Long before he founded Twitter, Jack Dorsey came to NYC to work for us at the company I co-founded, Dispatch Management Services Corporation (DMSC).
The following excerpt appeared in TechCrunch. It is from Mastering The VC Game, a new book by Jeffrey Bussgang that goes on sale Thursday. It tells the backstory of Twitter from the perspective of founder Jack Dorsey, from his early obsession with couriers and his attempts to create a better dispatch system to his “Aha” moment with Twitter (“What if we simply set status, archive it on the Web, use SMS to do it, and it all happens in real time?”) to why the company picked Fred Wilson of Union Square Ventures as its first venture investor (“I want a VC who is always thinking a few steps ahead of me”). Bussgang interviewed both men, and details how the VC and entrepreneur clicked in the second half of this excerpt. The first part recounts the tale of how Dorsey came to invent Twitter.
Jack Dorsey (a.k.a. @jack in the lingo of the Twitterverse) founded Twitter, the social networking and microblogging site where users—Twitterers—post very short (140 characters, tops) updates known as tweets. The concept for Twitter came out of Jack’s lifelong fascination with mapping the real-time movements of people and things within complex environments. “Since I was very small, I’ve been fascinated by how cities work,” Jack told me in his typically straightforward way. “I always got really excited when I thought about visualizing them, specifically around maps. What would you place on a map to show how a city worked?”
In St. Louis, where he grew up, Jack first noticed the existence of something he found magical: couriers. “I loved couriers. You had this transfer of physical information happening throughout the city and the world. Someone picking up the package, putting it in a bag, going somewhere, taking it out of the bag, giving it to someone else. I thought that was so cool. I wanted to map it, to see that flow on a big screen. When I did some research into how courier systems worked, I found that there was a parallel information transfer that was digital, and it was called ‘dispatch,’ which was just a coordination effort.”
Jack so loved the idea of digitally mapping interactions around a city and the notion of couriers as a physical manifestation of these interactions that he decided to start a bicycle courier service of his own at the age of sixteen. “I put my brother and me on bikes, just so I could write the dispatch software. [A self-proclaimed computer geek, Jack taught himself to code software at a young age.] We quickly found out that St. Louis had no need for bicycle couriers at all. But I really enjoyed writing the software and getting to the point where I could map and visualize the work.”
The rapid demise of his teenage start-up did not deter Jack. While in the second year of an engineering program at the Missouri University of Science and Technology, he came across a New York City–based company called Dispatch Management Services Corporation (DMSC), which managed dispatch centers for couriers—on foot, bicycles, and motorcycles.
“I had to get into that!” Jack enthused, as our conversation took him back in time. “I got in contact with the chairman, Greg Kidd, the guy who had built the company and taken it public. I said, ‘I’m writing some dispatch software, and I’d really love to come to New York and work with you all.’” Jack pursued Greg hard, and within a couple of weeks, he moved to New York, transferred to NYU, and started writing dispatch software for DMSC.
At DMSC, Jack delved deeper into his fascination with dispatch and couriers. “There was an essence of communication there,” he described to me. “An abstraction. You have all these entities roaming about, and they’re all reporting what they’re doing in real time over a variety of different devices. We had couriers on CB [citizens band] radios, on PDAs [personal digital assistants], and on cell phones. We had taxis and emergency vehicles with GPS. They’re all reporting constantly where they are and what work they’re doing, and it’s all flowing into this one system that a dispatcher can view in real time on a map. That’s what’s going on in the city! I thought that abstraction was so cool that I wanted that same thing for my friends.”
Jack and Greg decided they could improve on the DMSC dispatch system. In 1998, they moved to the West Coast and raised enough money from the Band of Angels (a group of current and former Silicon Valley executives who provide seed financing to technology entrepreneurs) to found dNET, Dispatch Network. “We wanted to do a Web-centric dispatch system that would essentially provide an ATM for couriers, most of whom don’t have bank accounts, so they could easily draw their commissions through the Web.”
While he was working to get dNET off the ground, Jack discovered Instant Messaging (IM). “IM is interesting because you look at your buddy list and, at a glance, see what your friends are listening to, what they’re working on, what they’re doing. The problem was that you were bound to the computer keyboard. I was fortunate enough to have a RIM 850, the predecessor to the BlackBerry. It was this squat, little email device. One night, I couldn’t sleep, I just had to write a prototype script. It would sit on a server, take incoming emails, broadcast them out to a list, and also record them in a database that I could view on the Web.” That was the first glimmer of Twitter.
