20VC: Palo Alto Networks CEO Nikesh Arora on How to Create and Sustain Competitive Advantage and Defensibility | What Makes Masa Son a Genius Investor of Our Time | How the Best Leaders Communicate and Delegate

Nikesh Arora
When you find a market where nobody wants to build a product, you're either a genius or totally stupid. Competitor advantage lasts for about two to three years. In any enterprise software business, our view on acquisitions is we buy innovation, we buy product, we buy it early, because if you buy later, you're paying multiples for revenue, which I don't believe in. I mean, you look at Mahsa, he's one of the geniuses of our times, where he's one of the very few people in the world. His risk appetite hasn't changed as he ages.

Harry Stebbings
This is 20 vc with me, Harry stabbings and I'm so excited for the show's date. It is not often that you get to welcome the CEO of a 100% billion company to the hot seat. So a big day today and Nikash Arora joins us in the hot seat. Nikash Arora is the CEO of the largest cybersecurity company in the world, Palo Alto Networks, with a market cap of $102 billion. Before joining Palo Alto Networks, Nikash was the president and COO of SoftBank Group.

And before that, Nikash spent ten years at Google as a senior exec and president of Europe, the Middle east and Africa. This is an incredibly wide ranging show, discussing everything from leadership, competitive advantage in business to parenting, and what it takes to have a great marriage. So get the notebooks out. But before we dive into the show today, we're all trying to grow our businesses here. So let's be real for a second.

We all know that your website shouldn't be this static asset. It should be a dynamic part of your strategy that really drives conversions. That's marketing 101. But here's a number for you. 54% of leaders say web updates take too long.

That's over half of you listening right now. And that's where Webflow comes in. Their visual first platform allows you to build, launch and manage web experiences fast. That means you can set ambitious marketing goals and your site can rise to the challenge. Plus, webflow allows your marketing team to scale without relying on engineering, freeing your dev team to focus on more fulfilling work.

Learn why teams like Dropbox, ideo and orange Theory Trust Webflow to achieve their most ambitious goals today@webflow.com. Dot and speaking of incredible products that allows your team to do more, we need to talk about secure frame. Secure frame provides incredible levels of trust to your customers through automation. Secure frame empowers businesses to build trust with customers by simplifying information security and compliance. Through AI and automation, thousands of fast growing businesses, including Nasdaq Angellist, Doodle and Coder trust Secure frame to expedite their compliance journey for global security and privacy standards such as SoC two, ISO 2701, HIPAA, GDPR and more.

Backed by top tier investors and corporations such as Google, Kleiner Perkins. The company is among the Forbes list of top 100 startup employers for 2023 and business insiders list of the 34 most promising AI startups of 2023. Learn more today@secureframe.com. Dot it really is a must. And finally, a company is nothing without its people and thats why you need Remote.com dot Remote is the best choice for companies expanding their global footprint where they dont already have legal entities.

So you can effortlessly hire, manage and pay employees from around the world all from one easy to use self serve platform. Plus you can streamline global employee management and cut HR costs with Remote's free HRI s. And hey, even if you are not looking for full time employees, remote has you covered with contractor management, ensuring compliant contracts and on time payments for global contractors. There's a reason companies like GitLab and DoorDash Trust remote to handle their employees worldwide. Go to remote.com now to get started and use the promo code 20 vc to get 20% off during your first year.

Remote opportunity is wherever you are. You have now arrived at your destination. Nikesh I am so excited for this. I've wanted to do this one for a long time. Thank you so much for joining me today.

Nikesh Arora
Well thank you for having me. Not at all. But I always believe that great entrepreneurs are actually shaped pretty early in their childhoods. When you go back to your childhood, Nikesh, how would your parents have described you? How would your teachers have described a young Nikesh?

That's a good question. My mother's visiting and if you ask. Her she'll tell you she wasn't available for comments. Sadly, she would say I always get my stuff done. Never gave her any trouble.

Wasn't one for rules, but not in a sort of a disruptive way. Just didn't like to follow too many rules. So I kind of did what made sense to me. I got my stuff done on time. I was kind of pretty boring when I was a young kid.

Harry Stebbings
Did you know that you were going to be successful? Some entrepreneurs have an innate feeling that they would be. Did you have that? You know, if you talk to my wife, she'll tell you that the one thing I don't seem to lack is self confidence. So I'm not sure when she's being funny about it or when she's being sort of supportive about it.

Nikesh Arora
But, you know, I put my heart and soul into whatever I do. I tell people that if there is an element of doubt in your head that you're not going to get something done, you're just increasing the probability of it not getting done. So you have to attack or address everything with some degree of conviction. Kind of goes with life, right? You know, I take on everything with a degree of conviction.

Otherwise, you know, why would I take a job like Palo Alto six years ago, right? Why would I set myself in a situation where I did not have any conviction that I was going to do? Well, now you have conviction. You walk in and you give it your heart and soul every day. Where was your conviction most misplaced when you review your career?

Harry Stebbings
Or where did you put it and it was wrongly placed? I don't know if conviction is wrongly placed. I think conviction generally, in hindsight, you can always analyze stuff and say, oh my God, you know, you shouldn't have had that conviction. I think you always take on stuff a, with conviction, two, with the belief that everybody else is going to do their part. So to make sure that the entire thing is going to work is usually conviction starts to not result in outcomes that you want.

Nikesh Arora
When a lot of different people get involved and you have to rely on other people for part of your outcomes that need to happen. And then the question is, can you rally those people in your direction? Situations where I wasn't able to achieve the outcome that I set out to was usually when perhaps I wasn't able to bring everybody along, or perhaps I wasn't able convince other people who had a stake in the outcome that this was the right direction, this is the right thing to do. So there's learning that for me, I had to possibly work harder on getting buy in, or I had to work hard and understanding their perspective. So I think those are situations.

If I were to back and say, oh my God, had I gotten those people along, I'd have gotten to a better outcome or perhaps replaced those people, depending on the right strategy, should have. Been, is the way that you get people convinced? Has that changed over time? Yeah, look, I think we all, we all get to where we get to a certain point in life by being individually excellent and whether it's coming first in class or second in class or topic of class, you're really good and doesn't matter what other people do, what other people think, you prove that you're smarter than people around you. Usually.

