Learning from old Startups

The late 1990s saw a massive boom in startups, followed by the infamous “Dot Com Bubble” burst in the early 2000s, which resulted in numerous companies collapsing due to dried-up funding. However, a new wave of startups emerged, many of which were part of the Web 2.0 movement that focused on user-generated content.


Although technology has changed significantly since 2007, the stories of these pioneering entrepreneurs and their ideas are still highly relevant today. While some businesses and technologies may be consigned to history, understanding the past is crucial to understanding the future.


Examples of Successful Startups that Changed Course

There are some commonalities between successful startups over the past few decades, including the fact that many of them ended up with a product or idea very different from what they started with. For instance, PayPal, known as a popular online payment service, was not initially intended to be a payment system. Co-founder Max Levchin was developing software for early handheld devices, and he created an emulator that generated single-use security passwords. Although the market for this service was small, Levchin realized that credit card information was something that people needed to keep secure on their devices. This led to the development of software that allowed secure online money transfers, which quickly became popular. Eventually, PayPal shifted its focus to web-based money transfers and was purchased by eBay for $1.5 billion in 2002.


Another example of a successful startup that ended up with a different product than intended is Blogger.com. The founders of Pyra Labs started the company in 1999 to make project management software, with the blog as just one tool they were working on. However, in developing the blog tool, they made it incredibly easy for anyone to log in, write and instantly publish their work for all to see. Although this had nothing to do with project management, it proved to be wildly popular and attracted a million users. The software generated revenue and was eventually acquired by Google in 2003.


These examples demonstrate that successful startups often need to be willing to pivot and adapt their product or service based on market demand. It’s important to keep an open mind and be willing to shift focus if necessary. In fact, sometimes the most successful businesses are the ones that are flexible enough to change course when necessary. It’s also important to listen to customers and pay attention to their needs, as this can help guide the direction of the business.


In conclusion, while many successful startups didn’t end up with the same idea they started out with, they were able to pivot and adapt to market demand, ultimately leading to their success. This demonstrates the importance of being flexible and open-minded when starting a new business, and of listening to customers to guide the direction of the business.


Overcoming Skepticism and Proving the Skeptics Wrong

Having an innovative idea is not always enough to guarantee success. The founders of some of the most successful startups of the past few decades encountered skepticism and even rejection from potential investors and customers. Steve Perlman, a respected figure in Silicon Valley, struggled to convince people of the potential of interactive TV with WebTV. TVs at the time did not even have program guides, making the concept of interactive content for TVs seem far-fetched. After being acquired by Microsoft and becoming MSNTV, the product generated $1.3 billion in revenue in its first eight years.


Similarly, Sabeer Bhatia and Jack Smith faced skepticism in their efforts to develop a web-based email service, Hotmail, in 1996. Many people at the time believed that email accounts were only available from employers. Despite facing rejection from investors, Bhatia and Smith believed that there would be a market for a web-based email service, and they were right. Hotmail quickly gained popularity, thanks in part to the word of mouth and the clever idea of putting a link to the Hotmail site at the bottom of each email. By the end of their first year, Hotmail boasted 7 million subscribers, and they were eventually acquired by Microsoft for $400 million.


These examples illustrate how innovative ideas can be misunderstood or dismissed, making it difficult for founders to secure funding or gain traction with customers. However, by persevering and proving the skeptics wrong, these startups were able to achieve success beyond what many had initially thought possible.


While having a great startup idea is important, having a strong and flexible team can be even more critical to success. Joe Kraus and his classmates at Stanford University demonstrated this with the launch of Excite, an early web search tool. The team didn’t have a clear idea of what their business would be, but Kraus was confident that his friends were intelligent and passionate enough to succeed. During a brainstorming session, they realized that people would need a new way to search digital information, and they pivoted their focus to the web. Excite became the primary search tool for the dominant browser at the time, Netscape.


