Founders at Work [Review]

Sep 11, 2013

Table of contents:

1. About Jessica Livingston
2. Paul Graham Forward
3. Max Levchin, Cofounder of PayPal
4. Sabeer Bhatia, Cofounder of Hotmail
5. Steve Wozniak, Cofounder of Apple
6. Evan Williams, Cofounder of Pyra Labs
7. Caterina Fake, Cofounder of Flickr
8. David Heinemeier Hansson, Cofounder of 37 Signals
9. Conclusion

Founders at Work is a collection of interviews with some of the most successful Internet and technology founders from the last few decades. The interviews focus on the early days of the company, when the future was still unclear and the company was still a scrappy startup.

The aim of the book is to show the real stories of how these fantastically successful companies came to be. It can be difficult to look at a company that has enjoyed immense success and believe that they were once just a couple of people in a garage. But through the founder’s interviews, the common themes of uncertainty, but determination and perseverance through adversity, you get a sense of the true story of starting a technology company. The interviews highlight the same common problems that startup founders face and how they dealt with rejection and ridicule. But most of all, they show how despite all of these obstacles, you can start a successful technology startup too.

About Jessica Livingston

Founders At Work is written by Jessica Livingston. She is one of the founding partners of the prominent technology accelerator programme, Y Combinator.

Paul Graham Forward

Paul Graham is another founding partner of Y Combinator and is Jessica’s husband. Paul is well known for his essays on technology and business and so it seems fitting that he provides the forward to Founders At Work. Paul talks about the burst of productivity in a startup and how a company is at it’s most productive during the very early explosive days. Paul talks about the bureaucracy of established companies and how the pressures to be “professional” curbs the productivity of real progress. Paul suggests that established companies can learn a lot from startups who don’t have bias of what a business should look like.

Paul’s story is also featured in the book. Paul cofounded Viaweb, one of the first web based services for setting up an ecommerce site in 1995. Viaweb was one of the first companies to deliver software through the browser, and was eventually acquired by Yahoo in 1998.

Paul talks a lot about the fear of being a real company, having to deal with customers and the business reality as a hacker. Paul also talks a lot about dealing with Venture Capital, potential acquirers and being a “professional” company:

I wouldn’t worry so much about seeming like a real company. Now I would just say, keep it a bunch of guys operating out of an apartment for as long as you want, because there is nothing to be ashamed of in that, especially if you’re writing great software.

The following is my selection of some of the stories of the founders featured in the book.

Max Levchin, Cofounder of PayPal

PayPal, one of the most successful online companies ever, didn’t start off with a grand vision. When Max Levchin and Peter Thiel, first started the company, it’s vision was to provide cryptography software for Palm Pilots. The two eventually stumbled across sending payments between physical devices, but it was not until they ditched the Palm Pilots in favour of purely online payments that things took off. PayPal was one of the only online companies that made it out of 2001 Internet Bubble. In 2002 it was acquired by eBay for $1.5 billion.

One of the big problems that PayPal faced was the battle against fraud. At one point the company was losing around $10 million to fraud every single month. Many of PayPal’s competitors would eventually be forced to close down due to fraud, eMoneyMail was losing 25% of it’s revenue every month.

When PayPal was first pitching their idea to the traditional financial institutions, many of them advised that the idea would not work because of fraud. Whilst Max took in that advice, it didn’t stop him from pursuing the idea. Traditional institutions like Citibank could not have achieved what PayPal achieved because they already new the risks of such an endeavour.

Max attributes part of the success of PayPal down to not having biases about how the industry traditionally worked:

The default of how you do these things is very powerful, if you’ve been in the industry for a long time. So we were sort of beneficiaries of our own naiveté. We thought, “We don’t know how to do this; let’s just invent it.”

Sabeer Bhatia, Cofounder of Hotmail

Hotmail was the first browser based email company. Browser based email is taken for granted these days, but at one point, the only way to access your email was from a client like Microsoft Outlook. At the time, Hotmail was the fastest growing media company of all time and eventually was acquired by Microsoft for $400 million.

Sabeer Bhatia and his Cofounder, Jack Smith actually stumbled upon the idea for browser based email whilst working on their initial idea Javasoft, a personal database. Sabeer and Jack were employed full time by another company at the time, and so they would email back and forth ideas about Javasoft. But one day their employer put a firewall around the company’s computer network, and so Sabeer and Jack could no longer dial into their email accounts.

Sabeer and Jack created Hotmail because it seemed crazy that they could access any website, but not their personal email accounts. After launching Hotmail, the service quickly ramped up in users, eventually reaching around 7 million when Microsoft acquired them after just 20 months.

Sabeer credits the success of Hotmail down to solving his and Jack’s own needs:

Sometimes ideas are born out of necessity: you solve a problem for yourself, and you hopefully solve it for a number of other people too.

