8 ms·

Stewart Butterfield wanted to quit and give the money back to investors

165 points by notlukesky 7y ago

sagebird 7y ago
Re: In 2012, when Butterfield was convinced he’d failed, Braccia was steadfast, said Bradley Horowitz, who put some of his own money in the game company. That’s probably because Braccia recalled what happened the last time Butterfield made a bad game. It morphed into a popular photo-sharing site called Flickr, which Yahoo! bought for around $25 million in 2005. Braccia, Butterfield and Horowitz all worked together at Yahoo. So it worked twice for Butterfield and I think it deserves exploring. Maybe this is the pattern: 1. Find a smart technical person you trust and fund their dream project with excess cash. 2. Don’t freak out if it flops- set up an expectation that if it flops, use the leftover cash to make a more generally useful tool/service. Maybe the first dream project is always expected to fail, but it is necessary for releasing some sort of creative pressure, building trust, and learning how to communicate honestly between investor and innovator. If it produces unicorns more often, vcs should be happy to fund the first flop as it somehow prepares the perfectionist to ditch their grand visions and get back to making something dirty that works, but doing it of their own volition instead of feeling trapped. To clarify: it’s boring to work on a flop— to put in more effort and not get any positive feedback. I think the natural reaction is to try to take things you learned, abandon the flop and try to work on something new. And in this wanting to start something new comes more openness to creating something that gets positive feedback quickly — not making a perfectionist monument because you already tried that and felt the pain. I don’t know if there is an expression for the feeling to be liberated to make something that is not “important” according to your own aesthetics... getting over yourself?
- navigatesol 7y ago
  >if it flops, use the leftover cash to make a more generally useful tool/service. I think you understate the difficulty of this; it's not any easier than the "dream project".
  - pavlov 7y ago
    I think the idea here is not to start from scratch with the leftover cash, but to make use of existing development work and data gathered as part of the dream project to find a narrow focus on something people actually want. Wasn't Slack's origin as some kind of in-game chat within the failed Glitch project?
    - devonkim 7y ago
      That's the story that we have as the public - Slack started as a chat feature within another project. Similarly, Youtube's supposed origin story is that it was the video part of a dating app. At that time, online dating apps were being funded by VCs (OkCupid and even HotOrNot may have been still going strong) so it makes sense. The primary point should be that to find unicorns investors should be looking for good founders and teams first and products second fundamentally because products are flexible and plentiful while talent and ambition in the same body is not. This is what I think YC is also attempting to do.
      - Alex3917 7y ago
        Wasn’t Slack originally funded with a government grant to make educational games for Canadian girls, or was that Flickr?
    - skellera 7y ago
      Just to clarify, it was an internal company chat so the team could communicate. Essentially the idea that slack is now.
      - pavlov 7y ago
        Thanks! I wasn't sure what the story was.
  - deleted 7y ago
    [deleted]
- falcor84 7y ago
  I agree that there's probably a general rule here. I remember reading that when Xiaomi was founded, Lei Jun wanted them to first work on a small software product to build the new team and get the creative process going, before beginning work on a new phone
  - cableshaft 7y ago
    This only works if the investors believe enough in you to keep the funding going. I worked for a startup that decided to do the 'we'll work on a small project first to get our feet wet before working on the main idea'. We did just that, put it out there, it didn't do so well, and the the board thought they weren't going to make their money back on the main idea and pulled the plug before we really got started on it. If we had just worked on the big idea to begin with they wouldn't have pulled the plug anywhere near as quick, as there would be nothing in the market yet to underperform and give them a scare. To be fair, those board members didn't have any knowledge of how a software-based startup works. They came from real estate and hospitality industries, and were openly and proudly ignorant about tech.
