Founders at Work: Stories of Startups' Early Days

by Jessica Livingston

I think there's a general principle at work here: the less energy people expend on performance, the more they expend on appearances to compensate. More often than not the energy they expend on seeming impressive makes their actual performance worse.

The less energy people expend on performance, the more they expend on appearances

almost all the founders I interviewed changed their ideas as they developed them. PayPal started out writing encryption software, Excite started as a database search company, and Flickr grew out of an online game.

Change in a startup

The goal-at least the way I think about entrepreneurship-is you realize one day that you can't really work for anyone else. You have to start your own thing. It almost doesn't matter what that thing is. We had six different business plan changes, and then the last one was PayPal.

Paypal cofounder on pivots

frustrated because their employer's firewall prevented them from accessing their personal email accounts. To solve their problem, they came up with the idea of email accounts that could be accessed anonymously through a web browser. This idea became the startup. In 1996, the first web-based email was born,

Hotmail, begin has a way to access email through a firewall

We wanted to be a portal at that point in time. So that's when they came to us-they wanted to be a portal as well-and they said, "We cannot have one of our providers of email be a competitor of ours, so have you thought of an acquisition?" And I said, "I really haven't thought of an acquisition, but at the right price I can think of anything."

How and why microsoft bought hotmail

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.

Get the user base and later you will find the way to monetize it

It doesn't have to be a cookie-cutter business plan with glossy pages and lots of information. 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.

Write a business plan it will crystallize your thoughts to communicate your ideas with somebody else

Second is, don't try to change user behavior dramatically. If you are expecting people to dramatically change the way they do things, it's not going to happen. Try to make it such that it's a small change, yet an important one.

Don't try to change user behavior dramatically, make small but useful changes

When you design with very few parts, everything is so clean and orderly you can understand it more deeply in your head, and that causes you to have fewer bugs. You live and sleep with every little detail of the product.

When you use few parts everything is cleaner and easy to understand

He said, "Look, there are a lot of people that want to build it and they can get the chips, but they don't want to solder it all together. So why don't we make a PC board and they can plop their chips in the PC board"-soldering a printed circuit board is easy, there are no wires-"and then they've got it done." So the idea was that we'd start this company and build PC boards for $20 and sell them for $40.

Making $40 PC boards so not soldering people could build their own apple 1

Wozniak: As a matter of fact, when we went public, I was a little disturbed that five people who had been with us in our little office from the start and had been so important-Randy Wigginton, Chris Espinosa, a couple of young kids, and a couple of older ones, just hadn't gotten any stock.

Apple did not give stocks to his early employees, so woz give them some of his own

Hewlett-Packard, we're a community. There was a recession in '73 and Hewlett-Packard had to cut back 10 percent. Instead of laying off 10 percent of the people, they cut everyone's salary by 10 percent and gave us one day off every two weeks. So basically they said "nobody goes without a job." And I like that sort of thing.

Woz on the way HP loved their team

Livingston: How did Excite get started? Kraus: We decided to start a company together before we had any idea what we were going to work on. But we were so committed to the idea of starting something together that we knew we were going to figure it out.

Excite: we decided to start a company together before we had any idea what we were going to work on

We all tried to get $3,000 from each of our parents, and five of the six parents put up, so we had $15,000. After graduating, three of us lived in one house in Palo Alto and three of us lived in another. We set up shop in the garage of the house that I was living in. It was the classic setup. My parents came up and they saw the garage and wound up buying us some nasty carpet. The tables were all Formica. I won a fax machine at Office Depot. We stole our chairs from Oracle Corp.

The first office of Excite and their stolen chairs and VT100 terminal from Oracle

One of the founders was working a part-time job at Oracle, and back in those days, you could take home VT100 terminals to work from home. The way you got them to your car was by going to the supply closet: you took a VT100 and you put it on this $1,000 Herman Miller chair, and you rolled the chair out to your car, put the terminal in your car, and brought the chair back into work. So we thought, "That's a good idea. We could get some VT100s and some chairs all at once." We rolled up a U-Haul and brought down six chairs and six terminals and rolled away.

Como excite amoblo su primera oficina en un garaje con sillas y terminales de oracle CC @hexeblack

When I graduated, my college girlfriend gave me a book called Accidental Empires. It was a gossip history of Silicon Valley by a guy whose pen name is Bob Cringely. In it he writes, "Here's a tip for entrepreneurs. Call me, I'm a cheap date." So I call him and we get together for lunch and I tell him what we're working on. He gets very excited about it and we get the whole group together and he says that he wants to join the company. We think, "If he joins, we are golden, because he's huge, he's an author." It's funny to say now, but we felt that way.

Here's a tip for entrepreneurs. Call me I'm a cheap date

"Remember, I can't fire my friend, but I can fire my manager." And that's the hard one, right-if you have to make personnel decisions, you can't fire your friend, but you can fire your business partner.

