by Sharon Pope5/31/2017
Sam Altman sits down with Reid Hoffman to talk about the key changes founders should think about as they transition from a startup to a scaleup.
This conversation took place at The Scaleup Offsite, a private CEO gathering hosted by Y Combinator Continuity and Greylock Partners in April 2017.
Some topics discussed:
We’ll be posting more videos from The Scaleup Offsite over the next few weeks.
Also recommended on this topic: “The Second Job of a Startup CEO” by Ali Rowghani
Craig Cannon [00:00] – Hey, this is Craig Cannon, and you’re listening to Y Combinator’s podcast. So, today’s episode is a conversation between Sam Altman and Reid Hoffman. They focus on the key changes founders should think about as they scale their company. This conversation was recorded at The Scaleup Offsite, a private event hosted by YC Continuity and Greylock Partners in April, 2017. Okay, here we go.
Reid Hoffman [00:20] – Thank you all for coming here. Everyone here is an important part of our joint network. This event started with kind of a funny set of accidents. First, Sam had this brilliant idea of teaching a startup class at Stanford and getting a bunch of different founders to come and talk about the key elements. And he got this, he got me to give some talk on how to be a great founder.
Sam Altman [00:50] – I remember.
Reid Hoffman [00:51] – It was that one. And then I went, “Wow, that’s a really good idea.” And part of how innovation, I said, “Well startup is one part. Scale up is the other thing.” So, we did a similar class with teaching blitz scaling, which is the theme of a book that I’m working on with Chris Yeh, who’s in the audience somewhere. So, we did a Stanford class as well where we got a bunch of different folks. And then Sam and I started talking about this and we said, “Look, actually in fact this is not just a good Stanford topic, but this is actually a good topic for essentially our network and for the businesses, because you really only build something amazing if you hit the scale problem,” right? It’s not just a, hey, you invent, and then hey, it’s easy after that. We hit the oil and we just pump out the oil. There’s actually in fact a lot of innovation, and a lot of hard work, and a lot of skill and craft that goes into scaling, and if you fail, you fail. So, then Sam called me and said, “Hey, we should do an event like this, and we should start doing this on a regular basis.” And I said, “Oh, that’s a great idea.” And so, here we are. – Here we are.
Sam Altman [01:58] – Here we are.
Reid Hoffman [02:00] – So I thought I would open a little bit with some of the blitz scaling stuff, and then we’ll just kind of kick back and forth.
Sam Altman [02:08] – Great, okay.
Reid Hoffman [02:10] – Oh, and then the other thing, by the way, actually one other little housekeeping thing, the stage conversation, including the Q&A, is essentially going to be published, so it’s public. So, anticipate that being public. The hallway conversations are private. So, don’t tweet or otherwise publish anything in the hallway conversations unless you have permission from the person you’re talking to. So with that, one of the key things that I think is interesting is you say, “Well, why is it that Silicon Valley produces so much of the technological impact on the world?” We tend to tell ourselves classically this startup story of, well we’re inventive, and we have venture capital, and we import a ton of talent here, and the venture capital stuff all works, but actually in fact it’s the fact that we intercept technology invention with business invention, where that business invention includes such things as network effects, new business models, and so forth, and then in seeing those we realize that certain of those businesses are super important, and we move really fast to establish that business model. That’s one of the reasons why you will find that most people in the valley all say network effects is something super important. And one other thing that actually in fact I think is a fun hobby in case any of you would like to do this, is occasionally when I’m feeling impish I will actually in fact ask people, “Well, what’s network effects?” Because a lot of people will use the term and actually don’t actually in fact know what it is, don’t know how to measure it, don’t know the different kinds of network effects, don’t know like network effects in growth, network effects engagement, network effects in revenue, network effects in a bunch of these sorts of things, and yet the reason why we’re obsessed with network effects is we know that’s the kind of thing that causes us to scale. And so part of the whole thing is a whole set of different techniques. And I’ll go through some of the different blitz scaling areas of hiring, but maybe one of the things we should start with is how you’ve been scaling YC actually, because the fellowship, and the class, and the , and everything else, because it’s not just that we, we kind of advise the stuff, and practice, you practice this stuff.
