Hey — It's Nico.
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Here's what I got today:
- 10+ weekly picks.
- The failure and pivot story behind Slack and the main takeaway for founders: "Kill your darlings."
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This Week’s Picks
An interview with Plausible’s founders on how they went from $400/mo to $188,000/mo in 3 years (Link).
A deep dive into $13.4B-valued FinTech startup Plaid origins and future (Link).
Kenyan logistics startup Sendy shuts down after raising $26.5M in funding (Link).
The marketing tactics that took EmailOctopus to over $3M in ARR (Link).
Balaji shares his LegalTech startup idea of a “Github Copilot but for corporations” (Link).
Gumroad's open Q2 board meeting, showing a 99.48% YoY growth in revenue (Link).
Driverless taxi companies Waymo and Cruise were permitted to expand in San Francisco (Link).
A podcast interview with Kendall Baker on how he launched and sold to Axios his daily sports newsletter (Link).
Friend.tech, an invitation-only social app where you can buy a "share" of a Twitter user, is going viral (Link).
WeWork’s shares near zero after they warned there’s “substantial doubt” about their ability to stay in business (Link).
50 YC founders share how they acquired their first customers (Link).
A SaaS founder shares how he went from $100M to 0 after raising funds from VCs (Link).
How Slack Failed, Pivoted, and Exited for $27B
Knowing when to “kill your darlings” and pivoting is an important skill for startup founders.
Many of today’s most valuable tech companies, including Instagram, Youtube, and Twitter, are the sons of diverse pivots.
As a founder, you need to recognize when things aren’t working as imagined and be willing to do drastic pivots, even if this requires throwing away your old idea to focus on something new.
There’s no better illustration of a drastic but successful pivot than Glitch, the failed online game that gave birth to Slack, an internal communication tool for companies acquired in 2021 by Salesforce for a whopping $27.7 billion in cash and stock.
What Was Glitch?
Glitch was a project of Steward Butterfield’s game development studio, Tiny Speck.
Steward was already a prominent entrepreneur in the tech industry, as he had previously founded Flickr, one of the social web pioneers, which Yahoo bought in 2005.
This allowed him to enjoy a head start for his new game dev company - he secured a $1.5 million seed round followed by an additional $10.7 million from Andreessen Horowitz and Accel Partners - the VC funds which backed Facebook and Instagram.
Tiny Speck used their newly-acquired resources to create their first product - a creative and highly non-standard game called Glitch.
Glitch was an innovative project mainly because it mixed massive multiplayer online (commonly known as MMO) gameplay in a casual browser game.
Glitch deliberately steered away from combat mechanics, and instead focused on collaborative gathering of resources and crafting. The main reason for performing the crafting was the ability to shape the shared online world - for example, by growing plants and trees or by cooking food.
The game was leaning heavily on social interactions - players could join groups that functioned like chat rooms (and were equivalent to the guild mechanic that traditional MMORPGs like WoW have). Moreover, in the later stages of the game’s development, Guides were introduced, who were players chosen by the staff to help new players learn the game in a specially-made introductory area.
The business model of Glitch was free-to-play with in-game transactions. This means that the average customer lifetime value was comparatively low (e.g. Farmville averages $1 per player), and in order to be profitable, the game needed a substantial player number - the Tiny Speck team was aiming at 200,000 players. Despite finding a dedicated core audience, Glitch never managed to reach this milestone.
In 2011 the team reverted the game to beta status to work on several core improvements with the hope of attracting a larger audience, but this attempt to iterate ultimately wasn’t successful.
Why Did Glitch Fail?
In 2012 the decision was taken to close Glitch down. The official announcement of the closure said that Tiny Speck had failed to find a buyer for the game who was willing to keep it running, as it was expensive to run.
The announcement also noted that the company had bet heavily on Adobe’s Flash technology, which was quickly becoming dated and was very poorly adapted to mobile - the direction most online games of this nature were going. This created production problems - it was taking the development team too much time to develop and introduce fun features, which is a big problem for a product that is already launched. Every day the core gameplay loops were not fun-enough, the game was losing players. It’s very hard to find sustainable growth with bad customer retention.
Glitch was a very innovative game, but this was also a major reason it faced problems attracting an audience. Most gamers were uncertain about what they were looking at, and a large majority lacked the patience to explore and find out where the fun was. As a whole, the game did a poor job of onboarding new players, which is a fatal flaw for a totally innovative and unfamiliar product.
In an interview for gamedeveloper.com, Butterfield said: "A lot of people were just like, 'I don't know what the fuck I'm supposed to do.' Some people took 'I don't know what I'm supposed to do' as an invitation to explore and ended up loving it. Other people closed the browser. That's it."
After it became obvious the game was failing to generate meaningful player base growth, closing doors became the obvious choice from the viewpoint of the founder and the investors. Even though the shutdown decision was abrupt for employees, Tiny Speck actively tried to help their former employees find new employment opportunities and avoided any backlash.
How Did Glitch Pivot Into Slack?
The company was left with $6m in cash at the moment of Glitch’s closure, but instead of returning the money to investors, Butterfield convinced them to allow him to keep a small core team and to try to develop and commercialize a communication tool that the team had developed internally while working on Glitch.
Despite initially thinking that “it sounds like a really horrible idea,” Ben Horowitz (of Andreessen Horowitz) was eventually convinced and let Butterfield run with it.
The communication tool that allowed the Tiny Speck team to avoid internal email was further developed and released to the market.
- In their first 24 hours, they got 8,000 signups.
- Two weeks later, it was up to 15,000.
- Eight weeks later, they had 60,000 daily active users and 15,000 paying customers.
This was the beginning of Slack (an acronym for “Searchable Log of All Communication and Knowledge”), one of the most successful enterprise communication tools and one of the fastest-growing business software in history.
Lesson: Kill Your Darlings
Arguably, one of the most valuable takeaways from the Glitch to Slack story is the importance of avoiding the sunk cost fallacy.
Plenty of experienced startup founders have noticed the importance of the ability to “kill your darlings.” It’s easy to get attached to your creation and to try to fix it in perpetuity, but this is usually a losing strategy in the land of startups. Most startup projects fail - an inability to let go of bad ideas prevents you from discovering good ones.
Steward Butterfield could have easily decided to use the remaining $6m to try to fix Glitch. Still, the game’s outlook wasn’t great, so he made the correct decision to kill it and invest the remaining resources into a new idea.
This was not an easy decision to make:
“I remember that morning; we were going to have an all-hands…getting up in front of the whole company, and then locking eyes with this guy who just had started maybe 3 months before, and I had really pursued him. I got him to move to a new city, he had a 22-year-old daughter, he bought a new house, he was moving away from his in-laws who were helping to take care of the kids, it was just how much of a disruption to someone’s life that was…And then to say, 'Thank you for your faith in me, you no longer have a job.' So that was really, really hard.”
Yet, as the well-known stoic quote from Jerzy Gregorek states: “Hard choices, easy life. Easy choices, hard life.”
Not downsizing the company and continuing work on the game because of the expectations of the users and employees would have just delayed the inevitable end and would have made it more painful as a whole. And more importantly - it wouldn’t have left the space needed for Slack to become a reality.
How did I do it today?
If you like this week's issue, can you reply to this email with a simple "YES"?
If you think there's room for improvement, I'd appreciate an honest "NO".
That's all of this week.
Cheers,
Nico
