I keep talking about how crappy startup is. It is. You just don’t know what will work and whether a startup pivot is needed, but that’s the point.
Hustle, persistence, attention and luck can pay off.
Here are 15 examples and stories of how startups turned lemons into platinum lemonade stands.
What I want you to take from this is that you paying attention, working smart and grinding actually can and will pay off. I know you face struggles each and every day, but you are NOT alone. The path has been pathed for you. Just walk your own if you want to get exceptional outcomes and pay attention to everything your customers do, not what you think.
The most common thing I have picked up from all the case studies is that ‘at the beginning, there was no grand plan.’ No one had it all figured out. They wanted to solve for something and started. Over time they either learnt more about their customer and how they would bend products to meet their needs, or they really put in the time to figure out their business model fundamentals so that the business actually was logical and would work.
It’s kinda nuts, but you just need to jump off a cliff and build a car, no plane, no hovercraft, yes parachute on the way down. It’s not common that people get it right from the start. Ultimately Suzy needs to put on her big boy pants and just do not think.
- Android: Understand the size of the prize of market opportunities- you can’t win big in a small market.
- Flickr: Focus on core use cases. Do not underestimate people’s desire to express and for a community with ‘people like us’
- Groupon: Pay attention to how people use your product, especially if they use it in ways it was not originally intended
- Instagram: Simplicity is key. More is cluttered not more. Start from scratch if you really need to
- Nokia: Keep going to where the money and opportunity is and you can last 100 years
- PayPal: Strong views loosely held. If something doesn’t make sense, rethink. Understand your customer use cases intimately and if you find a new tribe, support them
- Pinterest: Pay attention to user behaviour. Do things that don’t scale
- Rovio: Hard work doesn’t get you anywhere if you don’t have your fundamentals. Understand what it takes to be successful and do that, not what you feel like
- Shopify: Scratch your own itch. If you are creating a solution for your own problem you have at least one customer and deep insight
- Slack: If you build something to solve your own problem, other people might have the same problem
- Twitter: Who the fuck knows. Luck happens
- Turntable.fm: If you still have money in the bank and investor backing, do the idea you have been thinking about whilst you have been hating what you have been building
- Woot: If you have a problem, test stuff. Being different is better than being the same. Embrace your inner weirdo
- Youtube: If things don’t work, try literally anything.
Android pivoted out of being an operating system for cameras
When Android started, the goal was to create a camera platform with a cloud portion for storing photos online, and for smart cameras to connect to PCs.
A pitch to investors in April 2004 showed a camera connected “wired or wireless” to a home computer, which then linked to an “Android Datacenter.”
As everyone knows, Android didn’t focus on the smart camera market, they pivoted to smartphones. This is a fab example of seeing where the real market opportunity is after starting and pivoting to a larger opportunity. Something all founders should take note of.
We decided digital cameras wasn’t actually a big enough market. I was worried about Microsoft and I was worried about Symbian, I wasn’t worried about iPhone yet.- Android co-founder Andy Rubin
The growth in digital cameras was gradually slowing as the technology became mainstream. They promptly changed their business plan… and the pitch five months later declared it to be an “open-source handset solution.”
The exact same platform, the exact same operating system we built for cameras, that became Android for cellphones
Android kept its software core, including its Java core (Which was the cause of a large lawsuit with Oracle).
There was an opportunity at the time because even as hardware costs fell steeply due to commoditization, software vendors were charging the same amount for the OS, eating up a large share of manufacturers’ budgets.
Android thought different creating a pick and shovel business model where they considered its product to be a platform for selling other services and products. Clearly, this would need scale, so they aimed for growth, not per-unit income and gave it away for an unbeatable price; free.
We wanted as many cellphones to use Android as possible. So instead of charging $99, or $59, or $69, to Android, we gave it away for free, because we knew the industry was price sensitive
Android founded in 2003 was acquired by Google in 2005 for only $50m.
Flickr was an online role-playing game called Ludicorp
Ludicorp was founded in 2002 by Stewart Butterfield and Caterina Fake, who were married at the time. The game studio, based in Vancouver, made a game called Game Neverending.
The MMOG is a role-playing game focused on social interaction and object manipulation. Game Neverending is said to be “lighthearted and humorous” with no way to win or no given definition of success. Objects “could be combined to create other objects, but any given object only served a questionable amount of purpose.” The first prototype went live in 2002 and closed in 2004, never getting out of beta.
If you happened to be at the O’Reilly Emerging Tech Conference on February 10, 2004, you had the opportunity to witness a meaningful moment in the history of the web. The founders were at the conference to talk about the technology behind Game Neverending, but while they were there, they also unveiled their side project. It was a tool for sharing photos, and they called it Flickr.
Flickr was a service that combined chat rooms with real-time photo sharing. Features for less instantaneous communications quickly elbowed out the original concept, which got renamed FlickrLive and then disappeared.
So whilst the game didn’t exactly reach critical acclaim, it did yield some useful tools from side-projects. The tools behind the game were used as the foundation for Flickr, and the .gne file extension in Flickr is a legacy from Game Neverending.
Ludicorp didn’t invent photo sharing as they launched years after the first three big names in the category: Ofoto, Shutterfly and Snapfish, all of which launched in 1999. Online sharing was just a feature to get people to buy prints of digital photos for the competition.
Flickr had a real focus and sharing was the whole idea. From the start, it was building a community of photo lovers around the world who wanted to share images with other photo lovers, as well as tonnes of special interest sub-communities. It was about storytelling.
Funnily enough, Flickr launched 6 days after Facebook and it wasn’t clear that Facebook was a bigger deal at all.
People sometimes forget how early Flickr came. Facebook didn’t add photo sharing till a year after Flickr was acquired by Yahoo.
