Sabeer Bhatia at TIE Kolkata

1. At the core of every entrepreneurial venture there should be an idea which really solves some fundamental problems

The idea of Hotmail hit Sabeer Bhatia and his partner Jack Smith while they were working for Firepower Systems. The company had installed firewall around the corporate intranet which prevented both of them from accessing their personal email accounts. That was when the idea struck them “Wait a minute, we can access any website in the world through a web browser. If we made email available through the web browser, that would solve our problem. And then it occurred to us, ?If that would solve our problem, it would solve the problems of many others.”

In 1996 Mr Bhatia along with his partner had launched hotmail which changed the way people used email. Now, 15 years later Mr Bhatia has launched JaxtrSMS, world’s first and only free and open texting application. “This product will do to text messaging what Hotmail did to e-mail 15 years back” said Mr Bhatia at an interactive session at Tie Kolkata.

In a very short span of less than a month we have crossed 700,000 users and we are already in 210 countries. We are growing at 30-50,000 new users everyday and all of this is because of that viral ad line with every out – of network text message that goes your friend is using JaxtrSMS, you should use too. Click here to download” he added.

After briefly giving us some insights into the market for texting he got to the precise point – So, what’s the problem JaxtrSMS is trying to solve? About 20% of all the revenues of the phone companies around the globe come from texting. If one is to look at the amount of data bandwidth these phone companies use in terms of air time it is trivial. Users end up paying a lot of money for texting that essentially costs nothing to the carrier and also texting is extremely expensive when one needs to text internationally.

JaxtrSMS lets users who have data enabled mobile phones send messages to any other mobile phone free. In his speech he detailed the main points on how the application would work on any data-enabled phone and their competition in the texting space.

2.You’ve got to be very frugal when you start

Mr Bhatia gave the attendees a brief peek into the issues he and his partner faced before getting a $300,000 funding. He was candid when he spoke about his efforts to get funding and how he was turned down by 19 VCs before a funding from DFJ happened. “So, we started with a very small sum of money $300,000 and not only we proved to them that we could do this but we launched the company and had a 100,000 users before we went in for the next round of financing.” He added and was quick to point out that one of the factors that entrepreneurs must consider when starting on their own is – frugality.

3.People take risks with you.

“That’s the beauty of Silicon Valley; people take risks with you.” Mr Bhatia mentioned a few instances where people took risks with him. He told the attendees that with the $300,000 he’d hired 4 full time employees and 15 part-time employees. All the part-time employees were paid in stock options and were promised that when the next round of funding would be received they would be brought on board as full time employees.

4.For every 19 companies that fail 1 makes it. But the 1 that makes it more than provides for the 19 failures.

He spoke about a fund where he’d put some money. The gentleman at the fund had invested money at 150 companies and when the dot com crash happened 149 of the 150 companies failed miserably. But 1 company where he’d a put a small amount of money was Google

5.If the software industry in India is to truly develop we’ve got to breakthrough and create world-class products.

“And we have the opportunity to do that” said Mr Bhatia as India is the second largest mobile market in the world. He chose to launch JaxtrSMS in India as- the product was completely developed in India and he wanted people over here to see what it takes to develop products. He India has talent, audience and the market to test the concepts – all the right elements one need for innovation. We just need a few people to show us the way

6. Key ingredients of success – Size of the market, Technology, Financing required & People

He talked about the success of high-tech business ventures (of Silicon Valley) and zeroed in on the 4 above mentioned factors. He spoke, importantly, about the quality of people that plays an important role in high tech businesses. “It’s the quality of people that makes the difference between a good product and a great product, or a fail product and a super successful product, and in no other industry you see this much of variation because of the difference of people you find as you do in high tech space.” Mr Bhatia said in his speech and he very nicely summed up by saying “You hire A quality people you get A class product.” Also, he talked about mistakes entrepreneurs make while hiring. He very aptly drew a distinction between a good and a great leader. According to him a great leader identifies that the person they’ve hired is not the right person and let the person go immediately.

Sabeer Bhatia and Microsoft Negotiations

Well, we all know Hotmail was sold at $400million to Microsoft. There were different stories about the hard negotiation Mr Bhatia made with Microsoft Biggie Bill Gates. Here’s the story about that famous deal straight from the horse’s mouth!

Sabeer Bhatia – We were providing email to about 7 million subscribers when someone from Microsoft called us and said “Is this really true that you are providing email to 7 million subscribers” and we said “Yeah”. And they said”So we want to come in to see how you do it”. Microsoft at that time had Microsoft network which had about 2 and a half million subscribers and they were down every other week. They were getting really bad press.

It originally started off being a deal where we would provide email to their subscribers and because we had skillfully mastered the art of providing email to 7 million subscribers.

But very quickly they realized that we wanted to be more than just an email provider and they saw us as being competitor to their business so that’s when the VP of Microsoft called me “Have you thought about a merger between 2 companies.” He didn’t say acquisition. So, we were taken to meet with Bill Gates.

I started talking and Bill was looking everywhere else but at me. I thought he wasn’t interested but at the end of it he really heard every word of what I had to say.  And when we were walking out he shook my hands and said “You know what I hope we can do something between our 2 companies otherwise we like to write software too.”

So, when I walked out, there were 14 people from Microsoft in the other side and I knew if I had opened my mouth and try to negotiate then I’d be a dead duck. They started with $160 million offer at first they wanted me to counter somehow and this was at a time when both Jack and my personal bank balance was just $5000 and somebody put $160million in front of you and I refused to accept that. I kept negotiating so we countered back and forth. At one point I turned down $350 million at which point even my parents deserted me.

I called up my dad one day and he said what’s going on and I said “Yeah they made an offer.” He asked “what happened”, I said “I turned it down.” My Dad asked “how much was the offer.” I said 350. Dad said“350! $350 million and how much that’s in Rupees I can’t even put it on my calculator. You accept it right now!”

And luckily a week later they called back and I was asking about $450 and they said we can’t match your 450 but how about we meet half way and I said that’s a great idea. Let’s do half way.