Reid Hoffman | Choosing Bad Competition

Hi, I'm Chris Yeh, the co author of Blitzscaling, and I'm here again with my co author and old friend Reid Hoffman, the co founder of LinkedIn and investor at Greylock Partners. Today marks the start of a new series for this podcast in which we're going to explore what you have characterized as some of the fundamental laws of entrepreneurship. These are laws that apply to every entrepreneurial endeavor, not just high tech startups, though they certainly apply to those as we'll see. So the first law that we're going to discuss is what you've characterized as choose a field with bad competition first. I think this law provides a very interesting and useful contrast since your old friend Peter Thiel has famously said competition is for losers. In fact, he prefers companies that have no competition. So let me ask you, why is it better to have bad competition than. Than no competition?

Well, this distinction may be a bit, kind of splitting the hair a bit because I think to some degree what Peter may mean is bad competition that's so bad that it's the equivalent of no competition. And obviously to some degree a valuable market area that has no competition. Well, no competition is the most extreme form of bad competition. So there's a little bit of gliding in those directions. But part of the reason why I think bad competition versus no competition is the right focus is occasionally you may be fortunate enough to find some area that is super valuable that is Greenfield that no one else serious has recognized. So you essentially have no competition. But that's kind of lightning is striking. This is a little bit of the, you know, out of, you know, seven billion people on the planet Earth or three and a half million people in the San Francisco Bay area or, you know, whatever as the thing to really have people having not recognized this market at all. And so there being literally no competition is a pretty high bar of like, well, boy, no one else has seen this. Most often and frequently in the case of entrepreneurial business opportunities is that a number of people recognize the valuable area. And so you need to essentially, or have waved off it because they think the competition owns it and they don't realize that the competition is essentially bad. Competition is essentially incompetent in some way. And so because the recognition of the addressable market, of the product market area is really pretty fundamental, you want an area that's valuable. If you don't have an area where there's a market of demand for a product or service, doesn't matter if you don't have no competition. And so therefore bad competition. Now Part of the then question of course rotates to what is bad competition? But let me first illustrate why this is a useful rule for entrepreneurship in a bunch of areas. Like you say, well, I'm going to create a new retail location or a new restaurant. Well, actually, in fact, part of bad competition is to say, well actually in fact, you know, people frequently say the, the three words of retail are location, location, location. Well, part of your question is to say, actually, in fact, this is the area where we should be competing, the location we should be competing for, for this restaurant, this grocery store, this auto repair shop or whatever. And oh, look, nobody's here, right? The competition that's competing for the demand of the space is way over there. So that competition is essentially bad at competing for customers in this space. And so that gives you a kind of a lens of how to think about bad competition now. So one part of it which kind of pertains to no competition is it's a green field that no one's competing with you for, for the customers here. But also, by the way, another one tends to be the, that the, oh, people recognize that there's demand for this, but that the demand is currently being fulfilled by people who are doing it in a lazy way. So lazy way is. Well actually in fact the product or service that's being delivered is actually in fact decades out of date technologically and that the new technology has already been built. But because there is no competitive pressure for evolving the competition, you actually in fact have an opportunity here. This is one of the things that I think we see this in a number of celebrity entrepreneurs. But I'll use one of the Elon Musk's areas, which is SpaceX, which is, you know, basically say, okay, so the rocket launching business has been done by a set of folks who optimize for being guaranteed government contracts, who haven't invested in product development for decades, who are using Russian engines as their backdrop because that's the cheapest way they manufacture. And their primary thing is hiring former Air Force colonels to guarantee themselves contracts for so doing it. And that, that's what that looks like. So even though you go, well, going into the space area of Space X is literally rocket science, building new rockets, the capital intensity of so doing and very difficultly breaking the death grip that the industry has. Like all you have to do is own the sales channel. Breaking that death grip. The building a quality product is relatively straightforward because people have been looking at and kind of like reusable rockets and lighter materials and better manufacturing techniques and different engines have been working on it for decades, but none of it's reflected in the industry. And this is across like every industry which is technological progress continues. Is a new category of product or service now available that wasn't there before? In which case then you start looking at some of the other areas which is why haven't entrepreneurs been doing it already? And that's where you may have some unique things. You may have a ability to raise capital that other people don't do. You may have the ability to assemble talent, you may have an ability to factor off the customers. And of course part of the reason why Elon has been one of the amazing entrepreneurs at these hard tech areas is to some degree he can do all of them because of the brand and the capabilities he has. He can raise capital and in a repeated way that will give him capital in a way that other people won't be given capital. He is an amazing recruiter and he can put together the set of the raw entrepreneurial elements to take a shot on goal of literally something like SpaceX. And so that is kind of a classic one. Now another one that may be an area where you get to bad competition is because you recognize that the industry is more desirable than people have formerly recognized that the margin structure or the revenue, that it's now much more capable than before. And there's a couple different reasons. One is obviously technological changes, but another is as the world becomes more hyper connected and everything becomes more local, previously what might have been a fragmented industry is now more, much more addressable in a large format. You may have a different business model that now makes it possible to make a much more interesting economic model out of an industry. And so all of these things kind of go into where you could then say, well actually in fact there's a product here and the people who might view that to be their natural right to own that product are actually in fact bad competitors. And actually let me go to that last, last characteristic on this, which is another version of bad competitor is essentially people who, who are much more focused on continuing to play the game the way it's been played for them in the last few decades. There could be a number of different reasons. Could just be they're lazy, could be that they are focused on their internal competition within their particular company or their particular industry. And so they're only just modding that little bit. And they don't, they're not looking at a bold new effort, a bold new red team effort. And when you get around to ask me the Elon question, I'll cover that on the Tesla circumstance. So I think that they, that this notion of actually also looking around and going, is that a good competitive company, a good competitive organization? Because if they're locked into patterns of the past, whether by internal competition or whether by that's just the scope of how their mind thinks or that's the way that their competitors are all locking themselves into this pattern and you have an alternative pattern, those can all lead to a judgment of oh, that's bad competition as well.

