Mark Fletcher presentation at Startup SIG

Mark Fletcher

Mark Fletcher spoke about his experience starting ONElist and Bloglines at this month’s SDForum Startup SIG in Palo Alto. Mark has given a similar presentation at the O’Reilly Emerging Technology Conference and at Startup School, but if you are not in California you might have missed his advice for starting your own company while moonlighting and being super-cheap.

ONElist logo Mark’s last corporate job was with set-top box maker Diba which was eventually acquired by Sun Microsystems in July 1997. He started working on a new company, ONElist, on the side, funded by a $5,000 bonus check for its first six months. ONElist was created to make mailing lists easy enough for anyone to setup and administer. ONElist went online in January 1998, merged with competitor eGroups at the end of 1999, and was acquired by Yahoo! for $450 million in June 2000. The first mailing list created was about lizards, but the sites grew to over 800,000 active e-mail groups generating about $1 million a month in revenue when it was acquired by Yahoo! and became Yahoo! Groups.

Bloglines logo

Mark started online feed aggregator Bloglines in June 2003 to help him organize his growing list of bookmarks. The company gained thousands of users using word-of-mouth and blog marketing. Interest in the aggregator space and in Bloglines grew and an investment banker was hired in October 2004 to negotiate an acquisition. Bloglines was acquired by Ask Jeeves in February 2005.

Mark is still working for Ask, but will eventually get the itch to do another startup. He is currently an angel investor and board member at One True Media.

I recorded audio Mark Fletcher’s entire talk from a mic sitting on my lap. I have included a transcript of the talk in the extended portion of this post. A shorter version of the talk is summarized in Mark’s slide deck.

Transcript

Mark Fletcher:

flying pig

I’m flattered that you all are spending time indoors when you’ve got such nice weather out, which is very distracting as I look out right now. Thanks for coming. I do have a presentation. This is kind of something I put together for ETech last year and then Startup School a few weeks ago, although I’ve modified it a bit for this audience. It has a bunch of technical stuff at the end which we can skip, if you want, and just talk about the business stuff, and also, feel free to interrupt with questions any time you want. Let’s kind of make this interactive. The pig motif is kind of something that you’ll see on my website. It’s — besides it was my nickname — doing a startup I equate to making a pig fly: most people will tell you it can’t be done, but with a certain amount of persistence and maybe a rocket or two, it can actually be done, and it can actually be kind of fun, too.

So, the two things I’ll talk about today: a lot of the philosophy of how I approach doing Web startups, and then, as I said, the technical issues, which we can skip at the end or whatever, and then feel free to ask questions. And I hate presentations at least as much as you guys do, so feel free to tell me to stop the PowerPoint at any time. So just to give you a slightly more in-depth version of my bio: nerd by birth, fell in love with the computer as a kid, worked in a couple of startups after college. Most recently for, I guess you could say most recently at a company called Diba, which did web set-top boxes, which was acquired by Sun. Somehow I got it in my mind that I wanted to do a startup of my own. Startups are incredibly fun and incredibly intense places to be; the two that I had been in were the best times of my life, and I didn’t want that to end.

So ONElist, we went online in January of 1998. I worked a full-time job the first year after launch, and I funded it myself for the first six months. For the first year, I brought in four additional people over that year. We were all working part-time while we still had full-time jobs, and we were funding it ourselves. I put $5000 in initially — that lasted the first six months — then a friend of mine, who was also our first serious engineer, came in and put fifty thousand in. After the first year, we got up to a million users, and we decided to take venture capital at the end of the first year; that really kind of accelerated things.

At the end of 1999 — so, the next year — we merged with eGroups, our nearest competitor, took their name. We raised additional venture capital at that point, and then we were hell-bent for an IPO, because that’s what you did back then. We put out our S1, which is the red herring, the document you need to do for an IPO, I think, two weeks before the stock market crashed in March of 2000. The writing was on the wall at that point, so we quickly re-jiggered things, and ended up being acquired by Yahoo! In the middle of 2000. Just a couple of stats on that: we ended up, at the end, we were 150 employees, and we had raised over $48 million over two rounds.

To compare and contrast Bloglines, my second company, which went online in 2003″ it actually” I didn’t even set out to do Bloglines. I started out to do an anti-spam company called Trustix at the beginning of 2003. I quickly realized that anti-spam is just a horrible business to be in. And it’s no fun, because your customers are mad at you, because you block either too much or too little spam, and it’s just no fun. So I quickly went to Plan B, which was this thing that I was doing on my own, or actually, as a part-time hobby, which was Bloglines, and launched that in June of 2003. Compared to ONElist, Bloglines is completely self-funded from start to finish. I put a total of $200,000 into the company. At the end, we ended up being one salaried employee — I didn’t take a salary — and four employees working for stock, and we used a lot of outsourcing. We were acquired by Ask Jeeves in February of 2005, and that’s where I am today. So, and I’ll talk some more, fill in some blanks, on all of that as we go along.

So, kind of, I’ve got what I call a “garage philosophy” about doing startups. Basically, if there’s one thing to take away from” what I hope you can take away from this talk today, is really the first two bullet points, which are: try to address what’s called a “pain point”, and have passion for your ideas.

So, look at things that you’re having problems with yourself; that’s the easiest way to come up with ideas. With ONElist, I wanted to start a mailing list for my parents, but at the time, if you wanted to start a mailing list you had to have a computer connected to the Internet, you had to run this arcane software. It was horrible. It was very difficult for average people to do.

