Many of you have asked for the transcript of our conversation, so you can find it below. More accurately, it’s a draft script, so all words from Reid and other CEOs are accurate, but mine were modified substantially in the audio version. I added a lot of stories on the spot (maybe 20 minutes) that are likewise omitted.
The new 6-10 questions from me to Reid (e.g. “What book have you have reread the most?”) are not included below, but you can find them here.
Enjoy the notes and links!
TIM FERRISS: Expect rejection. But learn from every “No.” As a founder you have to be resilient, you have to learn to weather rejection. It is a universal experience. And this clip, from the Masters of Scale episode “Beauty of A Bad Idea” brings that to life. It also gives you a taste for the show’s sense of humor.
KATHRYN MINSHEW: I had been turned down 148 times.
REID HOFFMAN: That’s Kathryn Minshew, co-founder and CEO of The Muse, a career development website that she pitched to investors 148 times—not that she was counting.
MINSHEW: There were literally days where I had a “no” over breakfast, and “no” over a 10:30 AM coffee, a “no” over lunch. Disinterest at 2:00 pm, somebody who left a meeting early at 4:00. And then I would go to drinks and feel like I was being laughed out of the room.
And when we finally raised our seed round, I went back and counted. It was both painful and gratifying at the same time, looking at all those names, and thinking, “I remember that ‘no,’ I remember that ‘no,’ I remember that ‘no’”—and they sting; every one stings.
HOFFMAN: Today, the Muse serves users in the millions. Kathryn raised $16 million last year—and her tale is the origin story of most great startups. So if you’re hearing a chorus of “no”s, you should look for other signs that you’re onto something. I believe the best ideas often appear laughable at first glance.
FERRISS: Most entrepreneurs hear a chorus of “Nos” as they get started. You have to expect it. And Reid says it’s actually a good thing. You don’t WANT everyone to say yes. Here’s why:
HOFFMAN: The first truth of entrepreneurship and investing is that the very big ideas are contrarian because the contrarian is part of the reason why a bunch of large companies and competitors haven’t already done it, why a bunch of other entrepreneurs haven’t already succeeded at it. And so that leaves the space for the creation of something—and to create something big, you have to have that initial space. For example, in the early stages of Google, search was a terrible way of making money in advertising, because advertising is time-on-site. And what does search do? It shuffles you off the site as fast as you can go. That’s not a good business model. So at Airbnb it’s like, “Someone’s going to rent a couch or a room from someone else? Who are the freaks on both sides of that transaction?” So all of these things have this kind of similar quality—very smart people will tell you, there’s no there, there.
FERRISS: So it’s actually a good thing to hear a lot of “Nos.” But how do you interpret them? Reid has a great way of describing the kind of “no” you want. Apparently, you want a “squirmy” no. He explains this with help from Tristan Walker. Tristan’s company produces the Bevel razor, which is designed for men with coarse and curly hair.
HOFFMAN: So how can you tell a truly bad idea from a bad-sounding idea? How can you be sure your ugly duckling could become a swan? This is the key: You have to pay attention to the quality, not the quantity of rejections. You want to see at least a teeny minority of investors squirm. You don’t have to get them to a “yes,” but you should detect some friction, as they reason their way to a “no.”
Tristan has a keen ear for this quality in his conversations. He can pinpoint, down to the PowerPoint slide number, the moment his audience stops paying attention.
WALKER: I had a slide in there—I think it was like slide 14—where I talked about Proactiv—the acne system—as a good analogy to what we’re trying to do. It’s the difference between Gillette and Bevel, as Neutrogena and ProActiv—it’s a system that solves a very important issue. And this VC looked at me—and I’ll never forget this—he said, “Tristan, I’m not sure issues related to razor bumps, shaving or irritation are as profound and big an issue for people as acne.”
At which point, I said, “I kind of understand what you’re saying, but all you had to do was get on the phone with 10 black men, and eight of them would have said, ‘This is a permanent thing I have to deal with.’ All you had to do is get on the phone with 10 white men, four of them would have said the same thing. Could have done it for women too, and you would get the same ratios.” So it wasn’t that it was a bad idea, or not as important—it’s just that that person was unwilling to acquire the context necessary to understand what we’re working on. That’s just laziness—and at that point, I can’t fix that. So I just move on until I find somebody who understood it.
HOFFMAN: Notice how quickly Tristan’s mind moves on to the next investor. When the quality of the questions drops, he knows, mid-pitch, that the conversation is over—the rest is noise. Those half-hearted questions are like the elevator music of the pitch process. It’s meant to pacify entrepreneurs. In fact, it grates at them. It also wastes their time. Tristan will tell you he prefers a hard “no” to a comforting “maybe.”
WALKER: Silicon Valley investors will tell you all the time, “We want to invest in people who can execute with some semblance of pedigree, chasing a significant white space and a big opportunity.” For us, it was like “Check, check, check, check”—and we heard 99 percent “no”s. How much is bullshit, right? And you’re just trying to say something that I want to hear, as opposed to telling the truth. And I wish that Silicon Valley would tell the truth a little bit more.
HOFFMAN: Tristan raises a really interesting question here. How much of this investor hemming and hawing is, well, bullshit? What’s really going through their heads?
As a partner at Greylock, I want to share what happens after an entrepreneur leaves the room, and an investor is left to mull over a crazy idea. It begins with the debrief of the investor’s partners.
If I’m presenting an idea to my partners at Greylock, and they all go, “That’s great! We should do that.” I’m like, “Shit. Here’s a bunch of hyper-smart people and no one’s saying, ‘Oh, watch out for this, or watch out for that.’” It’s too easy. The idea is so obviously good, I can already hear the stampede of competitors trampling over our hopeful little startup. On the other hand, you don’t want every person in the room to say, “Reid, you’re out of your fucking mind,” because then you’re wondering, “Hmmm, am I drinking the Kool-Aid in a very bad way?”
What you want is some people going, “You guys are out of your minds,” and some people going, “I see it.” You want a polarized reaction.
So take my decision to invest in Airbnb as an example. David Sze told me during the Airbnb de-brief:
Narrator: David Sze is a partner at Greylock Investment.
HOFFMAN: “Well, every venture capitalist has to have a deal that doesn’t work that they learn from. Airbnb can be yours.” And David Sze is a super smart VC; he invested in LinkedIn. He invested in Facebook. He invested in Pandora. He personally returned two-and-a-half billion dollars to Greylock’s funds. He’s as smart as smart money gets—and believe me, I weigh his objections carefully. If someone as smart as David disagrees with me, I worry.
But I also get excited—it’s an emotional roller coaster. And as this sort of emotional turmoil plays out in the background discussion, it’s hard to give an entrepreneur a hard “no.” The best ideas make you want to say “yes” and “no” in the same breath.
FERRISS: So you want to hear a “squirmy no.” Those are the kinds of “nos” that mean you’re on to something. But let’s be real: It’s never easy to hear “no”. In fact, it sucks. So Reid also asked a few entrepreneurs to talk about how they deal with rejection, and how they learn from rejection. This is from the Masters of Scale episode “Beauty of A Bad Idea.”
HOFFMAN: So you have to gird yourself for a string of rejections. Some entrepreneurs simply develop a thick skin. Others treat it like a normal part of their workday. You know, wake up, brush your teeth, listen to people crush your dreams. It’s a living.
