How to Build and Manage Teams Video Lecture | Startup School Online by Y Combinator - Entrepreneurship

Today we have Vinod Khosla.
A founder of Khosla Ventures and
former founder of Sun Microsystems.
He has advised a lot of
startups in Silicon Valley.
I'm going to interview Vinod today and we
are going to talk about how to build and
manage teams.
Thank you, Vinod.
>> Thanks [INAUDIBLE].
>> So, you've talked a lot about company
building and hiring and I know that you've
often said that a company becomes the
people it hires, not the plan it makes.
So can you elaborate on
what you mean by that?
And especially for founders who
are just beginning to start a company.
What they should they focus on in hiring?
>> Yeah, this one of my favorite topics.
Many, many founders and when you start,
you know very little
about what you're doing,
if you did know enough,
you wouldn't start the company.
If you were really sensible and
pragmatic, you wouldn't start companies.
I'm an entrepreneurship zealot,
that's self-described, and
I'm a real fan of people trying
companies and trying to build things,
especially when you're younger,
when you can afford to take the risks.
There's no reason to go work for
somebody else in my book, and I never did.
What I find is people have plans,
but it is very, very rare for
a company to achieve that plan.
So the way to think about where
you're starting is a collection
of ideas in a relatively rich space that
you find that you can be passionate about.
That's the way to think about a plan.
I have a separate talk on flexi-planning,
which is don't plan, just plan to plan.
But the critical part of that is
the team you build ends up making
all day derivative decisions about
where you're going to end up.
Whether to hire the next person from this
area or that area with that strength or
some other strength or to take path a or b
is very,
very critical to where a company ends up.
There's a huge path dependence,
and the path depends so
much on the people you hire.
Your starting plan becomes much less
relevant than the people you hired
initially, especially
the first ten people.
Those 10 people will then
go on to hire the next 50,
and they will then hire the last 100.
You can fire the original team, and
it's gene DNA stays in the company.
So that's why it's so important, and
why the people you hire
determine the company becomes.
And we can come back later and
talk about where I see mistakes
made around functional hiring.
People always ask me and I say,
this gets tweeted a lot,
there's a huge difference between a $0
million company, and a $0 billion company.
And the difference in attitude and
ambition, and
mostly the kind of team you build,
which will reinforce certain
directions for
you especially who else you end up hiring.
So it's far more critical
than people believe.
And it's really hard to
hire those skills later.
So hence, my-
>> Yeah, and I think you touched upon
the first time hire being so important and
especially defining pretty much.
Even the cultural, the belief system
that he would call for the company.
So if a lot of founders here have
like a one or two member teams,
how should they think about you know,
who should be those first few hires?
And how do they go about
finding those candidates?
And I know you also have talked, you have
a strong view about how equity should be
split for
the first 10 employees versus the next 30.
So, I would love to hear how
should a founder think about that?
>> So many start ups are very tactical and
they should be.
But in doing the tactics you
can sometimes forget what
the big vision is and
you may even exclude the big vision.
So I was talking to a company's
very recently in our portfolio, and
they had hired a bunch of people to do
particular tasks that needed doing.
And there was a new higher,
potentially a big, higher,
very attractive person
to have join the team.
And I asked the founder,
who's going to interview him?
And he told me who would
interview this founder?
And I said if I was a really
great candidate and
this three people interviewed me first, I
would drop out of that recruiting process.
So I said, you know what why
don't I be the first interviewer?
So that it can be a really
waste of my time.
because I want him to grab the big vision
first, and not just be interviewed.
Let me sell him on the big idea, and
why he can be a part of forming it.
And so, the best people
almost can't be interviewed.
They have to be sold and evaluated.
Evaluation is important,
but evaluation and interviewing
are different things in my mind.
So once you hired the first five, and
they're interviewing other people,
you might actually exclude
the best candidates.
And that's very,
very tricky for a founder.
At the same time, sometimes you
can't afford the big names, so
you don't have enough to attract them.
>> Mm-hm.
>> And those are very tricky times and
that's why I think whether
you're a $0 million company, or
a $0 billion company sort of gets set
by the time you're 15 or 20 people.
>> Mm-hm.
>> That people who've done it very poorly,
I won’t give you examples.
But people like Strike Patrick
did it amazingly
great job of his early hires and
has continued to do that.
>> Mm-hm.
>> So you can completely change the
trajectory of a company by that hiring,
and how big you'll become.
>> Now what are some of the things
that you think Patrick at Strike or
some of these successful founders
have done in the first year.
Is it that they meet
candidates in other roles?
Because the founder also often doesn't
know a lot of the the other roles.
Or doesn't have domain knowledge about
the roles that they are looking to hire.
>> So let's talk about each of those
separately because they're quite
distinct things.