Sam Altman [04:28] – Well, it gets super recursive, because one of the things that we did was start our Continuity Fund because we realized this problem. To scale ourselves we realized that if we didn’t start a growth fund that could help companies who have had their initial idea start to work, then we weren’t going to be able to produce as many impactful companies as we can, which is really why we started our own growth stage fund. It invests mostly in YC companies, we sometimes invest in non YC companies, but the idea was to scale we need to do two things. One is fund a lot more companies, but two is build a practice that in the same way we work with founders to figure out their initial idea teach them how to scale companies. So, we’ve tried to build this thing basically to scale YC we need to scale companies, and that I think has been one of the most important inventions we’ve had in the last year. We’ve also tried to go in the other direction. So, right now we’re teaching , which is kind of the third version of that Stanford class back at Stanford where we are advising 3,000 startups at once. I think this is probably a world record for number of startups currently advised by one program, and next year we think we can scale that to 10,000. And this is teaching people a lot of the YC experience about how to start a company. And I think this is really important that there are, well as Reid said, not everyone knows what network effects are, but our version of a network effect is the bigger we can make our community, the more we can get people feeling loyal to their community, helping each other, that’s our network effect. And the thing that I really trying to do in terms of scaling YC is make sure we don’t have to compete with other firms. You manage to do it very well, but most venture capitalists that have to compete have a tough time of it and spend a lot of time thinking about it, and we like to be the only people that really matter in our own space. So, for us scale is an answer to that problem, and the more we can scale, the more founders we can help, the bigger we can make our network, that’s really powerful. We’ve done a lot of other things around the edges, but kind of the big strategy is very simple. It’s have a very big top of the funnel, get to the most promising new founders at the very start of their career thinking about a startup, get the best ones of those into our program, build a program with real network effects, and then have this Continuity Fund to help invest in these companies and push them to scale.
Reid Hoffman [06:54] – So, one of the key things I think to understand about scale is kind of that what got you here won’t get you there. So, classically too much of the advice that’s given to entrepreneurs. For example, when you’re 20 people hire your scale executive so that when you’re at thousands and so forth you have all those people baked and in place, and very rarely are the right people when your executive is at 20 or 50, are the right people for executives when you’re 1,000, or 500. Some of them grow with it, but most often actually in fact you need to trade around. So, part of the thing about thinking about scale the right way is to think about dynamism, to think about the fact that you’re refactoring your org as you’re going and that you need to be anticipating that you’re refactoring your org. You need to be anticipating that, for example, you’re looking at your set of folks, hopefully if you’ve done it well you’ve got a bunch of well cohesive, strong, A players, but A players at this stage are not necessarily the same as A players in the next stage, and you have to be, one, managing your connectivity with those folks in a way that if you’re promising this person that they’re gonna be head of product, or head of sales, or head of marketing, or head of engineering forever and that goes away, then when it breaks you break them where you may actually still want them in the org. What you actually want to be promising is things like you will actually have a seriously important role in this organization forever. You will be a major contributor. Your job will increase. You will learn things. But not necessarily, unless you’re pretty sure they will be, you will be in charge of this function. So, that changed, because when you change the scale of an organization you’re moving from when you’re 10, 20 people, you’re all doers. A couple of you are managing too, but you’re basically all doers. When you move to 50, 100, 150, 200, 250, you move from doers, to manager doers, to managers and doers, to managers of managers, otherwise execs, and that’s changing the whole dynamic. So, you have to anticipate in scale that you’re changing around the way that your company actually works is kind of a key thing, and you need to be anticipating that that will be coming.
Sam Altman [09:09] – I had a funny example of this late last year. Someone was writing a story about YC and they wrote something about how we just had our second major re-org in two years. And I read that as, “Oh, they’re saying, ‘We’re not moving fast enough,'” and they meant it as way too chaotic. And I stand by my read of it, but I think the amount of dynamism that the startups that really scale well have always looks a little chaotic on the outside. It’s just because there’s constant shuffling, and new people in, and people who aren’t working out out. The very best founders that we’ve worked with, one of the things that they always evaluate their people on is how good have they been at training their replacements? How good are they on a moment’s notice being able to move to a next role? Because most founders are very bad at this, and most people are very bad at this. Most executives will not do this. There’s a story of Facebook at one point that they tied like 50% of executive bonus to how good of a job they were doing at having their replacements ready to go and being ready to move into a new role. I think if you don’t really incentivize it you never get enough of that culture in place, and if you’re going to be blitz scaling you’re gonna just be moving people around and reorganizing constantly.
