Ted Audio Collective
Hello everyone, you're listening to After Hours, I'm Felix.
I'm Me Here.
Did you see the first snow the other day?
I did.
It was spectacular.
At this time of year, the first snow is great.
Talk to me in March, it's a different question.
But I am still a sucker for that first snow and I'm still a sucker for winter.
I was actually thinking about that there are some experiences in your life.
You've seen it so many times and then say the lights we talked about around the holidays
with Hanukkah now and the Christmas lights everywhere.
Yeah.
So nice that there are these things in our lives that don't get old, that always feel special.
Absolutely.
What did you bring today?
We have this tradition of sometimes focusing on one company and there's a company that
I think we've never really talked about that's super fascinating, which is JP Morgan.
I think you're right, we never talked about it.
And we've gone through this crazy year in banking, but it's a useful juncture to step
back and talk a little bit about JP Morgan, I think.
Wonderful.
And what did you bring, Felix?
We have new data on the people who go to college and I wanted to talk to you about what
did we learn, what's interesting, what's perhaps even very different from the typical image
that we have.
Who was a college student?
Fantastic.
That sounds great.
So we're here.
JP Morgan.
Yeah.
Sometimes there's these business stories that happen in plain sight and you don't even
realize they're happening.
And I think JP Morgan over the last decade is one such story.
It's just this remarkable story of growth and market value appreciation and a CEO who
has done it in kind of an interesting way.
So just a couple of quick facts.
By far, JP Morgan is now the most successful bank in the world.
It is certainly the largest in the US.
It's pulled away from its comparable kind of money center bank alternatives, which would
be Bank America, Wells Fargo and City in a really staggering way.
It's got about $4 trillion in assets.
It is making money hand over fist.
It has a successful mammoth branch operation, which you would normally traditionally associate
with banking, the deposit taking loan making side of the business.
It has a mammoth investment commercial bank, which is risen in the league tables and
is now rivaling Goldman Sachs and Morgan Stanley and is in the same breath all the time.
And then it has that thing that everybody wants, which is a wealth management business that
is kind of humming along too.
So it is banging.
And then it's led by a guy, Jamie Diamond, who has been in the job for 17 years.
Yeah, that's remarkable.
He's 67 now and is actually upended.
A lot of things we think about CEO tenure and all of this Felix in fundamentally an industry.
That is not sexy, highly competitive, commodified.
And I'm curious what you make of this.
Yeah, it is a wonderful story.
It's such a good opportunity for us to think about size.
When when size is a great thing and when size is maybe problematic in one way or the other,
and maybe this is just me, but the very first thing that comes to mind is of course economies
of scale.
So this notion that banking has become very fixed cost intensive.
Yeah.
JP Morgan will spend $14 billion.
That's billion with a B on information technology alone per year.
It's just huge.
It's true.
From most of the big banks, they play a game where fixed costs really matter in IT and
marketing and other aspects.
And as a result, there are bigger and bigger advantages to be big.
I give you some numbers just to anchor to us.
If you look at the late 1980s and you say it's most extreme for Bank of America.
And you ask if they grow by 10% in the late 1980s, what happens to their cost?
And the answer is their costs go up by about 9%.
So there's a little bit of an advantage, but it's not really all that big.
And then you look 20, 25 years later and you ask, okay, so now what if Bank of America
grows by 10% what happens to their cost?
And the answer is their cost go up by a single percent.
Right.
So the economies of scale have become so much bigger.
And of course, what you get as a result is the spy vacation where we have the really,
really, really big banks where it's all about economies of scale and then midsize banks
where we sometimes have some trouble in the market and then many smaller regional banks
that compete very differently.
Yeah.
I think that's exactly right.
The whole scale story is amazing.
And he's Marshall did.
And he's pulled away from the other folks who could have done it.
So five, seven years ago, city Bank of America and Wells Fargo were comparable and sometimes
bigger on some dimensions.
And he has just figured out how to really just go gangbusters in many of these different
pieces of the puzzle.
And reap all those economies of scale.
And I think the second part of it that strikes me is there's the scale issue, but then there's
also this ability for them to be differentiated brands, which I think is also super interesting.
I think there is this story about how Chase is a main street name and JP Morgan is an
elite Wall Street name.
