Phil Libin at Startup School 2013

Wow, good morning! Uh, I think this is literally the largest number of people I've ever spoken to. Pretty sure it is. Uh, very cool, very impressive. Thank you for coming.

Um and to everyone, uh I'm super excited to talk to you. You know, Paul asked me to come in and talk a little bit about what we went through at Evernote, especially in the early years, and the mistakes we made and the lessons we learned. I'm happy to do that.

You know, Evernote didn't come out of nothing. It was our third startup, and we learned a lot kind of all the way through the process. The first real startup that I was involved with, I started with a few college roommates of mine, you know, my best friends in Boston. We called it Engine Five. That was, I think, kind of the first and probably the most important lesson to me right there: that I had great co-founders.

The most important thing, and this is very much the same team of people that was with me at the first startup, and then the second startup, and then many of them are even at Evernote. So, I think the most important thing to do at as young an age as possible is to just cultivate this group of really, really brilliant, high-energy, you know, willing to work for free, best friends for life.

It's super important to do that, and you kind of have to pay attention. I got lucky. I got lucky that the people that I happened to meet in college in the computer science department of Boston University are people that have stuck with me for at least so far the rest of our lives. I fully expect much longer. In fact, I would go so far as to say that you shouldn't even make friends with people that you don't see starting a company with. It kind of sounds dickish, I guess, but to be honest with you, like why bother?

You only have so many best friends that you're going to have, and if you can't imagine counting on them in a pinch as a co-founder, you know, use those resources wisely. I just looked into it, and I happened to meet these great people, and I've been able to get really great people in every other company.

So basically, we started our first company, Engine Five. The core group of those people went on to found the second company, Core Street. The core group of those people went on to found Evernote. I really hope Evernote is my life's work. I don't intend to really work on anything else.

But if I ever do, I already know, you know, the 50 or so people at Evernote that, you know, are going to hopefully be with me for whatever the next thing is. Developing this crew is super huge, and I can kind of tell from most of you, you look like you're around that age, in that area of life where you're making these connections, you're making these friendships, and it's going to go by really fast. So make the most of it!

So Engine Five was a, uh, we were consultants. We started this company. There was originally going to be five of us, but then two people chickened out. But we already had the domain name, and all three of us were computer programmers. We were all developers, and we literally didn't know that there was such a thing as investors. This was a new concept to us. We didn't know that there were people who would give you money so that you can build something.

We just assumed that the way you build a business is you start working, get paid, and make more money than you spend, and so on. Luckily, this was right at the lead-up to the original dot-com bubble in the very late '90s. If you could program, people would just throw money at you.

We didn't have much motivation in starting this company other than we just wanted to work together. We wanted to see what it would be like to have a company, to be our own boss, to, you know, call the rules. We did a lot of programming consulting, mostly around e-commerce stuff, and what we learned—and this is probably the second most important lesson—is, you know, being your own boss and having your own company and making the rules kind of sucks.

If what you're doing ultimately is just being a consultant, you're just getting paid by somebody else to write some code because you're not actually building any value, any long-term value. You can be getting paid; you can be making a decent amount of money while you're working, but all of this idea that you're actually calling the shots and you're in control is a complete illusion if what you're really doing is working for, you know, building something for some other company.

It's amazingly hard work, and the rewards are very immediate but they're not lasting. You don't build anything up. After working harder than we've ever worked for about two and a half years—16-hour days on average—I remember coming into the office at like 2 a.m. and there would be people leaning out of the windows smoking because we didn't have time to even go outside. Back then, people used to smoke—ask your parents.

We finally did sell that company to a big company called Vignette in Austin, Texas, about two and a half years later. We were super happy to sell it because we didn't love this work. We were just working for somebody else; we were just building stores and e-commerce things.

So we sold it, and it was pretty cool. We didn't know how to sell a company, so we came down to Austin, and it was totally as you would expect: they slid the paper across the table with "I'm going to write down a figure" and slid it across the table. I'm totally serious; it was exactly like that. If any of you have seen the Always Sunny in Philadelphia episode, it was just that.

