Founders at Work - Book Summary

Embark on a journey: Understanding the minds of revolutionary startup founders

Picture this. It's the late nineties and the startup world is booming, leading to the infamous "Dot Com Bubble" burst in the early 2000s. Many fledgling companies crumbled as financing vanished into thin air. But, every ending paves the way for a new beginning, and it wasn't long before a fresh wave of startups emerged, championing the Web 2.0 revolution, their focus - user-generated content.

Flash forward to 2006, when author Jessica Livingston decided to delve into the stories behind these early startups, from those preceding the birth of the first Macintosh computer, to the early players in the Web 2.0 arena, such as Flickr and Blogger. In her quest, she engaged in relaxed, heart-to-heart conversations with the founders, choosing to spotlight their journey, replete with the highs and lows, rather than bog down the narrative with dates and figures. The result of her endeavor is this riveting book.

Now, while it is undeniable that technology has seen unprecedented advancements since 2007, there is a timeless quality to the narratives of these trailblazing entrepreneurs and the innovative ideas that fueled their journey. Many of their creations may now be part of our historical archives, but the wisdom locked within their experiences is just as relevant today. After all, understanding our past is the key to envisioning our future.

Prepare to uncover:

- The dramatic pivot of Paypal and Flickr from their original products,

- The staggering millions Yahoo shelled out in 2005 for a treasure trove of website bookmarks, and

- The caveat hidden within the allure of investor money.

The twists and turns of startup journeys: Case studies of Paypal and Blogger

During her intimate conversations with startup founders, Jessica Livingston noticed a fascinating pattern. A substantial number of the most triumphant ventures didn’t stay true to their original idea. Instead, their success lay in their adaptability and ability to pivot, often winding up with a product radically different from their initial brainchild.

Consider Paypal, a name that today is synonymous with online transactions. However, the co-founder, Max Levchin, didn't initially aim to revolutionize digital payments. His journey commenced in the late 1990s, developing software for emerging handheld devices like the Palm Pilot. His breakthrough was an emulator software that generated single-use security passwords — a feat previously achievable only through costly, bulky devices. This innovation effectively rendered those devices obsolete.

Despite this achievement, the market for such a service was quite niche. Levchin pondered — what kind of information would people need to protect on their devices? The answer was credit card data, leading to software that permitted secure money transfers between Palm Pilots.

The company, co-founded with Peter Thiel, began garnering a user base, albeit limited to around 12,000 users. However, the online money transfer demo on their website proved a far more popular feature, attracting 1.5 million users. It was then clear that the future of Paypal was in web-based money transfers. Post this strategic pivot, they saw their user base grow by 20,000 users per day, ultimately leading to their acquisition by eBay for a jaw-dropping 1.5 billion dollars in 2002.

In a similar vein, Blogger.com, too, underwent a transformative journey. The original goal for Evan Williams and his co-founders at Pyra Labs in 1999 was to create project management software. The blog tool was merely one feature in their development pipeline. But as they honed this tool, they inadvertently simplified the blogging process, allowing users from any computer to write and instantaneously publish their work.

This feature had little to do with project management and almost led Williams to bankruptcy, but thanks to his relentless dedication and a community of dedicated fans, Blogger.com became a triumphant tale of startup success. It amassed a user base of a million, began generating revenue, and caught the attention of Google, which acquired it in 2003.

The challenge of innovation: Overcoming skepticism and disbelief

Among the myriad of hurdles startups face, there's one roadblock that often goes overlooked — the challenge of getting people to understand and believe in an innovative idea. When an idea is far ahead of its time, it can seem incomprehensible to potential investors. After all, embracing innovation is not just about backing a novel concept; it involves anticipating a shift in consumer behavior and understanding the potential market for something that doesn't yet exist.

Such was the plight of Steve Perlman and his groundbreaking idea, WebTV. Despite his established reputation in Silicon Valley (being one of the brains behind the first Mac with a color display), he faced skepticism when presenting his vision for an interactive television in 1995. At the time, televisions were basic devices without even a program guide, let alone interactive features.

