Supported by Greenhaven Road Capital, finding value off the beaten path.
Stewart Butterfield spoke with Guy Raz on the How I Built This podcast about Flickr and Slack.
Butterfield succeeded because he found customers where they were, not where he wanted them to be. In the words of Lady Gaga, “I will continue to become whatever it is [the fans] would like for me to be.” Butterfield’s online game turned into Flickr. Another online game turned into Slack. The first pivot came because the game was too hard.
“We had been working (on this game) for over a year and it was clear how complex this was going to be and we realized we were never going to be able to finish it. We were desperate for something else that we could complete in a shorter amount of time – and that thing ended up being Flickr.”
It was a smart choice with a helping of Google good fortune.
“Around that time Google had bought blogger and they didn’t have a way to host photos online. When someone asked how, they said to use Flickr.”
Tom Brokaw had similar luck, showing up in California for the genesis of a gubernatorial candidate named Ronald Reagan.
Flickr also had a great product. They asked people to become customers and they did. This is something many failed startups failed to do.
After a Newsweek cover (more on this in a bit) and a buyout, then earn-out, from Yahoo (thirty-five million) Butterfield left. He says of Yahoo. “It was horrible at the time but I did develop character.”
Butterfield did hear some helpful stuff. “I learned a lot more than any MBA program…I was involved in things I never would have been involved with otherwise.”
People marvel when Alice Waters explains she never went to culinary school. Instead she traveled, hitchhiked, visited galleries and concerts, and ate at any little restaurant that looked right. As we’re often reminded; school is not our only education.
Butterfield vested, left Yahoo, and noticed something was different.
“Now there was an order of magnitude more people online. In 2002, the majority of people didn’t have internet access or computers at home.”
Let’s try the game again!
It was called Glitch and Butterfield described the bizarre fantastical world as “Dr. Seuss meets Monty Python.” They fundraised. They got customers to say shut up and take my money. But they didn’t get enough. Glitch had “a leaky bucket.”
“We never found the magic formula that would make it work economically. It would have been a fine lifestyle-business, but it was never going to become the type of business that would justify seventeen and a half million dollars of venture capital.”
Andy Weissman reminds founders that when a business pockets venture capital money, they shoulder the venture capital business model. Weissman said, “an investor like me needs to make 10 or 100x on our money, which means we need these companies to be really large businesses for us to return money to our investors…You have to believe it’s a big business. You are comfortable taking big risks, including existential risks around managing that business.”
Butterfield called an all-hands meeting. “It was humiliating. There was a real sense I had failed all these people.” They shut down the game. They coached, counseled, and connected their employees to new jobs.
Then the aha moment arrived. Butterfield doesn’t say if was a mental anvil or inspirational breeze, but the forces behind it were built from years of experience and a deep understanding of working on teams that built software.
“While Glitch wasn’t successful as a business, we were extraordinarily productive. There was this system of communication we developed, we didn’t think of it as a thing, it didn’t have a name, we didn’t talk about it, it was just how we happened to communicate. It was built around the concept of a channel.”
And Slack took off like a rocket ship!
Well, no. Kind of.
“What we imagined was an easy sell was met with cold stares.”
“We had been working like this for years and the advantages were obvious, they were so obvious they were hard to articulate. When we tried to convince our friends and other companies they said, ‘Why would we do it that way?’ And, unlike most software you can’t unilaterally decide to use Slack – everyone has to buy in.”
Butterfield and his team needed to find the IDEO style of empathy. Ali Hamed said, “that empathy translates to features and functions that understand the seemly non-pragmatic nuances of a given industry.”
They retooled the product. They got feedback. They empathized with customers. They got out of beta. “Within three weeks of our official launch we sold a million bucks worth of Slack.”
Butterfield posed for another magazine (Fortune this time) and it was a huge help. The cover and the word-of-mouth spawned a virtuous loop.
“We were growing really quickly, and because of that the press would write about us. Because the press wrote about us, investors were interested. Because investors were interested, we were able to raise all this money. That got us more headlines. It got us more interest from great applicants.”
It’s the Increasing Returns Economy.
Thanks for reading.