The Strategy Of Blitzscaling with Reid Hoffman & Chris Yeh | Greymatter

Hi everyone. I'm Reid Hoffman, a partner at Greylock Partners and host of another scale essential podcast, Masters of Scale. Welcome to our new podcast from the book that Chris Yeh and I published, Blitzscaling. Chris and I have been fielding a number of great questions from entrepreneurs and others on Blitzscaling. So we decided to launch a podcast dedicated to Blitzscaling in partnership with Greylock's Gray Matter podcast. Today, Chris Yeh and I are sharing strategic advice and insight for entrepreneurs looking to Blitzscale their companies, specifically around competitive strategy dealing with major threats and globalization. So let's get started.

Thanks, Reid. This is Chris Yeh, the co author of Blitzscaling and the co author of the Alliance. It's great to be here with my old friend and co author Reid Hoffman to talk about a topic that is so important for entrepreneurs and that's strategy. Now Reid, you're really known as a master strategist. How do you define strategy?

The key thing on strategy is that you have clarity on your goals because it's trying to move the world from one state to another. Could be how you're growing your customer base, could be how you're growing your company, could be how you're winning in a competition for a customer against another competitor. All of these things are kind of places where strategy can play, but it's dependent on goal. The simple way that I look at strategy is it's a combination of tactics. So a strategy is tactic one plus tactic two plus tactic three, getting you to an output. Now, sometimes it's not that linear because of course it's well, measure this and then depending on that, go here. And as we've talked about on one of the episodes of Masters of Scale, the OODA loop, observe, orient, decide, act. It's kind of depending on what you see. Depending on how you orient, you're changing which tactics you do. And those kinds of things are how you, in the most simple way, compose a strategy. Now, in my first book, the Startup of youf, I actually detailed a framework called the ABZ Framework, because everything in that book was what I tell entrepreneurs and refactoring it to individuals. And the ABZ framework is a strategic framework for making a flexible set of plans and tactics within the strategy against a goal, you have a plan A. It's we're going to build this product, we're going to market the following way, we're going to get it to customers and that's going to make us win and we're going to grow a huge company because of it. Well, oh, maybe the demand for the product isn't that big. Maybe the go to market doesn't quite work the right way. Maybe building that product is much more expensive or too hard in order to get to. That's why you have plans B where you kind of go, all right, if this isn't working, then I'll try this. If this isn't working, I'll try this. And that's how you're building a strategy around this, because you're kind of going, okay, this is our primary target. But if the things don't work, we'll shift from this tactic to this tactic, or we'll shift from this goal to this goal, and we'll shift the composition of what we're doing. And that gets the last major element for doing strategy, which is people frequently think of strategy as chess. They think of it as the equivalent of a completely known board. All the known pieces, all of the known moves, Everything is totally transparent. And actually, in fact, it's much more like running through a fog over a landmine field, which is you have a lot of unknowns. You have what you just don't know. It may be true in the field, but you don't know. So you have a lack of your knowledge, a lack of awareness, and. And there's also. You just don't know what's actually really going on or what might happen in a complex dynamic situation. So as part of figuring out a good strategy and figuring out which tactics combine to get you to your goals and outcomes, you have to have the ABZ framework for flexibility, and then you have to be making risk assessment to, am I on the right path? Is it the right thing for me to be doing? Should I continue? Should I pivot? Should I change? Should I engage in a different framework? And this is part of the Z of the ABZ framework, which is the lifeboat plan. Plan A isn't working. Plans B aren't working, and I now need to reset and try something else. And plan Z is essentially that reset.

Now, one of the stories that you've told me, Reid, is the story of PayPal, which is a company that you were involved with from the very beginning as a member of the board and later as one of the key executives. And one of the things I always remember is you told me that PayPal more or less had four business models, or pivots, during its first year. This seems like a good example of what you're talking about.

