Story of Elon Musk’s first company Zip2
Until now we discussed Elon’s life in childhood and university. In this chapter, we’re going to look back on how he began his entrepreneurial career with his first company Zip2. It’s his first startup business besides his sale of the “Blastar” game when he was a 12-year-old kid and doing some small business deals to find cash for his living.
After his graduation from the University of Pennsylvania, he was selected for doctoral studies at Stanford University to learn about energy physics and material sciences. But he only studied there for 2 days. He decided to drop out and join the internet boom with his brother. So, then he founded Global Link Inbformation Network in 1995 his brother, Kimbal Musk, and Greg Kouri, who was a Lebanese real estate developer and a friend of Musk brothers’ parents. The startup was renamed Zip2 lately in 1996 and they operated in Palo Alto, California.
How Musk brothers started Zip2
Elon Musk is the one who had the idea for Zip2’s concept. He has got the idea when he was doing an internship in 1994, as he heard a messed up pitch from a Yellow Pages sales rep for an online listing to go with the printed book. So, after he dropped out from Stanford University, he began to think, what kind of company he should start. He just needed to do it with the internet. So, he remembered that hearing from the Yellow Pages sales rep and wanted to create an online version of Yellow Pages.
Then at first, Musk purchased a local business directory, and next, he negotiated with GPS company called Navteq for free access to digital mapping software. After all, he coded the necessary software needed and put 2 databases together. That’s how they simply created Zip2 online city guide business. Indeed, we could match Zip2 with the now famously using, Google Maps.
How Zip2 raised money
When Zip2 commenced, Elon provided only $2,000 and Kimbal provided $5,000. Their friend and early investor Greg Kouri also invested $8,000 with them. “My Dad provided 10% of a ~$200k angel funding round much later, but by then risk was reduced & round would’ve happened anyway.” Elon tweeted his father’s contribution to the company.
Hard work done by Musk brothers
As we previously mentioned, they started Zip2 with less money than other Silicon Valley startups because the Musk brothers barely had any money. They had to sleep at the Zip2 office because they couldn’t afford an apartment for them at the time. “When my brother and I were starting our first company, instead of getting an apartment, we just rented a small office and we slept on the couch,” Elon said in 2014 commencement speech at the University of Southern California. They showered at the YMCA and only had Elon’s home-made computer.
“When you are first starting out you really need to make your burn-rate ridiculously tiny. Don’t spend more than you are sure you have.” Musk said in a talk at Wharton Business School. So they kept the operation remarkably lean at the beginning.
Elon had to programmed during the night for 7 days a week and turned the server during the day. They could only afford a cheap dial-up modem at the beginning but they were able to convince newly started ISP to let them plug-in. When the website was built and ready, they hired 3 salespeople and let them go door to door in malls and shopping districts to sell sponsored listings. With that, money started to trickle in and they hired software engineers. They were even able to poach the best talents in Silicon Valley.
What Zip 2 has delivered-Products and Services
Zip2 mainly created online city guides for newspapers. Not only that, they provided local businesses a presence on the internet by linking their services to searchers and providing the direction to reach them. Likewise, they were able to sign up with big companies like The New York Times, Chicago Tribune, Knight Ridder, and Hearst Corporation.
Zip2 as a money-making business
Besides having a small amount of revenue they used to expend as low as possible. So, their cash flow was positive, and it helped them to reach angel investors since early. And they were able to land a big money from Mohr Davidow Ventures as they invested in Zip2 with $3 million in 1996. As a result former CEO Elon Musk had to step down from the company he founded. They recruited Rich Sorkin as new CEO and Elon has demoted to Chief Technology Officer (CTO).
By 1998 Zip2 had partnered with more than 160 newspapers. Zip2 became a successful internet business in less than 4 years. That’s why many more businesses attempted to merge or acquire them. Eventually, the Musk brothers sold Zip2 to Compaq for roughly $300 million in 1999, and Elon and Kimbal have got $22 million and $15 million respectively. They invested that money to launch their next venture X.com which became PayPal.
This is the third chapter of Elon’s biography by Inventho. Now, you can read the first and second chapters about his childhood and university life from our website. At Inventho, we intend to give you more about Science, Technology, Space, Motivational and Inspirational stories in addition to aware you with latest news in the science world. Stay tuned with us by subscribing to our website or Facebook page.