John Chambers - Pattern Matching, Playbooks, and Winning Product Categories - [Founders Field Guide, EP.6]
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O'shaughnessy this founders field gut founders field guide is a series of conversations with founders ceos and operator spilled and great businesses i believe we all builders in our own way in this series is dedicated stories and lessons from builders of all types you can find more episodes at investor field guide dot com Patrick o'shaughnessy is the ceo of shaughnessy asset management all opinions expressed by patrick and podcast. Guests are solely their own opinions and do not reflect the opinion of o'shaughnessy asset management. This podcast is for informational purposes. Only and should not be relied upon as a basis for investment decisions clients of a shaughnessy asset management maintain positions in the securities discussed in. This podcast i guess this week is john chambers. John was the ceo of cisco from nine hundred ninety. Five two thousand fifteen for he helped grow cisco from seventy million to forty billion dollars in annual revenues. In this conversation we discussed the best business lessons. He learned from longtime gc. Oh jack welsh his key lessons from acquiring over one hundred and eighty companies for cisco pattern recognition and play books. Capitalizing on market transitions enabled by new technologies. The value of team offsites and a lot lot more. I was immediately drawn into john's magnetic personality. And it's easy to see how he was so adept at running a forty thousand person company for two decades. I hope you enjoy this. Great conversation with john chambers so john i was toying with how to begin this conversation for everyone to hear and i thought a really need entry point would be the observation. You told me about from. Jack welsh that you need a near death experience as a company to become a great company. Can you walk me through that idea. And the episode for you. Jack welsh a ge was one of the greatest business leaders of the generation in front of me. And i'd say many people would say he was the best he did. Many things will but one of the things he did was benchmark companies learn from them and uc when he sent his teams out the benchmark companies. If they got one idea from the company it was great when they benchmark cisco shocked. They came away with twenty two areas. They wanted to emulate and learn from and direction and jack welsh even though he was not a technologist at all understood the market transition going on so we became good friends and developed trusting relationship in the mid nineties and we were on our way to becoming the most valuable company in the world. I was talking to jack and he said john. You've got a good company. And i said i know jack that you're baiting me on this. I think we got a company that is pretty close to becoming a great company. What am i missing. He basically said john near death experience. And as i've gone through some tough times now rattled off the economic recessions etc. And he said no john until you go to a near death recession setback type of approach. You will never be a great leader yourself because you have to question your own ability to lead your friends who sunny turn on you. You've to go through that and your company has to go through it as well. So that's one of those things when you hear pieces of ice ugo. Patrick at was good advice. Bat probably not. I'll put it over to the side. Two thousand one the dot com bust. He was exactly right. It was the hardest year my business career. We had never missed a forecast with created ten thousand millionaires in our company. We were on a roll with run. Every word imaginable as a company and all of a sudden people were questioning. How do we go from the most valuable company in the world to a company. Should i even be leaving the company. It was a tough year for me. We lay off seven thousand five hundred people very painful. These my family. I knew many of them very very well personally and so. It was the year that i felt that. I did not do a good job leadership them he called me up at the end of two thousand one. He said john you now have a great company. Dismay surprise you. You're now a great leader and this is the best. I've ever seen you execute an essay. Jack you're probably the only person that even say that because many people who believed in me before and believe there are leadership or sunday questioning. Can we do the job well or not he said. Now you'll see this play out. You add much stronger company. You'll come back better than any of your peers and canley. You'll be a much better leader. I said you're going to be the only one that ever tells me this year was two thousand one of my best usership year ever the he was the only one that said that actress but his point was a good one and now try to do that with my young leaders. I've tried to remind them that. They would develop more stress than the good times. And i try to give them the comfort level even a little bit more gently jacket with me about as you go through this stuff tom. Here's what the ups and downs will be like that. Hits in your stomach where you worry about. Are you the right person to lead this. Your ability to motivated team when she didn't provisions in place so that is what leadership is about. It was something that probably is one of the best pieces of advice. I ever got as both a leader and i guess just more generally how were you in two thousand two the most different than you were in one thousand nine hundred nine having gone through that near death. Experience will attack and expand the question a little bit. How we handle the challenges. Two thousand eight the great recession. What i learned from my mistakes in two thousand two thousand one and that was keep doing the right thing too long becoming way too dependent upon numbers which never failed me. I mean patrick. I can tell you based on the first week of a month how the quarter is going to go and probably a year ago based upon pattern recognition that went seen around the world number of new orders etc. We knew every order within thirty seconds that occurred. We knew what the forecast where we could compare it to the exact same time. The prior years etc seems foolproof. What we neglected was the psychology side of this that the stock market was dropping in two thousand. That there is an indication. Something wasn't going right. And i should have spent more time with the customers around the world to understand it because once i get my trip in january of two thousand one. I realized that it was going to be the hundred year flood. I made the mistake of using the term with the press which they beat me up on pretty hard slim's just cisco but as we know it was not in terms of direction so two thousand eight we will use them but data but a lot more time with customers asking about trans accenture. We saw that coming one year earlier in our summer afford the economic downturn all of a sudden my pattern on my numbers were really good but one group of key customers aida financial institutions suddenly slowed their ordering down an oa by about twenty percent off the normal order rates. But as all of them at the same time. And i called up the ceos. And because i knew him well said something going on here. I need to be aware of and they said no. We're just a little bit cautious at the present time. We think everything's