I Spent 17 Days Studying Two Programmers Who Built a $1 Billion Company After Nearly Failing With 1st Startup--Here're Their Rules To Build a Startup
Steal These Programmers Blueprint
Back in 2007, the Internet was not what it look like today.
People have just started using the Internet to:
Interact with each other via email
Playing games
Writing blogs
Watching videos
But a huge component of what the internet would look like in future was missing.
Video streaming.
People wanted to broadcast their lives on the internet. But there was no popular software that allowed people to stream their lives.
After nearly failing with their first startup, two friends wanted to make it big with streaming video.They ended up creating a social platform that ended up becoming one of the largest video game streaming company known as Twitch.
I spent more than seventeen days studying how two programmers build Twitch. Here are their rules to build a startup.
1. You need to utilise the low opportunity cost of university
When I was at my university I wanted to start a business by the end of my sophomore year. I had no idea what kind of business it would be.
I talked to some of my friends at the university about starting a business together.
They all told me one thing. No.
They told me running a company would stop their personal growth. A side business will not allow them to enjoy university life.
I gave up my dream. I thought it was a bad idea. I spent my spare time watching movies and TV series.
Emmett and Justin were in the same situation as me.
Both were students of Yale University.
In college, Emmett used to hang out with Justin and his roommates. He enjoyed spending time with Justin's roommates instead of his roommates. He became Justin’s unofficial roommate.
He and Justin’s roommates used to play video games together.
One day, when he was hanging out with Justin's roommates, one of them asked them to start a business together.
How did they proceed with this idea?
My friends didn’t want to start a business during college.
Most of our friends at university are just like that. They don’t want to take risks earlier in their life.
It's not that my friends didn't want to start their own business. All of them wanted to start a business but in their 30s. At that moment, I couldn’t argue with them. I had no social knowledge of what was right and what was wrong.
But now, after reading about the lives of different entrepreneurs, I can say that taking risks early in life can unlock hidden opportunities later in life. That’s why I’m taking a big risk by investing all my free time in growing this community.
Justin and his friends were not like me and my college friends when it came to starting a business.
One of their friend, Matt, asked them to start a business together. He told them that they had access to better intellectual capital today than they would in the future. The opportunity cost was low as they were just students. Nobody expects anything from them.
“Matt is a really good friend, he was one of the Justin roommate freshman year. Matt is mostly a finance oriented friend. He looks at the entire world in terms of like what’s overpriced and what’s underprice. After that, he decides what should I be doing based on it today and he looked around in college and said that today we have better access to intellectual capital than we will ever have in future.”
Matt wanted to use world-class professors, libraries and resources of the university.
The entire group of friends understood what Matt was telling them. Eventually, they started a business together.
This business they all started was a near failure. Still, they managed to sell this business for $265k. This entire journey taught them a few lessons that they applied to turn their next business worth a billion dollars.
What can we programmers learn from this?
Whether you work full-time for a company or are just a student at a university.
Doing something on the side will always be beneficial in life.
It could be as small as writing online about your hobby to connect with like-minded people. It could also be as big as starting a company with your friends.
All my friends’ real concern was starting a business might hinder their growth. But if I could go back in time and tell my friends one thing.
I’ll tell them this: If we start a business together your growth will not stop. It will double your growth. Managing the coursework could become difficult, but think about how many things you would learn by simply starting.
2. You need a strong distribution channel
As programmers, we are experts in coding, understanding complex systems, and problem-solving.
These things are hard for normal people to do.
That's why we started to think that creating the app is the hardest part, since average people couldn't do it.
We programmers have the mentality that people will come automatically if we create a great product.
I also had a similar mindset when I started writing code. I thought that if my product is of high quality, it will naturally attract users without any marketing. But I was wrong. I once created an app that has no downloads after 3 months of releasing it.
I found that creating a product is hard, but getting people to talk about your product is the hardest.
This is what happened with Emmett and his friends. They didn’t realize the importance of marketing to grow their product. As a result, they have to sell their first company only for $250k.
What was the product they were trying to build?
When Gmail came out in 2004, all of Justin's friends thought that it would be the future of the software industry.
They thought that everything was going to be like Gmail.
That’s why they started exploring the entire Gmail ecosystem. This is what we programmers always do. If we like something, we dive deep into it.
