Vinod Khosla, MBA '80: Failure does not matter. Success matters.

Speaker 0:00 [upbeat music] [audience applauds]

Vinod Khosla 0:06 Hello, everybody.

Speaker 0:07 [audience applauds]

Speaker 0:11 Vinod, thank you for being here today. Welcome back to the GSB.

Vinod Khosla 0:14 Oh, it's always fun to be here, and it's a lot nicer than when I was here. [laughs]

Speaker 0:18 [laughs]

Speaker 0:19 Yes, I've been hearing that quite a bit today, given the previous stars are here. I, I'm thrilled to be having this conversation. Um, I was told that you schedule your time in 15-minute slots, so we are taking up four of those slots right now.

Speaker 0:33 [laughs]

Speaker 0:33 Uh, so I'll get right to it. Um, I have a few questions here focusing on three things: your leadership and management journey, your thoughts on investing in entrepreneurship, and then a few questions on your personal life and legacy. Um, after that, we'll take a few questions from audience and from Twitter. Um, as Dean Saloner mentioned, you were the founder and the first CEO at Sun Microsystems. About a year after you had started, you found out that Sun Microsystems was gonna be shut out from a key sale. When you heard this, you got on a flight, got to the customer's lobby, and made phone calls refusing to leave until you met with the team. Where does this perseverance and conviction come from?

Vinod Khosla 1:15 Well, um, 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 ...

Speaker 1:28 [laughs]

Vinod Khosla 1:30 The customer isn't always right, trust me.

Speaker 1:33 [laughs]

Vinod Khosla 1:34 And if you wanna do great products, don't listen to your customers, by the way. Lots of bad lessons in business school.

Speaker 1:40 [laughs]

Vinod Khosla 1:42 Um, I, I used to give a talk in the '80s on why not to listen to your customers, uh, and maybe somebody will ask me a question. Um, that story is in fact true. There was a signed contract with a competitor. I stayed in the lobby, uh, all day. At 6:00 in the evening, and I'd taken a red-eye out a- and I parked in the lobby, I met with the CEO of the company, mostly because he wanted me to go away.

Speaker 2:09 [laughs]

Speaker 2:10 [laughs]

Vinod Khosla 2:10 Uh, by 9:00 he had, uh, I'd convinced him to meet me in Chicago with his team the next day because he didn't s- wanna be seen negotiating with us. Um, the following morning, the day after at 5:00 AM, we signed a handwritten contract because I wouldn't let him leave.

Speaker 2:26 Oh.

Speaker 2:26 [laughs]

Vinod Khosla 2:27 This was the CEO of a big East Coast company, Computer Vision. So we signed a handwritten contract and life was good. Um, 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. Most the business school entry story is also true. I actually learnt that somebody had dropped out, that's why I showed up. Um, and one of the nice

Vinod Khosla 2:57 ladies in the business school office put me in her living room to her husband's chagrin, and she was real nice to me. Um, but things do work out if you persist. Not always, but I like to say failure does not matter.

Speaker 3:14 Mm-hmm.

Vinod Khosla 3:15 It's success that matters, and nobody remembers, um, what you failed at. So everybody remembers Sun. Does anybody know a company I started before Sun that McNealy and I started together? Any hands?

Speaker 3:33 Well, I do, but I've been researching you for a while now. [laughs]

Vinod Khosla 3:35 Ah.

Speaker 3:35 [laughs]

Vinod Khosla 3:36 What do you think the company is?

Speaker 3:38 Was it Data Dump, or was it-

Vinod Khosla 3:39 Yes. There was a company called Data Dump we started and got funded three months before Sun. Didn't work out. We started both roughly together, but my point is, people don't remember your failures.

Speaker 3:54 Yeah.

Vinod Khosla 3:54 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. Uh, and so ...

Speaker 4:14 And you've spoken in the past about the importance of failure, or the lack of it. You started your first company at age 20 in Delhi, which did not work out as expected.

Vinod Khosla 4:23 Well, I didn't actually get started.

Speaker 4:25 Huh.

Vinod Khosla 4:26 They told me it'd be seven years to get a phone line.

Speaker 4:29 How did you react to that? [laughs]

Speaker 4:31 [laughs]

Vinod Khosla 4:31 Honest to goodness. You know, I was 19 or 20, and they told me it would be a seven-year waiting list to get a landline. I, I, I sort of picked up and ca- went to Carnegie Mellon. [laughs]

Speaker 4:47 [laughs]

Speaker 4:48 How was that like, the move to the US?

