20VC Andrew Wilkinson on Building The Berkshire Hathway of Tech, Sustainable vs Unsustainable Growth and The Relationship Between Money and Freedom

Abstract

Abstract

In this episode of the 20 minutes VC podcast, Harry Stebbings interviews Andrew Wilkinson, managing partner at Tiny Capital, a firm known for buying, building, and investing in internet companies. Andrew shares his journey from running a tech news site in high school to becoming a successful entrepreneur and investor, highlighting his early insight into leveraging design in tech and the profitability of agencies facilitated by geographic arbitrage. He emphasizes the importance of sustainable growth, profitability, and acquiring businesses with competitive moats, akin to "New Zealand" in their quiet success and independence. Andrew also discusses the impact of COVID-19 on his portfolio and the value of experience over formal education in tech. His approach to investment is influenced by Warren Buffett's philosophy, focusing on long-term holdings and minimal intervention. He candidly reflects on his strengths in pace and delegation, his discomfort with implementation, and the personal significance of money as a tool for freedom and exploration rather than material gain.

Summary Notes

Introduction to Andrew Wilkinson

  • Andrew Wilkinson is the managing partner at Tiny Capital.
  • Tiny Capital is involved in buying, building, and investing in Internet companies.
  • They own companies like Dribble, MetaLab, and Supercars, and have invested in Superhuman, SpaceX, Pitch, and Buffer.
  • Andrew oversees a group of companies with over 300 employees and tens of millions in revenue.
  • Hello Sign, a company focused on user experience, is mentioned as a success story, having been acquired by Dropbox.

"Today, Andrew oversees a group of companies within the tiny family with over 300 employees and tens of millions of dollars in revenue."

This quote highlights Andrew Wilkinson's role at Tiny Capital, emphasizing the scale of the operation he manages.

Andrew Wilkinson's Background

  • Andrew Wilkinson started as an accidental entrepreneur during high school by creating a tech news site.
  • He then became a CEO and operator, and now he's an investor.
  • His website in high school gained significant traffic, leading him to hire writers and sell ads.
  • Andrew interviewed Steve Jobs and traveled internationally due to his website's success.
  • He moved to Silicon Valley with intentions to work at Apple or Google but started freelancing instead.
  • Wilkinson created MetaLab, posing as an agency to secure more work and charged Silicon Valley prices while paying Canadian salaries.

"I started a tech news site, and it just totally took off. And so I started getting hundreds of thousands of visits to this site."

This quote explains how Andrew began his entrepreneurial journey by starting a successful tech news website in high school.

MetaLab and Agency Work

  • MetaLab became the go-to for designing mobile apps, web apps, and marketing sites.
  • Andrew's agency won clients like Apple, Google, Walmart, Facebook, and Amazon.
  • He worked with startups like Shopify, Tumblr, Coinbase, and Pinterest and designed Slack.
  • Despite the agency's success, Andrew was drawn to the idea of SaaS and recurring revenue.

"I became the go-to guy in Silicon Valley to jump in there and basically design people's mobile apps and web apps and marketing sites."

This quote describes Andrew's niche in Silicon Valley as a designer for various tech companies, which led to the success of his agency, MetaLab.

Transition to SaaS and Recurring Revenue

  • Andrew started SaaS companies using profits from MetaLab.
  • He created project management, time tracking, and estimate software.
  • The appeal of recurring revenue led him to diversify and start new companies.
  • By 2013, Andrew was overwhelmed managing multiple companies and sought advice.

"I started multiple SaaS software companies while I was running the agency and used the profits from the agency to fund those."

This quote shows Andrew's strategic move from agency work to starting SaaS companies, leveraging his existing profits to fund new ventures.

Founding of Tiny Capital

  • Andrew sold one of his companies to reduce stress and started learning about investing.
  • Inspired by Warren Buffett and Berkshire Hathaway, he aimed to replicate their model for tech.
  • Tiny Capital was founded to acquire Internet businesses, make improvements, and hold them long-term.
  • They focus on sustainable profitability and differ from other acquirers by not flipping companies quickly.
  • Andrew enjoys a low-profile life in Victoria, Canada, focusing on finding great companies.

"I founded Tiny, which is our holding company. And what we do is we acquire wonderful Internet businesses. We make a few small improvements. We plug in CEO, typically, because often the founder wants to leave and do something new, and then we hold them for the long term and we don't mess with them."

