Palo Alto Networks CEO Nikesh Arora on acquiring 34 companies, achieving 70% M&A hit rate, and platformizing cybersecurity from 1.5% market share

last year.

I hope you guys are doing okay.

Yeah, luckily people.

Thank you so much. Take care, guys. Let me tell you all about Octa. Octa helps you assign every Agent a trusted identity. So, you get the power of AI without the risk. Cure every agent, secure any agent. And let me also tell you about app loving profitable advertising made easy with Axon.ai. Get access to over 1 billion daily active users and grow your business today. And without further ado, we are joined by Nick Heshurora from Palo Alto Networks. Good to meet you. Welcome to the show. Thank you.

Uh for those who might not be familiar with a little bit of your journey, I'd love to kind of get everyone up to speed on what you were doing before and then I want to spend a lot of time talking about just the transformation if you can call it that of Paloto Networks where the business is today. But maybe take us back a little bit.

Where do you want to go? How far back?

Uh well I know you handled business at Google but uh

let's go even even let's go back to the very beginning.

Yeah.

As far I grew up in India as you might know. came here to go to business school.

It was a tough time. You couldn't get a job. Okay.

In 1992, it was one of the recessions in the country.

Yeah.

So, I wrote 400 plus letters. In those times, you guys are younger than me.

Cold letters.

Cold letters.

Cold. You could email. You had to go. I had to rent a Mac for 3 months.

No, you rented a computer.

I rented a computer. I found 400 addresses of hiring people.

Yeah. And I would sit down, write the letters, type them out, go print them out. Yeah. Put them in envelopes, stuff envelopes, and and mail them.

It's such a different dopamine loop doing a cold letter versus cuz cold email is amazing. You send it. You send No, no, I know. I know. But I'm saying like today kids are used to like, okay, I got to write this email. Maybe they use AI now. But then like often times like for me, I either respond like like within like 30 seconds or 30 days. But uh but like you know you quickly kind of get on get on that loop. But sending an actual letter out and then just kind of praying and and waiting for maybe you know

every day I'd get stacks of them back. I got I still have them. I have 400 rejections from 1992.

Wait 400 letters all rejections.

Yes. I only got one job, right? So many of the other said no. So I rejections and I

How many of the companies are still still around?

Some of them are. Yeah.

Some of them you wouldn't want to work for. But I sometimes run into people and one guy who started private equity private equity fund Afron. I remembered his name at the bottom of the letter.

Wow.

So I was sitting meeting I said you do realize that he rejected me in 1992.

That's great.

And I was an adviser to a company. I don't hold grudges.

I didn't hold any grudges. I'm glad I have to say thank you to all of them, right?

Yeah, of course.

God forbid I'd gone to work for someone.

Okay. Where did you where did you end where did you end up?

I ended up at Fidelity Investments

right out of business school. And even there, I got rejected from six people I wrote to in the company. Thankfully, they had no common HR system or whatever system. So, the seventh guy hired me.

Great. This is a great system.

Her resume looks interesting. We should talk to her.

He couldn't tell whether my name's male or female.

Oh, sure. Sure.

I signed up Fidelity. And

when I was when I was business school,

Yeah.

I was applying, I'd get phone calls like Nor Eastern, so I get a call. Hey. Um, so we're just double-checking.

Uh, you know, how was your time in Northwestern? Why did you say Boston? I'm like, that's noraster. Oh, I'm so sorry. I've got another call. I got the exact same thing. I went to Northeastern. Same thing. I'm not going to correct you.

Keep going. So, I had all kinds of But

one of the calls told me,

yeah,

you don't have enough finance on your resume to get a job on Wall Street. So, I went back to school while I was working at Fidelity. I got a masters in finance. I got a CFA

and I was teaching a CFA class in 1995 96 actually 96 October to do portfolio hedging and [ __ ] and this guy sitting in front of me said oh you work at Fidelity I'm like yeah like hey do you know all these people like no so they they're on the fund management side I'm like I don't work there I'm like corporate finance do

he's like wait you're teaching me CFA level three and you work in corporate finance

I said you want to pass the exam or you want to discuss my credentials

and To his credit, the next day I interviewed a partner.

There you go.

So I finally went to work in money management for two years and

most interesting time, most boring time.

Yeah.

I just couldn't sit.

Yeah. 97 98 99.

So we're

we're in the internet boom. We're like internet boom.

Henry blogger telling us that AO is going to be the biggest company in the world. Right.

Yeah.