That's why you get your job. And typically when you get your first job, you're given an individual task. Whether you're coding or you're doing something else, you're actually given a task and then you say, great, I know what the rules are. I know what it takes to win. When you get a first management job and you sit down and say, wait a minute, this is a different job.

Now. Your task is not to do a great job yourself. Your task is to get the same level of quality from three people who are going to work for you. That's where I think our first challenge comes in, as individuals. As you transition from individual to manager is like, how do I get three people to deliver the greatest outcome that they can deliver?

And perhaps that outcome is going to be different from me. I think it's one of the saddest things, though, in the way that we expect everyone to make that transition from ISC to manager. And actually, there's nothing wrong with being a lifelong IC and being incredible at what you do. This expectation that everyone should scale, I think is a flaw. Oh, I totally look, you know, by the way, organizations have, have understood that and you've realized that many of these smarter organizations have.

IC are individual contributor ladders where you can actually be very successful as an individual contributor. But you know, part of it is that scale requires us to mobilize a lot of people towards a great outcome. That scaling of that requires not just sort of leading from the front and getting people convinced that this is the right thing to do, it's also to inspire them to do their best work. Because if you can get 10,000 people motivated in the right direction, you can achieve a lot bigger sets of things. I don't think it's sad.

It's just the scale of the outcome result that you want that requires mobilizing a lot of people. Speaking of that scale and mobilizing a lot of people, you know, you spent a long time at Google in a very formative period of their hypergrowth profile. What are one or two of your biggest takeaways? Having seen that upfront, having lived it so viscerally, one thing which I learned. At Google, which has stuck with me, and I've tried to implement it at Palo Alto, is that in the end, tech companies live and die by their products.

And very often if you look at the graveyard of tech companies, you realize it's when products started to lose their shine and their luster. Somebody else came up with something better, something faster, something that worked a lot better, met the customer needs. That's when companies, other companies starts to decay and go away. Do you think that's still the case today, given the infinite supply of products? I think that was true a decade ago.

Harry Stebbings
But when discovery becomes the paramount problem today, is it not distribution that separates the winners? It's got to be that. It's always been a yo yo between content and distribution. Whether you take newspapers, remember those days when people talk about this, go on a bicycle and go throw newspapers people's doors. That was distribution.

Nikesh Arora
It didn't matter who was your editor. It mattered which kid was throwing which newspaper at your door. Because if you couldn't find the kid for the new newspaper that you and I decide to publish, it doesn't matter. At that point in time, distribution was king and editors were okay. Today, if you look at the Internet, we can all write on the Internet.

Distribution is no longer a limiting factor. Today, brand and content becomes important, right? Suddenly, like the influencers who have hundreds of millions of people look at Harry with this podcast. So many people want to watch it. His brand is important.

Distribution is not your problem. You don't have to worry about saying, how do I hook up bandwidth to my house? And how do I make sure that everybody in the world who wants to see this can see this? I don't know. If you apply that to AI and you think about a lot of the unbundled, vertically specific AI applications in the application layer, I think they will lose despite being better products because Microsoft has distribution, they will tack on the product, which is the same, maybe 510 percent worse, and win because they have distribution.

Well, it depends. You talk about consumer, application, enterprise. I think an enterprise, there's definitely brute force, and distribution does matter. I think on the consumer front, it's the App Store. Like, you know, why are certain things more successful than the others?

I think you can tell me more than I can tell you. But, you know, why is TikTok more successful? Why did MySpace never take off? Why does Snapchat take off in a certain direction? Distribution is available to everyone.

The question is, how do you create virality? How do you get the momentum from a distribution perspective, turn that into a bigger thing than everything else in your category? Listen, it's the end of the day. I'm freewheeling here. You mentioned TikTok there.

Harry Stebbings
Why they win, in large part that people don't like to admit this. They win because they had the weapon of cash in an infinite supply that they leveraged incredibly well. Forgetting TikTok, you may agree or disagree. You can argue back by all means, more than welcome for that one but to what extent is cash a weapon in company building? As my old boss Eric Schmidt used to say, cash doesn't solve all problems for mankind, but does take care of a lot of them.

Nikesh Arora
So, yes, having a lot of cash in a balance sheet is not a bad thing. There's pros and cons. It's just like people have too much money, they get spoiled. If companies have too much money, they get spoiled, and they're not judicious. And sometimes, you know what, scarcity breeds the best outcomes because you're very judicious about how you spend your money.

Now, in that context, cash has been useful both for enterprise companies and well run consumer companies, for creating distribution and being used at competitive advantage. As long as you understand that you are doing that to get scale and share, and your underlying economics have to work in the long term, right? Your contribution margins have to be right. You're just spending more money acquiring customers, but your contribution margins are positive. I think the danger is when you have businesses which have negative contribution margins, it's like standing at the street corner and giving it $2 in return for a dollar.

That's a dangerous thing to do because eventually you run out of dollars. How do you think about projecting yourself out to a time when that does make sense? There's a lot of sorry for just going so off track, but there's a lot of businesses where, yes, today we may be contribution margin negative, but when you actually project out a year, two years at scale with network effects, we actually have a very different business and margin profile. Well, at the end of the day, the contribution margin that you have for your business is a consequence of both your fixed and variable cost. Now, if you say my fixed costs are going to decline as I get scale, and to get scale, I need to go spend dollars to get to a place where my margins become positive.

I understand if your variable costs are higher than your revenue, we have a problem because your variable costs are not going to go start appreciation, start becoming a smaller percentage of total revenue over time because they are a variable cost. So I think it all depends on what you're selling, what your cost structure is, what your contribution margin profile is going to look like, how much cash is needed to get to the other side, and can you raise that money in that timeframe? Now, there are some amazing businesses. You look at what Uber did. Like Uber had to get scale because you had to build a service, you had to get distribution.

And you need enough consumers to be able to use those services, to be able to go make all the math work. And you know, both Travis and Dara eventually got to a point where they made it work. There are other businesses where it didn't seem to work. And you know, there are some examples I think where they crashed and burned because they kept burning money and then suddenly they ran out of money. Nikesh I don't like competitive markets.

