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One of the biggest battles in the business world over the past few decades has been between established global companies versus relatively unknown startups. Think about Amazon taking on retailers, or Tesla taking on the automotive industry, or Revolut taking on established banks.
So what can these two very different species learn from each other? ‘When David Met Goliath’ pits startups alongside global giants, digging into how each plays the same game very differently.
In one episode, we sit down with a Goliath. A heavyweight leader from an established global giant. In the next, we bring on a David, a founder from a leading startup in the same space, same industry, same problems, but very different solutions, different playbooks, different styles, and often very different instincts.
The aim is simple: To show that real breakthroughs come when startup hustle meets corporate muscle.
John Hinshaw (00:01):
Boeing were very, very good at spending years and years and years and years in research until they got it perfected. And you see now what's happened. Boeing's still an amazing company, still love Boeing, but look at what SpaceX has done in that time by using innovation.
Narry Singh (00:19):
Welcome to When David Met Goliath, a podcast from AlixPartners. Our episodes are divided into pairs, each covering an industry. In the first, I sit down with a Goliath, a heavyweight leader from an established global giant. In the next, I bring on a David, a founder from a leading startup in the very same space, and put ideas of one guest to the other. We are here to explore the idea that real breakthroughs don't just come from size or from speed or even innovation. They come when startup hustle meets corporate muscle. I'm Narry Singh, and I've had the pleasure of being both David and a Goliath, so couldn't be happier bringing both these tribes together on this podcast.
(00:59):
This week, we're crossing into the world of finance. Our Goliath is John Hinshaw, former COO of HSBC Bank. John has a rich history as a Goliath having held C-suite roles at Boeing, Verizon, Hewlett Packard Enterprise, and many more. That said, he's not afraid of the startup life, having invested in everything from cybersecurity to wine. John, in fact, grows his own. So let's get into it.
(01:28):
When we came up with the idea of When David Met Goliath, you were one of the first people I thought about for a very simple reason, not too many people have been both David and Goliath. So I don't know if you're a Davidith-
John Hinshaw (01:38):
Schizophrenic.
Narry Singh (01:39):
Or a Goliad. But it's been fantastic. What do you think has steered your career?
John Hinshaw (01:45):
I think I love a great challenge. I love operating at scale, but being able to innovate at the same time and make change at scale. Change at scale is very interesting to me. I think also just technology and the evolution of technology back from the wireless technology was my early days. And then cloud technology in the Boeing and HP days, now it's AI and everything that's happening there. I love to be on the forefront of technology and connecting Silicon Valley to the rest of the world.
Narry Singh (02:13):
Yeah. Well, I remember reading somewhere that I think when you joined Verizon, you had a million customers and then by the time you left, you had ... Is that right? 100 million?
John Hinshaw (02:22):
100 million In 10 years.
Narry Singh (02:23):
Well, that's a little bit of a scale issue, isn't it?
John Hinshaw (02:24):
In 10 years. It was so much fun. Because we had to build stores, build call centers, bring up new technology, new products, new capabilities, and just move really fast, which is a lot of fun.
Narry Singh (02:34):
You talk about Verizon from one million to 100 million. Some of us from the startup world who've seen corporates can't even imagine what scale means. What are the things about corporates would take startups by positive surprise?
John Hinshaw (02:48):
Well, I think the resources. Just the vast amount of resources that a large corporation has, be it people, be it dollars, be it facilities, be it technology. Large companies can deploy massive amount of resources quickly. Startups are always scrambling, trying to be sure every penny is cared for, getting things done any way they can, but they don't really have access to those resources. Now, I will say that the advent of cloud technology over the last decade or so has normalized that a bit. From a computing Perspective, you don't have to build a big data center like you did 15, 20 years ago. You have instant access to technology. I think that has created a whole new wave of SaaS companies, of startups that wouldn't have existed otherwise. They wouldn't have had the resources to build out that kind of scale.
Narry Singh (03:35):
When you think a little bit about scale and innovation, are these contradictory?
John Hinshaw (03:40):
No. They're not. They're different, and you have to figure out how to make them work together. They can be contradictory if just left to their own demise. But if you can foster a culture of innovation in a scale-oriented company, you can make a huge difference quite quickly. And I think if anything, with the way AI is making the whole world move faster, that's even more true today.
Narry Singh (04:01):
Yeah. Exactly. I remember when I was a recovering founder, a large company CEO in California told me, "The bet that we're making is that we figure out innovation before you guys figure out scale." And it was such a wonderful way of putting it because if you're a large company and you've been at Boeing, you've been at HSBC ... But they are starting to figure out innovation. And smaller companies like the ones that you invested in, I ran sometimes, it was all about scale. We kept talking about scale, but the scale was never a million to a hundred million. The scale is just baffling. You and I have both seen many different ways large companies innovate. One of my favorite parodies is sometimes corporate venture capital, where you have large companies sending somebody from corporate into Silicon Valley, and you and I both know they're the loneliest people in Silicon Valley, unless they're not. So just have you seen large corporations being able to truly innovate or is it playing catch up to somebody else's game?
