World Building in the Game of Life with Patrick O'Shaughnessy (Part II)

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‍“I think about my professional life as trying to build a world in which I can be a player and an operator.”‍

In this second part of our conversation (part I) we discussed counter-positioning his VC firm, game design, philosophy as an operating system for life, what founders really want, building Canvas, collecting and filtering great ideas, and whether the good life is just breaking bread with people we like.

“To me, conversation is kind of like a game. I'm always interested in how much more interesting I can make a conversation that I'm in. I don't do small talk well. If I'm at a party, I'm always interested in how interesting something could get relative to the baseline.”

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‍Conversation Highlights‍

Using the podcast to find great ideas.

• “I'm very excitable. Every time I come across one of these [ideas], I'm like oh, this is game-changing. What I've learned about myself is I'm a great judge of there being something there. I'm not a great judge of the magnitude, of how big of an opportunity it is initially.”

World building.

• “It turns out that a podcast (a media business) and an investing firm are two really great things to have when your game is people-centric. Your game is effectively searching for interesting people. Being able to interview them and or invest in them are kind of the two most fun things to be honest with you. It's a great way for me to have a world around my interests. And in our investing activity, this is something we explicitly look for, we call it world building.”

World building founders.

• “You meet these founders that are just so interested in what they're building, that they want to control everything around it, the whole ecosystem around it. They're like institution builders and world builders around their core product and idea. We love that because you don't do any of that stuff unless you really care, unless you really wake up thinking about it."

Building investment organizations.

• “Let's say I was an investor that only invested in other asset managers or other investment businesses. I'd be doing the same thing. Why is this founder or founders going to credibly work on this problem for decades? What is the source of their obsession and their compulsion? And why do I believe that obsessive compulsiveness will translate into success for this business? What are the market conditions that make the timing right for this thing now? Are there tailwinds that are going to propel this thing forward no matter what the founder does? You want both. What's the market signal?”

Canvas and product market fit.

• “When we built Canvas, we were the first one to do that, it was completely different. Custom indexing didn't even exist as a category, we named the category. And we created something where when we went to sell it, there was no competition. Enabled by technology and by our unique history, we were uniquely suited to do it, and it tapped into a pool of latent demand that was explosive. It's hard to describe, you'll know it when you see it.”
• “Usually the core thing that's interesting about a new investing platform is compelling right at the beginning.”

Transparency in venture capital.

• “We're gonna open up everything we've learned and give it back to as many people as we can by default, all the time. There's going to be none of these hidden secrets, behind-the-scenes stuff. We're just going to openly share everything all the time. And we think that's very well counter-positioned against the industry.”

Eastern philosophy as an operating system for life.

• “If you put a lot out there for others, with no expectation of a selfish return, you end up actually getting more than if you didn't do that. It's a strange worldview, because it's not a business school case study. The inputs and the outputs don't connect via some formula. You have no idea how it's going to come back to you. It is my form of faith. If I do this, it will come back. I have no idea how, but it will, and that's been my experience too. But if you were just trying to approach something strategically, irrationally, you would never behave this way because you can never tie the input to the output.” 

Working with founders.

• “Investors, I think, mistake a founder's desire for their capital for a founder’s desire for them, and all the things that come with them."
• “My experience is that founders want the capital to fuel their business, and they want someone that they can have as a confidant, that they can trust, that they can call when needed. But they don't want a steady stream of ideas and advice. The classic one is, have you seen this competitor yet? Some large percent of texts from VCs to founders is like the website of a competitor. What I think we can do is ask really good questions, the theme in my life, and not mistake what a customer actually wants from us for what we think they want.”

The good life.

• “I optimize for learning, I optimize for freedom of time, to be with my family, especially. Learning, reading, talking to people, spending time with people, moving in the woods, ideally, or outside somewhere on the water somewhere with my family and my friends.  …  Everyone has something they love, or a set of things they love, but very few people really work to protect those things. And to structure their life so that they get as much of the things they love, and get joy from as they can.”
• “I expect to do very well in the things that I do, not because I want some achievement badge, but because the process of doing that is joyful to me.”
• “What if the ultimate ambition of everyone is really just to break bread with people they like?”

