Book Summary — Founders at Work
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1 paragraph summary:
Interviews of a lot of iconic startup founders, many of them who I didn’t even know about, as the book was written in 2007. It is a fun trip down history lane and fascinating read to compare the world back then to know. The book provides so much context of what the early days looked like and many incredible quotes.
In fact, I’d say determination is the single most important quality in a startup founder.
If the founders I spoke with were superhuman in any way, it was in their perseverance.
As Howard Aiken said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”
Starting a startup is a process of trial and error. What guided the founders through this process was their empathy for the users. They never lost sight of making things that people would want.
Paypal
Our first round of financing was actually transferred to us via Palm Pilot. Our VCs showed up with a $4.5 million preloaded Palm Pilot, and they beamed it to us.
Then all these people from a site called eBay were contacting us and saying, “Can I put your logo in my auction?” And we were like, “Why?” So we told them, “No. Don’t do it.” So for a while we were fighting, tooth and nail, crazy eBay people: “Go away, we don’t want you.” Eventually, we realized that these guys were begging to be our users.
“Ah, one per week. OK.” Then it was like an avalanche of losses; 2000 was basically the year of fraud, where we were just losing more and more and more money every month. At one point we were losing over $10 million per month in fraud. It was crazy.
I think a good way to describe PayPal is: a security company pretending to be a financial services company. What PayPal does is judge the risk of a transaction and then occasionally actually take the risk on. You don’t really know the money’s good; you just sort of assess the riskiness of both parties, and you say, “I’ll be the intermediary with the understanding that, on occasion, PayPal will be on the hook for at least part of the loss if the loss occurs.” Which is very tricky; it’s a hard position to be
What did you do that your competitors couldn’t? Levchin: The really complicated part is figuring out the risk. The financial industry people understood the risk, but they weren’t willing to do the sort of stuff we did, where they would basically say, “Bad guys over here. Let’s get all the bad guys out.” There are tools to just say, “Give me your social security number, give me your address and your mother’s maiden name, and we send you a physical piece of paper and you sign it and send it back to us.” By the time that’s all accomplished, you are a very safe user. But by then you are also not a user, because for every step you have to take, the dropoff rate is probably 30 percent. If you take ten steps, and each time you lose one-third of the users, you’ll have no users by the time you’re done with the fourth step.
We built the system to be viral from day one. The idea was: I can send you the money, even if you aren’t a member. If I send you $10, you get an email saying, “You have $10 waiting for you. Sign up, and you can take it.” That’s the most powerful viral driver there is. Free money available to you.
For eBay buyers and sellers, it became this crazy loop where buyers would be like, “I want to pay you with PayPal,” and sellers would be like, “I don’t accept PayPal.” And buyers would say, “That’s OK. I’ll just send you $10, and you can sign up.” So the seller would get infected, and the seller would say, “Oh, this is really simple, so I only accept PayPal.”
Try to have a good cofounder. I think it’s all about people, and, if you are doing it completely alone, it’s really hard. It’s not impossible, in particular if you are a loner and introverted type, but it’s still really hard.
If you have a good team, you are halfway there. Even more importantly, perhaps, you have to have a really strong cofounder. Someone you can rely on in a very fundamental way.
Hotmail
We found that we were not the best at selling ads, so we outsourced the whole thing to another company and said, “You guys go sell the ads for us. We’ll just focus on delivering these ads to you no matter how much you sell them for. Just give us a percentage of revenue with a minimum commitment and we won’t go to anybody else.” That minimum commitment they gave us, which was about $1 million per month, was alone sufficient for us to break even. Our costs were so low; we were spending about $1 million a month. So though we were not wildly profitable, we were not losing that much money.
They were our partners. We needed to have a directory of users that people could search and send email to. Instead of building our own directory, we partnered with Rocketmail. We said, “OK, we’ll use your directory on our website and we’ll send you our registration data so you could register these people’s email accounts.” We didn’t want to build a directory just for people to search for email. All they had was a directory, that’s what they specialized in, that was their business. They found out how many registrations we were sending them daily — they saw our growth from hundreds to thousands to tens of thousands, and that’s when they said, “Even we ourselves cannot get these kinds of registrations on our website. We should do email.” So they decided to do email and that’s how they came up with Rocketmail. Livingston: Were you pissed? Bhatia: They are also funded by Draper Fisher Jurvetson. So Draper was seeing two of its own companies create two different email systems. We felt bad that they had done it, but we couldn’t go to Draper and say anything. It was a decision that the company took, that’s what DFJ told us, and we were pissed at them, but at that time we knew we had to not share too much information with DFJ as well.