Vinod Khosla 4:51 You know, look, it, it was easy. I wanted to be in Silicon Valley. I knew I'd get here. I had no way to pay for it, so I had to figure out how to get somebody to pay for it. In the end, the biomedical engineering department at CMU agreed to pay for it, so I went there, and I was very interested in biomedical engineering. So I did that, and then applied immediately to Stanford, and you've heard the rest of the story. They turned me down a couple of times, but ...

Speaker 5:21 Geez.

Vinod Khosla 5:21 You know, the funny thing is, with enough persistence, most things that seem impossible become possible. Uh, I'm always amazed at how often you can turn things around, and people take no for an answer too easily. Um, you know, it's whether you're trying to achieve a goal like get into business school or m- my, my green card was the same way. I left the job that had sponsored me, but I still got my green card even though no lawyer would take me. I became my own lawyer and got my green card without working for, while I was at business school.

Speaker 6:02 Ooh.

Vinod Khosla 6:04 And I did it perfectly legally. I, my strategy there was if I couldn't convince Immigration, I'd confuse them, and I did.

Speaker 6:11 [laughs]

Speaker 6:11 [laughs]

Vinod Khosla 6:11 And they gave me my green card.

Speaker 6:16 Well, Vinod, I just wanna ask you, what are some was, some, some of the perhaps the early influences that made you this way, this high-perseverance, high-conviction person?

Vinod Khosla 6:26 Well, uh, I, I was sort of always this way. I didn't grow up in this environment. Nobody around... My dad was in the Indian Army since he was 16, so he joined the ranks of the Indian Army and when he was 16, got shipped off to Egypt to fight for the British. And so I grew up in a very different environment, but I always had this view that if I determined something was right, I was gonna make it happen. And this comes to, since one of the focuses of this lecture is leadership, I am amazed at how few people have a belief system. What do they actually believe in? Um, I, a- and, and, yeah, it's okay to offend you guys. Um.

Speaker 7:13 [laughs]

Vinod Khosla 7:14 90% of you will do what's expected of you as opposed to what you wanna do. And, you know, I even, when I come to an event like this, say, "Why am I here? Why would I even bother to take an hour of my valuable time?"

Speaker 7:28 [laughs]

Vinod Khosla 7:31 No, it's true. I, I, I have to have a purpose. My goal's very simple. If I can convert one of you, there's probably 400, 500 people here, 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? So I always say, "What am I trying to do and why?" I don't speak because somebody i-i, you know, will write nice things about it. Um, I, I always sort of have a purpose. But I have a belief system, and most people, even successful companies, and I have a big beef with Fortune 500 CEOs I can talk about, there's very little leadership there, uh, don't have an internal compass of what they believe in. It's, "What do others expect?" You know, when I graduated, I went into entrepreneurship. Nobody went into entrepreneurship out of the business school, and people said, "Why wouldn't you work for Goldman or McKinsey?" I said, "Why would you?"

Speaker 8:36 [laughs]

Vinod Khosla 8:38 Like, I couldn't fathom why you would wanna do that job, [laughs] right? Uh, I still can't, by the way.

Speaker 8:46 [laughs]

Speaker 8:47 [laughs]

Vinod Khosla 8:48 Uh, uh, for those of you going to those places, and I'm sure there's plenty, I'm probably not the right person to talk to you.

Speaker 8:56 [laughs]

Vinod Khosla 8:57 I frankly don't even care to talk to you.

Speaker 8:59 [laughs]

Vinod Khosla 8:59 All of you others...

Speaker 9:00 [laughs]

Speaker 9:02 [laughs]

Vinod Khosla 9:04 I, I, I think there's something wrong with anybody who fundamentally wants to go work for one of the consultants or the investment banks today, and there's pl-

Speaker 9:11 [laughs]

Speaker 9:12 [laughs]

Vinod Khosla 9:12 The, there's... [laughs] They don't understand how the world is going to work in the future. But my point again is, have a belief system, follow that compass. And I'm overstating it a bit, so there may be some hope for those of you going there.

Speaker 9:27 [laughs]

Vinod Khosla 9:27 Uh, but i- it's a l- only a little bit of an exaggeration. Uh, let me go back to this issue of Fortune 500 CEOs.

Speaker 9:37 Sure.

Vinod Khosla 9:37 I've talked to many over the years. If a New York Times writer writes an article, they wanna change their strategy, they wanna respond. How silly is that that some English major 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."

Speaker 10:06 [laughs]

Vinod Khosla 10:07 All right? Uh, what Jeff Bezos would say? That's leadership, having a belief system, knowing what's driving you to do what you do, not you 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. And frankly, you look at all the companies that are languishing in the Valley, the older companies, they generally don't have a belief system. They're generally trying to meet some quarterly target without saying, "Here's how we will be different, and here's how we'll do it." Apple did languish for 10, 15 years, and then Steve Jobs came in with a point of view and created the most valuable company in the world. He did irrational things. If you go back to January of 2007, January 1, everybody was saying, "Nobody wants a phone without a keyboard. Nobody wants a phone that costs $699." I can go on with the litany. Those were all English majors writing articles. I have this beef against English majors.

