Skype Founder To Students: Don’t Follow The Obvious Path – Venture Capital Dispatch – WSJ

Posted: March 12, 2011 in Uncategorized
By Deborah Gage

About 300 Stanford business students showed up to listen to a guest lecture this week — even though it was the last week of the quarter and they had projects due.

Skype co-founder turned venture capitalist Niklas Zennstrom

But when the speaker is Skype Technologies co-founder turned venture capitalist Niklas Zennstrom talking about the long, hard process of building a company – well, schoolwork can wait.

Although he steered clear of discussing Skype’s IPO, which is expected later this year, Zennstrom did talk Tuesday about how Skype was a third attempt at building a company: Its free Internet phone service evolved first from a peer-to-peer file-sharing service called Kazaa that ran afoul of the music and film industries, and then from a distributed database company called Joltid that was running out of money and needed a way to make free phone calls.

“One day I said, ‘Hey, wait a minute – we’re pretty good at going through routers and firewalls,’” he said. “Also all the existing services were built by engineers for engineers – so let’s take advantage of our peer-to-peer technology and make it super easy to use.”

He talked about how hard it was to raise money for Skype in the wake of the dot-com crash. Bill Draper bet on Skype without knowing anything about the technology, but wanted another investor to match his funds, and finding that investor took a year.

And he talked about the difficulty of hiring the right people. “Many times I’ve seen that you hire someone who’s an MBA and has gone to the right companies, and it’s almost too perfect sometimes. This person is very bright, but also someone who’s afraid of taking risks. It’s great to try to do other things, to not just take the obvious choices – the most prestigious choices.”

As a venture capitalist – Zennstrom founded Atomico, which has offices in London, Sao Paulo and Hong Kong – he continues to seek out and back disruptive companies. He mentioned Memolane, which gathers your bits of social data and puts them in a timeline; and Fon, which crowdsources Wi-Fi networks – it enables users to get free roaming around the world when they travel, as long as they share access from home. This week, his firm announced it contributed to a $42 million round for Rovio Mobile Ltd., creator of mobile gaming sensation Angry Birds.

Here are his answers to some of the Stanford students’ questions.

On how not to start a company that everyone else would start:

Look for when the environment is changing — the big shift now is mobile Internet. It’s really happening big-time. The way you interact with services on a smart phone compared to the Web is quite different, so there’s a huge opportunity.

But the trick here is to try to figure out the thing that’s unexpected. When we started Skype, if you look at analyst reports, no one forecasted it as a big business. Also when Google started, it was not fashionable to be in search. It’s not trying to do the obvious – that’s the hard part. You have to figure out what it is – you have to stumble on it.

On the advantages – and disadvantages – of starting a company in Silicon Valley:

Most tech companies are U.S.-based, even Silicon Valley-based. So you have to partner, and if you’re not here you have to travel. Silicon Valley is the best place to start a tech company in so many ways.

But the disadvantage is if you hire good talent, you lose them to someone else who will hire them for a hotter start-up than you have, so there’s not the same retention. Also in Silicon Valley, so much is centered here that people lose sight of the rest of the world.

International markets are much bigger than the U.S. In Sweden we have 9 million inhabitants, and if you’re successful in Sweden, you’re not successful – it’s such a small market. Like Volvo and Ikea and others, we realized that we have to go outside our home market. We didn’t think about one market — the world is our market. You have to travel around to find the right partnerships and people, so we spent time in China, Brazil, Japan, the U.S. and Europe. If you’re in Europe, you can turn it to your advantage, but the disadvantage is your software developers are not all in one place.

(Skype is headquartered in Luxembourg and has offices all over the world).

On why Skype succeeded where others failed:

Timing is important. No one was interested in that space. AOL Instant Messenger, ICQ and Microsoft all had voice in their IMs, and it was all crap — push and pull, where you had to hold down a button. We managed to do a good job. We had groundbreaking technology and we knew no one would come out right away that could be compared with us. Everything was viral — we needed critical mass. Someone would download Skype and make a phone call to friends, and it would have better quality than the telephone. Then they’d tell their friend or their mother or sister or brother, get Skype. It took time for big companies to offer competing services. By 2005, we had critical mass.


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