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The Perseverance of Stewart Butterfield
The Long Journey to Slack's $27.7 Billion Exit
Justin Gordon
April 30, 2023
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Stewart Butterfield
Stewart Butterfield, the co-founder of Slack, had to overcome failure repeatedly to find his big success.
He performed one of the most successful pivots in business history and built a $27.7 billion company because of it.
Fascinated by the idea of connecting people through technology, he’s spent his career building companies to do just that.
And yet, as you’re about to find out, this all might not have happened, had it not been for the advice of his professor in 1998.
Let’s get to it.
Early Days
While he’d eventually start multiple tech companies, Stewart grew up in a log cabin in Canada with no running water and no electricity for the first 5 years of his life.
Fun fact, he was born Dharma Jeremy Butterfield, but he changed his name to Stewart at age 12, a name he thought was more “normal.”
Stewart’s mom was someone he’d describe as “incredibly supportive” and his dad was a real estate developer who had a big influence on him as he was able to see 5 or 6 different businesses because of him.
As a child, he taught himself how to code, much like Patrick Collison who would go on to start Stripe, the $50+ billion behemoth. You can see why I was happy to have Sabio be our first sponsor - being able to code is immensely valuable.
Far from typical, Stewart would get undergraduate and graduate degrees in Philosophy.
He first got access to the internet while in college in 1992 and he designed websites to make some additional money.
In 1998 he made the decision to “work on the internet” after a professor advised him to do so:
In '98, I made the choice to give up on the PhD program and go work on the internet, which was like new and exciting and paid twice as much as any philosophy related job you could get. I think if he hadn't done that, I very likely would have ended up an academic, which is not a horrible life, but I'm very grateful for the life that I ended up with.
In hindsight, what amazing advice, right?!
Like, can you imagine if Stewart became an academic, how different that would have been?
It’s always wild to me how little decisions like that can completely change the course of our lives.
Remember how I mentioned Stewart’s fascination with the idea of using technology to connect people?
Here’s how he explains it:
For someone who grew up feeling utterly removed to the greater world, the idea that you could transcend geography and you could transcend time and you could find these communities with interests. It was really just magical.
From that moment, the idea of the use of computing technology to facilitate human interaction was just the most interesting practical idea in the world.
Stewart would later describe this idea as the connection between all of his future projects:
Here's the thing, all four of those, the two games, Flickr and Slack are to me, kind of at their essence, the same. It's all the use of computing technology to facilitate human interaction.
We’ll get to these soon.
First, let’s talk about the 5k contest.
The 5k Contest
In 1999, Stewart came up with an idea that blew up:
In 1999, I started a competition called the 5K contest and it was the best website or page that you could create in five kilobytes or less. That's, from today's perspective, an absurd, really small data, but in the world of 1999, where, I don't even know, maybe 35% and 40% of US households had internet access of any kind and it was 95% plus dial-up, you really had to respect the constraint of bandwidth consumption. I think because of the excesses of the era and the fact that the competition actually began in early 2000 when the dotcom crash started, there was a real much greater degree of enthusiasm for this thing than I would expected.
Because I thought like my community of internet people, some bloggers and stuff like that would enjoy it, but instead, it was like, I was interviewed for Playboy and in Brazilian newspapers, and Pravda, like the Russian news service. It just became a worldwide phenomenon.
I mention this to highlight a point - constraints breed creativity.
This is something every entrepreneur should understand and one of the earliest constraints is often limited capital.
As we’ve seen with the previous 12 Just Go Grind founder deep dives, it’s amazing how resourceful the best founders can be. Sara Blakely is a great example of this, starting a $1.2 billion company with only $5,000 in personal savings.
Stewart, as you’ll soon find out, would need this resourcefulness throughout his career.
Flickr
From 1996 - 2002, Stewart worked as a software and internet product design consultant.
This was during college and also while he was working on a company, Gradfinder, with Jason Classon which was acquired for a small amount in 2000.
In the summer of 2002, Stewart co-founded Ludicorp with Caterina Fake and Jason Classon, raising a small angel round.
They created a game called Game Neverending, starting from, as Stewart describes, “The realization that you could create dynamic webpages.”
But, while they were able to get some users, they didn’t have significant traction and, given the macro environment of the time, no one was interested in investing in consumer companies.
Here’s why Game Neverending failed:
Actually, it probably would have failed anyway, because the idea is not especially commercially viable. It was a no combat absurd, surreal, Monty Python meets Dr. Seuss world, has a pretty narrow appeal.
