Lecture 13 - How to be a Great Founder (Reid Hoffman)

Thank you, Sam. So, when I look through the syllabus of this class and thought about what I could possibly add that would be useful in addition to the very skills one, one of the things that I've been thinking about has been: how do you think about yourself as a founder? How do you think about what the skill set is, and what are the things that you should be thinking about in terms of: Am I ready? How do I get ready? Is it the right thing for me? These sorts of things.

So, let's start with the perception of what a great founder is. Classically, you know, this tends to be Steve Jobs, Bill Gates, Elon Musk, Mark Zuckerberg, Jeff Bezos, and it's an image of the founder as superwoman or Superman, right? Who has this like panopticon of skills. I can use the word panopticon because I'm here at Stanford. But it's things like: I know how to do product market fit, I'm great at product, I'm great at strategy, I'm great at management, I can fundraise, right? I can do all of these different skills.

Part of what you're looking for in a great founder, in the kind of theory of the founder as a super person, is I'm looking for someone who is awesome at all these things. They are well-rounded, they're diverse, they can bat on all skills. You know, part of how I found this kind of emphasized in my own, the beginning of my entrepreneurial journey, as I remember reading an article that said: You know, Bill Gates, who is smarter than Einstein, right? And you're like, well look, Bill Gates is really smart and is very accomplished, but I'm not quite sure smarter than Einstein. Secretary phrase that even Bill would want to be actually next to.

It's partially because I think it's this image of the founder as super person, which is that a great founder is someone who can do anything. You know, jump over tall buildings in a single bound, and all of these sorts of things. The reality is, a founder is someone who deals with a ton of different headaches, and no one is universally super-powered. Generally speaking, you hope to have a couple of superpowers, some things that are unique to you, some things that are unique to the problem you're trying to solve. Some things that may help you give an edge, because actually, competitive differentiation and competitive edge is super important. But it's not actually, in fact, a function of genius.

As a matter of fact, frequently it's very hard to tell the difference between madness and genius because usually it's the results that play out. Sometimes when you're dealing with uncertain environments, you may even be a genius and later be thought to be a mad person, or you may be a mad person and turn out to be lucky and you're later thought to be a genius. So, it's actually kind of a challenging set of like how do you think about these sets? You know, what is the whole set of skills? And when us mere mortals, you know, come into this kind of battle, what is the right way to think about it?

So, you know, when I thought about this question of how is one a great founder, you know, part of what you get to is—oh, and actually this is probably the slide that for people on this—this may have been a suboptimal choice for people on video—but it's like these are all skills that are super important, right? These are all things that you say: well, okay, this is really, really important to do and you must in fact actually do this well. It begins to look like a superhuman task.

So, what I did is I decided to take a subset of these and focus on some of the interesting things to think about what makes a great founder, because it's actually not that you score 10 out of 10 in all these, you know, and you'll be the entrepreneurial Olympiad, but you are actually the best at all of these things.

So let's start with team. One way to kind of, I think, talk about exploding that kind of myth of the super founder is that actually, in fact, usually it's best to have two or three people on a team rather than a sole founder. It's not to say sole founders don't actually play out and they can be successful, but most often, two or three people is a much better option.

When I look at these things as an investor, I say: you know, what is a good composition of a project and founders that are likely to succeed? It's usually there's two or three of them. The reasons are because, for example, we've already talked about the fact that there's this very broad set of skills. There's this whole question about how you adapt your company in order to be successful.

If you actually have two or three founders, you have different skills. You can compensate because, by the way, everyone has weaknesses. You can compensate for each other's weaknesses. You can, in the diversity of problems that you encounter as a founder, actually attack them. So one of the things that I suggest when you look at essentially a founding team is to have a real high preference for having co-founders, having a high degree of trust for those co-founders.

Because one of the things that, by the way, part of the whole entrepreneurial thing is there's lots of ways to die. One of the ways to die is you get a year down the road with your co-founders and then you're going through a messy divorce, right? And that's a— that is not always, but frequently fatal.

And so, and then also the diversity of kind of tasks that you're trying to do, and actually, okay, yes, I was going to say that will be suboptimal from a view point of being able to look at the slides. The next thing is location. Frequently, I've heard told to me, it's like: oh, Silicon Valley aggregates all of this super talent, which it does, in terms of like what actually— in fact, it's the reason why Silicon Valley startups are so successful is because all of these great people immigration, which is hugely important for talent and founders, and hills, you know, emigrate here. That’s part of the reason.

Now, it's actually, if you think about it from basic math, even if you take something that Silicon Valley is super strong at, which is essentially software skills, in the last two decades not all of the great software people move here, not all of them can move here. There are many of them in various other parts of the world. And so, why do I put choice of location as one of the things that comes down to thinking about whether or not you’re a great founder?

