Tuesday, May 4, 2021

Out of the Crisis #26: Brian Armstrong of Coinbase on cryptocurrency, being mission-oriented, and institution building

A few weeks ago, Coinbase , which facilitates buying, storing and purchasing cryptocurrency and also operates a cryptocurrency exchange, went public. It was one of the year's most successful IPOs so far, and has been heralded as a "landmark moment" for cryptocurrency's entrance into mainstream investing.

Just before the IPO, I had a far-reaching conversation with co-founder and CEO Brian Armstrong as he approached this major milestone for the company he co-founded back in 2012. We talked about a wide variety of topics, including what the decline in public trust of institutions means for companies, how to codify company culture and intentions, remote work, the concept of the ICO--initial coin offering--and his side company, ResearchHub, which he founded to counter his belief that "there's a crisis happening in scientific research, that is just slowing down human progress."

We also talked about why he took a very public stance on the role of corporate leadership in social issues, and how it relates to fulfilling Coinbase's mission. It's a controversial subject, but one that so many companies are coming to terms with right now. Though Armstrong wasn't looking for the attention he got, he says "I wanted to stand up in front of the company and say, 'This is why we're here This is why I started this company. I want us to go solve this really important thing in the world." And I knew that that would upset some people."

 

You can listen to our discussion on Apple, Google, or wherever you like to get podcasts.


 




A full transcript is beneath the show resources below.

 

Highlights from the Show:

What is Coinbase? (:33)
Brian on his personal and professional pandemic experience (2:46)
On deciding to make Coinbase's pandemic planning for employees public (3:20)
On remote work and its future (4:23)
The moment when Brian became aware of crypto and the original Bitcoin whitepaper (7:17)
His thoughts on who Satoshi (the author of the paper) is and why it doesn't matter (13:21)
How Brian got into computers and coding (14:08)
How he got the idea for Coinbase while at Airbnb (17:44)
The company's first minimum viable product (MVP) (21:05)
Finding a co-founder and adding the "killer feature" that created product-market fit (24:42)
On being mission-driven (27:06)
Coinbase's mission: to create an open financial system for the world (29:51)
Institutionalizing intentions (32:21)
The value of marrying skillsets to form a company that's both innovative and compliant (37:20)
Building a company that lasts while also accepting the reality of creative destruction (40:43)
The role of business leaders in the creation of our civic fabric (42:07)
Fear of the new and mitigating risk (45:39)
The political dimensions of working on economic freedom (47:06)
Brian's thoughts on the firestorm he created by separating politics from the company mission and his advice to other CEOs (48:34)
The current lack of trust in institutions (55:28)
Creating the ICO (Initial Coin Offering)  (56:47)
ResearchHub, Brian's company for accelerating scientific research (1:05:32)
Brian's thoughts on the long-term impact of the pandemic and his hopes for the future (1:09:28)

 

Show resources:



Transcript for Out of the Crisis #26: Brian Armstrong 

 

Eric Ries: I'm Eric Ries. This is Out Of the Crisis.

What are institutions for? Can we build better ones? What is the role of public and private organizations in governing our shared civic fabric? These questions have come up again and again, as we've seen this crisis unfold. As you'll hear, BA became an entrepreneur without expecting to have to address such questions, but that's not how it's turned out. Brian is the CEO of Coinbase, a successful tech company, and one of 2021's most successful IPOs. Coinbase was founded in 2012 and operates a cryptocurrency exchange. The company's market cap at the time of their entry into the public markets topped $100 billion dollars. Coinbase's IPO reflects the massive growth in interest and investment in cryptocurrencies, such as Bitcoin and Ethereum around the world. However, cryptocurrencies raise fundamental questions about what the future of our institutions will hold. Can institutions be totally distributed or should they be rooted and loyal to a certain community or geography?

Do we need more regulation in this area or less? With a rise of cryptocurrency and its attendant freedoms be a boost to, or hamper the recovery that is just now underway? But beyond its products, Coinbase is an interesting company in itself. For many of us in Silicon Valley, one of the notable events of the crisis was Brian's public stance about the role of corporate leadership in social issues. Every company I meet these days is grappling with this topic, from ESG to employee activism, to so much more. The pandemic has brought these issues even more to the forefront of public attention. What are the responsibilities of corporations and leaders? In the years to come, are there limits and boundaries to politics or is everything political? Does our civic cohesion require some level of shared common ground? And if so, who gets to decide what that is? I spoke to Brian a few weeks before he took Coinbase public when many of these issues were at the forefront of his mind. Here's my conversation with Brian Armstrong.

Brian Armstrong: My name is Brian Armstrong. I'm the co-founder and CEO of Coinbase. Coinbase is the most popular way people can buy and sell and use cryptocurrency today in the United States and 33 other countries.

ER: Brian, thank you so much for coming on. Before we get into Coinbase and your history first, how are you holding up? We're having this conversation still in the midst of a seemingly never ending pandemic and lockdown. How has it been for you? How has your team been? How's your family? How are you weathering the storm?

BA: Yeah, thanks for asking. Well, I feel like we've been in a very fortunate position in that we've been able to run Coinbase in an entirely remote way. So I've been able to move to another location with my partner and another city, I should say. And just get a little bit more nature, not have as much time commuting and traveling around the world. And in some ways, it's actually been quite nice as an alternative way of working. So I feel very fortunate in that regard.

ER: Talk a little bit about the strain this has been on your team and as kind of the organizational challenge of having to make these shifts so rapidly.

BA: Yeah, well like everybody last year, we saw the pandemic starting to happen and got in a room and tried to think about what we should do. And of course, we started putting together a plan about how we might evacuate or get out of the office for day-to-day work and how we might start to provide services to employees. Our first thought was just, how do we take care of our employees? And we wrote up a plan about how to do that. One of the things I did was actually, I saw this great plan that was being written by the team. And I thought, you know, there's probably thousands of companies trying to figure out how to do this right now. Why don't we just put this plan on the internet? And I actually really liked doing this. It's one of those things that founders can do sometimes where other employees are afraid to do it.

But if I see a really great piece of work product, I generally will just try to, say hey, let's post this on the blog externally.

ER: Oh, if it's worth doing, it's worth blogging about.

BA: Yeah. And so I think we saved... We got so many positive inbounds from that. We got another bunch of other company's opinions saying, "Hey, thanks for posting that. You saved me a bunch of work I was going to have to do this week to try to put together our own plan." So it was good to collaborate a little bit during those times. And then after a few weeks of working remote, one of our employees came up to me and was like, would we ever think about keeping the company remote indefinitely? And my initial reaction was no way, like we would never do that. I don't see any big tech companies that have great cultures that are doing fully remote.

But I couldn't get it out of my head. And for the next couple of weeks, I kept thinking more about it, reading more about it. I got to hear some people speak about it. People like [inaudible 00:04:49] from WordPress who'd had a remote company for a long time. And eventually, I started to think about a few key points. One was, we're always trying to get top talents into Coinbase. And if you look at what percentage of the global population lives within commuting distance of one of our offices, it's a tiny fraction of the world, far less than 1%. And so, it had always been attractive to me. It'd be great if we could somehow hire people all over the world, that would be great. And then, the other thing I always thought about was, well then, are people going to actually be able to be creative, be collaborative? Have those sparks of innovation? Are they going to be able to build real true relationships at work and have friendships and be able to learn from their colleagues, if it's all just video conference?

And so it was a big question, but I eventually decided, you know what, we need to try this, or we're being forced to try it anyway because of COVID. So we might as well make the most of it. And as things started to work, I got more and more convinced that this was actually the future of work, that the benefits outweighed the drawbacks and that we were just going to go forward like that as a company. It was kind of more true to the ethos of crypto as well. And so far it's gone incredibly well. So I don't think we're ever going to go back. In a post COVID world, we're continuing to be a remote first company, which means people can go into an office if they want.

I understand some people have different work situations at home that make that easier and more difficult, but everyone, whether they're in an office or not is going to work as if they're in a remote environment, so that there's no disadvantage to being remote. And the executive team is going to set an example by never coming into one office in one location, because I think that would create a negative incentive for others to follow us there. So yeah, so far it's been great.

ER: That's really great. And I really applaud you for having that first impulse be about taking care of your employees. I mean, I think that's something that really has been a hallmark of the best companies during this time. And you can really tell even as a customer, as an outside vendor, which of the companies whose kind of first reaction was to take care of their key stakeholders and which reaction was kind of to look out for themselves first and people are paying attention in a crisis. They remember what you do.

BA: Absolutely.

ER: So let's go back. I want to talk about how you first got into crypto and how it first came on your radar. I can remember the first time I read the original Bitcoin paper and the kind of light bulb moment of seeing like a genuinely novel solution to a longstanding computer science problem, published anonymously and kind of in this unusual way was like a really dramatic... How did it come on your radar for the first time?

BA: Yeah, well, the first time I saw the Bitcoin white paper, I saw it on Hacker News, which is a website that YCombinator runs. It kind of aggregates technology content, I suppose. And yeah, I was just home for the holidays at my parents' house. I think it was December of 2010, and happened to just be reading that paper on the internet one day and just immediately captivated my attention. So that was my first interaction with it. I'm curious. What was your first reaction when you saw it?

ER: I couldn't believe it. I just thought it was so brilliant. And of course, I wasn't really interested in the finance side of it to me. So like the fact that it could be used... Obviously, the many things that it has subsequently been used for wasn't really foremost in my mind. I just thought it was a really brilliant solution to a problem that I had certainly spent a lot of time thinking about and on the computer science side and just how to do this kind of decentralized coordination. Maybe for those who are not as technical who are listening, maybe you can just give a brief description of what you took away from that paper that first time and what you thought it would be good for?

BA: Yeah. I studied computer science also, but when I first read the paper, my thought was, wow, this could be kind of like the internet. The internet was another global decentralized protocol that was being used to move information around and it kind of democratized access to that and publishing and moving information around. Well, this Bitcoin white paper was describing another global decentralized protocol, but instead of moving information, it was for moving value around. And that kind of captivated my attention in the sense of I'd always felt like the global financial system was a little bit inefficient and it had high fees and had these delays for no reason that something would work in one country and not another country, many countries had totally unstable currencies.

And so that the idea just initially made sense to me. I was like, that would be amazing if the world had a common set of standards for a monetary system or a payment system or whatever it ended up becoming that nobody could manipulate, nobody could abuse it. It was a decentralized common thing where we just had to trust in the laws of math instead of the laws of men. And it would be amazing. So from a pure computer science point of view, I had never really studied consensus algorithms in depth. I hadn't focused on that area of computer science, but the Bitcoin paper solved this long standing problem in computer science, which people refer to as the Byzantine General's problem. And basically, it's a coordination problem about how messages are passed and how do you know which ones are true and which ones aren't. And so the algorithm essentially proposes how using something called hashing power or proof of work. People can pass around these different transactions in a totally decentralized way.

And then the network can come to an agreed upon state that says, hey, this is a valid transaction. This one's invalid. And it prevents people from double spending crypto. I guess, an even simpler way to think about it is previously, if you had a digital thing like a photo or a message or something, you could make infinite copies of that photo. There wasn't anything that was digital that was provably unique. And in this crypto algorithm, they said, well, since we're all making this distributed ledger, we now have provably unique digital items that I can send  to you, Eric. And provably, we know that I didn't send the same copy of it to anybody else. So in that way, it was totally unlike a photo. It had scarcity. It could be used almost like digital gold or digital money.

And that was a breakthrough. Nobody had quite solved that problem before, and it's led to this entire massive industry now.

ER: What I think isreally interesting, when people hear that this was a novel computer science result, most breakthroughs in computer science, in kind of academic settings have to do with the kind of computational complexity of a problem or some kind of novel algorithm that takes advantage of some computational property that was really abstract, abstruse, and couldn't be figured out. What I thought was really brilliant about the Bitcoin paper was it was a novel result. Like this is a new way to solve a longstanding problem, but it relied on a kind of an understanding of what would be valuable to the many players. It almost had like a social engineering component to it, as much as it was an algorithmic breakthrough. And so introduced a new primitive into the world of computer science, which then people have built all kinds of remarkable things on. And I guess as I'm talking about that, it really is a lot like the early days of the internet. TCP and the other foundational technologies of the web had that same property, that there was something really computationally especially complicated about them, but it was their social value. When many people could agree on a common standard that unlocked all of the incredible value that has come into the internet and that we're especially now realizing how valuable those digital tools can be in navigating difficult times like that.

BA: Yeah, that's true. It had a number of kind of game theory elements in there that it really understood, if I'm trying to get this global group of people to come participate in this new thing, how do I align incentives so that they're aligned to be good actors in that and participate in it. And the early adopters would be rewarded. And so it attracted more people in. It really wasn't brilliant paper on a number of levels. The computer science part of it, the game theory part of it, the economics part of it. And I encourage everybody to go read it. Don't feel bad if you don't understand it the first time you read it. I didn't fully understand it certainly. And I had to reread it many times. It wasn't actually until when building the early version of Coinbase, I went and implemented a Bitcoin node in from scratch in Ruby of all languages, which was probably not the right choice.

But it wasn't until I actually implemented it and went through all of the details of the protocol, like after about 60 or 90 days, I was like, okay, I think I actually understand this protocol now, but that doesn't matter. Go read the paper, even if you only understand like a portion of it. It's really kind of a brilliant thing that was dropped onto the world. And it's an amazing artifact. And of course, we don't know who wrote it, which is another really fun and interesting point.

ER: You don't have to say who, but do you personally have a theory? Have you subscribed to one of the theories about who Satoshi really is?

BA: Well, I certainly don't know for sure. I've read about it quite a bit, of course. And it makes sense to me that it probably was some combination of Hal Finney or Nick Szabo and maybe others, I don't know, but it could have been a combination of folks like that. And the beauty of it is that, of course, that it actually doesn't really matter who Satoshi is, because the idea of it stands on its own. It's kind of like whoever discovered penicillin, you don't need to know their name. You can still go get a shot of antibiotics.

ER: So I want to go back. You compared discovering the paper to discovering the internet and the power of the internet. So tell me when you first had that realization, how did you first come online? When did you first learn to program computers? How did you come into this field in the first place?

BA: Yeah, well, I was fortunate enough to grow up in a household where computers were present and my mother actually worked at IBM. She was an early programmer there and she had started her career as a math teacher. And she kind of took a training course that IBM was providing to learn programming. This was as she explains it on punch cards and things like that back in the day. And so while she was at IBM, we were living in San Jose, California, where I grew up in the Bay Area. And so we had access to early IBM, 46 computers, things like that. And we got these in the house and I didn't really know what to do with  it at first. I played around a little bit with the command line and DOS and playing some simple games on the computer.

And it wasn't until the internet really came to our household, which, I remember having this thought, like I'm never going to be bored again. I remember I was always bored as a kid. I was trying to look at the same things in the house for the fifth time. And I would read books or run around my bike, the neighborhood or whatever, but we got the internet. I was like, I'm never going to be bored again. There's always something new to discover. And at that time again, my parents kind of exposed me to certain things where I got a chance to see what a programmer was, go do take your child to work day, things at IBM, places like that. And I got to meet other programmers.

