On a recent episode of Recode Media with Peter Kafka, serial entrepreneur and investor Gary Vaynerchuk predicted that a startup armageddon is on the way.
You can read some of the highlights from his interview with Peter at that link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of their conversation.
Transcript by Maya Goldberg-Safir.
Peter Kafka: Gary Vaynerchuk, professional sales person, we have a limited time — tell people who you are.
Gary Vaynerchuk: I'm an entrepreneur, grew up in the wine retail business, took it online in 1996, very early e-commerce site, did really well in that world, did it by marketing differently. Email marketing — believe it or not, guys — was a new thing in 1997, ‘98 when I had 90 percent open rates, went on to become an early YouTube user. That changed my career, made me excited about becoming an investor which, I came out the gate investing in Twitter, Facebook and Tumblr after watching YouTube sell to Google for almost $2 billion when nobody knew what YouTube was when I started on it. That made me realize that I was ahead of the curve, I built this big wine business, you know, from $3 million to $60 million in business then YouTube and all that and then I started investing, made me realize I had something around consumer behavior and marketing, in my early mid 30s, that made me decide to build one of the agencies that is now dominating in the space, which — I like user the word dominating — VaynerMedia.
Do we say "crushing it" anymore?
I like saying crushing it! I like to use it for a fact, for all the old timers. I did write a book called "Crush It" that put me on the map kind of in a lot of ways, it was a hefty NY Times bestseller. And speaking, books, running a 600-person agency, investing, entrepreneur through and through —
We don't have a lot of time. We could spend 20 minutes on you growing up in Jersey as an immigrant, or about the wine business.
Let's not. They can Google that.
How you got into the wine business — let's not do any of those things.
Yes. State of the Union.
Here's a fundamental Gary Vee question I have: We were talking about this on Facebook a lot, I wanna come back here. It is confusing to me how you could have a day job, which you have running VaynerMedia. You said you charge a $50,000 retainer?
Full time job! Running a company is a full time job!
Five offices, 650 employees.
Jack Dorsey says he can run two publicly traded companies, I'm very skeptical about that. It sounds like one is as difficult, but then your other full-time job, it seems like, is coming and talking to people like me — and we talked onstage in Charleston, you're awesome at it, you're really good at it, you document everything, entire social media following. Seems like you have too many jobs, you should do one. You can’t do both of those things, what am I missing?
Well, I think results. I think one of the great things about VaynerMedia is it’s a private company with zero funding so it actually has to pay for itself. So one cool thing is I'm pulling it off like —
You don’t have a guy who's actually doing all the things for you at VaynerMedia? And your real job is doing stuff like this?
No. And I do believe most people think that. Actually I think I got a lot of credit, I don’t know if you saw this but my brother AJ recently left VaynerMedia, wrote a really kind of touching piece on Medium, he has Crohn's Disease, and he left and a lot of my homies, a lot of the names that go to the Recode Conference that I grew up with in this tech world were like, wait a minute! AJ runs the business, and I was laughing, I was like, "You think AJ runs the business!" And AJ of course was my right hand and the COO and does a lot of things, like any COO does! That everybody's listening to ... Look! I mean, Peter, I'm a workaholic, like I work for — anybody that watches Daily V, my video blog, or follows me on Snapchat knows that it starts at 630 or 7 and that it ends at midnight and that's my real life. My big challenge is work-life balance that everybody struggles with and having two young children, my challenge is not running a business, that then also on its side hustle is me having a persona that is predicated on me being a businessman. It would be one thing if the Gary Vee persona was me being a ballerina or a wine drinker or a Jets fan, all I'm doing is smartly documenting what's actually happening day in and day out. I have an HR meeting and then I may make a piece of content around how to manage people, so all I'm really doing is speaking out loud, I'm whistling while I work.
Just to push back one time on it —
That was cute, I like that.