Well, the reason is because what great founders do is seek the works that will be essential to their problem and their task, and they realize it isn’t just about like: kind of like I am super person, I can do this anywhere. I can do this, you know, in, you know, the Antarctic, etc. It's: in order to be successful, I have to go to where the strongest networks are for the particular kind of problem or the particular kind of thing I'm doing.

And Silicon Valley, by the way, is super good at some kinds of tasks, some places that you essentially try to solve certain kinds of problems, but it's not good at all of them.

Let me take, you know, kind of two examples. One is Groupon. I don't think Groupon could have ever been founded here, even though it's a software product. It actually even generates a network, which, you know, obviously a lot of the great networks are here and uses a kind of Internet technology as a mobile product and everything else, all of which we have a lot of great skills here in Silicon Valley and the networks are really good for this.

One of the things that's central for Groupon in its early days was having massive sales forces, and massive sales force strengths and weaknesses of networks tend to go together. Silicon Valley tends to be pretty adverse to plans that involve like, oh we're going to rent a 25-story building, and in 20 of those stories we're going to have floors of salespeople, and that's how we're going to get our thing going. That kind of plan here tends to not get a lot of interest, tends to get a lot of criticism, tends to not have talent aggregate to it, tends to have finance ears talk up and things like capital efficiency and network effects and other kinds of things that are key here. So it’s actually not a surprise that actually in fact Groupon required to be actually in Chicago, which is really good at this, as a way of actually kind of getting going and showing that even software startups can be in other places.

But even if you begin to think about it, you say: okay, well, what kinds of startups would someone be an idiot to move here to do? Think of someone doing a fashion startup. Not fashion—oh, poshmark, which is, you know, a mobile marketplace, etc., which are a bunch of things are good here, but like: I'm designing a new fashion company, I'm going to come to Silicon Valley to do it? That's actually not such a great idea, right?

And as I say, the fashion company might be a great idea, but you want the networks to support what you're doing. And so part of the reason why where should I locate my startup is a test for thinking about a migrate founder is because part of what happens when you're actually founding a company is you're going: I will go to where it’s successful. This to do—because the metaphor that I frequently use for entrepreneurship is jumping off a cliff and assembling an airplane on the way down. And the reason is because it's hard; it has a quasi-mortal exit while you're—which you're default dead.

So you're taking every possible chance to actually win. And so great founders go: look, I’ll move to what the network is, and that network is, you know, this graphic is frequently Silicon Valley, but for tech startups, for mobile, for networks, that remark applies. You know, this is a really good place to do it. For a bunch of other things, you should think about whether or not it's a different location.

Now here's something that you know it's very in vogue, all right, very conventional to say you're contrarian these days. So let's talk a little bit about what contrarian is. Actually, in fact, it's pretty easy to be contrarian. It's hard to be contrarian and right, and in particular when you're thinking about: is my idea contrarian or contrarian enough? It's how does a smart person actually disagree with me, right? Because if you can't think of a smart person who isn’t like ignorant or just crazy or smells but is a smart person who is somewhat expert in the no-things that your idea has some serious challenges, then it actually isn’t contrarian, right?

So, contrarian is also is always actually this is one thing that Sam and I talked about at Startup School: contrarian is actually relative to an audience, right? So when you want to be—when you're thinking about contrarian in terms of like a really good contrarian idea, it's like: okay, what would other consumer Internet good consumer and Internet people think is actually in fact not yet a good idea?

Part of when you think about contrarian is to say: okay, what's the way that—what do I know that other people don’t know? Because it isn’t just a: oh, I'm brilliant and other people aren't, and that's the reason why the contrarian thing is right. That's a very bad test. It might happen to be true, of course; lightning could also strike you in the field, right?

You know, so think a lot about like what is it that I know that other people don’t know. For example, in the very early days of LinkedIn, part of what I advise all founders to do is go talk to every smart person who will talk to you and give you feedback. So with LinkedIn, I walked around and I said: here’s my idea. What do you think? Two-thirds or more of my network, including some of the very, very smart people, all thought I was nuts.

And the reason why they thought I was nuts was because they said: well, look, it’s a network product. It’s only valuable with a bunch of people in it. First person: no value; invites second person. Second person: first person: no value for either them; they already know each other. When do you actually begin to deliver on your use case, which is like 500k to a million people, right? And so, you're never gonna get to size; it's never going to grow.

Now, what I knew that the critics didn’t know was that I could think of a set of different ways by which people say: look, it’s pretty easy to say, look, I believe in the vision of this or I think it’s interesting or I think a product like this should exist or I’m willing to play around with it, and I can leverage those sets of interests and grow the network to get to enough size that you could begin deliver on the value propositions in which LinkedIn had. That was the specific thing that I knew that the critics weren’t thinking about.

And so when you think about being contrarian, you have to think about how is it the smart people let's agree with me, they disagree with me from a position of intelligence, right? And there’s something that I know that they don’t know that actually, in fact, will play out to be true.

