He heads the world's biggest business network with 40 million members, but Reid Hoffman is driven by higher ideals. The Linkedin founder talks here about backing good causes, putting growth before revenue and how we're all entrepreneurs now
Reid Hoffman is a man on a mission. Unlike many fellow internet investors, his task is not simply to make as much money as possible. Hoffman is apparently driven by loftier ideals, such as having a positive impact on society. It's part of a long-standing ambition to be what he calls a "public intellectual" that led him to take up a Marshall scholarship to study philosophy at Oxford. He headed back to Silicon Valley after a three-year stint in English academia because, he says, not long after starting at Oxford, he realised the limited impact he would have. "When I graduated from Stanford my plan was to become a professor and public intellectual. That is not about quoting Kant. It's about holding up a lens to society and asking 'who are we?' and 'who should we be, as individuals and a society?' But I realised academics write books that 50 or 60 people read and I wanted more impact."
This desire for impact is also a major driver behind his investment portfolio, which when we meet includes interests in more than 80 organisations. The majority of these are consumer internet firms and Hoffman's list of Web investments reads like a Who's Who of the Net, including firms such as Facebook, Digg, PayPal, Flickr and Mozilla as well as his day job, as founder and now chairman of business network Linkedin. But he has two other categories of investment, which he classes as "philanthrocapitalism" and "venture philanthropy". He explains the difference:
"I invest in things I think are good things to happen, although I have no idea if they are good investments. I make these as philanthrocapitalism. I am doing them because they are good things and I use a capitalist vehicle. I have invested in some solar companies in this category. And then I have friends I want to support, but it's not about making money. For example, I invested in a friend's business working with women's collectives in South East Asia. I don't know if it's a good investment, but a friend's doing it and it's a good thing, so I put in a cheque." It's classic Hoffman. Delivered in his rapid-fire, almost breathless style, each sentence bursts with ideas and one has barely finished before the next one starts. And yet it is well considered at the same time. He is, he admits, a creature of the US technology hub Silicon Valley, where thinking and acting quickly is essential.
Having decided that academia wasn't for him, he settled on software and returned to California in 1993 to pursue this ambition. It was the start of the internet boom and Hoffman was well placed to make the most of it. Within four years, after stints at firms such as Apple and Fujitsu—he says he had a checklist of skills he wanted to acquire—he had launched his first venture, a dating website. If not a major failure, it wasn't quite the success Hoffman had expected. "SocialNet focused on dating services because I thought that was what single people would most like to change. There was an intense need that should have led to early adoption. But a dating service is a three-and-a-half month turnaround. At the end of that time you have either met somebody and are done, or you haven't and are frustrated and are therefore done. I also realised that the ideal characteristic of a start-up is where people don't fully understand if your idea is any good or not but where you prove it is in two or three years."
It is, says Hoffman, typical of the culture of Silicon Valley to turn a negative into a positive. But he rejects the often-quoted idea that the culture of the US celebrates failure. "People generalise really stupidly and talk about celebrating failure. Silicon Valley celebrates learning. It's fail, learn and play again. The ecosystem for innovation is at higher clock speeds. You fail and learn more quickly."
Few can question Hoffman's success. As to where it stems from, Kevin Eyres, managing director for Linkedin Europe, says it is largely due to strategic vision. "Reid is the best strategic thinker I have ever worked with," he says. "He has an unbelievable mind for strategy." But having provided the vision and inspiration, Eyres says he leaves others to get on with the doing. This is essential for someone with so many interests. Eyres adds that while the range of boards he sits on means Hoffman is able to tap into all sorts of industry wisdom, it does mean he is spread too thinly sometimes.
But Hoffman is unrepentant, saying that a willingness to share information and ideas with others is a feature of Silicon Valley. "You go around telling people about an idea and they help you refine it. It's not quite wisdom of the masses, but that collective feedback helps you hone the idea. Everyone has a fear of sharing ideas, but experienced entrepreneurs learn—and this is one reason Silicon Valley is a global capital of technology entrepreneurship—that talking to someone about an idea shouldn't allow them to compete. Having a conversation will help. You don't tell everyone or blog your business plan. But you have conversations with people who can help. Is there zero risk? No. This is classic entrepreneurship and the upside is higher than the downside. Taking measured risks is the entire entrepreneurial game." According to Hoffman, another part of the process is experiencing a "valley of the shadow" moment.