Yeah it’s good, you should try writing a song about that. You're gonna have to ask the Disney guys. So when you do stuff like this and your audience loves it — again, I've been onstage with you, people love listening to you, that's the reason I had you on here — but those people aren't gonna hire VaynerMedia, right?
No, but I mean, look, branding works funny, right? Look, I don’t do everything, there's a reason I'm on this program. I'm very very confident that the people that are listening to this, whether there's one, and I know there's a lot more than that, or a drillion, are very high quality — like if you're listening to Recode you kind of know what’s going on in 2017 you know what’s going on with bots, you know what’s going on with eCom challenges —
You are an awesome, smart, intelligent listener, good looking —
I think so! So I know the demo, so to me, no, do I think 99.9 percent of the people here are running Fortune 500 companies that are gonna hire VaynerMedia? I do not. Do I think that a lot of people listening here may be the influencer to someone who could hire VaynerMedia, or could be a startup founder that I wanna invest in, or could be a young woman that I wanna do business with, 17 year from today? Yes I do. And so, I do things because I think brand matters. I don’t know why I bought these Nikes, but here's what I can tell you —
Shiny, right? I'll tell you this: I was not cooked on a browser, re targeted to, and then finally gave up and bought them. I bought these Nike's because they beat me, they won the branding game with me, and that's why I buy them, and I think of myself and what I do as smart branding and marketing that leads to business opportunities, whether that is clients for VaynerMedia, or the things I plan on doing for the next 50 years of my life, Peter.
Let's talk about the ad business, and day job — your real hustle. Seems like we're in a weird spot right now, you were just speaking in a derogatory way, which I agree with, about cookies and how inept sort of digital marketing is. Today, it’s mostly you go on a site, you get hassled forever by that site.
Let me say one thing real quick. cause I love the details. I love getting my hands into this, the practitioner part. I don’t think it sucks, I just think it’s very transactional, right!
It does some things well, it does some things better than other things, but it seems like it’s not very evolved. And also you hear a lot of like, we don’t want any banner ads! There's a lot of overall dissatisfaction — not you but generally, people aren't that satisfied with traditional marketing, or traditional digital marketing wasn't spending a lot of time trying to create new ways to sell stuff. Meantime everyone sort of takes for granted the traditional media — TV being the biggest invest is all but dead, a portion of it is going away — doesn't seem like it’s going away anytime soon and it seems like there's a big gap, right, the audience has moved online, the ad dollars have not moved online, the ad dollars that are there online, they don’t seem to be doing what they should be doing. Am I summing that up somewhat adequately?
It scares me how well you have that pegged, in a world where I'm baffled by people not realizing — you just gave a common sense answer. Traditional media is overpriced, because it’s traditionally overpriced. And the eyeballs are shifting. The alternative is most of the stuff that's being bought on digital is programmatic garbage inventory where the creative doesn't even talk to the media buyers and it’s completely discombobulating, and people are justifying things based on CPM costs but not business results — yeah, I mean, listen. I've grown this business in the last five years on the white space that is —
Right, so that gap is an opportunity for you. But what’s the thing that sort of breaks the logjam in general? So it’s good for you, it’s good for you guys, you can play in this space.
Yes. I like — yes. I like it. What fixes it? Pain. People get smarter when stuff is bad.
Been hearing about that for years. But hearing this is the year the TV guys ... it’s supposed to happen this year.
It not even that but no, that world is different. But I'm actually talking digital so people actually, you know, going out of business, startups, because they're just doing squat. CAC — customer acquisition, lifetime value, playing that game. Things that hurt long term, things like LivingSocial and other platforms where they were overinvesting on customer acquisition and they weren't winning the LTV game, because they were transactional and not building brand. Or when Zinga shifted to mobile, they couldn't make that math work. If you're 100 percent reliant on math, you're completely vulnerable. If you're 100 percent reliant on art and brand, you're vulnerable, and it’s always somewhere in between. The year that money shifts is a whole different story. You have enormous amounts of people that are all gonna gather in the South of France next week that have financial vested interest in these moneys not shifting. There's a reason, a couple days ago, that the ANA put out a report of fraud and kickbacks of the media-buying agencies and the platforms and media companies of the world because there are a ton of people that are allocating the money that are not doing it in the best interest of their brands.
