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You have to have speed.
And this is one of the things that Silicon Valley has learned more intensely than anywhere
in the world other than maybe China.
You are a truly prolific entrepreneur, PayPal, LinkedIn, Airbnb, open AI.
What were some of the learnings that you learned at PayPal that helped you become a great entrepreneur?
People are familiar with pivots because it’s not working.
But pivoting towards opportunity is one of the things that entrepreneurs really need
to keep in mind.
What scaling companies is prioritizing speed over efficiency in an environment of uncertainty.
Speed over profitability.
Yes.
The only way to speed up learning it and deploying it and scaling it is the game.
Sometimes entrepreneurs are told, “Oh, ignore risk.”
No, no, no.
Take smart risk.
When you’re scaling really fast, hiring really fast, how can you maintain a healthy
company culture?
You have to intentionally…
Yeah, bam.
Welcome back to the show.
Today, we have a true legend on the podcast, Reed Hoffman, who is the co-founder of LinkedIn
and Inflection AI is joining us.
He’s also a renowned venture capitalist.
He’s been behind companies like Airbnb, PayPal, so many great, huge companies that have moved
the world forward.
He is also a partner at Greylock.
He hosts a podcast, Masters of Scale, and he’s a prolific author.
He’s got a brand new book out on AI called Super Agency, which we’re going to dig into
in this conversation.
Me and Reed talked for well over an hour and 20 minutes, which you guys know I love to
do when somebody is just absolutely amazing.
I want to keep them on for as long as possible.
Reed was one of those guests.
In part one of this conversation, we really focus on entrepreneurship.
I talked to him about his early entrepreneurship endeavors.
We learn about his failures and big learning lessons.
Then we go into scaling, all of his strategy for scaling businesses.
Guys, he’s scaled huge companies.
Like I mentioned, LinkedIn, Airbnb, PayPal, he’s behind some of the biggest companies in
the world.
He’s got a lot of great content when it comes to scaling businesses, specifically his Blitz
scaling methodology.
Then in part two, we really focus on AI.
He wrote a new book called Super Agency.
It’s all about how humans are going to have agents moving forward, AI agents.
I really pick his brain on his optimism towards AI and how he imagines the future to be with
AI in the picture.
Everything’s going to be changing.
In part one, like I mentioned, we’re talking about entrepreneurship.
Stay tuned for that and enjoy my conversation with the amazingly talented Reed Hoffman.
Reed, welcome to Young and Profiting Podcast.
It’s great to be here.
I’ve been looking forward to this.
Me too.
First of all, I want to say I feel very honored to have you on the show.
You were a truly prolific entrepreneur.
You’ve literally helped push the world forward for decades.
You’ve been a leader at companies like PayPal, LinkedIn, Airbnb, now Inflection AI.
You also were a part of OpenAI.
You’ve just been behind so many huge companies that have pushed the world forward, like I
said.
I wanted to ask you, when you think of all your contributions to the world and all the
companies that you work with, because you don’t have to work right now, you choose to
work.
You must be thinking about, okay, what makes me want to work with a company?
What is your mission and what is the red thread with everything that you’re doing in the world
right now?
I guess probably it’s like I’m, to put it philosophically, a humanist.
Which is how do we make ourselves better individually and as a group?
It’s empowering a bunch of different individuals’ lives, but also leaving the world much better
than we found it.
How do we do that?
That’s the red line through everything I do, including companies.
Because you want to do companies that, of course, have all the normal company things
of providing great product services and jobs and all the rest, but you also want it to
be the impact that you have on the world, leaves the world in a much better place.
You transform industries, you transform societies and like all the companies you mentioned that
I’ve been involved with from the earliest stages, whether it’s personally LinkedIn and
PayPal or as an investor and board member, Airbnb, open AI, all of it has a theory of
how does this improve human life, human work, quality of experience.
How do we elevate ourselves, become more the people we aspire to be?
And in a similar way, in a similar token, I’d say you’ve said in the past, society flourishes
when people think entrepreneurially.
So talk to us about why you believe that the more entrepreneurs that we have in the world,
the more that mankind is better off.
It’s part of how you create the future.
Everything that we have in our lives, I mean this podcasting stuff, these computers, these
phones all come about through entrepreneurial innovation and it’s part of how the new future
is created and it’s part of how prosperity is created, it’s part of how life is improved.
And basically, we wouldn’t get to, even when you say, well, wait, there’s also science
which events, vaccines and other kinds of things, although a lot of vaccines are commercial
these days and have an entrepreneurial bent like Moderna.
And so it’s this invention of new things and it’s envisioning the way the world could
possibly be.
How could you create something that would be of service to, this is one of the things
I think people always forget about, the process of Adam Smith and capitalism is this theory
of moral sentiments.
How are you being of service to other people and that entrepreneurial creation of business
and products and services is a really key part of it.
And when you look around our lives and all the things in it, it was earlier entrepreneurs
that we were building upon their work.
So speaking of building on entrepreneurs of the past, my career has totally skyrocketed
from LinkedIn.
I was able to become a full-time entrepreneur with my social agency and my podcast network.
And so my question to you is, LinkedIn has blown up into this huge platform.
It’s one of the biggest social media networks in the world, 135 million daily active users.
Was your vision for LinkedIn what it is today?
What was your initial vision and did you ever imagine it would scale to what it is today?
So when you start a business, you should think about this as a kind of probabilities of outcomes.
So I did think that LinkedIn could become what it is today.
I actually even think things that were could be bigger and could be on path and you could
be asking me this question in five years when I achieved a bunch of new things and I would
also say, “Hey, yes.
This is possible.”
Now, are we in a low probability but high result future from when I started LinkedIn?
Absolutely.
You have to be rational as an entrepreneur and part of what sometimes entrepreneurs are
told ignore risk, take smart risk, manage it smartly.
And so when I started, it was like, well, we could be this big and there’s all of these
outcomes between here and there, which include not succeeding at all, that you manage your
way towards even as you have the moonshot, if you shoot for the stars, maybe sometimes
you only get to the hills, but you have to be shooting for yours.
You have that, but you’re wise about it.
And so yes, there’s learnings and we can go to the depths of which things I made mistakes
on or which things turned out to be new surprises with LinkedIn.
But I would say that we’re within the probability set that I thought was possible.
I love that.
And I’m definitely going to be asking you about scaling a business and all of your guidance
around that.
But first, before we do that, I do want to talk about your early entrepreneurship days
because a lot of the listeners tuning in, they’re young entrepreneurs, they’re failing
every day, which is a big part of eventually becoming a great entrepreneur is failure at
first that you can learn and get better.
So you started a company called SocialNet, which actually was a failed startup.
When I read about it, you could tell me what you think, if it was a failure or not, but
it was a social app for dating way before we had the dating apps of today, like Bumble
and things like that.
So it was like a really innovative concept.
Tell us about what happened with that company, why you ended pivoting to something else and
some of the failures and learnings that you had from that.
So a lot of the writings I’ve done are all the learnings from mistakes.
There was almost never anything like I just got to write the first time.
It was that you iterated at speed and you kept adapting and you kept learning.
And that’s one of the rules of entrepreneurship is always be learning.
So SocialNet, you know, I started with the kind of this theory of, oh, I’ve learned how
to create software products.
I know what a really good thing would be.
I’ve got a great product idea, let me go raise some venture capital.
Let me release the product.
Well, a huge number of things, everything from, you know, if you’re not embarrassed
by your product release, you’ve released too late relative to software and consumer
internet because I thought I would polish it and get it just so right and beautiful
before getting out.
And when we released, we quickly discovered half the things we’d spent months on were
completely useless.
We thought that the game was entirely about, well, did we have a vision for product quality?
And we didn’t spend that much time thinking about, like, our go-to-market strategy, which
is fundamental to entrepreneurship.
And so it was just failure after failure and recovery.
But the two ways that I kind of kind of learned to summarize this was, one, is I perhaps never
learned so much in my life except for between the ages of two and three because when you’re
falling over and learning it and standing back up.
And then the other one is every Friday, there were things I wish I had known on Monday.
And those things I wish I known weren’t person X is going to return your phone call or this
partnership pitch won’t work out.
It’s literally how to play the game, what to do.
And so it was a tremendous learning experience, which of course means lots of scars, tissue
and a lot of blood on the floor.
And I’d say that it was, you know, in Silicon Valley terms, a failure.
We returned the investor’s capital, but that was all we were able to do fundamentally.
And so I love that you started as an entrepreneur and you learned a lot with social net.
And then you went to PayPal, right?
And you learned as an executive there before you went and co-founded LinkedIn.
So talk to us about that.
What were some of the learnings that you learned at PayPal that helped you become a great entrepreneur?
