Exit Interview is a new Signal vs. Noise series that talks to founders to see what happens after companies get acquired.

“We’re betting that Shopzilla will become the way that people shop online,” said Kenneth W. Lowe, president and CEO for EW Scripps in June of 2005, after the company bought Shopzilla for $562 million in cash. Shopzilla co-founder Farhad Mohit echoed, “With Scripps and its lifestyle brands, media assets and financial resources backing our team and vision for building the ultimate shopping service, we are assured of the chance to continue building Shopzilla into a site that consumers worldwide will choose every time they want to shop online.”

But it didn’t take long for the partnership to sour. Mohit now says, “It became obvious to me that Scripps was more interested in milking the search engine marketing arbitrage cash-cow that we had created, than in going after true customer loyalty by offering a universal shopping cart enabled service that could take on Amazon.”

Mohit was also disappointed that Scripps didn’t offer more incentives to the Shopzilla team. He says, “In order to execute on the big vision, I told corporate that they would have to put aside a good sized employee pool tied to Shopzilla’s performance (not Scripps performance overall which we could not really affect) and to give a healthy percentage of the upside to our employees, financially incentivising everyone to bust ass to take us from a $500 million company to a $5 billion one.

“I remember telling them that even if they give $1 billion to the employees, if they ended up with a $5 billion company it would be worth it. I illustrated this with a simple graph that showed three possible trajectories that corporate could bet on happening, depending upon how well they kept their best and brightest engaged.

"They declined to offer a significant ‘MIP’ — Management incentive Plan — and they ended up right in between the orange and red lines."

Parting ways
By Febuary of 2007, Mohit had seen enough and left. "When I saw that our vision was not going to be executed and that our corporate parent was more interested in managing costs, there was not much reason to stay any longer." Mohit, Henry Asseily (CTO and co-founder), and John Phelps (CEO at the time and employee #8) all quit at the same time.

"Innovation essentially came to a standstill after the sale and has continued to be frozen for years," according to Mohit. "In nominal terms, they are just as well off. But in relative terms, given all the innovation that has taken place in the commerce landscape, and the advent of social, mobile, local, and online-to-offline commerce, I feel that Shopzilla totally missed the opportunity to build a monster franchise."

This month’s Inc. cover story: Jason Fried on how to get good at making money.

I got FileMaker Pro (I paid for it with the stash I’d saved up selling stuff to my friends) and started messing around. After a few months, I had solved the problems I had with organizing my music. I knew what music I had, where it was, whom I had loaned it to, how much I paid for it. The solution was elegant and easy to use. I called it Audiofile…Before making it available to other AOL users, I added a limit in the program—people could file 25 CDs for free; after that, it would cost $20 to unlock Audiofile and remove the limit.

I remember my first customer. One day my parents gave me an envelope. It came from Germany and had those airmail stripes at the top. I opened it up, found a screenshot of Audiofile printed on a piece of paper—and a crisp $20 bill. More envelopes rolled in. Over the next few years, Audiofile probably generated $50,000—not bad for a kid in college in the early ‘90s.

The lesson: People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.

Read the rest.

In late 2004, Daniel Baker (right) was a newly minted private pilot flying Cessna 172s around the country. “I wanted my friends and family to be able to track my flights just as they could if I were flying on a commercial airline,” explains Baker. “I may have been piloting the aircraft myself, but I still needed a ride once I landed. There were a few commercial products that provided this service for around $1,000 a month, but that wasn’t a realistic solution for friends and family. I got in touch with the FAA and after learning a bit about working with the government, managed to obtain a feed of the live flight data.”

Baker then started working during his free time to build an infrastructure for processing the data and a web interface. He recruited friends Karl Lehenbauer and David McNett to help out too. After six months they released FlightAware.com to the public. The site “took off like wildfire” within the pilot community, according to Baker.

“Before long, the phone started ringing,” he says. “A guy called asking for a data report. I was so excited that someone was interested in us that I produced an Excel file for him for free. The next day, someone called asking for a similar project and I charged him $200, which he gladly paid. Later that day, another call, and I charged $500, which was no problem. It didn’t take long to realize that we had stumbled into a real business. It also didn’t take long for the call volume to encourage me to hire someone to answer the phone.”

