Three Smart Moves Brought LinkedIn This Far

I joined LinkedIn in 2007. I can't remember why. After connecting to a few dozen people, I still couldn't fathom what the purpose of LinkedIn was, especially for an already-established professional. Yes, I knew these people, but to what end were we connecting on this site? But for some reason I stayed on for the ride, more as an experiment than in any effort to gain value. I was fascinated with the platform this company was building and wondered what its business model might be. Even after I gave up wondering, I kept adding links.
Fast forward four years and LinkedIn is a public company with a market cap of more than $9 billion and revenues of about $400 million. I'm shaking my head at how lucky its founder Reid Hoffman turned out to be. At the same time, I'm beginning to appreciate how he and his colleagues were smart.
First, why lucky? LinkedIn didn't create the very quiet tech market it was born into, but it definitely benefited from it. In 2003 there were no tech IPOs at all. The bubble had burst and no one was watching the young startup. Facebook was not a commercial entity until a year later. This gave the company time to stay under the radar as it figured out what it wanted to be when it grew up. To understand how valuable that can be, note the very different experience of Netscape, which went public in 1995. As I describe in more detail elsewhere (in my new book, Smart or Lucky?), Netscape had little time to plan its future before embarking upon one of Silicon Valley's most spectacular public offerings — and that's a big part of why it suffered one of tech history's most spectacular falls.
But LinkedIn's luck is only part of its story. There were lots of companies who started around the same time and never found a sustainable business model. Three smart moves in particular kept it from being a flash in the proverbial pan. They might even enable it to become a truly important company:
Smart Move #1. It shifted the focus quickly to infrastructure, relationships, and planning. Startups usually have their basis in a novel idea, and often the visionaries behind them want to keep coming up with cool ideas. LinkedIn's Reid Hoffman was not that kind of founder. In his previous role as an executive vice president of PayPal, he was the guy in charge of external relationships and the payment infrastructure that was the heart of PayPal's intellectual property. He came to LinkedIn with an understanding of what really matters to execution.
Smart Move #2. It drew up, and followed, a roadmap. In LinkedIn's early days, no one really understood what the company was all about. Again, it preceded Facebook. This was before the world went crazy with social networking. But it is clear that there was a well-defined roadmap in place. Hoffman and his team understood that there was a need for a real business-focused connection model, since in business, success is often driven by "who you know." And they had thought through what it would take to create a network to translate what people do in the physical world to the digital world. Revenue would come from advertising and from people subscribing to a tool for finding new business contacts. Certain steps would have to be taken to attract a critical mass of participants to the network, at which point its value would be easily recognizable and self-sustaining. The business plan behind LinkedIn would use this critical mass to build payment based services and advertising. It sounds obvious to say a startup should have a well thought out plan, but in fact this distinguishes LinkedIn from hundreds of other social networking companies that might have been just as lucky in other respects.
Smart Move #3. It stuck with its target market. Fast-growing companies often succumb to the temptation to expand into too many markets, rather than miss an opportunity. There were probably many helpful critics who told LinkedIn executives that they should add in a consumer play — after all, Facebook was growing like a weed. LinkedIn didn't do it. Sticking to the business plan of targeting the business market was the smart move.
Even the smartest moves, unfortunately, can't buy a company enduring success in a complex and volatile market. LinkedIn will have to make sure the next moves it makes are just as good. Now that it has cash in the bank, it will have to acquire the right companies that will help it expand its services and market reach. (It would do well to focus on businesses that are already well accepted inside enterprises highly concerned with security and privacy.) And it will have to integrate these acquisitions effectively — always a dicey proposition, and not to be left to luck.

Judith Hurwitz is President & CEO of Hurwitz & Associates and focuses on the business benefits of emerging enterprise technology including cloud computing, service management, and information management. She is the author of five books, including the recently published Smart or Lucky? How Technology Leaders Turn Chance into Success.