Bonus: The 10 Commandments of Startup Success w/guest host Tim Ferriss

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I'm Reed Hoffman and you're listening to Masters of Scale. What follows is a special episode of the Tim Ferriss show that we produced with him. For those of you who aren't familiar with him, He shot to fame with his book. The four hour work week.

And he's an accomplished speaker who's given multiple TED talks. He also has a terrific podcast. Tim studies the lives of high performing people and distills their practices and perspective. down to actionable lessons you can use in your own life and business. I've known Tim for years.

А навise би им преспи the калібр вві адінс. who faithfully listen to his show. For his audience and for you. We've created a special remix of Masters of Scale season one. Including a lot of previously unpublished recordings.

It's the ten commandments of startup success. I hope you enjoy it, and perhaps even go subscribe to Tim's podcast as well. On Apple Podcast, Stitcher, or wherever you listen. Again, his podcast is the Tim Ferris show. And you can read more at Tim Ferris's blog

at Tim.blog. Commandment number one. Expect rejection, but learn from every single no.

As a founder, you have to be resilient. You have to learn to weather rejection As it is a universal experience. And this clip that you're about to hear brings that to life in full color. I have been turned down a hundred and forty eight times. That's Catherine Minshew.

Co-founder and CEO of the Muse, a career development website that she pitched to investors a hundred and forty-eight times. Not that she was counting. There were literally days where I had a no over breakfast, a no over a 1030 AM coffee. and no over lunch, you know, disinterest at 2 p.m. Um somebody who left a meeting early at four. And then I would go to drinks and feel like I was being laughed at the moon. And when we finally raised

Uh our seed round. I went back and counted. It was both painful and gratifying at the same time. Looking at all those names and thinking, I remember that no. I remember that no, I remember that no. And they sting. Everyone stings. Today the muse serves users in the millions. Katherine raised sixteen miljon dollars last year.

And her tale is the origin story of most great startups. So if you're hearing a chorus of no's You should look for other signs that you're on to something. I believe that the best ideas often appear laughable. At first glance.

Most entrepreneurs hear a chorus of no's as they get started, and you have to expect it. In fact, it's not just when you get started, because in the beginning it could be a handful of prospective customers, then it's venture capitalists, then it is maybe even private equity folks, and then investment bankers, and so on and so forth, potential suitors. It goes on and on and on. So you have to expect it and you have to condition yourself to deal with it. Reed says. that these no's can actually be a very good thing. And particularly in the beginning, you don't want everyone to say yes. And here's why.

The first truth of entrepreneurship and investing is that the very big ideas A contrarian Because the Contrarian is part of the reason why a bunch of large companies and competitors haven't already done it. why a bunch of other entrepreneurs haven't already succeeded at it.

And so that leaves the space. for the creation of something. And to create something big, you have to have that initial space. For example, in the early stages of Google It was

Search is a terrible way of making money in advertising because advertising is time on site. And what does search do? It shuffles you off the site as fast as you can go. That's not a good business model. So like an Airbnb, it's like Oh, someone's gonna rent a couch or room from someone else? Who are the freaks on both sides of that transaction? So all of these things have a similar quality. Very smart people will tell you there's no there. So it can be a good thing to hear a lot of no's, to get those rejections.

But sometimes your bad idea Is Just a bad idea. So how do you tell the two types of feedback apart or put it a different way, how do you interpret the nose?

Read has a great way of describing the kind of know that you do want. Apparently you want a What he would call squirmy no. And Reed explains this with the help from Tristan Walker. Tristan's company produces the Bevel Razor, which is designed for men with coarse and curly hair. So how can you tell a truly bad idea

From a bad sounding idea. How can you be sure your ugly duckling could become a swan. This is the key. You have to pay attention to the quality.

Not the quantity of rejections. You want to see at least a teeny minority investors squirm. You don't have to get them to a yes. But you should detect some fiction. as they reason their way to a no.

Tristan has a keen ear for this quality in his conversations. He can pinpoint Down to the PowerPoint slide number. The moment his audience Stops paying attention.

I had a slide in there, I think it was like slide fourteen, where I talked about proactive, the acne system. as like a um kind of a good analogy to what we're trying to do. Yeah, it's the difference between kinda Gillette and Bevel as like Nutrogen Improactive. It's a system, it's all a very important issue. And this V C looked at me. And I'll I'll never forget this.

Said. Tristan, I'm not sure issues related to um raise abump shaving irritation are as profound and big an issue for people as acne. At which point I said, You know, I I kind of understand what you're saying, but all you had to do was get on the phone with ten black men and eight of them would have said this is a permanent thing I have to deal with. All you gotta do is get on the phone with ten white men and

Four of them would have said the same thing. Could have done it for women too, and you would have got the same ratios. So it wasn't that it was like a bad idea or not as important. It was just that that person was unwilling to acquire the context necessary to understand what we're working on. That's just laziness. And at that point I can't fix that. So I just gotta move on until I find somebody who understood it. Notice how quickly Tristan's mind moves on to the next investor. When the quality of the questions drops.

He knows mid pitch. That the conversation's over. The rest is noise. Those half hearted questions are like the elevator music of the pitch process. It's meant to pacify entrepreneurs.

In fact, It greats at them. It also wastes their time. Tristan will tell you he prefers a hard no To a comforting.

Maybe. I mean Silicon Valley investors will tell you all the time We want to invest in people who can execute. With some symbols of pedigree, chasing a significant white space and a big opportunity. For us it was like check, check, check, check.

And we heard ninety nine percent no's. Like how much is this Right. And you just like Trying to say something that I want to hear as opposed to telling the truth. And I wish that Silicon Valley would tell the truth a little bit more.

Tristan raises a really interesting question here. How much of this investor hemming and hawing as well bullsh. So what's really going through their heads? As a partner at Greylock I wanna share what happens.

After entrepreneur leaves the room. And investors left them all over. Crazy idea. It begins with a debrief. of the investors' partners.

If I'm presenting an idea to my partner's a graylock, And they all go, That's great. We should do that. I'm like Here's a bunch of hyper smart people and no one's saying, Oh, watch out for this or watch out for that.

It's too easy. The idea is so obviously good, I can already hear the stampede of competitors. Trampling over our hopeful little startup. On the other hand You don't want every person in the room to say

Read. You're out of your Mine. Because then you're wondering. Hm.

Am I drinking the Kool Aid in a very bad way? What you want. Is some people going You guys are out of your minds. And some people going, I see it.

You want to polarize reaction. So take my decision to invest in Airbnb as an example. David Z told me during the Airbnb debrief. David Z is a partner at Graylock Investments. Well, every venture capitalist has to have a deal that doesn't work.

That they learn from. Airbnb can be yours. And David Z is a super smart VC. He invested in LinkedIn. He invested in Facebook.

Invest in Pandora. He personally returned two and a half billion to Greylock's funds. He's as smart as smart money gets. And believe me, I weigh his objections carefully. If someone as smart as David disagrees with me, I worry.

But I also get excited. It's an emotional roller coaster. And as this sort of emotional turmoil plays out in the background discussion, It's hard to give an entrepreneur. A hard no.

The best ideas make you want to say yes and no. In the same breath. So you want to hear a squirmy no. The squirmy no. refers to the kinds of no's that mean you're potentially onto something. But let's be honest, it's never easy to hear no.

And sometimes it can be extremely excruciating, terrible. Sarid also asked a few entrepreneurs to talk about how they deal with rejection and how they learn from rejection. You have to gird yourself. For a string of rejections. Some entrepreneurs simply develop thick skin.

Others treat it like a normal part of their work day. You know, wake up, brush your teeth, listen to people crush your dreams. It's a living. But there's another, more hopeful approach. Producer Dan Kedme

Talk to the number of entrepreneurs. Who pitched seemingly laughable ideas. In all kinds of industries. Like Abby Follick. Founder and CEO of Global Citizen Year.

Her not for profit sends students abroad for a year of international service between high school and college. Back in two thousand eight. She was struggling to get funding. And she turned to a leadership coach for advice. We asked you to share that advice.

The nose are actually a gift. You heard that right. A gift. And he said between now and when we talk, two weeks from now, I want you to go out into the world and gather no's as you possibly can. No, no, no, no, no, no, no. It is your homework to be rejected over and over and over and over and come back and report on it. And it ended up being the most important thing I could have ever done, and the most important advice I could have been given at that point. The most successful entrepreneurs listen closely to the nose. They mine the rejections for clues.

Catherine Minshew, the founder of The Muse, got her share of rejections over the course of a hundred and forty eight no's she shared at the top of this episode. We asked her about the reasons that investors turned her down. It's a bit too early for us, but keep in touch. Once you hit 100,000 monthly active users, give me a call. This is a fool's errand. It's expensive. It doesn't scale. That's not very tech. That's not a scalable platform. Aren't you worried that you're gonna lose all your users once they turn thirty and You know, have babies.