So part of what happened is two friends of mine, Peter Thiel, Max Lovechin came to me
and said, “Hey, we’re starting this business.
We’ve been doing this for a year and a half with social net.
We’d really love you to join the board.
We’ll have you and Scott Banister join the board.
And could you do that?”
And I said, “Yes, because I’ve just come through a year and a half of learning every
week.”
And so a bunch of this stuff, PayPal had a initial booster pack on, which is all the
various lists, which is hire people who are high talented learners, more than people who’ve
had a ton of experience.
I mean, they must know how to do the job.
But it’s supposed to look, “I’ve done this job for 10 years.
I’ve done this job for at least a year or two, and I’m an intense learner.”
So PayPal started as a encryption technology on mobile phones, went to cash on mobile phones,
went to cash on Palm Pilots, then went to cash on Palm Pilots plus an online synchronizing
payment service, and then quickly converted to an online master merchant.
And the last pit was after it launched.
And so all of that initial cryptology on mobile phones was completely thrown out the
door and useless.
Because again, it was kind of this, “Don’t just build something because it’s an interesting
product.
What’s the market need?
How are you getting into it?”
And so there were just tons and tons of experiences.
I’d say one of the central things that I learned about entrepreneurship from PayPal was the
speed of execution, the speed of making decisions.
And so one of the things, I mean, there was a whole stack, again, we could take this entire
podcast.
Things I learned from SocialNet, things I learned from PayPal, things I learned, just
each one of them.
But part of the thing was basically, I kind of adopted there, which I wish I’d had at
SocialNet, this decisioning mode where when I’m confronted with a decision, I say, “Can
I make this decision right now?”
And if I can make the decision right now, I go, “And by the way, the usual answer is,
what decision would I make?”
I was like, “Okay, I would decide X, not Y.
Okay.
Is there anything that I could learn by researching, talking to people, et cetera that would change
from X to Y?
Okay, what’s the cost and time to do that?”
And if the cost and time is too great, you just make the decision, go with X, and you
live with it.
And maybe sometimes part of X and Y is, is it a one-way door or a two-way door?
Because if you can recover from it, you’re less likely to go do the research about should
you decide Y versus X.
Part of this practice, it gets you comfortable with making decisions at a really intense
speed where you’re uncomfortable with it because you don’t know everything when you’re making
the decision.
And that was one of our many ethoses at PayPal that allowed us to navigate this just like
lots of things almost blew us up.
And it was definitely a X-wing fighter going into the Death Star.
Oh my gosh.
Are we going to live or die on this thing?
We succeeded.
Yeah.
And I’m sure you’ve gotten really comfortable with uncertainty and taking these risks without
really knowing if it was the right or wrong decision.
And like you said, prioritizing speed over anything else, which is so important.
And I know you say that in your book, Blitzscaling, which you put out in 2018.
And even though it was put out seven-ish years ago, it’s still super relevant.
So I did want to cover it.
So you talk about Blitzscaling, and basically it’s a concept that is about achieving market
dominance quickly.
So can you go over some of the key principles of Blitzscaling?
And I’ll ask you some.
I’ve got like lots of questions about it, but I’ll let you summarize it first.
The pithy way of saying what Blitzscaling is about is it’s prioritizing speed over efficiency
in an environment of uncertainty.
And to unpack that a little bit, it’s that when you’re playing games where we call in
the book, Glenn Gehrig, Glenn Ross games, which is first prize is a Cadillac, second
prize is Stichnize, and third prize you’re fired.
You have to have speed and speed to scale.
And this is one of the things that Silicon Valley has learned more intensely than anywhere
in the world other than maybe China.
China is one of the few areas where I’ve also learned Blitzscaling games.
And it’s one of the reasons why when you look at Silicon Valley for the tech industry, the
whole population of Silicon Valley barriers like three and a half million that’s like Ireland.
And yet the number of global tech companies that come out of Silicon Valley versus anywhere
else in the world, and to some degree, including China, because we’re talking global here,
although, you know, there’s obviously ByteDance and TikTok and so forth, is just enormous.
And why is that?
ByteDance, the answer is because this hyper competitive game of Blitzscaling is something
that we have learned to do.
And you don’t do Blitzscaling as a goal into itself, you do it as a competitive tool relative
to being first prize versus second or third, because your particular industry, your particular
company, your particular potential industry transformation is worth it.
So you were just talking about how you have to basically prioritize speed.
So when we’re Blitzscaling and we’re prioritizing speed, lots of things can go wrong, right?
Because you’re prioritizing just hiring really fast, making fast decisions.
Things are not perfect.
So talk to us about some of the operational risk that is involved with Blitzscaling and
some of the fast decisions that people have to make.
Typically, obviously, people in business schools teach reduce uncertainty and prioritize learning
for efficiency.
But if what you’re doing is saying, well, we really need to get to scale very fast relative
to either a market because of a scale mechanic or because of competition, you’ll say, “Which
risk can we take to get to that scale product market fit much faster than our competition?”
And so, for example, classically what happens in a lot of these Blitzscaling companies is
people who are traditionalist business people will say, “What’s your operating margin?”
And you need to prove your operating margin.
I myself sat in early Airbnb meetings where one of the VCs was saying that.
And I had to speak up and say, “Nope, bad question, not a question to answer right now,
because we’re in a software business, we don’t have these capital hard assets, even though
they’re being rented and transacted in it, that’s not on our balance sheet.
What we just need to do is get this to scale and be the growing marketplace of that and
we’ll figure out operating margins later.”
But that’s, of course, what the size of your operating margins are, is how valuable your
business is.
And when you get to the operating margins, it will be when people start valuing your
business more.
And you’re like, “So that’s a very counterintuitive thing you say, we’ll take the risk on wherever
our operating margins will end up because getting the scale more quickly and fast and
taking experiments with like, for example, what you’re doing in marketing, what you’re
doing in hiring, what you’re doing in product development, we’ll just try it and we’ll iterate
and move quickly and we’ll abandon the things that aren’t working.”
And that’s essentially, and that’s part of the reason why Airbnb is one of the, as you
know, is one of the examples that we open Blitzscaling the book up with to kind of show
a modern example of these are a set of decisions that you make.
And then I forget which chapter, but there’s like eight counterintuitive rules in Blitzscaling
in the middle, which is like embracing chaos and hiring Ms. Right Now versus Ms. Right
in three to five years, because again, with the learning curve, those are all things you’re
doing to go, “Go fast now, go fast now, go fast now,” and iterate and change.
And that’s part of why Silicon Valley produces just transformational technology companies
for the world.
So it’s really what you’re saying, it’s about speed over profitability.
Yes, or any form of efficiency.
One of the things that I learned remotely from Uber, because they were another Blitzscaling
company we covered elements of in the book, is one of the things when Uber is like, “Oh
my God, we need to hire engineers really fast.”
So what they would do is they’d re-interview an engineer, a reference check on an engineer,
and they’d offer engineers Sarah a job.
And then when they offered engineers Sarah a job, they say, “Okay, well, we’d like to
interview with you.
Who are the top three people you work with at your current company?”
And then just send those three people job offers.
It’s Blitzscaling, because it’s like, “Well, maybe they’re not going to really work out.
Maybe they’ll think it’s a little weird and creepy that they got a job offer out of the
blue with a pitch, but it’s part of the going fast.”
And so it’s not just profitability, it’s efficiency and everything.
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When you’re hiring that fast, like you just gave that example of Uber, I have to imagine
that your company culture might suffer and it might become a little bit chaotic.
What’s your guidance for when you’re scaling really fast, hiring really fast, how can you
maintain a healthy company culture?
You have to intentionally try to do it.
By the way, Uber is an example of something that had a very chaotic and challenging company
culture and had to refactor it to be a good stable public company you’re getting.
The usual heuristic rule of thumb is that refactoring culture is actually in fact really
hard.
It is hard.
It’s not necessarily impossibly hard.
Dar really demonstrated with Uber.
Actually, we had a Master’s Scale episode on that because it was the question of, “Okay,
so you inherit something that’s got a lot of really broken parts.
What do you do?”
The punchline was, “You don’t show up and say, ‘New Sheriff in town,’ you say, ‘Hey,
we did these great things.
We already have what’s greatness in this.
Let’s focus on the parts that are great and use those to refactor the other parts.'”
So as opposed to saying, “Now, friends, something entirely new, we’re returning to the central
roots of our greatness and then refactoring the other ones.”
That’s actually, I think, a good change.
Now, that being said, we’ve had a lot of culture episodes and part of that’s because you should
be intentional about it.
The intentionality can be not hiring as fast as Uber did.
So we’re like Workday and Anil Busri.