So I don’t know when this is gonna come out but what we're referencing is this report —
No, but when this podcast comes out — you can go look it up, you probably know about it already, there's a report that said, hey, there's fraud in the ad industry, people are getting paid to place money, separate from where the client's interests are, right? Essentially, kickbacks.
Yes. That's why it’s happening.
And there's a lot of, "Oh! The gambling, who knew there was gambling in a casino?" Reactions, um, of course we knew this was happening! It’s a part of doing business!
No no no no no —
You think this is significant?
No no. Yes, I think this is the Big Short. Like I think this is the dude with the eye that Christian Beale played, like yeah, we knew it was going on. Take this up a level, yes, people know that there were rebates and deals being done. Let's take that way higher, agencies that are hired by brands are doing things in their best interests, not their clients. That's a breakdown of trust. It’s — you asked the question, it’s why it’s happening. If everybody was incentivized in selling shit, money would be in a very different place. But a lot of people would rather go to the CBS Upfront, see Kanye perform, go to New Zealand to shoot the commercial, get a ticket to the red carpet because the Grammys are on CBS this year. And decide to give CBS $40 million for television commercials for their car brand because Sally or Rick wanted to go to the fucking Grammys!
You don’t think Procter & Gamble, big large sophisticated marketing companies with big marketing budgets, didn’t have an inkling this was going on?
I think they had an inkling! I don’t think they understood the alternatives, and I do actually think they don’t care either. How bout that!
So okay, so no one's actually being harmed. I go to these panels on digital ad fraud, and everyone says yes, we know that this many impressions are fraudulent, this many visits are —
Do you know how stupid that conversation is, by the way? Because people are scoring based on impressions! It’s not even the right proxy!
But the point is, the buyer knows it, the seller knows it, you price it in, you move on.
Peter, this is why I'm gonna make a lot of money!
Because? Spell it out.
Because nobody's incentivised for the actual results, and I'm just gonna truck along and build businesses predicated on the white space of people not actually ... This is why, do you know how many startups are gonna go out of business in the next couple years?! Whatever it is, I dont know if it’s tomorrow or three years from now but I definitely know within a decade, that this is finally gonna get caught up to the fact that everyone's just building arbitrage machines. There's nobody, by the way, there's nobody building a startup business anymore! Everybody's creating a startup financial machine, you don’t have a startup business, my friend, you have a start up financial machine! Because from the day you raise your goddamn seed round — everything and everything you do is predicated on raising your A — you try to figure out what Sand Hill Road fucking cares about to give you an A and then you reverse-engineer those numbers. You're not building a business! You realize that you need 80,000 users and you need this kinda this and you're just building that machine so that you get a series A and I cannot wait for the Armageddon that is gonna put out 97 percent of these fake entrepreneurs. You're not building businesses, my friend. This is the greatest era of fake businesses ever.
I like that before this conversation started you said, I don’t know if I'm gonna get worked up because I usually need an audience [laughing]. There's four people in this room and your veins are popping!
They're popping because I love this space so much — I love it because I love this space so much and it’s changed so much since 2005, 6, 7 and 8 and I'm not the old man walking through the snow. I feel bad! I feel bad for the startup kids that are gonna lose, you know, their relationships and reputation. I feel very bad for the people that look like me; a lot of super angels made money by actually building a business, and then we all felt we were so fucking smart, and we're gonna write 25 and 50 thousand dollar checks. I'm gonna lose so much money, in this last six or seven years, betting on companies that have no chance, because I wasn't able to diagnose early enough that we were creating a culture that every student on earth decided, wait a minute, I'm not gonna get a job coming out of school, I've got an idea!
And you wrote them checks.
I sure did!
You’re happy about the space?
