#248: The 10 Commandments of Startup Success with Reid Hoffman

On this special episode, we're going to share with you the "10 Commandments for Startup Success." They're drawn from the new podcast Masters of Scale https://mastersofscale.com/, which is hosted by my friend and today's guest Reid Hoffman (@reidhoffman https://twitter.com/reidhoffman). Reid has been on the show before http://tim.blog/2015/08/31/the-oracle-of-silicon-valley-reid-hoffman-plus-michael-mccullough/, and you might remember him as the co-founder of LinkedIn https://www.linkedin.com/in/reidhoffman, and the partner at Greylock http://www.greylock.com/team/ who invested early in Facebook https://www.facebook.com/, Airbnb https://www.airbnb.com/, Zynga https://www.zynga.com/, and a bunch of other startups that experience dramatic success. On this new podcast, Reid shares his theories on how companies scale from zero to a gazillion, and he tests them with famous founders like Mark Zuckerberg https://en.wikipedia.org/wiki/Mark_Zuckerberg of Facebook and Reed Hastings https://en.wikipedia.org/wiki/Reed_Hastings of Netflix https://www.netflix.com/. He and his team pulled together a special remix for us to use on today's show -- distilling the very best, most actionable advice from the first season of Masters of Scale into these 10 commandments. They've included a lot material that hasn't aired yet. So even if you're already a subscriber, you'll hear some new things here. Stick around after we count down the 10 commandments because Reid was kind enough to answer a few of my questions. Please enjoy! Show notes and links for this episode can be found at www.fourhourworkweek.com/podcast http://www.fourhourworkweek.com/podcast. This podcast is brought to you by Four Sigmatic http://foursigmatic.com/tim. I reached out to these Finnish entrepreneurs after a very talented acrobat introduced me to one of their products, which blew my mind (in the best way possible). It is mushroom coffee featuring chaga http://foursigmatic.com/tim. It tastes like coffee, but there are only 40 milligrams of caffeine, so it has less than half of what you would find in a regular cup of coffee. I do not get any jitters, acid reflux, or any type of stomach burn. It put me on fire for an entire day, and I only had half of the packet. People are always asking me what I use for cognitive enhancement right now -- this is the answer. You can try it right now by going to foursigmatic.com/tim http://foursigmatic.com/tim and using the code Tim to get 20 percent off your first order. If you are in the experimental mindset, I do not think you'll be disappointed. This podcast is also brought to you by Headspace https://www.headspace.com/tim, the world's most popular meditation app (with more than four million users). It's used in more than 150 countries, and many of my closest friends swear by it. Try Headspace's free Take10 program https://www.headspace.com/tim -- 10 minutes of guided meditation a day for 10 days. It's like a warm bath for your mind. Meditation doesn't need to be complicated or expensive, and it's had a huge impact on my life. Try Headspace for free https://www.headspace.com/tim for a few days and see what I mean.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  At this altitude, I can run flat out for a half mile before my hands start shaking.

• 0:06Speaker 01

  Can I ask you a personal question?

• 0:08Speaker 02

  Now, what is an appropriate time?

• 0:12Speaker 01

  I'm a cybernetic organism, living tissue over metal endoskeleton.

• 0:23Tim Ferriss?

  This podcast is brought to you by Four Sigmatic. I reached out to these Finnish folks, young entrepreneurs, very talented, after a acrobat introduced me to one of their products, which is mushroom coffee. The specific one includes chaga and lion's mane, and it knocked my socks off. I highly recommend if you try it, you start with half a packet. It's very strong and lights you up like a Christmas tree in the best way possible. People are always asking me what I use for cognitive enhancement, and for right now, this is the answer. I try to force this on all of my house guests. It is a hell of a thing. If I have employees or people come over who are working on projects with me,

• 1:04Tim Ferriss?

  I always try to feed it to them because I'm going to get the limitless effect and get a lot more out of them. The first time I mentioned this product and Four Sigmatic on the podcast, their product sold out in less than a week, so you may want to check them out soon if you're listening to this. And the coffee tastes like coffee. It takes just seconds to prepare with hot water, and oddly enough, only includes 40mg of caffeine, so it has less than half of what you'd get in a regular cup of coffee. I don't get any jitters, acid reflux, or any stomach burn, any of that. It's very unusual and very, very cool. So if you don't like caffeine, they also offer very strong but caffeine-free mushroom elixirs,

• 1:46Tim Ferriss?

  which I will sometimes have in the evening. I find chaga specifically to be very, very grounding and earthy. So that is another option, and I have a cupboard full of their products at the moment, which is right around the corner in my kitchen. You can try something, you can try a sample pack, which is great also, right now by going to foursigmatic.com/tim. That's four Sigmatic, F-O-U-R-S-I-G-M-A-T-I-C dot com forward slash tim, and use the code TIM, T-I-M, to get 20% off of your first order, and they're not that expensive anyway. If you are in the experimental mindset, I do not think you'll be disappointed, so try them out.

• 2:25Tim Ferriss?

  This episode is brought to you by Headspace, the world's most popular meditation app. I have it on my phone. I use it all the time when I'm in Ubers, when I'm in airplanes, when I'm in those in-between spaces and I want to do some good for myself. Across all of the guests that I've had on this podcast, more than 80% have the common behavior, the common habit of some type of meditative practice. It does not have to be complicated or expensive. Headspace is meditation made simple. I've used it for hundreds of sessions myself. It provides guided meditations that you can use whenever you want, wherever you want, whether on your phone, computer, or tablet. They have sessions that focus on everything from decreasing stress and anxiety to eating healthier, sleeping better, and even being more creative.

• 3:10Tim Ferriss?

  But I suggest you keep it simple, simple, simple. This has had a huge impact on my life. Try their Take 10 program. It is fantastic. 10 minutes of guided meditation a day for 10 days. It costs you nothing. Try it out and I promise, and I don't do this very much, that you will see a significant benefit from it. Download the Headspace app and train your mind for a happier, healthier life. Learn more at headspace.com/tim. That's headspace.com/tim.

• 3:46Tim Ferriss?

