Description: John Chambers built Cisco Systems for two decades. It’s now worth $200 billion. Now he is investing his money and his life around his belief in the wholesale digital transformation of the world. His new book is Connecting the Dots: Lessons For Leadership in a Startup World.
The following transcript has been lightly edited and condensed for ease of reading.
Speaker: John Chambers, JC2 Ventures
Interviewer: David Kirkpatrick, Techonomy
(Transcription by RA Fisher Ink)
Kirkpatrick: —say to start the morning and I want to go straight into talking to John Chambers. So let’s move over here, John. Come on stage with me.
Chambers: Good to see you.
Kirkpatrick: Thank you, John. Those of you who were here last year will remember John’s spectacular energy. I don’t know if he’s going to run out into the audience this year.
Chambers: It depends on the question.
Kirkpatrick: But if he does, I would welcome it.
Chambers: All right.
Kirkpatrick: Honestly, John is an icon and somebody who has been an advisor to Techonomy, and to me, and I think a role model for business and for society in terms of how big he thinks and obviously the scale of his success when he was running Cisco for so many years. But John, I wanted to start by asking, you know, for the last few years, you’ve been talking about several things, and particularly France and India as models for how a nation ought to think about the state of the economy and the world we’re moving into, and also the critical role of startups. You’ve also published a great book—wait, what’s the title again?
Chambers: Connecting the Dots.
Kirkpatrick: Connecting the Dots.
Chambers: It made a tremendous impression on you.
Kirkpatrick: The book did, the title I forgot. I’m sorry.
Chambers: I’m having fun with you, David.
Kirkpatrick: Book titles are a challenge.
Chambers: No, I’m teasing you. It is tough.
Kirkpatrick: No, we always—
Chambers: I respect authors now more than ever, much harder than you ever dreamed of writing a book.
Kirkpatrick: Well, congratulations on that—
Kirkpatrick: —because it isn’t easy. And we’ll get to the book specifically in a minute. But what are you thinking about now? What is your main focus now?
Chambers: Well you know, I always believed that whenever you start off a discussion, you want to go back to what did you say the year before and how accurate was it or not. Four years ago, you and I felt that India would be the next big thing and candidly, it was based upon leadership, Prime Minister Modi coming into his role, and a vision and strategy for the country. And at that time we said it would outpace China in terms of its economic growth and become the top, not emerging market in the world, but moving much faster to developed country than others thought. And that happened. Their economy is currently growing at about 8%. I think it is very possible they grow at 10%. They are outpacing the rest of the world. That means the per capita income, if they do it right in terms of both inclusion of geography and gender capability doubles every seven years. And Modi’s made tremendous progress on it, both on ease of doing business and going from like 142 in the world to 77 this last year—
Kirkpatrick: With ease of doing business?
Chambers: Ease of doing business. He’s knocking down the barriers, and his courage has been unbelievable. Demonetization and goods and sales, services, stocks. So he’s made the tough decisions, and I think he’s a role model for other parts of the world and he’s seeing the economic benefits of that and he took the risks that were needed.
Kirkpatrick: India was not known for a lack of regulation.
Chambers: No, they were not and they were absolutely a slow follower. And I bet on India too early 15 years ago with a second world headquarters there. Great for talent, by the way, with engineers. Their IT organizations are amazing. But you didn’t see quite the government alignment with business to be able to get economic growth going where it is. He’s done an amazing job.
France, that we talked about last year, that was a risky projection, but it wasn’t a projection based upon just a gut feel. You saw the young people in France changing and when people said, “John, come over and see this,” I said, “No, I’ll come over and bring my wife. We’ll have a romantic weekend or go out to dinner with you, but that’s the last place in the world you want to invest.” And as anybody that’s been following that knows, in the last three years, they’ve moved from the slowest startup engine in Europe, pretty flat at about 130 companies venture capital-backed per year to 743 this last year. So they’re crushing it. Macron, in my opinion, is the best leader in Europe and he’s making the tough decisions like Modi did and catching periodic political heat because of tough decisions, but I think he’s really the example for Europe and for the world.
Then two years ago, we started talking about startups and the engine for the US economic growth and inclusion and so doing 16 startups for me is fun.
