AN INTERVIEW WITH LINKEDIN'S FOUNDER REIDMAN HOFFMAN
On October 21, 2009, The Wall Street Journal's Collleen Debaise interviewed LinkedIn's founder Reid Hoffman about his decision to start LinkedIn. The interview provides valuable advice on how to launch a new technological innovation from ideation to funding, his stints at Apple and PayPal, and why he started LinkedIn.
If anyone knows the value of connections, it's Reid Hoffman. In May 2003, the former Apple Inc. and PayPal executive launched LinkedIn out of his living room, inviting 350 of his contacts to join his network and create their own profiles. By the end of that month, LinkedIn had 4,500 members. Today, the 500-employee private company – valued by investors at $1 billion – has some 50 million users. Mr. Hoffman, 42 years old, now enjoys a reputation as a Silicon Valley heavyweight, investing in more than 60 start-ups (including Friendster, Facebook and Digg) and serving on the boards of Mozilla and eight other companies.
And 49 people have recommended him on LinkedIn.
Q. What was your career path?
A. Not to sound self-serving, but you can look at my LinkedIn profile. (Laughs.) My original plan was to be an academic. I thought I was going to be a professor in the realm of how we speak and communicate. I studied (at Stanford and Oxford universities) cognitive science, artificial intelligence and philosophy. Early on, my conclusion was that people didn't understand thought and language that well.
Q. Why didn't you stay in academia?
A. When you pursue an academic path, you basically write books that only 50 people will read. I wanted to have a much broader impact on the world, which you can do through software entrepreneurship. If you can create a piece of software that improves people's lives, it's infinitely replicable.
Q. After you decided that, what was your first step?
A. In September 1993, I networked my way to a couple VCs. I was just trying to figure out how to do the software entrepreneurship thing. I asked, "Do I come up with an idea? Do I pitch you for finance?" I wasn't at the stage yet of "Here's my business plan, give me money." It was more like, "How does this dance work?"
During this process, I learned the value of networking. I didn't know any VCs, but I knew people who knew VCs. They referred me, saying: "This is a bright young kid coming out of Stanford/Oxford – could you give him a little bit of your time?" Lots of people contact VCs out of the blue; the referrals distinguished me from some crazy person.
Q. What advice did you get from the VCs?
A. The basic advice that I got was: "Go learn how to ship product. No one is going to give you a big chunk of money until you do." So in the fall of '93 I went to Apple precisely to get that experience, and I learned how to ship product. There's three skill sets involved: establishing your product plan; building it; and getting customers to adopt it.
Q. At what point were you ready to start your own company?
A. I worked at Apple through the whole crazy evolution of the online stuff. Then I went to work in product management at Fujitsu Software Corp. By the summer of '97, I was getting nervous. The Internet market was getting really hot – it felt like the frontier of the West was open – and I thought "there is going to be a limited time here; I really need to start up a company." Patrick Farrell from Jujitsu and I pulled together an initial group of people, a business plan and financing for a networking site that became Socialnet.com. It was a classic run of a – not a disaster, but not very successful – Silicon Valley company. In the fall of '99 I decided to leave.
Q. You joined PayPal, and helped sell the company to eBay Inc. in 2002. What was that like?
A. It was a fun and wild ride in the Internet afterglow! Everything was headed south, but we were able to establish a successful company. When the deal closed, my initial reflex was, "Let's take some time off." But one thing I learned in '97, when I thought the right time to found a company was during a swing-up, is that it's much better to start during an economic downturn. Partnerships are easier; hiring is easier; and the competition starts later.
Q. Why did you start LinkedIn?
A. In '02 and now, I saw a huge amount of social entertainment on the web. I thought, I am going to invest in a bunch of things that have the social side to it; the professional side we'll come to understand later. So I invested in Friendster and Facebook and Six Apart but started LinkedIn. I used the money from PayPal to fund it. I basically sketched out what I thought the product would be, assembled the business model, and then started hiring people. We've been profitable since 2007; our numbers are very good. We haven't talked about going public. When we think it's the right strategy, we can pull that trigger.
Q. What's the future of social media?
A. There will be a ongoing massive transformation. People will be discovering that the Internet helps their career. One of my thesis is that every individual is now a small business; how you manage your own personal career is the exact way you manage a small business. Your brand matters. That is how LinkedIn operates.
Q. What's your advice for those starting their own businesses?
COMMENTARY: As you can see, Reid Hoffman was like a lot of young entrepreneurs. He didn't understand the process of how to successfuly launch a new venture and how to get it financed. Here's my advice to entrepreneurs traveling down that same road.
- Make sure your idea is solving a real problem or filling a real need in the marketplace. Reid is a product of the Dotcom era, he was familiar with the internet trends, and matched his idea to fill a need.
- If it's an invention, make sure you have a prototype, and if its an internet idea, build your website anyway you can. The prototype or website don't have to be perfect, but good enough for demonstration purposes. Reid's first startup was SocialNet, an online dating site. It wasn't perfect, but it was a start. Steve Jobs and Steve Wozniak built the first Apple computer in their garage.
- Test your idea among your network of friends, relatives and business associates for proof of concept. Get their feedback and make the necessary changes. Reid actually did this by enlisting friends in his close network.
- Network with business people who have founded successful companies for their feedback and advice and can connect with you investors. Reid used influential people to get introduced to venture capitalists.
- Commercialize your idea. Try to sell as many units of your new product as you can. If you have a website, try to create as much traffic as you possible. Reid went from only 350 members to 4,500 in one month. Mark Zuckerberg had 22,000 visits to Facebook in two hours after he launched it.
- DO NOT approach venture capital firms for your first round of financing. Only about 3% of deals at the very early stage ever get funded through VC firms so the odds are stacked against you and its a real big waste of time.
- Self-finance or bootstrap your idea as much as possible, then go to your network of friends and relatives. When you have exhausted those two sources, then approach angel investors. Angels are wealthy individuals with the means to invest in and put at risk small amounts of capital to launch small startups and commercialize an idea. Angel investors are everywhere. They can be an attorney, doctor or small business owner.
Click this link to read Part 2 - Inside The LinkedIn IPO: LinkedIn's Road To IPO
Courtesy of an article dated October 29, 2011 appearing in The Wall Street Journal
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