Founders at Work: Stories of Startups’ Early Days – by Jessica Livingston

How strongly I recommend it: 6/10
See my lists of books for more.

Go to the Amazon page for details.
I liked this book. It was a bit long, and at some points it felt like disorganized with a lack of structure–but it’s a great read nonetheless. The author interviewed several dozens of entrepreneurs, and that’s the book, a bunch of interviews. Again, it’s not bad though. I loved the stories of PayPal, Hotmail, and Joel Spolsky.

Highlights

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.
In the car world, there are at least some people who know that a high performance car looks like a Formula 1 racecar, not a sedan with giant rims and a fake spoiler bolted to the trunk. Why not in business? Probably because startups are so small. The really dramatic growth happens when a startup only has three or four people, so only three or four people see that, whereas tens of thousands see business as it’s practiced by Boeing or Philip Morris.

Intro

Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things—and when you do new things, people often reject you.
Successful startup founders typically get rich from the process, but the ones I interviewed weren’t in it just for the money. They had a lot of pride in craftsmanship. And they wanted to change the world. That’s why most have gone on to new projects that are just as ambitious. Sure, they’re pleased to have more financial freedom, but the way they choose to use it is to keep building more things.

Max Levchin. Cofounder, PayPal

[Talking about Citibank] We started with this, “Fraud is going to kill us. What can we do to save ourselves?” They started from, “We have no fraud. How can we build this and not let any more fraud in?”
The default of how you do these things is very powerful, if you’ve been in the industry for a long time. So we were sort of beneficiaries of our naïveté. We thought, “We don’t know how to do this; let’s just invent it.”

Sabeer Bhatia. Cofounder, Hotmail

To provide ubiquitous access to that email from any web browser from anywhere in the world was the killer idea.
 
Livingston: This killer idea emerged because you guys were trying to solve the personal email exchange problem for yourselves?
 
Bhatia: Absolutely. That we could access our email from only two places: our homes and our work. And while we were at work, we could not access our personal email accounts.
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.
 
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. 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.
 
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. For example, the reason that Hotmail succeeded was because people were accustomed to going to different websites. All they had to do was put in their name and password and a little bit of information and they got an email account. So in that regard, it was the ease of use of getting online and having an identity.
 
The other reason why Hotmail became kind of like its own phenomenal PR was every time somebody sent an email out, it was sent from @hotmail.com. That’s of huge branding value, to have that moniker in people’s email IDs. So when people would give a business card to somebody that said @hotmail.com, it perpetuated the brand.
 
And the other lessons are 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.
A business plan is nothing more than your own communication to a person not sitting in front of you—an imaginary person who will read it. Try to answer every possible question that that person could raise. That’s the description of a business plan, really.

Dan Bricklin. Cofounder, Software Arts

People who saw it, who needed it, got it. Sorry, no—some of the people who needed it got it. You have to be a person who is able to look at a general-purpose tool and be able to think, “How would I use that to solve my problem?” Most people are not that way. They look for a tool that is being used already for something close to their problem and then understand what it is. Many people who saw the spreadsheet with an example, if the example wasn’t in their field, they couldn’t make the leap. Because they’re not programmers in their mind.
But, if you showed it to somebody where it clicked, either because they understood the general-purpose nature and could apply it to their own needs, or you showed them an example, like financial forecasting or something that they did, and they knew the other tools in the world, they got very excited.
There are some people to whom it’s worth taking the risk, because you risk going for the big one, and, in a portfolio, that’s good. 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.
It is worth it sometimes, if you can do it, to reach for the stars. Microsoft didn’t reach for the stars. Microsoft was step by step by step to where they got, and it was profitable all the way to it. So that’s the traditional way of doing it. The Google, Netscape way, those things, sometimes it works, and sometimes—usually—it doesn’t. But sometimes it does, and the payoffs are incredible. But, if you’re a business person who wants your business to succeed, as a business, because you like that business, you take a different view. So the risk profiles are different.

Mitchell Kapor. Cofounder, Lotus Development

“This is a very big ambitious thing. We don’t really think he has the ability to pull this off. This gets us what we need, and for the sake of getting the deal done, we’ll sign off on it.” 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 that.
Most of my mistakes came after we launched the product, not before—after we started shipping in January of ’83. I had no significant experience in building an organization or building a management team. 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. Big mistakes in picking a successor, big mistakes in having an undisciplined product strategy—I was much more interested in having distinctive, innovative products and thinking about what would make sense for a product line for our business overall—and big mistakes in expanding too fast and not having discipline about what we were doing. So I give myself a C or C– on all that stuff.
My experience had convinced me that being a program author and having somebody else publish it wouldn’t give me enough control over the process. In Hollywood, the very successful directors like Steven Spielberg quickly understood that they also needed to be producers and have their own studio in order to retain control.
Livingston: You weren’t bluffing?   Kapor: No, I wasn’t bluffing. I was prepared to take whatever—run out of money or find financing elsewhere. My attitude was: that’s the wrong way to do business. I don’t care that that’s the way the world works, it’s wrong. That is the way most of the business world works, but sometimes you just have to stand up and say, “Not on my watch, not here, not this way.”

