Reid Hoffman | Building Ecosystems of Adaptability

Reid, it's great to see you again. Thank you so much for joining me today.

Absolutely. A pleasure and honor to be here.

Thank you. Reid. A theme that's come up across the day has been the notion of ecosystem and the necessity, during a time like this, to cast one's net widely for insight and inspiration, navigating a difficult path that's really unprecedented, at least in our lifetimes. Having the strength of one's ecosystem, to test hypotheses to. To ask questions, or simply to cry on the shoulder of someone else, at least virtually for the time being, becomes increasingly important. You're one of the legends in terms of building and developing ecosystems. As the entrepreneur behind LinkedIn, I know for me personally, my business ecosystem is largely represented through my LinkedIn account. I wonder if you can share some of your own thoughts about the power of ecosystem during a time like this.

So obviously part of what happens in this kind of transition is to say that a bunch of previous mechanisms by which we made business run, not just obviously customers and restaurants, so forth, as was described somewhat earlier before, but also how you would build new business relationships, how you make decisions to invest, how you would grow, make sales, how you'd hire, all get highly fragmented. It's like an asteroid hits everything. Because even if your business can work pretty well by distributed workforces, technology, people working at home, still coding at home, et cetera, you've got supply chains and you've got everything else. And so part of what you end up looking for is, well, what are the ways that you immediately go to resilience? What are some of the ways that you should always. You start by playing essentially a defensive game, like, how do you shore up? How do you go longer? Like in my venture business, that's. How do you do defensive financings, expecting there to be more volatility and more bumps, but then you move to saying, okay, well, given the change and that part of the entrepreneurial environment, like developing new companies, new technologies, is that changes the landscape a lot. So how do you then play crisis and opportunity? There's this old kind of semi mythical Chinese character where crisis and opportunities do the same. It's semi mythical because it doesn't exactly mean it that way. But yet in a sense, that myth exists, because there should be that when you have these crises, you move from defense to offense and you start thinking, okay, what are the things that we can do now that make our game stronger, that allow us to play into growth and play into the new kinds of opportunities that this asteroid, having hit the economy all around the world and just huge amount of chaos and uncertainty and some pain and suffering.

What could you then do that's interesting? In your Masters of Scale podcast, you've had a number of fantastic sessions, interviews with executives, talking about the acute issues they're facing right now and the ways in which they're going about attempting to resolve those. I particularly recommend the June 27 broadcast with Delta's CEO Ed Bastian, where he spoke really clearly and at times painfully about the realities of their business and how they've changed and in some cases, perhaps are changing for the long term. It was really a phenomenal set of insights that he offered. You've also talked about in the past that there's this phrase that people incorrectly attribute to Darwin. It's actually from an LSU management professor that it's not the strongest or the most intelligent that survive. It's the most adaptable. I wonder if you could take a moment and talk about that concept of adaptability a little bit further and talk about some of the key ingredients you see in terms of one's ability to adapt.

