Entrepreneurship within a company

The Gmail story is the first instance in the Founders series of a startup emerging within a larger company. Innovation within large companies is getting more attention as executives realize they need to nurture and spin off innovative projects or risk withering as smaller startups leapfrog them with a disruptive technology. The latest issue of Fast Company devotes a full spread to a story called “Innovation Scouts” - teams of people within companies like Adobe and Ebay whose sole function is to identify, promote and cultivate innovations internally.

A different set of challenges

Buchheit recounts that one of the tricky things about the project was that it held and entirely different set of challenges than they were used to solving with web search. When indexing the web it was acceptable to have several days’ latency in seeing the search results appear on Google. With email, users expected instantaneous search results for emails they had just sent. The other issue was reliability - lose a machine with web site data indexed and you just go re-index it, lose people’s email and you have a huge black eye for your service and people will be vocal in their rants. Gmail’s offering was 1GB (now 2.8GB) compared to the traditional 2-4MB so they faced huge storage demands as their user base grew. All these challenges in the face of an already-skeptical internal audience meant an uphill battle to get the green light for the Gmail project.

A different take on email

Before Gmail existed, people were used to the conventional idea of web email. Buchheit was able to suspend some of these notions, strip things down to their core essence and look at email differently. He used this view of email to make several major disruptions in the traditional model:

1. Save everything - He realized that people deleted mail for a couple reasons. Either they wanted to conserve space, have fewer emails to make search more manageable or because they genuinely wanted a message destroyed. He realized the huge storage capacity would nix the first motivator, having powerful search features would nix the second and giving people the option to truly delete a message would satisfy the last. Instead of deleting messages as the default manner to clear one’s inbox though, Gmail made the default action “archive” so the messages would be saved. This was a radical departure from the traditional approach of having users delete messages.
2. Tagging - Another concept that was novel to email was tagging. It was just starting to appear in the social bookmarking services but had not yet appeared in categorization of emails. Email users were familiar with the concept of sorting their email by hierarchical folders- tagging flattened this paradigm by allowing a message to exist in a giant catchall directory and having different “tags” applied to it so that it could be classified under multiple tags depending on what it was.
3. Auto complete - This seems almost ridiculously simple to merit mentioning by today’s standards but it was breakthrough at the time: auto address completion when composing a new email. The desktop email clients had it but Buchheit applied it to Gmail.
4. Conversation view - A byproduct of working from the Google Groups codebase, Gmail offered a way to read your inbox so that replies to a given message were viewable in a threaded conversation format color-coded by author. It made following the conversation a more coherent experience.
5. Hide quoted text - to improve the Signal-to-noise ratio, Gmail auto-hides quoted text in email replies assuming that the reader already has the context from an email they sent previously. Again, this improved the continuity of the experience when reading a bunch of emails from a conversation in sequence.

Not one but two innovations

As if Gmail weren’t enough of a contribution to Google’s success, Buchheit also conceived and implemented the first prototype for what is now AdSense. As a Friday experiment Buchheit whipped up some javascript code that would allow targeted ads to be served from other peoples’ web sites. Like Gmail, AdSense initially met with resistance internally but once people understood the implications it had for expanding their advertising market, it flew. Buchheit says: “I think , in general, people are uncomfortable with things that are different. Even now when I talk about adding new features to Gmail, if it isn’t just a small variation or rearranging what’s already there, people don’t like it. 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.”

Fortunately for Google, employee #23 was successful in championing both of his innovations and AdSense and Gmail are now both irreplaceable applications in the family of Google apps. Google IPO’d in August of 2004 raising $1.67BN. It was named America’s fastest growing tech company by Forbes in 2004 and employs over 12,000 full-time employees world-wide.

Why they ran in stealth mode initially

Marimba was another company that started based on a team and not an idea. Much like the Excite guys, on day one they had zero idea of what they wanted to do. It was four people that had left the Java development team of Sun in 1996 to go do something of their own. They went and secured office space before they had any idea of what they were going to build.

Given the high profile of the people on this team (including Kim Polese, a knockout female CEO who drew a ton of press), they didn’t even have to say what they were working on. They claimed to be running in stealth but in truth, they still didn’t have a plan and were getting media attention regardless so they continued to play the stealth card and get attention mostly via Kim. The first idea the materialized was essentially the technology that was later developed by another group and became the Java Swing interface builder toolkit. So again- another instance of a company that started building the wrong thing. Van Hoff said: “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 company that developed the Swing toolkit (Netcode) was acquired by Netscape and though Marimba had a working prototype of essentially the same thing, they made the decision to cut bait and move on. The next idea that emerged was the concept of subscription software that would update itself over time. This is common stuff now with the Windows OS automatically grabbing updates but back then it was not yet being done and was considered very forward-thinking. The company grew quickly and had forty people by the end of its first year. It appeared that Kim while in her element in the early days, was not as effective in running a larger company. Van Hoff said, “Managing people and motivating teams requires a very different skill; it’s not something that you can do by the seat of the pants. So the lack of experience eventually begins to show if you don’t have somebody who can make decisions, for example…as a founder;, you have the skills to start companies from scratch, but it doesn’t necessarily mean that you have the skill to grwo it ’till they’re larger.”

