Blitzscaling Strategy: Making Key Decisions with Reid Hoffman & Chris Yeh | Greymatter

Hi everyone. I'm Reid Hoffman, a partner at Greylock and host of another scale essential podcast, Masters of Scale. Welcome to our new Blitzscaling series, a part of the Gray Matter podcast, elaborating on the book that Chris Yeh and I published, Blitzscaling. Chris and I have been fielding a number of great questions from entrepreneurs and others who are on Blitzscaling. So we decided to answer some of them here on Greylock's Gray Matter podcast. Today we will focus on key decisions and questions. So let's get started now.

Reid, one of the things that you talk about a lot is the importance of decisioning and decision making. This is one of the things that can really help a company either succeed or fail. What are some of the key strategic decisions that founders and executives should expect to face while they're blitzscaling?

Well, it's just a reminder for our earlier podcast on strategy. The way to think about strategy is how you combine a set of tactics to get a amazing goal. Like what's the way that you're building your Archimedean lever and make these very big decisions. So strategic decisions have a lot to do with how you're setting certain goals, how you're interpreting current circumstances, current information, current things in front of you in order to get to those strategic goals. And as is obvious to most of the entrepreneurs listening to this podcast and everyone else, there's a ton of strategic decisions. So one arc is around capital. Which is part of the reason why the central metaphor that I use to describe entrepreneurship is, is throwing yourself off a cliff and assembling an airplane on the way down is because capital is what gives you the thermal draft to have more time before you hit the ground. But your default position is dead until you get the business running. And so the capital decisions about how to keep those thermal drafts and how fast you're going to be falling, for example, your burn rate, these kinds of things are very central. And so you have to have a capital strategy fundamentally as kind of the layer. And you might have backup plans, plans B, plan Z for continuing to navigate. But how much you could increase the burn rate? How much capital do you need? When are you just kind of burning on cost? You start having salaries, leases, commitments, other kinds of things for making it happen. And so that's one set of things like what capital will we need to get going? What where will at certain points, if we're not in good conversations, to raise more capital of a certain size that leads to a pivot you should pre make, not the whole chain of decisions, but kind of a visibility that's a year or two out. So for example, classically one of the things within financing, a financing process, you should never start it later than six months before you actually going to need the money. And what are your backup plans and how do you do that? And frequently the whole idea on six months on one side and at the other end is raise money when you don't need it. And so that's the spectrum that you're making those decisions. So one set of key strategic decisions is on financing and then that goes up from there. The next one obviously from there is what is your talent strategy. So what are you doing in terms of who are the initial founders, who are the initial employees, how great are you building the company, what do you need to have happen? And there's kind of a pre blitzscaling phase, which by the way, some companies never get to blitzscaling. Blitzscaling is a tool, not an objective. And then there is a, oh my gosh, we're hitting the inflection, we're changing now. In your earliest stages, the key question tends to be is what's the least number of people, all of whom are working massively hard that we need to pull this off. And so that gets down to who should be founders and co founders. The people who should be founders and co founders are people that you just won't do this project unless they're on board. They're not. You know, oh, we need to go hire a marketing person, a salesperson, an engineer, an ops person. Like, okay, that's harder and you need to hire them. You can't succeed without doing it. But we're going to hire one out of the set. Whereas this individual, if this individual is not on board, we're not doing the project. That's the co founder decision. And that's how you distinguish who's really a co founder and who is a early employee. And then in the earliest employees, you tend to look for generalists, you tend to look for people who can do a lot of different things. Matter of fact, one of the pieces of advice that I tend to give founders is hire some great generalists all the time. Because there's a lot of different problems that you're trying to solve. And and so make sure that you essentially have the people who can like, oh shoot, we need to create a marketing plan and we don't have any marketing people. Okay, the generalists can do it. Or oh shoot, we need to figure out a sublease that we can house everyone in that hits all the right requirements. Okay, the generalists can go do that. You know, oh, shoot, as a founder, I need help with a financing presentation. Oh, the generalist can go do that. So, you know, generalists are important as part of this. But also, of course, you need key talent. Talent to hit what your first kind of product deliverables, service deliverables, the things that get you to your next round of financing, the things that de risk the company. Some show what you have in mind in terms of your product, service, perhaps