143. Adopting a VC Mindset: How to Achieve More by Thinking, and Communicating, Like a Venture Capitalist

[00:00:00] Matt Abrahams: Oftentimes the best way to achieve success in our ventures is to go beyond what is typical, to challenge ourselves, to accept disagreement and to disrupt. 

[00:00:12] My name is Matt Abrahams and I teach strategic communication at Stanford Graduate School of Business. Welcome to Think Fast, Talk Smart, the podcast.

[00:00:23] Today, I'm really excited to speak with Ilya Strebulaev. Ilya is the founder of the GSB's Venture Capital Initiative and a professor of private equity and finance. He teaches a popular class on venture capital and has won numerous teaching awards. Along with Alex Dang, he has written the new book, The Venture Mindset: Make Smarter Bets and Achieve Extraordinary Growth.

[00:00:45] Ilya, thanks for joining me. I'm so excited for our conversation. 

[00:00:49] Ilya Strebulaev: Thank you, Matt. It's great to be here. 

[00:00:50] Matt Abrahams: Excellent. Shall we get started? 

[00:00:52] Ilya Strebulaev: Absolutely. 

[00:00:53] Matt Abrahams: Great. Can you describe what you mean by the venture mindset? 

[00:00:58] Ilya Strebulaev: Of course. Venture mindset, simply put, it's just a new way of thinking, a new mental model. How every leader can, and in many situations should approach decision making to make smarter, quicker decisions, to make decisions in unusual situations. When especially the world is uncertain, when there are a lot of unknown unknowns, when there's disruption.

[00:01:26] And the reason why it's called venture is because after twenty years of doing research at Stanford on venture capitalists, I realized that for many, many decades, they've been facing very, I would say, hostile environment where they face a lot of failures. They faced a lot of uncertainty and they developed, in order to survive and succeed, a very different mental model, a very different mindset of how they make decisions.

[00:01:58] And they backed the most successful companies of today's era, from Netflix to Airbnb, from SpaceX to Google. And the way to think like venture capitalists will make you better leader, better decision maker, even if what you do is far, far, far away from the world of venture capitalists and startups. 

[00:02:22] Matt Abrahams: I enjoyed reading the book and there are many bits of advice and guidance that help anybody who has to make important decisions, especially under uncertainty. You describe venture capitalists as being failure champions. What does this mean and what lessons can all of us take from this notion? 

[00:02:39] Ilya Strebulaev: Let me start with a story. About twelve years ago, gaming was a very hot topic. In fact, it is very hot topic today. And at the time, two young entrepreneurs. Their names were Stuart Butterfield and Cal Henderson, started a company and they raised money from a famous venture capitalist.

[00:02:57] One of the venture capital firms that invested in them was Excel Partners, that is the venture capital firm that was behind Facebook and many, many other famous startups. The company got a lot of money, millions of dollars. And then they developed a game called Glitch. Well, and the truth to be told is the game was very glitchy.

[00:03:20] It didn't work properly, the fans did not like it, and very quickly they realized, there's that. They had some money left in the bank, about five million dollars. Nontrivial amount of money, Matt. And so they wrote to the investors and they said, you know what, the game is over, Tiny Speck is no more, it's a sad day for humanity, we're going to return you the money.

[00:03:42] And the investors, including Accel partners, replied back, we don't want your money. And the reason is because Andrew Braccia, who was an Accel partner, who was leading this investment, in his investment memo that he proposed to invest in Tiny Speck, said, we invest because of the team, because of the founders.

[00:04:01] They are in it together, we observe them. They failed together. So when I say VCs are failure champions, it means that the real smart venture capitalists and venture minded people, in fact, not only are not afraid of failure, but they know that in some situations you have to seek constructive failure. So Accel decided to proceed with investment and Stuart Butterfield and Cal Henderson developed a new game, which turned out to be not a game, but one of the most successful companies around and maybe Matt, you're using it, it's called Slack.

[00:04:35] Matt Abrahams: Absolutely. I use it every day. 

[00:04:36] Ilya Strebulaev: Right. So, but had the venture capitalists has not been failure champions, maybe Slack would not have existed. 

