Article to follow.
>Ramanathan Guha, former Apple Fellow and metadata guru has moved on
>to epinions, Isee. It's an interesting concept, crossing the
>AMIX./peer-helping marketplaces I've long awaited
>(Usenet-kudos-for-pay) and the recent surge in "independent" shopping
>guides by hobbyists, Tom's Hardware, so-and-so's digital cameras,
>Bob's psych center, etc. Will it be kind of like a grass-roots
>About.com, or a relic like CERN Virtual Library?
===
The New York Times
July 11, 1999
Instant Company
By Po Bronson
What were you doing 12 weeks ago?
Twelve weeks ago was Nirav Tolia's last day on a pretty enviable job. He is
27, and in addition to managing the marketing of Yahoo!'s E-commerce
properties, he had represented the company on television more than 100 times.
Almost nobody leaves Yahoo!, but Nirav Tolia had just heard a really
interesting start-up idea from a friend, Naval Ravikant, who had recently
left @Home. It took Tolia about one day to decide, and the following morning
he resigned.
Soon after Tolia's last day at Yahoo! he and Ravikant were joined by one of
the highest ranking engineers at Netscape, Ramanathan Guha, who was cooking
up an idea very similar to Ravikant's on the back burner of his big brain. By
the end of the week, they were five strong. Eleven weeks ago, despite not
having a single line of code written or even a paper sketch of the Web site
they wanted to build, they got $8 million in seed financing from venture
capitalists -- half from Benchmark Capital, which had financed Ebay, and half
from August Capital, where Naval Ravikant was camping out as entrepreneur in
residence. This gave the start-up what is believed to be one of the highest
seed-round valuations ever.
Nine weeks ago, they brought on Lou Montulli and Aleksander Totic, two of the
original six founding engineers of Netscape. Eight weeks ago, they moved into
a second-floor gabled loft in Mountain View, Calif., and began grinding out
15-hour days, seven days a week -- but of course these guys had done that
before.
In a spring when it had started to seem to some Silicon Valley veterans that
all the big original ideas were gone, theirs was a lightning rod for talent.
The new director of business development, Dion Lim, began to cut deals with
other Web sites to import their data feeds. Seven weeks ago, they started
hiring category managers. Six weeks ago, it became clear to Guha that enough
of the original programming was already done, and he could switch hats from
coder to manager. Five weeks ago, their venture capitalist from Benchmark,
Bill Gurley, came by the office for his first look-see. He was blown away:
''This is, unequivocally, the fastest I have ever seen a start-up move.''
Four weeks ago, they began to cut distribution deals; two weeks ago, they
settled on their marketing plan, and now, having reached a critical mass of
31 people, they are set to launch their Web site.
In 12 weeks, the amount of time it might take an average person to decide
what kind of hedge to plant in the backyard, they built a company from
scratch. An instant company, or what is being called in Silicon Valley a
''second-generation Web company.''
Not so long ago, it seemed incredible that a Web company could be born in a
mere two years. But rather than going back to normal, the pace of creation in
Silicon Valley now seems to be speeding up even more. Any Web company that
starts out today and takes two years to get up and running is likely to be
left in the dust.
In first-generation Internet companies, the founder and a few college buddies
moved into a garage that they decorated with Nerf guns and green army men. In
second-generation Internet companies, the staff coalesces not from
friendships but from respect for mutually complementary skill sets. They skip
the garage phase, engage two real-estate brokers and make simultaneous bids
on three office spaces, hoping one comes through. They move in over the
weekend and by Monday have it decorated with Nerf guns and green army men.
In first-generation Internet companies, the staff resigned from monolithic
software corporations or took leave of business school or jumped ship on
brand-manager positions at Procter & Gamble. Nobody had Internet experience;
they learned by making mistakes, of which there were many. The purpose of the
Internet was unclear. Now, companies are being formed by staff members who
have years of know-how. And they see the Internet, above all, as a place to
buy things. Some $301 billion was generated by the Internet economy in 1998,
with an annual growth rate over the past four years of 174 percent.
Because of the way high-tech employees are compensated, there are likely to
be a great number of second-generation start-ups in the next year. The
notorious stock options that add up to so much paper wealth usually take four
years to fully vest. For the early movers on the Internet, the four years are
coming up. And the golden handcuffs are coming off.
