How Mark Zuckerberg Identified and Capitalized on one of the Greatest Venture Opportunities of All Time?

How Mark Zuckerberg Identified and Capitalized on One of the Greatest Venture Opportunities of All Time

The greatest business ideas are rarely generated through careful theorizing and extensive search. Instead, they might just pop up during a relationship breakup.

In fact, this is how the story of Facebook commenced. Mark Zuckerberg, trying to cope with his girlfriend ending their relationship, went on to program a platform that would turn out to be a major milestone towards the development of Facebook. Still, programs like Instagram, Snapchat or Facebook do not simply appear – fully – developed out of thin air. Usually, they start with a very basic idea and then have layer after layer added, sometimes being overhauled completely until eventually, they begin to look like a final product. Over the course of this paper, I will analyze how Facebook emerged and how it developed into the platform that it is today based on the movie “The Social Network”, focusing specifically on four vital aspects:

• Idea generation and initial execution
• Its development and growth
• Facebook’s business model
• Its vision

Idea Generation and Initial Execution

Scientific theory suggests that there is a knowledge spillover between individuals and other individuals or institutions. If people are very aware of their surroundings and are willing to combine several different insights, it is likely that they are stimulated by other people or by certain events and in turn come up with ideas for new ventures.

In the case of Facebook, both events and surroundings likely had influence on its creation with two aspects in particular. Following a break-up with his girlfriend, main founder and programmer Mark Zuckerberg created Facemash, a platform for Harvard students to compare pictures of female students and rate them according to their looks. An algorithm behind the platform would then rank the girls. While his initial motivation for Facemash was the breakup with his girlfriend, Zuckerberg’s excitement about it was mainly due to the platform’s immensely quick growth and the interest it sparked among Harvard’s student body. Following its short-lived success, Zuckerberg was invited by three other students and asked to help them program HarvardConnect, a social network platform specifically for Harvard students. This meeting was the second key component towards the creation of Facebook. While Zuckerberg initially agreed to help build HarvardConnect, he simply acted on the inspiration he got from his peers’ idea and secretly went on to program a very similar platform that would later become Facebook. Again, Zuckerberg was not driven by money. Instead, he was likely just extremely intrigued by the idea of building another platform that could potentially grow exponentially and excite a large number of users and thus highly impress fellow students and clear the bad reputation he had collected with Facemash. Zuckerberg simply met multiple relevant factors to come up with a new venture idea. It was his openness to create a new product, his motivation to overcome the bad reputation he had collected which were combined with an emotional crisis and the intellectual exchange with fellow Harvard students that innervated the idea for Facebook in him.

Zuckerberg’s success was not without consequences, however. Given the fact that he had drawn inspiration from two other Harvard students, thus essentially copying part of their idea, he was sued for violation of intellectual property rights. This is a very important factor in today’s digital economy which often makes it difficult to determine the property of a program or even the idea leading up to a program beyond doubt. Fortunately for Facebook, the claim did not destroy the company and only lead to compensation being paid to the opposing parties. However, especially in jurisdictions such as the United States, intellectual property laws and similar aspects require constant attention and can break a business if neglected.

Development and Growth

Initially, new users were able to sign up via invitation only and Facebook was solely directed towards Harvard students. However, it quickly expanded to other campuses and ultimately to the general public. The foundation behind this strategy came from Zuckerberg’s insights from his prior experiment. During that short-lived experiment with Facemash, he realized that it were especially exclusivity or the fact that people on the platform were connected to each other in reality which made social networks so interesting. Thus, he decided to only let new people onto the platform if they were invited by existing members. This way, he acted on the idea that people were mostly interested in others they had some connection to, be it direct or indirect. Not even, but likely because of this restriction, Facebook registered more than 1000 signups within the first 24 hours of launch, indicating a massive potential for growth through word-of-mouth alone. Once Facebook had spread across the whole Harvard student body, it expanded to other IVY league and Boston area universities before it became available to the general public.

During its development, Facebook was constantly expanded and modified based on new ideas or feedback from users. One major breakthrough, for example, was the addition of relationship information that users were able to provide. Zuckerberg reflected on his experience as a student as well as the success of the Facemash platform and realized that sex and love were major drivers for interest. Thus, he expected that the option of inspecting relationship statuses itself would be a significant attractor for many new users, thus causing higher demand for Facebook membership. This practice perfectly reflects the concept of continuous reiteration which universities teach in entrepreneurship education today – to be constantly willing to challenge and replace features that simply don’t catch on and instead add features that users request or seem to be in need of. This can also mean to completely change a Start-Up’s product, for example, as was the case for the online gaming broadcasting platform Twitch. Twitch had started out as a general live broadcasting platform. However, when the founders realized that it was especially the gaming broadcasters that attracted viewers, they decided to create a standalone broadcast platform for video gamers who wanted to broadcast while playing.

As Zuckerberg himself acknowledged repeatedly, he had no idea what Facebook actually was in the beginning. Instead, he wanted to follow its development and see what people would do with it or even demand to do with it. This way, he had the chance to actively listen to user feedback and build Facebook based on that. Had he developed it another way, it is unlikely that he would have been able to capture user demands as precisely as Facebook does now. The core concept of the platform was therefore constantly altered to reach a more and more sophisticated product-market fit.  While in the beginning, the network focused mainly on individual profile information, over time the output of people such as posts, pictures or live-streams became more important. Also, the company’s shift towards a mobile-oriented strategy contributed crucially to its success. With this strategy, Facebook was able to reach increasingly broad audiences and eventually turned into the social network that everyone knows today.

With Facebook growing quickly, Zuckerberg realized early on that he could not do the programming by himself forever. Therefore, he went to search for the most skilled programmers he could find, designing the hiring process in a way that would reflect Facebook’s future corporate culture. In a very easy-going yet intensely competitive atmosphere, he had multiple applicants compete against each other to prove their potential and, if they won, be hired as Facebook’s first employee. This way, he made sure to acquire only very committed and able employees who would strongly impact Facebook’s successful development. Many extremely successful companies took similar paths as, ultimately, a company’s success mainly depends on the input of its employees. Airbnb founder Brian Chesky, for example, asked applicants whether they would still apply for the respective position at Airbnb if they knew they had only one year to live. Of course, such extreme measures might be unnecessary, but the strict selection of Facebook employees was definitely a key element in its successful development of superior technology, which in turn gave it another edge over competitors like Myspace and thus lead its success.