launch it. All of those things are part of the early things. And then as you build out your talent, it's well, what company culture are you creating? Which key leaders do you need to build out? Groups? How are you doing Diversity, inclusion? How are you doing the kind of key things that lead to the real acceleration of your product or service? And then of course, as you get to blitzscaling, you're getting to multi threading. You're trying to realize the first to scale market opportunity before your current competition or your possible competition can get there. Or you're trying to get to critical mass. So you need this talent strategy and you need to have again, just like all strategy, you have a kind of starting plan, you have some visibility and then you have some understanding of where you would gate up or down or change or pivot as you're kind of going through and what kinds of things would tell you what to do. Now, to some entrepreneur's surprise, I've said all this before, I get to product strategy and your go to market strategy. Now, part of it is obviously you need to be simultaneously solving at all three or if you divorce product and go to market, all four of these layers, you're actually putting all of these strategic layers together in terms of how you're looking at it. And, and part of that is, okay, what's the minimum viable product? It's most often the minimum viable product tends to be around software. Sometimes when you're doing other more difficult things. Could be hardware, could be energy, could be medical, where you're providing a medical service, even if it's through software that you're like, well, minimum viable product actually in fact is a relatively robust and relatively certain product that you need to de risk a lot in terms of getting there. And then one of the mistakes that entrepreneurs most often make is they think, oh, I just have a great product service idea and I'll figure out the go to market later. And 98% plus of the time, this is a mistake you should solve. Here's my product or service. Here's my go to market strategy. Sometimes you can get by without a unique go to market strategy. You can say, hey, hey, this is a piece of enterprise SaaS software. We know how enterprise SaaS software grows, how a telesales and a direct field sales offer would provide it. We know what our initial segment of enterprise customers look like. We know what the initial leading customers would be, who would be the proof point and validators to other customers who would then consider buying it. And we know how to scale up that whole organization. And, and that's really kind of a standard template that's repeated across a significant number of SaaS enterprise software companies. But more and more what I see even within the Enterprise B2B is you go, well, we have unique models. We have the slack model, we have the stripe model, we have a set of different models. Or actually, in fact, our model of go to market is not this generic. Here's how we sell to enterprise. We have a freemium model. You know, LinkedIn has an enterprise model that's a completely different enterprise model for how that works. So figuring out the same sequence of questions like, okay, when we're a startup, what's the baseline stuff of what we need to make happen for the product and service and for the go to market? What do those proof points need to be in order to get the financing? What's the team that's going to need to be there that we're not going to be able to be replete in the team in order to make that work? What are the things that we're going to de risk and prove in order to both maintain the confidence of our current investors and gain the confidence of future investors? And then how does that all play into a strategy? Now, my last of this very long introductory set about thinking about what are key strategic decisions you're going to be making is that the mistake that people frequently make in strategy is they think, it's almost like I make a computer program, I chart out the entire tree. I've thought about it, I wrote it down. It's 800 pages of if A then B, if not A, then C, if A prime, then B prime, and so forth. That is almost never the way that you're doing strategy. Now, you can get a proxy for this from my first book with Ben Kasnoca called the Startup of youf. Because that book was the advice that I give entrepreneurs, refactored for individuals, all individuals leading their kind of careers. And one of the chapters there is ABZ Planning, which is you have A plan A, you write down and are specific about what your hypotheses are about, what would need to be true, what you would need to make true for plan A to work. If it's super long, you're really risky. If it's too short, you may be missing some things. Then you kind of think about, okay, and that leads to my goal A. Then you start thinking about, okay, what happens if some of these hypotheses that I write down aren't true? And then what are my plans? It's actually, in fact these pivots on, well, this part of the investment thesis didn't quite work out. What happens? Sometimes you change your goal some, sometimes you change, well, as opposed to that, I'll try this, and I suppose this, I'll try that, I suppose this, I'll try that. And then part of how you move from plans B to plan Z, which is your lifeboat plan, is you have an overall sense of are the new things that you're trying in order to make your strategy work, are they categorically much worse than the earlier things that didn't work? Because sometimes you generate them going, if those aren't as good as the first ones and it's going down, that's when