Yahoo acquired Flickr for a reported $35 million in 2005
Stewart went on to found Slack… another notable pivot!
Groupon began as a consumer activist site called The Point
Sometimes big things come from the most unexpected ideas. Take Groupon, which is argued to be a predatory business… it started out like something akin to a charity. Go figure.
In 2006, Andrew Mason was doing contract work building databases at a company founded and funded by a rich entrepreneur called Eric Lefkofsky.
In January 2007, with Lefkofsky’s cash, Mason started working on a company called The Point, which was a social media platform designed to get groups of people together to solve problems as ’causes’. It basically went nowhere.
Lefkofsky saw a campaign where a group of users decided their cause should be saving money. Their plan was to get 20 or so people who all wanted to buy the same product and see if they could get a group discount.
Eric said maybe this is the thing that we do. Maybe we set up a separate page, make it dedicated to group buying.
For a year Lefkofsky would not let that idea go. He’d mention all the expensive purses his wife and all her friends were buying, and say, “It’s crazy! Couldn’t they buy 20 of them and get a discount?”
Groupon was born.
The do-gooders decided Groupon should offer one deal a day, that it should sell vouchers for local businesses, and that the daily emails should have a funny copy. Mason also pitched Groupon as a way to help local businesses with cash flow at a time when banks were not lending.
The concept immediately took off in 2008.
In January 2009, Groupon held its company holiday party at the small apartment of its CTO. He cooked for everyone.
A year later, Groupon had around 300 employees.
A year after that it had 5,000+.
You know the rest.
Instagram was a copy of Foursquare called Burbn
In late 2009, Foursquare was getting popular, and location-based check-in apps were the quickly becoming the focus in the Valley.
Kevin Systrom had launched a few side projects, but in late 2009, he concentrated his attention on one: an iPhone app that combined elements of Foursquare with Mafia Wars. It was called Burbn.
I figured I could build a prototype of the idea in HTML5 and get it to some friends. Those friends ended up using the prototype without any branding elements or design at all.
The app’s primary functions were to let users check-in to locations, make future plans, earn points for hanging out with friends, and post pictures. The traction was fine, but to quit his job at Nextstop, he would need money.
Happy days came over cocktails in early 2010 at a party for a failed startup called Hunch.
At that party there were two people from Baseline Ventures and Andreessen Horowitz. I showed the prototype, and we decided we’d meet up for coffee to talk about it. After the first meeting, I decided to take the dive and leave my job to go solo and see if Burbn could be a company. Within two weeks of leaving, I raised $500k from both Baseline and Andreessen Horowitz, and started work on finding a team.
Systrom found a co-founder called Mike Krieger who worked at Meebo and he had met at Stanford’s Mayfield Fellows program, but they quickly became unhappy with Burbn.
Once he joined, we took a step back and looked at the product as it stood. We decided that if we were going to build a company, we wanted to focus on being really good at one thing.
It was cluttered and overrun with features so they used analytics to figure out what was going on. People weren’t using Burbn’s check-in features at all. What they were using, though, were the app’s photo-sharing features. “They were posting and sharing photos like crazy.”
3 months after funding they made a ballsy decision to scrap Burbn and build an entirely new app from the ground up. WTF!?
It was really difficult to decide to start from scratch, but we went out on a limb, and basically cut everything in the Burbn app except for its photo, comment, and like capabilities
As Sawyer puts it in his book Zig Zag: The Surprising Path to Creativity:
They began by studying all of the popular photography apps, and they quickly homed in on two main competitors. Hipstamatic was cool and had great filters, but it was hard to share your photos. Facebook was the king of social networking, but its iPhone app didn’t have a great photo-sharing feature. Mike and Kevin saw an opportunity to slip in between Hipstamatic and Facebook, by developing an easy-to-use app that made social photo-sharing simple. They chopped everything out of burbn except the photo, comment, and like features.
They also added filters (They picked 11 from original 30). But simplicity remained their focus. In their final version, you could post a photo in three clicks.
The founders settled on the name, Instagram, as a portmanteau of “instant” and “telegram as it also sounded camera-y.
Instagram, a start-up which had existed for a mere 551 days, which had never made a cent in revenue, and which employed just a dozen people was sold to Facebook for a $billion.
Nokia started out as a wood pulp mill
The history of Nokia can be traced back to the 1800s. No joke! Nokia started as a paper company.
It was 1865, and the mining engineer Fredrik Idestam established a wood pulp mill next to the Tammerkoski Rapids in the southwest of Finland. Three years later he opened a second mill close to a town called Nokia.
Idestam went on to formally name his business Nokia Aktiebolag (Nokia Company). Shortly after the first world war, Nokia was close to bankruptcy and the nearby Finnish Rubber Works, maker of galoshes, hoses and tyres, bought the firm in order to ensure a power supply.
A few years later, the group acquired Finnish Cable Works, exporter of telephone and electricity cables to the Soviet Union, and the start of Nokia’s electronics business. Thus, Nokia Corporation was born, focusing on five distinct business areas: cables, electronics, forestry, rubber and power generation.
In 1960, Nokia moved into the telecommunications pie. The cables arm set up an internal electronics department, where a team worked on radio-transmission equipment.
In 1982, Nokia introduced its first car phone, with the grand title of Mobira Senator. Its first handheld mobile arrived in 1987 and weighed a hefty 0.7kg (1.7lbs). Officially called the Mobira Cityman, it soon became known as the ‘Gorba’ after Soviet president Mikhail Gorbachev was pictured using one.
In the 80s, 90s and early 2000s, paper, tyres, footwear, TVs, computers, robots, chemicals and military equipment were slowly exited, leaving telecommunications as Nokia’s focus.