First, I think of company building
as going after Mount Everest.
But nobody got to Mount Everest
without getting to Basecamp first.
Here's the misstep.
You can't get to Everest without Basecamp.
And many people forget that
Basecamp has to lead to Everest.
So they set up Basecamp where it doesn't
help reduce the risk of Everest.
And so building a company, you never
shoot for the big enchilada in one step.
You go after base camp one, then base
camp two, it's a very good analogy.
However, especially with bad investors,
and I have a lot of beefs about investors,
they want revenue or they want break-even,
or they want management.
All of the things that can to lead to
setting up business here that then
excludes the possibility that you'll learn
more about how to get to base camp two and
three, you are out in some
other local minima or maxima.
And that's really dangerous early on, too.
In fact, one of the beefs,
I was just talking to somebody in
the YC class and
started talking about that.
I said, and
this is one of my pieces of advice to YC.
If you get too tactical and
forget the strategic,
you set up base camp in the wrong place.
You want to decide which is the right
space you want to go after with
the technology in this case.
Starting with a great technology before
you start doing all of the tactical stuff.
So there's this uncomfortable balance
between tactics and strategy,
I'd say be obstinate about your vision,
be flexible about your tactics.
Another way I'd like to say it
is think big but act small.
These are really difficult things to
navigate, much easier said than done.
But back to this issue.
Let me talk about a process I
call gene pool engineering.
If you're going after a space,
assuming you've picked the right space,
or the one you're passionate about,
it doesn't even have to be right farther,
just right for you.
The first thing I suggest people do is
see all the ways in which you can fail.
Think about it.
You want to identify the key risks
in whatever you're trying to do.
Then you hire for those risks.
So I always say to people,
find your top five risks.
For each of those risks, say risk one,
who are the companies that
have dealt with that risk?
Where does the expertise on that risk lie?
Make a list of three to five companies.
And by the way, there's document you'll
get a link called Gene Pool Engineering.
That's on our website that I
wrote just for this purpose.
If you've identified the five companies
that have dealt with that risk,
then you have at least the places
that can reduce your risk.
Within each company, identify three names.
Now, you have 15 names for
the risk number 1.
If you do that for your top five risks,
you essentially have
a library of names that will help you
reduce the risk in your business.
And that's risk-oriented management.
And startups,
after you decide what space you're going
after is all about risk management.
There's lots of risk tradeoffs.
Every time you hire somebody,
you increase your burden.
You're taking on financial risk, but
you're reducing some other risk.
Maybe it's product risk or
development risk or feature risk.
So it's a series of tradeoffs.
That's how startups should think
about what they're trying to do.
So this a process I call
Gene Pool Engineering.
Where you engineer 15 names for
each of your major risks, and
then go after all of them, and
hopefully hire 1 or 2 of the 15.
And so you've then engineered
the gene pool of your company for
the risks that are in the plan
you're going to pursue.
It's way more precise than the platitude
of let's hire great people.
I find that really disturbing because
I've never actually had a startup
coming to me and
say that they're only hiring bad people.
Never quite happens.
So how do you make platitudes into
something concrete and actionable.
That's a big thing with me.
The second part of that is
the reality that startups
seldom pursue the original
plan they started.
So they've hired.
You also have to hire not only for
the risks you know but
all the other things that you might pivot
to, change to, adapt to, iterate to,
because building a business plan in
a new area is a series of federations.
So suddenly, this risk requirement goes
in parallel with this other requirement,
which I call smart adaptation.
You adapt very quickly to whatever
the market is teaching you.
YC is particularly good at that, teaching
you how to iterate quickly and learn,
and essentially, very similar to
what I call this flexi-planning
process where you iterate your way to
a plan instead of saying this is my plan.
I always worry when people
make plans seven years out and
give me forecasts because it tells me they
don't have a clue what they don't know.
And that is one of the great benefits
of YC, from my point of view,
this integrative approach.
Other people call it MVP, or there's
other names for this iterative approach.
I call it flexi-planning.
But the team you built, in addition
to this risk approach, also has to be
open to new ideas, grab new ideas,
ask a lot of questions, adapt quickly,
brainstorm with others constructively,
so you build on each other's ideas.
These are our parallel set of
requirements around hiring
that are very hard to quantify.
They're also full of danger.
They're full of danger for
the following reasons.
Sometimes people don't hire for this.
That's a danger.
At other times, and one of the biggest
risks if you decide you want to be
aggressive about hiring is going after
names or titles or other things.
Big names and
titles in big companies are really,
really dangerous and
misleading for startups.
My biggest mistakes early on
in my career was getting too
impressed with somebody's title at IBM or
some big company.
Now, I take the view, if somebody has
been at a big company for 10 or 15 years.