So I did that for two years. Did well there got bored left and I started uh

one of the CEOs I used to cover telecoms that time. one of the CEOs of the CEO of Deutsches.com said come work with me. So I

took my bags through flew to Germany to bond and worked with him for 5 years.

I started a mobile data startup at that point in time

and the name of the company that you started there

it's called T-Motion.

T-Motion

but that that was a time Deutsch telecom I worked in the team that acquired voice stream which is now T-Mobile USA.

Yeah.

So we did that. I worked there for four or five years and then I quit. I was tired of commuting from London to Germany and back as my 30s and I was sitting a friend of mine walked up to me and say, "Hey, I this head hunter calling me. There's a job.

Um, it's a company from the US. They just went public in some reverse Dutch auction type scenario. That job's too small for me. Do you want to go interview?"

Yeah. The guy was the CEO of T-Mobile UK.

So, that was it. I met I met uh then guy who became my house Kasani. He interviewed me. I told him said really small office. And he said, "Well, why don't you have an interview here? Then I'll take you to California and you can meet the founders." I'm like, "Okay." And then he calls me a week later and like, "Well, Larry and Sergey are in town. They would love to see you." So, they made sure the interview was not in the small office. So, I met Sergey in the British Museum while walking around.

That's amazing.

That's when I got interviewed.

Then I came to California and I met Eric Schmidt. generic like

it's interesting you your CV is very interesting but looking for a head of Europe and the job is sales

I said so should I just go back and I have two days of interview like I don't I'm not done sales should I go back he's like no no no we need smart people who can learn stuff and that was 2004 so I was the first person hired after the IPO of any senior capacity and

in sales

I ran Google Europe

and slowly and steadily like we grew Europe Europe was like

and what was the shape of that role were talking to the largest companies in Europe about just buying ad space.

You want me you want me to make it cool or you want me to actually tell you what I

Let's go with the robot. Look here's the company just thing is you're thinking o December 2004 the company just gone public. It's worth $18 billion.

Yeah.

There's 2,000 employees.

Yeah.

And Europe has like 180 people.

Every office is a rented regious office except for one in Dublin.

Yeah.

Wow. So what you're doing is you're like blocking and tackling. You're hiring people. You're getting offices, getting stature, getting stuff. And yeah, forget selling ad space, showing CEOs, showing companies. This is what search does.

Oh, this is just works.

Yeah. Yeah. Just deployment.

In the five years I was there, we went from being 25% of Google's revenue to 46% of Google's revenue. Wow. Wow. I think this in in history, one of the few tech companies where Europe and US have the same market share. Yeah.

So you have all these people come through here, you should ask them. Yeah,

generally you spend a lot of time in the US, you get a large market share here and then your share of Europe or the rest of the world is smaller. So we got there and that's when kind of a whole bunch of movement happened. Cheryl Sanberg went to Facebook, Tim Armstrong went to run AOL and it's kind of the last man standing.

Okay.

So when my boss retired, Eric called me and says, "We think you should move here and become chief business officer."

Yeah.

So I moved to California.

Yeah.

That was 20.

Most underrated title should be the chief of business. We joke we joke about this all the time. It's like amazingly vague but also incredibly important.

But you know, I I remember uh my first meeting with Larry when he became CEO and he said, "Hey, come spend some time with me." So I I spent all this time, put a beautiful presentation together. I'm going to go meet sit down with Larry and explain everything we do.

Mhm.

So I go there and he's we're talking about hyperloops and vacuum control tubes and how you can get out of the car on every highway that will improve the traffic situation in California. And I'm here like jumping in the bed wanting to get in my presentation. It's like check hyperloops on. So

yeah,

in the end he says you know Bill Campbell who was a great guy mentor to many people in the valley says Bill tells me you're doing a good job at what you're doing. Uh I got a lot of work to do and fix on product because tech companies die if product doesn't work.

No tech company became great because of sales and business.

Said so you keep doing what you're doing. I'm sure if I had a few hours I'd help you get your efficiency up and do it better, but I don't have the time.

So I stood up and said, "Well, let me know when you have a few hours." That was that

then to his credit because we had a great relationship and you know his staff became 10 product people, the CFO, the lawyer and me. That was it.

Yeah.

No other function was represented like you go take care of everything else. I want these product guys because I want to tell them what want to build. And we can see what it resulted in. At any point early on did you feel like Google was significantly overvalued?

You know, I still think it's undervalued. I It's kind of the enormity of what the potential was. Sometimes when you're in it, you don't see out of it.

Sure.