John Hinshaw (04:57):
Yeah. I think they can truly innovate if they have the right people running innovation. You can't take a traditional executive or traditional leader and say, "Hey, you're now in charge of innovation." You actually need somebody with that mindset, with that capability. Example, at HSBC, I pulled somebody out of Silicon Valley to run innovation at HSBC because I thought that was-
Narry Singh (05:21):
Who was already somewhat native.
John Hinshaw (05:22):
Exactly. Exactly. While certainly you could have somebody with the right mindset, there's just a different way of operating at different cadence, there's a pattern match. It makes a big difference if you've done it already.
Narry Singh (05:35):
Yeah. And I think there's also a slightly insider's familiarity of knowing the same people having gone through the same schools or whatever else the case might be.
John Hinshaw (05:43):
Yeah. The relationships in the network is super important. And if you're just knocking on somebody's door saying, "Hey, I'm from corporate ventures from company X, Y, Z," you're not going to get any traction. Whereas if you've built that network, if you've done things before, you know the Y Combinator people, et cetera, then you're good to go.
Narry Singh (06:00):
To me, John Hinshaw as a person has some very important attributes to what it takes to be a leader in this new brave world. First, it's courage. John left a perfectly relatively risk-free existence in Silicon Valley and moved to a different continent in a brand new industry for a company that needed a major transformation that many thought couldn't be done successfully. He was brought into HSBC with a mandate to drive global transformation across the over 200,000 person organization. Being a relative outsider to finance was in his case seen as an advantage because it meant he wasn't getting bogged down in legacy and tradition while driving innovation at scale. But that doesn't mean that transformation in a large organization like HSBC is easy or quick. Even if there's buy-in from the board, the CEO, and the executive team sometimes innovation means doing things completely differently, and that can be uncomfortable for a large organization with a predetermined risk culture and antibodies that resist change.
John Hinshaw (07:01):
I think with the large companies, there's a risk aversion and there's a view of, are you sure this isn't going to break something? Are you sure this isn't going to have unintended consequences? Are you sure it's not going to cannibalize something we're already doing? Because large companies, you're protecting what you have today. You're protecting the products, you're protecting the customers, you're protecting the revenue. And yes, you want to grow all of that, but you certainly don't want it to disappear. And so you're worried, "Hey, if I implement something new and customers don't like it, are they going to go somewhere else?" Whereas a smaller company can say, "Hey, I want to do something completely different."
Narry Singh (07:42):
This is a fascinating glimpse at the risk versus reward calculations that a large and small organization have to make. For the large company, that's a risk weighted thought process. Does the reward, in other words, new markets, greater efficiency, increased margins, significantly outweigh the risks? For the David's point of view, the calculation is exactly the opposite. They can afford to be more reward focused because the lure of growth and scale is a much greater pull often than the risk of a failed experiment.
(08:14):
The David in this episode pairing, who we'll meet next week, is Anders Jones, founder and CEO of Facet Wealth Management. They are carving out a whole new market, specialized in taking on lower wealth clients with a very unique AI enabled, human delivered service rather than the traditional commission-based model. Here's what Anders had to say on that very equation.
(08:36):
Why couldn't one of the very well established larger competitors, why couldn't they do what you're doing? And if they just decided to flip the switch and said, "Our assets under management are the GDP of a small country, let's get into this business."
Anders Jones (08:52):
Yeah. They certainly could. I think there's no reason why they couldn't. I think there's a couple of things to consider. One is that they would for sure cannibalize more of their client base than they would want to. We started this business really focused on people with less than $500,000 of overall net worth. We have a very high number of single digit millionaires who work with us and that wasn't by design. And we actually put a cap on it. If you have more than $5 million, we won't work with you because at that point you've got more complexity in your tax and estate and investment management needs than what we're really set to do. Then I think there's also a capabilities question.
(09:31):
You think about a company like Vanguard. I talked a lot about our AI capabilities and how it's something that we've invested in. And from day one, we've been architected to take advantage of that. As you know, the biggest asset that you have in an AI world is your own proprietary data. And we've been at this for seven years. We've got 10s of thousands of members that we work with. So we have, I would say, just enough data to build meaningful and impactful AI models. If you think about a company like Vanguard, they generate more data in a day than we have in the seven years of our existence. And so in the event that they ever got their act together and pulled all of the data across the hundreds of different systems that it lives in, they could blow us out of the water. I just don't think that we live in a reality where that's actually possible.
Narry Singh (10:21):
John also has his own example of this risk reward equation and how that played out at two companies who really couldn't be more different in their approaches. SpaceX v. Boeing.
John Hinshaw (10:33):
Boeing were very, very good when I was there at spending years and years and years and years in research until they got it perfected and got it right. And then they would make many, many, many, many, many copies of that that they'd already perfected. I got a chance just after I left Boeing, I was at Hewlett-Packard to visit SpaceX and they were doing the exact opposite. Every single rocket, every single product was different than the last one because they wanted to continue to innovate, innovate, innovate, innovate. And I thought, wow, how could you have two different companies with completely different models? And that's an example of Boeing has been an entrenched company with big, long contracts that they wanted to protect. SpaceX just wanted to get into the business and wanted to make the next and next and next better. And that was 15 years ago and you see now what's happened. Boeing's still an amazing company, still love Boeing, but look at what SpaceX has done in that time by using innovation.