Speaker 11:19 [laughs]

Speaker 11:20 [laughs]

Vinod Khosla 11:20 Um, not all English majors are bad, but the majority of them at Stanford are undirected and don't have a goal or a purpose.

Speaker 11:28 [laughs]

Vinod Khosla 11:29 Uh, sorry.

Speaker 11:30 [laughs]

Vinod Khosla 11:32 Uh, a- and that's not to say among them there isn't 20% that are really good. They just didn't get the right guidance and ended up in the wrong place.

Speaker 11:41 [laughs]

Vinod Khosla 11:42 Uh, I like purposeful education. Anyway, sorry, back to you.

Speaker 11:47 No, absolutely.

Speaker 11:48 [laughs]

Speaker 11:48 This is, this actually is an interesting-

Vinod Khosla 11:50 I make up better questions than usually...

Speaker 11:52 [laughs]

Speaker 11:53 Well, that's a challenge for you guys, #GSBvftt. Um, but I wanna ask you about this. You are known for being, for the lack of a better word, somewhat blunt.

Speaker 12:02 [laughs]

Vinod Khosla 12:03 [laughs]

Speaker 12:04 Well, your website says, "We prefer brutal honesty to hypocritical politeness." What are the trade-offs in doing this?

Vinod Khosla 12:12 Well, there's lots of trade-offs, but, um, I'm, 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 a little more than that, uh, than my dad had made in the, in his career cumulatively.

Speaker 12:36 Hmm.

Vinod Khosla 12:36 So I was in a whole different place. And I said, "The one thing I'll do is not do what others want me to do or be polite," which generally means dishonest. Um, there's a great book by Sam Harris who's a professor over on the other side about lying. I recommend everybody read Sam Harris's book on lying and why we all lie too much and too often. Um, we put this sort of slogan, "I prefer brutal honesty to hypocritical politeness," on our website because it's a real disservice to people. Uh, you don't have to be offensive to be honest. Um, when I don't like somebody I, I can get offensive to, 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. Uh, if you get po- hypocritical politeness, you might lose a lot. So again, it's about having enough confidence to say the other person will eventually appreciate it, and that slo- logo, slogan came after I was working on a company with another major venture firm, and I didn't believe their plan would work. They had $45, $50 million in the bank account, so everybody was comfortable, too comfortable in my view. I talked to the founders why it wouldn't work, what my concerns were. The other VCs agreed with me in the board meetings, 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.

Speaker 14:33 Hmm.

Vinod Khosla 14:35 I, 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. Um, and, and that's extremely valuable to the other thing. But to be honest, look, there are situations you ke- it offends people, and I offend people often. Um, yeah, but it helps them if they're really introspective.

Speaker 15:06 Hmm.

Vinod Khosla 15:07 Right? I just had a candidate, uh, from Harvard Business School come in and interview for a job and I, half an hour into the meeting I said, "You know, you're not a match for us. Here's what I would do." And I spent the next half hour, I said, I literally said to her, "If I'm gonna waste the next half hour of my life talking to you, I'm gonna give you my best advice on what to do about your career."

Speaker 15:31 Hmm.

Vinod Khosla 15:32 Which I did. She didn't love it. She sent me a nice note a week later. Um, but it's very valuable. But the real fact, the honest truth about why I like that is once I was in a position I didn't need a job, uh, nobody could fire me. I've actually never worked for anybody, so it's actually sort of nice. Um, I felt it was a indulgence or a luxury I could enjoy. Some people, if they make, get that financial freedom, might buy a yacht. I bought myself the freedom of brutal honesty, and it's an indulgence.

Speaker 16:14 Hmm.

Vinod Khosla 16:14 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.

Speaker 16:28 Yeah.

Vinod Khosla 16:29 That founder, by the way, in that company called me four years later, um, after, after this company... This company got sold for $3 million for three and a half, four years later. Um, sad story. And he called me a year after that and said, "I only wanna work with you on my next venture, uh, because I wish somebody had told me."

Speaker 16:52 Hmm. You mentioned, you talked briefly about venture capital as it stands now earlier. I just want to come back to that. Specifically, how does it compare to 1982 when you were starting Sun Microsystems, and what are the major differences you see?

Vinod Khosla 17:09 Um, it's a lot more popular now. It's a lot more accepted. Uh, it's a lot more accepted to do startups. So for those of you who are so inclined, it's much easier to take that route. Uh, 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, um, you couldn't get a job at GE.

