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The First Mover Advantage Isn’t Real: Breaking Down Silicon Valley Myths with Adam Grant and Reid Hoffman

Entrepreneurship Technology
The First Mover Advantage Isn’t Real: Breaking Down Silicon Valley Myths with Adam Grant and Reid Hoffman

Adam Grant is a professor at the Wharton School of the University of Pennsylvania and the author of Originals: How Non-Conformists Move the World. He recently met up with LinkedIn co-founder Reid Hoffman at the Commonwealth Club in San Francisco to discuss start up myths, the importance of intellectual curiosity, and the best strategies for pitching new ideas.

Reid Hoffman: It’s an important time to discuss creativity in the age of disruption. How we adapt and create the future is essential to navigating our current challenges. Your book is a gift. What compelled you to write it?

Adam Grant: We all have ideas for improving the world around us, but we underestimate our ability to bring these ideas into the world. If you look at the data, 85% of people stay silent when they have an important idea or bold suggestion. I would love to see more people speak up. The thing that really inspired me was how many myths there are about what it takes to be original. I thought that you had to be a first mover, a risk taker, fearless. None of those things turned out to be true.

Reid: There is always some risk to being a nonconformist if you’re going to step out of line or challenge somebody. How do you manage that risk?

Adam: Manage risk like a stock portfolio. If you’re going to invest in really risky stock, you’re supposed to then take some very boring mutual funds so you don’t lose everything. We can manage risk in the rest of our lives in that way, too. If you start a company, a lot of people think you have to quit your day job, but if you stick around and start that company as a hobby, you are 33% less likely to fail. There is a point when you have to leap, but most entrepreneurs think they have to do it sooner than they really do. Then they feel this tremendous pressure to rush their product to market as opposed to waiting for the right time, perfecting the prototype, and then saying ok, this is viable. How does this contrast with your experience as an investor?

Reid: Part of risk management is that good entrepreneurs say, alright, I have this idea, I’ll start talking to people. They don’t just go into a back room and say voila, it’s done. I don’t want confidence. I want to know a good list of hypotheses and what might fail. That’s one of the things you have in the book: seeking expertise, networks. The question of give and take is one of the interesting ties between your earlier book and this one.

Adam: When I think about feedback, a lot of people have been given bad advice when they hear Henry Ford’s famous quote: If I had asked my customers what they wanted, they would have told me a faster horse. Steve Jobs is famous for a similar mentality. I think that leads a lot of people to not ask for feedback at all, which is terrible. You don’t want to ask people what your innovation should be. Instead, you want to ask people “does this version work? Would you buy it?” Then you want to think about who to go to for that.

Disagreeable givers are your best sources of feedback on new ideas. A Google programmer described it as having a bad user interface but a great operating system. Those are the people who are gruff and tough on the surface, but underneath they have your best interests at heart, and if you convince them, they will run through walls to support you. As opposed to these agreeable people who are like “great idea!” and then never said a word about it because they are afraid to rock the boat.

Reid: Exactly. Good entrepreneurs talk to literally anyone who might help them. The classic mistake that entrepreneurs make is “I’m not going to tell anybody because someone else will go do something with it.” There are a lot of ideas. The competitive edge is your motion on it. Making it happen.

Adam: Instead of always be closing, always be pitching. I work with entrepreneurs all the time who are afraid that their ideas are going to get stolen. First of all, there aren’t that many takers in the world. Secondly, they’re usually not very good if they have to steal other people’s ideas instead of inventing their own. Third, you have to have a lot of ideas in order to be a successful original person. So if you have one great idea and you’re afraid someone’s going to steal it, you’re probably not going to do a whole lot. Great original thinkers test tons of ideas and fail more than the rest of us. That’s how they get to good ideas.

Reid: That was great point in Originals, that creativity is not one eureka moment, but actually a bunch of ideas you sort through. You talk to experts, assess was that one good or not. It’s not one idea, it’s a constant generation of ideas which you are evaluating both internally and with other people.

Adam: You have defied the conventional wisdom that you have to be 21 years old to be an entrepreneur. You were in your late 30s when LinkedIn took off, and you had been at PayPal for a while. What is it that allows you to keep generating new ideas, even as you become more experienced in a domain?

