Reid Hoffman (@reidhoffman) cofounded LinkedIn, the world’s largest professional networking service, in 2003. He led LinkedIn through its first four years and to profitability as Chief Executive Officer. Prior to LinkedIn, Reid served as Executive Vice President at PayPal, where he was also a founding board member.
Now a partner at Greylock Partners, Reid currently serves on the boards of Airbnb, Aurora, Coda, Convoy, Entrepreneur First, Gixo, Microsoft, Nauto, Xapo, and a few early stage companies still in stealth. In addition, he serves on a number of not-for-profit boards, including Kiva, Endeavor, CZI Biohub, and Do Something. Prior to joining Greylock, he angel-invested in many influential internet companies, including Facebook, Flickr, Last.fm, and Zynga.
Reid earned a master’s degree in philosophy from Oxford University, where he was a Marshall Scholar, and a bachelor’s degree with distinction in symbolic systems from Stanford University.
Reid Hoffman is one of the most respected and connected investors, entrepreneurs, and advisors in Silicon Valley. Lucky for us all, Reid has shared a small part of what he’s learned, penning two bestselling books (The Startup of You and The Alliance) and an ongoing series of essays on all things startup. Reid has more recently focused on “Blitzscaling” (i.e., the art of growing a company very rapidly), which is also the title of his forthecoming book on the subject of scaling companies. There is also a great series of videos on YouTube from the Stanford class he taught where you can watch lessons on this.
I jumped at the chance to hear his thoughts on boards of directors, CEO transitions, and other topics that founders and executives need to navigate amid the chaotic ups and downs of high-growth companies.
Elad Gil:You’ve seen quite a few boards in action. What do you consider their primary function?
Fundamentally, a board is the in-depth control of what is being set for the future of the company. Now, some people say—and it’s right in part—that the only responsibility of the board is to hire, fire, and compensate the CEO, because the CEO is what essentially expresses that forward strategy. The board cannot operate itself, so it’s done by the selection of a CEO and agreement with the CEO and so forth. But there are still parameters. The CEO doesn’t decide to say, “Oh, I’m just going to go and sell the company,” or, “I’m going to go buy this other company,” or, “I’m going to go deploy all my capital on X.” They have to talk to the board about it.
Part of the reason that that conception of the board is incomplete is because a board is not just standing as judge and jury. It’s actually people who are collaborating with you. It’s also an extension of your team. The board is a team of people in dynamic collaboration with the CEO, who, in a startup company, is almost always a founder. If the two founders hired a CEO, that CEO is essentially a third founder. And actually, as you’ve read, my view of the key thing in hiring a CEO is to look at it as bringing on a later-stage cofounder. 1
“The board is a team of people in dynamic collaboration with the CEO”
– Reid Hoffman
That’s actually the key thing that most people don’t think about in a CEO hiring process that’s really important to do.
When working with a board it comes down to saying, “Okay, what’s the game we’re playing?” Now, in all startups, the game we’re playing is “default mortality.” I use the metaphor that a startup is like throwing yourself off a cliff and assembling an airplane on the way down. In other words, the default is that you’re dead. You have to gamble your assets very strongly in order to create something that has ongoing and persistent value. Everyone is aligned on that in the early stage. Everyone is like, “Yeah, that’s what we’re doing. We’ve all bought into the same game.”
What gets complicated—and this is even before you get public—is when you have played that gamble and now have some assets. Maybe the asset is a team, maybe the asset is a market position, maybe the asset is a cash-flow business. Once you have assets, then the game is different. What’s the balance between managing the asset and not decreasing value versus deploying the asset, potentially at catastrophic risk, to get something better? That balance begins to shift.
By the time you get to public companies, public investors fundamentally think your responsibility is to preserve the asset value. This is part of the reason why turnarounds in public companies, like with what Marissa and Yahoo! were doing, are super difficult. Most people won’t even take that job, because actually, in fact, they would have to gamble a bunch of the assets in order to try to make it work. And yet if everyone’s like, “No you don’t. Just maintain and preserve the current assets as they are,” that’s super difficult to do while also getting to a high level of growth.
One of the things you need to consider, when you’re thinking about the board, is where you are on that spectrum. Are you in the gamble, willing to put real assets on the line, possibly all of them, for a high return? Are you about asset preservation—you’re trying to get as much growth as possible, but your first priority is to maintain the value of what you’ve got while growing it? Or is it a combination, with some real risk, together with upside?
Elad: In your experience, how can a board most effectively manage its relationship with the CEO? And what are some common pitfalls that you see?
Reid: One of the things that a lot of board members make a mistake on is—I use this way of describing kind of a red light, yellow light, green light framework between the board and the CEO. Roughly, green light is, “You’re the CEO. Make the call. We’re advisory.” Now, we may say that on very big things—selling the company—we should talk about it before you do it. And that may shift us from green light, if we don’t like the conversation. But a classic young, idiot board member will say, “Well, I’m giving you my expertise and advice. You should do X, Y, Z.” But the right framework for board members is: You’re the CEO. You make the call. We’re advisory.
