Patrick Pichette on Leadership and Change Management

Pichette, a multimillionaire, said he hardly owns any clothes. Just a few shirts and two fleece Patagonia sweaters. His sparse closet is symbolic, and represents an almost militant commitment to a life of simplicity. "I don’t need more fleeces," he said. "I need more time to go cycling. I need more time to go travel. I need more time to build more things."

Last week some of the team were in Montreal for the first NBF National Conference since 2019. The world has obviously change a lot since then, but it was an excellent opportunity to reconnect, face-to-face, with many of the behind the scenes folks we work alongside. We also heard from a number top notch speakers and the opening presentation by Patrick Pichette was a highlight for everyone on the team.

While his name may not ring any bells, if this was sent to your Gmail or you're reading it on an Android phone, you can thank Patrick.

Born in Montreal, Patrick was the CFO of Google for 7 years and oversaw an immense period of growth for the company. He was a key figure in the restructuring from Google to Alphabet, oversaw the launch of Chrome and played a key role in the acquisition of the Android OS.

More recently, he was the Chair of the Board at Twitter and played a critical role in forcing Elon Musk to follow through on his announced takeover bid for the company. Needless to say, he's been in the boardroom for a lot of important conversations and had some excellent insights to share!

Patrick is now a partner at Inovia, a Canadian VC firm. In his own words, if California with it's 39 million inhabitants can churn out multiple "unicorns" a year, surely some of the 38 million Canadians can do better than creating 1 per decade.

Taking Stock of Technological Progress

Patrick opened the talk by giving us a reminder of just how far technology has come in his lifetime. We've seen the rise of the computer (machines the size of a room), later the personal computer, smartphones, Cloud Computing, Web 3.0, and are now witnessing the rise of real Artificial Intelligence (AI). Each of these has been a tremendous leap forward and AI might prove to be the largest paradigm change yet.

For some context, try and think back to 2005. "We Belong Together" by Mariah Carey and Gwen Stefani's "Hollaback Girl" are playing seemingly non-stop on the radio and if you have a cellphone, it's a flip phone at best (this still predates the rise of BlackBerry). Changing phone manufacturers is a nightmare as each company has their own operating system (OS) you have to learn.

Meanwhile at Google, Patrick was orchestrating the acquisition of Android in what would become a game changing move. Phone manufacturers no longer needed to work on developing their own OS and were able to unleash their brain trust on hardware innovation (some ideas were better than others) while outsourcing the software to Google. It's hard to overstate the importance of this development.

The 3 Drivers of Innovation

When it comes to technological innovation, there are 3 key drivers: Computing Power, Cost of Storage and Cost of Bandwidth.

The progress made in the last 60 years on these is unparalleled to anything in human history. Computers are more powerful than every before thanks to Moore's Law while the cost of storage and bandwidth have become so low, they're effectively free. These forces have led us to a world where AI and other incredibly complex computing processes can be brought into existence.

^{Source: ResearchGate.}

Patrick shared a story about the launch of Gmail and how they initially offered 1GB of storage for free to users. This created an uproar! A full 1GB of storage? For free?? Analysts were convinced and shareholders were terrified this decision would run Google straight out of business. Patrick however was in meetings looking at charts like those above on how the cost of storage was dropping rapidly. Their bet was that by the time Gmail was predicted to get to scale, these costs would be negligible. This was an excellent example of launching a product truly ahead of its time and knowing the world would catch up to it. Much like Gretzky, Patrick and the folks at Google were skating to where the puck was going, knowing that technology would meet them there. Foresight on how trends will play out and reaching for targets that have not yet appeared is critical to massive success.

Key Lessons From Twitter Negotiations

Patrick had some great insight from the high drama of Elon Musk's takeover of Twitter.

The first lessons was that the boring paperwork of how you initially structure your company matters! Twitter is a Delaware C corp. and in this case, Patrick's fiduciary duty was solely to shareholders. This is different in different jurisdictions, but for this case, with Elon knocking at the door, the question he had to answer was "What maximizes shareholder value?" not "What is right for Twitter?".

There is a spectrum of businesses based on their goals and objectives. On the one end, fully altruistic, non-profit, open source structure companies that are a public utility. Think Wikipedia and it's goal to decentralize and democratize knowledge for all of humanity. It's effectively a library on steroids, run by users for the greater public good. Businesses such as this should be structured as B corps or foundations.

On the other end of the spectrum are companies that aren't shy about their desire to solely make as much profit as they can for shareholders. Here there are no higher goals for humanity (and that's okay too). Think Candy Crush or Tinder as great examples that are rightfully structured as C corps.

Twitter is an odd one as it's hard to determine where exactly it falls between these 2 extremes. It's both a utility and a public square. However, by structuring the company as a C corp., Jack Dorsey missed the mark and the seeds of it's demise were sown upon the company's incorporation.

