Scott Lynn, Founder & CEO at Masterworks.io - Democratizing Investments in Fine Art

(Joel Beasley at 00:00:04)
Hello, my friends. Today, we're talking to Scott, the founder and CEO at Masterworks.io, and we discuss how Masterworks is democratizing access to fine art as an investable asset, the challenges involved with offering fractional shares of artwork, and how to change your focus between scaling and productivity during different stages of a business's life cycle. All of this right here, right now, on the Modern CTO Podcast.

(Scott Lynn at 00:00:37)
Here we go.

(Joel Beasley at 00:00:38)
This is the Modern CTO Podcast.

(Scott Lynn at 00:00:49)
Look, so a lot of people who were around in the late nineties, early Internet days, remember this. But when I was in high school, my very first company was basically a gaming company. Right? But at the time, the Internet was really new, and there weren't really games online. So we built the first major game on the Internet. It was a sweepstakes game where people came to the game to try to win money. And everyone from that time remembers these banner ads, which were these punch the monkey banner ads. So the site was, you know, we were the number one advertiser online. I think we were a, then it was called MediaMetrics. Now it's called Comscore. Top 17 website. So it was, yeah, it was just crazy. It was me and this friend who basically built the website, got it live, and, you know, we wound up kind of figuring out a marketing angle and how to market it, and the thing exploded. Well, that's definitely going back in time.

(Joel Beasley at 00:01:50)
Kind of being first to banner ads everywhere, do you think you made a lasting impact on digital marketing?

(Scott Lynn at 00:01:58)
Oh, we definitely did. So from that company, I left and I started a company called AdKnowledge, which became one of the largest online advertising companies in the early to mid two thousands. And, you know, a lot of what we learned running the game was really not about gaming, but it was about how to monetize a game, which was advertising. But, yeah, I mean, I remember, like, there wasn't an ad server that existed at the point of time that we could license. We, like, had to build our own ad server. Like, we had to do everything first. We couldn't, there weren't people we could hire that knew how to sell online advertising or people that knew how to build, you know, basic, like, CGI scripts for, quote unquote, dynamic website. Like, that didn't really exist in 1996. So, yeah, I mean, it was a cool experience where we were doing everything first, and we were hiring people that knew nothing about the Internet and training. It's just, like, totally different than today.

(Joel Beasley at 00:02:58)
That's really cool. So how did you go from online marketing and first and punching monkeys to getting into art? Because you're very much in the art world now. Right?

(Scott Lynn at 00:03:11)
Yeah. So, you know, it's interesting. So I kind of grew up with art books. My mom always liked to draw, and, you know, I guess for whatever reason, I was just a creative kid. And, you know, I stumbled into art early when I first started to make money from my first company. And the thing that was different about the art market then versus today is back then, really, in the late nineties, there wasn't a good, there wasn't a price database you could go to and understand how much every painting had sold for at auction historically. Right? We kind of take it for granted today. Like, everything is digitized, and it's easy to gain access to all this information. But in the late nineties, no one, at least in the art market, had done that. So there wasn't as much of an investment lens as there is today. Right? Because you didn't have a dataset to analyze. So I think, you know, I think the Internet and sites like Artnet and sites like Artprice, which kind of track a lot of this auction data and publish to people on a subscription model, have really changed the art market and brought in a whole bunch of new investors that wouldn't otherwise be in the market today.

(Joel Beasley at 00:04:26)
So I'm kind of new to viewing art through, like, an investor's lens. Why do billionaires have, like, 20% of their portfolio in art?

(Scott Lynn at 00:04:38)
So, you know, there's a bunch of reasons. Right? Some which are more maybe financial, some which aren't financial. So I tell people to think about the art market today very broadly as lots of wealthy families living around the world trading $10 million paintings just to help you contextualize it. Right? So thousands of families living around the world sort of trading these things with each other. Now when someone buys an expensive painting today, let's say they buy a $25 million Basquiat, they definitely think that painting is going to go up in value. They definitely think it's a good store of value, but they probably don't know specifically how to think about appreciation rate or risk or things like that. Right? They're just assuming that it's probably not going to go down, may go up a lot. They like having it from a status symbol, so they buy it. Masterworks has really taken it to the next level where we're the only firm in the art market that does index construction to understand returns. We're the only firm that's ever analyzed how art is correlated to other asset classes. We look at individual artist markets from an appreciation perspective. We think about volatility in returns. We think about things like how are our prices impacted by inflation, how are our prices correlated to real interest rates. So really the first ones that have assembled this big dataset in the art market and then analyze it to try to understand performance. I tell people it's, like, analogous to, today, the art market is analogous to, like, investing in the stock market without knowing the price of stocks. Right? Like, you would still probably buy Google because you think it's a great company and you think it's going to go up, but you don't really have any data around, like, how is the price of Google stock been historically. Like, that's kind of the art market today.

