Venture capitalist Vinod Khosla is a fount of accumulated knowledge and wisdom about how startups work, not least because, as he put it today, he has failed more than anyone else in Silicon Valley.
Khosla spoke in what was a sort of mini-master class in entrepreneurship at Startup Grind, a networking event for founders and startup executives in Redwood City. Here’s what he had to say in conversation with Startup Grind founder Derek Andersen and the audience, edited and at times somewhat paraphrased because Khosla seemed especially voluble today.
He first addressed a common perception that the hard-driving VC often pushes out founders: “My job is to push founders to greatness,” he said. “I’ve never voted in 30 years on boards against a founder. Except when we have to hire or fire a CEO. It’s the founder’s job to execute and if they don’t believe in a decision, they won’t execute.”
Q: What’s your role on a company’s board?
A: In private companies, a board’s job should be to challenge a founder, think differently. But they shouldn’t be pretending they can make decisions. We try very hard to surround the founder with people who can do things the founder can’t.
Q: You talk a lot about failure. Why is it so inconsequential in your mind?
A: There’s smart failure and there’s dumb failure. Smart failure is if you lose, you don’t lose that much but if you win, you win big. You never want to fail in a way that kills your company. It should take 10% to 20% of your burn, not 80%. Failure is a way to learn.
Failure is not a good thing. But being afraid to fail means you don’t take risks. To do something exceptional, that means doing something out of the ordinary, and that means risk. Some VCs try to reduce risk so much that if you succeed, it’s inconsequential. Without being willing to fail, you’re not going to succeed in a big way.
My willingness to fail is partly responsible for my success. That, plus a lot of luck.
Q: How does a founder balance that messaging?
A: Startups are not about messaging. Be obstinate about your vision, but be flexible about your tactics. Think big, but act small. How you get to your vision is a series of experiments.
People who raise too much money get too much confidence in their own plan. You need to test every assumption you plan. A business plan is bug-testing every assumption.
You want to shoot for Mt. Everest, but nobody ever got to Mt. Everest without getting to base camp first. Get to break-even at base camp. But set up base camp so you can scope out the path to Everest.
Q: You’ve made several investments in food tech and agriculture. Are you the domain expert in food? Have you ever felt the pressure to gain 50 to 100 pounds and eat a lot to become one?
A: Many times experts fail to predict things because they’re experts in the past of their field rather than the future. Expertise sometimes mean bias. Some biases are good and some are bad. Jack Dorsey said only four of the first 200 people in Square were in payments. Whenever you hire a management type CEO, you lose the instincts.
In food, we’ve done some things that are really radical that no one in the food business would do. I’m an inch deep and a mile wide. I’ve screwed up more often than anyone in Silicon Valley–that’s what I can bring.
How do you engineer the gene pool of a company? Don’t believe the idea that you should just hire good people. No one tries to hire bad people.
There’s a huge difference between a zero-million-dollar startup and a zero billion-dollar startup. There’s no difference in the business plan, just in the attitude. (Yes, Khosla tends to wander a bit, but it’s always an informative stroll.)
Q: You spend more time helping companies hire the right people than anything else. How do you close the deal with them?
A: When I was starting Sun, I was in my 20s, it was really painful to persuade people to join me. I wasn’t 100% sure it would be successful. You spend a lot of time figuring out what’s important to that person. Some care about being part of the team, others about a big idea. Then you sell them based on that. The most number of hours in my week goes to recruiting people for our companies. But it’s so key. I interviewed 40 engineers for Terra [TerraPower?]
Q: If you fail and your startup dies, how do you stay motivated and get back on the horse?
A: The honest truth is entrepreneurship is hard. You should be proud you’re willing to take a risk. This kind of optimism is key. But you have to be a little schizophrenic–Andy Grove says, “Only the paranoid survive.” If you failed, you may have done all the right things. Of course, you may have done all the wrong things. So you need to analyze what you might do different.
Q: What has been your biggest failure?
A: I’ve failed so many times, they all blur together. We had a company a long time ago, Dynabook. We wanted to do a laptop earlier than anyone else. We made the mistake of hiring a CEO who came from IBM. He had all the right credentials but none of the right instincts. We made lots of mistakes doing things the way a big company would.
Right after that, we did Go. That was a different kind of learning. Think today’s iPad in the late ‘80s. It was pen-based. The company was very clever in its marketing slogans: ”The pen is the point.” We spent a lot of money before realizing the pen wasn’t the point. The marketing was misleading us. Mobility was the point. Then because of a great marketeer, we got lost in our marketing. People wanted mobile email. If we had done just that, like Blackberry did years later, we would have done great.
Q: How do you know the difference between following your gut and indigestion?
A: Follow your gut but surround yourself with people who will challenge you. Gut instinct is important especially about new things. If Dataquest [wow, haven't heard that market research company in a couple of decades] has a report, you’re not doing anything new.
You have to find ways to test as much of your gut instinct as you can, in small pieces so you can validate it. This is why business plans never end up where they start. One of the mistakes board makes is once a startup makes a business plan, the board tries to make them stick to it.
Q: Will engineering workforce become more contract-based?
A: No, because cumulative knowledge in a company is important. Rare talent is getting very competitive.
Q: What is your advice to female entrepreneurs in trying to raise capital?
A: [Many pauses here, no doubt making sure he keeps his foot out of his mouth, something many men in Silicon Valley lately seem to have trouble doing.] We’ve backed a lot of female entrepreneurs. I don’t have a good view of what other VCs do. Female entrepreneurs bring something that I think is missing in many testosterone-filled startups: more empathy. You want somebody who’s really empathetic to customer requirements and employees too.
My feeling at least in our shop is people don’t prefer male or female entrepreneurs. There’s a look at the plan and the person. What I find is a shame is how many girls are discouraged from going into technical careers.
Q: What’s your opinion on Bitcoin?
A: Like any early system, it has problems. We invested in Blockstream to fix some of those problems. There are going to be opportunities. We’re not placing $50 million bets but a lot of smaller bets. The blockchain is way more important than Bitcoin. Because of some of the bad uses of Bitcoin, it will cause regulatory ire.
Q: Other areas to invest?
A: In 20 years medicine will change forever. We’ve made maybe 15 investments in digital health. Machine learning and AI, we’ve made a bunch of investments there. There’s an infinite number of applications–diagnose atrial fibrillation, analyze legal documents, etc. There will be some social consequences of machine learning that concern me a lot, which I covered recently in a blog post.
Q: What were you like as a child?
A: I don’t remember. My mom said great things. Everybody else thought I was a maniac. I believe my mom.
I always decided what I wanted to do, and then go out and do it, and what got in my way wouldn’t matter. So I got into lots of arguments with teachers. Challenging conventional wisdom is very important. Persistence is really important. Selling is a very important characteristic of engineers.
Khosla’s closing advice: “Dream the dreams. Be foolish enough to go out and make them happen.”
Khosla spoke in what was a sort of mini-master class in entrepreneurship at Startup Grind , a networking event for founders and startup executives in Redwood City. Here’s what he had to say in conversation with Startup Grind founder Derek Andersen […]