Shane Parrish: You need to figure out which defaults are killing the company and change them violently. There must not be change management because you want the change to feel jarring. You took over a company that was months away from bankruptcy. Take me inside the company. What did you do on day one?

Kaz Nejatian: I left home um to fly San Francisco where Open Door had one office. Um and on the way out the door, I told my wife, "Hey sweetheart, I'll be back on Thursday." And she said, "Do not come back until you have a plan to break the company even." And I'm like, "Haha, very funny. This is hilarious." And my wife said, "No, no, I'm not kidding. Do not come back." She went Amazon and ordered a mattress to the office for me. Like I knew I was going to sleep in the office for multiple days in a row because my plan was try to figure out what had gone wrong. Because basically what happens is all companies fail in similar ways. No companies succeed. And I said all success is unique but all failures rhyme. Good people leave. People lose control of innovation. GNA goes up and over time you end up fighting picking fights with your customers and partners. So that had happened at open door. I asked for a full list of all employees, every contract, every payment the company had made for the last 12 months, and they're like all the accounts. Like I'm just cool, give me like the state. And one of the things I realized is that it is actually surprising how lack of active management allows companies to atrophy.

Shane Parrish: What do you mean by that?

Kaz Nejatian: If you're trying to avoid looking bad, you do a certain number of certain things, right? So, Open Door for a very long time was doing everything it could in order to not be noticed, in order to not stand out, which meant the company was basically had become a company run by professional consultants. Let me give you two specific examples. So, I got um figured that I was going to join the company and then uh chair the board sent me a Google doc that was going to be my announcement that this guy's going to become the CEO of the company. And I like read the doc and it sounded like it was written by someone trying very hard to avoid saying anything that might offend anyone. So, I took over and made edits and then someone went in and undid my edits and like changed the dock again such that it would be un like not offensive. So, I put in big bold letters on top of the dock. Whoever wrote this dock doesn't work at Open Door anymore. And I didn't realize that both the consulting firms that the company had hired to do PR for it were in the dock. What happened as a happy accident is is both the consulting firms very loudly resigned the account like we would like to have nothing to do with the company which did two good things. One I didn't have to pay 30 days of notice and two I got to have one less expense on my uh on my on my income statement. So I got every expense the company had paid for the last 12 months. And usually for tech companies like your largest expense to an external vendor ends up being like your cloud provider. But for open door number one was millions of dollars written to very large consulting firm. This company had come in and had told open door to basically offshore every job to massively overload the company with GNA and basically cut engineering which is literally what you do if you have zero desire to create alpha. And that basically happened to open door. And by the way, I think this actually happens to a lot of companies where the founders are no longer there. There is no large shareholder that cares a lot about the company. So over time, many of these companies essentially become hosts for professional leeches whose job it is to suck the company dry while making management look good. So I want to go back to day one, too. Like we we started down this track of you got all the expense reports. Like I want you to walk me through and to give me the blueprint of like coming in here and

Shane Parrish: Yeah.

Kaz Nejatian: it you find a culture that exists without you.

Shane Parrish: Yeah.

Kaz Nejatian: How do you tell what to keep, what to get rid of?

Shane Parrish: So, Open Door had gone fully remote.

Kaz Nejatian: So, at 9:00 a.m. that Monday, I told the entire company, "Hey, Open Door is going to be back in the office next Monday. If you don't plan to be in one of these offices, we appreciate your help, but you're no longer with us." Then the second thing that happened was that open door had become a place where you succeeded by creating process not outcomes. So a bunch of people chose not to be part of the company because we became so outcome oriented uh because we demanded ownership. But the third thing that was impressive is and this actually was best good surprise of open door. I would every once in a while find someone who I thought was exceptional and I would honestly ask them in that first couple weeks why are you still here and it was a series of these people that had kept the company alive on their shoulders and we've now rebuilt the company around these IC's

Shane Parrish: IC's are individual

Kaz Nejatian: individual contributors yeah who actually do the actual work

Shane Parrish: so it was on life support

Kaz Nejatian: yeah I see open door would have died had it not been for maybe a dozen

Shane Parrish: Well, so this is fascinating that maybe a dozen people, maybe slightly more, had essentially carried a business that lost hundreds of millions of dollars over the prior 12 months. And you had these one-on-ones with them and you told them what? What did you learn from them?