So Bastion's response, by the way, is excellent, as do many of the rapid response folks. And I'll get some in depth on the adaptability side. But one of the core things is always to be human, to understand that in this asteroid, there's just tons of stress and suffering and everything else. It's true in your employees, it's true in your customers, it's true in your supply chain, it's true in your management communications, it's true in your shareholders. And so you always kind of, like, figure out how, like, while you're operating, sometimes, in very short, like. Like, sometimes you have to respond really quickly, sometimes you have to have much broader understanding, which is one of the things that Bastian was talking about in one one area. But whatever you do, be human first and. And. And to navigate that. And we've seen that across a number of great leaders in the entire, you know, kind of business world. And so. And then the question about adaptability is kind of really fundamental, because what happens when you get to these kind of crisis moments is it isn't like the simple metaphor is you got this kind of musical chairs where the music's playing and the chairs are being reshuffled and taken away and replaced in other places. But to some degree, that's almost too simple of a metaphor, because what happens is the market's changing, capital's changing, what's going on with your employees is changing. Because even though you kind of get to Tech industry. And you say, well, people can do most of the stuff remotely. It's really easy to go to all virtual when you're like a software constructor as your primary business. But then of course, you have the kids at home and you have a bunch of other things going on. So everything kind of changes. And you have to start saying, all right, what really matters here is not planning the perfection in kind of the efficiency curve, but in planning the, okay, here is how we try to figure out what the principles of the current normal is. We know that the current normal is volatile and will be changing. So even if we say, okay, well, now it looks like the principal is X, that may actually even vary. So you have to be measuring much more constantly. You can't just kind of presume that you've had, like in startup parlance, your previous product market fit. You have to think the product market fit may be changing. You have to presume that you say, well, okay, we got this new cadence about how meetings work and how we're recording the information and we're getting to people and communicating. But that may not actually be like, you may have figured out the first month or two that everyone was kind of getting to the, okay, this is what it worked. But that may still be an evolving metric and then be changing and what actually worked and didn't work. And so your, your principal thing has to be kind of constantly reevaluating and at different clocks because some of the stuff you go, okay, that we can reevaluate every month or every six months. This we're revaluating every couple of days. And as we're moving and we're getting the signals from that. And part of the, I'd say the principal thing on adaptability is to be aware. People frequently kind of say, okay, so Covid hit in kind of March for money. The shelter in place in a lot of the US and European principalities, China obviously, in a different shape. And then, okay, this is what that normal looks like. And then there will be this new normal. Once all that comes up and you're like, ok, what we're actually going to have is waves of COVID the fact that you can have one predictable thing and then it rebuilds to what the old normal was, that's not going to happen, right? So you've got to be thinking, okay, so I iterate and adapt and then I iterate and adapt again. Then I iterate it and again. And sometimes you need to make very big adaptations. And so you need to be choosing one of the Prioritization is that a defensive and offensive game? Which part of it's for now, which part of it may persist really effectively and importantly in the next year or two. And how do you bake that in your operations? Given of course scale, organizations have a lot more difficulty getting the adaptation right because part of what you do is you get X thousands or tens of thousands of employees. You've built in a system by which everyone's coordinating. So getting that all shifting is actually in fact painful and difficult. And so now you have to start saying well how do I build in some flexibility of adaptability into the whole system? Because I know that I'm going to need to be doing that.

Yeah, that's an interesting answer. On a related topic, I heard you say that a lesson that you took from PayPal and LinkedIn in different ways was this need to co design products and services with your go to market, your sales and marketing teams as it relates to the response you just gave. Just for further context, a lot of people in our audience today are global chief information officers at big companies CIOs who themselves are getting much more involved in product development for obvious reasons. I wonder if you could take a moment and tune some of your insights about that need for collaboration with the go to market for lessons as one is developing products and services. We'd be interested in your insights there.