With Bloglines, I was reading a lot of blogs; I was spending a lot of time every day going through my bookmark list of 100 sites; and I realized that if I was having this problem, other people were having this problem as well. So, what could I do to address the issue of too much information, or too many things to keep track of? And by solving a problem that you have, you, by default, have passion for the idea. And you need to have passion for the idea, because a startup will overwhelm you; it sucks your entire life away. Your friends will leave you; your dog will leave you; everybody will leave you. It’s the hardest thing you can do. So if you don’t have passion for it, I don’t think you’ll succeed. Or you’ll certainly have a better chance of success — and so you might as well also have fun — if you’re addressing something that fixes a problem for you.

Uh, cheap. I am a cheap bastard when it comes to startups. With ONElist I was, you know, $55,000 got us through a million users. With Bloglines it was $200,000 from start to finish. It’s so cheap to start and run these web companies, especially if you do it virtually. Like, with ONElist, we didn’t have an office for the first year; we all kind of met at my townhouse once or twice a week. With Bloglines, we were all just, we just sat on IM in a chat room all the time, and it didn’t really matter where anybody was. So there’s no need for an office. There’s no need for business cards. There’s no need for any of that stuff. It just doesn’t matter. And besides all that, you know, somebody said the phrase, “Money is oxygen for startups,” and that’s true. Without money, you die. So the less you burn through, the longer you can live; the less you have to raise, the better position that you’re in. So be as cheap and as frugal as possible. I cannot emphasize that enough.

Um, release early, release often. So, I kind of have, this kind of really applies to web startups — I can’t generalize to a lot of other things — but, if you can’t get something out the door in three months, then I posit that you’re not working fast enough, and that maybe you’re focusing on perfection, and perfection is the enemy of “good enough.” If you look at the first versions of ONElist, it was horrible compared to, well, Yahoo Groups now. If you look at Bloglines, the first generations look horrible compared to what they are now. Some people say it’s still kind of horrible; but we’re getting better. An advantage, also, of releasing early and releasing often, is you get to involve the users at an early, at the earliest possible time. Your users are going to tell you exactly what’s wrong with the product and exactly what should be fixed. They’re going to have your best ideas. And so it’s important to involve your users early.

And a nice little benefit of that is, once you know, with Bloglines as an example, I think half of our customer support are email suggestions, and that’s been that way since day one. Once users” users want to see you improve your service. They send in suggestions. And when they see you acting on those suggestions that makes them extra-happy. That ties them even closer to your service, and it causes them to become a bigger advocate for your service; it’s kind of like a virtuous cycle. So, the sooner you can get it out — your service out — the better. And I’d say, you know, it not being perfect is certainly not to your detriment. It may not, you know, I don’t know if I’d call it an advantage, but it certainly is not to your detriment.

Some more of the “garage philosophy.” As I said, I moonlighted with ONElist for the first year. It limited my risk. I had a mortgage, I couldn’t quit my day job. That doesn’t mean it’s a very fun life, when you come home from working eight to ten hours at your normal job and you’ve got 200 customer support emails that you have to answer, or 500 on weekends. It’s not fun. But like I said, startups can be a lot of work, and so, you just need to know that, and you can mitigate some of the risks by moonlighting.

Um, friends and family funds. So, getting off the ground, if you need money, one way to go is to talk to your friends and your family. That’s what I did with ONElist; I brought in my friend, who was an engineer, and he put, basically, the first outside money into the company. It’s easier to raise money from your friends and family than it is from angels or VCs or whatever, because you don’t need to come up with a business plan; it doesn’t have to be set in stone. There are disadvantages, of course. At least, for me, there was much more pressure on me — self-imposed — because I knew the people that were putting money into my company. So, like, after we’d taken VC, with ONElist, my parents invested at the same time. And at a later round, they participated in the next round, and to do that they put a second mortgage on their house. They didn’t tell me that at the time, and if they did, I would have freaked out. And, it’s just, that’s the kind of pressure that you may have dealing with friends and family. I mean, it worked out great and all, but if it hadn’t, I would have felt horrible.

Audience Member:

Do they have a bigger house now?

Mark Fletcher:

They’re downsizing at the moment. It let them get rid of the mortgage, both. So it was great that they were able to participate. And that’s the upside, another upside of friends and family, is that when you’re successful, your friends are successful, and your family’s successful, so that’s wonderful.

Um, free services are sort of like my bread and butter. Both of these startups were free services. There’s lots of pressure involved, because for better or worse, people don’t expect a free service to be 100% of the time, 24 by 7. And so they’ll cut you a little slack, there’s less, you don’t have to worry about accounting or taking, you know, subscription fees, or anything like that. But then again, you’re not taking in any revenue, so you have to kind of balance the two.

Hire a lawyer. You know, with ONElist I used a company in Delaware called The Company Corporation to incorporate as an LLC. And you can do it, but in the long term it doesn’t end up saving you any time or money. Because, like, with ONElist, I was originally an LLC, but when a VC comes in, they want you to be a C-corp, and so you have to go through the process of changing everything around, and it’s just better to get a lawyer up front. The lawyer gets you some intangible benefits as well. If you get a lawyer from any of the firms in Silicon Valley they’ll have lots of contacts, they’ll be able to make referrals for different service providers, things like that. And lots of times, the law firms, if they believe in your company, they will do some stuff contingent upon you getting additional funding, so they won’t charge you initially. I know Wilson CD does that, I’m sure some others do too.

Um, and outsource. So, continuing on my theme of being a cheap bastard, there are great outsourcing solutions these days. Well, great is an interesting, I guess, probably not the best word, but there are companies like eLance and Rent-A-Coder where you can go and you can put things up for bid, and often get things done for very cheap. And it’s not just programming; it can be also graphics, it can be copy-editing. We translated Bloglines — a year and a half ago we internationalized it — we localized it into six different languages, and I put that up for bid on eLance because I barely know English, and we got the whole site translated into six different languages for about $4000. And didn’t have to, you know, deal with anything except that.