Ozzie

Ozzie: In a startup, you’re on this mission together. Everyone has to feel that, and you have to hire people who are willing to believe in something they are trying to accomplish.
Ozzie: Yes, I funded the first few years myself. But eventually I took some money from Mitch Kapor and then others. Not so much because I needed it at that point, but because I knew that, ultimately, you cannot accomplish something completely on your own. You really need to develop a network of people who win when you win. 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.
In a startup environment, it’s much rougher in terms of making your numbers. There’s much less patience. Once you start down the treadmill of taking venture capital, it’s “how many rounds before people give up on you or you have a positive exit event?” So you’re really setting yourself up. The best by far is to structure it such that you don’t have to take money.
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.
Ozzie: In terms of the culture, there were some really strong positive things. People doing things for the right reason. Never say to people that you are doing it for the money. Don’t do it for the money.   Everyone knows that one reason you go to work and do what you do is the hope that ultimately you’ll be compensated. But you don’t have to say it, and it doesn’t have to come through. It should be about the mission. It should be about changing the world. It should be about how you can impact the lives of users, partners, and the employees themselves. It’s not just about this big payday. The more you focus on the things that matter when you are talking to people who want to believe in you, the more they will believe in you and the more it will be a sustainable entity.

Pyra-Williams

Livingston: What advice would you give someone?   Williams: 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.

10. RIM

Lazaridis: When you have access to state-of-the-art education, and you know how to use these machines—and you are comfortable with them—you just have to make that one leap to realize that you can actually help people. There is a need for that kind of experience, but the problem was that a lot of these companies didn’t know they had that need. It was just a matter of breaking out of your shell and going out and talking to them—looking in the newspapers, looking in local message boards, talking to different companies, asking if they needed any work done. Basically, you had to do a little bit of sales.
Livingston: If you were doing things that were so ahead of their time, how were you so successful?   Lazaridis: The tricky part was, how do you intercept a market trend? How do you intercept an industrial trend? How do you package what you’ve learned and what’s happening in the technology space so that it has new value to customers? How do you find those customers?

11 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.
In the end, it can work to your disadvantage because you always have to reeducate the market—you have to keep explaining what you really do. And you never have anyone coming to you saying, “I want what you have,” because they don’t know what you have. So it can work both ways.  
But that’s the problem: it’s so much easier to write an article about Kim than it is to write an article about the company. It’s 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.
Livingston: What would you tell someone who wanted to start their own company?   van Hoff: 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.
Eventually, you need to go to VCs and attract money, and at that point you need to be able to put your plan in writing and sell it. That’s something you need to practice a lot. Start with your friends and your parents and eventually go to VCs. If you get good reactions, then keep doing it. If you get bad reactions, then stop immediately, because it’s a really bad idea to sell a bad plan. You can screw up once, but it’s hard to screw up multiple times, because the VCs won’t give you the time if you come up with a few bad plans.
Livingston: Did you have regrets?   van Hoff: When it’s your first startup, there are a lot of people involved. You take advice from a lot of people, and that advice is not always the best advice. Very often, your intuition tells you to do something different, but then you go with the advice from the experienced guys anyway. And there were a few occasions where I look back and think, “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.
So unless you go into a completely different area, you have to be very careful about the intellectual property. So really what you’ve got to do is: don’t plan anything, don’t write anything down. Talk about it over a beer and then leave. And then you start. Don’t use any office equipment or email.
It’s irrelevant if the company fails, but if the company succeeds, that can be a big problem. The funny thing is that they won’t sue you until you’re successful, because why sue someone who is a failure? And this is particularly important if you start out at a big company like Google or Amazon, because they have a lot of time and money to spend on these kinds of things.

Paul Buchheit. Creator, Gmail

People have a narrow concept of what’s possible, and we’re limited more by our own ideas about what’s possible than what really is possible. So they just get uncomfortable, and they kind of tend to attack it for whatever reason.

