World Changers

The way I usually express that is, if you are not embarrassed by your 1.0 product release, you’ve released too late. With my first start-up, Social Net.com, it took us nine months to launch the first product. That was a disastrous mistake. We wanted to have all the detailed functionality right away, including social controls so people could decide to connect or not with the people in their networks. We wanted everyone to “Ooh” and “Aaah” about how terrific the product was. We wasted a bunch of time and it put us months behind on more important problems that needed to be solved, such as how to get our product in the hands of millions of people.

As it turned out, with Linkedln we needed to do more work to get the viral distribution working. In April of 2003, my four cofounders, were Eric, Konstantin, Jean-Luc Vaillant, and Allen Blue, said, “No, we’re not ready to launch. We need to put in this feature to allow users to broadcast their network. We don’t think people will know how to use the site unless that feature is there.”

I said, “Okay, look, will the site function without that feature? Can you sign up, invite people, can you do a profile, search for people, and communicate through referral to people on the site?” They said, “Yes,” and I said, “We’re launching that. If it so happens that the very first feature that we need to do afterward is contact finder, we’ll do it then.” As it turned out, we had some bugs in the site we didn’t know about so we fixed those. And the second was that virality wasn’t what we were hoping or expecting it to be. So we had to work on that.

The top question people had when they signed up was, “Who else do I know is here?” And we figured out that if we could get them to upload their address book, we’d be able to show you exactly who you know is here. If enough people did that, it would make it really easy to send out other invitations. Creating those two things was important to our success. And we had to work on those right away.

I also learned the importance of bringing in high-powered generalists because they help you do all kinds of things. In an early stage start-up, there are all these different tasks you have to do and all different ways you can die. You need to get office space. You need to set up a medical plan. You need to work on a marketing plan. Amex calls you and wants to do a business development deal. It takes a while for you to be a fully staffed company, so having generalists is really key. At SocialNet, I tended to hire people with just the expertise for the job. What I realized since then is that hiring people who can adapt very fast and do a wide variety of things is really critical to navigating all the land mines in an early stage start-up.

How did your early plans match up with how the business actually played out?

About a year ago, we won the Harvard Business School Entrepreneurial Company of the Year Award and Mark Kvamme, who was the Sequoia partner who invested in us in 2003, really wanted to do the introduction. As it turned out, he did this great introduction. I had forgotten that when we did the Series A investment with Sequoia Capital, we had presented a plan to break even but I decided that it wasn’t a good idea. I said, “I think we should totally focus on growth, so we are going to put off our business plan by a year.” Mark thought that made sense so we did it. At the HBS dinner what he said is that our plan—what our business would be, how our business model would work, how we would make money, and what the aggregate sums per year would be—were basically on target within 10 percent three years out.

It surprised me because when you are living it, you’re just running through the minefield. You’re solving this problem, moving on to the next problem. And you’re not really thinking, “Oh yeah, what financial model did I give my investors?” You never go back and ask yourself that question because all you’re trying to do is build up the business as soon as you can. And the model you gave them wasn’t a proof. It was, “Look, I think we could do this.” But we pretty much hit our numbers. We had premium subscriptions and an advertising and job listings business model. We didn’t have the corporate side yet. We ended up building that earlier than expected because we had much more demand from corporations to use our services than we expected. Lots of pieces of the business were conceptualized in the very beginning.

Reid, I’m sure it wasn’t smooth sailing. No start-up ever is. So what were some of the major hurdles you had to overcome?

The first crisis was not unexpected but real. Our growth rate was not what it was expected to be and if we keep on this growth rate we are going to die. So we immediately focused on what was keeping people from signing up and what do people want when they are here. And we found that they weren’t signing up because they thought they could do it later and what they were most interested in doing was knowing who else is there. Those things called for a virality fix.

The other thing was we went through the whole Series A without a dime of revenue, just focusing on growth. It took us 464 days to get to one million members. It’s now more than 100 million. Despite the fact that we thought we had launched a pretty unique idea, there also were a number of different professional networks. There was Spoke.com, Zero Degrees Network, Visible Path, and some other ones, too. They were all doing the professional network idea. So to get it to one million members and breaking through that was really key. We had a bit of a crisis when we discovered that Spoke was also trying to do a public and private network in the professional space. But none of them got nearly the traction we got.