The key to outsourcing to these companies is: be very specific on what your project’s going to be; outline it in as much detail as possible so that there’s very little uncertainty involved. And that takes some practice, because I’ve outsourced some things where it hasn’t gone so well because I hadn’t specified the project exactly. So spend the extra time to specify your project before you put it up for bid. But you’d be amazed at what you can get done through these services for cheap. It’s just” they’re tremendous resources if you use them correctly.

Let’s talk about marketing for a bit. So, when there’s a viral growth, for an internet service, viral growth, if you can get viral growth, that’s the Holy Grail. You’re done. You’re good. You can go home. Like, with ONElist, the grand total of all the advertising I ever did for that company was I spammed some guy who had posted to Usenet looking for a mailing list provider. And he was in Norway; this was on a Saturday evening in January of ’98, and I just said, “Hey, try my service.” The next day, I wake up, and not only had he created a list, ten of his friends had created lists. We had hundreds of users, just within the span of a few hours and one email. After 11 months we had a million users. Just from that. The first list was just about lizards, of all things.

So if you can do viral growth, that’s the way to go. And viral” that can mean a couple of different things. You want to make it so your service is easy to share things with your friends, and it’s even better if you” if the service is better for your users the more of their friends actually use the service. So like, with ONElist, for example, you create a mailing list. Well, it’s no fun unless there are new subscribers, so you tell your friends to subscribe, and that was kind of the viral engine for that. Bloglines didn’t have, really, all that much of a viral engine, and that was one of the things that I was scratching my head about the whole time. What could I do to make Bloglines grow more virally? And I’m still not sure that anybody has really cracked that nut, because — yeah?

Audience Member:

Can you talk more about the servies you mentioned? eLance and Rent-a-Coder?

Mark Fletcher:

I’ve not actually used Rent-a-Coder; I only have direct experience with eLance. My impression is that Rent-a-Coder is better for programming skills, programming jobs, and eLance covers the gamut from graphics to copywriting to translating to any number of things.

Audience Member:

Why did you create Bloglines?

Mark Fletcher:

So, yeah, I had a bookmark list of a hundred sites that I kept going to every day. So these were my friends’ blogs. These were sites like CNN, like Slashdot, New York Times, all these things I was interested in, that I’d go to every day to see what was new and what was changed. But that was taking a lot of time, and that bookmark list was only getting longer. And so I began looking around for a way to attack that. How could I reduce the time required? I didn’t like having to go back to each site to see what had been updated and what hadn’t been updated. Surely there’d have to be a better way to deal with that. And I also knew that this was a problem that was only going to get worse as the number of” well, as the size of the Internet grows and grows, there’s only going to be more things that you’re interested in, and more sites that you want to follow on a regular basis. So, at least for me, I had this glaring problem, and so that’s what got me looking for a solution, and I figured, “If I have this problem, maybe other people have this problem as well.”

Audience Member:

[inaudible]

Mark Fletcher:

Ah, because it’s a lot cheaper and good enough. MySQL and Postgres and Sleepycat — which is what we use — are good enough. We don’t need Oracle rack, for example. At ONElist, we did go with Oracle, and we ended up having a big Oracle installation on a big honking Sun box, and that thing would corrupt itself every once in a while, and, you know, that sucked. So, you know, the free stuff’s at least as good as that, and it doesn’t cost hundreds of thousands of dollars. So it’s the principle of being “good enough.” Does that answer your question?

Audience Member:

Yes, it does.

Mark Fletcher:

OK. Any other questions before I continue?

Audience Member:

Can you just repeat some of the free services you just mentioned?

Mark Fletcher:

Like, the soft – free services, I mean, like, when you create a service, like Bloglines, or any of the other number of services. I mean, Yahoo!… Most of Yahoo!’s services are free, and Google’s free. All of these, you know, there are very few services on the Internet that actually require payment. So that’s really what I was talking about.

Audience Member:

So, if you go with that model, where is the revenue?

Mark Fletcher:

Eventually, yeah. My philosophy is: focus on getting the users first. And I’ve got it on another slide somewhere, but, really, everything about your service can be copied except your users and the buzz that you have. Technology is basically a commodity these days. I always figured somebody was much smarter than I was coming up with technology anyways, so, but the one thing your competitors can’t take from you are your users and the buzz that they generate, and the press around it. So that’s really what I focused on. If you get users, then at a later time you can focus on figuring out what to do with the damn thing, whether that’s advertising, or rolling out additional features for fees, or whatever. But if you don’t have users, there’s no point; you can’t make money anyways. So that was really kind of, and, you know, if you’re looking at acquisition, that’s what a company is going to look at, it is your users and your buzz. It’s not the technology. Every company that’s going to acquire you thinks that they have better technology than you anyways, for the most part, or at least in my experience.

Audience Member:

When do you hire a lawyer?

Mark Fletcher:

No, not until right before you’re about to launch. I mean, you’re just developing it yourself. I mean, you’re just, do it on your own, push it off as long as possible, but make sure you’re incorporated before you launch, so that you have some sort of legal protection should something go wrong.

Audience Member:

Did you apply for patents?

Mark Fletcher:

Patents. Yeah, that’s a tough one. Pardon?

Audience Member:

I’ve been told they can offer protection for busineses.

Mark Fletcher:

Yeah, it’s” I am torn about patents. I understand the need to protect IP. I haven’t, everything that I have done has kind of been self-evident or based on some existing stuff, so it hasn’t patents really haven’t come up for us. I know there was a lot of pressure with ONElist. Our lawyers and our VCs kept wanting us to figure out what to patent, and we kept scratching our heads, thinking, “I dunno.” But again, I always thought that, more than patents, your users and your buzz are what make you defensible, because — again — it doesn’t come down to technology. Yeah?

