27. Elements of a Sustainable Company ✔ Clarity of purpose ✔ Spectacular market ✔ Alleviate customer pain ✔ Team dna ✔ Singular product ✔ Real operating margins ✔ Frugality ✔ Inferno with a single match
This notion of humble beginnings traces it roots to the founding of Sequoia Capital. I’m not sure how many of you are familiar with Sequoia.When Don started Sequoia in 1972 he called it Sequoia Capital for a few reasons:Partnership to endure his name -> not Valentine CapitalDesire to fund companies that, like sequoia trees, would endure to be great companies for many yearsWe have had the fortune of backing many of the enduring companies to emanate form Silicon Valley over the past 40 years, including: …I remember listening to Don when I was a student here in 1999 and how intimidated I felt – and today I work with him! Another reason Don chose the metaphor is that even the mighty sequoia tree has a modest, fragile beginning as a seed. Many seeds fail to grow into thriving trees. They need the right DNA and the right conditions to flourish. And the business of start-ups and venture investing deals with embryonic seeds. What is today a large multinational company was once an idea in someone’s head. Perhaps a research paper at a university. Perhaps an idea sparked by work experience where someone met a frustrating obstacle. Whatever the circumstances, the beginnings were fragile, humble, and perilous.
You sit here today filled with inspiration and passion as you set about your journey of entrepreneurship. Perhaps you also have a dose of trepidation and caution as the road stretched out before you appears filled with potholes, precarious forks and detours. Well, I’d like to tell you a few stories about some of the founders you likely admire and companies whom you might like to emulate. I will do so not for the massive successes they have become today, but, for the imperfections and uncertainties that were their early days. I want to share with you their stories of an unyielding quest to incrementally improve their products and user’s experience. For, if you take nothing else from my talk, please know that the heroic figures with whom you hold in such high regard today, started their entrepreneurial lives off in your shoes in very “humble beginnings”. These sat in the very chairs you sit in today as they embarked on their entrepreneurial journey.
Before Apple was a public company with a market cap of $215.23B on revenue of $64.71B,Before there were 284 Apple stores and online shopping serving 50M customers in 77 countries,Before there was a diety-like reverence for MacBooks, iPods, iPhones, iTouches, AppleTVs, and now iPadsBefore there were 3B AppStore downloads of over 160K appsBefore there were over 35,000 employees making Apple the largest mobile devices company in the world . . .
Before Electronic Arts was a public company with a market cap of $6.25B on revenue of $3.54B,Before there were 31 titles that sold more than 1M copies, and 3 titles that each sold more than 5M copies (FIFA, Madden, Need for Speed),Before there was the near life like graphics and realistic game play,Before super stars athletes signed on to games,Before there were 9,000 employees worldwide . . .
Before Cisco was a public company with a market cap of $149.52B on revenue of $35.53B,Before Cisco obtained an 18% market share in the networking industry (60% in routers),Before Cisco counted nearly every Fortune 2000 and telecommunications provider as a customer,Before Cisco acquired over 130 private companies,Before Cisco had 65,000 employees across 90 countries . . .
Before Yahoo was a public company with a market cap of $23.12B on revenue of $6.46B,Before Yahoo attracted more than 1.575B visitors made 3.4B page views/day across yahoo.com,Before Yahoo delivered the ubiquitous Yahoo! Mail, Yahoo! Maps, Yahoo! Finance, Yahoo! Groups and Yahoo! Messenger,Before Yahoo dominated with a 17% market share for WW display ads,Before mobile.yahoo.com became available in 38 markets on more than 1,900 devices . . .
Before Google was a public company with a market cap of $181.91B on revenue of $23.65B,Before Google processed over 1B search queries a day,Before Google computed 20 petabytes of data every day,Before Google deployed 1M servers across data centers around the world,Before Google “ruled the earth” . . .
There was Larry Page and Sergey Brin,Who were computer science PhD candidates at Stanford University’s School of Engineering,When the world wasn’t looking for a new search engine, their research project ("BackRub“) was born out of personal frustration by the low quality search results delivered by AltaVista, Excite and Yahoo,Who were brave enough to believe they could provide a better and more relevant search results,Whose original business plan, selling software to enterprises, failed,Whose second business plan had no business model to speak of,Who had a nose for the top .01% technical talent and recruited them through a grueling interview process,Who applied mathematical algorithms to view the web as a huge graph,Where they focused their solution on mapping how all web pages link to one another (known as backlinks), Where they measuredthe importance for a given web page (known as PageRank) based upon the number of backlinks,Who never took their eye off of delivering the simplest unadorned useful experience to the user
Before PayPal went public with a market cap high of $?B,Before eBay acquired PayPal for $1.5B,Before there were 81M active registered accounts in 190 geographies,Before there was $70.9B in total net payments,Before there were $31.2B in eBay transactions . . .
There was Max Levchin, Peter Thiel, and Elon Musk,But it wasn’t even the 3 of them for starters as Paypal was the result of a March 2000 merger between Confinity and X.com. There was the first company name--Field Link,- There was the first product that failed (a system for transferring money between palm pilots), - There was the second company name--Confinity, - There was the second product, PayPal, that failed (sending money electronically by cell phone).- There was the third product to handle payments by email between buyers and sellers on the Internet,- There was the simultaneous market expansion of online auctions led by eBay,- There was Confinity’s acquisition of X.com where the final corporate name became PayPal,- There was the surging of accounts from 12,000 to 2.7 million,- There was the overwhelmed network,- There was the money laundering Russian mafia,- There was the ingenious innovation method to distinguish human beings from mechanized “bots” with the “gausebeck-Levchin” test,- There was eBay’s own online payment system, Billpoint that threatened to cutoff eBay from PayPal, - There was PayPal’s hyper competitive, innovative and responsive culture,- There was the regulators, lawyers and politicians, There was the 2002 IPO,
Before Zappos was acquired by Amazon for $1.2B,Before Zappos acquired 7.4M customers, Before 1,500+ employees delighted customers with unprecedented selection and service,Before Zappos generated $25B in gross merchandise sales . . .
