¿QUÉ PASO EN KAVAK? | CARLOS GARCIA OTTATI en Cracks Podcast #373

My two daughters were born prematurely at 30 weeks during this process. I had to fire friends during this process. I lost my mom during this process. She died. The next day I was at Kavak. Everything you live through is real. And those are the difficult things, right? How much is it worth? And if there's a problem I have to fix, that's work. That's the puzzle. There was a lot of pressure, a lot of noise. At that moment, I didn't understand that pressure was a privilege. We were buying and selling 60,000 types of cars, something unique. We built a huge infrastructure to inspect these cars, recondition them, move them. We built a financial arm to give customers access to buy a car. We built incredible things. A logistics company that moves 4 million vehicles a year.

Everyone loved watching us rise, but they also loved watching us fall. Carlos built a room inside his office. It was like Harry Potter's little room.

We were building a huge company. No one is at Kavak for it to be profitable. People are at Kavak for it to be very profitable. The best companies build more than 97% of their value after year 15. And you ask them, 'Well, how are you growing at this speed right now?' And it's, 'Well, Carlos, because I removed a ton of friction every day for 20 years.' We are also rational people who understood, well, there's a part of this negative noise that we can improve and control, and it's real. There's a part that isn't real. It's like you ask me today, well, how much is the company worth today? I have no idea exactly how much it's worth, but I know how much it will be worth because I'm going to work to make that happen.

Thank you.

Look, in this whole process, I'm 42 years old now and I've had the fortune of truly living a life controlling my own narrative, building many things. And that has led me to the activity, the energy, what my day-to-day entails, it leads me to think in a particular way, to see risk in a particular way, to see the past in a particular way. And a lot of what I've done in recent years has been reflecting a lot on how my head works, how it thinks, how I perceive moments in the present, how I relive moments from the past and transform them. My job is to see the future and then get up to build it. So your head is analyzing scenarios all day, right? I'm going to the past, I'm in the present, I'm going to the future, and I have a head that doesn't shut off, right? It doesn't rest. It's hard for me to sleep because I have to find ways to shut off the thoughts and rest. And I've had to crack it, right? I've had to say, well, how do I hack my own thoughts and how do I use them? I use those voices that keep me in constant movement, how do I use them to my advantage to extract the positive from absolutely everything that happens to me, right? And how I function.

A little of what I've been learning is that it doesn't exist. Things, life doesn't happen in a linear way. What you live in the past, you have the opportunity to go back and relive it, but with a different context, looking a bit more calmly. Who were you at that moment? Who was the person with you at that moment? What information did you have and what information do you have today? And I think when we initially talked, I told you I went to 14 schools, I moved a lot, I was in constant change. And I've gone back to each of those moments, especially the moments where something you did in that moment changed and determined the following things. I've gone back to all of them at least 100 times, and I've understood them from different perspectives. And the interesting thing about those processes is that when you go back to the past and reinterpret it, there are times you learn something from that moment that changes absolutely all the subsequent moments, and instantly changes your present and how you live, how you interpret things, because you unlocked a bunch of levels and it allows you to think about the future in a different way. So that writing was a bit more about my process of rationalizing how I face life, how I face risks, how I face everything I do, and how I ensure that everything that happens settles. Right now many things are happening in my life that I know will change over time. When I go back to those moments and they haven't settled yet, I don't know what they mean. When I go back to those moments, I'll see different perspectives, I'll have more information to understand what was really happening in that moment, and that will change my entire life. And that text is about that, it's about understanding that things aren't linear, that the moments that happened before, that are happening now, and that will happen later, you can reinterpret them, and that reinterpretation will change what comes next.

I also talk a bit about how I've had the opportunity to work with many people, and a big part of my job is convincing people to join something they're probably not comfortable with, which will probably require a lot of their time and will change their life or trajectory by joining the different missions or things we're working on together. And it's also about how I approach bringing another person into the narrative I'm trying to build, and how that narrative is important and will add value to that person. So it's a writing that we can go into specific examples later, but there are several things I want to unpack.

Look, I have something that works very well in my head, which is that I have a kind of photographic memory of the conversations I have. I'm going to remember what you're wearing, what you said, who's in the room, what reactions there were, and I have a capacity to retain quite a lot of information for selective things, for certain important moments. And then I always seek to go back to those moments very quickly and remember them and tell a story to whoever is around me about the moment, because that makes the moment, like, engrave itself a bit more on your hard drive. So I repeat stories a lot. I'm probably going to repeat this conversation with 20 more people, about what we talked about, because it will allow me to really cement this story in my hard drive to be able to go back to it. So, first, I have a lot of memories that are very vivid, and since I repeat them constantly, I always have the capacity to go back. So, what do I do? I try to freeze who I was in time, in each of those moments. And this is an exercise of grabbing and seeing who you were at 20, your mindset, your energy, what you knew at that moment, and freezing that person at 20, and then thinking about who you were at 25 and freezing that, so you can later go back to having conversations in that moment with the different people you were and with whom you've shared.

