A month after its IPO, LinkedIn has a $7 billion market cap. We spoke to Reid Hoffman, LinkedIn’s executive chairman and principal founder, as well as two former long-time executives to learn the story of how a company founded amidst the rubble of the 1990s bust managed that feat.
Besides Hoffman, these sources preferred to remain anonymous in order to keep their comments candid.
REID HOFFMAN, PRINCIPAL FOUNDER: My original idea for that was I’d be an academic. I’d write essays and books about what kinds of lives we should lead.
Then what I realised is that in order to be a professional scholar, you have to dedicate a vast majority of your career to writing esoteric books that only 50 people will understand.
It didn’t interest me as much.
I came back from Oxford and decided not to be an academic. I went to Apple Computer to work on eWorld, Apple’s version of America Online. Online services at its first blush.
I design, build, and improve human ecosystems. SocialNet was the first take at that. It was a way that you established a profile for yourself and what you are looking for. The most obvious primary business model for SocialNet was as a dating service.
When I started it, I didn’t realise some principles about how to run a consumer Internet company. I thought we’d spend months under wraps and release the perfect product. I discovered it’s most important to get your product above the noise so that people can encounter it.
If you’re not embarrassed by your version one release, you released it too late. There are a very small number of complete product geniuses that can labour in the dark for years and kinda pull off the sheets and say “ta-da!” and it’s the right thing and everybody uses it.I left SocialNet and was thinking about doing another startup. I had already been on the board of PayPal because Peter [Thiel] and Max [Levchin] had recruited me to the board when they started the company. They said, “Come step in as an executive and help us out with it, then go do a startup.” I said fine. I did PayPal.
We sold PayPal to eBay in July 2002. As part of the deal, I negotiated that my vesting would be complete on acquisition with everyone’s approval.
I went to Australia for a couple weeks to visit a friend of mine and figure out if I should take a year off. What I realised was I wouldn’t have a better time in my lifetime to start an Internet company.
In Fall 2002, everyone thought the consumer Internet was done. I thought: No, the consumer Internet is just beginning. Even though there was this “we’re going to have tech stores shipping dog food for free to Hawaii” craziness, the fundamental trend about how we reformulate human ecosystems is still on track.
EARLY LINKEDIN EXEC: [The day] the government eventually approved [the sale of PayPal]. [Reid] started thinking about whether he was really going to set up [LinkedIn] versus a couple of other ideas.
One of them was actually a book around professional networking – how to build your career.
Another one was this time capsule idea where you put memories away and then you unearth them like 20 years later.
There was a whole bunch of crazy ideas floating around.
HOFFMAN: Of the several ideas I had post-SocialNet, I found that transforming the way people could take control of their professional lives and easily work together to find the right people and right information was the one that was most compelling, so I cofounded LinkedIn.[There were] four cofounders. Three of them I overlapped with at Stanford. Only one of them I actually knew at Stanford. The guy I knew was Eric Lee. Konstantin Guericke and Alan Liu were both there but I actually met them later. I met Konstantin first because we were working at competitive companies. Alan later because he was referred to me as somebody I could hire into SocialNet. The fourth guy was a guy I worked with from Fujitsu named Jean-Luc Vaillant.
[Eric and I were] both symbolic systems majors. We’d talk about symbolic systems things. We became friends later. Our most memorable event was that we both had these projects that really, really needed to be done, so we holed up in a lab at the centre for the Study of Language and basically lived there for three days. He programmed Tetris for the NEXT and I wrote a paper on the vision of frogs.
EARLY LINKEDIN EXEC: Creating a whole bunch of co-founders is a motive to get them to join in. It’s an easier way to get people to join early when there’s high risk. When you give one share to somebody, it doesn’t go to somebody else. Reid was clearly the driving force, the founder.
HOFFMAN: The two most key people were Allen Blue and Jean-Luc. Alan knew everything from product specs to design to HTML. Jean-Luc does everything from server engineering to operations to technology strategy and planning. One of the things that makes small startups fun to work is you don’t have any deadwood. Everyone pulls more than their own weight. If you don’t do that you don’t survive.
EARLY LINKEDIN EXEC: [LinkedIn] got funding February 2003. They got like this small little tiny office in Mountain View – literally right across the hall from Friendster.
HOFFMAN: Almost every startup has some sort of valley of the shadow moment. For [LinkedIn, it was] summer of 2003.
We thought we had this really valuable aspect of people’s lives that we were building to, but our engagement to the press was basically, “I don’t know what you are. I think you’re Friendster for business.”
We were not Friendster. Getting it so that enough people would be paying attention took a lot of hard work for months.
EARLY LINKEDIN EXEC: LinkedIn grew slowly compared to most social products. As of August 2003, it only had 36,000 members. And at the end of 2003, I think, I think it only had about 150,000. At the end of 2004, it had about a million. Those are kind of small numbers by social product standards. It was always growing, just growing at a glacial pace.
