June 28, 2021

Reid Hoffman: The Master of Scale

Founder of LinkedIn Reid Hoffman joins us today to talk all about his success with hyper-scaling businesses through the magic of what he calls “blitzscaling.”

Founder of LinkedIn Reid Hoffman joins us today to talk all about scaling businesses quickly and effectively. Through his experience scaling PayPal and LinkedIn and investing in companies like Airbnb, Reid has formulated a bulletproof scaling strategy. Today, we dive into unexpected lessons in scaling, monopolizing the market, and the importance of network effects. Reid draws on concrete examples from leaders of the most successfully scaled companies who have made appearances on his podcast, Masters of Scale.


Alex Lieberman: Well, we've arrived at the final episode of Business Casual for a little while, and I've had an absolute blast hosting the show these past few months. I hope you've enjoyed listening and learning alongside me along with a thank you for all your support. I just want to remind you one final time that our inbox is open. We really want your thoughts on how to improve the show while we're away. You can let us know by sending an email to businesscasual@morningbrew.com. Thanks so much for listening and I hope you enjoyed the episode.

What's up everyone? And welcome back to Business Casual, the show where the masters of business share their thoughts on the biggest questions shaping our world. I'm Alex Lieberman and for one final time, let's hop into it.

When it came to thinking about the episode of the show we wanted to leave you with before summer break, only one name really came to mind. Reid Hoffman. In many ways, Reid personifies the various dimensions of our show. Like many of our guests, he's a founder. He co-founded LinkedIn, you know, no big deal.

Like many of our other guests reads also an investor. And to be honest, calling him just an investor is a little unfair. He's invested in some of the companies that are most central, most iconic to our lives and experiences today. He was an early investor in Facebook and Airbnb, just to name a few.

He's also been an executive at PayPal, a board member at Microsoft, and even hosts his own podcast, aptly named Masters of Scale. In other words, Reid's experiences and knowledge touch so many of the different themes we discuss on this show.

So I wanted to talk to him about his thoughts on scaling businesses, his time as a founder, his time growing PayPal, and so much more. Reid Hoffman, partner at Greylock host of Masters of Scale and man of many other titles, welcome to Business Casual.

Reid Hoffman: It is an absolute pleasure.

AL: So, I need to start with, you're oft used phrase of "blitzscaling." I've seen it everywhere. I've read about it in your blog posts, but there are a fair bit of Business Casual listeners who probably have never heard the term, but I think it's really important for them to understand.

So let's set the foundation. How did you come about this concept of blitzscale? And give some context before we go into it.

RH: So actually all three of the books that I've written, Blitzscaling being the most recent, all came about from the World As I Found It. And The World As I Found It comes from Silicon Valley. Why is it that half of the NASDAQ comes from a area of the world that is in total, three and a half million people? That's not tech people, that's everybody, right? Which the tech industry is a small thing.

And why is it so many of the tech companies that have global throw weight in influence? And one of the things that in blitzscaling that I realized was that it's like the whole industry in Silicon Valley is focused on how do you build the modern, amazing tech company? And they experiment and they do lots of crazy things, but when they discover the really counterintuitive or new or different things, and then it spreads within the learning network that is the Valley and grows.

And the reason why this is important is not just because we, as the rest of the world say, "Okay, well, there's a bunch of interesting and important technology companies coming out of Silicon Valley." But also all industries and all companies are on path to becoming technology companies. And as technology companies, that this is the pattern by which technology companies of the future are built. It's the pattern by which all companies ultimately of the future are going to be built.

And so how do I share that? And blitzscaling was the encapsulation. And one of the reasons why to create a word is because the important thing is to understand the concepts of it. They understand the fact that it's a new way of thinking. It's a mindset, it's a set of things that are in fact counterintuitive from what you might learn in business school.

AL: How is it a different way of thinking? What was the old way of thinking? How is blitzscaling a new way of thinking? What does that look like?

RH: So classically, when people say, Hey, I'm an expert of business, I've learned it. That's MBA programs around the world, you learn a set of concepts like, okay, you have a market, a total addressable market, a means of doing customer acquisition, a what is your operating margin? What is your lifetime value of a customer?