If they've been at Cisco for ten years,
they can't work effectively in a startup,
because they'll get re-brainwashed by
failing once or twice in the startup.
Then it'll work.
So hiring for this other stuff and
not falling into the trap of just
big names is very important.
It also depends upon your domain.
If the domain your startup is in is
radically different than than your actual.
Let me put it differently.
Some domains need a lot of expertise.
So if you're doing a broadcast like you
can drop out of school and start that.
But eventually, it's a serious physics and
chemistry problem.
And you have to get that Callington boat.
If you're doing something
like stripe death.
It was a very simple problem.
You don't need three PhDs.
If you're going to solve healthcare
with AI, you're going to need expertise.
So it depends on the domain.
You don't always need the gurus.
It depends on your problem.
You don't always need the big names.
Another very counterintuitive thing,
we were recruiting for
a CEO for our company, Live Corp.
They essentially do cardiac care and
I insisted I would not talk to any
candidate who would ever
work in healthcare.
And that's because healthcare
executives tend to apply old rules,
because their domain
hasn't changed very much.
People are so used to applying old
rules and applying good process.
As oppose doing inventing this new future,
this new path.
And that's very dangerous.
We should come back and
talk about how founders
figure all this out when they don't have
a clue what these other functions are.
That's really dangerous and
so that's a big, big caution.
It's seldom that a person out of
a domain can integrate in a domain.
If you are a young founder and
you hire somebody with deeper
experience in the domain, it is logical
as human beings to defer more to their
knowledge and that is a real problem.
It's important to understand
the problems they raise.
Not the solutions they propose.
Because if you take that
you keep doing what
traditional people in
that industry have done.
This is why CEO hired into
companies don't work very well and
why founder vision becomes so
important and so critical.
I'm wandering all over the place,
but correct me.
>> No this is how, I think you've also,
before we touch on the functional hiring
and how to look for domain knowledge.
I wanted to touch upon one other element
that you talked about in the gene
pool hiding people which is about
diversity and not in the literal sense.
But he talked about there are different
dimensions of diversity that
are important, as you are trying
to figure out candidates.
Can you elaborate on like what are like
different dimensions of diversity
the start ups should focus on and
why is it important to do that early on?
>> Yeah, so if you buy the pieces
That most of what you end up executing
on isn't part of your plans today, then
the single most important thing becomes
people who can help you evolve your plan.
And the more diverse the set of people and
I don't mean diverse, ethnically.
I mean, backgrounds and
places they've worked,
areas they know, age, level of experience.
There's some really great
things about experience.
You want experience.
But you don't want experience to have you,
guide you into
doing what others have already done in
that same business and not innovate.
That is the result of too much experience.
So mixing the right experience,
where you can identify the problems,
with first principles thinking.
From fresh new ideas people who
never worked in the domain or
people who actually are just fresh
graduates and have no idea but
can ask fundamental questions,
those are the best kind of founders.
Put it differently, in big companies
you need people with good process.
In start up you need people with good
iteration and good adaptation and
those a very different skills because
a startup you invest 90% of staff
in big companies 90% of what you do this
year will be what was done last year.
And so there's very little innovation
takes a different kind of person.
Most valuable, in fact every startup,
if they are successful,
will need some process people later.
But process people early in
a startup can be a disaster.
Too good a manager is a bad thing for
early startups.
But at some point,
you'll really need to add that.
So that's what I mean by diversity.
If you have a bunch of PhDs, how many are
experienced PhDs and how many are fresh?
How many are from within your area and how
many are from completely outside the area?
Those, every dimension
of diversity will help
because they'll bring
a different point of view.
As long as they have this ability
to think from first principles,
not say, this is done this way
because we did it this way before.
I should also, should probably
say this fied's way more complex,
this is why I've written about
it extensively in two articles.
One's called the Art and
Science of Hiring.
>> Mm-hm.
You'll get a link to that,
it's on our website too,
once called gene pool engineering.
There is a third one that I actually
wrote when Katie Boyd joined us.
We talks about what board should and
shouldn't do.
Boards do more damage to start
up than anything else I know.
And that's why I don't go
to board meetings anymore.
>> [LAUGH]
>> Applying tradition just really hurts,
so when you're looking for
an investor, it's not money,
it's help in building the steam
that's way more important.
Way, way more important to where
you get to, than anything around
the amount of money raised or
the valuation, or other things.
We should come back and
talk about founder equity, also.
But I spend a third of my time,
maybe more time on recruiting for
our companies than any
other single thing I do.
>> Mm-hm.
>> Because of all the things
I've talked about.
In fact, at start up grind,
the interviewer asked me, he said Chamat
was saying that you couldn't possibly
spend that much time interviewing.
And I said that's because
he just fundamentally has
a different belief system than me.