To ensure that the quality of the users who were joining [we] used to literally look at every single user that signed up in 2003 – every morning. [We] would seriously look at every single profile.
HOFFMAN: Over 2004 and 2005, [the goal was:] start working on making the engagement features work well so when people are searching for things they can find it. Make sure we have a compounding numbers of users which are engaged.
EARLY LINKEDIN EXEC: The team was always confident. [But] there wasn’t much investor interest in it. They did 26 VP pitches early. Basically, two VCs offered to lead, Sequoia and Nokia Ventures, which is now BlueRun Ventures. So nobody else wanted to invest at the time. People were “willing to follow,” but that doesn’t really count.
HOFFMAN: Over 2005-2006, [the goal was:] let’s make sure we get profitable. Let’s make sure we have as long a runway as we need.
The decision wasn’t that we had to be profitable and stay profitable. It was that we had to prove profitability quickly and easily. It helps on two vectors. You raise money much more easily with that capability. If you can’t raise money, you still have a valuable thing.
EARLY LINKEDIN EXEC: It’s funny. Companies that look successful don’t always look that way in the first couple of years.
On January 1, 2005, [the] company had no revenue. No one really had any confidence with how the company was going to make money. There was a little bit of confidence with the teams about [what] jobs would ultimately work, but the board wasn’t 100 per cent convinced.
Matt Cohler had joined the company and was still doing the first jobs product designed to list jobs where businesses would pay to list job opportunities.
(People forget that that’s what he did for six months before he joined Facebook.)
It went slowly.
Photo: Jerry Luk
The first couple months we launched the jobs product I think our revenue was like $30,000 a month. I remember colleagues looking doubtful and wondering if it was actually going to work out. By the end of 2005 in my own mind I knew it was going to be successful. It was pretty clear we were on top of something that would work. Growth accelerated from a million to like $5 million or something close to that.I used to have coffee with people all the time and they never understood how it would make money, including pretty well-known internet people.
At the time, Monster.com was this big company with like a $5 billion market cap. People thought of them, CareerBuilder, and HotJobs as these successful companies.
I would tell my friends that if we could just do a half-arse job, we would be at least as desirable as Monster, which hasn’t been innovating since 1999. It turns out we wound up getting there, partially because Monster collapsed due to their finance scam.
In late 2005 or early 2006, we started to create these public profiles – versions of your profile that were indexed into Google. It made it easier to explain why LinkedIn was valuable. Is someone going to Google you? Of course. Don’t you care about what they find? All the Sex and the City references about Googling people led to being able to explain to mainstream Americans why it was so important.
There was a tipping point moment in terms of you could see more people were using LinkedIn as their resume. It tipped in Silicon Valley first. A lot of recruiters were in the Valley. Then you could see it spreading mainstream.
EARLY LINKEDIN EXEC: In 2007, it was so rare to become profitable. People didn’t really believe in the Internet. Just to become profitable was a way of saying that this stuff actually works. You could build a real business. It was a really important signal for the Valley.
EARLY LINKEDIN EXEC: In Fall 2006, there were about 50 people. It was really low-key. It was the building that PayPal had gone public in. We were in Palo Alto. It really felt like a crappy startup.
Late nights in the cafeteria, that kind of stuff.
Some people knew about it, but it was more like if I heard someone say “LinkedIn” in a coffee shop, I turned around and it turned out they were talking about Lincoln.
HOFFMAN: I knew I needed to hire a CEO.EARLY LINKED EXEC A: Reid is really good strategically. He’s not that good at imposing focus and discipline – particularly with disputes. He’s very friendly. Sometimes you need a CEO who’s dictatorial.
HOFFMAN: I know I’m strong and good at product vision, business strategy, trends in the Internet industry. I like to spend my time on business and product questions, rather than organizational things.
EARLY LINKED EXEC A: [Electronic Arts founder and VC] Bing Gordon did a great interview with the NYT on Sunday. He talks about his skillsets. He says he’s more about the creative inspiration of what to do, not inspirational power and wielding that power. That’s Reid.
EARLY LINKEDIN EXEC: The way I look at it is that LinkedIn was going through its awkward teenage years and Reid is not an operator. He’s not someone who I would put in charge of scaling a company.
EARLY LINKED EXEC A: Reid was good at recruiting, but there’s definitely people that should’ve been fired. Reid’s never enjoyed that stuff.
HOFFMAN: The theory was to either hire an enterprise guy and train him to be a consumer guy, or vice versa. With LinkedIn there’s this intersection between every individual and their professional identity on the Internet, and things we do for corporations. I brought Dan [Nye] in and he helped grow the company a lot.
EARLY LINKEDIN EXEC: I personally really love Dan. He continues to be someone I look to as a mentor.
There are other people who didn’t feel he was great for the company.
EARLY LINKEDIN EXEC: I would not have selected him. I couldn’t figure out what the hell was attractive about him at all. He had a notebook on how to run a company that he had taken notes on. He’s kind of a general manager type. Harvard MBA.
