2019 Blitzscaling | Reid Hoffman Co-Founder, LinkedIn & Partner, Greylock Partners with David Weiden

thank you okay I am pleased to welcome Reed Hoffman one of the early executives at PayPal and founder of LinkedIn and to date me some a dungeon and Dragons aficionado thank you for coming reading matter of fact my first publication was a rune quest which is a D&D supplement scenario packet that was when I was 12 so since then you've moved on to be an author among many other hats you wrote a book called blitzscaling which i've been lucky enough to read listen to I'm swimming around in it so excited to chat with you about that for anyone in the audience that is not familiar with blitzscaling let's start with what is it so the precise definition of blitzscaling is prioritizing speed over efficiency in an environment of uncertainty part of why it's not just getting fast to whatever is because it's a set of techniques and a set of evaluations on that and when your provide are prioritizing speed or efficiency it's actually expensive it's expensive in capital it's expensive in organizational dynamics it's expensive in recruiting and kind of human capital factors and the reason you do it is because you're in a Glengarry Glen Ross market where first prize is in Eldorado second prize is steak knives third prize is you're fired right and so first the scale really really matters so it's okay to be super inefficient at getting to be first at scale now part of uncertainty is and this is the difference that we put in the book between fast scaling and foot scaling is you may not know some key questions you may not know actually in fact what your scale customer acquisition cost is your unit economics you may still be putting the puzzle pieces of what your business model is together and a set of those things but yet the first the scale is in fact what really matters in this and that's a set of techniques that essentially through the learning network of Silicon Valley because one of the things that makes Silicon Valley I think continue to be a very interesting place in the world is that we Sharyl earnings and that was part of the thing came out and that was part of the reason why I wrote the book okay let's talk about when to do this and what when not to cuz so let's start with one of the precedent conditions you mentioned is having product market fit and as we were discussing this is a more nuanced question than a binary have or have not so what does it mean to have product market fit so the first question you think because I'm gonna offer a book called blitzscaling that's like everyone should blitzscale that's your goal it's not the gold super expensive it can actually put you way out over your skis and you could blow up on efficiently inefficiently basically two primary reasons to blitzscale one of them is competition you have competition that's coming after you because if your competitor can and will blitzscale that means that if you're not you'll probably fail you'll either have to pivot away or or actually also get in the mix second is do you need to get to scale you have a coefficient where you need to get to scale scale effects in the business and generally of course sometimes you can do it anyway and don't have network effects or some other reason and your business to do it but it can be super expensive as a way of doing it now generally speaking one of the things that David and I were just talking about in the green room is we have this kind of mantra product market fit within the valley which is thought to be kind of like a digital thing it's either you have it or you don't have it and which of course is really wrong once you start looking at it because the question as well you you you know you got a good product market fit with your first 10,000 customers but what really matters a scale product market fit with whatever the scale of what your addressable market what you're going to with your business is it can also say that oh I've got good product market fit like I'll take a an early example this also dates us as Mark pincus's company tribe had good product market fit with the Burning Man crowd right and so it really worked well for them and that's one of the reasons why probably many of you never heard of tribe didn't realize it was a social network started six months after a French sir started before Facebook and actually didn't go anywhere because that's product market fit wasn't product-market fit that would actually take it into being an interesting business so you have to ask the more detailed questions and you have to make sure that you're steering towards it and to part and you may go deeper in this question but like for example part of the reason one of the counterintuitive rules that I put in what scaling the book was ignore your customer is what you're doing is ignoring your current customer in favor of your target customer and in particular with scale your scale target customer because that's the thing that you ultimately have to get right now if sometimes if you don't get elements of this right you can't get there but that's the product market fit you're looking for which is what is the scale mature you know kind of your business as a successful business and how do you get there so what would be a the kind of marginal cases of maybe one example where it seemed like a company had product market fit and stepped on the gas and it didn't and one where it should've or did but it was subtle to tell that it had product market fit and should blitzscale so well instances of probably of had it and failed is probably Friendster which didn't get out of its own organizational way to rebuild its infrastructure deliver as a comms platform and do some other things because they had the first oh my god the Internet's not boring anymore 2002-2003 and that was part of what people started realizing back then was that there was not much interesting going on the internet and people were looking for new things because the internet continued