How to Create the Next Facebook: Seeing Your Startup Through, From Idea to IPO (5 page)

Strangely enough, at the time that it was sued by Yahoo!, Facebook was rather lackadaisical about pursuing patent rights. In fact, it had filed for only 60 patents in its 8 years in operation. Facebook, however, did not allow Yahoo! to use a lawsuit to gain an edge in the market. Instead, the company leveraged its resources to fight back. Facebook shelled out $550 million to purchase patents from Microsoft (the company had bought them from AOL for $1.1 billion a few weeks earlier), and it also purchased roughly 750 patents from IBM (the price tag was not disclosed).

How critically important are patents to the tech industry? They are so important that large tech operators have bought rivals for the main purpose of obtaining ownership of their patents. This appears to be the case with Google’s $12.5 billion deal for Motorola Mobility Holdings. Or look at Apple. In 2011, the company joined with others in a consortium to pay $4.5 billion for patents from Nortel Networks (which had gone bust).

True, a startup cannot engage in these kinds of massive monetary transactions, but there are certainly ways to protect your company’s intellectual property. Think early on about how to obtain patents for your innovations. Owning the intellectual property rights to your inventions may help to blunt patent infringement lawsuits in the future, and it also could increase the core value of your company when you go out to raise funding, sell your company, or go public.

The law has undergone major changes recently with the America Invents Act. If your product is global—and most Web-based products are—then you must file your patent application before you disclose publicly the details of your new technology. Because of this stipulation, it often makes sense to file a provisional patent, which gives you a grace period of 1 year before requiring that you file a full-blown patent. A provisional patent is not particularly difficult to file, and it also is affordable (the filings fees are $250 or less). Regardless of the type of patent you decide to file, however, it is important that you obtain the assistance of an attorney that specializes in intellectual property law before attempting to file a patent yourself. The complexities of intellectual property law can be mind numbing.

One of my favorite t-shirts is from a company called Yammer, which is a social network for businesses (the first investor was Peter Thiel). It seems that whenever I wear it—which just has the logo and the name of the company— some random stranger stops to ask me, “What is Yammer?” One time a woman who must have been in her 70s walked by me and kept saying, “Yammer, Yammer, Yammer.” It’s catchy, isn’t it?

Yammer is, without a doubt, a great company name. Despite how much noise there is in the marketplace, the name Yammer stands out from the crowd. It’s memorable, it catches people’s attention instantly, and it makes people want to learn more. However, coming up with a striking company name is far from easy. I come across many names that are pretty flat and forgettable. Take Facebook, for instance. Although
Facebook
is a great name, the company’s original name was
TheFacebook.com
, which was awkward. Despite some initial resistance, Zuckerberg eventually agreed that “The” was not good for branding.

Company names are crucial, so make sure you spend a lot of time thinking of the right name for your venture. What’s more, make sure you can secure the
URL of your company’s name, as well as the URL of any of the typical misspellings that might crop up. True, many URLs are already taken, which means you’ll probably have to pay off a squatter, (a person who has no plans to use the URL for a website but is only interested in finding a buyer for it) but the purchase of it should be worth it in the end. Facebook had to pay $200,000 for facebook.com and, well, I’d venture to say that the expense was well worth it.

You also need to make sure you can protect your company’s name. If not, you may be forced to change it if you lose a trademark dispute, which can be a disaster. It’s true that if you start using your company name with an Internet service you start to accrue some rights to the name in what is known as a
common law trademark
; however, these types of trademarks are extremely limited and you are better off filing for a trademark registration with the United States Patent and Trademark Office (USPTO). When you are granted a trademark by the USPTO, you receive presumptive ownership of and protection for the name on a nationwide basis. You also obtain the right to bring an action in federal court to protect the trademark.

There are two types of trademark applications you can file: an in-use application or an intent-to-use application. Many technical startups choose the latter of the two because their Web service typically has not hit the market by the time they file their trademark application. Keep in mind that you can also obtain a trademark for a symbol. Facebook, for example, has a trademark on its logo and the Like button.

Here are some other tips for dealing with trademarks:

• Before applying for a trademark, do a trademark search to determine whether another trademark conflicts with your intended trademark. This process should be conducted by someone who specializes in intellectual property law.
  
• A trademark cannot be descriptive. Thus, if you create a medical social network, you cannot get a trademark for “Medical Social Network.”
  
• Enforce your trademark. If another company is infringing on it, insist that it cease its infringement. In many cases, companies accomplish this by sending the offender a cease-and-desist letter—a strategy that Facebook has used several times throughout the years. If you fail or choose not to protect your trademark against infringement, you could lose your legal protection for your trademark.
  

