Keith Rabois on OFF RCRD with Cory Levy Take 1: Interview Transcript

In September 2017, I interviewed Keith Rabois for OFF RCRD. The interview was fantastic; the audio was not. Keith was nice enough to come back to the show for the episode you can listen to here.

Because of the super high quality of the content during our first interview, we decided to provide the full transcript. Follow Keith on Twitter @Rabois, and listen to every episode of OFF RCRD here.

Cory Levy: How did you become an entrepreneur?

Keith Rabois: I started my entrepreneurial career in an odd way. I was originally a lawyer. I went to Law School right out of college, and I practiced law for several years. I was persuaded to join Silicon Valley’s entrepreneurial world by friends of mine from college.

After many years of lobbying, they eventually persuaded me to give it a shot. I sort of dropped off the face of the planet from a legal perspective and jumped into the crazy world of Silicon Valley.

CL: What were your high school days like?

KR: Pretty boring. I was on the classic pre-law/government trajectory. I focused mostly on getting good grades so I could get into a good college. I joined the debate club, school newspaper, and played soccer.

CL: Run us through what a day in your life looks like? Do you have any specific morning or afternoon or evening routine?

KR: I’m a big advocate of sleep. I’m very obsessive about getting enough sleep everyday. I organize my life backwards around that. I do focus a fair amount on soccer or weight training, or some combination of high interval training and reading. I’m trying to package my work around sleep, one or two workouts, and reading everyday.

CL: How many minutes or hours a day do you read or workout?

KR: Workouts vary, between as short as 20 minutes to as long as an hour and a half. With reading, I try to read a minimum of 20 minutes up to about 60 minutes on a daily basis.

CL: What would you say your biggest challenge is right now, either professionally or personally?

KR: There’s only so many hours in a day. Time is your most precious resource.

The most important lesson to learn is to value your time. I think most people undervalue their time. You can always find more of other resources, but time is the main asset. One of the biggest challenges as an investor is that the more investments you make and the more boards you join, the less time you have to find new opportunities. If new people reach out to you or there’s a bunch of innovation in a new area, it’s very difficult (to take advantage) when you have a lot of pre-existing commitments, and there’s a trade off there.

CL: Where do you see founders, employees, or other VCs wasting the most amount of time?

KR: One of the worst things you can do is read the internet. I think most things written online are not worth reading.

I subscribe to the view that, one should read real books as opposed to blogs or current events. Second, I think conferences and other social gatherings (are a waste of time. It’s not a very high leverage use of your time. When I was an entrepreneur, the only time I would attend conferences and social events is if they had a disproportionate pool of talent that I could recruit from. So everything I was invited to, whether it was a party or a conference or speaking opportunity, it’s filtered through the lens of other people I want to recruit. If the people I want to hire are going to be attending it, then that’s a useful investment of my time; if not, I shouldn’t do it.

CL: Let’s talk a little bit about that. I know you said once that you try to hire geniuses that no one has ever heard of. How do you find these groups of people? Is it university engineering programs; is it outside of San Francisco; how have you found that untapped talent?

KR: There are two elements to finding people who have extremely high potential that are undiscovered or unproven.

One is assessing of people you meet, being able to calibrate them.

The second is creating a magnet for people that you wouldn’t otherwise meet. The first element is understanding. When you do meet people, whether it’s at a social event, recruiting event, online, or even just reading tweets or Quora, how do you identify that spark that you’re looking for? And then, secondly, once you have that skill develop it, is there a way to scale it so that you can meet more people?

Scaling it (can be done) through friends or friends of friends. Basically, people tend to identify with and invest time and energy with people that are somewhat similar. If you can find a pool of people that have unusually high potential, they can probably be pretty good filters and magnets for other people that have similar characteristics and caliber. I think that’s one way to scale it.

Surely, there are things like marketing. Whether you use formats like Twitter, Reddit or Quora. There are ways of trying to become a magnet for talented people. That’s quite challenging in and of itself.