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“I'm just seeking all this stuff all the time. I'm always going to be. I'll probably never figure anything out. But if you're interested in seeking, come along with me because it's really interesting, and it's really fun. 

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The following is an edited transcript of our conversation.

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Frederik Gieschen: I heard you comment that there was an idea you pulled from one of the podcast’s conversations about selling to enterprise customers that lead to how you ultimately built Canvas. I'm curious how often that happens, that you record an episode and you walk away thinking there was an idea that changed how you think about your life, your work?

Patrick O'Shaughnessy: I would say it happens every day. I use this app on the phone, I think it's just called Things. It's meant to be like a to-do list, but I just use that as a way to jot down ideas. I constantly enter stuff in there. I'm very excitable, so every time I come across one of these, I'm like oh, this is game-changing, this is amazing. And what I've learned about myself is I'm a great judge of there being something there. I'm not a great judge of the magnitude, of how big of an opportunity it is initially. And so, what I've learned to do is I put something in there. It's like an endless scroll. It's every day, all day, constant ideas. And then periodically, when I'm just hanging out, I'll just open the thing up, I'll scan through them, and I'll remember them. And if there's one there that I'm like oh, that idea sucked, I just hit the done button on the to-do and it disappears from the list. And, for me, this has just been really effective because what happens is the stuff that lasts where every time I check it, I'm seeing it for the 20th time, the 50th time or whatever, and I don't delete it. It's a great sign to me that there's something there. And invariably, the ones that last, all those double checks and triple checks, I end up using somewhere. It's like survival of the fittest for ideas. It's incredibly low friction to get on that list, and it's incredibly easy to remove something from it. It's nice, it's light, it's fun, and so that's the answer, I'm constantly putting things in there, I'm using them every so often. And then sometimes there's one like the one you opened your question with from Chetan at Benchmark that defines an era of my career. So yeah, there's a hierarchy to it, but I like that system for capturing.

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Frederik Gieschen: There are a bunch of interviews in which you talked about game design and there is always this question of world building. When you bump into somebody interesting, it seems like you've built your life in such a way that there's always some way for you to engage with them: interview them, invest in them. Is that by design, or is it just a lucky accident that a flywheel came out of it?

Patrick O'Shaughnessy: There are probably lots of interesting thoughts and reactions to all that. As a kid, I was a huge gamer in the modern sense of video games. But also, I played a lot of chess, I traveled around the country to play in chess tournaments, and I just really loved games. To me, conversation is kind of like a game. I'm always interested in how much more interesting I can make a conversation that I'm in. I don't do small talk well. If I'm at a party, I'm always interested in how interesting something could get relative to the baseline. And so I've always been interested in games, in all their various facets.

I will admit, if there's a number one fantasy I have or ambition I have, it is designing a game that's self-perpetuating. I think if you study the most interesting games, Mitch Lasky, in today's episode, talked about what he calls forever games. Something like League of Legends. In what people thought was a hit-driven business, it seems as though the biggest games last for a really long time. Chess is a great example, I mean chess hasn't changed in a long time. And nonetheless it's just endlessly interesting, fascinating and fun.

I think about my professional life as, like you said, trying to build a world in which I can be a player and an operator. That just never ends, it's just always fun, always interesting, there's always a new level, a new energy source, there's just always a new something. It turns out that a podcast, a media business and an investing firm are two really great things to have when your game is people-centric. Your game is effectively searching for interesting people. Being able to interview them and or invest in them are kind of the two most fun things to be honest with you. Which is probably why I've created the setup I have. It's a great way for me to have a world around my interests. And in our investing activity, this is something we explicitly look for, we call it world building.

