Employee #1 is a series of interviews focused on sharing the often untold stories of early employees at tech companies.

Tim was the first employee at Yahoo, its Chief Product Officer for eight years, and is now a partner at YC, so we thought it would be fitting to kick things off with him.

Discussed: Meeting the Founders, Writing Yahoo’s Business Plan, Leaving Harvard Business School Early, Creating the Banner Ad, Yahoo’s First Ad Sales, Being an Early Employee After a Management Change, and Founder vs. Early Employee Differences.

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Craig : What did you do before Yahoo?

Tim : Before Yahoo, I learned that I preferred working at small companies. I really didn’t think of it as entrepreneurship at that point. My first work experience out of school was at Motorola – a big company. And at the time, in the early ’90s, Motorola was held up as a model of a well-run company. Every business magazine at the time portrayed Motorola up as the ideal.

I went there with a positive attitude. The work was interesting. It was rewarding and intellectually challenging. But after a few months, I remember looking at my boss and my boss’ boss, and my boss’ boss’ boss, and saying to myself, “You know what? I don’t want any of their jobs.” I saw how they spent their time and didn’t find it interesting or very rewarding. They spent their time managing meetings and office politics.

This wasn’t my vision of what work was. To me, work was doing and making things and being able to see the fruits of that labor. At the end of the day or at least after a short period of time, I need to point to something and say to myself ‘that’s what I’ve been building.’

My experience in this big company was very different from that idea. If I rose up the managerial ranks in this big company, I could easy see myself going home and asking myself, “What did I do today?” and not having a very satisfying answer.

Craig : You couldn’t point at stuff.

Tim : That’s right. It‘s not that these managers weren’t doing things, but everything was so time inefficient. In big companies, time scales are longer. And the bullshit factor of office politics is high. For me, maintaining passion for your work when the feedback mechanism is that slow is difficult.

Once I internalized that big companies weren’t my cup of tea, I decided to go to business school in order to make a change.

Craig : But you ended up leaving Harvard Business School for Yahoo, right?

Tim : That’s right. I left in the middle of my second year. The whole point of going to business school was to figure out what I wanted to do and get exposed to a lot. The case study method was great for that.

I soon concluded that small companies were where I would thrive. I also thought that it would be great to work with friends. What could be more rewarding that working hard and doing something important with friends? And so here I was in business school thinking this when my friend Jerry Yang calls and says, “Hey, I want you to come out and join me and my co-founder start a company.”

Craig : That was the opportunity.

Tim : Exactly.

Craig : Just to rewind for a second, how did you guys meet?

Tim : Undergrad. Jerry and I were both double E’s [electrical engineers]. We spent 4 years studying together.

Craig : Cool. So Jerry calls and you’re thinking, “Oh, this might be it.” Did you know that Yahoo would be a thing, or did you just feel like this is a good first step?

Tim : The latter. I didn’t know it would be a big thing.
Jerry came to visit me at the beginning of my second year at HBS. At the time he was a PhD student in EE at Stanford. He knew I was looking for a new job, and I told him, “I want something small.”

He called me a couple of months later and said, “Hey, a buddy of mine, my research partner and I started this thing. You should check it out,” and he showed me the world wide web for the first time. There was almost nothing online at that point, but I clearly remember a website company called Satchel.com, which published live sports scores.

I’m a sports junkie. So before I found this website, I used to sit and watch ESPN just for the score ticker that runs across the bottom of the screen. At the time, it only came on twice an hour. I was pathetic. I literally would just sit there and wait 30 minutes for the damn ticker to get the live score for Detroit Piston games. There was no other way.

Craig : Hahaha.

Tim : So Jerry showed me this site and I asked, “You mean I can just hit refresh and I get the live score instantly?” Okay, I got it.

Craig : That’s how you got the internet?

Tim : That’s how I got the internet.

Craig : That’s the best example I’ve ever heard.

Tim : After that, I was hooked. Jerry and his cofounder, David, had built a directory of the world wide web, which was finite at that point. Given where the internet is today, it’s hard to imagine. It was largely just double Es and technical folks posting their dissertations and sharing their papers. Only gradually did they make sites about their hobbies and quirky things, because they realized, “Hey, it doesn’t have to be just dissertations.” So Jerry and Dave started collecting these things and organizing them for everyone.