Narry Singh (11:32):
And just on that, because I think it's an amazing story, what was the moral? Was the moral that SpaceX ... It's not that SpaceX sacrificed safety.
John Hinshaw (11:40):
No.
Narry Singh (11:41):
It's just that they tried different variations of innovation while keeping safety sacred? Is that the point?
John Hinshaw (11:45):
Yeah. As long as a person's life wasn't at stake. If it was just a rocket taking up a satellite or taking up a test run, they didn't mind failing. In fact, they said, "Okay, we'll learn from that failure and get better and better and better until we can get to a point where it is safe enough to take somebody up." Which when you come from the other model, which is, no, it has to be perfect before we do anything, such a different way of thinking.
Narry Singh (12:06):
If you'll be completely honest, would you have been as zen about somebody failing badly at HSBC or Boeing?
John Hinshaw (12:13):
Yeah. Look, no. Candidly, in both of those companies, you want to protect and risk manage effectively and you want to implement innovation, but thoughtfully and being sure you've tested the right models, you've thought about risk management. I think that's really important in big, especially and regulated companies as well, because it's not just what you want to do as a company, you're also regulated and you want to have-
Narry Singh (12:36):
It's a big one. Yeah.
John Hinshaw (12:36):
Yeah. To be sure that the conversations and communications and expectations are all lined up. Whereas when smaller companies don't often have that issue until they get to scale, and then when they get to scale, they do.
Narry Singh (12:48):
And they act very surprised by it.
John Hinshaw (12:49):
Yeah.
Narry Singh (12:50):
But if you look at banking today, and if you look at space, those two, Boeing, the turnaround is a work in progress. Where do you think those two industries are the most vulnerable from startups?
John Hinshaw (13:02):
Look, I think both financial services and space, the technology has come so far in just the last really decade or so that all products are vulnerable. There used to be a moat around things like satellites. Not anymore. Used to be a moat around launching to the space station. Not anymore. In banks, there used to be moats around retail products. Not anymore. There used to be moats around investing. Not anymore. Wealth management. Not anymore. So yeah. I think-
Narry Singh (13:34):
Debundling. The great debundling.
John Hinshaw (13:36):
And that's why those partnerships are so important because if the larger banks don't partner with some of the startups, then they will eventually get taken out. Big companies, certainly HSBC, we partnered with a lot of these smaller startups. They could get access to our customer base. We could get access to their technology, and it was a good partnership.
Narry Singh (13:57):
Did those partnerships work?
John Hinshaw (13:58):
They did. And in fact, the best example of that would be a company called Nova Credit. Nova Credit was a startup that realized that there were country specific credit agencies. So in the US, Equifax, Experian, et cetera. And then UK has theirs and Singapore has theirs, Australia has theirs, but there really wasn't a truly global version of that. And so if you or I move to Singapore tomorrow-
Narry Singh (14:23):
Your credit score doesn't translate.
John Hinshaw (14:25):
No, it doesn't. It doesn't. So you have to get letters from banks, you have to get all kinds of documentation. It's a long process. It's very paper intensive. And candidly, I remember when I first moved here to the UK, even though I was an HSBC executive, because my credit history didn't transfer when I got my first credit card, it had a $7,000 limit on it. And for some people, that's fine. I can blow through that fairly quickly with a trip or whatever it may be.
Narry Singh (14:54):
I'm so sorry. The reason I'm laughing is I went to one of our largest carriers in the UK. We're both in London right now, and I basically said, "Can I get a phone?" And they said, "Yes, where's your credit history?" I said, "I don't have one. I've just moved from the US. But the credit history is there to protect your financial risk so why don't I pay in advance for my two-year contract in cash?" And they said, "No." I said, "Isn't that the whole point of your credit history?"
John Hinshaw (15:16):
Exactly. Exactly.
Narry Singh (15:16):
Anyway, sorry.
John Hinshaw (15:17):
So what Nova Credit did is they said, "Hey, why don't we buy the data from all these credit agencies around the world and then aggregate it and then sell it in a service back to the banks?" And funny enough to folks like Verizon, AT&T, Vodafone, BT who have the same issue and they've done that. And so we partnered with them early on at HSBC and Singapore was our first market and all of a sudden we saw expat approvals from two weeks down to less than a day. The customer satisfaction went way up. It was just a game changer by partnering with Nova Credit.
Narry Singh (15:55):
This is a fantastic example. Many of the Goliaths in financial services are very understandably, sometimes weighed down by risk averse cultures. In many ways, that's what made them great and so resilient, sometimes over a hundred years. However, often regulation becomes a shield, sometimes an excuse of why innovation can wait or is simply not possible. Davids don't have that problem. If anything, they have the opposite. They can move fast, they can experiment, they can push boundaries as long as they stay inside the regulatory guardrails. They're not paralyzed by the fear of what a regulator might say before even a product launches. However, speed comes with its own challenges and our David in this pairing, Anders Jones, is right on the edge of it. Facet has amazingly grown to a scale where they can still take risks, just not the kind that ever want to be played out in front of the regulator.
