Lecture 13 - How to be a Great Founder (Reid Hoffman)

Reid Hoffman 0:00 Thank you, Sam. Uh, so when I looked through the syllabus of this class and thought about what, uh, I could possibly add that would be useful in addition to the various skills, one of the things that I've been thinking about has been, how do you think about yourself as a founder? How do you think about what the skill set is? And what are the things that you should be thinking about in terms of am I ready? How do I get ready? Is it the right thing for me? These sorts of things. So let's start with the perception of what a great founder is. And classically, you know, this tends to be Steve Jobs, Bill Gates, Elon Musk, Mark Zuckerberg, Jeff Bezos, and it's an image of founder as superwoman or superman, right? Who is-- has this, like, panopticon of skills, and I can use the word panopticon because I'm here at Stanford.

Speaker 0:55 [laughs]

Reid Hoffman 0:56 Um, but, uh, the, it, it's things like I know how to do product market fit. I'm great at product. I'm great at strategy. I'm great at management. I can fundraise, [laughs] right? I can do all of these different skills. And part of what you're looking for in a great founder in the kind of theory of the founder as super person is, I'm looking for someone who is awesome at all these things. They're, they're, they are well-rounded, they are diverse, they can bat on all skills. And, uh, you know, part of how I found this kind of emphasized in my own, the beginning of my own entrepreneurial journey is, I remember reading an article that said, you know, Bill Gates, who is smarter than Einstein, right? And you're like, well, look, Bill Gates is really smart [laughs] and is very accomplished, but I'm not quite sure smarter than Einstein is actually a phrase that even Bill would want to be actually next to. [laughs] Uh, and it's partially because I think it's this image of founder as super person, which is that a great founder is someone who can do anything, you know, jump over tall, uh, tall buildings in a single bound, you know, all of these sorts of things. And the reality [laughs] , right, is a founder is someone who deals with a ton of different headaches and, um, and no one is universally super powered. Uh, generally speaking, you hope to have a couple of superpowers, some things that are unique edge to you, some things that are unique to the problem that you're trying to solve, uh, some things that, uh, may help you get an edge because actually competitive differentiation and competitive edge is super important. But, uh, but it's not, uh, it's not actually in fact a, a function of, of genius. And matter of fact, uh, frequently, it's very hard to tell the difference between madness and genius because, uh, usually it's the results that play out. And sometimes when you're dealing with uncertain environments, you may even be genius and later be thought to be a, a mad person, or you may be a mad person and you turn out to be lucky and you're later thought to be a genius. So it's, it's actually kind of a challenging set of like, how do you think about, you know, these sets? You know, what is the whole set of skills? And when us mere mortals, you know, come

Reid Hoffman 2:58 into this kind of battle, what is the way-- right way to think about it? And so, um, you know, when I thought about this question of how is one a great founder, you know, part of what you get to is-- Oh, and actually this is probably the slide that for, um, people on, uh, this, this may have been a suboptimal choice for people on video. But it's like these are all skills that are super important, [laughs] right? These are all things that you say, "Well, okay, this is, this is really, really important to do, and you must, in fact, actually do this well," and it begins to look like a superhuman task. And so what I did is I decided to take a s-- a subset of these, uh, and focus on some of the th-- the interesting things to think about what is it that actually makes a great founder? Because it's actually not that you score ten out of ten on all these, you know, you're the, the entrepreneurial Olympiad, [laughs] right? You, you are actually the best at all of these things. So let's start with team. So one way to kind of, I think, talk about exploding the kind

Reid Hoffman 3:58 of the myth of the super founder is that actually, in fact, usually it's best to have two or three people on a team rather than a solo founder. It's not that to say solo founders don't actually play out, and they can, uh, successfully, but most often, two or three people is actually, in fact, a much better-- When I look at these things as an investor and I say, you know, uh, what is a good composition of a project and I-- and founders that are likely to succeed, it's usually there's two or three of them. And the reasons are because, for example, we've already talked about the fact that there's this very broad set of skills. There's this whole set of question about how you adapt your company in order to be successful. And, uh, if you actually have two or three founders, you ha- you have different skills you can compensate because, by the way, everyone has weaknesses. You can compensate for each other's weaknesses. Um, you can, uh, in the diversity of problems that you encounter, uh, as a founder, that you can actually attack them. So one of the things that I, I suggest when you, when you look at essentially a founding team, is to ha- have a real high preference for having co-founders, having a high degree of trust for those co-founders. Because one of the things, by the way, part of the whole entrepreneurial thing is there's lots of ways to die. One of the ways to die is you get a year down the road with your co-founders, and then you're going through a messy divorce, [laughs] right? And that's a, that's a, that, that is, uh, not always, but frequently fatal. And so, um, and then also the diversity of kind of tasks that you're trying to do. And actually-

Speaker 5:32 We're facing-

Reid Hoffman 5:32 Okay. Yes, I was about to say that will be suboptimal [laughs] from the viewpoint of being able to look at the slides. Um, the next thing is location. Uh, and so frequently, I've heard told to me, it's like, oh, Silicon Valley aggregates all of this, uh, super talent, which it does, um, in terms of like, what, what actually, in fact, it's, it's the reason why Silicon Valley, uh, startups are so successful is because all of these great people, immigration, which is hugely important for, for talent and founders, everything else, you know, immigrate here, and that's part of the reason. Now-It's actually, if you think about it from basic math, m- even if you take something that, that Silicon Valley is super strong at, which is essentially software, uh, skills in the last, uh, two decades, not all of the great software people move here. N- not all of them can move here. There are many of them in various other parts of the world. And, and so why do I put choice of location as one of the things it comes down to thinking about whether or not you're a great founder? Well, the reason is, is because what f- great founders do is seek the networks that will be essential to their problem and their task, and they realize it isn't just about, like, kinda like, "I am super person. I can do this anywhere. I can do this, you know, in, you know, the Antarctic," [laughs] et cetera. It's in order to be successful, I have to go to where the strongest networks are for the particular kind of problem or the particular kind of thing that I'm doing.