(Joel Beasley at 00:06:29)
That's, yeah, that's really interesting. So, actually, I realized I want to take a quick step back. How did you first decide to start Masterworks?

(Scott Lynn at 00:06:38)
Yeah. So I started collecting art, and I got really into it. And over the course of, you know, a decade plus, built a top 100 collection of mid-century abstract expressionists. So people like Pollock, Kline, Rothko, de Kooning, some names that people might know of, and just saw the value of my collection grow. Now, you know, I didn't really know how to think about that other than these prices were going up really fast. Like, my initial assumption was I was really good at choosing art. Right? But the reality is the more, at least in Masterworks, we've looked into the data, the entire contemporary art market, contemporary art defined as art created after World War II, has appreciated 14% a year for the last 25 years. Right? So, really, as a market, it's been growing more so than just specifically what I was doing. But I saw that growth. The problem then, the problem today is still to allocate to that asset class, you really have to have millions of dollars to buy a painting, tens of millions of dollars to build a portfolio. So it's not really accessible to almost anyone.

(Joel Beasley at 00:07:51)
So Masterworks basically allows people to own, like, fractional shares of these pieces of fine art. Is that, like, a good summation there?

(Scott Lynn at 00:08:01)
Yeah. So we take paintings public. Right? So just like the same process that Uber goes public, we buy a painting, we file it with the SEC as a public offering, and then we sell shares in the painting. So you can go on the SEC's website with a tool called Edgar, and you can search Masterworks, and you'll see, you know, all of these different paintings that we've taken public. And you can read what effectively looks and feels like an S-1, about risk disclosures, the painting, and the artist market. So it's just like a company going public, but it's a painting.

(Joel Beasley at 00:08:34)
That's really interesting. But so with the paintings, though, is it, like, you buy in and then you get your return after Masterworks sells it at an auction, or can you sell your shares at any time?

(Scott Lynn at 00:08:47)
Yeah. That's a great question. So historically, when we started the business, it was definitely the former, and it's evolved into the latter. So we originally told people to think of these as three to ten year investments, you know, before we sell the painting. So it's a longer term kind of illiquid hold. That did change last year when we launched trading markets or secondary markets. So we now have people trading shares in paintings just like they would trade shares in companies.

(Joel Beasley at 00:09:18)
That's really cool. So how do you keep track of the fluctuations of the price of individual pieces of art when I feel like the only actual marked indicator is when it sells at an auction. Right?

(Scott Lynn at 00:09:32)
Yep. It's a very good question. So you think of the art market, let's take a step back. So the art market today is a roughly $1.5 trillion asset class. Right? So venture capital, private equity is $3 trillion. So it's roughly half the size of venture private equity. Out of that $1.5 trillion, anywhere between 50 and $70 billion a year sells in art. So think of it as a couple percent turnover every single year. Right? If you look at the performance of that asset class, contemporary art specifically has appreciated 14% per year for the past 25 years. I'm just forgetting your question now. What's your question? Your question was?

(Joel Beasley at 00:10:17)
How do you track the—

(Scott Lynn at 00:10:18)
Yeah. How do you track the prices? So since, out of the $60 billion a year that sells, half of that is at public auction. Right? So we have a huge dataset on paintings that are just transacting publicly at auction really around the world. And at least in the US, the UK, and Western Europe, there's either state level or federal laws that require auction prices to be publicly reported in a fair and transparent way. So it's actually a really interesting, very reliable dataset to understand prices of different artist markets and individual paintings on a global basis. It's not, frankly, that dissimilar to real estate. So think about how when a house sells, like, if you list your house to sell and it sells, that's a comparable that someone else with a similar house will look at. So we do the same thing. Like, if we have a 1981 Basquiat, and we're trying to understand how much is this Basquiat worth, we'll look at other 1981 Basquiats that have sold publicly, you know, which ones are similar stylistically, maybe the dimensions are similar. And we basically, you know, value works that way just like you would real estate.

