed and learned throughout this journey to me the most important input to that question to assess what the real risk is is I think trying to understand the people because I think that people are going to face problems and they're going to face the strain that comes from facing those problems and they're going to react in some way and they're going to try to solve them and if you have many things in a row that have to be solved. I just think it's impossible to foresee what all those things are. So you have to just decide you believe in the people to ultimately solve all the problems as they come.

The simplest answer I believe and I hope is yes. I think it's easy to see kind of software layers, you know, being easier to build over time. But I think a software layer sits on top of physical processes and then sits on top of like business processes and then software kind of enables that. I think that like as it sits today, I think you want to have meaningful physical processes where things are moving and ideally different business processes where you know the dots are connected in different ways and then the software layer like makes all that happen because if the software is easy to replicate the next two layers are still hard. So I think you want to have as many layers as you can.

So I think in like that highly conceptual framework, I think that we designed the business from scratch to basically try to deliver a customer experience that we thought was enabled by different physical infrastructure that supported a simpler, more direct customer experience where they're in complete control. And I think that that required that we build, you know, logistics and reconditioning centers and business processes where, you know, like finance connects directly into trade-ins and all the decision-making is continuous. So it all fits together and then software layers sit on top that enable customers to interact with those choices on their own. Our entire customer experience design required all three layers. So I think we have all three but I also think that if you zoom into any of those layers in any part of our business and we have many parts of our business, it's very obvious like any smart person sitting in a room for half an hour would come up with five things they want to improve. And then I think what's fun about it is if you have smart people in a room that are motivated, you fix those five things. By the time you're done fixing those five things, you're going to think of seven more things. And so I just think that it's a continual process always. So I think there's a million things that we wish we had that we don't have. But I think we got a lot of problem solvers and I think we enjoy tackling those problems. And so I think we're trying to make our machine better all the time.

I would say well I mean honestly I think right now I think even like the start of this conversation I think that it's very early in the adoption of AI broadly and to me that is I think like a layer I think like think about that as a layer is like a reasonable thing because it can permeate I mean everything that I'm able to think of right now in real time and so I think we're very, very early like to me I think all businesses today are using AI at a small, small, small fraction of what's possible given the quality of the technology today and I think the technology is improving so fast it's unbelievable and so to me like trying to catch up to that horizon is a battle I mean it's like way in front of us so I think that there's a ton to do there but I'm excited by it but so to me I think that relatively speaking I think we're weakest there but because it's just a new set of capabilities that we have not invested in for a long period of time. So I think we got a lot of work to do.

Like one of the things that I've come to believe is that pairing those two things is exceptionally important. I think that if you can pick one, I think you want operators. Like operators get things done and operators focus on the practical and they make sure that the wheels turn and they make sure that whatever problems people are facing every single day get resolved and I think that you must have that to succeed. Often times operator mentalities view, you know, more conceptual thinkers and kind of more strategic thinkers as sort of, you know, head in the cloud idealists and it's hard for them to work well together. I think a lot of times, you know, these conceptual thinkers view operators as solving problems that are less important, right? It's not as interesting. Like, I can't sit around a campfire and talk about this for three hours and impress my friends. And so I think a lot of times the two don't fit together as well as you would like. But I think that in reality like the more important of the two for any success like getting from zero to one is the operator. But then I think the ceiling of your possible success is a function of the conceptual thinker. And so to me like marrying those things together I think is really, really important and really hard. And I think the most productive people in the world are kind of both. I think through this journey I've been lucky enough to meet Jeff Wilke at one point and you know we went through one of our inspection centers together and the number one takeaway I had from that is just he's one of these people that is both things like he's a very conceptual thinker. He's very analytical and he uses frameworks to evaluate everything. But then he also, you know, wanted to tell me that he thinks that the shapes in which we're parking cars are stupid because we're not able to move the cars around as quickly. That extreme detailed focus and then his storytelling of the ways that they faced those problems at Amazon and just hearing how iterative it was was just interesting because you very rarely talk to someone who is as fluent in frameworks and concepts and also as obsessed with details. And so I think that pairing those things is really important and usually they repel each other because they're not the same type of person. It's hard to pair those things but if you can I think it's very, very valuable.

I think abstraction is very bad and I think it's the well at least for a person who starts conceptual I think abstraction is very bad because you have this constant desire to abstract.