Reid Hoffman 7:03 And Silicon Valley, by the way, is super good at some, uh, s- kind of tasks, some places that you essentially try to, uh, solve certain kinds of problems. But it is not good at all of them. Let me take, you know, kind of two examples. So one is Groupon. I don't think Groupon could have ever been founded here. Even though it's a software product, it actually even generates a network, which, you know, obviously a lot of the great networks are here, and, uh, and uses a, um, a kind of internet technology, is a mobile product and everything else, all of which we have a lot of great skills here in Silicon Valley, and the networks are really good for this. One of the things that's central for Groupon for its early days was having massive sales forces. And massive sales forces' strengths and weaknesses of networks tend to go together. Silicon Valley tends to be pretty adverse to plans that involve, like, oh, we're gonna, uh, rent a 25-story building, and in 20 of those stories we're gonna have floors of salespeople, and that's how we're gonna get our thing going. That kind of plan here tends to not get a lot of interest, tends to get a lot of criticism, tends to not have talent gl- aggregate to it, tends to have financiers talk about things like capital efficiency and network effects and other kinds of things that are, that are key here. And so it's actually not a surprise that actually, in fact, Groupon require, was required to be actually in Chicago, which is really good at this, as a way of actually kind of getting going and, and showing that even software startups can be in other places. But even if you begin to think about it, you say, okay, well, what kinds of, of, of, you know, other kinds of startups would someone be an idiot to move here to do? Think of someone was doing a fashion startup. Not fashion a la Poshmark, which is, you know, a mobile, you know, marketplace, et cetera, which are a bunch of things that are good here, but, like, I'm dev- designing a new fashion company and I'm gonna come to Silicon Valley to do it. That's actually not such a s- great idea, [laughs] right? And that's not to say the fashion company might be a great idea, but you want the networks that support what you're doing. And so part of the reason why where should I locate my startup is a test for thinking about, uh, am I a great founder is because part of what happens when you're actually founding a company is you're going, I will go to where it's successful this to do, to, to, to be. Because the metaphor that I frequently use for entrepreneurship is jumping off a cliff and assembling an airplane on the way down, and the reason is because it's hard. It has a quasi-mortal exit by which you're default dead, and so you're taking every possible, uh, chance to actually win. And so great founders go, "Look, I'll move to what the network is." And that network is, you know, this graphic is frequently Silicon Valley. But it, for, for tech startups, for mobile, for networks, for marketplaces, you know, this is a really good place to do it. For a bunch of other things, you should think about whether or not it's a different location. Now, here's something that, you know, it's very in vogue, all right, very conventional to say you're a contrarian these days.

Speaker 10:01 [laughs]

Reid Hoffman 10:02 Um, and so let's talk a little bit about what contrarian this actually, in fact, is. Um, so it's actually pretty easy to be contrarian. It's hard to be contrarian and right, and in particular, when you're thinking about, is my idea contrarian or contrarian enough, it's how does a smart person actually disagree with me, right? Is, 'cause if you can't think of a smart person who isn't, like, ignorant or just crazy or something else, but is a smart person who is somewhat expert in this or thinks that your idea has some serious challenges, then it actually isn't contrarian. Right, so contrarian, and contrarian is also, is always... Actually, this is one of the things that Sam and I talked about at Startup School, is contrarian is actually relative to an audience, right? So when you wanna be, when you're, when you're thinking about contrarian in terms of, like, a really good contrarian idea, it's like, okay, what would other, say it's consumer internet, good consumer internet people think is actually, in fact, not yet a good idea? And part of when you think about contrarian is to say, okay, what's the way that, uh, what do I know that other people don't know? Because it isn't just a, oh, I'm brilliant and other people aren't, and that's the reason my contrarian thing is right. That's a very bad test. Might happen to be true. Of course, lightning could also strike you in the field, [laughs] right? You know, so think a lot about, like, what is it that I know that other people don't know? So for example, in the very early days of LinkedIn, part of what I

Reid Hoffman 11:32 advise, uh, all founders to do is go talk to every smart person who will talk to you and give you feedback. So at LinkedIn, I walked around and said, "Here's my idea. What do you think?" Two-thirds or more of my network, including some of the very, very smart people, all thought I was nuts. And the reason why they thought I was nuts was 'cause they said, "Well, look, it's a network product. It's only valuable with a bunch of people in it. First person, no value. Invite second person. Second person, first person it, no value for either of them. They already know each other. When do your, when do you actually begin to deliver on your use case?" Which is, like, 500K to a million people, [laughs] right? And so you're never gonna get to size. It's never gonna grow. Now, what I knew that the critiques, the critics didn't know was that I could think of a set of different ways by which people say, "Look, it's pretty easy to say, look, I believe in the vision of this," or, "I think it's interesting," or, "I think a product like this should exist," or, "I'm willing to play around with it." And I can u- leverage those sets of interests to grow the network to get to enough size that you could begin to deliver on the value propositions in which LinkedIn had. And that was the specific thing that I knew that the critics weren't thinking about. And so when you think about being contrarian, you have to think about-How is it that smart people disagree with me, they disagree with me from a position of intelligence, [laughs] right? And there's something that I know that they don't know that actually, in fact, will play out to be true. Now, in this case, in general, as a, as a founder, it's good to be contrarian in the real sense, and right. Now, the other last part on the contrariness is to think about there's lots of different ways to be contrarian. So, for example, a frequent one will be is like, oh yeah, that's a good small idea, but actually, no, it's not small, it's large. Or, you know, actually, in fact, uh, you can assemble the talent, or while most consumer internet t- uh, startups tend to be like, for example, this is another LinkedIn example, tend to be, uh, only successful if they're rocket ships. Actually, a gradual compounding curve can actually be very, very valuable. LinkedIn never had its rocket ship moment. It was, it was kind of compound year by year. But that, in the consumer internet, tends to be a, uh, atypical to the pattern. So