fine. Eight out of eight is in caution that is then so we prepared ourself for an economic downturn and refroze expenses. We prepared how we would navigate through this. And nine months later everybody was in that downturn and had already -sition ourselves of the future and were already playing offense and we came through with unbelievable strengths including loaning billions of dollars to the automotive companies. That time no one else would give them money to purchase their equipment. We build a relationship and trust because we had the financial strengths to do it and we were positioned expecting problems long. Story short is not only. Did it navigate through that better and once again we broke away from our peers and every downturn week amount of stronger than our peers and mark sharon we gain loyalty of customers entrust on our culture that no one else have and company cisco still has that to this day because of how you interface the customers during the toughest time and their survival dominant way that no one else did all parallel that goes back to buy challenges as a young person almost drowned. When i was six years old and i was a competitive swimmer that age but my dad not fishing rapids west. Virginia he said john. You've got to be careful here. This rapids really bad and span feeder but did not get too close to the edge. He said i'm going to be efficient up here. A little bit of you never told me to be cautious. do want. You'd be very cautious. Six zero do. He started to catch a fish or wanted to see. If i could get the lure out further i got closer and sure enough. Fm the minute i went in i knew i was in trouble. I mean the rapids plummet need knocked me head over heels and as i finally surfaced for the first time in the rapids and i was just getting started in them. My dad is showing me from one hundred yards away. Hold onto the fishing pole and each time. I'd surface adhere seeing running down the side of the bank. Trying to catch up to me and yelling. Hold onto the pole. And i just got knocked up skinned up pretty good through there and finally he got below me and was able to swim out and pull me in. I was a little bit shook and he sat down he said. Do you understand what what just happened. I said the fishing pole. He said no what you did. You didn't panic. I use the folks of fishing pole. Will you to focus on something you could control so that you let the rapids take its course and then i could come out and get you. He said in life as you fall into these challenges you focus on what you can control influence. Do not swim against the tide of the current. Because you drowned. You have to learn how to get out of this yourself. Once you've been through that you know how to teach that she know how to handle the experience Remain focused on. Hymns wants an amazing story. I'm glad that i didn't hear it. The first time we spoke. Because it's so poignant and so interesting after a member get yelled for diving right into the middle of these conversations and not giving some framing those listening and for myself. I'd love you to begin by telling me a bit about what you had done. Up to the point that you joined cisco in your career sort of the formative experience you had and then what that business looked like when you got there. Because i think what's so unique about your experiences cisco is there. It was established but by far the majority of its absolute value market cap happened under your watch and plenty of lessons to. I'm sure gleaned from that experience but we need the setup so going into that experience what were the formative pieces of your life in career to that point and then what did it look like when you got to cisco your second. Part of the question was not just your business career. It was your life on it and your experiences and then the business career that set it up and then what do we find it. Cisco in that sequence. I was a product of two doctors learned from the very beginning the importance of equality in life and and there were all equal in life so no matter what happened. They knew how to fix this in terms of the direction. But i had a problem reading in the first and second third grade and it was severe and my parents would read with me every night but much like somebody who is play sports a golfer or shooting a basketball. If you have something this basically wrong with your swing your shot. It's really bad practicing more with that. Flaw only makes it worse and makes it very difficult to fix later and so my parents once they saw is happening in school kids would laugh at me when i read because i would lose track of where was an turned out i was dyslexic. And that means you often read right to left as opposed to left to right. It's emotional you lose. Confidence would be an understatement. And i heard the teachers talking one time from a distance that i may not not only go to college graduate from high school. My parents did figure this out and they got a teacher. By the name of mrs anderson to really helped me learn how to read effectively and even though the term dyslexia wasn't prevalent. She knew i had a learning disability and she taught me a series of techniques over two days a week after school for three years. How to deal with it once. I learned the work around and then later in life learned that you can take a weakness and make it a strength whether it's public speaking or the fact that i can't do things surely can go. Abc at recognition and outcomes really quickly picture the whole thing make it a strength second thing in formative years. I grew up in west. Virginia where we were the chemical center of the world will carbide. Fmc dupont six thousand engineers from west virginia. Smartest technicians think of that as the silicon valley of the world in chemicals. Were now as growing up in a hundred twenty five thousand coal miners and a very prosperous state more millionaires west virginia then the whole united kingdom did but because we didn't change. We didn't make changes. We fell from grace. Today we're number forty eight forty nine hundred fifty in almost every category then whilst watched the equivalent of silicon valley in boston one. Twenty eight with mit. At the heart of that like stanford is out here. And i'll watch this lead. The minicomputer industry with deck and wang data general and thousands of computer technology companies and feeder system supply chains groups and we went from the powerhouse of the world to almost nonexistent in technology computer industry. Because we didn't change all those jobs were lost and gone forever. So i've seen when things don't change. So i went to. Ibm mainframes big iron proud of it etcetera ibm didn't change displaced by computer players. Wang data. general excetera. They didn't change place by clients servers. They microsoft intel's the world they didn't change replaced by cisco the internet the internet it evolved the cloud etc so i've learned how technology changes ushered business changes in a unique way. And they're doing the right thing to belong to june as much trouble as during the wrong thing does. I was a product of all those so when i came to cisco the first lesson learned is i was never gonna get the interview at cisco when i decided to leave wang. We were going through a series which lasted a year layoffs. Almost every three months and i did not feel. I could look for a job at the time. I was laying off people now organization. That