>> Amy Draves: Thank you so much for coming. My name is Amy Draves and I’m pleased to welcome
Hap Klopp to the Microsoft Research Visiting Speaker Series. He’s here to discuss his book “Almost,”
about entrepreneurship, lessons, and failures in the Silicon Valley. Hap founded The North Face and
served as president and CEO for two decades. He has since run numerous companies and spoken
around the world on adventuring, leadership, entrepreneurship and the human side of management.
He has appeared on national television and in several publications, including Forbes and The Wall Street
Journal. Please join me in giving him a very warm welcome. [applause]
>> Hap Klopp: Thank you. Thank you and I’m glad to be here. I would like to sort of preface my
comments by telling you that my epitaph, if there’s ever one written, is going to be: often wrong but
never in doubt. I’m a classic serial entrepreneur and so all of my comments kind of come from that
direction. As mentioned, I founded The North Face right out of business school, after I finished Stanford.
The … a lot of people thought we were crazy; we had no fear of failure. We created a whole new
industry. There wasn’t an industry; we created backpacking by taking materials from the Vietnam War
and applied them to general camping. We took aircraft aluminum and we made tent poles and pack
frames. We took parachute cloth and we made sleeping bags, tents, and funky clothing, and that was
the basis of it. Well, I can tell you that most people thought when we were talking about this and as I
was leaving school, they thought we were crazy, that nobody would ever buy backpacking gear. But as I
said, it’s a two and a half billion dollar company. Now I’m no longer involved with it, but it’s … the idea
may not have been so bad. Admittedly, you know, when I left the business school, I had what I call that
NCAA look: no clue at all. But we knew what we wanted to do; we really wanted to build a great
business, and so we set about doing it. And we had no fear. That’s the great thing about leaving school:
you’re not leaving anything behind; you’re just starting something as you go. So we had this attitude
that, you know, we avoided all the naysayers because we didn’t believe that anything was wrong. We
felt if we could build a company that was maybe ten million dollars in sales, made a million dollars a
year, that that would be a great thing. Nothing like a billion dollar company; we didn’t really think about
that. But I can tell you the same things apply now that applied then, and I would encourage you to have
the same attitude, which is basically: realize that the next ten years are gonna be the best years of your
life. Don’t listen to the newspapers, don’t listen to the news, don’t read it on your computer, because
all you’ll hear is bad news. If Jesus were to walk on water today, the reports in the media are going to
be, “Jesus can’t swim,” because everything is negative and that’s the way it’s interpreted. And so you
have to avoid that. And if you want to be a great entrepreneur, if you want to build a great business,
effectively what you have to do is live with risk; you have to live with uncertainty; you have to live with
failure. But that’s not the worst thing in the world. As Mark Twain said about Wagner’s music, “It’s not
nearly as bad as it sounds.” And let me tell you about that because if you look around now, if you look
at Silicon Valley and look at the attitude that’s there, what you find is a unique, remarkable atmosphere,
that doesn’t have fear, takes big chances, attempts to dent the universe. It’s an environment which
encourages people to take risk, and that risk is what’s differentiating people right now in this world. If
you look at it—I’ll come back to it later on—but the world is in a malaise. If you look at the problems in
global economics, China in particular; if you look at the climate change issues that are happening, the
number of wars around the world, I mean, all those things can paralyze you. But the reality is if you
start a business and drive a business, you’re in control. Those aren’t the things that drive it. And what
you see is the attitude that you have, and you see it inculcated here, in this company, in this town; you
certainly see it in Silicon Valley, a little bit in Boston; but you don’t see it in Dubuque, you don’t see it in
a lot of other places around the country. So what you have to do is recognize that there’s something
really neat, something unique, something that is you, that is special, that’s actually going to win.
Now, most of you know Steve Jobs, obviously. Jack Dorsey, I think most people know Jack Dorsey:
Twitter, Square. Mark Andreessen: Netscape, now he has Andreessen Horowitz. Max Levchin: PayPal,
Slide, Yelp, worked with Peter Thiel, worked with Elon Musk—pretty good crowd. You know what’s
common amongst all of those people? They all failed and got kicked out of their first business. Now,
any place but Silicon Valley that’d be a blemish on your record; people would be afraid of you, they
wouldn’t back you again. But as you know from the record that all of those people have, they’ve been
embraced. People really liked them. They liked them because they failed, because there’s a feeling, and
that feeling is that if you’re in a highly scalable, rapidly scalable business, what you have to do is make
fast decisions, you have to make quick decisions, and they have to be ones that you’re certain of. And
the issue of failure helps you make those decisions. Now there are some VCs that I know in Silicon
Valley that will tell you—and they’ve told me—they won’t fund a new company unless they see a few
people in management who’ve already failed in another business. Not failure because failure’s great;
it’s failure because they learn and they know what not to do. If you want to scale a business rapidly, you
can’t afford to organically build your team the way you could do it if it’s a slow growth. So you’re
looking for people to step in who are going to take action and act like they’ve been there before.
