How to and How NOT to do Layoffs, the Tax Tip to save you MILLIONS, and is the Gas App Going to Solve Bullying?

Jesse Pujji: In 2005, I started a high school version of Facebook.

Alex Lieberman: What was your first impression of Zuck when you spoke to him while you were building The Highlist? And did he talk about Oculus in your conversation?

Jesse Pujji: I called him out of the blue and I'm like, "Hi, so and so is telling me they want to buy this from you. Is that true? Are you guys going into high schools?" Because we were freaking out. We were like, "If they go into high schools, we're toast." And for 45 minutes, I didn't say a word, he just told me their whole strategy, which they actually did the whole thing. "We're going to go into high schools and pods and workplaces. It's going to be your online identity." He had already figured it all out in 2005.

Steve Jobs: Here's to the crazy ones, because the people who are crazy enough to think they can change the world are the ones who do.

Alex Lieberman: What's up, everyone? I'm Alex Lieberman.

Sophia Amoruso: And I'm Sophia Amoruso.

Jesse Pujji: Yo, this is Jesse Pujji.

Alex Lieberman: And this is The Crazy Ones. What's up, everyone? This is Alex Lieberman, co-founder and executive chairman of Morning Brew, and welcome back to The Crazy Ones, the show that is for entrepreneurs by entrepreneurs. And first of all, I want to thank the amazing listeners and viewers who have been writing in, in hordes. We had one founder writing to us saying that The Crazy Ones is effectively their unofficial advisor of their company, so thank you for all the support so far. For those of you that are watching for the first time, as always, I am joined by Jesse Pujji, aka Baby Buffett, and then Sophia Amoruso, The Dean. Guys, you ready to do this thing?

Sophia Amoruso: Ready.

Jesse Pujji: I like the nicknames. Yes.

Alex Lieberman: Yes. What do you mean? You're building your own mini Berkshire Hathaway and Sophia, she has Business Class, of course she's The Dean. So let's talk about the rundown for the day. We are going to be talking about a new social media app called Gas. It is number one in the charts ahead of Instagram, ahead of TikTok, ahead of Google. Has a million daily active users after being out for only a month. Who the founder is, what this story is, and lessons you can learn as an entrepreneur. Second, we're going to talk about layoffs. There unfortunately is a lot of news this week about layoffs at companies big and small, from Microsoft to Twitter, and Elon Musk wanted to lay off maybe 75% of the company, to Stripe, who is doing something that's known as a backdoor layoff. And we are going to finish today's episode by talking about tax strategies that we have used to save ourselves millions of dollars. So guys, let's hop into this thing. Let's check out a video from Nikita Bier, one of the co-founders of Gas, and then we'll shoot the shit about it.

Host: How does Gas work? How do you make it positive?

Nikita Bier: Hi Stewart, thanks for having me. So the way that we've designed Gas, Gas is similar to a lot of anonymous apps that exist in the App Store today, but many of those have been plagued by bullying. And we use a novel mechanic where you answer polls about your friends that we write, and we make all these polls uplifting. Polls that are like, "Most likely to be president" or "Should DJ every party", and teens vote on each other on these polls. And then they receive a message saying that someone has picked them for these questions.

Host: Well, that's clever. I gotta say, that really is clever.

Alex Lieberman: First of all, I've never heard this host before, but for some reason I just loved the way that he talked about Gas after Nikita talked about it. I need to start...

Jesse Pujji: British accents, dude. They pay dividends.

Alex Lieberman: Seriously. Jesse, did you get any senior superlatives when you were in high school?

Jesse Pujji: I'm sure I did. I think I probably had "Most likely to start a company" or "be an entrepreneur." Everybody knew it about me back then.

Alex Lieberman: Sophia, did you have one?

Sophia Amoruso: It was like "Class clown."

Alex Lieberman: Yes, I didn't have one, so I'm envious just that you guys were actually in the yearbook with a senior superlative. Sophia, what do you think about Gas and what do you think is contributing to the fact that I last saw Nikita say that they're getting 30,000 downloads of the app an hour?

Sophia Amoruso: Wow. I think Nikita's done a really good job, seems like. I've read some of the things that he's tweeted and written and he has become just a master of testing and iterating. So for him, and you can kind of see it in his voice when he is talking, I don't know if this is a personal...a product to him that he set out to do to change the world. I think he's really a technologist and someone who has built social products and is becoming better and better at it and obviously hit a stride with high school kids. It's a niche, obviously high school kids are everywhere, but there really is no place for them to say nice things for one another. You show up and it's just, kids are mean. Nobody's really engineering that kind of activity. And they're talking about people who are good looking and crushes, and so it's not just like, "Wow, this person's good at sports or love their backpack," it's like, "She has pretty eyes," and it's kind of a low-key way of flirting, which I haven't seen anywhere and is really exciting. It's like passing notes in class, right?

