A breakdown of the tech innovation cycle, Tesla’s recall, the importance of customer support, Brett is back with a state of crypto and blockchain update, and spy balloon madness

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February 23, 2023

Here’s what’s covered on this week’s pod:

  • Tesla’s recall.
  • Predictions on when self-driving cars will be the norm.
  • The process of the tech innovation cycle for sectors and industries.
  • Startup Tip of the Week: The Importance of Customer Support
  • Brett is back with a state of crypto and blockchain update, including an update on the SEC’s stance on staking.
  • Spy balloon madness and US China relations.

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Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is definitively part of that effort. Today we've got a normal partner meeting, but I think there's a little pizzazz going on the group's getting their flow, so you're gonna hear more chit chat than usual.

And I think it's interesting because it's beyond the current events and beyond the business topic, you're gonna get more and more lens into how we're thinking about these business topics and making sense of the information. Hopefully you enjoy it. I think it's the trajectory we're on.

We're on more broadly.

Mike, are you still in bed? I woke up 14 minutes. Yeah. You sound nasal and you look puffy. Yeah. What's happening?

Mike Rogers: It's early. I'm out in Jackson, Wyoming still doing my best. It's been a dry couple days out here, and that's probably why I'm so

Brett Palatiello: nasally. But snow's

Mike Rogers: coming and I'm gonna extend my trip a couple days to enjoy the, I think they're calling for 45 or 50 inches of snow.

MPD: Wow. Wow. So what's your go-to when it dumps? 40 inches. Oh gosh, that

Mike Rogers: much snow.

MPD: Just get up early. What happens?

Mike Rogers: Wait, line. You just a lot of hoot and holler. All right. That's it. The storm like this where it's gonna snow for like basically two and a half days straight doesn't really matter because everywhere's gonna be good.

MPD: So how do you weave venture capital? Your job into skiing is really the right question. Like how does it fit? Yeah,

Mike Rogers: I try to ski as much as possible and I try to venture capital as little as

MPD: possible. Okay. There you go. Do entrepreneurs like pitch you on the ski lift? Like how do you do it? Yeah, I mean I'm

Mike Rogers: skiing with a few of our LPs right now.

I'm skiing with a few founders. And I'm also just trying to enjoy myself cuz this is one of my favorite things to do. So it's a combination of all three, weave it together. But for the most part, I just love being out in the mountain and I get to grow a ski beard and do other fun things like that.

And, I can't do that in New York.

MPD: You can't have a ski beard in New York that's allowed, but yes. You can't ski as much. Yeah. What do you got this week?

Mike Rogers: I thought you wanted to talk about the Tesla

MPD: recall. Yeah. Let's talk about the Tesla recall. Yes, that's what I wanna talk about.

Recall air. Yeah. Tesla had a big recall for everyone not paying attention. It's all the hubub and I have feelings about it. But you can start, Mike. No, I, why don't you

Mike Rogers: start today? It sounds like you're very emotional,

MPD: passionate about this. Fine. Look. Okay. For first disclaimer. We're a Tesla family.

We have two cars. We have a three and a Y, and I like the Tesla. I also like all the other EVs coming. I believe it's the future, and I'm supportive. I vote with my dollars, but there's this recall happening because the self-driving functionality isn't up to par, which is probably. Problem is full self-driving functionality.

Yeah. So there's two versions for people who don't have a Tesla. Yeah. One is the one the default that comes with the car. You get in the car, you turn it on, it stays in the lane. If there are painted lane lines , the cameras can see that. So if you're on the highway, it's terrific and it also spaces you from the car in front of you and has like a max speed little logic.

My mom had a Subaru, our last car, and had a version of the same functionality. Stay in the lane space from the car. This is a lot more elegant, so that's like partial driving, but what it doesn't do, it doesn't make left and right turns, and it doesn't stop at stop signs and stoplights. So you do have to stay awake at the wheel, right for some money.

15, 20 grand. You can push a button and it downloads an upgrade. And apparently in that version, which I don't have, You can type into your map where you want to go and the car goes there, makes the turn, stops, the lights, the whole bit. So that version of the car, apparently, of the SA software is not up to standard yet.

And the problem I have is as the resident tech guy for everyone else in my life, outside of people on this call at work, ev, whenever there's like a tech news announce, Every dinner I go to, every hangout with non-tech people. It's what the hell's going on with that? Like they attack me like I'm the representative of the industry and I want to tell you it's reasonable to me that Tesla's software isn't perfect yet.