Now, if you look at Silicon Valley, it’s primarily funded by venture capital companies. Venture capital
companies have a five to seven year funding cycle. They invest and they want to get out within that
period of time. They look at their portfolio; usually it’s about ten companies that they’ll invest in. They
expect two to be homeruns—be, actually, the unicorns that you’re gonna have; they expect two to be
outright failures; and the other six, what they have there is companies that they have to get rid of
because they don’t want to give their limited partners back shares. So they will sell them off, merge
them out, whatever they can do to get rid of them. And usually the management, and usually the initial
shareholder’s friends and family don’t end up with the money; the VCs end up with the money. So in
essence, eight out of ten of the companies in Silicon Valley fail. But if you were to listen to the press or
if you look and read all of the stories it seems like that’s not the case, that everything’s a unicorn that
starts at Silicon Valley. Start it; you’re gonna be a billionaire. It doesn’t work, but it’s okay because you
can come back again and again and again.
Now, those who go to Silicon Valley—and I speak with a lot of universities that have immersion
programs for people coming in—are trying to find out: what’s the silver bullet? You know, what makes
the difference there? And sure, it’s universities and the attachment of the universities to the business
community, the number of students coming out, they’re really smart and quick and with the latest
knowledge, and there’s a lot of financing. Financing comes from VCs, it comes from banks. Banks will
invest in companies, will loan you money when you don’t have much in the way of assets. Silicon Valley
Bank is a classic example: you have lawyers and you have an accountants who’ve taken companies from
inception to IPO, and they will do it pro bono at the outset, or they’ll at least defer their fees until you’re
rich and they can take you to an IPO. But all of those things could be taken anywhere else in the world.
I can tell you, I’ve worked in New Zealand, I’ve worked in Europe, I’ve consulted companies around the
globe and it doesn’t happen in a lot of places; it’s there that you can do that. But you can take all of
those things, and they try to set up development groups, and they still don’t get the successes that we
get in a Silicon Valley environment. And the reason is: the culture is different; the culture is what’s
really the differentiator. And it’s a culture which embraces failure, as I said ; it’s a culture which doesn’t
put a blemish on your record if you fail, if you’ve tried something really great. It always welcomes the
new. If you’re trying to have scalable companies you have all sorts of new ideas. You have a new idea
such as Agile. You have a new idea such as Design Thinking, David Kelley’s work that he has. He’s got
the IDEOs start company, but he has the design school at Stanford that always talks about it. It’s
basically rapid iteration, quick decision-making, throwing things out that don’t work.
Also, if you think about it, here’s an example from Facebook, Mark Zuckerberg, their new headquarters
they took over from Sun Microsystems a few years ago had a lot of different pods. The headquarters
pod, where he’s located and some others are located, changed their building inside. In the first eighteen
months they changed it nine times. And Zuckerberg’s comment was, “We have to move as fast
internally as we want to move externally.” Now you can imagine what it’s like and how disruptive it
would be if you have nailing, wires coming in and everything every two months, but to be as efficient as
it is in Silicon Valley, that’s required. What the difference is is really what you have is a culture that’s
defined by failing forward. And Thomas Edison probably said it best, he said, “You know, I’ve never
failed, I’ve just found ten thousand ways that something doesn’t work.” And that’s really the right
attitude to have because … and it’s really true. Most people say that Thomas Edison invented the light
bulb. Thomas Edison didn’t invent the light bulb. What he did was buy a patent, the patent for an
incandescent bulb, but it only lasted about three seconds. And what he realized was if you’ve got the
right materials together, you could come up with a long lasting light bulb. And so what he did is he set
about taking the table of elements and he just tried every single element singularly and in combination
until he came up with the right one that lasted. But his attitude was, “I’m not failing when these don’t
work; I know I’ll finally get to the right selection.” As I see it, it’s really the scientific method applied to
business. The scientific method, as probably most of you know, is basically, taking a hypothesis in
science, trying ideas against it, rejecting those things that don’t work. In business, for some reason, the
general thinking, the general knowledge is: everything’s got to work; if it doesn’t work, get a bigger
hammer and make it work. But why not apply the scientific method to business? Try things, iterate,
quickly decide, fail forward. If it doesn’t work, reject it, move on. It’s okay.
Now, I wrote the book which we talked about, “Almost,” that they have back there for you, and I wrote
about it to talk about failure; I wrote to talk about the environment that exists in a high pressure startup
in a company—partly because nobody writes about failures. When I talked with the publishers they
said, “Go into the bookstores and see how many sections you have on failure. Not any.” And I said,
“But bookstores are failing so maybe that’s their problem.” [laughter] But another reason to do it is,
basically, if you read about some failures, you don’t have to repeat it. It’s the old OPM: you know, learn
on other people’s money, other people’s mistakes. It’s a lot easier to do that. I can guarantee you you’ll
make plenty of mistakes on your own even if all of the mistakes that we write about you learn and don’t
repeat.
Some of the ideas that are in the book: there are really five basic reasons why this company failed and
their told in a narrative nonfiction way, so it’s entertaining. It isn’t the seven effective habits of highly
effective people, nor is it four Ps of marketing or those sorts of things. It’s a story told in real life how it
is in twelve months, the up and down, all of the greed, the hubris, the friction, the excitement, the
possibilities, but buried in there are five reasons why this company failed. The first one was that you
can’t have multiple cultures in a small company; you can only have one. We had a classic conflict
between sales and engineering, and we described it as: do you make what you can sell, or do you sell
what you can make? The engineers, the R&D people, always wanted to make a new product. They
never wanted to make two. We couldn’t do A/B tests because no to things were the same. The sales
people always wanted to make lots and lots of what was selling. You needed to have a balance of the
two, but for reasons I’ll come to, we didn’t have that. So we had these two cultures conflicting as we
went through.
