Luca Ferrari: Scaling to 500M Downloads, $360M in Reported 2023 Sales and a $2.55BN Valuation |E1127

Intro (00:00:00)

• Luca Ferrari shares his thoughts on market fit and acquisitions.
• He emphasizes the importance of letting others find market fit before acquiring their companies.
• Ferrari expresses his excitement about Bending Spoons, describing it as one of the coolest stories in recent times.

Luca’s Background (00:00:41)

• Luca's teachers would have described him as shy, weird, and gentle.
• He struggled socially during his early years, which influenced his current approach to life.
• Ferrari initially felt like an outsider but eventually became an insider.
• In recent years, he has become more of an outsider again due to limited bandwidth and patience.

Early Days of Bending Spoons (00:02:51)

• Luca Ferrari co-founded Bending Spoons with two other co-founders after the failure of their previous startup, Evertale.
• Lessons learned from Evertale's failure:
  • The importance of building a good team.
  • Being thoughtful about what to build and why.
• Bending Spoons was started when Luca got an offer from McKinsey and agreed to work part-time while starting the company.
• After about a year and three months, Luca left McKinsey and Bending Spoons was officially launched.
• Bending Spoons focused on building a platform of technologies, company culture, and employer brand rather than launching a specific product.
• The company acquires products that have shown market fit and then works to unlock their full potential.
• This approach was taken as a result of the failure of Evertale, where the founders realized they were wrong in assuming they knew what the market wanted.

Acquiring & Improving Products (00:07:33)

• The assessment process for determining product-market fit involves identifying a user base, customer base, recognizable brand, or good positioning in a distribution channel.
• The first product acquired was a keyboard app for $155,000, which was then grown and reinvested into building a team, learning, and developing in-house tools.
• The company's initial funding came from the leftover capital from Evertail, and the venture capitalists preferred to sell their shares for a small amount rather than go through the liquidation process.
• The first few apps developed were simple, with one called "Fony" generating around $10,000 in all-time revenue.

Bootstrapping & Long-Term Vision (00:10:25)

• Luca Ferrari and his co-founders aimed to build one of the best companies ever, despite their impressive achievements and constant self-doubt.
• Bending Spoons, a hybrid product and technology company and private equity firm, bootstrapped its growth due to Italy's weak VC scene, their unique strategy, and a desire for control.
• Unlike traditional private equity models, Bending Spoons completely revamps acquired companies' software, architecture, user experience, and marketing strategies.
• The company allocates resources based on improvement and value creation potential and has a history of killing underperforming projects like PlayOn.
• Emphasizing intellectual humility, Ferrari suggests lowering the odds and assuming a positive bias when creating new products.
• The acquisition of Evernote was driven by the belief in its improvement, monetization, and cost-effectiveness potential.
• Ferrari is excited and motivated to work on a widely used product like Evernote with a substantial user base.

Misjudgments & Lessons Learned (00:22:42)

• Luca Ferrari, the founder of AppsFlyer, values assets based on projected free cash flows and makes quick and decisive offers close to the maximum they are willing to pay.
• AppsFlyer primarily uses retained earnings and debt to finance acquisitions, with a recent raise of $200 million over the past 10 months.
• The company has not mispriced any acquisitions but has made mistakes in both directions, with the most significant error being overly optimistic projections of future user acquisition rates.
• Projecting user acquisition is challenging and often inaccurate, leading to instances where AppsFlyer experienced worse returns than expected.

Challenges of User Acquisition (00:28:22)

• User acquisition rate is difficult to predict due to factors outside of control.
• Unlike other key factors, user acquisition depends on more drivers that are harder to control.
• Making mistakes in user acquisition often cannot be fixed, unlike other areas where extra effort can be applied.
• Spending more on advertising to acquire users may not be feasible or effective.
• Network effects and cross-promotion within the product portfolio did not contribute to user acquisition in this case.

Building Margins of Safety (00:31:10)

• Building margins of safety involves diversification of product lines and appropriate pricing.
• Margins of safety should be considered in individual capital allocations, acquisitions, R&D, and marketing.
• A broader portfolio of initiatives, such as multiple products or R&D projects, can further enhance risk management.

Taking Too Much Risk (00:31:51)

• The speaker emphasizes the importance of risk mitigation and self-awareness when making significant capital allocation decisions.
• Overconfidence can lead to dumb mistakes, so it's crucial to retain a healthy level of self-doubt and acknowledge potential biases.
• The speaker reflects on a specific instance where they took on too much risk by acquiring an app without thoroughly studying the underlying factors driving user acquisition.
• They acknowledge that they were overly optimistic in their projections and admits to being lazy in their analysis.

Learning from Mistakes (00:34:59)

• The speaker mentions that they regularly review and discuss past mistakes to remind themselves of their shortcomings and prevent complacency.
• They believe it's important to acknowledge past laziness and dumb decisions to avoid assuming they have become immune to such mistakes in the future.

