Truth Over Feelings: Inside Opendoor’s Massive Turnaround

0:00You 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.

0:15You took over a company that was months away from bankruptcy. Take me inside the company. What did you do on day one? I left home to fly San Francisco where Opendoor had one office.

0:32And 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, ha ha, very funny. This is hilarious. And my wife said, no, no, I'm not kidding. Do not come back. She went to 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 trying to figure out what had gone wrong. Because basically what happens is all companies fail in similar ways.

1:03No companies succeed in a sense. All success is unique, but all failures rhyme. Good people leave. People lose control of innovation. G&A goes up. And over time, you end up picking fights with your customers and partners. So that had happened at Opendoor. 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 kidding. Give me like the state. And one of the things I realized is

1:34that it is actually surprising how lack of active management allows companies to add for fee. What do you mean by that? If you're trying to avoid looking bad, you do a certain number of certain things, right? So Opendoor 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.

2:07So I got,

2:10we got to join a company and then chair the board, send me a Google Doc that was going to be my announcement, that this guy is going to become the CEO of the company. And I 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 Doc again such that it would be not offensive. So I put in big, bold letters

2:41on top of the Doc, whoever wrote this Doc doesn't work at Opendoor anymore. And I didn't realize that both the consulting firms that the company had hired to do PR for it were in the Doc. What happened as a happy accident 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 income statement. So I got every expense the company

3:12had 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 Opendoor, number one was millions of dollars written to very large consulting firm. This company had come in and had told Opendoor to basically offshore every job to massively overload the company with G&A and basically cut engineer it.

3:44Which is literally what you do if you have zero desire to create alpha. And that basically happened to Opendoor. And by the way, I think this actually happens to a lot of companies where the founders are no longer there. There's 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 started down this track of

4:15you got all the expense reports. Like I want you to walk me through and to give me the blueprint of like coming in here. Yeah. Because you find a culture that exists without you. Yeah. How do you tell what to keep, what to get rid of? The Opendoor had gone fully remote. So at 9 a.m. that Monday, I told the entire company, hey, Opendoor 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 Opendoor had become a place

4:45where 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 because we demanded ownership. But the third thing that was impressive is just actually what's been the best good surprise of Opendoor. I would every once in a while find someone who I thought was exceptional. And I would honestly ask them in that first couple of weeks, why are you still here? And it was a series of these people that had kept the company alive on their shoulders.

5:16And we've now rebuilt the company around these ICs. ICs are individual contributors. Individual contributors, yeah. Who actually do the actual work. So it was on life support. Yeah. Honestly, Opendoor would have died had it not been for maybe a dozen people. Well, so this is fascinating to me, right? Because if you were to read a book on how to turn around a company or you were to go to business school and take a course on like the best turnaround, you're not doing any of that. In fact, you're doing the opposite. There's a lot to be learned

5:47from books. But if Opendoor could have been fixed by following something that was written in a book, it would have already been fixed. Look, there's two things. One, the people you hire is the company you build. So the first week at Opendoor, I changed our career page. Our career page used to say something along the lines of, this is a happy place to work where we all care about each other. And by the way, here are all of our ERGs. Opendoor's career page now says, this will be hard.

6:17Like our job is to attract people who want to work hard. And we don't, like we say this is not for you. Like I, my job is to try to convince you to not work at Opendoor. Such that if you come, you're highly committed. So that's one thing. So the people end up being the company. The second thing ends up being that over a very long amount of time, groups of people tend to have tendencies towards niceties. So everyone ends up telling each other nice lies.

6:48A series of white lies that take very off course. And the job of a founder type is to be, you know, a nuclear bomb of truth over and over again. First principle truth. But what is important is to discover who you are, discover that kernel of truth, and build only on that. And then hire exceptionally good people and guide them. Was the view from the inside, like was, were all of these nice lies sort of aggregating into the companies doing okay? Yeah, I mean,

7:18I think, I think a lot of people had convinced themselves that bad things were happening to Opendoor. That Opendoor was like this victim of the macroeconomic environment. you know the victim type mentality that people developed, right? Because you know people who blame the world for everything that goes wrong with them. Opendoor felt like that. The company was just mad at the world, mad at its partners, mad at its customers because it blamed

7:49the outside world for everything that was happening to it. But like, how do you change that? In the sense, like you're one person, you're coming in, and you have to have this equal and opposite force, I would imagine, to counteract this and start changing the culture. And you pull the curtain and you're like, guys, we need to... I mean, I think like a commitment to truth over feelings is incredibly important. I sent my team, I have a blueprint that I sent to the entire company because my job was to create strong repelling forces.

