Equity Capital Markets

What’s Scott Galloway’s secret to good leadership?

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Alex Watkins: Hello and welcome to our investment banking podcast, What's The Deal? I'm Alex Watkins, co-head of International Equity Capital Markets, and I'm hosting today's episode from JPMorgan's Techstars Leadership Forum. Here we bring together founders, CEOs, and investors in the tech ecosystem to discuss key trends changing and impacting the tech industry, global markets, and the world over. I'm thrilled to be joined by Scott Galloway, entrepreneur and professor of marketing at NYU Stern School of Business. Scott, welcome to What's the Deal?

Scott Galloway: Thanks for having me, Alex. First off, you're co-head of-- what was the term again? Institutional. What do you do?

Alex Watkins: Equity Capital Markets.

Scott Galloway: Dude, you look 18. What is the deal here? If I had your hair, I'd be the junior senator from Pennsylvania right now. Seriously, man. Well done. You're crushing it.

Alex Watkins: Moisturize, drink Evian. What can I say?

Scott Galloway: You're crushing it.

Alex Watkins: I've had a lot of work done.

Scott Galloway: There you go.

Alex Watkins: Let's start at the beginning. Beginning of your career, you graduated from university and you worked at a investment bank. Talk to us about that experience and how it's shaped your career today.

Scott Galloway: So, I was at UCLA and my roommate, who I was very competitive with, decided he wanted to be an investment banker. That was just like so important to him and I thought, "Well, if he wants it, I'm going to get it." And so I had no idea what investment banking was. I interviewed with a bunch and I ended up at Morgan Stanley. And I was in fixed income for two years. It was a really good experience for me. One, I learned, that's not what I wanted to do with the rest of my life. I think your 20s is about workshopping and figure out what you want to do, and part of that is figuring out what you don't want to do. And also, just the attention to detail, the professionalism, the discipline. I learned about the markets, that always resonated with me. I had some people take an interest in my career who I've stayed in touch with, but I knew I didn't want to do it, but it was a great experience. I think that kind of first boot camp, hardcore experience right out of college, I would recommend it for anyone.

Alex Watkins: Certainly, and still has a very strong work ethic and knowledge of the markets.

Scott Galloway: 100%, yes.

Alex Watkins: Since then you went on and founded a number of companies, Prophet, RedEnvelope, and L2. What advice would you give the founders that we've got in the room today about building companies?

Scott Galloway: The basics are, you got to be more risk aggressive, find good partners. I think the lows are really low. The highs are really high. I think the key to entrepreneurship is probably resilience. That is, you're going to get beaten in the face, you're going to have near-death experiences. Try to focus. Let the anxiety that you're going to register as part of being an entrepreneur, make that motivating. Try and translate it into actual productive work. Find good partners. Find a few core groups of people who are really talented. Give them big pieces of the business. If you want people to act like owners, you got to treat them like owners. The only thing I've been able to suss out when I reverse engineer the nine businesses I've started to success and failure is when they were started, when I started a company in a recession it usually succeeded. When I started a company in boom times it usually failed. Because the DNA at the very outset of being cheap, getting to hire people and find real estate and find resources for less money in a recession imprinted the right DNA, but throwing nickels around like they're manhole covers, having a certain amount of emotional, mental resilience, trying to really find and hold onto good people and give them large equity stakes, recognizing greatness in the agency of others and give up this myth of balance. I think it's very competitive and if you really want to make a small company work, you should assume that for the better part of a decade, maybe even two decades, you're primarily going to do nothing but work. That's not what millennials or Gen Z want to hear. But I've never been talented enough to make anything successful unless I threw myself 110% on it.

Alex Watkins: Do you think you've got any more startups in the locker? Do you think you're going to do any more in the next few years?

Scott Galloway: Oh, no way. As you get older you get more rational, you collect dogs and kids, you need some balance in your life. You don't have the physical endurance. When I was at Morgan Stanley, and I'm bragging now, I was the first analyst they hired out of UCLA. They hired at Stanford and Berkeley and then all the Ivys. We romanticize entrepreneurship. On a risk-adjusted basis, you're better off going to work for JP Morgan than starting a business. My stallmate, my first boss at Morgan Stanley is now the vice chairman. I would consider myself in the top 1%, if not the top 0.1% of entrepreneurs. I've had some exits, some nine-figure plus exits. I think we ended up in the same place economically but my path involved a lot more ups and downs and a lot more stress. The American corporation as a platform is still the premier place to get rich slowly.

Alex Watkins: Everybody's talking about AI, almost there's some fatigue creeping in. You've joined us at Techstars today. What would be the key takeaways from AI from your perspective and what it means for the guys in the room?