Once they started exploring the Gmail ecosystem. They discovered that this entire ecosystem is missing a calendar. According to their logic, there should be a calendar with the email client.
“We wanted to do a startup…we didn’t know what it meant or how to do it…we saw this missing piece of the universe: there’s a mail app running on the internet and there should be a calendar app.”
That’s why they decided to build a calendar.
What was their plan with the Calendar?
The name of the product was Kiko Calendar.
Their idea was to create a calendar for the internet.
Think of a product like Google Calendar or Calendly. These products help people to share their calendars with anyone in this world.
The entire group of friends who had never used a calendar in their lives were building a calendar for the world. It was a bold decision.
They planned to show ads to the people based on their free time.
With this calendar, they applied to Ycombinator. They were accepted after an interview.
They couldn't bring distribution
They built the first version of the product in the year 2005.
Only a Techcrunch article talked about it. No major press covered their product. Techcrunch was also small at that point.
They failed to get a big launch. After a year and a half, only 90,000 people opened their accounts to use the product.
Out of those 90k people, very few used the product.
As developers this is nothing new in our lives. We’ll have seen these types of startup time and time again. You all should have seen at least one of your friends doing things like this.
He discovered an idea after reading an article by a stranger. After discovering this, he would have told it to you. Since he’s your friend and he wants to do something different, you appreciated the idea. Deep down you are also not sure about this idea either.
After this, he talked to a few more friends and they all appreciated it. He leaves his job and starts building the product. After 6 months of hard work, he launched the product. You and other friends install it and tell some people about it. Those people don’t care about the product and in the end it fails.
Justin and his friends did things this way only.
After a year and a half, Google launched its calendar. Justin and company realized that they could never compete with Google. They wouldn’t dare to compete with the Google Engineering team.
“We had no idea how to make a better calendar than Google’s calendar…Google had a massive engineering and distribution resource with them. Google also had a massive brand advantage over us.”
They had to do something fast, otherwise the product would have just died.
Finally, they sold the company for $265k on eBay. This was a very small amount as they had raised $100k from YC.
What could we programmers learn from this?
If you are planning to do any kind of internet business.
You need a strong distribution channel.
If you have a lot of money, then this money could be used to buy people's attention. But it doesn’t guarantee success.
Figure out a way to get traffic organically.
On the internet, large numbers matter, there is no business without figuring out a distribution channel.
3. You need to get out of your comfort zone
We all have existing beliefs and assumptions.
We have developed these based on our past experiences and societal conditioning.
Based on these assumptions we have created our comfort zone.
When we engage in strange experiments, we are forced to break these assumptions we have made about ourselves. This is where we start growing beyond our imagination.
This is what both Emmett and Justin did with their second business.
After Google launched its Google Calendar. They were forced to sell their Kiko Calendar. They used eBay to sell their startup.
In general, when you sell a company, the press covers your story. You will be able to do a couple of interviews. But you don’t become famous after selling a startup for $265k.
These guys managed to sell the startup on eBay, which was quite strange. Until that time, eBay was only used to sell cards. Because of this, their story got a lot of press coverage.
Lot of press coverage made them quite popular in the startup community. For them it was a very good way to generate publicity for a startup. Just by selling their startup on eBay, they learnt a big lesson about generating publicity.
The lesson they learned was to do strange experiments. They understood that humans care about other humans doing strange things.
If they had tried to sell their company just like the average entrepreneur and never stepped out of their comfort zone, they would not have learned this lesson.
They used this learning in their next startup.
How did they apply this learning in their next startup?
Strange experiments are unconventional and untested.
Nobody talks about them.
Since no one talks about them and to do that experiment we have to put ourselves in an uncomfortable position. It triggers anxiety and discomfort.
So we go back to doing what we did before.
But both Justin and Emmett, after learning a valuable lesson, didn’t go back to what they had done before. They had understood the importance of generating publicity to run a startup.
Their next idea was to record all their conversations and broadcast them live all the time. They didn’t want to edit the videos and audio. They wanted to put out raw content.
When they discussed this idea with Ycombinator's Paul Graham, he told them that not only stream they can stream their audio and video, but they could also let others do it. It could easily become a new form of entertainment.
Paul gives them $50k to start their next company.
In March 2007 they launched Justin TV. The idea was to do a 24-hour livestream of Justin’s life.
