How Slack Went From An Unsuccessful Video Game To A $26 Billion Dollar Company

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Growth Story is a weekly podcast that breaks down the strategy and tactics utilized by high growth companies, in a short case study format hosted by Scott D. Clary (@scottdclary).

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Welcome to success story, the most useful podcast in the world. I'm Scott declary and today I'm going to walk through how slack went from an unsuccessful video game company to a twenty six billion dollar instant messaging communication power house. I'm going to walk through the story of the founder. I'm going to walk through how they grew, how they pivoted and some lessons that anybody can take from this, regardless of whether or not you're in your career or you're an entrepreneur. They are an incredible story. I hope you enjoy stay tuned. So one of my favorite slack quotes is from their founder, Stewart Butterfield. He said this in two thousand and ten before, way before slack was the what we know slack is today. He said, and I quote, we have an excellent chance of being successful because we failed before and the odds of failing twice on the same thing are astronomical. Oh how naive Mr Butterfield was when he said this. When you know, when you when I tell you the...

...story of slack, you'll understand why this is a hilarious quote, because they failed a lot, they iterated a lot, they did a lot of different things. The Story of slack is an incredible story of perseverance, of Grit, of determination, all the things that make up a successful entrepreneur, and they definitely didn't have an easy ride. So if you don't know what slack is, and I would assume that if you work in a large company or you even work in a small company, you've probably used it, it's the instant messaging software that many companies use. They have a huge hold on the market. So the fact that they have this huge hold on the market now and if you've worked in some sort of modern company or Tech Company and you use it to communicate with your peers and your co workers, some things obviously work, since Stewart said that in two thousand and ten. So what exactly was their story? Well, today it operates as a cloud based instant messaging system. It offers basically a live, real time private communication network. It allows you to share files content, it allows you communicate and direct message in...

...real time compared to emails. It's efficient, it's real time, it's synchronous and it's much more organized. But slack was actually created by accident. Slack was a byproduct of what the company was supposed to be, which was a video game. Let's rewind the clock and look at the history of slack. So, like I said before, Stewart Butterfield was the founder. He was working in tech when he made the decision, a super courageous decision, to quit his job and go raise fiftyzero dollars to go build a video game. The game was going to be called gradfinder calm, and he actually did raise that money. He found somebody who's willing to give him fiftyzero bucks for a video game. He built it for six months and sold it for a little it under a hundred thousand dollars. That it was a private sale, so the details haven't been released, but he obviously didn't make that much money on considering you probably had to pay back the original Fiftyzero and he borrowed to build it. But he did make enough to take a little bit of time off and think about his next project. So now he has one successful, quasi...

...successful exit under his belt. He wants to build something else, but he obviously has less than Fiftyzeros, so he has to figure out something quick. Or is it go get another job? So he obviously had a couple of friends that worked on the first game. Some peers from, you know, past life in working with companies, they decided they wanted to build their own video game company, not just build a game, to build an entire company, but they wanted to start with, of course, one game to sort of kick off this company that was eventually going to create multiple video game and they also wanted to make sure that the games that they created were unique, that they really weren't anywhere else on the market and that they would really be doing something different. So they actually had the great concept of creating a game where people could collaborate with their friends, which fast forward to two thousand and twenty one. This is pretty much every single game that's out there now. But back then it wasn't as popular or what it wasn't really as widespread as it is right now. So they developed a prototype of a game that was...

...based on interactive cooperative experience between players. There was a small tribe, a community of die hard fans, it really really of this game, but it was very small. Most people really didn't get into the game. It didn't achieve any sort of massive success, but regardless, because they had a die hard tribe of people that were willing to play the game and really, really loved it. They thought that if they could double down and pursue this project full time, they would find more similar gamers that would really just love the niche, novel concept of this game. Now, although Stewart raised money, he raised Fiftyzero for his first venture. His second venture, he thought he was originally going to raise money, but he had a lot of trouble finding investors. Venture capital was not as interested in investing in video games or even in tech, as they are now. Remember, this was several years ago. Now there's an overabundance of capital. Now it's almost too easy to find money and yet to make sure you're finding it from the right people. So when they pitched repeatedly they went out to investors, they weren't getting any bites.

