Meet The Operators: Full transcript of Chris Kelly, Head of Kelly Investments (Former FB exec)
Former Chief Privacy Officer of Facebook, now Co-Owner of the Sacramento Kings, Chris Kelly has always been at the forefront of his work. Zaw recently had the opportunity to get advice from Chris when it comes to creating and growing a team.
Full Interview Transcript
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Zaw: I’m here today with Chris Kelly, head of Kelly Investments and old friend of mine. Thank you for joining Meet the Operators.
Chris: Thanks so much.
Zaw: Absolutely. Before we go into the actual good stuff we like to have a few ice breakers so people get to know you. If you could imagine back to your childhood for a second — I’ve got a grin on your face already — I’m interested in what was the superhero that you most wanted to be when you were growing up?
Chris: I think I was always into Batman more than anything else and it’s fascinating because my 6-year-old is also very into Batman so I get to relive a little bit of this.
Zaw: Like father, like son.
Chris: A little bit.
Zaw: What was it about Batman that drew you? Was it the …
Chris: I think a lot of it was he was the deliverer of justice at the end of the day and stepping out and fighting crime effectively and that’s something that has always been of interest and has driven a lot of my public policy.
Zaw: That’s right. That’s the basis for your career so that’s pretty cool. What about fun hobbies that you had that no one knows that you had?
Chris: Boy, things that no one knows. I was a huge baseball player. I spent a lot of time playing baseball when I was young and really enjoyed it. I pitched and I played first base and third base. I would try the outfield, but I wasn’t really fast enough for the outfield. I’m a good sized guy and I’m kind of slow and lumbering, but I could play the hot corner and I could grab stuff at first and help run the infield. I had a very good time, but really loved pitching more than anything else. I had to face facts when I was playing … we literally played ball at Darwin and San Jose and were playing with guys who ended up … four of them ended up playing in the Major Leagues. The quality was something that I wasn’t just going to be able to match no matter … if I’d worked really hard, I think I might’ve been able to keep up, barely. It was … I turned my sights to academics.
Zaw: I think you’ve done pretty good. It worked out. Little bit more of the historical questions. If you had to think about someone from history that you would most like to meet, who would that person or persons be?
Chris: I think that it’s an early American scholar. Thomas Jefferson is the most outstanding figure in history, and now that we know a lot more about his more complicated personal life, I think it would be even more interesting to talk to him about how he thought about the evolution of the human species and all the writings that he’s had over the years. I just … It would really be especially fascinating understanding his relationships with Sally Hemmings and a number of others and seeing how he compartmentalized those. That conversation, I think, would be fascinating. Very high-minded and very not so high-minded at the same time, and that sort of … As the world becomes more transparent, that’s one of the more interesting … that’s one of the most interesting figures in terms of reconciling his writings with his actions.
Zaw: Yeah, very different. Fascinating guy. If there was a time machine you could go back and be a fly on the wall, it would be fascinating to be around all of those guys.
We’re going to talk a little bit today about leadership and culture. You’ve had an opportunity of course … like Facebook and very early on you’ve done … part of that … you’ve clerked, you’re now co-owner of the Sacramento Kings, you’re handling a lot of different pieces. I’m wondering as you look back on your career, are there any things that stand out to you around successful companies or operations that you’ve been a part of across these multiple sectors of how you think about success and leadership?
Chris: The number one thing that I always try to emphasize to everyone, especially people who are business leaders, is that you start with the problem that you’re solving instead of the idea that you have a hard core business model around … that you … especially in a situation where you’re talking about building a company. Whenever anything is built to fit into what’s perceived as a financial niche, all these companies that were, “well, I can just build it, flip it,” it never works. It really doesn’t. You have to have a mission and if you’re not oriented around that, you might luck into something that appears to be a success, but if you’re not mission driven, the likelihood of that is really, really low. You have to be able to power through all sorts of doubts and questions and everybody telling you it’s ridiculous. The world will … Most people in the world are busy telling you that you can’t do something, so you really have to be able to build dedication and culture and a core team around a vision. Without that, things rarely succeed.
Zaw: How do you create a mission statement? Obviously, I see how to do it for a company, for Facebook or for Excite, or for any of these that you’ve worked on. How do you do it for a basketball team, as an example? What’s the difference?
Chris: We, particularly from the beginning — Vivek, the main owner and my partner, and the other folks from the technology industry and from other industries — have been very successful in building great businesses. Mark Mastrov building 24 Hour Fitness, Shaquille O’Neal in his various business endeavors since leaving basketball, we all are … Paul Jacobs from Qualcomm and his brothers … It’s all about how you set up that understanding of what you’re trying to do. We continue to be a very mission driven enterprise, much like a start up.
