LinkedIn Founder Reid Hoffman’s Advice for Entrepreneurs

Margaret Thatcher once said, “There is no such thing as society. There are individual men and women, and there are families.”

Reid Hoffman, social networker and co-founder of LinkedIn, might respectfully disagree.

Hoffman believes that society and communities are real and that technology can be used to create new communities. LinkedIn isn’t Hoffman’s first networking creation. At Apple, he worked on the eWorld project. After Apple, he co-founded SocialNet, which was a “technology for matching people up.” Dating was its primary initial value. After strategy disagreements with the SocialNet board, Hoffman joined PayPal and became part of the PayPal Mafia. After Hoffman made his money with PayPal, he co-founded LinkedIn.

Hoffman isn’t the type of person you’d expect to build a product that connects people. He describes himself as a “loner” in school with 3-5 friends. Certainly not Mr. Popular.

With LinkedIn, Hoffman has built a company that is unlike most other consumer web products. While Facebook has struggled in the public market, LinkedIn has excelled. The 4th quarter of 2012 was a breakout quarter for them, as they had an $11.51 million profit off of $303.62 million in revenue. It’s been the “unsexy” but very profitable networking tool.

Today, Hoffman is the executive chairman of LinkedIn and a partner at Greylock Partners. More recently, he wrote a book along with Ben Casnocha. This post is not intended to be a replacement or substitute for the book. So please read the book if you’d like to learn more about developing yourself and your brand.

Along the way, Hoffman has shared a lot of advice for entrepreneurs. Let’s get into it.

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Winning Requires More Than Just Building a Superior Product

“The question comes down to…not to think of it just as a question of ‘Oh, I have a better product, and with a better product, my thing will work, as opposed to other things.’ Because unless your product is like 100x better, usually your average consumer…they use what they encounter. If other[s] are much more successful at distribution and they have much better viral spread, they have better index and SEO…it doesn’t matter if your product is 10x better, the folks don’t encounter it.”

Hoffman says most people use about 7 (give or take 2) web products daily. Breaking into that and becoming one that people frequently visit is difficult. It requires rising above the zone of competitors. So if you’re entering into a crowded market, say the daily deals space, you’re going to have a very difficult time displacing them in people’s browsers and/or apps. This is assuming competitors are mediocre; it’s going to be even more challenging if competitors are top notch. Hoffman says part of the reason LinkedIn is successful is because there weren’t many competitors when they launched in 2003.

So if you want to win, you need to have at least:

  1. Great distribution
  2. A really great product (at least 10x better) or one that clearly stands out
  3. Something new that disrupts an industry or creates a new one

Some examples of companies that fit this mold:

  • Instagram – A relatively new take on photos that spread easily.
  • Facebook – A product that was more than 10x better than MySpace and got millions of users to switch.
  • Airbnb – Something very unique that disrupted the travel industry. Like a more focused, better version of Craigslist.

So words of advice from Hoffman: “Don’t enter a crowded market.” Launching another social network or daily deals site is a mistake because the market is crowded, and the existing players in that space are very good.

Being a little better than the existing players doesn’t count as a competitive edge. The best product does not always win. You cannot forget about product distribution. The best product without great distribution means the product dies.

If You’re Not Embarrassed by your First Launch, You’ve Launched Too Late

Hoffman emphasizes that entrepreneurs should start with a very thin product.

“It’s the emphasis [on] time. It’s getting out and getting in the market and learning and moving, [which are] much more important than the ego satisfaction of ‘Oh, I want to do it completely behind a cloak and then [remove] the cloak and everyone knows how wonderful and what a genius I am cause they think the product is so wonderful.’ That’s actually rarely the winning strategy. The actual winning strategy is ‘I’m moving, I’m getting out there and I’m adapting at a fast rate.’”

He adds that “Tackling those early hypotheses as soon as you can is extremely important.”

Hoffman advises entrepreneurs not to drink their own Kool-Aid and be careful about blind faith in their own theories. Launching early brings the benefit of seeing how customers use and interact with your product. It’s also important to have metrics that tell you if your aspiration and vision are on target.

In an interview with Bloomberg, Hoffman says:

“…the key things to shorten the [length of time for] getting to the market with a minimum viable product…I had learned from SocialNet and PayPal. As opposed to waiting for a perfect product, you actually want to be launching the minimum viable product, the thinnest possible product, and then you iterate and develop.”

