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Tuesday, August 2, 2011

How To Sell Your Tech Startup

You could start by following the example of startup founders who have been there, done that.

Pyra Labs (A.K.A. Blogger.com)

Evan Williams started Pyra--what was supposed to be a personal and project information management system. He then partnered with his friend, Meg  Hourihan--someone who had a management consultant background. While working on Pyra, they decided to start Blogger as an additional incentive for the companies they helped.

Blogger is started in 1999 and takes off unexpectedly (while they're pouring all of their efforts into Pyra). The founders then decide to focus on Blogger full-time. By 2003, Blogger had one million users and Google bought Pyra (the first Google acquisition).

Interesting fact

The co-founders meet at Google's offices to discuss a partnership of some sorts. When they start to present their ideas and Google's executives tell them this:

"Yeah, there are lots of ideas, but it's hard for someone like us to really partner with someone so small as you; why don't you just come here and do all that stuff?"

Important Facts

Full-Time Gig: The founders decided to dive into their start-up. Although Evan worked as a HP contract web developer from time to time, his focus was on his startup. Meg left her job within two months of Pyra being launched.

Money: Blogger was not a revenue-maker in the beginning. But the founders managed to raise half a million dollars from O'Reilly, Advance.net, Meg's parents, Borthwick of AOL, and two other people.

Groove Networks

Ray Ozzie, former founder of Lotus Notes, founded Groove Networks as an internet-based work-group collaboration software. Microsoft acquired Groove in 2005 and Ozzie became chief technical officer for Microsoft. In June 2006, he took over as chief software architect from Bill Gates.

Important Facts

Before he starts a company, Ozzie says that his business plan looks something like this:

  • A scenario-based document. This describes the challenge that he's trying to address so that potential funders and employees are knowledgeable.
  • A bottom-up document. Describes the different technologies that will have to be assembled in order to get to the vision.
  • Whiteboards. For working through difficult algorithms and making key decisions.

Sabeer Bhatia and Jack Smith came up with the idea for Hotmail out of frustration--their employers had firewall that prevented them from accessing their emails. They first started Javasoft and it morphed into Hotmail.

In 1996, Hotmail was the first web-based free email to be offered. Less than 2 years later, they had grown their user base faster than any media company. On New Year's Eve 1997, Microsoft acquired Hotmail for $400 million.

Important Facts

They didn't quit their jobs at first. Instead, they spent weekends and nights building the product. When it was time for somebody had to work on the business full-time, Jack quit his job and Bhartia split his paycheck with Jack.

Funding Challenges. Their first round was $300,000 with a 15 percent split. But they signed a contract with the VCs having the right of first refusal. Unbeknownst to them at the time, this meant that they couldn't go to any other VC without their VC being contacted. This hurt them in the short-term; particularly when they were hearing from other VCs that their VC didn't want to fund them because he wanted a higher valuation. They finally had to settle for a lower valuation and move on. 

The Pre-launch efforts: They get funded in February, the site launches in July. They get 100,000 subscribers in the first 3 months by launching a PR campaign, talking to journalists, doing an east coast and west coast press tour, etc.

Talks with Microsoft. This started after their first year in business. The founders had 7 million subscribers and Microsoft was intrigued. Microsoft had a problem providing email to their 2.5 million users, so they needed Hotmail's expertise. At first they talked partnership, until Microsoft saw that Hotmail planned to be similar to them. This is when acquisition talks began.

As you can see, there are so many lessons to be learned from these real-world examples. Take what you will. 

What are your thoughts surrounding these examples and true stories? Let us know what you think in the comment box below. 

Cheryl Isaac is a business strategist and entrepreneur who has been in love with startups and their idiosyncrasies for years. She is a former investment and small business banker who believes in making business personal, an author, business writer, and the founder of StartupBizTalk. You can find her here on Twitter and Facebook. 


I love your posts. Thanks for this time, it helps me see things clearly with what I'm working on.

Good luck on the project Faier.

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