And then all of that goes into being as efficient as possible and as efficient is well, you've got a low customer cost of acquisition. You've got high customer retention, you've got good revenue, you've got good operating margins. And then that generates with the value of your businesses. And that's essentially what is taught in business. 1, 101, 201, 301, around the world.

Now what blitzscaling is the precise definition is prioritizing speed over efficiency. Remember I was just talking about efficiency? In an environment of uncertainty.

And so classically you think, "Well, what you actually can do is prioritizing efficiency and you're prioritizing reducing uncertainty."

But what happens is say, "Well, actually in fact, there's a window by which the first company to scale is going to set the network, set the platform, set the standards, set the rules, be the global platform for the establishment of this kind of technology."

And so speed matters much more than efficiency, and it's not just efficiency and capital. It's also efficiency and human capital, it's efficiency in even understanding what your business model is, your customer acquisition costs or any of these things. And so what you do is you say, "Well, no, we're prioritizing speed." First, the scale over the normal efficiency things that business people think about and kind of classically, like if you go back to the first internet boom in the Valley, what happened is they got all these crazy people, they're building these companies before they knew what their business models are and they're spending all this money in acquiring customers, right?

And they're just out to lunch and eventually they'll get their just desserts. And then of course the internet winter happens and they go, "See we were right." Well, what happens is, you were right about some things like, "Well, taking capital intensive models and having them be on profitable and backing up the truck and spending tons and tons of capital in ones that don't evolve into a very good business."

Yeah. That's a bad idea. And by the way, all of Silicon Valley learned it. On the other hand saying, "Hey, we can establish a network before we each even necessarily know the business model of the network." But then the risk adjustment is establishing the business on top of the network that actually, in fact, can create amazing outcomes. And so we will do those kinds of things, we will still do blitzscaling. And that's the kind of thing of, "Well, when do you, when do you play the blitzscaling game? What are the triggers for doing it? When do you do it? How do you do it?" That's obviously why I wrote the book, why, do the podcast Masters of Scale? All of these things are understanding this new world.

AL: When was the first time as an operator, you experienced, blitzscaling was that LinkedIn? Was it at PayPal? Talk about your experience.

RH: Well, the very first one is a PayPal. It was the second startup that I was involved in. I had been on the founding board of directors of PayPal when sharing all my experience with Max Levchin and Peter Thiel. And then when I was like, "Okay, I need to go start another company." They said, "Come join PayPal because we're just launching and by the way, in classic kind of blitzscaling thing, we don't have a business model. Yeah. You know, when the venture capitalists invested in us, we described how we're going to be. We're going to be making money on the float from being a bank and deposits. But by the way, if you do the math, that's never going to work." Literally when we were doing this blitzscaling, the business model was, "In a payment system, people will be keeping deposits and we'll be making interest off the deposits.

And yes, the interest rates were higher than, than they were today. But not a lot. When we did the math, he said, "Well, in order to make money on the deposits, the money would have to stay within the PayPal system for two years before it exited. And this is a system where it's like the fastest payment where you can put your money in your pocket.

So, we know from the very math that the business isn't going to work. What's relevant is how do we get the scale really big? And when I joined, it was how do we get to a big scale and sell? And we were learning blitzscaling as we went along. We figured out how to prioritize speed of growth over efficiency, over a business model, over a number of things. And to give a bit of a tantalizer, we were growing at, and this is where people should be good at math at 2 to 5% per day.

And so the compounding rate of that growth is obviously astronomical.

AL: Yeah. It's ridiculous.

RH: Now, when you say that, "Well, what we had was a cost line and not a revenue line." You could understand that that would also lead to a certain amount of terror because our cost line was growing 2 to 5% per day, and there was zero revenue line. So that was kind of the, "Well we're going for it for the establishment of the network, for growing PayPal within eBay on the belief that we can get to the other side. Where the other side is either someone who has a really good business model acquires us as a strategic asset, or we can build a business model." And obviously if you see where PayPal is today, we got to the building the business model successfully.