Alex Lieberman: Yes.

Jesse Pujji: I love it.

Alex Lieberman: I think first of all, the fact that he's going after high schoolers, there's two things that come to mind for me. One is the point you made, Sophia, which is that it's probably not an audience that he is personally super passionate about. And I've always wondered to myself, how can entrepreneurs build businesses around problems they're not experiencing? But Nikita, in my mind, is the exception to the rule, he has figured out how to do that. But I think from a business perspective, it is probably the best demographic to build a social network around, because I can't think of a time in your life that is filled with more gossip culture, the desire to feel a part of a group, FOMO if you don't feel a part of it. And so unfortunately when you're in high school, so much of your identity is dictated by what others think of you. And that's not a positive, but I think what they've done is they've spun it into a really good thing where you get notified when people are saying that you're going to be most popular or you have the best eyes. And so I think what Nikita's done is amazing. And just to give people some background, because they didn't talk about it in the interview, Nikita basically built the same exact product in 2017. So Nikita founded an app called TBH and he built it in 2017. He was three months into building the company and Facebook acquired it for $100 million. And then in 2018, it was like 9–12 months after they bought TBH, Facebook shut it down. And so for the last five years, Nikita has, I believe, been working as a PM at Facebook, but very publicly not enjoying the corporate life. And so it's just very interesting to see him rebuild basically the same thing. But the tweet that just got me, that Nikita put out yesterday or the day before, is he basically said, "I no longer am a one-hit wonder," and it just resonated so much because for people who are thinking about building second businesses, they were successful with their first business, there's always this fear of "Was it luck or skill?" and "Am I going have to prove that I'm actually good at this by building another thing?" So it resonated really deeply. Jesse, what do you think about this?

Jesse Pujji: Man, I have so many different thoughts on this, just hearing both of you guys talk. Number one, building consumer businesses and apps, consumer apps in particular, is so, so hard. So it's incredible. I just think, turbans off to this guy, Nikita, I don't know him that well, but he's obviously got a skill. And I think you guys may know that story I've told on Twitter: In 2005, I started a high school version of Facebook and I don't know if I've told you guys this story but...

Alex Lieberman: I haven't heard the full story.

Jesse Pujji: It was a year after Zuckerberg. It was the same co-founders I started Ampush with, and we were not the most creative product types, but we were like, that thing's working for college and we thought Facebook was not going to go into high school. We were like, "Why would they ever hurt their brand equity by going into high schools?" And we looked around, we got it called it The Highlist, we worked on it over the summer. The way we authenticated you was super cool. At that time there was no internet, you couldn't Google things that easily, so we asked you specific questions about your high school, kind of like a credit check. What are your colors? What street is your high school off of? To make sure, because you didn't have a .edu. And we saw all the same viral things, and we were 21, right? And Facebook launched into high school a few months after we launched and basically were 10 times our size overnight. We were just like, "This is going to be too hard, let's throw the towel in." But it was called The Highlist. It was a fun adventure. But we started a version of it and it's hard, man. It's a really, really hard business to get anyone using it, to get growing, and so I think it's just incredible what he's accomplished.

Alex Lieberman: Why didn't The Highlist work out?

Jesse Pujji: We quit. No other reason than we quit. There was another business we were bigger than at that time called myyearbook.com that ended up selling for nine figures. We were 21, I had a job offer at McKinsey. I was like, "All right, whatever." We almost raised angel money, but we were kids. We didn't know what it took to really...our view on it was, "Let's build it. If it starts to work, we'll do it. If not, it won't." And then as you guys know, and we all know from building now, you gotta get punched in the face several times and keep trucking before anything works, and I don't think we appreciated how hard it was and so we threw the towel in. It's actually a big regret. I wish we had stayed with it because something would've happened. I'm not sure it would've been a high school version of Facebook, but something would've occurred for it. But no, we shut it down.

Alex Lieberman: And what was your first impression of Zuck when you spoke to him while you were building The Highlist? And did he talk about Oculus in your conversation?