And the first time I learned about programming, I thought it was very difficult and unapproachable. I remember trying to learn, like I had some books someone gave me, like learn Java in 30 days or something like that. And I was trying to read this book and I couldn't really understand it or get anything to work. And later when the web came out, there was HTML, which was a little more approachable, right? And I started to learn simpler languages like HTML, PHP. And I remember feeling like this was in high school now. I started to go to some community college classes on programming and things like that, and started to build early websites. And I remember feeling like this incredible feeling I had never really felt before. I imagine many people feel it when they find something that they really love, whether that's painting or art or whatever.

But I remember creating this early website. And I went to sleep and I woke up in the morning and I checked on the little counter or whatever. And like 500 people had looked at it or something while I was asleep. And that just felt like the coolest thing ever to me. It was like having replicated my brain or something. And I was able to help people, even while sleeping. It felt like a super power. And I thought maybe if I could do 500 people could help with this, maybe I could help a million people or something like that. And I basically just became obsessed with trying to start businesses. And with technology as a really important lever to improve the world.

And I had all kinds of little businesses I tried starting and things like that in high school that all failed spectacularly, but it was very educational.

ER: What was that first website that you created?

BA: I made a website for the middle school that I was attending, actually, in probably like seventh grade or eighth grade. And then in high school, I tried starting this little company that was reselling computer hardware with another friend of mine. And we ended up trying to find this like refurbished computers in the neighborhood or something like that. And we'd resell it online, like a very early e-commerce thing that was happening. So that was some of the first ones I built.

ER: So what were you doing when you had the idea for Coinbase and how did it start?

BA: Yeah, at that time, Coinbase really was founded in June of 2012. But the idea was germinating before that for about a year, a year and a half or so. I was working at Airbnb as one of their early employees. I was writing some software, I was doing some product management stuff. And I got a front row seat to see how difficult it was for them to move money to the 190 countries around the world where they were operating. It was so amazing, like we were trying to send payments into Uruguay to pay people who are listening to their homes on Airbnb. And I remember we were trying to work with this local payment provider there so that people could pick up cash and things and reading their API documentation. And it became clear that we had no idea how much money was going to show up on the other side of this API. We didn't know what the exchange rate was, we didn't know what their fees were.

We called them and they couldn't even answer the question themselves. And so we eventually just sent $100 through it and asked somebody in Uruguay to tell us how much money showed up on the other side. So we had all these kinds of situations like that. At one point we had to turn off all the hosts in Cuba, because US companies weren't allowed to work with Cuban citizens. And there was all these things about the global financial system. I always remember feeling like it was sort of inefficient. It was a barrier to innovation. Just to step back in history even more, of course so I had studied computer science and economics in college. I had tried starting another company in college that was a tutoring company. And we had just had massive challenges trying to move money to the different contractors we were hiring in different places.

I'd also spent a year living in Buenos Aires, Argentina. I had gotten to see what a hyperinflation economy looked like and what it had done to devastate the population there, especially the poorest people in that society, by the way. Because generally poor people hold their wealth in cash, which is the most affected by inflation. Whereas wealthy people can put their assets into inflation-resistant things like real estate or they can move their money overseas. And so I'd gotten a sense of what that could do to a population and it certainly wasn't unique to Argentina. Inflation had happened in various ways in many countries in the world. So I was sitting there as an employee at Airbnb, and I read that first Bitcoin white paper in December of 2010 was when I first read it, and that's when it kind of really kicked off this momentous thing, which now became Coinbase many years later.

But I guess what it really ended up doing was it caused me to start thinking about, "Am I ready to start another company? Is this the thing I want to start?" It sounded like a crazy idea trying to help people use cryptocurrency. It was such a new thing. All my friends thought it was kind of crazy or it might be a scam or something. I had tons of self doubt about, "Is this what I really want to do?" But my gut was telling me, "This is really exciting and this is going to be huge," or at least it could be. I thought there was a pretty high chance it could fail, but if it didn't, this would be enormous, like something on the scale of the internet. And so I kind of just couldn't get it out of my head. And I started working nights and weekends on a prototype, which I eventually submitted to YCombinator and that became Coinbase. So there's a lot more detail in there if you want to talk about it, but that was the journey.

ER: Talk about that first minimum viable product that you built.

BA: Yeah. So the first product that I had in mind was I wanted to build a hosted Bitcoin wallet that was easier to use. I didn't even have the idea to really make an exchange or a brokerage at the beginning to help people buy and sell it. But what I was thinking in my mind was SMTP is the protocol that powers email, and some people run their own email servers on their own computer, which is what people with Bitcoin were doing at the time. They were all running their own Bitcoin node on their own computer. But email quickly moved into the cloud. There was Gmail and services like that, where you could access it on your phone or your laptop. And if you lost your phone, it's not like all your email was gone. It was stored in the cloud.

And all the security and backups were being kind of managed by this company. So I had a thought like that, "Someone needs to make the Gmail for Bitcoin." And then I had another thought, if you look at Git, which is a tool that programmers use, which led to the company GitHub. Git is another decentralized protocol really for version control and software. It was difficult to use and all this and GitHub made it easy to use. So those were my two models, Gmail and GitHub kind of based around a new protocol that had come out. And so I thought, "All right, I'll make a hosted simple to use Bitcoin wallet." And that was the first thing I put out. And I posted it on Reddit and Hacker News, and some places like that. I got a couple of hundred people to come in and check it out, but they wouldn't really stick around and use the product at all.

And so my user adoption numbers were really kind of flat-lining. And I remember I just... In Y Combinator, they talk a lot about this idea, "Well, go talk to the customers." That's basically the loop of how you find product market fit is go talk to the customers, take their feedback, and go improve the product. Then talk to the customers, improve the product. You just keep doing that until you find product market fit. So as one of those surveys, I was basically emailed 10 of the people who'd signed up from Reddit. And I said, "Hey, I'm the founder of this app. I saw you signed up and you haven't come back to use it. Would you be willing to get on the phone with me and just talk about it?"

So I called some of these people, maybe three or four of them emailed me back. And I remember one of the people I talked to said, "Well, I kind of liked the product, but I didn't come back because I don't have any Bitcoin." And I thought, "Okay, well, if I put a button in there that said, 'buy Bitcoin' or something like that, would you use it?" And they were like, " Yeah, that would be better, because I think there's some way to buy Bitcoin, but there's these random exchanges like Mt. Gox in Japan and I'm not going to send a wire to Japan. If it was something easy then maybe I would do it." So I thought about that for a while and I basically started on the path to try to do that. And that was a simple feature to describe, but it was hard to build in the sense that I was now accepting payments from customers.

I had to think about compliance. I had to think about fraud and chargebacks, because I had read this book called PayPal Wars about the history of PayPal. And there were so many challenges with fraudsters and things. People would put in stolen credit cards and bank accounts and try to defraud the company. And luckily I had worked on that, a bit of that at Airbnb fraud prevention. So I knew how to build some of these systems. And through a process of just focus, and working 12 hour days, and calling banks, and trying to get the early bank accounts set up and integrating with the APIs of these bank accounts. I say we, at that time, right around that time, I found a co-founder finally, by the way, Fred Ehrsam. I had failed to find a co-founder to that point.

And I guess my main lesson from that was just keep making forward progress. I had reached out to probably 50, 100 people to try to find the right co-founder. None of them worked. And as Fred happened to move to Silicon Valley, he saw the prototype I had posted on Reddit, I think. And he reached out to me cold. At that time, the right co-founder reached out to me. Right around the time Fred joined the bank integration and all that was finally done, we flipped the switch so people could click 'buy Bitcoin', and that turned out to be the killer feature. But basically from that moment, we struggled to keep up with the demand as opposed to trying to create more demand. And that was the moment where we found product market fit.

ER: And the rest, as they say, is history. It's funny because founders always call me and ask for advice about whether they've hit product market fit or not. I always say, "If you have time to call me and ask me this question, I'm sad to say that you do not have product market fit. Because once it starts, you will know. I promise."

BA: Yeah. There's a great analogy I saw someone online wrote where it's, "You feel like you're pushing a boulder up a hill every day before product market fit. And then once you find it, it's like you crested the peak and the boulder is rolling downhill and you're chasing it as fast as you can." And we had some moments kind of like that where it basically became a working capital issue, because people would come into the site and buy Bitcoin. We would initiate a debit to their bank account, but we wouldn't receive the funds from their bank account for two to three business days.

And we had to make sure we bought the Bitcoin on the moment they clicked buy, because otherwise the Bitcoin price might be higher when their money finally arrived to us. So I think we had only raised maybe $600K or something at that point. And it quickly became where we were using maybe $500K of our raised money to serve the day-to-day, like basically as working capital to acquire the Bitcoin that we were going to receive the customer funds for in a couple of days. And we hit a point very quickly where we said, "All right, we're either going to have to turn off buys or go raise more money." And that was a good story to go raise money, by the way.

ER: My money printing machine is not able to keep up and I need money to keep my money printing machine going.

BA: Exactly.

ER: The best classic venture pitch. I want to talk a little bit about the organization that you built. We've been talking so much about the product and raising money for it and and finding product market fit with it, but I think one of the things that's really notable about the way that you've built the company is that you've always said that it was important to be mission driven and you've built a real culture and ethos around that. So, tell us what does being mission driven mean to you?

BA: Yeah. Well, I think it's important for every company to try to tackle something big and important in the world to try to improve the world. And the reason is, there's a bunch of reasons for this, but one of them is that doing a startup is just so difficult. Like your chances of failure are already so high. And basically, you're going to give up if you don't try to do something that's about more than, I don't know, just making money or something like that. Because usually the first couple of years of a startup are just moving from one setback to the next with enthusiasm. If somebody sues you, if somebody quits, somebody steals your idea, like whatever it is, and all these unanticipated crazy things happen. So I see people sometimes tell me, "Why are you doing this startup?" And it's like, "Well, it's such a good idea. The product is needed by people. It'll make a lot of money."

And I just keep thinking like, "You're going to burn out within the first two years, because you're not in it for the right reasons." So the first one is you got to be getting out of bed everyday for something bigger. The second reason is you got to be able to attract great people to come join you on this. And the best people want to work on really difficult important missions that are going to improve the world. I think it's hard to get great people to join a company just based on comp or even just based on learning or growth opportunities. They also have to feel like they're doing something important for the world. So, those are all important reasons to have a really big, ambitious, compelling mission. And I would say as the company, especially in Coinbase's case, as the company kept growing, we got over 1,000 people.

There was a moment where I realized we had sort of defined the mission a little bit ambiguously and almost euphemistically. And I realized the whole company wasn't even on the same page about what exactly was in scope for the mission. And this sounds like, "How could that possibly be?" But these things tend to happen.

ER: It's still common actually.

BA: Yeah, it's super common. And really anything, your values, a strategy document, everything. It's hard to get people to all really understand it in the same way. And so there's periods of time in Coinbase's history where I've had to kind of realign the company towards the mission and redefine it and re-clarify the definition of it. And so you want a lot of variety in the people that you hire. You want people from all different backgrounds and different skill sets around the table to get really an innovative and creative company, but you want everybody to be excited about the mission and have the same values that you articulate. So you want people to have the mission and the values in common, and you want them to be really different in every other dimension. That's how you create great companies. You got to get ready to keep rolling in the same direction.

ER
: So what is the mission of Coinbase?

BA: So our mission is to create an open financial system for the world. And what we mean by that is we want to create a financial system that is powered by cryptocurrency. It's more fair, it's more free, it's more global, and it brings more economic freedom to the world, because that was one of those other big things I had noticed when I first read that Bitcoin whitepaper was I was thinking about, "How could this bring more freedom to the world?" I always felt like people want to do good things, they want to be able to keep the upsides of their labor. They want to have property rights. They want to have the ability to work at the company they want to work out and join the company they want to work at. And this term economic freedom, it's kind of an interesting one. You can go read about it on Wikipedia and whatnot, but it's sort of a metric that economists use to look at the various countries of the world and measure how economically free those places are.

And what's interesting about it is that economic freedom correlates with a lot of things you'd really want in society, not just higher GDP growth and things like that, but also higher self-reported happiness of citizens, better treatment of the environment, better literacy, and all kinds of things. So the insight that I had and kind of more crystallized the longer we worked on Coinbase was this invention of cryptocurrency might be the key, the secret to allowing us to create more economic freedom in the world and inject this reliable financial infrastructure, property rights, rule of law into these countries all over the world. And we do that by creating the open financial system. That's what we kind of have boiled down to as a phrase. So I think it's a really important mission. I think it can have all these downstream effects in society and it's really ambitious too. It's almost like saying we want to create a new alternative economy for the whole world. So that's certainly a big mission.

ER: I think it's so interesting that you were conceiving this while you were at Airbnb. And I had a conversation a little while ago with Brian Chesky where he was talking about the importance of institutionalizing your intentions, and I'm sure you have heard him talk about this ad nauseum, having worked there, but I mean, a big part of what he has tried to accomplish and in taking the company public is to take his view of what a 21st century company should be and bake it into the structure of the corporation, so that it remains true to his mission, which of course what he's trying to accomplish is in some ways different from what you're trying to accomplish. But I wonder if that resonates with you. What are the steps you've taken to institutionalize your intentions, so that as this organization grows, as more and more people come into it as eventually someday someone else may lead it, how can you be sure it will remain true to that mission?

BA: Yeah, absolutely. So there's a important moment every company goes through, I think where in the first couple hundred people or something like that you, as a founder, can interview all of them, you can evaluate them, you can go around and talk to all of them, have some kind of regular touch point with a couple of hundred and just make sure everyone's on the same page, moving in the same direction. If you see something that's off track, you can help correct it. As the company gets bigger. I don't know, let's say 500 or some kind of threshold like that, or 1,000, you pass Dunbar's number, the number of people you can really remember, everyone's name, and what they're all doing, and what their relationship is to each other, and some people think that's around 150 or so, but it varies depending on the person.
And so you quickly reach a point where you actually can't interview everybody who comes into the door and you can't check in on everyone. You can't even know everyone's name. And so how do you make sure everybody is still aligning in this larger structure? You do have to go institutionalize and memorialize some of those ideas. So I think that CEO's have a couple of different tools in their tool belt to do that. One of them is to go write down what are the values. And the values are what we use to hire and promote people. Coinbase's values are on our website, you can go look at those. We also wrote down a culture doc. And the culture doc kind of gets into more details about, not only how do we hire and promote people, but how are we going to operate and work day to day?