It was Ian as co-founder Dave Duffield did a cultural interview at the end, even though
he is being the CEO, did a cultural interview at the end of every hiring process for the
first 500 people.
That slows you down some, but that’s one way to do it.
Another way is the culture deck for Reed Hastings, which actually just started as when they were
looking at the attrition of, like, why are people leaving?
It was like, “Well, they didn’t understand our culture when they got here.
So let’s first create a culture deck to onboard them and then, oh, shit, we should publish
it.”
Right?
So if you’re looking for a family, go to other companies.
If you’re looking for a team, like a professional sports team, come here because our culture
is we ask ourselves a question every quarter, every year.
If you wouldn’t hire this person right now, give them a severance package, go hire somebody
else.
And so you create these cultural moments and these are all the different tool sets that
you create for your particular business, your particular founders, management team, product
market fit, competition landscape, et cetera, because it’s not one culture, one size fits
all, but being intentional is very important.
Everything has a consequence, right?
There’s pros and cons to everything.
You can implement all these systems.
Like, I’m thinking about my own company right now.
I used to hire so quick.
I would just go on LinkedIn, find somebody, poach somebody, DM them, do an interview, hire
them.
Now, it’s a months-long process.
And I can feel that sometimes it’s really hurting us and I’m like, “I just want to go
poach somebody off LinkedIn,” you know?
It’s just like really just pros and cons and you’ve got to figure out what is the right
thing for your business and make the right decision.
So why is first mover advantage so important?
The whole point of Blitz Scaling is so that you can basically build a moat around you
as a company, but why is that so important?
Well, first mover to scale gives you all kinds of energy.
It doesn’t actually necessarily need to be first mover out of the gate, but the first
mover to scale, part of Blitz Scaling, is really critical.
Now, sometimes, by the way, the way that you become first mover to scale is you’re the
first mover out of the gate because you just keep going, right?
But that kind of getting the scale can have all kinds of advantages.
One is capital markets reward you versus whoever’s in second place as part of the Cadillac
and Steak Knives.
Please more want to work there that when customers or members, if it’s consumer internet thing,
think, “Well, what’s the one that everyone’s talking about?
It’s the one that’s the first to scale.”
And so in all of these fields, you have advantages.
Now, you might also have a business with network effects, where those network effects become
a really important growing super linear kind of competitive moat, whether it’s like Airbnb
or Uber or others, LinkedIn, or if it’s just a, “Well, I’m ahead.”
And so by default, all of the different forces that come together to make a company successful
are more aligned and believing you’re number one because part of what entrepreneurship does
is I have this vision.
It’s currently not operative.
I’m persuading multiple different constituencies to come invest in my vision.
It could be investors with money.
It can be employees with their time and ownership.
It could be press with their belief in what’s going to happen.
It can be customers who go, “Okay, you’re a startup, but I’m going to start using you
now anyway because I believe you will be the right thing in the future.”
All of these things is what you do as an entrepreneur is you persuade people to come and help build
your vision.
When you’re the first mover to scale, you have a lot more of those people believing in
you and therefore investing in you.
The cost of customer acquisition is lower.
Your cost of speed of recruiting employees is lower.
Your cost of capital is lower, et cetera, et cetera.
The weight of your brand is giving you all of this advantage, like the brand recognition.
Brand can definitely be a strong part of it, but it’s also the question of who do each
of these groups think is going to win.
So it’s a little bit different.
I mean, brand is also what is your brand promise, what are you going to become.
And awareness is part of it, but it’s like, “Okay, we think you’re going to win.
Now when you have dynamics like a network effect, then your brand might be mediocre,
but a network effect is incredibly good within a business or within any kind of entity that
has it.
It’s a very strong amplifier.”
So talk to us about that.
I know Airbnb had a network effect.
What’s a good example of one?
Networks are usually, but not always.
So LinkedIn has one, Facebook has one, WhatsApp and Instagram.
For example, when you look at Google, the network effect isn’t the search index.
That’s a scale index.
What it is is the AdWords, because the AdWords begin to get when you’re kind of that large
and differentiated and have the data and intelligence enough, you end up with a better cost.
You can provide an ad at what is a lower cost to you and a higher price to your customer
and have a higher margin revenue than your competitor that’s trying to sell something.
And so its network effect is in the AdWords.
So part of when you’re looking for these mega scale businesses, usually there’s some interesting
network effects that really power them.
I know that there’s different stages involved with Blitz Scaling.
So there’s family stage, tribe stage, village stage, city stage, nation stage.
So I was thinking about my company, and I think we’re right in between tribe stage and
village stage.
I think there’s probably a lot of growing pains in that stage, right?
Like we’re doing amazing, but I feel like it’s just like scaling is really hard.
And I feel like that is the first instance of really scaling.
So talk to us about each one of these stages, what do we need to think about?
And you can be high level or as deep as you’d like, but if you can just break down how companies
generally scale and the stages that they have.
So the basic idea was to say, when you’re hyper scaling to a market, obviously everyone
wants to have as much revenue and as much customers per employee as one of the ways
to benchmark businesses, but almost all businesses also get to growing their employee base for
various reasons.
It’s sales and new products and features, new product lines and customer service and
account management and finance and everything else.
So you generally speaking need to be scaling your employee base at some rate with your
business.
And so the thought was as you’re getting to scale product market fit, one of the challenges
you have is you’re scaling the size of your operation in all of these different vectors.
And so that proxies to number of employees.
And so we broke it up into the five categories that you just outlined.
Thank you.
And we said, look, when you’re getting to each of these things, what got you here won’t get
you there.
When you’re at the earliest stage, it’s like, you know, a couple of people, maybe you met
one of them, you hired them, you’re all in a room, communication isn’t really an issue.
The culture is usually like, well, we went out for beats in a beer and we talked about
it.
And that’s our company culture.
Like we figured out what we’re doing.
And as you get larger, all of these things change in the very earliest.
Everyone’s working.
And then you get to, there’s people who are working and being managers.
Then you get there’s people just being managers, then you get people who are managing managers.
And each of these things change at levels of scale as you go up of how you run communications,
how you make decisions, how you pivot or readjust something.
All of this changes, which risks are you willing to take?
Like for example, Facebook went and people thought this was different, but it was like
move fast and break things to move fast with scalable infrastructure.
And I was like, oh, you got wise and you changed your theory of moving fast like narrow.
What we realized was in a very early stage, move fast and break things was the way to
optimize speed.
And then in our later days, the way to optimize speed was move fast with stable infrastructure
because we broke the infrastructure.
It was too hard to fix.
And we suddenly were moving slower.
So it’s still both speed principles, but those changes, because for example, move fast and
break things weren’t totally fine when you’re 40 people.
When you’re 500 people and the infrastructure breaking and everything breaks, let’s keep
the infrastructure running.
However, many other things we may be breaking as we’re moving fast.
So all of those things go into the different levels and nation is kind of the placeholder
for public company, you know, thousands of employees, et cetera.
And just saying, hey, the rules here change too.
And your mistake is trying to run the same way as you might be even in a village with
you’re in a nation.
Even though you’re of course trying to keep speed, you definitely keep a vibrant culture
and high performance and high quality talent, the nature of the game changes as you change
size.
So interesting.
I highly recommend that everybody read Blitzscaling.
I loved reading through it.
I want to read it in even more detail because I feel like it’s just so relevant, especially
as like a newer entrepreneur scaling your business.
If you’ve never done it before, build a company that’s a nation-size company, it’s definitely
a good read.
So when you’re thinking about making intelligent risk, this is something that we were talking
about earlier.
Do you have anything that you think through, questions that you ask yourself to make sure
that you’re not just taking any risk and that you’re taking a risk intelligently?
Well, there’s a couple of quick hacks on every major decision, maybe not surprising from
the co-founder of LinkedIn, is I think, who are the three to five people I’d most want
to talk to about this?
Because it’s kind of like, where would they give me knowledge, expertise, different cognitive
tool set, different analytic framework, et cetera.
And with that, what I predict, that would be very helpful in this particular decision.
And frequently, those people, while you have a lot of great people in your company, there’s
a lot of them wearing any particular decision outside your company.
And that’s part of the thing of like, okay, what would it take to go get that when I get
the right, what kind of inspiration I get, would I be unknown and I would try, et cetera.
That’s one.
Because analyzing the risks is knowing which only few things to focus on and which other
things to really just ignore, because one of the, as you know, plan scaling rules are
like embrace chaos and let fires burn because you’re like, we’ll solve that later.
We don’t have to solve everything right now.
We can only focus on a few things.
Another one is to think about, all right, even if it’s painful to solve something later,
like for example, we were talking about the Uber hiring thing, can we solve that one later?
