SocialBias :: a Digital Abstraction of Michael Parkatti

Last night our house watched Startup.com, a documentary about the ‘.com’ era internet company govWorks.com and the goldrush of which they were a part of.  I’d seen it before, but not since joining the tech industry myself and witnessing some of the challenges they went through first hand.

The majority of the story centres around the two founders and co-CEO’s of the company, Kaleil Isaza Tuzman and Tom Herman, as they leave their jobs, raise capital, launch their site, and ultimately fail horribly amidst the turmoil of the 2000/2001 meltdown.

First of all, I love cautionary tales like this, especially in the world of irrational exuberance so often observed in entrepreneurship.  I tend to learn more from stories of failure than I do from stories of success.  These were all well-intentioned people working within the constraints they had.  Given the information that they had, they should have succeeded — it’s only in hindsight that we can pick this all apart.

I’d like to outline some of the things that entrepreneurs in this time period of the web can take away from this film’s insights.

The documentary follows the founders from late 1998 until late 2000.  One of the immediate things I was struck by was the completely different world that the .com era represented.  None of the founders had startup experience, or had lead the development of legitimate technology products.  They started their business with a business plan and some product specs.

These were largely business guys.  Just on their ideas alone they were able to raise a Series A round of $18.4 Million from A-list venture capitalists.  I was blown away by that fundraising process.  With a couple of handouts and some smooth talk from an obviously intelligent CEO, they were able to raise all that money.  No product.  No prototype.  No mockups.  Just ideas.

Now it seems like the only people who get that kind of leeway are previously successful founders.  If you’re as green as these guys are, the only way you could get that kind of investment interest is if you’ve got some tangible traction to show off.  A product, revenue, or traffic.  And this usually means that your technology is decently far along — which pretty much means you are a hacker.

Which is pretty much the way it should be.  I’ve been to business school and I’ve also met a lot of pure hackers.  I’m sorry to say, but neither of these skillsets qualifies you to become an entrepreneur on its own.  Business guys should become somewhat technical just to understand how their ideas could be implemented and if they are feasible at all.  Hackers should become somewhat business savvy to understand what the markets wants rather than what you think they want.  Way too many hackers think of business ideas that are hacker-centric… or things that only their friends would think is even remotely cool.  That’s a whole other blog post in itself :).

As I said, they raised $18.4 Million for their Series A round, and $60 Million in total.  On day one they had 8 employees, while at their peak they had 233 people on the payroll.  Hell, they didn’t even launch a product at all until they were a company of 150 people.  Obviously, the observation is that raising that much money and hiring that many people is batshit crazy.

As I was watching their 100 engineers build a website, I couldn’t help but wonder what the hell they were thinking.  Did they actually need that many people to launch a website?  Could 100 people ever get together to build something remotely coherent?  Doing some quick project sizing in my mind, I figured what took them 100 people and 14 months to launch could have taken a reasonably talented developer about 6 weeks to build on his own these days.  Again, I realize they were a product of their time — but think really really hard before you take mass amounts of capital and hire any employees.  Do you need them, seriously?

They also made the mistake of waiting a ridiculous amount of time before launching their product.  How the hell did they have any idea if anyone would like their product or how to make it better if literally no one was using it?  govWorks subcribed to the idea that you only get one chance to launch your product and make a first impression.  Which is obviously a horribly miguided train of thought.  Their competitors managed to launch first and gain a dominant position in the marketplace.  Being too cute with the launch strategy cost them.  Nowadays, the mantra is ‘release early and release often’.  Get it out there, and get feedback.  Otherwise, your website isn’t a website, it’s locally-hosted nuclear waste with a halflife of one funding cycle.

Finally, there seemed to be a lot of personal bickering between the founders and early employees that distracted everyone from the important issue of establishing an actual business.  Old friendships were lost over squabbles about money and equity and control and ‘respect my authority’ type of bullshit.  I realize that was a product of a company in distress — if a company is firing on all cylinders, you don’t tend to hear about that kind of strife because success is the ultimate hissy-fit qualude.  It’s only when companies are bending under the stress of mediocrity that personal relationships tend to undermine the ultimate mission.  And this is exactly when you’ll see people’s true colours — when they are under fire.  You’ll find out who your friends actually are.  These founders figured that out too, but it was much too late to turn the ship around and miss the iceberg.

Overall, it’s a great film, and I recommend it to anyone interested in the startup world.  It’s a great behind the scenes look at the passion you’ll find in a new venture.  It may be from a different era, but its lessons are nonetheless as pertinent today as they were then.

In summary, I give Startup.com 4 legally-incoherent termsheets out of 5.