During 1999, the company released the Nokia 3210 and then the 3310, which became one of the most popular consumer electronics of all time, selling well over 100 million units. The Nokia 1100, which came out in 2003, attracted equally monsterous levels of interest.
Unfortunately, though, the glory years wouldn’t go on forever. They sold Nokia’s devices and services division to Microsoft for $7.2 billion.
PayPal originated as a way to exchange money via Palm Pilots called Confinity
The bill for lunch arrives, but you’ve left your wallet in the car. Your lunchmate doesn’t want to pick up the tab. So she pulls out her Palm III, beams you a little program called PayPal, and suggests you beam back your share of the bill. Later that day, the cash comes out of your account and drops into hers.
That scenario should be a reality by September, when Confinity, a Palo Alto, California software start-up, launches PayPal, an application that will allow individuals to “beam” sums of money between handheld devices such as mobile phones, Palm Pilots, and pagers.
“All these devices will become one day just like your wallet,” said Confinity CEO Peter Thiel. “Every one of your friends will become like a virtual, miniature ATM.”
In Thiel’s case, though, it’s a pretty fat wallet.
Last week at PayPal’s launch party, venture capital firm Nokia Ventures used the software to beam US$3 million to Confinity through Thiel’s Palm Pilot. The whole process took about five seconds.
This is literally an article from 1999 when PayPal first launched!
PayPal pivoted not once, not twice, but at least five times before finding the innovative business model that led to its success.
PayPal was founded by Max Levchin and Peter Thiel who met at a lecture Thiel gave at Stanford in the summer of 1998 on the dangers of concentrated governmental power. The following week, Levchin pitched him ideas for startups; the one Thiel liked best involved cryptography for handheld devices. The company was called “Fieldlink” and did encryption for phones. The issue was they were entirely dependant on someone building an actual application of it.
After more than a year of getting nowhere fast, their next pivot was to move cash on mobile phones. They figured it would take years before they could actually do that and didn’t have the funding, so that wasn’t going to work so they needed to do something in the interim before phones took off.
They then renamed the company Confinity and altered their strategy to build another actual application of this themselves and beam IOUs from Palm Pilot to Palm Pilot. Reid Hoffman went to a board meeting and raised a bit of an issue. Not everyone even in Silicon Valley had Palm Pilots. The espoused use case was to split restaurant bills so he said go to a restaurant and see how many people have them. This will only work if everyone has one!
As an aside, PayPal got James Doohan widely known for his role as “Scotty” on Star Trek as the company’s official spokesman. “I’ve been beaming people up my whole career,” Doohan quipped, “but this is the first time I’ve ever been able to beam money!” Thiel wrote that it was a terrible idea in hindsight. No one cares about Scotty (Stop being such a nerd), they care about Kirk. PriceLine got Kirk.
Clearly, Palm Pilots didn’t work either so they once again changed course. Max came up with the idea of doing email payments and Scott Banister and Reid thought that was a good idea. If you only have Palm Pilots you don’t have enough density so they would do Palm Pilots and email. They quickly found email grew and no one used it for Palm Pilots. The final pivot was to focus just on email payments and the web. Those 5 pivots happened in 15 months.
They called it PayPal and it was specifically for the web so a person could email money to someone else. Then eBay-ers discovered PayPal and the team wondered what the hell this eBay thing was. They discovered these were their real users and their use case. They competed against Billpoint (owned by eBay) but they became the dominant platform.
As a side note, they competed with Elon musk who had founded X.com. In short, they thought it made sense to not compete and just merge, doing so in March 2000. Shit storms ensued with constant arguments about the code languages etc.
They went public in April 2002 and eBay bought them in July for $1.5b, which closed in October.
Reid Hoffman said “I couldn’t have drawn a roadmap. We discovered our future as it happened.”
PayPal’s culture encouraged entrepreneurship, that’s a reason the whole ‘PayPal mafia’ evolved. “At PayPal, we first and foremost, hired people always looking for those that could [form companies], and many did,” said Levchin in an interview. A key interview question was ‘are you thinking of starting your own company after this?‘ Most said ‘yes.’”
Pinterest began as a mobile shopping app called Tote
“Pinterest is an overnight success four years in the making.” Anonymous investor
Pinterest was founded by Ben Silbermann, but that’s not how they started out.
Ben started out working at Google, but as a non-engineer at Google, he felt there was only so far that he could go in that culture. He kept talking about doing a startup but it was his girlfriend who told him, “You should either do it or stop talking about it.”
Ben set out to transform every cell phone into a clothing retail outlet with an app called Tote. It was an app for the iPhone. It pulled data from online product catalogs to create a meta catalogue for shoppers on the go. You could find particular products across retailers, sorted by location.
The app was pretty enough, and the idea interesting enough, that they found institutional funding in early 2009 from First Mark Capital in New York.
Months after launching, it was clear that Tote wasn’t going to work.
There were two big problems.
- Firstly, that people weren’t using mobile apps for shopping. It was too early.
- Secondly, Apple’s App Store wasn’t ready to support businesses built on the platform as it was too slow.
Whilst Tote users weren’t making purchases via the app, they were growing collections of “favourite” items to share with their friends. To a nerdy Ben, who had collected insects as a kid, this was an example of people’s tendency to share their collections with one another. There were sites where you could share items but they were for a single item. Hmmm…
Now there was no big epiphany here. The pivot from mobile app Tote to a web-based platform was a very progressive iteration and “there wasn’t any grand vision.”
It makes total sense because we got the idea from a shopping app. You don’t shop for [particular items] you shop for shoes, you shop for dresses. You shop in buckets, so we were like OK, we need buckets.
Ben wanted the product’s purpose to be vague so that it could be used by everyone for anything. He learned this lesson from Twitter.
