Reid Hoffman | ABZ Planning

You.

Hi, I'm Chris Yeh, the co author of Blitzscaling and I'm here with my co author and old friend Reid Hoffman, the co founder of LinkedIn and an investor at Greylock Partners. Reid, one of the key concepts from your first book, the Startup of youf, is the ABZ planning framework. And it strikes me that in this year of extreme change and uncertainty and ABZ planning is more relevant than ever. So how does ABZ planning work?

So my first book which I wrote with Ben Kasnoca called the Startup of youf was how every individual's career path now needs to look more like an entrepreneur than anything else. Because the backdrop of this is people say hey, discover your passions or what color is your parachute or figure out which path you should be. I should be a lawyer or I should be a mechanic or I should be an executive or I should be an entrepreneur. And it's kind of all these different paths and actually in fact, and there's this kind of discussion about a career ladder or a career escalator and actually in fact what is now exist is a career jungle gym. And for the jungle gym the pattern of skills that's closest to it is being an entrepreneur. So the startup of you was the set of different pieces of advice that I have learned over the years, now decades to give to entrepreneurs. The thinking about how do they start companies, how do they grow their companies, how do they navigate challenges with their companies, how do they capture opportunities, how do they learn? And so that's each of the chapters within the startup view. Now the ABC planning framework is in particular this question about being adaptive to changing circumstances, both to avoid threats and difficulties and things that didn't work and to keep capture opportunities that you either envisioned at the beginning of the path or as you're going along the path. And while the chapter in the book is written specifically for individuals that actually can very naturally play to companies. So here is the framework as you get into it, which is have an investment thesis about what it is you're doing, right? What is you're doing as an entrepreneur, what are you doing as a company, et cetera. And you should write down that investment thesis. And the investment thesis is I have the view that there is a need for a product or service that looks like this, that the market will responsive to that the early stages of the seed series A, that building this initial product will get this kind of response that I can then grow to. This is where it fits relative to competition or substitution. This is how you would potentially get it to, to customers who your customer, early customers would be and this is how you would make it happen. This is the kind of talent you would need, the kind of resources you would need. And that's your kind of really your full bore investment thesis. And to some degree that straw plan is your plan A because it's the here's what it is. And you know, a little bit like the Sun Tzu where no battle plan survives contact with enemy, no startup plan survives contact with execution with the market, with investors, with employees, with competitors, etc. They change a lot. Now one of the mistakes that a lot of people think about and talk about as plan B is they think about plan A and plan B kind of like big military plans or big engineering plans where they think I've got plan A which is totally written out and oh boy, plan A isn't working, let me move to plan B. And so I break glass and I pull out this big book and now I'm doing plan B. In many regards within the entrepreneurial universe, this is a catastrophic mistake because it doesn't give you to how are you trying to learn and modify plan A? How do you try to improve your investment thesis? How are you learning or adjusting as you go along? And so really it isn't a plan B that you have, it's plans B. And what it means is you look through your investment thesis, you can then begin to say, well, what happens if this doesn't work? What do I do if this doesn't work? What if I do if this doesn't work? What do I do if this doesn't work? And what you have is a bunch of different kind of plans B which might be the hey, it's exactly the same target still. But as opposed to having telesales, I'm going to have field sales, right? Or as opposed to having field sales, I'm going to have telesales. Or as opposed to finding my initial customers through this kind of marketing program, I'm going to open source something, right? Like, or I'm going to provide a free widget or something like that. Like there's all of these things, things that you were kind of shifting and pivoting to and it's a very good thing to kind of index as you look at them to say, okay, well here are the ones where I have some good alternative plans and here are the ones that I may need to have plans and here's the things I need to be measuring for. Is my investment thesis working or not? And by the way, measuring is Always great when it's dashboards and data. But sometimes measuring is going around to your smartest friends and saying, well, what do you think of this plan? What do you think is wrong with it? Et cetera, you know, what do you think might break? And kind of getting a sense of what your confidence in your investment thesis is. Because sometimes you change your pivot to plans B with just a, ah, you know, I've now thought about it for another two weeks. I've talked to three more smart people on a rally. I'm not so sure this is going to work. And now we should try this other thing now, part of the overall framework. And by the way, sometimes Plans B involve, call it moderate shifts to what your goal is like. And sometimes modern shift might be the, hey, I thought that I was going to be a game, but actually, in fact, I'm infrastructure for games now. Sometimes that's such a big change. It's a massive change. So like, you know, the kind of iconic emblem of this for Silicon Valley is the game never Ending, which first became Flickr and then became Slack, right? Neither of which is the game never Ending. And so sometimes you even change your goal, your output state a little bit is sometimes a shift of these plans Bs. Now say you've been doing this and you've been adjusting. You've been learning, you've been deploying, you've been executing, you've been trying to make this work. And what's happening is your new plans Bs, because you're always, by the way, generating them and you're reconfigured essentially Plan A because that's what you're shifting to with the plans Bs. Then suddenly yours looks a lot less like it's going to work right? Where you're like, gosh, this is a much less good investment thesis than the one that I had imagined when I started out. When you're repetitively in that state, one of the things that you should give some thought to is when do you execute your plan Z? And your Plan Z is your lifeboat plan. Your Plan Z is the this isn't really working. We're going to really change something. And to some degree, even the Game Never Ending going to Slack is a version of it. Because the lifeboat plan isn't, I'm totally out of cash, I'm bankrupt, you know, I'm walking dead. That is not necessarily the right time to trigger a Plan Z. The plan Z is, boy, this is no longer a plan that I should really invest in. How do I Still take, you know, assets together and so forth. And by the way, how do I also hold on to enough assets to go to resetting to an entirely new Plan A? Now, for example, if you take the slack thing, which we covered in our Masters of Scale episode with Stuart Butterfield, you kind of go, okay, okay, we still have some resources in the bank. This isn't working. We have a great team, we've got a bunch of interesting stuff we've done. What would you then do? Well, we built this really interesting IRC project for remote work and a bunch of things happening. Maybe we should just really focus on that. Let's really look at that. Okay, great. We're going to shift to that. That's our Plan Z. Our Plan Z becomes our new Plan A. The Plan Z is the change in execution of the organization moving the Plan A. And, and we actually did our Plan Z within the same corporate framework, the same investors and equity and shareholders and so forth that we had before. Sometimes, of course, the Plan Z ends up being the, nope, we're shutting this company down. Maybe handing cash back to investors, maybe not, whatever. The thing is. And we're starting a new company or doing a new project for it. And that is in its kind of full sketch detail what the ABZ planning framework is.

