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How Facebook Turned Down $1 Billion

In the summer of 2009, Silicon Valley’s (and my) past met its (and my) future.

I had worked at Intel from 1992 to 2008 and directly for former CEO Andy Grove from 1999 to 2001. In January 2009, I had moved to working at Facebook after interviewing with its business and engineering leaders as well as with Sandberg and Zuckerberg. When I had reached out to both Grove and Zuckerberg to see whether they’d be interested in connecting with each other over lunch, both agreed.

We found ourselves sitting at one of the outdoor tables on the small patio behind Facebook’s eclectic building adjacent to a Palo Alto neighborhood at the top of South California Avenue. The 50-year-old landmark, affectionately known inside Facebook simply by its street number—1601—and home to the entire company for a brief period prior to the 2011 move into its much larger and ever growing campus in nearby Menlo Park, has since been leveled to make room for larger buildings, dissociating our memories of navigating privacy crises, building client relationships, achieving unprecedented growth and surviving existential competition with Google from the place where we lived them.

Grove was the 72-year-old Silicon Valley legend. Cofounder, CEO and chairman of Intel, the company that more than any other gave the Valley its name and whose microprocessors were responsible for enabling personal computing and cost-effective servers and, with them, the Internet. When Silicon Valley talks about building on the shoulders of giants, it’s Grove’s shoulders we’re talking about. His passing in March 2016 was the end of a world-altering era.

Zuckerberg was the 25-year-old ascendant newcomer building services at a scale and speed only possible because of Grove’s legacy.

It was a meeting of the veteran who had made possible a billion connected computers and the rookie on his way to connecting the billion people on those computers.

In the early stages of the conversation, the two circled slowly and respectfully in shallow waters. Grove trying to determine the legitimacy—his bar was notoriously high—of his lunch companion, something I had seen him do in dozens of one-on-one meetings a decade earlier with the likes of Amazon’s Jeff Bezos, Yahoo’s Jerry Yang, Google’s Larry Page and Sergey Brin, eBay’s Meg Whitman and LoudCloud’s Marc Andreessen and Ben Horowitz (now better known as the venture capital firm a16z). Zuckerberg, in turn, was looking to find common ground with Grove, the statesman who had jumped off the pages of the management bible Only the Paranoid Survive—a must-read for self-respecting technology leaders—and who now sat in front of him.

A few minutes in, Grove made his move. A direct question meant not to disrespect or trivialize but to penetrate to a more interesting place for both of them: “How did you turn down Yahoo’s $1 billion?”

Yahoo’s $1 Billion

Grove’s question deserves a quick refresher of the circumstances to which he was referring. Much has been made of the what-could-have-been acquisition offers for Facebook in its early years. Between 2004 and 2007, a string of suitors including Friendster, Google, The Washington Post, Viacom, MySpace, News Corp, Viacom again, NBC, Viacom a third time, Yahoo, AOL, Yahoo again, Google again and Microsoft were rumored to have made acquisition overtures of one kind or another to Facebook. The most talked-about was Yahoo’s offer in June 2006, said to have initially been worth $1 billion.

Venture capitalist and Facebook board member Peter Thiel, the earliest outside Facebook investor and formerly key player at PayPal, recalled the July 2006 Facebook board meeting between him, fellow venture capitalist Jim Breyer and the then 22-year-old Zuckerberg, held to discuss the 10-figure offer at a time when Facebook was barely two years old and had only eight to nine million users and $20 million in revenue:

Both Breyer and myself on balance thought we probably should take the money and run. But, Zuckerberg started the meeting like, “This is kind of a formality, just a quick board meeting, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here.” Zuckerberg’s argument was that there were all these things we were going to build at Facebook, and he wanted to have a chance to build those products [Facebook was about to open beyond colleges and launch the News Feed]. [Yahoo] had no definite idea about the future. They did not properly value things that did not yet exist. They were, therefore, undervaluing the business.

With a decade of Facebook success behind us, we can recognize Zuckerberg’s decision as prescient (judging by 2016 levels, Yahoo undervalued Facebook by more than 300 times). At the time, however, the young CEO and his board were widely questioned and publicly derided.

Willpower

It was that very derision that had prompted Grove to ask the question: “How did you turn down Yahoo’s $1 billion?”

Even in 2009, three years after passing up the acquisition, it was still a defining—and possibly touchy—question since Zuckerberg’s decision had not yet been fully vindicated. Facebook’s valuation, which had run up to $15 billion in 2008 with Chinese investor Li Ka-Shing’s $120 million investment, had declined by as much as 80% to $3.1 billion in the lightly traded private secondary exchange earlier in 2009. Facebook had only just crossed 200 million monthly users globally and was still neck-and-neck with MySpace in the United States. Its eventual $100 billion IPO three years later was not yet a gleam in anyone’s eye.