It's hard to tell how big it's going to become. But of course, in hindsight, it's wonderful. You can all say that was bound to happen. But the enormity of what we were doing was not apparent to people there. Like you know we bought YouTube. I remember sitting with Salar and and uh Chad early and saying let's go buy Netflix. Uh there's a story about that but it's a different story. Solar is like no give us 20 engineers and $5 million to go build it.

Yeah.

That's every tech company has those kind of people and you know they tried but look YouTube's

juggernaut

big in its own right. So

yeah,

we were there when all this stuff was happening and you can see,

you know, I remember now you tell the story that he met Steve Jobs and Steve said

if I give you one piece of advice it the word is focus

and they're like no we're going to try a lot of things and see how many of them work. So you know there are many ways to many ways to get to

yeah that head in the clouds philosophy like clearly did work for Google's sort of academic culture. Uh do you feel like that's the right characterization of Google this this this academic the 20% time the lots of different projects uh primordial soup to some degree did you try and continue that or was that

No look I think part of is my opinion I'm sure a lot of people have and they do too but

I think the secret sauce is the consistent focus on product greatness

and that comes from the founders you see look Travis here I saw him earlier

companies take on the form of their leaders Mhm.

And it's apparent in every company and pretty much if you sat down did an experiment and I wrote down five objectives over here which are company cultural characteristics. I wrote down five here which are founder characteristics and I said go match them. I bet many people will be able to match them because you can see the similarities between how leaders lead and how companies adopt to the culture of the leader.

Yeah.

Yeah.

So I think

that's where Google's culture comes from from the founders and the founders were very product obsessed.

You know as you heard like Larry didn't want to spend time on business. I I remember him going to the first ad all hands and he walks up and says, "I got to tell you guys, I hate ads. They're intrusive and they're bad." That's a great motivational thing. Everybody these guys wants to run out and go search because just told them what they do is not interesting to you.

Yeah.

But kind of you look around like you know every product that they built, they didn't look at monetizing it for a very long time until they believed the product had become ubiquitous and the product had become interesting. So I think that product obsession is part of the culture. I think that's partly because of where

their secret sauce comes from and now with the amount of resources they have they can afford to do that for a very long time. But having said that we we did it even then like you know Gmail had no monetization for years or Google maps had no monetization for years but

it was growing like wildfire.

Yeah. So coming into PaloAlto Networks did you

I did a little stop in the middle of Masa I know Travis talking easy money. I was part of the east easy money. Yes, I was. But that was after Google.

Uh but but coming into Pal,

did you guys ever you did you guys ever pass on a company?

I I passed an Uber.

I did. What round? What round?

I think it was a 16 or 20 billion round.

Okay.

And then I left and Masa did the deal. I passed on Adam Newman.

There's a book I told my guy who was the analyst. I said, "Listen, we're a tech investor. Anytime you bring me a business which is masquerading as a tech business, which is a commercial real estate business, you should go work there. Don't work in tech." Yep, that makes sense.

Good uh good call there.

It's a great get some right. I made a lot of bad ones too, so don't worry.

Yeah. So, so, so going into Palo Alto Networks, uh you know, you have these five cultural tenants from the company, five cultural tenants from the founder. You're coming in as a new CEO. How did you think about resetting the culture, expanding the culture, bringing what you value to bear across the company in a way that's not disruptive but gets you where you need to go?

Oh, there's no way to be not disruptive. Let's get that out of that way. Look,

you know, life is about standard deviation.

Yeah.

You want excess returns, there are no excess returns with no standard deviation. This is not this has been proven in every

facet of life, right?

Yep.

You want to date a good-looking person, you have to take the risk, right? Yeah,

you want to build a great business, you have to take a risk. You want to make money in investments, you got to take a risk. So, I don't think there's a non-disruptive way of creating transformation.

Yeah.

Having said that,

you know, as you probably know, I knew nothing about cyber security. I never run a public company

had, you know,

other than that, I was a perfect candidate. So,

which is great. Let's find a guy. I I I can only imagine the board deliberation like if you look at a board you know they write these long

job descriptions brief a head hunter say hey go find us somebody imagine that conversation find somebody who know nothing about this job

so I'm like either they were geniuses or you know they weren't paying attention to the head hunter anyway I got the job I show up there I'm trying to learn cyber security and I'm trying to understand the culture of the firm now you my predecessor Mark Mclofflin he's a West Point guy he was a very high integrity company my father's a lawyer we come from the same stock. So I like the fact it's a high integrity company. Um

it's important for a cyber security firm too.

It's important. Yeah, of course it is. It's important for every company that's Yes. Especially so. Um it was the best product in this category which is a good thing.

