Breaking news- 2 most valuable higher education searches- 1) what are www youth ambassadors for sdgs? what is AI for valuetrue market purpose?how'd you like to search WRJ blog by value chains eg vc1 money vc2 AI & human tech vc3 health vc4 arts and communities happy stuff including olympics vc5 girls safety vc6 education for livelihoods vc7 food as nutrition security & diversity vc8 infrastructure for win-win trade maps vc9 true media
breaking the last empire : americans need to vote now are they separate and superior speciesn OR are they like the rest of the 8 billion of us? new summer 2019 : drucker ::::60 years ago dad, norman macrae, started the first of 100 conversations on AI (Artificial Intelligence), He had just surveyed how Japan was rising (lifting potentially Asians everywhere out of colonial era poverty) round brilliant engineers (bullet trains, container superports , microelectronics, the most reliable engines in the world) - from tokyo he brought back a pocket calculator- what would schools and the world be like if everyone had one of these?

Within a few years the world was debating if tech helps man reach the moon is there any mission impossible on earth.
5G 2020s (4 3 2) 1 G 1970s
And Gordon Moore of Intel had just written a paper promising that microelectronic engineers would improve tech 100 fold every G decade to 2020s -that's a trillion fold more powerful microchips in 2030 than man raced to the moon with. So who's knowledge should teachers and everyone linkin to now if millennials are to be the first sustainability generations and THE UN 17 sdgs are to be celebrated as possible wherever the next girl is born. We welcome your nominations: here are a few examples back from the future of 2030 followed by an approximate chronological order. If in doubt as to whether we know your favorite WRJC please search this blog and mail us chris.macrae@yahoo.co.uk if we have left someone out

Saturday, December 31, 2011

reed hastings netflix

from reed hoffman https://mastersofscale.com/wp-content/uploads/2018/10/mos-episode-transcript_-reed-hastings.pdf
Masters of Scale Episode Transcript: Reed Hastings REED HASTINGS: The horse was the dominant form of human transportation for about 5,000 years: domesticated in Kazakhstan, 3000 BC. REID HOFFMAN: That’s Reed Hastings, the founder and CEO of NetFlix. You might think he’s giving an elevator pitch for a NetFlix Original—like Marco Polo, but without the blind Taoist monk. He’s actually revealing the foundational strategy that drove the company’s success. He starts the story on the plains of Kazakhstan and moves pretty quickly from there. HASTINGS: The horse was the dominant form of human transportation for about 5,000 years—domesticated in Kazakhstan, 3000 BC. So for 5,000 years, if you wanted to make a contribution of personal transportation, it was a better saddle, better breeding, better hooves. And then in one generation, from 1900 to 1930, everything changed with the internal combustion engine. HOFFMAN: What Reed Hastings understands—with such clarity—is that technological shifts don’t always happen incrementally. Sometimes, they burst over your head like a thunderclap, and wipe away habits that have lasted thousands of years. HASTINGS: And the trick is to realize, those are pretty rare. HOFFMAN: So sometimes innovation happens fast—and that’s the kind of change we typically aim for in Silicon Valley. But more often, innovation happens slowly. And Reed Hastings knew early on that NetFlix needed both kinds of innovation. They started by sending DVDs in the mail, and evolved into a streaming video service with original content. HASTINGS: Much of the time, the right strategy is to improve what you've got, and then some of the time, everything changes—and correctly recognizing the differences there is really important. Humans are inventing faster and faster, and that does mean that the typical business model is shorter lived than it would have been before. So I'm not expecting Internet streaming to be 5,000 years, like the horse. But it may be like the automobile, where it's 100 years or more. HOFFMAN: Now that’s the sort of foundational insight that not only drove NetFlix strategy, but also defined their culture. Here’s why: Reed could see that he needed a team that could develop a first-rate logistics operation for shipping DVDs. And at some point, that same team would have shed all of that logistical expertise and build an online streaming service from scratch. So who the heck can make that leap? Certainly not someone who’s worked in a mailroom for 50 years, and developed an expertise in shipping little red envelopes. Reed knew he needed flexible problem-solvers who could change with the times, and he built a company culture for and with them. It’s a great example of why I believe there are many good company cultures and many bad company cultures, but a winning company culture emerges when every employee feels they personally own the culture. [THEME MUSIC] HOFFMAN: This is Masters of Scale. I’m Reid Hoffman, co-founder of LinkedIn, investor at Greylock, and your host. And I believe that a strong culture is critical to companies that hope to scale. But truly strong company cultures emerge only when every employee feels they personally own the culture. And by strong culture, I don’t mean authoritative. Quite the contrary. A strong culture should be a true articulation of how your employees work at their best. It should be grounded in your shared mission—the thing you’re actually trying to accomplish. It should be understood by everyone and built by everyone. And it should start from your earliest days as a startup. But the question remains, how do you get everyone across the org to share your values, without stifling diversity and hiring in your own image? And trickier still, how do you spread those values when you’re hiring new employees by the hundreds? On today’s episode, I’m going to talk with Reed Hastings, the CEO of Netflix, about his journey from a dysfunctional culture in the first phase of his career, to the high-performing culture he nurtures at Netflix. At times, you might find it a bit awkward that Reed Hastings and I have almost the same name. But we’re going to push past that. As the episode continues, I’ll simply refer to him as “Reed.” We’re going to come to the Reed Hastings story in a moment. But I want to start at the beginning here. If you want to build a strong culture, the first thing you have to do is open your eyes. You have to start observing your culture the instant you arrive at the office—as soon as you walk through the front door. Margaret Heffernan, former CEO of five companies, can spot the warning signs in just a few paces from the front door to the front desk. MARGARET HEFFERNAN: When you walk into a company, you instantly learn a huge amount. I can think of one company that I do work with in Switzerland, where they have outsourced the receptionist—and all I can tell you is that that cultural marker, which is, “We don't really care about the people who walk through our front door,” pervades everything about the way that they treat people in that company. There are all sorts of cliches and truisms about first impressions. But actually, what you see when you're walk in is almost always what you get when you get to know the company better. HOFFMAN: So as the world’s lone expert on reception desks, I had to ask Margaret: What’s the friendliest reception she’s ever received? HEFFERNAN: I can think of a company in San Francisco that I've written about a lot called Method home care products, where the founders and senior people in the company actually take turns being the receptionist, because they want to know who is coming to see them. HOFFMAN: At this remarkably welcoming company, the leadership team doesn’t just hand their employees manuals on how to behave—neither are they passive observers. They embody their cultural principles. I believe that a healthy culture emerges only when every employee, from the CEO to the receptionist, opts into the culture every day. The cultural principles themselves can change over time. They can vary from company to company, and they can strike outsiders as really bizarre. That’s all fine. But the one thing must remain constant: your staff must truly believe in your office culture. It’s best to start thinking about this when your team is small, and the culture is still malleable. A company’s culture cements very quickly. So as you grow, you have to be very careful about what it is you’re scaling. You can get away with a lot more when when your staff is teeny—say, two or three people. And that’s exactly the sort of team Reed Hastings was leading back in 1991. Long before he had founded Netflix, he was a programmer. Reed, along with two of his colleagues, invented a debugging tool for other programmers. They called it Purify, and it was a hit. That’s when things got messy. HASTINGS: And on the back of one niche idea like that, was able to start a company—Pure software. First round of funding was family and friends—20 people by 20K—to be able to get an office and start selling. And then we doubled every year. And it was in one way tremendous—Morgan Stanley took us public in 1995, we acquired all these companies. But in another way, it was terrible, because we got more and more bureaucratic, less and less inventive, less and less fun. And it was that classic, “Company got soft and political as it got bigger.” HOFFMAN: Consider what Reed Hastings was up against. He was a programmer, not an experienced executive. He was acquiring companies, which means whole teams, with their own hardened working habits, were slapped together. At one point, his company, Pure Software, acquired three companies in the span of 18 months. And as the culture eroded, Reid had a solution—of sorts. HASTINGS: Well, I had the early idea that if anything was wrong, I could just work a little harder to make it right. And so I was coding all night, trying to be CEO in the day, and once in awhile, would squeeze in a shower. And it turns out that's not a good recipe for leading a large group of people. At the time, I thought if I could just do more sales calls, more travel, write more code do more interviews, that somehow it would work out better. I don't think I ever really escaped from that, until the company got acquired by our largest competitor in 1997, six years after starting. And it was only then, in afterwards processing what had happened, that I was able to get some perspective on it. HOFFMAN: So Reed made a very typical mistake in his first company. He thought he could solve his company’s problems just by working harder. But hard work isn’t enough, and more work is never the real answer. To succeed as you scale, you have to leverage every person in the organization. And to do that, you have to be very intentional about how you craft the culture. This was exactly the lesson Reed took from Pure Software. Their management decisions had created a culture that rewarded the wrong behavior and retained the wrong employees. HASTINGS: Well, the mistakes in Pure was that every time we had a significant error—sales call didn't go well, bug in the code—we tried to think about it in terms of, what process could we put in place to ensure that this doesn't happen again, and thereby improving the company? And what we failed to understand is by dummy-proofing all the systems, that we would have a system where only dummies wanted to work there, which was exactly what happened. And so the average intellectual level fell, and then the market changed, as it inevitably does. In that case, it was C++ to Java, but it could be anything. And we were unable to adapt to it, because we had a bunch of people who valued following the process rather than the first-principle thinking. HOFFMAN: Notice Reed’s double insight here. Pure Software couldn’t adapt because they had the wrong employees, and they had the wrong employees because of management decisions that explicitly selected for those employees. It was an insight that catapulted him. Pure Software sold for $750 million dollars. That gave Reed the seed money to launch Netflix in 1997. It started as a service that mailed DVDs to your door. And it’s easy to forget just how radically Netflix upended the video rental business from day one. No late fees. No extra shipping charges. Lose a DVD? Get a new one in the mail, no questions asked. Their most fearsome competitor, Blockbuster, quickly followed suit, matching service for service, but not quite fast enough. Blockbuster filed for bankruptcy in 2010, and shrunk from 9,000 stores at its height to roughly 10 stores today, 8 of which are reportedly in a frigid part of Alaska with sluggish Internet service. Score one, Netflix. But there’s a deeper reason Netflix was able to outmaneuver a company more than 100 times its size. It’s not a story of competition, but cooperation—a cultural flourishing that took place within Netflix’s headquarters. It was a culture built almost as a counterpoint to Pure Software. HASTINGS: we were unable to adapt to it, because we had a bunch of people who valued following the process rather than the first-principle thinking. HOFFMAN: A bit of background on first-principle thinking—you’ll hear this expression a lot in Silicon Valley. First-principle thinking is the idea that everything you do is underpinned by foundational beliefs—or “first principles.” Instead of blindly following directions, or sticking to a process, a first-principle thinker will constantly ask, “What’s best for the company? And couldn’t we do it this other way instead?” And these are the kinds of inquisitive minds that Reed Hastings wanted to unleash on Netflix, for virtually every decision. HASTINGS: And so the reverse of that, which we do at Netflix, is you have to be a first-principle thinker. There's an overhead to that, about what's best for the company. So this is true on the broad scale, like what kind of content we do. It's also true in the micro, which is, “How should I travel, business, or coach, or by bus?” And we asked people to do what you would think is best for the company. We don't give them any more guidelines than that. And some people that frustrates, but those are probably not the people that's a good match for Netflix. And other people like this sort of first-principle thinking all the time. HOFFMAN: This may sound like the sort of advice a tech entrepreneur would naturally follow. Who wouldn’t want to hire a first-principle thinker? Well, it’s easy to tell yourself that in the abstract. But when you’re running a fast-growing company, you’re also going to be telling yourself, “I desperately need a sales expert, a programmer, a designer, an accounting wiz”—and you’ll find applicants who have resumes with all of the skills suited for that moment. It’s all too tempting to tell yourself, “Well, we’ll find a first principle thinker with the next hire.” Just look at what happened to Reed when he was at Pure Software. He’s a first-principle thinker. You’d think he’d hire other first-principle thinkers. Game recognizes game, right? And yet he neglected that hiring standard—for six years. That is why you must define your culture before you scale. And you have to think deeply about what cultural attributes you want to