This quote succinctly describes the business model of Tiny Capital and Andrew's approach to acquiring and managing companies for the long term.

The "New Zealand" Strategy in Business Acquisition

  • Andrew looks for companies that are like New Zealand: successful, profitable, and unnoticed.
  • He prefers to invest in areas not crowded by other investors, following Charlie Munger's advice to "fish where the fish are."
  • He avoids popular investment areas like VR, AR, and crypto, where competition is fierce.

"New Zealand is located in the middle of nowhere, and nobody's paying any attention. It's quietly successful, it's profitable, and they have a reasonably good economy, and it's not where other investors are looking."

This quote explains the strategy behind Tiny Capital's acquisition approach, likening it to the success and obscurity of New Zealand in a global context.

Investment Strategy in Quiet Markets

  • Andrew Wilkinson discusses his preference for investing in quiet markets that are less competitive.
  • He describes these markets as "sleepy fishing holes" where there is limited competition and less stress.
  • New Zealand is highlighted as an example of a market that is self-sufficient and not reliant on tech giants like Google or Facebook.
  • The goal is to avoid competing with venture-backed companies that have significant financial resources.

"We try and find quiet, sleepy fishing holes off the beaten path where there's only one or two other fishermen, and we just quietly enjoy ourselves."

This quote explains the investment approach of seeking out less competitive markets where there is more room to operate without facing intense competition.

Price Sensitivity and Asset Valuation

  • When considering opportunities in the range of ten to 100 million dollars, entry price becomes crucial.
  • Andrew Wilkinson emphasizes the importance of paying a fair price based on the expected earnings of a business over the next five to ten years.
  • He also takes into account the risk associated with the business, such as changes in SEO algorithms or advertising rates, which can affect profitability.

"And so what we do is we basically pay a fair price based on where the business is at, and that's typically based on what earnings are expected to come out of the business over the next five to ten years."

This quote highlights the strategy of basing the purchase price on the projected earnings of a business, taking into account the inherent risks.

Impact of Covid on Revenue and Profitability

  • Andrew Wilkinson discusses the uncertainty of Covid's second and third-order consequences.
  • He notes that most of their businesses operate online and can pivot to remote work easily.
  • While some businesses may be affected by Covid, they generally have low fixed costs and can adjust expenses as necessary.
  • Certain businesses, such as Dribble and remote job boards, may benefit from the current environment.

"So, like anybody else, we don't know what the second and third order consequences of the lockdown will be."

This quote acknowledges the unpredictable nature of the pandemic's impact on businesses and the economy.

Growth Versus Profitability

  • Andrew Wilkinson advocates for a culture of profitability over unsustainable growth.
  • He believes in investing in profitable businesses or those that can quickly pivot to profitability.
  • The focus is on sustainable growth, where investment in marketing yields a positive return in a reasonable timeframe.

"We really exclusively buy profitable businesses, or at the very least, businesses that can be immediately pivoted to profitability."

This quote emphasizes the priority given to profitability and sustainability in their investment decisions.

Portfolio Construction and Loss Ratio

  • Andrew Wilkinson prefers to focus on individual company performance rather than overall portfolio construction.
  • He is comfortable with having a concentrated portfolio and does not anticipate significant losses.
  • The strategy is to invest in businesses that can endure over time, rather than diversifying extensively.

"We really just try and focus on individual companies and buying wonderful companies."

This quote reflects the approach of prioritizing the acquisition of strong, enduring companies over diversifying investments.

Venture Capital Involvement

  • Andrew Wilkinson is open to working with venture capital if a business requires significant capital to capture the market.
  • He mentions that their businesses, such as Dribble, grow organically without the need for large capital injections.
  • Venture capital is not opposed but is not the chosen path for their current portfolio.

"I would absolutely do that. I would be calling benchmark and Excel tomorrow."

This quote shows a willingness to partner with venture capital firms if it aligns with the needs of a business.

Unbundling Versus Bundling of Social Networks

  • Andrew Wilkinson discusses the trend of niche social networks versus large platforms incorporating various groups.
  • He uses Meetup.com as an example of a niche network that could potentially be overshadowed by larger networks like Google.
  • The conversation reflects on the competitive dynamics between niche communities and large social platforms.