Over Thanksgiving dinner, Silbermann’s girlfriend thought of a name for it: Pinterest.
Four months after launching, Pinterest only had 200 users. Sadly, Ben was “in stealth mode but not because we wanted it to be.”
Here is the first ‘pin’ because that’s interesting 😉
The site grew by the same percentage (40%-50%) every single month. It’s just that the number started so low that it took a while to get going.
Remarkably the Pinterest team maintained their original vision despite the Valley’s pressure to be successful quickly or pivot.
Funnily enough, the product you use today is very similar to what they launched with. They were one of the first sites to do the grid-like layout and they over-invested in design before it was cool.
Ben also did ‘things that don’t scale.’
We were obsessive about the product. We were obsessive about all the writing and how it was described. We were obsessive about the community. I personally wrote to the first 5,000-7,000 people that joined the site.
Here’s the first version of the site:
2011 was the year Pinterest took off. Two years after turning off Tote and abandoning the iPhone App Store, Pinterest launched an iPhone app in early March.
“It was one of those things you could see that there was pent-up demand,” says an investor.
24 hours after it launched, the numbers were great. We all went and read the comments [in iTunes], It was a Sally Field moment: ‘You really like me!’
In May, Bessemer Venture Partners invested $10 million in Pinterest at a $40 million valuation. Blue chip investors, including Ron Conway’s firm, SV Angel, joined the round.
User numbers kept climbing through the summer: “The exponential curve looked like someone drew it perfectly,” says an investor.
Six months after its launch, Pinterest, then still an invitation-only site, had 80,000 collections, on everything from favourite beverages to clothes sold at Anthropologie. By August 2012, the site had 25 million unique monthly users, almost 20 times the number it had the same month a year earlier and had become the fastest standalone social networking site to reach 20 million visitors, according to comScore data. In May, Japan’s Rakuten invested $100 million in Pinterest, in a deal that valued the company at $1.5 billion, the biggest investment for an early stage business in the second quarter, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report.
Rovio made 51 games before Angry Birds.
Rovio was perceived as an overnight success when Angry Birds emerged in 2009. But in reality, it took Rovio 51 game attempts over 7 years before they created the game that changed it all for them.
In 2003, the co-founders entered a competition held by Nokia and HP to create a mobile multiplayer game on one of the very first smartphones. They won. One of the organisers said “They created this really cool game. They asked me what they should do. I said, ‘Start making games.'” They founded Relude in 2004 and asked Mikael Hed to be CEO. Mikael hesitated. “I couldn’t see how that company could make money. But I felt this is what I wanted to do.”
Mikael invested a few thousand euros of his own and rented an office. They spent the first year devising a strategy and won subcontracting work for Digital Chocolate, a games developer. At the end of the year they renamed the company Rovio (“bonfire” in Finnish) and Mikael’s father Kaj who had just sold his stake in a company invested €1 million.
Disagreements with his father led to Mikael leaving going into publishing, creating a series of comics starring a detective called August Jessor. At the same time, the Rovio business plan began to unravel: it was based on hits, and Rovio hadn’t come up with any after many many attempts.
In 2009, the company was running out of cash and had to make the tough call to reduce the team from ~50 to 12 employees. Mikael was brought back in with agreement his father would get out of the way. They developed a rescue plan.
The app store was the integral part. They would continue to work for hire to make ends meet, but at the same time develop their own iPhone games, abandoning other platforms.
The iPhone was a hyper-competitive environment. If we succeed there, we can go to other smartphones. And if we do well there, we can go to PC and console, and beyond. We planned this out well ahead of Angry Birds. So we decided we needed to conquer the App Store: but how do we do that? We tried to profile the iPhone user and it turned out that it was everybody.
So their game would be for everybody, unlike the more niche sci-fi and horror titles that they had previously produced. Rovio came up with other criteria:
- The title had to be expandable to other platforms, but work as a pure iPhone game
- It should be physics-based (popular on Flash websites at the time)
- There should be no tutorial
- Loading times should be minimal so that you could play happily for just one minute
- It needed an icon which would stand out in the App store
In March 2009, they struck gold.
There was something about those characters. These birds have no feet and can’t fly. And they’re really angry. We all started thinking about why they are so angry. For such simple characters, they made us think so much. There was some magic to it.
It’s worth noting that Rovio had a non-obvious natural advantage. Finland, of course, is a relatively small country with only 5 million people. Given the small local market, the company couldn’t focus on Finland alone. The Rovio team understood that in order to be successful, they had to ‘go global’ from the start and create a gaming experience that would transcend cultural boundaries and appeal to a global audience.
They did sort of OK I think 😉
Shopify started as the founders needed an online shopping cart for their snowboard business
It is incredibly powerful if you solve the problem you actually have yourself. It’s really tough to develop a good product when you don’t have very close proximity to the people who actually use your product. The closest proximity you can have to those people is to be that person. – Tobias Lütke
When Tobias Lütke and Scott Lake decided to build an online store in 2004, they had no idea they would end up creating the world’s biggest e-commerce platform. All they planned to do was build a site where they could sell snowboarding gear.
Shopify started as a solution to a problem the founders had personally experienced.
The founders wanted to launch an online snowboard shop, but they couldn’t find software that worked for them. Lütke described it this way:
I set up our online store based on a variety of different systems such as Miva, OsCommerce, and Yahoo stores. Truth be told, all those systems made my skin crawl because of how bad they were. The final straw was when I got a custom design made for my snowboard store and I couldn’t get it to work in Yahoo stores. We had this great CSS-based layout done with all these new fanged ‘web standards’ and the customizability of Yahoo Stores barely allowed me to change the background color of the top frame.