preserve at scale. Reed gave this a lot of thought in the founding days of Netflix. He wasn’t just looking backwards, at the lessons learned from Pure; he was also looking ahead, where he saw an enormous threat to the company. Forget Blockbuster—how would Netflix survive the dawn of online streaming? Broadband Internet was making its way into households across the US. It seemed inevitable to Reed that streaming entertainment would eclipse DVDs, just as surely as the combustion engine eclipsed the horse and carriage. And here’s what makes Reed such a fantastic strategic thinker—he was fretting about this in the late ‘90s, when broadband Internet had reached fewer than one in 10 households. To comprehend why Reed hires first-principle thinkers at Netflix, you have to remember how he views these technological shifts. Innovations generally happen incrementally—except for those moments when everything dramatically changes. And then everything moves slowly again. HASTINGS: If we continued to refine DVD-by-mail for another two decades, that would have been a failure strategy, because the underlying substrate was changing, and Internet delivery was becoming possible. But now that we’re in Internet delivery, we think that Internet television is going to be a 50 or 100-year paradigm. And so now our focus should shift to be, how do we do better and better on the core? HOFFMAN: Reed’s knowledge of history, the changing nature of technology and the historical moment he was in, led to the understanding he would need people to change with the times. People who could rip up a process, and return to the first principles of delivering entertainment by any means necessary—whether it’s horseback, mail, fiber optic cable—or maybe in the future, Elon Musk’s neural lace. Regardless, you need people who can change the business model—fast. So how did Reed identify those candidates? It started with a now-legendary document at Netflix: a collection of more than 100 slides known as the “culture deck.” These slides defined exactly what the Netflix culture stands for, and who they’re trying to hire, and what they can expect. HASTINGS: The culture deck started about 10 years ago. So first couple of years, we were just focused on survival, then we got public in 2002, cash-flow positive—and it was clear we were going to survive. So we then started really thinking about the culture—what we wanted to be, how we wanted to operate. And so over successive years, I improved this deck which I would go through with new employees. And sometimes those new employees would love it, sometimes they were like, “Oh my god, why didn't you tell me this before I started? “That doesn't make sense to me.” And so we realized we should give it to every candidate. And so then about 2007, 2008 we did that by posting it on SlideShare. But again, it was really just to be able to send a link to the candidates. It's not very pretty, it's not very highly designed, doesn't look like it's an external marketing piece, but that authenticity, really, people liked in the outside world, and now it's over 10 million views on SlideShare, and continues to be studied around the world. HOFFMAN: And what were the unexpected benefits of having published it? HASTINGS: Well, let's see—the core benefit, which we did expect, was that candidates were very aware of the culture. The unexpected benefit was, many people became candidates for us, because they loved that—what we described in terms of freedom and responsibility—that might not have otherwise thought about us. HOFFMAN: Here’s the fascinating thing about Netflix’s culture deck. It’s not meant to appeal to every job seeker. In fact, it’s meant to repel some job seekers. HOFFMAN: One of the things that I think that shocks people about the Netflix culture document is they say, “Look, adequate performance should get you a severance package.” What's the way that you both create that high performance, but also doesn’t feel too dangerous to people? HASTINGS: Yeah, we try to always emphasize honesty—so you can always ask your manager, “Hey, if I were leaving, how hard would you work to change my mind to stay?” That’s sort of the acid test—I would call it the “keeper test.” So we encourage people to check in with their manager on that. So we try to be very thoughtful, so it should be that there's no surprises about that—and we all aspire to excellent performance, and there's no short-term judgment, or like, “Last week you made a mistake, and so you're out.” It's not like that at all. It's about, really, the expectation of future contribution, which is based on a range of factors and performance to date. HOFFMAN: This keeper test may sound a bit Darwinian. No one wants to hear a manager say, “I wouldn’t fight to keep you. Thanks for playing.” But I actually believe it’s more compassionate to ask this question, repeatedly. You have to be thoughtful about who fits in, and who clashes with their coworkers. Suppose a manager decides to keep a brilliant jerk on the team. Morale sags. The team’s performance drops. Then you have a truly Darwinian struggle on your hands. And in that sense, the keeper test cuts both ways. A manager can fail it as surely as any employee. That’s why a commitment to culture must pervade every decision. Without a clear sense of how staff should work together, it’s all too easy for managers to narrow their focus on individual players. And emphasizing individual performance, at the expense of the team, can be downright hazardous to an organization, as Margaret Heffernan has observed. HEFFERNAN: There is often a belief among very successful, very competitive people, that the thing you want to do in a company is get everybody to compete with each other. That if it's “Everybody’s racing against everybody,” you'll have this kind of white heat of brilliance and creativity. And I think pretty much everything about that's wrong. And that's not to say that I'm not competitive—I'm deeply competitive with myself, in the sense that I really want to do a better job today than I did yesterday. But I don't want you to fail. And I have seen more companies and organizations go wrong, because of what I think of as negative competitiveness. “I do want you to fail,” or, “I want your department to fail,” or, “I want your product to fail, because that will make me shine.” I've seen more damage and destruction and waste from that mentality than probably from any other misunderstanding. If you can build an environment in which people really want to help each other, full of people who are generous, you will do infinitely better than creating some kind of Olympic sport within the company. HOFFMAN: Here we come to the essence of a strong culture. It serves as a check on selfish ambition. It’s a civilizing force that excludes anyone who will drag down the team, and also welcomes anyone who elevates the team. In short, it’s warm, but not cuddly. And if that sounds a bit paradoxical, Reed Hastings has a clarifying analogy. You’ll never hear him refer to his colleagues as a “family.” It’s a term that visibly grates at him. He likens Netflix instead to a sports team—they expect high performance from their players, and they use internal collaboration as a tool to drive external competitiveness. HASTINGS: In team sports that really succeed, there often is a lot of warmth between the players. And so it's emphasizing those aspects, and demonstrating that when people come in, everyone tries to help them. But ultimately, it is about performance, unlike a family, which is really about unconditional love. Even if your brother does something awful and goes to jail, your love doesn't stop. And that's just a different and important part of society, but that's not what we're about. What we're about is collectively changing the world in the areas of Internet television, and that takes incredible performance at every level. We're also about really honest feedback all the time, so you can learn and be the the best that you can be. HOFFMAN: Are there any company cultures that you think should do family versus team? HASTINGS: I suppose a family business—it's a way of providing an income to a family. HOFFMAN: So if it’s family already, why not. HASTINGS: It’s a family already. But no—I mean lifetime employment, unconditional support, no matter what the performance is. I don't see how that makes sense for organizational excellence and contribution to society. HOFFMAN: So let it be known that Netflix does not promise unconditional love—and they’re exceptionally frank about this in their culture deck, which every prospective employee reads. This has become a powerful tool for them—one that creates a built-in filter to every hire. It’s a great hack that other companies would be smart to adopt. Because the hiring process is a critical—but often overlooked—part of maintaining company culture. When you’re growing and hiring fast, it’s easy to place expediency over excellence. You’ll often find yourself tempted to hire perfectly-qualified candidates, who you know—in your gut—are not a fit with your cultural values. My strong advice: Resist. HOFFMAN: So how do you resist the urge to hire a candidate who is brilliant, qualified, perfect in every way—with the sole exception that they might clash with the company’s culture? I asked Jeff Weiner, the CEO of LinkedIn, how he does it. “With reluctance,” he told me—until he saw the consequences of the decision. JEFF WEINER: As the organization grows in success, you're going to have a lot of demand for your products, and you're going to need to hire quite rapidly. And as a result of that, you're going to be bringing people into the organization that are less familiar with the founding DNA, what it was you're trying to accomplish. I remember early on in my tenure at LinkedIn, we were around the table. Call it a hiring committee, a small group of people responsible for evaluating new prospects. We were evaluating some LinkedIn profiles, and there was one profile in particular for a very important role, and the person who was sponsoring this prospect said, “Look at this profile, look at the background, look at this experience, look at the skill set. I mean, we couldn't find anyone better. I should warn everyone, I don't know that they're the right kind of cultural fit for us, based on the following. But we'll make it work.” And inevitably, when you try to pull that off, and you kind of rationalize to yourself that, despite the fact you know there is this misalignment, you'll make it happen—inevitably, it almost never does. And it becomes very expensive in terms of time, energy, and even resources working through that, and trying to rectify those situations. Fast forward about six to nine months, and we were around the table—very similar group of people, evaluating somebody’s profile, and someone said, “Check out this profile, look at this background, look at this set of experiences and skills, just unbelievable. But they're not a cultural fit, so let's move on to the next candidate.” And that's when you know you're in a position where you can scale—especially when that discussion is taking place and you're not in the room. HOFFMAN: Notice how Jeff points out that this willingness to reject A-players has to persist, even after he leaves the room. Some CEOs, like Aneel Bhusri, co-founder and CEO of Workday, refuse to leave the room until the team has made this decision so many times, it’s a reflex. ANEEL BHUSRI: You know this well, Reid. In the early days, it's just you, and a few other people, so we just did it ourselves. We set out to interview the first 500 people. HOFFMAN: To be clear, by “we,” Aneel means he was personally involved in interviewing the first 500 hires for cultural fit. BHUSRI: After our hiring managers had identified people, and put them through the process for skills, we would then interview the individual at the last stage, and it would be purely about cultural fit. And we would test on whether they were an “I” person or “we” person—we were looking for “we” people, we were looking for people that had a clear driver for why they wanted to be successful. We were looking for people that were high integrity. We were looking for people that did not job-hop. And you could look at a resume, you can tell if they’re the shiny, new-penny type that jumps from one op to another. We were looking at people that were going to be with us for seven, eight, nine, 10 years. We just did a town hall a couple days ago, and we’ve got tons of people who have been with us ten years. And that's how you build a great company. So I was interviewing those first 500 people. HOFFMAN: And it's somewhat obvious from this, given that you set up that initial culture, but how then, past the first 500, did you help keep that? BHUSRI: Well, we kept interviewing people after the first 500, but we armed those first group of people. We decided—I think it was at a company meeting—to say, “OK, now you guys are on the hook. You interview the next 5,000. Make sure the next 5,000 people are great cultural fits.” They still, to this day, take that role very seriously as ambassadors of the culture. HOFFMAN: I want to acknowledge the risk of this conversation. A strong culture is great for team performance—but you also run the risk of defining your culture so narrowly, that the founding team starts hiring in their own image. And if your founders are a bunch of young, Ivy League white guys hiring other young, Ivy League white guys, you’re not just being biased—you’re being foolish. You want a strong adaptive team, you need different perspectives. Tristan Walker, the founder and CEO of Walker and Company, considers the diversity of his staff a strategic advantage. They’re hard at work developing health and beauty products for people of color, which his competitors mistake for a niche market. It only looks niche when you’re surrounded by white people, he argues. His competitors’ oversight is his team’s opportunity. TRISTAN WALKER: So how do we come up with ideas and idea generation, et cetera? We have an innovation pipeline that's three, four years long. But a lot of those ideas start with ourselves, because we're part of the community we're serving. This goes back to some of that strategic advantage. I feel like the diversity of our company needs to reflect the diversity of America, the diversity of the world. And out of that comes innovation and ideas that are fresh and new. HOFFMAN: It’s a sentiment echoed by Mariam Naficy, founder and CEO of MInted, a site that sells home decor from independent designers around the world. She invites designers to submit their best works through a crowdsourced competition. And she knows from experience that great design is tucked away in nearly every market of the world, just waiting to be discovered. MARIAM NAFICY: So my dad was with the UN. He is an economist—development economist—and so we would move every time he got a new assignment. So we were in Kuwait, then Lebanon, and we were there when the war started. Then Tanzania, which was stable, Iran—so I was there during the revolution—and then Egypt. And then, actually, I got exposed to a lot of design, architecture, and style that really influenced me. And I didn't realize how much it did, until I started Minted. I saw things in Iran, for example, that are