Now, in this case, in general, as a founder, it's good to be contrarian in the real sense.

Now, the other last part on a contrarian assist is to think about: there's lots of different ways to be contrarian. So, for example, a frequent one will be like: oh yeah, that’s a good small idea, but actually that's not small; it's large. Or, you know, actually, in fact, you can assemble the talent. Or while most consumer Internet startups tend to be, like for example, is another LinkedIn example, tend to be only successful with rocket ships; actually, a gradual compounding curve can actually be very, very valuable. LinkedIn never had its rocket ship moment. It was—it was kind of compound year by year, but that in the consumer Internet tends to be atypical to the pattern.

So here you begin to get to a bunch of sorts of problems that essentially founders run into, which is like: well, should I be doing the work, or should I be recruiting people and delegating the work? Classically, the answer to this is actually, in fact, you need to do both, right? And in fact, not only do you need to do both, you need to do sometimes one at a hundred percent, and sometimes the other one at a hundred percent, and sometimes even though this is not so good at math, both at a hundred percent.

And so, what you'll see is this is actually classic. When you begin thinking about what is a great founder is you navigate what is apparent paradoxes.

So another one that I frequently talk about is you've got to be both flexible and persistent. The reason for this is entrepreneurs are frequently given the advice to, you know, have a vision, stay firm against adversity, you know, realize that you have this vision that is contrary to what other people think, and just hold—stay on track, get through the difficult times, and get there.

The other piece of advice given with equal vigor is listen to data, listen to customers, pivot, be flexible. Part of the thing this comes out to being in terms of being a great founder is to say: well, when should I be persistent? When should I be flexible?

And the vehicle that I most often use for this is you should have on a project you’re doing, like a company, an investment thesis that essentially says why you think possibly contrarian, why you think this is potentially a good idea. It should include what you know that you think other people don’t know. And then as you’re going into the battlefield, you go: am I, in fact, increasing confidence in my investment thesis or decreasing confidence in my investment thesis?

Because if I found increasing confidence, then hope stay on track; you know, be persistent. And by the way, sometimes even with adversity your confidence can increase. If it’s decreasing, that doesn’t mean jump out. PayPal, LinkedIn, Airbnb, a whole bunch of startups I’ve been part of have had months where you were like: oh my god, this—why did we ever think this was a good idea? It's kind of a valley of the shadows moment.

So an example in PayPal was, you know, August 2000, we were burning twelve million dollars in one month. The expense curve was exponentiating. We had no revenue—decrease in confidence. However, we say: okay, what do we do in order to fix that? And that gives you your immediate action plan.

Another one is: should you have belief or should you have fear? Right? Should you have, you know, could it—should you essentially go: well no, no, I have this vision of the way the world should be, and I should ignore everything else, and I should just go with that? Well again, part of what being a great founder is, is being both able to hold the belief to think about where it is you want to be doing and why you don’t want to be going, but also be smart enough that you’re essentially listening to criticism, negative feedback, competitive entries where you kind of go: okay, is this changing my investment thesis? Is it changing what I’m planning on doing?

It doesn’t mean you lose confidence. You have the confidence, but you also essentially have the parallel again in this kind of thing of how do you put these two things together. Should I focus internally, build a product, ignore the world, ignore competitor; oh sorry, focus externally? Should I be recruiting? Should I be meeting people? Should I be gathering network intelligence?

Again, the answer is both. And the reason why I'm focusing on these kind of—it's both rather than either/or is because part of what makes a great founder is the ability to be flexible across these lines, to sometimes be 90 percent one way, sometimes be 80 percent the other way, be executing the judgement on what is the current problem. Look like how is it that what I’m trying to solve this? That I should say this is what we should be doing, and how should I be dividing the work?

And part of when you think about these things, as you say: this is another one as kind of classic as people say: well, I’m completely motivated by data; it's what customer said to user groups. You know, I’ve a lot of entrepreneurial methodologies, lean, other kinds of things we talked about. It's like: gather the data, be guided on the data.

Well, actually in fact, data only exists within the framework a vision that you’re building to hypothesis of where you’re moving to. And the data can even be negative. And you can think: well actually, in fact, this negative data means I need to change or alter the way that I’m thinking about something. But I actually keep on a specific vision about what I’m doing.

And by the way, sometimes even when you have that specific vision, you don’t necessarily actually ever end up at that big vision that you were thinking about.

So, for example, you know, at PayPal, we distributed these t-shirts that said: the new global world currency, right? Well, actually in fact, one of the—I know Peter's been here— one of the jokes I told Peter is like: well, actually we do have this new world global currency. What we’re trading in is dollars. You may have heard of it; it’s existed for a while, right? We're essentially a master merchant for that.

Now, of course, this presages what might be happening with Bitcoin, although now is a whole nother topic there. However, the key thing is that vision of saying we are creating a kind of a universal network that allows anyone to pay anyone to become a merchant to bring the electronics into the speed of commerce at any business that is being transacted; that vision kept it true north.