This particular second-generation internet company has managed to recruit top
people who were still handcuffed -- what people in the Valley call ''the
unhirables.'' Naval Ravikant walked away from what at the time was $4 million
worth of unvested @Home stock options. Ramanathan Guha walked away from
probably more than $4 million (a figure he is contractually forbidden to
confirm) at America Online, which had acquired Netscape. Sabrina Berry's
previous employer, CommTouch Software, was planning to go public. Berry
walked away from all of her shares in that company. For Lou Montulli to join,
he resigned from a hot, well-financed start-up called Geocast Network
Systems. At the time Nirav Tolia left Yahoo!, the unvested options he left on
the table were worth $10 million.
But, he insisted, it didn't matter to him if it was $20 or $20 million -- he
has a dream to pursue.
''People are going to think I'm nuts,'' said Tolia, rolling his eyes.
''Can we not talk about this anymore?'' said Guha. ''It's painful to dwell
on.''
Six weeks ago, the engineering team walked to In-N-Out Burger for lunch. They
crossed an overpass above Highway 101 and paused at the rail. ''This team has
been responsible for many of the key features of Netscape Navigator,'' Guha
said. ''These guys can point to any of these cars passing underneath and say:
'That driver has almost certainly used my code. And that driver. And that
one.' We want to build something that has that kind of influence. We want to
build a site that everyone will use.''
So what's the idea that is inspiring so many to jump? Until this week,
they've kept everything secret, operating under the code name ''Round One.''
In fact, not even people who come in to interview for a position learn the
idea their first day. Several hours of vague conversation seem to be leading
up to the grand presentation, but alas, the applicant is sent home with a
preliminary offer, setting out salary and options and title -- and no clear
sense of what the company will do. If the candidate is sold on the team, then
she or he comes back for a second round. Only at the end of that next day
does she sit down in front of a whiteboard with Ravikant and Tolia and hear
something like this:
As the Web becomes an infinite supply of goods and services, goes the pitch,
people crave guidance on what and where to buy. So far, the great number of
on-line shopping guides present quantitative, machine-sorted and
machine-generated data: comparisons of product prices and specifications. But
what consumers need (Ravikant and Tolia contend) is a recommendation that
gets beyond that: the advice of someone they trust, someone just like them.
Their solution is a Web site, Epinions.com, which they envision as a sort of
Zagat-for-everything, a site consisting entirely of consumer opinions or
reviews of anything you can buy. Epinions.com itself will sell nothing at
all -- it has no warehouse, no trucks on the back end. The money would come
from deals Epinions.com cuts with companies that do sell things: every time
an ''E-pinion'' prompts a reader to click ''Buy,'' the company will earn a
tiny commission on the resulting sale.
At the start, the E-pinions on Epinions.com will be culled from existing
sources, guiding users through aggregations of expertise from the four
corners of the Web. But the key to the whole idea is to make Epinions.com
participatory, taking advantage of what I call the Tom Sawyer model. Write
and post a short review of any product on Epinions.com, and you can earn a
few pennies every time the review is read by another user. By letting readers
rate the usefulness of the E-pinions, the most trusted ones will float to the
top of every category. As Ebay is a marketplace for products, Epinions.com
seeks to be a marketplace for ideas. If it catches on, like Ebay, then
everything snowballs, and these hobbyist-reviewers function as sliver-time
virtual employees who do all the work for you. ''Everybody is an expert at
something,'' they kept repeating around the Epinions.com office; they hope
their site will be the place where everyone shares their expertise.
Similar logic has been welling up in the collective unconscious of Silicon
Valley, and most E-commerce sites are already adding some form of E-pinion to
their Web pages. Productopia, Deja.com, Cnet, Amazon.com -- everyone's hiring
editors and bringing back the old-fashioned, well-trusted written word. Of
course, sites that both sell goods and review them are subject to criticisms
of bias. Epinions.com.com would be the first company to start up doing
E-pinions and only E-pinions, hoping to be as Jell-o is to flavored gelatin.
And that's it. Then again, what was Yahoo! at the start but just a Yellow
Pages to the Web? The point is that job recruits with demonstrable talent are
buying in to give it a go. And they know that in the short and unpredictable
history of Internet businesses, success has often come down to getting the
details right, fast.
''We don't need any more strategists,'' says Mike Speiser, a McKinsey
consulting alumnus who learned to curtail his own inclination to heady
analysis. This was 10 weeks ago.
''We need closers,'' agrees Nirav Tolia. ''We need bulldogs.''
''We need engineers who are execution machines,'' says Guha. ''This is not a
strategy play. This is an execution play.''
