By late 2004, Bloglines was the leading online RSS aggregator. “We were getting an incredible amount of great press. Our users were very happy. The problem was, we just didn’t have all that many of them,” says Mark Fletcher, then CEO of Bloglines. “There’s nothing viral about an RSS aggregator, and we had no idea how to make Bloglines appealing to non-power users (i.e. the majority of the Internet). Even with the great press, we just couldn’t juice our user growth curve. Huge exposure, small user base. That left me feeling very vulnerable.”

Fletcher (right, in a photo by VicKuP) feared Google and Yahoo would enter the RSS aggregator space and use their considerable marketing power to take over the market. Around the same time, Ask Jeeves expressed an interest in acquiring Bloglines. Fletcher says, “I decided to sell to them in the hopes that they’d be able to send some of their traffic to Bloglines and drive our user numbers up. We began negotiations in December of 2004 and the deal closed February 4th, 2005.” The deal was reported to be around $10 million.

The purchase
Jim Lanzone, Ask Jeeves’ Senior Vice President of Search Properties at the time, said in a press release, “Bloglines is truly one of the most useful and addictive services on the entire Web. We are excited about providing Bloglines with the resources to grow its service and help it reach a broader audience.”

When asked now about the purchase, Lanzone explains that he loved Bloglines when the deal was made. “Bloglines was the original reader and the best. And I was personally addicted to it,” he says. “It almost immediately became the most useful site on the web to me. So we looked at buying it as an investment. If RSS readers blew up and became the leading gateway to information, we’d be in position A. And remember, it was really early days for blogs and Web 2.0. We would have the best blog search out there.

“We acquired it pretty cheaply – much lower than any reported figures at the time – and we budgeted to more than triple Mark’s resource base. As a former entrepreneur myself, I loved the idea of giving Mark a wide berth and seeing what he could do.”

In the release, Fletcher added, “By joining forces with Ask Jeeves, we will be able to accelerate our growth with access to the millions of unique visitors to Ask Jeeves’ properties. And we are eager to take advantage of Ask Jeeves’ support, extensive resources, operational scale and innovative technologies to expand and improve the services we deliver to users.”

Second time around
Despite the lofty words, Fletcher knew that acquisitions didn’t always go smoothly. In 2000, he sold another startup, eGroups, to Yahoo. “When eGroups was acquired by Yahoo in 2000, we had about 150 employees running the service,” he explains. “Within two years of being acquired and renamed Yahoo Groups, that number was down to 3 people running a service that has a staggering amount of email traffic and a huge user base. The development and evolution of Y! Groups stagnated for a very long time after the acquisition. Of course, Yahoo can do whatever they want with the service; they bought it. That was an object lesson in what can happen to a startup after an acquisition.”

So he knew a negative outcome was a possibility with the Bloglines deal. He says, “I went into the Bloglines acquisition with my eyes open. Once you sell your company, it really isn’t yours anymore. This may seem obvious, but until you go through it, you don’t know the emotions you’ll go through as other people start making decisions about how to run ‘your baby’.

Braintree’s Bryan Johnson will answer your questions in the comments section.

In 2003, Bryan Johnson (right) was hired for a commission-only job selling credit card services to businesses. “I was broke,” says Johnson. “The job was brutal. Business owners were tired of the industry’s deception and trickery and didn’t hesitate when given an opportunity to vent.”

Johnson quickly excelled, though. He became the top salesperson out of 400 nationwide and broke the existing sales record during his first year. His secret? “I simply figured out that businesses were looking for thee things: honesty, education and reliable service. I filled that gap and was received warmly. I also worked my tail end off.”

But by 2007, Johnson was sick of working for a big corporation. He says, “I concluded that I’d rather live poor and hungry than work in a large, bureaucratic and political environment where I personally couldn’t see how my efforts created value.”

He started figuring out what it would take to do his own thing. “I figured that I needed to make at least $2,100 a month to leave,” he explains. “My wife and I had learned to live quite frugally. I had started a few other businesses before, so this uncertainty and financial risk was something I was accustomed to. I had a single objective: Get back into the saddle. I was going to do whatever it took to get there.“

He took a few days off work and flew out to Utah, where his old customers resided. He asked them if they’d switch their processing to his new company, Braintree. Quite a few of them did, collectively generating $6,200 a month. Braintree was officially up and running.

Premium, not freemium
Early on, Johnson decided to stay away from the freemium model so popular among tech companies. “My experience in the payments industry told me it wasn’t for Braintree,” he explains. “We offer exceptional service during the sales and application process that continues after a merchant is set up with us. This level of service is too costly for a free account.”

So Braintree went the opposite route and charged a premium. It started with a $200 monthly minimum, which it’s since lowered to $75. “At $200, our minimum was 4 to 8 times higher than our competitors,” says Johnson. “Applying a floor helps the right kinds of customers self-select our services. After all, we’re as interested in having the right customers as they are in having the right provider.”

Who are the customers Braintree decided to write off? “It was a fool’s errand to try selling medicine to those who hadn’t yet experienced pain. Payment processing is complex. It’s difficult for inexperienced merchants to recognize value. We’d spend countless hours trying to explain ‘pain’ and our cure but some just didn’t care because they hadn’t felt it yet. With our limited resources, we had to figure out a way to work only with those who valued the medicine we were offering.

