Arts + Life
1:43 pm
Tue June 17, 2014

After Flickr, Startup Guru Smells The Sweet Success Of Failure

Originally published on Tue June 17, 2014 2:26 pm

Stewart Butterfield has a problem the rest of us can only dream of. His business has turned into a runaway train. Daily users of his product, Slack — aimed at helping corporate teams communicate better — have grown from 10,000 to 90,000 in just five months.

How'd he do it? Not with a marketing or sales team — because he doesn't have one. It's all been word of mouth.

"We're hiring as fast as we can right now. We've got 34 people. A month ago we had 20. And six months ago we had eight," he says.

Not that he's complaining.

Before honing in on the business that took off after Butterfield pretty much stumbled into it — more on that later — it's worth looking at his backstory. Butterfield, 41, is a serial entrepreneur, which in his case means serial success and failure. He repeatedly puts his heart and soul into projects that fail, and from the ruins pulls something out that really works.

Which in a way makes him a poster child for Silicon Valley, where dozens of startups go all out on compelling ideas that ultimately don't pan out, but from the rubble emerges one major success that makes the struggle worthwhile.

If Butterfield looks familiar, it's because his photo graced the cover of Newsweek in 2006, together with his business partner and then-spouse, Caterina Fake. They got their 15 minutes of fame for breaking the logjam after the dot-com bust of 2000 with the first big sale of a tech company — when they sold their photo-sharing site Flickr to Yahoo in 2005.

Turns out that sharing is a theme that runs through his portfolio of ideas. It's how he sees the Internet: a place for sharing and creating communities. It's how Butterfield, a Canadian who studied philosophy at Cambridge University, says he experienced the Web in the early days, through the early online discussion system known as Usenet.

Game Neverending Was A Game Never Launching

In 2002, with Fake and Jason Classon, Butterfield founded Ludicorp and began working on an ambitious online role-playing game called Game Neverending. It never got off the ground, but the idea for photo sharing emerged more or less spontaneously from Ludicorp's staff at a time when online photo sites were used merely to send digital photos for printing.

Yahoo didn't divulge what it paid for Flickr, but Butterfield suggests that the estimates, ranging from $25 million to $35 million, are too high. Which seems surprising when those numbers are small change in today's world of multibillion-dollar sales of startups that have yet to earn a dime, let alone turn a profit. Flickr, by contrast, was already profitable by the time Yahoo came courting.

After leaving Yahoo in 2008, Butterfield took a year to raise $17.5 million for a company called Tiny Speck, intending once again to develop a massive online game but with a new name, Glitch. This time it launched, in September 2011, but one year later, with tears rolling down his face, Butterfield told his staff it was game over.

Glitch had dedicated fans and an income stream, but Butterfield found that most new users were bailing too soon, unwilling to spend the 15 or so minutes it took to figure out the game.

From A Tiny Speck, A New Success

And so Tiny Speck's Glitch turned into Slack. "All these silly names," Butterfield admits. (He's changing the corporate name from Tiny Speck to the product name Slack.)

Game developers who worked on Glitch found that, like everybody they knew, they were suffering from information overload — email, instant messages, Google Docs, Twitter and Facebook, plus reports coming from SalesForce, Quicken or ZenDesk, the online help service. So they devised an in-house software solution by collecting the flow of information in a single place, organizing it by "channels" and making everything searchable.

Convinced their situation wasn't unique, the team looked around to see if anyone had come up with a better solution for team communication — and couldn't find one. "If it was something that none of us ... would work without, a system like this, then there would definitely be other people who felt the same," he says.

Indeed: Users for Slack showed up in droves, revenue grew rapidly, and a recent round of funding valued the company at $250 million.

Butterfield, who presents as relaxed and friendly but also seems tightly wound inside, admits that Slack won't solve the modern problem of data overload. "We hope that we ameliorate it a little bit."

He also recognizes that, with the potential for millions of paying users, Slack is bigger than anything he's been involved with. Is he up to steering his runaway train?

"I think I was a terrible boss 10 years ago," he says, explaining that he was fussy and controlling but also avoided conflict, which often made him appear passive aggressive.

But he says he has learned a lot since then, in particular from a vice president of search at Yahoo. "Everyone who worked for him was great. They were attentive, reliable. They did what they said they were going to do [and] were never too stressed out or busy to help you with something. I asked him how he got such good people, and he said, 'I don't get any better people than you do. I just fire them really quick if they don't work out.' "

Margit Wennmachers, a venture capitalist at Andreessen Horowitz, which has invested in Slack, points out that the biggest tech successes — Facebook, Microsoft, Apple — haven't grown under professional managers.

"The product is what you can't teach," she says. "Everything else is learnable."

And the product? Well, that's Butterfield's strength ... and weakness.

"He keeps trying to work the game and fails," she says, "but then something magical comes out of it."

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