The Big Pivot, w/Slack's Stewart Butterfield

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It's two thousand and two. The dot-com bubble had burst. Tech investors were quiet. Almost nothing of note was launching online. And then out of nowhere came an experimental video game called Game Never Ending.

A role-playing game that was all about social interaction. You work with other players online to create a world. You build buildings, houses, and other objects.

For the gaming nerds out there, it was kind of a precursor to Minecraft.

You could pool your resources with friends to build structures, invent new objects.

Your objective? Just keep building.

There was no way to win this game.

Yeah.

It was an off-beat self-aware game that didn't take itself too seriously. The prototype had a great cult following with thousands of users who loved it. But

But we couldn't raise any money for that.

That's Stuart Butterfield. You might know him as the founder of Slack, but before that, he created this daring new game just at the wrong time. As I said, it was 2002, dark days in Silicon Valley, and tech investors weren't thinking about gaming as an online experience yet.

So it's a really black and bleak looking point in the history of financial markets generally, but anything as frivolous as a game was just not gonna get funded. But you got to the point where the only person on the team who got paid was the one person on the team who had kids. And we needed some kind of Hail Mary.

Ludicorp was running out of money. Having no idea what the next step was or what to tell his team, Stewart needed to stall. so he and his co founder, Katarina Fake, got on a plane to New York to attend a video game conference. But before the plane landed, things got even worse.

And it sounds, um... almost made up, but on the way I got food poisoning on the plane, puking on the Van Wick on the way into New York, um arriving at the hotel, just being sick all night. It was like three or four in the morning, trying to keep anything down, like ginger ale or water. And the whole idea for Flickr came to me.

Flickr, one of the most successful photo sharing sites of all time, an idea that forever changed the way we interact with photos online. You could argue it changed the way that we interact online, period. And the idea hits him while he's crouched over a toilet in a hotel with food poisoning. Silicon Valley lore at its best. But that moment Flicker wasn't exactly a game changing vision of the future. It was a way out of the mess his company was in.

It w it wasn't coming from a grand vision of what photos could be. All that stuff came later. There was no insight. It was just like, can we not go out of business?

Can we not go out of business? These are the words that launched a thousand pivots. In Stewart's case, it opened his eyes to a service that would change the way we interact with photos forever. It would pave the way for Facebook, Pinterest, Instagram. It had instant resonance. It caught fire with users. It got attention from investors. The only problem? He still had this whole gaming company still operating. What do you do with an idea that isn't working? You kill it.

Oh, leave it?

And then you go back to this is totally There's so many easy ways.

So I have no idea what to do.

Sorry, we made a mistake.

But you have to time it right.

is Masters of Scale. I'm Reed Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. I believe that you can pivot from failure to success, but only if you slash and burn the rest of your business. In Silicon Valley, entrepreneurs tend to celebrate this kind of daring pivot. They see an opportunity, they act, and they don't look back. Later on, they sound a bit like Caesar reporting the Romans.

But the truth is a lot messier. There's more to a pivot than a sharp left turn. First, there's the opportunity you're pivoting toward. Can you see it clearly enough to navigate towards it? Can you convince others to come along? And then you have to pivot away from your old idea. This can be incredibly difficult because it involves humans. And humans don't tend to let go of old ideas easily. You risk blowback from your co-founders, from your staff, your investors, and your users.

I like playing games, but I'm uh wouldn't classify myself as a gamer. I don't own a console. I definitely have played my share of civilization and there's stupid iPhone games, which I'm embarrassed to say that I enjoy.

He loves board games and card games. Old-fashioned games that bring people together. And he wanted to bring that same sense of a communal experience to video games. And one thing you should know about Stewart. He has a lot of experience with communal experiences. Let me start at the beginning. Stuart grew up in a quirky Canadian fishing village called Lund.

Uh anybody up for fishing, eh?

Drive north along British Columbia's Highway 101 as far as the road will take you and you'll arrive. There's a welcome sign at the entrance to the town that reads Lund, the end of Highway one hundred one. It also reads Lund, the start of Highway one hundred one. That's your first clue that the residents of Lund are an open minded bunch. Lund was founded in the late nineteenth century, but settled primarily by American hippies in the nineteen sixties, and that's where Stuart Butterfield was born.

