Jon von Tetzchner opens up in CoFounder Podcast No 1 about founding the first Nordic unicorn, Opera Software. We talked on sidelines of Latitude59 conference about how he reached the ultimate startup dream, an IPO, on how he was forced out of the company he built, why he is so keen on the web that he founded another browser maker, Vivaldi, and what is wrong with startup funding.
Let’s start from the real beginning. You originally built Opera inside Telenor, but the company decided it was not for them and wrote reports on how it would fail. What gave you courage to not listen and launch the company anyway?
I have always thought that we are all from a small place in some ways. Why should it be that just because you’re from a big country you should succeed and if you’re from a small place you don’t. There’s been a lot of thinking in the Nordics that we can’t succeed, but I thought: Why not? Are we more stupid than these guys? I don’t think that’s the case. We are as smart as they are, so we should give it a try. Is the available software so good that we can’t make anything better? No. So let’s start a project.
I was lucky enough to be working with a truly smart coder, Geir. He taught me that I wasn’t as good as I thought I was. We had a strong team from that perspective: we had a really strong coder and then me – I wasn’t too bad. We felt we were building a product that could be really good and started on a prototype to give it a try. We didn’t feel there was too much risk – we just tried it out to see what would happen. We believed we would be able to get enough usage to make it work.
Across the Nordics we’ve had a social security system there to save you.
I think in many ways it is a positive system. Some people think you should be driven by fear but I think fear stops you in some ways. Yes, we had to make sure that we could pay the rent and other bills, and we did have months without making any money, but in general we’ve felt secure in what we were doing, believing that if we failed we could either get our jobs back or find another job. We didn’t take out any loans – we just put in the minimum amount of money that is needed to start a company, which was 50,000 NOK – so our downside was reduced. We could only lose that 50,000 NOK and the time that we spent on the project.
When did risk first enter the picture? Did you need to take out a loan when you started to hire people?
Obviously we had to make enough money to make ends meet. We started hiring people in 1996 – we hired our first person in 1996 and the second in 1997. We grew at a pace where we were effectively doubling each year. From that perspective, we kept adapting to the situation and didn’t need to have external funding.
Our first loan, which was a convertible loan with little real downside, only came in 1999. We managed that situation well, converting that loan in our next round in 2000.
Of course, we had close calls along the way. We almost had investors in 1996, 1997 and 1998, and we were almost sold during that period too. I think part of our success was that it didn’t happen.
How did you protect the company in the early phase?
We just built the company. I think we were very close to making significant mistakes along the way, because we didn’t know what we were doing. In 1996 we signed an intention agreement to have an investor come in. They gave a very good talk: told us how they were long term investors and would support us all the way, pointed out all their investments where that had happened. We signed the deal in the afternoon and the next morning I got a call; the investor had asked one of their other companies that made modems to bundle our software. That company said no, so the investor told us we should kill the browser and become a consulting company on the web. Luckily, we only had an intention agreement at that stage, so we got out. There were a few other close calls like that, including an offer for the company for a significant amount of money that we could have said yes to. In fact, my co-founder got cancer then, so timing-wise you could argue that maybe that was something we should have seriously considered, but we said no.
What’s the thing that gave you the courage in that kind of situation – to say no, we are not going to take the offer.
We were enjoying what we’re doing. We were making progress and were a bit profitable from the very beginning. We were having fun, enjoying what we were doing, making great software. We were on the right path. We didn’t feel that we needed to go anywhere and we were not in this for the money. We were never in this for the money.
Do you think you would have made different choices if you were building it 20 years later during this huge startup boom across Europe?
I have my way of doing things and that hasn’t changed. I believe that if you’re building a company you have to build it for the right reasons. When I talk to other startups, I ask why they’re doing it. If I get a story about how it is going to be a billion-dollar industry and how this is a big space, for me those are the wrong reasons. You should do it because it matters, because you’re building a piece of software, a tool or solution that helps people or simply because you like it. You should be driven by it being what you want to do. The financial element is part of the equation, because you may need the money to make it work and you may meet a situation where you have to give up your dream – perhaps there are other investors or the amount of money on the table is just too large. But if you go into building a company with the intention of exiting, I don’t think your heart can be fully in it. It’s like going into a relationship with the intention of ending it.
