Reid Hoffman on How to Be a Great Founder


Reid Hoffman (born August 5, 1967) is an American internet entrepreneur, venture capitalist and author. Hoffman was the co-founder and executive chairman of LinkedIn, a business-oriented social network used primarily for professional networking. He is currently a partner at the venture capital firm Greylock Partners. On the Forbes 2017 list of the world’s billionaires, Hoffman was ranked #631 with a net worth of US$3.1 billion. (source: wiki)

In 2014, Reid took part in a Y Combinator lecture series entitled, “How to Start a Start Up”. Keep in mind he has a technology focus, but I found his lecture below to be very insightful. I’ve also transcribed the lecture portion [up until 27 minute mark] and broke it up by questions which I think you might find helpful.

Let's start with the perception of what a great founder is. Classically, this tends to be Steve Jobs, Bill Gates, Elon Musk, Mark Zuckerberg, Jeff Bezos. It's an image of founder as superwoman or superman who has this panopticon of skills. I'm not going to use the word panopticon because I'm here at Stanford. It's things like ... I know how to do product-market fit. I'm great at product, I'm great at strategy, I'm great at management. I can fundraise. I can do all of these different skills. Part of what you're looking for in a great founder, in the kind of theory of the founder as superperson, is I'm looking for someone who is awesome at all these things. They are well rounded, they are diverse, they can bat on all skills.

Part of how I found this kind of emphasized in the beginning of my own entrepreneurial journey … As I remember, reading an article that said, “Bill Gates, who is smarter than Einstein,” right? You’re like, “Well, look, Bill Gates is really smart and is very accomplished but I’m not quite sure “smarter than Einstein” is actually a phrase that even Bill would want to be actually next to.” It’s partially because I think it’s this image of founder as superperson, which is that a great founder is someone who can do anything, jump over tall buildings in a single bound, all of these sorts of things. The reality is a founder is someone who deals with a ton of different headaches. No one is universally superpowered.

Generally speaking, you hope to have a couple of superpowers, some things that are a unique edge to you, some things that are unique to the problem that you’re trying to solve, some things that may help you give an edge, because actually competitive differentiation and competitive edge is super important. It’s not actually, in fact, a function of genius and, matter of fact, frequently, t’s very hard to tell the difference between madness and genius because usually it’s the results that play out, and, sometimes, when you’re dealing with uncertain environments, you may even be genius and later be thought to be a mad person, or you may be a mad person and you turn out to be lucky and you’re later thought to be a genius. It’s actually kind of a challenging set of how do you think about these sets … What is the whole set of skills? When us mere mortals come into this battle, what is the right way to think about it?

When I thought about this question of how is one a great founder, part of what you get to is … Actually, this is probably the slide for people on … This may have been a suboptimal choice for people on video. It’s like these are all skills that are super important. Things are all things that you say, “Well, okay, this is really, really important to do and you must, in fact, actually do this well.” It begins to look like a superhuman task. What I did is I decided to take a subset of these and focus on some of the interesting things to think about what is it that actually makes a great founder? Because it’s actually not that you score 10 out of 10 on all these, the entrepreneurial Olympiad.

[3:50] How should I think about my founding team?
Let's start with team. One way to kind of, I think, talk about exploding the myth of the super founder is that actually, in fact, usually it's best to have two or three people on a team rather than a solo founder. It's not to say solo founders don't actually play out, and they can successfully, but, most often, two or three people is actually, in fact, a much better ... When I look at these things as an investor, I say, "What is a good composition of a project and founders that are likely to succeed?" It's ... Usually, there's two or three of them.

The reasons are, because, for example, we’ve already talked about the fact that there’s this very broad set of skills, there’s this whole set of questions about how you adapt your company in order to be successful, and if you actually have two or three founders, you have different skills, you can compensate. By the way, everyone has weaknesses. You can compensate for each other’s weaknesses. You can … In the diversity of problems that you’ll encounter as a founder, that you can actually attack them.

One of the things that I suggest when you look at, essentially, a founding team is to have a real high preference for having co-founders, having a high degree of trust with those co-founders, because one of the things of … By the way, part of the whole entrepreneurial thing is there’s lots of ways to die. One of the ways to die is you get a year down the road with your co-founders and then you’re going through a messy divorce. That is not always but frequently fatal.