AL: So, that makes a ton of sense. So how much was a really, I would say, aggressive, competitive landscape factor of the need to blitzscale? How much was it just that PayPal operated or built its moat off of network effects, versus how much was it just the thought process that you guys wanted to shoot for the stars? What was the biggest factor in deciding that blitzscaling, which I assume you didn't call it that at the time made the most sense?

RH: So it's fundamentally when you make the decision that it's worth a lot of capital and a lot of inefficiency to be the first to scale. That's the most Colonel, focal point, diamond edge of decision. There's a number of things that can lead that. Now, generally speaking, one of the things is first to scale, better be valuable, right? Because you go, "Well, we're first to scale in a business that has no margins. And that never creates business." Well, unless someone buys you or something else, that's not valuable. Valuable is being a strategic asset to someone who has a good business or being a good business. So you have to have that as a target, as an understanding. And by the way, generally speaking in these strategies, it's good to not just have one target, but to have a flexible range of target, depending on what plays out in the market and competition. And so forth and that's part of being good strategy.

Next thing is, "Well, do you have to put on the afterburners?" Right? So, frequently blitzscaling is driven by competition. Now, there was competition on PayPal case. There were people who were copying us, one of which we merged with, x.com. But also it's, for example, part of that was, "Well, we found we were growing on eBay and eBay had a company called Bill Point, which is competition."

And which of us got to the network first within eBay was the one that was going to have the ability to refine and develop a business model because frequently the first to scale is not just the first to scale and the first of a number of customers, but you're also learning from the customers, learning what the actual market is, figuring out how to tune, like what is next year's feature set? What's next year's business model? What's next year's way of acquiring customers? And being there first and at scale really, really matters.

And so all of that was part of the decisioning of that's what mattered. Scale is what mattered. And so we were completely oriented and being crazy in the way that the classic business community, the classic captains of industry, MBA's and business school professors all thought, "Oh, these were young kids who had no idea what they were doing."

AL: Totally. And I mean, it makes a lot of sense. You talk about in the context of eBay and the idea of getting to the network first and being kind of like the payment solution of choice was a really, really important. Even yesterday, I was reading the original first public shareholder letter from Amazon, 1997 letter. And so much of the language in that from Jeff Bezos is about their strategy isn't the right strategy for everyone, but where market dominance really is, you're the winner, or you are the loser. It was the same exact thing of speed velocity of capital, et cetera, was such an important thing. Talk about when does it not make sense to think in that way? What sort of businesses is blitzscaling maybe not the optimal optimal decision to make?

RH: Blitzscaling is a trigger and you only do it for a while. You don't do it forever, right? The two most common triggers to say, yes are, well, actually in fact, it's game on and there's either extant intense competition or could be very easily intense competition. Or we simply, because it's like a network property or a scale property, we need to get to scale very fast. And those are the two most common triggers.

Now, then people say frequently, when do you stop blitzscaling? And the usual answer is, "Well, when someone couldn't take your market from you, take your business from you by blitzscaling, or at least blitzscaling along the path you're doing, that's when you start tuning towards efficiency." One of the mistakes is, "Oh blitzscaling is the goal." It's like, "No, no, no. This is the inefficient spend of capital."

Like when you say, "Hey, I'm blitzscaling out there. And I don't even know my business model." That's not something to be proud of. That's something that we go, "I know I have a major risk factor that I need to fix on route to creating an amazing, world-transforming business. So just for everyone to understand it.

Now, there's a lot of times when blitzscaling doesn't make sense to you. So for example, say you're out in a Greenfield by yourself and you have time to test and experiment [inaudible 00:14:17], then you should be focused on efficiency and learning. You don't think competition is going to be coming at you in a high speed. You have a depth of a moat like a technical advantage. Like, "Well, we've been building this platform for eight years, right? And want to test our business, one would need to have this platform one way or the other. And so we're going to be working on efficiency off that because we have such a headstart that even if someone were going to start being competitive with us, it would be much later." We have a privileged access to a market, a channel, a region, all of these things go "Well, not blitzscaling."

AL: So to that point, do you believe that the stage at which a company, it makes sense for them to blitzscale is the most challenging, highest risks stage in a business? When you think about the life cycle of a business in terms of risk level and challenge, where would you stack this point at which you blitzscale?

