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

By | October 7, 2019


Thank you Sam. So when I looked through the
syllabus of this class and thought about what I, I could
possibly add that would be useful in addition to the
various skills. One of the things that I had
been thinking about had been, how do you think about
yourself as 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. But the, it’s, 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. I can do all of these
different skills. And a part of what you’re
looking for in a great founder, in the
kind of theory of the founder as superperson, is
I’m looking for someone who is awesome at all
these things. They are, they are, they are
well rounded, they are diverse, they can bat
on all skills. And 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 and
he’s 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. And it’s partially because I
think it’s this image of founder as superperson, which
is that a great founder is someone who can do anything,
you know, jump over tall tall buildings
in a single bound, you know, all of these sorts of things. And the reality, right, is the
founder is someone who deals with a ton of different
headaches. And no one is universally
super powered. Generally speaking, you hope to have a couple of
super powers. Some things that are unique
edge to you. Some things that are unique to the problem that you are
trying to solve. Some things that may help you
give an edge because actually competitive differentiation
and competitive edge is super
important. But but it’s not it’s not
actually in fact a, a function of, of genius. And matter of fact frequently
it’s very hard to tell the difference between
madness and genius, because 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 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 a kind
of challenging set of, like, how do you think about, you
know, these sets, you know, what is the whole set of
skills and what us mere mortals, you
know, come into this kind of battle what is the right way
to think about it? And so 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 people on this, this may have
been a suboptimal choice for people on video, but it’s
like, these are all skills that are
super important. 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 did, I decided to
take a, a subset of these and focused
on some of the, 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, you’re the entrepreneurial
Olympiad. 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 of the myth
of the super founder is that actually in fact usually it’s
best so have two or three people on a team rather
than a solar founder. Not to say solar founders
don’t actually play out and they can 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, what is a
good composition of a project and a, 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 if you actually have two or
three founders, you have, you have different skills, you
can compensate because, by the way, everyone has
weaknesses. You can compensate for each
other’s weaknesses. You can in the diversity of
problems that you encounter 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 have a real high preference
for having co-founders, having a high degree of trust
with 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. And that’s a, that’s a, that is not always
but frequently fatal. And so and then also the
diversity of the kind of tasks that you’re trying to
do. And actually.>>Okay, yes, I was about to
say, that would be suboptimal from
the viewpoint of being able to look at the slides. The next thing is location. And so frequently I’ve heard,
told to me, it’s like oh, Silicon Valley aggregates all
of this super talent, which it does. In terms of, like, what, what
actually in fact, it’s, it’s, the reason why Silicon Valley
startups are so successful is because all of these great
people immigration, which is hugely important for,
for talent and founders and everything else,
you know, emigrate here. And that’s part of the reason. Now, it’s actually, if you
think about it, from basic math, ne, even if
you take something that, that Silicon Valley is super
strong at, which is essentially software skills in
the last two decades. Not all of the great software
people move here. No, not all of ’em 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 whether or not you’re a great founder. Well, the reason is, is
because what fo, great founders do is seek the
networks that will be essential to their problem and
their task. And they realize that it isn’t
just about, like, kind of like, I am super
person. I can do this anywhere. I can do this, you know, in, you know, the Antarctic, 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. And Silicon Valley, by the
way, is super good at some kind of
tasks. Some places that you
essentially try to solve certain kinds of
problems. But it’s 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’ve
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 and uses a a kind
of Internet technology as a mobile product and
everything else, all of which we have a lot of skills
here in Silicon Valley and the networks are really good
for this. One of the things that’s
central for GroupOn for it’s 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 going to rent a 25 story
building and in 20 of those stories we’re going to
have floors of sales people, and that’s how we’re going to
get out 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 po-, aggregate to it, tends to have
financiers talk up of 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 showing that even software startups
can be in other places. But even if you begin to think
about 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 were doing a
fashion start up. Not fashion a la Poshmark
which is you know, a mobile marketplace et cetera
which are a bunch of things that are good here. But like I’m develop, designing a new fashion
company and I’m going to come to silicon
valley to do it. That’s actually not such a
great idea. Right not saying 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 I, where I locate my startup is a
test for thinking about 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 to 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
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 for, for text 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 contrarian these days. And so, let’s talk a little
bit about what contrarianness actually in fact is. 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, because if you can’t think
of a smart person- Who isn’t like ignorant or
just crazy or isn’t, but is a smart person who is
somewhat expert in that so 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 want to be, when
you’re, when you’re thinking about
contrarian in terms of, like a really good contrarian
idea is 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 what you think
about contrarian is to say, okay, what’s the way that what
do I know that other people don’t
know? Because it isn’t just that I’m
brilliant and other people aren’t and that’s reason why contrarian
thing is right. That’s a very bad test. Right, it happened to be true. Of course, lightening could
also strike you in the field. You know, so, think a lot
about, like, what is that I know that other
people don’t know? So, for example, in the very
early days of LinkedIn, part of what I advised all
founders to do was 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 they reason why they
thought I was nuts was because 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, no value for either of them,
they already know each other. When do you, when do you actually begin to
deliver on your use case. Which is like 500k to a
million people. Right. And so, you’re never going to
get to size, you’re never going to grow. Now what I knew that the
critique, the critics didn’t know. Was that I could think of a