Paul Graham. Cofounder, Viaweb

If they needed to have images in them, we would scan the images. We were basically web consultants, because we needed users; you can’t launch a thing like this without having any users.   That’s one of the problems with web-based software. If you’re making desktop software and you launch the thing, no one can tell how many other users there are, right? But if you’re making web-based software and you’re hosting the websites that these guys build, then if you don’t have any users, the entire world can see that.
Livingston: Why did users like Viaweb?   Graham: I think the main thing was that it was easy. Practically all the software in the world is either broken or very difficult to use. So users dread software. They’ve been trained that whenever they try to install something, or even fill out a form online, it’s not going to work. I dread installing stuff, and I have a PhD in computer science.   So if you’re writing applications for end users, you have to remember that you’re writing for an audience that has been traumatized by bad experiences. We worked hard to make Viaweb as easy as it could possibly be, and we had this confidence-building online demo where we walked people through using the software. That was what got us all the users.
The other thing was, we had good graphic design. Our secret weapon was that we knew that e-commerce was really about graphic design, not transaction processing. Unless you had a site that could convince people to buy, you didn’t have a transaction to process, and what convinced people to buy was how good the site looked. So we made sure that our software made great-looking sites—not just better than our competitors, but better than most of the sites that big companies paid web consultants half a million dollars to make for them.  
Livingston: Is there anything that you would have done differently?   Graham: 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.

Joshua Schachter. Founder, del.icio.us

In general being overcapitalized is a path to failure. The VCs want you to spend. There are general ills with being overfunded.
Schachter: In general, I found VCs to be significantly politer than the folks I worked with. The worst they did was not call me back. I’d never hear from them again. Brad Feld does a nice blog talking about how the VC process works. He says they never call you back to say no—they don’t want to close the door in case they want to open it again, but they don’t want to actually give you a response. Very few VCs actually said, “Sorry, we’re not interested.”
Livingston: What is your favorite bit of advice you’d give to a technical person who wanted to start a startup?   Schachter: 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.   People often wind up adding features, adding stuff. Making it bigger is the typical way you engineer out of a problem, right? It’s the traditional, “I apologize for the long letter. I didn’t have time to make it shorter.”

Mark Fletcher. Founder, ONElist, Bloglines

Fletcher: That it’s very easy to do, very understandable; but, in my opinion, the best thing for your company is just release early, release often. Because then you start a dialog with your users, because they’re going to send you emails saying, “This is what I want.” We were getting 50 to 100 emails a day at Bloglines, and most of them were feature suggestions. Once you start acting on those feature suggestions, the users see that you are actually listening to them and they become more loyal to your site. Because they see they are able to participate in this and it’s just kind of like a virtual cycle. So it is not a disadvantage—it may even be an advantage—to ship without all your features initially, for that reason, because you get all of this going and you get out there sooner.

Craig Newmark. Founder, craigslist

Livingston: What other practical advice would you give to would-be founders?   Fletcher: I guess, get a lawyer. With ONElist, I incorporated not using a lawyer. There’s a company in Delaware called the Company Corporation, so I created an LLC by myself before I had a lawyer. Then we went online and fixed things after the fact … it was a big hassle because VCs want a C-corp—any sort of investor generally wants a C-corp because that’s what they understand.   With Bloglines, I had an accountant, at least for a good part of it, who was fairly cheap. One of the hassles of ONElist was that I was the one managing the books the first year, as well as answering the 200 support emails every night, as well as doing all of this other stuff. I guess I’m torn with how cheap do you want to go with a startup. Having an accountant is kind of a nice frill.
Fletcher: Yeah. Somebody asked me what was my greatest strength and my greatest weakness, and I think it’s the same thing. I get easily bored. I think I’m able to focus on one thing, but I burn out easily. I’m still not good at the whole work/life balance thing, and with a startup it’s very easy to skew that in only one direction. Sometimes you have to do that, but you absolutely get burned out. So I was burned out after eGroups; I was burned out definitely to a degree with Bloglines.  
Livingston: You set up a way for the community to regulate the site, right?   Newmark: Yes: flagging. Flagging works. By virtue of flagging, we’ve turned over control of our site, for the most part, on a day-to-day basis to the people who use the site. We need to figure out better ways of doing that; that’s still in process.

Caterina Fake. Cofounder, Flickr

I think that the timing was really important because you could operate in a much more independent mode. The money was scarce, but I’m a big believer that constraints inspire creativity. The less money you have, the fewer people and resources you have, the more creative you have to become. I think that had a lot to do with why we were able to iterate and innovate so fast.

