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Professors and graduate institutions across America, some of the most noble professionals shepherding our next generation to a world that pursues truth, integrity and a better tomorrow. No, we're not.

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We're a bunch of whores preying on the hopes and dreams of the middle class. D.J. Griffin.

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Play that funky music. Post covid-19, nothing will ever be the same. Previous census bullshit things will probably be more the same, and that is things will just accelerate. The future is going to happen. It's just going to happen faster. covid-19 is more of an accelerant than it is a game changer. Let's talk a little bit about Post Korona as we will in the next few episodes of property. Let's talk about Post Korona and higher education. First up, higher education.

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We like to position education is the great leveler. It's not. It's a caste system in the United States where we have decided a few remarkable kids rub Vaseline over the lens of a caste system. And that is we've decided that the best companies in the world recruited the best schools. Who do we let into the best schools? We let in the kids of rich people such that who gets to be the innovators moving forward and go to work for Amazon and Google and capture the largest share of the spoils of a productive economy where wages haven't gone up, an incredible stakeholder and shareholder value has been created.

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Where does that trillions of dollars of incremental wealth go to? Bottom line, it goes to the children of rich people and the primary vehicle for this caste system has been higher education. How do you know we're ready to be disrupted? Simple to disrupt ability. Index is a function of your ability to increase prices faster than inflation without without having any underlying increase in productivity of the product. And that's what we have done in education compared to technology, where every year processing power gets less expensive, the product gets better and we charge less for it.

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And that is why software and technology continue to capture more of the economy every year. And in education, we've been able to raise our prices faster than inflation because we largely preyed on the hopes and dreams of the middle class, promising them that if their kid gets certified by a world class brand institution, by the way, strongest brands in the world are not Apple and Amazon. They're MIT and the Bitcoin. In Oxford, no one gives one hundred million dollars to have a building named after them on the campus of Google, but they will do that at Harvard.

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These are the strongest brands in the world. But I digress. What is our primary value add? We don't educate as much as we certify, and that is the department in graduate institutions that are responsible for our onerous prices and our ability to raise prices faster than inflation. Is the admissions department, specifically the admissions department that turns away 90 percent of our applicants. I don't care how amazing our mess is or that Birkin bag, even our mess doesn't turn away 90 percent of the consumers that create an illusion of scarcity by occasionally telling someone they have to go on a waiting list.

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But there is no luxury brand that turns away. 90 percent of consumers who want that Panerai watch want that baton back. I want the new Gucci pair of loafers. We are the ultimate luxury brands. And unfortunately, academics have transitioned from being public servants to luxury brands. Why? Like everyone else, we want a house in the Hamptons. We want money. We want to drive a Lexus. So as a result, we have started out all the surplus margin.

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The surplus margin was extraordinary. When I was going to business school, my total tuition at the high school of business, total tuition both years to get an MBA. Four thousand dollars. So let's look at some ratios. Total tuition was four thousand dollars when I graduated from 1992 and got an offer from consulting firms. I interview really well. What a shocker. Despite getting mediocre grades, I had a lot of job offers. I was offered a job for about one hundred thousand dollars in consulting.

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Take that times 4000 tuition and you have a ratio of 25 to one. Now the average graduate of the high school garners one hundred and forty thousand dollars in salary, but their tuition is closer to one hundred thousand. So the ratio has gone from twenty five to one tuition to average starting salary to about one point four. Let's talk about houses. My first house in Potrero Hill was two hundred and eighty thousand dollars times one hundred thousand dollars or divided by one hundred thousand dollars.

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Average starting salary out of business school in 1992 and you end up with a ratio of two point eight to one price of housing to average salary. Now, let's look at it now. The average salary is one hundred and forty thousand dollars. That's a lot of money. But the average home in the Bay Area now costs one point four million. So we've gone from a ratio of two point eight to ten. If you see a theme here, which doesn't make any sense because our economy has mostly been deflationary over the last several decades, is that we have basically orchestrated an economy that what is the word fox younger people, and that as we continue to facilitate a transfer of wealth to our wealthiest generation in history, specifically seniors, through this one trillion dollar social service giveaway program called Social Security, where two thirds, two thirds of Social Security recipients don't use it to alleviate poverty, but to upgrade from Carnival to Princess Cruises.

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But I digress. Younger people have to pay much higher health care, much higher housing, much higher prices for education. And their wages have not gone up. So we have affected, if you will, the greatest transfer of wealth in the history of mankind, especially from the young and middle class to the old and wealthy in America. So back to education, back to graduate education. What might happen here? Korona might in fact, be the spark that lights the disruption fire, if you will.

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Do you really think. Do you really think that I am going to be teaching as I am scheduled to do a hundred and seventy kids and brand strategy marketing GB twenty three, sixty five and the KMC is building to 60, which is a Greek theater style classroom. Do you really think the 170 kids that have enrolled in this class for the fall that we're going to let them show up and we're going to shove one hundred and seventy kids elbow to elbow next to each other this this August?

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Do you think that's really going to happen? It's not what happens. I think there are very few of us watching Fox television or graduate institutions across America. And I think it's unlikely we're going to decide to reconvene in the fall without serious distancing. What a serious distancing mean. It means remote learning. What happens? What is the next stage of this disruption around distance learning? If you think it's ridiculous how much little Johnny's third grade teacher is charging or that private school you send them to is charging for a series of substandard zom classes, way to see the reaction we're going to get from students and parents when we send tuition bills for sixty eight thousand dollars to host a bunch of marginal zom classes on cost accounting from a guy who should have been put on an ice floe about 30 years ago.

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So what's going to happen? Universities and academics are still going to want to make money. They're still going to want to sponsor research and some will be able to. And how will they do that? They will be forced to lower their prices. The cartel will be broken. But what will happen? Universities, or what I call the 15 top 10 universities and business education will be able to replace that reduction in average order value, if you will, because tuition will collapse or the price will have to go down.

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But we'll be able to dramatically expand or compensate for that decline in average order value through volume, specifically technology enabled volume, where we still go to campus, but we don't go to campuses often at MIT with the help of Google. And a bunch of new venture backed startups will say we're not going to welcome 3500 students to campus in the fall. We're going to welcome 35000. And that won't happen overnight, but it's going to happen a lot faster than we think.

