Why Airlines Are Banks, How to Annual Plan for Your Business, and The Biggest Myths About Founders

Jesse Pujji: It's actually challenging sometimes for employees, because they're like, "Hey, I joined this. It seemed like you knew what you were doing." And I was like, "Oh." Now I go out of my way to be like, "I have no idea. I do not know how to build the businesses I'm building. I'm figuring this out as I go." And I think that's probably the biggest misconception.

Sophia Amoruso: Yeah, everybody's like, "I take ice baths." The secrets of highly productive people or the secrets of so and so, and it's like, there aren't any secrets. It's like, still waters don't always run deep.

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, guys? Welcome back to The Crazy Ones, the show by entrepreneurs for entrepreneurs. I'm Alex Lieberman, and I'm excited to be here again today with my crazy co-hosts, Jesse Pujji and Sophia Amoruso, who have rejected the nicknames that I gave them in our last show. So I will not be saying them. Instead, I'm giving our audience full freedom to come up with new nicknames. So if you have nicknames for Jesse or Sophia, shoot me an email at thecrazyones@morningbrew.com, and we will try to run it back. They're very tough critics.

Today, here's the rundown. First, we're going to be talking about a little-known secret that is airline loyalty programs and how massive they are. We talk about just how big they are, why they've become multibillion-dollar businesses, and lessons that any entrepreneur can take away from them. Then we're going to talk about year-end strategic planning for your business. It's one of the most important things that you can do as an entrepreneur. We'll talk about ways to strategic plan, how we do it at each of our companies, and what you should walk away with at the end of planning every single year. And finally, we're back with Startup AMA, where an entrepreneur asks us a burning question about building businesses. Let's do this thing.

So hopping right into it, let's talk about airline loyalty programs. I was watching this video recently by Wendover Productions, which if you haven't heard of it, it's an amazing YouTube channel that does these explainers. And the video was called "Airlines Are Banks." And it's a 12-minute video, and it basically explains how massive airline loyalty programs are. Jesse and Sophia, have you guys seen this video, or were you aware of how big loyalty programs were?

Sophia Amoruso: Not to the extent that they are. I was just reading about it more recently, and it's like airlines are banks. Who would ever think of that, right? Obviously, the airlines.

Jesse Pujji: Yeah, I'm a nerd. When I worked at Goldman, one of the biggest holdings was Aeroplan, which is basically Air Canada's...they spun it out of the company, and then, having been a student of Buffett, and I don't want the Baby Buffett title back, but there's this famous story of one of the first companies they bought is this company called Blue Chip Stamps. And I think I showed you guys in the prep. I have it right here.

Alex Lieberman: Yeah, let's see it.

Jesse Pujji: But literally, this is one of the first loyalty programs, and it was this thing called Blue Chip Stamps. If you were a retailer in the '50s, you would pay this company for the stamps. They'd pay Blue Chip Stamps a dollar for every stamp they bought. They'd hand the stamps out to their customers, and then the customers could redeem those stamps for toasters or whatever cool things they wanted. And does that sound familiar? It's the same thing as loyalty points, especially when you connect the credit card aspect of a loyalty point. So they essentially created that triangle very early on. It turns out Warren Buffett goes, "Wait a second, this company has hundreds of millions on its balance sheet." The market cap was like $50 million or something. He's like, "I'm going to buy this whole company, because it has all this cash, and there's two big elements of it. One is, I get the cash up front, and then I pay it out over time via getting people toasters or whatever they ask me for. But then there's a huge amount of breakage. 30% of the people never even...they lose their stamps. They don't come back for their stamps."

And I love to use this example just because it feels real. It's easy to understand and grasp before you get into all the complexities of airline points and redemptions. But it turns out, he took a lot of the capital for...this business just printed cash for awhile, and I think they estimate that he took it and made about $10 billion worth of investments, because he bought See's Candy and bought all these other things using the cash from Blue Chip Stamps. So I just actually got this off of Etsy. My wife got it from me to like...I'm gonna soup it up in my office. But it's just a cool way to remember there's such innovative businesses out there, and also, cash is king.

Alex Lieberman: Yeah, it also just reminds me how even when a business seems novel, it's probably been done before. It's a totally different space, but I was reading yesterday this amazing explainer that Andrew Chen, who's now at Andreessen Horowitz, he used to run growth at Uber. He wrote this whole teardown on referral programs. And I feel like people credit Morning Brew with having a great referral program, but it's like referral programs have been around for so freaking long. And in Andrew Chen's teardown, I have no idea where he got this information, but he basically said that the original referral program was created in 55 BC by Julius Caesar, who would pay soldiers who attracted their friends to fight in the army. They would pay them a third of their wages. So these business models and ways to monetize have been around for so long. And, Sophia, in a second I want you to talk about other interesting loyalty programs.