Brewster Kahle. Founder, WAIS, Internet Archive, Alexa Internet

If you can get a demonstration—or, worst case, a video—it communicates an idea better than hand-waving for hours. So get to a demo quickly.
Livingston: This was your dream?   Kahle: Yes. One thing I learned from Marvin Minsky (one of the founders of AI) was, “Pick a big enough project, something that’s really hard, something that over the years you can work on.” I’ve found that that has been a great guiding piece of wisdom. If you just set out to go and make a lot of money, then the problem is, what happens when you make a lot of money? You’re out of ideas.

Charles Geschke. Cofounder, Adobe Systems

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.
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.

Ann Winblad. Cofounder, Open Systems, Hummer Winblad

Livingston: I read that you initially started out as a consulting company and you would do the “real” startup project at night, even though you hadn’t figured out exactly what you planned to do.
We see a lot of entrepreneurs that do this. That they actually find a way to earn some money, but they don’t . . . they find a way to separate that from the business itself. Where entrepreneurs try to mush the two together like, “Well, let’s compromise the real business to sort of get more money in versus let’s find a way to get money to cover the real business and leave it uncompromised.” But they have to perform some unnatural acts to get started, which is what we did.
market; we were their only choice. Probably, thinking back, half the guys wrote the check because they just wanted me to be successful.   I think this is something that people underestimate—that there are always people out there rooting for you. That is probably part of what you have to develop. They probably went back to their offices and said the following: “We got a great deal on this software and this great little company—I think those guys might be successful—called Open Systems. And this young woman got up there, and she had the balls—or stupidity—to ask us each to rip out checks for $10,000.”
So you have to build skills. I think it’s really interesting being a venture capitalist because, when you’ve got 30 years of experience, then your challenge is how to teach and not tell. Because you want people to figure it out. You want to make sure that you can grab them by the coattails if they are falling off a cliff, but you want them to discover the edges by themselves.
That’s the biggest challenge of moving from being a business leader to being a business investor. Your job is not to tell, but to teach.

David Heinemeier Hansson. Partner, 37signals

Livingston: What were the features that people liked most when they saw it?   Heinemeier Hansson: The funny thing is that most people were impressed by all the stuff Basecamp didn’t do. They were used to these big, honking products that tried to do everything, where they just needed something simple.
Basecamp was basically just trying to be one step above email. And by setting such a humble goal, we had to make a lot of decisions about how simple we could make things. We tried to make less software from the very beginning. It’s one of the mantras we have. It’s a win whenever we can get away with just a simple model, since we have to do less programming. I was the only programmer and I was dedicating 10 hours a week to this, while we were developing it.
Also, Signal vs. Noise had a fairly large following in the web development community. The first big market for Basecamp was these creative services firms. Since they were already reading about what 37signals was doing, we went the other way around: first we built the audience and then we figured out a product. We blogged about Basecamp even before its launch, making previews, and it was viral from there. So it helped that 37signals had a big audience and had an easy way of selling into that audience.
The majority of our new customers have heard about it from someone else or read something about it on the blog. They sign up for the free version and then, that’s the best lead you could ever get. It doesn’t cost us anything in the first place and doesn’t cost us that much to keep the lead, because, though they get one project for life, we have a large group of people who are now friendly to the product we’re selling because we just gave them something for free that they’re actually using. And we’re not yanking it away in 30 days. So this builds a lot of goodwill in the early phases of the relationship with the customer. It’s a really powerful way of selling.
So now we had this extensive billing system focused on billing once a year and we couldn’t use it. We had to go back and make it monthly instead. But this turned out also to be a blessing. So we pushed back the launch about a month, and now we charged monthly, but we charged twice as much. The plan that was before $99 a year is now $19 a month, $224 a year instead. So we actually got to raise the prices and at the same time create a less risky offer for small companies since they didn’t have to buy a whole year.   One of the technical mistakes that we made early on was that we had this notion that Basecamp was for creative services firms. Set up like that, you have a firm and you have a client, so it’s a one-to-one relationship. That assumption went very deep. For instance, in the database there’s a client ID and firm ID, and now that people were using it, you’d have setups where people wanted two firms. So now what did we do? Basecamp simply couldn’t do that. And that assumption was so deep at the roots of the system that it took us about a year and a half to fix, which was not a good thing.
Another interesting mistake was that we didn’t consider time zones. Basecamp ran with the assumption for the longest time that everybody is in Central Standard Time, even though I was in Copenhagen, which is a 7-hour time difference from Chicago. So people in Australia would get their milestones one day late. We didn’t really care about time, because we didn’t usually have fixed deadlines. We had stuff we wanted to do, but it didn’t really matter whether it was 2 hours later or 2 hours earlier. Of course, not every firm works like that.   And it was also disguised by the fact that Basecamp didn’t use a lot of time. The only place where we displayed the time itself was on the comments. On the posts themselves, it just said the date and the milestone. So you wouldn’t be able to discover that, unless you were in that central time zone, it was off. In Denmark, for 7 hours after midnight, the system would say it was yesterday. So it was a big deal for the firms that needed specific times. And it was always a big deal to people in Australia. Half of the time they would be off by one day. We’ve gone back to fix that problem too.  
We always give a major update within 30 days after we launch a new product. Because that’s really something that reinforces people’s feelings about the project. If they buy in on day one and then they see a major new update after 2 weeks, they’re really pleased. So for us, one of the secrets about how we market the product is to make sure that launch is not the end. We don’t say, “Whew, we’re done now,” and then go on vacation. It’s then when you keep on pushing to show this product is alive.
And I had this same thing in the development of Rails. When you try to do 100 percent of what somebody wants, you need a perfect match, and it’s pretty rare that you have a perfect match between what you thought people needed and what they actually need. If you just try instead to do 80 percent of what they need, there’s a pretty good chance that you’ll hit a sweet spot.
Heinemeier Hansson: Very much so. It’s good to be market-driven in the sense that you should know what’s going on, but you can’t let your customers drive your product development. You need to be able to innovate on behalf of your customers, but they often don’t know what they want. And it’s the same thing for programmers. If you went around and asked them what they wanted in a framework, you wouldn’t get a good product out of that. You need to be able to source input from a lot of sources, and then have your vision of what it’s going to be and then drive that.

