Naval Ravikant’s podcast ”The Angel Philosopher” dishes out all kinds of wisdom. His YouTube channel alone has more than 38,000 subscribers tuning in to hear Naval talk about angel investing, business, tech, startups, and more.
And Naval knows about startups. He is the CEO and co-founder of AngelList and he’s invested in more than 100 companies, including Uber, Twitter, Yammer, and many others.
According to his AboutMe page, Naval says he is “an entrepreneur and angel investor, a co-author of Venture Hacks, and a co-maintainer of AngelList. Previously I was a co-founder at Genoa Corp (acquired by Finisar), Epinions.com (IPO via Shopping.com), and Vast.com (largest white-label classifieds marketplace). I’ve also advised Bix.com, iPivot, and XFire, among others, and invested in many companies, including Twitter, FourSquare, DocVerse (sold to Google), Mixer Labs (sold to Twitter), Jambool (sold to Google), SnapLogic, PlanCast, Stack Overflow, Heyzap, and Disqus.”
His recent podcast, “Principal-Agent Problem: Act Like an Owner,” advises listeners to “act like an owner, it’s only a matter of time until you become an owner.” The basics: A principal is an owner; an agent is an employee.
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“Everyone’s trying to become smarter by adopting mental models. I think mental models are interesting, but I don’t think explicitly in terms of mental-model checklists,” he said on the podcast.
According to Naval, he has learned a few lessons about thinking like an owner. “One that keeps coming up from microeconomics—because as we’ve established, macroeconomics is not really worth spending time on—is what’s called the principal-agent problem,” he said. “In this case it’s a principal, who is a person; rather than a principle that you would follow. A principal is an owner. An agent works for the owner, so you can think of an agent as an employee. The difference between a founder and an employee is the difference between a principal and an agent.”
He said to remember that a “principal’s incentives are different than an agent’s incentives.”
Here’s how: “The principal’s incentives are different than the agent’s incentives, so the owner of the business wants what is best for the business and will make the most money. The agent generally wants whatever will look good to the principal, or might make them the most friends in the neighborhood or in the business, or might make them personally the most money,” explained Naval.
There will always be a balancing act between agent and principal. “As a business owner you are always going to be dealing with the principal-agent problem. You’re always going to be trying to figure out: How do I make this person think like me? How do I incent them? How do I give them founder mentality?” asked Naval.
And this is a problem owners need to think about — and in-depth. “If you are a principal, you want to spend a lot of your time thinking about this problem. You want to be generous with your top lieutenants—in terms of ownership and incentives—even if they don’t necessarily realize it; because over time they will and you want them to be aligned with you,” Naval advised.
And, if you are an employee, you shouldn’t only think like an employee, but like a principal. Agents should ask themselves: “What would the founder do?”Thinking like a principal will make you a better employee and also prepare you to be an owner at some point yourself.
“Finally, if you’re in a role where you’re an agent—you’re an employee—then your most important job is to think like a principal. The more you can think like a principal, the better off you’re going to be long-term. Train yourself how to think like a principal, and eventually you will become a principal. If you align yourself with a good principal, they will promote you or empower you or give you accountability or leverage that may be way out of proportion to your relatively menial role,” Naval explained.
