2018-02-23 18:58:03 +00:00
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---
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created_at: '2017-06-07T14:49:07.000Z'
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title: Instant Company (1999)
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url: https://www.nytimes.com/1999/07/11/magazine/instant-company.html
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author: pdog
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points: 54
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story_text:
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comment_text:
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num_comments: 13
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story_id:
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story_title:
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story_url:
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parent_id:
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created_at_i: 1496846947
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_tags:
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- story
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- author_pdog
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- story_14506879
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objectID: '14506879'
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2018-06-08 12:05:27 +00:00
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year: 1999
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2018-02-23 18:58:03 +00:00
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---
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2018-03-03 09:35:28 +00:00
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In 12 weeks, the amount of time it might take an average person to
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decide what kind of hedge to plant in the backyard, they built a company
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from scratch. An instant company, or what is being called in Silicon
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Valley a ''second-generation Web company.''
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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Not so long ago, it seemed incredible that a Web company could be born
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in a mere two years. But rather than going back to normal, the pace of
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creation in Silicon Valley now seems to be speeding up even more. Any
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Web company that starts out today and takes two years to get up and
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running is likely to be left in the dust.
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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In first-generation Internet companies, the founder and a few college
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buddies moved into a garage that they decorated with Nerf guns and green
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army men. In second-generation Internet companies, the staff coalesces
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not from friendships but from respect for mutually complementary skill
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sets. They skip the garage phase, engage two real-estate brokers and
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make simultaneous bids on three office spaces, hoping one comes through.
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They move in over the weekend and by Monday have it decorated with Nerf
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guns and green army men.
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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In first-generation Internet companies, the staff resigned from
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monolithic software corporations or took leave of business school or
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jumped ship on brand-manager positions at Procter & Gamble. Nobody had
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Internet experience; they learned by making mistakes, of which there
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were many. The purpose of the Internet was unclear. Now, companies are
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being formed by staff members who have years of know-how. And they see
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the Internet, above all, as a place to buy things. Some $301 billion was
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generated by the Internet economy in 1998, with an annual growth rate
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over the past four years of 174 percent.
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Because of the way high-tech employees are compensated, there are likely
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to be a great number of second-generation start-ups in the next year.
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The notorious stock options that add up to so much paper wealth usually
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take four years to fully vest. For the early movers on the Internet, the
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four years are coming up. And the golden handcuffs are coming off.
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This particular second-generation internet company has managed to
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recruit top people who were still handcuffed -- what people in the
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Valley call ''the unhirables.'' Naval Ravikant walked away from what at
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the time was $4 million worth of unvested @Home stock options.
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Ramanathan Guha walked away from probably more than $4 million (a figure
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he is contractually forbidden to confirm) at America Online, which had
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acquired Netscape. Sabrina Berry's previous employer, CommTouch
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Software, was planning to go public. Berry walked away from all of her
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shares in that company. For Lou Montulli to join, he resigned from a
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hot, well-financed start-up called Geocast Network Systems. At the time
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Nirav Tolia left Yahoo\!, the unvested options he left on the table were
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worth $10 million.
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But, he insisted, it didn't matter to him if it was $20 or $20 million
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-- he has a dream to pursue.
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''People are going to think I'm nuts,'' said Tolia, rolling his eyes.
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Advertisement
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[Continue reading the main story](#story-continues-4)
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''Can we not talk about this anymore?'' said Guha. ''It's painful to
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dwell on.''
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Six weeks ago, the engineering team walked to In-N-Out Burger for lunch.
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They crossed an overpass above Highway 101 and paused at the rail.
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''This team has been responsible for many of the key features of
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Netscape Navigator,'' Guha said. ''These guys can point to any of these
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cars passing underneath and say: 'That driver has almost certainly used
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my code. And that driver. And that one.' We want to build something that
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has that kind of influence. We want to build a site that everyone will
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use.''
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So what's the idea that is inspiring so many to jump? Until this week,
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they've kept everything secret, operating under the code name ''Round
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One.'' In fact, not even people who come in to interview for a position
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learn the idea their first day. Several hours of vague conversation seem
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to be leading up to the grand presentation, but alas, the applicant is
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sent home with a preliminary offer, setting out salary and options and
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title -- and no clear sense of what the company will do. If the
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candidate is sold on the team, then she or he comes back for a second
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round. Only at the end of that next day does she sit down in front of a
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whiteboard with Ravikant and Tolia and hear something like this:
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As the Web becomes an infinite supply of goods and services, goes the
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pitch, people crave guidance on what and where to buy. So far, the great
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number of on-line shopping guides present quantitative, machine-sorted
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and machine-generated data: comparisons of product prices and
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specifications. But what consumers need (Ravikant and Tolia contend) is
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a recommendation that gets beyond that: the advice of someone they
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trust, someone just like them.
