Lessons learned in going from $0 to $26 billion from LinkedIn Reid Hoffman

The legendary founder and venture capitalist Reid Hoffman shared some pearls of wisdom with an audience of founders and product managers. Here are some pearls of wisdom in building awesomeness…

Photo Credit: Frederique Dame ‏@fffabulous

Product Distribution first, then product definition

One of the biggest failures with SocialNet was that they didn’t have a distribution strategy nor a focused vertical. They spent a week doing a PR blitz and only received about 6 users. They could have better spent their time just going into a phone book (remember those?) and calling users asking them to sign up. Their time at Paypal taught them it was much better to give $5 to the user to acquire new users than spend $45 on acquiring a user through advertising.

Product distribution strategy is even more important than the product itself.

Therefore, when starting LinkedIn they thought hard on how they would distribute and acquire users. They did this by focusing on contacts within a vertical (professional networking). The vertical allows context, and the contacts allows for the network effects. Then they lowered this friction as much as possible — with the import of the address book (remember those?).

In consumer markets, how companies win is via a distribution strategy that has a market advantage

In the early days at LinkedIn, the mantra was GUR (Growth, Usage and Revenue). Focusing first on growth enabled them to build the key engagement metrics that they felt would be incredibly useful to users on LinkedIn. Until LinkedIn got to about a million users, the key features would not kick in, so first growth. Start with a hypothesis on markets first, and build a product that will best map to that theory. Then you can focus on the key engagement features of your product. If you do not have a theory or strategy on how you are going to distribute your product or acquire users, you are flying blind.

If nobody can see your work, it’s not great work.

Fundamental strategy in a startup is a financing strategy

The basis for any startup is how it is financed. You should always be thinking about how to finance your company. It is the basis of the existence of your company and will drive will how early you focus on revenue and monetization. But if you can finance without making revenue, you should do that ;)

There are two types of pitches: one based on data and the other that is based on concept. Often entrepreneurs mix up the two, and this deeply affects valuation. When pitching, be very clear on which pitch it is based on and tell the story that way, or else the supporting stories get too muddled. See LinkedIn Series B pitch.

Org hierarchy is for coordinating and decision making

As LinkedIn grew, he spent at least 40 hours with Jeff Weiner before talking about him possibly taking over the job as CEO. Most of the time was talking about agreements and meeting of minds.

Organization hierarchy mainly exists for coordinating and for decision making / resolution. As long as Reid could still influence the ecosystem without disrupting the purpose of the hierarchy there was no need for him to be a part of the org structure within the organization. And he still has an office at LinkedIn right next to Jeff.

Having a founder as deeply as involved as Reid in the product still be a part of the Board as Chairman enables him to continue to influence the core and soul of the organization, but letting Jeff run the company and product.

Crux of M&A

Going from 0 users and $0 to IPO to a $26 billion M&A exit is not a common journey.

In considering M&A Reid always had a reserve price set in his head for his investors and shareholders as his fiduciary responsibility.

But, the crux was whether or not the activity would be in service to the mission of LinkedIn.

When the opportunity came up for the M&A, he thought about how Microsoft was looking to make offices more productive and it made a lot of sense to partner with the mission of helping people professionally more productive and successful. It felt that the mission could be achieved better together than as a public standalone company.

LinkedIn’s Mission: To connect the world’s professionals to make them more productive and successful.