  Hello, boys and girls. This is Tim Ferriss and welcome to another episode of The Tim Ferriss Show where it is my job to interview, deconstruct, or showcase world-class performers of all different types and look specifically at tactics that you can use. Maybe those are favorite books. Maybe those are stories with really detailed specifics of their favorite failures and successes, the keys that got them to where they are, whether they are chess prodigies, incredibly good athletes, former generals, in the military that is, or business icons. And this episode, I'm really excited about. I'm using a new mic. That's how seriously I'm taking it. And I have literally 34 pages of notes

• 4:29Tim Ferriss?

  on this episode in front of me. And the title, or one of the potential titles, is The 10 Commandments of Startup Success. And there is a lot related to business. There's a lot related to life. And it features one of my favorite people. So there are two real components here. The main guest... Is Reid Hoffman, he's sort of in the driver's seat here. We're going to get to his bio in a second. There are really two parts. So there were six or seven questions I really wanted to ask Reid. And I sent them to him and he was able to answer those, which are related to what would you put on a billboard? What are your favorite or most recommended books? And many other things, the worst advice given in his various fields of expertise and so on.

• 5:15Tim Ferriss?

  The other part of it is drawn from a new podcast of his called Masters of Scale. And I don't listen to a ton of podcasts. There are a few, like Hardcore History, which you guys know. I listen to Joe Rogan. Masters of Scale is one that makes the cut. They're very bite sized and I actually recommended the Brian Chesky episode not long ago in my newsletter, Five Bullet Friday, which you guys can sign up for for free if you want. tim.blog/friday. But it is so detailed and really gets into the messy reality of building startup businesses, going from zero to hundreds of millions of users, for instance.

• 5:59Tim Ferriss?

  So I highly, highly recommend it. And I loved it so much that I connected with Reid and his team. And I asked them to put together a bunch of really tactical highlights. Now Reid has been on the show before. For those of you who don't know who he is, Reid Hoffman. And you can find him on all the socials, @ReidHoffman. So Twitter slash Reid Hoffman, R E I D Hoffman. LinkedIn, of course, and so on. He is often referred to as the Oracle of Silicon Valley. And this is by not just tech insiders, but the best in the game. And this is because his company building and investing track record is just otherworldly.

• 6:41Tim Ferriss?

  It includes as investments, very early Facebook, Airbnb, Zynga, Flickr, and many, many, many, many, many, many more.

• 6:49Tim Ferriss?

  He is co-founder of LinkedIn, which has more than 300 million users and sold to Microsoft for $26.2 billion. Prior to that, he was Executive Vice President at PayPal, which was purchased by eBay for $1.5 billion. There, his nickname was "Firefighter in Chief", which was given to him by then-CEO Peter Thiel. And noted venture capitalist David Zee, that's S-Z-E, also a very, very fascinating guy, says of Reed, quote, "He is arguably the most successful angel investor in the past decade," end quote. They're both now partners at Greylock Partners, a top-tier venture capital firm. So, what are you guys

• 7:31Tim Ferriss?

  going to get in this episode? You're going to get the new questions. And then you are going to hear Reed's theories, or I should say, principles on how companies scale, right? They go from ground zero all the way to gigantic, gigantic companies. And he's going to explore each of these principles, the Ten Commandments, with famous founders. Many of them you'll know: Mark Zuckerberg of Facebook, Reed Hastings of Netflix, Brian Chesky, Mark Pincus, and many, many more. You'll also hear from people like Sheryl Sandberg, and the list goes on. He and his team for Masters of Scale pulled together, like I mentioned, a highlight reel of tactical specifics. So, they distilled the very best, most actionable advice from

• 8:15Tim Ferriss?

  the entire first season of Masters of Scale, and they've included a lot of material that has not aired, and some exclusive clips from the cutting room floor. So, even if you're already a listener to Masters of Scale, you will hear plenty of new things here. So, just to remind you, you can check out Masters of Scale certainly in the show notes. It can be found everywhere, as well as I will redirect this to their best page, tim.blog/masters. So, if you go there, that'll take you to a page where you can find all of these episodes in their entirety, which I highly, highly recommend. And with all that said, as always,

• 8:58Tim Ferriss?

  you can find the show notes, links to everything that is mentioned in this episode, at tim.blog/podcast. So, I hope you enjoy this very special episode as much as I did. Thanks for listening.

• 9:14Tim Ferriss?

  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.

• 9:33Speaker 04

  I've been turned down 148 times.

• 9:35Speaker 05

  That's Katherine Minshew, co-founder and CEO of The Muse, a career development website that she pitched to investors 148 times. Not that she was counting.

• 9:45Speaker 04

  There were literally days where I had a no over breakfast, a no over a 10:30 AM coffee,

• 9:55Speaker 04

  a no over lunch, you know, disinterest at 2 PM, somebody who left a meeting early at 4:00, and then I would go to drinks and feel like I was being laughed out of the moon. And when we finally raised 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.

• 10:25Speaker 05

  Today, The Muse serves users in the millions. Katherine raised $16 million 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.

• 10:42Tim Ferriss?

  Most entrepreneurs hear a chorus of no's as they get started, and you have to expect it. And 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. Reid 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.

• 11:17Speaker 05

  The first truth of entrepreneurship and investing is that the very big ideas are 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. Right? That's not a good business model. So like in Airbnb, it's like, "Oh, someone's gonna rent a couch or room from someone else?"

• 11:59Speaker 04

  Um, what?

• 12:00Speaker 05

  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 there."

• 12:08Tim Ferriss?

  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 a different way, how do you interpret the no's? Reid has a great way of describing the kind of no that you do want. Apparently, you want a, what he would call, squirmy no. And Reid 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.

• 12:43Speaker 05

  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 of investors squirm. You don't have to get them to a yes, but you should detect some friction 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.

• 13:20Speaker 06

  I had a slide in there, I think it was like slide 14, where I talked about proactive, the acne system, as like a, kind of a good analogy to what we're trying to do. You know, it's the difference between kind of Gillette and Bevel as like Neutrogena and Proactiv. It's a system, it solves a very important issue. And this VC looked at me, and I'll never forget this, said, "Tristan, I'm not sure issues related to razor bumps, shaving irritation are as profound and big an issue for people as acne." At which point I said, you know, I kind of understand what you're saying, but all you had to do was get on the phone with 10 black men and eight of them would have said, this is a permanent thing I have to deal with. All you had to do is get on the phone with 10 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.

• 14:05Speaker 06

  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 got to move on until I find somebody who understood it.

• 14:15Speaker 05

  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 grates at them. It also wastes their time. Tristan will tell you he prefers a hard no to a comforting maybe.

• 14:41Speaker 06

  I mean, Silicon Valley investors will tell you all the time, we want to invest in people who can execute with some semblance of pedigree, chasing a significant white space and a big opportunity. For us, it was like, check, check, check, check. And we heard 99% no's. Like, how much of this is [BLEEP], 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.