(Joel Beasley at 00:11:30)
And is it also influenced by, like, the demand in the secondary market for the fractional shares?

(Scott Lynn at 00:11:37)
Yeah. Today, it's totally not. So we really divorce how we think about appraising paintings to investors from trading activity in the secondary market. And a lot of that's just because depending on the painting, there may not be enough volume to really have price discovery. So we still kind of use both the secondary market price as well as the appraisal price to help investors think about value.

(Joel Beasley at 00:12:06)
So I think something that I'd be interested to kind of watch is, I know right now, art as an asset class is very appealing because it's not correlated to the stock market, and it provides really good diversification in that way. Could you foresee if, like this, like, fractional share investing becomes much more broadly adopted and is part of everybody's portfolio, stocks and art, and people are just kind of thinking about art as another asset, it becoming somehow correlated to the stock market just because the retail investors are thinking about stocks and art in the same way?

(Scott Lynn at 00:12:56)
Yeah. I think I would say it slightly differently, but I think it makes the same point, which is that as any asset class becomes more liquid, then it becomes more correlated to other very liquid asset classes. And that's just because, you know, when there's panic in a market, everyone tends to sell everything. Right? So it's interesting. Like, you look at a lot of very smart managers that have really outperformed for decades. The Yale endowment is always kind of the classic example, and they tend to have a lot of very illiquid alternative allocations that they invest in and have seen some of the better returns from.

(Joel Beasley at 00:13:43)
Yeah. I think that presents, like, a really tough problem because I think it's really cool you guys are democratizing access to this traditionally illiquid asset. And there's another company we had on a while ago called Yieldstreet, that's their whole thing, although they also do, like, real estate and stuff that you can get fractional ownership in. And that is absolutely amazing. And I love that more people are able to get access to this thing that's gatekept for the rich. But it also seems like it, at the end of the day, could end up being somewhat of a zero-sum game where these illiquid assets become totally liquid, and then the upper class finds a new illiquid asset. Right?

(Scott Lynn at 00:14:35)
Yeah. I mean, look. I tell people to think of the art market today as we're in the very, very early innings of a mature asset class. Right? When we think about, and qualitatively, you know, I mentioned to think about the market as sort of ultra wealthy families trading $10 million paintings with each other around the globe. Right? Like, that is the market today. Masterworks is the only firm that has a research team dedicated to understanding returns. We're the only firm using data analytics in the market today. You know, we're the only firm that has an acquisitions team that's really looking across artists and choosing the ones that are the best value and the best examples. Like, there's so many basic things that we do today that are just much better than what everyone else is doing in the market, that I think a lot of these conceptual questions people have, they're interesting. They're just interesting, like, 50 years from now. Right?

(Joel Beasley at 00:15:31)
Exactly.

(Scott Lynn at 00:15:31)
Yeah. We're, like, still in the first, I don't know, you know, 180 days of when Bitcoin was launched. You know what I mean? You know, it's like a very, we're very early in this market.

(Joel Beasley at 00:15:43)
Yeah. So get in with Masterworks now. I actually signed up ahead of this interview to do a little bit of research. And I thought it was funny. I got an email from you. I was like, hey, I'm Scott, founder of Masterworks.

(Scott Lynn at 00:15:57)
Thanks for joining. You know what's funny is everyone thinks that is an automated marketing email, but it does actually come from me. So I do respond to those emails every day.

(Joel Beasley at 00:16:06)
Oh, really?

(Scott Lynn at 00:16:07)
Yeah. Yeah. Yeah.

(Joel Beasley at 00:16:08)
Oh, that's good. So, like, if I responded to that, that goes to your inbox?

(Scott Lynn at 00:16:13)
Goes to my inbox. Yeah.

(Joel Beasley at 00:16:14)
Oh, nice.

(Scott Lynn at 00:16:15)
Yeah.