Um what I discovered was which happened in that industry people get caught up in the success of the current product and stop thinking about what comes next and you have to look around the next corner. I think leaders jobs are to think about what hits us in 2 3 4 5 years and how do you prepare for that now because I have a firm belief it takes four to seven years to build a great product.

Now maybe it's become 3 to five or two to four with AI but you go back and think about it anybody you've had through here

and how do you what's your personal definition for of what a great product is because there's a lot of products today that grow really fast that aren't necessarily great. Well, I think there are two aspects to this, right? There's a product when you're competing with somebody else in which case you have to build something better than that. So much better that the customer is willing to switch because you have a much better experience. It would take Google search, right? People were doing there were 14 search engines before Google search came about.

It took Google seven years to get to compete with the other 14 people where the com users are willing to switch. There are products and categories where there's no competition, right?

There's nothing called Uber. I'm going to try it whatever it is.

Yeah. But if you think about what big what made it a mass market experience where you can scale it around the world it took five to six years rubber as well take YouTube. So if you go around history it has taken four to seven years to make it a comp compelling product that people want to use and want to switch whatever they're doing switch behaviors and that's when you start seeing you know scale work. Now the current AI world all bets are off. We'll see what happens and open air took a lot less but they had no competition. It was the best thing going at that point in time.

Yeah. So, so when I walked in, I realized the thing the company wasn't doing was one, they weren't innovating fast enough,

new products.

And for the first 3 months, I felt like, you know, we're talking past each other.

Mhm.

So, I took a weekend and I sat down and wrote all my business principles I'd learned in my entire life.

And, you know, in hindsight, I would urge every leader to do that before.

I call it my belief document. Mhm.

So I wrote it and I showed up and I printed eight copies and dropped it in front of everyone in my team saying, "Read it. Let's debate." Like, "What is this?" I'm like, "This is my recipe book. This is why I act in certain ways. This is why we have disagreements." When I tell people, "No, you can't hire that person." They get really frustrated. Oh my god, I've been looking for six months. I'm like, "That's not a good person."

B's hire C's and A's hire A's.

Yeah.

And the more senior a person, you're going to destroy the entire part of my organization. That leader is not good.

Mhm.

Oh, I get it. that's why he let me hire that person. Now maybe that's an A, maybe that's B, that's a different debate. So

it became so much easier when we were all singing from the same HIM book.

Um, and now it's kind of mandatory reading and debating for every new senior person in our company. They have to read my belief document, which is kind of like sets the tone for how we operate.

Is it still one page?

It's about 11.

Okay. It's more like a

it's a little booklet.

Well, you can summarize it with any AI engine. But what happens like people wanted more clarification. What does that mean? Well, you want to read the long form, you need long form.

You got to summarize it. You can summarize it.

What about uh product development? Did you come in with a an idea around build versus buy a framework for evaluating those trade-offs? Did that evolve once you got into the actual role? So look, cyber security is the youngest subsector of technology.

Okay,

it came about when we had connectivity, right? The iPhone, suddenly everybody's on the iPhone. Every firm, every company is trying to get their applications on your phones, which means we're all trying to take what used to be controlled access and make it accessible to every consumer. So it came about 25 years ago

and every new piece of technology creates a whole series of new sets of risks, a whole new set of products that deliver. Now, interestingly, it's also one of the most innovative industry in the world because the bad guys aren't saying, "Oh, let's try the same thing we tried yesterday, which got blocked."

Every morning they wake up, they're trying to find a new way to get into your business.

So, you got highly innovative,

new set of market in cyber security

and as a consequence, the industry structure was extremely fragmented. There were 2,600 cyber security companies

and the largest company had 1.5% share, which was us.

So, you have one and a half% share of the market. Then you need to build a strategy. How do I get from one and a half to 10 to 20?

Yeah.

Right. Right? Because you look at every other pieces of tech, there are lots of people doubling their market share.

Yeah. Yeah. Yeah.

So I like look this is a math problem. The math problem is how do we get to 10 20% market share? You reverse into that and saying well you got to have a lot more stuff to sell to the same customer to have more market share.

And then we said okay great now where are the product categories where we can build products which are up and coming. The good news is we live in a constantly evolving technology world. So I sat down with the founder who was there then and chief product officer and we sat down and literally on a napkin wrote AI, cloud and network. Cloud and AI were new and we were the we had the right to win a network but we only did one out of six things in network.

So then we said how do we short circuit the four to sevenyear problem

only doing one thing in a network when your name is networks. Yeah.