CL: Today, who are some of the people that you can name that you would say are untapped or that you’re developing a mentor-mentee relationship with?

KR: Well, you always try to find new ones. Truthfully, it gets harder as you get older because, obviously, there’s a bigger disconnect between your natural networks and networks of up and coming people. It takes more effort, energy, and creativity. I wrote a good example of this. I wrote a post in March of 2010 or so about two of the most highest potential people in Silicon Valley in their 20s.

Even though now it’s seven years hindsight, it still reads pretty well. To be able to do that is pretty challenging. A lot of the best people I’ve hired had very erratic backgrounds, mostly from non-elite schools, most with non-technical backgrounds. They’re very far off central casting. That’s the way you have to develop a company or create a great pool of people who you invest in their very early stage if you want to be the angel investor, for example.

CL: What would you say you’ve learned most from those people; those good hires that you’ve made that didn’t come from elite schools, and didn’t come from Google or Facebook?

KR: I think the most important thing is that they’re unlimited, unbounded, outside potential. The opportunity to invest, for example, is really attractive because there’s not everybody else chasing after them. But, more importantly, the opportunity to hire them is more accessible as they started out being the entrepreneurial executive of a startup, because they’re not going to get the same offers from Facebook or Google. They’re not going to get ridiculous salary offers. They don’t have everybody else chasing after them.

For example, a CS student from Stanford is incredibly overrated in terms of demand for their talent versus what they can actually do on average. You have plenty of people throwing money at them. They don’t always develop the best work ethic because of that. They think they’re entitled. There’s a lot of things that go wrong when everybody in the world is chasing after you.

What you want to find are people that other people aren’t chasing after but they have even more talent and more grit. That’s doable, but it’s hard. It’s a little bit like drafting athletes in various sports. There clearly are first-round draft picks and early first-round draft picks that have all the raw ingredients, but everybody else often knows they have all the raw ingredients for success also. You need to find the Tom Brady’s, who was a sixth round draft pick and be right about that. Tom would probably be the best quarterback of all time.

CL: Got it. I’d like to play a quick game. I’m going to list four people you’ve worked with and then I would like you to share one or two of the biggest things you’ve learned from these individuals. The first one is Peter Thiel.

KR: Yes, so I’ve probably learned more from Peter than from any other person. Peter actually taught me me most of the philosophies about hiring and recruiting undiscovered talent. He literally taught me when he would take me to jogs through the Stanford campus in November of 2000, after my first week at PayPal. He explained his philosophy of the only way to scale a startup, which is to be able to become a magnet for talented people and be able to asymmetrically assess people. Otherwise, you’d never be able to compete with the incumbents.

CL: What have you learned from Max Levchin?

KR: I have two great lessons I learned from Max Levchin to share. The first one is how rare it is to find a world class technical talent infused with first-rate business strategy. Because that’s what makes Max so exceptional. There are lots of very smart technical people and a fair number of smart business people, but to combine them in one brain allows you to make different kinds of decisions.

The second thing is, very critically, he has lots of manifestations and important implementations across lots of successful companies. It’s a little bit more well known now than it was in 2000 when Max invented the concept of combining machine learning with the human eye and building a complex system that integrates both and leverages the humans and the machines for their best skills in a synchronized way.

That’s something Max taught me the brilliance of and then I’ve used that in other companies I’ve been involved in, from Square to Opendoor, as examples.

CL: Very cool. What about Reid Hoffman?

KR: Reid taught me the strategic uses of time. Not about how to leverage your own time, but that time is a dimension to negotiation. For example, time can be your friend or it can be your enemy. Understanding whether time is your friend or your enemy allows you to change the dynamics or change the dynamics of a negotiation or a situation. Always understanding where time is and who it affects and who it affects in which way.

CL: Two more to play. One is Jack Dorsey.

KR: There are probably several things I would say. The first is how much details matter. It’s easy to say that details matter, but at the end of the day, most people in practice don’t focus on them and it steps on them and how you can craft the product, the company, the culture based upon that principle.

