Vinod Khosla

clip4924

 

https://www.youtube.com/watch?v=HZcXup7p5-8

 

 

 

 

Whatever I believe, I should make happen.

 

And if you want to do great products, don't listen to your customers,

 

 

I and, and, yeah,

it's okay to offend you guys.

 

 

90% of you will do what's expected

of you as opposed to what you wanna do.

 

 

If I can convert one of you to follow

your belief and have the guts to follow

your belief, I'll have,

I'll think of the hour as well spent

 

 

And most people,

even successful companies,and I have big beef with Fortune 500

CEOs I can talk about, there's very little

leadership there don't have an internal

compass of what they believe in.

Its what do others expect?

 

For those of you going to those places,

and I'm sure there's plenty, I'm probably

not the right person to talk to you.

I frankly don't even care to talk to you.

» I think there's something wrong

with anybody who fundamentally

wants to go work for

one  of the consultants or

the investment banks today and

there's probably.

they don't understand how the world

is going to work in the future.

But my point again is,

have a belief System.

Follow that compass

 

 

Let me go back to this

issue of Fortune 500 CEOs.

I hae talked to many over the years

If a New York Times

writer writes an article,

they want to change their strategy, \

they wanna respond.

How silly is that, that some English

major who's never had a business job

 

can determine the strategy of a  Fortune 500 company?

 

Why?

Because they care about what's written,not what their belief system is.

 

 

But I want to ask you about this,

you are known for being for the lack of a better word somewhat blunt

your website says we prefer brutal

honesty to hypocritical politeness.

And I said, the one thing I'll do is

not do what others want me do, or  be polite

which generally means dishonest.

 

 

I recommend everybody read

Sam Harris' book on lying, and

why we all lie too much and too often.

 

We put this sort of slogan,

I prefer brutal honesty to hypocritical

politeness, on our website,

because it's a real disservice to people.

But generally you can be constructive

and very honest.

And I prefer that brutal honesty,

because it serves a purpose.

The receiver can do something about it,

if it's a constructive criticism.

 

 

 

The other VCs agreed with me in the board

meeting, said all these polite things.

You know, so 40 engineers wasted three or

four years of their life because

nobody was willing to tell them the honest

truth about what they really thought.

Right and I swore I would never

let anybody waste their life.

At least give them the best advice I had

to give and tell them I may be wrong,

but I'm not gonna say something I

don't believe in. I just won't.

In, and that's extremely

valuable to the other thing.

 

But to be honest, look, there

are situations vou. it offends people. and

I offend people often, but it helps

them if they're really introspective.

I bought myself the freedom of brutal

m honesty, and it's an indulgence.

 

 

 

 

Internal Rate of Return

And you can do spreadsheets, so we don't

allow any IRR calculations in our firm.

Nobody does them, nobody looks at them.

 

IRR is creating the illusion of knowing,

which big companies are very good at.

I did enough business plans to know I can

make the business plan do whatever I want

 

You know, reality is different.

I don't even think you can plan startups,

so business plans are largely irrelevant

other than in surfacing the key issues

the entrepreneur is thinking about.

 

If you lose,

you lose one time with your money.

If you win, you win ten times your money.

So whenever we make an investment,

I assume we lost it, and

then there is only upside

Your downside is limited

to your investment.

 

So whenever we make an investment,

I assume we lost it, and

then there's only upside.

As soon as you write it off in your mind,

there's only upside.

And there's VCs who won't invest

with us because they feel like we,

we take too much risk, which is fine.

There's room for every style of VC firm.

Ours is different

It's about taking higher risks and

higher upside.

90% chance of failure is not a problem.

If there's a ten percent chance

of 100 times your money.

If it's the only thing that worked,

then you're in pretty good shape.

 

 

But of all the people I know in the VC

busniss, 90% really add no value, and

I truly belive 70% of them reduce

the potential of a company.

 

 

 

You have to have the courage to fail them,

because most likely you're going to,

to get that option at a very large play.

 

Well, and, and

that's a pretty clear segment

of the venture capital business or

the investing business.

It is not every segment

 

So risk taking is absolutely essential now.

There's very little really interesting

stuff you can do in big companies.

It comes shockingly,

it's shockinq to people, but

who reinvented retail. It wasn't Wal Mart, it was Amazon

Who reinvented media it wasn't NBC.

It was YouTube

Who reinvented space it wasn't Lockheed

It was Space-X

 

I was hard pressed to think of

one thing that had come out

of a large company in the last 20,

30 years.That was materially

changing the landscape.

And the reason's very simple, and

this is all interesting things have,

eh, happened at the edges of the system.

They don't happen in the solid core.

 

 

27.34

 


 

 

00:00

[MUSIC]

00:04

[APPLAUSE] >> Hello, everybody.

00:09

>> Leonard, thank you for being here today.

00:12

Welcome back to the GSV.

00:14

>> It's always fun to be here.

00:16

It's a lot nicer than when I was here.

00:18

[LAUGH] >> Yes,

00:19

I've been hearing that quite a bit today, given the previous here.

00:23

I, I'm thrilled to be having this conversation.

00:25

I was told that you scheduled your time in 15 minute slots.

00:30

So we are taking up four of those slots right now.

00:33

So, I'll get right to it.

00:35

I have a few questions here, focusing on three things.

00:38

Your leadership and management journey, your thoughts of investing and

00:41

entrepreneurship and then a few questions on your personal life and legacy.

00:45

After that, we'll take a few questions from audience and from Twitter.

00:49

As Dean Saloner mentioned, you were the founder and

00:52

the first CEO at Sun Microsystems.

00:54

About a year after you had started,

00:57

you found out that Sun Microsystems was gonna be shut out from a key thing.

01:01

When you heard this, you got on a flight.

01:04

Got to the customer's lobby and

01:06

made phone calls refusing to leave until you met with the team.

01:11

Where does this perseverance and conviction come from?

01:15

>> Well so, I have a philosophy in life.

01:19

Whatever I believe, I should make happen.

01:23

It's that simple.

01:25

And if a customer's making a mistake, [LAUGH] the customer isn't always right.

01:33

Trust me.

01:33

[LAUGH] And if you want to do great products, don't listen to your customers,

01:37

by the way.