But just to talk about airlines, there was a research report that was written by a Stifel Nicolaus analyst, I think, two years ago. And the long and short of it is, he put buys on basically all of the major airlines, and the reason was that he didn't believe that Wall Street was effectively valuing airline businesses, because they were just being valued on the cash flow from their operations. But they weren't being valued for the value of their loyalty programs. And so at the bottom of his report, basically the summary was all of these massive airline programs, these loyalty programs, are worth tens of billions of dollars. So he valued American Airlines' AAdvantage Program at $37 billion, Delta's SkyMiles' program at $33 billion, United's Mileage Plus at $28.7 billion.

And the reason there's only recently been interest or just transparency around these programs is because at the beginning of the pandemic, obviously, travel went down. And these airlines were losing a shit ton of money, and they needed to borrow relief funds from the government. The only way to borrow those relief funds or take loans was to show their financials in a way more transparent way than they ever had, including their mileage programs, which are their most profitable parts of their business. They're huge revenue drivers for the business. And so only in the last two or three years have people become actually aware of how big these businesses are. And so just to explain to people how this works, United Mileage Plus in June of 2020 had a hundred million members, $5.3 billion in cash flow from mile sales, and $1.8 billion in profit from the Mileage Plus program. That's 26% of all of United's EBITDA or profit.

And the way, just very simply, how this works, is there are co-branded credit cards that credit card companies have with the different airlines. So for example, I actually have a Chase United card, and what happens is as you use your credit card, you earn airline miles. But people, I don't think have really thought about who's paying for those airline miles. And the way it actually turns out is Chase is paying for it. So Chase is actually spending, roughly, this is an average, no one knows the exact number, two cents per airline mile that Chase cardholders are earning. So Chase is literally paying United those two cents. But then that mile is either not getting redeemed by customers, as in being used to fly an airplane, for a long time. And back to Jesse's point about breakage, some people will just never use those points, which means that United is either making 100% on these sales because they're getting paid two cents by Chase and then they're never getting redeemed so there's no cost, or if there is a cost, it's not two cents to United, it's like an eighth of a cent or something like that. And so it's just amazing this arbitrage that exists because United has a massive customer base of people who pull out their wallet to spend thousands of dollars with them every single year. Anything you guys want to add to that?

Jesse Pujji: Yeah. There's a couple riffs. Let me riff on a few different directions, 'cause there's so many interesting parts to this. One thing you mentioned about the one eighth of a cent. Well, guess who controls how the inventory is redeemed in an airline? The airline. So when their seats are emptier, they try to get more mileage ticket flights, because it's cheaper. It's basically incrementally a cost of zero to them. If an airplane is flying and it's gonna go and there's a seat empty, they should sell it for whatever points they can get because those points, they come back in value from them. So that's a really interesting and cheap way that airlines can redeem it. There's inflation in these programs, where they make the points worth less, which is just purely bottom line to them.

But there's two other angles I think that are just fascinating here. One is, let's not forget about how amazing the credit card business is. So every time Chase gets a swipe, they take 2% to 3% of that transaction from the retailer, from whoever they're taking it from. From that, they then pay out to the airline or wherever. Sometimes you have these cash back cards. It's all the same thing. Those rewards going back to people are just, they're getting revenue from one side, and then they're paying that out as a cost to get it.

But the last thing that's crazy is, part of the reason these programs have become so big is the mileage credit cards are a new phenomenon. AmEx was on this hustle for decades, not doing anything with it. And it's become such a big deal that, I don't know if you guys remember this, but 15 years ago, if you had an AmEx Platinum, you could get into any lounge in the airport. Every airline partnered and said, you can use the lounge, no big deal. Then the airline said, "Wait, I have my own credit card. I'm gonna build a lounge. You can't use this, AmEx." And they got to the point where now AmEx is making lounges because all the airlines are blocking them out, with the exception of Delta. So this whole loyalty rewards, it's so big that that's where the Centurion Lounge strategically comes from. It's a crazy thing that it's become such a big business that it's led AmEx to start building lounges, and all these airlines to start having their own credit cards. It's a relatively recent phenomenon, but that's what's led to these things being as big as they are.

Alex Lieberman: And one last point I'll just make is, the thing that airlines love most in this whole structure is when there are huge up-front bonuses for when you open up credit cards. So a lot of credit cards will have, if you spend $5,000 in your first three months, you'll get 100,000 points that you can use for United flights. Well, the way that this functionally actually works, and the relationship between United and Chase is, Chase is paying for those 100,000 points up front. So now in terms of just thinking about your cash as a business, you're getting so much up-front cash to be able to do things with because of these up-front bonuses. So it's fascinating.