But there’s another, more hopeful approach. Our producer, Dan Kedmey, talked with a number of entrepreneurs who pitched seemingly laughable ideas in all kinds of industries. Like Abby Falik, founder and CEO of Global Citizen Year. Her not-for-profit sends students abroad for a year of international service between high school and college. Back in 2008, she was struggling to get funding, and she turned to a leadership coach for advice. We asked her to share that advice.
ABBY FALIK: The “no”s are actually a gift.
HOFFMAN: You heard that right, a gift.
FALIK: And he said between now and when we talk two weeks from now, I want you to go out into the world and gather as many “no”s as you possibly can. It is your homework to be rejected over and over and over and over, and come back and report on it. And it ended up being the most important thing I could have ever done, and the most important advice I could have been given at that point.
HOFFMAN: The most successful entrepreneurs listen closely to the “no”s. They mine their rejections for clues. Kathryn Minshew, the founder of The Muse, got her share of rejections over the course of 148 “no”s she shared at the top of this episode. We asked her for the reasons that investors turned her down.
MINSHEW: “It’s a bit too early for us, but keep in touch.” “Once you hit 100,000 monthly active users, give me a call.” “This is a fool’s errand. It’s expensive. It doesn’t scale.” “That’s not very tech, that’s not a scalable platform.” “Aren’t you worried that you’re going to lose all your users once they turn 30 and have babies?” Or, “I get that women in New York and San Francisco love this product, but I think you’re going to really have a hard time finding women who care about their careers once you go outside of the coasts.” And I just remember looking at these people and thinking, “Do you know a lot of women?”
HOFFMAN: Kathryn is right to ask this question. She knows more about women than most investors, and she also knows more about her business. Entrepreneurs have to learn how to hold on to what they know through the arduous pitch process.
FERRISS: Hire like your life depends on it. It does. Hiring the right people can make or break a company. And this is a theme that comes up again and again with the founders on Masters of Scale.
FERRISS: Airbnb’s Brian Chesky personally interviewed the company’s first 500 employees. It was time-consuming, painstaking work, but Brian wouldn’t have had it any other way. Patience, he says, pays dividends.
CHESKY: And one of the most important decisions a startup can make is who they hire. Because who they hire becomes them. And so we interviewed people for core values. What this ended up, and that meant we spent like four or five months to hire our first engineer. Back then a lot of people thought we were crazy because time is of the essence when you’re a startup. You’ve said it’s like jumping off a cliff and assembling the airplane on the way down. Imagine jumping off the cliff, trying to assemble the airplane on the way down, and someone’s there to help you with the airplane, and you spend five months debating whether they’ll fit the culture.
Meanwhile, the ground is coming. That takes like real patience and some courage. The reason we did that though was because we thought in the high-class event we are successful, do I want to work with 100 more people like this? Because if I hire someone, they are going to interview the new people. And so we thought of hiring as this mechanism where, do I want to, if I could hire anyone in the world, would I hire the person sitting across me, and do I want 10 or 100 more people like them?
FERRISS: But if you launch a truly successful company, eventually, the hiring process has to scale. Eric Schmidt had a lot to say about hiring quickly, but not hastily. When he was CEO of Google, the company quadrupled in size each year, while maintaining super-high standards. He told Reid how he did it:
SCHMIDT: So the company was getting very large, very quickly. And I had suggested to Larry and Sergey that there was a problem with what I called “glue people.” And glue people are very nice people who sit between functions, and help either side, but don’t themselves add a lot of value. And I thought, “These are nice people, but we don’t really need them. We can have these groups talking directly.” And Larry looked at me and says, “We could solve this problem, if you would just review all the hiring.” And I said, “Larry, we can’t look at all the hiring.” He said, “Sure we can.”
So the company, of course, invented a number of hiring algorithms, which are used throughout the industry today. Many of them include pretty aggressive hiring interviews from peers, asking people to do work, and so forth. Ultimately, the judgment has a lot to do with whether the person is interesting or not. And so we would, for example, take a position that we want to hire rocket scientists because rocket scientists are inherently interesting. And in sales, we love to hire Olympians. Or Super Bowl winners, or football players—because of the discipline that they had in their lives as young people—men and women—to get to that point indicated that an extra set of discipline.
HOFFMAN: I want to acknowledge that most companies don’t have the option of hiring rocket scientists, Olympic athletes, and Super Bowl winners. But Eric does have more pragmatic advice for companies that can’t set the bar at Himalayan heights.
SCHMIDT: So today I would suggest that—and this has since been confirmed by many studies—that persistence is the single biggest predictor of future success. And so we would look for persistence. And the second thing was curiosity. What do you care about? The combination of persistence and curiosity is a very good predictor of employee success in a knowledge economy.
FERRISS: So persistence plus curiosity is one formula for hiring success. Mark Zuckerberg, the CEO of Facebook has another. Here’s what he told Reid:
ZUCKERBERG: So the single most important thing is to get the best people you can around you. When I look at my friends who were running other good companies, the single biggest difference that I see in whether the companies end up becoming really great and reaching their potential, or just pretty good, is whether they’re comfortable and really self-confident enough to have people who are stronger than them around them. I’ve adopted this hiring rule, which is that you should never hire someone to work for you, unless you would work for them in an alternate universe.
Which doesn’t mean that you should give them your job, but just if the tables were turned and you were looking for a job, would you be comfortable working for this person? I basically think that if the answer to that is “no,” then you’re doing something expedient by hiring them, but you’re not doing as well as you can on that.
There are all these things that Sheryl, for example, is just much stronger than me and that makes me better and makes Facebook better. And I am not afraid or threatened by that—I value that. That’s what makes Facebook good.
FERRISS: Of course Mark is talking about Sheryl Sandberg, COO of Facebook. And she has her own take on this rule …
SANDBERG: The lesson everyone talks about, but I really mean, is you really do want to hire people who are better than you are, and who are different than you are. This is where we talk about diversity. I don’t just mean racial, national, age, gender. All of that diversity is super important. In addition to that cognitive diversity, which you get from all those backgrounds, but also just personality diversity.
If you are a white male who likes to code and sci-fi movies, you probably don’t want your whole team to be that. I think about David Fischer. David Fischer and I have worked together at Treasury, at Google, and at Facebook. Personality types were just very different. I’m much more up and down. I will get nervous something’s not moving fast enough. I will be exuberant, and I will be down. Not David. David is absolutely calm. Over decades of working together, that balance has really been important, because sometimes I’ll look at David and say, “This is an emergency.” He’ll say, “No it’s not Sheryl, calm down.”
And sometimes I’ll say, “David, you’re not moving fast enough,” and he’ll say, “You’re right.” I think Mark and I have that too. We are very different. We are separated by—obviously, gender, 15 years, he’s my boss, he’s 15 years younger. Completely different personalities, completely different working styles—and I think’s that served Facebook well.
FERRISS: In order to scale, you have to do things that don’t scale. It may sound counter-intuitive. But in order to scale, you have to get your hands dirty. Hand-craft the core experience. Serve your customers one-by-one. And don’t stop until you know exactly what they want. That’s what Airbnb CEO Brian Chesky did.
On the first episode of Masters of Scale, Brian took Reid back to his lean years — when he went door-to-door, meeting Airbnb hosts in person. This clip we’re going to hear starts with Brian recalling a conversation he had in 2009 with Paul Graham, the founder of Y Combinator, who gave him some perplexing advice….
