Reid Hoffman on Launching, Building and Scaling a Successful Startup
LinkedIn co-founder Reid Hoffman has a lot of advice for entrepreneurs and technologists. At his recent talk with members at South Park Commons, Hoffman discussed how to be successful as you’re getting your company off the ground, scaling your company and even getting started as an investor with modest capital.
We broke down his advice for entrepreneurs here:
Starting a company: How to align on the right startup idea
When it comes to looking for your next big idea, Hoffman advises you want to be contrarian and right. To this end, it may actually be a good sign when you hear a chorus of nos in response to your idea. The key to measuring how right you are is by looking for nuances between rejections.
For example, Hoffman received negative responses from about two-thirds of the people that he pitched LinkedIn to. However, he believed he knew more about patterns of virality and could build enough network effects to make the idea successful.
“If you’re asking smart people [about your idea], what’s the reason they’re saying no?” said Hoffman. “And what do you know that they don’t know that makes it a potential contrarian and right bet? That’s what you’re looking for.”
Building a company: Arrogance versus self-delusion as an entrepreneur
By definition, believing you can have a big impact on the world is arrogant. But Hoffman argues that arrogance isn’t always a bad thing.
As an entrepreneur, you have to visualize something that doesn’t exist and sell that reality. Hoffman’s advice to entrepreneurs looking to avoid self-delusion? Be upfront about the risks you see in your business.
“When you don’t state what the risks are, an investor will conclude you’re lying,” said Hoffman. “Or that you don’t see the risks, in which case you’re insane.”
You should also look for investors who can help you see problems in areas where you don’t have experience. Hoffman referenced how LinkedIn investor from Greylock Partners, David Sze, advised the company to raise money right before the financial crisis in 2008.
“That’s the type of thing that partners help you with,” said Hoffman. “Having that capital was insurance for the couple of months where we needed to keep operating.”
Scaling a company: Marines take the beach, army takes the country and police govern the country
From Hoffman’s point of view, there are three different levels of scale required for a startup to succeed throughout its lifecycle. The metaphor he likes to use is:
- Marines take the beach = product-market fit
- Army takes the country = blitzscaling
- Police governs the country = manage the ecosystem
“At each of these levels, the resources that you need to direct your company are different, and some people play across all three,” said Hoffman.
To predict entrepreneurial success at each of these phases, Hoffman looks at three indicators:
- Genuine willingness to take risk. A true risk is starting a company.
- Grit and perseverance. If you’re taking risks, you will sometimes fail, but no success story is a no failure points story.
- Life is a team sport. Identify the people that will collaborate with you and help you tackle the hard problems.
Investing: Angel investing with modest capital
When starting out as an investor with limited capital, Hoffman has three main pieces of advice.
- Don’t take huge bets unless you’re certain they will pay off.
Five-10 investments, even with lower capital allocations, are actually better than one-two larger investments, because you want to build more of a portfolio, even as an angel investor.
2. Consider where you can provide a differential edge in terms of knowledge and expertise to entrepreneurs.
“One of the key things for angels is to get your angel companies funded by venture,” said Hoffman. “As an angel, my primary test was, ‘in six-18 months could I get this funded by a venture firm?’ If I thought I could, I was pretty interested in doing the deal.”
3. Make bets on a 10 year horizon.
“I try to avoid market timing as much as possible. One of the things I like about venture investing, and I do almost no public market trading, is I try to say, ‘I think 10 years from now this is going to be super important. This team and this effort could pull it off. And I don’t have to wonder whether this is the right month to buy.”
Closing Thoughts: If you’re not part of the solution, you’re part of the problem
Hoffman is a political activist who has publicly backed Democratic candidates and organizations since Trump has taken office. Though Hoffman thinks the political landscape will get worse before it gets better, he stresses the importance of remaining active in politics.
“Help candidates, donate to candidates and get your friends to vote in the relevant areas,” said Hoffman. “In these turbulent times, if you’re not part of the solution, you’re part of the problem.”
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