That's okay. So let's, I think, let's take a step

Mike Rogers: back here. You're

Brett Palatiello: saying, yeah, go ahead. You're okay with the fact that

MPD: in the

Brett Palatiello: innovation

MPD: cycle, companies will make. Yeah. And people will then say, Hey it's not, we're never gonna have self-driving cars. I'm like, hold on a sec. Fast forward a hundred years, we've got a technology that kind of works a little bit now, right?

You don't think we're gonna have self-driving car? And they'll be like, okay, in a hundred years. And then I'll say, okay, so how about in 10 years? 20 years? Probably in 20 years. How about in 10 years? Maybe five years? And it's just a shortsighted, we're in a cycle of self-driving cars becoming pervasive.

We're at the beginning of it. Can

Mike Rogers: I ask you when? When do you think the first commercial airline flight was?

MPD: Forties, fifties.

Brett Palatiello: 1914.

MPD: 1914. But it was. Define commercial airline flight. That was like the

Mike Rogers: Mota Express.

MPD: Sorry, the more I'm looking at it, it's not like a PanAm or something.

It

Mike Rogers: was commercial airline flight.

I don't know. We'll get the answer later but my point is to say I'm on board with you because a hundred years ago we weren't flying airplanes. If we don't think a hundred years from now, to your point, we can go from where the car is self-driving today to being fully self-driving. You're crazy.

I do think it'll take a little bit longer perhaps than people think. And then I guess maybe some of the makeup bowls like yourself, think if you think it's 10 years, I think it's probably 20

Brett Palatiello: could

MPD: be. And they gotta get the laws around it, which is gonna be complicated. And there's gonna be case law, like what happens when two cars on autopilot crash.

Who's responsible. There's a whole lot of social implications of a major shift like this, and that's gonna take a long time to iron. Yeah, I'll go one second. I'm just anti the haters who are saying, Hey, this is never happening. Or they're upset that it's not perfect yet. Neither of those are reasonable ways to think about the tech innovation cycle, right?

Mike Rogers: They, the peop the haters are just hating cuz I think change is weird for most people and the people who are like, oh for some reason this is taking longer than it should. They don't realize building software is hard and building software like this is IM. It's crazy if Elon can land a rocket that's shot out to space back on a pad on earth, I think they can figure out how to like, find a stop sign and make Ray

MPD: turn.

Yeah. And I think people also aren't seeing like the potential benefit of this. They're just thinking, oh, convenience or safety, and those are both relevant. But imagine a world where every car is self driving. Every car, not half the cars, not 10% of the cars, every car, and they're talking to each other.

The cars accidents are over. What hap Yeah. Accidents are over. Oh

Mike Rogers: I'll go as far as to say I make a prediction of the podcast right now.

Brett Palatiello: We might have to have

MPD: do it or producer do, it's on the record,

Mike Rogers: hold it for 20 years. But I think that within, let's say within your kids' kids or my kids', kids' lives, I don't have any kids, hypothetical.

Driving

MPD: will be illegal. Wow. Illegal driving. Yeah. That's like saying you can't drive a manual transmission car. That's the old tech that we now have back then. Fun, fun way to think about this. When manual cars were normal, seventies, eighties, we would say, Hey, did you buy an automatic? And now the automatic car is just a car and the old car is a manual car.

And now you're buying an electric car. And eventually we're gonna stop calling those electric cars. We're gonna say, Hey, you're driving a gas car. Cause that's the old car. Yeah. A combustion engine. I don't know what they're not gonna use that. They're gonna say gas car.

Mike Rogers: This is actually

a better, this is a good

MPD: segue, I think.

And then it's gonna be the, self-driving car. Oh, you're driving it, or you're actually driving, there's a wheel. Yeah.

Mike Rogers: Or you're gonna need a special license like we have today to drive, but it's not gonna be like, everyone gets it when they're 18. It's gonna be like, oh, you are a person who needs to have a license to operate the motor vehicle for X, Y, and z.

That's where I think it's gonna go. But like the vast majority of people will not get driver's licenses. They will not be allowed to drive. They will just sit in a vehicle and be taken where they're gonna go. But this is a good segue actually. I was thinking, I think it's interesting to talk about, cause I had this conversation again yesterday with someone, and this what you're describing is the tech innovation cycle.

I don't think a lot of people realize that What we talk about this a lot, how like AI was its own thing and now it's just incorporated in everything we do, and now no one really refer, it's just the business just uses ai. We just call it software. We just call it software and business software.

We've talked about this before. I think that's the way blockchain is going right now in, in this exact same thing. I think it's the same way that cars will go. This is just what happens when early tech gets introduced. People view it as its own vertical, and then over time it slowly segments into just being the.