The second thing that caught us up was the myth of overnight success. Overnight success takes years.
There’s a few outliers—Instagrams and others—but usually it takes a long time to be successful and …
but that’s not the theory and that’s not what people hear. And particularly around Silicon Valley people
are drawn by the muses of, “Say, we’re going to get rich overnight.” Well, that happened to this
company. It was a company making miniaturized portable power that could be embedded in any
consumer good to be able to make people more mobile and take all of their devices with them; could
provide heat on demand and clothing, it could provide charging and running of any device, but … and it
had fuel cells, it had batteries and everything trying to hook together. We had a visit from one of the
largest companies in Silicon Valley that was into consumer goods. And the moment they showed up all
financial discipline, all business disciplines went away, because the CEO believed that instantly this
company was gonna buy us for a hundred million dollars, or two hundred million dollars, so all the
things that we needed to do to build a long term business were thrown away. Well, they didn’t buy us
for a hundred million dollars. They talked with us; we talked about doing some joint development, but
everything else went out the door. Everybody who believed in the overnight success ended up suffering
as a result of it.
The third thing that we ran into is the old adage that when you run out of business you make bad
decisions. We ran out of business. Once the disciplines dropped we ended up two million dollars in
debt and so we had to make decisions about products that were rolling to the market. What we did was
make a critical decision that we didn’t invest in manufacturing engineering, ongoing. We had R&D
engineering, but we didn’t test for repeated use thousands of times in the field. And there was failures
after a period of time in the field, so they had to be a recall because we didn’t invest in that last thing. It
was only gonna be about another fifty thousand dollars, but we just didn’t have it and didn’t invest in it.
The next thing that caused it was failing to plan is planning to fail. Once again, because of the belief that
we were gonna have a hundred million dollars by the end of the year, basically, not to worry, right? The
fact that we’re two million into debt—no problem. Well, a story that kind of underscores that is that
while we were two million in debt, I went to the CEO and I said, “I don’t believe anybody’s gonna buy us
at the end of the year, but I think I can get … raise enough money for us to be able to get us through,
and if we have a payment plan people will probably persevere with us.” And I said, “I don’t … I know I
can’t get two million right away, but I think I can get five hundred, seven hundred thousand dollars,” and
I was able in three weeks to get them seven hundred thousand dollars to fund the company. We had a
plan to pay a hundred and forty-seven thousand dollars out over the course of the next few months to
be able to keep everybody at bay while we raised the rest of the money in case we didn’t sell out at the
end of the year. Well, we got the seven hundred thousand in, we go it in in three weeks, I was pretty
proud of that ‘cause it usually takes a little bit longer to raise that type of money. I looked at the bank
account the day after we put the money in the company. You know how much money was left in the
bank account the next morning? Forty-seven dollars. We didn’t have enough money to pay payroll that
day. So I went to the CFO and I said, “What the hell’s going on?” And he said, “Well, you know …” I said,
“We don’t have enough money for payroll.” He said, “Well, I left enough in the bank account for
payroll.” I said, “Well what happened to our plan? We had a plan; we were gonna pay a hundred and
forty-seven thousand, the rest…” He said, “Well, the CEO had to pay other things.” So I said, “Well, I’ve
got two problems with that.” I said, “The first problem is that, not only do we not have enough money,
but we had a plan; the plan just went out the door. We’re gonna have to find more money; I don’t know
we’re gonna find it. The second problem I have with that is our whole discipline has again broken down.
What’s wrong?” And he said, “Well, I left enough money in the bank account.” I said, “Well, I’ll go look
at it.” So I looked at it, looked at it online and matched it up against the bank balance, but, you know,
I’m thinking to myself: you can’t have money come in one day and it’s gone the next morning. Those
checks have to have been written two weeks ago and they never told me about it. Well, I went back and
I said, “What happened? Here are three checks that don’t show up in the check register.” He said,
“Well, I don’t know. I guess the CEO wrote ‘em on his own. I’ve never seen those.” So we didn’t have a
lot of discipline. But once again, this belief that we’re gonna get rich by Christmas: don’t worry about it;
it’s going to be covered over at the end.
The fifth point we had was, basically, a lot of people in the company believed that innovation is solely
invention. A better mousetrap company: if you just make something new it’s gonna be great.
Innovation is a combination of invention plus commercialization. If you can’t actually take it to market,
earn something, you’re gonna lose. And this company didn’t focus on that because we didn’t think we
had to; we thought we were gonna sell patents for money, I guess.
But anyway, all of those things are what brought this company down. Now, there’s a lot of other types
of mistakes that I’ve seen in other companies I’ve worked with that I’ll just tell you about, come back to
them later on, but these will also bring you down as it did this company, Ardica, that I was involved with.
The first one is if you have the wrong business model. A lot of people just won’t admit failure on their
business model, so if it isn’t working they just try harder and harder to push the same model through.