Oh, it is fun. It’s like having grandkids. They think you’re smart—
Kirkpatrick: Just think, if everyone in this room did 16 startups, we’d really create a lot of jobs, right?
Chambers: Well, that’s what we’ve got to do. But it’s like having grandkids. You get to give them advice, they think you’re smart, I’m strategic partners with them, I’m not a VC, probably talk to them four to five times a week on average—
Chambers: —and it is just so exciting giving them advice. And for those of you who have been CEOs, it’s also nice on Friday night, I give them the advice and then I go have a bourbon and ginger ale and let them worry about it over the weekend.
And it’s different environment there. But most recently, as you talk about creating an inclusive startup economy in France and an inclusive startup economy in India, as we said last year, we’re the only country in the world without a digitization plan nationally in the startup plan. And so, trying to make a small end roads on that, I’ve deliberately spread the majority of my investments across multiple states and this weekend, I was honored to focus with West Virginia University on a vision of changing this state. And our state, it’s my home state, used to be the chemical center of the world, the coal center of the world—more millionaires in West Virginia than all the United Kingdom. Our capital had 78,000 people. Today it only has 52,000 people.
And the only core thing you can do is have to go where the future is and it’s not the chemical industry is never going to return, or manufacturing is not going to return in the format. Coal mining actually might mine more coal, but with less employees. It’s going to be a startup world.
So we outlined a vision for the state in conjunction with the governor and the speaker of the house and the president of the senate and both national senators, Joe Manchin the Democrat, and Shelley Moore the Republican, but mainly it’s Gordon Gee, who’s the president of the university, who’s been at Brown and Vanderbilt and Ohio State, and this is his last hoorah. He really wants to change the state and I’m going to be his wingman on how to do that and we’re going to cross knocking down the silos in the school and getting the med school to work with the engineering with the business school—
Kirkpatrick: Wow, collaboration, there you go.
Chambers: Yes, amazing. Go figure. And in putting the head of the dean of the business school responsible for startups across the whole university and say how do you change that, bring in venture capital, etcetera. So you know me, it’s a very innovative playbook, we hope, that will be across multiple segments of it and if West Virginia can be the model for the rest of the nation, much like was France was for Europe and India was for Asia, that would be pretty exciting and maybe we can get job creation, gender inclusion, geographic inclusion, back to the heartland of America, the southeast.
Kirkpatrick: So the formula though, in order to encourage startups and to help the state, you’re going to essentially first reform the university, in effect, and have it be much more collaborative, multidisciplinary, with the idea that that directly ties to the potentiality of startups in the region?
Chambers: Yes, it’s a pretty good summary. To that I would add much more technology oriented. Everybody talks about STEM. To me, you ought to teach technology and you ought to teach artificial intelligence and entrepreneurship. Those are the three cornerstones, I think, for the future. And so you’re going to see us focus on artificial intelligence, cyber security, you’re going to focus about collaboration across of it. Then how does technology every single job in the future as we all know is going to occur. And we also have to be realistic. Technology is going to destroy 20–40% of the jobs that exist today. So if we don’t get a startup engine going at a whole different pace, we’re going to have a digital divide, makes today look small.
Kirkpatrick: Do you think of what you’re doing in West Virginia as something as a template for what could happen in the United States more broadly?
Chambers: Exactly, and David, you know I have a lot of weaknesses and we can cover that another time, but—
My wife could list them forever. But the reason we did 180 acquisitions at Cisco is we had a replicable playbook that moved with tremendous speed. We hit probably two out of three hit or exceeded what we told our board would do. We did 10 of them for over a billion dollars. We could get a call on Thursday night from the NASDAQ and say, “John, you’re an idiot. There’s a company that you should know that’s going to be bought by your competitors and this is public knowledge and you’re not even in there.” And I was embarrassed and I turned down. I said, “What’s the name of the company?” I called my business development guy. He didn’t know it either. The good news, we met with him the next morning. He called me in an hour and half and said, “John, get over here.” By lunch, I had a handshake for $3.2 billion dollar acquisition, announced on Monday, tremendous success for us. But that’s all about an innovation playbook. And that truly—
Kirkpatrick: Because you had the template to do it already in place.