(Joel Beasley at 00:16:17)
That's funny, man. So you mentioned that one big change that happened with Masterworks since founding it was you launched the secondary market, right? How has the business evolved other than that since the beginning?

(Scott Lynn at 00:16:34) Well, I mean, it's a big business today. Right? So we're, you know, we've recently turned profitable. You know, this year, we'll buy $400 million in art. We're the biggest buyer in the art market. 95 employees. You know, it's kind of more than doubling every year, so it's just growing rapidly.

(Scott Lynn at 00:16:55) And it's interesting. You know, we didn't start it that long ago. Right? Like, we started the business in 2018 effectively. We got our first investment vehicle through the SEC by middle of 2019.

(Scott Lynn at 00:17:07) So it's really only been a couple of years. But, you know, thinking back even when we first started it, I mean, we didn't know if there was product market fit for people being interested in investing in art. You know, we knew the asset class was appreciating. We didn't know how much it was appreciating. We didn't know if it was necessarily non-correlated to other asset classes. Like, a lot of the things in the beginning were sort of just a hunch. But today, you know, 200,000 investors on the platform, a lot of these $1 or $2 million paintings sell out in days, $10 million paintings sell out in, you know, less than a month, $20 million paintings will sell out in 30 or 60 days. So it's definitely growing a lot.

(Joel Beasley at 00:17:49) That's crazy. And so when you're talking about these paintings selling out, it's because you only sell, like, the amount of value that the painting cost total. I think it's a finite thing.

(Scott Lynn at 00:18:04) Yeah. These are all fixed price offerings. So, you know, if it's a $10 million offering, we sell $10 million. So basically now the way the flow works is we launch a painting, we send out an email, and it's kind of first come, first served. You know, that's probably not the optimal flow because, you know, we had a painting—when was it? It was last Friday. This artist named Sam Gilliam. It's a $1.5 million painting. I think it sold out in, like, an hour and a half, two hours. You know? So it creates issues when paintings sell out that fast sometimes because people feel like they didn't really get a chance to, you know, an opportunity to invest. So at some point, you know, we probably need to change that flow, but that's how it is currently.

(Joel Beasley at 00:18:49) So let's talk about artist markets. What is an artist market?

(Scott Lynn at 00:18:54) Yeah. So that's a term we use a lot. And really, you can just think of an artist as having their own market or their own mini economy that's unique to them. And I guess in certain artists' cases, it's not even mini. Right? So if you look at an artist like Monet, Monet this year will probably sell somewhere between $250 and $400 million. If you assume that 5% of, you know, Monet's paintings actually sell this year, then you can get to a market cap of $5 billion. That's the total value of all Monet's work. So when we think about artist markets, we're thinking about what's the total value of all paintings from that artist. How many of those paintings are turning over each year? And then what are the returns that we're seeing in that individual artist market? Like, how much the price is going up?

(Scott Lynn at 00:19:42) So, you know, it's really interesting because you can look at these artist markets very similar to how you can look at any other asset class. So if you, you know, if you look at your other asset classes you're investing in and you think about what are the returns, what are the volatility in returns, and then what are the risk-adjusted returns or what's often referred to as a Sharpe ratio. And we think the same way about artist markets. So you look at an artist like Monet, we think he's actually a really, really interesting artist because his returns have been very low compared to most artists that we track. His returns are roughly 6 to 7%. But his volatility in returns, I'll get this specifically wrong, but it's something like 5%. So his Sharpe ratio is well above one, meaning that he's an incredible store of value. The returns are, you know, pretty predictable, and investing in Monet, you know, you can be reasonably confident that you're probably not going to lose money. There's always exceptions and, you know, it can happen, but you're probably not going to lose money.

(Scott Lynn at 00:20:44) Now if we compare and contrast that to an artist like Sam Gilliam, who I just mentioned, you know, Sam's market today is totally on fire. His appreciation over the past five or 10 years is in excess of 30% a year. You know, his paintings were selling for $10,000, uh, 10 years ago. They're selling for, you know, $1.5 million today. Wow. There's definitely volatility in his market. Right? Like, so there's been massive appreciation. But because there's been massive appreciation, his prices haven't been that predictable. They've been going up, but they still haven't been that predictable. So his Sharpe ratio is not necessarily that much better than Monet's. Right? His volatility is much higher. So we think of, from a financial perspective or a risk-adjusted return perspective, we think of those artists similarly, even though a lot of self-directed investors would be like, Monet is 6 or 7%, and Sam Gilliam is whatever it is now at 40%. You know, Sam Gilliam is a much better investment. It's not necessarily true.