Jesse Pujji: No. The backstory there, just for a second, is the first idea we had for the domain was hsfacebook.com. And so we went and found the person who owned hsfacebook.com; we're like, "Can we buy this from you?" And he's like, "Yeah, 20 grand." And we're like, "Yeah, we're in college. No, thanks." And then he called us back at the end of the summer after we had launched and he was like, "By the way, Mark Zuckerberg wants to buy this from me." And we were like, "BS. No, that's not true. What are you saying?" We were like, "Prove it." So he forwards an email from Zuckerberg with Zuckerberg's 917...I know the area code and I was like, "I gotta call this guy. And so I called him out of the blue and I'm like, "Hi, so and so is telling me they want to buy this from you. Is that true? Are you guys going into high schools?" Because we were freaking out. We were like, "If they go into high schools, we're toast." And for 45 minutes, I didn't say a word, he just told me the whole strategy, which they actually did the whole thing. "We're gonna go into high schools and pods and workplaces. It's going to be your online identity." He had already figured it all out in 2005.

Alex Lieberman: That's insane.

Jesse Pujji: It was like a year after they launched, which is just crazy. But anyway...go ahead.

Sophia Amoruso: No, no, no. I keep hearing this and it's kind of foreign to me, the concept of building something, building a prototype, it could just be a Figma file or having a company for three months that has some traction and then selling it, which is pretty rare. But I had coffee with someone who's trying to build a dating app recently and they were like, "Can you put me in touch with such and such dating app founder? Maybe we could just do that." I don't know if this is off topic, but what do you think about that? Is that something you're thinking about at Ampush? Because a lot of people, it's like, "Seems easier than building a large business. I have a great idea. I'm going to sell it to an existing superpower," but I think that can be...

Jesse Pujji: I think it's few and far between. I would not tell anyone listening to ever try that. If that happens, if you're Nikita and in nine months they buy you for $100 million, then god bless. That's amazing. I don't think that's the norm. The other thing I was going to say just about the other thing that came up as both of you guys were talking was, building the app for high school, it's cool that it's very positively oriented. High school is such an interesting time. I think one other thing is, how do you actually grow these things and turn them into businesses that become real businesses? If you're excited about a consumer app, then go do it. In general, I feel like entrepreneurship is already so hard; this makes it 100 times harder. And so if you're gifted like Nikita, great. But if you're somebody out there just thinking of a random idea, maybe there's a different way to start a business.

Alex Lieberman: It's funny because someone asked basically the same question to Nikita on Twitter and I was wondering this also. I was basically like, this has incredible acceleration of user base right now, but my biggest question or concern is after a while, are people going to get bored of filling out these superlatives? At what point, have you filled out all the superlatives, you know who likes you, you know who hasn't voted on you and you're fine with it? And what Nikita said to this person was, he was basically like, "I'm not thinking about the next five years, I'm getting all these amazing responses and DMs from high schoolers who are saying things like, "I was contemplating suicide. And now that I know that I actually have people who care about me," or, "I always thought that I was ugly," or, "People thought I was dumb, but I was voted most likely to go to an Ivy League." And so at least what he has talked about publicly is these messages that he's getting has been largely the motivation for him.

What I'll also say is, I bet they are printing money right now, because they haven't raised any money, and I looked on LinkedIn—there's three co-founders and then two or three other people working on this, but all part-time. And I think a very high percentage of people are converting to the premium product, which I believe is $7 a week. So the way that the app works is that people will answer questions like, "Most likely to be popular?" And if someone selected you as most likely to be popular, you would get a notification, I believe like a flame saying like, "Someone said you're most likely to be popular." And then what would happen is it would be anonymous. It would say what grade the person was in that voted on you and what their gender was. If you want to actually see who the person is, you have to pay for it. And to me, there's just so much incredible tension built up into that, and FOMO, especially for high schoolers who want to know who has a crush on them or thinks they're cool. So I bet they're printing money right now.

Jesse Pujji: It's genius.

Sophia Amoruso: It's like dopamine on top of dopamine. It's like he's engineering people to click and all the things that every social app has engineered with the loops...the loops, I sound like a technologist.

Alex Lieberman: The loops.

Sophia Amoruso: But it's literally like there's the dopamine of just opening the app and getting a notification and having something show up on your doorstep like "You've got mail." But also literally you're getting something positive every time that you open the app. And if you think about it, it's the lowest, the least lift of human communication that I can think of beyond blinking or making an expression or maybe gesticulating; you're literally pushing a button. It's like you could train probably an ape to do this and have the same result, right?

Jesse Pujji: We're 99% ape. We just...

Sophia Amoruso: We are. We are.