RH: There's nothing that's more risky. There may be other things that are equivalently risky at different weights. So there are different kinds of risks. It's kind of shape risk is not all one sort. And the reason it is, is because usually when you're blitzscaling, you're going way out over your skis. Usually it's succeed or blow up.

There are a number of companies which have blitzscaled and are now part of the graveyard of technology companies. And so there's bunch of big risks on it, but by the way, startups are also risks. There's just also a lot of startup graveyards that never blitzscaled either. It's the question of taking smart risks for outcomes, is the way of looking at this.

And by the way, when you're doing it, it feels crazy and intense. One of the things that when we were reflecting on those blitzscaling years of PayPal, and we were talking about what the learning curve looks like. And frequently when someone tells you learning experience, you say, "Oh, where are the scars? What kind of blood did you leave on the floor?" And the answer is a lot. We said, "Well, we've never learned so much, except for maybe between the ages of two and three, right?" That's how intense the learning experience is. And it's super stressful because you might flip back and forth even in a 15 minute period between "We're going to succeed, this is going to be amazing and, oh, we're going to die."

AL: I want to stay on that point because over the last year, I can't remember when you wrote it, you wrote a post about the loneliness of entrepreneurship. And I actually think this is a really important point to call that out because not just loneliness, but I would say mental health of entrepreneurs, that the level of stress, the risk of burnout, I would imagine it has to be incredibly intense during a point of blitzscaling.

A lot of Business Casual listeners are either founding companies or about to found companies. And they're thinking about, "Okay, this sounds like it's going to be stressful as hell. How do I navigate this? Not physically, but emotionally." How do you think about that?

RH: I think the most central thing is the people that you go to the field with because life is a team sport, not an individual sport. And usually the whole entrepreneurship thing is that lone entrepreneur, that hero, the genius visionary innovator. Yes, these people can be amazing and can really have seen something out of people in that seen and done all the work to pull the, create something from nothing, that is kind of entrepreneurship.

But the key thing is, none of these scale things are accomplished by individuals or by even two to three person founding teams. They're established by assembling a team around you, a network around you. And it's not just employees and executives, which obviously important, but investors and advisors and that kind of thing is extremely helpful. The reason I did the loneliness post, which I think was around in the winter sometime was that I think a lot of entrepreneurs just go, "Well, that's the fact of it. You just have to weather it. You just have to be strong enough. You just have to have enough grit."

And the answer is to say, "No, actually that other people feel this too." And that part of what you do is reach out and connect with people. It's part of why, how you might select some of your key investors or board members. That's certainly how you should select some advisors, it certainly is how you should select co-founders, it's certainly how you should bring in some of your key executives. Because the notion of we are a team, we are taking this default dead thing because they, as you know, one of the quotations I use to focus people on entrepreneurship is, "You jump off a cliff and you assemble an airplane on the way down." It's the kind of [inaudible 00:18:35], "Ooh, my God, this is kind of scary and vertigo and distracting." And then you say, "We do this together." And I think that's the most fundamental in all of the advice you can give people about how to navigate the really psychologically stressful and difficult pathosis.

AL: So I want to switch gears for a second to read as the investor, rather than read as the operator. And something I'm actually really curious about as someone who's very early in their career of angel investing. I've been starting to write early stage checks. Is kind of having a self-awareness of what creates joy in operating? What creates joy in initial building? And what creates joy in investing?

So I'd love to hear your perspective of when you think about all the different hats you've worn, what brings you joy in investing and how is that similar or different from the joy you got while building LinkedIn or PayPal?

RH: So the similar joy is, you're looking out at the entrepreneurship thing as building a new product or service that can fundamentally make a huge difference in the world. It might be something that customers delight in. It might make the functioning of society a lot healthier. It could be a broader base, or it could be more green or economical or any number of things.

And the entrepreneurship is about the creation of that new. As an investor, it's these amazing entrepreneurs come to me with an interesting idea where they go, "Here is a way that the world could be so much better." And one of the things is, it doesn't just have to be an amazing... If you have a good product, it could even be a new way of constructing sandwiches.

