Molson Hart: China and Amazon, Up Close — #60

Molson Hart is the CEO of Viahart, an educational toy company. He has deep experience selling products manufactured in China, using Amazon and other platforms. He produced a documentary about the challenges Amazon's market dominance creates for sellers and buyers worldwide. His recent video about a recent trip to visit factories in China went viral, generating millions of views on X.

• Molson Hart on X: https://x.com/Molson_Hart
• Amazon Documentary: https://youtu.be/8L6MaNVNBuQ?si=YMRb4z5F12CoJJI3

Steve and Molson discuss:

1:22 Molson Hart's background, experience in China

5:26 The IQ Question

13:19 Entrepreneurship and China

38:40 Selling on Amazon 

48:32 Alternatives and Competitors to Amazon

50:40 The Future of Amazon

55:30 Advice for Aspiring Entrepreneurs

57:27 Understanding China

1:07:43 China's Rising Global Influence

1:16:12 Personal and National Identities

1:18:45 Demographics: China's Future


Music used with permission from Blade Runner Blues Livestream improvisation by State Azure.

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Steve Hsu is Professor of Theoretical Physics and of Computational Mathematics, Science, and Engineering at Michigan State University. Previously, he was Senior Vice President for Research and Innovation at MSU and Director of the Institute of Theoretical Science at the University of Oregon. Hsu is a startup founder (SuperFocus.ai, SafeWeb, Genomic Prediction, Othram) and advisor to venture capital and other investment firms. He was educated at Caltech and Berkeley, was a Harvard Junior Fellow, and has held faculty positions at Yale, the University of Oregon, and MSU.

Please send any questions or suggestions to [e-mail] or Steve on X @hsu_steve.

Creators & Guests

Host

Stephen Hsu

Steve Hsu is Professor of Theoretical Physics and of Computational Mathematics, Science, and Engineering at Michigan State University.

What is Manifold?

Steve Hsu is Professor of Theoretical Physics and Computational Mathematics, Science, and Engineering at Michigan State University. Join him for wide-ranging conversations with leading writers, scientists, technologists, academics, entrepreneurs, investors, and more.

Welcome to Manifold. My guest today is Molson Hart. Molson is an entrepreneur, a business owner. He has traveled to China and actually worked with factories there. He released a viral video. I don't think he intended it to be viral, but it went viral just recently because he was back in China.

Steve Hsu: I think he recorded it in Shanghai. And I've been meaning to talk to Molson for a long time because he's also an expert on working as a seller through Amazon and has actually, you know, revealed some disturbing aspects of the way that Amazon deals with its merchants. So there's a whole range of things for us to talk about.

He's also interested in the question of IQ and somehow I've become like one of the, like representatives of IQ or something. So anyway, I think we're going to have a great conversation. Molson welcome to the podcast.

Molson Hart: I'm happy to be here and I'm also excited to speak to you, Steve.

Steve Hsu: Yeah, great. I'm looking forward to it.

So, I always ask my guests a little bit about their childhood growing up. Now, what I know from other interviews you've given is that, correct me if I'm wrong, you grew up in Connecticut and you went to Dartmouth. Is that correct?

Molson Hart: Yeah, both of those things are true.

Steve Hsu: Yeah. So flesh that out a little bit. What was the young Molson like and what did he want to do in life?

Molson Hart: Oh man, you, you really start heavy. Um so it was, it was weird. Frankly, I had a really weird childhood. My parents are, they were not born in America. My mom is from Quebec and my dad is from New Zealand. And I grew up in Greenwich, Connecticut, which is famous for being one of the richest towns in America, mostly because of finance.

But my parents weren't in finance. And it was just a, it was just, it was just a weird world to kind of grow up in because we, we kind of like my, I'm white, my, my parents are white. So like, you kind of like on the surface, you're like, okay, you could fit in Greenwich Connecticut. But in some ways my parents and my family didn't quite fit in.

I'm not complaining at all about my upbringing, but because they were immigrants, they weren't born in America and they didn't work in the industry in kind of an industry town branch, kind of an industry down for finance. And so I had a weird upbringing, a whole bunch of different ways.

My dad was an entrepreneur. My house was pretty chaotic. I mean, I love my parents to death. They gave me so much, but it was a wild upbringing. What did I want to do? Hmm. Hmm.

I don't, I don't even know. My mom, from a very early age, told me that I wanted to be President of the United States. She's like, just like, yes, you want to be president. And so on, I'm really thankful to my mom for instilling me with a lot of confidence. But I, I, I just, I just knew I didn't necessarily want to be president, but I knew that I wanted to be different.

And I, I knew, or maybe I was brainwashed or something into thinking that I needed to be great. And that's just the honest, weird truth about my upbringing.

Steve Hsu: You know, what I find really I gotta say is charming about you or appealing both in the interviews, other interviews you've done and this documentary that we're going to talk about, which is about Amazon. You're in there with a, I believe it's a shirt made out of the Texas flag. You, you are a kind of one of a kind American guy.

And I, I can, I sort of had the feeling that you, you don't sugar coat anything. You just, you say what's on your mind and you're very direct. And I think you're, you, you almost have the perfect personality type in my mind to be like an entrepreneur to get shit done. So

Molson Hart: I, I still sugarcoat a little bit, but my natural proclivity is to just directly drop F bombs. Let's, let's F and go. and by nature, I am extremely like driving and I mean, you said I was charming. I don't deserve that. I'm intense and I can be really difficult to be around because if I'm my, like, normal self, I'm just like a, I'm like a live wire and I just want to do a million things at the same time at really high speed.

And so, yeah. And then yeah, I, I'm, I'm meant to be some sort of weird person. I got fired from my first job out of school. I'm, I just, I, I wasn't meant to be an employee. I'm meant to do something different.

Steve Hsu: Yeah. I, I didn't mean to say you're charming, like the way that like your VP of sales would be charming.

Molson Hart: Yeah. I'm not that.

Steve Hsu: Not at all. But I, I meant that I'm charmed by you because you're like a certain type. It's a certain American entrepreneur type. At least that's, that's how it comes across to me in these other media.

So anyway, so I was really looking forward to talking to you.

So you and I interacted over Twitter about IQ or something a long time ago. And so let's just get that out of the way because I think you, you, we, it seemed like we disagreed, but it seems like on Twitter, it's very easy to like disagree without really liking actually disagreeing.

Molson Hart: Yeah. I'm, I'm, I'm a natural contrarian. So I'll just stir up a bleep on Twitter when I probably shouldn't be doing it. So. So, I mean I don't totally know what your position is on IQ to be fair, but my position on IQ is that it's, It's one, I think it's overrated. And then two, I think the IQ tests don't capture a lot of human intelligence.

And I can give some examples of that. And also one of, one of the areas that I draw that conclusion from is that I use cognitive tests before I hire people. And so I see these people who don't necessarily perform well on the cognitive test, but then end up performing very well on their job. And it's not necessarily just like a bad job where they're just, you know, not a bad job, but a simple job where their job is to just take a plush animal and put it in a box repeatedly.

Like some of these people have like high powered thinking jobs and they don't do well in their IQ test, but they, they're actually really good at their job. And so that's, that's why I think it's overrated and it doesn't capture everything there is to human intelligence.

Steve Hsu: Yeah. So I, I have to say, I don't really disagree with you. So like, so first of all, in the literature, like if you look in the, like either psychology researchers or often researchers who are actually in business schools who study personnel selection. It's only a statistical predictor. So in other words, you know, on average, if you were hiring 1000 employees and you hired the ones with the higher scores, you would, on average, have better outcomes.

But the variance is huge, right? So we all know people that score well on a test. And then when you ask, actually ask them to do something in the real world, they're not very effective. And so there's no, there's no like tight correlation between someone's IQ score and how they're going to perform, even in a job, which I think you were trying to say involves some cognitive you know, load like, like, not just like moving items around, but they have to think about stuff.

And I think we'll get into this later than you. I think you pointed out that running an Amazon business now is like doing multivariable optimization at all times or something like this. And so anyway, I, I don't think you can judge individuals very well just by their IQ score. I think there's there's other factors as well.

you know, drive motivation, you know, all kinds of things. Curiosity. None of those things are measured well by an IQ test. So, in some very weird areas, like, oh, say, I'm trying to pick a kid who's going to do a Ph. D. In electrical engineering or theoretical physics, if they're below a certain level on the test, I would say, like, well, maybe they had a bad day when they took that test.

Or maybe they're gonna have a very difficult time with this material. And I think I feel pretty confident about that. Like below some threshold, people, you know, generally gonna have trouble with like the most abstract, cognitive stuff. So that, that's, that's about as far as I would go. Now if you're selecting the freshman class at Berkeley and you can pick any kid you want, and there's a difference between picking the high SAT kids and just randomly picking kids, I think demonstrably there's a big difference.

