API’s & Origin of Lob

Patrick: [00:01:29] So Leore, I've been looking forward to this one for a long time. We share a lot of common passions and interests. We're going to go all over the place, touching on entrepreneurship, the companies you've been building, technology, programming, the whole nine, baseball cards, collectibles. It's going to be a great conversation. Welcome to the show, and I think the best place to start would be the origin story of Lob and its mission, which I find it’s mission in particular to be quite fascinating and we could probably talk about it for an hour.

Leore: [00:03:21] Yeah. Excited to dive in on everything. So yeah, the journey to start Lob is actually a long one. When I grew up my dream job was to combine engineering and business to create this machine that would just trade all day long so that I could go and travel the world. So I started my career on Wall Street, and I remember when I was at the desk at Citigroup, utilizing my engineering skills to be very transformative and progressive, and everyone kind of just kept telling me to just keep doing what I was supposed to be doing.

I've always played around with a lot of new technologies, came around to this service called Amazon Web Services in 2010, 2011, and I just fell in love with it. I ended up going to work there and I remember when I got there I was like, "Wow, I'm in the business of selling superpowers to developers. This is going to be such a big thing in the future." Developers are finally going to be a front office of a company as opposed to what was considered back office or IT.

Kind of the genesis or origin story of Lob really started from my experience at AWS. I was like, "This is going to be the future. What other tools exist in the market?" I remember looking around and there wasn't much. Vaguely remember seeing Stripe and Y Combinator, it wasn't called Stripe back then, and then there was Twilio raising their series B, and they didn't really talk about APIs.

So I was like, "Okay, I got to do this. I got to figure out an API to build. What problems are people facing that can basically show people that I can go and build an API company?" At the time when I moved to Seattle for Amazon Web Services my co-founder for Lob, Harry, already lived in Seattle. He was working at Microsoft, he was doing a lot of product marketing for Microsoft. Mind yourself that we were 23, 24 when we started the company. Our goal every single day, we wanted to do really well in our job, was also to come home and play video games most of the day.

So there was this consistent pattern, I think it was maybe like February, March, Harry was not coming home at a reasonable time and I was like, "What's going on?" And he kept telling me how to send out these really large direct mail campaigns it takes them between 60 and 90 days. Managing the partners was a really cumbersome process, sometimes they even did it internally and brought in help. I was like, "This makes no sense. At Amazon we have an API that if I want to send out a million emails I write a Python script and it sends it out. You guys are Microsoft, how do you guys not have a tool that sends out direct mail at scale?" And that was really the light bulb moment. Wait a second, if it doesn't exist maybe we can build it. I remember we were so naïve, we could sell it to Microsoft for $8,000 and then we can start playing video games. That was the goal, it wasn't build a company around it. Let's automate the work that you're doing so that we can play NBA Jam.

I think that's kind of where it got started. When we started looking at the market and we were like, "Hey, if Microsoft has this problem, I wonder if everybody else has this problem." As soon as we started realizing everyone had this problem, and specifically enterprise customers. We applied to Y Combinator, got into Y Combinator in the summer of 2013 and then basically have been sprinting ever since.

Patrick: [00:06:13] Before we get into specifically what Lob does, its various products, I want to dig a bit deeper on this idea of creating and selling superpowers to other people. Can you expand on what you've learned about that as a value proposition? It's such an interesting idea.

Leore: [00:06:27] I really love sales and I love marketing, and I think when you hone on on what your product does, at least what an API does, I always say it does two things. So for a developer an API can help them solve business problems faster. So when they solve a business problem faster, it allows them to one, accelerate in their career, so that was one really big value prop that I always pitch. Then the other one was just time savings. For me, time savings meant hey, you can go and solve this business problem faster so you can go and spend more time with your friends and family, and that really appealed to me back when I was 24. I was like, "I want to go spend more time with my friends." So I can go and automate my job and then I can go and spend time playing NBA Jam. So that value prop, saving time, is the superpower.

So for a developer an API can help them solve business problems faster. So when they solve a business problem faster, it allows them to one, accelerate in their career. Then the other one was just time savings.

I always thought that now the developers have kind of this tool set. I would just always imagine this Home Depot example. Literally developers have literally this belt and they're pulling out all these different APIs as they go and do construction on a problem. I just really wanted to be that tool belt. That's kind of what really appealed to me.

Patrick: [00:07:23] Just for the uninitiated, can you just give your version, a high level of what an API means for a developer and why it saves them so much time?

Leore: [00:07:30] Yeah. So basically an API is a workflow process. Instead of doing something manually it allows developers to actually get code, which is basically their skillset, it provides them a tool set to automate the workflow. So an API takes something that was generally manual, so let's just take physical mail, imagine that people are actually taking an envelope, putting in, printing, putting a stamp on, taking it to the USPS. What an API does is it's a programmatic way to do that entire process. So they can send instructions to some sort of service or system, like Lob, and Lob can do it completely for them. So, they can send us the instructions and then they still get the same exact result but they don't actually have to do the entire process themselves.

Patrick: [00:08:13] So sort of like Stripe is hiding all sorts of hard, complex work behind a simple front end of code. You're doing the same but for physical mail.

Leore: [00:08:20] Exactly. I always talk about there is this black box. There is an input and an output. So the input that we take, we take content in the form of HTML and an address. The black box does everything that you need and then the output is that a physical mail piece actually ends up in a mailbox. So, Lob does all that black box stuff, and you don't care. That's the magic of the API. All these companies that magic is what's their secret sauce.

Patrick: [00:08:25] I'm obsessed with company's first big break. What stands out in memory as the first big break at Lob?

Leore: [00:08:25] I'll give you a couple. I remember when we were starting off in the early days and me and Harry really took the notion of fake it till you make it and just hack it together. So we were printing everything out of our apartment. So a API request would come in, I would check the database, I would go and print it. We literally would cut it with cutting tools and we'd go to mail it off. But there was this company in 2013 called Benefitter, I wonder if they're still around, and they were like, okay. They sent in an API request for 30,000. So this was our first big break because it was the first time that we couldn't print as much and get it out within our SLA.

