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When you hear a Billionaire talking, you know what you should do, right?
You stop everything you are doing and listen. Occasionally, you take notes too.
Recently I stumbled upon a great documentary profiling Reid Hoffman, famous entrepreneur and investor, founder of popular social networking site LinkedIn (hey, connect with me in Linkedin!).
The short documentary (RT~25mins) is part of the “Bloomberg Game Changers” series (along with several other great profiles) and is named “Reid Hoffman Revealed” (the website acts funny sometimes, try it out and if there is no luck, check out a shortened version on Youtube).
Here is the overview of the documentary:
“Reid Hoffman, the entrepreneur who created LinkedIn, is also the embodiment of it. As the most connected man in Silicon Valley, Hoffman has leveraged his own vast web of personal and professional connections to get in on the ground floor of most of the hot tech companies of the past decade, including Facebook Zynga, Flickr, and Digg.”
Yes, this sounds very cool. Keep in mind that Microsoft recently bought out LinkedIn for $26.2 Billion (with a ‘B’), making Hoffman even richer with a Net Worth around $4B as of September 2016 according to Forbes.
The documentary provides a lot of insights and lessons. Let’s run through it and discuss some of them.
1) You have to take a relentless approach to succeed in business (00:35)
The journalist mentions that Hoffman’s “relentless approach” paid off and the company achieved record revenue that year.
This might sound unappealing or even brutal, but it is totally true. People think that being an entrepreneur and running a business is a “cool” endeavor full of happy times and rainbows. Well, it is not.
Competition can be fierce, especially when big stakes are at play. Anything less than a “relentless approach” will leave your business crashed by other industry players who are going all in and give their best self.
Now, I am not talking about anything unethical or even illegal here. What I am talking about is having a committed and disciplined approach to your business, and being like that for a long time. If that sounds hard or “a lot of work”, then you are probably not cut out to be an entrepreneur.
2) Fail as fast as you can so that you can succeed in the long run (01:06)
Hoffman here touts a popular Silicon Valley mantra, that of failing fast. The premise is that, when you are starting as an entrepreneur, you are going to make mistakes and most probably fail. So it is more preferable to do it fast, so you can get feedback and continue your journey to success better equipped.
He also has a great quote on this topic:
“If You’re Not Embarrassed By The First Version Of Your Product, You’ve Launched Too Late”
Failure (of a project, a venture, or whatever) is not the end for an entrepreneur. You should view it as market feedback. You take the lesson and proceed with better odds to succeed.
3) Big companies get slow and bureaucratic (11:09)
Having worked for a fairly large corporation, I can personally attest to that. After a company matures and becomes “established” in its industry, things start to slow down. Unless the company re-invents itself on a constant basis, it becomes bureaucratic and stagnant.
The main reason is that people working in big companies (which once were startups) have gotten comfortable and do not wish to change the “status quo”. Another reason is that individuals working there try to repel all responsibility from themselves. The thinking is that if something fails, the blame will not be thrown at them.
This is actually one of the major weaknesses of large corporations and one that young entrepreneurs with upcoming startups can exploit to their benefit by offering more attractive products or services to their audience. Stay nimble!
4) Although he made millions, he was not about to retire (13:40)
Hoffman had been working for another iconic internet company, Paypal. After being acquired by behemoth e-bay, Hoffman cashed out and earned several millions. However, he was not about to retire and just chill at a beach. He went on to found LinkedIn and invest in several other businesses.
This is a great lesson here, showcasing the drive of highly successful individuals. It is also a recurring theme to observe. For example, Mark Cuban, of Shark Tank fame, did the same after selling his first company. He came back and continued to build and invest in several other businesses.
It is also a testament to the fact that “Success is not just about the money”. Sure, the financial freedom that comes with it is awesome, but it is just a small part of the overall picture.
In short, if you are a highly driven individual, even if you earn a huge payout, you are not going to stop and hang at the beach.
And on the other side of the coin, if your goal from Day 1 is to chill at the beach, you will never become successful.
5) Hoffman bankrolled the venture himself, rather than losing valuable time (15:23)
Ah, the great merits of Bootstrapping a business. Hoffman had two options when starting LinkedIn. Look for capital from outside investors, or bootstrap the venture himself by using the proceeds from his Paypal’s payout.
He chose the latter and gained valuable time in the process. The rest is history.
There is a great fallacy that you need a lot of money in order to start a business. This is false.
Sure, some types of business are capital intensive and require a huge amount of money upfront in order to get started. But the vast majority of businesses can be bootstrapped and scaled from that.
Especially when we are talking about internet ventures, the initial capital required is usually low. The entrepreneur can kick-start the business by using his own saved money and quickly seek revenue from customers.
6) Hit the market soon with an MVP, then iterate and develop (15:39)
Another famous startup tenet provided here. When starting a business based on a new concept, you should gain feedback as soon as possible. This can be achieved by releasing a Minimum Viable Product (MVP) in the market, and gauge the reaction on that.
This is what the Lean Startup approach espouses. Essentially, you want to allocate as few resources as possible and don’t waste time into something that nobody needs or wants.
If the concept flops, you abandon it quickly, get your lessons and proceed with the next venture (you never stop as an entrepreneur, remember?).
On the other hand, if the product appears to gain traction, you do not sit idle. You constantly develop and improve it via the process of constant iteration. Each new version is better than the old, more value is provided to the marketplace, more people learn about the product and the company grows and grows.