The controversial espresso machine

Marimba raised $4MM in VC from Kleiner Perkins and immediately felt the pressures of how they were to spend the money. Van Hoff had intended to buy a really nice espresso machine for the coffee room once they landed funding but when he announced this intention to the VC’s they all shot down this plan and said the money was to grow the company. It became a sore spot for them and the company went through a rough period where morale was low and it was difficult to hire people. Van Hoff eventually said “screw it” and purchased a $15k deluxe espresso machine on a credit card and expensed it. Once their CFO got over the shock, they realized “it was the best money we ever spent. Every morning, people would meet and crowd around it. This thing was just it, the bee’s knees, people loved it, they couldn’t stop talking about it. A month later the CFO came and said, ‘I’m sorry, we should have done this years ago.’ And that tells you something about where you spend your money and what you spend your money on. It’s not just business-related expenses. You also have to create an environment that you like so that people are happy and feel they are valued.

At iTOOL we had a $2k Foosball table that was hub of interaction for developers. They probably saw a 100x return on that table in terms of the value of the interaction between employees and stress relief that the foos table afforded the company. We have the same Tornado table in our office at JumpBox now. I agree with Van Hoff that there’s not always a rational line item to explain every expenditure- sometimes it’s just about having a kickass foos table for the office.

Morphing into an enterprise offering

Marimba began targeted as a consumer product and eventually was morphed into an enterprise software distribution product. What’s funny is we went the other direction with JumpBox setting out to build an enterprise offering and retooling it as a consumer product selling appliances to end users.

On trusting your instincts

When asked if he had any regrets from Marimba, Van Hoff responded: “When it’s your first startup, there are a lot of people involved. You take advice from a lot of people, and that advice as 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.”

This sentiment was a common thread that running across many of the stories, the idea that entrepreneurs should resist the tendency to capitulate to the advice of people that are supposedly more experienced. Nine times out of ten the entrepreneur is in the best position to make a decision and would be better served by trusting his/her own instincts.

Keeping things pristine to prevent an IP claim from a former employer

The parting advice given by Van Hoff is that if you’re going to do a startup, take nothing with you when you leave your former employer. If your startup is a failure, nobody will come after you because there’s no deep pockets to sue. But if you achieve wild success the employer has something to gain and probably the resources to pursue it so you want to keep things very pristine. “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 an office equipment or email.”

Marimba IPO’d in 1999 and was acquired by BMC Software in 2004 for $239 million.

The high school shop teacher that changed everything

Mike Lazaridis and Doug Fregin, founders of RIM, knew each other in high school. Mike had a shop class to which a local electronics manufacturer had donated a bunch of random equipment. It arrived in sealed crates and Mike was curious about what it all did. His shop teacher told him, “Well, you can open any box you like, but there’s one condition: you have to read the manual first.” This proved to be a formative moment for Mike and he eventually opened every crate and learned what each piece of equipment did.

This exercise on it’s own might have destined Mike to be an electronics repair person but Mike was simultaneously getting the mathematics and physics theory from his other classes and was able to put the two together in meaningful ways. Mike said: “We tried to bridge the gap and explain to the teachers and students upstairs what we were learning down there and how we were applying the mathematics and science we were learning upstairs. Literally we were. I was able to give lectures to the math program, showing them how trigonometry could be applied to power generation, power control, and power transformation that we were learning downstairs…what we learned there was the actual fundamentals of computers: how to build gates, how to build recent memory circuits, how to build registers and how to wire them all together and sequence them with a clock. It was very fundamental knowledge, and it really made a difference as time went on.”

This paragraph resonated with me. I can remember being in eighth grade and going through this subversive phase with my friends where we would launch water balloons off the roof of my parents’ house at cars passing through an intersection blocks away. We came up with all these crazy James Bond inventions like rope ladders off the roof and escape hatches cut in the backyard fence. At one point we tried to build this “zip line” to the edge of the back yard so we could just zoom down a rope to safety. I had one of these “theoretical bridging to practical” moments like Lazaridis describes when I was able to use two different math techniques (trig and geometry) to successfully calculate the length of the rope we needed for the zip line. There’s something supremely cool as a kid when your book knowledge proves useful in the realm of something more important like water ballooning a car.

Mike says: “We need to make sure that we are allowing students to be exposed to future technology and not reducing it to current- what a lot of people would like to say, “relevant” teaching. What’s relevant teaching? What’s relevant research? When I was at the university, if you went in and started looking at what we were doing, you would say, “Why don’t you guys get a life and do something relevant? What is this stuff? Nobody’s going to use this.”

I couldn’t agree more. I recently wrote a short piece called “Computers emulating nature: why high schoolers should be excited.” It proposes that the fundamental knowledge of tomorrow will be in understanding the mechanics of genetic algorithms and Hierarchical Temporal Memory Systems and being able bridge the practical/theoretical gap like Lararidis did in order to make useful applications with them. The high school computer science teacher that has his/her students doing science projects with this stuff now will be priming those kids to develop the next world-advancing technology.

