Nivi: Earlier, we talked about compound interest, but we didn’t dig into it much.
Naval: Relationships offer a good example of compound interest. Once you’ve been in a good relationship with somebody for a while—whether it’s business or romantic—life gets a lot easier because you know that person’s got your back. You don’t have to keep questioning.
If I’m doing a deal with someone I’ve worked with for 20 years and there is mutual trust, we don’t have to read the legal contracts. Maybe we don’t even need to create legal contracts; maybe we can do it with a handshake. That kind of trust makes it very easy to do business.
Mutual trust makes it easy to do business
If Nivi and I start another company and things aren’t working out, I know we’re both going to be extremely reasonable about deciding what to do—how to exit or shut it down. Or if we’re scaling it, how to bring in new people. We have mutual trust, and that allows us to start businesses more easily and compounds the effect.
The most under-recognized reason startups fail is because the founders fall apart.
A startup is so difficult to pull off, so removing potential friction points between founders can be the difference between success and failure.
It’s better to have a few compounding relationships than many shallow ones
Nivi: There are a couple of non-intuitive things about compounding. The first is that most of the benefits come at the end, so you may not see huge benefits up front.
Sam Altman wrote, “I always want it to be a project that, if successful, will make the rest of my career look like a footnote.” Again, most of the benefits of compounding come at the end.
Another thing that’s non-intuitive about compounding: It’s better to have a few deep compounding relationships than many shallow, non-compounding relationships.
It takes just as much effort to create a small business as a large one
Naval: One thing about business that people don’t realize: it takes just as much effort to create a small business as it does to create a large one.
Whether you’re Elon Musk or the guy running three Italian restaurants in town, you’re working 80 hours a week; you’re sweating bullets; you’re hiring and firing people; you’re trying to balance the books; it’s highly stressful; and it takes years and years of your life.
In one case, you get companies worth $50-$100 billion and everyone’s adulation. In the other, you might make a little bit of money and you’ve got some nice restaurants. So think big.