Alex Karp on why Palantir's value-based model is winning and skilled workers are about to get 'crazy valuable'

there. You can just see it wherever you want. Um what is the big announcement from today? is are are you uh uh are you trying to tell more of a story around uh enterprise with this? Um you know, we're kind of not we're I I think we're just it's more like we're crushing it. Yeah.

Uh uh everyone tells us to be super modest about 93% growth in the US and 94 rule of four of 40. They they may be redefining the rule to like make sure the other people don't like have to live in shame. I keep seeing these articles like in the Wall Street Journal. It's like rule of 40 isn't real. It isn't real.

Yeah, it isn't real cuz we're like crushing everyone. You were forced to be humble for a really long time. I was forced Well, people were showering me with humble nuggets all day. It didn't It didn't really exactly work, but you know, I I do think you have to judge humility by the delta between performance and ego.

And I would say somewhat ill modestly I'm the most humble I've ever been.

And uh uh and uh and uh and and and now and I just I think it's like so what we try to accomplish with uh the we've been doing these kind of conferences forever basically because everything we've done at Palunteers like completely uh it it's anothetical or at least orthogonal to what you would how you would build a business.

you guys looks look at a lot of businesses. You would never build a software downstream from value creation. It's all basically how do I make the client feel like they're getting laid when they're getting [ __ ] That's the whole way you build a software business. In our business, we began in the beginning.

I used to tell people, you know, this is a we're a mutually uh servicing business. Both sides should like be happy.

And uh and the way we built the business was it basically underlying metric I always thought was you know the logic of software should be we charge you something downstream of of of value creation that sum is a percentage of the value you create.

It's better for both sides because it's uh it's it's it's significantly less than the value you create. It's good for us because there's a multiple on the value. The flaw in the logic was always that FDE model would basically uh mean that you'd get a one multiple.

So we were structurally misaligned with everyone in finance, everyone not at the founders fund but basically everybody else because of that.

Now what we've proven withtology uh FDE structures where FD are actually technical and internal orchestration which is largely artistic basically was now we got very lucky because without large language models this would not be hypercharged.

So it still didn't exactly make sense but lo and behold we have large language models it hypercharges everything. So downstream value creation is an enormous amount of money. Yeah. And because of our unit economics now which are you know and some people believe are the best in the world we actually get fairly valued.

What are we doing actually downstairs is we're saying America's central advantage is the plasticity of how we approach the pragmatism right so businesses have to move from businesses where it made sense to have parasitic software products that are like basically helping you set it's like one of these things it's like you believe you're learning to sell they're selling you on something that is you can't get rid of you then run to Wall Street and say our clients all we have 50,000 clients that all hate us they're like great that's a software business cuz the hating means they can't get rid of you.

But a but a platform business means that you're creating more value than you capture. Well, the way we do the way we sell is like and this is why it's just all is like all these things are hugely contrary. We our revenue is going up, our sales is going down.

The number of people we plan to have in the future is less than now. We are very focused on you know everybody's like high volume. Uh the volume makes up for you know the fact that revenue decreases per client. We're not focused on that at all.

We believe we're going to make more from people in the future than in the past, sizably more because it's like why should we not capture part of the value that we helped create? Actually, it doesn't have to be the majority. In fact, it's usually the minority of the value you create.

We also believe that if from more kind of like kind of architectural implementation technical perspective, the value is in high fidelity data captured in in an ontology with FDES and where there's a an enhancing factor with LLMs and that that's going to be very very hard to replicate.

Um but um but but again all of this is kind of very non-traditional. And so what we're really doing in these conferences is saying the same thing we say on the outside. Don't believe anything we're saying. Talk to other people have done it. We're not we don't chaperoon the people here.

So there like you can talk about things you like, things you don't like. People are on stage. But learn how to build the business of the future. What is the business of the future look like? Actually the interesting thing is workers become more valuable. Like actually trained workers become more valuable.

This is exactly the opposite of what people are saying but it's true. the person at the top is actually crazy valuable. People with technical expertise are crazy valuable and everything else is going to be done in foundry ontology and something like an FDA.