But for a variety of reasons, dNET did not get traction in the market, and so Jack embarked on a period of freelance programming before joining a podcasting start-up called Odeo, primarily to work with Evan (a.k.a. @ev) Williams, formerly of Google. But Jack’s brief foray into podcasting didn’t squelch his passion for brief status messaging. “At that time, one of my co-workers introduced me to SMS (short message service), which I had never seen before. She used it all the time. Once I saw that, I’m like, ‘Whoa, this is awesome!’ This communication blew my mind, and the way she was using it blew my mind. I thought, What if we simply set status, archive it on the Web, use SMS to do it, and it all happens in real time? We all kind of went into a corner, wrote out a bunch of user scenarios, and started inviting co-workers in. They fell in love with it. We knew we had something.”
Thus, Jack and his team developed the service we now know as Twitter. They called it “Twttr” at the time and launched it in July 2006. The very first tweet was an internal one that Jack sent out at 12:50 p.m. on March 21, 2006: “just setting up my twttr.” A few minutes later, he tweeted innocuously: “inviting coworkers.” This was the beginning of the Twitter revolution.
Interestingly, Jack pursued a strategy of: Don’t hide what you’re doing. If you think you’re doing something interesting, get it out in the open, shout it out from the rooftops, and solicit as much feedback and input as possible. This strategy was particularly relevant for an Internet-based consumer service like Twitter.
The initial reviews after the launch were mixed. One commenter reacted negatively, calling it “the dumbest thing ever! Who would want all their personal text messages on a public website for anyone to read and track?” Despite such skepticism, the service began to gain momentum and a grassroots following while still hidden inside Odeo. “We knew it was getting big and were just waiting for a trigger. That turned out to be South by Southwest, in 2007.”
South by Southwest is a festival and conference—replete with panels, book readings, conversations, and parties—hosted in Austin, Texas, each year. Jack and his colleagues lugged big plasma screens across the country and set them up in the hallways of the conference to display the live Twitter chatter about the conference sessions in action, one at the registration desk and one at the exit from the main conference room.
“We were really good at getting the right friends in. We had a lot of high-powered, vocal bloggers using Twitter at South by Southwest. They were talking about it non-stop at the conference. And the press happened to be watching, too. And it just blew up.”
Jack was confident that Twitter would take off, but even he was surprised by the enthusiasm it generated. “This very simple message and subscriber model worked for everything I was interested in. I thought it could be massive. But, as a consumer application, I was really surprised by the velocity and by the patience that our early users had to get it right.”
While Twitter was gaining momentum, the start-up that owned the company, Odeo, wasn’t. In fact, Odeo had run out of money and didn’t have additional funding support from its venture capital investor. Odeo’s CEO, Evan Williams, decided to buy the assets from the investors, taking Jack, another co-founder, Biz Stone (@Biz), and many of the employees with him. Jack became Twitter’s founding CEO, and thirty days later the team started thinking about raising capital and spinning out as a separate company. “We weren’t really ready to take money right away, but we got a note from someone. We went to meet them for breakfast at the top of this hotel in San Francisco and had a pretty good conversation. We were still kind of forming the company and whatnot. When we got back to the office thirty minutes later, we found a scanned image of a check for half a million dollars in our inbox.”
The instant offer of funding prompted Jack to think through what he really wanted in an investment partner. “The way the company and the product gained traction was that we got the best people we could think of and we worked with them. And we wanted the same thing from our VC. We wanted the best person across the table from us. It was not where he comes from, but ‘Is this guy fun to work with? Is he going to challenge us? Is he smart?’ This person was going to take a seat on the board.”
As it turned out, Twitter went with a VC who found the Twitter concept just as fascinating as Jack did. Union Square’s Fred Wilson says he likes to think of himself as the entrepreneur’s consigliere, but a consigliere with great pattern recognition. “I want to be the person they call when they need some advice. Whether it’s ‘I’ve got a problem with sales’ or ‘We need to raise some more money. What do you think the right way is to go about doing that?’ Or, ‘I have this big deal. I’m nervous about it because I’m not sure we can actually meet the expectations. But I want the revenue. What do I do?’ Those are all big questions. The beauty of being a venture capitalist is we’ve seen all these issues a lot of times. I’ve been doing this business for a long time now and I’ve observed enough to know what’s happening and interpret it appropriately.”
Twitter’s Jack Dorsey says that he did, in fact, think of Fred as his strategic counselor. “Fred had our phone on priority dial, so he could reach us at any time and we could change things instantly. He is very engaged and whenever we need something, we call him up. He is excited to do anything for us.” Jack points out that Fred isn’t just focused on big-picture strategy, but also on the nitty-gritty features of Twitter as an avid user. “We listen to what he thinks and what he needs from the product,” says Jack. “And that has been a great way to get into the relationship and for both of us to trust each other more. As we worked on the product together, we began to learn, ‘Oh, this is how Fred is, and this is how Jack is.’ We began to learn each other’s faults. And that couldn’t really happen any other way.”