It's name him Dharma.

How about Moon Pickle? He changed it to Stewart at age 12. As far as I can tell, Stewart has taken to the capitalist lifestyle swimmingly. But I had to ask him about those formative years. So you lived with your parents in a log cabin that had no running water for a few years. Did this shape you as an entrepreneur?

I'd like to say that there was some Some of that no running water, no electricity rubbed off of me in a Abe Lincoln kind of way, but I don't know if that's actually true.

So he might not be an Abe Lincoln, but those years in the cabin gave him a particular lens in the world. It shaped, among other things, how he thinks about games and their ability to bring people together.

My dad loved to play bridge and he didn't like playing bridge against the computer, like there was just nothing there. He also wouldn't have invited the same three people over to his house just to hang out with and do nothing, but inviting them over to play bridge and there was this magic. There's like It's exercising a part of your brain which is fun to exercise, but there's also camaraderie and there's trash talking and there's like a a good amount of competition.

So when Stuart thinks about games, he's thinking about something much bigger and more essential.

It's not games that are so interesting to me. play as an excuse to interact with people socially.

And this is the right way to think about Stewart's first venture, Game Never Ending. It was, at its essence, an excuse to interact with people socially, but it had some fatal flaws. Among them Bad timing.

We were never going to raise money for the game. I had tried everything. I had put all of my savings into it. We had tapped out friends and family. We had more or less worked through all of the very small amount of angel investment we were able to get.

Stewart's failing game needed a lifeline, and that's typically the moment just before the pivot. Some examples of peacetime pivots driven entirely by opportunity. But that's not typical. Almost always spring from failure. It was the failure of Game Never Ending that forced Stewart to think about what would come next.

We had this game interface. In the game you had an inventory, you could pick up objects. We made that inventory a shoebox full of photos. And you could do interesting things like drag photos around onto group conversations and they would pop up on the other person's screen and you could annotate them in real time.

Have been entirely useful nor fully formed when the idea first came to him. But the idea of sharing photos had immediate traction.

Maybe three months in, it was pretty obvious that Flicker had legs. So people started to use it. People were talking about it. It got a lot of good press.

For Stewart, Flicker was a sort of homecoming to his deep seated interest in Just hanging out. And that's great for Stuart. But what about the rest of his team? They had signed up to build game never-ending, and that kind of pivot can be brutal. I asked Stuart how they took the news they were no longer a gaming company. What was that turn like?

Um it was rough and there was um Definitely differing opinions. There was a lot of arguments about what we should be doing. And for a time we were working on both on the game and on Flickr. The team was still really split, so we had a vote. And I remember this really distinctly because Um I had to do some backroom politicking after the first vote ended. It was a tie game. So I called up one of my co founders who's in New York and had to like do some horse trading. Um felt like I was a senator.

When your team is split, it might seem smart to hedge your bets and pursue both ideas at once. may seem to keep the peace with your team. But as a founder, you never want to say. We're working on X and we're also working on Y, because my team likes both ideas. That may be the expedient solution, but I can tell you how that story ends. Like Thelm and Louise holding hands and driving over a cliff together.

had the votes he needed, but there was one holdout.

Well, I mentioned earlier that there was one person on the team who had kids and was continuing to get paid. That was him.

And this happened to be one of his co-founders at Ludicorp. Everyone else was willing to work without pay, but he had a family to provide for, mouths to feed, soccer camp to pay for. And this was the holdout vote that Stuart needed to stop working on the game and fully focus on Flickr.

So it was a little bit more, uh, let's uh play this out a couple months, um, and see if you'd like to continue to get paid, there's only one way we're gonna do this. And I wasn't I didn't mean that to be threatening at all, just like we were never going to raise money for the game.

Hold on. Rewind.

If you'd like to continue to get paid, there's only one way we're gonna do this.

Did Stewart just threaten that guy's paycheck? Not exactly. You have to understand that Stewart had the kind of trusted relationship with his co-founder where this was permitted. Working for a startup is kind of like going to war together. When you're crouched in the bunker with the rest of your platoon, you form massive trust. If I've seen you look out for me, I'm gonna look out for you.

And we had another vote the next day and this time the the flicker side won. You know, at that point I think we had less to lose and there was less invested. And it wasn't as traumatic as the next big pivot, which was glitch to Slock. That was, you know, seven years later.

