Video Of The Week: Building Global Companies Quickly
Bloomberg’s Emily Chang did a great interview with Reid Hoffman earlier this week. I first caught some of it on Bloomberg’s TV channel. I cannot find the entire video but parts of it are available on Bloomberg and YouTube.
Here’s a segment I like where Reid talks about a course he’s teaching at Stanford on rapidly scaling global companies and how different types of companies require different strategies to do that.
Update: Emily sent me a link to the entire interview on Twitter this morning. It is here
I’m not sure I would agree that the globalization of network effects for Airbnb is different than for UBER. Both need a critical mass of local inventory on the supply side to succeed, as well as engaged users trying these services.
Airbnb is about travel as a destination, and Uber is about transport in a destination.taxis don’t have wings.
OK. but once on the ground, the network effects/liquidity requirements have similar characteristics, no?
yes. i think Hoffman’s emphasis is that the nature of travel as a destination naturally drives the globally spread of the service.transport in a destination (without wings) is within local boundaries. probably the vast majority of Uber users in any given city live as residents of that city (that’s a hunch, i don’t have numbers). Uber has to parachute itself in to every new market (city), whereas Airbnb can rely upon its customers to do the parachuting as they travel widely.
True to some extent, but I would be curious to find out the ratio of travellers vs. locals that use UBER in a given city.
me too. hubs like London probably have a lower percentage of residents using the service compared to provincial cities.
I agree. Most London residents, like me, prefer to use Hailo (the black cab app). Uber seems to be predominantly a tourist / visitor service.
.I use Uber in ATX and not as much in NYC.JLMwww.themusingsofthebigredca…
what do you use in NYC?
It’s actually about networks effects.Airbnb, possesses a much easier challenge for rapid international growth as their market segment is that of the average traveler visiting national and international cities. With that comes an automatic built-in international growth mechanism. Where as some of Uber’s highest valued customers may never visit another city or go abroad in years. So therefore Airbnb has to work quite a bit harder to expand their international business at a rapid rate. They’re also faced with tackling all the regulatory issues and disrupting a century old business in each city which also adds to substantial difference between the two.I can somewhat relate to both Airbnb and Uber as I ran an international concierge service startup started around the same time as both companies started. I identified that the business possessed international network effects of frequent travelers, like Airbnb, as users would mostly use the service while traveling. But like Uber, I quickly discovered the financial challenge of deploying large numbers of “troops on the ground” needed to expand an international tech/service company.
Hosts can be travellers, travellers can be hosts. I imagine most Uber riders aren’t drivers.Sure, people using Uber can go to a different city and use the app – if they’ve launched there – however Airbnb is launched wherever there’s a host.
The answer to why these companies are dramatically different lies in the question:Are the supply side of each of these a community that creates network effect on the supply side?Therein lies the truth.
Plus both are saddled with burdensome local regulatory issues
In my views the main difference is how the driver / host side of the market develop. In the case of Uber, they need a sizable market in a specific city to be viable. If they don’t reach that size quickly enough, people won’t use Uber and less driver will want to be affiliated with Uber.In the case of AirbNb, you don’t need that critical mass. A single host in a country could still receive business from people traveling and can be viable.In some ways, Uber has a stronger local network effect, so it needs to accelerate its growth when launching in a city. AirBNb has a stronger global network but might take longer to be used by local for local housing until the market reach a critical mass.So similar network effect, but a different way to go about it.
I agree with your characterization of how they develop.
Scaling quickly before you’re ready is a real danger – you must prioritize resources efficiently and where they have the most immediate long-term value.
perhaps Airbnb and Uber should merge. the global mobile home taxi service.
Reid Hoffman is by far one of the most prolific thinkers in the startup ecosystem in the US. Agree on his points on Uber’s inherently local marketplace vs. Airbnb’s inherently global ecosystem. The one thing I will always disagree with many VCs, is that obsession on focusing on growth, as if nothing else matters, both Uber and Airbnb seem to have negative net income. Can they turn the switch and actually become profitable who knows?
I agree there was actually a good NYTimes article about unicorpses: http://www.nytimes.com/2015…The challenge is this: When you are a company like Uber you really do need VC money to replicate your success and get ahead of your competition. Perfect example: prove your success in one city and then get to all cities and get people so used to using your product that it becomes a default. Costs a bunch of money.But here is the big question: Do you get ahead of yourself? That is easy to do and hard to recover.What I mean by that is that sometimes when you are doing that hyper growth you think the more people the better. So as points and figures says you go from 2 to 40. I don’t know what the right number is, but what I do know is that it is easy to overshoot, and when you do that it is painful to shrink. The biggest pain is you tend to cut at the doer not manager level (managers control the cuts) and that becomes a spiral the other way.
