The (perfect) startup story of Wit.ai, acquired by Facebook in 21 months
You don’t often get to meet a co-founder of a startup that follows, by all means, the “perfect successful startup” path. And by “perfect startup”, I mean the kind of startup that goes by the book. And by “the book”, I mostly mean Paul Graham’s essays.
I met Alexandre Lebrun, co-founder of Wit.ai, an AI platform that makes it easy for developers to create apps that users can talk to. He holds a degree from a top engineering school. He started his startup while he was living in Palo Alto. He had previous experience in the field. He built the app and launched it early on Hacker News. The app got traction. The team got into Y Combinator. They raised $3M after the Demo Day, with one of the most prestigious VCs (Andreessen Horowitz). 9 months later, they got acquired by Facebook.
Here you go. Perfect startup story. What is even more surprising is that when I asked Alexandre: “Your startup seems to be super successful from day 1, is that so?” his answer was:
Don’t worry, there is a “but”
I was more looking for a “don’t be desperate, there are downsides behind all this, success never comes without struggle” kind of testimony. In reality, Wit.ai does indeed follow the success path from day 1, but it’s only because Wit.ai is Alexandre’s second startup. The story of his first venture, VirtuOz, involves many more mistakes that he learned from.
Doing things right the second time around
The story of Alex as an entrepreneur started in 2002, when he decided to launch VirtuOz in Paris. As an engineer passionate with voice recognition and artificial intelligence, his dream had always been to make robots understand human language. Inspired by chatterbots’ pioneers like Joseph Weizenbaum — who created ELIZA in 1966 — he imagined a solution much similar to Siri. Back in 2002, building Siri was impossible, both from the technological and business perspective. Right after the Internet bubble burst, he decided he would focus on a more profitable venture, and started VirtuOz as a virtual assistant technology for businesses’ customer service.
Alex Lebrun’s first startup VirtuOz’s story (and struggle)
It took VirtuOz’s team 3 whole years before landing their first client, in 2005: VoyagesSncf.com, the biggest online travel agency in France. It was their lucky year: they also raised $1,6M. In 2007, they decided to move to the U.S to explore business opportunities as they realized the French market was too small — the tech team remained in France. They soon realized that selling a product to AOL, Ebay, and other big players required much more than a nice product: you need to have a local data center, a 24h/24 customer support, huge sales teams, etc.
Nevertheless, VirtuOz managed to raise a round of funding of $12M in August 2008 — literally days before the fall of Lehman Brothers — with Silicon Valley investors. Because the new company’s scale required more structured operations and financial reporting to investors, and because Alex felt more like focusing on the product, he decided it would be wiser to hire a “professional” CEO.
His feeling was that the “Eric-Schmidt model” at Google was a smart one and that they could make it work at VirtuOz. He ended up realizing that what works at Google doesn’t necessary elsewhere. There was a huge mismatch between the newly appointed CEO — and the VPs brought along — and the rest of the team, in terms of culture and product understanding. As VP of Advanced Technology, Alex realized that he was no longer in power and did not feel he belonged within his own company — he took a year-long sabbatical, after which the board re-appointed him as CEO, in June 2012.
In the meantime, the culture had already changed and what he left a “startup” had turned into a 70-people company selling enterprise software. Alex decided to reorganize the team and launch a new product which ultimately lead him to sell VirtuOz to Nuance Communications in January 2013.
After the acquisition, and after he made sure the transition went smoothly, Alex went back on track and decided to launch a new venture, focusing on an issue he witnessed: on the one hand, there was a huge demand for machines’ comprehension of human language (written and spoken), on the other hand, there were only custom solutions made for big companies (with big costs). What is there were an API for developers that could give them the capacity to understand human language?
“After selling VirtuOz, I felt nostalgic of the “garage” period and decided to launch a new startup”
After spending ten years building and growing VirtuOz, Alex launched Wit.ai — a fully open API for voice recognition and language understanding, based on machine learning, and inspired by open models like Stripe and Twilio. He started coding it with his co-founder Willy Blandin in April 2013. Wit.ai was acquired by Facebook in January 2015. Here are a few things that helped making things right the second time around.
