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Twitter’s crazy story

Recently I read Nick Bolton’s book “Hatching Twitter.”  It is the story of Twitter and it is fantastic.  Below I paraphrased some of my favorite sections, but if there is any book about startups to read this summer, this is it.

One of the founders had started Blogger.  “Ev explained that Google had approached Ev to buy Blogger. There were over one million blogs hosted on Blogger at the time, and Ev was at a crossroads: He could either take investment money from people in Silicon Valley or, if Google really followed through with the deal, sell for “potentially millions of dollars.” As the lease to the detective’s office had ended, Ev and his employees decided to move back to his apartment before deciding what to do next.” (pg. 20)

He sold to Google, and regretted it.  “Those same programmers didn’t understand blogging, and Ev soon learned that the acquisition of Blogger was facilitated simply to place ads next to people’s blogs, not to try to further the cause of push-button publishing for the people.” (pg. 24)

Great culture builder.  “Before long he began winning the Getting Shit Done Award, a contest that Ev set up to reward the hardest worker of the week. On Fridays a hat would be passed around the office and everyone would drop in the name of the most productive employee of the week. After Ev and Noah tallied the votes, the winner would be announced…Some prizes were monetary; others were gadgets.” (pg. 35)

Jack Dorsey is an odd duck.  Though most people in the office liked Jack, they weren’t shy about telling him his ideas were a bit strange. He was always experimenting with peculiar concepts. One day he showed up to work with a white T-shirt that had his cell-phone number sewn onto the front in giant, dark numerals. He explained to a coworker that it was an experiment.  Jack had done similar bizarre experiments before joining Odeo. In 2002, in his early twenties, he had become enamored with eBay. At the time, he was destitute and didn’t have anything to sell, so he set up auctions where he offered to read the famous children’s book Goodnight Moon over the phone to the highest bidder.” (pg. 36)

They pivoted Odeo hard into Twitter.  “In terms of our new projects, I feel most strongly about Twitter (aka, Twttr). We could have a lot more discussion, and I may change my mind, but I think I just need to make a call at this point, and my gut is pulling me to Twitter,” Ev wrote in the e-mail. “Jack is chomping at the bit to build the thing.”  Ev then gave the go-ahead to start building.”  It was agreed that Jack and Biz could take two weeks to pull together a prototype. Florian would be the main engineer. Noah would oversee development of everything. Jeremy could help with Twitter when needed. Everyone else, including Rabble, Dom, Crystal, and Blaine, should stay focused on Odeo as they continued to search for someone to buy the podcasting company.” (pg. 64)

Twitter was built in two weeks.  “Then finally, two weeks later, Jack sent what would be the first official Twitter update. On March 21, 2006, at 11:50 A.M., Jack tweeted, “just setting up my twttr,” like the first message Ev had sent on his Twitlog a few days earlier.” (pg. 67)

2006 was a resurgence for Silicon Valley.  “It was mid-July 2006, and the Valley had the feel of an amusement park that has just reopened for business. Exciting new social rides were being built on the plots that had once belonged to pet-food Web sites and other pedestrian ideas from the late nineties. And now admission was free. You simply paid in privacy by giving up your personal information for access.” (pg. 70)

Twitter’s primary investor hated it.  “What do you think?” Noah asked George Zachary, the lead Odeo investor, after his demonstration. “It’s amazing, right? It can allow you to connect with your friends!” George stared at Noah with a confused look, quietly wondering to himself why anyone would want to “connect with their friends” when those friends were sitting right there. He thought the group of programmers had smoked something before the meeting and looked around uncertainly. Still, Noah continued with animated examples of Twitter’s ability to connect people.” (pg. 73)

Investors caused more problems.  “Two months earlier, in May 2006, Ev had even e-mailed the Odeo board suggesting that they spin Twitter out into its own company with Noah at the helm: “Why not set up Twttr, Inc. as a separate company – perhaps not wholly owned, but mirrored ownership, seed it with $500k or so and let Noah see what he can do,” Ev had written enthusiastically. But the board was not interested in Twitter; if Ev and Noah didn’t want to continue with Odeo, the investors wanted to sell it to the highest bidder and get their money back. They saw the side project as just another Ev distraction.” (pg. 77)

