Reid Hoffman | Planning for Volatility | Summary and Q&A

TL;DR

Reed Hoffman discusses the impact of the pandemic on investing and entrepreneurship, emphasizing the need for adaptability and the importance of building a strong network for opportunity flow.

Key Insights

• 👶 Volatility is the new norm, and companies need to embrace adaptability and lightweight planning to navigate uncertainty.
• 🖐️ Networks play a crucial role in supporting portfolio companies and maintaining sales momentum during a downturn.
• 🎮 Companies should evaluate their strategies and consider whether they are playing a longevity game or a gold rush game in order to leverage the crisis to strengthen their market position.
• 😮 The pandemic has accelerated certain trends, such as the rise of virtual events and distributed work, which may have long-term implications.
• 🏛️ Graduates entering the workforce during a recession need to invest extra effort in building networks and staying adaptable to navigate the challenging job market.
• 🤨 The pandemic has raised questions about traditional economic theories and will test the resilience and anti-fragility of the financial system.
• 😤 Founders and employees need to be prepared for increased chaos and uncertainty, while leaders should focus on emotional connection and clear communication to guide their teams.
• 👾 Software startups still offer risk-adjusted and economically attractive opportunities, particularly in the areas of productivity, collaboration, games, and communications. However, blended atoms and bits startups also have important societal impacts.
• 🛟 The economy may see inflation and a distribution of asset devaluation, but the dollar is expected to retain its reserve currency status.

Transcript

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Questions & Answers

Q: How has the pandemic affected the venture capital industry, and what changes are expected in investing?

Hoffman explains that volatility has become more prevalent, making it harder to predict and rely on traditional investment patterns. Longer trajectories for scaling companies and a focus on adaptability are now important, with a shift towards more measured and lightweight planning.

Q: What advice does Hoffman give to portfolio companies in balancing short-term cash preservation and long-term investment?

Hoffman suggests using networks to stay connected and navigate the slower market. He recommends leveraging the network for awareness, co-investment, and support, as well as adapting to new markets or verticals that may arise during the pandemic.

Q: How can companies maintain sales momentum when selling into enterprises during a downturn?

Hoffman highlights the need for closer connections and a network-driven approach in navigating sales during this time. Deploying networks to measure market shifts and leveraging influencers can help companies maintain sales momentum and adapt to the conservative nature of enterprises during downturns.

Q: Can companies leverage the crisis to strengthen their market position?

Hoffman explains that companies need to evaluate whether their strategy is a longevity game or a gold rush game, depending on their competitive advantage and market dynamics. He advises companies to use the crisis as an opportunity to strengthen their market position by playing to their unique strengths and adapting to new circumstances.

Summary

In this episode of Grey Matter, Greylock General Partner and LinkedIn Co-founder Reid Hoffman discusses investing and entrepreneurship in the current economic, political, and public health landscape. He shares his thoughts on the changes and challenges in the VC industry, as well as the advice he gives to portfolio companies.

Questions & Answers

Q: What changes do you see coming to the VC industry as a result of the pandemic?

The VC industry will face uncertainty and liquidity challenges. There is a general presumption that the market will return to normal after a few months, but the truth is volatility. The states opening up may lead to a second wave of COVID-19. Investors will have to adjust their investment thesis due to the increased volatility and unpredictability. At Greylock, there are still investments being made, but it's harder to scale and there is a longer trajectory to reach Series B.

Q: What advice are you giving to portfolio companies during this time?

Companies should focus on adaptability rather than just scaling. In this volatile environment, it is harder to make long-term plans, so companies need to be more agile and adjust their strategies as needed. They should have a clear vision of how they fit into the changing world and take into account the volatility and uncertainty when making decisions. Balancing short-term concerns like cash preservation with long-term investments is important.

Q: How can startups selling to enterprises maintain sales momentum during a downturn?