As a social networking company, Facebook deals with many complex laws and regulations, enforceable at both the federal and state levels, involving privacy, data protection, content, protection of minors, and consumer protection. Because Facebook is a global company, it must also deal with the laws of the other countries in which it operates—laws that are often vague and subject to change. All these layers of legal complications can make it tough for Facebook to understand its liability exposures and to operate within the constraints of the law. To this end, Facebook assembled a top-notch legal team. In October 2008, the company hired Theodore Ullyot as its general counsel. Prior to joining Facebook, Ullyot was a partner at Kirkland & Ellis. He was also the chief of staff at the U.S. Justice Department and deputy assistant to then-President George W. Bush. He was even a law clerk for Supreme Court Justice Antonin Scalia. Facebook also brought on a key board member to help with its complicated legal issues: Erskine Bowles. Besides enjoying a successful career in the financial services industry prior to joining Facebook, Bowles also served as White House Chief of Staff from 1996 to 1998.

Of course, it’s impractical for a fledgling startup to hire such high-caliber personnel early in its development. However, it is important to be mindful of some of the key regulatory problems that can occur when running a Web or mobile service, especially when dealing with data on consumers. If you do not follow the letter of the law, you may be subjected to severe legal liabilities. But the law is specialized and is evolving. This is why it is important to hire an experienced attorney.

For example, in late 2011, Facebook struck a 20-year settlement with the Federal Trade Commission regarding the company’s publishing of its users’ information, which violated their privacy rights. The terms of the agreement involved meeting certain ongoing requirements and biannual, independent privacy audits—which, let me tell you, is no walk in the park. It’s not clear why Facebook violated the regulations but it shows that there are consequences to misusing user data. You should also be aware that, depending on the platform on which you build your technical service, you may also be subject to
that
platform’s privacy rules. One mobile app company—Path—learned this the hard way. David Morin, a former Apple employee and early employee at Facebook, created Path to allow users to build a private social network of no more than 150 friends. As it turned out, however, the app actually sucked up each user’s personal information, such as e-mail addresses, names, and phone numbers. The platform that Morin used, Apple iOS, prohibits developers from creating apps that violate its users’ privacy rules. Needless to
say, an app that allows its developer to access users’ contact lists is clearly in violation of Apple’s privacy rules.

Apple’s CEO Tim Cook was livid and demanded that Morin come to his office, where he got balled out. Interestingly, Path was not the only offender. Other notable companies were doing the same thing, like Yelp, but Path became the “poster boy” of the offense and was used by Apple to set an example. Although these companies continue to operate their services and are highly successful, they are certainly more mindful of Apple’s privacy rules. A platform operator like Apple can ban any third-party app it chooses, which could render a company’s business model obsolete in an instant.

Bear in mind that patents and trademarks only serve as protection for specific areas of intellectual property. Computer code is usually protected as a trade secret, and to qualify your code as a trade secret, your company must take certain measures. For example, your company should have confidentiality agreements for employees, contractors, and partners. It should also make invention assignment agreements a standard part of its practice. And have a process in place to secure documents.

Consider that when you go for venture funding, your potential investors will do due diligence on matters of ownership. If the ownership of your company’s intellectual property is not clear, you may not be able to get the funding you need.

Let Facebook’s legal missteps and mistakes be a warning to you. The young startup was embroiled in lawsuit after lawsuit simply because Zuckerberg neglected to think about and guard proactively against potential legal claims that were ultimately brought against the company. Had Zuckerberg refrained from hiring a savvy attorney to mitigate his company’s legal problems, the Facebook we know and love today might not have ever gotten off the ground. So do yourself and your company a favor and seek the counsel of a qualified attorney early who understands the nuances of technology startups. When—not
if
, but
when
—a frustrated former employee or a competitor brings the first legal suit against you and your company, you’ll understand just how valuable this advice really is.

Some men see things as they are and say, “Why?” I dream of things that never were and say, “Why not?”

—Robert Kennedy

Mark Zuckerberg is a product genius. He has an innate ability to understand what type of product users will love. Critical to Zuckerberg’s success in product development has been his understanding that his product—Facebook—must be aligned with his company’s mission of openness and sharing. Zuckerberg describes his company’s approach to product development best when he says: ”We have found that products that are ‘social by design’ tend to be more engaging than their traditional counterparts, and we look forward to seeing more of the world’s products move in this direction.”
¹
However, Zuckerberg’s imperative to create a social product that promotes openness and sharing may not necessarily fit the mission and ideals of your company. So how do you create a product that squares with your company’s mission and yet resonates with your end users? In this chapter, we take a look at the many inputs you can rely on to help you do just that.