And they've been able to yoke them together and both sides of it like it.
And by the way, when Chase was put together with JP Morgan, this is a series of mergers
going back 20 years ago, people thought it would never work.
And yet they have managed to preserve the elite status for the wealth management business
and the investment banking business with this JP Morgan name and then the mass market of
Chase.
And then people can migrate upwards.
And so there's an amazing kind of brand building story there that I think is fantastic.
Yeah.
And then the other thing I wanted to just get your reactions to is there's also a regulatory
and capital story about banking.
Because in many ways, Felix, 10 years ago, people thought the big banks would get hammered
by regulation.
They would suffer because they would have all these additional rules.
And by the way, Jamie Dimon said they would suffer because of all these suffocating rules.
And what he's figured out is how to play the regulatory and capital game.
So there have been these transformative moments where regulators need him.
Obviously, Bear Stearns, Washington Mutual, now first to Republic.
And so there are these moments where he's able to use his position with capital and position
with regulators to get these transactions that are really remarkable and then transform
the businesses overnight.
Sometimes you feel like he's getting dragged into them, but they happen on terms that are
spectacular.
So I think that's the other thing.
There's this marketing story here and a regulatory story here that I think is also kind
of amazing.
Yeah.
The regulatory story I find particularly interesting.
The first glance, of course, regulation is just yet another fixed cost that benefits
you.
If you're relatively larger, that matters.
And at the less we've seen, it's not everywhere.
So in big tech, in big banking, in big food, in big ag, ultimately, these regulatory efforts
to constrain the size of companies often have the opposite effect because if I slap additional
fixed costs on the business, you know, the big guys are going to grow at the size that
they have right now.
One of the angles that I find so interesting.
And I think it played some role in the first Republic takeover is when you think about
how insurance works on the retail side, where we have the FDIC, we think of our deposits
as insured, but it's not as though FDIC is really an insurance company.
They will turn around and they will slap whatever costs we get as a result of banking may
him, they will ask the big banks to pay for it because JP Morgan is so big, they will
bear roughly 15% of that cost.
That means now not only are you a really big bank, but some of the externalities that come
from instability in the banking sector are now internalized in some sort.
That's fascinating.
And then in competition with other banks, of course, that gives you an edge in the sense
that you think, okay, so I'm going to pay 15% of the $30 billion anyway, or I might just
make the problem go away by buying first Republic.
So there's something completely fascinating when we think about instability in particular
markets as externalities and then S firms become really, really big.
They are sort of the market.
And as a result, these externalities then show up in interesting competitive advantages.
And then also gives them incredible bargaining power with respect to the regulators.
That's right.
Because it is a joint decision.
And that's the other story here, which is banking more broadly.
It is an industry which is fundamentally commoditized.
And there are probably too many banks in the United States.
And there are probably some inefficiently small ones.
And so it is all the more in a way remarkable.
And in a sense, Felix, I thought to myself, he's got a really old playbook in a way.
It's not a new playbook.
It's like a very traditional old playbook.
He's done it for the entire time of his professional career.
The same move over and over and over again.
But it works.
And that's the other piece of it that I think is amazing.
Kind of an amazing career.
Start out very young.
It had a remarkable set of opportunities under Sandy Wilde.
But it has also made me rethink CEO tenure.
I, in general, think past 10 years, even if you're good, it's bad idea.
And he really blossomed late.
It actually is a CEO of JP Morgan Chase.
It's really been the last seven or eight years that he's really hit his stride.
Now of course, part of that reflects things he did in his first 10 years.
He's in year 17 now.
Right, that's right.
But I don't know.
It's made me really rethink whether CEOs should actually just leave after 10 years.
Because if you're doing well and you're of the right age, you can have a second innings
that is spectacular.
And I don't know if he's exceptional or if we just don't allow people enough rope to
excel in that way.
So that's the other piece of it that I think is interesting.
I think this is such an interesting observation.
I wonder how much this is specific to banking.
And when I look across industries and I look at how much variation in profitability do
we have in all of these different industries and different segments, banking is way at
the bottom.
And the most successful bank, not that different from banks that are not so successful in the
data that I've looked at, only utilities are worse because utilities are right regulated.
And that of course you get very little variation.