• 15:04Speaker 05

  Tristan raises a really interesting question here. How much of this investor hemming and hawing as well, bull [BLEEP]? So what's really going through their heads? As a partner at Greylock, I want to share what happens after entrepreneur leaves a room and investors left them all over a crazy idea. It begins with a debrief of the investor's partners. If I'm presenting an idea to my partners at Greylock and they all go, that's great, we should do that. I'm like, [BLEEP]. 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,

• 15:48Speaker 05

  "Reed, you're out of your [bleep] mind." Because then you're wondering, hmm, 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 a polarized reaction. So take my decision to invest in Airbnb as an example. David Z told me during the Airbnb debrief.

• 16:10Speaker 07

  David Z is a partner at Greylock Investments.

• 16:12Speaker 05

  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. He invested in Pandora. He personally returned $2.5 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.

• 16:53Tim Ferriss?

  So you want to hear a squirmy no. The squirmy no refers to the kinds of no's that mean you're potentially on to something. But let's be honest, it's never easy to hear no. And sometimes it can be extremely excruciating, terrible. So Reed also asked a few entrepreneurs to talk about how they deal with rejection and how they learn from rejection.

• 17:15Speaker 05

  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 workday. You know, wake up, brush your teeth, listen to people crush your dreams. It's a living. But there's another, more hopeful approach. Our producer, Dan Kedney, talked with a number of entrepreneurs who pitched seemingly laughable ideas in all kinds of industries. Like Abby Folick, 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 2008, she was struggling to get funding, and she turned to a leadership coach for advice. We asked her to share that advice.

• 17:58Speaker 08

  The no's are actually a gift.

• 18:00Speaker 05

  You heard that right, a gift.

• 18:02Speaker 08

  And he said, between now and when we talk, two weeks from now, I want you to go out into the world and gather as many no's as you possibly can. 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.

• 18:24Speaker 05

  The most successful entrepreneurs listen closely to the no's. They mine their rejections for clues. Catherine Minshew, the founder of The Muse, got her share of rejections over the course of 148 no's she shared at the top of this episode. We asked her about the reasons that investors turned her down.

• 18:40Speaker 04

  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 going to lose all your users once they turn 30 and, you know, have babies? Or, you know, I get that women in New York and San Francisco love this product, but I think you're going to really have 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?

• 19:14Speaker 05

  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.

• 19:27Tim Ferriss?

  Commandment number two. Hire 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. Patience, he says, in this particular case, pays dividends.

• 19:55Speaker 09

  And one of the most important decisions a startup can make is who they hire, because who they hire becomes them. And so we interviewed people for core values. What this ended up in, and that meant we spent like four or five months to hire our first engineer.

• 20:11Speaker 09

  Back then, a lot of people thought we were crazy because times of the essence when you're a startup, you've said it's like jumping off a cliff and sending the airplane the way down. Imagine jumping off the cliff, trying to assemble the airplane on 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 100 more people like this? Because if I hire someone, they're going to interview the new people. And so, we thought of hiring as this mechanism where do I want to, if I could hire anyone in the world, would I hire the person sitting across from me? And do I want 10 or 100 more people like them?

• 20:54Tim Ferriss?

  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 Reid how he did it.

• 21:20Speaker 10

  So, the company was getting very large, very quickly. And I had suggested to Larry and Sergey 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.

• 22:01Speaker 10

  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 Super Bowl winners and football players because the discipline that they had in their lives as young people, men and women, to get to that point indicated that an extra set of discipline.

• 22:29Speaker 05

  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.

• 22:41Speaker 10

  So today, I would suggest that, and this has since been confirmed by many studies, that 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 is a very good predictor of employee success in a knowledge economy.

• 23:05Tim Ferriss?

  So persistence plus curiosity is one formula for hiring success. Mark Zuckerberg, the CEO of Facebook, has another approach. Here's what he told Reid.

• 23:15Speaker 11

  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 the tables were turned and you were looking for a job, would you be comfortable working for this person? And I basically think that if the answer to that is no, then you're doing something

• 23:58Speaker 11

  expedient by hiring them, but you're not doing as well as you can on that. You know, there are all these things that Sheryl, 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.

• 24:13Tim Ferriss?

  Of course, here, Mark is talking about Sheryl Sandberg, COO of Facebook. And she has her own take on this rule.

• 24:20Speaker 12

  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.

• 24:45Speaker 12

  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 he'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.

• 25:29Speaker 12

  Fifteen years, he's my boss, he's 15 years younger. Completely different personalities, completely different working styles. And I think that's served Facebook well.

• 25:37Tim Ferriss?

  Commandment number three. In order to scale, you have to do things that don't scale. And this commandment came from the very first episode of Masters of Scale with Brian Chesky. 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 to use a term the cool kids like, to finesse all of the touchpoints.

• 26:18Tim Ferriss?

  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 Chesky did. Brian took Reed back to his lean years, the early days, when he went door to door meeting Airbnb hosts in person.

• 27:03Tim Ferriss?

  So the clip we're going to hear starts with Brian recalling a conversation he had in 2009 with Paul Graham of Y Combinator fame, who gave him some perplexing, it seemed at the time, advice.

• 27:15Speaker 09

  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? He said, go to your users. Get to know them. Get your customers one by one. And I said, but that won't scale. If we're huge, we 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.

• 27:51Tim Ferriss?

  Brian and his co-founders followed his advice to the letter.

• 27:54Speaker 09

  We literally commuted to New York from Mountain View. So we would be in Y Com air for, was it Tuesday 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. And we had their addresses. And we'd say, knock, knock. Hello, hey, this is Brian, Joe, we're founders. We just want to meet you.

• 28:12Tim Ferriss?

  It's a little creepy just to knock on the door unannounced.

• 28:15Speaker 09

  We needed excuses to get in their home.

• 28:16Tim Ferriss?

  So they came up with an offer that the host couldn't refuse.

• 28:20Speaker 09

  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 have employed photographers. So Joe and I, we'd show up at their door and they're like, wow, this company's pretty small.

• 28:30Tim Ferriss?

  These home visits became Airbnb's secret weapon. It's how they learned what people loved.

• 28:36Speaker 09

  It's really hard to get even 10 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?

• 28:48Tim Ferriss?

  From those questions, a handcrafted experience is born.

• 28:52Speaker 09

  We'd find out, hey, I don't feel comfortable with a guest. I don't know who they are. Well, what if we added profiles? Great. Well, what do you want your profile? Well, 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 touchpoint by touchpoint. The creation of the peer review system, customer support, all of these things came from us. Literally, we didn't just meet our users, we lived 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.

• 29:20Speaker 05

  Yes. Was there a particular experience that has really stuck in your mind?

