How a Failed Video Game Became a $26 Billion Startup
In 8 months, it was valued at $1 billion and became the fastest growing B2B SaaS startup in the world. The Slack success story you might not believe.
After two failed attempts, Cal Henderson and Stuart Butterfield created the most popular instant messaging and productivity tool, used by 77% of Fortune 100 companies.
Slack launched in 2014 and immediately became popular. Within 24 hours of its launch, the company gained over 8,000 users. Six months later, Slack raised $120 million at a valuation of $2.7 billion.
The company continued to grow at 5-10% per week, and by 2015, it was worth almost $3 billion. Within two years, they had raised $840 million, and the company was worth $5.1 billion. Crazy!
Microsoft was considering acquiring Slack (it acquired LinkedIn that same year).
All this happened without the expense of traditional advertising and without a full-time marketing director. But there is a detail that makes their story even more amazing.
Slack was never intended to be business software, but started out as a video game company.
The game was called Glitch. According to the founder, Glitch was “Monty Python crossed with Dr. Seuss on acid.” Glitch's surreal landscapes and extensive customization options have gained widespread popularity among fans.
So how did the Glitch team switch to Slack?
It turned out that the team had difficulty communicating with each other, especially with employees from other departments. To improve internal corporate communications, they created an application.
Stewart Butterfield knew how to build a business. He previously worked in Silicon Valley as an entrepreneur with a successful exit. If you've heard of Flickr, that's Stewart's company, which he founded and sold to Yahoo in 2005 for $35 million.
But back to Slack… The team started using it in 2012 and soon after focused all of their internal resources on its capabilities. They introduced Slack to the world in 2014, and the rest is history.
Many startups have tried to change the way things work, but few have done it as efficiently and quickly as Slack. Five key points that allowed them to do this:
1. Tiny Speck's (previous company name) experience in gaming was a major competitive advantage. Butterfield and his team already knew how to make repetitive tasks fun and engaging, because that's the core of gameplay.
2. Product-driven growth and the freemium model got people hooked. With every action a user takes on Slack, they become more invested in the product. Every message sent, every file uploaded, and every GIF response contributes to increased user engagement. The more a person uses Slack, the more they stay on it. This is partly what made 2,000 messages sent such an important metric in Slack's early days.
3. Freemium model: Unlike most software companies, Slack makes little to no significant difference between a free and a paid product. Slack was free for teams, which made signing up easy. The only real differences are the number of posts that can be indexed and searched, and the number of integrations that teams can connect to. This has made Slack significantly more attractive to small and medium-sized teams interested in trying the product.
4. User support: When the company launched, it already had a small customer success team of three people working full-time to support new users. The Slack CS team was all over Twitter, looking for good and bad comments. In an interview, Butterfield said, “If you add it all up, we probably get 8,000 Zendesk help tickets and 10,000 tweets a month. And we respond to all of them.”
5. Unique brand: Slack not only created a solid product, but also a great brand. Compare it to any other software created for enterprise use at the time. The contrast of colors, design, and playfulness makes Slack stand out.
Slack works incredibly well, yes. But the product's success was as much about fun as it was about functionality. Slack's slogan – “Make work life simpler, more pleasant and more productive” – reflects exactly this.
The key to Slack's early success, beyond the features mentioned, was “Founder Market Fit” (FMF) early on. And most people don't understand this idea.
You've probably seen and heard definitions of PMF, and you may be familiar with FMF (but you may not have seen it clearly defined anywhere):
– PMF → “When people who know they need your product are happy with what you offer.”
– FMF → “When founders are obsessed with a large, fast-growing market that they understand well.”
The Slack team embodied FMF perfectly. The founders were familiar with the challenges of team communication from their previous experience. They were passionate about solving this problem in a market they understood well.
So if you're a founder trying to get your startup to market, take a cue from Slack's experience of knowing when to pivot and double down on what you and your team know inside out. That “founder-market fit” where you deeply understand the problems and have domain expertise. That's what can amplify your impact early on.