01:38

Lots of bad lessons in business school I used to give a talk in

01:43

the 80s on why not to listen to your customers and

01:47

maybe somebody will ask me a question that story is in fact true.

01:53

There was a signed contract with a competitor,

01:56

I stayed in the lobby all day at 6 o'clock in the evening and

02:01

I'd taken a red eye out and I parked in the lobby.

02:05

I met with the CEO of the company, mostly, because he wanted me to go away.

02:10

By 9 o'clock, he had I'd convinced him to meet me in Chicago with his team the next

02:15

day, because he didn't wanna be seen negotiating with us.

02:19

The following morning, the day after at 5 a.m.

02:22

We signed a handwritten contract, because I wouldn't let him leave.

02:26

>> Oh. >> This was the CEO for

02:27

big East Coast company, Computer Vision.

02:31

We signed a handwritten contract and life was good.

02:35

The point is if you actually believe something,

02:39

you try your best to make it happen.

02:42

It doesn't always happen, but it happens most of the time.

02:46

Most of the business school entry story is also true.

02:49

I actually learned that somebody had dropped out.

02:53

That's why I showed up and one of the nice ladies in the business school office,

02:59

put me in her living room to her husband's chagrin and she was real nice to me.

03:06

But things do workout if you persist.

03:09

Not always, but I like to say, failure does not matter,

03:14

it's success that matters.

03:17

And nobody remembers what you failed at.

03:21

So, everybody remembers Sun.

03:24

Does anybody know a company I started before Sun that McNealy and

03:29

I started together?

03:31

Any hands?

03:33

>> I do, but I've been researching you for awhile now.

03:35

[LAUGH] >> What do you think the company is?

03:38

>> Was it Data Dump?

03:38

Or was it? >> Yes.

03:39

There was a company called Data Dump, we started and

03:43

go funded three months before Sun.

03:45

Didn't workout.

03:47

We started both roughly together, but

03:50

my point is people don't remember your failures.

03:54

And I like to say my willingness to fail is what gives me the ability to succeed.

04:00

I find most people are so afraid of failing, they don't try and

04:05

do the things that would be important enough to do.

04:09

Anything worth doing is hard an so.

04:14

>> You've spoken in the past about the importance of failure or the lack of it.

04:18

You started your first company at age 20 in Delhi,

04:21

which did not work out as expected.

04:23

>> Well, I didn't actually get started.

04:25

>> Huh.

04:26

>> They told me, it'd be seven years to get a phone line.

04:29

>> How did you react to that?

04:30

[LAUGH] >> Honest to goodness.

04:34

You know, I was 19 or 20 and they told me,

04:37

it would be a 7 year waiting list to get a land line.

04:42

I, I, I sort of picked up and went to Carnegie Mellon.

04:45

[LAUGH] >> How was that like, the move to the US?

04:51

>> You know, look, it, it was easy.

04:54

I wanted to be in Silicon Valley, I knew I'd get here.

04:57

I had no way to pay for it, so

04:59

I had to figure out how to get somebody to pay for it.

05:04

In the end, the Biomedical Engineering Department at CMU agreed to pay for

05:08

it, so I went there.

05:09

And I was very impressed in biomedical engineering.

05:13

So, I did that and then applied immediately to Stanford and

05:16

you heard the rest of the story.

05:18

They turned me down a couple of times, but, you know,

05:22

the funny thing is with enough persistence,

05:26

most things that seem impossible become possible.

05:31

I'm always amazed at how often you can turn things around and

05:36

people take no for an answer too easily.

05:41

You know, it's whether you're trying to achieve a goal like get into

05:46

business school or my, my green card was the same way.

05:50

I left the job that had sponsored me, but I still got my green card,

05:54

even though no lawyer would take me.

05:57

I became my own lawyer.

05:59

Got my green card without working for, while I was in business school.

06:02

[LAUGH] And I did it, perfectly, legally.

06:05

I, my strategy there was if I couldn't convince immigration,

06:09

I'd confuse them and I did.

06:11

[LAUGH] And they gave me my green card.

06:13

[LAUGH] >> Well,

06:16

you know, I, I just wanna ask you, what are some,

06:19

some of the perhaps, the early influences that made you this way?

06:23

This high perseverance, high conviction person.

06:26

>> Well I, I was sort of always this way.

06:31

I didn't grow up in this environment,

06:33

nobody around my dad was in the Indian arm since he was 16.

06:36

So he joined the ranks of the Indian Army in, when he was 16,

06:40

got shipped off to Egypt to fight for the British.

06:43

And so, I grew up in a very different environment.

06:47

But I always had this view that if I determined something was right,

06:52

I was gonna make it happen.

06:55

And this comes to, since one of the focuses of this lecture is leadership.

07:00

I am amazed at how few people have a belief system.

07:04

What do they actually believe in?

07:07

I and, and, yeah, it's okay to offend you guys.

07:13

[LAUGH] 90% of you will do what's expected of you as opposed to what you wanna do.

07:21

And, you know, I even, when I come to an event like this say, why am I here?

07:25

Why would I even bother to take an hour of my valuable time?

07:30

[LAUGH] no, it's true.

07:32

I, I, I have to have a purpose.

07:35

My goal is very simple.

07:36

If I can convert one of you, there's probably 400, 500 people here.

07:41

If I can convert one of you to follow your belief and have the guts to follow

07:46

your belief, I'll have, I'll think of the hour as well spent.

07:51

Right?

07:52

So, I would say, what am I trying to do and why?

07:54

I don't speak, because somebody you know, will write nice things about it.

08:00

I, I always sort of have a purpose, but I have a belief system.

08:05

And most people, even successful companies,

08:10

and I have big beef with Fortune 500 CEOs I can talk about, there's very little

08:15

leadership there don't have an internal compass of what they believe in.

08:21

Its what do others expect?

08:24

You know when I graduated, I went into entrepreneurship.

08:26

Nobody went into entrepreneurship out of the business school.

08:31

And people said why wouldn't you work for Goldman or McKenzie.

08:35

And I said why would you.

08:38

I, I couldn't fathom why you would wanna do that job.

08:43

Alright?

08:45

I still can't, by the way.