Vivek sees — as he articulates in most of his public appearances — we see the team and the way it interacts with the Sacramento community and the broader community around the world for basketball and others, and, obviously, we have the first three first generation Indian-American partners, and the outreach that we have in India and in other places globally with the NBA. We think of this all as a social network and the way that people are connected to the team. They want to see the team succeed on the court, but it has a statement about values to it. We’re about basketball — so far, so good — in the world. We’re very explicit about that. That’s one of the reasons that I’m really proud to be a part of this organization in particular.
Zaw: How do you implement some of that? I know the NBA has their NBA cares … as a team, do you guys do other things in addition?
Chris: Yeah, the community foundation that we’ve been rebuilding is a major focus for a number of us and the reconstruction project of downtown building what we call City 3.0 is core to what we’re doing and how we interact with Sacramento.
Zaw: You’re a very busy guy, and what we’re trying to do is give up and coming folks that hope to be like Chris one day and insight into tricks of the trade. As you think about, maybe, things that are obviously different now, but how do you manage your day? What are the tools that you use to make sure that you’re as productive as possible?
Chris: It’s really interesting. It’s been an interesting evolution for me. Coming from within companies and working within companies and then actually going off on my own. I left Facebook to try my hand at being a candidate, and I didn’t win the race that I got into, but by all accounts did pretty well. I did certainly better than people were expecting. Then, having to figure out what I was going to do, if I was going to join another company, if I was going to join a fund and invest with partners, or if I was going to pretty much do this on my own. I went with pretty much doing it on my own. It’s been a learning process for me the last few years. Now I’m starting to staff up and bringing on a couple of partners as I think about how I want to spend my day, so this is top of mind.
I love spending time with my kids and my wife, and I want more time for that. We’ve been … Some of the larger investments that I’ve made, I’ve been very focused on, and I’m going to stay focused on them, I’ve been staffing up in those areas too. Bringing on operational executives to make sure that those businesses ultimately are successful.
Zaw: How do you find the best way is for you to get updates as a lead investor or a board member? If you’re a CEO trying to keep someone like you very active and engaged, what’s the best way?
Chris: With a couple of these businesses, I’ve ended up being the interim CEO for reasons good and bad. I get the updates I need because I can get the updates I need. These are relatively small companies so there’s a finite set of people that you have to talk to to know what’s going on. Always keeping a close eye on finances, obviously, cash, and making sure that everybody … that you make payroll and everybody gets paid is a critical part of a successful business, and that you’re spending your money very wisely.
One of the great learnings that I’ve had over time, though, is that capital and spending money is not usually the determiner of success in most companies. It’s … You always have to spend your money smartly, but it’s the goal that you’re driving toward. That in a chain often gets articulated to product market fit or things like that. If the goal that you’re driving for is something that people are looking for, that’s much more important than how you spend your dollars. You can spend an immense number of dollars on the wrong thing and not have a success, and you can spend very little amount of targeted capital on exactly the right thing and … Capital is usually a multiplier instead of a determinant factor. It multiplies success, it amplifies success, and it amplifies failure.
Zaw: It can go both ways. Let’s expand on that for a little bit. The focus of this is not how to raise money, but, as you think about this market especially — we’re in the midst of a extreme bull market — thoughts on what you’re telling your companies around if they can take down the capital, should they take it down? Then on a rainy day should they hold off assuming that they don’t want to try to hit some crazy valuation targets? Where do you come down on that side of things?
Chris: Generally speaking, I’m very much a fan of raising as much as you can get your hands on right now. It has to be done on reasonable terms. A lot of the preferences that are demanded for the larger capital rates is in a larger valuation so things the company should actively recess. I’m ecstatic that the HBO “Silicon Valley” was willing to actually approach this subject.
Zaw: I haven’t seen that.
Chris: You really should see this because it’s a … There’s a situation that develops around taking a maximized valuation terms sheet versus … and thinking about the 12 months to 18 months down the road, if you’re looking at the next round, if you raised it to a high valuation, there will be a crunch in most cases. You want to think about … You have to think about who you’re raising the capital from. There are situations where a term sheet at 150 million dollars is worth much less than a term sheet at 75 million dollars.
Reference is one of the things you can get into on the terms side, but also the expectation is once you hit a nine digit valuation … the expectations have changed if you’re only … versus only an eight figure valuation. There’s a psychology around some of that too.
Zaw: I’ve seen a lot of people struggling with, as they raise more and more money and the company continues to grow all in the right direction, maintaining culture and that original sense of how you got there, that mission driven purpose. For you … You were very early on in Facebook and a bunch of other places, but how do you think the company did in terms of maintaining its culture from the beginning to the amazing outcome of where it is today?
Chris: I think that it’s done very well and it’s had some challenges, too. It’s certainly had a variety of times when it was very challenged, that there was a … There were some, even fairly early on in the process, who wanted to move away from the real main culture of the company in order to prefer traffic growth instead of validating users and things like that. In fact, it was … The chief privacy officer, that was a debate I was in the middle of every day and very much a defender, an aggressive defender, of the idea that, no, we’re going to use real names, and we’re going to tie everyone’s activity on the platform to their identity and that’s something they have to take responsibility for.