Like in 2000, there’s Apple and like the early employees there. I think Jack took the Apple philosophy, tweaked it a bit to make it modern for the 21st century, and built Square in that way. Then, this taught me the benefits of design-oriented thinking, down to the detail level in every dimension.

CL: Lastly, how about Vinod Khosla who you just started working with?

KR: The most important thing I’ve learned from Vinod is an adage he expressed when I was on the board of Square. He had a philosophy that the team you build is the company you build. That really instilled the importance of recruiting and talent and your reformation DNA of a company better than any one thing I’ve ever heard or any other paradox I’ve heard from anybody else. I repeat that all the time.

It’s really important when you’re starting a company to put that into place. Patrick Collison has another way of saying it, which is, “The reason why the first 10 employees are the most important is every one of those 10 employees is going to replicate him or herself 10 times.” If you set the foundation right, you’re setting the foundation for the first 100 employees and it reminds you how important that is.

CL: For a first time entrepreneur trying to set that foundation correctly, what would be your advice to assess that? How can they know if they have the right flow, if they have the right 10 employees? Do you think it’s just a gut reaction or do you think there’s some science behind that?

KR: There is some science. I think it depends on what you’re trying to achieve, what product you are trying to build, and what market you are competing in. So, for example, the DNA that you will need to correctly build a payments company is probably different than one you’d need for a photo sharing company, which is different than what you need if you’re going to compete with SpaceX. So first, thinking through what are the key risk and key issues and key leverage points in a particular business and market that I’m going to be in.

And then, do I have first-rate world class talent in those core areas that can compete on those dimensions with an asymmetric advantage? First, taking stock of what your skills are as a founder. And then, what is the product I’m trying to build and who are the other people that compete with me? In what areas or what dimensions do I want to compete on? Making sure that my founding team, whether it’s the first two or three employees, first five or first ten, have world class talent and skill in the two to three or four key areas.

CL: How do you make hard decisions? Whether it’s leading a big round of financing or joining Khosla or joining Square, how do you go about making your very difficult decisions? Is it regret minimization? Do you have any tactics around that?

KR: I think a couple of techniques, although, truthfully, none of them are perfect. I think all those decisions involve a fair amount of sleepless tossing and turning, and chewing on things. I’m not particularly great in divorcing emotion, body reaction, from those kind of decisions. A couple of techniques, one I learned from Reid Hoffman. First, you don’t make a list of pros and cons; that’s not a great way to make these kind of decisions.

I think the best way to make a decision that he taught is to figure out your number one priority, and optimize on that dimension. If your number one priority is, let’s say, impact, then figure out which of the choices will have the most impact. If your number one priority is people you work with, then which one is more compatible? If your number one priority is making money, then figure out which one (decision) is most likely to make you money.

But don’t try to have this like multi-factor, multi-pronged approach — that’s a really poor way to make decisions. So try to rank-order what’s the most important. If there is a tie, then obviously, you have to go to your second most important (priority). But often, you can make decisions on just one. In addition, I actually do ask people for feedback. Not only on the topic of the decision, but I’ll generally bounce some ideas off of the people that I think are really wise and sharp, and get a spidey sense reaction from them.

So, for example, when I was thinking of joining Square versus starting my own company versus joining a VC back in 2010, I asked several people I trusted about Square and what they thought. I got the feeling that there was potential there, that there’s an energy there. That if I joined, I might be able to recruit people because people are reacting positively. So I always try to do that, which is I’ll reach out to people that I’ve worked with before. I’ll reach out to people that are up and coming stars and tell them the X Y or Z, and see how difficult or how easy it feels to be able to recruit them, and that’s a good proxy.

Then, to some extent, there is a somewhat silly approach. At the end of the day, sometimes I’ll just flip a coin. You get this emotional reaction which forces you to have a binary decision. If you really don’t like the decision, you’re going to overrule the coin anyway, but it allows you to come to a binary sort of decision out of what you really feel.