Like in the last few years of college education, now we see very large data sets where you can see the difference between those two algorithms for picking your freshman class. And in terms of how they perform later in the major, like what grade point average they get or what the chances are that they drop out, there are pretty significant statistical differences.

But it doesn't mean any particular individual, oh, at low SAT, you're definitely going to fail out. High SAT, you're definitely going to succeed. None of that is true for an individual.

Molson Hart: So what I find interesting, you, you brought up drive and motivation. So those are huge in terms of entrepreneurship, but there, I feel like there are also some other things that aren't captured that are really important. Like, if someone has Asperger's, for example, stereotypically, they might be able to do pretty well on an IQ test, but they can't conceptualize what another person is thinking, and that's essential for success in life. and as far as I know, that's not really captured anywhere on the IQ test.

Steve Hsu: I agree with you, like, you could be, in fact, there are a lot of people who are this type.

Molson Hart: Yes.

Steve Hsu: Really high on an abstract test, but they have no theory of mind. They don't have a good theory of mind for what the other guy is thinking. And maybe they don't have good diplomatic skills, or they can't make it.

They can't get the other person to like them, which is like salespeople have to be really good at that. So, obviously, there's a huge range of different capabilities people have. The issue is that it's somewhat harder to cheat on an IQ test than some of the other cognitive measurements. Like, if I, if I try to measure whether you're an outgoing person and I just give you a survey.

You can just like, let me, let me imagine I'm actually my brother who is outgoing. How would my brother answer these questions? And then, like, you could get a very unreliable measurement from that test. Whereas people who do score high on an IQ test, usually they do have some, you know, particular cognitive ability.

So, the other things are real. It's just harder to measure them.

Molson Hart: Yeah, I totally. I mean, something that always comes to my mind that blows my mind actually is athletics. Okay, so we typically think of that as contrary to the opposite to IQ in a way, like, you know, jock versus nerd. But like, imagine how powerful your brain needs to be to, to not only know where the other basketball players are on the court, but to, to control your body such that you can execute all the moves on the court.

And then like one step further, something that really blows my mind is like, have you ever watched Steph Curry or LeBron James give a post game interview. And some will be like, Oh yeah, at minute 37, what did you think about when that guy took a three and you were over there and the guy will just be able to recall from memory, like he's playing a movie, exactly what happened in minute 37.

Now I watched the game and I can't recall it. And, when I play basketball, I can't recall every minute of it. And I was like, that is some sort of intelligence that, I don't know, is probably correlated with a, with part of the IQ test, but it's not fully captured. And typically we don't think of basketball players, even the, even the best ones who almost certainly do have pretty high, high IQs.

We don't think of them as generally high IQ individuals, but there's something else there that's not being captured. And that's just how I feel about IQ.

Steve Hsu: I mean, I mean, obviously there, there's like there's some people who have a much better sense of what's happening on the field than other people and sometimes you can have like a, a slow, not very, you know, explosive linebacker, but he just has a good feel for where everybody is and he knows where he's supposed to be.

On the field up to make the tackle and yeah, it's but very hard to measure that. I guess the only way to measure that really is to look at films of, you know, them when they were in college or something like that. So, I don't know that there's a pencil and paper test that can actually, you know, predict that capability.

Molson Hart: All right, so we agree.

Steve Hsu: I don't think I don't think we really disagree very much. Uh, yeah. So, anyway let's go back to let's see. So you just introduce yourself to the audience.

So As I understand it from another interview that you had after college, you sort of, you didn't like, I mean, this job didn't go well for you, whatever your first job was, you talked, know if it was your uncle, or it was some billionaire friend of the family and you, you wanted to be an entrepreneur.

And so you went to China basically without any Chinese language skills, you know, you had a, you had a, a very long flight and you were sleep deprived and somehow you managed to get all the way to, was it Liaoning, somewhere in the far north. And you actually basically worked out a relationship, I think, with a local factory to, to make whatever product that you wanted to sell.

And subsequently you were in and out of China for maybe, maybe like an entire decade, is that right?

Molson Hart: Yeah, that's exactly right. It wasn't, it wasn't an uncle. Unfortunately, I don't have a rich billionaire. but uh, yeah, it was the richest person I knew who wanted to make something in China and I was like, I don't know how to do this. I don't know anyone who knows how to do this. Maybe the richest guy I know knows how to do it.

And he basically sat me down and he was like, Molson, the Chinese, like face to face, you should go to China. And so I ended up actually in, as you said, in Liaoning province on the border of North Korea of all places, because the product that I wanted to make at that time was It turns out that the factory cluster, one of them was on the border with North Korea.

So, unfortunately, you know, you know, I'm not, I'm not a spy, not a CIA agent, but here I am in the middle of China with no language skills, no knowledge of the culture, no support system. Just. I kind of just airdropped myself there and it was, it was, it was like, it was a brutal experience, but like, I'm so thankful I had it.

I learned so much. It was awesome.

Steve Hsu: It's ballsy. I, I, you know, I, I think like from one entrepreneur, entrepreneur to another, you have to be willing to do almost anything actually, to make your company succeed. I mean, you have to be very, very determined. Uh, and willing to suffer in, as in Chinese, they would say, eat bitterness, shaku.

Molson Hart: Yeah. Yeah. It's not only that though. Like you, you have to be, what you said is totally right. Like, I don't think you, I mean, it depends on what type of entrepreneurship you want to engage in. Do you want to be a CPA with your own accounting firm? Then like, yeah, you probably don't need to be airdropped into like on the border with North Korea and deal with that crazy situation But if you want to like I don't know if you want to like take your company to IPO or something like that, you have to be willing to do kind of like weird crazy stuff like that. And it's not just a question of being able to like eat eat bitter, as the Chinese say, it's also you Like you have to be willing to do something weird that everyone else looks at and they're like, well, why, why would you do

Steve Hsu: Yeah, you, you put your finger on it. A big part of it, and this is talked about kind of explicitly in some Silicon Valley circles, is that you have to be able to reason on your own, come to a conclusion, which might be radically at odds with what everybody else is thinking, but stick to your guns and maybe for a long time. And I think that's a very common trait that successful entrepreneurs have.

Molson Hart: You have to be contrarian and right. If you're conformist and right, then the opportunity has already been taken. If you're contrarian and wrong, then you're not going to make any money. So you have to be contrarian and right in order to see a market opportunity that no one else sees. Or, you know, you, you just keep hacking away at it.

You just like pound sand until it becomes glass, you know, cause you'd be upset becomes something like that. yeah, you just have to be a weirdo. And I think it's important to say that because there's a lot of people who aspire to be entrepreneurs, but like. Like you kind of really need to know what that's all about.

Steve Hsu: I, I teach a class on this for like graduate students in, mostly in STEM at Michigan state. And I always, I always emphasize this, it's going to really hurt because you're going to be, you're going to be going against the grain and you better be ready for that. You better be willing to stick to your guns. Otherwise there's no hope.

So as somebody who has been going to China since probably the early 2010s, is that right?

Molson Hart: The first time I went was I think 2011.

Steve Hsu: Yeah. So you've seen like, okay, so that's like, you know, 13, 14 years, you've seen dramatic changes. So I've also been traveling to China for, you know, a bit longer than that. But I think it's hard to convey to Americans now how radically changed even in one decade. The situation there has changed.

And, and I think in your most recent video, and I'm very jealous of you because I think I haven't been there since 2019 pre COVID. And I think you have been there since 2019. Right? And so now what struck people among the things that struck people in that video, we'll post a link to all this stuff in the show notes.

As you were saying even in the last five years, things have changed dramatically. So maybe, maybe talk about that.

Molson Hart: Yeah. So I think the average American who doesn't go to China, who probably gets their information about China from like traditional media, their concept of like China's change is like some combination of like that quintessential classic photo of like Pudong Peninsula in Shanghai, where they like show like a grassy knoll in 1980.

And then in like the year 2005, there were like a lot of buildings and that, and then the, the other general idea that's kind of associated with that is like the ghost city. So like the Chinese or the China's is building these buildings all over the place and they're empty and they're facing some sort of demographic collapse.

so yeah, so China changed in, in that way, right. In a very, no pun intended concrete way. Like they threw up buildings all over the place and they built a lot of roads and they built a lot of high speed rail, which is fantastic. It's awesome to ride high speed rail and people really use it. Like, it's not just some sort of fake thing that's all government subsidies.

