- Vinod Khosla, founder of Sun Microsystems and Khosla Ventures, discusses the mindset and approach to building an ambitious company.
- He emphasizes the importance of thinking beyond short-term goals and focusing on building a strong team from day one.
- Khosla believes that the initial people hired and the approach to tactics are the biggest differences between a 0 dollar company and a 0 dollar company.
- He criticizes investors who prioritize revenue and meeting short-term plans over the long-term vision of a company.
- Khosla states that 90% of investors add no value, and 70% actually have a negative impact on a company.
- He argues that board members and advisors should have experience in building large companies and making difficult decisions under ambiguity.
- Khosla advises entrepreneurs to carefully consider whose advice to trust on different topics and suggests that investors can provide valuable guidance in this regard.

- The speaker discusses the challenge of knowing whose advice to trust when backing a young entrepreneur with no work experience.
- They suggest looking at how entrepreneurs think about problems and their ability to approach new problems from scratch as an indicator of their ability to learn and trust others.
- The rate of change and evolution of a startup's plan is seen as a strong indicator of success.
- When hiring a VP of marketing, the speaker emphasizes the importance of their ability to ask the right questions and make other team members better.
- The speaker values ambition in founders and believes it leads to the hiring of a team that can build a billion-dollar company.
- The speaker shares their experience of recruiting top talent, which often takes months and requires convincing them to leave something great behind.
- The speaker discusses the importance of attracting and retaining top talent in the early stages of a company, which can lead to long-term success.
- The speaker emphasizes the need for a think tank of visionary and unreasonable people, supported by more reasonable individuals who can execute the ideas generated.
- The issue of equity allocation is mentioned as a problem, with the speaker suggesting that it is not being distributed widely enough.

- Founders should allocate equity more widely
- Keeping a smaller percentage of equity for themselves allows founders to attract and hire top talent
- The quality of people a company can attract is greatly improved by being generous with equity
- YC should focus more on option pools and recruiting co-founders
- Being generous with early employee equity is crucial in the first 6 months of a company
- Hiring the right team is essential for success, and there is a process for maximizing chances of success
- Picking the right investors is also important, as they should care about the founder's vision and be tolerant of setbacks
- Most investors detract from value and are negative value add to ambitious companies
- Ambitious founders should build a team and be thoughtful about discovering risks on the path to their vision.

- The speaker believes that a large vision requires identifying problems and finding solutions.
- They emphasize the importance of both a big vision and practical steps to achieve success.
- The speaker dislikes people who talk without taking action and prefers to surround themselves with doers.
- They have a 20-year plan to reinvent societal infrastructure using technology.
- The speaker believes that every part of the non-governmental US GDP can be innovated upon for significant improvements.
- They question whether it is possible to provide a high-quality lifestyle for 7 billion people without damaging the planet.
- The speaker is excited about various areas of innovation, including eliminating animal husbandry, 3D printed buildings, and AI.
- They hope to stay healthy and continue working on their goals for the next 20 years.

Vinod Khosla, founder of Sun Microsystems and Khosla Ventures, discusses the mindset and approach to building an ambitious company. He emphasizes the importance of thinking beyond short-term goals and focusing on building a strong team from day one. Khosla criticizes investors who prioritize revenue and meeting short-term plans over the long-term vision of a company. He argues that board members and advisors should have experience in building large companies and making difficult decisions. Khosla advises entrepreneurs to carefully consider whose advice to trust and suggests that investors can provide valuable guidance. The speaker discusses the challenge of knowing whose advice to trust when backing a young entrepreneur with no work experience. They suggest looking at how entrepreneurs think about problems and their ability to approach new problems from scratch as an indicator of their ability to learn and trust others. The rate of change and evolution of a startup's plan is seen as a strong indicator of success. The speaker emphasizes the importance of hiring the right team, attracting and retaining top talent, and being generous with equity. Picking the right investors and having a big vision with practical steps are also important. The speaker believes in taking action and surrounds themselves with doers. They have a 20-year plan to reinvent societal infrastructure and are excited about various areas of innovation.

