How do you know you're ready to start a company?
The rational, prudent answer is obvious: You start the moment you've got adequate funding, an enthusiastic team behind you, and an idea everyone agrees is brilliant.
Only problem is, the rational, prudent answer is wrong. If you wait for all that, you will never launch anything.
I was reminded of that fact a few months back when I interviewed Joe Fernandez, CEO and co-founder of Klout. If you haven't yet heard of this three-year-old San Francisco company, you will. And if you have a Twitter account, you can be pretty sure Klout has heard of you. The company now rates the online influence of over 100 million people; the company’s 70 employees analyze 2.7 billion pieces of data each day.
Here's how a recent Wired story describes Klout:
Much as Google’s search engine attempts to rank the relevance of every web page, Klout is on a mission to rank the influence of every person online. Its algorithms comb through social media data: If you have a public account with Twitter, which makes updates available for anyone to read, you have a Klout score, whether you know it or not (unless you actively opt out on Klout’s website). You can supplement that score by letting Klout link to harder-to-access accounts, like those on Google+, Facebook, or LinkedIn. The scores are calculated using variables that can include number of followers, frequency of updates, the Klout scores of your friends and followers, and the number of likes, retweets, and shares that your updates receive.
...Klout is starting to infiltrate more and more of our everyday transactions. In February, the enterprise-software giant Salesforce.com introduced a service that lets companies monitor the Klout scores of customers who tweet compliments and complaints; those with the highest scores will presumably get swifter, friendlier attention from customer service reps. In March, luxury shopping site Gilt Groupe began offering discounts proportional to a customer’s Klout score.
The article goes on to quote a Klout executive predicting that people with formidable Klout scores "will soon board planes earlier, get free access to VIP airport lounges, stay in better hotel rooms, and receive deep discounts from retail stores and flash-sale outlets. 'We say to brands that these are the people they should pay attention to most,'[the exec] says. 'How they want to do it is up to them.'”
Five years ago, of course, Fernandez was not making any such grand speeches about the influence Klout would soon wield. In fact, he wasn't speaking at all. He was recovering from jaw surgery, and doctors had wired his jaw shut. Awkward as that was, it proved to be crucial to the origin of Klout, since it meant that his only means of communication was social media.
“I had to depend on Twitter and Facebook,” he says, “and it was amazing to me I could tell people who trusted me my opinions instantly from my phone, and their opinions in turn influenced me.” But it was obvious that some people's opinions mattered more than others, and it struck him that a system ranking the importance of those opinions could be a highly valuable service.
Fernandez had started two data companies before, one in health care and another in real estate. "They were interesting data problems to solve, but the impact that social media had on my life makes Klout so much different, and helped make me much more passionate about the idea.” It turns out that not only are people interested in influence, but companies are interested in people with influence -- companies like Nike, Disney, P&G, Virgin America, and Starbucks.
“An example is Audi,” Fernandez says. “When they were launching the new A8, [the marketers understood that] commercials just don’t resonate. But what we do care about is what our friends say.” So he helped Audi find the most influential people for high-end cars and “let them, in their own words, talk about it.” The results have been good for Klout’s clients, and explosive for Klout.
Even so, the idea didn't exactly resonate when he first described it. "When I got [my jaw] unwired, I couldn’t convince any of my friends that this was a good idea. In 2008 the idea that measuring who was influential on Twitter and Facebook could be a business [got nowhere]....Everyone was like, who cares?"
“It was just me for quite a while,” Fernandez says. “I quit my job and went to Singapore … and stayed there for four months while we built the beta version of Klout. I couldn’t convince any of my friends that this was a good idea. But at a certain point, in my gut, I knew that if I didn’t do this I would be thinking about it for the rest of my life.” Finally one friend joined him, then a second.
Even the funding came from Joe. “I put about $200,000 of my own money in, and was fortunate to have hosting partners and developers and people that were willing to work on belief in the vision and not on belief in cash on the table.”
Fernandez didn’t go to the VCs in Silicon Valley – not at first. Like his friends, they would not have seen what he saw. And they are not in business to take the wild passionate bets that founders make.
What made Klout a succeess? Well, it was a good idea, but ideas alone are never the key. Almost every good idea has been thought of before. (The iPod was not the first music player. The iPhone was not the first smartphone. The iPad was not the first tablet. And so on.) In Klout's space, celebrities have had their "Q" ratings and politicians their popularity ratings for years.
So, yes, Joe believed in his idea, but more than that, he believed in himself. He was willing do quit his job, put up his cash, move to Asia, sleep on couches, and “beg borrow and steal” to make it happen.
How do you know you're ready to start a company? VCs say they never invest in an idea alone. They invest in a team, and the team starts with one person with a burning desire to build something new. Joe Fernandez told me that he figured that “whatever it took, this was going to succeed.”
When you feel that way—that's how you know you're ready.
Joe Fernandez: How I Built Klout
Joe Fernandez launched Klout the old-fashioned way: sleeping on couches, abandoning his friends, and risking his life's savings. Piece of cake.