A Team Needs to Have a High Clock Speed and Learning Cycle

Since your startup is doing things that have never been done before, it helps to have people who can learn fast. Hoffman says:

“You want a crew that coheres as a group and learns and acts quickly…what we interviewed people [for was] raw intelligence, learning, and team sports, and a clock speed as opposed to ‘Oh, did you have 10 years running an operational server farm?’”

But there’s more than just hiring enormously fast learners. There must be a skill basis that they can start with. No one says one day “I don’t know how to code” and then a day later says “I know how to code.” Employees must have an underlying skillset with raw learning abilities.

Another thing you look for is creativity. Hoffman is quoted in Fast Company saying:

“So what you need is…people [who] are creative. You need people [who] are truth seeking, e.g., what’s working, what’s not working. And you need to have people who are…very honest with each other, but also fun, hard working, and want to win. One of the metaphors that I use for startups is you throw yourself off a cliff and assemble an airplane on the way down. And part of that is the urgency of what you are doing, and it’s the focus on the work. But sometimes you have to be very creative; you have to be very nimble and agile in terms of how you do it.”

I think this startup quote from Hoffman is great. He’s referring to his time at PayPal, when most of the mafia didn’t have much experience:

“When you lack the experience, you run out into the minefield. But you are always running out into the minefields in entrepreneurship and so the ability to navigate them is critical, the ability to learn and to adapt [is critical].”

Take Intelligent Risks

Hoffman advises entrepreneurs to take “intelligent risks.” These are the ones with a manageable downside, they have an upside, and they are the ones where you can get a sense…early that it’s not fatal. When you stop taking risks, you start dying. You stagnate, and inertia grabs hold of your life and business.

An example of a career risk is taking a low paying job that offers tremendous learning opportunities. While many assume that a low paying job is risky, they miss the fact that it’s a job with a big upside in that you learn a lot and gain soft assets like knowledge, connections, and great experience.

The question you always should be asking yourself is how you’re taking intelligent risks that can have breakout results.

Have a Plan Z

Entrepreneurs need to have a Plan A, a Plan B, and a Plan Z. Plan A is what you’re thinking about doing from the start, Plan B is finding your parameters of flexibility if Plan A doesn’t work. In Plan B you are still reaching for the same product and product/market fit as in Plan A, but you’re a little more flexible. Then there’s Plan Z. It’s the last resort and something that you can fall back on.

Hoffman recommends that you have a plan if you fail or your company doesn’t work out. It’s the “lifeboat plan.” He says that, with his first company, SocialNet, he asked his father if he could live with him if the company didn’t go as planned and Hoffman accrued a massive amount of debt. If this did happen, Hoffman would find another job and slowly work his way out of debt. His father agreed. This was his Plan Z.

So, before you launch a company or begin a personal venture, always make a Plan Z. You’ll know what you can rely on if everything crumbles. This is better than the alternative of figuring out what to do while you or your company is crashing.

Aim Big

“If you don’t start out aiming for the big game, you almost never can get there.”

Starting a company is very difficult. Getting people to give you their money is a challenge in and of itself, even without all of the other things running a company entails. So if you’re going to put in all the work and time required to get a company going, why not aim big? And, by the way, what is big? According to Hoffman:

“It is a new product or service that creates or dominates a significant market. If the market is small or your product is only a marginal improvement over what is already available, you will be taking the same risks but for a much smaller potential gain.”

Think big, but be smart. Elon Musk is a notoriously big thinker, but his endeavors require a significant upfront capital investment. Starting a search engine thinking you’ll beat Google in a few years is big thinking, but it’s foolish. The market is already crowded and dominated by a big company. It’s also difficult to build a better search algorithm than Google, so you’d need to compete on another level, like DuckDuckGo does with their superior privacy.

Hoffman also advises entrepreneurs to look for disruptive change. Airbnb is disrupting the travel and hospitality industry. Hoffman is an investor in the company and represents Greylock on its board.

When you’re thinking big ideas, you need to be contrarian and right. Let’s look into that now.

