Reid Hoffman: Entrepreneurs Need Optimism, Even When "Assembling the Plane on the Way Down"

By Trevor Gilbert , written on August 9, 2012

From The News Desk

Tonight at the fireside chat between LinkedIn cofounder Reid Hoffman and Sarah Lacy, Lacy asked Hoffman when entrepreneurs should enter the market, and whether or not being overly optimistic is valuable. Lacy cited rumors from PayPal's earlier days that Hoffman was the founder that kept people in line because of his optimism in the face of overwhelming attacks from competitors.

Hoffman responded by saying that he wasn't overly optimistic, but that he was "modestly optimistic," stating it is necessary for entrepreneurs to remain upbeat while building companies. As he said, "in order to jump off a cliff, you kind of have to believe you can assemble a plane on the way down."

This mentality is crucial for founders, according to Hoffman. The confidence to start a company means that founders need to go against the grain to build disruptive products, while also being correct at the same time.

As an example, Hoffman brought up Friendster. As Hoffman shared, Friendster was contrarian and ridiculed up until its Series D funding round. At that point, people began to accept that social networks have value. But until that point was reached, Friendster was entirely contrarian, but also right in the long-run.

On the flip side of this are companies that aren't contrarian, but are right. At that point, it is likely too late to have an impact on the market. "If you're the 50th daily deals site, you're hosed," according to Hoffman. "You might be making something if you're second or third, but it really goes downhill from there."

While entering the market early is great, it is surprising that Hoffman's theory is in direct opposition PayPal co-founder Peter Thiel's thoughts on the same topic. At a previous PandoMonthly event, Thiel noted that he believes the companies that create the most value are the ones that enter the market later on.

There are two sides to both stories though, and plenty of evidence of companies entering at both ends of the timeline. On one end, you have companies like Groupon being early and dominating the market, and on the other end, you have companies like Google being late and dominating the market.

Despite this disagreement, though, both agree on the fact that entrepreneurs need to have a near-crazy level of confidence in their idea.

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