Forbes published a fascinating interview with Peter Thiel, founder of PayPal, and Reid Hoffman, founder of LinkedIn:

PETER THIEL: Do you think that the world’s become more networked in this way, where “networked” is linked to using references?

REID HOFFMAN: Not only has it become more that way, it’s becoming more that way at superlinear speed. It used to be very difficult to get network information. Now we have all kinds of ways to try to get better information from the network about a person, a company, a transaction, that sort of thing.

PETER THIEL: One of the related themes to this is that we’re heading towards a much more transparent world. People are often nervous about it, because privacy’s being lost. On the other hand, it’s a more open world. What strikes me as very good about this increased transparency world is that certain types of bad actors will find it much harder to get away with it. You have a disturbingly large number of politicians and business leaders [who] are sociopaths and psychopaths. Something like 30% to 50% are borderline really bad people. You can get away with that in a world where you jump between places. That’s going to be much harder in a world that’s more networked and more transparent.

I really do believe the world is becoming increasingly connected (or at least explicitly and verifiably so thanks to online social networks). As a result, I think the way society functions is changing as it becomes easier to reference check someone. 

You could get away with a lot of crap before. Maybe you were mean to coworkers. Maybe you screwed over a business partner. Maybe you didn’t act in a fiduciary manner and cashed out at the expense of your investors. Now, it’s easier to find out who knows you and so it’s easier to find out the truth, which should promote more pro-social behavior. Consequently, the world is becoming worse for bad players. 

At the same time, the world is becoming better for good players. It’s much easier to access help and resources because it’s easier to reach enablers. These people all rely on social filters to screen good players from bad ones, and the world is now mapping out who those social filters are, making it much easier for the good players to reach the people they need to make something better for everyone. 

Because of this phenomenon, I think people have to rethink what “networking” means. To most people, I think it means running around and shoving business cards in front of people on the off chance that person can get you a job, a deal, or some opportunity. Of course, most people also don’t like this idea and so don’t want to participate in “networking.” However, this understanding is obviously flawed in terms of execution but also in its emphasis on “1st degree” connections whereby you have someone to call on directly for an ask. Almost nobody reacts well when a stranger asks for a favor that isn’t mutually beneficial. It rarely engenders good results even after you superficially get to know each other first and delay the ask. That’s why this understanding of networking fails even as it persists in the minds of most people as the model of networking. I can see why this model came about though in the absence of the Internet since you really had no way of knowing who knew who so you might as well blindly and indiscriminately meet people in large numbers since each had such small probability of being helpful. 

In the new networked world, I believe it’s much more about “2nd degree connections.” Your first degree connections are the social filters by which you can reach the 2nd degree connection if that friend can vouch for you and there is relevance in meeting. You, of course, still need 1st degree connections in this new world, but there’s a drastic shift that a lot of people fail to appreciate. To network successfully, you don’t have to be imposing yourself on strangers and demanding favors upfront (or after some delay and some motions of friends). Instead, you can simply build real friendships and genuine relationships with people you actually want to spend time with, trusting that if you really are friends, they will make connections when it’s helpful or act as a strong reference for someone they may happen to know. Their professional network is now open on the web and available to you. 

The world in a generation has gone from “who you know” being the model of networking to “‘who you know’ knows” thanks to the Internet. It’s a brave new world and you better have friends.

There’s something noble and attractive about the little guy standing up against the giant. We feel special and better about ourselves when we go to the local mom-and-pop establishment and give them our business — I know I do. I also know I don’t feel that way after I leave Starbucks or some other huge chain. Apparently, there’s a new trend for people to even rebel against giant web retailers by shopping at smaller online stores.

Yet, we all still frequent these same giant retailers. Why? They price everyday and popular items at the lowest rates. They are ubiquitous and convenient.

So how can the small guys compete with the big guys? This problem is something I spend an enormous amount of time and thought on — why I work on making display advertising work for local businesses so they have the same reach and capabilities as their largest competitors.

Thinking about these small brick and mortar retailers, I’ve concluded that they need turn their weaknesses into strengths if they want people to go to them for more than the occasional “feel good” purchase. 

The rise of Amazon.com in particular has exposed several deficiencies of small local retailers:

• Poor Selection. Amazon has the largest product selection because it isn’t constrained by local physical inventory capacity.
• High Prices. Amazon can purchase items in bulk at such scale that it often gets the lowest prices for many products.
• Physical Storefront — Amazon doesn’t have the cost of maintaining storefronts
• Labor Costs. Amazon doesn’t have staff people to personalize experiences or address issues. Instead, Amazon can suggest purchases through data mining and clickstream data.