Vinod Khosla is the founder of Khosla Ventures, a firm focused on assisting entrepreneurs to build impactful new energy and technology companies. 

https://twitter.com/vkhosla  
https://www.khoslaventures.com/  

Previously he was the founding CEO of Sun Microsystems, where he pioneered open systems and commercial RISC processors.

How to Build the Future is hosted by Sam Altman - https://twitter.com/sama

***

Topics

00:00 - Vinod’s intro

00:40 - A zero-million-dollar company vs a zero-billion-dollar company

3:50 - What percentage of investors in Silicon Valley are good long-term company builders?

4:20 - Who has earned the right to advise an entrepreneur?

6:20 - Which risk to take when

6:50 - Helpful board members

7:45 - Who to trust for what advice

10:30 - First principles thinking and rate of change

12:30 - Evaluating a candidate in an interview

13:45 - How much should a founder have planned and how ambitious should a founder be?

16:00 - Recruiting great people

18:30 - Building a phenomenal early team

19:50 - Being generous with early employee equity

26:30 - Gene pool engineering - https://www.khoslaventures.com/gene-pool-engineering-for-entrepreneurs

26:48 - The art, science, and labor of recruiting - https://www.khoslaventures.com/the-art-science-and-labor-of-recruiting

27:50 - How founders should think about investors

30:30 - Doers vs pontificators

31:30 - What does Vinod want to do in the next ten years? 

31:40 - Reinventing Societal Infrastructure with Technology - https://www.khoslaventures.com/reinventing-societal-infrastructure-with-technology

Vinod is the founder of Sun Microsystems and Khosla Ventures.

He's been involved in the creation of dozens of billion dollar companies.

And I think is 1 of the most interesting thinkers that I've ever spoken to about how to build an ambitious company and team and everything else you need.

So thank you for taking the time to talk to us today.

I want to start with the very beginning and how to think about the idea and the mindset for a company.

1 thing you've said before that I really love is that there's a huge difference between a 0 dollar company and a 0 dollar company.

And maybe you could start with just explaining what you mean by that.

To me, when you set out on a journey, Your mindset determines who you bring on board, how you approach it, what you set up, what deals you do, or which investors you get.

In a 0 revenue company, If you think 0, you're thinking a certain way to tactically achieve a short-term goal.

0 dollars, you start building from day 1 the company and the people you'll need to build the company.

1 of the things people seldom realize when they're starting up, you don't ever plan what you're going to do.

And who helps in that planning, As you plan iteratively, as you evolve your strategy and your tactics, that team, which I call the kitchen cabinet of a company, is the essence of what your company will become.

So 1 of my favorite tweets I like tweeting out is, a company becomes the people it hires, not the plan it makes.

And is the biggest difference between the 0 and the 0 dollar company the initial people you hire, in your experience?

It is the initial people you hire, but also how you approach the initial tactics.

My other great analogy, if you have a large vision, you're climbing Mount Everest, it's never a straight line.

Nobody's climbed Everest in a straight line.

You get to base camp, you get to camp 1, camp 2, camp 3, camp 4.

If you get the right approach, you keep your, you're obstinate about your vision, which is Mount Everest, but you are flexible about tactics as things change, as you zig and zag, when you pivot.

These are all things on the way to staying with the vision.

Now you can also do the same tactics without worrying about the vision.

And my big beef with a lot of investors is they want revenue, they want to meet plan as opposed to collect assets for this larger ascent to Mount Everest.

So you can clearly set up base camp where you get revenue, stability, cash flow break even, the ability to raise more money in the wrong place.

If your goal is to get to have rest, But you still get the revenue.

You might have $20 million, $50 million, $100 million of revenue.

Or you can take a little longer, a little harder, get to the base camp that lets you get the resources to keep the journey to your vision.

There's a huge difference, and the team is the biggest difference, but there's also strategy differences.

By the way, investors, in my view, matter a lot in this, because you make short-term versus long-term trade-offs.

What percent of investors in Silicon Valley do you think are good long-term company builders?

In my assessment, 70% of investors add negative value to a company.

That means they're advising a company, this is part of team building too for entrepreneurs.

They're advising a company when they haven't earned the right to advise an entrepreneur.

So some of the junior people here, when they ask me, hey, at this other firm, young people are going on boards, can I be on a board?