Harry Stebbings
I find your customer acquisition costs are higher, your retention is lower, it takes more in terms of brand spend, it takes better product marketing. It's just that you have less pricing power. That's just shittier consumer. Right. Because they get two really good companies competing for their attention and creating better and better services or product for them.

Sure, I'm an investor. Nikesh yes, I understand that you aren't denying monopolies which can build great business over time and 100 x your outcomes and then you can get out of them, then they can worry about the regulatory issues afterwards. Exactly. Got it. How do you feel about competition?

Nikesh Arora
How do I feel about competition? Look, in the business, we're in the enterprise space. It's inevitable when you find a market where nobody wants to build a product. You're either a genius or totally stupid. You're a genius because you found something nobody's figured out yet.

And eventually as you start winning other people figure out, try and chase you and build product or you're totally stupid because there's no business there. We're just burning good money after that. So in any enterprise business we discover, I think the competitor advantage lasts for about two to three years in any enterprise software business. Question is, can you go ahead and build a moat in that timeframe? Can you get momentum?

Can you break through and get to a place where you sort of cast a wave or other people are not able to cast away. There are examples in the world where certain businesses have caught it early, run that product advantage for two or three years and kept building more advantage over that timeframe where they're always a few years ahead of their competition, which today are multi hundred billion dollar companies and then become too hard to catch in the consumer space. I think to your point that possibly is even a shorter window than two to three years, then that point in time distribution and scale becomes really important. And that's where people have used both virality and some version of lots of cash in the balance sheet to drive the distribution capability because that allows them to get escape velocity. You said momentum there.

Harry Stebbings
I constantly oscillate in my mind whether speed is the most important determinant of success in company building. How do you think about that. So the net of it, I think momentum is important because it's both from an innovation perspective and agility perspective, because in the early days you will have a lot of ideas, you will test a bunch of stuff. The question is, nobody walks out. I'm pretty sure that very rarely is it that your first incarnation of your product as perfect product market fit.

Nikesh Arora
That's very rare. You really, if you look at the largest companies today, they were all created for a different reason, and they ended up getting product market fit for a totally different reason, right? Whether it's a Google or Facebook or YouTube, they all started with different intents or slack in this early generation of being a gaming company. So everybody starts the different intent, they keep innovating, they keep iterating, they start looking at product market fit, and then suddenly you see a spark and say, let me go double down on that spark and move as fast as I can, because I want to collect more and more people around this phenomenon that I'm creating. So yes, I think speed is important, whether in the consumer space or the enterprise space.

But enterprise customers have slightly different standards and expectations because they're highly unlikely to last too long on an experimental set of products. Speaking of the word momentum again and speed, I do think in the investing world of your former shop in Softbank, can I ask you, what are one to two of your biggest takeaways from that? It is such a interesting firm, and Masa is such an incredible figure. I mean, you look at Masa, he's one of the, I think, the geniuses of our times, where he's one of the very few people in the world. His risk appetite hasn't changed as he ages.

Funny, like when we're kids, our parents, an entire life is spent in de risking us, right? Don't walk across the street, hold my hand, or don't get on the bicycle, you don't know how to ride one, or you married, don't get a big mortgage in case you can't afford it. So if you look at how we're all brought up over time, we're all brought up to constantly de risk ourselves. So our risk appetite changes unbeknownst to us. But this is an amazing man.

It doesn't matter. He loses a lot of money in one deal. He stands up the next morning, says, holy shit, I found that next thing is going to be 100 x from here. And he goes out and goes all in, every time. And he's done that multiple times.

And he was the richest man in the world for 80 plus days. And then he lost a lot of money, then went back and he levered everything and bought, you know, Softbank mobile business from Vodafone and turn that billion dollar investment into $40 billion. He's been doing that on a constant basis and look what he's done with arm. And he's taken that. And he was insistent, said to me, I've been wanting to buy that business for 18 years.

This time I'm going to buy it. I myself couldn't understand why he thought it was going to be so valuable. Look, today is $130 billion company. He was right. Not just that, he actually bought a bunch of it back pre IPO because he still believed in it.

You've got to give him high marks for conviction, something we talked about earlier. You got to give him high marks for his risk appetite. And he goes all in. How did you prevent the de risking in yourself? I think compared to Masa, all of us are on the de risked phase compared to what he's able to do and how he's able to execute.

So to him, we're all de risked. What was the hardest part of the role? When you look at it from the outside, respectfully, Nikesh, it just looks like you smashed it. Well done. I'm sure there were internal challenges.

Harry Stebbings
What was the hardest part about adopting the new role? Hardest part was being stupid. Not used to that. I did not understand anything about cyber security. And then if somebody walk in the first day and somebody said, well, firewall measures, it's out traffic and east west traffic, what does that mean?

Nikesh Arora
So within SSL decryption, but when you decrypt the traffic, the inspector, you encrypt it. What is this guy talking about? And they said, well, then sometimes you need a proxy server. Zscaler uses that, we don't use that. So this is just like, every sentence is new.

I didn't go to cybersecurity school. I landed myself a top job in a company that does this for a living. So every morning, every person walks in, has more wisdom, more knowledge, more experience than you. Over time, you start to feel stupid. It's your job to parse through all that stuff and try and make sense of it.

And you don't know when the next sentence comes out of your mouth whether it's a really good question or it's a really stupid question. So, yes, the hardest part is going through the learning process in full public display and then getting those people to do things which you think makes sense, where you might have just said a whole bunch of stupid things right before that. That's kind of a complicated tightrope to navigate. Were you nervous about having conviction in a new field where you didn't have such knowledge? People listen to your words.

Harry Stebbings
You're the CEO, they carry weight. I would be nervous to have opinions because I don't necessarily have the domain expertise. The good news is now I get more knowledge than I used to get. In the first month of the first year, my hit rate has increased. But that's the hardest part, to be willing to expose yourself and the lack of your understanding and then convince people that I do have other skills which are needed to run this place.

Do you think you can only do that because of the success you've had before? No, I don't. I don't think that's true. I think the. It doesn't matter.

