John Doerr’s name is synonymous with venture-capital investing, due to his critical early backing of Google, Amazon.com, Twitter, and other storied Silicon Valley start-ups. Doerr, 66, has worked his magic, financial and otherwise, for 38 years from Kleiner Perkins Caufield & Byers, the Menlo Park, Calif.–based VC firm he now chairs.
Before KPCB, however, Doerr did time at Intel (ticker: INTC) as an engineer and executive, where he encountered the management theories of Andy Grove, the semiconductor company’s co-founder and CEO. Grove invented a discipline for setting a corporation’s direction and goals by applying the rigors of chip manufacturing to the “soft professions” of knowledge workers. Doerr embraced it, later renamed it “objectives and key results,” or OKRs, and preached the gospel to the companies he bankrolled.
Now he’s preaching it to the rest of us in Measure What Matters, a just-published guide to goal-setting subtitled How Google, Bono, and the Gates Foundation Rock the World With OKRs. In a conversation at Barron’s offices this past week, Doerr said the book offers not just a corporate strategy but also a blueprint for dealing with a broader leadership crisis in America. He’d like to launch, or at least enable, a movement to bring OKRs to government, schools, and nonprofits. Even families have used them with success, he notes.
Doerr also discussed great CEOs, the challenges of venture-capital investing, and the next great wave in tech. Please listen in.
Barron’s: Why did you write this book, and why now?
Doerr: I’ve been working on the book for a couple of years. We’re at a particularly relevant moment when a lot of our leaders and great institutions are failing us. In some cases, it’s because they are bad or unethical. But in far too many cases, it is because they have chosen and led us to the wrong objectives. That has produced unacceptable outcomes.
Can you give us an example?
Take Wells Fargo [WFC]. What to do about this? How are we going to course-correct? [The bank created millions of unauthorized customer accounts and sold customers unnecessary auto insurance, among other things.] We need much more rigor, thoughtfulness, and transparency about the objectives we choose, and we need to track our progress against those objectives. Measure What Matters dives into dozens of situations in which people struggle with goal-setting and succeed.
This isn’t a new phenomenon. Go back to Ford Motor’s [F] Pinto episode. [The car maker recalled 1.5 million Pinto models in 1978 due to a fuel-tank defect that made the vehicles susceptible to fire after collisions.] The Pinto met all its cost objectives, but where were the safety objectives? Hundreds of people died from this defect.
You stress the importance of being transparent about goals, but many companies are pretty opaque in their disclosures.
In 1999, I took my 30-slide deck, like Willy Loman, into a meeting with two 24-year-old Stanford dropouts I had just met. They were Larry Page and Sergey Brin, and they were running Google in a garage. I gave them my slide pitch about OKRs, and, at the end of it, I said to Sergey, “Will you give this a try?” Did he enthusiastically respond, “Yes, John, we will”? Not quite. What he said was, “We don’t have any better way to manage this company, so we’ll give this system a go.” I took that as a ringing endorsement.
Every quarter since then, every Googler has written down their objectives and key results, graded them, and posted them internally for everyone to see. They have never been leaked, and later they are tossed away. They aren’t used for bonuses or promotions. A good grade is 70%. It is OK to fail. They serve a higher purpose, which is getting a collective commitment around extraordinary stretch goals.
Should companies be transparent externally, given the impact of their objectives on society?
Most organizations aren’t transparent internally with the goals they set. The first step is to embrace transparent goal-setting internally, so an organization can get collective alignment. Then it is up to an organization to decide. There are “committed” OKRs and “ambitious” OKRs. A few organizations set and communicate ambitious goals externally. In doing so, some build durable value. Imagine if our hospitals, schools, and government institutions were to set OKRs and share them publicly. I can see immense value in that.
What happens when corporate OKRs conflict with the need to meet Wall Street’s quarterly earnings estimates?
