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If you like Reid Hoffman's story, you might also like:
Timothy Berners-Lee,
Jeff Bezos,
Sergey Brin,
Stephen Case,
Michael Dell,
Lawrence Ellison,
Bill Gates,
John Hennessy,
Elizabeth Holmes,
Ray Kurzweil,
Pierre Omidyar
and Larry Page

Reid Hoffman's
recommended reading: Amusing Ourselves to Death

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Reid Hoffman
Reid Hoffman
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Reid Hoffman Interview

Internet Entrepreneur

September 13, 2014
San Francisco, California

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  Reid Hoffman

You were one of the original participants in PayPal before you founded LInkedIn. How did that transition come about?

Reid Hoffman: So part of what happened -- so the PayPal story to LinkedIn is fun because in August of 2000, PayPal burned $12 million in one month and didn't really have a dime of revenue and the cost curve was exponentiating. So Peter, Max, and I did an offsite for Labor Day weekend, I think it was, it was one of the weekends in September where we spent three days. The first day was, "What's our strategy for how we change course for PayPal?" Because we could chart the mushroom cloud from the plowing on the side of the mountain. We could almost chart it by the hour when we would blow up. And we decided to be a master merchant. And fortunately for us and for the world, that turned out to be a good strategy and it worked. Because we had one. We used a lot of Star Wars metaphors, you know, "the attack on the Death Star." You know, one shot in the trench. Because it was like we had one strategy we could play. And other than that, we didn't have time.

And maybe you could explain what that means, "master merchant."

Reid Hoffman: So what we would do -- the business model for PayPal would be is that we would charge people for taking credit card payments and that we would essentially be their merchant of record, even though... So usually as a merchant you establish your own relationship with a bank. By being a master merchant, we would have merchants who were not large enough to establish a relationship with a bank, but actually would have a direct relationship with PayPal. And PayPal would have the relationship with the bank. The second day, because Max, Peter, and I were, "Well, if this blows up, we're going to have one of the spectacular Silicon Valley failures on our hands." So we might as well do our next business together. So let's each of us talk and say, "What is our best alternative idea?" and the early germinations of LinkedIn -- some early components were one of the things I was working on. Because I had concluded from SocialNet that actually in fact, your professional identity was really important. It had an effect of what your economic opportunity was. That everyone should have a public professional identity. It would help transform their work life, whether or not they're an employee, or an entrepreneur, or a lawyer. All these things that having an identity would be really important. And that this could be a driver for how you lived and worked your work life. And so that was the idea I presented. And then PayPal worked out and so, actually, I didn't go back and think about that idea until after we sold PayPal to eBay. I was like, "Well, what do I want to do next?" Because I now had what I was calling my ransom, which was enough money, a salary, so I could go back to being a public intellectual and writing books or something if I wanted to do that.

[ Key to Success ] Vision

I realized the pattern of the consumer Internet company was something that was actually just beginning. Like the Silicon Valley had gone -- the typical pattern for Silicon Valley is you all run to one technology trend and call it networking equipment or enterprise software or clean tech software. And you all do that, and then you run to the next one. And so they had all thought consumer net was over. And I was like, "No, no, it's just beginning and there is decades of interesting companies and work here. And I would like to participate in those. I would like to invest in them. I would like to create them. I think one could have a massive change of the world through these companies." And so I invested in such companies as Friendster and Facebook and Flickr and a number of others, Zynga. And then I started LinkedIn. And that was because this whole notion of how networks can be a platform for identity and for applications that help us navigate the world in a much better way. That was what I had started this whole thing -- you know, my whole path in the Silicon Valley with. And now was at least a time, if not the time to really do that.

[ Key to Success ] Vision

It's remarkable how quickly it has evolved from its very beginnings to all the offerings now.

Reid Hoffman: One of the strengths of the commercial models is it causes a lot of year-by-year investment. And that's one of the reasons why, when you have an impulse to improve the world, commercial models are one of the tools you need to pay a lot of attention to.

You were arguing that the "consumer net" was just beginning, when everybody was telling you it was over. That can be a lonely place. How did you know you were right?

Reid Hoffman: I knew there was a very high probability I was right. Because I was close enough to it to know. Now, would I have known you would have had these giant companies like LinkedIn, Twitter, Facebook, Airbnb, Dropbox, I wouldn't have necessarily known how big they were, but I knew the phenomenon was real. And this is one of the areas where expertise really matters, because I knew the cost of developing these services was going way down. There was open source software. There was cloud hosting. That essentially much cheaper models were running these services. I also knew that the business models for the media attention -- just advertising alone -- would get better. And that the consumer demand for these products was there. So I couldn't have told you that some of these companies would be massive, multi-billion dollar businesses, but I could have told you that I know the products would work. I knew the business models would work. So it was a worthwhile thing to engage in, both as an entrepreneur and as an investor. And then, personally, the way of transforming how you impact the world -- through software ecosystems that help people establish identities, connect with each other, communicate with each other, coordinate with each other, seek entertainment, build social relationships -- all of those things were the precise reason I got into Silicon Valley software creation, software entrepreneurship in the first place. So it was like, "No, this is the play." I had originally thought I was going to take a year off. And I said, "No, I don't -- I'll take two weeks. I'll go visit my friend Ned Hoyt in Australia and then I'm back to work, because this is the time." And I was right about that.

What gives you the confidence to take a leap like that? Is it the data -- the research and experience -- or is it just some kind of intuition?

Reid Hoffman: I think it's both.

One of the metaphors I use for entrepreneurship is you jump off a cliff and you assemble an airplane on the way down. Now if you do this in a particularly -- to do this more intelligently -- you're choosing your cliff, you're choosing when, you're preparing yourself with the right materials, the right teammates to jump over the cliff with, these sorts of things. But sometimes you just have a love of this technology or this area and you stumble your way into it. So you can be more systematic; you can increase your probabilities; you can increase your scale of outcome. But also, sometimes people just happen to be doing something they love, and all of a sudden the commercial models and venture and everything else goes into it. And all of a sudden, it's off to the races. There were a number of successful companies that started that way. So it's both, but it's skill and knowledge, and networks help.

[ Key to Success ] Courage

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