When all life gives you is lemons, and you are a founder, you build a fucking lemonade stand!
Lütke was a software engineer by trade, but by 2004, he didn’t want to work as a programmer anymore—he was burned out. He decided to pursue a passion and open an online store called Snowdevil where he would sell snowboards from third parties.
Right away, he ran into a huge problem. Every tool that Lütke tried to use to build Snowdevil frustrated him. What he really wanted was a simple, user-friendly tool—one that didn’t exist yet.
Lütke decided that instead of using an off-the-shelf solution like Yahoo! Stores, he would build the online store infrastructure for Snowdevil from the ground up.
At one point, in an especially frustrated moment on a Friday evening, I said, ‘Well, if I spend all weekend working really hard, I can probably create the software myself and then we won’t have any of these problems anymore’
After two months of building on Rails, the bare bones Snowdevil site was up and running.
They had a profitable season of snowboard gear sales in 2004, but the initial response to Shopify stood out to them even more than their store. They’d started passing their e-commerce platform around to some colleagues in the Rails community, and got a ton of inquiries about how they had built the website.
Before long, Lütke and friend Scott Lake were less motivated to sell snowboards than they were to build a business around the e-commerce platform they had created to help others sell their wares online. They shelved Snowdevil. The duo spent a year and a half expanding and improving their software, paying special attention to flexibility.
With $200,000 from friends and family and $250,000 from an angel investor, Lütke and Lake officially launched their customizable online-storefront builder in 2006 and called it Shopify.
It was a rough start: The co-founders went without salaries for nearly two years, and shortly after launch, Lake departed. The company was making around $8,000 a month and had a very small customer base of some Rails community members and design-minded individuals. But the most important thing was that they had paying customers.
This is when the alignment between a business model and customer success fell into place. Shopify now focused their product development on building features that helped customers sell more because every sale for a customer meant more revenue in transaction fees for Shopify. For instance, they built analytics into the product to help merchants track their inventory and sales, which early users loved.
The new team’s focus on perfecting their creation paid off in 2008 when they became profitable. In 2010, Shopify attracted the attention of investors, securing $7 million in funding, and in 2011, the company raised another $15 million.
Lütke and his early team built an easy-to-use product where none existed and gave small merchants the tools to solve their own problems. This created a new market of people who had never been able to successfully sell online before, but now had everything they needed. The solved a problem for themselves and it worked out well.
Slack was an ICQ tool for a startup called Tiny Speck
6 months after leaving Yahoo! post the Flikr acquisition, Stewart Butterfield went back to his roots building games with a company called Tiny Speck.
Tiny Speck launched Glitch in 2011, a browser-based nonviolent MMO where players roamed the minds of 11 cosmic giants. Rather than fighting each other with swords, players could have their rival religious factions battle each other for converts. “Monty Python crossed with Dr. Seuss on acid.”
Tiny Speck had grown to a total of 45 employees over the course of 3 and 1/2 years. Despite gaining a cult community, Glitch shut down a year later in Dec 2012. The decision was based on their belief that it would never scale to achieve the kind of venture gains that their investors would want.
The closure was brutal. Butterfield couldn’t make it through 60 seconds of telling his employees that the game was over without getting upset. Tiny Speck had, however, money left over from VC investment, and paying that back would’ve made economic sense.
They could have returned the money to the shareholders but the investors took a bet on the team and let them use the money to work on something else. Why did the investors do this? Well, Stewart has a history of successful pivots…
During the development of Glitch, Butterfield’s team had written a collaboration tool; because the team was geographically distributed all over North America, most communication was not face-to-face but online. Being old school, they initially chatted via IRC, it simply didn’t scale as the team increased to dozens of people.
They found that wasn’t good enough. Instead of using a crappy team messaging software to improve productivity, they built their own. Then kept adding hacks to add more features till over time it was a decent product. They effectively had built a customized, turbocharged team communication platform.
One thing we were sure of was that we wouldn’t work without a system like that again, and we thought a lot of other companies would like to have such a system
The day-to-day socializing during the process of making Glitch turned out to be the use case for a more successful product.
By June 2013, they were inviting friends in other companies to try Slack out for themselves. Through sheer word of mouth, Slack has gained 16,000 users since opening a quiet beta.
For now, it has the title as the fastest growing company of all time. Boom.
Twitter came out of a failed podcasting business called Odeo
Read Hatching Twitter. The origination story changes depending on who feels like telling it…
Odeo started in 2005 as Odeo, a podcasting company founded by Evan Williams based on tech made by Noah Glass. When Apple iTunes moved into podcasting, Odeo found itself going nowhere fast, and so it needed to pivot.
Ev called everyone in and asked for ideas. A dorky Jack Dorsay had an idea for sharing status updates and developed the concept with Noah before presenting it. Noah flicking through a dictionary came upon tweet and they went with the name Twittr.
Ev didn’t really get it and put Noah in charge of it. Ev and another founder, Biz Stone happened as gung-ho.
Almost a year after Ev asked his employees for ideas, he told investors about Odeo’s Twitter project. Hoping to save investors a loss, Ev offered to buy back Odeo’s stock. Odeo’s investors accepted the deal.
Ev then changed the name to Obvious Corp and fired Noah Glass.
When Twttr first launched, not everyone knew what to make of it. Michael Arrington, then of TechCrunch, wrote:
If this was a new startup, a one or two person shop, I’d give it a thumbs up for innovation and good execution on a simple but viral idea. But the fact that this is coming from Odeo makes me wonder–what is this company doing to make their core offering compelling? How do their shareholders feel about side projects like Twttr when their primary product line is, besides the excellent design, a total snoozer
Basically, an invention has many fathers. The story is a shit show.
