Joe Kraus, CEO, JotSpot

Joe KrausMost of us fantasize about returning to the scenes of our glory days. Lucky Joe Kraus gets to do it.

Kraus was one of the original Internet wunderkind, helping to found Excite, which began as a search service, morphed into a portal, then hooked up with @Home, a cable broadband content company.

[email protected] eventually tanked, going bankrupt in 2002. But Kraus walked away in 2000 with a stake estimated to have been worth — at one point, at least — $500 million.

Kraus then traveled; became got involved in citizen politics by founding, a non-profit grassroots consumer organization dedicated to protecting consumers’ fair-use rights to digital media; did some angel investing; and then returned to his first job out of college: startup CEO.

His venture, JotSpot, aims to invent a new category of business software: do-it-yourself apps. Based on the wiki , JotSpot is a Web-based service designed for quick collaboration by non-techies.

In September, it launched JotSpot Live, a group note-taking tool. JotSpot’s 14 employees toil in a tiny converted house in the heart of Palo Alto, Calif., and the Silicon Valley — a space it’s about to outgrow. sat down for lunch with Kraus to reflect on the olden days and look at what’s on the tech horizon.

Q: Did you consciously try to recreate the early days of the Valley?

It just worked out that way. Startup offices should be like political events: The most important thing is to make the room feel crowded, give a sense of life to the event. I love the fact that, from my chair, I can see everyone in the company. These are little dynamics that don’t make or break the company, but they make your day better.

Q: Is JotSpot an anomaly, or are a lot of startups in the Valley still like that?

I would say that the really successful ones create a combination of hard work and enjoy the ride at the same time. As I look back at the Excite days, the one thing we did poorly was celebrate our successes along the way. We were always focused at the next thing.

One thing that I am very mindful of at JotSpot is you’ve got to celebrate your successes, even though they’re just a step on the way to where you need to get to.

If you’re going to take a cut in pay, an increase in hours and an increase in risk, you’d better get back something other than the hope of a big payout at the end. You’d better feel like you’re making a bigger difference. You’d better feel like you love the people you’re working with.

Q: Why didn’t you become a VC like a lot of other early Internet entrepreneurs?

That’s a lonely business. You’re not part of the team; you’re not on the inside.

Besides, a lot of entrepreneurs make bad investors. Entrepreneurs are optimists by their very nature. They believe they can make something happen. What makes startups successful has a lot to do with the team, somewhat to do with the product and the market.

VCs have to remember that, as an investor, you’re not involved. You may think you’re involved, you may try to be involved, you may actually assist to some degree, but it’s very different from being in the trenches full-time.

A big transition entrepreneurs becoming VCs have to go through is to distance themselves from their natural optimism. It’s not about them anymore. It’s about the team they’re investing in.

Q: Do VCs still rule the tech industry in Silicon Valley?

There are some interesting things happening in the VC world. It’s a ton cheaper to start companies these days. Excite took $3 million to go from concept to market, and JotSpot took $100,000.

What that means is there’s going to be more entrepreneurship. It also means VCs will see deals later and pay more. There are a lot more ways to raise $100,000 than $3 million. If you can get a concept to market for $100,000, you know pretty quickly if it will succeed or fail.

[Too much money] depresses successful outcomes for entrepreneurs. If you take $100,000 and somebody buys you at $5 million, you’ve succeeded. But if you take $5 million, that reduces the number of potential acquirers. As people wake up to that, it’s changing the nature of funding.

Q: In a 2002 article for Wired, Frank Rose wrote that Excite was an example of the Silicon Valley mentality that went, “Match some computer geeks with a business plan, fuel them to the gills with venture capital, and let ‘er rip.” Is that fair?

No, it’s not. When Kleiner funded us . . . it was pretty obvious that Internet search was where the growth would be. Excite was funded in three tranches, half a million, another million, then a million and a half.

We were caught in the legacy of an old business model, before the new business model of search emerged. When the search-advertising model first came out, it was a CPM, impressions-based model, because that was adopted from newspapers and traditional media. Excite built its business around that model.

It was only in the late 90s, 1999 or so, when Overture started the cost-per-click model. That transition, we failed in. We didn’t see it.

Our problems were compounded by the fact that we merged with @Home, which had its own set of issues. They were dealing with cable monopolists. I realized after that, life is too short to do business with monopolists. In the end, the cable companies wanted that franchise back.

We also made a couple of key stupid decisions related to cash. We bought a company called Blue Mountain Arts [for $750 million]. That amount of money seems insane, but it was somewhat rational in those days. I don’t think the acquisition was dumb, but we paid too much cash.

Q: A lot of those early Internet business ideas are coming back. Is there a sort of evolutionary path for startups? Do some have to crawl out of the sea and die on the shore?

Yes. “What’s old is new” is always the case. There are at least two groups I know of who are doing nothing but looking through back issues of Wired to discover ideas that failed not because they were bad ideas, but because they got squeezed in the market crash. It’s not just coincidence that some of these ideas are coming back. It’s because people are actively looking for them.

Q: JotSpot doesn’t sound like the revival of an early Internet business idea.

What I’m excited about is that JotSpot is trying to enable a new category of do-it-yourself applications. We’ve made it easy for someone who writes something to put it online. Now, can we make it easy for someone to create an application online as easily [as a blog]?

Q: Will businesses buy this? The business world is different from consumer applications; you have a gatekeeper, the IT manager.

That’s the beauty of a hosted service. The vast majority of our customers are either business units inside large companies that don’t tell their IT guy, they just expense it and get it done; or midsize companies that would never be able to buy a server and set it up. The value proposition of “30 seconds and a credit card” enables do-it-yourself, because you don’t need a gatekeeper.

If you can make it so that your dad can create a simple Web application that looks as beautiful as a product Apple would make and is as interactive as Google maps in under a minute, you have an awesome new category.

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