Anders Jones (16:54):
I think there is this ultimate hubris in entrepreneurs, which on the one hand you need, because you're thinking about taking on these Goliaths and if you don't think that you know better than them, why bother? But at the same time, there is conventional wisdom out there that is conventional and wise for good reason. So I'll give you one very specific example from our world. So the core value prop for financial advisors for a long time has been, "I'm going to manage your money and I'll do it for you. You don't have to worry about it." I always thought that that was a very misaligned value prop with the value that the client is actually getting. When we sit down with our members, the places where you actually can see the relief on their faces when you watch the video recordings is when you say things like, "Your cash flow is going to be okay for the next three years or you are going to achieve this goal." It actually has nothing to do with the money management. It has to do with the actual financial planning.
(17:51):
And so I took that to the logical conclusion, which was money management is actually not important and people are going to see the value in financial planning. It turns out that it was 100% wrong. When we manage money for someone, they retain with us in the high 80s, low 90s% annually. When we just do financial planning for someone, they retain it like 30% annually. And when we go and interview customers who leave, who we only give financial planning advice to, it's a, "Hey, I got what I needed and I'm going to go do it myself." And that's something that the industry figured out a long time ago and we just walked into a buzz saw of our own making, unfortunately.
Narry Singh (18:30):
It's such a good example because you think you're doing the right thing and no matter what people tell you, how they behave and what they tell you is sometimes quite different, isn't it?
Anders Jones (18:39):
Yeah.
Narry Singh (18:40):
Well, it's funny because some of the sacred cars I thought you were going to mention were things like under appreciating regulation.
Anders Jones (18:46):
No. Look, I think from a compliance and regulatory standpoint, the swim lanes are very clear and the guardrails are very clear and you don't want to be a compliance innovator, I've learned.
Narry Singh (18:57):
Exactly. You don't want to have great innovation in legal.
Anders Jones (19:00):
Yeah. Exactly. And what I will say is that our regulators ... We're regulated by the SEC. But our regulators have never really seen a flat fee for financial advice model before. And so it has actually taken some work on our part to educate them on how to think about that relative to acting in the customer's best interests.
Narry Singh (19:23):
In terms of being either on a David's side or a Goliath side in financial services, I would absolutely prefer to be on the David's side. They have such inherent advantages in terms of massive capital investments that are no longer required to scale a financial services fintech startup. For example, when we went public many, many years ago, we spent literally hundreds of millions of dollars on servers. Today, you can buy that capacity literally for 10s of thousands of dollars a year from any one of the cloud providers. Secondly, it's clear that in the case of HSBC and Nova Credit, there were several factors at play. The first was the hunger of a founder of a David-like company. Nova Credit in this case were keen to innovate and lever itself into a niche where the use case was real and there was real significant value, but also not enough to motivate or perhaps even scare an organization like HSBC into building the solution themselves.
(20:20):
Nova Credit could work quickly and design a product which HSBC simply would not have been able to do at the same pace and at the same time create something quite remarkable that eventually HSBC could use. The downside over here is that they had no exclusivity over it. The upside, Nova Credit speed and innovation made it all possible. HSBC was able to make a major change with relatively low risk. Their regulatory obligations, customer satisfaction, and even their revenue were not in jeopardy. And that speed angle is something I wanted to ask John about.
(20:56):
You've skipped over the part that I think kills most founders. And to me, I remember trying to sell software in a past life to a large corporation and the CEO loved the software and they basically came back and said, "This is fine." The CEO sent a note to our CIO and it took us 47 days to sign the NDA. And so it came to a point where I had spoken to the CEO of this large company and I said, "It's taken us 47 days to sign the NDA. Can you help?" And he looked heartbroken, but then he smiled and said, "Actually, it's quicker than I would've thought." My point is from identifying this amazing credit company to actually getting the internal machinery to not have soul crushing RFPs. How did you manage that? Because that's what normally stifles innovation?
John Hinshaw (21:40):
Yeah. You're right. And I think in any big company that's challenging. I think having the right sponsor at the right level ... In your reference to a CEO, in my case is the group COO, I believed in it. I had the technology team look at it, introduced it to the right people at the right time, sponsored it all the way through, and that made a huge difference. I think having that person and then checking on it every so often. "Hey, how's that going?" Also to the CEO of that company, Misha is his name. "Misha, if you have any trouble or issues, call me and I can help break down the roadblocks or whatever." Because things will naturally get stuck somewhere in the process. There'll be somebody who doesn't understand why we're doing this and has more questions. And that's all good as long as you get through it in a correct amount of time.
Narry Singh (22:20):
Do you see enough people, John, that were at your level that personally sponsored innovation because it gets delegated down six or seven levels below.
John Hinshaw (22:26):
No. It's not the norm for sure. The norm is delegation is not to let something get too close to a senior executive where their time is spent on something that somebody at a lower level could be spending it on.
Narry Singh (22:39):
Correct.