Perlman grappled with a catch-22 dilemma: Without interactive content, there was no incentive to create hardware that could support it, and without the hardware, no one would invest in generating interactive content. Despite these odds, he persevered, firm in his belief that viewers wanted more from their TV experience than just switching channels. His conviction was validated when WebTV, after its acquisition by Microsoft and rebranding to MSNTV, raked in 1.3 billion dollars in revenue over its first eight years.

In the same era, the notion of accessing emails from anywhere using a web browser seemed fantastical. Back in 1996, emails were largely accessed through work computers, hampered by internal networks and firewalls that restricted access elsewhere. It was Sabeer Bhatia and Jack Smith's brainchild, Hotmail, that shattered this status quo. But, much like Perlman, they faced a barrage of rejections from investors who were convinced email accounts would always be tied to workplaces.

However, Bhatia had faith that others, like him, would value the ability to check their email from any web browser. After many fruitless pitches, they finally landed an investor willing to risk a minimal sum to validate their idea of a web-based email service.

Their venture swiftly proved its worth. Their user base swelled rapidly, thanks to the power of word-of-mouth marketing and their clever tactic of adding a Hotmail website link at the end of each email. A year into their journey, they boasted 7 million subscribers. Their triumph was shortly followed by an acquisition by Microsoft for 400 million dollars.

Startups: The importance of a dynamic team over a fixed idea

The birth of a successful startup isn’t always heralded by a brilliant idea. In some instances, it's not an idea at all, but a team of impassioned individuals that ignites the journey.

Such was the case for Joe Kraus, one of the co-founders of the early web search tool, Excite. In 1993, Kraus partnered with a handful of friends from Stanford University. They didn’t have a business plan or an innovative solution in mind. But they believed in their collective intellect and fervor. Kraus was confident that it was only a matter of time before they would stumble upon their big idea.

Their eureka moment happened over a meal at their go-to taco shop. With the steady rise in digital content, they realized there was a growing need for a tool that could efficiently navigate this sea of information. Initially, their focus was on digital encyclopedias, but soon, their attention shifted to the web at large. Their vision was validated when they managed to secure 3 million dollars in funding, and their brainchild, Excite, emerged as the primary search tool for the then-dominant Netscape browser.

A similar story unfolded with Arthur van Hoff and his team, former colleagues at the tech giant, Sun Microsystems. In 1996, they took a leap of faith, each pooling in 25,000 dollars to launch their startup, albeit without a concrete idea.

But van Hoff was unperturbed. His experiences had shown him that even weak ideas could get funding and, more often than not, the first idea was replaced by a superior successor. Their diverse skills and agility helped them rapidly pivot from one concept to the next, eventually leading to Marimba — a pioneering model of subscription-based software distribution.

At a time when software updates were a manual and chaotic process, Marimba made sure that all users received simultaneous updates, a feature that was revolutionary for that period. This was particularly beneficial for global companies like Morgan Stanley, who had to grapple with ensuring software updates were installed by their employees spread across the world.

These tales underline an important lesson: Rather than fixating on finding the perfect idea, concentrate on building a dynamic and flexible team that can seize the right opportunity when it arises.

Transforming personal solutions into valuable startups: The stories of Yahoo and del.icio.us

Solving one's own problems can often pave the way for innovative business ventures. Numerous startups have come to life when founders, grappling with personal challenges, ended up creating solutions that resonated with millions around the world.

Consider the iconic example of Yahoo, which traces its roots back to the humble academic project of two Stanford graduate students, Jerry Yang and David Filo. Their digital endeavor was initially a collection of web links, serving as online footnotes for references in their Ph.D. thesis papers. Over time, the site started expanding, growing richer with new categories and links, fueled by suggestions from a budding community of users.

The duo's personal project was rapidly transforming into a potential business. To aid their transition, they roped in their friend, Tim Brady, to develop a business plan that would help shape their hobby into the formidable enterprise it was turning into. In a stroke of serendipity, Brady was able to use this task as a final project for his own business degree.

A few months down the line, Yahoo transitioned from a personal project into an authentic business entity, securing initial funding of a million dollars. By 1996, Yahoo went public and was on the fast track to becoming one of the trailblazers of the World Wide Web.