hard to get to now. I would go through bazaars with my mom. And my mom is Chinese, my dad is Iranian. We would haggle our way through markets a lot. HOFFMAN: And how did that diversity of international cultures and perspectives help prepare you for thinking about, “We're going to do design competitions, we’re going to crowdsource design, we're going to create a range?” NAFICY: You realize the breadth of perspective that is actually out there, that we don't necessarily have access to as consumers here—that really helped me. I think also, I really believe different people have different aesthetic tastes, and you need to be able to address them. And the best way to address them is really by tapping into global creativity. HOFFMAN: I only bring up these examples because they underscore the hidden costs of a whitewashed office culture. You can scale a product to the world without looking like the world, to be sure—but the slightest misconceptions you have about your customers translate into missed opportunities for your business. And as an investor at Greylock, we look for a range of diversity on the team and on its board. We have worked with recruiting groups and all kinds of organizations, like Sheryl Sandberg’s Lean In movement, to close the gaps. But I don’t claim to have a silver bullet. At the very minimum, everyone should be playing the long game on this issue. When we ask this question year by year, it has to be front and center. Suppose you have your long game down. You have diversity, a culture deck like Netflix of 124 slides, clearly defined, built into the hiring process, shared with 10 million viewers. Are you all set to scale? Not quite. Because your culture is not just an expression of how your team works together—it’s how they work together at their best. You should tell the truth, but add a dash of idealism. HASTINGS: We try to constantly encourage employees to figure out how to improve the culture, not how to preserve it. And so everyone is trying to add value by, “Here's a place we can improve in what we do.” And so that keeps it very alive. It's not the golden tablets; it's a constantly evolving living document and practice. HOFFMAN: I like Reed’s expression—a living document. And it’s brought to life by a peculiar tension between reality and aspiration—the culture you want, and the culture you strive for. A truly strong culture is always under construction. HOFFMAN: Do you release new versions of the deck? HASTINGS: Yes—so it's been updated a couple of times. We haven't unwound anything, but we've constantly realized—the current issue is the deck makes us, in some cases, look cold and competitive, and actually employees experience us as very warm and collaborative. But that aspect doesn't really come out in the decks. We're constantly trying to update the deck to be more reflective of who we actually are. HOFFMAN: So Reed will keep revising that document, and his employees will keep reading it. And no matter what the size of your company, I’d suggest you do the same. Start early—when you’re still small and your culture is still being shaped—and recognize that it’s both a creative exercise and an organic system, one that your employees will shape with you. Granted, there are people who will tell you, this is a highly overrated exercise. Culture is an elusive concept. And some people question whether culture—right or wrong, strong or weak—is just a figment of our imaginations. It’s a question I posed to Reed Hastings. HOFFMAN: I had a conversation with a friend of mine—who I can't quote yet, because he hasn't given me permission. But he basically argued to me that culture was a retroactive narrative of successful companies. When you're successful, then you can tell the story of the culture that made you successful—and the classic one here is, “Culture eats strategy.” But do you think that that counter point of view is just foolish? Or do you think that that is something that actually, in fact, there is a little bit of, for really successful high-performing companies, are then very congratulatory to their culture? HASTINGS: Well, very successful companies also work in buildings rather than tents. But that's a generally accepted practice, that buildings work better than tents. So you do have to watch out for that retroactive thing, of kind of what's different. But I would say, on balance, the culture will help Netflix prosper through multiple eras in a way that, say, my first company Pure Software did not. And so from a personal experience, we've been able to adapt from DVD-by-mail, taking on Blockbuster, defeating a company that was 100 times larger than us, to then go from DVD-by-mail, to streaming of other people's content, to streaming of our own content, from 100% percent domestic to global. So we've encountered many challenges, which Pure Software in the 1990s would not have been able to do. And so I'm very personally convinced that the culture has been helping on that. But again, I encourage people not to believe in things, that “Culture eats strategy for lunch.” Both are really important. We spend a lot of time on strategy, and why not do both well? Why do you have to rank them? Let's try to do culture well, let’s try to do strategy well. HOFFMAN: Think about that list of changes Netflix has weathered. The same people who shipped DVDs are now producing original content, snapping up movies at film festivals, and streaming entertainment worldwide. Netflix is the Madonna of companies, constantly reinventing itself. And notice how Reed, despite his strategic brilliance, is convinced that his previous company wouldn’t have made the transition. It’s as close as you get to a control experiment—same strategic mind, two different cultures. Only one conquers the world. And maybe culture is just a byproduct of strategy. Maybe you can ignore it and focus on strategy alone. But consider that list of threats that Reed faced—do you really want to take that risk? I wouldn’t. And at the very least, if you’re thoughtful about culture, you can avoid hiring a bunch of white guys named Reed. Otherwise, your water cooler banter will sound like this. HASTINGS: Great pleasure, Reid. Now let’s do the Reed and Reid thing. Oh, right. HOFFMAN: So Reed, it's always great talking to you. I always learn something new. HASTINGS: You too Reid, a great pleasure. HOFFMAN: I’m Reid Hoffman—not Reed Hastings. Thank you for listening.

next silicon valley rottenberg endeavor

from reed hoffman https://mastersofscale.com/wp-content/uploads/2018/10/mos-episode-transcript_-linda-rottenberg.pdf
Masters of Scale Episode Transcript: Linda Rottenberg LINDA ROTTENBERG: I had been living in Latin America in the mid 1990s—and this is the time when Netscape and Yahoo are all happening, and everything is abuzz in the United States. And in Latin America, where I'd been living, no one was starting a business. And I kept wondering, “Why?” REID HOFFMAN: That’s Linda Rottenberg, the co-founder and CEO of Endeavor, a not-for-profit that connects entrepreneurs to local investors in more than 30 countries. You might wonder what prevents investors and entrepreneurs from finding each other. Surely, the invisible hand should be clapping these two groups together. But it doesn’t always happen, and it definitely wasn’t happening in Latin America in the 1990s. Linda got her first clue during a cab ride through Buenos Aires. ROTTENBERG: I was in a taxi, and my driver mentioned that he had an engineering degree. So I thought, “Oh, well, you must be one of these people starting a business,” and I couldn't think of the word. And he kept using the word “impresario,” which meant “big businessman who had Swiss bank accounts and government connections.” And I said, “No no no no, es impresario.” No, it’s another word. And we went back and forth, and he said, “No, no, I'm sorry, there's no word like that here.” And I realized, at the time, there was no word even for entrepreneur in Spanish. And so I thought, “Well, if you can't name it, you can't be it, and you can't tell your parents you are one of these.” HOFFMAN: This wasn’t just a single word lost in translation—it was a whole mindset. You might call it the animating spirit of Silicon Valley. Because what truly draws entrepreneurs to Silicon Valley is a founding mythos, a shared belief that any entrepreneur can disrupt any industry—even if that industry is run by an army of impresarios. You have to believe that investors and talent will flock to you like a flash mob, and overwhelm your mightiest competitors—government connections and Swiss bank accounts be damned. And this is a hard myth for the rest of the world to swallow. ROTTENBERG: It sounds so corny, but I grew up as this middle class girl in Newton, Massachusetts, thinking I can be the next Steve Jobs. Why not? And it was so foreign to me that people didn't grow up with that same belief system. And so I felt—again, with no reason why—that we could change that entire system. HOFFMAN: I agree. You can change that mindset. You can build other Silicon Valleys, anywhere in the world. But you should know that it's really, really hard. You need the mindset, the mentors, and the entire ecosystem to create a Silicon Valley. So when and where might it happen? You’re about to find out. On today’s show, we go in search of the next Silicon Valley. [THEME MUSIC] HOFFMAN: This is Masters of Scale. I’m Reid Hoffman, co-founder of LinkedIn, investor at Greylock, and your host. I believe that Silicon Valley’s collective wisdom for scaling a startup is currently unmatched. But I also believe that other Silicon Valleys can be built, elsewhere in the world. It’s just that it’s really, really hard. You need more than startups. You need a constant stream of entrepreneurs and ideas, and capital, and companies of all sizes. You need an entire ecosystem to create a Silicon Valley. To fully understand that, it helps to demystify Silicon Valley’s recipe for success—and it is mystifying, when you think about it. Silicon Valley has a population of 3 million people. That’s less than 0.1% of the world’s population. And yet, they’ve launched nearly half of the world’s most valuable tech companies, with a valuation of more than $100 billion dollars. You can see their headquarters clustered along a roughly 50-mile drive between San Francisco and San Jose. Head south from San Francisco, and you’ll pass most of them within an hour. Once you pass the Netflix headquarters in Los Gatos, your tour is over. The multi-billion dollar companies peter out; you’re back in the normal business world. But Silicon Valley is so much more than an archipelago of thriving tech companies. It’s a deeply interconnected ecosystem, and that’s what you need. You need entrepreneurs with ideas, yes. But you also need people who are skilled in every discipline needed at every company, at every stage. Not just engineers and product managers—but also lawyers, accountants, marketers, recruiters, operational geniuses. You need places for them to gather, and media outlets to share their ideas. You need world-class universities with their constant supply of young talent, and venture capitalists to invest in them. And, importantly, you also need successful entrepreneurs who pay it forward. These are the things that make Silicon Valley unstoppable—for now. So which city might claim the title of “the next Silicon Valley?” I can’t think of a better person to ask than Linda Rottenberg. As CEO of Endeavor, she’s spent the past two decades growing Silicon Valley-like ecosystems in more than 30 countries. She’s a consummate networker. If LinkedIn sprouted legs and started talking, I might imagine it would sound like Linda. Drop her in any country, and she will start making connections. But in the course of her connecting, Linda noticed a chronic disconnect. In many of the places she visited, there was a gaping hole between the bright, young entrepreneurs and the investors who might take a chance on them. That conversation she recalled from the cab in Buenos Aires played out again and again in her travels across South America. ROTTENBERG: I would travel to Brazil and to Mexico and Chile—no young people who weren't from the top 10 families were starting companies. And they all wanted government jobs. And I thought, “Government? Really? Who wants to work for the government?” And when I would dig in, they would say, “Well look, you can get a $10 dollar or $50 dollar microcredit loan, but we don't want to just create a tiny business. Or you can get a $50 million dollar investment—if you're already part of the rich families, that we aren't. We don't have the right last names.” And I would start to tell the story of Steve Jobs and Steve Wozniak starting Apple. And I remember in Brazil, a young kid came up to me and said, “Linda, that's a nice story, but how does it relate to my life? No one in Latin America is going to give me money for my crazy idea. And I don't even have a garage.” And that's when it hit me—you need local role models. HOFFMAN: Now here’s what’s so unusual about Linda. She might have reasonably concluded that she had underestimated the challenges young entrepreneurs faced in these countries. Surely, they knew the obstacles to starting a business better than a New England yankee with an idealistic bent. How could they possibly compete with the connected families on an uneven playing field? It would take years of legal and structural reform. It might not even be possible. Linda begged to differ. She was convinced that if she could point to one local success story, a Steve Jobs or Mark Zuckerberg of South America, she could short-circuit the debate. One iconic entrepreneur could stand as living proof that you don’t have move to Silicon Valley to scale a business. And if that’s true, why shouldn’t 1,000 Silicon Valleys bloom? Sure, it took decades for Silicon Valley to develop its talent for scaling, and Linda would have to start from scratch in every community she worked in. But you have to start from somewhere, right? Linda and her co-founder, Peter Kellner, started at the kitchen table. ROTTENBERG: And we actually came to my parents kitchen table to write on a napkin the business plan for Endeavor. My parents freaked out. And in fact, my parents overheard us plotting this global organization that was going to support high-growth entrepreneurs in emerging markets. And my mother looked at my father like, “You've got to stop this.” And my dad gently came over and reminded me that I needed to be financially independent, I didn't have anything to fall back on—and this didn't sound like job security. And I refer to this as my “kitchen-table moment,” which I think a lot of entrepreneurs face—which is, it's really scary to tell your family that you're going to do something unconventional. And you have to make this choice—do I do what's safe and expected, or do I venture into the unknown? HOFFMAN: Linda was convinced that high-impact entrepreneurs can be found anywhere—and we might hear from them more often, if only they could push through their own “kitchen-table moment.” ROTTENBERG: To me, the biggest problem is the best ideas don't die in the marketplace, or in the laboratory—they die in the shower. Because people don't even give themselves permission to walk out of the shower, and write it on a