Course "Blitzscaling" Lecture 3.2. Michael Dearing. Questions and Answers with Reid Hoffman

This is a continuation of the synopsis of the 3 lectures of the Blitzscaling course at Stanford University, which Reid Hoffman, John Lilly, Chris Yeh, Allen Blue, and others give.

The lecture was read by Michael Daring from Harrison Metal, who was also one of the first members of the eBay team, and in the second part of the lecture he was asked questions by Reid Hoffman, an American entrepreneur, venture capitalist and writer, co-founder of LinkedIn.

Lecture 1: Introduction
Lecture 2.1: Stages of growth of a startup, "family stage"
Lecture 2.2: Stages of growth startup, "family stage"
Lecture 3.1. Michael Dearing. A bit of the history of entrepreneurship and management
Lecture 3.2. Michael Dearing. Questions and Answers with Reid Hoffman
Lecture 3.3. Michael Dearing. Questions and Answers with Reid Hoffman
Lecture 4.1. Ann Mura-Ko: The Thunder Lizard Theory. Author value
Lecture 4.2. Ann Mura-Ko: The Thunder Lizard Theory. Product, corporate and categorical value.
Lecture 4.3. Ann Mura-Ko: Questions and Answers with John Lilly

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Raid Hoffman: Did you realize that McCallum was a micro manager?

Michael Dearing: Of course. McCallum created a rather detailed operating model and made people report back to him every hour through a telegraph communication system. He tried to recreate a close connection like a personal presence, but without the need to physically be near.

Raid Hoffman: It seems that McCallum was the first person who tried to systematically deal with the problem of expanding the company.

Let's return to our 1000-year-old schedule. Here we see that one bend is capitalism, and the second is the invention of technology, but their relationship is unclear. What do you think is more important - the system of material incentives or technology?

Michael Dearing: I believe that both material incentives and technology are equally important. We tried to experiment, and we saw that if one component was removed, both would collapse.

Another aspect of this problem is that the recruitment of people who are lucky to have money, who are lucky to have brilliant ideas, who are lucky to have management ambitions - this is a very small group of people. When you realize that an investor may be different from the inventor, and that from the manager, this allows for many connections that might not have been formed in a different situation.

Raid Hoffman: Doing your research, have you considered the emergence of venture capital? After all, it was created much later on this curve, after the Second World War.

Michael Dearing: Consider what served as a venture capital substitute - in particular, rich families.

One example of this is Slater Mill, which was founded by Moses Brown, who created Brown University — he owned textiles, but he didn’t even know how to mechanize spinning. Slater had technical skills and ingenuity, and therefore they managed to work in pairs.

Raid Hoffman: In fact, most elite venture capital funds came from rich families, and later the emphasis shifted towards institutions.

A little change the topic. Your speech calls to fight capitalism, creativity, and creative destruction — but when should a person think about creating a startup?

Michael Daring: After 8 years of studying investments at an early stage, I noticed two things:

1. The entrepreneur can not keep everything inside, and the idea just breaks out. The founder begins to allocate irrationally large resources and time to this new idea, because he literally cannot stop thinking about it. When you are working on an idea, if time just disappears and you miss two meals just because you are too absorbed in work, this is a good sign, it means that this is the idea that you should implement.
2. Another feature that I noticed is that the founders are ready at the moment when they manage to accidentally inspire their friends. Friends start thinking about this idea without ceasing, and want to work with you. Not that I strongly believe in such things, but the voice of the market speaks to you.

If you notice both of these signals in yourself, this is a sign that you have to start doing something.

Raid Hoffman: How to check yourself to make sure that you are working on the right idea?

Michael Diaring: I would suggest two options:

1. The first is to set aside a little time in your schedule for the “devil's advocate”. I learned this from Michael Eisner, the former Disney CEO, every good idea at some point has to be criticized by the devil's advocate. I would suggest finding the smartest person you know, letting him destroy your idea, find all the flaws in it, act like an idiot, and still have permission to do all this.
2. The second is another method that I would like to use, this is the so-called. "Premier". Pretend that you have already implemented the idea and failed - predict what might go wrong and try to find out in advance all the most dangerous risks. We can retreat or continue, but if we decide to continue, we can pre-spread the straw where we can fall.

Raid Hoffman: To all the above, I would like to advise when communicating with smart friends to ask them what is wrong with your idea. Most people want to be convinced (you have a great idea!), But this usually has a negative effect, so it’s best to ask in advance what’s wrong. People need permission from you to give a negative opinion.

And about the startup organization, what role should competition play in determining whether your idea is good or not?

Michael Dearing: Founders who are fixated on competition tend to focus on the wrong side . If a large company X is going to release a product with the same characteristics as yours - for you it does not matter.

The early stage of competition is basically whether the user is interested in your product or who uses his own solution without you. You should be more concerned about what attracts the attention of your users today.

Raid Hoffman: Regardless of the large companies (unless you create a search engine, then you have to consider Google), startups need to know what other startups are doing.

Given your presentation, what would you recommend for eBay?

Michael Dearing: Considering that I left there long before Paypal separated (which was the right decision) to create a more competitive market for ideas.

The main advantage in the possession of additional assets is the ability to command and manage the economy from the inside - the ability to allocate funds by the decision of the CEO. However, after some time, the decision of one person may be erroneous, and the market is a much better means of distributing capital than one person.

Raid Hoffman: Some of the main people in Silicon Valley believe that companies should be organized based on market rather than command-and-control principles. Do you support this view?

Michael Dearing: I support, especially in terms of resources for product development. I tried to allocate time for software development and hardware development through a competitive market among firms, so the competition in terms of resources was very strong. Resources were divided according to the economic value of the idea, and not at the whim of the general manager.

Raid Hoffman: Do the founders do this?

Michael Dearing: Yes, but on a different pricing model. Startups should not use the pricing model that a corporation would use. Instead, the founder should be the editor and leader of the product development plan.

Raid Hoffman: Change the subject. There is an opinion that it is important to be a rebel - do you think that for a startup idea it is important to be rebellious?

Michael Dearing: This is optional, but it is a pretty good option. From the point of view of investors, this is an insane enthusiasm for an idea that can make its value higher.

Personally, I appreciate the rebellious way of thinking, because it helps me understand how the founders' brains work. If the plan from technical fundamentals to creating a product is non-standard, then it may be more interesting, and can give me a better understanding of their way of thinking.

Raid Hoffman: I think that the idea should be rebellious from the very beginning, only this will allow to get a good heterogeneous result.

On the other hand, where rebelliousness goes too far, you can get something that will turn out to be really rebellious in one solution and quite normal in the rest. For example, Workday - people did not believe that the use of clouds could be important - that was a rebellious idea. Everything else was just a quality implementation - they do not believe that they were rebels in the UI and so on.

And again we will change the topic. As for creating a startup - what should people think about themselves as founders?

Michael Dearing: I imagine this as the stages of life through which you will pass as the founder.

• Availability of technical knowledge, which is the basis of the idea
• Turn technical knowledge into product for customers
• Turning a product into a company

These three stages have little in common. Being a founder, if you are enthusiastic about each of these stages, the process of creating a startup will be successful. If you like to do only the technical part - this is a problem. At the moment there are many research projects that are not companies. You need to quickly move from stage to stage and invest in each of them.

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