"Well, that's a really tough one. Like, you think about Meetup.com, for example, which is a business that we looked at buying, and we just couldn't wrap our heads around it."

This quote illustrates the complexity of deciding between investing in niche social networks versus larger, more established platforms.

Disruption in Technology and Business Models

  • Google Maps improved on data quality, outperforming Yelp.
  • Certain businesses are vulnerable to being overshadowed by larger platforms incorporating similar features.
  • The creative community, such as designers on Dribbble, prefer non-corporate, unique platforms.
  • LinkedIn adding design features or remote job listings could threaten niche businesses.
  • When acquiring businesses, pricing discipline is crucial due to the potential for larger companies to replicate features and undermine the smaller business's value.

"Maps. And suddenly Google Maps has better data and blows Yelp out of the water."

The quote illustrates how advancements in one company's technology can disrupt the market position of another, using the example of Google Maps surpassing Yelp.

"I have no idea how long that'll exist because LinkedIn can easily come along and start adding remote jobs as a feature."

This quote highlights the precarious nature of niche businesses when larger platforms can easily integrate similar offerings, threatening the smaller business's existence.

The Role and Mindset of a CEO

  • Andrew Wilkinson perceives himself as a non-traditional CEO due to his preference for strategy over implementation.
  • He enjoys the diversity of working on multiple projects rather than focusing on a single company.
  • Andrew identifies his strengths in laser-focusing on strategy and ideas, but not in managing people or implementing plans.
  • He finds investment roles more suitable as they allow high-level involvement without day-to-day management responsibilities.

"I'm very urgent and I love doing things quickly. I love ideas. I love strategy. What I don't really like is implementation and follow through and managing people."

Andrew explains his personal work preferences and why he doesn't fit the traditional CEO mold, emphasizing his love for the initial stages of business activities over the long-term execution.

"I find one company, for me at least, isn't enough. I wanted more diversification of thought."

This quote reflects Andrew's desire for variety and his inclination towards managing a portfolio of companies rather than being tied to a single entity.

Advice for Board Members

  • A board member's role is not to befriend the CEO but to challenge them and ensure they consider the potential consequences of their decisions.
  • Board members guide rather than dictate company strategy, focusing on whether the CEO is the right person to lead.
  • It's important to align the CEO's incentives with the company's goals.
  • While it can be frustrating, board members must sometimes allow CEOs to learn from their own mistakes unless it's a critical risk to the company.

"You're not there to be a buddy. You're there to actually ask probing questions and to rub their nose in the consequences of what could go wrong."

The quote emphasizes the responsibility of a board member to challenge the CEO and ensure they are aware of the potential risks associated with their decisions.

"You can't dictate what they need to do. You can only guide, and you can set guide rails."

This statement underlines the advisory nature of a board member's role, highlighting the importance of guidance over direct control.

Focusing on Strengths vs. Addressing Weaknesses

  • CEOs typically have a "superpower" or a particular area of expertise.
  • It's important to double down on one's strengths while having enough understanding of other areas to delegate effectively.
  • Recognizing what good leadership looks like in areas outside one's expertise is crucial for delegation.
  • Andrew advises against trying to become an expert in every field, instead suggesting focusing on core competencies and hiring experts for other roles.

"We always say every CEO has a superpower."

This quote introduces the concept that each leader has a distinct area of expertise that they should leverage.

"You want to double down on your strength, but then you also want to be able to identify and know enough to know what the people you're going to delegate look like."

Andrew suggests focusing on one's strengths while also understanding enough about other areas to ensure effective delegation to the right people.

Hiring for Greatness

  • When hiring for key positions, it's essential to look for candidates who have a track record of achieving the desired outcomes.
  • Hiring people with proven experience in a similar role increases the odds of success.
  • It's better to hire for experience rather than potential, as hiring based on potential has often led to failure.

"We're looking at their resume and going, have they done this before?"

Andrew emphasizes the importance of past experience in assessing a candidate's suitability for a role.

"Just hiring people who have done it before, but for some reason we don't do that because we don't know what those people look like."

This quote suggests that hiring based on proven experience is a simple yet often overlooked strategy due to a lack of understanding of what successful candidates look like.

