Acquired - The Slack DPO

0:01Do your best impression. Let's get on. Welcome to season 4 episode 9 of Acquired, the podcast about technology acquisitions, IPOs and direct public listings. I'm Ben Gilbert. And we are your hosts. Today we are covering the spiritual sister of our previous episode on Zoom. Slack.

0:44and the largest enterprise IPO in history. And of course, it wasn't even actually an IPO, but rather a direct listing. Very McCarthy, he rides again, the acquired superhero. Today, we'll talk about what all that means, the crazy history of Slack's evolution from even before it was founded, where its roots really are, and break down their business and their market cap today, and what it could do in the future. All right, listeners.

1:12Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

1:40So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love like tabular review where you.

1:59drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

2:19And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months truly insane numbers and that is the real test

3:11Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. So we start pretty far.

3:36away from slacks, gleaming new San Francisco, downtown San Francisco headquarters, pretty far away from Wall Street. In fact, very, very far away from Wall Street. We start in 1973 in London, British Columbia. London is, I'm not sure exactly how far, maybe an hour to north of Vancouver in British Columbia.

4:02And it was where Highway 101 ended in the mid-70s, north of Vancouver. And we start there in a small log cabin, located on a hippie commune. And this cabin does not have electricity, it does not have running water. But in 1973, there is a boy born in this cabin to parents David and Norma Butterfield.

4:30who were, as you can imagine, from this scene I am, I am setting here and describing pretty hardcore hippies at the time in 1973. And the boy's name that Norma gives birth to this year is Dharma, Jeremy Butterfield. Dharma is an incredible name for someone born on a hippy county. Incredible, incredible, so perfect. Let's rewind just a little bit though. How, how and why did we get here? So we start with David Butterfield, the father of Dharma.

4:59So, David was an American originally. He was from Connecticut, and he was a college student at Harvard during 1968, during the summer of love. And after the summer of love, he decides he's going to drop out of school, drop out of Harvard. You know, he's been disillusioned by the RFK and Martin Luther King assassinations, all the...

5:22you know, both great and terrible things that happened that year in 1968. He drops out of Harvard and he moves to France. But shortly after he gets to France, he receives a telegram one day.

5:34from the United States government, informing him that he has been drafted for the Vietnam War. Does this explain the Canada thing? This does, eventually explain the Canada thing. He comes back to the US and he does enlist and he goes to basic training and he learns, you know, while he's, while he's in training, that he'd wanted originally to be a medic. He learns though that he's gonna become a sergeant and he's gonna get assigned to active combat duty and he's gonna get shipped off to Vietnam.

6:02Very probably he knows to his death. He decides one day before he gets shipped off. I don't know exactly where he was stationed for training somewhere in the north of the US and he decides to just drive to Canada and not come back one day. He drives across the border. He ends up in Montreal and while he's in Montreal, he meets Norma who I believe was his student at McGill at the time in Montreal and they fall in love.

6:30They get married and they decide that they're going to move out west to British Columbia. So they just start driving and they drive across Canada, across the country. They get to Vancouver and then they turn north.

6:42And then the highway ends in London. And it turns out there is actually a hippie commune already in London. So they joined the commune. It's kind of an amazing story and we're going to continue it. But David sadly passed away in 2017 and in his obituary, I just love this. It says, if you asked David who he was, he often said, who I am is I love my wife.

7:05So nice. That's so great. What a cool person. You know, David, this is exactly how I thought the episode of the largest enterprise software IPO in history would start. Exactly. Exactly. Back to Dharma. He grows up initially, still no running water or electricity. He's on this commune. When he gets to be about five, though, David and Norma are kind of starting to question the whole, you know, their sort of life choices and anti-capitalist philosophy. You know, it's now the late 70s. The Vietnam War is long over and they say, you know, maybe it's time to sort of rejoin normal society. We have a five-year-old now. So they move down to beautiful Victoria. The capital of British Columbia. Beautiful, beautiful town. If listeners, if you haven't been highly recommended. Especially UC satellites, it's way too easy to take the clipper. Don't miss it.

7:59Yeah, definitely don't miss it. So they moved down to Victoria and they rejoined mainstream society there. David ends up, so he had built the log cabin himself. He ends up getting into real estate development. And he becomes a prominent, sustainable real estate developer, really cool in Victoria.

8:17Stort, though, so he's now growing up, he gets his first computer at age seven in Victoria and becomes immediately enamored of it. When, or Stort, I should say, Dharma. When he is, when he is 12, he decides to change his name to Stort because he's probably getting teased at school at this point in time and he wants to be a little more normal and Stort is like the most normal name that he can think of. So he legally changes his own name at 12 to Stort Butterfield.

8:42He ends up staying local for college. He goes to college at the University of Victoria. He studies philosophy. And as you might imagine, given the lineage of his parents, he's quite smart and does very well in school. And he thinks he's going to become a philosophy professor. That's his goal. He goes off to Cambridge in the UK and he gets a master's in philosophy. And I assume it was part of a PhD program that he was intending to complete.

9:10For listeners who have not heard Stewart speak before, it is very apparent when you hear his speak that he has a background in philosophy. He sort of can't help but diving into the existential and the metaphysical in any topic. And I think there's a great episode with Karrist Wischer on Rico Dekode where he's sort of talking about why gaming is interesting for the world. Why communication is interesting for the world and ties it to such a sort of strong based in philosophy, where I feel like every time I've watched her, heard an interview with this guy, you have these aha moments that you otherwise would never ever have. Yeah. He's, uh, he's cut from a different cloth, for sure, um, than your normal text CEO. We mentioned, though, he got his first computer at age seven. He'd always also been kind of fascinated by computers. And this was kind of the early days of the internet. And he also, as legend has it, became really interested in the internet because he was a huge, of course,

10:06fish fan. Amazing. The end fish. And so fish had a news group at wreck. Music. Fish and apparently young Dharma slash store it was all over this news group. David, what is a news group? Well, we might ask what is on our seat. News groups, of course, were the, gosh, I don't know what he called like predecessor to.

10:28Reddit, I guess, on the spiritual predecessor. Yeah. It's sort of the pre-BBS bolt-in board system way of finding community on the internet. Yeah. So Stuart, even though he's pursuing his academic career in philosophy, he is really into the internet, has gotten into coding on the side, making websites all through college. And so while he's after he finishes the master's portion of his program at Cambridge, it's now 1998.

10:56and the web 1.0 bubble is fully inflated and he says, you know what? I need to throw in with that. I got to throw it. Like now is the time. I can't miss this train. So he moves back to Vancouver in British Columbia and he joins a startup called Communicate.com. Dude, the domain names were so easy to come. Well, and domain names was the name of the game here. So the idea of Communicate.com is they were going to build The Everything Store on the internet, the e-commerce platform, and they were going to do it by owning domain names for all of things that you might buy or things you might be interested in. And that was going to be the front end. So you would go to whatever.com

11:41and you would buy stuff powered by Communicate.com. Only the things that could be... Which is so funny because this was the year that Amazon IPO'd. So Amazon was already definitely a thing but was... But only for books. Only for books at the time. As you might expect, given that business plan I just described and being in Vancouver...

12:02It was a total disaster. And so, Stuart shows up and he's quickly like, man, I thought I was going to get rich here in the, you know, sell out from academia, get into the.com. He decides to head for the exits pretty quickly. And that was very prescient because shortly after he does, of course, the company blows up. But he leaves and he meets somebody really important there. He meets his coworker Jason Klassen.

12:29who he's had next to at Communicate. And Jason, of course, had a side hustle at the time because everybody had a side hustle. And Jason's side hustle was he was building a website, another website called GradFinder.com. And this was like a competitor to classmates.com, you know, a company, it was sort of early, early, proto-facebook of fine people that you went to high school with or you went to college with, stay in touch with them online. Actually, a pretty good idea.

12:58So Stuart convinces Jason. Hey, let's get out of here from this crazy company. Let's go build your website gradfinder.com as as a real company. So they leave and very quickly, I think like within a year, they end up selling gradfinder.com to another.com for a small amount of money. Stuart's first exit. Stuart's first exit. Everybody celebrates. They take decide they're going to take the year off. You know, they didn't make life changing money, but enough money to kind of take the year off and enjoy life. During that year, of course, the bubble burst. And so they all come back to, you know, nuclear waste land in the internet sector. During that time, though, Stuart starts a blog. He's kind of always on the leading edge of what's going on on the internet. And he meets somebody in the blogosphere. He meets a woman named Katarina Fake, who also famously had and still has a very popular blog during the time. And they kind of strike up

13:57a relationship through blogging, and one thing leads to another, and they end up getting married. And Katarina moves out to Vancouver. Wow, yeah, pretty amazing. Another relationship that Stuart Foster's online, Stuart launches this thing initially as...

14:15During the year off, it's just a fun little competition. He wants to launch called the 5K Competition. I think it was a play on like a 5K running place. Yeah. And the challenge, the 5K Competition, was a challenge for people around the world to build websites that were 5 kilobytes or less.

14:37Difficult then literally impossible literally possible I think a lot of these websites were like black and white like very very simple But but it was like how cool of a website could you make this was the challenge in less than five kilobytes of memory creativity inspire what is it constraints inspire creativity indeed and I don't know if this probably wasn't Stuart's idea at the time, but if you could devise some rules to identify really talented programmers out there, what better way thing could you come up with than something like this? And so a guy named Eric Costello, who I believe was in St. Louis at the time, enters the 5K challenge, the 5K competition, and Stuart's like, wow, he created his amazing click.

15:21We should work together on something. Eric ends up also moving out to Vancouver. And this kind of rag tag team of of store and Jason, his co founder from gradfinder.com.

15:33Caterina his wife and Eric this whole you know web community they decided you know we should do something together the whole internet gets together in one place It's it's almost like a like a commune one might say and internet commune so this is now 2002 It is nuclear wasteland in tech and the internet from a business perspective, but the four of these folks They're really inspired by these relationships they've built online, the kind of power that they're seeing still exists in the internet. And they decide, you know, we can use web browser technology to create something pretty cool. And wouldn't it be cool if we made a game?

