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Wednesday, November 14, 2007

Growth Issues for Google

Susan Wojcicki has first hand experience of what it takes to be a successful start-up - after all, Google was set up in her garage. Ten years on, she's begun to reveal some of its early secrets

Everyone knows you can't be a true Silicon Valley icon unless you started up in a garage. The 12 x 18 foot building at 367 Addison Avenue in Palo Alto, where Bill Hewlett and Dave Packard first started working together, is probably the most famous of them all - so much so that HP recently restored it to its 1939 condition. Almost sixty years later, it was Susan Wojcicki's garage that served as the critical real estate for Google, providing the first office premises for co-founders Larry Page and Sergey Brin.

Wojcicki, who didn't even work for Google at the time, has as good a handle as anyone on what it's like to take a start-up from angel funding through Initial Public Offering - and in Google's case, on to become Silicon Valley's flagship Internet success story. Joining the company as employee number 16 and now vice president of product management, she's been part of a local legend characterized by the founders' insistence on doing things their way. As keynote speaker at a Women's Technology Cluster event in San Francisco earlier this month, she talked through some of the lessons she's picked up on the way.

Google actually spluttered into life at Stanford University in January 1996, when Page and Brin started collaborating on a new search technology known as 'BackRub', reflecting its focus on the 'back links' that connect to a website. The early years were characterised by a lot of R&D and a fair amount of improvisation - the 'data centre', for example, was actually Page's dorm room. Their first big break came when they cornered Andy Bechtolsheim, co-founder of Sun, on an acquaintance's front porch, and after the briefest of product demos landed themselves a $100,000 cheque (remember - this was the dot-com era). With contacts and family taking the start-up funding to $1 million, the two founders formally incorporated the company and hired their first recruit, Craig Silverstein, who's now director of technology. They also took out space in Wojcicki's garage and rented a couple of rooms. In these early days, the Google brand didn't carry a great deal of weight with its landlady - Brin, Page and their clients were forbidden from using Wojcicki's front door.

The challenges Google faced in its early years will be familiar to every start-up. To begin with, their business plan needed a credible revenue stream - but no-one knew for sure where the money would be coming from. They predicted three equal revenue streams - one third from licenses, one third site searches, and one third advertising. For what it's worth, they were wrong: today, advertising accounts for 99 per cent of the company's revenues.

Then there was the marketing, part of Wojcicki's initial remit. When it launched, Google was operating in a competitive market, with companies like Excite and Alta Vista making much of the running. Wojcicki recalls that Alta Vista in particular was spending millions on marketing, but Google took the decision not to splash out, reckoning that doing so would force it to go through more funding rounds than it needed to. Instead, the bulk of the funds were spent on the product, and most marketing was done through public relations and word-of-mouth initiatives.

Like many start-ups, much of the Google story was simply about making things happen. Computing power, for example, was always a problem. In the early days, much of the infrastructure consisted of low budget, cheap systems - at one point, they tried bungee cords and velcro to earthquake-proof the machines. Not surprisingly, they nearly ran into capacity problems when they struck their first deal with AOL/Netscape, which selected Google as its web search service and pushed traffic to three million searches per day.

Despite these hiccups, they also got a lot of things right. Most important, says Wojcicki, they had a clear vision of where the company was going and they focused hard on the product, believing that if they built a great product the users would come. That's not always a successful business philosophy, of course - the early Apple user interface beat Microsoft hands-down, while Betamax lost out when VHS won the video standards war - but it's been one of Google's strengths. Even today, Google engineers spend 20 per cent of their working time on their own chosen projects, helping to sustain a culture of innovation.

That unwavering focus demonstrated itself in Google's relations with its VCs, where Page and Brin controlled the product vision and pushed through one or two controversial ideas, such as developing their own advertisement platform. 'If you as a VC or angel know more about the product and market than the entrepreneur, you've got a problem,' says Wojcicki. What the investors did bring to the party - aside from cash - was a high-level focus on the key issues, acting as validators for Page and Brin. The VCs also brought practical assistance, helping with complex deals like the AOL/Netscape agreement, difficult legal and corporate governance issues, and key hires. Recruitment was also taken seriously from the beginning, says Wojcicki, and Google's still keen on flat organisational structures. That was occasionally taken to extremes in the early days - at one stage, the VP of engineering had 150 direct reports.

Summing up, Wojcicki passed on eight lessons to start-ups looking to emulate the Google story:

1. Build a great product that users love

2. Think big

3. Solve an important problem. Google, she says, wasn't always sure if search would make money - but the founders knew it was a problem

4. Rally the company around a vision and be focused

5. Hire the best people you can

6. Question accepted practices, and invent the right ones for you. Google's product launch philosophy, for example, is based on doing things fast rather than building comprehensive business plans - if it thinks a product is right, it launches it and then sees how it works out

7. Base decisions on data. Wojcicki stresses that the company has always put value on business and statistical analysis

8. Make decisions for the long-term. 'We were willing to wait,' she says

By Keith Rodgers, Webster Buchanan Research