How are we going to treat each other? That was an important document to write. And we did that with a bunch of input from the company and the employees. And you always want to have this balance in the document of like are you just saying euphemisms that any company could say or are you saying things that are truly distinct to your culture? Like one way to test that is could you say another company that had the inverse of your value? So you've got the values, the culture doc. Of course you have the mission. And I don't know, I think if you think about even much longer term, like how does Apple continue on in the spirit of Steve Jobs, even though he's passed away. Like how do you make a company that is multi-generational or something that can persist on. That's, I think, probably one of the hardest things to do. A lot of companies, frankly, when the founder passes away or moves on, they do lose a little bit of that magic spark or something that made it what it is. Companies need to evolve, you don't want something to be frozen in time. That wouldn't be innovative, but it does need to kind of stick true to what made it unique and what made it special. And so I think you see people like Ray Dalio, he's writing that book, Principles or he's written it. I think that's my guess, I don't know, that's his way to sort of try to memorialize that for the next 100 years or something at Bridgewater and see what people might do there. But yeah, I don't know if anybody's found a perfect solution to that. If you think of one, I'm curious to hear what you, Eric, what other ways have you seen founders kind of memorialize what made a company special?

ER: It's funny you ask me that, I literally have a deck of cards that I had made, which is sitting on my desk right now. If it wasn't for COVID, we could do this in person and I would take this deck out and show you, because I'm a collector of the structural things at the level of kind of governance, incentives, disclosure, economic alignment that companies can and do use to maintain this alignment. It's extremely difficult. And if you read the history of business and go back to case studies, and I think I've recommended this book on the podcast before, I'm not sure, there's a book called The Enlightened Capitalists, which is like 150 years of case studies of people who have tried to solve this problem and failed. So it's an old problem in capitalism, where people who find some more purpose-driven way of operating a corporation, if they don't have real alignment and institutional protections as it relates to their investors, usually, but their board and many other stakeholders, you wind up having these case studies.

There's a brutal story in that book about a founder who is literally on his deathbed. He built this purpose-driven company. He had run it for something like 40 years, built it into a behemoth, and then one day, some investment bankers in his board engineered a coup to kick him out, and take the company public, and basically strip-mine it and destroy what made it distinctive. And he was on his deathbed, had this regret, the regret of his life is that he hadn't required the board members he had stacked the board with to sign a pledge, a mission fidelity pledge, so that they were able to... They didn't even bother trying to justify that their actions were somehow in line with the company's mission.

So yeah, if you look at who is on the board, who has board power, who has voting control, how the company rewards and incentivizes its long-term investors versus its short-term investors, that's a common error that people make. And then, how does it engage employees and its other stakeholders? Brian Chesky is always trying to figure out how to put stock in the hands of his community and how to bring community input into the governance, because that's such an important part of the ethos of Airbnb. I could think of a lot of ways where the decentralized nature of crypto could give rise to other mechanisms that you could bring in that would be natural to think about.

And then, some of the stuff is just really brain dead simple, like make sure that you have a product and strategy committee of the board, somebody who is responsible for thinking about what the company strategy will be longterm, so it doesn't devolve into lawyers and lobbyists. Obviously, you have the mission pledge, obviously, what you do with voting control. So there are these mechanisms that people use, but what's so interesting to me, having worked with so many companies over the years, big public companies, private companies, companies going public, is how often, as the company grows, because the company is successful, everyone starts to get really overconfident about how this bad stuff is not going to happen to me.

And so then, the voices for the status quo start to get a lot more powerful, a lot, lot louder in the room. And so, all of a sudden, you have finance, and compliance, and bankers, and folks like that. Not that those people are bad by any means. I mean, they're incredibly important to build a compliant organization, to be able to successfully do something like an IPO. And yet, sometimes I meet with founders who are a little bit frustrated that this longer-term perspective of what is this going to look like 10 years from now, 50 years from now, 100 years from now, isn't really part of the everyday conversation. So I think creating mechanisms and fora for that are super important in an organization.

BA: Yeah, very well said. I mean, it's such a complex and interesting topic. I think you're right, that companies do best when they have this marriage of skill sets, or even you could call it a healthy tension, where there's a founder-CEO who wants to... The founder is a little crazy, right? They're contrarian. They think differently. They question why is that? They want to try ambitious things that look like toys today, but could be really big in the future. But on the other hand, founders can get a little too crazy and they can blow up companies. You need, really, steady hands operators, executives, and those other functions that you mentioned that are more like risk functions, legal compliance, HR.

And so, you can get a company that falls too far either way, right? We all can name some companies that probably the crazy founder blew it up a little bit too much. We also can name companies that they frankly just haven't innovated in decades because they're run by risk functions, more or less. And even if you look at... I'm not here to bad mouth any particular industry or anything, but if you look at some large banks in the US, most people would say they haven't innovated as much as they could. And they've almost become like quasi-government institutions in a way, and they're so focused on risk mitigation that it's not about innovation. There's the large banks and those are it. There haven't been really new upstarts or anything in that realm.

ER: Don't get me started about stock exchanges.

BA: Oh, yes. Yeah. I mean, so this is... Also, I'll just make one other final point. So I guess if you think about it, a company doesn't need to last a thousand years or something. I think it's nice. For the founder who created it, their ego is attached to it, and so it's nice to think about how do you make something that lasts. I think that's a very valuable pursuit. But there's also something beautiful about creative disruption, right? It's like, sometimes it's time for a new thing to come along. And if something does get too set in its ways, it stops innovating.

Jeff Bezos says it's always day one at Amazon, right? Steve Jobs, in his Stanford Commencement address, said, "Stay hungry and foolish." There's many versions of this. At Coinbase, we talk about repeatable innovation a lot. But whenever a company stops doing that, or a country for that instance, or just as another example, I think it's like they probably should be disrupted, right? That's better than never having anything new at all. And so, that process of something maturing, and then stagnating, and then something new coming along is kind of... It's the way we make progress to keep going forward as a human civilization.

ER: That's really well said. And bare survival should not be our goal. And I think we all have interacted with organizations that have become bureaucratic and who have no purpose anymore. They simply exist to preserve themselves. And when that happens, it's actually something like really genuinely dark. So I think trying to really find that spark of continuous innovation and to make sure that remains at the heart of our economic engine, both at the level of individual companies, and of course, as we think about the macroeconomics of our country, I think that that is really important. Talk a little bit about what you see as the role of civic leaders, business leaders, in advancing that for us, in terms of our civic fabric.

BA: Yeah. Let's just start with, I guess, the highest level, which is that I think if you want to improve the world, starting a company is one of the best ways to do that, especially a company that is trying to drive some kind of science, or engineering, or technology innovation in the world. There are some businesses you could think of that probably wouldn't be examples of that, but I think one of the beautiful things about capitalism and free markets is that if you want to... The only reason someone's going to part with their hard earned money is if you provided something that they really want and need, right?

And there's exceptions to that, right? You could think about addictive things, like cigarettes, or people that have monopolies, or whatever, but by and large, I think capitalism is a force for incredible good in the world. And let me give you an example. Some of the biggest problems in the world, let's look at climate change or something, governments all over the world have debated this endlessly. There's been so many papers written on it, the academics, there's the Paris Climate Accord, we're in, we're out, all these things.

And what's going to be the thing that actually potentially makes the most forward progress on solving climate change? It's probably one person who started a company, like Tesla, Elon Musk, and now, suddenly every car company has an electric car program. We're talking about solar in much bigger ways. So that's such a clear cut example. What other major problems are there in the world? Education, healthcare, financial services. I think if you want to solve education, look at things like Khan Academy. Khan Academy is actually a nonprofit. It's not a company. So start a nonprofit, too. I think those also can be very valuable. If you look at healthcare, I think technology is driving some of the most important innovations there. If you look at financial services, I think the same thing. FinTech is driving a lot of the most important changes.

ER: And we're all waiting in line for a vaccine that is a technological modern miracle.

BA: Absolutely. Biotech, longevity, energy, entertainment. I really think that there's a weird thing happening in the world now, which is that it's become fashionable to bash tech companies or something like that. And we see it in our media too. There's a lot of entertainment and stories that come out.

ER: Yeah. Well, not to say that we haven't had some deserved examples of mistakes, too. So yeah, fair enough.

BA: Sure. Sure. I mean, there's always... With any new tool, it can be used for bad or good. A scalpel could be used to kill someone or to save someone's life. Anyway, there's certainly... Nobody knows exactly how these things are going to evolve, too. If you latch on to some new technology, like Bitcoin or whatever other company examples are, you don't know exactly how it's going to play out in society. One of my views is that a vast majority of people in the world, 99% or more, are good. Yes, there's 1% of people who are going to try to abuse something. That doesn't mean we shouldn't keep making forward progress and building new things.

Do you need to mitigate the risks? Yes. Do you need to take that very seriously? Yes. But it shouldn't prevent us from trying and building new things. I think there's a bit of fear about change. There's a fear about new. There's a fear about how we'll be unprepared for that. And it's almost a negative message for young people to hear, I think, that these things are destroying society or whatever. If you want to advance society, I think that the best way to do it is, basically the best lever we have as a society is science technology, starting companies, building products that can help people. Yeah. I feel like that's a very important path forward.

ER: We've come a long way from the super optimistic message of Star Trek.

BA: Yeah, yeah. And Terminator, and all these things. Peter Thiel has talked about that. Why are the messages coming out of Hollywood often Terminator-esque, or Black Mirror, or kind of dystopian, I guess?

ER: Well, you see it in how people are responding to the pandemic, I think. Yes, we've had terrible bad news and it's been an awful year, but there's been some recent articles, and Zeynep, who we also had as a guest on, had a great article recently about why are people being overly pessimistic now, and why is there this tendency to downplay the good news that we're finally starting to see, and then the harms that that can cause. Because ultimately, it's our collective imagination and determination to make things better that is ultimately what is the driver of human progress.

BA: Yeah, absolutely.

ER: I want to go back to what you said about economic freedom for a minute, because I think that's such a really interesting concept, and it's such an unusual thing to have a CEO talk about as the mission of the company. But I think for some people who are listening, they're going to find it especially surprising, because one of the things that I feel like I'd be remiss if I didn't ask you about, one of the things that you've been... Those who follow the tech industry have noticed during the pandemic, that you came out and said that you did not want to talk about social issues and politics as part of what you're doing at Coinbase.

And yet, economic freedom, some people would say would be a very political agenda that, of course, the whole crypto movement is in some ways trying to push. So talk a little bit about what that experience was like being at the eye of that firestorm, why you felt the need to take that stand, and how do you reconcile that with the mission of the company and your political objectives in terms of rule of law and economic freedom?

BA: Yeah. So I think it goes back to what we talked about earlier with mission first, mission focused as a company. So I do think every company should have a very ambitious, important mission that is going to move the needle and improve society, and they should be pretty focused on that mission. So for us, that's about creating an open financial system. It's about creating more economic freedom in the world. And that certainly has political aspects of it. We engage with politicians, and regulators, and do all kinds of policy work around crypto for instance, and even economic freedom.

So to me, it's fine to do political work as a company as long as it's on mission. And one of the challenges that I went through last year was that I realized at a certain point, not everybody was aligned about what the mission of Coinbase was and what was in scope for that mission. And so, of course there were a number of challenging events happening in the world last year that were incredibly important, and rightfully so, many people were focused on it. I really wanted the workplace at Coinbase to be a refuge from that kind of division that was increasingly happening out there in the world.

And I felt like we already have a really important mission that's going to try to improve the world. And so, for us to really make progress on that, it's going to take years and years and decades of really focused and intent work. And if we try to boil the ocean and try to solve every problem out there, it's actually more likely we're not going to make progress on any of them. So that was my... It was a very difficult moment to go through. I think that it showed that I had not made that clear to the company. I had not done a good enough job of making sure everybody was aligned to the mission.

And so, that's one of the things about being CEO, I guess there's always something new to learn. And last year was my time to learn that, and go out and say, "All right. Let's clarify what the mission is, what we're all here to do." And I recognize that not everybody was going to be on board with that, so what we did was we made a pretty generous offer to anybody who felt that they had not signed up for that mission. And some people took us up on it, and they decided to leave. But as a result afterwards, I think the company is much more aligned. We're all moving in the same direction. I actually think it was probably the most important thing I did as CEO last year, even though it was kind of difficult and unpleasant to go through.

ER: Do you have any regret about picking that issue, that moment, to take that stand?

BA: I really, really wish it hadn't been that time, at that moment. I had no desire to get that kind of attention for that. I really felt that I just couldn't wait. I wanted to stand up in front of the company and say, "This is why we're here. This is why I started this company. I want us to go solve this really important thing in the world." And I knew that that would upset some people. And I was also worried that we're hiring people really quickly. When are we going to... The next 1,000 or 5,000 people join this company, I'm not doing them any favors by not making this clear.

And so, I just really felt like after three or four months went by, and I was like, "We can't wait. I've got to come out and say this." And I knew it would be somewhat controversial. I knew some people would misinterpret it. But it was one of those things where, looking back, I don't regret it. It was difficult, but it was important and necessary. Are there some ways that we could have done it better, in terms of how we wrote out the messaging? There's always some things we could have edited around the margin. But overall, I think it was the right thing to do, and in that sense, I don't regret it.

ER: Let me ask you, do you mind if we do one more follow-up about the politics thing? Because I think that's important for people to understand what you really meant by that. So, it certainly was a brave thing to do, and to put yourself really in the center of so much attention and emotion in that moment. Do you think all CEOs should take a similar stance? Or what advice would you give to other CEOs who are contemplating where they should net out on that question?

BA: Yeah, so I certainly wouldn't presume to say that every company should take such a mission focused approach, which is how I described it in that blog post. Just because, first of all, it's none of my business to tell them how to run their company. But also, I kind of like that there's a variety of ideas tried in business. That's part of what we find what works, and some people emulate it, some people don't. So I wouldn't presume to tell everybody to do that.

But if there are CEOs out there who are feeling like, "I just feel like the employees are becoming distracted, that they're focused on the wrong things." And if you just start to feel like something in my gut is wrong, maybe even that people feel afraid to speak up in the company because it's becoming a hostile environment or something like that, that's where I feel like maybe you have an obligation as CEO to stand up and say it.

And a lot of people did actually reach out to me, current employees and new employees who applied to Coinbase as a result of it, and others out there in the world who said, "Really, thank you for speaking up. I was increasingly feeling uncomfortable at work. This was a really unpleasant environment, and it was starting to affect my engagement." And I realized I was not the only one who was feeling that way.

And so, if you feel that way, either you're going to have to go as CEO or you're going to have to make it a company that you want to work in. And if you make it a place you want to work in, there's probably other people that want to work there too, from all different backgrounds and everything, by the way. So people from every different background want to work at a mission focused company that is trying to achieve something really difficult in the world, and it's a workplace that is a refuge from division.