16:17that people could socialize and interact with each other and build these types of relationships just online in a browser through like a more rich experience than these news groups and bulletin boards and things that people are using. And of course, that would be very cool. But listeners, just think back to yourselves about websites you were using in 2002 and web technology that was available in 2002. And then even think today how difficult it would be to implement a you know massive multiplayer online game using the web today David I suspect that that was quite a trying undertaking and I think they knew this because they decided you know like most game companies they were gonna have a name for the company and then they were gonna have a name for the game the name for the company was ludicorp I think they knew the scale of the undertaking that they were they were embarking on here they decided to name the game

17:14game never ending, which would be pressing it also oppression. So the four of them, they work on it for a while. They ship an early version and people out there on the internet, you know, again, they're, these folks are kind of already sort of internet celebrities to the extent that that meant something back then. People start using it and there's a community of people that really like this early version. But the team, you know, it's just the four of them, they can't get enough money and resources to actually build out the real full vision of what they want to try and achieve. And so they figure out that if they're trying to raise money, they can't raise money. I mean, in 2002, it's like, if you're raising venture capital at all, it's on terrible terms. It's only for basically sure things or big enterprise software plays. No one's getting funded on a consumer dream to be able to do something like this. Not to mention here are these like, you know,

18:03Equivalent of modern hippies hanging out in Vancouver who all met on the internet and two of them are married like I could just imagine venture capital is reaction at this point in time So they realized they got to do something. They're not gonna be able to raise venture capital But they got to get some more money to make this happen so Stort and Katarina as the story goes and Stort swears that this is true. They go to New York for a tech conference and this is all swirling in their heads And when they get there, Stewart gets food poisoning. And he gets really, really sick. And he's up all night in their hotel room in New York, you know, can't sleep very sick. And he starts like getting kind of basically fever dreams and hallucinating him out. I'm pretty sure this isn't the first time Stewart has hallucinated. But in this particular time, when he's hallucinating, this idea comes to him. And the idea is, hey, we're using some pretty cool technology in

19:01the browser that we're trying to make this game with, but we could use this same technology to build some other cool tools and services for consumers more broadly. If we did that and we built something, we could probably sell it pretty quickly. Remember, he and Jason have sold gradfinder.com already. They're used to these kind of quick flip ideas. And it so starts like, man, if we make a side project, we could maybe we could flip it pretty quickly for like a million dollars or so. We could use those proceeds to keep funding the game and then we can build out the game. So all in service of the game. All in service of the game. And so as he says, he like writes out all the ideas of things they could do on scraps of paper at 5 a.m. in the hotel in New York. And he realizes that photo sharing is and photo uploading is something they could do. And I believe it was that they had built a photo uploader for the game.

19:53that you could upload your profile picture. I believe that was the core of the technology. Yeah, and I think if I'm remembering right, there was even sort of an ancillary thing where you could upload alternative photos other than the profile picture. So if people looked at your profile in the game, there were photos in there that you could use for other things. Okay, cool. So like, man, we could just repurpose this technology and let people share photos, you know.

20:17More broadly, digital cameras are a thing. I remember it should theoretically be an explosion of digital photography. Totally. I was I was heading off to college at this point in time and All my classmates that were showing up as freshmen at college, everybody had their point and click. You get your cool pics, you get your power shy, you get your Sony digital elf. I mean, this is like, this is the era. Yeah. Oh, man, the Sony digital elf. I hadn't thought about that in years. Okay. So they, the four of them, they decide, well, we're going to have a vote on this. Are we going to keep plugging away at the game or should we pause the game, go work on this photo sharing idea? They do the vote and

20:55They decide not to do it. Stuart is out voted. And look, Stuart, you seem like you got to get ahead on your shoulders and you got a nose for, you know, but you literally came up with this during a fever. Yeah. Um, Stuart, though, in, in this would, uh, pressage his skill and power as an executive and a CEO and a broker of, of influence, he.

21:19starts going to work on Eric. He sees Eric as the weak link here. He thinks he can get him to change his vote. And he does. He gets Eric to change his vote that pushes it over the edge and what the service that would become known as flicker is born. We're now in December of 2003. And keep in mind, too, that the proposal that we should do a photo sharing site, it's still seven or eight years from being a meme.

21:46Like, the notion of, oh yeah, we're just gonna pivot into photo sharing. Like, not only were they the first ones to do that, they were a whole technology wave before the set of people that, you know, you're all laughing about in your heads on, oh, a photo, you had another photo sharing app. Like, we are so far in the early innings here. Yeah, photo sharing is not on anybody's mind in technology. They realize though that if they're gonna really commercialize this service they need some extra engineering resources just before them again isn't going to be enough well it turns out so where do they turn there is this guy in the UK just outside of London named Cal Henderson who is a hardcore

22:26fan of game never ending in the early brought a day. Oh, that's how Cal and Stuart met. That's how Cal. This is how Cal and Stuart meet. And Cal was such a hardcore fan. You know, he's active on the Bolton boards about game never ending. He wants to like really get in there and help. He hacks their email service. Hey guys, just wanted to say hi. I'm super talented. Yeah. Look at me. Look at me. And so they were like, I have imagined before this idea to start working on Flickr, they were like, what are we gonna do with this guy? And story, again, just showing these flashes of brilliance as an executive and martial art of resources, he's like, you know what, Cal really cares about the game. We're doing this new thing to get the resources to build the game. Maybe Cal would help us. So he gets in touch with Cal and he convinces him to not work on the game, but come help them build

23:21this service. And it turns out, of course, as you would imagine by Cal hacking into their email servers, Cal is like an incredible developer, just incredible, like a truly world world world class developer. So do they move them from the UK to Vancouver? Eventually they do, but at first, remember, they don't have any money. Stuart's like, the way I'll pay you is.

23:45you call, you know, like all nerds at this time, he has an Amazon wish list. How about as you start working for us, I'll just buy you stuff off your Amazon wish list. Raised in a commune and somehow never never left. Yeah, amazing, amazing. So once Cal is on board, things just fly very quickly. So it was December 2003 when they decided to build Flickr by February 2004. It's ready. And so like, I mean, we're talking 60 days or less.

24:15What would that be like in less like 45 days? Yeah, I mean you have some existing infrastructure to build it on because you know game never ending had servers and the ability to bring different people together on the internet. So there was infrastructure, but it's not like there was cloud services. No. And no development frameworks, no web 2.0 technologies. This is the invention of web 2.0 technologies here. When we know from the name, I mean, every web 2.0 company after them copied the no e and flicker. Yeah, indeed. So it's now February and starts like, man, we're ready to go.

24:49Let's ship this thing and the rest of the team's like, uh, we're we're shipping the thing and starts like, yeah, I'm going to go and we'll go talk at this conference. O'Reilly is putting on their eTech conference in San Diego. Great name. Yeah, rather than talk about the game, I'm just going to launch Flickr. Like we're going to do it. I'll have a stage. So he does. He announces and demos. The team works through the, through works through the night, the night before the presentation. They launch Flickr on stage at the eTech conference. And, and remember all the Bloggers that you know the blogging is sort of like this is where they had all come together They're part of this community all the bloggers that people are just blown away They had never seen nobody had ever seen anything like this a web service native in a browser Where you can actually do something useful like it's it's in actual application right built on the web You know if you think about the web to this point it had been mostly sort of unidirectional

25:46content like they were flat websites you would go you could potentially see some pros there was images that were uploaded you know we had the advent of e-commerce with Amazon having you know successfully navigated through the dot com bubble so you've got the first place where you can actually start to buy things but there's still not the notion that we have today that websites are interactive yeah that I can upload things download things interact with other people people yeah that's not on the actual site itself, you needed to download something like Napster in order to do that. So the presses is blown away there and some mainstream press, but even more importantly, all these other bloggers that are there. And so the blogosphere ends up being the perfect early adopters for Flickr because all of these people have blogs. Most of them run on blogger. So at this point, Google had already bought blogger at Williams's company.

26:41But blogger didn't have native photos in it. And so what does Google and blogger do? They see this and they're like, oh great, use. Flicker for photos if you want to host photos on on your blog and it just starts to spiral and This is this is like the Google of yesterday yesterday year where rather than saying oh we're going to clone that into our product It's so cool. That's great. Then we don't have to build it We'll just put a button to make your thing work. Yeah, sure you can have some users man. I mean this really is the it's the these are the young idealistic Don't be evil days of the internet. Yep, or I would say the the post.com crash evil. It's seen the evil where we're going to be idealistic once again

27:20And so, so if like, it really starts to take off. They quickly get a lot of M&A interests. So, the Stuart's plan is coming true. Google, Yahoo, Ask Jeaves, remember Ask Jeaves? The big three, man. The big three, they all want to buy the company. Yahoo becomes the most serious and moves the fastest. And by the end of 2004, the deal is done.

27:44And flicker is acquired by Yahoo within, you know, the I don't think I ever realized how short the independent life of flicker was. It was it was a brief flicker in time. Oh boy. Good. Okay. Okay. Okay. I'm sorry. I'm sorry.

28:01By the end of 2004, the deal is done. Yahoo acquires flicker for, quote, between 22 to $25 million. That's a pretty narrow range. I feel comfortable not knowing the exact number. Everyone high fives and celebrates, but there's just one catch though. Yahoo is paying them all this money, but they want the team in addition to flicker. And they put a three year earn out.

28:27There's no going back to game, never ending right away. Yeah, who moves them all down to San Francisco? The plan is that they are going to continue to build and grow.

28:37Flicker within Yahoo, with all of the resources and reach that Yahoo as a major internet company can give them. David, you know as a person who does a podcast on the internet about technology acquisitions, that's kind of, that's how it tends to go, right? You have this amazing resource and engineering pool and brand of big company. You have this wildly disruptive product that gets bought. Surely it's a match made in heaven. Surely. Well, actually today, depending on who the acquirer is or how much they listen to acquirer, there might be a good chance that that could be the case. But back in 2004 and with Yahoo at the time, yeah. No, so the team gets there and it is not a match made in heaven oil and water. Yeah, let's let's just leave it at that. Start talks about this a lot. He says a couple things. One, just the decision to sell and do that, you know,

29:30Obviously, that was the plan from the beginning with pivoting into Flickr. But even more than that, you know, everybody he knew all the people advised him and they were like, yeah, sell the company. Like, of course, man, you're like a couple of months in. You got this traction. Like, you're going to raise a lot of money. There's not a ton of toys. Like, you guys are going to get rich. Rich. Rich. Like, this is it. This is the dream. Like, yeah, 22 to $25 million hit that bid. And, and it wasn't even a question.

29:57But now, of course, nobody would ever do that. Never, ever, ever would somebody do that. Instagram selling for a billion dollars to Facebook. People wouldn't even do that. If you have a tiger by the tail like this, you're going to be flooded with offers to invest from venture capitalists, everybody telling you not to sell, go big, build a big independent company, none of that existed back then.

30:20I don't think the thought even crossed their minds once not to sell to them. You know, he talks about the experience at Yahoo, and I think it actually, you know, as we've, I think seen so far in this history, Stuart has a lot of raw potential, certainly creatively, but also on the business and leadership side. And while...

30:40I think his time at Yahoo was oil and water. He learned a lot there too. He saw how a real big company is run for better or for worse. He worked for Brad Garlinghouse who was a really talented executive there. Yahoo, these were the days like Jeff Weiner was there. There were a lot of great folks at Yahoo. How long did Stuart stay? Do you know? So the whole team was a three year earn out.