I remember we actually attempted it, which was kind of funny. We went and we printed out 300, we timed ourselves. We were like, "How long is this going to take us? Okay, we can't do it in a week." That was the first time we partnered up with a woman named Paulina at a company called Sir Speedy in the South Bay in California. She printed out everything and that's when we learned about insertion machines and basically we fulfilled that entire order within a weekend.

That was like our first big break. 30,000 mailings was over $30,000. That was a lot of money to us. That was like a big step level. I would say that was one. There was another one that probably happened within six months. But one time a company called Ubiquiti, Ubiquiti Networks, it's a public company, messaged us and said, "Hey, we are planning on launching this really big thing. Can you guys do X, Y, and Z mailings?" And we're like, "Sure." And they're like, "We're in South Bay. Can you come and kind of give us the pitch?" And I feel like back then anytime someone said that we just, because we were working with so many startups, we didn't really give the ... It never hit us in the head that this is a public company. We just thought like we were going off to an office with 15 people. Lo and behold we show up and it's literally a public headquarter like Ubiquiti Networks. So that was our first really big deal. We had worked with a guy named JT back then, and really kind of created our first enterprise offering. Then from then on out, that was kind of like our foray into more enterprise type sales.

Responsible Growth & Lob’s Infrastructure

Patrick: [00:10:44] Can you talk a bit about the early lessons in responsible growth? I love the story of you guys printing stuff out yourselves. Reminds me of the Seinfeld episode where Kramer takes over Moviefone, kind of faking the whole thing. The thing that I've learned building software is you do need to do it at a responsible pace. Growth is painful, stuff breaks. So talk about the lessons that you learned about how to grow the right way and sort of how the infrastructure progressed. I'm especially interested because there's a physical component to this. How did you start to build the infrastructure in the right way in the early days?

Leore: [00:11:14] One of my big things is I optimize for learnings over making perfection. I actually think in the early days you want to maximize learnings, not to maximize being perfect. So actually making mistakes in the early days is a key part of growing, just having that mentality. The reason we did everything ourselves is wanted to understand the intricacies, we wanted to feel the problems. So when we were actually building out the solution we were building it for ourselves.

So growing responsibly in the early days is actually taking ownership of the problems so that you have the customer empathy as you're building out the product and turning it into software. I think a lot of people start over optimizing and immediately building what the scalable state solution is, and not going that organic iterations. For example, at Lob we've had four different business models on pricing. It was important to get that first one out, even if it's not perfect, so that you can start getting that customer feedback loop. So I always preach growing scalably in the early days, to grow scalably you need to get that customer feedback loop going really, really early on, and it's critical because that's how you actually get growth. Growth is actually getting customer feedback, responding to that customer feedback, and getting that loop to go over, and over, and over again.

Patrick: [00:12:18] So, how does it literally work now? So, I can use the API, I'm sending literal, physical direct mail. When I enter an order through your system, the input and the output, what's in the black box? Are you partnering with tons of different printers? What is the physical infrastructure behind this whole thing?

Leore: [00:12:35] I always talk about leveling up. So we've leveled up many times over the last seven years. So we went from okay, home printer, to what we call like a local mom-and-pop printer, to then regional, commercial grade printer, to now public company printers. So now we actually have deep partnerships with commercial print partners all over the world. They are experts in basically the manufacturing of printed mail, and we are the experts at software. So we have built software that actually sits on somebody's HP, Indigo Presses, iGens. In conjunction with these print partners we are basically helping them route the mail.

So one of the things that we created is this print delivery network. So the way it works is an API request comes in, there is software at Lob that takes in that request and there is a lot of different dimensionality when a request comes in. Was it black and white? Where is it going? What kind of content? Is there capacity at which one of our printers? And we basically figure out who gets that letter. So generally we're trying to optimize for speed, so we print it as close as we can to that destination, but this routing engine basically it sits in front of our, we call it like our print delivery network.

Once it gets routed to a printer it's basically a print ready PDF. They're basically doing their own version of control print at a much higher scale. They print it, they insert it, and then they basically hand it off to USPS and then we have a direct partnership with USPS that allows us to extract metadata as that piece of mail goes throughout the system so that we actually have the insight, just like you do with a package from FedEx as mail actually is going out for the world.

One of the cool parts about Lob is that we live in a very data driven world, and direct mail was not data driven in 2013. So we had to build all the infrastructure so that people can actually think about this channel just like they do any digital channel.

Patrick: [00:14:14] What would surprise people about the physical mail world?

Leore: [00:14:18] The scale. I think what's relevant right now, a lot of people are talking about the delays about USPS, and I was actually talking about it with the CEO of Shippo, Laura, who is one of my good friends, and Shippo does all the packages, big market share of actually producing labels, so they track packages. Lob obviously has all the data on the mail pieces and the letters. Everyone is asking us, "Are there actually delays?" And both of us look at the data and we're like, "There are no delays." I think the sheer scale that USPS operates in, no one really understands how much mail they are delivering every single day. It's in way excess of 100 million. When people are talking about the election right now, is the postal service going to be able to deliver all the ballots? They do that every single day. The ballots is less than a percent of the typical volume.

I think the sheer scale that USPS operates in, no one really understands how much mail they are delivering every single day. It's in way excess of 100 million.

Leore’s Pricing Philosophy

Patrick: [00:15:00] You talked about changing the business model and pricing model a few times, and you and I have talked before about what you call SaaS Plus. I'd love to hear how you progressed through pricing models, because pricing in software has always been tricky for me to really get my head around. Sounds like you iterated your way through it. Can you describe that learning process?

Leore: [00:15:17] There's always a dichotomy. My big thing is I like simple pricing and I want to price it in a way that customers really like, and then I also want to price it in a way that's going to create a sustainable business. So in the early days of Lob, when we started, it was one, it's simple pricing and it was all usage based. So in the past people priced out print and postage separately, and there were always these labor charges. So our big thing was going to be all-in-one pricing. So I remember we started off a dollar for just a single page letter, 60 cents for a postcard, or whatever it is. So, that was kind of like the usage based model.