So like the orchestration of the business is completely different. Yeah. Where are Fortune 500 companies getting screwed by these AI pilots? We saw this stat like 95% of AI trials in the enterprise aren't converting. Like what's going on? What does it look like when somebody sells someone?

Well, I mean there's a technical reason these are LLMs are probabilistic. They're not precise. The the value of LM is when it's essentially in an ontology wrapper because to to to actually create value, you have to be able to take the output, serialize it and deserialize it in the context of the business.

So the logic, actions and security of the business and its tribal knowledge and what it's trying to accomplish. LLMs are vertically crucial, but the but but the error bound is very very very narrow.

And the way you actually do LLMs in the real world, not in theory, not is like is that you essentially put them in a concatenated chain where each single thing has to be done as a street unit because otherwise the underlying math is 95 times 100 separate chains. It's like totally unreliable.

And if you do it any other way, you're getting a steak dinner and you're that steak dinner is super tasty. It's not going to work. And even worse than the steak dinner, honestly, is that you're being taught how to do something incorrectly. It's like, it's like, okay, I'm gonna learn how to learn from a wokester. Yep.

Great. Great. The damage that woke is doing mostly on the left, but occasionally on the right. The real damage they're doing is they're teaching you how not to learn. Like, and if you just pick your favorite person, right, left, center, who's just selling complete garbage. It's all conspiracy the whole thing. Yeah.

It's like uh it's like it's like there's no such thing as building. There's no such thing as agency. You can get away with FPS. Well, if you want to like Palanteer's lifted, one of the things I'm proudest about in the world is we've lifted people from their mom's garage to their own house. Millions of people.

You want to stay in that garage, you listen to those people. And it's the same thing happens in enterprise. They're selling you something where you think you're getting laid and you're getting [ __ ] And that once you're [ __ ] like that, it's very hard to undo it. And like Yeah.

You know that the crazy thing about my life is I'm like this wacky dyslexic. It's actually much harder to be dyslexic, but it's also much harder to get [ __ ] because you don't believe you you don't but you don't believe in any of this BS.

It's like Well, so speaking speaking of sales, there was a the CEO founder CEO of a of a CRM company that was making some comments yesterday. Did you did you catch I look Palanteer, we structurally mind our own business and I love that everyone minds our business.

But I would say the what I we constantly have people on TV. It always sounds like, you know, the guy in high school who's like, "But I'm so nice. Why don't I get laid? " It's like, it's literally like, it's the same. I'm so nice. I'm so nice. I create all the value and I I'm so nice. I'm begging to get laid and no one.

It's like, I have such a big this, I have such a big that. And we're like, yeah, we're not trying, dude. We're here, you know? And yeah, I don't think about you at all.

And well I it it it's like we are very focused on value creation and we ask to be modestly compensated for that value and you know if you disagree like you don't like us as a client or you love us as a client but you think it's like great we're doing our thing you know in Palunteer right now in the US is the market account that counts we don't have the people we don't have the time we orchestrating completely perfectly at Palanteer which of course we don't do as we're like an artist colony, right?

We don't have a time to like actually focus on like what we need to like extending certain components of ontology we have to do um extending Maven for the sake of the west um building things in classified environments. uh extending things with high value.

It's like, yeah, we're focused on that and we don't have the time. Like when you're growing 93% off of a very serious base with a de facto dimminimous Yeah. Yeah. It's the 93. And that's not even our best number. It's 94% rule of 40. It's like, and then people then people are like, "Oh, yeah. Yeah.

Well, but we have all the skills. We have all the motion but but like somehow our ocean isn't working. It's so big but it's not. It's like yeah great. You have problems to you have time to focus on us.

We got things to focus on here that are crucial and you guys are re it feels like you're reacting to uh the changing world and actual like customer needs whereas other players are reacting to let me give you let me give you a more kind of slightly philosophical economic thing.

the what the large language model does it models do in combination with ontology and FTEES and and knowing what you're doing is it creates period optimality over time. We're not there exactly but every single tech company in the world is going to be paid based on value creation. Maybe that's not completely true today.