But we say: well, first we think we’re going to have a banking model, then we think we’re going to have, you know, a debt model—oh no, we’re going to have a master merchant model. And how does that actually play out? So you’re always combining the vision and the data, and the data is within the framework of a vision.

And sometimes, of course, what you learn changes your vision.

Now, this is one of the ones that I actually think—we saved this special picture for—one of the ones that I actually think is quite key is that normally, entrepreneurs, founders are thought about as having like—they're risk takers. Right? They're the—whereas everyone else cowers in fear from this notion of risk; they boldly go out.

Now, that's true; you have to be a risk taker. You have to be thinking about how do I make a really coherent bet on risk because, in fact, the only really big opportunity is the only contrarian opportunities smart people disagree with you on happen to be one that have risk associated with them.

On the other hand, part of the skill set that when you begin to apply how you think about risks as an entrepreneur is you’re beginning to think about: like how do I take intelligent risks? How do I take a focus risk that if I’m right about that one thing, right, then a bunch of other things break my way?

And once I start doing that, I try to figure out how to make my own shot possibility as high as possible; eg, how I minimize other risks. How do I essentially take this risk in an intelligent way that doesn’t just go: oh yeah, risk—risk to the wind, who cares? But let's go.

So this kind of combines that, you know, this image, which I think is the best of the of the images we found for this yet, is kind of the sense of how to think about—now, back to what I was saying in terms of having an investment thesis. Part of having an investment thesis is you chart it out; it's kind of a list of bullets. You say: for example, an early LinkedIn, it was like: look, everyone is actually going to be benefited by a public professional network.

Everyone will realize, including companies, that it's better to have it play out this way. The initial set of adoption will come from essentially people who are like: visualize the role this; we’re willing to play with it. And then eventually, the mass market will come on as they begin to have a network that is already delivering a value proposition to them. That’s what kind of an investment thesis can look like.

And then, you know, you've got economics. So, like, initially recruiting and then, and then broadening other things. You have that investment thesis and you say: is my investment thesis increasing or decreasing in confidence? Do I think that the data that I get from the market when I talk to smart people, how does that—how does that change my confidence in it? And this is actually how you essentially minimize risk.

So, for example, very early, very early days in PayPal, the part of what happened is they said: okay, well, we’re going to do cash on mobile phones, will the cash on Palm Pilots because it’s really easy? We actually realize the cash on Palm Pilots wouldn’t work even before we launch the product because basically what happened is I went in and said to Max and Peter: I said, look, here's our challenge. Our challenge is we're right this room probably don't remember what Palm Pilots are; they were the, like, early PDAs. And so, we lived in where—what was Palm Pilot central.

And the whole use case was splitting the dinner tab and how many people at everyone at the table would have a Palm Pilot, split dinner tab? Zero to one in every single restaurant, so you could even just by thinking it through, you realize like the direction you’re on is going to hit a minefield and you need to pivot. And that’s when Max Levchin came up with the idea of saying: actually, in fact, we could sync by emails; we could have email payments as the backbone of this. We’re like: ooh that's a good idea, and of course that's what the whole thing kind of pivoted into.

And that’s part of thinking through minimizing the risks as you’re actually executing. Here’s another one that’s kind of classic which is: well, should I have this long-term vision or should I be solving local near-term problems? And again, the answer is both. It’s these paradoxes, and the question is, is you jump between them: you should always have a long-term vision in mind because if you actually completely lose your directions, eventually you’ll find yourself in some field that’s not a good path out of.

But if you’re not focused on solving the problem that’s immediately in front of you, you’re hosed, right? And so part of the question about how you put these things together is you say: okay, short-term what’s the thing I need to be doing today? Have I made progress today? Have I made progress this week? But is it largely on path?

So I’ll give you an example of how this plays out in terms of financing or in terms of strategy. So people frequently think product strategy is fundamental to how startups like—I have a product idea; that’s the thing I’m a founder. Actually, in fact, the next level down on strategy is usually product distribution, whether it’s consumer Internet or enterprise or anything else. Because, actually, in fact, no matter how good your product is, if it doesn’t get the customers, you’re hosed.

So usually you have to have product distribution is more fundamental than the actual what the product is, and the one below it is financing. And the reason why it’s financing is if you run out of money and the whole effort goes away even if you have a really good idea, it doesn’t work. So frequently when you’re executing on a good strategy, you’re actually in fact when I’m raising money, this fundraising, I’m thinking about the next fundraising. I’m thinking about how I’m set up for it; I’m establishing relationships that would be key to that.

And I’m not executing like: oh, the only thing that matters is I get to the next is get to next fundraising because you have this business that you’re building, but I’m thinking that is a core strategy in terms of how I'm executing. And frequently, you’re thinking about: okay, how does my product distribution work such that the financing works well? And that’s kind of how you architect these things together.