[00:04:42] Matt Abrahams: So this notion of trying new things that might result in failure and then persisting can be really important. We had the good fortune of talking to Amy Edmondson about the opportunity’s failure provides and how we can lean into failure.

[00:04:56] So it's not just the willingness to try something new with failure being potential, but it's also learning from that failure and then developing something beyond it. 

[00:05:06] Ilya Strebulaev: I think it's what I call swinging for the fences. It's trying something unusual. It's going for outliers because at the end of the day, it is outliers, if successful, that are going to determine our future and will make leaders very successful.

[00:05:21] Matt Abrahams: You provide several tips for how we can all make better decisions based on what venture capitalists do. Can you provide insight into the question, why should we not do this? 

[00:05:33] Ilya Strebulaev: Sure. I've been studying for many years, how venture capitalists make decisions. And successful venture capitalists, you know, they start with identifying hundreds, if not thousands, if not tens of thousands of opportunities.

[00:05:45] But if you are made very successful in identifying this thousands of opportunities, you need to find a way to very quickly kind of squeeze them from thousands into hundreds, or maybe ideally dozens. The smartest of venture capitalists ask a very different question from what most of us ask. Let's say I've been working a lot with the executives in large organizations, and they consider all these projects and budget allocation decisions. And what kind of question they're asking, why should we invest?

[00:06:15] So the entire presentations and hundred-page decks are built around this. Venture capitalists are going to approach every single new opportunity with a very different question, which is why we should not proceed. That means that they're looking for red flags. And if they see a very clear red flag, let's say, for example, the founding team is untrustworthy, then they will stop.

[00:06:37] They make a very quick decision not to continue. And this works because this allows them to spend much more effort on opportunities that are potentially much more profitable. And notice that they communicated differently among themselves, which I think is a critical point. By asking a negative question, why we should not, they communicate to each other that they would like to ensure that this decision is efficient, this decision is quick, and this decision is not final. Which is when I tell my students, if you meet with a venture capitalist and then the venture capitalist will invite you back, it doesn't mean that they want to invest in you. It means that you proceeded to the next stage.

[00:07:21] Now, important point is that at the next stage, the line of questions changes, what I call from fast lane to slow lane. And I think that all of us can take it on board, especially because I believe that we should strive for having more opportunities. 

[00:07:34] Matt Abrahams: I really like this idea of assuming you will proceed and are looking for the things that require you to stop versus what are all the reasons why we should do something. It's a very different mindset and I can certainly see how it would drive for efficiency because you're moving faster, you're proceeding, and you're only looking for things that cause you to stop. And I think many of us can apply that in some of the decisions we have to make. And we've had several guests, Jeremy Utley being one who talks about creativity and generating new ideas.

[00:08:02] And it seems to me that this would help generate new ideas and keep things moving rather than stop them. You wrote an article that provided three things venture capitalists do that can help all of us get our dream jobs after being laid off. Can you share what those things are and how we can put them into practice in our own lives?

[00:08:20] Ilya Strebulaev: Sure. In fact, what we've discovered is that these venture mindset principles can be applied elsewhere. Because originally we thought of course of applying these principles to the investment decisions, to larger organizations. But now we feel that it can be applied also to our professional life and our personal life.

[00:08:41] In fact, I'm applying these venture mindset principles all the time. We indeed thought deeply about how we can help people who are laid off. And unfortunately, we know that it's happening not infrequently these days. But the venture mindset says, you have to think about this as an opportunity to discover yourself and to level up your abilities.

[00:09:02] So first is try to say no more often. And there are a lot of opportunities that will come your way. They don't come all at the same time. But I think this power of saying no is very, very valuable. And interestingly enough, when we go to venture capitalists, they say no a hundred times. Before they make that one investment.

[00:09:25] I'm not arguing that in our personal life, we should say no a hundred times, but I think that if you try to say yes to the very first offer that comes along, I think you're going to miss a lot of other opportunities. Another, I think very important point about the venture capital, venture capitalists and the venture mindset, is that they try to think long term.

[00:09:45] And long term is important because at the end of the day, this is an opportunity to think about your life and lifetime income or lifetime happiness. So it's an opportunity for you to stand back. And when you think about long term, you level up the conversation that in fact you will see a lot of other opportunities.

