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LinkedIn co-founder says tech companies shouldn't be afraid of chaotic growth

Silicon Valley has been under scrutiny recently for everything from undermining American elections to grindi...

Posted: Oct 31, 2018 12:11 PM
Updated: Oct 31, 2018 12:11 PM

Silicon Valley has been under scrutiny recently for everything from undermining American elections to grinding traffic to a halt in cities.

But prominent tech investor Reid Hoffman says that's the price of building a better world.

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Hoffman, who co-founded LinkedIn and was one of Facebook's first investors, details in his new book "Blitzscaling" how companies must continue to grow at chaotic speeds and take on risks to not only survive but evolve into modern, massive companies like Airbnb, Facebook and Uber.

"Blitzscaling is a race to build things that make the world a better place," Hoffman writes with this co-author Chris Yeh. "You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster."

He believes in embracing chaos, tolerating "bad" management and even launching embarrassing products in need of improvements.

And he knows this works from experience.

At PayPal -- where Hoffman served as an executive -- he says managers neglected to have career-development conversations with employees nor did they have a belief of what the company should look like in three years. He argues this made PayPal nimble and adaptable to change. Later, Hoffman launched career-networking site LinkedIn without a key feature.

"Under normal circumstances, you should strive for organizational coherence and stability," Hoffman wrote in a recent blog post promoting the book. "Chaotic, unstable organizations make employees nervous and hurt morale. But when you're scaling up at lightning speed, you may need to reorganize the company three times in a single year or repeatedly churn through members of your management team."

He said this means companies may have to promote people who aren't ready, and swap them out if they sink rather than swim.

"You don't have time to be patient and wait for things to work out; you have to act quickly and decisively," he wrote.

To some, Hoffman's book comes at a surprising time: Tech companies such as Facebook are facing negative impacts of their creations. Some critics warn that Hoffman's playbook for hastily supersizing startups into Fortune 500 juggernauts imperils society.

"Our extraordinary challenge as citizens is to tackle the menace of growth at all costs — when that menace lives in devices we adore," Julia Powles of New York University's Information Law Institute told CNN Business.

She views Hoffman's "blitzscaling" concept — prioritizing speed over efficiency in the face of uncertainty — as reckless. She says governments are too timid to step in and regulate technologies amid questions about their impact on privacy, labor, antitrust and consumer protections.

Critics like Powles see far-reaching implications of businesses and technologies growing at a pace humanity has never seen before. Ethical dilemmas and unforeseen consequences may be overlooked until they impact billions of people.

But Hoffman views things differently, noting innovation drives humanity forward, so why slow down?

"If we could run a survey or hire academics or a blue ribbon committee to study something and deliberate that, and then we could factor that in [to decisions], of course that reduces risk. The problem is that also massively reduces time," Hoffman said.

In this type of world, more risks will come from startups making uncertain decisions, and negative consequences will affect more people.

One such example is traffic congestion. Uber and Lyft -- the disruptors of the transportation world -- have been shown to add congestion to cities. Hoffman said that's a risk with which blitzscalers can live. After all, congestion is reversible, and companies can work on features to address it.

"Let's make sure there's only a certain number of cars on the road with a certain number of utilization to make sure the traffic flows in a certain way, as a way we contribute to it," said Hoffman, suggesting a solution the companies could discuss.

He believes society needs to have a broader willingness and acceptance of such risks.

Brian Berkey, a professor of legal studies and business ethics at The Wharton School of the University of Pennsylvania, believes "blitzscaling" companies that avoid tough ethical challenges have an advantage over competitors that take more time to think.

He described a situation in which three social networks launch but prioritize different challenges. For example, two companies may spend a lot of time figuring out how to protect users, while the third focuses on scaling and getting head.

The latter company ultimately grows fastest and leaves its competitors behind, but drawbacks later emerge, and its customers suffer the consequences. However, those users are unlikely to switch to another network service because everyone they know is using that service.

Companies also face overlooked issues they aren't even aware of as they grow. One of the biggest examples is Russian meddling in the 2016 US presidential election through Facebook advertising.

Hoffman believes it's reasonable Facebook wasn't paying attention to the risk.

"Who should've been paying attention before?" Hoffman said to CNN Business. "Well, the intelligence services agencies like the NSA, the CIA and other people who deal in government-to-government stuff. They are the people who should be tracking that sort of thing and letting [Facebook] know and then collaborating."

Typically, once a blitzscaling company like Facebook is aware of such a risk, it works to address it. But whether these types of businesses deserve a pass for their faults is up for debate. New technologies increasingly contribute to more mental anguish and stress, according to Lawrence Levy, the former CFO of Pixar, who has since left the business world to launch a non-profit focused on meditation, the Juniper Foundation.

"In a culture that's more affluent than ever imaginable in human existence, why is there so much mental anguish? Why aren't we just filled with joy and contentment?" said Levy, pointing to burnout, stress and a rising suicide rate.

He's researching a book on helping people find balance and harmony in a chaotic world of rapid change. Levy hopes Hoffman and blitzscalers consider more than just economic growth as they race to make the jobs and industries of tomorrow.

"We don't stop to ask just because we can do something, does that mean it's necessarily good for us?" Levy said.

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