And the meta point I extract from what you just laid out is that the reason the competition is bad is not necessarily that they're bad people. It's not necessarily that the people involved are incompetent or stupid, although that can be the case. It's that there is a fundamental inability to recognize change and something has changed and it can change in a variety of ways. At the beginning you talked about how one of the things that can occur is just location. And a great example of this, one of the great American success stories is Sam Walton, who built up Walmart by beginning in smaller towns and smaller cities where they didn't have this kind of sophisticated retail. Yes, there were already big competitors like Kmart and A and P, but they weren't where Sam Walton built his stores. And Sam recognized the change of the Post World War II economy, the coming of the interstate highway system and improved logistics and all those changes meant that the traditional way of doing business could now be applied in these other locations. And so as a result, he had a quote unquote Greenfield opportunity, but really occurred because his competitors didn't recognize the change. You talked about Elon and SpaceX. Again, what often happens is the people who originally built the great aerospace companies, the Lockheed brothers, Glenn Martin, McDonnell and Douglas and all these folks, these great entrepreneurs built these companies and these companies became established and, and after they became established, as you point out, the people who then rise and succeed at those companies are not necessarily entrepreneurs. They're now managers, they're now caretakers. And they got to the top of their organization because they were the best at being able to do things the way that they were being done at the company. But when technologies change, when markets change, when everything around you changes, just doing what came before is probably no longer enough.

