Author, entrepreneur, executive, public interest lawyer, community development worker, Randy Komisar has worn many hats. A "virtual CEO" of several start-ups, he is a canny observer of Silicon Valley business and culture. He spoke recently with Leader to Leader about leading in the New Economy, understanding risk, and creating new definitions of success for leaders, organizations, and society.

Leader to Leader: As a virtual CEO, you act as an investor, adviser, mentor. What do you look for before signing on with a company?

Randy Komisar: I look for opportunities to work with interesting ideas and great people. My criteria basically are threefold. The people: Do I relate to them and their values? Will they be exciting to work with? The product or service: Is it something I care about, something I am personally interested in? And finally the impact: Is it a big idea? Will it be a viable business? Can I actually help build something that will survive in the market and thereby realize the potential of the big idea?

L2L: Is there a model there for less professional investors? Are the people and their ideas a reliable predictor of success?

RK: This is something that I've debated long and hard. Whether or not there's a clear business model early on, there are certain touchstones that serve investors well. First, since there are certainly no lesser returns to doing things that you are interested in with people who you respect than there are to doing things you're not interested in with people you disrespect, choose projects you care about with people who you value. Using different criteria for business decisions than you would use every day as a human being in evaluating an opportunity makes no sense.

The other touchstone is passion: you have a far greater opportunity to be successful with something you're passionate about because you're more engaged and committed. People tend to be tenacious about an idea for one of two reasons. Either they're excited by it or they're fearful of what they may lose if the idea fails. I don't find the latter motivation to be very constructive in terms of the ultimate outcome. So you might as well be motivated by the positive rewards of fulfilling your passions.

L2L: Since you wrote The Monk and the Riddle, the bubble has burst on the Internet Economy. How has that changed thinking or behavior in Silicon Valley?

RK: Well, the bubble appears to have burst, for now anyway. What's amazing is what hasn't changed. There are still hordes of entrepreneurs flogging half-baked ideas. There is still a lack of rationality around the real value of those ideas. There is more lip service given to business models and to profitability, but I don't see tremendous insight from the entrepreneurs into what that actually means for their projects. There is clearly a difference in the professional investment community; people are less likely to invest in something that appears to have no fundamental underpinnings. But surprisingly, in areas that point to big new markets -- like wireless or infrastructure plays -- you will still see investors suspending their own disbelief and charging headlong into the abyss. To some extent, the less they know, the bigger it appears, the more likely they are to take chances. The more you understand, the less you can believe that the overall potential is as big as you need to make the numbers work.

L2L: You talk about the Silicon Valley orientation to risk, which is maximizing opportunity rather than minimizing failure. Explain the difference and what that means if you're the leader of an enterprise.

RK: What it means is -- particularly if you're the leader-you go for broke. You never hold back. Because it's the prospect of having large impact, creating substantial change, making a big hit that ultimately excites investors, the management team, and the employees in these ventures. There's no hedging in the start-up game. That is very different from most business because in most established business -- if you are a middle or senior manager, the last thing you want to do is fail. Failing can be detrimental both to your career and to your company. In the start-up game, it's quite the opposite -- if it isn't something that is big and has the potential for a large impact, that is worth failing at, then it's not worth spending your precious time on in the first place.

L2L: You say 60 percent to 70 percent of success is luck. For investors, that's easy. You build a large portfolio and spread the risk. But how does that translate to a personal or organizational strategy for leaders?

L2L: What is the key to entrepreneurial leadership?

RK: Entrepreneurial leaders need to be a little bit deaf and a little bit blind. By definition they're trying to do something that defies the common view. They have to be inured to skeptics. They have to believe that their vision is true and they can make it happen. But if they are too deaf and too blind they won't learn from the market or their advisers, and as a result they won't have a chance to course-correct. They won't be able to respond and adapt as more information becomes available to them. It's a tricky balance.

They've also got to be great communicators. They've got to be electric in sharing their energy and vision broadly among potential employees, potential partners, potential investors. That borders on charismatic. Now, there are different styles of charisma. But there has to be something compelling about the leader that inspires others to follow.

And, whether it's a start-up or not, you need a leader with adequate self-knowledge. Lots of entrepreneurs -- especially those who experience early success -- don't understand the basis for their success and believe themselves infallible. Those entrepreneurs tend to fail the next time -- hard. Without understanding your own strengths and weaknesses, you are unlikely to create an organization with the genetics for success. Where each piece complements the rest and the whole is stronger than the parts.

L2L: So it's no accident that many Silicon Valley companies are associated with an individual -- a Steve Jobs, a Larry Ellison, a Scott McNealy.