• 29:24Speaker 09

  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. Come on in. And we went there to photograph the homes. And we're like, hey, I'll upload your photos to the website. Do you have any other feedback? And he comes back with a book, with a binder. And he's got like dozens of pages of 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. And I think that always stuck in our mind as the roadmap often exists in the minds of the users you're designing things for.

• 30:04Tim Ferriss?

  As Airbnb grew, Brian never stopped hand crafting the user experience. At one point, to envision what Airbnb could become, he and his team imagined what he calls an 11-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.

• 30:41Speaker 09

  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 20 minutes. And if they never show up and you're pissed and you need to get your money back, that's a one star. You're never using this again. So a five star experience is you knock on 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 Airbnb, it worked. So we thought, what would a six star experience be?

• 31:26Speaker 09

  A six star experience, knocking the door, the host opens, hey, I'm Reid, 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 toiletries 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? Knock on the door, Reid Hoffman opens, get in, welcome, here's my full kitchen. I know you like surfing, there's a surfboard waiting for you. I've booked lessons for you. It's gonna be an amazing experience.

• 32:09Speaker 09

  And by the way, here's my car, you can use my car. And, um, you know, I also wanna surprise you, but I got you, this is best restaurant in the city of San Francisco. I got you a table there. And 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 would show up and there would be a limousine waiting for me. The limousine would, um, be like know all my preferences and it would take me to the house and it would be like a total surprise. So what would a nine star check-in be? A nine star check-in, I would show up to the airport and there'd be a parade in my honor.

• 32:52Speaker 09

  And I would probably have an 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 to the, to the house. So what would a 10 star check-in be? A 10 star check-in would be the Beatles check-in in 1964. I'd get off the plane and there'd be 5,000 high school kids cheering my name with cars welcoming me to the country. I'd 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 an 11 star experience be? I would show up to the airport and you'd be there with Elon Musk and you're saying you're going to space.

• 33:32Speaker 09

  The point of the process is that maybe nine, 10, 11 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 spot. 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 experiences.

• 34:01Tim Ferriss?

  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.

• 34:24Speaker 13

  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 kind. It's you have too much demand. The hard kind of blitz scaling is where 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,

• 35:08Speaker 13

  they took a long time to get the product right, but they were obsessed with that. And then when they did, all their effort is, okay, we have so much demand that without much more effort, we know this is going to keep growing 20, 30% a month for years. That's a real problem. It's a high-class problem, but it's still a real problem. How do we build that? So that is the kind of scaling that works and has generated Facebook, Google, I mean, a lot of, you know, it's the same playbook.

• 35:40Speaker 13

  I think the kind of blitzscaling that we have seen go badly is we have a mediocre product, we have raised hundreds of millions of dollars, and RVC is beating down our throats to hire more salespeople to grow faster. Any, any particular examples? I don't want to 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, we try to beat that idea out of people during YC, and thus, most of the mistakes in Silicon Valley of that sort in the last decade have not been ours.

• 36:18Tim Ferriss?

  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, 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 Altman's point, 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

• 37:03Tim Ferriss?

  them out, angel.co/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 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 pour gasoline on.

• 37:46Tim Ferriss?

  And that is certainly true, for instance, in the case of a number of companies like Uber. Just to take one, when I was initially interacting with Garrett 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, meaning through venture capitalists.

• 38:30Tim Ferriss?

  And that, I think, is a common characteristic among all of my best investments, at least the early-stage investments. So, back to the commandment. 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 a lot of conditions and 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, Reid 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 Nefesi, CEO

• 39:15Tim Ferriss?

  of Minted, and then the CEO of Eve.com.

• 39:18Speaker 05

  Silicon Valley's on fire, nothing bad can happen. My friend, Miriam Nefesi, is 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.

• 39:38Speaker 14

  Hello, who is this? This is a five-year-old girl, Eve Rogers. This is Eve. She gets on the phone. So I think, what on earth am I going to say to this five-year-old? So I said, hello. Hi. Could I buy your domain name? She was just saying to me, what? I don't really understand.

• 39:55Speaker 02

  Um, what?

• 39:56Speaker 14

  And 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 over like, I'm just gonna like watch her be tortured by my five-year-old for a while.

• 40:09Speaker 05

  Miriam turns this risky negotiation over to her lead investor, the legendary startup whisperer, Phil Gross.

• 40:15Speaker 14

  So he gets on the phone with her mom and he negotiated the purchase. And it was, um, you know, equiting the company, a board seat for her daughter, an observer board seat, trips to Ideal Lab to see Bill several times a year.

• 40:28Speaker 05

  You had a five-year-old observer on your board?

• 40:30Speaker 14

  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.

• 40:41Speaker 05

  If you were going to call your younger self, how would you have handled this negotiation differently?

• 40:45Speaker 14

  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?

• 40:53Speaker 05

  Once a year, twice a year.

• 40:55Speaker 02

  Maybe about 100 times a year?

• 40:58Speaker 14

  Yes, exactly.

• 41:00Speaker 05

  $50,000 plus Disneyland trips may seem like crazy expenses, but in my experience, every successful founder has a story like that.

• 41:09Tim Ferriss?

  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. Well, 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.

• 41:41Speaker 14

  I opened the doors. There's not a sale for an entire month. Nobody wants the branded stationery products that we'd spent most of our two and a half million launching because again, being conservative, I'd said, I know, I'll do an Eve.com, I'll put all these brands online, sign them up exclusively. We had exclusive distribution rights. Nobody wanted to buy them at all.

• 41:59Speaker 14

  Instead, the teeny weeny assortment that I had sourced through this one competition I had run, one transaction a week, then the next week there were two. We had sourced 60 designs through a 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 probably spent like a hundred thousand on what really became minted. It was this like little side thing and there was 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.

• 42:25Speaker 05

  Miriam stumbled onto the power of crowdsourcing. 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 2008, it wasn't understood very well. It was something Silicon Valley was just getting its head around.

• 42:44Speaker 14

  I realized that this crowdsourcing 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 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 haven't gone to school. They haven't gone to design school, they haven't gone to art school and they're massively disrupting art and design right now. And there is a meritocracy, a true meritocracy that you can actually build and unleash.

• 43:17Speaker 05

  Here, Miriam runs into another reason you need to raise more money than you think you need. Unexpected opportunities. Miriam's plan to start a lifestyle business just didn't pan out. She didn't have enough funding to cover a 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.

• 43:51Speaker 14

  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 is going to happen. You should go raise. So we just went out August. Who's in town? Anybody? Is anyone in town in August? So we went and raised money and closed it literally right before Lehman failed.

• 44:07Speaker 02

  Dow at the same time has fallen about 18%. It's getting hammered this morning. Between 3 and 4.5% generally across.