to grow and so that's one that probably should have been didn't in terms of like scaling up his organization doing a whole bunch of stuff on that it may still failed his business but it certainly failed in the in the path that was on and then you know maybe it kind of a canonical one that applied the gasps incorrectly as web then because this is one of the places where like when you're when you're applying blitzscaling it's one of the reasons that's generally much easier in software and consumer internet but also SAS but in software than it is in hardware problems because if you get something wrong it's dead in hardware where is you can iterate and so for example the capital intensity to make the economic model work within the Webvan business was catastrophic and basically the moment that free capital started flowing it fell over you know that capital stopped flowing and then it fell over the and that's part of the reason why a lot of the blitzscaling stuff tends to be you know because you can figure out your business model as you're going if you're working on a lightweight business like software so how should adams companies or a companies that involved in some in the physical world think about blitzscaling so the key thing and all of this is to understand that speed is relative to your competition at going at your market so it isn't go as fast as Facebook did or as Google did etc it's it's what's this speed for we for realization and there's a master's of scale episode by which we go into the loop which is one of the things that you know observe orient decide act which is fighter pilot stuff so so it's not oh my god Adams company need to move as fast so it's a it's a relative measure to what you're doing the second question is is what's your cost of error so if your cost of error is very high you actually want to spend a lot of time getting that right because if you for example start building up substantial inventory you get your hardware design wrong and you just fail those kinds of things you go okay that's that's that's part of the first product market fit before you get there now it isn't the say the case that you can't make it work I mean probably the canonical roller coaster comes out of China which is out Xiaomi which says okay we're gonna essentially give away the hardware at zero cost bound with the idea of creating a software platform the software platform still TBD from what I can tell in terms of really playing out because that's you know question is 10 cent and others tend to be more owning the the the mobile content platform there but they actually in fact ended up getting a fairly good business on the accessories so the can your design a business model is really key to put scaling and and while they had failures with some of the other things they're actually now come back to how do we how are we building up a mobile phone ecosystem and making that also not just relevant to China but various other emerging markets what are some things that we could learn from what's worked in China because it certainly is sunk in to me there's real blitzscaling happening so one I just mentioned which is out me which is an example of of hardware blitzscaling actually I'll give three parts to the answer that's one two is one of the really key things in blitzscaling is do you have at least a interesting shot on goal for catching the right business model and making work and so there is various business models that are being iterated in China that we copied today so a lot of the digital goods business models that we see various companies doing here those were basically looking at China and saying ok which versions work outside of China and how do you do that so and that's again software mostly consumer internet mostly games kind of business the third thing is to think about what are the ways relative your competitors and although I'll highlight one that we highlight in the book which is Zara which is fast fashion and the manufacturing is in Spain right so this is not a how do you go get the cheapest possible area and they said look it is still a technology story because the question is well can we actually in fact train our sales associates to accurately capture signal about what people are looking for get that signal back to a design shop which can then create something fast and then using manufacturing in Spain at high quality its fashion plus automation that whole loop can be literally three weeks to have a new fashioned in the in the storefront and that doesn't mean that it's all automated factories and else but you're you're looking at Intel gathering the some design facilitation and manufacturing to have that as a fast loop and that's a it's not a hardware business but it's a physical good that's an atom's business that uses technology and uses software to accelerate that loop that's a that's an example of something that has really worked ok let's talk about the how much to push the edge with blitzscaling so let me give you two areas so you can talk about either both you already mentioned that one thing to do and blitzscaling is to ignore your customers yes and I wanted you to comment on that noting that some successful entrepreneurs that this audience has heard from like Jeff Bezos talked about the importance of obsessing about customer delight so let's talk about and you did mention that you're looking at the long term customer but that and then the other one that I maybe weave into that is you talk about how it's important to tolerate bad management but then in the book you also I would say condemned or at least point out the shortcomings of a culture like ubers yep so how do we give the good without the bad or without too much of the bad so I'll do the first in a second so we say tolerate bad and management not tolerate criminal management and so you have a you have a culture that encourages or allow sexual harassment you have or you know kind of highly deceptive practices on things that matter to people like