napkin, and take it into the world, because they're afraid of what others are going to think about them. And they're afraid that people are going to say, “Well, this is just a crazy idea.” HOFFMAN: Every business idea involves some measure of risk. But the most scalable business ideas don’t just sound risky, they sound downright crazy. And if you haven’t heard the Masters of Scale episode called “Beauty of a Bad Idea,” I’d suggest listening to that next. You’ll get a sense of how hard it is to take a scalable idea out of the shower and into the world of skeptics. And the farther you move away from Silicon Valley, the harder it is to find someone who will take a crazy idea seriously. That’s because Silicon Valley has styled itself as an El Dorado of crazy thinkers—a place where bold investors champion misfit entrepreneurs. Few people will actually say this, but I’m going to: You’re taking a huge risk if you try to start a tech company anywhere outside of Silicon Valley. The metaphor that I use for entrepreneurship is you jump off a cliff, and you assemble the airplane on the way down. And there's a bunch of ideas that are compacted in that metaphor to make it very simple. Part of it is that the really committed entrepreneurs will move to wherever they need to be in order to be more successful, because they already know they're taking this huge risk. So if you're in New York, or L.A., or Austin, or Boulder or wherever, and you don't say, “I'm going to move to Silicon Valley to build this company,” the question is, “Why?” You might say, “Look, I’ve got a whole wide swath of great engineering talent here. I can raise the capital myself. I know there's a capital edge, a go-to market edge, a talent edge, and everything else in Silicon Valley, but I will overwhelm it from the other innate advantages that I have, and I'm just willing to take those risks.” That's fine. And by the way, some of those companies happen and succeed. Groupon was smart to stay in Chicago, because it’s a sales-driven business—and sales is not Silicon Valley’s strong suit. Kickstarter benefited from New York’s thriving art scene, and it’s not clear that its user base would have scaled as swiftly in the Bay Area. But unless you have a truly compelling reason, such as staying close to your customers, I believe that you currently have to come to Silicon Valley to scale a tech company. And I wish it weren’t such a stark choice for entrepreneurs. We all lose when a great entrepreneur can’t scale an idea, due to an accident of location. And the fact of this unequal access drove Linda crazy. In 1997, she launched Endeavor, a non-profit that would connect high-impact entrepreneurs to their nation’s business elites. Now you might think her plan to cultivate a generation of disruptive entrepreneurs would place in her opposition to the so-called impresarios—the businessmen with the political connections and the Swiss bank accounts. On the contrary, those are precisely the people she turned to to get this network up and running. To her, it was clear that they could be powerful allies. But first, she had to convince them to take a risk on unknown local entrepreneurs. ROTTENBERG: So after that kitchen table moment, I told Peter that I would go to New York to raise money, and he had to go down to Latin America. So he did, and he called up and said, “Linda, I got you a meeting with Eduardo Elsztain.” Eduardo was, at that point, the largest landowner in Argentina, who famously had walked into George Soros— COMPUTER VOICE: George Soros is a billionaire and one of the world’s most successful investors. ROTTENBERG: And convinced him to invest in Eduardo's company—and George Soros had ended up investing $10 million dollars. I had a 10-minute meeting with Eduardo. Five minutes into the meeting, Eduardo looks at me and says, “OK, I get it. You want a meeting with George Soros. I'll see what I can do.” And I looked at him and said, “No, Eduardo. You're an entrepreneur. I'm an entrepreneur. Endeavor’s an organization of, by, and for entrepreneurs. I want your time, your passion, and $200,000 dollars. Eduardo turns to his right-hand guy Oscar—and the meeting had been in English, but he turns in Spanish—and says, “Esta chica esta loca”—”This girl is crazy.” HOFFMAN: To clarify—he said, esta, not “es.” “Esta: implies a temporary condition of craziness, not a permanent condition. There’s hope yet for Linda. ROTTENBERG: So I responded in Spanish, “Eduardo, estoy decepcionada”—you know, “I'm disappointed. This, from the guy who famously walked into George Soros’ office and came out with $10 million dollars. You're lucky I only asked you for $200,000!” He turned away. I thought he was, again, going to kick me out. This is the story of my life—I stalk people, and then I think I’m going to get thrown out of the room. But instead, he turned to the floor, took out his checkbook, and wrote a check on the spot for $200,000 dollars. And to this day, Eduardo says it's the best investment he ever made. HOFFMAN: So Linda now has $200,000 and a successful entrepreneur who was ready to play the role of mentor. She only had to find one final node in her embryonic network—an entrepreneur to take a chance on. And she found one: a former sheep farmer with a flair for big ideas. ROTTENBERG: Wences Casares was a kid who'd grown up on a sheep farm in Patagonia. He creates the first Internet service provider, it gets taken over, he gets thrown out of the company with nothing. He's 24 years old, and he decides, “I'm going to go start the first E*TRADE of Latin America.” So we meet him, and he had been turned down by 34 local investors. He had his sister and his best friend working for him. And we just met him, and said, “This guy is on to something.” HOFFMAN: Wences, on the other hand, thought Linda was on something. ROTTENBERG: He thought that myself and my co-founder Peter were running a cult. He thought it was a religious cult, because why would anyone want to actually help someone who didn't have the right last name? You know, there wasn't even the word for “entrepreneur.” So yes, even Wences thought I was crazy. HOFFMAN: But Linda is “la chica loca.” She actually wrote a book called Crazy is a Compliment, which explains why she didn’t care if Wences thought Endeavor was a cult. She convinced Wences to join anyway. ROTTENBERG: We ended up helping Wences raise capital from Fred Wilson, then of Flatiron Partners and Chase Capital. We ended up helping him find a COO. What happened was 18 months later—this kid who everyone knew, 34 investors had turned him down, came from nowhere—sells his company Patagon.com to Banco Santander for $750 million dollars. All 34 investors call us up within a week, say, “Uh, you got another 20-something-year-old with some strange idea?” And kids from all over Latin America—it wasn't just Argentina. Kids had heard his story in Chile, elsewhere—they started to say: “If Wences can do it, I can too.” HOFFMAN: With the success of Wences, Linda began to enlist impresarios across Latin America to think globally, and invest locally. ROTTENBERG: But then it was really in 2000, when I got called into a room by Pedro Aspe, the former finance minister of Mexico, who was then leading the largest private equity firm. And he had gathered a group of about 12 individuals. And before I walked in the room, someone said to me, “Linda, do you know what percentage of Mexico's GDP is in this room?” And I said, “No, and I don't think I want to.” And one of the people in the room said, “Well, why are all these entrepreneurs coming out of Chile and Argentina and Brazil—even Uruguay? What's wrong with Mexico?” So in my, oh, politically astute way, Chica Loca says, “Well, here in Mexico, you're the big fish. And think of entrepreneurs as the little fish. And here, the big fish tend to eat the little fish. So if you want something like Endeavor, think of us like an aquarium where you learn to feed the little fish.” And they all signed up. And in fact, a decade later, Emilio Azcarraga, one of his magazines had a survey on entrepreneurship in the country, and the headline was “Big fish feeding the little fish.” HOFFMAN: This headline—”Big fish feeding the little fish”— is funny. But it’s also profoundly important. If you’re a big fish—like those magnates sitting around that table with Linda in Mexico City—you need the little fish. Paradoxically, your long-term survival depends on feeding them instead of eating them—because a flourishing business ecosystem needs entrepreneurial life at all scales. A great way to picture this is to imagine a coral reef. Coral reefs are beautiful, productive ecosystems that support every level of life. But coral is itself a living creature. And every coral reef started with a few baby coral who landed there and took root. So what are the secrets that allow an ecosystem to thrive? We asked a marine biologist what we could learn from coral reefs. KRISTEN MARHAVER: Corals are ridiculously crafty, and that's one of the reasons I love studying them. HOFFMAN: That’s Kristen Marhaver. She’s a marine biologist at the CARMABI Research Station on the Caribbean island of Curaçao. She’s also a TED Fellow, and you may know her from the short talk she gave on saving baby coral. She has a real soft spot for those baby coral. MARHAVER: And the science is always kind of mind-boggling, because you're looking at this little tiny dot in a petri dish. It has the capability of living for hundreds of years and growing to be the size of a basketball or a boulder or a car, and it just starts out as this little tiny blob of fat. So even though I've seen it dozens of times, there's always one moment per year where I think, “This can't possibly be how corals are born. This is so crazy.” HOFFMAN: Marhaver invents methods to plant these crafty little embryos in the wild with the hopes of cultivating new coral reefs. But getting those eggs to find their footing on the sea floor, it’s a bit like helping the world’s unknown, would-be entrepreneurs get their crazy ideas out of the shower. They die a million microscopic deaths. MARHAVER: There were years and years where researchers could figure out when the coral spawned, and could collect eggs, maybe get them to fertilize—and then almost every time they tried, the larvae or the eggs would die within a day or two, and nobody really knew what was going wrong. So it was super stressful and super intense. There were tears. So through time, every year, the field as a whole made inches of progress, and each of those “aha” moments was definitely hard-won. HOFFMAN: Those hard-won victories have changed the way that scientists think about coral reef conservation. They are now eager to understand the conditions under which coral thrive. And they’re finding that coral are super finicky about real estate, but super hardy once they find the ideal location. MARHAVER: They've got one chance to pick the right place to live, and they're literally stuck there from then on. So they've been through tons of evolutionary pressure to get it right. HOFFMAN: There’s an awesome metaphor here: Silicon Valley is like the great barrier reef. It’s so big and complex that we assume we could never create an ecosystem on that scale from scratch. Then Linda comes along, plants a little colony and says, “Look, this mind-boggling growth process has already begun.” ROTTENBERG: When we talk to our entrepreneurs today, they say that one of the things that Endeavor helped them do is change the mindset that it was a dog-eat-dog world, and you had to kill your competition before you got killed yourself. And this idea of supporting one another, the idea of sharing ideas, the idea that it was OK if you trained people and then other people hired them away—that's what creates an entrepreneurial ecosystem. People hiring the Googlers, and people hiring the Facebookers. Now we see that happening in our markets. But that was anathema. HOFFMAN: What does it take to build a flourishing ecosystem so it eventually grows organically, without the assistance of Linda and Endeavor? Linda argues that it only takes a few success stories, like Wences Casares, to set the whole process in motion. ROTTENBERG: We have mapped out in terms of entrepreneur-to-entrepreneur touch points, and the density of those touch points. And the way we did this through Endeavor's research group is we asked in countries where we were—in Argentina, in Turkey, in Jordan, in Colombia and around the world—We asked startups. So Endeavor's about to scale up. So we asked people we didn't know yet, that were early stage, five questions. We would go to people just starting companies, and say five things: “Who mentored you? Who inspired you? Who invested in you? Have you started a company before, are you a serial entrepreneur?” And, “Did you work for an entrepreneurial firm before?” The talent component. And we would map out their connections, and here's what we see: early on, there's no density. There's a few entrepreneurs isolated; they don't touch each other. No one is investing. And as you start to see the places where, as I said, the successful entrepreneurs become—and I know you haven’t loved the term PayPal mafia—but they become that Paypal mafia, the Googlers, the Facebookers, the people who actually reinvest. We actually see, through visual touch points, that four or five people can inspire, mentor, and invest in practically the entire ecosystem. And then what happens? One of the missing ingredients early on is talent. It's really hard to find any C-suite talent if you're just starting out. Once you have success stories, and people who've built 1,000-person jobs and trained them, then what you see later on, a decade later, is that people actually not only can find the mentorship and the capital to start, but the talent to actually scale businesses. HOFFMAN: So the term “PayPal mafia” refers to the original PayPal crew like me, Peter Thiel, Max Levchin, Elon Musk, David Sacks, Jeremy Stoppelman, and a few others who have since gone on to launch their own companies and invest in others. And I do hate that term “PayPal Mafia.” HOFFMAN: Mafia has this kind of sordid undertone. You know, the the bodies are buried in the backyard. And you know, it makes for a sexier magazine cover. It kind of gives you that little bit of sizzle for what the thing is. I prefer the term PayPal network, but that’s not going to sell magazines. In any case, as a confirmed member of the PayPal network or mafia or whatever you want to call us, I can tell you about our private conversations. They’re not as salacious as, “Hey, Elon, I found the perfect marsh where you can hide the engineer’s body.” Instead, we talk about little fish that might become big fish—and we talk about it constantly. If you have four or five people who are really dedicated, who trust each other, working together, they can be the core of an exponentially larger network around them—because they can be forming them, they can be setting the rules, the norms; they can be facilitating, bringing projects to life. Because part of what we are doing in the PayPal mafia is, “Hey, I'm looking at this company. You think we should invest in this?” “Yeah, I think we should invest in that,” or “Hey, I'm starting Yelp. Who are the people we should talk to on financing? What do you