How Second Life found its 2nd wind.

“Second Life was just unfundable,” Linden Labs founder Philip Rosedale tells Inc. magazine, in this interview. We’re huge fans of Inc. at Found|READ, a traditional magazine dedicated to entrepreneurs that is just full of great business tales and profiles. The site also has a fantastic “resource center” (at top left on home page) where all kinds of actionable tips and advice can be found under the “Start Up” tab, like: how to pick a corporate structure; how to woo an angel investor; how to manage your cash flow. A lot fo the topics are the same ones we cover here. But you can never have to much education on this stuff and different perspectives can only help.
Which is why we go to Inc’s site often looking for inspiration — and today we found the tale of Rosedale, the man behind Linden Lab’s massively succesful interactive universe, Second Life. As with many other founders, the journey hasn’t been easy for Rosedale, who left a job with Real Networks so he could begin work on his “lifelong dream of building a virtual-reality environment.” That was back in 1999. There were some tight years and at least one round of layoffs, but today Second Life has millions of users and has spawned an entire virtual economy. Rosedale calls his success “almost surreal.” But listenting to him talk about the experience with Inc. we learn his success is anything but surreal — it is a product of some very good decision-making on Rosedale’s part, at a few very critical moments.
We’ve highlighted some of the many impressive lessons to be taken from Rosedale’s conversation with Inc. below (but do read the whole piece):
1) Rosedale recognized his big idea for Second Life early, AND that it was too early for the market. So he waited…

I moved to the Bay Area and I moved my office right next to these four guys who were building one of the early Internet service providers….I said, Man, you could use the Internet to hook together a lot of computers. You could simulate a world and then we could all go in there.
But then I said, This is a nonstarter right now because for this to be interesting it has to be sexy, it has to be fun, it has to be fast, it has to be within human response times. It has to be like a video game. And in the mid-’90s you couldn’t do 3-D on a PC.

2) Rosedale recognized that he needed more training if he was to be successful with his Big Idea later on.

I felt that what I was going to build someday, Second Life, was going to be extremely complex from a systems and software standpoint. I needed some experience working with other people and learning how you get people to work together and work on a really big system. I figured I would get to see all that at Real [Networks where he worked before founding Linden Labs]. And I did.

3) Even with big-name backers, Rosedale heard ‘No’ a lot because not everyone accepted his vision. But he understood that they accepted HIM. So he kept going.

Second Life was just unfundable. It was just the dumbest idea ever. Mitch Kapor [the founder of Lotus Development] was the only person who got it. Mitch invested in 2001 after I had invested about a million dollars of my own money. I think some of the early angel investors were largely investing in me. They thought I seemed to be a capable, balanced, good-engineering-background entrepreneur, so I could figure out something. … But we could convince absolutely no one that what we were doing made any sense. People said the technology can’t possibly be made to work smoothly because there are too many problems with building a simulation combined with broadband, combined with streaming, combined with rendering, talking to many computers at once, the whole idea is just completely impossible.

4) When he saw that word-of-mouth marketing wasn’t working, Rosedale bit the bullet and made lay-offs.

There were six very quiet years. It wasn’t discouraging the first couple of years because we were just having fun. When we got to be 20, 25 employees it got pretty stressful. What we didn’t really think about was if the content alone is what compels other people to come and join, then you have a pure word-of-mouth exponential growth model, and that means you are going to have to wait a long time for the plane to take off…When we couldn’t grow it as quickly as it needed to, we had one round of layoffs. There were 31 of us and 11 of us left. That was in late 2003, when we pretty well thought we were dead.

5) Finally, he recognized that getting customer buy-in meant “letting go” of the development, and placing it in the hands of his users. The rest is history.

And then we did one discontinuous thing: We recognized that there was a core of people who were really starting to want to build the content and invest in it and really value it. And we said, What you have in Second Life is real and it is yours. It doesn’t belong to us. We have no claim to it. Whatever you do with Second Life is your own intellectual property. You can claim copyright on it. You can make money. We said the same thing about land: Land is yours to own and resell. We had been reading Hernando De Soto’s The Mystery of Capital and Jane Jacobs and all these books about innovation and ownership and why great places are great places. And we said, Let’s just make this a real world. Let’s let it have a real economy and let’s make property have real value. There was a lot of buzz around that. The investors could see this thing starting to go. In early 2004 we got a couple million bucks more.

There is a lot more, so like we said, read the whole interview with Rosedale here. Also pay attention to the books he references in Point #5. And remember: we’re building a reading list here at Found|READ, so if you have titles to suggest, or story ideas to share, by all means: send ’em on! Share. Learn. Succeed.