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And we think universities will latch on to the deepest pocketed players in history who understand technology to dramatically, dramatically expand their enrollments such that they can maintain lower prices and still continue to pay their professors. You're going to see a massive increase in the compensation among the top one percent, just as LeBron James and Serena Williams capture more compensation every year of the total pie, you're going to see the top one percent. Every university has five or six ringers that are outstanding teachers.

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You're going to see them make three to five acts. What they're making now, everyone else will make less. They'll be some administrators that will basically reshape themselves and reinvent themselves as product managers and interface between those tech companies and also make more money. But everyone else will make less second tier universities. If you're a Fordham, if you are a pace university, you're going to get kicked in the nuts. And it's likely you not only won't reopen in the fall, but a lot of these universities just may not reopen, period, because the cartel will be busted.

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There'll be more demand based pricing, there will be more pricing. That's a signal based on the quality. And Boston College is not going to be able to charge the same tuition as Amitay. You're going to see a lot of universities go away. You're going to see the best professors make a lot more money. You're going to see the best administrators make a lot more money. The other 90 percent make a lot less. We're going to see tremendous spoils aggregate to the tech companies that help enable a ten trillion dollar industries transition to a digital age in the great dispersion.

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What's the net net of this? What's the net net? In my sophomore year at UCLA, I fell in love for the first time. I learned my limits. I joined crew or actually, I should say I learned that my limits weren't in fact my limits. After rowing for 2000 meters and at 800 meters, feeling I was going to faint and realizing I could I could push myself a lot harder than I'd ever imagined, I realized I wouldn't be a doctor.

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I failed chemistry. I became less insecure about my insecurities. And that was I took intro to psychology and I also developed resilience. I had my heart broken. All of these things were wonderful to take place or to have happen in a safe place. I'd like to think these things would have happened regardless, but nothing can match them happening. And what is a safe and joyous environment, and that is the traditional liberal arts education or campus based education.

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There is going to be less access for middle class kids to that wonderful, joyous experience called the four year campus based liberal arts education. Traditional land grant campuses will become like the Four Seasons. They'll still be around. You'll know someone that stays there, but it'll mostly be the playground or where the rich stay and sleep, if you will. This will be great for big tech. What a shocker. This will be great for the top universities and the top administrators and academics to the top teachers.

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Everyone else will take likely a cut in compensation. We're going to see the populace more educated, but we're going to see less learning. We're going to see less humanity and the campus based college experience than many of us got to experience. That will become a lot. Item big tax impending march into higher education will bring more learning to more humans, it will also erode our humanity.

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We'll be right back as it's time to pay the rent.

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Hey, Papaji, listeners, I want to tell you about a weekly podcast from our Friends of Wonder. It called Business Wars. I love this show. It's hosted by a guy named David Brown who has a very dreamy voice. I have that voice. I'm the next senator or junior senator from Pennsylvania, but instead, David Brown is hosting business for us. It's also a wonder is an interesting company was founded by a guy named Hernan Lopez, who's a visionary.

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If there is sort of an HBO of podcasting, it's these guys. They put together fantastic content each season. They dig deep into some of the greatest corporate rivalries. Think Facebook versus Snapchat, Nike versus Adidas, et cetera. On every episode, they give you an inside look at what inspired entrepreneurs to take risks that drove their companies to new heights or into the ground. As a matter of fact, the dog the dog was a featured producer on one of their most recent podcast.

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We crashed, by the way, that was number one podcast in business for several weeks, running several weeks. Where's my check? As a matter of fact, at the end of this show, after the credits will be playing a brief clip from Business Four Seasons, Starbucks versus Dunkin in a they follow these two Jaala giants, Java Giants. There's some great coffee in a war that started brewing in the 50s and is now hotter than ever. Well, a lot of bad metaphors.

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Coffee is one hundred billion dollar plus global industry and these two are duking it out. They should have said and these two are dunking it out.

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But their battle is about more than coffee business or Starbucks versus Dunkin. Next up, our interview with Tim Armstrong, Tim's one of those kind of super uber impressive guys, he's sort of built out of over from central casting in terms of who would be the most senior salesperson at Google where he was. He's tall, he's handsome, he's engaging, he's smart. He also has a lot of substance to him. He was an athlete in college. He's a very philanthropic minded person, husband, father of four kids.

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He's a very he's a former three kids. I don't know. We'll find out.

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Stay tuned. Anyway, see this guys out of central casting for who you would want to run, kind of the outward facing efforts of a large tech company. And he's also now in the world of venture. He's started a company called Dietrich's that operates and invests in direct to consumer companies. In between those things, he was the CEO of Yahoo! AOL and did a great job kind of taking chickenshit and repackaging it as chicken salad and got it sold what was a pretty good price from an asset, AOL, that went from one hundred and fifty million to a billion.

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And you managed to get them sold, I think, for about four or five billion. Anyways, here's our interview with CEO and founder of Tim Armstrong. So disclosure, Tim Armstrong is an investor in Section four. So first off, I should probably apologize to him as it's evident. I have no idea of what I'm doing. I'm an investor in the jockey, not the horse. So we go on and invested, invested in you. And we we expect that you're going to make the all the crazy moves you need to make to be successful as you always have.

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So will the dog is the dog is in the midst of falling off the horse too. So you've been in the news.

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You said that kind of a crash or the decline in digital marketing spend will be greater than it was in 08.

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Say more. Yeah, the if you look at what happened in 2008, 2009, it was basically a, you know, a financial crash. And I think this aspect has three different components to it. With covid 19 is there's a human aspect just like what humans are able to do and how they behave. There's a market meaning marketplace in economy effect with jobs and and marketing and those type of things. And then there's a financial aspect. And I think one thing a lot of people are comparing this to twenty eight.

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Twenty nine. But twenty, twenty nine for the most part was a very financially isolated event. You know, this is an event that's affecting humans and the economy and jobs and marketing and product development and all the things around around the economy. So I expect this to be much, much deeper in terms of the impact. It may also be shorter if things get figured out quickly, but I would say it's a much broader impact than the 2008 financial crisis, because you're saying, you know, the Googles and the Twitters and the Facebook's the world, I think their usage is actually up dramatically.

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But their revenues people obviously advertising and marketing is pretty easy to turn off the tap. Do you think they end up ripping back stronger as when spend returns and they've consolidated share? Yeah, I think one of the things that will happen out of this crisis, not just for sort of the Fang companies or Twitter. Snapchat? Well, first of all, I think those companies will come out of this much stronger because they're educating so many more consumers about their products and services.