First-generation start-ups raise small seed rounds to develop a
''proof-of-concept version,'' at which point the start-up has to go back to
dog-and-pony shows, negotiating for more money. Again the second generation
is different, faster. Prototypes, demos, alphas -- the language of the
hustle -- those words aren't even in the Epinions.com vocabulary. Every
minute spent dancing for investors is a minute stolen from the finished
product. Ravikant and Tolia's business plan (which consisted of 16 sparse
slides) had no financial projections and no budget. They negotiated for $8
million, enough that they wouldn't have to go back for more until well after
launch. They had no idea what it would cost to pull together the E-pinions
they would need to stock the site, but they budgeted $5 million, just to be
safe.
The group's biggest fear was the wrath of prominent venture capitalists who
did not get an opportunity for a cut of the deal. A slightly rattled Tolia
played me several phone messages left on his answering machine by furious
V.C.'s. One of the advantages of combining August Capital and Benchmark is
that they occupy the same two-story building. When the terms of the valuation
were set with August, Ravikant and Tolia walked upstairs to Bill Gurley's
office at Benchmark. Gurley had joined Benchmark only a month before, and
Epinions.com would be one of his first big plays for his new employer.
''I need to know if you're in,'' Tolia said.
Gurley was calm. He recounted some of the internal discussion among the
Benchmark partners. One partner, Gurley offered, had scored the idea a 6.5
and the team a 9.5 on a scale of 1 to 10. But he wouldn't tell them details
of how the final vote was scored.
''So where does that leave us?'' Tolia asked.
''Don't worry, it's done,'' said Gurley.
''Should I contact your lawyer or something? Draw up term sheets?''
''We don't do term sheets here,'' Gurley responded, offering his palm. ''We
do handshakes.''
In those first crucial weeks, the Benchmark investment was like having a
Hertz Club Gold pass. Every service provider is overbooked in Silicon
Valley -- realtors, phone-system installers, furniture suppliers,
headhunters. Dropping the Benchmark name was the way to impress vendors
without sharing the idea. Everyone wants to do business with what may become
the next Ebay, dreaming they'll be rewarded with friends-and-family shares
when the time comes.
Of course, they can't do everything. There was that first weekend in their
new digs, when the parts for their desks arrived from Home Depot -- 25 solid
wood doors, 100 4-by-4 legs and 400 metal braces. Despite this formidable
team of engineering talent, in eight hours of off-and-on tinkering they
couldn't correctly assemble any desks. Finally they called a carpenter who
had done this before, and he started building two desks an hour.
Fortunately, what they don't know about desks, they do know about code.
Hiring staff with seasoned Internet experience has allowed Epinions.com to
delegate like crazy. ''We need to be told what to do but not how to do it,''
said Luke Knowland, who had done it before at Wired Digital.
''It would take four very bright first-generation engineers a full year to
program this site,'' Guha estimated. ''But because we've done it before, we
can write most of the code in six weeks.''
Everything is faster. Zero drag is optimal. For a while, new applicants would
jokingly be asked about their ''drag coefficient.'' Since the office is a
full hour's commute from San Francisco, an apartment in the city was a full
unit of drag. A spouse? Drag coefficient of one. Kids? A half point per. Then
they recognized that such talk, even in jest, could be taken as
discriminatory in a hiring situation.
On the business-development side, ''I no longer have to waste months
evangelizing,'' says Dion Lim, who has been cutting deals to aggregate
opinion material from existing Web sites. A couple of years ago, the process
would have been slow and painful. ''Now, I just call, and they have a
syndication rate scale and a preferred data-feed format,'' he says.
Meanwhile, Epinions.com has kept up constant reconnaissance on the
competitors it will be jockeying with this fall, despite those competitors'
best efforts to keep their strategies secret. The Valley has what it calls
the ''whisper circuit,'' which is not so much wild gossip as the ability to
call in old favors and threaten to pull people's teeth. A lot of
whisper-circuit surveillance leaks out the back door of companies through
their engineers, who often refuse to lie on principle or are very bad at it
when they try.
Through the whisper circuit the company learned that one potential competitor
was trying to wiggle out of a partnership so that it could overhaul its
product toward something like Epinions.com. The team learned that a top job
applicant, on the verge of accepting its offer, had been grilled so hard by
another venture capitalist that he cracked and spilled the Epinions.com idea.
(The offer was retracted.) Another V.C. was trying to discredit Epinions.com
by telling people he'd turned down its deal, which he'd never seen.
And it was on the whisper circuit that the Epinions.com team learned that
Amazon.com had started flying writers and editors to Seattle and offering
them positions as category editors to cover a wide range of products -- food,
video games and so on. The whispering was specific -- that Amazon.com was
offering a $65,000 salary, a 10-percent signing bonus and options that could
be worth $1 million in four years. (Amazon declines to confirm or deny those
details.) The entrance of Amazon.com onto the scene seemed like bad news for
Epinions.com. Everyone lost sleep that night.
