Success isn’t a straight line. Even the most accomplished business leaders have had to face the anvils of crisis at pivotal points. There are immense learnings to gain from moments of such successes and failures.
At Kalaari, we thrive on empowering founders to succeed. Success Diaries are case studies that offer analysis and insights from the journeys of extraordinary companies. We hope this helps you as you build an enduring enterprise of tomorrow.
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Slack | Success Diaries
1. Leading the Consumerization
of Enterprise Software
By Chirag Gandhi, Avinash Ramanathan
Success Diaries
Success isn’t a straight line. Even the most
accomplished business leaders have had to face the
anvils of crisis at pivotal points. There are immense
learnings to gain from moments of such successes and
failures.
At Kalaari, we thrive on empowering founders to
succeed. Success Diaries are case studies that offer
analysis and insights from the journeys of extraordinary
companies. We hope this helps you as you build an
enduring enterprise of tomorrow.
2. Slack is the fastest business app ever to reach an ARR of $100M
2
(In 2016)
Years to $100M ARR
Source: Index Ventures, CapitalIQ
Copyright Success Diaries - Kalaari Capital 2020
3. Slack’s success derives itself from four key tenets
3
Focus Art of Pivot
GTM
Innovation
Product
Thinking
1 2
34
Rather than convincing CIOs, Slack convinced the teams to make the
purchase. This Bottoms-up GTM innovation set an industry benchmark.
Pioneering GTM for the industry
Slack brought the experience and delight of consumer apps in the world
of boring and clunky business software.
First principles product thinking
Slack pivoted from gaming to enterprise software after their Series-B
raise; their success, with Flickr, before Slack went through a similar pivot
Unique Pivot after early failure
In a world of super-apps/platforms, focus is contrarian. Slack built a
$17B+ brand by focusing singularly on Business Communication.
The Power of Focus
Copyright Success Diaries - Kalaari Capital 2020
4. Early days of Slack
💡 Fun Fact:
Slack was born out of an internal chat tool in the TinySpeck game. There were insights from usage patterns of
2 years, even pre-launch. Born out of a game, engagement was the North Star metric. The unique pivot marked
the start of a second wave of consumerization of IT – blurring boundaries between business and consumer
products.
5. The communications market was broken and siloed
5
Lollapalooza
effect
Apps trying to re-imagine
internal company communication
Broken email
Unsecure social
media
Blackberry’s
Demise
Copyright Success Diaries - Kalaari Capital 2020
6. Slack added the ‘fun’ in corporate functions
6
HipChat v/s Slack – which one would you use?
“Most enterprise software looks like a cheap 70's prom suit — muted blues and greys everywhere — so, starting with the logo,
we made Slack look like a confetti cannon had gone off. Electric blue, yellows, purples, and greens all over. We gave it the color
scheme of a video game, not an enterprise collaboration product.” – Stewart Butterfield
Copyright Success Diaries - Kalaari Capital 2020
7. Slack’s founders had a strong DNA
7
Empathy
Slack’s early adopters were the founding team themselves
- Stewart, Cal and the Tinyspeck team. They were solving
a problem they themselves had and therefore had
significant empathy for users when adoption grew.
Cal Henderson (R)
Co-Founder & CTO
Stewart Butterfield (L)
Co-Founder & CEO
Slack’s Founders
Email by Marc Andreessen when Stewart decided to
abandon Tiny Speck
👨💻
Perseverance
The founders started ‘Game Neverending’ back in 2002
and closed it in 2004. The game laid the genesis for
Flickr. After the hit with Flickr, they returned to the game
in 2009 (aka Neverending 2.0). In 2012, Stewart decided
to throw in the towel again with tears rolling down. The
second game failure led to Slack.
The base of 2 successes from games was not a unique
market insight but “how do we not go out of business?”
Copyright Success Diaries - Kalaari Capital 2020
8. Secret sauce – Getting the early true fans
8
Exclusivity: Slack was one of the earliest players to disguise their beta offering. Slack requested users to invite
themselves – received 8K applications on the first day, and reached 15K users in the next 2 weeks
Simplicity of usage: Slack was designed to be a simple, intuitive app with <20min learning curve
Simplicity of message: Enterprise messaging was competitive so Slack decided to cut through noise with 3 key
features: Easy search function + Sync across devices + Easy file-sharing => all are norms for enterprise software now
Growth at the right pace: Growing, not fast, but at the right pace is key. For Slack, it meant postponing marketing
initiatives, stopping reactivation reminder emails, and focusing on entire teams over individuals
Celeb endorsements: People (esp. celebrities) should love the product enough to make public endorsements; Jared
Leto did that for Slack in its early days
Timing: Startups needed to scale faster than ever before in the upswell, and distributed workforce was on the rise.