So there's that, right. But then the change that I saw in the last like five years, the thing that blew my mind in particular was kind of the change in the culture, but like there was a great deal more automation and technology everywhere. And it felt like I was stepping into the future, but the cultural change that is what for me in particular blew my mind.

Steve Hsu: So just to elaborate on that, like a lot of people who have been to Asia, they would say, like say they go to Tokyo and Japan has been a developed country for a long time. It caught up with the West quite early and Japanese are very polite. Everything is very orderly. It's clean. Everything works. maybe you could also compare to Singapore, maybe a little bit like that, but in China, it's possible to see all kinds of chaotic, crazy shit happening guys with their shirts pulled up, you know, because like, you can cool your body, sweating through your tummy and stuff like this in the summertime, there's all kinds of crazy stuff.

Now, interestingly, I see, I'm curious what I'll think when I go there, because a lot of times when I go, I'm with people who are tech entrepreneurs, university professors, scientists. You know, kind of high government official medium high governor officials. So those people were always pretty well behaved and cultured.

But then, like, maybe, maybe, like, if I talk to a cab driver, I'm just talking to some vendor on the street. I'll notice some qualitative difference from 5 years ago. But, I think my exposure is a little bit biased or people who kind of have been civilized for, for some period of time.

Molson Hart: Yeah, for sure. Like, Hey, I'm traveling to America for the first time. And I go to Mississippi or, Hey, I'm traveling to America for the first time. And I go to Manhattan or I go to Aspen. Like those are three totally different Americas in a sense. And China is a huge country and so it's the same way.

If I go to rural Henan province or if I go to Shanghai, it also depends on who I'm hanging out with. But to, to kind of address what you're saying, like go to the train station. And when you go to the train station, you're going to see everyone from the tech entrepreneur to the professor, because they ride high speed rail too, to, you know, like someone who's got their life's belongings on their back.

And they're going from one part of China to another part of China and watch how they like line up in a line and, and see how that's changed over the years. And like, did someone step on your foot? Did someone roll over your feet with, with, with their suitcase, which used to happen continuously and bump into you, but it doesn't really, didn't really happen that many times this time.

And you're like, what's going on here? Like, why, why did no one spit right on my foot? I mean, these are like maybe, but like, that was the reality of China, like for me, 10 years ago, it was just like wild. It was like a huge cultural shock. You know, I, I, I was on a sleeper train from like Beijing to this random part of China.

And like, you know, people were touching me, like my hair, just like grabbing it. They had never really spoken to anyone like me before. And it's like, it seemed like there was. There was less of that. And you know, you brought up Japan and like yeah, like China, particularly in Shanghai, right? Again, like if you go into rural China, it's different, but in Shanghai I felt like I was in like, kind of like a weird Chinese clone, kind of like Japan.

Steve Hsu: Yeah, what you said really struck me because when I was last in China, I was in Beijing in summer of 2019 and maybe again, we were staying at this, this residence for foreign scientists or scholars at Beijing University. So it's a pretty, you know, not upscale, but pretty civilized place. And I went to a lot of places and I took photos.

I think they're on my blog, but I went to places which were very aesthetically pleasing. You know, very nice cafes, very nice museums and, you know, various places where I thought, wow, this city is getting to be a little bit like Tokyo in the sense that it's pretty developed and nice. And, you know, so, so I was already getting kind of a sense of that in 2019, but it was probably a selected, you know, set of environments that I was exposed to.

Molson Hart: Well, now you got to go back because it sounds like you were traveling to China, like somewhat regularly, maybe

Steve Hsu: Yeah, it was.

Molson Hart: like every year or something like that. Right. Yeah. And so now you're right, or maybe more. So you were seeing like, okay, this is six months of change. This is one, one year's worth of change, but now you're going to get five years in one shot.

And like the whole post lockdown thing, all the COVID and all this stuff. And it's, it hit me like. I was like, it blew my mind completely. And like, I kind of just want to go back. I want to see it again. I want to go somewhere else.

Steve Hsu: I want to go this, I want to go this summer. It's just, I got to get the scheduling right. And I have to go back and get a visa, which is always a pain in the ass. So, um,

Molson Hart: So bad. My 10 years haven't expired. I

Steve Hsu: Oh, see, I never, I never got one. So I have to go back to the consulate and get the visa. So,

Molson Hart: That's annoying. In Detroit, in you're in

Steve Hsu: Well, I think Chicago, I think I'll do it when I'm in the Bay Area.

I'm in the Bay Area soon for a bunch of meetings. So I'll try, maybe try to do it in San

Molson Hart: Maybe they're going to just give you a, I actually think that they've loosened visa requirements for all sorts of different countries and they, and I think they should open it up to Americans. They, they really should.
Steve Hsu: You know, they totally should. It would be a soft power coup, as you say. And because you know, like if you're French or German probably right now, you can just fly there with nothing, no visa, the things like they are, there always was this kind of tit for tat thing. Cause for, you know, America's very respectful of people coming here from China and I think the government was just like tit for tat, but, but you're right for soft power reasons, they should just let Americans travel there.

It's, it's, I mean, for just, just plain old tourism, it's a great place to go. Actually. There's so many.

Molson Hart: economy, you know, like it would help like, like Shanghai in particular. I mean, Shanghai had, I don't know, Shanghai is like a huge diversified economy, but I imagine that some percentage of it was tourism and that is not where it was not even close.

Steve Hsu: Yeah, so now when you go you are usually visiting factories for your business.

Molson Hart: Yeah, that was like usually what I, well, to start, I was just learning and I had an office over there and doing all sorts of weird stuff like that. But yeah, so when I went most recently, I visited things like logistics and warehousing for our business. And then I visited our suppliers and then I used to always go to a trade show because you go to a trade show.

It's not as good as individually visiting the factories because it's quite important to visit your factories. but the trade show was cool. Cause you would hit a lot of birds with one stone. Cause sometimes you find you, because your suppliers more than one would just be at the trade show in, in Canton fair.

And you do dinner with this guy, do dinner with that guy. And it was very convenient. I've been to China, like, sorry, I, this is a ridiculous statistic. It gives you a sense of how I did in China. I think I've been there like 10, 11 times, never been to the Great Wall.

Steve Hsu: Oh, you should probably go. It's not far from Beijing.

Molson Hart: Yeah, I don't know.

Steve Hsu: But yeah. So just for the audience, some of my favorites, some I like. Your stuff on YouTube. But, I saw some videos on YouTube of people who are teaching entrepreneurs in the U S who wanted to start a clothing brand. How to go to certain trade shows in China and basically line up extremely low cost, high quality textile manufacturing.

And, and like, you could go to some guy who makes really high end stuff for, you know, who knows Ralph Lauren or something and just basically order from that same guy, like something with your logo on it or your design. And it's kind of amazing what's possible if you actually just go there and try to do it.

Molson Hart: I've seen those videos as well. I think I know some of the guys who make those videos actually through Twitter. yeah, it's, it's totally true. Like if you want to make physical products, like you just need to go, just do it, just, just go, I think a lot about where the next Elon Musk will come from. And I'm not sure the next Elon Musk will be Chinese.

I have no idea. Elon next Elon Musk could be African and could be Indian, could be American, but like the next Elon Musk might not be Chinese. But if they want to get stuff done, they might need to speak it. I'm serious. Like you just go over there.

Steve Hsu: But I don't think, I don't think Musk, I don't think Tesla could succeed without that Shanghai Gigafactory. I think it's pretty central to their success. So

Molson Hart: I think it's exporting like a ton. He often alludes to how it's the highest efficiency operation of the four factories he has one in Germany, one in China, two in the U S I could be. All right. But that's, that's roughly right. Yeah,

Steve Hsu: Can we, can I ask you, so your core business, it's, it's a toy. You, you, you sell toys that mostly are made in China and you sell them in the U S when you go there and look at the factories or the distribution, like, is it high tech? Like, is it still like, like. I don't want to say sweatshop labor, but is it still that kind of labor there?

Or is it automated? Like, or maybe the, the logistics supply chain is automated. What, what's the difference between now and like five years ago for your business?

Molson Hart: Sure. So, I think like 50, let's say 50 percent of our production is in China. So the other 50 percent is actually in Indonesia and Vietnam. Well, okay. So it very, what you're saying is like highly factory and product dependent. So we make an educational, educational toy. It's a building toy called brain flakes and that's injection molded.

And so there's a machine that kind of injects plastic into a mold and brain flakes, discs come out. And that is pretty automated outside of the packaging. Okay. But when you come, when it comes to making plush animals, which is something else, we sell it. No one has really figured out a way to automate that, like anywhere.

