FAW #9: Tim Brady of Yahoo
Proof that an idea doesn’t have to be complex
Another instance of people merely scratching a itch, Yahoo founders Jerry Yang and David Filo just started out by making a useful list for themselves. They had been collecting research for their PhD dissertations and started keeping an index of references to various papers online. Word got out amongst Stanford PhD students and they began getting requests to add more categories to their directory. As the site grew in popularity they found themselves ignoring their graduate work and instead adding sites to their directory all hours of the day. It happened that their thesis advisor was on sabbatical so they were able to slack on their school work and devote attention to building their directory. Their traffic saw a 10x increase in late months of ‘94 and they called their buddy, Tim Brady and told him “This thing is going crazy, get out here now.”
Brady was still in school at the time and when faced with the decision whether to bail on grad school (that his father had paid for) he hesitated. Eventually he figured out that he could fail three classes and still technically graduate. So he backed out of 3/5 of his classes, turned in the Yahoo biz plan as his final paper and worked for Yahoo while he finished up school. This was in ‘95 and there was a ton of enthusiasm around Yahoo but no clear vision on how to monetize it.
Brady stepped in with his MBA and wrote a business plan. They landed $1MM in funding from Sequoia Capital (which for 4 recent college grads with no business experience was a lot).
Why going into business with friends is actually a good thing
Brady said: “You always hear ‘Never go into business with friends.’ But with the first 20 hires, everyone knew each other. Consequently there was a high level of trust. Everyone was young. It was pretty much everyone’s first job.” Hiring people that knew each other meant there was maximum trust early on and they could focus on the product. Like the VisiCalc story, this allowed them to be very nimble and waste no overhead on formal procedures or establishing trust with new hires.
Putting user needs before company agenda
Yahoo saw a fair share of competitors emerge once it was clear that they were onto something big. One thing they did that flew in the face of traditional business practices was to send users to a competitor when Yahoo didn’t have what the user was seeking. Traditional wisdom would suggest that you “fence in” your customers and keep them from your competition. Yahoo took the approach that “If we don’t have what they need, we’ll at least help them find it somewhere else.” That was a winning approach because it earned them major rapport with their users once users found that they could always eventually get to what they needed through yahoo. The extreme manifestation of this “yahoo is the portal to everything” thinking (and I’ve witnessed this effect first-hand) is that to this day, some non-technical folks will type URL’s into yahoo’s search field in order to get to a site. When people mindlessly rely upon your site to that degree to get to what they need, you’ve won.
Incubated by their Alma Mater
Yahoo started out running on Stanford’s servers. “Stanford is very progressive in that Yahoo is far from the first startup that originated there and will be far from the last one. It was new enough, and it wasn’t a specific technology; it was a brand. It wasn’t really an invention; it wasn’t a piece of technology. They were smart enough to know that anything they would do to stifle it would kill it, so their best hope was to just let it go and hope that Jerry and Dave gave money back later, which they did. They optimized their outcome, trust me.”
It’s great to see this type of progressive thinking on the part of the university. Unfortunately here in AZ, schools like ASU have these draconian technology transfer requirements and end up asphyxiating startups before they can get off the ground. Rather than the “let 1000 flowers bloom” philosophy, they seem to be more of the mindset to try and make money off the entrepreneur - having started as starving entrepreneurs ourselves, we know that just doesn’t work. I’ve heard from several people now that have a novel piece of technology that came from the product of a research project at ASU and that if they could just run with it, they would happily compensate ASU somehow down the road. The short-sightedness of hoarding IP rights and slapping entrepreneurs with prohibitive licensing agreements up front helps nobody because the technology dies on the vine. It would be great to see ASU take a lesson from Stanford on this practice.
“We’re a media company, not a search company”
Yahoo made a conscious decision in ‘97 regarding their identity in deciding that they were a media company and were not trying to build search technology. Over the years they swapped out their search technology many times beginning with Open Text, Altavista, Inktomi and eventually Google. The point is they identified their core competency, kept focused on that and outsourced their search technology from whoever could deliver it most effectively at the time.
This is wise advice for any startup: avoid getting spun out on things that don’t directly advance your cause. There are plenty of outsourced pluggable email, CRM, HR, etc. options- unless it’s a core competency of your organization (ie. Lotus using Notes internally as their intranet to “eat their own dog food”), outsource it and instead spend that time engaging in activities that add value to your company.
Think through the heavy personal questions up front
Brady said: “Try to do as much thinking up front as to what your breaking points are. One of the things I think I did well was that I never spent any time thinking about quitting or any of these doomsday scenarios, ‘Oh, God, what if this doesn’t happen.’”
“Before I joined, I knew where the line was, when I would quit, at what point, and so when I was in the game, it never crossed my mind. I also knew why I was involved, what motivated me, and I didn’t spend a lot of time perseverating on that stuff. At the end of the day, it wasn’t going to get you anywhere. It mattered, but only in an abstract way, compared to the day-to-day of getting stuff done. Doing all that thinking up front: why am I getting in, when do I leave, if I leave then why am I doing it, what gets me up in the morning, what could happen that could make me stop getting up in the morning? I’ve seen a lot of people get so emotional because they start something on a whim; they are doing this thinking while they are doing business, and , when things don’t go well, you don’t act rationally, to say the least. There’s a lot to it; it can get really emotional because you get tired and there’s a lot of work and you’re invested in it. All those personally motivating things- think them through before you get things started.”
I would echo this advice from the JumpBox perspective. We answered a lot of these questions up front for ourselves: why we were doing it, what kind of company we wanted to build, what roles we wanted to have personally and as a business. While you can’t predict the final destination or even the direction when you’re just setting out, you can get very clear on how you want to sail.
Yahoo IPO’d in April of 1996 and closed at $33/share on it’s first day yielding an influx of $1BN in cash for the company. It was recently in the news with rumors of a $50BN overture from Microsoft. Those rumors seem to have proven false. Yahoo continues to be a powerhouse Internet stock and popular web destination.