We sold that company, and a couple of years later, we left Vignette. We decided, okay, what did we learn? Let's do something new; time to start a company because obviously we weren't going to go and get real jobs at this point. But what lesson did we learn? We said, well, our lesson is we don't want to be consultants. We don't just want to develop stuff for somebody else; we want to build a product.

So we started our second company, which was an MIT spin-off at the time called Core Street, where we got together with this brilliant MIT cryptographer to build cryptography and security stuff for banks and government products. That was better in the sense that we were building a product. We were building something reusable; we were building something that we can add value to.

But what we got wrong was it turned out that it wasn't the product that any of us were madly in love with because turns out nobody is madly in love with you know government security and cryptography stuff. People don't wake up in the morning being like, "Oh yeah, I'm so excited the new government standard for contactless smart cards is today." Well, like one guy does that. That guy was me, so it was like doubly sad.

At some point, basically, we decided after about seven years of this, we had a good experience. We set out to change the world a little bit to redefine security. I think we did that in a small way.

But what we started realizing was, like, man, I'd sooner chew my own arm off than sit through one more Department of Defense procurement process hearing! So, we exited that company, we brought on adult leadership, and we were able to sell that second company as well.

Then we got together in 2007 and said, okay, now we're all in our mid-30s and we've had two companies, and we've had some exits, we've made a little bit of money. What do we want to do now? What lesson did we learn?

We said, okay, well, the first lesson we were right about: not to be consultants, let's build a product. But the second lesson is, it shouldn't just be any product. It shouldn't be a product about we shouldn't sit around thinking, you know, what does the market want? What does the market fit? How do we build something that we can sell? What will people buy?

We got really tired of that. I got tired of board members and investors constantly telling me, which would happen all the time. They would constantly tell me: "Remember Phil, you're not the target audience; your customers are the target audience," and "Remember the best product doesn't always win."

All those things are true, and they're especially true if you're building stuff for, you know, systems for banks and for governments. But they were just boring. We said, okay, the third time around let's do this again, but let's only build something for us.

Let's build something that we love. Let's build something that we love so that we are the target audience. And let's do it in a way that we're not going to try to sell a company because we've sold two, and selling a company is a mixed feeling.

I mean, it's nice, especially the first time you do it if you have a decent exit and you make some money. But you've put your entire life into this for years, and then it's not yours anymore. So it's at best a bittersweet feeling.

We said the third time around let's do it differently. Let's have two guiding principles: let's only build things for us that we're in love with, that we want to use, and let's build a company that we want to keep. Let's explicitly say there is no exit strategy.

Let's make something that is sufficiently epic to be life's work. If you have something that's your life's work, you don't need an exit strategy—there's no exit strategy for your life's work. You should have a liquidity strategy, especially if you're going to raise money, but you don't need an exit strategy.

Let's make something sufficiently epic. Let's make something that we can devote our lives to building, and let's build it for us. That was the motivation for Evernote.

So we sat around thinking, okay, well what should we build? Let's start with stuff that we like. You know, what do we like? I said, you know, I play a lot of video games. I said I love video games. Maybe we should start a video game company.

And we thought, okay, but we already have really great experiences with video games. You know, even back then there was already like a giant stack of games that I wanted to play that I couldn't play. I thought like the world isn't going to be significantly better if we add another one because there are already people doing a great job keeping us entertained with video games.

So then we thought, okay, well what else do we like? One of my co-founders said, well, you know, I kind of like the new social networking, social media stuff. We thought, yeah, that is kind of cool. You know, Twitter was just kind of getting started; there were a few other things.

But we thought, you know, there's already so many companies doing it and it's already a great experience. I mean, Myspace has already done everything you'd ever do with a social network. Why would we want to start something, you know, to compete with Myspace, already providing a great service? There could be nothing better.

So we decided not to do that. By the way, I suck as an angel investor, just so you guys know. Uh, but then we thought, okay, well, we have pretty good experiences with entertainment. We have pretty good experiences with communication and with social networking.

But when we're using productivity stuff, when we're using stuff to try to make us smarter, to try to actually accomplish something, it's for the most part just a really crappy experience. Every time we use productivity software, it feels either old or cultish. It doesn't actually get the job done; it doesn't feel very elegant.