John Hinshaw (22:40):
But what I've always found is actually it makes a huge difference in the speed of implementing innovation to have that personal sponsorship to see it through to make it happen.
Narry Singh (22:49):
And did you feel that this service, which sounds amazing, and I'm going to check it out, do you feel that this service moved along at HSBC faster because there wasn't a competing offering internally?
John Hinshaw (22:59):
I think that's a piece of it. And I think the thought was, could we build this internally? No. We're not going to go buy credit data from around the world and try to aggregate it. That's going to take a lot of time, costs a lot of money. Very clear use case, very clear market opportunity, very clear customer frustration. Again, I had it when I moved here myself, as did you.
Narry Singh (23:16):
[inaudible 00:23:16] into it. Yeah.
John Hinshaw (23:16):
So the use case was so obvious and then you had a product that worked. And so that's where brilliance happens. When you have just something that is broken and then somebody innovates to fix it quite quickly.
Narry Singh (23:28):
Right. And it's going well?
John Hinshaw (23:29):
Yeah. It's going very well. They're expanding in new markets. They're, again, dealing now with the telcos, coming up with some new products. So yeah.
Narry Singh (23:40):
The collaboration opportunity here is obvious. What's not so obvious is that it took a relationship between two people, John and Misha to make it happen. At the end of the day, this is a calculated risk for both parties and you want to know that the person you're looking at you can trust, and actually it really helps if you like them. One of the companies that I helped co-found, we had to do a large deal with one of the world's largest automotive companies. What happened, of course, is that when our founders met with the CEO, there was an immediate chemistry. It turned out the CEO was a closet software programmer, but were too shy to admit it. Turns out that they had a lot of interest in various things happening in the internet boom. So very quickly, it became personal and I think he was very keen to lean in and find out more about this new tribe, this new ecosystem, this new species that could not just help his automotive company do better, but also educate him in terms of new ways that he could use in his own company.
(24:41):
Large organizations aren't monoliths. Within them, there are still individuals willing to stick their necks out and make things happen. Without these individuals, things can get mired even at the earliest stages, like taking over 47 days to sign an NDA despite a CEO's desire to move quickly and explore a potential partnership. So what advice does John have for C-suite leaders who are struggling to get innovation going in their own organizations at speed?
John Hinshaw (25:10):
Well, I think you need, again, the people, not just at the senior level, you need to have folks in the organization who think differently. And then there are folks who are longer term folks in a particular institution. I'll give you an example at HSBC. Noel, my boss is CEO who I loved working with and Noel would send himself away in the summer months for a week of education on technology, on innovation.
Narry Singh (25:34):
The Bill Gates retreat for himself.
John Hinshaw (25:36):
Yeah. And it was brilliant because he would then learn about this and then be able to be a sponsor, be able to be a force for innovation. Before he was CEO when he was running the commercial bank, he did a ton of innovation in the trade space, trade finance space. And HSBC is the largest trade bank in the world, and that innovation is paying huge dividends today, but Noel was the personal sponsor of that, and that made a big difference.
Narry Singh (25:58):
What is the biggest difference in terms of how founders and CEOs lead their companies, like leadership? What is the biggest difference for startup leadership versus leading HSBC?
John Hinshaw (26:10):
Yeah. So I think startup leadership is, in the examples that I've seen in the many companies I've worked with, it's very much we're going to find a way to get something done no matter what. If it doesn't work, then break it and figure out a way to make it work. Change it, fix it, get the right people, people working 24 by seven to get the products going. In a larger company, there's still progress, but progress is measured more by quarter or year by year, whereas startups, it's day by day, hour by hour, second by second. What have we done today? What are we doing tomorrow? There's not this quarter by quarter, year by year mentality. So it is a speed and an urgency difference. Often, candidly, startup founders are a bit eccentric. They're a bit-
Narry Singh (26:55):
Putting it nicely.
John Hinshaw (26:55):
Yeah. You could say crazy in some cases, but crazy can be good, where they're just not afraid of anything. They're not afraid to try anything, and there's no fear of failure. There's no fear of, "Oh, I might cross a line or something." They just want to create and innovate and do something different. Bigger company, there's going to be a lot of guardrails, protections, approvals, more thought into it, being sure you've checked with all the constituents, just very different mindset.
Narry Singh (27:25):
I think John was successful at the transformation of HSBC during his tenure for the most part. And he'll tell you that it wasn't easy because one,, is he had a growth mindset. Two, he wasn't encumbered too much by what couldn't be done within financial services. So he had very little to unlearn from a financial services background. Three, he indexed a lot on bringing in new leaders that could cascade his growth mindset, that could over time change the HHBC culture even more towards focusing on being agile and nimble and innovative. And last but not the least, I think he had a very strong relationship with his CEO, and so actually could make a lot of change happen because he had the trust of Noel Quinn.
(28:07):
John may not have come from financial services, but he has an engineering and coding background. So there's one topic where his expertise is particularly valuable. I wanted to know his thoughts on the future of big tech and startups in the age of AI.