But it’s the old joke about the fact: try doing the same thing over and over again and expecting a
different result. It just doesn’t happen. Sometimes you’ve got to pivot. I have seen hundreds of
business plans for companies and I can say, without exception, I’ve never seen one business that
ultimately adhered to the business plan. Again, I’ve talked with a few VCs and I said, “What do you think
of business plans?” And they say, “Oh, we always ask ‘em to do it, but we never read ‘em.” [laughter] I
said, “Why’s that?” And he said, “Well, we know that’s not the one that’s gonna be there, we’ve just
had to figure out: do they know the discipline of how to put it together and what all the issues are? But
we’re not gonna rely on that. We’re gonna rely on the people actually to come up with the right pivot.”
The second thing that I think I’ve seen happen a lot is too much complexity. You know, you bring in the
McKinseys of the world, the Bains, Accenture, and they come up with these elegant solutions to a
problem. They’re so elegant and their three dimensional capabilities that the only people in the world
that can possibly execute them are the consulting companies. It is life-long employment. In reality,
execution is required in business and that requires simplicity, requires a lot of people working together.
It isn’t this academic study of what is gonna happen. I tell people: keep the main thing, the main thing.
Figure out what it is you’re doing, focus all your energies on that, and that’s how you win.
Another thing I see is a lack of sense of urgency that exists out there. There’s an exponential rate of
change in society. Ninety-five percent of all patents ever issued were issued in the last five years. That’s
not all great patents of course, a lot can go through, but it is a logarithmic change that is happening and
that society’s moving so much faster in today’s world that we have to respond in a quicker way. If you
don’t do it you’re going to lose out. And I can tell you a story, one of the things I’ve done since I’ve sold
North Face—consulting—and I generally like to work with smaller companies ‘cause you feel more
impact of what you’re doing, but I ended up with a large company. A guy told me all sorts of problems,
he said, “Come on in.” And so I went into his office—he was late to the meeting—but I figured I
interviewed a lot of people around the company and then come up with a conclusion. Everybody inside
the company knows what the problems are; most people just don’t want to speak about them. So I
looked at … and he came in, and I knew this wasn’t gonna be good for my consulting practice, but I said
“You know, I think I know what the problem is right now.” He said, “What is it?” And I said, “Well, it’s
you.” He said, “What do you mean?” I said, “You look like you hate your job.” And he said, “Well, it’s
really true.” I said, “Well, how are you gonna motivate anybody?” He said, “Well, you know, I stay at
home, I read my e-mails, you know, I check the news, I have a cup of coffee, check the newspaper,” he
said, “whatever I can do to keep from coming into the office.” He said, “When I finally can’t come up
with a reason to stay out of the office, I come in.” I said, “Well, why don’t you quit?” He said, “Well I
only have fifteen more years ‘til retirement.” [laughter] Well, that mentality kills large companies.
That’s why small companies can survive, because they don’t have that. They have this fear of failure;
they have a desire to survive. They’re willing to change on a dime and be able to do that.
A second cause of failure that I’ve seen is the inability to flex between having sort of collegial decision
making and having very decisive decision making. A lot of people like to be liked, but great leaders
aren’t always liked; great leaders make tough decisions. If you set a collegial environment, that works
fine except when you come to a crisis. When you get into a crisis you have to have quick decision
making and somebody has to step out there. Now, if you’re going back and forth people may not know
how to deal with you, but the reality is you have to make quick decisions. And a story that underscores
that is a story of a climbing friend of mine, Durin Firth. He was climbing Everest; he had done it as a
youth. He no longer could do it, so he put together teams of people and he put together a team of six
people, four of whom had already climbed Everest, and they were going up this route, and they made it
camp three. Bad weather was coming in, which is the usual problem up there. And at camp three he
called everybody together in his tent and he said, “Okay, let’s vote on which way we’re gonna go to the
top of Everest.” Well the four people who had already summited Everest did not want to go to the
South Col, which is the easiest way; there’s already steps there, the Hillary steps, ropes and whatever.
They wanted to … two wanted to climb some rock, two wanted to go on an ice route. The two people
who had never climbed Everest, of course, wanted to go to South Col ‘cause they wanted to get it into
the record book. So they argued all day long and at the end of the day they packed up, went down the
hill; that was the end of their climb; they failed. The reason they failed is Durin Firth, at that point,
didn’t say, “I’m the leader and this is the decision we’re going to have.” He wanted it still to be collegial.
Another reason companies fail is, basically, a lack of passion; a lack of passionate commitment to
success. If you’re in sales, I’d ask you: when was the last time that you cried when you lost a sale,
literally cried that it cared that much? I can tell you some of your competitors are thinking that way and
you have to care that much to be able to win. You have to be that passionate about it. If you’re that
passionate and you’re the leader of the company, leader of a section, leader of a group, what you’ll find
is people follow you, because what you say is often forgotten. They usually tell the speaker that thirty
percent of what you say is remembered. What is remembered is the passion, the commitment, the
direction, whether you have their back if you’re leading it. And so what you want to be as that leader is
that passionate individual that everybody’s drawn to and follows. So another story about a friend of
mine that—who I was reminded this weekend, so I bring it up again—his name is Dickey Buek. And
Dickey Buek was a skier. In my days, he was the guy that whenever he was in town the word was
around the bars or whatever, “Dickey Buek is here. Let’s go ski with him,” ‘cause everybody wanted to
ski with Dickey. Well the reason was he was so passionate and he committed to it. But one day Dick
was getting ready for a race, he had his downhill skis on, he got on the wrong run and he ended up on a
ski jump. He flew off the ski jump, hit a tree thirty feet in the air, crashed to the ground, hauled him in
on a sled, and he said, “Doc, patch me up; I race tomorrow.” [laughter] And the doctor said, “You know,
I don’t think you understand. You’re in a full length cast tomorrow; you’re not gonna race.” And Dickey
said, “You don’t understand, Doc. I’m Dickey Buek; I race.” And the doctor said, “Well, how are we
gonna accomplish that?” And he said, “Very simply.” He said, “All you do is put my full length cast in a
racing tuck; I’ll race tomorrow.” Now, he did race; he didn’t win, ‘cause at that level you can’t win, but
the passion and the commitment to being involved in that was why Dickey Buek was followed by
everybody. And as a leader, that is what you want. If you don’t have that and your competition does
you may lose out to ‘em.