Sophia Amoruso: I just want to say, "You're welcome" to these guys, because I've spent so much money on these cards, and I've earned so much money on these cards. And I am Delta Diamond Medallion, and I didn't do it through flying. I did it through using the credit card, and I'm actually with someone right now who spent $15,000 on flights this year literally just to get Diamond Medallion status. And it's such a game for people, and gamifying loyalty. I mean, that's what it is. But to do it so you don't have to pay for...I mean, of all the benefits, not having to pay for travel or not having to pay for business class air travel is an amazing thing. So I use the Delta Reserve. It's AmEx Delta Reserve credit card. It's this purple card. I have one for Amoruso & Co., which is one business. I have one for Business Class, and then I use one personally. I have three of these purple cards, and we run all of our Facebook ads...it's like $500,000, maybe $400,000 a year in Facebook ads. And through my business, I'm not sure about you guys, but I'm able to rack all of those points up. And those are, obviously, dollars that Delta's using to finance their business, but I'm also using to finance my travel, which is, you know, nobody really loses. I guess the credit card companies lose, but in the end, I think everybody probably ends up making...

Alex Lieberman: That was one of the sad...

Sophia Amoruso: ...a lot of money.

Alex Lieberman: That's one of the sad parts of, to your point, of spending a lot on marketing on the credit cards. One of the sad parts of doing our deal and selling our company is before that, I knew exactly where our points were. I used all of our points we were racking up for personal travel. Now I have no idea where those points live. And I know there's a lot of them, but I've been too afraid to ask.

Sophia Amoruso: It's like, who's using them? Someone's using them. Is Matt using them? Who's using them?

Alex Lieberman: I know. I gotta ask Matt and Austin.

Sophia Amoruso: Is it your finance team? Yeah. And then I was doing research similarly, I guess, on Starbucks. And this is something that's a little bit easier for, I think, most people to grasp. I sometimes want my Starbucks soy chai, no water or something like that, extra foam. And I'll punch it in the app, but it's not like...the Blue Bottle app, when you buy a coffee, for example, it's Apple Pay. It's just like, ding ding, and you pay whatever it is, $10 for your fuckin' matcha. At Starbucks, you have to load in money in increments. So I don't know if it's $25 increments, but I have money and I use this very, very infrequently. I'm not really a Starbucks person, but when I want Starbucks and, of course, I just want to walk in and be efficient, I will order a coffee 10 minutes before I walk into a Starbucks or a Blue Bottle because I don't want to sit and wait. I do that with Postmates too. I like to intercept my orders. That makes me feel like a really smart person.

Alex Lieberman: Yeah, you're like a tax star with a baton.

Sophia Amoruso: Yeah, I am. And then this. So yeah, I've got, I don't know, not a ton sitting in my Starbucks app. And the same thing with gift cards, and this goes for any business that has gift cards. It's not loyalty, but it's, your customer is giving you a loan in advance that you can use to run your business. And of course, on the books, accounting-wise, that's not necessarily what it looks like. But American can go spend the money that they've in some ways been advanced by the credit card company before they have to repay it. It's like, something called float. Do you guys understand float? You're way more finance guys than I am. That's what it's called, right?

Jesse Pujji: Yeah, yeah. It's the insurance business. Again, Buffett is famous for understanding float. And it turns out when you're underwriting policies...again, what's insurance? You pay me now so that later on, I may or may not have an obligation, if you get into a car accident, to pay. And it turns out, as you scale these things, they're all super predictable. And you can know that as I underwrite more policies, I collect more up front. And now normally, insurance companies are decent and they're okay investors, so they put it in safe stuff. But again, Warren Buffett took that money and is able to invest it very effectively.

I think that pivoting to The Misfits listening, I think why this is important for you, I think the most important thing I would say is the concept of thinking about cash in your business and getting cash earlier in a cycle of a transaction. These are genius versions of it, where they're literally collecting cash they might not have to pay out ever, or for years. So that's a genius part of it. But even, I'll just compare two businesses that I've built. At Ampush, we would spend money on ads. We would get to the end of the month after 30 days of spending ads for a client. Then we'd invoice them, and then they'd get 30 to 60 days, depending on their size, to pay it. So we would have to spend $100,000, $200,000, let's say, to get some leads or some clients for someone. We might not get paid for 75 days. Well, guess what? That money went out of our bank account or our credit card or something, and we didn't get it for 75 days. And that's brutal, brutal if you're growing, brutal if you're not growing, brutal depending on how much money you have. And I think entrepreneurs walk into that problem all the time without just getting a little ahead of it.