[00:10:05] Matt Abrahams: So it seems to me that the ideas you're suggesting are, don't necessarily rush to the first thing that comes to you when making decisions or opportunities, especially around your career and think about the long term, not in the short term. And it's very easy to, in that moment, think, you know, I've got these debts.

[00:10:22] I have these things I was trying to achieve that are short term. So adopting those principles of being more willing to say no and seeing the long view can be very helpful. I wanted to talk a little bit about the class you teach. You teach a very popular class. Let all of our listeners be students of you for a moment. What are two big takeaways you hope your students have when they leave your class? 

[00:10:45] Ilya Strebulaev: So the class I teach is the Venture Capital class that I co teach with Brian Jacobs, who is a well-known venture capitalist and a founder of a large venture capital firm, Emergence Capital. Takeaways. One takeaway that I think I would love my students to use from the class is the ability to think differently.

[00:11:08] So whenever we discuss any issues around startups, around founders, around business models, around fundraising, there are so many ways to think differently, to look differently from different angles at the same problem. And some of these ways to think or to look at are much more efficient than others. And I would like to imbue students with this ability.

[00:11:32] And you know what? I've been lucky and happy because I keep in touch with so many of my students. After they graduate, they come back and very often they say, you know what? This has really helped me because there was a situation, and I looked at it completely differently. And I think that's really helped me.

[00:11:48] And again, I would say that as one of the venture minded principles, trying to get out of your four walls, get out of your cage and try to look completely differently. And another one that is, I think both Brian and I care a lot about, I mentioned get outside the four walls. So my co teacher, Brian Jacobs, loves telling our students that the right time to build your network was yesterday.

[00:12:11] But I think an important point about network is just not increasing the number of contacts, but increasing the number of meaningful contacts and diversifying those contacts. And very briefly, I've done this research with unusual insight. I compared the LinkedIn profiles of venture capitalists with the LinkedIn profiles of corporate innovators.

[00:12:33] It's not surprising that venture capitalists have more connections on LinkedIn than corporate innovators. Let's say chief innovation officer at a large company. But I think it was much more interesting to observe how diverse the connections of venture capitalists were in different industries, different educational backgrounds, different geographies. And if you look at corporate innovators, not only they had smaller network, but also those networks more homogeneous, similar. The same company, you know, the same university and so on. So try to diversify your network. 

[00:13:07] In fact, if you happen to have a LinkedIn profile, you know what, Matt, my advice to the audience is to check right away what is your network, how diverse it is, and build a plan on how to go outside your four walls.

[00:13:25] Matt Abrahams: I think that notion of building a network yesterday, one of the biggest advantages you have in making decisions and growing your career is to have a broad network, but this notion to really strategically diversify, I think is very important. I also like this idea of questioning the way we make decisions and think, and then challenging ourselves to do it differently, for sure.

[00:13:45] You know, Ilya, when Jenny, our executive producer, and I were talking about this episode, we joked that we should change the name of this particular episode to Drink Fast and Talk Smart. You are a connoisseur of both tea and wine. When we first met to talk about you being a guest, you shared some lovely tea with me.

[00:14:03] I later learned you were the faculty leader of the Stanford Blind Tasting Wine Team. I didn't even know that existed. And when you talk about tea and wine, you use elegant, amazingly descriptive language. What advice do you have for people in the way that they describe the things that they're passionate about? It just permeates from you when you talk about those things. Do you strategically think about that? And what advice would you give to others who are talking about their passions? 

[00:14:29] Ilya Strebulaev: Well, Matt, I hope to share a glass of wine with you too, first of all, not just a vintage aged old tea. I think I am trying to mix the traditional mindset and the venture mindset.

[00:14:41] When I describe things I'm passionate about, what do I mean by this? When I say traditional mindset, it's using a language that however beautiful and exquisite, everybody understands. So that you're comfortable, you're familiar with. And then when I say the venture mindset language, I will try to go outside four walls, but also maybe outside the comfort zone.