Reid Hoffman 13:33 here you begin to get to a bunch of sorts of problems that, um, essentially founders run into, which is like, well, should I be doing the work or should I be recruiting people and delegating the work? And classically, the answer to this is actually, in fact, you need to do both, [laughs] right? And, uh, in fact, uh, not only do you need to do both, you need to do sometimes one at a hundred percent and sometimes the other one at a hundred percent, and sometimes, even though this is not so good at math, both at a hundred percent. And so, uh, what you'll see is this is actually classic when you begin thinking about what is a great founder, is you navigate what is apparent paradoxes. So another one that I frequently talk about is you gotta be both flexible and persistent. And the reason for this is entrepreneurs are frequently given the advice to, you know, have a vision, stay firm against adversity. You know, realize that you, you, you have this vision that is contrarian to what other people think, and just ho- stay on track, get through the difficult times, and get there. The

Reid Hoffman 14:34 other piece of advice given with equal vigor is, uh, listen to data, listen to customers, uh, pivot, be flexible, [laughs] right? Part of the thing this comes out to being in terms of being a great founder is to say, well, when should I be persistent? When should I be flexible? And the, the vehicle that I most often use for this is you should have on a project you're doing, like a company, an investment thesis that essentially says why you think, possibly contrarian, why you think this is w- potentially a good idea. It should include what you know that you think other people don't know. And then as you're going into the battlefield, you go, is, you know, am I in fact increasing confidence in my investment thesis or decreasing confidence in my investment thesis? Because if I'm increasing confidence, then oh, stay on track, you know, be persistent. And by the way, sometimes even with adversity, your confidence can, can increase. If it's decreasing, that doesn't mean jump out. Uh, PayPal, LinkedIn, uh, Airbnb, a whole bunch of startups I've been a, uh, I've been part of have had months where you were like, "Oh my God, this-- why did we ever think this was a good idea?" It was kind of a valley of the shadows moment. So, like for example, in PayPal, it was, you know, August two thousand, we were burning twelve million dollars in one month. The l- the expense curve was exponentiating. We had no revenue. Decrease in confidence. However, we say, "Okay, what do we do in order to fix that?" And that gives you your immediate action plan. Another one is, should you have belief or should you have fear, right? Should you have, you know, could it-- sh- should you, should you essentially go, "Well, no, no, I, I have this vision of the way the world should be, and I should ignore everything else, and I should just go with that." Well, again, m- part of what being a great founder is, is being both able to hold the belief, to think about where it is you wanna be doing and want to, wanna be going, but also be smart enough that you're essentially listening to criticism, uh, negative feedback, uh, competitive entries, where you're kind of going, okay, is this changing my investment thesis? Is this changing what I'm planning on doing? It doesn't mean you lose confidence. You have the confidence, but you also essentially have the peril. Again, in this kind of thing of how do you put these two things together? Should I focus internally, build a product, ignore the world, ignore competitors, et cetera? Or should I focus externally? Should I be recruiting? Should I be meeting people? Should I be gathering network intelligence? Again, the answer is both. And the reason why I'm focusing on these kind of it's, it's both rather than either/or is because part of what makes a great founder is the ability to, to, to be flexible across these lines, to sometimes be ninety percent one way, sometimes be eighty percent the other way, be executing the judgment on what does the current problem look like. How is it that when I'm trying to solve this, that I should say, "This is what we should be doing, and how should I be dividing the work?" And part of when you think about these things is you say like, this is another one that's kind of classic, is people say, "Well, I'm completely motivated by data. It's what customers said, the user groups." You know, I've, uh, a lot of entrepreneurial methodologies, lean, other kinds of things we've talked about is like gather the data, be guided on the data. Well, actually, in fact, data only exists within the framework of a vision that you're building to, a hypothesis of where you're moving to. And the data can even be negative, and you can think, well, actually, in fact, this negative data means that I need to change or alter the way that I'm thinking about something, but I actually keep on a specific vision about what I'm doing. And, and by the way, sometimes even when you have that specific vision, you don't necessarily actually ever end up at that big vision that you were thinking about. So, for example, you know, at PayPal, we distributed these T-shirts that said, uh, the new global, uh, world currency, right? Well, actually, in fact, one of the, the-- and I, I know Peter's been here, um, one of the jokes I told Peter is like, "Well, actually, we do have this new world global currency. What we're trading in is dollars. You may have heard of it. It's existed for a while," [laughs] right? We're essentially a master merchant for that. Um, now, of course, this presages what might be happening with Bitcoin, although, you know, there's the whole another topic there.However, the key thing is, is that vision of saying we are creating a kind of a universal network that allows anyone to, to pay, anyone to become a merchant, to bring the electronics into the speed of commerce at any business that, that is being transacted. That vision kept a true north, but we say, "Well, first we think we're gonna have a banking model, then we think we're gonna have, you know, um, a, a, a debt model. Oh, no, we're gonna actually have a master merchant

