What Does it Mean to Be a Virtual CEO?, with Randy Komisar / KPCB (2004)

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I always tell people that what distinguishes Silicon Valley is not its successes but the way in which it deals with failure. We live in an industry, innovation industry, and we live in a place, Silicon Valley, that operates much like the home run averages for batters in the Major League. They're going to strike out more than they get home runs, and they're going to hit less than 500. That's the deal. That's the deal in the Valley. We're going to hit less than 500. It's by definition the case. This is about experimentation. Innovation is about taking risk to do things that haven't been done before. If you could do them with a level of certainty that would increase the odds above 50%, we wouldn't need Silicon Valley. Big companies would do it, and they'd do it well. The reason big companies don't venture into what Silicon Valley does is because their business models do not tolerate the level of failure required for innovation. The only business model, solid business model that has been created to deal with failure and still make substantial amounts of money, so substantial that they're able to continually invest in failure, reaping just few success as they can, is the venture capital model, the portfolio model. Big returns on winners and a lot of losses. So we live in a world of risk and we live in a world of failure. And the real issue is, how do we deal with that failure? When I travel around and look at the Silicon Valleys of other places in the world, one of the distinguishing factors as you look at them is certainly not the infrastructure. They've got cubicles. They've got broadband. They've got lawyers. They've got accountants. You go to India and you walk into Wipro emphasis offices and you swear you're in Silicon Valley. What generally is lacking is a culture of constructive failure. Constructive failure, the ability to tolerate failure, proceed with your career, and do it again; and take your experience and cash in on it as an asset. Still, many business cultures where when you fail, you're finished. And that includes Western Europe. I find that probably the most entrepreneurial cultures with regard to innovation and failure are the United States and China. Chinese are natural, absolutely natural entrepreneurs. More so than India in a sense of being able to take risk and fail. So the culture of failure or constructive failure is what defines this place. I've lived it. I've had plenty of failures. If you sort of tally up everything I've done and you actually take a look at the money made, not just the outcomes, because a lot of these outcomes are what I call horizontal outcomes. Meaning that, even if we succeed, we sold it. We gave it away. We merged it. It survived but nobody made a bunch of money. But when you take a look at all of that, I've had some screaming financial failures. GO was a huge financial failure for that time. But I tell you, the amount of money we lost is going to seem poultry especially compared to things like Webvan which basically left a billion-dollar crater in the Valley. But we left about a $75-million-dollar crater in the Valley and that was huge at that time for a startup company. Interesting enough, this context of constructive failure has left me with a very different view of what failure is and what success is, and also gave me a different view of my failures. I would say, most of us who were at GO do not see it as a failure in a broad sense. Most of us who were at GO see it as being a success in terms of the development of character, esprit de corps, and the tools for dealing with immense challenges in complex businesses. That group, if you take a look at the executive team of that company, Mike Homer went off to found Netscape; Stratton Sclavos went off to found VeriSign; Jerry Kaplan went off to found Onsale; Bill Campbell went off to run Intuit. I went off to run LucasArts Entertainment. And we can go on, and on, and on. So, in terms of failure, it was actually one of those experiences we all look at and feel good about because of the way we behaved, and the way we worked together, and the quality of what we did together. Now, compare that to Crystal Dynamics, which I did a couple of years later. Crystal Dynamics is a company that is distinguished in my career because it's the only time I ever took a job and got a raise. Every single time I've ever taken work, I have given up cash. And I usually make more money at the other side. Crystal Dynamics was also distinguished because it was one of the most incremental changes I've ever made in my career. I've been running a game company. I was going to run a game company. My goal was to make the second one as successful as the first one. It was a very simple goal. It didn't work out that way. It was a terrible failure for me. Now, mind you, people made money on that deal. That deal went sideways and then up. And so unlike GO where people lost money, people made money at Crystal Dynamics. Why was it a failure? It was a failure because I failed. Because the quality that I did was not good. Because I didn't have the passion to persevere and do what that company needed to do in terms of right-sizing and redirecting it. So what failure meant for me after Crystal Dynamics was very different than what I thought failure meant when I was early in my career at a place like Apple. And Claris spoiled me. I mean, everybody should have the opportunity to work in a company that's very successful, and then in a company that fails; because working in a company that's very successful, you get a context for understanding what success is in an operating business, but you don't learn much. But you really learn, and when you learn, is when you're confronted with failure. And that I think is the primary root of constructive failure and why this Valley is so successful with failures. I think you can learn from those failures. I think, ultimately, the only way to really, really, to get your money's worth out of failure, better be your own, right? And that's largely because that hollowness in your stomach, the disappointment of 250 people whose lives and families depend on you, the chagrin of your board members, you got to feel it. You got to feel it if you're going learn it. And I think some people are lucky enough to go through life failing a little, or not at all. I don't think they're probably as wise as the guys who have actually failed.

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Globalization is a force that cannot be stopped. It's not new. It's age old. It's been going on since the Fenitians and earlier. And while we can make it better, the idea that somehow we can politically stop it. Or that we should is a fantasy. That means that entrepreneurs even in places as parochial as Silicon Valley. And I say parochial not in the sense of the credible diversity of people and talent we have in Silicon Valley but the nature of the focus of the markets at Silicon Valley. I think globalization needs to be part of the tool set for every entrepreneur doing a start-up today. It doesn't mean that they immediately attack markets in far off lands. It doesn't mean that they immediately outsource to India or China. It means that they understand the palette they have to work with. And begin to take consideration of that in the process of finding their business or business models and products. And so my sense is that every company is to become global in the sense of understanding what it means to be able to be effective globally and what you're business is going to look like as it matures. The extent that you're talking about being global in terms of taking products to various markets immediately or outsourcing, your innovation. I think that's premature. And I don't think start-ups need to be that proactive. Those are much more strategic decisions. In fact there's a lot of discussion about what gets outsourced. Everybody's terrified of all the offshoring to India and soon to China because India is too expensive. The reality is, there was a great article in New York Times or was it Wall Street Journal, one or the other. Innovation is hard to outsource. It's hard to offshore. It's not because people aren't very smart at the other end of that pipeline. They are very smart but they're too distant from the market and the ecosystems that they have to operate with. It's not intimate to them. And they're not intimate in terms of the group that they have to operate with. Rules-based structured development is well done at the other end of that pipeline. Innovation is not. And so early stage companies don't need to concern themselves as much with that. Depending upon what their business looks like. Your business is to take a product and pour it to new operating environment. By all means do it in India. If you're interested in creating the biggest network search environment in the universe, a la Google. You better have a pretty intimate group of people who can operate at light speed together.