You Only Have to Be Right Once (17 page)

Tatarko and Cohen remain in their own worlds each day until noon, when they break for an hour to get lunch together. This isn't a romantic escape—the conversation generally covers everything from site design to the latest about a sick child. Houzz engineer Ofir Zwebner, who has known Cohen and Tatarko for about a decade, said there's a “sweet bickering” between the two that helps them navigate through just about any challenge. They don't pretend that everything's going perfectly. Instead, they jostle through each new challenge, knowing that with a little give-and-take, they'll find the right answer once again. By 1:00 p.m., they're back to their separate corners of the office.

Boundaries matter in a family that's constantly feeling the tugs of conflicting demands. A while back, the couple's older boys complained that even when their parents showed up at home, their minds remained at work—and their fingers remained stuck on their smartphones. So, Tatarko says, there's a new rule at home now, calling for everyone to unplug from devices during family time. Parents put down their smartphones; the children let go of game consoles and iPads.

“Doing a start-up with kids is a lot more difficult,” said Cohen. Two shifts of nannies provide backup child care throughout most waking hours. But there are many moments that the parents don't want to delegate at all. Cohen plays basketball regularly with his oldest son, Ben. To the parents' surprise, when they began talking about remodeling their driveway, Ben confronted them with a Houzz IdeaBook showing all the different ways that the driveway could be transformed into a partial basketball court. Parking their cars off-street might become impossible. But that wasn't his problem.

“What could we do?” Tatarko shrugged. “We arranged for him to have a meeting with the architect. And the architect listened very seriously to Ben's ideas. Everything needs to change all the time. They're growing, and the company is growing, too.”

Jan Koum, WhatsApp:
The Face of the American Dream

It's hard to come up with the proper superlative for what Jan Koum pulled off in founding WhatsApp and then selling it to Facebook for $19 billion. Silicon Valley's most successful startup ever? The greatest tech deal of the century? Both are likely true, but the one I think holds the most weight: the greatest rags-to-riches saga in American history.

While that's more debatable, Koum, now thirty-nine, inarguably belongs in the top ten, given the size and speed of the fortune and his background. He was born in Ukraine, outside Kiev, and emigrated here as a sullen teen. Brought up as an only child, he lived with his mother on welfare in Mountain View, before she succumbed to cancer. Alone, with not even a high school degree, Koum became, in the truest sense, a child of this country.

For someone who processes the conversations of more than half a billion people around the world, Koum remains a very private man. It took
Parmy Olson
eighteen months to convince him to speak with her for this story, and he hasn't talked to anyone publicly since. But for several months, Koum and Olson chatted and met regularly, and it so happened that the conversations overlapped with the evolution of the tech-deal-to-end-all-tech deals, resulting in a delicious tick-tock peek into business history. The story appeared within hours of the deal's completion, and someone in the company, for added effect, immediately “WhatsApp'd” Olson a photo. It was of Koum, signing on the dotted line—effectively giving himself a fortune, even after taxes, of $6.8 billion—against the door of the welfare office he frequented as a teen. The American Dream is alive and well in Silicon Valley.

 

“G
et together?”

The subject line of the e-mail was like every other come-on that hit Jan Koum's in-box in the spring of 2012. He was pounded daily by investors who wanted a piece of his company, WhatsApp. Hatched on his birthday, February 24, in 2009, WhatsApp was emerging as a global phenomenon. Some 90 million people were using it to text and send photos for free. No social utility had ever grown as fast. Facebook had only 60 million users by its third birthday. And at the time, close to half of WhatsApp users were returning daily.

Koum looked at the e-mail sender: Mark Zuckerberg. Now, that was a first. The Facebook founder had been using WhatsApp and wanted him over for dinner. Koum stalled, then finally wrote back saying he was traveling soon and dealing with server issues. Zuckerberg suggested they meet before Koum left. Koum forwarded the reply to his cofounder, Brian Acton, and his sole venture backer, Jim Goetz, a partner at Sequoia Capital, adding the word: “Persistent!”

