How to Create the Next Facebook: Seeing Your Startup Through, From Idea to IPO

by Tom Taulli

  Zuckerberg’s mistakes in the early years provided him with another crucial lesson: the perils of corporate imprinting. This is a natural human behavior in which employees copy their leader. If the CEO wears a hoodie, guess what? Everyone else will. If they take up smoking, get ready for many employees to do so as well. And if the CEO gets married, expect lots of wedding invitations.

  It’s almost comic, but it’s very real. This is why a CEO needs to be constantly aware of their own actions. How will they be interpreted? Is the right example being set? What about the nuances?

  These questions can be vitally important for young CEOs, who may be on the wild side. This became a problem in the formative stages of Facebook, when the corporate environment was more like a raucous college dorm.

  Having fun is a good thing, but there are boundaries. When things go too far, a company can alienate its employees and even trigger lawsuits. It may also result in chaos, which can make it tough to get things done.

  Zuckerberg began to see problems emerge, and he took swift action to bring more professionalism to Facebook. He definitely set an example when he pushed out Sean Parker, who was an unabashed partier.

  Unfortunately, it seems as though many of today’s startup CEOs are not taking this approach. One example has been Groupon’s CEO and co-founder, Andrew Mason. Since his company came public in late 2011, the stock price has plunged. A big problem has been the issue with the accounting and the financial system.

  In 2012, Mason began have town-hall meetings with his employees to focus on finding ways to make the company more professional. Yet at the first meeting, he was drinking beer—and he burped! It was funny, but it continued the organization’s goofy tone. It was so over-the-top that the story landed on the front page of the Wall Street Journal. It was the kind of PR the company didn’t need and investors didn’t want to see.

  Beyond focusing on creating an open environment where criticism is encouraged, and understanding the dangerous consequences of corporate imprinting, what are some other best practices for budding CEOs? The rest of this chapter looks at the key factors of Zuckerberg’s journey to becoming a great CEO.

  Just Say “No”

  As your business gains traction, you will inevitably attract lots of interest from third parties. There will be requests for partnerships or even buyouts. Of course, many salespeople will try to sell you stuff.

  All of them will be convincing and complimentary about your company, but don’t get sucked in. Perhaps one of the most valuable traits of a successful CEO is the ability to say “no.” Otherwise you’ll get sucked into too many trivial activities, which means not having enough time for the important things.

  In some cases, you need to put a stop to certain projects because they show few signs of success. It’s not easy to do, but the costs of continuing such endeavors will only stunt your company’s growth.

  Zuckerberg has nixed many projects, such as a social calendar and the Deals business, even though significant resources had already been invested. But it didn’t matter, because the efforts were not getting much interest. As the saying goes, “Fail fast.”

  Speed

  Competing against mega-companies is daunting, and it may seem impossible to prevail. But there is something a small company can do that a big company can’t: move fast. Always keep this in mind. It’s a key advantage.

  As your company grows, it’s easy to allow friction to seep in. A CEO may become cautious and start avoiding risks, which is a natural response. But according to Zuckerberg, a company needs to keep moving “fast and break things.” If you aren’t making mistakes, then that’s when you know you aren’t working fast enough.

  It’s true that you should continue to engage in vigorous debate and analysis when making decisions. But you need to do so with urgency.

  Zuckerberg has taken a direct and quick approach to making decisions. This means clearly stating his positions, listening to others, and then taking clear-cut action. This approach can seem impersonal and harsh, but it’s necessary for success.

  Avoid the Evils of Politics

  Politics are the enemy of innovation. If employees are more concerned about their own agendas—and career paths—then they are about the business—it will be tough for a company to grow for the long haul.

  Although politics can never be eliminated, they can be managed. Consider that Zuckerberg has made this a focus of his Hacker Way, which declares

  Hackers believe that the best idea and implementation should always win—not the person who is best at lobbying for an idea or the person who manages the most people … Code wins arguments.

  This approach is worth considering for your own venture. It should help keep up your company’s momentum and unleash innovation. But it’s critical that the CEO frequently talk about the importance of focusing on results, which must become part of the company’s DNA.

  Data-Driven

  Many CEOs delude themselves: they ignore information to the contrary and think their business is doing well. Even CEOs of public companies have been known to do this.

  During boom times, it’s possible to thrive with this approach. Just look at the dot-com era. Showing metrics such as surges in users was enough to raise huge amounts of capital. But when the VC market collapsed, many companies were wiped out. Only those that focused on sound business models—like eBay, Priceline, and Google—were able to survive the nuclear winter.

  To be a great CEO, you need to constantly track data and understand the trends. Although the implications may not always be clear—at least in the short run—you’ll be in tune with the reality of your company.

  Question Assumptions

  This is a big one. A CEO should not accept the conventional wisdom. It’s often wrong!

