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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date. An investor field guide, dotcom. Patrick O'Shaughnessy is the CEO of O'Shannassy Asset Management, all opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shannassy asset management.

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My guest today is Nikki Shabat, co-founder and partner at Blackbirded Ventures. Blackwater is a leading VC firm in Australia, New Zealand and has invested in companies like Graphic Design Platform Caneva and autonomous vehicle company Zuks. Our conversation covers the types of wild ideas that Blackbird invests in the landscape of venture and startups in Australia, New Zealand and everything Nikki knows about gross margins and customer acquisition. We also introduce a new concept on the show. I'm calling Breakdowns where we dive into a single business, what it does, how it operates and what makes it tick.

I hope you enjoyed this great conversation. So, Nikki, I love the idea right at the top of your website that says invest in wild hearts with the wildest ideas right at the beginning. This is your mission statement, and I'd love to pick it apart piece by piece of first welcome. What does a wild heart?

A wild heart is someone who is doing their life's work. And I think all of the great businesses of our time started with this great mission that takes decades to accomplish. And it's really looking for that type of person that is willing to solve the big problem over a long period of time. And I think also the sort of concept of someone not from central casting that you look at all of the most valuable companies in the world. At the beginning, the founder was not a qualified CEO.

In fact, they most had barely finished university or just finished university. Google just finished university. Microsoft and Facebook didn't finish university. And so the word wild references that typically people do not look like they're from central casting. And we would much rather invest in someone who was hungry rather than proven.

I love the idea of somebody doing their life's work. It makes perfect sense why you would want that. The endurance and the grit and perseverance that probably comes with that. But how do you identify something like that, especially if a person is very young? How do you know you might have found someone doing their life's work?

I think it comes in the clues of how they've spent their time before starting the company. As an example, Cannava and Melanie, the CEO life's work has been about democratizing design, allowing everyone to create great design. And before the formation of canvas, she taught design. At university, she had started a business with her partner, Clifton fellow co-founder Ken The Fusion Books, which is a high school yearbook business that allowed high school students and teachers and parents to collaborate and create high school yearbooks and to see these sort of clues of how people have spent their time before even starting the company.

The next stage is the wildest ideas, and I'm curious what a wild idea looks like to you and why that's important from an investing standpoint.

I think Peter Thiel describes it as a vision that is charismatic. The sort of wild idea is an ambition that is a honeypot for the best people. So whether it is the best, employees will join and do their best work. It's the best investors that will invest at the best valuations. It's the best partners that will sign very quickly and work with a company because of its mission. And so the idea of ambition being this honeypot ambitions leading to this network effect of progress.

If you have a grand mission, I think you're more likely to succeed in business than if you don't have a grand ambitions. People, particularly in countries outside of America, suffer from this confidence problem and fall into this trap of if I'm half as ambitious, more likely to succeed vs. actually if you're half as ambitious or half as likely to succeed. And so when spending your life on a business, make sure the mission is of grand ambition.

When I ask what the wildest idea was when you first heard it from a founder, what does that bring to mind?

We first met a guy called Tim Kelly Clay in early 2014, and Tim is the founder of a company called Zook's, which is a robotics company. And back in early 2014, it was a wild idea to think that a car could drive itself. And it was even, I think, a while the idea that you would take the responsibility to develop all of the software, all of the hardware, all of the consumer service to bring that into kind of a perfect realisation that allowed consumers to love a service that.

So I think certainly we took inspiration from Tim and Jesse and since then, for what a wild idea might look like, I love this idea that you've written about, which I think is encapsulated in the name Blackbird itself, that oftentimes the best work comes from fairly small teams. Can you talk about where Blackbird came from and what you've learned about small teams?

Yeah, the name comes from the Blackbird fighter jet, which originally Lockheed Martin had tried to build the world's fastest fighter jet and really the cancer of middle management and a big company environment. They spent a lot of money and spent a lot of time and achieved very much in a small group of people within the organization broke away into a sort of skunkworks team without that cancer of middle management, without that inhibiting structure of a big company, you had this idea of success maximization.

They had to succeed versus failure minimisation versus the company where if you don't fail, you survive. This is in a startup where if you don't succeed, you don't survive.

I like the last idea, which is right at the beginning. So we've got a wild heart with a wild idea. And what's really interesting about how you think about the world is that you're not investing in rounds. You're investing in companies. Describe exactly what that means and what you've learned about doing it this way.

Yeah, I think the venture capital industry is structured around this concept of rounds. You're a seed fund that invests in seed rounds, Europe growth fund that invests in growth rounds. And really that has never made sense to us. A business is so much about the founders and the relationships and the company stories. And to me. Logical unit of the industry is companies, and if you think about also the industry, the sort of early stage investors, the logic is that they would like to invest before they know a company successful, invest nothing after they know the company is successful and really never made sense to me.

