NVIDIA's Unusual Bets That Made Them The Biggest Company In The World

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0:00

You cut out during half the thing. So you're saying, would I forego my whole year's profit to forego my ideal customer or my core customer? What would you say?

0:59

First of all, I didn't cut out, Neil. You cut out because you have shitty Internet, because you're at Legoland. So I don't cut out because I'm hardwired in. Let's make that clear. So let me repeat, repeat what I said. So would, okay, imagine your Nvidia, okay, your profit is $200 million here at the time, okay, at the time, $200 million a year. Now, you are hell bent on this new way of doing things, but this new way of doing doesn't serve your core customers anymore and it's largely unproven. And by the way, you launch this new thing, you've already invested hundreds of millions of dollars already. It doesn't work for the first year, and investors are calling for your head, right? Is that something you would do?

1:10

Well, I don't have investors. And the reason that they probably did it is because they believe whatever that new thing was, was the future. And a lot of the existing stuff may not be around for a long time. In essence, they pivoted. And sometimes you have to make those hard choices. Another example of this is Intercom. Intercom was doing okay. They weren't doing amazing. They weren't, you know, you know, declining like crazy or anything like that. But let's just say, I don't know the revenue numbers, but let's just say somewhat struggling as a startup. And they raise a lot of money. They created Fin, pivoted, tried this whole new product, focus all their energy on it, and Then they sold to Salesforce where I believe was it three point something billion dollars ended up paying off. Yeah, and there's a lot of examples of it working out. Nvidia is a great example because you can see their stock price and their revenue and their EBITDA because it's all public information. And there's also examples of companies that have probably pivoted that we don't hear too much about that haven't done well. You know, like you look at Motorola and the Razr, they brought it back. I don't know who the heck buys the razor. I was at Petco park for one of their baseball games, the Padres versus the Giants the other day. They had Razer ads all over. I don't know one person that owns one of those flippable Razer phones. And I'm not saying that's the same thing as them pivoting, but companies try to adapt and change your strategy all the time. And sometimes it doesn't work and sometimes it does. We remember the great ones, we don't remember the failures too much. And the same goes with Apple. I once googled Apple's list of products that failed. They have so many products that you and I don't remember or can't recall of that they thought were great ideas that failed. And I think the question is, is if it doesn't work out, can you keep going because you have enough reserves in the bank or can you revert back? Sometimes you can. And for those businesses that can, good for them, the businesses that can't, it can create a real big issue. And when Nvidia did this, the example you're giving, if Nvidia takes one year's worth of profits and reinvests it all, remember, if it doesn't go work out, they can always go back to the same old business. It doesn't mean the same old business will be the same size. It could have shrunk because they didn't focus on their core customer. But you have a profitable business. You probably have cash in the bank account because it was profitable before. So you have a lot of optionality. And I don't think it's actually that tough of a call when you have that much optionality. I do think it is tougher because they're publicly traded. I think it's really tough when you only have one swing and you're betting the farm on it. Right. The Nvidia example, it's a. They were always a. Or not always for a long time. They were a very healthy company. From a financial aspect, that's actually not true.

1:50

So, so if you look at the, if you look at the beginning of Nvidia and even Jensen has said for

4:35

15 years, 20 years ago, I'm talking about last 10 years before this AI boom. It was a very healthy company financially.