Because which the ordering of problems that we need to solve.
And some of the risk is we’re not going to solve that problem right now.
We’re not going to be able to measure it right now.
The only way to really measure this is to do it.
One of the things that modern consumer internet mobile entrepreneurs have learned is this
thing that’s paradoxically called paper testing, which is you put up an ad and you say, here’s
our thing.
And you see what the click through is, even though you don’t have anything behind the
ad because you’re measuring it and trying to get data because you’re trying to figure
out what the thing is, this is the toolbox of the cost of de-risking.
Which low cost things can you do talking to someone taking paper ad doing other things?
Can I do to de-risk this?
And then at the end of the day, you make the risk bet.
Now some of the red teaming thought is, well, if I’m wrong on this decision, what are my
plans be?
How do I recover?
If I go, ooh, this one, we’re just dead.
Not, oh, it’s painful.
We’re dead, if it doesn’t work, oh, okay, well, let’s invest a little bit more on the
risk decision if we can.
But by the way, part of what startups do is you’re making the bet.
If you’re not making the bet, you’re ultimately going to fail.
We’ll be right back after a quick break from our sponsors.
I want to talk about AI, but before we do that, I’ve got a little quick fire section.
I’ve pulled out some of my favorite quotes that you’ve said about entrepreneurship, and
then I just want to get some more color on each one of these quotes.
Okay.
If you aren’t embarrassed by the first version of your product, you shipped too late.
Well, that’s what I talked about a little bit already with socialite, which is, look,
there’s the number of people who are product geniuses that go, oh, when I pull back the
curtains, everyone’s going to go, ooh, la, la, you are perfect.
That’s less than 1% of entrepreneurs and product people, and yet everyone thinks they are.
Obviously, you should be a good product person, otherwise you shouldn’t be doing the product
side.
Entrepreneurship is doing something else.
But the right thing is how do you learn from your customers?
How do you go?
Which things?
And that’s part of the reason why minimum viable product, product market fit, all of
these things, kind of testing your hypotheses, using other data as a way of doing it.
Because if it’s speed to market and speed to learning, and part of the reason why embarrassment
is because our natural instinct as people, as entrepreneurs, is we want you to tell
us, oh my God, we love what you did.
And actually, in fact, you want them to grow to love what you did.
And obviously, the more they love it at the beginning, that’s great.
But your speed of learning it and deploying it and scaling it is the game.
I’m smiling because I’m just thinking about me being an entrepreneur and something that
my business partner always says is my favorite thing is to just announce something.
Even before it’s ready, before I have any idea how to do it, I love to just announce
we’re doing this, and I’m like, well, we got to figure it out.
Exactly.
OK, so don’t wait for something to fail before you learn or before you consider a change
or pivot.
The best pivots are to take advantage of an upside rather than to avoid a downside.
So obviously, people are familiar with pivots because it’s not working.
And there’s different ways to get to the conclusion before it totally is a train wreck.
You want to make the decision that’s not working before the train wreck happens, change tracks.
But one of the things that people under-describe is a pivot to a new opportunity.
And in some sense, this is the PayPal story that we were talking about a little earlier
because they said, well, we have this really great unique technology, and we’re figuring
out that it’s not really going to work, and we’re pivoting away from it because too hard
to get to market.
And then what happened is you released this kind of PalmPilot plus a synchronizing payment
service.
And what happened is eBay people started using it.
And I remember the first week in the conversation of PayPal was, who are these eBay people?
Should we stop them from using our product?
And it was like, no, no, no.
Those are our customers.
None of these people are our customers.
Those are our customers.
We’re going to pivot entirely towards them.
And so pivoting towards opportunities, seeing what happens, and sometimes, by the way, it’s
like, oh, you’ve been working on the software product, and now AI is here, and you’re like,
OK, I’m going to do AI.
Yeah, I know I did this last 18 months of work, maybe three months if it’s recoverable,
because that’s the opportunity.
And that pivoting towards big new opportunities is one of the things that really creates these
successful businesses because we want to tell this heroic story where she or he had this
original vision that came down from on high, and they came down with the two stone tablets.
And they said, I’ve got this vision that goes on forever.
And that’s reason I’m a genius.
And it’s like, well, actually, in fact, a lot of things happen based on, well, I was
in the game, I was learning, and I saw this new opportunity that emerged from the market,
a technology, a set of things with competitors, and I moved towards that.
Like, for example, Google, it’s theory of, when it launched, it was we’re going to sell
enterprise search.
That’s our theory of the game.
Then they saw, and then, oh, it’s not working.
Oh, our backup plan is to put double-click ads on top of it.
Oh, shit, the whole ad market went.
What do we do?
Oh, now we end up at AdWords.
And they pivoted from enterprise to consumer, and then consumer to using elements that they’d
seen from the market, but inventing their own version of how to make a really powerful
business.
And it’s one of the most powerful business models that’s been invented in human history
so far.
And so that pivoting towards opportunity is one of the things that entrepreneurs really
need to keep in mind.
It’s not always that you’re failing.
Your company could be doing good, but you just want to go towards even a bigger opportunity.
Yes, exactly.
No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always
lose out to a team.
Again, we tend to tell these heroic myths of the individual entrepreneur or she or he
is like, “I am the person, the creator, the innovator,” et cetera.
And actually, in fact, all of these projects are the result of teamwork.
There’s almost nothing as an individual.
And part of the thing is you want to be, to some degree, the best entrepreneurs, the
people who recruit and bring around them, the most amazing teams who work with them
for a long time.
And actually, obviously, part of the thing is the truism tends to be higher, slow, fire
fast.
The higher slow, you can see whether that works.
If you’re really going to hire slow, you better be hiring all the time so that your
pace of hiring is in match not like, “Oh, I need a person now.
I’m going to start looking.”
I start recruiting for people I think I’m going to need six to 12 months from now today
as an instance.
And so, that team sport is really important, but it’s not just the employees.
It’s also the people around you.
So the advice to give entrepreneurs is not to go up to people and say, “Hala, what do
you love about my idea?
What do you think about my idea?”
Because I’m asking you to tell me, “What’s wrong with my idea?
What thing could make it break to learn from it?”
And so, having those teams built around you outside your company, advisors, investors,
experts, industry people, et cetera, is really, really important.
And that’s why entrepreneur is a team sport, is a network sport, not simply an individual
sport.
Okay.
Last one.
Just as the Industrial Revolution created new opportunities for collaboration and new
capacities for innovation, creativity, and productivity, the cognitive revolution will
do it as well.
This is, I guess, bridging into our AI discussion.
The thing that happens that we’ve learned with entrepreneurship is new technologies completely
change industries, sometimes every industry, like AI with general purpose technologies
and the parallel between chat, GBT models and general purpose technologies, always something
I’m finding a little entertaining, but you look at these technology changes as changes
in market landscapes.
It’s changes in how, what the real shape of products and services are going to be.
It changes in how companies operate.
It changes in what business models are available and all of these things.
You really look, even if you’re not yourself, purely the technology company, you look for
changes in the technological landscape because fundamentally, if you don’t have a technology
strategy, it’s not an IT strategy, it’s not am I using PCs or Macs or iOS things.
It’s a technology strategy and that you’re going to need to evolve with.
And so AI, which is the cognitive industrial revolution and my belief is going to transform
probably every industry and if not every, almost every.
It’s between almost every and every.
So everybody needs to be looking at it to say, “Okay, what does this mean for my product
service, my competitive landscape, the way that we operate as a company, how we do sales
and marketing, how we do account management, how we do customer service, what other ways
of which we operate, whether it’s supply chain, finance, risk mitigation, et cetera.
What are all the ways that this can come in and give me a competitive differentiation
for how the new world is going to look?
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You have to have speed.
And this is one of the things that Silicon Valley has learned more intensely than anywhere
in the world other than maybe China.
You are a truly prolific entrepreneur, PayPal, LinkedIn, Airbnb, open AI.
What were some of the learnings that you learned at PayPal that helped you become a great entrepreneur?
People are familiar with pivots because it’s not working.
But pivoting towards opportunity is one of the things that entrepreneurs really need
to keep in mind.
What scaling companies is prioritizing speed over efficiency in an environment of uncertainty.
Speed over profitability.
Yes.
The only way to speed up learning it and deploying it and scaling it is the game.
Sometimes entrepreneurs are told, “Oh, ignore risk.”
No, no, no.
Take smart risk.
When you’re scaling really fast, hiring really fast, how can you maintain a healthy
company culture?
You have to intentionally…
Yeah, bam.
Welcome back to the show.
Today, we have a true legend on the podcast, Reed Hoffman, who is the co-founder of LinkedIn
and Inflection AI is joining us.
He’s also a renowned venture capitalist.