What we learned from that is that everyone always asked us like, "Hey, you guys are charging 60 cents for a postcard, but when I go to USPS directly it's 45 cents. Why are you guys more expensive?" So we always were perceived as the more expensive solution, and that was because we provided all these added services on top of the commodity product that people didn't appreciate or weren't able to connect. So the next variant of our pricing model is we actually separated it out. So what traditionally was all inclusive pricing, we separated out a license for our direct mail pieces, our license for our product, and then the purely commoditized product. Therefore, when they looked at hey, USPS charges 45 cents, they see that we are charging 42 cents, so we're actually cheaper on the commoditized products, and then on the technology side they're like, "Oh, these are the value added services that if you went to a traditional commercial grade printer they wouldn't be able to offer you." And these are the differentiators that we ... That's why you are coming to Lob.

So not only are you getting cheaper print and postage, but you're actually getting these value add services. And then I can have a really productive conversation with the end customer on hey, do you actually find use in our value add services? It's okay if it's not, but now we've separated it and we've quantified it, and we've qualified it. That's been the business model for the second, third, fourth variation. I mean, it's more about how we've actually priced that out. So at the beginning we actually made you commit to everything upfront, so it was just pure SaaS. If you said you were going to do 100,000 mailings, we made you pay for the 100,000 mailings upfront. I would say that optimized really well for Lob. We had SaaS, but what it did do is it created a really negative experience for customers because at the end of the month if they didn't utilize all of their mailings, they felt like we owed them something. It's almost like back in the day about these rollover minutes. I bought too high of a plan and I want my minutes to roll over. So then we started really thinking about okay, if people are going to see it that way, maybe even though it's better for Lob, our North Star is always building what's best for the customer. Let's actually figure out what do we do that's best for the customer.

So we said, "Okay, we're going to keep the license fee paid upfront because we need to make sure that we can invest in the business long-term. And then on the usage side we'll actually charge the customer at the end of the month when they actually have accrued all their usage." It's like pay as you go, which is what they're used to, and it's actually better than commercial printers because commercial printers made them pay the day of. So we actually were able to flow people, and so we've turned this into more of like a software expense as opposed to what people had thought about as something different.

Patrick: [00:18:10] I've heard you say elsewhere that one of your missions is to make the world programmable. I think APIs is an interesting thing, especially as it pertains to direct mail, a physical thing that's being affected by code. Who do you think are the interesting leaders in that kind of world's mission to make the world programmable? You've mentioned some of the well-known companies in the API space, but talk a bit about those that you respect as peers and what they're building.

Leore: [00:18:35] I've always loved Amazon Web Services, I think they're great. Twilio and Jeff Lawson. I always look up to them and the work that they've done. Laura, as I mentioned, my peer at Shippo I think is a really great business. I really love, when I say making the world programmable, I really specifically like the software that actually interacts with the physical world. So I think there's still so much opportunity to honestly make some changes there, or maybe make an investment or opportunities to start new businesses. Those are probably the ones that just come to mind right away.

Patrick: [00:19:07] What about the physical world is the most interesting to you? And I wonder say how and how not Uber is a good example of this because it's a consumer application, so it's not necessarily an API, but it's software that affects the physical world. So I'm curious kind of what aspects of the physical world are most interesting to you still?

Leore: [00:19:24] I like the boring things, the things that no one thinks about that just takes up a lot of time, because those things you shouldn't have any mindshare on, but they should just happen. So those are the things that I think about that are just so tedious, they happen every single day, and when you automate it you'll never really think about it again. So Uber doesn't completely fall into that example. I always think about back office productivity workflows.

I like the boring things, the things that no one thinks about that just takes up a lot of time, because those things you shouldn't have any mindshare on, but they should just happen.

Culture is everything

Patrick: [00:19:45] What would you say is the hardest part about scaling a business like this that has that physical component, the way of thinking about it was like the most stressful period in the growth of Lob for you personally?

Leore: [00:19:57] The physical world part hasn't always been tough. It's more about understanding it. Had no print experience beforehand. You really have to be open-minded to kind of dive into something like manufacturing and understand the intricacies of it. I like that part. So that's a type of challenge that I get really excited about. I love learning new things. What's coming to mind just in scaling the company is really culture. I care a lot about culture, and culture not only is something internally but it's externally. It's the values in which you kind of communicate with your customers. It's the values in which you communicate with your partners, and getting those right definitely was a learning curve.

I think in the beginning a story that comes to mind, we had this woman, Monashika, who came in and we used to call all of our partners vendors. The word vendor was they work for us, it was very transactional, and then when we shifted it to partner it really shifted our entire mindset as a company, as they are equally important to our success. It's not like we can trade them in and out. Creating that ecosystem and really thinking about them as partners was a learning curve and one of those I guess pivotal things both from a culture standpoint and from just a partnership standpoint, that once we realized hey, we're in business together, let's go and change the world together, we were able to move a lot faster.

We used to call all of our partners vendors. The word vendor was they work for us, it was very transactional, and then when we shifted it to partner it really shifted our entire mindset as a company, as they are equally important to our success.

Patrick: [00:21:10] What have you learned on the culture front internally about building a place, like a product, that people that work for you want to come by and stay at Lob, not bounce around and leave after a couple years, but really stick it out? What have you learned there about building a culture that first, attracts great people, but then keeps them?

Leore: [00:21:27] When I came in I was looking at what everyone else did in the Bay Area, and I was like, "Okay, everyone is keeping people for 1.X years. You got to do something different." So most of the things that I brought into the culture have kind of stemmed from personal experience. So I think one is impact. I remember when I got to Wall Street and one of my first jobs, I was a trader, they got me this stool and they said, "Just sit behind me." And I just remember thinking I was super capable. Let me make some impact. Then I remember one day one of the traders, Max Yager, was like, "Okay, I'm going to actually let you help me out." And I think that empowerment I got really excited. So I want every person, no matter how tenured they are, to always have that feeling of impact. You always want to make sure that people can connect to the mission and really understand, and I talk about this linear story, what they are doing is going to help us accomplish our mission. So that's one.

