Table of Contents:
- Topic 1: Businesses that build a better future
- Topic 2: Reid’s journey to the South Pole
- Topic 3: Is nuclear fusion the silver bullet to climate concerns?
- Topic 4: COVID-19’s impact on business and the world
- Topic 5: How to adjust prices, staff levels, and budget right now
- Topic 6: The pay transparency question
- Topic 7: Always expect volatility and change
- Topic 8: Tech is now a global competition
- Topic 9: Will Microsoft understand Activision Blizzard’s culture?
- Topic 10: Say your vision to get better
- Topic 11: All about the inaugural Masters of Scale Summit
- Topic 12: Democracy is fragile. Believe in the rule of law
- Topic 13: A good future is not guaranteed; work toward it
Ukraine reverberations, inflation volatility & more
Topic 1: Businesses that build a better future
BOB SAFIAN: I’m Bob Safian, and I’m here with Reid Hoffman for another episode of Masters of Scale: Need to Know, a periodic dialogue about the most important business topics impacting entrepreneurs right now. Reid, great to chat with you. Our first session of 2022. We have a lot of topics to cover about pandemic lessons, troubles at Peloton and Meta, the movement toward pay transparency, and more. But I have to start with the elephant in the room: Russia’s invasion of Ukraine events are still unfolding, and it’s hard to get a grasp on that geopolitical and economic impact. How are you thinking of about it? Is there anything that business leaders and entrepreneurs can do, or should do?
REID HOFFMAN: Well, Bob, despite the grim times, it’s always a delight to be talking with you. And I know your heart, like mine, goes out to the Ukrainians who are suffering from war, and war is always suffering. I mean, one of the things that’s awesome about entrepreneurship and business is, you know, build businesses, build things, make trade, you know, it’s kind of build to the future, and war is a zero sum rush to the bottom.
What I would say to the entrepreneurs out there is obviously to whatever degree you can lend a hand to Ukrainians right now, their families are going through enormous suffering. There’s already 500,000 people, as I understand it. And that’s of this recording date who are rushing to Europe, that’s gonna get worse. The Europeans are responding delightfully, like “anyone with a Ukrainian passport can cross the border” where you’re gonna try to be as humane as possible and supporting the Ukrainian government.
You know, the Ukraine who are resisting the Russian invasion and brutality with their courage, you know, honor to them. But obviously it’s whatever we can do in, in whatever way, small and large. This will obviously create volatility, distraction, a bunch of things. And the normal thing is to help those people who are in trouble, and then continue to build the future. One of the things we love about the folks who listen to the program, the folks who build businesses, is: build the better future for all of us.
SAFIAN: Yeah. And the, the context of sort of how much may change as a result of this in all kinds of different areas. It’s almost too early to know what to do beyond that, right?
HOFFMAN: Always be human, just like, a couple of our Masters of Scale episodes start with the human beings who are being ground down by this, you know, frankly evil oppress and, and build out from there. And, don’t think small things are too small. Right. If you’re helping a couple of your Ukrainian customers, Ukrainian employees, people who have family ties there, look, whatever you can, be human.
SAFIAN: Yeah. For sure. These are challenging times. Now alongside this new dislocation, there’s still, of course, other topics and factors impacting our world, that business folks should be attuned to. And if you’re comfortable with that, I’d like to segue over to that more.
Topic 2: Reid’s journey to the South Pole
HOFFMAN: Yeah. Just like us, we’re doing whatever we can for Ukrainians. And now let’s go back to what does the current future look like?
SAFIAN: Yeah. So climate change, for example, is a topic that seems more acute, more discussed than ever. I understand at the beginning of the year, you made a journey to the South Pole.
REID HOFFMAN: I did.
SAFIAN: Did being there give you a different appreciation for the planet or renew your commitment to thinking about climate change?
HOFFMAN: I would say it’s the experience. I’m always a systems thinker. So deeply committed to understandi ng systems and systems like a climate system. It’s part of the reason I invest in energy, even though I’m not an energy investor. Clean energy is one of the central things we’re going to need in order to make an effort within climate change. It’s something that as an investor with resources I can contribute within because each of us should think about the areas where I have some ability and unique skill set. There’s going to be no real solution here without massive investment and deployment of technology.
I’ve been doing that, and I would do that anyway, but it’s really the experience of these places on the planet, and climate change is a super important thing for everyone to be thinking about: How do we help contribute? Because it’s not going to be one person. For all the amazing things that Bill Gates and others do on this, it’s not going to be one thing that does it. It’s going to be millions and hundreds of millions of us that make a difference here.