08:48

For those of you going to those places, and

08:52

I'm sure there's plenty, I'm probably not the right person to talk to you.

08:57

I frankly don't even care to talk to you.

08:59

All of you others.

09:01

[LAUGH] >> All right.

09:05

>> I think there's something wrong with anybody who fundamentally

09:07

wants to go work for one of the consultants or

09:09

the investment banks today and there's probably.

09:12

>> [LAUGH] >> That, this,

09:13

they don't understand how the world is going to work in the future.

09:17

But my point again is, have a belief system.

09:20

Follow that compass.

09:22

And I'm overstating it a bit, so there may be some hope for those of you going there.

09:28

But it's a li, only a little bit of an exaggeration.

09:34

Let me go back to this issue of Fortune 500 CEOs.

09:37

I've talked to many over the years.

09:41

If a New York Times writer writes an article,

09:44

they want to change their strategy, they wanna respond.

09:48

How silly is that, that some English major who's never had a business job

09:53

can determine the strategy of a Fortune 500 company?

09:57

Why? Because they care about what's written,

09:59

not what their belief system is.

10:02

Do you know what Elon Musk would say to that writer?

10:05

Go get a real job.

10:07

All right.

10:09

What Jeff Bezos would say?

10:11

That's leadership.

10:12

Having a belief system.

10:14

Knowing what's driving you to do what you do.

10:17

Not you're fitting in to do career enhancement.

10:21

Or, making it look good to somebody else.

10:25

Whether it's to your friends, or to your boss, or to shareholders.

10:31

And frankly, you look at all the companies that are languishing in the Valley,

10:36

the older companies, they generally don't have a belief system.

10:40

They're generally trying to meet some quarterly target, without saying,

10:45

here's how we will be different and here's how we'll do it.

10:49

Apple did languish for 10, 15 years, and then Steve Jobs came

10:54

in with a point of view, and created the most valuable company in the world.

10:58

He did irrational things, if you go back to January of 2007,

11:04

January 1, everybody was saying nobody wants a phone without a keyboard.

11:09

Nobody wants a phone that costs 699.

11:11

I can go on with the litany.

11:14

First of all, English majors writing articles,

11:17

I have this beef against English majors.

11:19

[LAUGH] >> Not all English majors are bad,

11:22

but the majority of them at Stanford are undirected and don't have a goal or

11:27

a purpose.

11:29

>> [LAUGH] >> Sorry.

11:32

And,and that's not to say among them there isn't 20% that are really good.

11:38

They just didn't get the right guidance and ended up in the wrong place.

11:41

>> [LAUGH] >> I like proper school education.

11:46

Anyway, sorry.

11:46

Back to you.

11:47

>> No, absolutely.

11:47

>> [LAUGH] >> This is,

11:48

this actually is an interesting >> I make up better questions than usually

11:52

>> [LAUGH]

11:52

>> [LAUGH] That's a challenge

11:54

for you guys.

11:55

#GSVBFTT.

11:57

But I want to ask you about this, you are known for being for

12:00

the lack of a better word somewhat blunt.

12:02

[LAUGH] But

12:04

your website says we prefer brutal honesty to hypocritical politeness.

12:09

What are the tradeoffs in doing this?

12:12

>> Well there's lots of tradeoffs but.

12:16

I'm, I'm again very clear.

12:17

You know it started off earlier in my life.

12:20

I was very successful, even before I started Sun, I started a company

12:25

like Daisy that made me more money, which was only a million dollars back then,

12:30

or little more than that than my dad had made in the,

12:34

in his career cumulatively, so I was in a whole different place.

12:39

And I said, the one thing I'll do is not do what others want me do, or

12:44

be polite, which generally means dishonest.

12:50

There's a great book by Sam Harris,

12:52

who's a professor over on the other side, about lying.

12:55

I recommend everybody read Sam Harris' book on lying, and

13:00

why we all lie too much and too often.

13:05

We put this sort of slogan, I prefer brutal honesty to hypocritical

13:10

politeness, on our website, because it's a real disservice to people.

13:17

You don't have to be offensive to be honest.

13:20

>> Hm.

13:23

>> When I don't like somebody, I can get offensive, too.

13:26

But generally you can be constructive and very honest.

13:31

And I prefer that brutal honesty, because it serves a purpose.

13:35

The receiver can do something about it, if it's a constructive criticism.

13:42

If you get po, hypocritical politeness, you might lose a lot.

13:48

So, again, it's about having enough confidence to say

13:52

the other person will eventually appreciate it, and that loc,

13:56

local goods-slogan came after I was working on a company with

14:00

another major rental firm, and I didn't believe their plan would work.

14:04

They had $45, $50 million in their bank account,

14:09

so everybody was comfortable, too comfortable, in my view.

14:12

I talk to the founders why it wouldn't work.

14:15

What my concerns were.

14:17

The other VCs agreed with me in the board meeting, said all these polite things.

14:24

You know, so 40 engineers wasted three or four years of their life because

14:29

nobody was willing to tell them the honest truth about what they really thought.

14:34

Right and I swore I would never let anybody waste their life.

14:38

At least give them the best advice I had to give and tell them I may be wrong,

14:45

but I'm not gonna say something I don't believe in, I just won't.

14:50

In, and that's extremely valuable to the other thing.

14:55

But to be honest, look, there are situations you, it offends people, and

15:00

I offend people often, but it helps them if they're really introspective.

15:07

>> Hm.

15:07

>> Right?

15:08

I just had a candidate from Howard Business School come in and interview for

15:12

a job and I, half an hour into the meeting I said,

15:16

you know, you're not a match for us.

15:18

Here's what I would do, and I spent the next half hour.

15:22

I said, I literally said to her, if I'm gonna waste the next half hour of my life

15:26

talking to you, I'm gonna give you my best advice on what to do about your

15:31

career, >> Hm.

15:32

>> which I did.

15:33

She didn't love it.

15:34

She sent me a nice note a week later.

15:38

But its very valuable.

15:41

But the real fact, the honest truth about why I like that is,

15:47

once I was in a position I didn't need a job.

15:51

Nobody could fire me.

15:53

I've actually never worked for anybody, so it's actually sort of nice.

15:57

I felt it was a indulgence or a luxury I could enjoy.