And so when Jerry called me at school, he said, “Hey, I have no idea if this is going to be big, but I know you’re looking for a job. So how about if you join David and me? Come out to Silicon Valley and get a regular 9 to 5 at a place like at SGI [Silicon Graphics], and then you can moonlight with us. And we’ll see where it goes.” I’m like, “Sounds good.”

Craig : And so where does this fall? Is this the summer before your second year?

Tim : No, this is November of my second year. And I’m thinking, “Sounds good. I’ll ramp up my job search in Silicon Valley, at SGI or Intel or wherever.”

Craig : Yeah, there are plenty of places like that.

Tim : Yes, plenty of places. But that’s also the time when internet usage started to take off.

A couple weeks later Jerry calls me and says, “Hey, we’re going to go raise some money. We need a business plan. Can you help us write a business plan?”

So I flew out to Stanford for Christmas break. I spent two weeks with them, wrote the business plan, then went back to school. They took the business plan, which they probably really didn’t need, it was mostly just a formality at that point, and they raised money from Sequoia Capital.

But in those two weeks I learned a ton from them about the opportunity and put it into a business plan format.

Again, that was about the same time that internet usage started to take off. So a couple weeks after I returned to school, Jerry called and said, “Ah, you know what? This thing is taking off. It might not be a moonlighting job by the time you graduate. It might be a full-time gig.” I’m like, “Fine by me.”

Craig : That just saved me time.

Tim : Exactly, I wouldn’t have to look for another job.

So a few weeks later Jerry calls and says, “Sequoia is going to give us money and we’re going to go for it.” I’m thinking,

“That’s awesome. I’m in. I will see you in June right after graduation.”

Two weeks later, Mike Moritz, a partner at Sequoia, calls me, “Tim, we have a problem.” “I’ll be out after my graduation on June 8th. What’s the problem?”

“We don’t need you in June.”

“Huh? Jerry said I’m in. What’s changed?”

“Well, this ship is sailing. You either need to get on now or don’t bother coming.”

“What’s that mean?”

“We need you in February, not June. Your position will be filled by June.”

So I’m like, “I’m in.”

Craig : Wow. So you just ditched business school?

Tim : It was a little more involved than that. It included a very uncomfortable phone call with my parents, who paid for business school. Luckily, I did end up graduating.

Craig : Nice. So what was your day-to-day when you moved out?

Tim : It was whatever needed to be done. I was an EE, but the other three were all more technical than me. They hired me as the business person so I had to do all the operations and business stuff – including figuring out if there was even an ad market. No one had ever sold advertising on the Internet.

Craig : So advertising was the clear strategy from the very beginning for you. That was in the business plan.

Tim : That was in the business plan. I shouldn’t say that nobody had sold ads online before though. Other people had sold advertising on the Internet, but not at scale and not as their primary business.

I think it was Wired Magazine that was the first one to sell an ad online. So there were the beginnings of something, but Wired was an offline magazine company. It wasn’t their primary business. There wasn’t much else being sold online.

So we came up with the traditional banner ad size that still exists today and tried to figure out how to sell it. At the time, the only people that used the Internet were traditionalists. And what I mean by that is the internet was used exclusively for the non-commercial sharing of information at the time. The idea of commercializing the internet wasn’t accepted by the very people using the internet. Of course, the number of people and the demographics of those people were rapidly changing.

Craig : So your job was to shift how that community was thinking or bring other people online or both?

Tim : Both.

Craig : And so you are cold calling people to sell ads? What were you doing?

Tim : Jerry and I tried to figure out the business side of things and we quickly realized that we were not the best people to sell ads. So we hired an outside agency in L.A. and convinced them to try to sell ads on the internet.

We decided we’ll sell every page on our site, except the home page, to five advertisers for a million bucks a pop. That made us $5,000,000, but they were the same 5 ads on the site for an entire month. Our users hated it.

Craig : What was the traffic at that point?

Tim : I can’t remember the exact number, but it was a double digit percentage of the traffic on the web. It was a big number.

Once we got advertising going, I was thinking, “Oh my god, we’re in the ad business. I’m an engineer, not an ad sales guy. As much as I’d love to pull an ad sales guy out of me, I’m not that guy.”