Reid Hoffman 19:06 model," and how does that actually play out? So you're always combining the vision and the data, and the data is within the framework of, of a vision. And sometimes, of course, the-- what you learn changes your vision. Now, this is one of the ones that I actually think we, we, we, we saved this special picture for one of the ones that I actually think is quite key, is that normally entrepreneurs, uh, founders are thought about as having, like they're risk-takers, right? They're, they're-- they, they, they-- whereas everyone else cowers in fear from this notion of risk, they boldly go out. Now, that's true. You have to be a risk-taker. You have to be thinking about, how do I make a really coherent bet on risk? Because, in fact, the only really big opportunities, the only contrarian opportunities that smart people disagree with you on happen to be one that have risk associated with them. On the other hand, part of the skill set that when you're beginning to apply how you think about risks as an entrepreneur is you're beginning to think about, like, how do I take intelligent risks? How do I take a focused risk that if I'm right about that one thing, [chuckles] right, then a bunch of other things break my way? And once I start doing that, I try to figure out how to make my, my on-shot possibility as high as possible, e.g., how do I minimize other risks? How do I essentially take this risk in an intelligent way that doesn't just go, oh, yeah, risk, risk to the wind. Who cares? Right. Let's go. And so this kind of combines that, you know, th-this image, which I think is the best of the, of the, uh, of, of the images we found for this yet, is kind of the sense of how to think about it. Now, back to what I was, uh, saying in terms of, uh, having an investment thesis. Part of having an investment thesis is you chart it out. It's kind of a list of bullets. You say, like, for example, in early LinkedIn, it was like, look, uh, everyone is actually gonna be benefited by a public professional network. Uh, everyone will realize, including companies, that it's better to have it, uh, uh, play out this way. Uh, the initial set of adoption will come from, uh, essentially people who will, like, visualize the role this way, are willing to play with it, and then eventually the mass market will come on as they begin to have a network that is already delivering a value proposition to them. That's what kind of an investment thesis can look like. And then, you know, you got economics, so, like, initially recruiting and then s- and then broadening other things. You have that investment thesis, and you say, "Is my investment thesis increasing or decreasing in confidence? Do I think that the data that I get from the market when I talk to smart people, how does that, how does that change my confidence in it?" And this is actually how you essentially minimize risk. So, for example, very early, v-very early days in PayPal, um, the-- part of what happened is they said, "Okay, well, we're gonna do cash on mobile phones. We'll do cash on PalmPilots 'cause it's really easy." We actually realized the cash on PalmPilots wouldn't work even before we launched the product because basically what happened is, I went in and said to Max and Peter, I said, "Look, here's our challenge. Our challenge is we're s-" Uh, by the way, this room probably doesn't remember what PalmPilots are. Um, they were the, like, early PDAs. [laughs] Um, and so, uh, y- we lived in where what was PalmPilot central, and the whole use case was splitting the dinner tab and how many people at every one at the table would have a PalmPilot to split the dinner tab. Zero to one in every single restaurant. So you could-- even just by thinking it through, you realize, like, the direction you're on is gonna hit a minefield, and you need to pivot, and that's when Max Levchin came up with the idea of saying, "Actually, in fact, we could sync by emails. We could have email payments as the backbone of this," and we're like, "Oh, that's a good idea." And of course, that's what the whole thing kind of pivoted into. And that's part of thinking through minimizing the risks as you're actually executing. Here's another one that's kind of classic, which is, well, should I have this long-term vision, or should I be solving local near-term problems? And again, the answer is both. It's these paradoxes, and the question is, is you jump between them. You should always have a long-term vision in mind, 'cause if you actually completely lose your, your directions,

Reid Hoffman 23:08 eventually you'll find yourself in some field there's not a good path out of. But if you're not focused on solving the problem that's immediately in front of you, you're hosed, right? And so, um, part of the, uh, the question about how you put these things together is you say, okay, short term, what's the thing I need to be doing today? Have I made progress today? Have I made progress this week? But is it largely on path? So I'll give you an example of how this plays out in terms of financing or in terms of strategy. So people frequently think product strategy is fundamental to how, um, uh, startups-- Like, I have a product idea. That's the thing. I'm a founder. Actually, in fact, the next level down on strategy is usually product distribution, whether it's consumer internet or, um, uh, or enterprise or anything else because actually, in fact, no matter how good your product is, if it doesn't get to customers, you're hosed. So usually, you have to have product distribution as more fundamental than the actual what the product is. And the one below it is financing. And the reason why it's financing is if you run out of money and the whole effort goes away, even if you have a really good idea, it doesn't work. So frequently, when you're executing on a good strategy, you're actually, in fact, when I'm raising money, this fund raising, I'm thinking about the next fund raising. I'm thinking about how I'm set up for it. I'm establishing relationships that would be key to that. And I'm, I'm not executing like, oh, the only thing that matters is I get to the next, is, is get to the next fundraising 'cause you have this business that you're building. But I'm thinking that as a core strategy in terms of how I'm executing. And frequently, you're thinking about, okay, how does my product distribution work such

Reid Hoffman 24:39 that the financing works well? And that's kind of how you architect these things together.So how do you know if you might be a great founder? Well, it's-- you should have some superpowers. It's, generally speaking, in software, useful to be a good product person. It's useful to have good skills about kind of leadership, of bringing networks in, of persuading people. And it's useful to, um, be able to, and this is kind of the most fundamental, is recognize whether or not you're on track or not. To have both that kind of, uh, belief, but also paranoia about am I tracking against my investment thesis? And when you do that the right way, and you're learning, and you're assembling people, and you're assembling networks around you, that's generally speaking how you end up being a great founder. Now, classically, and, and I deliberately put up five white man, male pictures, is classically you have a kind of a, uh, these are the iconic founders. But in fact, founders can be very diverse. They can be extraordinarily, uh, talented at different areas because there's different kinds of entrepreneurial companies. There's different kinds of problems they're trying to solve. And I don't just mean diversity in terms of classic, you know, kind of gender, race, et cetera. I-- diversity in age, diversity in experience. You know, Jack Ma was a, a, was a, a teacher before he got into this. That's the kind of thing that you can-- that you should think about. And so the, the question is, is how you cross uneven ground, how you assemble networks around you, how you get people to assemble this, the-- it's a constantly changing problem to face when you are trying to found a company. And so, um, I think the, the thing that I was trying to get people to think about with this is to say there's not one skill set. There's an ability to learn and adapt, an ability to constantly have a vision that's driving you, but to be taking input from all sources, uh, and then to be cr- uh, creating networks around you, and that's essentially what makes a great founder. And your ability to do that while crossing uneven ground in a fog, which is kind of the, the, the, the way that entrepreneurs-- 'cause you don't really know, like, did you always know this was gonna work? No, unless you're crazy, [laughs] right? Uh, although sometimes crazy works. Um, so with that, I will now go to a few questions. Um, but it was kind of this mindset of founders which is kind of key. And if there's no quest- Oh, here.

