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story of whatsapp (Jan Koum and Brian Acton)


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An inspirational story about entrepreneurship.

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story of whatsapp (Jan Koum and Brian Acton)

  1. 1. Story of the week.................... WhatsApp's Brian Acton and Jan Koum (Photo: Robert Gallagher for Forbes)
  2. 2. Story of the week....................  Facebook just made two more Silicon Valley entrepreneurs into billionaires (News).  On Wednesday, the Silicon Valley (Menlo Park, Calif.) - based company announced a record $19 billion for messaging service WhatsApp, instantly taking its cofounders Jan Koum and Brian Acton into the realm of 10- figure fortunes. FORBES estimates that Koum held about a 45% stake in the company, while Acton’s stake was over 20%.  In a filing with the Securities and Exchange Commission, Facebook said it would be paying for the deal with nearly 184 million shares, $4 billion in cash and nearly 46 million restricted stock units (RSUs), valuing the acquisition at over $19 billion. After disregarding the RSUs, which are not immediately exercisable, and assessing taxes, FORBES estimates that Koum is worth $6.8 billion while Acton is worth at least $3 billion as of Facebook’s closing share price on Wednesday
  3. 3. Story of the week....................  Koum was born and raised in a small village outside of Kiev, Ukraine, the only child of a housewife and a construction manager.  His house had no hot water, and his parents rarely talked on the phone in case it was tapped by the state.  At 16, Koum and his mother immigrated to Mountain View (California), a result of the troubling political and anti- Semitic environment, and got a small two-bedroom apartment through government assistance. His dad never made it over.  Koum’s mother took up babysitting and Koum swept the floor of a grocery store to help make ends meet. When his mother was diagnosed with cancer, they lived off her disability allowance.
  4. 4. Story of the week....................  By 18 Koum taught himself computer networking by purchasing manuals from a used book store and returning them when he was done. He joined a hacker group called woowoo on the Efnet internet relay chat network, squirreled into the servers of Silicon Graphics and chatted with Napster co- founder Sean Fanning.  He enrolled at San Jose State University and moonlighted (to work at another job often at night) at Ernst & Young as a security tester. In 1997, he found himself sitting across a desk from Acton, Yahoo employee 44, to inspect the company’s advertising system.  It turned out Koum liked Acton’s no-nonsense style. “Neither of them has no ability to bullshit.
  5. 5. Story of the week....................  Six months later Koum interviewed at Yahoo and got a job as an infrastructure engineer. He was still at San Jose State University when two weeks into his job at Yahoo, one of the company’s servers broke. Yahoo cofounder David Filo called his mobile for help. “I’m in class,” Koum answered discreetly. “What the fuck are you doing in class?” Filo said. “Get your ass into the office.” Filo had a small team of server engineers and needed all the help he could get. “I hated school anyway,” Koum says. He dropped out.  Over the next nine years the pair watched Yahoo go through multiple ups and downs. Acton invested in the dotcom boom, and lost millions in the 2000 bust.
  6. 6. Story of the week....................  For all of Acton’s distaste for advertising now he was also deep in it back then, getting pulled in to help launch Yahoo’s important and much-delayed advertising platform Project Panama in 2006. “Dealing with ads is depressing,” he says now. “You don’t make anyone’s life better by making advertisements work better.” He was emotionally drained. “I could see it on him in the hallways,” says Koum, who wasn’t enjoying things either.  In September 2007 Koum and Acton finally left Yahoo and took a year to decompress, traveling around South America and playing ultimate frisbee.  Both applied, and failed, to work at Facebook.
  7. 7. Story of the week....................  Koum was eating into his $400,000 in savings from Yahoo, and drifting. Then in January 2009, he bought an iPhone and realized that the seven-month old App Store was about to spawn a whole new industry of apps.  He visited the home of Alex Fishman, a Russian friend who would invite the local Russian community to his place in West San Jose for weekly pizza and movie nights. Up to 40 people sometimes showed up. The two of them stood for hours talking about Koum’s idea for an app over tea at Fishman’s kitchen counter. “Jan was showing me his address book,” recalls Fishman. “His thinking was it would be really cool to have statuses next to individual names of the people.” The statuses would show if you were on a call, your battery was low, or you were at the gym.
  8. 8. Story of the week....................  Koum could do the backend, but he needed an iPhone developer, so Fishman introduced Koum to Igor Solomennikov, a developer in Russia that he’d found on  Koum almost immediately chose the name WhatsApp because it sounded like “what’s up,” and a week later on his birthday, Feb. 24, 2009, he incorporated WhatsApp Inc. in California. The app hadn’t even been written yet. Koum spent days creating the backend code to synch his app with any phone number in the world, poring over a Wikipedia entry that listed international dialing prefixes — he would spend many infuriating months updating it for the hundreds of regional nuances.
