Fri · Feb 26

Maintaining Success for the Long Term

This week, Michael Moritz was the guest speaker at YC.

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One of the questions I asked him was how to build a company that repeatedly innovates and stays at the top of its industry for decades, which Sequoia Capital has done. I think this is the hardest thing to do in business.

The answer was so good that I asked him if we could release it publicly, which we've never done before (our dinners are off-the-record, which is a bummer in some sense but means that guest speakers are free to tell real stories.)

Here it is, along with the answer to the follow-up question of what keeps him motivated. The full transcript is below.

Sam Altman : When you try to sort of look back and see what Sequoia has done as a firm that has let it stay for such a long period in a dominant position, what are the values and the ways Sequoia operates that you would point to for other people trying to do the same thing?

Michael Moritz : So most of you, when you see an old fart like me sitting in front of the room, will say to yourself, if you're being polite, "There sits the money." Or something even worse.

What you will not be thinking about -- I'm not saying this in accusatory fashion, nor should you have any reason to think about it -- is the fact that we have our own business to build, run, operate, nurture, sustain, improve. And without doing that, we can't pretend to have a hope of making what we hope will be breathtaking investments.

Sequoia was started by a guy called Don Valentine in the early 1970s. If you go back and look around Silicon Valley and ask yourselves, "What companies succeeded and prospered in the '70s that are still doing that now 40 years later?" It doesn't matter whether they're companies with names like Digital Equipment or Data General or Silicon Graphics or Compaq Computer or Lotus Development or Software Publishing or VisiCorp or Silicon Graphics or Cray Computer, or all the others that have fallen by the wayside that were once great; or you go into the venture business and rattle off a string of names of venture firms that had moments of sunshine upon them in the '70s or '80s or '90s or the first decade of 2000s, and are either out of business or have lost their stride or purpose and are only a shadow of what they used to be.

That's what, at Sequoia, we've always been focused on: How do we maintain a consistent level of exceptional performance? Most entities, most organizations are capable of doing it through a year, or five years, maybe ten years. Very few are able to do it over multiple decades. And I'm not saying that we're exemplary, but we've worked really, really hard on trying to perform at an extremely high level.

Yesterday is irrelevant

How have we done it? It all sounds very, very mundane. You can read a book about the principles of high performance, or great leadership, and it'll all sound very straightforward and rudimentary. The difficulty is doing it every day, doing it every week, month, quarter, year, and keeping that beat up.

That was one of the great things about Steve Jobs, it's one of the great things about Larry Page, it's one of the great things about Jeff Bezos, or Reed Hastings. These are leaders who are capable of doing it. How do they do it?

They want to make sure that their product is fresh, that it changes with the times; that they never rest on their laurels, or get complacent; that they always have an element of insecurity about feeling that they can always get eaten by a competitor, and that past successes don't mean all that much.

Which is part of the reason we don't have all sorts of lucite blocks commemorating this or that anniversary of some company hanging around the office at Sequoia: Because all of that is yesterday, and it's irrelevant to the future.

Maintain a fresh team

The other thing that you have to focus on is the team. And be able to field the best team at any one time, no matter how long people have been with you. To be not unfair, or ruthless, or harsh; but detached, objective and clinical about the performance of each individual. No matter how well they've performed in the past, or in our case, how many successful investments they've made, if their heart is no longer in it, if they no longer have the burning desire to compete, it's time for them to move on. You cannot have people like that around. Bring in young people who have zest, ambition, energy, like Steph [Zhan] and Matt [Huang.] And then grow, in our case, our firm organically.

It's not going out and hiring people who've had 30 years of experience in industry. We have hired people like Alfred [Lin] and Roelof Botha and Bryan Schreier, who've had industry experience, but they still come to Sequoia at an age where they understand that this is a business that's difficult, they've got to learn it, and they have a real drive to succeed. So it's constantly refreshing the team.

Change with the market

And then, staying alert to market opportunities. When we started a long time ago we were just here in Menlo Park, but the world of technology has changed. The world of the companies that you're all starting today is massively different than it was 30 or 40 years ago, because of what's happening principally in China, and to a lesser extent in other countries. That change is the face of global technology. So about 12, 13 years ago, we started a business in China because we felt that, over time, it was going to be increasingly important for Sequoia, for the companies that we have investments in in Silicon Valley, to really understand the Chinese market because of what was going to happen there.

When we started that business everybody bet against us. Everybody told us we were going to fail, everybody said we were getting too big for our own britches, that we were going to be the next Americans going to China to get whipped. And thanks to the people at Sequoia in China and tremendous amount of hard work from a lot of people, we now have a thriving business in China that -- I don't mean this in a boastful fashion because it's the work of the people on the ground, not me or others here -- we now have the number one venture firm in China. And that's really, really difficult to do.

I don't want this to come across as sounding vainglorious because, as I said, we've made tons of mistakes, there are lots of errors that we've made, there are lots of decisions that we'd make differently if we had to do them again. But we've always felt that we're probably one step away from going out of business.

Sam Altman : That was an incredible answer. What keeps your heart in it after 30 years?

Michael Moritz : Oh, for me, it's the challenge of taking on all incumbents. Because if you're starting a company, or involved with the formation of a company, or helping a company along the way, it's always a journey against all odds. The whole world is betting against you. All the big companies think they're going to crush the little company because they've got so much more in the way of resources.

Take Instacart. Why do I love, why does Sequoia love being in business with Instacart? Well, everybody thinks we're on a fool's mission. They say, "Didn't you read about Webvan in the newspapers?" We didn't have to read about Webvan in the newspapers. We were investors in Webvan. "Isn't Amazon going to kill you?" "Aren't you going to be incapable of having unit economics that make sense?" "Isn't it a very low-margin business?"

Yakety, yakety, yak. To steal a phrase, there's a wonderful phrase somebody else used many years ago: "The nattering nabobs of negativism" will just prattle on endlessly.

So at Instacart, it is fun to be involved with people as smart as the management team that Apoorva [Mehta] has assembled to prove all of those characters wrong, which is what we're going to do. And similarly, you could put the same argument together with Airbnb, with Stripe, with Dropbox, with a bunch of the other YC companies that we've been involved with.

It is fun, incredible fun, to put a big finger up at all those corpulent fat cats who bet against you. So that's why I like doing what I'm doing.

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