To your point in that article (which I read yesterday) it talked about the depressing mood at Living Social as a result of the layoffs. Well they took a shot at it and lost out it seems. Of course everyone who was at the top, like a failed VP candidate, will come out ok in the end. Always good to have a failure like that on your resume as opposed to something smaller than nobody has ever heard of that is a success. As far as people further down the chain maybe not the case. Most importantly all done with other peoples money. The thing that people involved lost was time. If you are young that’s not as valuable as when you are old and you can move on.Having been involve in a business years ago that offered discount coupons and having extensive experience selling to small business in the past it doesn’t surprise me at when I hear about the problems that they are having. But then again when I was doing that I didn’t have a boatload of money to paper over any problems that were encountered and obviously couldn’t incur loses.
Yes but that is the issue. If they got to 500 people lets say stopped they would still be less than the 800 and attitudes would be great. Instead you lay off more than half your staff the other half is under water, you are left with those that have no alternative.
The discipline and foresight to avoid the bloat — like not hiring every time someone leaves and a job is “open” — is not part of the hero story currently being told about building a company. #sigh
It’s about not hiring the person in the first place. I see how it can happen your VC’s are telling you, the “top” managers from big companies are telling you, even your employees are telling you.The biggest problem comes during the layoff (even Twitter just had one). You get rid of some good people, and are left with some people that are good at politics, that causes other good people to question what they are doing and leave, and you start to get more politics,Invetiably too many managers stay and too many doers get let go so the ratio of getting managed to doing goes up, and more doers leave, which causes sales to lag.So they cycle of politics versus work, too many managers, and not enough doers starts to spin.
Amazing how much credit one can get for squandering other people’s money. Living social literally killed the goose (Merchants) that laid their golden eggs (rev share)
it feels lke Uber is playing a constant game of whack the mole across the planet, moles being regulators and incumbent taxi companies. a bit of a slog, and then something new might come along and undue all their hard work. it feels like a race against time, and for some odd reason i sense that Uber might fail to achieve a dominant position.
I don’t care what anybody says: Uber has made my life as a traveller so much better. People talk about safety….are you kidding me? I know the driver who has been rated versus getting in a car with a random person that smells and the car is filthy??My only worry is they get to the point where all they do is spend money and not make money. I think their cut from the driver is too much and right now drivers tolerate due to the incentives, but like living social and groupon that goes away rather quickly.
I love Uber too, though my last two trips to JFK in NYC surprisingly cost more than a yellow cab, without surge pricing. That shouldn’t be. (Flat rate $52, Uber $69)
Anecdotally I think they are raising prices. I have no idea what their finances are but if they look like the Living Social article that is ugly.
Good NYT article. How do these companies expect to be successful when they offer no legit points-of-diff vs. competition? They’re fundamentally parity products. How/why are they even being funded? Look at the music and rides share industries, for example. Way too many players in each category jockeying for share w/out meaningful leverage points. Many of these companies will go under. The media portrays Apple Music as a bust. Does anyone really think that Pandora and others can compete w/ Apple’s deep pockets? (They can afford to operate at a loss for eternity if need be.) Apple’s model frankly is the right one for sustainability, but unfortunately they’re late to the party. Freemium is killing the music biz as not enough consumers are up selling to premium.
The thing that strikes me is the losses. $737mm in expenses $238mm in sales. $1B in expenses $350mm in sales. I mean those are staggering.
Well in theory if you corner a market or provide a really good service you can then jack up pricing once the competition ceases to exist.Amazon is in this position. It is my default choice and I will even pay a bit more for the convenience and certainty. And actually in all honesty I almost never compare their prices for the vast amount of purchases that I make. Any there is nothing unique or revolutionary at all about this strategy. I did it in past businesses that are service based or where quality and speed matter. You get your foot in the door with a low price on the first job or initial relationship and then once you have gained trust you raise your price. The guy who does painting for me does this as well. Take a loss or break even on the first job and then make it up with future work (or with referrals).
Yes, but to have this strategy work you have to be ruthless on costs. Amazon is if you review the working conditions in their warehouses, same for Walmart. What many of these companies miss is controlling those costs. Its much easier to spend money than not.
One thing he said that is interesting-Uber puts together city teams and scales inside a city quickly. I saw that happen in Chicago. They had two desks in a co-working space and by the time they got their own office, they had over 40. One things that Reid didn’t talk about in this clip is the other side of the equation-resources and the ability to manage. Startups are very constrained. Learning curve effects don’t hit until after Series A rounds usually. How do you map a strategy to roll out cities given constrained resources-and how do you manage a workforce that isn’t concentrated in one city?