Correct. Correct. So, it's a very systematic process, right? Because many times when you're going to reinterpret a situation today, the best voice that can give me wisdom is the person I was when I was 20, not the person who is 42 today, because that person didn't have the preconceptions I have today, didn't have the limitations I created for myself through the life I've lived, not so much the positive things as the negative things. That person had a set of attributes that I need to hear from. So, it's part of the process of really listening to all these voices, going to the moment and analyzing it from different perspectives, not just from the person you are today, but the person you were at that moment and the person you were before that moment. And that gives me a lot of clarity and I can give you examples, right? I'm a person who has typically been on the offensive, and whenever I see something, I'm very optimistic and I see the things I like, the opportunities that can be unlocked from whatever I'm looking at, from the opportunity I have in front of me. And once I see all those opportunities, I stop to think, well, what could go wrong? And I also spend time thinking about the negative things that could come from certain situations. But when you see it that way, what could go wrong comes contextualized with what could go right. Most people typically think the opposite, they start with the bad, so they never end up seeing the good. And that's why they don't end up taking risks or advancing in different areas. And there was a moment in my life where everyone was telling me about all the risks, right? When the common denominator of your life is that a moment will come where everyone tells you, 'Look what you've built, you have to take care of everything you built. Now you have to switch from playing offense to defense, you have to play defense.' And it's logical, right? It's like you have to switch from an expansive mentality of continuing to create, continuing to build, to a more defensive mentality of protecting what you've built and defending it. And that can happen in work, in personal life, in all areas.

At that particular moment, when that was the noise I had, when that was the feedback I was receiving, it was very mature, very logical feedback that I should listen to. At that moment, I needed to talk to my 20, 25-year-old character and tell him everything that had happened, what decisions were made, what risks were taken to make this happen. And the response from that character particularly was, 'Fuck, nothing interesting that has happened in your life has come from playing defense. It's always been on the offensive, and now that you have a family, a team, resources, a trajectory, you're going to change your position? You'd have to be crazy. Right now you have to be more expansive, it doesn't mean you don't have to be responsible, you don't have to be disciplined, because I've never stopped saying that, but you can't stop your position. You have to keep using all the infrastructure you've built. And this is the moment where the game is really starting, because now is when you're going to start to compound all these efforts.' So, of course, the 42, 40-year-old person at that moment, I don't remember, 39 years old when that reflection happened, was full of noise, full of insecurities from all sides. That moment, I couldn't resolve it myself. The person in the present had to resolve it with someone who saw the world without that noise and who could be impressed by what was built, by what was lived, and who could be proud of that. So that's an example of a process where you're evaluating a moment in the present, but you're reevaluating it from the perspectives of the past.

Generally, when I have clarity about what's coming, and a big part of my job is trying to have clarity about what's coming, characters from the future also manifest and tell you, 'Relax, everything is fine. Everything is fine.' Sometimes these characters don't manifest, right? It depends on what you're facing in your life. And again, this isn't just professional, it's personal. These are the voices with which, they're your thoughts. And you don't just choose one person to listen to. You listen to all these voices, but you do have to choose to listen many times to the positive voices because in my experience, most of the difficult things I live in my head. In real life, when I take action, those thoughts decrease, and when I take action towards positive things, everything clarifies and starts working. It's like going out to exercise, going out for a walk. It's complicated, go for a walk, exercise. I don't think you only listen to one voice, but you do know who to choose, because you know what your body needs, you know what you need right now. It's not that it manifested out of nowhere. Your body knows who you have to listen to, and it knows where the wisdom comes from. Wisdom doesn't just come from experience. Energy is important, enthusiasm is important, ignorance is important, experience is important. All these things are important. The thing is they converge at the same time and you can't just grab and listen to only one thing because then you get stuck with preconceptions that limit you, which is a bit of what you just read. Many times you have limitations in your past that create prejudices that don't allow you to advance in the future or present, and you have to unlock that, and you only unlock it by going back and analyzing it from the perspective you would have seen it in that moment and also looking forward to what happened and how that triggered things. So, it's not a perfect formula. And again, the trick to this is to keep wanting to make mistakes and make decisions and get up the next day and go through this process again and keep recalibrating, right? I don't believe in... I think our job day-to-day is to make mistakes. Your job is to see the future, and a big part of what we humans have to try to guarantee is designing a life we love. And this isn't economic, it has a lot of variables, but I think a big part of all humans is you have to have a life you love. If you're not saying a life you love, you're proposing to live something you're not going to enjoy. And designing a life you love requires you to think a bit about what you like, make decisions to go towards that, and recalibrate if the decisions and the life you're building is exactly what you wanted or not, and to think forward, right? When you make a decision today to do something, maybe the decision I'm making today you already know will change your life in the next two years. Think carefully if that's the life you want, right? The cost you're willing to pay.

