From Justin.tv’s inception to 2012, the company’s valuation went from US$1 million to US$24 million. However, the company was losing US$250,000 each month with a million dollars in expenses but only US$750,000 in revenue in August 2011. The co-founders corralled the 40 employees into “a horrible back closet that served as a conference room [where no one would leave] until we write enough ideas on the whiteboard that can either makes us money or save us.” By the end of the year the company was a million dollars in the black.
Seibel and the rest also realised that “we’re not interesting to watch” and decided to become “a website so anyone can broadcast live video.” However, copyright issues prevented the vast majority of videos that people wanted to share.
“There was always this small group,” he continues, “about 10 percent of our traffic that was videogames. We just ignored them for years. Then Emmett pointed out that the videogames were the only content he enjoyed watching. Think about it: We had this website that had hundreds of hours of video and the only content that any of the founders watched were of these kids playing videogames.”
Following a visit by former Facebook CFO Gideon Yu, who predicted the company’s death “within three years” if nothing changed despite the million dollar profit, Twitch was created to focus on streaming video games. “You know when somebody says something you don’t like but you know in your heart to be 100 percent true? That’s exactly what it was,” Seibel mused, who revealed that SocialCamp, which was billed as the ‘Instagram for video’, was the other idea that the co-founders hoped would save the company.
He continues: “Here’s to show you investors know nothing. We thought we’d talk to investors on which idea was better. All the investors thought the videogame idea was terrible and a complete waste of time, and they all thought the Instagram for video was the best idea ever. To this day there hasn’t been a successful startup that’s done Instagram for video.
“SocialCamp came out of that and sold for 60 million dollars. Twitch, that sh---y live streaming company, sold for 970 million dollars. If you’re asking investors if your ideas are good, you’re literally asking to be lied to.”
SCALING THE ENTREPRENEURIAL MOUNTAIN
Seibel, who also helped advised AirBnB founders Brian Chesky and Joe Gebbia at the very beginning, also highlighted his experience with the accommodation sharing app’s creators to share his thoughts on two critical factors to a startup’s success: persistence and scalability.
“They didn’t have a technical co-founder [at that time] – Nate [Blecharczy] was in Boston then,” Seibel recalls. “They’d come by once in a while to show us what they’ve done and we would give them some advice. The thing that got us to work with them was every time they came, they made progress. They built something, they changed something, they talked to users.”
About scalability: “The typical investor will look at an idea and go, ‘That’s not going to scale. It’s gonna get you to 10 users but not 1,000, so don’t do it.’ The AirBnB guys thought differently. They thought, ‘Hey, 10 users is better than zero users. And unless you have users, you’re not going to make your product better.’ So it’s ok the first 10 users aren’t scalable because interacting with customers is better than not interacting with customers.
“They’ve been online and poaching hosts from other products. They said, ‘We will go to your house. We will take professional quality photos of your couch or your house, and you can use it on any other platform but only if you set them up with us.’
“They tells us this crazy story where a user told them, ‘I’ve been renting out my apartment out for 10 years, and I have a notebook of all the things that are great for online sites that your product should have. Would you like to see it?’ They were like, ‘Of course!’ For two hours, he basically laid out his experience as a host etc.
“If they had been relying on Facebook ads or an outsourced sales team etc. doing all the things to look like they’d scale, they’d never have had that interaction.”
From joining a venture that he thought was “dumbest idea I’ve ever heard” to becoming a multimillionaire after selling it, what does Seibel have to say about being an entrepreneur?
“A lot of investors over-emphasise solving a personal problem as the core reason of starting a company,” he advised. “I do think that there is a negative deeper truth there, which is there has to be something that keeps you working on that company when it sucks. When the company is not doing well, it sucks. When it’s doing well, it sucks. There is no time when your company doesn’t suck. There’s gotta be something that keeps you in.
“For me it was working with friends. That was the thing that kept me in it. I didn’t’ want to let my friends down. This was the first thing I’d done. It was a grade of my life. The way Justin.tv turned out was a grade on how Michael Seibel’s life has gone so far.”