It Took LinkedIn Five Years To Turn Its First Profit

Posted Nov 6, 2011

LinkedIn Corporation (NYSE:LNKD) founder Reid Hoffman was thoroughly profiled by The New York Times this weekend. The story really gave you an inside behind how LinkedIn grew from a small social network that nobody heard about to a public company minting hundreds of millions of dollars. As a venture capital partner at Greylock, Reid Hoffman is also a go-to guy for business advice in Silicon Valley.

Airbnb co-founder Brian Chesky sought Hoffman’s advice when his company decided to expand in China. Hoffman leaned back in his chair and then told Chesky that Airbnb will need a team in China. They will also need web filters to keep the government happy. He will also need a joint venture partner and he provided a few names to consider.

Hoffman also currently serves on the board of 8 companies including Mozilla and Zynga. Hoffman also divides his time amongst three non-profits.

?I?ve never made a significant move, decision, without consulting him,? said Shopkick founder Cyriac Roeding about Hoffman.

Although Hoffman often received B’s and C’s in middle school, Hoffman was extremely focused as a child. When he was 5, he made his dad keep reading “The Lord of the Rings” to him in bed. His dad said “Apparently, I wasn’t reading fast enough” so the “bookmark moved further and further ahead.”

When Hoffman was 12, he showed up on a Friday at the offices of Chaosium, the game development company behind RuneQuest. RuneQuest was a fantasy role-playing game that was published in 1978. Hoffman gave the company a manual marked with suggestions in red ink. Hoffman was given a job and received a check a few weeks later for $127. ?It changed my father?s view of what I was doing,? said Hoffman. ?He realized I could make a living out of this.?

In 1985 when Hoffman enrolled at Stanford, he decided to major in symbolic systems. This was the studio between computing and human intelligence. He became friends with fellow student Peter Thiel at Stanford. When Netscape went public in 1995, Hoffman and Thiel watched what happened closely. Hoffman knew that social media was going to be huge, but his first company flopped. In 1997 Hoffman launched a company called SocialNet, which focused on online dating. SocialNet would pair people with similar interests, but nobody was interested in signing up. After Hoffman partnered with a newspaper in Arizona, only 2 customers had signed up.

Frustrated by the lack of growth, Hoffman quit SocialNet in 1999 to join Thiel at PayPal. At PayPal, Hoffman was the go-to guy for meeting with the credit card company executives that was not sure whether they trusted the payment services company or not. Hoffman managed all external relations. ?He was the firefighter in chief at PayPal,? said Thiel. ?Though that diminishes his role because there were many, many fires.?

After PayPal went public, Thiel and Hoffman both became multimillionaires. Thiel went out and bought a Ferrari, while Hoffman bought an Acura instead. He still drives that same Acura today. Hoffman decided to take the money he earned and invest in other start-ups.

LinkedIn currently has 135 million registered users across 200 countries. The company has been able to turn a profit in six out of the last seven quarters. However it took the company five years to turn its first profit. The first year was the hardest for LinkedIn because Friendster was the most popular social network and LinkedIn was considered dull.

?One of the things I thought of every week was, ?What happens if we don?t make this? How do we die gracefully?? ? said Hoffman.

In 2008 when the economy was tanking, a lot of people joined LinkedIn for their premium job and recruiting services. It was around then that Hoffman decided to replace former LinkedIn CEO Dan Nye with Jeff Weiner, a former Yahoo! executive.

LinkedIn has grown quite a bit in value since going public. LinkedIn’s membership has doubled annually for each of the last seven years. However LinkedIn cannot afford another bad quarter otherwise its share price would be slammed and they would lose talent to the next big thing in tech. Hoffman tries not to pay attention to the markets though. He said he has checked LinkedIn’s stock price only six times since May.