Or, you know, I I get that women in New York and San Francisco love this product, but I think you're gonna really have a a hard time finding women who care about their careers once you go outside of, you know, the coasts. And I just remember looking at these people and thinking, Do you know a lot of women? Catherine is right to ask this question. She knows more about women than most investors. And she also knows more about her business. Entrepreneurs have to learn how to hold on to what they know through the arduous pitch process.

Commandment number two. Higher like your life depends on it. Because it does. Hiring the right people can make or break a company. And this is a theme that comes up again and again with successful founders. Airbnb's Brian Chesky personally interviewed the company's first 500 employees, for instance. That is incredibly time consuming, painstaking work, but Brian would not have had it any other way. Patients, he says, in this particular case, pays dividends.

And one of the most important decisions the startup can make is who they hire.'Cause who they hire becomes Them. And so we interviewed people Four core values. what this ended up in and we sp that meant we spent like four or five months to hire our first engineer.

Back then a lot of people thought we were crazy. Because time is of the essence when you're a startup. You said it's like jumping off air a cliff and summing the airplane the way down. Imagine jumping off the cliff. Trying to assemble the way up airplan and the way down. And someone's there to help you with the airplane and you spend five months

debating whether they'll fit the culture. Meanwhile, the ground is coming. that takes like real patience and some courage. The reason we did that though was because we thought in the high class event we are successful. Do I want to work with a hundred more people like this?

'Cause if I hire someone, they're gonna interview the new people. And so We thought of hiring as this mechanism where do I wanna If I could hire anyone in the world, would I hire the person sitting across from me, and do I want ten or a hundred more people like them? But if you launch a truly successful company, eventually the hiring process has to scale. Eric Schmidt had a lot to say about hiring quickly, but not hastily.

It's one thing to do something quickly, quite another to do something in a rush. When he was CEO of Google, the company quadrupled in size each year while maintaining super high standards. which are famous even within Silicon Valley. He told Reed how he did it. So the company was getting very large very quickly. And

I had suggested to Larry and Surge that There was a problem with what I called glue people. And glue people are very nice people who sit between functions. And help either side, but don't themselves add a lot of value. And I thought these are nice people, but we don't really need them. We can have these groups talking directly. And Larry looked at me and says

We could solve this problem if you would just review all the hiring. And I said, Larry, we can't look at all the hiring He said, Sure we can. So the company of course invented a number of hiring algorithms which are used throughout the industry today. Many of them include pretty aggressive hiring interviews from peers. Asking people to do work and so forth.

Ultimately the judgment has a lot to do with whether the person is Interesting or not. And so we would, for example, take a position that we want to hire rocket scientists because rocket scientists are inherently interesting. And in sales we love to hire Olympians. or Superbowl winners and football players.

Because the discipline that they had In their lives as young people, men and women. Point. Indicated that an extra set of discipline.

I want to acknowledge that most companies don't have the option of hiring rocket scientists Olympic athletes and Super Bowl winners. But Eric does have more pragmatic advice for companies that can't set the bar. At Himalayan Heights. So today I would suggest

That And this has since been Confirmed by many studies. The persistence. is the single biggest predictor of future success.

And so we would look for persistence. And the second thing was curiosity. What do you care about? The combination of persistence and curiosity He's a very good predictor.

of employee success in a knowledge economy. So persistence plus curiosity is one formula for hiring success. Mark Zuckerberg, the CEO of Facebook, has another approach. Here's what he told Reed. So the single most important thing is to get the best people you can around you.

And When I look at my friends who are running other good companies The single biggest difference that I see in whether the companies end up becoming really great and reaching their potential or just pretty good. Is whether they're comfortable and really self confident enough. to have people who are stronger than them around them. And I've adopted this hiring rule, which is that you should never hire someone to work for you unless you would work for them in an alternate universe. Which doesn't mean that you should give them your job, but just if if the tables were turned and you were looking for a job, would you be comfortable working for this person?

And I I basically think that if the answer to that is no, then you're doing something expedient by hiring them, but you're not doing as well as you can on that. You know, there are all these things that Cheryl, for example, is just much stronger than me at and that makes me better and makes Facebook better. I am not afraid or threatened by that. I value that. And that's what makes Facebook good. Of course, here Mark is talking about Cheryl Sandberg, COO of Facebook, and she has her own take on this rule. You know, and the lesson everyone talks about, but I really mean is you really do want to hire people who are better than you are and who are different than you are. This is where we talk about diversity, right?

I don't just mean racial, national, age, gender. All of that diversity is super important. I mean in addition to that, cognitive diversity, which you get from all those backgrounds, but also just personality diversity. You know, if you are a white male who likes to code and sci fi movies. You probably don't want your whole team to be that. I think about David Fisher. David Fisher and I have worked together at Treasury, at Google and at Facebook.

Personality types were just very different. I'm much more up and down. I will get nervous something's not moving fast enough. I will be exuberant and I will be down. Not David. David is absolutely calm. And over decades of working together, that balance has really been important because sometimes I'll look at David and say,

This is an emergency. And I'll say, No it's not, Cheryl, calm down. And sometimes I'll say, David, you're not moving fast enough and he'll say, You're right. I think Mark and I have that too. We are very different. Right? We are separated by obviously gender, fifteen years. He's my boss, he's fifteen years younger. completely different personalities, completely different working styles. And I think that served Facebook well.

Commandment number three. In order to scale, you have to do things that don't scale and this commitment came from the very first episode of Masters of Scale with Brian Shecky, and that is what got me hooked on this podcast because of how actionable the specific examples were. And it might sound counterintuitive that you have to do things that don't scale in order to scale. But it's really important that you get your hands dirty in the early days.

and specifically handcraft the experience. for your handful of first few customers. and uh to use a term the cool kids like to finesse all of the touch points. So every single Separate.

interaction that your product or service has with your customer if you were to look at it as say a slideshow or separate chapters, how can you optimize Each of those. And to serve your customers one by one, you often take a concierge approach. And again, that is to perfect your prototype, at which point then you can pour fuel on the fire to scale. But if you do it beforehand, you run into all sorts of problems.

So Don't stop until you know exactly what your prospective customers want. That's what Airbnb CEO Brian Shesky did. Brian took Reed back to his lean years, the early days, when he went door to door meeting Airbnb hosts in person. So the clip we're going to hear starts with Brian recalling a conversation he had in two thousand nine with Paul Graham of Y Combinator Fame, who gave him some perplexing, it seemed at the time. Advice.

And he asked us. Where's your business? And I go, What do you mean? Like where's your traction? I go, Well, we don't have a lot of traction. He goes, Well, people must be using it. I said

There's a few people in New York using it. And he said something I'll never forget. He said, So your users are in New York and you're still in Mountain View. I said, Yeah. He said, What are you still doing here? And I go, What do you mean? Said go to your users.

Get to know them. Get your customers one by one. And I said But that won't scale. For hugely millions of customers, we can't meet every customer.

And he said, That's exactly why you should do it now. Because this is the only time you'll ever be small enough that you can meet all your customers, get to know them, and make something directly for them. Followed his advice to the letter. We literally commuted to Newark from Mountain View. So we would be in Wycom Air for uh was it two night dinners?

And then Wednesday Joe and I would go to New York. We literally would knock on the doors of all of our hosts. We had their addresses. And we say, knock, knock, hello, hey. It's a little creepy just to knock on the door unannounced. We need excuses to get in their home. So they came up with an offer that the host couldn't refuse. We'd send a professional photographer to your home and photograph your home. Of course, we didn't have any money and we couldn't employ photographers. So Joe and I we'd show up their door and they're like, Wow, this company's pretty small.

These home visits became Airbnb's secret weapon. It's how they learned. What people loved. It's really hard to get even ten people to love anything. But it's not hard if you spend a ton of time with them.

So if I want to make something amazing, I just spend time with you. And I'm like Well, what if I did this? What if I did this? What if I did this? From those questions, a handcrafted experience is born. We'd find out, hey, I don't feel comfortable with a guest. I don't know who they are. Well, what if we add profiles? Great. Well, what do you want your profile? I want a photo, great. What else? I want to know where they work, where they went to school. Okay. So you add that stuff. And then you literally start designing touch point by touch point.

The creation of the peer review system. Customer support. All these things came from us literally We didn't just meet our users, we live with them. And I used to joke that when you bought an iPhone, Steve Jobs didn't come sleep on your couch, but I did. Yes. Was there a particular experience that has really stuck in your mind? I remember we met with a couple hosts and It's winter. It's snowing outside. And we're like in snow boots. And we walk up to the apartment and we went there to photograph the home.