Entrepreneurs Need to be Contrarian and Right

Great businesses usually start off being a little contrarian. In the first few years, people will scratch their heads and won’t understand what the business is or how it will be successful. Then a few years later, they will start to understand. Being an entrepreneur means you want to be contrarian and right. If you’re the 50th daily deals site, you won’t succeed. It’s not contrarian (it’s trendy), and you’ll likely end up being wrong.

Hoffman says:

The trick to doing well with these things is to be in a place where people are saying, ‘Hey, that’s a crazy idea.’ If you’re right, there’s the opportunity to produce something really big. You want to be one to three years early. You want to start before others think it’s an easy idea. It’s much harder to be successful when 10 similar things are all being financed.”

In another interview, he adds:

“If you don’t shoot for something really big, you’re never going to get there.”

LinkedIn was ahead of its time, and Hoffman says that many of his friends and colleagues told him it was a bad idea. They turned out to be wrong.

Entrepreneurs always are a little crazy, and they’ll have friends tell them their idea is bad and that they should just “get a real job and relax.” But great entrepreneurs are built differently and wired in an unusual way. They have a certain intensity to them. They’re like the crazy people you meet one day who give wild predictions that sound absurd but years later end up being right. They also like to build things and get hung up on a vision. But sometimes they can get too stubborn. Hoffman advises entrepreneurs to remain stubborn but also be flexible. Let’s delve into it.

Maintain Flexible Persistence

Entrepreneurs are told two things:

  1. Stick to your vision and go after it. Don’t allow yourself to be defocused from the vision and just keep going no matter what.
  2. Listen to customers and be adaptable. Listen to the market, your colleagues, and what your network tells you.

Entrepreneurs are left asking “How do you put those two things together?”

Hoffman advises entrepreneurs to keep their vision, but also be flexible on the details as to how you get there. “Be persistent, and hang on to your vision. And at the same time, be flexible,” Hoffman says.

However, there are times when you don’t know if you should be persistent or flexible. For this, Hoffman advises entrepreneurs to talk to their network and people they trust. In fact, one of his tips is to build a network to magnify your company. He says, “The most successful entrepreneurs bring in advisors, investors, collaborators, and early customer relationships.”

Advice on Putting Together a Board

“I’ve seen companies…torpedoed by bad boards because a board can put a fundamental level of conflict into the executive ranks of how the company is going. So you want to choose people that share the vision, have a skillset that can enhance the company, ideally are people…you couldn’t hire…who you will go through both good times and bad times. Almost all startups will go through valley of the shadow moments where you’re literally going ‘Was this a good idea?’…and if you don’t have somebody that’s fundamentally, even in those difficult times, working with you to solve it, they add a lot of drag. And if they don’t understand what you’re doing and they’re pulling you in other directions, that’s…an additional risk factor of death. So you’re looking for people that would fit as a good team player on that.”

Hoffman says that board members need to help as much as possible. This includes help with problem solving, help by asking questions, help by advising on certain issues and things to look out for, and help with bringing people into the company.

Plan for Good Luck and Bad Luck

People know that they need to plan for bad luck. They need to have a “backup plan” in case things don’t work out. It doesn’t mean you failed if Plan A doesn’t work, it means that you need to move to Plan B. Hoffman says that you also need to plan for good luck. This means that, once you see something catching on, you can shift and go after it.

An example of this is Instagram. It originally started as a check-in app known as Burbn, but they noticed people were using it to take and share photos. So they quickly pivoted to building a photos app. If Instagram hadn’t prepared for good luck, they may not have been able to pivot quickly enough to focus on photos with filters.

As Hoffman says, good luck isn’t as simple as “It worked out.”

On Starting a Startup

Hoffman says it’s like “throwing yourself off a cliff and assembling an airplane on the way down.” Financing doesn’t guarantee you won’t crash, but provides a thermal draft that will make the ground a little further away. Hopefully, if you do assemble an airplane, you go up and to the right.

Rules Can Be Broken

Hoffman says that “Rules of entrepreneurship are guidelines, not laws of nature.” When you’re building something new, you may need to ignore entrepreneurship rules. You’re an entrepreneur, so make your own rules.