think about talking with these people?” And so more and more companies grow up around them. And then as all those additional companies, now you have a much denser network of people with successful companies, resources, talent pools within those companies, a knowledge base about what to be doing. That gives you a diversity of resources, and knowledge, and companies to create a whole ecosystem. I want to be clear, we are not the original gangsters of Silicon Valley. Every successful founding team—at Google, Facebook, wherever—spawns its own little network. And there’s nothing magical about the networks in Silicon Valley. They can take root just about anywhere that you have a few successful entrepreneurswilling to pay it forward. Linda has a great example from Turkey. A poll in Turkey asked college students to name their top three entrepreneurial role models. Number one was Steve jobs. Number two, Mark Zuckerberg–and number three was Nevzat Aydin. He supplanted Bill Gates. He’s not just an icon, though. Linda explains how Nevzat pays it forward, quite literally. ROTTENBERG: There is a company in Turkey, in Istanbul, founded by Nevzat Aydin and Melih Odemis. İt's called Yemeksepeti. It is an online food delivery company. They started it, they scaled it, they created many, many jobs. Well, what happens is Yemeksepeti gets bought by Delivery Hero for $589 million dollars. It's the largest Internet exit in Turkey's history. Nevzat and Melih, who did very well, take $25 million dollars of their own personal earnings. They had kept a ledger of every employee's responsibility and roles, and hand out the cash as if they had stock bonuses. CNN calls Nevzat the world's greatest boss. So what else happens? People in Nevzat circle, they’ve been friends, they go to club together, they talk entrepreneurship, they go to coffee shops. And one of them starts a leading gaming company, and the other starts an online jewelry ecommerce business, Hakan Bas. And Hakan one day gets a call from Nevzat. And Nevzat says, “I have a problem with you, Hakan. I keep seeing you in the news dating models. You're not spending enough time in your company. And Hakan says, “No one ever said this to me.” This is what builds up ecosystems. And when you think of Silicon Valley, you think of the coffee shops. HOFFMAN: And it’s not just the coffee shop, but any number of common spaces where the varied creatures of entrepreneurial life mingle and learn from one another. Classic examples include Bucks restaurant in Menlo Park, where the venture deals get done, the coffee shops, like Coupa Cafe or University Cafe, where programmers and students tend to mingle and get recruited, accelerators like Y Combinator, where entrepreneurs swap insights and commiserate about the insanity of startup life. I’d argue these common spaces are just as vital to Silicon Valley as the headquarters of Facebook, Google or LinkedIn. Conversations tend to spill out from the company walls and across the Valley. Think of Silicon Valley as a vast, deep learning machine, that sends information careening through its network. And this, I believe, gets to the essence of what we should look for when we ask, “Where’s the next Silicon Valley?” Forget the tech, and focus on the talent. Is there a density of talent—sharing, swapping and learning from each other’s experiences? Once you take this broader definition of Silicon Valley as a hub of entrepreneurial excellence, beyond the high-tech stuff, then the truth is you can find the next Silicon Valley just about anywhere. Entrepreneurial networks form spontaneously and grow at stunning speeds. Take, for instance, the nascent network in Nairobi, Kenya. JULIANA ROTICH: There wasn't a space for techies to meet up. There just wasn't—period. HOFFMAN: That’s Juliana Rotich, the co-founder of the mapping platform, Ushahidi. Ushahidi means “witness” or “testimony” in Swahili, and it was originally launched in 2008 to help citizens report violent incidents across Kenya, in the wake of a contested election. ROTICH: We didn't actually have a physical space. We would have meet-ups at sort of dingy places actually that weirdly had wifi. So there's a supermarket nearby that we would often meet at because it had wifi. So you have all these geeks and nerds meeting at a specific supermarket, and the only reason why they're doing that is because it had free Wi-Fi. HOFFMAN: Since 2008, Ushahidi has become the mapping platform of choice for nations caught in a crisis. Activists have used Ushahidi to map all kinds of events, from a 7.8 magnitude earthquake in Nepal, to sexual harassment in the streets of Cairo. Juliana also co-founded a shared workplace called the iHub. ROTICH: Now many more co-working spaces have sprung up, not just in Kenya, but all over Africa. It's been really, really gratifying to see the tech space evolve. HOFFMAN: Today, Juliana estimates there are another 12 hackerspaces like iHub in Nairobi alone. Bear in the mind, they’ve all opened in less than a decade. I asked Sam Altman, the president of Y Combinator, about his unconventional pick for the next Silicon Valley. SAM ALTMAN: Maybe L.A. is a more interesting case. L.A. has not been traditionally thought of as a hotspot for startups at all—at all. And yet somehow, while everyone was talking about New York as the second Silicon Valley, I think there's more evidence of that in other cities—L.A., Seattle. And at this point I'd say you have that density of network and talent and capital and knowledge and everything else in L.A., and that happened relatively quickly. HOFFMAN: But long before L.A. slipped into the running, Tel-Aviv has been a leading contender for years. We reached out to Yossi Vardi, who’s often called the godfather of the Israeli tech scene. Yossi personifies the sort of “pay-it-forward” scale entrepreneur Linda talks about. He’s helped build more than 80 startups. Our producer, Dan Kedmey, asked him to make the case for his hometown. DAN KEDMEY: the next Silicon Valley—might it be Tel Aviv? YOSSI VARDI: OK, first of all, why “might?” Why not “is?” HOFFMAN: Yossi listed all of the usual reasons Tel-Aviv has been so buzzworthy—strong universities, a thriving tech sector, a workforce that speaks so frankly to the higher ups, it verges on insubordination. But Yossi finds those answers unsatisfactory. VARDI: I suggest an alternative explanation, which I think explains the whole thing. And this is because every Israeli kid has one thing in common—and this is he has a Jewish mother, which drive him crazy from the age of five. Which telling him that he has to excel, which telling him, why his cousins are smarter than him? Which telling him, “After all what we have done for you, asking you to bring one Nobel Prize is really too much?” So the poor kid is growing that way, he has to satisfy his mother. And in order to be a Jewish mother, you don't have to be Jewish, and even you don't have to be female—it doesn't relate to ethnicity, or to gender. It's related to your mindset, to your state of mind. HOFFMAN: So basically, Jewish mothers, and their equivalence in every culture, are the ultimate startup incubator. And if that’s true, then someone should study the mothers behind Boston’s entrepreneurs, because Joi Ito, head of the MIT Media Lab, says Boston’s startup scene is positively thriving. JOI ITO: Kendall Square is kind of where it's happening, because you you have all the large pharma companies, you have the biotech startups, you have the biotech incubators. I think half of all cancer drugs in the last five years came out of the Boston area. And so we have the kind of critical mass here in biotech that Silicon Valley has in software. So I think if you think about Silicon Valley as an ecosystem, and not just focus on the scaling of software, then I do think that you see that in Boston for biotech. HOFFMAN: I could go on pointing to startup scenes around the world, which might plausibly become the next Silicon Valley—New York, Chicago, London, Berlin. But in truth, at this moment in time, there is only one contender. And I won’t use hedging language. It’s not that this contender might give rise to the next Silicon Valley. It has already given rise to the next Silicon Valley, and arguably, multiple Silicon Valleys. Beyond Silicon Valley itself, I believe that the next Silicon Valley is undoubtedly China. Shenzhen is just one of several cities in China that blow other contenders for the next Silicon Valley out of the water. I would argue Beijing, Shanghai, Hangzhou, and possibly Chengdu are all far ahead of any of the cities we’ve discussed so far, and there’s a common thread running through their successes. How do I describe a tech scene as vast and dynamic as China’s? I can only give you a snapshot. The fact is, China’s tech industry is evolving so rapidly, it catches veterans off guard. Andrew Ng was until recently the chief scientist at Baidu—you might call Baidu China’s answer to Google. Andrew says you can’t really appreciate the pace of innovation that’s taking place across China’s major metropolises, until you see them for yourself. Seeing it is as simple as looking out the window. ANDREW NG: I was in Shenzhen about a couple of months ago, and just driving on the road, I saw companies by the roadside testing new robot designs. And I said, “Wow, I’ve never seen that before. They’re just out testing it by the side of the road. That's cool.” Every time I go to Shenzhen, there are new hardware robot designs. The pictures you see in the media about these hardware bazaars look incredible, but the pictures even don't do it justice. It’s even more magnificent when you’re there in person. HOFFMAN: There’s a common thread running through their successes. First, they have an enormous number of users through which local companies can scale their services. And second, they work fast—so fast that Andrew sets an entirely different schedule for his staff in China. NG: You know, just decision making is much faster on average in the China tech world than in the U.S. tech world. The China tech world is so competitive. Pretty much every Chinese Internet company is a wartime company. Here's an example of a normal workflow. One day I was having dinner with a few other Baidu people, who had a question about HR. So I sent a text message to one of the HR leads at 7:00 P.M., while we're having dinner. Over the next half hour, she sent text messages to all of her direct reports at 7:00 P.M. They all collected answers, sent them all back to her and she got back to me by 7:30. And this is a normal flow of work. I would have been worried if she had taken more than an hour to get back to me. And this is just how Chinese Internet companies work. People do give up significant personal sacrifices for work. Maybe unfortunately to a lot of employees in China, your ability to get a raise—that really changes your life. And so people are hungry, and people work really hard, and people are very ambitious. HOFFMAN: Scale favors the swift—and you can find few startup scenes as fast-moving as China’s. But I would argue that the greatest asset to China’s tech scene is not just the speed by which massive companies have taken over the market—it’s the talent that now resides in those companies. The executives, programmers, designers, marketers who know how to scale a team from a few founders to several thousand employees. They form a critical mass that can scale the next generation of promising startups at blistering speeds. And perhaps the surest proof that this whole process is self-sustaining is that Linda has yet to launch an entrepreneurial network in China. I asked her why. The short answer: no one has asked. ROTTENBERG: Our model has always been we are pulled into countries, we do not push our model elsewhere. So we would need someone like Jack Ma and a group of other people that want to promote entrepreneurship to say, “Hey, we need Endeavor here.” HOFFMAN: I have a prediction, no one in China is going to ask Linda for help anytime soon, because China is already on a self-sustaining path. And so where does that leave our other contenders? Should they abandon all hope? Not for a second. Here’s what I find so encouraging about Linda’s work—the lessons learned from one city can be telegraphed to just about any other city. What works in Buenos Aires or Istanbul may work for struggling cities here in the U.S. as well. Linda herself never imagined Endeavor would be of any use to American entrepreneurs. But lately, she’s been re-thinking that assumption. ROTTENBERG: I used to think, so what if you move to Silicon Valley? So what if you move to New York? It’s still the United States; it’s different than taking a Brazilian or Tunisian entrepreneur and moving them here. And in fact, actually it’s not—that's what I’ve learned. If you're in the heartland of the U.S., moving to the coast is just as draining to the local community as if you were from another country—and we have to create homegrown, city-based entrepreneurship outside the coasts. HOFFMAN: You’ll recall, though, that Endeavor works on a pull model. And several U.S. cities were clamoring for an Endeavor-like program to jumpstart their startup sector. ROTTENBERG: So now we’re in four U.S. cities—Miami, Detroit, Louisville, and Atlanta. And it was interesting—in Atlanta, the co-chairs are two entrepreneurs that created billion-dollar companies. They said, “We did not raise a dime here in Atlanta.” And they said, “We're here to prove that the next generation is going to have people who will invest in them to stay.” HOFFMAN: Endeavor isn’t just forming connections between entrepreneurs, but connections between entrepreneurial hubs around the world. Successful entrepreneurs in emerging markets can now come to Kentucky and say, “Surely, you can scale a startup here, too.” This isn’t theoretical. It’s happening, right now. ROTTENBERG: We had a food and beverage tour, we have a lot of F&B companies in Louisville. We brought F&B companies from Saudi Arabia and South Africa and Indonesia and Colombia to Louisville—and they all connected. And I think in this world—where we’re talking about the red state and the blue state, and people who are pro- versus anti-globalism, and pro- versus anti-technology—I actually have come to believe that if we don't do more to promote homegrown entrepreneurship in many cities throughout this country—the ones that are hurting, that feel like technology and globalism and job creation is passing them by—we're going to be in even more trouble. So in fact, now I want to double down. I actually think Endeavor should be in probably 20 cities in the U.S., whereas ask me five years ago, I was scratching my head why we were in even one. HOFFMAN: So let’s stop worrying about where the next Silicon Valley might take root. It’s a far less interesting question then how many Silicon Valleys can take root. How can we kickstart an international ecosystem where entrepreneurs scale fast, pay it forward, and enable a thousand entrepreneurial hubs bloom? It starts with a change in our mindset—a willingness to get a little bit corny and say, “The next Steve Jobs might be driving a cab in Buenos Aires, or launching a startup in Louisville. They only need the courage and connections to stay put.” I’m Reid Hoffman. Thank you for listening.

