LinkedInand Making a Better World

Reid Hoffman, the site's founder, talks about how investors can do more than just make a lot of money

Reid Hoffman, the founder of LinkedIn and a leading angel investor in Silicon Valley, is an Oxford-educated philosopher who opted for business over academics because it promised more power to change the course of history. His goal—no kidding—is to turn the world into "a nobler place." Hoffman sat down recently with BusinessWeek's Stephen Baker to talk about how he comes up with ideas, makes friends, forms companies, and spends money.

On business

One of the questions I ask executives when I interview them [for a job] is: If you were to write your obituary, what would you want to write in it? For me, it would be helping to make the world a much nobler place. I mean people treating each other in more compassionate ways, or ways that we think exemplify what is good about being human. Academics can have influence on that. But when you want to influence the structure for millions and millions of people, you actually need to have a strong economic model that scales. That's not the way academics think.

If you can create structures where the interests of hundreds of thousands or millions of people align with the group's interests, then you can actually create things that generate a lot of value in the system.

Small gifts

One of the critical things in small businesses is: How do you generate and maximize the chance that you encounter the right opportunities? How are you effective in a time-compressed world? All of that requires that you collaborate well with other people.

When I forward an introduction request between two people, I'm trying to set it up so that the two people will thank me, even if the specific business doesn't happen. Then, part of what I'm doing is strengthening my relation with those two people.

I have a theory of small gifts. When you're embedded in an ecosystem, it makes sense for you to think of little tiny things you can do for other people, things that can have huge value for them. If you put that much value into your network, other people start to think: "Oh, maybe I can help you, too."…If you can do three things that are really cheap for you that are really valuable for others, you're adding to the system.

This is part of how you make the world a better place, because everyone has a personal incentive to be more honorable, to keep commitments, to not lie. To not burn people. [He explains that the network, much like eBay, exposes liars and cheaters. Reputations spread, both good and bad.]

Career advice

Usually when I give talks to undergrads, I advise them to leave the beaten path, do something with some uniqueness. But it's too simple-minded to say, just follow what you love. Let's say you love cooking. So you work as a sous-chef in a restaurant? Now that's a really hard life. If you love it, fine. But if you say, maybe if I create an interesting food and wine business, and that means I can afford to send my kids to an Ivy League school, and I can afford to take that trip to Hawaii…that combines what you love with things that create good economics.

The value of recommendations on LinkedIn

If you look at my profile…you'll notice a thread. I've got 39 recommendations. They all say things like "brilliant," "dealmaker," "collaborator." But none of them say "excellent at process." None of them say the "best manager." None of them say the things I'm not so good at. You can actually see the shadow.

The biggest complaint that people have about me…

…is a lack of attention to process. I'll give you an example: When I was doing PayPal—I wasn't married at the time, which is part of the problem—I was working so hard that I'd get home, pick up the mail, and drop it. A trail of mail led in from the front door. I'd have to sweep it up every couple of weeks and recycle it.

Time management

Basically, everything that comes to me without a referral I say no to.

Not all, but maybe 95% of the things that come to me referred I say yes to about 80% of the time because my network actually knows how valuable my time is…usually the 20% is: "Well, I don't really know this guy but maybe you'd be interested in it"

The value of an MBA

I'm suspicious of MBAs for entrepreneurship. They're great for middle management. The classic MBA program is not aligned with entrepreneurship, because entrepreneurship is all about making very fast decisions in information-poor circumstances, where a lot of it is guessing. That's one of the things I specialize in."

Wealth

My very first goal was: while doing no harm, to make enough money that I never have to work for a salary again. Of course I'd need money support my family, read books, take an occasional vacation. Second, use money as a tool to fund the projects that I want to do. And third, it's a tool to allow some influence.

I raise money for the causes I like. I say: "O.K., I'm putting $25,000 into this, do any of you want to match me?" A friend of mine who's not as wealthy as I am might put in $500. (He says he gives money to Doctors Without Borders, Partners in Health, Kiva, "and we've given a fair amount of money to Obama.")

Startups

Most people think that product strategy is central to entrepreneurship. Actually, finance strategy is more core than product strategy. To bring a new product to market requires a certain amount of investment that takes you into the red. The difference between a dollar profitable and a dollar unprofitable is the difference between immortality and death. How do you move to immortality? If you maintain profitability over time, then you have an organism that's immortal that hopefully can have a very positive impact on the world…Of course, you never get perfect immortality, because market conditions change.

You tie that product strategy to a finance strategy. Usually, it's between one and four rounds of financing. You have to figure out that island hopping of financing: to build something that gets you to that next round of financing. Most entrepreneurs don't realize that this is important.

It's really good to start talking to VCs a year before you get to financing. Then if they build trust in you, it makes their financing decision a lot easier.

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