set of different ways by which people could 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 use, 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 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 a lot 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 not so small it’s large. Or you know, actually in fact
you can assemble the talent or while most consumer internet
start ups tend to be like for example, this is another
LinkedIn example tend to be only successful through 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 atypical to the
pattern. So here you begin to get to a
bunch of sorts of problems that, essentially
founders run into, which is like, well should I
be doing the work or should be recruiting people
and delegating the work. And classically the answer to
this is, actually in fact you need to
do both. Right, and, in fact, not only
do you need to do both, you need to do sometimes one
at 100% and sometimes the other one at
100%. And sometimes, even though
this is not so good at math, both at 100%. And so 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 got to 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 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 other piece of advice
given with equal vigor is, listen to data, listen to
customers. pivot.
Be flexible! Part of the thing this comes
out to meaning 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 a
potentially 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 pieces or decreasing confidence in my
investment pieces? Because I’ve got increasing
confidence, then oh, stay on track, you know, be
persistent. And by the way, sometimes even
with adversity, you’re confidence can, can
increase. If it’s decreasing, that
doesn’t mean jump out. PayPal, LinkedIn, Airbnb, a whole bunch of startups I’ve
been I’ve been a part of have had months where you were
like, oh my God this, why would did we ever think
this was a good idea it was kind of a valley of the
shadows moment. So like example, in PayPal it
was, you know, August 2000 we were burning
$12 million in one month, the expense curve was
exponentiating, we had no revenue, decrease in
confidence, however we say okay what 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, should you essentially go well
no I have this vision of the way the world should be
and I should ignore everything
else and I should just go at that. Well again, part of what being
a great founder is, is being both able to hold the
belief, to think about what it is you want to be doing and
want to, want to be going. But also be smart enough that
you’re essentially listening to criticism, negative
feedback, 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 the product, ignore the world,
ignore competitors etc., .
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 90% one way, sometimes be 80% the other
way. Be executing the judgement on what is 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, and you just 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 say at the
user groups. You know?
I’ve, a lot of entrepreneurial
methodologies lean, other kinds of things are
talked about is like, gather the data, be guided on
the data. Well actually in fact, data
only exists within a framework of the 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, you never 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 the new
global world currency, right? Well actually in fact one of
the, the and I, and I know Peter’s been here. 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. Right? We’re essentially a master
merchant for that. now, course this message is
what may be happening with BitCoin although, you know, is
a whole other topic there. However, the key thing is that
that vision of saying, we’re 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 at true north
by, we say well, first we think we’re going to
have a banking model. Then we think we’re going to
have, you know, a, a, a debt model. Oh no, we’re actually going to
have a master merchant model. And how does that actually
play out? So you’re always combining the
vision and the data. And the data’s within the
framework of, of a vision. And sometimes, of course, what
you learn changes your vision. Now, this is one of the ones I
actually think we, we, we saved this special
picture for one of the ones that I
actually think is quite key. Is that normally
entrepreneurs, founders, are thought about as having
like the risk takers, right? They’re, they’re, 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 ones 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 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 eg 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? But let’s go. And so this kind of combines
that, you know, this, this image which I think is
the best of the, of the, of, of the images we
found for this yet, is kind of the sense
of how to think about. Now, back to what I was saying
in terms of 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 everyone is actually going to be benefited by
public professional network. Everyone will realize
including companies that it’s better to have it play out
this way the initial set of adoption will come from
essentially people who were like visualize the role, thus
were 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’ve got economics
like initial recruiting and then, and then broadening and
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 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,
very early days in PayPal the, part of what happened is, they
said, okay well, we’re going to do
cash on mobile phones. We’ll do cash on Palm Pilots
because it’s really easy. We actually realized that cash
on Palm Pilots 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
probably doesn’t remember what Palm Pilot’s are. They were like, like early
PDAs And so yeah we lived in what was Palm
Pilot central. And the whole use case case
was splitting dinner tab. And, how many people, everyone at the table would
have a PalmPilot Zero to one in every single
restaurant. So, you could even just by
thinking it through, you realize that the direction
you’re on is going to hit a minefield and
you need to pivot, and that’s when Max Legend came up
with the idea of saying, actually in fact we could
synch by emails, we could have email payments
as backbone of this, and we were 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 because if you actually completely lose
your, your directions 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 part of the 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, start-ups. Like I have a have a product
idea, that’s a thing, I’m a founder. Actually in fact, the next
level down on strategy is usually a product
distribution. Whether it’s consumer Internet
or 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
actually 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 fundraising, I’m thinking
about the next fundraising. 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 because you have this business that
you’re building. But I am 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
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 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
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 I deliberately put up five
white men, male pictures. It’s classically, you have a kind of a these are
the iconic founders. But in fact, founders can be
very diverse, they can be extraordinarily
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 Baugh 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, it’s a constantly changing
problem to face when you are trying to found a company. And so, I think that 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 and then to be cre, 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, because you
don’t really know like, did you always know this was
going to work? No.