time is running the us organization about ten thousand people. When i told the ceo that. I've lost confidence in the direction. It's time for me to leave. I thought i'd have to do is send out resumes and way offers to come in. It was really humbling experience. No offers came in. And i had a pretty good track record experience on it. That teaches you the importance of relationships fast. For two hundred and twenty days later. I had twenty two offers either in hand or close to being an hand. Twenty one of them came entirely to france. Networking helping i had the search firm who had the search for me that ended up having to search for cisco as well when it turned out one of the cisco employees who had worked with g twelve years before can years before abby am and i work with him at wang and i helped him out of a tough situation. Just because was the right thing to do. I didn't even know years. At cisco he called up my wife and said. I know the john look in here in the valley. He's interviewing at the wrong companies and he needs to be the ceo. Cisco return from grueling trip out here on the west coast elaine. My wife asked me how to go. And i said it was brutal but regaining some offers. She got the job for you. Company called cisco. I didn't even know what they did. But the takeaway there is your product. Your currency is your track record relationships and trust and when you use those three consciously or subconsciously that often determines your future impurity because of how. I tweeted somebody before. I get the job at cisco and purity because of having seen the experiences so much i been through it i was able to share with the decision makers desisto. Why should be there next. Ceo and they were kind enough to give me the opportunity. At that time it was only four hundred people seventy million in sales. The group was very effective very town group but it was a leadership team that did not get along and didn't like each other. The almost had to at times get between them in terms of fistfight. They were very customer oriented. I was fortunate enough to understood. Having seen the movies are transitions bad with need evolve. The leadership team that would need to move rapidly and ninety to focus them on outcomes and made a bold statement that the internet was going to change the way. The world works lives place and cisco's can be the key player there. People said you build routers you do. Techy stopped between researchers on campus. What do you mean is going to change the world. So that's what cisco is like when i got there great product by the way but it was more a technique products. I hope to evolve. Were some really talented people around me how you evolve the corporation. We developed recruited some of the best talent in engineering and sales. And we did one hundred eighty accusations and we took it from four hundred people to seventy five thousand people. Seventy million in sales to forty seven billion number one or two mentality stole deaf. Jack welsh Unless you be the one or two players of cena it. Most companies are only one or two in one product category. We were number one when i left. Twelve product categories so my experience in life and knowing when to focus on market transitions competitors and technology transitions again not competitors. When you get the two combined that's when you can really break away. So that's what i learned in life. It's what i learned from the experience. And i learned but you do very well tell stories to remember points opposed to take to the bottom line which i didn't see very net. You're the five takeaways one. Two three four five. You got it. Let's go it's much better. If you tell the stories so people understand how you think and how you balance one of my weaknesses. I will often. I'm doing an interview. Like an with you. With one of my young ceos our show that i trust in my ceo that i'm sponsoring in a way to be able to share with the interviewer yuri strengths and his weaknesses or her weaknesses and strengths. And then i asked the question. What is the one thing or two things you like. Best about what. I bring to you as you strategic partner as well as an investor in west the one or two things you need to improve on all of them were remarkably good on their answers and i did at one day with one person best person shadowing me each one of them gave a different point but the one who hit home. I thought the most said john. You tend to thank and half comes in you. Connect the dots quickly and you go. Ab z. You get there so fast that you can lose people on the way and we have to slow you down to tell what should we look for on the way what changes have to occur so we need you to slow down. Is you teach us how to go forward on the direction he. They were absolutely right so another lessons learned for the listeners. Ask people not only. What are you doing right where you add value whether it's your own people report to your peers or giving back to society but also asked constantly. What do you need to do to improve. There's so many questions and follow up the one. I want to stick to early. Is this idea of pattern recognition. You brought it up a few times. I think it's something you are naturally endowed to be good at. But also i love the negative lesson of watching places and companies and people that don't change and the impact of that. Can you describe the role that pattern recognition played. Well the pattern recognition. I in the numbers the ability to be able to see the patterns based upon how a order rate went and a given day of any month in a given week of any month any quarter a given quarter in a year and see the patterns so accurately that for forty quarters in a row. We not only didn't miss. We were plus or minus always at the midpoint or above and the range the market even though eighty percent of our business new every quarter so we not only hit our year forecast. We hit the quarter forecasts. Always at the number. Usually two cents above people said well. How do you keep doing that. And i was kinda may. Somebody didn't go to the bottom line. Just take whenever four guess. We said an ad. Wendy do benny's bushehr and that's probably what we're going to do. But it was that pattern recognition that allowed us to spend money during the quarter and be able to develop in ways that others did not pattern recognition that there is a problem or an opportunity we saw at the very beginning which we dan adjust appropriately to. But it wasn't just at the top is all the way impera down through the various engineering and sales arms. They were able to see the numbers so accurately they knew what they needed to change to crack the headed time on it. So that pattern. Recognition is so key the pattern recognition. I've always been driven by customers. There was only one steve jobs. He just knew what to build how he did it in union. I knew him. Recently will always were amazed at still took in seven years. I short shortcut. That i get an idea of a market transition in by new technology and then go straight to customers and say what do you think so pattern. Recognition amplified by listening to the right customers at the right time on what they think. Either on the issue or the company allowed us to do one hundred eighty acquisitions with the highest track record. I think most everyone would ill. In the high tech industry they're modeled after what we did at cisco on we were machine on enquiring and we