To compare that with GrowthAssistant, not every customer on GrowthAssistant is this way, but our sales team goes, "Hey, guess what? It's so easy you can put it on a credit card." And people go, "Great. Here, I want my full-time person in the Philippines on a credit card." Well, there's a little bit of a trick there. We get to charge them on the first of the month. We take the money before we pay their person. So guess what? We get the money. The first of the month is great. The bank account fills up every month; they're charging every single person. We never have to think about cash or receivable. So just as a comparison for someone listening, a tiny little switch in the business model, which actually most customers like...and there's a cost to it, of course. We have to pay the credit card, but it's totally worth it. It makes the business so much easier to operate and so much less stress.

Alex Lieberman: Yeah. I think to that point, it's like, most businesses don't have this luxury. And they perform a service, and then they get paid at some point later, hopefully not too far out in the future for that service. So Jesse was using the example of his businesses. At Morning Brew, it's like, we will deliver the service of advertising in our newsletters to our advertisers. And depending on who the advertiser is, the payment terms will be anywhere between net 30 and net 90, so a month to three months. It's actually pretty funny, because there's an article that came out recently. I can't remember who the advertiser was. It was like Pepsi or one of these massive conglomerates, that they had some contract where they tried to have payment terms of net 365, which to everyone listening means they wanted the person delivering value to wait up to a year for payment. And so yeah, this negative cash cycle where you're paid up front, then you deliver the service, effectively is a zero interest loan from your customers.

But going back to Jesse's point about breakage, it's actually better than a zero interest loan, because with breakage it means, basically, people who are getting Starbucks gift cards or have money in the app, 10% on average will never actually use that money. What's happening is Starbucks is getting lent $1.6 billion and they're getting paid $160 million to be lent that money. And just to provide a little bit of nuance, only Starbucks and a few businesses can do this, because you're getting Starbucks dollars, and you can only redeem it for goods in Starbucks. If you're a company like Venmo or PayPal, who, again, you can load money into your Venmo account but then you want to be able to get dollars out, there's way more regulation on how those businesses can use that money to actually fund their operations.

One other just lesson I want to share, and then see if there's anything else before we move on to the second topic, is the other thing, other than just the cash business model here, is going back to the airlines. The higher the LTV of your customer, the value of your customer, the more that someone is willing to pay to acquire them. So at the end of the day, if we go back to why are credit card companies willing to pay two cents per point to airlines, it's an acquisition cost. It makes it more attractive to get a Chase card because you get United benefits, or get XYZ credit card company to get American points. And the reason they're willing to pay for it is because...I tried to look it up online, and no one has any answer to this. But I would assume the lifetime value of an average credit card customer is in the thousands of dollars.

So, Sophia, you and I were going back and forth on Slack the other day just about Business Class. I was asking you just about how the business did this year, how the financials are looking, what your game plan is for 2023. And so it got me thinking about, we're at that time of year where some people have already planned for the next year. Other people are doing it right now. And I figured it's not considered the sexiest topic, but I think it's probably one of the most important we'll talk about, is how do you go about goal-setting? How do you go about planning? I know we all have thoughts on this, but just to kick it off, Jesse, how do you go about planning for your businesses?

Jesse Pujji: Yeah, yeah. This is a topic I could talk about for a long time. For the first few years, we didn't really do it. What we did, me and Nick would sit and look at a spreadsheet and drag the sales out and toy around with them a little bit and go, "Yeah, okay. That looks good. Let's do that," which, by the way, is fine. Depending on where you're at and your business, I don't think that's a terrible way to plan and to think about your business. Over time, we played with OKRs for many years, and just we struggled with them. And I'm happy to talk more about that. And then we started pulling together a variety of different systems that we sort of made our own, which I'll talk a little bit about in a second. But we really started thinking about, how do we do this ourselves?

So I'll talk about the system a little bit. Before I say that, one thing I tell every entrepreneur I work with is, the best planning system is the system that you will use. That's also my philosophy on software, by the way, because a lot of people...and I made this mistake with OKRs for many years. It became this hugely administrative burden. Nobody ever touched them. No one used them. It would feel so annoying to everybody to do them every quarter, including me. And then we didn't really use them, and we would just go do things in the business. And so even if you're planning is a whiteboard that you never erase for the whole year but at least you use it and you look at it and you refer to it, great. As a starting point, that's perfectly fine.