It will be true tomorrow.

So when any company is saying something you really have to ask given that the the aspiration of LLMs are transparency and uh and competence it broadly defined they've actually the big cultural shift on enterprises people running enterprises believe that this thing should work I should know the cost of the components in my business to the second I should know how to rebuild things if there's a macroeconomic I should be able to put the bomb on your head and not on his head.

Okay. So, uh that basically means every conversation in the future is going to be I you create X value, I'm going to pay you Y.

And the central problem a lot of the larger kind of less a agile scotic companies have is it's like they can't you it's very hard to move from I get paid because you can't get rid of me to I get paid because you could get rid of me but you don't want to because you're creating so much value.

But that's where the future's going. And like people talk about like you know how are we going to you know get do 10x in revenue blah blah blah with the same or less people.

It's like yes but the whole market's going to have to move to value creation and we're in the business of that and try to do it you know it's not yeah do you think long term that the gross margins of software companies will change materially because of like LLM inference costs like token factory costs that type of thing.

Well you mean like enterprise software companies? If I if I look at like the Fortune 500 right now there's like a set number of gross margin that's out there. Uh should we expect like gross margin compression based on well I basically uh what well first of all I think I let me just give you the trends.

I think first of all skilled workers are going to become more valuable. You're going to be paying them more. They're going to be happier. Uh it's exact um downstream politically it's very hard to argue for anything but high-end immigration. So like why do you need more people?

like we got to make the people we have here work. Yeah. So like politically it's like like you know I'm an unhappy Democrat but running around saying oh crime isn't an issue when everyone knows crime is an issue is like it's like suicidal BS and no one believes it.

And now that wokeism is luckily mostly at least in that way you know not as punishing we can all just admit the obvious.

So like transparency is going to be like so the people are like workers are going to become more expensive the overhead's going to become less truly basically artistshaped people are going to be incredibly valuable and they're going to demand to be very highly paid.

So but the aggregate cost structure will come down but more importantly the products you build are going to be much closer to what the market wants in real time. And then again just an obvious thing this is happening like we have 10x growth in America compared to Europe. Same people same products same everything.

So it's like and then I the other thing I the point that's a little less obvious that I think people ignore is time is not time. We always assume a minute of time is a minute of time. It's not like it's like from the time you want to do something to the time it happens.

If that's 10% of the time you've just gra you just got a 10x. So it's like you know it's like pounder is not these kind of atrophied companies. They really every it takes them three years 5 years to get a year. It takes us a week to get a year.

So it's like you know it's like that that's actually what what explains the numbers in a weird way is yes but what if five years represents 40 years what if I'm saying in the next five years it's not we're actually it's like the whole problem with the DCF model actually that experts love is a they don't understand product and then b they kind of extend the DCF if they like you so it's like oh I like the person the DCF is super like give them an extra decade of steak dinners but but the real problem that they somehow don't understand in the DCF mount is a year is not a year for pounder like a year is like we don't do holidays.

I'm working all the time.

I'm orchestrating honestly I I I sometimes hate the enemies of Palunteer, but god do they get me to go back to orchestration because I'm like I'm gonna [ __ ] these people and like like you know and and the basic way I'm going to do it is go, you know, going back to like dyslexic, you know, like organization orchestration of we're going to have the best products, the best people.

I'm going to recruit those people. I'm going to make sure they're the most valuable and I'm going to put them in enterprises that value us. And if you don't value us, go go work the go work with the people that hate us. Try them out. Yeah. Do you have a advice for young people?

I mean, you said like artists like people, not literally artist. You said you said the company's like an artist's colony. What did you just become an artist if you're young? Well, you people underestimate like their artistry because like from a young age you get huge benefits for conforming.

And you can say, well, I don't I mean the central advantage of being dyslexic, we can't conform. So that was that ends up being a huge because you just can't. So you're going to have to So your basic thing you have to emerge do not conform.

And by the way, the people who are telling you simplistic [ __ ] that means, you know, like meritocracy isn't going to matter. You're not going to judge all these conspiracies, it's you can't do wealth accum accumulation if you're in this country. Yeah.