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Their solution is a Web site, Epinions.com, which they envision as a
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sort of Zagat-for-everything, a site consisting entirely of consumer
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opinions or reviews of anything you can buy. Epinions.com itself will
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sell nothing at all -- it has no warehouse, no trucks on the back end.
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The money would come from deals Epinions.com cuts with companies that do
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sell things: every time an ''E-pinion'' prompts a reader to click
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''Buy,'' the company will earn a tiny commission on the resulting sale.
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At the start, the E-pinions on Epinions.com will be culled from existing
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sources, guiding users through aggregations of expertise from the four
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corners of the Web. But the key to the whole idea is to make
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Epinions.com participatory, taking advantage of what I call the Tom
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Sawyer model. Write and post a short review of any product on
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Epinions.com, and you can earn a few pennies every time the review is
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read by another user. By letting readers rate the usefulness of the
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E-pinions, the most trusted ones will float to the top of every
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category. As Ebay is a marketplace for products, Epinions.com seeks to
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be a marketplace for ideas. If it catches on, like Ebay, then everything
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snowballs, and these hobbyist-reviewers function as sliver-time virtual
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employees who do all the work for you. ''Everybody is an expert at
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something,'' they kept repeating around the Epinions.com office; they
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hope their site will be the place where everyone shares their expertise.
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Similar logic has been welling up in the collective unconscious of
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Silicon Valley, and most E-commerce sites are already adding some form
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of E-pinion to their Web pages. Productopia, Deja.com, Cnet, Amazon.com
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-- everyone's hiring editors and bringing back the old-fashioned,
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well-trusted written word. Of course, sites that both sell goods and
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review them are subject to criticisms of bias. Epinions.com.com would be
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the first company to start up doing E-pinions and only E-pinions, hoping
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to be as Jell-o is to flavored gelatin.
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And that's it. Then again, what was Yahoo\! at the start but just a
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Yellow Pages to the Web? The point is that job recruits with
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demonstrable talent are buying in to give it a go. And they know that in
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the short and unpredictable history of Internet businesses, success has
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often come down to getting the details right, fast.
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''We don't need any more strategists,'' says Mike Speiser, a McKinsey
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consulting alumnus who learned to curtail his own inclination to heady
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analysis. This was 10 weeks ago.
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''We need closers,'' agrees Nirav Tolia. ''We need bulldogs.''
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''We need engineers who are execution machines,'' says Guha. ''This is
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not a strategy play. This is an execution play.''
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Advertisement
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[Continue reading the main story](#story-continues-5)
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First-generation start-ups raise small seed rounds to develop a
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''proof-of-concept version,'' at which point the start-up has to go back
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to dog-and-pony shows, negotiating for more money. Again the second
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generation is different, faster. Prototypes, demos, alphas -- the
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language of the hustle -- those words aren't even in the Epinions.com
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vocabulary. Every minute spent dancing for investors is a minute stolen
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from the finished product. Ravikant and Tolia's business plan (which
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consisted of 16 sparse slides) had no financial projections and no
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budget. They negotiated for $8 million, enough that they wouldn't have
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to go back for more until well after launch. They had no idea what it
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would cost to pull together the E-pinions they would need to stock the
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site, but they budgeted $5 million, just to be safe.
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The group's biggest fear was the wrath of prominent venture capitalists
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who did not get an opportunity for a cut of the deal. A slightly rattled
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Tolia played me several phone messages left on his answering machine by
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furious V.C.'s. One of the advantages of combining August Capital and
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Benchmark is that they occupy the same two-story building. When the
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terms of the valuation were set with August, Ravikant and Tolia walked
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upstairs to Bill Gurley's office at Benchmark. Gurley had joined
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Benchmark only a month before, and Epinions.com would be one of his
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first big plays for his new employer.
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''I need to know if you're in,'' Tolia said.
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Gurley was calm. He recounted some of the internal discussion among the
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Benchmark partners. One partner, Gurley offered, had scored the idea a
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6.5 and the team a 9.5 on a scale of 1 to 10. But he wouldn't tell them
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details of how the final vote was scored.
