Facebook's Seventh Employee Shares Lessons He Learned Watching It Grow Into A $100 Billion Behemoth

Kevin Colleran was Facebook's first sales person, joining the company seven years ago as its seventh employee.

By the time last summer rolled around, Colleran was Facebook's second-longest tenured employee – after only Mark Zuckerberg himself. He decided it was time to move on.

Now, after spending the last six months traveling the world, he's got a new gig: partner at Boston-based venture capital firm General Catalyst.

General Catalyst has been around since 2000, and it raised a $500 million venture fund in 2011. Notable investments include Airbnb, Vostu, and Kayak.

We caught up with Colleran on his second day on the job for an extensive interview about his views on VC, Facebook's ad business, the industry, and what he learned watching Facebook grow from seven employees to 3,000.

Highlights from the interview:

  • The life of a Facebook millionaire is as cool as you would imagine. After quitting Facebook, Colleran spent six months traveling. He went to Russia and Africa, and is about to fly to China and Japan.
  • Zuckerberg won because he is not a business-side first CEO. "I’ve realized that it takes the product visionary to be the leader. It’s not the entrepreneur who has the business background to just plan an idea. If I had been in Mark’s shoes throughout the Facebook experience I would have made a lot of by-the-book decisions that would have been the wrong decisions for the company."
  • Facebook doesn't have the ad unit of its future yet. "I think they have the strategy. I don’t think anyone knows if they have the right placement or size or specs or characters. Banner ads served a purpose for a while as a creative canvas for a story, whether it was graphical or video. I think now most people realize this is a new medium and it allows a much bigger opportunity."
  • Neither does Twitter. "There’s a big discussion about how do you measure ROI for social advertising and I don’t have the answer to it, nobody really does."

Business Insider: As Facebook's first sales person – and the seventh employee at the company overall – you had your pick of jobs and industries. Why venture capital?

Colleran: [After leaving] I met with several companies and had thought about maybe getting back into the game then realized I’d wanted to do something different for a while.

Most of the offers that I had were to run sales teams. I decided even during my Facebook time that sales weren't really what I wanted to do for the long term.

I started talking to the GC guys about five years ago – way, way early in the Facebook time frame just because I’d always knew that I was gonna end up in Boston even though I was in New York at the time.

When I left Facebook, they said, “Hey here’s an opportunity for you to hang out if you just want office space and want do your own thing that’s cool, if you want to learn the VC business or seed stuff. “

I definitely wanted to be employed in some capacity but I wasn’t really ready to commit in the same way I did at Facebook and start with another startup.

This seemed like the best way for me to get an education. My education was pretty specific to social media and the Facebook platform, advertising, and consumer Internet.

So they let me come in and hang out at partner meetings for a bunch of weeks.

It was eye opening to me. The consumer Internet space is a small portion of venture capital. 

BI: What did you do during your six months off?

Kevin: We did a month in Europe and a month in Africa with a couple of other Facebook people. I spent time in Russia as the guest of Medvedev. 

I spent tons of time on the West Coast with the old Facebook crew – Dave Morin, Zuckerberg, all my close friends, Sean Parker etc.

We leave next week and do an Asia trip: China, Japan and couple others.

When I left Facebook, I didn’t want to check out completely. I took an advisory spot with Buddy Media and Path.

BI: What are you bringing to the table as a VC?

Kevin: The honest answer is I think we’re still figuring that out.

The things that excite me the most now are anything that continues the Facebook mission: companies focused on openness and sharing of content and making the world more connected – everything that Zuckerberg lives and breathes.

And I can offer [an entrepreneur insight into] what advertisers are looking for, new ways in which consumer Internet site can run advertising without being the old way of being disruptive (big display ads that really upset the users).

Separate from anything else is I was with a company from seven people to 3,000 and I witnessed how Facebook dealt with the cultural shifts that went on with that – the growth, the technical challenges and everything that’s involved from having a company that doesn’t even have a single HR employer, a lawyer, anyone in the business side and watching how that was grown in scale sometimes correctly and sometimes incorrectly but then fixed.

Hopefully I can help a bunch of entrepreneurs avoid the mistakes that we’ve made or learn from the lessons that we had.

BI: What are some of those lessons you learned living through Facebook?

Kevin: I went into Facebook having been a Babson educated entrepreneur who thought that the entrepreneur is the business owner and you come up with a business plan and you go and build the product.I think having worked for Mark and looking at other examples from the Valley, I’ve realized that it takes the product visionary to be the leader. It’s not the entrepreneur who has the business background to just plan an idea. If I had been in Mark’s shoes throughout the Facebook experience I would have made a lot of by-the-book decisions that would have been the wrong decisions for the company.

For example, selling to Yahoo. A lot of people thought that for a billion dollars, Facebook should have exited to Yahoo. Mark was the loudest voice against it. Luckily, Sean had structured in a way where Mark’s was the only voice that mattered. 