“The first idea was just we should do a live stream of Justin life…We couldn’t afford a videographer to follow around 24/7 so Justin have wear the webcam.”
It was one of the strangest ideas I have ever heard. A 24-hour livestream could put them in quite an uncomfortable position. They could get attacked and their privacy would be gone.
A camera would permanently be mounted on Justin’s head. He has to carry the camera everywhere. Around the years 2007-2008, most people had no idea about video streaming they could treat him badly or avoid meeting him.
Still, they decided to do it.
If Justin and Emmett would not have done this experiment. There would have been no Twitch today. Justin TV eventually turned out to be Twitch.
What could we learn from this?
Attention is important.
No matter how to generate attention, you must do it.
If we programmers stay in our comfort zone, there’s no way we can do things that make us stand out.
Get out of your comfort zone or stay stuck where you are.
4. Not talking to your customers will kill your business.
We programmers-turned-entrepreneurs believe we know our customers and think customer feedback is unnecessary to our business.
We value our research process more than early-stage customer feedback.
I will agree that the research process will provide you some valuable insights. But I disagree with the fact that you know your customers better without even talking to them.
Talking to your customers, especially in the early stages, will help to create a valuable product.
If Emmett was just like any other founder who thinks he knows the problem better than his customer, he wouldn't have been able to create a product that was loved by his community
When Justin started broadcasting his life on Justin's TV, people started to notice them. In the first month, they had almost 100k views on their content.
They raised about $6 million just before the 2008 financial crisis. They were growing quickly. In the year 2010, Justin TV had a user base of 50 million per month.
Different people streamed different types of content on Justin TV.
What happened when they started chasing profitability?
Once the financial crisis was over the whole team focussed on being profitable.
The entire team wanted Justin TV to be profitable as it was getting hard for them to keep raising money.
Investors were hesitant because they didn't know how it was going to grow tenfold.
To be profitable they place ads in all possible places. Because of these ads, their user experience was affected. They put up a paywall in a bunch of places and asked users to pay money to use their mobile app.
These were some of the bad moves made.
Because of chasing profitability, they killed all their growth. The Justin TV almost stopped acquiring new users.
Bad user experience killed their growth.
A new direction for Justin TV
Emmett saw that some of the people on Justin's TV were streaming the game Starcraft 2 game.
He enjoyed watching gamers on Justin's TV. He also liked the fact that he could ask questions to the streamers while watching the stream for hours without getting bored.
At that point, Emmett decided that he should focus on making Justin TV better for gamers.
How did talking to customers help him solve a key problem?
When Emmett decided to improve the Justin TV for gamers.
He wanted to know who he was going to build for. He didn't want the product to fail. He wanted to solve a real problem for the players and viewers.
The first question he asked himself was whether he would create a product for streamers or viewers.
After questioning himself and talking to the right people, he realized that there were about 200 streamers that controlled about 80% of the audience. He decided to serve those 200 streamers.
If you think he was doing the right thing if he could make those 200 streamers happy, they’ll attract their audience. The team doesn’t need to invest time to acquire new users.
When he started talking to steamers, he got a key insight.
Every one of them wanted to make money.
Those streamers didn’t want to make a living from streaming games. They wanted to earn a little money.
“Not because they want to make a living… I was like you know you’ll make $17 a month given how many viewers you have… Streamers would say yes I know but it’s going to be awesome… I would love to earn $17 for video game streaming.”
Because of this feedback, Emmett started a partner program.
The partner program was like this:
If a streamer is a part of the partner program, their audience will be shown ads. Streamers will make half of the money Justin TV made from running those ads.
Today, every platform does a revenue share.
Some platforms like Instagram and TikTok will start to share their revenue in the future.
When the partner program was in beta mode, a total of 50 streamers were invited and all of them loved this program.
Because of this thing, the Justin TV started to grow like crazy. People wanted to make money and also invited their friends.
In the end, the Justin TV team decided to launch a new site called Twitch dedicated to streaming games.
Ultimately, they sold the company for $970 Million to Amazon.
What could we learn from this?
When you talk to your customers or write cold emails to people. They may give you negative feedback or criticize you.
Don’t worry about that.
Think of people who will share genuine feedback with you.
You may discover a pattern in customer problems that could help you build a product.
Summary
Utilise the low opportunity cost of college.
Build a distribution channel.
Get out of your comfort zone.
Talk to your customers.