The rapid growth led to hardware and bandwidth expenses. At first, Baker used his credit card to cover the costs. He says, “Initially, I bought a server for $6K and just put it on my AmEx. I figured it would all work out; I did the math and at our October 2005 run rate of $20/day, I’d be able to pay myself back in just under a year. I was OK with that. Quickly, it became clear that we were going to grow a little faster than that and we all chipped in for more hardware, some graphic design, and bandwidth. All in all, we only fronted about $25K before we broke even in March of 2006. And we have been profitable ever since then.”

The inside scoop on flights
Now, the site is a full fledged hit. Unlike airline-centric sites that simply pass on the flight status straight from the airlines, FlightAware.com shows the real-time, inside scoop from air traffic control data and other operational data sources. This includes radar positions, flight plan re-routes, and weather on interactive maps, delay projections, trends, and more. According to Baker, the site serves over two million people per month, split about 50/50 between airline and private flights. It displays over 150M ads every month.

When people talk about their IT departments, they always talk about the things they’re not allowed to do, the applications they can’t run, and the long time it takes to get anything done. Rigid and inflexible policies that fill the air with animosity. Not to mention the frustrations of speaking different languages. None of this is a good foundation for a sustainable relationship.

If businesses had as many gripes with an external vendor, that vendor would’ve been dropped long ago. But IT departments have endured as a necessary evil. I think those days are coming to an end.

The problem with IT departments seems to be that they’re set up as a forced internal vendor. From the start, they have a monopoly on the “computer problem” – such monopolies have a tendency to produce the customer service you’d expect from the US Postal Service. The IT department has all the power, they’re not going anywhere (at least not in the short term), and their customers are seen as mindless peons. There’s no feedback loop for improvement.

Obviously, I can see the other side of the fence as well. IT departments are usually treated as a cost center, just above mail delivery and food service in the corporate pecking order, and never win anything when shit just works, but face the wrath of everyone when THE EXCHANGE SERVER IS DOWN!!!!!

At the same time, IT job security is often dependent on making things hard, slow, and complex. If the Exchange Server didn’t require two people to babysit it at all times, that would mean two friends out of work. Of course using hosted Gmail is a bad idea! It’s the same forces and mechanics that slowly turned unions from a force of progress (proper working conditions for all!) to a force of stagnation (only Jack can move the conference chairs, Joe is the only guy who can fix the microphone).

But change is coming. Dealing with technology has gone from something only for the techy geeks to something more mainstream. Younger generations get it. Computer savvyness is no longer just for the geek squad.

You no longer need a tech person at the office to man “the server room.” Responsibility for keeping the servers running has shifted away from the centralized IT department. Today you can get just about all the services that previously required local expertise from a web site somewhere.

The transition won’t happen over night, but it’s long since begun. The companies who feel they can do without an official IT department are growing in number and size. It’s entirely possible to run a 20-man office without ever even considering the need for a computer called “server” somewhere.

The good news for IT department operators is that they’re not exactly saddled with skills that can’t be used elsewhere. Most auto workers and textile makers would surely envy their impending doom and ask for a swap.

Whether it’s Flickr, Delicious, MyBlogLog, or Upcoming, the post-purchase story is a similar one. Both sides talk about all the wonderful things they will do together. Then reality sets in. They get bogged down trying to overcome integration obstacles, endless meetings, and stifling bureaucracy. The products slow down or stop moving forward entirely. Once they hit the two-year mark and are free to leave, the founders take off. The sites are left to flounder or ride into the sunset. And customers are left holding the bag.


Flickr was acquired by Yahoo in March ‘05 for $35M
The Flickr announcement of the deal said, “We’ll be working with a bunch of people that Totally Get Flickr and want to preserve the community and the flavor of what is here. We’re going to grow and change, but we’re in it for the long haul, with the same management and same team.”

But in 2008, co-founders Caterina Fake and Stewart Butterfield both left the company. In 2009, many engineers from the service were laid off or left on their own.

Meanwhile, Facebook kept taking a growing share of photo traffic. Yahoo’s top executives barely mentioned Flickr publicly (and few of them actually have a public Flickr account). Decision-making at Flickr slowed because of bureaucracy. “We just missed some opportunities that we could have tried if we were independent and raised our own money,” Butterfield said. “Who knows what would have happened?” He said ideas to give more visibility to photos of breaking news and ideas for international expansion never got off the ground.