I say, you haven't earned the right to advise an entrepreneur, so it's unfair to the entrepreneur.

Just because you got an MBA and joined a venture firm doesn't mean you're qualified to advise an entrepreneur.

The biggest piece of it, not the only way, is have you built a large company?

Have you gone through how hard it is, how uncertain it is, how traumatic it is to go through?

I mean, just this morning I was talking to somebody about how many times we almost worried about making payroll at Sun.

And there was a period, there was a three-month period where we almost went bankrupt because we had a hardware problem.

Monitors we were buying from Philips were breaking every 30 days.

I think there was probably a month or 2 when the earliest I went home was at 3 a.m.

And the latest I was back in the office was 7 a.m.

It just, you know, unless you gut-wrench, you've felt that gut-wrenching decision, you can't advise an entrepreneur.

I hate board members who sit in a board meeting and say, oh, can you improve quality?

And then 5 minutes later, can you ship faster?

And they've never gone through really hard trade-offs.

If you add more people and increase your burn rate, are you gonna improve or hurt your chances of getting something out?

These are very uncertain, very hard calls.

The biggest thing an entrepreneur deals with is which risk to take when.

When you take a financial risk of running lean, when you take a engineering marketing risk of a feature poor product, when you take, which risk do you want to take?

And ambiguity is so hard to deal with, but it's the essence.

And frankly, it's 1 of the areas where entrepreneurs, when they don't think about what they actually need, pick the wrong people.

So if somebody's never dealt with this decision making under ambiguity, and they're in a big company, they're not qualified to help you.

1 of the things I hate about board members is when you're doing that, making these, deciding which risk you want in this stressful environment, the thing you most want as an entrepreneur is a board that you feel is calming you down, is supporting you, is not adding the stress.

And most board members, while you're doing that, just tell you, oh, you're gonna die.

The thing I hate the most is when an old board member of mine used to send me press clippings of competitors all the time to make a point.

And you really just want someone who's like, you gotta take a hard risk here.

Look, these things are the things you're not qualified to advise an entrepreneur on if you haven't been thrown.

There is a time when panic is the appropriate response in a company.

1 thing that I think I've noticed entrepreneurs that are working on hard, ambitious companies really struggle with is figuring out who to trust for what advice.

So my big advice, and the first piece of advice I gave Joe Kraus when he was starting Excite was, the single hardest decision you'll make is whose advice to trust on what topic.

You know, if you're 20 years old, do you ask your dad or your friends?

Or if you have a marketing problem, do you ask somebody who's done marketing at IBM?

They've never dealt with things where the market isn't established.

It's incremental year to year, 5% improvement is what they're shooting for.

They're not qualified to invent whole new markets, whole new approaches to markets.

So those are really hard decisions, and that's where nuanced advice of which employee would be better.

You know, the funny story that's actually not known very much is Scott McNeely, when he started Sun, he started as a VP of manufacturing.

At 1 point I said, Scott, you've got to become our VP of sales because of certain types of behaviors.

So you have to make those, but back to this issue, whose advice to trust on what topic is the single hardest decision an entrepreneur makes.

It's also where the right investors can really help you.

I had an argument just last week with another co-investor.

In a healthcare company, they wanted this healthcare person who had never dealt with change beyond 2% a year.

And I'm like, experience doesn't matter, the rate of learning matters.

Pick for the best athlete, not the person who's the most established wide receiver who knows how to run 1 pattern and 1 pattern only.

We'll keep running into things we wanna follow up on.

How do you, so I agree it's like really hard to know who's advice to trust, but a 20 year old entrepreneur comes in here, no work experience, you decide to back them.

You have to give him or her advice and say, here's how to do this, what do you say?

Like how do you know who's advice to trust tactically?

So I look at not what entrepreneurs are saying, and we always have this debate inside a firm too, but how they're thinking about the problem.

In first principles thinking, if you give them brand new problem.

So I'll often say, hey, if you are doing this other startup, how would you approach it?

And if they have to think from scratch on a brand new problem, and by the way, this great interview question, that they've never dealt with, they don't have an experience with.

Is probably the best indicator of how fast they will learn.

Including learning how to trust different people's judgment?

Including learning who to trust and which people to trust.