Reid Hoffman [10:31] – Yep, and part of the, there’s two corollaries, which Sam was just illustrating on that dynamism. So one of them is is that actually the chaos isn’t just external, it’s internal. So tentatively what happens is people complain about the chaos internally, which by the way makes sense, operational efficiency and everything else. And you have to condition the organization to say, “When we’re scaling really fast there will be chaos. We’re trying to constantly manage it, but we don’t manage to zero chaos until we’re actually in a relatively stable place. So expect that, work collaboratively with each other, and make that happen.” That’s one part of the correlation. So, it’s not just external looks of chaos, it’s internal chaos.
Sam Altman [11:12] – It really is chaotic, and you have to just, the wrong way to address that is to say, “Okay, my team says they don’t want chaos. I’m gonna try to manage out all the chaos.” It’s okay to have a little bit less, and that’s a noble thing to shoot for, but the trade off… You know, people that run these perfectly non-chaotic organizations somehow never build great companies.
Reid Hoffman [11:32] – Yes.
Sam Altman [11:33] – So, the trade off is we’re gonna accept a little bit of chaos in exchange for a shot at one of these massive, great companies, and founders just have to sell that to their teams. It’s hard.
Reid Hoffman [11:45] – And it’s a management dynamic. Chaos will go up. You do some solidity. Chaos will go up. You do some solidity. It’s that dynamic. The second part, and this is one of the really key things that I learned from my first startup, this was kind of a classic entrepreneurial mistake, it was called SocialNet, I kind of approached this with what you… Actually, I always kind of make vaguely teasing comments of MBAs. This is a classic MBA thing, which is like, “Oh, hire the people who have the experience in that job. Get the CV. Put that CV. Make that happen.” So, I literally had like job description, the history, and was optimizing for that, and it’s a total fail as you get to scale, because the real thing you need is to have the people who learn and who adjust. One part of that is learning and adjusting through what’s the needs of the business? What’s your product market fit? How is that working? The other parts of the learning and adjusting is the whole organization is gonna change shape. So, if you don’t optimize for people who are learners who will go into that, you’re hosed. So, this is actually part of when I got to PayPal kind of when Peter, Max and I were going on walks about like how to first build what was first called Field Link, then Confinity, then PayPal. We were doing these walks and I said, “No, no, don’t look for, ‘Oh, I’ve got 10 years experience QA.’ Look for someone who learns fast.” They need to have basic skills, because like learning it from scratch too difficult, but look for that learning curve, and look for team sports, and look for other kinds of things. For those of you who know Peter, he was particularly irked at the team sports thing, but later turned out to be right. A Libertarian, sorry. That was the individual achievement playing chess is what matters, not the–
Sam Altman [13:34] – Interesting.
Reid Hoffman [13:37] – Sorry, I just …
Sam Altman [13:39] – No, it’s an interesting point. My version of this is you want to hire for values first, aptitude second, and skills third, and I think the problem with most executive recruiters is that they reverse that order. So, if you say, “I need to hire a CFO,” they will go bring you people with 20 years of experience as a CFO at vaguely similar companies, but unfortunately it’s usually like 20 years of the exact same year of experience over and over again, and they probably can’t learn and adapt if something really changed and things are really going to change. If you’re trying to scale fast, you really need someone who is aligned with the values of the company so that when things change, or when they have to make a decision, they’ll make the one you would make if you can’t be in there, or they will be a good team player and go do that thing. You need someone who has high aptitude, because the role is gonna constantly shift, and the speed, the ability, the rate of learning, the rate of improvement, dominates skills. And then specific skills experience obviously matter, but for me it’s third on the list. Speaking of YC Continuity, Ali, who runs our Continuity Fund, had never had any venture job before. He’s done a fabulous job. Same thing is true for a lot of the other people that we hire. I think if you free yourself from the traditional model of how you hire executives in a non-growing, very static company and think that in a blitz scaling company you have to flip the priority of skills, you end up, or the priority of attributes, you end up with a very different team, but it’s the one that works, and the very best companies take this exceptionally far in how much they’re willing to hire a non-traditionally qualified executive.
