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A 15-year-old startup shatters the 'fail fast' gospel
SMILING cryptically, Ian Small, the chief executive of Evernote, handed me some socks. Nice ones: black in the calf, striped in the foot, with matching pops of sky blue at the toe, heel and welt. The knit was Japanese, dense and springy, and contained 1 per cent polyurethane. Marketing language described them, insanely, as "smart covers for your feet" that shared design principles with productivity software.
Mr Small had retrieved the socks from a small cabinet at Evernote's headquarters in Redwood City, California, where coders work on its popular note-taking app. At the peak of Evernote's success, as part of an ambitious plan to expand from software factory to lifestyle brand, the company sold the socks and other "exceptional products that satisfy our desires for greater ease and efficiency," like high-end scanners and backpacks made by Côte&Ciel, a French boutique. The company even opened a physical storefront in its lobby called "Noteworthy by Evernote." It gave the Evernote groupies - groupies! - who kept showing up at the office something to peruse.
But that was a century ago, in startup years. When I visited Mr Small in May, the shelves laden with branded goods were gone. There was a wall full of ageing trophies, and in the back, an old mural describing the shop's lofty vision was still faintly visible beneath a layer of Evernote-green paint.
Mr Small was good-natured about it. "We treasure our history," he said.
For a startup, Evernote has a lot of it. Founded in 2004, it was among the first companies to ride the wave of smartphone adoption, and many expected it would achieve a triumphant initial public offering. Instead, the company cycled through four chief executives, several rounds of layoffs, three office closings and the shuttering of numerous side projects, including Japanese-made smart covers for your feet. Last September, when four top executives left at once, tech blogs declared that the company was in a "death spiral." In a season of multibillion-dollar IPOs for Slack, Pinterest, Zoom, Uber, Lyft and others, Evernote is nowhere close. While younger startups are minting hundreds of millionaires and creating a new generation of semi-retired tech millennials, Evernote is in the midst of a difficult turnaround led by Mr Small, an unassuming, under-the-radar entrepreneur who took over in October.
'Fail fast, fail often'
In Silicon Valley, the idea that most startups won't make it to a splashy public offering or acquisition is not just understood, but embraced. "Fail fast, fail often" is one of the region's earliest and best-recognised catchphrases. The implication is that people and companies that don't find success can transition, efficiently and without stigma, to more promising ventures. But Evernote's struggles illustrate a harsher truth: For many startups of a certain size, failure rarely happens abruptly.
More often, after early momentum wanes, the missteps and bad press accumulate until a company enters a slow, difficult rehabilitation that stretches on for years. But in and around San Francisco, no one likes to talk about getting stuck in startup purgatory. Once venture capital investors have sunk in considerable sums, they're willing to let struggling companies flounder for years on the off chance they hit on something big. "They're not in it for a break-even or a slight loss or a slight gain," said Jeffrey Cohen, a bankruptcy lawyer at Lowenstein Sandler. "They're willing to let it ride a little longer to see whether it explodes." It's a common trap for the most recent generation of startups, which has been marked by the proliferation of "unicorns" worth US$1 billion or more. For fledgling companies, taking enough investor money to become one of these magical ungulates was supposed to show customers, employees and the world that they were sure bets - that they were too special and big and valuable to fail. But many companies that chased three-comma valuations are now stuck trying to live up to almost impossible expectations.
Since 2015, according to CB Insights, a research firm, more than 40 unicorn companies have had "down rounds" or "down exits" - that is, investments or sales at reduced valuations. The list includes well-known brands like Shazam, the name-that-song app, and Jessica Alba's consumer products startup, the Honest Co.
Several unicorns have laid off staff in recent months, including Clover Health (which does health insurance), Udacity (online education) and Instacart (grocery delivery). Stumbles and shifts like that won't kill a company, but they harm the perception that they are growing rapidly - and that, in turn, harms their ability to recruit, raise capital and, well, grow rapidly.
Evernote's headquarters, bearing its green elephant logo, loom over Highway 101, where billboards advertise financial services to the latest class of IPO millionaires. From the building's fifth floor, Mr Small looked out over the suburban sprawl of Silicon Valley. He pointed out the offices of companies that are younger than Evernote, including Box, a cloud storage company that went public in 2015. Its revenue is sixfold that of Evernote and its staff is nine times its size.
"There are companies in Silicon Valley that are rocket ships," Mr Small said, making a whistling noise and upward motion with his hand. He paused to contemplate how I'd render that sound in print and continued in the easy tone of light, well-practiced dad joke. "We're a little more like the Beatles song. It is "Long and Winding Road"
"Remember Everything" is one of Evernote's slogans. It's been a remarkable journey. From its origins as a simple note-taking app, Evernote hit euphoric highs. Job-seekers submitted elaborate, unsolicited application videos, like Karen X Cheng, a designer, who filmed herself performing a song she wrote about her dream gig at the company. (I wanna help the world remember / I wanna go extend their brains, she sang.) Some who did get hired describe feeling as if they'd won American Idol. The company reached unicorn status in 2012. The next year, Phil Libin, a showman-style chief executive, declared that Evernote aspired to be "the Nike for your mind." It seemed natural for Evernote the Lifestyle Brand to use its hundreds of millions in venture capital to expand in every direction. In addition to its flagship app, Evernote built a chat app, a recipe app, a contacts management app and a flashcard app. It hosted elaborate conferences for its partners and users. It sold business gear - including US$32.95 Evernote-branded Moleskine notebooks - in an ambitious e-commerce effort. It struck a partnership to digitise Post-it notes. It had more than 150 million registered users, and Libin talked up his vision of a "100-year startup." When Evernote's growth began to slow in 2015, though, the company replaced Mr Libin with Chris O'Neill, a former Google executive.
He laid off employees, scaled back side projects, cancelled lavish perks like a weekly sushi lunch and free house cleaners, shuttered three international offices and hiked the price of an Evernote subscription. His strategy was to focus Evernote on business software and compete with more robust enterprise offerings. But Evernote's product lacked essential features, and the distinct versions of its apps on Windows, iOS and Android systems made collaboration across devices and teams difficult, former employees say. Sales of Evernote's business product never exceeded 15 per cent of revenue, according to two people familiar with the company.
Employees wishfully passed along rumours about a buyout from Microsoft or Google.
Swell of anger
Startups rarely drop the veneer of perpetually "crushing it," no matter how ugly things get. But in the summer and fall of 2018, four top executives quit. An August article in The New York Times Styles section about Mr O'Neill's workout routine came off as oblivious, and he soon left the company too. Within a few months of replacing him, Mr Small calculated that he could not ignore the swell of angry message board posts and "death spiral" headlines.
He published an unusually frank blog post aimed at Evernote's users in January. The company's foundation was not strong, he wrote, and its products had developed a "unique collection of bugs and undesirable behaviours." It would take most of the year to get all that fixed, he wrote, adding that "undoubtedly we will still disappoint some of you." Customers responded to his candor with a mix of optimism and scepticism, Mr Small said.
Now Mr Small faces the challenge of recruiting engineers to fix Evernote's "unique collection of bugs," when they could be riding a bullet train to riches at a newer company. Evernote has a different, more mature goal. It expects to reach positive cash flow this year, with annual revenue of nearly US$100 million. "We used to be a movement," Mr Small said. "When we were a movement, we weren't a business." NYTIMES