    - moorhosj 7y ago
      It’s possible that pulling the plug was still the right move.
      - cableshaft 7y ago
        Not really disagreeing with that in my particular circumstance. But on a more general note, if you're on the startup side and trying to decide whether you should do the small warmup app or not, keep in mind that doing so will give data that the board may or may not like and give them a reason to make a case to shut things down.
- jamisteven 7y ago
  That is the idea more or less, VC's dont invest in ideas and businesses as much as they invest in the teams behind them, this is because they know the chances of a pivot are likely.
- heymijo 7y ago
  Can't help but feel like this intellectual exercise is built on a bed of survivorship bias. https://en.m.wikipedia.org/wiki/Survivorship_bias https://en.m.wikipedia.org/wiki/Survivorship_bias
  - epistasis 7y ago
    Unfortunately, given the low rate of success with startups, you'd probably need data from a minimum of 40 startups before any analysis can progress beyond survivorship bias.
  - seem_2211 7y ago
    Which is basically always the case, VC is such a niche business with such enormous power laws we'll always be able to say that things are subject to survivorship bias.
- caseysoftware 7y ago
  Most companies don't have "leftover cash" by the time they realize they're a flop. Often, creditors go unpaid or get pennies on the dollar. Making it to that point is exceptional and not something you can systemize very easily.
- deleted 7y ago
  [deleted]
brk 7y ago
I seem to recall PG telling a similar story about flickr at the very first "Startup School" meeting. The original idea was an online game targeted at teen girls, and there was some kind of photo sharing element that was part of the game. The game didn't turn out to be very compelling, but the photo sharing portion was getting a lot of interest, and the founders pivoted to developing flickr instead.
- cableshaft 7y ago
  It's the same guy (it's mentioned in the article, even). That's one of the reasons why the investors stuck with him, because the last time he did the same thing, work on a failed game then pivot to an app, it became Flickr. He successfully pulled off the same trick twice.
H8crilA 7y ago
He did fail and quit on the first idea, and then tried a second idea that was pretty much completely unrelated to the previous idea. Using the same contacts network. This only makes sense given how much luck is involved in building startups. As long as the bull run continues (money is cheap) and your idea is somewhat reasonable - someone will fund you.
- wp381640 7y ago
  Is it really luck if he's done it twice?
  - simonh 7y ago
    Quite, you don't build a productive team and high quality app with compelling features by accident. It might be an accident that this is the part of the system that succeeds, or an accident that it happens to hit the market at the right time, but being capable of seizing the opportunity and executing on it well are both also required and are never an accident.
  - H8crilA 7y ago
    If I read the article correctly the first idea was some game, and as probably >95% of indie games it failed. Then a successful chat app (Slack). Who has done what twice?
    - 1986 7y ago
      As noted in other comments, Butterfield had a similar failed-game-pivot that turned into Flickr
    - pwinnski 7y ago
      He has tried twice to create GNE: Game Never-Ending. The first time he gave up, he turned the image-sharing part of the game into Flickr. The second time he gave up, he turned the chat part of the game into Slack. Maybe he should try making GNE again.
      - 7y ago
andygcook 7y ago
a16z tweeted this email from Marc Andreesen in 2012 the other day in response to Stewart throwing in the towel on Glitch: https://twitter.com/a16z/status/1142126195439308802 https://twitter.com/a16z/status/1142126195439308802 "It is what it is... If history repeats and they come up with the next Flickr, all will still end well..." Obviously lots of survivorship bias here, but interestingly enough, that's exactly what happened at an even larger scale.
- zild3d 7y ago
  Yep, wound up being about 720 Flickr's which is crazy, and puts things into perspective. (Flickr sold for $25M, Slack now has a market cap of $18B)
invalidOrTaken 7y ago
My cousin and I have a joke about Butterfield---a narrative where the poor guy just wants to make multiplayer games, but keeps accidentally making hugely successful web companies.
- phaedryx 7y ago
  Hah, I was thinking the same thing. If you have a chance to invest in a terrible game idea by Butterfield, do you do it?