Audience Member:

Did you build these services intending to scale to hundreds of thousands of users?

Mark Fletcher:

[Laughs] No, no, no. Nothing is ever, you know, I challenge you to point me to a site that was written, from day one, to scale, perfectly. And I wouldn’t bother, because I think it’s more important to get something out there, initially, as soon as possible, as opposed to get something out there that scales perfectly but may take an additional year. Because coming up with a general scale solution can take a long time to do, and you may not even know what the usage pattern of your site is until after it starts getting used. So you don’t even know what needs to be scaled and what doesn’t. And so, just go with it and run like hell when your site launches. I mean, that’s what we did. I mean, it leads to a lot of stress, but at the same time I do think it’s important to launch as quickly as possible.

Audience Member:

Were you ever forced to go back and fix it?

Mark Fletcher:

It has happened. Sure, with ONElist I had to turn off new user registrations for three months in the first year, which I hated to do, but the database that we were running on at the time was something that I wrote in a weekend and it just didn’t work, and that caused us to move to Oracle at the time. And that was a horrible decision. I hated having to do that, but looking back I wouldn’t do it any other way. It was more important for us to launch early. And I didn’t know how to scale at the time anyways. One of the nice things these days is there’s so many, there’s additional software out there now that makes things a lot easier to scale; it just wasn’t available back then. So there’s caching solutions like Memcached and, because a lot of people have developed these things, there’s a lot more knowledge and experience that you can leverage just by Googling, for example. And just, you know, there are communities around MySQL and all the other databases now that didn’t exist in the mid-to-late ’90s. So it’s a lot easier these days.

Audience Member:

So do you use MySQL?

Mark Fletcher:

No. We use Sleepycat. Sleepycat is the Berkeley DB. There’s not a lick of SQL in all of Bloglines. The reason was, well, one thing, I don’t know SQL, so I didn’t want to bother with that. And another thing is, by definition, we’re never doing an ad hoc query. We’re just a set number of queries and an operation to do against the database, so I figured, why not go with something simpler that still supported all the database operatives, for instance, that you needed, but didn’t have the overhead of SQL. And I’d known people that had been burned by earlier versions of MySQL, and having it get corrupted over and over, so that really kind of drove my decision.

Audience Member:

On the next slide you mention “Users are what matter.” Can you talk more about, how do you ramp up users? What are the most effective ways contributing to your viral growth? What are the least ones?

Mark Fletcher:

That’s what this whole site’s about. So, why don’t I do you want to –

Audience Member:

Are you worried about Oracle now owning the free database technologies you use in your business?

Mark Fletcher:

Yeah, well, because all that stuff’s open source it’s not going to go away. Even if Oracle wanted to shut down Sleepycat, you’ve still go the source code. Or, you know, if they wanted to shut down innoDB, which they also acquired, they can’t, because the source code lives out there. So I wouldn’t really be terribly concerned about that, to be honest.

Audience Member:

Do you know why Oracle acquired open source software?

Mark Fletcher:

Not really. But it could be just an offensive move. It could be just ’cause they’ve got tons of cash and nothing else to do with it. Who understands the ways of Mr. Ellison? Qkay?

Audience Member:

I have a question on moonlighting. What was the decision on how much you survived with moonlighting, and when did you decide, “Okay, I can leave my day job and really become full-time on this”?

Mark Fletcher:

Well, like I said, I had a mortgage to pay. So I couldn’t quit. I couldn’t not have a salary, because I didn’t really have a lot of savings. I had put $5000 into ONElist, which was a bonus check that I had gotten, and so it wasn’t really an option. Now, I could’ve gone for more friends and family money at that point, but by the time that we had a million users, I was terribly burned out about working two jobs, and we had VC interest, and our nearest competitor, eGroups, had just raised five million from Sequoia. So all of those were kind of factors leading to going ahead and taking money and, you know, blowing up the company.

Audience Member:

What a lot of people say, a lot of VC, is they’re not interested in you if you haven’t already quit. And so what you’re saying is that wasn’t actually the case?

Mark Fletcher:

No, no. It was pretty crazy. It was, well, I mean none of us had quit. Well, I think my business guy didn’t have a job at the time. But the rest of us, we were all working full-time jobs. The way we ended up with VC funding, we actually, we fell into it. We had started to do pitches, but we got called the week of Thanksgiving, we got cold-called by two VCs that were working together that were really interested in us, CNGI and Bertelsmann Ventures. We were called — they called us — they left a message on a Tuesday–no, they left a message on the Monday before Thanksgiving, we called them back on Tuesday, we said, “Great, can we talk in a few weeks?” They said, like, “No, why don’t you come in tomorrow?” So we’re like, “Oh, great. Okay, we’ll come in tomorrow.” So that was a Wednesday, day before Thanksgiving, we went in, and we just talked for an hour. We didn’t really have an investor pitch or anything; I’d only pitched one or two VCs before and was pretty clueless about the whole thing. So that went for about an hour, and seemed to go okay, and then we went off to Thanksgiving. And then, the day after Thanksgiving, we got a call saying, “Hey, we want to invest, and we’ve got a term sheet for you.” So, the Monday, we had a term sheet, and it was what I later found out to be called an “exploding term sheet.” So it was a 24-hour term sheet. So we had until Tuesday to decide whether to take it or not. And we ended up taking it. It took — so that was — the whole process took a week, and from that point — and this was, what, the last day of November or whatever? — it took about a month for the deal to be hammered out, and we quit December 23rd. So it’s kind of –

Audience Member:

So I guess it just goes to show that when you’ve got the right product, all the “rules” that you hear just don’t apply.