But their exuberance returned with dawn. ''Amazon is supersmart,'' said
Naval, marching out of Benchmark Capital's Sand Hill Road offices with his
teammates in tow. ''But we're a start-up. We've got focus. Nobody will be
able to move as fast as us. I pity the fools!''
''Other than that first night with Amazon, I haven't lost a single hour's
sleep over our competition,'' Nirav Tolia said four weeks ago, when he was
only rationing himself four hours a night anyway. ''All the sleep I've lost
has been over our internal conflicts.''
Indeed. By hiring so many bulldogs and execution machines who were all used
to being No. 1, Tolia feared the competition between employees would tear the
company apart. For the first month, without a product to obsess about, they
focused on their responsibilities, and the closest proxy for their
responsibilities was their title. That they had given up so much money to be
here made them a little testy -- they wanted constant assurance that their
career decision wasn't a mistake.
Everyone kept demanding an org chart, preferably with his or her name in a
box near the top. In first-generation Web companies, the premise was that no
task was beneath you: you did whatever it took to succeed. This wisdom seems
not to have been passed down. ''How do we go from a team of champions to a
championship team?'' Tolia kept asking.
Bill Gurley had turned Naval Ravikant on to complexity theory. ''Truly alive
systems exist only at what is called 'the edge of chaos,''' Ravikant said in
one meeting. So though it was causing him to lose hair, he was running the
company on the edge of chaos, rallying people to risk making mistakes. ''I
don't want to be a company that plays it safe.'' He gave his employees an org
chart, and then another one every week. Their titles became vague, more
fungible.
Going through the start-up experience usually bonds a team together. There
are those occasional ''Breakfast Club''-like days when workers' inner lives
get revealed to each other. This bedrock of goodwill gets the team through
hard times later. Going through it at second-generation speed only allows
brief bonding moments. Mike Speiser covered Internet companies as an
investment-banking research analyst, but he hadn't worked at one before
Epinions.com. A few weeks ago he said: ''You know what I miss? I miss those
good old days, when we had the run of the place at August Capital, hanging
out and brainstorming.'' Those halcyon days, six weeks earlier.
Nirav Tolia came up with what he thought would be a solution to distract the
champions from their fiefdoms. At the all-hands meeting five weeks ago, Tolia
announced that he would shave his head if the company met its offical launch
date. This is a guy whose E-mail was ''the-face@yahoo.com'' for a good
reason -- a hair is never out of place on his head. ''When you're wondering
why you're here at 2 in the morning, think about my cue ball,'' he said.
Everybody howled with laughter. Then Aleksander Totic went over to his
computer and pulled up an ancient Web page, from way back in 1994. Digital
photographs were posted from the period when the original Netscape engineers
shipped Navigator 1.0. There at the top of the page was a picture of Lou
Montulli -- who is even more of a sharp dresser than Tolia -- with his head
completely shaved. Then everyone really laughed.
''If we're going to be a second-generation Web company, Nirav's going to have
to come up with something better,'' Totic chuckled.
Watching an instant company get built has been slightly disorienting. Silicon
Valley is sustained by the myth that you can come here from anywhere with
sheer smarts and a firm handshake and make good. Second-generation Internet
companies seem to seriously tip the favor to those already here. Four weeks
ago on the whisper circuit, Tolia learned that an entrepreneur from Arizona
was in town to shop a business plan for a company, called Publicopinion.com,
with some of the same basic concepts, like rating reviews. Tolia took the
challenge seriously -- Publicopinion.com already had a prototype on line and
needed financing to take the next step. But the truth is that if the guy from
Arizona is only now trying to get an audience with venture capitalists, he
probably doesn't have a chance to catch up.
After Ravikant left @Home, he would still see old colleagues at parties. The
comment he heard from them time and time again was: ''It's amazing you walked
away from all that money. I wish I was brave enough to take the chance.''
So why did they walk away from all that money? Take it as a given that they
all believe in the commercial viability of the idea, but beyond that, their
comments are all over the map. One guy talked blatantly about wanting ''plane
money,'' and how you weren't even a player in the Valley with less than $100
million. A few plead that they just want to live the start-up experience, and
the money they've earned has bought them the unconditional freedom to pursue
that dream.
Now they are at the takeoff point, and their first-generation experience
can't help them. The next 12 weeks will be an even greater challenge: the
goal now is to turn a brand-new site into a hive, one that has 80 percent of
all E-commerce categories covered well in advance of the crucial Christmas
buying season. They are blindly gambling that they have the right incentives
and the right filtering mechanisms in place. Ready. Fire. Aim.