Chambers: And so it’s like a sports team. Everybody knows what role they play, etcetera. Whether it’s in acquisitions, digitization—hopefully in the startups, I have a similar template that we follow and on states becoming startup states, we’re going to see if we develop a similar template. And you’ve got to realize if you keep running the same plays and expect a different result, that’s insanity. So if you’re going to do it, you have to do it more of a using my words, and architectural more complex saying how do these pieces come together. Whether it’s breaking down the silos in the university, using your word collaboration. But more important, enforcing how you lay technology across it and how you begin to generate a number of startups and how do you create your early examples and put them up on a pedestal and still realize most of them will fail.
Kirkpatrick: One of the other themes of the whole event is this idea of how business and government can work together. I think I forgot to mention that just now but—
Kirkpatrick: That is part of this, but you didn’t mention local big business or to the degree there is. I mean is that going to work in West Virginia and is that what we really need to do as part of the template?
Chambers: You’ve asked a series of questions. If I break them down in sequence, for me—and I don’t think I’m going to be wrong on this one, this I think will be one of the easier forecasts for the future—is large companies in total across the US, across Europe, across Asia, will probably not add headcount over the next decade. I think artificial intelligence, automation everywhere, digitization is going to completely destroy business models. Forty percent of them won’t exist in a decade. But even those companies, if you’re not growing them faster than 10% a year, by the time you build in the capabilities of productivity increases and returning something to your shareholders and something to your employees, it means you’re not going to add headcount.
So I think in total, the big companies will probably not add headcount so it’s a zero sum game. You might get one to move from Ohio to West Virginia or New York to Silicon Valley. I think all the job creation will come out of the smaller companies and the startups. That’s why you’ve got to get this engine going at a much faster pace than we are today. We’re failing America right now and we’re falling behind very fast.
To the third element of your question indirectly, most innovation, in my opinion, will come from the startups. Now some people will say that’s been true for the last couple decades. Respectfully, I disagree. I think it’s been pretty evenly divided. The large companies could attract the best and the brightest out of a Stanford or MIT or other great schools or from individual state schools that take the top 5% and do well. Today, when you go to the schools, it doesn’t matter if it’s Stanford or MIT or Polytechnique in France or the IIT universities in India, all of which I’ve been to in the last two months, and you ask the students, “Do you want to go to work for the government or do you want to go work for the large companies, or you want to go work for startups?” 80–90% of the room raises their hand on the startups.
And I was just at a Young Turks session in India last week and you see the best and brightest going there. Now the implications for business is huge here because if you believe that a large part of the creativity is going to go wherever the best and the brightest go, they’re going to go to startups, all of a sudden the big companies to be innovative, and the CEOs, I think, instinctively get this, most of them. They’re going to have to work with startups in the way they’ve never done before, even though they instinctively know the majority of startups will fail.
Kirkpatrick: We had a session yesterday with GE and J&J talking about how they are working so hard on that and getting some great successes.
Chambers: They really are, but just like doing acquisitions, partnering with a startup is going to have to be a playbook both way. The big companies either over-love you or they under-love or they have politics that silo you etcetera. And you can just absorb a huge amount of the resource of the startup without getting and revenue or the breakaway. So how do you align and how do big companies learn to work with startups more effectively? And how do the startups have a playbook for how they work with the big companies more effectively? That’s going to be an art and it’s something that I think will be interesting to see who masters that from the big companies and from the startups.
Kirkpatrick: It’s interesting because when we talk about how government and businesses need to work together in the United States—
Kirkpatrick: I know even I, and I think many others, the mental model tends to be big companies. But you’re actually saying we need a different mental model that the way business and government need to work together is at a startup level. Exactly, that’s sort of to create startups but also for startups energy to come back into government for the universities to have these closer ties. It’s a little bit of a pretty significant mind shift I’d say.
Chambers: I think it’s a huge mind shift. First of all, I used to believe, and I you and I have discussed this over the last couple decades, that I used to think business working with government was a waste of time and the last thing you wanted to do was get to close to government. I was plain wrong because with the speed of the internet era and Clinton clearly echoed that in there and he generated and I was on stage with him at the White House when we announced the Internet era, I was scared to death, David. But I was the spokesperson because I understood the internet would change the way the world works, lives, learns, and plays and we weren’t a router company and he grasped the implications of it.