But I think you can then start thinking about how do you compete under those sort of circumstances?
So there's a sense that your commodities are not that big differences.
And then I think something that just many people underestimate is what's the quality of
execution.
Yeah, totally.
How good are you to have the trains run on time?
And one of my favorite examples is they take over first republic and they go into the
situation in a way that is quite comfortable.
If you look at their capital reserve ratio, it's actually more generous than what they
need to have.
And then you look at the numbers, how they change and within an incredibly short period
of time.
And they are at exactly the capital reserve ratio that they had previous to the deal.
There's this ability to really steer the boat almost millimeter by millimeter exactly
where you want to be.
We sometimes look down a little bit on execution.
We say, oh, you know, it's nothing new.
He's done it so many times.
I agree.
But this is in particular in this industrial environment.
It's so incredibly valuable.
I totally agree.
And I think this is again, comes back to this idea.
It's a mature, commoditized industry.
It's all about execution when they do it remarkably well.
And by the way, it also goes back.
He had this experience going back to the early 2000s with bank one where he went to bank
one to do this.
It was a mess.
And go organize it and just get it to execute.
Again, these are very old playbooks, but they're really good playbooks.
And in a world where industry is mature and that can be true in tech and can be in a lot
of things.
The premium shifts and it shifts to execution and it shifts to discipline and it shifts
to thinking about risk in really thoughtful ways.
And he figured that out in banking and he just drove it home.
But I think the lessons are broader in many ways.
One thing that one always wonders about with these long term CEOs is who becomes the next
CEO because the problem it can create for the next person is actually quite large.
It can be massive.
Because the shoes to fill are so large.
So I guess that's the one caveat on the story, which is the next leg of the story is to
see how he managed to that transition and how the successor is able to fulfill that mission.
I mean, in many ways, the legacy of a CEO is best understood at how the next person
does in the job.
Is he setting someone up for success in the next job?
So that I think is the next piece to watch.
Yeah.
Maybe a little optimistic already when I think about the people he appointed to run the
really large divisions.
I agree.
Oh my God.
Super impressive.
Absolutely.
And so who knows?
Maybe if after hours is still around in five years, we might return and say, look, just
like we predicted.
Yeah.
Amazing success story.
And you can imagine that we're free, isn't we won't?
So yeah.
We won't talk about it.
Yes.
Okay.
So as I referenced in some ways, Jamie Diamond is a little bit of a late bloomer second half
of his CEO tenure was quite remarkable.
You want to talk a little bit about data on college students?
It's definitely on the theme of late bloomers every now and then you see a piece of data
that just goes so against the grain, so against my expectations.
And I love that when there's just this little bit of reality that you always took to be
in a particular fashion, then turns out you're totally wrong.
So in college, my big discovery is roughly 20% of people who complete college degrees
are what you might call late bloomers.
They finish their degrees in their 30s, 40s, 50s.
That's crazy, right?
Yeah, it's so interesting.
Yeah.
And you think about college students, of course, it'll be all think that a 20 year old and
then by 22, 23, you're out in the workforce and not true.
Yeah.
So a very different path to college and then also a very different path after college.
What do you make of it?
What does it tell us?
There are so many things about this research and this story that I love.
The first is our imagination is so clouded, especially when it comes to higher education
by the idea of elite universities and what they do.
And it's so unrepresentative of what happens in higher education broadly.
And so it is just stunning that in fact, one fifth of all these folks are late bloomers.
And then a lot of things that we thought about college education, then we have to rethink.
So it turns out once you think hard about these 20%, the returns to college education
more generally are considerably higher than we would have thought them to be otherwise.
Which is just another way of saying what we observe as the returns to college education
is a mix of what it is for young people and these late bloomers.
Once you isolate the young people and you think hard about the young people, the returns
to college education are even higher than we thought they were.
So look underneath the hood.
You start to see things that you don't see otherwise.
And then the second piece that I loved was these late bloomers are typically from groups
that have been marginalized in some ways.
They're more likely to be racial minorities.
They're more likely to be women.
They're likely to be groups who haven't been at the core of the college experience, certainly
not 20, 30 years ago.
So now that also puts a different light on what these late bloomers are, which is people
who are really striving to educate themselves and really striving to invest in themselves
later in life.
