JOHN DOERR IS A partner and the chair of the venture capital firm Kleiner Perkins Caufield & Byers. His record as a venture capitalist is outstanding and includes backing businesses such as Amazon, Compaq, Google, Intuit, Macromedia, Netscape, Sun Microsystems, Symantec, and Twitter. Doerr began his professional career at Intel in 1974, the year the company introduced the pioneering 8080 microprocessor. His time at Intel in engineering, marketing, management, and sales roles allowed him to develop into a well-rounded startup investor and adviser. Doerr has said, “My advice for people who want to be a venture capitalist is to forget about it. Try to be a successful entrepreneur instead.” His advice echoes Buffett’s that being in business makes you a better investor and vice versa. Doerr earned bachelor’s and master’s degrees in electrical engineering from Rice University and an MBA from Harvard Business School.
1. “Swing for the fences when your time is right.”
What Doerr is talking about is the so-called Babe Ruth effect. Michael Mauboussin writes that there is “a lesson inherent in any probabilistic exercise: The frequency of correctness does not matter; it is the magnitude of correctness that matters.” When you find a clear bet with a big upside and a relatively small downside (i.e., convexity), bet big! That will not happen very often, but when it does, you must be ready to act aggressively. The wise investor is patient but aggressive when the time is right. Venture capital, like all forms of investing, is an activity in which a knowledge of probability and statistics is essential. Charlie Munger said once, “If you don’t get elementary probability into your repertoire, you go through life as a one-legged man in an ass-kicking contest.” What Munger said applies very much to venture capital.
2. “We believe that ideas are easy; execution is everything.”
A good idea or invention is necessary but far from sufficient to achieve success in business. It takes an entrepreneur to take an idea and turn it into a genuinely scalable business. A “roll up your sleeves” and a “make the trains run on time” effort from a team of people is essential. On this topic, Bill Gates once said,
Being a visionary is trivial. Being a CEO is hard. All you have to do to be a visionary is to give the old ‘MIPS to the moon’ speech. Everything will be everywhere, and everything will be converged. Everybody knows that. Which is different from being the CEO of a company and seeing where the profits are.
3. “Believe me; selling is honorable work—particularly in a startup, where it’s the difference between life and death.”
How could someone describe the importance of sales to a startup more starkly? Poor sales results mean inevitable death for a startup. When it comes to sales success, I have seen just about everything from nonexistent to excellent. At one end of the spectrum, I have seen startups composed entirely of engineers, none of whom knew how to sell. The result in a situation like that is not attractive. I have also seen sales teams able to sell products and services at superhuman levels given competition and the nature of the product. But in such cases, the customers eventually wise up and stop using the product, which means the company dies. Staging is important. A compelling product that solves a real customer problem must be created before the business devotes resources to sales and marketing.
4. “The best entrepreneurs don’t know what they don’t know, so they attempt to do the impossible. They often succeed.”
Convexity is often found in what at first seems impossible. If a new business does not at first seem a little impossible, there would inevitably be many people already pursuing the opportunity. Many entrepreneurs fail as they attempt the impossible and are forgotten by history as survivor bias kicks in. Failure is an essential part of human progress. Capitalism without failure is like heaven without hell. It does not work.
5. “The best entrepreneurs don’t focus on success. They concentrate on building a company that can be a leader in the global economy. They know success will follow. If you focus on success, you won’t get there. If you focus on contribution and customer value, then you can win.”
Mercenaries are driven by paranoia; missionaries are driven by passion. Mercenaries think opportunistically; missionaries think strategically. Mercenaries go for the sprint; missionaries go for the marathon. Mercenaries focus on their competitors and financial statements; missionaries focus on their customers and value statements. Mercenaries are bosses of wolf packs; missionaries are mentors or coaches of teams. Mercenaries worry about entitlements; missionaries are obsessed with making a contribution. Mercenaries are motivated by the lust for making money; missionaries, while recognizing the importance of money, are fundamentally driven by the desire to make meaning.
