Hi Friend,
Here is a wonderful interview of Mr. Vinod Khosla, the founder and the first CEO at Sun Microsystems, by Stanford Graduate School of Business, on the importance of honesty and having a belief system in life.
Q: I have a few questions here, focusing on three things. Your leadership and management journey, your thoughts of investing and entrepreneurship. Where does this perseverance and conviction come from ?
- Well so, I have a philosophy in life. Whatever I believe, I should make happen. It's that simple.
- And if a customer's making a mistake, [LAUGH] the customer isn't always right. Trust me. And if you want to do great products, don't listen to your customers, by the way. Lots of bad lessons in business school I used to give a talk in the 80s on why not to listen to your customers and may be somebody will ask me a question that story is in fact true.
- The point is if you actually believe something, you try your best to make it happen. It doesn't always happen, but it happens most of the time. But things do workout if you persist.
- Not always, but I like to say, failure does not matter, it's success that matters. And nobody remembers what you failed at. So, everybody remembers Sun. Does anybody know a company I started before Sun that McNealy and I started together? My point is people don't remember your failures.
- And I like to say my willingness to fail is what gives me the ability to succeed.
- I find most people are so afraid of failing, they don't try and do the things that would be important enough to do. Anything worth doing is hard.
- I am amazed at how few people have a belief system.What do they actually believe in?
- 90% of you will do what's expected of you as opposed to what you wanna do.
- Why am I here? Why would I even bother to take an hour of my valuable time? I have to have a purpose. My goal is very simple. If I can convert one of you to follow your belief and have the guts to follow your belief, I'll have, I'll think of the hour as well spent. Right?
- I don't speak, because somebody you know, will write nice things about it. I always sort of have a purpose, but I have a belief system.
- But my point again is, have a belief system. Follow that compass.
- Let me go back to this issue of Fortune 500 CEOs. I've talked to many over the years. If a New York Times writer writes an article, they want to change their strategy, they wanna respond. How silly is that, that some English major (a news reporter) who's never had a business job can determine the strategy of a Fortune 500 company? Why? Because they care about what's written, not what their belief system is.Do you know what Elon Musk would say to that writer? ‘Go get a real job’.
- Having a belief system, Knowing what's driving you to do what you do, Not you're fitting in to do career enhancement, Or, making it look good to somebody else, Whether it's to your friends, or to your boss, or to shareholders.
Q: But I want to ask you about this, you are known for being for the lack of a better word somewhat blunt. But your website says we prefer brutal honesty to hypocritical politeness. What are the tradeoffs in doing this ?
- Well there's lots of tradeoffs but. I'm again very clear. You know it started off earlier in my life.I was very successful, even before I started Sun, I started a company like Daisy that made me more money, which was only a million dollars back then, or little more than that than my dad had made in the, in his career cumulatively, so I was in a whole different place.
- And I said, the one thing I'll do is not do what others want me do, or be polite, which generally means dishonest. There's a great book by Sam Harris, about lying, I recommend everybody read Sam Harris' book on lying, and why we all lie too much and too often?
- We put this sort of slogan, I prefer brutal honesty to hypocritical politeness, on our website, because it's a real disservice to people.
- But generally you can be constructive and very honest. And I prefer that brutal honesty, because it serves a purpose.
- The receiver can do something about it, if it's a constructive criticism.
- If you get, hypocritical politeness, you might lose a lot. So, again, it's about having enough confidence to say the other person will eventually appreciate it.
- I was working on a company with another major rental firm, and I didn't believe their plan would work. They had $45, $50 million in their bank account, so everybody was comfortable, too comfortable, in my view. I talk to the founders why it wouldn't work, What my concerns were. The other VCs agreed with me in the board meeting, said all these polite things. You know, so 40 engineers wasted three or four years of their life because nobody was willing to tell them the honest truth about what they really thought.
- Right and I swore I would never let anybody waste their life. At least give them the best advice I had to give and tell them I may be wrong, but I'm not gonna say something I don't believe in, I just won’t. In, and that's extremely valuable to the other thing.
- But to be honest, look, there are situations you, it offends people, and I offend people often, but it helps them if they're really introspective. Right?