And we're like, hey, I'll upload your photos to the website. Um, do you have any other feedback? And he comes back with a book, with a binder. And he's got like Dozens of pages in notes.

And He ends up creating like a product roadmap for us. Like we should have this, this, this, this this, and we're like, Oh my God. This is our roadmap. Because he's the customer.

I think that always stuck in our mind as the roadmap often exists in the minds of the users you're designing things for. As Airbnb grew, Brian never stopped handcrafting the user experience. At one point to envision what Airbnb could become he and his team imagined what he calls an eleven star check-in experience. And this was something I highlighted for myself as a thought exercise that I wanted to try with a number of companies that I'm involved with.

and a few projects that I'm working on myself. Now only part of what you're about to hear was heard. on Masters of Scale. For this particular episode, they gave me the complete uncut version. Of Brian's thought experiment. So I hope you enjoy.

If you want to build something that's truly viral, you have to create a total like mind. Experience. That you tell everyone about. And so we basically took one part of our product and we extrapolated, what would a five star experience be and then we went crazy.

So a one, two, or three star experience is you get to Airbnb and no one's there. So you knock on the door. They don't open. That's a one star. You know, or maybe it's a three star if they don't open, you have to wait twenty minutes.

And if they never show up and you're pissed and you need to get your money back, that's one star you're never using those again. So f a five star experience is you knock in the door, they open the door, they let you in. Great. That's not a big deal. You're not gonna tell every friend about it. You might say, I used the Airbnb, it worked. So we thought what would a six star experience be?

A six star experience. Knocking the door. The host opens. Hey. I'm Reed, welcome to my house. You're the host in this case. And

You would show them around and on the table. Would be a welcome gift. It would be a bottle of wine, maybe some candy, you'd open the fridge, there's water, you go to the bathroom, there's toilet chase. And the whole thing is great. That's a six star experience.

And you'd say, wow, I love this more than a hotel. I'm definitely gonna use Airbnb again. It worked better than I expected. What's a seven star experience? Knocking the door. Reed Hoffman opened. Get in.

Welcome. Here's my full kitchen. I know you like surfing. There's a surfboard waiting for you. I booked lessons for you. It's gonna be an amazing experience. And by the way, here's my car. You can use my car and Um

You know, I also want to surprise you, but I got you this is best restaurant in the city of uh San Francisco. I got you a table there. You're like, Whoa, like this is way beyond. So what would an eight star check-in be?

An eight star check in. I would land at the airport. I And there would be a

Limousine waiting for me. The limousine would Um be like know all my preferences. It would take me to the house and it would be like a total surprise.

So what would a nine star checking be? A nine star check in. I would show up to the airport and there'd be a prey to my honor. And I would probably have a elephant, you know, waiting for me as a traditional Indian ceremony. I would ride on the elephant And there'd be this parade.

Taking me Two The to the house. So what a ten star check can be?

A Chen Char check-in would be the Beatles check-in in 1964. I get off the plane. And there'd be five thousand high school kids cheering my name. With cars welcoming me to the country. I get to the front yard of your house and there'd be a press conference for me.

And I would be just a mind experience. So what would eleven star experience? I would show up at the airport. And you'd be there with Elon Musk and you're saying you're going to space. The point of the process is that maybe nine, ten, eleven are not feasible, but if you go through the crazy exercise of keep going.

There's some sweet spot between They showed up and they opened the door and I went to space. That's a sweet. And You have to almost design the extreme to come backwards.

Suddenly, doesn't just like having like knowing my preferences and having a surfboard in the house seem like not crazy and reasonable. It's actually kind of crazy logistically. But This is the kind of stuff that creates great experience. Sam Altman, president of Y Combinator, considers this so-called 11-star experience a prerequisite to scale. Suppose you try to scale a subpar experience, the sort of product that gets a lukewarm approval. from users or just polite indifference.

that four or five star is a default. He offers a cautionary tale. in this following clip. The first thing you have to do is build a product that is so good.

people spontaneously want to use it and tell their friends about it. And If you can do that. You still have to blitz scale. But it's the easy kinds. It's you have to too much demand.

The hard kind of blitz scaling is where you you you you try to start scaling up before the product is really great. And then most of your effort in scaling is to Generate demand. So I think

The number one most important insight about how to blitz scale. is that the good kind of blitz scaling is when you are not having to generate demand as you go. but that you first got the product right.

And in many of these cases, Stripe, Dropbox, Airbnb, they took a long time to get the product right. But they were obsessed with that. All their effort is. Okay.

We have so much demand. Without much. More effort. We know this is gonna keep growing twenty, thirty percent a month for years. That's a real problem. It's a high class problem, but it's still a real problem.

Um How do we build that? So that is the kind of scaling that works. And it has generated. Facebook, Google, I mean a lot of you know like

It's the same playbook. Um I think the kind of blitz scaling that we have seen go badly is We have a mediocre product. Um

We have raised hundreds of millions of dollars. and R V C is beating down our throats to hire more salespeople to grow faster. Any any particular examples? I don't wanna name names. There's so many to pick from. Thankfully, most of them are not YC. One thing that is pretty good, and again a few exceptions to this.

Um We try to beat that idea out of people during Y C. Uh and and thus most of the peop mistakes in Silicon Valley of that sort in the last decade have not been ours. Commandment number four. Raise more money than you think you need, potentially a lot more. Now this is a somewhat controversial point.

And some venture capitalists, VCs, argue the exact opposite, that you should try to be as lean as possible. I think in fact, the top performing venture capitalists. uh of which Reed would certainly be one, even if they voice seemingly conflicting opinions, would agree that it's largely a matter of what you have done before you raise the money, much to Sam Alman's point, uh which is a critical condition.

So for instance, when I'm personally getting involved in startups and I have something like 70 different startup investments since 2007. If you want to see them, you can check them out. Angel.co forward slash Tim. you will notice that most of them are direct to consumer, many, because that's where I can affect the outcome to the greatest extent. And some of the most successful to date.

have focused on product exclusively, no marketing and PR, in the very early days. and have shunned PR, in fact, and business development opportunities and self-funded whenever possible to the point that they have A functional prototype. meaning they have identified some type of product market fit as it's called.

And they have refined something that they feel that they can then Poor gasoline on. And that is certainly true, for instance, in the case of a number of companies. Like

Uber, just to take one. Uh when I was initially interacting with Garrett, uh and Travis, both the co founders. This was before Uber was Uber, had a different name. It was an LLC. So prior to raising money, looking at prototypes, looking at the market research that they did, looking at how they tested it, how they interviewed potential users, but especially potential drivers, to really come up with a Let's call it a version zero that got traction before they went out. and then looked for external validation and financing, s uh meaning through venture capitalists.

And that that I think is a common characteristic among all of my best investments, at least the early stage investments. So back to the commandments. in this particular case, raise more money than you think you need, potentially a lot more. So you'll notice that Uber in one case raised initial money After they had satisfied the a lot of conditions, uh and uh product refinement. And then after

they saw the opportunity to scale, raised more money than they thought they would need. All right. And the logic for this, Reed would argue, is that entrepreneurs are always going to run into a minefield of unexpected Problems and expenses.

He explains this particular point with a story, one that involves Miriam Nafisi, CEO of Minted, and then the CEO of Eve.com. Silicon Valley's on fire, nothing bad can happen. My friend, Merim Nefisi.

The CEO of a startup called Eve. And she had to have the domain name Eve.com. Only problem? She has to convince the owner to sell it to her, and she was facing a negotiation. That I do not envy.

Hello, who is this? There's a five year old girl. Eve Rogers. He gets on the phone. So I think, what on earth am I gonna say to this five year old? So I said hello.

Could I buy Your domain name. She was just saying to me. What, I don't really understand. Um I'm sure Eve's mom on the other line was laughing her head off. I mean, this is a great joke to play on this, like

Silly entrepreneur from California he's calling her like just I'm just gonna like watch her be tortured by my five year old for a while. Marion turns this risky negotiation over to her lead investor, the legendary startup whisperer, Bill Gross. So he gets on the phone with her mom and he negotiated the purchase. And it was um You know, equity in the company, a board seat for her daughter, a observer board seat. Trips to Idea Lab to see Bill several times a year. You had a five year old observer on your board? Yes. She didn't actually show up for the board meetings, but she did occasionally come by and visit. Disneyland software, educational software, I mean there was a very large package that was negotiated. If you were gonna call your younger self. How would you have handled this negotiation differently? I would probably throw in the Disneyland almost immediately. Because now I know what a five year old girl wants. I have a daughter and I would have said How many times a year do you want to go to Disneyland? Once a year, twice a year.