He’s been behind companies like Airbnb, PayPal, so many great, huge companies that have moved
the world forward.
He is also a partner at Greylock.
He hosts a podcast, Masters of Scale, and he’s a prolific author.
He’s got a brand new book out on AI called Super Agency, which we’re going to dig into
in this conversation.
Me and Reed talked for well over an hour and 20 minutes, which you guys know I love to
do when somebody is just absolutely amazing.
I want to keep them on for as long as possible.
Reed was one of those guests.
In part one of this conversation, we really focus on entrepreneurship.
I talked to him about his early entrepreneurship endeavors.
We learn about his failures and big learning lessons.
Then we go into scaling, all of his strategy for scaling businesses.
Guys, he’s scaled huge companies.
Like I mentioned, LinkedIn, Airbnb, PayPal, he’s behind some of the biggest companies in
the world.
He’s got a lot of great content when it comes to scaling businesses, specifically his Blitz
scaling methodology.
Then in part two, we really focus on AI.
He wrote a new book called Super Agency.
It’s all about how humans are going to have agents moving forward, AI agents.
I really pick his brain on his optimism towards AI and how he imagines the future to be with
AI in the picture.
Everything’s going to be changing.
In part one, like I mentioned, we’re talking about entrepreneurship.
Stay tuned for that and enjoy my conversation with the amazingly talented Reed Hoffman.
Reed, welcome to Young and Profiting Podcast.
It’s great to be here.
I’ve been looking forward to this.
Me too.
First of all, I want to say I feel very honored to have you on the show.
You were a truly prolific entrepreneur.
You’ve literally helped push the world forward for decades.
You’ve been a leader at companies like PayPal, LinkedIn, Airbnb, now Inflection AI.
You also were a part of OpenAI.
You’ve just been behind so many huge companies that have pushed the world forward, like I
said.
I wanted to ask you, when you think of all your contributions to the world and all the
companies that you work with, because you don’t have to work right now, you choose to
work.
You must be thinking about, okay, what makes me want to work with a company?
What is your mission and what is the red thread with everything that you’re doing in the world
right now?
I guess probably it’s like I’m, to put it philosophically, a humanist.
Which is how do we make ourselves better individually and as a group?
It’s empowering a bunch of different individuals’ lives, but also leaving the world much better
than we found it.
How do we do that?
That’s the red line through everything I do, including companies.
Because you want to do companies that, of course, have all the normal company things
of providing great product services and jobs and all the rest, but you also want it to
be the impact that you have on the world, leaves the world in a much better place.
You transform industries, you transform societies and like all the companies you mentioned that
I’ve been involved with from the earliest stages, whether it’s personally LinkedIn and
PayPal or as an investor and board member, Airbnb, open AI, all of it has a theory of
how does this improve human life, human work, quality of experience.
How do we elevate ourselves, become more the people we aspire to be?
And in a similar way, in a similar token, I’d say you’ve said in the past, society flourishes
when people think entrepreneurially.
So talk to us about why you believe that the more entrepreneurs that we have in the world,
the more that mankind is better off.
It’s part of how you create the future.
Everything that we have in our lives, I mean this podcasting stuff, these computers, these
phones all come about through entrepreneurial innovation and it’s part of how the new future
is created and it’s part of how prosperity is created, it’s part of how life is improved.
And basically, we wouldn’t get to, even when you say, well, wait, there’s also science
which events, vaccines and other kinds of things, although a lot of vaccines are commercial
these days and have an entrepreneurial bent like Moderna.
And so it’s this invention of new things and it’s envisioning the way the world could
possibly be.
How could you create something that would be of service to, this is one of the things
I think people always forget about, the process of Adam Smith and capitalism is this theory
of moral sentiments.
How are you being of service to other people and that entrepreneurial creation of business
and products and services is a really key part of it.
And when you look around our lives and all the things in it, it was earlier entrepreneurs
that we were building upon their work.
So speaking of building on entrepreneurs of the past, my career has totally skyrocketed
from LinkedIn.
I was able to become a full-time entrepreneur with my social agency and my podcast network.
And so my question to you is, LinkedIn has blown up into this huge platform.
It’s one of the biggest social media networks in the world, 135 million daily active users.
Was your vision for LinkedIn what it is today?
What was your initial vision and did you ever imagine it would scale to what it is today?
So when you start a business, you should think about this as a kind of probabilities of outcomes.
So I did think that LinkedIn could become what it is today.
I actually even think things that were could be bigger and could be on path and you could
be asking me this question in five years when I achieved a bunch of new things and I would
also say, “Hey, yes.
This is possible.”
Now, are we in a low probability but high result future from when I started LinkedIn?
Absolutely.
You have to be rational as an entrepreneur and part of what sometimes entrepreneurs are
told ignore risk, take smart risk, manage it smartly.
And so when I started, it was like, well, we could be this big and there’s all of these
outcomes between here and there, which include not succeeding at all, that you manage your
way towards even as you have the moonshot, if you shoot for the stars, maybe sometimes
you only get to the hills, but you have to be shooting for yours.
You have that, but you’re wise about it.
And so yes, there’s learnings and we can go to the depths of which things I made mistakes
on or which things turned out to be new surprises with LinkedIn.
But I would say that we’re within the probability set that I thought was possible.
I love that.
And I’m definitely going to be asking you about scaling a business and all of your guidance
around that.
But first, before we do that, I do want to talk about your early entrepreneurship days
because a lot of the listeners tuning in, they’re young entrepreneurs, they’re failing
every day, which is a big part of eventually becoming a great entrepreneur is failure at
first that you can learn and get better.
So you started a company called SocialNet, which actually was a failed startup.
When I read about it, you could tell me what you think, if it was a failure or not, but
it was a social app for dating way before we had the dating apps of today, like Bumble
and things like that.
So it was like a really innovative concept.
Tell us about what happened with that company, why you ended pivoting to something else and
some of the failures and learnings that you had from that.
So a lot of the writings I’ve done are all the learnings from mistakes.
There was almost never anything like I just got to write the first time.
It was that you iterated at speed and you kept adapting and you kept learning.
And that’s one of the rules of entrepreneurship is always be learning.
So SocialNet, you know, I started with the kind of this theory of, oh, I’ve learned how
to create software products.
I know what a really good thing would be.
I’ve got a great product idea, let me go raise some venture capital.
Let me release the product.
Well, a huge number of things, everything from, you know, if you’re not embarrassed
by your product release, you’ve released too late relative to software and consumer
internet because I thought I would polish it and get it just so right and beautiful
before getting out.
And when we released, we quickly discovered half the things we’d spent months on were
completely useless.
We thought that the game was entirely about, well, did we have a vision for product quality?
And we didn’t spend that much time thinking about, like, our go-to-market strategy, which
is fundamental to entrepreneurship.
And so it was just failure after failure and recovery.
But the two ways that I kind of kind of learned to summarize this was, one, is I perhaps never
learned so much in my life except for between the ages of two and three because when you’re
falling over and learning it and standing back up.
And then the other one is every Friday, there were things I wish I had known on Monday.
And those things I wish I known weren’t person X is going to return your phone call or this
partnership pitch won’t work out.
It’s literally how to play the game, what to do.
And so it was a tremendous learning experience, which of course means lots of scars, tissue
and a lot of blood on the floor.
And I’d say that it was, you know, in Silicon Valley terms, a failure.
We returned the investor’s capital, but that was all we were able to do fundamentally.
And so I love that you started as an entrepreneur and you learned a lot with social net.
And then you went to PayPal, right?
And you learned as an executive there before you went and co-founded LinkedIn.
So talk to us about that.
What were some of the learnings that you learned at PayPal that helped you become a great entrepreneur?
So part of what happened is two friends of mine, Peter Thiel, Max Lovechin came to me
and said, “Hey, we’re starting this business.
We’ve been doing this for a year and a half with social net.
We’d really love you to join the board.
We’ll have you and Scott Banister join the board.
And could you do that?”
And I said, “Yes, because I’ve just come through a year and a half of learning every
week.”
And so a bunch of this stuff, PayPal had a initial booster pack on, which is all the
various lists, which is hire people who are high talented learners, more than people who’ve
had a ton of experience.
I mean, they must know how to do the job.
But it’s supposed to look, “I’ve done this job for 10 years.
I’ve done this job for at least a year or two, and I’m an intense learner.”
So PayPal started as a encryption technology on mobile phones, went to cash on mobile phones,
went to cash on Palm Pilots, then went to cash on Palm Pilots plus an online synchronizing
payment service, and then quickly converted to an online master merchant.
And the last pit was after it launched.
And so all of that initial cryptology on mobile phones was completely thrown out the
door and useless.