And there's a point there that I've said in other contexts, which is success imprints more strongly than failure. And that's precisely why you end up having otherwise smart people have big blind spots and be bad competition because they go, Look, I spent 10, 20 years working my way up through this industry. We learned a whole bunch of principles about building this particular product or service like a rocket. You know what the dynamics are. What the industry was learning was that investing money in R and D, which you know, 30 years ago, which was this was the right out lesson. Investing money in R and D didn't give you a good return on capital. Right. Simply continuing the same product and being entirely focused on winning sales and sales process. So you adopted that way and then everyone said, well, we learned all the lessons. And it presumes that the world is essentially completely static, completely like not dynamic at all. And yet the world is dynamic. The world's dynamic in technology, the world's dynamic in market dynamics, the world's dynamic in customer preferences. And so recognizing change, both what has changed and what is changing is precisely what is key for entrepreneurship. And that most of the world is not very good at this. So it tends to be they, with the exception of when you have well run companies with the right kinds of innovative clocks in them, both competitively and not, you tend to have a lot of zones of bad competition.

And as we've discussed in other places, there are new forms of business model that are coming up. Things like the Re Invent Technology Partners SPAC that you've been involved with that try to bring that spirit of entrepreneurship and the founder mentality to remake companies that have already gotten to a certain size. And it feels like that's also part of this.

Exactly. Because the question is the point within technology companies in the creation is to say people usually have this, you built this one technology and then you sold it and then that's what works. And they don't realize that actually in fact all of the technology companies that continue to go the difference are in constant cycles of invention and reinvention, invention, adding a product or service or market and reinvention, changing the way that your product actually works, whether it's how the product is built and provisioned or how you go to market, or what your business model is. You know, a simple one in the technology industry is considered enterprise software, which used to be on premise and now is well and truly massively into the cloud revolution, which is delivered through the cloud.

Now let's get personal with this. And as we discuss this law, I can't help but feel that it really applies strongly to your experience at LinkedIn where LinkedIn really was able to go up against a series of competitors that really just didn't get it. So can you talk about how you were able to apply this law in your career.

Typically what happens most often when technology is created is people just do the parallel from the old technology, the new technology. So pre the Internet recruiting was a combination of two things. It was a combination of classified listings and executive search or you know, kind of very high end search. And the high end search was very expensive, so used very rarely. And people had their own proprietary lists of people that would do it and that there would be essentially firms and individuals within those firms who would be doing that. And then the rest of it was posting job listings in the newspaper or kind of equivalent. And so when the Internet came about, they said, oh, we could post job listings on the Internet and it'll be better because it's more easily searchable. It's searchable from. You didn't necessarily even have to get the location right. And so all of the job stuff, including monster.com and career builder and you know, hot jobs and all the rest were all like, okay, we're just taking the listings online. And by the way, the listings online was a step forward. It was a step into, had more searchability and a bunch of other stuff, but was fundamentally still based on this paradigm that active job seekers would come and look for your listing. Now the thing that's crazy about this, when you look at the hindsight and by the way, the listings do still exist, LinkedIn has them, a bunch of other people and they should be there because there are active job seekers. But the weirdness is you say, hey, look, I'm trying to hire a product manager for my new, you know, shaver company. And you go, okay, well what's the likelihood that the right person who has that right experience is going to be looking, going to be even online doing the search in the right database at the right time for your thing, in the time frame that you want to do it? And the answer is relatively little. And of course what happens is a lot of active job seekers are like, well, let's see, I've never had any experience doing product management before. All I've done is, you know, flipped burgers at a local burger joint. But that looks like a good job. And, and I've used razors, so hey, I'm going to apply. So you get these thousands of applications with relatively little, like you're hunting through kind of signal noise and you go, okay, that's kind of crazy. And that kind of gets you to. Part of the realization is that action fact recruiting is you want to go and reach the right people and pitch them on doing it. Not necessarily only the active job seekers. Now part of the challenge was is that kind of the culture had evolved in these, you know, the kind of oligopoly of all industry. We just say, well, if you post your resume online, you're, you're disloyal to the company. And so the extreme fear was, you know, oh, maybe you get fired, but maybe also you wouldn't get a bonus or promotion and so forth. So you didn't want to look like you were available for getting phone calls, you know, when you're, you know, by the way, maybe still very happily working away at your current place. But the recognition that I made was that actually, in fact, everyone should have their public professional identity up. Sure, maybe it gets them a few more emails, maybe a few more they have to ignore, a few more, they have to reply, no, thank you. But actually, in fact, great opportunities come by. Some of those great opportunities may be jobs, but they also may be advising or consulting or board or investment or a bunch of other things. And so it's actually just very good to have your professional profile up. And you just need to have some kind of throttle about how people reach you. Throttle that LinkedIn can provide a throttle that your network can provide and that, that was the way that you should launch now. So using your network as a way of sourcing and finding these people. There was some zeitgeist, that idea. The big thing that happened with, with LinkedIn in the early days is that the majority of our competitors thought that, oh, in order to get an individual to use their, their network to do this, that needed to be driven within an enterprise and within a sales circumstance and as part of being enterprise and within sales. My view was, no, no, actually individuals on their own network, individuals on their own relationships, on their own thing needs to be driven on an individual basis. And so all of our competitors were enterprise, we were individual. There were a few other individual ones, you know, I think only one, one of which in the world is still going, or maybe there might be a few in the Monty Python not dead yet. But basically that was the kind of key thing. And so those competitors were all bad competitors relative to LinkedIn because they had grasped the wrong strategy of trying to decant it through the enterprise, asserting ownership over your address book in your relationships.