And I think what's so important about what you said is the focus on the investment thesis because this isn't what people sometimes think it is, which is, I tried Plan A, it didn't work. I'm now just going to shift to Plan B. Your point is, all along you have an investment thesis with multiple components things that need to be true in order for you to win. And as those things are disproven or you lose confidence in them, you shift to one of the many potential Plan Bs which are incremental adjustments from the Plan A. And that ultimately Plan Z is not something you pull out when you're desperate and there's nothing else you can do, but something that you actually reach for earlier while you still have time to actually reorient to a different Plan A. So I think that what you have told us in ABZ planning is something that's far richer and more rigorous and systematic than just sort of thinking, well, I got a plan A and then if that doesn't work, I got a Plan B.

And if that doesn't work, Plan Z. Yep, exactly. And part of it is to understand that the plan B is not. It's actually dumb to have a completely detailed, articulated full Plan B to a Plan A, you're misallocating your resources because you really try to make A as good as possible, right? And you make a decision. This is the one that we're going to really try to do. Now, that being said, when you said, what we truly try to do is like, well, which of these things might not work? How do we measure them? Well, how might we change? We may not have all of our plans B, as we barrel down the road, we hit the accelerator, the afterburners on plan A for going. But we've got some sense of what those things are, and that's what allows us to be intelligent entrepreneurs. Because, you know, one of the things that entrepreneurs are frequently. Well, there are entrepreneurs like this who are just like, blind to risk. It's like, oh, it's risky. Just jump into the risk. It's like, no, no. Actually, in fact, part of the skills, the experience, the profession of entrepreneurship, which of course, you know, nature nurtures, some people are more natural at than others, is to say, how do you do intelligent risk management, which is not manage risk to zero, but how do you take risks that have a huge return if you can manage them, if you write to them, how do you manage those risks to get to interesting outcomes? How are you paying attention to it? How do you both see the risk truly there and navigate it, versus trying to persuade yourself that it isn't there or just go, oh, this is risky. Who can quantify risk? Who am I to say which is not a skilled. You may be lucky. That happens. You know, part of entrepreneurship is trying to position yourself into a place where luck can happen. But the skill is increasing the chances of luck happening, increasing the chances of navigating successfully when what usually happens, which is some combination of good luck and bad luck or even a little bit more bad luck, happens, and you can still execute through it.