Spending time in non-important stuff VS building a product
The first thing that Alex did completely differently is that he did not spend a second on unnecessary tasks. He and his co-founder spent 6 months coding, period. Their company was not incorporated, had no office and no money, even when they applied to Y Combinator.
In his previous venture, Alex had lost an incredible amount of time in paperwork, renting offices, trying to raise funds before even having a single client — a mistake he would not replicate.
Similarly, he had waited much too long for a perfect product before looking for his first users. With Wit.ai, he forced himself — and his co-founder — to launch the product as soon as possible on HackerNews. It was an alpha version, far from what they would be satisfied with, but it was operational.
“It was a struggle to overcome the feeling that our product wasn’t ready before launching on HackerNews, but I knew we needed to confirm there was a need for our solution as early as possible”.
Wit.ai remained on HN’s homepage #1 position for 24 hours and they became a small phenomenon in the Valley. By the time they applied to Y Combinator, they already had 3,000 developers using the API.
Doing Enterprise Sales from the start VS Focusing on SaaS
When building a SaaS product, it is very tempting to sign major contracts with big players early on: it gives financial comfort, you feel it gives you business legitimacy, and it’s kind of flattering. That’s what Alex did with VirtuOz, and he learned not to do it again: when your SaaS startup is still young, you need to focus on building your own product. Larger accounts will ask for many custom features, a fully dedicated account manager, and ultimately distract you from building a scalable product that can be used by anyone.
That’s why when Wit.ai launched and Alex got meeting requests from big players, he refused in order to focus on building his product. With VirtuOz, he spent entire days with tech consulting firms without making a single dollar. With Wit.ai, he would rather debug 1 indie developer on the other end of the world for hours if it meant making the product better, than working with a multi-national.
“If you can afford to say “no” to big clients and partnerships, i.e. if you don’t have investors’ pressure or huge costs, and if you want your product to be used by the many, I’d say don’t sign the big contracts and focus on building a scalable startup.”
Alex was so convinced of his vision that he wanted to build a startup truly used by millions that he would rather fail than becoming a consulting business for big customers. According to him, time is an entrepreneur’s most important asset: if you develop fast, you can take greater risks — funnily enough, “Fail fast” is one of Facebook’s mantras.
Launching a startup in France VS San Francisco
Surprisingly — for me! — Alex remains pretty certain that you can start your startup from anywhere and do not need to be in the Valley from day 1. According to him, it’s all a matter of personal context. He could never have started VirtuOz in the U.S in 2002, and launching in France had its advantage at the time: he was able to raise €100k with family and friends, which would have been impossible in the Valley. The recruitment was made much easier, especially for tech profiles.
When he launched Wit.ai, he already was in Palo Alto, which of course, also had its advantages. For instance, when he launched on HN, he asked in the comments if anyone could welcome him and his co-founder to their office, as they were working from home. 10 min later, the founder of Pebble offered them 2 desks, to use Pebble’s office, network, snacks, meeting rooms etc. for free, and Wit.ai stayed there for 6 months, up until it was a 6-engineer company!
There are many tactical mistakes you can make when your startup has offices both in the US and France, says Alex. For instance, having a modern, powerful teleconference system in every meeting room is key. It’s also important to have people from both offices travel to the other office from time to time, in order to build personal relationship that will prove important in stressful times. But these tactical mistakes don’t impact the broader vision.
From those lessons learned, Wit.ai followed an impressive path of growth and ultimately got acquired by Facebook. While Alex was constantly refusing meetings with the corporate development teams of potential acquirers, when David Marcus (i.e Facebook Messenger lead and previously CEO of Paypal) contacted him, he accepted the meeting, which led to the deal. For Wit.ai, Facebook was a great opportunity to work with an incredible A.I research team, great resources, and a much larger scale, says Alex. The acquisition was announced on January 5, 2015, and Alex has since remained head of Wit.ai which still exists inside Facebook, with a team of 10 engineers. They strongly contributed to the debut of “M” last August, and will continue to work on Facebook’s A.I projects.
When you look at the story of Wit.ai in hindsight, the crazy 21-months startup success took Alex a decade of entrepreneur experience — and a great co-founder, he adds — to build. It is because Wit.ai is a product built by expert founders, passionate about their fields, who put their product in the hands of users very early on, and solved a real issue, that it was so successful.
Thanks Alex for this great lesson of humility and hard work!