The closer you get to the ground the better you are and I think that like the pressure of scale pushes everyone up the pyramid. People do really well in their career and they want to go manage more people and they want to have one-on-ones and they want to influence a lot. But I think that if you want to make the biggest difference, it's like get in the game. Like get on the ground where things are happening. Sit there with the actual people that are doing work and your one-on-ones are great. Like you should have real conversations with people. But if you're just there influencing what's happening right now, you're leading like people are learning from that. That's like the way it actually happens. And so I think fighting abstraction is especially for a conceptual person is very important strategically and specifically.

Yeah. I mean first of all I don't think I do this perfectly but I'll tell you what I try to do and honestly Ernie you just say the perfect view of your good. Yeah. Okay. Yeah. You're right. My bad. Edit that out. What was I going to say? I think what I generally try to do is I try to pick several projects. You know, you sit in a room where you're getting kind of like readouts on what's going on with the project and you ask questions and you figure out who's answering all the questions and there tend to be a subset of people who everyone in the room their heads kind of turned to that person when a question comes up that isn't on the slide and that person is the person that has developed frameworks for how it all works and is probably doing a lot of the work and so they know all the detailed answers. And once you find who that person is, it's like go check in with that person every day. And I think if you go actually sit behind that person, like pull up behind them in a chair and you look at a screen together, then you try to solve the problem. You want the flattest organization you can have in general. But you can only do so much. So, you got to limit yourself in terms of how many projects you're working on.

No, I'm not. No, because I'm not very good at that. So, I've got seven and then I think try to have all of them have as many as they can. I would not consider myself a great manager. I consider myself much better at trying to solve problems and get involved than I am a natural manager. The one thing I find quite hard is especially for me respect is earned over time. And so bluntly, I don't respect many people coming in on day one, but month one, month two, month three, it grows and grows and grows and it can be great, but you have to put up with little for a while.

I would way rather take a person in any role that is respected by someone that I respect than someone who's done it before. Like I don't care that much if you've done it before. I really don't. And I don't care that much if you did it at a company that everyone thinks is a great company or if you have a degree that everyone thinks is a great degree. If you're deeply respected by someone that I deeply respect, I just think you can figure it out. And so for me that's way more important than anything else.

Yeah. Hiring culture. I think there's like an archetype of a person that is extremely common and I think they're even more common in like Silicon Valley. And I think they have good raw material, but I think that they can be very destructive. And so I think that you either need to avoid them or identify them and work to resolve what is inside them that I think can be problematic. And I think, you know, these people are storytellers. They're people that they're usually very smart. They're usually very conceptual. They're usually very good at fitting frameworks together. They're usually very articulate and persuasive. They're usually very high energy and charismatic. But they lack the ability to get practical and to find the occasions where they're wrong and then to like own that and adjust. They tend instead when they find that like discomfort of being wrong to shift the explanation or to shift to the next problem and to just like kind of keep bouncing to the next one. But because they're charismatic and high energy and smart, they always have people following them. And I think that those people can be tough. So I think when you see those people, you've got to make sure that you address it quickly because I think that's a very, very common archetype that leads in my opinion to like a ton of wasted effort.

I think that it's a group of people that are not motivated by status as much as most are. And I think that that matters because I think that like a lot of times what creates the moments of change like where people bounce from company to company I think is it's when the company faces difficulty and the people disintegrate as a result like blame starts to show up and it starts to feel like this is no longer great for my resume. This is, you know, this isn't what I signed up for. This isn't like the A path that I was on my whole life.

There's no stories of companies that make it, you know, with no volatility. There's no stories of companies where people just cheer the whole time and it's like a standing slow clap that never ends. That's just not how it goes, right? Like the reality is every single company has stories where they were questioned over and over again. And so you just kind of need to recognize that that's just truth. Like that's just what it is. So if it's true, don't worry about it. You know, like now like of course you want to try to learn from the world around you. So you got to listen a little bit, but my personal view is people listen too much to the world around them who's further away from the problem. And they should listen less. They should build what they believe in and they feel like they deeply know and not worry about it. And I think we try to, you know, get that going inside Carvana across all levels. And it's not easy, right? You wake up and you read a new article about how you're going bankrupt and what you're working on doesn't matter and consumers don't want and it doesn't fit the whatever it is you're going to go through those times and those times are tough. But you need to just know that there's no avoiding that and if you know that then it's like when that happens just use it like tape that up on your locker and use it because it's energy.

I'm sure I earn that. That's cooling as paid is paid. Like I mean, yeah, I get given these like research facts and then I like highlight the things that are interesting. I'm like poor dude. Like that's a lot. My question is like do you just get a bit numb to it over time?