Facebook's expansion beyond college users is another lesson for all entrepreneurs. [At the time,] a lot of people felt like we shouldn't expand past college.

We own the [college] market, a hugely valuable market. We could have just stopped there and said this is what we set out to do: To be the biggest US college web site and we’ve got this audience now and that it’s 97 percent penetrated. Now let’s go and figure out how to monetize that market or give them what they want.

Mark was very clear that this was not about college, and expanded Facebook to high school. Many people said that was a terrible idea and that no college student would want to keep using the site if there were high school kids there. Then he expanded Facebook to adults.

As the business person I would have said, “Hey we own a very lucrative audience let’s just focus on monetizing that audience,” but Mark was focused on changing the world. I think it’s something that took other people a lot longer to see.

I learned another lesson when we launched the News Feed. It was done at midnight in Pacific Time. People had gone to bed with the old Facebook and woke up with the new Facebook and we were all under the impression that it was a great product. But users freaked out. It was the first time that users realized this thing was going to keep changing and Mark was going to keep pushing the envelope.

Now, you can’t imagine Facebook without a news feed and it’s an industry standard thing. But for a while, there were protests and a million people joining the “I hate News Feed” group and every news crew outside of our offices. If you were a public company or not a product visionary you probably would have rolled back that feature when a third of your user base start protesting. [Editor: Zuckerberg did not.]

All of those rules were turned upside its head and it’s the reason why Facebook has become so successful.

BI: From the perspective of someone who played a key role growing Facebook's advertising business, what do you think of Twitter and its monetization plans?

Kevin: I’ve met [Twitter chief revenue officer] Adam Bain and heard that he’s a great dude and everyone really likes him.

They’re trying to figure out the same things that Facebook figured out – the same things that many entrepreneurs figured out. They don’t want to splash big disruptive ads on the site. In the older days, that was the only choice you really had if you wanted to monetize the web site.

You had to play by the rules of the ad industry. You could sell an IAB ad unit and or an even bigger IAB ad unit. That’s what ad agencies would buy. You’d be one site of 20 that were on a plan that you’d get the same creative and targeting requirement that everyone else had.

Luckily, Facebook went into a different direction and its growth and continued growth allowed it to rewrite the rules.

Twitter is going to benefit from this because now ad agencies know that the old way of the big flashy ads was not the right way to work on a social environment and it’s not the way for digital in general.

There are very few sites where banner ad strategies or exclusively banner ad strategies is the right thing.

I think Adam Bain knows that and the Twitter guys are smart dudes and they will figure that all out.

At the same time, as much as you protect the user experience, you want to make sure the brand is getting ROI.

There’s a big discussion about how do you measure ROI for social advertising and I don’t have the answer to it, nobody really does.

Every brand has their own way of measuring it but I do believe that Facebook and the whole social ecosystem will become a very smart and rewarding investment for brands as soon as it’s measured properly and everyone can come to terms with how to measure it against TV. There’ll be a huge movement of top of the funnel dollars moving toward digital and specifically toward social. 

Most of the entrepreneurs in consumer Internet have ad-supported business models and probably the majority of their revenue is planned to be ad-supported.

I think in the old days that was something that you tried to avoid if you could because there was usually a direct correlation between taking those ad dollars and at the same time hurting and sacrificing the user experience.

I think that what Facebook has lead the way with and what Twitter will probably enhance with the social ecosystem is there’s a way to do both. There’s a way to make advertising a net-positive or at the worse case a net neutral experience but not a net-negative experience. 

BI: Google has a perfect ad unit, search ads, for its product, search. Does Facebook have the perfect ad unit for its product, the News Feed?

Kevin: I think they have the strategy. I don’t think anyone knows if they have the right placement or size or specs or characters.

Banner ads served a purpose for a while as a creative canvas for a story, whether it was graphical or video. I think now most people realize this is a new medium and it allows a much bigger opportunity.

What I applaud Twitter and Facebook for doing is not just allowing the TV ads be shrunken and cut down to 15 seconds and put on the screen.

Instead, they’ve decided they were going to work with the right brands that are going to lean forward and figure out what are the true opportunities a digital and social experience allows.

I don’t know if what they have today is right, they made a lot of announcements. A lot of companies and brands  love the idea that their brand actions can be turned into advertisements and it feels very natural and organic because of stuff you would have already seen in the news feed anyway.

I think time will tell but I just applaud them all in moving in the right direction in trying to figure out what is the unique benefit of this medium.

BI: A day and a half in, what do you think of working in VC so far?

Kevin: I think Facebook has led the way in rewriting the relationship and the model of how VCs work with entrepreneurs. Would I have become a VC ten years ago? Probably not. Back then, I thought there were two kinds of choices: either funding entrepreneurs or being an entrepreneur. Now it's much more of a partnership. Although I will be funding I will also be advising and giving back with lessons I learned about entrepreneurialism at Facebook."

There are many other VC firms but the GC guys were all entrepreneurs who decided this is their way of giving back and their way of continuing to be an entrepreneur. 

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