Of course, of course. How could it not? If it's not happening to you, right? I wouldn't enter these reflective processes if it weren't because obviously all the time you're making decisions where you say, 'Fuck, that past Carlos, what did he get me into?' Or Carlos of the past, so people understand better. I'm constantly thinking, 'Hey, past Carlos got me into this, what did he get me into?' But also sometimes I'm sitting here with you and I thank past Carlos too for what he got me into. So it always happens, but it doesn't mean I don't have the control and the capacity to reinterpret, rewrite so that the present where I am today I can say, 'Wait, let's recalibrate this moment so I can enjoy it.' I don't stay in the complaint that a decision led me to this, I have to deal with this because at the end of the day one has to be consistent and responsible with the decisions one makes. But it doesn't mean you can't grab that same moment and say, 'Okay, how do I make this something I love?' Give me an example.

Expanding, right? When we decided to expand, we were in the middle of COVID, people were working from home, there were no airports. I had no idea I was going to have to travel, that the future person was going to have to be on a plane so many hours away from their family, in hotels, I hadn't thought about that enough and how it was going to impact my life. And that thought of having to travel never entered my equation, understanding what was happening in the different operations. It still seemed like a very interesting process and I went. And when you're traveling, I'd stop one day and say, 'What am I doing here? Where am I? Where is my family? Am I adding value or not?' And I had to recalibrate that moment, right? And for me today, traveling is a luxury. For me today, traveling is every time I get in the car, put on my headphones, head to the airport, it's like an adventure and I leave thinking. I leave, and for the people who work with me, they know, I never buy a return ticket because when I leave my house, I don't return until I've solved the problem I went out to solve or until I feel comfortable or need to return. And sometimes I return the same day, right? But sometimes I stay traveling for a month or more, but I enjoy it immensely because at that moment I'm on an adventure. I'm doing something that few people have the chance to do: arrive in a country, understand a market, meet a team, meet the ecosystem, go to dinners and meet interesting people, go to sleep alone, peacefully, without anyone waking me up. There are too many positive things about that. If I told my 17-year-old self that I did this in my life, he'd be ecstatic with that life, right?

No, it was incredible. I don't think I would want to have information before because maybe if I had a lot of information, that wouldn't have happened. That was spectacular. What can I tell you? We came here to Mexico to build a product that people needed. And we got the backing of consumers, the team, the investment ecosystem, and that was all incredible. No, I wouldn't have liked to know anything else because things happened as they had to happen.

In real life, it's lived very differently, right? You're all hearing all these headlines outside, I live it very differently, like you lived it or like the person reading the news lived it. On one hand, I knew that, first, we set out to build a... from day one I've told you I'm going to build a company worth more than $100 billion and we're going to build something that really helps millions of people in Latin America. So my ambition from day one has always been to build something big, and part of building something big is going through those milestones, right? You can't get to 100 without going through 10, without going back. But they don't always tell you that, right? Well, you just have to look at the market, right? Every day companies go up in value, go down in value. That's happening every day and you can't evaluate yourself by when you're worth a lot or when you're worth little. At the end of the day, you have to evaluate yourself by what you're delivering and what you have to continue delivering. So when this was happening to us and we were living it internally, on one hand, we knew the value was recognizing the potential of what we could build, but we hadn't built it yet. We were 4 years old. Today we're much bigger than we were at that moment. We've really built the necessary infrastructure. And at that moment we were saying we had to build all that, and when all that was happening, I was in a parking lot somewhere in Mexico working, building the infrastructure with the team, recruiting, traveling. Those processes, and entrepreneurs know this, those are milestones that the market loves to consume, but for us what it represents is an expectation we have to meet. And of course, we set out to build a very complex business because it would require us to win digitally, also win in physical infrastructure, and do it in an industry that is extremely complex however you look at it. And that required capital and talent to come build it with us. And all that positive news in its moment allowed us to bring in capital, add talent, which later allowed us to build and have the necessary capital when the news wasn't so pretty in global markets outside of Kavak. What was happening at that moment. We had the resources and the team to build when everyone was nervous. So, without a doubt, I heard the noise. Sometimes you let yourself be carried away by the noise, but I've always said it. Positive or negative noise, turn it off, close the window and listen to your customer because that's where the reality is. Listen to your team, listen to your body. But there will always be, people will always say things are better than they are. People will always say things are worse than they are. My job isn't that. My job isn't to reinterpret. I've never felt, as you say, that I was on top of the world. At that moment I had a lot of expectation, a lot of work.