Reid: Always be learning. And stay intellectually curious, no matter how deeply you think you know something. I’ve sat down with people who lectured me for an hour about entrepreneurship. And it’s like, that’s nice, but you should ask me at least a question about it. The questions someone asks tells you how intellectually curious they are. A potentially great entrepreneur will ask, “How do you think I should solve this particular problem?” Or, “What do you think about this, relative to other ideas you’ve seen?” It’s that sort of attitude, staying young in your mind.

Adam: I’ve been struck that people who have done amazing, original things are not that different from the rest of us. You meet them and think wow, I know people who are every bit as smart and hard working, and have not achieved the same things. Once you see that it’s like, ok, let’s stop lowering ourselves and putting them on a pedestal. But most people don’t have the luxury of that realization. You came to Stanford, you were here when the internet took off, and you saw a lot of people who are not that good become wildly successful. How do we expose more people to that understanding?

Reid: There’s an interesting thing about human nature. One of the things that Peter Thiel, myself, and a few other folks have popularized in the last ten years is that being contrarian and right is essential to big success. Being contrarian is relatively easy, being right a little harder. Part of competition is not absolute but relative. When I was reading [Originals], I was thinking this is a good set of techniques for how to manage risk, how to generate ideas, how to not just go with the flow. The effort of being an original is that it’s something you can actually learn and do. This morning I was mulling the relative nature of human society and competition. The degree to which it’s relative matters because it’s the bar for being able to do that. As more people go to non-conformity is that ultimately a good thing? Does the bar get higher and the skills get deeper?

Adam: At some level. Conformity becomes the new non-conformity. It has in Silicon Valley.

Reid: Well, in theory. Although the number of times that you get pitched on “the Airbnb of x, it’s the Uber of y.”

“I do not want to ever see a new app. If your whole business is an app, please go home.”

Adam: I do not want to ever see a new app. If your whole business is an app, please go home. I know that’s harsh. But it’s the stereotypical way to be an entrepreneur. Pitch is important because a lot of ideas are hard to understand at first blush. This is the reason I didn’t invest in Warby Parker when given the opportunity. It was the first class I was teaching at Wharton, and Neil Blumenthal said, “We’re going to sell glasses online.” I was like, that’s crazy. Later they morphed the pitch to “we’re going to do for glasses what Zappos did for shoes.” Then GQ gave them a lift and called them the Netflix of eyewear, and people got it.

That’s a great way to build a bridge, and you’re right that starting there is dangerous. This is part of communicating your ideas, not generating them. Every leader needs followers. All pioneers are going to have settlers. What I am afraid of is people conforming for the sake of conforming. Saying, “I actually disagree with you, but I am going to follow you because I’m afraid of standing out.” I’m fine with late adopters if they believe in the ideas behind it.

Reid: If you haven’t seen Monty Python’s argument sketch, go see it. It’s true that frequently the first mover is too early. For example, if you’re three to five years too early, you usually just die. You’re the pioneer versus the settler. In fact, first mover is not all that it’s made out to be. It’s the scale component and the timeliness. It’s first mover to scale. Is that something you think is right?

Adam: First movers, except in industries where there’s a network effect or patents, have a disadvantage because you spend your time creating the market and getting people used to this idea and then someone else can swoop in and make it better. But you don’t want to be the last mover because then it’s too late. Go start a search engine now, that’s probably not going to play out well unless there is new technology. I don’t want people to rush and be afraid that if someone beats them out of the gate they’re screwed. I had so much fun reading through the history of video games. I always thought Atari was the first mover. No, Magnavox Odyssey. Did you play that?

Reid: No, but I remember it.

Adam: I had no idea Nintendo sat around, got rights to distribute that in another country, learned their secrets, and then made dramatically better games and changed the experience of it. That’s first to scale.

Reid: When you get to scale, you get inherent advantages, if only customer familiarity and brand. Those are useful attributes. Brand, for example, is a quasi monopoly. It’s actually one of the monopolies that’s allowed because it’s a unique attribute no one else can take away and you can use it for awareness, price differentiation, contracts, hiring talent. Yes, there’s an overdrawn cult that causes you to make dumb decisions and just run out there. The other thing is that if you have network effects, first mover matters a lot. There are other advantages. For example, the scale effect. Take Amazon’s catalog and distribution centers. That’s a very big scale effect, not a network effect.