Ditching school to start a company

Lazaridis arrived at a crossroads in his final year at the University of Waterloo in Canada and had to give up either school or the business. He chose the route that nearly all of the founders did and took a leave of absence in order to pursue building his company. He landed a $600k contract with General Motors to build a LAN for their manufacturing plants. They had been eeking by with the help of government grants and consulting gigs but this contract put them on the map and introduced them to technology which would become foundational for RIM.

The light bulb

The epiphany for Lazaridis came when they recognized the role of wireless technology in the context of reducing restocking fees for vending machines in Japan. He met someone in 1987 at a conference who explained how a Japanese company had figured out how to install sensors that communicated via wireless to take all the manual labor out of the process of ensuring that vending machines around the city stayed full of product. Lazaridis found a contract that allowed him to develop the first wireless protocol software API and transition from a consulting role to producing a product.

How do you intercept a market and create an industrial trend?

When asked how he knew to “skate where the puck would be,” Lazaridis replied: “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.”

When we originally started JumpBox we had the idea that we’d create the toolset that allowed software vendors to turn their existing software applications into appliances. We saw the opportunity around virtual appliances and thought that seemed like a good way to tackle it. We eventually shifted the approach from building the toolset towards selling Open Source applications as appliances ourselves. The ultimate endpoint that we see remains the same but we had to change up the path to get there based on factors like 1) we have limited sales experience 2) our platform wasn’t very mature at the time 3) rPath - a competitor under that scenario - had already thouroughly canvassed the world of software providers with this proposition. The “tricky stuff” as Lazaridis says, is in finding how to become sustainable, how to tack with the wind while moving continuously towards the desired destination.

Trojan the Blackberry into market under a concept people already understand

Email in 1997 still had not reached critical mass. It had the same issue as fax machines when they first came out: when nobody has a fax machine, buying one is not very attractive because you won’t be able to send a fax to anyone yet. RIM basically positioned the Blackberry device as an “interactive pager” because pagers were something people could understand. It was doing email under the hood but people just knew it as “the pager that you could respond with.” And that proved important in getting them early adoption when mobile email had no appeal for consumers.

Importance of founding near a school

When asked about whether he ever considered moving RIM to Silicon Valley, Lazaridis said: “I had to have this company next to University of Waterloo and Wilfrid Laurier, a university down the street, because I knew that we needed to draw this talent to grow. There’s something about having the proximity to the students and university in terms of brand awareness. In fact, when we first leased our building here right next to the university, we could put a sign up, and I remember they were asking, ‘Do you like this sign? Do you like that sign?’ I said, ‘Actually, I don’t care about that. What’s important to me are the signs on the back of the building… All I want is the students to know where the building is.’”

Clearly ensuring a new crop of sharp academic workers was important to RIM. Lazaridis looks for employee types that shared his own traits and who have the grasp of that fundamental knowledge that he picked up.

RIM went public in 1997 and currently has the most popular mobile email technology with their Blackberry product.

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.

The internal tool became the product

I’ve been following Evan Williams’ blog for about a year now and knew him as the founder of the podcasting portal Odeo and now the popular Twitter service. I had never put it together until reading Founders that he was also the original founder of Blogger.com. What’s interesting about Evan’s story is that like the Hotmail story, the internal tool that they built to help with development of their main product became the product they sold.

Evan founded Pyra Labs (the company that created Blogger) to create a project management tool. He was a web geek at heart and had his own personal web site which he kept updated frequently. He and the other two employees at Pyra wrote scripts that made publishing to their personal sites easier. Although plenty of services existed to simplify the task of maintaining a site, none were geared towards the idea of ongoing publishing that you see in blogland. The feature set of the tool they created differed only slightly from the traditional content management systems that were out there but the slight changes dramatically transformed the experience of how they interacted with their sites and encouraged daily “journaling” behavior. It reduced the friction associated with publishing just enough to where it was trivial to write content and publishing frequency exploded.

They used an internal instance of Blogger called “Stuff” as a repository of relevant info for the development of their project management software. They released their project management product and shortly thereafter put Blogger out for the public. Ev said: “We thought Bloggger was this free little thing that would get people to pay for the real thing. So we very clearly had a dilemma on our hands: we could focus on the stupid little blogger app that people were using, or we could work on our real product. We tried to split our time amongst those two things and contracted to pay the bills. We were three people, so that was a little bit difficult.” They were able to get into the right alphageek circles to get attention but they still weren’t making money on Blogger. They raised $.5MM from O’Reilly and and handful of other investors around both the Blogger and Pyra stories. Based on the forward-looking hypothesis that blogging was going to reshape the web, they finally made the decision to staff up to seven and tackle the Blogger opportunity.