I can't fire my friend, but I can fire my manager

Microsoft made a buyout offer for Excite in late '95, and even then I had Microsoft's CTO, Nathan Myhrvold, yelling at me, "Search is not a business. People are just going to search a few times and then bookmark what they want to go to."

People are just going to search a few times and then bookmark what they want to go

existing companies' biggest problem is legacy. Period. They can't focus on new businesses because they've got to manage their old ones.

Existing companies biggest problem is legacy

We had $1 million in the bank and we didn't know what we were going to bid. We sat down in my office, all on the floor. Vinod said we should bid $3 million. I was like, "How do we bid $3 million? We only have $1 million in the bank." And he said, "Well, if we win, I'm pretty sure we can raise it, but if we don't win, I don't know how we're going to raise it." And so I thought, "OK, this is really scary."

Bidding 3 millions when you only have 1

Livingston: Space was an issue? Bricklin: Oh God, the whole system, the operating system, the screen buffer, the program, and the data that you're running on, fit in 32K. A screenshot of VisiCalc doesn't fit in 32K nowadays. The Apple II only had 48K max. So this program launched in 48K, and you're going to put in a help?

The memory for a program in the apple II

Stay out of lawsuits if you can help it. It's bad for both sides, especially small businesses. That's lawyers' business, to them, solving things through lawsuits. But it's very, very expensive. It's a sport of kings, and it uses up a lot of time. Unless you're a very big business that can make it a very small part of what you do, it's much better to find other ways to solve things. Frequently, individuals can do it better face to face. People who are the heads of companies understand that.

Lawsuits are sport of kings

But as they say on Wall Street, the bulls make money, the bears make money, but the pigs get slaughtered. In other words, don't be greedy. Whether you think things are going up or things are going down, you can make money going both ways. But, if you are piggish, are greedy, that's when you have problems; you'll be irrational about that.

Don't be greedy

So basically, I told them what I was going to do, taking advantage of the fact that I didn't think they would take me seriously, because I know they didn't take me seriously. And that's what actually happened. It just goes to show you shouldn't underestimate people. You shouldn't judge from appearances like

The advantage of not been taken seriously

And then we had a diversity committee that had out gays and lesbians on it-this was in 1984. We were the first corporate sponsor of an AIDS walk. We had a corporate philanthropy committee in which the employees actually made decisions about where the money went, not the pet projects of senior management. So for many people what was memorable and important about Lotus was that it was the best place they ever worked.

How lotus was the best place to work

fact is that when the VCs do their deals and they do the paperwork, they take advantage of entrepreneurs who haven't been through this before. They do things on terms that favor them in a way that really can't be justified-that take advantage of their ignorance. It's not a good way to do business. Some of the VCs try to rationalize it, "This is just the way things are done." Well, I'm sorry but they're wrong. Why do you think venture capital also enjoys a reputation as "vulture capital?" It's not an accident; it doesn't have to be that way.

Vulture Capital

You know why VCs are like this? It's not that they are bad people; it's the limited partners. And who are the limited partners? Our great institutions-Harvard University, Stanford University, UC Berkeley. So if you want to point up the chain of accountability, when those people stop measuring performance just based on the return numbers, things could change, because they'll change the incentives.

The limited partners the vc and greed

I want entrepreneurs to make informed choices when it comes to financing. Understand what the impacts and implications are for different financing options. Livingston: Plus, many people don't need to have as much money to get something started. Kapor: You can also do some interesting things in a seed round of $100,000 to $200,000 and it's available on very different kinds of terms.

Many startups don't need millions but a 100.000 to 200.000 and that comes with very different terms

Being on the East Coast, I believed that it was very important to establish a good network in Silicon Valley, where I didn't have a presence. I'd worked with Mitch for many years, and I felt that he could make the right introductions. So I first took money from Mitch, then he made some introductions to VCs. One of them was Accel, and I took money from them. I ended up spending quite a bit of time in the Bay Area, meeting a lot of people, and ultimately that network helped a

Choose the angel that could make the right introductions

I guess as a tech entrepreneur I would nurture relationships with people who are outside your skill set on the marketing and sales side or business development side. Relationships you know you can trust. As a technologist, it's very difficult to hire someone on the marketing and sales side because they're so different than technologists and you don't know who to trust. It takes about a year to really understand whether the people who you are partnering with trust you and know they will rely upon you just as much as you know you will rely upon them.

Marketing, sales and business development for a technical cofounder

Originally, Pyra intended to build a web-based project management tool. Williams developed Blogger to manage his personal weblog, and it quickly became an important mechanism for sharing ideas internally at Pyra. Once launched publicly, Blogger grew rapidly, and Pyra Labs decided to focus on it full-time. But Bloggercom did not generate a lot of revenue at first, and as the Bubble deflated in 2001, Pyra seemed near death. Williams remained as the only employee and managed to bring the company back from the brink. By 2003, Blogger had one million registered users. That attracted the attention of Google, who made Pyra their first acquisition. Williams left Google in 2004 to cofound a podcasting company called Odeo.

Pyra from project management to blogger, from near death to first google acquisition.