So I'll go through the detail. And indeed, there were pivots, even though entertainingly My good friend Peter Thiel says, no, no. We always knew that we were heading towards value ecosystems. Like, no, we started with encryption on mobile phones, and that's not the modern smartphones. Those are the old flip phones. Then it was like, okay, well, pure encryption doesn't really work because no one's going to buy that. So we'll have cash on the flip phones because we think they'll start using cash on flip phones. It's like, no, actually. In fact, it'll take us two years. It'll be too long to build. So we aren't going to put cash on the flip phones. In fact, we're going to do this thing, which probably most of the listeners of this podcast don't remember, but Palm Pilots, we're going to actually make it cash on Palm Pilots. And then, oh, gosh, there's too few of those. The use cases of splitting the restaurant dinner tab and so forth don't work. So, okay, let's pivot from that. Email, payments. Oh, yes, let's do that. And we actually didn't have that whole, like, this is very classic in entrepreneurship. We didn't actually have it planned out about how we'd be pivoting, changing. We were doing it in just kind of real time as we were encountering it and moving really fast is doing it. And that will always happen. It's better to have a general framework so you can make decisions quicker. You can know when to pivot, you can know when to try the next thing. You can know when you need to do a big pivot versus a small one. But part of the framework and the speed that we learn here in Silicon Valley, and part of the reason why a lot of startups focus on software is because you can be saying, well, I can be figuring it out as I go. And I go, okay, plan A doesn't work. I'm going to plan B. I'm going to plan Z. I'm going to plan D. Oh, shoot, I'm restarting to plan Z. And you can do all that within the speed generally allowed by software startups. And of course, gets much harder once you get to hardware, energy, construction, other kinds of things that have a much higher cost of error and cost of reset.

Yes. And we'll certainly want to dive deeper into some of those topics on another edition of this podcast as well. But when you talk about pivoting, going from plan A to plan B to plan C, for some people, I might believe that it's just, we're just trying stuff. But I don't Believe that with you, because you are the master strategist. So the key question that I would have is how did you develop this aptitude for strategy? Was it stuff that you studied in school? And what can founders or executives do to improve their strategic thinking?

So the funny thing is I think all of the strategy that I really picked up, all the frameworks, came from a childhood of playing competitive games. There were these games which I don't know how they're referred to today, but called Avalon Hill games. They're kind of like war games, little cardboard chits and you move them around a board and you put all these set of tactics together and you have to be flexible because you're playing against other smart kids who are playing against you and you're trying to play to win. And so you have to understand what the different kind of combinations and different changing circumstances look like in order to make that go. I think there's a very deep tie between the ability to model what a strategy is, think about its risks and potentials, to think about the flexibility, to think about the combination of set of tactics that really go into game playing. Now obviously there are interesting courses taught in military schools, interesting courses taught in graduate schools of management and other kinds of places that also can teach some of this thinking. But a lot of it gets down to you have to construct your own kind of model of the game, understand what game you think you're in. And by the way, sometimes the right thing is understanding the game you're in to be able to plot a strategy within it. Is it a game on who gets to market quickest or is it a game in who gets the right product to market fit? Or it's the game of which game are you in in each of these circumstances and then to figure out what, what are the sub components of that games. But it's that thinking within games which I think is key for me.

I think that's really interesting because it's not something that people talk about much in business school playing games or what have you. But if you think about it, if you believe in the concept of the practice makes perfect, then somebody who plays games passionately as a child, spends thousands of hours doing this is, is going to have way more experience with strategy than somebody who does a single two hour simulation their first year in business school.

And in particular, it's the kind of games that need to involve detailed and varied strategic thinking. So you go, well, a first person shooter like Halo or something that does teach you some model about what other people might be doing or how you might coordinate together with your teammates to win against the other team. First you have to establish this kind of position. You have to do these kinds of different activities. It's multiple tools in the tool chest as a way of making it happen. So it's what does the complete market look like, what do all the competitors look like, and what are the key things in order to kind of make that go?

And you actually took the next step in this process. And not only did you play these games, you helped create these games. Can you talk at least a little bit about that?

Well, this also goes back to my Masters of Scale episode, where they turned the tables on me because I was used to be, as a kid, very much into these fantasy role playing games, which most of you probably know as Dungeons and Dragons. I happened to, as a kid play a variant called Runequest, which Greg Stafford and Steve Perrin and other folks had been the creators of. And it kind of got me into this view of thinking about how, how groups of people share this activity together and how everyone needs to be a hero of the story. And so I helped create some of the scenario packs, like what kind of adventure you go on that the group of people go on together, reviewing systems like this. Like, I did a review of Chivalry and Sorcery, yet another role playing system for a magazine called Different Worlds. So I had been engaged in games since a very early young age.

Now I know a lot of people will probably ask the question, so, Reed, do you play many of these games these days? What are your games of choice these days? I know you're super busy and probably the game of choice is building the world's most important companies. But beyond that, I would love to.

Have more time to play some of these games. I'd even love to actually revisit some of the fantasy role playing games, because it's been decades since I've done it. And it would almost be kind of a lens onto my younger self to see how my older adult self would interface and what I would find to be the different learnings of being on that journey. Unfortunately, given I'm so busy with the kind of investing in the kind of various interesting companies at Greylock and philanthropy and podcasts and things like that, I don't have much time. And so primarily these days where I do have a little bit of time for games is playing Settlers at Catan, which I refer to as the most entrepreneurial of board games because it involves a newly freshly configured board. Everyone has to engage with each other in order to win doing trades and construction. And that parallel to entrepreneurship, I think, was one of the things that really appealed to me and one of the reasons I play that one, when I have the hour that I sometimes might have in order to play a game.