They saw the writing on the wall and ran with whatever idea someone came up with. It just turned out to work. Go figure.
Turntable fm was a mobile barcode-scanning startup Stickybits
Turntable.fm was formerly Stickybits, a QR code company founded by Billy Chasen and Seth Goldstein. Brands could stick QR codes on their products, and users could scan them for rewards.
Stickybits was an app that let users scan the barcodes of physical objects and attach digital messages to them. It was a novel idea at the time, and one that also received a seven-figure funding deal and a good amount of attention in the media, but according to Chasen, the technology just wasn’t there to support it.
The core issue was the audience. Chesen thought the brands they were selling to would bring the audience, but the brands said “we have our audience, we want a new audience!” StickyBits didn’t have the audience so it was chicken and egg.
By January 2011, it became clear StickyBits wouldn’t work. Chasen reviewed “the health” of Stickybits and recognized it was mired in mediocrity. He says he didn’t have the passion to continue with the project and it seems his team wasn’t much more enthusiastic.
We were all building the app and none of us used the app. there were two choices to make, there was either let’s just shut down the company and say Stickybits isn’t working and we all go off on our own, or we drastically change the company.
It’s easy to spot a failure, and success is equally obvious. But the hard part is in making the decisions about a middling venture. But you have to be unsentimental about it. Chesen said “It’s your baby and you still believe in the idea and others do, too. The first thing I had to do is get everyone to agree that we’re not where we want to be.”
The founders turned to investors and presented a few other ideas, just in case StickyBits failed.
Billy is a great product guy. He came to us and said he had a few other ideas he had always wanted to try. We gave StickyBits a deadline, and asked him to flesh out another idea in the meantime. One of the ideas was Turntable.fm – Investor
All but one investor went with the new idea. That investor said, “I just don’t do music.” The investor was eventually bought out by the startup. Chasen said he worked to make his investors aware of the fact that Stickybits was missing its goals. But while he got all of his investors aligned, he said he didn’t do a good job with his team. He basically just laid the new direction on them without much preparation.
It wasn’t as collaborative as it should have been. Some people were taken off guard. They asked, ‘What is this random product you’re talking about?’
It should be obvious, but entrepreneurs need to follow their interests and passions. Chasen said he had actually two ideas as alternatives to Stickybits, but he made the choice to go with Turntable.fm because he was excited about music. Though he didn’t say it, it seems like his credentials along with his passion are what have helped keep his investors on board. Howard Morgan of First Round Capital, who invested in Turntable, said it took guts to change course but he saw that this was what Chasen was excited about, not Stickybits.
With $400,000 of his original Stickybits funding still in the bank, Chasen made the decision in December to take a hard turn and abandon Stickybits for his favorite idea at the time, which turned into Turntable.fm, a shared interactive music-listening service.
Chasen readily admits aspects of the transition were terrifying.
I thought Turntable was an amazing idea and I thought it could get the traction that it has gotten, but you don’t know at the time, it is not built, it is just a concept in your head and the worst thing that can happen is you say trust me again and you build that up and then… nobody likes it.
Within weeks, Turntable.fm went viral. Before long, celebrities like Sir Mix-A-Lot were using it too. The board pulled the plug on Stickybits and went full steam ahead with Turntable.fm, encouraging the founders to raise a bigger round of financing.
The board and I trusted the founders, but we also got lucky. – Investor
Whilst they were a huge hit for a while, in November 2013, Turntable announced they would be shutting down turntable.fm to focus on their live events platform. I have no idea what they are doing now, if anything.
Woot began in 2004 as a way for Matt Ruttledge’s 12-year-old wholesale electronics distributor to clear out unsold inventory
“Woot is a term of excitement, like ‘Yahoo!’ or ‘Hooray!’, but much nerdier,” says Matt Rutledge, the founder who turned Woot.com into one of the most unusual and frequently-trafficked ecommerce companies in the US.
Let’s just listen to Matt tell his story:
Woot evolved from a distributor company then that I had started in the 90s that was basically a non-internet company. This was get on the phone and sell computer parts to stores both locally in the Dallas area and then nationwide as we started to pick up more and more sort of closeouts from manufacturers.
We persisted in that model for a lot longer than our peers and then before Woot was launched our customer base was down to the big box retailers, the CompUSA’s and Computer City’s and Circuit City’s and all these places that are now out of business themselves. But basically Best Buy type stores. Huge, multi-location, sometimes hundreds of locations stores that would buy big batches of inventory to move through.
When we’d get stuck with an item, when we had something that those customers didn’t want because that customer base had become so focused in only a few accounts we realized that we were up side down or stuck with a product more quickly than we had in the past.
So we looked for outlets to blow that product out as quickly as we could because it was controversial that we needed to do that.
So Woot was actually a solution for the wholesale companies’ problem of making mistakes and having run out and bought a bunch of either computer related or consumer electronics related items that we were sort of stuck with. It wasn’t really designed as a “Let’s have fun on the internet and be snarky and invent this daily deal model” which we did but we didn’t invent those things for the glory of inventing them. We invented them to solve the very real problems of our business. They achieved that and then I think what leaked through and maybe added to people’s enjoyment that was more our personality coming through.
The result was a new model for online shopping that combined bargain hunting with scarcity and urgency, all while maintaining a sense of humour that would become a company trademark.
I think we had some robotic law mowers the first day. We were fairly arrogant about our marketing and we sold cheap. People thought, ‘They must be stolen!’
The funny thing is, as you can see with a lot of these case studies, luck and just trying shit actually can pay off.
We’re almost a study of how lazy you can be and still have success. It’s been fun to prove conventional wisdom wrong.
Matt ultimately sold Woot to Amazon for $110 million and worked with Amazon for a couple of years but most recently left to start meh.com which is by his own admission very similar to Woot.