No matter how hard you try, you can’t sit people down in a room and teach them how to be creative. Creativity is a skill that can’t be learned, despite the message that countless self-help books and creativity gurus try to sell you. It is similarly erroneous to think, just because you’re smart, that you can figure out how to be creative. Creativity has nothing to do with intelligence. In fact,
some of the most creative people throughout history have had IQs in the normal range.

So, if creativity is not the result of learned knowledge or above-average intelligence, what is it that sets those who are gifted creatively apart from the rest of the pack? Creative people throughout history—like Einstein, Darwin, Mozart, Leonardo da Vinci, and Freud—have been able to bring a fresh perspective to the status quo. They have the innate ability to avoid getting stuck in old, normalized ways of thinking and can, instead, analyze a situation or problem in a new and, ultimately, valuable manner. And as a result of their creative approach to problem solving, they have arrived at some amazing discoveries, as we saw in
Chapter 1
, when we looked at Samuel Morse’s invention of the telegraph.

Add Zuckerberg to the list of figures throughout history who have displayed incredible creative abilities. Part of the reason Zuckerberg has been able to forge creative breakthroughs is because he is a multidimensional person. When he was growing up, he didn’t just read programming books. He loved reading the classics, and one of his favorite works of all time is the
Odyssey
. In fact, he could read the classics in their original language—French, Hebrew, Latin, or even ancient Greek. Furthermore, when Zuckerberg went off to college, he didn’t just study computer science; he paired this more technical-minded major with another major in psychology.

Yes, Zuckerberg is a fan of liberal arts, and his understanding of and proficiency in this subject matter has most certainly contributed to the creativity he displays when he develops products, solves problems, and runs his market-dominating company. The lesson here is: You never know where inspiration springs from. When Steve Jobs was in college, he took a class on calligraphy. Ever wonder why Apple products come equipped with such beautiful fonts? Now you know the source of the inspiration.

Let’s say that you’ve established that you are an innately creative person, and you have even been able to develop a creative idea. You’re set, right? Sadly, creativity alone may not be enough to ensure the success of your product or company. You also need to get the timing right. Keep in mind that sixdegrees.com had all the key features of a social network, but it launched back in 1997, at a time when the requisite technology to make full use of the site’s features was far too expensive for the average user. By the time Facebook launched in 2004, however, the situation had changed drastically. Facebook was poised for growth on its launch because of certain major megatrends, including the following:

• The growth in use and abundance of affordable digital cameras
  
• The ubiquity of broadband
  
• The average user’s increased comfort level with the Internet and growing willingness to disclose personal information on the Web
  
• The emergence of free open source software like MySQL and PHP, which made it possible for a student like Zuckerberg to create a world-class web site
  

If Zuckerberg had been born 10 years earlier and attended Harvard during the mid 1990s, Facebook might not have ever been invented. Entrepreneurs need to have a good sense for where technology is moving, what users want, and a bit of luck, and then jump on the opportunities those two factors present to them.

Make things as simple as possible, but not simpler.

—Albert Einstein

This quote appears on Zuckerberg’s Facebook profile; it is the key to his product development philosophy. However, simplicity is not something that comes naturally to smart engineers. The temptation is to create products that boast loads of features—and not because engineers necessarily want to help end users—but just for the fun of creating interesting, new technologies.

Similarly, when a founder is building a new company, it is fairly common for her to flit from one idea to the next, trying to implement not just one but all of the latest, coolest, and most up-to-the-minute technologies. One day she might focus on mobile. The next day she wants to add a social networking component to her company. Then, after that, she’s all abuzz about gamification. To a certain degree, this type of behavior makes sense, because it is a conditioned response to all the noise that is constantly floating around in the tech space. After all, if there are any constants when it comes to technology, it is that there will always be a new buzzword. Always. But take a minute to think about the one characteristic that each of today’s top companies in tech, including LinkedIn, Zynga, and Pandora, have in common with one another. Give up? Their founders have all built billion-dollar enterprises by maintaining a laser focus on one product category.

For a young startup, straying from your focus is a terrible impulse that needs to be restrained. If you find that your venture has a tendency to veer off
course when it comes to your product development efforts, a great way to regain the focus of your company, your cofounders, and your employees is to get in the habit of saying no to requests to add a little more of this and a little more of that. If you can’t retain focus, your product will most likely wind up being too complex and messy to be helpful or of use to your end users. There’s a phrase for the unfortunate habit of layering product feature upon product feature upon product feature: feature creep. Avoid it!