SAFIAN: I had John Doerr, the investor and partner at Kleiner Perkins, on Rapid Response to talk about his book Speed and Scale, which is an intriguing mix of scary stuff and optimistic stuff. It tries to add up what it’s going to take to arrest the human impacts on climate. Doerr talks about the role of business and the urgency for action right now, and he insists that efforts by the likes of Walmart and Amazon aren’t green-washing, and that it’s almost like operation warp speed for vaccines, that the companies make commitments to accelerate this marketplace in this move to decarbonization. He also talks about the huge financial opportunity. Let’s listen…
JOHN DOERR: Business is one of the most exciting things about this movement. 70% of the emissions in the world come as a result of business activity. Now, we have to be hardcore about this. We can’t just accept pledges. We need to track people’s progress against these pledges. The transition from the dirty fossil fuel economy to the new clean energy economy is I think the greatest economic opportunity of the next century.
I make an analogy in the book with the mobilization that occurred for World War II. We stopped manufacturing automobiles for four years, and we turned that manufacturing capability over to making battleships, airplanes, ammunition, and tanks. We need a similar mobilization of all of the activity, all of the manufacturing, all of the consumption on the planet, a total system change to realize this new clean economy. In one case, democracy was at stake. In this case, it’s the survivability of a habitable earth that’s on the line.
SAFIAN: We’ve seen the rise of Tesla and others, but many business leaders seem like they’re caught between this long-term responsibility, long-term opportunity, and near-term business results that make grappling with this harder.
HOFFMAN: Well, I do think that it’s generally the case that there’s both a real business opportunity because I actually think the market wants it. I think shareholders want it. I think that there is an ability for leadership. I think employees want it. I think there’s a variety of things. Now, some businesses, Microsoft, Amazon, others, have enough of an in-depth margin structure that they can actually, in fact, invest substantially on this. I agree with John that this is not green-washing, but is actually in fact a very legitimate and active work. It’s a work in progress. There’s work now, and hopefully there’ll be better work in 2022 and better work in 2023 and better work in 2024 as ways of going through this.
When we look at how we do scale things, especially in the modern age, a lot of scale things are through companies. Companies figure out how to efficiently allocate a variety of resources, human capital, financial capital, other kinds of capital as a way of doing this, a way of doing so in a cost-allocated way, of doing so in a focused way to borrow on John’s popularization of OKRs. Objectives and key results as ways of doing it.
It’s one of the reasons why everything from, when you say, “Well, where does technology development happen?” It happens in companies. Very broadly, especially scale technology development. I think that’s a really important thing. I did a review of John’s book on LinkedIn and, of course, paralleled it to how my own book, Blitzscaling, applies to a number of different things, including of course the climate change efforts because Speed and Scale is exactly what Blitzscaling is about and how to do so within a corporation.
I think it is an opportunity. Now that all in the rosy sense, part of the reason why you need governments to act and have incentives and other kinds of things is because large scale companies that have enough margin structure to be able to invest, Amazon, Microsoft, Alphabet, others, and are doing so, is great. But then there’s a lot of other companies like, “Well, we don’t really have a lot of margin structure. We’re trying and we want to do things and maybe we’re looking for a more green supply line just for what we can buy.”For example, we can’t do technological development. We can’t afford a lot of shift in our margin structure,” and so therefore, part of what I think government needs to be doing in a classic public private partnership, which is I think how a lot of great things happen in the world over and especially in the U.S., is something that government should be thinking about pretty directly. I think it’s one of the reasons why John’s book, along with Bill’s, along with others, are great contributions to this problem that we all share.
Topic 3: Is nuclear fusion the silver bullet to climate concerns?
SAFIAN: You’ve mentioned that you invest in clean energy. We’ve recently seen a scientific breakthrough apparently on nuclear fusion, which almost seems like the silver bullet to our climate concerns. Safe, clean, abundant energy without hazardous waste products. I wonder if it’s a little too good to be true. It’s hard not to hope.
HOFFMAN: Well, my own personal belief on this with a fair amount of evidence and a lot of discussion with smart people like John and Bill and others is we should be investing massively in nuclear, both fission and fusion. In fission, most people don’t realize, just like technological progress, the 1970s nuclear plants, which are vaguely scary and what happens when they go wrong and so forth, are now decades old. We’ve got these modern, small reactors that the worst possible thing is you board them up for a couple of decades and then unboard them, and then that’s it. That’s the worst possible outcome, and you’re like, “Okay, that’s an acceptable outcome for getting clean energy.” Stop polluting carbon in the area, maybe be able to pull carbon out. Energy is one of the things that you have infinite demand for.
I think of fusion as the silver bullet, which if we get to it, awesome because then you get this clean energy, which the whole expense of pulling carbon out of the atmosphere is primarily an energy expense. If you get massive clean energy, you can actually reduce carbon and move us back to and away from the danger line. Then nuclear fission, which is like … Well, fission can actually in fact do it and can do it in a way that is super safe. Everyone has in their mind the 1970s bad sci-fi films.