(Joel Beasley at 00:21:53) That's interesting. So, uh, Monet is Berkshire Hathaway and Gilliam is Tesla.

(Scott Lynn at 00:21:59) Yeah. Or Gilliam is even someone hotter than Tesla. I don't know. I don't know. Yeah. Couldn't think of one.

(Joel Beasley at 00:22:08) That's great. So, but, man, yeah, that's just so interesting how it's, like, so much value tied to—because Gilliam is alive. Right? And, like, he—

(Scott Lynn at 00:22:18) He's still living. He's still living. So that's another really interesting point. If you look at the top 100 artists defined by transaction volume, it's very rare for an artist to make the top 100 list and then subsequently produce negative returns. Usually, what we see is that artists make the top 100 list. Their returns decrease over time, over decades, or in some cases, over centuries, and they eventually approach inflation. Right? So they become good stores of value, but they don't really generate returns. And an artist that would be an example of that is Rembrandt. If you buy a $10 million Rembrandt today, you will probably sell it 10 years from now for the price you paid plus inflation. He's just not, you know, that is an artist. He's not that much in fashion even though he's still obviously historically very, very important.

(Scott Lynn at 00:23:06) You know, there's other artists too in the top 100 list that you can look at. Like, Damien Hirst is the one that I often use as an example. He's one of only three artists in the top 100 list that have produced negative returns consistently. And he's a living artist, and he's just done things to his market that have really caused his ecosystem, his ecosystem of galleries, of collectors, to really stop supporting him. So, you know, when artists are living, they can do things to their market that, obviously, an artist who's deceased can't do. And they can positively impact it, but they can negatively impact it as well. And, you know, we do see that from time to time.

(Joel Beasley at 00:23:58) Man, that's crazy. So is there a—do you guys have an app that people can use to manage their portfolio?

(Scott Lynn at 00:24:06) Oh, yeah. We always get the "Do you have an app?" question. We don't have an app today. So I mean, we have a web app. Right? So you go to the website and use the website and review the offerings. And most of our investors are investing thousands of dollars per painting rather than hundreds of dollars per painting. And some are investing hundreds, but they tend to be larger. So a web app has always been a little bit more relevant than a mobile app in that context. But we're planning on releasing a mobile app to help people manage their secondary market trading, as well as some other features in the website that are just more convenient in a mobile app.

(Joel Beasley at 00:24:45) Very cool. So I want to get a little bit into, um, like, your venture capital investing that you've done in a little bit. Kind of some tips and tricks for people, I guess. So what are, like, what do you look for in a company when you're looking to invest in a startup? What are some of the best things that you can see?

(Scott Lynn at 00:25:04) Yeah. I mean, I'm not—so I don't really, you know, I've started a lot of companies. I've invested in a lot of companies, but they're usually companies that are my idea or that I've, you know, acquired or that I, you know, there's sort of—they're usually driven by me. Right? So I don't—I'm not good at kind of passively giving capital to people and letting them run with it. I like to take bigger positions in different companies. And for many years, I did that with online advertising businesses.

(Scott Lynn at 00:25:27) I mean, I think the thing that is most important in any business is just fundamental strategy, and that's really changed for me personally in how I think about entrepreneurship and how I think about success over the past 20 years. I think if you rewind very early in my career, I would have said it's all about execution. Right? It's moving fast. It's iterating fast. And I still think that's very important. Right? I still think the ability to move quickly, iterate, get things done is critical. But, you know, you have to have a strategy that's pointing you in the right direction to begin with. Because great execution on a bad opportunity is still going to get you nowhere. So I still see CEOs that are often focused in one of those two buckets. They're very good strategically. They're very bad at execution. Or they're very good at execution. They're very bad at strategy. And I think, really, to have a great business, you have to be good at both.