(28:22):
Chapter one has been that most of the Goliaths lost the battle to big tech. I'm over generalizing, but if you think about the market cap of the Glitz versus the Mag seven or whatever else the case might be, that's one measure. But just chapter one seems to be big tech became big and powerful and invincible. And chapter two, if you want to call it that, is the AI chapter where data is quite valuable. So do you think in chapter two, is it the revenge of the incumbents or do the Mag seven become the crazy Mag seven or 10?
John Hinshaw (28:54):
I think seven becomes 10 or 20 maybe. You look at NVIDIA as example that would've joined that group. There'll be others that I think quickly see their market caps accelerators as they take a chunk of this new AI world. For the incumbents, for the larger companies that are out there, they're going to be using AI for efficiency certainly, but they won't get the bump that companies have. In fact, you're seeing it right now in Silicon Valley, you're seeing these small AI companies that have these billions of dollars of valuation and they don't really have any revenue yet. And a lot of people say, "Well, that can't be." Well, just think about it. If their product does what they believe it will do, then that company will quickly grow and scale. And so that's the bet people are making.
Narry Singh (29:39):
Right. So just let me challenge your question about the incumbents with the data. So if you are sitting on some of the most amazing data and you know the regulators as a bank or Boeing or what have you, and if you believe that training that certain data is going to be critical for anything in large language models, and if companies like DeepSeq show that the compute requirements might not be as much. Actually, it's mostly about data and algorithms. Why wouldn't you go along on incumbents a lot more?
John Hinshaw (30:06):
Because I think even with all of that, the mindset there is efficiency versus innovation. And efficiency is only going to get you incremental cost takeout, incremental productivity, but innovation's going to be what actually transforms, revolutionizes, creates new industries, new companies. And I think it's hard for the incumbents to do that. I think they see, okay, I'm spending a dollar today. If I employ this technology, I'll spend 90 cents or maybe 80 cents. And they love that. It's huge margin accretion versus, wait a minute, if I use this data correctly, I can actually create new products, new markets.
Narry Singh (30:47):
Correct. Change my own business.
John Hinshaw (30:48):
Right. It's harder for them to think that way than it is, let me just get some efficiency.
Narry Singh (30:55):
This is such a fascinating point and one where Anders has a very different, in fact, sacrilegious view to most Silicon Valley founders. He believe it's the Goliaths, not the Davids, who might come out on top in this era of AI and data and innovation. In his view, AI gives incumbents a rare chance to reclaim their greatest asset, their own data, and use it to bring capabilities back in house that they once outsourced. It's actually the reversal of the classic startup narrative and a very interesting argument for why the giants might not be as vulnerable as we have assumed in the last two decades.
Anders Jones (31:36):
Now more than any time before, Goliath actually has the advantage over David. You and I both came up in Silicon Valley and I think we would say that saying something like that is crazy in years past, but I actually think that that switch has flipped. If you think about it, take a typical SaaS business, an email marketing platform. If you're General Motors, you're not going to go build your own email marketing platform. You're going to buy whatever off the shelf thing, and then that company will charge enough professional services fees to customize it just to meet your thing. But I think in an AI world, all of that moves back to the company. You're not going to find these third party pure play AI companies that are then selling things to General Motors. I think that General Motors is going to say, "Okay, we have all this data ourselves, we should own the models. We should own all the use cases. And then we'll bring in some people to help advise us, but that needs to live with us."
Narry Singh (32:35):
This is a fascinating and telling point. The idea that Anders or David himself believes that Goliaths may actually hold the advantage in an AI first, data first world is actually a profound inversion of the usual narrative. It suggests we may be hitting a real turning point. For now, let's go back to John.
(32:56):
So just in terms of AI and things you're seeing, we could talk for an hour about this, John, but what do you see as some of the most overrated or underrated trends in the AI space? What kind of companies are you the most excited about?
John Hinshaw (33:08):
Yeah. So I think on the overrated, underrated, I think what is definitely underrated at the moment is this what's called agentic AI.
Narry Singh (33:18):
Underrated.
John Hinshaw (33:19):
Underrated. Because you're hearing a lot of hype, but I think that in the next three to five years will be the biggest differentiator for most companies and how they use these agents.
Narry Singh (33:30):
Can you just explain to our users as an example, what would be agentic AI versus LLM chatbot?
John Hinshaw (33:35):
Yeah. So agentic AI is where you actually have an agent that's been trained to do a human's job. And so either do it completely or at least ... Some companies will say, "Well, it'll be a human assisted by an agent."
Narry Singh (33:47):
Fine with human review.
John Hinshaw (33:48):
It'll be both. It'll be both. I would have said, actually, when I spoke at Davos 15 months ago on this topic, my view was that at that point, AI would always just augment humans. I've changed my mind in 15 months because you can actually see where agentic AI can actually replace many of these human jobs. If you have agentic AI learn a particular job that a person's doing in enough time, then they can actually ... Whether it's a call center. I've actually seen it live where a call came in ... It was a cruise line. A call came in and the person said, "Hey, I want to book my coach bus to the cruise line." And the agentic AI said, "Do you have your reservation number?" And said, "Yeah, it's ABCEFG." "Okay, Mrs. so-and-so. I have the following three options for a bus to the cruise line. Which would you like?" "Oh, I'd like the morning one." "Okay, I have booked that for you and I've now sent you an email and you're good to go. Thank you for calling. Goodbye." And you couldn't tell if that actually was not a person. That was an agent. An agentic AI.