I think the second part is being your authentic self. When you come in to work you don't want to put on a facade. You just want to be yourself, you want everyone to appreciate who you are, and you don't want that mental overload of trying to be somebody that you're not. I feel like when you're just who you are and people appreciate you for that, you can do your best work.

Then I think the third one, and this is more nuanced, is I think the modern employee is looking for something very different than maybe five, 10 years ago. I think 10 years ago it was a very transactional process. You came in to work at the company, you did good work, you got paid. That was kind of the trade that everyone was doing. I think these days the modern employee is coming with professional goals but also personal goals, and it's the company's job to actually make sure that they excel at both of them. A company who can invest in an employee, help them build a career but also help them kind of grow their skillset or help them define what happiness means outside of work is ultimately going to allow people to keep employees much longer, because you're just more fulfilled in general.

I think 10 years ago it was a very transactional process. You came in to work at the company, you did good work, you got paid. That was kind of the trade that everyone was doing. I think these days the modern employee is coming with professional goals but also personal goals, and it's the company's job to actually make sure that they excel at both of them

The Art of Negotiation

Patrick: [00:23:13] You mentioned external partnerships earlier, which makes me think about a topic I know you love, which is negotiation. I think this is something that many investors don't fully appreciate because they're not doing a ton of it, especially in public markets are often doing none of it. It's a really important part of building any business is structuring good relationships with external partners and that involves negotiation. Talk to me a bit about why you like this topic so much and some of the things that you've learned.

Leore: [00:23:38] So one of the things I do every single day is I buy and sell stuff on eBay. I call these the at bats. I probably have the most at bats than most people, but you learn how to negotiate, you see the different types of people out there and you learn the different negotiating styles and how to respond to them. I would say those reps have basically translated to real business.

I remember early on, I'll use Comcast as an example unfortunately, people always assume that okay, at the end of the month you have to call Comcast because they overcharged you and you have to negotiate, and you have to yell and scream otherwise you're not going to get your way. I remember seeing people do that, and I learned really early on from all these at bats that yelling and screaming does not yield the best outcome. Actually being a really kind person in the negotiation can actually yield higher outcomes. Again, you only learn this by doing a lot of reps and recording what the negotiations were. Again, the tactics on negotiating, there is this stigma that you have to be like a hard negotiator, uncomfortable and almost stubbornness, and I think that's actually not true. I think that's a myth. I find that when you approach it from kindness in both sides, there is a way to negotiate where it's win-win for both sides.

Being a really kind person in the negotiation can actually yield higher outcomes. Again, you only learn this by doing a lot of reps and recording what the negotiations were. Again, the tactics on negotiating, there is this stigma that you have to be like a hard negotiator, uncomfortable and almost stubbornness, and I think that's actually not true. I think that's a myth.

I find that when there are negotiators where the other side needs to win, they need to know that you're going to win, it generally does not lead to the best outcome because people don't want to do business with you. So maybe it optimizes one win, but you got to think about negotiation as the long term. So you may have gotten one short-term win, but you lost out on everything else because your reputation for negotiating makes it so that no deals come your way. You have to look at it less about a single negotiation, one data point, and more of the holistic nature of all your negotiations and what is the reputation and how do you want to think about that.

You have to look at it less about a single negotiation, one data point, and more of the holistic nature of all your negotiations.

Patrick: [00:25:20] I'm really interested in how scarcity, like time and leverage play into negotiation, and I'm curious if any of those three strike you as especially important.

Leore: [00:25:31] I think what you're saying what time is like if you need to do something within a short timeframe, I think that just generally translates to leverage. Let's just talk about leverage and scarcity. If you have leverage you'll always have the upper hand because your best alternative to negotiating antics is always going to be stronger, because you can just walk away or you might have like a second option. So it just gives you more optionality. So obviously optionality is going to help you in the negotiation side. Scarcity as well. On some things I think scarcity works. In collectibles scarcity is a really strong leverage because if there's only one thing, and I've noticed this with a lot of cards that I've purchased, maybe I'm negotiating with this person for, and we're off by like $2,000, on this rare sports card which there's one of in the world, and then I lose out. That next person is not going to sell it to me until it's like 2X. All of a sudden, given the scarcity, everyone wants their return. If there's only one thing in the world, if you miss out, you're going to start paying for it massively later on. So I think scarcity even trumps leverage to be quite honest.

Collectibles and the origins of Alt

Patrick: [00:26:35] You've given me the absolute perfect bridge into the part of the conversation which is actually how you and I originally connected, which is another company that you're building, which I'm totally fascinated by. I'd love you to tell the origin story for what happened to make you interested in the world of collectibles and then talk in some detail about Alt and what you're going to be building there.

Leore: [00:26:54] Yeah. So starting I think when I was like six, seven, or eight I was really fascinated with sports. I really loved cards, I loved the stats, I loved the art, again, the trading or the negotiation with my friends around cards. Fast-forward to 2016 I got really nostalgic and I was like, "Okay, I can finally afford buying some of the packs or cards that I wasn't able to afford when I was a kid and I had to save up all my allowance." I started buying cards. Part of it was just kind of the nostalgia factor, but two, I started seeing a lot of different arbitrages, and I always talk about arbitrages in the wild. There's just so many arbitrages all over the world, and I started seeing a lot of arbitrage plays in sports cards. So 2016 I just started buying them and I would say early 2017 I became very, very serious about it. Over the last five years I've amassed a really large sports card collection. One of the things that I am known for is that when someone says something is impossible or when it's a headache for somebody, I'm going to do that.