(Joel Beasley at 00:26:29) Yeah. That makes a lot of sense. I mean, you really can't do anything without both. Or, well, you can't do one thing. You could run your business into the ground. But—

(Scott Lynn at 00:26:39) Yeah. There's a lot of companies with CEOs out there that are just, you know, charging towards walls. Like, you know, you never want to be that guy.

(Joel Beasley at 00:26:48) For sure. So how do you—how would you describe your personal approach to leadership at your company today?

(Scott Lynn at 00:26:55) Yeah. I mean, I think leadership is always, you know, obviously, it's always an extension of the founder. Mine is really just an extension of my personality and what I found over the years to work for me. And what works for me is really a culture that's very data-driven, very, frankly, task-oriented, very measurable and objective. You know, for example, like, obviously, our business has a lot to do about art. I mean, there's a lot of the business that has nothing to do about art. Right? There's a lot of the business that has to do with building technology and kind of, you know, financial engineering and sort of, like, all of the stuff that we're doing for the first time. But we hire a lot of people from the art market. You know, candidly, 95% of the people that work in the art market today are not culture fits at Masterworks because they're not data-driven. You know, they don't know how to make decisions based on data.

(Scott Lynn at 00:27:52) We just, you know, we're looking at the asset class through a very objective lens, like nobody's really done before. So we try to sort of keep that analytical, data-driven decision-making theme throughout the company. And then just a highly iterative culture where we're moving fast. You know, like, from a tech perspective, we only have, I think it's, like, eight or nine engineers now. You look at some of our competitors in different asset classes that literally have hundreds. I mean, some have 250 engineers. They have no idea what these engineers are doing. But, you know, they just have massive amounts of people seemingly doing nothing. So we'd like to just, you know, move fast, get things done, release features, build product, and, you know, help investors find really good investments.

(Joel Beasley at 00:28:49) You know, a bit off topic, you mentioned that it seems like there's these companies that have engineers that are doing nothing. I actually just yesterday read this, uh, Wall Street Journal article talking about a trend in, um, not only tech, like, lots of kind of just, like, high-earning roles that have gone remote during the pandemic of people picking up a second full-time job and, uh, faking it and not telling anyone.

(Scott Lynn at 00:29:16) Oh, yeah. I can totally see that.

(Joel Beasley at 00:29:17) There's, like, stories of people that, uh, set up two webcams on their computer and take two meetings at once if they don't have to, like, say anything. Um, I was like, man, that sounds like that's better than any raise you can get. That's double your salary.

(Scott Lynn at 00:29:33) Yeah. I mean, cultures are interesting. Right? Like, as you see companies go from 10 employees to 100 employees to 500 employees to 2,000 employees, it—they just slow down. Right? Like, highly complex organisms that deal with people, like, they just don't move quickly. So it doesn't surprise me. I mean, I think the productivity of a lot of these big companies is just really low.

(Joel Beasley at 00:29:59) I mean, you said that your company is currently at 95 employees. Like, that's not tiny. How are you keeping it fast, like, practically? I know that you—

(Scott Lynn at 00:30:10) I mean, the biggest company I've had has been 600. Right? So everything from whatever, four people through 600. You know, we talk a lot about and we think a lot about people, structure, process, but not in the context of, you know, how do we get more of it, in the context of when do we need it and when do we not need it. So for example, we're definitely right now focused on scaling. Right? So when I think companies go through a scaling phase, you don't want to focus on efficiency. So from a process perspective, efficiency doesn't matter. Right? Effectiveness matters. Rolling out key features that are high priority that help the business grow quickly is really, really critical. But I don't care if I have to overhire someone or if the structure is not perfectly efficient because I'm just focused on tripling the business this year. Now as growth starts to slow, I start to focus on things like process more to get more efficiency. So I think it's always just dependent on the life cycle of the company. And it's another thing that I see CEOs do wrong too. Right? Which is you can't have too much process too early. You can't have no process too late. You know? It really just depends on the stage of the business.

(Joel Beasley at 00:31:33) So what's one thing that you think would have helped you when you were starting your first company if you knew it?