Now, as I mentioned, you know, the world around us is in a malaise with exception of the tech world.
Most businesses are in a bad shape because of the China problem, the international global problems,
problems of weather, the problem of climate change, population explosion, but we don’t want to let
that drag us down because it’s going to stay that way until somebody makes a difference, and we are
the people who can make the difference. It starts with optimism, positive mental attitude. You know, I
tell people, “Follow my rule, the eighty/twenty rule: don’t tell people your problems because eighty
percent don’t care and twenty percent are glad you got ‘em.” [laughter] The reason we are where we
are in the business world today, I believe, is a fear of failure. I think it’s a land of can’t, but I believe that
we can. I mean, experts know all the reasons something won’t work, but the experts are the ones who
are failing us. It’s a society dominated by lawyers and MBAs, which are risk adverse professions. I
mean, lawyers are the ones who write a ten thousand word document and call it a brief, that gives you
some idea of their approach to it. But what I can tell you is: don’t be afraid of failure, use failure to
learn. And I’ll give you as some comments that maybe you’ll stick with you that I’ve learned, that you
can apply as well, to try to get success from failure. The first one is: don’t confuse planning and strategy
with execution; execution almost always wins. As I said earlier, these great plans that are put together
by the Bain’s, McKinsey’s, Accenture’s that are too complex, they won’t win in the real world when
execution is there.
The second thing is: avoid perfection paralysis. In this exponential logarithmic change of society there’s
not time for perfect information. Voltaire, long ago, said it best, which is basically, “Perfection is the
enemy of good.” You have to be able to make quick decisions in today’s marketplace.
A third one is: it always takes twice as long and it costs three much … three times as much as you
planned. I don’t know why that’s the case. You know, I go out and do consulting and I would think with
forty years’ worth of experience in failure and success I would know that, but every new situation seems
to generate that same thing. So you have to plan when you’re asking for money or raising money, you
have to plan for the fact that it may take longer, it may cost more. It doesn’t mean it’s a bad idea.
The next one is: sometimes cheap’s expensive and expensive is cheap, referencing back to when we
didn’t do the engineering necessary to take a product to market. Little bit of extra money would have
made the difference.
Get a number and a date together, never get one. If a team is reporting to you and they just give you a
number they’re gonna hit, tie ‘em down to a date: by Tuesday we will do X. If you don’t get those two
together, you don’t have any commitment, you don’t have any accountability.
Next point is that, you know, it’s not price, it’s value that the consumer’s looking for. Always look at that
when you’re developing your product or your service. Today’s world is a knee jerk response to lower
price because people don’t know how to put value into a product, but the consumers are looking for
increased value. If you look outside of the country right now to the two countries that have been driving
the demand for lower price in product or in services, it’s been China and India. Both of those societies
have costs that are going up at eight, nine, ten percent a year. The marketplace isn’t aware of that yet,
but that’s coming to an intersection that is pretty amazing. In the apparel and footwear business, which
I know, fifteen years ago the cost Chinese labor in manufacturing assembly was twenty-one percent of
the United States. This last year it was sixty- two percent, and it’s increasing dramatically. Now, one…
revalued the yuan, that’ll give ‘em a one year hiatus, but the reality is those costs are going up, the
marketplace costs are going to go up, and as a result of that put value in, and the consumer will want
that. It’s not price, it’s value—constantly remember that.
Keep your plans flexible. The only constant is change. The environment around you is moving so
rapidly, if you don’t have a response to that changing environment, you have a risk of failure.
Probably the most important thing I can tell you that I’ve learned is—and this is for certain—is how do
you motivate your people? There’s only one sure way: hire motivated people. You cannot use pay
schemes; you can’t use any plan to take somebody who’s not motivated and do it. If you have a team,
figure out how to move them elsewhere or how to get rid of them because if they aren’t motivated
they’ll drag you down.
And the final point I’d say, and this is my own and you’ve probably seen it in The North Face, but … is a
commitment to providing absolutely the best quality that ever exist. That’s the hardest thing to copy.
People reverse engineer your products, reverse engineer your code, reverse everything as soon as they
see it, but quality is something that is very hard to compete with. We had a slogan which we put on the
wall of our company at The North Face when we designed products, which guided everything we did.
And that slogan was taken from Rudyard Kipling’s book, “The Mary Gloster,” but he said, “They copied
all they could follow, but they couldn’t copy our minds, so we left them sweating and stealing a year and
a half behind.” And that was the guiding mantra for everything we developed.