Not everybody wants to work in that environment, but there's a great variety of people who do. And so far, it's actually, I would say... Initially, it sort of had a chilling effect on our hiring in the sense that some people were unsure, what is this, what does it mean? But I'd say, actually now, it's had a net positive effect on our hiring, and we have people joining who just understand what they're getting into, and they understand what the mission of the company is. And so, they're self-selecting in, and a number of them have been telling us, "Oh man, I was so frustrated at this at my past company. It was so hard to even get work done there." And that's the reason they came and applied to Coinbase. I don't know. If other CEOs are feeling similarly, maybe I would suggest something the same.

ER
: It does seem like we're about to enter into an era that, I think when we were growing up, and certainly for our parents and grandparents, it might've seemed like science fiction where trust has gone down in almost all of our institutions as so many of the institutions that govern our civic life have decayed in our lifetimes. And we're starting to see a world where the civic values that really matter are increasingly being defended, not by journalists and not by universities and not by politicians, but really by corporations. And corporations, because they want to be mission-driven, because that is the new demand of people where they want to work, and also investors and customers, that's increasingly important to them, we're starting to see a diverse set of companies stand for the different elements of the kind of core values of our civic fabric.

I almost feel like even if other CEOs who disagreed with you or had a different value set than you did, you took a similar stand, it might actually be better for our civic health overall, because if Coinbase is really standing for economic freedom and a diverse set of other people have a chance to bring their ideas into the marketplace and to stand for the other important civic values, maybe as a whole, as a society, we're better off.

BA: Yeah. I mean, that's a big question. It's certainly possible. I agree with you. There is a lack of trust kind of happening in media and in government and I think there's fewer even religious people now, if I'm remembering correctly.

ER: That's right.

BA: There is a strange thing that I didn't quite anticipate starting a company where, frankly, maybe this was naive of me, I was thinking when I first started Coinbase, how we're going to build a great product and people are going to want to build that. And a lot of people have started looking up to me and saying, "What do you think about all these broader issues?" And I never really anticipated that, which might've been naive of me. But yeah, I guess a company, it is another tribe that people want to belong to just like a university or a sports team or something like that.

I've always been sort of uncomfortable in that position, to be honest with you. I never really thought about myself as a natural leader. I always thought of myself as sort of an engineer who likes to build new products. I'm sort of a reluctant leader in that sense, but I guess it's been working out okay and I've sort of made peace with it and it's fun.

ER: Join the club. As we're recording this, your IPO for Coinbase is imminent. And I know that limits, of course, the kinds of things that we can talk about, but talk a little bit about the choice to do an IPO versus, say, do an ICO for Coinbase.

BA: Oh yeah. Let's see. For those who don't know, an ICO would be an initial coin offering. There's a lot of different words around that, which basically are referring to companies, could they someday go public, on the blockchain. And when I first heard that term going public on the blockchain, I thought, "What does that even mean?" And I guess what it means in practice is companies have shares, which are securities like stocks that can be traded out there. And some people have made crypto tokens or crypto assets that represent those shares, and those crypto assets can be traded on crypto exchanges, just like any other crypto asset. Today, most of the crypto assets that are out there that are being traded. They're not securities, they are commodities, they're tokens of various types, rewards tokens, governance tokens. And there was actually a big question in the industry about, are any of these crypto assets securities? And the SEC has come out and opined on several of them, which I won't get into.

But when we thought about Coinbase going public, I certainly, that was one of the first thoughts that went through my mind is, "Hey, how cool would that be? If we could go public kind of in a crypto native way. We're trying to build the open financial system. Why don't we use our own exchange to create a crypto asset and go public that way with a crypto asset that represents shares of Coinbase?"

There was a bunch of consideration that went into which one, right? One argument in favor of doing a crypto IPO is that most of the early people who got super into crypto, they were retail customers. Like, the big institutions were initially quite skeptical on crypto. And then in a way it's kind of like going to our base, going to the audience that got us here and saying, "Hey, all of your crypto traders, now you can own Coinbase stock." Like how cool would that be?

Now, there’s an argument on the flip side, which is that most, if you look at most IPOs that happen, the majority of the shares are owned by institutions. They're not owned by retail. I think maybe like 20 or 30% is owned by retail, like on some of the stocks I've seen recently. And so would we be actually missing out on a larger segment of the institutional money out there that would want to hold a stock like that? And now of course, just in the last two years or so, institutions have started coming into crypto in a major way. That's starting to change, but there's still, I would say probably the majority of institutional money out there can not actually hold crypto assets. Due to their bylaws and LP agreements and things, they can only hold public securities, like in the traditional sense.

So then my next thought was, "Okay, well, why don't we do both?" Sometimes companies do a dual listing, right? They might list on the long-term stock exchange and another exchange, or they might list on like the Hong Kong exchange and the New York Stock Exchange or something. So why don't we call it a dual listing, but this time, instead one of the listings will be a traditional IPO, one will be a crypto token that trades on crypto exchanges.

That was kind of what I was initially planning to do. Now, as life goes, things turned out to be a little more complicated than that. One of the things that we would need to have gotten done to start to do the crypto IPO and actually trade security, which is, of Coinbase shares, a security token they would call it, was we needed to get some more licenses and regulation in place. So that would be, in our case, like a broker dealer license, we needed to operationalize it. There's a bunch of control environments that need to be in place approved by regulators. And currently there's no crypto exchange out there that I'm aware of that, at least in the US, is licensed to trade security tokens.

So, we started to look into that process about how to go do that. And long story short, it would have delayed our IPO by, I don't know, at least a year or so. We may still do it in the future. I think that would be exciting to try. And I think there's a lot of benefits to that. I can talk in a minute about what it might look like for other startups to do that once things are a little more developed in the crypto industry, the market structure and everything. That's basically the short story about why we decided to do a direct listing, not a traditional IPO, but we did that in the traditional public security sense.

I would love to keep exploring that and seeing if we can make crypto IPO as a thing in the future because I think that's one more piece of the open financial system that we can innovate on and get rid of a lot of the inefficiency, which I'm seeing bits and pieces of going through it the traditional way. Crypto has the potential to revolutionize a lot of different pieces of the traditional financial system. But one of those pieces is how companies get formed, how they raise money, how they manage their cap table and how they eventually go public.

There's already been some large fundraisers in crypto, crowdfunding if you will. And it shows the potential where, in a traditional fundraising environment, you typically have to go to one of a few locations in the world where venture capitalists live and pitch them. And if you don't live in one of those locations, or you're unable to fly there, a lot of entrepreneurs around the world struggle to raise money for their brand new ideas.

In a way it would be amazing to sort of democratize access to fundraising. And some of these crypto fundraisings have been enormous. They've, not for specifically raising money for securities, but for other reasons, they've been able to issue tokens and get thousands of people around the world to put in money in a matter of hours. Some of them have exploded in spectacular fashion by the way, in a negative way, because it's a new thing, but it shows the potential for fundraising. That's an important piece.

Now, once companies have raised some money and we crypto could democratize access to that fundraising, they then need to manage their cap table. And this turns out to be a pretty expensive process. Companies spend a lot of money on legal fees and lawyers, drafting agreements and share transfers, restrictions, and all kinds of things. It's basically all managed through very expensive lawyers instead of if it was just a crypto asset and I wanted to transfer some shares from a to B, you can just transfer that on the blockchain and it would be as easy as sending any other crypto transaction instead of requiring hundreds of pages of legal documents.

Now, the last part of that lifecycle is that someday companies might want to go public and there's a bunch of pageantry or whatever you want to call it around how companies go public. There's a lot of archaic pieces that might not be necessary if it were to be created again today. There's a lot of fees baked in that go to the current groups of players that bring these things to market.

There's a really interesting opportunity to make that whole process just much more seamless where we could even 10x, 100x the number of companies that get created that way, if you were to able to democratize access to fundraising and reduce the legal fees, the friction, and reduce the overhead in terms of how companies go public.

In the early internet area, there was this thing called the .com startup that came out and eventually you didn't need to say .com because every startup was using the internet. My guess is that within 10 years, most new startups will be using cryptocurrency in some way, shape, or form. You won't need to call them a crypto startup. They'll just be a startup. And they'll use crypto to raise money or manage the cap table or accept cryptocurrency payments, or build their community in some novel way or go public on the blockchain.

I'll give you one or two quick soundbites about things that could be novel in that space. One is you could actually reward your community with shares of the stock, the customers who helped you grow the business. Imagine the hosts of Airbnb or the drivers of Uber or whatever had gotten shares in the company. Those kinds of things could be more possible in a world of crypto securities and IPOs. You might even be able to do other kinds of governance innovation, which I know you're a student of and have innovated a lot on yourself, which is, for instance, you could make a security token that every year that you hold it, you get an additional vote in the governance of the company, right? That would incentivize long-term ownership of the token.

ER: Indeed.

BA: Things like that start to become possible with this new technology and the open financial system with programmable money and securities. Those are the kinds of things that I think we'll hopefully see in the years ahead for crypto.

ER: I'm sure you're familiar with Professor Lessig’s idea that code is law and that's never more so than in the governance of corporations eventually, that the software we currently write in English prose, which is prone to so much ambiguity, will obviously eventually be in machine readable code and therefore able to be executed in a much more transparent way.

BA: Absolutely. Yeah. Smart contracts are a brilliant invention. I think that's going to have profound implications for governance and government and whole kinds of things in the future.

ER: I want to talk a little bit about ResearchHub. Can you tell us a little bit about what that is?

BA: ResearchHub is a project company I've started on the side that is something I'm passionate about, which is accelerating scientific research. Scientific research today is incredibly inefficient, both in how funding happens, a lot of the papers are not reproducible, a lot of the papers are frankly not really read by anybody, it's difficult to prioritize them, find actionable insights from them, commercializable insights, if you're an entrepreneur. And so there's kind of a crisis happening, I think, in scientific research that is just slowing down human progress.

I mean, think about whenever you get a company that actually is founded on a major scientific breakthrough, it tends to be an incredibly valuable company. I mean, Genentech, Google, like those were both founded on research papers that came out of Stanford, right? Even Coinbase is really founded on the research paper written by Satoshi Nakamoto, the Bitcoin white paper, which was a computer science breakthrough. Space X, Tesla, go down ... It was really the most valuable companies in the world. But most companies are not like that. Most companies are created that are basically just repackaging. Think about beverage companies, consumer packaged goods, like makeup or something. Those companies are 90% marketing and 10% product. In fact, they're often sometimes manufactured by the exact same factory as a hundred other products that just, they've outsourced the creation of the product. It's all about marketing.

Similarly, you have scientists that are coming out with some amazing breakthroughs, but sometimes scientists don't know how to go commercialize those, or they don't want to go build big companies. That's not their skillset. And so I kind of want to try to find a way to ... How do you bring those two worlds together, the scientists and the entrepreneurs, so we get more of these Genentech's, Google's, Space X's.

That's sort of the idea behind it. And by the way, it scratches one other itch for me, which is I'd wanted to sort of see what it was like to create a crypto startup and ResearchHub does have a crypto asset called ResearchCoin associated with it, which we're using to help incentivize the community to come together.

It's been a learning ground for me because one of the goals at Coinbase is we want to help the whole crypto economy take off with thousands of companies. Well, I felt like, okay, to better understand the needs of that customer base, maybe I should try going to create one of these and seeing what the real pain points are.

ResearchHub is still very early days. We have a V1 product out there that's gotten some initial traction. If people are curious, I'd love for them to go check it out and basically sign up and check out the particular areas of research you're interested in and help us build a community. It's early days, but the potential is enormous.

ER: Having talked to a lot of scientists and public health folks and biotech leaders and just, a lot of people related to the pandemic response, a recurring theme has been research delays and the inability to share has caused really important consequences that we only really appreciate and see research delays, especially we see it in COVID when organizations and scientists were able to share data and genomic data, vaccine data, how important that has been just saving so many lives. And when that doesn't happen, the consequences as well.

BA: Absolutely. Yeah. COVID kind of showed us how inefficient the traditional process was of peer review in journals and it takes years to get your thing out. During a pandemic, it was like, "No, publish it to Twitter. I want the right to see your peer review on Medium." That's the kind of thing that why doesn't all research happen that quickly? There's no reason for the journals to charge like thousands of dollars for people to access this stuff that was often funded by public funding. It should be free and available. So many areas of improvement there, I'm hoping we can try to make a dent in that.

ER: Kind of zooming all the way out and looking at everything that you've learned, especially this past year, in such difficult times for so many people, what do you really hope will be the long-term impact of this crisis? What do you hope for our society? What will we learn in the new normal as we get out of the crisis?

BA: I'm hoping that people have optimism about the future and they feel determined to get there and to improve the world. I mean, it sort of shows you the great resilience of human civilization, which is we see these big challenges come at us and we're able to rise to the challenge, whether that's creating a novel vaccine or creating new companies to help people work remotely, or finding new ways to support the local neighborhoods and small businesses.

In a way, it brought the world together. It helped us focus on what mattered. It also just pulled the world forward five years in some ways. Why can't we do that all the time? It's really a matter of culture and perspective and determination and optimism.

There's an argument that we should have that every day that we live. People always say that that's kind of a cliche thing, like live every day like it's your last, but I guess it's kind of true when we find these things that create urgency, they propel us forward. And there's a great value in that. I hope we retain some of that.

ER: Amen to that, Brian. Thank you so much for taking the time. This was really great.

ER: This has been Out of the Crisis. I'm Eric Ries. Out of the Crisis is produced by Ben Ehrlich, edited by Zach McNeese and Sean Maguire. Music composed and performed by Cody Martin. Hosting by Breaker. For more information on ways to get involved, visit helpwithcovid.com. If you or someone you know is leading an effort to make a difference. Please tell me about it. I'm at E-R-I-C-R-I-E-S on Twitter. Thanks for listening. Please rate and subscribe wherever you like to listen.

 



Friday, February 12, 2021

Investing in the post-modern economic era

One of most interesting things to me about the stock market’s recent wild ride is that it isn’t actually anything new. Short-selling is part of the way our markets work, and in fact it’s an important mechanism for creating liquidity. To those in the financial world there’s nothing unusual about what happened to company stocks like GameStop and AMC. What has made the last two weeks different is that now, everyone is paying attention. And that’s because a lot of ordinary people, joining together on social media, have been thrust into the public eye. Suddenly, the general public is asking why this kind of trading activity isn’t illegal, and how platforms can be allowed to pause due to volatility. What’s been less covered is the resulting question for companies: how can they prevent themselves from becoming the next GameStop?

That was the focus of a conversation I had last week with Amy Butte, the former CFO of NYSE, and G100’s membership. And a lot of what it came down to was this: what is the purpose of a market?

Fundamentally, markets are meant to be a representation of company value. But in the last fifteen to twenty years, the balance has shifted away from value and towards volume. In other words, away from investing towards trading. What’s happening right now is what I have been calling post-modern economics: the markets reward trading that’s about itself, rather than the development of the companies it’s connected to.

Liquidity is a good thing, of course, but there’s an urgent need to reinvest—figuratively and literally—in R&D and value creation. We need to consider the consequences of continuing to allow events like the GameStop scenario to happen. Bubbles and mania aren’t new, but prior generations classified them as a bad occurrence. Now, when we see people making a lot of money without making actual things our impulse as a society is to cheer.

