There’s always more than meets the eye when it comes to the backstories of successful entrepreneurs. Origin stories are much deeper than the shallow version you often hear in the media. This is especially true with Elon as many people aren’t aware of what he achieved before PayPal, Tesla and SpaceX.
In 1989 Elon Musk moved to Canada from South Africa to avoid military service. He studied at Queen’s University in Ontario for two years and later transferred to the University of Pennsylvania. In the summer of 1994, he worked for two different startups as he was extremely interested in technology. It was while interning he came up with the idea for his first startup and was keen to join the internet boom.
The Birth of Zip2: From Concept to Reality
Alongside his brother Kimbal and Greg Kouri, Elon started Global Link Information Network which would later be rebranded to Zip2. In the mid-1990s the internet was a small blip on the radar and nobody really understood the value it could provide.
Musk with his expertise would try to convince brick and mortar retail businesses such as restaurants and salons to increase their online presence. Zip2 was like Yelp or Tripadvisor combined with a map service that provides directions to a business. The website would show the businesses that were around and provide directions, it seems simple but this was ahead of its time.
The Musk brothers’ vision became a reality when they rented a small office at 430 Sherman Avenue in Palo Alto, California. The office was about the size of a studio apartment. At the start, Musk did all of the coding himself while Kimbal worked on sales. They acquired some technology from a GPS mapping company and used a local directory to acquire business addresses. This acted as the foundation of the company.
Challenges and Growth
They spent three months living in their tiny office and showered at the local YMCA until they saved up enough money to rent a two-bedroom apartment with no furniture in it. Elon spent most of his time at the office and rarely showered. While sales weren’t exactly exploding, the product was constantly improving and their reputation was slowly growing.
In early 1996, a venture capital firm Mohr Davidow Ventures invested $3 million into Zip2. The new injection of capital allowed them to move into a much nicer office at 390 Cambridge Avenue in Palo Alto. They also hired some engineers to take some of the coding strain off Elon.
Adapting Zip2’s Business Model
Later they decided to change their business model because the door-to-door sales approach was not working. Instead they sold software packages to newspapers like the New York Times and the Chicago Tribune. This helped these newspapers build their online directories for real estate, auto dealers and classified listings.
This was a much better business model and it proved to be more profitable than the original plan. Musk became the Chief Technology Officer and Rich Sorkin came in as CEO. This change didn’t sit well with Musk considering that he founded the company and wanted to be CEO. It turns out when other engineers came in to help develop the software Musk wasn’t as good of a coder as he thought he was. The new team members had to rewrite a lot of his code and this irritated him.
Leadership and Tensions
This is the first time that he really got to step up and take control of a company. Elon was a tough boss and was sometimes a bit rough around the edges but everyone respected him for it and would listen to him. With the new strategy and team in place, Zip2 had great success recruiting newspapers for their software. In fact they made over $50 million and got some big name people on board. They upgraded again to a bigger office and had over 100 employees by now.
The Turning Point
In April 1998, Zip2 planned to merge with their biggest competitor, City Search. A deal valued at over $300 million. The merger failed due to some disagreements between Musk and the management team at City Search. This fallout created a lot of tension and things started to go downhill.
Zip2 started losing money once they discovered issues with their books and arguments began about if they should focus on the newspaper space or go back to the direct to consumer approach. Competition was increasing with Microsoft releasing their own mapping software and nobody could decide the best route to take.
The Sale of Zip2
Elon was getting irritated with his engineers and would change some of their work without them knowing, causing even more problems. Things were not looking good but just before anything terrible could happen a dream came true. In 1999, Compaq Computer made an offer to purchase Zip2 for $307 million. The board said yes and the company was sold, Zip2 became a part of Compaq’s AltaVista web search engine business.
Seeing a company that he built from the ground up being sold without his input annoyed Elon. Even with the irritation, it was a good day for Elon and he made over $22 million from the sale. On the other hand, Kimbal took home a cool $15 million. Elon used the money wisely and went on to bigger and better things!