CHESKY: And he asked us, “Where’s your business?” And I go, “What do you mean?” “Where’s your traction?” And I go “We don’t have a lot of traction.” He goes, “People must be using it.” I said, “There are a few people in New York using it.” And he said something I’ll never forget. He said, “So your users are in New York and you’re still in Mountain View.” I said, “Yeah.” And he said, “What are you still doing here?” And I go, “What do you mean?” He said, “Go to your users. Get to know them. Get your customers one by one.” And I said, “But that won’t scale. If we’re huge and we have millions of customers we can’t meet every customer.” And he said, “That’s exactly why you should do it now because this is the only time you’ll ever be small enough that you can meet all your customers, get to know them, and make something directly for them.”
HOFFMAN: Brian and his co-founders followed his advice to the letter.
CHESKY: We literally commuted to New York from Mountain View. So we would be in Y Combinator for Tuesday night dinners and then Wednesday Joe and I would go to New York. We literally would knock on the doors of all of our hosts. We had their addresses and we say, “Knock knock. Hello. Hey, this is Brian, Joe, we’re founders and we just want to meet you.”
HOFFMAN: Now, it’s a little creepy to just knock on the door unannounced.
CHESKY: We needed an excuse to get into their home.
HOFFMAN: So they come up with an offer that hosts couldn’t refuse.
CHESKY: We’d send a professional photographer to your home and photograph your home. Of course, we didn’t have any money and we couldn’t employ photographers. So Joe and I, we’d show up at their door and they’re like “Wow. This company is pretty small.”
HOFFMAN: These home visits became Airbnb’s secret weapon. It’s how they learned what people loved.
CHESKY: It’s really hard to get even 10 people to love anything but it’s not hard if you spend a ton of time with them. If I want to make something amazing, I just spend time with you. And I’m like, “Well what if I did this, what if I did this, what if I did this?”
HOFFMAN: From those questions, a handcrafted experience is born.
CHESKY: We’d find out “Hey, I don’t feel comfortable with the guest. I don’t know who they are.” “Well what if we had profiles?” “Great!” “Well what do you want in your profile?” “Well I want a photo.” “Great. What else?” “I want to know where they work, where they went to school.” “OK.” So you add that stuff. And then you literally start designing touchpoint by touchpoint. The creation of the peer review system, customer support, all these things came from us literally—we didn’t just meet our users, we lived with them. And I used to joke that when you bought an iPhone Steve Jobs didn’t come sleep on your couch, but I did.
HOFFMAN: [laughs] Yes. Was there a particular experience that really stuck in your mind?
CHESKY: I remember we met with a couple hosts. It’s winter. It’s snowing outside and we’re in snow boots. We walk up to the apartment and we went there to photograph the home. And we’re like, “I’ll upload your photos to the website. Do you have any other feedback?” He comes back with a book, it’s a binder and he’s got dozens of pages of notes. He ends up creating a product roadmap for us, we should have this, this, this, this and this, and we’re like, “Oh my god this is our roadmap because he’s the customer.” I think that always stuck in our mind as, the roadmap often exists in the minds of the users you’re designing things for.
FERRISS: As Airbnb grew, Brian never stopped hand-crafting the user experience. At one point, to envision what Airbnb could become, he and his team imagined what he calls an “11-star check-in experience.” Only part of what follows was heard on Masters of Scale. For this show they gave us the complete, un-cut version of Brian’s thought experiment.
CHESKY: The core thesis is if you want to build a massively successful company, you need to build something that people love so much they tell each other. Which means that you must build something worth talking about. If you want to build something we’re talking about, you have to go back to things that don’t scale, and imagine like what a five-star experience would be. And presumably if somebody likes it, they’ll leave five stars out of five stars in the app. They’re satisfied to tell other people. The problem is that today if you leave five stars in the app like for your food or something you might not tell everyone you know.
If you want to build something that’s truly viral you have to create a total mindfuck experience that you tell everyone about. We basically took one part of our product and we extrapolated what would a five star experience be. Then we went crazy. So a one, two, or three star experience is you get to your Airbnb and no one’s there. You knock on the door. They don’t open. That’s a one star. Maybe it’s a three star if they don’t open, you have to wait 20 minutes. If they never show up and you’re pissed and you need to get your money back, that’s a one-star experience. You’re never using us again.
So a five-star experience is you knock on the door, they open the door, they let you in. Great. That’s not a big deal. You’re not going tell every friend about it. You might say, “I used Airbnb. It worked.” So we thought, “What would a six-star experience be?” A six-star experience: You knock on the door, the host opens. “Hey, I’m Reid. Welcome to my house.” You’re the host in this case. You would show them around. On the table would be a welcome gift. It would be a bottle of wine, maybe some candy. You’d open the fridge. There’s water. You go to the bathroom, there are toiletries. The whole thing is great. That’s a six-star experience. You’d say, “Wow I love this more than a hotel. I’m definitely going to use Airbnb again. It worked. Better than I expected.”
What’s a seven-star experience? You knock on the door. Reid Hoffman opens. Get in. “Welcome. Here’s my full kitchen. I know you like surfing. There’s a surfboard waiting for you. I’ve booked lessons for you. It’s going to be an amazing experience. By the way here’s my car. You can use my car. And I also want to surprise you. There’s this best restaurant in the city of San Francisco. I got you a table there.” And you’re like, “Whoa. This is way beyond.”
So what would an eight-star start check in be? An eight-star check-in, I would land at the airport. I would show up and there would be a limousine waiting for me. The limousine would be like, know all my preferences. It would take me to the house and it would be like a total surprise. So would a nine-star check-in be? A nine star check in, I would show up to the airport and there’d be a parade in my honor. And I would probably have an elephant you know waiting for me as the traditional Indian ceremony. I would ride on the elephant and there’d be this parade taking me to the to the house.
So what would a ten-star check in be? A ten-star check in would be The Beatles check in. In 1964. I’d get off the plane and there’d be 5,000 high school kids cheering my name with cars welcoming me to the country. I’d get to the front yard of your house and there’d be a press conference for me, and it would be just a mindfuck experience. So what would an 11 star experience be? I would show up at the airport and you’d be there with Elon Musk and you’re saying, “You’re going to space.”
The point of the process is that maybe 9, 10, 11 are not feasible. But if you go through the crazy exercise of keep going, there’s some sweet spot between they showed up and they opened the door and I went to space. That’s the sweet spot. You have to almost design the extreme to come backwards. Suddenly, doesn’t knowing my preferences and having a surfboard in the house seem not crazy and reasonable? It’s actually kind of crazy logistically, but this is the kind of stuff that creates great experience.
FERRISS: Sam Altman, President of Y Combinator, considers this so-called 11-star experience as a prerequisite to scale. Suppose you try to scale a sub-par experience — the sort of product that gets only lukewarm approval from users? He offers a cautionary tale in this never-before-heard clip .
SAM ALTMAN: The first thing you have to do is build a product that is so good, people spontaneously want to use it and tell their friends about it. And if you can do that you still have to blitz scale but it’s the easy kind it’s you have too much demand. The hard kind of blitz scaling is where you try to start scaling up before the product is really great. And then most of your effort in scaling is to generate demand. So I think the number one most important insight about how to Blitz scale is that the good kind of blitz scale is when you are not having to generate demand as you go but that you first got the product right.