I think the number of relationships in the venture capital business is the unscalable part, but certainly the amount of money is the most scalable part. So if you just thought about the businesses helping a few companies and investing all through their life, you could invest hundreds of millions of dollars in those truly generational companies. And so another way to put it, I would like to structure argument says, what do you disagree with successful people about? And I know Benchmark is one of the best investors of our time, have been guests of your podcast, practice the business in such a great way.

However, even if they just spent exactly the same amount of time with those companies, they invest in every round of those generational companies. I don't think it would take any more time. It wouldn't take any more relationships. They wouldn't have any problem raising that capital from LPs. And then also the sort of idea that the skill sets are very different. And that really never made sense either. You're given such a greater context. I like to say bad news.

You get to observe over the years how founders build the team, how the product interacts with the market. They're good customers or bad customers. This is all of the most valuable information you can have to make an investment decision at the later stages. And the sort of skill of later stage investing in a quantitative sense is it's so easy to learn versus the skills of empathizing with products and markets and teams at the early stage. So the idea of Blackbird really is to invest right at the beginning.

That's a special place to start a relationship. I think everyone remembers that high school teacher who had a sort of profound impact on the way they thought about things or someone who took a chance on them early in their careers. And if you in a relationship right at that starting point and then you build a great relationship over time, you work with the founders to help build the team and to believe in their vision and to help in any way you can.

That great relationship is actually the best competitive advantage that you can build in terms of once it's obvious that a company is successful. Once it is obvious to everyone in the world that they like to invest in the company, that great relationship outcompetes the brands and reputations of the world's best investors.

You talk a lot about the importance of storytelling, and I'm fascinated by how you do this, why you care so much and what the good signs are of someone, especially when you're investing early on, that you think has the potential to be a great storyteller.

I think it's the clarity of thought. It's starting with the beginning of a great mission and the way that founders describe it. Essentially, companies are a set of people, whether that be the employees that choose to work for the company and all of the investors and partners and so on. And so if you think about what is scalable in the world, that people traditionally think of software. But if you think of the original scalable technology of the world in his language, and I think people come together around the stories and cultures and so on, such that if you have the best people, it becomes more likely that a company will succeed if a person has thought very deeply about it.

Again, the investors always ask this question of is that the product? Is it the founders of the market? Is it the ideas aren't worth anything? I would challenge the last point and the sort of ideas matter so much, and particularly when you see getting back to, if it is found, his life's work. They think about it every single minute of the day. They are thinking about it in the shower when they go to bed and so on.

And really that depth of thought and that clarity of thought is obvious. And when you see it and when you hear it as being, I would say the best forward predictor of success is the ambition worthy. And has the sort of founding team thought about it in such a detailed way that sort of love the Andreessen Horowitz way of thinking about the ideas? I think that's, again, a similar concept. How deeply has someone thought about it and what are the words in which they used to describe the mission that they're on?

You now manage the largest early stage technology focused investing firm in Australia. And I know that you're in a unique position in a single, I think a few countries. But I started in Australia and I want to talk a lot about that. But before we get to that unique feature of Blackbird, I can't help but ask if there are other things that you disagree with. Other very smart people bond as it pertains to venture investing specifically.

I think even the way you describe don't want to be the best Australian venture capital firm. That's the tallest dwarf contest. We want to be one of the best venture investors in the world. And I think to me, the venture capital industry is a single global industry. So think of it as the Olympics. And hopefully Blackbird can be the Australia and New Zealand Olympic teams and we're all competing to win gold medals. I think people acknowledge that different countries win different amounts of gold medals, but we want to help Australians and New Zealand founders win the most gold medals.

And there's one prize is sort of global prize of great companies. At the moment, it's not a controversial thought to think that great companies can be created outside of Silicon Valley or even outside of America. Obviously with China, but also Shopify and Atlassian and so on. These are some of the best companies in the world that have been created outside of the United States. The sort of second corollary to that is can you create a great venture capital from outside of the United States?

And that's really the mission. And we think if there's enough gold medals being won by Australians and New Zealanders, certainly we have the chance to be one of the best venture firms in the world.

You're going to win a lot of gold medals. I think one thing that's really important is how you build your own firm. And we were talking about this idea that most firms that do this kind of investing almost look like sleepy small partnerships versus the high growth, high, slow learning, aggressive growth versions of the startups that they back. So talk to me a bit about that weird juxtaposition of the firms backing high growth companies being sleepy and how you might change that.