Livingston: Was it easy to make up businesses around it to make money off of it? Williams: It's easy to make up things to write down about how we are going to make money off of it.

it's easier to write down plans than make them real

If I was the guy in charge and we were dying, it's reasonable to conclude it's my fault. And certainly there were other things I could have done. So everybody left but me. (A lot of them needed to leave since we couldn't pay them anymore.) Everybody left, and the next day, I was the only one who came in the office.

Everybody left, and the next day, I was alone in the office

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.

If things go bad in a startup you loose your coworkers and friends

If everyone agrees, it's probably because you're not doing anything original.

If everyone agrees, it's probably because you're not doing anything original

Getting good grades at a good school is one filter of brains, but it might also suggest you like following rules.

Good grades, brains and innovation

any screw-up we recognized and were pretty good at correcting it to the extent it could be corrected. There weren't a whole lot of egos, so people wouldn't defend a dumb idea just because it was theirs.

People wouldn't defend a dumb idea just because it was theirs

The sex category was probably a quarter of everything on the Web. Not just Yahoo, but everything on the Web. Just like the VHS industry when it first got going. The Internet was no different in that respect.

The sex category was probably a quarter of everything on the web

But what was actually harder was having to go to the president of the university and ask for a leave of absence. I had never met him before. It was quite interesting because he apologized for having to try to dissuade me from it. After he finished his speech, he wished me the best of luck and shook my hand with a big smile. I remembered that and, ironically, 20 years later he's one of RIM's board members.

RIM founder asking for a leave of absence in the university

What we learned with Mobitex and later Datatech was that there were some really interesting applications that were being developed, and we were right there while it was happening. But it took a lot of faith. You call it vision, but it's a combination of vision and faith that 1) it's going to happen someday, and 2) it has value, and 3) you can actually accomplish it in an economic way and promote it so that you can fund the development and growth of the business. That's pretty tricky stuff.

RIM cofounder on faith in what you're trying to do

What was interesting was how we named it, because it goes back to our research roots. We decided to do it very scientifically. We went out and found one of the leading naming companies at the time, called Lexicon, and we worked with them for 6 months to come up with the name. It was probably the most expensive word I ever bought. BlackBerry ended up being one of the all-time most famous brands worldwide. It works everywhere. We tested it around the world.

We worked 6 months with a naming company to come up with the BlackBerry name

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.

The first idea for your startup is irrelevant. It's just a catalyst for you to get started

In a previous generation, it wasn't as redundant as what we finally released, and the hard disk in one of our machines that had everyone's email stopped working. I came in and everyone I walked past would ask me, "When is Caribou going to be back up?" I was walking into the machine room with screwdrivers, and people saw me and were like, "Oh no!" I managed to take apart the hard drive and transplant the electronics from another drive, so nothing was lost. Through the whole thing, we've never lost any data, which is kind of unbelievable considering everything that happened.

First gmail problem when used internally

She was. She got one of those fold-out futons that would fold under my desk. She didn't like me sleeping on the floor. My admin, who came with me from General Magic, tells stories about coming in in the morning and trying to clean up. She'd pick up a folded pizza box and get scared because she'd find a guy sleeping underneath it-it was covering his face. It was really bad. My dog, when my wife would bring him over, he would find burritos, because the place was just a pigsty. But we had the product out in 6 months because we knew we had to meet that Christmas. It was out by September.

Its a pigsty but we could work pretty fast on it

Most people just kicked us out because the model for venture capital was-and it is still to some extent this way today, but certainly was 10 years ago-their ideal companies are ones where people come in and say, "We have this idea. Here's the market. Here's the size. I want $5 million, and I'll be profitable from day one. And I'll give you half my company."

TiVo cofounder on what VC's expect

we did fall in love and have a long-distance relationship. I eventually moved up to Vancouver and we got married. We went on our honeymoon and came back and two days later started Ludicorp.

We got married, went on our honeymoon and came back and 2 days later start our company

Flickr started off as a feature. It wasn't really a product. It was a kind of IM in which you could drag and drop photos onto people's desktops and show them what you were looking at. We built it really fast; we had a lot of the technology already from the game, but we built the first instance of Flickr in eight weeks. We had the idea in December and built it out by February and then presented it at the O'Reilly Emerging Tech Conference.

Flickr began as a feature of an online game

Alexa was acquired by Amazon in 1999. Kahle continues to run the Internet Archive.

Alexa was acquired by Amazon in 1999

My first startup upon leaving Thinking Machines was a bootstrap. We had no investment at all, and I had no savings, so it was self-funded from the beginning. That was a night and day cold bath. It was sort of like going from the Roaring 20s, when champagne is coming from everywhere, into the depression, where you are washing your baggies and reusing twist ties. Actually I really liked the discipline that came from a bootstrapped startup. I think that everybody that goes and does a startup-even if they don't do a major startup that way-should start a business that is having to make people happy with them day one,

I had no savings, so my startup was self-funded from the beginning