And in many of these cases — Stripe, Dropbox, AirBnB — it took a long time to get the product right but they were obsessed with that. And then when they did all their effort is okay we have so much demand that without much more effort. We know this is going to keep growing 20, 30 percent a month for years. That’s a real problem. It’s a high-cost problem, but it’s still a real problem. How do we build that? So that is the kind of scaling that works and it has generated Facebook Google I mean a lot of it. It’s the same playbook. I think the kind of blitz scaling that we have seen go badly is.
We have a mediocre product. We have raised hundreds of millions of dollars and our VC is beating down our throats to hire more sales people to grow faster.
HOFFMAN: Any particular examples?
ALTMAN: I don’t want to name names. There’s so many to pick from. Thankfully most them are not YC. one thing that is pretty good. And again a few exceptions to this. We try to beat that idea out of people at YC and thus most of the mistakes in Silicon Valley of that sort in the last decade have not been ours.
FERRISS: Raise more money than you think you need — potentially a LOT more. Reid argues that entrepreneurs should always, always raise more money than they think they need because as an entrepreneur, you’ll run into a minefield of unexpected expenses. He explains this particular point with a story. One that involves Mariam Naficy, CEO of Minted and then the CEO of EVE.com …
YOUNG GIRL: Hello? Who is this?
NAFICY: It is a five-year-old girl, Eve Rogers.
YOUNG GIRL: This is Eve.
NAFICY: …who gets on the phone. And so I think, “What on earth am I going to say to this 5-year-old?” So I said, “Hello.”
YOUNG GIRL: Hi.
NAFICY: “Could I buy your domain name?” And she was just saying to me, “What? I don’t really understand.”
YOUNG GIRL: Um, what?
NAFICY: And I’m sure Eve’s mom, on the other line, was laughing her head off. I mean, “This is a great joke to play on this silly entrepreneur from California who’s calling. I’m just going to watch her be tortured by my five-year-old for a while.”
HOFFMAN: Mariam then turns this risky negotiation over to her lead investor, the legendary start-up whisperer, Bill Gross.
NAFICY: So he gets on the phone with her mom, and he negotiated the purchase. And it was equity in the company, a board seat for her daughter—an observer board seat—trips to Idealab to see Bill several times a year.
HOFFMAN: You had a five-year-old observer on your board? [Laughing]
NAFICY: Yes. She didn’t actually show up for the board meetings, but she did occasionally come by and visit. Disneyland, software, educational software—it was a very large package that was negotiated.
HOFFMAN: If you were going to call your younger self, how would you have handled this negotiation differently?
NAFICY: I would probably throw in the Disneyland almost immediately, because now I know what a five-year-old girl wants. I have a daughter. And I would have said, “How many times a year do you want to go to Disneyland?”
HOFFMAN: Once a year? Twice a year?
YOUNG GIRL: Maybe about 100 times a year.
HOFFMAN: [Amused] $50,000 plus Disneyland trips may seem like crazy expenses. But in my experience? Every successful founder has a story like that.
FERRISS: Reid is right. So you need enough capital to cover unexpected expenses, sure. But you also need to be ready for unexpected opportunities. We’ll fast forward here to Mariam Naficy’s new company, Minted, which she originally thought would be an online stationery store with cards from brand-name companies. But she also side experiment where unknown artists could submit designs to an online competition. She told Reid what happened next:
NAFICY: I open the doors. There’s not a sale for an entire month. Nobody wants the branded stationery products that we’d spent most of our two-and-a-half million launching—because again, being conservative, I’d said, “I know, I’ll do an Eve.com, I’ll put all these brands online, sign them up exclusively.” We had exclusive distribution rights. Nobody wanted to buy them at all.
Instead, the teeny-weeny assortment that I had sourced through this one competition I had run, one transaction a week. Then the next week, there were two. We had sourced 60 designs through our competition, and I’d saved a tiny bit of money to build what I really wanted to build.
Out of the two-and-a-half million, I probably spent like $100,000 on what really became Minted. It was like this little side thing, and there was a programmer up in Oregon, and he and I were working at night on building the first competition. And that is the only place where we saw any sales movement.
HOFFMAN: Mariam stumbled onto the power of crowdsourcing—the idea that ordinary people, when they come together in large numbers, can do work once reserved only for experts. Etsy is an example of this. Kickstarter as well. But at this point, in 2008, it wasn’t understood very well. It was something Silicon Valley was just getting its head around.
NAFICY: I realized that this crowdsourcing thing was way different, and I’d uncovered something that was more of a massive social, cultural change going on in the US—and maybe in the world—versus some small-business idea. Because what was happening, that I didn’t realize, was that who’s considered a creative out there is actually changing a lot right now, due to technology and exposure. And so people are emerging as creatives who haven’t gone to school. They haven’t gone to design school, they haven’t gone to art school, and they’re massively disrupting art and design right now. And there is a true meritocracy that you can actually build and unleash.
HOFFMAN: Here, Mariam runs into another reason you need to raise more money than you think you need: unexpected opportunities. Mariam’s plan to start a lifestyle business just didn’t pan out. She didn’t have enough funding to cover her Plan B—or her “Plans B” as I like to say. Opportunities may arise later than you hoped, and you want the capital to carry you in new directions. So she reluctantly pitched her idea and secured another round of funding. And if that weren’t risky enough, she’s about to encounter one more familiar source of uncertainty…a stock market crash.
NAFICY: And we raised our venture around two weeks before Lehman failed, because this investor of mine had said to me, “I feel something really bad is going to happen, you should go raise.” So we just went out in August—”Who’s in town? Anybody? Is anyone in town in August?” So we went and raised money, and closed it literally right before Lehman [Brothers] failed.
[Sounds of various news reports, chronicling the stock market crash]
HOFFMAN: Believe it or not, Mariam launched her wildly risky, experimental business idea into the heart of the worst economic crisis since the Great Depression: the collapse of the U.S. housing market in 2008. Suppose she had waited until, say, September to raise that money. Lehman collapses, panic grips investors and no one in their right mind gives cash to a bold little experiment in crowdsourcing. Like that, Minted closes for business. Which is another reason you should always take money whenever and wherever you can get it. You know never know when it will dry up. As it is, Mariam did raise the money.
FERRISS: Release your products early enough that they can still embarrass you. Imperfect is perfect. The fifth commandment is actually one of Reid’s more famous recommendations. He believes that if you’re not embarrassed by your first product release, you’ve released too late. Imperfect IS perfect.
This is the classic Silicon Valley approach of pushing imperfect things out, testing them and improving them with user feedback — instead of waiting until you think you have something perfect. Mark Zuckerberg of Facebook is probably the Silicon Valley entrepreneur who most embodies this commandment. And Reid talked to him about it. They started way back in Mark’s college days.
HOFFMAN: My friend Mark Zuckerberg is the perfect person to talk to about this. He has no qualms about rushing out an imperfect product. In fact, his famous mantra is “Move fast and break things”—and I’d argue that it’s the foundation of Facebook’s success. If Mark cares about anything, it’s making sure his team moves with the swiftness of a teen hacker, releasing products that are anything but perfect, so their audience can improve them.