Over the last three years I've run into a lot of problems and headaches that people experience outside of just sports cards, but I would say anyone in the collectibles space. Kind of seeing that headache I was like, "Okay, I need to solve it for myself because now I've amassed a pretty large collection of sports cards and it's a big part of my net worth. I need to do it, so why not solve it for more people?" Similar to Lob, one of my big things is why just solve the headache for yourself, why not solve it for everybody so that no one has this headache ever again? Alt is solving three core pain points. One is that everyone keeps track of all their collectibles in Excel. There is just no easy way to basically have like a brokerage type account for cards. The second part is insurance. Given that these are physical goods, insuring them is a really hard and cumbersome process because there's no one in the market that is deemed expert in appraising, and without an appraising you are the one who has to define the market value. Given that the market value is changing every single day, you're communicating with the insurance company every single day in order to make sure that you're fully insured to the market value.

One of my big things is why just solve the headache for yourself, why not solve it for everybody so that no one has this headache ever again?

So you come into a rhythm of every single morning or evening basically talking to an insurance company. Then the last part is a lot of people have made a lot of money in whether it's art, or let's call it shoes or wine, and when it's time that you actually want some liquidity, people want to get liquidity but they don't want to give up possession. Figuring out a solution for that was something that I got really excited about, because I don't want to ever sell my basketball cards, but I would really like to get some liquidity so that I can go and do other things, especially with some of my cards that have appreciated over 1,000 X over the last five years. Is there a mechanism, is there a financial mechanism in which that can happen?

So basically I kind of dove into my old days of trading derivatives and leverage securities, and I'm like, "Okay, I'm going to start thinking about collectibles as this new age financial asset." There's been a couple of times in history where something has turned into a financial asset. There has been the stock market in the '70s and '80s, there was FX, and then there was cryptocurrency. I really believe that this collectibles industry is going to start turning into a financial asset.

I really believe that this collectibles industry is going to start turning into a financial asset.

So Alt is basically a gateway of people actually thinking about this financial asset and managing their entire collection, or kind of the new verbiage that I'm using is managing your new portfolio, your alternative portfolio, hence the word Alt. Alternative assets have generally had this very defined meaning in the finance world. I am kind of changing that. I am saying alternative assets in my world are these sports cards or any type of trading cards, shoes, watches, art, domain names, all these things that are just kind of haven't had this central repository and so I want to be able to create kind of the centralized place.

Patrick: [00:30:27] Can you step back a little bit and describe the size of I'll call it the alternative market to use your term? How big is the asset value of kind of all those categories that you just listed off when you pulled them all together? How big are we talking?

Leore: [00:30:41] If we just talk about the five that I just mentioned it's $160 billion plus, and some of these markets are doubling year over year right now, and that's not going into antique cars or antique furniture or anything like that.

Patrick: [00:30:54] What do you think is the most interesting part of the card market and why you're focusing ... I know obviously you're personally interested in that and have amassed a collection there. Is there anything other than your own interest that makes cards a special place to start?

Leore: [00:31:07] Yeah, I think a couple of things. One is I think as our society gets more comfortable with gambling on sports, this is an indirect way of actually gambling on players. So imagine that you've been watching Luka Dončić play in Europe and you're like, "Man, this guy is going to be really great." How can you capitalize on that bet? And anything every financial security is you're taking a bet. You cannot do that these days. The sports card is the most direct way of actually investing on the upside of a specific player. As gambling becomes more commercialized and legalized, I think this is another alternative way in which people can get exposure to players.

The sports card is the most direct way of actually investing on the upside of a specific player. As gambling becomes more commercialized and legalized, I think this is another alternative way in which people can get exposure to players.

The second part is our culture. Every generation has this set of assets that is a representation of culture and people collect them. That is why collecting exists, and I do think that these cards or these collectables are the next generation's culture. So everyone wants a piece of their culture, so this is a very standardized way to get a piece of something that people grew up in, and now everyone is trying to get that disposable income, so this is where they actually want to pour some money in. The fact that it is also an appreciating asset makes it even that more I guess lucrative to go into.

Patrick: [00:32:17] Can you talk us through a little bit the dynamics in the sports card industry? So who are the major players here? Who are the ones that when they print a rookie Dončić card it matters and people care? Talk a bit about the grading companies. What does the industry look like for those that don't know anything about it, myself included?

Leore: [00:32:35] It started with true hobbyists, just like any industry does. So you're talking to people who collected when they were kids, kept doing it over the last 20 something years and maybe entered the market because of the nostalgia factor in the sports card world. They just have a genuine interest in the players, the artistic value of the card, the collection. So they're literally trying to put together a collection. That what I would say is the epicenter of the industry. Over time you're starting to get these hybrid people in who are thinking about it both from like a hobby perspective and for making money. That drives in a lot of institutional money. So we have a lot of institutions coming in. You have people who are raising these funds. Alt has a fund in which we buy cards because you start seeing it as hey, this is actually an investment at the exact same time.

Patrick: [00:33:19] I'd love to map it back now to what you're going to be building in a company in Alt. Maybe starting with valuation, I'll stick with your theme of making the world programmable. When you think about maintaining a function that helps people value their assets, how do you do that? What's behind the metaphorical API in this case?

Leore: [00:33:37] Just like Lob has a very succinct vision of making the world programmable, Alt has a very succinct vision of increasing the transparency and liquidity of these alternative assets. So when you think about liquidity and transparency, the first step is transparency around prices. There's a lot of noise in what something is worth. There's a lot of manipulation in this industry. If you go look at eBay sold items, you're going to find a lot of things that either were bought and then canceled because people were trying to bid up one another to just inflate the price. There's also just some false positive. Someone actually bought something at a discount but then eBay just reports it incorrectly. What is the true price of a card is something that we want to clean up. We've been basically going around partnering with different we call them exchanges and are verifying transactions. So now that we have a set, the world's largest database of verified transactions, we can apply a lot of modern principles on valuation.

Alt has a very succinct vision of increasing the transparency and liquidity of these alternative assets. So when you think about liquidity and transparency, the first step is transparency around prices.