It was in the name the whole time.

That's right. Exactly. But they got happy. They got fat and happy. You know, you got an $18 billion company. You started at three when you went public. This is great. It's up 6x. Why? What are we doing wrong? Nothing.

Yeah.

Well, I couldn't rest on that. I had to go do my own 6x thing. So, you sit there

and you say, "Okay, we need to get to be number one in everything network security. So, it's going to take me four to seven years to build a great product. That's not enough time. So, let's go find who we can buy." And I know there's like this thing where I don't think many tech companies execute M&A well.

Right. So

is that because of purchase price or post merger integration?

Purchase price identifying the wrong

synergy. Purchase price is an irrelevant irrelevant artifact.

Okay.

Either it's going to work. If it's going to work, it's going to work phenomenally well

or you're going to screw it up.

Yep.

It's not what you paid, it's what you're able to do with it.

Yeah.

Right. You could say that Instagram was expensive or YouTube was expensive. Double click was expensive. They all work perfectly.

Right. AOL time war a different story.

Totally.

So it it boils down as to how you execute past the price you pay for it. So that's not that's not the relevant thing in tech. When you buy a company, you buy a team, you buy an existing product and you buy a road map for the future.

The question is can you deliver on that road map? Can you accelerate on that road map? Does it work? So, you know, we wrote our little M&A mandle. They said because we're a product, we got to keep the founders there. You got to make sure we have the right people running the company. Uh, and over time we got really good at it.

We sign a term sheet and we ask the founders to sit with our team and re redesign the product roadmap so we like it and they like it. And if they don't agree on our expectations and we don't agree on theirs, we don't buy the company.

Makes sense?

We make them in charge. My teams are having to work for them, which

makes them really unhappy and not many of them like it. But I'm like, look, these guys went out there, raised money, kicked their ass.

Yeah.

In a category, in your category, and you want them to work for you. That makes no sense to me.

You're going to work for them, learn from them.

Some people

get the hang of it. Some people move on, which I'm fine with,

right? So

these people had less resources, they struggled, they hustled, they built a product, and they kicked our ass.

Yeah. That means so so our job is to enable these people. We look at them and say whatever business plan was when you were a small p private company find me a business plan that's twice as assertive and bold than the one you had then.

Mhm.

So we buy them we pay the money but we also give them more

sure

than they would have gotten anywhere else.

Yeah.

Cuz I'm sure we will slow them down a little bit. I've got a bunch of people who will try and like ask questions and get them to slow down. You're almost immediately expanding the TAM on day one. There's so many more, you know, power that you can bring.

What happened is we've built a phenomenal system. Take them to market.

Yeah.

So, we say we're going to take you to market. I have 3,000 people in the field. You're going to find a way of catching their fascination, making sure they're going to get excited, make money,

and 3,000 people go out there and see 10,000 customers. Some of them going to buy it.

Yeah.

You're going to go with four resources and go meet 20 customers. You're going to go to 6,000 or 10,000 customers. So, that's where the secret sauce kicks in. Mhm.

We've bought 34 companies so far.

Mhm.

Wow.

And we do this for our board. I think our hit rate on things that have worked is over 70%.

It's amazing.

The last three are obviously new, so we have to see and those are biggest ones, but

it has worked out so far.

Yeah. Do you find yourself ever going back to your MBA, your CFA for guidance on financial management of a public company or is it just so different that you can just pick it up? because it feels like it feels like there's a whole new set of tools

that one case study

that come into the toolbox when you're running a public company whether it's dividends large debt issuances buybacks there's M&A there's so many different things and just managing a stock price that a public company CEO has to do in some ways

um

what do you think

well the MBA is a social experience

okay

I think people go to business school and make a lot of friends and they get to know people, oh my my I have a classmate who went to school with me and I can go cut a deal with him.

I I think it's

not what you study in a case study. It's a mindset. It's a way of thinking. It's kind of like learn behavior over time. You get good at it. You don't know why you do it,

but it becomes part of your sort of muscle memory. And I think that's what happens. I'm a huge student of business. I spent a lot of time listening, reading, talking to people about this stuff, and you just get muscle memory over time. You just kind of get a sense of what the right thing to do is. And I think the part which we sort of underappreciate people who do well are people who go back to first principles and try and abstract and say from a first principal basis is this important is not important. For example, I don't have to manage my stock price.

The stock price manages itself.

Okay.

The the stock price the market is sometimes smarter than individual CEOs. We have to respect that.

There's a lot of players out there. They're not all silly.