ZUCKERBERG: I think the strategy of Facebook is to learn as quickly as possible what our community wants us to do—and that requires a culture that encourages people to try things and test things and fail.
HOFFMAN: But how did he get Facebook’s 17,000-plus employees to shed their perfectionist streaks? You’re about to find out. We’ll start Mark’s story when he was an undergraduate at Harvard. By this time, he was in the habit of slapping together programs on the fly. He couldn’t help himself.
ZUCKERBERG: I took this class, “Rome of Augustus.” And the final exam—they were going to show some piece of art from the Augustan period in Rome, and you had to write an essay on the historical significance. And I was actually coding the first version of Facebook when I should have been studying for that, so a couple of days before the exam, I was like, “Alright, I’m kind of screwed.” This isn’t something like math, where you could just show up, and figure out how to do the problem on the exam. You actually need to know the context of this, or else you can’t write these essays.
HOFFMAN: Wait a second, rewind.
ZUCKERBERG: This isn’t something like math, where you could just show up, and figure out how to do the problem on the exam.
HOFFMAN: Who does that? In any case, with the exam fast approaching, you might expect Mark to cut back on the coding. Instead, he doubled down on it.
ZUCKERBERG: I built this service where basically anyone in the class could go to it, and it showed you a random piece of art, and you could type in whatever context you thought was important. And then after that, it would show you everything that everyone else in the class had put in. So it was a study tool, but it kind of crowd-sourced exactly what people needed to know for each piece of art. And the professor ended up telling me after that, that the grades on the final were higher than they’d ever been before. And I ended up passing that class.
HOFFMAN: Imagine, for a moment, what would have happened if Mark was a little less hacker and a little more perfectionist. What if he took his time to get the “Random Piece of Art” program just-so? It might have looked nicer. It might have had more features. But he would have missed the opportunity to put it in front of his classmates when they needed it, and more importantly, would have missed the learning about how they used it.
But many of us—and I’m guessing most of Mark’s Harvard classmates—have a tough time rushing things out. High-achieving people have a tendency to be perfectionists. And the same instincts that make us good students, can make us lousy entrepreneurs.
FERRISS: So you have to un-learn how to be a perfectionist. And you also have to un-learn the habit of listening to everything your users tell you. Reid will tell you: You have to be selective in the user feedback you take…
HOFFMAN: Success has a funny way of sneaking up on the best entrepreneurs. They devote themselves to understanding and serving a teeny cohort of users. They don’t always recognize that this intimate link is precisely what enables their product to evolve for the mass market. That’s one reason I encourage entrepreneurs to release a product earlier than they’d like. Release, observe, react—over and over again.
It isn’t just about speed, and it certainly isn’t about sloppiness, but rather a precise dance between Facebook’s tiny team and its growing user base. The users normally take the lead—but not always. Sometimes Mark had to break the choreography and give the users a twirl.
That’s because you have to discern what users actually want. And Mark received an early education in the gap between what users say and what they do—particularly as he expanded the social network to new campuses.
ZUCKERBERG: We’d seen this funny dynamic where—we talked about how we started it at Harvard, and then we’d launch at Yale, and then all the people at Harvard would be like, “Oh, come on. Them?” And then it’s at every step along the way. You go from Yale, and you launch at Columbia, and the people at Yale are like, “Aw really? Those guys?” We’re at Indiana University, and Indiana State launches, and the people at Indiana University are like, “Come on.” So we were used to this dynamic of people assuming that a change is like, “Why are you doing this?” but then coming around pretty quickly.
HOFFMAN: Notice the lesson Mark is learning here—he’s learning how to listen. Each college said they didn’t want another college to join—and then, as each new college joined, the network got stronger, and people liked it more. This is a great example of how entrepreneurs need to both listen to what users say, and selectively ignore them. People can’t always accurately predict their own tastes or even their own interests.
For example, a baseline for Facebook is: other people are going to upload pictures about you, other people are going to tag them, and when those other people tag them, your friends are going to see them, possibly before you. Do you want that product, yes or no? Most people, described that way, would say “I don’t want that product! No, no, no! I don’t want that product.” And yet everyone’s super happy with that product. People systemically are very poor at predicting their own reactions to new things.
FERRISS: The core idea here is that you have to experiment if you’re going to effectively innovate. And this gets harder and harder as you grow. Mark shared some details on Masters of Scale about exactly how Facebook succeeds in innovating on a massive scale, and how they’ve had to change their mantra a bit over time. Reid Explains:
HOFFMAN: For Mark and his growing team at Facebook, the mantra of “move fast and break things” served as a rallying cry, and the philosophy made a lot of sense when they were a fledgling startup. But when you have thousands of employees moving fast and breaking things, someone has to clean up their messes. As Facebook grew, Mark became aware of a growing tension between his hacker ethos—to move fast—and his responsibility as CEO to avoid breaking things on such a massive scale. Thus a new mantra was born: “Move fast…with stable infrastructure”
ZUCKERBERG: Well, it’s less catchy.
HOFFMAN: But the best mantras do more than just sound good. They give you the resolve to make tough decisions.
ZUCKERBERG: So “move fast,” I think, is interesting, because you actually have to be willing to give something up to get it. And the question is, “What are you willing to give up?” And early on, the trade was, “Move fast and break things.” The idea was, we will tolerate some amount of bugs and flaws in the service of moving faster and learning what our community wants faster. But we got to a point where it was taking us more time to go back and fix the bugs and issues that we were creating than the speed that we were gaining by going faster.
So we’re like, “OK, we need a new strategy to enable us to move fast.” And what we came up with was: we’re going to do this by building the best infrastructure. So an engineer who comes from any company is going to be able to ship their product faster here—and test it better, and move faster, and all these things—at Facebook, than anywhere else in the world. So that’s what we mean by “Move fast with stable infrastructure.” But again, we don’t get it for free—we invest a huge amount in building infrastructure. So I think these values always come down to, what are you willing to give up to get something? Because they’re not free—nothing is.
HOFFMAN: Mark concedes that “Move fast with stable infrastructure” is a clunky mantra. It doesn’t have the snappy appeal of “Move fast and break things,” but it adds guardrails to protect the company in its new phase. You can still release something bold and half-baked. You can still break things. Just don’t break the infrastructure. Because the infrastructure is too slow to repair, and if you break the infrastructure, it will ultimately slow you down.
And with that new rule in mind, Mark laid the groundwork for mass experimentation on Facebook. How does it work exactly? One thing you should know about Facebook: It has many faces.
ZUCKERBERG: At any given point in time, there isn’t just one version of Facebook running, there are probably 10,000. Any engineer at the company can basically decide that they want to test something. There are some rules on sensitive things, but in general, an engineer can test something, and they can launch a version of Facebook not to the whole community, but maybe to 10,000 people or 50,000 people—whatever is necessary to get a good test of an experience. And then, they get a readout of how that affected all of the different metrics and things that we care about. How were people connecting? How were people sharing? Do people have more friends in this version? Of course, business metrics, like how does this cost the efficiency of running the service, how much revenue are we making?
It can even kick off qualitative studies and ask people how happy they are with this version. And then at the end of that, the engineer can come to their manager, and say, “Hey, here’s what I built, these are the results. Do we want to explore this further and do this?” And giving people the tools to be able to go get that data without having to argue whether their idea’s good through layers of management before testing something, frees people up to move quicker. If the thing doesn’t work, then we add that to our documentation of all the lessons that we’ve learned over time. If it does work, then we can incorporate those small changes into the base of what Facebook is—that now everyone else who is trying to build an improvement, that’s the new baseline that they need to get against.
