I’ve been reading the book “Founders at Work” – Stories of Startups’ Early Days by Jessica Livingston to get a better idea of how some well known startups came about and to (hopefully) gain some inspiration from the interviews with their founders.
The Hotmail story was particularly interesting:
- Hotmail was funded in February 14, 1996, the site launched on July 4, 1996 and went into talks for acquisition in Oct, 1997 with Microsoft. So from the moment it was effectively started to the point at which it was ready to be acquired – 1 year 8 months (eventually acquired for 400 million USD, negotiations started at 150 mil.). Absolutely insane. Seriously. On top of that, the height of the bubble hadn’t even hit:
- At the point when it was ready to be acquired, Hotmail only had 60 employees, only 15 of whom were engineers.
- Between 1996 and 1997, Hotmail’s user base had grown faster than any other media company in history.
Interestingly, enough Sabeer said earlier this year about cryptocurrencies:
“the dotcom bubble had companies with viable business models, as opposed to cryptocurrency-related projects which he believes don’t. He added that ideas which have not been implemented should not be valued at billions of dollars.”
I tend to agree with Sabeer. While companies were overvalued during the dot com bubble, they often did have millions of users and were onboarding users at an exponential rate. The same rate of adoption hasn’t really been seen in the cryptocurrency markets yet, leading me to believe that we are perhaps either:
- Still very early in the crypto boom cycle
- Valuing the cryptocurrency networks in the wrong way
- or Forcing an analogy with the internet boom, when there isn’t a good analogy to be drawn. Perhaps the more related field would be that of early p2p networks, which slowly dwindled over time and changed drastically.
Anyway, I digress.
On founders
I find the relationships between cofounders to be particularly important. A startup at the end of the day depends heavily upon the relationship between the founding team and it has been increasingly the case that there are typically two co-founders for some of the most successful startups.
Points that stood out to me:
- Sabeer worked with Jack Smith at Apple. They left together and went to FirePower Systems. Eventually they quit that company as well and started Hotmail together. They trusted and respected each other, especially due to prior work they had done together.
- Bhatia wrote up a business plan before even starting anything (a whitepaper). Upon showing it to Jack, Jack immediately said “where do I sign”. They were both looking to build something of their own and were willing to take asymmetric bets with uncertain payoffs.
- Bhatia and Jack were both working full-time jobs at the time. Bhatia convinced Jack to quit his job and offered to split his salary with Jack while the platform was being built out. The co-founders were generous (with each other) and helped enable each other.
On the startup idea
People like to think startups have this incredible idea right off the bat and they just pursued that, leading to an eventual exit or a billion dollar series B round. It typically doesn’t seem to be the case that startups even stick with the original idea. However, the basic tools being built out or the lessons learned initially are usually used in the final product. Apart from that, every startup seems to have a separate story about how they arrived at their final form.
With hotmail, the story progressed as follows:
- Bhatia and Smith began building out Javasoft, an easy to use database in the backend
- A firewall was installed at FirePower that prevented the two co-founders from accessing their personal e-mail accounts. This made communication very difficult for them at work between each other.
- At this point, they decided to make e-mail accessible through web browsers. This gave rise to hotmail as we know it.
Lessons:
- Sabeer had initially written a business plan for Javasoft. When he realized that the e-mail through web-browsers idea would reach far more customers, they did not hesitate to pivot.
- “If it solves our problem, it will solve the problem for many others”. They solved a problem that they personally faced and they were right in assuming it was a problem many others wanted solved as well.
There are more of these lessons peppered throughout the book, but luck and timing seem to play a far bigger role in the success of most companies than founders (and their investors) would like to admit. Practically no one uses hotmail now and today, Microsoft’s email market share is at <10%. Sabeer and Jack were unable to recreate their success with hotmail in their succeeding ventures.
This short 2 year story reminds me that starting a company is best viewed as an asymmetric bet with a fat-tail, with the main constraint being time (If we could make infinite independent bets, many flawed strategies in real life would work well). Having a longer term view allows many dependent smaller bets to be made within the scope of a single larger bet (one company), and improve its probability of success. But nothing quite beats timing and following the trend.