Nikesh Arora
The richest people and smartest people, it doesn't matter how smart and how rich you are, you still don't like feeling stupid. I don't think you can do that just because you've been successful, because it's very funny if you look, I was talking to somebody the other day, you're always known by your last act. It doesn't matter what you did before. If you screw something up, people say, oh my, that guy, he just screwed this up. Maybe he was lucky earlier this time he met his maker.

So the past successes help you get the job, but that's okay. Now that stable stakes, you're in the job. The question is, how are you going to keep it? How you going to do amazing at it. And that requires you to go back to basics and start from the ground floor and start to understand what needs to happen.

And that requires a healthy dose of humility. Every morning, on reflection, when you look now and you can say, yes, but I asked Daniel this at Uipath, do you think you're a great CEO? I think the results speak for themselves and people can decide if one is a great CEO or not. So far, what the collective team here has been able to achieve hasn't been done in the cybersecurity industry before. What do you think you did so right that other people hadn't done before that enabled your success?

We looked at the industry and yes, I may not have known the cybersecurity industry, but having, you know, had the privilege of investing next to Masa or having worked at Google for ten years, one has become a student of business. And you sit down and look at, analyze business and say, why is this industry so unique? Why is it that the largest player has 1% market share. That is. That is not the industry structure of any other industry.

Are you talking about winner takes all? Like search, winner took all, Google took all. You take at YouTube, right? You take a look at Netflix or something like that. You are.

You do see in the consumer space, there are a lot of industry sub sectors or winner takes all enterprise. Also, you'll see in some sectors, there are dominant market shares, which are in the double digits, and sometimes the 2030 40% range. What is wrong with this industry structure? Why is it 1%? And you look at the waves of success in this industry, you know, the stars of ten years ago are no longer the stars of today.

So that's kind of very unique in cybersecurity. You sit there and say, what are the unique ingredients of this company versus every other companies out there? And you realize this cybersecurity industry lets innovation happen in the next company that comes around. And they get really good at selling their innovation. They maximize it.

They generate huge amounts of cash flow from the better mousetrap they built ten or 15 years ago. But the next mousetrap is usually built by a different company. So the approach we took was, and I said, look, I'd seen this before when I was at Google. There was generally a feeling that we're really smart, we can build amazing things, and other people aren't there as well, learned from that and said, listen, there are smart people out there. There are 3000 cybersecurity security companies people like you are funding.

These people must be really smart if they're not smart enough to build it ourselves. Let's go find someone who's kicked our ass with a lot less resources. So we bought 19 companies the last five years, right? We had no, prior to back to the dose of humility, somebody else did it better. Let's go bring them on board.

And then the difference we made was we said, we'll let them run our business because they did a really good job out there. The only thing we can give them is more resources, more scale on the distribution front. What we can do is give them better innovation. So let's clear the decks. Let them run as fast as they can.

Give them more resources. Give them distribution. We've done it 19 times. A lot of them have worked, some of them haven't. That's allowed us to at least creep up in market share and get to three to 4%.

Harry Stebbings
Now, for one, is there a danger that you lose your innovation and become a roll up shop? Oh, let's be clear. Palo Alto. In the last five years, we have delivered north of 100 products through a combination of organic and inorganic. The organic innovation we've done the last five years is more than entire history of the company.

Nikesh Arora
We have been spurred in the category of innovation more and more. So because of all these amazing people we've been able to acquire from the outside, our largest best selling product right now, Xim is built in house. We have a large portfolio, but a lot of the good, successful products have been built in house. Some of the ones have been acquired. When you look at the best and the worst acquisitions, if you separate the two, what are the biggest lessons from the best and the worst, and how does that impact your future decision making?

The things where they haven't worked out, I think perhaps one of the early ones didn't work out because we really didn't have enough of a playbook about how we want to execute an acquisition. So we were a bit sloppy. That caused some of the founders to leave. That caused a bit of disarray. You know, we got better about it, learned from it and pulled up our socks and made sure that the next 18 that we did were going to be a lot better than the first one.

I think one of the cases we just called the market wrong. We expected to be a large market. It didn't sort of transpire because our view on acquisitions is we buy innovation, we buy product, we buy it early, because if you buy later, you're paying multiples for revenue, which I don't believe in. Like why would I pay ten times revenue? I'd much rather buy a really great team and an amazing product which has done proof of concept and got 2030 customers which is working for.

So if you buy them later in life, you end up just paying a lot more money for the distribution customer base that they have. So some of the ones we bought early, some of the markets didn't pan out the way we expect them to. So they didn't end up being bigger businesses. So it was more of a perhaps wrong technological bet. But on the flip side, the ones which we did do, where the market panned out the way it was, and I think to some degree we were able to spur the market and grow the market.

Those have done really well for us. Do you believe the best CEO's, the best resource allocators? I still go back to the idea. Most companies are inefficient. I think every company could be a lot more efficient, a lot more effective.

I think the best CEO's are who are able to motivate lots of people to deliver great outcomes in a consistent, coherent manner together. Why do you think most companies are inefficient? You know, I've discovered in the last six years that you sit in your room and you say something, you have a point of view, but you need to make sure that point of view is understood by the person out in the front. I usually say people don't come to work to screw up. Nobody comes to work and say, oh my God, I'm going to do the shittiest job I can possibly do today.

Let me go see how I screw up. So if you believe that people are well intentioned, you've run a rigorous hiring process, you've hired smart people. The question is, why do you not get the greatest outcomes from everyone in the company? Because if you could get the greatest outcomes from 15,000 people, we'd be three times better than we are today. And it boils down to one thing, it is lack of effective communication.

So people are sometimes told the what and not the why. And if we understood the why out on the front line, we do a much better job of innovating, much better job of adapting, much better job of sort of living by the principles of why we're doing this, as opposed to what I need to do. Many companies get into the what. There's a lot of enablement in every company which are saying, you will do this. When somebody calls, pick up the phone, ask them the following three questions.

If they don't go to page two, do this. And this is how you solve the problem. And I understand why people do that. But you have to respect the individual intelligence, make sure you're doing an effective job of communicating the why every day to people. And when things change, you're supposed to make sure everybody knows about it.