There was a blog post on Helfman early last year that said that why aren't the management companies, the venture capital firms is as ambitious as the companies that they invested? And if you think about the traditional arc of Silicon Valley venture firms and the greatest ones, it's structured more like a suburban accounting firm where you have the people's names on the door or a series of partners and then a couple of support staff. And that's sort of it. And sort of default story is that the old guys hang on too long for the young folk who generate the more recent returns and then it all collapses when those people leave and start their own firms and the cycle repeats.

If you think about all of the great lessons that you get to learn as an investor in these companies, I think the universal one is how to build a great company and how to build a great culture that attracts the greatest people and have them do their best work and the design of an organization. And so I think taking the lessons of those great companies and applying it to the management company. If you think about all of the world's greatest private equity firms, I think they've done a much better job of building these durable teams and durable organizations.

And so while that hasn't happened in venture, it's more of an anomaly compared to other sort of areas of investment management. I would say, Rick and I, fellow co-founder Rebecca Black, good work totally of this view. And we wanted to be the Craigslist of venture capital and not hire any employees and to keep the team very small. And I think 18 months ago thought how absurd that sort of view is. And why aren't we building Blackbird with the same ambition as the companies that we invest in?

So we've grown the team from sort of seven to twenty nine now and will be 50 next year. The second part of it is people think of big teams that venture capital firms and your mind naturally goes to Andreessen Horowitz or people that bring you on executive recruiters or this other type of help that you can offer companies. The choice is between do you want to build a service organization or do you want to build a product organization? So if you think about other firms like Angel, this is a very product driven firm that manages billions of dollars like those other great venture firms.

But it does so in a way that is very product oriented. And so the way that we've chosen to build Blackbird is hopefully with that product mindset and to be able to create these products and programs in another sort of scalable aspect is community and how to build communities that make a huge impact.

Can you say more about how you've begun to think through that product mindset as an investment firm? Literally what the potential products could be and who they are for? Is it for founders? Is it for their teams? Is it for investors? How do you think through what a brilliant product company that's also an investment company at this early stage would look like?

I think there's two answers. One is more of a practical near-term answer and one perhaps a little while the long term answer. I think in the beginning it's about helping startups. What does that mean? You give a company money and they spend all of that money hiring people and building the team that determines whether the company will be successful. So it's all about people. We have started through me, which is an accelerator that is under the umbrella of black churches, translating people in corporate careers, banking, consulting, legal, whatever it might be, and helping them navigate the shift into working for a startup.

And so it's an accelerator. But instead of for founding a company, it's for someone's career. And we have scale that we did program for five people in the beginning last year. Now, with the cohort is one hundred people. We would hope next year that three hundred people would go through that program. We've decided to focus it on women and helping teams build with that diversity of thought right from the beginning. And as you scale that, you think of that as five thousand people per year, you have a real chance to have an impact into how every startup team is constructed in Australia and New Zealand.

And could it be 20 percent of all employees of every startup that came through this program? And once you get to that. Stage, I think that's the measure of something that has an impact at scale, and then the other idea is even to create a city. So if you think about what is the most ambitious people do, three hundred years ago, they sailed around the world and they founded countries and set up cultures through legal systems and the American dream as a mission.

And could you even start up as a set of people? And could you create something where it attracted tens of thousands of people and that sort of scale to a single location with a single set of shared values and a city wide assault and so on and so forth? So these are some of the crazier ideas for products that perhaps could be built over the next 30 years.

I'd love to talk a bit about first of all, those are both very cool ideas and love the idea that you're starting very young with these companies, you make investments. What I'm curious, given year, how many companies are you investing in at the earliest stage? But maybe even more interesting is the period directly after that. They've got some money they're getting going. They're doing their life's work, as you describe, on a wild idea. What do you most like to see during that initial period after your investment, let's say the first six to 18 months or something?

And what things if you see them get you very worried?

I think when you invest, it's on the premise of is the person asking the right questions rather than do they have the right answers? And so I think in the first initial 12 to 18 months, usually that is around. Are you building something that people care deeply about? So anything around making a transformational impact on that customers, whether that is in their working life or otherwise, do they completely change the way that they spend their day or is it a sort of minor optimization or they use it occasionally or it's one of many things they might use on some general level.

You're looking for that sort of deep customer love. It was described sort of the definition of a business is happy, repeat customers. So how obsessed is the founder over that degree of happiness in their customers? So a small amount of evidence around that is forward predictor of great success. Sometimes in more sort of technical endeavors, it's more technical milestones. Again, it's more of this psychology of do they get a lot done with a small amount of time and a small amount of resources?

