In IVP’s Hypergrowth Podcast series, IVP investors talk with CEOs from the fastest growing companies to understand the ins and outs of company building in the hypergrowth environment.
Coinbase co-founder and CEO, Brian Armstrong, is on a mission to create an open financial system for the world. In our eighth hyper-growth podcast episode, IVP’s Tom Loverro talks with Brian about bringing this to life, what it means to build a mission-driven company and how to evolve company culture during hypergrowth – both in crypto and beyond. Coinbase, the digital currency wallet service that allows traders to buy and sell crypto was founded in 2012, has over 700 employees – with more than $220 billion in assets from over 30 million customers. IVP had the privilege of leading Coinbase’s Series D in August of 2017, with IVP’s Tom Loverro currently serving on the company’s board.
Key Tips and Quotes from Brian:
STAY TRUE TO YOUR MISSION
“We decided to play a long-term game, which I think was more in line with the mission.”
BUILD YOUR OWN COMPANY CULTURE
“Let’s actually articulate the culture and write it down, integrate that and repeat it a bunch of times.”
COMMUNICATION IS OF UTMOST IMPORTANCE
“Clear communication is something that I personally just value. But I also think it helps the company be a lot more effective.”
ON BEING AN OVERNIGHT SUCCESS
“I always joke, we’re going to be a ten-year overnight success.”
TEAMWORK DURING HYPERGROWTH
“Teams have got to go through some challenges together and they’ve got to develop a personal relationship with each other and get to know each other.”
THE TRUTH ABOUT HYPERGROWTH
“If you’re at 200 [employees] and you go to 600 in a year, a lot of things are gonna break.”
More from the full conversation in the transcript is below.
Narrator: Welcome to IVP’s Hyper-Growth Podcast. In this series, we talk with CEOs of the fastest-growing companies and discuss the ins-and-outs of company building in the hyper-growth environment. If you like what you hear, consider following us on SoundCloud or subscribing to our podcast on iTunes. Thanks, and enjoy the show.
Tom: Welcome, everyone. I’m Tom Loverro, an investor at IVP. On today’s podcast, we are joined by Brian Armstrong, co-founder and CEO of Coinbase. Brian, welcome and thanks for joining us.
Brian: Thanks for having me, Tom.
Tom: Thanks for hosting us in your new headquarters. Brian is a graduate of Rice University and started his professional career as a developer and a consultant before joining Airbnb in 2011, that was a pretty smart move. He left Airbnb, though, to found Coinbase in 2012. Coinbase has played a major part in mainstream awareness and adoption of cryptocurrency. Since its founding, Coinbase has grown to over 700 employees, has traded more than $220 billion in assets by over 30 million customers across more than 100 countries. Brian has led the company through over $525 million in funding from investors such as Andreessen Horowitz, Tiger Global, USV, DFJ, and of course, IVP. IVP had the privilege of leading Coinbase’s Series D in August of 2017 and I’m an observer on Coinbase’s board. On today’s episode, Brian and I will be discussing primarily three things. First, what it means to be a mission-driven company. Second, building Coinbase’s culture and third, managing true hypergrowth. Thank you again, Brian.
Brian: Thank you, Tom.
Tom: So let’s start off on a topic I know is really important to you – Coinbase’s mission. You’ve really begun to open up publicly about what Coinbase’s mission is. There’s been some video out there on the Internet of that. What is Coinbase’s mission today? And if you could tell us where we are on that journey from where you want the company to be in the long run?
Brian: Well, our mission as a company is to create an open financial system for the world. And for us, what that means is, an open financial system is one that’s going to create more economic freedom for people and businesses all over the world using cryptocurrency. We feel like that’s a secret that Coinbase is founded on, is this idea that cryptocurrency got invented, you know, smartphones are proliferating all over the world, even to the poorest people, and that is a rare moment in history to actually inject economic freedom into these countries all over the world. Sometimes people aren’t familiar with that term, economic freedom, and what I tell them is that this is a measurement that a lot of different organizations, they try to measure every different country out there. And they look at things like, you know, are property rights enforced? How much corruption is there? Is it really easy to start a business or work at the business that you want to work at, a bunch of different metrics like that. So people think of it as a way, it’s a measurement of how quickly the economy is growing and all these things, but it actually has positive correlations with all kinds of things you may not expect, like people’s self-reported happiness or less war, less corruption, higher, you know, literacy, and things like that. So economic freedom is this really powerful idea in our mission as a company is to take cryptocurrency and use that to build an open financial system for the world.