• 44:15Speaker 05

  Believe it or not, 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 2008. 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.

• 44:45Tim Ferriss?

  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 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've become fascinated by how he prioritizes speed in all areas. And to that point, I would love to read something from a piece called 10,000 Hours with Reid Hoffman, written by Ben Casnoca.

• 45:28Tim Ferriss?

  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 going to follow are Ben's. 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 shipped 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 to Ben. 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

• 46:13Tim Ferriss?

  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 care seriously about speed, you'll need to tell your people you're willing to accept the trade-offs. Reid 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.

• 46:57Tim Ferriss?

  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 OK 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." End quote. I'm going to reread that. And just for people who don't know, "foot faults," 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 foot fault. That is an error, right? So again, here's the quote from Reid to Ben, who was his chief of staff and handling a lot. "In order to move fast, I expect you'll make some foot faults. I'm OK 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."

• 47:42Tim Ferriss?

  And then Ben closes with, "I felt empowered to make decisions with this ratio in mind, and it was incredibly liberating." And here's a condition that I want to emphasize, Tim, that Ben also brings up. Here we go. Big companies are different. Reid 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 a strength. Thank you, Ben. So, back to Reid'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

• 48:27Tim Ferriss?

  them, and improving them with user feedback. iterate, iterate, iterate. We've all heard about this. Instead of waiting until 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 going to go back

• 49:08Tim Ferriss?

  and reread what they already read, you're not able to say, immediately update the user experience for the first 100,000 people who buy your book. So, you think about this, or at least I think about this slightly differently. All right? If we're putting out a book chapter by chapter, on the other hand, perhaps I would use 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 commandment in many people's minds, and Reid talked to him about it. Here's some audio.

• 49:52Speaker 05

  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's success. If Mark cares about anything, it's making sure his team moves with the swiftness of a teen hacker, releasing products that are anything but perfect so their audience can improve them.

• 50:18Speaker 11

  You know, 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.

• 50:30Speaker 05

  But how did he get Facebook's 17,000-plus employees to shed their perfectionist streaks? You're about to find out. 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.

• 50:45Speaker 11

  You know, I took this class, Rome of Augustus.

• 50:50Speaker 11

  And the final exam was around... They were going to 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. Uh-oh. So a couple of days before the exam, I was like, all right, I'm kind of 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.

• 51:14Speaker 05

  Wait a second, rewind.

• 51:17Speaker 11

  This isn't something like math where you could just show up and figure out how to do the problem on the exam.

• 51:21Speaker 05

  Who does that? In any case, with the exam fast approaching, you might expect Mark to cut back on the coding. Instead, he doubled down on it.

• 51:29Speaker 11

  I built this service where basically 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 I ended up passing that class.

• 51:57Speaker 05

  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 it 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.

• 52:31Tim Ferriss?

  So you have to unlearn how 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. Reid will also tell you, you have to be selective in the user feedback that you take into account and incorporate.

• 52:49Speaker 05

  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 their product to evolve for the mass market. That's one reason I encourage entrepreneurs to release a product 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 its 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.

• 53:32Speaker 05

  That's because you have to discern what users actually want. And Mark received an early education in the gap between what users say and what they do, particularly as he expanded his social network to new campuses.

• 53:48Speaker 11

  We'd seen this funny dynamic where we talked about how we started at Harvard, and then we'd launch at Yale. And then all the people at Harvard would be like, oh, come on, like them. 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? You know, it's like we're at Indiana University and Indiana State launches, and the people at Indiana University are like, come on.

• 54:10Speaker 00

  Seriously?

• 54:11Speaker 11

  So we kind of were used to this dynamic of people assuming that a change is like, why are you doing this? But then coming around pretty quickly.

• 54:21Speaker 05

  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 going to upload pictures about you. Other people are going to tag them. And when those other people tag them, your friends are all going to see them, possibly before you. Right? Do you want that product? Yes or no? Most people describe that way, say, "I don't want that product! No, no, no, don't want that product."

• 55:04Speaker 05

  And yet, everyone's super happy with that product. People systematically are very poor at predicting their own reactions to new things.

• 55:11Tim Ferriss?

  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? Reid explains.

• 55:32Speaker 05

  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 CEO to avoid breaking things on such massive scale. Thus, a new mantra was born. Move fast with stable infrastructure.

• 56:05Speaker 11

  Well, it's less catchy.

• 56:06Speaker 05

  But the best mantras do more than just sound good. They give you the resolve to make tough decisions.

• 56:12Speaker 11

  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 was move fast and break things. 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 going to do this by building the best infrastructure. So an engineer who comes from any company is going to be able to ship their product faster here and test it better and move faster and all these

• 56:57Speaker 11

  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.

• 57:14Speaker 05

  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 for mass experimentation on Facebook. How does it work exactly? One thing you should know about Facebook, it has many faces.

• 57:49Speaker 11

  At any given point in time, there isn't just one version of Facebook running. There are probably 10,000. Any engineer at the company can basically decide that they want to 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 10,000 people or 50,000 people, whatever is necessary to get a good test of an experience. And then they get a readout 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?

• 58:31Speaker 11

  It can even kick off qualitative studies and ask people how happy they are with with this version. At the end of that, the engineer 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 is good through layers of management before testing something frees people up to move quicker. If the thing doesn't work, then we 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 everyone else who's trying to build an improvement, that's the new baseline that they need to get against.

• 59:11Tim Ferriss?

  But when is it OK to experiment? Is it always OK? Is it possible that the risk or cost can be too high? Mark sets a pretty high bar for this.

• 59:20Speaker 11

  On a day-to-day basis, a lot of the decisions that I'm making are like, OK, is this going to destroy the company? Because if not, then let them test it, right? I mean, if the cost of the test isn't going to be super high, then in general, we're going to 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.

• 59:41Tim Ferriss?

  And Reid still holds more or less to his principle that you should be embarrassed by your first product release.

• 59:47Speaker 05

  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 had launched so fast that your product generates lawsuits, alienates users, or burns through capital without any apparent gain, you did, in fact, launch too soon.

• 1:00:16Tim Ferriss?

  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 no decision. And we actually alluded to this earlier with my story about Ben and Reid. This is something Eric Schmidt, former CEO of Google, learned when he was taking flying lessons.

• 1:00:40Speaker 10

  In aviation, they teach you to make rapid decisions, and they, over and over again, decide, decide, decide. It's better to make a decision than just take up the consequences. And that discipline helped me in the hard times when I was at Novell in a real hardcore turnaround.

• 1:00:55Tim Ferriss?