Narry Singh (34:49):
That's a great example.
John Hinshaw (34:50):
And I think you're going to see more and more and more of that and more and more complex jobs. Even a coder, right? Today there are certain coders and their job is, okay, code these following routines, here's the specs. Well, agentic AI can actually learn to do that and that can be just a message into an agent.
Narry Singh (35:07):
And on coding, John, was there some ridiculous number that I think Sundar Pichai, mentioned at Google that 70% of new code is being written by AI. And it's like a shocking number.
John Hinshaw (35:16):
I think that's right.
Narry Singh (35:17):
It's not just augmenting. It's being written by and hopefully reviewed by humans. And in terms of coding, there's been a lot of discussions around a bigger point for the economy, whether it's startups or Goliaths. Is if you need 50% less coders or 70% less call center agents, et cetera, what is your general view on the displacement of labor?
John Hinshaw (35:41):
Again, 15 months ago, I wasn't too worried about it because I figured, well, a lot of these folks will find other jobs in the AI fields, et cetera. I don't know. I think it is going to be a bit of an issue, especially in certain functions, certain businesses, certain countries and markets. But it's going to be really hard to stifle that innovation. And then each country has to decide that as well. You have different countries come out with their AI policy. Some are very restrictive, some are very open.
Narry Singh (36:11):
And because the Goliaths are inherently so far, unless you are large tech, so much closer to the regulator, do you think that they have an inherent advantage at guiding the regulator away from startups that are coming after them innovation-wise?
John Hinshaw (36:24):
Likely. Every large company has their government relations, their lobbyists that are trying to help them protect their environment. But then when a crisis happens, things can pivot. If you look at COVID, the pharmas were given-
Narry Singh (36:39):
The mandate.
John Hinshaw (36:40):
A lot more mandate and freedom. In fact, one of the companies, startup companies I was involved with just before I moved to HSBC was a company called Sama, and they were doing data analytics in pharma, trying to help pharma companies. And they were one of the companies that helped do the analysis to create the COVID vaccine. So that's a great example of where at times when it's needed, even the regulations can be released a bit to get the job done.
Narry Singh (37:04):
The thing on the regulator, which it's hard to understand is, especially in AI, I've always wondered what exactly are you regulating? I don't know if you were lucky enough 10, 15 years ago to watch at that time, a young Mark Zuckerberg being grilled by the FTC. And you had the Senator who looked like they were 150 years old asking Mark about how do you make money at Facebook? And Facebook was a public company. So I'm also a little bit concerned that the regulator is not keeping up with the technology and there's nobody over there that's helping them keep up with the technology.
John Hinshaw (37:35):
Well, I think it's actually company's responsibility to help the regulators keep up. I know in the banking world, there's a lot of cross education between the regulators, the regulator college.
Narry Singh (37:45):
US, UK, both, or mostly the UK?
John Hinshaw (37:47):
Well, they share across the world. They share information across the world in the regulator college. And then the different banks present to them what's going on. And I think the important thing for AI with regulators is there has to be models that actually prove out ... Just like credit risk models or other financial models, there has to be the AI models that show, okay, this is the data going in and this is the output coming out. And one of the challenges of early AI is that was very variable. You could go online and ask a question and you get completely different answers.
John Hinshaw (38:19):
As it gets better and better and better and becomes more commercialized, then those models are going to have to prove out the inputs and the outputs.
Narry Singh (38:24):
Got it.
John Hinshaw (38:25):
Yeah.
Narry Singh (38:25):
Got it. The idea that businesses have a responsibility to help governments come up with regulation is an interesting one. In India, for example, it has become quite common for the regulator to work closely with banks on practical regulation for new technologies like generative AI. Whether, as I put it to John, large companies will use that leverage to oust startups or whether they will simply provide useful guardrails remains to be seen. I'm also curious as to if Goliaths have this responsibility. Let's be honest, it's in their interests to keep government moving slowly and even keep regulators one step behind. After all, if you're slow, then a lack of speed helps strengthen your competitive moat. On the other hand, uncertainty creates a playground for startups. It's going to be an interesting few years to come, but for now, we're onto lighter topics.
(39:18):
All right. So this section that we have in the podcast is rapid fire. And so it doesn't have to be one word or two, but just quick answers from your point of view. And this could be any industry you want. David or Goliath, who wins mostly in the next 10 years?
John Hinshaw (39:33):
I am going to answer that saying that they both win. There'll be some Goliaths that win, and there'll be a lot of Davids that win. But I think it's the ones that can take advantage of some of the things we've talked about today that can take advantage of AI, not just for efficiency, but also for innovation.
Narry Singh (39:49):
Excellent. What gives you personally more joy? Defending or disrupting?
John Hinshaw (39:53):
Disrupting. No doubt about it.
Narry Singh (39:55):
Do you want to think more about that?
John Hinshaw (39:56):
That's a millisecond. Yeah.