  Zuckerberg has always been good at asking his team “Why?”—especially those who say something can’t be done. This approach has been effective in reaching deeper truths, which may point to great product ideas or innovative business models. For example, when he thought about having a photo-sharing concept, it seemed like a bad idea. Did the world need another way to share pictures? But Zuckerberg found a way to use Facebook’s social graph to make his version a game changer.

  He has also focused on getting to the essence of things. This means constantly striving for simplicity. Consider that some of Facebook’s best features include basic concepts like friends, Likes, and events.

  Don’t Be a Fake CEO

  This is something that Zynga’s Mark Pincus talks about. A fake CEO is someone who believes that image is everything. Such a person thinks of themselves primarily as a hot celebrity, not a leader who is focused on customers and the product. A fake CEO would rather post on Twitter or opine on matters at conferences.

  In the meantime, the company doesn’t have a real leader—just someone self-absorbed. Keep in mind that your employees have strong BS meters and should be able to easily detect when a CEO is superficial.

  This is not to say that you should avoid publicity. As Chapter 7 discussed, PR is a great way to help grow your company and to become a thought leader in the industry. But don’t believe your own press clippings.

  A CEO needs to have a balance as well. Pursing the business on a 24/7 basis can quickly lead to burnout. Zuckerberg has dealt with this by setting a personal challenge each year. To meet one such challenge, he vowed to learn Mandarin Chinese; another year, he only ate meat from animals that he killed!

  Setting these kinds of challenges is great, and they don’t necessarily have to be focused on your business. It’s better if they’re beyond it. Having an open mind can be a big help in promoting innovation and bringing new perspectives.

  Follow Your Passion

  Since he was an early teen, Zuckerberg had a passion for creating applications. When he built something, it was usually a product he wanted for himself. There are cases where a successful entrepreneur may not necessarily be passionate about their business, but this can be tough to maintain in the long term. />
  Passion is contagious. It attracts top employees. It gets customers excited. It attracts the interest of partners. All these factors create a virtuous cycle, which helps to create great companies.

  Summary

  As you’ve seen in this chapter, there are no solid rules for being a successful CEO. All great leaders—such as Jack Welch, Steve Jobs, and Jeff Bezos—have unique approaches. Zuckerberg has evolved his own, and it has worked extremely well. The same will be the case for your own journey. Don’t necessarily copy from Zuckerberg: a better idea is to learn from his ideas and see how they fit with your vision.

  The next chapter looks at an area in which being a great CEO is critical: building teams.

  The Team

  Be nice to nerds. Chances are you’ll end up working for one.

  —Bill Gates

  From the early days, Mark Zuckerberg knew he needed to snag super-smart engineers, and he spent a good amount of time on recruiting. But he also knew that intelligence isn’t everything. Zuckerberg wanted all employees to fit into the corporate culture, which emphasized collaboration, excellence, and moving fast.

  Hiring is a core competency at Facebook, and headcount soared from 2,126 to 3,539 from 2009 to 2011. And that’s not the end of the company’s growth. Facebook’s headquarters in Menlo Park, CA, is about 2.2 million square feet. On the wall is posted an interesting phrase: “This journey is 1% finished.”

  In this chapter, you also take a journey: to understand the nuanced process of recruiting talent. It’s a critical part of success—and extremely hard to pull off. You can learn from some of the techniques that have helped Zuckerberg put together a world-class team.

  Mistakes and Stages

  Many of your hiring decisions will be mistakes. That’s a fact. Get used to it.

  Zuckerberg learned this lesson quickly when he brought on Eduardo Saverin as his co-founder. Saverin was supposed to provide the business savvy for the company, doing things like creating the ad business and raising capital. But his efforts turned out to be underwhelming and even a hindrance to Facebook’s progress. The company wasn’t his top priority—he didn’t even leave Harvard in 2004 to go to Silicon Valley with the rest of the team. That was a big-time red flag.

  Zuckerberg took swift action and forced out Saverin. It was messy and gut-wrenching, but it was the right move.

  Zuckerberg still needed a strong business partner, and he found that person with Sean Parker. It’s true that Parker was wild and something of a party boy. For example, he hired graffiti artists to paint Facebook’s offices (including risqué images in the men’s bathroom).

  Despite this, Parker proved to be invaluable during the company’s initial success. He set up a Delaware C-Corp and put in place the mechanisms to give control to Zuckerberg (provisions in the shareholder agreement gave Zuckerberg the power of choosing the board members). Parker also made some key hires, including Matt Cohler, Kevin Colleran, and Aaron Sittig. He also helped with funding: he made key introductions to Reid Hoffman, Mark Pincus, and Peter Thiel.

  But after a while, Parker turned into a liability. He was accused of questionable personal behavior, so Zuckerberg had to move him out. (Parker went on to help start companies like Spotify and become a billionaire from his stock in Facebook.)