Like in America that I think actually a lot of these things are true in other country. But in this country, they're teaching you how not to learn, how to be complacent, how to give up your agency, how to fail, and how to blame it on anyone else. And if you're So you have to say like all that. Yeah. Reject that.

That's kind of and then you have to really really look at people and judge them by their fruits. The best way to learn is to look at somebody and say okay well you know it's like you know you work with somebody like the co-founding team at Palunteer.

So you have Peter, Joe, Stefan, Nathan like part of what made us so good is it's like okay you can measure yourself. It's like you know when I started at Palunteer I actually just because I just wanted to be left alone. I was like yeah I'm going to make some money. I'm going to move to Berlin.

I'm going to live a debaucherous life. That was my goal. Like I'm moving to Berlin. I I thought I needed 250k. I was like at 250k is a minimum. A million dollars a maximum. I'm moving to Berlin. I'm going to like debauchery forever. Burger and Yeah. Uh yeah. Well, I had to like Yeah.

So it's uh and then set up a remote office. But like you then measure yourself and it's like okay well I'm highly differentiated on measure on on managing complicated people who have to believe their opinion is their opinion but still have to build a product that actually delivers value. That's my differentiation.

And so like you you you surround yourself and then remember you have to remember the persuasion pers being persuasive and being right are not correlated.

So you have to really look at people who are historically right rebuttably give them the rebuttable presumption that they are right and work back to discover if they're right or wrong not just and like and all these things and like for example on the pounder thing is a great lesson go listen to our critics whatever critic you love we're a conspiracy theory so like you could take the leftwing version which is like Palanteer is stripping you of your civil liberties which some people on the right believe Palanteer is a Jewish conspiracy run by a a a mut somehow.

Okay, whatever. You know, it's like, okay, well, go actually, how does the product work? Does the product protect data? How does it protect it? Is it better than any other company in the world at doing this? How do you build a company? Do you think it's just like an allocation based on a conspiracy? Why did we work?

Yeah. Just pick your conspiracy and that's the strategy. Yeah. And then and then but then unpack it and learn for yourself like did this work? How did this work? How did they do it?

Assume that at every single decision, if it was a decision anyone else would have made, you would not have worked because that's a commodity. Commodities aren't valuable. And then apply that to your life. What part of this do you understand? Like, you know, what part do you not understand?

What part do you understand better than them? What part could you do better than them? And the weird thing about LLM ontology foundry is this actually will work for anyone watching this podcast. Yeah. If you're watching this podcast and you enjoy this, you've already passed the test.

I don't care whether you're a welder, a plumber, a carpenter, an astrophysicist, or a somebody who'd like to build a business or just want to get rich or you want to get enough money and move somewhere and do what I want to. It's not the right place anymore. But any case, uh but but you've already passed that test.

Now go out and pass the test for life. Yeah. Uh you said Germany is not the right place anymore. Like what is your current mental model for the state of the world order? Like is is is America in decline? Are we do we need to bring things back? Like who are the power players?

How America is power payer number one right now. And like all this media BS. It's like you know you got to compare America to and you can't compare America to some thing you're pretending in your head could be America. Compare it to Europe. Yeah. Compare I don't know what you want to compare it to China.

Like you want to have no rights, you know? I mean again I'm actually not anti-Chinese culture but CCP, you know. It's like compare it to Europe like no tech industry. Yeah. Everyone rich was born rich basically or with almost no exceptions.

The most important Germanic company I hope someone from Germany's listening to this uh compt aloto is petal unish like the only German company since SAP that's real like and they won't listen to us. Like just think about that.

You have Peter Teal, like the most important venture person maybe that's ever lived, co-founder of Palunteer, and you have meas like somewhat, you know, basic partially dramatics, did my PhD in German, and you have no tech industry. Wouldn't you have us on [ __ ] speed dial? Yeah. Yeah.