People generally are very smart, but smart people divide into those who talk about things and those that go and do things. And it's silly and abstract to say, but it's so rare to see people who just go and do things, don't complain about the sort of non perfect set of structures or non perfect set of resources. They just go and do something. And so I think that do things rather than talk about things is another super positive signal.

At the early stages, we've gone pretty far without mentioning anything about the specific market that you're at least started playing in on the way to those Olympic global gold medal. Say a bit about the unique characteristics of Australia, New Zealand and the countries in which you've made most of your investments. I'm really interested in all aspects here. So like the numbers of entrepreneurs starting traditional kind of VC bankable businesses versus a country like the US average valuations, are they different, any sort of descriptives ideas or statistics about what this market looks like?

Because I imagine most listening in the US specifically, maybe they can name Cannava and a couple others, but then they wouldn't be able to name much more. So can you kind of paint the landscape for us?

Yeah. When we started eight years ago, there was a sort of paradox if there were a set of successful companies, but there were no real successful venture investors that were built in Australia. I think back in the 2012 time period, Accel was the most successful Australian venture capitalist, even though they didn't have any local office. They invested in Atlassian and campaign manager and now Designs and a few others. I think the sort of type of company back then and the original thesis of Blackbird was the idea that you could build a global software company from Australia.

Australia is far away from anywhere else and is in the worst timezone, probably compared to the majority of the global population. And so you had this particular constraint that led to many of those global software companies to build themselves, to build that customer acquisition philosophies around bottom up adoption of their products. And Atlassian was one of the sort of pioneers of selling your product to the worker who actually uses it rather than sell your product to the CIO or the important person at an organisation, simply because it's very hard to speak to someone when the time zones don't overlap.

It's very hard to manage a remote sales office for hiring someone that takes twelve months to sign the first big sale and so on and so forth. Instead, let the product be the salesperson, let someone use it for free, put down their credit card and let hundreds or even thousands of those decisions play out such that you end up in the same result. You end up with sort of millions of dollars in CV from a very large company, but you do so with a thousand credit cards being put down rather than closing dinner over a steak dinner and golf games and the contract at the end of it.

So I think the original thesis was to find great software. Companies that wanted to build themselves with this bottom up distribution and certainly Dropbox, the list goes on the goal, the best IPOs in the last couple of years have followed that customer acquisition philosophy, which I think was and is sort of very important part of the Australian and sort of Kiwi ethos to building global software companies. And then I would just say it's just like everywhere else. It's just like Silicon Valley, where there is lower volume but similar wide breadth of companies and ideas and so on.

It's Australia. New Zealand are not going to win the most gold medals, but they will win some gold medals and we think an increasing amount of them. And so whether that's in clean or space or robot taxis or industrial robotics or health care II or these are all the same contests that Kiwi and Aussie founders are competing and it's just in a lower volume. And you might only meet one person who's competing in that event versus in Silicon Valley, where you might be 50.

In addition to this, selling through the basement concept, which I really love, is fast, easy adoption of useful tools like you mention with Atlassian and Dropbox and others. What other trends are you seeing among companies that you've backed more recently that you think are notable and interesting and different from the past?

I think it's the increasing ambition of the products and the solutions to problems. So I think I is I almost cringe saying it because it is such a big word and such a generic word, but it really has provided the prompt for founders to be able to really fundamentally reimagine existing products if you build it with the heart of it. But perhaps even more interestingly, is to solve different problems now that were impossible to solve with software before. So self-driving cars, diagnosing medical conditions, discovering drugs, all of these endeavours that were previously impossible.

But now with the advent of I, I think I becoming so cheap is more of the near-term catalyst to be able to, again, solve these problems that previously would have been unimaginably solved with technology.

Can you tell me everything that you've ever learned about gross margins? Higher is better. I think of it as room for error or margin of safety. If you think about businesses in a traditional sense and lower gross margin businesses, typically businesses that require you to hold inventory, it's simply just lower margin for error. If you grow quickly, you actually have a higher chance of failure in those types of environments versus in a software company. And so going back to this concept of Whydah, all of these unqualified people succeed the grandest of ways.

And I think it is a little bit because software businesses with high gross margins and no inventory, it's like this training wheels environment. It's very hard if you're going to screw it up. Certainly if you build something that no one cares for, you're going to fail. But if you succeed, there's not that risk of dying because you are succeeding. This is in the sort of low gross margin world or the have to have inventory world. There's actually a higher chance of dying when you're succeeding.

What is the obviously software company, almost by definition, in most cases tend to have very high gross margins. What is interesting about the range, if we just isolated ourselves, the software companies that you've seen over the years, what is the low end of that range? What's the high? And where does how a company sit on that spectrum affect your view of the business or the quality of the business?

