Retooling the Entrepreneur
Excite co-founder Joe Kraus says cheap technology makes this the perfect time to start a new company--which gives him an invaluable chance to prove himself again.
By John Heilemann

(Business 2.0) – As I rolled into the parking lot of a Hobee's restaurant in Palo Alto the other day to have breakfast with Joe Kraus, I couldn't help thinking about the first time I met him--and how young he seemed back then. That was late in 1997, when Kraus was riding high as one of the founders of Excite. At 25, he was nice, bright, straightforward, and free of arrogance (despite the fact that his company had gone public a year earlier, making him filthy rich). Kraus talked about how lucky he was to be in Silicon Valley when the Internet was changing everything. He bubbled with notions about how Excite was going to topple Yahoo. He radiated enthusiasm--and innocence.

But Kraus never lost his sense of enterprising optimism. He has launched a startup, called JotSpot. He has also taken to publicly proclaiming that "there's never been a better time to start a company." In JotSpot, Kraus has created a firm that embodies the reasons behind that--and much of what is going on in the new Silicon Valley and in other tech hubs around the country. (For a detailed report on this renaissance, see "Tech's Big Comeback," page 106.)

By way of introducing his argument, Kraus tells a story about a meeting he recently had in New York with some folks from BusinessWeek. "They said to me, 'It doesn't feel like there's a lot happening out there,'" he says as he tucks into his tofu scramble. "And I said, 'Wow. I think you must be talking to the wrong people.'"

To Kraus's eyes, the Valley of 2005 looks a lot like the Valley of 1996 and 1997, when the boom was just aborning and had yet to become a bubble. "A lot of companies are being started, a lot of fires burning--but you don't have VCs pouring tons of gasoline on them yet," he says. "More important, people are inspired again. They feel like it's time to get back to doing important stuff."

Not surprisingly, Kraus believes that JotSpot qualifies as duly significant. On the surface, the company's business is simple enough--it's a hosted wiki service. A wiki, for anyone who doesn't know, is server software that lets groups of users post and edit webpages via their browsers; wikis are fast being adopted by small and midsize firms as collaboration tools (often as a replacement for e-mail threads). "With wikis, everyone has perfect visibility--they can see what everyone else is doing and what decisions have been made," Kraus says. "Companies can give us their credit card numbers, and in 30 seconds, they're off and running."

In the long run, JotSpot aims to be something more ambitious, extending wikis to allow do-it-yourself application building. "We want to enable nontechnical users to build a space online where they can not only read and edit something but actually do something," he says. Kraus points to the way people today use Excel to create internal tracking spreadsheets. In the future, JotSpot will allow users to put those spreadsheets online and add functions to them--such as attaching documents, e-mail, or data from Google Maps to the rows and columns. "We want to let you transform a spreadsheet into an infinitely more flexible and useful Web-based application," Kraus says. "And, of course, that's just the start."

It's too early to judge whether JotSpot can achieve these aspirations, though the company already has buzz--and 20,000 corporate customers. It's not too soon, however, to claim that JotSpot is a perfect case study for illustrating the four big trends that make it cheaper, and therefore also easier, to start a company in Silicon Valley today than during the last boom.

1 Hardware has become insanely cheap. As Kraus recalls, Excite ran on Sun servers that cost as much as $60,000 a pop. "Today JotSpot runs on commodity hardware--Intel chips inside boxes with no corporate logo, made by companies no one's heard of." And instead of $60,000, those anonymous boxes cost $1,000 each.

2 Infrastructure software is even cheaper. Excite paid a vast amount of money to companies such as Oracle just to license the software needed to build its service. "We must have spent $250,000 before we'd written a line of code," Kraus says. But now open-source--Apache, Linux, MySQL, Tomcat, and so on--has reduced that cost to zero.

3 The labor market has gone global. In the 1990s, only monster companies like IBM had tapped into offshoring. Today JotSpot, using Elance and RentACoder, has programmers on the payroll in Germany, India, Romania, and Russia--at a fraction of what they'd cost in the Valley.

4 Search has rewritten the rules of marketing. Before Google, advertising on the Web was all about big marketers paying big bucks to reach as many eyeballs as possible. "But now," Kraus says, "pay-per-click advertising, placed in an automated fashion, with no money spent on creative, lets me reach small or medium-size markets incredibly efficiently."

The combined effect of these trends is dramatic: For JotSpot it cost just $100,000 to get from idea to launch; for Excite, $3 million. Yet cheapness isn't everything. Even though it's easier to start a company now than ever before, it's still incredibly hard. Sleepless nights. Gut-churning stress. Hours away from family. And all devoted to an enterprise that is likelier than not to fail.

So it isn't obvious why a guy like Kraus, worth many millions of dollars, is taking up the challenge of company creation instead of playing golf. The answer, he says, boils down to two factors. First, Kraus explains, "I love the relationships that you build with people when you're in the trenches trying to make something from nothing. The strongest memories I have from Excite revolve around this team of smart people working on a problem, the sense of accomplishment from that shared struggle, and the friendships that evolve." That's the familiar explanation.

Then there's the unfamiliar one. Citing the book Flow: The Psychology of Optimal Experience, by academic Mihaly Csikszentmihalyi, Kraus suggests that people performing at a high level--in sports, the arts, and other endeavors--attain Csikszentmihalyi's "flow state": Time slows down, concentration comes effortlessly, distraction melts away. "I think the flow state is addictive," Kraus says. "And the only way I know to get there is through being in a startup."

What Kraus is saying, in essence, is that serial entrepreneurs are junkies. For them the decision to do one startup after another isn't a choice but a compulsion. And from what I've seen, he has it exactly right. (Consider, if you will, Jim Clark, an addict if I've ever seen one.) During the bubble, people like Clark and Kraus were outnumbered by carpetbaggers whose motivations were purely financial, as opposed to being driven by obsession. But now the balance has shifted back: Addicts once again outnumber arrivistes. And together with the declining cost curve, a focus on profits, and a maturing of Web business models, that is what's propelling the new boom.

Silicon Valley may never again be the white-hot center of the universe that it was in the 1990s. But it's getting pretty interesting again. Who knows? After meeting with Kraus, even BusinessWeek might finally grok that story.

A Decade's Difference

Going from idea to company has become radically cheaper since 1995.