(Scott Lynn at 00:31:40) Oh, man. So many things. So many things. You know what? I guess I'm just, like, I'm trying to think, like, what things are most influential to me. So I was, you know, my dad is an engineer. I started doing web design early, early in high school, kind of when the Internet was starting. I actually ran BBSs before the Internet. I was kind of a geeky kid. And, uh, I think my people skills early on were most challenging. And I tell people these stories and they laugh about it because they say that it hasn't changed that much. But, like, when I was—when I was—I just had no people skills. I mean, I was super aggressive, had no people skills, very binary in terms of how I thought about things. And I remember this meeting I had at my first company, and there's a sales rep sitting in this meeting, this big room. Like, I don't remember how many floors.

(Scott Lynn at 00:32:42) Twenty, thirty, forty people, something like that. Right? This one sales rep just kept asking questions consistently to me that were just totally off point, totally annoying, total distraction. And he raised his hand in this meeting. He asked the question, and I pointed to him and I said, you're fired.

(Scott Lynn at 00:33:00) Get out. And to me, it was totally rational. Right? The guy was just totally out in left field. He wasn't contributing.

(Scott Lynn at 00:33:10) He just wasn't working. He wasn't providing value. So from my perspective, just get out. Right? But learning how to deal with that and communicate more effectively over time, I think, was probably one of the biggest challenges I had and still have.

(Joel Beasley at 00:33:28) Yeah. I mean, I think that sounds about right for just where you were in life and in your career. Because that was your first company that ended up being top twenty ranked websites. Right?

(Scott Lynn at 00:33:42) Yeah. Yeah. Yeah. That was the company. Yeah.

(Joel Beasley at 00:33:45) Yeah. And you're in your

(Scott Lynn at 00:33:46) early twenties. Yeah.

(Joel Beasley at 00:33:49) You're like, this is how bosses are. Right?

(Scott Lynn at 00:33:55) Something like that. Yeah. Yeah.

(Joel Beasley at 00:33:59) No. I mean, I think that is a really valuable lesson, though. Just having more patience and empathy for your employees, because I'm sure that guy was probably—I mean, I can't say he was probably a decent salesman, but he could have been a decent salesman and just a bad meeting guy.

(Scott Lynn at 00:34:18) He wasn't a good salesman. But, okay. Yeah. He just, yeah. Yeah.

(Scott Lynn at 00:34:27) So, you know, I think that's right. I mean, I think one of the things you learn in a leadership role is sometimes being right is not—just being right isn't necessarily the be all, end all. Right? You can be right, and you can still be wrong, or you can still hurt the company culture. You can still—yeah.

(Scott Lynn at 00:34:54) Being right isn't necessarily always the most important thing.

(Joel Beasley at 00:34:59) Yeah. That's a really powerful thing to learn and let go of, because—

(Scott Lynn at 00:35:05) I mean, in that situation, I was definitely right, but it was still wrong. You know what I mean?

(Joel Beasley at 00:35:10) Right. Right. That makes sense. So I guess one more topic I want to cover before we wrap up is, how do you—because when you're talking about iterating quickly and learning fast and moving fast as a company, failure is an important and valuable part of that. So how do you approach failure within your teams and allow them to try and fail and learn and be okay with that?

(Scott Lynn at 00:35:38) Yeah. I mean, this is such a hot topic anymore. I mean, it's been a hot topic now for years. Fail fast, et cetera, et cetera. I don't personally find it as easy as it sounds. There's definitely a threshold of—I guess, just taking a step back.

(Scott Lynn at 00:36:01) When I've started businesses in the past, the way I think about starting a business is I have an idea for a problem. Right? I think about the TAM. How big is the market for that problem? I think about who are the competitors. How can I differentiate within that market?

(Scott Lynn at 00:36:18) I think about product. Right? Is there a product that's easy to build that solves that problem? And then we prototype it, and we start testing. Right?

(Scott Lynn at 00:36:28) So with Masterworks, we had this idea of allowing people to invest in paintings. We weren't quite sure how the financial product would work, but we basically built a website, and we started running ads on Facebook—a fake website, right, that didn't really exist. It was just to prototype the concept, see what our engagement was like, see what our cost per leads were, see how people interacted with it if they engaged with it. And we had really good data back.

(Scott Lynn at 00:36:55) Right? We had really low cost per leads. There was really high engagement. At that point, decided to go all in and start building the business. So we then had to go through all of these hurdles we had to solve in order for the business to keep going forward.