Ex-Flickr Architect Kellan Elliott-McCrea also blamed the Yahoo bureaucracy for slowing the Flickr team down. “Roughly 15% of any of the large projects they (we?) tackled over the last few years (internationalization, video, various growth strategies, etc) went into building the feature. 85% was spent dealing with Yahoo,” he said. According to a worklog he kept in 2008-2009, 18 meetings scheduled over a 9 month period discussed why Flickr’s API was poorly designed and when it’d be shut down and migrated to the YOS Web Services Standard. He said, “That kind of stuff slows you down. Especially when you’re being starved for resources.”

On the plus side, Yahoo says it’s still “absolutely committed” to Flickr. And Butterfield says that although Facebook is grabbing more mainstream photo sharers, Flickr continues to be the leader among photo enthusiasts.

Delicious was acquired by Yahoo in December ‘05 for $15-20M
Delicious’ Joshua Schachter announced the deal saying, “Together we’ll continue to improve how people discover, remember and share on the Internet, with a big emphasis on the power of community. We’re excited to be working with the Yahoo! Search team – they definitely get social systems and their potential to change the web.” Meanwhile, Yahoo promised “to give Delicious the resources, support, and room it needs to continue growing the service and community.”

But then the app seemed to go stagnant. Traffic dropped. Schachter claims he was stripped of responsibilities and employees within a year after acquisition. “My boss didn’t agree with my technical design or product direction,” said Schacter. “It was phrased more like ‘you should be the idea guy, we’ll find other people to run engineering for you;’ the guy he decided would be good was ultimately him. However, he mostly spent all his time on Answers and none on Delicious, so it was more like absentee landlordism.”

Schacter left Yahoo when his contract was up, in June of 2008. “I was largely sidelined by the decisions of my management,” he said after leaving. “It was an incredibly frustrating experience.”

Recently, a leaked slide revealed Yahoo might be planning to “sunset” the app. Schachter vented, “[Yahoo!] killed a lot of good startups, wasted a lot of engineers’ time, etc. Perhaps I spent too much time inside that particular sausage factory. I wish I had not sold it to them. The cash and freedom do not even come close; I would rather work on a big, popular product.”

MyBlogLog was acquired by Yahoo! in January ’07 for $10M
Upon acquisition, Chad Dickerson, senior director of Yahoo Developer Network, said, “We don’t plan on making any immediate changes to the MyBlogLog Web site, distribution or branding. We want to encourage and not disrupt the continued growth of the MyBlogLog community and foster the innovation that has already made MyBlogLog an indispensable part of [users’] lives.”

The tech world is obsessed with what’s next. It has become so used to the constant flow of new products and new companies that newness itself has been placed on a pedestal. But outside of a few breakthroughs here and there, most things that are good are good because they got there slowly.

That’s why it always irks me when you hear entrepreneurs being asked “what’s next for you”, usually with the implication of either “what new product are you going to put out” or “what new company will you start next”. Not what improvements or tweaks are you going to make to what you have. All I can think of is the old Spolsky article Good Software Takes Ten Years.

I understand that reporters and outsiders aren’t interested in hearing about how you made this thing a little better or that thing a little smoother. They want fireworks: complete rewrites, massive new features, something brand-new. To people who actually use the product, though, that little tweak you made to remove a nagging problem is often way more important than something big and flashy.

It’s not only good software that takes a decade to develop, good companies do too. If you agree that’s true, it follows that you wouldn’t want promising entrepreneurs to go chasing waterfalls before they know how to paddle in the pond. Or something like that.

I guess what I’m trying to say is that I want to see evolution get a chance to work its magic, but if great products and companies keep getting abandoned or bought after 3-5 years, there’ll be less of that. And that’s a damn shame.

We’ve just added four new people to our 37signals team. This brings us to 25 people which is both a little scary and also incredibly comforting. We’re growing without having to sacrifice quality. Being able to work with 25 world-class people every day really is an honor and a pleasure.

Merissa Dawson, Support

Merissa joins us from Austin, Texas. Merissa will be working with Michael, Jason, and Ann to make our support team the best in the universe. Merissa is one of those people who loves helping people with a smile. She wants to make everyone around her happy. It’s great to have her on the team. She’s in Chicago for the next couple weeks for training.

