Xobni's Journey to the Right Product

This is the second of a three-part series on the Xobni launch. Come back on next Monday to check out Part III of the story. Co-written with Marie Baca. An abridged version of this article was featured yesterday on GigaOm.

I often speak with entrepreneurs applying for funding from YCombinator, and when I do I give them this advice: the most important decisions you make are the ones in the beginning of the process. Choices like what product to build and what market to serve determine whether you’re headed for failure or a multi-million dollar exit. Marc Andreessen, founder of Netscape, calls this "product/market fit" and says that it’s the only thing that really matters when it comes to building a company.

It's fair to say that at Xobni, is that we stumbled into product/market fit. We initially built the wrong product, but then we quickly corrected our course.

Building the Wrong Product

When Adam first wrote up our YCombinator application, Xobni was called "EmailDM"—the DM stood for "Data Mining." Adam included demos of how EmailDM would summarize emails, highlight important passages, and so on. Eventually this vision morphed into Xobni Analytics, which lets you analyze email usage by creating a diagram of your message traffic.



The initial plan was to offer this program to companies as a productivity tool. Workers would install the software into Outlook and use the data to find ways to become more productive. We would then offer this product to corporations so managers could remotely monitor employee email productivity.

This Boston Globe article, the first major coverage of Xobni, illustrates why this model was a bad idea: employees would feel like they were being spied upon. But even beyond the spying problem, Xobni Analytics was the wrong product to build for a more important reason: users would install the software, browse it for a bit, and then close it and quickly forget about it. Analytics was not a sticky application that tempted users to come back again and again.

The Xobni sidebar is completely different. There are many features beyond the analytics that add value for the user. Plus, the sidebar sits right next to the inbox, so users are exposed to it for the 2 hours they spend checking their email every day.

Our mistake became even clearer when we shopped early versions of Xobni around to venture capitalists. We first tried to remedy this problem by designing something called Xobni Feeds, which allowed users to create different types of XML queries that we would show up in the sidebar. Only later did we realize that this way too much flexibility for the average user, and we decided that it was a much better idea to show relevant, people-based default information.

In short, we discovered that our product was most successful when it provided focused information about people, not numbers. It is essential that entrepreneurs remember that they are serving an audience of individuals who need simple solutions to their everyday problems.

Why Outlook?

Unlike the initial problems with product development, Xobni made the right decision early on to target the Outlook market. There are an enormous number of Outlook users out there (around 350-400 million, depending on whose numbers you trust), and yet there is also major dissatisfaction with the program.



After Outlook, users most often requested that we build Xobni for Gmail and Apple’s Mail.app. However, both of those clients have much lower pain levels than Outlook. In addition, the addressable market is much more interesting: Outlook users are more likely to have business credit cards so if we ever switch to a freemium model, we can charge them. Also, there’s a strong demand for advertising partnership opportunities within Outlook, an application that users interact with for hours each day.

I like to think of it this way: there are a huge number of Outlook users out there who are so frustrated with the program that they feel like there hair is on fire. What Xobni offers is a cold bucket of water.

A Generalized Architecture

One of Xobni’s major differentiators is that we didn’t build a simple addin for Outlook, but an email application platform. Whenever we write software, we aim for a more general solution than what is required by our current needs. We can easily build new applications and build integrations into other email clients, as these leaked screenshots illustrate.



Building this platform took a significant amount of time and effort, but I’m happy that Adam made this decision early on: It allows us to quickly iterate on functionality, and build new, exciting products in the future!

Choosing a Look

Here are some mockups I created more than a year ago that illustrate the looks we had in mind for Xobni. The mockup on the right was our original choice: it blends nicely into Outlook, almost as if Xobni was built into it from the start. We created the third one almost as a joke, to show how the sidebar would look if we used a funky color palette.



We decided to go with the bright, saturated colors, because it would have what we call the “What the heck is that?” effect. Jane would walk by Jack’s desk, and see a bright blob on the right side of his Outlook screen, and she would blurt out: “What the heck is that?” Jack would have to explain Xobni and what it does, and Jane would probably download it once back at her desk.