Because again, it was kind of this, “Don’t just build something because it’s an interesting
product.
What’s the market need?
How are you getting into it?”
And so there were just tons and tons of experiences.
I’d say one of the central things that I learned about entrepreneurship from PayPal was the
speed of execution, the speed of making decisions.
And so one of the things, I mean, there was a whole stack, again, we could take this entire
podcast.
Things I learned from SocialNet, things I learned from PayPal, things I learned, just
each one of them.
But part of the thing was basically, I kind of adopted there, which I wish I’d had at
SocialNet, this decisioning mode where when I’m confronted with a decision, I say, “Can
I make this decision right now?”
And if I can make the decision right now, I go, “And by the way, the usual answer is,
what decision would I make?”
I was like, “Okay, I would decide X, not Y.
Okay.
Is there anything that I could learn by researching, talking to people, et cetera that would change
from X to Y?
Okay, what’s the cost and time to do that?”
And if the cost and time is too great, you just make the decision, go with X, and you
live with it.
And maybe sometimes part of X and Y is, is it a one-way door or a two-way door?
Because if you can recover from it, you’re less likely to go do the research about should
you decide Y versus X.
Part of this practice, it gets you comfortable with making decisions at a really intense
speed where you’re uncomfortable with it because you don’t know everything when you’re making
the decision.
And that was one of our many ethoses at PayPal that allowed us to navigate this just like
lots of things almost blew us up.
And it was definitely a X-wing fighter going into the Death Star.
Oh my gosh.
Are we going to live or die on this thing?
We succeeded.
Yeah.
And I’m sure you’ve gotten really comfortable with uncertainty and taking these risks without
really knowing if it was the right or wrong decision.
And like you said, prioritizing speed over anything else, which is so important.
And I know you say that in your book, Blitzscaling, which you put out in 2018.
And even though it was put out seven-ish years ago, it’s still super relevant.
So I did want to cover it.
So you talk about Blitzscaling, and basically it’s a concept that is about achieving market
dominance quickly.
So can you go over some of the key principles of Blitzscaling?
And I’ll ask you some.
I’ve got like lots of questions about it, but I’ll let you summarize it first.
The pithy way of saying what Blitzscaling is about is it’s prioritizing speed over efficiency
in an environment of uncertainty.
And to unpack that a little bit, it’s that when you’re playing games where we call in
the book, Glenn Gehrig, Glenn Ross games, which is first prize is a Cadillac, second
prize is Stichnize, and third prize you’re fired.
You have to have speed and speed to scale.
And this is one of the things that Silicon Valley has learned more intensely than anywhere
in the world other than maybe China.
China is one of the few areas where I’ve also learned Blitzscaling games.
And it’s one of the reasons why when you look at Silicon Valley for the tech industry, the
whole population of Silicon Valley barriers like three and a half million that’s like Ireland.
And yet the number of global tech companies that come out of Silicon Valley versus anywhere
else in the world, and to some degree, including China, because we’re talking global here,
although, you know, there’s obviously ByteDance and TikTok and so forth, is just enormous.
And why is that?
ByteDance, the answer is because this hyper competitive game of Blitzscaling is something
that we have learned to do.
And you don’t do Blitzscaling as a goal into itself, you do it as a competitive tool relative
to being first prize versus second or third, because your particular industry, your particular
company, your particular potential industry transformation is worth it.
So you were just talking about how you have to basically prioritize speed.
So when we’re Blitzscaling and we’re prioritizing speed, lots of things can go wrong, right?
Because you’re prioritizing just hiring really fast, making fast decisions.
Things are not perfect.
So talk to us about some of the operational risk that is involved with Blitzscaling and
some of the fast decisions that people have to make.
Typically, obviously, people in business schools teach reduce uncertainty and prioritize learning
for efficiency.
But if what you’re doing is saying, well, we really need to get to scale very fast relative
to either a market because of a scale mechanic or because of competition, you’ll say, “Which
risk can we take to get to that scale product market fit much faster than our competition?”
And so, for example, classically what happens in a lot of these Blitzscaling companies is
people who are traditionalist business people will say, “What’s your operating margin?”
And you need to prove your operating margin.
I myself sat in early Airbnb meetings where one of the VCs was saying that.
And I had to speak up and say, “Nope, bad question, not a question to answer right now,
because we’re in a software business, we don’t have these capital hard assets, even though
they’re being rented and transacted in it, that’s not on our balance sheet.
What we just need to do is get this to scale and be the growing marketplace of that and
we’ll figure out operating margins later.”
But that’s, of course, what the size of your operating margins are, is how valuable your
business is.
And when you get to the operating margins, it will be when people start valuing your
business more.
And you’re like, “So that’s a very counterintuitive thing you say, we’ll take the risk on wherever
our operating margins will end up because getting the scale more quickly and fast and
taking experiments with like, for example, what you’re doing in marketing, what you’re
doing in hiring, what you’re doing in product development, we’ll just try it and we’ll iterate
and move quickly and we’ll abandon the things that aren’t working.”
And that’s essentially, and that’s part of the reason why Airbnb is one of the, as you
know, is one of the examples that we open Blitzscaling the book up with to kind of show
a modern example of these are a set of decisions that you make.
And then I forget which chapter, but there’s like eight counterintuitive rules in Blitzscaling
in the middle, which is like embracing chaos and hiring Ms. Right Now versus Ms. Right
in three to five years, because again, with the learning curve, those are all things you’re
doing to go, “Go fast now, go fast now, go fast now,” and iterate and change.
And that’s part of why Silicon Valley produces just transformational technology companies
for the world.
So it’s really what you’re saying, it’s about speed over profitability.
Yes, or any form of efficiency.
One of the things that I learned remotely from Uber, because they were another Blitzscaling
company we covered elements of in the book, is one of the things when Uber is like, “Oh
my God, we need to hire engineers really fast.”
So what they would do is they’d re-interview an engineer, a reference check on an engineer,
and they’d offer engineers Sarah a job.
And then when they offered engineers Sarah a job, they say, “Okay, well, we’d like to
interview with you.
Who are the top three people you work with at your current company?”
And then just send those three people job offers.
It’s Blitzscaling, because it’s like, “Well, maybe they’re not going to really work out.
Maybe they’ll think it’s a little weird and creepy that they got a job offer out of the
blue with a pitch, but it’s part of the going fast.”
And so it’s not just profitability, it’s efficiency and everything.
Let’s hold that thought and take a quick break with our sponsors.
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When you’re hiring that fast, like you just gave that example of Uber, I have to imagine
that your company culture might suffer and it might become a little bit chaotic.
What’s your guidance for when you’re scaling really fast, hiring really fast, how can you
maintain a healthy company culture?
You have to intentionally try to do it.
By the way, Uber is an example of something that had a very chaotic and challenging company
culture and had to refactor it to be a good stable public company you’re getting.
The usual heuristic rule of thumb is that refactoring culture is actually in fact really
hard.
It is hard.
It’s not necessarily impossibly hard.
Dar really demonstrated with Uber.
Actually, we had a Master’s Scale episode on that because it was the question of, “Okay,
so you inherit something that’s got a lot of really broken parts.
What do you do?”
The punchline was, “You don’t show up and say, ‘New Sheriff in town,’ you say, ‘Hey,
we did these great things.
We already have what’s greatness in this.
Let’s focus on the parts that are great and use those to refactor the other parts.'”
So as opposed to saying, “Now, friends, something entirely new, we’re returning to the central
roots of our greatness and then refactoring the other ones.”
That’s actually, I think, a good change.
Now, that being said, we’ve had a lot of culture episodes and part of that’s because you should
be intentional about it.
The intentionality can be not hiring as fast as Uber did.
So we’re like Workday and Anil Busri.
It was Ian as co-founder Dave Duffield did a cultural interview at the end, even though
he is being the CEO, did a cultural interview at the end of every hiring process for the
first 500 people.
That slows you down some, but that’s one way to do it.
Another way is the culture deck for Reed Hastings, which actually just started as when they were
looking at the attrition of, like, why are people leaving?
It was like, “Well, they didn’t understand our culture when they got here.
So let’s first create a culture deck to onboard them and then, oh, shit, we should publish
it.”
Right?
So if you’re looking for a family, go to other companies.
If you’re looking for a team, like a professional sports team, come here because our culture
is we ask ourselves a question every quarter, every year.
If you wouldn’t hire this person right now, give them a severance package, go hire somebody
else.
And so you create these cultural moments and these are all the different tool sets that
you create for your particular business, your particular founders, management team, product
market fit, competition landscape, et cetera, because it’s not one culture, one size fits
all, but being intentional is very important.
Everything has a consequence, right?
There’s pros and cons to everything.