One of the co-founders left very early.  “Two weeks later, faced with no other choice and no one in his corner, Noah resigned. He stopped by the desolate office on Saturday afternoon, packed his life into cardboard boxes, and let the beige door slam behind him, no longer an employee of two companies he helped start.”  (pg. 80)

Twitter muddled along.  “Having successfully returned the Odeo investors’ five million dollars from his Google earnings, Ev’s mind was elsewhere, focusing on Obvious Corporation and sifting through his ideas. He was still involved in Twitter and was the sole investor, having allocated one million dollars of his own money to nurture the company, though he was trying to leave Jack and Biz to run the operation. But it wasn’t much of an enterprise yet. The site was growing slowly, with only a few thousand sign-ups.” (pg. 91)

The culture was too loose.  “Many of the employees did what they wanted, where they wanted – that was, if they wanted to do anything related to their daily job at all. Rather than fix the servers, people built their own little trinkets and apps that fed into Twitter. Jack had no luck taming them.“ (pg. 92)

Building Twitter in two weeks made it unsound.  “Since the site had been built as a prototype in two weeks using a relatively new programming language called Ruby on Rails, it was rife with shortcuts and code problems. It was as if someone had rushed to build a skyscraper and in the time crunch had chosen to put together the structure with cardboard, glue, and tape, rather than nails, wood, and concrete.” (pg. 93)

Let uses decide what you are.  “Jack saw Twitter as a place to say “what I’m doing.” Ev saw it as more like a mini blogging product. Both of them thought the way people had used it during a mini earthquake the previous summer held clues to what Twitter could be.  Jack had continued to see Twitter as a way to talk about what was happening to him. Ev was starting to see it as a view into what was happening in the world.” (pg. 95)

They won a major award at SXSW.  “I would like to thank everyone in 140 characters or less,” Jack said to the crowd as he leaned forward into the microphone “…and I just did.” He waved, then said, “Thank you,” as the group walked off the stage to thunderous applause.” (pg. 100)

Ev was the sole investor with vision.  “After weeks of private discussions – some over coffees or beers, others via e-mail – they were finally going to decide who would be running Twitter, what each person’s title would be, and how they would split up the stock. Until this moment, the company had belonged solely to Ev, who had financed it with his personal money after buying out Noah and the previous investors almost six months earlier.” (pg. 102)

And he dictated the structure.  “Okay. Here’s the deal,” Ev said, pausing again. He dictated that Jack would be CEO. Biz, Jack, and Ev would be cofounders. Goldman would be the vice president of product. Biz and Jack immediately felt a sense of elation.  As Ev had personally financed Twitter with his own money to date, he told the group that he would retain a 70 percent stake in Twitter. Jack, as CEO, would be given 20 percent of the company. Biz and Goldman would receive around 3 percent each. The rest would be split up among current engineers and new hires.” (pg. 105)

Twitter could have sold out early to Yahoo.  “So what’s the lowest price we sell for?” Goldman asked.  “A hundred million?” Ev hazarded. Biz and Goldman would each get about two to three million dollars if a sale went through at that price. Although such as number is like winning the lottery for most of the world’s population, a million dollars in Valley terms in like finding a quarter between your couch cushions.  Jack had the most to win from a sale. Although he was making seventy thousand dollars a year, he was still flat broke, living paycheck to paycheck, paying off credit-card debt and student loans from a year of college at New York University before dropping out years earlier.” (pg. 111)

And Yahoo blew it.  “They weren’t upset by the offer, as investors were begging to fund the company, but they did think it was comical that Yahoo! would offer such a low number.  “We should really take the deal,” Jack said sarcastically as they all laughed. The comical tone was interrupted as Ev told them what Bradley had said on the phone: that he believed Yahoo! could easily build the technology behind Twitter, that it was “simply just a messaging service” and “a few engineers could do the same thing in a week.” He had concluded that if Twitter didn’t sell, Yahoo! planned to build and release a competitor.  It was a typical relationship offering in the Valley: Either you fuck us, or we’ll fuck you.” (pg. 112)

One VC, Fred Wilson at USV, took a bold step.  “Then in a separate blog post, Fred explained why his firm was investing in a company with no income. “The question everyone asks is ‘What is the business model?’ To be completely and totally honest, we don’t yet know,” Fred wrote on Union Square’s Web site. “The capital we are investing will go to making Twitter a better, more reliable and robust service. That’s what the focus needs to be right now.” Revenue would have to come later.” (pg. 114)

