Nikesh Arora Interview: Always Know When to Exit

There, he was quickly elevated to second-in-command, in line to take the CEO role when founder and CEO Masayoshi Son stepped down sometime in his 60’s. (See Fortune’sNovember 2015 profile on Arora here.)

But that suddenly changed last week, when Arora resigned. He cited the fact that Son decided to stay in the CEO role for another five to ten years as his reason. Fortune spoke with Arora about the news, SoftBank’s recent string of asset sales, and what he learned working with Son.

Fortune: So, who did you piss off?

Nikesh Arora: In what way?

At SoftBank.

In what way?

It seems to me like there’s more to the story.

Honestly, as you might have read, heard, seen Masa present on Wednesday at the shareholder meeting, he was here six weeks ago we were chatting and getting ready for the annual shareholder meeting. There’s a slide in there that [indicates Son will still be running the company] in his 60’s. I said, “You’re about to turn 60 next year, are you ready?”

He’s like, “Ready for what?”

I said, “You told me when you turn 60, I was going to be CEO.”

He said, “You know what, honestly I haven’t really thought about it that hard.”

I said, “Well you’ve been going out there telling people out there that I’m your successor so I would really appreciate your thoughts.” He went back, he reflected, we chatted on the phone a few times. I think he came to the conclusion that he works really hard, he works anywhere from 12 to 16 hours a day and he still hasn’t contemplated what life would look like if he gave up most of what he did. He’s a very hands-on CEO, as he has said publicly. He’s helping design the network at Sprint and has meetings with hundreds of people every week–when we do deals he gets involved in every element of the deal, like how do you structure the terms, which is great, but he’s a hands on CEO.

And so….

He said, “I still feel young. I can do this for a lot more time.”

I said, “How much time? Two to three years?”

He said, “At least five if not ten.”

And I said, “That’s a long time frame, which is your prerogative, you can make that decision. You’ve gone and told people I’m your successor and given the impression that you’d change things when you turned 60. I’m not worried if it’s 60, 61 or whatever but if it’s five to ten years, then you’re telling me something different.” He said “Yeah,” so I said “Okay.” I decided it’s probably better to become an advisor for a year and help out and keep the continuity with our portfolio of companies and the team we hired. But I don’t stay CEO-in-waiting.

When you joined it wasn’t clear that you would ever be the successor.

When I joined there was a conversation. It was a possibility. But there was no guarantee so I didn’t know what I was getting into. There were no guarantees.

What changed in Masa’s mind?

Honestly, I don’t think he had fully thought through what it meant to transition the CEO role after 3 years.

Why not keep doing what you’re doing? Why not keep making big bets on new companies?

I can’t play back the—I can’t change the story, the way it’s played out. Had he not gone and told people I was going to succeed him imminently, we might be having a different conversation.

So to you, because it was publicly known, that made the difference?

I think that’s part of it for sure. And part of it is he discovered his style is a hands-on style and you work together with someone, you learn a lot. It changes the perspective you had on the job.

It seems like it’s too soon to tell how your investments are doing. Do you agree with that?

One hundred percent. One hundred percent. Look, we invested in Didi [Chuxing, the Chinese ride-hailing startup]. They just finished a funding round of $400 million at a $28 billion valuation. The same way I’m not sure what’s the right valuation for Didi is the same way I’m not sure what’s the right valuation for any of the companies. Some of them are more obvious which have not done too well.

Which ones are those? Housing.com?

Yeah.

Your job was to figure out a way to institutionalize Masa’s instincts. Having tried to do that, do you think it’s possible to replicate?

There’s two parts to it, as I said two days ago in Toyko, you only make money when you sell or you take it public. If you’ve noticed in the last six weeks, we’ve actually sold three things.

Alibaba, Supercell…

Supercell was hard. Alibaba (BABA) took us nine months. Supercell took us six to nine months. We sold [Japanese gaming company] GungHo. So we’ve created a disciplined view on investing, which is both, how do you invest and when you do exit?

If you look at the history of SoftBank, the exits have been the dismal part. Masa says that publicly. He says, “I invest and I don’t sell anything.” At one time we owned a part of Yahoo U.S. and the Yahoo U.S. stake was worth $55 billion. He eventually sold it for $2 billion I think.

So those deals were your idea. Masa had a quote that said you taught him the value of selling some investments.

Disciplined investing is both when you invest and when you sell.

But I think some people took that to mean some of your investments needed to be sold.

He’s talking about Supercell and Alibaba. With my investments, he’s already said publicly that he’s made a lot of mistakes in investing as well. Not every one works out. That’s the nature of investing.

What did you and him disagree on when you were there?

He’s been described as getting carried away with his enthusiasm for people too.

So he got carried away with me? Is that what you’re saying?

Maybe. Do you think that happened?

This week Masa said he has more crazy ideas that he wants to pursue. Were any of those too crazy for you?

Masa has an idea per minute. [Recently] he presented his views of the singularity to the SoftBank board. He’s building a robot with a heart. It has Watson in it—that’s supposed to be the rational part of brain, and he’s building the emotional part of it. That’s crazy enough for me. But he’s executing on it. He’s selling 1000 of them every month.

Is SoftBank still pursuing the strategy that you helped design, which is investing in global unicorns?

SoftBank has a two-part strategy—one is the operating assets, which in the long term are supposed to generate cash flow and that cash flow is supposed to feed into the investing assets. The operating assets include SoftBank Mobile, Sprint, which is not producing cash flow at the moment but the hope is that it will, and the bright star, which is Yahoo Japan. The cash flow from those assets and sales of investment assets generate liquidity to invest more. That’s the broad strategy.

That has not changed?

No. We did the Didi investment. They had a round, we invested again.

Could SoftBank still pursue a management buyout?

Reportedly.

Do you think investor perception of SoftBank changed in any way when you were there?

You said when you became representative director [a Japanese designation for someone who can represent the company in transactions], that it sent an internal signal at SoftBank that you were “not just some foreigner they brought in to run the international business.” Do you think you overcame that perception while you were there?

I think so, because selling Alibaba or selling Supercell required full coordination with the Japanese colleagues over there, working with them over the last six to nine months. That perception hopefully changed for the better. I’m not sure in a country like Japan if you ever become Japanese.

What do you mean by that?

That was a risk in your taking this job.

It was a risk, and one expected that Masa was himself an entrepreneur and he’s a different guy and he’s broken all sorts of molds in Japan. It was a managed risk.

You have turned down other CEO roles, including Yahoo and Skype, because you didn’t see how you could fix them. But it seems to me that most of the available CEO roles, especially in the areas that you have expertise, are for companies that need fixing. So I’d be curious, what’s the kind of company you think you could fix?

So no ideas about the kind of company?

How underwater are you on your $435 million investment in SoftBank stock?

Are you planning to do anything to make up for the loss there?

It’s a small loss. Very small.

Okay. So if a private equity firm buys Yahoo (YHOO) and asks you to become CEO, would you do it?