to really think about a big pivot. Either a massive plan B change or a plan Z and A reset to something else. So that's the overall framework now to just take that abstraction and kind of reduce it a little bit. You know, When I launched LinkedIn, I was saying, all right, every individual needs to have a profile and a network that helps them take control over their own economic destiny. Finding jobs, starting a company, making business development deals, finding, finding information, finding people to partner with, finding people to advise or to be advisors to. And that a profile and a set of network is the platform for all of these different kinds of applications. So the kinds of things that were present for me is, all right, well, can I get enough people on the system? Can they fill out their profiles enough? Can people understand the use cases in enough of a baseline way with growing iteration that the use cases are going up? And then can I get the right kind of economic models that would loop back into beginning to really build out the service for multi threading it and making all that happen, in particular on a network property? You had some very specific kinds of strategic decisions that I knew would happen, which is, well, until you had the first million people in LinkedIn as a system, you actually in fact didn't know whether or not it would actually ever get there because the value proposition between member one and member a million was basically zero. So could you get people to invest in it, to try it, to see how it play out? That was one of the really key ones. And there were a lot of plans B of try this, try this, try this, try this including, well, try to just go to enterprise and see if companies would spread it to people, which was where some of our competitors started. We didn't think that was the right place to start, but that was essentially like you know, plan B17 as a way of kind of thinking it through. And then there were kind of questions similarly about like well, these are the first use cases we try to popularize and press and getting journalists to write about it, which is the way that people kind of initially start to understand this in the ways that we put in the short bullet text within the things your onboarding experience within LinkedIn or which parts we would surface like oh, you might search for this, you know, as part of when you were starting LinkedIn at all of that was played out. Now this is a model to now finally get to answering Chris's question some minutes in about what are kind of key strategic decisions? Well, you'll have key decisions around, well, how much capital do I need to start? Where will I think that I will need to get to enough capital in order to really start getting the proof points and getting into the capital cycle? Will I be able to get those founders and early employees on board and will I be able to do it within the time frames? Because all strategy happens within time frames. It's time frames for can you survive on the capital. It's time frames for competition. It's time frames for is now the right time for this product, this service? And sometimes you, you're too early, sometimes you're too late and then okay, here's what the product and service is in its baby form or its initial form obviously within consumer Internet software that's the strongest to being really embarrassed by your first product release to later and here is where we're really going and those set of things across that will be all of those strategic decisions. Now to finalize this answer, the thing also that you're going to anticipate is it's not just like saying it's not the 800 page plan from the beginning. You're going to anticipate running into new things. It'll be things in the market, competitors, changes in products and services, but it'll also be evolutions in your own thinking. All of a sudden a month later you realize, oh that was a bad idea. Or, ooh, that was a really good idea. Or here's a much better idea. And to give you an example, part of the pivots in the very early PayPal time, because PayPal started its initial money in, was, we're going to do encryption on flip phones. And then I went to Peter and Max and I said, well, look, you're going to do this encryption platform, but the problem is, is you're trusting other people to build apps. So you already know you're going to die, because there's no way that anyone's going to build on this kind of random small startup platform. So they said, okay, we need to do an app. Well, what's the best app? Cash. We'll do cash. So we'll do cash on flip phones. Then it's like, okay, well, how long will it take you to do three years? Okay, well, you're not going to have three years to survive, so you have to have a different plan. And they said, okay, we'll do Palm Pilots. They say, okay, so what's your key use case for payments on Palm Pilots? Well, splitting the dinner tab. Okay. Even in Silicon Valley, which was when Palm Pilots really existed, ground zero for Palm Pilots, you just do a thought experiment. You walk into a restaurant in Palo Alto and you go to each table and say, how many people all have Palm Pilots? The answer is probably between 0 and 1 tables in the entire restaurant, which means you have no use case. None of this was with data. This was just reasoning through and iterating as you're going. And that's when Max Levgin said, oh, that's easy. We can sync through email payments. And Scott Bannister and I, who were the two board members at the time, went, that's a good idea. Maybe that should be the focus point. And that's how PayPal got into the direction it is.