4:40

No, even with that too. So you didn't even let me give the story and you reacted to it. So let me give you the story. So, so the. Now there's a couple examples in the, in the beginning where by the way, they fulfilled on their. This is in the very beginning, by the way, I'm going to give a couple of stories here. So when you look at, they had a deal with Sega to do the NV2 chips for their, for the, the Sega Saturn, right? And I actually had one of those devices before they fulfilled on the initial set. And then they're supposed to do, I think, sorry, it was NV1 for a Sega Saturn and I think NV2 for the next version. But they didn't have enough money to make the, the NV2, right? So they actually went to sea and they're like, hey, can we just give you equity in the company? And you guys are like, can we just keep the money? Because if we, if we need to return the money, we're bankrupt, right? So they gave them the equity there. Now that was when they, they were stupid in, in terms of how they, because they have to make these new chips all the time. But they, they, they made an error in, in that bet on the NV2, right? We'll just leave it at that. And so they've made tons of architecture issues. They had tons of architecture issues with their chips as they continue to grow now leading up to maybe 10 years ago, maybe 15 years ago. Actually, Neil, they bet on Cuda, which is this unproven technology. Now what happened here was they originally were catering to gamers, right? Like, I used to buy, one of the best customers you can have is a gamer. Why? Because they're addicts, right? They'll always be upgrading their devices and things like that. So their core audience is gamers. Like they're upgrading for playing Quake Doom and things like that, okay? So what happened was they started to see that scientists were using it for intense calculations, for maybe like protein folding and things like that, right? So they started going that direction. They're like, whoa, maybe this is a novel use case. And then scientists started to use it in different ways and they're like, maybe we should go in this direction. And Jensen started to see More and more people talk about this, talk about, you know, machine learning and things like that, right? And then that's when he's like, oh, well, if we need to, if we want to get more people to, to use this stuff, we need to lock him into some type of, like our architecture, which is cuda. So he bet hundreds of millions of dollars, not just one year's profit, but hundreds of millions of dollars on this thing. And then what happened was, turns out that nobody was interested in the first year, right? And then actually for the next two, three years after that, nobody was really interested. It was lukewarm, but it took a lot of effort. And thank God, I think he had the, he had the majority, like, voting shares, right? They have voting rights, so he can continue to make that bet. But he saw it moving in that direction. A lot of his engineers and, you know, architects saw it moving in that direction. So he stayed with that bet. And thank God it worked out for them because that's a situation where it was getting really bad. In fact, he set aside $200 million just for returns and all of the, the critics were getting pissed. It's like, this is Nvidia's about to die. Like, in fact, Dell, which had a deal with Nvidia, they're like, we're not gonna work with you anymore. We're gonna work with ati. And so, but to Jensen's credit, he stuck with it. And he had the conviction to stick with it for like four or five plus years.

4:46

So let me just give you some financials so you can see or people can realize where they were at when. I'll give you the 15 years versus 10 years ago. Cause 10 years ago they were much better than 15 years. I could give you the 10 years if you want. In 2011, they did 3.54 billion in revenue and 253 million in profit. Totally agree with what you're saying. They can spend more than that, but at that time, they had a surplus cash of $2.49 billion in their bank account. So all I'm getting at is. I totally agree with you, it is a hard bet, but it's different than a startup making a bet when you're at that size and scale. Right. I totally get it's risky and you got the boulder to deal with and people want your head and stuff like that. Maybe, maybe he had voting rights like you were saying, but it's a different situation than you and I betting the farm because he still had two point something billion dollars in cash in the bank account in 2011.

7:44

Hold on, Neil, you said 10 years ago. 15 years ago.

8:39

I gave you 15. 2011. I can give you 10 years numbers as well.

8:42

You said 2011, right?

8:47

Uh huh.

8:49

Yeah. So do you know when CUDA came out?

8:50

I'm basing it on the 15 years that you told me.

8:53

2007, it was even beyond that.

8:56

All right, so let's see. 2007.

8:58

So 2007 created in 2004 and then 2007.

9:02

Nvidia revenue and profit. 2007. Let's see a overviews. Okay. 2007, 303.07 billion in revenue. 448 billion in. 448 million in profit. The 3ish billion in revenue. 448 million in profit in 2007.

9:08

The thing I'd be interested in diving in on is how was the stock trading for these years? Because I know there's a period of time with CUDA that they're trading sideways almost and they weren't really growing.

9:28

Right.

9:38

Versus the years before that. They were crushing it. And so the thing to call out here too, and then we can move on is if you, when you look at Cuda right here, it was released, okay, officially in 2006. You look at the timeline, public SDK was 2007 or so. But Cuda, Cuda was the thing that they bet on that really, if we look at it, how long did it take to get traction and how did their stock price track with it? I'm actually curious around that. I think what I'm really getting at here is a conviction thing for the audience. Right. It took roughly six to 10 years to gain massive commercial traction. And the stock remained relatively volatile and effectively flat to negative because between late 2006 and late 2012. So six years bouncing 30 cents and 80 cents. Right. Investors grew deeply frustrated with the capital drain. So a lot of pressure. But my point is he stuck with it.

9:39

Yes, but also stock price is very different than unit economic or business economics. In 2005 before CUDA. Because you said 2006. 2005, it was 2 billion in revenue, 100 million in net income. 2006, 2.38 billion in revenue and 3,300,000,000 in net income. So they were still growing. But I get what you mean. You can get ups and downs and volatility and stuff like that as well.

10:30

Yep. Okay, so let's just, let's just have this table out so people can, can, can, can kind of see this and we can, we can move on here. So 2006, 2.38 billion. Right. Net income 301 million. Okay. And then 2007, it goes 3 billion. So it goes up. Revenue keeps going up to Neil's point. Right? Let's just look at revenue. Profit, 2.383 billion, 4 billion over here. And then in 2009, they started, they go negative for two years over here. What's that?

10:58

Yeah, that was also the financial crisis. That's right, that's right.