Scott Galloway: The honest answer is I don't know yet. I'm an optimist. I think that there's certain categories that will be very much disruptive. I think the biggest opportunity is the intersection between AI and healthcare where prices have increased faster than inflation for 30 or 40 years but satisfaction with it's gone down. It strikes me that there's just a ton of opportunity between AI and healthcare. It'll destroy jobs in the short run, but I think it'll actually, like every other technology, create more jobs. Automation was going to be the end of the American middle class, and it's definitely had an impact. There's fewer jobs on the shop floor, but we couldn't have envisioned heated car seats and car stereos. I think the automobile industry globally has actually grown in employment. We thought the weaving machine was going to put every weaver out of business, and actually, it grew the business. So, I'm an AI optimist and I don't see any reason why it can't be used as a missile shield, as well as missiles. The place I am worried about it is next year around election misinformation, specifically out of the GRU in Russia who will see the fastest blue line path to victory is the reelection of Trump. I think you're just going to see a ton of misinformation and spending on these platforms that have what I'd call amoral management, who will cash checks and then wring their hands and pretend that they're really upset about what happened after they've cashed the checks. I just see the atmosphere lead to a massive amount of AI-driven misinformation at the beginning of next year.
Alex Watkins: Turning near term into the economy, a lot's being said about the slowdown, are we seeing one? I saw you talk recently and you seem pretty bullish, pretty optimistic. You're talking about the Patagonia vest recession, the nothing untoward, and you weren't seeing it in the data. Can you talk a bit about that and your optimism?

Scott Galloway: Yes. Every year I do a prediction stack for the coming year in October, and I said last year, I predicted that the recession wasn't going to happen. That the recession was going to be sequestered to the growth part of the economy. It has a lot of headlines, but if you look at the actual number of jobs, it's not a lot. The great taste and low calories of cutting costs while maintaining growth, which big tech has adopted, has resulted in just earnings growth. I think that they're going to have the most profitable quarters the back half of this year. Unemployment is historically strong. I didn't see any evidence of a recession other than the small unemployment or layoffs in the tech sector. The majority of economists have now shifted to a soft landing, which lends me to believe that in 2024 we'll experience a recession. It feels like we're due. Student loan payments starting up again. I don't feel the impact of this 525 basis point increase has really been absorbed in the economy. I think AI is deflationary and will give people less confidence to ask for an increase in wages.  Also, I think it's a good thing. I think that people my age benefited. The reason I'm economically secure was the last recession in 2008. I was able to take the nuts I'd saved as it was coming into my prime income earning years and buy Apple and Amazon. Since then they're up 30 and 50X. And over the last few years, we basically pulled out our kids and our grandkids credit cards to juice the market and make sure we didn't go into recession. That's nothing but entrenching the incumbents. The young people need a recession. How the hell do they buy a home right now? How do they buy stocks? So I think a recession is a healthy, natural part of the cycle. We're just due. The only thing that counters that is an election year. Usually the incumbent administration pulls out the credit card again. I just wonder if we're running out of bullets or ability to dodge a recession. Anyways, my prediction is 2024 we're going to have one, but nobody knows.

Alex Watkins: Okay. Last question. You sit on a number of boards, from tech to media to education. Given your board experiences, what advice would that lead you to give for the CEOs in the tech sector?

Scott Galloway: I think leadership comes down to three things. I think you have to demonstrate excellence. You have to be the best in the room at something. Whether you're the best salesperson, you understand the numbers better. I think always investing in a certain domain expertise, they have to demonstrate excellence. Two, hold people accountable. We don't talk about this a lot, but I think you have to make quick decisions and hold people accountable. I think everyone in a company wants to know that their work is rewarded and look left and look right and think, I don't have to like the person, but I have to understand that they're here. So I think good CEOs hold themselves and other people accountable. The last thing is what I'll call a certain amount of empathy. That is, loyalty is a function of appreciation and greatness in the agency of others. The people who become CEOs have a really solid group of people who stick with them and even maybe go with them to other firms and are loyal to them. One of the ways you can demonstrate appreciation is empathy. That is, when I was a younger CEO, I thought everyone must be like me. That is, I wanted to be very rich and awesome. I wanted to be on the cover of magazines and I wanted to have a lot of money. That was it. I didn't want to change the world. I didn't want to make the world a better place. That was all I wanted. I assumed that's what everyone else wanted. And what you find out as you get older is that some people get a lot of reward. They want to manage people. Some people are willing to give up some compensation so they can coach little league and have more balance in their lives. Some people want some of that fame that you're getting as the CEO. That it means a lot to them to be on stage every once in a while. I think just demonstrating a little bit of empathy that says, I'm going to take the time to get to know you and get to know what you really value. I'm going to foot my efforts in recognition to demonstrating to you that I get you, I understand you, and I'm going to try and invest in you. I think that creates a lot of loyalty, just a little bit of effort. Accountability, excellence, empathy.

Alex Watkins: Scott, it was fantastic to have you on our podcast today. Thank you so much.

Scott Galloway: Thank you, Alex.

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