--:-- David Senra: Scott Cooper was A16Z's first employee. 16 years later, he left Venture Capital to help rethink how the federal government hires, rewards, and retains talent. In this episode, Founders host David Senra sits down with Scott to trace both sides of that story.
--:-- David Senra: Scott takes us back to 2008, when Mark Andreessen and Ben Horowitz were starting a venture firm in the middle of the global financial crisis. His initial mandate was simple. They would invest, and Scott would figure out everything else required to build the firm. That meant everything from buying office furniture and making capital calls from his personal Gmail account to building the services organization that would become a defining part of A16Z.
--:-- David Senra: Scott explains how Michael Ovitz and CAA influenced that model, why A16Z deliberately broke with venture capital's aversion to marketing, and how early investments like Skype helped accelerate the firm's growth. Today, Scott is applying a similar organizational lens to a very different institution, the federal government. As director of the Office of Personnel Management, he's focused on bringing in younger technical talent, rewarding high performers, removing tenure-based barriers to advancement, and giving people more room to take what he calls permission risk.
--:-- David Senra: Because for Scott, whether you're building a venture firm or reforming government, the underlying question is surprisingly similar. Do you have the right people, the right objectives, and the right incentives to get them there? Tell me what it was like starting A16Z with Ben and Mark.
--:-- Scott Kupor: It was interesting. Let me give you the backstory if I can. We sold our last company to Hewlett Packard in 2007, and a bunch of us had basically indentured servitude to HP for 12 to 18 months. Then the summer of 08 — and mind you, you know your history — in March of 08, Bear Stearns disappears. So it's summer of 08, and Mark and Ben are like, "Yeah, we're going to do this." They'd been doing angel investing for a long time with their own money, and they said it would be a lot more fun if we institutionalized this and went out and raised money.
--:-- Scott Kupor: We were literally having this conversation summer of 08, and then September of 08, of course, Lehman goes bankrupt overnight, and the world seems to be coming to an end. So I go home one day to my wife. I'm like, "Good news. I'm going to quit my job at HP, which is probably the most stable job you have, and join these two guys." We were actually living in North Carolina at the time because we had a quieter business out there, and Ben and Mark asked me to move out to run it. So I was already not in California anymore.
--:-- Scott Kupor: It took me a long time. I hemmed and hawed on it. These guys joke to this day — I don't know if it's true or they just like to razz me — that had I agreed to join them sooner, it would have been Andreessen Cooper Horowitz instead of Andreessen Horowitz. I don't know if that's true or not. So my official title was first employee, not actually co-founder of the firm. I finally, around Christmas — I still have these emails, I look back at them — Mark and Ben were like, "Look, you got to get off the dime. You got to figure out what you're doing." And I finally said, "OK, I'm going to go do this." But it took me a long time to figure it out.
--:-- David Senra: What was the job description?
--:-- Scott Kupor: There was no job description. That was part of the problem. I was like, "What are you doing?" I had no idea. It was just the two of them. The job description was actually Mark and Ben saying, "Look, we're going to invest. And you need to figure out everything else you need to build a firm." And I didn't know what that was.
--:-- Scott Kupor: In the early days, it was literally going to Costco to buy furniture and make sure we had food in the office, and then doing things like opening bank accounts. Then we closed the first fund. The way the funds work — your listeners may know this — investors sign up for what's called a commitment. They say, "Great, I'm going to commit $10 million over the life of the fund." And then we call the capital as we go. It's literally called a capital call. You do it when you decide to invest in a company and you actually need the money to make the investment.
--:-- Scott Kupor: My very first day on the job, they're like, "Great, we made an investment in this company. Can you please call capital from our LPs to get the money?" I didn't even have an email yet, so I used my personal Gmail. I send out this notice to like 50 different LPs. I'm like, "Great news. Wire me a million dollars basically, because we need money for this thing." I immediately get an email back from one of our LPs, who I won't name, who's like, "Who the fuck are you? Why are you sending me this email?" Then he calls Mark and Ben. He's like, "Somebody's impersonating you guys. Somebody's literally trying to shake me down for money."
--:-- Scott Kupor: So I finally realized I probably should actually get an A16Z domain and set that up. That was the impetus I needed to actually get an A16Z domain to do stuff. But that's what it was. We were figuring it out as we went. These guys obviously knew what they were doing because they were investing and they knew what their primary job was. For me, the whole goal was, how do we actually create a firm? Most of my initial days were hiring people. Basic stuff like we had to hire finance people so that I wasn't doing stupid things like capital calls from my Gmail account.
--:-- Scott Kupor: But we always had this theory, which has panned out: how do we build a services component to the business? How do we basically create a system where we can take everything an entrepreneur might need and develop concepts of networks and relationships around that? Talent networks, development networks. A lot of the early days was hiring people who were domain experts in those areas so we could actually start to build this team. We went from three of us to probably close to 100 in the first year. Today, I think we have like 700 people or something in the firm. It's evolved over time for sure.
--:-- David Senra: Was Michael Ovitz around A16Z at this time?
--:-- Scott Kupor: He was. Michael had been on our board actually at LoudCloud and Opsware. That's how Mark and Ben knew him, and that's also how I got to know him. He was very, very influential, as you probably know. I'm sure Mark told the story about the founding of the firm. He was very helpful. I would call on him a lot and be like, "This is what we're thinking about doing." And he would recount to me how they did things at CAA.
--:-- Scott Kupor: Essentially what they did, which is what a lot of what A16Z was built on, was disaggregating the job of what back then was the agent. We basically did the same thing for what was the general partner job. In the old days — and we actually pitched this in our first LP meeting — we were basically trying to institutionalize John Doerr. For your listeners who may not remember John Doerr, he was one of the very famous founders of Kleiner Perkins. You go to John and he knew every salesperson, every CFO, every political staffer. John was this ultimate uber-connector for entrepreneurs.