The way I do it, we have a few pieces to it. The way I think about it, everything starts with what we call a desired future state. And in any of my companies, you'll hear people say "The DFS. What's the DFS?" And the desired future state is this future vision that you think is what you want. You don't have to get it. It's totally a choice. It's supposed to be inspirational, not like, oh my god, I have to do this. And typically, again, internally at any company that I've been a big part of, you'll see, what's the three- or five-year DFS? What's the one-year DFS? What's the three-month DFS? So people will start to say, at different time periods, where do I want to be? And the point of the DFS is to forcibly disconnect people from reality. We actually want that. We want people to have an open and big vision for what can be. Now, obviously, we always equate it with John F. Kennedy's the man on the moon. He just said, "Hey, in 10 years we're going to get on the moon." And he did not care the fact that that was completely impossible at the time. He didn't have much regard for it. And so obviously, the further out you go, the crazier and bigger your DFS is. The more near-term, it's going to be a little bit closer. So that's how we start.

Alex Lieberman: And just for...

Jesse Pujji: Then we flip the script and we say, okay...

Alex Lieberman: ...a second, for DFS, what are examples of things you're actually writing into the DFS? Is it specific numbers? Is it a little bit higher-level and squishier than that? What does that look like?

Jesse Pujji: No. Yeah, it's everything. It's, here's what I hope my revenue...in January of '24, here's what I hope the revenue and EBITDA look like. Here's what I think my headcount will look like. Here's the offerings I want to have. Here's what my product will do. The more vivid you can make that future vision, the better.

Alex Lieberman: Got it.

Jesse Pujji: And right now, Kahani, GrowthAssistant, they're all doing this. What's January '24? What's our DFS? I am the opposite of most people. I love that part. I can be in La La Land all day long. Most of the people I work with go, "Yeah, but we don't really know how to do this, or that's going to take too long." And I go, "Wait, wait, wait, we're not...this is just pure dream for a second," dream within reason. You can't say the company's going to have a billion in revenue next month or something, right? Theoretically, you could, but you won't.

And then we flip the script and we go, okay, now let's acknowledge current reality. Okay? So now forget about where we want to be in a year. Where are we right in this moment? What is our revenue? What is our headcount? What are we offering? And we want to get really vivid. And this is actually one I struggle more with, and most of my executives and teams are better at it, because I like to look at things with the rose-colored glasses. But no, what's our actual numbers? What's our actual churn? And once we have those super clear, those two, and there's some iteration that will end up happening once you put them both on a chart or whatever, but then a lot of the strategic planning is, okay, cool, well, how do I get from here to there?

And then we say, what are the most important questions? What are the most important doubts? What do we have to validate? What do we have to prove? And this is something I picked up from my coach. We call those waypoints. And the waypoint analogy I love, because OKRs are, "Go hit this big goal. Go get your objective and your key results." It's okay if you're 0.7 within it. In my experience, OKRs are really good when a company understands itself really well. Most people listening, me, you guys, we don't know our business that well. I don't know what's going to happen with Kahani. I don't know if it's going to become huge or the product's going to work. I have a lot of doubts. And so OKRs don't really work, because I don't know what to do. I don't know what to predict. Instead, if I say, I have certain doubts I want to prove, I have certain things I want to validate, those are waypoints.

And the waypoint, I guess...I'm not a sailor, but apparently when you sail, if you're sailing from California to Australia, you don't go in a straight line. Instead, you kind of go, "First, let me go to Hawaii; then let me go to Japan." You make your way through these different sections to eventually get to Australia. So it's the same thing in a startup. You don't know at any given moment. You go, well, next, I think the most important thing is...and I can tell you some of them. Kahani, we wanna better understand churn in the first quarter. That's one of our big waypoints. And we think if we can retain 80% of the customers in the first three months, we're gonna tell ourselves, oh, our product seems fine. If it's below 80%, we're gonna go, I don't think we're making it on product right now. We need to improve the product. We gotta do more with the product. So it sounds like a goal, but it's really a doubt. It's really a "What's going to happen and let's see where we end up."

Alex Lieberman: Got it.

Jesse Pujji: So that's an example of...

Alex Lieberman: And by the way, when do you do this process, typically? Have you already done it for next year?

Jesse Pujji: We're in the process right now. So the other thing that I forgot to mention was, typically, we'll have the leader, so say Adriane in GrowthAssistant, for example. She put together the DFS for the team. She also put together a current reality, and she starts to share that with the team. And this is the alignment process. The team goes, "You're crazy. You're a crazy CEO. That's not going to happen. We're not going to 3x the business. Here's why." And she starts to go, "Well, tell me why. Tell me, what are the issues?" "Well, we need two more salespeople, and we need this." And it's actually a wonderful way to go, "Oh, great. You're telling me what you think we need to do to make the business work." There's actually an iteration process, so it starts with that. Then we iterate it with the teams and the executives from an alignment perspective, until ultimately early on in, say, January, we'll go, okay, everyone knows what they need to get done. And I'm big on focusing on the next quarter, with some perspective on the rest of the year, and then each quarter you kind of like focus the lens on that quarter, versus trying to...you're not gonna know what your July sales...I mean, some companies will, but knowing July sales for any of the businesses I'm running? Impossible. So it's just focus on where you want to be...