Reid Hoffman [15:28] – Yes, and actually, there’s a bunch of different parts of hacks on this. One of the things that I actually learned from when Sean Parker and Zuckerberg hired Cohler from LinkedIn and I was talking to Cohler about this, the thing they put him in is he’s this generalist and they put him in a recruiting role first. It was like, “This is the most major thing. So, we’re not hiring a traditional recruiter. We’re hiring a really smart generalist.” That was actually one of the things that really helped set the initial talent team and culture as it scaled, and it was that kind of thing about thinking which are the things that you most need to solve and then getting the generalist into it, because one of the things that…. You do need to eventually as you scale hire specialists, but the theme that you look at as you move from startup to scale up is you always have generalists. The generalists are important for learning, changing the organization, adapting, adapting product market fit, tackling new markets, going global, etc., but you still very selectively add in the specialists. When you have someone who says, “Look, I am just a network engineer,” you’re like, “Okay, great.” That’s when we know that what we need from you is network engineering for the entire tour of duty, the entire length of time here, that’s fine. The rest of it you’re trying to have generalists as much as possible. As a matter of fact, actually another part of, that was learning from Social Net, another of the, the person who first did that role in LinkedIn is in the audience is Lee Hower was our first like utility player. Make sure you can tackle any problem that we throw at you. So I’m gonna move to culture. We have a great talk from Jason Kilar who will be up after us and is one of the world class folks on culture, so I don’t think we should go overly in depth, but I think it’s worth touching quickly. I recently did, I’m doing this podcast series on Masters of Scale with June Cohen. It’s coming out I think it’s May 3rd, and it’s kind of this heavily edited thing, all these different themes of kind of what are the different theories of what it takes to scale. And I had a conversation with Reed Hastings where I asked him, I said, “Look, there’s two theories of thought in Silicon Valley. One theory is that culture eats strategy, and a culture is the dependent thing for how you really build great companies. And then the other theory is that actually culture is the historical explanation for successful companies, right, that when you have a successful company you look back and say, ‘That culture, that was really great.'” And Reed looked at me and said something that I normally say to other people, so this was kind of a funny, embarrassing moment in the interview, which was he says, “Well both.” Like duh! I was like, “Yeah, that’s right. That’s the right answer.” It was clever going and asking the question but it wasn’t so clever in terms of the answer. But, I do think that the thing, the theory that’s pro-culture, is that again when you look at the traits of you’re gonna be moving up at such a fast rate that you’re gonna be having chaos, you’re gonna be reorganizing fairly consistently, and as you reorganize, especially managerial roles, that resets a bunch of patterns, and you’ll have some chaos in that. How do you keep a high performant, very strong company? And culture is a part of the answer to that, because if your only culture is top down hierarchy and messaging and communications that comes from the top, that culture won’t survive as you really balloon the organization. Instead, you want a horizontal accountability. You want it so that everybody is keeping everyone else accountable to the culture that we’re in. And cultures are not like there is the good culture and the bad culture. Cultures are defined by an organization. Some cultures are engineering cultures. Some cultures are high IQ cultures. Some cultures are collaborative teamwork cultures. There’s a different set of things you’re emphasizing, and that should be dependent on your organization and the problem you’re solving. The problem is, is it doesn’t just end there. You actually do have to play a good strategy and everything else. So, the thing that when people frequently sell culture too much is they say, “Once you have good culture everything else follows because you hire the right people, you play the right way together.” And that’s of course extremely important, but you gotta get the business model and the strategy right. How do you guys teach culture at YC? What’s the particular way that you guys handle this?
