Compounding Relationships Make Life Easier

We talked about compounding and compounding interest, but we didn't really dig into it that much. Relationships are a good example of compound interest. Once you've been in a good relationship with somebody for a while, whether it's business or it's romantic, life just gets a lot easier because you know that person's got your back. You don't have to keep questioning; if I'm doing a deal with someone that I've dealt with for 20 years and I trust them, and they trust me, we don't have to read the legal contracts. Maybe we don't even need to create legal contracts; maybe we can actually do it on handshakes. That kind of trust makes it very, very easy to do business.

If Nivi and I start another company, I know that if things aren't working out, we're both gonna be extremely reasonable about how to go about it, how to exit out of it, how to shut it down, or even if we're scaling and how to bring in new people. Because at this point, we have mutual trust, and that allows us to start businesses more easily and almost compounds the effect, especially when you're dealing with something like a startup, which is so difficult to pull off. Removing these frictional mechanisms can actually often be the difference between success and failure.

I think the number one most under-recognized reason why startups fail is because the founders fall apart. There's a couple somewhat non-intuitive things about compounding. The first one is that most of the benefits of compounding come at the end of the compounding, so you may not necessarily see the huge benefits of it upfront. The other thing I would say that's a little non-intuitive about compounding is that I think it's better to have a few deep compounding relationships with people instead of a large amount of non-compounding relationships.

There was a good quote from an article that Sam Altman wrote where he said, "I always want it to be a project that, if successful, will make the rest of my career look like a footnote." Again, that just goes back to the idea that most of the benefits of compounding come at the end. I think one of the under-realized things in business is that it takes just as much effort to create a small business as it does to create a large business. Whether you're Yvonne Musk or whether you're the guy running three Italian restaurants in town, you're working 80 hours a week, you're sweating bullets, you're hiring, firing people, you're trying to balance the books. It's highly stressful and it takes years and years of your life.

But in one case, you get companies that are worth fifty hundred billion dollars and the adulation of everybody, and on the other hand, you might make a little bit of money and you've got some nice restaurants. So think big.