Okay. It's just too hard. It, it, it is just like you have, you need image recognition. You need amazing manual dexterity. Maybe something else is not on an IQ test. And um, you have to have a sense of touch, which is a huge thing that people don't understand, but like robots. They can usually find where something is and they can grab it.

But oftentimes, like if a robot claw is trying to pick up an egg, like it'll crush the egg. It doesn't always know if the egg is in his hand. And so humans have touch. So plush animals, as you can imagine, are not so much in China, it's more in Vietnam and Indonesia, but we do have a plush animal factory there.

I only really got to visit, two of my suppliers this trip, maybe three, no, three of my suppliers and you know, it, it, it was automated and I saw like more robot arms picking plastic parts out of, the machines and I saw another factory that had like a very, like a decent amount of robotics with the conveyor belt system.

And I'd never really seen that before, but the other, like major technological change, isn't just like robotics and automation. It was the disintermediation. So like almost all the factories I went to were selling directly to consumers out of the factory door. Right. So no middleman, so factories make products and then ship it directly on China's Amazon or China's Shopify, whatever you want to call it.

And that was another big change. It was tech, but not necessarily like what we think of in terms of robotics and automation.

Steve Hsu: It's to clarify that for the audience. So one of the things that's happened, things that's happened in China is, you know, more advanced e-commerce where the factory owner can directly sell on these platforms. And I guess maybe Timu or some of these things are in a way like for them to try to do that in the United States.

Like, I don't know if it's actually factories directly. They're getting a team to sell here. But anyway, in China, it is possible for the factory owner to not go through a middleman in distribution.

Molson Hart: Yes, that's right. And so, yeah, to, to answer you kind of, your question, there are Chinese factories that are selling directly to American consumers, predominantly through Amazon, but also through like Aliexpress, Time's got like this kind of like weird model where they, they, they do it as well, but Timu kind of has a hand in it, kind of in a traditional retail way.

And so the reason why this is such a big deal is because like once upon a time, you had a factory in America that would sell to a distributor and the distributor would sell to a store and then the store would sell to a person. And then you had a Chinese factory that would work through an agent that would work through a distributor that would go to a store to a new person, but now it's just the Chinese factory that is selling directly to you the American consumer through a American marketplace or sometimes through a Chinese marketplace, through Timu or TikTok, right? And that's a sea change.

Steve Hsu: I had a question. I hope i'm not derailing you further but uh The stuff that you're selling though Do you couldn't move all the way out of china? Like couldn't that all be made in Indonesia and Vietnam now? it's not really hot. Would you consider advanced manufacturing to make that stuff or?

Molson Hart: It's, it's product by product dependent, right? And so just because the labor is there, right? You still need a high functioning port. You still need great roads and the roads in Vietnam and Indonesia are not great. And the ports do not run at the same efficiency. And then also you need availability of raw materials.

And also like brain flakes so maybe that was what you were thinking of. It's like, yeah, you can make that almost anywhere in the world, even if there isn't an availability of like the plastic pellets that are, are, are melted down. But for something like stuffed animals, the supply chain is essential because you need hundreds, maybe thousands of different fabrics and they're like, Hey, every plush animal has a nose.

It's got eyes. If they're not embroidered, you need the right. Thread and like a cloth label and all these different things. And so there needs to be a local supply chain. And it turns out that you like China. The supply chain in China is the best in the world for almost, For almost everything, if not everything.

And so it's, it's not trivial to just be like, yeah, here, here's an injection molding machine, like go melt that plastic and bada bing, bada boom. And you're good. You can do it in Indonesia.

Steve Hsu: Is there some city in Zhejiang that just makes plush animals or something? Or

Molson Hart: Yeah. There is a city in China that is like, they're like multiple cities in China that specialize in plush animals. Like one for the domestic market, like they're, they're actually, it's even like, there's like a city that dedicates itself to like really large plush bears, you know? And then there's like a city for domestic driven blush. And then there's like a city for export plush. And to your point, like all the guys who make the eyes and the noses are all in the city. So it's like down the street and there's this cluster of efficiency that goes on there. And that's one of the reasons why China beats all these other countries on price, even when the labor rates are higher in China.

Steve Hsu: So, for a guy like Molson Hart Ivy League, math, econ, double major.

Molson Hart: 1400 SAT holder. 700 writing.

Steve Hsu: I mean, that's got to be like 98th or 99th percentile or something. Anyway, what's your comparative advantage when it comes to plush animals? What, what, what special, why are you dominating crushing it in plush animals?

Molson Hart: No one knows. It's actually like a highly fascinating business. Like it shouldn't be pop. Uh, um,

Steve Hsu: It's exactly what I was asking because you would think that it's, it's like, it's going to be driven to the bottom, like, cause like lots of people can, you know, point at the plush, plush animal and say that one's going to sell, or maybe not, maybe they can't. Well,

Molson Hart: Against the factories. We do. We compete against the, against the factories and we win. Why do we win? there's still a culture, especially amongst the factories and the old school factories of not understanding the importance of quality. There's a culture of not understanding, again, this is amongst the older generation in China in particular, like not having long term thinking.

So like our quality is better and then we're, we're super scaled up. So like, yeah, we don't have a factory in China. We don't have a factory in Indonesia. But the Chinese factory doesn't have its own warehouse in the United States. And we're, I'm, we're not buying plush animals unless we can buy a 40 foot high cube container. And so we're buying those in large quantities and then we're negotiating our shipping rates down as much as we can. So we make, and we make high quality products and we're sticklers for the quality. And we have a lot of amazing design talent in my company. Our head designer took it, we did not have a manatee.

It wasn't great looking. I swear to God that manatee now it's, it's the most beautiful plush manatee that's ever been created. And I'm not just saying that as a salesperson, cause we already established that I'm not likable, but, or even persuasive, but like, it really is beautiful. And I don't know, that's, that's unique.

Having some knowledge of how the U S system works and how Amazon works. And then also we can sell to, you know, stores, which the Chinese factories aren't able to do through Amazon. We have a whole bunch of different competitive advantages that you wouldn't think are there.

Steve Hsu: I think you answered that perfectly. I think that that answers my question, right? That's a set of things which, you know, you could have especially design capability and quality control over the rest of the market. So very interesting. talk a little bit about, so, so, okay. So let me, let me segue just a little bit to this YouTube documentary, which is about.

You know, Amazon's market power and you're featured pretty prominently. Are you a producer of that? Are you involved in that? Or are you just the talent in the, in the video?

Molson Hart: I think. I, I'm not sure what to call me, but I'm, I'm in it and then I personally bought the rights to the German documentary and then I paid to have it translated into English and then distributed it and it's.

Steve Hsu: You're like, you're the U.S. distributor?

Molson Hart: Yeah. Yeah.

Steve Hsu: I just, just, yeah, just wanted to clarify that. Cause I saw, I thought I, I think on your, on your personal webpage, you have this thing about things my mom wants you to know about me, like my accomplishments. And one of them is I think about being responsible.

Molson Hart: I may have written the, I, I produced it. I don't know. Is that tech? It depends. Right? Like I trans it was, it was an undertaking. I assure you.

Steve Hsu: No, no, I wasn't going that way. I was just saying like, II realized from that, that you weren't just the guy profiled in the documentary. You actually had a role in getting it distributed and making the English. So anyway, I really enjoyed it. I think it's super informative.

We'll put a link to it in the show notes. Anybody who wants to understand, like, obviously, everybody's an Amazon consumer using Amazon, but very few people really understand what's happening behind the scenes for the merchants, who gets featured in that buy box on the, is it the right, the right hand side?

Molson Hart: Mm

Steve Hsu: It's either in that video or somewhere else you said, like, to be an Amazon seller today, you have to be able to do multivariate optimization of all kinds of different factors. Like, should I pay a little extra to have the Amazon truck come and get my stuff? Or could I, should I save that? What happened?

What does it do to my being featured as the top result? And if I do this or I don't do this, so talk a little bit about, talk about high IQ stuff, like I think to figure out how to optimize that Amazon slot machine. And, and make money off of it. Seems like a very cognitively demanding task. Optimization.

Molson Hart: Oh my god, it absolutely is. It's Sunday night. I like the Sunday night scaries for Monday morning. yeah, I mean like Amazon . When you order something from Amazon, it's usually shipped from an Amazon warehouse And we as sellers on Amazon are not selling to Amazon. We are deciding how much inventory we want to store at Amazon.

And just for this little narrow part of the business, and there are all sorts of things like reviews and advertising and deals, and obviously making the products and all this stuff, just, we can just talk about forecasting inventory to Amazon. You have to think about it. The seasonality of your business with toys. You have storage fees at Amazon that go up and down over the course of the year. You have long term storage fees. If your products are at Amazon for too long, you have low inventory fees, if Amazon decides that you don't have enough inventory at their warehouses in order to maintain their prime today.