I think, interestingly, in the software world, if you put it on a 30 year arc, I would say that the gross margins have gone in a one way direction down. When you just sold a software on a CD rom that's super high margin compared to selling a SAS company where you have to pay the bills so that first miner movement downwards. But actually even when building something around that uses I to fundamentally reimagine a product that's currently at lower gross margin software business because of the cost primarily of GPU compute, such that the sort of newer companies are testing this slightly lower gross margin, hopefully it becomes cheaper and cheaper such that it returns to higher gross margin.

But there's also the case to say that just like profits are to be competed away, perhaps high gross margin is to be competed away and software businesses will have to become lower gross margin businesses over time. Well, that was some fun.

I to do it a few more times. Can you tell me everything you've ever learned about customer acquisition?

I frame it as going back to what do you want to find out in the seed round? And I think you want to find out who's a good customer and who is a bad one. So in the customer acquisition sense, do people say yes quickly and do they complain about price as to guiding principles of someone, a good customer or a bad one? I think in terms of customer acquisition approaches, it's this concept of is there a unique insight into customer acquisition?

If people are repeating playbook is a very dirty word in customer acquisition. Playbook, by definition means that someone. He's already succeeded with it and probably a number of other people have already succeeded with it, and so by the time it is a playbook, you are the thousandth person to be implementing that playbook. And again, it's sort of unoriginal thinking means that you're unlikely to succeed because you're too late to the game. I think when you have strange ideas around customer acquisition, whether it is in a classic case, they were buying keywords for enterprise wiki for 10 cents a click.

It's probably a hundred dollars a click. There's always this sort of temporal nature of customer acquisition. And if you've heard of it or it's a playbook that's usually an anti signal. If it sounds strange or it's some unique way that a company has approached customer acquisition, that's usually a very encouraging signal.

Is there any story that stands out in your memory of a really clever and unique way that worked, that a company acquired customers early on in your portfolio?

I think the original thesis was let the worker make the decision to buy the product rather than the important senior IT leader make the decision. And that is non-controversial now. But back then, it was controversial for all types of enterprise software, whether it was begrudgingly, you can do that for the first million IRR, but it's going to run out of 10 million IRR. And then companies started to prove that to be wrong. And then it was, oh, you can do that for SMB, but for enterprise, big grown up enterprises, that's never going to work.

And then that was disproven. So I think particularly if you look at just a big customer acquisition wave, I think those who started it a decade ago with the idea that the world's largest organizations would just love to buy the software in this sort of thousand credit card decentralized decision that is horrifying to a CIO way. And that would be the best way to build a company with the best quality of growth and efficiency. That was very unique that perhaps now it is accepted.

The other key piece of the equation when you have a customer is keeping them. And very often software businesses and many businesses that these days are highly valued are repeat subscription, very steady, low variance type businesses. What have you learned about holding on to customers in addition? Probably, I guess, to build a great product that's extremely useful, probably the best way to approach retention. But what else have you learned about the importance of retention, how to measure it, what you care about when it comes to evaluating a business?

I think it is that depth of happiness as the starting point and that is manifested in the amount of times that people use the products every day. It is manifested in the sort of low churn rates or the high upgrade revenue or the ease of use in the low sale cycle and people not complaining about price. One example of a company safety culture. Early on, they tripled their prices. Actually, the conversion rate went up because people love the product already, but they were more likely to pay because again, it was too cheap.

Five dollars a month. It was half price heart surgery. No one's looking to do it by a great product for a low price. But if you put a high price, it actually increases the demand for it. So I think the depth of happiness is the ultimate determinant of low churn or high upgrade revenue products that have high upgrade revenue. You can have different sources of upgrade revenue and certainly the best is if you are adding more and more seats to organizational account.

So the more and more people that are added to a subscription, that also impacts churn. So that's a feedback cycle where the more people that use it, the less likely the organization is to churn. You can up your process. You can create more products to sell to the same organization and to earn the right to do all of the other jobs that they might be looking for in their working life. And so all of those things, as you progress, make it more and more likely that the customer will be with you year after year.

The last piece of the puzzle on just some of these fun lightning round of questions on what makes a good early business is product. Of course, product ends up being, if not the most important, at least one of the two most important things, maybe unique distribution, edge or channel is the other.

What have you learned from the best founders you've worked with over the years about just the mindset or strategy for thinking through product, not asking what the best products are, but more just if there's anything shared in common across the best product thinkers that you've engaged with over the last eight years?

I think right from the beginning it is this sense of responsibility to fully solve a problem. You can choose to bite off little pieces, but I think it's beginning to get started. But always from the beginning, it's this sense of responsibility to make sure that problem is completely solved. Back to the example of Zook's. They weren't just building the software. They had the audaciousness to completely reimagine what the vehicle might look like. They have the ambition to create a consumer service around that offering.