Jesse Pujji: The other thing that's cool, just as a trend I think, is this second or third generation of social apps. There was this Facebook, obviously and Twitter and LinkedIn and it's like, people are mean on those things. And I think they do have the tendency, because they drive only for engagement and it's totally open to sometimes be the worst of humanity. But the second one on that list was BeReal, which I've kind of been joking with you guys about, and it's all about...you have to take a picture of what you're actually doing in that moment so you can't get all fancy and all dolled up, and then this one is coming out with saying positive things about other people, so it's pretty cool. I think that's also a cool trend we're seeing, which is like let's use the power of this to actually drive...Because you can shift people's brain the more...Science has proven that gratitude journals work and all these other things work, so if we can use the power of dopamine to be super positive all the time or drive more of that in that direction, I think it's pretty cool.

Alex Lieberman: Yeah. I think it's just a really good lesson for entrepreneurs, even if you're not building a consumer social app, which is how important...kind of market, where the market's going and what trend are you or are you not playing into is. It reminds me of the Mark Andreessen blog post about product, market, and team. Which do you think is most important to build a successful company? And I would say early in my life I would've said product, for sure. Of course if you don't have a good product, nothing else matters. And the point that he made is he believes it's market. And I think what Nikita, his team and Gas has done really well is it's playing into this market, for one, people have, call it more anxiety, mental health challenge, and openness around that than ever before. And the existing social platforms, to your point, have only perpetuated these issues. At the same time, we've already seen proof that apps that lean into authenticity, being real, positivity, whether it's BeReal or whether it's Poparazzi and other apps, it clearly is something that works. So I think the timing of this is great. Sophia, what are some lessons that you think entrepreneurs who aren't building in consumer social but want to learn from Gas's success thus far can take away from this story?

Sophia Amoruso: Yeah, I mean, I think creating any kind of product that people want to share, that they want to engage with...I've spoken about this a little bit; I did it with products, you've done it with your newsletter, creating habits. With the Morning Brew, someone has a certain amount of time to open their email, see the most important news. With Nasty Gal, it was new arrivals constantly, things sold out quickly. So I think scarcity is a really big mechanism which BeReal is capitalizing on. I think with TikTok, even the trends are a bit of a scarcity model in terms of "You need to get on this now, it's going to become outdated." Same with fashion, same with news. So engineering those habits, obviously a newsletter's probably a little bit healthier of a habit for somebody to build than clicking on TikTok and seeing what dance someone is doing. And there's a lot to learn on TikTok. I don't want to shit on TikTok, but this is something that I would say exists across both social apps and media businesses and fashion businesses at the same time.

Jesse Pujji: My big takeaway is, you guys know, I always say this: "unfair advantage." Nikita has an unfair advantage. He's built this, he was inside the biggest...inside of Meta Facebook. He knows how to build these things, and I don't know him at all, but I presume the things that would take the three of us years to figure out are just basically common knowledge for him when he wakes up in the morning. And I just think for any entrepreneur out there, everybody has an unfair advantage and the more you tap into yours, the more successful you'll be.

Alex Lieberman: 

Sophia Amoruso: Yeah, they talk about product market fit, but this is founder product fit.

Alex Lieberman: Totally.

Sophia Amoruso: And that's something that people don't really think about and that's something...you know, there's also founder market fit, if you know your market. I don't think he necessarily knows the high school market, but he is founder product fit and has found a way to tap...There's different ways in to being a founder and building the right product and finding the right audience or selling mattresses or something that you're not super passionate about. If you're the right person to build that business.

Alex Lieberman: By the way, I think this is always the tug and pull of entrepreneurs. After you do one thing, what's going through your head is "Do I do another thing that's quite similar to what I did because that's literally all I know? The only institutional knowledge I have is around the thing I built." And to your point, there's going to be founder product or founder market fit, or on the other hand, entrepreneurs, we're fickle, we like building a lot of different things and there's always, for me, the itch of building something that's so opposite from newsletters and media. And so I'm sure this is something that Nikita probably thought about, but it makes so much sense why it's been successful. Two other lessons that I just want to share. The first is just amazing product design. And this gets into what you're saying, Sophia, about urgency and scarcity. The first thing is, it is so simple to use this product. You get polls, there are multiple choice questions. It feels like a game, you click on them. The second is, the way that the invite engine works for Gas is super smart. When a friend invites you to Gas, you get a message that basically shows like a wrapped up gift and it says that there's a compliment waiting for you. So basically there's someone that selected you in a poll and it's waiting for you to see it. And the invite expires in five minutes. So you have five minutes to go see who's given you a compliment. So I have to think the conversion rate on that is super high because again, there's so much FOMO built into high schoolers wanting to know "Who has said something nice about me?"