And then you're right. You look back, it's the old thing

MPD: and it loses its label.

Mike Rogers: It loses. It loses its label. Exactly. You can take that framework and apply it to nearly every single technology innovation curve we've ever

Brett Palatiello: had.

MPD: Wow. Brett, you're back. Great to have you back on. Yeah, great to be back. So you're a dad now.

How's Wyatt?

Brett Palatiello: I'm a dad. Wyatt's great. He's a good sleeper. He's not colicky, which is a big one. And yeah, we couldn't we couldn't love him anymore. He's he, it's really exciting having him around.

MPD: My daughter had colic and I think it's the easiest way to lose all of your hair. Yeah. That's a hard three months.

Brett Palatiello: Yeah, I can imagine. I I had a niece who was colic and Yeah, I'm not jealous by any means, but but he's, yeah, now he's sleeping through the night,

MPD: you got, you've seemed pretty rested. You're functioning, which is amazing. Yeah. I'm functioning. Yeah. Okay, here we go. It's been a while since you've given kind of a state of the blockchain world.

Yeah. So instead of just driving into a current event today, would you mind starting off with bringing everyone back up to speed? What's happened, the last month or.

Brett Palatiello: Yeah. So there's been a bit more action price action at least on the optimistic side. So prices have gone up. There is a positive sentiment shift towards crypto, even in the face of potentially some negative regulatory energy one of which being Kraken was told to shut down their staking service.

And that's been a big point of contention because it's been several years since staking has been around. And essentially there is no real path forward for large companies that are interested in offering staking to become compliant with with the US government or with the s e c, whoever ends up regulating.

There, there's also some issues on the banking side with on and off-ramps. We're starting to see banks seeing a lot more regulatory scrutiny. Silver Gates saw about 60 billion worth of outflows. So it's been a tough. Few months on the regulatory side, but nevertheless things were beaten down quite a bit in crypto.

So there is a bit of of a pullback here or a bounce from that negative energy we saw a couple months ago.

MPD: But is it, isn't regulation kind of headline, bigger picture, a short-term pain, but long-term gain? Doesn't it bring the ambition of. This whole industry, this whole initiative into the main.

Yes and no.

Brett Palatiello: So yes, it's positive from the perspective that it is getting notoriety. So it's clearly an important aspect of the industry and it's also clearly important enough for the s e C to get involved with. What's negative about it at this point is there's still hasn't been any guidance as to how to become compliant.

And we heard Hester Pierce. A commissioner at the s e c dissented on the s SEC's decision to shut down Kraken staking service that it's basically regulation by enforcement and there's really no viable path forward for people to offer staking services. Until we start getting some indications of that companies are still gonna be on shaky ground from a compliance perspective.

MPD: So they're. Institutionalizing it, they're nuking it through

Brett Palatiello: rules. They're nuking it through what is essentially just telling somebody they're doing something wrong but without telling anybody how to do it right. I see. The space for doing right is probably pretty narrow in the CC'S view.

So anything outside of that, even if it is reasonable, is still wrong. So people are gonna still get penalized for that. But it's just a matter of the s e c putting out guidance on what exactly let's say reporting or disclosures look like for staking services. And they just haven't done that.

And we've also heard complaints that the SCC. Proverbial door which is supposed to be open at all times, isn't exactly open to people that wanna be compliant and offer these services. That's a negative. I'm sure this, but it could be a positive from the perspective that people are getting exposure to what exactly

MPD: is going on.

Yeah. Who knows what's going on behind the scenes and all. Motivations and lobbying it, I'm sure it's all extraordinarily complex. Yeah. Hey, can you can you explain staking, because that's the topic dujour for the regulatory regime. Yeah. What is

Brett Palatiello: that? Yeah, so what staking does is it essentially allows you people in the network, To secure consensus.

So if I stake into Ethereum, I can now validate transactions. So I can give my vote for certain blocks or I can propose my own blocks. So if I do that correctly, I get a reward for that. If I do something malicious or I do something incorrect, or I don't participate actively, I actually can have part of that stake slashed.

Removed from my account. So it is a way to secure the network and make sure that the rules are being followed and malicious behavior is

MPD: penalized. So just making sure put, I, I always try to take the blockchain jargon and put it in common industry parlance. It's like bonding, right? Yeah. Contractors have bonding, right?

You might put up a bail bond. Yeah. It's someone saying, Hey. We're gonna co do calculations on the transactions on the system where the money went between A and B, and we're gonna essentially ensure it with our own money and make a little money if we do it, if we do it ethically and right. And if we don't, the money we put up as our bond, our stake, we'll get nabbed.