I'm really impressed that you can actually finish a game of Settlers of Catan in only an hour. That is truly an amazing achievement.

Depends a little on who you're playing with.

So let's talk about some of the other things you might learn from. Who are some of the strategists and strategies that you admire today? What about them is special that you think really makes them interesting?

Well, let me go through a few of the strategies that I've been close to, because it'll also give you a sense of the variations of how strategies tend to be custom constructed. They're not just pull out a form out of a book, fill in the Mad Lib and you're done. It's actually a carefully constructed thing. So let me start with one of the things that my friend Mark Pincus did at Zynga that I thought was really good is he realized that the key thing was not to believe too much that you're like the genius and you know the exact game, but to learn from how customers would interact. And that speed of learning and building out the games and the, the speed of that Ooda loop would be the thing that would actually enable Zynga to become a great game company and do interesting things from farmville, which most people know about it, Words with Friends, poker, a whole set of things. And so what he did is he designed a system in the company by which you essentially would build. If you think about games, it's kind of like multiple levels. Like you have level zero, level one, level two, level three, as you progress into the game and you get a bigger farm or you unlock new tools or all the rest of that. And he said, okay, well, when we do game design, let's build the first 10 levels. Let's not build the whole game and everything else. Let's build the first 10 levels and see do people respond to it? Do they go all the way to level 10? Super interested. More. Do they stall out at level three? Do they never play altogether because it's efficient? Because if, like, for example, no one goes past level one or level two, you're like, oh, we got the wrong game. Let's scratch the game, let's go on to the next game. If you start getting people going to level 10 really quickly, let's be ready to move really fast, know roughly what we have in mind to build levels 10 to 100, right? And then, oh, my gosh, people really love this game. They like to keep playing. It's going to be an evergreen game. Okay, let's do levels 100 to 1000. And that strategy allowed them to outpace all of their competitors. Sure, they launched a bunch of things that people were skeptical about as games and those died. And some people learned how to be about it and, you know, a variety of other things, but they were able to find consistently a large number of hits, which is usually the counter against game companies or game studios as investments, because you're like, well, who knows? It's random if you have a hit. But to have that process of capital efficiently and time efficiently finding hits and using the social medium as a way of doing it. So that's one and that's a kind of a strategy. A second strategy is from the very first episode that we did, a Masters of scale, Brian Chesky, he Talked about the 10 star design process, but part of the design process, because people say, oh, well, design like a website is designed, have the page look kind of appealing and inviting, make sure that the button you want to have people click on is glowing green, you know, or something as a way make it happen. Actually, in fact, part of what the design strategy that underlies some of what's critical to Airbnb's success is to say, okay, let's start from what the perfect experience is, not the perfect webpage. What would the perfect experience of Airbnb? And then work back to a place where you say, ah, this experience is within the range of the experiences we can give. And then let's start tuning to that experience. And so that as a design strategy says, don't just accept what's there. Don't just think it's a listing. Don't just think, okay, I'm putting a apartment on, you know, or a vacation home on for a listing, and people will select it and so forth. Let's think about what the whole experience looks like and let's decompose that from the I arrive at the door, I'm delighted when I go in, I have a wonderful time when I'm there. That's part of what leads to Airbnb's current focus on things like trips and the experiences that you can find in the city around you. And that design. The experience then became a differentiator between Airbnb and all the other people were saying, well, we're doing accommodation. It's like, no, no, we're doing experiences and we've thought about it from the most aspirational we can, and then tuning it down to what's the right thing, where we can provide it, where people love what that costs, love what they get, and that's something that surprises and delights them. Third example, because I'm one of the people who, amongst others, who got engaged in this, is actually thinking in terms of viral loops. Now, a natural viral loop is growth and engagement. So a crew of us, including me, were amongst the earliest folks in the web to think about, like, how do you mathematically model it, how do you tune it, what's the intersection of creativity and numbers? And you'll see blog posts about this over the last few decades, K factor or V factor, and instruments of our growth. And by the way, entertainingly, there's still a lot that's not there yet. There's still a lot of knowledge that actually hasn't hit blog posts in terms of how to do this. But the key thing was when you think enviro loops, you think about the speed of compounding. And one speed of compounding is, of course, growth, where people invite people in. But another speed of compounding was engagement. Like, what is the kind of thing that causes people to say, ooh, my friend Chris posted a picture. So I get notified. I look at the picture, I like the picture, then Chris gets notified because Reed liked the picture, and Chris comes back to add in and respond to comments. And then everyone goes, oh, there's no comments on the picture. And that kind of viral loop of engagement also became a, well, how do you get people engaged in your services? Because they participate in the network of communication and connectivity, which is so key. And obviously the services that have done that, the biggest scale are Facebook and Instagram, but those are all of those services, like deploying viral loops as a set of tactics. And part of the reason I highlight this is that every so often, when you get to what is a strategy, it's a tactic. That's so good. Your strategy is I'm using the tactic. Tactic will get me in that direction, and I'm just going to apply that as much as possible in order to get there. And sometimes that's what the strategy is. I'll close with my very last one, which also comes from Masters of Scale, the Marissa Meyer episode, which is part of the idea is to show how many different things you can actually apply strategies to that can create a differential edge for your business. A differential edge to your scale, a differential edge to acquisition of customers. Differential edge to capital, differential edge to your product or service. And this one is a strategy, but less well known. And the Marissa Meyer episode was, if you can't find your stars, make your stars. And the idea was they were trying to figure out how to hire the right kinds of product managers into Google. And Marissa came up with the observation that actually, in fact, their product managers were all people who are fresh out of computer science and kind of detailed technical school that they trained to be product managers. And so she went to her boss, Jonathan Rosenberg, and she said, please let me go create an APM program. And the APM program became one of Google's central things, where they would get super high young, talented people to come in, be responsible for these amazingly high scale products. You know, search Gmail, you know, all of these things that kind of really mattered and then would grow into the product managers that would grow Google now, Alphabet in the future. And so she had a whole strategy, a strategy of recruiting, you know, how she'd find people, a strategy of onboarding, a strategy of development, a strategy of integration into Google, a strategy by which the benefits would hit Google and that the whole thing would work. And it's one of the places where they architected that strategy and succeeded. And that gave them a massive competitive differentiation against a wide variety of other competitors that didn't have the same speed of loop of how new product managers would learn the new products of the Internet and actually understand which things mattered and which things didn't in succeeding in the field.