The second lesson I just want to talk about is this model that literally dictates all of the ways that I think about marketing of products, whether it's media or physical product: It's the hub and spoke model. So at the end of the day, your spokes are your customers. So in the case of Gas, it's high schoolers, and your hub is distribution channels that give you a lot of access at once to your spokes. So in the context of Gas, by them going high school by high school, the high schools are the hubs and the high school students are the spokes. And the amazing part about this model for a social network is there are network effects built in. So for something like Morning Brew, say a hub for our business would be going to universities and getting students signed up, but our newsletter doesn't get any better for every new student that signs up from the university. For Gas, if you're a high schooler at Stuyvesant High School, by getting your friends to sign up, it actually makes the product better for you, which is obviously the power of network effects. And I think hub and spoke is such a great way to think about, how do I leverage channels that get me in front of a lot of my customer, so I don't have to go door by door or person by person to get them signed up for it.

Sophia Amoruso: Someone I know called that reverse aging for a product. It gets better over time with more users, which I think is a really interesting way of putting that.

Alex Lieberman: Totally. I want to move on to a less positive topic, but equally as valuable one. So there have been a lot of announcements around layoffs in the last few days. We had Microsoft announcing 1,000 employees are going to be laid off. Obviously that's a small percentage of their 221,000 employees, but still, when you hear about a very established company, one of the 10 largest companies in the world, talking about laying off people, it definitely perks people's ears up and it has them worry more about the state of the economy. You have Elon, who said that he wants to cut 75% of people at Twitter. Stripe, it's so fascinating. Stripe, they're not doing layoffs, it's not called layoffs, it's what's known as backdoor layoffs, where basically, they're requiring their managers to do a rating system of...they have to an answer a question: "Would you hire this direct report if you knew what you knew today?" And you could answer definitively yes, not sure, or definitely not. And they're required to make 10% to 15% of their answers not sure or definitively not. So basically they're forcing managers to get employees to be given pips, or being fired for cause in a layoff is technically where you're kind of getting rid of people, not for performance but based on market conditions. Given all of this, how do you guys think about layoffs, and more specifically, what does a good layoff look like versus a bad layoff? I know you've had experience with this, Sophia, so what are your thoughts?

Sophia Amoruso: I've had so much experience with it. I mean, just responding to what you said about a reorg being shrouded in a...people call it reorgs, people call it layoffs, people call it...there's so many different ways of packaging it that is pretty much a layoff. And if somebody's telling managers to cut 15% of their team that are the low performers, those people probably shouldn't have jobs there anyways. I think it means the company's bloated. Firing people for cause is a lot harder than laying people off. I know a lot of companies that instead of ever firing anyone, they eliminate the position. When you eliminate a position you can't rehire into it, because obviously you'd be lying and saying that you're just kind of getting rid of this one person and replacing them. As an employer, you're much more protected laying people off. Layoffs should be very planned. It's something...and you guys can, I think speak to this just about probably scenario planning and the ways that companies think about layoffs hopefully far enough in advance. I know that a lot of founders are like, "Well, if we lay people off, can we function? Will we be able to get to the next phase where we can raise money? Is it just going to put us in a standstill?" So there's a lot of different kind of like, "If I do this, will this still work?"

I have laid off, I don't know, I haven't personally laid off as many people as my companies have laid off. I think over time my businesses have laid off 300 people, and that is one of the most challenging things. When you plan for reductions, layoffs, or a reorg, you want to be transparent with people, and it can be very selfish as an employer to...when people know that maybe the company's not performing or even worse, you're not telling them that it's not performing but they get whiffs of it. People ask, "Are there going to be layoffs?" People aren't stupid. And if you don't treat them like adults and say "This is where the company is." And this is what we got right at Girlboss, which we didn't get right at Nasty Gal, was saying, "Hey, this is where the company's finances are." So I had sold Girlboss at the end of 2019. Covid hit. We were somewhat of a media company, really largely based in events and brand partnerships. Brands pulled their dollars, as you know. Events were really hard to do. And so the second time around we said, "Listen, this is where we are. If we can't get this amount of revenue in the door by this date, this is what's going to happen." And giving people the opportunity to look for other jobs or scenario plan for themselves and protect themselves. It was a very loving, transparent thing with very specific deadlines around "If this, then that."

Alex Lieberman: So you told employees, if we do not hit X revenue target by Y date, we will have to let people go?

Sophia Amoruso: Yes. Like, "This is how a business runs. It won't be responsible for us to retain staff. Our greater responsibility is to protect the business and the business's longevity. This is something that everybody should understand even about their personal finances." And people thanked us. We had to make layoffs. I got thank you emails and there's just like nothing better than having to make a decision that hard, having your team understand the entire context, and appreciate the graceful dismount that you are able to give everybody, with a sense of dignity. People just want dignity, and if you treat them like a human resource, that's when they sue you. That's when they come back and say, "I wasn't treated like a human. Your company has money, I'm going to try to take it from you." And I've had that happen as well. That is real hard.