So how do you know if you might be a great founder? Well, you should have some superpowers. It's generally speaking in software useful to be a good product person; it’s useful to have good skills about kind of leadership of bringing networks in, of persuading people. And it's useful to be able to, and this is kind of the most fundamental, is recognize whether or not you're on track or not to have both that kind of belief but also paranoia about am I tracking against my investment thesis?

And when you do that the right way and you're learning and you're assembling people and you're assembling networks around you, that's generally speaking how you end up being a great founder.

Now classically, and I deliberately put up five white male pictures, classically you have a kind of a—these are the iconic founders, but in fact, founders can be very diverse. They can be extraordinarily talented at different areas because there's different kinds of entrepreneurial companies; there's different kinds of problems they're trying to solve. And I don't just mean diversity in terms of classic, you know, kind of gender, race, etc., diversity in age diversity, and experience.

You know, Jack Dorsey was a teacher before he got into this. That’s the kind of thing that you can— that you should think about. And so, the question is, is how you cross uneven ground; how you assemble networks around you; how you get people to assemble this, that it’s a constantly changing problem to face when you are trying to found a company.

And so I think the thing that I was trying to get people to think about with this is to say there's not one skill set; there's an ability to learn and adapt, an ability to constantly have a vision that’s driving you but to be taking input from sources and then to be creating networks around you. And that's essentially what makes a great founder.

Your ability to do that while crossing uneven ground in a fog, which is kind of the way that entrepreneurs, because you don’t really know: like did you always know this was going to work? No, unless you’re crazy, right? Although sometimes crazy works.

So with that, I will now go to a few questions, but it was kind of this mindset of founders which is kind of key. And if there’s no question up here, I’m curious about how amazing how you be targeted the earliest are the selected schedule, the strategy for getting the right early adopters that you do with strengthen your investment thesis really help it take off; it’s just like every startup phases that ship that same challenge.

So one of the really fundamental things is to think about product distribution is key. And for LinkedIn, we had a couple things going for us. So one, the web was boring in 2003. That basically what happened is everyone thought the consumer net was over, and so people were doing clean tech and enterprise software and everything else; that's a much harder problem now because everyone thinks the Internet and mobile is interesting.

And so breaking through the noise is really key. So the strategy we used would work; we'd just actually set up—send out some invitations to group people and then tune the mechanism to have—and did PR to get people. Like one of the decisions we made early that was right was to say: should we only allow it as invite only or should we allow cold sign ups?

The reason we should allow cold sign ups is because the people who are super enthusiastic about this weren’t necessarily the people who know, so they would sign up and spread it. That sort of thing, were all the kind of decisions we made. Now that challenge is much harder because the challenge and you think about product distribution is: how are you competing for potential customers or potential members’ time? And what do they think; what do they have to believe in?

Back in 2003 was like: well, a professional network, that’s potentially a good idea, what the hell? I’ll play with it. There’s not a lot of other things for me to look at today; there are tons of things that your strategy day when you're looking at product distribution has to be: what is my really decisive edge? What is the hack that I know that other people don’t know?

So come to you, how do I know someone's a good founder or not? Well, it's not—I’m a huge believer in references. Usually, I only ever actually know a hundred percent of the time: in this case, I only meet with someone when they come to me through a reference. So one of the things, by the way, is that thing is, after this, I have to run off because I have a meeting I need to get to. If you want to actually get time and attention, we find a reference. It’s not a pitch to using LinkedIn; it’s a question of this is how you sort out the time.

You can find out; like Sam knows me—not to throw Sam under the bus. All right, yes. And so a reference to me is in fact the way that I do this. And so, for example, what I met with the Airbnb guys, part of the reason why I could interrupt them two minutes in another pitch and say: I’m going to make you an offer to invest. I want to hear the rest of the pitch because I think what you're doing here is magical and awesome was because I’d already had references on them, but that was only two minutes, not even 30 minutes because I already knew about them before coming in.

And by the way, by and large that some version out is true of most of the great investors, and it’s that network that’s really key. I think there was a question over here: do you think the "strong signal" insight is a strong signal for great founders? Can you say another sentence?

Oh, to be able to distill a thesis on a whole pry it off, speed it down to a concise sentence. Well, I would definitely say that the ability to say coherently what you're targeting and to articulate something that isn’t trying to boil the ocean or a Swiss Army knife approach, but it's like one focus—like look, if we’re right about this, then it works—that is actually pretty important to being able to judge a founder.

Because if you don’t have that level of clarity, you’re not going to be able to assemble the network behind you. You're not gonna be able to—investors are not going to get employees. You have to be able to articulate a very clear mission about what you’re doing. And insight is helpful, although a little bit of this depends on the stage. It is always—I find myself attracted to founders who’ve analyzed the problem a good way, but frequently I’ve seen great founders who do not present good analysis but have an instinct about what they’re doing.