Speaker 27:12 [clears throat]

Speaker 27:13 I-I'm curious about how in LinkedIn, how you, um, you targeted like the early-- or the-- you selected and came up with a strategy for getting the right early adopters that you knew would, would strengthen your investment thesis and really help it take off? Because it seems like every startup faces that-

Reid Hoffman 27:30 Yep

Speaker 27:30 ... that same challenge.

Reid Hoffman 27:31 So one of the really fundamental things is to, is to think about product distribution as key. And for LinkedIn, we had a couple things going for us. So one, the web was boring in two thousand and three. Um, the-- basically, what happened is everyone had thought the consumer net was over, and so people were doing clean tech and enterprise software and everything else. That's a much harder problem now, 'cause everyone thinks the internet and mobile is interesting, and so breaking through the noise is really key. So the strategy we used wouldn't work. We just actually set up, sent out some invitations to a group of people and then tuned the mechanism to have-- and did PR to get people. Like, one of the decisions we made early that was right was to say, "Should we only allow it as invite only, or should we allow cold sign-ups?" The reason we should allow cold sign-ups is because the people who are super enthusiastic about this weren't necessarily the people we know, so they would sign up and spread it. That sort of thing were all the kind of decisions we made. Now, that challenge is much harder because the challenge when you think about product distribution is, is how are you competing for potential customers' or potential members' time, and what do they think-- what do they have to believe in? Back in two thousand and three, it was like, well, a professional network, that's potentially a good idea. What the hell? I'll play with it. There's not a lot of other things for me to look at. Today, there's tons of things. And so your strategy today when you're looking at product distribution has to be, what is my really decisive edge? What is the hack that I know that other people don't know? Sure.

Speaker 28:51 Uh, as an investor, when someone come to you, how do you tell, you know, he's a good founder or not from just like a half-hour pitch?

Reid Hoffman 29:01 Um, so how do I know if someone's a good founder or not? Um, well, it's not thr-- Uh, I'm a huge believer in references. Um, usually, I only ever-- Well, actually, no. A hundred percent of the time in this case, I only meet with someone when they come to me through a reference. So one of the things, by the way, is the thing is I, after this, I have to run off because I have a meeting that I need to get to. If you want to actually get time and attention, really find a reference. That's not a pitch to using LinkedIn. It's a question of this is how you sort out time. You can find a re-- Like, Sam knows me. Not to throw Sam under the bus. [laughs] Right? Yes. [clears throat] Um-

Speaker 29:36 [laughs]

Reid Hoffman 29:36 And so, uh, a reference to me is, uh, in fact, the way that I do this. And so for example, when I met with the Airbnb guys, uh, part of the reason why I could interrupt them two minutes into their pitch and say, "I'm gonna make you an offer to invest. I wanna hear the rest of the pitch 'cause I think what you're doing here is, is, uh, is magical and awesome," was because I'd already had references on them. Like, uh, that was only two minutes, not even thirty minutes, because I already knew about them before coming in. And by the way, by and large, that's-- some version of that is true of most of the great investors, and it's that, it's that, uh, network that's really key. I think there was a question over here, too. Here.

Speaker 30:12 So would you consider density of insight to be a strong signal for great founders?

Reid Hoffman 30:17 Density of insight as a strong signal for great founders? Can you say another sentence?

Speaker 30:20 So, so being able to distill, uh, a thesis out of a, a whole variety of possibilities, so to nail it down to a concise sentence.

Reid Hoffman 30:29 Well, I would definitely say that the ability to say coherently what you're targeting and to articulate something that isn't trying to boil the ocean or a Swiss Army knife approach, but is like one focus, like, look, if we're right about this, then it works, that is actually pretty important.To be- to being able to judge a founder. Because if you don't have that level ca- of clarity, you're not gonna be able to assemble the network behind you. You're not gonna be able to get investors, you're not gonna get employees. You have to be able to articulate a very clear mission about what you're doing. Um, and insight is helpful, although, uh, a little bit of this depends on the stage. It, it is always, if I fi- I find myself attracted to founders who've analyzed the problem a good way, but, but frequently I've seen great founders who do not present good analysis, but have an instinct about what they're doing, and so you more chart what kind of what's going on around them.

Speaker 31:21 Um, you know, when LinkedIn had, like, five years of, like, um, I guess, um, wrap-up time, like, what, what kept you going to, like, keep, like, doubling down on the, the original, uh, [laughs]

Reid Hoffman 31:33 Oh

Speaker 31:33 ... track?