So I think one of the things that great leaders do is make sure that everybody understands the principle, everybody understands how they contribute and add value to the overall outcome. Very often people do their work and it's not clear to them how that contributes to the overall whole. I think there's a lot about people, there's a lot about motivating them, a lot of about getting outcomes from them, which make for great companies. And I think great CEO's are great business strategists. It's their job to see around corners.

You have to see two to three years out and see where the wind is blowing, because most of the stuff that you can impact is going to create great outcomes, two to three or so, now to the next six to twelve months. It's challenging for teams when there's change, when there's pivot, when decisions are made and then you have to communicate them and get them on board. Eric Schmidt once said I wish I'd made better decisions or my better decisions faster. Yes, I've heard him say that, yes. How do you think about your decision making process?

Some people like a lot more information to make decisions and if we had per, if you all waited for perfect information it might be too late. So there's always a certain amount of gut, a certain amount of sort of intuition, a certain amount of guesswork involved in making decisions. As I always say, all the easy problems get taken care of before they get to me. All the easy decisions are done. So you know when you're leading an organization you end up with the hardest decisions and they matter.

And normally people come to you because they've agitated over them for weeks or months and they've tried every different thing because most people don't like coming for help, especially to the CEO. So you know they're in a bind when they come to you because they haven't been able to solve it. So then they're expecting you to make it good, quick and thoughtful decision which are all dangerous words. You want to be good, you want to be quick, you want to be thoughtful. So part of our job as leaders is to be able to make good decisions with limited information.

You are going to get some wrong. The question is are you able to identify the wrong decision and go back and correct it course correct it midstream? Are you going to get too invested in your decision and say, and watch it play out longer than it should be. So I think decision making for all of us needs to be quick but also needs to be, we need to be adaptable that if we made the wrong decision we have the ability to check it and be able to go back and have the courage to go back and say, listen, I think I screwed up, it's time to go change course and that didn't work. Nikesh, what's been the best decision you've made as CEO of Palo Alto Networks and what did you learn from that?

You have to put yourself in a learning mindset. You just cannot afford to stop learning because a we're in a very innovative industry. The bad guys are always looking for a new way to come hack you. They don't use the same technique they used yesterday which we figured out. So every morning you wake up there is a new technique they figured out to come after you so you have to be in a constant innovation learning mindset.

Harry Stebbings
What was the worst decision? You know, at Google, I was very stroppy with Eric when they bought Android. And I said, Eric, I used to work in the mobile industry. I thought you hired me. For my experience, we shouldn't be buying Android.

Nikesh Arora
There's 200 oses out there. And Eric turned to me and said, you know what, we respect everybody's opinion, but then we do what makes sense to us. I said, okay, I get it. Android kind of worked out Airpod also, I was very, very enthralled by the idea of doing consumer cybersecurity. And we actually spent a few years trying to build a product and then we realized that that was a bad idea, but we invested resources.

But then, like I said, my management team and I, we collectively sat down and said, shit's not working. What do we do? So we had the courage to shut it down even though we had invested good resources and built something. We said, listen, we cannot go out there with this. It might perpetrate this for some time because we might think that we have to prove something, but we should be able to call a bad decision a bad decision and move on, which we did.

Harry Stebbings
When are you able to call a bad decision a bad decision? When should one read the tedious and say enough is enough? As I said, a part of our jobs as CEO's is to look around corners constantly, look at data and reassess what's going to happen. I tell the story. I was on a flight to India, I was going to speak at my alma mater, about 35,000 people that were graduating.

Nikesh Arora
And I landed in Dubai and I saw all this flutter about Chad, GPT and oh my God, OpenAI has launched this amazing product, which is an AI product. And there were all kinds of rhetoric around it, but I had nothing to do for a few hours. So I tried to figure out how to get access to it, which I was able to, surprisingly, and I started playing with it. And the next 3 hours I rewrote my entire graduation speech and I made it all about how AI is going to be a pivotal moment for every one of us. But the reason I tell you the story is that I use the flight back to think about how does that impact Palo Alto?

And we launched a series of things internally, which were drastic measures which required us to rethink everything. And you play the movie forward, is AI going to make sure that everything's going to be different in ten years or not for sure, 20 for sure. The question is what do I need to be doing today? That I'm the next Amazon and not the next Costco, which is also a great company, but I'm the next Amazon or I'm the next company that is going to be really successful because we were able to adapt to AI effectively. That's a big challenge.

Harry Stebbings
Do you not think we overestimate adoption on a year long period and underestimate it in a decade long period? Yes. I look at a lot of enterprises today, especially in Europe. I think 48% don't know what Slack is, 92 don't know what notion is. I mean, they have no notion of notion.

All right, you passed the dad joke, Nikesh. Thank you very much, Harry, checking that box. But like, the idea that we are all going to adopt, the biggest companies will adopt AI overnight I think is naive. Adoption is one thing. Being able to accelerate your business and use that as a competitive advantage is another thing.

Nikesh Arora
Every brick and mortar business by now has adopted the Internet, but none of them used it to become Amazon. So the question is, is adopting enough or can I use it to change the trajectory of my business? Those are two different questions. I'm sure every company adopted at their pace. Can somebody adopt it well enough that it changes the trajectory of their business, leveraged it and became better, bigger, faster?

Everybody has adopted the Internet, everybody's enabled e commerce, they still have their brick and mortar stores. A bunch of entrepreneurs took that trend and said, you know what, I'm going to change the economics of this business in such a way. I don't need physical stores and I want to be able to create shipping warehouses and go ship this to wherever you want and I can have the everything store that only one company did. So they used the technological shift to build an entire new business, which is worth $3 trillion compared to everybody else who was able to marginally improve their business. That's the question.

Harry Stebbings
What does that mean in terms of how you think about running Palo Alto today? Am I going to apply AI in my business? Yes. Am I going to get more efficient? Yes.

Nikesh Arora
Already we've got people working on it. I'm pretty sure a lot of companies are thinking about it. How do you get leverage from whether you can write code using some of these code tools now, whether you can go to customer support efficiency based on deploying LLM and ingesting data and building a faster sort of knowledge retrieval system. So we're all going to do that and that's going to be good for all of our businesses. And, you know, some companies will do it faster than the others and they will have better margins sooner.