But it also failed because it was 2002 when we started it. So, there was the dotcom crash and then there was WorldCom and Enron accounting scandals, and then there was 9/11. It was just the all time worst market conditions, and certainly the worst time to try to raise money for something that was online.
Stewart further explained the failure in a 2017 interview:
No one wanted to invest in internet facing stuff, so it was very hard to tell whether this was a good idea or not, because there's no signal from the market that said, "This is an investible idea," because nothing was investible at that time.
We raised a little bit of friends and family money, we spent about a year or so building a prototype. The prototype was well received, but it was going to take us another year and a half to finish it and we literally couldn't raise any money at all.
We got to the point where the one person on the team who had kids was the only person who was getting paid and then we decided to try to find something else we could do that would make use of the technology that we'd already developed, but that would be quicker to get to market. And that thing was Flickr, but it was also a bad idea at first.
Because we had developed this game client and we had a messaging server on the backend, we just repurposed the game client as a photo-sharing client.
This was Stewart’s first major pivot and it highlights some of that resourcefulness I mentioned earlier.
The story behind the pivot is crazy too.
It started when Stewart was flying to a law and virtual worlds conference.
He got sick with food poisoning, couldn’t sleep, and was thinking about an important question at 3 am:
“What could we possibly do with the code we’ve already written?”
The initial idea for Flickr was born from that work session.
But it still wasn’t clear to the team that this was the idea they should pivot to.
The team voted on what whether they should pursue the Flickr idea.
It was a tie.
So Stewart lobbied behind the scenes to get one team member to change his vote so they could go ahead with Flickr.
On February 10, 2004, at the O’Reilly Emerging Tech conference, they launched Flickr publicly.
They had started coding it 3 months before and at the conference they had 600-900 people sign up.
But the next day it was 300 people.
Then 70 people.
The number kept going down.
However, as time went on, they slowly turned it around.
Here’s why Flickr was successful and how Slack would leverage the same concept:
But I will say that in the early days of Flickr, one of the things that made us successful was we had APIs for everything.
You could just do anything you wanted and that excited people and they experimented. A handful of apps that people created out of the APIs, I think had genuine popularity and were useful, but mostly, it just created a community of enthusiasts.
In the case of Slack, it created 2,000 apps in the app directory and something like 900,000 custom integrations that are actively used by a customer. These are integrations that customers created themselves. That's like a mind boggling number. Had we not done that, had we kept it in a black box, I think there would've been a lot less utility.
In March 2005, Flickr was acquired by Yahoo! for a reported $35 million.
Stewart stayed on to work at Yahoo! for more than 3 years.
But, as Stewart described, it was hard to get anything done at an organization with 12,000 people that wasn’t growing.
The mentality of the executives at Yahoo! at the time, because of the lack of growth, was zero-sum.
In the summer of 2008, Stewart left Yahoo! and his resignation memo was amazing, with his explanation of it below:
The approximate cause of that is pretty prosaic. I told my then boss that I'm quitting, and he said, "Okay, that's fine. Can you please send it to me in an email so I can forward it to HR."
People have parsed it for all of this meaning because Yahoo was in a really weird state at that point in 2008. When I started there, we had significantly more revenue than Google. By the time I left, Google was, I don't know, probably 5X or 8X Yahoo's revenue.
But I was just ripping off the style of Thomas Zweibel, the fictional publisher of The Onion, in the paper versions of The Onion. Maybe they do it online too, but he had a column that was written from this crotchety 19th century titan of business perspective, and so that's how that came to be.
His humor reminds me of Ryan Petersen and Sara Blakely, and how you don’t have to take everything in business so seriously.
After leaving Yahoo!, Stewart would go on to create his biggest success to date, but it would take years of struggling first.
Tiny Speck
In January 2009, Stewart co-founded Tiny Speck, an online game company, and raised a $1.5 million seed round from Accel Partners, with notable angel investors like Marc Andreessen, Ben Horowitz, and Jeff Weiner also participating.
It was a much different fundraising experience than the one he had for Ludicorp.
By July, with the power of Twitter, Stewart announces they’re hiring:
Maybe I make a terrible boss, but at least I know it. Work with me: http://tinyspeck.com/jobs/cptl/
— Stewart Butterfield (@stewart)
Jul 10, 2009
It’s amazing how you can basically hire through social media platforms and in my own experience during the last two years it’s clear Twitter is great for this. Stewart was doing it more than a decade prior.
