Foursquare CEO Advises Aspiring Entrepreneurs During Visit to iLab

As Foursquare CEO Dennis Crowley addressed a group of MBAs in the iLab last Wednesday, he singled out one individual in the crowd. The student, whom Crowley did not know, was proudly donning a signature black Google fleece. After a bit of playful jeering, Crowley changed his tone: “But seriously, you’re probably really smart, I’d love to talk to you after this.”

The shaggy-haired Crowley, whose own wardrobe comprised a charcoal gray hoodie, jeans, and bright orange Nike sneakers, made the message loud and clear: Foursquare is growing and it’s hiring season.

In an hour-long conversation, moderated by Senior Lecturer Jeffrey Bussgang (HBS 1995 and General Partner at Flybridge Capital Partners), Crowley discussed the challenges he encountered founding Foursquare and serving as its CEO. He also provided a glimpse into the company’s future, offering advice on how to defy the naysayers and the trade-offs between growing a user base and developing a sustainable business model.

The event was the first installment of the HBS Student Association’s “NY Tech Speaker Series.”

Foursquare is a mobile software application (“app”) that allows users to share their current location with friends. The company began as a game-like service in which users “checked in” to local businesses to earn points and badges. However, Foursquare has recently—and many argue successfully—repositioned itself as a local search and recommendation service, pitting it head-to-head with the likes of Yelp and Google.

Crowley, 36, co-founded Foursquare with Naveen Selvadurai in 2009, but the company’s origins date back to 2002. As a graduate student in the Interactive Telecommunications Program at NYU’s Tisch School of the Arts, Crowley co-authored a thesis paper about how to build a social city-guide platform. He later developed an SMS-based service called Dodgeball that allowed a user to send his or her location via text message to a server, which would then transmit the location to that user’s friends. Crowley designed the software out of pure utility to keep in touch with his colleagues after they all got laid off from a failed start-up.

“There was no talk of business, no talk of a vision for something larger,” he said. “I didn’t set out to build companies. A company was the last thing I wanted to build.”

But in reality, Dodgeball was one of the first social networks for mobile devices. At the time, companies like Friendster were quite limited. “You would close the lid on your laptop, walk away, and Friendster wouldn’t do anything for you,” Crowley remembered.

A series of accidental conversations led him to Google, which purchased Dodgeball in 2007 for an undisclosed sum. Crowley left Google two years later, frustrated by the tech giant’s inability to expand the product into something more meaningful.

“It was a huge kick in the stomach for me,” he said. “There were so many unresolved questions.”

Still in love with the initial concept, Crowley was not ready to give up.

“Many people told me, ‘You tried this before and it didn’t work for Google, so why do it again?’ To be honest, I struggled with the idea of trying the same thing a second time.”

“And expecting different results?” Bussgang aptly interjected. “Isn’t that the definition of insanity?”

Insanity may have been the secret ingredient. When Crowley launched Foursquare, his basic premise was that video games could be played out in the real world. To many, this idea seemed, well, insane.

“Finding a great new sushi restaurant and sharing it with your friends should feel as good as unearthing the boomerang in The Legend of Zelda,” Crowley said to an audience full of laughter.

“Game mechanics” turned out to be the solution to the company’s biggest problem: if your friends don’t use Foursquare, why should you? So Crowley introduced a way for individuals to accumulate points and, if they checked in at one location enough times, earn “mayor” status. Soon, a network effect was underway and by the middle of 2010, Foursquare boasted 1.5 million members. Roughly 20,000 new users were joining every day.

The idea that would eventually transform Foursquare did not come from Crowley, however, but from the users. After a local café in San Francisco hung up flyers offering a discount to Foursquare members who “checked in,” a blogger posted, “Hey, I just saw the future of Yelp, and it’s called Foursquare.” At that moment, Crowley realized the value that both merchants and consumers could derive from his company’s treasure trove of data on customer behavior.

“We have three billion check-ins and an army of people crawling the real world like a web crawler would crawl the internet,” Crowley said. “We have ‘Big Data’ about where people go, where they go after they go there, where they went before, where they don’t go anymore—there is tremendous value in all that check-in data. It is our job to harvest that.”

If Foursquare gets it right, this avenue provides the greatest opportunity to monetize the product. Venture capitalists have taken notice. In June 2011, the company raised $50 million at a $600 million valuation and has brought in more than $70 million of total funding to-date from big names like Andreessen Horowitz and Union Square Ventures.

Crowley said that leading the company through this transition—in effect, retelling its story—is his greatest challenge. On top of that, competition is lurking. Yelp has added location-based services and when Facebook launched “Places” in August 2010, many in the tech community proclaimed Foursquare’s imminent death.

In response, Crowley has attempted to focus his employees on their core job: building the product.

“My role as CEO is about over-communicating,” he said. “I have to keep the message simple. I feel like a broken record, but it’s important to keep repeating our vision so that people understand how their individual projects relate to the overall goal.”

The strategy appears to have worked. Foursquare recently overhauled its mobile app, simplifying the interface and adding new features that make it easier, for instance, to look up restaurant menus or get directions to a bar. Since Facebook Places launched, Foursquare has grown its user base five times over and today claims 25 million members.

As the technology world continues its rapid evolution—“so much is going on, my mom now downloads apps!”—Crowley said Foursquare must remain nimble in order to succeed.

Every entrepreneur, he advised, should strive to possess that flexibility.

“You have to be open to tearing everything apart and rebuilding it,” he said. “There will be a bunch of Lego pieces on the table and you need to figure out how to put them back together in a different way.”