I think I knew that Hotmail was going to become successful one day. I was just shocked that all of that happened in a span of 20 months from start to finish.
Sometimes ideas are born out of necessity: you solve a problem for yourself, and you hopefully solve it for a number of other people.
The one lesson that I’ve learned in my experience while I did Hotmail and since I’ve done Hotmail is you have got to own the customer. The customers came to us for free at Hotmail. Even though they were free customers, what the last 10 to 15 years of my experience of the Internet has taught me is that it’s OK if you don’t monetize them right up front. Eventually, you will be able to. But having that customer base and being able to tap into that customer base and upsell them on services, or advertise — you can always make money off them.
Make sure you write a business plan because it will crystallize your thoughts to communicate your ideas with somebody else. Make sure that once you have written your business plan, you have somebody read and critique it and ask you questions.
Essentially it’s a plan that says what the company is going to do, what problem it is going to solve, how big the market is, what the sources of revenue for the company are, what your exit strategy is for your investors, what amount of money is required, how you are going to market it, what kind of people you need, what the technology risks are, marketing risks, execution risks. Those are the fundamentals of what goes into a business plan, and many people have it in their heads but don’t write it down.
You’ve got to own the customer and make sure there is a full loop between your product and that it has the least amount of resistance before you get to your end customer. Do partnerships; what Google did with partnerships was phenomenal — giving the search away to other companies to help them make their so-called portals. But in the end, Google got the customer because they got the branding.
Apple — Wozniak
All the best things that I did at Apple came from (a) not having money, and (b) not having done it before, ever. Every single thing that we came out with that was really great, I’d never once done that thing in my life.
The Homebrew Computer Club, we felt it was going to affect every home in the country. But we felt it for the wrong reasons. We felt that everybody was technical enough to really use it and write their own programs and solve their problems that way. Even when we started Apple, we had very mistaken ideas about where the market was going to be that big. We didn’t foresee the VisiCalc spreadsheet.
Excite
introduction to Vinod Khosla, who ultimately funded the company along Vinod Khosla interrupted the demo and said, “Can your technology scale? Can it search a big database?” And we said, “That’s an interesting question. Nobody’s asked us before.” We liked the fact that he didn’t ask us the “how do you make money?” question. We answered honestly, “We don’t know because we can’t afford a hard drive that’s big enough to test.” In a kind of Jerry Maguire “you had me at ‘hello’” moment, he takes out his cell phone, calls his assistant and says, “I’m meeting with Joe Kraus and Graham Spencer of Architext and I want you to buy them a 10-gig hard drive.” Which at the time cost like $9,000. And we were forever indebted to him.
The hardest part in a startup is that you wake up one morning, and you feel great about the day, and you think, “We’re kicking ass.” And then you wake up the next morning, and you think “We’re dead.” And literally nothing’s changed. You haven’t made some big deal, you haven’t sold something new. Maybe you wrote a few lines of code over the course of that last day. Maybe you had some conversations with people, but nothing’s really moved. It’s completely irrational, but it’s exactly what you go through.
We were too young to realize that existing companies’ biggest problem is legacy. Period. They can’t focus on new businesses because they’ve got to manage their old ones.
That was what helped launch the company. It’s so ironic. If you look at the way that a lot of huge companies get built … Microsoft built itself off IBM, unwittingly. Excite built itself unwittingly off Netscape. Google built itself unwittingly off Yahoo. I don’t think we would have gotten where we got without the Netscape deal and we certainly wouldn’t have gotten the Netscape deal without a really valuable lesson in persistence.
I see way too many people give up in the startup world. They just give up too easily. Recruiting is a classic example. I don’t even hear the first “no” that somebody says. When they say, “No, I’m not interested,” I think, “Now it’s a real challenge. Now’s when the tough part begins.” It’s hard to identify talent, but great people don’t look for jobs, great people are sold on jobs. And if they’re sold they’re going to say no at first. You have to win them over.