And I can explain how that works. You have placement fees because you can't ship all your inventory to a single Amazon warehouse. So you have the option of. Pay shipping it to five different warehouses, three different warehouses, or one different warehouse. You can ship it yourself. You can ship it using an Amazon truck.

You can ship it FedEx in like lots of little boxes. You can ship it on pallets. You can ship it a full truckload. There it's like literally so many different permutations, combinations, variables, whatever that goes into minimizing. Minimizing. The cost of getting your inventory to Amazon, and at the same time, making sure that you have enough, it's an extremely complex and difficult problem.

Optimization. Sure.

Steve Hsu: Insane. okay, so in the, in the documentary, I think you, you go into a little bit of the detail for the Brain Flakes product that you make. And so for the audience, it's a plastic toy that you can construct things out of and kind of build your spatial reasoning ability maybe and your creativity. I think you sell it for a little bit less than 20 bucks.

And I think in the video, Amazon takes half of that money. So when I buy a box of brain flakes from you, and I, let's suppose I pay you close to 20 bucks. Amazon's taking close to 10, and I think you're taking close to 4. And then, what's the rest going to the factory or something? Or I, maybe you can

Molson Hart: Yeah. We have to pay for the product as well. I don't remember the exact statistic, but I think Amazon takes over 50 percent of the retail price and you have to remember that we are selling on Amazon. Okay. So Amazon is just like our vendor. We're just paying Amazon to ship it out, store it, and, you know, find you the customer and we're not selling to Amazon, right?

So like, if you go to a store, you'd be like. Hey, can you buy this? And if, if it sells, then that's good. The store will reorder. And if it doesn't sell, that's bad because. But it's not my problem anymore because I already sold it. It's not like that at all. We're selling on Amazon and yeah, they, they, they take even a larger percentage today than at the time of filming that video.

It's, it's wild.

Steve Hsu: Right. So I think the logic in the video is something like this. Amazon has so much market power now that someone in your line of business cannot afford to not be on Amazon. You're sort of, you must be on Amazon. But because you must be on Amazon, they can nickel and dime you to death on every little fee, every little service, using the prime truck, whatever it is.

And gradually, like, they're, someone then quoted Bezos is saying that, Molson's margin is, is my profit growth to go after because every, the more I can take from him without fully driving him off the platform, I should do that. That's what we're going to do. It seems like that's the direction Amazon is heading.

Did I get it right?

Molson Hart: Yeah. You nailed it. You nailed it. So his famous quote is your margin is my opportunity. So there's like a, and that's not just like something he says, or something that he said. It's like something that they have actually manifested. So there's like a very long, complicated supply chain between our factories to you the consumer.

And along that chain, right? Like the shipping company that moves it from China to the U. S. The warehouses, the fulfillment centers, the shipping, all these different things, they actually do all of it. So like, if I make a container worth of brain flakes, The product in China, like I can put it on an Amazon kind of in an Amazon container, and then it gets moved by an Amazon truck and then it goes into Amazon cold storage.

And then it goes on another Amazon truck to an Amazon fulfillment center. And then it gets unpacked and whatever by Amazon labor. And then another Amazon truck, like the Amazon prime trucks that you see in your neighborhood, then delivers it to you. So like each one of those at one time was a different company.

And it was just like, Oh, that margin. Now that's Amazon's opportunity, that margin, that's Amazon's opportunity. And that's just like the supply chain side of it. Right. And there's also the whole software side of it from like advertising to, you know, emailing and all this different software that goes on and they kind of like grab that as well.

Like there was a time when Google had ads and that's where you search, but now Amazon has ads. So that was another like margin that they just kind of sucked up. So it's, it's amazing what they've done.

Steve Hsu: Yeah. I mean, as a company, it's amazing. All these capabilities, building out all those capabilities. The problem becomes when either you the merchant or me the consumer don't have an alternative Because then they can just ratchet everything up. Right? And the question is, have we reached that point where they're so market dominant that they can kind of exploit these capabilities they built?

They're not forcing us to compete for those capabilities against other things, but they're really just able to force prices on people like you. Yeah. Have we reached that point? Yeah,

Molson Hart: I think that's actually what they're doing. I mean, they are just shoving so many fees. So basically what happens is like sellers are in, we have a brand, but in general sellers on Amazon are in commoditized form competition and commoditized competition, like profit margins in theory, eventually go to zero.

So every time Amazon raises their fees, the sellers just basically raise their prices. And that, and so you, as the consumer pay more and Amazon takes more money. And really what's the safety valve on that? Like, I don't know, off the top of my head, Amazon is like, Something like 80 times Walmart sales.

I don't know, for us. So we sell it at Walmart.com, too, not just Amazon. And so, what's the safety valve, the pressure valve on this ever-increasing price increase that is happening on Amazon. It's like Timu and, and stuff like that. And actually, if you look at it, like you, oftentimes you can find the same product, the same product on Timu for like a 10th of the price. That you'll find out it really, really happens and it takes like seven days. Instead of one or two.

Steve Hsu: to admit that I'm a cheapskate. I might, I claim to possibly have the world record for being the most miserly, relatively high-net-worth person in the world. So, I actually have shopped partially as an experiment, but partially because I'm a cheapskate. But I have shopped on AliExpress,

Molson Hart: Yeah.

Steve Hsu: shopped on Timu, and you're right, you can buy stuff which is like literally one tenth the Amazon price, and it could be like earbuds, it could be shoes, it could be athletic gear.

Molson Hart: And sometimes it's the same thing.

Steve Hsu: It's literally the same thing.

So, the people who are enthusiasts of AliExpress or Timu will just say like, look, the same shit is, it's all made in China, it's going to come through some distribution process, if you buy it through Amazon, you're going to pay 10, 000. 10 X or something, but you get it in two days instead of seven days, right?

That's, that's the difference, right? So,

Molson Hart: Yeah, but like, where's that money going? Right? Because Timu is shipping all that by air. And shipping things by air is expensive. So where's the money going? It's going to Amazon.

Steve Hsu: Yeah, yep. So, one safety valve, as you pointed out, could be competition from Aliexpress, TikTok, Teemu, I'm talking specifically about America, in America. another safety valve is some federal regulation where they say like, wait a minute, you guys are a monopoly now. We better, we better have some protections put in place.

And then there's, there's also, I do notice like for some, like I just ordered some protein powder from Amazon. It's basically the same price as if I walked into Walmart or Costco and bought it. It's more or less the same price. So, there are some, they are, they can't go too high above that price. B

But what, what do you think is likely to happen in the next five years?

Molson Hart: That's like a complex human system. And I've, I've learned the hard way that you don't try to predict complex human systems. This is as hard or harder than predicting what market price will be in six months, which is also a complex human system. Uh, what do I think is going to happen? I, I, I sincerely have no idea, but I, the thing that I believe in, going back to the beginning of this call, like contrarian and right. I think that Amazon is facing a peak Amazon right now. In the sense that it is facing more competition than it has ever faced before in its time and the people who are running it are not Bezos. They're amazingly talented, but they're not Bezos.

And Bezos is potentially one of the best entrepreneurs of all time. And they're also facing your point, like scrutiny from the government. Yeah. And so it's just hard for me to wrap my head around the idea that they can just continually dominate. I may be like, maybe if they like, some sort of Hail Mary pass would need to be executed where they are like, okay, somehow managed to pass legislation that makes them not a monopoly, not an overpowerful company.

And I'm not taking a position on that issue right now in this call, but somehow it makes it difficult for Timu and TikTok to be Chinese companies. Because those are the foremost competitors and also Shopify in a sense, some sort of legislation like that. And that restricts their competition. And at the same time, they don't face government scrutiny and they just continue along as they have been over the past 10 years.

That's what would need to happen for them to, to, to my mind, for them to not be at peak Amazon.

Steve Hsu: Now, did I see you tweet out at some point recently that you were, you were done with Amazon or was, or were you retweeting some other seller on Amazon saying that? I, I forgot.

Molson Hart: No, I mean, we, I am, it's, it's, we can't be done with Amazon because it's 88 percent of our business. It used to be like 98, 98, 98, 99 percent of our business. And after many years of work, we got all the way down to 88 percent of our business. We can't be done. because that would just kill the company overnight, but I don't want to invest in this platform anymore.

For not only the reasons I just gave it is my belief that it is peak Amazon, but also. Because like, I've just had enough of the complexity that they're constantly introducing into the system. And also the, the, the additional costs that constantly require us to raise prices. It's just like at a certain point, you're just like, you know what?