Mark Fletcher:

There are no rules.

Audience Member:

Yeah. Despite what, they always tell you on VCs –

Mark Fletcher:

There are a few things: VCs will never tell you no. But yeah, there are, if a VC’s interested in you, they will go quickly. I mean, things have slowed down; it’s just the bubble, and, you know, things were crazy back then. Dogs and cats living together and all that.

Audience Member:

So, you mentioned you raised $45 million for ONElist from VCs?

Mark Fletcher:

That was over a couple of rounds. So, the first round for ONElist was four million. Then we merged/acquired eGroups and took their name; they had raised five on their own. And then we raised, I guess we called it a C round, which was forty-two million. So, I don’t know.

Audience Member:

Why not raise less and give up a smaller part of your company?

Mark Fletcher:

That’s the thing. That’s another thing, you know. You raise less money, you end up with more of the company. And so, I mean, there are, I talk about this somewhere in here also. It’s just a question of how much money do you raise? There are advantages and disadvantages to raising more versus less. Raising money can take a long time, certainly, dependent on which route you go. Angels will take less time, VCs will take, probably, a lot of time. You have to put together a presentation; you have to start walking Sand Hill Road. It takes a lot of effort. It will take you three to six months unless somebody’s really hot and bothered to invest in you, and you’re dedicated to doing that almost full-time.

If you go friends and family or Angel, you don’t have to put together, really, much of a presentation, you don’t have to put together a business plan or much of anything like that, but it’ll be less money, and so that will only get you less far. But also you end up giving up less of your company.

In general, the less money you take the more options you have with what to do with your company. If somebody puts $10 million in to your company they are going to want a pretty decent return on that, so any sort of acquisition offer that comes in say less that $100 million, your investor is not going to want to take. Whereas, if you take a lot less money than that, you end up giving less of the company away and still have much more options. You can get acquired at a much lower valuation, but still end up with the same amount in your own pocket. But, of course, the downside is that it gets you less further along and you end up having to raise money again. That’s really an equation you have to figure out yourself as to how much money to raise and when. There can be — one more thing — somebody can come along, and you can take money opportunistically, if someone wants to put money in very cheaply and take very little of your company, that can happen too. Another option is strategic investors; if you’re going to get money, that may be an option as well. There are all these things you have to consider.

Audience Member:

How much was ONElist acquired for by Yahoo?

Mark Fletcher:

It was $450 million. That was Yahoo’s last large acquisition before the bust.

Audience Member:

In stock?

Mark Fletcher:

In stock, yes.

Audience Member:

How many users did you have when you were pitching VCs?

Mark Fletcher:

With ONElist, it was a million users – the day we signed our term sheet which was like the 1st of December of ’98 we passed a million users. That was a coincidence. I had pitched VCs before that in the spring before that, we had many fewer users. Nobody was interested in that, well, they weren’t interested, necessarily, in the absolute number of users, they were interested in the growth. We were growing at a percent to a percent-and-a-half a day, back then.

Audience Member:

How many months did it take to reach the point…

Mark Fletcher:

Eleven months.

Audience Member:

That’s pretty cool.

Mark Fletcher:

Certainly in 1998 when the Internet was many fewer users back then, too. Let’s talk about marketing stuff. So, viral growth is the cheapest, best way to make your company big. Anything you can do to spur viral growth to make it easy to get your users to get their friends to use your service, and to give them reasons to want their friends to use your service. You should always think about that, because users are all that matters. Almost everything else is kind of secondary. In terms of marketing, PR is by far the cheapest stuff you can do if you’re going to pay for it. One of the great things about with Bloglines, we had a press book literally about this thick — four or five inches thick — in the Wall Street Journal. We had all of this press buzz; it was extremely cheap for us to get it. It was almost free advertising. All we had to do was” I had two marketing people who would cultivate relationships with reporters. They would cultivate relationships with bloggers and they would get reporters to use the service and they would generate articles for us. That was, by far, the cheapest thing you could do marketing-wise, instead of paying for advertising or anything like that. PR is definitely the way to go.

Don’t worry about Bizdev. If your service starts to take off, you’ll have people coming out of the woodwork, first off, wanting to acquire you on the cheap, but also they’ll want to do co-brands and other things with your service. I’ve always kind of avoided those because I wasn’t smart enough to work out how to structure any kind of deal like that where it would be advantageous to Bloglines, or even back at ONElist. They always seemed like a distraction to us. Our thought was that we wanted to focus on our core service – we’d either sink or swim ourselves and if we needed to partner up with somebody in order to do something, we’d be dependent upon this other company and it would just suck the life out of us, so we really shied away from all of that.

I did, I actually hired a Bizdev guy, a VP of Bizdev, for ONElist to go down that route initially but it was just” we just decided not to do it, so I didn’t even think about it with Bloglines. Speaking of blogs, pay attention and leverage blogs. Another benefit for us at Bloglines we didn’t have at ONElist are all these blogs. You’ve got this great conversation out there and you’ve got a way of searching it through blog search engines like Technorati, Feedster, Bloglines and all these things. So what I would do at Bloglines is I would hunt around for people with blogs who were looking around with the same problem I had, the problem that Bloglines would address, and I’d leave them comments, and that would get them and that would get them involved with Bloglines and they’d start talking about Bloglines. They were a great advertisement for us.