And so you more chart what's going on around them when they can have, like, five years of Lego because wrap-up time, like, what can you going to keep? Like, I believe I’ll be the original—wow.

Oh, so why how do I keep persistence when—because actually LinkedIn went through—let’s see, for those who remember— we were treated as the little alternative to Friendster, then to MySpace, then to Facebook, right? So we had a lot of different, like—we are the little teeny one next to these two respective giants each of the time. Ultimately, for me, when I was thinking about LinkedIn, this gets back to the investment thesis as a mechanism.

I continued to believe in fact the right economic system design for every individual’s life and for organizations' lives to have public professional profiles, that that—that world is the way the world should be; everyone’s much better off with it. And we are getting closer to that than everyone else. It may be that it hasn't taken off as fast as I'd like; it may be that the general world is going: oh, this social stuff is really interested. We don’t like we can only get in the news in the fall, in the summer of 2003, by saying we were Friendster but for business, which is completely nonsensical once you begin looking at the thing.

But it’s like, okay; we’ll cover you because it’s Friends, but for business. And that was important to begin to get people to pay attention to us. And so the confidence was that world: I still have confidence to believe that it should exist; and no one is getting closer to it than we.

It’s taking us maybe longer than I’d hope to get there, but that’s okay. So, okay, when you get wrong what you need to find that you think is going to be really good and, you know, it seems to be able to move, it means opposing forces; and on paper it seems like they're going to go the distance. What is it that makes you get wrong about someone that looks good at first observation?

Well, to some degree, you can only fully cross these kind of minefields by actually going and doing it, right? So you're going to be wrong about your hypothesis. The kinds of things that frequently get you wrong are when you think that a person—because they—like for example, one of the tests that I forget to use in an interaction is I push on the idea some, and what I'm looking for is both flexibility and persistence. I’m looking for: no, I have conviction in what I’m thinking, and I’m arguing it, but I’m listening to what you’re saying, and I'm adapting to the concerns and whatnot of how you think about that.

Sometimes you’ll find someone who says, look, I've learned to mimic that behavior. So I’ve learned to say, for example, I’ve learned to look like I’m reasoning with you, and I look like I’m thinking about the challenge you bring up, but actually, in fact, I’m ignoring you and ignoring me—that might be fine. Ignoring the world in general is usually disaster and so those are the kinds of things that in the measurement you can see essentially get wrong, but usually the kind of thing like most often the kind of reference questions I asked about founders is like adaptability.

Like, one of the phrases that I frequently look for is infinite learning curve because each entrepreneurial pattern is to some degree unique and new, and can you learn the new one, right? Is way of doing it? And so like, does the learning break down, or is there some major skill set? Is there an ego issue that gets in the way? Like: well, I must be the great; like everyone must adulate me, and that will cause you to behave wrongly in adapting with a problem?

Those kinds of things.

I think I have one last question—the woman in the back—Tim, and from your perspective, what makes a good partnership? And you’re evaluating, have a great co-founder, co-founding team, how to evaluate and then how to think about co-founders.

So the first thing is it's super important that you collaborate really well. That was the kind of the point I was making during the team— the initial part of it, because if you in fact don’t have pretty good, serious trust, you know, kind of a way of—hold on—it’s 150 now, so stand right, oh, 205. No, no, no, I’ll keep going; sorry, I misread the time, so I will have time for more questions. Sorry, I was trying to be trying to get the—

So, okay, let me give a little bit longer answer to this step. The key thing is when you’re thinking about founders, founders' founders is do you have a diversity of the necessary strengths across the whole range of strengths that would be useful?

Frequently you need one technical founder at least; frequently you need to have someone who is going to be dedicated to the business side, fundraising, these sorts of things; that’s kind of classically skill set when you think about the two to three. And usually it’s kind of some composition across them, and that’s kind of like what you think of as founders.

When you’re thinking about a founding team, when you get the next level deep—for example, one of the things that people will class with you will tell you is like for example don’t invest in a husband-and-wife team. Actually, that adds a little extra freight to it and everything else because, you know, there’s personal dynamics also upset what’s going on.

I actually think that what you’re looking for is do they collaborate well? Do they help each other get to truth, right? So for example, I am most heartened when I’m talking to a team that when they're reasoning to each other they’re not like: oh, we’re just all singing from the same thing. It's like: oh, did you think about this? Or what about this is a challenge?

You’re navigating the field of battle, which has a bunch of risks. Like, for example, one of the things that was pretty common in PayPal is Max, who invented the fraud systems and everything else, would frequently come into Peter’s office, Peter Thiel, Max Levchin, and say: look, here are some things that are going to kill us, and let me focus you on them.