Take the meeting, Acton said: “When someone of Mark's status contacts you directly, you answer the phone.”

Koum had lunch with Zuckerberg later that month at Esther's German Bakery, chosen for its discreet back patio and location, twenty miles away from Facebook's campus. Over their meal Zuckerberg said he admired what Koum had built and hinted at his interest in combining their two firms.

So began the most lucrative, two-year courtship in technology history, one in which admiration led to friendship and then, in a last-minute hurry, to an unprecedented transfer of wealth, all signed and sealed on the door of the welfare office Koum once haunted. In early 2014, Facebook bought WhatsApp for $4 billion in cash, $12 billion in stock (8.5 percent of the company) plus $3 billion in restricted shares. The deal cemented Zuckerberg as tech's new billionaire-maker. Koum, a shy but brilliant engineer who had moved from Ukraine to the U.S. with nary even a degree, joined the Facebook board and, after taxes, pocketed $6.8 billion. His cofounder, Brian Acton, a mild-mannered forty-three-year-old ex-Yahoo engineer who got turned down for jobs at Twitter and Facebook, came away with $3 billion after tax. The deal, he said, left him “astonished.” Sequoia Capital, the only venture firm to taste a part of this deal, walked away with $3.5 billion—a sixty-fold return on its $58 million investment.

The numbers were crazy for a company with only fifty-six employees and roughly $20 million in revenue, but it made sense for Facebook. WhatsApp is one of the world's most commonly used utilities after e-mail and the telephone and is now rolling out voice calling. Its 480 million users have already erased $33 billion in SMS revenue from wireless carriers that got rich and fat charging per text. WhatsApp charges nothing for the first year and then asks you to pay $1 a year thereafter. No ads, no stickers, no premium upgrades. In later discussions Zuckerberg promised the WhatsApp founders “zero pressure” to make money, saying, “I would love for you guys to connect four to five billion people in the next five years.”

WhatsApp could eventually make Zuck a lot of money. It costs WhatsApp five cents to support each user, and it's charging customers in only a handful of countries, like the U.S. and Britain, where mobile payments are relatively mature. WhatsApp believes $1 billion in annual revenue is within reach by 2017 as the service grows and billing falls into place. Insiders say the app could also start charging airlines or companies like Uber for the right to send messages into WhatsApp with user permission.

The big risk, as always, is a mass exodus of users to the next new thing. That doesn't seem likely right now. WhatsApp, Acton confirmed, was signing up a million new users per day in the early months of 2014. Everyone in Hong Kong with a smartphone uses WhatsApp. In the United Arab Emirates you can watch
WhatsApp Academy
on TV. In the Netherlands, where 9.5 million people (more than half the population) actively use it, “Whatsappen” is now a verb in the Dutch dictionary, meaning to send a WhatsApp message. Brazil's professional soccer players use its group-chat feature to organize labor strikes during games. “Sometime in the not-too-distant future,” said Sequoia's Goetz, “WhatsApp is likely to eclipse all SMS traffic across the globe.”

• • •

TO UNDERSTAND WHY WHATSAPP
got where it is today, you only have to walk a couple of blocks from its unmarked headquarters in Mountain View to a disused white building across the railroad tracks, the former location of North County Social Services, where Koum once stood in line to collect food stamps.

Koum was born and raised in the small town of Fastiv, outside of Kiev, Ukraine, the only child of a housewife and a construction manager who built hospitals and schools. Electricity and hot water were limited. 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 sixteen, in 1992, Koum and his mother immigrated to Mountain View to flee a troubling political and anti-Semitic environment, and got a small two-bedroom apartment through government assistance. His dad, who died in 1997, never made it over. Koum's mother had stuffed their suitcases with pens and a stack of twenty 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. There, he says, “you really learn about a person.”

Koum was kicked out of high school and had to attend an alternative program, but by eighteen had 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 cofounder Shawn Fanning.

He enrolled at San Jose State University and moonlighted at Ernst & Young as a security tester. In 1997, Koum found himself sitting across a desk from Acton, Yahoo employee number 44, to inspect the company's advertising system. “You could tell he was a bit different,” recalled 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,” said Acton.

