Lars Hinrichs
XING

XING AG (named Open Business Club until the end of 2006) is an online social business community founded in August 2003 in Hamburg, Germany, by Lars Hinrichs. The platform was officially launched on November 1, 2003. The company went public on December 7, 2006 with an issue price of €30, raising a total of €35.7 million. XING became the first Web 2.0 company to go public in Europe. Expanding its presence in global professional networking, XING has acquired other business-oriented social networks, including eConozco and Neurona, both based in Spain, and Turkey's cember.net.

Pedro Santos: How did you have the idea [for XING] and how did you implement it?

Lars Hinrichs: The idea was quite simple. It was the combination of more than one thing. I read a book, The Tipping Point¹, by Malcolm Gladwell, on the one side. And on the other side, I always wanted to know the context of my contacts, because this is actually for business reasons a most important opportunity for making new business. The people you know, basically you know by one degree of separation. So this is how it comes.

Santos: Okay, so you had that idea. How did you implement it? What steps did you take to make XING a reality?

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Hinrichs: From idea to incorporation, it was just a week, and I just started. I knew this was the new thing I wanted to do. I started with building the company, setting up the legal structure, getting a production team inside. Three months later, we started with a public data.

Santos: Okay. How did you finance that initial launch?

Hinrichs: Completely bootstrap.

Santos: And after the launch, how did you grow it? How did you grow the network? Was it just asking friends of friends to join in? Was it some marketing campaign?

Hinrichs: I just invited everybody I knew. A lot of them followed. I asked some friends of mine, who were also super connectors, to add their part.

Santos: Yeah, Okay. You never did campaign for XING?

Hinrichs: No, never.

Santos: When did you actually raise money for the company, if at all?

Hinrichs: I did, let me think. I did in May 2004. I did some things for the insurance and the rates at half a million euros.

Santos: Okay, and the objective of that round of funding, was it to grow internationally?

Hinrichs: The company was cash-flow positive as of ninety days of operation. So when I funded the company, the company was already cash-flow positive. I wanted to hire some more people. Since it's a subscription business, we had the issue of that we have liabilities on the one side. You can't book the entire revenue you get into the months, so you have to have accrual over the time. In bookkeeping, it's a liability, and to solve this kind of liability problem, yes or no, it's a theoretical problem—does it work?

I decided to take the venture capital angel money. Half a year later, when the angels saw how good the system was, everything went well, they said they wanted to invest another time.

I said, “Okay, if you go for the doubling valuation,” which was then ten million pre-money, “then you can have something more.” Within the year, from XING Corporation, the valuation of the company was €10 million.

Santos: Okay. Going back to the beginning, how did you actually get the platform? Did you build it yourself? Did you hire a team to do it?

Hinrichs: I hired a team.

Santos: Okay, so in those ninety days, somebody was building it while you were getting in contacts into the platform?

Hinrichs: Correct.

Santos: You did an IPO in only three years. Basically, can you explain a bit how an IPO process is, what were the requirements and so on, and why you did it so fast?

Hinrichs: Before we did the IPO, we did a venture round in 2005, actually. And then in 2006, we decided “now's the time to go IPO.”

Santos: But what was the reasoning behind the IPO? Was it to raise more capital? Was it to take some money off the table?

Hinrichs: No. IPO is never an exit event for the founder. It's actually another round of financing with people you don't know. Back then, there was opportunity to make a buy and build strategy. So we bought it with the liquidity we got on the stock exchange. We bought three or four, I think, five companies.

Santos: And those were the companies that you bought in Spain and Turkey, in order to expand the network, correct?

Hinrichs: Yeah, correct.

Santos: Okay. How different was it to run the company as a private-held company and a public-traded company?

Hinrichs: I'm not really sure that there is a difference. I don't see a big difference, because you have to run your private company according to statutes you set. So for us, it was not a big difference. Of course, you do some more investor relations. But during my time, the company I think close to tripled in the revenue. We grew from no margin to an EBITDA² margin of thirty-five percent. The shareholders were mainly happy.