There's a reason your stock price trades where it trades. Sometimes it trades because they don't trust you. Sometime it trades there because they don't believe that your prospects are as rosy as you believe they are. Sometimes it does well because anticipates the prospects are better than you think. So the market has a lot of different variables it assesses. Now to the extent that you're convinced this is the right direction to go. You're convinced that you're executing well. That's great. If you believe there are some challenges or flaws in the way you're executing, the market will give you a hint. The market will tell you. Now look, the market gets it wrong sometimes.

It gets it right many times. It's just another variable you have to take into account. But the idea of managing a stock price is

is better. You can't.

But if the market gets it wrong, you haven't you haven't financial incentives to buy your stock or

Yes, we just did all your stock because but the market said, "No, we hear this thing called AI is eating software. We're going to dunk everybody because Claude decided to put out some uh coding."

Yeah. the security product. Oh [ __ ] this is going to destroy a $300 billion industry because

yeah,

Daria launched a product.

Yeah, I saw a chart that showed uh the mentions of Moes on SEC conference calls uh on public company earnings calls is going vertical. Have you been thinking about uh restating the modes to

you know a few earnings call ago I put my earning script into Gemini and said assess my earning script and tell me honestly

what do you think?

Okay.

It's like turn into a psychologist says not sure what you're concerned about but you're trying to use the word momentum and exciting more times than you normally do. Calm down.

Okay. Yeah.

So no I'm not going to say boats.

Yeah. I'm okay with I'm not going to say most. You don't have to say most. But look,

yeah,

you expect me to sit here and and and sort of speak my book, but

LLMs are phenomenal at the 90% problem.

Mhm.

90% problem is make me a movie, paint me a picture, merge this photograph. So 90% problem. If it if you get it wrong,

it's not a big deal. There's nothing destructive.

For the same reason, you wouldn't want Gemini driving. Also, there's also those 90% problems. There's so many of them where

you will never know exactly if you did the best job or you did you just did an okay job. Like sometimes you get some signals, but it's not as binary as let's say did we expose user data to a bunch of people that

that's a whole different that's a whole different conversation. But before you get to exposure data, like you know, you write a letter to, you know, respond to my emails. Okay, fine. It's 80% good enough. much better than me having to go do each one of them. So,

I think we're okay with the 80 90% outcome.

Mhm.

But you would not let

Gemini drive your car or Chad GP drive your car and hallucinate.

Mhm.

For the same reason you don't want Generative AI managing your cyber security because we're in the 1% business.

Remember, I'm trying to block that one guy who's going to get into your company and steal your data.

Yeah,

that's a 1% problem. It's a 01% problem.

So, we have we we rely on thousands of machine learning algorithms. We rely on tons of pattern recognition, domain specific data. So we're trying to solve the 1% problem.

Generative AI does not solve 1% problem. It solves 90% problems.

Yeah.

We solve 1% of problems. So we're least threatened in this notion. There are parts of our business where we could leverage generative AI to make it better.

Yes. And that you will see like the code scanning thing is a perfect example. Cloud launches it. People get petrified. It's a $3 billion industry. We're a $3 million market. Yeah. and the stock the market loses, you know, takes down $300 million market cap that day. Fantastic. I was like, great.

Now the market's getting it wrong. Let's go buy our stock. So, yes, market does get it wrong.

Um, what explain to me how the the surface area of cyber security threats is changing. I I mean off the top of my head I could think of geopolitical risk, more AI endpoints where Vibe code is less secure and so you need more you know you need more uh cyber security also just the hackers that are out there are now AI enabled so their threats are getting more sophisticated. What is this year looking like from just the scale of cyber security threats broadly? So you know if you if you go back to first pencil what happens is every technologist who's positive and optimist builds software for the best use case

for the best case. They don't they don't build it for the worst use case of it. Right? You didn't build a knife and say oh let's not release a knife because people might stab each other. You say wow this is great. You can do so many productive things with it. Right?

So we always build technology with an optimistic positive attitude and look at what AI is doing. We're all building it from a positive AI attitude unless you start getting into, you know, debates about can we use for war or not. But for the most part, you're building it for the right reasons of positive attitude, but

you know, didn't build the first airport with TSA in mind, did we?

Like, how are we going to make sure we could torture people and take them to a line, make them take their clothes off and shoes off,

so we didn't do it. So, we actually introduced security afterwards because we realized there are bad use cases. Unfortunately, same thing happens with technology.

