Sunday, June 24, 2007

Founders at work - PayPal and Hotmail

Started reading "Founders at Work." Here are some of the key take-aways from the 1st 2 chapters.

Paypal founder Max Levchin

  • Paypal iterated through 6 different ideas/business plans. (1) They started with enterprise security on Palm Pilots. No traction with customers. (2) Then they went to consumer security on Palm Pilots. No traction with customers. (3) Then storing wallet information (e.g. credit card number) on Palm Pilots. No traction with customers. (4) Then storing all of your passwords (protected by master password) on your Palm Pilot. Some small interest, but no real traction. But getting more useful. (5) Then, store money on Palm Pilots. A lot more interest, lot more useful. But mostly still the geek crowd. Created a companion website to the Palm Pilot application. Realized that a lot of people were trying to use the website for transactions, growth of that was much more than Palm Pilots. People from eBay were contacting them and asking to put Paypal logo on their site. (6) Optimized website experience, shut down the Palm Pilot app.
  • Key lesson: be willing to iterate your idea a lot. Keep testing with real customers. Each iteration should be more interesting and useful to customers.
  • Core competency became fraud detection--that's what let them beat the competition over time.
  • "Try to have a good cofounder. I think it's all about people, and, if you are doing it completely alone, it's really hard."
  • "The hallmark of a really good entrepreneur is that you're not really going to build one specific company. The goal... is you realize one day that you can't really work for anyone else. You have to start your own thing. It almost doesn't matter what that thing is. We had 6 different business plan changes, and then the last one was PayPal."
Hotmail founder Sabeer Bhatia
  • Built Hotmail initially on nights/weekends
  • Started with the idea for personal database of information, morphed into web-based email
  • Killer idea emerged because they were trying to solve a personal email exchange problem for themselves--they could access email only from 2 places (home, work). And at work, they couldn't access personal email accounts.
  • Pitched the personal database idea to VCs, because they were afraid of someone stealing the idea for web-based email
  • Didn't listen when VCs told them, "You're too young, you don't have enough experience, you're hardware guys not software guys."
  • "You have got to own the customer... OK if you don't monetize them right up front. Eventually you will be able to. But having that customer base and being able to tap into that customer base and upsell them on services, or advertise--you can always make money off them." (Note: see Google!)
  • "Don't try to change user behavior dramatically. If you are expecting people to dramatically change the way they do things, it's not going to happen. Try to make it such that it's a small change, yet an important one."
  • Genesis of the idea: "That's when it occurred to us. 'Wait a minute, we can access any website in the world through a web browser. If we made email available through the web browser, that would solve our problem.' And then it occurred to us, 'If that would solve our problem, it would solve the problems of many others.' We didn't know how many others, but email was something that everyone used."

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