Alex Lieberman: It sounds like the way that you think about it, and you didn't describe it in this way, so tell me if it's different, is you very much enjoy the top-down approach to it. Hypothetically, saying Kahani is gonna do—I'm just going to take a random number, this isn't actually it—like $3 million next year. And then let's say it does $3 million. As you're planning for '24, you're gonna work on your plan. It's gonna be like, no, I think the most ambitious but realistic look at this is, we can do $7 million. Feel it's mostly art, a little bit of science. I think to get to $7 million, we're going to need 30 people. I think we're gonna need mostly growth in engineering, whatever, blah, blah, blah. And then you're gonna have this list of what your future state is for Kahani in 2024. You're going to share it with the team at Kahani, and then they'll look at it from a bottoms-up perspective to basically say, okay, three to seven. How do we actually get there given the trajectory we're on right now, how many people we have, who our customers are? Is Jesse batshit crazy, or is this actually within the realm of possibility? Is that what the dynamic is?

Jesse Pujji: Yeah. And there's a couple iterations in there. Sometimes we'll say, "Well, here's Jesse's DFS. Now, by team, let's come up with a DFS. Hey, sales team, what's your DFS? Hey, marketing team, what's your DFS" that kind of aligns. It's not that different from OKRs. It's some different words. The other big thing that takes place is, ultimately, you have to come down to who's going to do what. What are the actual actions people are going to take to try to accomplish the things that we're talking about? And so that's the other piece of it, that you gotta go, well, who's actually...if we're trying to get 500 leads for GrowthAssistant, there's 20 ways to do that. You could do more Twitter. You could light up Facebook ads. You could become an email guru. You could go do affiliate partnerships. And then eventually you have to go, well, I'm gonna bet on these few things with the hope of this goal. And then we're gonna look at it in a few months and see whether or not we got there, and we're going to do an iteration cycle to figure that part of it out. You also want people thinking of a future state for the part of the business that they run and operate, in addition to some of the bottom-up validation and what's gonna go on there.

Sophia Amoruso: We're assuming that your company's well-financed, that there are teams, that you have direct reports, that you're collaborating with people. And for smaller business owners, I think a lot of it has to do with satisfying your personal life and starting with that. And for me, after having been through more formal planning processes like this, which usually I've hired a COO or an executive to do with me at this stage in my career. And sometimes people are smart enough to start earlier in their career thinking about their personal goals and somewhat of a thesis of how they can wrap their business around the lifestyle that they want to have. And this is something that I learned kind of late, because as entrepreneurs, it's really easy to let our business dictate what our life looks like, and to commit to things and say, this is where I want to be, and not really think about whether we're going to enjoy that, what's going to be required to do that.

If it works...and I've had a few businesses now that really work. Once it works, you're really committed to it, especially if you have employees, if you have investors. And so knowing what you're getting yourself into when you set those goals is really important. And I like to start with moonshots. So if there was no way for me to fail, what would I do? And then also think, do my goals that I set...obviously, there's the moonshots. What's possible based on, and what did you call it, your ideal state, right? Desired future state. Based on that, what's possible? What are my goals? What can I afford? And then, what am I willing to do? It's easy as a founder to just be like, I'm willing to do anything. And for some of us, it's just like, I'm at a point where I don't know if I'm willing to do anything anymore.

And I think there's a lot of rhetoric for entrepreneurs just around you need to do whatever it takes to get done. You're a crazy one. You're a misfit. Hustle, hustle, hustle. And that's not necessarily for everybody, and you can be an entrepreneur without necessarily having to do that. So are you willing to do the work? And then based on that, obviously, an action plan. And I guess, again, just for the entrepreneurs of one, in addition to moonshots...and I'm gonna show you guys something which is really cool. So I have something called the Flight Planner, which we put together at Business Class. Yes, it's an annual planner, but the beginning of the year does start with moonshots, and it also starts with, "In 12 months..." And I'm going to be filling this out really soon. Start at the beginning. In 12 months, I'd like to quit, learn, have, start, stop, and do. And that can relate to your personal life. It can relate to your business life, and it should probably start with your personal life.

And then figure out, again, how you can build a business that satisfies your personal goals, because in the end, when you're lying on your deathbed, and hopefully we all get a bed to lie on, this is how you're gonna rate your life. You're not necessarily going to rate your life based on the OKRs that you set with your team. And I don't mean to minimize the importance of this. Obviously, when you're running larger teams, everything that you're talking about is really critical. But I wanted to add something a little bit maybe more spiritual.