To change these disadvantages into advantages, local brick and mortar shops need to rethink how they design their retail experience:

• Focused Selection. Local retailers need to curate product offerings and offer fewer choices. Amazon.com has 1,000 different brands and products for any given need which make choosing something quite difficult. Local retailers can learn from Apple and stock a very limited selection of items so they only have “the best” solution for a particular problem.
• Special Products. Local retailers need to stock non-commoditized items. Any product that can be traced to a product number (ISBN or SKU) is always mass produced, mass marketed, and mass discounted. Local retailers need to focus on stocking more locally produced items or uniquely distributed ones so they aren’t competing on price directly. 
• Faster Delivery. Amazon.com can do 1-day shipping if needed but it cannot do same-day delivery yet since its fulfillment centers are too far from many consumers. Local retailers can offer same day pick up which needs to be emphasized more, but going further, they could make use of couriers to offer same-day delivery.
• Human Service. Amazon.com doesn’t make it easy to reach a human being when you have a return or a problem. Shopping locally should be a human experience where a person is always there to help. The labor costs are really marketing costs as Zappos looks at it — when else do you get the undivided attention of a customer and chance to convince the customer to spend money with you.

The little guys need to be scrappy and change the terms of the battle. They have a fighting chance and I hope they win.

Reading the biography of Amazon.com’s CEO, Jeff Bezos, I came across this quote on hiring:

“One of [Jeff’s] mottos was that every time we hired someone, he or she would raise the bar for the next hire, so that the overall talent pool was always improving,” said Nicholas Lovejoy, who joined Amazon in 1995 as the fifth employee. Bezos put the philosophy this way: Five years after an employee was hired, he said, that employee should think, “I’m glad that I got hired when I did, because I wouldn’t get hired now.”

I thought this is a terrific approach to hiring. At first, it seemed to conflict with some common advice about hiring only A-players. How could you hire better people in the future if you already were hiring the best?

I realized the way to reconcile these bits of advice is that there are A-players for different stages of the company and also some A-players who can scale across stages. Hiring people who will do a great job at the current scale and have the potential to punch above their weight class can still leave room for “even better” future hires who come from even larger scale organizations where they succeeded. In spite of how far I’ve taken my company, PaperG, from its inception, I am still in awe of outside executives interested in working with us who have far more experience and success to date from their times operating much larger companies. 

PaperG is in the midst of a mini-hiring spree (expanding the team by about 20% in a month) to help us as we scale the business to enable some of the largest media companies go after one of the most exciting markets, local advertising. In some open positions, we just need to compare whether the new hire is much better than someone already in a similar position.

In other open positions, we have to think whether the new hire will be doing a better job than a founder could if he did it full-time. It’s a high bar —  but even founders should want to feel lucky they were the ones to start the company and not be the ones who are applying for the competitive position. 

Game of Thrones is an incredible HBO series based on the book series. The story revolves around the constant battle for the crown whether it’s at the king’s council, the battlefield, or behind closed doors. I wondered what lessons could be learned from this show about business and leadership.

Rule #1: Winter is Coming

House Stark’s famous words were “winter is coming.” Startups of the summer don’t realize the hardships of winter. When you start a company in an amazing funding environment and lofty valuations, you don’t realize how hard it will be when the season inevitably changes. You must be prepared for winter when everything will freeze up.

Rule #2: The Decider Must Be the Doer

Lord Eddard Stark sentenced a deserter to death and was also the man who executed the deserter. He believed that people should take responsibility for such important decisions. In business, if you’re going to fire someone or terminate a contract, you need to own up to it and be the one to do it. You can’t hide behind some emails or subordinates.

Rule #3: Piece of Paper Won’t Protect You

Even with an official statement by the king, Eddard Stark could not carry out his orders. The power hungry queen simply tore up the words because she had greater man power. It just goes to show that even a contract won’t stop the worse from happening. You have to be able to trust people you deal with to avoid that — or at least have the capability to control your own fate if push comes to shove.

Having recently finished the amazing HBO series The Wire, I wondered what it can teach people about business and found myself learning a few lessons myself:  

Lesson #1: Reputation is the only coin of the realm 

“What got you here is your word and your reputation. With that alone, you’ve still got an open line to New York. Without it, you’re done.” -Brother Mouzone

Cash can settle transactions but reputation can cement relationships. Ongoing business requires relationships. Consequently, you have to defend your reputation fiercely if you want to access the best talent (e.g. Brother Mouzone) and product (e.g. Proposition Joe’s package).  

Lesson #2: Most problems are just people problems

“Game’s the same, just got more fierce” -Slim Charles

Politicians, drug dealers, and businessmen all face many of the same challenges which are largely people problems at the root. Relationships are the challenges and solutions to these individuals’ goals and careers. Codes of conduct and ethics largely govern these relationships but in recent times may seemed to have waned, leading to a much more dog eat dog world unfortunately for all those involved. However, those who try their best to adhere to the rules of the game and accepted conduct seem to be the ones who come out on top (e.g. Slim Charles).

Lesson #3: Deliver unsolicited messages to compelled listeners

“Middle management means that you got just enough responsibility to listen when people talk, but not so much you can’t tell anybody to go fuck themselves” -Major Colvin

When low level soldiers and entry level dealers wouldn’t listen to a unilateral offer of peace with the police, the commanding officer took the proposal to the mid-level dealers to great effect.  Low level gatekeepers tend to ignore requests because they either can’t do anything about it or they don’t want to risk their neck.  The mid level folks have to be on the look out for opportunity and can effect change all the while they have to represent the organization well in order to advance forward. They are the perfect folks to reach out to when you don’t have a high-level relationship or introduction.