Like a marriage.
Yes. You don’t marry someone and say: my plan is to find a new person in three years. People get divorced, but I don’t know many people who start a marriage intending to get divorced.
When you invest in early stage startups now, what do you tell them when they come to you with pitch decks including an exit slide that says they will exit in 3-5 years, selling it to X company.
I would probably be honest and tell them they aren’t for me. If their heart isn’t in it then my heart isn’t either. I’m not really investing in startups at the moment, because I already have about 10 and another 40 or so through the Founders Fund that I’m part of in Oslo. I have enough on my plate with Vivaldi and my startups. But that was my basic principle when I was looking startups and even now, if I’m asked to give advice to someone who has that in their deck. It doesn’t feel like I’m doing anything significant trying to give them advice if they are not really into it and want an exit in three or five years. They are only doing it for the money.
Going back to building Opera – at one point there was a big decision to go public. Thousands of startups have been told by their advisors and investors not to bother dreaming about an IPO – that their exit strategy cannot be an IPO because it only happens to a fraction of startups. How big a decision was it to go public?
In a way, it wasn’t. It took us six years from when we started coding – five years after founding the company – to get money. When you take money from investors like VCs, you have to give them an exit. Their funds expire, so we knew that we would have to provide an exit one way or another, even though they only held a fraction of the company and we still controlled the company, even after the second round. But we took their money and we owed it to them to give them their money back.
There were two ways we could do that: sell the company or go public. We could have gone public when the investors came in. In 2000, we changed the organisation to be ready to go public; we got a CFO and put everything in order. The feedback we received was that we were much more organised than the average listed company, so we very quickly got everything under control regarding regulation and how we did things. Even so, we still waited a few years because we didn’t want to go public before we were profitable. When we first got the money in from investors, we were in the red – we wanted to be in the black when we went public. We were in the red in 2001 and 2002, in 2003 we were in the black, we went public in 2004 and we have been profitable since then.
After that you were running a public company. That must be a very different experience from building your own startup: finding your first customers and hiring the first people. For years you were the CEO of a big tech company. That must have demanded a lot of personal growth or a totally different attitude.
I always felt we should run the company in the same way, so in many ways did – although I had to deal with the differences like doing quarterly reports. I spent a lot of time travelling around, talking to investors and potential investors in Europe and the US to inform them about what we were doing and following that up. That was a big extra task for me, with the CFO.
But in general we ran the company the same way we had before, since we had already been quite a professional organisation and the additional layer of reporting on the financial side wasn’t that big a deal. We had people at all layers of the organisation too and were doing deals with major corporations like Nokia, Motorola and Ericsson.
We were doing really well and were very conservative in our approach and in what we were reporting. I felt that our cash flow should be better than our reports and it always was, so we had good financial control and kept adding to the coffers. That doesn’t mean there weren’t issues; some investors believed that being in the stock market wasn’t the end of the journey. They believed it would be better to sell the company – that our success up to then was probably luck that was bound to end, or that some new technology or new company would kill us, so we should sell before it was too late. Those situations were difficult. Our revenues were increasing by typically 40 or 50 percent each year, our margins and profitability were increasing, our user numbers were increasing, and we were being recognised in countries across the world for good software that dominated certain markets. There were fantastic opportunities to build the company, but for some reason these guys didn’t see that as a value. They just thought we should sell the company and that we must be able to find someone that would pay a lot of money.
The list they were talking about was probably quite long. I can assume that Microsoft, all the big web players and all the European tech players were on it. They probably had a list of the guys you should be selling the company to.
They did. Obviously their dream was a battle between companies like Google, Apple and Microsoft. We even had to deal with rumours about it. For a relatively small company that is trying to work with big companies who are concerned about betting their strategy on you, that kind of discussion or rumour is really disruptive.
I had a rule that I didn’t talk about these things, but our customers kept discussing what would happen if we were bought, and having that kind of discussion in the open is not helpful. I had to reassure some of them, including Google and companies like that, because they were concerned. Then Google made their own browser – I don’t know if those things were connected, but they may have been.
Was that part of the reason why you left the company eventually?