Search as an Afterthought

Ironically, Xobni’s search function was initially an afterthought – Greg Duffy implemented it just a few days before we launched our private beta at TechCrunch 40. Even considering the rapid pace at which startups do product development, this was an immense accomplishment: Xobni’s search is twice as fast as Outlook’s, thanks to highly optimized and efficient search indexes. That combination of speed and usefulness make search our top-clicked feature.

Launch!

Let’s say you have a great product. How do you know when you’re ready to launch? That’s what I asked Gmail creator Paul Buchheit two months before our launch date. At the time, Paul was pretty skeptical, but he inspired us with an idea he repeated at Y Combinator's Startup School: Before launching Gmail, Eric Schmidt gave him the assignment to find 100 happy users. After talking to users, and eliminating their top feature requests and bugs, they met that number and thus, Gmail was ready to fly. We followed a similar spirit by adding the Are You Happy box to the product, and by listening closely to customers via our support team and users we knew personally.

We originally launched a private beta at TechCrunch 40, a conference where 40 startups launch their product within 2 days. The schedule was very tight, and the days leading up to it were a chaotic blur. In retrospect, we probably launched a little earlier than we should have. The product hadn’t been heavily tested at that point, yet we grew our user base by 50x that very day. With our open beta launch on Monday, we were finally ready in terms of speed and stability, and the feedback since has been extremely positive:

"Xobni is such a simple idea, but it is sure to radically change how you handle email." - Tom Spring, PC World

"For those who work in the corporate world - where Outlook is still heavily used - Xobni's public beta will be of great help, allowing them to quickly find and expose the data trapped in their inbox." - Sarah Perez, Read Write Web

"This plugin looks like it would be insanely helpful. Gmail, are you paying attention? :)" - Comment by Ross M, Lifehacker

"Given that Outlook is pretty much de rigueur for most corporate e-mail systems, this should be a welcome addition for those of you trapped in Outlook at work." - Scott Gilbertson, Wired

"Oh Microsoft, you’ve missed the boat yet again it would seem." - Zach Epstein, The Boy Genius Report

"In just a short few days, I can already share my belief that Xobni is a must download for Outlook users." - Kevin Tofel, kjOnTheRun

"Designed to make it easier to handle the deluge of daily messages, Xobni integrates with Outlook and - to quote our original review - becomes an invaluable weapon in the daily war with email." - Tim Danton, PC Pro

Thanks to Evan Solomon and Sean Ellis for reviewing drafts of this article. Be sure to check out Part III of this series, where I’ll talk about how we built a great company, assembled a superstar team, and built a culture that encourages building solid products.

Further Reading

If you enjoyed this post, be sure to check out my earlier blog entry, The Days before the Xobni Launch which talks about the days before launching our private beta at TechCrunch 40.

If you haven’t done so yet, read the first part of the series "Hello World, Meet Xobni".

Startup School: Surfing the Wave

The most interesting pair of talks at Startup School were Greg McAdoo from Sequoia, followed by David Heinemeier Hansson from 37 Signals. McAdoo talked about how to build a billion dollar company, and Hansson spoke about how to create a small profitable one.



The contrast couldn’t have been bigger: The Sequoia talk was about big words and surfing metaphors. The ridicule in the video's comments shows that the audience was displeased. Hansson, on the other hand, wanted small web companies that charge users. A simple model. People loved it.

In reality, the two talks were about different things. Hansson talked about how to create a profitable business with a web site. This is a well-known if underused model. McAdoo, on the other hand, was talking about building the next Cisco, PayPal, Yahoo, or Google. Billion dollar businesses, not million dollar ones.

In order to make a really successful billion-dollar startup, you do have to have find a large, growing technology market. Marc Andreessen agrees. Xobni, for example, found great market when we changed our focus from an analytics package to today’s sidebar, a product people use for hours a day. We’re now in a much better, billion-dollar market, have a wider audience, and greater odds of success.

So why the disconnect? Two reasons.

First, I think that smart technical people – the kind that inhabit the computer science halls of Stanford, Berkeley, MIT, CMU, ETH and Oxford – have a strong appreciation for beautiful technology: The beautiful technology that, for example, made Google what it is today. But it’s not the technology that created that success, but the fact that people wanted fast full-text web search, which was just happened to be very hard to build. The market did it, not technology.

