10 Lessons from Great Businesses | The Generalist

10 Lessons from Great Businesses | The Generalist

On the 20th Anniversary – The History of Yahoo’s Founding

Attracting exceptional people is a startup’s most important task outside of finding product-market fit. More than any particular stratagem or scheme, the most effective way to hire extraordinary people is to be so persistent it hurts. It took the company six months to hire its first two employees. To do this, Levels makes several atypical decisions, including actively discouraging tools like Slack and meetings. These restrictions aim to create a business that runs asynchronously, reducing interruptions and protecting unbroken deep work.

Every successful company cares about serving its customers to some extent, but very few are genuinely obsessed with pleasing them in that word’s truest meaning. Those who embrace such devotion are rewarded with stronger customer affinity and better retention. When it comes to organizing your company, optimizing performance, and capturing the upside, there’s no better place to begin than with the underlying incentives. In Ravikant’s view, it is preferable to have a team focused on a narrower problem for which their efforts are directly rewarded.

Do Kwon often talks about Singapore. The founder of crypto project Terra takes inspiration from the creation of the Asian republic and how prime minister Lee Kuan Yew fostered prosperity. Entering the American market late, the cryptocurrency exchange has sought to capture attention and influence by partnering with beloved sporting institutions, buying the naming rights to the Miami Heat’s arena, and sponsoring MLB uniforms.

Devin Finzer and Alex Atallah founded OpenSea when NFTs were scarcely a blip on the world’s radar. Given those conditions, OpenSea’s leadership followed an astute strategy: they preserved optionality on multiple levels. Firstly, the team kept burn low, bringing in money through fees. Doing so freed Finzer and Atallah from continuously fundraising and gave them the time for the market to mature. More importantly, OpenSea built optionality into its product. Rather than concentrating on owning a particular use-case, the team designed the platform to host the long-tail of assets. Again, this was a sharp move.

Red Bull does something similar. The company outsources the production of its beverages to focus entirely on marketing. To win, find ways to deepen your advantages, even at the cost of outsourcing commoditized operations. Sometimes, the best marketing strategy is to define yourself by what you’re not.

Throughout Telegram’s journey, the company has defined itself as a kind of Not-Facebook: a user-friendly private alternative to Big Blue’s surveillance state. The two knew each other from their time at Stanford, but really bonded when they signed up for a brief teaching stint in Japan. The dissertation that the two were (ostensibly) working on in the Spring of 1994 involved design automation software, which was a hot area of research at the time. Yang and Filo shared side-by-side cubicles in a Stanford portable trailer, in lieu of official offices.

Filo had discovered the Mosaic browser shortly after it was released, and this led the pair to an all-consuming obsession with the World Wide Web. So, in the hours when they should have been doing research, they were browsing the web instead, trying to find and catalog the new. “So he made his hot-list, and I made my hot-list, and he wrote some software to combine both our lists.” In order to keep things reasonably organized, Yang and Filo broke the list out into a hierarchical directory. Thus, to find MTV’s home page, a user drilled down by category: Entertainment > Music > Music Videos > MTV.com.

When their dissertation advisor returned from her European sabbatical, she was stunned to find that the messy trailer was the headquarters of a world-famous Internet phenomenon. Stanford had a long history of being supportive toward student-run projects that may or may not evolve into startups at some later date. When Netscape launched its beta browser late in 1994, it decided to make Yahoo the default link when a user clicked the “Directory” button on the top menu of the browser.

All those early web users who surfed the web via Netscape were introduced to Yahoo as the de facto search utility. “David had it in his gut very early on that Yahoo could ultimately be a consumer interface to the Web rather than simply a search engine or a piece of Technology,” In order to build bridges, Marc Andreessen reached out and solved the hosting problem by agreeing to host Yahoo temporarily on one of Netscape’s spare Silicon Graphics servers. Yang and Filo were convinced—quite rightly—that the day they started charging users to search would be the last day users ever visited Yahoo’s website ever again. The pair intended to stick to their guns. There would be no fees to users. “Two hours later, we convinced them that Yahoo should be free.” The product was free! Yang and Filo had absolutely zero business background or acumen! If there was an elevator pitch, it was that Yahoo had the chance to be the TV Guide for the Internet. TV Guide was the largest circulation magazine on the planet. There was value in being the trusted directory for something.