[5:40] Where should I locate my startup?
The next thing is location. Frequently, I've heard told to me, it's, "Oh, Silicon Valley aggregates all of this super talent," which it does in terms of what actually in fact ... The reason why Silicon Valley startups are so successful is because all of these great people ... Immigration, which is hugely important for talent, and founders and everything else immigrate here. That's part of the reason. Now, it's actually, if you think about it from basic math, even if you take something that Silicon Valley is super strong at, which is essentially software skills in the last two decades, not all of the great software people move here. Not all of them can move here. There are many of them in various other parts of the world. So why do I put choice of location as one of the things that comes down to thinking about whether or not you're a great founder?

Well, the reason is is because what great founders do is seek the networks that will be essential to their problem and their task. They realize it isn’t just about, “I am superperson, I can do this anywhere. I can do this in the Antarctic,” et cetera. It’s … In order to be successful, I have to go to where the strongest networks are for the particular kind of problem or the particular kind of thing that I’m doing. Silicon Valley, by the way, is super good at some kind of tasks, some places that you essentially try to solve certain kinds of problems, but it’s not good at all of them. Let me take two examples.

One is Groupon. I don’t think Groupon could have ever been founded here, even though it’s a software product. It actually even generates a network, which obviously a lot of the great networks are here, and uses a kind of internet technology as a mobile product and everything else, all of which we have a lot of great skills here in Silicon Valley. The networks are really good for this. One of the things that’s central for Groupon, for its early days, was having massive sales forces. Massive sales forces, strengths and weaknesses of networks, tend to go together.

Silicon Valley tends to be pretty adverse to plans that involve, “Oh, we’re going to rent a 25 story building, and, in 20 of those stories, we’re going to have floors of salespeople, and that’s how we’re going to get our thing going.” That kind of plan here tends to not get a lot of interest, tends to get a lot of criticism, tends to not have talent aggregate to it, tends to have financiers talk about things like capital efficiency and network effects and other kinds of things that are key here. It’s actually not a surprise that actually, in fact, Groupon was required to be actually in Chicago, which is really good at this, as a way of actually kind of getting going, showing that even software startups can be in other places.

Even … If you begin to think about it, you say, “Okay, well what kinds of other kinds of startups would someone be an idiot to move here to do?” Think of someone doing a fashion startup. Not fashion a la Poshmark, which is a mobile marketplace, et cetera, which are a bunch of things that are good here, but like I’m designing a new fashion company and I’m going to come to Silicon Valley to do it. That’s actually not such a great idea. That’s not to say … The fashion company might be a great idea, but you want the networks that support what you’re doing. Part of the reason why, “Where should I locate my startup?” is a test for thinking about, “Am I a great founder?” is because part of what happens when you’re actually founding a company is you’re going, “I will go to where is successful for this to be.”

The metaphor that I frequently use for entrepreneurship is jumping off a cliff and assembling an airplane on the way down, and the reason is because it’s hard, it has a quasi-mortal exit by which you’re default dead, and so you’re taking every possible chance to actually win. Great founders go, “Look, I’ll move to what the network is.” That network is … This graphic is frequently Silicon Valley, but, for tech startups, for mobile, for networks, for marketplaces, this is a really good place to do it. For a bunch of other things, you should think about whether or not it’s a different location.

[10:00] Should I be contrarian?
Now, here's something that ... You know, it's very en vogue, very conventional, to say you're contrarian these days. Let's talk a little bit about what contrarianess actually in fact is. It's actually pretty easy to be contrarian. It's hard to be contrarian and right. In particular, when you're thinking about, "Is my idea contrarian or contrarian enough?," it's, "How does a smart person actually disagree with me?" If you can't think of a smart person who isn't ignorant or just crazy or something else, but is a smart person who is somewhat expert in this thinks that you're idea has some serious challenges, then it actually isn't contrarian? Contrarian is always ... Actually, this is one of the things that Sam and I talked about at startup school, is contrarian is actually relative to an audience. When you want to be ... When you're thinking about contrarian in terms of a really good contrarian idea, it's like, "Okay, what would other ..." Say it's consumer internet. Could consumer internet people think it's actually in fact not yet a good idea?