Second, when business guys mention "identifying customer needs", "designing a platform", and "assembling great team DNA", hackers shrug. Why use these big terms for talking to customers, drawing up architecture diagrams, and recruiting that great hacker? Because these are abstractions. Just like you wouldn't discuss each for-loop when describing what that method does, VCs use these abstractions to communicate effectively. It often takes experience to really understand the meaning behind them. Once entrepreneur, you’ll understand what it means to identify markets and customer needs, and you won’t need the baby steps spelled out for you. You’ll be using those big words yourself.

The Startup School Career

I’m at YCombinator’s Startup School at Stanford. There’s a great audience here with lots of hackers. Still, I think a lot of the guys here came with the belief that their first startup is going to be Facebook. That’s not going to be the case.



There’s a disconnect between the public image of doing startups and the realities of the game. The press wants you to believe that startup founders, through a fantastic idea, become billionaires, complete with Boeing jets and petting zoos.

Reality is different: Entrepreneurship is a career. You start your first startup, maybe with backing for YCombinator, and it will probably go well: Paul Graham said that 57 of the 80 startups they funded are still alive, for some value of alive. You’ll learn all these things that today’s speakers are talking about - angel and VC funding, building a product, finding a market, and making money. You might get sold, might go bankrupt, and maybe you’ll make some money. But with a large probability, you won’t own a Boeing jet when you’re done.

The great thing is that you can put another dime in the slot. The second time around, you’ll have more experience, more firepower, and a track record. This was best illustrated by today’s first speaker, who by the time he got around to doing Xfire, instantly got a term sheet, and 100 days later had a built product. Jeff is another great example of this model.

Startups: It’s not a shot for the moon, it’s most likely going to be your career.

PS: I remember the first time I went to Startup School back in 2005. Seems like a decade ago!

Two Views on Europe

I'm on a short trip to Europe to take care of some things. It's nice here: Well-architected buildings line pretty streets with cozy cafes and without homeless people.

But is it a good place for entrepreneurs? Two friends have sent me two articles with vastly different viewpoints.

The first comes from Foreign Policy: "Europe's Phiosophy of Failure". It points out the anti-capitalist attitudes found in Germany's and France's school textbooks. The author, Stefan Theil, claims that these textbooks portray capitalism as brutal, economic growth as a health hazard, and entrepreneurs as money-grabbing dictators. Having gone to high school in Germany myself, I didn't find this to be true. But times and textbooks may have changed since the pro-American 1990s.

The other article comes from BusinessWeek: "Europe's Crop of Billion-Dollar Babies". It features Giuseppe Zocco, co-founder of my favorite European VC firm, Index Ventures. Zocco talks about how "there are a lot of European companies founded in the past 5 to 10 years that can, with the right support, become billion-dollar companies." Can Europe build bigger companies than Silicon Valley with investors that have a longer time horizon? We shall see.

If you liked this, read: Why Startups don't Condense in Europe.

Giants vs. Sprinters

This is a crosspost of an article I wrote for Swiss Entrepreneurship blog Synetgies.

Most revolutionary new technology products and Internet services come from a handful of large companies and small startups. What's the secret sauce?

Successful and profitable large companies such as Apple and Google invent and produce such products as the iPod, the iPhone, Google Maps, and Gmail. In contrast, startups have developed products and services such as Google Search (back when Google was a startup), Hotmail, PayPal, YouTube, Blogger, Facebook, and Twitter.

Users and the press rave about these products, and they have generated large valuations and profits. How does this kind of product innovation happen?

In this article, I'll contrast product development at large and small companies. I've experienced product development at Google (where I worked on Gmail and some unmentionable projects), Yahoo (where I interned at the end of the last bubble). I'm currently working on my startup, Xobni, where my role involves development as well as setting engineering and product priorities. We're a small team of 10 people and are building new ways to search and navigate your email. Thus, I've seen both ends of the spectrum.

Between the two extremes of small and large companies, there are a few common denominators:

• Both types of companies start with good people who are smart, well-educated, and passionate.


