Jan 19, 2013 · 15 minutes

Becoming a billionaire can make anyone popular, but the hero worship has reached a weird place with LinkedIn founder Reid Hoffman.

His PandoMonthly was the only one at which we've had a security incident. A woman was pacing by the green room for hours desperately clutching a business card and then flew after him as he tried to leave -- grabbing and clawing at him to get him to take that card. This was no mere plucky entrepreneur wanting to give someone their contact info: this was actually a little scary. It was as if this woman's life depended on her making a connection to Hoffman. She had to be pulled away and restrained.


I was telling this story to a mutual friend just after the event, and he one-upped me with even stranger one: In the wake of LinkedIn's successful IPO, all sorts of people showing up at Hoffman's home, at least one of them asking to be "healed."

By an Internet entrepreneur.

While few of us running companies believe that Hoffman actually has divine powers, he's long been viewed as one of the most patient angel investors and one with a somewhat divine touch. Now, as Web 2.0 movement enters maturity, LinkedIn -- and Hoffman by extension -- is becoming a sort of patron saint for the social media also-ran. The man who may have the answers for the remaining beleaguered souls who have something but can't quite turn it into something big.

As we've written at length, LinkedIn was never the hot company. But while LinkedIn isn't sexy, it's solid. Frank Quattrone -- the grand poobah of tech IPOs back in the late 1990s -- said in the early spring of 2012 that LinkedIn would be the "John the Baptist" to Facebook's presumable Jesus of an IPO. Its role, in other words, was to come before and prepare the markets, which it did with its admirable performance. (The religious analogy is a strange coincidence.)

But as we all know reality deviated tremendously from the presumed script. It's LinkedIn, not Facebook, that is the lone large cap consumer IPO still trading above its asking price and close to its all time highs.

The reason behind this disparity is worth noting for these also-rans: Facebook has huge -- almost incomprehensible -- numbers of users, and plays an almost irreplaceable role in at least hundreds of millions of those people's lives. Hamish outlined this brilliantly in his post this week on why even Facebook's growing silent majority can't actually quit the site, particularly after the launch of Facbeook search.

But Facebook has done a lousy job to date of monetizing that power, which is what Wall Street cares about. LinkedIn, on the other hand, has nailed it. It may have one of the highest ratios of market cap to users of any large Web company, with a whopping $13 billion market cap and "just" 200 million registered users.

That's exactly the playbook that companies like Path, Quora, Foursquare, and others need to run if they're still going to pull their visions off and create monster successes. Frankly, it's the only one left for them.

As Fred Wilson recently wrote plenty of people in Silicon Valley will fund hopes and dreams that haven't yet been articulated in the real world. And plenty of people will fund monster successes. The hard part is finding funding -- or employees, or revenues, or an exit -- if you're anywhere in the middle.

We're eight years or so into the whole Web 2.0 movement. The majority of the hopes and dreams have simply not panned out. The monster hits are known, and have mostly exited, with the exception perhaps of Twitter. Maybe Pinterest will continue to soar and be a laggard to the wave, the way Google was with the dot com bubble. But that's about it.

That leaves a lot in the middle. There are the walking dead who will mostly stay quiet, conserve their cash, and try to find some sort of soft landing. Far more interesting are the companies at the top of that middle category. They legitimately have something. There are plenty of people in the Valley, from Paul Graham to Brian Chesky, who will argue that all you need are a core group of people who adore your service, and they all have that to the tune of millions of users. They have talented teams. They have impressive backers. But they have yet to find true mainstream success. They've run at the wall full force, and scaled it, but they are stuck at the top with one leg hanging over, unable to push themselves over.

Beyond these high-profile entrepreneurs' pride, there are large sums of money raised at huge valuations from big name investors on the line here.

Consider the fortunes of three examples:

Path: Both founder Dave Morin and Hoffman believe social networking isn't one size fits all. That's a still a minority view, despite LinkedIn's success.

Hoffman believed, when most did not, that people wanted a separate place to organize their career network. Morin believes people want a more intimate social network. He grants that, so far, there's a problem with everyone's closest friends adopting the site. But he's doggedly refused to sell.

With five million members -- a rounding error for Instagram -- he's plowing into 2013 following the LinkedIn playbook explicitly, by finding ways to build the business off of premium services and features other social networks don't have. He's trying to be the anti-Facebook, Instagram, and Twitter by eschewing advertising and focusing on remaining developer friendly.

Quora: Once the darling of Silicon Valley, Quora's initial deafening buzz has reduced to a constant low hum recently. Part of that is by its own making, as a company that doesn't court the press at all. Part of that is that it's hard to see from the outside how it's going.