Speaker 17:36 Hmm.

Vinod Khosla 17:36 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.

Speaker 17:47 Hmm.

Vinod Khosla 17:49 Uh, not 100% true, but generally it's the learning experience of a startup, whether it's successful or unsuccessful, is recognized as extremely valuable, and the cultural training of that is something everybody's striving for. I'm amazed at the people who come through Silicon Valley. Um, it feels like a tour stop, like Fisherman's Wharf used to be. Um- Every Fortune 500 CEO coming here, holding board meetings here because they wanna learn the culture. Uh, uh, and, and I think that becomes a real career enhancement for those of you who do that. Now, I'm not big fan of planning careers. I'm much more about driving for the things you wanna do and go do 'em.

Speaker 18:37 And, and that's about entrepreneurship. What about venture capital? I mean, for instance, you very famously said in a TechCrunch interview, "95% venture capital is at no value, and 70% at negative value."

Vinod Khosla 18:51 All my venture capital friends love that statement. [laughs]

Speaker 18:54 Yes. [laughs]

Vinod Khosla 18:55 But I, I, I tell them that, you know, there was a major firm I called, uh, somebody there and said, "This guy's destroying this company." Right?

Speaker 19:04 Wow.

Vinod Khosla 19:04 It happens all the time. One, it... Look, uh, venture capital's become a big business.

Speaker 19:11 Mm.

Vinod Khosla 19:12 Uh, it didn't used to be back then. It was a specialty art form. There was a few firms, and most of them, Sequoia was started with Don Valentine. If you know Don, he was an operator. Kleiner was started by Tom Perkins and Eugene Kleiner. Tom ran a division of HP, and before that, he was a technologist. Um, these guys, and, and I'm not one for looking back and being romantic about this, but this issue is important. These guys earned the right to advise an entrepreneur. That means they'd gone through the battles, where they had the experience. When a unique situation came up, an entrepre- entrepreneur wanted advice, they actually had been through the firing line to viscerally understand how to give them advice. Um, most VCs have not earned the right to advise an entrepreneur, yet they feel free to in their ignorance. Um, and I believe you should have gone through a startup or at least some significant experiences, and there are good exceptions to this rule, to really advise entrepreneurs on how to build a company. And most VCs haven't done that, so they give stupid advice. You know, if you got out of business school and joined a VC firm and grew up and eventually became a partner, you haven't learned what it's like to be in a startup. So in our firm, we have a rule. You can join. You join for three to four years, then you have to leave, actually work in a startup before you come back and actually can get... I'll give you the responsibility to advise entrepreneurs.

Speaker 21:05 Mm.

Vinod Khosla 21:06 People get frustrated because their peers in other venture firms are sitting on boards and advising entrepreneurs, but, you know, that's exercising authority as opposed to exercising influence because you have credibility with the entrepreneur. Most of the time, I don't go on boards. Um, I just advise entrepreneurs, and frankly, being on a board is irrelevant.

Speaker 21:31 On that topic, um, you have a very unique strategy among VCs. You've said, "I'm only interested in technologies that have a 90% chance of failure, but if they do succeed, would change the infrastructure of society in a radical way." How did you come to adopt this particular strategy?

Vinod Khosla 21:46 Well, so that's not exactly accurate because we don't mind low-risk technologies.

Speaker 21:51 Sure.

Vinod Khosla 21:51 We invest in that too. But what I want to say is venture capital, if you think about it, isn't, is not an IRR business. Um, you, you, you take any of the big successes, Google, Facebook, Twitter, you can't predict them. You know, camera like GoPro, can you predict the, the market cap? You can't. And you can do spreadsheets. So we don't allow any IRR calculations in our firm. Nobody does them. Nobody looks at them. 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. Uh, I did enough business plans to know I can make the business plan do whatever I want, or 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. Um, then what are you doing? You're really doing option value investing, if you want a financial term. If you lose, you lose one times your money. If you win, you win 10 times your money. Your downside is limited to your investment. So whenever we make an investment, I assume we lost it, and then there's only upside.

Speaker 23:27 Mm. [laughs]

Vinod Khosla 23:29 Right? As soon as you write it off in your mind, there's only upside. So that's how I view the world, and then you try and take the higher risk. And there's VCs who won't invest with us because they feel like we, we take too much risk, which is fine. There's room for every style of VC firm. Um, ours is different. It's about taking higher risks and higher upside.

Speaker 23:55 Mm.

Vinod Khosla 23:56 90% chance of failure is not a problem if there's a 10% chance of 100 times your money.

Speaker 24:03 Mm.