“Success is 50 percent luck and 50 percent preparedness for that luck.”
Other thing that surprised me was how well companies can do if you challenge them with these big, crazy goals.
Advice: One is hiring slowly and more carefully. Another is be cheap, cheap, cheap. Also, get the legs of the business underneath it before you run terribly fast. We were always playing catch-up at Excite and I never liked that feeling.
Lotus
And I intuitively did well when I was leading the whole team, but once we got past 25 people, you can’t do that. And so I made a series of classic mistakes in hiring. And not building a good middle management structure. And not recruiting a board that could help me build the company.
It was the ’60s; I have the pictures to prove it. I don’t remember any of it, but as someone said, if you can remember the ’60s, then you weren’t there.
These types of companies tend to reflect the personalities and interests of their founders.
Microsoft is very much cast in Bill Gates’s image; and Apple, Steve Jobs; Borland, Philippe Kahn. And so we tended to have more creativity and innovation.
We actually at one point tied a portion of the managers’ bonuses to how well their direct reports viewed them exemplifying the corporate values. I made every single manager get on the support lines and listen to customers, no matter what function they were in.
Iris Associates
The common theme to both Iris and Groove was the fact that the ideas were not based on technology, but on a need I saw for users or potential customers for the product. I’m an engineer by training and I tend to be one of these people who believes he can accomplish basically anything in software — it’s just a big toolbox.
Before I start a company, I typically write a couple of founding documents. One of them is very outside-in: it’s a scenario-based document, describing the high-level challenge that I’m trying to address and the end user scenarios that we are trying to solve. This attempts to explain what we’re trying to accomplish to anyone who joins the company or we might need to get financing from.
Then I create a second, bottom-up document describing the different technologies that will have to be assembled to accomplish that vision.
Blogger
There were something like 30 projects that I had started on and not finished. My total weakness was not focusing on things. So I had this idea and I loved it, but very clearly we were only three people and we had to contract to pay the bills and we couldn’t start another product. We had this big thing we were trying to do. So it just kind of sat in the back of my head, but it wouldn’t go away. It kept bugging me.
Which I think is a theme for startups in general because people live and breathe them and become friends, date and merge their lives together. And then, if things go bad, it’s bad in ways that are much more devastating than your work going badly.
I think one of the things that kills great things so often is compromise — letting people talk you out of what your gut is telling you. Not that I don’t value people’s input, but you have to have the strength to ignore it sometimes, too. If you feel really strongly, there might be something to that, and if you see something that other people don’t see, it could be because it’s that powerful and different. If everyone agrees, it’s probably because you’re not doing anything original.
Another thing is that luck comes in many forms — and often looks bad at first. I always look back on the deals that we didn’t do and the things that didn’t work out, and realize what seemed like a bummer at the time was really lucky. Like the early acquisition opportunities. These obviously would have been really bad, as opposed to what happened later. Through that whole experience that’s one of the biggest things that I’ve taken away: if you have some plan and it doesn’t go that way, roll with it. There’s no way to know if it’s good or bad until later, if ever.
How far you can get on a simple idea is amazing. I have a tendency to add more and more — the ideas always get too big to implement before they even get off the ground. Simplicity is powerful.
Yahoo
Looking back, I don’t think I understood the time commitment or the emotional commitment it takes to get something off the ground. Despite how everything grew, it was a task just staying on the wave that was the Internet. Very, very long hours.
Marimba
Over the years, I’ve learned that the first idea you have is irrelevant. It’s just a catalyst for you to get started. Then you figure out what’s wrong with it and you go through phases of denial, panic, regret. And then you finally have a better idea and the second idea is always the important one.
It is not very interesting to write about mediocrity. You have to write about the extreme, because that is what people want to hear about. So when companies are all about selling product, traveling and working hard, it’s all really boring stuff.
Anybody can run a company up to 100 people. You just have to be intelligent and have good intuition. There’s a lot of tedious work you need to do, but it’s not that hard. But there’s a point when the company gets bigger that it just becomes a management problem; it becomes something that you have to have experience in. Managing people and motivating teams requires a very different skill; it’s not something that you can do by the seat of the pants. So the lack of experience eventually begins to show if you don’t have somebody who can make decisions, for example.