“We did take some grief for our higher minimums, but when we did, we’d politely explain that there were other, less expensive options in the industry, which may have been a better fit. I think staying firm often created an inverse effect, causing people to value us more than they did initially.”

Revenue growth
The formula is working so far. In 2010, Braintree generated $4.5MM in revenue, grew from 15 to 24 employees (now over 30), and doubled its customer base, according to Johnson. It powers payments for companies like LivingSocial, Github, OpenTable, and Animoto. And 99% of its customers come through word-of-mouth. “We’re on track to do $8 or $9 million in revenue during 2011,” Johnson says. “We also expect to rank among the top 50 on this year’s Inc. 500 list.“

Johnson is quick to note the difference between Braintree and other emerging payment companies. He says, “Four of these companies have raised around $40 million each and have roughly 3-6 times the personnel we do.”

Johnson feels that necessitates a different approach. “For many, raising a lot of money is accompanied by baked-in assumptions for how a business should be built,” he says. “The playbook typically calls for a large executive team and a few layers of management, which is very expensive. I think VC-funded companies are more inclined to throw money and people at opportunities and problems. This approach works for some, but there are other ways to build a successful business. Growing on our own dollar has granted us the freedom to do what we want, when we want, and how we want.”

It also forces Braintree to embrace constraints. “Without outside capital, we have to make do with less,” says Johnson. “Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.”

“People have a tendency to behave differently when it’s not their money on the line.”

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."

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.

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.”

While talking to Grant Petersen from Rivendell, he mentioned his love of decades old Chouinard climbing catalogs.

I grew up reading catalogs. The Herter’s catalogue* was the most opinionated one out there, but it was also the most entertaining. Sometimes I’ll read an online comment that, “Rivendell (or Grant) is so opinionated” and it’s supposed to be a criticism. It’s not a criticism. If you want to criticize me, there are way better ways to do it. Tell me I don’t have my facts right, or I don’t give credit where it is due, or my grammar is bad, or my jokes are stupid. That will do the job of hurting my feelings, but being accused of being opinionated is a compliment.

The best catalogues ever were the 1972 and 1973 Chouinard Equipment/Great Pacific Iron Works climbing catalogs. There will never be catalogues like those again. Everybody who writes copy or catalogs or online stuff or reads at all should read those.

Strong praise. Turns out the 1972 Chouinard Catalog is online. Copies of the original catalog fetch $200+ on eBay. But to understand its impact, you first need to know the context around it.

The Chouinard backstory
The backstory to the company is a “scratch your own itch” tale. It starts with pitons, the metal spikes climbers drive into cracks. They used to be made of soft iron. Climbers placed them once and left them in the rock.

But in 1957, a young climber named Yvon Chouinard decided to make his own reusable hardware. He went to a junkyard and bought a used coal-fired forge, a 138-pound anvil, some tongs and hammers, and started teaching himself how to blacksmith. He made his first chrome-molybdenum steel pitons and word spread. Soon, he was in business and selling them for $1.50 each to other climbers. By 1970, Chouinard Equipment had become the largest supplier of climbing hardware in the U.S.

But there was a problem. The company’s gear was damaging the rock. The same routes were being used over and over and the same fragile cracks had to endure repeated hammering of pitons. The disfiguring was severe. So Chouinard and his business partner Tom Frost decided to phase out of the piton business, despite the fact that it comprised 70% of the company’s business. Chouinard introduced an alternative: aluminum chocks that could be wedged by hand rather than hammered in and out of cracks. They were introduced in that 1972 catalog, the company’s first. The bold move worked. Within a few months, the piton business atrophied and chocks sold faster than they could be made.

Looking at the catalog
So what kind of catalog do you put out when you’re reversing your entire business? Chouinard went with a mix of product descriptions, climbing advice, inspirational quotes, and essays that served as a “clean climbing” manifesto. It opens with a statement on the deterioration of both the physical aspect of the mountains and the moral integrity of climbers.

No longer can we assume the earth’s resources are limitless; that there are ranges of unclimbed peaks extending endlessly beyond the horizon. Mountains are finite, and despite their massive appearance, they are fragile…

We believe the only way to ensure the climbing experience for ourselves and future generations is to preserve (1) the vertical wilderness, and (2) the adventure inherent in the experience. Really, the only insurance to guarantee this adventure and the safest insurance to maintain it is exercise of moral restraint and individual responsibility.

Thus, it is the style of the climb, not attainment of the summit, which is the measure of personal success. Traditionally stated, each of us must consider whether the end is more important than the means. Given the vital importance of style we suggest that the keynote is simplicity. The fewer gadgets between the climber and the climb, the greater is the chance to attain the desired communication with oneself—and nature.

The equipment offered in this catalog attempts to support this ethic.

A guide for clean climbers.

A few pages later, there is a guide for clean climbers.

There is a word for it, and the word is clean. Climbing with only nuts and runners for protection is clean climbing. Clean because the rock is left unaltered by the passing climber. Clean because nothing is hammered into the rock and then hammered back out, leaving the rock scarred and next climber’s experience less natural. Clean is climbing the rock without changing it; a step closer to organic climbing for the natural man.