Interview with Reid Hoffman, CEO of LinkedIn

Over 50% of job placements happen through word of mouth through networks. The key is that there has not been any central IT to help facilitate the process in a targeted and expeditious way. LinkedIn allows people to connect on a case-by-case basis within their network. People can recommend their connections to other people as they see fit and provide an online means for doing what people have historically done offline. When one person approaches another for a job or deal a trusted intermediary recommends them.

I had founded a company called SocialNet, which was a dating, professional networking, activity and roommate service before going to PayPal. I had been thinking about why SocialNet’s professional networking feature hadn’t really worked while I was at PayPal. All three of the other features had worked out really well, while the professional didn’t. The key is to get the haves and the have-nots into the system. In professional networking, the haves are the individuals who have a job, who have money to invest, someone who can commit their company to a deal, etc. They have the resources available to help the have-nots who don’t, but do have the talent, the idea, and the energy.

While I was thinking about this we were also trying to hire a flash designer at PayPal. I realized that the key issue that brings the haves and the have-nots together is personal recommendations. When someone approaches a have they are recommended. The problem with being a have is that tons and tons of people want you to invest with them. They get overwhelmed with the noise and the question is how to sort through the noise to find the signals. Similar for jobs. Companies such as eBay, Google, Apple, etc. are all inundated with job applicants. They are trying to identify which resumes they should pay more attention to. The tried and true answer is to look at those resumes that come recommended by people that the hiring individual knows and trusts.

I think that there is almost no competition on the social side. One of the things that we have discovered is even though we are very business focused is that we need to become even more business focused. We need to continue to add new features that allow individuals to truly present their credentials and backgrounds. One feature is to update the system to include education history into their profile. People want to make more and more resume information available on the network. This is relevant to how people hire, find jobs, make deals, etc. Forming a bridge between two people is key to networking, and especially so online. If two people are from Stanford, Wharton, Yale, etc. then that provides another means of connecting. My sense of the social networks is that they are not the right places for business transactions. People can’t present themselves the right way. Take Friendster for example. The testimonials are not that the individual is hard working, ambitious, and smart, the testimonials are that he is clever, sexy, and funny. That is not the type of information that supports a business transaction.

There are a number of sites that blend professional and personal, and I think that is a very difficult path to take. One reason is the sites tend to go to the lowest common denominator, so if you tend to use the site for personal as well as professional usage, you end up getting a quasi-personal site. We are also much bigger than our competitors in terms of members who use the service. Part of the reason is that we are focused on professional, it is targeted for business people. Our message is clear and concise, which is why we have seen our phenomenal growth. This helps people better understand what they are inviting their friends and contacts to join. They know what they are being invited to. With our site there is a clear understanding of whom you should invite. Whereas other sites that combine business and personal networking don’t appeal to professionals who are also married, as the value is not as clear to them.

We have done very well in targeting established professionals, people who are CEOs, Venture Capitalists, and Directors at leading companies, etc. The reason is that they fully understand what they are signing up for, and that people are recommended to them through other established members. One of the things we hear very often is that they are impressed with the quality of the other individuals in the network.

The key change is that the funding has really accelerated our business. Part of the reason we took the funding and part of what we did with it is focus on building out our team and the features available. We decided that it was appropriate at the time to take advantage of the interest in this space and instead of gradually growing the company to focus on launching a new feature release every two weeks or so, which this funding allows us to do. We are going to pick up the speed and get a lot of new features out much quicker than we would have otherwise.

With Venture Funding you need to be able to provide a likelihood of monetizing at a rate of 10 times the initial investment. It is not so much whether you can monetize the model, but whether you can monetize at a significant level. We have two things in development to enable us to do this. One is a LinkedIn version of Google adwords, so that if you type “employment lawyer” into the search bar there will be boxes on the right that provide information on that type of service. The second is essentially a subscription that allows individuals to connect. The endorsement process is serious, it takes people’s time, and people are generally happy to forward on worthwhile endorsements.