  Zuckerberg wanted some “adult supervision” to make sure Facebook would continue to grow. In September 2005, he hired Owen Van Natta, a former executive at Amazon.com. When he came on board, Facebook had only 26 employees and about $1 million in revenue. But Van Natta knew how to scale the organization and wasted little time in adding hundreds of employees. He also created the crucial infrastructure to accommodate the explosive growth, particularly in the sales organization and finance department. After a couple of years, Facebook reached $150 million in revenues. It certainly helped that Van Natta was a great dealmaker and negotiator.

  In the meantime, Zuckerberg focused on the product, with the help of standout people like his school buddies Dustin Moskovitz and Adam D’Angelo. They were a tremendous source of energy and innovation, which helped to fend off rivals like MySpace.

  By early 2008, problems were emerging. The launch of Beacon was a total disaster and hurt the company’s credibility. Zuckerberg had no choice but to pull the product. Going forward, he knew he needed someone who could get the company to billion-dollar revenue levels. But Van Natta was the wrong person—his skill set was for early-stage ventures.

  Zuckerberg went on another search and found Sheryl Sandberg. Even though she was only in her late 30s, she already had a stellar career. After earning an MBA at Harvard, she went on to be chief of staff of the US Treasury Department. In 2001, she joined Google; she eventually became vice president of global online sales and operations, where she helped to build the company’s incredible business model.

  Zuckerberg saw that Sandberg would be the perfect fit. But it wasn’t easy bringing her on board. He spent several months wooing her with dinners, meetings at conferences, and lots of phone calls.

  In March 2008, Sandberg agreed take the post of chief operating officer for Facebook, which was the number-two spot at the company. It turned out to be a great move. Within four years, Facebook hit $4 billion in revenues and $1 billion in profits.

  It’s important to understand that it’s incredibly hard to find someone with the skill sets to scale a business to the levels Facebook has reached. It took about six years for Facebook to reach $1 billion in revenues.

  Managing this growth is extremely difficult. What is it like to hire 500 employees in a year? More important, how do you manage them all? To be successful, you need a company with a strong organization, with people who can work at breakneck speed. The employees need to understand how to deal with the biggest problems. There is simply no time to waste on trivial issues—it will only slow the company’s growth.

  It’s true that big-time risks are associated with hyper-growth. But when you’re approaching a new market—such as social networking, social gaming, or daily deals—it’s a race to get to dominance. Once that’s achieved, it becomes tremendously difficult for others to threaten the market.

  As you can see, building a team and scaling for growth is an evolving process. A CEO needs to realize that certain people may be best for only part of a company’s life cycle. This means a new person will need to come on board to take the venture to the next level. This process requires a lot of strategic vision, but it’s essential when creating a breakout company.

  Before diving into the best practices of recruiting, let’s first look at the topic of bringing on a co-founder.

  Need a Co-Founder?

  There’s no easy answer to this question. It’s true that many great companies have had co-founders, including Google, Yahoo!, Apple, and Microsoft. But other great companies haven’t, such as Amazon.com and Dell.

  There are certainly advantages to having a co-founder. You have someone to bounce ideas off, and you can benefit from the extra help (the work of a startup is enormous).

  VCs will be encouraged because they will see your focus on teamwork, which helps minimize risks. But they also want to see co-founders with complementary skills. Often this means that at least one person has a technical background. At Facebook, Zuckerberg filled this role, but Dustin Moskovitz provided critical help with operations and the business strategy.

  You need to be extra careful when finding a co-founder. Keep in mind that breakups are common, which can prove to be fatal. Ideally, you want a co-founder you’ve known for several years and with whom you have chemistry. They should also share your values and outlook on life.

  Once you have the right co-founders, it’s time to put together your core team. Let’s look at some strategies.

  Recruiting

  Over time, you’ll come up with your own style of recruiting. You’ll learn from your co-founders and advisors, and you’ll develop your own techniques. But to get things going, here are some ideas to consider:

  Big-resume people: When
you grow, you need these types of employees. But when you hire them, put them at a level below what their skill set can handle. This is a good way to test the person and see if they truly believe in teamwork.

  Walks: Zuckerberg got this technique from Steve Jobs. He took long walks with potential recruits, which was an effective way to get to know the person and see if they fit with the corporate culture. Zuckerberg would often walk to the edge of a hill and say to the recruit that Facebook’s best days were still ahead of it.

  HR department: Zuckerberg didn’t believe that an HR person should be in charge. He hired a top engineer to run the department.

  Interviews: Resumes mean little. They don’t give you any insight into key things like resourcefulness, ethics, and the ability to communicate. But an interview helps. It’s good to include many people in the interview process: five to ten from across the organization. This may seem like a lot, but it’s worth the effort. The costs of hiring the wrong person are much higher.

  Hypothetical: A good way to get a sense of a potential employee is to ask a question in the following format: “What would you do if …?” The answer should give you a good idea of the person’s approach to decision-making.

  Experience: It’s often not important. If anything, deep experience may mean that a person is set in their ways.

  Work environment: Create an environment that you would want to work in. When your employees see that your company is a great place to work, they will tell their friends. Some of the best recruits come from referrals.