Caring About Other’s Opinions (00:35:27)

• Luca Ferrari admits to being too concerned about disappointing others, including colleagues and investors.
• This excessive caution has led to missed opportunities and slower progress in implementing strategies.
• Ferrari acknowledges that being overly concerned about others' opinions is a significant handicap in his role as a CEO.
• He is working on developing emotional resilience and a thicker skin to cope with criticism.

Resilience & Self-Criticism (00:37:39)

• Luca Ferrari describes himself as very self-critical, possibly to an unhealthy extent.
• Despite this self-criticism, he has a strong determination not to give up, even in challenging situations.
• Ferrari recognizes that his business-related challenges are privileged compared to the truly difficult things some people face in life.
• He acknowledges that complaining about these challenges can be irritating, given the fortunate circumstances he and others in similar positions have had.

Talent & Motivation Density (00:39:29)

• Luca Ferrari believes in focusing on talent and motivation density when building a team.
• Talent refers to an individual's potential to excel in a specific role.
• Experience represents cumulative exposure to relevant experiences that help unlock potential based on talent.
• Motivation acts as a multiplier, enhancing performance within the range determined by talent and experience.
• Ferrari and his team prioritize talent and motivation over experience when hiring.
• They believe experience can be provided, but motivation is inherent and difficult to change.
• This approach allows them to build a team with the best long-term potential.

Assessing Talent & Motivation (00:41:43)

• Ferrari and his team use practical and measurable tests to assess talent.
• They focus on general problem-solving abilities rather than acquired knowledge.
• They believe someone can learn the necessary skills if they have the right work ethic, teamwork, and mentality.
• To assess motivation, they try to understand what triggers a person to give their best.
• They acknowledge that predicting motivation is challenging but strive to be better than most companies and improve over time.

Biggest Mistakes in Hiring (00:43:35)

• Assigning too much weight to experience when hiring.
• Trading talent and motivation potential for more experience, resulting in a lower level of contribution in the long run.
• Working together physically tends to correlate with higher performance levels.
• It's unclear whether this is because people are in the same place or because intrinsically motivated individuals want to be with others.
• There are incredibly high performers who work remotely all the time, but it's slightly less probable.
• The company fully supports remote work to attract talent from a broader pool of candidates.
• Some of the best performers work almost entirely or completely remotely.
• Remote work comes with a price, but it's not clear-cut whether it's the right move for every company.
• The company keeps all options open and is happy with its remote colleagues.
• Currently, the company has the same salaries regardless of where employees are located.

Ambition & Hard Work (00:46:20)

• Luca Ferrari believes that to be the best at something, one needs both talent and hard work.
• He has observed that successful people tend to have worked very hard for a long time.
• Ferrari emphasizes that hard work is not necessarily morally good or bad, but it is a personal choice.
• He acknowledges that there may be cultural differences in ambition and work ethic, but he has found hardworking and lazy people in every geography.

Building Strong Co-founder Relationship (00:49:47)

• Ferrari attributes his successful co-founder relationship to luck rather than careful planning.
• He had long-standing friendships with his co-founders before starting their first startup.
• The co-founders went through hardships together, including a failed startup, which strengthened their relationship.

Choosing Investors (00:50:55)

• Luca Ferrari and his team chose their investors with the help of advisors from Allen and Company, an equity M&A financing advisor.
• They considered the principles and behavior of investors during difficult times when making their selections.
• The process involved studying potential investors, talking to references, and ensuring a mutual fit.

Improving the Fundraising Process (00:52:18)

• Creating a level of competition among investors can lead to better terms and faster closing.
• Investors may initially show enthusiasm but may try to reduce their commitment or alter key terms during due diligence.
• Maintaining competitive pressure and keeping a broader spectrum of parties involved until the end can help secure favorable terms.

Immovable Terms in Fundraising (00:53:45)

• Luca Ferrari and his team prioritized equal economic terms for all shareholders, including employees and institutional investors.
• They resisted liquidation preferences to avoid a situation where some investors would benefit at the expense of others if the company faced difficulties.

Quick-Fire Round (00:55:06)

• Luca Ferrari, the CEO of Bending Spoons, has shifted his focus from reading as many books as possible to selecting and analyzing them in depth.
• He recommends "Our Mathematical Universe" by Max Tegmark, "The Selfish Gene" by Richard Dawkins, and "A Gentleman in Moscow" by Amor Towles as must-read books.
• Luca's daily routine consists of waking up early, walking his dogs, going to the gym, and dedicating significant time to individual work.
• He promotes individual work at his company and keeps his meetings to a minimum.
• Luca believes that artificial intelligence will ultimately eliminate more jobs than it creates.
• He considers the most significant act of kindness he received to be the help he got in overcoming shyness and learning to socialize during middle school.
• Luca Ferrari envisions Bending Spoons continuing its successful business model on a larger scale, aiming to make a more substantial positive impact.
• He acknowledges the challenges of creating positive change in business and admires organizations like the Gates Foundation for their philanthropic efforts.
• Luca Ferrari expresses gratitude for the recognition of Bending Spoons' business model and appreciates the opportunity to share his thoughts.