Reid Hoffman 31:33 So why did, how did I keep persistence when-- 'Cause actually, LinkedIn went through, you know, uh, let's see, for those who remember, uh, we were, we were treated as the, uh, as the, as the, uh, as the little alternative to Friendster, then to Myspace, then to Facebook, [laughs] right? So we had a lot of different, like, we are the little teeny one next to these d- to these respective giants, uh, each of the time. Ultimately, for me, when I was thinking about LinkedIn, this gets back to the investment thesis as a mechanism, I continued to believe the, actually, in fact, the right economic system design for every individual's life and for organizations' life is to have public professional profiles, that, that, that that world is the way the world should be. Everyone's much better off with it. And we are getting closer to that than everyone else. It may be that it hasn't taken off as fast as I liked. It may be that the general world is going, "Oh, this social stuff is really interesting." We don't-- Like, we could only get in the news in the fall, in the summer of two thousand and three by saying we were Friendster but for business, which is completely, like, nonsensical once you begin to un- you know, you begin to look at the thing. But it was like, "Okay, we'll cover you 'cause it's Friendster for, for, but for business." And that was important to begin to get people to pay attention to us. And so the confidence was that world, I still have confidence, believe that it should exist, and no one is getting closer to it than we. It's taking us maybe longer than I'd hoped to get there, but that's okay. So, yeah.

Speaker 32:58 When you get it wrong, when you meet a founder that you think is going to be really good and, you know, seems to be able to move between these opposing forces-

Reid Hoffman 33:05 Yep

Speaker 33:05 ... and on paper seems like they're gonna go the distance, what is it that makes you get wrong about someone that looks good at first observation?

Reid Hoffman 33:14 Well, to some degree, you can only fully cross these kind of minefield by actually going and doing it, [laughs] right? So you're gonna be wrong about your hypothesis. The kinds of things that frequently get you wrong, get, get wrong are when you think that a person, because they-- Like, for example, one of the tests that I frequently use in an interaction is I push on the idea some, and what I'm looking for is both flexibility and persistence. I'm looking for, no, I have conviction in what I'm thinking and I'm arguing it, but I'm listening to what you're saying, and I'm adapting to the concerns and whatnot of wha- of how you think about that. Sometimes you'll find someone who says, "Look, I've learned to mimic that behavior, so I've learned to say, for example, I've learned to look, look like I'm reasoning with you, and I look like I'm, I'm thinking about the challenge you bring up, but actually, in fact, I'm ignoring you." [laughs] Right? And ignoring me, that might be fine, [laughs] right? Ignoring the world in general is usually a disaster. Uh, and so those are the kinds of things that in the measurement you can see essentially getting wrong. But, um, but usually the kind of thing, like, uh, most often, the kind of reference questions I ask about founders is, like, adaptability. Uh, like, one of the phrases that I frequently look for is infinite learning curve because each entrepreneurial pr- pattern is, to some degree, unique and new, and can you learn the new one, [laughs] right? Is a way of doing it. And so, um, like, does the learning break down, or is there some major skill set? Is there an ego issue that gets in the way? Like, well, I must be the great-- Like, everyone, everyone must adulate me, and that will cause you to, to behave wrongly in adapting to the problem. Those kinds of things. I think I have, uh, one last question. The woman in the back.

Speaker 34:52 What makes a great co-founding team? And from your perspective, what makes a good partnership when you're evaluating how to be a great co-founder?

Reid Hoffman 34:59 Co-founding team, how to evaluate, uh, and then how to think about co-founders. So the first thing is it's super important that you collaborate really well. That was the, kind of the point I was making during the team, the, the, the initial part of that. Because if you, in fact, don't have pretty good, serious trust, um, uh, you know, kind of a way of, of, um-- It's one fifty that I'm supposed to end, right?

Speaker 35:25 Two oh five.

Reid Hoffman 35:25 Oh, two oh five. No, no, no, no, I'll keep going. Sorry. I, I, w- I mi- I misread the time. So I have ti- I will have time for more questions. Sorry, I was trying to be, trying to be good.

Speaker 35:33 Oh, no problem.

Reid Hoffman 35:33 The, um, uh... So okay, let me give a little bit longer answer to this then. So the key thing is when you're thinking about founder, founder s- uh, founders is, do you have a diversity of the necessary strengths across the whole range of strengths that would be useful? Frequently, you need one technical founder, uh, at least. Uh, frequently, you need to have someone who is, uh, who is gonna be dedicated to the business side, fundraising, these sorts of things. That's kind of classically skill set when you think about the two to three. And usually, it, it's kind of some, uh, composition across them, and that's kind of like what you'd think of as founders one when you're thinking about a founding team. When you, um, when you get n- the next level deep, for example, one of the things that people will classically tell you is, like, for example, don't invest in a husband and wife team. And actually, that's-- Look, that, that adds a little extra, uh, freight to it and everything else 'cause, you know, there's personal dynamics also, uh, uh, upset what's going on. I actually think that what you're looking for is, do they collaborate well? Do they help each other get to truth, right? So for example, I am most heartened when I'm talking to a team that when they're, when they're reasoning to each other. They're not like, "Oh, we're just all singing from the same thing." It's like, "Oh, but did you think about this, or what about this as a challenge?" Like, you're navigating the field of battle, which has a bunch of risks. Like, for example, one of the things that was pretty common in PayPal is, uh, Max, who, who invented the fraud systems and everything else-Would frequently come into Peter's office, Peter Thiel, Max Levchin, and say, "Look, here are some things that are gonna kill us, and let me focus you on them." [laughs] Right? So it, it's not like we're all just kind of saying, "Oh, yes, we're all singing our Kumbayas," but we are adjusting to what is truth and what's the problem that we need to solve, what's the problem in the short term, what's the problem in the long term, and how are we tackling it? And that composition with our team, that collective problem-solving, that collective learning, is the kind of thing that actually usually makes great teams.

Speaker 37:27 Yeah, thank you for this wonderful lecture. Uh, I recall Peter Thiel says, we all dream of flying cars, but we end up, uh, 140 characters.

Reid Hoffman 37:36 [laughs]

Speaker 37:36 So I want to ask you, you know, uh, how to identify the great founders in, uh, different, uh, sectors. Like someone might go to the social network, like LinkedIn, like you.

Reid Hoffman 37:46 Yep.