And so this becomes sort of this nuanced thing.

I'm sure you've noticed 1 of the things we look at YC stuff in the 3 months that they've been at YC, what's their rate of change?

If we've had multiple points of intercept, right?

That may be a stronger indicator than any other single indicator.

So We always say how fast did they evolve their plan, change their plan?

What's frustrating to me with other investors, they say, well, stick to your plan, or are you executing in your plan?

Like how fast are you evolving your plan or changing your plan and learning.

But building that team that can, so this brings up a related issue we should talk to since I want to focus on people.

When you hire a VP of marketing, and I've said this to you before.

1 question, the functional question is, can you do marketing?

But that's not the most important question.

If he's 1 of the top 5 people in the company, the most important question is, what are the questions he will ask, how will he make the CFO better or the VP of Engineering better through the questions they ask, which then prompt this kind of thinking, which then leads to a better kitchen cabinet.

The people you coalesce around your dining table when you have a really hard, ambiguous, uncertain decision to make.

And how do you evaluate that in an interview?

You're interviewing a VP of marketing, you want to know if you're

I'll often say, If you were, people often say, here's what happened at my company.

And I'll say, if you were CEO, and you had to make a different set of decisions, what would you do?

Have them think under circumstances, or if you're doing this other startup.

1 of my favorite questions in startup world is, if I gave you $10 million today, what startup, 3 startups would you consider, and what are the reasons as an investor you wouldn't want to invest in those?

Like, you suddenly get how they think about a new problem, which is what you face every day in a startup.

Yeah, it really is true that the, I think 1 thing everyone underestimates when they start a startup is just how little of the problem they've already thought about and how much more is going to reveal itself every week.

So I often tell entrepreneurs a business plan is completely irrelevant other than to judge how somebody's thought about a problem, not what they're going to do.

Speaking of that, how much do you expect a founder to have figured out early on?

How ambitious were you when you started Sun?

How much did that vision stay true to what happened?

I'd done 1 other startup before that was also pretty successful, Daisy Systems, and that went on to go public in the 80s, raised $100 million, which is a huge IP on those days.

So I was very ambitious, but because I was much more passionate, and passion's an important ingredient we should talk about, especially in a team.

I was passionate about what I wanted to get done, not about the IRR or the returns.

So I like founders who are very ambitious.

Mostly because if they're not ambitious, they'll hire a team to build a $0 million company.

If they're ambitious, they'll hire a team to build a $0 billion company.

So among the first 15 people at Sun, 15, 20 people, we hired Eric Schmidt, who went on to run Google.

I didn't know he was going to be that capable.

We hired Carol Bartz, who ran Autodesk, and then Yahoo.

Hired Bill Joy, who wasn't part of the initial founding team.

We recruited him as a founder after the fact.

We hired so many other people, guys like Tom Lyon, Bob Lyon, each of which have started billion-dollar companies.

Larry Garlick, who nobody knows now, who started Remedy, which like this, Andy Bechtolsheim himself has started so many companies.

There was such an incredible talent pool there.

By the way, I just want to take 1 small diversion.

When I met Andy, He was in Margaret Jacks Hall at Stanford.

He said, why don't you license the technology for $10,000?

And he had licensed it to 6 other startups at 10,000, which in the 80s for a graduate student was a shitload of money.

In fact, 1 of those companies, Simblink, was funded by Kleiner Perkins and John Doerr was on the board.

I said, Andy, I want the goose that laid the golden egg.

I don't really care about the golden egg because it will be irrelevant in a couple of years.

I didn't know why, but part of it was I just loved interesting people.

But I gave him half the equity just to join.

And then I did a sales job and selling is an incredible part of being an entrepreneur into dropping his PhD.

Best decision I ever made, best decision he ever made.

But it was a hard sales job to convince him.

I sort of say in recruiting, a no is a maybe, and a maybe is a yes.

And I get very disappointed when I can't get a yes.

did it take you to get in from a no to a maybe to a yes?

A couple of months, but Bill Joy took 6 months because I also had to convince him to drop his PhD.

The very best people I've ever recruited in different places in my career have all taken at least months to recruit.

Because they always have something great to walk away from.

The people who don't have something great to walk away are probably the people you don't want.