Parallelly, in the late 1990s, Joshua Schachter's personal collection of online bookmarks was evolving into something remarkable. What started as a personal hobby during his tenure as an analyst at Morgan Stanley had grown into an extensive collection of around 20,000 bookmarks by 2001, thanks to user suggestions. In an era when discovering intriguing web content was a challenge, Schachter's collection was a godsend.

To manage his gigantic collection, Schachter started tagging his bookmarks with brief descriptors like "math" or "food". He then made his collection public, hosted on a server, and called it del.icio.us. Within a year, the service had amassed 30,000 users. Soon, he secured a million dollars in funding, before Yahoo acquired his service for a staggering 30 million dollars in 2005.

Schachter's tagging was merely a convenient solution to his personal organization problem. Yet, it struck a chord with others seeking to navigate the vast expanse of the internet, demonstrating how personal solutions can transform into highly valuable and popular services.

The power of simplicity: Drawing lessons from Apple and ArsDigita

A complex, feature-rich solution isn't always the best response to a problem. Sometimes, it's the simplest and most intuitive solution that emerges as the winner. Joshua Schachter’s approach to categorizing his bookmarks using descriptive tags is a case in point.

This philosophy of simplicity formed the bedrock of Apple right from its early days. This was when engineer Steve Wozniak, from his apartment, was piecing together the first ever Apple computers. As a self-taught high-school student, Wozniak developed a knack for simplifying gadgets. He didn’t just disassemble and reassemble devices—he stripped them down to their bare essentials, figuring out ways to make them work with fewer components.

This approach led to more cost-effective, elegant, and reliable gadgets. For Wozniak, this was the true essence of entrepreneurship—making the most of limited resources to create something that outshone existing market offerings.

A parallel sentiment drove Philip Greenspun when he set up the web design firm ArsDigita in 1997. His journey began with creating Photo.net, a simplistic yet popular community site. Soon, companies approached him to help design their websites.

In response, Greenspun put together a free design framework, the ArsDigita Community System, which anyone could use. Despite this, the requests for design work kept pouring in, especially after he published his book "Database Backed Websites" in 1998.

His business thrived on offering clean, straightforward design solutions, steering clear of complicated coding that was time-consuming and prone to bugs. He envisioned his business as a platform where programmers were problem solvers rather than just quiet coders.

ArsDigita was doing spectacularly, boasting an annual growth rate of around 500 percent and counting clients like Levis and Hearst Publications among its clientele. However, the rapid growth proved to be a double-edged sword. When Greenspun decided to bring venture capital on board, the new leadership pushed out all but one of the founders, intending to model the startup after the likes of slower, costly companies such as IBM. This dramatic shift led to the eventual downfall of ArsDigita, serving as a potent cautionary tale of the perils of too much venture capital.

Steering clear of venture capital: Exploring cost-effective strategies

Venture capital often comes with certain stipulations. For example, the investor might insist on adding their choice of executives or demand a share in the company or its profits. Thus, if maintaining control of your startup is a priority, it's advisable to either cut costs or find alternative funding methods that don't require new investors.

Joel Spolsky was all too familiar with Philip Greenspun's struggle with investors when he founded Fog Creek Software. Drawing inspiration from ArsDigita’s business model, Spolsky was determined not to repeat Greenspun's errors.

Just like Greenspun, Spolsky desired to build a consultancy that would appeal to top-notch programmers. To achieve this, he needed to provide an environment that cherished and rewarded programmers. He ensured that every programmer had a personal office, had access to comfortable chairs, could avail first-class travel, and had a four-week annual vacation. This approach didn't sit well with investors, who considered such amenities unnecessary luxuries. They preferred a more austere setup with programmers toiling away at lined-up desks.

To sidestep the need for venture capital during the initial stages, Spolsky had a plan. He had a handy bug-tracking software named FogBugz. He also realized an interesting quirk about software sales—the higher the price, the more perceived value it seemed to have. So, when he upped the price of his software from $199 to $999, his sales actually soared!

Another way to dodge venture capital is to keep expenditures low. This tactic is advocated by numerous startup founders, including Paul Graham, the co-founder of Viaweb and the brains behind the esteemed startup incubator, Y Combinator.