The first project for Tiny Speck was a game called Glitch, another massively multiplayer game that was first revealed publicly in February 2010, with alpha testing beginning shortly after, and an expected full beta launch later that year.
Stewart raised a $5 million Series A in April of that year and in November they release this demo video after extensive user testing, but are still working on the alpha version of the game.
In April 2011, they announce a $10.7 million Series B.
At the time they have a waitlist of tens of thousands of users and expect the beta to launch the following week.
By the time Glitch goes live for everyone on September 27, 2011, they have 27k users and hundreds of thousands of requests.
But by November 2012, they announce they’re shutting down the game:
To be clear: Tiny Speck is not closing, just Glitch. There will be more to say about that in the future, but: you will know it well. Well.
— Stewart Butterfield (@stewart)
Nov 15, 2012
This failure was different:
There's an order or maybe two orders of magnitude, more people online, and they had faster connections, and they had better computers, and hardware was cheaper, and we were more experienced. It's just all of these 10X factors that led us to believe that, well, we'll never possibly fail this time.
We did again, and this is the long story, and maybe the idea wasn't commercially viable, but I think that the real reason was we went all in on flash as a client technology and kind of a content pipeline management technology at a time when flash was about to die and people's discretionary computing time shifted from PCs to mobile.
And it was a struggle, deciding between shutting down Glitch and persisting, trying to push through to bring it to life:
Because we still had money, because we had a relatively big user base who were very engaged but we had a really a leaky bucket, it was very difficult to add new users to the game we were working on, which was called Glitch.
I felt very stuck in this position because on the one hand you have a narrative of, "Good entrepreneurs are resilient," "When everyone else thinks it's a bad idea, it's probably a really good idea," "You have to dig in, prove people wrong," "Keep going even when times are dark."
On the other hand, there was a morning when I woke up and I was just like, "I can't do this anymore. I'm the CEO, I'm the chairman of the board. I'm sure that this is not going to work." And it's actually hard to convince everyone else.
It’s not like they weren’t trying to make it work.
They exhausted all the ideas they had to try and fix the problems:
So we would have an idea, we try it, didn't work. Have another idea and then like ... At first, you can fill up posted notes, those giant boards, you can fill up whiteboards with ideas and you argue about which ones are the highest value and then one by one you kind of eliminate them.
Months go by, a year goes by, another six months goes by and it's like, "Shit. These were all of the ideas that we thought were the worst ones to begin with and we only have three left. So this is probably not going to work.”
When Stewart shut down Glitch, they still had $5 million left of the money they raised, so they made a portfolio site that had everyone’s resume, offered career coaching, and made sure everyone got a new job.
But from another failed product came his biggest success, one that he’d start with a few team members still left at Tiny Speck.
Starting Slack
It’s 2013.
Stewart shut down Glitch a few months back and laid off dozens of employees, some of which he convinced to move to a new city to join his company.
It’s a stressful time, to say the least.
But, prior to Glitch’s shutdown, the precursor of Slack is built:
We had been using, going all the way back to 1992, internet relay chatter, IRC, as the backbone of our communications. But because IRC is a 1989 era protocol, it didn't have really basic things that people associate with messaging services, so it didn't have the ability to store and forward messages.
If you and I, Patrick, were online at the same time, I just couldn't send you a message. It just wouldn't reach you. So, we built a bot to log all the messages that people sent so you could catch up again when you came back up online.
Just incrementally, over the course of many years, we made these improvements that were based on something being so exasperating that we couldn't stand it anymore or something being such an obvious opportunity that we couldn't help but take advantage of it.
When I say we, I mean it's 90% Cal Henderson co-founder and CTO. Once we had the messages logged in database, you want to be able to search them. And once we realized that everyone's attention was focused or aggregated here, we started doing things like database alerts would flow into the channels, or when you uploaded a file to the file server, that would be announced with the URL, so you didn't have to tell people, and the daily stats around where you posted into channels. All the stuff that became precursors to Slack.
Then, when we decided to shut down the game, we realized that we would never work without a system like this again, and so probably other people would like it too.
But they had to name this new project.
Here was how they came up with Slack:
Yes. November 14th, 2012 (previous codename was "linefeed"):
Re— Stewart Butterfield (@stewart)
Sep 27, 2016
They paid $60k for the domain name which seems ridiculously cheap given how expensive some of them can be.
In August 2013, they announce Slack.
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