First I'll give the two minute version of the standard piece of advice I give entrepreneurs because a frequent mistake of entrepreneurship is is that you go oh I've got this new idea for this product or service and then people are going to really love this product or service and this is where my invention is, is this product or service. And by the way, you may have an awesome product service. There's nothing wrong with that. That's great, that's really useful. But the problem is they say okay and then we'll just get it to market and it's a version of you build it and they will come mistake which is for a successful scale entrepreneurship you should co design your go to market. Whether it's like virality like LinkedIn but it can be other things like and what your channels and go to market is along with your product and service. Because one of the things I tell entrepreneurs when I'm you know, kind of giving us as a, as a really gritty piece of advice is look if two consumer Internet things came to me and one had a great go to market idea with a mediocre product idea and one had a great product idea with a mediocre go to market idea. I would take the great go to market idea because if I can get it there, I can use customer feedback and I can iterate the product and there's a bunch of stuff I can do. Whereas no one ever sees the product. Doesn't matter how good it is, if you can't get it to scale, just doesn't matter. And that's the grit of that lesson. Now when you say, well, now we're in this new universe and as part of this new universe, the way that we operate is through These mechanisms, through WebEx or through Slack or through one of my investments, Coda or it was a kind of distributed productivity tool. But there's a number of them. And you say, okay, we're now operating that way. Well, you now have to say, well, that operation actually plays into what are our competitive offense and defense. Like how do we do product innovation, how do we do operational innovation? And these tools are now even more fundamental to the way that we're playing when we're doing so in this kind of shelter in place or remote, you know, and different ways of doing it. So I actually would say is like which strategies you're executing would have a lot to do with well, what's the ways that we can make that organizational capability work. And so that same kind of co design that you're referring to that plays in the general entrepreneurship case probably plays in the, what is the go forward operations case. Because part of the, you know, the kind of almost every aspect of business gets touched by this new environment. Like how does sales play, how does recruiting play, how does business organization play? Right, how does, you know, capitalization play? All of this ties to these ways. And one of the things that happens now is that a bunch of things that we previously would rely upon and you know, we'll get back to, but previously would rely upon being in the office as a way that we coordinate and operate effectively. We now need to have both some current different things and different things that project into the future. I think a classic one will be is well, what are the ways that we are sharing information and what are the ways that we're building that information to decisions and actions and how are we taking those actions? It's a great time to experiment with new kinds of collective productivity tools that you then say, oh, this one really works for me. And so even when we get back to, because say we go back to the office and people say, well, it was 5% of remote work before, now it'll be 10% or 20% that still means 80 to 90% you'll get back to the office or back to the office, but we're still going to use this as a fundamental thing. And that's one of the opportunities that you see in adapting to the pandemic asteroid.

Reid, I'd like to pivot towards your life as an investor. You're now a partner at Greylock and have been for a number of years now. I'm curious, how is your philosophy or your investment theses, how have they changed as a result of the current crisis?

So on one hand you'd think because it's an asteroid, you'd think everything changed. And the actual answer is 10% has changed. And the reason is because what we do at Greylock is we go, it's 10 plus year journeys from a seed or series A to industry transformation. And so it's those trends of industry transformation. When I looked at this poll, I was looking for an all button, right? Because we invest in basically all of these categories and have been for over two decades. I think Greylock was one of the earliest ones in the general cloud transformation side. Basically you say, well, look, it's the same thing. What's an investment now that 10 to 15 years from now will be totally transformational. It uses the advancement of technological platforms, everything from the Internet to mobile to cloud to AI, these directional platforms. Now, the things that change are essentially kind of two things. One is the kind of obvious thing, but still worth mentioning, and then the other one maybe is a little bit less obvious. The obvious thing