Now, speaking of bad luck and change and all these other things, here we are in 2020. This is a year of extreme change and uncertainty. And I think, obviously there are many places which has played out even with our own work. We had a very different plan A for what we were going to work on in 2020 than things have turned out to be. And I'm reminded of that scene in the Princess Bride, great movie, where the Sicilian Vizzini, who's played by playwright Wallace Shawn, by the way, a fellow alumnus of your high school, the Putney School, and he keeps saying, inconceivable as things keep happening that he doesn't think can happen. And finally, Inigo Montoya, played by Mandy Patinkin says, you keep using that word. I do not think it means what you think it means. So here we are. So many inconceivable things have happened this year. I don't think that there's ever been a year where there's so many different exogenous elements, from a global pandemic to, to massive wildfires, to social unrest, to a presidential election have come together at one time. How can we apply ABZ planning when things are changing so rapidly?

First, what I'll say is that you did the Mandy Padikin accent, but you didn't do the Wally Shawn character accent, which is inconceivable, right? Inconceivable, yes, because he was doing it with a lisp as part of the highlight. And anyone who hasn't seen the Princess Bride, it's a delight. You can see it with your kids. It's a fun fairy tale which, you know, obviously in the sequence of great tragedies of 2020, may even be more appreciated as a little bit of a spiritual antidote to all of the problems and suffering that a lot of the world is going through today. Now, on the ABZ planning framework, what I would say is like, that was how I developed it in entrepreneurship, how, how it developed for the startup for individuals was presuming a relatively stable world, not perfectly stable, but not with seismic changes or fast moving phase shifts in what's going on in economies and societies where you may not be able to predict opportunities and threats and collapses and so forth. And that's because typically part of what you try to do to create a business friendly society, a, a business friendly environment is that businesses need a fairly high degree of predictability in order to invest. Because you hire an employee, you say, hey, you're gonna have a job here for a while, I'm gonna train you, et cetera. I need to understand what my use of an employee into providing a product service is what my revenue looks like. You know, how that all plays out. And part of how we as business leaders and as entrepreneurs are creating these businesses are trying to create these things that are theoretically infinite life institutions that have cushion for all of the employees that they hire for how they provide the product services, where they continue to adapt their products and services. And generally speaking, you are sideswiped rarely and specifically. Right. Like it's like, well, it's a shift from desktop to mobile, or it's a new global markets that are available, or it's a new technology platform that really changes how you can offer this product or service. You know, those kinds of things, or a new competitor emerging from another area of the world or another basis. Those are specific and kind of focused. And usually you can kind of focus on them as one thing. Whereas of course, you know, in the time of COVID where we've had the pandemic, where we've had a terrible management of it within the US Especially, where you essentially have someone who's declaring victory constantly, like, oh, it's going to go away. Oh, we only, only 200,000 people died and so forth. And not doing testing, not doing all of the other things, like for example, we're going to, I think, because of American ingenuity and world ingenuity, end up with vaccines sooner than later. But all of that with a complete collapse of leadership from federal and centralized authorities, because they have literally no idea to do when governance becomes something other than just television pronouncements. And so you go, oh gosh, we got all of these things. And what does that mean for a business person? It's like, well, like I have this idea for a market, but maybe the market goes away. Or maybe I was like, I was going to serve SMBs, but a big partial SMBs, all of those SMBs are hurting now and moving slowly. Or I had this view about how to get to market, but my get to market plan is totally changing. And so what that means is you have to add to your investment thesis and it makes it harder. Thesis is, okay, here is the things that I'm kind of presuming are stable or within a certain parameter of volatility in my plan. Like I think, well, okay, I'm creating an enterprise software business and enterprises are still going to be buying, they're going to be buying more slowly now. It's going to be harder, but these are still the targets I'm going to go do. And this is the way that I could still reach them in order to make it happen. And this is how I'd be reaching enterprises in the time of COVID That would be where a lot of people are working from home, or like this one, podcasts from home, you know, through video conferencing. And so we're gonna make all of that stuff happen. And we now have to put those theses in the investment thesis before, whereas they were somewhat implicit before. Cause we'd only need to be called out by specifics. And then what you do alongside that is you say, well, look, it's gonna be super hard to do. Generally speaking, we're like all companies, but we're startups. How do we measure it? You'll go, okay, well, here's how we're gonna try to keep an eye on the key variables that might be the hey, my friend here, over here. Like, this is the way I track a lot of pandemic stuff, is I have two or three friends who are spending a lot more time and expertise paying attention to what's going on. So, for example, the person I most trust in the world on vaccines is Bill Gates. Right? I go, okay, what's going on? Because you blend all the things that are going on with industry and awareness of public policy and awareness of good testing and good science, and all of that's in your brain. So if I had to ask one person what's going on, that's the expert and he's doing amazing service to the world and all of the work around the pandemic and vaccines and therapeutics and everything else. It's a great social gesture. But you say, okay, I look down these for my company and I go, okay, how do I proxy measure them? And there's so much to do, there's so much chaos. Not going to be able to do it fully. But you go, okay, so then I will do that. And then you go, okay, where will I specifically choose? When I look at the range of possibilities, the kind of like, okay, where will I take a risk where things might be better than worse? Right. Like, I'll say, okay, actually, in fact, I think we'll have scalable vaccine deploying next year and the markets will reopen and I'll take some risk there. Can I afford to take that risk? How do I measure that I'm taking that risk? How do I know if I'm on it? Business doesn't work if you presume the worst case in everything. If you presume the worst case in everything, entrepreneurs would never get started. So you can't do that. So you have to presume some level where it's not the absolute catastrophic worst case. But then you should be saying, okay, how do I actively and intelligently manage that risk? How do I get a sense of it? How do I make my best possible efforts? And this is one of the reasons why it's entrepreneurship, this is one of the reasons why relatively few people do it, is you'll be taking risk and you will not be able to control it to a perfect outcome. And it's part of the reason why it's both a really hard game, but also a hero's game to building new businesses, new jobs, new products and services.