Another important section of your book is that you gain allies or collaborators in your non-conformity. What would be your key tips for that?

“If you’re not addressing a market opportunity, there’s nothing there.”

Adam: I have a few. Before we share them, though, I think there’s a better way to reveal them. Wouldn’t it be great if you showed us what a really good pitch looks like? Then we can dissect it and look at what aligns and doesn’t with what I recommend.

Reid: I would be happy to. One of the things I’m doing with a mutual friend is called Opportunity at Work. We have a serious inclusion problem. We have this mammoth growth of highly valuable tech jobs that go to fairly narrow windows within men and within race. How do we change that? We see a network of boot camps that can substantially increase your skill set in ways that you can start a career in the tech industry. They’ve demonstrated that it’s possible, but most of the people who go to these boot camps can afford six weeks at, call it $11,000, which tends to not play into the inclusion issue.

Let’s create a scholarship fund focused on diversity and inclusion, a reputation system, and a network of these boot camps. They will be incentivized to work with us because we have the money and bring great students with us. As these boot camps increase, either in size or in number, we enable the pipeline to good jobs to scale the number of people you employ. This requires the operating funds to put the network together, identify the boot camps, keep the path to jobs, and do that the right way. To make sure that the boot camps are running a selection algorithm for the people who would actually benefit, and then scholarship funds to allow the inclusion, and to get that kind of candidate. That’s the pitch.

Adam: I would consider investing in that. You do something that I rarely see, and constantly recommend, which is to state the problem before you outline the opportunity. You have to say what’s wrong with the world first before you can convince people your idea is going to make it better. You spent a good three quarters of that pitch saying here’s the gap, here’s what these boot camps are doing, and here is where they’re not succeeding. Is that something you do deliberately?

Reid: Yes. Part of the question is the market need you’re addressing. It may be identifiable by the opportunity. Sometimes people don’t realize they have a need for this, but it’s actually there. If you’re not addressing a market opportunity, there’s nothing there.

When you pitch, the first part should be the investment thesis: what are the things that if you believe, I want to be a shareholder in this business. It should not be many. Three to seven is good. But if I believe these things, then the rest of the pitch is essentially saying what that is. Here are the facts that are true in the world, here’s the market opportunity, and then here’s our hypothesis about how we can move strongly against this opportunity. The two-pager doesn’t have the risks. That would be a full pitch. For example, if someone said, “Analyze the challenges for Opportunity at Work.” Currently all of these boot camps are started by these intense entrepreneurs who think they can scale it to large size. What if they can’t? Then 10x of these boot camps will be created. That’s a strong possibility, but not a certainty. That would be a risk factor. When we’re analyzing it, we’re looking at are the boot camps scaling or do we need them scaling, how do we identify that, and can we assess that risk.

Adam: The pitch is broad enough that I don’t have to share your goals in order to get excited. I was surprised to learn that people with common goals don’t always support each other. Freud called it the narcissism of small differences. The punchline is that in the context of different groups, extreme groups often look down their noses at more mainstream groups. Vegans hate vegetarians more than they dislike meat eaters. The better partners are often people who share your methods. I can see you giving this pitch to people who are interested in mobilizing resources and who think about the deployment of capital in different ways, even if they’re not worried about the lack of diversity, which keeps the door open better than saying “you have to be on board with this mission.”

Reid: The other thing is ABZ planning. This is part of evaluating if you’re being a giver, whether agreeable or disagreeable. You want to say, “How do I help you refine plan B, and do you have a good plan Z?” If you were giving me feedback on this pitch I just made, what would be your top questions?

Adam: First, how are you going to fund this scholarship? Is it possible that this is going to dry up or that you’re going to get stuck putting your own capital into it? How scalable is that?

Reid: In terms of capital, the hope is a number of tech companies provide the basis of scholarship because they want to be with the inclusion movement. Essentially, it’s a balance sheet question because you can actually design the financial model for how these scholarships are repaid in the right way. You can architect the system so if I don’t get the high income job I don’t have to repay the scholarship, if I do get the job then I repay it on very good terms. If you do that in a portfolio the right way there’s a diminished hit to the balance sheet, and there may be other ways to cover it, such as only the delta is ninety cents on the dollar, we can cover the ten cents in other ways. With that, maybe we can get a bunch of tech companies to say yes, I’m going to support this.