Yelp began as an automated system for emailing recommendation requests to friends
After PayPal was sold to eBay, Jeremy Stoppelman and Russel Simmons cashed out and began kicking around startup ideas with a former colleague, PayPal co-founder Max Levchin in 2004.
One day Stoppelman was looking for a doctor but had no clue how to find a good one (Same story for Zocdoc, btw). That gave him and Simmons an idea for an overly convoluted automated system in which people could e-mail friends asking for recommendations on, say, local doctors. To make it scaleable, the answers would be stored in a communal site for everyone to see if they had the same question.
Levchin floated the cheeky chappies $1 million to build out the plan.
It went nowhere.
As with most successful pivots, the co-founders noticed an interesting behaviour among their first early users. People were writing unsolicited reviews of their favourite businesses just for… shits and giggles.
I remember the moment that Russ said, ‘There should be a way for you to write your own reviews without asking questions.’ – Jeremy
What they really wanted to solve for though, was not a new doctor, it was their search for the greatest restaurants and clubs in San Fran. I love to party too…
To get Yelp off the ground, they decided to mix business with pleasure and started hosting Yelp parties at local venues. The parties got people talking and writing reviews, building up Yelp’s content.
Fast forward and a lot of people got their rocks off using Yelp as a form of social network. Some people take it seriously to the point that South Park made a rather ‘delightful video.” It’s actually totally gross.
One of the first surprises was the length of reviews and the attention to detail. People think they have to write reviews of a certain quality or there’s no point. A lot of them are funny. Some are poetry. I saw one review in the form of an IM conversation with Skeletor
Yelp’s done pretty well out of a blind pivot. Let’s not get into the accusations of blackmailing retailers now.
YouTube began as a video dating site called Tune In Hook Up
In January 2005, two former PayPal employees Chad Hurley and Steve Chen (Jawed Karim is technically a cofounder and was around for YouTube’s early days. He enrolled in Stanford after YouTube was founded) were at Chen’s new house in San Fran. They recorded some random videos and realised they had no way to share it with their friends. The video files were simply too large to email, internet sucked so uploading took hours (Most people didn’t have broadband) and wasn’t a standard for video playback. Hurley and Chen had made some bank from eBay’s $1.54b purchase of PayPal in 2002, so screw it. They decided to scratch their itch.
Bullshit. Let’s face it. That story is too easy. I know from helping founders tell their stories with Perfect Pitch Deck that telling a ‘simple story’ like that is hard! Chen admitted:
[This story] was probably very strengthened by marketing ideas around creating a story that was very digestible.
I.e. they rewrote the story to explain it to people. You need to do the same thing.
For Karim, two events typified the problem: the 2004 tsunami in Indonesia and Janet Jackson’s boob share during Super Bowl XXXVIII in 2004. Karim found that even though everyone was talking about it, you couldn’t find a video online. With the tsunami, he though there were probably lots of videos of the disaster, but no way to watch them.
On Feb. 14, 2005, the three officially started work on YouTube. In sad nerd land, the reality is: “That’s one of those things about being a computer science major, Valentine’s Day is just another day.” LOL.
In a startup, you need different kinds of founders. Different is good. Roelof Botha (Partner at Sequoia) was CFO at PayPal reminisced in an interview. Karim was a “very independent thinker, fiercely independent.” Chen used to take frequent smoke breaks. Hurley was quiet and often the odd man out because he was one of the few people at the company who was married at the time. (Hurley married Kathy Clark, daughter of Netscape co-founder Jim Clark, in 2000.)
Whilst you know what YouTube does not, originally it was not to solve what you thought. They were inspired by HotOrNot, a dating site that ranked people on a 1-to-10 on a hotness scale.
I was incredibly impressed with HotorNot, because it was the first time that someone had designed a website where anyone could upload content that everyone else could view,” Karim told Time in 2006. “That was a new concept because up until that point, it was always the people who owned the website who would provide the content.”
I was incredibly impressed with HotorNot, because it was the first time that someone had designed a website where anyone could upload content that everyone else could view. That was a new concept because up until that point, it was always the people who owned the website who would provide the content. – Jawed Karim
We always thought there was something with video there, but what would be the actual practical application? We thought dating would be the obvious choice. – Steve Chen
We even had a slogan for it: Tune in, Hook up. The whole thing didn’t make any sense. We were so desperate for some actual dating videos, whatever that even means, that we turned to the website any desperate person would turn to, Craigslist. – Jawed Karim
In 2003, Mark Zuckerberg was similarly gobsmacked by HotOrNot and created Facemash; the predecessor for Facebook.
HotOrNot may be the most influential website of all time. No shit!
On April 23, YouTube went live. Video wasn’t cheap so they took full advantage of a $129-a-month unlimited data plan from ServerBeach, an ISP.
In the beginning, we found that very few people came to our website. The product was so primitive that you couldn’t even choose which videos you wanted to watch. Instead, the website picked the videos for you, randomly. And because there were so few videos, they were the same ones, over and over again.
Guys, this is a HUGE learning. Ship code and test! Don’t be perfect!
They didn’t know what YouTube was, exactly. The founders couldn’t describe the project, so… they called it a dating site. Since there were no videos online, Karim populated it with videos of 747s taking off and landing. In desperate to get people online, they ran ads on Craigslist in Los Angeles and Las Vegas, offering women to upload videos
Despite offering to pay women $20 to upload videos of themselves to YouTube, nobody came forward, forcing Chen, Karim and co-founder Chad Hurley to adopt a different strategy.
OK, forget the dating aspect, let’s just open it up to any video- Chen
So not exactly a master plan…
YouTube’s first official video was Karim’s Me At The Zoo. Eighteen seconds of elephants.