Similarly, Arthur van Hoff and his team from Sun Microsystems decided to start a business despite a lack of ideas. They each invested $25,000 and quickly pivoted from one idea to the next before settling on Marimba, a subscription-based software distribution model. The team’s flexibility allowed them to pivot and adapt quickly, ultimately leading to success.


Rather than fixating on a single idea, it’s crucial to assemble a team that is willing and able to pivot and adjust to market needs. Having a team that is passionate, intelligent, and has a diverse set of skills can be more valuable than any single idea. The ability to pivot quickly and pursue new opportunities can be the key to success in the fast-moving world of startups. By staying flexible and open to new ideas, entrepreneurs can build a team that is capable of navigating the unpredictable terrain of the startup landscape and achieving their goals.


Personal Projects That Became Big Business

The birth of some of the most successful startups started with the founders trying to solve a personal problem. Hotmail, for instance, began when its founders couldn’t access their email outside the office firewall. This kind of approach allowed the founders to identify a gap in the market and create a solution that could be useful for millions of people.


One of the most famous examples of this is Yahoo, which started out as a collection of online footnotes in the form of web links for all the references being made in the PhD thesis papers of two Stanford grad students, Jerry Yang and David Filo. They added new categories and links based on suggestions from fans, and it was growing so fast that they had to bring in a friend to write a business plan. The plan resulted in an initial $1 million in funding, and a year later, they went public, becoming one of the pioneering empires of the web.


Another successful startup with a similar story is deli.icio.us. It began as a private collection of online bookmarks made by Joshua Schachter, who was working as an analyst at Morgan Stanley at the time. With the help of some suggested links from others, he had amassed around 20,000 bookmarks. Since keeping them organized was a challenge, he began tagging them with short categorical descriptions like “math” or “food”. He then put the database on a server for the public to see. Within a year, the service had 30,000 users, and he received $1 million in funding before it was purchased by Yahoo for $30 million.


Schachter’s solution to his personal organizational problem proved to be extremely popular in helping others find what they were looking for as well. By solving a personal problem, he identified an opportunity to create a solution that could be useful to others, which eventually led to the creation of a successful startup.


Identifying and solving personal problems can be a great way to create a startup that could eventually become successful. It allows founders to identify gaps in the market and create a solution that can benefit a larger audience. By addressing personal challenges, they can often identify creative solutions that can help others as well.



Startup Solving a Problem


Simple Solutions to Complex Problems

Simplicity has always been an important factor in innovation and successful businesses. Apple and ArsDigita’s stories demonstrate that the best solutions are often the simplest ones. In Apple’s early days, Steve Wozniak believed in doing more with less, and this philosophy still guides the company’s business model today. By creating elegant products with fewer chances of malfunctions, Apple has continued to thrive.


Similarly, Philip Greenspun’s approach with ArsDigita was to provide simple and clean design solutions without relying on fancy coding. By positioning programmers as problem solvers and creating a framework that anyone could use, ArsDigita quickly gained popularity and worked with high-profile clients.


However, as with any rapid expansion, ArsDigita’s downfall serves as a cautionary tale. The simplicity that drove its early success was compromised when new leadership sought to transform the startup into a slower and more expensive company. This highlights the risks associated with venture capital and the importance of maintaining the principles that led to success in the first place.


Entrepreneurs can learn from the experiences of Apple and ArsDigita. They should strive to create something with whatever limited resources they have, while still pushing to make it better than what is currently available in the market. The best solutions are often simple and easy to use. By focusing on simplicity, businesses can not only save on costs but also create products that are elegant and efficient, making them stand out in a crowded market.


Strategies for Startups to Avoid Overreliance on Venture Capital

Having too much investor money can harm a startup, which is why it is important to find alternative methods of generating revenue or reducing expenses. Venture capital often comes with conditions, such as relinquishing ownership or control, or appointing investor-approved executives. To avoid this, many startup founders recommend minimizing expenses or finding ways to avoid bringing in new investors.