There was Nick Swinmurn, Who became frustrated when bouncing from store to store to buy a pair of shoes because he couldn’t find the right brand/style/color/size, Which inspired him to create a website where every shoe would be available to the consumer,- Tony then sold everything he had and put in about $7.5M into the company to expand, buy inventory, and build out distribution centers. Then Sequoia decided to join the party. ;-) There was the disbelief by everyone—consumers, shoe brands, employees—that shoes could be sold on the internet, There were shoe brands who wouldn’t sign-up because shoes had to be purchased in person, There were dissatisfied consumers due to the limited selection, There were the candidates who didn’t accept offers because they thought this was another .com fad,- There were the reluctant investors because they thought it was a crazy idea,- There was the enormous market size of $40B where 5% (or $2B) was already being sold by mail order, There was the focus on getting the largest selection on earth, There was the maniacal focus on a great customer experience (“Zappos is not a shoe company, it is a services company that happens to sell shoes”), There was the free fast shipping, free return shipping, 365/24/7 call center and distribution center, There was intensely loyal customers (75% of sales on any given day come from repeat customers)
Before Pure Digital was bought by Cisco for $590M,Before Jonathan Kaplan became the youngest SVP at Cisco in charge of their new consumer products division, Before the Flip captured 13% of the camcorder market share in one year,Before the Flip became the best-selling camcorder on Amazon.com, Before uploading personal videos to a computer became so simple,
There was Jonathan Kaplan,Who was fresh out of a failed company, Worlds of WonderWho dreamt-up the idea for one-time use digital cameras,Who gained investment merely on the premise of fancy packaging (but no product),Who rented photo processing servers to pharmacy and grocery retailers,Who’s initial products barely worked and where the recognition of revenue was not much better,Who watched the single use camera market collapse as every cell phone in every pocket came with a camera,Who then spun plates and tapped danced the creation of a simple easy to use camcorder,That received a call from the chip manufacturer just prior to Christmas day that the 400K cameras sitting inside of pretty wrapped packages would not turn on due to critical bug,Who never lost focus and building the simplest, most elegant, easiest-to-use device that consumers had ever held in their hand,Who never lost a team member through these trying times,Who put the camcorder industry on its ear
Before YouTube was acquired by Google for $1.65B,Before YouTube uploaded 20 hours of video every minute,Before YouTube distributed the world’s largest library of rights managed HD content,Before 51% of ALL internet users visit YouTube at least weekly,Before YouTube had over 1.2B video views per day accounting for 72% of all video views,Before YouTube became available in 22 countries in 14 different languages . . .
Before Google agreed to acquire AdMob for $750M,Before AdMob appeared on 18,000 mobile web sites,iPhone Apps and Android Apps,Before AdMob analyzed more than119M pages daily,Before AdMob served more than 180B ad impressions across 160 countries,
There was Omar Hamoui,2x start-up failure (in mobile gaming),Not a Silicon Valley native,MBA student at Wharton in Philadelphia,Young wife with two hungry kids,Started AdMob out of his dorm room to solve monetization problem of mobile publishers,Broke, this guy was motivated (bought him a plane ticket to come meet and later set-up at SequoiaRode rising wave of mobile gamer publishers (just like his first two start-ups),Took an unconventional approach to the common wisdom by going around the carriers
1) Ability to distill business down to a few crisp words says volumes about your understanding of the market. Serves to inspire employees, customers and investors. "We Network Networks".2) No company was built in a small market. Electronic Manufacturing Services is a $150B. Sequoia invested in June 1993. Flextronics went public in 1994 with annual revenue of $93m. Today, Flextronics is a giant in the contract manufacturing world with annual revenues of $30bn3) Solution needs to address a "must have", not a "nice to have". Solved a real need for storing exploding growth in data/files in the enterprise and made it BFC (better, faster, cheaper).Sequoia invested in 1994, and the company went public in 1995 with annual revenue of $15m. Today, NetApp has a market cap of over $4bn and annual revenue of over $3bn4) Culture is set in the first 90 days. Common way of looking at management, employees, markets, money. Shared sensibility that the company had to make real revenue -- manic focus on cash, profit, bottom line.Sequoia invested in 1999. We took the company public in February 2002 with annual revenue of just over $100m. Today PayPal generates approximate $3bn in annual revenue.5) Started off with a point product and didn’t get distracted.6) Virtues of fantastic margins. 50% operating margins. Went public in ’86 – never raised another nickel. Sequoia invested in 1981. the company went public in 1986 with annual revenue of $17m. Today, Linear generates a billion dollars a year in revenue and has a $6.5bn market cap.7) Exceedingly profitable company. Yet they always kept a very close eye on the bottom line. Always avoided the temptation to spend foolishly.We invested in Google in 1999, and the company took its time to go public, waiting until 2004. Despite already generating $1.5bn in annual revenue at the time of IPO, Google has increased revenue 15x since then to over $20bn per year today. 8) Our best financial returns have been where it took very little to get going. $900k for YHOO, $2.5m for CSCOSequoia invested in yahoo in April 1995 and the company went public in April 1996. At the time, Yahoo had annual revenue of $1.7m. Today, the company has $6.5bn in annual revenue.