Twitter kept crashing.  “Because of the way the site had been built—hacked together over two weeks—the influx of people on Twitter was making it fall apart. It wasn’t just one aspect of the service that was breaking; it was every aspect of it. Posts weren’t showing up in the timeline. Accounts were disappearing. The site was off-line for hours or sometimes more than a day at a time. The servers were collapsing. And because everything was in such disarray, the employees were revolting. People who used Twitter were complaining as much as the servers. In one instance, a group of Twitter’s faithful users decided to hold an online boycott. They proclaimed, on Twitter of course, that they would snub the service for twenty-four hours to show their disdain for the free site going off-line all the time. On the same day, after reading about the boycott, another group of Twitter supporters decided to send free pizzas to 164 South Park to show their love of the service.” (pg. 116)

Growth was parabolic.  “Its slowness didn’t stop Twitter’s growth. People kept signing up. The press kept coming—some good, some bad. The site kept growing. Every two weeks the number of people joining Twitter doubled.” (pg. 117)

Users dictated how Twitter would work.  “But it didn’t matter what Ev, Biz, or anyone else who worked at Twitter thought or said. In an example of the site taking charge where the founders could not, people continued to use hashtags to organize everything, including group chats, conferences, and discussion of news events.“ (pg. 118)

But the founders couldn’t agree on what Twitter was.  “Jack had always seen Twitter as a status updater, a way to say where he was and what he was doing. A place to display yourself, your ego. Ev, who was shy and had been shaped by his days building Blogger, saw it as a way to share where other people were and what other people were doing.  Ev saw it as a way to show what was happening around you: a place for your curiosity and information. This was the debate that had originated with the concept of Twitter as a news source after the earthquake months earlier. “If there’s a fire on the corner of the street and you Twitter about it, you’re not talking about your status during that fire,” Ev said during one of their unending discussions about the topic. “You’re Twittering: There’s a fire on the corner of Third Street and Market.  In reality, it was about both. One never would have worked without the other. A simple status updater in 140-character posts was too ephemeral and egotistical to be sustainable. A news updater in 140-character spurts was just a glorified newswire. Though they didn’t realize it, the two together were what made Twitter different.” (pg. 123)

The statistics were compelling.  “Twitter laid out its stats: The company was now made up of fifteen employees. There were 1,273,220 registered users on the service. Those people were sending almost fifteen million status updates a month. The outline noted that updates were global, coming from all over the planet. But while the document showed rising numbers everywhere, there was one digit that hadn’t changed since day one: Revenue=$0, the presentation said. They were still paying the bills with the first round of financing from Fred Wilson and other investors a year earlier, but that money was quickly running out.” (pg. 126)

The Fail Whale! “He soon came across an illustration on a stock-photography site by Yiying Lu, an artist and designer from Sydney, Australia, of a whale being lifted from the sea by some birds. This became the new image people saw when Twitter crashed. As the site was going off-line so much, it didn’t take long for the whale to garner its own nickname: the Fail Whale.  Like rolling blackouts in a country already starved of electricity, the site had continued to go off-line daily. The Fail Whale took over the site almost hourly. Some outages lasted a few minutes, others more than a day. The fire hose, the name given to the stream of all the tweets coming through the service for third-party applications, would often turn off.” (pg. 141)

Twitter’s infrastructure was lacking.  “We have a bit of a problem,” Greg began. While he had been running tests on the site, he had discovered that there was no backup of Twitter. “If the database goes down right now, we would lose everything,” Greg said awkwardly. Every tweet, every user, everything. Gone.” (pg. 141)

Facebook could have bought Twitter.  “In the weeks leading up to Jack’s firing, Facebook had been trying to buy Twitter.  Then, as Mark often did when he was trying to buy companies, he had noted that if the founders chose not to sell, Facebook would continue “to build products that moved further in their direction.” A threat with a kiss: You join Facebook and we live happily ever after. Or you say no and we do everything in our power to destroy you. Another possibility to get fucked.” (pg. 164)