  It's also served him well in the freewheeling, 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.

• 1:01:13Speaker 10

  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 a staffing on Monday, a 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 at 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,

• 1:01:57Speaker 10

  and things congeal, they occur very slowly. But some of the greatest things happen very quickly. We made the decision to purchase YouTube in about 10 days. Right? Incredibly historic decision because we were ready, people were focused, we had an award meeting, we wanted to get it done.

• 1:02:15Speaker 05

  We have a word for these kinds of evasive maneuvers here in Silicon Valley. We call it an OODA loop. That's a fighter pilot term. It stands for observe, orient, decide, act. The fighter pilot who has the fastest OODA loop wins. The other one dies. If 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 themselves to the enemy's formation. Then he decides to perform a crazy aerial maneuver. He acts. And it confounds everyone. Score one for the free world. Now, I'm not suggesting that tech executives secretly want to blast each other out of the sky.

• 1:02:58Speaker 05

  What they do want is to perform slightly crazy, super fast maneuvers again and again. You'll often hear founders asking, what is the OODA loop of an organization or an individual? Because speed matters in combat and also in fast-moving industries.

• 1:03:13Tim Ferriss?

  Commandment number seven, be prepared to both make and break plans. In a fast-growing organization, leaders have to be ready to pivot, even though pivot sometimes is used as a word that can be a cover-up for anything. And I think it was Marc 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." Nonetheless, 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 we can agree on. Reid talks about this concept with Facebook's Sheryl Sandberg.

• 1:03:56Speaker 05

  The path to scale always unfortunately includes some broken promises, as Sheryl 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.

• 1:04:09Speaker 12

  I'll give you another silly example that I don't think is silly: birthdays. We celebrated everyone's birthday that day. Happy birthday.

• 1:04:15Speaker 00

  Happy birthday.

• 1:04:16Speaker 12

  Then it became that week. Happy birthday. Eventually, we had a huge sheet cake with quarterly birthdays. My team was 4,000 when I left, and everyone's name's on it. Happy birthday! 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 going to look like later, and do it now.

• 1:04:41Tim Ferriss?

  Sandberg's ability to recognize when a once-functional system has stopped serving the team's culture and productivity 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 founder of SoftBank might have mentioned at one point, but that company's systems and processes often need to be replaced when companies triple in size or hit multiples of 10. So say, if you go from 3 to 9 to 27, then at 100 people, at 1,000 people, and so on, systems need to be replaced or updated. And Zynga's founder, Marc Pincus, is excellent at stopping things when they're not working.

• 1:05:25Speaker 05

  By the time Marc launched Zynga, 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 his not always great ideas.

• 1:05:36Speaker 15

  I'll try anything and I'll kill anything and I'll kill it quickly. And I'm not going to let killing an idea kill a winning instinct. And so that was a really core idea that I'm still thinking about and learning as an entrepreneur. And I can see it playing out so often in people's companies.

• 1:05:53Speaker 05

  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.

• 1:06:04Tim Ferriss?

  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.

• 1:06:21Speaker 16

  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. It's 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 because everybody cared totally. And it ended up, the vote was 49.9% in favor of selling, 50.1% in favor of staying an independent cooperative.

• 1:07:03Speaker 16

  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.

• 1:07:21Tim Ferriss?

  Commandment number eight: Don't tell your employees how to innovate. And there are people who would 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. Many creative people find that 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.

• 1:07:52Speaker 10

  I think a fair statement is that the founders built the 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 and it's very casual. Of course, there's free food and everybody's sort of hanging out all day. And that graduate student culture, that sense that somehow 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.

• 1:08:30Speaker 05

  Amid this creative ferment, his job was simple. He just had to give employees a slight nudge to deliver on their promising ideas.

• 1:08:37Speaker 10

  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.

• 1:08:49Speaker 05

  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 shared 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 of the best ideas yourself, and uncertainty, because you can't always schedule innovation on a predictable timeline. I'm going to come right out and say it. If you're a control freak, you're going to have a hard time with this.

• 1:09:26Tim Ferriss?

  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.

• 1:09:38Speaker 05

  Eric took some radical steps to keep ideas flowing within the organization. This means empowering engineers and keeping management in check.

• 1:09:48Speaker 05

  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." Good luck. 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 20% of their work week to any project

• 1:10:33Speaker 05

  they'd like. 20% time was in some ways a logical extension of Google's graduate school culture. Managers, like research advisors, can set timetables and budgets for experimentation, but the staff, like the students, pick the research agenda.

• 1:10:48Speaker 10

  Many, many initiatives in the company have come out of 20% 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.

• 1:11:02Speaker 05

  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 20% time. But why exactly does it work?

• 1:11:17Speaker 10

  And while the rule says you can do anything you want to with your 20% time, these people are computer scientists and engineers. They're not going to veer too far away from their core business. And that is the genius of 20% time.

• 1:11:29Speaker 05

  The tendency of high-performing employees to use their 20% time productively is the well-documented genius of the program. But there's also a hidden genius of 20% time.

• 1:11:40Speaker 05

  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.

• 1:11:52Speaker 10

  So the interesting thing about 20% 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 100% of my 80% 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.

• 1:12:32Tim Ferriss?

  Commandment number nine: To create a winning company culture, make sure every employee owns it. This commandment is very often overlooked, especially at the startup 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 many of the founders, 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 750 million. So it was successful from an objective financial standpoint.

• 1:13:16Tim Ferriss?

  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 we get to some of the concrete corrections and where you can find a lot more about the specifics of that. But here first is how Reed would sum it up.

• 1:13:34Speaker 05

  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 Pure Software. Their management decisions had created a culture that rewarded the wrong behavior and retained the wrong employees.

• 1:14:08Speaker 17

  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++ to Java, but it 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.

• 1:14:47Speaker 05

  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.

• 1:15:02Tim Ferriss?

  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, as it very often, and I should say always does. And they went from a company that mailed DVDs to a company of streaming video and original content. The whole story is definitely worth hearing in the entire, say, unedited version that is found on the Masters of Scale podcast. But here, we'll stay focused on how this realization of his affected Netflix's culture and hiring practices. When Reed thought about growing the Netflix team, he already had a very clear idea of who he needed.

• 1:15:45Tim Ferriss?

  Here is Reed Hoffman to explain what Reed Hastings did next.

• 1:15:50Speaker 05

  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 optic cable, or maybe in the future Elon Musk's Neuralase. Regardless, you need people who can change the business model, fast. So how did Reed identify those candidates? It started with a now legendary document at Netflix, a collection of more than 100 slides known as the Culture Deck. These slides define exactly what the Netflix culture stands for, and who they're trying to hire, and what they can expect.