Sam Altman [20:03] – You know, I think there are so many different kinds of cultures that can work, and I’m certainly a believer that you have to have a great business and a great culture and they can be somewhat orthogonal, but also if you put one business’s culture, like if you take one business’s culture and throw it into another successful business, it might be disastrous. So, they really do somehow have to fit together. The general framework that I think about when adding people to a team, which is I think what defines culture, is what is going to be this person’s net effect on the output vector of the organization? And there are people who are brilliant, and can get a lot of work done themselves, and would add to the vector in that sense, but they’d piss everybody off so much they have a net negative effect because they make other people less productive. There are people who are moderately intelligent and moderately productive, but have a hugely positive impact on what they get everybody else to do. I think like one version of culture is are you good at bringing in people that have a positive net effect on the output vector, which screens out just looking at people in a vacuum. I think though that it’s really easy to use, in Silicon Valley in the current environment, it’s really easy to use culture as an excuse for underperformance. So, you have people say, “We drink a lot of green tea. We all go do yoga together. We’re super nice to each other, and we have this wonderful culture,” and they don’t understand why people don’t want to come work there, or come and leave and aren’t productive, and the answer is the culture that matters, I think, to the best people is one where they can just come and be really productive and be around really other great people, and if you have a culture which looks good on the surface but somehow rejects super talented people or it’s covering up for constant infighting, I think that can be a real problem. I think one of the things going on in the current 2017 Silicon Valley is it’s very easy to get entitled employees. It’s very easy to get entitled people at a company. Everyone wants to work exactly how they want. They want to be really rich right now. If the company is not gonna get liquid next year they’re gonna go somewhere else. We looked once at the average tenure of employees at companies in San Francisco, and I sort of couldn’t believe… It had been trending down, down, down. I couldn’t believe it was going to get any lower, and it managed to subsequently get lower. So, this idea of how important it is to have people that are going to join a company and stay there for five or 10 years sounds like a crazy thing to say because no one does that anymore, and yet somehow at the best companies that does still happen. I think if you think about what do we have to do to get the best people to stay at our company for five or 10 years and then go make that the culture, which one of the things that is included in that is wild success for the company and a mission that people care about. That’s really important. But, getting people who are there for that and not there for the green tea, which is like an easy way people think about culture in the wrong way at the beginning is super important. You need to create an environment where really great people will want to come, work with each other, and not have to deal with the crap that they do at most companies.
Reid Hoffman [23:37] – Just in case anyone is under illusions, although I think very few people here are, culture isn’t benefits. Culture isn’t food. It isn’t kombucha, right, etc.
Sam Altman [23:47] – Unfortunately, that’s what boards tell you when they come asking you how the culture is going.
Reid Hoffman [23:52] – But it’s not that. What it is, is how are you holding each other accountable to the mission, and to the way you work, and to the way that you have high performance? One of the things that I think is super important for this is actually in fact I think too few organizations following what Hastings did in terms of creating a culture deck. Now, the thing that’s interesting is is that the reason this deck got there, I actually think every company should do some version of that and some version of publishing it, the reason Hastings did this is they first started with kind of studying how people bounced out. They interviewed and hired really good people and then they came in, and the people came in and they said, “Hey, we’re not a family. We’re not here forever. We’re actually a team, and we should basically say if you have adequate performance we’ll give you generous severance package and have you leave and do that immediately.” And people say, “Wait, wait. I thought I was joining a family.” And it’s like, okay, well let’s define what it is. And they wrote it and then said, “Well, how do we shape the funnel of people coming in? Let’s publish it.” Then of course after publishing it, it actually really helped a whole bunch of people understand like, oh, that’s that kind of culture and should I work there? I really like the fact that they’re shaped that way. That particularly way of playing, that particular sports team, that’s the sports team that’s the right kind of thing for me. And I think many more organizations should actually be much more explicit about that because they don’t talk about like oh, we have cafeterias, we have volleyball court. That’s not in the culture deck. Right, as a way of doing this.
Sam Altman [25:25] – The traditional, we see a lot of these value statements and culture decks, and the problem is they’re only valuable to the degree they’re different from what other companies say.
Reid Hoffman [25:35] – Yes.
Sam Altman [25:36] – So most of the ones we see, because we suggest that every company write this out, and it’s like, “We value integrity. We value being a team player.”
Reid Hoffman [25:43] – Be excellent.