We have a lot of clients from Wall Street and people who have been pricing homes at a company called Opendoor, and basically we can look at those historical transactions, we can look at how the market, we can create our own version of the S&P 500 for sports cards, and we can actually triangulate what the price based on the dataset is of that card. So we basically have a mechanism to go and you can choose any type of card there is and way to go and price that out by breaking it down into its components. The card doesn't necessarily have to have a data point for us to be able to go and price it.

Patrick: [00:34:58] Do you envision that this company will have a consumer facing component or are you really just powering other companies that need these functions, valuation, insurance, commingling of funds, vaulting, all the services that you'll provide? Do you envision both a B2B and a B2C aspect of what Alt does?

Leore: [00:35:16] Absolutely. I call this this new fluid business segments. So even Lob, you can be a developer and send one API request, or you can be a company like Capital One who is the biggest mail sender in the world and you can utilize Lob, similar for Alt. We want to power the ecosystems, we want to provide the infrastructure. So on the partnership side of things we're doing a lot of enterprise type deals and transactions, but also this is a place where I'm trying to change the nomenclature. Everybody in a fund manager who is basically collecting cards, so I want you to be able to go and run your fund on top of Alt. So whether you have five cards or you have 1,000 cards, you should be going to Alt because that is your brokerage account these days.

So whether you have five cards or you have 1,000 cards, you should be going to Alt because that is your brokerage account these days

Patrick: [00:35:51] Say a bit about other companies in the space. Rally Rd. comes to mind. They started with cars. I think the direction that they've gone is to be more of an exchange. They're a broker dealer, they're IPLing cars. I don't think that's where they're going to make money long-term. They want to stand up a secondary exchange. How do you think about other players entering the ecosystem and who do you think about most?

Leore: [00:36:10] There's a lot of players coming into the ecosystem. I'm really excited to partner with all of them. Alt our goal is to not be an exchange. We want to be an open platform, so we're providing the infrastructure that allows all these other companies to succeed. I love that Rally Rd. is securitizing assets. That's a great way to provide liquidity. Hopefully you can take your Rally Rd. shares and put them into Alt and easily we can have a nice integration with a company like Rally. There's companies like Masterworks who do something very similar for art.

I think over the next six months, probably right now, a lot of companies are fundraising to build ideas in this space. I think if people need to find their niche, otherwise they're going to be competing in a space that basically is going to drive transaction prices down, and we want that. So right now, for example, if you buy things on eBay, it's 10%. That is the cost that you have to pay to transact on eBay. I will put a prediction that in a year from now it will be less than 2% if not zero. So that is good. That's liquidity. Basically a transaction cost is the bid-ask spread. The bid-ask spread right now is 10%, we're going to see that go very, very low over the next year.

If you buy things on eBay, it's 10%. That is the cost that you have to pay to transact on eBay. I will put a prediction that in a year from now it will be less than 2% if not zero. So that is good. That's liquidity. Basically a transaction cost is the bid-ask spread

Patrick: [00:37:19] Can you talk about the experience buying the LeBron James card? If you Google your name, you're a pretty quiet guy on the internet, but the LeBron thing does come up, and I'd love to hear the story there, it's a marquee purchase.

Leore: [00:37:29] Yeah, that was a really exciting day for Alt. One of the key things that we are trying to change in the industry is we want to be known as a trustworthy company. We take possession of your cards if you're sending it to our vault. So I wanted to make sure that people knew that hey, it's not just that we're taking all your assets but we have no skin in the game. We went out and bought the most expensive card in basketball history, and we put it into our vault and we said, "Hey, your cards are right next to our LeBron James card in our vault." That's the goal of that card, is for people to have the sense of security and safety and that this company has skin in the game. Besides that, I actually love the card. I think for me, and I'm very bullish on the industry, you're talking about buying the card in the industry, so it's basically buying the Apple if you're thinking you want to have market exposure to tech. There was an investment thesis around it, and hey, we want to be a trustworthy company. This is how we think we can provide trust.

Patrick: [00:38:20] I know you were also launching a fund as part of this, and part of the vision here is that people can have sort of their own fund equivalent of their portfolio that others can participate in. Talk about that process, and I think again, you're trying to be your own first customer, where your fund will be the first one on the platform. Talk through the strategy in the fund itself. What will the investing strategy be?

Leore: [00:38:41] Okay, so there's two parts. There are some things we can't disclose because it's outside of just having direct beta exposure to the market, we actually have a lot of alpha strategies that generate highest returns for us. A lot of people who have heard about my returns, my return over the last five years has been in excess of 150% in IRR over the past five years. That's due to a lot of arbitrage opportunities. So one is now that we have this old value, we can buy cards that basically are substantially undervalued, in our opinion. That's one. Two, we are basically building out diversified market portfolios, so very much taking things that we've done on Wall Street, that have been done on Wall Street. For example, we can't predict who the next hot quarterback is going to be, we don't know who the next Mahomes is going to be, but we have a very diversified portfolio that allows us that whoever is going to win that next MVP or that Super Bowl, we will have outsized returns because we're going to have a diversified portfolio. We're less taking bets on specific players and setting up a portfolio based on a system of bets that we deem is going to have an outsized return based on risk that we are taking.

We're less taking bets on specific players and setting up a portfolio based on a system of bets that we deem is going to have an outsized return based on risk that we are taking.

Patrick: [00:39:46] Do you think of Alt as a technology company, and what does that word mean to you these days?

Leore: [00:39:51] Yeah, I mean, technology is just how you build out your product. So technology companies solve problems with software first. A non technology company solves it generally with people. I think that's the most binary way to think about a technology company. Every time we have a problem, we are solving it with software first. So we are a technology company. If we were saying, "Hey, every time we need to go do something let's add more people." Then I would say, "Hey, we're not a technology company." So what you will find is that the makeup of our company will generally skew heavy towards product engineering, data science, as opposed to operations and other functions.

So technology companies solve problems with software first. A non-technology company solves it generally with people. I think that's the most binary way to think about a technology company

Patrick: [00:40:23] What do you think are the next most interesting set of collectibles beyond sports cards? I know you're specifically a basketball fan, probably first and foremost, but then sports cards. What's beyond that that's really interesting? I've got no interest in trading card games, like Magic: The Gathering and others like that. What do you think about those areas?