FERRISS: There are interesting questions for any CEO. When is it OK to experiment? And when is the cost too high? Mark sets a pretty high bar.
ZUCKERBERG: On a day-to-day basis, a lot of the decisions that I’m making are like, “OK, is this going to destroy the company?” Because if not, then let them test it. If the cost of the test isn’t going to be super high, then, in general, we’re going to learn a lot more by experimenting and by letting the teams go and explore the things that they think are worth exploring than by having a heavy hand in that.
FERRISS: And Reid holds — more or less — to his theory that you should be embarrassed by your first product release.
HOFFMAN: The word “embarrassment” plays a key role here. Over the years, some people have interpreted my theory as permission to cut corners, act recklessly, or proceed without a clear plan.
But notice: I said, “If you’re not embarrassed by your product.” I didn’t say “If you’re not indicted” or “If you’re not deeply ashamed by your product.” Indeed, if you launched so fast that your product generates lawsuits, alienates users, or burns through capital without any apparent gain, you did in fact launch too soon.
FERRISS: Decide. Decide. Decide. Every founder has to learn how to make decisions. It’s better to make a wrong decision than no decision. And this is something Eric Schmidt, former CEO of Google, learned when he was taking flying lessons:
SCHMIDT: In aviation, they teach you to make rapid decisions, and they, over and over again: “Decide, decide, decide.” It’s better to make a decision and just accept the consequences. And that discipline helped me in the hard times when I was at Novell in a real hard core turnaround.
FERRISS: It’s also served him well in the free-wheeling, idea-generating climate he cultivated at Google. In fact, he might argue it was the secret to their success. With all those ideas brewing, you must have disciplined decision-making in order to thrive.
SCHMIDT: The most important thing to do is to have quick decisions—and you’ll make some mistakes, but you need decision-making. We ultimately adopted a model of a staff meeting on Monday, a business meeting on Wednesday, and a product meeting on Friday, and this was organized so that people could travel in the right ways. And the agenda was, everybody knew which meeting the decisions were made at—and so as long as you could wait a week, you knew you would get a hearing on your deal.
I cannot tell you how many people have told me that at Google, decisions are made today quickly, in almost every case, even at our current scale. And that’s a legacy of that decision. Most large corporations have too many lawyers, too many decision-makers, unclear owners, and things congeal—they occur very slowly. But some of the greatest things happen very quickly. We made the decision to purchase YouTube in about 10 days—incredibly historic decision—because we were ready, people were focused, we had a board meeting—we wanted to get it done.
HOFFMAN: We have a word for these kinds of evasive maneuvers here in Silicon Valley. We call it an OODA loop. That’s a fighter pilot term. It stands for observe, orient, decide, act. The fighter pilot who has the fastest OODA loop wins. The other one dies. If you’ve ever watched the movie Top Gun, you’ll have a basic understanding of how an OODA loop works.
Tom Cruise’s character, Maverick, has a few bad guys on his tail. In a split second, he orients himself to the enemy’s formation. Then he decides to perform a crazy aerial maneuver—he acts, and he confounds everyone. Score one for the free world. Now I’m not suggesting that tech executives secretly want to blast each other out of the sky. What they do want is to perform slightly crazy, super-fast maneuvers, again and again.
You’ll often hear founders asking: What is the OODA loop of an organization or an individual? Because speed matters in combat, and also in fast-moving industries.
FERRISS: Be prepared to both make and break plans. In a fast-growing organization, leaders have to be ready to pivot. Every day, there are new competitors, new threats, new opportunities. Everything has to be subject to change. In the episode Lead, Lead Again, Reid talks about this concept with Facebook’s Sheryl Sandberg.
HOFFMAN: The path to scale always, unfortunately, includes some broken promises, as Sheryl would soon find out. Everything—from interviews to office space—changes as you grow. And even a small take-back can matter to a team.
SANDBERG: I’ll give you another silly example that I don’t think is silly—birthdays. We celebrated everyone’s birthday that day. Then it became that week. Eventually, we had a huge sheet cake with quarterly birthdays. My team was 4,000 when I left, and everyone’s name is on it. Now it sounds like that wouldn’t matter, but it did—because if you started out and we celebrated everyone’s birthday, and we took that away, that was a problem. Now I’m not saying, “Be mean and don’t celebrate birthdays.” I’m saying, “Figure out what your systems are going to look like later, and do it now.”
FERRISS: Sandberg’s ability to recognize when a once-functional system has stopped serving the team’s culture and productivity keeps Facebook on track. Founders have to be able to cut their losses when programs or projects no longer make sense. Zynga’s Founder Mark Pincus can also be a ruthless self-editor:
HOFFMAN: By the time Mark launched Zynga, he was acutely aware of the dangers of stubbornly sticking to his ideas. He started to draw the distinction between his usually-great instincts and his not-always-great ideas.
PINCUS: I’ll try anything, and I’ll kill anything, and I’ll kill it quickly. And I’m not going to let killing an idea kill a winning instinct. And so that was a really core idea that I’m still thinking about, and learning as an entrepreneur. And I can see it playing out so often in people’s companies.
HOFFMAN: Mark separates specific ideas—which must be killed when they don’t work—from underlying instincts. And this willingness to kill ideas is essential to making innovation work.
FERRISS: So you have to be willing to pivot, and you have to make firm decisions. But there’s one more thing: You have to keep your team together, through the twists and turns. Margaret Heffernan, former CEO of 5 tech companies, shared a story with Reid about a company that got this right.
HEFFERNAN: What I think is important is that when the decision is made, everybody gets behind it. And I think the most sensational example of this I’ve ever come across—I’ve spent a lot of time hanging out with and writing about Ocean Spray, the cranberry company. They’re one of the biggest cooperatives in the United States, an extraordinary business.
At one point, Pepsi tried very hard to buy them. And of course, the company is owned by the cranberry farmers. So this was a really passionate, passionate debate, you could never have resolved it by who cared most, because everybody cared totally. It ended up the vote was 49.9% in favor of selling, 50.1% in favor of staying an independent cooperative.
What made the company what it is today, which is very successful, global, multi-billion dollar business, is that after the vote, everybody got behind it. There was no question. That’s the vote. That’s the outcome. Now we all work together to make it successful.
FERRISS: Don’t tell your employees how to innovate. Manage the chaos. Many creative people find that leading an innovative company actually means a lot less of producing your own great ideas, and a lot more of shepherding your employees’ great ideas to fruition. Eric Schmidt thought a lot about this when he was the CEO of Google.
SCHMIDT: I think a fair statement is that the founders built the company in the image of what they saw at Stanford graduate school. So the offices for example, if you had them, would have four people in them—which is the number of graduate students that are in an office. And of course, everyone’s very crowded, and it’s very casual. And of course there’s free food, and everyone is sort of hanging out all day. And that graduate student culture—that sense that somehow we’re about to discover something new—permeated the decision making. So the culture of food and benefits and being quirky came from the founders trying to recreate that feeling.
HOFFMAN: Amid this creative ferment, his job was simple. He just had to give employees a slight nudge to deliver on their promising ideas.