In late 2000 they began running out of money square in the middle of the dotcom bubble. Unable to raise money and generate revenue from consumers, they debated the idea of making Blogger an Enterprise product. Ev said: “I thought it was pointless. At this time I was very much excited about the idea of democratizing media and that’s what mattered. It mattered more than the company, really. When you are in that mode, it’s hard to say that the company doesn’t matter, since every one’s heart and soul is in it, not to mention their livelihood.” Two different potential acquisitions for paltry sums came and went and the grim day arrived where Blogger was completely out of money. They laid off everyone in the company including Ev but they still had tons of users. Having taken money from friends and still having a popular service running with many users, Ev decided to stick around and keep it running for free.

Sustained by the goodwill with their user base

The performance Blogger service was grinding down under load and Ev held the “Server Fund Drive” on the site taking donations to scale the hardware. To his surprise it worked well and he raised $17k to buy more servers. It was clear that the users liked the product evidenced by the fact they were willing to make donations to keep it alive. The challenge was to figure out how to charge for the service. With the entire company laid off their monthly burn went from $50k+ down to a few thousand for rent and hosting. Ev used the blog itself to transparently tell the story of how it was just him at that point working solo for free barely keeping the service alive. This transparency strengthened the loyalty of his user base and he was sustained through a very dark time by the lifeline of encouraging correspondence from his users. He was able to do one-off deals here and there to keep the lights on but unfortunately also had to deal with a lawsuit from his disgruntled former colleagues.

By 2001 he had cleared up the legal troubles and was building out features and had small revenue from charging users $12/yr to remove the ads on their sites. In 2002 Google approached him and he was faced with a potential acquisition from a company that could give him huge resources to grow Blogger. He made the decision to accept and within four months was a Google employee.

We’re absolutely sold on the value of having a company blog and being as transparent as possible with your users. We use ours to communicate what’s actually going on inside the company on a more personal level than what you would read in a press release. We have a growing bulletin board of user-submitted photos of the people that are using our stuff so it’s not just a one-way street of trying to expose ourselves, but also trying to get closer to the folks that are out there using JumpBox.

On Ev’s personality style

“I had this personality that never liked school and rejected the normal way of doing things. Even when I was in school, I’d try to make up alternative solutions to math problems. When I was at Google, they had this huge focus on academia. Grades were super-important. Getting good grades at a good school is one filter of brains, but it might also suggest you like following rules.”

Thank you Evan. This ADHD rebel gene seems to be a fairly consistent trait amongst founders. And I know personally I’m no exception to this rule.

The light during the dark times

When asked how he was able to persist in the face of such grim times when the company was on life support, Ev responded: “I was always hallucinogenically optimistic. That’s the only reason I kept going. Not because I thought I could take this suckiness for a long time, but that it’s going to be better tomorrow. I had all these big ideas, and I could never stop thinking about the product and the thing I was going to build next.”

Of the FAW stories, Blogger was the one that came closest to shutting the doors only to be resurrected by its founder. On February 17th, 2003 Blogger became Google’s first acquisition for an undisclosed sum. The service continues to be one of the more popular blogging platforms today.

Base your company on a future need, not a future technology

Ray Ozzie founded Groove Networks in 1997 after successfully developing the Lotus Notes product and getting his former company, Iris, acquired by Lotus in 1994. Ray says, “I’ve never taken the perspective of ‘build a cool piece of technology and see where it goes.’ It’s more or less been based on an intuition about a hole in the market - or, more accurately, a future hole in the market…it will take you several years to build anything that’s worth building. So you don’t want to fill today’s needs but try to capture some window that will happen in the future.” This is entirely consistent with the advice of the Innovator’s Solution and the notion of “skate to where the puck will be.”

The hole that Groove fills is obvious now but took foresight to identify the time they started the company in 1997. Various factors are leading to more distributed team environments- outsourcing, globalization of the workforce, and the acceptance of telecommuting translate to more and more people working remotely. I used Groove extensively during my work as a trial consultant to securely collaborate with people across different legal teams and expert witnesses. I wrote about its implications for the legal market back in 2005. At the time Ray Ozzie gave an excellent talk that was later syndicated as a podcast on ITconversations in which he explained how Groove helped in the humanitarian cleanup operations in Iraq in 2004. The essence of Groove is its “masterless synchronization” magic and it’s ability to facilitate ad hoc work spaces that allow you to connect with people external to your organization and securely share information and have “presence awareness” (knowing who is working on what in real-time). It’s like a souped-up IM client / WebEx system that keeps a synchronized workspace allowing you to make changes offline and have them sync once you’re connected. It also has an adaptable interface depending on what tools you need to do your job. Ray knew that work would ultimately evolve towards a more distributed arrangement and aimed to build a product that would meet the challenges involved.

Ray said: “With Groove, it was an observation that the nature of work was changing. Technology at that point had largely been applied to helping people work together within corporate boundaries. People were increasingly going ot be challenged trying to apply that same technology across boundaries, because you can’t control the technology chosen by your business partners. I might choose Notes, you might choose Exchange, the other person might choose someone else. We saw a lot of frustration when our customers tried to deploy systems across enterprises. So we came to the conclusion that what we really needed was to build a system that just worked instantly, right after download, for the end users.” Amen brotha. We feel the same way about Open Source.