peter thiel paypal

from reed hoffman https://mastersofscale.com/wp-content/uploads/2018/10/mos-episode-transcript_-peter-thiel.pdf
Masters of Scale Episode Transcript: Peter Thiel DARYL WOODSON: Speed is not manufactured by how fast the feet move, but how much force per step. REID HOFFMAN: That’s Darryl Woodson, a personal coach to some of the fastest runners in the world. He trains Olympic athletes who have broken one world record, three national records and claimed 10 national titles. Darryl doesn’t have a single training regimen for these Olympic medalists; each runner has unique strengths. Some runners, for example, seem to explode off the blocks. When Darryl sees that explosive quality, he lights a match under them. WOODSON: It starts in your head. The brain controls 100% of your muscle capacity. Sometimes a runner’s brain functions a lot quicker than other people. It’s more natural for them to just be explosive. HOFFMAN: Now if any runner embodies this explosive quality, it’s Natasha Hastings. She’s a two-time Olympic gold medalist. They call her the “400-meter diva.” And when it comes to starting off the blocks, she’s a powder keg. NATASHA HASTINGS: My start is pretty explosive. I’ve even been asked, “Well, why do you start so fast?” HOFFMAN: Natasha and Darryl spend a lot of time thinking about that first stride. WOODSON: The most important aspect of acceleration are the first two steps. That’s what’s going to manufacture the greatest power output. HASTINGS: One of the things that I always think about is those first few seconds, there’s an energy system that you’re never going to get back. So why waste it? HOFFMAN: Now that’s the plan that gets Natasha ahead of the competition. It takes natural talent, and training—yes. But also a very specific mindset. And I would argue a similar plan applies to Silicon Valley’s fast-growing companies. They’re built for explosive starts. Peter Thiel—the founding CEO of PayPal and one of the Valley’s sharpest investors—won’t back a company if they don’t have this kind of potential. He has to believe they can not only get ahead of the competition, but break free of it entirely. PETER THIEL: I do think that for a really valuable business, you have to at some point try to achieve escape from the competition. And so if you could scale incredibly fast, on the one hand, you have to race really hard to scale fast—but the benefit is that you're achieving escape velocity from the black hole that is hyper-competition. HOFFMAN: I rarely agree with Peter. But in startups, we find common ground. I believe that if you want your company to scale, it’s not enough to beat the competition. You have to break free of the competition altogether. [Theme Music] This is Masters of Scale. I’m Reid Hoffman, co-founder of LinkedIn, investing partner at Greylock, and your host. I believe if you want your company to scale, your goal is not to beat the competition. Your goal is to break free of the competition entirely. In an ideal world, you do this by going where the competition isn’t. You invent your own game and master it. But to be clear, this is more of an aspiration than a feasible goal. At best, you’ll get a grace period—a fleeting moment when no one believes in your idea. And as soon as your idea takes off, watch your back. Before long, you’ll find yourself where most businesses start: facing competition. Your goal? To break free. That’s what happened to PayPal—and I want to share that story with you, because it’s easy to say, “I’ll break free of the competition.” It’s quite another thing to be in the heat of the race, unaware of where your competition stands, or whether you’re truly breaking ahead. I wanted to talk to Peter Thiel about this, not only because he guided PayPal through those precarious early days, and went on to invest in company after company that embodied this idea. But also because he has some of the strongest opinions on competition—and, well, on almost anything—of anyone I know. I first met Peter at Stanford, and right from the start, we clashed on a lot of issues. THIEL: It’s always the joke we have Reid. Where you’re the socialist and I’m the capitalist. HOFFMAN: We were fierce young men back then. I’m pretty sure he saw me as a bleeding heart pinko commie. And I’m absolutely certain I saw him as a libertarian wacko who seemed to have sprung out of Ayn Rand’s book, The Fountainhead, fully formed. Our first dorm room debate pretty much consisted of us saying to each other, “You can’t possibly believe that.” And that feisty exchange continued throughout college through the founding of PayPal—and yes, as some of you might know, through the 2016 presidential campaign. I’ve known Peter for three decades, and I still can’t predict where he’ll land on many issues. Who would’ve imagined that my former PayPal colleague would back Donald Trump? Not me. And yet there he was, at the Republican National Convention. Go figure. I met Peter in August, and we sidestepped our political differences. If you really want to hear us duke it out, tweet us at Masters of Scale. We just might be able to arrange a follow-up interview. Peter, consider yourself on notice. On today’s show, we’re going to shelve our political disagreements and consider one rare point of consensus—that the whole point of scaling fast is to escape your competition. But Peter didn’t always try to avoid competition. For most of his life, he thrived on competition—as he himself will tell you. THIEL: I was incredibly competitive in elementary school, junior high school. I remember in eighth grade, one of my friends wrote in my eighth grade yearbook, “I know you're going to get into Stanford four years from now. Four years later, I went to Stanford, and then I got into Stanford Law School, and I ended up at a top law firm in Manhattan. And it was sort of winning one competition after another. HOFFMAN: So Peter has always had this competitive streak. But another thing you should know about Peter is he also has a very serious contrarian streak—and those two qualities don’t sit comfortably together. On the one hand, he wants to race against his peers. On the other hand, he wants to stand apart from them entirely. For most of his childhood, he let his competitive nature get the best of him. He was a champion chess player. He trounced his peers in class rankings and LSAT scores. At last, he had reached his competitive nirvana: law school. And then? THIEL: Maybe I was attracted to law school because it was very precisely rank-ordered. It was a thing you could go to next after undergraduate. And the paradoxical thing that, when you compete very intensely, you do get to be very good at the thing you're competing on. But then, you often don't ask enough critical questions about whether the thing you are competing on is really worth doing. HOFFMAN: Good question. Peter didn’t have an answer, so he just kept competing. He clawed his way to the top of the class. Then he landed a job at a prestigious law firm. All the while, that question—”Is this worth it?”—still gnawed at him. And as his career reached new heights, he had a sinking feeling: he wasn’t winning. In fact, he felt trapped. THIEL: It was this very strange place, the law firms. From the outside it was a place where everybody wanted to get in, on the inside it was a place where everybody wanted to get out. When I left after seven months and three days, one of the people down the hall from me said that he had no idea anyone could leave this quickly, and that it was possible to escape from Alcatraz. HOFFMAN: All that work—all that winning—had landed Peter in a prison of his own making. And like any inmate, he began to question his life choices. Then it dawned on him, the root of his problem was an obsession with winning. Who cares how anyone measures up to their peers? Competition, he decided, is for losers. I’m not overstating his argument. He really says that. Google the phrase “competition is for losers,” and the top results all point back to Peter Thiel. There’s his Wall Street Journal op-ed, headlined: “Competition is for losers.” He said it to me too. THIEL: By the time I was at Sullivan and Cromwell, five years before we started PayPal, I came to question conventional competition. I thought that a lot of the conventional ways people competed resulted in too many people doing conventional things, and then you end up in very competitive dynamics—and then even when you win, it's not quite worth it. So you might get a slightly better-paying job than you otherwise would, but you sort of have to sell your soul. And so that doesn't seem like a very good economic or moral tradeoff—and the kinds of things like that, that happen with conventional competition. By the time we started PayPal, I was focused on, “How do we compete very intensely—maybe to avoid competition altogether?” HOFFMAN: I often disagree with Peter, but I have to say, on this point, he’s spot on. Competition will make you, at best, a winner in a losing game. If you really want to scale a business, escape the competition. Change the playing field. Hang up your jersey. This applies to businesses as well as individuals. Don’t try to beat the competitors at their own game. You have to invent a new game—and master it. And that’s precisely what drew Peter to the idea of online payments. It was 1998. Everyone wanted to sell stuff online, but no one had an easy way to pay for that stuff. Peter saw an opportunity to essentially invent the Internet’s cash registers. THIEL: By the time we started PayPal when I was 31, I was focused on doing something entrepreneurial, doing something that strictly speaking, other people were not doing. There's this question about financial cryptography. Could you start a new currency? Could you start some new secure financial product? And so that was sort of the intellectual set of ideas that we were very interested in exploring. And then we were also very focused on getting to scale as quickly as possible. How do you get it to grow by word of mouth? Reid, you and I had many late-night conversations about virality and exponential marketing. HOFFMAN: After talking with Peter, I realized that his memory of PayPal’s early, experimental days was of a solitary, heroic struggle to make online payments a reality. But the fact is, we weren’t alone for long. EBay had emerged as the leading online marketplace for selling, well, everything. Their power sellers flocked to PayPal; they caught us by surprise. Who were these users? Not at all the ones we imagined. THIEL: The way I remember it was the initial reaction was quite negative. It’s like, “Wow, this is the junkiest stuff being sold on the Internet, and it’s so bad for our brand to be affiliated with all of this.” HOFFMAN: Entrepreneurs, take note! Your first users are often not at all what you imagined. They’re often less glamorous, and fewer in number. Don’t be too quick to judge them. They may prove more valuable than they initially seem. And Peter changed his tune on the eBay sellers very quickly. THIEL: In retrospect, it turned out to be this incredibly tight community, a new use case where the alternatives were much worse. The alternatives were typically using a check which would take seven days to clear. And because people were both buyers and sellers on eBay, it had a natural sort of fluidity to the whole thing—where the money went from one PayPal user to another, and stayed inside the system. It turned out to be quite powerful. I’d say within three to four months of it being used on eBay, something like 30% percent of the eBay power sellers were using PayPal. HOFFMAN: EBay executives were miffed to see us ambushing their checkout counter. Granted, we made their users happy and accelerated the sales cycle on the site. But, who were we to siphon off eBay’s business? So began a very strange dance between frenemies. It kind of reminds me of those unusual animal pairings that you see on a nature show. It’s an old story—I can almost hear David Attenborough narrating the scene. “ATTENBOROUGH” VOICE: The remora eel fastens onto the whale shark by means of a disc-shaped organ on the top of its head. Once secured to its host, the eel may hitch a ride across the vastness of the Pacific Ocean. HOFFMAN: Incidentally, scientists are still debating whether the remora eel has a parasitic, harmless or beneficial relationship with its host. That pretty much sums up PayPal’s relationship with eBay in the early days. In the long run, though, Peter saw trouble. THIEL: That was a deeply uncomfortable place to be, though. So I mean it worked but it was uncomfortable because we were the cash registers, and you had a different company that ran the store and they were trying to figure out how to get their cash register machines to work. And if they ever figured it out we'd be in real trouble. HOFFMAN: We knew we were in trouble when eBay bought a rival online payment service called Billpoint, and directly integrated it into eBay. So much for Peter’s grand escape from competition. Things were getting heated. But