Yeah. And when you talk about this, what really comes up for me is the fact that you normally operate with a set of assumptions about the world, and what's happened is those assumptions have been overturned. So all of a sudden you have to be much more thoughtful about what assumptions actually are true and then add in that measurement that you described, the ability to see and seek out new truth, not just accept old truth, but seek out new truth and then be able to play off it. And I know that one of the great examples of this during this pandemic has been Airbnb, a company in an industry which has been decimated by this pandemic, but which has undergone a remarkable turnaround because of the fact that it's adaptable, like many startups are. So that even though startups that may not have financial resources, they have adaptability, which is probably even more important during these times, and because of the fact that it enables all these entrepreneurs, these hosts, these people who can immediately shift what they're doing. And the numbers I saw, again, you don't have to comment on it because I know they're in a quiet period, but. But the numbers I saw from industry analysts are that Airbnb revenues are up 70% on a run rate basis from 2019. So that's a remarkable example of ABZ planning and adaptation during the middle of remarkable change.

Well, as you note, I can't comment on numbers, but I would say the following thing has also been Airbnb is an interesting exemplar of which is people normally think of networks and marketplaces as ways that you get compounding growth and way that you get, you know, kind of a marketplace where they're going. It also creates adaptability. Like if you think of all the hosts as developers, they now go, okay, how do we develop our home, our apartment, our house or whatever to be more Covid safe. And then when the shift of travel goes from international, domestic, I can say, here's how I can help with domestic travel on these things. And that's part of the adaptability that comes with networks.

And it's so much more adaptable than, say, a major hotel chain where they need to rewrite their playbook and apply it to all their different hotels. And in fact, I believe that the other number I'll share is that during this time that Airbnb has surpassed Marriott for the first time in terms of bookings. So it's a remarkable period for Airbnb and adaptability, which again, you cannot comment on. But I see you nod your head.

You did not see me Nod my head, you saw me going, yes, that sounds very smart thing that Chris is saying, but I'm neither confirm nor deny.