31:04and they stayed for the three. The whole team stayed for the three year or now, but right at the end of it, everyone else leaves. Catering the leaves, that was a big deal. And so we're now in 2008. And folks might remember, these are the days when Yahoo is a mess. These are the, yeah.

31:22The Carol Bartz days and everything. Oh my gosh. And Cara Swisher is all over the company. This is like the heyday of Cara Swisher and take down after take down just blog post after blog post on all things D just painting a picture of what's going on and internally and it's not pretty. And one thing to remember about why Katarina leaving was such a big deal was because even though flicker was a photo sharing website Everyone who was on it felt like they were a member of the community and like it was a lifestyle they had opted into and and Katerina and this is my sense to her but I Katerina was a largely the public face of this is the community that I belong to and these are the types of people that you know I love to leave comments on their pictures I love it when they leave comments on mine you know I think there was a social graph there was an amount of following and friends that you can have on there and so

32:15It was like you joined the hippie commune and you're your leader left. It was more than a hippie commune. I mean, the Storton, Katerina, we're on the cover of Newsweek. Yeah, I shouldn't try and belittle that. Yeah. No, but I mean, it was the same ethos, but it was, it was, this was like big. This was, this was really mainstream, especially among younger demographics. All of this, with everything going on at Yahoo, like they were...

32:41Really upset and so they actually convinced Stuart so Jason Eric and Katerina all leave as soon as the air now it's done They convinced Stuart to stay a little longer So he does he stays a few extra months ultimately though he can't take it either and so in the summer of of 2008 he leaves and he writes Brad, his boss makes him write a, he's like, dude, you got it, you can't just leave, you got to write like a resignation. And he writes something like nice like the companies and all this trouble that I talk about your time here and still writes this hilarious resignation memo that's still on the internet where it's just complete like absurdism. He talks about how Yahoo is like a,

33:20a metals production company and tin is the tin the metal is in Stuart's blood and he joined to like mine tin and now it's absurd. I'll look it up after this. Yeah, it's fine. We'll link to it in the show notes. Anyway, that is the end of Flaker and the end of Stuart's brief internment at Yahoo.

33:41Unfortunately, though, and sadly, it's also the end of Storden Katerina's marriage right after Storden leaves. The marriage ends. Katerina ends up moving back to New York. She then co-found the company Hunch with Chris Dixon in New York. Oh, yeah. It's of getting acquired by eBay and Katerina also becomes the Chairwoman of Etsy. It's really talented and great career she's had since. Storden, though, he's kind of like...

34:07Well, I grew up on a commune. And here I am. What it was was first words. I'm done. He needs to just take a break. He leaves San Francisco and he moves back to Vancouver. Take some time off through the rest of 2008. But by the beginning of 2009, you know, the other folks, Cal and he's got timing, by the way, like both of these companies are started in the rubble of financial crashes. Totally.

34:35Totally. Yeah, it's beginning of 2009. The world has fallen apart. Eric and Jason and Cal, they've all left Yahoo two. And remember, you know, they made certainly a good amount of money on the flicker acquisition, but not enough that you can survive forever, especially after the financial crisis. And they're like, case story like, we're ready to get the band back together. What's next, man? You're our fearless leader. And so they come back up to Vancouver.

35:05And they say, you know, game never ending. The time wasn't right. It didn't happen the first time, but it's now 2009. So many more people are online. Gaming is so much more thing. World of Warcraft is huge. Massively multiplayer online gaming is so much more thing. Maybe now's the time to take another shot at this. So they do. They start, they start the company once again. It is a different company name from the game name. They call the company TinySpec.

35:34without the 4 of them start, and they call the game Glitch. I don't know if it was Glitch and the Matrix are exactly where the name came from, but they see World of Warcraft, they see how popular that is. They say, once again, much like with Flickr and the original Vision for Game Neverending, we can do a lot of what...

35:54World Warcraft is doing we can do it on on the web natively in the browser and then people don't have to Go buy a disc because people are still doing that at that point in time or or download the game that can just play within the browser But again, like we're or idealist like you know the thing that kind of sucks about World Warcraft is people are killing each other You know, it's all about violence like what if we made what if we made this game glitch about non-violence and Let people you know create and collaborate together. Hey sounds great to me. Yeah, sounds sounds great and Stuart and TM again, they're pretty famous at this point. The investor community is also like, yeah, that sounds great. Here's a lot of money. Yeah, we saw you did last time. The kind of what you're doing is irrelevant, but it sounds like a sufficiently large swing we're in.

36:37We're in. I will say I would kill to be in on Stewart's next gaming company. Absolutely. As with anybody, I don't think there's going to be a next gaming company. I'm calling that out. So they raised one and a half million from angels right out of the gate, including super angels at this point, Mark Andrewsson and Ben Horowitz, who are just in the process of starting their firm. And Excel also participates in this angel round, and it is hot.

37:03Tons of people, engineers want to come work for them. People want to give them more money. In 2010, they raised a series A, led by Excel, $5 million. In August of 2010, Cara Swisher flies up to Vancouver. We're going to link to this in the show notes. This is amazing to interview Stuart. This is during her flip cam era where she was taking a flip cam around to tech companies and just like impromptu video interviewing people. This was, yeah, I remember this because that was also the summer that I interned at Cisco when we bought them and everyone was wildly confused on why that happened. That's a good episode. It's all because of Cara.

37:40So he flies up to the interview store and sees get an early-looking glitch and, man, it's crazy. You can understand why nobody played this thing. 2011, it's still so hot. The company raises another almost $11 million from the firm Andrews and Horowitz. So this is now $17, 18 million in the bank for a thing that hasn't shipped in his little suspect. Non-violent MMO. Yeah. All right. Interestingly, though, they, you know, the team and start, they're such celebrities, they have reached really across America, across the world, for engineers and designers who want to come work for them. And so they're like, yeah, we're in Vancouver, but we'll set up a remote team. So they have employees, they have employees in New York, they have employees in San Francisco and Vancouver all over the place. They end up staffing up to about 40 engineers and designers working on the game. And it becomes pretty hard to

38:36Collaborate. These are pre-zoom days and pre anything days. They need who knows how else you could communicate online to the remote team. They realize they need some tools to help them, you know, get work done and collaborate remotely. So they turn to given the, you know, hippie routes, hippie internet routes of store team, they turn to the natural solution to this problem.

39:02Internet really chat. Woo. IRC baby. It's 1988 all over again and for folks who don't know IRC it's an early early internet protocol that is used to allow people to connect to a common server and using a terminal based interface basically have chat rooms where you can you know directly message people you can talk in a room about a designated topic, and you can stand this up for the open source project of your choice to be able to communicate about anything that you and other software developers are working on. You lost me a connect to a server.

39:40and that actually was the point. IRC was super cool and still is super cool and widely used and has this really cool concept of channels that are persistent where you can have discussions around topics that are independent of users but it's not exactly accessible so the team at TinySpec they start using it and they're like you know we could build some really lightweight stuff around IRC to make it more accessible as we on board new team members for all these new engineers and designers that were hiring. They may or may not have used IRC before certainly the onboarding process is difficult. So they build a bunch of tools they internally call the system line feed and it really helps them be productive. So productive that finally two plus years after starting the company sensing a theme here, they finally launch glitch at the end of 2011.

40:35Big, big, you know, press, you know, Kara has done the least interviews. The tech community knows all about what they're working on. They've raised all this money from these great venture capital firms. And it's a flop. Oh, yeah, I mean, nobody uses the thing hundreds of people flood in to try to literally hundreds of people flood in to use the thing. So.

40:56Very quickly, they launched in September of 2011 in November, they dialed back into beta. I think Stuart branded that, they unlaunched the beta. Yeah, exactly, exactly. So they keep tinkering and releasing and pulling it back into beta and re-releasing and trying to make this thing work. And it just doesn't. Beta never ending. Beta never ending indeed. And so finally, a year later, one night in October 2012, they've been pounding on this for a year. Stewart has another sleepless night. I don't think he had food poisoning this time. He's got all these people, these 40 people that depend on him. And he's like, man, this is just not going to work. Like, it's, I know we're supposed to keep trying. We still have money in the bank, but

41:44But I've lost faith. It's it's done. And he talks about it. He said it was like the feeling that you get when, you know, you know, you know, you have to fire someone and you just like, you don't want to. You want to try and make it work. But but that thought that feeling is just constantly like in your stomach over your mind. He said, that's how he felt about the game and the company. So he wakes up the next day and he writes an email to the board. And he says, quote, in typical store fashion, I do not feel that we are pouring gas on a fire here. More like pouring good whiskey on a drugstore heating pad. It is unlikely to burst into flames. And the board is like...

42:27Yeah, I mean, you're right. Like, we were thinking the same thing, dude. And so a store, then after that, he calls on all hands meeting from Vancouver gets the San Francisco and New York teams and all the remote people on the phone. And he just bursts into tears and he starts crying. And he says, guys, it's over. You know, like, no, nobody on the team saw this coming. They still have plenty of money in the bank. They thought they were working at this hot company. And, and here's what it is saying. I'm calling it, I've lost faith.

42:57We're done. And so they lay off all but the four co-founders and they keep foreign pleas. But before they do anything, Stuart's like, he's just devastated by this. They do everything they can and they get jobs for everybody else. I'm going to say importantly, and we'll see this come back to be a huge asset for the company later, the way that they did these layoffs was incredibly humane. And the way that they took care of everyone, the sentiment, leaving was I would 100% go work for Stewart again even though this thing completely, you know, Fireball they take a few months and and literally the mission is get everybody a job so they set up a website called higher a genius and they create profiles for all of the

43:41Informer employees on the website. It's pretty cool. It's pretty cool what they do. They also upload all of the code and all of the art and design from Glitch to a server and put it in the public domain. So they're like, we've built all this. We want it to exist. I bet that's been like, I don't know, what's the visual equivalent of sampling? I bet it's been used in other games. Yeah, I bet. I mean, it's up there. Anyone can go.

44:05grab it, use it, do whatever with it. It's still there. And it's funny on the sidebar of the page that it's hosting it. You know, it says it's about TinySpec and about Glitch. And then it's like, and TinySpec is working on a new project. It's called Slack. Check it out. It's pretty funny. They have an updated the page in a while. Yeah, we thought of a new name since line feed. Yeah. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta.

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46:15Before you take it back to the story, so you mentioned that email that went out to the board. So John O'Farrell forwarded an email to Mark Andreessen and the whole Andreessen Horowitz team. And John O'Farrell was the board member for the partner at Andreessen Horowitz, their board member. And Mark Andreessen, pressently replies to, I think it's the whole Andreessen Horowitz partnership. It is what it is dot, dot, dot. If history repeats itself, and they come up with the next flicker, All will still end well. Mark. Well, spoiler. They don't come up with the next flicker. No, no. They come up with something about a thousand times bigger. Sounds about right. Yeah. So far could be even bigger. So in my notes, I often break these of the sections out into chapters.