had the playbook which we haven't talked about patrick but we ran play books on everything we did from acquisitions to be in one or two in a product category. Two how you digitize a country etc in terms of direction so it is that pattern recognition than put into playbook that allows you to move speed. That is not a simple issue playbook pattern recognition than replicating that pattern much like a great sports team who runs the west coast offense or a warriors team the past one hundred thirty times per game which is more than anybody is ever done in history and wins ninety eight percent of the games when they pass a hundred and thirty times on it watching the patterns than replicated in playing it through and being able to tell those stories again on what works invites affable. You mentioned the crazy amount of acquisitions. I think there was more than a dozen. There were over a billion dollars at cisco during your tenure. I'd love to hear more about this playbook that you referenced sort of what the mental models where you had for an acquisition where should emanate fit in the toolkit and what were the best lessons learned doing so many. I'll try to go in the reverse order that you ask. I is when you try to do something that has not been successful in nineteen ninety three. When we did our first one acquisitions had tech. It failed miserably and we knew that we tried to do it with cubby. Get the same result unless we did it differently. Secondly a lot of smart people who worked hard to do acquisitions they failed. So if you're gonna do the same thing they are and think you're smarter just going to be wrong. We did a steady of. Why do we think the company's fill and what would we do different in the approach and the playbook that came out of it is very simple. I just don't do an acquisition that isn't re strategic to. They're really hard. Secondly understand what you acquire protective all cost. If you were bank of america being acquired by nationsbank out of these coast what nations was acquiring bush purely brand and geography. They wanna burn people. They lost a fair amount of the people but they achieve their financial goals. When you're in high tech what you really acquiring his engineers and arc position and if you don't keep those engineers and the sales teams etc. Then it's going to be a bad financial outcome for you most acquisitions. When companies acquired their attrition rate after golden handcuffs comes off for those who don't have golden handcuffs runs over twenty percent a year of their people. So it's a bad outcome so we would only do an acquisition where we felt we could keep the people and we looked at it culturally. If there wasn't a match on culture we walked and most people don't even think about is match on culture if you haven't got a similar culture you're not going to keep the employees. Acquiring is the employees next generation product is going to be a bad financial result so we walked from acquisitions that as we got into the evaluation process. We realized their culture different than ours. They weren't customer focused. We are customer focused but fanatical extent. You could argue. Is that right or wrong but for us. It's who we were customers. I our family employees. We are a family second. We believed in sharing the success of the company with our employees very broad range. We can keep that at the top could have done it easily but we felt if you share the success i you would be much bigger and more effective company and other way the senior execs will be taken care of if the company successful and so we dealt with that type of philosophy and i'd every position on no you've got ugly spots will probably find him but don't let us be surprised so tell us where the problems are and we're gonna choir you anyhow but don't let us find ourselves so in you situations where i found marseils one on stays in options and one where they let information out to the market. That had either come from the investment banker the company even though both of those would have been good financial for we walked and that was a call from the top in terms of the approach. So it is about how you think through these analysis. How you walk that pattern of what works in does not work. When that i missed one. Six hundred million dollar acquisition of a company called flip. It was a super hand held camcorder. That was so unique in the market. And i'd try be consumer market once before then tried once after flip filled all three but with the flip already had the set top boxes in your house when the cable companies or the service providers bringing it in that we were working with the content companies on. How do you add value to that. I felt the video would be even more home generate in the future. And if you could use the camcorder. Dying seth boxes architectures logical move for us and we. We acquired the company for six hundred million. We ran our playbook got off to a great start. People got the market fit. Then steve jobs held up a flip product on stage and said this is an amazing a good product and i want to compliment cisco on us. Mit what comes next. He said i'm gonna give this to you for free. He put it on the iphone for free and he hadn't and i should have realized that the product differential adl was not the physical product. It was the software in architecture and the ability store video in the cloud. And i should have moved earlier to go to all the major manufacturers a phone and say we need you to put the fifth day billion earphones that us be the cloud behind this and a small royalty and maybe we would have outmaneuvered apple in terms of the execution. So i got knocked down. Most people would say well. Your growth is still there. Wants to fight the battle out the jets game out not find a way to win. Apple is just too good and once they closed on us for free my business model would not work so we closed at six hundred million dollar down on it in three months and every time people hold out flaws about cisco's acquisition strategy. They say well the example of failures flip and this is why some companies are not good at querying cisco pretty was not on this list. And i go wait a minute. I told you if we do this world class two out of three acquisitions are gonna work. Which means went out of three. You're going to fail. I'm done twelve billion dollar plus acquisitions all worked at least for the first three to five years. Afterwards nafta that stuff their internal development for this in your beat me up on a six hundred million dollar acquisition in into acquisitions. We did this year one for one point. Two billion one for three point. Two billion both worked out. It's two out of three. The best ones worked out. Tell me again what i did wrong. And i realize at that time you're always gonna be criticized more from your missteps or you mistakes or the ones that didn't work out then. You will the successes. That's just part of leadership get used to it. That's never gonna change so those would be some of the lessons. Learned good and bad what you need to do. And the trade offs six etre. I love the idea of the emphasis on retention of the engineers post acquisition as the key differentiator in a good acquisition. That's a really interesting perspective but also understand that is in a issue where what you acquire is engineers and the products. That is not true when an bank acquires another bank or railroads merger automotive companies