when I remind Peter of this massive threat, to my surprise, he shrugs it off. THIEL: We were certainly not alarmed about eBay initially, because they had not yet launched the Billpoint product—it got launched after we got started. They bought the company, but they hadn't done much with it yet. HOFFMAN: I remember it a bit differently. EBay scared the dickens out of us—and yes, even Peter—because I distinctly recall him asking me to sell the company to anyone who would buy it for $600 million dollars. HOFFMAN: I remember our conversations. You were actually at that time fairly concerned about, people think we have this really valuable thing, but we haven't established it yet. It's a house of cards right now. This whole thing could blow over. There was a six-to-12 month period where you had me essentially seeing if anyone would buy the company. THIEL: Right. HOFFMAN: And so it's like, “Will anyone buy this?” THIEL: Right. HOFFMAN: “OK, go look for buyers.” There's a funny untold story around if VeriSign had upped their bid by $50 million dollars, they may have actually owned PayPal, right? THIEL: Yes. It's hard to say what would have happened, but certainly there was a lot of uncertainty around all these things. The name was a good name. It was a friendly name. You know, how could you go after poor little PayPal? It was just this friendly little company that was helping customers. The remarkable thing, in retrospect, was how robust it turned out to be. Maybe the kind of countervailing advice I would try to give would be that you should try to always do something where there's an intense use-case, where the customers really like what you're doing—and that will protect you up to a certain point. HOFFMAN: Peter makes a fascinating point here. On the one hand, he says avoid competition. On the other hand, he seems to concede that competition is tolerable, so long as your customers have an intense attachment to your product. And it may sound like he’s contradicting himself—he isn’t. Here’s how he sees it: THIEL: There are companies that are purely competitive, they do not make any money—think a restaurant. You never want to be in the restaurant business. HOFFMAN: I’m sure right now you’re thinking of a restaurant that makes money. Suspend your disbelief for a moment and hear him out. THIEL: And then there are businesses that do not compete—they are monopolies, and they do very well. And even though this is not the way people want to talk about it on the inside, you always want to have a monopoly on the inside. HOFFMAN: You’re probably thinking, “Don’t we regulate monopolies out of existence?” Well, yes, the unscrupulous kind. Most people associate monopolies with the robber barons of the late 19th century. You know the type—wearing a top hat, chomping on a cigar and lounging on a pile of moneybags. Peter, on the other hand, sees monopolies in the here-and-now. They’re camouflaged as competitors. Look closer, he says, and you’ll find that even the most classic examples of competition are not what they seem. THIEL: You could say that Coke and Pepsi compete very intensely. On the other hand, you could say that they're somehow quite differentiated from a brand—so that in practice, different people prefer Coke or prefer Pepsi, and there actually is a much smaller set of people who view them as interchangeable products. I think measuring how much actual competition is happening is not always a straightforward thing to do. Because just as people want to have monopolies, they want to also downplay them—and so they will suggest that they're facing enormous amounts of competition everywhere, whether or not that happens to be true. HOFFMAN: Once you think of a monopoly as simply an absence of competition, you might start noticing a few yourself. What’s a patent, if not a monopoly backed by the government? And what about those companies that monopolize a market by pursuing a wildly original idea? Elon Musk’s SpaceX is pretty much the only company on a mission to send people to Mars. Anyone want to take him on? No? Well, that’s precisely what spurs Elon onward and upward. You have to invent a new game—seek out a fresh, new field. But you don’t have to go to Mars to discover new terrain. We sent our producer, Dan Kedmey, to perhaps the most competitive landscape on earth—the bakeries of Manhattan’s West Village—to see how a baker breaks free of the pack. UMBER AHMAD: I'm actually trying to get into a remarkably crowded market. People will look at this and think that I'm crazy. You can't swing a dead cat without hitting a bakery. HOFFMAN: That’s Umber Ahmad, founder of Mah-Ze-Dahr Bakery. You can swing a dead cat from her front door and hit Patisserie Claude, with its legendary croissants, or Dominique Ansel Kitchen, where the “cronut”—that’s half croissant, half donut—was born. Competition doesn’t get tighter than that. AHMAD: And so I said, "All right, there has to be a point of differentiation." If if there isn't an opportunity in a crowded market, then Ford and GM and Toyota and Mercedes and Tesla and all these other people wouldn't exist in the same market. There is always opportunity, and I believe that very strongly. I don't believe that you have to be the singular owner of a market in order to be successful. HOFFMAN: Umber knew what she was up against. She’s a former Wall Street banker, and she knows how to hedge her bets. So she started selling baked goods online. AHMAD: I said, "How do I minimize my costs?" And rather than build a million-dollar space, and build a huge kitchen and all these things, and hope someone will show up, I said, "Let me figure out if there's even traction here." And so I started with an online business. HOFFMAN: Once she had repeat business, she gained a toehold in a coffee shop. AHMAD: And I said, "Where are the people that I care about; where are my customers shopping today? Where are my customers living?” I went to those brands, and I said, "I want to work with you.” And one of the first brands was Intelligentsia Coffee. So that was my first wholesale contract. HOFFMAN: And then she took to the skies. AHMAD: I was approached by JetBlue Airlines. So JetBlue had just introduced Mint service—it's like their first class. At the end of the contract, we were packaging pastries for 22,000 passengers a month. So that, for me, was also a really great way to do two things: test a large brand partnership, and also figure out what customer conversion looked like—if we could get customers to convert to us directly through a partnership like that. So I kept trying to find the partnerships which would gain me access to the customers that I wanted to become my own. HOFFMAN: Along the way, she discovered her point of differentiation. She would never make anything as newfangled as a croissant crossed with a donut—leave that to Dominique Ansel. Her bakery ever-so-subtly elevates the familiar flavors from childhood. AHMAD: What we really want to do is to have whispers of new things in the pillow of something that is familiar. A great example of that is our spinach and feta hand pie. It's kind of like our version of a grown-up Pop-Tart, but it's savory and it's made with sauteed spinach and Greek feta. But then I season it with za'atar. Za'atar is a spice that is used very commonly in the Middle East, and so it's somewhat unexpected when you bite into it—because you're not sure, you're like, “What is that flavor?” And then you think, "Gosh, it elevates thi,s and it kind of intensifies the experience of the pastry in a way that I wasn't expecting." Some of my favorite comments from customers are, "This reminds me of my grandmother," or "this thing that I grew up with," or, "I was on this vacation, and you're taking me back and you're helping me remember and experience that." And for me, that's my dream—because what happens then is I've now created a link, and I’ve created a connection with you, and I've got you. HOFFMAN: She’s got you—as much as a baker can capture a customer. At the very least, she can go on scaling her business, even as the baker next door invents the hottest new thing since sliced bread. For her, the goal isn’t so much to break free of the competition, but to differentiate enough that she carves out her own mini-monopoly. How much do you have to differentiate? It depends—on the size of the market, the speed of your competition, and your own aspirations for scale. How big do you want to be? Umber knows exactly who her competitors are. All she has to do is look at the storefronts around her. At PayPal, it wasn’t so cut and dry. eBay appeared to be our true competitor. And as a startup founder, you’ll often hear potential investors asking, “Isn’t some gargantuan company on the verge of doing whatever it is you’re doing?” The presumption being that with all of their money and talent, they’ll squash you. But the reality is, your most dangerous competitors are rarely the big guys. The big guys, like eBay, are hesitant to storm the field and fumble alongside you. A fumble for PayPal risked blowback from a few thousand users. A fumble for eBay, however, could anger users in the millions, and draw the watchful eye of government regulators. And even if eBay were willing to take those risks, why would they burn so much creative energy on the online equivalent of a cash register? Think about it—they’re building the store, a global marketplace for online commerce. So what if a little company is hijacking the checkout counter? So while we were wringing our hands over eBay’s new payment system, we also were encouraged to see that they took more than a year to roll out Billpoint. And now we get to one of Peter’s key ideas on escaping competition. It’s the central idea that drove not just PayPal’s success, but nearly every successful scale company. THIEL: We needed to achieve escape velocity. We needed to grow so quickly that it would discourage anybody from even trying to compete with us. And so if you could scale incredibly fast—on the one hand, you have to race really hard to scale fast, but the benefit if you do it is that you're achieving escape velocity from the black hole that is hyper-competition. You could start in something that's very competitive, but then over time, get to a place that's less and less competitive. Amazon was incredibly competitive. But over time, it's becoming more and more of the retail monopoly. And that's why people value the company so highly—because when they look into the future, they envision Amazon having destroyed all other retail stores and making all the profits. HOFFMAN: Now this is a big idea: escape velocity. How do you know you’re hitting it? Peter has a formula. THIEL: I used to have this equation on the PayPal whiteboards: U sub T=U sub 0; E to the XT—where U sub 0 is the initial users, U sub T is the users at time T, and E to the XT is the exponential growth factor. And X is, if you get X up, the exponent rises even more quickly. HOFFMAN: Yes, he did just recite that equation off the top of his head. You don’t have to understand any of it. The equation simply helps Peter detect whether users are growing exponentially. It comes down to what Peter calls “the X factor.” Translation: watch for exponential growth. THIEL: The X factor in the exponent was growing at about something like seven percent a day—and even when you start with only 24 people, the compounding dominates. And so, you go from 24 to 1,000 by mid-November. We were up to 13,000 by end of December ‘99. By early February of 2000, we were up to 100,000. By mid-April of 2000, we were up to a million. HOFFMAN: If you’re wondering how Peter remembers every date and every metric from 17 years ago, your guess is as good as mine. Maybe it’s because the daily movement of those numbers hinted at a radically altered future for our company. Exponential growth is simple to grasp, but really hard to believe in. The sooner you can detect it, the better you’ll understand whether you’re hitting escape velocity. Think about the moment Peter detected our blistering growth rate. We had only 24 users. Every day, they grew by seven percent. If the trend held, we could break free of every competitor in the span of a few years. In short: eat dust, eBay. THIEL: There's an Einstein line—it may be apocryphal, maybe Einstein didn't actually say it—but it's to the effect that compound interest is the most powerful force in the universe. And so there was this question, “How do we get some sort of powerful compounding to work?” And we concluded that linking money with email, and maybe giving people some money to accelerate the process, would really get it started. It made for a very crazy ride. HOFFMAN: This underappreciated rule of compound growth is why Silicon Valley seems to spawn so many overnight successes. It’s why investors pour hundreds of millions into a wisp of a company. So long as your startup is hitting escape velocity, anyone who understands the power of compound growth will keep funding you. And most of those investors tend to reside in Silicon Valley—because they’ve