Part of when you think about contrarian is to say, “Okay, what’s the way that … What do I know that other people don’t know?” It isn’t just that, “Oh, I’m brilliant and other people aren’t and that’s reason my contrarian thing is right.” That’s a very bad test. Might it happen to be true? Of course, lightning could also strike you in the field. Think a lot about what is it that I know that other people don’t know? For example, in the very early days of LinkedIn …

Part of what I advise all founders to do is go talk to every smart person who will talk to you and give you feedback. With LinkedIn, I walked around and said, “Here’s my idea. What do you think?” Two thirds or more of my network, including some of the very very smart people, all thought I was nuts. The reason why I thought I was nuts was because they said, “Look, it’s a network. It’s only valuable with a bunch of people in it. First person, no value. Invite second person, second person, first person, no value for either of them, they already know each other. When do you actually begin to deliver on your use case, which is like 500K to 1,000,000 people? You’re never going to get to size. It’s never going to grow.”

Now, what I knew that the critics didn’t know was that I could think of a set of different ways by which people would say, "Hey, look, it’s pretty easy to say, “Look, I believe in the vision of this,” or, “I think it’s interesting,” or “I think a product like this should exist,” or “I’m willing to play around with it,” and I can leverage those sets of interests to grow the network to get to enough size that you could begin to deliver on the value propositions which LinkedIn had. That was the specific thing that I knew that the critics weren’t thinking about. When you think about being contrarian, you have to think about how is it that smart people disagree with me? They disagree with me from a position of intelligence, and there’s something that I know that they don’t know that actually in fact will play out to be true. In this case, in general, as a founder, it’s good to be contrarian in the real sense, and right.

Now, the other last part on a contrarianist is to think about … There’s lots of different ways to be contrarian. For example, a frequent one will be, “Oh, yeah, that’s a good small idea,” but actually it’s not small, it’s large. Or, actually, in fact, you can assemble the talent. Or, while most consumer internet startups tend to be… For example, here’s another LinkedIn example, tend to be only successful if they’re rocket ships. Actually, a gradual compounding curve can actually be very very valuable. LinkedIn never had its rocket ship moment. It was kind of compound year by year, but that, in a consumer internet, tends to be atypical to the pattern.

[13:30] When should I do the work versus delegate?
Here, you begin to get to a bunch of sorts of problems that essentially founders run into, which is like, "Well, should I be doing the work or should I be recruiting people and delegating the work?" Classically, the answer to this is, actually, in fact, you need to do both. In fact, not only do you need to do both, you need to do sometimes one at 100% and sometimes the other one at 100%, and sometimes, even though this is not so good at math, both at 100%. What you'll see is this is actually classic when you begin thinking about what is a great founder, is you navigate what is apparent paradoxes.
[14:05] Should I be flexible or persistent?
Another one that I frequently talk about is you've got to be both flexible and persistent. The reason for this is entrepreneurs are frequently given the advice to have a vision, stay firm against adversity, realize that you have this vision that is contrarian of what other people think, and just stay on track, get through the difficult times, and get there. The other piece of advice, given with equal vigor, is listen to data, listen to customers, pivot, be flexible. Part of the thing that this comes out to being, in terms of being a great founder, is to say, "Well, when should I be persistent? When should I be flexible?"

The vehicle that I most often use for this is, “You should have, on a project you’re doing like a company, an investment thesis that essentially says why you think, possibly contrarian, why you think this is potentially a good idea.” It should include what you know that you think other people don’t know. Then, as you’re going into the battlefield, you go, “Am I in fact increasing confidence in my investment thesis or decreasing confidence in my investment thesis?” If I’m increasing confidence, then, oh, stay on track, be persistent. By the way, sometimes even with adversity, your confidence can increase.

If it’s decreasing, that doesn’t mean jump out. PayPal, LinkedIn, Airbnb, a whole bunch of startups I’ve been a part of, have had months where you were like, “Oh my god, this … Why did we ever think this was a good idea?” It was kind of a valley of the shadows moment. For example, in PayPal, it was August 2000. We were burning $12,000,000 in one month. The expense curve was exponentiating. We had no revenue. Decrease in confidence. However, we said, “What do we do in order to fix that?,” and that gives you your immediate action plan.

