Hotmail: 7 smart moves which turned a weekend project into mega millions

Scan time: 2-3 min / Read time: 4-5 min

Hey rebel solopreneurs 🦸‍♂️🦸‍♀️

You're convinced the big creators have all the advantages and you can't succeed by starting now.

This belief keeps you paralyzed on the sidelines, watching established players dominate while convincing yourself it's "too late" to build anything meaningful.

But here's what's wild - some of the biggest wins came from newcomers who started with nothing but solved obvious problems the giants ignored.

Today you'll discover how Sabeer Bhatia and Jack Smith went from complete unknowns to beating Microsoft at their own game, proving that being the underdog is actually your secret weapon.

Let's investigate their secret formula!

🍹 The humble beginnings...

Sabeer Bhatia landed in Los Angeles in 1988 with just $250 in his pocket, an immigrant kid from India chasing the American dream.

His dad was in the Army, his mom worked at a bank, and they'd sacrificed everything to get him a scholarship to CalTech.

He felt terribly homesick at first but gradually made friends and adjusted to life in America.

After a brutal heartbreak with his college girlfriend, he was so depressed he almost packed up and went back to India.

But something inside him said "So what if a relationship didn't work out" and he decided to move to San Francisco instead.

He landed a programming job at Apple, where he met Jack Smith, his future co-founder.

They bonded over building PowerBook portables and dreaming about making real money beyond their steady paychecks.

When their manager left Apple for a startup called FirePower Systems, they followed him there.

At FirePower, they designed chips based on PowerPC processors for personal computers.

They worked incredibly hard, cranking out products and believing PowerPC was the future.

But then Intel caught up and became more powerful than PowerPC processors.

Boom! After two years, FirePower's revenues were declining and their manager who hired them left too.

Sabeer started contemplating business school while spending more time exploring this new thing called the internet.

He watched his Stanford colleagues start Yahoo and raise $1 million for what seemed like "just a list, a directory."

Wild, right?

That's when he realized the internet was here to stay and started brainstorming his first business idea.

He created a plan for a web-based database where people could store contact information and access it through their browser.

Jack read the business plan and said the next day, "This is great, where do I sign?"

They named their company JavaSoft and started pitching venture capitalists.

Nineteen VCs rejected them, questioning how they'd make money giving away free products.

Then their employer installed a firewall that changed everything...

1. 🔥 Stop waiting for permission to solve your own problems

Sabeer and Jack couldn't access their personal email from work anymore because FirePower installed a firewall.

They had to exchange information on floppy disks and physical paper like it was 1985.

They could access any website in the world through their browser, but not their own email accounts.

Can you imagine?

That's when it hit them - what if email was available through a web browser?

This would solve their problem and probably millions of other people's problems too.

They now had two business ideas and had to decide which one could change the world...

2. 💭 Trust your gut when everyone says it won't work

Jerry Yang, founder of Yahoo, publicly said email wasn't a browser-based product and worked best in desktop clients.

VCs and entrepreneurs thought people would never use email from a browser.

Even Microsoft was struggling to provide email to just 2.5 million MSN customers.

But here's the thing - Sabeer personally loved accessing email through a browser and believed others would too.

He knew if something solved his problem, it could solve problems for many others.

But they were terrified someone would steal their killer idea...

3. 🤐 Keep your best ideas close until you find the right partners

Sabeer was scared that VCs would share their email idea with Netscape or other big companies.

He says "You have to realize that in those days we had nothing—just the idea."

They decided to only reveal their email concept to VCs who passed their trust test.

Get this - they'd start with their JavaSoft database idea and watch how VCs responded.

If VCs didn't reject them for being young or lacking management experience, they'd slowly reveal Hotmail.

Finally, Draper Fisher Jurvetson passed their test...

4. 💰 Start with what you need, not what you want

When Tim Draper asked how much money they needed, Sabeer calculated $3 million on an envelope.

DFJ rejected that amount as too much money for unproven founders.

They asked what Sabeer needed just to prove web-based email was possible.

Sabeer asked for $500k, Tim offered $300k, and Sabeer took it immediately.

He says "That was huge for us—two young kids to get that much money."

But their funding came with a hidden trap they didn't see coming...

5. ⚖️ Learn negotiation basics before you desperately need the money

DFJ wanted 30% of the company, valuing Hotmail at just $1 million.

Sabeer negotiated hard and got them down to 15%, doubling their valuation to $2 million.

But DFJ insisted on a "right of first refusal" clause that Sabeer didn't understand.

His lawyer failed to explain that this meant DFJ could block other investors and control future valuations.

Later, whenever they talked to other VCs, those VCs would call DFJ and get talked out of investing.

With funding secured, they quit their jobs and started building...

6. 🚀 Launch fast and let users guide your improvements

They took six months to build Hotmail and launched on July 4th, 1996.

Sabeer used it first, loved it, then shared it with 80-100 friends and family who also loved it.

They launched with a simple working version rather than waiting for perfection.

Each employee had pagers that updated them hourly on user signups - 100 people, then 200, then 500.

They hit 100,000 subscribers in the first three months through pure word of mouth.

Then Jack had a brilliant growth idea that changed everything...

7. 🔄 Build growth into your product, not just your marketing

Jack wanted to add a tagline to every Hotmail user's outgoing emails.

The famous line "This message has been sent from Hotmail. Get your free email at hotmail.com" went live.

This turned every user into a marketing channel without any additional advertising spend.

They checked with their VCs first to make sure they weren't crossing ethical lines.

This single feature catapulted Hotmail's growth faster than any company in history at that time.

But success brought new problems they weren't prepared for...

💰 The epic win

Hotmail grew to 7 million subscribers in just over a year

Microsoft was shocked they could handle that scale when Microsoft struggled with 2.5 million users

Sabeer negotiated from Microsoft's opening offer of $160 million up to $400 million

Hotmail was sold to Microsoft in December 1997, less than 2 years from start to finish

🥂 Your turn to shine bright!

That's it, my fellow rebels!

You're convinced the big creators have all the advantages and you can't succeed by starting now, but Sabeer's journey proves the opposite.

He went from being a complete nobody with $250 in his pocket to out-executing Microsoft with just 14 engineers while they had 16,000.

"I was lucky also; I was at the right place at the right time," says Sabeer.

"Once you have tasted this kind of success, once you've tasted that it works, that you've got subscribers who are telling you it's good, you know you are going to get there," adds Sabeer.

Stop letting the big players intimidate you and start building something people actually want right now.

Can't wait to see what magic you're cooking up behind the scenes.

Keep rocking 🚀 🍩

Yours 'making success painless and fun' vijay peduru 🦸‍♂️