Unless you are crazy. Right. Sometimes crazy works. So with that I will now go to
a few questions. But it was kind of this mind
set of founders. Which is kind of key. And if there’s no ques, oh,
here.>>I’m curious about how
Nathan, how you you targeted the earlier, or
you selected the guys for getting the right doctors who
knew would strengthen your investment thesis to really
help it take off because it seems like every start up is
faced with that.>>Yep.
>>That same challenge.>>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
2003. That basically what happened
is everyone had thought the consumer net was
over. And so people were doing clean
tag and enterprise software and
everything else. It’s a much harder problem
now. because everyone thinks the
Internet and mobile is interesting. And so breaking through the
noise is really key. So the strategy we use
wouldn’t work. We just 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
you 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, it’s 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 2003 it was like
well,a professional network. That’s potentially a good
idea, what the hell. I’ll play with that. 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?>>Someone come to you, how do you tell
>>So how do I know someone’s a good
founder or not? well, it’s not I’m a huge
believer in references. Usually I only ever, actually
no. 100% 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 I need to get
to. If you want to actually get
time and attention Lee, find a
reference. It’s not a pitch to using
LinkedIn, it’s a question of, this is how you sort out time. You can find out, like Sam
knows me. Lift up, throw Sam under the
bus. Right? Yes. And so a reference to me is in
fact the way that I do this. And so for example, when I met
with the AirBnB guys. Part of the reason why I could interrupt them two
minutes into their pitch, and say, I’m going to make you an
offer to invest. I want to hear the rest of the
pitch, because I think what you’re
doing here is, is, is magical and awesome. Was because I’d already had
references on them. Like 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 industries. And it’s that, it’s that
network that’s really key. I think there was a question
over here too. Here.
>>So would you consider it intensity of insight to be a
strong signal for great founders. Density of insight is a strong
signal for great founders, can you say
another sentence?>>Being able to distill a
thesis out of or operate off a thesis. A deal of doubt to a concise
sentence.>>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 than it works, that is
actually pretty important to be, to being able to judge a
founder because if you don’t have that level of,
of clarity you’re not going to be able to assemble the
network behind you. You’re not going to be able to
get investors, you’re not going to get
employees. You have to be able to
articulate a very clear mission about what
you’re doing. And insight is helpful
although, a little bit of this depends
on the stage. It, it is always, if I find, 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.>>When Lincoln had like five
years of like I guess Wrap up times, like what, what
can be going to keep like doubling down the original
>>Oh. So, how do I keep persistence
when, because, actually, LinkedIn
went through, you know, let’s see, for those who
remember. We were treated as the little
alternative to Friendster, then to MySpace, then to
Facebook. Righ.
So, we had a lot of different, like we’re the little tiny one
next to these respective giants each at the
time. Ultimately, for me, when I was
thinking about LinkedIn. This gets back to the investment thesis as a
mechanism. I continue to believe the
action fact, the right economic system
design for every individual’s life and
for organization’s life is to have
public professional profiles. That world is the way the
world should be. Everyone is 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’d like, 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 and the Summer of 2003 by saying
we were Friendster but for business, which is completely,
like, nonsensical once you begin to
look at the thing. But it was like okay we’ll cover you cause it’s
friends 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. Sam?>>When you get it wrong, when
you meet a fund that you think is going to be really
good and. You know, seems to be a move
between these opposing forces.>>Yup.