Speaker 37:46 And some of the, uh, working on the co- uh, quantum computing or how to, how to pull up science-

Reid Hoffman 37:52 Mm-hmm

Speaker 37:52 ... or the mission to Mars, all those kind of things.

Reid Hoffman 37:55 Yep.

Speaker 37:55 Is there any common themes or any, uh, different, uh, things?

Reid Hoffman 37:58 So different founders, different areas, how do you identify them? So the talk was aimed at kind of what is unique about the mindset, I think, of founders that is great founder across all, uh, all founders. That's, that's part of what this was an attempt to say, look, because there are differences. So for example, in software, speed to market, speed to, to learning is really key. In hardware, if you screw it up, you're dead, [laughs] right? So accuracy really matters, [laughs] right? 'Cause if you, if you build and ship the wrong thing, you're hosed. So generally speaking, as an investor, uh, and this is part of the reason why a lot of investors, you know, have a certain set of things that they then learn pretty well and try to reapply, 'cause they try to understand a domain well enough to be able to identify which of the founders in this domain that really matter, and if we're investing in this domain, how do we do that well? Um, and so there are attributes that are unique per domain. Uh, so for example, uh, you know, like, like, if-- like one of the classic ones is how good must you be at operational efficiencies in terms of margins, cost controls, et cetera. You're dealing in the worlds of atoms, including even in commerce, you've got to be really good at that. You're doing a, a, a digital game, like a, like a Zynga-like startup, doesn't matter at all, right? So and, and so you look for that kind of fits and proclivities, and part of the beginning of this is, it's not actually in fact that it's one person is good at everything. I would be-- like one of the funniest conversations I had with, with, with a guy, a friend of mine who worked for me at my first startup, SocialNet, is he looked at me and he said, "Reid, I would never hire you to be a manager of McDonald's." I'm like, "Yeah, I wouldn't either. [laughs] I'd be terrible at that." [laughs] Right. And so it's, it's the skill set that fits, but also the, the whole point of this is actually be- navigating a set of things that look like paradoxes, sometimes being heavy on one, sometimes heavy on the other, and being-- having the right judgment at the moment in terms of what you're doing, and that's what tends to be more universal.

Speaker 40:01 Um, you mentioned that it, it took you longer than you would've liked to grow LinkedIn.

Reid Hoffman 40:05 Mm-hmm.

Speaker 40:05 Can you speak a little bit about, uh, when-- how to know whether or not you should stay in or when to-

Reid Hoffman 40:11 Ah.

Speaker 40:11 How to know when to give up?

Reid Hoffman 40:12 Uh-huh.

Speaker 40:13 Um, also maybe even, uh, with respect to, like, your personal [coughing] and your career goals or like, kind of like how it fits into the big picture.

Reid Hoffman 40:21 So the question is basically how do you know when to pivot? Um, part of the reason why having investment thesis and your confidence in your investment thesis and being pretty clear on that is generally speaking, the answer that I give people is, if your confidence, uh, is unmeasured for a fairly long time or is decreasing, because unmeasured for a fairly long time should be decreasing, and it's decreasing, and then you go into intense mode where you're trying to figure out what kinds of things you would do that would increase your confidence, [laughs] right? Uh, and that's failing. That's a seriously good time to think about pivoting, [laughs] right? Uh, and, and you might have, uh, theses on can we raise money, you might have theses on will-- what's the, uh, pattern by which the product distribution or growth or, you know, viral invitation or SEO or anything else will work. And it's like, well, I tried these three things, and this fourth thing doesn't seem as good as these three, and the next two things that I think about seem even worse. That begins to decrease your confidence, and that's when you should think about pivoting. A frequent mistake when it comes to pivoting is wait until you've essentially, like, crashed into the wall and everything is dead, and you can't make any-- you can't maneuver anymore. And that's, that's, you waited way too long. [laughs] Now, um, now in terms of personal career goals and so forth, you know, part of the thing that, um, I would say that is, uh, uh, one of the things that I, I'd meant to talk to you during the slides that, uh, since I misread the time, I, I, I rushed through it a little bit. One of the classic questions is balance. And I actually think founders have no balance. Like, one of the funniest conversations I ever had was with a governor of Colorado, who was like, "We're gonna attract really great entrepreneurs here because we have this balanced lifestyle." Like, like, literally, if I ever hear a founder talking about, "Oh, this is how I have a balanced life," and so forth, they're not committed to winning, right? And so the only really great founders are, like, I am going to literally pour everything into doing this. Now, it only may be for a couple of years. I may do this for a while, then go do other things. But while I'm doing this, I am unbalanced at this thing. It's not to say you don't take breaks, not to say that you don't, you know, go on dates or whatever else, but you're super focused on this because it's really hard and there's lots of ways to die, and that's the reason why the jumping off the cliff metaphor is one of the ones that I classically use.

Speaker 42:42 So your definition of contrarian, [clears throat] sorry, depends on the idea of identifying uncertain opportunities which others don't necessarily see. Uh, overall, how efficient do you think the startup ecosystem is at identifying, uh, good opportunities?