[15:57] Should I be confident or cautious in my vision or belief?
Another one is should you have belief or should you have fear? Should you essentially go, "Well, no, I have this vision of the way the world should be and I should ignore everything else and I should just go at that?" Well, again, part of what being a great founder is being both able to hold the belief, to think about where it is you want to be doing and want to be going, but also be smart enough that you're essentially listening to criticism, negative feedback, competitive entries, where you're kind of going, "Okay, is this changing my investment thesis? Is this changing what I'm planning on doing?" It doesn't mean you lose confidence. You have the confidence, but you also essentially have the peril.
[16:40] Should I focus internally and build the product, ignore the world, ignore competitors, etc, or focus externally and meeting people, gathering expert intelligence, etc?
Again, in this kind of thing of how do you put these two things together, should I focus internally, build the product, ignore the world, ignore competitors, et cetera, or should I focus externally? Should I be recruiting, should I be meeting people, should I be gathering network intelligence? Again, the answer is both. The reason why I'm focusing on these kind of, "It's both rather than either/or," is because part of what makes a great founder is the ability to be flexible across these lines, to sometimes be 90% one way, sometimes be 80% the other way, be executing the judgment on what does the current problem look like? How is it that, when I'm trying to solve this, that I should say, "This is what we should be doing," and how should I be dividing the work?
[17:26] Should I work by vision or by data?
Part of when you think about these is you say ... This is another one that's kind of classic, is people say, "Well, I'm completely motivated by data. It's what customers say. I have the user groups. I've ..." A lot of entrepreneurial methodologies, lean, other kinds of things we've talked about. It's like, "Gather the data, be guided on the data." Well, actually, in fact, data only exists within the framework of a vision that you're building to a hypothesis of where you're moving to. The data can even be negative and you can think, "Well, actually, in fact, this negative data means that I need to change or alter the way that I'm thinking about something, but I actually keep on a specific vision about what I'm doing." By the way, sometimes even when you have that specific vision, you don't necessarily actually ... You never end up at that big vision that you were thinking about.

For example, at PayPal, we distributed these t-shirts that said, “The new global world currency.” Well, actually, in fact, one of the … I know Peter has been here. One of the jokes I told Peter was, “Actually, we do have this new world global currency. What we’re trading in is dollars. You may have heard of it. It’s existed for a while. We’re essentially a master merchant for that.” Now, of course, this prestiges what might be happening with Bitcoin, although there’s the whole nother topic there.

However, the key thing is that vision of saying, “We’re creating kind of a universal network that allows anyone to pay, anyone to become a merchant, to bring the electronics into the speed of commerce at any business that is being transacted.” That vision kept a true north, [inaudible 00:18:57] as we say, “Well, first we think we’re going to have a banking model. Then, we think we’re going to have a debt model.” “Oh, no, we’re actually going to have a master merchant model.” How does that actually play out? You’re always combining the vision and the data, and the data is within the framework of a vision. Sometimes, of course, what you learn changes your vision.

[19:14] Should I take risks or minimize risks?
Now, this is one of the ones that I actually think ... We saved this special picture for one of the ones that I actually think is quite key, is that, normally, entrepreneurs, founders, are thought about as having ... The risk takers, right? Whereas everyone else cowers in fear from this notion of risk. They boldly go out. Now, that's true. You have to be a risk taker. You have to be thinking about how do I make a really coherent bet on risk because, in fact, the only really big opportunities, the only contrarian opportunities smart people disagree with you on, happen to be ones that have risk associated with them.

On the other hand, part of the skillset that, when you’re beginning to apply how you think about risks as an entrepreneur, is you’re beginning to think about how do I take intelligent risks? How do I take a focused risk that, if I’m right about that one thing, then a bunch of other things break my way? Once I start doing that, I try to figure out to make my on-shot possibility as high as possible, e.g. how do I minimize other risks? How do I, essentially, take this risk in an intelligent way that doesn’t just go, “Oh, yeah, risk to the wind. Who cares? Let’s go.” This kind of combines that … This image, which I think is the best of the images we’ve found for this yet, is kind of this sense of how to think about it.

Now, back to what I was saying in terms of having an investment thesis, part of having an investment thesis is you chart it out. It’s kind of a list of bullets. You say … For example, in early LinkedIn, it was like, “Look, everyone is actually going to be benefited by a public professional network. Everyone will realize, including companies, that it’s better to have it play out this way.” The initial set adoption will come from essentially people who were visualizing the role willing to play with it, and then eventually the mass market will come on as they begin to have a network that is already delivering a value proposition to them.