It's really that, I think, sense of responsibility. Obviously, Apple is probably the greatest example of someone taking responsibility for a delightful end product rather than being happy to be a cog in the wheel or being happy to be a piece of the daisy chain.

As you think about everything in your world right now, what question are you most trying to answer? We sort of ask a series of questions and even founders can go into our website and see the 40 questions we ask ourselves when we make an investment decision, the most important one is are we in love with the product roadmap? That is the only sort of long term determinant of a great business that can continue to grow over a long period of time. Yes, there are a lot of other things that need to go right.

But essentially at the heart of it is this idea of a great product being built that has the responsibility to fully solve a problem. And so with even measured this in follow on investments where in the beginning the fundraising decks are full of product slides over time in each different board meeting, as time goes on, the board loses product slides and adds sales, efficiency and whatever financial sort of sales and marketing reporting and really that track the board decks of companies over time, the percentage of sales and marketing slides versus the percentage of product slides.

I think that's actually an interesting old predictor of success. Cannava, which is a wonderful business that we've been fortunate enough to be involved in right at the beginning. It's multi hundreds of millions of dollars of ARAA. Every Bodek is still 90 percent product slides. And so I think are you in love with the product roadmap is really the key question to answer in any investment, and particularly at the later stages of investment versus the early stage, which I think everyone has sort of accepted.

That is an important question.

What major lessons from your investing career so far have we not talked about yet that you think the audience may find interesting?

One of the main lessons is the psychological make up of founders and what it takes to succeed. And it's almost like the English language is so limited because we use different words for the same emotional base traits of someone. So if someone fails, we call them arrogant. If someone succeeds, we call them confident. There are these double edged emotions and there's so many of them that lead to these complicated characters and the psychological makeup of them. As I said, when they succeed, we describe them in this heroic fashion.

When they fail, we describe them in a sort of harsher context. So I think it's that psychological makeup of someone in assessing the drive that leads them to succeed. And I just have loved the relationships and observation I've got to have with so many people who've gone both ways in the world. That's been the most fascinating part of the job for me and I think appreciating flawed characteristics and how they might be good. Actually, even the investing world, we actually say naivety is a good thing.

Embarrassment is a good thing. These words that are traditionally only negative versus those types of words and look for what might be positive about them. Why naivete? Why do people with no experience in that particular industry succeed in dramatically reshaping it? And I don't think they would have started the company if they knew the reality of the world. You need that naivety to dive in and to try and make a difference. And so there are so many of these types of words and types of traits that are so fascinating to kind of appreciate and love.

Now, to move to a funny thing that we're doing called business breakdowns, which is somewhat deep, although not too long exploration of a single business. And what makes it tick. I think you've mentioned the business will cover Caneva. You've been with them from the beginning, a fascinating global software business that's been extremely successful. I thought a fun way to begin the breakdown of Caneva. Just to be sure everyone out there is familiar with it is just to describe at a high level what they do, what is the service or product that they offer to customers.

Kenber is a graphic design platform that allows anyone to create great graphic design. And so if you think of design, I'm sure your mind will race to Adobe and Photoshop and so on. If you think about design, that's because you need to go to university to get qualifications to be a designer. And then you join an organization as a designer and you spend tens of thousands of dollars on professional design tools. It's this incredibly narrow set of people with those design skills.

The idea of canvas really is to allow anyone to create great design. And then in terms of the need for great design, it's only increased in this world that we live in. So much of our communication is visual, either in written form or through sort of social media platforms or sales presentations, research reports, whatever it might be. So the aim of Canada is to allow everyone to create great graphic design and to do that mainly for free. They do have an offering, but it's very much in this sort of default mode of their mission is to allow anyone to create great graphic design, regardless of who they are.

I remember using Photoshop a long time ago. It's quite intimidating to go in there for the first time. It's tons of little tools and buttons and feels like an airplane cockpit or something. What does it feel like to use Cannava for the first time?

One of the insights can be had very early on was this idea of adjusting or customizing vs. creating. So if you think about Photoshop, you start with a blank screen and all of those buttons. So I'm with Cannava. The idea is that the starting point is templates and graphic design elements and other sort of designers who have designed all of these great starting points for people to begin the design from already often away, right from the sort of starting point of canvas.

And it's much easier to just something or to customize it or to enter in your own text or to replace one graphic with something else, but keep the rest. And so I think that sort of immediate breaking down of the intimidation of a blank page into this hit the ground running experience of templates and graphic design elements.