Joel Spolsky, the founder of Fog Creek Software, knew about the challenges of dealing with investors. He aimed to create an environment that treated programmers well, which included providing comfortable offices, first-class travel, and ample vacation time. These perks are typically frowned upon by investors who prefer to see programmers working in a more frugal environment. Spolsky ensured that he did not need venture capital by developing a useful bug-tracking software called FogBugz and increasing its price from $199 to $999, which paradoxically led to higher sales.


Another way to avoid the need for venture capital is to keep costs low. Paul Graham, the co-founder of Viaweb and Y Combinator, believes that the more investor money a startup takes, the less autonomy it will have. Therefore, he advises startups to spend as little as possible and adopt a minimalist, bohemian style.


It is essential to strike a balance between generating revenue and minimizing expenses. While venture capital may seem like an attractive option, it often comes with strings attached that can limit the startup’s autonomy and hinder its growth. Founders can find alternative ways to generate revenue or reduce expenses to avoid the need for investor money.


The Importance of Listening to Customers and Honesty

When it comes to starting a successful business, one of the most important pieces of advice is to create something that people actually need. This is something that Paul Graham, the founder of Viaweb and Y Combinator, strongly believes in. He even made “Make something people want” the slogan for Y Combinator.


However, simply having an idea for a product or service that you think people will like is not enough. It’s crucial to listen to your customers and understand what they truly want and need. By doing this, you can create something that not only makes people happy, but also solves a problem or fulfills a need.

In addition to creating something valuable, Graham also stresses the importance of honesty. He and his co-founder, Robert Morris, were able to create the best e-commerce software available by constantly monitoring customer satisfaction and the quality of their competitors’ products. This allowed them to honestly claim that their software was the best on the market, which in turn helped them win over clients.


While many people believe that being a successful salesperson requires charisma and charm, Graham’s experience shows that honesty can be just as effective. By being honest about the value and quality of your product, you can build trust with your customers and increase the chances of making a sale.


In conclusion, the key to building a successful business is to create something that people truly need and want. This requires listening to your customers and understanding their needs. Additionally, being honest about the value and quality of your product can be a powerful tool for winning over customers and building trust.


Timing is Key

Flickr’s success story is a result of good timing and an unexpected opportunity that arose while developing a different product. Caterina Fake and her husband Stuart Butterfield started working on a videogame called Game Neverending in 2002, which included a photo-sharing feature. However, while waiting for the videogame to be completed, Fake worked on the photo-sharing feature, eventually creating Flickr.


Flickr’s success was due to its timing. Personal blogs and the first wave of social media platforms such as MySpace and Friendster made sharing photos much more appealing in 2004. Additionally, digital photography made it easier for people to get their photos online. While there were photo-sharing programs before Flickr, most online photo services like Shutterfly made their revenue by getting people to pay for a printing service.


Fake considers herself fortunate that Flickr wasn’t the main project. She believes that if they had started out with photo-sharing as the primary goal, the research would have suggested there was no market for photo-sharing platforms that didn’t ultimately aim to get people to make prints. However, by 2004, people realized that sharing photos was a primary activity that made social media platforms fun.


The rise of personal blogs also made people more comfortable with sharing their personal photos with the public at large. Prior to blogs and social media, it was standard practice to keep online photos private. Therefore, Flickr’s success was the result of being at the right place at the right time.


During the span between the late 1970s when Apple produced its first computers, and the early 2000s, where blogs and user-generated content took center stage, startups played a transformative role in the business landscape of the United States. By conversing with some of the most prosperous startup founders during this era, we observe some striking similarities among their diverse experiences. These consist of the fact that many startups commenced without a clear-cut idea, and that discovering ways to achieve more with less can result in triumph. Additionally, we find that addressing a personal dilemma can transform into a lucrative solution, and that initial business plans are often distinct from the final outcome.

Inspired by a book “Founders at Work”; Jessica Livingston


9 minutes read

What Early Web 2.0 Startups Can Teach Us Today

Discover the invaluable lessons and insights from startup founders of the past, including early Web 2.0 companies.