Success in the Startup World: Why Good Leadership Matters Most

Corporate Culture

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Former Cisco CEO John Chambers shares some hard-won lessons.

Chambers book coverJohn Chambers isn’t just another overnight success story who is ready to talk about his golden-paved path to the executive suite. Growing up dyslexic in West Virginia, he worked hard to overcome personal challenges and rise to the top position at Cisco Systems, where he transformed a router company into one of the biggest tech operations in the world. Chambers, who now runs JC2 Ventures, shares his hard-won life and business lessons in his new book, Connecting the Dots: Lessons for Leadership in a Startup World. He joined the Knowledge@Wharton radio show on SiriusXM to talk about what defines success. (Listen to the full podcast above).

An edited version of the transcript follows.

Knowledge@Wharton: What are the components of leadership that you think are the most important?

John Chambers: I think for a leader who is dealing with a large organization — let’s say a CEO of a startup or CEO of a large company, or head of a group — it’s the ability to articulate a very clear vision and strategy of where the organization is going that is differentiated and sustainable. It’s the ability to build a great team, and that includes developing the team, recruiting and periodically changing the team. It’s culture — I did not understand how important it was when I first became CEO, but you never have a great company without a very strong culture. And the fourth element, which is more important now than ever, is the ability to communicate to all of your constituencies each of the elements we’ve talked about.

In terms of how I measure leaders, it’s results, quality of team, do they really understand the industry they’re focused on, their communications skills, how well they walk the talk, the culture, and the ability to outline a bold vision and then really make it happen.

Knowledge@Wharton: Culture is at the forefront these days. Why do you think it has taken so long for it to become a priority?

“I did not understand how important it was when I first became CEO, but you never have a great company without a very strong culture.”

Chambers: I think it is the differentiator both in terms of the type of talent you attract, how you keep them and how your customers view you. Today, culture and strategy are equal in terms of importance to me. At Cisco, we were No. 1 or No. 2. in 16 of 18 product lines and went from $70 million in sales to $48 billion while I was honored to be there. People would say we had one of the strongest cultures not just in Silicon Valley, but also in the country. We outlined the culture of giving back, innovation, etc. I knew every single life-threatening illness of every employee in the company, their spouse or their children, and was often on the phone with them, even on Christmas Eve if that’s what it required. You would move heaven and earth to help them.

When a customer had a problem, we put customers first. We walked the talk of that. I listened to every critical account in the world every night. We paid our management on customer satisfaction, so we matched culture to our whole fundamental strategy. I think people underestimate that. It’s one of the things I love with the new startups when you get a new, young CEO, and they get the vision and strategy, they get the team, and they get the communications. Communications is another area that’s changed dramatically in the last decade. Culture is usually what they pick up the slowest. The fun thing is when they get it and see the results with their employees or customers. It’s just part of the fun of teaching and being a mentor to these young companies.

Knowledge@Wharton: Then why is the percentage of startup failures so high?

Chambers: Oh, I think it’s always going to be high. The failure of startups is probably at 70% plus. The most successful venture capitalists in the world, in terms of their funds returning, often have more failures than the average venture capital because they take more risk. But the one or two homeruns out of that portfolio carry the whole investment.

This is a period where you’re going to disrupt or be disrupted. I believe that 40% of the large companies in America or around the world will disappear in the next decade because of digitization, the speed of disruption, artificial intelligence and different business models. I think the disruption is actually going to accelerate.

My worry in the U.S. is the reverse. I think it will continue to have a high failure rate of startups, and that’s just the natural process. You shouldn’t be in them unless you understand that’s going to occur. It isn’t a question of are you going to make each one successful. If you miss one, then get up and go do it again. It’s the ability to really re-innovate yourself each time and to take the risk.

My problem is the number of startups in the U.S. is almost at a 20-year low. We used to have 95% of the world’s venture capital, then 80%. Now, we have 50%. If you watch the number of IPOs which are the future indication of job creation in this country, during the 1990s it was 400 to 500 a year and reached a peak of 700. This year we’re excited that it’s going to go over 200 for the first time in three years. But if we’re trying to generate 25 to 30 million jobs in the next decade, which we need to, and you’re going to have a certain number of jobs that have to be created because digitization is destroying others, we’ve got to get the startup engine going much faster. My worry is not the failure rate. My worry is there’s not enough in the pipeline, and we aren’t scaling them quickly enough.

“This is a period where you’re going to disrupt or be disrupted.”