SCHMIDT: The first thing I did was I went to the staff meeting. And the staff meetings were long, and they were like being in graduate school. “What do you think of this? What do you think of that?” But a real lack of business procedures, and that kind of thing, which were easily remedied.
HOFFMAN: When you’re surrounded by bright young minds, you don’t have to push too hard for interesting ideas. They tend to tumble out of conversations or shared challenges, and take you in unpredictable directions. But not every manager is comfortable with this type of chaos. It requires a particular kind of leader who can embrace both humility—the uncomfortable notion that you don’t have all of the best ideas yourself—and uncertainty—because you can’t always schedule innovation on a predictable timeline.
FERRISS: Google’s certainly not the first organization to embrace the chaos, but they do lean into it in a way that’s rare – even for Silicon Valley.
HOFFMAN: Eric took some radical steps to keep ideas flowing in the organization. This meant empowering engineers, and keeping management in check. For instance, product leaders can draw in as many engineers as they’d like on any given project, so long as they can convince engineers to join their team.
SCHMIDT: I’ve talked to other managers at Google who are frustrated with this because they argue: “We agree that my project is strategic. Why don’t you just assign some engineers to me?” And the answer is “No, no you have to persuade the engineers that your project’s a good one to work on. And then, by the way, you can have all of the engineers that you can persuade to work on that project.” And that’s central to Google’s culture for making progress.
HOFFMAN: Eric took this idea one step further. He granted employees the freedom not only to choose their projects, but openly defy their managers along the way. Google famously instituted a rule that any employee could devote 20% of their work week to any project they’d like. The 20 percent time was in some ways a logical extension of Google’s graduate school culture. Managers, like research advisors, can set timetables and budgets for experimentation. But the staff, like the “students,” pick the research agenda.
SCHMIDT: Many, many initiatives in the company have come out of 20 percent time ideas. Much of the mapping work, many of the search ideas, many of the advertising, many of now the AI work, have come from people working and practicing in new areas.
HOFFMAN: As Eric says, many of the products people know best — Gmail, Google Earth, Google Maps — grew out of ideas generated by employees, during this 20% time. But WHY exactly, does it work?
SCHMIDT: And while the rule says you can do anything you want to with your 20 percent time, these people are computer scientists and engineers, they’re not going to veer too far away from their core business and that is the genius of 20 percent time.
HOFFMAN: The tendency of high-performing employees to use their 20% time productively is the well-documented genius of the program. But there’s also a hidden genius of 20 percent time. It allows reasonable employees to defy unreasonable managers. And this institutionalized defiance can help balance the power and keep high-performing employees engaged during challenging times.
SCHMIDT: So the interesting thing about 20 percent time is although it’s reported as you get to spend one day doing whatever you want, what it really served was a check and balance on the power of the engineering management over the subject. So if an employee is under pressure, the manager says you’ve got to work harder you’ve got to give me everything you have. That employee can legitimately look that boss in the eye and say I’ll give you 100 percent of my 80 percent time. And that simple principle, which never really happens in practice but it’s understood, empowers the employee with both dignity but also some choices.
FERRISS: To create a winning company culture, make sure every employee owns it. This commandment is very often overlooked, especially at the startup stage. Many founders, especially inexperienced ones, downplay the role of culture in their success, or simply don’t know where to start.
Reed Hastings, the founder & CEO of Netflix has strong feelings about company culture. His first startup, Pure Software, sold for $750 Million, so it was successful from an objective standpoint. But he shared with Reed Hoffman that it failed when it came to company culture. And when he started NetFlix he wanted to correct that mistake. Here’s how Reed Hoffman would sum it up:
HOFFMAN: So Reed made a very typical mistake in his first company. He thought he could solve his company’s problems just by working harder. But hard work isn’t enough; and more work is never the real answer. To succeed as you scale, you have to leverage every person in the organization. And to do that, you have to be very intentional about how you craft the culture. This was exactly the lesson Reed took from Pure Software. Their management decisions had created a culture that rewarded the wrong behavior and retained the wrong employees.
HASTINGS: Well the mistakes in Pure was that every time we had a significant error, sales call didn’t go well, a bug in the code. We tried to think about in terms of what process could we put in place to ensure that this doesn’t happen again and thereby improving the company. And what we failed to understand is by dummy proofing all the systems that we would have a system where only dummies wanted to work there, which was exactly what happened. And so the average intellectual level fell and then the market changed as it inevitably does, in that case, it was C++ to Java but it could be anything. And we were unable to adapt to it because we had a bunch of people who valued following the process rather than the first principle thinking.
HOFFMAN: Notice Reed’s double insight here. Pure software couldn’t adapt because they had the wrong employees. And they had the wrong employees because of management decisions that explicitly selected for those employees. It was an insight that catapulted him.
FERRISS: What Reed Hastings learned from his first company was that culture directly impacted both who worked in a company, and how well they performed. At NetFlix, he knew he’d need people who could adapt with the times as technology changed, and they went from a company that mailed DVDs to a company with streaming video and original content. The whole story is worth hearing on an upcoming episode of Masters of Scale, but here we’ll stay focused on how this realization affected NetFlix culture and hiring practices. When Reed Hastings thought about growing the Netflix team, he already had a very clear idea of who he needed. Here’s Reid Hoffman to explain what Reed Hastings did next:
HOFFMAN: Reed’s knowledge of history, the changing nature of technology and the historical moment he was in, led to the understanding that he would need people to change with the times. People who can rip up a process and return to the first principles of delivering entertainment by any means necessary, whether it’s horseback, mail, fiberoptic cable — or maybe in the future Elon Musk’s neural lace. Regardless, you need people who can change the business model, fast.
So how did Reed identify those candidates? It started with a now legendary document at Netflix: a collection of more than 100 slides known as the “culture deck.” These slides defined exactly what the Netflix culture stands for, and who they’re trying to hire, and what they can expect.
HASTINGS : The culture deck started about 10 years ago. So first couple of years we were just focused on survival and then we got public in 2002. Cash flow positive and it was clear we were going to survive. So we then started really thinking about the culture, what we wanted to be, how we wanted to operate. And so over successive years, I improved this deck which I would go through with new employees. And sometimes those new employees would love it sometimes they were like oh my god why didn’t you tell me this before I started. That doesn’t make sense to me. And so we realized we should give it to every candidate. And so then about 2007, 2008 we did that by posting it on SlideShare And that provided a great vehicle for sharing that but again it was really just to be able to send a link to the candidates and then you know and it’s not very pretty, it’s not very highly designed, doesn’t look like it’s a external marketing piece but that authenticity really people liked in the outside world and now it’s you know over you know 10 million views on SlideShare and continues to be studied around the world.
HOFFMAN: And what were the unexpected benefits of having published it?
HASTINGS: Well let’s see the core benefit which we did expect was that candidates were very aware of the culture. The unexpected benefit was many people became candidates for us because they loved that what we described in terms of freedom and responsibility that might not have otherwise thought about us.
FERRISS: Now when you read Netflix culture deck, which many people have, you’ll see they have a very specific way of describing themselves — as a “sports team”, not a “family.” They use internal collaboration to drive external competitiveness.