Tom: That’s a big mission. And companies need big missions, but where are we today and how do you get from where we are to that end state?
Brian: So I agree, this is going to be, you know, 10 plus year journey and Coinbase has been around almost eight years. And so I always joke with people, you know, we’re going to be a 10-year overnight success. I tell that to a lot of entrepreneurs, actually. I think it’s better to have a big, big, ambitious mission and add to your mark. You might be seeing a little bit of product-market fit. You know, at the five-year mark, you might be like, OK, this thing might actually work and you’re gonna start to see impact on the world at like 10 years. So I think people generally should have a much longer time frame of how they’re trying to do important things in their life. So, I mean, but just to answer your question more directly, kind of where are we now. Cryptocurrency, most people are still getting it-into it today by getting interested in investing or speculating or buying a little bit of cryptocurrency. That’s kind of the way most people get interested, that’s the gateway to cryptocurrency. And as you mentioned in your introduction, we’ve helped 30 million people get started in crypto and buy a little bit of it. And what we’re really doing now as a company, we’re shifting from people who have have a little bit of crypto from investment, which is a relatively solo activity you do by yourself, and we’re starting to connect our users together into this economic graph. We’re giving them more things to actually do with their cryptocurrency as opposed to just holding it as an investment. So I can talk about those at length, but just the high level is, you know, we’re helping people start to spend the cryptocurrency. We’re doing that with Coinbase Commerce, for instance. And we’re helping people begin to get borrowing and lending done. For instance, we’re launching margin trading on Coinbase Pro. We’re going to start helping companies raise money with cryptocurrency. You can imagine all of this kind of actions in the crypto economy, not just buy, sell, or trading, but borrow, lend or spending or even governance, things like voting. There really is gonna be a whole economy being built here, and we’re just in the very early stages of helping that happen as a company.
Tom: It sounds like we might be at an inflection point where the industry in crypto is moving from speculation to these various utilities that you’re talking about. It sounds like you have a bunch of them in the hopper today.
Brian: Yeah, that’s right. I mean, a lot of these seeds that we planted to try to help the crypto economy grow are starting to really show promise. So, you know, with Coinbase Wallet, for instance, we’re seeing 80, 90 thousand monthly active users. It’s growing, you know, 30 percent month over month. Similar kind of month over month growth figures for Coinbase Commerce. We launched a stable coin because that was one of the big challenges with cryptocurrency, it was too volatile to be used for day to day commerce. Volatility is a good thing if you’re investing, but not necessarily a bad thing- not necessarily a good thing if you’re trying to just spend it.
Tom: And do you and the executive team find yourselves looking back to that mission when you’re looking at the product roadmap or deciding between A and B?
Brian: Yeah, that’s, that’s right. So we always have this debate internally. How much should we just be focused on one thing versus trying to tackle all the new opportunities that are out there? A lot of it does come back to our mission. Like you said, it’s if we’re gonna create open financial system for the world, there’s gonna have to be a lot of pieces of infrastructure there. There can have to be thousands of companies built in that space. We’re kind of at the beginning of this industry and there’s gonna be so many opportunities. We use this framework, we call 70/20/10. We’ve basically means 70 percent of our resources are focused on our core. The thing we’re- we got started with, it’s generating most of our revenue today. Which is our main consumer app that retail trading and people do and also Coinbase Pro, which has started to generate a lot revenue. So that’s 70 percent of our focus and time resources. 20 percent are on what we call adjacent bets that are key for us to win, and then in the 20 percent is Coinbase Custody, which we’ve helped with a whole bunch of institutional customers get into the crypto space. The 10 percent are these kind of venture bets like I mentioned, Wallet, Commerce and USD Coin. It’s this portfolio approach where we don’t want to be too siloed and just build one thing because a whole industry is not going to bloom that way. But we also do not want to be too distracted, and so we try to balance that with the 70/20/10, and I think that’s like a good, healthy mix for to really fulfill our mission.