Peter, I think real quick — and this is probably one of my favorite audiences that I've spoken to, just becuase I have enormous amounts of respect to the readers and people that share content on social around this platform — guys, we're living through a very intriguing time. Most of the companies we all look up to and write about and think about and think are doing well, do not make profit. They do not make profit. If there's an economic slowdown — which we saw an indicator of in January and February but the Chinese propped up their economy to not let it all trickle down, you already saw, in January, February and March — if you're an angel investor, all of a sudden it’s not so easy to get a million dollars on your four million dollar idea. There are hundreds of companies right now, trying to raise their series A, at the seed evaluation.
You were investing in 2008, right?
Yes, I was.
When Lehman Brothers [tanked] everyone said, "Oh, this is gonna be nuclear winter, brutal." It seems like everyone cut back by 20 percent, they laid off 20 percent of their workforce, and they kinda kept going!
That was a very different world!
Tumblr's B round was a 14 million dollar evaluation — I invested in Tumblr's B round, at a 14 million dollar ...
That's right. The kid that I'm gonna walk out to right now cause he saw that I came here thru Snapchat is gonna say hey, this booger on my finger, it’s worth 14 million, will you give me money?
Sounds like maybe that booger's overpriced. But that's your point.
My point is that is a whole — are you kidding?! With these inflated evaluations and the money in the bank, these "entrepreneurs," right, have way too much burn. They're fancy! This is way more 1999, 2000, 2001 than 2008. These! You remember Web 2.0, these companies were valued very low! And had significant action — Flickr had real users! Delicious had real users! Right, this was a very very very different time.
In 1999 the scary thing was your mom, my mom, heard we're investing in this stuff.
If you went in a sports bar, CNBC was on a television, it’s really hard to explain this to people.
That's happening in our little subculture.
In our little subculture, there's a conversation —
But this is not — this is not the economy! This is not mainstream, this is in startup world right now.
Startup world is gonna get decimated, the economy will be okay.
No, I think the economy needs to do one little tweak of not being okay that will scare everybody. If the economy tweaks and Facebook goes from being worth x number of hundreds of billions to half of that, it all trickles down!
You mention Facebook, we were all Facebook Live before we started this. I asked you, what’s your favorite social platform assuming you were gonna say Snapchat.
Which I adore!
That's what you said six weeks ago. Did something shift?
Yes! It shifted, which is really fun for me because I"ll change my mind tomorrow, I can give you a different answer. Ironically, it’s funny you said six weeks, I think this is true, I think it has been six weeks since we've been getting rip hot on these. I think literally, no joke, so here's a good number, I could look this up. So six weeks ago I had 550,000 Likes on my Facebook fan page. I have 840k right now, as of this recording. That's insane! I've been really hustling, for five and a half, six years of Facebook pages to get to 550, and I've almost, you know, 50 percent, 60 percent growth in six weeks.
So did you solve a riddle or did Chris Cox turn a dial and something changed?
No, I wish! I wish I had that power of relationship. No, I solved a temporary riddle! In the same way I solved a temporary riddle in Google ad words, when nobody knew what it was and I bought a lot of wine terms and built a huge wine business. I solved a temporary riddle which is I think that my creative team has figured out how to make videos that are more compelling to share and consume with captioning, with the first five seconds, with the copy that I write, with the way we edit, with the time frame — you know ,whether it’s 99 seconds, three minutes, five minutes, not just 15 and 10 and seven. I think you know, I put out good content, I know how to get people interested, I have charisma.
But you were doing it for a year so it’s not something that — what is the thing?
Captioning first five seconds, real real hardcore belief in the copy we're putting out — getting tighter, getting smarter.
So six weeks ago Snapchat was your thing, you love that, everyone loves Snapchat.
I'm obsessed with it. Obsessed!
Everyone's throwing money at Snapchat. We've talked before, seems like Snapchat is the cool club that not everyone can get into. I talked to one of the guys who just put in $1.8 billion and he said, well, the way it’s gonna work, the way I'm gonna get my money back is Snapchat has to grow 3x for that to work. Do you see that happening?