Vinod Khosla 24:04 If it's the only thing that worked, then you're in pretty good shape. And, and, and that's not the only good strategy. Private equity does very well running spreadsheets and that. I just have no interest in spreadsheets, so... And we're not good at it. So we know what we do. Um, what's bad is when people who come from that world want to do this kind of investing.

Speaker 24:31 Yeah.

Vinod Khosla 24:31 There can't be a mismatch of your personality with the investing type.

Speaker 24:36 Mm-hmm. Sure.

Vinod Khosla 24:36 Uh, but all those are good scenarios, and some of them are even better scenarios, uh, for IRR than what we do. Um-

Speaker 24:46 Sorry. You, you mentioned in your, um, you mentioned right now about getting other VCs to invest with you. Um, and throughout your investing career, you've had a strong streak of going against conventional wisdom, uh, NextGen, Juniper. Um, I'm curious, how do you get others to buy into your convictions?

Vinod Khosla 25:04 Um, sometimes they do after the fact, sometimes they don't. Sometimes they actually don't know any better, so they're confused, which is good.

Speaker 25:12 [laughs]

Vinod Khosla 25:14 Uh, uh, all those happen. Look, there's lots of really good VCs around.

Speaker 25:18 [laughs]

Vinod Khosla 25:18 Right? Uh, but there's orders of magnitude more bad VCs around. Um, it's... So there's probably half a dozen people I respect in the VC business, and probably the vast majority I don't know personally, so I won't judge them. But of all the people I know in the VC business, 90% really add no value, and I'm, truly believe 70% of them reduce the potential of a company.

Speaker 25:51 I could, I could keep asking you questions on investing, but I really wanna-

Vinod Khosla 25:54 But, but here's the thing, right?

Speaker 25:56 Sure. Sure.

Vinod Khosla 25:56 90% chance of failure.

Speaker 25:58 Yeah.

Vinod Khosla 25:59 You have to have the courage to fail then, because most likely you're going to, to get that option at a very large play. Well, uh, and, and that's a particular segment of the venture capital business or the investing business. It's not every segment. Capital preservation is important in other segments, it's just boring to me. It's much more exciting to be on a rollercoaster where the highs are high and the lows are low. So risk-taking is absolutely essential. Now, as career advice to all of you, most... You can make money and good status and all that in regular big companies. There's very little really interesting stuff you can do in big companies. It comes shockingly s- it's shocking to people, but who invent- reinvented retail? It wasn't Walmart. It was Amazon. Who reinvented media? It wasn't NBC, it was YouTube. Who reinvented space? It wasn't Lockheed, it was SpaceX. 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, uh, 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 ex- going into that area.

Speaker 27:57 Mm.

Vinod Khosla 27:57 Right? Uh, I have a whole thing about analysts, we can get there. Uh-

Speaker 28:02 [laughs] Let's actually talk about it.

Vinod Khosla 28:05 Okay.

Speaker 28:05 Yeah.

Vinod Khosla 28:05 So ask me after I finish this-

Speaker 28:07 Sure. [laughs]

Vinod Khosla 28:08 ... uh, talk. In the edges where things are uncertain is where all the evolution is, uh, and where interesting changes in business or society happen. And unless you're there, and learning fast from being there and not being too arrogant 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 as career advice, I say, 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. You lose your option price, but you r- get option value if it's successful.

Speaker 28:59 Mm.

Vinod Khosla 28:59 That all happens at the edge. In automotive, I, as soon as the, the, there was a CEO of, uh, in fact, I've had three CEOs from the l- 10 largest auto companies come by in the last six months, and I said, "I wouldn't worry about building a better car." Almost certainly 10 years from now, a Volkswagen or a Toyota will be a financing entity, not a car-making entity. There will not be the notion of marketing to consumers. The auto industry as we know it, I think will disappear. Disappear in the sense of IBM mainframes are still around.

Speaker 29:39 Mm.

Vinod Khosla 29:39 They're still a business. They're s- relatively static. They're filling an old need. But almost certainly the number of cars produced 10 years from now will be less than half of what is produced today for sale to consumers.

Speaker 29:52 Mm.

Vinod Khosla 29:53 Uh, now, long, uh, we don't have enough time to go into why I believe that. Almost certainly, and I'm serious about this, I gave a talk at the Stanford med school and I said, "If I wanted to be a good doctor in 15, 20 years, I wouldn't go to the med school. If I wanted to be a good doctor, I would go to the math department." Almost certainly every single thing they're learning about medicine will be obsolete in 15 years.

Speaker 30:23 Mm.

Vinod Khosla 30:24 So you can join Medtronic or GE Medical and do incremental things. Or you can try to learn at 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 philosophy. Trust me, it's a lot more fun than spending 30 years at Goldman.