11:24

Yep. But look at this over here. If you look at revenue after financial crisis, like they're not, they're kind of, kind of trading sideways. Right? And then, you know, not as profitable as before. Actually, no, 2012, they, they become, you know, much more profitable. Anyway, the point guys here is he had the guts to stick with it. And in a lot of situations, to Neil's point, like you hear the, the, the, it's, it's survivorship. Bias. Bias. Right? Where you kind of see the survivors. But my point is, look, he's the longest lasting CEO for a reason. Some bets he's going to get right, some he's going to get wrong. And, and sometimes they made some really bad bets and it's not always going to work out, but you got to, got, you have to, you have to have the speed and the guts to make those decisions. Going back to the article that we talked about earlier.

11:27

And, and I don't know if he has superior voting rights or anything like that. It's not easy for Jensen Huang to get voted out based on specialized voting rights. So yeah, people probably prefer his head, but he's had specialized voting rights, which makes it hard.

12:08

If you're building an E commerce brand, you should check out DTC Pod hosted by Ramon Barrios and Blaine Bolas on the HubSpot podcast network. They speak with founders, marketers, creators agencies and platform experts about what it actually takes to grow a direct to consumer business. From paid ads and influencer marketing to conversion, email brand building and consumer trends. I particularly enjoyed their conversations around scaling a brand without losing what made customers care in the first place. Listen to DTC Pod wherever you get your podcasts. All right, so I wanted to take a moment to tell you about my podcast co host, Neil's agency called MP Digital. And they work with a whole host of global companies or a global organization. Also, also Neil has SEO tools such as ubersuggest and Answer to Public. All you have to do is go to npdigital.com to learn more and we'll see you on the other side. Yep. So Neil, I'M curious. You're on this, you're on this vacation now. You went to the beach, you know, you're at, you're at Legoland right now. You went to the Padres game. And then yesterday you were talking to me on the phone saying, you know, you're enjoying this life. So, you know, let's, let's, let's hear more about that.

12:24

Yeah. So without getting into too many details, it all ended up happening. To be clear, I have two kids. I've never actually been alone with my kids for more than like, not even a day.

13:30

Right.

13:44

I've never had to actually just watch them myself with no help. When they were younger and my wife had to go do things or go somewhere. We had nannies and all that kind of stuff to help out. They're older now, 5 and 7. So I don't really have, or not even really. I don't have nannies or anything like that to help out, which is fine. Kids are really self sufficient. My wife had a family emergency on her side of the family, so I told her, just go, you know, do whatever you got to do, I can watch the kids. And she assumed it was going to be a day or two. But some things luckily fell into her favor so, so she's staying a little bit longer. So maybe it'll be a week to two weeks. And I'm probably a day away from it being a week. I think tomorrow marks the week of me just watching the kids on my own with no help. And there's a few things that some of them already knew. But first off, it is way easier to work in the corporate world, run a business, grow a business than it is to be, I don't know what the term is like a stay at home parent. I think that is extremely difficult compared to running a business. This is just my two cents.

13:44

That's, that's for you. It could be different for someone else, who knows?

15:01

Correct. Yeah. For some other people I think they naturally do better playing with kids all day than running a business. But for me it's easier to work than it is to raise kids all day. I'm not saying my kids are bad or hard or anything like that. It's just more so. I believe I'm more built or suited to build a company than to play with kids all day. And I think both are admirable things to do in life. And there's so many other things that are admirable as well. But just playing with the kids, being with their, trying to do calls in between and Work in between. You know, the family dynamics are really good. Where my kids, I can see where they love me, where they're missing a father figure because I travel so much for work and things that I can improve upon. And I came to the realization that I'm traveling. And I know I'm traveling and I'll never stop traveling. But when I dissect the traveling, that creates ROI versus not creating a roi. It would be easier for me to buy companies to fill in the gap than it is to travel more and actually probably be more profitable as well to buy more companies. It actually is when we ran the numbers. And so I'll travel less, travel for bigger things, and try to stay home more. But this didn't come from just me being with the kids by myself for a week. I had a summer lull in which I wasn't traveling as much during summer. And it was really nice. Like, I enjoyed activities like, oh, let's go to the grocery store and buy groceries. I know groceries are expensive, but still, just going to the grocery store and doing that as activity or going to parks or going to Target or whatever mall and just walking around and not buying anything. A lot of this was fun. And I also didn't realize groceries are crazy expensive. I don't know how most people afford them, you know, because my kids were just putting whatever in the cart and I'm like, four or five hundred bucks, I'm like, how the heck do we spend this much at groceries? And this wasn't Erewhon, right? Whole Foods. Yeah, Whole Foods. So expensive How What?

