Mark Fletcher: Lessons Learned Birthing and Building Web Startups

This is part of my set of notes from the Startup School 2006 sessions at Stanford.

Mark Flecter is a two-time entrepreneur with two successful companies under his belt:

  • OneList: At the end of 1999 merged with Egroups, acquired by Yahoo in June 2000. Product is now Yahoo Groups, and has 140K users
  • BlogLines: Launched in June 2002, this company was totally self-funded. Put in a total of $200K from start to finish, build it using only one salaried employee, four stock-only compensated employees, and outsourced labor hired through eLance. BlogLines was bought in 2005 by Ask Jeeves.

Garage Philosophy

Mark has his own “garage philosophy” – secrets to success for startups:

  • Passion for the idea: He’s been driven by solving problems he has himself. OneList was driven by his need to have an easy way to set up a mail list. BlogLines was driven by the problem of having an enormous bookmark list that he visited every day. If you solve a problem that you have, other people most likely have the same problem. It’s easy to get enamoured by the technology, and do things because you can. Instead, focus on the stuff that interests you, solves a problem for you. This will be your life 24×7, so you’d better enjoy what you’re doing.
  • Cheap technologies: Design around the idea of cheap hardware and open source.
  • It doesn’t have to be perfect: Many people try to get it perfect before they launch. This should be avoided – launch early, launch often. OneList was really ugly at first, and missing huge chunks of functionality. Doing this kick-starts the “virtuous cycle” where active feedback from customers drive development. Half of customer support email sent to BlogLines are feature ideas. Also engages customers, ties them more to your service as you address their needs.
  • Moonlighting limits risk: He worked a full-time job when starting BlogLines – he had a mortgage to support.
  • Friends/Family funds: When you do raise money, look to family/friends. The longer you can go without raising VC funding, the better position you’ll be in. BlogLines didn’t take VC funding until they had a million users. This put them in excellent negotiating position.
  • Free services = less pressure: You don’t have to worry about high availability when you’re offering a free service. People will cut you some slack.
  • Hire a lawyer: When he did OneList, he used an online service to incorporate in Delaware. Ended up having to redo things entirely and in the end it didn’t really save much money or time.
  • Outsource to eLance/Rent A Coder: Althought Mark wouldn’t recommend outsourcing core pieces of technology development, it can still be useful. For example, BlogLines has a notifier application – BlogLines put together a proposal, posted it on eLance and had some guys from Kazakstan/Russia write the application to their exact specifications in two days. Ditto for translation services – they extracted all of the text, posted the proposal to eLance, and for $3500 had the service translated into 6 languages. Graphics is also a good place to try using outsourced labor. In general, Mark recommends making the proposal as specific as possible to guarantee success.
  • PR is cheapest marketing you can do: The only way to value your service is in the growth of your user base, and the buzz surrounding your service. Anybody can come along and be smarter than you, but they can’t copy your users. Focus on viral growth – motivate users to be your best cheerleaders. Make it valuable for them to have their friends on the service. OneList pulled people in because people created mail lists for their friends – you couldn’t create a mail list that didn’t encourage people to sign up. Also, PR is cheap. Find someone who can develop relationships with reporters. BlogLines had great press coverage, four write ups in the Wall Street Journal. PR person was working for stock!

Design Philosophies

One great resource that summarizes it better than Mark ever could: Amy Jo Kim’s presentation at Etech – Putting the Fun in Functional.

Technical Aspects

Software choices

  • Linux/Apache
  • C/C++/bash/python
  • DJB/qmail/DJBDNS/Daemontools (
  • ClearSilver (
  • Berkeley DB (
  • Memcached
  • Avoid NFS
  • Avoid table-level locking in MySQL
  • The faster your web site is, the more pageviews you get. Whenever BlogLines slowed down, they threw more hardware at it and saw 30% more pageviews, not from more users, but more use of the product from the existing users

Hardware choices

  • Dedicated servers v. Buying/Hosting: For BlogLines, they bought their own hardware. They had to find machines, the co-lo, and deal with the network issues. Thought the advantage is that it’s cheaper in the long run, but would not do this again in the future. Renting the machines is the way to go – it just doesn’t cost that much.
  • eBay is a great place to buy hardware – you can find several wholesalers who will put together any machine you want, even new hardware.
  • APC PDUs for remote power cycling
  • HP ProCurve
  • Avoid Seagate Ultra-SCSI drives – they had 50% failure rate
  • A good phone for SSH which allows remote problem solving. He’s been in a casino, in front of a slot machine, fixing a server from his phone!