It turned out Koum liked Acton's no-nonsense style, too: “Neither of us has an ability to bullshit,” said 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 cell phone for help. “I'm in class,” Koum answered discreetly. “What the fuck are you doing in class?” Filo said. “Get your ass into the office.” Filo had a small team of server engineers and needed all the help he could get. “I hated school anyway,” Koum said. He dropped out.

When Koum's mother died of cancer in 2000, the young Ukrainian was suddenly alone. He credits Acton with reaching out and offering support. “He would invite me to his house,” Koum remembered. The two went skiing and played soccer and Ultimate Frisbee.

Over the next nine years the pair watched Yahoo ride multiple ups and downs. Neither of them liked dealing with ads. “You don't make anyone's life better by making ads work better,” said Acton. In his LinkedIn profile, Koum unenthusiastically describes his last three years at Yahoo with the words, “Did some work.”

In October 2007 they left for a year of decompression, traveling around South America and playing more Frisbee. Ironically, both got rejected for jobs at Facebook. Koum was eating into his $400,000 in savings from Yahoo and drifting. Then, in January 2009, he bought an iPhone and started using the App Store. Here was a new industry in the making. He visited the home of Alex Fishman, a Russian friend who would invite the Russian community to his place in West San Jose for weekly pizza and movie nights. Up to forty 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,” recalled 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 build the guts of the service, but he needed an iPhone developer. So Fishman introduced Koum to Igor Solomennikov, a developer in Russia whom he'd found on RentACoder.com.

Koum almost immediately chose the name WhatsApp because it sounded like “What's up?” A week later, on his birthday, he incorporated WhatsApp in California. The code hadn't even been written yet. Koum spent days writing the software 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 people in his address book had 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 his mother had brought over, which he'd saved for important projects. Koum almost gave up and muttered to Acton about the need to look for another job. “You'd be an idiot to quit now,” said Acton. “Give it a few more months.”

Help came from Apple when it launched push notifications in June 2009, letting app developers ping users when they weren't using an app. Koum updated WhatsApp so that each time you changed your status—“Can't talk, I'm at the gym”—it would notify 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 just “I'm on my way.”

“At some point it sort of became instant messaging,” said Fishman. “We started using it as ‘Hey how are you?' And then someone would reply.” Koum 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 halfway across the world instantly, on a device that is always with you, was powerful,” said Koum.

The only other free texting service at the time was BlackBerry's BBM, but that only worked among BlackBerrys. There was Google's G-Talk and Skype, but WhatsApp was unique in that the login was your own phone number, with no password to memorize. In September 2009, Koum released a new version with a messaging component and watched his active users suddenly swell to 250,000.

He needed help and went to see Acton, who was still unemployed and dabbling in another startup idea that wasn't going anywhere. 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 that November. They worked off cheap Ikea tables in a subleased space in Evernote's converted warehouse in downtown Mountain View. They wore blankets for warmth. There was no sign for the office. “Their directions were ‘Find the Evernote building. Go round the back. Find an unmarked door. Knock,'” said 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. The founders occasionally switched the app from free to “paid” so they wouldn't grow faster than their subscriber income. In December they updated WhatsApp for the iPhone to send photos and were shocked to see user growth increasing even with the $1 price tag on. “You know, I think we can actually stay paid,” Acton told Koum.

By early 2011 WhatsApp was squarely in the top twenty of most countries' App Stores. (The U.S. was slow to catch on, with its proclivity for unlimited texting plans.) Koum and Acton were batting away all requests from investors. Acton saw VC funding as a bailout. But Sequoia partner Jim Goetz spent eight months working his contacts to get either founder to engage. He'd met with a dozen other messaging companies, such as Pinger, Tango, and Beluga, 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 got Koum and Acton to meet. They barraged him with questions and told him ads would be verboten. They eventually agreed to take $8 million from Sequoia in April 2011 at an $80 million valuation.