Fond Of The Pod — Five Reid Hoffman Strategies For Scaling A Business
Insights from The Masters of Scale
It is utterly unfathomable that, for near zero costs, we can eavesdrop in on conversations between the greatest minds of our generation. Mankind’s visionaries, scientists, entrepreneurs and creatives have never before been more accessible. Wind the clock back and imagine being able to listen in on Edison & Tesla going at it about Electricity. Or to Einstein & Bohr debating Quantum Theory. Anyone with an internet connection, and a curious mind, is at liberty to plug into an auditory universe of ideas & experience defining the future.
How? The mighty podcast.
Given this absurdity, I’ve taken it upon myself to review my favourite material gleaned from one of my favourite, & most productive, pastimes — listening to podcasts. Selfishly, my aim is to dial down the sheer volume that seems to go in one ear and out the other. Magnanimously, an outcome perhaps for you — dear reader — will be the inspiration to spend the five seconds or so it takes to download one and then experience the magic for yourself.
Fond of the Pod
Lauded for his legacy as a member of the Paypal Mafia. Admired for legendary angel investments such as Digg, Zynga, Facebook etc. Currently a partner at Greylock Partners Venture Capital in Silicon Valley. And revered in business, the world over, for founding LinkedIn. I give you: Reid Hoffman.
Chief amongst his myriad achievements (in my book, anyway) is a true masterpiece: The Masters of Scale Podcast. I’ve listened to 30 episodes so far, here are five I learned the most from re: Scaling.
Episode 1: Brian Chesky of AirBnB
“I would argue that painstaking hand crafted labour is actually the foundation of success”. Reid Hoffman
Reid covers the AirBnB story here, never veering far from the key points where this insight above is made flesh. For example at the start of the business in California, Paul Graham — the founder of Startup Accelerator Y-Combinator — advises them to go where users are (in NYC) to spend time with them.
Brian responds: “That doesn’t scale!”
Paul says: “Good! It’s the only chance you have to speak directly with users before you get too big.”
A number of contemporary examples of tech leaders who embody this principle share this edict. For instance, at their early stages of designing product, the Collison brothers of Stripe (Patrick Collison features in this episode) aimed to respond to customer service enquiries within 30 seconds. When sleeping, him and his brother would use a bot to alert them to get up and respond within that time window! Paul English, of Kayak, used his mobile number as the customer service line in the early days, to shape the business responsively to customers.
First key Takeaway: to scale your business, at first, do things that don’t scale — handcraft the user experience.
Episode 6: Eric Schmidt of Google
“The smartest companies don’t tell their employees how to innovate, they manage the chaos.” Reid Hoffman
Eric relays three key insights from Google:
- To invent something new, or reinvent something spectacularly, you have to suppress top-down management.
- Let your employees pursue wild ideas that may raise eyebrows.
- It’s not for you to judge whether their ideas are good or bad.
- It’s for your employees to prove it through freewheeling experimentation.
3. It’s better to make a decision and just accept the consequences.
And these three insights are backed up wonderfully. It is riveting to consider the underpinnings here of Google’s infamous twenty percent time: a strategy enabling employees to spend a fifth of their working hours to pursue passion projects — it is responsible for gmail, google maps, adsense, etc. Fascinating also to understand its dual aims. First (of course) as a tool to retain employees. Second (which I’d never thought of) as a tool to “allow reasonable employees to defy unreasonable managers”.
A useful lesson Eric learns is in aviation, where they teach you to make rapid decisions over and over again: “Decide, decide, decide.” That decision discipline guides him in times of crisis. Analogously, Mark Pincus (Founder of Zynga) offers up a great story about his first start up, the social network Tribe, which failed and underpins the importance of this idea. The main lesson he draws from the failure of Tribe is to try anything, and kill anything — quickly. A willingness to kill ideas is essential to making innovation work.
Second key Takeaway: innovative companies manage the chaos by making bold decisions quickly, experimenting, hiring and empowering employees to try new ideas and fail.
Episode 12: Peter Thiel of Paypal
“Your goal is not to beat the competition. Your goal is to break free of competition entirely.” Reid Hoffman
About as contrarian as they come, Peter Thiel chimes in with gold dust disguised as deeply considered philosophies and strategies. His relationship with Reid is fascinating to uncover, given how different they are (opposite sides of the political spectrum, opposing temperaments), yet how well they work together.
For those who have raised capital, watched Dragons Den (UK), listen to The Pitch or love Shark Tank (US) — you’ll know that founders often hear potential investors asking some version of this question:
“Isn’t some massive company with huge market share, long established distribution, and first mover advantage going to take this on?”
The presumption being that with all of their money and talent, they’ll squash you “like the cockroaches you are” (a quote from Mr Wonderful a.k.a Kevin O’Leary — hilarious and savagely honest at times). However, the reality according to Reid & Peter, is that your most dangerous competitors are rarely the big guys.