I do.
And it's most of what I do.
I'll go through a 100 LinkedIn
resumes by myself on a weekend.
If I'm looking for
a critical hire for a company.
because a few people can make or
break a company.
>> Yeah I think you've talked about
this too, which would be helpful here.
Like the CEO's job initially is to be
the chief recruiting officer, right?
>> Yeah.
>> So
can you elaborate on what is the founder's
role, and how should they be thinking.
Especially because we see a lot
of startups where they would say,
I'm looking for VPF Sales and
they would write down all the skill.
But then, they forget about
all of the elements needed for
what it takes to lead in a startup.
>> Yes, let's come back to this
notion of function hiring.
Let me talk about what
founders need to get.
A founders role.
And when I was a founder, I spent
probably 40% of my time recruiting.
It's not coding.
You're much better off hiring
the people who can code than coding.
>> And was it throughout the life
of the startup or did it change?
>> Both in the beginning and
throughout the life of the startup.
I think it's true of very early mid
stage and later stage companies,
and really good founders do most of that.
That if you can hire the people,
you should generally
be able to hire the people who can do
any given job better than you can.
And I tell founders about their role.
If there's any job you can hire for
modular money which we can talk about.
>> Hm-mm
>> You should hire for that role,
so you don't have to spend time.
Founders have some unique characteristics.
They have sort of this entrepreneurial
spirit, this first principle,
this thinking.
This attitude says, yeah,
it's done this way, but why?
This why, and I recommend a book by
Simon Sinek called Start With Why.
It's a really good book about
questioning everything.
And yet staying true to your vision,
even if it's not precise.
If you're doing something radically new,
it's going to be ambiguous.
And very, very few normal people
are comfortable with that ambiguity.
Let's charge ahead in this
direction even though we don't know
precisely what the business model is or
why or what it will take,
that leadership is a founder's role.
And that's something it's
almost impossible to hire for.
If you hire a senior executive
from another company,
there is zero chance you'll have that.
They can systematize what you're doing and
get much more boost to your efforts,
but not without your vision.
And so that's a founder's role,
I call it leadership.
It's belief system in
the face of ambiguity.
It's figuring it out kind of attitude.
Assembling a diverse team.
I was very lucky as a young founder.
I loved awesome people.
I didn't know why we
hired many of the people.
But if you look at it, the first
15 people we hired at Sun probably
started more than 10 companies
worth a billion dollars, later on.
We hired Carol Bartz who
became CEO of Yahoo.
We hired Erick Schmidt who became
CEO of Google, we hired all these.
We hired Bill Joy, in fact Bill Joy became
a founder six months after we started,
we should come back to it.
I so badly wanted him,
we made him founder retroactively.
Anything is okay in this game
of assembling great talent.
>> Mm-mm.
>> I loved learning from great people,
so we hired great people.
>> In retrospect,
that was why we were successful.
And I started believing the company
becomes the people you hire.
By the way, Andy Bechtolsheim was
a student in Magaret Jacks Hall,
not far from here, where the computer
science department used to be and
he'd licensed his technology
to six companies.
The only one that succeeded
with it is us and we started
two years after some of the other
companies had licensed the technology.
But we got all the people.
>> Yeah.
>> I hounded Andy till he
dropped his PhD to join me.
I hounded Bill Joy till he
dropped his PhD to join us.
So both of them dropped their PhDs
when they thought they were six months
from finishing.
Selling is also a founder's job.
And it's gut-wrenching because you don't
know you're going to be successful and
you're trying to convince
somebody to drop their PhD.
>> [LAUGH]
>> It's gut-wrenching,
hiring is gut-wrenching.
Or you're convincing them to drop
a comfortable job at Google and join you?
So many stories.
Anyway, back to what
were we talking about.
>> Yeah, no, I think just to, before
you have said in one of the points that
when it comes to selling for
hiring, no means maybe.
And then maybe means yes.
>> Yeah, I have my favorite.
When a candidate says no,
I convince them it's a maybe.
Then I'll spend enough time.
Once they say maybe,
then my job is to say maybe is a yes.
So, I always say a no is a maybe,
and a maybe is a yes.
And it doesn't matter if you fail.
Occasionally when you succeed,
it's worth it.
People give up on recruiting way
too early and way too quickly.
I just hound people.
>> [LAUGH]
>> I wanted to touch upon founder's equity
because I know you brought that up twice.
So how should,
especially when you're trying to attract,
you want to build a great team right?
And a great team is a magnet for
other people to join the company.
How should founders think about
equity especially in the early hires?
>> Yeah.
So, I find by and large and
there are exceptions, plenty of them.
Founders keep too much equity for
themselves.