merge. So your key is standing what you really acquiring and protecting it at all cost. What did you learn about price and the type of deal you know. Stock debt equity the ability to deploy. You're kind of the eight hundred pound gorilla at the time the ability to deploy cisco's scale and size for effective acquisitions ran was hugely important. Our customers bought into the concept of we build architectures where routing and switching and security and wireless in the cloud servers worked together on those architectures. Therefore we did an acquisition. We say our customers use our own direction. They watched us do acquisitions. Order that works. So they weren't concerned about with this work on it and we positioned on outcome at a time. Everybody else was selling products and direction is basic as that sounds. That's what we did that. Our peers did not. We had a much higher rate on acquisitions working but we built them into architectures which most people couldn't even say the word engineers originally didn't like the concept. They wanted to build best and fast products. I said no. We want to best architectures that we could add. Do and move with speed on in terms of our branding market power. We never used price as a competitive leverage. My view is that we were going for the best margins. The industry that we want a good competitor because we got good competitors they force you to change we would not choose our financial strength to price in ways that others could not keep up. My competitors were ten to twenty percent less expensive than we were with good march so we competed on architectures outcomes and benefits to customers and in the team we had the best. Cfo in the industry was very carter. We had the best sales leader in the industry. We had the best engineers leaders in the industry. We had the best business development team for seven generations of business development. The top person at cisco was the top in the industry on emanate and business development. So we build a machine and a culture that loved to play together that worked culturally together. I would take the team up fishing with me to alaska most the time. It's announced the bahamas at expense entirely and we'd build culture of collaboration and carrying you learn a lot about people when they're out in the middle of nowhere and come around the corner in this Grizzly bear that it could destroy you and it wasn't used aim depot and how they respond to it. Now you adjust one of the people you mentioned was perhaps one of the more talented sales leaders. You mentioned steve jobs. Everyone always thinks about product and obviously product is critical. What gets way less attention far less sexy as distribution. But i think a lot of the story of cisco is incredible distribution story that you largely helped architect along with your team. Can you talk about the lessons. You learned there about building. A great channel and distribution salesforce one of my toughest competitors is a company called. Juniper was one of the very few. And i can say now that we weren't able to knock out. We always competed like we'd like to be competed against and and we were tough. Competitors would never do. Somebody else would have a problem with. They did to us. Juniper hit a really good product and soda wellfleet but what none of them had was a sales machine. We combine and great products with a unbelievable great cells machine in distribution and the juniper leadership several of them nearly as recently as five or six years ago john. We just never understood as you did. The importance accorded products not just selling themselves but the importance of a sales machine that brings value to customers outcome based and the distribution. That goes with so we delivered eighty percent of our product even though we were dragged touch with ourselves people through our distribution channels and our distribution channels was game. You one of the secret sauce says that many people did not understand. It was one of the key secrets win wa wa came at us. Lee offered unbelievable financial and sinise direct. Probably some not as direct as fat to the companies to switch over. How many of them do we lose while way none. You treat people like you like to be treated yourself. You focus on how they win at achieve their objectives. Your therefore good times and bad times. So that's the fabric that we built our company on. We made mistakes along the way and is out says towns far from perfect but we enjoy competing and we tried to compete with. The rules. would like to be competed against the same way. Can you tell me what you've learned from shimon peres. I was fascinated by some of the lessons. You shared with me before about your relationship with him. He was a rich say. No in in israel israeli the a lot of the real creative rains and developing a very effective defense organization that with a population of only about six or seven million could take on countries that had in total hundreds of millions of people eight then switched to peace and focused on. How do you focus on peace and peace in the middle east and pieces. The only way economically is walls benefit of his citizens and others for this fokker. And i literally would go with him into the country even during the toughest of times we go into the streets of upper nazareth and lower nazareth and into the christian communities into the jewish community in their community. He would just be crushed. People want to seem but if somebody wanted shotting they could house right. Presiding that fearlessness. And that trying to do the right thing in the love of the people regardless of religion learned a lot. He was inclusive of everyone. He got me to be. Were patient with people that perhaps disagree with. He taught me. Leadership was lonely asset shimon. What do you mean it's lonely. I've got forty thousand people around me at this time. Were part of a team and he said john. Thanks get really tough. You need to know you will be by yourself. Doesn't mean people won't want to support you but you will be by yourself and boy. He was right when. I made my tough decisions. Real tough decisions. All the people supported me. If they hadn't work they would have changed. Me and two thousand was the worst. I mean you sit up on the roof of your house and you look at. Are you the right person to do this. Your stomach's turning you know you can lay off people. You're gonna do this quicker than anybody else has ever done it. You're telling people ahead of time that this one hundred year flood which it may not be but you believe it is. You can get beat up for that. You're gonna lay off what ended up being seven thousand people you've been announce it an implemented in fifty one days. It is lonely really lonely at just something leaders have to now. The fun thing is now. Get the tc's young ceo startups. About either ship. And i go here. The four characteristics of the ceo in terms of vision strategy for the company. Bill developed recruit the right leadership team implemented vision strategy communication skills which extremely important especially now on the role of social media and culture. And the only for jobs you have. And i teach them how to deal with crisis management here. The rule book you do during economic downturns political challenges. A real problem with the media. And here's how you many sue that and then i'll remand him that. It will be lonely during this time