>>And on paper it seems like they’re going to go
the distance. What is it that makes you get
wrong about someone that looks good at first
observation?>>Well to some degree you can
only fully cross this kind of minefield by actually going
and doing it, right? So you can be wrong about your
hypothesis. The kinds of things that
frequently get you wrong, get wrong or when you think
that a person because they. Like for example, one of the
tests that I frequently use in 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 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’re brining up but actually
in fact I’m ignoring you. Right? And ignoring me that might be
fine. Right?
Ignoring the world in general is usually a disaster. And so those are the kind of
things that in the measurement you can see essentially
getting wrong. But usually, the kind of thing
like, most often, the kind of
reference questions I asked about founders is like
adaptability. Like one of the phrases that I
frequently look for is infinite learning curve. Because each entrepreneurial
pattern is, to some degree, unique and new, and can you
learn the new one? Huh, right, is a way of doing
it. And so 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. Like, everyone, everyone must
adulate me, and that will cause you to, to behave wrongly in adapting
to the problem. Those kind of things. I think I have one last
question. The woman in the back?>>It’s 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?>>Co-founding team, how to evaluate, 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 initial part of that. Because, if you in fact, don’t
have pretty good serious trust, you know, kind of a way
of. It’s 150 that I’m supposed to
end, right?>>205, man.
>>Oh 205, no, no, no, no I’ll keep going. Sorry. I, I, I misread the time. So, I will have time for more
questions, Sorry, I was trying to be time
>>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 se, 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. At least frequently, you need
to have someone who is going to 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’s kind of some
composition across them. And that’s kind of, like what
you think of as founders one when you’re thinking about a
founding team when you get 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
like, that adds a little extra freight to it and everything
else cause, you know, there’s personal dynamics also
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. Okay, so for example I. 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, well did you
think of this or what about this is 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 Max who invented
the prod systems and everything else would
frequently come into Peter’s office, Peter Thiel,
mass legend and say, look here is some things that
are going to kill us and let me focus you on them. Right so, it’s not like we’re
all just kind of saying, oh yes, we’re all sitting here
We are adjusting to what is truth and what’s the problem
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 within
the team that collective problem solving, that
collective learning is the kind of thing that actually
usually makes great teams.>>Yeah, thank you for this
wonderful lecture. I recall Peter Thiel says, we
all dream of flying cars, but we end up 140 characters. So let’s ask you, you know,
how to identify. That we found this, you know
different sectors that someone might would be you.>>Mm-hm.
>>And then some of the, the common
computing or how to, how to poll outsiders or the
to for the combination.>>Yup.
>>Is there a common place or any
>>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 a great founder across
all founders. That’s part of what this was. An attempt to say look because
there are difference. So for example in software,
speed to market, speed to learning is really
key. In hardware, if you **** it
up, you’re dead. So, accuracy really matters. So if you build and ship the
wrong thing, you’re hosed. Generally speaking, as an
investor, 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 because 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? And so there are attributes
that are unique per domain. So, for example, you know, like if like one of
the classic ones is how good must you be at
operational efficiencies in terms of margins, cost
controls, etcetera. You’re dealing in the worlds
of atoms including even in commerce, you’ve gotta be
really good at that. You’re doing a digital game
like a Zinga-like startup doesn’t
matter at all. Right.
So, and so you look for that kind of fix and
proclivities, and part of the beginning of this
is, it’s not action fact that it’s one person is good at
everything. I would be, like, one of the
funniest conversations I had with a guy, a friend of
mine who worked for me at my first start-up’s
social net. He looked at me and he said, Reed, I would never hire you
to be a manager of McDonald’s. I’m like yeah, I wouldn’t
either. I’d be terrible at that. Right, and so it’s, it’s the
skill set that fits, but also the whole point of this
is actually being navigating a set of things
that look like paradoxes. Sometimes being heavy on one,
sometimes heavy on the other. And being, having the right
judgement at the moment in terms of what you’re doing. And that’s what tends to be
more universal. You mentioned that you’re
taking longer then you’d like to see growing and speak a
little bit about when, how do you know whether or not
you should say and how do you know when to give
up on also maybe with respect to like your personalize life
and career goals. How it fits in
>>So the question is basically how
do you know when to pivot? 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 you’re confidence is
unmeasured for a fairly long time or is decreasing, cause
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. Right, and that’s failing. That’s a seriously good time
to think about pivoting Right. And you might have thesis on
can we raise money. You might have thesis on will,
what’s the pattern by which the product distribution
and growth or, you know, viral limitation or SEO or
anything else will work. And just like, well, I tried
these things and this fourth thing doesn’t seem
as good as these three and the next two things that I
think about. So 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
been crashed into the wall and everything is dead and you