--:-- Scott Kupor: Our basic idea was, could we institutionalize that and not have every GP have to learn all those things? Could we effectively disaggregate that from the GP job and hire professionals who could do talent networks, political networks, sales and marketing, and all the other things that ultimately came to be the platform for A16Z?
--:-- David Senra: Was this around Michael Ovitz's idea of the phalanx? Where before, you might have your agent, but really it's like, no, you have all of CAA. You should tap into every single resource.
--:-- Scott Kupor: Yeah, his theory — and I know you're friends with him, you've had him on. I'm having dinner with him tonight.
--:-- David Senra: OK. Tell Michael I said hello.
--:-- Scott Kupor: I haven't seen him in a while. But look, he'll tell the story much better. My recollection is they start CAA in 1975. The whole industry, which was very similar to how the venture capital industry was, you had an agent. You're Robert Redford, you have an agent. That agent comes to you and says, "Great, I'm going to help you get movie deals, book deals, radio, whatever." The model was basically a one-to-one model: your agent to actor.
--:-- Scott Kupor: What Michael did at CAA was they said, "We're going to maintain the relationship context between agent and actor. But when you show up for a pitch at CAA in 1990, when they had like 90% market share, they would sit around a table and Michael would introduce you as Robert Redford and say, 'Meet my colleague who does nothing other than radio deals. Here's my expert in radio deals. Here's my expert in international. Here's my expert in books.'" You had this whole idea that you were surrounded. Phalanx maybe is the right way to think about it. You have this whole firm as opposed to an individual responsible for your career.
--:-- Scott Kupor: We basically took the same model to the VC world. The VC world was a lot like that — you had a one-to-one relationship with John Doerr, who was fantastic. The problem with that inherently was, number one, it just wasn't scalable. At some point, John has so many board seats that you time out from a GP perspective because you can only take so many board seats on. Number two, you had to get everybody to invest in all that same amount of relationship development work across all these domains. That might have worked in the day John Doerr did it when we basically invested in enterprise software companies. That was essentially the domain of VC.
--:-- Scott Kupor: But if you believe, which I do, Mark's "software ate the world" thesis, as the domains grew, the expertise needed just continued to grow. The fundamental theory that Mark and Ben had was: let's hire GPs who are functional domain experts in the particular areas of investing they want. Then let's surround them with this phalanx of somebody who all they do all day long is manage CFO relationships, CEO relationships, or VPs of engineering. Somebody who all they do is government relations, business development, or other stuff.
--:-- Scott Kupor: Our pitch to an entrepreneur when they came in — we used to do the same, we call it the reverse pitch — an entrepreneur would pitch us, and then we would bring the team in and do the reverse pitch to them: "Hey, look, if you work with Andreessen Horowitz, not only do you get me, Ben Horowitz, as your board member, but you get this entire table of people whose job it is day in and day out to figure out how to institutionalize a set of relationships and networks that will make you successful." That was the key application of what Ovitz did, how Mark and Ben adopted it to the VC world.
--:-- David Senra: Before you left A16Z to go to government, you were there for how many years?
--:-- Scott Kupor: Sixteen and a half years. From '09 until...
--:-- David Senra: What are some of your most memorable stories from the very early days, first year, two, three years?
--:-- Scott Kupor: There were some fun ones. We had a little bit of our Mad Men episode during the firm's early days. In the evenings, we would go sit around and drink bourbon. This was when Mark actually used to drink. I think he doesn't drink anymore.
--:-- David Senra: No, he said that. I think he said the best day was like 12 hours of caffeine followed by six hours of alcohol or something.
--:-- Scott Kupor: Right. Mark would drink a lot of coffee. He always had sushi for lunch. I don't know how well you know Mark, but Mark gets very deep in things. If he gets excited about sushi, he'll eat sushi for every meal for a six-month period at a time. He would do that. Then we would sit around his office at the end of the day and drink. We had to buy a special ice cube maker that actually made the square ice cubes. Our assistant, who was incredibly generous with us, would come in at the end of the day and make sure the ice machine was right. That was fun.
--:-- David Senra: Mad Men style. You're working all day, now you're hanging out.
--:-- Scott Kupor: We didn't drink through the day, so Mad Men style maybe is overrated because nobody was smoking cigarettes. But nighttime, the workday is kind of over, we're going to keep it going and we're going to drink.
--:-- Scott Kupor: In our original office and actually in our new office too, Mark and Ben had these very spacious offices. Mark literally had a bar. Mark had one of the most amazing bourbon and whiskey collections that I've ever seen. He probably still has it. Although he's been generous with my birthdays over time — he sends things to me now since he's less of a drinker. I pick up most of his stuff.
--:-- Scott Kupor: We would sit around and talk. It was the one part of the day where there was no formal agenda. Sometimes we just bullshitted about whatever was going on. Sometimes we were actually talking about an investment or something in the company. It was a time period where you felt like — even though I'd been around Ben and Mark for almost 10 years — they're the kinds of people where if you have time to sit down with them and just shoot the shit outside of work hours, you always learn something. That was always fun. It felt like we had this sense of camaraderie that we were trying to build something.
--:-- Scott Kupor: There was no agenda. Sometimes it would go for 15 minutes and we'd all disappear. Sometimes we'd sit there for an hour. It never turned raucous. We all had families and kids to go home to. It wasn't like we were going from there to a bar somewhere else. It was just a relaxing way to end the day and have some fun or intellectual conversation about stuff we were doing.
--:-- David Senra: What do you think those versions of you three back then would think about the outcome that played out over the next 16, 17 years?