Red lights also very easy. Once you get to red light, the CEO—who, by the way, may still be in place—won’t be the CEO in the future. The board knows they need a new CEO. It may be with the CEO’s knowledge, or without it. Obviously, it’s better if it’s collaborative. But this can range from a scenario where we’ve got the current CEO to agree that we’re looking for a successor, all the way to “Bob, meet Sue. Sue is the CEO. She starts today.” It can be that entire range, depending on the circumstances of the company, of the CEO, of the relationship between the CEO and the board.
Yellow means, “I have a question about the CEO. Should we be at green light or not?” And what happens, again under inexperienced or bad board members, is they check a CEO into yellow indefinitely. They go, “Well, I’m not sure…” The important thing with yellow light is that you 1) coherently agree on it as a board and 2) coherently agree on what the exit conditions are. What is the limited amount of time that we’re going to be in yellow while we consider whether we move back to green or move to red? And how do we do that, so that we do not operate for a long time on yellow? Because with yellow light, you’re essentially hamstringing the CEO and hamstringing the company. It’s your obligation as a board to figure that out.
The next thing is, when you think of a board as a team and not just people standing in judgment, its members need to ask, “Okay, what are the things that we do to add value?” One of the things that good board members do is go into every board meeting thinking, “What’s the thing that I can add?” Because a board is governance, but especially for early-stage companies, a board is also people that have serious expertise, capabilities, and networks that you couldn’t hire into the company. Given that, the big question for a board member should be, “How do I bring value to the company?”
Some of it is as simple as this: I’ll sit there with the company, they’ll present a pattern to me—like, here are our efforts, strategy, work, operations, etc.—and I will give them feedback. I might say, “Okay, I’ll introduce you to someone.” That’s one thing that you should certainly do. But that’s kind of like saying, “Well, the way that I’m going to be an executive is I’m going to show up, and when you present stuff to me in a meeting I’ll respond to it.” Just as we expect more of executives than that, you also have a more active responsibility as a board member. One of the metrics to hold up as a board member is to say, “Before I go into the board meeting, what’s the thing that I can bring that’s most helpful?” You might even do this more frequently than just at board meetings. It might be weekly. Because part of the reason why the company has me on the board is because I’m engaged in all this other stuff. I have this depth of industry experience, I have these network connections, I have my own brain cycles. How can I show up saying, “I’ve thought about this, and here’s something that I think is the best possible thing I can lay on the table.”
“One of the metrics to hold up as a board member is to say, ‘Before I go into the board meeting, what’s the thing that I can bring that’s most helpful?”
– Reid Hoffman
Now, it might be as a board member you say, “I think you should build product X,” or, “you should build feature Y,” or, “you should execute strategy Z.” Those are possibilities. But they should always be phrased as questions. For example, you might ask, “You know, I’ve thought really hard about the strategy that you guys have been doing, and the following thing strikes me as a risk. Do you think it’s a risk or not? I thought of a way to measure it, or to mitigate it. What do you think?” If you do it that way, it’s a conversation.
If the team is really, really good, you will very rarely discover something that’s totally new to them. They may very well respond, “We’ve thought about it, and X, Y, and Z.” And you say, “Oh, okay, great. I brought the best possible thing. You’re already on top of it. Let me help you through it.” But that cycle is still good.
On the other hand, because of your breadth of experience, your network connections, and so on, the team might say, “Oh wait, actually we hadn’t thought about it that way, and that is important to think about.”
Then, of course, it also gets down to priorities. For example, frequently when I bring up an idea like this in a board meeting, I’ll say, “Look, I don’t know. You should feel totally fine to say, ‘That’s interesting, but it’s not on the short list right now.’” You have to be careful as a board member, because it’s really easy to screw things up, in terms of the company’s priorities. One of your positions has to be “do no harm.”
Elad: How does this dynamic change, though, if the board has lost faith in the team, or more specifically the CEO?
Reid: Part of what happens is deciding when to make the call that the CEO is the wrong one. The CEO may make their own decision that they’re the wrong CEO. But when do you make the decision that the CEO is wrong? Frequently in startups this is a catastrophically bad thing. The board’s decision that the CEO is wrong essentially means, “We made a really bad investment decision.”
That being said, one really important thing for startups to succeed is to have someone who has the commitment, the moral authority, the dedication, the “I gotta make it work” drive. Usually hiring an external expert is a bad play, because they lack those critical things.
Elad: You’ve written some great articles on CEO succession and how some founders can step aside. 2 But if you’re a smaller or younger company and you come to the realization that the founder is the wrong CEO—or the founder decides “I’m the wrong CEO,” often you don’t have depth of bench within the organization. It’s hard to recruit somebody externally to take over that role. Even if the company is growing rapidly, it may still be too early. How do you think about that dynamic and bridging that?