Man, that's a hard question. So, to be totally honest with you, I really do think that relative to the vast majority of people, I think many people inside Carvana are way less impacted by those things than most. And I do think that I am not very impacted by those things.

It might come back to the beginning of this conversation being like stubborn and egomaniacal. Maybe that's what it is. But I think it's if I were to try to frame it more positively, I would just say I've made peace with the fact that people are going to question you if you're ever doing anything that matters. And I don't think there's a path from the beginning to the end where they don't question you. And I think that like what matters to me in my life is, you know, I've got a family with three kids. I've got Carvana and I've got pickleball. And I don't care that much about the rest. Like the rest I'm okay. I've got my friends. I'm fine. And so, you know, whatever. I focus on those things and it is what it is. I don't know. You can't stop it. You just got to keep going.

Let me start with this. I think any questions that you ever ask to any person about themselves are subject to the story they tell themselves. And so, it's hard for anyone to even know the truth about themselves like we're complicated creatures with very high quality storytelling capabilities that exist in our brain. So, you're hearing people's stories and so, you know, trying my best to separate from that. I mean, here's what I would say. I think that I have been unimaginably lucky in my life in so many ways. Like, where does the willingness to take risk come from? I think one of the places you as a parent, I've got three kids. I think like the number one thing you have to do as a parent in my opinion is you have to make sure that your kids know they're unconditionally loved no matter what happens. If they know that one thing, they always have a foundation to come back to. Like every tough thing they go through, which they will go through tough things, they always have somewhere to go back. And when they have that and that's not going anywhere no matter what, that they have the capacity to be confident. And I think that I had that growing up. So I think that that was very lucky. I think that, you know, my dad was an entrepreneur. He went through personal bankruptcy and he went through his own trials and tribulations. And I think that up until I was 10 or 12 years old, I don't think I even knew that was happening, which I give my parents a tremendous amount of credit for because I think that you shouldn't know that when you're a kid. When you're a kid, you should be eating dirt. It's like you shouldn't worry about like, you know, your family's financial situation.

Yeah. By the way, that sounds like a very deep question. And I don't I think you'd have therapy. Yeah. Well, I think you'd have to define what's good and bad to even answer that. Because I think that there's probably different answers depending on different definitions of good and bad. But to me like once I became aware of what my dad did, like I would say the biggest benefit of that was I saw that he was successful and I saw that he was human and I believe that if he was successful, I could be successful. And I think that made it less scary. I think for a lot of people like they think that other people that are successful are made out of different stuff than they're made out of. And I think if you have an example that's very close to your life where you know who that person is as a person and you see them being successful it gives you the belief that you can do it yourself. So I think that was tremendously helpful. The next thing that I'll say which I think is my version of the motivation that you just described in yourself which was like seeing difficulty. I don't know where it comes from. And I don't know if it's good or bad in the same way you don't know if your situation is good or bad but I've always been a deeply competitive person. Yeah, I would high school football like you know I would every time we lost I would go sit in the back of the bus by myself. I wouldn't talk to anyone and I would sit there and cry like a but like a tough cry like a cry that would make you proud but I couldn't take it. My stomach just hurt and I would sit by myself and like I said I wouldn't talk to anyone. Everyone knew to leave me alone. I couldn't handle like I hated losing. You would think if you hate losing so much that you would just stop putting yourself in a position where that's even a possibility. But I think truly competitive people they can't stop putting themselves in that position. They have to compete. And I had to compete. But I also just hated losing. And I think that transferred a little bit into like okay like if my dad can do it I can do it and I can do it better. And so I think from a very young age I felt like you know people always have these founding stories that are about their specific problem. For me, it was way more and I hate to say this because I don't think it's an obviously noble thing, but it was like if he can do it, I can do it and I can do it better and so I'm going to do something. I don't know what it is, but I'm going to do something.

I mean, the reason I'm pausing, I'm trying to decide, is it please, impress, or beat? And I think I'm positive that it was beat, but I think there's no doubt that please and impress are in there. But sure, I think that's it's all in there, right? Like I think we're all humans. Like it's not all conceptual. Some of it's like emotional and just inside. And I think that's true.

If I got to live a thousand lifetimes, I don't think that I would be likely to be part of something as big as Carvana in very many of those lifetimes. Because I think that there is luck in the world. Like I just think that there's prerequisite skills that a group of people has to have to have a chance at success. But I think that opportunity does have to kind of meet like with some luck to ultimately manifest in success. And so I think what I would say is for every Steve Jobs out there, you know, that's out there and has done an amazing thing, there's probably a hundred people of similar quality that haven't had anywhere near the same level of success. And so there aren't people nodding their head every time they talk because they don't have that superficial proof that what they do is exceptional. So I do think there's a lot more exceptional people in the world than there are exceptional outcomes. Because I do think that luck plays a part in all this.