It makes me think of I think it was an advertising or design person, actually, this idea that you have to have one foot in the known and one foot in the sort of creative unknown, what you're saying with camera, that's very cool. Yeah.

And I think also just this safe environment of it's very hard to wander off the reserve of great design and canvases. If you start from that blank sheet of paper, it's very easy to create something that is horrible.

I think you've already talked a bit about the repeat for clarity, how canvas gets itself to its customers. And I'm especially interested by how this worked in the early days. Now it's got brand behind it. That's the ultimate thing to have, is a brand that people know and respect for a use case. But they didn't have that at the start.

So in the early days, how was Cannava distributed so abstract and non actionable to say that it was very important that canvas launched with a great product? The sort of example of that is a company was started in 2011. This was right around the time, I think when Eric released the Linkstar book, everyone was launched early, get feedback, validate customer demand, canvas, I think in their initial launch date was coming up and they were used to user testing dot com when they a bunch of feedback and they actually made the decision to say, hey, we're not going to launch, we're going to take another, I think, six or nine months to get this right.

And I think every investor and someone around the company was saying, no, you need to prove out that people want the product and don't be afraid to launch an embarrassing product and blah, blah, blah, blah. And they had the foresight to say, we are going to get this right and we're going to launch something that is meaningful and starts at the right place. With that, it was the only love word of mouth. Again, it's this incredibly high level thing.

Even from the very beginning, you could measure the impact of the product can be had on its users. People were hashtag that was invented very early on. Twitter can be love. You could see people creating YouTube videos as to how to accomplish certain things within Tanvir and teaching other people how to use can. But there was just that authentic happiness of customers. I think Roehm Research, which is in a scenic way notetaking tool. But if you look at the magic of that community, which is around a note taking app, it had a very similar feeling to the early days of Cannava where this community was self organizing and forming and expressing their love for Caneva.

I think the other really fortunate beginning of Cannava was the initial set of users were content marketers, so those who managed the company's blog or social media. And so by definition, those people were creating a whole host of content, either on Twitter or Facebook or YouTube or blogs and so on. And so they as well as creating what they needed to for their daily lives, were creating things and sharing things about their experiences with cancer. That I think was the initial prompt for the flywheel to start turning and then other organic channels like SEO and so on, which I think is an interesting one where people start try to concentrate on SEO in the beginning versus thinking of SEO as an amplification or something that enhances that kind of use a lot in the beginning.

And certainly the initial set of users being the happiest users being content marketers was incredibly important for early growth.

What was it like in the early days trying to figure out the monetization model for Caneva? I don't know how much they charge paid customers. It'd be interesting to hear that, but I'm sure that there were plenty of debates about what features to add and where to draw that pay line. How did Cannava deliberate in that? I feel like every software business goes through that same problem.

Calver has not thought about monetization very much from the beginning, and that sounds silly. But actually, if you look at the world's best businesses, they have concentrated wholly on product in the beginning. The first idea of monetization for Cannava, which is not the idea for monetization of the games and now was with people creating their own graphic designs when they wanted to use a stock photography image or when they wanted to use a graphical element that was designed by someone else, they would pay one dollar for the right to use that in their specific design.

So nearly every single design was monetized and only those sort of small fraction of users that chose to use stock photography elements or some other paid template would pay the one dollar on a per user basis. And even that because of the very fast growing user base and very engaged user base, was a significant. Revenue line in the beginning and revenue that you would love to see in an early stage start up very quickly that was switched to given the majority of really engaged users were content marketers who are posting on multiple different platforms, the feature that canvas.

So people using the most was they were creating a design, but they were then modifying that design into eight different sizes, one for Pinterest, one YouTube on Facebook, one for Twitter, Instagram, whatever. The manual process of fitting it to the sort of specifications of each different platform can be launched a feature called Magic Resize, which allowed someone to create the design. But then to have that design be exported into all of those different sizes automatically. And then that was, I would say, the most successful feature of the platform early on.

And they built a subscription product around that. So they can have a pro subscription is a single user subscription. What I mean by that is it's designed to help the productivity of a single user can even now have launched a can of enterprise, which is much more of a team's product. And the sort of teams use case is you're a company, you have a marketing department who defines the company's look and feel and brand guidelines. What is the version of the logo that should be used in what different use case?

That different color sets of the approved way a sales presentation looks, the approved way a research report looks, and so can the enterprise allows those teams to define the central repository of assets and how each document should look, and then allows all of those employees to then easily create those different designs in those different documents. So can the overall wide open. You can do anything platform for free. People are actually paying money to do less, so you can't use all of that.