CL: I like that approach. Back to number one priorities. What would you say your number one priority was when you graduated from college?

KR: I think it was mostly around getting involved in law and politics, succeeding in law. It’s a pretty competitive, somewhat zero-sum profession as a litigator, and then, eventually transitioning into politics. It doesn’t mean that you can’t change your priorities over time.

CL: And what would you say your number one priority is right now?

KR: Number one priority right now is using new technology and using a platform as an ambassador to lead the world forward and change the world in ways that I want to. Empower people to have a shot at changing the world in the ways they want to by giving them access to money, advice, mentoring. Using the opportunities I have and the resource I have to propel people and the world forward through people, and that mostly means through technology start-ups.

CL: What would be your advice to someone just graduating school, who’s not sure what they want to do yet, what would you say to that student?

KR: The most important thing is to identify — and it may take days, weeks, months, sometimes years; hopefully, not too many years — to figure out what you can be exceptional at. I don’t think you want to be one of many people, you want to be the best at what you do even if it’s defined very narrowly..”You want to be the only that does what you do to,” to borrow a line from Jerry Garcia. Figuring out where your competitive advantage could be and where you want it to be and then developing that so that you are the best at what you do, and the only one who does what you do.

That may take some time because you may have to try to do several things and figure out which one’s worth doing and which one’s aren’t. You may be wrong about what you thought you’d be great at, you might get feedback sending you in a different direction. But once you get that, it’s pretty easy then to figure out what to do with your life.

CL: I want to spend a little bit of time talking about controversy. Is there a time when either you were working with a founder or you were at a company where controversy played a part in success?

KR: Well, I mean I think most start-ups have some elements of that. In fact, actually, I think it can be a good tool as well. Most good ideas feel edgy or borderline dumb to many people. One of the tests that I like to use with good early stage founders and investment opportunities is, “Are enough people laughing at it?” If everybody thinks it’s a good idea, I suspect it’s not really that good of an idea, and so I like to hear people ridiculing an idea or thinking it’s absurd.

Eventually, you have to prove that you’re right, that it’s actually possible to do X Y or Z, or that the consumers should care about X Y or Z. In the beginning, it’s better to have that degree of controversy where people think it’s either dumb, stupid, annoying, or something like that.

CL: Can you share a story of where that was prevalent?

KR: Yes, one example not from my own experience but just watching from afar, is Uber’s surge pricing, for example. I think what was underrated about it was all of the controversy in the media about it was actually just leading to free growth. The more stories the media would write about surge pricing and people whining about surge pricing was just leading lots of Americans who had never heard of Uber, didn’t even know it existed, to be aware of it, and that kind of free marketing is incredibly valuable.

CL: What’s something that is controversial today that you think won’t be in the near future?

KR: That is really a good question. I would have said about a year or two ago, maybe even three years ago that autonomous vehicles would be incredibly popular and widely accepted, but that’s already moving to the mainstream and already widely understood.

But I’ll give you one that’s a little bit more controversial still today, which is I suspect that most of healthcare in the future will be delivered and diagnosed through math and not by people. This is going to be so much better at diagnosing most people. Faster, cheaper, accessible. Let’s say our kids are growing up, they’re going to go to a machine to be diagnosed, not to a human.

CL: I’m excited for that. How do you think (young entrepreneurs) should deal with controversy? Do you think they should shy away from it, seek it, or just not back away when it comes up?

KR: Well, I think obviously this is case by case. Not all controversy is good and most controversy is not bad. I think, for example, the whole goal of an entrepreneur is to change the world, right? There’s some market or something that has a lot of inertia that’s done the way it is, that you’re trying to change. By definition, you’re taking a sharp knife or something and trying to disrupt the inertia, and that’s going to be somewhat painful and it’s going to cause so much friction, noise, something. So I think it’s pretty good to have some degree of controversy about what you’re doing when you’re going from zero to the end goal.