Other Tidbits from Hoffman:

  • Part of your identity is saying not only what you will be but also what you won’t.”
  • “One of the things about competitive differences is you really have to think ‘How am I almost world class?’ It doesn’t have to be absolute class, but ‘How am I really different in this?’”
  • On company culture, you have to decide early on what you’re going to hold yourself accountable for. At LinkedIn, they had open discussions about whether what they were doing was right or not. They allowed their core tenets to be challenged.
  • “The process of learning through failure – if you’re not redlining enough that you don’t have some failures you’re learning from, you’re probably not learning at a fast enough speed.”
  • When raising money, always think about your next round. Hoffman refers to it as “island hopping” as if it’s like a bridge that connects financing rounds. An entrepreneur has to figure out what they need to do and what they need to accomplish so they can raise the next round. If you don’t do that successfully, that’s how you die.
  • Entrepreneurs need to have a constant mindset of “I know there are more things to learn. How do I learn them as fast and effectively as possible?”
  • I think all technology properties, if they don’t innovate on at least a kind of revolutionary 2-3 year cycle, begin to have problems.”
  • Hoffman says the question to ask yourself very seriously when you’re looking at your business is “What are the hardest hypotheses that I can start getting data on right away? That I can start seeing ‘does this thing work’?
  • Every startup has a “valley of the shadow moment” where the founders and employees say “Why did we think this was a good idea?” Hoffman says that “You have to get through that.” He says that in August 2000 PayPal burned $12 million in a month without a dime in revenue. Entrepreneurs also need to make sure they are on the right track. Hoffman says, “If you believe your own theory too much and you’re wrong, that’s when you go over the cliff.”

Wrapping it up

As Hoffman says, these are just guidelines for entrepreneurship. They’re not the gospel and they don’t guarantee success. Nevertheless, we still can learn something and take advice from one of the most seasoned tech entrepreneurs. I hope you learned something; I certainly did. If you have anything to add, let me hear it in the comments. I look forward to a good discussion.

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About the Author: Zach Bulygo is a blogger for KISSmetrics, you can find him on Twitter here. You can also follow him on Google+.

  1. Lots of good advice here. It’s funny how going the process makes you realize how exactly right this kind of advice is.

    The only thing I would add, related to the “why did we think this was a good idea?” moment, is that there are TONS of “uh oh” moments. Many ups, many downs, and that’s what makes it all so exciting. My opinion is that weathering the storm is integral for success, and is also intrinsically rewarding because it teaches you to be resilient.

    • Yeah, embracing the roller coaster ride is part of being in a startup. I just don’t think you ever want to get too high or too low. Although at some point you do have to ask yourself “is this a good idea?” If you don’t, you may be heading for a cliff while thinking “well this is just part of the startup game”.

      Thanks for your input Grant!

  2. Thank you, some good information there. Even though your probably aiming it at a different market, I, as a recording artist can still apply it to my own strategy.

    • Definitely. There’s a lot of stuff here on personal development (ie intelligent risks, having a plan z, etc). If this article interests you I’d also recommend you check out his book.

  3. I never listen to customers. I never listen to the market. I have no network I would listen to and I certainly would never listen to my colleagues.

    I hear what they have to say but I never listen as I’m the one with the crazy idea remember?

    • I’m not sure what you’re getting at, but just because your idea is crazy doesn’t mean you should consult with other people. And you should definitely talk to customers. It never hurts to get input from different channels. Doesn’t mean you have to take the advice, but just listen.

  4. Great insights – although I’d say that having a product that is far better than what is on the market was not enough at the times LinkedIn launched: it definitely needed a some kind of virality.

    Today a better product can naturally acquire virality through social media channels via user gratification and satisfaction. Word of mouth is one of the most powerful traffic drivers and the greatness of the product alone can drive it.

    • If I remember correctly, I remember Reid discussing the early days of Linkedin and they were talking that they weren’t getting enough members. They then came up with the idea of inviting friends through an address. Don’t quote me on it, but it was something similar. They came up with a plan for each user to spread Linkedin to others.

  5. Sponsored by Airbnb?

  6. Interview Summary May 24, 2013 at 11:09 am

    I learned quite a bit about Reid from this article.
    If anyone wants to read more about him, try this website too
    http://interviewsummary.com/2013/05/21/reid-hoffman-of-linkedin/

  7. Entrepreneurs need to be able to capitalize on their position after a year and look at new opportunities to grow their start-up.

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