Alex Lieberman: Yeah. No, I think it's super important because I think, to your point, there are a lot of these company planning frameworks. And Jesse did a great job of hitting on one of them, but also, that is just one part of life. So the question is...

Jesse Pujji: Totally.

Alex Lieberman: ...actually, the only way to make the company plan realistic is to understand where that fits within your other buckets of life, because if hypothetically your goal is you wanna prioritize, I don't know, family, religion, and friends just as much as work, but the accountability, that's on you to complete the goals. The quarterly goals or the annual goals that are necessary to hit your plan for your business requires you to not do any of those three other things. Well, at the end of the day, you've just created a plan that actually isn't living within the world of possibility or reality. So I actually think looking at it from a little bit more of a 25,000-foot perspective, what you described with the Flight Planner is huge.

I don't want to talk about Morning Brew's plan really much at all because I think Jesse did a great job of laying out how they annual plan, but I would say we do something relatively similar at the Brew. We use the EOS process, which is the entrepreneurial operating system. And the very quick and dirty is that there are three or four of these systems that entrepreneurs have used for years. Oh, there you go. Jesse has Traction in front of him, which is the book by Gino Wickman.

Jesse Pujji: I'm reading it because, actually, I've heard great things, and I want to learn.

Alex Lieberman: Yeah, it's awesome. So we've been using it. Basically, we've been using EOS since, when was it? Middle of 2019. And I vividly remember when we read it because I vividly remember that being the inflection point of the business. I also vividly remember it being one of the only times I've seen Austin mad at me because we were in a WeWork still. One of our investors, the founder of the Snuggie, who is an incredible businessman and a great operator, he had told Austin, "You guys have to read this book, Traction," because Austin and I have been talking about how we're basically constantly just fishing water out of our boat that's taking on water, versus actually paddling forward, because we're just trying to keep the machine together today. And he's like, "You guys need to learn how to think more proactively, plan for weeks, months, and quarters rather than literally the next 24 hours."

And Austin read it, he told me, over the one weekend. He's like, "You have to read this." And he hit me up a day or two later, being like, "What do you think of the book?" And I knew my answer was not going to be satisfactory to him. And I was like, "I didn't read it yet." And he went off on me in Slack, again, very justified, because it's so incredibly important. So then I spent a full day in WeWork, did no work, just read the book. The very quick and dirty is there's six parts of the entrepreneurial operating system. Vision: So if you ask all employees what the vision is, you should get the same answers. If you don't, it's probably not tight enough. People: Do you have the right people in the right seats? Data: Managing your business through a scorecard where you have a weekly report of 5 to 15 numbers that you're looking at that are giving you a litmus test of how the business is doing. Issues, process, and traction. My favorite quote about what traction means is in the book, it says: "Vision without traction is merely hallucination." And I just always think about that myself. Ideas without execution are hallucination. You need the oomph to back up these big ideas that you have.

One other thing that I'll share is a great story from the book that I feel like all of these planning processes allow you to avoid. So the story is that you picture a small plane that's flying over the Atlantic Ocean. It's a little prop plane. And halfway across the Atlantic Ocean, the captain comes over to the loudspeaker, and he says, "I've got bad news and I've got good news. The bad news is that the gauges on the plane are not working." It's pretty bad news. He's like, "We're hopelessly lost. I have zero idea how fast we're flying or in what direction, and I don't know how much fuel we have left." And then everyone's waiting. They're like, what's the good news? And he goes, "The good news is that we're making great time." And that's what it can feel like to run a business that is not well-planned, that doesn't have a north star, that has no gauge of if you're working towards the right place. And so I don't have it up on my wall, but I should probably put that up on my wall.

The final thing I'll mention: I have a buddy. His name's Ayman. So Ayman was the CEO of Sumo. Sumo is a business that provides discounts on software. He actually took over the CEO role for a period of time from another buddy named Noah Kagan, who's an amazing entrepreneur, early employee at Facebook. And Ayman grew Sumo from $10 million to $100 million in revenue, and uses this great analogy for his planning process that he's developed over years, where he basically says most people don't realize that in the game of chess, 90% of chess outcomes can be predicted by what the two center pawns do on the board. So you have all these pieces on the board. I'm not a chess player, so I don't know by heart how many pieces there are. But the two center pawns are basically the biggest dictators of what's going to happen in the game. And he thinks it should be the same exact thing when you plan in business and you focus in business. If you want to take revenue from, let's say, $2 million to $4 million, you should create constraints where you narrow down all of your focus as a company to the one thing that is preventing you from closing that gap from two to four. And so said differently, he believes that you need to always be thinking and focusing on, what are the two center pawns in your business?