Leore: [00:40:40] I think trading cards in general are all going to experience explosive growth. I think video games, again, the nostalgia factor.

Patrick: [00:40:48] Literal video games, like the cartridges and disks?

Leore: [00:40:51] Exactly. For something to be collectible there has to be this standardization of what that collectible is, because if it's so unique, then it's really hard to put in a collection together, and you need this competitive nature for something to be a true collectible. The video game cartridges is a really good example, someone else can build a set. So you can try to go and get the equivalent of a investment grade set. I think vintage books is going to be something that people are going to be going into, collectable wines.

Art has a very unique thing because it's just always evolving in our culture. So I think art is going to consistently be there as well. I think shoes is going to be a really big one in our culture.

Patrick: [00:41:30] I'm curious how you would define a good investor. So you've got nice experience now where you've raised money for Lob, and I'm assuming you're doing the same for Alt, working with the investing community to build these large businesses. What in your mind makes for just a fantastic investor that you want to work with?

Leore: [00:41:48] Ooh, okay. So there's a difference from who I want to work with versus what's a good investor.

Patrick: [00:41:53] Let's do both.

Leore: [00:41:53] I actually have a very specific thing, and I can tell a story around it too. One of the things that I realize and I try to help people understand is to understand the concept of returns versus risk. A lot of people quote I made 40% this year, and 40% on the market beats 7%. But was that fund manager better than the S&P 500? You don't know yet because you're missing out some other information. The Sharpe ratio, which is a financial measurement that a lot of people utilize, but what it really does is it tells you the amount of return you did for a unit of risk. If a fund manager took the same amount of risk that the S&P 500 did and outperformed it, that is a good investor, because for the same unit of risk they got a higher return on an objective manner. I always want to look at how much return for the unit of risk that they took. That is my single metric that I ask people that helps me evaluate if someone actually did better, because theoretically if someone just takes a ton of risk they should be outperforming the market, but that doesn't mean that they did better.

I think a good investor, qualities of a specific person, I think it requires a ton of discipline. That's probably the number one kind of key quality. You have to remove your emotion. So when you're buying you have to be very disciplined about your end report and when you're losing you have to know when to exit. I find that really good investors are really comfortable exiting a position, even if they're losing money. I know that a lot of early investors or kind of young investors, they're going to hold on to something until it's either break even or make money because there's the internal feeling that they can't lose on something. Good investors lose a lot, they just know how to exit the position when their thesis is disproven.

So I'm reading this book right now, Thinking in Bets. It's less about the end result, it's about the decision making. So if you have very disciplined decision making in the long term you're going to have better results, but you can't always wait for the result to happen.

Patrick: [00:43:42] What about on the investing side, working with you specifically I'm guessing that someone's past Sharpe ratio is less important than some other attributes of someone that you want to be a board member or take money from to fund one of your business. So what do you optimize for there?

Leore: [00:43:55] Yeah, that is very different. I look for complementary skillsets because at the end of the day I believe that investors want to be able to help, so you have to give them room to help. So I'm working with one investor right now, my weakness is marketing. So I'm looking to learn from somebody else on marketing, so that makes it a really great partnership. I care a lot about kindness, because at the end of the day you're going to be in business for a really long time, you want somebody that you're going to enjoy working with for a really long time. Some of these relationships are longer than the average marriage.

At the end of the day you're going to be in business for a really long time, you want somebody that you're going to enjoy working with for a really long time. Some of these relationships are longer than the average marriage.

Patrick: [00:44:23] Why do you think your weakness is marketing and what has this investor, whoever it is, taught you?

Leore: [00:44:28] Well, it's in the early days still. I'm always trying to sharpen skills. I have my skills as a CEO and as an investor. I think marketing is something that I just haven't had time to dive in, and it could be from hey, I've had a lot of really great people around me who have led marketing, but I just over the seven years at Lob I have ran almost every function, except marketing. I find it super interesting, and I think it's one of those things that people don't give enough credit for. Right now I'm really trying to understand modern social media. I love product marketing, how language and literally articulating something can change the dynamic of a product.

Patrick: [00:45:02] If you squint a little bit and look out five years, let's say, thinking specifically here about Alt, what do you think that looks like in terms of how what does the average collectable portfolio look like, how many different providers are they working with, how are they buying and selling, how big has that universe gotten. I'm just curious, as someone that's intimately close to that, how you see that unfolding over the next five or seven years?

Leore: [00:45:23] I think people are going to start thinking about it as real estate, a pure asset class. So when you're going into your 401[k] you have your equity investments, you have your bond investments, you have your real estate investment, and then you're going to have these precious metals and physical goods now that are going to be collectables. So I think it's going to be a staple. Everyone is going to want to have exposure in some way or another to this asset class.

Patrick: [00:45:42] Why is that? I've always been fascinated by gold, because while gold does have some utility, for the most part it's owned for its own sake. So its return is sort of dependent on what everyone else will think about it in the future versus cashflow yield or something you might get from real estate. What about collectibles makes you think that it will become such a key staple and continue to grow so significantly?

Leore: [00:46:05] So I think one is that someone will crack the code, and I think I have cracked the code on there is an intrinsic value to collectibles. So once there is an intrinsic value, then basically you can do a DCF and you can price out an asset, so it literally should yield some passive income.

Patrick: [00:46:19] Can you say more about that? I don't know that I follow that. I don't know if it's something you can't talk in detail about because there's a code to be cracked.

Leore: [00:46:24] I'll give you a glimpse of it. Let's just take art. What is the intrinsic value of art? Here's a very specific example. The Louvre houses the Mona Lisa. If you remove the Mona Lisa from the Louvre, how much would admissions go down? Again, I'm not saying that they're going to do that, but the intrinsic value of the Mona Lisa is it's basically let's call it like its admission value or its appeal. So if someone were to loan it out, the amount that they would charge for the loan should be in the long run equivalent to the profits that they would generate from sharing admissions to it. Technically, every product, and again, you'll have to derive them. There has to be a function to be able to go and do that. Everything has an appeal and the appeal can literally be correlated directly to a value. So I believe that that process that I just articulated is going to be a lot more fluid and transparent in the future. Every product will have a transparent value and people will be loaning them one to another.