Speaker 31:08 [laughs] That-

Vinod Khosla 31:10 I like Goldman

Speaker 31:11 ... no, that's a fascinating world view, but I really wanna get a question-

Vinod Khosla 31:13 So, so let me go back to-

Speaker 31:15 Sure. [laughs] Okay. [laughs]

Speaker 31:17 [laughs]

Vinod Khosla 31:18 I, I, I just have streams of thought, but you did ask me to talk about-

Speaker 31:22 The analysts and the experts

Vinod Khosla 31:23 ... yeah, the experts. Um, so Professor Tetlock, when he was at Berkeley, did research on expert opinion. All the analysts you read, all the McKinsey reports, um, and by the way, Bain and [clears throat] BCG, no different, and he followed all 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 Judgment. So all these great studies, the 10-year studies McKinsey did for millions of dollars for AT&T on what would happen to the cell phone business, that's a fun story. Um, across 28,000 individual forecasts and 84,000 possible scenarios, the average accuracy of the best experts, whether it was Henry Kissinger, Tom Friedman, McKinsey, your favorist, uh, favorite economic forecaster, the average accuracy was about the same, to use his words, as dart-throwing monkeys.

Speaker 32:45 [laughs]

Vinod Khosla 32:46 So if you wanna run your life on these forecasts and create the illusion of knowing, great. Go do it. Uh, you'll follow a path that others will reinforce because you can give them a DataQuest 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 ti- life to actually decide which one of those. Do you have a belief system, or are you gonna do what others tell you to do? Whether it's written up in the New York Times, which, uh, which somebody wrote up who doesn't understand the context, whether it's a McKinsey report or a GE forecast or a Goldman analyst, or you're gonna do what you believe in. And unfortunately, um, very few of you will do that. I hope I convert some of you to believing in yourself. And the good news is I actually believe, uh, 5% of the people is all that's needed to be even remotely innovative to change society. Uh, I once looked at all social changes, not just business, and I looked at a decade and I said, for people born between 1940 and 1950 or 1950, of all the people born on this planet, if you take the 10 ma-- 100 major areas and define, could you find 100 people in each of those areas from that decade, that generation, who affected change? It didn't matter whether it was music, arts, research and social sciences, technology invention, business. You can't find 100 areas, and you cannot find 100 people that stand out in each of these areas in any given decade. So less than 10,000 people born this decade will influence all of what society does, think, happen. I like to say you should try and be one of those people, and none of those people will follow any analyst forecast. They will have an internal compass. They'll have self-confidence and a belief system, and they'll make change happen. I'm very passionate about this, 'cause frankly, it only takes a few people to change the direction of any industry or social trend.

Speaker 35:36 Vinod, I think this might be a good time to open up the floor to questions from the audience. Um, so we have Caroline and Ryan on either side with mics. Please keep your hands raised so that one of them can spot you. Um, you can also tweet your questions using #GSBVFTT, and Michelle here will ask you a question. Actually, let's start with a question from Twitter.

Vinod Khosla 35:56 And I wanna apologize. I have to leave soon after this, but my email address is vk@khoslaventures.com. If we don't get to your question, please feel free to send it.

Speaker 36:09 Thank you, Vinod. We have-

Vinod Khosla 36:10 And I'll spend as much time answering it as, as much time as you spend thoughtfully asking the question.

Speaker 36:16 [laughs]

Speaker 36:18 [laughs]

Vinod Khosla 36:18 That, that's my rule on email.

Speaker 36:20 [laughs]

Vinod Khosla 36:22 I try and judge how much, how thoughtful was somebody in sending the email. Yes, sorry.

Speaker 36:27 All right. There's a lot of very thoughtful questions on Twitter regarding your belief system. Um, can you talk about what exactly is your core belief system, and how do you foster that in your team and your company?

Vinod Khosla 36:40 You know, um, so I decided very early I wanted to work on interesting things. It's not well known, but I started the first progra- 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, um, and I was 16 when I started the programming club at IIT Delhi. Um, 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 wanna do and how to make it happen?" Uh, uh, but the core belief system I have is I wanna work on interesting things. I don't wanna get bored. Um, um, 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. We are probably the only VC firm that in the floo- first slide deck, uh, fundraising slide deck, we said we care about our ambition, which is IRR, but we care as much or more about our ambition, our mission, which is to make a positive change. 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.

Speaker 38:39 Hmm.

Vinod Khosla 38:39 And so I only do that. We, we had an in- i- investment, and somebody will tweet this and I'll get in trouble. Um, we are looking at an investment in a company called TeeSpring, which is doing extremely well. And the partner who's doing that, and I said, "You know, you wanna invest in TeeSpr- uh, TeeSpring or T-shirts, great. Don't expect me to spend any time. I'm not interested in T-shirts. I'd rather work on a healthcare solution."