I mean, like on speed dial, like you don't have to listen to what we're saying. You don't have to agree with what we're saying. Who are you talking to? Who are you talking to? You're talking to your like, I don't know, expert that came here and studied us. Trust the experts. Trust the experts. It's like so it's Yeah.

It's like energy like we're Do you think they will? Do you think that there's there's optimism around the idea of still pick up the phone call? Right. Oh, no. No. I just No, I pick I mean I pick up it's crazy who calls me. It's like it's honestly like I I I can't talk out of school calls me.

You'd be surprised the number people come and I begin every call with don't listen to me. Very few people have. I'm going to give you the freak shoe answer. You probably want to ignore it. This is what I think. And they're like huh okay. Yeah. Yeah. Okay. Some call back, some don't.

But um yeah, of course I would I mean I have a lot of I mean like honestly we have a huge retail crazy thing about Germany is a huge retail investor base. They don't admit it in public, but in private they're like, "Keep going. Keep going. " But uh but uh yeah.

No, I'm just saying the point I'm saying is uh you know, it's like uh Oh, so then it's like energy, technical talent, understanding how to manage the technical talent. That's an art. Like we have the right venture people, the right entrepreneurs, the right spirit.

We have generations of people who are entrepreneurial here. It's like kind of tall poppy syndrome. Well, it's funny you mentioned that. That's a like Yeah.

like you we we're very well this is the thing we have to fight for this because that no tall pop what that basically means in every people may not realize this but in any every other culture I know of and like and I lived abroad in Germany Europe incredible cultures but if you you your head sticks above the line it gets cut off y there's one culture where that doesn't happen is here the only thing is we have to fight for that because the thing that unifies the woke left and the woke right is they don't like the consequences of meritocracy they want to work back to the inputs.

So, and that that like just will screw society. It's like you've got to be able to allow people to succeed wherever they go. Now, I I was kind of still progressive even though I believe it. I super would like the inputs to be fair, but the outputs, those are the outputs, my friends of freedom. Okay. Last question.

We got to get you out of here. Um I walked by your office. There were some kettle bells. What What are the kettle bells for? Oh, okay. Well, this is slightly long. I'll give you a short version. So, to be a cross-country skier, you've got to train year round.

So you need substantial V2 max and actually uh you need to be strong per unit of weight.

So as an example, I do um uh three days a week of um kind of above and below lactate threshold uh running but mostly pretty far and then once a week kind of at and then I do uh two days of strength, one day of like um endurance strength. Mhm.

And currently the thing I'm actually really proud of is I I just started doing hang from a bar as a dead hang like 4 months ago and I I hit 4 minutes and 36 minutes. 4 minutes and 36 seconds. What's the goal for the end of the year? What do we do? Well, actually my goal for the Yeah, you got hit. This isn't just money.

This is a No, I mean my goal for the year uh was uh for actually the next 12 months was um was 4 minutes. Okay. But then there's the number You got those numbers out. Yeah. Yeah. Well, no, but the number two, the second best uh um mountain climber in Norway, I don't know if we know his name. Uh but he I have a picture.

He did 4 minutes and 22 seconds. There you go. What can I do? This is fantastic. Thank you for having us. Bye. Appreciate your work. We'll talk to you soon. Have a great rest of your day. Congrats. Yeah, you too. Congrats to you guys. Thank you. Thank you. Um we will bring in our next guest in um just a few minutes.

We have Can you imagine Can you imagine the the Fortune 500 CEOs that just want a meeting with with Dr. Karp just to get energized? Oh yeah. Yeah. Like they don't they're like I'll pay for the steak dinner even though you're selling to me. I'll pay for the steak. You bring the energy. Yeah.

Who pays for the steak dinner? Um fantastic. Well um I believe we have our next guest um pretty much ready. Ben Harvetine uh from Palunteer for deployed engineer that has been at Palanteer for nearly years. Um, what what was so many good quotes in there. I don't take holidays off. I don't take holidays off. Oh, yeah.

The team is getting ready to post. Uh, anyway, um, I'm excited for this one. Ben, Ben, welcome to the show. Good to have you. Good to have you. Uh, we are going to have you hold this