And you have to attribute that to what you learned earlier: getting the product out as quickly as possible and racing to get to one million members, right?

Yep. Doing the things that got people engaged with sending invitations, accepting invitations.

The rules for success in the consumer Internet space are very different than they might be in other entrepreneurial areas. Give us a sense for some of the key differences.

There is high-impact business and there is a successful business. For the latter it’s simple: You find the market where you can provide a competitive product. For a high-impact business in the consumer Internet space, it’s different. With extraordinarily rare exception, you need to think about massive scale when you get to the consumer Internet. One of the errors in the Internet boom and bubble was that some people thought the value of an online banking customer has the same value as a regular Wells Fargo customer. That’s not true. So you really have to get to scale in order for it to work. And the second thing is unless it is a SAS business or an e-commerce business, you need to essentially have a strong user acquisition model that is not paid. There’s no other way to get to millions of members. If you have to buy your members, it’s just death.

How has Linkedln changed the way people look for jobs or companies recruit employees?

Hopefully we’re just at the beginning of all this. There’s now a wide swath of people who believe it’s useful for them to have a professional identity online. So you can be found by a long-lost colleague or someone looking for a candidate for a great job opportunity or a start-up entrepreneur who is looking for someone for their advisory board or someone who wants you for consulting. And now there is a centralized place to be found. And what’s more, it doesn’t look like I’m out there shilling for my services because I’m there with my colleagues and my network.

That’s one major trend that Linkedln has caused naturally to happen. If someone Googles you, what do you want them to find? You want them to find your professional identity first. And then what we have been learning the last couple of years is how do you stay up-to-date? How do you stay connected with what’s going on with your company, your industry, and your professional space? And that is part of what we’re doing with the Twitter and Linkedln mashup as part of LinkedIn Today, where we show members the most shared articles relevant to them.

You seem to have timed your public offering exceptionally well. Was there a strategy to that?

At some point, you’ve got to go public for both employees and investors in venture-backed companies or get purchased. So it became a question of when was the best point for the company to maximize the value in going public. About a year ago, CEO Jeff Weiner and I were talking about it and we thought next year—2011—would be the year when lots of companies would line up and go out. We thought it would be better for us to be at the beginning of that pack and not in the middle of that pack. When you are at the beginning, you get a lot of attention from investors. And you can tell your story more clearly—that you’re investing money back into the company to grow. We got out early and now lots and lots of people are going out. We were able to tell our story more coherently to the investment bankers because we started the trend.

Reid, you’re a prolific angel investor in Silicon Valley. You see a lot of business plans and a lot of ideas. What would you say are the most common mistakes entrepreneurs make in pitching you?

Some of this is obvious. You better present a good plan. You need to explain why the market you’re going after is big. Why do you actually have a good competitive edge on that market? How can a small player do it? How is the team you assembled an asset to getting your plan achieved? A lot of presentations just fail on those. Let’s say you have all that. Then, what are the things you need? Well, one of the things I exhort entrepreneurs to do is to clearly describe the risks. For any sort of venture, there are risks. If you don’t describe them, you are either lying to your prospective investors or you are dumb because you think it’s completely risk free. That is not a great way to establish a partnership. Investing should be considered sort of a financial cofounding. So you want to have a robust, honest, transparent interaction with your partner.

When you are doing a start-up, you are necessarily going into a difficult, stressful period. Every start-up has a valley of the shadow moment. It’s when everybody—investors and founders—are saying, “Why did we think this was a good idea?” You want someone who will be a good partner with you in those times. So you really need to make sure you select your partners well. Entrepreneurs frequently maximize price or minimize dilution as a function of that. And actually what you are really trying to do is maximize success. If you choose a partner on the basis of maximizing price or reducing dilution you can put a heavy risk factor on the business.

In fact, in each of the four rounds of financing I did at Linkedln I could have gotten a higher price. But I was trying to maximize value by building a coherent, effective team. Your board is as important a part of your team as your executive staff. Let me give you one good example. When our team was coming up with features to generate revenue for the site, they thought up a pretty cool product. It was Linkedln Answers (which allows users to pose questions and get them answered by other members with expertise in the question asked). We later launched it as a free product.