seen compound growth with their own eyes, and they believe it. Take, for example, the time that Peter and I invested in Facebook. We weren’t blown away by Mark Zuckerberg’s pitch, as we recalled. HOFFMAN: I don't know if you remember two features of that meeting which were pretty funny. Zuck's grown into his articulateness; he's very articulate now. But back then, there was a lot of staring at the desk, not saying anything. So, what are the right words to say? Well, Zuck didn’t say very much. The second part is, remember he said, “Well, if you don't like this one, I have this other business, Wirehog.” COMPUTER VOICE: Wirehog was a file-sharing service created by the Facebook founders. HOFFMAN: Do you remember the peer-to-peer file distribution? THIEL: Yes. HOFFMAN: Get rid of that! THIEL: Not interested. HOFFMAN: So why did we invest? The X-factor. Facebook expanded from one college campus to the next at a speed that was unprecedented among his competitors, like Friendster or MySpace. We still had a million questions about whether the network could ever break out of college campuses and spill into the wider world, but there was no denying that Facebook’s user engagement was unreal. If memory serves me right, when Facebook launched to a new college campus, within six weeks 80% percent of the students were essentially using the service. And by using the service, I mean they checked it more than four times a day. That X-factor mattered more to us than whatever Mark said—or didn’t say—about his business. THIEL: The story I always tell was that you always have this Shark Tank image of this—and, “What did they say,” and, “What were the right magic words to use to get money?” And I think the answer was much more that the two of us—and maybe you, more than me—had done our homework for at least a year, maybe a decade before that, and were primed to invest. And that's actually what you want to be able to do. HOFFMAN: Suppose you’ve hit escape velocity. User growth compounds by the day. Investors back you in round upon round of financing. You’ve mastered a game of your own making. Now, the pressure is on to not just gain a competitive edge, but to escape the competition entirely. The very same force that enabled you to secure huge sums of capital will compel you to spend at an alarming rate. If you want to break free of your competitors, get ready to burn money. THIEL: We had a burn rate north of 10 million a month from March to September of 2000. That was pretty uncomfortable. HOFFMAN: Yes, you heard that right. We spent upwards of $10 million dollars a month. You might think that making sure your business has a steady stream of cash should be a priority. But when you face intense competition, you often have to spend to leave your competition far behind. And you might have to spend a lot. In Silicon Valley, competition can be downright lethal. Think all of the late ‘90s search engines. Remember AskJeeves? HotBot? Infoseek? Direct Hit? Then Google comes along, and it was like, “Nope, that’s it. No soup for you.” And that’s just the nature of the game. The stakes are neatly summed up by my favorite line from the movie Glengarry Glen Ross: “First prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize is you're fired.” Except in Silicon Valley, it’s usually first prize is the whole Cadillac dealership, second prize is you're a footnote in history. And that’s one reason Peter agreed to run a costly experiment that was pretty much unheard of at the time. Most companies paid advertisers to reach users. We took a more direct route—we paid the users themselves. If an existing PayPal customer referred our service to a friend, they each got $10 dollars online cash, on the house. Peter wasn’t exactly gung ho about this idea. Here’s why he decided to pay users, despite his misgivings. THIEL: We had to get to scale as quickly as possible. And if we didn't get to scale, maybe somebody else would beat us, and we wouldn't achieve escape velocity. And we didn't know that there would still be a rapid organic growth, even when we stopped giving customers the referral bonuses, for example. And then similarly, I also thought that we either could get to scale or figure out our business model. So we should get to scale and then see if the business model worked, rather than see if the business model worked and then scale it. HOFFMAN: Yes. And burn rate, and exponentiating, free credit— THIEL: It was exponentiating. Certainly there were no revenues yet. HOFFMAN: Because the funny thing is there's a flip side, which we’ll go into in a little bit, of the positive exponential curve. But the negative exponential curve was one of the things that we were also— THIEL: Well, there were both. It was exponentially growing users, and exponentially growing costs. HOFFMAN: Yes, exactly. HOFFMAN: Plenty of wildly successful businesses defer profitability for years. Amazon chugged along for roughly two decades, ignoring the occasional gripes from Wall Street that their whole operation seemed to be a money pit. In fact, they were breaking free of their competition in one retail sector after the next. You’d think just as PayPal was hitting its stride, we’d also rest easy. I wish. At no point did we say to ourselves: “Relax, Peter. We’ve hit escape velocity. Sign that $10 million check already.” In fact, we worried without end. Our concern was grounded in a humbling truth: escape velocity is not a fixed speed. It’s always and forever relative to your competitors. Your fastest competitor determines how hard you hit the gas. Peter suspects the majority of Silicon Valley startups could gun it a little harder. THIEL: Post-2000, the main post-mortem was that you shouldn't scale too quickly. And you had to do it fast, but not too fast. And if you think about businesses that have failed because they scaled too quickly, there have been very few post-2000—I think there have been a few companies I can point to in the last one or two years. So perhaps as of 2015-2016, people finally got over the hangover from ‘99-2000. But if you think about scaling, there's obviously a lot of businesses that scale too slowly. You’d expect there to be a lot that are scaling too fast—and it's striking how few have scaled too fast in the last 17 years. HOFFMAN: So how quickly can a competitor sneak up on you? Brian Chesky, the co-founder and CEO of Airbnb, has a cautionary tale. Now, Brian invented a wildly new game that was so strange, he really didn’t have a single competitor. If you listen to Masters of Scale regularly, you may recall my initial response to Airbnb—and the idea that strangers would open their homes to other strangers. HOFFMAN: Oh, someone’s going to rent a couch or a room from someone else? Who are the freaks on both sides of that transaction? HOFFMAN: Bear in mind, this is coming from the guy who invested in Airbnb. Fortunately, the people on both sides of that transaction weren’t freaks at all. And now you can find them in just about every city around the globe. Brian and his co-founders had basically invented the eBay for extra rooms and empty homes. And as the new mover in that space, Airbnb scaled fabulously. Brian thought he had hit escape velocity around the middle of 2011. They had users. They had investors. They had no competitors. And then, as inevitably happens, they did. BRIAN CHESKY: And then all of a sudden, we had gotten cloned. So we had to expand really fast internationally. HOFFMAN: By “cloned,” Brian means websites that had cropped up across Europe and Asia, that looked and worked a lot like Airbnb. They were backed by a behemoth of a company, Rocket Internet, based in Germany. Brian recognized the competitive threat, thanks to some sage advice from Michael Moritz, a partner at the venture capital firm, Sequoia. Brian and his co-founders invited Michael to their headquarters to discuss Airbnb’s expansion strategy. Back then, Airbnb’s “headquarters” was just a dingy apartment with a no-shoes policy. CHESKY: We make him take his shoes off—it was the funniest thing. He's like, "What?" He's used to going to these offices; he has to take his shoes off in our apartment to meet with us. We had to get advice from him. We had two choices for international expansion—we could either go to the football cities, or international expansion. The football cities are basically, where in the United States are like small, medium to large cities with a football team? And we can expand to St. Louis, and Baltimore, and Boston, Chicago. Or we could do something else. Michael Moritz said, "Plant flags." “What does that mean?” He said, “Pick the most important markets in the world, and imagine you lost them. Which ones couldn’t you lose?” And we thought, "London, Paris, Barcelona"—we kind of stayed in Europe, Asia was maybe a later chapter. “Rio.” And so we started planting flags. HOFFMAN: I saw just how quickly Brian planted flags across Europe. He literally hopscotched from one European capital to the next, scrambling to get users on his site. Ultimately, a wildly original idea only buys you a grace period from the competition. As soon as it works, you have a target on your back. And in the early 2000s, PayPal was an increasingly juicy target for eBay. They did all sorts of things to rattle us, like a promotion with Visa that made it free for sellers to accept payments from credit cards. And who knows? Maybe one day they would have just booted us off the site. That day never arrived, and it’s because we found the ultimate escape plan. We sold PayPal to eBay for $1.5 billion dollars, and got out of the online payments competition. Why? If you ever do invent a new game, fumble through it, master it, grow it at an exponential rate, hit escape velocity—even after all of that, you might still come crashing back down to earth. There’s a much older adage that you should always have in the back of your head: If you can’t beat ‘em, join ‘em. And after all that hard work, it can a bitter pill to swallow. Just sell your company? We still question the decision. HOFFMAN: Do you have any additional thoughts on whether or not selling to eBay was a good idea or not? THIEL: Well, I think it was still the right idea, because there were so many regulatory constraints on the business, and we were not really achieving escape velocity from eBay. You know, eBay was growing fast. We were growing on eBay. So we're growing maybe 100% percent annualized on eBay. And so to diversify away from eBay, we had to grow the non-eBay business by more than 100% percent a year. And I think that was extremely hard to do. HOFFMAN: We’ll never know whether eBay would have gained on us. Maybe we could have achieved escape velocity. Or maybe we could have held out for more growth, or a higher bid. The PayPal founders to this day have differing opinions—and I don’t claim to have the right answer. But one thing we did learn from that experience is that competition is just a drag. As investors, Peter and I both look for that founder who aspires to break free as much as possible. As Peter says, he always comes back to a fundamental question: will this founder reshape the future? THIEL: I've gone back and forth over the years how much is the people, versus the technology, versus the business strategy. But if you ask people what they are trying to do, and if it's not that ambitious, and if they're not trying to win in that significant a way, that's probably a relatively bad sign. And then, of course, if it's ambitious, then you have to calibrate how realistic it is—and maybe it's always a little bit unrealistic. There's a lot of calibration around that, but there's something around that that I think is very underestimated, where the future is the future that we will. We decide what future we wish to create. And if you want to ask what kind of future is going to happen in a given company, you just ask the people—and they will tell you, and you all need to do is ask. HOFFMAN: So my version of that is you have a very ambitious future, you have an ambitious goal, and you at least have a plausible theory about how you get there. It's not just, “We will get there.” It's, “This is what I recognize the path looks like, these are some of the risks, these are some of the techniques.” THIEL: Yes, that's a good one. The bad patterns tend to be either no ambitious future, or winning the lottery—ambitious desires, but no pathways. HOFFMAN: These people who want to reshape the future, but also understand how hard it is to get there, and plan accordingly—they’re exceedingly rare. Most of the things you imagine about the future are wrong. And that’s why people tend to vie for excellence on the same well-worn playing field. There’s a deep comfort in knowing the rules of the game—and no harm in it, either, if that’s your thing. But if you stop for a moment and realize that you can’t find a single member of the herd you aspire to be, then perhaps that’s the first sign that you’re ready to break free of the competition. And to that I say: “Game on.” I’m Reid Hoffman. Thanks for listening