Yeah, and we will come to that. Indeed, we will come to that. And you Slack fans may be eager for me to pivot. But this transition from game never ending to flicker is just such a perfect example of an extreme pivot. I had to test a few more theories. As CEO, you always have to bring the core team along during a pivot. You have to make them feel like it was a joint decision. Democratic, in fact, it shouldn't be democratic. Feel democratic.

Almost all the photo sharing at that time was entirely centered around printing. And that was the idea of what people wanted to do with digital photographs. So that in one sense made it very easy. There was a lot of competition at the time. There was Snapfish, Shutterfly, there was OFOTO, which Kodak had bought, and Kodak had put a lot of muscle behind it. And none of them thought of the internet, as far as I could tell, as a social medium in itself and a worthwhile place to put photos.

The sharing itself became the primary goal.

for everything we do today on Facebook, Instagram, and Twitter.

It was arguably the five. Experiment in modern social media.

Flickr changed the paradigm of social interaction online. It succeeded because they had the right idea at the right time and they made the right bets, but they also had another secret weapon. Good old-fashioned manner. They knew that for Flickr to succeed as an online community, it had to be a community. Period.

I think one of the strengths of Flickr was a really unique culture and a huge amount of effort went into setting that. So Katarina Fake, one of the founders of Flicker and my act. She greeted every single user individually. There's another designer on our team, a woman named George Oates, who did the same thing. And so I think a lot of what made Flickr great in the end came from that germ of a really strong and positive community.

We'll hear more about building a strong community later this season from Katerina, Stewart's co-founder, who is equally fundamental to Flickr's success. The Flickr community And in two thousand and five, Stewart and his co-founders sold Flickr to Yahoo.

It all happened so fast. We launched in February two thousand and four. Um By March 2005, the acquisition by Yahoo had closed, basically a year in market and and maybe ten and a half months before we were in the middle of negotiations.

In 2008, Stewart left Yahoo. As an aside, he wrote an epic and rather confusing resignation letter to his boss at the time, Brad Garlinghaus. It's odd and wonderful. Look for it.

This is Zeb Farbman, co-founder and CEO of Lighttrix, a technology company that creates AI-powered video models and tools.

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The idea was pretty much the same as Game Never Ending, except that the technology was much better, so people could be much more creative and give you higher fidelity. A game world with no combat, very absurdist, probably too highbrow and too intellectual. Uh yeah, like so already you can tell that in an era where Farmville was just beginning to take off, this was not an easy sell to America's casual gamers.

In retrospect, perhaps not an easy sell. But at the time, they were sure this game would be different. This game would be huge.

From our perspective, okay. Now we have some money, so that makes it easier. Now we have better connections, but also computer hardware got, I don't know, a hundredfold better in those seven or eight years. We were more experienced and capable as engineers and designers. So the thought was, Oh, we can't fail this time. Like there's just no way. With all of these, you know, ten X's that combine to make it like a thousand or ten thousand times easier for us, it would be impossible to fail.

Uh yes, that's usually the uh that's that's the the Ozamandian warning that you know. So it seemed like the glitch team had everything they needed to succeed, and the stakes were higher this time. Stewart and his team were in deep. Four years of development, 45 employees, tens of thousands of players,$17.5 million raised. Glitch had a small commuted fan base, but it was failing.

At this point I've learned that this is not going to be a commercially viable Creation. Incredibly powerful for the small minority of people for whom it worked. So they spent twenty hours a week playing. Middle is a super tight community. Like you know, ninety-seven percent who signed up would be out of there within five minutes.

Glitch was losing money fast. For the second time in his career, Stewart needed a lifeline.

The last 18 months were just a series of experiments of like, what if we did this? What if we tried that? You know, maybe it's just missing this feature. We were pretty good at getting people's attention because we had more of a reputation. We were more connected. So we could get lots of articles written about us. Um'cause it did always seem like the next thing was gonna be what saved it. Um Something that just didn't work.

You can hear in Stewart's voice, he still asks himself whether he could have saved it. And these questions form the inner dialogue of most entrepreneurs. in the thick of a transition. Later on, successful entrepreneurs often tell a story They leave out the fumbles and the false. along the way. The truth is, most entrepreneurs pivot many times before they find their footing. Sometimes you find your way cleanly to success, and sometimes you don't.