Jesse Pujji: I love it.

Sophia Amoruso: And speaking of action, yeah, I have this tattoo. Oh, man, regrettable. I don't regret any of them, but this one's so conspicuous. It's on my forearm, but it says "Words tend to be inadequate," which sounds very emo, but I very much believe it, because most people live in a world of words. And while I love words, so few people take the action and live up to what it is that they say they're gonna do. And when you're planning, obviously, accountability both as a founder and for your teams is number one.

Alex Lieberman: Yep, 100%. Okay. Let's finish up with a little Startup AMA. We haven't done this in a few weeks, so I'm excited for this one. Let's watch the video. Roll the tape of an entrepreneur asking us a question, and then we'll go around the horn.

Speaker 4: What are the biggest myths or misconceptions that people have about startup founders?

Sophia Amoruso: I think one of them is that we're resilient by nature. I think I've had this journey where I've had ups and downs, and people are like, "You're so resilient." And just because I stick around doesn't mean that I'm resilient. You've no idea what happens inside my head. You have no idea how much I've actually bounced back. And just because I keep going and I'm not hiding out doesn't mean I'm resilient. And it's great that people can project that onto me and be inspired by it, but it's not completely true. I'm just a masochist. Entrepreneurs can be masochists, and that can look like resilience, which I just don't even...those are like, those things stand in such contrast to one another.

Alex Lieberman: So Sophia's a masochist. Jesse, what's yours?

Jesse Pujji: I feel like my biggest misconception before I was an entrepreneur and then the one I hear the most often is that they know what they're doing, that they actually have some sense, some skill, or some special secret sauce that they're like, "Oh, I know what's going on..."

Alex Lieberman: No fucking idea.

Jesse Pujji: "I know what I'm doing," versus just no idea. And every day you're figuring it out as you go. And you're curious, and you ask questions. I just think that's the biggest one. People think I know what I'm doing. It's actually challenging sometimes for employees because they're like, "Hey, I joined this. It seemed like you knew what you were doing." And I was like, "Oh." Now I go out of my way to be like, "I have no idea. I do not know how to build the businesses I'm building. I'm figuring this out as I go." And I think that's probably the biggest misconception.

Sophia Amoruso: Yeah, everybody's like, "I take ice baths." The secrets of highly productive people or the secrets of so and so. And it's like, there aren't any secrets. It's like, still waters don't always run deep.

Alex Lieberman: Yeah. And not all founders have ice baths or go to Burning Man.

Sophia Amoruso: Yeah. Yeah. Thank god.

Jesse Pujji: What's yours, Alex?

Alex Lieberman: Yeah, I have a few I'll run through. And when I say these are the biggest myths or misconceptions, these are literally just, I think, things about myself that I'm just saying in the third person. So "founders love risk." I know I am not a risk-loving individual, and I actually was very calculated in making the decision to become a founder. I think some founders have an absurd amount of risk. So for example, I know Mark Lore, who built Jet.com and he built Diapers.com that he sold to Amazon, he put a very large amount of his money in every next business. I actually don't know if I would have the risk tolerance to do that.

The second one is that founders should stay the CEO forever. I had this perception that you need to be Elon or Bezos or Gates, where you take the thing from idea to IPO and you're the captain of the ship. You sail this ship into basically the horizon, or you go down with the ship. That is also not the case. "Founders are great role models." I have found that actually founders are horrible role models in certain areas of life. And two more I'll share. "Founders are super passionate about their business on day one. You have to do what you're passionate about, or else you won't end up doing it for a long time." I don't know about you guys, but I was not wildly passionate about writing a newsletter in the early days, but I got passionate because it felt like there was momentum. And I got passionate because people felt like they were getting value, and that's what ultimately gave me the foundation to stick with it.

Jesse Pujji: Yeah, I love that.

Sophia Amoruso: And I think speaking to that, the whole "Your business..." And I've heard this so many times. "Your business is your baby." And it's like, it's not my baby. Stop telling me that. You don't know anything about me or my motivations. And it's like, no, it's a business. It's not my baby. If it's your baby, you're way too attached to it. I don't have any babies, but that's what I would imagine.

Alex Lieberman: Love it. Any last words or parting words before we sign off until next week?

Jesse Pujji: No, this is great.

Alex Lieberman: Awesome. Sophia, Jesse, as always, love doing this with you guys. And thank you to Crazy Ones listeners for another great episode of the show. Shoot us an email at thecrazyones@morningbrew.com if you have any ideas or feedback, and we'll see you Misfits next week.