Oftentimes, you meet these founders that are just so interested in what they're building, that they want to control everything around it, the whole ecosystem around it. They want to own and run the conference. Think of Dreamforce at Salesforce. They want to have a language and a story that's internal to their business. They want lingo, they want inside jokes, they want practices and rituals. They're like institution builders and world builders around their core product and idea. We love that because you don't do any of that stuff unless you really care, unless you really wake up thinking about it. If you're in it to make an exit or make $10 million or whatever, be in the 30 under 30, you don't care about that stuff, but if you really want to build something enduring and are doing that kind of life's work type mission, you tend to do this world building thing. And I think I do that a lot too. We're investing heavily at some point here in a new physical space to be able to do a lot of this stuff, and I just get very energized by that. 

So yes, I love gaming, I love game design, I've read a lot of books on game design. I love world building. The reason I like game design, even more than media maybe, is that media is very literal. We create this conversation, and you consume it or you don't. It's one-sided and it's one-directional. Gaming is interactive, you have people opting in, participating, changing the landscape of the game, and doing surprising things. I think social networks are the ultimate, interesting, open-ended game. You create a core action that's compelling. You know, a tweet, a TikTok video, an Instagram post, whatever. And you're just blown away by the emergent creativity that happens on top of those games and those platforms. I don't want to stretch this analogy too far, but you get the idea. Things that unleash human creativity and are fun and interesting and complex are really interesting to me, which is why I find myself always returning to game designers and game investors.

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Frederik Gieschen: You said that you enjoyed just studying how people build investment organizations, that it was a kind of pet project to understand what works. Media and investing are two very different types of businesses. How do you think about that?

Patrick O'Shaughnessy: I don't think building an investment business is all that different than building any kind of business. I think the only reason to create a new one, you know, God knows there's enough. There are enough bad businesses and enough bad investing businesses. We don't need another average investing business, it doesn't do anything for anyone, even though they're started every day. I think just like a regular business, if you're going to start a new investing business, you better be doing something really unique, differentiated, innovative, and all these stupid words that we use to describe the new and the different. And if you're not, and you can't articulate really clearly what you're doing that's different, then I just don't think it's going to work.

Let's say I was an investor that only invested in other asset managers or other investment businesses. I'd be doing the same thing I'm doing investing in operating businesses, which is, why is this founder or founders going to credibly work on this problem for decades? What is the source of their obsession and their compulsion? And why do I believe that obsessive compulsiveness will translate into success for this business? What are the market conditions that make the timing right for this thing now? Are there tailwinds that are going to propel this thing forward no matter what the founder does? You want both, right, the inside and the outside. What's the market signal? And is there a good investment opportunity based on the price and all the normal things you would consider? 

So that's how I think about the businesses. If you think about what we did at OSAM, for a long time OSAM was a pioneer in the 90s and early 2000s in quantitative investing. This is before my participation in the business. It was an innovator, and not many people did that. By the time I took over the business in 2018, there were so many quantitative factor investors. It was a sea of competition. The differentiation was, frankly, weak, and even with great track records, you couldn't be successful because there was just so much of it. And so when we built Canvas, we were the first one to do that, it was completely different. Custom indexing didn't even exist as a category, we named the category. And we created something where when we went to sell it, there was no competition. It wasn't like, tell me how this is better than X, Y, or Z because there was no X, Y or Z. It was something more valuable than the incumbent solution. Enabled by technology and by our unique history, we were uniquely suited to do it, and it tapped into a pool of latent demands that was explosive. It's hard to describe, you'll know it when you see it.

When people want something, and there's real innovation, they just say yes immediately. Our first meeting, people just bought it right away on a demo. And there wasn't all this analytical back and forth, RFP type stuff. It was just like “Oh no, we're in.” I think it's the same with an investing business. Obviously there's stories that take a long time to develop. And obviously, there's no overnight success, but usually the core thing that's interesting about a new investing platform is compelling right at the beginning. And it's earned based on experience or insight or something by the founder. We're trying to do that same thing with Positive Sum, the venture firm that I run and started with my partner Sam Cates back in the summer of 2020, it's the same idea. We're gonna open up everything we've learned, and give it back to as many people as we can by default, all the time. There's going to be none of these hidden secrets, behind-the-scenes stuff. We're just going to openly share everything all the time. And we think that's very well counter-positioned against the industry. Even the very best in the industry, who are not doing that, in most cases, couldn't do that, or wouldn't do it or don't want to do it, and we want to do it. That's what we like to do. Learn stuff and share it back. Our motto at OSAM was Learn, Build, Share, Repeat. I think that's portable, for me at least, anywhere I go. It's certainly true at Colossus, it's true at Positive Sum. For some reason not that many people think that way, or do it that way. So yeah, like any business, you have to do something different. There has to be a credible reason why you can do it, why the timing is right, and a signal from the market that it's in demand.