And it wasn't the case that these companies were bereft of smart people. There were smart people working at many of these companies. Again, how smart could they be if they didn't see the true nature of the market? But nonetheless, there were very Smart people, people who went to Stanford, Harvard, all these great schools, people who worked at these giant companies. And yet at the end of the day, because they had the wrong focus, they were bad competitors.

Yep, exactly. And by the way, you know, most of the people, even the people who like, work their way up through traditional company X, usually to work your way up through traditional company X, you're hard working, you're smart, you're learning, etc. That's the reason why, you know, the whole like, oh, they're just lazy or dumb is usually the wrong mistake. But by the way, what gets you more confidence that you have successfully identified bad competition is when you realize the structural thing that gets this set of smart people to all look in the wrong direction.

That's right. So what you're doing is you're identifying the structural issue that makes smart people appear dumb because no matter how smart they are, they can't overcome the fundamental misapprehension of the market.

Exactly.

Now, I think it would be a great time then to turn to some of the other famous entrepreneurs that you know. Two of them I know you've mentioned helped inspire your thinking in this regard. And of course, I'm speaking of both Elon, who you've referred to before, but also Richard Branson, albeit in very different ways. You recently talked with Richard as a part of recording Masters of Scale, your award winning podcast. And I think you mentioned that during the recording process, it really struck you that Richard almost seemed to have a approach that caused him to choose bad competition. So what was this approach and what were the strengths and weaknesses of this approach?