According to Graham, every single penny of investor money you accept diminishes your autonomy and puts you at the mercy of others. His advice? Keep your spending in check and adopt a minimalist, bohemian lifestyle instead of one that's extravagant or lavish.

Honesty in entrepreneurship: Paul Graham's perspective on listening to customers

Among the nuggets of wisdom shared by founders, one piece of advice surfaces frequently—the importance of truly listening to your customers. Building something that genuinely serves the needs of others should always be the focus.

Paul Graham of Viaweb and Y Combinator echoes this sentiment. The phrase "Make something people want" was boldly printed on Y Combinator's t-shirts. Graham believed a startup's core mission should be to create a product or service that brings joy to people and transforms that joy into revenue.

While it may sound straightforward, Graham witnessed countless individuals proposing ideas they believed would resonate with people. This is where the importance of paying heed to your customers' real needs comes into play.

Graham also staunchly advocates for honesty. He co-created Viaweb with Robert Morris, a web-based application for establishing online stores, with the ambition to develop the best e-commerce software on the market. They monitored their customers' satisfaction levels and evaluated their competitors' offerings meticulously, allowing them to confidently assert that Viaweb indeed delivered top-tier software.

Honesty has an added advantage. When an entrepreneur can earnestly claim their product to be the best in the market, customers can sense the sincerity. While it's hard to quantify the value of truth and honesty, it can prove to be a crucial asset for entrepreneurs who don't naturally identify as salespeople.

Despite being a tech-whiz, Paul Graham was never at ease playing the role of a salesperson. Yet, with Viaweb, he discovered his persuasive power lay in the simple act of being honest. While some might argue that eloquence and charm are the keys to successful salesmanship, Graham's experiences prove that honesty can be a potent tool in gaining the confidence of potential customers.

The perfect moment for Flickr: A tale of fortunate timing in the photo sharing world

Sometimes, everything falls into place and your product hits the market just when it perfectly syncs with prevailing trends and interests. Flickr, the innovative photo-sharing software, is a prime example of this fortuitous timing.

Caterina Fake and her husband Stuart Butterfield couldn't have planned for the serendipitous timing. Interestingly, Flickr emerged from a pivot — it wasn't the original idea for their startup. In 2002, the couple started developing Game Neverending, a video game partly inspired by popular virtual pet games like Tamagotchi, where players nurture a digital pet, gift it toys, and trade items with fellow gamers.

One proposed feature of Game Neverending was photo sharing between users. As they waited for other components of the game to be finalized, Fake turned her focus to this photo-sharing feature and eventually set up a mechanism for users to upload their pictures on a webpage. Thus, the seeds of Flickr were sown.

In retrospect, Fake recognized the factors that conspired to propel Flickr's success. Yes, there had been other photo-sharing platforms before, but by 2004, the rise of personal blogs and nascent social media platforms like MySpace and Friendster made sharing photos significantly more appealing. Concurrently, the ubiquity of digital photography made it easier than ever for people to share their snaps online.

Prior to this, most online photo services, such as Shutterfly, generated revenue by offering paid printing services. This is why Fake considers Flickr's evolution as a fortunate turn of events. If they had intended to create a photo sharing service from the start, market research would have indicated that there was no demand for such a service unless it aimed at encouraging users to print photos.

However, by 2004, the tide had turned. People began to appreciate photo sharing as a core activity that made platforms like MySpace and Friendster engaging. Personal blogs were gaining traction, making people more comfortable with the notion of public photo sharing. This marked a departure from the earlier practice of keeping online photos private. The timing was impeccable for the rise of Flickr.

Concluding insights

The primary takeaways from this book:

From the late 1970s, when Apple released its initial computers, to the early 2000s, with the advent of blogs and user-generated content, startups spearheaded business revolution in America. Drawing insights from conversations with founders of some of the era's most triumphant startups, some intriguing common threads emerge. Notably, many startups commenced without a concrete idea; innovatively doing more with less often paved the path to success; personal problem-solving could evolve into lucrative solutions; and it was common for the final business plans to diverge significantly from the initial ones.