In our JumpBox world, the technology through which we deliver bundled Open Source applications currently relies upon virtualization and though it appears that this is the essence of JumpBox, it’s not the destination but merely a means. The essence of JumpBox is more accurately described as “whatever is necessary to form the quickest path to productivity for the consumers of these applications.” It’s conceivable that in five years time there will be a better way of deploying applications - if there is a successor to virtualization that simplifies things even more, JumpBox will evolve to embrace that technology to achieve this goal.

The “larger mission” carried them through rough times

There are times in a startup when things look grim. A theme across FAW stories that was reiterated in the Groove instance was that in those bleak times, the factor that kept people putting one foot in front of the other each day was this idea that they were building something that would positively sculpt the landscape of their industry. When there’s no money coming in and you’re grinding out long hours, there’s clearly another motivator that’s fueling things. Ray said: “what held people together was the belief that you’re really going to change the world. I think that’s the nature of many startups. You believe that what you are doing is going to have a dramatic impact. You might not exactly know how, but you really have a belief. That keeps you going and going through many changes and a lot of uncertainty.”

We share this perspective with JumpBox. Having poured nine months of our lives and large sums of money into the development of this technology, the thing that primarily powers the team at this point is this idea that we are creating something truly revolutionary which has the ability to eradicate countless person-hours of frustration, and to bring Open Source within reach of a new audience of non-technical people. Sure, it’s potentially a lucrative business but all money aside, it’s like there’s an obligation for us to deliver this technology to the public now that we know it’s possible.

The educational challenges of a new technology and “late-binding” positioning decisions

Something we constantly face that Ozzie touched upon is the challenge of educating a market when your technology is so new and foreign that it solves a problem that people don’t necessarily know they have. For us to explain the concepts of Open Source, virtualization and multi-user server-based applications to folks unfamiliar with this stuff, it’s a lot of concepts to digest in one sitting to be able to appreciate the value of what JumpBox does. We’ve chosen to stay very much focused on reaching the technical community at least for the short-term. At the risk of excluding a big chunk of non-technical people out there, this allows us to provide value to the people that already get what we’re solving and defers the educational responsibility until later.

Ozzie also refers to the challenge around the changing landscapes of tech and market during their three-year development process. Ray said: “In both Notes and Groove, there was both technological uncertainty and market uncertainty. We knew we were embarking on something that was technologically very difficult and would take several years. But you know that the market is going to change during those years, so virtually everything you do, you have to late-bind the decisions. You can’t completely predetermine all the user interface or integration decisions. You cannot early-bind marketing and positioning decisions because the market and competitive environment will be different.”

“Why isn’t Microsoft just going to crush you tomorrow?”

This question today is perhaps better asked substituting Google for MS but it’s a valid concern from potential investors. Ozzie answered it by taking investment from MS and aligning their interests with his own. MS had let Lotus slip undetected under their radar years earlier and was not planning to make the same mistake with another one of Ozzie’s companies. They invested mostly to keep a watchful eye on the Groove strategy and know what they were up to.

Groove and Ray Ozzie were both acquired by Microsoft in April of 2005 for $120MM. Ray Ozzie now serves as CTO of Microsoft and the Groove Virtual Office product is offered as Microsoft Groove Office 2007. Listen to his excellent keynote from the SuperNova conference in 2005.

How Lotus got started

Mitch Kapor purchased an Apple II in 1978 and was fascinated with it. He tinkered writing programs in Basic and ended up spending a weekend helping out a buddy at MIT by writing a statistic program that would analyze data for his dissertation. He was green as a programmer and initially clueless of the mathematics involved but his buddy coached him through the math and when they had finished, they realized they had created something that others would find useful. About this time VisiCalc hit the market and Mitch was inspired by the quality of their application- the usability blew away anything else that was out there. Mitch was approached by the publisher of the VisiCalc product (Personal Software) and asked if he could clean up his application a bit and brand it as a companion graphing product to VisiCalc. He obliged and after two years of work and postponing school to pursue developing his Tiny Troll graphing product, they retooled, re-branded and released the product as VisiPlot.

The break-up

The VisiPlot product immediately began generating significant revenue that resulted in monthly $100,000 royalty checks for Mitch. With this passive income he had a chance to take a breath and decide what he wanted to do next. He analyzed the process by which his graphing software was used and found several ways to speed it up and make it less cumbersome but political differences in the organization diluted his say and (like Milton in Office Space) he found himself with his red stapler in the basement. He decided to pitch the publisher on buying him out and in fact convinced them to do so for $1.2MM. Mitch knew there would be a heavy-duty non-compete as a part of the buyout but he was able to secure a clause that let him retain the right to develop a graphing calculator application because it seemed so ambitious that the publisher just assumed he’d never be able to do it.