Tom: That’s interesting. Is that 70/20/10 something you heard about from other companies, did you guys invent that in-house? Where did that come from?
Brian: Yeah, I mean, we didn’t invent that. One company I’ve heard of using that is Google, but I’m sure there’s many. So we definitely take some things we see that we like at other companies and try to incorporate that into our strategy, we also- a couple of things we’ve probably done sort of different. I mean, I don’t know of any other company at our size, you know, 7 or 800 or so that has six products. I think that’s kind of a little crazy, but it might be brilliant. Well, we’ll find out in five or 10 years.
Tom: Well, its certainly an industry that moves a lot faster than if you were running, say, an accounting SaaS company.
Tom: Having a lot of bets probably makes a lot more sense here, and does it ever come into conflict between, say, that mission and those bets? Do you ever find yourself trying to untangle wanting to do something commercially, but finding that maybe you think it’s not exactly aligned with the mission of the company?
Brian: Yeah, that does happen sometimes. So especially in 2017 where, we’re probably going to talk about hypergrowth in a minute, but there were so many new assets being created and a lot of this was doing the ICO craze and some of them honestly were not the highest quality assets and some of them were outright scams, and there was a moment there where our customers were really looking to trade some of these assets, and we think a lot about consumer protection. We think a lot about the long term. So we actually decided not to list a lot of these things on our platform that our customers would have probably wanted to trade, and honestly, it would have made us a lot of revenue in that short time period. We decided to play a long term game there, which I think was more in line with the mission. If we got, I don’t know, a million new customers to sign up and they traded all this, but then they lost their money or something like that, that wouldn’t be good for us in the long term. And it would potentially create setbacks from a regulatory point of view on all these things. We took a very appropriate risk waiting there. There are other examples, too, I mean, even just like in 2015, crypto went through this cycle where it was kind of in the doldrums for a little bit and a lot of people were disillusioned. And during those moments we actually made investments in these things that are now starting to work. I mentioned like, you know, Commerce and Wallet and what not. Because we felt like if we don’t help this industry get going, nobody will. And so those were all things where we had to kind of go back to the mission. What are we really doing here?
Tom: It might be a good chance to turn to the concept of culture. You said long term thinking is really critical to Coinbase, and I know that is one of the sorts of key tenants that you’ve published in your Coinbase culture doc. Can you tell us more about the culture at Coinbase and how you define it and what may be more about this doc that you recently published publicly?
Brian: Yeah, well, one of the really interesting journeys that I think a lot of founders go through and I did too was that when a company is a certain size or small enough, you know, let’s say less than 150 people if you want to use Dunbar’s number, you can set the culture just sort of organically. Because you as the founder can kind of have enough touchpoints with enough people. And just through word of mouth people kind of understand how to act. You can lead by example. And you cross a certain threshold and you can’t possibly meet with enough people in the culture- or in the company to really set the culture. What happens is you start of cultural drift, you know, there is a certain office in other city or there’s a certain leader who without clearer guidelines, it’s just they’re gonna start to operate in a totally different way. And occasionally, you know, founders will have this experience where you’ll see something happen in your own company, you’re like, oh, man, how could that have happened in my own company? Right. So I think what you need to do and what we’ve done is we took a moment to sort of, “all right, let’s actually articulate the culture and write it down and integrate that, repeat it a bunch of times, whether that’s a blog post which we put out publicly or put it in our onboarding, you know, mix it into how we promote people and things like that. So, I mean, I can tell you a little bit about that culture just briefly, and if any of these you want to double down on, we can certainly do that. I mean, the first one is just about top talent in every seat, because I think everything comes back to the people. We’re a group that would rather hire, you know, great people, but fewer of them, so we tend to invest maybe like double what a normal company would in finding and developing great talent. The second one is about playing as a championship team, and that means a few things. I mean, one is that kind of put the team first before the company first, before, you know, your own team or your own goals, and there’s sort of an aspect of that. It also means sustained high performance, right? Like a championship team is one where everybody is really expected to hit a high bar, and of course, you know, everybody has a bad season if I’ll torture the sports analogy here periodically but, you know, we need to keep raising the bar so that we can go win championships.