We build this stuff and say, "Let's go use it. People aren't going to do bad stuff." And then you get you suddenly see an agent hacks you know somebody's business say oh [ __ ] we got to go figure out how to stop this agent from hacking this stuff. So

so

our job in cyber security is to anticipate the bad use cases and try and throw a ring fence a series of guard rails or seeds of protection around technology.

To the extent

technology evolves at a fast pace this is good for us because we have to constantly find antidotes to that. Then you have to make sure you're in the zeitgeist to what's happening. So you want to be there. So you know little flashback like this industry before the last eight years used to stay in their swim lanes. There are five swim lanes in cyber security and oh you you do your thing I'll do my thing. You do your thing I'll do my thing. Suddenly we this is [ __ ] We should be in all five lanes. So now we're in all five lanes. Suddenly the whole industry is flipped over its head. Know every time we do an acquisition we see five copycat acquisitions done in our industry around us because people say oh this guy must know something. actually this guy knows nothing but thank you very much. Now you just validated my thesis. Let's go.

Right. So we're going doing that. So

it is good for us when technology goes through a tremen tremendous amount of evolution whether it's cloud whether it's AI whether it's you know people going back to coding like because funnily coding causes more activity to happen laptop when you a whole different security in your laptop than you used to have put an MCP server there I need to protect it never putting any kinds of you know API access on your laptop. The constant evolution of technology demands more innovation in our industry.

More innovation our industry, more deployment of technology around the world causes more demand for cyber security. That's good.

Of course, we have a geopolitical set of issues like you know the more you go into war, the more you know nation states are the most prolific cyber hackers in the world.

Yeah,

right. There are nation states out there who who literally you know unofficially sponsor Yeah.

cyber activity because they need it that

revenue source. It's also it's also a training ground, right?

You keep doing it in peace time. So when I need it in wartime, I can use you.

Oh, sure. Right.

Interesting. Yeah.

So,

so there's this whole cat-and- mouse game that's played in industry. So, you know, geopolitical uncertainty, economic uncertainty, all these things are catalyst for activity.

Yeah.

And that's on one side. On the other side, if you look at it, because of the fact that we never design it with security in mind and the pace of technologies evolving, almost every enterprise is behind the eightball in the modernization they need.

And it's kind of like a hard decision to make, right? If you've never gotten hacked and you you sit there and become complacent, saying, "Look, I've been spending $50 million a year and it's working."

Mhm.

And suddenly one day, oh [ __ ] it's not working. Somebody just got into your business. Those are the best days for us, by the way. when somebody gets she hits the fan. I don't want to like, you know, get excited about people's tough times, but

no, that's why we have a team which is which is our benevolence. We have a team which you can call. We don't charge you for that team to go help you when [ __ ] hits the fan.

Yeah.

Cuz we know you're just about to get religion. You're about to go transform everything in in your infrastructure because you want to be, you know, at the bleeding edge. And again, security is kind of like this where you can spend too much.

Mhm.

Or you can spend just right.

Mhm. right now people generally the the infrastructure is antiquated relative to where it needs to be. There's a lot of transformation that needs to happen. So I think this is going to be sort of perpetual opportunity because combine that with the base at technology changes. That's great. That's kind of one part of it. The other part is which was our insight three years ago. If you take a look at what you know Salesforce has done or workday has done you guys are young like back then when I was working at Fidelity we had 27 systems which combined made up customer relationship management because everybody had their own systems you had keys you had like data references because you built your app at that time

and cyber security is kind of there

like every customer has more cyber security vendors than technology vendors outside of cyber security

because they're like oh

I got 80 of them because I got everything solved like no dude you got to get them all together.

Yeah. So we're in that phase where we're building the first sort of combined platform of cyber security and that's why we wanted to be in every swim lane and as the market converges we will be able to get people into less and less vendors where data can talk to each other because at the end of the day there's only two factors go in our business. One factor is if it's bad stop it.

If I know it's bad I'm pretty good at stopping it. The problem with cyber security is never known bad.

It's the one you don't know. So all the money is in figuring out when you didn't find it at the door is something bad going on or somebody's trying to intrude into your business

and that's where all the all the action in cyber security is. So

that requires data to be connected.

Yeah.

So and this is the last fact leave you then you can go wherever you want but the average time to detect and remediate a cyber attack is four days in the United States. Mhm.

Now with AI, the fastest time to attack a company and exfiltrate private data is 28 minutes.

Wow.

Wow.

That's wild.

I was shocked when I went to Palato. I heard that.

So in seven years, we've gotten oursel to one minute.

Wow.

So

we just got to get everybody else to one minute.

Yeah. Yeah.

So a lot of lot of demand in the future.

