00:31:01 · Nikesh Arora
[00:31:01] S1: When I walked in, we had just bought a company called Evident.io. Palo Alto bought it before I got there and then we ended up buying a company called RedLock, which is the same space. The difference was one only worked on Amazon, the other one worked on all three clouds. And I suspect the one that had been bought early was too early, which was bought by my predecessor, but it didn't matter. The company bought it too early. And then we bought the second one, which was in the same space, just further along. So sometimes you could buy stuff too early. It becomes a question of price, stage, and conviction, if you marry the three. Right? Am I convinced this is gonna be a big space in the future? Okay? If I'm convinced a big space in the future, I need to have a footprint in that space. Sometimes I can go spin up my own team, and then go charge it down and go make it work, or I can go out and acquire something. The question is when I go acquire something, and how long have they been around in that space, and how expensive was it gonna get? And I think the current times are most representative of the risk. Today, companies are getting funding and getting funded valuations I don't understand. Now imagine if I wanted to acquire a company today, the same company I'm trying to acquire today would be one third, one fourth the price three years ago in a different funding environment as compared to today. They're probably as early, but three times or four times more expensive today. So what do you do? You buy them if it makes sense on your strategy. Look, M and A is not a strategy. M and A is a mechanism to validate or to ex... Or to amplify your strategy or to execute your strategy. People come and always ask me, what's your M and A strategy? I don't have one. I buy companies when I believe I need to go win in a category and I don't have my team at the place I'd like them to be at this point in time. I got to go look for another team that's got to figure it out and then the right people in place, you go buy it. If something's worth $200,000,000 it's worth $800,000,000 Because my job is to take the 200,000,000 and turn that into a 5,000,000,000 to $10,000,000,000 asset.
00:32:53 · David Senra, Nikesh Arora
[00:32:53] S0: If something's worth 200,000,000 it's worth 800,000,000 What does that mean? [00:32:56] S1: As a $300,000,000 company, I should be buying things which I believe in the next five to ten years will be worth 5 to $10,000,000,000 for us. [00:33:02] S0: So you're not gonna remember the other 500,000,000? This is Egon Durban. So in... There was one of the most memorable parts of our Emanuel's book. They're buying w... No. IMG. Yes. And they... I think they wanted to pay $1.09 or $1.08, and it went to $2.02, something like that. And I think maybe it might have been, like, R. E. Team that was kinda, like, fucking up the deal. And Egon comes in, who has way more experience than this. He goes, you're never gonna remember the 400,000,000. Yeah. He's like, this is an asset we want or not? Like, you're gonna remember fucking up the deal, but you're not gonna remember the 400,000,000. [00:33:34] S1: Yeah. [00:33:34] S0: And, you know, they they obviously closed the deal and it... It's been way more valuable to them.
00:33:34 · David Senra, Nikesh Arora
[00:33:34] S0: And, you know, they they obviously closed the deal and it... It's been way more valuable to them. [00:33:38] S1: Egon and I bought a cricket team together in London. I thought you did that with Nikesh. No. No. Egon and I, the equal owners, he and I came up with us together and he called me. I was about to go play golf at the AT and T and he called me and says, how's the auction going? It's like 06:00 in the morning because it's in London. I said, the last auction went for two rounds. We're at round number 24. He's like, I know. You're gonna want it cheap because you like value. It's in upbringing. This is sport. Welcome to sport. Don't stop bidding. I will stay on the phone with you to give you moral courage. [00:34:12] S0: Wait, how many more rounds? You were at 24, how many did you shift the wheel? [00:34:15] S1: We got up at 29 rounds. [00:34:16] S0: Once he said that, you're like, fuck it, we're getting this. [00:34:18] S1: He was like, yeah, what's the worst? We're bringing half of it doesn't matter because this thing is going to be a huge success or it's going to [00:34:23] S0: be a failure. He did it to you too. [00:34:25] S1: I did the same thing, but I was trying to be cute on the other one. And he just reminded me that, say that in your professional life, think about in your personal life too. So that's what we did. I saw him at the range at 07:00 and they said, do we own the team like, yeah, we own the team now. It happened. So yeah, he's consistent in his point of view.
00:34:25 · Nikesh Arora, David Senra
[00:34:25] S1: I did the same thing, but I was trying to be cute on the other one. And he just reminded me that, say that in your professional life, think about in your personal life too. So that's what we did. I saw him at the range at 07:00 and they said, do we own the team like, yeah, we own the team now. It happened. So yeah, he's consistent in his point of view. [00:34:44] S0: I've heard this phrase differently before. I'm curious if you agree with
00:34:48 · Nikesh Arora
[00:34:48] S1: this characterization. You're not buying companies, you're buying founders. You're buying teams. You're buying teams, you're buying their point of view, you're buying their strategy, you're buying their execution. A company is just a construct that is around the team that allows us to be held in some legal entity, protect IP, and eventually turn that into sort of a go to market capability. But effectively, what is a company? When you come up with an idea, your first instinct is not that I wanna start a company. Your first instinct is I'm gonna go build something amazing. When you go build, call us a builder, you go find like minded people who have shared the vision and then you're the most charismatic person in the room because you're trying to convince people to get on the bandwagon for your story because you had the idea and it's typically one or two or three people. So you're doing everything. You're a you're building, you're validating your strategy every time you hire the next person, you're looking in the eye and telling them, this is what we're gonna build. The person gets excited. If you're hiring smart people, they also have to buy into it. So you're basically building a team. You're building a team of like minded people. You're bashing out the edges. You're aligning the strategy and getting to a point and say, okay, now we all agree we're gonna build this. Now let's go to warp speed and build the shit because you're gonna beat everybody else to the punch. That's what you're doing. The company is just tough to legal entities. Think about most of these guys, they probably have one administrative person who does HR, finance, facilities, and brings coffee. The company is a construct in which you organize, but you're actually buying a well functioning cohesive team. That's what you test for. Can this team execute better than other teams out there? And when you think about it like that and say, I'm gonna compete with that team that's spent an year and a half getting together and training together and they're on the field every day. They live in the same house. They work eighty hours a week and say, I'm gonna beat them by hiring a bunch of corporate people by going through my HR team, going through four interviews, and going through internal processes. I was like, holy shit. You're never gonna beat them. They're far ahead.
00:36:36 · David Senra, Nikesh Arora
[00:36:36] S0: There's a couple of things that are popping in my mind while while I'm listening [00:36:39] S1: to you. Have you ever heard this [00:36:40] S0: guy named Henry Singleton? No. Okay. Henry Singleton, essentially like the proto Buffett. He ran this very successful conglomerate called Teledyne in, like, the 1960s. I found him because I read... When I when I'm interested in somebody, I read every single thing they've ever, written about them or written by them, and they will all tell you the people they studied. And so Buffett and Munger kept talking about this guy named Henry Singleton. Munger said that Henry Singleton was the single smartest person I ever met. Buffett said it was a crime that American business school students didn't study him. His returns were utterly ridiculous. And a lot of the ideas that I thought that Buffett used for Berkshire were actually, he learned from Singleton for Teledyne. But he grew by acquisition just like you did. And at one point, he, I think he does like, I should know this, I just did another episode on him, let's say 135 acquisitions. I think at one point he owned 130 companies, 129 of them were profitable. So he bought really well. But then he changed his strategy and he stopped acquiring. And then from there, he never acquired another company for like another fifteen years. I'm thinking about him while you're talking. Is there a chance where Palo Alto Networks stops acquiring?