Maybe about a hundred times a year. Yes, exactly. Fifty thousand dollars plus Disneyland trips may seem like crazy expenses. But my experience Every successful founder has a story like that. Reed is totally right. in this case, and in many cases, of course, you need enough capital to cover unexpected expenses, as we've already covered, sure, but you also need to be prepared for unexpected opportunities, and you might need some type of resources to exploit those. We'll fast forward here to Miriam's new company, Minted.

which she originally thought would be an online stationery store with cards from brand name companies. But she also had a side experiment where unknown artists could submit designs to an online competition. She told Reed what happened next. I opened the doors. There's not a sale for an entire month. Nobody wants the branded stationary products that we'd spent most of our two and a half million launching'cause again, being conservative, I'd said, I know, I'll do a Neve.com, I'll put all these brands online. Sign'em up exclusively. We had exclusive distribution rights. Nobody wanna buy them at all. Instead, the teeny weenie assortment that I had sourced through this one competition I had run was

One transaction a week. Then the next week there were two. W we had sourced sixty designer competition and I'd saved a tiny bit of money to build what I really wanted to build. Out of the two and a half million I s probably spent like a hundred thousand on what really became into it. It was this like little side thing and there's a programmer up in Oregon and he and I were working at night on building the first competition. And that is the only place where we saw any sales movement. Mariam stumbled under the power of crowd source. The idea that ordinary people

When they come together in large numbers, can do work once reserved. Only for experts. Etsy is an example of this. Kickstarter as well. But at this point, in two thousand and eight, it wasn't understood very well.

It was something Silicon Valley was just getting its head around. I realized that this crowd sourcing thing was way different and I'd uncovered something that was more of like a massive social cultural change going on in the US and and maybe in the world. versus just some small business idea. Because what was happening that I didn't realize was that who's considered a creative out there is actually changing a lot right now due to technology and exposure. And so people are emerging as creatives who n haven't gone to school. They haven't gone to design school. They haven't gone to art school and they're d massively disrupting art and design right now. And there's a meritocracy, a true meritocracy, that you can actually build and unleash.

Here. Marion runs into another reason you need to raise more money than you think you need. Unexpected opportunities. Marion's plan to start a lifestyle business. Just didn't pan out.

She didn't have enough funding to cover plan B or her plans B, as I like to say. Opportunities may arise later than you hoped. And you want the capital to carry you in new directions. So she reluctantly pitched her idea and secured another round of funding. And if that weren't risky enough, she's about to encounter one more familiar source of uncertainty. A stock market crash.

And we raised our venture around two weeks before Lehman failed because this investor of mine had said to me, I feel something really bad's gonna happen, you should go raise. So we just ran out August. Who's in town? Anybody? Anyway, is anyone in town in August? So we went and raised money. It closed it literally right before Lehman failed. Dow at the same time has fallen about eighteen percent. Merriam launched her wildly risky experimental business idea into the heart of the worst economic crisis since the Great Depression, the collapse of the US housing market in two thousand and eight. Suppose she'd waited until, say, September to raise that money. Lehman collapses, panic grips investors, and no one in their right mind gives cash to a bold little experiment in crowdsourcing.

Like that. Minted closes for business. Which is another reason you should always take the money. Whenever and wherever you can get it. You never know when it will dry up.

Commandment number five, release your products early enough that they might still embarrass you. Imperfect is perfect. in this case. The fifth commandment is actually one of Reed's more famous recommendations. He believes that if you're not embarrassed by your first product release You've released

Too late. And there there are certain subtleties to this, of course. And I should note that this is just one example. Of how Reed thinks of speed, and I become fascinated by how he prioritizes speed.

in all areas. And uh to that point, I would love to read something. From a piece called Ten Thousand Hours with Reed Hoffman, written by Ben Kasnoka. You can find him at Casnoca C A S N O C H A dot com And one of the core tenets

one of the lessons learned is speed and so the words that are gonna follow. Quote. His first principle is speed, his most tweeted quote ever is. quote, if you aren't embarrassed by the first version of your product, you ship too late. End quote.

His second most tweeted quote ever is In founding a startup you throw yourself off a cliff and build an airplane on the way down. Back then. Practically, he employs several decision-making hacks to prioritize speed as a factor for which option is best and to speed up the process of making the decision itself. When faced with a set of options

he frequently will make a provisional decision instinctually based on the current information. Then he will note what additional information he would need to disprove his provisional decision and go get that. What many do instead at their own peril is encounter a situation in which they have limited information, punt on the decision until they gather more information, and endure an information gathering process that takes longer than expected. Meanwhile, the world changes. Just a quick note from me. This is very similar to how good military strategists Think of making decisions. Back to Ben. If you move quickly.

There will be mistakes born of haste. If you're a manager and cares seriously about speed, you'll you'll need to tell your people you're willing to accept the trade-offs. Reed did this with me. We agreed that I was going to make judgment calls on a range of issues on his behalf without checking with him. He told me this is the part that I highlighted for myself in Evernote. Quote, In order to move fast, I expect you'll make some foot faults. I'm okay with an error rate of 10 to 2%. Times when I would have made a different decision in a given situation if it means you can move fast.

I'm gonna reread that and just for people who don't know, foot fault, I had to look it up, is an expression used in tennis, where if they serve and their foot goes over a line That's a footfall. That is an error, right? So again, here's the quote. From read. Two Ben.

who was his chief of staff and handling a lot. In order to move fast, I expect you'll make some footfalls. I'm okay with an error rate of 10 to 20%. times when I would have made a different decision in a given situation if it means you can move fast. And then Ben closes with I felt empower to make decisions with this ratio in mind and it was incredibly liberating. And uh Here's a condition uh that I want to emphasize Tim.

that Ben also brings up. Here we go. Big companies are different. Reed once reflected to me that the key for big companies like LinkedIn is not to pursue strategies where being fastest is critical. Big companies that adopt strategies that depend on pure speed battles will always lose. Instead they need to devise strategies where their slowness Can become. Strength.

Thank you, Ben. So back to Reed's Commandment, so to speak. Release your products early enough that they might still embarrass you. This is the classic Silicon Valley approach of pushing imperfect things out, testing them and improving them with user feedback. Iterate, iterate, iterate. We've all heard about this. Instead of waiting till you think you have something perfect. Now

I should note, as someone who writes books, as someone who has podcasts and so on, that I don't think this is always interpreted very well. And people think it's an excuse to put out really haphazard products or services. And it works best for products or services can be Iterated and pushed out. to the initial recipients very easily. like certain types of software.

or certain types of apps. In the case of a book, you don't have that option. You put out a book unless it is a Kindle version and people are gonna go back and reread what they already read. you're not able to say immediately update the user experience for the first hundred thousand people who buy your book. So you think about this, or at least I think about this slightly differently. Alright, if we're putting out a book chapter by chapter.

On the other hand. Perhaps. I would use a uh a slightly more fast and loose approach. Which I certainly

see implemented with dozens of the startups that I work with, like Shopify, whose offices I'm sitting in right now. All right, so who is the person who epitomizes this? Mark Zuckerberg of Facebook is probably the person who most embodies this command in many people's minds and re talk to him about it. Here's some audio. My friend Mark Zuckerberg is the perfect person to talk to about this.

He has no qualms about rushing out an imperfect product. In fact. His famous mantra. Is move fast and break things. And I'd argue that it's the foundation of Facebook success.

If Mark cares about anything It's making sure his team moves. With a swiftness. Of a teen hacker. Releasing products that are anything but perfect so their audience can improve them.

You know, I I think the strategy of Facebook is to learn as quickly as possible what our community wants us to do. And that requires a culture that encourages people to try things and test things and fail. But how did he get Facebook's seventeen thousand plus employees to shed their perfectionist streaks?

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I hope to see you there. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Chayubi.

And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. We'll start Mark's story when he was an undergraduate at Harvard. By this time, he was in the habit of slapping the other programs on the fly.

He couldn't help himself. And the final exam was around They're gonna show some piece of art from the Augustan period in Rome and you had to write an essay on the historical significance. And I was actually coding the first version of Facebook when I should have been studying for that. So a couple days before the exam I was like, alright, I'm kinda screwed. This isn't something like math where you could just show up and figure out how to do the problem on the exam, right? It's like you actually need to know the context of this or else you can't write these essays. Wait a second, rewind. This isn't something like math where you could just show up and figure out how to do the problem on the exam.

Who does that? In any case With the exam fast approaching, you might expect Mark to cut back on the coating. Instead, he doubled down on it. I built this service where basically it anyone in the class could go to it and it showed you a random piece of art.

And you could type in whatever context you thought was important, and then after that it would show you everything that everyone else in the class had put in. So It was a study tool, but it kind of crowdsourced exactly what people needed to know. For each piece of art. And the professor ended up telling me after that that the grades on the final were higher than they'd ever been before. And and I I ended up passing that class. Imagine for a moment what would have happened if Mark was a little less hacker.