Did he say 3x in users?
The answer's yes.
If Snapchat grows 3x in users, by definition, can’t it not be the cool club, isn't it full of people like me?
Yes, I think cool is the wrong terminology for it.
So how does it grow 3x and not scare off all the people that are using it now, the advertisers, all that?
The same way Facebook did. We just watched this movie — can we produce this well? Can we pick up Peter from seven years ago asking the same exact question about Facebook?
By the way, one of the theories of Snapchat is everyone who's using it are people who used to be on Facebook. They're going there because their parents don’t know they're there.
It wasn't who used to, that's where people say it wrong, it’s the people that could have, that have chosen this instead. Yeah, that's right, that's why Zuck's trying to buy it for three billion, cause that's a vulnerability to Facebook.
Crazy that they turned that money down, right?
It’s what happens sometimes.
Can you imagine getting a $3 billion offer and saying nope!
I can imagine that Evan was very confident, and guess what? It’s become a hell of a story now because he's on his way to possibly pulling of something that a lot of people didn’t think he could.
You are short on time. Let's give our audience a tip from you: What is the thing you're most excited about in the next six months, that you wanna put your money into, you wanna put your ad dollars into?
I'm excited that Snapchat happened. I'm excited that Musical.ly might happen. I'm excited that even though I'm 40, I don’t feel like I'm gonna lose touch with 13 year olds and 70 year olds, as long as there are always gonna be new things that can capture the world's attention and hit scale because the internet is now at scale, I feel like I get to play. So there's nothing specific over the next six months, it was that I needed something to come along post-Facebook and in social media to make me feel like this game would go for a long time, and that was called Instagram and Snapchat, and now there's one that's kind of making some noise called Musical.ly, so I love that this game — I wanna be old and crusty and look like Yoda and be like, I told you! It was gonna be shooga-booga! And so that's my dream, that I get to keep playing this consumer arbitrage of attention: Where does everyone think it is but I actually know it’s over here.
I think you actually have a tip and you don’t wanna share it with my gazillions of listeners.
I don’t have a tip. I think I've been — by the way, this is true, and this is consistent to the way I've rolled for the last eight years, I wish I could say it right now so I could clip it in nine years and be like, I told you!!! There's just, you know, I'm looking at Anchor, I'm looking at After School, Down to Lunch — you watch all these things, there's nothing. You know what’s funny? I don’t predict. I wait till things are at scale, sticky scale! Not one day at the top of the app store, no, nine months!
So it’s more expensive for you as an investor?
100 percent. I'm okay with that, I'm okay with that. As a matter of fact, the fund that I'm working on right now to close is gonna be more later stage, because I've realized I'm better there! Because when I was yelling about Snapchat in 2013, that thing was stuck at number 30 in the app store for a year and then I was looking deeper, I was like, this has not plateaued, this is just beginning. That was just a billion dollar valuation then. I'd be sitting very happy with 20x-ing my money right now, and way more assured that it was gonna win, more so than the hundreds of startups that I invested in for the idea and gut feel for the entrepreneur.
So that’s your new move: Don’t be the very first one in the door. Be the 100th guy in the door.
For now. And then I'll play that win-lose, get bored and then be like, no, no, no! It’s all about the early stuff! Today’s entrepreneur isn't real. You know! The grass is always greener, right? But yes, I feel like this is where I wanna be right now as I continue to learn what my strengths are. I'm proud that the last six or seven years, a lot of people start a lot of companies, right? A lot of people are very rich on paper right now. I have a funny feeling five years from now when it’s all settled a lot of people will not be as rich, and that I built a multi hundred million dollar business during that decade.
I'm gonna get rich, cause I'm gonna invest in the Gary Vee energy drink — I love low-energy Gary Vee — Gary Vee, you're awesome, thanks for coming.
This article originally appeared on Recode.net.