Broadly, you don’t tie bonuses or sales commissions to this system. For the system to work well, it is expected that individual contributors and management achieve 100% of their 100% goals, and up to 70% of their stretch or aspirational goals. You have to be “choiceful.” One of the best things about the system is that it requires you to make choices about what’s important and what’s not, and share them with everyone.
How would you employ OKRs to improve government?
I’d love to set up the system. I’d like to work with Seema Verma, the administrator of the Centers for Medicare and Medicaid Services, to apply it to that trillion-dollar insurance company. We could use it to reinvigorate our government, which we have to do. There are applications in the nonprofit world, too. And by the way, most of the businesses I invest in are decidedly nonprofit!
Good management would seem critical to setting objectives and goals. Who are some of our best CEOs?
I’m a huge fan of Reed Hastings. While he was bootstrapping Netflix [NFLX], he also served as president of the California Board of Education. He was a teacher and a Peace Corps volunteer. He’s a Crown Fellow [recipient of the Aspen Institute’s Henry Crown Fellowship]. And he has chosen to focus his advocacy effort on one agenda item— charter public schools, to serve the 20% of American kids whose careers we will kill because we put them into schools where they aren’t going to read at grade level or manipulate symbols and become part of the new knowledge economy. He believes that public charter schools are the scalable, fair way to introduce competition into the public education system.
Critics argue that charter schools have failed.
Opponents pick the few that have failed. It is an ongoing battle.
Other great CEOs include Tim Cook of Apple [AAPL], Larry Page [CEO of Google parent Alphabet (GOOGL)], Eric Schmidt [former CEO of Google], Jeff Bezos [CEO of Amazon.com (AMZN)], and Mark Zuckerberg [CEO of Facebook (FB)].
Also, CEOs Jeff Weiner [LinkedIn], Diane Greene [Google Cloud], Susan Wojcicki [YouTube], Sundar Pichai [Google], Brian Chesky [Airbnb], John Donahoe [ServiceNow, formerly CEO of eBay (EBAY)], Andy Jassy [Amazon Web Services], and Art Levinson [CEO of Alphabet’s Calico, chairman of Apple’s board, and former CEO of Genentech].
Going back to OKRs, how might they be applied to investing and portfolio management?
I’ve never seen them applied to investing. But I would think a portfolio manager, in addition to producing a fund with the right risk profile, the right beta, and the right absolute and relative returns over a period of time, also has some other important things to do in her business activities, including developing insights into new opportunities and expanding her network. At Kleiner, an example of “other” things would be recruiting a new partner, or raising our “seen deal” rate: Did we get to look at all the deals in which our competitors invested?
Many of today’s VC-backed start-ups have chosen to remain private. Does coming public force more short-term thinking?
There are pros and cons to being publicly traded, but being public brings discipline. Investors have gotten the greatest rewards from the companies that take a long-term point of view. In the right circumstances, I’m a fan of founder control. Google’s [Alphabet’s] three-class stock structure allows the founders to concentrate on the long run. [Co-founders Larry Page and Sergey Brin own the supervoting Class B shares.] The structure is fully disclosed, and investors don’t have to buy the stock if they don’t like it.
What are the big tech trends that investors ought to watch today?
About every dozen years in the tech world there is a tsunami—a huge wave of disruption. I have been fortunate to witness three, and I’ll predict the fourth. In the 1980s, it was the microchip and personal computer. The biggest winners were Intel and Microsoft [MSFT]. Then came the internet wave, which created winners such as Amazon.com and Google. Mobile was the next wave; Apple’s iPhone was launched in 2007. We’re almost at the end of that wave. The next one will be artificial intelligence, or AI, which will build on the three prior waves. It will be even larger.
Machine learning and artificial intelligence are unlocking capabilities that previously were unthinkable. Autonomous vehicles are one example, but AI will be used to improve health care, better understand language and knowledge, improve fraud detection, make systems more secure, and much more.
Which private companies in the Kleiner portfolio should investors pay special attention to?
UiPath, DocuSign, Bloom Energy, Peloton, Stripe, Slack, Instacart, DoorDash, and Tempus.