And Twitter almost took it.  “It seems to me, there are three reasons to sell a company,” Ev wrote in an e-mail to the board outlining why they should decline Facebook’s offer. 1. The price is good enough or a value that the company will be in the future. (“We’ve often said Twitter is a billion dollar company. I think it’s many, many times that,” Ev wrote.) 2. There’s an imminent and very real threat from a competitor. (Nothing is going to “pose a credible threat of taking Twitter to zero.”) 3. You have a choice to go and work for someone great. (“I don’t use [Facebook]. And I have many concerns about their people and how they do business.”)” (pg. 164)

Facebook got nasty.  “Although the call ended amicably, Mark did not like to lose, and he switched his battle plan from trying to buy Twitter to trying to hire Jack.” (pg. 165)

Jack Dorsey left to start Square.  “And then, finally, Jack found what he was looking for. On a return trip to St. Louis, he met up with his old friend Jim McKelvey, and they started to discuss ideas for a new business they could start together. Jim blew glass for a living and made elaborate glass art sculptures (along with pipes) that he sold to stores and collectors. He told Jack that one afternoon he had missed out on the sale of a large glass sculpture because his customer didn’t have enough cash. They started to discuss a product that would allow people to make such a purchase using a cell phone and a credit card and got to work on an idea they would first call Squirrel, then rename Square.” (pg. 171)

The $21mm round.  “depositing twenty-one million dollars that would value Twitter at more than two hundred fifty million dollars.” (pg. 174)

FB’s Newsfeed is fundamentally different.  “Mark explained that people coming to Facebook to view other people’s profile pages made up a majority of the site’s traffic. Facebook’s newsfeed, or timeline, was being used only as a springboard to get people to look at profile pages, he explained. “We have the exact opposite experience,” Ev said, noting that the Twitter timeline made up 90 percent of the site’s traffic, people’s profile pages just 10 percent.” (pg. 216)

And the offers kept coming in.  “Then Rose interrupted, “And of course, if you guys ever want to just sell the company, we would be interested in buying it.”  At that point Ev had received more offers to buy Twitter than he could count. Yahoo!, Google, Facebook, Microsoft, a former vice president, celebrities, and rappers had all made overtures toward Twitter, and each time Ev had said no.” (pg. 217)

Twitter’s funding rounds were oversubscribed.  “Although Ev had originally set out to raise fifty million dollars in venture money for the company’s fourth round, there was so much interest in Twitter that he would end up raising one hundred million dollars, with New York–based Insight Venture Partners leading the round, which valued the company, for the first time, at one billion dollars.” (pg. 221)

Don’t hire friends.  “When it was Ev’s turn to talk, he asked his first question: “What’s the worst thing I can do as CEO to fuck the company up?” Without skipping a beat, Campbell responded: “Hire your fucking friends!” He went into a ten-minute tirade about friends and business and how they don’t mix. Ev scribbled in his notepad.” (pg. 222)

The CEO and founder was forced out by VC.  “Ev walked out, a microphone in his hand, and delivered his own eulogy, telling employees that he had decided to step into a product role and had asked Dick to take over as CEO.  Within seconds the press started scrambling to cover the announcement. An announcement that didn’t mention the vicious mutiny that had taken place in the boardrooms of Twitter over the past months. An announcement that didn’t mention that Ev had almost been completely out of a job. And one that didn’t mention that Jack Dorsey would be returning to the company. That was all still to come.” (pg. 271)

The culture was a bit loose.  “A note was sent around to employees by the lawyer reminding people that they were not allowed to use drugs at work. People were asked to delete tweets.” (pg. 279)

Jack Dorsey started his return poorly.  “He didn’t praise the previous iteration of the product—Ev’s version—but rather took a couple of slight swipes at it. It was a beta and incomplete, he said.   He had started his preamble by playing the song “Blackbird,” by the Beatles, where a bird with broken wings learns to fly. Fitting. Some of the employees were excited, but many looked around, upset, as Jack disparaged the work they had spent the past two years on.” (pg. 281)

 

The story of Twitter is fascinating and very messy.  There are plenty of lessons on how to/how not to start and run a business.  Enjoy the book.

Visit us at blossomstreetventures.com.  Email Sammy at sammy@blossomstreetventures.com especially if you have a Series A or B opportunity we should look at.  We welcome cold emails.