Tom: Is there a conflict at times between top talent and playing as a team?
Brian: Well, so one-of-one of the hiring things that I’ve started to really look out for now, is what I call it is just humility, right? So there is a top talent that is all about themselves, and there’s a top talent that makes the people around them better, so we try to go for the latter.
Tom: Do you try and assess that in interviews? Is that you assessing for that, is that your HR team and the recruiting team early on? Like, how do you actually qualitatively or quantitatively try and figure that out?
Brian: Yeah, I mean, I think the best way to do it is just to integrate it into the interviews and the hiring panels and things like that. So, you know, we might ask people, “tell me about a time when there was conflict in the team you were on and how did you resolve it?”, and some people will proceed to tell you a story about “I can’t believe like this person did something like…I had to really set him straight and, you know, you basically… and other people will kind of say “There were these different opinions and there was some truth to what they were saying, and there was some truth on the other side, too, and we had to figure out a way to work together and resolve that, you know, amicably, and here’s what I learned from it.” To me, humility, a lot of it comes down to learning, and are you seeking the truth or are you just trying to be right and holding a grudge, you know, afterward if the person didn’t agree with you? So those are the kinds of questions I ask in interviews and I try to see where people are.
Tom: One of the things I’ve known in spending time with you and the company is you really index quite high on valuing concise, clear communications as a skill. More so than others, like, everybody uses that—pays lip service—communication is great, but you guys really, really mean it. I think it’d be great if you could share some examples of either the interview process or the presentation process you use when hiring talent to test for that sort of communication skill.
Brian: Yeah, well, that’s absolutely right. I mean, to me, clear communication is something that I personally just value, but I also think it helps the company be a lot more effective because, you know, if somebody could have all the best ideas in the world, but if they can’t get them integrated into the solution with the people around them, it’s sort of discounted the value of that. And, you know I don’t want to over-rotate out on it like there are a number of people at Coinbase that are individual contributors and communication is still pretty important there. But it’s not, I just want to be clear, it doesn’t mean, you know, you have to have great public speaking skills to be a back end engineer here or something like that. But in fact, we have a lot of people that are, they’re really quirky and, you know, they’re just very unique, and they’re terrified of public speaking. I don’t really care about any of that. But if you can, it could be in writing or it could be in one and one or whatever, if you can concisely, clearly communicate your ideas. And also, by the way, listen. Listening is a huge part of communication. Then you’ll just be much more effective. Some of the things I ask people in interviews are like, what’s a topic you know a lot about? Can you teach me the basics of it in two minutes, you know? Some people really can’t do it in two minutes. They have a poor sense of time. Other people can sort of scope, you know, appropriately, scope at what depth can I explain this in a reasonable time and they’ll do that. We also often will have candidates present to a hiring panel. And again, we’re not looking to see, like, are you the world’s best public speaker? We’re looking to see and we sort of artificially constrain the time as well. We might say give somebody like three topics to talk about in 20 minutes, which would be a little bit of a stretch. But we want to see, can they keep it under time? Can they appropriately scope back to what they’re saying and adjust. And so that’s one of the things we look for sure.
Tom: It’s kind of your version of a brain teaser.
Brian: Yes, that’s right. Although I think brain teasers have kind of fallen out of fashion, so, yes. But something like that.
Tom: So another really unique thing about Coinbase’s culture is you’re kind of a startup, you’re kind of a fintech company, you’re kind of a crypto company, and you’re this marriage of a bunch of different things. And traditionally, people in startup culture or crypto culture and financial services are probably pretty different if you had to stereotype them. How do you think about marrying these very distinct cultures under one roof?