And a little more perfectionist. What if you took his time to get the random piece of art program Just so. It might have looked nicer. It might have had more features. But he would have missed the opportunity to put in front of his classmates.

When they needed it. And more importantly. would have missed the learning. About how they used it. But many of us, and I'm guessing most of Mark's Harvard classmates have a tough time rushing things out.

High achieving people have a tendency to be perfectionists. And the same instincts that make us good students can make us lousy entrepreneurs. So you have to unlearn to be a perfectionist. And you also have to unlearn the habit of listening to everything your users tell you because that will drive you crazy and can destroy your business. Read will also tell you you have to be selective in the user feedback that you take into account and incorporate. Success has a funny way of sneaking up on the best entrepreneurs.

They devote themselves to understanding and serving a teeny cohort of users. They don't always recognize that this intimate link Is precisely what enables our product. To evolve for the mass market. That's one reason I encourage entrepreneurs

earlier than they'd like. Release. Observe. React.

Over and over again. It isn't just about speed. And it certainly isn't about sloppiness. But rather a precise stance. Between Facebook's tiny team

And it's growing user base. The users normally take the lead. But not always. Sometimes Mark had to break the choreography and give the users a twirl. That's because you have to discern what users actually want.

And Mark received an early education. And the gap between what users say And what they do. Particularly As he expanded the social network.

We'd seen this funny dynamic where Yeah, we talked about how we started it at Harvard and then we'd launch it. Yeah. And then

All the people at Harvard would be like, Oh, come on. Like them? And and then it's like at every step along the way, you go from Yale and you launch at Columbia, and the people at Yale are like, Oh, really? Those guys? Seriously? So we we kind of were used to this dynamic of People Assuming that a change or is like why are you doing this, but then Coming around pretty quickly. Notice the lesson Mark is learning here.

He's learning how to listen. Each college said they didn't want another college to join. And then as each new college joined The network got stronger. And people liked it more.

This is a great example of how entrepreneurs Need to both listen to what users say And selectively ignore them. People can't always accurately predict their own taste or even their own interests. For example, a baseline for Facebook is

Other people are gonna upload pictures about you. Other people are gonna tag them. And when those other people tag them, your friends are all gonna see them possibly before you. Okay. Do you want that product, yes or no? Most people describe that way as I don't want that product. No, no, no, don't want that product.

And yet Everyone's super happy with that product. People systematically are very poor at predicting their own reactions to new things. The core idea here is that you have to experiment if you're going to effectively innovate. This gets harder and harder as you grow, of course.

Mark shared some details on exactly how Facebook succeeds on a massive scale. How do you innovate as a larger company? And how do you change your mantra over time? Read explains. For Mark and his growing team at Facebook.

The mantra move fast and break things served as a rallying cry. And the philosophy made a lot of sense when they were fledgling startup. But when you have thousands of employees. Moving fast and breaking things. Someone has to clean up their messes.

As Facebook grew Mark became aware of a growing tension between his hacker ethos To move fast. And his responsibility as COVID. To avoid breaking things on such massive scale.

Thus a new mantra was born. Move fast. With stable infrastructure. Well, it's it's less catchy. But the best mantras do more than just sound good.

They give you the resolve. To make tough decisions. So move fast I think is interesting. Because you actually have to be willing to give something up to get it. And

The question is what are you willing to give up? And early on the trade. The idea was We will tolerate Some amount of bugs and flaws.

in the service of moving faster and learning what our community wants faster. But we got to a point where It was taking us more time to go back and fix the Bugs and issues that we're creating. than the speed that we were gaining by going faster. So we're like, Okay, we need a new strategy.

To enable us to move fast. And what we came up with was We're gonna do this by building The best infrastructure. From any company is gonna be able to

ship their product faster here and test it better and move faster and all these things. At Facebook than anywhere else in the world. So that's what we mean by move fast with stable infrastructure, but Again, we don't get it for free, we invest a huge amount. In building infrastructure. So I think these values always come down to, you know, what are you willing to give up to get something? Because you know, they're not free. Nothing is.

Mark concedes that move fast with stable infrastructure is a clunky mantra. It doesn't have the snappy appeal of move fast and break things. But it adds guardrails to protect the company in its new phase. You can still release something bold and half baked. You can still break things.

Just don't break the infrastructure. Because the infrastructure is too slow to repair. And if you break the infrastructure It will ultimately slow you down. And with that new rule in mind.

Mark laid the groundwork. From mass experimentation on Facebook. How does it work exactly? One thing you should know about Facebook. It has many faces. At any given point in time, there isn't just one version of Facebook running, there are probably ten thousand.

Any engineer at the company can basically decide that they wanna test something. There are some rules on sensitive things, but in general an engineer can test something. And they can launch a version of Facebook not to the whole community, but maybe to ten thousand people or you know, fifty thousand people, whatever is necessary to get a good test. of an experience. And then they get a read out of how that affected

All of the different metrics and things that we care about. How are people connecting? How are people sharing? Do people have more friends in this version? Right? And of course business metrics like how does this cost the efficiency of running the service and How much revenue are we making? It can even kick off qualitative studies.

And ask people how happy they are with with this version. At the end of that, the engine can come to their manager and say, Hey, here's what I built. These are the results, do we want to explore this further and do this? And Giving people the tools to be able to Go get that data. Without having to argue whether their idea's good.

through layers of management before testing something Free people up to move quicker. If the add that to our documentation of all the lessons that we've learned over time. If it does work.

Then we can incorporate those small changes into the base of what Facebook is, that now, you know, everyone else who's trying to build an improvement, that's the new baseline that they need to get against. But when is it okay to experiment? Is it always okay? Is it possible that the risk or cost can be too high? Mark sets a pretty high bar for this. On a day to day basis.

A lot of the decisions that I'm making are like Okay, is this gonna destroy the company? Because if not, then like let them test it, right? I mean it's if the cost of the test isn't gonna be super high then in general we're gonna learn a lot more by experimenting. And by letting the teams go and explore the things that they think are worth exploring than by having a heavy hand in that. And Reed still holds more or less to his principle that you should be embarrassed by your first product release.

The word embarrassment plays a key role here. Over the years, some people have interpreted my theory As permission to cut corners. Act recklessly. Or proceed without a clear plan.

But notice I said. If you're not embarrassed by your product. I didn't say if you're not indicted or if you're not deeply ashamed by your product. Indeed, If you would launch so fast.

That your product generates lawsuits. Alienates users. Or burns through capital without any apparent gain. You did in fact launch too soon. Commandment number six.

Decide, decide, decide. Every founder has to learn how to make decisions. It is oftentimes better to make a wrong decision, usually correctable than than no decision. And we actually alluded to this earlier with my story.

about Ben and Reed. This is something Eric Schmidt, former CEO of Google, learned when he was taking flying lessons. Aviation they teach you to make Rapid decisions and they Over and over again. The side, decide, decide. It's better to make a decision and just accept the consequences.

And that discipline helped me in the hard times when I was at Novell in a real hardcore turnaround. It's also served him well in the freewheel idea generating climate he cultivated at Google. In fact He might argue that it was the secret to their success and continues to be. The secret. to their continued success. You must have disciplined decision making in order to survive, let alone thrive.

The most important thing to do is to have quick decisions. And you'll make some mistakes. But you need decision making. We ultimately adopted a model of uh Stephanie on Monday up. business meeting on Wednesday and a product meeting on Friday.

And this is organized so that people could travel in the right ways. And the agenda was everybody knew which meeting the decisions were made at. And so as long as you could wait a week. You knew you would get a hearing. on your deal.

I cannot tell you how many people have told me that a Google decisions are made today quickly in almost every case, even at our current scale. And that's a legacy of that. Decision. Most large corporations have Too many lawyers, too many decision makers.

Unclear owners. And things congeal. They occur very slowly. But m some of the greatest things happened very quickly. We made the decision to purchase YouTube in about ten days. Right.

Incredibly historic decision. Because we were ready. People were focused. We had a board meeting. We wanted to get it done. We have a word for these kinds of evasive maneuvers here in Silicon Valley. We call it an oodaloop.

That's a fighter pilot term. It stands for observe, orient, decide, act. The fighter pilot who has the fastest oodle oop wins. The other one dies. Have you ever watched the movie Top Gun?

You'll have a basic understanding of how an OODA loop works. Tom Cruise's character Maverick. has a few bad guys on his tail. In a split second, he orients himself to the enemy's formation. Then he decides to perform a crazy aerial maneuver.