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''So where does that leave us?'' Tolia asked.
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''Don't worry, it's done,'' said Gurley.
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''Should I contact your lawyer or something? Draw up term sheets?''
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## Newsletter Sign Up
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[Continue reading the main story](#continues-post-newsletter)
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''We don't do term sheets here,'' Gurley responded, offering his palm.
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''We do handshakes.''
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In those first crucial weeks, the Benchmark investment was like having a
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Hertz Club Gold pass. Every service provider is overbooked in Silicon
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Valley -- realtors, phone-system installers, furniture suppliers,
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headhunters. Dropping the Benchmark name was the way to impress vendors
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without sharing the idea. Everyone wants to do business with what may
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become the next Ebay, dreaming they'll be rewarded with
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friends-and-family shares when the time comes.
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Of course, they can't do everything. There was that first weekend in
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their new digs, when the parts for their desks arrived from Home Depot
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-- 25 solid wood doors, 100 4-by-4 legs and 400 metal braces. Despite
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this formidable team of engineering talent, in eight hours of off-and-on
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tinkering they couldn't correctly assemble any desks. Finally they
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called a carpenter who had done this before, and he started building two
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desks an hour.
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Fortunately, what they don't know about desks, they do know about code.
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Hiring staff with seasoned Internet experience has allowed Epinions.com
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to delegate like crazy. ''We need to be told what to do but not how to
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do it,'' said Luke Knowland, who had done it before at Wired Digital.
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''It would take four very bright first-generation engineers a full year
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to program this site,'' Guha estimated. ''But because we've done it
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before, we can write most of the code in six weeks.''
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Everything is faster. Zero drag is optimal. For a while, new applicants
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would jokingly be asked about their ''drag coefficient.'' Since the
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office is a full hour's commute from San Francisco, an apartment in the
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city was a full unit of drag. A spouse? Drag coefficient of one. Kids? A
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half point per. Then they recognized that such talk, even in jest, could
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be taken as discriminatory in a hiring situation.
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Advertisement
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[Continue reading the main story](#story-continues-6)
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On the business-development side, ''I no longer have to waste months
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evangelizing,'' says Dion Lim, who has been cutting deals to aggregate
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opinion material from existing Web sites. A couple of years ago, the
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process would have been slow and painful. ''Now, I just call, and they
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have a syndication rate scale and a preferred data-feed format,'' he
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says.
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Meanwhile, Epinions.com has kept up constant reconnaissance on the
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competitors it will be jockeying with this fall, despite those
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competitors' best efforts to keep their strategies secret. The Valley
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has what it calls the ''whisper circuit,'' which is not so much wild
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gossip as the ability to call in old favors and threaten to pull
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people's teeth. A lot of whisper-circuit surveillance leaks out the back
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door of companies through their engineers, who often refuse to lie on
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principle or are very bad at it when they try.
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Through the whisper circuit the company learned that one potential
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competitor was trying to wiggle out of a partnership so that it could
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overhaul its product toward something like Epinions.com. The team
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learned that a top job applicant, on the verge of accepting its offer,
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had been grilled so hard by another venture capitalist that he cracked
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and spilled the Epinions.com idea. (The offer was retracted.) Another
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V.C. was trying to discredit Epinions.com by telling people he'd turned
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down its deal, which he'd never seen.
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And it was on the whisper circuit that the Epinions.com team learned
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that Amazon.com had started flying writers and editors to Seattle and
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offering them positions as category editors to cover a wide range of
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products -- food, video games and so on. The whispering was specific --
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that Amazon.com was offering a $65,000 salary, a 10-percent signing
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bonus and options that could be worth $1 million in four years. (Amazon
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declines to confirm or deny those details.) The entrance of Amazon.com
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onto the scene seemed like bad news for Epinions.com. Everyone lost
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sleep that night.
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But their exuberance returned with dawn. ''Amazon is supersmart,'' said
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Naval, marching out of Benchmark Capital's Sand Hill Road offices with
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his teammates in tow. ''But we're a start-up. We've got focus. Nobody
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will be able to move as fast as us. I pity the fools\!''
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''Other than that first night with Amazon, I haven't lost a single
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hour's sleep over our competition,'' Nirav Tolia said four weeks ago,
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when he was only rationing himself four hours a night anyway. ''All the
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sleep I've lost has been over our internal conflicts.''