The big thing everyone worried about with Quroa was how on earth it could scale and keep the quality of answers so stunningly high. Astoundingly, it has. But that's largely by running more like a very curated open media company than it is a traditional social network.

Prioritizing "the best answer" is the gold standard that Quora holds itself to, not a do-whatever-you-want on our platform approach. With compelling essays on everything from how to survive torture to how a real life Batman would survive in the real world, Quora has built something utterly unique. But where it sits as a company is a total mystery to outsiders. Like LinkedIn, its founders have focused on creating real value over sheer growth. And advertisers don't particularly value quality editorial.

Foursquare: Another darling that's developing some rust around the edges, Foursquare is trying to live beyond the hype of check-ins and gamification to build a smarter local discovery engine than anything that's come before. Founder Dennis Crowley is one of the most passionate entrepreneurs out there in pushing this vision -- after all, this is the second time he's tried it. It nailed mobile at exactly the right time. And it has a well known brand and a decent base of users. Like the others, it has raised big money at high valuations, bringing some excellent coaches into the company to help mold Crowley into a good CEO -- something he's very disciplined about. But the big vision is still mostly vision while the site's faddishness has passed.

There are other companies you could lump into this category, but it's a limited number. Slide and Ning were two that saw the writing on the wall and sold for decent nine-figure exits before getting to this point. Younger companies like Shopkick and Nextdoor appear they could be on a similar path.

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  • So why is LinkedIn such a beacon for them? It's less about how well LinkedIn has held up post-IPO, and more about the road it took getting there:

There is a place for us: Hoffman stubbornly believed something very few others believed: That work and play should be separate in the social world. He actively fought against things that would make LinkedIn too viral.

The most dramatic was resisting adding pictures to the site for so long, given that photos were the thing driving Facebook's growth. He did not want LinkedIn to become a meat market. Similarly, for a long time you had to have someone's email to connect with them, not simply their name. He refused to make his site look more like Facebook as Facebook surged.

That takes incredible discipline when the bulk of the world is saying a new social player is lapping you. As a result, LinkedIn remained a premium environment for job seekers and recruiters and employers. It remained something distinct in a Facebook-takes-all-world.

That may be the biggest thing these companies above cling to -- particularly given the presumed threat from Facebook search on a player like Foursquare and, for Path, the Facebook-Instagram tie up. (Path, too, unveiled its own friend-centric search just months earlier.) The biggest knock on a lot of of these also-ran social networks is in a world where we have to be on Twitter and Facebook, do we *need* any others? LinkedIn is the alpha company that went up against that critique and after a decade of hard work, proved that yes, we did.

"One of the places I was challenged a lot over the years was whether there was only one social platform, and that was Facebook," Hoffman said in a conversation earlier this week. "It's important not only to be contrarian, but to be contrarian and right." To his point, plenty of people who believed we needed a Facebook for old people, teens, individual countries, or pets have all been proven wrong. Hoffman was persistent and right.

Size isn't everything: A week ago LinkedIn announced a big milestone: It had passed 200 million registered users. We are so conditioned by the consumer Web's user inflation that it was a weird moment, where people were both impressed, but also said, "Wait, that's it?"

While 200 million is a huge number, LinkedIn has broken the math of more users necessarily equal more value. It's the second most valuable social network; and yet, only has double the users of Instagram. It has double the amount MySpace had at its peak for that matter, and MySpace never came close to LinkedIn's value. LinkedIn has done what almost no one in the social Web has done: It has found a way to get far more value out of the average user than typical advertising metrics allow.

That's key for all of these companies in this limbo. From an ad point of view, Foursquare is hoping that the pinpointed value it can bring an advertiser on where you are, what you like, and what you want right now will be something akin to how Google grabs people as their searching for something they want to purchase and can direct them to the highest bidder through paid search ads. Something of higher value that doesn't necessitate hundreds of millions of users to build a large business. Quora may have a greater challenge: Creating value around incredibly smart content where the dregs of the Internet user generated content community are not welcome and not comfortable.

Actually charging people for what you have: LinkedIn was one of the first and biggest examples on the consumer Web that freemium can work. It's hard to create something for free and then give people a good enough feature upgrade that they'll actually start to pay -- without hampering the free product of course. The granddaddy of this for LinkedIn was the recruiting services. The success of this went hand in hand with Hoffman's insistence that he not muddy the social network with connections that weren't about career networks. It became the place to recruit and find talent -- something of enormous value in the business world that people will pay a lot of money for.

Path is one that wants to go a similar route, which we see already with premium filters and we'll see a lot more of this year. Nextdoor -- a neighborhood-centric social network -- is eyeing something similar, although it's too premature to guess at what those premium services might be. Both networks are predicated on tight relationships so there are limitations to what they can do with advertising. Part of that is because the audiences are smaller and likely will be for some time. But it's also because there has to be a very strong sense of trust and privacy.