Sam Altman [25:43] – Be excellent. And so I think this is a worthwhile exercise, and it’s good to do, but only to the extent that what you say is different from what other people would say, and trying to figure that out is really important. Honestly, what most companies find when they do this, or what many companies find, is that they have nothing to say that wouldn’t be in sort of the macro expanded template of what a culture is, what a good culture is, and that is often a wake up call and people go think about that.
Reid Hoffman [26:13] – And when I talk to folks and try to get them sharp in the mind is what filter would have A players working at other companies than yours? Which A players do you not want working at your company, and what is that? That shows you that you begin to have something that’s kind of an edge, and a culture, and begins to approach uniqueness. Now, another part of scaling is hiring changes. So, classically in your first 10, 20, 50, 100, 150 people, founders, CEOs interview everybody, right? Because part of the way they try to help the culture say is they say, “They’re doing that check.” Matter of fact, Aneel Bhusri, when I was talking to him about this, I think that he and Dave Duffield interviewed everybody up to 500, because they were the final culture interview. They presumed that everyone had done the skills and other kinds of things, and they were the are you the right fit? And that’s super important, but your hiring changes as you scale. The process, again, what got you here doesn’t get you there, because now you need to start hiring a bunch more people, you need to be trusting people in the rest of your organization to hire well, you need to be systematizing more. Like one thing is you begin to get from the, call it the hundreds, early hundreds into the late hundreds, you’ll actually start having on boarding classes. Like some of them say, “Okay, we hire people and then all 15 people start at the same day so that we train them on our company in the same pattern in order to make that efficient.” And that’s part of this whole hiring process. So, you also not only have to think about org, but also how you’re hiring, what’s the way you’re doing it, and that itself is a scalable process not just from sourcing and from interviewing, but also all the way into integrating. Right? So that’s another way to look at the culture on hiring. I’m gonna shift topics to communications within the company. Classically, when you’re at an early stage you’re all in the same room. Communication is easy, almost like is we just happen to all be in the same room at the same time and that’s the way it works. Then you begin to build, and part of that is that begins to shift to everyone has a complete dialogue to be on the same page, and you have to start changing the pattern at which information is being both expected and communicated. I actually found that Sheryl Sandberg anecdote to be particularly, like it’s not exactly the communications pattern, but it’s the kind of communications pattern that shows you. Like when she started at Google, she celebrated everyone’s birthday like on the day. So, everyone thought, “Oh, this is a really special place, because we celebrate each of our birthdays.” Well, then you move to a 500 person organization and you’re having birthday celebrations basically every day. And that begins to get too much, and so then they moved to having birthday celebrations per month. Everyone whose birthday was in April, this is the birthday celebration, the whole thing, and kind of doing that. But, then the people at the first part thought, “Oh, this used to be special. It used to be personal. It used to be kind of closely connected, and now it’s not so special anymore.” And so that’s the kind of thing when you’re planning for dynamism, the same thing is true in terms of corporate communications, because how you as leaders in the organization speak to folks, you’re no longer gonna be able to talk to everyone, no longer is everyone gonna be able to ask you questions, and you need to start figuring out… And also, by the way, there’s now a whole bunch of information, certain key risks, executive decisions, that not everyone is gonna know, and you have to condition to this is still a great place even as that’s changing, and then also the structure of those communications, and that’s actually an important thing about thinking about the change of leadership. I don’t know if there’s anything on the comm stuff you want to add.
Sam Altman [30:01] – Certainly when you get to the stage where people that were used to knowing everything don’t know everything that, I think more early employees leave over that than anything else, and it’s really tough to say what to do about that. It’s people that have gone from being absolutely on the inside to not, that leads to a huge amount of turnover, and I think it’s worth thinking proactively if someone is special enough that I’m going to somehow include them in the executive team. And I think people talk about how much of an effect that that has on early employees, but in my experience when you really talk to someone about why they’re leaving, someone that joined as employee five of this super successful company now has 500 people, that’s almost always a huge part of the reason, and I think sometimes you can address it, sometimes you can’t.