That's like, "Well, that's not climate change." Sure. But you're creating jobs and you're creating delight for customers and so forth. That's a really important thing. So there's a whole range. It isn't just the, "Hey, it's Space X and we're revolutionizing space." It's instead of, I have this thing that we could build and when we build it, not only are a whole bunch of individuals better off, but we are better off as an industry, as a society.

And the investor role is the, "Hey I'm a helper, I'm an advisor, I'm a counselor, I'm a co-participant." And there is just amazing amounts of joy in that.

AL: Totally. And so I need to call out an example for a second that I thought of when you were talking about this idea of building a business doesn't mean just from day one, fundamentally changing the world, just because you're not building rockets, doesn't mean you're not doing something really positive for society.

Among many of the essays I've read that you've written, one of them was about Airbnb and I believe you wrote it right after the company IPO'd. And you talked about this experience of investing in the company. And I want to let you tell this story, but the gist that I feel is at least your first reaction to the business from information you gathered, made it feel more like a sandwich company than a Space X. And so I'd be interested for you to just share your perspective of how your vision for what Airbnb could be changed over time and how that ultimately got you to invest.

RH: Airbnb is actually one of the ones where I actually, in fact understood the transformative characteristic from the very beginning. And the reason is that if there is kind of a theme to my direct ideation and world expertise and so forth, it's the network that redefines society. It's LinkedIn and PayPal, but Airbnb is another one of those because the way that I looked at it, is I said, "Well, actually in fact, this is transformative." Because if you look at the host side, they go, "Well, what's the most important illiquid asset that hosts have?" And the answer is my apartment rental or my house or my... And you say, "Well, I have a huge amount of illiquidity in that. And that illiquidity turned into liquidity could be something that's really key. It could be on paying my mortgage. It could be the I'm supplementing my income and making my life work."

And so the host goes, "I now have a chance." And if you look at all of the work networks, cause the creation of work networks is one of the things obviously that I pay attention to and do a lot with. Airbnb has when you look at Uber and all the rest, has the highest earnings potential. And so that was on the host side. And then on the traveler side, the notion as "Well, I'm a traveler and I'm going to some other place. Now, sometimes I go to another place because I want to sit on the river or the lake by myself and then go fishing. But a lot of times, of course, I'm going to a place where I want to connect with the local community. I want to see what feeling like being in Paris is or Barcelona." And Airbnb having that notion of belonging and connecting, was also transformative and transformative to people to understanding each other and culture.

AL: I was going to say, I think that the thing that I was referring to is I think the original kind of advice I'm sure that you got was like, "Oh, it's going to be this thing where people just sleep on couches and they don't necessarily get the full apartment." And to me, it's like that small shift in thinking from like, "Oh wow, you can actually have a space that is native to the environment that you're going to stay is an amazing unlock for both sides of the market."

RH: Yeah. And actually that particular point was the fact that someone had told me, "Oh, Airbnb is about couches." And couches, I thought, wasn't that interesting. So I actually-

AL: Totally.

RH: I met Airbnb 18 months later than I could have because when the first time they were trying to reach me and someone else said, "It's about couches." I went, "Oh couches are not that interesting." Because couches doesn't have that transformation for the host. Couches doesn't have... You may have some transformation for for some travelers, but the couch is a very narrow set. Whereas the once it's the marketplace for space, then I was like, "Oh."

AL: Yeah, it could be a huge. And this is a selfish question for me as now writing early stage checks is obviously when you're looking at companies that early, it is not a quantitative decision in terms of looking at the revenues of the business, trying to figure out what multiple makes sense to pay them. Not just Airbnb, but as you're writing checks in general, what is your mental model for assessing early stage companies?

RH: So typically as invest the kind of classic trifecta as you look at market, you look at the idea and the plan and you look at the entrepreneur. And one mistake that investors make is that they blend the score between all three. And really what you want, is you want one of them very, very clearly above the bar. Obviously you'd prefer to have all three clearly above the bar. If you have all three clearly above the bar, more or less back up the truck, that's a pretty rare circumstance. You're like, "I want every available share that's available right now because all three."

Usually what you're doing is you're saying, "Well, this one's really good. And these other two, maybe. At least they're not catastrophes, they're not errors, they're not things are going to break." Because any of these three can break the business.

