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Evernote CEO on how company was saved at eleventh hour

At the annual Y Combinator startup school, Phil Libin details the most important lessons he's learned from his founding of three companies -- and how Evernote stepped back from the precipice of failure.

Evernote CEO Phil Libin speaks at the Y Combinator startup school event at De Anza College's Flint Center in Cupertino, Calif., on Saturday, October 19.
Nick Statt/CNET

CUPERTINO Calif. -- When Evernote CEO Phil Libin was faced with a cash reserve that would last only two weeks, and the US's record recession was unfolding before his eyes, he made what he refers to as one of the first difficult, truly adult decisions of his life: He decided to shut down the company. He simply couldn't pay the bills after Lehman Brothers' bankruptcy filing killed Evernote's first multimillion-dollar investment.

But one e-mail, from a soon-to-be investor, popped into his inbox at 3 a.m. It happened only moments after Libin came to the conclusion that shuttering Evernote would mean laying off the core group of friends and co-workers that he'd followed from the computer science department of Boston University through the founding of two companies, all before merging teams with Russian entrepreneur Stepan Pachikov the year before to create the modern Evernote.

"He said, 'I'm just writing to let you know that I love Evernote. I've been using it for about two months. It's changed my life,'" Libin recounted. "I thought, 'That's nice,'" he said, until Libin saw that the man, a Swedish investor, was wondering if he could contribute. After an immediate Skype call and further negotiations, the investor wired Evernote $500,000.

"It lasted about six months, but more importantly we had cleaned up our structure and we finally had traction where I could do a VC presentation that wasn't awful," Libin said.

The moment would also prove to be a telling point for Libin and his Evernote team, who finally decided to build something they truly loved (they'd already founded and built two companies they weren't particularly passionate about before selling them and moving on). They found that by making themselves the target audience, users like the Swedish investor who saved the company from extinction would share in that passion.

"Every investor is a fan of the product," he added. "We build it for us, but it turns out we also built it for our investors, the public, the media."

Building something you love -- a product or company that could become your life's work -- was one of the key lessons Libin laid out for a crowd of more than 1,700 attendees packed into the Flint Auditorium at De Anza College for Y Combinator's annual startup-school event.

"The third time around, we said, 'Let's only build things for us, and let's build a company that we want to keep," Libin said. "Let's make something sufficiently epic."

"If you have something's that your life's work, there's no exit strategy," he added.

That advice is something Libin thinks wouldn't have made sense even five years ago, when acquisition and investment and marketability guided the design and creation of companies and apps. But in the tech space now, which Libin thinks is more of a meritocracy than it's ever been, creating something that you're passionate about can resound with billions of people around the world.

Now that Evernote is routinely thought of as one of the next massively successful startups preparing to go public, with more than $200 million in funding, Libin admitted that it's never been quite as liberating as those days in September of 2008, when he was absolutely prepared to fail.

"I could stand here and say it gets better, and it does. But it also gets harder. It's never gotten easier for me, but it also becomes more and more important and more and more rewarding and in one sense more fun," he said.

Though "it's not fun day to day," he added. "Difficulty is the main thing, but because I still have this amazing team of people, many of whom have been with me now for 20 years, it's vastly satisfying."

That was the most important lesson Libin laid out for the hopeful founders and up-and-coming entrepreneurs in the crowd. "Cultivate a group of really, really brilliant, high-energy -- willing to work for free -- best friends for life," Libin said to laughs.

"It's super important to do that," he added. "In fact I would go so far as to say that you shouldn't even make friends with people that you don't see yourself starting a company with. It kind of sounds dickish, but to be honest, why bother?"

Because, while Libin hopes Evernote is his life's work, if he does move on, "I already know that the 50 or so people at Evernote will be with me at whatever else I do."