Now, people say, “Well quality …” but that’s really hard to do, particularly in this world where we’re cost
sensitive. I’ll give you a story before I close and that story is about a friend of mine, Peter Glenn, who
was in Chin … in Japan, and for those of you who’ve been in Tokyo, you know the Ginza areas: high rise
department stores, nouveau little boutique stores. Well, it was two o’clock in the afternoon, he was
having that usual slowness that people get when they’re traveling. He figures, “If I get a little bit of
caffeine and get it in my system, I’ll be okay; I’ll be good to go for the rest of the afternoon.” But there’s
no small coffee shops. So he said, “Well, where do I get a cup of coffee? Probably at the top of a
department store you’re going to find that there’s a coffee available. It’s probably a restaurant,
probably not gonna be very good, but I’ll go up there and I’ll get my caffeine load.” Well, he went up
there, got to the top and he was immediately impressed because they seated him quickly and, you
know, people are well dressed, they’re speaking to him in a couple languages. He says, “This is pretty
good ‘cause it doesn’t happen to me everywhere I go.” And they give him a hot towel and they said,
“You know, we’d probably sell more coffee if you got a hot towel with it,” but still expecting a mediocre
cup of coffee. Quickly the coffee came out, very strong aroma, and he was amazed because he looked
down at it and on top of that cup of coffee was a dollop of cream sculpted like a rosebud. He’s thinking,
“This is pretty good.” And he started to stir and they said, “No sir, wait for a moment.” And while he
waited the heat of the cup of coffee turned the rosebud into a rose petal. Why would you go anyplace
else to buy a cup of coffee? [laughter] It’s that simple. If you can think about your product and you
think about your service and think what you can put in there, people can’t beat you out. So I would use
those things to suggest that you don’t have to fail, failing isn’t something you should set up to
accomplish, however if you fail it’s okay because in today’s world people want somebody who’s going to
learn, try, and as Steve Jobs say, “Try to dent the universe.” So thank you. I’ll open it up to questions,
small speeches. [laughter] [applause]
We have some questions? Yes?
>>: I’ll start. What do you think about the culture of accelerators? Or is that a, you know … you’re in
Boulder?
>> Hap Klopp: No, I’m in Berkeley, but I’m around San Francisco and that area.
>>: So, like, Techstars and Founders Institute and all these different places.
>> Hap Klopp: I think accelerators work in some cases, it depends on the individual accelerator. I mean,
I … but some don’t work. There’s a company that I was mentoring and they were trying to import a
number of foods, ardensol foods and wines from Europe. And one of the demands of the accelerator
was that they immediately go out and sell some product. And the guy said, “Well, there’s a bit of a
problem with this. I have to have the rights to import from companies; I have to have the governmental
approval for things like importation of wine.” And they said, “Well, if you don’t do that you’re not
following our accelerator process.” And he said, “Well, I can’t sell anything ‘cause I … you know, I can’t
do it.” If the accelerator’s inflexible and doesn’t fit your need it’s a problem. But I’ve seen a lot of
companies use that as a tool for initial capital and discipline. And as we’re trying to speed up getting
into business time is our major enemy, and accelerator can compress that time because what it might
take you a year or two years to learn by talking to your friends and talking to other entrepreneurs and
talking to people who are out there, you can go in an accelerator, in a six month period of time you’re
going to learn all of those disciplines. But ultimately, the accelerator’s not going to be what makes you
successful or not, it’s going to be you. And if you use the process and understand the process, don’t go
in and expect them to provide you all of the investors you’re going to get, don’t expect them to provide
the differentiation that you want. They just are going to bounce that back. I’ve seen probably half are
great, and the other half are, you know, like society, not quite so good. Yes?
>>: An online question: he says, “Thanks Hap. What’s your process for learning from a failure? Also, do
you … how do you balance trying out too many things versus giving enough time for each idea to mature
and succeed?”
>> Hap Klopp: Well, there’s kind of two questions there. I mean, the first one, you know, how do you
learn something from failure? The first one is, basically, you have to sit down and admit a failure. And
to give you one idea, one of the things we … was a big failure at North Face is we had the wrong
business model. The better business model was a model which was by Phil Knight at Nike. And what we
did is we wanted to grow a hundred percent a year or two hundred percent a year. That was exciting.
And the usual theory that, you know, the faster you grow the better things are gonna get; the faster you
grow, the more capital you need, and Phil Knight had figured this out before he went into it. Well, Phil,
you know, people think of Phil as a marketing genius and I can tell you both from knowing him and from
knowing that the name of Nike for two years was Blue Ribbon Sports before they converted to Nike, I’d
say he’s not a marketing genius, but he’s a financial genius. And what he’d figured out that others
hadn’t figured out was he needed vendor financing to grow. So he went to a vendor called Nissho Iwai,
Japanese trading company, and Nissho Iwai, basically, said, “We want more business.” He said, “You’ll
get more business if you will fund my product—you buy the product on my behalf and you fund it all the
way to the retailer. Which case, I’ll go to my bank, they’ll advance against that receivable, and I’ll be
able to grow.” And, you know, the Nissho Iwai said, “That’s great, but we’re at risk.” He said, “No, you
won’t be at risk because I promise you I’ll do two things. The first one is I’m gonna give you all my
purchase orders from my customers and I will not order one pair of boots that I don’t have an order
for.” Most of us were buying a lot of import, put it in the warehouse, trying to ship the extra. He said, “I
won’t buy any of that.” And that’s why, to this day, Nike still has a forward order program.