Building the wrong thing

Like so many other founders, he set out to build the wrong thing initially. He brought in partner Jon Sachs and they developed a spreadsheet graphing application for the Data General minicomputer but they quickly realized given the geekiness of that platform, their app was accessible only to technical people so it had limited use in the business context for which it was intended. “The galvanizing event was when IBM announced the IBM PC in August 1981…IBM was the first ‘real’ computer company to come out with a PC, legitimizing it for the business marketplace.”

The PC that IBM built had 10x the memory of the Apple II and had a faster processor. Mitch wisely saw the opportunity and targeted this platform. The spreadsheet program by Microsoft was basically a port from an 8-bit architecture and while it ran on the new PC, it didn’t take advantage of the 16-bit architecture or larger memory space. Lotus capitalized on this fact by writing their app specifically to use the full resources of the new PC. They also placed a great deal of focus on usability and streamlining the process for generating a graph. Under the Apple II VisiCalc/VisiPlot scenario, a user had to have two disk drives and load the VisiCalc application, save a file to drive 2, close it down, open VisiPlot, open the file from drive 2 and graph. This was a ton of steps that Lotus was able to collapse into an integrated offering that graphed with the press of a single button. That time savings for the user was a massive selling point for their product and it was only made possible by the greater power of the PC that IBM had created.

The Lotus culture

Mitch said: “Almost from day one I understood that I was passionate about the applications themselves, that they’d be integrated, easier to use and be powerful. They’d help make people more productive and I cared a lot about that. The other thing I wanted was financial independence. I had an enormous desire not to be dependent on other people, or to have to have a job. I wanted to dictate the terms.” “The other thing that I cared about a lot right from the very beginning was creating a workplace that treated people well…when I unexpectedly found myself running this high-growth successful software company, the thought of making it be the kind of place that I would want to work at and different from all those other places was incredibly appealing.”

These two paragraphs struck a nerve for me. Having spent a couple years in extremely corporate settings, I too felt the “soul squelching” pains of internal politics and vowed to go on my own and someday help build a company that would be a place where I would want to work. Fostering creativity, engaging in open dialogue, eliminating bureaucracy and spurring innovation were the cornerstone values I wanted the company to have. While we’re far from being a big successful company at this point with JumpBox, I like to think that we nailed all those values in the small team that we do currently have. Seeing that we share these same aspirations for our company that Mitch did for his was gratifying.

Mitch said: “I like working with entrepreneurs who have a compatible set of values and are inspired by a vision and are passionate about some piece of disruptive technology - who are going to create something that actually has value for people in a way that can be a game changer. That’s sort of my sweet spot.” Mitch- if you’re reading, you might be our soul mate- we are arguably in the best position to help bring Open Source to the non-technical masses and eradicate thousands of person-hours of frustration daily around this stuff with JumpBox- wanna talk? ;-)

The right preconditions

Echoing the sentiments of the other stories, the founders of Software Arts who produced the product Visicalc, Dan Bricklin and Bob Frankston shared the right qualities for starting a company. Both had sets of parents that were entrepreneurs themselves so they had “the gene” for it from a young age and Bob and Dan had been friends during school so they shared a strong friendship and deep level of trust. Dan said: “So even though we came to odds about things, even though there might be a ‘Well, did you do more, or did I do more?’ because we liked each other and had a relationship, we were able to keep that from messing up the business.”

The genesis for the idea

<begin nerd stuff> Dan Bricklin had attended MIT studying computer science where he worked firsthand building interpreters (the engine that translated the instructions in human-readable computer code into executable machine code for the computer to do something useful). He later got an MBA at Harvard Business School where he dealt with spreadsheets using the traditional paper-based approach. It was here that he saw the need for a computer-based tool to allow for dynamic spreadsheets but he did not yet have a grasp on the WYSIWYG interface. He went on to work at Digital Equipment Corporation and while at DEC he was exposed to the WYSIWYG interface for a word processor. He bridged the gap of each of these three key areas of understanding and saw the future of spreadsheets in a visual form that could dynamically calculate data on-the-fly. He enlisted the help of his buddy Bob to begin work on the prototype while he continued working at DEC.

This was a clear case of having had a toe in a couple different ponds and being able to combine key domain-specific knowledge to make a leap of innovation. Coincidently I just today completed training here in Mountain View, CA on a system called “Innovation Games” and was fortunate enough to get a chance to hold a podcast with the founder and author of this program. It is a tool that utilizes collaborative gameplay to extract insights from customers that allow companies to develop innovative products. I’ll be posting that interview in the next few days.

“You’re competing against the back of the envelope”

In creating a new, unfamiliar and potentially disruptive technology, it’s critical that the inventor understand the competition (which in a new space will be former low-tech methods for accomplishing the same task). This notion of “competing against the scratch paper” was an important insight they had because it forced them to optimize every keystroke and every aspect of the usability. If friction of the new way of doing something outweighs the perceived advantages for using a high-tech tool, the potential adopter will flee and return to the trusted, traditional method. In fact, all things being equal, the potential user will stick with what he/she knows rather than transition- the new Visicalc had to equal the ease of use of an envelope and provide the extra advantage of dynamic real-time calculations to lure the new user to adopt it.