47:04This chapter is called The Phoenix Rises. So, they still have $5 million left in the bank and the reason that they kept four of the employees and the four co-founders stayed on together is...

47:16they they wanted to do something they felt like they've been through this experience together they had this incredible core team and and stored as this quote he says when you go through a trauma together with a group of people you get bound together and you just want to keep working and like it's so it's so true I can I can totally relate to this and what's super cool is they end up eventually being able to hire back a lot of the people that they laid off which is which is great um so what are they going to do well this is remember this is the end of 2012 Something else had happened in 2012 that not many people outside the tech world took note of, but lots of people in the kind of engineering world were aware of. There was a company called Atlassian, covered on a previous acquired episode. Atlassian in 2012 in March acquired a little San Francisco company called Hipchat. Hipchat had become

48:11All the rage amongst developer teams. Oh yeah, all the cool dev teams were using it. You wanted to be at a company where you could develop and talk to the rest of your team in.

48:19Hipchat. Yeah, I mean, it was like, uh, uh, this will foreshadow what becomes of tiny spec here, but almost like a perk companies engineering teams were like, yeah, come work for us like, we're a hipchat shop. Like it was like, oh, yeah, like these guys get it. And, um, they're cool. They're using modern communication tools. Indeed. And so hipchat had been launched by a bunch of young guys and, um, They launched in 2010. Within four months, they had a thousand companies that were signing up mostly dev teams using hip chat. Sounds like they must have used a very self-serve way of... Sounds like it. Well, then when they get acquired by Alassian, and of course the DNA of Alassian is developer-focused tools, self-serve, no sales. Famous will be talked about in the Alassian episode. There are no sales people that work at Alassian. It's all just organic adoption by mostly development teams.

49:08that really turbocharged hipchat. And of course, as we also talked about on the last scene episode, the major investors, not venture capital backers, but they'd done secondary deal in Atlassian were Excel. And of course, who is the largest shareholder in Slack? Excel. Interesting. Now, we don't know for sure that all of this was on Stewart and the team's mind as they were casting about for what to do next. But It's important to note that this was happening in the background, like the moment was arriving for modern chat-based communication software.

49:41pulling forward a tech theme here. This seems to come up, I don't know, every other episode that there was a moment in time where the world was ready for a thing. And so multiple parties arrived at it simultaneously. I mean, you think about ride sharing, you think about social networking, you think about the Instagram acquisition and all the other Instagram-like companies that started right around that same time. And famously, Andrews and Horowitz, which had invested in the seed round of bourbon, which became Instagram.

50:07they did not invest in the series A because they were they were pick please and they backed pick please man and the interesting thing about this is sometimes it's driven by a technology like mobile's taking off cameras are finally good enough it seems like mobile photo sharing is going to be a thing other times the the line is less clear on the technology that it's more sort of a social a moment has arrived where people are comfortable with where technology is, so you can use technology that's been available for several years to make something happen work. There's a cultural understanding that people are ready. And of course, I'm sure Slack and HipChat had to use, like there had to be some sufficient advancement in Ajax, or I don't know if people were still calling it Ajax at the time, but the ability to have web pages that refreshed without refreshing the whole page.

50:58but it certainly wasn't like the iPhone shipped. And then it made possible this, you know, multi-party text communication thing. Yeah. Well, I think what we've seen in our last couple episodes here on Acquired and we're going to see here, the really truly huge, great companies get built at the Venn diagram intersection of a technology shift, a cultural shift, and a business model shift. And hip chat hit the technology shift and the cultural shift. They didn't hit the business model shift quite right. And so we're going to talk about what Slack does here now. So tiny spec, they realize, man, we've got this tool line feed that we built around IRC. The interface is cleaner. It's more modern, sort of like hip chat, more importantly, it's really easy to join. Like if you wanted to join an IRC channel, you know, you had to like connect to the server, like no normal human is going to do that. And so there are all these benefits of line feed. And they're like kind of within a week after they got the team jobs, they were like, yeah, line feed.

51:55We're gonna do that. Let's make that the product. Most pivots take much longer to arrive. Well, it's funny when store talks about this, he's like, it felt like an eternity that we were trying to figure out what to do. And he's like, then I went back and looked at the history in line feed and it was a week. By the end of the week, we're like, yeah, we're doing this. So they go to the investors, they go to Excel and entries, and they're like, we're gonna build out, you know.

52:17Enterprise what not enterprise but team tech communication And you know now and in the word enterprise wasn't uttered at a Stuart's mouth for a while Yeah, you know the story now is that the investors were like, oh, yeah, great. We believe in you like it's flicker all over We'll do it again. I think the reality was a little more nuanced than that remember Excel is largest outside chairholder in Atlassian at this point, so I think they were like More like yeah, okay Fine, but like you guys are doing yeah productivity software like Okay But fortunately they say all right, you know do it We'll let our we'll let our money ride keep the five million and see what you can do they start working on it and They have to decide what to call it the team is like line feed. Yeah, that's that's not accessible enough It's like the IRC of names exactly exactly Stewart comes up with the name one day and he's like I have it. We're gonna have an acronym

53:15for the company. Slack. I love the word slack. And the acronym is searchable log of all conversation and knowledge. SLACK. which fortunately they never used in any marketing material and was just known by them. We'll link to this in the show notes. He posted a few years ago on Twitter the actual screenshot of the conversation with the team online feed about this. He's telling everybody his idea and I think it's Eric. Man, dude, that's not good. How similar, actually, I haven't clicked this yet. I'm now clicking the link. How similar does this actually look to the Slack UI?

53:52Not at all. It's just it's just a lot had not been involved yet. Oh Yeah, I mean because this is literally just text. Yeah, the line feed internally like it was they'd made joining easier and they'd done a lot of like this is just I have some improvements, but there's no there's no nice UI on top of it yet So we really was like having a pretty big vision to see that you could turn this into What would become slack? So the team hates it. Stuart says, oh, to sell him, he says, ah, it's just a code name. Like, oh, yeah, well, she's that for now. Yeah, well, does he's it for now? And then Eric says, ah, cool. Yeah. Again, the story, you know, he's, he's, um, uh,

54:31He's created the Captain Picard. He is. He's got real management and leadership jobs. He knows how to broker influence. So he's like, yeah, yeah, just a code name. Well, then he goes off and he's like, all right, I want to see what the domain name is. If this is available for Slack.com, turns out he, the Slack.com is registered to an electrical engineer in Wisconsin, who is using the domain to host pictures of his cats.

54:59I mean, that's gonna be a hard thing to pry off again. Yes. If I heard that you mean very easy for like a decent amount of money. I mean, I wouldn't sell, but okay. Yeah. Well, yeah, of course, I would, I would, of course, I would sell. If you get to know my name, Slack becomes the name. They build out the product within a couple short months. Once again, you know, echoes back to the Flickr days. Yep.

55:22They bring on, really importantly, Metal Lab. Do I have this right? Metal Lab is a Victoria-based, right? They're based in Victoria, yeah. A Victoria-based. I finally just put that together, why they would be the... Yep. And Metal Lab is a UI designed for a really, really, truly world-class, based in Victoria. They had done some cool productivity apps of their own, I think was it...

55:42flow, they had a GTD or like a dualist tool at one point. It's competing with you and sees the day. Yeah, there was very nice. I'm sure yours was nice too. Maybe not quite as nice. Thank you. So they bring a metal lab to redo the UI and the UI is so different from anything.

56:02Anyone's ever seen these guys do tiny now right is that that's the same group that it's a Basically small cap of private equity shop that owns really really design focused beautiful cash flowing technology products. So like dribble they bought dribble. Ah cool. Yeah. Cool. Cool. Everyone I assume knows the Slack UI because hopefully you're in our required Slack If you're not come to go to acquired.fm and sign up to join It is accessible to the normal person to a degree that you know even hipchat can't come close to you. You join in Slackbot, welcomes you. And just by interacting with Slackbot, you get a feel for how you're supposed to use the product. Yeah. So mid 2013, again, after just a couple months, they're ready. They're ready to take it out into the world. And they go out to some of their friends and other companies, try and convince them to try it. And it turns out they had kind of a hard time because people are like,

56:53What is this? Why should I use, I use hipchat? Like, so I have, I have my own story about that. I mean, when this launched and I remember seeing on like hacker news and this was like a darling of Silicon Valley, check out this new cool, it's the new way to work. I mean, people were building it as like, this is the new way that teams work together. I'm like, okay, well, I gotta give a shot and I'm working at Microsoft at the time. And I go, I sign up for it. I make like whatever my obscure team name at Microsoft.slack.com was like, I'm sending it around and people are a, reticent to join.

57:22B. I'm on link. I use the hammer. Yeah, it's like, what is this? So it's it's link like it's it's replacing chat or is it replacing email and I'm like, oh, it's sort of in the middle. It has all these integrations, but like it's actually being the first person trying to sell it to your team. If your team wasn't already using some type of sort of ever persistent chat, it's actually kind of a hard thing to get people to understand why it would be useful. Yeah. So through the summer, they work with a couple, you know, friends, companies to land this messaging and they figure out they get really good at explaining why because most people have never used something like this before what it is why you should use it why it helps why it's better than email and more importantly just making the onboarding process super super easy and fast so the first decent size company they get to use it is RDO hard is about 120 person organization they sign up first it's the engineering team that starts using it then it starts to spread and pretty quickly the whole company is using it and there

58:19addicted. And from these audio and a couple other companies, what happens is the companies start evangelizing. And all the employees of the company start telling their friends and other companies, hey, we've switched to this thing called Slack. It's amazing. It's changing the way we work. And that starts to build a ton of buzz. And so which I'll say is interesting. It's that popping out to playbook for a second. It requires a word of mouth not usage because there is a intracompany network effect with slack where you're inviting all your colleagues but there's not a cross company network effect whereas you take the flip side of that like zoom zoom yeah there's a cross company network effect because to communicate with someone at that other company you need to click the zoom link to join and then you're the user with slack

59:05It has to be that I'm getting so much utility out of it at my company and it's grown within my company that now I go and tell somebody at a different company about it. And importantly, we'll talk about this in a minute. Slacken and store it in the team like embrace this fact and they make they realize that Twitter is their friend here and people tweeting about how much they love Slack and then the Slack team amplifying those tweets is a big part about generating buzz and building up demand. So they officially launch Slack does in preview release to the public in August 2013 and less than a year after making the pivot on the first day that they launch.