The factor that tipped the scales in Yahoo’s favor was the fact that Moritz was pitching a revenue model the other Sequoia partners knew very well: advertising-supported mass media. Radio was free. Television was free. Both were supported by advertisers who paid good money to reach an audience of millions. “So why will the Internet be any different?” Moritz asked. At the peak of Yahoo’s market valuation, the value of that initial 1/4th of Yahoo would be worth more than $30 billion. An “adult” was brought in to be CEO, in the person of Tim Koogle, a veteran of both tech startups and the tech establishment (he was recruited from Motorola and like Yang and Filo, Koogle was a veteran of the Stanford Engineering department).

Most importantly, a cadre of new hires was fashioned into a team of professional web surfers who would help build out the Yahoo directory and stay on top of the exploding web. And this is a key thing to keep in mind: Yahoo! was a human-powered directory for the web, not a “search engine.” Yahoo did farm out search functionality to various partners, but the key selling point—at least, for much of its early life—was that it was human-powered and human-curated.

Yahoo was bold enough to spurn AOL and go off on its own because Yang was confident that his directory had a unique relationship with its users. Those early months as the default search tool on Navigator had sown the seeds of familiarity and loyalty among early Internet adopters. Even when competing services showed up on the prairie, users had a tendency to stick with what they knew, so long as it still worked.

In order to stay ahead, Yahoo decided it would do what no one else had (intentionally) done on the web up to that point: brand itself, in order to reinforce its users’ loyalty. As early as June of 1995, Jerry Yang declared that Yahoo would become, “The first great Internet brand.” Americans found themselves being asked “Do You Yahoo?” Yahoo quickly became one of the Internet’s most recognizable names, familiar even to the vast unwashed Americans who were not yet even online. With its quirky purple logo, Yahoo was soon everywhere, from hockey rinks to billboards to t-shirts. The branding was instrumental in helping Yahoo stand out from the scrum of the search engine pack. But it also played a vital role in turning what was an unpatentable service (a directory) into a valued, strategically defensible product. “The fundamental bet we are making is that we are a media company, not a tools company,” If we are a publication, like a FORTUNE or a Time, and we create brand loyalty, then we have a sustainable business.”

Even that would look like chump change a few months after that when Softbank doubled down by investing an additional $100 million all on its own. Investors were falling over each other to hand Yahoo money for two reasons. For one, the Big Bang had gone off in September of 1995: Netscape had gone public. Yahoo couldn’t turn down the opportunity to raise even more money and maintain its lead against its search engine rivals. Plus, Netscape had shown that there was an incredible amount of free publicity to be gained by a successful, high-profile IPO. By sitting out the party, Yahoo risked ceding its role as the industry leader, at least in the eyes of Wall Street. Yahoo went public on April 12th, selling 2.6 million shares, initially pricing at $13, but seeing a first trade price of $24.50. In its first quarter as a public company, Netscape had recorded revenue of $56.1 million. In its first quarter as a public company, Yahoo could only report revenue of $3.2 million.

One big issue: the Internet had been born free of advertising and free of commerce of any kind. Internet culture had an emphasis on “free” and had a downright hostility to advertising especially. But now that the Internet was in the midst of a gold rush, the pressure to make cyberspace pay was overwhelming. Advertising was the obvious business model for any website that wanted to remain free for its users. Yang and Filo didn’t want ads to interrupt their directory, but ads around the directory might be ok. Just as Yahoo was a pioneer in bringing notions of branding and audience loyalty to the web, the company was also a pioneer in the way that it gambled with advertising as a business model on the Internet.

The pivot toward advertising was quickly very lucrative for Yahoo. By 1996, as page views reached 14 million a day, as much as 75% of Yahoo’s potential ad space