Facebook Should Have Stayed in Boston, and Other Quotable Moments from Y Combinator’s Startup School
For startup people, the 714 seats inside Dinkelspiel Auditorium at Stanford University were the hottest ones in the country on Saturday. That was the day of Startup School, the invitation-only event produced by Stanford’s student entrepreneur group BASES and Mountain View, CA-based venture incubator Y Combinator. For the seventh year in a row, a cast of famous entrepreneurs and investors assembled to dispense equal parts advice and inspiration to the audience of young entrepreneurs and proto-entrepreneurs.
This year’s speakers included Marc Andreessen, founder of Netscape, Opsware, and Ning, and partner at Andreessen Horowitz; James Lindenbaum, co-founder of Heroku; Jim Goetz, founder of VitalSigns and partner at Sequoia Capital; Ashton Kutcher, the TV and movie star who is increasingly ubiquitous as a Silicon Valley angel investor; Matt Mullenweg, founder of Automattic, makers of WordPress; Mark Pincus, founder of Tribe and Zynga; Mark Zuckerberg, founder of Facebook; Stephen Cohen, co-founder of Palantir; Max Levchin, co-founder of PayPal and founder of Slide; Ron Conway, leader of seed-stage investing firm SV Angel; and Drew Houston, co-founder of Dropbox.
Most speakers focused on lessons they’d learned from their own experiences building or investing in startups. The reminiscences included a few interesting bits of never-before-shared news and opinions. Zuckerberg, for example, voiced second thoughts about having moved Facebook to Palo Alto in 2004. “Honestly, if I were starting now I would just stay in Boston,” Zuckerberg told interviewer Jessica Livingston, the co-founder of Y Combinator. “There are aspects of the culture out here [in Silicon Valley] where it is still a little short-term focused in a way that bothers me…There is a culture here where people don’t commit to doing things. There is nothing wrong with experimentation; you need to do that before you dive in. But a lot of companies built outside Silicon Valley seem to be on a longer-term cadence.” (That sentiment sparked some interesting controversy on Twitter, with some commentators asserting that Boston-based investors still wouldn’t see any reason to support a social network for college students with no revenue.)
Another tidbit: Pincus revealed that after the failure of Tribe.net, the social networking site he co-founded in 2003, he “spent a year trying to buy CNET” as part of his strategy to find an audience large enough for testing new consumer services. “The problem I was frustrated with [at Tribe] was that you couldn’t fail fast. By the time you built a product and built a big enough audience to see if it’s a good idea, you are on your Series B and you have 30 people. So I thought, wouldn’t it be great if I had a large captive audience first. And if I had a big enough audience, I could come up with a good product.” Ultimately, of course, Pincus started Zynga, which found its captive audience at Facebook.
And one more shocker: Mullenweg said that in 2007, when WordPress was beginning to surpass rivals content management systems such as Six Apart/Movable Type, “We were entertaining an acquisition offer that would have personally netted me nine figures in cash.” That’s nine as in at least $100,000,000. Mullenweg said he couldn’t reveal the name of the suitor, but that he turned down the sweet offer in part because he realized he was already happy. “If I had a bajillion dollars I’d still want to be doing what I was doing, working on WordPress,” Mullenweg said. “The opportunity to change the way people interact on the Web and finally get a majority of the Web onto open-source and to stop being embarrassed about the product I was shipping was too much. So we raised a Series B.”
If you weren’t there, or you didn’t catch the live webcast on Justin.tv, here’s a rundown of some of the other insights from Startup School that I thought were the most interesting, surprising, or eye-opening.
Marc Andreessen said he regretted not having built some kind of Web-based payment system into Netscape back in the mid-1990s. “The biggest missed opportunity was payments,” he told interviewer Paul Graham of Y Combinator. “We had 800 other things we were doing, and it seemed like it would be hard. There were a few big companies that dominated the payment infrastructure. But had we done it, had there been payment right there in the browser for anything, you can argue that it would have taken the Internet in a different direction. You would have enabled a whole bunch of things like gaming and commerce a lot earlier.”
James Lindenbaum admitted that Heroku was initially skeptical about the 2010 acquisition offer from Marc Benioff at Salesforce.com. “We had received a lot of acquisition offers, [because] we were one of the only [Platform as a Service] companies that had developer loyalty and scale, so we were kind of desensitized,” Lindenbaum said. “Salesforce.com’s marketing tactics were the exact opposite of ours. We wanted to show, not tell, not hype. But Salesforce.com believed in the cloud long before it was called that, and the more we thought about it, the more we realized why we wanted to do this. Money is great, and we like money, but if we wanted to alter the path of history and change the way software development is done, we had the opportunity to use Salesforce.com’s megaphone to advance our philosophy.”