Has anyone ever gotten a job working for you by sending you a physical letter? sending me a physical letter and gotten a job. The times have changed, but you know

that creates the opportunity.

Have they changed though? It is a way to stand out. You probably get a lot of cold email. You probably

I get a lot I get letters too. I get letters. I get pictures. I get uh I get uh

What advice are you giving to young people who are entering the job market or want to work at Pala Network?

It I think it's it's the wild west right now out there. Uh we have stopped looking at your CV.

Okay.

Uh we run hackathons.

Yeah.

Every second weekend.

Sure.

And anybody who can vibe code and get ahead of people around them, we're hire them.

Wow.

I don't care when you went to school.

That's awesome.

Because I just think people have to learn. This is something that has not been taught in schools.

Yeah.

I'm glad if you go to school, it's good. You have social skills, you have friends, this is good. We want, you know, mentally balanced people.

This is good.

But we want to make sure that

you know where the world is going. I'm a huge optimist on AI creating job opportunities. I think we'll go through a transformation period, but we're trying to find people who know how to I have to overwhelm my company with more people who know how to use AI than less people.

Yeah.

Right now,

more people don't know how to use AI in my business, less people know how to use it. I think that if if traditional company traditional include ourselves, companies who've been around for 10 years, 15 years want to get back and win in the next iteration of technology, we have to transform as fast as we can, that requires more people who can use AI than less people. Any CO walks in here and tells me they have more people who know how to use AI than less, they're going to win.

And that's the biggest need of the hour. So, I'm out there trying to hire people. So if anybody's listening to this and they think they are the best VIP coders, the best user of Creative AI,

write me a letter.

Amazing.

Yeah, I hope I hope you do. I hope you do.

Send me a letter.

I've coded product.

Well, there is an API for sending physical letters. There's also an API for sending what's called lumpy mail, which is a a letter. Have you ever gotten a letter that has like it it looks like it has something inside of it? So it's like it it it's lump. Usually that goes into our mail room and goes into the bomb

spot. Exactly.

You may you may find in the incinerator because

people figured out there's an arbitrage there because you're more likely to open an envelope that looks like a package and you'll open that and then you just get the ad.

Unfortunately, some of us have people who open them because they want us to have the risk.

Of course, I imagine it's pretty important in in your role that has to be

has to pass the regular physical filters as well.

Well, thank you so much for taking the time to come chat with us. This is fantastic. Let's do this again soon. All right. And uh before we sign off, uh let me tell you about vibe.co

where DTOC brands, B2B startups, and AI companies advertise on streaming TV. Pick channels, target audiences, measure sales, just like on Meta. And let me also tell you about console.com. Console builds AI agents that automate 70% of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. And you heard uh you heard Eric Lyman mention Shopify earlier. Shopify, of course, is the e-commerce platform that grows with your business and let you sell in seconds online, in store, on mobile, on social, on marketplaces, and now with AI agents. Jordy, is there anything else in the timeline that we should close out with? Any breaking news that we need to get to? And while you look that up, let me tell everyone about Sentry. Sentry shows developers what's broken and helps them fix it fast. That's why 150,000 organizations use it to keep their apps working.

Uh, there's some breaking news.

What is that?

Anthropic researchers are departing to launch a Neol.

Oh. in talks to raise capital for a new startup at a billion dollar valuation.

Yeah.

Not

what a crazy time to launch a Neolab. We weren't we just asking Tyler about this? Is there going to be another Neolab? Is the boom over?

It's notable because we just haven't seen a lot of people

leaving Anthropic. That's right.

But I'm very interested to see what they wind up launching. Uh I'm also very sad that we didn't get to our lightning round today. We had a bunch of great people scheduled. Of course, we ran long. Um, but we will have them back on the show soon to get all the updates there. Let me tell you about Railway. Railway is the all-in-one intelligent cloud provider. Use your favorite agent to deploy web app servers, databases, and more. Well, Railway automatically takes care of scaling, monitoring, and security. And finally, let me tell you about Cognition. They're the makers of Devon, the AI software engineer. Crush your backlog with your personal AI engineering team. And with that, I think we can play our credits.

What a fun show.

What a great show.

Nesh, a legend. Gustav

TK whenever we travel everything kind of comes together and we and we have to do a catch up episode but this one was was one for the books. Tons of great conversations. Thank you so much for listening.

You have a

leave us five stars on Apple podcast and Spotify and we will see you Monday tomorrow or Monday.

We love you.

Goodbye. I'll face myself to cross out what I raise myself and let go of what I become.