Zuckerberg recognized, however, that Grove was not asking the question in its judgmental form but rather with genuine interest in Zuckerberg’s process. He answered it in that spirit.

“I just thought we could do it,” he said, referring to growing to a much larger scale and eventually becoming a successful public company with much greater valuation.

While Zuckerberg’s answer may seem arrogant on paper—especially in the context of talking to someone who had done what Zuckerberg was still far from accomplishing—Grove saw there was in Zuckerberg no artifice, no arrogance and no lack of understanding of the difficulties that still lay ahead. In that answer, one visionary CEO with willpower recognized another across a chasm of nearly two generations. There was—at that moment—no difference between the two, as the torch passed viscerally from one Silicon Valley era to another. As a footnote to the moment, Zuckerberg would carry that torch forward to being named Time magazine’s Person of the Year the following year (an honor Grove had received in 1997), and by 2016, Facebook’s valuation would go on to eclipse the highest ever reached by Grove’s Intel in 2000 (not adjusting for inflation).

Curious, Grove followed up: “Where does that willpower come from?”

Zuckerberg considered the question—possibly for the first time—and concluded simply, “Jewish mother.”

Grove, smiling in recognition, eased back in his chair, and the two nodded knowingly in silence. It was a shared moment of huge significance as Grove’s own mother had played an outsized role for him throughout his life, especially during his early years growing up in a Jewish family in Hungary where he survived a fascist dictatorship, German military occupation, the Nazi’s Final Solution, the siege of Budapest by the Soviet Army and a variety of repressive Communist regimes before fleeing nearly penniless to New York City at the age of 20. Grove captured his mother’s profound significance in the dedication of his autobiography Swimming Across: “To my mother. Who gave me the gift of life. More than once.”

Zuckerberg’s upbringing thankfully lacked any of the extreme strife of Grove’s, but the two found common ground in the modeling by—and relationship with—their mothers, which had gifted them the endlessly renewable intrinsic asset of willpower (and its siblings resilience, persistence and determination).

Feature, Product, Company or Mission?

As we pull back from Grove, Zuckerberg and the patio behind 1601, it becomes clear that as much as (in Peter Thiel’s words) “the most successful businesses have an idea for the future that’s very different from the present,” a gutsy vision is not enough. You have to know over what time frame you can sustain the willpower necessary to maintain the trajectory to accomplish that vision.

It takes less than a year to build a feature (like FriendFeed or Cover-Flow), and you can create tens of millions of dollars of value doing so. In a little more than a year or two, you can create a product (like Siri, Android or Instagram), and we’ve seen that valued as high as a billion dollars. To build a company (like LinkedIn or SAP) takes many years and can create tens of billions of dollars of value. Pursuing a mission, however, is a matter of decades (Tesla is in its second, as is Facebook; Google is a few years from its third; Amazon is in its third and Apple in its fifth) on the road to possibly creating hundreds of billions of dollars of value. (See Table 3.1.)

Table 3-1. Time frame and possible value of various business objectives

The higher your aiming point, however, the greater are both the necessary trajectory and the time over which it has to be sustained. Every extra day is another opportunity for fatigue to sneak in. A good-enough-isn’t mistake here, a hope-is-not-a-strategy moment of weakness there. And the longer you last, the more likely you are to become a victim of your success and the dreaded if-you-always-do-what-you’ve-always-done-you’ll-always-get-what-you’ve-always-gotten outcome.

The question of whether to build a feature, product, company or mission has no “right” answer. Innovation comes in all sizes and time frames, and success has as many definitions. What you do need, however, are honesty and clarity in assessing to which of these goals you and your idea(s) are best suited. You cannot build a mission in a few years, and you cannot take many years to build a product.

Zuckerberg’s horizon is clear. During that July 2006 Facebook board meeting, Thiel and Breyer—his most respected advisors leaning in the direction of ending Facebook’s road at being a mere product—reminded Zuckerberg that he stood to personally make $250 million if he accepted Yahoo’s acquisition bid. Zuckerberg said that he would only use the money to start another social network and that he liked the one he had. By 2006, Zuckerberg had clearly set his sights on a decades-long mission to make the world more open and connected, and he has shown in the ten years since—to borrow from both the title and intention of Grove’s autobiography—that he has the stamina to “swim across.”

What is your horizon?