Some keep, some companies will take longer. But the fact that I have better operating margins because I was able to deploy AI internally is not going to make me a better competitor to somebody else, unless maybe I'm using cash generated from it as a better competitor. The question is, can I use the technological change that is out there to build a net new business? So can I build a series of AI security tools that I come out first with and I get disproportionate market share because I was fast? What will be the determinant of whether you're successful with that or not?

I have better AI security tools that I can build, take more market share. Were you nervous about such a change of strategy? I remember when you made the change publicly, it was like, whoa. I think part of what one has to understand is we see the business every day. Now, as I said to you earlier, in the enterprise business there's a two to three year product innovation mode that one has for the most part because if you build something cool, other people want to build it because they know they're losing business because they don't have it.

So if I've got a two or three year Runway, now's the time to capitalize on it and I can't wait around for that to diminish or go away. So took the decision to go and we're moving fast. That's what we're going to do. What do you think is the biggest constraint on your business today, Nikesh? Our biggest constraint is that time we're transitioning our business from having sold to different parts of the organization to actually having to get to the leadership and get them bought into this transformation.

Say, yeah, we get it. It's happened for Salesforce, it happened to workday, it happened to other platform companies. Why shouldn't there be a platform in cybersecurity? Why shouldn't there be a salesforce of cybersecurity? Are you having as much fun as you always did?

I have fun every day. I always joke the US government takes away 50 plus percent of my money in taxes. I don't get to make all my decisions at home here. I get to make 90% of the decisions great. It's wonderful.

Harry Stebbings
Do you actually though, that's kind of what I think there, which is like people think being a CEO is great and in some ways it's a bit like being a politician. Yeah, you do. But I think, I think there's a big difference between CEO's and politicians, it's okay for us to, you know, when we make a decision, if some people are not happy, it's okay for us to make that decision. Because hopefully time will prove that that was a good decision. Time will prove a bad decision.

Nikesh Arora
And you go back and say, sorry, you were right and I was wrong. But politicians don't get that opportunity. You make a decision, people aren't happy. They don't vote for you. The difference is I.

You know, it's very funny. There was a CEO of a company who ran for public office in California, and I had the privilege of having dinner with that person. And Larry. And Larry asked that person, what's the biggest difference between being a CEO and running for office? That person said, I spent my entire life maximizing profit and generating shareholder value where economics was important.

Because in the end, that's the language shareholders understand. And he said, in politics is one person, one vote. People are important. Every person is important. Doesn't matter who they are.

And it's a very different mindset. And if you look at people who've been doing one versus the other for a very long time, you realize that CEO's do not. What did you say earlier? Either people are for the brand or against the brand. There are very few people in the middle.

That doesn't go down well in politics. You don't think I push back on both of those statements? Go ahead. Okay. Number one.

Harry Stebbings
One person, one vote. It's funny. Politicians will spend a lot more time with Bernard Arnaud than they will someone on the street. That has got to do with the fact that, you know, economics are important. Donation.

Nikesh Arora
Donation, yes. Donations count. And you need support and financial support. Of course, but it's still the election. Sure.

You're just going to use that money, try and convince more people, but still. Have to convince each other for the mechanics, the access, the infrastructure that someone can bring is important. It's not confused fundraising with voting, but that's okay. And then, and then I would. You're politician here, though.

Harry Stebbings
And then I would say that, absolutely. Brand. And you are either for or you are against. If I was, you know, an advisor to a political candidate, you have to mean something to someone. Oh, yes, I'm sure you have to.

Nikesh Arora
But I think that's fair. Politician politics is also changing. There used to be a lot of people who would go down the middle for a very long time not to piss somebody off, but now people are deciding where the larger world banks are, deciding to stand for that because that helps them get there. But see, being ce I still hold by my statement, being CEO is nothing like being a politician. Can I ask you on one thing that I do find really hard is like relationships to money.

Harry Stebbings
Actually, when you think about relationships to wealth over time, how has yours changed over time? Because I think it's one which is a challenge, actually. That's a good question. Look, I think I came to this country with no money, so I've been blessed that I've had the opportunity to make some money along the way in my various jobs at Google or Softbank or here. Did growing up with no money kind of shape how you think about money?

Nikesh Arora
For sure. Look, you relish everything that you get to enjoy. We ate meat once a week at home and that's kind of like, oh my God, how does that even work? It works perfectly fine in India. Or, you know, we drank coke when somebody had a party at our house and my parents would let me have it because there was excess coke around in the house.

Coke as in Coca Cola. And do not get confused. It's a very adventurous household. It's only a rural household. Trust me, trust me, far from it.

So I think you enjoy these smaller things in life much more. You know, when you have to go play cricket and one person has a cricket ball and when they say, I gotta go home, they take their cricket ball and go home. Nobody else has one because not many of us could afford having cricket balls. Lying in your house, you start to appreciate, you know, that these things have a meaning. So I think, yes, it does shape how you grow up.

It does teach you the value of money, teach you the value of resources over time. I think at the same time, even if you have more of it, you don't attribute as much value to it beyond a certain point because you know, you can go back to living a much simpler life if you have to, because that's how you grew up. That's how I grew up. 1st 20 plus 25 years of my life. I started in the United States with five guys.

One bathroom in a five bedroom place. I don't know why that place had one bathroom in five bedrooms in Jamaica Plain, right by Roxbury in Boston. That was my first two years and first year and a half in the United States. It's a very strange configuration for a house. I know.

I think it was a large three floor house. I think that that floor was the sort of the entertaining section. They decided not have too many bathrooms. That is one busy bathroom in the morning, huh? It made for some interesting machinations.

Harry Stebbings
I'm gonna be honest. So I think the secret to a romantic relationship is separate bathrooms. Actually, I think this is, like, crucial. In that there was no romantic relationships between those five guys over there. So that's.

Yeah, just to clarify that. And there was no excess Coca Cola and there was no. No romantic relationships in the bathroom. Clarification is important. How do you think about on the money side is one thing for yourself.