Obviously, we're in the education business.
So we shouldn't just be talking our own book.
But that is inspirational and fantastic.
Yeah.
These people and have one realize how large a chunk of the economy they really are.
Yeah, I couldn't agree more.
One of the really interesting observations was the wage profiles.
So when you compare late bloomers to people who went to college earlier in their life,
late bloomers are exceptional in that they make more money than people who don't have
a college education.
So they're sort of the best compensated among the group of people who don't have a college
degree.
And then they get this really nice bump that, oh my God, yes, now you have a college degree.
Of course, we're going to pay you much better.
But the bump is actually not quite as big as the bump that the younger people receive.
And so that automatically makes me think about a whole range of things.
The first is obviously these are late bloomers at some point in time close to getting a
college education.
Could we move it up a little bit?
Right.
Incredible financial consequences if instead of you go in your mid-40s, maybe we can
somehow do something so that you go in your late 30s or something like this.
The second is if you then think about someone in their mid-40s and perhaps they have a family,
perhaps they have kids, I think one way we're let down by this image of the young college
student is that the kinds of support, the kinds of systems, the way you would build a university,
the services that it would provide, I'm sure they're totally different if you cater to
a group of older adults as opposed to very young people in college.
And so in various ways we can think about the timing, we can think about the support
that these people get.
But all in all, it's just incredibly encouraging and I'm just enthusiastic about this idea that
someone was typically in the workforce for 10, 15, 20 years and then you say, guess what?
Now I'm getting a college degree.
I think that's really amazing to me.
And I think a lot of that is happening Felix, but it's happening at institutions that
we don't typically think about.
For example, Arizona State or Southern New Hampshire.
These are universities that are serving these populations, doing amazing things, but not
in the limelight of these elite institutions.
It does beg the question, frankly, what elite institutions should be doing in this space?
Because maybe there is stuff that we could be doing.
You know, at HBS we do some of that obviously, but you really wonder what if we thought about
this population more seriously?
What if we cater to them better?
What if we cater to them earlier to your point?
I guess the other piece of the story that I think is fantastic Felix is I think these
so-called late bloomers, they don't really get the attention they deserve.
And I'm not just talking about education.
I just feel like this is a group of people who don't have the primacy in our society
that they should.
We tend to like young bright things and young bright things are fantastic and I get that.
But I think the other piece of the story that strikes me is there are late bloomers everywhere.
We're having to be seeing it in this education data, but I wonder about it as a broader phenomenon
which is we don't highlight these people enough.
I don't think we think about them enough.
I don't think we think to your point how to help them enough because there's so much
attention on the young.
And by the way, there's quite a bit of attention on the old, but it's this middle air which
we're not organizing ourselves around.
It seems to me at least.
Do you think it's a broader phenomenon than just in this education data?
I think it's particularly important what you just said.
The other sector to your question that comes to mind is where for the longest time I had
totally the wrong vision is entrepreneurship.
Entrepreneurship is often sold as a young person's game.
And then you look at the data, the quality of the data matters a little bit because many
people start companies not with an intention of really growing the company in any meaningful
way.
Start a restaurant and that's a great family business.
But you're not really building a chain or anything like this.
But if you look at the most successful entrepreneurs, the ones out in the tail say the 1% best
entrepreneur adventures or the 0.1%.
What you see is the average person is 45 years old.
And then if you think of the frontier which is often technology, so either technology
or companies with patents that do really well, there the founder is typically close to 50
years old when they start.
And so that's another area where having the wrong impression then leads to all kinds
of problems.
I see it often in students at HBS where they think, oh my god, I have to start a business
soon after graduation because young people start good comp.
No, actually, the 20 year olds.
You have the smallest chances of success.
But just to be clear, it may be true that it is a good idea to start a business when you're
young, but you should understand that you're horizon should probably be 30 to 40 years
because they will fail and then they will succeed.
And you have to kind of do it again and again and again.
So I actually think it's both true that you shouldn't think you have to start a business
when you're very young, but it is also true that the real story here to me is we should
lengthen our horizons.
Yeah.
And young people who have like a 10 year horizon and it just feels so wrong to have a 10 year
horizon.