In some ways, the VC is a glorified recruiter. However, it would be a mistake to think what recruiting a VC firm can do is equivalent to what an entrepreneur would get from a professional executive search firm. A VC is more focused on the mix of talents needed to improve the start-ups, chances for success and anticipating the right kind of executive that is needed at the right point in the company’s life cycle. As Twitter’s Jack Dorsey put it, “I would hate to have a VC investor to whom I just send an email to say, ‘I need a business development person. Can you make some introductions?’ I want a VC who is always thinking a few steps ahead of me. The type of VC who would say, ‘Well, I think we’re doing this, and therefore we might consider defining this new position in this way and therefore talking to this person.’”
The definition of the best individual venture capitalist to work with will be different for every entrepreneur. Jack Dorsey, Mr. Twitter, was looking for a VC who had passion for his market, could help him with his product, and could challenge his thinking. Jack talked with many VCs when he was trying to get financing for Twitter, starting with firms on the West Coast. “We had a lot of conversations with people down in the Valley,” Jack said. “At the end of the pitch, the person across the table would say, ‘Well, we’ll let you know fairly soon, like in an hour or so. We just want to talk internally, but we’re really excited.’ We didn’t react well to that. We wanted to be questioned, we wanted to be challenged, and we wanted to see some of their thinking around actually developing this product.”
For whatever reason, Jack found more of those challenging VCs on the East Coast than on the West Coast. “I think it was just an attitude thing,” he said. “I found the East Coast to be a little bit more aggressive. They say what they mean in the hopes of just moving on right away. On the West Coast, people were a little bit more laid back. If they thought we were going down the wrong path, they wouldn’t necessarily say it, but they might make it known in an indirect way. I just didn’t appreciate that at all.”
Jack ended up with NYC-based Fred Wilson at Union Square Ventures. “We turned down a bunch of VCs,” Jack said. “We saw a name, but there wasn’t enough behind the name immediately. A VC has to show me right away that I can trust them. It’s hard to do. But when it’s right, it’s right. And we were very fortunate in it being right with Fred. He was very aggressive, in a good way, in a thinking way. He had no subtlety at all. But more importantly, he was a day-to-day user of our service and he obviously loved it. He came to the pitch with a bunch of requests for features and lots of questions about why we had done what we had done. That helped clarify our thinking around the product and it helped clarify our thinking around the company. And that’s exactly what we wanted in the boardroom.”
During their courting period, Fred showed Jack he could provide more than just money; he could contribute to the product’s vision and direction to help lead the company to success. If your VC doesn’t show you that passion for your product and your own personal success, as well as an ability to add value during the due diligence process through their strategic or product insight, then he and his firm may not be the right business partner for you. As Dorsey put it to me, “When selecting our VC partner, I knew I was hiring a boss I couldn’t fire.”
Fred Wilson has an interesting take on the relationship between the entrepreneur and the venture capitalist. “I think venture capitalists, first and foremost, need to feel like their job is to make entrepreneurs successful. So I think of venture capital as a service business. The entrepreneur is your client. It’s a very weird relationship because the entrepreneur is not exactly paying you, even though they really are paying you. But they absolutely can’t fire you. In fact, you can fire them. So it’s among the weirdest kinds of service relationships that one could come up with.”
More money provides more runway and room for mistakes, but at the cost of some additional dilution. Dorsey recalled a conversation he had with Netscape founder and angel investor Marc Andreessen. “Marc advised us very early on to take as much money as we could, because a recession was coming and everything was going to hit the fan. And this was in early 2008, maybe the end of 2007. And he’s like, ‘I know you’re worried about dilution, but just try to get as much money as you can, build a war chest so you can weather the storm, because the storm is coming.’”
Timing and your own personal commitment are both important factors. Twitter’s Jack Dorsey gets asked the question every day—when will Twitter exit? He explained to me his views on this issue in a way that reinforces my thesis that the best entrepreneurs don’t focus on the money, they focus on their dream for the business.
“You always have to go back to the question, ‘Is exiting the right thing for the product?’” Jack explained. “There were many times in our history when, technology-wise, we weren’t up to snuff and we could have used more infrastructure. We could have used the resources of a Google or a Facebook or a Yahoo! But until you feel like you’ve completed some aspects of the vision, it just doesn’t make sense to hand it over. If you have that idea and you’ve more or less seen the end of it, and now you’re just racking your brain trying to figure out how to push it any further, the product might be better off in the hands of someone else, because you’ve done what you can. That’s basically what it comes down to for me. Are you done? If you are, then exit. If you’re not, keep going for it.”