That's an easier thing, actually, because it's only yourself that you're actually influencing with children. It's another thing you're influencing another being. When they're brought up in, in a world of wealth, how do you imbue the same hustle, ambition, hunger in children? That's a great question. Look, I have three kids.

Nikesh Arora
I have a 26 year old and younger kids. And part of it actually boils down to how you bring them up and the values you teach them. And my wife does a really good job of making sure that our kids understand the value of money. How, if you don't mind me asking, is hard. They are not allowed to squander resources.

They're not allowed to go ahead and get what they want. They have to make sure they understand the value, but they have to understand everything is not easy to come by. They have to go do tasks to make sure that they earn the right to enjoy the resources that they have. Having said that, there's a quality of life difference. There's a quality of life difference in terms of what I grew up with every day or what my kids grew up with every day.

And that's something you have to accept, that there's a difference in quality of life in the United States and India. You have to understand that there's a basic quality of life that is different for your children than you had for yourself. You've got to make sure you don't over correct. Because I've seen situations where, you know, people are constantly reminding their kids, when I was your age, I didn't have this, I didn't have that. And eventually the kid says, okay, you, I get it, but you're no longer in India.

This, you're no longer of that age. This is my peer group. This is what I'm growing up with. So I've got to live within these parameters. So I think to that extent, I have seen kids of very wealthy people who have a very strong work ethic.

They've tried to prove to themselves, to their family that they can work hard, they can make it on their own. And I've seen kids of very poor people not want to work hard. I think part of it is nature. Part of it is nurture. There are kids who will do things based on how they're brought up, what values that are inspired into them, and what they get inspiration from.

You know, my 26 year old works hard, as hard as I do, or sometimes harder. Has the way that you done fatherhood changed when you compare how you were as a father with your 26 year old to how you are with your younger children? Yeah, I think depends. If you ask my wife to say, probably not a whole lot. If you ask me that first time around, I probably was running around trying to work hard to make sure I was going to make it.

Now I have a little more time on my hands, so I can, I can stop and smell the coffee or I can spend more time with my kids as they're growing up. It's never enough time because to grow up fast. So I think from that perspective, my wife would say that I'm not spending enough time and not doing enough with them, which I should be doing. So I think there's balance. But I'm pretty sure that my kids today are getting a lot more of my time than my older kid got when she was growing up.

Harry Stebbings
Do you believe in balance and being truly great? You know, you see the videos of Elon Musk, who talks about the early days of him building when he lived in the office. His girlfriend would come visit him in the office. You see Sam Altman who say, just like when you want to stop, keep going. Do you believe in the balance?

Nikesh Arora
Look, one believes in the balance, but I think it would be wrong of any one of us to say that in the process of trying to get what we're trying to get done, we don't sacrifice other things while getting there. So, yes. Will I sacrifice something on the family side sometimes? For sure. Will I sacrifice spending time with my friends in return for this?

Yes. Will I end up working nonstop for a bunch of time? Yeah. So I think we all aspire for balance. But you said that earlier, like, you know, there's a bunch of us who are mission driven, trying to get stuff done.

We over index and trying to get stuff done. Is there anything you won't ever sacrifice? Some people are like, I will never sacrifice my 8 hours of sleep. Other people are like, I will never sacrifice my gym session. One has to adapt a little bit all the time.

I will never sacrifice my kids birthdays. I learned that lesson the hard way. My daughter, older daughter, reminded me once that she'd gone back and looked through the pictures and I wasn't present in a few of them. And I think since that day as possibly 14 years ago or 15 years ago, I've never missed her birthday even once. I had to.

Harry Stebbings
Did that upset you? Yes, it did. She showed me the mirror, God bless her, because I remember I flew from Europe one evening at 06:00 p.m. And I made it back here by 730. And I surprised at her dinner, at her birthday dinner party at 830.

Nikesh Arora
But she didn't think I was going to make it, but I did. So yeah, it did make me feel horrible. I've learned Chanel covers up for a lot of sins as well. Just as a tip, I think that's. An and not an or.

Harry Stebbings
Ah, yeah. My mother's the one that I'm covering up for, so it helps with parents. They'll just get bought with Chanel. Final one on. You mentioned your wife several times.

I do just have to ask, and I'm learning from you in so many respects on this. What's the secret to a happy marriage? You've been married now for several years, happily. What is the secret to a happy marriage? I think both of us being able to pursue our passions, giving each other space to do that, respecting what each one is doing, there are no real stereotypes in our household.

Nikesh Arora
I think having a healthy balance between spending time together and being able to do other things, having each other's back, always knowing that the other person is going to be there for you. That's why you go back home. And I met this guy a long time ago on a flight. He was in his seventies and I was possibly in my late twenties. And I don't know, this conversation came up about happiness.

And he said to me, happiness is about waking up in the morning and being excited about going to work. And happiness is finishing a good day of work and being excited about going home. Listen, Nikesh, I want to go into a quick fire with you. I've mined very personal areas and you've been very patient with me in doing so. I'd love to ask a few quick fire.

Harry Stebbings
Is that okay? Sure. Okay. So what have you changed your mind on most in the last twelve months? What have I changed my mind the most in the last twelve months?

Nikesh Arora
You know, I'm constantly reassessing our strategy, constantly reassessing who is right for the role or not in different circumstances. So I keep moving back and forth on certain some of these things. And does that worry flip flopping is difficult? No, constantly reassessing is different from flip flopping you know, many years ago, I used to be an equity analyst, and you'd spend a lot of time, and you show up one morning and say, I think we should buy the stock. And then the afternoon something would happen.

Like, holy shit, I didn't know that was going to happen. And the company told me they wanted to do something like this, and they went and did it. You have to make a decision. You can flip flop, which makes you look bad, or you can double down. You have to reassess.

So you learn early in your life. As an equity analyst said, it's very important to have conviction and not have noise distract you unless there's real signal in what's come up. Noise has the ability to distract you because you just made a big bet. So whilst I go back and forth and reassess, before I act on it, I have to step back and decide if I have enough information. And things have changed substantially for me to change my decision.

So you ask me how many? What have I changed my mind on? You didn't ask me what have I acted on where I changed my mind. So two different things forever. The politician, it's not a politician.