Another way that I’d leverage blogs is that I set up searches so, with these blog search engines, you can set up what are persistent searches or saved searches. You can type in a keyword and in your aggregator, instead of having to go back everyday, and seeing what new things show up to match your search, it comes up in your aggregator. I set up a search on Bloglines; I set up a search on all my competitors; I set up a search on all the blog search engines; I set up a search on anything I thought was even remotely relevant, and, of course, a search on my name too. And that was a great way for me to monitor what people were saying about Bloglines and if someone was saying something bad about Bloglines, or they were misunderstanding something, I could quickly go to their blog and see where they’ve actually posted that and respond to it. So you get in to a dialogue with all these people which for the most part turned them, or tied them more closely to the company. It was a really positive way to market the company as you get this conversation going with the users. And it’s easy and it’s free. I urge everybody to take advantage of that.

Audience Member:

How do you track the buzz?

Mark Fletcher:

Sure, you pick a search engine. Technorati or Feedster or Google has a blog search as well, Ask Jeeves will have a blog search soon. You go and you type in a search — keywords — and the search results will come up and they’ll have a little button that says, well, it depends on the search engine, but it’ll probably say RSS or subscribe to this search or something like that then you just use that to subscribe in your RSS reader. You don’t have to subscribe in your RSS reader, but it just makes things easier. You can go back to Technorati every day and type in the same search but if you want to automate that, then use an RSS reader and it’ll pull it in to that. Make sense? Everybody bored yet?

A bunch of stuff on design philosophy we kind of learnt with ONElist and Bloglines, but there’s a presentation at eTech this year by Amy Jo Kim that was much better than anything I could do. She kind of equated web site design to game design and came up with several different things. There are several components to a game which can matter to a user-centered web service: popularity contests, being able to collect things, all sorts of other things. It’s really interesting. I highly recommend that everybody take a look at that, it was kind of mind-expanding for me.

So we talked about raising money a little bit before the question of how much and what the tradeoffs are on that, how it takes time. Certainly, VCs take more time than Angels or friends and family, but you’ll end up getting more money from them, so there are pros and cons to that. There are different ways of raising money are friends and family, Angel, VC and debt financing. I don’t really know anyone who’s done much debt financing. I know people have looked in to it and it’s been difficult to do. Most banks don’t want to loan you money if you don’t have any revenue, so it’s generally not something I have seen startups do.

As I said, friends and family and Angels don’t need any sort of polished presentation; VCs more so do but they’ll get you more money. So, there are pros and cons of VC funding. Pro is you’ll get more money. For good VCs they won’t give you — there is added value- – only very few VCs, all the VCs you talk to will say “Oh, we add all sorts of intangibles, all sorts of added value”. In my experience, most of them don’t. Most of them, it is just money. There are a few, the top firms, like Sequoia and Kleiner which generally do provide added value in terms of connections with people, getting the door opened for you, things like that. If you go with VC, you will lose control of your company. For some that’s not a con. Just as a Series A, I’ve seen a lot of VCs want to take 40% for their four or five million dollars and then they’ll want an additional 15-20% as an option pool, so you end up as a minority shareholder after the first round. Now, that’s not necessarily the worst thing in the world, and there are no strict rules, but it is something you have to consider with VC.

With ONElist for example, two weeks after we closed the first round they brought me in to their office and told me they wanted to replace me as CEO even before the first board meeting or anything like that, which was kind of a bit of a shock. You need to be prepared that that will probably happen. You know, it depends on your point of view whether that’s a bad thing or not. We did bring in a new CEO about nine months later, and it ended up working really well for us. But it was something I certainly hadn’t fully considered and it led to some tension. That’s just something to be cognizant of.

Audience Member:

Would you have made the agreement if you had known that?

Mark Fletcher:

I can’t say no because everything worked out, right? So there’s no complaints. Bringing in a new CEO was exactly the right thing to do. I wasn’t ready for it because I’d been so wrapped up in the company for the past over a year. But once I got my head around it, I realized I could learn something. I was just some engineer schmuck who had never run a company before. I’d never really fired anyone, for example. So, once I was able to get my ego out of the way, which was — well, I’ve got a huge ego — took a while, it was easier for me because I was doing the right thing. No complaints.

Audience Member:

If you were doing ONElist right now, would you take VC money?

Mark Fletcher:

Well, circumstances have changed in a couple of ways. It’s even cheaper to do a startup now than it was then, and it wasn’t all that difficult to do a startup then. I could do ONElist — we had twenty million users by the time that Yahoo! Acquired us — probably something under a million dollars. If you’re talking those numbers, it doesn’t make sense to go through a VC. I’m not sure I’d benefit from the intangibles that I did get from the VCs now because I know a lot more people in the Valley now, done my little networking thing. The benefits wouldn’t be as good. So probably not.

What you’re seeing is a lot of Web 2.0 companies — this is a big topic of conversation with VCs these days — a lot of these Internet companies are realizing you don’t need to raise a lot of money so VCs are trying to figure out is this a temporary thing, or is this a vast sea change? And how do you cope with that? It used to be that VCs were raised in million dollar funds and you’d have to invest it and there’s a certain amount of math you can do based on the number of partners in a VC firm and the amount of money they had to invest which kind of lets you know what their minimum investment is or what their minimum dollar amount for investment is. It’s five or ten million dollars, otherwise it doesn’t make sense for them, because each partner can invest only a certain chunk of money, and they split their time between each investment over so many investments. So what you’re seeing is new firms which raise smaller amounts of money or new firms which are started which are doing smaller amounts of money. I know a couple of guys at Opus Capital which is a new VC firm that split off from Lightspeed and their sole intent is to raise less money and not be hampered by $400 or $500 million dollar funds — maybe hamper isn’t the right word for it — in order to invest in earlier stage companies because you just don’t need a lot of money these days. I couldn’t point you to a Web 2.0 company that has raised millions of dollars. This just doesn’t seem to be the case, because people are realizing that you don’t really need it.

Audience Member:

How do you select features?