Now, I'm sure that the people who are listening are thinking to themselves, wow, I really want to learn from some of these master strategists. I would love to learn from people like Reid. Not everyone necessarily has the same access to people that you do. How should entrepreneurs think about learning from the strategists that they really admire?

Part of the reason why do podcasts like this one or Masters of Scale is to try to make that information as available to entrepreneurs everywhere around the world. We also have a reason why, Chris, you and I did the book, of course, with blitzscaling. And if you looked at Masters of Scale as an example, each episode is essentially a simple frame of strategy. It's a here is something you can compose a set of tactics around. And by the way, this particular set of tactics in this particular company was one of the strategies that made this company successful. That's essentially the kind of drumbeat of Masters of Scale. Now we also, of course, do podcasts like this one, where we answer questions that come from people and that's part of the reason why we publish Blitzscaling.

So, once again, Reid, thank you so much for taking time today to talk about strategy. Just to recap as we went through it, strategy means you're stacking up these tactics in order to change the world, in order to achieve a goal, while thinking about things like risk. As you heard from Reid, one of the ways you can really develop your aptitude for strategy is to actually indulge your desire to play games, because this is a way to get you to really practice thinking about the situation, practicing that metacognition instead of just blindly following rules, understanding what game you're playing. And finally, we talked about some of the strategists and strategies that Reid really admires, from Brian Chesky at Airbnb to Mark Pincus at Zynga and Marissa Meyer over at Google. And one of the things that we really like to point out is that podcasts like this and like Masters of Scale are great ways to learn from some of the great strategists and strategies around you. So thank you again for tuning in to this particular interview with Reid Hoffman. Any final thoughts?

Reid, part of the key thing when you're thinking about strategy, and we'll get this in the next podcast, is thinking about competition, because is your strategy good enough? Well, it depends a lot on what your competitor strategy is, but we'll return to that. Thanks for listening. This is Reid Hoffman, partner at Greylock Partners and host of the podcast Masters of Scale and co host of this podcast. To get this podcast every week, subscribe to the Gray Matter podcast on itunes or wherever you prefer to listen to podcasts. If you have any feedback on any topics we discuss today, including competitive strategy, major threats and globalization, or any questions you'd like to ask in the future, Tweet us at greylockvc or reidhoffman with AskRead or, of course, post on LinkedIn. Chris, Shay and I go through the questions to select the questions we answer on this podcast. Have a great rest of the week.