  - malloreon 7y ago
    at this rate, 100% yes.
- hjk05 7y ago
  His next project should be a big boring industrial ERP system, maybe that will fail and turn into the multiplayer game he always wanted to make.
olivermarks 7y ago
Slack was built on the foundations of Web 2.0 tools like Socialtext, Jive, Atlassian and others. It's a classic case of profiting from the furrow others have ploughed, right place at right time etc. This is a big lesson for startups...like surfing timing is everything - which set, which wave, circumstances...
- sagebird 7y ago
  The timing thing is always at play, I agree but I’m not buying the narrative that Slack had less work to do because of work done by Socialtext, Jive, Atlassian and others. Whatever desktop technology they use to bundle chrome (eg Electron), yes, they are benefiting from that work a bit and modern browsers in general. But overall I think Slack could have existed in a similar form as a desktop work/chat application in the late 90s or early 2000s using Winforms and Carbon or whatever native desktop kits. It could have been a user friendly irc client with file sharing tailored to teams and workplaces, and it would have done wonderfully, no “standing on shoulders” of Web 2.0 stuff required. In fact I think it would have been an easier path to success if they started in 1999.
  - olivermarks 7y ago
    I mentioned the funded tip of the iceberg - there were hundreds of vendors in this space eight years ago, many of whom died or were acquired by larger entities keen to have a collaboration offering. It evolved over time and Slack were the winners, mainly I'd say due to great timing around mobile first maturity
- mthoms 7y ago
  Interestingly, Flickr (Butterfields' other startup) was one of the companies that helped define the Web 2.0 era. It too, was (at least partially) successful by being in the right place at the right time. That's not meant to be a knock on Butterfield... quite the contrary.
- tedmiston 7y ago
  What's weird is that Atlassian seemingly just gave up on HipChat at a time when Slack was only just emerging in popularity.
tim333 7y ago
I enjoyed his startup school interview a couple of years back. A relevant bit on coming up with Slack: >Stewart B.: I wish that I had better access to the proposals that I had personally had written, because I had a whole bunch of fucking terrible, terrible ideas and this was the one that had the broadest consensus among the team as being something that would be valuable. What's interesting at the time, though, so we had $5 million left in the bank. None of our investors wanted their money back. They wanted to just go try something else. Jason Horowitz is one of our investors so we went down and did the partner meeting and kind of presented what our big idea was. And at that time, this is before we actually started development of Slack, but when we had this proto version, we said that one day this could be like a hundred million dollar a year revenue business, so it can be valued at billon dollars on that basis... https://jotengine.com/transcriptions/Q0I0i33TaqCa9w4In0ZQCg https://jotengine.com/transcriptions/Q0I0i33TaqCa9w4In0ZQCg I think he has a slightly different take on the tech biz being a philosopher by training.
- tedmiston 7y ago
  Video version - https://www.youtube.com/watch?v=zsBjAuexPq4 https://www.youtube.com/watch?v=zsBjAuexPq4
malloreon 7y ago
Some day Stewart is going to make the game he's been trying to make for over a decade, and it'll be awesome.
Axsuul 7y ago
Humble video of Stewart Butterfield demonstrating Glitch (2010): https://www.youtube.com/watch?v=UuSxwPwSyEQ https://www.youtube.com/watch?v=UuSxwPwSyEQ
ksajadi 7y ago
Interesting side observation: a16z is not in any of the top IPO holdings. This might be due to the series they participate in but their fund size suggest they also follow through. Somehow they didn't in any of those companies?
tptacek 7y ago
Can I ask maybe a dumb question: was it actually good for Butterfield that Accel kept their money in for the pivot? Would it have been that hard for him to start over with Slack, rather than using Accel’s remaining 5MM? One imagines a decent chunk of dilutive investment went into his failed game; is there a reason those costs had to be factored into Slack’s cap table?
- lquist 7y ago
  Bingo! Stewart knows how to play the (VC) game and doesn't want to dilute a new idea more than he has to. As for Accel, they don't want to have to write down an investment until the last possible minute. Doing so would depress their mark to market for the fund.