One of the best tools we have to help rebalance is a stock exchange. That’s because in addition to being platforms for trading, exchanges are avatars for corporate governance. In particular, they can call for governance that demands value creation over time rather than quick, ephemeral profit. One of the most effective ways they can achieve this is by asking companies to bring on more long-term investors, which will significantly reduce the kind of volatility we saw last week (my colleague Martin has written about this).

In order for this to work, public companies need one more thing: transparency around who holds their shares. When companies go from private to public they move from a group of deep relationships formed over time, to a much larger, more anonymous field. The result is that they have no way to know whether their investors are truly supporting the company’s efforts versus looking to get in and out when the timing is right. In addition to seeking more long-term investor alliances, governance can also direct how companies engage with those investors. In particular, companies can suggest that long-term investors register their shares so they can’t be lent out for short-selling, signalling that the company is committed to long-term value creation and identifying the investors who share that goal.

Another way governance can empower value creation is by aligning incentives with all stakeholders in a company’s ecosystem. Think about GameStop’s retail outlet employees during the company’s upheaval. Everything happening to the stock price was completely disconnected from their lived experience as people helping the company meet its goals. They had, in every sense, no stake in it. But what if they had access to shares through a company-created stock endowment (like the one Airbnb recently created for hosts)? The company’s success would be their success, and the resulting shared dedication to growth would help support an entire ecosystem.

I believe so firmly in the need for a shift towards long-term behaviors that I founded LTSE to do it. Recent events have only strengthened my conviction that we need to focus as much on value creation as we do on trading activity. If you’re interested in learning more about the ways we’re working to help realign the markets with true value, please visit us at ltse.com.



Friday, November 13, 2020

Out of the Crisis #22: Ron Klain on pandemic response and preparedness, entrepreneurship, and rebuilding trust in institutions

Earlier this week, Ron Klain was named President-Elect Biden's chief of staff. The two have worked together for the last 30 years, and Ron also served as Biden's chief of staff during the Obama administration. He was the White House Ebola Response Coordinator in 2014 and 2015, when the Obama administration set up a pandemic prevention office and created a playbook for managing future outbreaks. It included everything from preparing the health care system to testing, treatments, and the acceleration of vaccine development.
 
As 2020 began, most Americans thought the coronavirus--if we thought of it at all--was something that was going to be a problem in China only. Ron delivered the opposite message loud and clear. In a January 22nd op-ed in the Washington Post written with Nicole Lurie, he told us,"We are past the if question and squarely facing the how-bad-will-it-be phase of the response." 

Not only that, but he made it plain that the idea no one could have foreseen the pandemic was nonsense. His work on the pandemic playbook gave him an intimate understanding of the situation and the ways in which the response to it had already been bungled. Upon coming into office, the Trump administration had disbanded the pandemic prevention office and shelved the playbook, which is a good deal of the reason we find ourselves in the situation we're in today with the virus.

This conversation was recorded before the announcement of Ron's new position in the incoming Biden administration. At the time, he was advising the campaign while also serving as Executive Vice President and General Counsel at Revolution, a DC-based VC firm created to fund startups led by diverse founders all over the country. 
 
We talked about the need for joint public-private efforts to rebuild the country, the role of startups in the recovery, whether a different administration would have handled the virus differently, working with Biden, the advice he got from Dr. Anthony Fauci, and many other things.
 

You can listen to our discussion on Apple, Google, or wherever you like to get podcasts.



 




A full transcript is beneath the show resources below.
 

Highlights from the show:

Ron introduces himself and discusses his quarantine (2:32)
Disparities in how the pandemic has impacted people (4:01)
Ron's background and how it affected his initial awareness of the virus (6:12)
How the Obama administration's Ebola efforts led to pandemic preparedness  (6:51)
Why pandemic preparedness plans were dismantled (9:49)
Ron's attraction to and path through public service (13:02)
Could a different administration have handled coronavirus the way Ebola was handled? (16:17)
What a proper response would have looked like (18:55)
The problems that stem from not believing science holds the answers (20:15)
The problem with the "no recriminations" approach (24:04)
What concerns Ron the most, months into the pandemic (27:37)
Why testing is essential for containing the virus (28:19)
How better health strategy is also better economic strategy (31:07) 
Dr. Fauci's advice about fear and honesty (32:38)
What the pandemic has revealed about our civic fabric and the institutions that govern American life (35:03)
The polarized response to the virus (38:16)
What bipartisan politics and policy actually are (41:28)
What Ron thinks we have to do to regain trust in our institutions (43:47)
The steps we should be taking now to build a more resilient, equitable, society for the long-term (46:07)
The prospects for a coordinated response to everything from hunger to education to unemployment (50:52)
Building pilot programs with philanthropic, state and local money to demonstrate their scalability (56:32) 
The necessary dialogue between government and the private sector (58:48)
How Ron sees the role of startups and entrepreneurship in the recovery (1:00:43)
What it's been like to work with Vice President Joe Biden on the Recovery Act other initiatives, and his presidential campaign (1:03:31)
Doing debate prep with Biden (1:06:12)
The lessons from the 2008-2009 financial crisis and response (1:07:09)
What we need to get out of the crisis (1:09:54)
 

Show-related resources:

"I ran the White House pandemic office. Trump closed it." Beth Cameron, Washington Post, 3/13/2020
Charlie Brown, Lucy, and the football ("A Charlie Brown Thanksgiving")

Transcript for Out of the Crisis #22: Ron Klain

Eric Ries: This is Out of the Crisis. I'm Eric Ries. Would you believe me if I told you this whole thing was avoidable? I'm talking about the pandemic but also the ripple effects we are all experiencing: economic distress, social displacement, increasing inequality in schooling, in health care, and so much more. Is there a way we could've avoided or at least softened the damage? One trope I am really tired of hearing is that we are living through an unprecedented situation. Who could've seen this coming? The media, our leaders, people on social media keep mentioning this idea, as if we've never seen anything like this before. But this kind of pandemic is not actually unprecedented. Pandemics have happened before. Scientists have been warning about this exact scenario for many years. In fact, a coronavirus caused a shutdown as recently as 2005. This is not ancient history.

We need to stop pretending that we didn't know what to do. We could've chosen to know what to do. We could have learned from what worked in the past. There is a world of research and experts who have seen these situations before, know the common mistakes that societies make, and have developed a playbook for avoiding these kinds of disasters. We had the opportunity to act, and our leaders chose not to. We have to come to terms with the fact that this was a choice, as heartbreaking as it is to do so.

Ron Klain may know more about the leadership side of pandemic response than almost anyone in the U.S. He was named President Obama's Ebola czar in 2014 and led a coordinated response to that disease, resulting in only 18 cases and 2 deaths in this country. On top of that, he has dedicated his life to public service. He has been the Chief of Staff to two different vice presidents and has long been an advocate of science-based policy. Ron saw this coming. He wrote about this pandemic in January and laid out a plan we could have used to avoid the crisis. In our conversation, I ask Ron point blank if the outcome we are living through was inevitable, or could we have avoided this catastrophe? You're not going to like his answer. Here's my conversation with Ron Klain.

Ron Klain: I'm Ron Klain. I'm currently Executive Vice President at Revolution, a Washington-based investment firm. Previously, I've served in both the Clinton and the Obama administrations, including as White House Ebola Response Coordinator under President Obama.

Eric Ries: Ron, thank you so much for taking the time to have this conversation.

Ron Klain: Thanks for having me.

Eric Ries: Before we get into it, how are you doing? It's hard to focus on leading when you're not taking care of yourself. How are you? How's the quarantine been for you and your family?

Ron Klain: Well, we've been very lucky. No one in our immediate family's gotten sick, and of course that's the most important thing. I think it's a challenge, right? I mean, I feel very, very fortunate on the one hand. I'm working from home. I'm able to do my work from home effectively, and all the technology, everything works. But I do think, look, it's hard to be isolated from friends. It's hard. I haven't seen my mom the entire time we've been quarantined and socially isolated. So I think we're going through a lot of the same things that everyone else is going through, a lot more fortunate than the vast majority of the people. But I think even for those of us who have nice homes and the technology to work from home and the opportunity to work from home, there are challenges, as well.

Eric Ries: It's interesting to be going through something that so many others are at the same time. One the one hand, this has been a bonding moment for many of us, having a similar experience, and yet, in another way, this emphasizes the incredible inequity in our society. Some of us have been able to weather the storm relatively easily, have the right setup and other forms of support. And so many don't. I really keep thinking every day about those who don't have that luxury and how hard this must be for them.

Ron Klain: Yeah. Look, there's no question. From the start of this, what I've said is people say we're in lockdown, we're in stay-at-home, all these things. That's not true. Even from the most rigorous period of this, millions and millions and millions of people had to go to work every day so that millions others could work more safely from home. And that includes the people who generate the electricity that makes this conversation possible and the internet that works and makes this conversation possible, as well as, obviously, the people who we see more up front, obviously the health-care workers but also the people who are delivering things to our homes and putting the things in the boxes that get delivered to our homes and making the things to get put in the boxes to get delivered to our homes and so on, so forth. So this has been an incredibly uneven pandemic in terms of its impact on people. That's obvious. That's clear from the data that's coming out, a great disparate impact of people of color, particularly African Americans and Latinos, but also disparate based on class, disparate based on employment, disparate based on all kinds of other circumstance in terms of whether or not you've been able to be more safe or be less safe. And that's, I think, one of the real sterling and most pervasive features of what we're going through.

Eric Ries
: For those who don't know you, would you share a little bit about your background? I want to make sure people understand why your voice carries so much weight in this moment. And I also thought I would just start with a quote from something that you wrote, if you don't mind, because I couldn't believe that this was written on January 22nd of this year, at a time when I think it's safe to say that most of us thought coronavirus, if we'd even heard of it, was something that was going to be a problem over there. We've been dealing, for months now, with people who've been saying that no one could've known or no one could've foreseen or all this nonsense. It says, and here I quote, "We are past the if question and squarely facing the how-bad-will-it-be phase of the response." That was on January 22nd. Talk a little bit about how the pandemic first came on to your radar. How did you know this was going to be such a severe problem at a time when most of the rest of us were in denial?

Ron Klain: Well, we need to roll the clock back to before this pandemic, to the fact that in 2014 and 2015, I served as the White House Ebola Response Coordinator. And of course my principal job during that period of time was to coordinate that whole of government response that President Obama marshaled towards fighting Ebola, mostly over in West Africa, but also getting our country ready for the occasional case we were going to see, preparing our health-care system, preparing the testing, preparing the various treatments we were going to need, and of course helping to accelerate development of a vaccine.

We did all that, and in the course of doing that, I got very interested in and connected with people who have been focused on this question of pandemic preparedness and wound up then spending parts of the next five years working on this issue. I think that, "Nobody saw it coming is about as wrong as you could get." In fact, what's been widely circulated on the internet the past few months is a speech that President Obama gave in the middle of the Ebola response at NIH in December of 2014, which my team helped write, where he said, in December of 2014, "Hey, Ebola is a dangerous, horrible disease, but it's hard to spread. It's a wake-up call that someday soon," and he said then, "maybe five years from now, maybe 10 years from now," but five years later, December 2019. He said, "Maybe someday soon we're going to see a flu-like virus that spreads easily, that is deadly. We need to start to get ready for it."

So, during the Obama administration, we did things to help get ready for it, even after we fought Ebola. We created a pandemic response playbook that we wrote in 2015, in 2016. We set up a bunch of global surveillance systems like one called PREDICT that was supposed to find these diseases early on. We worked with the Chinese government to put U.S. experts inside the Chinese disease-response agency. So there were a lot of indications that something like this was going to happen, and a lot of steps were taken to prepare for it to happen. And when the first signs of this virus emerged in China in the public in December of 2019, I think it was pretty clear that this was exactly the kind of threat we'd been preparing for, exactly the kind of threat that we thought we would see here.

Now, look, early on, I think, as I said in that piece in January, it was hard to know how bad it would be. It was hard to know how quickly it would spread, how widely it would spread. And indeed, one reason why it was hard to know was part of the outcome depended on our response to it. When people say, "Well, who could've foreseen this," well, part of, I think, is we couldn’t have foreseen exactly how bad it's been because it was hard to foresee that our government would bungle this as badly as it did. So I think the bottom line, Eric, I think is people in the field knew that something like this was coming. They put in place measures to try to prevent the worst-case scenario, and yet our government has bungled and stumbled into the kind of disaster that we're seeing now.

Eric Ries: It's been almost criminally negligent. We don't have the language or concepts for this kind of disaster. No one would have ever thought to write them down as a crime before because doing them was seen as inconceivable. To me, the big tell more so than the stuff that has happened since the lockdown began is that many of the pandemic preparedness actions and structures that you talked about that were put in place while you were there were dismantled before the pandemic. Why?

Ron Klain: Yeah. It's interesting. Why on earth? So, look, I think that one thing we said at the end of the Ebola response was that we should never have to have one of these specialized disease responses again. And I said, "Let's set up, inside the White House, a permanent office on pandemic preparedness and response, of experts who can help prepare for what is inevitable and bring together all the different disciplines you need to monitor the risk, assess the risk, quickly respond to the risk, quickly run the response." So President Obama set up that office after I departed, put someone named Beth Cameron in charge of that office, a real global health expert. With the change of administrations, Donald Trump kept the office for the first year and put Admiral Tim Ziemer, who was a veteran of the Bush administration's work on AIDS in Africa in charge of the office, and I think continued to do a good job.

And then, in 2018, John Bolton took over as National Security Advisor, and Bolton had a very traditional view of security. His view was that the idea of a disease arising in a developing part of the world and spreading here... His view was that those kinds of threats, those were development problems. Those were problems for social workers and aid workers, that diseases would spread in poor countries, and we'd need to send relief over there. His view was, that wasn't a national security threat. That was kind of a do-gooder problem. We should have a bunch of do-gooders go over and do that stuff. So he said, "Look, what we're going to do is we're going to shut down this office that Obama created. We're going to keep a few people to keep an eye out for terrorists because Bolton was very focused on the idea that terrorists might bring diseases to this country, but not that tourists would bring diseases to this country.

In fact, what we've learned painfully over these ensuing six months is that it really didn't matter if COVID came here as a bio-weapon or merely because a bunch of people on tours from China and from Europe brought it here. We're all suffering a big price, and it has a big national security impact. So I think the answer to your question is a very traditional and out-of-date view about national security led people to view these threats, these what they called soft threats, not hard threats, as not real problems. It's the same reason why some people in the national security community, particularly ultra-conservatives, don't view climate change as a national security threat. It's an environment problem. It's a problem for the environmental people, but it's not really a security threat. Global health issues were seen the same way by Bolton and his allies, and as a result, the pandemic-prevention office at the White House was shut down, and the team was disbanded.