Like I've just had enough. Like there has to be some other better way for us to make money.

Steve Hsu: Wow. Yeah, well, we'll see what happens. I, you know, these monopolies, they're very powerful. I mean, Bezos bought the Washington Post for a reason, right? So you know, I think he's, he, and he's probably got plenty of lobbyists and people defending his interests in DC. So you know,

Molson Hart: It's a complex human game. Like it, it's just like, it's really unpredictable in terms of what can happen. It can go any which way. I don't know.

Steve Hsu: Yeah, yeah, hard to predict.

So What's in the future for Molson? any, are you, are you branching out into any other areas? You're, are you going to become the number one plush toy seller in America? What, what's the, what's the 10 year plan for you?

Molson Hart: So great question. So yeah, we're continuously improving our business, which is important for me and also for my employees. And I want to make continuously better products and you know, we're an educational toy company. And so we gotta keep those kids educated, especially when the data, right.

Actually shows that they're increasingly less and less educated. And I think you as a professor get to see that firsthand, like the incoming classes. So that's one thing. another thing is we I'm just a little crazy and I've got some interesting business things up my sleeve. Uh, I'd, I'd love to be able to compete with Amazon in a bunch of different ways.

And so I'm going to try to pull some of those things off, but well, one of them isn't quite ready to talk about. And then the other one, hopefully this month, we'll be able to launch a website where it'll give you a real sense of just how much cheaper things can be when Amazon is not kind of taking their cut.

Steve Hsu: Yeah. If you're an American entrepreneur and you're thinking like, wow, I have an idea of a product that would just kill it. Uh, but I'm probably gonna have to go to China to get it made and then figure out the whole supply chain thing. Is Molson the, like, the number one guy, like, if they could get an hour of your time, you could basically, like, accelerate their progress, like, tremendously?

Molson Hart: I don't want to do that. I don't want to spend an hour with anyone. Sorry.

Steve Hsu: I didn't say you do it for free.

Molson Hart: I just, I'm really busy. Look, like yeah, I, I would help, but I'm not even sure if, like, sometimes things can't be accelerated. If you ever hear that expression, like over 10, after 10 years, it was an overnight experience.

Steve Hsu: Yep.

Molson Hart: There some element of truth to that irrespective of how intelligent you are, like you just kind of need to make a bunch of mistakes and whatever. So, like, yes, if you could talk to me for an hour, I'd be able to help you, help you a lot, but you know, the journey is just like part of the fun. So forget me and, you know, go read some books, like read Shoe Dog or something like that by a Phil Knight for Nike.

That's better than an hour with me. and you'll learn so much. Cool things, read some books, read some autobiographies about business people, inventors, whatever. And then just go to China and just like, I mean, it depends on what stage you are in your life. If you have a family, that's obviously more complicated, but if you're, if you're young and you don't have a family yet, right, just go to China and go just sleep on the factory floor until you figure it out, that's, or, and if you're not willing to do that, then probably not going to make it and that's okay to go get a job then.

Steve Hsu: That's awesome advice. I love that advice.

Coming back to China, not specifically talking to entrepreneurs now, but just talking to the average American who might say, like, you know, I read all this stuff in the papers and my my, you know, my cousin in the in London just bought a 10, 000 electric car made by B. Y. D. But I can't buy it in the U. S. you know, I think the average person could gain a lot just by understanding, you know, reality on the ground in China, right? So I would recommend everybody if you're going to take a vacation, go there and just see it. It's actually pretty cheap to travel. It's still relatively cheap to travel around China.

So why not? Why wouldn't you go there?

Molson Hart: I agree wholeheartedly. It's it's, it's wonderful. It's cool. It'll blow your mind. It'll open your mind up to a whole new culture. You have great food, right? High speed rails. Like you're not going to get robbed. There's no crime there. And as you said, super cheap. Like just go. I mean, I was so surprised to learn.

I went to China, came back and I was like, wait, there's a state department warning saying you can't go. Yes,

Steve Hsu: That came from Well, it's just to sell politics. But actually I think you told a funny story that the first time you went to China your relatives were worried they were going to harvest your organs or something

Molson Hart: That is true. My mom was like, do not go. I don't care what that rich person said. You are going to come back without a kidney. Like it is not. And back then, like that was like, you know, it was pretty unlike, I didn't lose any kidneys in China, but back in 2011 on the North Korean border, I had some weird stuff that, you know, I got shaken down by corrupt cops.

I had a lot of bad experiences up there. Bad experiences that were fantastic, actually, in retrospect, because it's like a great story. Powerful lessons. I mean, like, it was, it was, it was, it was horrible in the moment, but like, since I survived, I'm really happy I went through it.

Steve Hsu: I'll tell you a funny story. you know what, my first startup was way back in the early internet days. one of the investors was the CIA venture fund called In Q Tel, still exists, In Q Tel, but this is the early days for In Q Tel. And they, I think they invested a million dollars in my first startup and also bought a bunch of software, encryption software from us.

And So I, I did a bunch of work with them way back then, and for a long period of time, I was regularly, like, consulted by both FBI and CIA on national security matters related to China, not just China, but, but including China. And I remember, like, you know, these guys would sometimes even come to Michigan from Washington to meet with me, right?

I didn't even, it wasn't just like me going there, like sometimes they would actually come here. And so I remember meeting with these guys and thinking like yeah, I'd like to, you know, I'll tell them, I'll tell them what I think is going on in China biotech or China genomics or, you know, You know, computers or whatever.

And here's the funny things. Like a lot of these guys who came to talk to me, like literal CIA agents, CIA analysts, or FBI security, national security people, I would say like, have you ever been to China? Like they would say something totally bizarre. Like, Oh, they're going to harvest my, you know, they're going to harvest your organs

Molson Hart: Oh no.

Steve Hsu: right. And I'd be like, have you ever been to China? And then like, I remember one guy, one agent saying to me, you know, I don't think I'll ever go to China. And I was like, you're the guy in our government who's like, trying to figure out national security issues with China. And you're, you just told me, I don't think I'll ever go to China.

Like, I, I was just like, wow, we are in trouble.

Molson Hart: Are you telling me that when my mom sent me the text message saying that they were going to harvest my organs, is she CIA? All right. that's wild. That's really interesting that they, that's interesting. That's like, what is that? It's like getting high off your own supply in a way, like, if you read, if you, if you read the think tank output, like position policy papers and reports and stuff within like, say, within Washington, it's like a little bubble chamber. It's like a little, It's own filter bubble. Like they just talk to each other and very few of them have actual experience.

Like, like you who have actually dealt with Chinese companies and warehouses and factories know a hundred times more than some of these agents. Some of these analysts know about the real China, right? So it's, it's, it's scary.

Molson Hart: I've dealt with some very talented, high-powered government employees who are super smart, particularly in law. Like oftentimes, like we have this, like, like the, the lawyers who work for the FDC are not like DMV employees or anything like that. They were really, really, really smart. Sometimes even smarter than the private council for corporations and stuff like that.

But like, do you think that they sincerely believed that? Because there's also an element of conformity to the prevailing viewpoint. Like they did, is it possible that they just said, Oh, I would never go to China because it's dangerous.

And that's what you just say. You know what I mean? Because you never really know when someone is just conforming versus.

Steve Hsu: Yeah. I, I think like, for example, when your mom warned you, she was sincerely worried about her beloved son losing his kidney. She was sincerely concerned. She might have been miscalibrating on the actual risks, but she was sincere. That is my judgment of at least some of these, you know, national security people that I met with is they're genuinely, you know, sincerely misinformed and, and actually like ignorant because they'd never, they'd never gone there.

Molson Hart: That's really bad. Like us, we need to fix that because like, you don't want the number one and number two countries to like, think that the other person is crazy or evil or something like that. There needs to be some sort of like cultural exchange there because both sides can learn from each other.

And like the CIA guys who are monitoring China, there's. I don't know. Maybe if you're CIA and you go to China, you just get killed. I don't know. Maybe that's why they don't go, but you know, there's something that needs to be fixed.

Steve Hsu: I think if you're on the operations side, that may be the analyst too. Also, there would be reasons why they wouldn't go there, but you know, the, the, the attitude that they had and, you know, which was, I think, sincere was, was still very alarming to me. So, I mean, anyway. They could go to Taiwan. I mean, like, I think I even said to him, like, well, if you okay, you don't want to go to China, you know, but maybe you should just go to at least go to Taiwan because then you'll at least get some exposure to Chinese like culture and also like Taiwan is going to play a big role in in what's going to happen.

Right? And none of them were going to go there either.