Which brings us to the next point…
7) The focus on “Growth, Growth, Growth” was exactly the right focus (17:06)
A LinkedIn executive comments that in the early years Hoffman had a laser focus on “Growth”, i.e. he was trying to exponentially increase the number of users, something that would make the social network more and more valuable.
This is what I have been mentioning again and again in this blog. You need to SCALE! When you confirm that your venture is appealing to the marketplace, you need to switch gears and start accelerating.
Of course, in order to be able to do that, your business has to fulfill some requirements, mainly to be scaleable (and saleable).
Failing to do so, will leave you pray to competitors and jeopardize the business opportunity. Remember, the competition can be fierce, so there is not time for taking it easy.
8) Multiple income streams within the business model (17:37)
Initially, LinkedIn was trying to find a profitable business model, and during this quest, multiple income streams were adopted.
A typical mistake that young entrepreneurs make, is that they start a venture, get it off the ground, generate revenue from an income stream within that venture, and then proceed to launch a totally different business because they want to “diversify”.
Look, the best bet in those cases is to first try to expand within the business that has been proven and already generates cashflow. It is not to launch a different business with an unproven model that has not gained traction.
Consider this: in my main business, we have several income streams, from affiliate marketing to lead generation, and from display advertising to sponsored content.
Do not fall victim of “Entrepreneurial Diworsification”, stay disciplined.
9) Being a good founder does not mean you are also a good manager (CEO) (19:14)
This is a tricky one. After LinkedIn started maturing and was out of the “startup phase”, Hoffman realized that being at the helm of the company was not the optimal approach. He understood himself well and knew that he was a great founder, but there were other people, better than him at managing the company.
He stepped down, bringing a good manager (Jeff Weiner) as the captain of the ship. Hoffman went on to do what he does best. Invest in new companies. Eventually, everything turned out well. Hoffman invested in some incredible companies and Weiner lead the company forward.
The lesson here is that as a founder and entrepreneur, you need to do a deep introspection and understand your strong and weak points. It is honorable to admit that you are lacking at certain areas. In the long run, you can only win with this approach.
10) Hoffman has taken only 1 vacation in 10 years (20.06)
This is my favorite point and lesson. It highlights the massive effort that someone needs to make in order to achieve greatness. You need a seriously strong ethic in order to succeed in the world of business, there are no shortcuts.
Especially at the beginning, you will need to put in real “sweat equity”. 40 hours week? What is that?
As I have mentioned time and again, building wealth is hard. It takes sacrifices and one of those is that you need to put in the time. There is no way around it.
Times of rejuvenation, relaxing and recharging will be needed. But at the same time you cannot fool yourself by thinking that ordinary effort will yield extraordinary results.
11) LinkedIn goes public – It was an eight year old “overnight success” (22.38)
As a corollary of the above, this brings to our attention the fact that “Rome was not built in a day”.
Most people want to get rich quick, but only a few understand that there is a process to getting there, and that process will definitely take some time. It may not be decades, but it will not be days or months.
The ugly truth about making money is that it takes time, sacrifices and massive effort. “Overnight successes” seem to be making the news, but if you dig deeper you are going to find sweat and tears.
A couple of things to avoid
These were some great lessons from Reid Hoffman and we can learn a lot of things from a Billionaire entrepreneur and investor. However, there were a couple of things that disturbed me a bit in the documentary.
The first one has to do with Hoffman’s physical appearance and health status. The guy is… well… obese. The footage shows him to be quite overweight, probably a result of sedentary lifestyle (and bad nutritional habits). Fortunately, more recent photos of him show that he has improved on this area and he is on the right track.
I understand that going all in with a business venture can be detrimental to some aspects of your life, one of those being your health. But we cannot afford to ignore this for a long time. Health is a precious asset to be protected. After all, being in better shape will actually improve your business performance (by having better focus, more stamina etc.)
Actually, all the new Silicon Valley CEOs are following a healthy lifestyle that enables them to achieve even greater performance.
The second thing is also sensitive. During the end of the documentary (20:13), it is mentioned that Hoffman’s wife (“college sweetheart”) owns around 21% of the company. Yes, that is a lot of money.
I cannot comment on whether she deserves to be granted such a huge chunk of wealth or not, since I do not know the specifics of the relationship and I am not into gossiping anyway. That is not the point.
What I want to mention here, is that after you have built your Net Worth to a considerable size, you need to start protecting it. Not just from a spouse that you might not be compatible in the long run, but from entities that want to grab a portion of it. This might be relatives that remembered you now that you mate it big, the government, or unethical employees that file litigation against you.
Not much to say, protect your assets. Building it is one thing; protecting it is a whole different story.
Summing up, the story of legendary entrepreneur Reid Hoffman has a lot to teach us.
It highlights the fact that a certain ruthlessness is needed in the game of business. That you need to fail fast, and be agile and nimble. That successful people rarely “retire” and they are driven by higher accomplishments.
It touts the merits of bootstrapping your own business and quickly getting market feedback by launching an MVP. It emphasises the need for growth and scaling the income streams within the same business.
It also reminds us of the sacrifices and tribulations that entrepreneurs go into in order to succeed. Finally, it shows the dangers of not taking care of your health and not protecting your hard earned fortune.
Make sure to have a look at the documentary film, it will be worth your time.