And they don't realize the following fact,
anybody they hired whose exceptional
will a year later figure out
they want to start their own company
unless they are a founder, right?
So if somebody's really, so
you self select for okay people,
good people, not awesome people.
So my son's starting a company,
actually two companies right now.
He graduated last June from Stanford.
And I convinced him that him and
his co-founder should just take 15% each,
leave 15% for a third founder, and
another 15% for three junior founders.
And then, a 20% pool after that.
So they have this humongous pool.
I said, because I fundamentally believe
a company becomes the people it hires.
I said,
you will be able to hire great people.
So, for one of his companies and
I think this is public,
if it's not, stop recording.
He just hired, for one of his companies,
the VP of engineering of Quora.
Why would that person
join a fresh graduate?
Because, one, he helped define
a fairly interesting large vision.
But two, he had this huge book and
he's been talking to
people who would take that kind of thing,
any of whom could start their own company.
Let me invert it and say,
when a team comes in to present to me,
one of the questions I ask myself
in judging how good a team is.
Yeah, do they have expertise in
all the areas they need expertise.
But the single most important question
I ask, on this team, if some of
these people left and started a company,
would I want to invest in that company?
If somebody has two people
like that on their team,
zero chance I won't want to invest.
Independent of whether I like the plan or
not, because they
are collecting great talent.
If I could have great talent or great
a plan, I'd rather have great talent and
somebody, a founder who
loves great talent.
So, it's a great way to judge a start up
is, what kind of people do they hire?
I was telling anyway,
I told Sam in the last YC batch.
There was two companies we made
an offer to if they hired,
in a critical area,
they bought AI startups.
If they left cofounder equity,
equal cofounder equity for an AI startup.
I said, I'll write you a check at
the valuation you want if you do that
if not, then we don't want to invest.
One of them took our offer and
the other one didn't, which is okay.
But I really religiously believed this
idea you get a build joy already.
And they want experience.
They were graduates.
But they made the whole company.
Eric Schmidt wanted to come work for them.
By the time we had first ten people,
we were getting so
many resumes, everybody wanted to join us.
Because we had so many awesome people
other than, I was sort of, me and
McNealy were just fresh business
school graduates, we didn't count.
I was saying and I keep telling my son.
Hire some magnets.
But people, I tell him,
you graduate from Standford, you're young,
nobody is going to come join
you just to work with you.
Think about who you could get that
everybody wants to work with,
that's how you'll hire
numbers ten through 30 or 50.
A rough rule of thumb I use on equity,
I think Sam has said at least
10% of the company should be reserved for
the first ten hires.
I actually think that number is too low.
I flipped around, saving a company's 50.
The founders should have
a third of the common.
Their direct reports should have
served as, five or six direct reports,
should have a third of the common.
And everybody else,
the engineers, the workers bees,
should have a third of the common.
If you do that, people don't leave.
People stay with you.
Now, Sam has a good blackboard
stands how to attract the team.
One of those is growth.
Growth is always a metric but
you can't always close that.
When things get tough, when you run
into trouble, why will people stay?
They'll stay because they
believe in your value system.
What are you going after
the vision you're defining?
Define an interesting and
ambitious enough vision.
If your vision is just
to make money the people
the first dip will say I joined to make
money doesn't look like it, they'll leave.
They won't stick with it.
But the single biggest reason people
stick with a company is because they have
people around them who are really awesome,
that they can learn from,
who are better than them.
Everybody should feel that way.
>> Mm-hm.
>> That's a great culture to set up and
every time I've seen that done,
it's turned out really well.
The gene pool engineering
article I mentioned,
I put together in 1995,
when we were starting Juniper.
Nobody had ever challenged Cisco and
nobody wanted to challenge Cisco.
And no customer in the world
wanted to by TCP/IP routers.
None, for the public network.
It sounds incredulous, but
go look up articles from 1995.
Not a single carrier,
AT&T which was Pac Bell,
which is now Verizon.
All said they would never introduce
this PIP in the public network.
And we defined this large version.
We've built this process of engineering
the gene pool of the company.
And everybody got excited about changing
the course of their internet from
what was ATM and nobody remembers this.
A very, very senior executive told me
when I was looking at investing in this,
they would never use TCP/IP.
This is what telecom carriers do,
this is how traditional wisdom goes.
But you need this awesome
team to change that.
And Pradeep Sindhu who was one of
the great founders I've run into.
Not only built a great company, but
it actually changed the trajectory of
the protocols of the Internet, in my view.
We would have ended up
with something else.
Most likely ATM,
if all the carriers had their way.
Every single carrier from
Deutsche Telekom in Europe to AT&T here
had decided they would go with ATM,
not TCP/IP.
So, great missions,
great people to work with,
all that is why you want
people in your team.