Jesse Pujji: And I think it starts...you know, as entrepreneurs, when you talk to someone who's going to start a company, they're like, "I have an idea and this is what I want to do and I have a market." And I'm sure all of us were like that. "Okay, I have a cool idea, I have a market," and I try my best early on with entrepreneurs to say, "But are you passionate about people and leadership?" Because you guys know, and I know, that pretty much within five or 10 people working for you, more of your job is about people and about leadership than it is about the idea and about the market. It's about all of them, of course. But I think before you have a company, that's all you think about, and then very quickly running the company becomes about people and leadership. So I think that's just an important reframe for anyone who's starting a company or going to run one.

The other thing that I think a lot about is before you even ever get to the layoff, what's the philosophy, right? And Netflix did that great thing of "We're a team, not a family." I think it's really tough; if you're going to tell people you're a family, you gotta behave like family, and family doesn't fire people. They find other things for them to do. And there are companies, by the way, that operate like that; there's nothing wrong with that. But if you're going to run your business, if you have investors, if you're trying to hit ambitious targets and excited targets, you can be an optimist, but you also have to explain "We're a team." And you'll see baseball players love each other. They'll win a team and then the next day they'll get traded and it works, because everybody understands what they're signing up for and how and why that works. And I think in my experience, people feel like it's a business, they know it's a team, they understand that part of it. Then all of a sudden something bad happens or something's going on in the business; you can say "Be ruthless about business but compassionate about the people, and you don't forget you're being a human." Now what oftentimes happens is...and we saw that with the Better Mortgage guys. You start freaking out, you start going, "Oh my god, I've ruined it. I'm a bad person." So then instead of thinking about the other people in those moments, you're thinking about yourself. 

Alex Lieberman: Speaking of Better Mortgage, I want us to roll the tape. This has become an infamously bad layoff. I want us to roll it and then I want us to talk about lessons from this video, and some rules of thumb for entrepreneurs who may or may not have to broach these types of conversations over the next year or so.

Better Mortgage: If you're on this call, you are part of the unlucky group being laid off. Your employment here is terminated, effective immediately. It's been a really, really challenging decision to make. This is the second time in my career I'm doing this and I do not want to do this. The last time I did it, I cried. This time I hope to be stronger.

Jesse Pujji: Jesus.

Alex Lieberman: I've now watched this four times in prepping for...

Sophia Amoruso: Oh no.

Alex Lieberman: ...this episode, that one line of, "I cried last time I did this and I hope to be stronger" is going to go down in the history books.

Jesse Pujji: Yeah, let's talk about, I was just going there too, Alex. Typically with a layoff, but honestly with all leadership, empathy and responsibility are the core. And by the way, I don't think you can fake those things. I tried faking them early in my career...Someone told me "Talk like this" and everyone could see right through it. They could see through that I wasn't actually feeling for them and feeling the empathy. So first, you have to build that. You have to build that muscle of empathy and responsibility. And typically if you're going to deliver a message, I mean he focuses all on himself, first of all. But also doesn't take any responsibility. He's just like, "Oh this is hard for me, guys." Oh god. I mean the way I think about it is, number one, empathy. "Hey, this is what's happening and today's a really tough day for you. A human day. You have to go home and do something and I bear the responsibility for what is about to happen to you. And I take that and...I made a mistake," and I, by the way, get real mad about the HR playbooks of not trying to get sued, and I throw them out. Like, I don't care. I'm going to say what I want, be a human being to these people. And then obviously the format of it, the Zoom. You know, I've done one big layoff; I've done some smaller ones. But the big one we did, we individually met with every single...started at 9:00am. It was all planned. We met with every individual at 9:00am. I didn't even have...

Alex Lieberman: How many people was it?

Jesse Pujji: It was probably close to 20, I would say. Met every single person, more or less, before anyone walked in the door. So everyone who was affected knew it in an individual meeting with their manager and me; in some cases I was their manager. And then we sent an email out to everyone and then we had a meeting with everyone. And there's another adage around, when you do a layoff, people pay attention. The remaining people look like, "How did you treat those people?" Because they know. And it took me a long time to appreciate that when you control someone's salary and you control their livelihood, you'll never be the same as them, and even if you want to be buddy buddy with them, it's never the same. And you have to take that responsibility and be very careful about how you manage it and how you wield it. But that's how we did it, was they all knew first individually, they all had their packages, whatever. Then we announced it and then we met with the whole company to kind of talk through it. But it was a lot of, "Hey, I took responsibility, I set the strategy for the company, I decided on the resources and I made a mistake. That mistake has a human consequence for you, and I know it's a super hard day for you." And that was sort of the conversation, and back to the team thing and to Sophia's point, when people know the business and they understand what we're trying to accomplish, they know what they're signed up for it. It doesn't hurt as...they go, "Hey, we were trying something ambitious, it didn't work and we're going to be okay." But that video's...whew. It's a tough one. It's cringey.