He understood what it meant for job creation, GDP growth, inclusive household income, and we all saw the numbers, 22.5 million jobs created in eight years, 34% growth in the economy, 24% growth in the average American household income. And so the ability of government to grasp that, and the same things going to occur in digitization except it’s going to move faster and the breakage could be much worse, is going to occur. Government and business must work together.
But I think traditionally, and I head the US-India Strategic Partnership Forum, which was large companies in America talking to large companies in India, advising Prime Minister Modi and the American government on how to work closely together. But we’ve recently started to add a lot of startups for that because I think the startups are the engine for where this is going to occur. And again, a little bit critical of our own government here, we have a bunch of transactions in how do we make business easier to do in the US, and tremendous accolades to the government for getting tax policy, finally after 20 years of lobbying for it, cracked it, and repatriation occurring. But the focus needs to be more in the startups. That’s where the creativity, job creation is going to occur, and 75% plus of the headcount that companies add have historically been once they go PO and go public.
So if we don’t get this engine going much faster, and you’re going to tell me, “But John, we’re doing 250 IPOs this year.” And I’m going to say, “But David, it was 400 to 700 during the 1990s, the population is bigger. We need a whole different engine.
Kirkpatrick: Well also I was going to mention we had Michael Kratsios from the White House on stage yesterday who said things that were very related to what you are saying but I think the audience response was it’s not enough and it doesn’t factor in a lot of key elements, particularly the immigration policy that’s really effecting, seriously some of the startups that are doing fantastic things. I want to go to the audience before—
Chambers: Can I make one comment on immigration then we go to the audience?
Kirkpatrick: Yes, please. Please. Okay.
Chambers: It’s fascinating. All of you know the numbers. Forty percent of the Fortune 500 were started by immigrants on the children of immigrants. If you look at the startups today, probably out of the successful ones, that number is probably over 60%. And out of the 16 that I’m very close to and another 40 that I’m coaching, I would say in excess of 70% are first or second generation to our country.
So as we bring in talent, which by the way, both the democrats and republicans agree with, they’re just holding us hostage to the total immigration program. As you bring in talent like that, you’re going to have a lot more startups going which means a lot more jobs for new Americans and a lot more jobs for the immigrations that I think makes our country great.
Kirkpatrick: If you do it. But I mean at the moment, that’s a little bit sort of gridlocked it sort of seems.
Chambers: It sure is.
Kirkpatrick: Anyway, I do want to get to the audience.
Kirkpatrick: Because I know they have great questions and comments for you. Can we get a little bit of light? Okay.
Kirkpatrick: Okay. Are the mics ready to go? Okay, whose got it? Okay, we’re good. Right over here. Get a mic to this person and the person next to them next
Kirkpatrick: So where’s the—
Chambers: Now, lesson learned, we talked about it last year, if your first question comes from the back, that’s usually somebody that came in a little bit late, liable to ask a tough question, going to dart out after the question. You go back, you put your arm around him, you wear him down.
Kirkpatrick: Particularly, Michael. I think it was Michael last year too.
Audience 1: But this is what you did last year, too.
Chambers: Yes, I know, and I’ve got a firm hold on your neck.
So it’s hard to ask as tough a question, so that’s one of the lessons learned. And I always teach. Everything I do is about teaching.
Kirkpatrick: I’m going to come too.
Chambers: All right. So David and I are putting the pressure on you. Go ahead.
Audience 1: So the number of startups and new small businesses in this country dropped significant about a dozen years ago.
Audience 1: And has stayed down. Why do you think that happened and do you see that changing?
Chambers: Yes. So the numbers are right. It started to decline dramatically about a dozen years ago. We hit 20 year low about two and half years ago. We’re excited that the IPOs have gone from 170 to maybe 240 this year. Why did it happen? I think we no longer had a policy on it. We made difficult, so difficult, for startups to do business. We teased before about it.
It’s like cooking frogs in a pot. You turn up the temperature so slowly, you roast them and you cook them and they don’t jump out. And that’s what we’re doing to small businesses in this country. The regulatory issue is a disaster. We don’t have polices in place to do it. Our education system is broken in K–12. We should be keeping entrepreneurism in the third, fourth, and fifth grade and we should be teaching concepts of AI in a fun way to learn, not just for the, quote, the “geeky” guys over to the side because that’s where we lose our women and a lot of diversity.