for example you know we were talking a little bit about the Thera notes but blood tests don't mislead people at least your customers right about what it is because that may lead to a catastrophic outcomes if they if they believe you and so those are kinds of things where you go to wrong what tolerate bad management means is you're moving along very fast you might say well we're not gonna have one-on-ones about where your career is we're not going to be kind of checking in about how happy you are on the current thing because we're going to presume that you have a certain amount of in this chaos that is a blitz scaling company and so I think that the the question around tolerating bad management is not saying tolerate kind of bad cultures or something else but it is saying the kind of things that you would think about that would be taught at kind of performance management at a MBA school you may get to later and you want to have the basis that you can get to them later but that's part of reason why you have to have your culture solid but but you may not be doing while you're in the middle of it because of how to make things go now part of the ignore your customer question is so in very early days of PayPal we were growing a 2 to 5 percent per day compounding and as such because we didn't we had a product that was nice and easy to use and also put payments in a bunch of different cases people didn't get they're good people didn't get their money people spent the money but didn't get the good yet etc and all these kinds of things we had an exponentiating curve of customer inquiries complaints everything else and we had two customer service people on an office manager who pinch-hit so what they discovered was they they they figured out what our mainline phone number was which was not listed anywhere other than Palo Alto local business directory dialed extensions and random such that 7 hour 7 days 24 hours a week I every exception was ringing with an angry customer so we turned off all the phones started using our cell phones as a way of doing it now son of a classic basic thing was all go make sure you delight those customers it's a lost cause not gonna work right and so what really mattered was not these 10,000 people who were gonna be pretty angry with us for a while we really meant to as we as we get to the millions and millions of customers how do we work for them so we just kind of steamed past them got to setting up customer service center got to getting it fixed so the question about not just you know being good to your customers but surprising and delighting them it's super important in the long run it is the right Pulstar but the question that you that you then back up and analyze is for getting to that Pulstar where to have to be now what is the things I invest in what are the things that I do because of course we would love to have each moment be a surprise and delight but one of the problems that entrepreneurs frequently find when they do that as they go while I'm trying to get there and that I take too long in releasing the product because very few of us are the geniuses of I know exactly what the customers will want I need to be learning from them I need to have a learning loop the engagement and so forth and I need to be moving fast enough that I'm getting that learning and I'm in the first to scale so there's a wide variety of products that were not in the initial surprise and delight category that ended up being you know substantive products you know on the social network arena I mimicked LinkedIn is one of those I think the first couple million people in LinkedIn were like what the is this and why why would I bother using this right now it's more essential as part of it and enough people would experiment with it that we could get there but that's a as an example of where there wasn't love initially or even better relative to the product market fit question you asked earlier the people who first loved us were these people called LinkedIn open net workers which was like you know people like you know Bill Gates and Vinod Khosla should respond to my emails when I'm asking them questions and so forth which is like we're really busy we can't respond to emails from all kinds of people and so that's what they wanted those are the initial adopters well we ignore those adopters for the scale like you know who are regular professionals who are hiring managers who are business development people who are entrepreneurs and then as it gets to targeting everybody and that's the kind of thing that you have to think about about when does the surprise and delight hit and that should always be your poll star but that doesn't necessarily mean right now so in a similar vein you talked about being willing to ignore fires and just put out the right fires so more specifically what kinds of things do see entrepreneurs spending too much time trying to solve what kind of problems do people over focus on solving that they should be more tolerant to just ignore and focus on different problems probably there's there's probably at least two kinds of problems that people overly focus on so one is sometimes you're looking at two or three problems that could kill your business and sometimes it's really difficult but you need to focus on the one that will kill your business soonest and you go okay I know those ones could kill me later but I can kind of kick the can down the road I can patch them a little bit I can figure it out later so you know so for example the PayPal example is one of those which is well exponentiating complaint line from your customer service thing will eventually kill you right but we can go get ahead of that problem later right like we can build toward now but we can we can dig ourselves out of a hole of a whole bunch of threads on the internet PayPal is a scam you know they take your money they don't like it doesn't it doesn't actually really work except for a cetera and we can dig our way out of that later the thing