That’s what kind of an investment thesis can look like. Then, you’ve got economics, so initially recruiting and then broadening other things. You have that investment thesis, and you say, "Is my investment thesis increasing or decreasing in confidence? Do I think that the data that I get from the market, when I talk to smart people, how does that change my confidence in it? This is actually how you essentially minimize risk. For example, very early days in PayPal, part of what happened is they said, “Oh, okay. Well, we’re going to do cash on mobile phones, we’ll do cash on Palm Pilots because it’s really easy.” We actually realized the cash on Palm Pilots wouldn’t work, even before we launched the product, because …

Basically what happened is I went in and said to Max and Peter, I said, “Look, here’s our challenge. Our challenge is we’re …” Oh, this room probably doesn’t remember what Palm Pilots are. They were the early PDAs. We lived in what was Palm Pilot central, and the whole use case was splitting the dinner tab and how many people … If everyone at the table would have a Palm Pilot split your dinner tab. Zero to one in every single restaurant. You could … Even just by thinking it through, you realize the direction you’re on is going to hit a minefield and you need to pivot. That’s when Max Levchin came up with the idea saying, “Actually, in fact, we could sync by e-mails. We could have e-mail payments as the backbone of this,” and we’re like, “Oh, that’s a good idea.” Of course, that’s what the whole thing kind of pivoted into. That’s part of thinking through, minimizing the risks, as you’re actually executing.

[22:48] Should I focus on the short term or long term?
Here's another one that's kind of classic, which is, well, should I have this longterm vision or should I be solving local, near term problems? Again, the answer is both. It's these paradoxes. The question is you jump between them. You should always have a longterm vision in mind, because, if you actually completely lose your directions, eventually you'll find yourself in some field there's not a good path out of. But, if you're not focused on solving the problem that's immediately in front of you, you're hosed. Part of the question about how you put these things together is you say, "Okay, short term, what's the thing that I need to be doing today? Have I made progress today? Have I made progress this week, but is it largely on path?"

I’ll give you an example of how this plays out in terms of strategy. People frequently think project strategy is fundamental to startups. I have a product idea, that’s a thing, I’m a founder. Actually, in fact, the next level down on strategy is usually product distribution, whether it’s consumer internet or enterprise or anything else, because, actually, in fact, no matter how good your product is, if it doesn’t get to customers, you’re hosed. Usually you have to have product distribution as more fundamental than what the actual product is.

The one below it is financing. The reason why it’s financing is, if you run out of money and the whole effort goes away, even if you have a really good idea, it doesn’t work. Frequently, when you’re executing on a good strategy, you’re actually, in fact … When I’m raising money this fundraising, I’m thinking about the next fundraising. I’m thinking about how I’m set up for it, I’m establishing relationships that would be key to that. I’m not executing like, “Oh, the only thing that matters is I get to the next fundraising,” because you have this business that you’re building, but I’m thinking that as a core strategy in terms of how I’m executing. Frequently, you’re thinking about, “Okay, how does my product distribution work such that the financing works well?” That’s kind of how you architect these things together.

[24:40] How do I know if I may be a great founder?
How do you know if you might be a great founder? Well, it's ... You should have some superpowers. It's, generally speaking in software, useful to be a good product person. It's useful to have good skills about leadership, of bringing networks in, of persuading people. It's useful to be able to ... This is kind of the most fundamental, is recognize whether or not you're on track or not, to have both that kind of belief but also paranoia about am I tracking against my investment thesis. When you do that the right way and you're learning and you're assembling people and you're assembling networks around you, that's, generally speaking, how you end up being a great founder.
[25:25] How do I evaluate myself as a founder?
Now, classically, and I deliberately put up five white male pictures, because classically you have a kind of, "These are the iconic founders," but, in fact, founders can be very diverse. They can be extraordinarily talented at different areas because there's different kinds of entrepreneurial companies. There's different kinds of problems that they're trying to solve. I don't just mean diversity in terms of classic gender, race, et cetera. Diversity in age, diversity in experience. Jack Ma was a teacher before he got into this. That's the kind of thing that you should think about. The question is how you cross uneven ground, how you assemble networks around you, how you get people to assemble this ... It's a constantly changing problem to face when you are trying to found a company.

I think the thing that I was trying to get people to think about with this is to say there’s not one skillset, there’s an ability to learn and adapt, an ability to constantly have a vision that’s driving you but to be taking input from all sources, and then to be creating networks around you. That’s essentially what makes a great founder. Your ability to do that while crossing uneven ground in a fog, which is kind of the way that entrepreneurs … You don’t really know. Like, “Did you always know this was going to work?” No, unless you’re crazy. Although, sometimes crazy works.

If you enjoyed this article, you should become an Intelligent Fanatics member. As a member, you get our current and future Intelligent Fanatics books and case studies for free, as well as the ability to participate here on our community. Join Us.