15:03

Whole Foods is still expensive. Just not expensive as Erewhon. By the way, look at my hat.

17:08

Oh, yeah, you got a hero on hat. That's cool. But even if it's not as expensive, and I do agree it's expensive. So if we went to Ralph's or Vaughn's, what would have been 400? It's not like groceries on Whole Foods are 30, 40% more. So it's like, how does the average family afford this stuff? And I'm like, this is just crazy, you know, and it's. I don't know what the government's going to do about it, but it's just. I don't know how this is sustainable for a lot of families.

17:12

So this vacation has put you in touch with reality.

17:37

Yes. We would Uber Eats stuff from Erewhon. And I don't even know what the cost for that is. Yeah, yeah.

17:42

Anyway, I think it's. It's good perspective. And those of you thinking like, It's, It's. I think sometimes when you slow down on a. You take a little break, it actually speeds you up. Because the. That time to think is like, oh, well, why don't I just go buy more companies? Is actually really important. That's a high leverage thought, Right. If you actually decide to execute on it, it's a very high leverage thought.

17:49

Right.

18:07

But it does change a lot of things and it does prioritize hundreds of people in terms of how they do things at your company.

18:07

Dude, you and I have always talked about when people zig, you zag, or you adapt with different conditions. When I was in travel mode, I was in travel mode, just doing meetings and grinding and doing what I needed to do to try to grow the business. When I was at home and I wasn't traveling and I promised the kids and the family I would take some vacations with them, I not only got bored during certain times, but I wasn't able to do my standard meetings because I wasn't in new countries all the time. Meeting with our existing and potential customers. It's hard when you're on a Disney cruise ship. So we talked about in a previous podcast episode that, like, oh, what are you spending your time on now? And I mentioned how I'm reaching out to more companies because I was bored sitting there. I was like, I'm like, we got cash in the bank. We have a line from our bank. Let me just hit up a lot of random companies and we have an M and A team that just goes and finds deals anyways. But I'm like, let me just go and find the companies that I think would just help us grow faster. Started reaching out, and we have two in the pipe from my efforts, and I'm hoping both those close sometime this year.

18:14

Yeah, so that's good. And by the way, before I open it on my side, how does your M and A team feel about you jumping into source on your own?

19:17

They don't mind at all. They like it. They think it's great because I'm able to do stuff that they can't. Like when I have my first call with people, I ask them all the questions about their business. Revenue, profit, churn, all that. They don't. People don't know all the information right away, but they can give me rough ranges and numbers. Even revenue and profit. What people show you in reporting later on versus what they tell you on the phone is usually two different numbers. Uh, not drastically off sometimes, but you know it's gonna be off sometimes by 10, 20, percent. Um, the second thing is, is I'm able to tell people on the first call how we structure our deals and what we're willing to pay based on the numbers that they're giving. And it just makes things so much easier because my team has to get approval on certain things, or not really approval, but they're not just going to throw out numbers. And from a founder to founder perspective, I can just say, like, this is how much we trade for. This is how much I would be willing to pay for you. If you're interested, we'll pursue conversations. If not, let's move on. And I remember you introduced me to someone at HubSpot, the event. The guy was based in Spain. And you're like, neil, this would be a good business for you. I tried doing a deal right there.

19:26

I just feel. I didn't say it'd be good. I said, you should have a chat with him.

20:39

Yeah, you should have a chat. But you said, he has a good company. And you were telling me, I thought

20:42

he had a good company. And you did your dd.

20:46

So, yeah, no, he. And he did sell it. He ended up selling it. We told him in advance right then and there on that conversation. When Eric did the introduction, like in person, I told him what we pay for companies. He told me the rough numbers. And then when my team carried forward, he said, oh, I don't want to sell for that. And he wanted double. And I'm like, but no one pays double. Eventually he. He continually ran the business, fixed it up, and then sold it. I don't know what he ended up getting for it, but it was a good business. And Eric did a good introduction there. By me jumping in early on, I'm able to save my team a lot of time because I can just cut to the chase. And some of those conversations are just better being done by entrepreneur to entrepreneur versus him asking me or she or him, whoever the entrepreneur is, hey, how does working with you, what is it like? How am I going to be integrated? Who collects the leads in these regions? If you ended up buying us, is it your team? My team. And they have all these questions. A lot of those questions, I say, hey, these are better suited for Mark on my team or Mike or whoever it may be, or Brittany or whoever. And then they go and answer those questions. I stick to what I'm good at. The team sticks to what they're good at, and it's a great combination.

20:47

That is it for today. Please don't forget to rate View, subscribe and yeah, we'll talk to you tomorrow.

21:59