Lesson #4: Distribution is as important as product

“I’m just a gangster I suppose and I want my corners” -Avon Barksdale

Despite obtaining a superior product (less diluted crack in this case), Avon was insistent on owning the end distribution to customers.  The ones owning the beginning and end distribution points benefit disproportionately and the middlemen can get squeezed with little recourse.  The economic gains may accrue to distribution owners but they certainly work much harder than middlemen; however, the payoff partly comes from the strategic control of one’s own destiny.

Lesson #5: Stick to your domain expertise

“What I tell you ‘bout playing those fuckin’ away games?” -Avon Barksdale

To win, you need to stick to what you know or you need to be prepared for some losses along the way.  Entering any new field has a learning curve that comes with it and in business, those necessary lessons have costs.  If you want to avoid losses but enter new areas, then utilize your domain expertise and hire full-time experts in fields you don’t know.  This ensures the necessary expertise identifies itself as part of the organization and will contribute to its long run success.  

This is why Slim Charles, a full-time hire, was such a successful soldier for the Barksdale organization while security consultants and other temporary muscle failed in the long run. Engaging consultants for limited time periods to simply show you the ropes is a bad idea because while you think you’ll be saving money through their guidance, you’ll be actually just losing more money to them in the long run.

Conclusion 

With that, I’d say of course that you can’t expect everything you learn from one thing like The Wire to apply to new areas.  However, the show can certainly be instructive, if not eye opening, and I’d recommend it to anyone.

I had a Facebook account long before I had a MySpace account.  In fact, I never signed up for a MySpace account; instead, I had been using Imeem, a legal music website, which got merged with MySpace Music and migrated all its users over with it.  As a result, I was one of the few that joined the social network as it was declining in growth and usage.  It’s been interesting to see its attempt at revival as an Internet brand.

It’s gone from social network to “social discovery,” focusing on entertainment content.  I like the rebranding and redesign, which makes it look a lot more creative and fresh.  

MySpace though shouldn’t forget its roots as a way for individuals to express themselves to their friends.  Self-expression is behind Tumblr and its monster growth.  MySpace has been accused of ripping off Pinterest, and I think they should embrace this creative source of inspiration and just buy Pinterest and the team to fully embrace this angle of media self-expression and sharing.  What Tumblr and Pinterest does well that MySpace users could benefit from is aesthetically pleasing design constraints that the enable cool self-expression.

Thinking about all the things MySpace should be doing to not only ensure relevancy in a fast-changing Internet world but to restart growth, I have realized that the big Internet brands as a whole could be doing a few things better than just redesigns.  They should be learning from counterparts whose growth had stalled but has been re-ignited.

Acquiring Innovation: eBay + Paypal

eBay bought Pay in 2002 while eBay was still reporting very strong growth.  It ended up being a prescient move as its marketplace business, its traditional source of revenue, has slowed down.  Paypal now accounts for most of the growth.  Buying complimentary businesses with new, monetizable technology has in many ways been the most relied upon strategy by incumbents with maturing businesses. 

Adding Human Touch: Starbucks

Starbucks made an interesting decision in 2008 when it was facing stalling growth and shutting down a lot of locations.  The New York Times reported that CEO Howard Schultz “lamented the ‘watering down’ of the Starbucks experience, blaming the expediencies of rapid growth for removing ‘much of the romance and theater’ from the ubiquitous stores.”  He decided to retrain the baristas to take back some of the drink making process which added more magic to the production of the drink.  People sometimes need to see the human touch to appreciate the finesse and craftsmanship.  Machines that are black boxes capable of magically producing the drinks at the touch of a button seemed somehow less impressive to customers.

The lesson here is the value of showing the work being done, particularly signaling the care and affection put into a product by people.  Efficiencies and automation are good but they can’t subtract from the magic.  Reminding customers of the people behind the product seems to be yet another way to reverse the decline in brand value.

Investing in New Brands: J. Crew

Another interesting strategy is to incubate your own new brands.  This is very different than launching new products with simply new names.  New brands require just as compelling stories behind them as the original brands do rather than simply stamping on the existing brands to the product line.

J. Crew CEO Mickey Drexler used this strategy as he turned around the apparel company into the behemoth it is in retail today.  He focused on producing what he called “cult brands” like Alden shoes for JCrew.  He says “integrity and craftsmanship is the new no-logo logo of J. Crew” and so supports the J. Crew brand while nurturing new ones.  

Curating and cultivating these new “cult brands” can draw new customers while affirming the fanatical loyalty of the existing base.

Conclusion

Of course, there is no silver bullet for the woes of any company facing stalled growth or decline.  Internet companies in particular seem to have had fewer successful turnarounds, which may be due to the nature of technology as a fast-changing industry.  However, the challenge of reversing the decline isn’t unique to them and they would do well to pay attention to ways other companies have re-ignited their engines for growth.