WhoBuilt

Alfred Lin with Justin Kan

Jul 31, 2014· 31 min· 16K views·Watch on YouTube
#Company Formation#Customer Success#Organizational Design#Fundraising

Speakers

Alfred Lindirector at Houzz
Justin KanFounder at Justin.tv
Sequoia CapitalCompany

Alfred Lin, then a Sequoia Capital partner and former Zappos and LinkExchange operator, discusses building companies with YC’s Justin Kan at a Y Combinator event.

LinkExchange grew by solving a traffic problem

Lin describes how Tony Hsieh and Sanjay Madan started by building websites, then created a banner exchange to help small sites attract visitors. The network became more useful as it grew, and LinkExchange eventually sold to Microsoft. Lin joined from a statistics PhD program to handle finance, despite having no finance experience.

Lessons from investing and turning around Tellme

After LinkExchange, Lin and Hsieh started the Venture Frogs angel fund, investing in 27 companies in nine months. Lin says Tellme had raised $265 million and was losing about $60 million a year when he joined. The company narrowed its focus to enterprise voice automation and 12 to 24 large customers, growing to about $150 million in recurring revenue before Microsoft acquired it.

Zappos made a difficult business work

Lin says Zappos pursued online shoe sales because the market was large and mail order already accounted for about $2 billion of a $40 billion shoe business. Funding was difficult, so the company relied on debt and merchant credit, and aimed to be profitable on its first order. Its operating choices included round-the-clock fulfillment, shipping orders within hours, and tracking each item by a unique identifier.

Build culture and persist through setbacks

Lin says culture needs daily attention to become a company’s core strength, much like customer service or fitness. He recounts Zappos facing a potential bank covenant breach after an inventory ordering error, and describes how earlier payroll scares helped him stay steady through later crises. His startup advice is to keep pursuing a big goal while making necessary pivots, and to solve a hard problem rooted in personal experience.

Choose investors and focus your wedge

Lin advises founders to treat investors as long-term partners and spend time getting to know them before accepting funding. He says Sequoia looks for persistent founders with deep industry insight. Founders should challenge industry assumptions, choose a small number of priorities, and define a clear entry point into the market.

Takeaways

  • A network can become more valuable as more participants join, so identify how each new user benefits existing users.
  • Too much capital can weaken spending discipline; connect experiments to clear priorities.
  • Test whether a business can work economically on its first transaction, especially when later customer value is uncertain.
  • Treat culture as a daily operating practice, not a value statement.
  • Spend time assessing investors as long-term partners, and focus your market entry on a clear wedge.

Mentioned in this talk

ZapposAirbnbSequoiaHouzzLinkExchangeMicrosoftAuctionWebeBayVenture FrogsTellme NetworksAmazonStripeDropboxHTMLcloud infrastructurevoice recognitioninventory managementnetwork effectsenterprise sellingprofitable first ordercompany culturecustomer serviceSanjayTony HsiehNick Swinmurn

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