16:04

Some people, if they make, get that financial freedom might buy a yacht.

16:08

I bought myself the freedom of brutal honesty, and it's an indulgence.

16:14

I get to do things others may not be in a position to do.

16:18

There is a downside for others, but I think generally constructive honesty and

16:23

constructive criticism than hypocritical politeness will serve other people well.

16:29

That founder, by the way, in that company called me four years later after,

16:35

after this company, this company got sold for $3 million four, three and

16:39

a half, four years later.

16:41

Sad story.

16:44

And he called me a year after that.

16:46

He said, I only wanna work for

16:48

you on my next venture because I wish somebody had told me.

16:54

>> You mentioned, you talked briefly about venture capital as it stands now earlier.

16:59

I just wanna come back to that.

17:01

Specifically, how does it compare to 1982, when you were starting Sun Microsystems,

17:06

and what are the major differences you see?

17:10

>> It's a lot more popular now.

17:11

It's a lot more accepted.

17:14

It's a lot more accepted to do startups.

17:16

So for those of you who are so inclined, it's much easier to take that route.

17:23

It wasn't back then, so the risk of going the entrepreneurial route was much higher.

17:29

If you went entrepreneurial and

17:31

it didn't work out you couldn't get a job at GE, right?

17:37

Much harder.

17:38

Today, if you've done a startup, GE would love to have you, even if it failed.

17:43

In fact, would prefer you over somebody who spent two years at GE.

17:47

Not 100% true.

17:50

But generally, it's the learning experience of a startup,

17:54

whether it's successful or unsuccessful, is recognized as extremely valuable.

18:00

And the cultural training of that is something everybody's striving for.

18:07

I'm amazed at the people who come through Silicon Valley.

18:11

It feels like a tourist stop, like Fisherman's Wharf used to be.

18:17

Every Fortune 500 CEO coming here,

18:20

holding board meetings here because they wanna learn the culture.

18:24

And, and I think that becomes a real career enhancement for

18:27

those of you who do that.

18:29

Now, I'm not a big fan of planning careers.

18:32

I'm much more about driving for the things you wanna do and go do them.

18:36

>> And, and that's about entrepreneurship.

18:39

What about venture capital?

18:40

I mean, for instance, you very famously said in a TechCrunch interview,

18:45

95% venture capitalists add no value, and 70% add negative value.

18:49

>> [LAUGH] >> All of my venture capital friends love

18:52

that statement.

18:53

>> Yes, they do.

18:54

[LAUGH] >> But I, I, I tell them that, you know,

18:56

there was a major firm.

18:57

I called somebody there and said, this guy's destroying this company, right?

19:03

>> Wow.

19:04

>> It happens all the time.

19:04

One, it, look venture capital's become a big business.

19:12

It didn't use to be back then.

19:15

It was a specialty art form.

19:18

There was a few firms, and most of them.

19:21

Sequoia was started with Don Valentine.

19:24

If you know Don, he was an operator.

19:27

Kleiner was started by Tom Perkins and Eugene Kleiner.

19:32

Tom ran a division of HP, and before that, he was a technologist.

19:37

These guys, and, and I'm not one for looking back and

19:39

being romantic about things, but this issue is important.

19:41

These guys earned the right

19:47

to advise an entrepreneur.

19:53

That means they'd gone through the battles, they, they had the experience

19:58

when a unique situation came up and an entrepreneur wanted advice.

20:03

They actually had been through the firing line to viscerally understand

20:08

how to give them advice.

20:11

Most VCs have not earned the right to advise an entrepreneur, yet

20:17

they feel free to in their ignorance.

20:22

And I believe you should have gone through a startup or

20:26

at least some significant experiences, and there are good exceptions to this rule,

20:31

to really advise entrepreneurs on how to build a company.

20:36

And most VCs haven't done that, so they give stupid advice.

20:40

You know, if you got out of business school and

20:42

joined a VC firm and grew up and

20:44

eventually became a partner, you haven't learned what it's like to be in a startup.

20:49

So in our firm, we have a rule.

20:51

You can join, you join for three to four years.

20:55

Then you'll have to leave, actually work in a startup, before you come back, and

21:00

actually can get, I'll give you the responsibility to advise entrepreneurs.

21:06

People get frustrated because their peers in other venture firms are sitting on

21:10

boards and advising entrepreneurs.

21:13

But, you know, that's exercising authority as opposed to

21:17

exercising influence because you have credibility with entrepreneurs.

21:21

Most of the time I don't go on boards.

21:24

I just advise entrepreneurs.

21:27

And frankly, being on a board is irrelevant.

21:31

>> On that topic you have a really unique strategy among VCs.

21:35

You've said, I'm only interested in technologies that

21:38

have a 90% chance of failure, but if they do succeed would change the infrastructure

21:42

of society in a radical way.

21:44

How did you come to adopt this particular strategy?

21:46

>> Well, so,

21:47

that's not exactly accurate because we don't mind low-risk technologies,.

21:51

We invest in that, too.

21:54

But what I wanna say is, venture capital,

21:58

if you think about it, isn't, is not an IRR business.

22:05

You, you, you take any of the big successes.

22:08

Google, Facebook, Twitter.

22:10

You can't predict them.

22:12

You know, a camera like GoPro, can you predict the, the market cap?

22:16

You can't.

22:18

And you can do spreadsheets, so we don't allow any IRR calculations in our firm.

22:24

Nobody does them, nobody looks at them.

22:27

In making investments, we never calculate an IRR.

22:31

Because calculating an IRR, in my view,

22:34

is creating the illusion of knowing, which big companies are very good at.

22:39

You tweak some assumption.

22:41

I did enough business plans to know I can make the business plan do whatever I want

22:45

on the spreadsheet.

22:47

You know, reality is different.

22:49

I don't even think you can plan startups, so business plans are largely irrelevant

22:55

other than in surfacing the key issues the entrepreneur is thinking about.

23:00

How thorough is their thinking?

23:01

What's the quality of their thinking?

23:03

That's the only thing I use a business plan for.

23:08

Then what are you doing?

23:10

You're really doing option value investing, if you want a financial term.

23:16

If you lose, you lose one time with your money.