Yes. And it confounds everyone. Score one for the free world. Now I'm not suggesting that tech executives secretly wanna blast each other out of the sky. What they do want is to perform slightly crazy, super fast maneuvers again and again. You'll often hear founders asking

What is the oodaloop of an organization or an individual? Because speed matters in combat. And also in fast moving industries. Commandment number seven. Be prepared to both make and break plans. In a fast growing organization, leaders have to be ready.

Even though Uh pivot. sometimes is used as a word th that can be a cover up for anything. And I think it was Mark Andreessen in my

podcast episode with him who said when I was getting started we didn't have a fancy word for it. We just called it a fuck up. None the less, you have new competitors, new threats, new opportunities on an ongoing basis. So you have to be adaptable. Nearly everything can be subject to change. So that much I think uh we can agree on. Reed talks about this concept with Facebook's Cheryl Sandberg.

The path to scale always, unfortunately, includes some broken promises. As Cheryl would soon find out. Everything from interviews to office space changes as you grow. And even a small take back. Can matter to a team.

I'll give you another silly example that I don't think is silly, birthdays. We celebrated everyone's birthday that day. Happy birthday. Happy birthday. Then it became that week. Happy birthday. Eventually we had a huge sheet cake with quarterly birthdays. My team was four thousand when I left. And everyone's names on it. Oh Now it sounds like that wouldn't matter, but it did, because if you started out and we celebrated everyone's birthday. And we took that away. That was a problem. Now I'm not saying

Be mean and don't celebrate birthdays. I'm saying figure out what your systems are gonna look like later. And do it now. Sandberg's ability to recognize when a once functional system has stopped serving the team's culture and productivity is helps keep Facebook on track. Founders have to be able to cut their losses.

when programs or projects no longer make sense and this Very frequently happens and I think this is something the uh founder of Softbank might have uh mentioned at one point, but that company systems and processes often need to be replaced when companies triple in size or hit multiples of ten. So say if you go from three. to nine to twenty seven, then at a hundred people, at a thousand people, and so on, systems need to be replaced or updated.

And Zinga's founder Mark Pincus is excellent at stopping things when they're not. Working. By the time Mark launched Zinga. He was acutely aware of the dangers of stubbornly sticking to his ideas.

He started to draw the distinction between his usually great instincts. And it's not always great ideas. I'll try anything and I'll kill anything and I'll kill it quickly. And I'm not gonna let killing an idea kill a winning instinct. And so that was a really cool idea that I'm still

thinking about and learning as an entrepreneur and it I can see it playing out so often in people's Companies. Mark separates specific ideas. Which must be killed. When they don't work.

From underlying instincts. And this willingness to kill ideas is essential to making innovation work. So you have to be willing to pivot And you have to make firm decisions. But there's one more thing.

There are many other things, of course, but one in particular you have to keep your team together through all the twists and turns. Margaret Heffernan, former CEO of Five Tech Companies. shared a story with Reed about a company that got this right. the most sensational example of this I've ever come across. I spent a lot of time hanging out with and writing about ocean spray, the Cranberry Company. And they're one of the biggest cooperatives in the United States. Extraordinary business. And at one point Pepsi tried very hard to buy them.

And of course the company is owned by the Cranberry farmers. So this was a really passionate, passionate debate. You could never have resolved it by who cared most,'cause everybody cared totally. And it ended up the vote was forty nine point nine percent in favor of selling, fifty point one percent in favor of staying an independent cooperative. And what made the company what it is today, which is very successful global multi billion dollar business, is that after the vote everybody got behind it. There was no question, that's the vote, that's the outcome. Now we all work together to make it successful. Commandment number eight.

Don't tell your employees how to innovate. And there are people who would uh certainly disagree with this or have a different tack. But what does that mean? That means manage the chaos, which might seem to be a contradiction and Many creative people find leading an innovative company actually means a lot less of producing your own great ideas and a lot more of shepherding your employees' great ideas to fruition. And they often come from unexpected places. Eric Schmidt thought a lot about this when he was the CEO of Google. I think a fair statement is that the founders

built a company in the image of what they saw at the Stanford Graduate School. So the offices, for example, if you had them would have four people in them, which is the number of graduate students that are in an office. And of course everyone's very crowded, it's very casual. Of course there's free food and everybody's sort of hanging out all day. And that gratitude and culture, that sense that somehow we're We're about to discover something new permeated the decision making.

So they were able to invent some new ideas. So the culture of food and benefits and being quirky. came from the founders trying to recreate that feeling. Amid this creative ferment, his job was simple. He just had to give employees a slight nudge.

To deliver on their promising ideas. The first thing I did is I went to the staff meeting. And the staff meetings were long and they were like being in graduate school. What do you think of this? What do you think of that? But a real lack of business procedures and that kind of thing. Which were easily remedied.

When you're surrounded by bright young minds, you don't have to push too hard for interesting ideas. They tend to tumble out of conversations. Or shar challenges. and take you in unpredictable directions. But not every manager is comfortable with this type of chaos.

It requires a particular kind of leader who can embrace both humility The uncomfortable notion that you don't have all the best ideas yourself and uncertainty. Because you can't always schedule innovation on a predictable timeline. I'm gonna come right out and say it. If you're a control freak.

You're gonna have a hard time with this. Google is certainly not the first organization to embrace. contained chaos, if we want to call it that, but they do lean into it. in a way that's rare, especially for big companies. and even within Silicon Valley.

Eric took some radical steps to keep ideas flowing within the organization. This means empowering engineers. And keeping management in check. For instance Product leaders can draw in as many engineers as they'd like on any given project.

So long as they can convince engineers to join their team. I've talked to other managers at Google who are frustrated with this because they argue We agree that my project is strategic. Why don't you just assign some engineers to me? And the answer is

No no. You have to persuade the engineers that your project's a good one to work on. And then by the way. You can have all of the engineers. That you can persuade to work on that project. And that's central to Google's culture for making progress.

Eric took this idea one step further. He granted employees the freedom not only to choose their projects But openly define their managers along the way. Google famously instituted a rule. That any employee could devote twenty percent of their work week

To any project they'd like. Twenty percent time. Was in some ways a logical extension of Google's graduate school culture. Managers, like research advisors, Can set time tables and budgets for experimentation.

But the staff Like the students. Pick the research agenda. Many, many initiatives in the company have come out of twenty percent time ideas. Much of the mapping work, many of the search ideas, many of the advertising.

Many of now the AI work have come from people working and practicing in new areas. As Eric says. Many of the products people know best. Gmail. Google Maps, Google News, AdSense.

Grow out of ideas generated by employees during this twenty percent time. But why exactly? Does it work. And while the rule says you can do anything you want to with your twenty percent time. These people are computer scientists and engineers.

You're not gonna veer too far away. from their core business. And that is the genius of twenty percent time. The tendency of high performing employees to use their twenty percent time productively is the well documented genius of the program. But there's also a hidden genius. Of twenty percent time.

It allows reasonable employees To defy unreasonable managers. And this institutionalized defiance Can help balance the power and keep high performing employees engaged. During challenging times. So the interesting thing about twenty percent time is although it's reported as you get to spend one day doing whatever you want.

What it really served as was a check and balance on the power of the engineering management over the subject. So If an employee Is under pressure.

The manager says, You've got to work harder, you've got to give me everything you have. That employee can legitimately look that boss in the eye and say I'll give you one hundred percent of my eighty percent time. And that simple Principle.

Which never really happens in practice. But it's understood. Empowers the employee With both dignity. But also some choices.

Commandment number nine. To create a winning company culture. Make sure every employee owns it. This commandment is very often overlooked. especially at the start up stage, and I've been guilty of this, I know many people who have.

And many founders, especially inexperienced ones, downplay the role of culture in their success or simply don't know where to start. And uh many of the founders or co-founders that I've worked with are in the latter category. They recognize how it can be important and a critical cohesive factor, but they don't know where to start. Reed Hastings the founder and CEO of Netflix has strong feelings about company culture. His first startup Pure software sold for seven hundred and fifty million. So it was successful from an objective financial standpoint. But he shared with Reed that it failed when it came to company culture. And when he started Netflix, he wanted to correct that mistake. And uh we get to some of the concrete corrections and where you can find

But here first is how Reed would sum it up. So Reed made a very typical mistake in his first company. He thought he could solve his company's problems. Just by working harder. But hard work isn't enough.

And more work. Is never the real answer. To succeed as you scale, You have to leverage every person in the organization. And to do that

You have to be very intentional about how you craft the culture. This was exactly the lesson that Reed took from Cure Software. Their management decisions had created a culture that rewarded the wrong behavior and retained the wrong employees. Well the mistakes in Pure was that every time we had a significant error sales call didn't go well, bug in the code. We tried to think about it in terms of what process could we put in place to ensure that this doesn't happen again and thereby improving the company.