8:22I.e., I wanted everyone who didn't like how I was going to run the company to quit. You wanted people to opt in. Yeah, to opt, people opt out, and then that would create room for people to opt in from the outside. The most dangerous people in any company, if you grab a two-by-two chart, are competent but not mission-aligned people. So your job is to identify who they are and help them move on as fast as possible. What makes them so dangerous, though? Well, because competent people have a way of tilting the org in their direction, right? Everyone has had at their job

8:53someone who is very good in internal politics, and you can see that this person keeps getting promoted because your boss doesn't realize what they're doing. So my job, I thought, early on, was to cause that rift to widen. We have had to basically hire an entirely new company and that has been very painful. So if you sat down and had to write a document on the key principles involved in turnaround of business, what would they be? I think changing defaults

9:23is incredibly difficult. So if you're going to change a default, you have to do it violently. Let me give you an example. Open Door was remote. Open Door was never going to become in-person if we had a seven-step plan over eight months. I know this because Open Door had had many seven-step plans over eight months to become in-person and never worked. So the only way to become in-person for Open Door was through significant amount of aggression. Transparently, I thought Open Door was a place where some people were kind of nailing it in. Yeah. Not everyone, but some people.

9:54So I stopped at the office. I thought Open Door was a place where people were unwilling to take risks. So we took risks publicly. 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. Second, you must tell people what you expect of them. Most companies' mission statements end up being

10:24bland, pale imitations of statements. We're here for the good of the world. Yee-P-I-A, who isn't? Right? But you have to say things that a reasonable person would say, I don't want any of that. You have to figure out what those things are because it matters. And third, if you're starting as a CEO of a new company, I strongly urge you this. Be committed to truth over feelings.

10:55Truth over feelings all the goddamn time. Because you will invariably over time find that you will get rounder edges if you're not careful. Double-click on the truth over feelings thing though because, I mean, most people think that they already do that. I think what happens is people are truthful within the context of the situation and the people they're in the room with. The larger the room is, the less space there is for truth.

11:26Right? But that is the death of companies. This is why big companies are so usually average. I mean, a pizza team is real, right? Like having small teams is real because you can be truthful in smaller rooms. You can say things you would never say in a big room. And you need to get that in a company if you're a new CEO of a company. You need to discover who are the speakers of truth and get them in a room alone so you can discover things. Otherwise,

11:57you will die. So what's a meeting with Kaz like? We try very hard not to have meetings unless they're needed because meetings are a bug in the system. Wait, go deeper on that. So meetings exist because people could not get the information they needed to make decisions before the meeting. So most meetings are like context sharing. Yeah. So typically we only have meetings where we're broadcasting not narrow casting. And our meetings end up being relatively full of

12:27disagreement. Go deeper on that. So there's no point to have a meeting where we all agree. And we believe it is impolite not to disagree. Our meetings tend to be louder than the average company's meeting, more ornery than the average company's meeting. And I mean it happens with some frequency where people just leave in the middle of the meeting because they have nothing to contribute. It's impolite not to leave a meeting in which you have nothing to contribute. So our meetings end up being much more collaborative

12:58and much less let me present something to you. How do you disagree without being disagreeable? So in my blueprint I sent to the whole company, I said I value being told I'm wrong. Like our commitment is to the truth. When we make a mistake, Open Door made a mistake. All mistakes belong to Open Door. All information belongs to Open Door. So when you and I disagree, we're not doing it because I dislike you. We're doing it because I respect you and I believe you and I are on the same team.

13:29I wrote a post that I published called Say the Thing a while ago and it became part of Shopify's lore and people would say say the thing to me which I appreciated. So most people sit in rooms or watch a Slack message and have a large disagreement but they don't want to be the person that farted in church. So they don't say what's on their brain. So when I got to Shopify and it was true when I got to Open Door, I would sit in meetings where everyone

14:00would act like everything was going well but things were not going well. You could tell things were not going well by the shape of the chart. So I wrote a note when I was at Shopify and I said, hey, say the thing. Say it now. Like the second you know something, say it. Say it about the thing, not the person. Always say this sucks, not you suck. And say it until you've been heard. People don't have to agree with you but they have to hear you. So if you feel like you're not being heard,

14:31say it over and over again until you feel like you've been heard. Because you get paid to do this at Open Door. So it's incredibly important. Say it now, don't wait. Second, say it about the thing, not the person. Say it over and over again until you've been heard. And those three things are a cultural expectation.