His advice to aspiring entrepreneurs is to think hard (like really hard) about where your company falls on this spectrum. You want to be very confident in your answer when setting up your corporation as you'll have to live with the consequences of this decision.

As for how the negotiation went down, earnings were coming up in 3 days and the deal was very much in flux. Patrick knew the key to success was going to be playing to Elon's ego. "You're so smart. You have a vision. You don't need to do due diligence." was his posturing to Elon alongside indicating that earnings would be strong and therefore drive up the deal price.

His tactics worked. Elon waived his right to due diligence and the deal was done for $44B (or $54.20/share). While he later tried to back out, the lawyers were there to enforce what had been agreed upon.

The lesson here is to know who's on the other side of the table, what their drivers and motivators are, and then play the game to win.

Advice For His Younger Self & Lessons for Multi-Generational Relationships

Patrick shared some advice for his younger self along with how he manages younger generations in the workforce.

His advice to a young Patrick was to recognize earlier that he's a workaholic and to strive for more work-life balance. He views life as having 3 pillars: self, family and community. He was too late to learn this lesson and he deprioritized family and community early in life. He would tell his younger self to always be in the moment with family and community. Too much focus on 1 pillar means you'll go a bit crazy and do some weird stuff. He wished he had a mentor to tell him to focus on balancing all 3 when he was 20 instead of figuring it out when he was 40. (Further Reading: Patrick's retirement letter from 2015 announcing his intention to travel the world with his wife.)

In his current role, Patrick gets to interact with plenty of young founders. His leadership advice for managing multi-generational relationships is to recognize the generation you have at your doorstep and be empathetic to their needs. They have more mental health issues and higher levels of anxiety. While they can be more fragile, the flipside is they are more thoughtful and smarter. He's learned that even language matters and one needs to be thoughtful and inclusive here. Don't be macho and "we know better". Listen to younger folks and find the right answers to problems.

Artificial Intelligence

Patrick had lots to say on the topic of AI. He compared it to nuclear power in that once you figure it out, you can't say it doesn't exist anymore. The challenge is now whether we use it for good or not.

The real problem of humanity is the following: We have Paleolithic emotions, medieval institutions and godlike technology. And it is terrifically dangerous, and it is now approaching a point of crisis overall. - E.O. Wilson

His prediction is that AI will help deal with "sucky stuff" by automating the boring or repetitive work we currently do. He's amazed at how much of our days are still filled with this. Clients and customers want your insights and creative output, not your paperwork expertise.

There are limits to AI though as models don't have empathy. Humans will always have a desire to have interact with other humans. AI has a place but he's convinced it's a tool to get low brain power/low impact work off your desk, not a panacea where we will see everything automated.

People also forget too quickly how capitalism is the process of "creative destruction". It always has and always will destroy certain jobs with new ones arising in their place. Think of the Industrial Revolution or the automobile, terrible for buggy manufacturers but a huge win for society as an entire industry (that is still going strong today) was brought into existence out of thin air.

Implications of Innovation for Financial Markets

You're not alone in feeling that the pace of innovation has only been increasing. Below is a look at how long it's taken certain technologies to reach 100 million users globally. What took the telephone ~75 years, ChatGPT achieved in 2 months.

This rapid adoption as well as the tailwind provided by the 3 drivers of innovation mentioned above are having a dramatic impact on financial markets. Take a look at how tech names are increasingly the largest companies in the world in terms of market capitalization. Due to the cost of launching software or an app to 100 people being similar to launching it to 100 million, margins of these companies are incredibly robust which allows them to generate tremendous amounts of cash which can be reinvested in the business helping it grow rapidly.

^{Source: Pacifica Partners.}

Cryptocurrency

The hype and skepticism on cryptocurrency is effectively a clash of models. It's such a charged topic because it's the Tech model of robust, decentralization vs. finance's occasional blow-up prone, centralization with a lender of last resort (central banks).

Patrick's view is that the economy is far too important to not have lender of last resort. In the first few months of the COVID crisis, if the economy ran on Bitcoin everything would have collapsed.

He also uses the self-proclaimed "Loaf of Bread" test. Tell him when he can buy a loaf of bread at the corner store with it and then he's interested.

Despite all the hype, he continues to believe blockchain technology is the real story. It harnesses the power of decentralization while offering incredible transparency.

Innovation in a Corporate Environment

Large corporations might not be known for large innovation but the key to success at Google was recognizing you need to give people sandboxes to play with new tech in. Encourage them and provide the space to allow them to learn lessons, fail fast and figure things out quickly. Hire smart people and don't tie them down with bureaucracy.

This was the basis of Google's "20% Time". Every organization needs something similar if you want to survive. You need to give employees the license to go and play and try stuff "just because". You won't have all the answers inside the business so they will need to go out to the world to find original solutions.

His thinking is that it's better to find holes or opportunities from within your business rather than having a competitor find them for you.