Therefore, since that’s the culture of it, politicians won’t touch it with a mile long, or to be a little bit American, a six mile long pole. That’s unwise because the alternative is so much worse. Climate change is like this train wreck that is a massive, serious train wreck that we can see coming, right? It’s like no, we can do something about this. Let’s go right now. Anyway, I think nuclear is a central part of the technology, both fission and fusion.
SAFIAN: The fears about Three Mile Island and Chernobyl, those are archaic.
HOFFMAN: Archaic. It doesn’t mean that you don’t still be attentive and say, well what are the possible new worries and new unknowns? Because technologists always keep thinking about this. Most of the modern stuff basically looks like the worst that happens is you go, oh it shut down. If you walk into it, you’ll die because of the radiation in there, so you just put a big wall around it. It doesn’t spread at all. You put a big wall around it and then 20, 30 years later you tear down the wall and all the radiation is gone and you go, okay, let’s fix this place up.
That’s, by the way, an acceptable plan Z as I would say in Startup of You. I think it’s those kinds of things. Then you’ve got things like Gates’s TerraPower, which is, we’ve got a power source that can eat the outputs of current nuclear plants as radiation and other kinds of things and use those as fuel and get rid of that. I’ve visited, speaking of odd places to go in the world, the Nevada atomic test site, and they have storage dumps of radiation materials there because they don’t know what else to do with them. They’re just sitting there in a big vat of lead and plastic lining. You’re like, “Oh, that’s kind of scary.” Well, let’s feed it to a terra pass nuclear reactor and get rid of it because they don’t know how to get rid of it.
There’s all of this stuff being done, and it’s part of the reason why saying, “Well how do we deploy technology in a way to solve our problems?” should be the first question in each of these scale problems.
Topic 4: COVID-19’s impact on business and the world
SAFIAN: You’re grounded in a belief in progress, which for some people has been strained by the trajectory we’ve been on with the pandemic. We’ve seen some hopeful trajectory, some numbers receding rapidly as the Omicron wave subsides, restrictions loosening, but somehow it also feels like this COVID-19 stuff just can’t take the easy route.
I recently spoke to Sir Jeremy Farrar on Rapid Response. Jeremy is the chief executive at the massive research foundation Wellcome Trust and, in recent years, one of the UK’s pre-eminent scientific authorities on COVID-19. We talked about the impact that the pandemic continues to have in the world and in business. Let’s listen…
SIR JEREMY FARRAR: Too often, I’m afraid in the pandemic we’ve thought we’ve seen the worst, and we’re through it now, and we’ll have freedom day. And it comes back to bite us. A degree of humility, I think, is really crucial. We’re only two years into this pandemic, and this will not be the last variant. I’m sure we’ll see more. There’s a lot of good news, in a sense. The vaccines continue to be incredibly good at protecting you from getting severely ill and dying. That’s hugely positive. We have to be hopeful that with that very high transmission we will gain some degree of immunity. So maybe Omicron is the turning point when we start to see some light at the end of the tunnel of this pandemic.
What do we need to prepare for on the downside that would really dramatically change the way we do business? And what can we prepare for on the upside? And have a contingency set of options that get us ahead of our thinking. So that we’re not always reactive, but we’re starting to be proactive. We know what we would do in certain scenarios. And there aren’t 100 scenarios, there are probably five or six reasonable ones. And I think organizations can get their head around that sort of number.
SAFIAN: We’ve seen this activity in Ottawa with truckers rebelling over Canadian vaccine rules, so-called freedom convoy, interrupting trade, and by extension, manufacturing. How much do you connect the social unrest directly with the pandemic? From a business point of view, is this one of these “don’t get distracted moments,” or is there more in the labor and policy dispute that this reveals?
HOFFMAN: There’s a bunch of things going on here. The first is people en masse are bad with things they can’t see. One of the problems, of course, with viruses is you can’t see them. It’s part of the reason why it takes some education and so forth to believe in germ theory, takes some education even to understand how electricity works, even though you can, of course, sometimes see a spark or see the result of electricity applied to X. You’ve got this broad range of people who have been inflamed by fear of this stuff, who are anything from vaccine skeptical to vaccine resistant to anti-vaxxers, and there’s different in each of these cases. Not everybody who is in the vaccine hesitancy camp is actually, in fact, a full blown conspiracy theorist.
Now that being said, the challenge is if you say “Well, I want to be anti-vaccine,” what you’re actually doing is saying something like, what I do when I’m diseased is I’m dangerous not just to me, but to my family and to the people around me and my neighborhood, my friends, my colleagues, my coworkers, et cetera.
So I’m generally speaking unsympathetic to any of the so-called freedom protests on the vaccine side because really what you’re saying is, “I have a right to endanger many other people,” which I don’t think you do. And I get it, the fact that they’re frustrated, because we are, about being confined to what seems like home jail and so forth. And I get all that stuff, but it is actually, in fact, a dangerous thing.