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And that's a little bit of the unwritten story here, which is consumer education of digital services is probably fastest education period ever. So they're going to come out of it stronger even if their revenue goes down. If you're a two to five year investor, you've got to believe they're come out stronger. I think the other thing that's happening in corporate America more broadly is, you know, corporations tend to use these crisis moments to do all the cleanup work they probably should have been doing inside their companies before.

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So I think the really strong companies are probably going to get leaner and meaner and come out of this. So you're going to have this emergence of the powerful getting more powerful. And then I think on the small companies side, you'll have like the fleet of new companies coming out of this crisis that will probably end up being the next big companies five or ten years from now. But but definitely the stronger are going to get stronger, I feel like.

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What are the areas that you think will emerge here? Any new areas you're looking at? You're an investor in the direct to consumer space. Anything you're excited about? Yeah, one of the things we're really excited about is I think the direct to home and direct to consumer relationship economy is going to get much stronger. And I think, unfortunately, I think you and I share probably a similar viewpoint on this, which is, you know, our business is built around giving a new channel to consumers and brands without having to consolidate more power in the current players.

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So I think there's a there's a really silver lining opportunity for direct to consumer companies, brands, services, software that go direct to consumer, mainly because the offline erosion that's going to happen on the on the beach front. That was already. Happening during the digital shifting is going to happen much quicker, so if you take the average consumer day, probably during this time period will end up, you know, interacting with buying with using a service that they probably wouldn't have for a couple of years from now.

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But they've been forced into this economy. So we're our our mission statement as a company is direct to everything. And this is one of the only opportunities where you have the largest captive audience. That's probably the most woak at this time period, paying attention to things. And you have the least amount of marketing and the least amount of messages getting to them. So we're big believers in the companies that play some level of offense. As the human factor recovers and the economy recovers, we expect direct to consumer TV to be stronger.

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They'll be a washout of some brands, but the companies that are really strong and really good will emerge out of this stronger. Any thoughts on how the crisis changes, the kind of more general old media landscape or the streaming wars? Yeah, I think there streaming is amazing. I think if you look at the new Nielsen numbers that just came out, basically streaming was up over one hundred percent year over year and it was up 50 percent in March five zero.

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And so I think, again, going back to this, educating people on content consumers on direct to consumer type programs, I think those businesses will do extremely well. The direct to consumer media businesses. I'm going to be super interesting. How quickly does after their launch what your thoughts on giving your thumbs up, thumbs down?

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What do you think? Yeah, I mean, we I spent a fair amount of time with you over the last couple of years. And Jeff Katzenberg, I'm a big fan of his overall. My my I think we'll be successful if they have a volume of content that they can keep up at a Netflix YouTube type velocity level. I think it's the type of property that would struggle if they can't keep the velocity up in terms of the amount of content, they've obviously built a lot of content.

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So I'm cautiously optimistic. But I also think it's one of those services that unless they get forced distribution, if they're just going it on their own, that's going to really require a massive velocity of successful content. And content is a fickle business. So I I'm hopeful they'll do well, but I think the jury's still out.

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What do you think happens to the old media guys with an increase in streaming video, with consolidation of power among big tech that is now investing in traditional media? What happens to the Viacom's and the Ihara radio? What happens to the traditional players? Do they just get crushed? Do they come out of this even more impaired? I was looking at Cumulus stock the other day. It's 60 or 70 percent, I imagine I heart radio has taken the same kind of beating.

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What happens to traditional media here?

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Yeah, I mean, I think the sort of the opposite of what you were just talking about earlier, Scott, about digital, like picking up a lot of usage and a lot of people using news services. I think, unfortunately, for the further you get out of home and the further you get away from a mobile phone, those media types are really going to take a beating in this marketplace. And the beatings two ways. One is fewer consumers are going to see their products and services and use them because of commute times, gone outdoors, gone, know those things.

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The second piece, though, it's probably more damaging, which people are talking a little bit about now. But the small business based in the local media space, even on a Facebook or Google, they're going to get hit by this, but it will eventually come back to them. The real question is, if you have an on trackable media source and you're the furthest away from the consumer during this crisis, you know, coming back from this, my guess is you're not going to have one hundred percent recovery from it.

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You might have 50 or 70 percent recovery. But I think what is going to lead to long term, Scott is a massive consolidation in the offline world. And they'll need to be consolidated, consolidated by digital players, or you'll have massive consolidation from traditional people having to merge with each other and try to take cost efficiencies and those things. That's going to be very painful process, I think, in the next couple of years for those businesses. Feels like the radio guys are Chapter 12 and that as they go into chapter again and go through another restructuring.

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What about what about the kind of tier two digital guys the buzz feeds the boxes of the world. Do you think that do you think they come back? Do you think they get stronger, leaner, or are they part of are they kind of they rode tail here?

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I think that there's probably going to be a couple of them that really thrive and survive and move forward. And I think there is. And then there's going to be a massive consolidation in tier two digital. So I think when you come out of this as a giant thesis across the board is this strong are going to get stronger. The second tier players will end up either consolidating around themselves or get consolidated by the big digital people and then the people who are truly kind of third tier.

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Weaker brands, weaker market. I just think the venture capital piece, which is another thing it hasn't got kind of washed over. You were the first one. And I think really to see this, which is like the we work the effect on the venture capital market, but then covid came over on top of it. But my guess is underneath this, the venture capital dollars that were going to Tier three digital services and have been in there for a while, those dollars are going to leave the tier two markets, going to be under tremendous pressure from the financial backing to consolidate or sell to digital media players.

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So I think you're just going to see another massive wave of consolidation.

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And you're a CEO of a multibillion dollar company. Talk a little bit about leadership and how different leaders are responding to the crisis. Yeah, I think one my one lesson was, you know, I'd been at Google for a decade and then went to AOL and know when I left Google, I think the market cap was probably around one hundred and fifty billion dollars. And when I went to AOL, AOL, I'd gone from one hundred and fifty billion down to one or two billion.

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So they were down to one or two. Yeah. So they, they were kind of polar opposite assets and you know, Google was all about growth and figure out how to grow faster and get more market share. AOL was a turnaround situation and it was a turnaround in the financial crisis, you know as well. So I think a couple of things that sort of stood out and things I tried first. One of the things I went around as I went around to visit leaders that I thought would give really good advice during a financial crisis and a turnaround.