Santos: Okay. Did your role in the company change after it went public, or you stayed in the same role?

Hinrichs: Yes, it was more auditing stuff, but in the end my work was pretty much similar. You go on some road trips in between that. But it's always fun to speak about your own company. I think it's a very different position if you're a hired manager to run a public company.

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Santos: What were the main difficulties or important points, and what lessons did you learn along the way of creating XING?

Hinrichs: I wrote down one hundred and twenty-eight lessons learned.

Santos: [laughs]

Hinrichs: From things which I did wrong, to things that I did right. Actually, there were some private lessons learned. I'm not going to share with you. But XING, I think the main point you should take from the interview is that after a company, I always write down things that went good and bad, because this is the only way you learn. If you visualize what it was, what have you done right and what have you done wrong? And admitting failure, I think for entrepreneurs, it's always tough, but it's really important that you do.

Santos: Can you give an example of a failure that happened in XING, a public one, not a private one?

Hinrichs: A public one, which we had at some point, the idea that we lost focus of the customers. So right at the beginning, many corporations came to us and said, “This is so cool. We want this for our internet.” And we said no in the beginning, but more and more corporations came, and the checks were getting bigger and bigger. We said, “Maybe there is a business model.” So we developed, in the end, an ISP version of XING so that everybody can have their own XING. But the problem was that we lost focus of our real customer. The real customers are not the big corporations who pay you the big checks. It is the user in the end. It doesn't make sense for the user to have the online business club. XING, the private one and then you have to register all once again. This was something we did wrong.

Santos: Okay. You just mentioned the original name of XING. Why did you actually change the name right about the time of the IPO?

Hinrichs: Yeah, why not?

Santos: Well, I would expect that.

Hinrichs: XING, Open BC was never possible to get a brand. So this was the problem we have with the name. It was just not possible. You don't want to be an open club. We had the problem that BC in English stands for before Christ. We had suddenly copycats who named confessed themselves Access BC, Social BC, etc. There was no branding possible.

Santos: But you chose quite a critical moment to change the name in an IPO. Wasn't it a risk that it could devalue the IPO? Or was it exactly the opposite and it actually helped?

Hinrichs: I never think it is a problem. I just do what I think, what is good.

Santos: Okay. Interesting. When did you become aware of LinkedIn, and did it actually change your strategy in any way?

Hinrichs: LinkedIn was in the same market as we, and they started like nine months earlier. But they had a completely different business model. When they saw us, they changed at that time their business model to ours.

Santos: What was their business model then?

Hinrichs: It was a job site, where you contact people you don't know. It was just something completely different. And over time, they realized that networking and this degree of separation is the key thing and nothing else. So they copied … probably all our features.

Santos: Yeah, Okay.

Hinrichs: It's things like who visited my page, that you can contact people, and to have management, groups, discussions, marketplaces, job ads, etc. I think we were the pioneer in close to everything.

Santos: Okay.

Hinrichs: They just had a better strategy. They had enough capital raised. So they went “grow, engage, monetize,” and we had “engage, monetize, and grow.”

Santos: Yeah. Well, that's a typical American tactic, right? To grow very fast and then to monetize it later.

Hinrichs: Correct.

Santos: Which leads me to my next question. What is your view of starting a venture like XING in Europe vs. in the US? What are the advantages and disadvantages, in your opinion?

Hinrichs: I think you can build a great company everywhere, but you get more capital, in my estimation, in America than in Europe. You're attracting different kinds of people.

Santos: Yeah, true. Did XING ever try to enter the US market or was it focused mainly in Europe from the beginning?

Hinrichs: I didn't get your question.

Santos: Has XING ever tried to enter the US market?

Hinrichs: No, we didn't.

Santos: Okay, so it was always Europe from the start?

Hinrichs: Yeah, it was always European centers.

Santos: Okay. Well, the next question is a tricky one. Some time ago, you sent a tweet that you're the only founder of XING, but there are other people claiming themselves as co-founders. Can you elaborate a bit more on that?

Hinrichs: I didn't get the question. Can you repeat once again?