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Frederik Gieschen: Did you think about counter positioning strategically when you built Canvas or did it only become obvious later? 

Patrick O'Shaughnessy: It's hard to remember what the honest truth is after something has worked. We were like we got to do something new. The business is kind of mature, there's gotta be a next chapter, or next book to write. We thought maybe it’s ETFs, you know, we had never managed ETFs, that's interesting. We filed for them, we did a lot of work, and then we realized oh my God, that's the worst business ever. Talk about a sea of competition and a price war and a struggle for mindshare and market share. It was like a perfectly bad business to go into. And we realized that in a moment, and just abandoned it completely.

And so we were poking around, we were feeling around for okay, this is what interests us that we're really good at. Here's what we've built that's an asset to us, which we needed to build for some other reason, but only we have it. And here's something that people would care about or want. What is the intersection of that Venn diagram of those three circles? And it took some time, it took a year. 

So, from the time I started running the business to when we had Canvas on a whiteboard was one year. And we tried lots of different stuff. We tried this thing called the Research Partners Program, which was kind of a similar concept to be honest, a small-scale success, and it opened our mind, ‘wow, we can just do whatever seems interesting.’ Despite convention in the industry. I wasn't aware of any other program like that Research Partners Program, which produced some of the best research I think we ever produced, if not the best. And so, we just kept pushing and pushing and pushing. We were inspired by Amazon Web Services and its story. We met with people all over the world that had built something interesting out of an existing asset base of technologies. And finally, we just alighted upon it. Oh okay, here's something we think is going to be true. We think that people are going to have their own portfolios in the future. That zero cost brokerage trading and fractional share trading and the fact that many investors are taxable and care deeply about their after-tax returns, and have different beliefs and circumstances and preferences, all these things in a no-friction world, people's portfolios will be slightly different based on them and their DNA. And we just think that's where the world's going. And so, we built something in that intersection, and it just took off. So again, it wasn't like a master plan, it wasn't like we sat down and said okay, we're gonna do this thing, let's go do it. It was a period of experimentation and exploration that had a lot of aspects to it, a lot of failures. Then we finally found something, and when we found it, it just worked right away.

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Frederik Gieschen: You talked on the Trillions podcast about you having an unconventional background, studying philosophy. And you called Eastern philosophy your operating system. What does that actually mean?

Patrick O'Shaughnessy: If you boil down the Eastern view or approach, there's this notion of unity or lack of separation. This idea that the second you start splitting stuff, is where you get into trouble. Even good and evil, there's something very basic like that. That the fundamental nature of things of the universe is some sort of unity. And maybe the West might call this God or, the East might call it Buddha consciousness, or something kind of quirky sounding. The idea is that there's one thing that we are all participants in. And the notion of karma, for example, or of how you treat others is sort of like, if you recognize this as true, you will behave a certain way. And I believe that it is true, and therefore I behave a certain way. And there are these wonderful ancient passages that basically say look, if you feed this thing, it will feed you back, and if you don't, it will starve you. So, all my views on my wanting to share back as much of what I learned as possible without doing any harm to anybody come from this notion that if I give something up, and the best things to give up, or give away are the ones that are hardest to give away. Whenever I feel like I found something really proprietary, like I could ride this idea for a long time by myself, that's the one I know I should really give away. We call the firm Positive Sum for this reason too. The reality is the world's a big place, there are a lot of ways to win, and a lot of stuff can coexist. 