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So I went to see people like Howard Schultz and Kenshin, all from American Express, David Stern, Jack Welch, a bunch of people like that during that time period. And essentially they sort of gave similar advice. Ginni Rometty from IBM. Basically, they said, look, the bottom line is, if I boil down their feedback, you know, managers manage the known and the leaders manage the unknown. And I think during this crisis, what you see is you see leaders who kind of run into the unknown and then you see managers trying to manage the known.

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And I think my lesson during that AOL time period was there were a lot of things and a lot of days that we had no idea what the outcomes were going to be. But basically, you just had to show up every day and keep stepping forward, stepping forward, stepping forward and making really tough decisions. And my one thing on this crisis right now, Scott, is one thing I'm seeing, which I'm kind of excited about on the other side of this crisis is a lot of the young leaders from twenty five year olds to thirty five year olds.

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They're getting amazing experience right now, but they don't realize it. And I think the managers are going to fall off to manager careers and the leaders will go into their careers after this crisis. And I think that the real lesson is I think Ernest Shackleton said, I think you've got to take the feat of courage and put them into the stirrups of patience. You know, as a leader, you basically need a lot of courage and you also just need a lot of patience to get through this and that leaders who do that are going to be really successful.

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What are you telling your portfolio companies in terms of what you expect to play out over the next 12 or twenty four months? So we break it down to two categories. One category is people who are really affected by this crisis. And I think the advice we're giving them is, you know, 10 January 1st, twenty twenty one as the date you have to run a marathon between now and the end of December and get through that. And then on the other side of this, if you do that successfully, so basically pull your credit lines, mothball operations that don't matter, you know, get down to the basic products, really reach out to your current customers, the customers you have strengthened today that will support you.

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Basically play offense with them, get in touch with them. So I would say there's like kind of a marathon business model that's really about efficiency, leanness, focus, and making sure that you use all your resources and areas the right way. The second type of company, which is the operating company we run, is one of them. But there's other companies we are investing in a company called Olive in June, which is basically seeking to do home manicures and they have products that they build that are professional manicure.

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When you go to a manicurist that they've done for the home and they've done technology around it, they have different unbelievable amount of colors, unbelievable amount of tools to help people do great manicures at home. That's the type of business we say to them, play offense like your business was. For an in-home direct to consumer model and people want to do that right now, and so we've kind of separate our portfolio companies into two buckets. You know, there's probably more companies in the bucket that need to get lean and mean and and run a marathon to January 1st.

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But there's also a series of companies that actually can play offense here, and they have to get their mind set set of like even though the world might be cratering around them, even though there might have situations in their own families, schools, all those other things. You have to really think about this as a potential for market share gain while you're taking care of all the humans around you. So we kind of have those two buckets.

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So let's pivot for a second, talk about the crisis through the lens of a husband and a father. I know you have kids, college age or high school and some thinking about college, right? Yep. My son is going to North-Eastern. He's a senior and I was a sophomore and a daughter in eighth grade. And I would say on the on the in my my wife, Nancy, she's doing all of doing a documentary on aid and ADHD right now.

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So that's been a little bit disrupted during this. So in in the parenting realm, you know, I think this is another kind of Shackleton moment, which is what your family is basically frozen, you know, at home. And I you know, I think that from an interaction standpoint, I mean, I love it. I spend more time with my kids and my family in the last few weeks than I have been able to do in a long time.

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And I really appreciated it. I think my teenagers probably appreciated slightly less. But I hate you.

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But that's that's by the way, that's by 9:00 a.m. at the Galloway household. That's breakfast. Then it goes it goes downhill from there. Yeah. By the way. Yes.

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It's funny because I think everybody in their homes is having the same experience. I mean, I you know, I always like to say like four thirty in the afternoon. It's kind of when everyone's been doing school and everyone kind of restless. And so everyone converges on the kitchen and then at four thirty they're turns into this hour long period of time where everybody's not getting along. And, you know, I think it's taken a real amount of work for the Family Circle to work itself through here.

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But I'll tell you one thing I've been trying to do with my kids a little bit is they've been listening in on work calls and I've been discussing with them things that we're dealing with that at work. And one thing that's interesting is they probably have more of a viewpoint on on the work side of things. I'm sure your kids are seeing the same thing with you. And and then I'm seeing more of the viewpoint of like what the what their personalities are.

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So I would just in a strange way, it's such a horrible situation externally. But I got you from just getting to know your family and your kids. I've probably gotten to know my kids. Twenty five. I already knew them well and I do tons of stuff with them, but I've gotten to know them probably twenty five percent better just from their personalities. And I think there's some times where the kids actually step up and do different leadership things in our house to keep the family organized and going.

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And we're trying to keep everybody on the schedule, which is hard. But what are you doing at your house?

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Well, it's as if Iraqi insurgents took control of the house yesterday. I have a nine and a 12 year old and I would describe them as awful. I think the Galloway household is much less functional than the Armstrong house. So, you know, it's like, you're right. This is we're going to look back on this. This this period is historic. And you just hope that your kids and your family look back on it and you know positively or that it's a bonding moment.

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But we're trying to get into rituals around doing certain things at certain times. We play certain games together at a certain time. Unfortunately, it's probably a little too much TV viewing, but that is that is what it is. But, yeah, I think it's a pretty you know, if you're fortunate or blessed enough to have the resources to bring your family home and you don't live in cramped quarters. Yeah, it can be. I don't it's not it's not it's not a good thing.

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But good things. Good things will come from it. So just some quick predictions before I let you go. Where do you think when you look at the economy, do you think it's a V or do you think it's a you think it's a share in twelve months? Are we kind of back to sort of ninety percent of normal or is there such a balance sheet and business destruction taking place here that this is going to be this is going to be several years?

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Any thoughts about if and when we come back from this? I think the financial markets will be more of a V, and I don't think they're going to V all the way up, but I think there'll be a V fifty percent back up as soon as it looks like we're clearing through the human cycle. And one of the things I think if you're an investor right now, by the way, you know, there are great opportunities to invest in a lot of different companies and a lot of different spaces.

[00:32:21]

But that you. You have to bet that the market's going to go up by 50 percent from where it was shortly. I think that will happen once people start seeing it. I think the human recovery of this, I would not be surprised if there's a second wave of this. And I think there's amazing work going on in the human recovery side. We're doing a big program with Mount Sinai right now. My whole team, all 30 people are basically working on Mount Sinai fundraising full time right now for the front line workers.