165 points by notlukesky 7y ago

Re: In 2012, when Butterfield was convinced he’d failed, Braccia was steadfast, said Bradley Horowitz, who put some of his own money in the game company. That’s probably because Braccia recalled what happened the last time Butterfield made a bad game. It morphed into a popular photo-sharing site called Flickr, which Yahoo! bought for around $25 million in 2005. Braccia, Butterfield and Horowitz all worked together at Yahoo. So it worked twice for Butterfield and I think it deserves exploring. Maybe this is the pattern: 1. Find a smart technical person you trust and fund their dream project with excess cash. 2. Don’t freak out if it flops- set up an expectation that if it flops, use the leftover cash to make a more generally useful tool/service. Maybe the first dream project is always expected to fail, but it is necessary for releasing some sort of creative pressure, building trust, and learning how to communicate honestly between investor and innovator. If it produces unicorns more often, vcs should be happy to fund the first flop as it somehow prepares the perfectionist to ditch their grand visions and get back to making something dirty that works, but doing it of their own volition instead of feeling trapped. To clarify: it’s boring to work on a flop— to put in more effort and not get any positive feedback. I think the natural reaction is to try to take things you learned, abandon the flop and try to work on something new. And in this wanting to start something new comes more openness to creating something that gets positive feedback quickly — not making a perfectionist monument because you already tried that and felt the pain. I don’t know if there is an expression for the feeling to be liberated to make something that is not “important” according to your own aesthetics... getting over yourself?

navigatesol 7y ago
>if it flops, use the leftover cash to make a more generally useful tool/service. I think you understate the difficulty of this; it's not any easier than the "dream project".
- pavlov 7y ago
  I think the idea here is not to start from scratch with the leftover cash, but to make use of existing development work and data gathered as part of the dream project to find a narrow focus on something people actually want. Wasn't Slack's origin as some kind of in-game chat within the failed Glitch project?
  - devonkim 7y ago
    That's the story that we have as the public - Slack started as a chat feature within another project. Similarly, Youtube's supposed origin story is that it was the video part of a dating app. At that time, online dating apps were being funded by VCs (OkCupid and even HotOrNot may have been still going strong) so it makes sense. The primary point should be that to find unicorns investors should be looking for good founders and teams first and products second fundamentally because products are flexible and plentiful while talent and ambition in the same body is not. This is what I think YC is also attempting to do.
    - Alex3917 7y ago
      Wasn’t Slack originally funded with a government grant to make educational games for Canadian girls, or was that Flickr?
  - skellera 7y ago
    Just to clarify, it was an internal company chat so the team could communicate. Essentially the idea that slack is now.
    - pavlov 7y ago
      Thanks! I wasn't sure what the story was.
- deleted 7y ago
  [deleted]
falcor84 7y ago
I agree that there's probably a general rule here. I remember reading that when Xiaomi was founded, Lei Jun wanted them to first work on a small software product to build the new team and get the creative process going, before beginning work on a new phone
- cableshaft 7y ago
  This only works if the investors believe enough in you to keep the funding going. I worked for a startup that decided to do the 'we'll work on a small project first to get our feet wet before working on the main idea'. We did just that, put it out there, it didn't do so well, and the the board thought they weren't going to make their money back on the main idea and pulled the plug before we really got started on it. If we had just worked on the big idea to begin with they wouldn't have pulled the plug anywhere near as quick, as there would be nothing in the market yet to underperform and give them a scare. To be fair, those board members didn't have any knowledge of how a software-based startup works. They came from real estate and hospitality industries, and were openly and proudly ignorant about tech.
  - moorhosj 7y ago
    It’s possible that pulling the plug was still the right move.
    - cableshaft 7y ago
      Not really disagreeing with that in my particular circumstance. But on a more general note, if you're on the startup side and trying to decide whether you should do the small warmup app or not, keep in mind that doing so will give data that the board may or may not like and give them a reason to make a case to shut things down.
jamisteven 7y ago
That is the idea more or less, VC's dont invest in ideas and businesses as much as they invest in the teams behind them, this is because they know the chances of a pivot are likely.
heymijo 7y ago
Can't help but feel like this intellectual exercise is built on a bed of survivorship bias. https://en.m.wikipedia.org/wiki/Survivorship_bias https://en.m.wikipedia.org/wiki/Survivorship_bias
- epistasis 7y ago
  Unfortunately, given the low rate of success with startups, you'd probably need data from a minimum of 40 startups before any analysis can progress beyond survivorship bias.
- seem_2211 7y ago
  Which is basically always the case, VC is such a niche business with such enormous power laws we'll always be able to say that things are subject to survivorship bias.
caseysoftware 7y ago
Most companies don't have "leftover cash" by the time they realize they're a flop. Often, creditors go unpaid or get pennies on the dollar. Making it to that point is exceptional and not something you can systemize very easily.
deleted 7y ago
[deleted]