RK: That's right. Like them or not, those people are incredibly brilliant entrepreneurs, and I don't think they're principally motivated by the money. You could argue that Bill Gates seems to crave power and wealth, but the reality is, he has stuck with his company through thick and thin. It is something he started as a youth, and he never talked about his exit strategy. The self-righteousness of Microsoft is an expression of his own beliefs and motivation.

That is very different from the approach of many entrepreneurs today. In the old days "exit strategy" meant there was liquidity for their investors; today it seems to mean you can take the money and run. That's wrongheaded, and it doesn't build good companies and it doesn't speak to great entrepreneurship. Steve Jobs, Scott McNealy, Bill Gates, Larry Ellison, Andy Grove -- these people did not have exit strategies. I can't attest to the purity of their motivations in every case but I recognize the depth of their motivations.

L2L: How do you advise the next generation of entrepreneurs?

RK: First of all, I don't work with the "speed to greed" crowd. If I get a sense that that's your motivation, I simply won't take on the assignment because I'm not going to get any psychic rewards. My advice to those motivated just to build a fat bank account is that it won't serve them well; especially when the market goes through tough times. They are unlikely to sustain the emotional commitment they will need to make it through.

L2L: And what do you tell those who are simply considering a career change?

RK: When I talk with people who are trying to analyze the risk of undertaking a new venture -- not entrepreneurs but people joining the management team or staff in the organization -- fundamentally, the question is, "Why not?" People often present me with a balance sheet evaluating the risks, the pluses and minuses. It's almost always inconclusive. Opportunities in the start-up environment defy that sort of analysis.

I counsel people to think about different kinds of risks. First you need to consider the risk to your family. If you're at a point in your life where you can afford to lose a gamble and take a chance -- you have no dependents, no debt -- you may still be overly worried about risk. But that is simply risk to ego.

L2L: In the book you describe big-company managers visiting Silicon Valley in hopes of mimicking entrepreneurial culture. You suggest that these efforts are doomed. Why is that?

RK: This is a big, big problem. Most large companies succeed and prosper because they have established policies and procedures designed around managing complex and large-scale operations. It's a very important skill, and a critical competitive advantage. But the psychology of creating and managing that sort of operation is 180 degrees off from the psychology of taking risks around launching new ideas. And the notion of being an intrapreneur -- somebody who goes into a large organization to be at the vanguard of redirecting or cannibalizing the current business -- big companies hate the "C" word -- will find that the process and procedures that make the mother ship so successful will do them in.

The two approaches are at odds. But there can be a marriage of convenience. There is a sense that what we're really doing in Silicon Valley is research and development -- that by and large, very few start-ups are intended to be viable, independent companies. Instead, they vet ideas, create new technologies, prove out markets and opportunities, build value for the risk takers, and then find their way into well-managed organizations that can truly realize the potential of those ideas. We end up with the Cisco model; Cisco Systems makes lots of investments and acquisitions of small companies at the expense of its internal R&D. It uses the marketplace as a petri dish. Very well, I must say.

L2L: Is that the best strategy for larger or established organizations?

RK: Generally, that's right. The CEOs I speak to in older companies truly understand how to make a profit and operate accountable, relatively predictable businesses. But when we talk about the changes happening in the New Economy -- and I don't like that term -- they are both fearful and strangely detached. They seem to take cover in the fact that they're approaching the end of their careers and they thank goodness they won't have to wrestle with these big challenges. That is discouraging because these are leaders who, if they were emotionally prepared in the last days of their high-powered careers, could best assume the risks of transforming their organizations.

There's nothing wrong with legacy businesses. I wish I had one -- a profitable business that generated cash and gave you independence. There is a big problem with legacy thinking. What we need is new, dynamic thinking applied to legacy businesses to bring them into today's new opportunities.

L2L: And what's wrong with the term "New Economy"?

RK: The problem is the way that we've been using it. Yes, there are many new things about the economy that require us to change the way we think about business. We now have a broad-reaching network that changes the relationship between customers and companies. Communications of all kinds are ubiquitous and instantaneous. We also have increased the speed at which change occurs in business. Those two dynamics define what I think of as the newness of the economy. But when I hear the term "New Economy" applied to business, it's usually an excuse for bad behavior. It's somebody trying to explain why something that doesn't make sense will ultimately make cents. It's a lack of disciplined thinking that is dismissed as, "Well, I don't know, it's the New Economy."

L2L: Apart from sloppy thinking, what worries you about life in Silicon Valley?

RK: We face huge challenges in dealing with the social ramifications of this economic exuberance. There's incredible heart to this Valley that's built around risk taking, change, innovation. I think that this is precious to our economy and to our culture. But all this newfound wealth, much of it being generated without creating any real value or commitment to long-lasting positive change, has led to a culture of opportunism and expedience. I see it gravitating from the business world into the culture at large.