We see this all the time in our world- there may be a better way of doing something but if the usablity prohibits the adoption of the more powerful technique, the potential user will flee to an inferior yet attainable solution. As I mentioned in a previous post regarding the original light bulb for JumpBox that Kimbro had while working a consulting gig for a major hotel chain, the twenty-some consultants that were already on the project prior to Kimbro’s entrance were using rudimentary methods for development. In essence there was no development infrastructure because the open source tools which were freely-available for use were too difficult to setup- their usability was prohibitively bad. Good thing for us though because this is at the heart of what makes JumpBox attractive- it eliminates that prohibitive barrier and brings those power tools that had previously been out of reach within the grasp of non-technical people.

Their “midnight run”

Their office had been in a basement near Central Square below street level. The plumbing was bad and with each serious rain storm, the toilets would overflow if you didn’t remember to shut off the water. They forgot one time and came back to an office that was underwater and rapidly filling up. Apparently the water level just missed one of their computers that had the entire codebase (and therefore their life savings on it). Nowadays we have automatic offsite backups but this near disaster nearly obliterated the company.

Working within constraints

Visicalc ran on the Apple II and was fenced by extremely tight resource constraints. The entire program had to fit in 32K of disk space (the screenshot of the application nowadays would not even fit in that space!). So like the Paypal and Apple founders, they were forced to relentlessly optimize their application. This meant there was no room to add a help system. When Lotus 1-2-3 launched it had the luxury of 256K of space to work with which allowed their spreadsheet app to sport various feature enhancements and nicities like sounds and help files. This along with an unfortunate legal battle would spell the premature end of the Visicalc product.

Crippled by litigation

Not all FAW stories had the fairytale multi-million dollar exit for the founders- Visicalc was one of them. They were among the first software companies to operate under the author-publisher model of sales (think of the relationship with a physical book author and publisher). Software Arts had authored the product Visicalc but they enlisted the services of Personal Software (which later became Visicorp) to sell the product. Unfortunately legal disputes arose from a poorly-worded contract between the companies and a deadlock in litigation ensued. The legal battle drained the resources of both author and publisher and allowed Lotus 1-2-3 to pass them by with their spreadsheet application.

Dan’s advice: “Stay out of lawsuits if you can help it. It’s bad for both sides, especially small businesses. Taht’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.”

Even though Bricklin didn’t see a massive payday in the end, he remained surprisingly optimistic: “If we had been able to settle in advance, the thing would have closed, and we would have made a lot of money, and we’d have a bigger house, and whatever. But, you know, as I always tell people, here it is, 25 years later, and you’re still interviewing me. There’s fame and fortune. I didn’t get much fortune out of it, but, on the other hand, the fame has baiscally given me a meal ticket ever since, and I learned a lot from it and my life has been pretty good. All in all, I can’t complain.”

With the right people the idea doesn’t matter

This was the first vignette that crossed into the personal realm - we had the opportunity to see Joe Kraus speak at a Churchill Club Startup Event in Palo Alto in August of last year (excellent talk and worth watching). Joe founded the spreadsheet wiki service called JotSpot which was later acquired by Google for an undisclosed sum and is now what you know as Google Spreadsheets. Joe was the best speaker on that panel and had many words of wisdom for the audience, most of which was echoed in his FAW interview.

The main advice he stresses is that it’s all about the people. They started Excite (originally called Architext) with a group of five buddies from Stanford and had zero idea what they wanted to do- they only knew they had the right team. While the Paypal and Hotmail guys started off building the wrong thing, they at least had a direction. Joe’s team on day one didn’t even have an idea. But they knew they’d figure it out.

The lemonade stand phenomenon

Over and over you see evidence across entrepreneurs that from a very early age, the type of people that later become entrepreneurs had the bug early on. Joe had a catalyzing experience after having a nightmare job for his first summer job and he wound up starting a T-shirt company of his own and became hooked on entrepreneurship from then on. This “lemonade stand phenomenon” as I call it is apparent across the stories in this book and I’ve witnessed it first-hand from the people I know. It’s likely that if as a kid you had the initiative to go make your own “lemonade stand” you’ll end up wanting to run your own business later in life. Personally, at a young age I was “diving for coins” on Martha’s Vineyard and by age twelve I had started a part-time business recording school plays and selling video tapes to the parents of my elementary school. Whether this indicates a gene for entrepreneurship or an environmentally-learned behavior acquired early in life, the trait seems to be cemented early on.

On starting a company with friends

While the old adage is “don’t mix business with pleasure,” Joe thinks had they not all been friends from the get-go, the trust issues would have crippled the company and they probably wouldn’t have survived. This is echoed in many of the stories- the idea that while there are some downsides to founding with friends (can’t act objectively and fire a friend as easily), those are outweighed by the advantages of having a high level of trust early on. They had a tense moment (what Joe refers to as a “couch moment” where they pull the couches face to face and have an important talk) after taking VC money in which they had to redistribute stock and it altered the equity equation for the original founders. They worked through it though and attributed the ability to stay cohesive to their prior friendships.