[00:15:02] And maybe I'm going to use some terminology or words with some unusual meanings. And the reason I think is that when you mix these things together, you make people comfortable at the same time and also make them think. And both tea and wine, I view them is mostly the means of convivial conversation. And so when you use some unusual words or unusual analogies, that leads to a lot of interesting discussions.

[00:15:29] Matt Abrahams: I knew you were purposeful in this, because it's just enjoyable to listen to you talk about these things. So this notion of using accessible terms and language that people know and then bringing in things that people might not know to really expand, not just how they're thinking about whatever it is you're describing, but to also have an experience that gets them excited or interested as well.

[00:15:50] Before we end, and this has been a delightful conversation, I'd like to ask you some questions. The first one is created just for you and the other two are similar to what I ask everybody. Are you up for that? 

[00:15:59] Ilya Strebulaev: Of course. 

[00:16:00] Matt Abrahams: So you've written a great book, The Venture Mindset. As an author myself, I know that the writing of a book can change you and the way you perceive things and think of things. I'm curious, how have you changed in your approach to the work you do or the communication and relations you have as a result of writing your book? 

[00:16:17] Ilya Strebulaev: This is a great question, Matt. Thank you for asking me. I've changed a lot and I think that I'm implementing myself, every single one of those nine principles that we identify in the book, because yes, I researched them for so many years.

[00:16:29] Two examples. One, you mentioned failure champion. I think I am much more positive about many failed research projects. When you're doing research, I think that serious, successful research cannot proceed without a lot of failures. So from this point of view, I think I have become much more of a failure champion in my own book than I was before.

[00:16:52] Another example is we mentioned getting outside the four walls, so I'm sure that a lot of our viewers travel all the time. Well, I travel all the time. You travel all the time. Matt and I would not talk to anybody. After I worked on this, getting outside the four walls and networking, I changed my approach. Whenever I now travel, my goal is to talk to some people whom I don't know, whether it's queuing in the passport line or sitting next to somebody in the plane. So I think those are two things that really had an impact on me. 

[00:17:22] Matt Abrahams: I always find it fascinating that the work we do to help others through the things we write and the things we produce can have a fundamental impact on us as well. And it's great that you've changed in those ways and it sounds like you're benefiting from it. I'm curious, for our second question, who is a communicator that you admire and why? 

[00:17:39] Ilya Strebulaev: Winston Churchill. The way he communicated, especially in a very tough situations, simple truths and I think controversial thoughts that everybody understood and everybody was fascinated with. It still resonates with me. 

[00:17:56] Matt Abrahams: Truly a gifted orator who came from some challenging circumstances in terms of some speech impediment issues. As you said, very controversial, but effective in accomplishing the goals that he had. Final question. What are the first three ingredients that go into a successful communication recipe?

[00:18:15] Ilya Strebulaev: Listen, listen, and listen. 

[00:18:18] Matt Abrahams: Excellent. Tell me why listening is important, especially from the view of the venture mindset. Where does listening fit into that? 

[00:18:27] Ilya Strebulaev: It is the notion of the venture mindset, is that by doing something that will change the world you need to understand better everybody's opinion. Definitely one of my personal implications of writing this book was I'm trying to become a much better listener. I don't always succeed yet, but I'm on the way there. 

[00:18:49] Matt Abrahams: My wife certainly keeps me in check on my listening, but this notion of listen first so you can understand others opinions and then respond is absolutely critical.

[00:18:59] Ilya, it has been wonderful to chat with you. Thank you for sharing how all of us can learn from what venture capitalists do. And you've produced just an amazing book, The Venture Mindset. Best of luck with this. And thank you for sharing your insights. 

[00:19:12] Ilya Strebulaev: Thanks so much, Matt, for having me. 

[00:19:17] Matt Abrahams: Thank you for joining us for another episode of Think Fast, Talk Smart, the podcast from Stanford GSB.

[00:19:23] To learn more about entrepreneurship and communication, please listen to episode forty-one with Stefanos Zenios and episode fifty-six with Steve Blank. This episode was produced by Jenny Luna, Ryan Campos, and me, Matt Abrahams. Our music is from Floyd Wonder. Please find us on YouTube and wherever you get your podcasts.

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