That said, once you’re succeeding, once you’re creating a network effect, once it’s working, you may want to diminish some of that controversy. Because you’re becoming more like the navy than the pirates. So knowing where you are on the success curve is important. But at the beginning, when you’re starting, you’re going to say, “I’m going to change the world.” Everybody’s going to think that’s absurd and the truth is that you’ve got to change a lot of things, and change is dangerous. Change is scary. Change can be painful. If you don’t change a lot of things massively and fast and quickly, you’re not going to be a startup that anybody remembers.

CL: We’ll finish with a couple final questions. What’s something you know you should do but you haven’t done yet?

KR: That’s a great question. I think I’ve taken some steps recently to try to crack one of them. I’m trying to figure out how to scale myself. It’s something I knew I needed to do; it’s a problem for all VCs. There’s not a lot of successful models of how you gain leverage of your time, which per my point earlier, your time is often more valuable than your money.

I kept delaying and deferring how to scale myself because there wasn’t a proven model that had darwinistically evolved versus scaling myself at a company where there’s a lot of ways, and evidence of how do you do that.

So I kept deferring it. Recently, in the last four months or so, for the first time, I started taking some steps to do it; but I really should have done it four and a half years ago and then I would have been further along the path with leverage of my time, or experimenting into different approaches with more feedback already under my belt. I delayed it because it was hard. I procrastinated because I didn’t have a ready set of answers. But, the only way you get the right answers is by starting the process.

CL: What process did you start, what are some of the experiments that you did to try to scale your time?

KR: I have hired a “Chief of Staff” for the last four months and I’m trying to see if I can take advantage of other talents and teach people to think similar to me in various ways and create leverage off that. But it’s a work in progress and there’s lots of questions around it.

CL: One of the biggest challenges and questions that people wrote in when they applied to come to Internapalooza was there was a big struggle regarding them meeting people to get hired, meeting people to start companies with. The biggest challenge they had was, “How do I build a network?” A lot of these people are in middle America; they’re in indigenous schools across North America. What would your advice be to those students?

KR: Yes, I think it is challenging because the density of opportunity — the density of network does matter. Geographic proximity is an absolute advantage, that’s why we tend to see Silicon Valley being a hub of startup innovation. Hollywood being the core for filmmaking in the United States. New York for some other industries. There is a rational reason for that, it’s also become self-fulfilling a bit.

One way around that is with the proliferation of various social platforms, whether it’s Twitter, Reddit, Quora, Medium. There is an opportunity to be incisive and insightful and get noticed. I think one way to cut through in developer relationships and be in demand where people want to meet you actually, people with proven expertise and ability, is to write interesting things.

Ben Franklin had this great quote which I’ve always used as a guide for my own decision-making and career. It’s, “Two ways to be successful in life: do something worth writing about or write something worth reading.” Maybe start with writing something worth reading.

CL: I like that. So you started Opendoor recently. I’m sure there are some other companies that you wanted to start, some other problems that you wanted to solve. What would you say those problems are if you are willing to share?

KR: Sure, yes, I actually do have some other areas that I’m pretty fascinated about, three in particular. One is the area of cyber insurance, I think it’s ripe for innovation, and over the years, it’s becoming an increasingly important problem. Number two is life extension. I think given current technology and current scientific knowledge, it actually isn’t that difficult to on average, extend people’s lives by 5 to 15 years. The question is how, what products, what applications, what feedback loop do you want to deploy to do it?

I think if you get outside the 15-years time horizon, it’s still science fiction land. Immediately, like right now, we could build products and services that would extend people’s lives in a meaningful way.

Then, third is another area that strikes me as completely underinvested in — achieving goals, like a software-based feedback loop to achieve various goals. Whether it’s to be healthy or happier, wealthier, whatever the case is. There are books that have been written for centuries on how to be more successful, how to live better, how to be happier. Some of the books are pretty good. The best-selling section in any bookstore is the “self-help” area. Some of the books are pretty superficial but a lot of the content actually isn’t.