Thanks for the kind words, Fred. Here is the full video of my interview with Reid Hoffman: http://www.bloomberg.com/ne…
Nice job. Preparation makes for a Great Interview.Overvaluation is like a bad politician. It’s always the other VCs portfolio that is overvalued. By definition if a VC invests in a company it’s not overvalued.
Great interview Emily. Really liked the thoughtfulness of your questioning — you must be breathing and living your work!
The link not working
When is Fred going to sit for a long interview? Ha. (If I recall correctly he doesn’t like those things). Suppose he might if you just promise to ask about the Knicks.
Good “smiler” sell job on Hoffman’s part : “It is the way the world should be”. According to the people who stand to gain. Reid talks up airbnb as to the benefits while totally ignoring any downside at all to the neighbors (such as driving up rents)  It’s all about self serving “benefits” and experience. Then he makes light of city regs, zoning etc. and proclaims “but that is the way the world should be” again and again.I wonder if he rents out his place or if he lives in a building with transients tramping though. He is traveling so much I guess it wouldn’t matter. I don’t (luckily) but I can assure that if I did I would stop at nothing to bring an end to that shit. I can empathize with neighbors who don’t want a mini hotel. Not everyone wants a bunch of strangers running through the building. Some people value peace and quiet and stability. Not everyone is looking for new people in the elevator.All of this works for SV not only because of the machine that they have created   but because they are able to take ideas and plow ahead, scorched earth style. Reminds me of Warren a bit. Make a point, smile and give a little laugh. Works well. Clinton is good at that as well. If someone can rent their place out they can pay more rent and landlords know this. I have done this with commercial tenants. Nice of Reid to help Stanford out and make them stronger because they really need that. I would do that also of course. Much nicer to spend time in a shiny place than with people at some community college or state school.
Just curious whether Blitzscaling could be related to another Blitz reference from few years ago.
Happy this course is not called Growth Hacking 101.
.Used to call this “multi unit, multi-state, multi-country” operating businesses based on the replication of multiple “ideal” unit. McDonald’s?As compared to a classic global company like Mobil Oil.This generation did not invent sex or business.JLMwww.themusingsofthebigredca…
I was planning to watch only a couple of minutes — didn’t work. I was riveted to my iPad all the way to the end. Listening to Reid Hoffman is like having your thumb on Silicon Valley’s pulse., IMO.
Great interview.Fortune has an excellent (but disturbing) article (http://fortune.com/2015/10/… this issue about the international tax-dodging tactics of Uber and other high-tech giants (Google, Facebook). It seems like a nice, convoluted corporate tax evasion strategy of “double Irish” and “double Dutch” is essential for quick international growth. They are essentially paying 1% corporate tax. I wonder if this is taught in the class?
Very good point, and rarely mentioned here!
What is more classic is that the rich CEOs of these companies are generally Liberal and always espousing that the rich should pay more taxes. It is an amazing act of large-scale hypocrisy.
Blitzsaling session videos at Stanford here: https://www.youtube.com/wat…
When I hear Blitzscaling, I keep thinking about the blitzkrieg. Is that where he got the name? Is this lightning scaling or business for the Network Age?
So glad to see you gave Emily Chang a shout out! Studio 1.0 is a great program and she does a fabulous job attracting very special industry leaders and tackling some of the most relevant issues facing tech.RH, hats off to you! You are giving so much back to the community and shaping many brilliant young minds! There is no substitute for giving, that’s real impact!
Key takeaways: Reid & Emily don’t use Snapchat. Can someone get them an account? It feels like everyone younger than thirty is on Snapchat.17:00- In terms of valuations, Emily asks the question, “Should companies start taking less?” Wasn’t this question answered in a Silicon Valley episode, Sand Hill Shuffle?http://www.hbo.com/silicon-…34:00 – Is AI the next wave of innovation? I hope someone at Facebook is figuring out a way to prevent, Snow Crash, from killing all the programmers.
I just watched the whole interview. What a cool guy.Reid is clearly the real deal, I can see how entrepreneurs will love to work with him.Great interview, loaded with insights.
so my feeling is that Uber’s taxi service is just the ‘first use’ service to establish the company. it’s real target is, ironically, all the cars on the road that are not and never will be traditional taxis. individual car ownership will go away.
Hey Fred, when Emily asks about whether we are in a bubble… the distinction Reid points out that is crucial but does not get talked about enough is laying off people on the basis of company-objective focus (what twitter just did) vs not being able to meet payroll.I was not around for the 2000/1 bubble but reading about then and what seems to concern people now I am surprised this stark difference is not referred to more often.
I should have checked the comment section for the full video by [email protected], hope to write back to your email about Roofe when I have a much better MVP with traction…still working hard on it. NYC @omojola
Uber seems to be constantly fighting fires. hard work.the occasional trashed place is manageable. has anyone been killed in or by an Uber taxi?