He said, “The second thing I’m gonna do is I’m never going to go into a foreign country on my own
money. I’m going to go in on somebody else’s money.” And he said, “I will go with the distributor; I will
give them a contract and that contract says I can buy it back at some point in the future if it’s successful.
If it’s not successful or if I don’t have the money, I won’t buy it back. If it is successful, then I would
maybe buy it back when I go public.” He used that model, and they said, “Well, you know, you’re …
we’re funding you.” And he said, “Yeah, that’s fine because Japanese interest rates are one percent;
charge me eight,” which was cheaper than what we had here in the U.S. “You’ll make money on your
money; you’ll be able to grow organically at whatever rate we can grow at.” He did that. He grew it until
he owed them over four hundred million dollars; he went public, paid them off.
Now, the subset of that story is Nissho Iwai probably said, “Oh, shit. Four hundred million dollar
account growing and they don’t need me any longer.” What they did is they said, “What are we gonna
do?” They drove thirty miles across town and went to a small company called Columbia Sportswear and
did exactly the same thing with Tim and Gert Boyle, exactly the same formula. And they did the same
thing until they went public, and then they bought Nissho Iwai out. Nissho Iwai didn’t apply after that.
But if you learn from that strategy, if you learn from that, you go out and say, “Okay, let’s use vendor
financing as a technique to grow. Let’s not just try to constantly refinance,” which is what we were
doing at North Face. And every year I was out financing the company over and over again.
Now, the second question you were saying?
>>: Was, “How do you balance trying out too many things versus giving enough time for each idea to
mature and succeed?
>> Hap Klopp: Well, when I consult with companies, I generally tell them there’s two words. All … I tell
them it’s unique when I see them, but that it’s always the same two words. This is what success is. The
first one is “deselect.” It doesn’t matter what company I look at, they already are trying too many
things and trying to accomplish too much. I mean, Steve Jobs was asked when he went back to Apple
how he was so brilliant to pick out the ones that were going to be successful, ‘cause he was, you know,
after he took over from Sculley. He said, “There were a lot of great ones; I just knew we couldn’t do all
of them.” He said, “I threw away a lot that probably would have been good too. What I knew was, if we
focused, if we deselected, we were gonna be successful.” So you just have to deselect. It’s okay. You
can’t be all things to all people.
So the other thing, you need to put into your products, into your service, is something called
unobtainium. Unobtainium is something that they can’t get from anybody else. That’s what everybody
wants. Instead of trying to make something that’s exactly like somebody else’s offering, make
something that is really unique. And if it’s unique, that will carry the day even when you have troubles
getting to market, speed, delivery problems. Put unobtainium in. Other questions? Yes?
>>: You mentioned quality. How do you balance quality and time to market?
>> Hap Klopp: How do you balance quality and time to market? Well, hate to keep quoting him, but
Steve Jobs introduced the Apple iPhone. Do you have any guess about what percentage of the initial
iPhones were returned? Thirty percent. In his case, and frankly, because Apple usually didn’t originate
anything, I mean, they copied product and came to market, he had to move rapidly, in his case to be
able to get there because he wasn’t making a unique product and a unique offering. So his tradeoff,
which he made, I think, the right call on was, “We’re gonna have inferior quality but we’ll make it okay
to people; just take it back.” Thirty percent, what the hell? Give me a new one. And people weren’t
that upset with him. If you’ve got a really unique offering or if you’re offering service or if you’re
offering software that’s critical to a company’s operation, we’ll say your SAP or your Oracle, and you
come in and your system doesn’t work and it falls apart and the businesses you’re serving fall apart;
you’re out of business. So in that case, you have to have an extreme focus on quality ahead of time to
market. So you have to look at the impact on the market, the impact on the ultimate customer that you
have to determine where you’re gonna make the tradeoffs. And it always is tradeoff. It isn’t binary,
absolutely perfect or absolutely bad, but it’s like, do we get to a level of acceptable, you know, minimum
viable product or not? And you define the minimum viable product by looking at the customer,
understanding the customer, get in front of the customer, do tests out there, and ask them what they
really need. Don’t get your in-house group all deciding what a minimum viable product is because it
won’t reflect the real world. Other questions? Yes?
>>: What do you see as the biggest challenges for people coming from large companies getting into the
startup market?
>> Hap Klopp: The question is: What do you see as the biggest challenge for people coming from a large
company going to a startup or a startup environment? There are myriad of ones, but as we mentioned
just earlier when we were talking about it is that when you’re in a small company the really exciting
thing about it is that you can make fast decisions and you can pivot and change, that all the
responsibility’s on you, but also the joy is on you because you get the ego feedback. When you’re in a
large company it’s better to get along and move along than to make fast decisions. Now, we always
press for faster decisions in deficit decision making, but when you get into that small company you can’t
wait around and you can’t have as much certainty of going to the market. But the penalty isn’t as high
either. If you take the reputation of a large company and they fail on their delivery to the marketplace,
it has dramatic impact. If you fail as a small company in deliver, it isn’t gonna impact very many people,
you may not be critical to the people you’re selling to. So the big challenge is: how do you dress in your
mind to move quickly and not necessarily rely on the services of three or four different people who may
know things? Usually a small company doesn’t have the breadth of management; it doesn’t have people
in quality assurance and manufacturing, supply chain, finance, and so you have to guesstimate which
one is most critical to your survival. And if you’ve been in a large company you say, “Well, I need all of
those.” You know, small company you won’t have all of those, so how do you deal with them? And how
do you prioritize or stack rank what the most important things are for success in your variety? Yes?