Right? So it's not like we're all just kind of saying: oh yes, we’re all singing our cumbias. But we are adjusting to what is truth and what’s the problem we need to solve, what’s the problem the short term, what’s the problem in the long term, and how are we tackling it? And that composition with our team, that collective problem solving, that collective learning is the kind of thing that actually usually makes great teams.

I recall that Thiel says we are multiplying, how do we end up 140 characters? So I ask you the Italian part, to be punished given your second sub la my thinking, and the sum of the dominic including or how to collapse signs or the vision to mass or this company you say in common, this or any different founders, different areas; how do you identify them?

So the talk was aimed at kind of what is unique about the mindset, I think, of founders that is great founders across all founders. That's part of what this was attempting to say. Look, because there are differences—so for example in software, speed to market, speed to learning is really key. In hardware, if you screw it up, you're dead, right? So accuracy really matters because if you build and ship the wrong thing, you're hosed, right?

So generally speaking, as an investor—and this is part of the reason why a lot of investors have a certain set of things that they then learn pretty well and try to reapply because they try to understand a domain well enough to be able to identify which of the founders in this domain that really matter, and if we’re investing in this domain how do we do that well?

And so there are attributes that are unique per domain. So for example, you know, like one of the classic ones is how good must you be at operational efficiencies in terms of margins, cost controls, etc.? You’re dealing in the world of atoms, including even in commerce; you've got to be really good at that.

You're doing a digital gaming, like a Zynga, like straight up, doesn’t matter at all, right? So, and so you look for that kind of fit and proclivities, and part of the beginning of this is it's not actually in fact that it's one person as good at everything. I would be like one of the funniest conversations I had with a guy, a friend of mine who worked for me in my first startup, SocialNet, is he looked at me and he said: "We'd—I would never hire you to be a manager of McDonald's." I'm like, yeah, I wouldn’t either; I’d be terrible at that, right?

And so it’s the skill set that fits, but also the whole point of this is actually being navigating a set of things that look like paradoxes; sometimes being heavy on one, sometimes heavy on the other, and having the right judgment at the moment in terms of what you're doing.

And that’s what tends to be more universal. You will give your blanks to room; speak a little bit about how to know whether or not you should stay in or wake up as a way to give up? Also maybe like, so the question is basically how do you know when to pivot?

Part of the reason why having an investment thesis and your confidence in investment pieces and being pretty clear on that is, generally speaking, the answer that I give people is if your confidence is unmeasured for a fairly long time or is decreasing, because unmeasured for a fairly long time should be decreasing, and it’s decreasing, and then you go into intense mode where you’re trying to figure out what kinds of things you would do that would increase your confidence, right?

And that’s failing—that's a seriously good time to think about pivoting, right? And you might have a theses on can we raise money. You might have theses on will what’s the pattern by which the product distribution or growth or, you know, viral invitation or SEO or anything else will work?

And it’s like: well, I tried these three things and this fourth thing doesn’t seem as good as these three, and the next two things that I think about see we've been worse—that begins to decrease your confidence and that’s when you think about pivoting. A frequent mistake when it comes to pivoting is to wait until you've essentially crashed into the wall, and everything is dead, and you can’t make any—you can’t maneuver anymore. And that's—you waited way too long.

Now, in terms of personal career goals and so forth, you know, part of the thing that I would say that is one of the things that I had meant to talk to you during the slides, that since I missed her at the time, I rushed through it a little bit; one of the classic questions is balance. And I actually think founders have no balance.

One of the funniest conversations I ever had was with a governor of Colorado: "We are going to attract really great entrepreneurs here because we have this balanced lifestyle!" Like literally, if I ever hear a founder talking about: oh, this is how I have a balanced life, I’m like: you’re not—where they’re not committed to winning, right? And so, the only really great founders are like: I am going to literally pour everything into doing this. Now it only may be for a couple years; I may do this for a while and go do often, but while I’m doing this, I am unbalanced.

That this thing is honestly—you don’t take breaks. Not to say you don’t, you know, go on dates or whatever else but you’re super focused on this because it’s really hard and there’s lots of ways to die. That’s the reason why the jumping off the cliff metaphor is one of the ones I classically use.

So, it depends on maybe of identifying uncertain opportunities which others don't necessarily see. Overall, how efficient do you think the stars ecosystem is at identifying a good thing?

So, how good is the startup ecosystem in identifying contrarian opportunities? Um, let’s see; that's kind of challenged because at the moment it kind of actually becomes in vogue, it's less contrarian. I’d say it’s mixed sometimes because part of what makes a great investor is that ability to go look—take this radical shot, take this radical shot, and there’s enough people or investors, there’s usually someone if you can find your way to them—network.

Finding your way through network sometimes difficult; sometimes tons of noise make it hard to get the signal. On the other hand, there’s sometimes things that are just kind of like, you know, totally crazy.