You can implement all these systems.
Like, I’m thinking about my own company right now.
I used to hire so quick.
I would just go on LinkedIn, find somebody, poach somebody, DM them, do an interview, hire
them.
Now, it’s a months-long process.
And I can feel that sometimes it’s really hurting us and I’m like, “I just want to go
poach somebody off LinkedIn,” you know?
It’s just like really just pros and cons and you’ve got to figure out what is the right
thing for your business and make the right decision.
So why is first mover advantage so important?
The whole point of Blitz Scaling is so that you can basically build a moat around you
as a company, but why is that so important?
Well, first mover to scale gives you all kinds of energy.
It doesn’t actually necessarily need to be first mover out of the gate, but the first
mover to scale, part of Blitz Scaling, is really critical.
Now, sometimes, by the way, the way that you become first mover to scale is you’re the
first mover out of the gate because you just keep going, right?
But that kind of getting the scale can have all kinds of advantages.
One is capital markets reward you versus whoever’s in second place as part of the Cadillac
and Steak Knives.
Please more want to work there that when customers or members, if it’s consumer internet thing,
think, “Well, what’s the one that everyone’s talking about?
It’s the one that’s the first to scale.”
And so in all of these fields, you have advantages.
Now, you might also have a business with network effects, where those network effects become
a really important growing super linear kind of competitive moat, whether it’s like Airbnb
or Uber or others, LinkedIn, or if it’s just a, “Well, I’m ahead.”
And so by default, all of the different forces that come together to make a company successful
are more aligned and believing you’re number one because part of what entrepreneurship does
is I have this vision.
It’s currently not operative.
I’m persuading multiple different constituencies to come invest in my vision.
It could be investors with money.
It can be employees with their time and ownership.
It could be press with their belief in what’s going to happen.
It can be customers who go, “Okay, you’re a startup, but I’m going to start using you
now anyway because I believe you will be the right thing in the future.”
All of these things is what you do as an entrepreneur is you persuade people to come and help build
your vision.
When you’re the first mover to scale, you have a lot more of those people believing in
you and therefore investing in you.
The cost of customer acquisition is lower.
Your cost of speed of recruiting employees is lower.
Your cost of capital is lower, et cetera, et cetera.
The weight of your brand is giving you all of this advantage, like the brand recognition.
Brand can definitely be a strong part of it, but it’s also the question of who do each
of these groups think is going to win.
So it’s a little bit different.
I mean, brand is also what is your brand promise, what are you going to become.
And awareness is part of it, but it’s like, “Okay, we think you’re going to win.
Now when you have dynamics like a network effect, then your brand might be mediocre,
but a network effect is incredibly good within a business or within any kind of entity that
has it.
It’s a very strong amplifier.”
So talk to us about that.
I know Airbnb had a network effect.
What’s a good example of one?
Networks are usually, but not always.
So LinkedIn has one, Facebook has one, WhatsApp and Instagram.
For example, when you look at Google, the network effect isn’t the search index.
That’s a scale index.
What it is is the AdWords, because the AdWords begin to get when you’re kind of that large
and differentiated and have the data and intelligence enough, you end up with a better cost.
You can provide an ad at what is a lower cost to you and a higher price to your customer
and have a higher margin revenue than your competitor that’s trying to sell something.
And so its network effect is in the AdWords.
So part of when you’re looking for these mega scale businesses, usually there’s some interesting
network effects that really power them.
I know that there’s different stages involved with Blitz Scaling.
So there’s family stage, tribe stage, village stage, city stage, nation stage.
So I was thinking about my company, and I think we’re right in between tribe stage and
village stage.
I think there’s probably a lot of growing pains in that stage, right?
Like we’re doing amazing, but I feel like it’s just like scaling is really hard.
And I feel like that is the first instance of really scaling.
So talk to us about each one of these stages, what do we need to think about?
And you can be high level or as deep as you’d like, but if you can just break down how companies
generally scale and the stages that they have.
So the basic idea was to say, when you’re hyper scaling to a market, obviously everyone
wants to have as much revenue and as much customers per employee as one of the ways
to benchmark businesses, but almost all businesses also get to growing their employee base for
various reasons.
It’s sales and new products and features, new product lines and customer service and
account management and finance and everything else.
So you generally speaking need to be scaling your employee base at some rate with your
business.
And so the thought was as you’re getting to scale product market fit, one of the challenges
you have is you’re scaling the size of your operation in all of these different vectors.
And so that proxies to number of employees.
And so we broke it up into the five categories that you just outlined.
Thank you.
And we said, look, when you’re getting to each of these things, what got you here won’t get
you there.
When you’re at the earliest stage, it’s like, you know, a couple of people, maybe you met
one of them, you hired them, you’re all in a room, communication isn’t really an issue.
The culture is usually like, well, we went out for beats in a beer and we talked about
it.
And that’s our company culture.
Like we figured out what we’re doing.
And as you get larger, all of these things change in the very earliest.
Everyone’s working.
And then you get to, there’s people who are working and being managers.
Then you get there’s people just being managers, then you get people who are managing managers.
And each of these things change at levels of scale as you go up of how you run communications,
how you make decisions, how you pivot or readjust something.
All of this changes, which risks are you willing to take?
Like for example, Facebook went and people thought this was different, but it was like
move fast and break things to move fast with scalable infrastructure.
And I was like, oh, you got wise and you changed your theory of moving fast like narrow.
What we realized was in a very early stage, move fast and break things was the way to
optimize speed.
And then in our later days, the way to optimize speed was move fast with stable infrastructure
because we broke the infrastructure.
It was too hard to fix.
And we suddenly were moving slower.
So it’s still both speed principles, but those changes, because for example, move fast and
break things weren’t totally fine when you’re 40 people.
When you’re 500 people and the infrastructure breaking and everything breaks, let’s keep
the infrastructure running.
However, many other things we may be breaking as we’re moving fast.
So all of those things go into the different levels and nation is kind of the placeholder
for public company, you know, thousands of employees, et cetera.
And just saying, hey, the rules here change too.
And your mistake is trying to run the same way as you might be even in a village with
you’re in a nation.
Even though you’re of course trying to keep speed, you definitely keep a vibrant culture
and high performance and high quality talent, the nature of the game changes as you change
size.
So interesting.
I highly recommend that everybody read Blitzscaling.
I loved reading through it.
I want to read it in even more detail because I feel like it’s just so relevant, especially
as like a newer entrepreneur scaling your business.
If you’ve never done it before, build a company that’s a nation-size company, it’s definitely
a good read.
So when you’re thinking about making intelligent risk, this is something that we were talking
about earlier.
Do you have anything that you think through, questions that you ask yourself to make sure
that you’re not just taking any risk and that you’re taking a risk intelligently?
Well, there’s a couple of quick hacks on every major decision, maybe not surprising from
the co-founder of LinkedIn, is I think, who are the three to five people I’d most want
to talk to about this?
Because it’s kind of like, where would they give me knowledge, expertise, different cognitive
tool set, different analytic framework, et cetera.
And with that, what I predict, that would be very helpful in this particular decision.
And frequently, those people, while you have a lot of great people in your company, there’s
a lot of them wearing any particular decision outside your company.
And that’s part of the thing of like, okay, what would it take to go get that when I get
the right, what kind of inspiration I get, would I be unknown and I would try, et cetera.
That’s one.
Because analyzing the risks is knowing which only few things to focus on and which other
things to really just ignore, because one of the, as you know, plan scaling rules are
like embrace chaos and let fires burn because you’re like, we’ll solve that later.
We don’t have to solve everything right now.
We can only focus on a few things.
Another one is to think about, all right, even if it’s painful to solve something later,
like for example, we were talking about the Uber hiring thing, can we solve that one later?
Because which the ordering of problems that we need to solve.
And some of the risk is we’re not going to solve that problem right now.
We’re not going to be able to measure it right now.
The only way to really measure this is to do it.
One of the things that modern consumer internet mobile entrepreneurs have learned is this
thing that’s paradoxically called paper testing, which is you put up an ad and you say, here’s
our thing.
And you see what the click through is, even though you don’t have anything behind the
ad because you’re measuring it and trying to get data because you’re trying to figure
out what the thing is, this is the toolbox of the cost of de-risking.
Which low cost things can you do talking to someone taking paper ad doing other things?
Can I do to de-risk this?
And then at the end of the day, you make the risk bet.
Now some of the red teaming thought is, well, if I’m wrong on this decision, what are my
plans be?
How do I recover?
If I go, ooh, this one, we’re just dead.
Not, oh, it’s painful.
We’re dead, if it doesn’t work, oh, okay, well, let’s invest a little bit more on the
risk decision if we can.