--:-- Scott Kupor: When I did the math for myself and I was trying to convince my wife why in the middle of the global financial crisis we should pick our family up from North Carolina, go back to the Bay Area and do this thing, my math was: "OK, I'm pretty confident they'll raise the first fund." No idea what happens after that. My general calculus was, worst case, these funds take a long time, we'll weather through the financial crisis. These guys had always been very good to me in terms of taking care of me. I was like, "I'll find another job if this thing just doesn't pan out." That was my general back-of-the-envelope calculus.
--:-- Scott Kupor: I never imagined we'd get to where we were, and I didn't imagine we would get there as fast as we did. That was the big thing. Mark's talked about this, but in literally the first couple months after we closed the first fund, we invested in Skype. If you remember, Skype was part of eBay. It was completely neglected inside of eBay. Yet amazingly, it had this incredible network effect. The numbers of subscribers just kept growing and growing.
--:-- Scott Kupor: We joined with Silverlake at the time — if you know Egon Durban, who runs Silverlake. Michael Dell, I just saw him a few nights ago. He speaks very highly of him. Michael Dell was part of that too. It was essentially a buyout. It was a crazy thing to do. We had just gone on the road and told all our investors we're doing early stage venture investing. We hinted that the Skype thing was going, so it wasn't actually a surprise for LPs, but it was clearly very different than the strategy we had laid out.
--:-- Scott Kupor: We did this thing and immediately everybody attacks us: "These guys are crazy. What the hell are they doing? Doing a buyout? It'll never work." There was all kinds of stuff at the time. If you go back and read it, you'll see it. There was this big IP dispute with the original founders, Janus Friis and Niklas Zennström, and eBay about who actually owned the fundamental underlying IP. A bunch of people looked at buying Skype but nobody could get comfortable because they thought, "What if Janus and Niklas come out of the woodwork and say they own it? Do you really own the IP?"
--:-- Scott Kupor: Egon's genius was, let's actually figure out a way to work with these guys. Our bids came together and we actually worked collaboratively with them as a way to moderate this IP question. Everyone's like, "This is crazy." But the beauty of it, literally 18 months later, we sold to Microsoft for four times what we paid. The news cycles were just unbelievable.
--:-- Scott Kupor: Part of this business is momentum against momentum, which is true of so many businesses. We were able to raise our second fund well ahead of what we had planned, in part because the Skype thing just worked out so well. It completely changed the narrative. We also had a company called Nicira, which was in the networking space. Martin Casado, if you know him, he's one of the partners there today. His company got sold to Cisco early on in the first fund. We had these very quick early wins which potentially could have gone the other way, but they didn't. They went in our favor and they dramatically accelerated the progress.
--:-- Scott Kupor: Key to our business model — to do the Michael Ovitz business model — we had to have enough of a fee stream to be able to hire all these other non-investing people. Mark's talked about this before. Mark and Ben were very magnanimous. The two of them took no salary at the beginning of the company because they wanted to take as much of the fees as they could to give it to me to go hire other people to build this thing out. But we needed another fund to continue that build out. The second fund gave us a stacking fee stream that allowed us to say, "OK, now we can actually double down on the strategy."
--:-- Scott Kupor: It was one of these things where we had early success. It was also 2009, middle of the global financial crisis. The Sequoia guys put out that "RIP Good Times" presentation. Have you seen that?
--:-- David Senra: RIP Good Times, right.
--:-- Scott Kupor: It's literally like the world's coming to an end. We're all going to die. Sounds a little bit like today, actually. No one will ever raise any money, put all your money under your mattress. We were this shiny gold object in 2009 when everyone else was hunkered down and worried about their portfolio companies. We had this enormous advantage: we put a shingle out and said, "Hey, we're open for business." Every other venture firm — and rightly so, I understand it — had an enormous number of portfolio companies they were very worried about whether they would survive or not.
--:-- Scott Kupor: So much of that early momentum accrued to our benefit, which enabled us to go raise the second fund, which gave us the funding to build out the services strategy. That really compounded in a way that I don't think we expected. Now, Mark and Ben may tell the story differently, which is they always knew it would be a success. I'm sure I believe that. These guys are entrepreneurs for a reason. Entrepreneurs are going to be self-confident, and they don't wake up thinking they're going to lose. But they're always surprised. There's no way if you build something that they're confident they're going to succeed, but they can never predict the degree to which they do succeed.
--:-- David Senra: It's funny that you say they might tell the story differently. One thing I love talking about with Mark — and it's obvious if you watch the episode he and I did together — is the amount of business history that's in that guy's head. I don't tell people, we don't know what we're going to talk about before we talk. There's not a list of questions. I certainly didn't say anything to him other than we're both psychopathically obsessed with business history, entrepreneurs, and all this other stuff. It's impossible not to have an interesting conversation. But I'm like, "Damn it, I should get Mark on. Instead of telling the history of other businesses, I should get the history of A16Z from him."
--:-- Scott Kupor: It's amazing. The guy is encyclopedic on so many things. That's the other thing he and Ben both were really, really smart about — and I know he talked about this on your show — just double down on this concept of marketing generally in the venture business. It was considered verboten to market in the venture capital business. I don't know why that was. I think it's mostly historical: you didn't need to market because in the old days, capital was scarce. The source of power for venture capital firms in the late 70s, early 70s until probably close to the 2000s was money was scarce. The VCs had the money. The balance of power, the VCs were up here and the entrepreneurs were down here. That was sufficient.
--:-- Scott Kupor: A lot of great firms, many of which still exist today, were incredible in that era. Obviously Sequoia has been and continues to be incredible. All the existing firms you see at the top of the game — Sequoia, Accel, Greylock, even Benchmark, which was a spin out of Merrill Pickard — all these guys lived in that era where nobody marketed. I believe just in part because they didn't have to market. You went to them because they had the money. You needed the money. That was what the marketing was.