We thought, okay, that's cool. We're all nerds. We all want to build a second brain. We all want to be smarter. It isn't a good experience right now. It really feels like things like smartphones and app stores are about to take off and get started.

Let's build something that is going to be the modern definition of what it means to be effective and productive as a knowledge worker. We set out to do that.

So we made a plan; we were going to call the company Ribbon, like you tie a ribbon around your finger to remember. Then, in my due diligence, in my research about it, we were in Boston and ran into this other group of people here in Cupertino—sorry, in Sunnyvale—that was called Evernote, started by this guy named Stepan Pikov.

He had a team of people; Stepan is sort of this genius kind of mad scientist inventor entrepreneur kind of Russian-American guy. He had a team of people that worked all the way back to the Apple Newton days. The Apple Newton was kind of the way ahead of its time, you know, first kind of portable device with handwriting recognition and everything.

They were working on this idea of a second memory to everyone, you know, building a second brain. We were talking the same things. So, Stan and I got together, and we decided, hey, instead of competing, let's actually just merge the companies, let's merge the teams, and make something Evernote.

So we merged the two teams in '07, and we kind of recreated the company, relaunched it as a new company called Evernote. We recapitalized it, which means—it's a technical financial term—it means that it used to have a capital N, Evernote, and we made it a lowercase n.

We also changed the investment structure, but that was less important to me. We launched a new product in 2008, and there was an important lesson there too, which is, this was a mistake that I think we made.

It was a very unconventional start. This wasn't the typical Silicon Valley startup start, where you go to Y Combinator and you have a couple of co-founders and you get an A round and start something. We didn't do that.

It was a weird, complicated structure with kind of two teams coming together, and one of them already had some investments, and it all had to get redone. This was a big mistake. I mean, it was great that we combined the teams and that we merged, and the personalities were great, and we were able to build something really fantastic.

But we were way too clever with the structure, and I'll never repeat that mistake. It does not pay to be clever, to be innovative on the structure, on the legal, and how you divvy up your stock and any of that kind of stuff because it basically made us unfundable for a couple of years.

Until we were significant enough that it was actually worth, you know, a VC's time actually understanding why we were different and figuring out how to unwind it and how to fix it—until we were significant enough to get over that barrier, no one would even take a look at us.

It took us, you know, the fact that we were clever in the early days and tried to kind of preserve this unconventional structure probably cost us 18 months of not being able to raise money.

I definitely don't advise that. I don't advise doing anything particularly clever or different about how you do the basics and the dynamics. Just pay attention to what people here will tell you at YC and other resources and just do exactly that.

Be innovative about one thing only, which is your idea. That's the only thing you can afford as startup founders to really be innovative about. Everything else you want to do as by the book as possible, at least in the early days, to minimize your chances of failing for a stupid reason.

We almost did. Evernote almost failed for the stupid reason that we were too clever with our legal forms early on. So we cleaned up everything, and you know, we had self-funded it. I put some money in, we had some friends and family investors.

But we were just about ready to raise a big round. It took a long time, but we finally got a $10 million term sheet—not from a Silicon Valley investor, but from a European investor. A Silicon Valley guy still didn't want to talk to us.

We had about three weeks of cash in the bank left. It was a very long due diligence because we had to fix all the structure stuff. The deal was supposed to close finally; it was supposed to close in 2008 in the fall, and the day it was the closing date was actually the day that Lehman Brothers collapsed.

The investor called me on the day of closing and said, "Hey, we just lost 60% of our fund value in one day. We're not going to do the investment." We had three weeks of cash left at that point. We hadn't been able to talk to too many other investors for about the previous three months because we were kind of locked up in due diligence, you know, with exclusivity.

So we panicked at that point. I already had 20-something people in the company, so I spent a week just frantically calling everyone, calling everyone I knew, everyone I didn't know, just trying to get meetings, trying to get investment. Nothing. Absolutely nothing.

It was arguably the worst time to be doing it in the history of the universe. It was late October 2008. I wasn't particularly good at it. We had a spectacularly bad VC pitch. A VC pitch sounds like this: I'd say, "Hi, I'm Phil Libben. You've never heard of me. We're going to do this; we're going to make this thing called Evernote. It's going to let you, you know, write stuff down, remember things using computers, and we're going to give it away for free. Please give me $10 million."