The press is always asking me, "How can you start the next business in Silicon Valley when it costs a million dollars to buy a house? How do you get the next management team to move here?" My response is, Who cares about the next management team; what about teachers? What about policemen? What about the people who are essential to the infrastructure of our society? My concern is that we have failed to recognize the foundation of our success and to respect it.

As I look at kids in this valley, they are living well-appointed lives, but they're not getting a lot of attention. They live in an environment where they're unlikely to surpass the achievements of their overachieving parents. If they don't begin to define success differently from their parents, they are likely to live lives they would define as failures. This is all wrong and we are not doing enough to mitigate the excesses in this culture and guide the children toward success.

L2L: You have said that business is "the last remaining social institution to help us manage and cope with change." But is business equipped to see us through the changes it's helped generate?

RK: Not now. It's clear that in our society the church as a bastion of spirituality has lost tremendous clout, both in terms of the family and in terms of society. Government is in disrepute, struggling to be relevant. With both of those institutions on the wane, we have to realize that the national religion in this country is now, unfortunately, business. And the problem is that business is not moral. It's not immoral either, by the way; it's amoral. We make it moral or immoral depending on what we bring to the equation. Capitalism is so successful because it asks only two things of people -- that they be greedy and that they be aggressive. It doesn't ask them to be altruistic; it doesn't ask them to think outside of themselves; it doesn't ask them to think about society as a whole.

Now, the problem with capitalism being amoral is that if we let these competitive processes just run their course, they don't take into the equation the social costs and social needs. We try to tax those into the equation but that doesn't work well. The way to make business work in the long term is to humanize it, to encourage people to bring their values to their business. I'm saying let's go back and realize that work is about your ability to create, an expression of who you are and what is meaningful to you. Use business as a tool. Bring who you are to business and in the process you will both be able to prosper -- as you define it -- and to have impact.

L2L: Are there lessons you see that can be shared between entrepreneurial organizations and philanthropic or social sector institutions?

RK: Yes. I worked in the public interest field for years. I moved on to business for a fundamental reason. I found that in too many public interest or government organizations, the high ideals were often undermined by poor practices that belied those ideals.

Silicon Valley was attractive to me because I found a place where the market economy celebrated the importance of people largely because of the value of intellectual property. The bottom line reinforced my ideals. When I look at how the two worlds interact, I see lots of interesting experiments. There are entrepreneurs now trying to create venture funds for social progress. I applaud them for that. But let's make sure that any approach to the public welfare includes more than dollars on its bottom line. It must include the kind of qualitative results that are foreign to the marketplace. Where entrepreneurial and philanthropic cultures come together is at the human level, where individuals in business begin to embrace certain less quantitative and more qualitative social objectives and to find partners in the not-for-profit world to help address them.

L2L: We've talked about the difficulty of old companies trying to learn new tricks. With everyone now trying to figure out e-commerce, what are some principles for success in that world?

I do think there are aspects to e-commerce that are unique to what you can do online and will fundamentally change things. For instance, eBay created a genuinely new form of e-commerce. It's an exciting idea because it does something, by creating a huge one-to-one network of people selling and buying things, that couldn't have been done before. At eBay the network and its participants are the real assets. It's created a vast marketplace that couldn't be created in the real world.

L2L: Let's return to leadership. You have created an interesting typology for leaders: There's the retriever who assembles a team, the bloodhound who pursues a trail, and the husky who carries the weight.

RK: And the St. Bernard we hope we never need.

L2L: Right. But can leaders ever change into a different breed?

RK: We have created an expectation that the natural development of individuals in the workplace would lead them through all three phases. That they would master each. I think that's wrongheaded. There are exceptions, but not many.

In the past when people have been able to evolve through the critical phases in the life of an organization, they've had plenty of time to do it. Today time has been foreshortened. You almost have to bring on somebody who is equipped to handle the next phase of the challenge before the current one is finished. We need to realize that certain people add a lot more value as entrepreneurs than they will ever add as operating managers. Let them go off and start the next big thing while a new set of operating professionals realize the potential of the maturing venture.

The other thing to consider is, ultimately, what is leadership? People ask if a leader is trained or a leader is born. I think the answer is slightly different. Leadership resides in character. A great example is Nelson Mandella. Here's a man who was put in prison off on an island for some 25 years, basically incommunicado, who ultimately emerged to lead South Africa's transition from apartheid to an open society. There is nothing in the conventional definition of leadership that would predict his success in doing that. Nothing except character.

We think about leaders as having authority, as having control, as having the ability to make decisions. But in my mind, leadership is more about inspiring and motivating. It's about allowing people to realize the greatness in themselves rather than demonstrating the leader's greatness. The best leaders are empathetic. The best leaders have self-knowledge; they are capable of illuminating the potential in those around them. In that sense, the leadership requirements of the newer economy are not very new at all.