Ten Years Later: Lessons From the Applied Semantics’ Google Acquisition
Ten years ago today, my business partners and I sold Applied Semantics to Google. At the time, it was Google’s largest acquisition to date. In the following years we worked together with our new family at Google to grow AdSense into a multibillion-dollar business.
Building Applied Semantics was a roller-coaster four-year process, and the founding team and I learned a great deal during that time. As the anniversary of the acquisition approached, I had been reflecting on lessons learned during the experience. Today, a decade later, I would like to share these lessons with others in the hope that they might find something useful to carry them through both the good times and the not so good — because, eventually, you come out on the other side, oftentimes with a new perspective.
Focus on hiring passionate, hard-working, smart people. Experience is highly overrated.
None of the founding team at Applied Semantics (formerly Oingo) had any startup experience. We didn’t have an MBA among us. None of our parents were business people. Not only did we not have any advisers, we didn’t even really know what advisers were, though many people around us told us that we needed their advice. We had a very limited business network. What we did have was intelligence, creativity and a very strong determination to succeed.
Don’t get too stuck on an idea. Pivot quickly. For most companies, it will be quite clear when and if it’s working.
The original idea of Oingo was to build a Yahoo-like directory of websites which would be run by a network of freelancers competing for the right to build portions of the directory. During the spring of 1999 we worked hard to build a prototype, but soon found a competing product called DMOZ, which was later acquired by Netscape. We tried another three ideas: Oingo Free Search, DomainSense and DomainAppraise, before we finally got to building and releasing AdSense in December 2000.
Several large portals beta tested the product, though none of them were willing to license it. AdSense sat on a shelf for two full years as we launched another two products, DomainPark and Error Page Assistant. In late 2002, we successfully relaunched AdSense — our eighth product launch.
Spend your funding like it’s your own money, and assume it’s the last dollar you may ever raise.
We purchased computers without sound cards because it saved us $20 each. We worked out of our house until we had 20 people working for the company (and at least eight of us living there). We never had a dining room or a living room, and we lost our TV room to a server farm soon after moving in. We only vacated the house because we were served with a landlord eviction as well as a city ordinance that said we had to vacate the property immediately. My father, who is a Ph.D.-educated university professor, painted our first office to save us money. We all took 50-percent-plus pay cuts from previous jobs to keep our burn rate low. We squeezed each dollar in a bubbly time when some startups were throwing parties which cost more than an entire year’s budget for us. We were within 30 days of running out of money at three separate times within our company’s history. There is no doubt that being frugal allowed us to simply survive.
The only thing you can control is where your company is headed. Keep your focus sharp, while avoiding the tendency to bank on an exit.
Six months into the company’s history, we were approached by a large public company to be acquired, and we were very excited about the prospects of working with this company. That deal didn’t go through, and it was disappointing for the team. Three months later, an even larger public company offered to acquire us, and we got closer on terms this time. We got so excited about this deal that for a week we were more focused on the potential acquisition than our own vision. That transaction also fell through. Over the next three years, four other companies would make overtures to acquire us. Over time, we learned not to give too much thought toward a potential acquisition. We learned to focus on creating great products first — an acquisition was secondary. Google was the seventh company to suggest buying Applied Semantics in those four years.
Forgive yourself. You are doing the best that you know how. Things will get better and they will get worse, repeatedly. So get used to that.
We made mistakes along the way. Some painful decisions set us back. We grew too quickly, and it’s still disheartening to think of the friends we said goodbye to during two different rounds of layoffs. We didn’t always trust our own instincts. A decade ago, it wasn’t typical for entrepreneurs in their twenties to be raising large funding rounds, and we were convinced to follow a new leadership that didn’t always embrace our core values. For a time, we started hiring differently, spending differently and managing differently.
Each of the founders risked a great deal in founding the company, but nobody more so than my brother Gil, who put his entire life savings into the company. At times, when things looked grim, it was easy to look back and criticize our mistakes, to think, “What if we made a different decision? What if we had hired a different person? What if we would have built a different product?” If I could say only one thing to my 26-year-old self, it would be this: Even though it feels painful right now, experiencing and working through each of these challenges will ultimately make you a stronger person and your company a stronger business.
Eytan Elbaz is the co-founder and chief strategy officer of Scopely, a next-generation mobile entertainment network. Scopely’s investors include New Enterprises Associates (NEA), the Chernin Group, Anthem Venture Partners, Greycroft Partners and Sands Capital Ventures, among others.