Kaz Nejatian: I mostly listened. And the beautiful thing about finding someone who is exceptional and caring and has been buried by layers of management is they know exactly what's wrong. They will tell you, "This thing is broken because of this, or that process makes no sense." One IC told me, "We have dozens of internal tools, but we really only need one, and the rest is just administrative bloat." That's what I learned. So step one was to stop doing the dumb things. We eliminated piles of inefficient processes and pushed the decision-making authority down to the people actually doing the work, so they don't have to wait for multiple levels of managers to approve a simple decision.

Shane Parrish: Let's talk about the role of technology in this. A lot of people are talking about how AI is changing businesses. How did you apply AI to the rebuilding of Open Door? Do you think of AI as replacing people and labor or do you think of it as amplifying the ability of a particular person?

Kaz Nejatian: I think it's a new company because AI has made this a different company because look what what about open doors business is difficult. The operational complexity of the physical asset and what do you need to make that operational complexity go away? You need very lowcost fast decision making at scale with data. We have built an AI exoskeleton around every human being at Open Door such that they can be 3 4x more efficient than everyone else. To give you a sense, the last time Open bought as many homes as we bought last quarter, Open Door's OPEX was more than twice as high. In a world where prices have gone up for human beings, we've become twice as efficient. I think what AI does is two things. One, it lowers the lowers the need for human management, right? If you look at any company, you end up with these very long tales of managers managing managers before anyone does any actual work. And AI because it takes the communication barrier down so much, we can share more information more broadly, it just collapses the company um chains of the company. The second thing it does and what it has done at Open Door is AI fundamentally changes who wins and who loses. That people who use AI well will win and there'll be more of them. Open Joint has more engineers today than I did when I joined because we use AI well.

Shane Parrish: What are the most powerful mental models that you find yourself coming back to over and over again?

Kaz Nejatian: Actually, you you know me a bit so you know this is true. Uh I I have these written down. First, friction is underestimated. Two, uh map is not the train. Three, truth over feelings. Those are like the three. So let me give you the first one. Everyone has seen uh the supply and demand graph in their life and but people underestimate the uh invisible hand of friction on where those two things cross. The total market size of Walmart would have been massively underestimated. Same with Amazon, same with Google. Because before these things existed, everyone thought the market was smaller because there was so much friction in the market. When you reduce friction in a system, you just get a lot more of whatever you reduce friction on, right? And if you look at the open door parallel before I got to open door from the time you entered your phone address into our homepage to the time you got an offer there'd be 11 people in the path many many days many many processes many many docs all of that friction and every one of these we removed increased demand we're buying six to seven times more homes this week than we did last year this week and it's almost entirely because we restriction the second one is like the map is not the train which is like I find the one that I wish I could teach corporate America.

Shane Parrish: M

Kaz Nejatian: I think Hayek is just generally underappreciated. He gave a speech called pretense of knowledge but the entire speech is basically about this idea that all of us confuse the map for the train for a train that's like the land. If you were in Europe pre-discovery of the new world, you would look at a map from an expert and trust it, right?

Shane Parrish: Yeah.

Kaz Nejatian: Cuz everyone did. It just so happens that unless you recognize you're looking at a first derivative of a fact, not the actual fact, you almost always will build models of the world that end up drifting from reality. And this is how companies go bankrupt over time because they continually drift more more derivative, more derivative. They build models upon models and no one says, "Uh, excuse me." Like, how far am I from the fact?

Shane Parrish: But how do you do that as a company? How do you stay in contact with reality?

Kaz Nejatian: Dashboards are wonderful things, but most corporate executives run the entire company on dashboards. And it is a derivative of facts. It's not the facts. You're playing like Sim City and you don't know when the environment changes. You end up losing a feeling for the business. Ray Kroc used to visit the stores and inspect the garbage cans and he'd be like, "That's too much ketchup." You watch Undercover Boss and they're always surprised by what's happening at the front line. That's a sign.

Shane Parrish: But how do you do that as a company? How

Kaz Nejatian: I talk to our customers every single week. Every single week I'm on the phone. And it gives you a huge context window.

Shane Parrish: It does. You just have to just have to do

Kaz Nejatian: and they're assuming that people are offended by facts. And

Shane Parrish: I want to come back to the turnaround for one

Kaz Nejatian: Shopify was a remote work culture. Yeah. Yeah.

Shane Parrish: And one of the first things you said you did

Kaz Nejatian: Yeah.

Shane Parrish: Why?

Kaz Nejatian: First of all, I don't think remote works generally. It loses a lot of culture. It's very hard to build trust and alignment when you're just staring at a screen.

Shane Parrish: Yeah.

Kaz Nejatian: Amazing.