The funny thing is I think that Enrich always, I think, had an instinct for kind of cutting his own path for, you know, I think his headmaster, when he dropped out of school, said, well, you're either going to be in prison or a millionaire. Insight from the headmaster, because obviously went on to become a, you know, one of the world famous entrepreneurs, serially and successfully. So I think what Prichard does in this really smart way is he first, he keeps a very young mind, like he doesn't accept the world as it is. He kind of says, you know, like, okay, what's this like? It's like, I'm coming to it for the first time. That's part of like the reason why Virgin is a brand and his book Losing My Virginity and so forth, which of course is also playing to his marketing instincts and a little bit risque. But actually it's like Virgin is like, no, no. Fresh, new, new mind. Young youth and he's managed to keep that with him his whole life. So then what happens is he encounters some product where he goes, well, this is really shitty. This is not good. And in particular, because of having brought his young mind, his new mind to it, he goes, well, this is terrible, and this could be so much better. And that's because he just doesn't accept it for what it is. And that's, I think, how he frequently encounters a set of new product areas because he goes and has that experience, like being on an airplane or. Or equivalent, and then goes, well, there's so many different ways that this could be better. And if I approach it with a new mind and try to. To renovate it, and by the way, in particular, make it more fun, because people basically like to have fun in what they're doing. And again, young people especially, like, no, no. Like, is it fun? And can I bring pizazz and fun to it? And then what I think he does is he says, okay, so there's an area like airlines. Let's think through in detail every specific thing as part of that product or service experience and go, could we make this a lot more fun? And that, for example, is what leads them to, let's take the Virgin Atlantic Lounge at Heathrow, which is, God, people hate going to the airport. They hate waiting around. It's like they're kind of treated as cattle. How do we make that experience? Well, we can have a lounge and we can, I suppose, the lounge being the, you know, here's a place where you can get some peanuts and maybe a little bit of food and we'll try to drown you in alcohol. Let's make it fun and everything through the entire thing. And it's, you know, goes all the way back to, you know, when Virgin America was flying. Virgin America was my preferred US Carrier because they had thought through the, how do you have a seat that you'd really want to sit in? How do you have a entertainment service you'd really want to be? And obviously, there's other carriers like Southwest that do this and all. How do you have the. The people who are working with you clearly engaged in making it fun for you and having fun themselves and doing it. And that was part of what the service culture ended up being. And so he kind of reinventing that whole way through. And by the way, this methodology, I think, both describes where Richard has been such an amazing, serially successful entrepreneur on. Not just from, obviously, music and concerts and megastores and all the rest, but also, like, airlines and. And Rail, but also the, some of the areas where, you know, have not worked out as well, like Virgin Cola, which most people don't know about. And so that's, I think, part of the genius and the chutzpah of. I don't think Richard himself would call the Branson method, but a Branson method for choosing bad competition and then launching it.

And what I hear when you talk about Richard and his new mind is that ability to really come in and not be caught up in how people have done things for decades. Not just sort of say, well, there's a certain way of doing things and it's always been done this way and it's always, always going to be done this way. But that willingness to come in and say, well gosh, this doesn't make sense. I would do it completely differently. In fact, why don't we try doing it completely differently? And I guess the question would be, you know, what separates the opportunities that are good, like completely redoing the airline industry from the opportunities that are not so good, like Virgin Cola.

There's a set of different principles. For example, part of the reason I use the Virgin Cola one is when Richard went to compete with airlines and by the way, BA tried a whole bunch of different dirty tricks and all the rest not starting by just improving their product or service, but actually trying to simply drive him out of business, which is an instance, but we're essentially bad competition, which is the cola companies actually in fact are fierce competition. And his product wasn't simply just wasn't different enough. It's like, oh, Gates, another cola, it has entertaining marketing, but entertaining marketing wasn't enough for them to come in and fight hard on distribution channels, discounting a bunch of other things and then have, you know, Virgin Cola dry up, as it were. So, you know, one of the principal ones was the competition was stronger. And then the other, another one was the product wasn't differentiated enough. Right now I'd say the other one that some entrepreneurs add to this is, well, are you analyzing the business area? Like what is your characteristics of your mature business? What are your gross margin look like? You know, what's your ability to compound at scale? Like this is one of the things that a lot of the technology entrepreneurs do. So there are other attributes to add in that can lead to choosing better markets or being able to play a new product areas in ways that aren't purely within the, you know, and you know, when, when Richard was starting out it was the, the technology industry was tiny and there weren't very many Technologists, everything else. So it was great for across a wide number of different industries and areas. So, like, really important for everyone, including Silicon Valley people learn. But there's also some additional things that, you know, are applied within the Silicon Valley context of, you know, choose this product or service, choose this market, choose this technology versus that one.

Well, someone who has taken the Silicon Valley approach and applied it to some very different, though still highly technological fields is Elon Musk, who is of course another friend of yours. Richard and Elon are both enormously successful, but they're not particularly similar. So what do you see as Elon's version of choosing bad competition? What are the strengths and weaknesses of this approach that he takes?