Speaker 39:08 Hmm.

Vinod Khosla 39:08 And so it's n- it's, it-- Again, I wanna emphasize, this is a luxury I've earned, so all of you don't have that luxury, and you're not in the same place. And I recognize when other people aren't in the same place. I also never cared what people thought, so I had that luxury very early on in my life.

Speaker 39:29 Hmm.

Vinod Khosla 39:29 Uh, mostly through my attitude, um, which was much more belligerent when I was young. Uh, but now I can honestly say, uh, we built a new building a few years ago, and I said, "You know, as long as health permits, I've enjoyed this so much, and the area I'm working on keeps changing every few years because the nature of venture capital and technology. I'm gonna do this for the rest of my life, but only do things that actually make a positive difference."

Speaker 40:01 Hmm.

Vinod Khosla 40:02 But there 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, uh, you make much more of an impact than 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.

Speaker 40:25 It's a good tip. Right.

Speaker 40:27 Can you hear me? Yeah. Um, so I'm Alina, and I actually work for a healthcare startup. Um, but 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.

Vinod Khosla 40:42 Some people call it arrogance.

Speaker 40:43 [laughs] Um, my question is, did you-- When you were a kid, did you get support from your family that made you, um, as confident as you are right now?

Vinod Khosla 40:55 You know, first, it's hard to remember. Uh, 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, you never did things your parents really opposed, but I tended to do some of that. [laughs] But I always had great dialogue with my parents, and they actually sort of accepted me very early doing, going out of the bounds. Um, um, for those of you interested in my attitude and those of you who may have kids, uh, I was asked to give a talk at Harker School here in, um, uh, you know, s- in Saratoga. So I gave a talk to the high school kids, and I did a presentation. Uh, my f- first slide was something like, "Why you should only color outside the lines."

Speaker 41:59 [laughs]

Vinod Khosla 42:00 My second slide was about why you should disregard your teachers.

Speaker 42:05 [laughs]

Vinod Khosla 42:06 My third one was why you should disobey parents.

Speaker 42:09 [laughs]

Vinod Khosla 42:09 Um, i- and, and yeah, it was sort of funny and the kids loved it, but I'm dead serious about it.

Speaker 42:16 [laughs]

Vinod Khosla 42:18 I'm dead serious about it. Uh, I actually think inculcating an attitude of exploration, not confirmation to a bound, set of bounds set by others, is what creates this internal compass and belief system and confidence in yourself. Uh, 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."

Speaker 42:49 [microphone rustling]

Speaker 42:57 Hi, um, Neil, MBA 1. Thanks for your speech. Um, I-- Just on the analyst thing that you mentioned, um, there's, the VC field now, as compared to in the past, has become a lot more crowded, and there's a talk of a tech bubble here. In your opinion, are we in the middle of a bubble? And if so, when do you foresee it bursting? Thanks.

Vinod Khosla 43:17 Um, [laughs] I don't-- I know that I don't know the answer.

Speaker 43:23 Mm.

Vinod Khosla 43:23 I also know anybody who tells you they know the answer is probably stupid. [audience laughing] Uh. [laughs]

Speaker 43:36 So yeah, thanks, thanks for your talk. Uh, Pablo Fuentes, MBA 10. Um, so I think your brand of swashbuckling is particularly effective if you show some vulnerability, some of 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.

Vinod Khosla 43:53 Um. [audience applauding] So look, um, it would take an hour to talk about all my mistakes. I actually, uh, let me put it this way. Uh, in the last fifteen years, there's only once in my life I've called somebody and say, "I'd like to speak at this conference." And that wasn't a popular conference. It was a small thing in a hotel room in San Francisco, and it was called Failure Con, where everybody who had ca-- failed came, and I wanted to speak to this issue of failure. Um, there are so many s-stupid things. You know, the iPad is so popular. We tried to do it. Probably one of my large mistakes in the late '80s. Um, and I can go into details and I, I'll cut it short. What I would say is I'm never embarrassed about my failures. And so if you search on the be-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? Uh, the number of venture companies where I made stupid mistakes. I'll, I'll tell you one of my big failures. So if you go back to Sun, 1980s, Sun's logo or, or, m-m-motto under the logo was, "The network is the computer." And these couple of people started this software program that did routing of IP packets or network traffic. That happened to be the beginning of Cisco. Now, when you say the network is the computer and make these arrogant marketing lines, and you forget that routing is the key element. 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 could have. I can find a hundred such examples. The point is try and fail, but don't fail to try. Um, my-- A couple of other favorite quotes along those lines since we're coming to the end of our time. Um, Robert F. Kennedy said, "Only those who fail greatly can succeed greatly." The classic example of that is Elon Musk, right? He said, "Forget this bullshit about supplying batteries to GM. They're just too slow to make change happen." You know, I was talking about retailing, Amazon, not Walmart, YouTube, not NBC. Think about GM or Tesla. GM spent way more money than Tesla did. Space-- Uh, NASA s-and Lockheed spent way more money than SpaceX did. I can go on and on, every major change. Uh. So failure, um, try and fail, but don't fail to try. Uh, Nassim Taleb in his book, Antifragile, which I recommend everybody read if they're setting off on a career as a personal philosophy. Mine happens to coincide, and I'm not talking about Black Swan, but his book called Antifragile. Uh, I always love ending with a good re-- book recommendation. Um, I think that's important. So I'm just not embarrassed about my stupid mistakes. I mean, I think that's the difference.