Reid shares from experience that the ‘big guys’, like eBay, are hesitant to ‘storm the field’ and ‘fumble’ alongside you. Whilst fighting for market share in the growth stages of both companies — a fumble for PayPal risked blowback from a few thousand users. A fumble for eBay, however, could anger users in the millions, draw the watchful eye of government regulators, inspire ire from the press and other stakeholders etc etc. Much bigger stakes.
And even if eBay were willing to take those risks, why would they burn so much creative energy on the online equivalent of a cash register?
“Think about it — they’re building the store, a global marketplace for online commerce. So what if a little company is hijacking the checkout?”
Third key Takeaway: Scale incredibly fast. It’s hard, but worth achieving escape velocity from the black hole that is hyper-competition.
Episode 20: Payal Kadakia of ClassPass
*Authors Note: Years ago I took a brilliant, but sadly now defunct, MOOC on coursera called “A Beginner’s Guide to Irrational Behavior” by Dan Ariely. In it he unravelled the plethora of cognitive biases humans are prone to, which make our behaviour utterly irrational at times. One such bias he touches on is our propensity to be entirely diverted by the prospect of anything free: tattoos for instance.
“Free is the force multiplier that countless Silicon Valley companies have used to achieve scale (Uber, Dropbox, Spotify etc). It’s like the dynamite they use to blast through mountains of indifference. And like dynamite, freebies are also pretty dangerous — they bleed your business. You better set off a controlled detonation! There’s no faster way to attract lots of people quickly than with a give-away. But if those freebie-seekers don’t convert to paying customers, then you’re just left with haemorrhaging.” Reid Hoffman
Early on in the Class Pass story, Payal launches a quasi-free ‘all-you-can-eat’ product for fitness classes. People love it. Nefarious users even sign up with multiple email addresses to hack the system. Are Class Pass mortified? No — they are thrilled! A survey shows 95 percent of users said they would buy the product again if they could go back to their favorite studios. They decide that this is pointing towards a subscription service. Conversion path sorted.
Reid sneaks in another great idea here for further down the conversion path. That dreaded moment when you eventually raise the price!
- Backlash is inevitable — human nature demands it as no one ever wishes they could pay more for a service, no matter how much they love it.
- Growth companies, like ClassPass, typically start with a business model that’s unsustainable. It’s a key way to lure early users/adopters.
- But, if you stay with that business model, you die.
The premise, when the time comes to raise price, is not to change the value proposition so drastically that people revolt! Subtle changes that drive value for the business win the day. As an example, Reid regales the tale of PayPal notoriously giving away $20 for every new user at the outset. At some point they couldn’t afford it. Option A: stop. Bad things would have happened. Instead they go for Option B: customers still get the money…so long as they invite more friends than before, give more personal data, and essentially engage more with the brand. Thus they kept the original promise whilst increasing churn friction, getting more data/revenue/customers, and avoiding major backlash….win-win.
Fourth key Takeaway: For the price that bleeds your business, to save your business, you need a conversion path.
Episode 24: Stacey Brown-Philpot of TaskRabbit
“I believe you can harness the power of the human cloud to solve almost any problem — as long as you keep ‘human’ in the equation.” Reid Hoffman
Stacey, a former Googler, does a phenomenal job of articulating how TaskRabbit is able to harness the power of the community to drive success.
“As a manager, your job isn’t just to direct your employees or drive their to do list. Your job is to turn the light on inside them!”
TaskRabbit is an app that connects you with skilled ‘Taskers’ to tackle home services and errands. In the early days, Stacey delivers this service via a competitive auction mechanism. Taskers would bid to complete works, and buyers would accept the most appropriate/competitive bids. Of course this kicked off a race to the bottom. Low bids would win out, reducing overall earnings (for taskers) and quality (for consumers). A fix was simply to remove the hyper-competitive bidding structure. No more fighting. In fact, unexpectedly, a supportive community of Taskers emerged; upskilling the abilities of their colleagues, improving service quality and growing demand!
In theory, taskers were still in competition with each other for jobs. But this is the kind of growth possible with the human cloud — keep humans in the equation. They find a way to positive-sum games. The pie grows.
Fifth key takeaway: When questions arise in the business, the answers probably lie in the community!
Thanks for reading. Some notable ideas I could not cover here in this top five, but are worth a mention, include:
- Do not fear starting with an imperfect product (Mark Zuckerberg)
- Know how/when/why to pivot (Sheryl Sandberg, Stewart Butterfield)
- GRIT gets a few mentions — no surprises there (Nancy Lubin)
- The classic we’re not a family, we are a team is folkloric from the team at Netflix (Reed Hastings)
- The 1000 true fans idea comes up with Sam Altman of Y Combinator.
- And Arianna Huffington (true to form) advocates sleep, rest and rejuvenation for a prosperous business — Love. Her.
Footnote
Let me know if this encouraged you to download a few and have a listen. Feedback, critique and insights are rare and wonderful things — do share your thoughts in the comments below and/or connect with me on Linkedin here.