23:18

If you win, you win ten times your money.

23:20

Your downside is limited to your investment.

23:22

So whenever we make an investment, I assume we lost it, and

23:26

then there's only upside.

23:27

>> [LAUGH] >> Right?

23:29

As soon as you write it off in your mind, there's only upside.

23:34

So that's how I view the world.

23:36

And then you try and take the higher risk.

23:39

And there's VCs who won't invest with us because they feel like we,

23:43

we take too much risk, which is fine.

23:45

There's room for every style of VC firm.

23:49

Ours is different.

23:51

It's about taking higher risks and higher upside.

23:54

90% chance of failure is not a problem.

23:59

If there's a ten percent chance of 100 times your money.

24:03

If it's the only thing that worked, then you're in pretty good shape.

24:10

And, and that's not the only good strategy.

24:14

Private equity does very well running spreadsheets and

24:18

that, I just have no interest in spreadsheets.

24:21

So, and we're not good at it.

24:23

>> Hm. >> So we know what we do.

24:26

What's bad is when people who come from that word want to do

24:30

this kind of investing.

24:31

>> Yeah. >> It can't be a mismatch

24:33

of your personality with the investing type.

24:36

But all those are good scenarios and some of them are even better scenarios,

24:42

for our art than what we do.

24:46

>> We, sorry.

24:47

You, you mentioned in your,

24:48

you mentioned right now about getting other VC students to invest with you.

24:52

And throughout your investing period you had a strong streak of going against

24:55

conventional wisdom.

24:57

NexGen, Juniper I'm curious.

25:00

How do you get others to buy into your convictions?

25:05

>> Sometimes they do after the fact, sometimes they don't.

25:08

Sometimes they actually don't know any better.

25:10

So they're confused, which is good.

25:12

[NOISE] A, all those happen.

25:15

Look, there's lots of really good.

25:17

Receives a lot, right?

25:20

But there's order of magnitude more bad we sees around.

25:27

It's, so there's probably half a dozen people I respect in the VC business and

25:33

probably the vast majority I don't know personally so I won't judge them.

25:38

But of all the people I know in the VC busni, 90% really add no value, and

25:44

I truly belive 70% of them reduce the potential of a company.

25:52

>> I could, I could keep asking you questions on investing, but

25:54

I really wanna- >> But, but, here's the thing, right?

25:56

90% chance of failure.

25:59

You have to have the courage to fail them,

26:02

because most likely you're going to, to get that option at a very large play.

26:07

Well, and, and that's a pretty clear segment

26:12

of the venture capital business or the investing business.

26:15

It's not every segment.

26:17

Capital preservation is important in other segments it's just boring to me, it's much

26:22

more exiting to be on a roller coaster where the highs a high and a lows a low.

26:27

So risk taking is absolutely essential now.

26:31

As career advice to all of you, most,

26:36

you can make money and good status, and all that in regular big companies.

26:41

There's very little really interesting stuff you can do in big companies.

26:47

It comes shockingly, it's shocking to people, but

26:52

who invented, reinvented retail?

26:54

It wasn't Wal-Mart.

26:57

It was Amazon.

26:59

Who reinvented media it wasn't NBC.

27:02

It was YouTube.

27:04

Who reinvented space it wasn't Lockheed.

27:07

It was Space X.

27:09

I was hard pressed to think of one thing that had come out

27:14

of a large company in the last 20, 30 years.

27:18

That was materially changing the landscape.

27:22

And the reason's very simple, and this is all interesting things have,

27:28

eh, happened at the edges of the system.

27:32

They don't happen in the solid core.

27:34

And, all that

27:39

you have to do where things are fuzzy, unclear, uncertain.

27:45

If there's a market forecast, it's not at the edge of the system.

27:50

If some analyst has a report.

27:53

It's not what's ex, going into that area, right?

28:00

I've a whole thing about analysts we can get there.

28:02

>> [LAUGHTER] >> Let's actually talk about it.

28:05

>> Okay. So ask me after I finish this.

28:08

>> Sure.

28:08

>> Talk.

28:10

In the edges where things are uncertain is they're old evolutionists and

28:18

there interesting changes in business or society happen.

28:24

And unless you're there and learning fast from being there and

28:32

not being too out of it to believe you know what's going to happen you're not

28:37

gonna be in that learning edge of the wave, where new things are happening.

28:42

And as career advice, I say.

28:44

And that's where failure happens often.

28:46

You want failure to be small, and success to be very large,

28:51

which is the characteristic of option value.

28:54

You lose your option price, but you get option value if it's successful.

28:59

That all happens at the edge.

29:02

In automotive, I, as, th,th, there was a CEO, in fact,

29:07

I've had three CEOs from the ten largest auto companies come by in

29:11

the last six months and I said I wouldn't worry about building a better car.

29:18

Almost certainly, ten years from now, a Volkswagen or

29:22

a Toyota will be a financing entity, not a car-making entity.

29:26

There will not be the notion of marketing to consumers.

29:31

The auto industry as we know it I think will disappear.

29:35

Disappearing in the sense of IBM mainframes are still around, they're still

29:39

a business, they're relatively static, they're filling an old need.

29:44

But almost certainly, the number of cards produced ten years from now will

29:48

be less than half of what is produced today for sale to consumers.

29:52

>> Hm.

29:53

>> I, now, long, we don't have enough time to go into why I believe that.

29:59

Almost certainly, and I'm serious about this.

30:02

I gave a talk at the Stanford med school, and I said,

30:05

if I wanted to be a good doctor in 15, 20 years, I wouldn't go to the med school.

30:11

If I wanted to be a good doctor, I would go to the math department.

30:16

Almost certainly,

30:18

every single thing they're learning about medicine will be obsolete in 15 years.

30:24

So, you can join Medtronic, or DE Medical, and do incremental things, or

30:30

you can try to learn that the edges, where your probability of failure is much high.

30:35

But the consequences of success are really consequential, and

30:39

most people in their life, in their business, reduce risk

30:44

to the point where the probability of success goes higher, but

30:49

the consequences of success are inconsequential,

30:52

as opposed to reducing the probability of success and increasing

30:58

the consequences of success.which is sort of my life to start with.