And what we failed to understand is by dummy proofing all the systems that we would have a system where only dummies wanted to work there. which was exactly what happened. And so the average intellectual level fell and then the market changed as it inevitably does. In that case it was C plus plus to Java, but could be anything, and we were unable to adapt to it because we had a bunch of people who valued following the process. rather than the first principle thinking. Notice Reed's double insight here. Pure software couldn't adapt because they had the wrong employees.

And they had the wrong employees. Because of management decisions that explicitly selected for those employees. It was an insight. That catapulted him. What Reed learned from his first company was that culture directly impacted both

Who worked in a company and how well they performed. At Netflix, he knew he'd need people who could adapt with the times as technology changed. Very often I should say always does. And they went from a company that mailed DVDs to a company with streaming video and original content. The whole story is definitely worth hearing. Yeah, in the entire say unedited version.

That is uh found. on the Master of Skull podcast, but here we'll stay focused on how this realization of his affected Netflix culture and hiring practices. When Reed thought about growing the Netflix team, he already had a very clear of who he needed. Here is Reed Hoffman. To explain what Reed Hastings.

Did next. Reed's knowledge of history. The changing nature of technology and the historical moment he was in Led to the understanding he would need people to change with the times. People who can rip up a process and return to the first principles of delivering entertainment by any means necessary.

Whether it's horseback, mail Fiber object cable? Or maybe in the future. Elon Musk's neurolase. Регарлес, уніплоука бізнес модуль.

Fast. So how did Reed identify those candidates? It started with a now legendary document at Netflix. A collection of more than a hundred slides. known as the culture deck.

These slides define exactly what the Netflix culture stands for, but And who they're trying to hire. And what they can expect. The culture deck started about ten years ago. So first couple of years we were just focused on survival. And then we got public in 2002, cash flow positive, and it was clear we were going to survive. So we then started really thinking about the culture, what we wanted to be, how we wanted to operate. And so over successive years I improved the stack, which I would go through with new employees.

And sometimes those new employees would love it. Sometimes they were like, Oh my God, why didn't you tell me this before I started? That doesn't make sense to me And so we realized we should give it to every candidate. And so then about two thousand seven, two thousand and eight, we did that by posting it on slideshare. But again, it was really just to be able to send a link to the candidates. You know, and it's not very pretty, it's not very highly designed, doesn't look like it's a external marketing piece, but that authenticity really uh people liked in the outside world and now it's, you know, over ten million views on Slide Share and continue to be studied around the world. And what were the unexpected benefits of having published it?

Well it's see the core benefit which we did expect was that candidates were very aware of the culture. The unexpected benefits was many people became candidates for us'cause they loved that. what we described in terms of freedom and responsibility that might not have otherwise thought about us. Now when you read Netflix's culture deck, which many people have, you'll see they have a very specific way of describing themselves as a sports team, not a family, which I love. And they use internal collaboration to drive external competitiveness.

In team sports that really succeed, there often is a lot of warmth between the players. And so it's emphasized aspects and demonstrating that when people come in everyone tries to help them. But ultimately it is about performance, unlike a family which is really about unconditional love. Even if your brother, you know, does something awful and goes to jail, your love doesn't stop. Okay, and that's a just a different important part of society, but that's not what we're about. What we're about is collectively changing the world in the areas of internet television, and that takes incredible performance at every level. We're also about really honest feedback all the time. So you can learn and be the best that you can be. Most CEOs would agree that a successful company culture is one that lets team members be the best they can be.

And as you consider the best way to do that for your company and your team, you want to pay particular attention to how people compete. This is where a lot of company cultures go sideways. Margaret Hefernan, former CEO of five tech companies, says this. There is Often. A belief.

Among very successful, very competitive people. The the thing you want to do in a company. is get everybody to compete with each other. That if it's everybody's racing against everybody, you'll have this kind of white heat of A brilliance and creativity.

And I think pretty much everything about that's wrong. Um And that's not to say that I'm not competitive, I'm deeply competitive with myself in the sense that I really want to do a better job today than I did yesterday. But I don't want you to fail.

And I have seen more companies and organizations go wrong. because of what I think of as negative competitiveness. I do want you to fail, or I want your department to fail, or I want your product to fail. Because that will put make me shine. I've seen more damage and destruction and waste from that. mentality.

than probably from any other misunderstanding. And I think you know We all grow up in education systems that are very individualistic, my grades, my college place. So there's always a tendency to think, you know, I have to get ahead. But

Actually, what makes people successful is each other. Is you coming to me with an idea and my thinking, Oh, that's interesting. What about this? Or I know somebody you should talk to. Or oh go and look at this product. That might give you some ideas. That you know, if you can build an environment in which people really want to help each other.

Full of people who are generous. You will do infinitely better. than creating some kind of Um Olympic sport within the company.

And quite where this idea that if we all competed with each other we'd all do better. came from I don't know. It's definitely not Darwin. Um But I see it especially, I have to say, among young men. Um, and this belief that oh well it'll all you know, if everybody's

If everybody's competing, everybody will get faster. Um I think it's a catastrophe. And I see it bring down really tremendous companies. that get so lost in the fight they forgot why they were there in the first place.

Yep, I totally agree. And I actually think one of the key things that uh companies do at scale. in order to try to set against this,'cause there's always the kind of the how do I win that w that part of the dialogue in performance reviews and in culture and in competition is

How did you help other people? And in particular, how did you help other people outside of the specific team you're in? Yeah. Uh and I think that's actually um Really glad I asked you that question because I uh I think that what you just said is

Uh. Super critical. Well it's really interesting. I remember I was speaking at a conference and uh on this subject and in the QA someone said, Well You know, how would you Find people like that when you're interviewing them for jobs. Mm.

And I said, Well I'd ask them who helped them in their career because, you know, they can't remember anybody. That's a pretty bad sign. Anyway, the next person at this speaking at this conference was the chief technology officer from somewhere. And in his Q and A somebody asked him Who helped you in the course of your career?

And he couldn't think of anybody. And there was this sort of stunned. Horrified silence. You know, and the truth is that all of us I'm sure this is true of you too. All of us got help from so many people. Yes.

And you can't remember one of'em? Yes, exactly. And of course, actually singing the praises of people who've helped you is an absolutely joyous task, right? Commandment number 10. Have grit. And stick with your hero's journey.

So the other commandments from masters of scale cover just about everything in first principles, basic concepts that you need to succeed as a startup founder. Hiring and funding, managing and innovating, making decisions quickly and testing products early. This tenth commandment makes All the rest possible.

To succeed, entrepreneurs need a good idea. Sufficient resources. Good timing. Tough to always make that one work or guess it. And of course, that means a certain amount of luck. But they also need to follow this commandment.

Have grit and stay on your hero's journey. Some people mistake grit for sheer persistence. Charging up the same hill again and again. That's not quite what I mean by the word grit.

The sort of grit you need to scale a business. І з лес релийтон брут форс. It's actually one part determination. One part ingenuity. And one part laziness. Yes.

Laziness. You want to conserve your energy. You want to minimize friction and find the most effective, most efficient way forward. You might actually have more grit. If you treat your energy as a precious commodity

So forget the tired cliche of running a marathon. You wanna be more like Indiana Jones. Some are salting under blades. Racing a few steps ahead of a rolling boulder and swinging your whip until you reach your holy grail. Of course, the hardest time to show grit is when you need it the most.

When the situation seems direct. when the odds seem entirely stacked against you. Reed sees these life and death moments a lot in the company he's built and advised. Here's what he thinks you should do when you find yourself in such a position. These are the critical junctures that determine whether you fold or scale your business. You might win big and you might lose big.

And the grit is the stick to itness that kicks in when you actually understand the risks. And know that you might die. But move ahead anyway. In fact I have a prepared speech.

For these pivotal moments. I probably have given the speech. At some point on every single board that I've been on. Which is the heroic possibility. That

The road in front of you is super fucking hard. that is not a given that you're gonna win it. But if we win it, you're gonna be a hero. And so the question for you is are you a hero? And most people when they kinda hear that speech, they're kinda go

Yeah. Right?'Cause that's what they wanna be. That's why they're doing this. They want to be a hero. So you're giving them a frame to do it and you might lose. Right. You might be dead on the battlefield. This is why it's a hero's journey.

This is why you will be heroes. If you do this. And by the way, the people don't resonate with that? You want them off the boat. Bonus commandment.

Number eleven. Pay it forward. What does that mean? Well, the other commandments from Masters of Scale cover just about everything you need to succeed as a startup founder. The final commandment kicks in.