At the top of any hierarchy, what I found is that everyone knows each other. And yeah, they're competing, but they're also offering ideas and they're in chats together. They may be fierce competitors in the media but they're chatting about their whatever on WhatsApp. 

That's my view. We're all participants in some similar underlying thing. And therefore everyone is you, that's where the notion of Karma comes from. And if you put a lot out there for others, with no expectation of a selfish return, you end up actually getting more than if you didn't do that. It's a strange worldview, because it's not a business school case study or something. The inputs and the outputs don't connect via some easy-to-define formula. You have no idea how it's going to come back to you. It is my form of faith. If I do this, it will come back. I have no idea how, but it will, and that's been my experience too. But if you were just trying to approach something strategically, irrationally, you would never behave this way because you can never tie the input to the output.

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Frederik Gieschen: Do any examples come to your mind of ideas that you thought you wanted to hold on to very tightly and then you actually shared them?

Patrick O'Shaughnessy: I wasn't the one that shared it originally, Chetan was, but that one that he shared about the strategy for taking an enterprise software product to market was unbelievably impactful in my own business and experience. I value it so much because it's literally the opposite of what I would have done, had I not gotten the advice from him. And the advice was to spend a long time picking five early customers and commit to them that you're just going to build your solution for them. You built v1, you're coming with something already, you're not just asking what they want. But once they opt into it, say, we're gonna commit to just extending the platform for you until you run out of good ideas to ask for. Then we'll take some other customers. Basically you let an early group that you carefully pick, so who you pick matters a great deal, pull the marginal pieces of your product out of you. And that you do this for an uncomfortably long period of time. 

Chetan, at the time, told me one to three years. We said three years, that's insane. My impulse would have been like we've got something good, sell it to as many, to anything that moves, go as fast as possible. His logic was so compelling and he’s one of the most successful enterprise SaaS investors of all time and had seen this happen at companies that were some of the most successful software companies of all time. So, we just kind of took him for his word, and just did what he said, and it was remarkably powerful. And I guess the reason why sometimes it's the best thing to share is it's really hard to implement. It ran counter to my intuition.

And Chetan laid it out much better than I could in the very first podcast I did with him. It's out there. Anyone can go listen to it and just do it. And I tell it to everyone that’s in enterprise SaaS that will breathe. And it's not perfect, there are exceptions, and there are ways you want to modify it. But the core idea is very powerful. And still no one does it because you hear three years, and you’re like three years in a startup, that's like a lifetime. How could I possibly do that? And so, no one does. I've recommended people do it and they say they're going to do it, and they kind of start doing it, and then they get a little bit down the path, and they're like, well shit, now we got even more than we can sell, let's just start selling it. Oftentimes, the best advice is incredibly hard to actually implement. And that's the one that pops to mind as something incredibly powerful that it feels like you could build a whole career just finding companies, telling them to do this while everyone else did it the wrong way, and succeeding, but instead should be out there for anyone to grab and run with.

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Frederik Gieschen: It's interesting that you're saying there’s a powerful idea, but people don't adopt it. Is that something you can do differently as an investor and help people do that?

Patrick O'Shaughnessy: I think most really talented entrepreneurs don't need a ton of help on the idea front. Almost by definition. If they do, it's not going to be a great entrepreneur. I do think that even the very best can benefit from the experience that an investor brings to the table having seen a pattern a lot. Especially when true innovation is not the go to market strategy. Like in the case of Canvas, which is where we did this. If we didn't have Canvas itself, none of this mattered. You need to have the thing to begin with. And if an investor is trying to supply you with that thing, run the other direction. Investors, I think, mistake a founder's desire for their capital for a founder’s desire for them, and all the things that come with them. And so, I think the right ideas or advice, it's not even advice, it's an idea, it's a question, like did you consider doing it this way? Oh, and if you think that's dumb, great, you're the founder, you're gonna know better than me almost 100% of the time. So, I think the role as I see it for myself and my team is we ask the questions. We don't show up saying this is how you got to do this. We come with a lot of questions. We're curious about the business. What do you think about this? How does this work? And so, we try to ask questions and make connections, that's our job. And if we can do that exceptionally well, over time, I do think we'll build up a real edge. And maybe we'll earn the right to give some advice a decade from now.