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Indeed. By hiring so many bulldogs and execution machines who were all
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used to being No. 1, Tolia feared the competition between employees
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would tear the company apart. For the first month, without a product to
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obsess about, they focused on their responsibilities, and the closest
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proxy for their responsibilities was their title. That they had given up
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so much money to be here made them a little testy -- they wanted
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constant assurance that their career decision wasn't a mistake.
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Everyone kept demanding an org chart, preferably with his or her name in
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a box near the top. In first-generation Web companies, the premise was
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that no task was beneath you: you did whatever it took to succeed. This
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wisdom seems not to have been passed down. ''How do we go from a team of
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champions to a championship team?'' Tolia kept asking.
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Advertisement
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[Continue reading the main story](#story-continues-7)
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Bill Gurley had turned Naval Ravikant on to complexity theory. ''Truly
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alive systems exist only at what is called 'the edge of chaos,'''
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Ravikant said in one meeting. So though it was causing him to lose hair,
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he was running the company on the edge of chaos, rallying people to risk
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making mistakes. ''I don't want to be a company that plays it safe.'' He
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gave his employees an org chart, and then another one every week. Their
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titles became vague, more fungible.
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Going through the start-up experience usually bonds a team together.
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There are those occasional ''Breakfast Club''-like days when workers'
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inner lives get revealed to each other. This bedrock of goodwill gets
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the team through hard times later. Going through it at second-generation
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speed only allows brief bonding moments. Mike Speiser covered Internet
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companies as an investment-banking research analyst, but he hadn't
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worked at one before Epinions.com. A few weeks ago he said: ''You know
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what I miss? I miss those good old days, when we had the run of the
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place at August Capital, hanging out and brainstorming.'' Those halcyon
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days, six weeks earlier.
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Nirav Tolia came up with what he thought would be a solution to distract
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the champions from their fiefdoms. At the all-hands meeting five weeks
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ago, Tolia announced that he would shave his head if the company met its
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offical launch date. This is a guy whose E-mail was
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''the-face@yahoo.com'' for a good reason -- a hair is never out of place
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on his head. ''When you're wondering why you're here at 2 in the
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morning, think about my cue ball,'' he said.
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Everybody howled with laughter. Then Aleksander Totic went over to his
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computer and pulled up an ancient Web page, from way back in 1994.
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Digital photographs were posted from the period when the original
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Netscape engineers shipped Navigator 1.0. There at the top of the page
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was a picture of Lou Montulli -- who is even more of a sharp dresser
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than Tolia -- with his head completely shaved. Then everyone really
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laughed.
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''If we're going to be a second-generation Web company, Nirav's going to
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have to come up with something better,'' Totic chuckled.
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Watching an instant company get built has been slightly disorienting.
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Silicon Valley is sustained by the myth that you can come here from
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anywhere with sheer smarts and a firm handshake and make good.
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Second-generation Internet companies seem to seriously tip the favor to
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those already here. Four weeks ago on the whisper circuit, Tolia learned
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that an entrepreneur from Arizona was in town to shop a business plan
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for a company, called Publicopinion.com, with some of the same basic
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concepts, like rating reviews. Tolia took the challenge seriously --
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Publicopinion.com already had a prototype on line and needed financing
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to take the next step. But the truth is that if the guy from Arizona is
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only now trying to get an audience with venture capitalists, he probably
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doesn't have a chance to catch up.
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After Ravikant left @Home, he would still see old colleagues at parties.
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The comment he heard from them time and time again was: ''It's amazing
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you walked away from all that money. I wish I was brave enough to take
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the chance.''
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So why did they walk away from all that money? Take it as a given that
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they all believe in the commercial viability of the idea, but beyond
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that, their comments are all over the map. One guy talked blatantly
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about wanting ''plane money,'' and how you weren't even a player in the
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Valley with less than $100 million. A few plead that they just want to
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live the start-up experience, and the money they've earned has bought
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them the unconditional freedom to pursue that dream.
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Now they are at the takeoff point, and their first-generation experience
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can't help them. The next 12 weeks will be an even greater challenge:
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the goal now is to turn a brand-new site into a hive, one that has 80
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percent of all E-commerce categories covered well in advance of the
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crucial Christmas buying season. They are blindly gambling that they
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have the right incentives and the right filtering mechanisms in place.
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Ready. Fire. Aim.
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[Continue reading the main story](#whats-next)
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