Nobody was really interested. They decided to fund it themselves, which is very risky. So they poured about a year of their lives into it and kept trying to build out this game. Ironically, the game was called game never ending and after a year it's still wasn't finished. They were also running out of money at this point, so they had to find a way to boost their finances. And remember, they went to venture capitalist before they couldn't raise money. It's a year later, the game's not done. They still haven't made any money off the game. So how are they going to go raise money? And they're all full time developing this game. Some of them are using their own savings. Stewarts using a little bit of money that he had saved up from that first initial eggs that there's not a lot of money left. So because the game was focused on social interaction, they thought they would create a website that would support that concept and support community and support interaction amongst players. So they created a website that allowed people to upload photos have...

...chat with other players, basically a community or a chat room, whatever you want to interpret it as. That allowed people to connect with other gamers. So gamers connect with other gamers outside of the game environment. Now, by two thousand and four the team had started to build this website that was focused on community and photo sharing and they're still building the game at this point. So they're still developing the game. Neither of them are really making any money, but they realize that if they're going to get anything done successfully. The community photo sharing tool was taking off and the game still wasn't done yet, so they decided to actually double down and focus on the photo sharing tool. They believe that they could finish it much quicker than a fullfledged video game with a very limited development team. So what did this photo sharing service turn into? Well, they gave it the name flicker and they launched it and it grew like crazy. Only a year later, Yahoo noticed flicker and purchased it from them for roughly twenty million dollars. And let's not forget that flicker started...

...off as a side Hustle that turned into a twenty million dollar exit. So now fast forward about three and a half years. Stewart has the money, team has some money. He wants to build something else. He still remembers that that video game not the first, when the first one was a relatively minor success, that fifty thous one. But the second video game, the one that they shelved to build flicker, was never really completed. So he never really got the bug of producing an incredible video game out of his system. So in two thousand and nine he announced his intention to build an MMO ARPG, a mega multiplayer online role playing game. The hardware and software that was used to build incredible games in two thousand and nine was much cheaper and more efficient than what he was using originally in two thousand and two. And due to his previous success with the flicker exit to Yahoo, he was easily able to raise venture capital for his new video game. So he raised seventeen and a half million dollars to build a video game that had no customers, no proof of concept, no path to revenue. But because they had the...

...resources and technology had advanced, they released the game glitch. Two years later. Glitch was a flop. It had a diehard community, wasn't accepted by the masses. So Stewart now has seventeen and a half million dollars that he has to make up for. He has another decision to make. Should he double down on the video game or should he try and build something with some of the tech that he's been building out throughout the process of developing this video game that could actually be an incredible application? And he chose to do the ladder. So what did he do? Well, Video Games are complex. A seventeen and a half million dollar video game is very complex. A lot of different people working on projects, a lot of moving parts. So to help them work better as a team. That developing team on glitch built out of software that allow them to communicate. It was basically an internal chat system that they had developed themselves and they felt that this added a level of efficiency in their communication that ways surpassed emailing, and they also felt that there was...

...nothing on the market that really helped an internal team communicate well. And realizing that they had actually built a product that solved the need that many businesses have, which is efficient, lightweight, user friendly instant communication, they decided to double down on that product and they called it slack. Now, the slack team only consisted of around a people at the start. Remember, they have a large company building at this video game, but the slack team only consisted of around a people. Those eight people were able to turn it into a consumer product. They on boarded for companies for free that were allowed to use every slack feature that the MVP, the minimum viable product or the first iteration of slack, had completely free, and that basically proved out that this would be useful for potential companies. And a little side note, those four initial customers still use slack to this day. Slack finally took their product to market and actually launched the slack APP in two th thousand and fourteen, after working...

