Meet the owner of whatsapp (How he built whatsapp)

Jan Koum picked a meaningful spot to sign the $19 billion deal to
sell his company WhatsApp to Facebook earlier today. Koum,
cofounder Brian Acton and venture capitalist Jim Goetz of
Sequoia drove a few blocks from WhatsApp’s discreet headquarters
in Mountain View to a disused white building across the railroad
tracks, the former North County Social Services office where
Koum, 37, once stood in line to collect food stamps. That’s where the
three of them inked the agreement to sell their messaging phenom –
which brought in a miniscule $20 million in revenue last year — to
the world’s largest social network.
Koum, who Forbes believes owns 45% of WhatsApp and thus is
suddenly worth $6.8 billion (net of taxes) — was born and raised in a
small village outside of Kiev, Ukraine, the only child of a
housewife and a construction manager who built hospitals and
schools. His house had no hot water, and his parents rarely talked
on the phone in case it was tapped by the state. It sounds bad, but
Koum still pines for the rural life he once lived, and it’s one of the
main reasons he’s so vehemently against the hurly-burly of
advertising.
At 16, Koum and his mother immigrated to Mountain View, a
result of the troubling political and anti-Semitic environment, and
got a small two-bedroom apartment though government assistance.
His dad never made it over. Koum’s mother had stuffed their
suitcases with pens and a stack of 20 Soviet-issued notebooks to
avoid paying for school supplies in the U.S. She 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. Koum spoke English well enough but
disliked the casual, flighty nature of American high-school
friendships; in Ukraine you went through ten years with the same,
small group of friends at school. “In Russia you really learn about
a person.”
Koum was a troublemaker at school but by 18 had also 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 w00w00 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 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. “You could tell he was a bit different,”
recalls Acton. “He was very no-nonsense, like ‘What are your
policies here; What are you doing here?’” Other Ernst & Young
people were using “touchy-feely” tactics like gifting bottles of wine.
“Whatever,” says Acton. “Let’s cut to the chase.”
It turned out Koum liked Acton’s no-nonsense style too: “Neither
of us has an ability to bullshit,” says Koum. 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 Bleep are you doing in
class?” Filo said. “Get your Bottom 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.
When Koum’s mother died of cancer in 2000 the young Ukrainian
was suddenly alone; his father had died in 1997. He credits Acton
with reaching out and offering support. “He would invite me to his
house,” Koum remembers. The two went skiing and played soccer
and ultimate Frisbee.
Over the next nine years the pair also watched Yahoo go through
multiple ups and downs. Acton invested in the dotcom boom, and lost
millions in the 2000 bust. For all of his 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 his
LinkedIn profile, Koum unenthusiastically describes his last three
years at Yahoo with the words, “Did some work.”
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.
“We’re part of the Facebook reject club,” Acton says. 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.
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 RentACoder.com.
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. “He’s very
thorough,” says Fishman. 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.
Early WhatsApp kept crashing or getting stuck, and when
Fishman installed it on his phone, only a handful of the hundreds
numbers on his address book – mostly local Russian friends – had
also downloaded it. Over ribs at Tony Roma’s in San Jose,
Fishman went over the problems and Koum took notes in one of the
Soviet-era notebooks he’d brought over years before and saved for
important projects.
The following month after a game of ultimate frisbee with Acton,
Koum grudgingly admitted he should probably fold up and start
looking for a job. Acton balked. “You’d be an to quit now,” he said.
“Give it a few more months.”
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.
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.
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.
He and Koum worked out of the Red Rock Cafe, a watering hole
for startup founders on the corner of California and Bryant in
Mountain View; the entire second floor is still full of people with
laptops perched on wobbly tables, silently writing code. The two
were often up there, Acton scribbling notes and Koum typing. 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. (The two founders still have a
combined stake in excess of 60% — a large number for a tech startup
— and Koum is thought to have the larger share because he
implemented the original idea nine months before Acton came on
board. Early employees are said to have comparatively large
equity shares of close to 1%. Koum won’t comment on the matter.)
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.
Through their Yahoo network they found a startup subleasing some
cubicles on a converted warehouse on Evelyn Ave. The whole
other half of the building was occupied by Evernote, who would
eventually kick them out to take up the whole building. They wore
blankets for warmth and worked off cheap Ikea tables. Even then
there was no WhatsApp sign for the office. “Their directions were
‘Find the Evernote building. Go round the back. Find an unmarked
door. Knock,’” says Michael Donohue, one of WhatsApp’s first
BlackBerry engineers recalling his first interview.
With Koum and Acton working for free for the first few years,
their biggest early cost was sending verification texts to users. Koum
and Acton were using cutthroat SMS brokers like Click-A-Tell,
who’d send an SMS to the U.S. for 2 cents, but to the Middle
East for 65 cents. 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.
By early 2011 WhatsApp was squarely in the top 20 of all apps in
the U.S. App Store. During a dim sum lunch with staff, someone
asked Koum why he wasn’t crowing to the press about it.
“Marketing and press kicks up dust,” Koum replied. “It gets in your
eye, and then you’re not focusing on the product.”
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.” He eventually
sat down with Koum and Aton 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 on top of their $250,000 seed
funding.
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. At the time Acton took a screenshot of WhatsApp’s
bank balance and sent it to Goetz. It read $8.257 million, still in
excess of all the money they’d received years before.
Now with an even bigger number in his 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. Will he finally put up a “WhatsApp” sign? “I can’t
see a reason for there being a sign. It’s an ego boost,” he scoffs. “We
all know where we work.” Later he pulls up to nondescript block
building in San Jose, grabs a gym bag and walks into a dimly lit
gym for a private lesson with a diminutive, gum-chewing coach
standing next to a boom box blasting rap music. “He likes Kanye,”
the coach says smiling. He holds two mitts up high as Koum throws
slow but powerful punches. Every few minutes Koum sits down for
a break, slipping the gloves off and checking for messages from Acton
about WhatsApp’s servers. Koum’s boxing style is very focused, the
coach says. He doesn’t want to get into kickboxing like most other
students, but just get the punching right. You could say the same for a
certain messaging service that wants to be as straightforward as
possible.
It’s true, Koum says, ruddy faced as he puts on his socks and shoes.
“I want to do one thing, and do it well.”
Source: http://www.forbes.com/sites/parmyolson/2014/02/19/
exclusive-inside-story-how-jan-koum-built-whatsapp-into-
facebooks-new-19-billion-baby/

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