Reid Hoffman is not only the billionaire cofounder and chairman of LinkedIn, he's one of Silicon Valley's top angel investors and sits on the board of several companies, including Kiva and Mozilla. He's also the co-author of two business books and renowned as one of the savviest business minds in the tech industry.

Hoffman tells "The 4-Hour Workweek" author Tim Ferriss in the new episode of Ferriss' podcast that to better understand how companies are run, it's important to note that there are three types of CEOs. Each is best suited to the role depending on the size of the company and has their own skill set.

Here are the responsibilities of each kind:

  • Small company (1 to 50 or 100 people, depending on industry): It's the CEO's responsibility to build a strong team and work together on a few clearly defined problems. The CEO needs to be in the trenches and focused on establishing the company's identity.
  • Medium-sized company (50 or 100 to 500 or 1,000): The CEO needs to focus on process and organization. This entails setting a new set of priorities for the company and training employees on how to meet these new goals.
  • Large company (500 or 1,000+): The CEO is primarily focused on leading the company's strategy and developing and maintaining the corporate culture. This means creating the appropriate structure for the company, ensuring the right people are in essential roles, making the most important hires, and empowering employees to meet their goals. It requires thinking on a much larger scale and doesn't involve dealing with the nitty-gritty of minor problems or concerns that arise on a regular basis.

Hoffman says founders often experience difficulties when a company advances into a new stage, since they often do not feel capable of leading a transformed company.

He says that, ultimately, every company is different. Founders may choose to replace themselves with a more seasoned executive, as Hoffman did at LinkedIn with Jeff Weiner, or they can stay on and surround themselves with top talent, as Brian Chesky did at Airbnb.

Hoffman's insight nicely complements that of Hiroshi Mikitani, the founder and CEO of the multibillion-dollar Japanese e-commerce conglomerate Rakuten. According to Mikitani, anytime a company roughly triples in size, everything about it, from how payrolls are determined to how meetings are scheduled, needs to change in order to operate efficiently.

If a founder finds their own replacement or is replaced by the board, Hoffman says, it's essential that the new CEO have a founder mentality, since bringing in someone who is talented and experienced is not enough. He experienced this at LinkedIn — his first replacement, Dan Nye, was a gifted leader but not the ideal culture fit that he would eventually find in Weiner.

"Being there at the start isn't the only path to being a founder," Hoffman writes in a 2013 LinkedIn post. "'Founder' is a state of mind, not a job description, and if done right, even CEOs who join after day 1 can become Founders."

You can listen to the full interview between Ferriss and Hoffman at Ferriss' website or iTunes.

This story first appeared on Business Insider