And that tells you that as a founder, you have the skills to start companies from scratch, but it doesn’t necessarily mean that you have the skill to grow it till they’re larger.
If you have the energy to do it, then you should try it yourself. But you do need to have the ability to form a team around you with good people.
Talent attracts talent.
A lot of people get stuck on the idea. They all want to invent something and go execute on it. I think that’s a fallacy. You have to have an unfair advantage in that you have to be good at something, or you have to have a direction that you’re interested in or a market that you see an opportunity in — but you shouldn’t get stuck too much on the details, because you can’t foresee your future anyway. Because you’ll go through so many changes, I don’t think it pays off to overanalyze the first business plan, for example. The first business plan is there to make sure you can use Microsoft Word.
“If only I had gone with my intuition, things might have been different.” So I might rely more on my intuition if I were to do it again.
Don’t take anything with you. Especially if you go and do something that is somewhat competitive with your previous employer. Although you might not have actually taken anything — ideas, physical things, or time — if you’re successful, they’ll come and sue you just for fun. They’ll have a really good starting point because you are a previous employee. You must have taken something because you’re successful now, right?
TiVo
If you think about all these massive things that we had to deal with every single day of TiVo’s existence, you realize that it was a big deal and not for the faint of heart. You had to kind of learn to have fun with it and not to take it too seriously.
Viaweb — Paul Graham
It’s never a deal till the money’s in the bank. So many things can go wrong with deals, and they all do.
You know, in retrospect I think the big problem with our investors was that we weren’t forceful enough with them. I think investors like to be bossed around, like horses. It reassures them when you’re in control.
We were big beneficiaries of that rule that on the Internet, nobody knows you’re a dog.
Never believe it’s a deal till the money’s in the bank. Even at the point where you walk in that room to sign the final papers, there’s still a 10 percent chance the deal’s going to fall through. At the point where people say, “We want to buy you,” the chances of it falling through are like 80 or 90 percent. So you can’t let yourself believe.
I learned a trick for doing this: to tell the truth. A lot of people think that the way to convince people of things is to be eloquent — to have some bag of tricks for sliding conclusions into their brains. But there’s also a sort of hack that you can use if you are not a very good salesman, which is simply tell people the truth. Our strategy for selling our software to people was: make the best software and then tell them, truthfully, “this is the best software.” And they could tell we were telling the truth.
I wouldn’t worry so much about seeming like a real company. Now I would just say, keep it a bunch of guys operating out of an apartment for as long as you want, because there’s nothing to be ashamed of in that, especially if you’re writing great software.
Another thing I would do is open an online store ourselves. We did use our software for building our website. We were the only one of all our competitors who actually used our software for building our own corporate website. But we didn’t have anything people could buy online. If we had been selling stuff, we would have understood what life was like from the merchant’s point of view.
What advice can you give about raising money? Graham: The advice I would give is to avoid it. I would say spend as little as you can, because every dollar of the investors’ money you get will be taken out of your ass — literally in the sense that it will take stock away from you, but also the process of raising money is so horrible compared to the other aspects of business. You can’t work your way out of it like you can with other problems. You’re at other people’s mercy. The way not to have to raise money is not to spend money. Do everything as cheaply as you possibly can. What you want in a startup is this feeling of cheap and hip. Not miserly cheap, but cool, bohemian cheap. That’s what we strove for.
What is the most important piece of advice? Graham: What Y Combinator prints on our T-shirts: make something people want.
If you make something users want, they will be happy, and you can translate that happiness into money. That is the basis of a startup. A startup is a company that builds some kind of technology that people want. The mistake that a lot of founders make is to build something they think users want, but that users don’t actually want.
delicious
I understand that the consumers are the best marketers. If they love your product and you give them the tools to market it, they will.
Craiglist
Reduce. Do as little as possible to get what you have to get done. Do less of it; get it done. If you’ve got two things that you want to put together, take away until they go together. Don’t add another thing. Because you can understand it better, you can analyze it more cleanly. The UI will be easier. Doing less is so important.
The problems I’ve had which got to me were the after-effects of some of the bad trust decisions I made.
Trust your instincts and your moral compass.