Eric Ries: Talk a little bit about how you first got into public service and into government. How does one eventually become the Ebola czar. It sounds like a career.

Ron Klain: It's not a career path. No, no, no, no.

Eric Ries: Talk about why you felt called to do that and just how your path through public service has led to this moment.

Ron Klain: I'm a lawyer by training, and I served in the Clinton administration in the White House Counsel's office and ultimately as Chief of Staff to Vice President Gore, and worked on Capitol Hill both before and after that in both the House and the Senate. So I had experience on the Hill. I had experience in the White House. At the end of the 2008 election, Vice President Biden asked me to be his Chief of Staff, and I spent the first two years of the Obama administration as Vice President Biden's Chief of Staff and also as overseeing the team that implemented the recovery act, the big economic recovery package that President Obama got passed in 2009. And implementing that package involved coordinating the work of 14 government agencies, spending $900 billion in two years.

Eric Ries: Which used to be seen as a lot of money.
 
Ron Klain: It used to be a lot of money. At the time, it was the most money the government ever spent on something like that. We got it out the door on time. We did it with a minimum of waste. It was seen as one of the most efficient, transparent government programs in history. And I think it was that experience that led President Obama to come back and take over the Ebola response. His view at the time, in the fall of 2014, was that he had excellent medical experts, he had excellent scientific experts, but that the government wasn't really executing fast enough, that the agencies weren't working together, the throughput of the system wasn't as fast as it needed to be. So he had the view that, based on my experience in implementing the recovery act, he would bring me in to oversee this vast Ebola response that he had commissioned.

We ultimately put 10,000 people on the ground in West Africa to fight the disease there. We got 100 hospitals and health-care facilities in the U.S. ready to receive potential patients, to test potential patients, to screen and isolate potential patients. We treated about 18 people in the U.S. with Ebola. Two people died. One person who was misdiagnosed initially in Dallas who passed away. And then we had a U.S. doctor who was fighting the disease in West Africa who got misdiagnosed there. And by the time we got him back to the U.S. to be treated, he was just too ill to be saved.

So we successfully treated 16 of 18 patients, and I think we put together the right kind of response in terms of testing people who needed to be tested, screening people who were coming from West Africa to the United States, tracing their interactions with others in America, and protecting the country from a potential outbreak here. Even while, obviously, the vast majority of our efforts were about fighting the disease in West Africa and containing it there, the best way to keep people throughout the continent of Africa safe and ultimately other parts of the world safe was to try to contain and fight the disease in the three countries where it was raging in 2014.

Eric Ries: Oh, man. I vividly remember the cable news histrionics and the fear-mongering and the way that we in the public received the story about the Ebola outbreak. I mean, given that some of those same players are still on the air now, we understand how many of those arguments were really, truly in bad faith. I guess one of the big questions that is lurking in the pandemic response is: was that outcome available for COVID-19 for the U.S.? If things had been handled differently, could we have had a similar deescalation? It's almost like a fantasy now that the experts could have been criticized for exaggerating and fear-mongering. That's a fantasy outcome. Is that something that we could've had? Was that possible, given the facts on the ground?

Ron Klain: I think we were always going to see many more cases of COVID in the U.S. than we ever saw of Ebola. I think that the disease is spread so much more easily. So I don't think we could've had the same kind of outcome. I do think we could've had a much, much, much, much better outcome if we had handled this properly. So, if you look at countries like Korea, for example, which had thousands of cases but many fewer deaths, not just two like we had with Ebola but several hundred, but nonetheless got the disease under control in relatively short order and didn't suffer anything like what we're talking about here in the U.S., 130,000-plus deaths already and continuing to mount at 500 more a day.
 
So nothing about the extent that we've seen was inevitable. I do this, though, that certainly some epidemic here or some outbreak and some spread here and fatalities here were inevitable. I mean, I think that... Could you have had an outcome that was more like H1N1 in 2009, 2010, where over the course of a little more than a year, about 13,000 people died, so about 1,000 a month? Right now, we're still at 500 a day on COVID. I think something like that was much more possible than what we've seen. So this was... I've said from the start we did a great job on Ebola. This was harder problem, and it was always going to be more difficult, but we sure have botched it up. I don't think there's any question about that, too.

Eric Ries: In a previous conversation, we had an epidemiologist, Dr. Robert Schooley from UCSD, and he talked a little bit about, from the medical and scientific perspective, what a proper response would've looked like and what could have prevented more than 100,000 deaths. I wanted to ask you the same question but from the point of view of leadership. What are the attributes that were needed to make this work? What I think has been so interesting in these conversations is the ways in which the pandemic reveals as much as it causes problems. It's revealed all these other epidemics of inequality, of short-term thinking, and a real failure to take leadership seriously.

Ron Klain: Yeah.

Eric Ries: I wonder if you could talk about, in a hypothetical universe where the president had called you after he saw your op-ed on January 22nd and said, "Ron, what do we do?"

Ron Klain: Yeah, sure.

Eric Ries: What would a proper response have looked like?

Ron Klain: Well, so first of all, I think the pandemic both reveals and causes. I think both things are true. And I think, look, the first thing I would've said was... And I said that in the piece and that you read from, Eric, and in the other pieces I wrote in January. I wrote a number of pieces in January, early February. I testified. I testified at the first hearing Congress had on coronavirus on February 5th. So, to me, it starts with putting science first. People always think that's odd coming from me as a non-scientist, but when President Obama brought me in to run the Ebola response, his first directive to me was, "There are the scientists over there. They're going to make all the strategic decisions. Your job as a policy person is to figure out what government policies will take that science and turn it into action and implement their scientific and medical directives through this complicated government we have of federal government and state government and local government and private health-care systems and public systems and so on and so forth."

That's where policy people are needed, but the key strategy of the response has to come from science and medicine. And I think the number one problem we've had in the U.S. is the continued effort to either silence, quash, bend, ignore the scientific and medical advice when it came because it was inconvenient or unpleasant or whatever or because we have, also, this cultural trope for some political movements in our country that, like, "Science is bad," or, "Science is elitist," or, "Silence is liberal," or any of these crazy-

Eric Ries: But they've had a lot of practice on climate change.

Ron Klain: Practice on climate change and all kinds of things.

Eric Ries: Tobacco, I remember the fight over tobacco.

Ron Klain: Tobacco, all these things, right. So I think that's where you have to start. You have to start with the idea that: where are the answers going to come from? They're going to come from science. That's the first thing. The second thing I would've said is, "You have only two choices with an epidemic. You over-respond or you under-respond. This isn't like a business problem where you can do just in time, just enough inventory, just the right way. You are either going to wind up with too many test kits or too few, but never the right amount. You are going to wind up with too many hospital beds or too few, but never the right amount because epidemics are unpredictable, because there's uncertainty. So, to quash these things, you have to overdo it. You have to just imagine the worst-case scenario, deploy against the worst-case scenario, and then, if you succeed, you're going to have overspent, over-deployed, over whatever. And people will criticize you for it, but what they're criticizing you for actually is the success of your response."

And here, I think there was an effort early on to just do just enough. Maybe we won't need so many tests. Why should we spend all this money and do all these things to make all these tests? Maybe we won't need that many hospital beds. Maybe we won't need that much PPE. Let's just see. Let's just see. Let's just see. Right? And the problem is we got behind on all these critical things. We got behind on tests. We got behind on beds. We got behind on PPE. We got behind on critical equipment. We got behind on critical chemicals and reagents and things like that. And once you're behind, catching up is super, super hard. It's an exponential problem. And it's not just that. Also, because you're behind, it keeps getting worse. And so you get further and further behind.

So, if, in fact, we had woken up in late December, early January and ordered millions of testing kits and begun to test people early and appreciate it early on, just how widespread the virus was, we would've then surged contact tracing and identified who has the disease and where is it, and who are they having contact with, and isolated chains of transmission. And we would've surged protective gear to the people on the front lines so they wouldn't be spreading it or getting the disease. And so front-line workers who were doing the deliveries and the groceries and all those things wouldn't be getting it and dying and spreading the disease and all these things that are happening.

If we had done all that, Eric, in January, in February, we'd be having a conversation. Some people would be saying, "Oh, my god. You spent $1 billion on buying gloves that were never used. What an overreaction," and so on and so forth. But I'll tell you what. We would've saved a lot of lives, and the money we spent on things we didn't need would be dwarfed in comparison to the economic losses we're suffering because we didn't do that. So I think those are really the key pieces that were missing here: a lack of science, a lack of real intensity and effort on the response.

Eric Ries: I was involved tangentially in a number of the relief efforts early on, especially around PPE and education and hunger. So I had indirect contact with the government at various levels and got to see more than I ever wanted to see, believe me, but I'm sure quite minor compared to what you've seen in your career. I just got a little bit of a taste of the dereliction of duty that has happened here. One of the things that really struck me among advocates, though, especially early on, was that there really was a no-recriminations policy. Almost everyone I talked to said, "Look. Look forward. Don't look back. The fact that mistakes were made... We'll obviously need to have a truth and reconciliation commission at the end of this. But right now, we need to focus on getting the right thing done, and that means working across the aisle. That means working with people who made mistakes. Everything is forgiven if people will make the right decision now."

I think that was really admirable, and it took a tremendous amount of forbearance on the part of these advocates and the folks working in the field. But one of the really maligned consequences of that is that the public is not really properly informed about what was happening as it was happening, even though we who were working on the problem had this idea that we understood that this had been incompetently handled or maliciously handled in some cases. We all nonetheless had this collective delusion that this was going to be a short-term problem. We said, "In a few weeks, when people finally do wake up to the reality of it and start addressing it properly, then we could deal with everything else later." Now later has come, and it seems to me like the collective delusion is still operative. We're still not taking the problem, even right now at this very moment, seriously enough. Talk a little bit about what worries you the most at this point, what our response is now as we enter summer with cases spiking again.

Ron Klain: Yeah. It's an interesting point. I certainly agree with the idea that early on, a no-recriminations approach was the right approach, but I think that became kind of a no-accountability approach, which bled into the wrong approach. So I would go, and I would speak up publicly, and I would say, "We don't have this testing problem fixed." And people would say to me, "Well, don't point fingers." And I would be like, "Okay, but we don't have this testing problem fixed." I'm not saying we didn't have it fixed in January, though we didn't, and I'm not saying we didn't have it fixed in March, though we didn't. But it's April. We still don't have it fixed. And I think it was fair for the advocates, the people who had this view, to assume a very reasonable thing, which was that the Trump administration would wake up and start to do stuff. So, leave aside how angry we should be about their failures on testing in January and February, there's a sense that by March they were going to get it together. They were going to do it. We could worry-

Eric Ries: You're going to laugh at this, but I had two or three weeks of my life where I was told every single day that someone had it on good authority that tomorrow FEMA was going to make the mass order of PPE, and therefore we could all stand down. I actually heard that every single day for like 20 days in a row. I felt like the people that I was hearing it from sincerely believed it. It was like Lucy and the football over and over and over.

Ron Klain: It is Lucy and the football. So I think that's a real thing that happened here, which was just a reasonable disbelief by reasonable people that things wouldn't reasonably change, and they didn't. So what concerns me as we sit here today is that none of these things are still done. And I'll tell you, what concerns me the most, I suppose, is a certain kind of defeatism. I saw someone who I really admire and respect, I'm not going to name him, but who's a real progressive leader, tweet today, "Well, it's too late for testing and tracing now. It's gotten out of control. We've lost control of it. We need to figure out what to do now," so on and so forth. Look, it's not too late for any of these strategies. The countries in Europe, if you look at what happened in Europe... I mean, I mentioned Korea early, which got on top of this early and did a good job of not letting it get out of control.

But look at what happened in Europe. They did not do a good job of getting on top of it early. It did get out of control there. They did suffer losses of life, but they never gave up on getting in the game. And ultimately, in March or certainly by early April, they had robust testing regimes. They had robust contact-tracing regimes because I think, in our country, we're a little focused on this testing thing, as we should be. We don't talk about contact tracing enough. Testing makes tracing possible. Tracing extinguishes threads of transmission.

Eric Ries: I will put a link to testandtrace.com in the show notes. It's the definitive resource. This is very important.

Ron Klain: I appreciate that, yes. So Europe not only tested. They traced, and as a result, yes, way too many lives were lost. Yes, it was too late, but they now have the epidemic down to... not wiped out, but down to a far, far, far, far lower level than we have in the U.S. The other day, the entire continent of Europe, 450 million people had fewer new cases than the state of Arizona, which has about 7 million people in that. So the point is the basics here remain the basics. I worry that we're just at a place... We know that, as a political strategy, the Trump White House is selling, "Hey, you know what? Nothing you can really do about it, just going to have to learn to live with it. This is just one of these background risks we have in society. Just everyone go on with their day." That is them. What I worry is that the people who are fighting this start to give up or start to think, "Well, I guess there's nothing we can do," and we just throw up our hands. There is still something we can do. We can test. We can trace. We can provide PPE for people, people in the healthcare system and also the people we're sending back to work.

I mean, I saw an event at the White House yesterday, I think it was, on how all the K-12 kids should go back to school, and they should all go back to school. Well, okay, that's a plausible position, but only if you're going to mask and face-guard the teachers and glove them and protect them. And if the White House's position is, by the way, "Teachers, you know what? You have to go to the five-and-dime store to buy your own chalk because we don't give you school supplies. And now, by the way, teachers, you're going to have to figure out how to get your own masks, how to get your own gloves. You're just kind of on your own," that's not a strategy. So I do think a concerted federal effort on testing, on tracing, on equipment, on clearer guidance on what should open and when it should open and how it should open safely... I think all those things would obviously save lives.

I think, ironically, Eric, the other thing about it is better health strategy here would also be better economic strategy. The president set up this thing where he says basically, "You know what, a bunch of scaredy-cat liberals want to see us focus on health. I'm saying we need jobs. Let's reopen as quickly as possible. Let's reopen without standards. Let's reopen willy-nilly. Let's reopen without protection for workers and customers. Just open." Not only is that approach going to cost lives... That's pretty obvious to people, I think, but that approach is going to wind up hurting the economy even worse because we know what's going to happen, which is... America's a consumer-driven economy. We don't make people shop. There's no law that says, "You must go out to eat." There's no law that says, "You must go into the dress shop and buy a new dress. People consume when they think it's safe and smart to consume. And when they see their government throwing up their hands and doing nothing to make it safer, they're not going to consume. So you see all the data starting to come in now that restaurant usage is actually going down, not up, in these early-open states. Bricks-and-mortar retail are going down, not up. Why? Because consumers don't feel safe. I think that's the economic flaw in the president's thinking.

One last thing on this point, when President Obama hired me to be the Ebola Response Coordinator, I obviously knew very little about diseases and response and these kinds of things. I knew how to coordinate government policy but didn't know about the substance. So, of course, the very first phone call I made was to Dr. Tony Fauci. And we talked at great length about a lot of the current issues and the things where he wanted my help in terms of getting the government to do better and whatnot. And I asked him, "Give me just some general advice, Tony. Give me some way to think about this." What he said was fear was a really important thing to think about. He talked about the early days of HIV/AIDS where Dr. Fauci was one of the real leaders from the start trying to fight this horrible disease.