EARLY LINKEDIN EXEC: What people forget when they say, “Oh, why Dan Nye?” is that LinkedIn could not recruit someone like Jeff Weiner [back then] – someone that had a wealth of Internet experience.
EARLY LINKEDIN EXEC: He had no product instincts. As a consumer internet company in the modern world, you need to have pretty good product instincts. If you have Yahoo or LinkedIn, it’s hard to compete if the boss doesn’t have a product vision.
EARLY LINKEDIN EXEC: When you go from a startup to hiring outside execs, there’s resentment. The company started growing up and that’s painful.
In November 2007, Fortune magazine quoted Dan Nye saying that LinkedIn would only sell for a “hell of a lot” more than $1 billion, despite rumours of News Corp’s interest.
EARLY LINKEDIN EXEC: Dan was just joking! We were going long.
HOFFMAN: We never really allowed any conversations to advance. We’re so bullish on the transformation we can make for every individual and how we can improve the professional ecosystem. We’re interested in how do we develop the LinkedIn ecosystem. We were never very interested in being acquired.
EARLY LINKEDIN EXEC: There were always talks. People wanting to come in and meet and learn about the business. A lot of times when those talks happened, you also know that there is – you’re talking to them cautiously because they’re also thinking about how to build their own. It’s always a little dance.
If you really ask people who it would make sense to buy us, it would be Microsoft. Microsoft didn’t have a social play and they were so closely aligned with the professional.
HOFFMAN: This is one of those kiss and tell stories. I wouldn’t really comment. Over the years when we were private, we had polite overtures from the technology giants. We were always very friendly on both sides, but we weren’t really interested in having that conversation.
EARLY LINKEDIN EXEC: The reality is that Reid and Dan and Jeff have always known that it’s going to be worth a lot of money. If they were to sell, it would be beyond what most companies would be willing to pay. There was always an option, but I don’t think it was realistic.
Dan Nye stepped down as LinkedIn CEO in 2009.
EARLY LINKEDIN EXEC: I kind of always knew that a CEO wasn’t going to be successful unless Reid stepped back. He didn’t really do that with Dan. It was like which parent do you go to when you want something?
HOFFMAN: Ultimately, Dan was spectular on many levels, but he’s not a consumer Internet products guy. One of th emany amazing things about Dan is that we came to that decision jointly.
EARLY LINKEDIN EXEC: A lot of the people [Dan] brought in are no longer there. The star he brought in, I think, was Steve Sordello, the CFO. He’s still there. He’s just really solid. Everyone liked him and he knows what he’s doing. He’s the CFO that took the company public. He’s just a workhorse. Tireless. I think Dan also was responsible for really going after Deep Nishar, from Google. VP of Product.
HOFFMAN: Dan and I thought the founder should run things. I didn’t want to run the organisation. I wanted to stay focused on the things I can add a lot of value on and are key for the company.
So when I was talking it over with David Sze, who is my partner at Greylock, he said we had this executive in residence, Jeff [Weiner], whom you’ve met. Maybe he’d be willing to help you. Jeff said it was interesting. It was pretty clear from us early on maybe there’s even better configuration.
EARLY LINKEDIN EXEC: Jeff was a consideration to lead the company, but they weren’t willing to give them the CEO role. Jeff came in as president and functioned as leading the company. It was essentially a “let’s test it out.”You can’t announce that to the public. Too much downside pressure on everyone.
HOFFMAN: Jeff has all those massive organizational skills. As a consumer product guy, that sort of thing came together in a natural, iterative fashion.
EARLY LINKEDIN EXEC: He really got the company focused. He focused on scaling the infrastructure. LinkedIn was growing really fast. He brought in David Henke from Yahoo to run engineering and operations.
Jeff had this experience from Yahoo when his business units went from I don’t know how many people to like 600, and then the revenue increased an order of magnitude. By the time he left Yahoo, he was running a pretty big org. And he sort of grew that. That’s what Jeff did. He shepherded the company through the next phase. Scale the infrastructure, scale the teams, put the right people in charge.
Essentially what he did is he narrowed the focus of what LinkedIn was doing. It had gotten to the point where there was so much that LinkedIn could do. So many different projects. Expert networks, for example. They all had potential.
I think what Jeff did was say “Show me that you are a billion dollar line of business.”
HOFFMAN: One of the quesitons we asked on LinkedIn was could we bring Expert Networks to all kinds of problems? Hedge funds, corporations, the rest of it. We looked at it and we said why don’t we take the platform approach as opposed to being the principal in these things.
On May 19, 2011, more than eight years after its founding, LinkedIn held an initial public offering on the New York Stock Exchange. Intially priced at $45, shares reached $120 during that day’s trading.
EARLY LINKEDIN EXEC:
It was fun seeing some of the oldtimers.
It’s always an experience seeing the difference between the people who are just there. For them it’s kind of cool. But for the people who were there for years, this is life changing.
I just hope it holds for a while.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.