And especially when you're thinking beyond this functional, then the people who do job X well, whether it's marketing or database architecture or whatever, are thinking linearly.

If they're broad thinkers, which is what's key to that kitchen cabinet that helps you evolve a plan, you need people who are so full of ideas, they're always triaging down to the thing they can do.

And people like that always have great opportunities, so it's hard to get them to join as an employee because they can start their

So this is actually what I wanted to go to next.

There's a handful of companies that have been able to get those people in the early 10, 20, 30 employees that could go start their own company and that go on to later.

What did you do at Sun, and what has happened at other companies where you've seen this, where people build this phenomenal early team that goes on to be wildly successful?

Well, it's always about, you know, entrepreneurship is a funny thing, because vision is impractical.

If you're reasonable, you won't do unreasonable things.

And so If you have great managers, good process people, they will work against allowing the company to become great.

They'll take a great idea and turn it into a good 1 and execute a decent idea at lower risk that's more reasonable, more sensible.

And that's an okay goal to have, if that's your goal.

If your goal is something unreasonable, something ambitious, really visionary, something change the world, then you have to take the other approach, get this think tank of unreasonable people together, and below that layer the reasonable people who micro-optimize within the macro ideas that the kitchen cabinet comes up with.

How do you think about the equity that it takes to attract these kinds of people?

People aren't allocating equity widely enough.

I think among the first 3 or 4 founders at Sun, we kept less than half of the common, which was just the total was something like 25 to 27% for the founders, an equal or slightly larger chunk for everybody else we would hire.

And then investors had minority, but a significant minority.

So it was like 40% for investors after the A round, something like that.

In retrospect, that was a very good idea.

So when last year my son started his company, I said, keep 15% for yourself instead of 45.

Try and hire 1 or 2 people at 15%, even though they're coming later, even though they didn't come up with the idea, but that would be incredible resources, especially magnets to attract other people or bring essential skills.

Can you say what you mean by a magnet to attract other people?

So if you believe a company becomes the people it hires, then your key task becomes attracting the people.

There's also using them productively, that's a management skill.

But attracting people becomes who finds you attractive.

So Bill Joy was an incredible magnet, even back then.

And even though open source didn't exist the way it does today, People wanted to work with Bill and Andy.

And even if Bill didn't do a day of work, he was more than worth it because he helped attract Eric Schmidt.

I don't think Eric would have come work for me as a 25 year old, other than I did have self convincing power of why this was going to be large.

We discarded, for example, the notion that, which most investors said, why don't you be a graphics add-on terminal to DEC VAXs?

There was a company in Utah, Evans & Sutherland, that built graphics terminals.

We wanted to do distributed computing, and nobody had heard of the term.

When we released NFS, there was no distributed file system in the world.

And we open sourced it and people first said, 1, who needs distributed computing?

And the second question was, if it's important, why are you giving away all your intellectual property?

Thinking non-linearly about it is what matters, and that's what the team enabled.

Full circle, back to equity, as much as leaving 30% of the pool to non-founders.

So Neil took 15%, He recruited in his other startup, Curai.

He kept 15%, hired 15%, a co-founder for 15%, and then left the rest to hire great employees.

Now, It is dependent on the area you're working in.

He wanted the people who were all making million dollar salaries at Google and Uber and other places as engineers.

So you had to give them 345 percent each.

And you'd normally not think about it, but if you're competing in an AI startup, you're not going to get the best talent without, and especially if this issue we talked about earlier, if somebody can do their own startup, they will.

So you're not comparing them to some, your job, you're comparing them to them starting their own company.

And so, and if you don't do that, you're including only the people who couldn't start their own company who won't help you evolve your plan.

A thing that I hear a lot is, I can hire an engineer for X per basis points, so why would I ever pay 5X or 10X?

And then I always say, wait, in 2 years, ask me again if that was the right decision.

But the quality of people you can get if you're super generous with equity.

I think this is the shape of things to come.

the- By the way, this is my single biggest beef with YC, not enough option pools, right?

Not enough option pools, not enough focus on recruiting the right co-founders.

I was fortunate Neil trusted me so I could shepherd him into sort of a very different approach.

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Vinod Khosla on How to Build the Future