59:468,000 companies signed up for the wait list. I mean, this is a crowd. This is how much buzz it already been building, how much of a celebrity sort of team chat. Yeah, exactly. And then within two weeks, there's 15,000 companies that are signed up for teams that are signed up on the wait list to use it. They pretty quickly launch paid. And then I alluded to business model in a minute, a minute ago with the paid plan. And we're going to talk about the freemium model within a couple of weeks of launching paid. They're at a million dollars in ARR. And like most SaaS companies, you know, takes a year or two years to get to get to that level. They're there in weeks. By February 2014, they have 10,000 new users signing up a day. These are not companies, but users within companies signing up a day. They have 135,000 paying

1:00:36users, and it's even at large enterprises. So at this point, it's like $10 a seat, not $5 a seat. It's a seven or eight bucks a month or $80 a year or $8 a month, I think. And what's cool is they're not trying to target the enterprise yet, but they have all these huge organizations. They're teams that have organically adopted, like you did in Microsoft. They said, at this point in time in February, 2014, there are nine different teams at Adobe that are all Ping users upslack. Whoa. It's funny you could there was a little security exploit for a while where you could figure out what the names of.

1:01:14teams at a company were because Slack had built this really ingenious user-friendly feature that actually exposed information companies may not have wanted to at the very beginning. I remember trying to sign up with an email address because the way that they made sure you were at the company is by looking at your domain name. So I'm like, okay, like, Ben at Apple.com. Like, let's see if they'll let me sign up as an Apple employee enjoying the Apple Slack. And of course, it doesn't. But what it does say is, hey, your company already has eight teams using Slack. Here's the name of each of those slacks. And I was like, oh my god, like I've learning the names of iPhone 10 code Brad. What is P 42 X now?

1:01:56I'm making something up, but yeah it just goes to show you though like how well thought through it was for okay someone at a company is gonna try and join cuz they're just poking around and figuring out does my company have an account or not or how does that even work cuz this was a different way than software was sold and adopted before let's make it easy for people to find the team that they're looking for within their company once we know they have that email address yeah So on the back of this April 2014, they raised $43 million in a series C led by Mammun at Mammun, I made it at social capital. He's now at Client of Perkins, which is an amazing venture investment. So let's take a step back here. I talked a minute ago about the Venn diagram of clearly technology shift, cultural shift. These are happening that's the background for Slack and hip-chap before it, but the third piece, the business model.

1:02:49What slack did that was so brilliant and is just the parallel to zoom are perfect is they nailed how to structure the freemium model for this product and service so hipchat when hipchat launched and everything else you know certainly all the Microsoft products and whatnot in that in this chat-based collaboration space The freemium gate was number of users so hipchat was free for up to five users once you had more than five users, you had to pay. And of course, that makes sense. Like if you're taking an enterprise approach to things like, yeah, you're charging on a per se basis. Like you said, you know, let people try it a little bit. You're going to try and true playbook there. But gate, the gate, the real value. Storton team, you know, they came from the consumer world. They came from the gaming world more than that. And when you're trying to get people to use to play games online and a lot of them are free.

1:03:44You want to encourage usage, right? You want to encourage usage and you want to show as much of the value of the product to as many people as possible without having the gating item of paying. So and if you think about the freemium gaming world too, they sort of notoriously only monetize 1% and the vast majority of people who are using it are using it at basically it's full functionality, but never paying. Yes. So what do they do? They set the freemium gate.

1:04:13not on number of users. Slack is free as evidenced by the acquired Slack. We have thousands of people in there, not paying a dime. Not paying a dime, and we probably never will. And it's full. That's what it is. Believe me, it's good marketing for Slack, but it's full featured. It's the full Slack product and the paid gate.

1:04:36is for the number of messages in the recent archive that you can search and access. So a relatively smaller feature, but if you're a workplace. Oh, yeah. I can't imagine not having that at the office where it's like, we definitely talked about that in Slack like eight months ago. What was it? And certainly that there's that use case. There's also the new team members are joining. They're not up to speed on everything going on. They join all these channels. And then they're like, Oh, okay, I want to find out what's going on.

1:05:06on my team or what's going on on this project, if you can't go back and look at the archives and search the archives, that's impossible to do. So it's a really important feature for work teams to be able to do this. And so Slack uses that as the freemium gate. And that's huge.

1:05:23And I think there's some other more sort of ad mini type features that that requires a number of integrations that you can do. You're capped at 10 integrations. They're printing integrations on the free tier. So other important stuff. But but the main thing is that that they allow people and teams to come on for free and get real.

1:05:44work value out of the product the full product without having to pay and that is just super super critical and nobody was thinking about enterprise monetization in this way at the time and honestly it's I fully believe it is because of the background of Stewart and the team that they brought this approach to the market. Like if they had nobody from even Atlassian, but certainly not Microsoft or anywhere else was going to think about freemium tears. This is how we structure a productivity application. And this is another good thing that we've seen across a lot of episodes.

1:06:22For a lot of this disruptive innovation, you need to smash together the learnings and best practices from one corner of the world into a different corner of the world that is not used to thinking about things that way. And to be able to, you know, say, what would it look like if a team of idealistic game designers, you know, built a team. Yeah, like of course, it's going to look different than a shop.

1:06:48like Atlassian that's only ever built enterprise collaboration software. And of course, yes in the business model, which I think you're right. I hadn't thought about it before, but in this classic question of why did Slack win when HipChat was already a thing. I mean, there's UI reasons why Slack appealed to non-engineering teams. And Atlassian sort of always said, oh, anyone can use HipChat, but like if you really, that was more lip service than it was actual product work.

1:07:18But Slack was truly from day one design to be something that anybody in the organization could use and not just engineering teams. Well, I think it's also for other teams within organizations that weren't used to this category of software using anything like this with the way they structured the freemium model.

1:07:38Made it accessible for those organizations to try to use it even if slack were designed to the pixel the same way But you had to pay for more than five people to use it. There's no way that the New York Times newsroom would have tried it. You know, it just By removing that barrier and they were really thoughtful about this like and story from the beginning was talking about like they were creating a category when you're creating a category, you need to take this approach. There's a lot of education you need to do. Your product has to do education, your marketing has to do education. By the way, the New York Times newsroom now uses a home-rolled slack bot that they created.

1:08:17to manage the approval workflow for the push notifications that go out. At one point I tweeted something like, what a killer job to be the person that approves the New York Times push notifications. And a New York Times employee sent me a thing that's a cool medium post on, here's how that actually works in Slack and how people go back and forth and edit and make suggestions and then submit it for approval into the queue. That was so cool. I think we talked about it on the last any episode, but that was the moment for me and I think a lot of people in tech when We're like, oh wow, the New York Times newsroom is using this like this is this is way more than hip chat. This is something that is like has the potential to be as big as Slack has become. So on the back of this, at the end of 2014, they raise $120 million at a over a billion dollar evaluation led by GV and Kleiner Perkins. And it's just

1:09:11off to the races since, well, since day one when they launched out of at a preview, the beginning of 2015, they're adding a million dollars in paid ARR every month, and it growth just keeps accelerating from there. Super interestingly, in July 2018, we didn't do an episode on this, but we could have done a follow up slack.

1:09:32ends up buying. Hipchat. So within Atlassian, Atlassian had rebranded Hipchat to stride. I think it wasn't a different product. Yeah, they rebuilt the product and then they sunsetted Hipchat. They still had Hipchat. But they're also transitioning everyone to stride. It was stride. Can you come up with a name that's more different than.

1:09:51a couple letters from Slack. I mean, when that happened, the people, you know, Slack must have just been high five and one another. Like, we've won. It's over. And indeed, probably one of the smartest things that last scene has done is they recognize that quickly too. So they sold essentially those users to Slack in like one of the best deals in history ever negotiated Stewart managed to get all the users. What was the like equity arrangement that happened? I don't remember exactly how much equity, but But yeah, Lassian got a small amount of equity in Slack for it. Yeah. I mean, that was a highly triumphant moment for a stewardezza. And you have to imagine probably Excel helped there, given that they were major shareholders in both companies. And then late 2018, following that, rumors start circling that Slack is considering a DPO.

1:10:42for their public offering. Much like Spotify or just before them, 30 years before Ben and Jerry's. Indeed. Barry MacArthur, of course, we were referred to Barry at the top of the episode, acquired Superhero, former Netflix, CFO, and Netflix's history and then CFO, Spotify, and engineered their direct listing. Yep.

1:11:06inspired by Ben and Jerry's. And I think not at all, but it is a fun piece of trivia. Yeah, super fun piece of trivia. Maybe, maybe Barry had a fever dream one night from eating too much fun and Jerry's. Yeah. Yeah.

1:11:19Let's real quick go through what the differences are in an IPO and a direct listing are because I think it's worth David you and I have talked about that's a few times Listeners we are extremely excited about the future of direct listings and I think at least I personally feel like it is a more modern way to go public than a sort of IPO process that just has tons and tons of baggage to it and not every company can do it because Well, actually, let's talk about why not. The IPO process was architected for a different era when venture capital was a cottage industry. And now venture capital and private market financings are an enormous global, highly professional worldwide industry with that money managers of all sizes participate in. And so companies like Slack can raise billions of dollars in the private markets and can row to have a global brand.

1:12:15grow to have a global brand in a way that just wasn't possible before so you needed when you're going public you needed to do an initial public offering where you were selling stock doing a financing event to do that because you needed that was your the IPO was your way to raise real growth capital that's no longer necessarily the case so for companies like Slack honestly like Zoom, although Zoom did a traditional IPO, but companies that are profitable that don't need to raise profitable or close to profitable, that don't need to raise huge amounts of money. We should be clear Slack is not profitable, but does have 800 million of cash on the balance sheet, and has great unit economics. Capable of becoming profitable, making a choice to invest significantly in.

1:13:00in marketing. So they're not profitable at the moment. They don't need to raise that money. A DPO has a lot of advantages. Yep. In a DPO, the only shares that start trading are all the existing shares. So there have to be selling shareholders rather than there's now 10% of new liquidity created by us creating a bunch more shares in the company. So there's no delusion to the company. There's no DPO. Yep, no delusion. Of course, because of that, they don't actually raise any cash. It's just investors and employees taking money off the table.

1:13:32But there's you have to imagine there's and there's one other big benefit for the ecosystem as a whole one for employees of the company is there's no lock up. Yes, when you do the yes, so I just say that the sort of but to this whole thing is gosh it seems like there might be a lot of volatility involved in this so There's no lock up period employees can sell right away great benefit to employees maybe a little bit dangerous to the signaling for a company so How do you manage this? Well one thing is And as much as we'd like to say in this era of the direct listings, the investment bankers are no longer making a big payday. They're out of the process. It's the investment bankers are never out of the process. Yes, they they move like a law of thermodynamics. Yes, they move from a role that is underwriting, which is saying I commit to buying.