Relationship to Money and Happiness

  • People often believe reaching a certain level of wealth will bring happiness, but this is a misconception.
  • The pursuit of happiness through financial milestones is a never-ending cycle that doesn't necessarily lead to satisfaction.

No verbatim quotes provided for this section in the transcript.

Personal Relationship to Money

  • Andrew Wilkinson grew up in a financially constrained environment, with parents frequently stressed about money.
  • Exposed to wealth at a young age, he aspired to have the luxuries he saw among his peers.
  • Initially spent on material possessions which did not increase his happiness.
  • Realized that financial security, not excess wealth, contributed to happiness.
  • Values money for personal freedom, protecting family and community, and pursuing interests.

So I grew up in Vancouver, and my dad was an architect, and money was always really tight... And so money was always this thing that my parents fought about and we were stressed about.

This quote highlights Andrew Wilkinson's challenging financial upbringing and the stress money, or the lack thereof, brought to his family life.

The only thing that had an impact on my happiness was not stressing out about rent, knowing I had enough money in the bank that I was comfortable for two or three months.

Andrew Wilkinson reflects on how financial security, rather than material wealth, was the key contributor to his happiness.

I look at money first and foremost as a way to protect my personal freedom.

Here Andrew Wilkinson explains that he views money as a means to maintain personal freedom and avoid undesirable situations or commitments.

Approach to Business and Investing

  • Uses money to engage with new interests and invest in related businesses.
  • Purchased a top indie podcast player and started a business in the podcasting industry.
  • Enjoys skipping the line to access interesting people and opportunities in areas of passion.

One example of that is podcasting... And so I went out and I bought a top indie podcast player.

Andrew Wilkinson shares an example of how he uses his financial resources to quickly enter and engage with new industries, in this case, the podcasting sector.

Personal Reading Preferences

  • Enjoys reading "The Tao of Charlie Munger," a collection of quotes from Charlie Munger, Warren Buffett's business partner.
  • Has read the book numerous times, finding it highly insightful.

So lately it's been the Tao of Charlie Munger, which is just a collection of quotes of Charlie Munger, who's Warren Buffett's business partner.

Andrew Wilkinson reveals his favorite book and implies the significant influence Munger's wisdom has had on him.

Strengths and Weaknesses in Company Building

  • Superpower: Pace and delegation, starting multiple companies quickly.
  • Weakness: Follow-through, dislikes managing day-to-day business operations.

I would say my superpower is pace and delegation... My weakness is follow through.

Andrew Wilkinson outlines his ability to initiate projects efficiently but also acknowledges his struggle with ongoing management and execution.

Perspectives on Success

  • Admires Jason and David from Basecamp for their enjoyable, profitable, and enduring business.
  • Success is not solely about building the biggest company but enjoying the process and profitability.

I've always thought that Jason and David from basecamp have it made.

This quote expresses Andrew Wilkinson's view of success, highlighting the balance between enjoyment and profitability in business.

Career Advice

  • Believes practical experience is more valuable than formal education, especially in tech.
  • Advises against MBAs for aspiring business professionals, suggesting direct involvement in business instead.

My number one piece of feedback to people is get experience. If you want to be in business, start a business.

Andrew Wilkinson advises against traditional business education, emphasizing the importance of hands-on experience in the business world.

Personal Insecurities

  • Concerned about being misinterpreted or perceived negatively.
  • Values being liked and understood correctly by others.

My biggest insecurity is probably if I'misinterpreted in some way.

Andrew Wilkinson shares his fear of being misunderstood or erroneously perceived as unkind due to his directness.

Vision for Tech and Startups

  • Advocates for lower-risk alternatives to venture-backed startups.
  • Believes it's possible to achieve wealth without relying on venture capital.

I think just showing people that there's a lower risk alternative to venture backed startups that can still make you very rich.

This quote indicates Andrew Wilkinson's desire to highlight less risky yet still lucrative paths within the tech and startup industry.

Future Ambitions for Tiny

  • Focuses on the present, acquiring more internet businesses while enjoying life.
  • Does not place much emphasis on long-term planning, finding it speculative.

I would hope that we own more wonderful Internet businesses and that we still are enjoying our day to day life.

Andrew Wilkinson shares his short-term aspirations for his company Tiny, prioritizing the acquisition of quality businesses and personal enjoyment over long-term planning.

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