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

This is a continuation of Synopsis 3 of the Stanford University Blitzscaling course lecture given by Reid Hoffman, John Lilly, Chris Ye, Allen Blue and others.

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

Lecture 1: Introduction
Lecture 2.1: Startup growth stages, “family stage”
Lecture 2.2: Startup growth stages, “family stage”
Lecture 3.1. Michael Diaring. A bit from the history of entrepreneurship and management
Lecture 3.2. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 3.3. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 4.1. Ann Mura-Co: The Thunder Lizard Theory. Copyright value
Lecture 4.2. Ann Mura-Co: The Thunder Lizard Theory. Product, corporate and category value.
Lecture 4.3. Ann Mura-Co: Questions and Answers with John Lilly



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

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

Reid Hoffman: One gets the impression that McCallum was the first person to systematically deal with the expansion of the company.

Let's get back to our 1000 year schedule. It can be seen here that one bend is capitalism, and the second is the invention of technology, but their relationship is unclear. What do you think is more important - a system of material incentives or technology?

Michael Diaring: I believe that material incentives and technology are equally important. We tried to experiment, and saw that if you remove one component, both collapse.

Another aspect of this problem is that the set of people who are lucky to have money, who are lucky to have brilliant ideas, who are lucky to have managerial ambitions is a very small group of people. When you understand that an investor may differ from an inventor, and one from a manager, this allows for many connections that could not have been formed in a different situation.

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

Michael Diaring: We should consider what served as a substitute for venture capital - in particular, wealthy families.

One example is the Slater Mill, which was founded by Moses Brown, who created Brown University - he was the owner of textile production, but did not even imagine how spinning could be mechanized. Slater had technical skills and ingenuity, and therefore they were able to work in pairs.

Reid Hoffman: In fact, most of the elite venture capital funds came from wealthy families, and later the focus shifted to institutions.

Change the subject a bit. Your speech urges you to fight capitalism, creativity and creative destruction - but when should a person think about creating a startup?

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

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

If you notice in yourself both of these signals - this is a sign that you should start to do something.

Raid Hoffman: How do you test yourself to make sure you're working on the right idea?

Michael Diaring: I would suggest two options:

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

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

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

Michael Diaring: Founders who are fixated on competition tend to fixate on the wrong thing . If large company X is going to release a product that has the same characteristics as yours, it does not matter to you.

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

Raid Hoffman: Without taking into account large companies (unless you create a search engine, then you have to consider Google), startups should know what other startups do.

Given your view, what would you recommend for eBay?

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

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

Reid Hoffman: Some of Silicon Valley's top executives believe that companies should be organized based on market rather than team management principles. Do you support this view?

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

Reid Hoffman: Do the founders do it?

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

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

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

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

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

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

And again, change the subject. As for the creation of a startup - what should people think about themselves as founders?

Michael Diaring: I imagine this as the stages of life through which you will go through as a founder.

• Technical knowledge is at the core of the idea.
• Turning technical knowledge into a product for customers
• Turning a Product into a Company

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

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