After you succeed or reach some type of certainty that you'll survive, or just have a little bit extra cash on hand in some cases. Because Reed will tell you the long term success of any person anywhere in the world depends on the ecosystem around the company or the person. To create an ecosystem like Silicon Valley, and many places have tried. where startups thrive and scale ups are possible, successful entrepreneurs have to follow this commandment and pay it forward. That means they invest in the other companies around them, the little guys. In this next clip, Linda Rotenberg explains how she sees this. She's the CEO of Endeavour, and her passion is supporting entrepreneurs around the world.

And Linda is awesome. I haven't seen her in years. Hi Linda. She says the willingness of successful entrepreneurs to pay it forward is the determining factor. ecosystem or city thrives or not. Many cultures have one or two or three successful business people that create companies.

But if they don't pay it forward and if they don't reinvest in the ecosystem, becoming mentors, becoming angel investors, inspiring their employees to start companies, then it stops. Right. And so What it never tries to do is create that ecosystem foundation where the successful entrepreneurs go on and pay it forward, and then you that's when you see a multiplier effect. Linda has a great story about this. It was really in two thousand when I got called into a room uh by Pedro Aspe, the former finance minister of Mexico, who was then leading the largest private equity firm. And he had gathered a group of about twelve individuals, and before I walked in the room, someone said to me

Linda, do you know what percentage of Mexico's GDP is in this room? And I said no, and I don't think I want to. So I was asked by uh it was Lorenzo Zambrano of of of SEMX, Carlos Slim of you know all the telecom, Emilio Scaraga of the media, et cetera. And one of the people in the room said, Well, why are all these entrepreneurs coming out of Chile and Argentina and Brazil and even Uruguay? Like what's wrong with Mexico? So in my oh politically astute way, Chica Loca says to this group of men Well, here in Mexico.

You're the big fish. And think of entrepreneurs as the little fish, and here the big fish tend to eat. The little fish. So if you want something like Endeavour Think of us like an aquarium where you learn to feed the little fish.

And the fact that they actually didn't again throw me out of the room. My life is about not being thrown out of rooms, I guess. And they all signed up. And in fact, a decade later, Emilio Scaras, one of his magazines Had a study on survey on entrepreneurship in the country, and the headline was Big Fish Feeding the Little Fish. If you follow these commandments, you'll be well on your way to startup success, life success. As well as your own hero's journey. And this episode isn't quite over though, because I promised I would have some new questions that were burning in my head for read that I wanted to get to him. And so let us just jump right into that.

If you could have one gigantic billboard anywhere with anything on it, so metaphorically speaking, getting a message out to millions or billions of people, what would it say? Could be a few words or a paragraph. One of the quotes That I most love. Is this simple?

Almost haiku. If I'm only for myself, what am I? If I am not for myself, who will be for me? If not now. Then when?

What is the book or books that you've given most as a gift? Obviously I give up my own books. You know, fairly often. The start of view, the alliance. Recently I've been giving out another book, a friend of mine.

Joshua Cooper Ramos. The seventh sense. What fiction books have you reread or recommended the most? Obviously, this is one of the places where my inner nerd, my geek shows. The books that I've most often read

Are Tolkien's the Lord of the Rings. Because it's so important to show this journey of these habits. These little people. In a Heroes Journey.

About how you can change the world. Within a context Where Tolkien is fairly sophisticated around the questions of the corruption of power. the intersection of races and the needs For us all to work together.

Is there a book that has most impacted your life? Well, I'm enough of a reader that many books have impacted my life. I would say most recently Uh sapiens. has had me thinking a lot about What the evolution of humanity and what our future looks like.

What have you changed your mind about in the last few years and why? I'd give two answers here. The first is a personal one. Which is previously I'd always avoided politics. Because it seemed like a zero sum game.

And I care about building things. I care about these Archimedean levers by which you move the world. And yet I realized That if I don't myself engage in politics. And take a more active responsibility.

That I'm shirking my duties as a citizen. And so that's a personal change. Scientifically. I've actually come around to the view that artificial intelligence is gonna have a huge impact in our lives. I was an artificial intelligence undergraduate in major, and more or less thought

It was gonna be some interesting toys and not going to create something massive. And yet As the five years goes by, as ten years goes by, as twenty years goes by, I think we're going to see massive transformation. in many industries in many parts of life.

that come from it. I'm not yet. At a view that we are on a short path. Two Artificial

General intelligence machines. But The impact that the old techniques now applied is gonna have in our life. is gonna be ferocious. And that's something I

Rediscovered. In the last few years. What purchase of a hundred dollars or less has most positively impacted your life in say the last six months or from recent memory? This is gonna sound a little strange. But my trainer started recommending that I add Moringa leaf powder

To my T. And that's actually added a rich uh antioxidant, anti inflammatory And a little bit more substance.

Now feels A little bit like a snack. And is super healthy. What advice would you give to a college senior about to enter the so called real world? Well for the college senior

This is one of the key audiences to which I wrote my book, The Startup of You. And the answer is To think about yourself as an entrepreneur. Not necessarily starting a business. But beginning a path that isn't a career path.

But actually, in fact, I set of entrepreneurial experiences By which you're strategically Defining your forward life. That means Looking for opportunities

That change your trajectory. Along the variables that matter to you, whether they're economic or mission or people you're working with. What advice would you give to a smart, aggressive thirty year old, assuming that in both cases they're similar to how you were at that age? But the thirty year old

You know, it's again Much like the startup of you. But I think it begins to say, Okay, here are the assets that I have. How do I really leverage them? How do I amplify them? As opposed to that first steps in the journey.

Thinking about Okay. I've done this. What are the things that lead me from here? Now, not surprisingly, in both answers,

Because I approach my life in a very strategic way. These are ways that I was behaving. Both as a college senior And as a thirty year old. How has a failure or apparent failure set you up for later success? Do you have a favorite failure of yours?

Well one of the things that I like About the Entrepreneurial Life. Is that

We fail all the time. Like literally I have got Just Dozens of failures.

And failing fast. In order to try to succeed. And perhaps in this context the best one is my very first startup social net. I literally made most of the classic mistakes in the first year.

And all of the advice that I give entrepreneurs For example If you're not embarrassed by your first product release, you've released too late. All of that comes from lessons that I have personally learned. And so that favorite failure

My first company Social Net. was literally one of those experiences where When you say oh, it's a learning experience. It really does mean lots of scars. And lots of blood on the floor.

What is the worst advice you hear commonly dispensed or repeated in your field? So that could be startups, VC, investing of other types, or whatever you choose. So the classic mistake That people say and that entrepreneurs do Із Believe That what is valuable about what they're doing is they have a unique secret idea.

And that they should hold their idea. Close to their chest. And not talk to anyone about it. Because that's the precious gem that they have. And actually the truth is

Your asset is that you are in motion on this idea. And you should talk to everyone smart. who can give you feedback to try to refine the idea, to try to build it. Because your unique asset is that you're in motion on it.

And you're acting on it. And you're making something happen now. And You know, it doesn't mean you publish your idea. To the world.

But It does mean that every time you can get good feedback. That would help recruit people, help you refine the idea, help you advance the idea. You take it. What is an unusual habit or an absurd thing that you love? For instance, Cheryl Strade.

needs to perfectly layer each sandwich that every bite includes every ingredient. You'd think. I'm a software guy, I'm a digital guy. uh that everything is is digital recording. Well, I found this little shop in New York, this online

called the Unemployed Philosopher's Guild. And they sell these little notebooks. You know like They Uh Plato's Republic.

And Alice in Wonderland and Pangea Passport. And actually having these little highly designed notebooks that kinda have these literary references. That are the things that I write notes on That's an absurd thing.

That I actually love. What rules or criteria do you use to determine What to say yes to. Obviously you get totally overloaded. By saying yes.

And I frequently, sadly, refer to myself as a kid in the candy store, and I end up saying yes to too many things. And that creates a challenge. Oh, I'll have that one too. And yes, that too. And that's you know Challenging. So When trying to apply intelligence and discipline to it.

I look at a couple of different things. So first Is it something that's big and important in the world? Something that I am uniquely well suited for.

Second is is it referred to me by someone that I deeply trust. Someone who knows me, knows the problem Or knows the opportunity and thinks that should happen. And the third is

Some room for serendipity. Some room for trying something New and different In a way that would stimulate me To think.

Or to learn, or to essentially suddenly it's it's a little bit like um being stimulated and then suddenly having a new epiphany or a new vista open for you. And so always leaving room for some serendipity. You know. The

Usual thing is that In every particular hour slot in my calendar. There are at least ten things that are competing for it. All right, folks. That's it. So thank you again, Reed. It's always wonderful. Speaking with you.

learning from you and congratulations on the new podcast among many many Other things Thanks again to Tim for this fun podcast mashup. And his podcast is the Tim Ferris Show. And you can read more of Tim's blog.

at Tim.blog.

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