>> Got it and
I want to touch upon functional hiring.
Because that's, I think it is a component
of building a great team as well.
And too often founders tend to prioritize
a lot on skills for a particular role
versus really figuring out the complete
package or the fit of the person.
So can you talk about how should
a founder think about hiring?
>> Let me answer that question but
later if your a founder,
you just your technologists have
a technical break through or
a big idea and you start a company.
And you need a VPM Marketing and
you need a CFO.
You should come back to the question, and
I covered this in my art of hiring of,
how you judge somebody's good
VPM Marketing or a good CFO.
Because the first thing you have to
realise is you're not qualified to judge.
Knowing what you don't know is
critical and the most important
things that found that guys is decide
who's judgement to trust on, what topic.
And, not just ask their friends
because they may not be qualified.
In fact, hundreds has hired their friends
since gene pool engineering to start up.
And that's wasting slots and talent too.
>> Yeah.
>> But
let me go back to functional hiring.
We can come back to this
otherwise I cover it fairly
extensively in my paper on hiring.
How do you interview people,
how do you judge them?
If you need a VP of engineering,
you can look at somebody who's
managed an engineering project.
But if you're a founder,
specially an inexperienced founder with
a big breakthrough idea in
a new space that nobody knows.
You clearly need to build an engineering
came and execute on that, but
you need more than that.
Somebody who's going to go help
you evaluate all the pivots and
changes and iterations in your plan.
Now let's say you hire a VP of
engineering who's good at that.
A VP of marketing who's good at marketing,
a VP of sales who's good at sales, and
a CFO and they do their job well.
Who's going to help you
figure out what path to take?
So I always say, you need functions,
but way more important,
while hiring those functional people,
you're getting something else,
whether you recognize it or not.
You getting somebody who's going to
participate in all the more critical
decisions.
Even more critical than having
engineering run more smoothly, which is,
which path should we take?
So ask the following question.
When I hire a VP of engineering, how
will it make my VP of marketing better?
That's why asking fundamental
first principles questions.
Elon Musk's book is worth
reading because he knew so
little about building cars or
about launching rockets.
He made so many screwy mistakes
that could have been avoided.
But if he had had all that experience and
knowledge,
he wouldn't even have
attempted what he did.
So, I'd rather have somebody
like Elon Musk who just
fundamentally asks a lot of questions.
So why are we doing it this way?
Not that we've done it this way for
50 years at GM.
Remember, GM spent more money,
more time, and
started earlier trying to do
an electric vehicle called the EV1.
And Elon, with no experience,
by asking a lot of questions and
adapting rapidly as he screwed up,
he got to a place where
Tesla is a much more interesting
company than GM today.
So when you look for that functional hire,
realize you're also getting this other
thing which is much more important.
Look for how they think, how fast they
change, how much they become defensive
when you challenge an idea versus saying,
why didn't I think of that?
Or be much more brainstorm oriented.
This sort of horizontal hiring that you
get while doing functional vertical
hiring is much more important, and
a much more important dimension.
And by the way,
most VCs don't look for it,
because they've not gone through
building companies themselves.
And so they give you bad advice.
The number of times they say go get
somebody with distribution channel
expertise.
I'd rather have somebody figure it out and
not have a source of inertia in this
fluid, dynamic, evolving,
thinking method in a company.
So when you're hiring, more than
anything you're hiring a brain trust.
And they happen to also have skills in
doing functional jobs, but the brain trust
is more important than the functional job,
and evaluating them is very tricky.
And it's tricky because partly you don't
know how to evaluate somebody
outside of your area of competence.
Do you call a VP of marketing at Cisco,
I don't mean to pick on Cisco, but
it's a good company to pick on.
>> [LAUGH]
>> They will look at marketing very,
very differently than
what a startup needs.
So they'll give you the wrong advice.
Going through and
this is where the tricky part comes,
not being overly swayed by titles or
position and understanding
why people did certain things and
how thoughtful were they about it.
What did they do that
wasn't usual is very hard.
It's also tricky to go back to this
question of how you evaluate people.
Most experienced interviewees know
how to give you the right answers.
They're going to fool you.
You ask somebody okay,
hey what did you do here?
They'll retroactively look at what
was great about the strategy and say,
I did this.
I've actually had people pitch me on
why they did sans marketing strategy.
Being very, very indirect,
kind of a list of questions
in my paper on hiring,
the way you get to the bottom.
So, I was, for example,
to give you one example,
I'll ask the same thing
three different ways.
I'll say at the beginning,
what do you love doing?
What are you good at?
Somebody'll say something.
Then while talking later about a job,
I said what did you do really well there?
If those two don't coincide, if
somebody's making it up, they're warned.
I'll ask that question
three different ways.