A venture capitalist I know recalls Doerr using the “missionary-versus-mercenary” metaphor as early as 1998 at a Stewart Alsop Agenda conference. Doerr has repeated this idea often over the years, and it has essentially become a meme in the venture capital industry. In short, mercenaries are motivated primarily by money. Missionaries are driven by a cause. Doerr prefers a missionary approach to starting a business but realizes that mercenaries can sometimes succeed. Missionaries tend to hang in there longer since they are pursuing a cause and not just wealth. They have greater grit and determination and will not be as likely to sell out too early. Elon Musk is an example of a missionary founder who is more interested in changing the world and creating enduring businesses than just the financial rewards that may flow to him. Mercenaries may sometimes succeed financially, but they do not bring as much lasting value to their communities. What a city or nation wants in terms of economic development are businesses that produce jobs, innovative products and services, and a better quality of life, and that add to the tax base over the long term.
6. “The best entrepreneurs are the ones who go the distance with their companies, who are always learning.”
Great leaders are great communicators. They have incredible integrity: They’re usually the first to recognize problems. They’re ruthless, entirely intellectually honest. They are great recruiters: They’re always building their network of talented people. And they’re great sales executives: They’re always selling the value proposition of the enterprise.
Great leaders and entrepreneurs have a big bag of skills. Having just one skill, or even a few, is not enough. The best way to create a big bag of competence is to be a learning machine. A corollary to this point is that a diverse team in the broadest possible sense is a stronger team. Great founders and CEOs hire people who complement their skills and are multipliers of what the CEO can do on his or her own.
7. “In anything worth doing, it takes a team to win.”
In the world today, there’s plenty of technology, lots of entrepreneurs, plenty of money, plenty of venture capital. What’s in short supply is great teams. Your biggest challenge will be building a great team.
Recruiting is such a huge part of a startup’s success that it is hardly possible to emphasize it enough. Great people attract other great people. As Bill Gates has said, “There’s an essential human factor in every business endeavor. It doesn’t matter if you have a perfect product, production plan, and marketing pitch; you’ll still need the right people to lead and implement those plans.”
8. “If you can’t invent the future, the next best thing is to fund it.”
Doerr is saying that funding innovation is a noble second choice to being a founder. Of course, many founders go on to be successful venture capitalists. Being a founder definitely requires more courage.
9. “No conflict, no interest.”
This quotation may be apocryphal since no one seems to be able to cite a source. Whether Doerr said this or not, it is certainly true that in private markets investors can look for a proprietary edge that would be unacceptable in public markets since the same disclosure requirements do not exist.
10. “The old economy was about people acquiring a single skill for life; the new economy is about life-long learning.”
Choose your first job based on the experience, not how much money you will make. Carry a bag (sell something), launch a product, manage a dozen people, learn from great companies. You will be judged on your ability to listen and think critically. Confront problems, not people. Learn. You’ll get extra points for a sense of humor. Always network. That means, learn about people and what they do. Also, develop a couple of mentors.
People with access to better networks have better information, which they can turn into achievement, which gives them better information. Success feeds back on itself.
11. “Everyone who is a practitioner of the venture business knows most of the returns accrue to a small group of firms. And I don’t think that’s ever going to change.”
Returns in the venture capital business are not spread evenly like peanut butter. Because other aspects of life have outcomes that reflect a bell curve distribution, people may underestimate how extreme outcomes can be. Venture capital is part of what Nassim Taleb calls “Extremistan.”
12. “Stanford is the germplasm for innovation. I can’t imagine Silicon Valley without Stanford University.”
To illustrate Doerr’s point, I like to tell a story about how the spoils were politically distributed when Washington Territory joined the United States as a state in 1889. Tacoma was the terminus for the railroad, not Seattle. Olympia was awarded the state capital. Walla Walla received the penitentiary. And Port Townsend, which had a thriving port, received a customs house. What Seattle won in the political process that resulted in statehood was more funding and support for the University of Washington, which had been founded in 1861. In terms of economic development, having the university in Seattle made all the difference. Great cities get built around great colleges and universities. Seattle without the University of Washington would not be Seattle. Doerr is saying that Silicon Valley without Stanford would not be Silicon Valley.