That's incredible, because one of the things that I think this whole discussion reveals is that what entrepreneurs need is someone like Reid Hoffman helping them think through all the different questions they should ask and giving them techniques like abz, planning to help them figure out what those answers are. But obviously, Reid Hoffman is not available to every single person except via this podcast and masters of scale it. And even you, Reid, don't do everything on your own. So, for example, when you're helping Peter Thiel and Max Levchin, they're tapping you as part of their network. So one of the things I've seen you do over and over again is to leverage your network to help you come up with the answers to these key questions. Can you talk about the role that your network has played in some of the key decisions you've made and how other people might learn from your example?

Part of my learning here was like, this was a growing practice about how it's really important to listen to smart people and really have a. If I'm listening to smart people and I disagree with them, I have a very specific reason why I think I'm right and they're wrong, as opposed to the, no, no, I'm just right. Like, no, no, no, no. Listen to it. And so the first arc of this was why it was so important for me to listen to people. It started very back in the early days of sociallint, my first startup, where my model was build this amazing product, pull the curtains back, and everyone will go, ooh and ah, that's amazing. And we'll start using it. And so we spent way too long in development. We were iterating through, yes, we were doing user focus groups and some tests and everything else to try to de risk and so forth, but we weren't really engaging with the market. And people on the team primarily were kind of like, oh, we're nervous. We're kind of sitting here saying, we're smarter than everyone else. Can we really believe that we're smarter than everyone else? And, you know, like an arrogant young founder, I was like, yes, we're smarter. We're going to make it happen. And basically, when we launched, we realized over half the features we built people didn't care about at all. And some features that we really needed to build we hadn't built yet. And we were late at this point. And that's part of what led me to the being embarrassed by your first product release, which is a parallel to minimum viable product, which is an emphasis on speed, getting engagement and learning. And so one of the things that happened in PayPal time was Peter Thiel came to me and said, look, I really want to launch Japan. The lawyers that we have managing this process, every week they're coming back with a longer list of risk factors about why we shouldn't do this. And I can't distinguish about whether we should just close the whole project down or we should actually take some of these risks. And all I know is the risk factor list is getting longer. So I'd like you to take over the Japan project and you to make this decision. And I was like, well, I worked for Fujitsu before and I knew a little bit about Japanese culture and so forth. But I didn't know anything about Japanese banking. I didn't know anything about trying to get a US Company going in Japan. I had managed some of our banking relationships and other kinds of things through the people who worked for me. But again, what's unique to Japan? I was like, I don't know anything about this. And so, of course, the typical answer is, no, you can't handle this. To me, I don't know anything. It was like, well, but that's the circumstance we're all in. And one of the very key things for thinking about founders, executives, employees is how do you learn fast. And your network, of course, is how do you learn fast? So I said, all right, mission accepted. Realize I don't know anything about this, but I'm about to go do this. And what I then did is I said, all right, let me call everyone who has done real business in Japan that I know and just ask them, say, okay, who are the best people? Here's my problem. I'm trying to figure out how to launch PayPal in Japan. Navigating banking system, navigating payments infrastructure, having possibly criminal implications. Because sometimes illegal banking can be criminal. And I need the best possible resources, like, tell me who your top of your list is. Or if you don't know anyone, say, I don't know anyone. And I called. I think it was about 15 people, because I literally called everyone that I knew that had done any of this. And three of them had all said, Joey Ito, right when he was doing his Niotny venture fund. I said, okay, so Joey's clearly the guy I should start with. And because, by the way, speed matters versus exhaustion. Because I'm trying to triage to how do I get the fastest possible decisioning? Now, sometimes you go, okay, I'm going to do 10, because it's criminal or whatever else. But I was like, okay, I'm looking to make that first connection. I'm looking to be on board. And that's the one to start with. And so I then called the three back and said, okay, which of you has the best relationship with Joey? Right? Like, how do you know him? How deeply know him? And it turned out this guy knew Frank Boozman had the best relationship with Joey out of the people I knew at the time. I said, great, if you can get me an intro to Joey about that, I'm useful to work with and I'm collaborative, that I'd be grateful if he could get on the phone with me and talk to me about it, that'd be really handy. Because he doesn't know me from anyone else and may not even be really tracking PayPal at this point, even though he's a venture capitalist, but he's a venture capitalist who's focused on Japan. And so we got the intro. Joey's great. We're now close friends. He's now the director of the MIT Media Lab. He's been on Masters of Scale. And I got on the phone with Joey and I said, look, here's my problem. Here's what I'm trying to sort out, here's the problem I'm having with the lawyers, and here's what I'm trying to do. Triage. And he said, okay, I think I can find you the right person to navigate this. Now, it wasn't Joey knowing this, but he was like, I think I know the person who used to work for the Japanese Financial Services Agency who can actually help guide you on this and can help you both the tactics on the ground and also knowing where the bright lines are and where you can push it a little bit. Because frequently, one of the things that entrepreneurs are doing when it comes up to a regulatory environment and regulations is they're trying to say, no, the world should be this different way. And we're pushing the boundaries of the sum to show it how it is. And if we're wrong, then the regulators and the society will come back to us and say, nope, we're going to enforce that regulation, and we're not going to hit you with a stick, you know, a financial penalty, a change of business, other kinds of things, or we'll go, oh, yeah, you're right, the world should now change this way. But where are you okay at? Pushing that line is one of the things. And of course, you. You're doing this internationally, you're doing this cross culturally. You're doing this in a culture that has the least international connectivity of all of the major economies. And so it's okay. He'll provide me an introduction to this guy. And four weeks later, we were launched in Japan. And so that's the kind of way that you use your network. And part of the reason I had gotten so practiced and systematic about this is that as I'd been doing my very first startup, I hadn't been doing this at all when I was an employee. But as I had built this practice from 1997 in SocialNet to all the way to 2001 when I was doing this at PayPal, I had learned, okay, go to your network first, because it'll be on target. It'll be the unique and interesting expertise. It'll be the kinds of problems you're trying to solve. Now, of course, this later led to the idea for LinkedIn because part of the idea was to say, well, as opposed to when you just call someone and say, well, who could you think of? Because you're relying upon them. And very few of our brains are indexed on people like, as opposed to just saying, okay, who do you know? I could actually go do a search, really look through it, and then when I call my friend, I could say, well, who do you know? And by the way, by looking at LinkedIn, it looks like you're connected to these three people. Are any of these three people people that I should really consider? And they might go, oh, yeah, I hadn't thought about Joey, but Joey would be perfect. You really should talk to Joey about this. Or yeah, it looks like Joey's perfect, but really it's this other person. And then by you doing the work versus asking them, doing the work helps speed you to a high quality. What is that network connection and what are you doing? Because you know when you're calling your network and calling your friends, some of them will have a real incentive to really try to help you. And they'll maybe all be trying, but that's not necessarily even where the competence of the brain is. And so that's again part of the reason why we created LinkedIn as a product.