Andrea LaRowe, Assistant

We’ve been looking for months, and we’re beyond thrilled to have someone of Andrea’s caliber joining our team. Andrea will be helping everyone out with administrative tasks, research projects, basic HR, event planning, general organization, and keeping everything at the company running smoothly. Before 37signals Andrea worked as a executive assistant at a non-profit here in Chicago. She starts on February 28th.

Javan Makhmali, Programmer

Javan is based in beautiful Ann Arbor, MI. We really enjoyed getting to know him when he came to Chicago for his interview. He’s going to fit in perfectly here. Really curious guy who asks all the right questions and is focused on all the right problems. Before 37signals, Javan was a rails developer at Inkling Markets. Javan starts on March 7th.

Will Jessop, System administrator

Will has increased the European wing of 37signals to three people. He joins us from Manchester, UK and has been working with Joshua, John, and Taylor since December. He came from Engine Yard with deep knowledge of running Rails applications and we’re thrilled to have him.

A while back, we posted about the no-nonsense, opinionated, shopping/educational content at Rivendell, a small specialty bicycle business based in San Francisco. Recently, we talked with Rivendell owner Grant Petersen to find out more about his business. (Grant also answers some reader questions in the comments.)

What custom means
When Grant Petersen was 19, he ordered a custom bamboo fly rod made by Doug Merrick of the Winston Rod Company. “I wanted red winding on the guides — ‘Like a Leonard rod,’ I said — and a cork grip shaped like a Payne rod. They were two other fancy rods,” explains Peterson. Merrick refused. “I won’t do it,” he told Petersen. “It wouldn’t be my rod, then.”

Petersen says, “I felt ashamed for having asked, but glad to have been told that. And it made me appreciate the details that made a Winston a Winston.” Decades later, Petersen points to that interaction as inspiration for how he deals with customers at Rivendell, his biking business. “I don’t want anybody to feel ashamed for asking us to drill holes in forks or make a bike with low ‘trail,’ but I’m resolved not to do it for the same reason Doug Merrick held his ground.

“To a customer, a custom frame can mean ‘I pay you money and you let me design the bike,’ but that’s not what custom means here. We’ve turned down ‘custom’ orders when it’s meant all we do is collect the money and facilitate the customer’s own design. It can be seen as not customer-friendly, but in the end it means I know that every custom has the qualities I value and a certain amount of integrity. If you stand for something and are committed to it, then you dilute it if you introduce something that’s less pure or hard-core.”

If you stand for something and are committed to it, then you dilute it if you introduce something that’s less pure or hard-core.

Opinions are mandatory
Rivendell sells the kinds of bikes and bike gear you can’t get in a normal bike shop. According to Petersen, “99 percent of the bike market — designers, buiders, distributers, retailers, buyers, and riders — are selling the wrong bikes to the wrong people for the wrong reasons.”

Strong opinions are at the heart of Rivendell’s mission. “Specs are fine, but they take two seconds, and opinions, if they’re based on experience, are more interesting. If you know about something, you have an opinion about it.

“There’s always a story behind the pure specs of something. Does it mean anything to anybody that a Nitto handlebar may be made from 2014 T6 aluminum? If you leave it at that, it doesn’t. It not only doesn’t, it’s a bad thing to just say that, because it’s really saying, ‘I read that this is true. It sounds important. I don’t know what it means. But I hope you think that I do.’ But I can add that Nitto handlebars are the strongest and safest and most rigidly tested in the world and if Nitto says it can’t make a strong enough bar that weighs less than 265g, then you can believe nobody else can.’”

Grant Petersen (photo by Martin Sundberg)

The opinionated path is one that has long appealed to Petersen. “In the ‘70s and early ‘80s, I worked at REI in Berkeley and there was a rule: No Handwritten Signs. We had a sign-making machine, and the store wanted a consistent look in all the signs. There’d be a sign for ‘Camping Books’. It was yellow-brown with dark brown letters and that’s all it said. But there was one book with the unfortunate title of ‘Pleasure Packing’ that seemed super soft-core by its title and cover, but was actually really radical inside with stuff I didn’t even know. And I thought I knew everything.

“I looked up sales on that book. Berkeley sold about 10 a year; Seattle (the only other REI at the time) sold about 20. I wrote a note about the book on a piece of cardboard, put clear packing tape over it so it wouldn’t smear, installed a grommet in the corner of it, and hung it in the book section. The first year after that we sold 215 of them. To me, it wasn’t about the sales. It was about getting the information out there.