Entrepreneur's Journal

Getting the Startup Equation Right


The Entrepreneur: Caterina Fake, 40

Background: Social media pioneer and co-founder of the photo-sharing service Flickr, she led the technology development group at Yahoo (YHOO) after it acquired her company in 2005. In 2008 she left Yahoo and joined Hunch as co-founder.

The Company: Hunch is a recommendation tool that uses machine learning to harness its users' knowledge and offer customized answers to their questions. The 12-person business launched the public version of the service in June 2009, had 1.2 million unique monthly users in January, and has raised $6 million in funding.

Her Journal: I have always been very interested in invention and creation and the Great Idea. But the idea is just the starting point, just the first step. You also have to find the right people to help you do it. No successful company has have ever been the product of just one person.

The way the story is told is that Martha Stewart or Steve Jobs or Richard Branson is the sole driver. But that's because people like to have a protagonist, just as there's a protagonist in every novel. A group of people makes a bad protagonist. Turning an idea into a company means you have to find brilliant, capable, amazing people and put together a team. And then you have to get everybody on board with the Great Idea. And then figure out how to get there.

You see companies that have the Great Idea but are not able to make it happen. As an example, there were probably about 100 companies that were doing a YouTube-like video sharing service in 2005-07. But the reason YouTube succeeded is it had all the essential elements together: the right team, the right product, the right location in Silicon Valley, the right execution. The entrepreneurs were able to raise the capital they needed to build and scale it. Obviously, it was a good idea, but the combination decided who the winner was. So again, the idea is really just the starting point.

It was the combination of idea and team that led me to Hunch. After Yahoo acquired Flickr, I'd joined Etsy's board and was flying to New York all the time for board meetings. I was introduced to the Hunch guys as a possible board member. It's funny, because I was not given a very specific pitch. The product wasn't built yet; it was an embryonic expert system built on computer-aggregated data. It was clear to me that the idea of an expert system had tremendous possibility, because I'd been looking at these particular problems at Yahoo. This was a very different solution from other things that had been proposed and from other ways that people had been working with data, and it needed a user-generated content/social media component. That's the thing I do best.

Importance of the Team

This was also a great team, and they were clearly solid entrepreneurs—they were going to be successful. They had been successful. They had started a company called SiteAdvisor, which they sold to McAfee (MFE) for $74 million less than a year after they started it. They knew what they were doing. Not only that, the team was already in place. I think it's important for people to take care of the team, to appreciate everybody they work with. In fact, Tom and Chris brought three of the team from SiteAdvisor to Hunch. When you have a working team, it's very important to keep that dynamic alive.

It was exactly the right team for a machine-learning, technologically-based startup. These were all people who had MIT degrees and track records building successful products. They were no slackers.

But when they decided they were going into the user-generated content direction, they knew it was not their strong suit. That's what I do. I had a lot of experience with building, designing, social software, getting a product integrated in other pieces of software—that kind of thing. It was a great combination of our two skill sets. I ended up joining their board, and then they made the unusual move of making me a co-founder late in the game. They did that because they had completely changed the direction of the product, no longer taking just a computational, algorithmic approach but building a user-generated content layer on top of it.

The Allure of Taking Risks

It would have been easy for me to build another social networking site, or another photo-sharing site. But I'm doing something different with Hunch, taking risks. This was a deliberate choice. I was offered jobs at VC firms and CEO posts at startups that already existed. These gigs would have meant much more money and security. I'm a single mom with a toddler, so I could easily have justified doing a less risky venture. You can rest on your laurels, or you can go out there, or you can start again and have no idea what the hell you're doing—which is obviously much more interesting. You have a much greater sense of invention, and you have the ability to create something new if you do that.

In 2006, I first met Rob Kalin, who is a co-founder of Etsy. I could see that they had a big and ambitious idea: to make a marketplace. Few people were doing any kind of marketplace startups then. He'd found a parade and gotten in front of it—people had tired of big-box retail and the soulless manner in which products were bought and sold. There was no longer any humanity in marketplaces, which throughout history had been meeting places and places where people socialized. It was very clear that Rob was not going to fail. He was a very resilient and determined founder. He walked the talk. It was a very community-driven site, and through and through, he stood by what he believed in. He created a company that reflected the values of what the company itself was trying to build, which was a means by which regular people have a very human contact with one another by the things they make and the things they buy. In fact, Rob recruited Jared Tarbell, whom we'd tried, and failed, to recruit for Flickr.

My point with these examples is that the combination of the idea and who is doing it can't be emphasized enough. Obviously, lots of factors go into the success of a company, but in my experience, those two are the most significant. You have to be building the right thing, first of all. And the right people can figure out how to build it, how to market it, and how to make it a winner.

—As told to Nick Leiber

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