And that is just an incredible example because it touches on everything we've talked about today. There's a key decision that's essential to the future of the company. You go ahead and you apply the technique of reaching out to your network. And what's amazing about that is the different layers. You reached out to your network in order to identify someone you could talk to. You used your network to get the introduction to the person, used that person's network to then get you the answer you needed and you added that person to your network for the future. And the crazy thing is this is one of those experiences that eventually led to you creating LinkedIn. So it's a pretty amazing example. I hope today people have learned quite a bit from you, Reid, about how to think about the key decisions for their company, how to make these decisions more effectively and quickly, and how to leverage things like their network to make the decisions most effectively. So just one last question for today, Reid. Are there any other techniques that the listener should really include in their decision making process?

The key thing that most people only really start learning when they've thrown themselves off a Cliff and are in the entrepreneurial process either as founders or executives or employees. Is resource constrained decision making resource constrained in time, resource constrained in number of people or information you have access to your ability to spend the time processing it and figuring it out. When you're in this kind of full out flight mode like blitzscaling and startups, one of the ways that I think about decision making is I think, okay, I'm presented with any level of strategic decision. It could be, are we gonna take this money or not? Are we gonna raise money or not, Are we gonna hire this person or not? Which product are we gonna launch first? Is the feature gonna be in or out? And in that moment I try to make a provisional decision because it's like I'm trying to figure out the speed and acceleration of doing it. And then I go, okay, I'm certainly uncomfortable cause I like, oh God, this huge decision. Am I really ready to make that yet? Do I understand the upsides, the downsides and everything else? And so then I ask myself a few questions after that. I first say, okay, what's the level of harm if I get this wrong? What's reversibility? What happens? What's the level of impact on that? What are my mitigations? Then the second question is okay, which specific questions can I get answered? Questions from my network as we've covered or, or other pieces of information or other things that would materially alter the decision. They would say, well if you got this answer, that would change from this to this. Then in those other pieces of information, people to talk to, information to get, buy in to get, what's the cost of getting them? How long does it take? Is it possible to get it in a feasible amount of time? Is it reliable if you do get it, you know, reliable information, reliable commitment and then factor that all into well, okay, how important is it now? You're always taking risks, so always gets to intelligent risk taking. But that framework within being resource constrained and moving fast is key to decision making within entrepreneurs. And the only time that you actually really loosen that is when you go the cost is really big. And getting a lot of buy in really matters big company practices and so forth. This is one of the reasons why startups and traditional companies tend to have very different decision making calculi. And that's the kind of the key decision that I would add in.

Yeah. And that really speaks to the importance of speed to blitzscaling. Blitzscaling is a technique to get you to move faster. And your decision making process is all about how can I make a good enough decision as quickly as possible rather than what those established companies do, which is try to figure out how can I reduce the chances of making the wrong decision as much as possible. One is positive, one is negative, and one of them is far more effective for building these world changing companies. So this has been another episode of the Blitzscaling series for Gray Matter Podcast. Once again, Reid, thank you so much for sharing.

And Chris, thank you as well. Thanks for listening. This is Reid Hoffman, partner, Greylock, Host the podcast Master the Scale, and co host of this series on the Gray Matter Podcast. To get this podcast every week, subscribe to the Gray Matter Podcast on itunes or wherever you prefer to listen to podcasts. If you have any feedback on any topics we discussed today or any questions you'd like to ask in the future, Tweet us at GraylockVC and ReidHoffman with AskRead or of course post on LinkedIn. Chris, Shay and I go through the questions to select questions we will answer on future versions of this podcast. Thanks to the team that produces Masters of Scale and the team that produces this Blitzscaling series, and most of all to you, our subscribers.