Jerry realized he wasn’t an ad sales guy either so we hired a CEO, a guy by the name of Tim Koogle. He came on in August of 1995 and helped us build an ad-supported media company. But that was a full seven months after I got there. Traffic on the site was growing at an amazing rate, but we were really struggling to build an organization that could keep up with the growth.

We knew we were on to something potentially really, really big and we knew we didn’t have enough experience to execute it alone.

Craig : So what interests me is throughout this phase it sounds like because you’re buddies with the founders and you’re sort of treated as this co-founder-type guy. How did that dynamic work?

Tim : Jerry and David were the founders and when a big decision needed to be made, like who to raise money from, they would lock themselves in a room and come back with a decision. That said, the day-to-day operational decisions were all made by consensus at the time. There were four of us, and in that sense, I certainly felt like a co-founder.

Craig : After you closed those first ad sales were you all still freaking out over if this would be viable to not?

Tim : It was probably a full year of discomforting uncertainty. Even after we brought Tim Koogle in, it wasn’t a sure thing. The Internet was a sure thing but Yahoo wasn’t a sure thing. It probably took until the end of ’95 to guarantee that.

Craig : Interesting. Did how you feel about the company change as you scaled?

Tim : Nope. I was all in the whole time.

Craig : How long did you stick around?

Tim : I was there until 2003.

Craig : How was it to ride that wave, especially when the bottom fell out in 2000?

Tim : When things are going well and you’re in a growth industry, you don’t have to deal with many difficult issues. It’s the old cliche, winning solves everything.

Craig : For sure.

Tim : It’s really true. It solves everything… or maybe better said, it masks all your mistakes. A lot of the mistakes you make get masked because you receive almost no negative feedback.

But then the bottom fell out and the board let Tim Koogle go. The upper ranks of management emptied out pretty quick, except for me and the CTO who stuck around. We got a new CEO and set of peers in upper management. Let me just say, I learned a whole lot more about business on the way down than I did on the way up.

Craig : When you think back on your time at Yahoo, how do you feel about it?

Tim : Well, I definitely made some of my closest friends there. I compare them to childhood friends. I can pick up the phone and call any of 50 people and talk to them as if no time had passed. It’s a pretty cool feeling.

Craig : That’s really neat.

Tim : It was formative in so many different ways. Granted it was early in my career, but then again most of the entrepreneurs at YC are early in their careers, too. It’s this intense experience where for the first time in your life where you’re defining your own test and seeing if you measure up. You find out a lot about yourself in that environment.

Craig : I imagine it really builds confidence.

Tim : It does.

It was certainly career defining. The financial success was nice, but it was way more than that. The entire process helps define who you are, what you’re good at, what you want to do, and what you think is important.

Craig : When it does work out for someone in your shoes, I feel like it really helps solidify your belief in how you understand people and markets.

I’ve been wondering if through these interviews we’ll find a strong correlation between early employees and people who are good investors. The way I see it, someone like you, you’re like, “Ok, good people, good product, and I can add value. I’m in.” Founders might be much more singularly focused. You know what I mean?

Tim : I do.

I guess Imagine K12 is the exception because that was my idea with Geoff, but Yahoo wasn’t my idea and QuestBridge wasn’t my idea. It was me recognizing a good idea and then being able to contribute to it, and I did that twice in a row. Even with Imagine K12, you could say, “Well, PG is really the one that kind of defined how to help companies… I just applied it in a different realm.”

Craig : Yeah, exactly.

Tim : But I guess you could say that about almost any idea.

I’ve never felt like an idea had to be mine in order for me to be passionate about it or want to contribute. I hope that helps me be a better advisor and investor.

Craig : I think whatever that quality is, that is the exact differentiator between the person who needs to start something and the person who’s comfortable accepting risk but will work on someone else’s idea.

Tim : You think so?

Craig : I think it can be easier to do your own thing, even if it’s a bad idea, because it feels cooler.

Tim : I think there’s social cache to starting your own company now. Back in the 90s, it wasn’t like that. There was no social backdrop to it. You didn’t go to bars and talk about it.

On one hand, I guess it could be seen as a lack of confidence to not do your own thing. But on the other hand, it could be seen as not letting your ego get in the way of recognizing a good idea. I can see both sides and honestly, I don’t know where the truth lies.

For me, my sweet spot is when I can say, “That’s a great idea. It’s just getting started. Count me in.”