You know, you want to have a honest conversation, I'm giving you an honest answer. What are you most concerned about in the world today? What are you? You know, I try and worry about things I can control. I try not to worry about things I can't control.

There's a lot of things to worry about in the world. You can worry about wars, you can worry about pandemics, you can worry about the economy if you want to. You can worry about elections if you want to. But I think one of the things we all saw in the last five years is the tremendous resilience of humankind. If I told you that we all have to live under closed doors, have to wear a mask, not be able to fly anywhere, not go to public places, not go to the movie theater, not even go to the grocery store, you sit there and say, holy shit, that's going to be horrible.

All kinds of bad things going to happen. People are going to start doing crazy stuff, and the world is going to come to an end. And it didn't. Seven plus billion people around the world somehow adapted on a dime, turned around, did it? We lived an orderly life.

The stock market went up. He said, holy shit, how did that happen? What just happened? And there are all kinds of disaster theories. There are all kinds of doomsday theories out there.

People said, oh, my God, this is the end of the world. He sit there and say, holy shit, none of that happened. We all are happy. We're all alive. Everybody's appreciating each other more.

Now, some people did all kinds of crazy things. So you sit there and say, that's only possible if you believe that we as humankind are tremendous amount of resilience. So I'm pretty sure collectively we'll get through most of these things which we want to worry about right now. If you could choose one person as a board member who you don't have, who would it be? Could be anyone.

Matt McGandi. Well, not anyone. Oh, come on, come on. You went for gang. Of course.

Joey was a great guy. Non violent people, very inspiring. People liked him. Yeah, on that silent protest. He'll really add to your board, won't he?

Harry Stebbings
Yeah. What do you think, Mahatma? He was not a violent guy. Always good to have non violent vote members. I was gonna add Carl Icahn for you, but I guess that's a bit of a different one.

Nikesh Arora
See, the very important thing is when you ask these questions about pick somebody is better to pick people who are not alive. What's the kindest thing that anyone's done for you? I remember I had written to 400 plus alumni of the Northeastern University MBA program. My backup plan was to go to a PhD at Boston College. Because it was 1992.

It's really hard to find a job. I wrote seven letters to fidelity because there were seven alums at fidelity, and one of them wrote on the cv, said it to three of his direct reports saying her cv looks interesting. I got a call from one of those three people. I ended up getting that job. And that was very kind of him.

He didn't have to. He just took a letter, took a look at the CV. He wrote it, sent her to somebody. That was amazing. Ended up getting an interview, ended up getting a job.

It's not bad. Nikesh, why do you want to be in ten years? Oh, I don't plan life. I do not plan life. There's nowhere I want to be in ten years.

I want to wake up happy in the morning, do what I'm doing, enjoy it. I don't go home happy, have a great time with my family. Things will happen. You didn't set a stock price for when I hit this? No, the stock price done amazingly well from when I started.

It's going to result in a reasonably good outcome for me and a lot of people over here. So it doesn't matter. You're keeping score. Stock prices are about keeping score. They're not about making some amount of money.

Harry Stebbings
Thank you for putting up with me, Nikesh. I appreciate that I'm not the easiest person, my mother tells me often, but I think you've really had extended patience today because I've probably been more difficult than normal. I enjoyed it. Thank you for your time Harry. It was fun, I have to say.

It shows like that which just make me feel so lucky to do what I do. Having the chance to learn from a legend of industry like Nikesh is just incredible. I love doing that. If you want to see the full episode, you can check it out on YouTube by searching for 20 vc. That's 20 vc.

But before we leave you today, we're all trying to grow our businesses here. So let's be real for a second. We all know that your website shouldn't be this static asset. It should be a dynamic part of your strategy that really drives conversions. That's marketing 101.

But here's a number for you 54% of leaders say web updates take too long. That's over half of you listening right now. And that's where Webflow comes in. Their visual first platform allows you to build, launch and manage web experiences fast. That means you can set ambitious marketing goals and your site can rise to the challenge.

Plus, Webflow allows your marketing team to scale without relying on engineering, freeing your dev team to focus on more fulfilling work. Learn why teams like Dropbox, ideo and Orange Theory Trust Webflow to achieve their most ambitious goals today@webflow.com. And speaking of incredible products that allows your team to do more, we need to talk about Secureframe. Secureframe provides incredible levels of trust to your customers through automation. Secure frame empowers businesses to build trust with customers by simplifying information security and compliance.

Through AI and automation, thousands of fast growing businesses, including Nasdaq, Angellist, Doodle and Coder trust secure framework to expedite their compliance journey for global security and privacy standards such as SoC two, ISO 2701, Hippa, GDPR and more. Backed by top tier investors and corporations such as Google, Kleiner Perkins, the company is among the Forbes list of top 100 startup employers for 2023 and business insiders list of the 34 most promising AI startups of 2023. Learn more today@secureframe.com. Dot it really is a must. And finally, a company is nothing without its people.

And that's why you need Remote.com dot Remote is the best choice for companies expanding their global footprint where they don't already have legal entities. So you can effortlessly hire, manage and pay employees from around the world, all from one easy to use, self serve platform. Plus, you can streamline global employee management and cut hr costs with Remote's free HRI s. And hey, even if you are not looking for full time employees, Remote has you covered with contractor management, ensuring compliant contracts and on time payments for global contractors. There's a reason companies like GitLab and DoorDash Trust Remote to handle their employees worldwide.

Go to remote.com now to get started and use the promo code 20 vc to get 20% off during your first year. Remote opportunity is wherever you are. As always, I so appreciate all your support and stay tuned for an incredible episode coming this Wednesday.

20VC: Palo Alto Networks CEO Nikesh Arora on How to Create and Sustain Competitive Advantage and Defensibility | What Makes Masa Son a Genius Investor of Our Time | How the Best Leaders Communicate and Delegate

Primary Topic

Episode Summary

Main Takeaways

Episode Chapters

1: Introduction and Background

2: Strategic Leadership

3: Investment Insights

4: Communication and Delegation

Actionable Advice

About This Episode

People

Companies

Books

Guest Name(s):

Content Warnings:

Transcript