Reid Hoffman [30:51] – I have a hack for that, because this is important. And actually I hadn’t realized I’ve actually not spoken about this hack before. I think it’s an important thing. When I realized this in the early days of LinkedIn, what I did is I arranged a regular lunch with some of those key contributors in kind of some different lunch groups, just where we had lunch and could talk about the company so they still felt that they had an inside conversation. It wouldn’t be they’d know everything. I wouldn’t sit down and go, “I’m gonna brief you about everything,” but there’s a conversation about how I’m thinking about the company, what the risks are, what kind of challenge was doing, what are they seeing, what’s going on with the culture, and so forth, and that actually I think gave longer senses of this special thing even as the organization got a lot bigger.
Sam Altman [31:33] – I’m not 100% sure who told me this, I think it was Brian Chesky. He used to spend or still does spend like 20 of his 30 nights a month taking key Airbnb employees that don’t report to him out to dinner, and it’s just like, “Let’s talk. I’ll tell you about stuff.” He’s super… He’ll talk about a lot. I think that level of commitment, like I’m gonna take 20 of my 30 nights a month and use it to keep close to early people who otherwise sometimes feel out of the loop is huge. The other thing on communication that people get wrong as you scale, and we’re supposed to go to questions so I’ll make this a short point, is how much of the time, or how much time you have to spend repeating the same message. So a lot of people want to say at once here’s the company’s strategy they assume everyone is gonna remember that and they don’t want to keep talking about it, and everyone nervous laughter, it’s all throughout the room. You just have to keep doing that, and one of the things that founders will often say to us is even though they knew that advice it’s like the rule in software, like no matter how long you think it will take it’s gonna take longer. Like even if you know you’re supposed to do this a lot, you won’t do it enough.
Reid Hoffman [32:49] – Alright, so I’m gonna say one very quick thing and then we’re gonna go to questions, although we can keep talking if you’d like, but we have about eight minutes for questions. The other key thing is to decide when you really need to hit the gas, because part of what the blitz scaling stuff is you actually deploy capital in a fast and inefficient way in order to get to scale and or global scale. And sometimes that’s competition, sometimes it’s market opportunity, sometimes that’s critical mass density and networks, but one of the key things is what are the different judgment points at which you’re hitting the accelerator on scale and then trying to anticipate that in good ways. And those tend to be the variables in which you think about it, but that’s another thing to think about in the scale arena. So with that–
Sam Altman [33:32] – I have one more thing. People are always tempted to do this halfway, and I think the entire company should be aligned like are we in the mode where we are testing, are we in the mode where we’re trying to make things work and testing growth channels, in which case we can do some things but we’re still gonna try to be really efficient, conserve capital, hire reasonably slowly, or are we in the mode where we got things to work and we know what to do and we are now going to spend money at an unreasonable rate because there’s this time period. And I think it’s really dangerous to be in the middle zone, and it’s also really dangerous to have some people in the company think you’re in one or some people think you’re in the other. It’s this substantive question that if you go around the company and ask everyone for their top three priorities almost no company, or to explain the company’s mission, almost no company can do that and have everyone say the same thing, but it’s like are we in hyper scale mode or not? It’s very rare that one company has a cohesive opinion on that and that they all flip at the same time.
Audience [34:39] – Thanks. So you talked about we got to be prepared for change and chaos as we scale, but what are the key stabilizing elements or the invariants that keep the organization together as you scale?
Reid Hoffman [34:51] – So one, as we mentioned, is culture. Another is the question, generally speaking changes of mission are really bad, so the mission should also be there, so to some degree everyone is we’re in service to the mission, not we have this role in this specific organization. And then generally speaking changes to strategy are very expensive. They frequently happen, pivots, etc., but it tends to be the this is the investment thesis instead of hypotheses that we’re testing out. What tends to not be as much as is like okay, this is what the exact work structure is, this is what the exact team structure is. Sometimes you go to market may go from, like for example if you’re an enterprise business may change from where we’re getting our initial customers to we’re really scaling out. Sometimes it may be, like for example one of the things that LinkedIn did is we’re virality, but then we also moved to SEO as a component, we add that in as a strong thing, and that will change, but those are rare changes in terms of the chaos. I don’t know what you…
Sam Altman [35:54] – You know, people like winning. People like delighting customers. People like it if there’s just this mass demand and this huge upward draft behind what you’re doing. One of the reasons I think why trying to hyper scale a company that is not winning fails is because without that then all of these problems of people having their turf stepped on, and the occasional bad hire you have to get out, people have a lot of time to think about how unhappy those things make them. And if things just keep getting better, and there’s more opportunity than you can possible take on, and that everyone constantly has new, expanding roles, and so they don’t get caught up in these turf wars, then it works. But, I think this is one of the reasons that it’s so important to not flip into hyper scaling mode until you’re pretty sure the product is working, because without this natural updraft of like a market that is desperate for your product and a feeling that everyone is winning everyday and the company is doing just fantastically well, then all of the things that go wrong when you try to blitz scale can break the company. So, I think the key thing for me is don’t try to do this until you’re confident you have this updraft.
