Many promising tech companies place too much emphasis too soon on the business rather than the product. They worry too much about “making money.” This sounds nuts—aren’t companies supposed to make money?—and it sounds especially nuts in the wake of the dot-com bust. But that crash was a product of investors’ and analysts’ overexuberance (sorry!), not evidence of a fundamental flaw in the tech industry’s start-up ecosystem. In a market where speed is critical, venture-capital funding allows young companies to move faster than they could if they had to rely only on revenues to fund product development. Entrepreneurs who understand that tend to stick around to make plenty of money later.
MySpace was the last company that had a real shot at stopping Facebook. By 2005, it had more than 5 million users; Facebook hadn’t yet reached 1 million. For a while after News Corp. bought MySpace in 2005 for nearly $600 million, it kept growing, and Rupert Murdoch was lauded as the only “old media” mogul who wasn’t a new-media moron. But Murdoch had acquired a flawed service: Rather than forcing its users to interact under their real names—as Facebook did, to the benefit of its social function and its attractiveness as a marketing tool—it allowed them to adopt whatever identity they wanted. Worse, News Corp. was too focused on the business side. MySpace cluttered its pages with ads and underinvested in product development, becoming an ad-choked cesspool.
Zuckerberg, notoriously frugal in his own spending, actively disdained Facebook’s early business efforts, insisting that ads on the service meet his exacting specifications. Advertising might have been helping to fund Facebook’s growth, but advertising wasn’t cool. And Zuckerberg wasn’t about to let ads ruin Facebook.
Most entrepreneurs are creative and impatient, an often fatal combination—trying to do too many things, they spread their tiny companies too thin. This is one trap Zuckerberg almost fell into. After moving his small Facebook team to Palo Alto in the summer of 2004, he turned much of his attention to building a file-share product called Wirehog. Facebook was going gangbusters, but Zuckerberg wasn’t sure it would last; this was his hedge.
Wirehog evolved into one of Facebook’s first apps, but it never amounted to much. At the end of that summer, Facebook raised its first real outside capital, and Zuckerberg’s focus returned. Focus became so central to Facebook’s ethos that in the company’s old office, the word was stenciled over a urinal in the bathroom.
As part of Facebook’s IPO filing, Zuckerberg, following a tradition established by Jeff Bezos at Amazon and continued by the founders of Google and other iconic tech companies, wrote a letter to potential shareholders. The document lays out his management philosophy and priorities (and relays a warning to a certain kind of stock buyer—which we’ll come back to later). The Facebook way, Zuckerberg writes, is to “move fast and break things.” It’s the last crucial part of his natural feel for the tech business, and it’s been critical to his company’s success.
When Zuckerberg launched “Thefacebook,” it blindsided the Winklevosses, with whom Zuckerberg had been working to develop a similar product. The legal settlement Facebook later paid to clean up the resulting mess cost the company millions of dollars, but if Zuckerberg had delayed the launch of his social network—whether to negotiate with the Winklevosses or to perfect the site itself—Facebook might have missed its window. “Move fast and break things” has continued to drive the company’s evolution. Instead of extensively focus-grouping new features, Facebook just rolls them out. Then it listens to users’ screams and makes modifications as appropriate. This technique has produced a lot of duds. It has led, on many occasions, to Zuckerberg having to apologize to his users. It has also produced some of the features that, in the minds of users, today are Facebook—such as News Feed. What the critics miss when they blast Facebook for “mistakes” is that the process is deliberate. And it works.
Zuckerberg all but stopped writing code for Facebook in the summer of 2005. At the time, the company had several million users and about 25 employees. It also had plenty of money, having just raised more than $12 million from Accel Partners, at nearly a $100 million valuation. From then on, Zuckerberg became a full-time leader. And in the beginning, he was horrible at it.
Tech-company founders are often young and socially awkward, with “bad hair” (as one Silicon Valley veteran observes), strange work habits, and scant management experience. This makes money people nervous. So for the past couple of decades, the standard playbook has been to have the founder remain CEO until the company reaches a size that outstrips the founder’s limited ability to run the business, then bring in a “professional CEO”—an experienced executive—to take over. After the professional CEO arrives, the founder usually becomes a neutered figurehead. (If the founder meddles with the course the new CEO sets, it can lead to the founder getting pushed out entirely.) Companies like eBay and Cisco were built this way, as were hundreds of smaller firms that then sold out to bigger operations, yielding handsome scores for their venture capitalists.