Reid Hoffman 42:57 So how good is the startup ecosystem at identifying contrarian opportunities? Um, let's see. [laughs] That's kind of a challenge, 'cause the moment it kind of actually becomes in vogue, it's less contrarian. Um, um, I'd say it's mixed. Uh, sometimes because part of what makes a great investor-Is an ability to go, look, I take this radical shot, I take this radical ta- shot, I take this radical shot, and there's enough people who are investors. There's usually someone, if you can find your way to them, the network, finding your way through the network's sometimes difficult, sometimes tons of noise, hard to get to the signal. Uh, on the other hand, there's sometimes things that are just kind of like, you know, totally crazy. Like, one of the funny things was, you know, uh, uh, Benchmark was the only one that would fund eBay. Um, you know, if you talk to most of the people in the Valley a year, 18 months ago about Bitcoin, they would have told you, like, "What Bit what? I have no idea what it is." And by the way, it's still unclear how Bitcoin will play out, although I think the fact that there will be a distributed trust system on cryptocurrency is, I think, almost certainly gonna exist in the world, and the real question is, is Bitcoin the first or last cryptocurrency? First, there's new ones and new features. Last, because it's the one that has network effects and it's already going. Um, and so, uh, I think it's pretty good with it. Um, frequently what happens is, uh, people think they're contrarian because they're doing something they think is in a uni- unique com- uh, uh, um, unique, uh, combination. I'll give you two examples, and hopefully the, the founders of these people who sent me these cold-- I get about 30 pitches sent to me a day that I don't, basically don't look at unless referral, unless something in the title makes me laugh, in which case I look at it mostly as comedy, and I'll share two comedy ones. One of them was, uh, wearable diapers, which was the-

Speaker 44:47 [laughs]

Reid Hoffman 44:49 ... you know, uh, you, you have the computer monitoring, you know, whether or not the kid is, you know, uh, taking a pee or a poop, and, and they let you know, and you're like, if you're that far away from your child and this kind of thing, it's probably a bad sign of other things.

Speaker 45:01 [laughs]

Reid Hoffman 45:01 Um, and then the other one was, uh, kind of, uh, customized e-commerce bongs. You're like, "Ooh, I got a contrarian idea." [laughs] You're like, "Yes, you do, but not the right way." [laughs] Right. So anyway, so, you know, but so I think generally speaking, the system's pretty good at it. In the back?

Speaker 45:17 Besides social net, um, ahead of time, I guess, um, how do you think about creating markets versus-

Reid Hoffman 45:24 Creating markets versus discovering them?

Speaker 45:25 Yeah.

Reid Hoffman 45:26 Okay. So, uh, this is actually, it's a challenging question. The, the, the, the frequent-- like, and this is-- and, and it's a good follow on the contrarian thing. Like, frequently, there's this classic thing of, oh, does the market exist yet? Is that because it's gonna be huge or nonexistent? The good news is, it's usually one or the other, [laughs] right? Uh, and so that makes, uh, going after something that most people don't think is a market, but you have a reason to believe it, is actually sometimes frequently a good bet. Um, however, it can fr- it can sometimes completely, uh, flame out, and one of the things you're doing when you're testing your investment thesis is, what would lead me to think whether or not there's a market there or not? Because, um, you know, at the beginning, there are no markets. And so the-- it is, of course, conceptually possible to create markets. People think that there's a, a new need for this sort of thing. On the other hand, the problem is, is how do you get fast adoption if people don't even know that they want it as a category, right? So they say, well, but people, they just realize like a classic entrepreneurial misfire, a classic one is, if people just real-- like, once it exists, they'll realize that they really love it, and they'll, they'll line up in droves for it. Well, there's a few entrepreneurs, Steve Jobs one of them, who can do that. Most the time it doesn't work out that way, and so you have to say, w- uh, in your investment thesis, why is it that you think when you're thinking about a market that isn't already existing, that, that you know that other people don't know on the contrarian basis that leads you to think that market should exist, right? And so, for example, a micro one with LinkedIn was, uh, actually, in fact, the classifieds means of recruiting was in fact an exercise of newspapers, an exercise of information age, and actually recruiting direct to people is part of what the networked age and the internet, and that's actually in fact how recruiting should go. Now, it was relatively easy to validate that, but you know, that's the kind of thing where you think about there's potentially a new market.

Speaker 47:18 Last question.

Reid Hoffman 47:19 Yeah, last question.

Speaker 47:20 When do you know you've known someone long enough to start a company with them? One of the things, uh, Sam told us in the first lesson was you need someone you've known for a long time. But when you guys started PayPal, like for example, how long did you-- it was a large group of people, so how do you know, okay, I trust these people enough to start a company with them?

Reid Hoffman 47:39 So to re-- I'm, by the way, I'm repeating the question in part 'cause we're-- this is recor- recorded and everything else, make sure that people hear it. But the question basically is, how do you know that you trust someone well enough to be a co-founder? Uh, there's a whole bunch of different variables that go into it. And look, this is one of the risks that you take. Uh, and you kind of get to a, a thesis of, do I think that I know them well enough? Uh, now I'll, I'll parallel one thing that I think, um, there's a parallel here that I think is super useful. So one of the things I tell my portfolio company CEOs or founders when they're thinking about hiring a CEO is, um, I think that the only way to do this is when you get down to the people that you're thinking you may hire as a CEO, you spend twenty-plus hours with them, right? Where you go into as much depth in the conversation about anything you think is a possible difference of opinion, belief, work style, so you've identified all this upfront, so that you're, you're, you're j-- it's not that you have a contract. It's not like, oh, we're signing a contract and this is how we do it. But we've established a conversation. We've, we've gone to all the parameters. We've had a conversation about what we might agree with or disagree with. One of the things that I frequently think is worth covering is almost like kind of the divorce. Like, wh- why would we want a divor-- like, what would lead me to say this isn't working, right? And to cover that up front as part of it, because then at that point, when you get into the field of battle, which is hugely stressful, you go through this valley of shadow of death moment, you've at least got the basis of we already conversed about a wide variety of things. We've set up essentially some expectations about what, you know, how we might be playing together. And if it begins to vary off that, it's relatively easy to bring it up in a way that you're problem-solving. And that's the kind of thing that I think you frequently-- you should be c- fairly confident that you have that level of trust. For me, frequently, it's to have a set of robust conversations such that it was like, like, if something comes up later, it's like, well, we talked about this in version, and we can, we can bring that up. So anyway, with that-

Speaker 49:35 Thank you very much.

Reid Hoffman 49:36 Thank you. [audience applauds]