Others will say that it’s another Kelman case for building Death-Star-sized startups rather than operating on a more hand-crafted scale.  This is a bit truer, though I’d like to think that a company can get big without selling its soul. We just believe that the funnest thing in the world is to take something small and make it big. Growing is better than not growing.

And of course being capital efficient is better than dilution, so we’re not trying to persuade anyone to raise money. But even if you don’t take investors’ money — especially if you don’t — it’s useful to take their mindset, at least for the five minutes it takes to read what we learned while raising money from Greylock.

Because no matter how hard I try, I get into the weeds at Redfin and forget to think strategically about what we’re becoming. The process of raising money is an antidote to that tendency. While I sometimes resented having to spend a few weeks on Sand Hill Road explaining our story, by the end of it I had decided it was a good thing to be a little scared while talking to really smart people about basic strategic questions. You have to think everything through all over again, confirm some decisions, reconsider others, and come out ready to execute like a wild animal.

Hopefully we simulated that experience in a way that is useful to you. While writing the essay, I began to reflect on how my attitude had changed about VCs.

I used to think of them as the Wizard of Oz. As a 25-year-old raising money for Plumtree in the ’90’s, I often found myself hyper-ventilating in a rented Ford Festiva parked off Sand Hill Road, saying to myself THIS IS IT, THIS IS THE BIG ONE. Back then, I looked to Greylock or Sequoia as more than just a source of money or good advice, but as the only remaining dispensary of prestige or meaning — a Harvard that could reconsider my application, an Oracle capable of anointing our little startup as The One.

You need someone to look up to. When your first job out of school is at a startup, you stop believing in the 68th-floor executive suite, the older gentleman in the bespoke suit, the whole adult world that seemed so magnificently ordered just a few years before. You’re surrounded by dingbats just like yourself. There is no Star Chamber, only a series of poorly carpeted rooms that you will progress through for the rest of your professional life. By 24, the great chain of being had become so discombobulated for me that I was no longer even sure Coke was better than Safeway Select.

Since then I’ve become more of a humanist in my career, taking comfort in the idea that we can each decide what is meaningful or prestigious for ourselves, that there is no one to believe in or beseech except other well-meaning folks like ourselves.

But I’m still a little puzzled by VCs, who now sometimes seem more like the precogs in “Minority Report,” confined for most of their lives to a sensual-deprivation chamber, lightened at one end by the flickering of an endless PowerPoint preso: formidably gifted, carefully consulted, unsplattered by the muck of Redfin’s everyday reality, and yes, still tinged with my own feelings of reverence. It wouldn’t be a job I’d ever like — I have a bet with Madrona’s Greg Gottesman that I’ll never become a venture capitalist, he doesn’t know much emotion I need to put into and take out of a job —  but even after all the ways I’ve become disillusioned about what not to believe in, it’s a perspective I value a lot.

Photo credits: Neato Coolville on Flickr, Warner Brothers, 20th Century Fox.

But the author sort of misses the point. He worries that Google is using its power to screw Yahoo, AOL or Microsoft (where he probably works), not the consumer. He talks about sinister scenarios where Google arbitrarily refuses to run an ad, or dongs companies that don’t advertise from its search results. These scenarios either don’t seem likely or worrisome to me.

And more to the point, we don’t have to imagine such abuses of power; the Internet has already changed in literally billions of ways to accommodate Google. Overwhelmingly, Google has made the Internet a more organized, consumer-friendly place. But any mass of that size operating at the center of the Internet, however sunny and life-giving it may be, can’t help but deform it in unnatural ways, too.

This is a concern we first raised in April, arguing in an essay about how newspapers compete in the Google age that Google’s ability to shape the Internet is far more complete and long-lasting than Microsoft’s supposed monopoly of the desktop. I hope Bing will begin to change that, though I have been less impressed than others by its 8% jump in traffic, simply because some of that has been driven by one-time press hits and ads.

The fact is that every day, people make web pages dumber so Google can index them. At last Thursday’s Naked Truth, Jonathan Sposato talked about how Picnik is largely invisible to Google because Picnik is coded in Flash, a platform that allows you to do magical things to photos from a web browser  – but one which Google’s robots still don’t really understand. What this means is that Picnik in some ways is too smart for Google –and pays the price, getting very little very traffic from search. It should come as no surprise then that fewer and fewer web applications have followed Picnik’s suit, even though as consumers we often wish they would.

For our part, Redfin just had a debate on Friday about whether to optimize our site for consumers or for Google. At stake was how to provide home-buying tips within our search application. One option is as a link to a separate web page. The other option is in-line, so that users can click on a control to see more information within the context of their search.  The first option is Google-friendly, because the indexing robot doesn’t know how to click for more info, it can mostly only follow links. The second option is user-friendly, because most consumers don’t want their search interrupted while another page loads.