Third time, I might ask,
if you were going to join this company,
what would you think
your strength would be?
I've asked the same question three
different ways in three different
contexts, people who are making it
up will make up different answers.
People who fundamentally have the truth
will give the same, right answer.
Then I might at the end
of the interview ask, so
what would your boss say about you?
Now I've asked the same
question a fourth time.
If they say something then I'll say hey,
can I get your last performance
review that your boss did?
If they say no, I know they don't
want to share their performance.
I have 100 tricks like this I use.
You can never rely on the direct answer
you get in interviewing somebody.
It's the trickiest thing.
And then it's good to get
together with each other and
see what each person looked at.
One other danger in hiring,
I find like if I'm rushed today, and
I'm interviewing somebody,
I'll evaluate them differently
than if I'm doing it over
coffee on a Saturday morning.
Other thing to keep in mind,
depending upon how your day went or
what mindset you are in,
how you evaluate people changes.
So for critical positions, I'll
interview the same person three times at
three different days, just so
I'm not biasing myself.
Because humans, including yourself and
myself, are really biased.
And so there's so many pitfalls,
this is why doing a startup is so hard.
Anyway, I'll let you ask more questions.
Sorry, I keep rambling.
I could go on for six hours.
>> I'll ask one more question and
then I'm going to open it up for Q and A.
So, I know you talked, in that paper
you have a lot of questions and
we will circulate that for interviews.
But you also make a point
that in spite of,
even if you follow all those processes,
you know, mistakes are inevitable.
And at least one-third of the time,
the hires don't work out.
What in your view as like the most common
reason why the hires don't work out and
how should a founder handle that,
because sometimes start ups wait
too long to sort of fix it?
>> Look, if somebody wants a job, in
their interview their job is to fool you.
Question is are they
better at fooling you or
are you better at getting
behind the words?
I find after hiring many, many people, and
I probably do hundreds of
interviews every year.
I have a success rate of about 65%.
Okay, I'm wrong and
I find most people with
less experience are wrong more often.
Because usually if you're a young founder,
the people you are interviewing are more
experienced than you at fooling you.
Okay, so it is a game.
And we then talk about culture and
other things.
There's those reasons why candidates fail,
but really, not being able to get
behind the scenes and dig deep.
>> Mm-hm.
>> So one,
you ought to plan on that happening.
I always tell my teams,
if you want four people on your team,
hire six,
even make up a title you don't need.
>> [LAUGH]
>> Yeah, so I always overhire,
because you're never successful,
and hiring is a long process.
To hire a critical person in a startup,
whether it's a critical technologist or
a senior executive,
can easily take six months or longer.
And then they take six
months coming up to speed,
so if you've made a mistake,
you lose a year.
And they will have hired other
crappy people during that time.
>> Mm-hm.
>> And so it's very, very expensive.
This is why you really need
to watch new people, so
you need to really evaluate
how they're doing.
And this is where I think both members and
investors should be much more
about assisting a venture.
So I never call myself a venture
capitalist, I say a venture assistant, and
so even our tagline for
our firm says venture assistant.
I like to do all this, and
spend all my time doing all this.
I never go to VC functions,
I never go to financial conferences,
I just spend my time with founders and
people they're trying to hire.
And by the way, it's a lot more fun,
and you learn a lot more, and
get excited about it,
but you should overhire.
>> Mm-hm.
>> Flip side, if you find somebody great,
make up a title and hire.
Two things,
no great talent is worth getting
away because you don't have a slot.
Make up a slot,
they will pay for themselves.
The flip side, with few exceptions,
and there are some,
a great talent is never
too expensive to hire.
Okay, so I've gone through all
kinds of ridiculous things.
We were trying to hire an exec today, and
I was arguing with
another VC this morning.
I said, so his company offered him this,
they're about to go public.
Why don't we guarantee him the first
$15 million out of this startup,
give him a preference
over the preferred stock?
I'll go to any length for great talent.
Nobody heard of putting 15 million
of preference, for an employee,
above the preferred stock,
with the investors' money.
Well, I've done this more than once.
>> Mm-hm.
>> So a couple of things around that.
The flip side is plan for
failure and evaluate new people.
One other thing, also, when you
hire somebody, and I want to stop.
Try and assimilate them.
People can fail because
they're the wrong fit,
but people can also fail because
you didn't assimilate them well.
See, if you have someone really
experienced in a business,
and you hired somebody from that business,
they can advise you on how to assimilate
this person, because you might think
of what they're doing differently than
somebody who knows that person or
that business.
So getting advice on how to
assimilate people into your business,
because they are going to be different.
They are the diversity you're trying to
be, and you don't want to be too uniform.
So getting help in assimilating,
getting lots of advice
on how to make them successful, as opposed
to reacting because they're acting so
differently and
doing things so differently.