And I came across this, honestly, this semester of fair amount more than I expected Felix,
which is I want to be retired in 20 years.
Oh.
And I've react pretty negatively towards that, but this data also makes me react negatively
towards it, which is just like really people hit their stride at that time.
And there are second and third legs to this that are fantastic.
And actually that's more likely to be true than one time out and you win and more rewarding
ultimately as well.
This question should you aspire to be a serial entrepreneur and then obviously at the beginning
you're not going to be very good and eventually you get better at it.
So the chances of a 50 year old to hit it out of the park are roughly double of the chances
of a 30 year old or should you maybe go into a traditional industry.
So say, should you be in a bank and then at some point in time venture out from there.
We know from the data that industry experience matters dramatically.
So what's the secret to success of these older people?
They have industry experience.
And the part that I think we don't know from the research, but it's a really interesting
thing to think about this.
What kind of industry experience do you get if you're a serial entrepreneur in, say, media
versus if you work for a large media company or a large bank for a couple of years and
then you jump ship.
And I wouldn't be surprised if this was really industry specific how much you can learn.
But that's probably the best way to think about it.
Do you know what you need to have in order to be a successful entrepreneur?
You need industry experience.
What's the best way to get to the frontier of what the industry does as quickly as you
possibly can?
Maybe that's in a series of startups.
Maybe that's in a large company.
But I think the reason why large companies can be powerful is ultimately you're trying
to figure out where the real friction and the real pain points are.
And it's hard to figure that out.
And especially in complex industries like banking, it's actually not that easy to figure
it out.
So that is the logic for why industry experience because then you figure out the pain points,
you figure out the frictions and then you're able to target them.
And of course the offsetting effect is that in that process of being in large companies,
do you somehow lose your risk taking or your outsider perspective that is also what you
need?
So the tradeoff seems to be you go into industry to learn those frictions and to really
understand industries deeply, which I think young people today underestimate pretty dramatically.
So, but they do have a point which is the longer you stay in those places they change
who you are and they change your preferences.
And then maybe you're not able to leave.
That feels like the tradeoff to me roughly.
I think that's exactly right.
And there's probably two interesting angles.
I think the first is of course a lot depends on do we think large companies are innovative
or not?
If you are in a large company and you never see anything innovative for 20 years, yeah,
maybe the chances that you have a great new idea, those chances are not so fantastic.
But we know from the data that we way, way, way underestimate the degree to which big
large corporations are innovative, have interesting projects are pushing the boundaries.
And we know from lots of entrepreneurial stories that very often they suggested a particular
innovation project inside the large corporate.
The large corporate was an interested and then guess what?
You jump off and you build your own business.
But that's I think one thing to think about.
The second thing to think about is early in your career, the set of constraints that
you have say financing constraints.
Those are super severe, very hard to overcome.
As you become a successful professional, as you have a larger network, as you maybe have
worked with funders over time, those constraints shift.
And so to the extent that for the young person funding is one of the absolute biggest problems,
maybe recognizing talent is a really huge problem.
There's good reason to believe that for someone older, these constraints are perhaps less important.
And so that gives you a degree of freedom that you don't have early on.
I would disagree with your second point and agree with your first one.
On the constraints point, I think that sounds right.
But for what happens in the interim, which is life, life happens.
And then sometimes you start to feel constraints that you may not have felt before.
So that can be a mortgage or family or whatever it is.
But I think the foot loose and fancy free stage of your life is a time when you're willing
to do things that maybe you have less of an ability to do later.
But I take your general point, Felix, which is I think we have come to the point where
we dramatically overestimate the need to be young when you take those risks.
And the general point seems to me to be that the pendulum should shift backwards so that
we understand that risk taking, whether it's getting a college degree, which is a big
risk for a lot of people in their 30s and 40s or starting a business, that can happen
later in life.
And it may happen optimally later in life for a whole bunch of people that we don't think
enough about and we don't broadcast enough.
So I think that certainly is true.
Yeah.
All right.
So Felix, naturally, I have to ask, what would you want to be a late bloomer in?
So I always thought about, let's starting a business, but probably other careers.
Go ahead.
I had an ambition to think about a career of a musician at some point in time.
Yes.
That never really happened.
So that might be something that I would aspire to.
What about you?