Speaker 48:09 Vinod-

Vinod Khosla 48:09 I don't know if I answered your question.

Speaker 48:13 When did you get crushed by someone?

Vinod Khosla 48:14 When did I get crushed?

Speaker 48:17 By brutal honesty.

Vinod Khosla 48:18 By brutal honesty? I mean, I've offended plenty of people. Uh, a-and that-- Sure. I won't go into the details because a public comp-- there are two public companies are involved, but, uh, I was on a, on a p-panel with the CEO of this public company, and I basically told them how stupid they were, and then there was payback in an indirect way, and that really hurt this other company, and it, you know, literally killed, almost killed the company. Um, unfortunately, because they're public companies, I won't go into details. So that's an example where brutal honesty really hurt me. Um- Um, I can think of lots of exa-- Look, there's plenty of people in the VC business that don't like me because I tell them they, they're, they're sort of worthless.

Speaker 49:09 [laughs]

Vinod Khosla 49:10 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 that to them. But if I do know for sure, I do make sure I tell them. More importantly, I tell the entrepreneurs what I think, and they often tell the VC. Uh-

Speaker 49:28 V-

Vinod Khosla 49:29 It's part of life.

Speaker 49:29 Vinod, I wanna make sure we have time for one more question.

Vinod Khosla 49:32 Mm-hmm.

Speaker 49:32 Um, actually, a quick announcement before that. Um, friends of Roanak from the class of 2010 are welcome to join his family backstage after the event ends to share stories and reminisce. Um, so, uh, this question has become sort of a View From The Top tradition, um, and every applicant to Stanford GSB is asked this question on their application. However, you were not asked this question in 1978, because this question didn't exist in 1978. It started in 2000. So here's your chance to answer this question. What matters most to you and why?

Vinod Khosla 50:02 You know, I think it's sort of-- And, and I won't phrase this in, uh, in a do-gooder kind of way, and I don't mean it that way. 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. And 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. You know, it's sort of like enough people are mad at me for saying we don't need doctors. I actually don't believe we do. So, uh, but we need, um, a different kind of doctor to do a different kind of thing. And I wouldn't go to Stanford Med School to get the best doctors. I'd go to UCLA Film School because the human element of care is important, and acting becomes important. Um, and that's where most of our doctors will come from in fifteen years for the human element of care. And people hate it, doctors hate it when I say, to get the mu- most, most of the human element of care, you need the most humane humans, and those aren't the high IQ people who got into Stanford Med School. Um, reality. Uh, but what I would say is m- knowing I can make a difference in industries where things are positive is very rewarding. Um, and let me end on the note that I, I actually like working on things that my four kids would be proud of me working on. All right? And there's this question that all of you will face of work-life balance, so let me end on that note. Um, working on cool things excites me, keeps me motivated. I like to say you reti-- uh, you grow old when you retire, not you re- you don't retire when you grow old. And as long as you're stimulated and excited in whatever your passion is, and it can be what I do, it could be I wanna train a whale. I find that a really hard task. It's a difficult challenge by itself. Maybe it's not hugely impactful for society, but I actually love that example of if I got passionate about that and did that, and it's a really hard thing to do, it'd be exciting to go pursue it. 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, but not so much in a do-gooder thing. It's a luxury I can indulge in and makes my kids feel better. So let me end there. Through all of the '90s when my kids were young, I had one rule. This fifteen-minute thing, managing my time came from the following. I realized it was easy for all of us to say things and then in-- 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'd 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, "Hey, my son wants to talk, have a conversation." I classified my time into twenty categories. One of the most critical lines in that was the number of times I had dinner with my kids at home, and I set an impossible goal of twenty-five times a month. And it took me a year or so, but eventually I met it. But more importantly, every month I had a 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 O. I no longer did, um, baseball games with friends. I only did it with my kids or son. I, 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. Thank you all very much.

Speaker 54:33 Thank you, Vinod. [audience applauding] [upbeat music]