Yeah. We'll get taken by the system. Yeah, that's a great analogy. It's like a, it's a guarantee. Yep. Yep. That's exactly. Why did the, why is the s e c concerned about this right now? Why is this the topic? Yeah.

Brett Palatiello: So people that offer staking services essentially what a number of them do is they'll, I give my money to some company and they end up staking it via their quote nodes.

And those nodes are the ones that run the software communicating ethere. And so the question is whether that offering is a security. So if companies are, all they're doing is they are staking your tokens in their software and getting the rewards back and just passing that along to the end consumer, that isn't a security.

Where it starts to get dicey is when when firms start offering attractive returns. There's certain tweaks to software and certain networks that you can tap into that can offer, that can generate better returns for stakers. So if you're out there marketing staking service, and you're saying, I can earn you a better yield than, simply staking with somebody else.

Then that could constitute a securities offering. Or if you're doing something along the lines of, instead of purely taking rewards and passing them along back to the staker or the consumer, you can smooth out those payments over time. That also potentially could be considered a security.

It very well may be, and I don't know the ins and outs of how Kraken did it, that it could be classified as a security. But again, the point is that it's regulation by enforcement. And even if Reg, if Kraken wants to play by the rules and do everything by the book there is no book to, to follow along to so they're just basical.

Trying to figure it out and, getting slaps on the wrist or even more obviously shutting down the staking service until they can narrow down exactly what the s e c wants and that's

MPD: just not productive. But to, to red team for a second here, why would the s e c, the Securities and Exchange Commission be b that's right.

What's the e equity exchange. Exchange. I. Yeah. Exchange right there, I had it. Why would the s e c be worried about this potentially being a security? Who are they trying to protect? What is the assuming positive intent, best motivation for why they might be regulating the staking function?

Yeah.

Brett Palatiello: So mostly it comes down to protecting consumers. So they know exactly what's going on under the. So that there's no information asymmetry between what some staking provider is actually doing and what you think they're doing. So that's one thing. And also the integrity of the markets is always important for the s e C to make sure that capital is flowing efficiently and that it's actually going places where it says it's going.

But ultimately I would say it's mostly at this point, consumer. because one of the other things too is with some of these taking services, there is it potentially is not clear to consumers that in the event of bankruptcy their tokens can be used to cover creditors. Usually they're pretty good about reporting that, but that's one of the points.

Gensler in his in his video had made I don't know if you saw it, but it's quite the production. It talks about steak, s t e a k relative to staking. It's quite the waste of time, but that's, but that's part of it, which was making sure consumers know exactly where their money's going, what are the contingencies and what exactly that looks like across all different scenarios.

So again, regulation by enforcement is at least, it's been several years now is pretty.

MPD: So you're not opposed to the s e C coming in and regulating this. You just want them to say, Hey. Here's how you can do it versus, yeah, just you can't, yeah. That's the issue. That's the issue. Yeah.

Brett Palatiello: Again, it very well may be that Krakens offering could be classified as a security. I don't know enough about the specifics of it. I'm not accusing them of that. Yeah. But. Yes. It's not that we don't write want regulation. It's, and it's actually the opposite for the coin bases and Krakens of the world.

They want regulation, but they want it to be clear and communicated because they do have the resources to comply. It's not that they don't want regulation, it's a matter of, okay, we wanna offer this. What's the best way we can comply with you guys? And

MPD: they're not offering that. Any indication, last question that the s e c is trending towards providing guidance about how to be compliant?

Not that

Brett Palatiello: I've seen. Not that I've seen. And also, in terms of being on the front lines, you can only listen to the big companies like Coinbase is Brian Armstrong about what's actually going on behind the scenes. And those are the biggest companies in our industry and even they're complaining that the s SEC's door isn't.

For conversations in, into how to best do this. So at this point, there's not a lot of indications that they're gonna be putting forth some sort of guidance anytime soon. But I will say the bright light in all of this is Hester Pierce and her dissent.

MPD: Okay. More to come.

Yeah. Thank you, Brett. Thanks, mark. All right. Fong Island, we're catching you right before you leave for Buenos and eROI, if I remember correctly. Yes,

Phuong Ireland: I'm super

MPD: excited. Good. Do you guys, do you think you'll be able to bring the family back? I know you were worried about traveling with kids down there.

Phuong Ireland: I hope so.

10 hour flight with two kids, and this is the first first international flight for all of us after Covid. So yeah, lots to look forward to. Lots to be.

MPD: It'll be cake. Careful of . No, it'll be cake. It'll be cake. It's great down there. Okay. So I think you're out next week, but, so let's let's double down on some great wisdom.