Alex Lieberman: Okay, let's finish up today's conversation with another startup AMA. We've actually gotten this question from a number of listeners, so it's about time that we answer it. We've had listeners ask us that, "I've heard so many founders talk about the importance of tax planning when you build a business." And then they'll go on to say that "I haven't done it, either because the resources to know how are basically nonexistent or gibberish, or it's super boring and I never find a way to prioritize it." So I just want to go around the horn and talk about what are tax decisions you've actually made in building your businesses that have had a big enough impact such that it's worth founders spending their time on it. Jesse, I'll start with you.

Jesse Pujji: Yes, so I'll talk through my mindset on these things, and I actually own entities right now across S corp, C corp and LLC. So I literally own stock in all three types depending on the business. And before I start, I think there's a couple things. A lot of new founders I have this conversation with. First of all, lawyers and tax advisors, good ones, great ones, are worth their weight in gold. And a great one is someone who has an opinion but is flexible enough to adjust with you. Typically I find them in either one state, they're so opinionated you can't even think for yourself or they have no opinion, which is not valuable. With that said, the other thing I tell a lot of new founders is, that does not absolve you of responsibility for getting ahead of this, talking to friends, knowing the different laws, because there's millions of dollars on the line, potentially. So that's my preamble. The corporate structures at a high level, there's the LLCs and S corps which are pass-through entities, which means you only get taxed once on income. So you make a dollar of profit, it gets passed through to you as a person. The company does not pay any taxes on it. And there are C corps, which is most traditional publicly traded and venture funded, which are two layers of taxation. It means the company pays tax and if you give money to individuals, they pay tax. And so that's at a super high level. Those are the two structures.

The S corp, sometimes you'll do them for reasons...you usually want those to be very closely held, meaning only a few people own them, because there's a bunch of restrictions around how money flows inside and out of them. C corp and LLC, I recently went through a decision-making process around that for Kahani, and there was a couple major things we thought about. Number one was, "Are we building this business to be profitable for a long period of time?" And if so, we wanted to pass that through so that we could pull money out of it without getting taxed twice. So the other big thing that came up is QSBS. So QSBS stands for "qualified small business stock." It was a law I think in 2010 that came from Obama. And the way it works is, if you own stock in a C corp only, for five years, and you started it with less than $50 million in assets, you can essentially sell it. Let's say you sold it for $10 million just to keep the math simple. The entirety of that $10 million would be federal tax-free. So you wouldn't pay any federal taxes on it. So you have to be a C corp, you've had to held it for five years, and then you would've exited it. So if the plan is not to necessarily be super profitable, hold it I think between five and seven years, let's say, and then sell it, C Corp basically wins out from a tax optimization perspective.

The other cool thing you can do is in Kahani, I own a big chunk of it, obviously. Gateway X owns a big chunk of it, my wife owns a big chunk of it, so we're double or triple dipping into it. IRS has not said whether or not that's going to count or not, but if it doesn't, then you're the same as you would've been otherwise, so you might as well...The other side of the world is debating it right now. By the way, none of this is tax advice or information. Get your own advisors; I'm not taking liabilities for this.

And then LLC is like for the things that are longer. Gateway X, for example, is an LLC, GrowthAssistant is an LLC because we expect those to be long-term profitable operations and we don't want to have the double layer of taxation. So that's kind of my 101, like how I think about it. And QSBS is a huge part of it, especially if you think you'll sell the business at some point and you'll sell it and it can make tax-free money.

Alex Lieberman: Yeah, I was going to say you're not giving tax advice, but you really should take an affiliate based off of everyone that chooses to a go forward with QSBS treatment now. Yeah, I mean, all I'll say is QSBS is something that my co-founder and I found out about in probably 2019, because Morning Brew was originally a Michigan LLC. The reason it was originally a Michigan LLC is we started the company when we were in college; our original lawyers were free lawyers that were in the legal clinic at the law school at Michigan. And we were eventually told that we should switch to a C corp, a Delaware C corp because Delaware is historically provides the best, most flexible treatment for startups. But also if we were ever going to raise venture money, typically funds prefer C corp structures over other structures. And I don't know the exact reason. You guys may know this, but the other piece of it...