Alexa
If you’re trying to get your company to think differently — to do something interesting — pick your setting carefully. Thinking Machines was set in an 1800s Victorian mansion on 100 acres of forest just outside of Boston. It was a park, basically. Working in an environment where, if you got stuck, you’d go for a long walk is very different than trying to do a startup and think differently if you’re in Suite 201 in some major office complex. That was a lesson that I’ve used every startup since.
The best piece of advice that I got was from Bill Dunn, one of my mentors. He said,
“Go someplace where people don’t think you’re crazy.”
He said, “Now that I’m running Encyclopedia Britannica, I have to be Mr. Sunshine every day.” Because people are looking to you, not just for the ideas, but for the general attitude toward how to make the whole thing work.
Carrying a company is a lot of weight.
You have to make sure that you keep on the uptick — not just financially, but also make it so that it’s a fun environment and people want to work there.
Adobe
The other lesson that we had to learn, though, is that you can’t be a one-product company. There’s a very high risk when you’re a single-product company that eventually a combination of changes in the technological landscape and changes in the competitive landscape will eventually cause you to begin losing market share. And once you lose market share, then your revenue and earnings begin to fall. Fortunately, we had decided that in order to be able to really demonstrate the capability that was inside the LaserWriter, we couldn’t rely on the standard business applications — and even the graphics applications — that were out there.
I am not a hunter, never have fired a gun, but I’m told that if you want to shoot a duck, you have to shoot where the duck is going to be, not where the duck is. It’s the same with introducing technology: if you’re only focused on the market today, by the time you introduce your solution to that problem, there’ll probably be several others already entrenched. It will be hard to dislodge them, and hard to convince people that what you have is so much better that they should make a change. Much better to figure out where the marketplace is going to be in a few years, focus on providing a solution to that, and let the market forces catch up to you. That’s what we did with Photoshop and it turned out to have been a great decision for us.
The biggest thrill is frankly not the financial success, it’s the ability to have an impact. Because we’re both engineers at heart and that’s every engineer’s dream — to build something that millions of people will use.
Hummer Winblad Venture Partners
In 1989, she cofounded Hummer Winblad Venture Partners, the first venture firm to focus exclusively on software. In the years since, 45 of its portfolio companies have been acquired or gone public. Now Winblad is probably the most powerful woman in venture capital.
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Ars Digita
“Each company has one class of stars. In some companies maybe it’s the salespeople, and in some companies maybe it’s the mechanical engineers. There’s going to be one class of people for whom it’s really easy to hire more people like that.”
Managing programmers is tough. That’s one reason I don’t miss IT, because programmers are very unlikable people. They’re not pleasant to manage. In aviation, for example, people who greatly overestimate their level of skill are all dead. You don’t see them as employees. When software company dies, you can blame the marketing people. Programmers almost all walk around with a huge overestimate of their capabilities and their value in an organization. That’s why a lot of them are very bitter. They sit stewing at their desks because the management isn’t doing things their way.
Fog Creek Software
Talk to your customers. Find out what they need. Don’t pay any attention to the competition. They’re not relevant to you. Only talk to your customers and your potential customers and see what it is that caused them not to buy your product or would cause them to buy more copies of it. And do that, and then ship it. That was something we really, really should have focused on, but, you know, we didn’t know any better.
Don’t start a company unless you can convince one other person to go along with you. If you don’t have two people (or I would even say three) that you’ve convinced to devote their lives to doing this, it’s just going to be a different thing.
Hot or Not
I’d say do it. There’s kind of a backwards logic that says: when you are young, you should learn from people who are experienced, so later on, if you want to do a startup, you can take the risk. And that’s a myth that was created from school. You need to learn to get to the next level.
The biggest roadblock to the entrepreneur are liabilities in your life.
It’s not whether or not you can be a good entrepreneur, it’s whether you have to make a mortgage payment or support other people. Experience will come when you face certain problems and live through them. And the best way to do that is to put yourself squarely in the path of those problems.
There’s no such thing as easy entrepreneurship. It’s going to be painful, it’s going to be emotionally unstable, you’re going to feel insecure. If you’re not already bipolar, you will feel like you are.
Mozilla
I thought marketing was something that required a degree and formal experience. It turns out that marketing is just making the product good enough that people spread it on their own, and giving them ways to do that. It’s a lot easier and more natural than I thought it would be. Now I can’t stand meeting with professional marketers who try to “craft” the “message” and all that junk.
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