Now of course, when you have tension and difficulty within society, that becomes a natural way that you go, “It’s much easier for me to get emotionally enraged and to believe it’s about freedom as a way of doing it, versus it’s about not being personally a bio weapon.” So I have emotional sympathy, I have compassionate sympathy for this, and I think that’s the kind of thing it ends up being.
If you said, “Hey, they’re shutting down the border. Maybe medical supplies aren’t going to get across it, and maybe somebody’s going to die.” So is that the way that you should be expressing your protests? But of course, unfortunately if one of the things I could wave a magic wand, which by definition a magic wand doesn’t exist, wave my wand, and have everyone be a little bit more sympathetic to other people and understanding what’s going on with other people. And that’s, of course not what’s going on here, so they don’t understand any of that.
Topic 5: How to adjust prices, staff levels, and budget right now
SAFIAN: These disputes in trucking and trade at the border, they add to questions people have about inflation. The economic environment feels like it’s changing. There are a couple of areas of adjustment that I hear business folks struggling with that I wanted to ask you about. The first is about pricing. How do you decide if you should or could be raising prices? And the second is about employees and budgeting. Will you have to start paying your talent more? Should you begin adjusting your plans and budgets now? If an entrepreneur is grappling with these two areas about pricing and about employees and budgeting, how would you counsel them to think about it?
HOFFMAN: Well first, one of the subtle things that most people don’t understand about capitalism and part of how it makes efficiency work, including the efficiency that allows us to pay for better education systems and better medical systems and everything else, because productivity overall as a society is part of what allows us to live in a more and more modern society, is precisely trying to be rational and intelligent and efficient on pricing. And obviously, one of the places that plays out is, well that also puts pricing pressure on wages too. “Oh, well there’s a million people that want to do this job so we can pay a lot less for it. Oh, there’s 10 people who can do this job, so we have to pay a lot more for it,” as a general dynamic. And by the way, that’s generally good for efficiency of pricing. But on the other hand, you have to worry about the million people, and what’s happening with everyone, and how does that go, and what do you do?
And I think it’s one of the more subtle things going on here. Now in the more tangible question, I think it’s worth it as an entrepreneur, as a leader, to say, “You want to skate to where the puck is going, not to where the puck is.” And so you look around and say, “Well okay, given inflation or given talent, where are wages heading to?” And generally speaking, it’s much better to be a leader than a follower on these things. So if you say, “Well, actually in fact, I think wages are going to increase because of pressure that the people working need it, pressure that there’s talent, there’s competition for the talent and it’ll be more like the 10 people than the million people, then you should actually, in fact, proactively raise some.”
Because just like leadership in anything else, leadership in selling your product, leadership in building the product first, leadership in expanding new markets, leadership in expanding your business, it’s also a good area to have leadership in. Now again, sometimes businesses don’t have the margin for it. They have to figure it out, they may need help as ways of doing it. But I think it’s a good area to be attentive in. Part of that is, “Hey, I guess we should figure out how to pay some more in this new environment.”
Topic 6: The pay transparency question
SAFIAN: One of the rising trends that impacts this right now is pay transparency. Some government entities are encouraging more pay transparency, requiring it in new ways, Apple coming out with more open guidelines about what can and should be revealed. Is this a good thing? Does it reflect anything about the shifting relationship between talent and employers?
HOFFMAN: So ultimately, I think pay transparency is fine. This is this complicated thing of individual responsibilities together with group responsibilities. Now in one sense, you should say, “Like I should make decisions about it, what it is that works for me and not necessarily competitively.” Because you can imagine if you phrase the pay transparency question as, “Well, I want to be competitive with so and so, and I need to be paid a dollar more than they are because I’m better,” people say, “Well that seems a little less noble than the, ‘Hey, we’re all being open and honest with each other,’ and so forth.” I think it’s part of what you get in this benefit of a mini competitive corporation, is I think you should have a range of different policies and see how that plays in this competitive ecosystem with talent and productivity and healthy cultures and all the rest of it.
Now that being said, I think for example, in all of the times where I’ve done compensation stuff, everything from the early days of LinkedIn to everything else, what I try to do is walk this line between personal privacy, together with if everything were public to everybody, with enough clarity that if everything were suddenly published completely honestly to everyone, everyone would go, “Okay, that was maybe a little different than I was thinking, but not a lot.”
SAFIAN: Yeah, it’s interesting. It’s both personal privacy, and at the same time, in some ways, team dynamics. You do have to protect against legacy and biases that can sneak in, and your framework of if a bright light were shined on all this, you should still feel proud of it, good about it, not embarrassed by it.