• 1:16:33Speaker 17

  The Culture Deck started about 10 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 this deck, 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 2007, 2008, we did that by posting it on SlideShare. But again, it was really just to be able to send a link to the candidates. And it's not very pretty, it's not very highly designed, doesn't look like it's an external

• 1:17:17Speaker 17

  marketing piece, but that authenticity, really, people liked in the outside world. And now, it's over 10 million views on SlideShare and continue to be studied around the world.

• 1:17:28Speaker 05

  And what were the unexpected benefits of having published it?

• 1:17:31Speaker 17

  Well, let'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 because they loved that, what we described in terms of freedom and responsibility, that might not have otherwise thought about us.

• 1:17:46Tim Ferriss?

  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.

• 1:18:01Speaker 17

  In team sports that really succeed, there often is a lot of warmth between the players. And so, it's emphasizing those 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 does something awful and goes to jail, your love doesn't stop. Okay? And that's just a difference, an 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.

• 1:18:44Tim Ferriss?

  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 Heffernan, former CEO of five tech companies, says this.

• 1:19:03Speaker 16

  There is often a belief among very successful, very competitive people that 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 brilliance and creativity. And I think pretty much everything about that's wrong. 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.

• 1:19:46Speaker 16

  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 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.

• 1:20:27Speaker 16

  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...

• 1:20:55Speaker 16

  You will do infinitely better than creating some kind of 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. But I see it especially, I have to say, among young men. And this belief that, oh, well, it'll all, you know, if everybody's, if everybody's competing, everybody will get faster. I think it's a catastrophe. And I see it bring down really tremendous companies that get so lost in the fight, they

• 1:21:40Speaker 16

  forgot why they were there in the first place.

• 1:21:42Speaker 05

  I totally agree. And I actually think one of the key things that companies do at scale in order to try to set against this, because there's always the kind of the how do I win, is kind of a culture, is to say that, that part of the dialogue in performance reviews and in culture and in compensation is, how did you help other people? And in particular, how did you help other people outside of the specific team you're in? Right? And I think that's actually, I'm really glad to ask you that question, because I, I think that what you just said is super critical.

• 1:22:18Speaker 16

  Well, it's really interesting. I remember I was speaking at a conference and on this subject, and in the Q and A, someone said, well, you know, how would you find people like that when you're interviewing them for jobs? 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.

• 1:22:38Speaker 05

  Yep.

• 1:22:39Speaker 16

  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.

• 1:23:08Speaker 05

  Yes.

• 1:23:09Speaker 16

  And you can't remember one of them?

• 1:23:11Speaker 05

  Yes, exactly.

• 1:23:13Speaker 16

  And of course, actually, seeing the praises of people who've helped you is an absolutely joyous task, right?

• 1:23:22Tim Ferriss?

  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 10th 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.

• 1:24:01Speaker 05

  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 is less reliant on brute force. 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 want to be more like Indiana Jones, somersaulting under blades, racing a few steps ahead of a rolling boulder and swinging your whip until you reach your holy grail.

• 1:24:45Tim Ferriss?

  Of course, the hardest time to show grit is when you need it the most, when the situation seems dire, when the odds seem entirely stacked against you. Reid 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.

• 1:25:03Speaker 05

  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-it-ness 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 this 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 going to win it, but if you win it, you're going to be a hero. And so, the question for you is, are you a hero? And most people, when they kind of hear that speech, they kind of go... Yeah, right? Because that's what they want to be. That's why they're doing this. They want to be a hero.

• 1:25:48Speaker 05

  So you're giving them the 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 who don't resonate with that, you want them off the boat.

• 1:26:03Tim Ferriss?

  Bonus commandment number 11. 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 of extra cash on hand in some cases. Because Reid 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.

• 1:26:49Tim Ferriss?

  In this next clip, Linda Rotenberg explains how she sees this. She's the CEO of Endeavor, and her passion is supporting entrepreneurs around the world. And Linda's 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 in whether a startup scene, ecosystem, or city thrives or not.

• 1:27:10Speaker 18

  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 that's when you see a multiplier effect.

• 1:27:39Tim Ferriss?

  Linda has a great story about this.

• 1:27:42Speaker 18

  It was really in 2000 when I got called into a room 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 12 individuals. And before I walked in the room, someone said to me, Lynda, 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, it was Lorenzo Zambrano of CEMEX, Carlos Slim of all the telecom, Emilio Scarras 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?

• 1:28:22Speaker 18

  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 Endeavor, 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 Scarras, one of his magazines, had a study on, survey on entrepreneurship in the country. And the headline was, Big Fish Feeding the Little Fish.

• 1:29:03Tim Ferriss?

  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 Reed 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.

• 1:29:34Speaker 05

  One of the quotes that I most love is this simple, almost haiku. If I am only for myself, what am I? If I am not for myself, who will be for me? If not now, then when?

• 1:29:48Tim Ferriss?

  What is the book or books that you've given most as a gift?

• 1:29:52Speaker 05

  Obviously, I give out my own books, you know, fairly often. The Startup View, The Alliance. Recently, I've been giving out another book, a friend of mine, Joshua Cooper Ramos, The Seventh Sense.

• 1:30:04Tim Ferriss?

  What fiction books have you reread or recommended the most?

• 1:30:07Speaker 05

  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 hobbits, these little people, in a hero's 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.

• 1:30:36Tim Ferriss?

  Is there a book that has most impacted your life?

• 1:30:39Speaker 05

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

• 1:30:52Tim Ferriss?

  What have you changed your mind about in the last few years, and why?

• 1:30:56Speaker 05

  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 going to have a huge impact in our lives. I was an artificial intelligence undergraduate and major, and more or less thought it was going to be some interesting toys and not going to create something massive.

• 1:31:37Speaker 05

  And yet, as the five years goes by, as 10 years goes by, as 20 years goes by, I think we're going to see massive transformation in many industries and many parts of life that come from it. I'm not yet at a view that we are on a short path to artificial general intelligence machines, but the impact that the old techniques now applied is going to have in our life is going to be ferocious. And that's something I rediscovered.

• 1:32:08Speaker 05

  In the last few years.

• 1:32:09Tim Ferriss?

  What purchase of a hundred dollars or less has most positively impacted your life in say the last six months or from recent memory?

• 1:32:16Speaker 05

  This is going to sound a little strange, but my trainer started recommending that I add moringa leaf powder to my tea. And that's actually added a rich antioxidant, anti-inflammatory, and a little bit more substance such that drinking tea now feels a little bit like a snack and is super healthy.