If LeBernadine called me up and said they wanted to sue chef, I would drop everything
and go, be careful what you wish for.
All right.
So here are the silly bloomers.
Jamie Diamond among them.
Felix, recommendations.
My recommendation is a documentary called American Symphony.
And it's about a project or an idea of a musician, John Batista.
I think he's probably best known for having been the band leader on the late show for a very
long period of time.
Yeah.
Stephen Colbert's show.
Exactly.
He's fantastic.
And then he had the super, super successful album that won many, many Grammys and the American
Symphony project that the documentary starts out with is the idea if someone were to invent
the symphony today.
What would it look like and everything from who are the musicians, what are the instruments,
what kind of music do they play.
And so the documentary is about how he's working on this project and you get to see snippets
off that symphony.
But then the documentary is also about the relationship with his wife and what that relationship
is like.
I loved it because it was such a powerful reminder how life can be incredibly sweet and
joyous and uplifting and just impossibly hard at one at the same time.
And so we get to see their experience and we get to see how they live through these
very happy and these very sad times at one at the same time.
So American Symphony, it's a documentary that streams on Netflix.
That sounds fantastic.
I have to say I'm just taking a look now.
The song he composed for Colbert is just a great theme song by the way.
It does strike me Felix that if the question is if someone were to invent the symphony today,
aren't you the right person to answer the question?
It's a late bloomer.
I wish.
Yeah, very late bloomer.
So ask me in ten years and you will figure out the answer to that.
That was a great suggestion.
Yeah.
What do you have for us here?
Well first I just need to channel Peter Lennane, our sound engineer because I had the opportunity
to spend some time with him on a separate project earlier this week.
And he reminded me of a long time ago recommendation I think from young me but the new season is
out of Slow Horses on Apple TV.
Oh, I miss that.
And thanks to Peter I caught up and let me tell you I've only seen the first three episodes
but it's great.
Fantastic.
Season two I thought was a bit of a miss.
Season one was amazing but season three is great.
Certainly the first three episodes are.
Everything can be streamed the entire season.
It's coming out every Wednesday I think.
Salami tactics.
You know I really dislike that.
I think it's terrible.
Don't give me this going back 20 years every Tuesday, every Wednesday you serve a little
bit.
That is ridiculous to me.
If I thought creatively about ways to cheapen and worsen the customer experience that
will be the top of my list.
I don't know.
I'm a little bit okay with it because binging is not super healthy for me.
I can't control myself.
And so you end up binging and it's like five episodes in a night.
There is a little bit more enjoyment from the delay.
So I'm going to take the other side of that.
Let me counter.
I wasn't a workshop once with one of the writers who wrote for the office.
And this was right at the time when binging became possible and when we all started doing
it.
And he asked him what's the effect on how you write?
He says, oh, it's entirely different.
If you see something once a week, the number of characters that you can introduce, the
complexity of the story.
Yeah.
That's very limited because people don't remember what they had for lunch yesterday.
How will they remember the fifth character in a particular show?
And I feel we go back to an earlier time and we hear with a little more self-conquering
control.
It's the story of my life.
Speaking of self-control, my real recommendation is the upstairs delicatessen, which is a new
book by Dwight Garner, who's an author who I've recommended before.
Garner's quotations is this lovely book of quotations that he put out.
It's called a common book.
But in upstairs delicatessen, he speaks about a life without self-control.
And in particular, with respect to reading and eating.
So he's a voracious reader and he's a voracious eater.
And he's got appetites.
Those appetites are really just about those two things.
It's a kind of memoir, but it's organized in this weird way.
There's a section of the book called breakfast and then lunch and then dinner and then sleeping.
And then just kind of like these weird pieces, but he's knitting together his culinary appetites
with his intellectual appetites.
So he's talking about preparing a meal and eating a meal.
And then he's talking about how Iris Murdoch describes eating and food and all those kinds
of stuff.
And you'd think how could this work?
But he's such a likable companion.
He's just the kind of guy when you're reading him, you want to spend more time with the
guy.
And so not a lot of self-control there, but I'm a huge fan of Dwight Garner and the upstairs
delicatessen.
Wonderful.
And this is it for tonight.
Thank you everyone for listening.
This was After Hours from the Ted Audio Collective.