Well, some of it are similar, which is, and it was partially through. Watching Elon's paths through these things made me realize that there is this very general rule. And it's doable because post PayPal, when Elon came to me and told me he was doing SpaceX, I was like, look, I gave him some quote, unquote, common wisdom, in this case, maybe common stupidity from Silicon Valley, which is, well, wait a minute, you should stick to software. Software is much more capital efficient to build. It's much more easy to scale to a global market. You could do consumer software, enterprise software, but software is what you'd say you shouldn't try to go solve. Rocket science is a problem. You shouldn't try to go get into the world of atoms versus bits. I mean, sheesh, you know, new rockets explode. The market's locked up by these companies that are like, hiring the relevant people whose former colleagues then give out the contracts. Like, this is just a very difficult area to make a business work. And as it turned out, Elon was totally right and I was totally wrong and I'm a much later investor in SpaceX because it was the. No, no, actually, in fact, all of these folks have ignored decades of improvement, the product in the technology, because they don't need to. And I can go do that. And I am strong enough to raise the money. I'm strong enough to get enough of the initial contracts. I'm strong enough to work my way through the first explosions and to make this happen. I know how to recognize great talent and go recruit it. Because by the way, a lot of the talent, the innovation talent in say, an area like rocket space was like, well, I don't want to just go service old Russian design rockets. I want to be building new stuff. And so you can have your pick of talent when you can pull the effort together. In a good way. And so, you know, Elon was doing all that. Now I think there are areas, now we get to Tesla. There are areas where Elon kind of added the where is the technological puck moving to versus and had some instincts for it, which is not just electrification, which is obviously the thing that's always focused on with Tesla, but the fact that Tesla is a software car. We're moving from a mechanical engineering paradigm to a software paradigm. And this is one of the things where there's so many people who say, oh, I can't believe the Tesla valuation and maybe the Tesla valuation is too high, et cetera, et cetera, who knows? I don't really concern myself with that, those lacuna within the public markets. But what he saw and was and is right about was it's a software paradigm. And you know, part of what a bunch of people in the market are betting on is that the traditional car manufacturers, you know, all of whom hire a bunch of very talented people, but they have all learned that it's a mechanical design problem, it's a supply chain problem, it's a manufacturing problem. You know, it's a, you know, making sure you're not too far away from what the other OEMs are doing. So to make sure that none of them gets too far ahead of you in a design or a iteration of safety, you know, airbag manufacture or suspension and handling and so forth. And he went, no, no, what's important is we're building this new chassis on electric and that's a software car. And then part of of course where getting it on base was that realizing, and this is partially effect because the whole world's gotten narrower, that there's a big enough market for hundred thousand dollar electric cars that you can get your car company going. Now that may have been the risk that Elon just had as raw belief versus any particular inside knowledge of, but it was that I am viewing this intersection of markets, intersection of obviously consumers who look, I want to buy electric cars because I want to be buy green. And that he could work his way through all of the set of obvious challenges local how the fuck are people going to get it recharged? There's all these gas stations like all of this stuff. And he could just work through it in a dynamic basis because not only is the world different today than it was 10 years ago, but it's also where is the world going to in the next 10 years? And this is of course part of the reason why, you know, at Greylock, you know, I've invested in next generation of autonomous vehicle companies, which include Aurora, Neuro and Nauto. Because it's the view that it's structurally very difficult for the current car manufacturers to really change their DNA from being a mechanical engineering environment to being a software engineering environment. You know, which one's first. And so those software investments make sense. And it was partially watching Tesla, not necessarily knowing that autonomous vehicles was coming in their early days, but Tesla and its software paradigm was like, all right, this technological platform is about to be revolutionized by software. And that was the thing that Elon adds in, which is a recognition of technological change, velocity and its integration of product services and general business operations.