(Scott Lynn at 00:37:13) Right? We had to securitize our first painting with the SEC, which had never been done before. We had no idea how regulators were going to react to that. That was a huge risk. I mean, they could have shut it down.

(Scott Lynn at 00:37:23) It took us a year and a half to get the first painting through the SEC, and believe me, that was a stressful process. Right? We're building the company hoping that eventually we get cleared to sell securities in these vehicles. So this is a long-winded way of saying, I don't know in that situation how failing fast or this concept of failing or knowing when to fail would have ever worked, because I never knew if it would exactly be successful. We just kept pushing a little bit further every time hoping that eventually it works.

(Scott Lynn at 00:38:00) But a lot of these businesses, you kind of have to think of them as there's ten things that have to go right in order for it to be a big win. And you complete one, you check it off the box, and then you go to the next thing. Maybe it works, maybe it doesn't, but you've got to keep trying until you eventually know if it doesn't work. And I guess maybe the problem that some companies get into is they get to point number six out of ten, doesn't work, and they just keep trying on point number six over and over and over and over. But it's hard today to really start businesses that are successful.

(Scott Lynn at 00:38:37) Everything is so competitive. Even when you just think about the tool sets that have been developed to allow businesses to be built quickly, everything from task management apps to development apps to—there's just, it's easy to start a business today. Yeah.

(Scott Lynn at 00:39:00) Or before, there's so many services you can use. People spin businesses up all the time. But I don't know. It's always taken us at least a very, very shortest period, six months, maybe twelve months to figure out if something really has potential.

(Joel Beasley at 00:39:12) Yeah. On the topic of how there's so many tools out there just to spin up a business, just a really interesting use case of that logic is there's this company Firefly Aerospace that we actually got to talk to a little while ago, and they're like a SpaceX private space company building rockets and stuff. But their CEO said that their long-term vision is to become like an OEM marketplace of rocket parts. That any company can just kind of buy different parts to make a rocket that fits in a niche of the space industry.

(Scott Lynn at 00:39:51) That's super cool.

(Joel Beasley at 00:39:53) Make a space company.

(Scott Lynn at 00:39:54) Yeah. That's super cool. Yeah. So I think—

(Joel Beasley at 00:39:57) If it's happening there, it's happening everywhere.

(Scott Lynn at 00:39:59) You know, even Slack is such a great example. We used to, in a lot of the first companies I had, we used to run IRC servers. A lot of people don't even know what IRC is, but that was the first chat protocol on the internet. Right? And that was really the concept that Slack was founded on.

(Scott Lynn at 00:40:15) I think when they first started the app, it was actually running—the back end was running on IRC servers, and they just reskinned the front end. But, yeah, I mean, Slack now has totally changed businesses. Yeah. And how can—I mean, how can you—in today's world, how could you function on email only? You know, I mean—Right?

(Scott Lynn at 00:40:36) So just the ability to kind of use those tools and quickly start generating productivity is really different than it was fifteen or twenty years ago.

(Joel Beasley at 00:40:46) For sure. Well, before we wrap up, is there anything that we didn't get to cover today that we want to make sure we hit on? What do you want to shout out for Masterworks?

(Scott Lynn at 00:40:54) Yeah. So the Masterworks shout out. So, masterworks.io. Go there. Create an account.

(Scott Lynn at 00:41:00) Click request access.

(Joel Beasley at 00:41:02) Get your email from Scott.

(Scott Lynn at 00:41:04) Get your email from me, which you can respond to, and it will be me. So, yeah. Schedule a time to speak to our membership team. They'll run through how you're investing today, kind of what your risk tolerance is, enable your account, and you can start investing in art. And, I mean, fundamentally, our thesis is this is one of the most compelling asset classes.

(Scott Lynn at 00:41:26) Right? If you think of contemporary art, which has returned 14% a year for the past twenty-five years, it's non-correlated. It deserves a place in a portfolio whether it's 1% or whether it's 5% or whether it's 10%. You can debate the allocation. But we do think that really every type of investor should have some allocation to it.

(Joel Beasley at 00:41:48) Thank you so much for listening. And if you found this episode useful, please share it with a friend or colleague who you think would get value from it. And if you have topics that you'd like to hear discussed on the podcast, either add me on LinkedIn or send me an email, [email protected]. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.