1:14:1950,000 shares in this range that you have quoted me at approximately this price the night before the IPO, before it starts trading. Maybe I'll get a pop. It's this underwriting process that occurs where you commit to buying some amount of the shares that are being created. They now move into an advisory role where they say, okay, well why don't you pay us an amount of money? It's still going to be tens of millions of dollars and we are going to on your behalf go and work with all existing shareholders to see who's going to sell and who's not and sort of at what price and we're going to. Yes, we're going to come back to you one with a guidance of what we think your suggested initial trading price should be.

1:14:58But again, trades just start happening instantly and there's a market-making function that happens there where they're going to trade where supply and demand intersect. And this is the real crucial part of what they help you do there is say, look, we talk to these set of investors.

1:15:14each one of them have committed to us your advisory firm to selling this number of their shares. So we can guarantee when you start trading that, you know, I don't know if this turned out, but Excel will be selling 25% of their shares. So that will be available. There's nice liquidity in the market for your new shareholders to have something to buy. It's organized. It's not just chaos. Yes. But it is, you know, much more sort of, you can think of it as like algorithmic rather than this previous process of, you know, like your finger put it in the air, see which way the wind is blowing and say, 24 shall be the amount for this. That IPO prices are set based on order books that are built during the roadshow process. But another important benefit for DeepSpoken like a true former investment banker. Another important benefit for the DPOs versus the IPO process is if you are a company that has already raised capital privately from

1:16:13many of the traditional public market mutual fund hedge fund type investors that would be large institutional buyers in an IPO of the new shares created you run into a problem like what uber faced when they were doing their IPO where all of those sets of buyers were already shareholders and they had the exposure they wanted their incremental appetite for new shares was relatively low they wanted to be selling not buying yeah and so when you do a DPO you solve for that problem if you have it. Now, of course, Uber had to do an IPO because they needed the cash. Yeah, that's the other thing. So to do a DPO one, you have to not need the cash like, companies like Uber and Lyft do, too, you need to already be a brand that

1:16:55doesn't need a road show process. Number one, so you don't have to go make all the bankers aware of your brand so that someone will commit to buying shares. Two, you don't need those banks to then go and get all of their retail investor clients excited about your company. So Slack, you know, Spotify made sense because they were a consumer company. One of the magical things about Slack is they've managed to turn this I mean, it's enterprise software, and it has a consumer-like brand to it. And it has an awareness where you don't have to go and do a whole bunch of marketing around, you know, here's why you would want to buy this stock. It already had enough excitement around it. I mean, the story has, I believe, multiple times been on the cover of Newsweek. Why is Newsweek relevant? Like, that's good. Well, it used to be relevant. It used to, definitely. But it's a good sign that, you know, people know about this. Yes. So, well, in April of 2019, this year,

1:17:48The Slack announces they are going to do a DPO. On April 26th, they file the S1 and then last week, Wednesday, June 19th, they set the reference price in the evening and the bankers do have $26 a share. On Thursday, June 20th, the company begins trading, closes up nearly 50%.

1:18:05to 38.62 at the end of the first day of trading. And again, this is not the banks aren't supporting trading. This is just free market trading. One of the ways in which we should be grading this later on in this episode is how volatile was it? Like did they manage to keep a relatively stable share price or, you know, was it just flying all over the place because there was no underwriting? If by stable, you mean it went up very quickly. So they closed the day at 38.62, which is a 19 and a half billion dollar.

1:18:34market cap. Wow. Yep. Well, all right. So we talked about narratives. That's awesome. We should definitely do that. We should also talk about sort of who owned the company at that point just because I think it's kind of an interesting, it's interesting to dive into this a little bit. Obviously, you've talked about Excel. Excel owned close to a quarter of the company, which is Highly atypical. I mean usually venture firms will own maybe 10% at IPO if you let around and did north of 20% at that round. And so, you know, what's very clear here is Excel kept participating in a big, big way in all future rounds. I believe they were in all the fundraising rounds that were happening along the way. I believe they were actually not just doing pirata, but buying incremental ownership, I think, in those rounds. That's a conviction bet right there that's paying off in a huge way for them.

1:19:22Andrews and Horowitz owned 13% social capital 10 soft bank with seven, which is around the same percentage that Stewart Butterfield himself owned. So Stewart is now at least on paper a billionaire. Better than the outcome from Flickr, I would say. Yes.

1:19:37Yes, but it's also interesting to see all the other Silicon Valley CEOs who have been angels. And I think this was reported by Forbes in a great piece recently, but Jeff Weiner, Patrick and John Collison, CEO of Squarespace, Biz Stone, former CEO of Yammer, David Sacks, Jeremy Stoppelman of Yelp, Dave Morin from Path. So this had kind of an amazing cadre of- Yeah, I think it's from that angel round, the one and a half million dollars. Oh, is that what it was? I believe so. Wow.

1:20:07There's a lot of these guys I know also came in later on in sort of the low, 100 millions and low billion dollar valuation rounds as well. Just interesting to sort of know who is a big part of this, I guess, big liquidity event. Yeah. What also speaks to, you know, we've made this point so many times on the show, especially because Stuart and company and the co-founders and the history here goes back to the early internet, or at least the Well, back to the web 1.0 but really back to the web 2.0 days. The world was just a smaller place back then. Like all these same people, like they all, it's like a little club. You know, they're all like, the world was just not that big. Silicon Valley was not that big. A lot of them worked at Yahoo together. The Yahoo Mafia is wrong.

1:20:52All right, so before narratives, let's just some facts to know about the company from their financial position when they went public. So I mentioned they had 800 million in cash on the balance sheet. They're still growing at 82% a year. So that they're close to doubling year over year now as a public company. They're generating in the fiscal year ending in January of this year, they generated 400 million in revenue. So previous year, to 20 in revenue, previous year before that, just over 100 million in revenue. So, companies still doubling. That's close to in line. It's a little below double, double, double. Yep. A little in line with Zoom. So, Zoom's growing a little faster. It close to 120% whereas, you've got Slack here around 80%. But, it's fun to kind of keep comparing to Zoom. Zoom has a little less revenue, so 330 million in revenue versus Slack's 400. But, they are cousin companies in a lot of ways. Absolutely.

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1:23:25So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. So moving into narratives. Yeah. Should we talk bowls first? Yeah. What? Why do people love this company going into the IPO? Well, I mean, there's a lot to love. There's a whole lot to love. You know, the dynamics similar to what you said at the comparison to zoom.

1:23:54This is a product that really zoom and slack represent the new wave of go-to-market in the enterprise of products that are so good that they sell themselves a freemium business model that is perfectly tailored to maximizing reach and acquisition and has the conversion markers set at just the right places to optimize. There's extremely well managed. The growth is incredible. I mean, there's like I said, a lot to lick. Yep. And to get into some of the numbers a little bit there, one of the biggest things is crazy strong retention. So if you sort of model this out, it looks like Only about 10% of newly acquired paying customers' churn in their first year, or over 90% retention on paid customers, and that if you look at a five-year window, about 80% of customers that you paid to acquire are still around and are likely paying more. That is crazy stickiness, great upselling. That is truly world-class. It's amazing. The other thing on top of that, which is a secondary metric that falls out of that, is there

1:25:13their CAC to LTV ratio, or the cost to acquire a customer versus the lifetime value of that customer. And again, these are paying companies as the customer is about 13 times. So while it costs them a lot to acquire a customer, and I'll talk about this in bears, it costs about $8,000 to get a paying customer, that more than pays for itself sort of in the long run of how long that customer will be with you. Another thing that we have to bring up here is Microsoft launch teams. Slack took out a full-page ad in the New York Times when Microsoft launch teams and said, something along the lines, welcome to the party, another water's warm, come join us, we've partnered to Apple doing the same thing many years ago. Yes, which was both lauded and widely criticized, but a baller move in some form. Microsoft is very seriously competing here. They've basically shifted their enterprise product strategy to say, hey,

1:26:09If you're using Office 365 and you're using OneDrive, Microsoft Teams is the hub where it looks just like Slack. You communicate with your people in here and then everything's sort of shared and mapped through here. And this is the way that you experience the rest of the Microsoft Enterprise productivity suite. So pretty serious head-on competition. The thing to like if you're sort of a bull on Slack is that, yes, sure, Microsoft has Teams.

1:26:36But that's more about Microsoft, leveraging all their existing customer relationships and creating a slack-like experience for its existing customers rather than the theoretically much broader set over the next 10, 20 years of people who aren't currently Microsoft customers and will be looking for a solution like this, slack very likely wins those customers. Yeah. Well, and stored actually a quote about this in a very beginning days of Slack, the product after the public launch. He called it, I think, something like the 15-year slow-motion, unbundling of Microsoft as the Productivity Suite for the Enterprise. And absolutely, that story is great if you buy into using all of Microsoft's services. Which worked very well together. Very, very well together.

1:27:22but I think very few organizations and especially new organizations do that today. Now there may be a story when we get into bears about the world, the famous quote that we talk about here all the time of the two ways to make money in business, bundling and unbundling. We've been on a 15 year unbundling journey in productivity that maybe it has now reached its apex with Slack, with Zoom.

1:27:45with our next episode that we're going to cover here. And maybe the time is right to begin the re bundling. But for the moment, you know, a lot of people like the unbundled, don't you bring a bear in to hear this bull section? That's actually a very interesting quote for another time is a very interesting.

1:28:05ledge to jump off of when will the rebundling start occurring and what is the point of integration where we will start rebundling around. One more thing involved before we moved to bears is like Salesforce, their ecosystem, Slack's ecosystem and app platform makes them very sticky. So once you really start to, you know, loop in a lot of these, these integrations, which Slack has done a very nice job of building from the very early days, you know, you really start to feel like we could move off this thing, but gosh, it kind of all works really well together. And I think that's going to continue to be a story for them. There's integrates, but I think there's also even more important than that is just all the persistent archive of all of your team's work over the last leg. We would never leave Slack at wave. Well, we couldn't even though we're just a three person organization. Yep. Yeah. That's a great point. All right. So bears, the company is doing well, but not that well.

1:28:58I think we thought before seeing the financials, or at least I thought I was like, this could be the first profitable IPO of the DPO public offering of the year. No, it turns out actually they're losing quite a lot of money. They are losing quite a lot of money. And the phrase that I can't remember where I saw it, but I think this sums it up very nicely. Zoom was actually the slack we thought we had all along. Now this may be a little extreme. I fully do believe that Slack is making the choice to invest heavily here. Yes. Here's why they're not profitable. So Slack actually has a two to three year payback period since it's such a low price point. And the thing that you kind of don't like about this is that it's backloaded. So, you know, people are paying more and later years of their customer lifetime. So it will continue to incur losses building out its customer base here. You land on it in an organization or a team, a few people join.