It’s amazing how … what a difference. We have a real time contrast in Myspace operating at the time. Of course, Myspace’s traffic and their reach was much greater when we started because we were a college campus only, we were validating based on .edu email addresses. That was the token that people had to have to get on the network and then that tied them to an institution that established their identities.
We found proxies for that over time when we expanded into high schools, it was getting an invitation from somebody who’d already been validated with their .edu email address. Then it was focusing on being within that high school network. Then as the company grew, we obviously looked at other proxies over time so that people, to apply, that they were real. We built tools to both deal with potentially malicious behavior on the network both from people who would do other people harm, and spammers and folks who would be distracting from what people were trying to do on the platform.
Zaw: How about internally in the company? Did those folks that want to turn off the real identity … how do you deal with that? Do you eventually manage them out? Do you …
Chris: That’s what happened in a lot of cases. Or you persuade them over time. In some cases, there are people who come from other internet businesses and they just had to learn that that’s not the way we do it.
While growth is incredibly important and a critical part of the health of the business, you need to grow in a way that’s consistent with the values of the company. The long term value that’s created by that — by having a de facto identity layer for the internet — is so massive, and I think we’re seeing that right now. I can go down a list of five or 10 times when the company was almost sold for what people would say were outrageous. Facebook can’t be worth a billion dollars. Facebook can’t be worth 10 billion dollars. Facebook can’t be worth 15 billion dollars. Market cap today is 240 billion dollars.
Zaw: Well deserved.
Chris: When you stay focused, and delivering something that is critical to how people operate in electronic space, you can create that kind of value.
Zaw: As you think about now, the way that companies operate versus, what is now, 2012, 13 years ago when we were at Spoke… when we were hoping things were not quite as quick and productive and we had Blackberries, but now you’re always communicating, how do you think, how has that changed the way you think a company’s run today?
Chris: It changes everything.
Zaw: Good or bad?
Chris: I think mostly for good. If you look at the rise of Slack and a number of other workplace tools where people are operating on mobile, they can get something out and share information much more quickly so that you can … There’s a possibility for malice and undermining and this is where there’s always a downside to communications networks. There’s always people who are pursuing their own agenda that doesn’t necessarily match the corporate agenda. You have to figure out how to manage that over time. But openness and transparency actually solves a bunch of problems. You know who are the team players and who aren’t by the way that they act and the way that they do their work, the way that they share information that people need to know.
People, if you poll … If you do an honest poll, I do think that there are places where nobody is relevant and helpful. Most people know who … If you just ask people throughout the organization … Let’s just say you have a 100-person organization, you would probably have a good consensus around who the team builders are and who the individual out-for-themselves players are. You match … Most people’s assessments of their peers would match in that organization. When you have these hyper-connected networks where everyone is on the stage all the time, you can figure that out even faster.
Zaw: That’s interesting, I hadn’t thought about that. That relates to hiring, how you find those people, right? Or how you don’t find the people in instances where you don’t want to find them. How has your thinking evolved around hiring? Are there things that you look for when you’re hiring or ways that you ask questions that you try to pull specific things out of them?
Chris: Comfort with accountability is the critical, critical factor. People have to be willing to see, expect and react well to constructive criticism or questioning. The idea that you can somehow control everything and the image that you’re presenting and the … you’re the hyper-competent person who never makes a mistake, you just … Anybody who tries to have that extreme control over their own image, there’s something wrong there. You have to be able to say, “Hey, this didn’t go quite right here.” People have to be very self aware to be effective, and that’s how I hire.
Zaw: A lot of what we’ve been working with companies on is taking those kind of values around accountability, agility, etcetera, and kind of mapping that out to interview questions, product related decisions. How do you take accountability and test for that in an interview?
Chris: A lot of it is some of the classic interview questions. What’s your biggest failure? Somebody’s got to be able to give a truly honest answer to that. “My biggest failure is that I work to hard.” Come on. If it’s, “I ended up destroying my marriage because I work too hard,” that’s a different … that’s a conversation that could be very interesting. Obviously want to be compassionate, and our legal restrictions … I am still a lawyer. There are legal restrictions on the questions you can ask. You should abide by them. It’s a … you really … honesty and comfort in somebody’s own skin is exactly what you need in just about every position in just about every company.
Zaw: That’s good. That makes sense on the testing for people’s failures. Are there any other things or attributes that you tend to look for in the most successful folks that you’ve invested in or hired.