But by the way, part of what startups do is you’re making the bet.
If you’re not making the bet, you’re ultimately going to fail.
We’ll be right back after a quick break from our sponsors.
I want to talk about AI, but before we do that, I’ve got a little quick fire section.
I’ve pulled out some of my favorite quotes that you’ve said about entrepreneurship, and
then I just want to get some more color on each one of these quotes.
Okay.
If you aren’t embarrassed by the first version of your product, you shipped too late.
Well, that’s what I talked about a little bit already with socialite, which is, look,
there’s the number of people who are product geniuses that go, oh, when I pull back the
curtains, everyone’s going to go, ooh, la, la, you are perfect.
That’s less than 1% of entrepreneurs and product people, and yet everyone thinks they are.
Obviously, you should be a good product person, otherwise you shouldn’t be doing the product
side.
Entrepreneurship is doing something else.
But the right thing is how do you learn from your customers?
How do you go?
Which things?
And that’s part of the reason why minimum viable product, product market fit, all of
these things, kind of testing your hypotheses, using other data as a way of doing it.
Because if it’s speed to market and speed to learning, and part of the reason why embarrassment
is because our natural instinct as people, as entrepreneurs, is we want you to tell
us, oh my God, we love what you did.
And actually, in fact, you want them to grow to love what you did.
And obviously, the more they love it at the beginning, that’s great.
But your speed of learning it and deploying it and scaling it is the game.
I’m smiling because I’m just thinking about me being an entrepreneur and something that
my business partner always says is my favorite thing is to just announce something.
Even before it’s ready, before I have any idea how to do it, I love to just announce
we’re doing this, and I’m like, well, we got to figure it out.
Exactly.
OK, so don’t wait for something to fail before you learn or before you consider a change
or pivot.
The best pivots are to take advantage of an upside rather than to avoid a downside.
So obviously, people are familiar with pivots because it’s not working.
And there’s different ways to get to the conclusion before it totally is a train wreck.
You want to make the decision that’s not working before the train wreck happens, change tracks.
But one of the things that people under-describe is a pivot to a new opportunity.
And in some sense, this is the PayPal story that we were talking about a little earlier
because they said, well, we have this really great unique technology, and we’re figuring
out that it’s not really going to work, and we’re pivoting away from it because too hard
to get to market.
And then what happened is you released this kind of PalmPilot plus a synchronizing payment
service.
And what happened is eBay people started using it.
And I remember the first week in the conversation of PayPal was, who are these eBay people?
Should we stop them from using our product?
And it was like, no, no, no.
Those are our customers.
None of these people are our customers.
Those are our customers.
We’re going to pivot entirely towards them.
And so pivoting towards opportunities, seeing what happens, and sometimes, by the way, it’s
like, oh, you’ve been working on the software product, and now AI is here, and you’re like,
OK, I’m going to do AI.
Yeah, I know I did this last 18 months of work, maybe three months if it’s recoverable,
because that’s the opportunity.
And that pivoting towards big new opportunities is one of the things that really creates these
successful businesses because we want to tell this heroic story where she or he had this
original vision that came down from on high, and they came down with the two stone tablets.
And they said, I’ve got this vision that goes on forever.
And that’s reason I’m a genius.
And it’s like, well, actually, in fact, a lot of things happen based on, well, I was
in the game, I was learning, and I saw this new opportunity that emerged from the market,
a technology, a set of things with competitors, and I moved towards that.
Like, for example, Google, it’s theory of, when it launched, it was we’re going to sell
enterprise search.
That’s our theory of the game.
Then they saw, and then, oh, it’s not working.
Oh, our backup plan is to put double-click ads on top of it.
Oh, shit, the whole ad market went.
What do we do?
Oh, now we end up at AdWords.
And they pivoted from enterprise to consumer, and then consumer to using elements that they’d
seen from the market, but inventing their own version of how to make a really powerful
business.
And it’s one of the most powerful business models that’s been invented in human history
so far.
And so that pivoting towards opportunity is one of the things that entrepreneurs really
need to keep in mind.
It’s not always that you’re failing.
Your company could be doing good, but you just want to go towards even a bigger opportunity.
Yes, exactly.
No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always
lose out to a team.
Again, we tend to tell these heroic myths of the individual entrepreneur or she or he
is like, “I am the person, the creator, the innovator,” et cetera.
And actually, in fact, all of these projects are the result of teamwork.
There’s almost nothing as an individual.
And part of the thing is you want to be, to some degree, the best entrepreneurs, the
people who recruit and bring around them, the most amazing teams who work with them
for a long time.
And actually, obviously, part of the thing is the truism tends to be higher, slow, fire
fast.
The higher slow, you can see whether that works.
If you’re really going to hire slow, you better be hiring all the time so that your
pace of hiring is in match not like, “Oh, I need a person now.
I’m going to start looking.”
I start recruiting for people I think I’m going to need six to 12 months from now today
as an instance.
And so, that team sport is really important, but it’s not just the employees.
It’s also the people around you.
So the advice to give entrepreneurs is not to go up to people and say, “Hala, what do
you love about my idea?
What do you think about my idea?”
Because I’m asking you to tell me, “What’s wrong with my idea?
What thing could make it break to learn from it?”
And so, having those teams built around you outside your company, advisors, investors,
experts, industry people, et cetera, is really, really important.
And that’s why entrepreneur is a team sport, is a network sport, not simply an individual
sport.
Okay.
Last one.
Just as the Industrial Revolution created new opportunities for collaboration and new
capacities for innovation, creativity, and productivity, the cognitive revolution will
do it as well.
This is, I guess, bridging into our AI discussion.
The thing that happens that we’ve learned with entrepreneurship is new technologies completely
change industries, sometimes every industry, like AI with general purpose technologies
and the parallel between chat, GBT models and general purpose technologies, always something
I’m finding a little entertaining, but you look at these technology changes as changes
in market landscapes.
It’s changes in how, what the real shape of products and services are going to be.
It changes in how companies operate.
It changes in what business models are available and all of these things.
You really look, even if you’re not yourself, purely the technology company, you look for
changes in the technological landscape because fundamentally, if you don’t have a technology
strategy, it’s not an IT strategy, it’s not am I using PCs or Macs or iOS things.
It’s a technology strategy and that you’re going to need to evolve with.
And so AI, which is the cognitive industrial revolution and my belief is going to transform
probably every industry and if not every, almost every.
It’s between almost every and every.
So everybody needs to be looking at it to say, “Okay, what does this mean for my product
service, my competitive landscape, the way that we operate as a company, how we do sales
and marketing, how we do account management, how we do customer service, what other ways
of which we operate, whether it’s supply chain, finance, risk mitigation, et cetera.
What are all the ways that this can come in and give me a competitive differentiation
for how the new world is going to look?
[MUSIC]
[BLANK_AUDIO]
Despite having a strong product idea, Reid Hoffman’s first startup collapsed, forcing him to return investors’ capital. This tough experience reshaped his approach to entrepreneurship. By embracing failure, iterating quickly, and adapting relentlessly, he went on to become a leader at PayPal and later, the co-founder of LinkedIn. In this episode, Reid shares the concept of blitzscaling, which prioritizes speed over perfection, smart strategies for taking risks, and insights on achieving rapid market dominance.
In this episode, Hala and Reid will discuss:
(00:00) Introduction
(01:32) Building Impact-Driven Businesses
(02:56) Why We Need More Entrepreneurs
(04:31) The Vision Behind LinkedIn’s Success
(06:43) Lessons from a Failed Startup
(09:26) Making Quick, Intense Decisions at PayPal
(12:39) Blitzscaling: Prioritizing Speed Over Efficiency
(18:10) Maintaining Company Culture While Scaling
(21:20) The Power of Early Market Dominance
(25:01) The Five Stages of Company Growth
(28:54) Strategies for Taking Intelligent Risks
(31:44) Why Product Perfection Delays Success
(33:25) Pivoting Early to Seize New Opportunities
(36:18) Entrepreneurship as a Team Sport
Reid Hoffman is an entrepreneur, investor, partner at Greylock, and co-founder of LinkedIn and Inflection AI. He was an executive at PayPal and a founding investor in several companies, including OpenAI. Reid actively supports various non-profits and has received numerous accolades, including an honorary CBE from the Queen of England and the Salute to Greatness Award from the Martin Luther King Jr. Center for his philanthropic efforts.
Connect with Reid:
Website: reidhoffman.org/
LinkedIn: linkedin.com/in/reidhoffman/
Twitter: x.com/reidhoffman
Instagram: instagram.com/reidhoffman/
YouTube: youtube.com/@reidhoffman
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Resources Mentioned:
Reid’s Book, Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies: amzn.to/4jnQkfQ
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