Philip Greenspun. Cofounder, ArsDigita

I wanted them to have a real professional résumé. In the end, the project was a failure because the industry trends moved away from that. People don’t want programmers to be professionals; they want programmers to be cheap. They want them to be using inefficient tools like C and Java. They just want to get them in India and pay as little as possible. But I think part of the hostility of industrial managers toward programmers comes from the fact that programmers never had been professionals.
Greenspun: Yeah, but they didn’t appreciate it that much. Some of the early people did, but the later arrivals, when the venture capitalists came in and said, “Oh, you guys should just clock out at 5 p.m. and you shouldn’t write, because programmers shouldn’t have to do more than code,” they were so happy that they didn’t have to work hard anymore. “We don’t have people like Philip and Jin reviewing our code and telling us to redo it to be cleaner and simpler.” They were so happy to be relieved of those strictures that they very quickly lapsed. Not everyone, of course, but the majority. We built the company a little too fast, and consequently the last 50 percent of the people hired really didn’t have much commitment to the corporate culture.   There were some warning signs. Consider McKinsey, which holds itself out as one of the world’s leading repositories of knowledge on how to manage a business. They say they’ll never grow their company by more than 25 percent per year, because otherwise it’s just too hard to transmit the corporate culture. So if you’re growing faster than 25 percent a year, you have to ask yourself, “What do I know about management that McKinsey doesn’t know?”   I still think it’s more efficient—this is just an old Lisp programmer’s standard way of thinking—if you have two really good people and a very powerful tool. That’s better than having 20 mediocre people and inefficient tools. ArsDigita demonstrated that pretty well. We were able to get projects done in about 1/5th the time and probably at about 1/10th or 1/20th the cost of people using other tools.
for these fragile little companies, just putting a generic manager at the top is oftentimes disastrous.
If you are a for-profit corporation, your job is to make money, and if you’re not making money, you’re not doing a good job. End of story. It’s important to have fun, but once you incorporate for profit, my attitude is that you better make a profit.
Greenspun: The one thing would probably have been slightly slower growth, I guess. Not to worry so much about the competition, concentrate on getting really good people who shared the company’s vision, who could be mentored to the point where they could then recruit somebody else. Basically, just limiting growth.
If a 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. They don’t understand why they get paid so little. It is tough to manage these folks. But on the other hand, there are better and worse ways to do it. If you want to ensure that the customer gets high-quality code and that the product is high-quality, you have to step on these younger folks’ egos and say, “No, that’s not the way to do it.” The question is, how harsh can you be? I could have been kinder and gentler for sure.