HOFFMAN: Exactly. And because one of the things is building trust, not feeling like you’re being deceptive. And to some degree, you’re helping people from their own peccadilloes. It’s like, “Well okay, so so and so is paid $1,000 more per year than I am.” And broadly, really that’s not what we should be concerned about.
You should be concerned about how good of a job you’re doing and doing it better and all the rest, and not that little keeping up with the Jones’s kind of thing or beating the Joneses. And so it’s a complicated topic with a lot of different things. And I think usually, your answer is not complete transparency, but a directional sense of honesty, such that a good crosscheck for people is when it’s less than complete transparency, if you had it, how would everyone think? And would people go, “Okay. I feel like I understood where I was.”?
Topic 7: Always expect volatility and change
SAFIAN: This year, we’ve seen some stumbles by some big name companies in their performance. Meta, Facebook slowing, getting crushed in one day. PayPal, your old stomping ground, acknowledging that the pandemic bump wasn’t continuing. And perhaps most dramatically, Peloton, which changed CEOs, backed away from building a new factory, laying people off. Does all this indicate anything larger? These are all, in these examples, by and large good businesses, maybe just got a little over their skis, overly optimistic. Are there lessons for entrepreneurs in these setbacks?
HOFFMAN: So there are. There’s one obvious thing, which is when you’re in volatile times like we are right now, when you had the pandemic, economic, and social asteroid hit the whole society, you have continuing new asteroid debris, reverberations, and so forth, and so you should expect volatility and change. Now, it’s normal with business that you get some volatility and change and you get competition, changing landscape with technology, changing landscape with globalization, changing landscape with competitors, changing landscape with customer demand, that’s kind of normal. I think we will see more things, more volatility. And that said, what John Seely Brown and John Hagel called the topple rate, which is the number of companies that were formerly in these major indexes like the S&P dropping out of them at an increasing rate, it’s a refresh, there’s new ones in and old star warts out, I think that volatility continues to be increasing and is increased by the pandemic.
And now each of the three companies you mentioned are actually different diagnoses for it. Peloton, probably the one that was most going, “Oh, the pandemic is the new normal, and the acceleration we get from the pandemic is what’s happening, and so just build on the new normal.” And it’s like, “No, no, no, this is not the new normal. It’s volatile and changing.” I’m not familiar with the details of it, and we had an excellent Masters of Scale interview with John Foley, but it’s probably something in that range, when you look at it, was a set of mistakes. Meta has a combination of serious competition from TikTok together with investing seriously in the long-term, which is good for saying, “Hey, we’re going to go to this new future platform, and we’re going to get there first.”
And for anyone who listens to Zuckerberg’s Masters of Scale interview, that won’t be a surprise for looking at that. And then there’s a ton of competition around the whole financial system side, not just from the Web3 crypto, but from a number of new incumbents. And to some degree, when you look at all three of these companies, it’s actually, in fact, one of the things that happens is that competition causes serious change. And it’s one of the things that is broadly lost in current congressional and media discourse around these companies because there’s a lot of discussion about antitrust. And I think there’s just a whole set of questions that they don’t understand around the antitrust side. So one of them, for example, is we’re at five large U.S. tech companies, but we’re heading towards 10, not towards three.
And the more that you’re building, you have a multi-polar environment. The real question in monopoly when the e.g. one, mono, one, is that that’s dominating everything and causing bad things for the ecosystem, bad things for wages of workers, bad things for prices for consumers, bad things for political power, et cetera. And actually, in fact, you’re heading towards more of them rather than fewer of them.
Topic 8: Tech is now a global competition
Second problem that they’re not really tracking is it’s now actually global competition. So I actually think one of the things that we question is, “Well, this is an important technology company. For example, of the top five tech companies, four of them get over half the revenue from overseas, from international. You think that’s a success case for U.S. industry and so forth and as part of what’s beneficial, and you want that to be heading to not just to four, but to seven and then to eight and to 10 as ways of doing it?”
And that’s another kind of challenge in this. And then you’d be getting into, “Well, but what’s going on with wages and so forth?” But here’s a simple thing. You say, “Okay, well do you want middle class jobs?” And the answer is yes. You say, “Okay, well classic stall work of last decades are manufacturing as middle class jobs.” Yep, we like manufacturing jobs. Okay, the only way you’re going to get manufacturing jobs is winning at AI and robotics. Those are the manufacturing jobs of the future.
So what’s our U.S. industrial policy on manufacturing jobs? And the answer is that it’s two and a half to three-ish of the large tech companies are investing massively in AI, and that’s how we’re going to have AI and robotics that will lead to manufacturing jobs. So if you want those manufacturing jobs, it’s the fact that they can spend tens of billions of dollars, which they are already doing, in a really aggressive way in order to do that. That’s a good thing for the workers of our shared country. Pay attention to that. Now obviously, it doesn’t create easy political grandstanding, doesn’t allow you to do Twitter sound bites, or other kinds of things. But if you want good governance, which yes, yes, I realize I’m being optimistic and hopeful, is the direction where you should be going.