- Once I was in a position that I didn't need a job, nobody could fire me. I've actually never worked for anybody, so it's actually sort of nice. I felt it was a indulgence or a luxury I could enjoy.
- Some people, who get that financial freedom might buy a yacht. I bought myself the freedom of brutal honesty, and it's an indulgence. I get to do things others may not be in a position to do.
- There is a downside for others, but I think generally constructive honesty and constructive criticism than hypocritical politeness will serve other people well.
- That founder, by the way, in that company called me four years later after, after this company, this company got sold for $3 million four, three and a half, four years later. Sad story. And he called me a year after that. He said, I only wanna work for you on my next venture because I wish somebody had told me.
- About venture capital: It's a lot more popular now. It wasn't back then, so the risk of going the entrepreneurial route was much higher. If you went entrepreneurial and it didn't work out you couldn't get a job at GE, right? Much harder. Today, if you've done a startup, GE would love to have you, even if it failed. In fact, would prefer you over somebody who spent two years at GE. Not 100% true. But generally, it's the learning experience of a startup,whether it's successful or unsuccessful, is recognized as extremely valuable.
- Now, I'm not a big fan of planning careers. I'm much more about driving for the things you wanna do and go do them. You take any of the big successes. Google, Facebook, Twitter. You can't predict them.
- On Business Plans: We don't allow any IRR calculations in our firm. In making investments, we never calculate an IRR. Because calculating an IRR, in my view, is creating the illusion of knowing, which big companies are very good at. You tweak some assumption. I did enough business plans to know I can make the business plan do whatever I want on the spreadsheet. You know, reality is different. I don't even think you can plan startups, so business plans are largely irrelevant other than in surfacing the key issues the entrepreneur is thinking about.How thorough is their thinking? What's the quality of their thinking? That's the only thing I use a business plan for.
- Ours is different. It's about taking higher risks and higher upside. 90% chance of failure is not a problem. If there's a ten percent chance of 100 times your money, if it's the only thing that worked, then you're in pretty good shape.
Q: How do you get others to buy into your convictions ?
- Sometimes they do after the fact, sometimes they don’t.
- Capital preservation is important in other segments it's just boring to me, it's much more exciting to be on a roller coaster where the highs are high and lows are low. So risk taking is absolutely essential now.
- There's very little really interesting stuff you can do in big companies.
- It comes shockingly, it's shocking to people, but who invented, reinvented retail? It wasn't Wal-Mart. It was Amazon. Who reinvented media it wasn't NBC. It was YouTube. Who reinvented space it wasn't Lockheed. It was Space X.
- I was hard pressed to think of one thing that had come out of a large company in the last 20, 30 years. That was materially changing the landscape. And the reason's very simple, and this is all interesting things have, eh, happened at the edges of the system.They don't happen in the solid core. And, all that you have to do where things are fuzzy, unclear, uncertain.
- If there's a market forecast, it's not at the edge of the system.
- If some analyst has a report, it’s not worth going into that area, right?
- In the edges where things are uncertain is they're old evolutionists and there interesting changes in business or society happen.
- And unless you're there and learning fast from being there and not being too out of it to believe you know what's going to happen you're not gonna be in that learning edge of the wave, where new things are happening. And that's where failure happens often.
- You want failure to be small, and success to be very large, which is the characteristic of option value. That all happens at the edge.
- You can join Medtronic, or DE Medical, and do incremental things, or you can try to learn that the edges, where your probability of failure is much high. But the consequences of success are really consequential, and most people in their life, in their business, reduce risk to the point where the probability of success goes higher, but the consequences of success are inconsequential, as opposed to reducing the probability of success and increasing the consequences of success which is sort of my life to start with. Trust me, it's a lot more fun than spending 30 years at Goldman.
- On experts and their Predictions: Professor Tetlock when he was at Berkley did research on ‘expert opinion’. All the analysts you read all the Mackenzie reports, and by the way, Bain and PCG no different. And he followed all of their forecasts for 20 years, 28,000 individual forecasts from 250 experts. Where when the forecast was made, he classified what would be a success, what would be a failure, And the book is called "Expert Political Judgement." So, all these great studies, the 10-year studies McKenzie did for millions of dollars for AT&T on what would happen to the cell phone business, that's a fun story. Across 28,000 individual forecast in 84,000 possible scenarios. The average accuracy of the best experts, whether it was Henry Kissinger, Tom Friedman, McKenzie, your favourite economic forecaster, the average accuracy, was about the same, to use his words, ‘as dart throwing monkeys’.