The sausage factory problem

Joe said: “When you’re outside and you only see the sausage coming out you think “That’s pretty tasty.” When you’re on the inside and you know how it’s made, it’s terrifying.” I can 100% attest to this idea from a startup in which I was involved in 1999- from the outside everything looks slick but under the hood you’re just barely managing to duct tape things together while you grow.

The pivotal deal and the importance of persistence

Excite had bid for the search button on the Netscape browser and lost the deal to another company. But their VC at the time coaxed them to not give up and instead continue pursuing Netscape even after they had lost the deal to MCI. This advice paid off when MCI bailed last minute and Netscape came back and did the deal with Excite. Joe: “I see way too many people give up in the startup world. They just five up too easily. Recruiting is a classic example. I don’t even hear the first ‘no’ that somebody says. When they say, ‘No, I’m not interested,’ I think, ‘Now it’s a real challenge. Now’s when the tough part begins.’”

The fallacy of adopting business models of earlier media

This is the idea that TV tried to copy radio, and Internet tried to copy print There is a tendency to constrain the thinking to traditional models of existing media with new technologies. Excite adopted the CPM model of advertising but never figured out cost-per-click.

Hire slow, hire right

Like attracts like and people want to work with other smart people. This is advice Joe repeated in his Churchill talk- that even if you feel you’re moving too slowly, it’s worth waiting for the exceptional candidate that you want on your team rather than just filling a role with someone who can satisfy the job. Once you taint a stellar team with a few “mediocre apples” it’s a slippery slope because it becomes increasingly difficult to attract stellar talent. Conversely, if you can keep it “A list players,” it’s way easier to bring in the next A-lister.

The value of constraints

The feature that glaringly stood out about the Apple story was the leanness of the product forced by the necessity of working within extremely tight resource constraints. Steve Wozniak designed the hardware and software for the first Apple computer and relentlessly optimized hardware in the pursuit of design elegance but also in order to save chips and money. He had an amazing depth of understanding of the guts of the computer through years of tinkering and building computers on paper because he couldn’t afford them. He would rework ideas in his head and find ways to eliminate extraneous chips to distill it to the most minimal requirements, which lead to cheaper and more maintainable computers in the end.

We’re faced with a very tight budget ourselves having bootstrapped JumpBox from scratch and taken only minor outside investment. This forces us to run extremely lean watching what we do and focusing on only the activities that advance our cause the most. This was a common trend across all stories that by having no wiggle room, it forced an evolution of the company and the product that has so far yielded a minimalistic, focused offering.

“You can stay an engineer and get rich”

Steve Wozniak turned Steve Jobs down when Jobs asked him to start the company originally. Woz loved his job at Hewlett-Packard as an engineer and was afraid that by starting Apple, he would get roped into a managment position and have to give up what he loved which was hands-on engineering. It was an epiphany for Woz when his friend Alan Baum told him “Look, you can start Apple and go into management and get rich, or you can start Apple and stay an engineer and get rich.”

While it’s true that the early days of a startup dictate that you play roles that aren’t necessarily what you’d prefer, companies grow and being in at the ground floor means you can make your own position later on. It’s funny to think that Woz almost bailed on the Apple opportunity because he assumed he would have to give up engineering and trade it in for a management role. Our headcount right now is at four (five as of next week). Kimbro and I conducted an exercise in the weeks prior to starting JumpBox where we actually drew a massive org chart of the roles we foresaw in the company and then assigned each of the roles to one of us knowing that at some point as demands dictated, they would be delegated out. This was a very valuable exercise because it helped us to identify all the functional roles and understand the hats involved and that they were only temporary coupled by being assigned to one person.

The Midnight Run

The “midnight run” as the Sloan brothers of StartupNation.com call it, is a commonly-recurring scenario in many of the founder stories. In Apple’s case, it happened on a roadtrip to the Consumer Electronics tradeshow in Vegas. Woz was literally building the first floppy drive and writing the software to interface with it as they drove to the show. He managed to get it working and had the code for the driver stored on a floppy. To test his work he tried copying a disk and ended up overwriting the disk with the code on it. This was the night before they were to demo the floppy drive. He ended up staying up all night rewriting the code and miraculously just in time the next morning to have the floppy drive working.

We haven’t had any harrowing incident like that but we did have a midnight run roadtrip the day we formally launched the company. We were in La for VMworld and left that night and drove across the desert to Phoenix in order to announce the company the next morning at the Arizona Entrepreneurship Conference. I definitely commiserate with Woz on the delerium one experiences when you’re running on pure adrenaline after having been up for 24hrs straight.

The importance of complementary founders

Woz and Jobs each brought skills that the other lacked- Woz’s technical ability and Jobs’ drive and energy were perfectly matched. While I would not place ourselves in the same realm as the Apple founders, I definitely attest to the value of having a partner that complements your skill set. There is a balance and centering quality that would not occur otherwise. And while I’m sure some startups succeed in spite of having a single founder, I suspect the great majority that ultimately make it have at lease two or more original members that round out the deficiencies in one another.