SAFIAN: Yeah. As you’re talking, it’s where innovation and competition are thriving, it creates some volatility, it creates some opportunity, but it also indicates health in the economy or the marketplace as you’re going forward. With Peloton, I find them particularly intriguing for me.
They have a big run and people get excited about the enormity of their TAM, of their totally addressable market, right? Everybody who exercises. And entrepreneurs do this all the time. Like, “Oh, if I can get everybody to do this, it’s going to grow and grow.” And particularly with Peloton where they’re not just a fitness company, right? It’s a tech platform, it’s a media platform. And yet you think back to earlier fitness darlings, SoulCycle was hot, and it just doesn’t seem to work that way as humans. We don’t all end up joining the same platform in this area. It’s hard to get to the same kind of scale and fitness that you get to in communications.
HOFFMAN: Well, and this is one of the things about competition, which is Peloton, excellent product, not only is it an awesome bike with the digital services, to being able to prompt you to exercise and have trainers and all the rest. But it’s producible by other people, so you have competition, and that competition is great for having cheaper prices and variation and everything else. That’s part of what makes the market work well.
And so therefore you have to be careful about how much you are investing in the future, because you can get out over your skis because competition can cause it where your investment is careful. And that’s the Peloton competition story, and with PayPal and Meta, they’re different. Of the top five tech companies, they are all competing really ferociously with each other. By the way, that enables a really great search offerings, because in addition to Google, you have Bing, which is doing all kinds of great things. I mean, it just does all of these things as ways of doing it, and that’s actually the healthy functioning of the market.
Topic 9: Will Microsoft understand Activision Blizzard’s culture?
SAFIAN: Hmm. So I would love to ask you about Microsoft’s recently-announced mega deal to buy Activision Blizzard. The rationale for the deal is framed in part around the metaverse. You have talked to this audience about the multiple metaverses that we already engage in, LinkedIn being a kind of metaverse and so on. You’re on the Microsoft board, so I know there are some restrictions about what you can say, but I’m curious if you can give us some perspective about what the deal means?
HOFFMAN: Well, Microsoft has been engaged in doing gaming for many years with Xbox and a variety of things, and so has been very focused on the joy of interaction with games. Microsoft, even with this acquisition, won’t be the largest gaming company. One of them, Tencent, based out of China, has a massive global footprint here. Sony, based out of Japan, has a massive global footprint.
Obviously it isn’t just the tech companies, but also Disney and other folks have really great entries in all of this. And also, I love it because I have actually always been an advocate for Microsoft gaming, which has been great and an innovative investment for years.
And, look. Lots of people are realizing how important gaming is. You see what Reed Hastings and Ted Sarandos are doing at Netflix, and there are all of these folks saying, “Hey, we’re going to go into gaming.” Google is doing a bunch of stuff with gaming. And it’s an important area for creating joy globally, because we do need that as well as work.
SAFIAN: Hmm. Mergers can be tricky. Satya Nadella has been very focused on nurturing Microsoft’s culture. He explained this in his Masters of Scale episode with you very directly. How do you keep what makes you special intact and take the best and not the worst?
HOFFMAN: We have actually had a number of episodes on this exact question at Masters of Scale. Dara Khosrowshahi at Uber, other places where there’s some actually really interesting learnings here. Satya is obviously one of the world masters and innovators and renovators and reinventors and re-founders of this. The important thing to always think about culture is: it’s evolutionary. Whether the one you have just by yourself as you’re working on it, the one that you may be building from the various stages, or the one that you may be creating as you merge two companies together.
And I think what you need to do is be directed, energetic, systematic, and leading on this. And I think Satya and his team have proven that they’re good at this and they’re attentive, and they care. The issues that have been written about in the press are the kind of things that the entire leadership team is very dedicated to being healthy on. And frankly, just like when you look at Dara going into Uber, there are a whole bunch of people within Activision who also deeply care about this and want there to be a good, healthy culture.
So your approach is to say, “Hey, you guys already care about this. You guys already want this to be much better. Let’s just help you a little bit. Let’s just be your allies in doing this.” And I think that given the fact that directly creating culture is the kind of thing that all leaders realize, it’s not just accidental. It’s something that you invest in every day, every week, every month, every year. I think I am very optimistic that one plus one will be a great deal better than five on this.
SAFIAN: And it’s not that you’re dissuaded by that culture, but more that it becomes an opportunity to spread the culture that you believe in to more places and encourage that.
HOFFMAN: And it’s already there within Activision. There are already a whole bunch of leaders who care about this deeply, and so it fanned those flames a little bit.