that we really need to get to right now is the first scale mover advantage on eBay cuz they owned a competitor to us bill point which is we didn't get ahead we're dead anyway so it's kind of which which which which stack ordering of these will kill you and getting that right the second one tends to be who are the people who are loudest and most complaining to you whether it's internal employees or certain kinds of customer groups where that customer that's not your scale customer and because they're there and talking to you you're listening to them so you have to be really careful about who do I need to listen to and frequently your scale customer or the customer that you're really targeting is actually not the person who's actually in the room talking and that's what you need to be listening to and that isn't saying trust your own inner genius that's making sure that you're listening to what the right source of this is where we're trying to get to okay a related question about when to do what is when to be stubbornly persistent and when to be flexibly enlightened about changing strategy how do you know the difference so you know thank you David for borrowing the library you for using one of my language in the question persistence and flexibility apparent paradox of advice given entrepreneurs you have you have grit staying on target plow through walls be flexible pivot change learn from what's going on right and the way that I do this a specific way that I recommend entrepreneurs look at this is to say have an investment thesis that's kind of and write it down an explicit set of things that are here is what our plan is this is why we believe in it this is the set of things that need to be true for this plan of work then as you're encountering difficulties almost all like 99.99% of of entrepreneurial projects have valley of the shadow moments like oh my god why did I think this was gonna work link didn't certainly had those and so and so as you're doing it you're saying okay well I tried idea one I tried idea - I tried idea three if you're right the ideas aren't working and your your view that the ideas are getting worse right like what idea for it's not as good as idea - that's one to think about pivoting that's when to trigger in flexibility that's when to say okay this isn't a question of just grit and persistence this is a question of of I need to change and by the way one of the things that people think about ideal failure that think I must test it to its glory and in the market that you don't need to be doing you want to be looking for as many early signals as possible and so early-stage entrepreneurs my general recommendation is to go to all the smart people you know and say what's wrong with this why won't it work if you hear from a number of smart people this is the thing then you'd better have a theory about why they're wrong you better have something you're testing about why they're wrong you can actually test your theory this investment thesis without actually in fact going and getting like well we did a huge launch and we got all this customer data you can do that beforehand and you want to be testing it and part of the whole thing about failing fast is to get to what pieces of failure or what pieces of negative data will cause you to change your plan as soon as possible that's super important to get to one last question about blitzscaling one of the attributes the blitzscaling is being willing to spend money in efficiently how would you compare spending money on blitzscaling which i think of as stepping on the gas on something you're doing versus spending money on experiments that might enhance your business in a different way like swear cash two squares main business like that how do you trade off that spending so I think it's almost always important to have some experiments unless you really just have no capital for them I mean sometimes you go look we just like like just to get this to work we don't have and that's one like we're tightening the belts we're you know we're we're we're using you know kind of door frames as our as our desks you know like okay you don't have you don't your company is the experiment you don't have room for other experiments and so once you begin to get to a point where you have a multi threaded organization some experimentation is good and sometimes experimentation can be super light experimentation could be I put up a web page and I take out some a light amount of facebook advertising on it just to see if people will click through and sign up for some product or feature even I don't have the product of each or anything else and I could even do it under a different brand just the test is there something interesting here should we this might be something we could do should we do it and a lot of early-stage entrepreneurs do that to test do I have an initial idea that I should go fund a company around so that kind of thing is I think important and obviously as experiments get more costly and more tricky you should be much more choice 'full about how you do them now on the blitz scaling capital in the in the in the deploying of capital get very large once you're really blitzscaling you have a fairly large chaotic organization that people groups are duplicating effort running into each other etc so you might as well take advantage of to make sure that you're allowing some experimentation as well because you're gonna have that anyway right the thing that you have to be careful about is this to make sure that people know that their experiments don't mean that the organization hates me or hates my project if that doesn't get caught up into the three to seven things maximum that an organization can really do at scale usually sometimes the only one but like kind of the it's you know it's three to seven things that a company can have in its executive teams mind space really and sometimes all that experimentation below I was doing this really important thing and I got I was ignored so you