Mark Fletcher:

Yes, you have to do everything as quickly as possible. Users always want more features and they always want the service to run right. There’s no getting around either one. It’s the same with Bloglines. We’ve had scaling issues with Bloglines, but people wanted new features, and they complained when we didn’t have them. They complained just as much when the service was slow. So you have to do everything quickly, and if you don’t sleep, you don’t sleep.

Well, let’s see here. What else? Just a few other things. VCs will never say no, they just won’t respond or they’ll respond slowly. They have no advantage in saying no. They just keep pushing you on. Don’t worry about a ten page business plan. I can tell you the story about how I actually talked to my first VC because actually getting in the door can be difficult. These guys get hundreds of presentations all the time, so how do you get yourself noticed? When I started ONElist I was just an engineer with no contacts, I didn’t know anybody. It was around the time Hotmail was acquired by Microsoft, in early ’98. I knew the guys who had funded Hotmail as Steve Jurvetson of Draper Fisher Jurvetson, because I could draw parallels between ONElist and Hotmail. Kind of the same thing, only different.

I figured that Steve would be a good guy to talk to, but I had no idea how to get a hold of him. So, I found his email address and I emailed him every day and I emailed him one thing every day, a stat about the company. How we were growing or our users growth for the last day or the number of lists created in the last day. So I did this for eight or nine days and he finally responded to me and said, “Enough. Come on in”. The first thing he said when I met him was, “Don’t tell anyone how you got in here.” Whoops!

Sorry Steve. Well, he passed on funding ONElist; he would have made a lot of money. I had no idea how to talk to a VC. I had no idea what an investor pitch was; I kind of floundered when I was there. I put together a PowerPoint presentation that was pretty bad, but he humored me for an hour and then I left. I heard one thing from him a day later; he wanted me to talk to a couple of guys putting together a web calendar because he thought we could get together. And that was the last thing I heard from him. I guess persistence pays off, but to have a good story makes things a lot easier. That’s what I take away from that, if you go the VC route.

Let’s see here. This is the last non-technical slide, so you can decide what to do after this. So, sell-outs. I sold two companies. The acquisition process was kind of an interesting thing. With eGroups, we were hellbent on an IPO, the market had crashed, we realized, we were smart enough to realize that things had changed. And so, at that point we knew that an acquisition was the best route for us. We were burning through a significant amount of cash every month. Even though we had raised $42 million at the end of the previous year, we were burning through that pretty quickly. We had revenues at that point of a million dollars a month, but it wasn’t going to cut it, and we also knew that this was the right time in terms of valuations because we were lucky enough to realize, even then, that things had changed. That really drove the sale of eGroups and how we got together with Yahoo! Was that one of our board members, Mike Moritz, from Sequoia, was actually on the board of Yahoo! So we had this built-in thing and that’s one of the intangible benefits of going with Sequoia is all of their wonderful connections. And so that really helped with that.

Bloglines was different though. The reason we sold Bloglines” we didn’t have to sell Bloglines. We weren’t running out of money. I could have put a lot more money in. That wasn’t a factor. A couple of things were a factor though. One is, we were seeing significant interest from Ask Jeeves who we eventually sold to as well as other companies, and we weren’t growing as fast as I would have liked. As I’ve said before, I think users and the buzz that you have are the most important thing, and the only thing that make you defensible for a user-based web company. I was not comfortable with how we had run. We had tremendous buzz. We had lots of early adopters, but we hadn’t cracked the viral growth nut. We weren’t seeing the” we were seeing a minor hockey stick, but we weren’t seeing the deep 1.5% growth that we were seeing with ONElist. So I knew that we were kind of vulnerable. And when you do these startups, if you’ve got any kind of traction, all the companies will want to talk to you. We’d been taking to Google. We’d been talking to Yahoo! I think we’d been talking to AOL, and we’d been talking with Ask Jeeves.

So we knew they were all looking at this space. We also knew there was a lot of hype around this space because of all the PR we were getting and all the PR others were getting as well, which was great for us and no complaints, but on the one hand I kind of wished everybody would leave us alone so we could grow a business. All of this combined with the fact that we had” Ask Jeeves were really interested in us. It felt really the right time to consider an acquisition. And so, what I ended up doing — because I’m not a good negotiator — I hired an investment banker. What an investment banker is is a firm or person that will help you sell your company, one of many things, but one of the things is they’ll help you sell your company. I needed help with that. I needed someone who would handle the negotiations, set up an auction, to isolate me from this to some degree, and hopefully maximize the value for the company.

So what I did was I talked with my lawyer who was able to recommend — I think he gave me a list of five investment bankers and these were throughout the Bay Area — Tech Bank investment bankers. I ended up talking with three of them, go through the interview process like you would with an employee or something, and we selected one banker here on Page Mill Road. One of the reasons I went with those guys was they’d just done a deal with Ask Jeeves, so they knew all the people involved. What an investment banker does in this regard is they take a percent of the entire transaction as their fee. That can range from two to three percent — something like that — and in return, they handle all that stuff. We went with them, and they put together all the documentation.

You put together a one page sheet outlining all the stats of your company, and you put together a longer five-to-ten page sheet. I’m drawing a blank with the names of these, but there are standard names for all these things. They identify the universe of potential acquirers and they start cold-calling anybody you aren’t already talking to, and become friendly with everybody you are talking to, and they essentially set up an auction for the company at that point. That’s what we did. We ended up going with Ask Jeeves, who was the most serious, and our acquisition was completed in February of 2005. That’s kind of where I am now.

Audience Member:

Are you saying the auction did happen or are you saying that by virtue of how the investment banker picked this up, Ask Jeeves became more interested and ultimately just picked you up?