31:03

Trust me, it's a lot more fun then spending 30 years and

31:08

Goldman and I like Goldman.

31:11

>> [LAUGH] That's a fascinating world view, but I really want to get a question.

31:14

>> So let me go back to.

31:15

>> Okay. >> [LAUGH] [APPLAUSE]

31:18

>> I, I, I just have seen the tide.

31:20

But you did ask me to talk about >> The analysts and the experts.

31:23

>> Yeah. The experts.

31:26

So Professor Chetlark when he was at Berkley did research on expert opinion.

31:34

All the analysts you read all the Mackenzie reports, and

31:39

by the way, Bain and PCG no different.

31:42

And he followed all of their forecasts for 20 years,

31:47

28,000 individual forecasts from 250 experts.

31:52

Where when the forecast was made,

31:55

he classified what would be a success, what would be a failure, And

32:00

the book is called "Expert Political Judgement." So, all these great studies,

32:06

the 10-year studies McKenzie did for millions of dollars for

32:10

AT&T on what would happen to the cell phone business, that's a fun story.

32:16

Across 28,000 individual forecast in 84,000 possible scenarios.

32:25

The average accuracy of the best experts, whether it was Henry Kissinger,

32:31

Tom Friedman, McKenzie, your favorite, eh, favorite economic forecaster.

32:37

The average accuracy, was about the same, to use his words,

32:42

as dart throwing monkeys.

32:46

So if you want to run your life on these forecast and

32:49

create an illusion of knowing.

32:51

Great, go do it!

32:53

You will follow a path that others will reinforce because you can

32:58

give them a data quest study or a Bain forecast.

33:02

Or you can discover the edges where things are happening and changing.

33:07

Know that you don't know, and really change the world.

33:12

Now, again bringing back to leadership, it's about having a point of view.

33:18

It's about having an internal compass.

33:21

This is a great point in your life.

33:24

To actually decide which one of those.

33:26

Do you have a belief system?

33:28

Or you gonna do what others tell you to do?

33:30

Whether it's written up in the New York Times,

33:33

which, which somebody wrote up who doesn't understand the context.

33:38

Whether it's the McKenzie report or a G-Forecast, or

33:41

a Goldman analyst, or you gonna do what you believe in?

33:44

And unfortunately, very few of you will do that.

33:51

I hope I can work some of you to believing in yourself.

33:56

And the good news is, I actually believe five percent of

34:04

the people is all that's needed to be even remotely innovative to change society.

34:10

I once looked at all social changes, not just business,

34:15

and I looked at a decade and I said for people born between 1940 and

34:21

1950 or 1950 of all the people born on this planet.

34:25

You can take the ten ma, 100 major areas.

34:30

And define, could you find 100 people in each of those areas,

34:34

from that decade, that generation, who affected change?

34:38

It didn't matter whether it was music,arts,

34:43

research in social sciences, technology invention, business.

34:49

You can't find a hundred areas and you cannot

34:51

find a hundred people that stand out in each of these areas in any given decade.

34:56

So, less than 10,000 people born this decade will influence

35:02

All of what society does think, happen.

35:09

I'd like to say you should try and be one of those people, and

35:14

none of those people will follow any analyst's forecast.

35:18

They will have an internal compass,

35:21

they'll have self-confidence in a belief system, and they'll make change happen.

35:26

I'm very passionate about this, cuz frankly,

35:29

it only takes a few people to change the direction of any industry or social trend.

35:36

>> You know, I think this might be a good time to open up the floor to questions

35:39

from the audience.

35:41

So we have Caroline and Rai on either side with mics.

35:44

Please keep your hands raised so that one of them can spot you.

35:48

You can also tweet your questions using #gsbvftt, and Michelle here

35:52

will ask your question, actually lets start with a question from twitter.

35:56

>> And I want to apologize I have to leave soon after this, but

36:00

my email address is vk@coastalventures.com if we don't get to your question,

36:05

please feel free to send it.

36:08

>> Thank you Vino- >> And I'll spend as much time answering

36:12

it as, as much time as you spent thoughtfully asking the question.

36:16

[LAUGH] That, that's my rule on email.

36:22

I try and judge how much, how thoughtful was somebody in sending the email.

36:26

Yes, sorry.

36:27

>> Alright, there's a lot of very thoughtful questions on Twitter regarding

36:30

your belief system.

36:31

Can you talk about what exactly is your core belief system, and

36:36

how do you foster that in your team and your company?

36:39

>> You know, so I decided very early I wanted to work on interesting things.

36:47

Is not well known but I started the first program, programming class at NEIIT.

36:54

In 1971, we formed a hobby club of four people to learn programming, and

36:59

that was the first instance I know of a programming class at NEIIT.

37:03

A few years later, I got interested in biomedical engineering, and

37:09

I was 16 when I started the programming club at IIT Delhi, a few

37:14

years later we started the biomedical engineering program, which was, we just

37:18

convinced one professor to work with us, and there was three or four of us, and so

37:22

I had this habit of saying, what do I want to do and how to make it happen.

37:29

But the core belief system I have is, I wanna work on interesting things.

37:33

I don't wanna get bored.

37:37

And it applies to what I'm doing today.

37:40

What I've learned since is, it's nice to do that, but

37:45

it's even more rewarding to do interesting things that have a great impact.

37:51

And so I measure impact a lot.

37:55

We are probably the only VC firm that in the first, for

37:58

the first slide deck a fundraising slide deck

38:01

we said we care about our ambition which is R&R but care as much but

38:06

more about our ambition, our mission which is to make a positive change.

38:10

And, I've told my LPs if you get a lower rate of return but higher impact,

38:17

we'll probably pick that, because I'm much more interested in that than feeding some

38:21

pension fund a slightly higher rate of return as long as I cross a bar.

38:26

It's very clear to me.

38:28

So, it was cool stuff and interesting stuff,

38:31

early I didn't have perspective when I was in 20s.

38:35

And over time I said, it's much more fun to work on things that make a difference.

38:39

And so I only do that.

38:41

We, we had an investment and somebody will tweet this and I'll get in trouble.

38:47

We are looking at investment in a company called T Spraying which is doing

38:50

extremely well.