Idealistically, your product’s purpose should be instantly clear to your end users; they should be able to identify immediately which of their key problems your product can solve. How was this the case with Facebook? Zuckerberg got the motivation to create the site from his frustration with the fact that the printed version of Harvard’s facebook was always out of date. (Zuckerberg did not come up with the name Facebook on his own; it was first used by the university as the name for its directory of new students.) In Zuckerberg’s eyes, it was a no-brainer to give Harvard’s directory of students an online home on the Internet. However, Zuckerberg realized that his site should not just replicate Harvard’s facebook on the Web. He knew that a superior approach to the site was to make it about sharing.

The first version of Facebook was actually fairly simple. It only took a couple weeks for Zuckerberg to bang out the code. The resulting welcome page was fairly bare bones in nature. In a sense, Zuckerberg was really one of the earliest practitioners of an approach called the lean startup, which is championed in Eric Ries’s book
The Lean Startup
(Crown Business, 2011). Ries believes that success is about building a minimum viable product and then launching it to the world to obtain valuable feedback on it from users. After user feedback has been gathered, Ries asserts, it is then easier to evolve the product and gain traction in the appropriate market more quickly.

On their very first Facebook profile page, users could add the following information:

• E-mail address, name, gender, AOL Instant Messenger handle
  
• Relationship status
  
• Courses
  
• One photo
  
• Major and year enrolled
  
• Interests, including movies and books, and one quote
  

The earliest version of Facebook also let you leave public notes for your friends on their Facebook wall, but the concept was fairly basic and downright
minimal compared with the Timeline that each Facebook user has access to today. You could also contact your friends using private messages. That was it—the whole functionality of the site. Not much, huh? But that was the point. Zuckerberg was focused on one thing and one thing alone: Solving a problem for students, which, in the case of Facebook, was helping students share information and connect with one another, perhaps for a study group or a date.

Let’s face it; college is a big-time social experience that is predicated on building and exhibiting your social status. What better way of showing how popular you are than by displaying publicly how many friends you have? As a result, Facebook began to spread like wildfire. After a few months, students at other universities and colleges across the country were begging Zuckerberg to give their campus access to his social networking site.

When you look at Facebook’s very first interface, you can see that it is clean and clearly understandable. Although the company periodically redesigned the web site, it did do so not to make Facebook cooler, but rather to make it even cleaner. Simplicity was a constant focus and, as it turned out, it was a major selling point. At the time Facebook launched, its only real social networking competitor was MySpace, whose design principles were the polar opposite of those at Facebook. Although Facebook used a one-size-fits-all approach to its overall site design and user profiles, MySpace was unwieldy, allowing users to customize their profile easily and, in doing so, creating a sense of chaos on the site. MySpace’s customizable profiles would prove a huge stumbling block when it came to attracting older users who did not want to navigate through the somewhat psychedelic environment its younger first adopters had created.

Facebook’s easy interface resulted in another advantage for end users: speed. All in all, users don’t want to wait for the web sites they visit to load. Slow load times can quickly bring about the early demise of a web service, as was the case with Friendster. Because of its horrendous foundation, Friendster’s pages loaded at a snail’s space; the site could take more than a minute per page to load!

Since the launch of Facebook, Zuckerberg has continued to maintain his laser-sharp focus on simplicity. Take Facebook’s Photos functionality, for example. Compared with rivals like Flickr, Photos seemed like a poor product. The resolution of uploaded images was low, users were not allowed to print photos off the site, and you could not even order the photos to be printed by a third party. In the end, however, these apparent shortcomings did not matter to end users. What mattered was that, in keeping with Zuckerberg’s mission to enable online sharing, Photos allowed users to tag their friends in pictures in which they appeared. Photo tagging turned out to be yet another killer
Facebook feature, and in short order, Photos dominated the online photo-sharing space.

Although a basic—even elementary—design was appropriate for Facebook, it is not necessarily the best approach for every startup. As with everything, the intricacy, look, and feel of your product’s design depend entirely on its purpose. For example, if you want to create an app that allows users to “try on” digitally this season’s latest fashions, your product almost assuredly requires a rich multimedia experience. Fashion is not the only product category for which a more robust design experience is appropriate. Take Fab.com, which bills itself as a flash-sales site for “discovering everyday design.” When you navigate to Fab.com to search for potential purchases, you get the feeling that you have been included in a special experience. The site’s layout and design just has a way of pulling you in to buying things.

An elegant design may also be necessary if the success of your app depends on establishing instant trust with your users. If your application deals with people’s money, it is particularly important that you design it in a professional yet accessible manner, lest potential users take one look at your product and decide there’s
no way
they would entrust their hard-earned cash to what appears to be an amateurish operation. How do you communicate that yours is a company to be trusted? Just look at Square. One glance at its interface tells you that Square is a company that cares about simplicity, professionalism, transparency, and quality. What’s not to trust?