--:-- Scott Kupor: When we came along, we didn't know anything and we didn't know anybody. Part of what Mark and Ben rightly said was we came out of the enterprise software business, and in the enterprise software business, just because you have a good product, nobody gives a shit if you don't actually tell them what it is. They're like, "Look, we got to go tell people who we are, what we stand for." So we told the story: "Look, we're going to do things differently. We're going to build this whole service as part of our business. And we're going to market on that basis." Because what we didn't have to market on was the long history of a track record in the business.
--:-- Scott Kupor: To this day, if you go to Sequoia, who's an amazing player in the space, if you go to their conference rooms, you'll see posters of Cisco, Apple, Google, and all these other things. We had none of that. We had Mark and Ben having done their own angel investing, and of course the two of them had had success as entrepreneurs, but we couldn't compete against that. What they rightly did was they said, "If we can't compete on what people are competing on today, we have to change the rules of the road and go compete on something else."
--:-- Scott Kupor: They created this category: the new venture capital firm is going to be not just capital, but it's going to be capital plus plus. It's going to be plus this whole network of people whose job it is to help the entrepreneur. It's in the service of the entrepreneur. That was a huge, major difference that they did, which also played out really well. We got a lot of shit from all the other VCs on Sand Hill Road. They're like, "It's verboten to market and all this other stuff." I remember because I was talking to all of our LPs every day and they're like, "So and so, we heard this from one of your competitors." It was always, "These guys talk a big game and they tell people stuff before they've done it." We're like, "We're doing exactly what any entrepreneur would do. We were trying to create a category. You have to tell the category. You have to actually tell your narrative." And look, we had to deliver on it at the end of the day, which we did.
--:-- Scott Kupor: It was such a unique way to approach the business, not just the foundations of the business model, but the idea that we were going to actually create a marketing strategy around that, that enabled the firm to grow at a pace that I don't think anybody ever anticipated.
--:-- David Senra: So it sounds like at the beginning, you were much more operational.
--:-- David Senra: Did you switch over to investing or were you always more operations?
--:-- Scott Kupor: I did. When I first came, I was like, "What do you want me to do?" And they're like, "Well, we're going to invest and you're going to do everything else." I have to admit, my ego for a little while was kind of hurt. I was like, "OK, well, why can't I also invest?" What I came to realize, particularly when they were doing early stage investing, is I'm not a deep technologist like these guys are. So much of that game, I believe, is your ability to actually understand the technology at a way more granular level. We sit in pitches all day long. If you don't understand databases, for example, you can hear 10 pitches about database companies, and unless you have that depth of knowledge, the honest answer is you have no fucking clue which one is the right one to invest in.
--:-- Scott Kupor: I ultimately assuaged my ego by saying, "OK, that's not my strength. I need to focus on the stuff that I think I can do." What happened over time was we changed the nature of the firm. This is another thing I heard Ben talking about on another podcast not too long ago: we started with a centralized firm, right?
--:-- Scott Kupor: So everything reported to me. We grew that for about 10 years till about 500 people or something. So all of those operating functions reported to me, even the investors essentially reported to me. Mark and Ben didn't really have any direct reports. What they realized over time, which was brilliant, was you can't scale a venture firm in that fashion.
--:-- Scott Kupor: There were two reasons. One was they said, look, we can't have 20 people sitting around when we're doing software in the world and we've got crypto and health care and bio and American Dynamism and all these other things going on. You have to specialize. So we started a process 10 years into the firm. We basically decentralized the firm. We said we're going to have smaller investing teams that are domain specific. So we're going to have a crypto fund that Chris Jason runs, an American Dynamism fund that David Ulevitch runs, an infrastructure fund that Martin runs, and on and on.
--:-- Scott Kupor: Then we said, look, in order to do that right, the needs of the entrepreneurs are different. So all of these answer layer operating services we built, they all also need to feather into these different verticals so that we can do the things that are appropriate for the entrepreneurs. What a gaming entrepreneur needs in terms of business development support is totally different than what a life sciences entrepreneur needs. So we went through this process of disaggregating everything into these structures. We kept a few things centralized that made sense, like legal and finance, core compliance functions. You don't want people doing those separately on their own. Investor relations, from an LP's perspective, they want to interact with Andreessen Horowitz as a firm, not build completely independent relationships.
--:-- Scott Kupor: What that did for me, and Mark and Ben know this, I fought initially because when you go from owning everything, you feel like your domain got a lot smaller. Ben talked about this on a podcast. He said exactly what I felt. Anytime you do a reorg in a company, you get a lot of hurt feelings because by definition, somebody has fewer things than they used to have. It took me a while before my ego got hurt again. I was like, wait a second, I thought I was doing a pretty damn good job managing these things. Mark and Ben said, look, we're not saying you're not doing a good job. We're saying the needs of the business have changed. The needs of the business demand that we do this. So let's go find other ways in which you can add value to the business.
--:-- Scott Kupor: That was when I finally got an opportunity to start doing some investing. I recognized again that I can't do early stage tech investing because I'm just not a domain expert. So we started a later stage fund in 2019. We brought in a guy named David George from General Atlantic. I started working with David and carved out more stuff on the healthcare side. By the time I left for government, I had about 15 companies that I invested in, about 10 of which I was sitting on the board of. But doing stuff where the evaluation of the company was more about the operational successes and the opportunity from one to infinity, as opposed to the zero to one side of investing, which I just didn't feel like I had the right skill set to do.
--:-- David Senra: So you just mentioned it. Then you decide to leave after 16, 17 years. And you take a hard turn into government. Why?
--:-- Scott Kupor: My wife asked me that a lot too. This seems to be a recurring theme with your wife questioning your decision. My wife is way smarter than I am and her job is mostly to question what the hell I'm doing.
--:-- Scott Kupor: The historical reason was I had literally done policy stuff starting in high school. I worked for a group back in high school that used to do healthcare policy research. We were trying to figure out the economics of breast cancer screening. When I went to Stanford, I worked for a professor named Alan Garber, who's actually now the president of Harvard, doing stuff around prostate cancer. Does it make sense to screen large populations of men for prostate cancer? The basic answer is most men die with some form of prostate cancer, very few men die of prostate cancer. Screening broad populations can be problematic because you will catch a lot of stuff that never would have actually had bad outcomes.