• 1:32:36Tim Ferriss?

  What advice would you give to a college senior about to enter the so-called real world?

• 1:32:41Speaker 05

  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, a 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.

• 1:33:15Tim Ferriss?

  What advice would you give to a smart, aggressive 30-year-old, assuming that in both cases they're similar to how you were at that age?

• 1:33:22Speaker 05

  For the 30-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 30-year-old.

• 1:33:58Tim Ferriss?

  How has a failure or apparent failure set you up for later success? Do you have a favorite failure of yours?

• 1:34:06Speaker 05

  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, SocialNet. 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, SocialNet, was literally one of those experiences

• 1:34:47Speaker 05

  where when you say, "Oh, it's a learning experience," it really does mean lots of scars and lots of blood on the floor.

• 1:34:54Tim Ferriss?

  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.

• 1:35:03Speaker 05

  So the classic mistake that people say and that entrepreneurs do is they 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

• 1:35:48Speaker 05

  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.

• 1:35:56Tim Ferriss?

  What is an unusual habit or an absurd thing that you love? For instance, Cheryl Strayed needs to perfectly layer each sandwich so that every bite includes every ingredient.

• 1:36:06Speaker 05

  You'd think, I'm a software guy, I'm a digital guy, that everything is digital recording. Well, I found this little shop in New York, this online, called the Unemployed Philosophers Guild. And they sell these little notebooks, you know, like the Plato's Republic, and Alice in Wonderland, and Pangaea Passport. And actually having these little highly-designed notebooks that kind of have these literary references that are the things that I write notes on, that's an absurd thing that I actually love.

• 1:36:40Tim Ferriss?

  What rules or criteria do you use to determine what to say yes to?

• 1:36:45Speaker 05

  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. It's got to look, "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.

• 1:37:29Speaker 05

  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 a little bit like being stimulated and then suddenly having a new epiphany or a new vista open for you. And so, always leaving room for some serendipity. Now, of course, between all of that, you know, the usual thing is that in every particular hour slot in my calendar, there are at least 10 things that are competing for it.

• 1:37:59Tim Ferriss?

  All right, folks, that's it. So, thank you again, Reid. It's always wonderful speaking with you, learning from you, and congratulations on the new podcast, among many, many other things. And for everybody listening, there's always more to learn. If you liked this episode, you might want to check out and subscribe to Masters of Scale. I love it. It's on my phone. I listen to it on the way to get my morning coffee, for instance. It's a great companion. And you can check them out on iTunes, everywhere podcasts are found. And if you want just a short link, you can go to tim.blog/masters, and it'll take you to where you can find all sorts of additional information. And if you liked this format

• 1:38:39Tim Ferriss?

  of this episode, meaning highlight reels, commentary, all that kind of stuff, let me know, and we will do more. And as always, you can find show notes, links to everything mentioned at tim.blog/podcast. And until next time, thank you for listening.

• 1:38:59Tim Ferriss?

  Hey, guys. This is Tim again. Just a few more things before you take off. Number one, this is Five Bullet Friday. Do you want to get a short email from me? Would you enjoy getting a short email from me every Friday that provides a little morsel of fun before the weekend? And Five Bullet Friday is a very short email where I share the coolest things I've found or that I've been pondering over the week. That could include favorite new albums that I've discovered. It could include gizmos and gadgets and all sorts of weird shit that I've somehow dug up in the world of the esoteric, as I do. It could include favorite articles that I have read and that I've shared with my close friends,

• 1:39:40Tim Ferriss?

  for instance. And it's very short. It's just a little tiny bite of goodness before you head off for the weekend. So if you want to receive that, check it out. Just go to fourhourworkweek.com. That's fourhourworkweek.com, all spelled out, and just drop in your email, and you will get the very next one. And if you sign up, I hope you enjoy it. This episode is brought to you by Headspace, the world's most popular meditation app. I have it on my phone. I use it all the time, when I'm in Ubers, when I'm in airplanes. When I'm in those in-between spaces and I want to do some good for myself. Across all of the guests that I've had on this podcast, more than 80% have the common behavior, the common habit of some type of meditative practice.

• 1:40:23Tim Ferriss?

  It does not have to be complicated or expensive. Headspace is meditation made simple. I've used it for hundreds of sessions myself. It provides guided meditations that you can use whenever you want, wherever you want, whether on your phone, computer, or tablet. They have sessions that focus on everything from decreasing stress and anxiety to eating healthier, sleeping better, and even being more creative. But I suggest you keep it simple, simple, simple. This has had a huge impact on my life. Try their Take 10 program. It is fantastic. 10 minutes of guided meditation a day for 10 days. It costs you nothing. Try it out and I promise, and I don't do this very much, that you will see a significant benefit from it.

• 1:41:06Tim Ferriss?

  Download the Headspace app and train your mind for a happier, healthier life. Learn more at headspace.com/tim. That's headspace.com/tim. This podcast is brought to you by Four Sigmatic. I reached out to these Finnish folks, young entrepreneurs, very talented, after an acrobat introduced me to one of their products, which is mushroom coffee. The specific one includes chaga and lion's mane. And it knocked my socks off. I highly recommend if you try it, you start with half a packet. It's very strong and lights you up like a Christmas tree in the best way possible. People are always asking me what I use for cognitive enhancement and for right now, this is the answer.

• 1:41:51Tim Ferriss?

  I try to force this on all of my house guests. It is a hell of a thing. If I have employees or people come over who are working on projects with me, I always try to feed it to them because I'm going to get the limitless effect and get a lot more out of them. The first time I mentioned this product and Four Sigmatic on the podcast, their product sold out in less than a week, so you may want to check them out soon if you're listening to this. And the coffee tastes like coffee. It takes just seconds to prepare with hot water and oddly enough, only includes 40 milligrams of caffeine, so it has less than half of what you'd get in a regular cup of coffee. I don't get any jitters, acid reflux, or any stomach burn, any of that. It's very unusual and very, very cool. So.

• 1:42:36Tim Ferriss?

  If you don't like caffeine, they also offer very strong but caffeine-free mushroom elixirs, which I will sometimes have in the evening. I find Shaga specifically to be very, very grounding and earthy. So that is another option. And I have a cupboard full of their products at the moment, which is right around the corner of my kitchen. You can try something. You can try a sample pack, which is great also, right now by going to foursigmatic.com/tim. That's foursigmatic, F-O-U-R-S-I-G-M-A-T-I-C.com/tim, and use the code TIM, T-I-M, to get 20% off of your first order. And they're not that expensive, anyway. If you are in the experimental mindset, I do not think you'll be disappointed. So try them out.