That's bad, too, but then, of course, if
you make a mistake you have to be quick.
>> Mm-hm.
>> And
good investors can help you do that.
>> Mm-hm.
>> That, to me, is the principle
value good investors bring.
Anyway, let's open it up to questions for
a few minutes.
>> I have a question, so
you talk about going up,
I'm going to ask about the space rocket,
and Tesla, and then Theranos.
Both of them, they are college dropouts,
but why do you think one of them,
it requires good domain expertise,
and then one of them doesn't?
Well, different questions, one,
I think Stripe hired really awesome teams.
In fact, the Stripe co-founder
that is now is now running OpenAI,
he hired somebody so strong,
even though he was a college dropout.
Patrick, right,
he hired awesome people around him.
I don't think Theranos did this early.
There's a culture thing we didn't talk
about, and culture is very important.
I think good companies
acknowledge their problems, say,
what do we need to solve it?
And Theranos, early on,
tried to hide their problems.
They didn't encourage discussion
around their problems.
And I think that was the difference.
I think Elizabeth has learned a lot.
I think if she was to do another startup,
she'd do much, much better.
But sometimes, in trying to show
the outside world you're a great startup,
you tend to not acknowledge your
weaknesses, and that's a danger.
In fact, more startups spend way more time
on their assets, not their liabilities.
Your liabilities can kill
you faster than your assets
can make you successful,
so you need to spend time.
Because you're a cohesive group,
generally, when you're starting out,
you tend to have groupthink, so
you tend to lose sight of your risks.
And you want to encourage that behavior
of asking a lot, that's culture.
We won't go too much into culture today,
but establishing the right values,
why people are here, what the mission is,
what kind of culture.
And a number of people made the point,
having goodies in your lunch menu isn't
culture, allowing dogs in your workplace
isn't culture, though I love dogs.
Culture is about fundamental values, and
how you behave, and what you encourage.
And the more people,
at every level, in the organization
who can ask questions, the more you
will identify your risks sooner,
have a more constructive culture, and
the more likely you will increase success.
Let me finish that by
saying one other thing.
Sam said something else
that I really liked,
he said startups are a pass/fail game.
Then put everything I've
been saying in context.
I like to say startups not about dilution.
They're about the probability of success.
They're much more distill than you think.
If you can increase the probability
of success by hiring great people.
By asking a lot of questions,
by finding your risks early by
having people surface problems.
You're going to increase
your probability of success.
And either you're successful or
you're not and so it's about probability.
And people worry way too
much about dilution and
not giving more equity to a co-founder or
a new hire who may need
to be made a co-founder.
I'm seeing a lot of this
in the AI startups now.
They're AI startups, but they don't
hire the AI talent because, hey,
the average AI person at Google,
machine learning person is making,
the median income I
think is like $750,000.
>> Yeah.
>> What you going to
do to get that person.
>> Mm-hm.
>> You can pretend you
can do without that.
But you're fooling yourself.
Sorry, there was a question there.
>> Yeah.
>> You touched on this earlier, and
you spend your Saturdays
going through resumes.
So for early stage, could you go
through the 30 second to one minute,
where you look for, if you're hiring,
let's say, probably technical or
early business [INAUDIBLE] person.
>> What do I look for?
>> Yeah.
>> First, people who can think reasonably
about their area, whatever their area is.
>> [INAUDIBLE]
Is it a [INAUDIBLE] LinkedIn?
>> Sometimes just if I ask
somebody what interesting papers have
you read in your area of expertise.
If it's narrow diversity,
it tells me one thing,
if it's broad diversity it's
one of my 100 questions.
I'll ask this first questions
like what books have you read.
But it tells you how they think.
And that's critical to a start-up in
addition to knowing encryption algorithms.
Ann, you tell me when to stop.
I'll keep asking.
>> Yeah,
I think we're probably at the last one.
>> Great.
>> Yeah.
>> So, for an early stage start-up
that's bootstrapping do you see
any value in leveraging technical
advisors or an advisory board?
>> There is always value
in leveraging technical
advisors in their advisory board.
What is important to get
to get their opinion, but
not respect it too much,
this is a quandary that is hard.
You want them to surface the issues, but
you as the founder using first principles.
One will say,
do I believe there's a knot or
how much should I weigh this
versus some other things.
That's the critical tought,
that's the hard part.
That's what makes entrepreneurship hard,
because it is a lot of fun but
it's really hard gift.
I have a great presentation,
I came up with the title in 1986 and
still in our website,
the entrepreneurial roller coaster with
the high is a high and the low is a low.
And the low's a really
low in every start off.
>> Yes that's true, we'll thank you so
much for taking the time.
>> Thank you everybody.
>> [APPLAUSE]