brk 7y ago

I seem to recall PG telling a similar story about flickr at the very first "Startup School" meeting. The original idea was an online game targeted at teen girls, and there was some kind of photo sharing element that was part of the game. The game didn't turn out to be very compelling, but the photo sharing portion was getting a lot of interest, and the founders pivoted to developing flickr instead.

cableshaft 7y ago
It's the same guy (it's mentioned in the article, even). That's one of the reasons why the investors stuck with him, because the last time he did the same thing, work on a failed game then pivot to an app, it became Flickr. He successfully pulled off the same trick twice.

H8crilA 7y ago

He did fail and quit on the first idea, and then tried a second idea that was pretty much completely unrelated to the previous idea. Using the same contacts network. This only makes sense given how much luck is involved in building startups. As long as the bull run continues (money is cheap) and your idea is somewhat reasonable - someone will fund you.

wp381640 7y ago
Is it really luck if he's done it twice?
- simonh 7y ago
  Quite, you don't build a productive team and high quality app with compelling features by accident. It might be an accident that this is the part of the system that succeeds, or an accident that it happens to hit the market at the right time, but being capable of seizing the opportunity and executing on it well are both also required and are never an accident.
- H8crilA 7y ago
  If I read the article correctly the first idea was some game, and as probably >95% of indie games it failed. Then a successful chat app (Slack). Who has done what twice?
  - 1986 7y ago
    As noted in other comments, Butterfield had a similar failed-game-pivot that turned into Flickr
  - pwinnski 7y ago
    He has tried twice to create GNE: Game Never-Ending. The first time he gave up, he turned the image-sharing part of the game into Flickr. The second time he gave up, he turned the chat part of the game into Slack. Maybe he should try making GNE again.
    - 7y ago

andygcook 7y ago

a16z tweeted this email from Marc Andreesen in 2012 the other day in response to Stewart throwing in the towel on Glitch: https://twitter.com/a16z/status/1142126195439308802 https://twitter.com/a16z/status/1142126195439308802 "It is what it is... If history repeats and they come up with the next Flickr, all will still end well..." Obviously lots of survivorship bias here, but interestingly enough, that's exactly what happened at an even larger scale.

zild3d 7y ago
Yep, wound up being about 720 Flickr's which is crazy, and puts things into perspective. (Flickr sold for $25M, Slack now has a market cap of $18B)

invalidOrTaken 7y ago

My cousin and I have a joke about Butterfield---a narrative where the poor guy just wants to make multiplayer games, but keeps accidentally making hugely successful web companies.

phaedryx 7y ago
Hah, I was thinking the same thing. If you have a chance to invest in a terrible game idea by Butterfield, do you do it?
- malloreon 7y ago
  at this rate, 100% yes.
hjk05 7y ago
His next project should be a big boring industrial ERP system, maybe that will fail and turn into the multiplayer game he always wanted to make.