38:51

And the partner who was doing that, and I said you know,

38:55

you want to invest in T Spraying or t-shirts, great.

38:59

Don't expect me to spend any time.

39:02

I'm not interested in t-shirts.

39:04

I'd rather work on a healthcare solution, and so,

39:09

it's not, again, I want to emphasize this is a luxury I've earned.

39:15

So, all of you don't have that luxury, if you're not in the same place, and

39:20

I recognize when other people aren't in the same place.

39:24

I also never cared what people thought,

39:25

so I had that luxury very early on in my life.

39:30

Mostly through my attitude, which was much more belligerent when I was young.

39:37

But now I can honestly say, we built a new building a few years ago and

39:42

I said, you know, as long as health permits, I've enjoyed this so

39:47

much and the area I'm working on keeps changing every few years because

39:52

the nature of venture capital and technology.

39:55

I'm gonna do this for the rest of my life but

39:57

only do things that actually make a positive difference.

40:00

But then also, anytime you make a difference, you make money and I think

40:05

when you make money as a consequence of trying to do really interesting companies,

40:10

you make much more of an impact then if you do it as a transaction,

40:14

buy/sell kind of thing.

40:17

In fact, if I get a plan, business plan that talks about

40:20

exit in the first couple of pages, I almost never read the rest of it.

40:25

>> It's a good tip, right?

40:27

>> Can you hear me? Yeah?

40:30

So I'm Melina and I actually work for a healthcare start up.

40:33

I have a pointed question about you.

40:36

I'm very impressed by the confidence you exhibit and

40:40

obviously you have reasons to be that confident.

40:42

>> Some people call it arrogance.

40:43

>> [LAUGH] >> My question is did you,

40:47

when you were a kid, did you get support from your family that made

40:52

you as confident as you are right now?

40:55

>> You know, e, e, first it's hard to remember.

41:00

I always did my thing.

41:02

I always did things most kids didn't do.

41:06

And my parents always sort

41:11

of, I guess support is probably the right word.

41:15

Indian families are very different, you

41:19

never did things your parents really oppose, but, I tended to do some of that.

41:25

[LAUGH] but I always had great dialog with my parents, and they actually sort of,

41:30

accepted me very early doing, going out of the bounds.

41:36

For those of you interested in my attitude and those of you who may have kids,

41:42

I was asked to give a talk at Harker School here in, you know, in Saratoga.

41:49

So give a talk to the high school kids, and I did a presentation.

41:53

My first slide was something like why you should only color outside the lines.

41:59

>> [LAUGH] >> My second slide was about

42:02

why you should disregard your teachers.

42:05

>> [LAUGH] >> My third one was why you should disobey

42:08

parents.

42:09

>> [LAUGH] >> Eh, and, and yeah, it was sort of funny

42:13

and the kids loved it, but I'm dead serious about it.

42:18

I am dead serious about it.

42:21

I actually think, inculcating an attitude of exploration,

42:27

not confirmation to a bound set, a bound set by others,

42:31

is what creates this internal compass and belief system and confidence in yourself.

42:38

Again I say, 90% of you will do what's expected.

42:42

You know, after this you'll be motivated and then go back and say, oh,

42:46

that Goldman job, it pays more.

42:53

>> Okay.

42:57

>> Hi, I'm Neil MBA1, thanks for your speech.

43:01

I just on the end of this thing that you mentioned, there's the VC field now,

43:06

as compared to in the past,

43:07

has become a lot more crowded and there's a talk of tech bubble here.

43:12

In your opinion, are we in the middle of a bubble?

43:14

And if so, when do you foresee it bursting?

43:16

Thanks.

43:19

>> I don't, I know that I don't know the answer.

43:23

I also know anybody who tells you they know the answer is probably stupid.

43:28

[LAUGH].

43:32

[LAUGH].

43:36

>> So yeah, thanks, thanks for your talk, Pablo Fuentes, MBA10.

43:40

So I think your brand of swashbuckling is particularly effective if you show some

43:44

vulnerability.

43:45

So I'm gonna be your buddy and allow you to tell us a story about a time when you

43:48

got crushed by somebody's brutal honesty and what you did with that.

43:53

>> [APPLAUSE] So,

43:59

look it would take an hour to talk about all my mistakes.

44:03

I actually let me put it this way.

44:09

In the last 15 years, there's only once in my life I've called somebody and

44:15

say I'd like to speak at this conference.

44:18

And that wasn't a popular conference.

44:20

It was a small thing in a hotel room in San Francisco and

44:23

was called FailureCon where everybody who had co, failed came.

44:28

And I wanted to speak to this issue of failure.

44:33

There are so many s, stupid things.

44:38

You know, the iPad is so popular.

44:41

We tried to do it, probably one of my large mistakes, in the late 80s.

44:49

And I could go into details, and I, I'll cut it short.

44:53

What I would say is I'm never embarrassed about my failures.

44:58

And so if you search in the web for my failures, you'll find lots of them and

45:03

you'll find me talking about them.

45:05

And it's important because, given my philosophy,

45:08

where I screw up doesn't matter, because it's a long list.

45:12

In fact, it's a longer list than my successes.

45:16

But like I started with,

45:18

nobody remembers the data dump here, everybody remembers Sun.

45:24

Right?

45:26

The number of venture companies where I made stupid mistakes.

45:31

I'll, I'll tell you one of my, big failures.

45:34

So if you go back to Sun.

45:36

1980s.

45:38

Sun's logo, or,

45:41

on, on, le, motto under the logo was the network is the computer.

45:47

And these couple of people started this software program that did

45:51

routing of IP packets of network traffic.

45:56

That happen to be the beginning of Cisco.

45:59

Now, when you say the network is the computer and make these

46:05

arrogant marketing lines, and you forget that routing is the key element.

46:11

And Cisco was born as an application on Sun, and we didn't see it.

46:16

And I said to myself, duh, how stupid was I not to see it when it was happening?

46:21

Even when I saw the application!

46:24

A router was an application on a sun machine,

46:26

we missed the largest opportunity Sun put out.

46:29

I can find 100 such examples, the point is,

46:34

try and fail but don't fail to try.

46:41

My, a couple of other favorite quotes along those lines,

46:45

since we're coming to the end of our time.