Shane Parrish: Yeah. And look, we do a very hard thing, but

Kaz Nejatian: Companies cannot have multiple cultures. They just can't. They just

Shane Parrish: and you end up spending a lot of time aligning

Kaz Nejatian: and it's much easier to have a uniculture company much easier to run and align.

Shane Parrish: You started mortgage

Kaz Nejatian: mortgage uh our buyer product and our new product cash

Shane Parrish: What does it mean to be a market maker in

Kaz Nejatian: Yeah. So if you look at the history of assets, liquidity is everything. Discovering prices, providing certainty, and matching buyers and sellers. eBay, PayPal, they all did this for different asset classes.

Shane Parrish: is a great example of this. actually eBay, Discovery, PayPal,

Kaz Nejatian: Yep.

Shane Parrish: And the third player almost always tends to be someone who gets left behind or eaten by the big guys.

Kaz Nejatian: Yeah.

Shane Parrish: But clearly has not happened. Amazon won because it solved

Kaz Nejatian: But clearly has not happened. Amazon won because it solved the hard physical fulfillment problem. And we are doing the same for residential real estate. It's not a listing site; it's market making.

Shane Parrish: So, how does Open Door make money then? Like, how

Kaz Nejatian: We make our money in two ways. First, we make it through the fee we charge for the convenience and certainty of the transaction, which is like a spread. Second, we make money by offering adjacent services like title, escrow, and mortgage. We don't bet on home price appreciation. We want to be market neutral and make money on the volume and velocity of transactions.

Shane Parrish: How did you learn this concept? I've just been always

Kaz Nejatian: Yeah.

Shane Parrish: Right. That's not how businesses work. No one trusts someone who just writes memos without running the experiments.

Kaz Nejatian: Like it's most companies is tell people then do things. In most companies, this is what happens. You have an idea, you spend a lot of time writing memos about that idea to get buy in about that idea before you can have a meeting, someone that can approve that idea. And there's a whole process that takes many months before you can do the thing. There's a chain of command designed to minimize risk. And there's two ways to deal with that chain of command. The first is to do what Amazon said. Amazon became a default yes. Most companies are default no. The chain of command is designed to reduce risk and say no to many things. Right? That's what it does. Amazon said, "No, no, no. We're a default yes company." Which worked incredibly well for Amazon. But I think a better way to deal with this problem is to not have the chain of command like to minimize the number of people who can say no.

Shane Parrish: Yeah. and only have people that you want and trust to do things.

Kaz Nejatian: This, by the way, is not people. This not a theoretical thing. I want to give you this very specific example. I got to open door and I realized that for a substantial number of homes we had bought, the person who was supposed to benefit would show up and the power would not be on in the home. And when this happened, the person who was managing home would get a note saying, "Hey, power isn't on, and who this person would have to go to Salesforce, fill out a form. That form would get emailed to someone else. They would look at it. Then they would ask for permission from the manager to turn the power on. Then they would call the utility company, turn the power on, they would mail, and there would be a back and forth that involved three or four managers." And I thought this was the nuttiest thing ever. So, we literally gave everyone corporate cards and said, "Hey, if you see a home whose power is not on, if you type in the address into Slack, you will get back the phone number you're supposed to call, the account number you're supposed to say, and the credit card number you can give them to turn on power." We're the largest buyers of home in North America. And by the way, Open Door was not run by uh unintelligent people. They were highly credentialed people. But the general incentive inside every company is to reduce risk as much as possible. And the way you reduce risk is more process, more people in the path. So do things becomes actually difficult. I think of this is like nobody would want to wake up in that state, right? Like you would never create the end state that they were operating in as like the goal.

Shane Parrish: So somewhere it just gets like one degree off course, you know? And that one degree starts to compound as time goes on and on and on.

Kaz Nejatian: This I think I'm I'll use another pilot example. I want to be a pilot. My wife won't let me.

Shane Parrish: Um

Kaz Nejatian: smart.

Shane Parrish: Uh I listen to your wife.

Kaz Nejatian: I have a bunch of plane analogies. But there's a very real thing happens to new pilots. New pilots go into like into clouds and they turn slightly slightly slightly slightly.

Shane Parrish: M

Kaz Nejatian: and people say you'd be surprised by a number of new pilots who come out of sky clouds fully inverted cuz you basically end up upside down one degree at a time. That's basically what happens to every company. This is a very good sign that your company is upside down. If you have acronyms, if you have lots of acronyms, the odds are you're upside down as a company. Because acronyms are things that people do when they want to create in cultures and out cultures by definition. So if you have acronyms, the odds are what you have done is create so many inroups and outroups that no one can tell if anyone else is inverted. And the only one who can tell if someone is inverted is someone above the chain who can look at both of these things. Unfortunately, most corporate CEOs don't go that deep, right? They they manage the dashboards.