And the story of Elon's success is truly remarkable because you were not the only person who would have given him bad advice. I don't know Elon particularly well and he would never have asked me, but I probably would have given him bad advice as well. I'm sure other people did. And what I came out of your story with is not only is it important to be able to come in, as Richard Branson did, with a fresh mind and see how technology had changed and new things were possible, but there were two other key things you mentioned him as doing. The first is having an idea of a beachhead, even if it's one that doesn't scale, that allows you to get started. For Tesla is building $100,000 Roadster on top of a Lotus chassis for SpaceX. It's. There's some government contracts up for bid, and we can go out there, we can get some of those contracts because they don't want to be sole sourced with the existing players that they have. And so he found these beachheads that even though they weren't scalable up to the ultimate destination, were enough to get the flywheel going. And that leads to the third thing, which I thought was really fascinating, which is his ability to recruit the people that in these industries who were frustrated, right, there were a lot of brilliant scientists and engineers who were working on rockets or working on cars who knew that they could do better, but they were now working for companies that had essentially been captured by the sales and finance organizations. And so as a result, everything was just focused on how do we do the R and D as cheaply as possible, how do we extract the money from the market in an incremental way as efficiently as possible versus, hey, how do we incorporate all these new technologies? And so as soon as he was able to demonstrate that there was a possibility he would succeed, he could get better, more passionate people than his competitors because they wanted to make that difference.

Yep. And part of it is you have a market, you have a set of assets, you have a plan, and you have talent. Those are the set of things that make this work. And so your ability to recruit really great talent to something also plays into this.

Absolutely. And as we've often said in the course of describing blitzscaling, the human capital is harder to come by than the financial capital. And of course, the financial capital is not easy to come by, but the human capital is even tougher. And if you find a way to inspire and bring in that great human capital, whether it's through doing something new and innovative like Elon, or doing something with verve and fun like Richard Branson, that is a big competitive advantage.

Yep, exactly.

Now, let's say that you're an entrepreneur, you've chosen a field with bad competition. However we want to describe it, maybe in this case it's they haven't updated their technology stack for a couple of decades, or they've overlooked changes in the marketplace, and you go in, you start getting that initial traction. What then happens if good competitors emerge? What's the right strategy to adopt in response? And I think we see this playing out obviously in terms of Elon with SpaceX, there's other famous billionaires focused on building out their own rocket companies. And in the case of Tesla, there's all these other people who are trying to build electric cars as well. Not clear that any of them are good competitors yet. But what do you do in response those areas?

It gets to what the specifics are. Right. Because once you get to essentially good competition, then you kind of go, okay, so what does that shape between me and that competition look like? And this is when you get to the very detailed, advanced kind of things around entrepreneurship, because it's kind of like, well, okay, does one of us have a better structural position? Does one of us have a better plan, better technology, better go to market strategy, better channel, you know, how does that play out? Because then you have to say, okay, well, what's the bet? I'm going to make like simple. Everyone's default is I'm just going to run as fast as possible, I'm going to try to win the race. And by the way, that's maybe a completely fine default, but it's relatively blind luck, it's relatively unthoughtful, relatively unstrategic. And so what you really want to do is look through the, okay, so in this competition where we've gotten to, what is that competitive Space, look out now that I've got good competition. And if you don't have a clear theory about how you're going to win, you, you might still say, okay, still going to play it out, realizing I'm taking big risk. I'm going to be watching it and monitoring and changing. If you go, look, I think I'm going to lose, then, well, what should I do? Well, I might merge, I might pivot, I might sell. Right? You know, and you might show and now might be the right time. Or I might do something specifically in iteration to that strategy. Generally speaking, I think one of the things that great entrepreneurs do is they also frequently know when to call the game, even when they're saying, I'm not winning. Like a modern. Great example of that is Jeff Bezos, who has created new markets like, for example, aws, but also Ken and leg said, okay, I launched a phone. Phone's not working. I'm out of phones. I'm not doing the phone anymore. And that kind of calling the game is an important part of general management executives, CEOs, but also of entrepreneurship. To go, okay, not that game. My theory that I had a privileged position in that game. Amazon is a distributed channel, phones or commodity, whatever the specific thing was not that game. I'm moving on now. Again, part of what Bezos did, which is again, part of his genius, was that he said, okay, I'm going to move on from the phone. And that's how the Alexa Echo know, et cetera, got born. Because they said, all right, well, I'll use the same team. The team's good. And so literally took almost the entirely same team and now launched a new product, you know, with a general theory of going after a green market versus a, you know, as part of the general lesson, competition, et cetera. Because there was a lot of phone competition that was very good and only lost the people who were like, well, I only only really want to work on phones.