You can only use this version of the logo. You can only use this color scheme. You can only use this presentation template organizations and the team version of the product is actually people are paying lots of money so they can use less of canvas, which again is counterintuitive.

If I could somehow assemble an evil team of one hundred extremely talented people and give them a billion dollars and tell them go copy Caneva, what do you think would be hardest to copy about the business?

It's literally the product roadmap. And when you say one hundred people copy convert, that's exactly what Adobe has done. That's exactly what all of those different start ups have done and they haven't been able to make any headway. I think it is a number of different elements. One is that deep love for Cannava and the community that they have built, and then that community has then fostered more graphical design elements, more templates, more access Cannava has built out.

It's you think about Netflix's competitive advantage of building out a content library. It's built out. It's acquired a number of stock photography marketplaces, has a number of licenses with other stock photography businesses. And there's this content flywheel of ever increasing amounts of graphical design content, whether that be in stock photography or the templates or the graphic design elements and so on and so forth, that offers an ever increasing competitive advantage. And then I just think we love can because it is the ultimate answer to the question of are you in love with the product roadmap?

And those hundred people could copy what Kamber is today, but they're not going to copy what Canberra is going to be in ten years time. And so by the time they've copied, Kendall will look very different. And this is a moving target where you can't quite catch up to it.

What part of the product itself do you think is the most delightful for its users?

I think it is that sense of democratization. If you use the product, you create something great and you build that self-confidence that I think people used to use Microsoft paint and mixed results whenever they tried to do something uncomplicated related to graphical design. And I think that satisfaction of the end product of your own creation that then feeds upon itself. And so it's simply that delightful experience of the product actually being good in addition to the product roadmap advantage that you just laid out.

What else about Caneva do you think if a bunch of talented entrepreneurs went and studied it and walk the halls and really imbibed what made it tick would be the most positive portable lesson to take away from it and maybe apply it elsewhere in another company, the set of lessons in a startup can roughly divide into two categories how to build a great product, but then how to build a great company.

And sometimes founders interested in the first but not interested in the second. The magic of Kanza has been the way that they have built the company and designed the organisation for different stages of growth and really thought deeply about how to do that in the first principles way and not do the copy paste again. That sort of dirty word of playbook. I think Cannava has developed up and coming hungry talent rather than wholesale kind of imported proven talent. And part of that is a constraint of building a company.

Australia, of course, is building a company in the Bay Area, but ultimately, if you do that, well, that is a much better way to build a company than to have this sort of merry go round of mercenaries joining the company every couple of years and people collecting one year of vested stock options on their resumé and not really creating something that stands the test of time, but rather just is copy and pasting all of the same lessons of OK companies and perhaps even great companies, but copying and pasting them in another time where those lessons don't make sense because so many of the lessons of building great technology companies, perishable and specific to the time that you're building a company.

So I think Canada has always had a very unique organisational structure in designing it as a team of teams and dividing autonomous units of the organisation such that even with more than a thousand people, they can continue to make progress at an incredibly fast rate. I think one very interesting concept that I always tell other companies we invested in is typically founders get advisors or an advisory board around top level of company. Cannava has instituted advisory boards and advisors at all levels in the organisation.

So much of the sort of help to a startup is focused on the founder rather than focused on all of the senior management team. And I think in Canada's unique insight, focused on all levels of the organization. And so the developed, as one example, wonderful advisory board around internationalization of the product. They've got all of the best people in the world to be advisors to the internationalization team. And so I think that lesson of how to build a great company, Canvas has pioneered and had fresh thinking in so many ways of building a great company.

If people are interested in Kambah, go try it and then want to learn more about the company or design or whatever. What resources would you have them check out next?

I love podcasts like this. One male has done a number of great podcasts. I think how I built this did a great episode with her and how she's built the company. She did a great episode with Jason Calacanis on this week at Startups. I think those are the two that come to mind to appreciate the journey and the uniqueness of Kendra.

Well, thanks for breaking it down with me. My closing question for everyone on the podcast is to ask for the kindest thing that anyone's ever done for you. I think it was the belief of those initial investors in our fund, I should have said that Rick and I had no track record as investors. We had not done any anything really successful before. Blackbird and venture capital was a dirty word in Australia as waves of firms of had largely failed. So there was this kind of scorched earth feel to the industry in 2012, and there were 97 people.

We had five hundred and twenty two meetings to raise that first fund over two years to get 97 people to say yes to twenty nine million dollars. And I think I will always be forever grateful to those people for taking a chance on helping to build what we have.

Well, Nikki, I've learned so much today with a wide ranging cool conversation. Thanks for doing this early morning. Your time. Afternoon, my time. Really appreciate it. And it's great to meet you.

Thank you so much for having me on.

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