Topic 10: Say your vision to get better
SAFIAN: Hmm. Since we last talked, Elizabeth Holmes, the former CEO of Theranos, was convicted of criminal fraud. Entrepreneurs often tell the best version of their idea, and truly believing in that is key for them, for their employees, for investors. Is there a cautionary element to the Elizabeth Holmes story about that?
HOFFMAN: Well, yes, for sure. Although that one is so egregious, it’s easy, but one of the things I think you want to do as an entrepreneur is you want to say, “Look, here is what we’re aspiring to. Here is what we believe, and here is what the current status is, and here is what the risks are, and here is why we’re going to overcome them.”
My advice to entrepreneurs is definitely to say your vision. The thing that you think could be big, why you think this could really work and why it could be astounding and very different than it is right now, but also to be clear about, well, what does that path look like? What does risk look like, and where are you now as part of doing that. I obviously didn’t follow the details, but I do think that it’s super important as leaders everywhere, and if only we could get this in politics as well, to have a certain amount of truth telling when you’re talking to employees, customers, investors, the world, as what you’re doing, because that’s how we get better.
SAFIAN: Yeah. I mean, there is a spectrum with these things about criminal fraud and then overreaching. I mean, I’m thinking of a new WeWork TV series coming out soon, WeCrashed, on Apple+ starring Jared Leto, who I can’t wait to see what he does with Adam Neumann. Is there a different lesson from WeWork, or is this just sort of a question of degrees?
HOFFMAN: There are a lot of unknowns, and I don’t know the specific of the WeWork case. Now I never really understood the WeWork business, so I never really took an investment meeting with them, because I was like, “I don’t get this.” And obviously, I get it from a product standpoint. I just didn’t get it from a capital allocation and investor standpoint.
So the question there is, “Well, was there fraud?” Usually, to be indicted and convicted of fraud is a very high bar. Was he doing that? Or was it just like, “Hey, this is going to be great. You should put in money,” in which case investors are making a decision. And so it’s a similar kind of thing across all of these high-skilled professions, and I think that is true of investing as well.
SAFIAN: And I guess it’s good for you too, as an entrepreneur, to be as honest with yourself about what the limitations and what the risks are, so you don’t get too far out over your own skis, or if you are getting out over your own skis, at least you’re aware that you are.
HOFFMAN: Yes. And this is on the Masters of Scale courses app, we do a lot of different mindsets things. One of the key things is learning, and if you’re not having a good, solid, evaluative truth function about what is working, what is not working, what are the risks, then you’re more likely to blow yourself up.
And part of that’s a personal set of things around mindsets, and part of that’s the team that you compose yourself and the discussion you have so that you are learning and improving in a competent way. One of the key attributes that I invest in, in an entrepreneur, is an infinite learner, right? Somebody who has that self-truth telling collection of “Let me learn, let us learn this together, and let’s get better as a way of building entrepreneurial projects and journeys.”
Topic 11: All about the inaugural Masters of Scale Summit
SAFIAN: Reid, we just recently announced the first, inaugural Masters of Scale Summit. I’m very excited to be able to do that with you in October.
HOFFMAN: I am as well. Look, I think one of the ways to think about the Masters of Scale Summit is we create kind of a virtual community through the podcast, through the app, and people can participate on social and other ways of discussing it. Now, we’re going to bring some of these really amazing inventors and leaders. And we’re going to put everyone in a room, and we’re going to do it with the magic of an amazing event with some of the same fun that you see within the Masters of Scale podcast and Courses app, but also the same seriousness, the same community, the same humanity for interacting. And so I, for one, am looking forward to and very excited. I think it will be both a learning event and a magical event.
SAFIAN: Yeah, and while not everyone will be able to attend the event, we’ll bring the magic back around and bring some of it back here again.
HOFFMAN: 100%. Just as we always do, we try to get it out to the world as much as possible. And obviously when you’re geolocated, it’s a small group and all the rest, but we will try to share that magic as broadly as we can.
SAFIAN: Well, it’ll be fun.
SAFIAN: And even if you can’t be there in person, you can watch it virtually, so we hope as much of the Masters of Scale community joins us as they can.
Topic 12: Democracy is fragile. Believe in the rule of law
Reid, I want to switch gears a bit for our last question. With the events unfolding in Ukraine, I’ve found myself reflecting back about the state of democracy here in the United States, and the implications that U.S. politics might have for business.
On the anniversary of the January 6th insurrection, you reposted the statement from Satya Nadella about the fragility of democracy. What are you hearing from business leaders about their concerns?
HOFFMAN: Well, business leaders, especially in the U.S., but generally try to say, “Look, we try to stay out of the two or multi-sided nature of politics, because we want to be builders of jobs and infrastructures and products and services, and we want to have tolerance for this within our customers, within our employees, within our investors, within our communities.” And so they generally speaking have an instinct to stay out of all this. However, I think one of the things that is really key right now is to realize that being very strong about rule of law, about investiture and democracy, especially here in our country, in the U.S., is I think actually, in fact, not a political or partisan topic. It is an American topic. It is a leadership topic. It is a health of business topic.