Knowledge@Wharton: One of the things you talk about in the book, and something you learned as a young boy living in West Virginia and fishing with your dad, is the concept of staying calm under pressure. You tell a fantastic story about a fishing trip that you took with your dad on the Elk River in West Virginia. Can you relay that story?

Chambers: That river has very rapid run offs in certain areas that are dangerous to swimmers. I was six years old, fishing with my dad. He advised me to be careful not to fall into the river at this section — it’s a good place to fish but it’s very dangerous in terms of its depth and its speed and the rapids. He was fishing about 100 yards above me. I got too close to the edge and fell in. I got swept away immediately, and my dad yelled at me to hold on to the fishing pole. I can see him to this day, running through the water, down the side with water going everywhere. Each time I’d surface and get a gasp of air, I could hear him yell, “Hold on to the fishing pole.”

I held on to it and kept gasping for air, and he finally got below me on the rapids, then swam out and got me and pulled me to the side. Then he sat down, as my dad has often done with me, and taught me a lesson in life. He said, “John, when you fall into the rapids, if you try to swim against the current, you risk drowning. And if you panic. you also risk drowning. What you have to do is deal with the world the way it is — to realize that you have to go down with the current, look for your chance to get out of the water, and then learn how to get out.” As I got relaxed and calmed down, he put me out in the rapids and let me do it myself. Then he took us up to where we started fishing, and he let me fish. My mom didn’t know this, but he again went 100 yards above me to send the message that I’d learned the lesson.

I think that’s the lesson in life for many leaders. It’s how you deal with your setbacks or your challenges, how you remain very calm under pressure, even though you realize the gravity of the situation, and how you make sure that you’re not swimming against the tide or the current in a way that you have no chance to win, but look for how you deal with the situation and get out and then progress from there forward.

Knowledge@Wharton: You have said that failure is not a bad thing. I think there’s this mindset that you can’t fail at any point in your career, but that’s not the case. You can learn so much from an occasional failure.

Chambers: That is true. I think you’re more a product of your setbacks and failures. Anybody who tells you they’ve never had failures or setbacks either didn’t take any risk or is not being honest with you.

[Former General Electric CEO] Jack Welch actually taught me this. It was a time when Cisco was on a run. Many people viewed us as the top leadership team in America, and we were coming up on the most valuable company in the world. Jack said to me, “John, you’ve got a very good company.” I knew he was about to teach me something, and I said, “Jack, what will it take?” He said, “It will take a near-death experience before you have a great company or you’re a great leader.”

At the time, I didn’t grasp it. But when 2001 hit and the dotcom bubble burst, I clearly understood him. I also understood at that time what Shimon Peres, the late president of Israel, had taught me over the years — that leadership is remarkably lonely. It is how you handle your disasters or your setbacks that determine who you are more than your successes. Once you learn how to deal with the setbacks, you can accomplish much more in life.

For me, being dyslexic was a challenge. Even though both my parents were doctors, my teachers thought I wouldn’t graduate from high school, much less beyond. Because I had special help in dealing with dyslexia, and stepping up to it, I learned how to take a weakness and over time actually make it a strength. As you learn from those setbacks, those failures, that’s how you get stronger each time. The best teams in Silicon Valley are often teams that have not succeeded before, but have learned and learned how to come back.

Knowledge@Wharton: You also say that leaders must be able to embrace change and innovation. Innovation is understandable, but embracing change is still something difficult for a lot of companies. They get on this pattern of success and want to ride that wave. The problem is that they’re often not able to get that next level of success without making changes along the way.

Chambers: I completely agree. This time period with digitization is going to destroy business models and companies at a very rapid rate. I believe that an estimated 40% of companies today won’t exist in 10 years. You grow or you die, and you’ve got to have the courage to change.

But the most difficult ones to change are the ones who’ve been most successful. When I talk about what causes companies to fail, the No. 1 reason is they miss a market transition, usually a business model change combined with a technology change. But the No. 2 reason is they keep doing the right thing too long.

With Cisco as an example, we were a very successful router company, but we had the courage to go into an area called switching. Then we went from routing and switching into wireless capability and into voice and into data center and into security. We kept reinventing ourselves. As we did, not only did our core product get better, our outcomes got better. Our competitors made the mistake of staying with the products as opposed to focusing on outcome. It’s a willingness to change, to say we aren’t just a tech company building routers, but we’re a company that is synonymous with the internet, that’s going to change the way the world works, lives, learns and plays. It’s the willingness to disrupt [that matters].

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