...with those four customers to make sure that it sort of ironed out all the bugs the QA process. After its launch, slack made one million dollars in its first two weeks of launch and six months later they raised a hundred and twenty million dollar venture capital round that put the company's evaluation at roughly one billion dollars. They were a unicorn in six months. In June of two thousand and nineteen, slack ipoed in its initial public offering. The company was valued at nineteen billion dollars. Imagine this, slack, a multibillion dollar company used globally to help facilitate businesses. Help let team, let teams communicate. All of this started as a two times failed video game company. What are the two main things that you have to learn from this story? One, most businesses fail and it's pretty normal and to sometimes the best ideas are literally right under your nose. You have to be ready and willing to accept new ideas and just run with it. So this was an incredible story. I took...

...ten more lessons that I thought would be great lessons for entrepreneurs from this story. So, number one, you will fail a lot and it's really normal if you're building your own thing. Number two, apparently it's quite hard to build a video game. I don't know any other entrepreneurial video game stories, but Holy Shit, that would seems like. Yeah, considering their success in the fact that they failed twice, maybe that's something about how to build a how building a video game is really really difficult. Number three, don't always feel that you have to stay in your lane. So they were building video game companies and Stewart had this a little bit of an obsession with video game companies, but he was okay pivoting, like he went from video game to photo sharing, video game to communication. You don't always have to stay in your lane. Try New things, especially as an entrepreneur. Even if you are doing one thing, you're trying to build one thing. Maybe you discover something else that looks like it could work that's not exactly a hundred percent in line with what you're doing. Explore it a little bit, don't go all in, but just explore it. The version of your product when you start...

...a company will look drastically different in ten years than when you start it. This is the same with every entrepreneur I've ever spoken with. And also, let's just extraplate, that to like yourself as a person. The version of yourself in ten years is going to look drastically different than who you are right now, and that's a good thing. So whatever you start with, know that you will have to change it, alter it, iterate on it multiple times, and that's okay and that's expected and in ten years from now it's going to look quite a bit different. Now their lesson side hustles can turn into main businesses quickly. Never stop trying new things, iterating, testing, moving forward so important. If you're dedicated to anything for a long enough period of time, there's going to be something good that comes of it, even if it's just experience. But more often than not it's actually true success. Raising money, selling and marketing something has less to do initially with the tech and more to do with your network, success, resume and accolades. Learn how to sell your story better, but then back it up with a kick...

...ass product. So being able to sell something, being able to network and have a group that supports you is incredibly important. Notice that the only difference between when Stewart tried to raise money the first time and the second time was he had a success under his belt. Sheep. Their product was not built either time. It's not like they had revenue on the books either time. So it's just a point. there. Another lesson. Sometimes you need to remove any sort of inhibitions to prove to people that your product is as good as you say it is. So this is a common theme that I see with entrepreneurs that are trying to build something and are successful in eventually selling it. Sometimes you have to give it away for free to let people try it out, test it trust you, because what are the inhibitions in buying something is that they don't trust you, don't trust the PDUCT, they don't trust you as entrepreneurs and as an individual, and you have to sometimes remove that that friction and remove that impediment to them potentially purchasing your product. So slack did that by giving it away for free to four companies to prove it, to prove that it works. And then last lesson. When things start to...

...take off, they really take off, and this is something that I actually hear from a lot of entrepreneurs. Sometimes you're not ready for how fast. Things take off and it seems like a good problem to have, and it is. But I mean when things take off. You saw in two weeks they made a million dollars. You know how many entrepreneurs would completely screw that up and not know what to do with that? And then in six months they raise a hundred twenty million dollars. That is incredibly fast. Most people do not want that much stress. You think you're thinking big numbers. Oh that's great. There's a lot of stress that comes with that much money that quick. So if you're going to commit to something, when things take off, they will really take off, and be ready for that success and be ready for it physically, mentally and also in with your systems and processes that you've hopefully at this point built into your business that will allow you to scale. Anyways, that is a story of slack. That's some lessons from slack. I hope you enjoyed have a great week. Will talk soon.

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