46:49

Robert F. Kennedy said,

46:50

only those who fail greatly can succeed greatly.

46:55

The classic example of that is Elon Musk.

47:01

He said forget this bullshit about supplying batteries to GM.

47:07

They're just too slow to make change happen.

47:09

You know I was talking about retailing Amazon not Walmart, YouTube not NBC.

47:15

Think about GM or Tesla.

47:19

GM spent way more money than Tesla did.

47:22

Space, NASA and Lockheed spent way more money than SpaceX did.

47:27

I can go on and on, every major change.

47:33

So failure, try and fail, but don't fail to try.

47:39

Nassim Taleb and his book Antifragile which I recommend everybody read if they

47:44

are setting off on a career as a personal philosophy, mine happens to coincide,

47:49

and I'm not talking about Black Swan, but his book called Antifragile.

47:54

I always love ending with a good rec, book recommendation.

47:58

I think that's important, so.

48:00

I'm just not embarrassed about my stupid mistakes.

48:04

I mean, I think that's the difference.

48:07

>> [INAUDIBLE] >> I'd know if I answered your question.

48:11

>> [INAUDIBLE] >> When did I get crushed?

48:15

>> [INAUDIBLE] >> By brutal honesty.

48:18

I mean, I've offended plenty of people.

48:22

And that, so I won't go into the details because the public company,

48:28

two public companies involved but, I was on a, on a panel with the CEO

48:34

of this public company and I basically told them how stupid they were and then

48:39

there was payback in a indirect way and that really hurt this other company and

48:43

it you know, literally killed, almost killed the company.

48:49

Unfortunately because they're public companies I won't go into details.

48:53

So that's an example where brutal honesty really hurt me.

49:00

I can think of lots of, look, there's plenty of people in the VC business

49:04

that don't like me because I tell them they, they, they're sort of worthless.

49:10

Eh, eh, I do!

49:12

But again it's an indulgence on my part.

49:14

The really good people I don't say that to.

49:17

If I don't know somebody enough I won't say to that to them.

49:20

But if I do know for sure I do make sure I tell them.

49:23

More importantly, I tell [INAUDIBLE] knows what I think and they often tell the VC.

49:28

But it's part of life.

49:29

>> Now I want to make sure we have time for one more question.

49:31

>> Mm-hm.

49:32

>> Actually, a quick announcement before that.

49:34

Friends of Ronid from the class of 2010 are welcome to join his family backstage

49:39

after the event ends to share stories and reminisce.

49:42

So, this questions has sort of sort of a view from the top tradition.

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And every applicant to Stanford GSB is asked this question on their application.

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However, you were not asked this question in 1978,

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because this question didn't exist in 1978, it started in 2000s.

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So here's your chance to answer this question,

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what matters most to you and why?

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>> You know I think it sort of and, and I won't phrase this in,

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in a do gooder kind of way and I don't mean it that way.

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I just find it's cool to disrupt things for the better.

50:16

And so when I say impact

50:19

I sort of feel like I'm being a troll on various industries.

50:22

It's a luxury I've earned to, because I don't need to pay my mortgage and

50:26

so, I like taking on new things.

50:30

You know, I, it's sort of like now people are mad at me for

50:33

saying we don't need doctors.

50:34

I actually don't believe we do.

50:36

So but we need, a different kind of doctor to do a different kind of thing.

50:41

And I wouldn't go to Stanford Med school to get the best doctors.

50:45

I'd go to UCLA film school because the human element of care is important, and

50:50

acting becomes important.

50:52

And that's where most of our doctors will come from in 15 years for

50:55

the human element of care.

50:57

And people hate it, doctors hate it when I say to get the most,

51:02

most of the human element of care you need the most humane humans and

51:05

those aren't the high-IQ people who got into Stanford Med School, reality.

51:13

But what I would say is knowing I

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can make a difference in industries where things are positive is very rewarding.

51:23

And let me end on the note that I actually like working on

51:28

things that my four kids would be proud of me working on, right.

51:32

And there's this question that all of you will face of work,

51:35

life balance so let me end on that note.

51:42

Working on cool things excites me, keeps me motivated, I like to say,

51:48

you you grow old when you retire, not you re, you don't retire when you grow old.

51:54

And as long as you are stimulated and excited and whatever your passion is, and

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it can be what I do, it could be I want to train a whale.

52:04

I find that a really hard task.

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It's a significant challenge by itself.

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Maybe it's not hugely impactful for society.

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But I actually love that example of, if I got passionate about that and

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did that, and it's a really hard thing to do.

52:20

It'd be exciting to go pursue it.

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So I like hard challenges, I like difficult things, I like working against

52:27

the odds and that brings out my competitive spirit and now

52:33

I happen to constrain it to areas where I think I can have a positive impact.

52:37

But not so much in the do-gooder thing, it's a luxury I can indulge in.

52:40

It makes my kids feel better.

52:42

So let me end there.

52:45

Through all of the 90s when my kids were young, I had one rule.

52:49

This 15 minute thing, managing my time came from the following.

52:54

I realized it was easy for all of us to say things and

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then, and mean them and not stay true to them.

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The most important?

53:06

Family.

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Everybody says the right words, they don't live by them.

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So, what I decided I would do is get a monthly report

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of every category of time I spent time on.

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It could be working with entrepreneurs, evaluating new companies,

53:25

being polite talking to journalists, being polite because somebody said,

53:29

here my son wants to talk, have a conversation.

53:33

I classified my time into 20 categories, one of the most critical

53:38

lines from that was the number of times I had dinner with my kids at home.

53:44

And I set an impossible goal of 25 times, a month.

53:49

And, it took me a year or so, but eventually I met it.

53:53

But more importantly, every month I had to report on whether I did or didn't.

53:59

I do believe work, life balance is possible.

54:02

You just have to be extremely disciplined about it.

54:07

I no longer went to the pub, right, or the.

54:12

I know no longer did baseball games with friends,

54:17

I only did it with my kids or son.

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I, I decided what my priorities were explicitly and

54:24

then measured it to meet the requirements.

54:27

I highly recommend you come up with your own priorities and measure them.

54:32

Thank you all very much.

54:33

>> Thank you Rao thank you >> [APPLAUSE]

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