Recently I re-read“Once You’re Lucky, Twice You’re Good” by Sarah Lacy. It’s a fantastic book about the re-emergenceof Silicon Valley after the tech bubble in 2001. The book is well worth a full read and Ihighly recommend it. Below are snippetsof the book we found most informative.
MySpacewas sold too soon. “It’s October 10, 2006. Google had just bought Chad and Steve’seleven-month-old video-sharing company YouTube for $1.65 billion. The YouTube deal was an unwelcomeconfirmation: At $580 million, they’d definitely sold MySpace on the cheap ayear earlier. MySpace was now one of thebiggest sites on the Web.”
Yahooalmost bought Facebook for $1bln. “By the end of the conversation,Zuck was at least open to exploring a sale, which was all Peter asked. Then afew days later, Yahoo!’s stock feel by 20 percent, and it tried to discount thedeal. That was it. No sale. Ultimatelythey were wise to hold out. Yahoo! had blown it, much like it blew the chanceto buy Google for some $3 billion back before its IPO.”
Netscapestarted it all. “Thirteen years ago Netscape – aneighteen-month-old company with no profits or business model to speak of – haddebuted on the NASDAQ Stock Exchange and got the biggest first-day pop in stockprice ever. It was the opening of the floodgates: In the next five years morethan a thousand high-tech start-ups would go public, raising $66 billion.”
Diggproved the haters wrong. “A few years earlier, tech newssite CNET balked at adding “Digg This” buttons to the end of their stories. “Wedon’t do things like that,” they condescendingly told Kevin. By 2006, they werebegging for buttons - along with The New York Times, The Washington Post, andothers.”
Wemay never see a period like 1999 again. “At the bubble’s peak in 1999 and2000, venture capitalists were pumping nearly $30 billion into new ventures perquarter. In 2006, it was more like $5 billion. A record 270venture-capital-backed companies went public in 1999, for a combined $21billion. In 2006, just 57 venture-capital backed companies went public, raising$5.1 billion.”
Innovationis destructive. “From 1896 to 1930 there were morethan 1,800 American car makers. Three survived.”
Afterthe burst in 2000, Silicon Valley suffered. “PayPalranked among the very few tech companies to go public after the stock marketcollapse of 2000 and terrorist attacks of September 11, 2001. Max Levchin could hardly go around a Valleyin which one out of every three people were out of work and complain about allhis good fortune.”
Theright VC mantra. “The Founders Fund. Its ethos grewout of his experience with venture capitalists and was rooted in givingfounders better terms and getting out of their way.”
MarcBenioff’s view. “Later on when Josh agonized overwhether to sell to Yahoo!, Marc urged him not to. “You should never sell aslong as you are still growing,” he told him.”
Avoidthe lure of venture capital. “But Jay had seen the evils of toomuch money at Equinix. When start-ups have it, they spend it. Sure, to really build out a big business, anentrepreneur would eventually need venture capital. But he could get pretty far on just a fewmillion, and many could scrape that together from wealthy friends. By the timeentrepreneurs really needed VC-level cash, their business would be far enoughalong that they could name the terms.”
Finda way to make your users love you. “Revision3, and Digg areostensibly about getting the entertainment and news that you want. But it’s thestroking of your ego that makes them so powerful. Having thousands of peopleread your opinion on something or your minute-by-minute life story. Having dozensof people mark your Yelp review as “funny” or “cool.” Your video clip becominga YouTube phenomenon or your Digg submission getting voted front-page-worthy.People you don’t even know love you.”
Guerrillamarketing is the best. “Why couldn’t they mobilize into agrassroots army to spread Firefox? It worked. Hundreds of thousands of bloggersadded “Download Firefox” buttons to their sites, while thousands of otherschipped in for a $250,000 two-page ad in The New York Times. A group of collegestudents in Oregon made a 220-square-foot crop circle out of the Firefox logo.Even the logo itself was designed by a volunteer. As a result, Firefox grabbed10 percent of worldwide browser market share in about a year.”