I don't think so. I don't think my investors' expectations... our investors have actually been very good throughout the whole process, very long-term thinking, very disciplined. I think where you make mistakes, my experience of decisions, when I think about when I'm making the best decisions and when I'm making the worst decisions, I've tried to understand what it entails and what gives me a pattern. And what I've discovered is the following. First of all, I think you have to make mistakes. If you're not making mistakes, you're not building. So part of the process is understanding that if you're going to make decisions, you're going to make mistakes. The important thing is that you get up the next day, look at the data, and change your mind. If the decision is bad, and if the decision is good, put in more resources and keep building. So you can't build anything in life without making mistakes. In the micro you have to be losing and calibrating. And in the macro you'll be winning because you're constantly recalibrating. And perceived risk doesn't work like it does in PowerPoints and Excels that tell you if you do this everything goes to hell. What you're discounting from that is that I'm going to get up every day to review it, to review it and make sure I don't end up in hell. So every day you move a bit away from that negative result. So first, that's the mindset, right? You can't live life thinking it's going to go wrong. You have to live life making decisions and making sure to read the data to recalibrate your decisions. Many times people tell me, 'Carlos, but you changed your mind.' Of course, I have new information, but shouldn't I... I'm going to change my mind every day, not on the future I want to build. My vision that I laid out 10 years ago is still the same. It's improved, there's been more light on certain things, but the future I want to build, I want to build. That's why I started, it's a mission. The day-to-day and the route. I change my mind every day and people get frustrated, my team gets frustrated. 'But Carlos, yesterday you said this, today you did that.' Of course, new information arrived, there's nothing wrong with changing your mind. That's the first thing. The second, and I think it goes more to your question, is around what allows me to... what average do I know that when I make decisions of this type I tend to make more errors versus when I tend to make fewer errors? Where do I make fewer errors? It's when I'm seeing very clearly how my customer is perceiving the product we're building and I'm obsessed with that data, right? In the early days of Kavak, the first years of Kavak, we built the product tailored to what we were learning from our customers. When we saw that it scaled and worked, we said, 'Well, now we have a formula we can scale.' And instead of following that data, we said, 'Well, we want to do not just this in Mexico City, but we want to do it across all of Mexico and globally.' We started trying to anticipate what organization we'd need to be able to do it, what marketing strategy we'd have to implement at scale, what infrastructure we'd need, how much capital we'd need, and we put together plans and went out and built that. And here you make a few more errors because as you're building with more speed than just following customer attraction and building around what's happening with your customer, you tend to have more hypotheses, some work well, some don't work so well. But without a doubt, when you're building infrastructure and building at that speed, on average everything goes very well, right? We went from zero to selling billions of dollars very quickly, zero infrastructure to having millions, or hundreds of thousands of square meters installed for reconditioning, logistics, very quickly. All that was with bets, and here you make more errors because obviously you're trying to anticipate where you're going to be and not necessarily solving the problem you need to be solving in that moment in that market. And here, when I see growth metrics, cost metrics, you tend to see metrics that although they're important financially, it's what the market really values. You lose sight of the detail of what you're building, and that's something we saw in 2022, right? We realized in 2022 that we had built, I'm going to use an analogy because it's more fun for the audience to understand. We had set out to solve a huge problem, right? 40% fraud, no one taking responsibility when something went wrong. We introduced financing, we built an e-commerce platform for selling cars online, that took price risk, that sold cars online, that sold them very fast, and we were buying and selling 60,000 types of cars, something unique. We built a huge infrastructure to inspect these cars, recondition them, move them. We built a financial arm to give customers access to buy a car, we built incredible things. A logistics company that moves 4 million vehicles a year. We put artificial intelligence in all these processes and we'll talk about that later, but we set out and built the best building in the best area of Polanco, where you entered the building and it was incredibly located, had the best amenities, and everyone wanted to buy an apartment in that building. But when you entered the apartment, the sofa wasn't that comfortable. The interior design, how you lived it, wasn't incredible because we were looking at the data of best location, solving the problems our customers had at that moment and being able to solve them at scale, but those details you couldn't understand at depth because of the scale at which you were growing and the places you were growing. And that's what we saw in 2022 when we had started growing with a lot of force. The business hasn't stopped growing, right? We realized we have to get back into the detail, and the only thing that detail matters is how our customers see the experience, how we want them to live it, not just what they want, but how we want them to live it. And we have to make sure these customers aren't just comfortable because they live in the best area, with the best amenities, with the best neighbors, but that the 10 hours they spend in their home every day are also very good. And we refocused there, and when we focus on this, we tend to make better decisions because it allows us to follow the data. The challenge at that moment was how do we have the right data to build the right product, remove the right frictions, and redirect your entire team to that part while still meeting growth expectations.