Molson Hart: Break them in slowly. You're like, Hey, I'm going to bring you to PF Changs.

Steve Hsu: Yeah, exactly.

Molson Hart: going to go to Chinatown

Steve Hsu: We're going to start We're gonna start

Molson Hart: cook cats and dogs there.

Steve Hsu: with Panda Express.

Molson Hart: Man, the express, we're not even going to go to PF Changs. We gotta go real slow.

Steve Hsu: Yeah.

Molson Hart: That's wild. I can't, I can't believe that

Steve Hsu: It's crazy. So when, when, how often do you go?

Molson Hart: to Panda Express or China.

Steve Hsu: Oh, China.

Molson Hart: Well, I, I didn't go throughout the whole pandemic because like there was at, at one time, I think it got all the way up to three weeks. There was a three week quarantine. So like, if you went to China, you needed to be in a hotel for three weeks. And so, that didn't work for me.

So, you know, because you go for a week and then you. It really, it takes three weeks or whatever.

Steve Hsu: But looking

Molson Hart: I didn't go

Steve Hsu: like looking forward, assuming no

Molson Hart: Well, how, how often will I go? Well, that's such, it's a really interesting question. I mean, like, does, I don't know what the current state department warning is. If the state department warning goes from like two to three, like maybe I won't go that often because it creates problems.

And. I don't know. It's still like a really long flight. but it's an Asian century, so I think I'll go quite often and I learned so much and it felt like there were so many business opportunities and they're great. Take care. You know, there was a time when, like, you know, the Chinese could just copy whatever was working in America and be successful.

And now maybe the reverse is true. Go to China. If you're a Silicon Valley entrepreneur, go copy what the Chinese are doing in terms of tech, bring it here. That's an opportunity. So I don't know, I don't know, maybe once a year, something like that.

Steve Hsu: Yeah, that's what I'm hoping to do is go there at least with that frequency just just to see what's happening.

Molson Hart: What do you do? I like, what is that? Like, I don't, I don't, I don't run with that crowd with these like high powered or civilized people. That's not me. I'm like, I'm like out in the factories. What do you do when you go to

Steve Hsu: Well, see, I would, I would love to see some factories, but I might be there for a physics conference or something. I might be there to meet with some people in genomics or AI. I might be there meeting with some venture capital people or other startup people or my, you know, my wife's also an academic. So she might be there for some conference and I'm just tagging along at her conference or something like that. So could be anything. But I, I think the coolest thing would be to actually see, like, if I could go there and visit a BYD factory and see what they're doing. I interviewed this guy. Um Ogan is his name.

Is it Tyler Ogan? I'm sorry. I'm sorry if I'm getting your name wrong, but he runs a hedge fund called Snowball Capital and they invest largely in Chinese companies and he moved his whole fund to Shenzhen. And a big part of what they do is they go and they will always visit the factory or, you know, the, the graph, the, the labs or whatever of the companies that they're thinking of investing in.

And I found that really fascinating. I'd love to tag along with him.

Molson Hart: Yeah. I recommend doing that regardless of whether it's venture capital or you manufacture products in China.

Have you seen the academic output and the innovations coming out of China improve? Or

Steve Hsu: Yeah, this is something that I'm always telling people because if they're not in space, their perceptions tend to lag. Okay. So, like, if you go back 10 years ago. Any top physics or engineering or STEM department, there'd be a lot of Chinese graduate students, right? Who are pretty good and a lot of them stay here.

Most of them would try to stay here back then.

Molson Hart: Right.

Steve Hsu: Now, what you find is that it's very, very common for them to want to go back. The country has spent a lot of money upgrading the university labs, their infrastructure, and their capabilities. And so now when I visit there if I go to a conference there, the people I meet there are pretty much up to date.

Like they understand the research frontier and they're not behind. Like 10, 20 years ago, you would go there and even at a top university, like you might only meet a few, a fraction of the research labs or the people there were at the frontier and the other people were kind of like five, 10 years behind.

So, that gap is now pretty much closed. And so, the new graduates who come from Chinese universities, maybe they stayed there and did a PhD. This would never have been the case 10, 15 years ago, but they did their PhD in China, but you meet them and they're totally up to date on everything. So that's a big delta over the last 10 years that most people are not aware of.

Most people think they're still copying, but in fact, they're, they're not actually just copying anymore.

Molson Hart: Yeah, and you speak Chinese, right? Yeah,

Steve Hsu: I'm like your typical ABC. My Chinese is good enough that I can get by very easily. Like, you know, just like ordering food or getting in a taxi cab. But if I try to talk in a sophisticated way about the economy or physics or something, no, my Chinese is not anywhere near that.

Yeah. Good. So,

Molson Hart: I feel you. I'm around there. It depends on the topic, right? Like I, I know a lot of words for stuffed animals. Like I know a lot of Chinese words for various animals. what about, so that's interesting that they're at the, so that's like a huge misconception in the United States. In the United States, as you said, it's just like copy, the conception. The misconception is that people in China are just copying and that's the downfall of Chinese academics or cognitive capacity or whatever you want to say.

Are they innovating? I imagine that they're innovating too. They're not just at the research frontier or has that lagged a little bit?

Steve Hsu: No, well, I think there are, there are a lot of nuances here. Like, I think in these East Asian societies, it's less likely for a young person to, like, kind of, like, defy their elders and, and be really, like an outlier in terms of their opinion. So, in that way, like, that a certain kind of innovation and originality and creativity is a little bit suppressed by the culture.

I think that's true. But on the other hand, like. A lot of things, first of all, that would be much less true at a startup. So startups are very kind of Western in their culture, I think. But also for a lot of things that they do, which is like, okay, we know we want to improve the efficiency of this battery.

Right. And you're not you're not a maverick to, like, be just trying different things to try to improve the efficiency of that battery. And in that kind of work, they're not, I don't think worse than Westerners. They're just as good as Westerners. It's the, like, totally out of the box zero to one Albert Einstein stuff maybe that for cultural reasons are maybe not quite as good at that. I think even that, like some people, some Chinese people would debate me about whether that's really true. But I can see there's an argument in favor of that. But for optimizations of existing things that people already know are valuable and good.

I don't think they're behind anybody.

Molson Hart: So here's how I think about it. One, like go look at patents, right? So I don't know, I'm not in the academia space at all, so I can't talk about that, but I can talk about business and I can talk about patents, right? Cause I know about that. There are a lot of Chinese names on those patents. So that's one.

Two, in terms of innovation, the way I think about it is incentives. Right. So at least in the business arena, there wasn't an incentive to innovate in the seventies, eighties, nineties, two thousands in China. Why would you innovate when you could just start a shoe factory

Steve Hsu: Yep.

Molson Hart: And like, there was a blueprint for a shoe factory and you can be a shoe factory billionaire.

What's the incentive? But now the game has changed and they're all the shoe factories have already been started and you don't have dirt cheap labor anymore. And like Vietnam is killing you on shoes or, you know, Vietnam is doing quite well on shoes with superior labor and they have a good supply chain for shoes.

So you need to innovate and I don't know, like, I, I think they can pull it off. It was interesting that you said that like, yeah, like. Zero to one, maybe they're not able to do as well, but like the light bulb, if I remember the story correctly, I don't know what his zero to one moment was, but at some point he, Thomas Edison like was like, hey, he like found some guy and he was like, Hey dude, like, I want you to just find 10, go through 10, 000 different materials for the filament until you get like until you arrive at the one that like, when you run current through it, it lights up.

Like tungsten or something like that. And so I don't know what, what are the innovations because we think of the light bulb as zero to one, right? But you could almost break it down and to kind of make it a way more formulaic that is better suited to the Chinese style of innovation. So I'm just curious in terms of like, what you think, what is a zero to one

Steve Hsu: So I think that in terms of the historical fables that we've been told. Oftentimes, like with the light bulb, it's I think it's my understanding is exactly what you said that there was a huge amount of trial and error and kind of what you would associate with Chinese grinding trial and error to like improve the battery or improve the, you know, the process to make this material or something.

And that is the true story of the light bulb. But the way it gets told in American schools is like, oh, the light bulb went off zero to one.

Molson Hart: Like a light bulb.

Steve Hsu: Yeah. So that's maybe not a great example, but I think one of the things like, and this is not really that relevant for business. It's a little more for like, you know, very highfalutin subjects like theoretical physics, like someone like Albert Einstein, who really just was his own man.

He didn't listen to anybody. He didn't listen to the older people and he just went off on his own and worked for years on stuff and then came back with these radical ideas. It could be, I mean, Saying hypothetically, it could be that the culture, the Confucian culture, isn't really as is a little bit more negative about that kind of behavior than, because Westerners are, are, our culture is more ideal, is more individualistic.