can’t make any and you can’t maneuver anymore and that’s
you waited way too long. Now, in terms of personal
career goals and so forth, you know, part of the
thing that I would say that is one of the
things that I meant to talk to you during the slides that
since misread the time, 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 we’re going to 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. 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 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.>>So your definition of
sorry, depends on the idea of identifying
uncertain opportunities which others don’t necessarily see. Overall how efficient do you
think the startup ecosystem is at identifying good
opportunities?>>So how good is the startup
ecosystem at identifying contrarian
opportunities? Let’s see. That’s kind of challenge. Because the moment it kind of actually becomes in
vogue it’s less contrarian. I’d say it’s mixed. Sometimes because part of what
makes a great investor is an ability to go look I take
this radical shot and I take this radical shot. I take this radical shot and
there’s enough people or investors there’s usually
someone, if you can find your way to them, network finding
your way through the network. Sometimes difficult, tons of
noise, hard to get to the signal. On the other hand there’s
sometimes things that are just kind of like, you
know, totally crazy. Like one of the funniest
things is, you know Benchmark was the
only one that would fund eBay. You know, if you talk to most
of the people in the Valley a year, 18 months
ago about BitCoin they would’ve told you like what? Bit what? They 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 going to 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 is already
going. And so. I think it’s pretty good with
it. Frequently what happens is
people think they’re contrarian because
they’re doing something they think is a unique con-, unique combination. I’ll give you two examples and
hopefully the, the founders of these people
who sent me these cool, I get about 30 pictures sent
to me a day. That I don’t basically don’t
look at unless or if 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 wearable
diapers, which was the you know, you, you have the
computer monitoring you know. Whether or not the kid is you
know taking a pee or a poop and it lets you know,
and you’re like. If you’re that far away from
your child in this kind of thing, it’s probably a bad
sign of other things. And then the other one was
kind of a customized e-commerce bongs. And your know like, oh, I’ve
got a contrarian idea. Like, yes you do. But not the right way. Right?
So anyway. So, you know, but, so I think
generally speaking, the system’s pretty good at
it. In the back.>>Do you find social net
ahead of time I guess. How do you think about
creating markets versus.>>Creating markets versus
discovering them?>>Yeah.
>>Okay. So this is actually, well,
it’s a challenging question. The, the the, the frequent,
like, and there’s a, 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 going to
be huge or nonexistent? The good news is, it’s usually
one or the other. Right? And so that makes 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. However it can freq, it can sometimes completely
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 there was a
market there or not? Because, you know, at the beginning there are no
markets. And so it is of course
conceptually possible to create markets. People think that there’s a
new need for this sort of thing. On the other hand, the problem 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, a classic
entrepreneurial misfire. A classic one is if people
just realize once it exists they’ll realize 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 of the time it doesn’t
work out that way, and so you have to say in your
investment thesis why is it that you think when you’re
thinking about a market that isn’t already existent. That, that you know that other
people don’t know on the countrian basis that leads
you to think that market should
exist, right. And so for example, a micro
one with LinkedIn was, actually in fact the
classifieds means of recruiting was in fact an
exercise of newspapers, an exercise in 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.>>Last question, boss.>>Yeah, last question.>>When do you know you’ve
known someone long enough to start a company in front of? One of the things Stan told us
a in the first semester was you someone you know for a 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 the people enough to
start a company.>>So the read I’m, I’m, I’m
repeating the question in part because we’re, this is
record, recorded and everything else and I want to
make sure the people here it, but the question basically is
how do you know that you trust someone well enough to
be a cofounder. There’s a whole bunch of
different variables that go into it and, look, it’s one of
the risks that you take. And you kind of get to a
thesis of do I think that I know them well enough? Now I’ll parallel one thing
that I think 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 there thinking
about hiring a CEO. Is I think that the only way
to do this is, when you get down to the
people that you thinking you may hire as a CEO, you spend
20 plus hours which them. Right, where you go into as
much depth in a conversation about anything you think is a
possible difference. Of opinion, belief, work
style, so you’ve identified all this up
front so that you’re, you’re, you’re it’s not that you have
a contract, it’s not like, oh signing a contract, this is
how we do it. But we’ve established the
conversation. We’ve, we’ve gone all the
parameters, we’ve had a conversion 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, wa, why would we want to
divorce? 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
shadow of the 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 planning 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 fairly confident
that you have that level of trust. For me, frequently, it’s to have a set of robust
conversations. Such that, as like, like if
something comes up later, it’s like, well, we talked
about this inversion. And we can, we can bring that
up, so. Anyway, with that.>>Thank you very much.>>Thank you.

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