Adam: Very similar to the model for how a VC works. One thing I’m curious about is finding allies, whether a coalition of people to back your idea for improving the workplace, or cofounders, or investors. How do you think about activating and engaging your network? There are lots of people who you could go to. You want to talk about your idea as much as possible, but you’re not going to spend equal amounts of time with all the people. How do you think about that?

Reid: It’s essentially a triage with a few different variables. One is expertise. Another is raw creativity. The “oddball, oddball, super interesting” is more interesting than “vanilla, vanilla, semi-interesting.” You’re looking for the really new idea. The last one is how much they genuinely care about you. If they care about you, they will care about where your path will end up. For example, when I started LinkedIn, two thirds of my network told me, “This is a crazy idea.” They said a network where they all know each other is valueless. How is anyone ever going to join this? That’s really thinking it through and caring about you. When you have something that’s important, ask people, “Who is the one person I should talk to about this?” Sometimes you hear it from three people so you think ok, I better go talk to that person. Those are some triaging techniques.

We talked about the first mover, and you have a lot of experience to bear there. What are the other things that are particularly important for a barrier audience? We all have our cultural blindness, but what should we keep in mind to learn, to improve, to be more original ourselves? What myths do you find as a Silicon Valley outsider?

“…cultural fit becomes really dangerous because it becomes a proxy for homogeneity. I am going to hire people who have the same values as me, which means they think the same way that I do, and they’re probably going to be a bunch of white men.”

Adam: The myth that jumps out at me is that you have to be cut from a different cloth to be an original, that you need to have this biological immunity to fear, and that you have to be a total visionary. It’s easy to idolize these entrepreneurs once they’ve finished. I would love to see more people trace their history and look at all the signs that they were actually not that smart. The other important thing for a Silicon Valley audience is people hire on cultural fit, and this drives me crazy. If you look at the data for Silicon Valley startups, you see is that founders who hire on cultural fit primarily, as opposed to skills or potential, their startups are less likely to fail, more likely to go public, and they benefit from this tremendous amount of solidarity and passion and mission orientation that you had a lot of in the mafia at PayPal right?

Reid: Not a term I particularly like, but yes.

Adam: If you look at the evidence, they grow at slower rates than their peer firms, and cultural fit becomes really dangerous because it becomes a proxy for homogeneity. I am going to hire people who have the same values as me, which means they think the same way that I do, and they’re probably going to be a bunch of white men. You weed out diversity of thought. You get groupthink. I would love to see more entrepreneurs hiring on cultural contribution. Diego Rodriguez’s suggestion at IDEO that instead of trying to clone what is already in your culture, ask what’s missing from your culture and put a premium on that.

Reid: Culture is in fact extremely important. You need a strong culture to operate and scale effectively. It creates horizontal accountability, shorthand in coordination, all of those things important for moving fast. However, being anti-fragile in the way that you are defining the term of culture, asking questions like, “Is there a way this person will challenge our culture that will cause us to be stronger?” are great additions to how entrepreneurs should think about it.

“You do need a strong culture, but what separates a strong culture from a cult is making diversity one of your core values.”

Adam: The alternative to a cultural additive is a cultural sedative, which is not good. You do need a strong culture, but what separates a strong culture from a cult is making diversity one of your core values. If you don’t do that, you’re doomed to perish.

Reid: I totally agree. Speaking of pitches, there is a Commonwealth club tradition, which is your sixty-second idea for improving the world.

Adam: This is so timely. I want to start a new political party called the competence party. The rule is there are no ideologies, no values. We don’t care what you believe in as long as you can lead. You’ve demonstrated that you can make good decisions, have vision, can handle conflict, and are not insane. In addition to physicals you have to get screened for psychological fitness. Provided that you pass that test we will vote on conservative, on liberal, on libertarian, whatever lines for the leader who we think is the most skilled to run this country.

Reid: One of the things that we’re having in the political election is there’s a strong none of the above movement. Is this your way of phrasing none of the above?

Adam: Maybe.

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