need to make sure your culture allows for that look not all experiments even if they have good results will necessarily be adopted and that's fine okay one last question not about blitzscaling but something that affects most founders last year we had Jeff Weiner here and it'd be interesting to get your take on it's a broader question than how is the founder do you work with a non founder senior executive more as a founder how should you think about your own role evolving like how do you know if it's hard but no one can do this job better than you and you should just hire a stronger team versus nope it's time to be chairman and you will need a different CEO so I think you need to have two things as a founder so one is a real good recognition of what your own strengths and desires are cuz you're not world-class at anything that you're not passionate about you're always passionate about your company but like are you passionate about like for example scaling and company are you passionate about all of the work that goes into we're building an entire organization around onboarding groups of people about scale management about all of that kind of thing and if you're not passionate about that you need to have someone who's passionate about it it could be a CEO oh it could be a CEO for me part of the thing that I realized was that I wanted to get a and by the way you can hire when you hire later-stage CEO look I did with Jeff it isn't just oh go find someone with the experience someone who's you know run scale organizations you want to find someone who has the same passions as a co-founder and that would be kind of a and conditioned on an a Jeff cares about compassion management cares about scaling organizations cares about Career Development cares about education cares about a bunch of things that LinkedIn is pretty central to so he would like go look I will bleed and take risks for the long-term health of this business the same as I would because this is what he actually wants his mission in his life to be now with that I went okay well so someone who is world-class at building scale organizations it's much better to have that person come in and be CEO and I have me be chairman and that's how LinkedIn succeeds in its mission and so it's different for different companies and different for different people but that's the kind of thing I did write an essay about this on it's all both on LinkedIn and I think read off not org blog about how to think about hiring a CEO and what to do thank you okay well squeeze in one question if go ahead yep yes and we can repeat it yeah we might come back looking back on the on the origins of LinkedIn and the journey from the founding event is there anything that you wish you'd done differently or seems differently in the early stages well the one thing I would say there's lots because by the way if you can't answer this question about like what you would do differently you're not learning and I hope to I aspire to be a learner and so the key thing was I would say that we probably over rotated on some competitive things so like for example we launched LinkedIn groups way too early now just knowing that I wasn't gonna work that ex-ante doesn't help you what you learn is to say what are the principles that you would then apply and the principle I apply is I would only launch a new product line in competitive response if we would actually pivot the entire company to making it work right so like that that there was a theory that some other companies had that the way that we could beat LinkedIn is we can build groups products and said ok we built a lightweight group's product and actually in fact what we should have done is he had not done that and it's just stuck to our knitting on the theory because we stuck around for years of the lame-ass product it took time cycles it did people customers said what what's with this weak-ass product etc or say no it becomes a first-class product and it's now essentially to what we're doing and so the principle is don't engage in a competitive response without being like either engage in it and be full hearted or don't engage in and for example wow there were many things that Oberer got right launching uberx in response to lift was what like but they did wholeheartedly they went full into it that was the right kind of thing to do okay we'll do one other question if anyone else has any burning desire for wine okay back there I I was I'm trying to understand when do you that scale like I I guess the way I'm trying to wrap my head around it is that you must have a lot of conviction that the markets really big yep right and so what are the necessary conditions for the market and that no one else knows about it right I guess are those are two conditions no so the key question is look if no one else knows about it you shouldn't prioritize speed over efficiency unless you think competitors are just about to come it's very costly to do this what you want to do is you want to say okay if I think competition is either present or about to come and blitzscaling is the right way to work then I should be the first to do it I should go do it but look look at like look at the billions of dollars of Newport spent these things are hugely expensive so you want to do it when you go I need to beat the competition if you're doing a contrarian bet where most people think your product is like unclear if there's a market there unclear this scale market you should try to - essential unless you know I'll let you think of competitions that competition is about to merge you should tune it to get it as bright as possible and then you know do a classic efficiency of tuning a customer acquisition tuning your business model tuning your product market fit and being very choice ville doesn't necessarily mean impoverished but very choice with your capital Thank You Reed thanks everyone 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Length: 30min 27sec (1827 seconds)

Published: Fri Jun 28 2019