14:52Not doing it is considered rude. And this has been a very real part of our learning at Open Door is allowing people to object to things that are stupid. Do you think it's a turnaround or like a refounding? I think it's a new company because AI has made it a different company. Because look, what about Open Door's business is difficult? The operational complexity of the physical asset. And what do you need to make that operational complexity go away? You need

15:23very low cost, 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. The last time Open Door 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. Every few years, a new platform earns its place at the top

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17:17Do you think of AI as replacing people and labor or do you think of it as amplifying the ability of a particular person I see? I think what AI does is two things. One, it lowers the need for human management. Right? If you look at any company, you end up with these very long tails of managers, managing managers, before anyone does any actual work. And AI, because it takes the communication

17:48barrier down so much, we can share more information more broadly, it just collapses the company, the chains of the company. The second thing it does, and what it has done at OpenDoor, is AI fundamentally changes who wins and who loses. The people who use AI well will win and there'll be more of them. OpenDoor has more engineers today than it did when I joined. Because we use AI well. What are the most powerful mental models that you

18:19find yourself coming back to over and over again? Actually, you know me a bit so you know this is true. I have these written down. First, friction is underestimated. Two, map is not to train. Three, truth over feelings. Those are like that. Three. So let me give you the first one. Everyone has seen the supply and demand graph in their life. But people underestimate the invisible

18:49hand 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

19:20homepage, the time you got an offer, there'd be 11 people on 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 reduced friction. The second one is the map is not the train, which is I find the one that I wish I could teach corporate

19:51America. I think Hayek is just genuinely 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 of the land. If you were in Europe pre-discovered a new world, you would look at a map from an expert and trust it. Right? Yeah.

20:21Because 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 derivative, more derivative. They build models upon models. And no one says, excuse me, how far am I

20:52from the fact? But how do you do that as a company? How do you stay in contact with reality? Dashboards are wonderful things. But most corporate executives run the entire company on dashboards. And the derivative of facts is not the facts. You're playing like SimCity. And you don't know when the environment changes. You end up losing a feeling for the business. Ray Kroc, the guy, the founder of McDonald's, used to go into the kitchens. Yeah.

21:22He'd be like, that's too much ketchup. You watch Undercover Boss and they're always surprised by what's happening in their company. And again, I'm like, why are you surprised? Like, how are you surprised? How did you not know? Like, what is the job if it's not understanding how your product touches the customer? But how do you do that as a company? How do you stay in contact with reality and in contact with the ever-shifting terrain? I talk to our customers every single week. Every single week.

21:53I go visit our homes all the time. All the time. I look at the raw database all the time. I built my own dashboards all the time. And I find that at least that gives me less ability to be fooled. And it gives you a huge context window. It does. You just have to. You just have to do it. So the map is not true. And the last one, which we talked about a bunch, which is truth over feelings. There is a level of suicidal

22:23empathy that people have developed that is just deadly. It is killing our best companies because people are assuming that everyone is thin-skinned and they're assuming that people are offended by facts. And I'm just sorry. Facts do not care about your feelings. They just don't. And it's incredibly important that everyone be committed to truth. I want to come back to the turnaround for one second because

22:53Shopify was a remote work culture. And one of the first things you said you did was everybody's in the office Monday or you've opted out of working here. Why? First of all, I don't think remote works generally. It only works for Shopify. And that's because we built more software to make remote work than anyone reasonably thought we could. And I think the jury has fully come back on this topic that companies

23:23that are primarily remote end up having slower cycles. And if you look at startups, it just tends to be true. Why do you think that is? Like, what explains that? You lose a lot of culture. It's very hard to build a culture remotely. Because Opendoor's core mission is difficult, we need to make other things easier. And I think the best thing everyone intuitively understands, if you played any sports growing up, you understand that the thing that causes you to build

23:53camaraderie is doing hard things together in person and winning. Like, high school football teams have amazing cultures. Yeah. Amazing. Yeah. And look, we do a very hard thing, but we do it in person with our colleagues, shoulder to shoulder, where we celebrate our victories together and the failures we