June 1, 2021 • 10min

Breakthrough Lessons: Why you must master risk-taking to seize greatness

Pattern Breakers

This episode explores a key lesson of greatness from Vinod Khosla: for startup founders pursuing breakthroughs, risk is something you intelligently take, not something you avoid. The conventional view of risk as something dangerous to be minimized prevents people from pursuing truly ambitious goals. Instead, legendary founders view risk-taking as necessary and focus on the potential upside rather than just the chance of failure. The episode examines why this mindset is crucial for breakthrough innovation, how to evaluate and take intelligent risks, and how risk-taking provides competitive advantages. It also touches on related concepts like pivoting, hiring, and "thinking in bets" when making decisions under uncertainty.

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Key Takeaways

Risk is something you intelligently take, not something you avoid - Breakthrough founders view risk-taking as necessary for pursuing massive opportunities
The expected upside is more important than the chance of failure when evaluating risks - Consider the potential payoff if successful, not just probability of failure
Taking bigger risks gives you a competitive advantage - It limits your competition and allows you to learn "secrets" about the future others don't see
Many breakthrough companies pivot from initial failures - The learnings from early risks often lead to the ultimate breakthrough idea
Take on the biggest risks first - This creates massive value if successful and allows pivoting quickly if not
Evaluate trade-offs between different types of risk - For example, technology risk vs. market risk often have an inverse relationship
Hire for unbounded upside in key roles - Take risks on talent that could accelerate breakthroughs
Build a team that can solve any problem - You'll face unexpected challenges pursuing breakthroughs
Think in bets rather than all-or-nothing assertions - Express uncertainty and confidence levels to enable better collaboration
Fear of failure holds people back from their potential - Risk is real but fear is a choice

Introduction

This episode explores a key lesson of greatness from Vinod Khosla: for startup founders pursuing breakthroughs, risk is something you intelligently take, not something you avoid. The conventional view of risk as something dangerous to be minimized prevents people from pursuing truly ambitious goals. Instead, legendary founders view risk-taking as necessary and focus on the potential upside rather than just the chance of failure.

The episode examines why this mindset is crucial for breakthrough innovation, how to evaluate and take intelligent risks, and how risk-taking provides competitive advantages. It also touches on related concepts like pivoting, hiring, and "thinking in bets" when making decisions under uncertainty.

Topics Discussed

Reframing Risk for Breakthrough Founders (00:54)

The episode opens by contrasting the conventional definition of risk - "a situation involving exposure to danger, harm, failure, or loss" - with how breakthrough founders must view risk. For ambitious startups:

Risk is not something to be avoided, but something to be intelligently taken
Any breakthrough worth pursuing has a high chance of failure
The less risk you take, the more conventional your opportunity will be
Greatness requires a willingness to risk failure

As Vinod Khosla says: "Failure doesn't matter. Success matters." Legendary founders start with an objective to change the world and work backwards, viewing breakthrough success as the valid reason to pursue entrepreneurship.

Expected Upside vs. Chance of Failure (02:02)

When evaluating risks, breakthrough founders focus more on the potential upside than just the probability of failure:

The expected or potential upside is the product of:
- The chance of success
- The payoff from success if it happens
This expected value can make risky bets worthwhile even with a low probability of success

Competitive Advantages of Risk-Taking (02:24)

Taking bigger risks provides two key competitive advantages:

Limited competition - Conventional people stay away from big risks, so your competition is limited to those with similar risk tolerance
Learning "secrets" about the future - Risk-taking exposes you to insights others don't see, regardless of whether initial attempts succeed

Pivots and Learning from Failure (02:48)

The speaker shares an insight from 10 years as an investor:

Over 80% of exit profits came from companies that pivoted from their initial idea
Examples: Odeo → Twitter, Chegg, Twitch, Lyft
Initial failures contained learnings that led to ultimate breakthroughs
By taking risks others refuse, founders learn things nobody else is learning
This allows them to "steal secrets from the future" that others can't see

This dynamic means the long-term chance of failure in pursuing breakthroughs may be lower than it seems, as risk-taking creates more options and learnings over time.

Risk-Taking as Arbitrage (03:50)

The speaker frames intelligent risk-taking as a form of arbitrage:

Bigger risks have a lower probability of success (perhaps far below 50%)
But the risk-adjusted return for entrepreneurs may be underpriced
Fear of failure scares away more people, creating more option value
You learn about future opportunities before anyone else
If the upside is truly massive, the bet may be underpriced even if risky

Taking on the Biggest Risks First (04:30)

Vinod Khosla advises taking on the biggest risks first:

If you succeed, you create massive value by pursuing the same upside with better odds
If things go sideways, you can pivot to a new approach
If you discover an insurmountable obstacle, you do so faster and with less capital spent
Even total failure provides valuable learnings and time to pursue other breakthroughs

Evaluating Different Types of Risk (05:16)

The episode discusses how to evaluate trade-offs between different types of risk:

Technology risk vs. market risk often have an inverse relationship
- Example: Inventing a cure for cancer has high tech risk but low market risk
- Solving a problem with low tech risk means facing many competitors (high market risk)
Financial risk vs. technical risk in hiring decisions
- Hiring great talent increases financial risk by shortening runway
- But it may reduce technical risk if they accelerate progress to breakthroughs

Risk Considerations in Hiring (06:00)

The episode explores how risk-taking applies to hiring decisions:

Sometimes take risky bets on talent with unbounded upside, especially if they might accelerate breakthroughs
Hire for experience in compliance roles or areas where mistakes are costly
Escalate hiring commitments as you reduce critical risks, rather than hiring on a fixed schedule
Build a team that can solve almost any problem - have at least one person who can "build pretty much anything"

Thinking in Bets (07:25)

The speaker references Annie Duke's work on "thinking in bets" as a complementary concept:

Express uncertainty and confidence levels rather than all-or-nothing assertions
Say "I'm X% sure" instead of claiming certainty
This opens the door for better collaboration and information sharing

Implications for Entrepreneurs (08:15)

The episode concludes by summarizing key takeaways for entrepreneurs:

You don't achieve dreams by playing it safe - take intelligent risks
Fear of failure can hold you back from your true potential
Taking risks for truly meaningful goals may have better odds than you think
Evaluate trade-offs in risks - reduce low reward risks, lean into asymmetric upside risks
Most people think risk is something to fear, but you can be the rare person who sees the larger truth: risk is something you take to accomplish extraordinary things

Conclusion

This episode challenges the conventional view of risk and reframes it as a necessary element of pursuing breakthrough innovation. By intelligently taking risks, startup founders can gain competitive advantages, learn crucial insights, and increase their chances of achieving massive success. The key is to focus on potential upside rather than just probability of failure, take on the biggest risks first, and build a team capable of navigating the unexpected challenges that come with pursuing truly ambitious goals.

Ultimately, the lesson is that risk is not something to be feared or avoided, but something to be embraced and leveraged in the pursuit of greatness. By adopting this mindset and applying the strategies discussed, entrepreneurs can position themselves to create world-changing breakthroughs and achieve extraordinary success.