Chris: Yeah, I think a lot of it is … there is … one of the more fascinating — I actually haven’t watched it yet, I’ve only heard about it — Bill Gross from Idealab did a Ted Talk recently. He says that the number one determinant of success in his investments over time has been timing. I do think that there’s absolutely an element of truth to that. There are some things where you have found a product or a company that’s serving a need that just is right there at the right time in the right way to catch its fire for a number of different reasons. I do think that having the wrong people can cause failure even when you have that perfect timing effect and that having the right people is, again, it’s that wonderful multiplier that allows a business to achieve its potential.
Zaw: So you’re saying the right people doesn’t always qualify …
Chris: You can have the right. You can have the wrong. You can have the right people who are honest with drivers and doers and incredibly active and they’re doing the wrong thing. And you can have a great product and a perfect fit, timing, and you can have the wrong people on it and still succeed. There are also some management challenges for that, and I’ve seen that primarily as an investor and a board member. There are people who might not need to be managed out because they’re somehow critical to the current operations, but they certainly need to managed around, and they need to be guided, sometimes very aggressively in order to stay focused on the mission.
If the mission of the company is incredibly important, has an incredible fit in the marketplace as things are evolving, and you don’t exactly have all the right pieces in place to execute on a perfect vision of the vision, then you have to figure out how you get 80% of goodness.
That timing … A lot of my investments have been based more on a perception of the product and the direction of the company is going in are critical to the marketplace. Even where I’ve had some doubts about some of the senior management entrepreneurs. We’ll see how some of these work out. They’ve all had challenges, the ones where this has come up as an issue. They’re, right now, they’re all managing through those challenges. They’ve gotten a little bit too close to some edges than I would’ve liked at times, but they’re doing okay.
Zaw: Last question, because we’ve got about three minutes. As you think about, as an investor and board meetings and thinking about how you run them or like to actually have them proceed, what’s your prototypical or best board meeting look like?
Chris: Best board meetings [are] where the deck is set up two days in advance and I’ve had time to go through it. Any potential issues are identified ahead of time. The conversations are teed up. I really don’t think a board meeting should be more than two hours.
Zaw: Why do you say that?
Chris: Because the efficiency of getting … You can’t, generally, get harder issues dealt with in a multi-factor conversation. It sort of has to be teed up and pretty much wired ahead of time. So you just end up in these lost conversations that go on. You have to have a great leader of a board meeting, usually the CEO and chairman. Often … I’m getting more and more attuned to the idea that the chairman and CEO should be split in most cases. I think that the chairman is … You want two perceived very senior executives with a lot of say over things for external purposes and you need a check on the leader. Any smart leader knows that he or she has to have …
Zaw: You’re saying typically the chairman would be, maybe, an outside investor or someone …
Chris: I actually think that’s an input, but hopefully somebody with the main expertise that could be helpful and re-emphasize some of the strengths and compensate for some of the weaknesses of the CEO. I think it’s ideal to have perfection in one individual. It’s extraordinarily rare. Unfortunately when you combine the roles, you end up in situations where the person often ends up under-understanding their flaws. They become a bottleneck for information instead of actually making sure the board members have the access to the information that they need to make good decisions and help a company.
The interesting thing to me, the number one learning that I’d probably take from the time that I’ve spent building businesses now as an external investor, is that most businesses don’t fail because they’ve got … because they don’t have access to what they need. The companies that get built up over time often have pads through their board, through their employees to get success, to get into the right meeting, to get the right deal set up. There’s a sense in which sometimes, if the company’s not well managed, you … people aren’t willing to put their networks at risk. That’s an activity that ends up underlining companies a lot. There’s obviously a number of backers that drive people, including the prospect of financial return, to do that opening and that help, but it’s critical that trust gets established and that the focus for what precisely needs to get done, the introductions that need to get made. It’s critical that those things actually happen.
Zaw: Interesting. Makes total sense. Any parting words of wisdom for entrepreneurs that are growing their companies?
Chris: It’s hard. They should recognize that and embrace that fact. Ultimately, when you’re an entrepreneur you are remaking the universe. You are really … you’re out there yourself telling people things should be done a different way, that your way’s better, that you should get paid for it. You have to run a sustainable business at the end of the day.
This is what I like most about businesses opposed to politics and other things, people are … people define self-serving measures and goals. In business, if you run out of money, you’re dead. Ultimately the measure is, is your company making money or not? It’s fairly simple and straight forward. I think acknowledging it’s hard, but that alchemy that has to happen, that magic that has to happen, something that’s been done by hundreds of thousands of entrepreneurs before you, so why not you?
You’ve got to be able to power through doubts and questions. It’s a … One of the things when I had a harder time with some of my entrepreneurs, I’m like, “I don’t want to hear the reasons that you’re not going to make it. I want to hear the reasons that you are.” So always have that path to how you are going to do it.
Zaw: Okay. That’s awesome. Thank you so much for coming on Meet the Operators, man.
Chris: All right.
Zaw: All right.