And so I think it’s important for business leaders to say, “No, actually in fact, we draw the line at questioning the rule of law. We draw the line at supporting treason. We draw the line at breaking the law. We draw the line about lying about the 2020 election or causing fear and uncertainty around our democratic systems,” including … By the way, I would love that to go all the way to voter enfranchisement, as I think the simple American truth is everyone who’s a citizen, it should be easy for them to vote. I mean, it’s part of what our glory of our Statue of Liberty and our history about being a democracy is, and I think anything opposed to that is frankly anti-American.
But business leaders don’t have to go the whole way, but they should really go at the, “We believe in our democracy. We believe in our plurality, because a democracy is by nature of plurality. We believe in the rule of law, and we will draw the line at rule of law and democracy.” And don’t allow someone else to tell you that’s a partisan issue. You’re like, “Well, that’s a partisan issue, then you’re just an anti-American, and I have nothing to do with you.” It’s like these are American issues. These are human issues. These are citizenship issues. And I applaud all of the business leaders, including Satya Nadella and many others, who step up and have the courage to say, “I am not being political here. I am simply being a believer in our country and in the American way of life, and I am resolutely a 100% defender, and I’m willing to take slings and arrows of people who will claim that I’m doing a political thing, even though what I’m doing is, here, a baseline American thing.”
SAFIAN: Hmm. And the peaceful transfer of power, which has been a hallmark of American democracy, provides the stability that businesses need to be able to plan and operate. And if there’s a risk to that peaceful transfer of power, it undercuts that stability, and it undercuts the trust and the platform on which all of our enterprise and our sort of social and cultural rules are built.
HOFFMAN: Yeah. And if there’s anything that America has done well and resolutely over the years is a strong basis of rule of law. It doesn’t say that we always get it, right? I mean, there was part of the reason we had the Civil Rights Movement, is it was being applied differentially to different races and it was a strong problem. But in our aspirational identity that we should all adhere to with absolute dedication is an equal rule of law for all of us, all of us as Americans, and I think that’s among the pillars by which America does try to be a beacon to itself and to humanity.
Topic 13: A good future is not guaranteed; work toward it
DANIELLA BALLOU-AARES: I was actually sitting right here where I am right now, which is six blocks from the Capitol. I was on a call and started to hear some sirens. I was getting texts from people across the country making sure I was okay because, of course, I wasn’t right there, I was in my home. But it was a scary moment. Our friends, all of our neighbors, we had children in our home playing, and we all wanted to make sure we kept them inside, we didn’t know where things were going to go. So there was a very personal moment for me around just the safety of my family, and, of course, the safety of our nation, and how that was going to play out.
I think that I continue to hear from many business leaders that they saw January 6th as an inflection point when the nature of the threat to democracy became so real, that it is informing and shifting the way they’re thinking about how they engage in the system.
Ultimately, the way that business interacts in Washington and state capitals with politics has not evolved for 20 years. It’s very old-fashioned. It’s writing a check to show up at a fundraiser and mention to someone your regulatory interests. And I think there’s plenty of room for rethinking that relationship in a way that’s good for democracy and still enables business to be part of building a strong economy.
SAFIAN: You mentioned volatility early on talking about businesses, and I do think about this stuff culturally sometimes. And as we move toward progress, there are always these moments where the forces of retrenchment emerge, reassert themselves, and the question always is like, “Oh, is that the future? Or is that just the expected bump on the road to a future that we know, quixotically maybe, is going to be a better place?”
HOFFMAN: Well, I think the future is not guaranteed to be good. You have to work towards it, for example, citizenship is not just an entitlement, but it’s a responsibility. And again, one of the things I love about entrepreneurship is, well, when you’re building a company, providing jobs, each company is part of the social fabric, providing more social fabric, products and services that hopefully really add quality to people’s lives. That’s at least a really solid good, and it’s obviously part of why you and I, and all the whole amazing team at WaitWhat do what we do here at Masters of Scale, because we are trying to help that across the whole world.
SAFIAN: And you have to do the work to get there.
HOFFMAN: Yes. You have to do the work. And as our listeners know, boy, that work is hard.
SAFIAN: It’s hard work.
HOFFMAN: Yes. And when we try as little as we can to make that a little easier in terms of the conceptual tools and the energy and the thought and the strategy about how to do that.
SAFIAN: Well, Reid, it is always great to talk with you. Your energy keeps my energy up, so I appreciate it. And everybody, I’m Bob Safian.
HOFFMAN: Oh, and I’m Reid Hoffman.
SAFIAN: Thanks for listening.