I think we’ll end up choosing the user-friendly option this time, but really the conversation shouldn’t even be happening. And it happens all the time, at Redfin and everywhere else. Just last year, we argued about how many similar listings to show on a given listing web page; users would prefer to see five similar listings but Google doesn’t mind if we show 20 or 50. The more similar listings we show, the more probably can get indexed. Today, we show 10 similar listings.

The differences go beyond how information is presented. Google doesn’t like websites that charge money, or limit information only to registered users. To show some broker’s listings, Redfin has to register users. Google’s robots can’t sign up for a Redfin account, and never see or index that information.

Some websites, like ZipRealty, register users to see details on every listing, so that Zip can follow up with a sales call or email. And I am very happy to report that Google punishes them for it. This is one reason why Redfin has  been growing traffic faster than Zip. And it’s one reason that newspapers haven’t been able to charge users money, because Google won’t index content that it can’t show for free. This makes me unhappy, because some information is worth paying for.

So to Google, you’re either a media company, a website that displays information like a media company, or you’re somewhat invisible. Another way of thinking about this is that Google forces every website to be the braun — providing different types of information in a simple format its robots can understand — while Google itself is the brain, acting as the central hub for people to find their  way to information. When we optimize our site for Google, we are enthusiastically out-sourcing more and more of our brain. Another way of saying this is that as more and more people access the listings on Redfin’s site via Google search, our home page is increasingly not  a Redfin page, but a Google search page.

In many ways, I think this is a good thing, as it gives consumers the freedom to move from site to site using Google as a well-known guide. But we should at least acknowledge that all websites are now building themselves to be understood by one search engine. If you have to choose one company as the least common denominator for the entire Internet, you could no better than Google, but it is after all still only one company.

The premise of the post isn’t that Redfin has found our way out of the woods yet, only that we’ve been in there longer than others; the housing bubble burst a year before the market did. So far, the essay is steadily climbing the del.icio.us charts.

It was originally going to be a top-10 list of tips, but Redfin’s professorial Chris Glew told me that, when interviewing for his first job at Redfin, he had surmised from my blog posts (for DIY PR,  financial modeling and startup hardships) that all of his answers should be in the form of a top-10 list.

So, I made a top-9 list instead.

Thanks to Wes, Sylvia and Marc for giving the post a going-over, and to a loyal blog reader — why can’t I find his comment? — for asking why startups are so conservative, which became the point of departure for this latest effort.

Of course, Dan was only being polite: the appeal of Yammer’s business model is that anyone can start using it (Redfin only has to pay to control it). And even if I’d said no, another Redfin employee would have started using it anyway.

So I said yes. And then thought: what does this mean? And what have we done? 

What Does Yammer Mean?
What Yammer means to me is first that there’s a new model for selling enterprise software, and it resembles nothing more than George Soros’s efforts to undermine the Soviets by air-dropping fax machines behind the Iron Curtain: tools are downloaded and used, with executives & IT only later having to accommodate the facts on the ground. The whole question of whether Yammer is actually productive is beside the point, because it’s so easy and fun.

Yammer also means something more, that email is broken: overwhelmed with spam, cumbersome to open, with responses feeling like an obligation rather than an option. If you want to deliver a message to someone, almost any other medium is more likely to get noticed: IM, Facebook, Twitter, RSS.

What Have We Done?
But the bigger question about Redfin’s use of Yammer is what have we done?

While I am glad to try a new technology — Dan is such a fearless pioneer — I worry that Yammer might be worse than work, and worse even than no-work. At least when you’re browsing ESPN.com, you feel bad about it. Yammer happens at work, and it sounds like work — you can always tell when someone is writing an email, IM or Twitter, because their typing is so much faster and noisier — so people think it is work, with one crucial exception: it may not get work done.

I’m not sure I buy the talk about collaboration. I’ve seen passive-aggressive arguments happen over email and (less over) IM — Skype’s workrooms are the exception; they’re awesome — that could have been avoided or settled in a few minutes face to face; will Yammer be much different?

As it is, I have elaborate fantasies about outlawing the whole Internet for hours at a time, or even for an entire workday. When I marvel at how a historical colossus like Theodore Roosevelt (definitive naval history of 1812, four-volume history of American frontier, a staggering number of slaughtered animals, U.S. President) or Honore de Balzac (dozens of coffee-fueled novels, written from midnight – 3 in the afternoon, while standing up) had time to accomplish so much, I usually attribute it to talent, servants — and no Internet.

Staving Off a Coup
But whether a shot at greatness is in anyone’s cards, I don’t have the guts to pull the plug on email, IM or Yammer for even a minute: there would be a coup, and Cynthia Pang would mount my head on a stake outside the Dexter-Horton building by the end of the day. I think a lot of executives who are asked about IM or Yammer agree to it for the same reason: they don’t want to seem like Scrooges or Luddites, and they’re not sure they could stop anyone anyway. And truth be told, we want our Yammer too.