period when you hit the duff. Tom's and while you're friends. And i wanna help you some will turn on you. You never anticipated the media who could senior blazes wednesday. We'll come right at you the next day usually a different reporter but the same publication would do it on it. This is just part of leadership. And you're about to enter and not depend on the situation a quarter or perhaps even a year three four five quarters of really tough times and i'm gonna tell you it's gonna be hard on you and you will be very lonely and teach them how to do that and then at a little bit of humor. You remind him that. I've seen this not done. This and i know you're going to go through a tough weekend. Based on what i just shared with you planning for what's going to occur and i'm gonna have a bourbon and ginger and think about you and the point that i'm making a little bit of humor but it also is not fun for me now crisis management and having seen so many of them than some rights on them wrong is so helpful to others. That reminding them like shimon. Presdent leadership is so lonely. Otherness think like a teenager always think out of box. We head him over here a house. He wanted to come to silicon valley. He was constantly benchmarking and he said john. I wanna come to your home and this is at the time. There is huge friction between israel and iran and there are strong rumors probably more than rumors that there may be a defensive strike by israel against iran and so he was target's share with my wife that she has to do this and she said of course we knew that probably do the best of protect him and us while he's here is it turned out. There are eight different security groups from israel the us local cyber crews people with rifles on the house. People are in the woods looked like a scene from meaty with lights and everything going on and yet he when he came to the house that evening he was meeting with the number startup up some disease in some friends of the biggest companies here in the valley. He was the most relaxed man around. He immediately started to talk and as he did. So will within five minutes. All of us to stop eating. Were trying to find a piece of paper and pencil to take notes. And he was teaching office about leadership about dealing with problems he was sitting in the safest seed in the dining room. That would require the hardest shot for a sniper from way far off to hit him. He didn't even sweat. He always had a great sense of humor calmness during the tough times and he said john i understand. You've got electric car. And i said yes sir. I do hybrid. He said i want to go see it and maybe drive it. I said mr president. Your security team told me i could only have you in the dining room area here in only in this seed and early in the living room area and that i was to make sure you didn't leave this area. He said john. You know how the president back. Yes sir i look over the security team and they were already scrambling so we down of elevator as we get out there he looks at this car and you really gets fascinated by it and say john. I wanna drive it. Let's go all of a sudden you see people scramble every which way how did he get ahead of this and his chief of staff came over and she said john. I don't know how to tell you this. He does not have a driver's license and he has driven in over a decade pass. It this is really interesting so we got agassi. I got into the passenger seat. Were sitting there and he's asking questions who's going through erase scam. Went outside with what's going to happen next. They said okay. I just wanted to get a feel for it. Let's go back upstairs. Venue roundtable with your friends. He had a element of making everybody feel comfortable around him. He taught you. He said i'm ninety seven years old. But you've got gotta think and dream like you were a teenager again to really do innovation have innovation. Gump from twenty year olds. They still are thinking like a teenager. But have the education to really take the risk and changes but he said age is not your issue on innovation. It's thinking like a teenager. It is and it's an important category for all of us to have as we move forward. I'd love to play off that with your relationship with the squadron of young founders that you now work with and spend a lot of your time with you mentioned the four areas are the key responsibilities of any ceo. And i think the first you said it was mission and vision. Which i think if you think like a teenager maybe you do a better job of that first one. What in those four dimensions do you find your role to be the most effective at helping younger entrepreneurs originally. I thought the first two would be most important. How do you combine mission and vision was sustainable differentiation in the market. Because that's how you get your financing. That's how you get the economic result successor and when people write about grace startups in great leaders of startups. They always right about mission invasion the second element which the leaders either already understand or learn quickly. It's about having the leadership team that can implement that vision and mission and work with you effectively and changing part of that leadership team as you grow because it's almost never when you can take your top seven leaders from the start up all the way through and make changes as hard to do as fishy for people you love and care about on the direction. So i thought that would be where i'd add the most value teaching them how to scale organization revolution when to change people. How do you do acquisitions. is your vision. Really tight is a sustainable house. A competitor others compete on market. Transitions in that vision. Not against competitors etc but actually the most important elements in that approach is the third and fourth point. It is communications and it is culture and especially during the tough times. What gets you through is how well you communicate to the press to your employees to your shareholders to your customers and culture. What a lot of people really never grass thesis esco is so hard to beat. It was culture. I mean we were. One family took care of each other like family. We played together as family. If you didn't fit into that. We moved you outside the company and my mistakes often that i left somebody who was not a cultural match. Stay in the company. Too long now remind people at the startups. The miniature get somebody. Who's not cultural match. I don't harm secondly if it if they are in the company you've got the face amount of it because the damage they do. The culture and communications is actually wear often. Add the most benefit to these young ceo's even though at first most of them really are not interested as much in communications in if it is communication dismore had i get people to invest in the company and an cultures of the often. You get spend time on one of my best examples of that. Was the ceo of a company called as new york. Just recently came out of stealth mode amazing artificial intelligence customer experience company that understood bishen strategy. Remarkably will their average orders like ten million dollars. When they were still in stealth i found Etc but culturally when i'd share with cassava their. Ceo's just brilliant than really good. He didn't seem interested in the culture. And i finally said we learned that over time about the time i quit talking to him about it. He