Very good question. And well, the learning, again, there are many things I still have to settle, there are many moments I have to keep reliving to really give you a better answer. But with the information I have now, things I loved about that part of the process is that I do believe you have to think big from the beginning and try to design your solution with the greatest ambition possible. You have to eliminate all the ceilings you can, because getting up in the morning to solve a small problem requires the same effort as getting up to solve a big problem. What it's going to require is that you be much more strategic in walking through all the different scenarios, understanding how your life, your team's life, the mistakes you can make will change. So I think on one hand, thinking that way is... I wouldn't change that. One of the things we did learn was how hard you push the expansion, right? We also did an A/B test experiment, right? We said in one country we're going to go, we're going to build infrastructure from day one and put in resources from day one and try to grow it as fast as possible with the information we have. In another country we're going to go very slowly and follow the customer. In another country we're going to test this part of the product, try to rotate inventory as fast as possible. So one thing I loved was that we built a testing laboratory where you could make mistakes with different tests and automatically that laboratory became a benchmark for all the different countries. So suddenly in one country we'd learn, imagine an initiative we launched in Chile that worked and we weren't afraid to test anymore because we were small. If I then brought it to Mexico, it was incredible to launch something here and the return on that time was monumental. So I loved that we had a laboratory to test different things, to take risks without compromising the big operations, without taking unnecessary risks in the big operations. That was very positive. I loved that the team had these benchmarks to call each other, to learn. Without a doubt it takes away focus because you're seeing these countries as a laboratory, you're learning from certain things, you're building the business from scratch, but that part of the approach I think was very positive and I continue doing it, right? I have stories of things that suddenly we launched in one place and then when we launched them here it was a resounding success.

Our strategy is to rotate inventory fast. In Argentina, because of currency depreciation, you can't keep inventory more than 30 days. You can't. In Argentina we rotate inventory, from when we publish it to when it sells, in less than 10 days. Globally we're close to 20, which is very fast. But when we were testing this strategy in Argentina, in the other countries we weren't in that rotation place because you didn't have the monetary pressure to do it. But we brought back those learnings that later completely changed how we operated the catalog, how we operated pricing. It's a big example of a place where we learned a ton of things. And similarly, GCC has its learnings, Chile has its learnings, Brazil has its learnings, and Mexico, of course, brings many learnings to the different countries, but that was happening constantly. So we liked that. What would I have done differently? Maybe we were too, maybe I would have been much more, no, I wouldn't have been so aggressive in trying to crack a country and do it very fast, because you're going to make more errors, you're going to build a different culture, because it's a culture that has everything, from entry, and doesn't give you the chance to build designed for that particular market. I would have probably gone much slower in, keeping the laboratory to test different things. But being very conservative with how much capital each country has, I would have given it the same capital I gave Mexico, what we had in Mexico on day one. We had very little capital in Mexico on day one and I would have kept everyone with the same capital, with a culture of let's follow what works and invest more in what works, not invest in what's not working as well, and I would have gone a bit slower and used that laboratory. That I would have changed, without a doubt, that would have completely changed my life, right? Because you wouldn't have had to dedicate so much focus to making one operation work, you could dedicate much more time to learning from what was working in those operations. That I would have done differently, without a doubt. So, yes, and we keep learning, right?

Yes.

Look, let's contextualize what happened and how it happened. Remember that when this occurred, we had just... during the two years prior was when Kavak really didn't have much capital during its first three years. It raised almost all its capital in year four. And we were investing that capital in infrastructure, investing ahead to grow the business 10 times from where we were at that time.

So, when we see a change starting to happen in the markets, what change are we seeing? One, capital is becoming much more expensive because interest rates are rising. Two, remember we were living in a pandemic where prices were going up; now you live in a world where prices start to fall, which is relevant if you are buying and selling inventory. Three, our global peer's stock fell 99.5%, and many of the companies that were building globally went bankrupt.

So, how do I explain the uncertainty this generates in the markets regarding the proposition Kavak has ahead? And we had just taken off with a full plane, right? Full of infrastructure, people, pipeline, and product we were going to launch.