Gentle reader and Dan Fabulich (who is, by the way, mutantly productive and far less curmudgeonly than I am) what do you think? Is Yammer good or bad for actually getting work done? Once we actually start using Yammer, we’ll report back on the results. Right now I’m not sure — but I’m excited to use it anyway.

(Flickr credit: soldiersmediacenter on Flickr)

Both are right. But the real problem isn’t that we have to be wiser or smarter. We just have to keep taking big risks. Taking big risks is where Americans have always stood head and shoulders above everyone else: get-rich-quick schemes have been our specialty. But now the new fashion among the professional risk-takers has been to risk very little.

$100,000 is the New $10 Million
Venture capitalists are racing to miniaturize themselves toward the vanishing point. One of my favorite bloggers, Fred Wilson, recently asked why not “back 10 teams at $25,000 each instead of one team at $250,000”? Just last week a Seattle venture capitalist boasted that “we are seeing impressive companies being built for under $100,000.”

To which one can only say: Really? Which companies?

Just do the math. Two engineers can last 12 months on $100,000, which is great for building a prototype, but often nowhere near enough to build an ambitious product, much less a business. Yes, hardware and software have become nearly free, but people have always been a startup’s main cost.

Spending Less, Doing Less
What’s usually happening is we’re spending less by doing less. Behind the steady drumbeat of startups, any TechCrunch reader can’t help but notice how whimsical many have become.

Trading college-girl gossip or graphing rock-band popularity is cool but we also need entrepreneurs willing to spend the time and money to f*** with the order of things. Rather than building game-changing technologies that can make an entire segment of the economy better, most startups are using what’s already out there to create a new media site. Silicon Valley, meet Hollywood.

What’s Really Scary: Nobody’s Scared
Everyone knows that last quarter was the first since 1978 that a venture-financed company didn’t go public. Mid-stage capital dropped 15%. Late-stage investing is now cashing out entrepreneurs before their companies have made money. And what’s really scary is that nobody’s scared.

Bill Gurley says an IPO isn’t worth the Sarbanes-Oxley headaches. Others are just waiting for the market to tick up. But if those were the real problems, we’d see more accretive acquisitions. Instead, even YouTube is struggling to make money for Google.

Most entrepreneurs don’t even aspire to build a self-sustaining business. Among the 25-year-old entrepreneurs I know, that goal seems as dated as the Brezhnev-era Red Army.

You Want to Get Funded? Think Small
It’s an attitude investors have encouraged. When I came of age in the 1990’s, VCs were always challenging entrepreneurs to think big. It helped shake us out of our navel-gazing reverie and into a broader world. Now, chastened by over-funded companies from the dot.com boom, many investors look for ways to cut an idea down to size.

Of course, some businesses don’t need a lot of money to get big. Others are happy to remain small. But there are big ideas that take time and money, and though there is still plenty of funding available, no one could deny the mood among Internet startups has changed.

Could Amazon’s Jeff Bezos show up on Sand Hill Road today to pitch a company that would lose money on software, on warehouses and distribution centers – for years? He might get his idea funded; he’d more likely get talked out of it. It’s so easy to nudge enterpreneurs — and people in general — toward smaller things.

What I’m Looking for in TechCrunch50
We can’t all be Amazon. But we do have to make sure that the volatile mix of money and energy – which occurs in only a few places, at a few moments in history — can still easily form around the big ideas, not just the small ones. This is why everyone is eager — why am I so insanely eager? — to see what TechCrunch 50 delivers: will startups debuting at tomorrow’s big conference make Silicon Valley’s place in the economy smaller or bigger?

The judges may argue over which contestant is the most clever or polished, but for those of you scoring at home, there’s room on the card for another column. Which startup is most likely to f*** with the order of things? We need a few of those too.

I wanted to use Prince’s “Let’s Go Crazy” for the music, but we don’t have the rights for that either. As our lead search engineer & award-winning documentarian can tell you, it’s a problem for any aspiring film-maker.

Do you think this would make you more likely to look at a listing?  And what’s the best song for this house?

That can be a heavy burden to bear, especially when the question you’ve answered is a contentious one. Last spring, Redfin analyzed the MLS data available to all brokers to show that our home-buyers negotiated a better deal on a home — saving an extra $4,000 off the list price — over and above our commission refund. We called the total savings, of $14,080, the Redfin Advantage. We promised to make calculating it a regular thing, which meant that saying we saved customers money in one year would obligate us to admit it was a fluke if we didn’t repeat our performance in the next.