[00:32:52]

And I went to the Mt. Sinai Trustee Board meeting yesterday for a little while. And I was just blown away by the work level getting done by Dr. Davis and his team there. And so I think the human recovery when it comes back will start to come back pretty quickly. Even if there's a second wave in the fall, I think humans are going to be tested and antibody tests and those type of things are going to happen. So I'm hopeful there.

[00:33:16]

I think the economy is going to be a little bit more of a U. Shaped. And I think the main reason is know a lot of the unemployment, you know, the unemployment effects are super, super, super deep. You have a whole bunch of companies in our business. We deal with everyone from Goldman Sachs to super small businesses. And a lot of the small businesses have shut down and they're a cold start restarts. And I think that's going to take a little while to get to get going.

[00:33:47]

So I think you're going have different curves for each of the the the financial markets, the human market and the economy. But I think the economy is going to take the longest to come back. So last question, Tim.

[00:33:57]

How have you changed? Is there anything when you think about coming out of this, have you made any decisions? I'm going to travel more. I'm going to double down on my business. I'm going to scale back. I'm going to how have you has this changed you at all? And if so, how?

[00:34:16]

Yeah, you know, Scott, I think it has changed me. And I think there's probably two aspects that have changed. One is I I'm betting on humanity. And I think my lesson during 9/11, the dotcom crash, the 2008 crisis turn and AOL around was I have a huge amount of faith and belief in humans. And I think while the world looks like it might tip over the wrong way, I've never been more blown away by the amount of leaders that are showing up across this country.

[00:34:48]

And people look at China and they shut the china down and they manage it effectively. And people give China a lot of credit for that. If you gave me a choice to have what China did versus the amount of innovation and ingenuity coming out of the United States for long term changes. So I'm betting on humanity and that's the reason I'm investing in the market. The market goes down by another 50 percent. I don't care because I think I'm a big believer in the American system, ingenuity.

[00:35:13]

The second thing I've been spending time on during this break is spending a lot of time managing myself like I've been spending a lot of time, just like in terms of from a leader perspective, like what are the things I bring to the table and what are the things I don't bring to the table. And I think one of my my coming out of this, both from my my kids and my company and the people that were involved in business wise, is to basically transfer whatever knowledge I can directly to them.

[00:35:45]

And so I would say, like I have a personal mission statement, which is essentially find the world's most talented people and give them a bigger stage. It's it's longer than that. But that's the mission statement I wrote down five or six years ago. And I've been kind of living that. And I think my my gift back out of this situation is to basically find the most talented people I possibly can and try to help them as much as possible, transfer knowledge.

[00:36:10]

So I'm actually being a tougher boss, I think now and a tougher dad. And I heard John Maxwell basically say one time that like if if if you're not being tough on people to help them develop, you're actually not being a leader. So in a weird way, one of the things I'm doing now is giving people, both family, friends and trying to take feedback myself more from a leadership perspective. That's one thing I've been fortunate to learn in the last twenty five years.

[00:36:40]

I'm trying to transfer that and I'm trying to manage myself better, taking incoming feedback as well. So I'm looking for a 10 or 15 percent improvement on myself coming out of this. And I want to transfer a 10 or 15 percent improvement to other people coming out of this, if I can. And a lot of it's very bad information, but I'm going to give it anyways.

[00:36:59]

So 10 years from now, where do you want to be? Is it change at all? Is it the same thing or you don't know? You're you're still relatively young man. Where do you want to be in ten years?

[00:37:08]

I'm really kind of set on really getting into the direct to consumer economy. And actually my whole goal of doing that is to build an alternate channel outside of the current companies, I think. The phone companies are going to get stronger during this, but I want an alternate and I want I want I really I really want to do Scott as dedicate my time and energy to helping people lock into the digital economy and own their own space. I think in a huge way we're in like medieval times where basically a lot of the a lot of the use on cell phones and those things are you're basically working on a medieval farm for some sort of, I guess, a friendly overlord.

[00:37:54]

But I think there's a lot of space in the digital economy for consumers to like on their data, on their experience, on their home and digital. And I think right now, almost everybody in the world is is renting, not owning in the digital economy. And that's something we've kind of dedicated ourselves to. And I could see that being a 10, 10 year plus mission that we're on. And I'm I really like a lot of love in what we're doing and I love our team and so on.

[00:38:22]

Right now, if you ask me 10 years from now, what we're doing is trying to give everybody a digital home and a digital connection that they own themselves. So Tim Armstrong is the founder and CEO of the company, a product design and technology company focused on the direct to consumer economy. He was formerly the CEO of both a subsidiary of Verizon Communications, also had roles at Google and before that was a journalist of all things, and most importantly, is long on humanity.

[00:38:53]

Tim Armstrong, thanks for joining us today. Well. Thanks, Scott. Take it easy. All right, office hours, ask us anything, El Mundo is our oyster, Gunter's here. Griffin Well, the first question.

[00:39:16]

Hi, Scott Lucas from Germany. Love your work and listen to every single episode of Pivot. Now to your own podcast. So congratulations on being so damn entertaining and insightful. This is my question. Only a couple of months ago, my co-founder and I started off for Startup. One Point Wonder is a content marketing agency and we produce branded podcasts for corporates. Things were going all right. We had a first customer. We go to revenue first. But things are looking grim at the moment and expectation of a recession in all companies I've contacted seem not inclined to spend money on marketing, let alone content marketing, anytime soon.

[00:39:49]

What would be your best bet here? Wait it out. Contacting as many companies as possible, dropping prices or pivot altogether. The letter feels like giving up any advice would help. Thank you.

[00:40:01]

And still healthy, Lucas. Great question. So what? What's an entrepreneur to do? We're talking really it sounds like a kind of right out of the gate startup. The first is if you had signs that this was working, I wouldn't pivot. I don't think you're going to pivot anything better. The economy is essentially I don't know if it's as bad in Germany, but the economy in the US is essentially shutdown. And this isn't even an economic crisis.

[00:40:25]

It's a health crisis. And until the health crisis passes, the economy is not going to open again. So any data you get around this is or is not working is somewhat irrelevant. As a small company, you need to recalibrate and take down your costs. And that is you have to figure out a way to get your cost structure such that you can live on to fight another day. Turns of content marketing. It sounds like podcasts are obviously structurally ascending.