But a book is written for the average audience. It doesn’t adjust to who you are, where you are in your own life, and provide custom advice based upon what you’re doing or not doing. That’s what software is great at. Someone should be able to build the product that’s software-based, that helps you achieve your objectives, and I really want to work on that one.

CL: What are some of your favorite self-help books or the ones you think do really a good job?

KR: Since I’ve been on this crusade of building a company like this, for the last year and a half, I’ve collected a bunch of books. I have a library at home, but I have a special shelf in my office for just these kind of books. It turns out that none of them are amazing across the entire book, but many of them have chapters and insights. So I’m stitching them together, and then personalizing it using software.

For example, a book that’s way underrated but super critical is the book called, The Upside of Stress. I think it’s incredibly revolutionary and in how one approaches one’s and how one get to be successful. But I think there is a lot of ideas in all these books. Some of the books and more are more well known. Tim Ferris has a book, Tools of Titans, which collects a lot of advice from successful people, to some very obscure books which I’m sure nobody has heard of. I’ve been trying to combine them all together and then eventually apply it out to software.

CL: Very cool, and then my last question, what are some crazy stunts or marketing things that you’ve seen people do to get attention?

KR: Yes. I’m generally not a huge fan of these things. I think the only ones that really are effective are pretty organic and pretty natural to the product. Depending on what the product does, there can be a natural implementation that is effective. For example, I think the Lyft Mustache was relatively effective in creating proof, social proof that, “Wow, this ride sharing thing was something normal people were doing.” And making it feel comfortable, safe, reliable. Because you can see, at least in San Francisco, the increasing velocity of mustaches floating around which made you feel more comfortable.

It also showed perhaps there’s a fair amount of liquidity, like there seemed to a lot of cars on the road. Something like that I think is a fairly effective technique. I don’t like the stunts that are designed to be outrageous. Another natural, organic example was when we first launched Square. People would notice the well designed square, a little white squared device to be plugged originally into your iPhone or in your iPad.

That would pique their curiosity, it was unexpected that they could use their mobile device to accept payments and credit cards. The device itself generated attention because it was thoughtfully designed, elegant, reinforced the brand, created curiosity around that. That would lead to a set of new customers discovering the device everyday. If I was in a taxicab and saw Square for the first time, I’d be curious about “what is that?”

Or, if in the coffee shop, if I encountered it for the first time, I might ask the barista or the proprietor, “What is that, how do I get one?” That led to a fairly significant organic growth rate for Square.

CL: Do you have any goals (1, 3, or 5 years out)? Do you have any high-level things that you’re trying to accomplish personally?

KR: Not necessarily at that level. I would like to continue the journey with Opendoor, so it’s natural. I think it should be a very successful, and a very important company. It’s still a work in progress right now.

It’s very promising work in progress, but I would like to see it as a public company that’s very successful in 20, 30, 40, 50 markets all across the United States and it’s really reoriented the way people think about selling their house. I think getting another company or two off successfully, in either life extension, based on really extending the active years for people, or allowing people to achieve their goals through software — getting those into the market would be pretty important, and in each case, really helping people.

CL: Is there a question that you ask founders pitching you that generally, people are quiet and think a lot about?

KR: Yes, I have a pretty standard question that sometimes surprises people when I’m interviewing them. Whether it’s interviewing them for a job or executive role, for founders too.

The question is, what do you want to do with your life? That’s usually my first question. Sometimes it catches people off-guard, but it allows you to quickly understand who they are, what they care about, and calibrate your feedback.

If I’m asked for advice, “Should I do this or that?” Often, the answer is, “What do you care about, what do you want to achieve, what is important to you?” There is no abstract answer. It’s more a function of what’s important. So, I usually start there, which sometimes surprises people.

CL: Cool. Well, thank you again for being on the show. I appreciate it Keith!

Please visit OFFRCRD.com to listen to my podcast with Keith Rabois, Ashton Kutcher, Kevin Hartz, and more :)