• They provide good tools: High-end workstations, great infrastructure, and good benefits. For example, Google will pay employees for health insurance, serve free food and drinks, coupons towards buying hybrids, gym memberships, and the like.


• They set a culture that is centered on engineers. Engineering and is the scarce resource, as it hard to find excellent engineers who can create great products. Openly or covertly, PR, Marketing, Sales, and HR are seen as second-rate citizens. This is most clear at Google, where engineering is kept on the main campus, but HR and PR are located in "Siberia": office buildings so far away that employees have to use bikes and scooters to commute to meetings.

Most people think of "innovation" as "ideas". But there's no lack of good ideas. At Xobni, we have an internal Wiki page with hundreds of product ideas. At Google, there's the ideas mailing list on which you can find thousands of employee-submitted proposals for new features and new products. I'm sure that Microsoft has an equivalent tool. But anyone who has added to that Wiki, or written to the ideas list knows that they are the place that ideas go to die.

What really counts is execution: At large companies, the ideas that survive have a strong proponent who will get support for the idea, find colleagues to work on it with, defend it in meetings, and launch it to a public. This is what happened at Gmail: Paul Buchheit started working on a webmail client, found others to work with, defended it against VPs who said that an ad-supported model would never work, and managers who said that it is prone to extinction because of Microsoft's control of JavaScript. At startups you'll find the same process (but less meetings): Xobni's most popular feature is search, but it was two of us who took it from a feature added as an afterthought one of the core pieces of our functionality.

Yet, there are many differences. Technology giants and startups both have their own set of advantages that play in their favor when executing against ideas:

Large technology companies

• Resources: As the name says, large companies have tons of people. Once management is convinced of the viability of a project, they can put people, infrastructure, and money to work to make the idea become reality. Giants move slowly, but once they do, the earth starts shaking.


• Experienced management: In Silicon Valley, senior managers at large companies typically have startup experience. They started or joined small companies that got bought or went public. They know how to manage innovation and push interesting projects forward.


• Instant credibility: When Apple, Google, Microsoft, or Yahoo launches a new product, the world listens. If a startup had released Google's phone SDK, there would not have been weeks of Google phone speculation in the press, weeks before launch. Consumers will feel safe buying new Apple products when they're launched, because they would know where to buy and what level of quality to expect. Startups have to build a really good product and build it from the start, build press relationships, and resort to guerilla marketing as needed.

Startups

• Focus, clear priorities: You'll never see a company as focused on progress as a startup. At Xobni, the number one priority is to get high-quality software out the door. There's only this one project: There are no distractions, no talks to attend, no other projects for engineers to switch to. We're all sprinting towards a clear goal.


• Aligned incentives: At startups, employees have significant amount of stock in the company, and their financial future is highly correlated with the success of the company. Thus, there is only one controlling variable: Their contribution to the product. If they can add or improve features, they will. On the other hand, large corporations attract resume stampers who are sometimes guided by self-interest: Their priority is to rise in the ranks, not contribute to overall success.


• No lockstep development: Startups have small numbers of people working on small products. Large companies work on large products with lots of people. These people require coordination and planning. For example, I've heard that the feature sets of Microsoft's Office suite are planned out two releases in advance, with two years between each release. This means that a product manager on Word knows what features the product will have in 2011. If you're an engineer at Microsoft and have an idea, it may not get executed upon until four years from now! In addition, there's the burden of reverse compatibility: Every new feature must be compatible with versions of the software that are decades old.

In summary, we explored differences in how startups and large companies run innovation and product development. There are some commonalities - great people, focus on engineering, and good tools - but startups have large advantages because they are more focused and have no existing customers, products, and profit lines to look after.

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If you liked this article, you will also like Career Advice for High Achievers.

The Xobni Office, Thoughts on Startup Office Space

In mid-May this year, we moved from Adam's apartment into Xobni's now offices at Sutter and Kearney in downtown San Francisco. Xobni was 4 people. Starting Monday, we'll be 9.