said john. I gotta presentation business meeting this next week to mind group would you mind reviewing it with u. s. it of course and it turned out when he did that with me. It wasn't a business review at all. It was a cultural review on who they are how they were to get their base to fall in review. Everybody else and he got he understood. Culture has to be owned by the ceo. Not human resources owned by the ceo. Human resources is the one that implements. You don't kid about your culture. Don't put things on your culture that you really don't consider really important really important. If you are saying family i and you treat people that way. You are seeing customers. I and you treat people that way. It's just do the right thing then. You always make your decision on. What's the right thing. Regards the financial implication of it. I believe that every year you take a small group to alaska to be outside together a group of the leaders you back or other young leaders what sorts of transformations happen on a trip. Like that their magical. I did it originally team building. What i didn't realize is how much each of us learn from each other. How much that would calls the team to stay together. Long after other teams did not out of the group that i did this were at cisco for twenty years. It was mainly cisco less a few outside france that we did the trip with and then over the last four years. It's with about ten experience leaders who've seen the movies from different angles from a supply chain angle from a sales angle from an engineering perspective from a financial perspective from a human resource cultural perspective and cabana with twelve startups. And then having them each go out and in the boat so we to be on your with that person for either half day or full day you go into remote locations you really get to know each other well etc you fly in on onto the plane and they come pick up to the end of the day you get to know each other real will the evenings. We have toast. I call on different leaders at different times to say what was your day. Like what was your takeaway. What was your cultural aspect that you learned as factors in their communications is francine them getting put on the spot. It's reminding him that you don't want to have more the wondering of wag on you to make a misstep there even though your team was still love you if you do make missteps. It's building culture while some of the lessons learned on how to build great engineering organizations or great sales channel organizations and the knicks about sixty percent male forty percent female but one of my favorite sessions is when i had a young ceo vj out of been drop in atlanta and he was learning about diversity but he was trying to understand more the importance of diversity and why diverse teams out execute teams that look alike and the importance of gender and that diversity not from a negative perspective. But he's just saying teach me teach me how to do it. Dramatically better than others and so it had a full day official name and there were five of us there on it and we waiting for the boat to come and pick us up and we were on the issue of inclusion. And how do leap people. How do you create an environment. Where going to be one of the most attractive places for females to work and part of the culture. They wanna be a part of and one of the mistakes that you're gonna make as leader. What are the trade offs and we're sitting in the water. That's only about a foot deep and waiting for the plane. They come up and talk with us. And i have three of the top women in the world in their industries ranging from pharmacy goal to supply chain operational leadership etc. Two channels and. They're teaching him. Also they would teach me a little bit as a reminder and the conversation was so good. I just got up and grassley while quietly away from the group and i went back and i took a picture with. Bj with three of the top women executives in the world and their categories sitting there completely engaged in the middle of alaska birds background. I don't know if there is a bear in the background on runways way or not and we just finished fishing. We cut our limits and bat. Was the picture i value the most three women with their backs to vj soaking it up and learning. So is that ability to bring together teams and cultures and room make it happen and build relationships for life so when these twelve. Ceo's go back. They can call up any one of the senior people who've been through movies before instead. How do you handle this. You know this person here. What would you suggest etc. And it's also what any good sports teams understand. You are so much more powerful when you build your own company with the team. That is completely united with diversity and differences of opinions when you build an ecosystem like two channels around you consultant surveillance that others do not have that makes you near unbeatable. What's that worth. an answer. Return almost priceless cultural return a believable and when people talk about what i do quotas vce. I'm not a vc. In the traditional sense. I'm a strategic partner person. Did touch them grow in scale. I will provide them tough. Love will always be right. But i'll tell you what i think. The trade offs are and how form friendships for life. And i will only back you as long as your culture. What you represent is in the areas that i believe that it should be definitely might be as a right but i don't advise companies that have a different culture than i believe that i try to represent. I try to teach people how important it is. Chinese made a career of pattern recognition. Seeing transitions happen over and over again you mentioned earlier. This change that will disrupt the number of jobs available and now not keeping up with that pace to replace those jobs being lost to automation et cetera. What are the other major transitions that you are watching in the world right now. I think the biggest transitions is every company. And every employee of every organization will be a digital company a digital employees regardless of age and tech company doesn't matter if you're manufacturing government defense retail technology companies understanding that is the core foundation and will completely transform. The biggest transition is the speed of change alluded earlier to speed of job. Destruction an automation. That actually is shorted through the downturn and the pandemic ways that people might not have thought would occur other elements is did two percent of the large companies exist. Today would not exist in a decade in a meaningful way and understanding back to the point that we talked about earlier the importance of a lot more startups at scale and yet how many government leaders regardless of your politics are focusing on startups as a key economic engine for their future to create a regulatory environment that is very friendly to start ups and very much conducive to the implications of that used the. Us ample remotely. I think silicon valley as a wakeup call coming so does new. York city and seattle eighty one percent of the employees of the companies are saying to think about. Should i've either diff- somewhere else. Think about being somewhere else. Understanding them when these transitions occur. They wait for no one just because you lead in one generation of a win decade. there's no entitlement. you must change john. I'm so sad to be at the end