Joel Spolsky Cofounder, Fog Creek Software

But they thought the product needed to be open source, and we thought, “That’s nice, but consulting is a business where your revenue is just a multiple of the number of people you can hire. Software is a business where your revenue can grow much faster than the people you hire.” If you can make licensing fees by selling software using the same model as ArsDigita in every way, but just charging for the ACS, we thought that you would have a steady growth of the consulting side of the business.
So the idea was that the consulting would grow linearly with the number of people as you hired more good people that you could rent out as consultants, and the software business would grow like the hockey curve because, at some point when it took off, you wouldn’t actually have to hire new people. You could just make more copies of the software you were selling.
The consulting market is the derivative of every other market. When a company is growing, they will hire a few consultants to help them grow a little bit more rapidly. When they’re shrinking, they’ll instantly fire all consultants. If the market is even going down by 0.002 percent instead of growing—which it did, because there was a sort of dot-com nuclear winter—then the first people to go will be the consultants. So the consulting business completely collapsed, and every company in that space more or less collapsed. The ones that remained—Razorfish, Scient, Viant, whatever—all sort of conglomerated into one company with about 120 people, and that was it.
Livingston: Did you think, “Hey, we’ll build this for us and see if we like it?”   Spolsky: Yeah. We actually had three product ideas in mind, and FogBugz was one of them. That was the easiest one and the one closest to being able to be sold. The other two product ideas—one of them was CityDesk, which was kind of a market failure, and the third one was something called Tintin, that we never even wrote, let alone shipped.   We had this idea of a family of three applications that would work together in various ways. FogBugz would provide workflow, Tintin was going to provide a content management server, and CityDesk was going to be this content management client. That was the long-term vision, and we started launching FogBugz because we had it.   I think we started making $5,000 to $10,000 a month selling that. It was enough to pay our expenses and live off of once we laid off the two consultants we had hired. (They both immediately found jobs, so it was not really an issue. One of them is now back as a full-time employee.) I guess we were kind of lucky that we started late enough in the business cycle that we didn’t waste a lot of cash discovering that there was never going to be a consulting market again.   Livingston: You were nimble enough to change your plan because you were just getting started?
We had to raise the price a couple of times. We didn’t have to, but raising the price actually increased the number of units that we sold. I guess because it looked more legitimate with the more realistic price.   Livingston: If people have to pay more, they take the product more seriously?   Spolsky: Definitely. There was a five-user license that was like $199, and that just feels like shareware, practically. But today, when you say that a ten-user license is $999, it starts to feel like a more substantial product. In that market, it still is actually a good deal. But you really have to have a price point that conveys what you think the product positioning should be. Many people will judge where your product fits in the market based on its price.
Now I have enough experience to know that almost everything you launch is going to sell $2,000 to 3,000 in the first month, and that’s the way the first month of any software product always is, if you do things perfectly. But at the time, I just had no idea what to expect.
There was money coming in, and the amount of money coming in was going up every month. So there was no reason to give up and go home. The theory was that we would only give up when there wasn’t enough income even to pay the minimum bills we had to pay. I think our monthly overhead was $5,000—mostly rent, but also office supplies and T1 and that kind of stuff.
Spolsky: Absolutely. Remember, the original model was, “How can we become a big consulting company and then build a software company inside a consulting company?” The consulting company was a means to an end. It was to get cash flow, so that you could build a real software company. And when you were done, the theory was you’d still have these consultants, but software companies often need consulting arms.
A company that is not designed to create high-tech products is very unlikely to have the culture or the DNA that it takes to create high-tech products. So if you are a high-tech person in that company, then you’re basically a glorified typist in some sense. It’s very unlikely that the kind of people who would be successful in an entertainment company would even understand what programmers do that makes them more than typists.
So it was just a completely goofy thing that we did. But then we took it further. We said, “Make hyperlinks to Fog Creek properties (or whatever) and if people follow the hyperlinks and buy our software, we’ll give you a percentage—15 to 25 percent.” It was an affiliate program, just like Amazon affiliates. That actually did get us some sales, but we put a lot of work into developing that, and the amount of sales it got us was negligible. The administration and development overhead were just not worth doing, and we eventually shut it down because I was sick of writing $19 checks every month. It was a complete waste of time; it absorbed a lot of time very early on, critically.   A third example of this was when we said, “Let’s make some kind of coupon system”—because we had this idea that we would send people an automatic email when they visited our website that would tell them—and we had all these crazy ideas like, “Buy our software within the next 72 hours and get 25 percent off.” (That thing was actually a bot that we wrote years ago, and it still runs. If you try CityDesk, which is our least popular product right now, you will get an automatic email with a 25 percent–off coupon that you have to use in the next 72 hours.) When we launched that, it did increase our sales a little bit. It gets people to evaluate the demo version right away—because they don’t want to lose their 25 percent off coupon which is going to expire.
These were all marginally good marketing ideas. Unfortunately we spent a lot of time chasing them. The one thing we learned over 5 years is that nothing works better than just improving your product. Every minute, every developer hour we spent on any one of these crazy things—although they had some marginal return on the work that we put into them—was nothing compared to just making a better version of the product and releasing it. If we had taken all the effort we put into these crazy schemes and put it into moving our software development schedule ahead by the equivalent amount, it would have paid off much more.
That was probably the biggest mistake we made. And that’s the advice I give everybody. All those little coupon schemes, this is what General Motors does. They figure out new rebate schemes because they forgot all about how to design cars people want to buy. But when you still remember how to make software people want, great, just improve it.   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.
The interesting thing is what they copied. They didn’t really copy the code; they copied the implementation of how FogBugz works. But they missed what made us successful. They didn’t really copy Joel on Software. And I think what’s happening to those seven people right now is they are getting an object lesson that merely copying the product that another company makes does not make you successful. We’re not afraid of those people by any stretch of the imagination. Sometimes they can be aggravating, but we don’t really care.   More than that though, we’ve long had a philosophy of pretty much ignoring our competitors.
In other words, why listen to our customers indirectly through what our competitors do when we can just talk to our customers? So my mantra has always been, “Listen to your customers, not your competitors.” I don’t
Spolsky: To me, building a software company—and this is kind of hand-wavy—is creating the factory that was going to be equipped for, when I have an idea or when somebody has an idea, we can throw it into the factory and get the working code at the back.
So quit your day job. Have one other founder, at least. I’d say that’s the minimum bar to getting anywhere.