is, well, we're having this accelerated digital transformation, this accelerated transformational cloud. That means that there is gale force winds behind these companies, which means something that you might have said, well, we won't take that experiment yet because that'll really start playing out five to 10 years from now. And we should make that investment later. We should make it now because the rate of change in this is so big that going down and betting on what might have otherwise, otherwise looked like a fringe market or might miss this current technological window. Because one of the myths, everyone here knows this, but they go, oh, you build once and then it works. It's actually all technology thing is rebuild, rebuild, rebuild, rebuild. And so if you built too early, then actually it's the next generation of the technology that starts taking the market. I think like virtual reality is an obvious one of that. When you look back, there's been tons and tons of virtual reality. These a bunch of investment, a bunch of death, a bunch of innocent. Bunch of death, bunch of innocent Bunch of death. And at some point it'll work. But it's that kind of thing. And that's true for all of these technological things until the model and the product market fit starts working. And then you take your current proceeds in your business and you're reinvesting it constantly, which sometimes you stay on the right path and sometimes you veer off anyways. That's the obvious one, which is the gale force winds behind digital transformation, which applies to all of the five categories in the poll and others for how they operate. Now, the one that's perhaps a little bit less obvious is the thing that's interesting is how much of. Because a little bit like we're just talking about is part of the adoption cycles are when do you think the market's ready? So for example, in some theory you could actually have a whole VR thing. Now, all of movies could have moved to VR already if you actually had the consumer demand where people said, that's what I really want. Those are the theaters I'm going to go to, that's the equipment I'm going to buy at home, that's the equipment I'm going to put on my computer, and that's what I really want. And you had this massive demand, then we'd be there. So you have this question about the readiness of the, of the end market, whether it's a B2B market, B2C market, or anything else. And so the thing that's interesting about some of the aspects of the pandemic is how much previous market failures or market unreadiness is now going to move to market readiness. And perhaps the clearest example of that is telehealth, because previously there's been tons of decades of telehealth investments. Some of them are good, none of which are particularly great. And the reason is a combination of the wealthy ends of the market. Because there's all kind of theory about why telehealth should work the way it is because it's cheaper to provide, it gives you much wider range. You don't need to be next to these medical centers. And there's tons and tons of reasons to do this. But previously you go, well, older people and people with chronic illness are the big lucrative markets. And they said, nope, actually I want to go to my doctor, I want to go to my gp, I want to do that. I don't want to be an early adopter on this stuff. So there was no driving force there. And then regulation tends to follow that. And in the health space you tend to Get a lot of like, oh, let's lock in the present, because we want to exclude the bad future. But of course you wrap into excluding some of the good future as well. And so you had all these really intense regulations that made innovation harder. You get the pandemic. Well, what happens is I don't have a chance to go to the. I want to go to hospital, I don't want to go see my gp, I don't want to do it through telehealth and it doesn't matter. That's what I want to do. So you got a huge market demand which suddenly opens up this and then regulation follows that because they're like, no, no, we don't want. We want people doing as much as they can from home because it's part of public health and safety. So all of a sudden, I think what was previously a difficult market to navigate to get to the future, as you think, as you see it, as it should be now, will be accelerated. And I think we will see. Because by the way, once telehealth really starts being developed and really used on a broad basis, then all of a sudden you start using AI underneath all of the interactions that are already in telehealth, because now all of that's captured as data and you can start doing suggestions of prognosis or even AI front ends. When I come into telehealth, it goes, oh well, let's do the following, like, show me I got this thing. And it's like, okay. And that all works. And that all unlocks now because of this early market unlock, which is the conditioning of the human market because of the pandemic. That's a really straightforward, obvious one. But I think there's a bunch of other ones that smart VCs and smart entrepreneurs are looking at as to what changes because of the pandemic.