1:29:55Maybe they don't pay for a while, then they start paying, but then the team grows more people, join more people, join the company, then you start paying more per user. Yep, absolutely. Another thing to be bearish on here is that Slack's net dollar retention. So this is the beginning of period revenue plus your upgrades minus your downgrades and your churn all divided by the beginning of period revenue. So you're basically saying how much does the next quarter or years revenue that comes from this set of customers, like what percentage of next-quarters revenue comes from the revenue that you currently have? It's still world-class, it's still one 20, 30, 40 percent, something like that, but it has been declining. And so there is some amount of, okay,

1:30:43There's there's there's actually happening. Yeah, and it's either as it people ditching it for Microsoft teams. Is it people saying? It's actually maybe disruptive to my workflow and email might be better. So, you know, I don't want to be two bears here. Still world class, but also declining. And so you sort of want to see that bottom out soon. Yep. And then I think the last piece is competition, which you could have different views on. I mean, I lean towards the, I don't think re-bundling is happening anytime soon, or at least not in a big way towards Microsoft. But Teams is a viable competitor. Very much so. Very much viable competitor. Ben Thompson's written a lot about this. Yeah. There are other competitors that are popping up. Interestingly, as I was doing research, it seems a lot of people are starting to use Discord for work. Whoa. Actually, yeah. By the way, did you also Facebook,

1:31:42Facebook work has like a ton of organizations. I don't know how many are active, but it's a very, very widely activated product. Wow. Yeah. That is shocking. Yeah. That is truly shocking. Completely agree. Please, if you are using Facebook for work, let us know. Stop. Come on. All right. So the net here is it's going to take a lot of cash and a lot of time to get profitable.

1:32:09But as long as their efficiency of marketing spend and low-churn continues, investing in Slack, you can see why Slack is plowing these marketing dollars in, and it's a great long-term use of capital. And I thought one good quote to put a pin on this bulls and bear section is from my colleague Ben Rush at Pioneer Square Labs. We were slacking about this last night, and he told me, Basically, right now, the way I look at it, it's a machine where a dollar in gets you close to $10 out over eight years. So you'd be a fool to not keep putting money in unless you believe that something fundamental is about to change to make them much, much less sticky. And you're basically saying, look, I know it's going to take a long time to pay back, but boy, is it going to pay back in a big way. That's why we're seeing the company right now that has such great indicators across the board and sort of their unit economics, their stickiness.

1:33:01And yet, it's still not a profitable company. Just going to take some time. Yep. Yep. Well, so we talked about what would have happened otherwise. We could have had like the coolest game ever. It actually was among, among the course that like a, I used to work with a group that was like very, very hardcore gamers from would basically try every single game, a new, a rich history. And there was a lot of buzz in the gaming community about what glitch was going to be and about the promise that it held.

1:33:31It's so interesting that kind of game people I mean, I guess Minecraft is the perfect example, but Roblox Yeah, yeah Roblox like games where people don't kill each other Yes, but it's like you look at Fortnite and like I kind of like if you take a Step back from like killing each other Fortnite is a great example of this It's just a great gameplay mechanic like and if you take the violence aspect out of it like it's just hard to top that competition based You know if you think about it more like a sport than you do as like Violence. It's really hard to find any other mechanic that can top that. Yep. Yeah, I think I'm more interesting. What would it have been otherwise is what if this team hadn't brought this approach to this market? I think somebody else have figured out how to do this. I mean, yes, because you look at what zoom figured out in the first 40 minutes of your meeting are free. Yes. I absolutely think that someone else would have figured it out, but

1:34:28It may not have been done in such a, it may have been done later. It may not have been done in this exact way. They may not have gated it on. So I don't think it would have figured it out though, because their DNA is just two. Also, they had a product in market that it would have been too disruptive to their existing product. It would have been something. Maybe we would all be using Discord for work. Yeah. Oh, that's actually, there's a chance that that's the most reasonable conclusion to draw here. Yeah. Wow, that's like a super hedged comment. I should say, I'm in on that. David, I'm in on your prediction there. Yeah. Well, they are the gaming DNA.

1:34:58Yeah, so playbook, playbook. So one thing I wanted to talk about here that we didn't really cover in the history and facts is one other discipline that the team brought from the gaming and consumer world to Slack is really a deep understanding and kind of analytics around the funnel of a user journey from, you know, acquisition to conversion, to activation, to retention. It is no accident that Slack has world-class metrics around this. And it's because this discipline is so important for gaming and online gaming. Yeah, famously, the PMs at Zingha, who sort of pioneered this approach, were not the creative types they wore this spreadsheet. They were the former bankers, the analytic type, the analytical types. One thing that they realized really early on, that again,

1:35:53PMs at gaming companies look for these moments, which are what is the signal when a user hits some threshold that they are then going to retain for a long period of time? What's that magic or they're going to monetize or whatever? What's that magic thing? And then they optimize the game to funnel users to that magic moment. Slack realized pretty early on that that magic moment is a team that has sent 2,000 messages back and forth, which sounds like a lot, but if you've used Slack, you know that like that happens. Well, they figured out based on team size, how long it takes for that to happen. So if you're a relatively smaller team, it takes X amount of time. If you're a relatively larger team, it takes like less than a day for them to happen. They found that 93% of teams that hit that 2,000 message threshold.

1:36:41didn't turn, retained indefinitely. And so they started architecting the product around doing everything to get new teams that were onboarded to that. threshold as quickly as possible. Oh, my sense. Super, super interesting. And again, this is like, think back to our Zoom episode and the world of enterprise software before this. Nobody was thinking this way at Cisco and Microsoft at Salesforce. This is completely new. How can I take the CIO to a new dinner he's never experienced? Exactly, exactly. This is also a perfect example of a friend of the show Alfred Lynn at Sequoia.

1:37:17He had a great thing that he said to us at Wave a while back, which is that what he really looks for in companies is, do they understand he called it input metrics as opposed to output metrics? Like the output metrics are, what is your retention? The input metrics is what is going to get you? What do you understand about your product and your business that's going to get people to retain? And this is like a perfect example of that. Great point.

1:37:47Another thing that they did is oh my god, they were their own first customer like they a lot of times I think startups Presumed to know their customer and they because it's frankly difficult to go out in the real world and have these sort of conversations you often project the needs of the customer into a map that you already have in your head and just start building I mean slack was something where they already with line feed had a good amount of development under their belt of what makes it easy to onboard new team members? What are the sort of bells and whistles that we would add onto IRC? So they knew better than anyone what this thing could be and what would make it useful. And so you don't often have the luxury of being your own first customer because you're not building a gaming company that has zero enterprise value, shutting that down and then pivoting, but to the extent that you can get 100% fidelity on what are the needs of your customer? That's pretty cool.

1:38:41a few more here so like zoom david you're talking about they pursued this bottom up distribution strategy you know low price freemium the go-to-market is similar the network effects that they have so you basically have this equation which is low price in the enterprise plus network effects equals unprecedented growth rates and it's interesting to see sort of how long zoom and slack have continued at these really high growth rates obviously like their products you know, aren't incredibly expensive. So the tradeoff you're making there is that your average customer value, if you're weighing in all your free accounts is actually quite low. But your growth continues to high for a very, very long time. It's just sort of interesting to sort of understand that that equation a little bit, which gets me to their top of funnel is operating a free product. And so I want to do a little analysis on this. If you divide

1:39:37their total marketing spend last year by the number of new paying customers that they brought on last year, you end up finding a cost of customer acquisition around $8,000 per company. So, okay, that's actually, you know, for a consumer company that'd be crazy expensive for an enterprise company, it's not that bad, but it's significant $8,000 to bring out a paying customer. However, when they break out their cost of sales, it's only about $600 per company.

1:40:07And so what you see there, I mean, there's some marketing dollars in there from billboard and stuff like that. But basically what you're seeing is that there's a massive expense hosting these free organizations that if you think about the difference, why is there cost of sales only $600, but yet there's somehow spending an average of $8,000. Yeah, it's the massive amount of free usage of slack that's going on out there. So while it's a brilliant and disruptive strategy, it's an expensive one to run a huge free product like that. Yep. Great point. Great point. The other thing that I wanted to talk about a little bit here is a couple of Zoom comparisons. So we mentioned that what Zoom is externally viral, while Slack is internally viral, that ends up showing up in the sales efficiency. And so when you look at Slack's return on sales and marketing costs, 111%, great.

1:40:58but zooms is 180% and it's sort of- I was expecting a thousand in 80% but yeah. But yeah, it just screams to you like, whoa, when you have the capability to promote your thing organically to people at other companies, you know, it just sort of has that natural. So Slack is, I would say, great not a plus on sort of that metric.

1:41:19The last thing that I'll sort of say on Zoom and Slack, and this is not an original thought. This is a collection of some other things that we definitely did some good research on around the web. Zoom made a previous way of working better, but Slack invented a completely new use case at scale. That's one of my key takeaways as I compare these two companies is I intrinsically understood how to use Zoom at first.

1:41:42Great. Yeah, I've used a lot of these. They're mostly bad. Oh, this one's good. Slack was like, what is this thing? And there's an education. I had, but somehow Slack was less obvious to me when I came in what it was even if you have used hipchat. I mean, if you were on a technical team using hipchat.

1:42:02Slack, once it's the whole organization, just the use cases different, right? You have all these people who've never used it before. So even if you have used something like this before, your experience changes because now the organization's experience has changed. For sure. All right. Let's do a quick discussion here of a section that we inserted a few episodes back about value creation and value capture.

1:42:25Value creation here tons oh my gosh all these these companies are paying all this money to have this new way of working that's frictionless and real-time and live and highly interactive but boy at what cost and I think you see this complaint a lot flying around Twitter I certainly feel it a lot from from co-workers who are saying you've hijacked the way that I work and it's now an interrupt driven workflow instead of me being allowed to go into flow on something and then pop my head up and I decide when I want to check email. It's like the opposite of the four-hour work week. It is the always on, always sort of stimulated, always interrupting you.

1:43:04I think we are early innings in understanding the impact of this. Very much like the studies that are starting to come out about open office space. I still use open office space. I still like it. Very much recognize the downsides of it. This is open office space in technology and it's someone that can always tap you on the shoulder. And of course, there's settings to change and stuff, but there's a cultural understanding that you are reachable by Slack. You know, when your dot is green or during working hours or whatever the thing is, I think we don't yet fully understand the negative impacts of

1:43:34that style of communication being the predominant expected one in the workplace. Yeah. Yeah. Now all that said, there's way less to criticize here about this company than like sharing economy companies like Uber and Lyft that, you know, we've talked about the potentially very destructive things in the world, like the underpayment of wages and things like that. This company has none of those problems. Well, I think on the flip side though, I've absolutely agree and I think it's a broader cultural issue. We're just grappling with this moment in time of being addicted to our technology. I think a big benefit I've definitely seen from Slack is as somebody who...