Not much, honestly.

Let's dive into that one for a second. And that's going to go back to what's good. My guess without confidence would be knowing that you could lose it all every night is not good for your happiness and for your, you know, like mental daily well-being. It's probably very good for your ambition. It probably hardens you and creates character that you couldn't otherwise get. So to me, like is that one good or bad? I think it depends on what you're aiming for. So that's where to me like what I think I believe in deeply is basically two things. We talked about one of them. Make sure your kids know that they're unconditionally loved. And then I think give them a chance to go explore the world. Give them a chance to go fall down and figure things out. Because I just think that that's how we learn as people. You can't tell people all the rules. Like you just can't like people have to go learn things themselves. They have to go figure stuff out. And so to me like those are the two things that I feel strongly about in parenting. And then I think the rest I feel like I don't know because it's just too complicated. But those two things I believe in for sure.

Yeah. So great example, right? Like it's very easy to see the problem with climbing trees. It's not easy to see the 15th order impact of climbing lots of trees. So like you know do you want your kids to climb trees or not? I don't know. You want to love them for sure and you want them to know they're loved for sure.

I think happiness is probably the unit that we should all be chasing. But I think that there's superficial happiness and there's deep happiness. There's cheap dopamine and there's expensive dopamine. You know, stock goes up, cheap dopamine, you know, like jump on Twitter, read that you're smart, you know, cheap dopamine. Then there's like build something, do something, you know, overcome something difficult, put yourself in a fight and lose, then put yourself back in a fight and win. And I think that that drives like satisfaction, right? Like contentment, like it's like a deeper happiness. And so I think maybe that's a story but I think that to me is the pursuit. I think it's like a beautiful thing about you know like our complex system and economy is that it is probably the case that to find outside success the results of your actions have to be positive for other people. So you're driving their happiness. But I think to find that outside success, you have to put yourself in battles and you have to seek the expensive dopamine. You have to go try to build something and find that fulfillment and satisfaction. And I think that to me that's like what it's about. But I think for different people, it's about different things.

I think it's brutally hard. I think your palpable story is laying in bed wondering if you were going to lose everything. Like humans are impacted by those moments. So I think that when those moments aren't happening, it's going to be a little different. As a parent, you know, I heard a quote the other day that I thought was a good one that was something like, you know, for as long as time has been going, children have not listened to their parents, but they've never failed to observe what they do. I think that's pretty true. I think that like the actions you take every day matter. I think that your kids are watching, and I think that what you value, they will value. And so I think having stuff and being around stuff is one thing, but modeling for them that that's important I think is a much more dangerous thing than being around it. But both are probably not perfect for kids coming up in the world.

I think that the best answer in my opinion is sport. Not everyone loves sports, but the thing about sports is someone wins and someone loses every single time. And it doesn't matter where you start. It doesn't matter where you woke up this morning or where you go to bed tonight. They want to win and you want to win and only one of you is going to. So I think sport is one of the few places where we can go collect extremely real experiences very quickly. So I'm a huge fan of sport and competition for kids. I think that it's very useful to help them figure out how to navigate the world.

Yes. I mean I would say, try to not push them too hard, right? Try to model the behavior and have them want to, right? Go in the backyard and throw a football with them and let them know when they drop it. And then if they react to it the right way and they think that that's fun, they don't want to drop it anymore and they want to go out and play again more. So I think for sure sport is great and I think try to make it fun and try to make them want to do it. For people to be impacted by things in positive ways they have to want to. So I think you have to make it fun.

I think being present is the most important thing. I think the quality of the time is more important than the time. I think when you have a million things on your mind, it's really easy to go lay on the couch and be deep in your head with kind of glazed over eyes. I think with your kids, it's most important that when you're there, you're there. And I don't think it matters if it's seemingly unimportant moments, right? It's like picking them up from practice and driving them home or whatever it is. But I just think when you're there, engage with them. Don't accept the 'how was school? Good. How was soccer? Good. How did you play? Good.' And then like, okay, cool, I'll go into my mind. You go into yours and I'll see you later. Don't accept that. I think try to engage and I think as long as you do that and that's where you show that you care, right? That's where you show that the love is deep and unconditional. Quality is more important than quantity in my opinion.