- So if you want to run your life on these forecasts and create an illusion of knowing, Great, go do it.You will follow a path that others will reinforce because you can give them a data quest study or a Bain forecast.
- Or you can discover the edges where things are happening and changing, know that you don't know, and really change the world.
- Now, again bringing back to leadership, it's about having a point of view. It's about having an internal compass. This is a great point in your life, to actually decide which one of those do you have a belief system? Or you gonna do what others tell you to do?
- Whether it's written up in the New York Times, which somebody wrote up who doesn't understand the context, Whether it's the McKenzie report or a G-Forecast, or a Goldman analyst, or you gonna do what you believe in? And unfortunately, very few of you will do that. I hope I can work some of you to believing in yourself.
- And the good news is, I actually believe five percent of the people is all that's needed to be even remotely innovative to change society.
- I'd like to say you should try and be one of those people, and none of those people will follow any analyst's forecast. They will have an internal compass, they'll have self-confidence in a belief system, and they'll make change happen.
- I'm very passionate about this, cuz frankly, it only takes a few people to change the direction of any industry or social trend.
- my email address is vk@coastalventures.com if we don't get to your question, please feel free to send it. And I'll spend as much time answering it as, as much time as you spent thoughtfully asking the question. That, that's my rule on email. I try and judge how much, how thoughtful was somebody in sending the email.
Q: Can you talk about what exactly is your core belief system, and how do you foster that in your team and your company ?
- You know, so I decided very early I wanted to work on interesting things. Is not well known but I started the first program, programming class at any IIT. In 1971, we formed a hobby club of four people to learn programming, and that was the first instance I know of a programming class at any IIT.
- A few years later, I got interested in biomedical engineering, and I was 16 when I started the programming club at IIT Delhi, a few years later we started the biomedical engineering program, which was, we just convinced one professor to work with us, and there was three or four of us, and so I had this habit of saying, what do I want to do and how to make it happen.
- But the core belief system I have is, I wanna work on interesting things. I don't wanna get bored. And it applies to what I'm doing today.
- What I've learned since is, it's nice to do that, but it's even more rewarding to do interesting things that have a great impact. And so I measure impact a lot.
- And, I've told my LPs if you get a lower rate of return but higher impact, we'll probably pick that, because I'm much more interested in that than feeding some pension fund a slightly higher rate of return as long as I cross a bar. It's very clear to me. So, it was cool stuff and interesting stuff, early I didn't have perspective when I was in 20s.
- And over time I said, it's much more fun to work on things that make a difference. And so I only do that.
- I also never cared what people thought, so I had that luxury very early on in my life. Mostly through my attitude, which was much more belligerent when I was young.
- But then also, anytime you make a difference, you make money and I think when you make money as a consequence of trying to do really interesting companies, you make much more of an impact then if you do it as a transaction, buy/sell kind of thing.
- In fact, if I get a plan, business plan that talks about exit in the first couple of pages, I almost never read the rest of it.
Q: I have a pointed question about you. I'm very impressed by the confidence you exhibit and obviously you have reasons to be that confident. Some people call it arrogance.My question is did you, when you were a kid, did you get support from your family that made you as confident as you are right now ?
- You know, it's hard to remember. I always did my thing. I always did things most kids didn't do. And my parents always sort of, I guess support is probably the right word. Indian families are very different, you never did things your parents really oppose, but, I tended to do some of that but I always had great dialog with my parents, and they actually sort of, accepted me very early doing, going out of the bounds.
- For those of you interested in my attitude and those of you who may have kids, I was asked to give a talk at Harker School and I did a presentation.
- My first slide was something like why you should only color outside the lines.
- My second slide was about why you should disregard your teachers.
- My third one was why you should disobey parents.
- Eh, and, and yeah, it was sort of funny and the kids loved it, but I'm dead serious about it.
- I actually think, inculcating an attitude of exploration,not confirmation to a bound set, a bound set by others, is what creates this internal compass and belief system and confidence in yourself.