Let's go around.

Phuong Ireland: Yeah. So I today we're gonna talk about customer support, which I think is a really hefty topic. It's super important and I wanna talk about how startups can think about building an effective strategy that can really drive their business. Now we've all had good and bad experiences, and as customers, we remember how it makes us feel towards a brand, right?

And that's exactly why customer support is so important. It drives brand loyalty and customer retention. When a customer has a good service experience, there's a good chance they'll come back, which will be very valuable to your company. I think there are studies that show that fi a 5% increase in retention can drive a 25% increase in profit.

Good customer support also drives customer acquisition, so happy customers will share their experiences with six or more people. That makes it a really significant, cheap customer acquisition. Okay, so now that we know why it's important, let's talk about how to think about creating the strategy. First, you've gotta define your goals.

What does amazing customer support mean for your business? It could mean different things for different companies. So for a retail company, it might mean a flexible return policy and fast shipping. For a software company, it might mean great technical support and a constant flow of upgrade. To further think about how you define your customer service goals, ask yourself, what kind of experience do you want your customers to have?

And then also ask yourself, what kind of experience is your competition offering? So people will often pay more for good customer support. So if your competition is offering a better experience, you're in trouble. Tip number two, know your target customer and view your customer service as an extension of your brand's conversation with that customer.

So in terms of your customer, you should probably know this for different aspects of your business anyway, but understand their different graphics, their psychographics, what do they value? How do they like to communicate? Is it through email, Instagram, live chat, text, phone? Show up in those places, or maybe they don't like to communicate at all.

A lot of customers don't wanna speak to anyone, and they want self-service options to offer those. And then once you figure out where you'll talk to your customers, then figure out how you'll talk to them. Remember, your customer support is a big part of how your customer experiences your brand, so make sure it's representative of your brand storytelling.

So this is an extreme example and not a strategy I'd recommend now, but I once were for a fashion brand that was rooted in British style. So when you called customer service, the automated voice spoke in a British accent, even though the company was headquartered in Columbus, Ohio. And we had no, that's awesome.

Distribution now outside of the us, right? Isn't it funny? Love that. Love that. I'm pretty sure that voice was the only British employee we ever had. But you know what? it straightened the brand storytelling and customers loved. Tip number three. Identify the right metrics, keep track of them, and see how they change over time.

So some metrics to consider are customer satisfaction. You can u use surveys to measure this. It's really a great way to see how customers are happy with the level of support that they're receiving. You could also track your NPS score, which is your net promoter score. It gives you an idea of how likely your customers are to recommend your business to others.

You should also track the volume of support requests you're receiving over time. So this will give you an idea of whether you need to scale up or scale down your support team depending on how much they're handling. Lastly, make sure you're using your customer support feedback to improve your product.

So as you're talking to your customers, you're gathering a ton of data. Collect the feedback in a systematic way, analyze it and look for common themes. Maybe there's a bug or feature that's not working as expected, or maybe there's suggestions in how you can improve your offering. You might need to make changes to the product or provide more education, or adjust your communication Strateg.

But once you've made the changes, check in with the support team and make sure you're hearing fewer issues about those topics. And don't be afraid to go back to the customers who gave you that feedback and let you know. Let them know you value their input and you made changes because of it. Customer support is a great way to show your customers that you're listening and that you care about.

Their experience can also lead to really meaningful changes that can make a big pa, big impact on your business.

MPD: That's what I've got today. This is a great one. I actually just an addendum. I think NPS 1 0 1 could be an entire segment for you. Just planting that seed. Here's a conversational topic on this, is the customer always right and I'm gonna throw this one out cause this one's a conundrum.

And I think people who are entering into building their first customer service success function, there's a lot of these cliches bouncing around in the. I'm gonna say something a little controversial, not that exciting, but at Interplay actually we have unabashedly determined that we are a team first organization, not a customer first organization.

And that doesn't mean our team is always right, but it does mean we have our teams back and we're gonna support them. And if they make mistakes that might include having them, apologizing with them or whatever else. We, I have found, and I have a belief that if you have a strong supported culture at your core, you can provide better experiences for people externally.

It's just like that little concept, like you can't love other people until you love yourself. I think that kind of applies in a team and management context as well. Over to you, just with a complicated unanswerable question, is the customer always.

Phuong Ireland: I wonder if that's like the right question or it's like an outdated question, right?

Is it really about the customer being right, or is it really about the customer feeling like they've been heard, that the company understands their concerns and cares about them as a customer and is doing what they can to address them. I think that's probably more important than feeling.

And I think all of those things, making your customer feel that way is really important for a good customer se service strategy.