"I have not seen a single company where in the middle of it you don't think 'why did we think this was a good idea?' At PayPal, which I was doing before I started Linkedin, in August 2000 we spent $12m in one month. The costs were growing exponentially and we didn't have any income. I said to the CEO that if we threw wads of $100 bills off the roof we wouldn't spend money as fast as we were. That's a valley of the shadow moment. Two months later, we figured we needed to be a master merchant. It wasn't trivial to decide we would charge for payment. The reason we had stellar growth was because we weren't charging. So we had to figure out how to keep the growth rate and charge for payment. We shifted in six weeks from no one paying to 88 per cent paid without shifting the growth curve. It was probably one of the most amazing things I've seen in Silicon Valley."
Which leads neatly to his role at Linkedin. Again the subscriber growth rate has been phenomenal. Membership now stands at 40 million worldwide, with 10 million in Europe and two million in the UK. There are 500,000 in London alone. But how many of these are paying the firm any money? Where is the revenue coming from?
Although there are some premium, paid-for services available as well as some advertising revenue, and the firm has been profitable since 2006, Hoffman refuses to offer concrete numbers on income. "The PR strategy around the numbers generally is once the number is huge you then reveal it with a big drum roll. Also, we have only put moderate effort into the paid side. Most of our effort has gone into the growth and engagement initiative. The strategy is focused on the volume of members and their engagement."
Hoffman appears frustrated that people keep asking him when and how successful social networking services will generate their revenues. "For consumer internet plays, massive distribution is what matters," he says. "People keep going on about when is Twitter going to get a proper business plan. They don't understand. That is not how the game is played. It's played for growth and distribution first and you have ideas for revenue that you play out later. That's how the game is played. People who don't play it that way lose. It's no accident that eBay, Google and Yahoo! are within 25 miles of each other and Amazon's not that far away. Why is that? As a businessperson you learn patterns really quickly, both the positive and negative. One pattern is to start with this stuff economically on a free basis and then move to a paid basis."
To illustrate this, Hoffman explains how his firm reacted to Twitter. "Part of being in Silicon Valley is that watching others run fast makes you run faster. Twitter started growing and a week later everyone was asking 'what's my Twitter strategy?' Do I ignore it, leverage it, or compete with it? We launched a company service called Company Buzz. We realised Twitter is like a kind of real-time sonar network and people want to know what's going on with their company and competitors. We created an app that searches Twitter APIs and does analytics on the data. That took us six weeks."
So when will Hoffman's attention turn to revenue generation? "When we have signed up 25 per cent of the globe," he replies easily. "We think roughly that many people fit the description of professional. By that we mean you are working and can get better at your job. Being able to get better means getting information and exchanging it will help you improve and so our services are valuable to you."
And with that he's off on another of his mini-lectures, explaining his idea that as individuals we are now all small businesses. "Every individual now is a small business. You no longer work for one entity for a lifetime. You work somewhere for two to four years and you are always looking for the next gig. Part of the mistake is that you think you have to go and search and find a job. But there is this massive ecosystem of people out there who might come and find you. But how do you maintain yourself as a competitive asset as a small business? What's your brand like? Are you competitively priced?"
This brings us on to another of Hoffman's key phrases, which crops up several times in conversation—ecosystem. He describes Silicon Valley as an ecosystem and recognises he is a creature of it.
"I think about ecosystems a lot. I was the right animal in the right environment. I have shaped and been shaped by it. It's part of what has made me successful. One of the things I like about consumer internet businesses is that they reach millions of people. It's an ecosystem, a marketplace and an economy of how people balance and find each other."
Ever the intellectual, there's nothing simplistic about Hoffman's view of ecosystems. Some might look to basic principles and judge that the successful firms would be those with the best products. Hoffman rejects this. "The best product doesn't always win. There are two levels that go deeper. The first is distribution, which is how do you get your customers. The product with the best distribution wins. The second is finance. The only way you can develop and deploy your products and create a good company is with financing. You are essentially island-hopping through financing while you are building a product and getting it to market with the right kind of growth characteristics to have a long-term strategic vision."
Whether Hoffman's long-term plans for Linkedin will be realised remains to be seen, but he will continue to have a huge impact on the internet and through that realise his ambition to shape and change the world. As he himself admits, predicting the future is harder than ever.
"Life is not like a chess plan. It's more about what opportunities you find yourself facing and how you respond to them. I might have the perfect vision that it's going to be like this, but what resources and tools are available to me and how am I going to assemble them? These are aspects of entrepreneurialism that should be included in children's education around the world."