HASTINGS: Well in team sports that really succeed there often is a lot of warmth between the players. And so it’s emphasizing those aspects and demonstrating that when people come in everyone tries to help them but ultimately it is about performance. Unlike a family which is really about unconditional love you know even if your brother you know does something awful and goes to jail your love doesn’t stop ok and that’s it just a different and important part of society. But that’s not what we’re about. What we’re about is you know collectively changing the world in the areas of Internet television and that takes incredible performance at every level. We’re also about really honest feedback all the time. So you can learn and be the best that you can be.
FERRISS: Most CEOs would agree that a successful company culture is one that that lets team members be the best that they can be. And as you consider the best way to do that for your company and your team, you’ll want to pay particular attention to how people compete. This is where a lot of company cultures go wrong. Margaret Heffernan, former CEO of five tech companies, says this:
HEFFERNAN: There is often a belief among very successful, very competitive, people that the thing you want to do in a company is get everybody to compete with each other that if it’s everybody is racing against everybody you’ll have this kind of a white heat of brilliance and creativity. And I think pretty much everything about that’s wrong. And that’s not to say that I’m not competitive, I’m deeply competitive with myself in the sense that I really want to do a better job today than I did yesterday. But I don’t want you to fail.
And I have seen more companies and organizations go wrong. Because of what I think of as negative competitiveness. I do want you to fail or I want your department to fail or I want your product to fail because that will make me shine. I’ve seen more damage and destruction and waste from that mentality than probably from any other misunderstanding. If you can build an environment in which people really want to help each other, full of people who are generous you will do infinitely better than creating something kind of Olympic sport within the company.
But I see it especially I have to say among young men and this belief that at one level you know if everybody’s is competing everybody will get faster. I think it’s a catastrophe. And I see it bring down really tremendous companies that get so lost in the fight they forgot why they were there in the first place.
HOFFMAN: I totally agree and I actually think one of the key things that companies do at scale in order to try to set against this because there’s always that kind of the how do I win this kind of a culture is to say that part of the dialogue in performance reviews and culture and compensation is: How did you help other people and in particular how did you help other people outside of the specific team you’re in, right. And I think that’s actually I’m really glad to I asked you that question because I think that what you just said is really critical.
HEFFERNAN: Well it’s really interesting. I remember speaking at a conference and on this subject in the Q&A someone said well you know how would you find people like that when you’re interviewing them for jobs. And I said, well I’d ask them who helped them in their career because you know if they can’t remember anybody. That’s a pretty bad sign you know. Anyway, the next person speaking at this conference was the chief technology officer from somewhere. And in his Q&A somebody asked him who helped you in the course of your career. And he couldn’t think of anybody. And there was this sort of stunned horrified silence. You know and the truth is that all of us I’m sure this is true of you too, all of us got help from so many people. And you can’t remember one of them? And of course singing the praises of people who’ve helped you is absolutely joyous task.
FERRISS: Stick with the hero’s journey. So the first nine commandments from Masters of Scale cover just about everything you need to succeed as a startup founder. Hiring and funding, managing and innovating, making decisions fast and testing products early. The final commandment makes all the rest possible. To succeed, entrepreneurs need a good idea, sufficient resources, good timing, a certain amount of luck. But they also need to follow Commandment 10: have grit and stay on your hero’s journey.
REID: Some people mistake grit for sheer persistence. Charging up the same hill, again and again. But that’s not quite what I mean by the word “grit.” The sort of grit you need to scale a business is less reliant on brute force. It’s actually one part determination, one part ingenuity, and one part laziness. Yes, laziness.
You want to conserve your energy. You want to minimize friction and find the most effective, most efficient way forward. You might actually have more grit if you treat your energy as a precious commodity. So forget the tired cliche of running a marathon. You want to be more like Indiana Jones, somersaulting under blades, racing a few steps ahead of a rolling boulder and swinging your whip until you reach your holy grail.
FERRISS: Of course, the hardest time to show grit is when you need it the most. When the situation seems dire, when the odds are against you. Reid sees these life-and-death moments a lot in the companies he’s built and advised. Here’s how he thinks you should do when you find yourself in one.
HOFFMAN: These are the critical junctures that determine whether you fold or scale your business. You might win big, and you might lose big. And grit is the stick-to-it-ness that kicks in when you actually understand the risks — and know you might die — but move ahead anyway. In fact, I have a prepared speech for these pivotal moments.
I have a given a version of this speech at some point on every single board that I’ve been on, which is the heroic possibility. Which is that the road in front of you is super fucking hard, that is not a given that you’re going to win it. But if you win it you’re going to be a hero. And so the question for you is: Are you a hero? Right. And most people then they kind of hear that speech they go, “Yeah,” because that’s what they want to be. That’s why they’re doing this. They want to be a hero. So you’re giving them a frame to do it. And you might lose, right?. You might be dead on the battlefield. This is why it’s a hero’s journey. This is why you will be heroes if you do this, right. And by the way the people who don’t resonate with that? You want them off the boat.
FERRISS: Pay it Forward. The first nine commandments from Masters of Scale covered just about everything you need to succeed as a startup founder. The final commandment kicks in after you succeed. Because Reid will tell you, the long-term success of any company, anywhere in the world — depends on the ecosystem around it. And to create an ecosystem like Silicon Valley — where startups thrive and scale-ups are possible — successful entrepreneurs have to follow Commandment 10 and pay it forward. They have to invest in the other companies around them.
In this next clip, Linda Rottenberg explains how she sees this. She’s the CEO of Endeavor and her passion is in supporting entrepreneurs around the world. She says the willingness of successful entrepreneurs to pay it forward is THE determining factor of whether a startup scene thrives or not.
ROTTENBERG: many cultures have one or two or three successful business people that create companies. But if they don’t pay it forward and if they don’t reinvest in the ecosystem becoming mentors becoming angel investors inspiring their employees to start companies then it stops. Right. And so what, what Endeavor tries to do is create that that ecosystem foundation where the successful entrepreneurs go on and pay it forward. And then that’s when you see a multiplier effect.
FERRISS: Linda has a great story about this …
ROTTENBERG: But then it was really in 2000 when I got called into a room by Pedro Asprey the former finance minister of Mexico who was then leading the largest private equity firm. And he had gathered a group of about 12 individuals. And before I walked in the room someone said to me Linda, do you know what percentage of Mexico’s GDP is in this room? And I said no and I don’t think I want to. So I was asked by it was Lorenzo Zambrano of the Cemex, Carlos Slim of you know all the telecom, Emilio Azcarraga of the media, etc.
And one of the people in the room said well why are all these entrepreneurs coming out of Chile and Argentina and Brazil even Uruguay, like what’s wrong with Mexico. So in my oh politically astute way, Chica Loca says to this group of men, “well here in Mexico you’re the big fish. And think of entrepreneurs as the little fish. And here the big fish tend to eat the little fish. So if you want something like Endeavor. Think of us like an aquarium where you learn to feed the little fish.
And the fact that they actually didn’t throw me out of the room. My life is about not being thrown out of rooms I guess. And they all signed up. And in fact a decade later Emilio Azarraga’s, one of his magazines had a study on, survey on entrepreneurship in the country and the headline was big fish feeding the little fish.
FERRISS: If you follow these commandments you’ll be on your way to startup success, as well as your hero’s journey. But there’s always more to learn. If you liked the advice, you might want to subscribe to Masters of Scale. And if you liked this remix, let me know and we’ll do another one next season.
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