There's a night where I just lost faith. Like I just realized, okay, I have tried the fifty like stack ranked best ideas we could possibly come up with to around and I don't think the sixteenth was gonna work if the first fifteen didn't.

Stewart knew what the numbers were telling him. For the second time in his life, he would have to close up shop on a product and team he loved.

But man, that is it is so hard. Because the job of a CEO is often just to come up with a story that enough people believe that you can make something happen in the world. And you have to convince investors and you have to con And you have to convince potential employees and you have to convince customers. And I'd done a lot of convincing of people, you know, a lot of convincing of people to come work on this project, to leave whatever thing they were working on before, quit their job, get paid.

Stewart pulled the plug on glitch before the money ran out, but he found a series of graceful exits.

um, And that was a tough conversation with our board and our investors because they actually wanted us to keep going. It was a tough conversation with the other co-founders who also wanted to keep going. We had those conversations and then we call in all hands.

That employee he locked eyes with? That was Tim Leffler, one of the engineers at Glitch. We asked him how he remembered that moment.

Stuart came in and uh had a very somber look on his face. He had kind of puffy eyes, he looked tired. Um, and we kinda thought it didn't look great, but you know It it was Monday morning, so who knows. Um and uh he came in and the the very first thing he said to us was, you know, it it's over. And that we were shutting the game down. Um, and a lot of us obviously knew what that meant. You know, we were not gonna be working there any longer.

One of the things I admire in the story isn't just that Stuart took responsibility, he also took action.

Stewart and some of the web developers decided to build a page on glitch.com.

We made a website called Hire a Genius and we put everyone's LinkedIn up there and everyone's portfolio and everyone's photo.

And the timing of everything was very deliberate so that when all of the news agencies received the press release, there was always this bit of information that would be sent out saying, And these people are looking for work and here you go.

And we worked on writing reference letters and doing resume coaching.

And Stuart and the group decided, you know, we're we're gonna keep working until everyone else has another job. I received many calls and emails from people asking for me to come in for an interview. After about a week, I had a couple of offers.

And we ended up getting every single person a job. We were able to give customers a choice of their money back, or they could let us keep it, or we could donate it to a set number of charities. So we were able to do that in a in a way that was really kind of elegant and built a lot of goodwill that would be useful for us later.

Here's the key to managing through a pivot. Those employees, if they feel taken care of, they'll keep taking care of you. Tim and his teammates threw an epic goodbye party for Glitch's online community. Uh

glitch wanted to do is we wanted to kind of give them a nice send off. We had a a horseman character. He was supposed to be a horseman of the apocalypse and he was carrying this doomsday bell and he would just walk around saying like the end was nigh. Um or the end was nay, I imagine that seems like a joke that we would have put in it. I mean nay. And there was a a kind of a rallying cry from a lot of the the users around kind of having

Stewart and his team embodied this idea of ending in the best way possible. And this isn't just the ethical human thing to do, it's also the smart strategic thing to do. Those employees, those investors, those users, they'll come back.

Um so it was really, really tough. And it's it's easy to look back on it now and it's character building. And in fact, we ended up hiring that same guy back and he's been a Slack engineer from from the early days. So everything worked out well there.

While they were essentially shutting the company down, Stewart and his team start the Hail Mary process again, a process that Stewart is very familiar with by this point. They had money in the bank and a mandate to make something, anything that could scale. They took a long look at all the technology they developed for the game and asked themselves, was there anything there?

We definitely knew that we wanted to keep working together and we still had money left. Investors didn't want their money back'cause I don't have to need to tell you, but why would you rather take a two-third loss when something might come out of it? We still had five and a half million dollars or something like that left in the bank.

So Stewart didn't get food poisoning on a plane this time, but once again he found an unexpected way to pivot. He found his scalable product in a communication tool his team had developed for internal use, a chat-based tool.

Slack.

And at first glance, this goes against something I know to be true. The most successful pivots stay somewhere close to the company's original mission. This is where Stewart is the exception to the rule. We typically tell founders to ask themselves, okay, in the path we've taken, is there anything that we've seen or found along our path that could lead to an alternative play? It's not the kind of thing where you pull ideas out of nowhere.