My experience is that founders want the capital to fuel their business, and they want someone that they can have as a confidant, that they can trust, that they can call when needed. But they don't want a steady stream of ideas and advice. The classic one is, have you seen this competitor yet? Some large percent of texts from VCs to founders is like the website of a competitor. So yeah, that's what I think we can do is ask really good questions, the theme in my life, and not mistake what a customer actually wants from us for what we think they want. David [Senra] had this amazing line from Steve Jobs, the NeXT era of Steve Jobs. The insight was, sometimes people start to mistake the customer's love of the work for love for them. People love the work, not a person very often. It's a very dangerous mistake. So, I encourage people to think about that all the time. The love comes from the work, and the work is perennial, you have to keep renewing it, you have to keep doing it. You can't just be, you gotta keep doing.

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Frederik Gieschen: You have a fairly smart audience. Do you feel there are areas that you're interested in where your audience has a blind spot? Where is there a disconnect between your level of interest and audience engagement?

Patrick O'Shaughnessy: Gaming is probably the biggest one. I've done a lot of interviews on gaming businesses and companies in gaming, and I can't believe everyone isn't as interested in it as I am. That is one of those areas where my calibration of the success is off. I think it's going to do better than it will. We've made some investments in that space that people might think are head-scratchers, like what the hell are you doing here? And there aren't famous gaming investors, there are like two, and they're both retired. There's not yet a new crop of them that seemed to have made careers around that. So that's definitely one area that feels like, how am I so much more interested in this than everybody else? Including a very switched-on smart podcast audience?

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Frederik Gieschen: When I was talking to David, I was struck by his very concise view of what he wanted his life to be like, or how he wanted to spend his time. So, I'm curious if you have a view of what a good life means to you, and what's actually important? 

Patrick O'Shaughnessy: Oh yeah, I mean, as a philosophy major back in the day, that is the only question that interests me. What do I want to do with my time? What's life about? All the fun, philosophical, metaphysical questions, I love that stuff. And the answer constantly changes, it's a big search right? And if there's anything that I would love to be a representative to people, is that I'm just seeking all this stuff all the time, and I'm always going to be. I'll probably never figure anything out. But if you're interested in seeking, come along with me because it's really interesting, and it's really fun. 

What do I optimize for? I optimize for learning, I optimize for freedom of time, to be with my family, especially. I'm very focused on my kids and my immediate family, my wife. I love nature, I think it's a great teacher and a wonderful place to spend your time, and therefore I love to travel because the world is such a beautiful place. And that's kind of it, I'm not a collector of stuff, and I don't really have some of the more traditional ambitions. I like people, I like learning, I love my family, and I love to be outside. So, I like movement, I like to be in very good shape. 

Anything I can do to optimize for more of that stuff, I do. And I guess if I'm amazed by anything, it's that more people don't behave that way. Everyone has something they love, or a set of things they love, but very few people really work to protect those things. And to structure their life so that they get as much of the things they love, and get joy from as they can. If you asked me that question in 10 years, I'm not trying to build some holding company or I'm not interested in my career IRR all that much. I expect it to be good, but I'm not optimizing for it. I expect to do very well in the things that I do, not because I want some achievement badge, but because the process of doing that is joyful to me. And that's it, learning, reading, talking to people, spending time with people, moving in the woods, ideally, or outside somewhere on the water somewhere with my family and my friends. That's pretty much it. 

I texted a friend recently, I was like what if the ultimate ambition of everyone is really just to break bread with people they like? If you really dig into the spoils of success, many times what you find the people with the most resources doing is spending time doing cool stuff with people they like. This is something that's fairly accessible all the time, so we should probably just do more of that.

If everyone had unlimited resources, would they pretty much just do stuff they thought was cool with people they love? I kind of think that the answer is yes. So why not just do that sooner, and see where it leads you?

Frederik Gieschen:  I think that's a beautiful point to leave it off and I wholeheartedly agree. Thank you, Patrick!

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