Steve Wozniak, Cofounder of Apple

If there is one person that can be attributed to starting the revolution of personal computers, it is Steve Wozniak. Steve built the Apple I computer that is considered to be the very first successful consumer computer. At a time when no one believed that the computer would be a mass market product, Steve was building technology that was better than any of the leading manufacturers of the time.

Steve is an engineer at heart, and it is this dedication to his craft that enabled him to be able to see the future of where computer design would go. Steve was able to use less chips to create more powerful computers that were even cheaper and more reliable than anyone else could. Wozniak designed and built the Apple I and then the Apple II, the first and third massively successful personal computers.

It was really Wozniak’s passion and dedicated that enabled him to be so far ahead of everyone else at the time. Whilst still at school, Woz would design computers on paper because he could not afford to buy one. Every time a new chip would be released he would start again and do another design. By the time he actually came to build the Apple I, he already knew exactly what he needed to do. Woz not only built all of the hardware for the Apple I, he also wrote the Basic operating system.

In order to make the best product in the world, you need to dedicate your life to understanding every single detail:

My whole life was basically trying to optimise things. You don’t just save parts, but every time you save parts you save on complexity and reliability, the amount of time it takes to understand something. And how good you can build it without errors and bugs and flaws.

Evan Williams, Cofounder of Pyra Labs

Evan Williams is one of the co-founders of Twitter and The Obvious Corporation, which is building the publishing platform Medium. But it was another a publishing platform where Ev had his first success, Blogger.

Evan moved to California from Nebraska in order to pursue his goal of creating online products. After a year he formed his first company Pyra Labs in 1999 with co-founder Meg Hourihan.

Pyra Labs set out to make online collaboration software for enterprises, but instead found traction with their side project Blogger.

Blogger was a success and quickly gained traction. But unlike their enterprise product, Blogger had no way of making money. Pyra Labs eventually had to lay off all of their staff as the money ran out. For a year, Ev worked on Blogger by himself in order to keep the site online. After a year of struggling to keep the site afloat, Blogger eventually started to make some money. Google would eventually make Blogger it’s first acquisition.

Evan says on struggling through the tough times:

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.

That always being around the corner in my mind is basically what allowed me to go through all the bad stuff.

Caterina Fake, Cofounder of Flickr

Founded in the aftermath of the dot com blow up, Flickr was one of the leading lights of the new wave of “Web 2.0” startups. Flickr embodied all of the traits of this hot new type of online service, user generated content, social networking, tagging, but it actually started out as just a side project.

Caterina and her cofounders, Stewart Butterfield and Jason Classon were working on a Massively Multiplayer Online game called Game Neverending. Growth had been modest and the development progress had stalled because work needed to be done on the back-end.

During a period of down time, Caterina and her cofounders decided to work on a side project:

being restless hacker types - we built this sort of instant messenger application in which you could form little communities and share objects. And we just added the ability to share photos.

The story of Flickr shows that some projects are just destined to not work out. It can be difficult to cut a project when you have already invested a lot of time and money into it. But working on side projects that are free from the baggage and expectation are often the playgrounds where you stumble on the thing that really takes off.

David Heinemeier Hansson, Cofounder of 37 Signals

37 Signals started life as a web design and development consultancy shop. During the process of struggling to manage their own projects, they found that all project management software was far too complex for their needs.

Whilst still maintaining the consultancy work to pay the bills, 37 Signals created their first product, Basecamp. Basecamp was created in less than 10 hours a week and had a tightly constrained set of features:

The whole constrained development model really focused our view on what we needed, and it forced us to make tough decisions about making less software all the time. And we keep getting feedback from customers that say, “I love this, it’s just so simple to use. It’s got just the features I need and not all the other stuff.” There wasn’t time for us to say, “Wouldn’t it be cool to do this and that?”.

37 Signals show what can be achieved when you take your constrains and make them into an advantage. By focusing your time on only the things that matter, you can be a lot more productive and get better results.

Another important lesson from 37 Signals is solve your own problems and get feedback from people just like you. At first Basecamp was an application to help organise client projects. As 37 Signals showed the product to other web agencies, more and more people were requesting to use the product too. Find customer and solve a problem before you invest time and money into working on a project.

Conclusion

Founders at Work is a fantastic collection of stories from the early days of some of the most successful companies in recent history. The problem with looking at successful stories is, the media often portrays the characters as heroes and that the decisions were obvious. Great success is rarely an overnight occurrence, and Founders at Work really shows that it can be excruciatingly difficult to know what to do and how to cope with the pressure of a startup.

This book should be required reading for anyone who seeks to stray away from the beaten path of a normal safe career. Each of the stories show situations where the founder was unsure of the future, unsure about what decision to make and how to cope with the unknown. By understanding the stories and emotions that other people have experienced, you begin to see the clarity of the unknown and how taking small risks can lead to big rewards.

I’ve read Founders at Work a couple of times now and I often recommend it to people who are looking to take a leap of faith.

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