--:-- Scott Kupor: When I went to Stanford through law school, I worked for another guy named Jay Bhattacharya, who now runs the NIH. Jay was a researcher at Stanford. I was his grunt. I used to do modeling for him for this policy group. I always had these interests in policy, and then life kind of intervened and I ended up going to the private sector. But at some point in my bucket list, I always thought I'd do policy stuff.
--:-- Scott Kupor: The reason now was really a couple of things. From a personal perspective, it was the right time in my life. My kids were all out of the house. Mark and Ben were incredibly gracious and said, if this is what you want to do, we're happy to support it. They enabled me to transition my stuff off and gave me the freedom to do that. I've been very lucky financially to have the means to take a break from the business.
--:-- Scott Kupor: The second thing was, I really believe that what I learned in venture capital might have some applicability to what I would do in government. The job I have is running the Office of Personnel Management. You can think of us as the HR slash talent agency for the two million, seven million federal employees. We are responsible for making sure we have the right people coming into government and all the policies that govern talent in government.
--:-- David Senra: Why did you think those skills were transferable from your previous job to this one?
--:-- Scott Kupor: What I learned through all the stuff I've done working for Mark and Ben and managing people is something very simple, which will sound so obvious, but I think it's really true. Organizations are pretty simple. It doesn't matter if you're a government organization or a private organization or a not-for-profit. They're all the same. All an organization is, is a collection of people who are lined around a similar set of objectives. It's no more complicated than that.
--:-- Scott Kupor: The question is, do you have the right set of objectives? Do you have the right people? And do you have a set of incentives that track to those objectives so that when people do the things you want them to do, they get rewarded and recognized? Or when they don't do that, do you have a mechanism to either correct that behavior or remove them from the organization?
--:-- Scott Kupor: When I looked at that, I said, okay, I'm going to come to government with a totally different set of objectives, which I agree with. But the fundamental question is, do we have the right people and do we have the right incentive structure to actually enforce the behavior we want? The short answer, particularly on the latter side, is the incentive structure is completely screwed up from my perspective.
--:-- David Senra: Before you move on, let's describe this. Why is the incentive structure completely screwed up from your perspective?
--:-- Scott Kupor: A couple of things. Number one, it is an incredibly legal, regulatory, compliance-related culture. Everything that happens in government is for fear of doing something wrong. We do the same thing we've been doing all along. The idea of innovation is very much difficult to do because the better thing to do is keep doing what you're doing. Don't take risks.
--:-- Scott Kupor: When I first came in, one of my reports said, "Our job is to keep you out of the news, basically." I said, "Well, tell me more about that." They said, "We don't want you to get hauled in front of Congress for doing something they don't want you to do. We don't want you to get a report from the GAO, which is a compliance organization. We don't want the inspector general doing stuff." I said, "OK, so then let me just sit in the room and do nothing. That's easy."
--:-- David Senra: Yeah, like it's pretty easy how to solve that. We will just do nothing.
--:-- Scott Kupor: It's exactly right. That's what I said. I said, "That's not your job. Your job is to help us figure out what can we do that's good. If we have a good reason for doing something and we screw it up, I'm fine getting hauled in front of some congressional committee and explaining that to them. If our process was crappy, that sucks, we got to fix that." But what it means is it does not allow for any innovation.
--:-- Scott Kupor: I come from this crazy world in venture capital where we take obscene amounts of risk, which is fine because you've got upside that potentially is uncapped. That can cover a lot of mistakes. We don't have that in government. Instead, the answer is take zero risk, but that also means no consideration of upside potential for anything.
--:-- Scott Kupor: Part of the incentive structure that we're trying to put in place is what I call "permissioned risk," which is deliberately different from the permissionless risk that exists in Silicon Valley. We've got to be willing to let people take some risk, and that risk needs to be appropriately sized for the organization. If you're in the Department of War and the risk is people die, maybe we ought to have a really low tolerance for that. But what I do and what most people in government do is not life or death. We want to get people their social security checks, their IRS refunds. If it happens plus or minus a day or two from when we expect it, nobody's going to die. But if we could automate a system and make it dead simple for people to get their social security checks or retirement checks, that has massive upside potential. The incentive system has never allowed that.
--:-- David Senra: If there's zero possibility for any kind of innovation, what kind of talent are you going to attract?
--:-- Scott Kupor: Here's the other side of this. You have a performance management system that's also screwed up. I'll give you a story. Everybody gets ranked generally one through five at the end of the year in terms of their employee rating. One is the worst, five is you're knocking the cover off the ball. Three means you're doing what we asked you to do. Every organization needs a lot of people like that.
--:-- Scott Kupor: Historically in government, 99.7% of people are three or above. Literally 0.3% fall below expectations. In a population of 2 million people, it's not even mathematically possible. So we don't do anything on low-end accountability in the government. That's a serious problem. How do I attract and retain great people when I'm busting my ass and you're dialing it in and everyone knows you suck, but nobody actually wants to do anything about it? That's a terrible place for high-performing people to be.
--:-- Scott Kupor: On the other end, for the most senior side of government, which is about 7,000 senior executives, something like 90% of people get ranked a four or a five. In an organization of 7,000 people, it's just not possible. We've gamed the system. If I'm a high performer, there ought to be smaller numbers of people who are high performers, and I ought to proportionally get money for that. When 90% of people get ranked at the top, the bonuses make no sense. I give you a thousand bucks and it has no incentive value, no retentive value.
