Barry Diller’s System of Discovery, Debate, and Development. Part II.

“If you hire people at senior positions, you are a failure.”

This is the second of two pieces on Barry Diller. In the first essay, I gave my take on Diller’s background which I believe is key to understanding IAC’s culture. In this piece I’m going to explore Diller’s “system” or philosophy around people and ideas.

A young leader’s pitch.

IAC is about to spin off Vimeo, a SaaS business serving video creators valued at $5.7 billion in its latest private funding round. The business had been acquired “almost by accident” in 2006, as part of the $26 million purchase of Connected Ventures, a company that owned CollegeHumor. Vimeo was a web player used for the site’s video sketches. As IAC’s CEO Joey Levin wrote in the latest shareholder letter, Vimeo lacked a sustainable business model. It offered a higher quality experience and more control for creators than Youtube. But it lacked scale crossing $200 million in revenue as recently as 2015.“We debated selling it, and in its darkest moments, even shutting it down.”

By 2016, change was in the air. Joey Levin was taking over as interim CEO. While the core software product for video creators was growing, Levin planned to enter the content streaming wars. He wrote: “the gold rush in the transformation of pay TV and movies is showing too much opportunity to pass up.” “Vimeo has the once-in-a-generation opportunity to, following in Netflix’s footsteps, deliver compelling subscription viewing experiences for consumers in the market for pay TV. I believe we can do so at a fraction of the cost of other major competitors by virtue of the audience and content benefits conferred upon Vimeo through our existing marketplace.” And 2017, Vimeo hired a team from Paramount and Hulu to work on this subscription VOD offering.

At the time, Anjali Sud oversaw Vimeo’s software product. Like Khosrowshahi and Levin, Sud had started her career as an investment banker. Unlike them, she had been rejected by the bulge bracket banks and worked at a boutique firm called Sagent Advisors. “I got rejected from every single big investment bank. I remember leaving one of the interviews, and they told me that they didn't think I had the personality to be a banker. That definitely was a low point.”

She continued undeterred, attended Harvard Business School, and worked at Amazon and before joining Vimeo. Sud had a different vision of Vimeo’s future: “Vimeo always had an identity crisis. We had an amazing brand and platform, but it was hard to see what to do with it.”

She noticed the demand from creators and small businesses who used Vimeo to post advertising clips and product demos. “It was everything from mom-and-pops to tech startups to the marketing department of large corporations. They were so diverse, it had to be a trend.” People used the platform to host videos to distribute them on the big social media platforms and their own websites. “There was a huge group of users that no one was serving.”

“YouTube and Netflix are destinations for watching videos. Vimeo isn’t a destination. Our future is all about finding impactful and innovative ways to empower video creators. I can make this business much bigger under the strategy that I’m learning.”

Sud believed IAC underestimated the market potential. She pitched Levin and Diller on a change in strategy: abandon the original content effort and focus on turning Vimeo into the premier publishing platform for video creators. She wanted more resources to build tools for creators and businesses.

“It became really clear that look, the stakes in original content, people were investing billions of dollars in original content and there were all these other platforms out there that were solving that need for audiences. Everyone was focused on the viewer experience over the content, but what about all the people that had to make that content?”

Pretty bold of her to question the strategy just announced by her CEO to shareholders.

Still, Levin backed her play with a team and resources. When it took off, she was promoted to CEO of Vimeo in 2017, at 32 years old.

“When I stepped in as CEO, it was really to focus Vimeo on being, what we say internally is 'creator first,' which means every decision we make is always through the lens of the creator. We aren't a destination as much anymore as we are an enabler for you to get your videos out there everywhere.”

This story encapsulates Diller’s philosophy. A young and hungry executive pitched an idea. Levin and Diller listened. Probably debated a bunch, challenged the idea. But decided to back Sud, let her take the risk. And when it worked, they immediately rewarded her with more responsibility. Finally, they let go. And while College Humor has been sold back to its founder, Sud and Vimeo are about to enter Diller’s prosperous diaspora of great leaders and companies.

Barry Diller’s system.

Barry Diller’s business has always been to bet on ideas. First on TV programming, then movies, then businesses at the intersection of commerce, content, and communication.

Both as a leader and a capital allocator he preferred in-house development. In Hollywood, he trained his team to put together their own projects instead of buying neatly assembled packages from the talent agencies. On the Internet, he pursued a buy-and-build acquisition strategy rather than engaging in bidding wars for trophy assets. He wanted control of the concept and the budget.

I believe he built an intuitive process that reflected his personality and suited the industries he competed in. He needed ideas, a way to identify the good ones, and talented people to handle execution.

While people were key to Diller’s success, he doesn’t have, or won’t disclose, a specific way of hiring stars. Rather, he seems to operate on a combination of intuition and testing. He “pushes responsibility down,” testing people with more responsibility than they feel they can handle. He lets people take risks. And keenly watches if they grow, if they sink or swim.

He emphasized hiring young executives who would keep him in the flow of new ideas. It’s an elegant way to contest the seemingly inevitable closing of the mind to innovation over time (see Douglas Adams’s framework of ordinary, exciting, and against the natural order).

When it comes to new ideas, “nobody knows anything.” Even great ideas are often dismissed early on. Diller himself stated that business decisions routinely have to be made with insufficient information, that the right answers are “not obvious.” For him, the path to answers is called creative conflict. When Diller had to allocate millions to movie pitches, he needed a process to eliminate weak ideas and unearth conviction. He demanded that his people show passion and advocacy for their projects, or he would refuse to back them. The production of a movie or creation of a business would require years of hard work. This way, Diller could at least de-risk the human component. Did his executive have enough passion to fight for the project for years, to will it into existence, no matter what? You could say making movies came at least partially down to having the courage to yell back at Barry.

I see it all coming together as a system for discovering and developing ideas and people through debate and testing. A kind of incubation-to-spin-off flywheel that let Diller allocate financial and social capital and reap the benefits through an expanding universe of protégés and projects. One of Diller’s great strengths is that he feels no need to hold on to a great executive or company. He is confident he will find new ones. And he knows he will keep his relationship with those who left to grow outside the “mother church” IAC.

  • “Push responsibility down” the hierarchy to young execs.

  • Turn the team into an human search engine.

  • The System of Advocacy: identify the highest conviction ideas through creative conflict.

  • Let them take risks.

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