And so we need to make this a national policy. When this country does something, we can put a person on the moon. Yet there has not been the appetite to change this and we’re going to create a digital divide. If you would have seen my home state and what it was like walking down the roads this weekend. Tremendous pride. And they just want people that will help us be successful. Nobody wants a handout, but if you look at the offices that are shut down, you look at the young people leading the state, that’s what happening. We’re hollowing out America.
And so we’ve got to get this thing going again and the answer is very simple. With national policy, we need to train entrepreneurism in school, we need to make technology really fun to learn regardless of gender or diversity issues.
Kirkpatrick: That sounds clear but not simple, if you ask me.
Chambers: No, but it’s a fun thing. It’s not real complex. We make it too complex. Why do we do 180 acquisitions better than anybody else, and SafricaT still teaches, you know, in the Cisco study at Stanford, on how do we do it. Same vision strategy. Only acquire people that have a similar culture. It’s got to align. You’ve got to be able to keep the people. Get the next generation product out. You’ve got to be able to really bring the geographic center city to it.
Same thing for startups. Basically have the same check and balance in terms of what you need to do. So we do need a complex program, but you need to make it relatively simple to understand and then empower people to do it.
Kirkpatrick: Pass the mic next door.
Chambers: If France can do it, give me a break.
I mean if France can do it, we’re sitting here going, “I can understand Israel. We all love Israel, they’re the startup nation.” India, you could say, “Well, they’re just engineers by background,” 1.3 billion people and 600,000 engineers a year. But France, now what I’m saying to us is America needs to get its act together.
Kirkpatrick: Okay, great. Identify yourself.
Audience 2: Hello. I’m Olivia. I’m a journalist at the Telegraph Newspaper. We talked about ethics in Silicon Valley.
Audience 2: You know, engaging more in ethical issues and worrying about its ethical position. Do you get the sense that new startups that you’re working with now are kind of thinking harder about those ethical questions, be it kind of addiction or the impacts they’re having on society than they might have done sort of 10–15 years ago.
Kirkpatrick: Oh, great question.
Chambers: So the fun thing about no longer being associated with a company other than my own, I can say whatever I want and not worry about the implications. I think there is a huge tug of war going on in Silicon Valley. Is tech for good or tech for bad? I know you all discussed it last night. I don’t think it’s predetermined which way it’s going to go. If you watched during the 1990s and the first decade of 2000, we worked with government very effectively. With the internet, it had the same exposures that social media has today and yet we were able to work through the issues and there was a deep inbred, given understanding that we owed an obligation to give back. Cisco trained seven million students on network academies, we won every corporate social award there was to win. We got along with the democrats and republicans. Nancy Pelosi is a very good friend. Kevin McCarthy is a very good friend.
I think we have to go back to the basics. Are we really going to change the world in a very positive way and if so, we have to walk the talk and it has to be in to the culture. For my startups, the fun thing is, it’s like acquisitions. I only look at startups that have a chance to be number one or number two in their industry that are right in front of an inflection point with a world class wicked CEO that she or he wants to lead in. But then I look at the culture. Do they really want to have a good culture, a culture of diversity? I’m challenging all my startups to interview at least one woman for every open position. It’s amazing once you do that. You change the numbers by 10% within a decade. I’m sorry, within a year.
Our numbers have been stuck, as you all know for what, 10 years at about 25% intact. So I think it’s a tug of war. I only select startups who the CEO wants to build a strong culture and most startups don’t think about culture very long. In fact many of them don’t even write it down. But culture to me is as important as vision and strategy. So yes, I do on the startups. Yes, I believe it’s a tug of war and I think the outcome is still not knowing. When you travel in the mid-part of this country or the southeast, they don’t view Silicon Valley in the way they did 10 years ago at all. We’re viewed as much negative more than positive.
Kirkpatrick: Wow. May I have that? Thank you. All right. Who else has the nerve to ask one? Okay, Brooks—
Kirkpatrick: Brooks has—I happen to know she has a lot of them.
Chambers: Now the front row is a lot more safe. This way we’ve got you kind of cornered, etcetera. All right, go ahead. No pressure.
Audience 3: Great meeting you. So—
Kirkpatrick: Identify yourself, please.