--:-- Scott Kupor: We've put a rule in place: no more than 40% of the population can be at that top ranking, and 60 plus percent of the compensation pool needs to go to those 40% of the people. Personally, I'd like to do even more than that, but we've got to crawl before we walk and run. If you want to attract great people, you have to hold people accountable on the bottom end and you have to allow for differentiation.
--:-- Scott Kupor: The third thing, just you got me on my soapbox, almost every promotion opportunity in government is gated by tenure. You have to be in the job for a certain period of time, typically at least a one year minimum before I can even consider you for promotion. If I hire some person who's awesome in software development and they knock the cover off the ball within six months, they're stuck in purgatory for six months. And if you promote them, they have to wait another 12 months. We're eliminating stuff like that. We're going to eliminate what's called "time in grade." We want a merit-based culture where you come in and we level you appropriately for what you can do.
--:-- Scott Kupor: One of the programs we have is called TechForce. We're trying to build this elite core of a thousand software engineers, AI experts, data scientists to serve two-year terms in government. We're hiring them at what's called the GS14 level, which is pretty high. We're hiring that way because we are giving them assessments that technically analyze their skillset. They come in and have to do an actual test by a third party that is a code development test. Never before has the government done this. Instead, I would give you a questionnaire and you would self-rate your skills. You would say, "I'm a five," and it's just crazy. There's a whole historical reason for it, a lawsuit about disparate impact on these exams.
--:-- Scott Kupor: The point is, if we have a merit-based culture, we will bring people in at the right level. We will promote them at the right pace. I believe they will want to stay because they will feel like they're actually able to do what they want to do. Until the changes we've made, we've had a system where it's very hard for you to break out of the pack. That's just not amenable to having a high-performance culture.
--:-- David Senra: In the simplest description you can muster, explain why you felt the need to change your entire life, move across the country, and dedicate two, three, four years of your life to doing this. Is it the demographic problem?
--:-- Scott Kupor: Three things motivated me. One is, do we have the right talent? Do we have the right people in the right seats? The answer is clearly no. But I want to be fair. There are a lot of very good people in the federal government. I think a lot of this is a systems incentive problem versus necessarily a talent problem. There is a talent problem, which is we suck at getting early career people into government.
--:-- Scott Kupor: Today, 7% of the federal workforce is under the age of 30. For comparison, 23% of the total U.S. workforce is under the age of 30. By a factor of three to one, the federal government is way under-indexed on early career people. On the other side, 44% of our population is over the age of 50. That compares with about 33% in the total U.S. workforce. If we did nothing else, half of our workforce will retire over the next five or 10 years and we are stuck with nobody to actually do the work. We need something more than zero people to work in the federal government.
--:-- Scott Kupor: Thing number one that motivated me is, can we solve that problem? You solve it in two ways. One, we actually have to go tell a story about why it's interesting to go to government. We're starting on a college tour, which we have never done at OPM. We've never gone out to colleges where the young people are and said, let's go find you. Let's tell you what's compelling. I do these stupid social media things on Instagram and whatnot because I've hired younger people who actually understand how to get a message to people who are thinking of this stuff.
--:-- David Senra: And your message is what? We need young, technically talented people to just do a two-year stint.
--:-- Scott Kupor: Exactly. I had a manager who told me, "You guys suck because our whole pitch to people has been come here and you have lifetime employment." I told her, "That is the worst pitch I've ever heard. There's not a single person under the age of 30 today who is thinking about lifetime employment. And if they are, that's not the kind of self-motivated, driven person we want in the government."
--:-- Scott Kupor: My pitch to people is, come here, do something that's not just good for your country, but good for yourself. Come spend two or three years working on some of the most complex, hardest problems there are. If you're interested in space, go work at NASA. What Jared Isaacman and NASA is doing is awesome. If you want energy stuff, go to the Department of Energy. There's all kinds of cool supercomputer stuff. Work on these hard problems. After that, if you want to go to the private sector, that's amazing. Let's help you go to the private sector.
--:-- Scott Kupor: This TechForce program, in addition to these two-year stints, we've partnered with 40 private companies. All the names you would know: Alphabet, Meta, Databricks, all these guys. During the two years, they're going to do training and career development for these folks. At the end of the two years, we're going to do a massive job fair. If we've done our job right, we have trained these folks so well that every private company will be fawning over these people. It's a little bit like in Israel and the IDF, they have this cyber core where the best, brightest kids go. When they come out, every venture capital firm is falling all over themselves to fund these guys. Every cyber company wants to hire them. That's the kind of thing we want for the federal government. If people love being in government, great. They can stay. But we don't need to ask people to make 30, 40-year commitments.
--:-- David Senra: I think your appealing to interests is way smarter than saying, "Hey, here's the government. You're a citizen. Come try to do something good." That will get some percentage of people, but you're going to get a lot more if it's, "No, this is actually good for you and your country at the same time." That's the line of incentives.
--:-- Scott Kupor: That's exactly right. And while you're here, which comes to the second point, I have to create a high-performance culture for people like that to succeed. If I can convince young, aggressive, career-minded people to come to government, they can't come to the environment that I walked into. You have to sit in a job for a year before I consider you a promotion. I can't hire you at a GS-14 level because you have experience.
--:-- Scott Kupor: I'll tell you a story somebody was reminding me of today. If you follow the DOGE stuff, there's a guy named Big Balls. He actually has a name. His name is Ed. He joined the government. He joined Elon's team. I think he was 19 years old. He went to Northwestern, dropped out as a sophomore. He's one of the most brilliant software developers around. He got motivated by Elon and wanted to do this stuff. He still works for Joe Gebbia now as part of this national design studio, redesigning all the websites for the government.