Shane Parrish: This comes back to sort of like trying to touch reality and being in the weeds and having a bigger

Kaz Nejatian: I've literally turned on utilities. I've uh fixed the work orders. I've like you have to do it otherwise I don't know how you like I mean Elon famously sleeps at the factory and people think it's like a meme. People think he does it for show. I don't think he does it for show. I think it's literally the only way to do things.

Shane Parrish: If you had to choose between someone who is self-blaming and someone who externalizes, who would you choose?

Kaz Nejatian: The first step is taking ownership over the problem, right? They're taking ownership. I understand there are things I can do, right? There's a reason why um AA works so well, right? Cuz you do that deeply uncomfortable moment of truth.

Shane Parrish: Yeah.

Kaz Nejatian: gain and the score tends to take care of itself over a very long period of time. And I think that pattern tends to be one that is repeatable over and over again. If you look at yourself and say, "I am to blame for my problems." It's hard. And it's repeatable um in companies as as it is in people.

Shane Parrish: How do you not hang on to that? A lot of people go through that. They make a mistake. They'll even admit that they made a mistake and then they become paralyzed by fear.

Kaz Nejatian: I have high degree of sympathy to people who do that. I really do. One of the best parts about being a founder, which is why I think founders are such unique characters, basically every founder has been a month away from like not being able to make payroll.

Shane Parrish: Yeah.

Kaz Nejatian: And that usually shakes you pretty good.

Shane Parrish: Yeah.

Kaz Nejatian: Cuz if you do nothing, you're dead. like your de like Paul Graham has this essay where he calls it default dead and you just have to do something like action creates information you have to do something. And if you look at a balance sheet, you're like, "Holy God, I only have x number of payrolls left." You do not care at all what it looks like. You just care about what it is. You realize that the first bit is really easy to solve. Just grab a shovel.

Shane Parrish: Yeah.

Kaz Nejatian: The last bit requires a bunch of microscopes and analysis but the first bit is shovel territory, man. It's like your grandfather's wisdom, right? When you find yourself in a hole, stop digging.

Shane Parrish: Yeah. Yeah. Yeah. No, it's real. It's interesting you sort of mentioned not making payroll. And you know what that made me think of is the moment Steve Jobs, if there was one moment where Steve Jobs became the Steve Jobs that we know, it was the moment where he started to change his behavior.

Kaz Nejatian: In the movie, there's this very famous scene where Steve Jobs had fired uh the Apple 2 team and W is like you have to recognize these people like they worked hard. You have to recognize that they built this company. And Steve's point was like, no, you don't. The only thing that matters is building great products. Results matter, not how hard you tried. And that's a very real thing that if you have come close to death, you understand.

Shane Parrish: Is part of that sort of not caring what other people think. like the courage to be disliked. I'm thinking like so many people optimize their life in order not to be disliked versus on mission or towards a goal or

Kaz Nejatian: first of all courage to be dislike is an excellent book. Everyone should read it but it's a very real thing where most people's limitations are self-imposed.

Shane Parrish: We're capable of so much more.

Kaz Nejatian: Yeah. Like everyone is and everyone's pain uh is more imagined than you think it is. And this, you intuitively understand it when it comes to everyone else. But in yourself, you have a hard time ignoring it. Like I don't care what the Wall Street Journal says about you.

Kaz Nejatian: I just don't. I've never cared.

Shane Parrish: Is that learned or something you

Kaz Nejatian: I just think what happened was I immigrated from Iran. My family fled Iran and when we moved, I was a teenager. and I didn't get into any clubs. And by the time I was I grown up and I could get into those clubs, I was like, you know what, I don't need them anymore. And Jensen Huang said in his speech, "Excellence is the capacity to take pain."

Shane Parrish: Do you agree with that?

Kaz Nejatian: Yeah. Yeah. Over a very long period of time. By the way, the person who can hold their hand over the fire the longest tends to be the winner. The difference between doing something incredibly well and just okay is just how much pain you can tolerate. I think the modern world has underprepared people for pain.

Shane Parrish: We always end these interviews with the same question. which is what is success for you?

Kaz Nejatian: I have four kids. Um they're seven, five, three, and two. And I care a great deal about what they say to their kids that their dad did. When my wife and I got married, we agreed that we would hold myself accountable and thankfully my wife also holds me accountable to that end.