And it's like the individual could be first, and the family comes second, and all this other stuff. In China, it could be more like, oh, the family comes first, and your individuality comes first. Or the good of the research group, or the physics department comes before you, right? And so, like that, I can see an argument in that direction.

It's a little, it's tricky, though. It's hard to know how this is going to play out in the future.

Molson Hart: Right. And that's, that goes back to, I have that a little bit in mind when I say that the next Elon Musk may not be Chinese, but might be living in Shenzhen.

Steve Hsu: Yeah. I do think that from what I've seen from the younger generation of Chinese entrepreneurs and business people, they are risk takers. They will totally like, you know, everyone else told me this is impossible. This is stupid, but I went and did it. You know, Jack Ma is even like that. Jack Ma was just like out there.

Molson Hart: Zero to one very much. So he's like the most zero to one Chinese entrepreneur. I can think

Steve Hsu: Yeah. So I think there is the BYD guy, the BYD founder, there, there, there are guys who are just like, look, this is my vision. No, you're not going to, or the founder of TSMC, although he's, he's actually in Taiwan, not China, but of the same culture. But, you know, those guys are just like, I know what I'm doing. I may have to go 10 years in the wilderness by myself, but I'm going to do it.

And I don't really see a lack of that on the business side. Maybe on the scientific side, but I don't see that on the business side in China.

Molson Hart: Are you Taiwanese?

Because your last name is HSU, not XU. Right.

Steve Hsu: Tell you my, I don't want to keep you too long, Wilson, but I want to tell you this story. So my, I have this weird spelling, this anglicization of my Chinese name, which today would be XU. People always say, oh, are you Taiwanese? Because your name is spelled HSU. It's because my dad left China before the fucking communists took over.

So he left before 1948. And at that time, they were still using the old system, the same system that they still use in Taiwan for translating the name to English to give the English spelling. So because of that, that whole new system was put in by the communists actually. So it's you. Yeah.

So that's why. So, my dad actually didn't pass through Taiwan, but my mom's family, not only are they Taiwanese, they were part of this diaspora in 1949 where the KMT, my grandfather was a KMT general, their family is related to Chiang Kai shek by marriage. They're the ones who came into Taiwan and basically took it over, killed a lot of people, a lot of political dissidents and stuff who resisted the KMT taking over Taiwan were killed.

This is all the history of it that nobody knows, right? So now, we talk about Taiwan as this amazing democracy. But it was a dictatorship from my extended family. They were the dictators of Taiwan for a long time until fairly recently when they started having actual elections. So, all these, all these East Asian countries that modernize went through an authoritarian phase.

South Korea went through it. Japan went through it. Taiwan went through it. And

Molson Hart: Arguably not Singapore, but yeah.

Steve Hsu: Well, but no. But some people would say Lee Kuan Yew was an authoritarian.

Molson Hart: I know some people would say, but it's not at the same level as Chiang Kai Shek or like a park in South Korea. Right.

Steve Hsu: That's a different story because that was really a British colony.

Molson Hart: Yeah, I know. I'm just being whatever.

Steve Hsu: The point I'm trying to make is like, it could be the case that like, this phase of very authoritarian, Xi like stuff, you know, it's gonna go away eventually, and um, at that point you can say like, oh China's, China will just be like Taiwan or South Korea, they had a strong man in place for a long time, but they eventually started having elections and stuff, like, it could happen.

Molson Hart: Right. Well, yeah. So many questions about that, but.

China, because of its size, can never, like, people, right, so what are, like, the three things that people in the U. S. say that, as reasons for why China will never be, like, the hegemonic power? Demographic collapse, they can't innovate, So we didn't address the demographic collapse, but we did, I think we addressed the can't innovate thing, which is mostly nonsense.

And then the third thing, man, I keep doing this. The third thing is that Japan was like the next hegemonic power and look at them now. Right. But like 110 million, 120 million people, it's not 1. 4 billion people. And then like, if you look at Japan, like go look at maps of us basis. All over Japan, there are no US bases in China.

So it was just like a whole different thing. And so you should not be extrapolating from that example. And China is going to be a force in this century. And that's a foregone conclusion. And that will happen like before, because we have fertility problems all over the globe, except for Africa, which has a whole different set of problems, but China will be a force before the supposed demographic collapse happens.

Steve Hsu: Yeah. The way I like to say it is that we, the people who will enter the labor force in China over the next 20 years, are already born. So, we know how many of them there are. So if you just do a little calculation to say, like, well, you know, it turns out this is again shocking for most people that if you go back 20 years ago, only a few percent, maybe 5 percent of all high school grads in China could go to college.

That was 20 years ago. Now over 50 percent go to college and twice as many of them major in STEM

Molson Hart: Right.

Steve Hsu: As a college student in the U. S. So you can actually just sit down and do some simple calculations. They're like, how many biologists are they going to pump out? How many engineers are they going to pump out?

How many computer scientists are they going to pump out? And when you do these numbers, you get for the next 20 years, and given the existing demographics, you get numbers like where you're really not comparing China to the U. S. Because it's almost an order of magnitude difference. You're comparing China to R. O. W. Rest of the world. So it's all like the number of engineers produced here is comparable to R. O. W. Right. For the next 20 years. So, it's almost impossible that unless they have some kind of social collapse or we nuke them, I don't, it's impossible that they're not going to make a lot of progress. Right. So because the whole makeup of society is going to be different in 20 years.

The fraction of people that are highly educated is going to be enormously different from what they currently have right now. So.

Molson Hart: I agree completely. And you know, like they have to take care of their old, but like, if they don't do a great job of that and they just, this is horrible, like, I'm not advocating for this in any way, in any country, I don't want anyone to not take care of their old people, but if they like, kind of just don't, you know, and you just put them in hospice care, kind of like we do in this country, like it kind of works out.

Yeah. And as you said, even if they experienced a demographic collapse, they still have way more people and still are having more births than we are without our quote unquote demographic collapse. So the idea that China will be the next Japan, it just, it just doesn't compute in any way for me.

Steve Hsu: You know, the Japanese who are retiring now and the U. S. Boomers that are retiring now, they're among the most like lucky generations in terms of material wealth that they've experienced. So they're expecting people who are retiring now to go on cruises around the Mediterranean during their retirement. People that are going to retire in China over the next 20 years were dirt poor when they were growing up, and they really had to You know, eat bitterness and they worked in factories. They don't have the same expectations that the people in the West have. If they can just have a relaxed lifestyle living close to their extended family and enough to eat.

Most of these people are actually pretty happy, right? The bulk of I'm not talking about the elites, but the bulk of people who worked on farms and factories and did the backbreaking work of building China. You know, over the last, you know, 20, 30 years, they don't have these super high expectations. So, so it's a, it's kind of a different situation with how they're going, how expensive their you know burden for elderly care is going to be.

It's, it's, I think it's qualitatively different than what we're used to here.

Molson Hart: That's a great point. There's another way in which these comparisons are not apples to apples. If you just go Japan versus the U S right. So I don't know what the median age in Japan is. It'd be like five to seven years higher than it is in the United

Steve Hsu: Yeah.

Molson Hart: But I wouldn't.

Steve Hsu: Yeah.

Molson Hart: Maybe more, let's call it seven, 10 years higher.

Right. But like, if you look at it from a biological, like healthy age bodies might be more or less the same age because there are no 350-pound diabetic people in Japan, outside of like the retired Thuma wrestlers. Maybe there's like four, but that's quite common in the United States. And so like.

I just, the whole demographic collapse narrative from so many, and China's like life expectancy and health span and all that stuff. That's like trending rapidly as we in the United States are like, actually our life expectancy is falling.

Steve Hsu: Yeah. Now their life expectancy now exceeds ours actually slightly. So,

Molson Hart: That's brutal.

Steve Hsu: So anyway, well, I think this has been a great conversation. I think that being able to listen to you talk about your experiences in China and with Amazon has probably been very interesting to the audience. So really, thank you for taking the time Wilson and Uh, anything you want to say to the audience, any advice you want to give about China or Amazon or IQ entrepreneurship?

Molson Hart: I don't know. Think maybe we just say what we were saying at the beginning was necessary in order to be successful. Just think independently and it will make you rich regardless of whether or not you're an entrepreneur. Maybe think too, to quote the great Jiang Zemin, I think, I don't know. Or maybe it was Deng Xiaoping.

Someone said like, keep your mouth shut and become rich, think independently and become rich. And maybe keep your mouth shut too, which is not what I did on this podcast.

Steve Hsu: No, you were great today. Thanks a lot, Molson.