They said, “This is what we think we should charge people for: getting business intelligence from the network. We think we can get money for that.” So we presented it at our board meeting and David Sze, our board member from Greylock Partners, asked the really basic question: “So you are both launching a new feature that you are hoping to get engagement from and you are hoping people will pay for? You have a 2X problem there. It’s a feature they haven’t yet been using and they are going to have to pay for it. It’s a pretty big risk. If this doesn’t work, you are going to be scrambling to get revenue.”

We went back to the drawing board and decided not to do that product next. That is an instance where the board helped us avoid a mistake. We hadn’t started coding it yet. So I asked, “What are people using the network for?” And they were using it for people search. So the question became, “What is the people search product that would be acceptable to our network that you can have as paid?” At that time, the only way you could communicate with people was through referral. So if you could search everybody and be able to communicate with everybody that is a product people will pay for. So we built that and it was pretty clear that would get us to profitability.

Reid, you have a book coming out in February 2012 entitled The Start-up of You in which you argue that professionals need a new mind-set and skills to compete. What’s the core message here?

You need to be the entrepreneur of your own life. The idea for this came after I was asked to do the commencement address at my old high school last year, the Putney School in Vermont. The old paradigm of climbing up a stable career ladder is dead and gone. No career is a sure thing anymore. The uncertain, rapidly changing conditions in which entrepreneurs start companies are what it’s now like for all of us fashioning a career. Therefore you should approach career strategy the same way an entrepreneur approaches starting a business.

You can’t just say, “I have a college degree, I have a right to a job, now someone else should figure out how to hire and train me.” You have to know which industries are hot and what is happening inside them and then find a way to add value in a way no one else can. For entrepreneurs it’s differentiate or die—that now goes for all of us.

I basically told the students they have to act like their own entrepreneurs, and there are four principles to follow.

The first principle of entrepreneurship is you don’t just accept the world as you find it. You figure out how you want the world to be, and then figure out if you can do something to make it so. Entrepreneurs do exactly that—by inventing a product or service that they feel needs to exist.

For me, I realized that I wanted to create Internet services that helped people navigate their lives better. So I first learned the basic skills that I needed through working at Apple and Fujitsu, and then started a company as soon as I could. So I made myself into the person who could start Internet companies.

The second principle of entrepreneurship is to take intelligent risks. There’s a useful aphorism—“nothing risked, nothing gained.” By living, you take risks. So take them proactively. You can only achieve something of note if you take a risk. What I learned as an entrepreneur is to distinguish between “mortal” and “painful” risks. Mortal risks are those, when you lose the roll of the dice, you cannot play again. Avoid taking those risks except when you absolutely need to. “Painful” risks are risks where when you lose the roll of the dice, it is painful to correct. Taking intelligent risk is not avoiding risk, but choosing the right painful risks for achieving what you want.

Life is full of taking the right painful risks to achieve wonderful results. It ranges from asking an interesting person out on a date, to the decision on which college, what to major in, or what work to experiment with. Learn to relish these jumps and transitions that are part of life; the jumps of risk are how you get somewhere interesting. For me, I learned this principle by stepping out of the sequence of moving from high school at Putney to college at Stanford to graduate school at Oxford by finishing Oxford with no exact plans. At the time, it felt like all of my friends were moving on with their lives—law school, entering the workforce, and all with concrete plans. I felt that I was moving too slowly and my friends were leaving me behind. It took that transition, that risk of spending a while without any concrete plans, to realize that I should start trying to do things that I wanted to do rather than the academic path in front of me.

This leads to the third principle of entrepreneurship: taking the road less traveled. Normally, when people quote this Robert Frost poem, they mean self-discovery. And self-discovery is good. But here, I mean how you accomplish something interesting with your life. When you take the road more traveled, you simply wear the path down that many other people have walked. When you take the side paths, or make your own path, you have a much greater likelihood of discovering or making something very interesting. Entrepreneurs do this by jumping into the abyss and trying to create a new product or service, where they leave the security of a job with a steady paycheck for creating something new.

And the fourth principle of entrepreneurship is to plan for luck—both good and bad. It may seem paradoxical. How can you plan for the unknown? Actually, it’s rather simple. In terms of planning for good luck, you stay alert to opportunities that you find in your travels—and jump on them. And by the way, you are far more likely to find lucky opportunities on the road less traveled—which is an important part of the reason to choose the side or new path.