Brian: Mm-hmm. Yeah, I would say this is something I definitely underestimated. You know, a while back, somebody was asking me many years ago, they asked me this like, how are we gonna get people from tech and finance to work together? And I was like, what do you mean? It’s just different people come together on teams all the time. What’s the challenge? And it turned out to be a much bigger challenge than I- than I realized, you know, tech has this kind of culture of disruptive innovation, right? And it’s a little bit like, let’s put you know, rules are out there and there’s a box for everything. And like, we’re gonna make a new box, you know, we’re gonna break the mold of what’s come before us. And that’s created a ton of innovation. Sometimes people in financial services are… it’s more of a culture like, you know, legal makes the final decision as opposed to, say, the product team or something like that. And so we really have had to blend these cultures in a way that I didn’t really anticipate how difficult it would be. You know, what I say about Coinbase is that we do hire people from both, heterogeneous teams are stronger. And I do think it’s gonna be key to our success to have both techs and financials services people here. I would say we lead in tech. You know, I think that we welcome people from financial services. And we also say this is going to be probably a very different culture than you’ve been in before. To me, I lean tech just because partially that’s what the realm I grew up in. But also I think tech companies are driving the most innovation and growth in the world right now. And I’d rather be a tech company than a finance company, if I had to choose. But really, we are something new. A crypto company.
Tom: Another really interesting piece of culture and managing culture here is unlike that accounting SaaS company, Bitcoin can be at three thousand, it can be at twenty thousand, it can be back at ten thousand, maybe on the same day. And I imagine that can have an effect on employee morale. So how do you manage that? And do you see effects and employee morale based on these exogenous factors like the price of Ethreum or Bitcoin?
Brian: Hmm. Absolutely. So, you know, sometimes I tell people it’s a little bit like if we were already a public company and everyone’s looking at the share price every day, except it’s super volatile. So there is this thing that, you know, I have to share with people. As an entrepreneur, I’m actually very comfortable in- with ambiguity, you know, and I have to remind myself continuously that that’s not necessarily the default state of a lot of people. You know, I still remember Coinbase when it was a couple of us sitting in a room and we had no idea if we were going to, you know, figure out how to make enough money to get to our series B or whatever. And so now everything that happens to me is kind of like, it’s kind of like we’re on Easy Street, you know. But by comparison to what most people have experienced, it’s insane, chaotic uncertainty, these ups, and downs, and so there is a part of my job that’s really going in front of the company. You know, we do this at our Q and A that we do host every week. We do a quarterly all-hands and just creating a little bit of surety in the organization. It’s like- this crypto has gone through a cycle like this five times now, right. Is it going to repeat exactly the same time, same way as before? You know, who knows? Probably not. But we’re gonna be fine. We’ve seen these ups and downs. And as long as we know we’re starting to diversify our revenue streams, manage our cash very deliberately about how we grow and scale this business. Those are the kind of things that are going to ensure we’re here for the long term. And being that voice of experience I think has been an important role for me.
Tom: I want to turn now to the concept of hypergrowth and managing hypergrowth and Coinbase, you know, probably better an example than just about anything in financial services, has grown a lot since IVP first got involved in 2017, as the market was beginning to grow up. Just last year alone you grew your headcount about 3x and that’s undeniably a really exciting position to be in and very enviable, but a lot’s going to break and you’re going to learn a lot of lessons when that happens. So can you tell us a little bit about what broke, what you would do differently, some of the key lessons you can share?