Patrick: [00:47:19] It's kind of the financialization or securitization of culture in an interesting way.

Leore: [00:47:24] That's exactly it. That's exactly it, and the reason it appeals to people is because it's part of their culture, so people want exposure to that. It has to do with storytelling, which is part of our civilization. People want to tell the story of something, and so we are basically a value of stories. I know, it's like a really weird thing to think about, but I do think that's very impactful in our culture.

Patrick: [00:47:44] If you had to own in your portfolio just for fun, not necessarily for return, a video game cartridge or asset, what would it be? You mentioned video games earlier.

Leore: [00:47:52] I think the original Mario on Super Nintendo. Actually, the Game Boy. I remember getting that Game Boy back in the day. I mean, having like an unopened one. Imagine someone gave a kid this cartridge and this kid did not use it for 20 years, the discipline that that kid had to go through, or whatever the story is of how this cartridge became to not be opened is really interesting to think about.

Patrick: [00:48:18] I love that. You kind of cracked something open in my mind with the Mona Lisa example. That is a keystone description that unlocks a lot of the sense making in this space and answers the question. No one is showing up to see a gold bar. There is something fundamentally different about a culture asset than pure precious metal or something like that.

Leore: [00:48:35] Yeah, and a precious metal has its own utility. This just has a utility in a different way. Imagine the things, if there was a popup museum in your neighborhood, what would they have to have for you to go and pay admission to? And I'm sure in your head you could probably come up with a couple of things right now.

If there was a popup museum in your neighborhood, what would they have to have for you to go and pay admission to?

Patrick: [00:48:50] I hope some day I can call you the next Jack Dorsey, because both Lob and Alt, and whatever else you're doing, are huge public companies. But how do you balance everything? I get this question sometimes. I know it's kind of a frustrating question, because obviously you just love all these stuff, but how do you prioritize and balance yourself?

Leore: [00:49:04] I love running businesses. Right now it's a little bit more fluid. I've been doing Lob for so long that it's really my primary focus, and I always want to make sure that I want to take that company public. I want to be able to prove myself that I can do that. Part of starting Alt, I think it's two parts for me. One, I want to prove to myself that Lob wasn't just a one hit wonder, that I actually have the skillset to do it repeatedly. The second part is Lob, it's like a passion project of mine. This is my decompressing from Lob. I plan on doing a lot of A/B testing and even I've actually hired a really strong management team that runs day-to-day. So this is for me I'm just kind of shaping the vision. Sometimes I'm doing some of the IC work just because that's what decompresses me, again, from Lob. It is pretty fluid, but given how large Lob is, it does draw the majority of my attention.

Patrick: [00:49:51] What has you most excited for the next six to 12 months? What problems are on top of mind? Things that you're learning about you don't yet know really well but you're actively changing that. What has you most excited?

Leore: [00:50:02] I love comparing and contrasting right now from Alt to Lob. I talked a lot in the beginning about maximizing learnings. I feel like I'm maximizing learnings but twice as fast right now, kind of operate both businesses. I've learned how to be very disciplined on my time, be really good at delegating and trusting others. By having those in the focal point when I hire somebody I'm really honing in on what does it mean to be the right person. What am I looking for? I'm just excited to see how both companies evolve. I want to get Lob to an IPO state by 2024. So as that gets bigger I'd love being able to buy companies, maybe do some things through M&A, I love financial engineering. Nothing compares to starting a company in the early days. There's a sense of comradery from the team, the relationships that you build early on, you're making lifelong friends. The amount of friends, and I would consider them close family now, that I've made through Lob, wouldn't trade anything in the world for it.

Patrick: [00:50:55] What do you think happens in the world of these developer tools? We opened our conversation with I love the Home Depot reference, like literally the tool belt to make people go faster, build faster, build better, and now there's finally some big companies that offer, you offer I think two principal product through Lob. Do you foresee a world where kind of like Salesforce has built one product but then really built a distribution channel and events, business, and is really just a massive distribution story and they buy up the assets to sell into that distribution. Do you see something similar happening in the world of APIs?

Leore: [00:51:28] 100%. There's going to be consolidation over the next five years as more of these companies go public. Once you have the MSA signed people trust your API documentation, your customer support. They're looking for you to solve more and more of their manual problems internally and automate them. So I always talk about how in the API space you're either going to get consolidated or you can be one of the companies that starts consolidating. Obviously to consolidate you need to have a pretty large balance of cash to be able to go and do that. So again, I think Twilio just went public a couple years ago. You're going to start seeing the next generation, and then there's going to be a lot of movement in this space. I believe the next trillion-dollar company in 10 years will be an API company, will be an infrastructure company.

I believe the next trillion-dollar company in 10 years will be an API company, will be an infrastructure company.

Patrick: [00:52:09] Well, this has been just an awesome wide-ranging, interesting conversation. I think you cracked something in my brain about the collectible space that I couldn't get my head around until this conversation. So, thanks for all the lessons. My closing question that I ask everybody is for the kindest thing that anyone's ever done for you.

Leore: [00:52:24] The thing that's coming to my head is just early on in my life someone telling me that people will appreciate me for both my strengths and weaknesses, and just accepting myself for who I am, and I think that gave me the confidence in my life to just kind of go through it and being my quirky and authentic self and not having to change. I think that just that statement early on just really, really stuck with me.

Patrick: [00:52:50] That's a wonderful answer, a unique answer. Really cool. It hit home, and makes me think a lot of things personally too and it's just so neat. Love it. Leore, thanks so much. I hope we can do this often, keep learning from you. I really appreciate your time today.

Created by @pbrychcy1 and @mehakbatra