The fundamental criteria is whether or not it makes that person look good by doing the forwarding. Am I bringing opportunity to the people downstream from me? Ultimately, if you aren’t willing to pay some low amount to send requests then you shouldn’t send the requests in the first place. Requests should be taken very seriously, and should have inherent value to all recipients; network contacts as well as the end target. Those are two monetization plans that we are currently working on.

The key is having real value. PayPal had the same issue. It was free and then transitioned to charging sellers for the payment transaction. People will not leave LinkedIn if they are finding value in the service when we begin charging. If they are finding clients, qualified new hires, or business contacts, then the value of the network outweighs the cost. The real question is whether or not you are providing something that has value.

A fundamental of customer support is to never surprise them. We have been very careful with messaging that we will at some point launch some form of premium and paid services. This may have limited our growth somewhat, because we never went out saying “We are free, and will be free forever.” On the other hand, we will have elements that will be free. We will not suddenly begin charging everyone. You will always be able to receive proposals, forward proposals, endorse people, send out invitations, etc. Our goal is to have a network in which everyone can participate.

We have no plans to target that market. We are really allied with each individual. The right locus of each professional network is the member. They are the ones that own and control the network. We are providing services to individuals, and individuals may of course use their network to help their organization. We decided to stay away from the enterprise version because we don’t want to have any conflict with which customer we are serving. Employers have very different interests than the individual.

Professional networking has a bad buzz to it and the reason is that it seems as if people are using other people and inviting people to join their rolodex. Actual networking is about an exchange of value and not simply using someone as a resource. Networking is most valuable as a means to facilitate long term transactions between two individuals in which both benefit. Everyone does professional networking. We all call people we know and ask for advice, info on potential hires, leads for potential jobs, etc. Everyone does it, but not everyone does it ell. It is going to become more important in the future for people to network more effectively.

People change jobs much more frequently than they did and are more likely to have multiple careers. As people change jobs every two to three years they will need to continue networking in order to find those new opportunities. Not only is it important to have the right skills, but people also need to know the right people. To be a senior professional people need to be able to bring a team together to get the job done.

Eventually, the current networks will aggregate into one large professional network. There will likely be at least a few social networks. These networks will provide real utilities for people and those are the networks that will survive and grow. If they are successful, they will transform how businesses complete these transactions. Most people prefer to find a job or hire through their network. The transaction is much more efficient.

We are just beginning to get interesting. Four or five months ago people wouldn’t necessarily find value on the site. When you get enough people in the system and have enough features for people to use it gets interesting. We are at the size now that the value of the network effect is really starting to take off. Searching our site for random professions now yields useful results, whereas in the past that likely wasn’t true. We are at the cusp or no more than three months away from being at a critical mass.

My goal is to keep my focus. As we pick up the speed at which we are executing and making things happens. It became less and less tenable that I could be a good board member at the other companies while focusing on LinkedIn. I continue to work with the companies that are synergistic with LinkedIn so that I could provide value to them.

Smart people tend to think that they can execute on a complex plan. Executing on a complex plan is generally a recipe for failure. If you can’t make a startup work on a simple plan then your chances of success are very low. Another lesson is that as an entrepreneur you want to choose a project that is far enough away from what others are doing. You want as much distance from other players so that you have the opportunity to create something. The last thing I would add is that you want to measure your endeavor as soon as possible. You want to be able to gauge the viability at the earliest possible moment, so that you can change and adapt your model as needed.

Entrepreneurs tend to want to launch only when their product or service is perfect. The problem is that waiting undermines the ability to evaluate whether the idea works as quickly as possible, so that you can correct course. Correcting course frequently is key to success. For instance, PayPal’s initial business was to provide encryption technology on mobile devices. There were a lot of shifts between that and electronic payments. That was an exercise in very good entrepreneurship, because they kept asking if what they were doing made sense and changed their model until ultimately it did.

You had better be sure about what you are doing, otherwise you have just wasted two years. This leads me to another point. Good entrepreneurs try to measure what they are doing sooner, and adapt to a changing market place. One thing we have learned at LinkedIn is that managing your social capital, ie. your network is that people are just beginning to learn the process and protocol for how to message successfully. This led us to upgrade our capabilities to facilitate this for our users, and to be more responsive to their needs.