  9. 9. Story of the week....................  Help came from Apple when it launched push notifications in June 2009, letting developers ping users when they weren’t using an app. Jan updated WhatsApp so that each time you changed your status — “Can’t talk, I’m at the gym” — it would ping everyone in your network.  Fishman’s Russian friends started using it to ping each other with jokey custom statuses like, “I woke up late,” or “I’m on my way.” “At some point it sort of became instant messaging,” says Fishman. “We started using it as ‘Hey how are you?’ And then someone would reply.” Jan watched the changing statuses on a Mac Mini at his town house in Santa Clara, and realized he’d inadvertently created a messaging service. “Being able to reach somebody half way across the world instantly, on a device that is always with you, was powerful,” says Koum.
  10. 10. Story of the week....................  The only other free texting service around at the time was BlackBerry’s BBM, but that only worked among BlackBerries. There was Google’s G-Talk and Skype, but WhatsApp was unique in that the login was your own phone number. Koum released WhatsApp 2.0 with a messaging component and watched his active users suddenly swell to 250,000. He went to see Acton, who was still unemployed and dabbling in another startup idea that wasn’t going anywhere.
  11. 11. Story of the week....................  The two sat at Acton’s kitchen table and started sending messages to each other on WhatsApp, already with the famous double check mark that showed another phone had received a message. Acton realized he was looking at a potentially richer SMS experience – and more effective than the so-called MMS messages for sending photos and other media that often didn’t work. “You had the whole open-ended bounty of the Internet to work with,” he says.  In October Acton got five ex-Yahoo friends to invest $250,000 in seed funding, and as a result was granted cofounder status and a stake. He officially joined on Nov. 1.
  12. 12. Story of the week....................  The pair were getting flooded with emails from iPhone users, excited by the prospect of international free texting and desperate to “WhatsApp” their friends on Nokias and BlackBerries. With Android just a blip on the radar, Koum hired an old friend who lived in LA, Chris Peiffer to make the BlackBerry version of WhatsApp. “I was skeptical,” Peiffer remembers. “People have SMS, right?” Koum explained that people’s texts were actually metered in different countries. “It stinks,” he told him. “It’s a dead technology like a fax machine left over from the seventies, sitting there as a cash cow for carriers.” Peiffer looked at the eye-popping user growth and joined.
  13. 13. Story of the week....................  With Koum and Acton working for free for the first few years, their biggest early cost was sending verification texts to users.  Today SMS verification runs the company about $500,000 a month. The costs weren’t so steep back then, but high enough to drain Koum’s bank account. Fortunately WhatsApp was gradually bringing in revenue, roughly $5,000 a month by early 2010 and enough to cover the costs then. The founders occasionally switched the app from “free” to “paid” so they wouldn’t grow too fast. In Dec. 2009 they updated WhatsApp for the iPhone to send photos, and were shocked to see user growth increasing even when it had the $1 price tag. “You know, I think we can actually stay paid,” Acton told Koum.
  14. 14. Story of the week....................  By early 2011 WhatsApp was squarely in the top 20 of all apps in the U.S. App Store.  Venture capitalists didn’t need the press to tell them WhatsApp was going viral. Koum and Acton were batting away all requests to talk. Acton saw VC funding as a bailout. But Sequoia partner Jim Goetz was persistent, spending eight months working his contacts to get either founder to engage. He’d met with a dozen other companies in the messaging space like Pinger, Tango and Baluga, but it was clear WhatsApp was the leader, and to Goetz’s surprise the startup was already paying corporate income taxes: “The only time I’ve seen that in my venture career
  15. 15. Story of the week....................  Goetz eventually sat down with Koum and Acton at the Red Rock Cafe, answered a “barrage” of their questions and promised not to push advertising models on them but act as a strategic advisor. They eventually agreed to take $8 million from Sequoia.  Two years later in Feb. 2013, when WhatsApp’s user base had swelled to about 200 million active users and its staff to 50, Acton and Koum agreed it was time to raise some more money. “For insurance,” says Acton, who recalled that his mother, who ran her own freight forwarding businesses, used to lose sleep over making payroll. “You never want to be a position where you can’t make payroll.” They decided to hold a second funding round, in secret. Sequoia would invest another $50 million, valuing WhatsApp at $1.5 billion.
  16. 16. Story of the week....................  Now with an even bigger number in whatsapp bank account, Acton went to a local landlord, interested in leasing a new three- story building around the corner. The landlord didn’t know who WhatsApp was, but the money talked. The new building is now under construction, and WhatsApp will move in this summer as its staff doubles to 100.  In early February 2014, Koum zooms past the new building in his Porsche on the way to a boxing class that he often misses, and is now late for.