Matt looked at dozens of offices. We looked at cheap places, expensive places, places in the Mission, Soma, downtown, and elsewhere. We had nicknames for our options - "Osgood", "Howard", "the dog place", and "the hot girl place" (a building populated by PR and advertising agencies). We went with "the Craigslist place", which was in fact one of the first we looked at. I think we chose well.



You're in a small startup and need to find office space for the team. What should you look for? I'm for inexpensive office space that works. No private offices, no prime office space, no pretentious architects or sixty story buildings.

Note that I won't be talking about how to find a broker, a lawyer, or negotiate with the landlord. Joel can tell you all you need to know about that.

Location, Location, Location

The first rule in real estate also applies to startup offices. You need to be in a great location. At Xobni, we have found that being in San Francisco is invaluable for hiring. Many promising candidates want to be in the city, not an office park in Silicon Valley. Some already live in the city and commute every day via car, Google shuttle, or CalTrain at the expense of 2 to 3 hours per day.

You want to be close to public transportation. The financial district and parts of SOMA are ideal because they're close to Bart, Muni, and the bus system. Parking is expensive but available. (We use the Sutter/Stockton garage.)

You also want to be close to the city center. We were two blocks away from the TechCrunch40 conference where we launched. Same for Web 2.0.

Here's the view from our window.

Eating and Drinking

We typically order in food for lunch and go out for dinner even though we have a fully stocked fridge and snack cabinet. You want to be in a place where this is possible without excessive travel; the hours after dinner are the most productive hours for writing code.

Our lunch options are quite extensive: burgers, salads, Thai, Chinese, Japanese, Korean, Indian, Hawaiian barbecue, crepes, burritos, pasta - you name it. Three of the four surrounding blocks seem to be dedicated to the purpose of feeding office workers. Dinner options are limited by the fact that everything in the financial district closes at 5 pm; you’ll find us at one of a handful of restaurants, Chipotle, the Westfield mall, or the Metreon.

We're also very happy to have a 24-hour 7-11 downstairs, and a Walgreens around the corner to cover our convenience shopping needs. When I need to step out for a bit, I usually grab a Naked juice downstairs and take a walk around the block. Being in the city is hard to beat.

Prime Office Space? Nope

When we were shopping for office space, we looked at a lot of fancy commercial real estate. But as a startup, you won't need fancy Class A space. Marble floors, and monumental glass-and-steel architecture won't make your startup more successful. Paul Graham says: "Professional means doing good work, not elevators and glass walls."

At Xobni, we went for office space with character. Our building was built in 1904, with all the charm of that era. It did come with one luxury, though: prewired Cat 5 Ethernet. The Scribd guys downstairs had to duct tape cable to the floor.

Layout

People have very strong opinions about what office space layouts should look like. Joel, for example, is a strong proponent of private offices. I think private offices are well-intentioned but go overboard.

You probably know that open layouts should be avoided. While everyone in the same room fosters communication, you'll find that you can't focus on complicated tasks because everyone interrupts everyone else all the time.

My experience with cubicles is slightly better. Google's building 41, where I spent all of my Mountain View time, is one big cubicle farm. While there are fewer interruptions, the noise level is still unbearable; cubicles don't filter sound well enough. I also found that Google's compression ratios are unwise. Productivity suffers when you squeeze together with 3 people in the space for 1 person.

We have rooms for 3-4 people each. This is about the size of an engineering subteam will have. Being around people who are all working on the same thing encourages communication about the right things, but keeps interruptions down. I put my 49ers cap and headphones on when I don’t want to be interrupted.



In addition to the offices, we have a central conference room for formal meetings. We also have a quiet nap room with a comfy couch. Taking naps at the workplace sounds unprofessional, but it does make everyone more productive. Adam, for some reason, seems to have missed the memo about the nap room.



There's also a "living room" with nice leather couches. We hold daily meetings with the entire team here. The huge plasma screen shows current bugs and work items, and stats about installs, beta signups, and plus support tickets.

Decoration and Furniture

We didn't get Class A space, but we did spend lots of time decorating our digs. We put opaque glass panes in a wall next to the living room to bring in more light. We painted our walls in Xobni colors, and put up blik wall decals. We recently gave everyone a $100 decoration budget for their personal workspaces. We have yet to see the results, but I'm sure at least one of the Xobnis will get something completely inappropriate.