--:-- Scott Kupor: When I saw an article come out a few months after he joined, there was a quote from a government employee that said, "We would never hire Ed in government because he didn't have a college degree and he didn't have five years of work experience." When I saw that, I wanted to pull my hair out. This guy's awesome. We should hire him because he actually has the skills to help us. Every job description in government, almost all of them, have a college degree requirement. In my mind, that is a proxy for skill that may be indicative of something, but may not. The fact that Ed didn't have a college degree had no bearing on his software engineering skillset, but it would have been used to keep him out of a job. We would have hired him at this low level where we would have paid him like $40,000 a year, which he never would do. He would go to Silicon Valley and get paid 10 times that.
--:-- Scott Kupor: Part of this is, if we're going to get great people, we have to have them walk into a culture that believes in performance, believes in accountability, allows them to progress in the organization, and pays them at the level that's appropriate. We're never going to pay what Silicon Valley does, and that's fine. But we ought to at least level people appropriately so that Ed should not come in at GS5, the most entry level. He should come in at GS14 or 15, the highest levels, because his merit shows he's capable of performing at that level. The system as it existed would not have allowed that to happen. From a policy perspective, we've been fixing all that stuff and saying merit matters. Take a test, take an assessment, and everything else, we shouldn't worry about.
--:-- David Senra: So Big Balls kind of gives you the blueprint. Super talented, dropped out, maybe never would qualify for the set of requirements in federal government, but I heard this person I admire tell a compelling story.
--:-- Scott Kupor: Exactly.
--:-- David Senra: You came in before, during, after DOGE? What was that like?
--:-- Scott Kupor: I came in with the DOGE guys. It was obviously Elon, but guys like Steve Davis was the day-to-day person running it. I had the opportunity to spend a bunch of time with them pre-inauguration. I got nominated the first week of December. December and the first part of January led to inauguration. Then they tell you, until you get through your nomination process, you have to be persona non grata and stop communicating with folks because it can foul your nomination process. We had developed a bunch of plans and ideas for what we would do once the administration turned over, but I wasn't there day one to execute those things.
--:-- David Senra: But you were observing a lot of what was going on.
--:-- Scott Kupor: That's exactly right. They were executing it literally out of my office. My office was ground zero for everything that was happening.
--:-- David Senra: Regardless of controversy over anything that happened there, I'm not even interested in that. I'm interested, are there any ideas that you saw coming out of that that you thought were good and valuable and should be spread further?
--:-- Scott Kupor: Yeah, here's my view overall on it. Part of the issue is, just to give you a sense of the numbers, there were roughly 2.3 million federal civilian employees on day one when the president took office. Today, we're just about 2 million. So we've reduced by close to 300,000 people the size of the federal government, which puts it at the lowest level it's been as a percentage of the workforce since like 1960. You literally have to go back to Clinton-Gore before you have anywhere even close to that. The numbers President Trump has are much higher, but still, that's the last time there was any serious effort.
--:-- Scott Kupor: Part of it is that the entire apparatus of government travels in one direction only: budgets just get bigger every year. Every time an agency wants to do something new, they go back to Congress and say, "Great, you want to do that thing? Give us more headcount to do it." That's been the path of travel for the last 50 years, probably.
--:-- Scott Kupor: So the way I think about what Elon did was, Elon had to come in and change the direction of a 2.3 million-person oil tanker. You can't do gradual, incremental stuff. You have to have a big bang approach. Now, people can argue and debate about his tactics, and it's fair. I think there are fair arguments to have on both sides. But the idea that you had to have someone come in with a mission and actually try to do some serious change — I don't think there's any argument that you could ever make the change we did without effectively a big bang strategy. He got a lot of shit for it. Lots of people got a lot of shit for it. History will write the story about that one.
--:-- Scott Kupor: What we're trying to do now — what I came in for — was, "Great. They did all this work. Now we have to institutionalize this." That's how I think about my role. Elon, Steve Davis, all these guys did an amazing job of breaking glass, basically, saying, "This is how things are going to be." Now we have to do the long-term institutionalization of it, which means we have to go through and say, "Great, what are you actually working on? Tell me the 20 things you're working on. Which ones are really important? Which ones should we not be doing?" We never take stuff off the plate in government. We just keep adding. It's inertia. It's insane.
--:-- David Senra: It's crazy. The story of you overseeing retirement benefits for all — we were on the phone the other day and you told me the story. I just could not believe it. We were talking about the fact that America is full of dynamic, really smart, high-agency young people that don't even know this is a path and an opportunity. Maybe we should just shine a light on this and it'd be beneficial regardless of what you think. If you have the choice between a better functioning government or not, of course you're going to choose that. And it has to do with the people that are in that organization. But then you said, "Do you know about the mine full of 4 million pages of documents?" 400 million. I'm like, "Scott, what the hell are you talking about?"
--:-- Scott Kupor: I know. It's a great story. And credit to Elon, because Elon made this story a real one. OPM manages retirement. Roughly 100,000 to 200,000 people retire every year from government. When you retire, there's a whole process. You have to fill out a bunch of paperwork. It has to go to your HR department who has to confirm it. One of the crazy problems in government is we do not have the canonical history of your government service until you literally decide to retire. Most people are in government for 30-plus years. They go to different agencies over time. Each of those agencies has different HR systems, different payroll systems. So I cannot look at David's record and say, "Hey, you spent five years here and you spent this." Part of the retirement process is we have to create that record.
--:-- Scott Kupor: We're changing that, by the way. One of the other big projects — I'll come back to the mine — is we are consolidating the entire HRIT system in government from 120 different systems into a single system. We're going to go from spending $2 billion a year to $40 million a year. We're literally going to save 95% by getting to a single system. And we will now have the record of David Senra that you can look at every day and see all the stuff.
--:-- Scott Kupor: So, you want to retire. What you did prior to last year was you literally filled out paperwork, put a stamp on it, mailed it to your HR department. They did their stuff, put a stamp on it, mailed it to a payroll department — which is different in the federal government from the HR department. Payroll is a totally separate thing. And then the final piece is they mail it literally to an underground mine in Boyers, Pennsylvania. Nobody has probably ever heard of Boyers, Pennsylvania. It happens to be in Butler County, which is where the president's assassination attempt in July of '24 was. It's what you would expect rural middle America looks like. The federal government happens to be one of the largest employers out there.