[00:40:53]

It seems like that's an interesting idea. But first thing is, you have to cut down to the core as such that you can get through this winter. And hopefully this winter is only for eight weeks, not for eight months, but it will end. But you've got to come out the other end. So it's triage in retail. They say your first markdown is your best markdown, and that is get to very low cost base. I think it's reasonable to call if you have a landlord, your landlord and say, I need to suspend payments.

[00:41:26]

I think it's reasonable to tell people you're working with that you need to cut their hourly rate or their compensation. You need to get to the other end of this. And if you're working with smart people, maybe you give them equity instead of comp because they're obviously they're struggling, too. And just personally, you need to kind of pare down your own burden. So there's no easy solution here. I would say. Don't you know, at this point your data is incomplete, so pivoting doesn't make any sense.

[00:41:56]

This is about hunkering down for the winter and hopefully this will be a fast winter. And then you could do some serious analysis around whether or not your concept works or not. There's no secret sauce here. It's hunkering down. It's cutting to the bone. And it's it's it's hibernating until we get through this. If you're in the business of content, you take this time to produce a bunch of content, build the side things you can do remotely.

[00:42:22]

But the notion of trying to reach out to clients right now, everybody else is focused on cutting costs and no one is really taking calls or doing business, as far as I can tell right now, unless you offer some sort of remote, remote kind of capability that enhances a company's ability to cut costs. So, again, hunker down for the winter. Thanks, Lucas. Best of luck to you in Germany. And please check in on the status of your startup Ascott.

[00:42:46]

Big fan of the dog in the jungle. Cat wondered your thoughts on the effects covid-19 will have on the health care system and the adoption of digital health technologies. We're seeing real time overwhelming of our hospital systems and what worked before really won't work now into the future. Where are your predictions around the changes that will come in the digital health arena? And if you're a twenty five year old today, other than having luscious, amazing hair, how would you view this opportunity and what would you do?

[00:43:14]

Thanks again. And to you, your family, your staff, keep well and keep safe. Thoughtful question. So telehealth, effectively, what we have here is that the two industries that are most ripe for disruption, as measured by raising their prices faster than inflation, are education and health care. I don't think the trends are going to change as much as some as previous some of the previous crises where the economy is reshaped or our approach to the world is reshaped.

[00:43:39]

So you asked about health care. Sixteen going on. Seventeen percent of GDP. Only one in five consumers, though, is happy with their health care. So you have arguably what is the most expensive product in the world and the least satisfied consumer, which obviously insteps disruptors or disruption in terms of this crisis. Dispersion seems to be the other kind of big trend. In addition, acceleration. And that is if you think about Amazon, Amazon. Took the star and dispersed it to our computers in our living rooms and even our fullfillment, where we could get stuff dropped off on our porch within seven days, 48 hours, 48 minutes.

[00:44:19]

If you're using Amazon now and you're going to see this dispersion across education and health care, specifically a huge point of friction and negative value add has been the hospital or the doctor's office where an unfriendly person, you know, swivels back or slides back this bad plastic cover curtain and tells you to fill out paperwork be filled out before you then wait in an uncomfortable room. The doctor comes in and the value add is about eight minutes. That 80 percent of the time could probably take place over an intelligent camera or even texting possibly.

[00:44:53]

So we're going to distribute there's going to be a dispersion around health care. Now, who who wins here? Who? The winners and losers. I think it's going to be similar to education. Where are you going to see brands like Google partnered with MIT or Microsoft on a Berkeley or an Apple Bocconi? You get the idea. You're going to see some incredible brands, incredible brands in health care, whether it's the Mayo Clinic or NYU Langone partner with technology firms to help create that dispersion of value.

[00:45:19]

And you can see an environment where Amazon, you come home one day and Amazon says, Dear Eric, would you like to hear more about Amazon Health and part time as you upgrade from one hundred and twenty nine dollars a year to twelve hundred dollars a year. But you get all your health care and they try and reduce costs by getting a dermatologist to diagnose your rash via Amazon show and then immediately send the prescription to pill pack, which they also own and try and reduce costs.

[00:45:46]

And then the shitty businesses such as pediatrics, they just put pediatricians on their platform and take a cut of those referrals. So I think big tech is going into health care and the primary the primary means of value creation is going to be one dispersion, the delivery of health care from hospitals and doctors offices to the home or to your smart device. It's also going to be everyone's focus on cost savings. I don't think it's going to go down from 60 percent of GDP.

[00:46:14]

I think what it's going to do is take that mom who spends between eight and 12 weeks of her life managing the care of her diabetic child and give her some time back so she can make some more money or spend some more time with her family. I think the next trillionaire, if you will, are the first trillionaire will be an individual that builds a time machine in health care. And it's likely going to be Jeff Bezos. People think that Apple is best suited for health care because it's got such a clean, almost hospital like brand and an aspirational way.

[00:46:43]

I've always thought the data they collect off of their smart devices, specifically the Apple Watch, is overrated, although you hear interesting stories about people collapsing and nine one one emergency services being notified. I just think Amazon has you surround it from a healthcare standpoint. You can collaborate with Alexa. It knows your body mass index. It has your credit card. It can probably make estimates around the type of health from actuarial tables based on your zip code, your purchase patterns.

[00:47:10]

It knows if you're living with somebody's spouse, which increases your life expectancy, it knows your body mass index. It just know so much about you that you can imagine it could get involved in your diet. It could get more prescriptive, it could start playing offense with your health care and be proactive instead of reactive. So I think Amazon is going to be the fastest growing health care company in the world. What does that mean for a twenty five year old?

[00:47:32]

Simple health care is going to be a fantastic place to work. If you understand the intersection between technology and health care, you know, some of the brightest people, the people that make the most money, they would say they're engineers and technology. They're not engineers as much as they are product people. I don't think Mark Zuckerberg or even Bill Gates were great engineers. They're great product people. They understand how technology translates to an offering, a service or a product that can scale from from a consumer point of view or an enterprise point of view.

[00:48:01]

So being 25 and trying to understand the industry of health care and understand how technology is going to take turn, turn certain products into a time machine, saving people time or create get in the way of that massive or facilitate this unbelievable dispersion of 16 percent of our economy away from these points of friction, specifically hospitals and doctors offices. But yeah, to be 25 and understand the intersection between health care technology, gangster move my man. So onward, health care and tech.