Reid Hoffman [37:09] – Yeah, and I think, by the way, there’s a slight bit, there’s a slight softer mod, which is obviously winning keeps a lot of focus on it, which is really good. The possibility of playing the game to win is really what you must always have. Like if you lose that, things begin to break.
Audience [37:32] – Just how you stop blitz scaling? I feel like financial discipline is such a hallmark of some companies that to give it up for six months, 18 months, however long it may be, and then to come back to it, seems like it might be hard.
Reid Hoffman [37:48] – Brutal, in fact. I mean it’s one of the things where you always have to know that ultimately you have to get to a rational, comparable business where you’re actually in fact working on efficiency. All companies ultimately get back to that in some way. Now, you can have such a geyser of money that you have many parts of your company that are not working efficiently. We all see a few of those iconic companies, but generally speaking you’ll need to get back to efficiency. The question is is that one of the key things I think in both startup and scale up is solve problems of the time. Don’t try to presolve them. It’s like the hiring thing. Don’t try to hire that scale executive from that giant Company X when you have 30 people, because that scale exec probably doesn’t know what to do in a 30 person organization unless you need talent. Similarly say, we know we’re gonna need to be operationally efficient, we know we’re gonna need to be focused on operating margins, and how costs work, and how scale works, and everything else, in a capital efficient model, but not yet. When you’re thinking about it, it’s like this piece, this piece, this is how we’re gonna fine tune it, this is how I get to it, but you don’t need to start that problem at the very beginning when you’re in a blitz scaling circumstance, and it’s brutal to change that.
Sam Altman [39:03] – I think it’s important to say for the leaders to say to the company, what you’re willing to overpay for and why. So, it may be that it’s really important to get to a network effect, or it’s really important to turn up marketing enough so that you’re in enough people’s minds because you need people to all at once decide this product is okay, but that’s for a short period of time. The one mistake that I think companies really make in this is they decide that they need a lot of people, they can’t get them, and so they’re going to just double salaries, or triple salaries. They’re just gonna start way over paying for people, and that’s the one that seems impossible to turn back down in practice. But, if you can stay disciplined on that and just say, “For a short period of time we’re going to overspend in these areas for this reason, because we need to get to scale before the business starts to work,” I think you can then generally unwind that or rein it in somewhat, but it’s very hard.
Reid Hoffman [39:57] – And frequently one of the questions that can be, in consumer internet especially, enterprise needs to identify this earlier than consumer, consumer sometimes will overly obsess with operating margins early, when it’s actually in fact get to scale then obsess with our product margins, because if you’re not at scale your operating margins don’t matter. So scale first. Now, it’s not that you stop thinking about operating margins, but you kind of go, “When do we actually expect to take that as one of our primary projects that we’re really actually working on?” is as you get to scale. And by sequencing it out and getting people to know, “Hey, we will be working on this. We will care about this. It’s not that it’s irrelevant. We’re just not working on it now.” Then that can make the brutal change a little easier.
Craig Cannon [40:41] – Alright, thanks for listening. As always, please remember to rate the show and subscribe on iTunes or however you listen to podcasts, and just a reminder that all of our podcasts also have videos, so you can check those out at youtube.com/ycombinator. Okay, see you next week.
Sharon Pope is Head of Programs & Marketing for YC Continuity and was previously a part-time partner at Y Combinator. Sharon is responsible for creating compelling opportunities for YC founders t