So when Redfin set out to evaluate our performance over the last 12 months, in a downturn that has brokers of all stripes competing ferociously at the negotiating table, I was sick to my stomach. As transaction volume grows, we should regress towards the mean. But the numbers came in for both Seattle and the Bay Area, and they only show the Redfin Advantage got bigger, with a smaller range of error (thank goodness!):

• Redfin home-buyers over the past twelve months paid on average 1.015% below homes’ asking price, while customers of other brokerages paid .087% below asking price.
• This difference in negotiating results saved Redfin customers nearly 1% of the home’s final price, for an average savings of $5,048.
• In addition, Redfin refunded each of these customers an average of $10,520 in commissions.
• The data is statistically significant, with p-values for each of the three counties we evaluated between .00004 and .02. To a statistician, this means there is less than a 2% chance that our results could be the result of chance. The p-value for last year was closer to .03 or 3%.
• It would be hard for us to exaggerate or fabricate this data, since other brokers can and will challenge the result. There was a huge brouhaha last year. One intrepid broker found an error on one transaction, and we immediately issued a .01% correction.
• Redfin’s customer satisfaction rate was again 95%, for home-buyers whose offers succeeded or failed. Our demographic broadened, with the number of high-technology customers dropping from 48% to 33% of our total, and the number of first-time home-buyers increasing to 45%. Unlike the negotiating advantage, the satisfaction and demographic results come from our own surveys, which are less reliable.

The report analyzes data from February 6, 2007 – February 5, 2008, based on the anniversary of our launch of our home-buying service, Redfin Direct for Buyers. We didn’t analyze LA, San Diego, Boston or Washington, D.C. because we hadn’t served those markets for the full year, and we didn’t have a statistically significant numbers of sales there either.

Because the negotiating advantage is consistent across different Redfin agents, different customers, different counties, different years, in markets that were healthy and slumping alike, it seems fair to conclude that the advantage stems from the Redfin business model itself. What does that mean?

Customers on the prowl for a deal are a big reason we negotiate effectively. The partnership we try to set up with customers gives them a more active role in negotiations and, because they have the most skin in the game, they come to the negotiating table armed to the teeth with data from our site. Last year we tried to give all the credit to our agents, but now, we think Greg Swann was right: a lot of credit goes to our customers too.

We still think the results validate the skill of our real estate agents too, whom we pay customer satisfaction bonuses rather than commissions to avoid creating any pressure for customers to close on a bad deal. Alone among any national brokerages, we require our agents to have experience with at least 20 transactions before representing a client. Hats off to all our Redfin agents, and thanks for your hard work, now being recognized on TechCrunch, in our favorite real estate blogs and the local papers.

Many thanks to Redfin star Chris Glew for preparing the report, his first big business project. An anthropology M.A., Chris previously studied ancient Mexican turds and fabulous jungle-buried relics. In his interview for the job, he explained that the diameter of an empire’s tortilla-making griddles increased with its ability to enslave people in the fanatical construction of monuments (which in turn prompted us to expand Redfin’s Costco order.)

“Someone,” Michael says, “needs to create a new technology that allows us to enjoy our life but not miss important messages.”

But if Michael wanted fewer messages, he could just switch to a private address without telling me what it is. Every time we write an email rather than call, or add another distant “friend” to Facebook, we choose a network over true friendship, communication without commitment. And usually, we’re choosing what we want.

This is a process that starts early: the New Yorker’s Adam Gopnik recently wrote about the imaginary friend his toddler talks to on her toy-cellphone, usually only to say that she’s too busy to talk to him.

And it began a long time ago. The critic Hugh Kenner speculated that the disembodied voices of modern poetry grew out of the invention of the telephone. What I grew up seeing as a way to reach out and touch someone, a previous generation saw as a paltry substitute.

And now that’s how I now see Facebook, as a paltry — but not quite dispensable — substitute. Facebook comforts us with the thought that we have lots of friends. And yet the prestige that this network offers is the opposite of security, that 8^th-grade sense we got from knowing exactly who our friends were.

The “social utility” of friends on Facebook is different than other forms of friendship. Most of my friends’ Facebook updates have the quality of overheard cell phone calls: mundane, impossible not to listen for, really only half of a conversation, but also comforting. Someone stuck in Singapore for a year once told me that what he missed most was the English chatter of overheard conversations.

This is why I’ve stopped checking Facebook throughout the day, but then suddenly find myself, alone in the wee hours of the night, glad to see everyone there. The feeling it gives me was best described in Augie March: “Wherever it was dark there was this sound, continental and hemispheric, again and again, like surf, and continuous and dense as stars.”

Saul Bellow was writing about falling asleep to the chirping of insects, but now that sound is the buzz of our friends. Maybe the one-line updates of Facebook have just reduced communication to what we really need to hear, over and over again: “Are you there?” “Yes, I am (everything’s fine).”

(photo credit: Moriza on Flickr)