And when I hear the story of the pivot from fire phones to Alexa and Echo, which are incredibly success, I hear a lot of the lessons that we also talked about in our previous podcast about ABZ planning and in another podcast about pivoting, where you have an investment thesis, and that investment thesis may involve the things we talked about, new technologies that existing players have overlooked. But as people come into the market, as people begin to follow and do some of the same things that you do, your investment thesis may change. And if your thesis changes, if you begin to lose confidence, it's time to pivot. It's time to change your plan. And in some cases, as in the case of Jeff Bezos, it's time to get out of the market entirely.

Yes, this gets back to the earlier podcast we did in writing, which is when do you know when it's time to pivot? Roughly speaking, you should have an investment thesis that's clearly articulated, written down, that says, here's the game that I think I'm playing, here's why I think I have a theory of the game, a theory of winning, and if your confidence in your investment thesis is going down, and for example, oh boy, this competition is really good, they have a better position than me, and so forth, that's the kind of thing that gives you early notice of when to pivot. And pivoting early, when you making the call right, is always much better than pivoting late. Pivoting late usually is desperate attempt not to die, which usually ends up in.

Dying as a business Final question about choosing a field with bad competition. One of the lessons that you've taught me over many years working together is that every strength is a weakness and every weakness is a strength. So I have to ask you, are there any times when people should consider breaking this law when they should actually choose a field with strong competition or good competition?

Well, so first, by the way, Chris, just to slightly modify learning, is that weaknesses and strengths frequently have flip sides, right? And so it's not that every weakness is a strength and every strength is a weakness. So for example, if you're weak because you're irrevocably lazy, right? There are circum circumstances when lazy is certainly not as bad of a weakness as it might be. But like, generally speaking, in anything of these kinds of games, laziness is a weakness, right? So not every, every weakness is a strength and vice versa. Or you know, it has the exact shadow side. But for example, when you're strong, like you have a lot of persistence and grit, you may be inflexible, you may not be changing and pivoting as much as you should be. So that's part of the reason why. And generally when you tune a strength to a high end, you almost always have some of the weaknesses that go along with it. Now, in terms of should you ever go against good competition, you know, there are times, like for example, if you say, look, it's not a winner takes most market where there's a lot of very valuable position and you might just be learning from your competition or learning from each other and both create very valuable businesses that could be a perfectly good reason to not avoid good competition. Look, if you had a good theory of saying it's good competition, but I'm going to be amazing, I'm going to be learning from the competition. Competition is going to be pre making the market. That's not terrible. Risky, but not terrible. Like Silicon Valley usually doesn't think of it this way, but it's because it's this general rule of entrepreneurship. Now the reason is usually what happens in Silicon Valley is they say focus on the pattern of technological change, focus on what a new technology opens up in terms of disruption, in terms of new products, new services and new go to markets, new business models and then focus on the new technology. And the reason of course it focuses on the new technology is because it presumes that existing competition is tied into the old technology. They have a therefore potential structural blind spot against this new thing. The move from on premise software to cloud or the move to AI, the move to mobile, the move to. And so they're very focused on their business as it's currently operating because by the way, they've got their whole team, their supply chains, their customers, their products or services tied around it. And doing the Clay Christensen jump to the innovator's dilemma, where you may be undercutting yourself is frequently very difficult. People make those decisions usually not at all if they do, usually late and if they do, then usually badly. So you, you know, so you have the tendency to kind of jump that way. And that's the reason why that's the rule that's usually taught within Silicon Valley, which is the trajectory of the technologies and what how they change markets, how they change ways business operate, how they change products and services, all of which is correct, but it's actually in fact deeply correlated and tied to selecting bad competitors.

Excellent. Well, 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 you can follow Greylock on Twitter reylockvc. I'm Chris Yeh and on behalf of Reid Hoffman, thank you for listening.