James Goetz from Sequoia Capital said that the first products from now-legendary Silicon Valley executives like Sandy Lerner and Len Bosack (the founders of Cisco), Reid Hoffman (LinkedIn) and Omar Hamoui (AdMob) were all a little rinky-dink, but that these entrepreneurs persisted. “The common thread is that these were all sketchy misfits, unknowns, who all focused on [solving] personal pain points and were all willing to put something out early and iterate. So rather than become intimidated by all these icons, I hope you walk out of here amped to become an entrepreneur, or at least join a company on your path to becoming an entrepreneur.”
Ashton Kutcher, currently the co-star of ABC’s “Two and a Half Men,” said he’s worried that there are too many young Mark Zuckerberg wannabes in Silicon Valley. “I see a lot of entrepreneurs who come in and jump from the problem they’re trying to solve to what they’re going to get by solving the problem. They have this idea that ‘The market cap is this and we’re going to make this much money and it’s going to be a billion dollar company,’” the actor said. “I have this red flag that goes up that says, ‘Wow, this guy wants to be Mark Zuckerberg.’ This switch in my head shuts off as I hear this, because they are jumping to the effect. If you want to be a real entrepreneur, you have to be the creator of someone else’s new reality. If you want to be Mark Zuckerberg, the best you are ever going to do is second place, because nobody can be a better Mark Zuckerberg than Mark Zuckerberg.”
Mullenweg confessed that he built Akismet, Automattic’s anti-spam system, in part because he didn’t want his mom to have to spend 10 minutes deleting Viagra and Cialis spam every time she logged on to WordPress. “I convinced her to start a blog, which seems like a good thing, but at the time spam was a huge problem,” Mullenweg said. “I said, I have to fix this spam thing before she starts blogging.”
Pincus said Zynga doesn’t launch a new game until it’s sure that the experience for consumers will be like arriving at a great cocktail party. “We want it to be instantly social the minute you get there, without you doing any work,” Pincus said. “So we use lots of data on the backend to understand how we are doing on socialness.” Consumer’s next chance to test how well Zynga is going on that score will come with the release of CastleVille, a Shrek-inspired game set in a medieval cartoon world. “Every new game we launch is funded like a startup— it’s not funded until we have conviction,” Pincus added.
Zuckerberg said that in almost every area, from hiring to product innovation, Facebook tries to strike a balance between moving too quickly and moving too slowly. “You want to make mistakes evenly on both sides,” he said. “Most companies move too slowly because they are afraid of making mistakes. But at every all-hands at Facebook, I say that the biggest risk is not taking any risk.” Zuckerberg also said that the failed acquisition talks between Facebook and Yahoo back in 2006 were a critical turning point for the company. “I learned a lot about the team, and turned over a lot of the team, after that,” he said. “Selling for hundreds of millions was not what I was in it for. I wanted people who were in it to build a company for the long term. So it was interesting to see the psychology of the people who were around me, as we were going through that process. It’s not clear to me that the answer is that you should [always] turn down offers….but you should take the company in the direction you think it should go in.”
Stephen Cohen of Palantir Technologies, the Palo Alto startup that makes data analytics and visualization software for the counterterrorism community and other customers, said he knew the company was on the right track after a demo presentation in 2005 when “two quintessentially government guys in gray flannel suites turn to each other and give each other high fives. [They knew] Palantir was going to be a game changer for them. At this moment it was clear to me we were going to have a very valuable business.” No other Silicon Valley company, Cohen argued, had ever bothered to study the information needs of government clients and apply “Silicon Valley-level software” to combating terrorism.
Max Levchin said that his single warmest memory of working with co-founder Peter Thiel at PayPal was from a dark period in May 2000 when the company was about nine weeks away from running out of cash and Thiel told him not to worry about it. “The job of a great co-founder is not to commiserate,” Levchin said. “The job of a great co-founder is to say, at the moment when you’re lowest, ‘Oh, you’ll be okay.” It’s to provide that platform of support when you most need it. I didn’t know if he was right or wrong, but he gave me what I needed to stay up working for a few more nights. And he in fact went out and closed a Series A round.”
Ron Conway told the Startup School audience that the best time to get funded is never. “If you can built a company without funding, that’s the best,” said Conway, who also said that most of the “defining entrepreneurs” he’s seen share a similar set of characteristics. “Having a vision and making sure the entire team shares and knows about that vision. Being a good listener but also being strong-willed. Having a 24/7 work ethic. Overcommunicate inside and outside your company. Be relentless. Be ruthless. Be scrappy. Always keep a bootstrap mentality.”
Dropbox’s Drew Houston, echoing Goetz’s comments, finished the day by reminding the audience that “by definition, everyone starts out clueless. All of the defining companies [in technology] were started by people doing this for the first time in their 20s or early 30s. They were all completely unqualified for the positions they found themselves in. No one pops out of the womb with shiny hair and a suit. It’s important to think big, but these things start out small and your ambitions grow over time.”