And then when you get to the early stage, here's how that combination comes together. So one is you overweight the entrepreneur, right? The one to three people who are that because the pivoting and the changing and the evolution and sticking with it and that sort of thing in the early stages, almost always.

PayPal's first idea was encryption on mobile phones that would be a platform that people would buy the encryption platform. Right? So, this is completely gone.

AL: Oh yeah. Wildly different.

RH: So, that's kind of the people side of it. Now, the next thing is to say, "Okay, now there's a huge amount of risks." And you should write down all the risks. And you say, "If the risks play out, we can solve them a little or a lot. What's the outcome? Is the outcome amazing? Is the outcome worth all the risks?"

And when you're doing this... And part of the reason you start with a risk side of it... So you've looked at what the protective market is, what the plan is, what the entrepreneurs is, say, "Okay. Here are all the risks. If they navigate this risk, is it transformative? Is it sufficiently big to be really worth it?"

Now, if you could say, "Hey, the risks are much more discreet then the outcome doesn't have to be as large." The kind of investing I tend to do, like, I'm very comfortable with the "Oops didn't work at all." Right? Like, you lost all your marbles play again. And then other people are much less comfortable with that. I tend to be the play for the world changing kinds of outcomes. But then you've got to look at that analysis of the risks and you say, "Okay, what's the plan?"

Like if you look through Airbnb, you say, "Will people get around this kind of cultural thing of the weirdness of renting from someone else? Will cities realize this is a good thing for them, versus a bad thing for them?" Will you get to the higher level of security that you can get by tracking a network participants that gives you equivalent or better security that you can get from what you do with hotels and other kinds of things. And so there's all of that, kind of play into it and can you play through these risks? And I looked through them and I said, "Yes, I think there's a really good chance at these." And even if you only did somewhat, you'll be pretty good. And so that was part of also looking at these early stage investments.

AL: That makes sense. So it's like something with Airbnb, say, a big thing around Airbnb around the rest is like government regulation. It's something you consider it at the time. But your view was like, "Even if government regulation is a possibility, it is a risk I'm willing to stomach that even if it does pose a risk, I still think it can be really big."

RH: Yes, exactly. And for example, you look at that specific one, you say, "Well, really that's going to be city by city." So maybe you're going to have a problem city or two or three. And paradoxically, one of the Airbnb city challenges is San Francisco, which is like your home town.

AL: Yeah. So ironic. Yep.

RH: Yes, exactly. And you said, "Look so it's city by city." So all you need is some cities to see the future and realizing that this is good for the city that it brings in economics, that distributes those economics around the citizenry, that creates a much more robust network and based habit.

And so you'll have some, and then by the way, when you have some, you can prove it. And then eventually the other cities come around because they begin to realize, maybe some of them very slowly. And so it wasn't a all or nothing. It wasn't one regulator in one office, what's the grumbling of their stomachs or their worry about how this plays out? And that was part of the analysis of this is okay. Even if a couple of important cities go the wrong direction, this will still work out.

AL: So one last topic I want to talk about with you. And it very much hits close to home. It's the idea of people's perception of what it means to be a CEO and specifically what it means to be in it for the long run. And what I mean by that is I think when people envision entrepreneurship, they envision the founder CEO, who stays CEO forever. People's mind is the Zucks of the world. The Bezos's until recently.

And I think a really interesting thought experiment and just a reality for people to realize is that is just one way of doing things. So recently I moved from the CEO role to executive chairman at Morning Brew three months ago, after six years in the role. I know you were at LinkedIn for I believe seven or eight years before passing the torch to a gentleman who then passed it to Jeff Wiener. How do you think about the progression of a CEO? And when it is time to pass the torch versus the time to actually push yourself to evolve?

RH: So there's at least two fundamental factors. One is analysis of the business and where the business is. And as a founder, your economics, your glory, your identity is all wrapped up in the business succeeding. So if you turn to janitor and the company turns into this amazing thing, you're like, you're still the... "Oh my God, you helped create this amazing thing."