Jesse Pujji: They don't want tax liability. So if the company is profitable, then all of a sudden these funds that are their LLPs, they don't get the money because the company doesn't have to push the money out, but they still have to pay the taxes on the money, which is one of the hallmarks of a pass-through entity.

Alex Lieberman: Totally. 

Jesse Pujji: So there's the good and the bad of the pass-through. That's why they don't want, "Oh, I have to pay a tax bill for money I've never seen? No way."

Alex Lieberman: Yeah, that would suck. And so we were told about QSBS because a friend of ours had said how a lot of Uber employees weren't aware of QSBS when the company went public, and they lost out on millions of dollars of savings. So yeah, I mean, QSBS has saved me millions of dollars in taxes. And to your point, Jesse, there are ways where you can actually multiply the benefits. So just so everyone understands it, like if Jesse has stock under his name or Kahani, he has stock under say Gateway X and Gateway X's accounts and then his children have stock, and then his...

Jesse Pujji: I could have a trust, the Ricky Trust, the Sabrina Trust, and each of them would get their own individual...

Alex Lieberman: It multiplies the benefits. So all of a sudden you go from $10 million of tax-free gains to hypothetically $60 million of tax-free gains. So it can be very, very meaningful. And the other thing I'll add is if you're an LLP in a venture capital fund, you can also qualify for QSBS, and every company that the fund invests in that is a C corp that you hold the stock for five years in, you get QSBS benefits. So it can be multiplied across the portfolio.

Jesse Pujji: Same thing if you're an angel investor. If you're writing a $5k, $10k, $20k, $50k check into something, same benefit. You don't pay on the first $10 million. But just reinvest it in another C corp and as long as the total time is five years, you'll be fine. Don't pay taxes on it.

Sophia Amoruso: I think this is just a really...talking about taxes is an incredibly important thing, and it's super unsexy. So many of us aren't educated on it. So many founders lose money that they could have kept if they knew these things. So many employees lose money that they could have kept if they knew these things. And the people who make the most money and hold the keys to this are the people who have the educations or the access to the tax advisors and the attorneys.

Jesse Pujji: And I was going to say, go get good tax attorneys and go get good tax advisors, and recognize that in today's day and age, one of the amazing things is you go to Twitter, you go to Reddit, and at least they'll start to give you the questions you can ask, and it's free. Like 30 years ago you had to go to a lawyer or you had to go to someone fancy. And by the way, then you can meet tax attorneys and advisors and every time, I'll go set up five meetings with new ones and they're trying to sell me on the business: "Well, what do you think about this and how would you approach this?" And I learn so much through having those things for free because they're all trying to sell. They're not charging me for the first hour I meet them. And so you'll just get this amazing education yourself, and then, I don't know if you guys do this, I meet with my tax advisors every other week throughout the year.

Alex Lieberman: Every other week?

Jesse Pujji: Every other week. It's a 20% to 40%. Well, if there was some part of your business, Alex, that's worth 20% to 40% of what you're going to ultimately achieve, wouldn't you manage it at least every other week? I mean everything else, every other part of it, the advertising sales, the this, the that you manage daily or weekly. And somebody said that to me once. I wasn't doing that. I was like, "Oh yeah, you're right." And so I'll tell them what's going on in the business. I'll give them an update on this. I'll go, "Oh," like recently they decided one of the companies I've started can be passive income that can offset against real estate passively, because I'm not spending that much time on it. Because I told them that. And so if you're not actively managing this thing, you're leaving a lot on the table. So I do. Every other week I meet with them.

Alex Lieberman: Yeah, I mean to that point, I definitely don't talk to my tax attorneys every other week, but I for sure think it is worth talking to them a lot. And I will say the best money spent after we sold Morning Brew, other than my dog Rambo, was on the tax attorneys who helped with structuring around this. It was worth 10 times over. So yeah I totally agree with the point that really good tax attorneys are worth their weight in gold. So on that note, make sure you get good tax advice, and shoot us an email at TheCrazyOnes@morningbrew.com. Let us know if you have pushed forward with QSBS, because we will be sending a bill to you. But in all seriousness, we love having these conversations. We hope that this was another great episode for you all and we want to hear from you. So if you listen to the show and you have any feedback for how episodes can be better in the future, or you have requests for topics, like big challenges that you're going through as an entrepreneur right now, shoot us an email at TheCrazyOnes@morningbrew.com and let's get the conversation going. Thanks, y'all.

Jesse Pujji: See you next week.

Sophia Amoruso: Thanks, guys.

Alex Lieberman: Peace.