words by Ryan Hupfer, pictures by Brian Solis

James Hong, the co-founder of the highly addictive website HOTorNOT educated and entertained me and the rest of the Startup2Startup attendees with his somewhat unbelievable and unique startup experiences tonight at the Sheraton here in Palo Alto. For all of you who aren’t familiar with the Startup2Startup event, it’s an idea that was hatched directly from the brilliant mind of the Master of 500 Hats himself, Mr. Dave McClure. He describes it as “A group of Silicon Valley geeks, entrepreneurs, & investors dedicated to educating and helping the next generation of internet startups” and the event has become a great way for Dave to give back and help foster the entrepreneurial community that he’s been so very involved in for so many years.

“So before I start I wanted to let you all know that I tend to be really informal when I present and it usually leads to me blabbering and cussing a lot.”
- James Hong on presenting

As a team of A/V gurus worked on getting James Hong’s Powerpoint up and running he continued to prep his upcoming presentation by taking a few swigs of his beer and biting off a few last bites of the standard banquet hall dinner roll that he was holding. He was calm, cool and collected and to me he seemed more like a guy you’d pull up a seat next to at the local bar as opposed to a scrappy and highly successful startup guru. But, don’t let his laid-back approach fool you, this guy is definitely no slacker and the story of how he grew a simple idea to a multi-million dollar business is nothing less than inspirational for any would-be entrepreneur.

“I was drinking one night and started thinking how cool it would be to let people post pics and rate them from a scale of 1 to 10 – it just seemed like a natural fit for me.”
- James Hong on starting HOTorNOT

The creation and practically instant success of HOTorNOT is something that Silicon Valley legends are made of. In October of 2000 James Hong co-founded and launched the unknown ranking-based website by emailing the a link to 40 of his closest friends. In less than 24 hours the site had been visited by over 40,000 unique visitors and by the time the site was barely a week old it was pushing 2 million+ daily pageviews. Needless to say, they had something special on their hands.

“I guess that it’s kinda like potato chips, ya know? You can’t just go on and rate just one person’s pic, which made the site’s numbers grow like crazy.”
- James Hong on the growth of HOTorNOT

After the incredible growth began and due to the expensive costs of bandwidth back in 2000, James had to get pretty creative with how he dealt with cutting costs to a bare minimum. A few of these tactics included:

• Leveraging Yahoo’s Geocities platform for image hosting until they got kicked off for good
• Creating a strategic partnership with Ofoto(now Kodak Gallery) for their photo hosting
• Borrowing bandwidth from a UC Berkely office by plugging in the server overnight
• Making a deal with the then up and coming Rackspace which resulted in never having to buy one single new server

James Hong didn’t take these measures due to the fact that he wanted to, he did all of this because he basically had to. With no money to spend and no funding in site, he was forced to get creative with his business tactics and each time they seemed to do the trick.

“We basically came up with a price that two beers would cost someone in the Midwest and that’s what we charged for user subscriptions…it just seemed appropriate to do it that way.”
– James Hong on determining subscription price

As with any startup, there has to be a point where the idea goes from being something that people want and enjoy to something that someone is actually willing to pay for. James quickly realized that he needed to convert the millions of people who were using HOTorNOT into millions of people who are paying for HOTorNOT and his strategy for doing this went well beyond the traditional advertising-based model that so many web startups rely on today. He made the decision to actually have people pay for certain privileges on the HOTorNOT network. These privileges were:

• The ‘Click to Meet ME’ Feature: A way to connect up HOTorNOT members if there is a mutual desire to meet. It’s free to browse, but to connect you have to be a subscriber – with the payment of $6 most likely coming from the guy. James likens this to the a guy buying an interested girl a drink at a bar, which made pretty good sense to me.
• The Selling of Virtual Goods: Another way to display even more of an interest in another HOTorNOT member is by buying them a virtual flower with you own hard-earned cash. The $10 red rose will cost you the most cash, but it will also show that special someone that you’re seriously interested.

Of course, we all know how this ‘too good to be true’ fairytale story of a startup ended. HOTorNOT turned into a multi-million dollar generating network and very profitable business that eventually ended up getting acquired to the tune of $20 million. So, what wise words does James have for any startup that’s wanting to follow in the footsteps of HOTorNOT?

“Running a successful startup isn’t a jousting match, it’s a street fight and you you need to be lean and mean to survive. You have to stay hungry and continue to think of innovative new ways to get your idea up and running no matter what kind of funding you have. It keeps you moving in the right direction and will keep you focused on what’s most important to you – your survival.”

For more photos of the event, visit Brian Solis’ album on flickr.

Gabe Rivera of Techmeme

Mario Sundhar of LinkedIn

Jessica Mah

Daniel Brusilovsky

Miiko Mentz of FWStudios.tv

Sanford Barr

Katherine Barr of MDV

Dave McClure

Brian Solis

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