Santos: Some time ago, I believe one year ago, you sent a tweet that you are the one and only founder of XING.

Hinrichs: Ah, yeah. I think if you are successful, you have many people who also claim your success. Suddenly, I even met several people who stated officially that they are co-founder and a founder of XING. I'm just fed up with people who claim they are co-founders.

Santos: Yeah, but are these people that worked for the company, that had any involvement with the company, or not at all?

Hinrichs: The company didn't have any co-founders. Some people were not even employed and called themselves co-founders of XING.

Santos: Okay, that is not a good thing.

Hinrichs: No.

Santos: It was just to be sure. Now, after XING, you started Hack Forward. Can you talk a bit about that?

Hinrichs: Sure.

Santos: Yeah?

Hinrichs: With Hack Forward, I am fulfilling my passion. I love to work with programmers, because they are actually the most creative people. I think that they're actually the ones who are the artists of the twenty-first century. With Hack Forward, we want to free them from their day job and have them to create their own game-changing companies. You see, in Europe it's quite difficult to start, as a tech guy, a company. People only want to invest in larger companies with proven business models. Actually, I would say that it's quite difficult in Europe to do something like this.

Santos: Yeah, it's a very different model from all other accelerators, even in the US, as far as I understand.

Hinrichs: Yeah, it's completely different. I would say game changing.

Santos: Can you just explain a bit how it works for the people of the interview? I have an idea because I've read about it.

Hinrichs: I think everything is transparent on this side, and there's even a press section where I think that question is adequately answered.

Santos: Yeah, true.

Hinrichs: Then there are a few videos, like why I founded this and etc. I think watching the video on the main page is probably the best thing.

Santos: Okay. What is your view on the European start-up community now? It has changed a lot since you started Hack Forward.

Hinrichs: Absolutely, but it has changed for more than one reason. I think the mentality changed a bit in Europe. More people do like creating their own company. We have now eight, nine years of good funding opportunities, probably more like eight. We're going to see [if] the financial crisis we have currently has an impact on entrepreneurship or not, or on financing or not.

Then it changed that you can actually start with a lean start-up. There is no need to buy big expensive hardware or software like databases. Everything that you need today is free or close to free.

In the end, you only need the manpower. To get the best people, you have to attract them with more than money. I think starting, co-starting, or helping entrepreneur software developers to start their companies, I would say that this is really a challenging, new approach.

Santos: Yeah. How do you attract those talents beyond the money? How do you? What do you think are the key points?

Hinrichs: Oh, we attract them by … How to say it? They have to find us.

Santos: Yes. You have a different model, right, which is through the network of referrals?

Hinrichs: Yeah, correct. They have to come to us.

Santos: Okay, and do you think that's the best way of finding the best? Or is it because the local ambassador knows who are the best?

Hinrichs: No, we want a filter.

Santos: Okay. So the local referrer is the filter?

Hinrichs: Yeah.

Santos: He knows the people and he'll only refer the best ones to you.

Hinrichs: Yeah.

Santos: How do you choose the filters, the referrers?

Hinrichs: They're people who are very well-known in other things. They're software guys, advocates, or in academia.

Santos: If they do it as volunteers, or are they connected to the program more closely?

Hinrichs: Oh, they are all invited and they're coming regular to our events. This one we engage them. Every three months we meet in New York or Berlin.

Santos: Okay, fine. What advice could you give to aspiring founders that want to start today?

Hinrichs: The main advice is just start. Many people have hundreds of ideas, but they never really start their own project. And if you fail, start again. Entrepreneurship is, in my point of view, the best and the only way to personal development, to financial success and to happiness in the business sense.

Santos: Yeah.

Hinrichs: But most people actually don't try. Then once you start, just start to learn. It's a great endeavor.

Santos: And if you did it all over again, would you do anything differently?

Hinrichs: Oh, I would do tons of things differently.

Santos: Can you give some examples?

Hinrichs: Hiring even better people, don't go for second best. Only go for world class.

Santos: Okay, sometimes it's hard to find out who are the world class vs. the second best.

Hinrichs: Yeah, true. But you should.