Stephen Kaufer. Cofounder, TripAdvisor

At the earlier stages of the company, when you’re actually out trying to get some customers, do whatever the hell the customer wants. If they’re going to pay you, the customer is right. Because you need that initial money. You need that customer on the list to go get the next one. If you have to give away whatever you’re doing, give it away. Get the customer. Make them into a reference account. Make that customer into the person that sings your praises the loudest, and really uses your product or service.
On the Web, it’s particularly easy to try something and get feedback. If it doesn’t work, drop it. I’ve come up with really interesting ideas that were utter and complete failures on the site, and I make fun of myself in company meetings when I talk about those. Then I look at each group and say, “Hey, I’m hoping every one of you—in addition to all the successful ideas you’ll come up with—aren’t afraid to come up with some resounding failures.” You just want the failure to cost you a couple of weeks, a month or two—it depends on the industry—a small, fixed cost. It’s the old adage: if we’re not failing at something on a regular basis, we’re just not trying hard enough.
But if I ever start another company again, I’d love to have as a founding or very early team member someone who was a trusted recruiter. Because the difference in almost any position between someone who does a good job and someone who does a great job might be 20 percent more in salary, but it’s 100 or 200 percent more in throughput. If you can have enough people in the company that work twice as efficiently as the person sitting next to them, because they just know what to do, what not to spend time on . . . I mean everyone, they’re more or less all working the same number of hours. It’s rarely a work ethic issue. It’s just, hey, you give this engineer a task, and it’s just done right in half the time as the next person. That it’s done right, that’s the first important part; it’s done quick; and there’s just less communication if the teams are smaller, because everyone’s getting twice as much done. Now how the heck do you fill a company with people like that in every single department? Well, you tap out of your friends pretty quick; but absolutely, go hire your friends.   As I advise other startups from time to time, if you find someone you like, pay what it takes to get them to come to your company in options or in salary, depending on the company’s stage. But getting the right people—especially in that first dozen—is so much more important than getting the req filled. Unfortunately that slows down the hiring process a lot, which slows your growth a lot, which is how I circle back to say, “In the next company, I’d hope to have a recruiter on board within the first half a dozen people to help get the right next 12 people.”   Most recruiters don’t work that way, don’t think that way. Recruiters want to know, “What requirements do you need in the job?” My answer is, I want passion. I want people that really care about doing a great job. It’s just a different mindset. That’s software, that’s customer acquisition, that’s branding, that’s PR. It’s really not in any one department. It’s an attitude. And it makes a company a hell of a lot more interesting to work at.