And he said that people had all kinds of fear about getting HIV/AIDS in all kinds of ways, and that fear really impacted certain kinds of businesses, certain neighborhoods, so on, so forth. And he said, "Look, the thing about fear is the worst way to deal with it is to tell people they're being stupid or to deny it or to tell people you have absolutely nothing to worry about because when you say you have absolutely nothing to worry about, people think you're lying because they have something to worry about. So the most important thing is just to be honest with people, to tell people honestly what's riskier and less risky, how they can be safer, how they can manage risk in their lives."

Eric Ries: Which we didn't do with masks, for example.

Ron Klain: Like we didn't do with masks. His point was, if you're honest about what makes people afraid and tell people the truth, that is the best way to manage the social and political consequences of fear. And I've thought about that countless times over the course of this COVID epidemic. You see Dr. Fauci staying true to that advice repeatedly in public, when he's allowed to speak publicly by the Trump administration, telling people how things are, what's working, what's not working, so on and so forth. And I think the American public is incredibly generous in their willingness to accept that not everything is going to go right, as long as you're trying to make it go better. Instead, Trump stands up there and goes, "Nothing to worry about, nothing to see here, nothing to be afraid of. It's a hoax, whatever." That just makes people's fears worse, and I think, in the long run, that obviously has big health care consequences. It also has big economic consequences because people just aren't fooled. They know what's going on, and unless they believe their government's really addressing it, they're not going to respond economically, as well.

Eric Ries: I really appreciate you saying that the pandemic both causes problems and reveals problems. I think that's really right on. If you think big picture now, what are some of the things that have struck you? What do you think the pandemic has revealed about our civic fabric, about the institutions that govern American life compared to, for example, what we've seen in other countries or compared to the image we had of ourselves pre-crisis.

Ron Klain: Yeah. I think three things. I don't think any of these things were unknown before the crisis. It's not that we didn't know these three things, but I think the nature and extent of them have really come into sharp relief. The first is the disparities we have in this country by race. We've just seen a huge disparate impact of this epidemic on people of color, particularly Black people and Latinos. I think that disparate impact, again, not a surprise to anyone who's looked at any other public health issue in this country. That's always true, but I think it's just really come home in a really powerful moment.

Of course, it also overlaps with the murder of George Floyd and the Black Lives Matter protests and whatnot. It's obviously a coincidence that George Floyd got killed in the middle of this. It's not a coincidence, though, that the reaction to the murder of George Floyd is infused with this sense of a life-or-death moment for people of color in this country around COVID. It's just a lot of things that have always been there but really heightened and dramatized by this epidemic. So that's one thing that it's revealed.

I think the second thing it's revealed is this great disparity in our economy, and not just between rich and poor, which we always knew was there, but between the kind of work that people can do at home and the kind of work that requires people being out in the world and working that way. Obviously, I worked for a long time for Vice President Biden. I'm a big supporter of his. I'm working on his campaign, and he's got a TV ad now where he says, "The delivery workers, the grocery store workers, the warehouse workers, we've got a new name for them. We call them essential workers. We praise them, but we have to do more. We have to pay them." And it's not like they weren't essential before. It's not like people were out there hunting and gathering their own food before. We were beneficiaries of the convenience of either getting it delivered to your house or, before COVID, the convenience of walking into a grocery store and seeing a billion choices all perfectly stocked on the shelves when you wanted it, where you wanted it, and all these things.

Eric Ries: Never mind the people that actually grew it.

Ron Klain: Never mind the people who grew it and the people who picked it and the people who then got it from the farm to the processing wherever, and all these steps in this whole process. So this all existed kind of behind the scenes. Now I think the fact that these men and women who do this work are the least paid in our country, very often, are the ones who've been at risk of getting the disease, I think it's really driven that home.

Then I think the third thing that, again, we all knew was just how polarized we are as a country around some basic things. One thing that's been different about America and other countries has been the fact that this has been kind of a polarized response in our country, the idea that we have people... Every day, you go on social media. You see some video of some person yelling at some other person about mask-wearing, and people with these crazy conspiracy theories that, even though their doctors have been wearing masks for like 100 years, that they're going to die from CO2 poisoning because they wear a mask or whatever, that polarization, which, again, everyone who's followed this knew existed before. I think people had maybe this optimistic hope that in a moment of national crisis, you might be able to set that polarization aside, that when really life and death stakes turned on it, people would set it aside. But I think people know that that is true now, and we're seeing the grave, grave consequences of that in a really painful way.

Eric Ries: It's so interesting going back to your experience with Ebola because it's not like polarization was low at that time.

Ron Klain: No.

Eric Ries: And people made an attempt to polarize that issue politically, of course, and yet you had leadership who was willing to put that aside and do what was in the interests of the nation. Is it right to call this polarization, or is there something else here? How do we make sense of the fact that there's an asymmetrical nature to this?

Ron Klain: Yeah, it's a really smart point, Eric, and having said my little polarization speech, I will also say I give the opposite speech at times. Ezra Klein had a great piece out in Vox last week along these lines, which is that it's kind of partly polarization, and a lot of it's just Trumpification. I mean, what's interesting about the mask thing is that, while there are differences among Democrats and Republicans on masks and Democrats are more likely to Republicans to wear masks and feel more likely there should be mandatory mask rules than Republicans, it's also fair to note that, in fact, a majority of Republicans do wear masks. A majority do think there should be mandatory mask laws. The big difference here isn't really a classically polarized difference but a difference between maybe 80% of the country, members of both parties who say, "This is what we should... and 20% that's holding out.

So I think it's important not to conflate this fact that we do have 20 or 25% of the country that's following Trump, to not conflate that with broad, just general polarization like, "Oh, we have different views on tax policy. We have different views on... This is something where... One reason why Trump is unpopular right now is he is pursuing a view of this that is a distinctly minority view. So I do think it's a fair caution to be careful about how even I use phrases like polarization and to be a little more precise in how we see this moment. There is no question that we are divided, but the division is more like an 80/20 division, not like a 55/45 division.

Eric Ries: It really reminds me, and you were there so I'm really curious to hear your perspective of it... It reminds me of the early days of the Obama administration in 2009. The president had run on a desire to bring reconciliation and bipartisanship back to Washington. I remember reading his book and the way he said, "We're going to incorporate ideas from both sides." The political opposition at that time had a conscious strategy that if they opposed something, then it couldn't be bipartisan by definition, and therefore he couldn't be a success by that metric that he, himself, had laid out as a marker. I remember feeling frustrated at the time that the press went along with that, rather than saying, "Wait a minute. Shouldn't the test of whether something is bipartisan be not whether politicians of different parties sign on because that's easy to game? But shouldn't it be based on the polling data, based on the evidence we have?" There are policies that command a bipartisan majority across the whole nation.

I think it's meritorious, and we should give politicians credit when they do something that is bipartisan. But even if they have bad-faith opposition that decides to oppose it even though, just a minute ago, they had been for it, and if we had made that choice as a society then to view issues through that lens, wouldn't we be reaping the dividends of that right now?

Ron Klain: Well, hard to know, but I think it's a very good point. And what I'll say here is this actually goes one step further because let's give some credit here. Mitch McConnell wears a mask in public, publicly says people should wear masks. Kevin McCarthy, the Republican Leader of the House, wears a mask in public, says people should wear masks. So, particularly on this mask issue, this isn't like 2009 and Republicans versus Democrats and so on and so forth. You even have many elected Republican leaders joining Democrats saying, "This is what we need to do," so on and so forth. And really, Trump and his most core identifiers are really out there on their own on this. They're really the outliers. That's, I think, what's so striking here, which is that even Trump's more traditional political allies like McConnell, like McCarthy, others, aren't willing to walk down the plank with him on this mask thing.

Eric Ries: Funny that they would draw the line there.

Ron Klain: Yeah. Well, thank goodness.

Eric Ries: Thank goodness. That's right. They're probably saving lives right now.

Ron Klain: Absolutely.

Eric Ries: What do you think we have to do to regain trust in our institutions? I mean, it's a catch-22. Right now, some of the very people that are actively damaging these institutions are on TV saying, "See? This is proof that you can never trust institutions. You can never trust elites to run them because we ourselves screwed it up." And you know for sure that many of them are going to be on cable news next year saying that exact same thing, probably on January 22nd. What do we do about that?

Ron Klain: Yeah, I think it's a hard problem. Look, I think, in the end, the government and its leaders need to do the right things and hope that people see that they’re the right things, hope that they see the results, hope that they follow along. There's often an answer to that, and then there's a political answer to that. The problem with that is that politics exists in real time, and it takes a while for reality to be proven. So I think about health care reform as a good example of this, which is that 2009, 2010, President Obama, Vice President Biden, Democrats in the House and the Senate put a lot of capital and energy into passing the Affordable Care Act and providing health care to tens of millions of Americans and protecting people from pre-existing conditions and protecting young people that could stay on their parents' program, policies and whatnot.

Eric Ries: It helped a lot of entrepreneurs, by the way...

Ron Klain: Helped a lot of entrepreneurs.

Eric Ries: ... because so many founders cannot get health insurance.

Ron Klain: Yeah, a lot of ways to really... positive for, obviously, health care, but also positive for the economy in all kinds of ways, and paid a huge political price for that in 2010 because the benefits weren't really baked in by that stage in time, and the costs were very apparent. Now, 10 years later, President Trump's effort to roll all that back is a political liability for him. And 10 years later, the people who made those decisions in 2009, 2010 are the political winners from having been on that side. But in real time, it was a big political problem. So I think that's unfortunately the nature of our political life right now. I don't know what will change it. I just know that this is the most important thing. President Obama always believed, and I agree with this, that the most important thing you can do is just do the right thing. I do think progressives need to do a better job of explaining to people why they're doing the right thing and explain to people what they've done and try to do a little better job in the realtime of winning the political battles over these things. But you got to do the right thing and then try and tell the story on that.

Eric Ries: Let's talk a little bit about the long term. What are the steps we should be taking right now to build a more resilient, more fair, equitable, just society on the other side?

Ron Klain: I think clearly we need to act on all three of the most obvious crises and a fourth lingering crisis. So we need a meaningful economic policy and economic policy changes. And that means creating jobs for people who have suffered permanent job losses as a result of this. There are going to be millions of people who have lost their jobs for good as a result of this. We need to create jobs for them. We need to raise incomes, both the minimum wage and other things that raise people's incomes. We need to help families cope not only through this crisis, but to be better off after this crisis is over. There's a whole series of economic measures that need to be taken. Obviously, health care reform is part of that.

Secondly, we need to really still address this COVID crisis. President Trump keeps saying, "It's going to go away. It's going to go away like a miracle. It's just going to disappear," whatever the formulation of the day is. It changes, but it's some version of that almost every day. We're going to need a lot of government action to do that. We are going to need to vastly ramp up testing and tracing and get to a place where we get this under control until we have a vaccine that's widespread and widely administered and whatnot. So that's the second thing.

We have a racism crisis still in this country, and we need to address that. We need to address that with criminal justice reform policies. We need to address it with policies that address all forms of systemic racism and housing and employment and the ability to start a business and to grow a business and all these things. Then we have the climate crisis, which has kind of slid off the front page because of those other three crises, and that's the nature of the climate crisis, unfortunately, which is it's always not on the front page because other things take its place in terms of the day-to-day news. But I think it's really important that we address it.

COVID is a really interesting metaphor for the climate crisis, or a comparison or whatever part of speech you want to use to describe this, which is that there's a crisis that people ignored early on, kind of thought it would go away. Trump even used the word hoax to describe it, like he's used for the climate crisis. Scientists were disparaged. People who issued warnings were considered to be negative Nancies or whatever you want to call them, and so on and so forth, alarmists. And then, all of a sudden, it was here. And we're seeing the death toll and the devastation, the economic consequences.

Eric Ries: Well, to your point about the defeatism.

Ron Klain: And the defeatism: "Nothing we can do about it."

Eric Ries: Nothing we can do about it now that it's so bad because we didn't act before. Therefore, we don't need to act now.

Ron Klain: Act now... Again, I think climate's a more slow-moving version of COVID but, in some ways, even more drastic and dramatic. So we need to really address that, also, as a country and as part of a global community.

Eric Ries: So, to me, the comparison point that keeps coming up from history is the WPA and the effort to put the unemployed back to work doing socially useful things. The need for that scale of investment keeps coming up in these conversations again and again and again, just the really obvious stuff. We have idle factories right now in this country, and we can't import enough PPE. How is it not the most obvious thing in the world that we need to have a mass effort to retool, re-skill, retrain, insource production of essential items? And, although it's masks and gowns right this minute, the production of melt-blown polypropylene, in the future we'll need to be manufacturing new items. So we need to have a WPA for manufacturing.

But shouldn't there also be a 21st-century digital WPA? We have millions of working families who can't work and send their kids to school. So we need to have a mass of investment in online education and tutoring. Well, good news. There's millions of people who are out of work. There's college students who can't go to school. There's retirees. There's knowledge workers of every kind who are not as busy as they used to be. Those people could all be online tutors for kids. We could be investing in mastery learning and supplemental education, closing the digital divide in education, making sure we don't have a lost year for students if we can't reopen schools. We could be doing that for every working family in the country.

It's so obvious in hunger. We have restaurants closing and going out of business. We have farmers plowing over crops at a time of unprecedented hunger. How is it not the most obvious thing in the world that the government should be funneling money to those private enterprises to keep them open, keep those people employed, getting the macroeconomic boost of that, and using that to feed the hungry. I feel like we're tackling many of these symptoms individually. There's plenty of nonprofits and people advocating for their one issue. But what do you think the prospects are for us to zoom out and say, "Okay, hold on. This is a massive societal-wide disruption with second, third, fourth-order effects that are all of a similar form"? Do you think we could do that coordinated response like our grandparents had to?

Ron Klain: Yeah, I certainly hope we're going to see that. As I mentioned before, I support and am working with Vice President Biden. He's got a big speech coming up where he's going to lay out his economic plan he calls Build Back Better that really addresses a lot of what you're talking about, Eric, that addresses the need to retool our supply chain, first and foremost, to start there, to insource the production of a lot of these key goods that you're talking about and the other things we're going to need down the road: medicines, treatments, therapeutics, ultimately vaccines, things like that. We should be insourcing as much of that as possible to create more security and speed in our supply chain and create more jobs, right? We need to really ramp up the production of all the PPE you're talking about.