The key here is finding something of tremendous value that's a logical add on. "You need to be sharper on the business model and sharper on the timelines if you are going to be smaller," Hoffman says. "You are playing a longer game than what's typical."

This is harder than it seems. There's a reason LinkedIn is one of the only large scale consumer companies to make this model work. Younger Shopkick -- which counts Hoffman as an investor -- is an example.

Early in the check-in game Shopkick was the also-ran to Foursquare, although one with a very different mindset from the get go. It always sought to maximize the value of its check-in to retailers rather than a check-in for social reasons. Shopkick has always had a clear value proposition to the world: Bringing retailers more foot traffic and rewarding that foot traffic with different specials and deals.

Founder Cyriac Roeding has said that just 20 million or 30 million people could make it a huge company because of this focus on getting value from users -- and getting retailers to pay directly for it. Just last week it announced that it had reached profitability, in just two years. One could argue, that puts Shopkick -- ironically -- more in control of its own destiny that the much larger Foursquare. Last I spoke with Roeding, they had even fewer users than Path.

Patience. Almost all of the companies I've mentioned in this post have something in common: They've all experienced some level of success before these companies. Hoffman was part of the PayPal mafia, Quora's Adam D'Angelo, and Path's Dave Morin were part of the Facebook mafia, Crowley sold Dodgeball to Google. That's given them the financial wherewithal to say no to quick acquisition offers -- which almost all of them have. They've proven what so many entrepreneurs just say: That they want to build something big.

But the other part of a company having patience is having patient investors and that's harder to control. "Companies that just hit that rocket fuel and go know they've made it because everyone is using them," Hoffman says. "This type of company doesn't have that. You have to keep building the vision you have."

On the investor front, it looks promising for most of them based on their investor pedigree: Ben Horowitz is heavily involved with Foursquare, working very closely with Crowley. Kleiner Perkins is heavily incentivized to make both Path and Shopkick into successes. Benchmark has had two hits by being very, very patient in OpenTable and Yelp and appear to bring that mindset to companies like Nextdoor and Quora.

And of course, via his role at Greylock Partners, Hoffman has invested in many of them as well including Path, Nextdoor, Shopkick and others who aren't yet that sizable but he anticipates will have to run a similar playbook if they want to create something large. "I do think there's a viable pattern," he says of the LinkedIn playbook and companies following it. "There's a reason Greylock is an investor in several of these companies."

But for some of them, once sky-high valuations on the other hand may start to suffer and that will test the mettle of everyone. It'll test investors' continued commitment, it'll test the morale of the teams, and the resilience of the founders. But at this point the long hard fought marathon of continuing to prove naysayers wrong is the best playbook they have.

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  • The key is having the combination of these four factors. Just being right about your company's value vis-à-vis larger competitors, can only be proven with patience. And frequently, finding a business model early through freemium services, can avoid testing just how patient your backers are, because it proves the concept while you wait on the market. LinkedIn greatly bolstered its position by getting to profitability before social and consumer took off again, lessening its dependence on investors. And the only way you can stop obsessing about size is if you nail some sort of high-value business model beyond basic display ads.

Hoffman didn't feel he had to hit profitability as soon as he did, but it helped his constant argument that there would be more than one social network to rule them all. "I wanted to demonstrate I didn't need money," he says. "There's a level of confidence that a business model gives you. The end game is: What's the number of users you need that you can wrap a certain business model around?"

Crowley may have described the necessary mindset best in our October PandoMonthly with him. Despite a brief window as the darling when Foursquare launched, he's spent the bulk of his career being called stupid. When I asked what he believed that no one else does, he answered his company's very premise.

"Since we started this thing people have been telling us that it's not going to work," he said. "We started building Dodgeball in 2000: 'That's a stupid idea; it's never going to work.' We brought it to NYU: 'Oh, that's a stupid idea, it's never going to work.' And at Google we were like, 'Okay, this is not going to work here.' When we started again it was, 'You already tried that; it's not going to work.'"

"It's been the story of my entire career," he continued. "The thing that I care most about is not going to work and is a stupid idea. You gotta see it in a way that other people don't, and you gotta be that guy who says I don't care what you say, I'm gonna keep doing it. Now there are more people who get what we're doing, but there's plenty of people who don't. That's my personal goal, to convince them all that we can do this better than anyone else and in a way we invented and it starts with the checkin stuff that everyone thought was silly and stupid."

Morin put this more simply when I last spoke with him. "My goal is for you to write that about me in ten years."

Whether you care about these services or buy these requisite visions, more companies following and winning at this playbook is good for Silicon Valley and users and the Web. No one wants a world where size above quality is the only metric that matters.

[Illustration by Hallie Bateman]