It worked in Europe. It did! And usually, that would be enough to get us thrown out in Silicon Valley. But sometimes, just out of politeness, they would ask a follow-up question, and the most common question would be, "So, who's your competition?"

Oh man, I would nail this one. This would be great. I would say, "Oh, our competition? Well, um, pretty much every single computer or phone or PDA or any other device that's ever come out in the last 50 years already has a pretty good free note-taking solution on it."

That didn't help us either. Anyway, I digress. So we were out of cash. I spent a week trying to get cash. Nothing. Now we have two weeks of cash left in the bank.

It was 3:00 a.m., and I totally remember this day. I was sitting there at 3:00 a.m., and I decided finally, this is it. I'm going to shut down the company tomorrow morning. I'm going to go to sleep, going to stand up from my desk, going to go to sleep, and come into the office tomorrow. I'm going to lay everyone off, shut down the company because we only had two weeks of cash left, and you can't really take it to zero.

Then you get into legal trouble, so you had to make sure, you know, you like pay the last bills and all that kind of stuff. I decided this was going to happen. I remember sitting there at 3:00 a.m. when I finally decided to do this, and I kind of had this epiphany. I kind of thought, oh, this is what it must feel like to be an adult.

For the first time in my life, I felt like I was an adult. This is what it feels like to be an adult, to make an adult decision. This sucks! Whatever happens afterwards, I'm going to optimize my life for being as childish as possible from here on out.

But I decided this was going to happen. At about 3:00 a.m., right before I went to sleep, I got an email. I said, all right, I'll read one more email. This email was from some random guy in Sweden.

He said, "Dear Phil, I'm a random guy in Sweden, and I'm just writing to let you know that I love Evernote. I've been using it for about two months." It's only been out for about two months at that point. "I've been using it for about two months, and I love it. It's changed my life; it's made me happier; it's made me more organized; it's really great."

I remember thinking, oh, that's nice; that makes me feel better. You know, they say like if you can make a difference to one random guy in Sweden, you know, you've kind of achieved something. But then he went on to say in his email, "So I'm just writing to see if you guys need any investment."

I wrote back, and I wrote, "Why yes, we would like some investment." And then I stayed up; I didn't go to sleep. Twenty minutes later, I was in a Skype call with him. Of course, we told him the whole situation. And two weeks after that, he wired us half a million dollars.

It was exactly enough. That half a million dollars was exactly enough that, you know, we cut back. I had stopped drawing a salary a while ago, and some of the management staff wasn't drawing a salary. We really tightened our belts, but that half a million dollars was enough.

It lasted about, you know, six months, and then the worst of the crisis was over. More importantly, we had already cleaned up all of our structure. The most important thing is we finally had traction. We finally had enough data where I could do a VC presentation that wasn't awful, where I can actually say, "This is the model; these are the cohort charts; these are the unit economics; here's how the business is actually working; here's how we are making money today, and here's why it's going to scale."

That six months made all the difference. We were able to get financing—still not from Silicon Valley people. The first investors were actually Russians and Canadians and Japanese. One of our first professional investors was DoCoMo, the giant telecom in Japan.

The reason we got that was pretty good; they reached out somehow on Twitter because they liked Evernote. By the way, every single investor in Evernote from the early days down to people that we're bringing in now, last year, every single investor is a fan of the product.

We don't even talk to people anymore who don’t love Evernote. But even early on, when no one knew what it was, the investors were all giant fans of the product. So DoCoMo came in. You know, we were still struggling at that point; we still didn't have too much fresh investment.

But a couple of executives flew in from Japan, and they had a meeting with myself and our CTO, Dave Engelberg, one of my co-founders, in our office in Sunnyvale. They came into the room, and we bowed and said hello.

Then in the back of me, I heard Dave—was talking to them, and I hear Dave say thank you very much to them in Korean. I hear this, and my thought is like, well, you know, why is Dave speaking to these people in Korean? I kind of look at him, and he immediately realized what he had done because he was just in Korea.

His brain just got frazzled, so he immediately realized what he had just done. He just spoke, you know, he just said thank you. He meant to say hello in Japanese, but he said thank you in Korean. He's totally pale; he's just ashen. He's so embarrassed, and I look at the DoCoMo guys, and the DoCoMo guys are completely embarrassed.