Like, one of the funny things is, you know, Benchmark was the only one that would fund eBay. You know, if you talk to most of the people in the valley a year, 18 months ago about Bitcoin, they would have told you: like what? Bit—what? Do I have no idea what it is? And by the way still unclear how Bitcoin will play out, although I think the fact that there will be a distributed trust system on cryptocurrency is, I think, almost certainly going to exist in the world.

And the real question is: is Bitcoin the first or last cryptocurrency? For there’s new ones and new features last, because it’s the one that has Network effects and is already going. And so I think it’s pretty good with it.

Frequently, what happens is people think they're contrarian because they're doing something they think is in a unique combination. I’ll give you two examples, and hopefully the founders of these people who sent me these cool—I get about 30 pitches sent to me a day that I don’t basically don’t look at and let’s referral unless something in the title makes me laugh, in which case I look at it; mostly it’s comedy.

And I’ll share two comedy ones. One of them was wearable diapers, which was the, you know, you have the computer monitoring, you know, whether or not the kid is, you know, taking a pee or poop and they let you know, and you’re like: if you’re that far away from your child, then this kind of thing, it’s probably a bad sign of other things.

And then the other one was kind of customized e-commerce bongs. You're like: oh, I got a contrarian idea. Yes, you do, but not the highway, right? So, anyway, so you know, but so I think generally speaking the system is pretty good at it.

In the back, man, a head of diamond goes: how do you think about creating markets versus creating markets versus covering them?

Yeah, okay, so this is actually—it’s a challenging question. The the freaking—like this—it’s a good follow on the contrarian thing. Like frequently there’s this classic thing of: oh, does the market exist yet? Is that because it's going to be huge or non-existent? The good news is usually one or the other, right?

And so that means going after something that most people don’t think is a market but you have a reason to believe it is actually sometimes frequently a good—that. However, it can sometimes completely flame out. One of the things you're doing when you’re testing your investment thesis is what would lead me to think whether or not there’s a market there or not?

Because, you know, at the beginning, there are no markets. And so, though it is, of course, conceptually possible to create markets, people think that there’s a new need for this sort of thing on the other hand, the problem is how do you get fast adoption if people don’t even know that they wanted as a category?

Right? So they say: well, but people, they just realize—like a classic entrepreneur misfire; the classic one is: if people just real, like once it exists, they’ll realize that they really love it—and of all the lineup and droves for it.

Well, there are a few entrepreneurs; Steve Jobs is one of them who can do that. Most of the time, it doesn’t work out that way. And so you have to say: well, in your investment thesis, why is it that you think when you’re thinking about a market that isn’t already existent, that you know that other people don’t know on the contrarian basis that leads you to think that market should exist, right?

And so, for example, a micro one with LinkedIn was actually, in fact, the classifieds means of recruiting was in fact an exercise of newspapers and an exercise of information age, and actually recruiting direct to people is part of what the networked age and the Internet. And that’s actually, in fact, how recruiting should go.

Now, it was relatively easy to validate that, but, you know, that’s the kind of thing where you think about there’s potentially a new market.

Yeah, last question: when do you know you know someone long enough to start a company? From one of the things sent folders, in the first person, you need someone’s been put on time, but when you guys started PayPal, like for example, how long did you—?

It was a lot of group of people, so how do you know, okay, I trust these people not to start coming?

So, to read up, I’m repeating the question in part because of where it says recorded and everything else, make sure that people hear it. But the question that basically is how do you know that you trust someone well enough to be a co-founder? There’s a whole bunch of different variables that go into it.

And look, because one of the risks that you take and you kind of get to a thesis of do I think that I know them well enough now, I'll parallel one thing that I think there’s a parallel here that I think is super useful. So one of the things I tell my portfolio company CEOs or founders when they’re thinking about hiring a CEO is I think that the only way to do this is when you get down to the people that you’re thinking you may hire as a CEO. You spend 20-plus hours with them, right?

Where you go into as much depth in a conversation about anything you think is a possible difference of opinion, belief, work style. So you’ve identified all this upfront so that your—you’re jet—it’s not that you have a contract; it’s not like: oh, we’re signing a contract; that’s how we do it. But we’ve established a conversation; we’ve gone to all the parameters. We’ve had a conversion about what we might agree with the disagreement.

One of the things that I frequently think is worth covering is almost like kind of the divorce; like why would we want a divorce? What would lead me to say this isn’t working, right? And to cover that upfront as part of it because then at that point, when you get into the field of battle, which is hugely stressful, you go through this valley—in the moment, you’ve at least got the basis of we already conversed about a wide variety of things.

We’ve set up essentially some expectations about what you know, how we might be playing together. And if it begins they’re very off, it’s relatively easy to bring it up in a way that you’re problem-solving, and that’s the kind of thing that I think you frequently—you should be fairly confident that you have that level of trust.

For me, frequently, it’s to have a set of robust conversations such that it was like: like if something comes up later, it’s like we talked about this inversion; we can bring that up. So anyway, with that, thank you.