Another vision for YouTube was some sort of video messaging service, a little like Path (Which didn’t exactly have a huge exit).
We thought it was going to be more of a closer circle relationship. It was going to be me uploading a video and sharing it with eight people and I knew exactly who was going to be watching these videos — sharing with my family and my friends. – Chen
What they actually did was a completely different use case which we know today; people uploaded videos and shared them with everyone.
Things changed in 2005 , when Karim attended a BBQ at PayPal alum Mike Greenfield’s house. Keith Rabois (Yeah, he’s had a tough time) was there and asked Karim what he was up to. Karim told him he was working on a new video-sharing site called… YouTube.
Rabois then asked him three questions
Does it use Flash? Does it host professional or long-tail content? Can you distribute the content on the web?
Karim replied that it was:
- Based on Flash
- The site hosted long-tail content and,
- Yes, you could distribute it on the web.
They went to Greenfield’s bedroom, got on his PC and watched the limited content they had at the time, which took about a half-hour.
Impulsively, Rabois said he wanted to invest.
There were only two times I’ve done that. The other was with Airbnb. Literally from February 2003, I’d been looking for something that used Flash
Shortly after the BBQ, Rabois emailed Botha about YouTube.
Within 24 hours I had signed up. The site was so small then that the site was still scanning the names of users, and the YouTube creators recognized Botha’s name. Botha got married in 2003 and had videos on his hard drive that he hadn’t been able to share. With YouTube, Botha saw the utility immediately.
By the end of the summer, Botha at Sequoia Capital got them $500k. You can read the confidential internal Sequoia memo here.
As they built up, the office was ghetto. Christina Brodbeck, a designer at YouTube said:
The place was infested with rats. Giant rats — like the size of cats! I remember sleeping in the office one night on this old slip-covered sofa, and you could hear the rats crawling around in the wood rafters.
This video shows the San Mateo office, including the mention of a dead rat.
They used curtains in the office because they couldn’t afford walls, as they explain to MC Hammer in this video:
Botha said that much of YouTube’s success came because the site was so easy to use. They made sure you could load a video in any format to the site.
You could load it and they took care of transposing it back in Flash. – Botha
YouTube also made it easy to share a URL by making that feature prominent. They also had a public view count. As Twitter would later find, public metrics can help grow your brand by appealing to vanity. They also made it easy to embed videos, which many users opted to do on MySpace.
I often liken building consumer products to playing music or art,” Botha said. “You can get 98% of the notes correct and it will still be off.
Gideon Yu, CFo in 2006, said:
People don’t mind if products aren’t perfect, as long as they work. You have to do one thing well.
The inspiration for their sharing functionality was PayPal, in particular, a payment button bloggers could use on their own sites.
That button took them back to the PayPal experience. We tried to do the same thing with a video solution. – Hurley
By providing easy sharing mechanisms, YouTube accelerated the growth of online video. By delivering random ass content people wanted to see, they won.
Botha recalls that after Google bought YouTube, he overheard a Google engineer complaining:
I don’t know how they won. Our video quality was so much higher. – Google whiney bitch
Simple however is better:
With Google Video, you needed to know what codec your video and what was the dimension of the video frame. With YouTube it was all in Flash and when you wanted to upload a video to YouTube, the only thing you needed to do was push a button that said ‘upload. – Gideon Yu
In November 2005, YouTube closed a $3 million Series A round from Sequoia. In 2006, someone uploaded a video featuring Andy Samberg and Chris Parnell of SNL mocking their own nerdiness with a rap music parody called “Lazy Sunday.” Finally, this was the viral content that would demonstrate their potential.
In mid-2006, interest in YouTube at a fever pitch, Hurley agreed to give the keynote at Allen & Co.’s conference in Sun Valley. Hurley began by asking the crowd if they had ever watched a video online. A bunch of hands went up.
YouTube has carved a new market for online video entertainment. We have listened to our community and have built the most innovative and easy-to-use service in the industry. More than 80 million videos are being watched every day on our site … 60% of videos watched online in the U.S. are served from YouTube … YouTube has the largest audience in the Internet video with 20 million unique visitors, and we are currently ranked as the twentieth most-visited site on the Internet in the U.S., according to Nielsen NetRatings. More than 80 million videos are watched every day … The average person is on YouTube for 17 minutes a session … Every day 60% of videos are served from YouTube … Our nearest competitor has 17%.
That was Google.
They were acquired by Google for around $1.65 billion in stock in 2006. This let Google own the world’s second largest social network and the primary provider of online video. Since 2006, YouTube has been as synonymous with online video as Google is to search.
They bailed out, who knows if they could have been worth a lot more but let’s face it, that’s a solid exit. The bandwidth costs and the threat of legalities are only something a behemoth like Google would be able to stomach till they were profitable.
Saying yes to Google made sense in that it allowed YouTube to continue to grow without worrying too much about money. As Rabois said:
Tey deferred the monetization question and focused on the execution. They allowed the product to flourish
This is pretty funny, on November 6, 2013, YouTube began requiring that commenting on its videos be done via a Google+ account, which everyone hated… because Google+ (Who gives a shit?). An online petition got 240,000 signatures.
In response to Google requiring use of G+, Karim wrote, “why the fuck do i need a Google+ account to comment on a video?“, lol.
He then updated the video description on his first video to: “I can’t comment here anymore since I don’t want a Google+ account.”
Google then dropped its Google+ requirement across all products, beginning with YouTube.
You can see their original pitch deck here.
Conclusion on startup pivot
Of course, the world is littered with failed startups, but with a combination of who gives a fuck, paying attention to customers and luck, things work out. You get to write a Medium post about how awesome you are then.
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