Very, very true. So one last thing, because I've held you up for quite a bit of time today, but I always like to get some personal reed stories. How have you used ABZ planning to your advantage during periods of rapid change in your life? What are some examples of how you've applied this thinking and made it come to your advantage?

Well, I use it for almost everything, as you know. But since you yourself referenced that you and I had had EVZ planning, I will bring that one up right, which is Chris and I had originally thought this year when we wrote Blitzscaling. Part of the process of writing a book is there's a bunch of different scraps on the floor. And because both Chris and I are entrepreneurs, we have this tendency to not just write the theory of the book, but also a bunch of fr. Fairly pragmatic heuristics, tools, et cetera. And a bunch of those ended up on the cutting room floor as you try to curate a coherent book that is essentially the current slice of the Blitzscaling playbook. And we said, okay, let's have the Blitzscaling book that's out be the articulation of the principles, the theories, the lenses for how to think about the tools. And then let's create another playbook, which is a set of the tools about thinking. Like, well, when do you add in corp dev into how you're thinking or how do you really generate to multi threading? And what are some of the ways of doing that as you're in a Blitzscaling company? I said, look, let's go pull that together. And so we originally said, well, we'll do a little bit of a podcast and we'll pull it together and then we'll launch it in some way. We've got a couple different ideas. And then of course, the pandemic hit. And as the pandemic hit, we said, well, okay, people are not going to be interested right now in what the set of lessons for Blitzscaling playbook that is the time of normal times where you don't have a whole bunch of people isolated, you know, kind of a collapse of a number of different industries, you know, restaurants and travel and a bunch of other stuff. There's just not going to be the relevant thing from the vast majority of people. So then we thought, okay, well maybe what we should do plans B. We thought maybe we should do blitzscaling during COVID And then we said, well, but actually, in fact, part of the whole thing around content generation is mostly to try to generate content that is somewhat evergreen, right? Like generating a kind of a business tip that works for three months really isn't a good ROI in generating. So it's like, how do you actually impact generate stuff that a decade from now is still very helpful, is still part of that corpus of how to navigate creating these amazing companies? And then we realize is, well, actually, in fact, there's a set of different topics that we've been thinking about which touch on the Blitzscaling universe, but are not pure blitzscaling that we could do as generating some more corpus of information, for example, such as today's revitalization of ABC planning, because it's a important framework for risk mitigation, for taking risk intelligently, for monitoring it, and we could bring that back out because it's relevant content to the time. And so we shifted to, all right, well, as opposed to the Blitzscaling playbook, which probably is still in the works, but, well, you know, the future will tell to a sequence of things that we are releasing under gray matter and are creating a corpus of other kinds of business content with the time that we had previously allocated this year for the blitzscaling playbook. And so that became our new plan A, of which this podcast is one example.

And what this illustrates is, yes, you know, it can be difficult to give up your plan A. It's something that's very cherished. It's something that you spend a lot of time planning on. But guess what? The world changed, and we're not going to be able to wish the world back the way it was. And so the best thing to do is to say, well, what can we do now that will be the most helpful, that will get the best reception, that will help impact people's lives. And hopefully, for those of you who are listening, this podcast is doing precisely that. Any final thoughts before we sign off, Reid?

Well, what I would say is for almost anyone, individuals and for corporations and for entrepreneurial efforts, risk management is always there. Too often people try to trick themselves into thinking that risk management is trying to make the risk essentially zero, that we've studied it, we manage it, and actually, in fact, there's always some risk. Sometimes it's very low, but there's always some risk. And in times of crisis like we're in now, everything has gotten a lot more risky. So taking an active risk management approach, which is trading risk as a price for accomplishing things that are heroic or valuable to accomplish is extremely important. And by the way, that's of course back to Blitzscaling as part of what blitzscaling is about. Because you say, well, we will take these additional risks because building this amazing company in a very fast way is worth those risks in uncertainty or efficiency.

Or that's an excellent place to come to an end. Thank you so much as always. That concludes this episode of Gray Matter. You can subscribe to gray matter on soundcloud.com greylock partners. You can also find new episodes and blog posts on greylock.com and you can follow Greylock on Twitter reylockvc. I'm Chris Yeh, and on behalf of Reid Hoffman, thanks for listening.