Audience 3: I’m Brooks Bell. I run an experimentation consultancy that I started fifteen years ago. So as an entrepreneur, I’m jealous of all the startups who get to work with you, what is the one piece of advice that you find yourself consistently give to your startup CEOs?
Chambers: Well, the first piece is the classic one because you’ve got to pull them close to you and show that you add value in how you do it. So you’re job as a CEO is vision and strategy for your company. It is to develop, recruit, retain, and change the leadership team, and fortunately, including probably one or two founders during the first couple years. It is then culture which most of them don’t get back to the great question in the back there. Culture—you never have a great company without a great culture. You may like the culture at a Cisco or an Oracle or a Microsoft or a Walmart or not, but you always have strong cultures when you have it.
And then communications, as you all know today, is so much more important with social media. You miss a social media move, like United Airlines did by five minutes, and it’s a billion dollars damage to you. So how do you listen in an entirely different way? Then the advice I give them is be bold and take more risks than you think. Just don’t make the same mistakes twice. You’ve got to know what you know and know what you don’t, because so many of the startups are wicked smart people, all from with an engineering background. And how do you think they do when they recruit ahead of sales? Just ask them. If they try to recruit a business development who thinks like his engineer, and that’s not what a sales lead is. So know what you know, know what you don’t and either get advisors around you to help you through that, etcetera. And then have the courage to ask for people to give advice.
And it’s amazing, I had a lot of advisors over the years, some very famous. From the Henry Kissingers to Shimon Peres to Bill Clinton, George Busch, etcetera. Thomas Freeman out of the New York Times. David, I’ll call him up regularly and ask. But also, a lot of your advisors are really technical people that kind of give you the background. So I’d develop advisors as well.
Audience 3: And culture. Is culture just about core values or what are the core think drivers of culture? Core values, diversity—what else?
Chambers: I think part of it is core values, but I’ll also start with a mission statement in what you’re trying to accomplish. And it’s amazing how many companies start to make moves as a startup or big companies and they don’t even understand their end gain. You define your end gain before you make your first move. You write the press release for what you want to look like three and five and seven years out. You then say what is your mission.
At Cisco, our mission wasn’t to build routers and sell them to the Internet. Our mission was to change the world works, lives, learns, and plays. Everybody said, “John, that’s nice marketing, but not true.” I disagree. And so have a mission statement that really challenges you. Then, what are they key values in it? Are you truly customer driven or not? Don’t kid yourself if you are or not. Do you treat your employees like family or are they assets to you, you move around just like financial issues? Do you really make innovation happen?
And one of the key things that companies get in trouble on, just do the right thing. Write it down and practice it. But you, as the CEO, you’ve got to walk the talk. Because people very quickly see do you walk the talk or not. Have the courage to make mistakes. I’ve made a lot of them and this will shock you. I wish I had dreamed bigger and I wish I had made more mistakes, and I will in these startups.
Kirkpatrick: Thank you, John. Unfortunately, we probably don’t have time for more questions, but John is literally the only big company CEO who used to come to Fortune when I was there. You know, we’d sit and listen to him for like half an hour, then he’d say, “No, no. What do you think we should do?”
Kirkpatrick: He would say that to us. And it’s like, wow. We’re just journalists up here.
Chambers: You should have seen it when I asked the French press.
Macron was on stage with me. He was economic minister at that time and we were trying to explain why we thought France could become the innovation engine for Europe and the startup capital for Europe. The questions were really tough. There were about 400 in the audience. And finally, I said, “Emmanuel, let me ask a question to the French press” and he looked at me and I said, “How many of you believe that France can do this?” And I would have been ecstatic if 10% of the room raised their hand. You know what happened? Eighty percent of the room raised their hand.
Kirkpatrick: And Macron was surprised?
Chambers: I was surprised.
Chambers: Both of us were, but the nation was ready to change and the media got it and they were going to pull a key role. You learn more when you ask questions and you listen, David.
Kirkpatrick: Well John, your style is pretty effective and I want to make this annual thing. Can we like try to do this again next year?
Chambers: I would be honored. I would David.
Kirkpatrick: Okay, John. Thank you so much.
Chambers: He’s getting pretty good at sales. Thank you very much.