The president has a tool, the Defense Production Act, that he could use, that Governor Abbott wouldn't have to send the National Guard to make masks. We could send workers, people whose job it is to make stuff, and they get paid, and we get the stuff we need. President Trump's been unwilling to use that authority for some reason. Vice President Biden says he will as president. But I think we also need to think bigger, as you're saying, which is... One idea the vice president's had specifically is to create a contact-tracing core of 100,000 people to take a lot of those young people who are out of work, who can't get jobs and let them do something really important, which is to help them run down this disease, learn skills in public health and community health and may wind up being great careers for them. Once this is all over, we could redeploy them to fight opioids and other great public health crises we have. These aren't just one-time things.

Then we also need to really ramp up our caring economy. We need to really increase the number of people you were talking about, providing care for the children, for the elderly, doing the kinds of teaching you're talking about, doing all kinds of online opportunities you're talking about. I think one thing that's been a weakness, aside from all the other weakness, but one other thing that's been a weakness has been a perspective that this COVID crisis is a short-term thing, that it's like a really bad blizzard, that, "Oh, if we wait a couple days, it goes away." We plow up the streets. We all go back to our normal lives by Thursday, by Friday, by next week, so on and so forth. And I think that's led us to ignore these larger solutions that will take longer to ramp up. I mean, the WPA is a really interesting metaphor, everyone loves the WPA. It's a really interesting story. It took two and a half years before it started to employ people in significant numbers. I mean, this was not a short-term answer to the Great Depression. It was a long-term to the Great Depression.

I think, here, while certainly I hope we get COVID under control way before two and a half years, and I do think we could stand up some of these larger things much more quickly than the WPA was stood up in the 1930s because we have a lot of tools... We have a lot of advantages over the 1930s, no question about it. But I do think, look, it'll take longer to do some of these bigger things you're talking about. But I think, sadly, the effects of this disease are going to be with us for a long time. And as we talked about earlier, Eric, the effects of some of the underlying social problems the disease has laid bare are definitely going to be with us for a long time. So I think a bigger solution to this around insourcing, around manufacturing, around dealing with the climate crisis by creating jobs and building a cleaner energy economy and around really beefing up our caring economy, these things will pay benefits for the COVID response. There's no question about it, but long-run benefits for our country, too.

Eric Ries: I want to run an idea by you.

Ron Klain: Please.

Eric Ries: Because one of the themes in these conversations has been to inspire people to take action. I've been in dialogue with a lot of philanthropists and nonprofit leaders and, frankly, tech leaders who have not historically had a lot of interest in philanthropy who are getting in the fight right now, some of them for the first time. But this defeatism and sense of despair that has been so much a part of the messaging around the crisis has created a lot of confusion. What good could it do? What can I do?

I helped start this hunger-related nonprofit, and we're just trying to turn philanthropic dollars into food at the most efficient rate possible, feed as many people as possible. And I was talking to a philanthropist about it, and he was like, "What's the point? The government should be doing this, and they're not. So what if you fed an extra 100,000 people?" He was very dismissive about it. And of course, I was like, "Tell that to the 100,000 people who wouldn't have had a chance to eat." Yet I also understand his point. So I feel like what we're missing is a bigger vision of: what can people do to lay this groundwork? So I want to run an idea by you. Just tell me if you think I'm out to lunch here, no pun intended.

If there's going to be a delay before the government really is going to take this seriously and make the investments that are needed, hopefully... It's an election year now, but there'll be a new Congress soon. And so hopefully it could be early in the new year. If there's a possibility that it could happen then, don't we have an urgent need for shovel-ready projects? I know that would be a phrase near and dear to your heart because I remember how important it was in 2009. We didn't have enough shovel-ready projects, and that inhibited our macroeconomic response.

Should we be building pilot programs right now using philanthropic money, state and local money, whatever resources we can get our hands on to demonstrate their scalability, especially given that we have digital technology our grandparents didn't have? I feel like in the next six months, we could have 20, 50, 100 pilots in these different areas at relatively modest cost that would show that there is a way to spend this kind of money responsibly and effectively, the kind of money that's going to be needed to reverse the depression once it's available. So say a little bit about what you'd like to see the private sector, the NGOs, the tech community... What should we be doing now to prepare for this moment of shovel-ready action?

Ron Klain: Yeah, I think it's a great point, Eric, and I think that these philanthropic efforts are both meaningful in and of themselves... You feed one person, that's one less person that's hungry, let alone 10,000 people or 100,000 people. I mean, that's meaningful change. But also, as you say, they're really important for what they can teach an incoming administration about the way things can be done. And I'll use a very concrete example on this, which is my... I'm very proud to call him a friend, José Andrés at World Central Kitchen, who not only is feeding a ton of people in all kinds of parts of the country and the world in response to COVID...

Eric Ries: Millions the last time I checked.

Ron Klain: Millions, millions of people. If you go back to what he did in Puerto Rico after the hurricane, if you go back to what he did in Haiti and other places, what he did is exactly what you're saying, which is he found ways to feed people so effectively, so efficiently that they are now the standards that the government increasingly uses when it responds to a humanitarian crisis. I mean, his philanthropy both saved a lot of lives and innovated about creative ways to use existing kitchens and existing resources, how to feed people efficiently, how to get them hot meals, not just some prepackaged thing that had been sitting in a warehouse for nine years, that now FEMA uses some of his techniques when they respond. So I think this needs to be a dialogue.

I mean, I think that one thing that frustrates me as someone who's been in venture capital, in the private sector world is sometimes business people have a view that they have all the answers, and the government's filled with stupid people. And then sometimes government has a view that it has all the answers, and these business people are all wrong. The fact is there's smart people in both sectors, and there's stupid people in both sectors. And there are good approaches in both sectors, and there are bad approaches in both sectors. And if government's working well, it's learning from private models. It's hopefully also then regulating and providing direction to private players, and hopefully you get the best of both.

I mean, I think the COVID response is the illustration of the worst of both in the sense that the government did a really shitty job. Then, in the middle of it, Jared came along and said, "These government people are horrible. I'm going to bring in a bunch of private people. And instead of using my government tools, we're going to build a completely separate task force that uses only private-sector solutions to solve COVID." And that completely failed. We were going to have testing in every single big-box store parking lot. We have them in less than 1% of the parking lots right now. The people who were making the test chemicals didn't know if they were supposed to ship them to Jared's testing centers or government testing centers. It was just a complete mess.

Instead, we really need a whole-of-society response to this. We need a unified response where government is leading, it's working with private-sector models, it's drawing the best of all worlds, and it's willing to use the tools at its disposal. So we'll use the Defense Production Act. It's willing to use the authorities it has to leverage the resources we have as a country to help solve these problems. So I definitely think, I definitely hope that philanthropic leaders, business leaders will develop solutions in the months ahead, and those solutions will be leverageable by government and certainly learnable by government, and hopefully will lead to better policy in the future.

Eric Ries: We haven't really had a chance to talk about your work with startups, but your day job is actually at Revolution, started by our mutual friend, Steve Case. Do you want to talk a little bit about the role you see for startups to play in this recovery? I think something that's not super well understood on the policy side is that net new job creation fundamentally comes from entrepreneurship. And when people hear the word startup, they think San Francisco or Silicon Valley, and they have a very stereotypical image in their mind. But actually, entrepreneurship is critical to the growth of the economy all across our country.

Ron Klain: Yeah. I mean, I think entrepreneurship plays a critical role in creating jobs, not just in San Francisco, not just in New York, not just in Boston, the big venture and startup hubs in our country, but throughout the country. One thing we do at Revolution is we believe there are great startups all over America. We back them all over America. We backed hundreds of startups outside of Silicon Valley, outside of New York, outside of Boston, in every part of the country, and also diverse founders. There are many great women founders, people of color, founders of color that we've been able to back outside these three big hubs. So I think that, as we go to tackle this COVID crisis, we're going to find that startups are a key part of it. They're a part of innovating and developing responses to it. They're a part of building back the economy better after this has all gotten under control, part of really creating the kind of resilient economy of the future that is less impacted by things like that. So I think there's a lot of reasons to really focus on startups.

Our policy, the government policy thus far hasn't been that focused on that. The government policy's really been focused a lot of money to big businesses like airlines and things like that and then a good amount of money to traditional small businesses: pizza parlors and restaurants and dry cleaners and things like that. They're vital, and they definitely need to stay open. Of course they should've been included, and of course they need help. We really haven't thought much about, hey, what's it going to take to really get the kinds of startups you need coming out of this crisis to help provide solutions to the crisis and to really create the real job growth we're going to need? Because, look, one thing we know is going to happen is the economy on the other side is going to be different than the economy that went in.

Probably, there's just going to be less brick-and-mortar shopping. If you've ordered stuff online for six months, maybe you don't go back to the store in month seven, maybe less in-restaurant dining, just a lot of habits, less viewing of movies in movie theaters. There's displacement in the economy. We're going to have to fill that gap with a bunch of new jobs, and startups are a big part of creating those new jobs.

Eric Ries: I feel like I'd be remiss if I didn't ask you at least one political question while you're here.

Ron Klain: Fire away.

Eric Ries: Because compared to all of our guests, you must be the one closest to Vice President Joe Biden, who is one of two people who is overwhelmingly likely to be our next president. Will you talk a little bit about what it's been like to work with him? You talked a lot, especially the work on the Recovery Act and the work that you did with him out of the spotlight. Then what's it been like watching him ascend to the center of international attention and helping with the campaign?

Ron Klain: Yeah. So I first went to work for Joe Biden 30 years ago. I started working for him in the 1980s and had the pleasure of working on his Senate staff, worked on the judiciary committee staff in the 1990s. So he's been a mentor and a friend for a very, very long time. The thing I always tell people about Joe Biden is what you see is what you get. He is a very down-to-earth, very nice person, a giant heart, compassionate, decent person. And I think that the presidency and presidential campaigns don't change you. They reveal you. We've seen over the past three years the kind of person Donald Trump is, and I think we've seen, over the course of this campaign, the kind of person Joe Biden is, someone who always has that moment to talk to people, tries to reach out to people, really worries about the consequences of things on people.

I think that great presidential campaigns are the combination of a great candidate and the right moment. While I think Joe Biden would've been a great president for this country at any time, I think he's especially the president we need at this time to restore just some sense of decency and honor to the presidency, to try to show some compassion and understanding and to explain to people that experience in government is a good thing. Government's a hard thing to run. You need to know what you're doing. Just his background, his success in getting bills passed and working with Congress, getting things done, I think are the kinds of things we need. He's got the right values and the right experience.

It's funny. If you showed up tomorrow morning in New York and said, "I've got an idea. I want to build the most complicated skyscraper ever, but I've never worked on a job site or a building before," people would laugh you out of the room. And yet, Donald Trump showed up and said, "I've got an idea. I want to run the most complicated enterprise we have in America, government. I know nothing about it other than that I hate it." And we're seeing the consequences of that. I mean, we're seeing the bill on that has come due in a really powerful way. I think Joe Biden's experience, Joe Biden's character, Joe Biden's kindness and compassion, I think those are the things we really need in the Oval Office right now.

Eric Ries: I've got to ask this because, although people may not know it, you've been in charge of debate prep, I think, for every Democratic nominee since Al Gore, right?

Ron Klain: Yes, exactly.

Eric Ries: How on earth do you do debate prep under these circumstances? I got to know, what on earth do you do? How do you do it?

Ron Klain: Well, I think we'll see when we get there in terms of... I'm not going to lay out our strategy here on the podcast. But, look, I think it's really important for Joe Biden to be Joe Biden in these debates and to tell it like it is and to stand up for himself and to make it clear he's not going to take any gruff from President Trump. But he's not going to be Donald Trump. He's not going to be rude and mean and whatever. I think he's going to stand tough and be tough but be a tough Joe Biden, not a Donald Trump imitator. That's for sure.

Eric Ries: One last question on the politics, if you don't mind.

Ron Klain: Sure.

Eric Ries: What are the lessons that you hope the vice president and everyone who works in his incoming administration, if it comes to pass... What are the lessons from 2009 that you want them to learn? Because it seems to me like so much of the world we live in now was shaped by the consequential choices that were made by the president and others in responding to the last financial crisis. Obviously a lot of things went well, but I'm sure you would be the first to admit there were some things that we couldn't have foreseen and didn't go as well as you would've liked. Well, we're living in that world now and, to me, one of the major appeals of Joe Biden as a candidate is that he was there. He was in the room where it happened, so to speak, when those choices were made. So what are the lessons you hope he's taken away from how things unfolded over the past 10 years?

Ron Klain: Well, look, I think that... I want to start with the fact that he's very proud of his role in making those things happen. I think that the policy solutions weren't perfect, but I think America's a lot better off because of the Recovery Act. I think America's a lot better off because of the Affordable Care Act. I think America's a lot better off because of Dodd-Frank. I think that it's important to understand that every day in the White House is precious, and every day in a crisis is critical. And it's really important to muster the largest possible response you can as quickly as possible to address as much as possible. And the vice president, if he becomes president, is going to have a very, very full plate of dealing with all of the things we've talked about in this conversation, Eric. And I think he's just going to have to throw everything he has at it and fight like hell to try to get as much of this done as quickly as he can. I think if he can get bipartisan support for that, that's great. If he can't, he has to do it, anyway, and he has to understand that time is of the essence.

I know there are critics of the 2009, 2010 record, but I'm really proud of my experience, and I know Joe Biden's really proud of his experience in it. I think a lot of Americans were helped. You can't let the perfect be the enemy of the good, and you can't wish for things that you can't have. I hope that, if he becomes president, he's able to deliver on the same scope and nature of changes. I hope, obviously, they're going to go farther on health care, they're going to go farther on jobs, they're going to go farther on climate change, they're going to go farther on race, father on immigration. At least, that's what he's going to try to do. He's running on a bold agenda in all these areas, and then just getting done as much as he can. That's definitely the goal.

Eric Ries: Ron, I really want to thank you for taking the time to do this. I feel like there are 100 more questions I want to ask you. You have had a front-row seat to so many of the important episodes in American history, certainly in my lifetime. So I really appreciate your perspective and especially appreciate the work that you're doing now to help us build the new normal that we all want to see. I want to ask you one last question.

Ron Klain: Please.

Eric Ries: Simply, how do we get out of the crisis?

Ron Klain: We need leadership to get out of the crisis. Look, obviously, I'm biased. I think part of this is getting Joe Biden elected president. But I think what we're seeing is two big things. The talent, the resilience, the determination of the American people is really impressive, but without the right leadership, you can't really fight something like this pandemic and all the consequences it's inflicted and all the problems it's revealed. So I think, in the end, we need better leadership in Washington to fight this crisis.

Eric Ries: Ron Klain, this was a pleasure. Thank you so much.

Ron Klain: Eric, thank you so much.

Eric Ries: This has been Out of the Crisis. I'm Eric Ries. Out of the Crisis is produced by Ben Ehrlich, edited by Zach McNeese and Sean Maguire; music composed and performed by Cody Martin; hosting by Breaker. For more information on ways to get involved, visit helpwithcovid.com.

If you or someone you know is leading an effort to make a difference, please tell me about it. I'm @ericries on Twitter. Thanks for listening. Please rate and subscribe wherever you like to listen.