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 mostuseful podcast in the world. I'm Scott declary and today I'm going to walkthrough how slack went from an unsuccessful video game company to a twenty six billiondollar instant messaging communication power house. I'm going to walk through the story ofthe founder. I'm going to walk through how they grew, how they pivotedand some lessons that anybody can take from this, regardless of whether or notyou're in your career or you're an entrepreneur. They are an incredible story. Ihope you enjoy stay tuned. So one of my favorite slack quotes isfrom their founder, Stewart Butterfield. He said this in two thousand and tenbefore, way before slack was the what we know slack is today. Hesaid, and I quote, we have an excellent chance of being successful becausewe 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 whythis is a hilarious quote, because they failed a lot, they iterated alot, they did a lot of different things. The Story of slack isan incredible story of perseverance, of Grit, of determination, all the things thatmake 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 thatif 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 theyhave this huge hold on the market now and if you've worked in some sortof modern company or Tech Company and you use it to communicate with your peersand your co workers, some things obviously work, since Stewart said that intwo thousand and ten. So what exactly was their story? Well, todayit 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'sefficient, it's real time, it's synchronous and it's much more organized. Butslack was actually created by accident. Slack was a byproduct of what the companywas supposed to be, which was a video game. Let's rewind the clockand look at the history of slack. So, like I said before,Stewart Butterfield was the founder. He was working in tech when he made thedecision, a super courageous decision, to quit his job and go raise fiftyzerodollars to go build a video game. The game was going to be calledgradfinder calm, and he actually did raise that money. He found somebody who'swilling to give him fiftyzero bucks for a video game. He built it forsix 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, buthe obviously didn't make that much money on considering you probably had to pay backthe original Fiftyzero and he borrowed to build it. But he did make enoughto 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. Hewants to build something else, but he obviously has less than Fiftyzeros, sohe 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 builda game, to build an entire company, but they wanted to start with,of course, one game to sort of kick off this company that waseventually going to create multiple video game and they also wanted to make sure thatthe games that they created were unique, that they really weren't anywhere else onthe market and that they would really be doing something different. So they actuallyhad 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 muchevery single game that's out there now. But back then it wasn't as popularor what it wasn't really as widespread as it is right now. So theydeveloped 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, itreally really of this game, but it was very small. Most people reallydidn'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 willingto play the game and really, really loved it. They thought that ifthey could double down and pursue this project full time, they would find moresimilar 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 asinterested 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'refinding it from the right people. So when they pitched repeatedly they went outto investors, they weren't getting any bites.

Nobody was really interested. They decidedto fund it themselves, which is very risky. So they poured abouta 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'sstill 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 fulltime developing this game. Some of them are using their own savings. Stewartsusing a little bit of money that he had saved up from that first initialeggs that there's not a lot of money left. So because the game wasfocused on social interaction, they thought they would create a website that would supportthat concept and support community and support interaction amongst players. So they created awebsite that allowed people to upload photos have...

...chat with other players, basically acommunity or a chat room, whatever you want to interpret it as. Thatallowed people to connect with other gamers. So gamers connect with other gamers outsideof the game environment. Now, by two thousand and four the team hadstarted to build this website that was focused on community and photo sharing and they'restill 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 goingto get anything done successfully. The community photo sharing tool was taking offand the game still wasn't done yet, so they decided to actually double downand focus on the photo sharing tool. They believe that they could finish itmuch quicker than a fullfledged video game with a very limited development team. Sowhat did this photo sharing service turn into? Well, they gave it the nameflicker and they launched it and it grew like crazy. Only a yearlater, 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 turnedinto a twenty million dollar exit. So now fast forward about three and ahalf years. Stewart has the money, team has some money. He wantsto 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 producingan incredible video game out of his system. So in two thousand and nine heannounced his intention to build an MMO ARPG, a mega multiplayer online roleplaying game. The hardware and software that was used to build incredible games intwo thousand and nine was much cheaper and more efficient than what he was usingoriginally in two thousand and two. And due to his previous success with theflicker exit to Yahoo, he was easily able to raise venture capital for hisnew video game. So he raised seventeen and a half million dollars to builda video game that had no customers, no proof of concept, no pathto revenue. But because they had the...

...resources and technology had advanced, theyreleased the game glitch. Two years later. Glitch was a flop. It hada diehard community, wasn't accepted by the masses. So Stewart now hasseventeen and a half million dollars that he has to make up for. Hehas another decision to make. Should he double down on the video game orshould he try and build something with some of the tech that he's been buildingout throughout the process of developing this video game that could actually be an incredibleapplication? And he chose to do the ladder. So what did he do? Well, Video Games are complex. A seventeen and a half million dollarvideo 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 theyfelt 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 helpedan internal team communicate well. And realizing that they had actually built a productthat solved the need that many businesses have, which is efficient, lightweight, userfriendly instant communication, they decided to double down on that product and theycalled it slack. Now, the slack team only consisted of around a peopleat the start. Remember, they have a large company building at this videogame, but the slack team only consisted of around a people. Those eightpeople were able to turn it into a consumer product. They on boarded forcompanies 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. Anda 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 intwo th thousand and fourteen, after working...

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

...ten more lessons that I thought wouldbe great lessons for entrepreneurs from this story. So, number one, you willfail 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'tknow any other entrepreneurial video game stories, but Holy Shit, that would seemslike. 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 reallyreally difficult. Number three, don't always feel that you have to stay inyour lane. So they were building video game companies and Stewart had this alittle 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 tryingto build one thing. Maybe you discover something else that looks like it couldwork that's not exactly a hundred percent in line with what you're doing. Exploreit 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 inten years than when you start it. This is the same with every entrepreneurI've ever spoken with. And also, let's just extraplate, that to likeyourself as a person. The version of yourself in ten years is going tolook 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'sexpected 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 stoptrying new things, iterating, testing, moving forward so important. If you'rededicated to anything for a long enough period of time, there's going to besomething good that comes of it, even if it's just experience. But moreoften than not it's actually true success. Raising money, selling and marketing somethinghas 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 tosell something, being able to network and have a group that supports you isincredibly important. Notice that the only difference between when Stewart tried to raise moneythe 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 theyhad 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 proveto people that your product is as good as you say it is. Sothis is a common theme that I see with entrepreneurs that are trying to buildsomething and are successful in eventually selling it. Sometimes you have to give it awayfor 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 tothem potentially purchasing your product. So slack did that by giving it away forfree to four companies to prove it, to prove that it works. Andthen 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 likea good problem to have, and it is. But I mean when thingstake off. You saw in two weeks they made a million dollars. Youknow how many entrepreneurs would completely screw that up and not know what to dowith 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 ofstress that comes with that much money that quick. So if you're going tocommit to something, when things take off, they will really take off, andbe ready for that success and be ready for it physically, mentally andalso in with your systems and processes that you've hopefully at this point built intoyour business that will allow you to scale. Anyways, that is a story ofslack. That's some lessons from slack. I hope you enjoyed have a greatweek. Will talk soon.

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