Architecture Choices

  • Copying files v. Client/Server: The BlogLines News RSS Feed is basically a text file that they copy between servers; copying files scales infinitely, and is a good solution for a lot of things. Not ideal for everything, but something to consider.
  • Calculate on the fly v. Cache: BlogLines generated cached pages of user accounts for spiders to crawl.
  • Memory v. Disk: Notifications in OneList – they were keeping track of how many emails were sent to a mail list in memory.

Storage Choices

  • Relational DB v. flat files: Don’t underestimate the power of flat files. BlogLines uses subscriber information in a sleepycat DB, and blog articles are all in flat files.
  • RAID v. Redundant hardware: OneList was storing mail list articles on RAID, which doesn’t lose data in case of failure, but results in data being unavailable. With BlogLines, they replicate blog posts across machine, not just at the disk level, ensuring that even if storage failed, service was still available.
  • Linux Software RAID: Prefer software RAID over hardware

SysAdmin Choices

  • DNS round robin for web servers – no need for hardware load balancers
  • Hot backups for offline-processing
  • Worry about cooling at the co-lo. If you find yourself with a lot of hard drive failures, you should suspect a cooling issue. (Unless you determine, as they did, that Seagate drives suck).

Avoid making stupid bets

While working on OneList, he made bet that if they were successful, they’d have a big party and that he would shave his heads. They were successful – baldness ho!

Audience Questions

  • What is your strategy for choosing what to outsource? Choose isolated pieces of functionality that can easily be developed separated from the rest of the code. He has experienced disaster outsourcing core functionality. Put a boundary around what you will or won’t outsource.

Page Mailliard: How to Think About Legal Issues

This is part of my set of notes from the Startup School 2006 sessions at Stanford.

Page Mailliard is a partner at Wilson Sonsini Goodrich & Rosati, a law firm that has been responsible for taking many companies public. In her session, she covered the basics of setting up a company.

Setting Up a Company

Every company is different, and everything you face will be unique to you. You need to be sure to do it right the first time – get a lawyer who knows what they’re doing, and get the tried and true documents in place. Page, for example, is going to give you one option plan, one proprietary inventions agreement, etc. These are documents that have been distilled to perfection from experience. Doing it wrong can ruin your company, so get the legal structure in place correctly. Get it done, so you can get it out of the way and focus on your business. Doing so will save time, money, and, potentially, catastrophic errors.

Page recommends formation as a Delaware corporation, a C corporation; this is a company under which you can provide options to employees. Incorporation in Delaware is preferred because it has better case law – simple is better. The basic steps to incorporation (not doing into great details, given the audience) as a Delaware corporation:

  • Decide the amount of authorized stock: 20M common stock, 10M preferred, 3-5M founders’ shares
  • File your certificate of incorporation with the state: With Delaware, you can fax it direct to them and it will be handled immediately.
  • Establish the Board of Directors and the Officers of the company: Don’t distribute these too freely. Be very careful before you put someone on the board, because the board has a lot of power over you. Maybe start with a small board – maybe one or two members. The alternative is to put people you trust on a board of advisors instead of the Board of Directors. They can still be given options and help you, they just won’t be on the Board of Directors.
  • Enter into a stock agreement with the founders: Consider a vesting schedule for founders which distributes stock over time. This protects the company against a founder walking away with a stake in the company without staying and contributing to the company. If you come with more than one person and you don’t put vesting in place, there will be trouble when circumstance either fall out between the founders, or force them to leave the company for personal reasons.
  • Make sure the founders assign all their intellectual property to the company
  • Adopt standard documents: Adopt standard documents for the company bylaws, proprietary information agreements, option plans, etc – it just makes the whole thing a lot simpler. One thing to think about at this stage is what happens to options in the event of an acquisition. This is a big decision. You probably will want to reward your employees by accelerating options in the case of acquisition; however, many VCs will not invest if you have 100% acceleration in the event of acquisition. The reason is that they want to see that people still have a stake in the company and stick around after the acquisition to continue operating the business.
  • Seek trademarks and patents: This will be covered in another section during the sessions.