James Hong. Cofounder, HOT or NOT

Hong: I don’t think I’ve ever told anyone this, but after I sent out that first email, I went rollerblading around a big office park where Tellme was based. I went up to a random guy and said, “Hey man, have you checked out hotornot.com yet?” He said, “No, what’s that?” I said, “Dude, just go check it out!” Then I went home and watched our logs for Tellme and saw a hit come in 10 minutes later, and then more hits kept coming from different people within Tellme.
Livingston: What would you tell someone who was in your shoes before you started HOT or NOT?   Hong: 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.
Livingston: What else do entrepreneurs have in common?   Hong: The hardest decision you make as an entrepreneur is not one that you make while you’re building the company. For me, the hardest decision was not about solving the hosting issues and all that. It was the one I made years before HOT or NOT even existed. When I said, “I’m going to be an entrepreneur,” what I was really saying was, “I’m going to forgo the normal, safe route, where there’s a clear path. I’m going to take a higher risk and go for a higher reward.”   It’s like Hewlett-Packard. Do you know what their first product was? A bowling foul line indicator. The point is, they decided that they were going to be entrepreneurs before they knew exactly what they were going to do, and that’s very common.
So the hardest thing is to say, “I’m going to put myself in the position of being an entrepreneur by having ideas and trying things, and not giving up when I fail.”   You never know unless you try, and we live in a world where building websites and other small things doesn’t take that much time and effort to try, so why not just try different things?
Livingston: What other advice would you give to someone starting a startup?   Hong: You need the early team to be savvy in everything. And you have to have people who understand the users and the product. If you do, then you’ll have users.   And nothing ever goes according to plan. You can’t dwell on the fact that your plan didn’t work. In our case, we didn’t even have a plan, but it would have been worthless to have one anyway, since we just kept moving as fast as we could. You have to hustle; you can’t just have a plan and cakewalk it. You just have to know what direction you’re going in and run around like a rat in a maze trying to get out.
Livingston: Any other advice about startups?   Hong: One, do it while you’re young.   Two, there’s no right path. There is no one plan that fits every business; you have to figure it out yourself. There is no magic formula.   Three, even if you raise money, spend it as if it’s your own and you have none. Your organization has got to remain smart and lean. Be cheap. There’s no shame in being cheap. I still fly coach.   Four, 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.

Blake Ross. Creator, Firefox

Livingston: Are there any lessons that you learned in the Firefox days that you are applying to this new startup?   Ross: One is to make sure you are always in communication with the people who are eventually going to use your product. It’s very easy to just lock yourself in a room and code all day, and you forget what the real problems are that people are having. So you have to keep talking to people and keep refining what you are doing.
In short, I’m nervous about everything. If you’re doing a startup and you’re relaxed, you should be very worried.

Mena Trott Cofounder, Six Apart

Livingston: What did people misunderstand about what you were doing?   Trott: There was licensing. From October 2001 to May 2004, Movable Type was always free and you had paid options. Commercial was the one level that was never completely free. So if you were using it in a commercial way, you’d have to pay $150. The thing was that we had these huge companies using Movable Type, paying $150 and putting 150 to 200 people on it. We never felt that was right. That’s why we had a strict license that basically said that you don’t make money off the stuff that we’re not making money off of. It wasn’t that we didn’t want people to make a living off of Movable Type; it’s just that, if we weren’t making a living, we didn’t think that other people should be making money.   Some people say that’s not a good attitude, but it was the attitude that kept us functioning as a business. That’s some advice for people: don’t apologize for wanting to be a company. You see so many people who say, “Oh, we won’t charge; things should be free.” It’s like you don’t think you’re worth being paid for your time. I feel even more strongly about this when it’s an entire company rather than just me and Ben. We can be kind of the fools that will work for free, but I’m not going to make other people suffer for that.
If I’m forced to think about women who are in this field, I can’t usually. But I know there are. Many women are in marketing or design. I think marketing and design are a lot harder to learn than engineering. That’s my opinion. People put value judgments on engineering like, “There are more men; therefore, it must be a smarter field that women should get into.” I don’t think that’s the case at all. I say, look at women, they’re strong designers and strong at marketing and communication. That’s a harder skill to acquire in life. Being able to write and being able to figure out what people want in their product, how to sell it to them.

Bob Davis. Founder, Lycos

As part of the purchase agreement, we were also obligated to pay Carnegie Mellon 50 percent of our first $1.5 million in revenues. So from cash flow, another $750,000 went to Carnegie Mellon. For real working capital, we had a million and a quarter, and that was all we ever had.

Ron Gruner. Cofounder, Alliant Computer Systems; Founder, Shareholder.com

The third requirement, having been through Alliant with all people working in good faith but losing control of the company, I said, “I ain’t going to lose control. I want to be the sole owner. I’m going to be the majority owner of the company. I want to be the sole founder. It may be harder that way because I have to do most of it myself, but I’ve got control.”
“Based on our analysis of your shareholder base and the demographics, we think that will cost you about a quarter million dollars a year. So you’re spending $1.5 million now. You can take $1.25 million and drop that to bottom line in savings. Spend a quarter million for our service, and the shareholders that are interested in getting the information can get it much faster and in a more personal form than they get it now.”