[00:48:32]

Next question. Hi, Scott.

[00:48:34]

I haven't heard much about the imminent launch of Biomax, despite the fact that HBO still has the best batting average in the industry in terms of quality. No offense to Netflix as quantity play. So I was wondering if you could comment on how you think that's going to turn out for Time Warner. Thanks. I guess first off, congratulations on the awesome name Agusta. Did you get played just on that name? Hi. What's your name? My name is Agusta.

[00:49:03]

It sounds like you should have been born. In Roman times or either killed a bunch of people have been killed, Agusta Agusta Augustus, I have a good friend, I'm a ghost anyway, is a ghost. So brand architecture, as it relates to Biomax, could best be described as a total cluster fuck. There is HBO now. There's HBO go. There's HBO. Now, if anyone can tell me the difference when HBO go and HBO now.

[00:49:27]

Thanks very much. I have no idea. I just know they're both something to do with remote or your ability to stream on any device. And now there's HBO, Max. It's the same price. So why wouldn't you just immediately have HBO, Max? But there are all these logistical reasons for why this brand architecture is totally fucked up. And that is some people get HBO and HBO Max through different providers and have trouble figuring out the pricing and the technology.

[00:49:50]

But what we have here is a brand architecture nightmare. In addition to brand architecture, we have a brand positioning, just enormous fuck up on the part of John Stanky, which is, in my opinion, trashing one of the world's great brands. Now, some of this is affection, because what's interesting about when you develop an affinity for a cultural reference or brand is he usually imprints on you between the ages of 12 and 19. If you're 17 and really into R.M., as I was, RTM sticks with you the rest of your life.

[00:50:20]

And HBO for me was one of those brands. I used to spend summers and Christmas with my father because I'm the son of my dad's second wife. He's on number four, but we think this one's going to stick. Not true. They just got divorced at 89. What a thrill show HBO. I used to hang with my dad and we didn't have a lot in common, but he used to say every night, let's turn on HBO. And it just I don't know, it just stuck with me.

[00:50:45]

I have a lot of affection for HBO. They will be writing cases for decades in business school about the magic that was the HBO culture, their ability to produce an Emmy for 75 million dollars of average spend versus Amazon that is taking 400 million to produce every Emmy, whether it's six feet under The Sopranos. I mean, you're talking about Game of Thrones. You're talking about a group of people who have figured out a way to bring together talent and create magic on a regular basis.

[00:51:11]

And their initial competitive advantage was they could swear and not have commercials. But over time, they developed just a culture of unbelievable creative productivity to come in to John Snacky from AT&T, the former CEO of DirecTV, to come in and say, and this was his first all hands and we need to scale. This is like walking into the Musee d'Orsay in Paris and screaming, we need to scale this. That just doesn't make any goddamn sense. And the idea that you're going to have all this gorgeous vertical content, original content next to the Big Bang Theory, I fucking hate the Big Bang Theory.

[00:51:43]

Let me just put that out there. I don't know why. I just hate that show. I hate almost everything about it anyways. The fact that they're going to junk it up, the fact they're taking an air mass store and putting coach bags in there and then Brooklyn messenger bags in there reflects a total lack of understanding across what it means to be a luxury brand. HBO used to be the best luxury brand in content, all vertical high end production, artisanship, a real appreciation and taking chances on content that kind of made no sense commercially.

[00:52:15]

And now we've got the Big Bang Theory, and it's not entirely clear the pricing, the brand architecture. So I think this is one of the big brand blunders of the last ten years. It is at the end of the day, what Bernanke would say and HBO would say is we're giving you a lot more content for the same price, but it's not entirely clear how the brands relate to each other. It's not entirely clear in my view or is entirely clear when you take your meds and you turn into a coach.

[00:52:39]

That is just a terrible idea. But who sees opportunity here? Who sees opportunity here against us? Against us? Who sees opportunity? It's not that bad, Caesar.

[00:52:50]

It's Apple. Apple is coming in and doing their own vertical content, taking that artisanship, taking that luxury positioning away that HBO owned and is now going to try and compete on Bulc and who's who's there with Buck fucking Netflix and Amazon. Yeah. Good luck, bitches. Good luck competing with those guys. So this is this is just stupid. I mean, this is just I just get angry thinking about this. They didn't call the dog. They didn't call the dog.

[00:53:19]

But from a brand architecture standpoint, from a brand positioning standpoint, this is one of the worst moves of the last decade. But this is HBO is just a gift from God and Stanky and AT&T are taking that gift from God and just fucking urinating on it. I am. Anyways, that's probably a little bit much.

[00:53:37]

A little too much. Little too much of Gustus, thanks for the question. We love your questions. Please submit them, ask us anything to office hours at Section Forbes.com. Again, that's office hours at section four dot com.

[00:53:50]

Get a free mug. Just kidding. Don't have mugs. No mugs. I was aware of happiness, we are spending a lot of time at home and one of the things we're doing is I'm trying to introduce.

[00:54:10]

My two sons, nine and 12 to some of the movies I loved when I was their age last night, we watched The Black Stallion, which I believe is a Francis Ford Coppola movie about a young boy who was stranded on an island with a horse. It's a wonderful movie. Terry GHA, Mickey Rooney, probably his finest role. I think he was nominated for supporting or best supporting actor. Also tonight, we're going to watch the little prince. And there's a wonderful line in the movie, The Little Prince, and that is what is essential is invisible to the eye.

[00:54:43]

It also ends up that what is most dangerous is invisible to the eye. KORONA or the novel coronavirus covid-19 is invisible and it is disrupting our life. It is changing a lot of things. It is getting in the way of what are traditionally a bunch of wonderful ceremonies, funerals. Not that they're wonderful, but they're important. I've heard about assume funeral last week, a friend's father in law, and think about all the proms, graduations and weddings that aren't going to happen this spring.

[00:55:12]

That will happen again. But they've been put off or that they're just sort of passing by. So in my community, all the invites went out for Harrison's birthday party. We were supposed to come, no gifts, the address, the date, and then covid-19 hit. And it no longer made sense to send a bunch of asymptomatic carriers to a party and then have them return to their respective houses. So the parents were quick on their feet and pulled together a drive by birthday party for Harrison.

[00:55:40]

And check this out.

