The following is a video and transcript of a talk Randy Komisar, KPCB partner, gave at Stanford University back in 2004. I highly recommend that anyone interested in entrepreneurship reads his book, The Monk and the Riddle: The Education of a Silicon Valley Entrepreneur.
I always tell people that what distinguishes Silicon Valley is not its successes but the way in which it deals with failure. We live in an industry, innovation industry, and we live in a place, Silicon Valley, that operates much like the home run averages for batters in the Major League. They’re going to strike out more than they get home runs, and they’re going to hit less than 500. That’s the deal. That’s the deal in the Valley. We’re going to hit less than 500. It’s by definition the case.
This is about experimentation. Innovation is about taking risk to do things that haven’t been done before. If you could do them with a level of certainty that would increase the odds above 50%, we wouldn’t need Silicon Valley.
Big companies would do it, and they’d do it well. The reason big companies don’t venture into what Silicon Valley does is because their business models do not tolerate the level of failure required for innovation.
The only business model, solid business model that has been created to deal with failure and still make substantial amounts of money, so substantial that they’re able to continually invest in failure, reaping just few success as they can, is the venture capital model, the portfolio model. Big returns on winners and a lot of losses. So we live in a world of risk and we live in a world of failure. And the real issue is, how do we deal with that failure?
When I travel around and look at the Silicon Valleys of other places in the world, one of the distinguishing factors as you look at them is certainly not the infrastructure. They’ve got cubicles. They’ve got broadband. They’ve got lawyers. They’ve got accountants. You go to India and you walk into Wipro emphasis offices and you swear you’re in Silicon Valley. What generally is lacking is a culture of constructive failure. Constructive failure, the ability to tolerate failure, proceed with your career, and do it again; and take your experience and cash in on it as an asset. Still, there are many business cultures where when you fail, you’re finished. And that includes Western Europe.
I find that probably the most entrepreneurial cultures with regard to innovation and failure are the United States and China. Chinese are natural, absolutely natural entrepreneurs. More so than India in a sense of being able to take risk and fail.
So the culture of failure or constructive failure is what defines this place. I’ve lived it. I’ve had plenty of failures. If you sort of tally up everything I’ve done and you actually take a look at the money made, not just the outcomes, because a lot of these outcomes are what I call horizontal outcomes. Meaning that, even if we succeed, we sold it. We gave it away. We merged it. It survived but nobody made a bunch of money.
But when you take a look at all of that, I’ve had some screaming financial failures. GO was a huge financial failure for that time. But I tell you, the amount of money we lost is going to seem poultry especially compared to things like Webvan which basically left a billion-dollar crater in the Valley. But we left about a $75-million-dollar crater in the Valley and that was huge at that time for a startup company. Interesting enough, this context of constructive failure has left me with a very different view of what failure is and what success is, and also gave me a different view of my failures.
I would say, most of us who were at GO do not see it as a failure in a broad sense. Most of us who were at GO see it as being a success in terms of the development of character, esprit de corps, and the tools for dealing with immense challenges in complex businesses. That group, if you take a look at the executive team of that company, Mike Homer went off to found Netscape; Stratton Sclavos went off to found VeriSign; Jerry Kaplan went off to found Onsale; Bill Campbell went off to run Intuit. I went off to run LucasArts Entertainment. And we can go on, and on, and on. So, in terms of failure, it was actually one of those experiences we all look at and feel good about because of the way we behaved, and the way we worked together, and the quality of what we did together.
Now, compare that to Crystal Dynamics, which I did a couple of years later. Crystal Dynamics is a company that is distinguished in my career because it’s the only time I ever took a job and got a raise. Every single time I’ve ever taken work, I have given up cash. And I usually make more money at the other side. Crystal Dynamics was also distinguished because it was one of the most incremental changes I’ve ever made in my career. I’ve been running a game company. I was going to run a game company. My goal was to make the second one as successful as the first one. It was a very simple goal. It didn’t work out that way. It was a terrible failure for me. Now, mind you, people made money on that deal. That deal went sideways and then up. And so unlike GO where people lost money, people made money at Crystal Dynamics.
Why was it a failure? It was a failure because I failed. Because the quality that I did was not good. Because I didn’t have the passion to persevere and do what that company needed to do in terms of right-sizing and redirecting it. So what failure meant for me after Crystal Dynamics was very different than what I thought failure meant when I was early in my career at a place like Apple. And Claris spoiled me. I mean, everybody should have the opportunity to work in a company that’s very successful, and then in a company that fails; because working in a company that’s very successful, you get a context for understanding what success is in an operating business, but you don’t learn much.
But you really learn when you’re confronted with failure. And that I think is the primary root of constructive failure and why this Valley is so successful with failures. I think you can learn from those failures. I think, ultimately, the only way to really get your money’s worth out of failure, better be your own, right? And that’s largely because that hollowness in your stomach, the disappointment of 250 people whose lives and families depend on you, the chagrin of your board members, you’ve got to feel it. You got to feel it if you’re going learn it. And I think some people are lucky enough to go through life failing a little, or not at all. I don’t think they’re probably as wise as the guys who have actually failed.