Mark Fletcher:

Well, it is an auction. You want several bids, and as it says here, “Don’t sell; be bought.” You don’t just want to try and go around begging people; you want to make sure there’s serious interest before you go in to this auction process. But companies realize that once you’ve hired an investment banker, you’re serious, and that does accelerate at that point. Ideally you want your investment banker to generate hopefully three good acquisition offers, and then you get into the bidding war.

Audience Member:

How big of a price before you can get an investment banker involved?

Mark Fletcher:

I don’t even know” at the low end it is. I think, I mean there are different kinds of investment bankers. There are what are called boutique investment bankers which deal with transactions up to, I think, $100 million, and I don’t know at the low end whether it’s a million or a little more. I think it really depends on the firm.

Audience Member:

Do they do this job in the U.S. Or in other countries also?

Mark Fletcher:

Well it depends on the deal. I was trying to remember whether there was anybody we talked to outside this country. I don’t think there was. But they’re certainly not limited to this country; the universe of potential acquirers was best in the US.

Audience Member:

How much time did did it take for the deal to happen?

Mark Fletcher:

We hired them in October, and it was done in February. That includes December, everything shuts down and nothing happens in the last two weeks of December. And it depends. We had interest, so it wasn’t like they were starting out cold. It can go on a lot longer, but for us it was just that.

Audience Member:

Did you really need them to open doors or were they more making sense of it all? Because it would seem like all the companies are familiar with your service.

Mark Fletcher:

Well, getting involved, getting contacts with the right people, so, I had no idea who to talk to at Microsoft. And Microsoft is a huge thing and identifying the right person can take a full-time job for weeks and weeks just doing that. Besides the people that we had already talked to — they had an obvious connections — we knew the people. We knew who we had to talk to at Yahoo. We knew who we had to talk to at Ask Jeeves. We knew who we had to talk to at Google, because we’d been talking to them. But at Microsoft, we hadn’t talked to them, so there was that. There was a whole bunch of companies, telecomm companies, newspaper companies. I wanted them to knock on every single door possible – I wanted them to earn their money. And so I wanted to make the universe of potential acquirers as big as possible. Because it doesn’t hurt me, it only helps me.

Audience Member:

Given each inquirer’s probably looking at build versus buy, how did you do due diligence and make sure they didn’t learn too much to build it?

Mark Fletcher:

They were looking at build versus buy but I figured their technology was going to be better than my technology anyway. I wasn’t terribly worried. Every company wanted me to come in and sort things out for them, and I would map out the general architecture of the whole thing. I didn’t really worry about it all that much. I mean, it turns out that I didn’t even have to worry that much because nobody has really come out with much since then. Sometimes I tend to be too paranoid.

Audience Member:

So what makes a deal attractive to the buyer? What are the properties they are looking for?

Mark Fletcher:

Speaking for Ask Jeeves, because that’s who we ended up with, they were interested in us for a few reasons. They realized that this was a future technology in one form or another — most people on the Internet — are going to use an aggregator at some point. Maybe not now, maybe in five years. But you just look at the trends of the number of websites out there, and that’s just increasing exponentially. The number of interesting things on the internet is increasing exponentially. So they realized that this was something” that this would be an important part of the Internet surfing experience at some point.

They also were looking at this as a — I’m not trying to say marketing opportunity — but a way to get the Ask Jeeves brand re-exposed to a lot of early adopters on the Internet. A lot of our users are early-adopters and bloggers, so being able to tap in to that market as Ask relaunched their improved search technology. I mean, Ask started out in the late ’90s, or the mid ’90s, as the quintessential bubble company who had technology that everybody would admit didn’t work very well. And so now that there is a real search engine behind the name, they needed to get re-exposure, so they viewed this as a way of doing that as well.

Audience Member:

How many users did you have?

Mark Fletcher:

Well, it was never made public. I can’t say.

Audience Member:

Who was your investment banker?

Mark Fletcher:

Scott Munro at Inveraray Partners, and there was an extra ‘R’ in there. They’ve changed their name to something much more spell-able [Page Mill Partners] and unfortunately I don’t know what it is. He’s the main partner now. It was really — that was one of the things that having a lawyer gets you — is my lawyer was able to give me a list of names that Wilson CD had worked with before that he could kind-of personally vouch for. And so it wasn’t necessarily a specific guy. It was getting a good list of people to talk to and see who you are comfortable with. That’s what I’d recommend.

Audience Member:

What are your interests now? And how do you look at the local advertising market? How do you expect it to evolve? It’s been a hot topic.

Mark Fletcher:

I’m not a search guy so I can’t speak to that. I know that Ask and everybody is doing a bunch of stuff with local. So, absolutely, that’s an area of growth. It’s kind of tangential to my Bloglines stuff. In terms of interests of mine, I’m still at Ask Jeeves and I’m still helping them out with a bunch of stuff. At some point I will take a break because you can only do this for so long without burning out. But I mean, I guess, if you look at the silly things I’ve done throughout my life, it’s about helping people to communicate. So whether it was when I was fourteen and writing a bulletin board system on my first PC, or ONElist or Bloglines, it’s really helping people communicate.

7 comments

Commentary on "Mark Fletcher presentation at Startup SIG":

  1. Dustin Sacks on wrote:

    Thanks for the transcript.

  2. Ankur on wrote:

    luv reading every bit of it … thanx

  3. Greg Linden on wrote:

    Thanks for doing this transcript, Niall. Very interesting.

  4. Piers on wrote:

    Thanks for the transcript – it’s great to have it in both mediums, Niall.

  5. Bob L. on wrote:

    Thanks for the transcript. Thought provoking stuff.

  6. Adam on wrote:

    Great transcript…

  7. Paul Montgomery on wrote:

    Thanks Niall, very helpful.