The thing with Japanese people is they're so, like, for the most part, they're so empathetic. They feel your embarrassment worse than you do, and they're mortified about how bad we feel.

The only way out of the situation was for them to give us several million dollars just to prove that, you know, there were no hard feelings. So we got lucky in that as well.

But then, you know, then things did get a lot better, and then we did have traction, and then a lot of firms came in as the first Silicon Valley firm, and then Sequoia went in big several times, and it got a lot harder.

It got a lot harder once we were a real company. I didn't appreciate that at the time. The most fun I ever had, the most carefree that I ever was, the least stressed that I ever had, was back when it looked like we might go out of business any day.

It was back when the only priority was to raise money because things were really simple. Things were really simple, and there was one fitness function. You know, as an engineer, I appreciated this. The only job was to raise money to make sure that we could meet payroll and have enough cash.

When you're successful, right, when you call the bank and see that there's a few more million dollars in it, you're like, "Yes!" You're totally ready to fail at that point. You expect to fail, you’re ready to do it, you've made peace with it, you know what's going to happen.

In fact, it's kind of liberating. The day after we raised our B round, which was the first time where we had, you know, a couple of years of cash in the bank, and we really felt like we weren't out of immediate existential danger, that day we celebrated. We had a big party; it felt great.

And like the next morning is when it got hard. The next morning is when I said, okay, like now there's an actual company, now there's people depending on us, now there are millions of users, now there are expectations. Now is when we actually have to do something.

So, you know, I can stand here and say, you know, traditionally it gets better. It does very much, but it also gets harder. It doesn't necessarily get easier. So you shouldn't be in this business, you shouldn't be thinking about founding a company if what you're trying to optimize for is easy.

It's never gotten easier for me. It gets harder and harder all the time. But it also becomes more and more important and more and more rewarding. And in some cases, it's more and more fun.

You know, somebody asked me—a reporter asked me the other day if I was still having fun day-to-day. I had to be honest; I had to say, you know what? I'm not. It's not fun day-to-day; it's a huge amount of fun month to month, but it's not fun day-to-day.

You know, when I look back: what do we achieve in the past 30 days? It's awesome; it's really fun, it's really gratifying. But day in and day out, doing the job, difficult is kind of the main thing—difficult.

Since I still have this amazing team of people, this team of people who are much smarter than I am, who are much more capable than I am, many of whom have been with me now for 20 years, but you know, many have only been there for a couple of months, it's vastly satisfying.

The only reason this works, the only reason that I can see myself doing this, even though it's super difficult and super stressful, is because we found something sufficiently epic to do. We didn't try to think about what piece of crap can we sell someone to make some money and flip the company.

We thought about what can we do that we will continue to stay in love with. This is the main way that starting a business right now is different from starting a business even five years ago.

If you were starting a business even five years ago, it would have been stupid advice to say build it for yourself. If you're starting it now, it's stupid advice to do anything else. Because if you build something for yourself, if you build something that you love, that you think is sufficiently epic, if you make something that you love, there's probably another billion people in the world that love it as well.

Okay, unless you're like a really weird—unless you're just spectacularly weird. But even if you are, even if you're several, you know, standard deviations away from the center of the bell curve on weirdness, there's probably still 10 million people that love something just as weird as you.

And because the tech world—because of the way that the tech world has assembled itself, because of app stores and smartphones and social media, the tech world is more of a meritocracy than it's ever been.

So if you build something you love, those 10 million or billion other people will also love it. They'll know about it the next day. They'll be able to find it; they'll be able to use it; they'll be able to pay you.

If you're making it for yourself, if you're making something great, you're at a huge advantage over somebody who's making something for somebody else because you can at least tell when it's great. You know you're making it for yourself. You can be an honest critic and an honest judge of your own products.

If you're not doing that, it's just much harder. So make something sufficiently epic; make something that you will be able to be a fair judge of when it's achieved greatness or at least when it's close to it. I don't think we've achieved greatness at Evernote, but I think we get closer to it every day.

And don't bother making friends with people who you can't start a company with. Thank you.