Narry Singh (39:59):
Better to ask for permission or forgiveness?
John Hinshaw (40:01):
That's hard. I think it depends on what it is. If you're talking about innovation, then I think it's definitely forgiveness. There are other things where certainly permission would be advisable.
Narry Singh (40:13):
Large companies, what's the one habit or buzzword that drives you crazy?
John Hinshaw (40:17):
Bureaucracy. Yeah.
Narry Singh (40:20):
Any one particular process you'd delete from every big company?
John Hinshaw (40:25):
Probably the multi-layers of procurement. Procurement is just too complex in most companies and it can be streamlined. And certainly we're doing that. I brought on a guy named Craig Cuffie at HSBC to do that. Because I think procurement's become a gatekeeper in many-
Narry Singh (40:43):
As opposed to a gateway.
John Hinshaw (40:45):
Exactly. Yeah.
Narry Singh (40:46):
One investment opportunity or maybe two that got away from you?
John Hinshaw (40:49):
Well, funny enough ... And it's gone through quite the life cycle, for the first time in 13 years, I do not own a Tesla. I bought my first Tesla in 2012. It was a model as fully loaded and it was $150,000. And I ordered it and they said it was going to be six months before I could get it. So I took $150,000 and I put it in Tesla stock.
Narry Singh (41:13):
While you waited?
John Hinshaw (41:14):
While I waited. And that 150 became, I think, 180. It went up maybe 10% or 20%. And then I cashed it out and bought my Tesla. Now, had I kept that-
Narry Singh (41:25):
Yeah, exactly.
John Hinshaw (41:26):
At one point, it would have been worth like, I don't know, 30 or $40 million. But yeah, that was definitely one. If I'd just left that money alone, it would have served me really, really well.
Narry Singh (41:34):
Perfect. Well, let's get to the really important stuff. Cabernet or Pinot?
John Hinshaw (41:38):
Cabernet all day long.
Narry Singh (41:39):
Cabernet. Really?
John Hinshaw (41:39):
My vineyard that I personally own is Cabernet and the wines that I make are Cabernet.
Narry Singh (41:44):
Got it.
John Hinshaw (41:44):
I love a good Pinot, especially a Burgundy, but Cabernet.
Narry Singh (41:47):
And would you say in terms of people that are tough to deal with, tougher crowd is boardrooms or wine critics?
John Hinshaw (41:54):
Wine critics for sure.
Narry Singh (41:55):
Is that right?
John Hinshaw (41:56):
Yeah. No, the wine critics are tough. To get a really good score, it has to be brilliant in all forms. And we've gotten some great scores in my Blackbird winery, but boardrooms can be tough, but usually it's deserved. Usually in boardrooms, it's deserved on a particular topic that isn't going well or whatever the issue may be. Wine critics, it's harder because you have to touch their palate just right. And it takes an amazing winemaker, which we have one, but it can be a tough challenge. I met my wife 26 years ago over a glass of bad wine.
Narry Singh (42:29):
On the airline.
John Hinshaw (42:30):
On the airplane. She said, "This wine isn't any good. Let's have a beer." And then she was in the wine industry for a while. She's been the inspiration all along.
Narry Singh (42:36):
If she said the plane wasn't any good, you would've invented SpaceX.
John Hinshaw (42:38):
That's right. Well, we were on a Boeing. But yeah, it's really been her inspiration all the way along on this.
Narry Singh (42:44):
Brilliant. Thank you so much, John. It's been a masterclass for both Davids and Goliaths, and I can't wait to have more conversations like this with you.
John Hinshaw (42:52):
Likewise.
Narry Singh (42:53):
Thank you so much for your time. John Hinshaw.
John Hinshaw (42:55):
Thank you.
Narry Singh (43:01):
The lesson running through this episode is that innovation is at its core about a mindset, about a culture, but it's a culture shaped by leaders and people follow the leaders. Large organizations can be agile, but only when someone at the top, very often the CEO has the personal conviction to spot the right opportunities, to hire the right talent, to spot the right partnerships, and have the humility to acknowledge the gaps in their own processes and capabilities. There's another truth here, incentives. Incentives shape behavior. In big companies, most incentives often tilt towards protecting what already exists, the revenue base, the existing customers, the existing systems. In smaller firms, incentives are dramatically pushed the other way towards growth, towards experimentation, towards survival, towards innovation.
(43:52):
Smaller firms, of course, don't have near as much the clout of their larger peers. By every metric, scale, customers, capital. They're basically minnows swimming against massive blue whales. But actually, that's exactly why partnerships matter. Startups don't always need to disrupt. There's enormous value in complimenting the Goliaths, filling the gaps they overlook, leveraging their size and scale, leveraging their distribution, and by creating solutions that they're too slow or too constrained to build themselves. That very simple divergence explains why so many David and Goliaths innovate so very differently.
(44:31):
Next week, we'll meet our David Anders Jones, the founder and CEO of Facet Wealth Management. You've been listening to When David Met Goliath. I'm your host, Narry Singh. If this is your first time joining us, please subscribe on your podcast app of choice. And if you're willing, do leave us a review. It really helps. Until next time, thanks for listening.