Reid, you wrote a book, as I mentioned before, called Blitzscaling, the Lightning Fast Path to Building Massively Valuable Companies. In fact, the last time you and I spoke on the record was after that book's release. In the book, as well as in other venues, you've talked about and written about the application of the concept of blitzscaling for larger enterprises. The ones that have already become massively valuable, they've already scaled, at least for the first go around. Obviously your primary audience and a lot of your experience, both as an entrepreneur, as an investor, is taking a startup and scaling it, needless to say. But I wonder if you could take a moment and talk a bit more about the Blitzscaling. Lessons for organizations that are already at massive scale.

The thing that's really important to track about blitzscaling is its relative speed. So in the book we talk about these things called Glengarry Glen Ross markets, which are the more that you get to a network world, you tend to have office, movie and play by David Mamet. The sales competition, which is first prize is Cadillac, second prize is steak knives, third prize, you're fired. And it's the first to scale that really matters. And so then people tend to mistranslate that as grow big fast, no matter what. And actually in fact it's the first to scale product market fit. Not just scale, but scale product market fit, that actually tends to be the first prize and so forth. And that's the thing that you're accelerating now that does mean you take a variety of risks within kind of classic blitzscaling. You take a risk, you may even risk like I don't know what my business model is, right? You may be going, here I go. And I don't know how this business model. And by the way, one of the most stunning ones of that is Google, right? Like Google didn't actually know it took years to work out AdWords. They didn't know if the financing plan that they was financed by Sequoia and Kleiner Perkins on was enterprise search. We'll sell you a box for your enterprise to do search over your current internal data. Because like who makes money on public search? And so that is a classic part of blitzscaling. Now the important thing that people realize, they say, well currently this current market, you have to play more, you have to be very intelligent to resilience and adaptation and the defense game, a non offense game and capital may become at a higher premium and it's harder to move at the same speed. Given that, how do you recruit so fast when it's all kind of webex and virtual as you're doing? And it's relative speed, it's relative applications. The precise definition of blitzscaling is prioritizing speed over efficiency in an environment of uncertainty. Well, we certainly have an environment of uncertainty. So more things are moving into the environment of uncertainty. But then the question is which specific prioritizations of speed over efficiency. And then the thing I think that you add in, as per my earlier comments, as you say, well also typically in kind of more stable environments, you're unlocking a bunch of things that have to do with I prove this part of product market fit, I prove this investment thesis, part of the investment thesis or hypothesis about where the world is moving, how my product service is working, how my operations are working, and then I build upon that until I get to this really big scale. Well, now actually you're building in adaptability, as you're doing. You're saying, I presume that even though I'm proving out some, some product market fit, some theses, those might change. And so I'm keeping that monitoring going and I'm keeping that flexibility going. So I think part of what happens with blitzscaling now is to say, as opposed to lock in on the things, you know and absolutely put the jetpack behind them. I think a little bit of it is say, look, still speed matters, still relative speed matters. But what makes sure is to make sure you maintain some flexibility in a kind of a military metaphor, make sure you can do some dog fighting, make sure you could change some. And you have to bake that all the way back in your organization, which is part of the reason why you asked the CIO's participation in business operations and how innovation and how operations work, because you have to have that adaptability with how you're playing.

A couple of different audience questions I want to combine here from your perspective, advising a number of big companies like Microsoft and Airbnb, whose boards you've served on, as well as the startups that you've invested in. I hasten to add, before even posing the question that you're not an epidemiologist, though maybe you've played one on tv. We'd love to get your perspectives on how far out are you planning for the recovery? And also what does the new normal look like?

So I think some of the permanent changes are things I mentioned, which is how does it get accelerated? How does the market get reconditioned? Some of the things that, when you think about, like, okay, so here's how we do these remote only meetings. When should we have groups or teams that are primarily remote? How do we make that operate? How do we change with new kind of collaboration tools? I think you have a huge acceleration in kind of like what, what are the ways that we're collaborating and what are the ways to facilitate that? And by the way, one of the benefits is that more of that, that gets into the digital arena, you can be powered by these new platforms like AI and other kinds of things in terms of, in terms of how they play. So I think that's all, all there and all anticipated now, relative to the pandemic. I myself am not an expert and I'm trying to play even an epidemiology on television. I do have the benefit of being friends with Bill Gates, who I was talking about this with yesterday. So I have an expert opinion because he and his team are experts. And roughly speaking, basically 2021, no sooner, almost for sure, but 2021, I mean December maybe, but December at the absolute earliest is when we'll begin to get some real data on therapeutics, on vaccines. I mean, we may get some data on vaccines and scalability as early as next month, but it won't be scalable yet. We may go, oh yeah, that works probably, but we're still working it out over the next couple months. And so there's a high level that the medical responses will be good enough sometimes 12 months in 2021, but will be good enough to get us back to a regularity place, especially from a US and kind of advanced economies point of view and maybe more generally. And so I think that's good. The problem is before then it's going to be really terrible because the degree to which Fauci is correct, part of the reason why we're having all this resurgence of, of cases because we never really actually got all these areas isolated. We were doing this selective by different state lockdown and we had varieties, usually a poor disenfranchised communities which were essentially diseased reservoirs. And now we say, great, we're done, let's go back to the bars. Oh my gosh, it's going to be worse before it gets better. And the volatility over the next six to 12 months is going to be pretty bad, which is one of the reasons goes back to the very first thing, which is plan on volatility, plan on the need for adaptability. And part of what that means is monitor, study, think, rethink and don't just presume now you know it, right? Because that volatility in a first order or second order effect may come get you when you're not looking well.

Reid Hoffman, thank you so much for joining us today for the great conversation that reflects the many places in which you have been influential and the development of these massive ecosystems. As an entrepreneur, as an investor, as a thought leader, it's been a great conversation.

Thank you.