So you should step a little bit aside of the ego. This is a lot of ego things around "I'm the CEO, I'm in charge and business and press and everything else always wants to talk to the CEO." And he said, "No, no, it's about what do you create?" And so part of that is, is having a good map of what your strengths and skills and your disposition and your commitment, and one of the things you need to be doing when I was looking at it for myself, I said, "Well, the thing that I'm really excited about is product and business strategy."

It's roughly, what do you wake up on Saturday morning thinking about? And I wake up in Saturday morning thinking about that, which makes me a very good investor and board member and so on. It makes me a very good CEO of a 100 person employee company.

But when you begin to get to the thousands of people, what you really want to be waking up on Saturday morning is, "How am I maximizing the organization?" Right? Now, of course you still have to have strategy and still have to do with these other things. But that's the thing, I go, "How to do that better?" Is the thing that I'm thinking about on Saturday morning.

And so I said, "Okay, that's not me in the future. I could try to develop it." But normally my advice to people is don't work on your weaknesses, work to put yourself in a position where your strengths apply and then reconfigure your organization.

So you have a teamwork where everyone's strengths are applying. And so for example, when Jeff and I decided to launch China, it's like, well, that's a startup thing. I will do the China side for LinkedIn. And Jeff will continue to scale the rest of the world. And I'd be working for Jeff while I'm doing the China side, because I'm the startup person, but with the deep trust, it's like, he understands when I'm saying, "Look, we're going to do this thing that has nothing to do with a scale efficiency that you're one of the masters in the world at because that's what the startup game looks like."

He goes, "Okay, I trust you, you know that. You go do it, let me know how it plays out." And then the second one is the kind of question around what is the path that you're going down?

So part of the answer of the second part of the question of when you should develop your own skills is he said, "Look, the really important thing to me is I continue to be the CEO of this organization. And I believe I can build the skills that are essential for its current place. And that's, what's important to me."

Then you, you might decide to build the skills. It comes down to that personal decision of mission. Now, you still have to evaluate the needs of the business first. And you say, look, I can't develop the skills. I should still trade it out. But frequently, for example, there's a bunch of things that you can learn about building culture and about building scale management. Like for example, when I was making the decision to hire a CO, most of my board members were saying, "Well, you should really think about hiring a COO. You should think about hiring... What the phrase in Silicon valley then was... Your Sheryl Sandberg. You should do it that way.

And I was like, "No, actually I want someone who owns the ball in the way a CO does, who goes 'It is my chance to be the quarterback and to make this successful at the next, in the next phase of the game and I own it. I'm not the employee, I'm the owner." And I wanted to have that. And actually one of the things that had helped me is because I'd had a lot of experience being on boards and investors and working with entrepreneurs. It's like someone I'm going to partner with, not someone who I manage.

AL: Absolutely. And I think a point you made in actually the piece you wrote about Bezos to step back is this idea of creating a very clear distinction whenever you make this change of like, if you are stepping away from the role, giving the person oxygen to feel, not only feel ownership, but where the company acknowledges and respects that ownership, because it can deprive the person you put in charge of actually not just feeling in charge, but also being respected as the one in charge.

RH: Yep. And it's critical to you that they're successful. Like, as you know, when you're doing this kind of transition, it's the one, two and three is how do you make this new team configuration? This new team captain successful? Because the other side is really painful and brutal.

AL: Reid, it has been so cool to hear your unique perspective. You've seen the inside of businesses as an operator. You've seen the outside of businesses as an investor. You've worked early stage and you've worked late stage. So to hear you talk about everything from blitzscaling, to culture, to evolution as a CEO has been an absolute master class in business. I know I can speak for all of our listeners where it's been an absolute joy to hear all of your insights. Really appreciate your time.

RH: It's a pleasure and an honor, thank you.

AL: Business Casual is produced and engineered by Daniel Markus. Our researcher is Bella Hutchins. Our newsletter is written by Hannah Doyle. Alan Haburchak is our executive producer. And I'm your host, Alex Lieberman.

If you like the show, make sure to rate and review us in your podcast app. It really helps people find the show.You can also connect with us on Twitter @bizcasualpod. That's @bizcasualpod. And we want to hear from you. Who do you want us to talk to on the show? Drop us a note. Our email is businesscasual@morningbrew.com.