[00:55:41]

Every car lined up, they they the family came out, the grandparents, the parents and Harrison and his sibling and both parked themselves on a corner of a street. And then they told the cars to approach from the south through the north and then slow down. At which point the kid or your son or my son would pop his head out of the sunroof. We would stop and we would play the Beatles song Today is Your Birthday and wish Harrison a Happy Birthday as he and his family were sitting there on that corner.

[00:56:11]

And as we were pulling up, I remember thinking how sad this is, how upsetting it is that so many wonderful things in a kid's life are being canceled because of this pathogen. And I thought this was sort of lame and I don't know, I just didn't get it. And then and then we started to pull forward and I saw the kid in front of us pop his head out of their RAV four. And I saw Harrison and Harrison just lit up.

[00:56:41]

I mean, just lit one of those, you know, have kids have those physical tics when they're so happy, they can it can't control themselves. He immediately stood up out of his chair and look like Iron Man about to fly into the stratosphere, clenching his fist, holding them down, putting his shoulders forward, almost just a reflex of physical reaction, kind of muscle memory of just sheer joy and excitement. And then all the cars sort of clustered around made a semicircle, almost like Panzer tanks pulling up to the German embassy or the American embassy or whatever the right metaphor is, and playing that song and just seeing Harrison and his family so happy.

[00:57:23]

So what is essential is naked to the human eye, as is this virus. The fortunate thing about this virus is that it's mortality rate is really low, but its virulence is exceptional. And that is you can catch this virus just speaking to someone who is within six feet of you. So it's incredibly contagious. It's virulence is extraordinarily strong.

[00:57:45]

At the same time, the joy we feel for one another, the infection we feel for one another, our desire to communicate love, our desire to celebrate each other's achievements. Achievement can be felt in the agency of one. But love and joy are usually in the agency of others. And there was just so much joy in this. So we have a we have a pathogen that dies of the roads that goes extinct within six feet without a host or a carrier.

[00:58:14]

But as a species, our joy, our affection, our creativity has a much greater distances, much more communicable than six feet. Happy birthday, Harrison.

[00:58:28]

Our producers are Griffin, Kollberg and Drew, if you like what you heard, please follow, download and subscribe. Most successful launch in the history of Westwood One. Let's make it the most successful launch in the history of anything. Thank you for listening. We'll catch you next week with another episode of the property show from Section four in the Westwood One podcast network.

[00:58:57]

So you're about to hear a clip from the new Starbucks versus Duncan season of business wars, but before that, make sure to subscribe to business stories and other great podcasts from wandering on Apple podcast Spotify or wherever you're listening right now.

[00:59:11]

One. It's 1950 in Quincy, Massachusetts, at six a.m. on a cool September morning, a big, genial man named Bill Rosenberg opens his store's glass door.

[00:59:30]

He calls a place open kettle. It's the first doughnut and coffee shop ever to provide seats for its customers. A group of men wait outside eager for their morning java. Some are factory workers. Others are salesmen. And businessmen are the first to hurry in. Wears heavy pants and a work shirt.

[00:59:48]

Warning bell. Hey, Marty. Ready for the usual you bad coffee with two sugars and two glazed doughnuts. Got to have it to start my day.

[00:59:58]

Rosenberg turns to two men whose sport suits, ties and hats.

[01:00:02]

Morning, guys. Hey, Bill. Know what? Your coffee smells so good it wakes me up before I've had a sip.

[01:00:09]

The men sit at the low curved counter on leather top stools. Rosenberg goes behind the counter. He smiles as he fills their cups with a drink they crave. As soon as the cups are empty, he fills them up again. Above the pot, a wall sign reads, Ours is the best coffee in the world.

[01:00:27]

Every morning his shop fills up like this and it never fails to make him smile. He heads into the kitchen. He loves watching the donut dough cook in the fryers, bubbling oil. When they turn golden brown cooks whisk them from the fryer with giant spoons. He savors the doughnuts, rich, yeasty fragrance as they cool on metal racks beside the racks. Deep bowls are filled with frosting and vanilla, chocolate, strawberry and maple flavors. Rosenberg grabs a tablespoon and digs out a taste of strawberry icing.

[01:01:00]

His favorite. Dozens of doughnuts are iced. Others are dipped in powdered sugar and shot full of cream. Many are stuffed with jelly in succulent flavors. Lemon, blueberry, pineapple, apple, spice. Rozenberg picks up a jelly doughnut as he bites into it. A big magenta blob squirts onto his shirt. He laughs, wipes it off and licks it from his finger. There's just one thing about his store that he doesn't like.

[01:01:28]

He calls his staff together. We're doing great, but I hate the name of the store.

[01:01:35]

You're the one who named it open kettle.

[01:01:37]

True, true. I'll take the blame, but we need another name. Throw out anything that comes to mind. How about Mr. Donut? Our best donuts? Maybe.

[01:01:50]

Maybe I feel like we can do better. I got it. What do you do with a donut and coffee yet, doc? The donut. That's it. Dunkin Donuts.

[01:02:02]

Yeah, it's got a nice ring to it, but coffee is Rosenberg's true love to prove it. The big new sign outside his store reads Dunkin Donuts, the world's finest coffee. Like every dedicated coffee purveyor who will follow him, Bill Rosenberg is passionate about brewing the perfect cup. An eighth grade dropout, Rosenberg would teach the average Joe to take their cup of Joe more seriously in America decades.

[01:02:31]

In the future, that passion will take his company where he never imagined it would go head to head with a cross-country rival that becomes a global juggernaut.

[01:02:46]

Starbucks Coffee, Tea and Spice opens in 1971 in a small store in Seattle's historic Pike Place Market.

[01:02:54]

The store is designed to look slightly nautical. A long wall with wooden shelves displays 30 different kinds of coffee.

[01:03:02]

They sell only coffee beans and the best home coffee machines. But they sometimes offer samples served in porcelain cups that make the coffee taste even better. Seattle is in an economic downturn, but Starbucks catches on.

[01:03:18]

It's a hit with Seattle citizens who love the idea of savoring their coffee at home, especially on those gloomy days in winter.

[01:03:25]

And Starbucks is the only place in Seattle that offers quality coffee.

[01:03:31]

It catches the attention of a young 28 year old. From the moment he encounters Starbucks, he and the entire business will never be the same. His name is. That was just a preview of the first episode of Starbucks versus Dunkin on Business Wars, subscribe to hear the rest on Apple podcasts, Spotify or wherever you're listening right now.