Skype’smarketing was nothing. “By August 2003, Niklas sent sometext messages to his friends telling them to check out Skype.com. They toldtheir friends. That was the extent of the marketing. Within a month they had 1million users.“
Listento your customers. “There’s no playbook for buildinga great community. It’s all about listening to the users and knowing when togive in to them and when to stand firm with your vision. Consider Yelp. When Russ and Jeremy firststarted the site, they never thought people would write reviews. They thoughtpeople would use the site to ping their friends and ask them to recommend, say,a good dentist. But then a funny thinghappened: young women loved writing reviews and Yelp quickly reacted, redesigningthe site so reviews were the dominant theme. Cute funny girls in their late twenties and early thirties brought inlots of guys. Especially when Yelp started getting its community together foroffline parties at hip clubs around the city, and all those girls showed up.”
Friendster’sdemise. “But then Friendster made twocrucial missteps. The biggest was that the site couldn’t support the crush oftraffic when it took off. It didn’t actquickly enough to add more servers and update the site’s inner workings, so theFriendster loyal got frustrated and logged off. The other mistake was trying too hard to control everything. Critics ofAbrams say he was too rigid in what people could or couldn’t do on his site.”
Yourusers own your company. “News Feed was undeniably apowerful and useful tool even for those who hated it. He didn’t do away withit, but he and his team coded all night to incorporate more tools to turn itoff or control what it contained. Still, the company learned a valuable lesson:Facebook wasn’t just their company.”
Acquiesceto what your users want. “Ultimately Kevin made the call:better to piss off corporate America than Digg’s community. He wrote a postsaying, “After seeing hundreds of stories and reading thousands of comments,you’ve made it clear. You’d rather see Digg go down fighting than bow down to abigger company. We hear you… If we lose, then what the hell, at least we diedtrying.” Kevin repeated the taboo string of letters and numbers in the subjectline of his post – just to prove he was still the same badass, noncorporateKevin after all.”
Beingearly can kill you. “Just because those companiesdidn’t work at that time doesn’t mean successors won’t work now,” he says.“Just through the simple virtue of the fact time passed, a market developed.”
Startuplife is a game for the young. “Most of the fundamentalbreakthroughs in science, math, culture, music, or business came from people intheir twenties. He can’t figure out why, but he has studied enough history toknow there is some sort of correlation between young people and breakthroughs. …..“Butyou’re so young, you know little about what’s been done before. You’ve notbought into the assumptions that exist in any field. By the time you’rethirty-five, you start to have a really good understanding of the things thatare possible to do and not possible to do. To have a fundamental breakthrough,you have to look at things so differently”
Fundraisingneeds to be fast. “Word gets out that someone ispitching and suddenly he or she has to close the deal quickly or the companyseems stale. This is similar to listing a house on a market; you want your dealto have the appearance of being the hot commodity everyone wants. “You smellshopped, and no wants to buy a shopped good,” Max says.”
Be100% independent. “A cardinal rule of start-ups isnot to rely on any other business for their success, and widgets were 100percent reliant on the sites like MySpace and Facebook that they ran on. Thesehost sites could ban widgets or dictate how advertising could be worked intotheir products.”
Twotypes of companies. “There are two kinds of start-upsin the Valley: those who create and evangelize a totally new type oftechnology, and those who see what someone else is doing and just do it better.Netscape was an example of the former, changing the way people used the Internetforever, but ultimately taking a drubbing in the browser wars at the hands ofMicrosoft. Google was an example of the latter, tackling search once everyonethought that AOL and Yahoo! owned it and executing search so much better thatit won the market.”
Openplatforms always win. “Part of that is because Facebookhas taken a different tack from MySpace: It wants other companies to take overits page, knowing that in the history of high tech, the most open platformshave always won.”
Howan acquisition works. “Companies have prolongedacquisition mating dance. The big company calls to “talk about a partnership.”The entrepreneur meets with representatives of the big company. Then some timepasses. The big company sends out feelers again, wanting to learn more aboutthe start-up. This back-and-forth continues until finally the subject of anacquisition is formally broached.”
Successbreeds competition. “On paper, Kevin was worth atleast $40 million. Of course, there’s a downside to the hype. Suddenly Digg hadbig competitors. Kevin knew that Digg’slead – and his own paper wealth – could evaporate at any time.”
Investorslost money, but companies survived. “In reality, nearly half of thecompanies funded in 1999 – the peak – were still in business five yearslater. If the failure rate for high-riskbusinesses was that low, perhaps not enough companies were started. Theproblem, he argues, wasn’t the number of businesses that were tried, nor was itthe unproven business models. It was simply the huge amount of money that wentinto each one, money that was mostly wasted.”
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