1:44:14I just struggle with email. Like, I'm such a, like, when writing email, I'd really like, I'm terrible at email. And it's and I used to be much better at email because I like had to devote time to it. And like, I want to like make sure I've written everything correctly and whatnot. Slack has been just the most liberating thing for me. Like, we have shared Slack channels with all of our portfolio companies at Wave. And so all of the most important people in my work life internally and externally to me are onslaught. And it's just like, it's like a weight has been lifted. You know, I can communicate instantly easily. I don't need to worry about, you know, structuring the perfect sentence or what matter, crafting the right narrative. Like, I can just like communicate much more simply.

1:44:59It's been great. My email has suffered as a result of it as Ben knows. But like, you know, we text each other and it's like, it's better. So listeners, if you want to get in touch with me, hit me up in the acquired slack. I'll also say a thing that David, you do extremely well. And just like listeners know this about David, a lot of us are kind of on a hamster wheel with communication where it's like, oh, got a new thing in, got to answer it out. You've been very disciplined for years about saying like, Should I actually be just like responding to everything that comes in and let me be more intentional about what I let hijack my life and what I don't and

1:45:34If I don't answer this thing, what's the worst thing that can happen? And I think Slack is kind of in some ways the antithesis of that very intentional thinking, but you've applied it to the fact that you're going to be very intentional about being on Slack and structuring Slack in a way that works for you. Well, what's cool is that just the cost of that is much lower on. So it's much easier on Slack to be like, yep, I'll respond to almost anything. Whereas on email, like that cost is so high.

1:46:00Anyway, so there's a it's just super interesting like slack is we talked about the cultural moment that was ready for it like It is was so perfectly positioned for because I think this trend is much broader than slack, but yeah capitalize on it. Yeah, so slack allows for frictionless always on seamless communication inside of an organization but Everybody still has email for outside the organization and I'm sure that Slack has been a lot of time thinking about this, but you know, what does this type of workflow look like? Can we kill email forever? I mean, all these shared channels have them shared channels in their current form. You couldn't our specific use cases venture capital firm is like great for it, but it is amazing. It is

1:46:42But if you're like a bd person like how are you gonna? If you are workflow and your external partners fit sets that you could have shared channels, it's truly wonderful. I wonder if Slack will ever launch like an inbox feature where it's like if somebody knows my Slack handle, they can just send a Slack message to my inbox that's universally accessible anywhere in the world or maybe not and listeners will have to stay tuned for our next episode and season finale dropping soon.

1:47:12All right, so grading. Ooh, grading, yeah. So listeners, as you know, with these recent IPOs or DPOs, we asked the question, five years from now, what will an A plus look like and what will an F look like? And the big thing in my mind is Slack currently has a revenue multiple of 46X with their current trading market cap. So I would check it constantly, but something tells me that's high. If, I mean, It's their company with no earnings so you can only go on a revenue multiple. So what will they need to do to justify that? And is it continue business as usual with high growth rates and a great CAC to LTV ratio? I'll be at over a long-ish time span and then just continuing to do that and hoping that the TAM on the number of organizations that are going to do the thing is really big. Or do they need to

1:48:08be broader than what they currently are and sort of take the drop box approach of going, oh crap, it turns out we were a seven to ten billion dollar feature and now we need to figure out how do we become a bigger company if we want to be a more valuable institution. What do you think on that? Well, I think the A plus case is the answer is it's both. I don't know if listeners, you remember the great, I think it was a Pizza Hut or Domino's commercial back in the day with Dion Sanders and Jerry Jones. I have no idea where this is going though. Oh man, these commercials were so great. It was Jerry Jones, the owner of the Cowboys and Dion Sanders when he played for the Cowboys and Dion signed the largest contract ever $35 million a year. And so this commercial, it was like, there were whatever pizza company there, it was like, you could get both a deal to get both two things. And there was the negotiation between Jerry and Dion and Jerry's like, so Dion, what do you think, 15, 20 million?

1:49:03Deons like both. So anyway, long-winded way, I think the A plus is both. Both the chat communication market is enormous. Tons of headroom left to grow and Slack develops new monetized features, products, tool sets around that that they can own. Maybe start to rebuild a bundle of the productivity suite in the enterprise and go from $80 per year per user to across a suite of products, you know, $200, $300 per user per year in the enterprise. Yeah, it's interesting. If you look at like a storage company like Dropbox, you know, that Dropbox's enterprise value effectively comes from people share files on it and use it for that and pay for that. That's a 10-ish billion dollar opportunity. If you look at group messaging Slack, you know, that's a 20-ish billion dollar opportunity. When you look at

1:49:59the aggregate of enterprise email and a full productivity suite with Microsoft Office like, oh my gosh, we're, you know, in a half trillion dollar opportunity. And so it's interesting to sort of think about what the bundle looks like. What do you need to own to be the most valuable piece of that? And I think.

1:50:19identity is definitely a piece of that. We'll slack on identity. Microsoft has active directory. There are others that are sort of taking that for the non-Microsoft world. Google obviously has taken a chunk of it. It's hard to say what the value of G Suite is, since it's not a thing that Google breaks out, but what is the value of their productivity business? I suspect it's a lot larger than Slack's productivity business. So a big question for me is at what point does Slack do the thing that Dropbox did with Dropbox paper. And then recently with this kerfuffle thing that I need to understand more or whatever the new Dropbox is. But like when do they decide to not to be too penny on the air, but when do they decide to go build more of the productivity stack in a way that is the not the periphery pieces of the sort of minnows of communication, but the broader heavy hitting we're going right. The other thing that this screams to me and is one of the

1:51:15most important reasons to become a public company is not to spill internally but acquire. Atlassian has done this extremely well within their niche. Will Slack go by, like, notion or, you know, whomever, yeah, as a public company, it is much easier to do that than it is as a private company. Yep. Great point.

1:51:36So a plus is they do both F is we're all using discord or Microsoft teams in the future Yeah, I mean, frankly, I think the biggest thing that could could be really scary for them is Microsoft actually succeeds at acquiring a significant amount of of the upstarts and non-Microsoft customers to work into the teams organization. I think what's also really like the We may be alluded to this a little bit on the Zoom episode, but I suspect we are going to be entering an age of relatively large acquisitions in the productivity world by both the traditional players, the Microsoft's, the Salesforce's, the Googles and Slack and Zoom and these large public upstart companies. Yeah, do you have any that you want to go out on a limb and say? No.

1:52:27Nothing I feel good enough to speculate about. Other than like consolidation in this space feels like a good idea. Yeah. Yeah. Cool. Follow ups. Follow ups. Yes. So we.

1:52:41Apologize, we made an error during our Uber episode. Apologize both for the error and that it's taken so long to correct it. But thank you so much to all the folks who, I think we had four or five people. Yeah, from a Uber who reached out about this. We waited so long to correct it because we wanted to do it on an episode without a guest. On the part of the Delete Uber story, when at JFK Airport with the search story, we actually had it reversed. So the true story is that or how it actually went down is that Uber had taken a lot of heat previously for when they surge would automatically kick in during periods of high demand and sometimes that high demand was like, you know, there was like, you know, there's something disaster happening or something like that. And so they had a playbook for...

1:53:30turning off surge when in certain cases and when the protests when the taxi strike at JFK happened around the immigration ban, Uber ran that playbook and turned off surge.

1:53:43And so we had said on the episode that they turned surge on and that's what people got upset about it was actually that they turned it off because they wanted people to be able to easily get to and from the airport Yeah, you know without being seen as well frankly without actually being mercenaries about it and making a bunch of money from people being in a dire situation But also to avoid the perception of being seen as doing that but it turns out I think partially and several of the Uber people who wrote us said, you know, this is the perception of Uber was so bad at this point. Which was Uber's fault, you know, but that no matter what they did, they were gonna get pilloried. And in this case, people were like, you're trying to break the strike. You know, these people are striking to protest this horrible thing that happened. And you, Uber, are you in league with Trump? Are you trying to break the strike? So the way I would imagine this, if you want to make a metaphor is they sort of like whittled a bunch of wood shavings on a hot day into a pile. And then there were sort of

1:54:36You could throw one of two lit matches at it. And they chose which one to have thrown. No matter which way it was. Yeah. Anyway. So we apologize for the error and wanted to correct it. Yep. All right. Carvouts. Somehow I never did this carve out. I was looking back at ones I had previously done, but I watched all of the expanse.

1:54:57end of last year on Amazon and boy is that show a masterpiece. I am extremely excited for it to come back. Amazon bought the rights. They did three seasons and then it's sort of pseudo-ended and then Jeff Bezos I think is sort of personally a fan and Amazon bought the rights and is developing season four but if you like really gritty sci-fi and you liked like Battlestar Galactica and shows like that you're gonna love the expanse. It's a great sort of political drama in the gritty future.

1:55:26in space. Nice. My car full disclaimer bias because we are investors. Wave as everybody knows who our LPs are portfolio company Alma. Dan Hill, who was previously the head of growth at Airbnb. We had on one of our first LP episodes. They just launched a big, big product feature. Previously on Alma, you could use Alma to give to nonprofits through funds around causes. So the wildfires in California were a big A big fund that they created that you could just give to the Alma Fund for the wildfires, and they would distribute that to organizations that were addressing the wildfires. They just launched last week the ability to give to any nonprofit in America on Alma, which is super cool.

1:56:15Finally, there's one place, Alma, where you can go and easily discover and give to anything, rather than having to wrangle with the website or Google the charity bank donation tool. Paypal if they even have it or whatnot. So you can now give to anything, which is really cool in and of itself, but also you manage it all through Alma. So you get your tax receipts at the end of the year, all in one place, all through Alma. You can control the level of communication back and forth.

1:56:43Very cool, so encourage everybody A to give to great causes and B if you want a more modern way to do it, use honor. That's awesome. David, I have to thank you for bringing Dan Hill into my life. But Dan is awesome. He's such a wonderful person. He's obviously on the LP show and we did a great episode on sort of dissecting Airbnb's growth and the tactics they used. And we ended up actually doing a deeper dive with a bunch of PSL companies in him having sort of a round tailed talk sort of best practices for growth. And yeah, he's awesome. Yeah, Dan and his co-founder, Michelle, who's also a PM for Airbnb.

1:57:19They're in a part of many of the big moments and features that unlock growth for Airbnb. So, cool. Super excited to work with them. That's awesome. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep.

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1:58:20So if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to statsig.com slash acquired to get started. All right. Well, listeners, if you aren't subscribed and you like what you hear, you totally should. We'll be continuing to cover all the big upcoming tech IPOs and we will actually be rounding out our productivity trilogy with Zoom Slack and one more in the next episode. And we will see you next time.

1:58:48We will see you for the season finale coming very soon to podcast player near you after you fill out the survey. Thank you, everyone. Later, David.