of our time together. But i'm forced to turn to my traditional closing question which has to ask you for the kindest thing that anyone's ever done for you. The kindest thing does ever done to me when my parents my dad taught me how to dream make dreams come true and how to deal with the toughness that life inevitably deals to you with the onus etc. My mom taught me. The emotional accu sat in the house. How she never a young person ever let me go to bed. Mad hit my sisters are or others who absolutely deserved by the way reagan about you. Don't go to sleep angry. You learn how to forgive so probably the kindest thing was how those fearance balance balanced me and my two sisters and tatis the trade off in life it has been so you need to partially my success but also i've been able to deal with the challenges john. This has been so much fun. I'm going to have to listen a few times to be able to extract all the lessons. You share with us through great stories so appreciative of your time. Thanks for doing. This is my pleasure. Your amazing interviewer you several questions. I'd not heard before which is unusual. A of hope your listeners enjoyed it and understand that if you agree with everything said you're not failed. I wanna make him comfortable. I want you to learn about leadership and mistakes made and it's fine to disagree. I actually think that makes you stronger as a leader and as a nation by having healthy given acorn issues. Well thanks so much again. This has been a real pleasure. Lots to learn. I really appreciate it now. Patient this episode was brought to you by microsoft for startups microsoft for startups is a global program. Dedicated to helping enterprise ready. Bb startup successfully scale their companies in this five part mini series. We talked agree. Lock partner som- otemachi and microsoft for startups lead. Jeff ma about why companies should partner with microsoft startups. In this week's episode we talked with psalm. Motamedi a partner gray lock about his initial investment in microsoft startups customer abnormal security. So som- perhaps you could begin by giving the audience a bit of brief background on yourself. What sort of investing you do and how. You came across abnormal security. I'm one of the general partners here at gridlock. I focus on the enterprise side of our practice gridlock. A fifty five year old venture firm that primarily invested consumer enterprise software and what we invest across all stages. I personally really focus on being the first capital partners entrepreneurs whether that's at the seed or series as stage and focus on new companies being started in saas. Am allen date. Infrastructure and security of mobile is a very interesting story for a secretary lock. I think one of the things that's unique about. Gridlock is we've over. The years spent time in been fortunate to actually help. Initiate new companies from scratch in our offices like workday in palo alto networks historically and more recently companies like sumo logic awake security in a normal security so it has a little bit of unusual story. My partner ashim and i first met evidence. Sanjay founders about normal. There were known to us Lock because they previously worked at a company called teleport which was also initiated at gray. Lock by now partner. Josh mcfarland that company was building. High-skill machine learning systems for ad tech use cases and i company ultimately went on to be acquired by twitter and evidence. Sanjay left that company with the ambition to go start a new company that would take expertise around building high scale. Highly performant machine learning systems to solve an important problem for the enterprise and so what they did over a multi-month month before the company was started before a line of code had been written and before we invested was speak with something like a hundred enterprise. Ceo's in seaso's to do customer discovery in problem discovery and donaldson me led them to landing on the idea for security. The basic premise being email continues to be the dominant channel for business communication and therefore the integrity insecurity of email is of paramount importance for enterprises. What's happened over the last five to seven years is attackers. Have gotten more sophisticated. And a threat landscape round email has shifted from spam and phishing too much more targeted spearfishing and business compromise attacks. And what evidence. Andre realize was they could take some of the techniques that they use a tele part to solve these more advanced attacks and use machine learning systems to build baselines of what normal employee communication looks like and then catch anomalies deviations from that in take that approach to build a new email security solution so we have the chance to to ride shotgun with them during that multi-month discovery process. And at the end you know. They had a one point zero product document. They had an initial set of customers. Who are ready to try the product. Once it was delivered in they started the company and we were lucky to to partner with now. What are some of the things that you're investing before a line of code is written. I find that quite interesting stage tobacco company. that's then going to be selling into very large businesses. what was it about. The discovery process the conversations with cio's and others. That made you confident enough that there would be buyers once the thing was built. What are the signals that you need to see as an investor to gain that confidence. I think when we invest before a line of code has been written. We spent a lot of time thinking about the market dynamics and whether those dynamics can support the start of a new company and so either. If you're starting a new company from scratch your you're either. We think of it in three buckets. You're replacing an existing incumbent you're exploiting new market that's just begun to emerge or you're going to create a new market from scratch so i remember when it happened in sanjay started this. They had mocked up what a prototype could look like and as you showed this to different. Seaso's a very large percentage of them resonated with. Hey this isn't important problem around these advanced spearfishing and business email compromise attacks. It's not served while the existing in security providers and if a new solution came out the had the characteristics you're summarizing we'd have high interest in trying something like that out so what evidence andrea were able to do was take some of the customers who got the most excited and convert them into early design partners and those people essentially signed up with something that arrogance even more valuable than dollars early on which is. Hey if you guys start this. It's so important to us that we will figure out some cadence to sync with you and help drive your product roadmap so you end up building something that not only suits our needs but suits the needs of other customers like us and then when that product is delivered will purchase a product. And that's it's rare to get that depth that signal early on and i think it speaks to the importance of a problem and so when we saw the combination of that breadth and depth. That actually made it. Very obvious that this was informed market opportunity to find more episodes. Where sign up for our weekly summary visit investor field guide dot com thanks for listening to founders field guy.