- Again I say, 90% of you will do what's expected.
- You know, after this you'll be motivated and then go back and say, oh, that Goldman job, it pays more. Okay.
Q: In your opinion, are we in the middle of a bubble?And if so, when do you foresee it bursting ?
- I don't, I know that I don't know the answer. I also know anybody who tells you they know the answer is probably stupid.
Q: So I think your brand of swashbuckling is particularly effective if you show some vulnerability. So I'm gonna be your buddy and allow you to tell us a story about a time when you got crushed by somebody's brutal honesty and what you did with that ?
- look it would take an hour to talk about all my mistakes. let me put it this way. What I would say is I'm never embarrassed about my failures. And so if you search in the web for my failures, you'll find lots of them and you'll find me talking about them. And it's important because, given my philosophy, where I screw up doesn't matter, because it's a long list. In fact, it's a longer list than my successes. But like I started with, nobody remembers the data dump here, everybody remembers Sun. Right?
- And Cisco was born as an application on Sun, and we didn't see it. And I said to myself, duh, how stupid was I not to see it when it was happening? Even when I saw the application! A router was an application on a sun machine, we missed the largest opportunity Sun put out. I can find 100 such examples, the point is, try and fail but don't fail to try.
- My, a couple of other favorite quotes along those lines, since we're coming to the end of our time. Robert F. Kennedy said, ‘only those who fail greatly can succeed greatly’. The classic example of that is Elon Musk. He said forget this bullshit about supplying batteries to GM. They're just too slow to make change happen. GM spent way more money than Tesla did.
- Space, NASA and Lockheed spent way more money than SpaceX did.
- I can go on and on, every major change.
- So failure, try and fail, but don't fail to try.
- I'm just not embarrassed about my stupid mistakes. I mean, I think that's the difference.
- When did I get crushed? By brutal honesty. I mean, I've offended plenty of people. And that, so I won't go into the details because the public company, two public companies involved but, I was on a, on a panel with the CEO of this public company and I basically told them how stupid they were and then there was payback in a indirect way and that really hurt this other company and it you know, literally killed, almost killed the company. So that's an example where brutal honesty really hurt me.
- There are plenty of people in the VC business that don't like me because I tell them they, they, they're sort of worthless. Eh, eh, I do! But again it's an indulgence on my part. The really good people I don't say that to. If I don't know somebody enough I won't say to that to them. But if I do know for sure I do make sure I tell them.But it's part of life.
Q: What matters most to you and why ?
- I just find it's cool to disrupt things for the better. And so when I say impact, I sort of feel like I'm being a troll on various industries. It's a luxury I've earned to, because I don't need to pay my mortgage and so, I like taking on new things.
- And let me end on the note that I actually like working on things that my four kids would be proud of me working on, right.
- And there's this question that all of you will face of work, life balance so let me end on that note. Working on cool things excites me, keeps me motivated, I like to say, you grow old when you retire, you don't retire when you grow old.
- And as long as you are stimulated and excited and whatever your passion is, and it can be what I do
- So I like hard challenges, I like difficult things, I like working against the odds and that brings out my competitive spirit and now I happen to constrain it to areas where I think I can have a positive impact.
- Through all of the 90s when my kids were young, I had one rule. This 15 minute thing, managing my time came from the following.
- I realized it was easy for all of us to say things and then, and mean them and not stay true to them.
- The most important? Family.
- Everybody says the right words, they don't live by them. So, what I decided I would do is get a monthly report of every category of time I spent time on. It could be working with entrepreneurs, evaluating new companies, being polite talking to journalists, being polite because somebody said, here my son wants to talk, have a conversation. I classified my time into 20 categories, one of the most critical lines from that was the number of times I had dinner with my kids at home.
- I set an impossible goal of 25 times, a month and it took me a year or so, but eventually I met it.
- But more importantly, every month I had to report on whether I did or didn’t.
- I do believe work, life balance is possible. You just have to be extremely disciplined about it.
- I no longer went to the pub, right, or the. I no longer did baseball games with friends, I only did it with my kids. I decided what my priorities were explicitly and then measured it to meet the requirements.
- I highly recommend you come up with your own priorities and measure them.
Source:
Thank you.