--:-- Scott Kupor: People go to work every day in an underground mine that used to be an actual working limestone mine. It was turned into a storage facility. You can't get in there without going through massive security. You go down in the mine and there are literally people driving golf carts around with limestone walls. It shows up here. And then we have individuals — 800 people in my retirement service organization — who take that paper, read the paper, make a bunch of manual calculations, and then give you a retirement check. That process historically takes anywhere from three months at the low end to 12-plus months. Partly because we go back and forth. If you forgot to sign your paper, I literally snail mail it back to you, ask you to sign it, and that introduces another one-month delay.
--:-- Scott Kupor: Elon identified this and rightly so. He's like, "This is insane." He teamed up with a guy named Joe Jebbia — Joe is a co-founder of Airbnb who's now running the Snausher Design Studio — and they started this project at OPM before I got there. Then I picked it up. How do we automate this process? Today, we've fully automated it. Now you never actually send a piece of paper. In fact, we declared the last day of paper in the mine on June 30th. We will never receive another piece of incoming paper into the mine. Everything's online, which it should be in the year 2026. This is not rocket science. You should be able to fill out an online application for your retirement.
--:-- Scott Kupor: As a result, we can reduce the processing time. Today, just with the first iteration of this, by more than 50%. My goal is we're going to be able to reduce this by 90%. Our commitment is if you give us an application that's electronic and healthy, within 15 days you should literally have a full retirement check. It should not be any harder than that.
--:-- Scott Kupor: Now, we have 400 million existing pieces of paper from all the people who retired prior to last year. They call us up sometimes and say, "Hey, my spouse died" or "My child needs to be added to my insurance." If you call our call center today, we send what we call a runner — this is actually a job classification at the mine — who goes into the mine, pulls a file out of an actual physical file cabinet, some of which date to the 1950s, and brings it to the person who adjudicates it. When they're done, they literally return the thing back. We've just purchased two massive digitization machines — scanners that take up an entire room, like a mainframe computer. From this day forward, every single one of those 400 million pieces of paper is going to be digitized. That will allow us to eventually shut down the storage component of the mine, and also dramatically change the nature of what we're doing in terms of servicing people. Our service is not good for people in part because we haven't given the people the stuff at their fingertips to resolve problems. They literally have to wait for somebody to deliver a piece of a file from a file cabinet. It's insane.
--:-- Scott Kupor: There are problems like this all over the government. They're so obvious we should fix them. But this comes back to what we talked about with risk. I didn't discover this, and Elon — to his credit — didn't discover this. You can go back to the 1970s and 1980s and see articles written about how ridiculous this mine is. Nobody has ever tried to solve this because, God forbid, some congressional person is going to say, "Oh, you screwed it up." I was like, "Look, this is ridiculous. We have to fix this." But the incentive structure is so aligned against fixing these things. It's way better to have a shitty service for people and not risk rocking the boat than it is to actually try to convert these things into a modern-day experience. This is the fundamental incentive problem we have to solve.
--:-- David Senra: Which ties to your main mission. If you don't change this incentive structure, you're not going to be able to recruit high-quality, talented people. If we keep — let's play this out 10 years from now. It might not matter to you that 44% of the workforce is 50 or over.
--:-- Scott Kupor: Well, it's going to matter when they're all gone.
--:-- David Senra: And we have nobody to replace them.
--:-- Scott Kupor: Yes, that's exactly right. Everything ties together. If I'm going to go tell people a good story to get them here, when they get here I actually have to have an environment they're excited to work in. If they're excited to do it, then we will actually get modernization because they won't be trapped in the system of not trying new things. We have to accept the fact that we're going to screw some stuff up. Mark always gets excited about this. There's a whole meme in Silicon Valley that Silicon Valley loves failure. Nothing could be farther from the truth. Nobody likes failure. But what Silicon Valley does recognize is, if we're going to innovate, we're not going to get it right all the time. If we're talking about life and death for people, we should be pretty careful we get it right all the time. But if I can make the retirement experience 10 times better and there's some reasonable risk that I fuck it up and it doesn't work, we got to incent people to take that risk. It's crazy that we're not doing that.
--:-- Scott Kupor: Historically, nobody has been willing to do that because the person who was in my seat wanted some other political job coming out of this. If they got a bad congressional hearing, that would stop it. I told the president this when he interviewed me in December. He asked me why I thought I was qualified for the job. I said, "I'll tell you the other reason why I think I'm qualified. There's not some other job I'm trying to get out of this. I've been incredibly blessed and lucky in my private life. I didn't come to this job because I'm competing for some other private sector or public sector job. I don't really care. I'm going to do what I think is the right thing. If I get in trouble, I'm either going to fight it if I screwed up, or if it turns out I did something stupid, fire me. I'm OK with that." There are so many people in these jobs because it is a stepping stone to something else that it prevents them from being willing to take that appropriate level of risk to try to get stuff done. That makes no sense. This is why we have had stasis for so long.
--:-- David Senra: All right. So let's say somebody is listening to this right now. They want to help. They're young. They want to do a few-year stint. Where do they go? How do they get in touch with you?
--:-- Scott Kupor: We have a whole website — believe it or not — earlycareers.gov. That's one place they can go. We're about to be on 40 different college campuses. If they're there, they can show up and see us. They can follow me on X. I'm just @SKupor. OPM is @USOPM. Any of those places. But literally, send me a DM if you're interested. I guarantee you we will figure out a way to make something work.
--:-- David Senra: I love how much you're on this. Thanks for taking the time to talk to us.
--:-- Scott Kupor: Thanks, David. Appreciate it.