Brian: Yeah, absolutely. Yeah, it might sound exciting to grow 3x. I can tell you it was not always a pleasant experience. You know, sometimes people told us in the past, they said 2x is probably around the most you’d want, like doubling the headcount of a company. You know, unless you’re like a small team, you can go 10 to 30, I think in a year or something like that. But, you know, if you’re at 200 and you go to 600 in a year, a lot of things are gonna break. And so, you know, if I could go back and do it again, I would probably have scaled a little bit slower. Actually I think it would’ve been easier to do it, do it that way. But you don’t always have a choice. You know, I mean, the market in 2017, we are, we grew about 40x in terms of revenue. So growing 3x headcount was still feeling like we were desperately underwater. But yeah, I mean, to answer your question, a number of things did break during that period. So one was just around communication. So when we were 150 people, everybody knew whatever else was doing. You know, we knew when some product was launching past at 500 people or 600, sometimes employees would learn about something for the first time that was happening at Coinbase by reading a press article. And that didn’t feel good. And so we had to learn how to cascade communications down through the org, through managers. And if you-probably many of you have played that that game telephone right? Where, as you tell it, you sell your friend something and they tell them and it comes out totally different even after like two or three or four hops. And so just developing these communication playbooks, like, all right, let’s create a one-pager with the talking points that we’re all aligned on and then Brian is going to say the same thing that the execteam does and the managers under them and so on. And we’re going to put it in, you know, different, like saying things over and over again in different channels, you know, so say, send one in the email in writing, say it verbally at the AMA that week, post it publicly in an external blog post, you know. So those kind of repetition and all speaking from the same playbook, are on the same page, really start to help. The second thing that broke down was actually decision making. So at a smaller size, you know, you as the CEO or maybe a couple other people can be the decision-makers and just unblock things and at a larger size people didn’t know who is the decider on this? Who needs to be giving input on this. And there was a lot of consternation just about how is this-I got brought in at the last minute and this decision was already made and nobody asked my opinion and who do I even go to? And somebody vetoed my thing. So we actually wrote out this decision-making framework, which I did a blog post on as well. We’ve modified it since then slightly, but we use a decision making framework called Rapid, which… is been really helpful. And then just the last thing I’d say that broke when we grew that quickly was, you know, we hired in an entirely new leadership team and just getting the level of cohesion and trust to be high on that team with a bunch of brand new people. That takes time and there’s no shortcut for that. Teams have got to go through some challenges together and they’ve got to develop a personal relationship with each other and get to know each other. And so those are all things that we worked on.
Tom: On the topic of getting management teams to gel, this is something we see a lot at our stage. We’re by definition investing in companies that are growing quickly and growing your management teams quickly. And you’re bringing a bunch of very talented people who are very experienced, very sure of themselves, into the room at the same time. Are there really specific tactical things you’ve done to get those teams, those executives to spend time together and get on the same page?
Brian: Yeah, there’s a few that have worked well for me. So one is doing every quarter or two an exec team offsite. And that the goal of that is to get people to, you know, go for a walk, have dinner with each other, get into some of the personal, get to know you stuff. But it’s also to practice how you want to operate together and try to come up with a common language for how we’re going to operate. So that, you know, every company has this language and there’s some that we’ve been starting to use using some different books that are out there, like there’s, you know, Conscious Leadership and The Advantage. And there’s a number of books that do this kind of thing. Conscious Business is another one. So the offsite, I think is a really good tool. Another one is that we’ve used an exec coach for a while. Different ones over time. And one of these started out as just being my coach, my CEO coach. And he turned out to be very useful in terms of any time there was like interpersonal conflict or people just couldn’t get past it, figure out how to work together on something mediating those sort of things. And, you know, I jokingly called it like a couples therapy, and that was a big thing that helped, and then the last thing I’d say is, you know, you mentioned this idea of people coming in and the executives who’ve run big teams and they’ve done a lot of different companies there. These are very brilliant, confident people, you know, who have sort of survived The Hunger Games of business, if you will, to get to the other level. And not all business cultures are the same, you know, especially like in finance and these places, there’s some kind of cutthroat stuff out there. Right? And so just sensitizing people to this is a different kind of environment that I want everybody to work in. We are going to be very collaborative and really just again, interviewing for humility. I like looking for, are these people committed to being right. Or are they curious about what they could learn in this situation and just want to find the truth? So those are the things that have helped us.
Tom: Brian, this has been great. Thanks so much for joining us today on the IVP’s Hyper-Growth Podcast. And for anyone interested in learning more about Coinbase, please visit Coinbase.com or download the Coinbase app from your preferred mobile app marketplace. Thanks for listening.
Brian: Thanks, Tom.
Narrator: Thank you for listening to IVP’s Hyper-Growth Podcast. You can learn more about us on IVP.com or join the conversation on Twitter by tweeting @IVP.