Reid: The key dynamic—and it’s super hard—is one I learned through LinkedIn: you’re actually looking for a cofounder. You’re looking for a cofounder who may have a different skill set than the people who are part of the initial “family” or “tribe.” But you’re looking for, essentially, a cofounder.
There are various tests for cofounders. Like, “Would you do this job if we paid you half of what we’re paying you? Because you’re really committed to this thing?” That’s not to say you should pay them half, but you want someone who sees this as the thing they want to do. If someone came along and said, “I’ll pay you twice as much as you’re being paid now,” they’d say, “No thanks. This is the thing that I want to be doing.”
People with that much commitment are also willing to take more risks. Because all startups, they go through “valley of the shadow” moments, where everyone’s saying, “Oh, that’s really screwed up, that’s in a bad space, that’s really dumb.” Does this person say, “Well, hey, it wasn’t my idea?” That’s a professional manager. A founder goes, “No, I know I can make this work. I’m going to make it work. I’m going to take the extra risk, the extra difficulty, the sweat, the criticism. I’m going to play it through.” So those are the traits that you need.
“The reason you’re hiring a new CEO is there are new skill sets that are critically important. But if someone doesn’t have the founder’s mindset, they’ll be fundamentally, at best, in asset management.”
– Reid Hoffman
People frequently say, about hiring a new CEO, “Well, I’m hiring a skill set.” Skill set’s important—which level you’re at, your ability to make it work. The reason you’re hiring a new CEO is because there are new skill sets that are critically important. But if someone doesn’t have the founder’s mindset, they’ll be fundamentally, at best, in asset management. They’ll make sure that things keep running, keep going on a trajectory. But the ability to change the curve means taking a risk that a founder would take. That requires moral authority, but it also requires mental willingness—including risking hearing that, “You really screwed up, you’re doing this really badly.” You have to be willing to go through that in order to make it happen.
Elad: One of the things you mentioned earlier was that adding board members is adding to a team. So how do you think about board member selection? How do you approach that process and what do you look for?
Reid: It depends a little bit on stage, but there are a few key ingredients: First, you have to look at the whole board as a team. Part of how a board can be dysfunctional is that even if you have a good player, but they pull in a different way and add in a different element, then the team breaks.
At some point, you may very well go, “That person needs to be either changed or ejected.” Sometimes when I’m looking at a startup and there’s a problematic board member, I know that the primary role of the next board member—if the problematic board member can’t be changed—is to be a catalyst. You’ve already addressed in one of your posts how to trade a VC off a board, but that’s frequently very difficult.
Elad: It’s very hard, yeah.
Reid: The path that I usually suggest is to find a board member who changes the dynamic in a very healthy way. That’s usually another venture capitalist, someone with a lot of throw weight. Somebody who makes people say, “Oh, that person’s smart and capable.” And when they start going, “This is what we’re doing,” then the other board members will shift in that direction. That’s how I usually solve that problem. So that’s one key ingredient: You always think team dynamic.
Now, the second part of the team dynamic is that a board has to very much catalyze the CEO. I look at whether a prospective board member really extends the abilities of the CEO. Do they have a good partnership with the CEO? Roughly speaking, one of the tests I use on the CEO side is, would you want to spend an hour or two a week working with this person? You may not get an hour or two a week, but would you want to do it, trotting out the hardest problems? If that’s the case, and they would add a lot to the CEO, it kind of doesn’t matter whether they have, for example, payments expertise or organizational expertise. That amplification of the CEO really, really matters.
Sometimes the CEO says, “I don’t understand the banking industry and I’m doing this banking thing. I need to be spending the hour or two a week with someone who really understands the banking industry. I need that capability.” Or, “I know that we’re an enterprise company, so we need enterprise sales. And I don’t really understand enterprise sales that well, so I need someone who helps me grow and do the enterprise sales stuff well.” There will be a different set of things that will be important characteristics. But the key is that partnership with the CEO, which then spreads to the executive team.
The next thing you look for is: What are the key zones of expertise, networks, ways of thinking that add the most value into the company that you couldn’t hire for? Because if you can hire it, great, hire it. Add it into the genetics of the company. But there are a bunch of people like, for example, me or Peter Chernin—you can’t hire us into the company. That’s not doable. In that case, the board is the way you do that.
That’s the kind of thing that you look at when you’re building a board: What’s really adding to the company and adding to the CEO? It’s not just management of the assets, it’s also helping the amplification. And helping the amplification is helping the CEO, and the exec team, play the game the right way.
This interview has been edited and condensed for clarity.
- See “If, Why, and How Founders Should Hire a Professional CEO,” on Reid’s blog. [http://www.reidhoffman.org/if-why-and-howfounders-should-hire-a-professional-ceo/]
- See Reid’s post on “If, Why, and How Founders Should Hire a ‘Professional’ CEO.” [http://www.reidhoffman.org/if-why-and-howfounders-should-hire-a-professional-ceo/]