You only have one back and if you spend a lot of time in a chair, it better be a nice one. That's why we spend money on Aerons, which we buy used from Craigslist. Everything else is Ikea. Everyone gets two desks (Mikael, $69.99) and drawers (Andy, $29.99). Two mikaels per person is a bit too large for our rooms, and we might need to move to a different desk setup when space starts running out.

Developers get three monitors, so some have remarked that our office looks like a Dell commercial. We need to call them up and renegotiate our deal on those LCDs.



I'm very happy with our office. We have room for about 9 more people, which should last for a while. The only item on my wishlist for the next office is a shower.

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Thanks to Adam Smith for looking over an earlier draft of this.

If you liked this, you might enjoy: Photo Story: The Days Before the Xobni Launch.

Why Startups Don't Condense in Europe

(This post is based on a discussion at BarCampZurich back in October. The opinions expressed here are mine, not those of my employer or other attendees.)

When you ask a random but well-informed person, the only European startup he or she will name is Skype, but when you ask about the US, plenty come to mind: Google, Yahoo, eBay, Youtube, and many more. What's the reason for this disparity?

Many have written about this before, including Paul Graham, Xavier Comtesse, David Heinemeier Hanson, and David Hornik and I doubt that my thoughts on this are unique.

Still, here's my take on why there aren't many more European web startups:

1. Lack of Role Models. Even revolutionaries need role models. The fact that others have hit it big before makes startups look like a much more reasonable option. For Europe, there's the aforementioned Skype. In the US, there dozens of very successful entrepreneurs and companies to look up to.

For recent graduates such as myself, going to a big, established company seems like the smartest option. The traditional way of slowly climbing the ladder at a big company is hardwired in our brains.

2. Lack of Venture Capital. While you can start a business with two guys in a garage and a few of thousand Euros, you may at some point need money to grow and hire employees. This is where Silicon Valley's ecosystem of venture capital comes in. We don't have that here in Europe: Here, good VCs who are willing and able to take risks and give valuable advice seem few and far between.

3. Lack of Ambition. When Larry and Sergey started Google, they had global domination in mind. After all, organizing the world's information and making it universally accessible and useful seems like an ambitious goal.

In contrast, Many European startups often grow to a comfortable size of 10 to 20 people, and then stop. It's fun to work with your dozen best friends and enjoy a family-like atmosphere: If you grow any bigger, some of the fun melts away. While you can change the world with just a dozen people, I doubt that the 'next Google' will have just twenty or so employees, or grow organically from an existing small business. Europeans need to aim higher.

4. Attack of the Clones. Many web startups here are rip-offs of existing US companies with established business models. Alando may have started started it all: This Berlin-based company, started by the Samwer brothers in 1998, cloned eBay's functionality and UI in every detail. They sold it to eBay for $43 million after just 6 months, showing that you can win big by simply copying. For today's examples, look at Sevenload, Yigg.de, or Aimido. A little more creativity wouldn't hurt: The potentio upside of doing something truly original is much larger.

5. Fragmented Markets. The US has a single, relatively homogenous market of 300 million people. Almost everyone speaks English, payment systems are the same everywhere, addresses share the same format, and laws are very similar in all states.

The European Union has a total of almost 500 million people. It is a huge, largely deregulated, but heterogeneous market. This makes it unattractive to web startups: For every language and possibly every culture, you'll need a localized version of your product. You could start with one of the three biggest countries, but you'd still need to localize much sooner.

So what? There are many things that Europe is getting right. We have smart people, good universities, and attractive cities. It's easier for qualified people to get a visa in Switzerland than in the US, it's still possible to IPO without too much overhead, and tax rates are quite nice if you incorporate in the right country.

All Europe needs is a few rebels with great tech skills, original ideas, and good connections to VCs. People who fit this profile will ignore all the difficulties and just go for it.

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Thanks to Nicolas Berg, Douwe Osinga, Christophe Dessimoz, Alexandru Balut, Philippe Schoen, Keno Albrecht, Florian Walpen, David McCreery, and Corsin Camichel for attending and participating in the discussion.