So when we first got started though, when there's only four of us, the natural thing for us to use was a very old internet protocol called IRC, Internet Relay Chat, to predates the web by a couple of years. And because it's so old, it misses a bunch of features that are now considered just standard.

So as Stewart puts it, he had the idea that was passed down from the mountaintop. The core technology was already built. Now all he had to do was convince his team to make the product. Stewart can see three steps ahead at this point.

deck that I put together that was like, I think we should make Slack. So we hadn't actually started making it yet. And I show this to new employees when they started Slack. And it's it's in our archive. Because the amazing thing is like it had the pricing that we

Exactly the product vision. Um, it's exactly the way we marketed it. Like everything was preset and we didn't have to change it because I think we had three and a half years of practice. Finding product market fit for our market of one team.

that Stuart is referring to is the team that was making glitch. team that had made the communications tool that would turn into Slack. They'd spent three and a half years creating a hit product and they didn't even realize it. But once they had the pitch deck in place, it didn't take long for him to take action. They were building Slack

I think all that stuff actually took place in like seventy-two hours and within a week we were definitely on this plan. Well, I think we all knew that we had something just because of the value we got out of it. And the other thing I talk about is going to an Andreessen Horowitz partner meeting at the end of twenty twelve. Well we hadn't been in a while. They led our Series B.

How do you go from pfft, good luck, to a five billion dollar valuation? Pivots in persuasion.

We also underestimated how hard it would be to get people to switch, because no one thought that they needed anything. We weren't competing with anything else that was out there other than the use of email, which is pretty much impossible to compete with, and whatever it was that people did, whether that was using a bug tracker or a wiki or Google Hangouts or Skype or No one thought that they needed flack.

It's kind of like genius is you're a madman but you're right. And this is part of the creating a new market.

Um well we went out and started trying to convince other people to use it, which was way harder than we thought it was gonna be. Social proof was the thing that we needed, so we needed to be able to point to teams other than our own, because of course we used our own product.

We had some friends who worked at RDO, the music streaming service, now defunct. Um I was on the board of a company called Cozy, which is a landlord tenant app, and and a friend of a company called Wantful, which is a gifting service. And we just went to their offices over and over again and tried to figure out ways to explain why we thought it was valuable.

So there were companies to cajole, influencers to influence, hearts and minds to win. The overarching driver of Stewart's success? the ability to tell a great story, one that inspires people to go on the journey with you as you make some seriously bold moves. It's one of his entrepreneurial superpowers.

And if there was one piece of advice I I wish I could phone back and and give to myself was just concentrate on that storytelling part, on the convincing people. 'Cause if you can't do that, it doesn't matter how good the product is, it doesn't matter how good the idea was for the market or what happens in in the external factors, you you don't have the people believing.

When Stewart knows that it's time to slash and burn the business, the only way to lead your team on the journey is to turn it into a great story. Find those moments where everything changed, whether it's throwing up in a hotel bathroom or having a mountaintop moment you have to bring to your team. Figure out what your story is and it will go a long way to bringing your co-founders, employees, and investors along with you. And you'd be surprised at who might come back to help.

I got an email from Stuart and getting an email from somebody who who had previously laid you off talking about work, you know, you're l little cagey on that. But uh but there was no reason I wasn't gonna meet Stuart for coffee.

Yes, Tim and his family moved again. Fortunately, it was the right move this time around, and when he arrived at the office, he was surprised to find he wasn't the only Battlescarred employee to rejoin the team.

I came back with a bunch of people that had also been cut and were were coming back for the same reason. You know, it kinda felt like a bit of a a bit of a reunion.

So it seemed like the end of the road for Stuart and his team was in truth only the beginning. Bear that in mind if you ever have to slash and burn. I'm Reed Hoffman.

The producer are June Cohen and Darren Triff. Chris McLeod, Jenny Cataldo. Ben Manila. Our supervising producer is Jay Punjabi. Original music and sound design is by the Holiday Brothers. Mixing and Mastering by Brian Pugh Special thanks to the Said Sepieva, Elisa Schreiber, David Sanford, and Stephanie Kent. Visit masters of scale.com Transcript for this episode.