Yes. It had been seven years of fighting and I was tired of it. Obviously, it’s not only tiring for me, but tiring for the people around. I hoped that if I stopped and gave up the chair – instead of going public with a big fight, because that was the alternative – Lars Boilesen, who was my head of sales, would take over.
He promised me that the company would continue in the same way and they convinced me to stay as an adviser for the company, but that’s not how it went. As soon as I was out of the CEO chair, things started changing for the worse. 18 months later I was completely out of the company but I should have left completely straight away. I had followed advice to stick around to try and help the company, but it was painful to watch what we had built up being torn down and destroyed.
When I left the company, we had a lot of money in the bank. We were in a really strong position with a strong growth trajectory that continued for some time after I quit. But the money started to burn in their pockets; they started buying companies in slightly different industries, like ad companies, which was not really what we were about; and they scaled down the browser business. It took six years to sell the core browser business.
Basically, the investors thought the only thing holding back the sale of the company was me, but I always told them that if an investor knocked on the door and was seriously interested then I’m a professional and I would deal with it. I wouldn’t stop a sale, but I was not going to go around saying that we were for sale either. But in the end, they spent six years selling the browser business and eventually sold the company to a Chinese consortium. I don’t think that was a good idea for the technology.
It’s a sad end to a company that could have done a lot more. When I quit we had a realistic plan to get half a billion users by 2013, but through their lack of investment it ended up with only 350,000.
Opera was always seen as a neutral player in a market where American browsers are mostly competing now. Probably some of its neutrality is still there, but the servers are in China now. It must feel bad for you.
It feels terrible. I don’t know if their servers are in China – I don’t think they’ve moved – but the company is Chinese now. There’s more to it too.
We were making our own browser core and were competitively driving the web forward. If you look at the web standards, a lot of them were written by our people; we had more people working on the web standards than any other company on the planet. We had a massive position with web standards and were always trying to be at the cutting edge when it came to having a fantastic piece of code. We could run on almost anything.
After I quit they dismantled everything and threw away the code to use chromium. They didn’t understand the value of the code that we had built with hundreds of millions of users. It’s almost impossible to understand how they could do something so stupid.
How long did it take for you to think: I need to build a browser again?
I left the company and I had no idea what I was going to do. I spent six months evaluating what to do and deciding where in the world I should live. I ended up moving to the US and I started investing in startups, promising myself to be a better investor than the ones I had ended up with. Although, most of them had been good – it was just a group of people that were real pains in the ass.
So I was on a different path but I had planned to continue using Opera. Then came their decision to throw away all the code that we had built. I still thought I would continue using Opera, but at the same time as throwing away the code, they decided to throw away the design principles too, simplifying the product to make it like the others. They made a new version of Opera that had no features. Opera used to have a lot of features that were very individualised and customisable, and they made it into a browser that didn’t even have bookmarks.
They came up with a different concept to bookmarks – a kind of a stack – although they added bookmarks later. But that’s how far they went.
I sent emails to them saying that I understood that they just wanted to get something out on the new code-base and asking when the features would come back, because I was stuck on the old version until then. At the same time, users of Opera all across the world were contacting me, asking if I could do something. They felt I must have been able to have some say in it, but there was nothing I could do. It was a decision that was driven by the investors and management – at that time a sales guy and a finance guy. The engineers were not involved in the decisions.
There were all these unhappy users, I had no idea which browser I was supposed to use, so I decided that if no one else would do it then we would just have to do it ourselves.
And you knew how to do it.
Yes, and I was lucky enough that there were a lot of people – former Opera people and like – that wanted to work with me on it. So we built a team, including people like Ann who used to be head of HR at Opera. She had done a fantastic job in handling growing that from 75-100 people when she started to a 750-person global organisation that still felt like a small organisation where your voice could be heard. I also had Tatsuki with me – a brilliant guy from Japan who came to Opera as a student and did a fantastic job. There were a number of other people too – engineers and the likes – that wanted to help. As soon as people recognised what we were doing and we got the word out, we also had all the volunteers we needed. Opera had a lot of volunteers and as soon as we announced what we were doing a lot of them just switched over to become our volunteers, so we have hundreds of people that help us with testing and translation.
We are a small organisation but with the help of all those people we are able to do a lot more.