olivermarks 7y ago

Slack was built on the foundations of Web 2.0 tools like Socialtext, Jive, Atlassian and others. It's a classic case of profiting from the furrow others have ploughed, right place at right time etc. This is a big lesson for startups...like surfing timing is everything - which set, which wave, circumstances...

sagebird 7y ago
The timing thing is always at play, I agree but I’m not buying the narrative that Slack had less work to do because of work done by Socialtext, Jive, Atlassian and others. Whatever desktop technology they use to bundle chrome (eg Electron), yes, they are benefiting from that work a bit and modern browsers in general. But overall I think Slack could have existed in a similar form as a desktop work/chat application in the late 90s or early 2000s using Winforms and Carbon or whatever native desktop kits. It could have been a user friendly irc client with file sharing tailored to teams and workplaces, and it would have done wonderfully, no “standing on shoulders” of Web 2.0 stuff required. In fact I think it would have been an easier path to success if they started in 1999.
- olivermarks 7y ago
  I mentioned the funded tip of the iceberg - there were hundreds of vendors in this space eight years ago, many of whom died or were acquired by larger entities keen to have a collaboration offering. It evolved over time and Slack were the winners, mainly I'd say due to great timing around mobile first maturity
mthoms 7y ago
Interestingly, Flickr (Butterfields' other startup) was one of the companies that helped define the Web 2.0 era. It too, was (at least partially) successful by being in the right place at the right time. That's not meant to be a knock on Butterfield... quite the contrary.
tedmiston 7y ago
What's weird is that Atlassian seemingly just gave up on HipChat at a time when Slack was only just emerging in popularity.

tim333 7y ago

I enjoyed his startup school interview a couple of years back. A relevant bit on coming up with Slack: >Stewart B.: I wish that I had better access to the proposals that I had personally had written, because I had a whole bunch of fucking terrible, terrible ideas and this was the one that had the broadest consensus among the team as being something that would be valuable. What's interesting at the time, though, so we had $5 million left in the bank. None of our investors wanted their money back. They wanted to just go try something else. Jason Horowitz is one of our investors so we went down and did the partner meeting and kind of presented what our big idea was. And at that time, this is before we actually started development of Slack, but when we had this proto version, we said that one day this could be like a hundred million dollar a year revenue business, so it can be valued at billon dollars on that basis... https://jotengine.com/transcriptions/Q0I0i33TaqCa9w4In0ZQCg https://jotengine.com/transcriptions/Q0I0i33TaqCa9w4In0ZQCg I think he has a slightly different take on the tech biz being a philosopher by training.

tedmiston 7y ago
Video version - https://www.youtube.com/watch?v=zsBjAuexPq4 https://www.youtube.com/watch?v=zsBjAuexPq4

malloreon 7y ago

Some day Stewart is going to make the game he's been trying to make for over a decade, and it'll be awesome.

Axsuul 7y ago

Humble video of Stewart Butterfield demonstrating Glitch (2010): https://www.youtube.com/watch?v=UuSxwPwSyEQ https://www.youtube.com/watch?v=UuSxwPwSyEQ

ksajadi 7y ago

Interesting side observation: a16z is not in any of the top IPO holdings. This might be due to the series they participate in but their fund size suggest they also follow through. Somehow they didn't in any of those companies?

tptacek 7y ago

Can I ask maybe a dumb question: was it actually good for Butterfield that Accel kept their money in for the pivot? Would it have been that hard for him to start over with Slack, rather than using Accel’s remaining 5MM? One imagines a decent chunk of dilutive investment went into his failed game; is there a reason those costs had to be factored into Slack’s cap table?

lquist 7y ago
Bingo! Stewart knows how to play the (VC) game and doesn't want to dilute a new idea more than he has to. As for Accel, they don't want to have to write down an investment until the last possible minute. Doing so would depress their mark to market for the fund.