It can be more challenging to sell to enterprises during a downturn as companies become more conservative and risk-averse. Startups should leverage their networks and connections to establish relationships and navigate the slower sales process. They should focus on providing value to customers and demonstrate how their product or service can address their needs in the changing market landscape. For example, retooling for different market segments or adjusting offerings to align with new market dynamics.

Q: Can companies leverage the crisis to strengthen their market position?

Yes, companies can use this crisis as an opportunity to strengthen their position in the market. In a volatile environment, there is a shift in the competitive game, and companies need to adapt their strategies accordingly. They should evaluate whether their game is a longevity game or a gold rush game and make strategic decisions based on the market landscape. Leveraging network effects, finding new opportunities, and utilizing unique advantages can help companies come out stronger in this crisis.

Q: How do you determine if a change in the industry or consumer behavior is temporary or long-term?

It is hard to predict the long-term impact of the current crisis on industries and consumer behavior. However, certain changes are likely to stick, such as the increase in virtual events and education, and the shift towards distributed work. Entrepreneurs need to evaluate the landscape, measure the changes, and make predictions based on the new environment. Some changes may be temporary, while others may have long-term effects. It requires constant measurement, adaptation, and leveraging network intelligence to stay ahead.

Q: Will the world economy change significantly in the next decade?

The world economy will undergo significant changes, and the massive stimulus being injected into the economy will have wide-ranging effects. There may be inflation and devaluation of assets, but the impact may vary across different industries and markets. The tech industry is likely to continue to grow and be a place of opportunity. It is hard to predict the long-term effects of the increased debt and stimulus, but entrepreneurship and innovation are crucial for driving economic growth and adapting to the changing landscape.

Q: Any advice for employees navigating changes and uncertainty in their companies?

Employees need to understand that volatility and chaos are expected in this environment. They should have a higher tolerance for uncertainty and be adaptable. Leaders should spend more time leading, be more personal in their communication, and establish clear priorities. Building a resilient and adaptive organization is crucial, and employees can contribute by understanding what chaos is productive and what should be eliminated. It is important to maintain an emotional connection and confidence in the company's direction.

Q: How will the current pandemic experience change behavior and consumption patterns in the long run?

The long-term impact on behavior and consumption patterns is hard to predict, but the current pandemic will have lasting effects. Graduates entering the workforce during this time will face challenges, but they can focus on building networks, adapting to new realities, and leaning into opportunities. It is important to stay optimistic and play smarter and harder in difficult times. The experience may change the way people approach networking and create new avenues for growth and innovation.

Q: If you were to start a company now, what space would it be in?

If starting a company now, Reid would focus on either the new world of productivity tools like Figma and Coda or the gaming industry. Software startups still offer a risk-adjusted and economically viable option. However, entrepreneurship in the blended space of atoms and bits or in communications can also yield great opportunities. The key is to have a strong long-term vision and an approach to reaching that vision effectively.

Takeaways

The current pandemic has disrupted the economy and created uncertainty in the venture capital industry. Investors are adjusting their strategies and focusing on adaptability in a volatile environment. Startups need to find ways to maintain sales momentum, leverage the crisis to strengthen their market position, and navigate changes in consumer behavior. Graduates entering the workforce need to adapt, build networks, and lean into opportunities. The world economy will undergo significant changes, and entrepreneurship will be crucial in driving economic growth and innovation. Employees should be prepared for volatility and chaos, and leaders should focus on clear communication and establishing priorities. Despite the challenges, optimism and hard work are key to success in these times.

Summary & Key Takeaways

• Reed Hoffman highlights the uncertainty and volatility brought by the pandemic, emphasizing that volatility is the new norm and that predictions about recovery are difficult to make.

• He discusses the changes in investing patterns, with a focus on longer trajectories for scaling companies and the importance of adaptability in the face of changing circumstances.

• Hoffman advises portfolio companies to balance short-term cash preservation with long-term investment and hiring strategies, and encourages them to leverage their networks for support and connections.