>>: You mentioning about hiring motivated people, right?
>> Hap Klopp: Right.
>>: I’m curious how you are balancing motivating the people that you already in your org and versus the
one you’re hiring—the motivated people? Because a lot of time those are people maybe … the
motivated people may not have the skill sets or niches that, you know, maybe fit your needs. How are
you going to rope them in versus, you know …?
>> Hap Klopp: Well, the first thing is: are they motivated or not? You know, you can demotivate people
probably more than you can motivate ‘em in business. You know, you basically, you know, treat ‘em like
mushrooms. You know, keep ‘em in the dark, cover ‘em with manure and that’s it. But what you’re
really trying to do is find people who are eager to learn, and so you’re interview process becomes the
first step. The interview process is trying to define what they’re interested in. And usually people use
the interview to ask the same questions that show up on your CV. Well, I mean, I’ve never seen a bad
CV. In today’s world you’re an idiot if you have a bad CV ‘cause you just go online, take the CVs that are
there, you fill in that and you come up with a good CV. Asking the same question is gonna get you the
same answer. I try to go outside that and ask about things, and one thing is: are you passionate about
anything? Tell me what you’re passionate about? Is it music? Is it sport? Is it art? Is it design? You
start talking with people … if there’s nothing that you can resonate with and if nothing’s passionate, I’d
pass on the individual no matter how good that is. Now, you may end up with people who have a
limited background because they may be very passionate and very … but they don’t have the skills in
there. Then it’s your job as a manager to allocate work to them gradually. Don’t give them something
that’s going to swamp them and is gonna ruin their self-esteem or is gonna get you in trouble because
they basically let you down. So you parcel out what you give to them, and you give ‘em more authority,
more responsibility as they grow, but start with that person who really is passionate about it and is
willing to work twenty hours a day because that’s the way they are, not because you tell them to do
that, ‘cause you don’t tell them to do that. It’s just, you know, they’re going, “Okay, I’ll go home. Let
me work on this. I’ll go to school; I’ll take a class; I’ll do that.” That’s what you’re looking for. Yeah?
There’s another question online?
>>: That answered one of the questions, but sort of a follow up to the motivated folks. I would say that
certainly at Microsoft people are starting to work for longer periods of time than they used to. I’m
wondering about, you know, so you’re not always gonna love every project you’re on, so [indiscernible]
be a manager of someone who is demotivated. How do you, you know, if they’re a motivated person
but they’re not in a motivating place, how do you help that?
>> Hap Klopp: Well, if you can you try to move them around. If you’re developing a new project, a new
product development, what you … there’s two ways you put a team together. One way is that you have
a dedicated team, you take people from every division and you bring them in. In that case you have a
better chance to try to get the really select people who really are motivated into your group. If the
other one is, basically, that you’re tasking people out on a period, there’s a lot of challenges there. I
mean, first of all the one that a manager is willing to free up is often the person who is the least valuable
to them, because they don’t want that to work. So you have a challenge. So what you have to do then
is sit down and try to bring together this group and talk about the vision. People don’t follow people,
they follow visions. And so what you have to do is talk about what you’re doing that is so great that
they can be drawn to it. When they really see that you’re changing the world with what you’re doing,
you get a different sort of person than if you say, “Listen, what we’re trying to do is make this product a
little bit cheaper and we’re gonna knock it out six months from now.” People go, you know, “That’s
great, but, you know, I know that’s a job and I know that’s what I’m supposed to do,” but they don’t get
involved in it the same way. So you try and set up something which is a goal that transcends a normal
job. And when they realize that they’re gonna change the world … when we introduced… at North Face
we introduced a tent. We worked with a guy by the name of Buckminster Fuller, and Bucky had pretty
unique designs, a geodesic. He was a wonderful person to work with, but instead of telling people,
“We’re gonna make another tent,” we told them two things. One is: you have a chance to work with
Buckminster Fuller, and Bucky is one of the true design geniuses of our era. And the second thing is:
we’re going to design a tent that can be replicated anywhere in the world with local materials, that we
will end up creating design that will house all of the homeless people in the world. And we did create
that design. It hasn’t rolled out; North Face isn’t really interested in doing that. But when people knew
they had a chance to work with Bucky and that they had a chance to solve the world’s homeless
problems, it elevated their thinking way beyond just making another god damn tent, you know, ‘cause
who needs another tent? There are plenty of tents out there. And plenty of good tents out there.
>>: We have time for one more question.
>> Hap Klopp: One more question, we have time. I guess I’ve answered them all.
>>: I feel like we should wait; someone’s got one. [laughter] If not, thank you so much. [applause]
>> Hap Klopp: Thank you.