From the Corner Office: Serial Startups

UPDATED: April 11, 2012
PUBLISHED: April 11, 2012

David Sacks graduated from the University of Chicago Law School in 1998. By 2002, he was COO of PayPal. The guy knows a little something about the fast track.

After leaving PayPal right after it was purchased by eBay, Sacks fast-tracked his own ventures. His first foray into entrepreneurship was, a genealogy and social networking site. Then he tried his hand at a production company, Room 9 Entertainment, which produced the Golden Globe-nominated movie Thank You for Smoking in 2005.

Although the movie was well-received, the painstakingly slow pace at which Hollywood moves had Sacks longing for the fast-paced environment of online startups. “There’s just so much time wasted [in Hollywood] waiting for people to call you back, because you’re not fully in control of your destiny,” he says.

Unable to twiddle his thumbs during another production cycle, Sacks started Yammer, a business social networking site that looks and acts like Facebook. Employees post updates, develop profiles, share documents and communicate with each other on Yammer’s platform. It’s used by Fortune 500 companies, with an estimated 4 million corporate users in more than 200 countries since its founding in 2008.

Sacks learned the advantages of startup speed while at PayPal. He joined the fledgling company in 1999, when several other sites were trying to figure out how to transfer money virtually. One major factor in PayPal’s success was the company’s ability to move quickly ahead of the pack. “Our competitors were moving more slowly,” Sacks says. “They had three- or four-month product cycles. We were trying to iterate very rapidly and release every month.”

Sacks and PayPal CEO Peter Thiel formed the partnership with eBay, which was a perfect platform for a product designed to move funds virtually. “Once we realized the value of the eBay community, we abandoned the other initiatives we had going on,” Sacks says. “We just focused on making it go viral on eBay.”

Yammer also moves quickly. Unlike some other enterprise social networking companies, Yammer provides a service in a new location before committing to a physical presence, allowing it to grab international clients without first making hard investment.

“We want to be fast, we want to be agile,” Sacks says. “We’ve got a lot of people trying to chase us, so it’s very important to move quickly. We want people who can move fast and get things done quickly, who don’t try to impose a lot of protocol or process on things.”

Lack of protocol allows for transparency, which Sacks says is critical in a startup, particularly one designed to enhance internal corporate communication.

Sacks and Yammer’s executive team lay out the company’s direction and vision, including employees’ job responsibilities. They strive to provide clearly defined roles and to invest employees with the power of choice. “There’s this old saying that a camel is a horse designed by committee,” Sacks says. “We don’t want to have decision by committee. We want clear ownership of areas so our employees can make decisions quickly.”

But in order to trust people with decisions, first you have to find people you trust. This was a lesson Sacks learned when PayPal took off, and he and Thiel put people from outside PayPal in executive positions.

“We brought in senior executives, and there was just way too high of a chance for organ donor rejection,” Sacks says. “They didn’t understand the culture, they didn’t understand the product, and it turns out that their experience wasn’t the right experience. If you promote someone from within, you’re much more familiar with their capabilities.”

After leaving PayPal, Sacks watched the new leadership make the same mistake. “After PayPal was sold to eBay, they hired wave after wave of executives from commercial and financial institutions to run the place instead of promoting from in-house. When a company has that philosophy, it can be very de-motivating for the employees who are already there. Why would you want to stay and work hard if it’s unlikely you’ll get promoted?”

Sacks took this lesson with him when he formed Geni in 2007. Before Yammer was Yammer, it was a tool within Geni to aid internal communication. When Sacks decided to expand Yammer from that tool in 2008, he promoted from within, giving Geni employees the choice of working with Geni in Los Angeles or moving to Silicon Valley to work on Yammer. “There was sort of a self-selection process that took place,” Sacks says.

That self-selection allowed employees to choose the work that was most meaningful to them, creating a loyal and fulfilled workforce that was also the most suited for their particular field.

But Sacks also sought outside advice as he developed his new networking site. He surrounded himself with the people most qualified to help him develop a product that would look and act like Facebook for businesses: Facebook executives.

Sacks took what worked within the monster social networking site and redeveloped components that either didn’t work for Facebook or wouldn’t make sense for Yammer users. “If you understand how to use Facebook, you understand how to use Yammer, so we sort of closed the gap on the amount of time it takes people to understand,” Sacks says.

Yammer isn’t the only enterprise social networking platform, but it’s the most familiar for some users in the sense that it feels like Facebook and is therefore easily accessible for employees familiar with the other site.

“It’s not sufficient to just have a good idea about what people want,” Sacks says. “It has to be executed in a way that’s certainly usable. And I think we’ve been able to create a product that people love to use, so it doesn’t feel like enterprise software. It feels more like a consumer product like Facebook or Twitter.”

Sacks says the company tripled revenue last year. And after inking a hefty new funding deal earlier this year, Sacks’ latest startup is on the fast track to solid business success.