Two Important Questions to Answer

  1. Who owns the technology?If you can’t say who owns the technology, you don’t have a company. Investors will scrutinize if you own what you say you own. Three problem scenarios:
    • The former employer: You want to start a company, and have an idea while working at another company. They own ideas created on their time, with their resources. Example scenario: One company they worked with involved a programmer who used his current employer’s server to check out something he was working on – they’re had to rewrite some of the code, and give his employer some money because of his error.
    • The Microsoft intern: Let’s say there’s bunch of friends working on stuff. One of the friend gets and internship with Microsoft. Microsoft generally owns everything you dream up while working for them. To avoid this situation, you shouldn’t have anything to do with that person for the summer.
    • The Genentech Material Transfer Agreement: Company had used some genetic material from Genentech in their project for a technology to grow heart cells. Took the company years to get out of the agreement.
  2. Who owns the company?
    • No napkin promises: You should know who has the stock, shares, options, and can prove it. Don’t want some person to come out of the woodwork. They always show up at the acquisition or IPO, touting previous promises. Get the deal in writing. Always.
    • No tithing: For one company in the midwest, they got forecast of the revenues that had a funny vague footnote. Turned out the company had tithed 10% of their revenues to God. In the end, the lawyers had to argue scripture in order to have the 10% of revenues tithed to God to come out of the founder’s piece, not everyone’s.

Financing Considerations

  • Note on preferred stock: Always give preferred stock to investors; this forces them to pay more for those shares.
  • Interesting consideration: As employee option pool is non-voting, don’t forget to look at the effective voting rights distribution in a deal. Otherwise, a 50/50 split between the current company investors and a new investor in a new round may result in the new investor effectively running the company.

What About That First Term Sheet? (And How Do You Get It?)

  • Be very clear on the value proposition, the market opportunity and the significant ramp-up in the value your company can achieve.
  • Keep your slides and presentation short (10 slides – 15 minutes). These guys have listened to sooo many pitches and they have short attention spans. You need to talk to people about your idea and your presentation, revise each time. Don’t show all the backup evidence, but have it ready for when they ask.
  • Be credible. Do your homework on the fund, the people you will be meeting, your market projections, and your reference accounts
  • Bring “A” players on your team
  • Listen to others
  • Listen to yourself. While it’s true that you should get information from others – but at the end of the day you need to be able to go with your gut.
  • Your best leverage is another term sheet. Avoid the “no-shop” agreement; unless you completely have a deal in place, you will end up shooting yourself in the foot.
  • Get the best business partner you can – not necessarily the highest valuation – and the best board representatives

Audience Questions

  • What other recommendations do you have to avoid getting sued by current company? When you’re at the company, ask yourself is what you’re working on similar to what they’re doing. If it’s not significantly different, you might consider sitting down and talking with them. It’s all about relationships – talking with them will affect how they respond. If you give them time, tell them what you’re doing, you’re much less likely to have a problem. It’s always good to know who’s litigious.
  • What does it cost to get a lawyer? In this area, it’s more common for the lawyers to want to be part of risk of the company. At the same time, lawyers are very expensive. The way it usually works with their firm: if you’re really legitimate, we’ll write it such that there is a limit ($10-15K) that you can use without having to pay in the event you aren’t funded.
  • Is it normal for the seed investors to be diluted the same as the founders? Sometimes it can be a situation where they’re treated exactly the same, sometimes there may be an extra “kicker” for the seed round investors.
  • How can you resist bloat on the Board of Directors as you take on investors and complete subsequent investment rounds? It is really difficult to get people off the board. One entrepreneur commented that the biggest thing they learned was not to give away titles, as it made it difficult to hire new “A” players into the right position. Avoid putting people on the board in the first place if at all possible, or limit the number of seats taken by investors in each stage.
  • Is it common for the law firm to take a stake in the company? In some cases, yes. They may want to participate in the upside, perhaps even putting in money themselves. They have to be careful to avoid conflict of interest. But in general, no, they don’t expect to take any stock in the company.
  • How do you avoid innovating during “company time” when you’re salaried? One entrepreneur took an extended vacation to avoid this completely. As a general rule, make sure it’s not during normal business hours (9am-6pm), Monday-Friday.
  • But how do you avoid innovating using company resources when you have company-provided ADSL or cell phones? Don’t think they would win based on that, but easy to mitigate by buying another cell-phone, or paying for the service yourself.
  • What do lawyers like to hear from a company, as opposed to VCs? Are they credible, passionate, professional, and committed to the business? If you believe in what you do and have back-up for it, then they will too.
  • What’s the compensation you give to the board of advisors? 25K shares, regardless of the outstanding shares (which is kind of ironic). In the case of really big names, they might demand a percentage of the company, like 1%. It may be the right decision, given who they are and what they can do for the company. Of course, it would be a good idea to put vesting on it.
  • How do you protect yourself against corporate proprietary agreements? Make sure to disclose your prior inventions. As long as you’re doing it on your time, you should be protected.