These were perfect timing opportunities for Slack
🌟
📈
🗒
🕺
💡
🕕
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9. Slack is different
💡 Fun Fact:
In 2015, Slack launched their $80M Slack Fund, partnering with 6 VC Funds to invest in software
complementing its core offering. “We think Slack, like iOS and Android, will be a rich platform on which
applications can be created and monetized.” – Andrew Braccia, Accel, on the launch
Copyright Success Diaries - Kalaari Capital 2020
10. Slack enables collaboration across multiple enterprise functions
10
More software a company uses, more siloed is the attention, more valuable Slack becomes
Source: Slack Investor Video
Copyright Success Diaries - Kalaari Capital 2020
11. Slack has become the new OS in the town
11
• In a software-first world, where there is a piece of software for every function & task, integrations are an imperative moat
• Slack has 1500+ integrations across software providers; marketing of these partnerships also acts as a growth channel
ANALYTICS COMMUNICATION
CUSTOMER
SUPPORT
DESIGN
DEVELOPER
TOOLS
FILE
MANAGEMENT
FINANCE
HUMAN
RESOURCES
OFFICE
PRODUCTIVITY
SALES &
MARKETING
SECURITY &
COMPLIANCE
SOCIAL & FUN
Copyright Success Diaries - Kalaari Capital 2020
12. Slack has an excellent product – market (– model – channel) Fit
12
Clear value proposition for internal
communication - simplicity and
integrations drive value
Bottoms-up GTM - Word-of-mouth
+ virality – every user can pull other
users with 0 setup
Software companies that start small
(5-20 emp) and quickly swell to 100+
=> need scalable communication
Straightforward pricing per active
user – generous value for free users
+ medium ARPU for the TG
Copyright Success Diaries - Kalaari Capital 2020
13. 13
Bottoms Up Adoption
GTM Model
Our guess is that you didn’t learn about Slack by receiving a cold call
from a sales rep. Instead, your colleague brought it to work one day and
started using it to chat with their team. And before you knew it, Slack had
spread through your organization like wildfire.
Slack pioneered two major ways of software adoption in the early days
User Education
Since Slack was a product meant for teams, every member had a veto on
its usage. Thus, Slack invested a disproportionate amount of time
educating users to ensure that the product adoption was smooth
Low cost of Failure
Unlike traditional enterprise software then, Slack used a freemium model
to allow users to try the product. The cost of failure for the user was
made negligible
Slack has pioneered the bottoms-up GTM strategy for enterprise sales
Copyright Success Diaries - Kalaari Capital 2020
Source: Hubspot
14. Slack has leveraged the advantages of three flywheels
14
Two-sided Network Effects
More end users/
Team admins
More developers
and partners
Better value
prop for
Incentive to
build for
Switching costs
Customers use
Slack
Customer
locked-in
Higher costs to switch;
less competition
Build history
Economies of Scale
Higher sales
volume
Better gross
margins
More resources
to grow
Lower cost/unit
Copyright Success Diaries - Kalaari Capital 2020
15. Slack is now evolving into the social network for Enterprises
15
Source: Stratechery
• Bundled with Microsoft 365 suite, Teams has managed to get an
upper hand over Slack for adoption – not by the virtue of being a
functionally better product, but by driving incremental value with user
navigation limited within a single Microsoft ecosystem
• Microsoft’s distribution coupled with enormous sales partner network
pushing the suite to smaller businesses, is an uphill battle
• While Microsoft is building a vertical company – a full-stack OS in the
cloud, Slack has started moving towards a horizontal company –
platform connecting various enterprises
• The strategy manifests itself as shared channels & Slack Connect, and
builds on Slack’s existing strength – chat, its core product
• Slack is gradually building out the Enterprise social network
Slack (horizontal) v/s
Microsoft (vertical)
Columns are enterprises
Late 2019,
Microsoft
Teams raced
past Slack
with 20M
DAUs (now
at ~75M)
Copyright Success Diaries - Kalaari Capital 2020
16. Slack goes Public
💡 Fun Fact:
Slack was the first Silicon Valley company to opt a Direct Listing process, after the Swedish Spotify. Their bold
moves and resulting success could potentially transform the IPO process for several tech companies. It is
poetical coming from a company already trying to change the way we work.
Copyright Success Diaries - Kalaari Capital 2020
17. 9-year old, 9-year young
17
Shut down Tiny
Speck
Launched Slack
8000 signups in 24
hours
Aug 2013
Launched
Tiny Speck
Sep 2011
$120M Series D
Oct 2014
1.1M DAU
Jun 2015
Launched the
Enterprise Grid
Jan 2017
Raised $250M
at $5.1B
Sep 2017
Bought Hipchat and
Stride from Atlassian
Jul 2018
Went Public
Apr 2019
Copyright Success Diaries - Kalaari Capital 2020
18. Work-from-home driving adoption and engagement
18
Quarter of Feb-Apr’20
Source: Slack Earnings Deck
Net Added
Paid Customers
Average Minutes of Active
Usage on Slack per day
Organizations
Using Slack
Average Hours Connected to
Slack per day
Copyright Success Diaries - Kalaari Capital 2020
19. Innovation all the way up to listing
19
Why Direct Listing?
Spotify and Slack led the way. More to follow.
• Algorithm and market-driven price discovery v/s book-build process
followed in traditional IPOs
• Offers greater liquidity for existing stockholders
• Low volatility and high trade volume – comparable to IPOs
• Viable alternative path to becoming a public company
Date Round Capital Raised Investors
June 2009 Seed $1.5M Accel Ventures
April 2010 Series A $5M Accel Partners, a16z
April 2011 Series B $11M Accel Partners, a16z
April 2014 Series C $43M Accel Partners, a16z, Social Capital, Agile Equity
October 2014 Series D $120M Accel Partners, a16z, Social Capital, Agile Equity, Kleiner Perkins, GV
April 2015 Series E $160M DST Global, Spark Capital, IVP, Index Ventures, Horizons Ventures
April 2016 Series F $200M Thrive, GGV, Comcast, Accel, Index Ventures, Social Capital, Spark Capital
September 2017 Series G $250M Accel, Softbank
August 2018 Series H $427M GA, T Rowe Price, Sands Capital Ventures
April 2019 Direct Listing
Investor Stake Value
Accel 24% $4.6B
a16z 13% $2.5B
Social Capital 10% $1.9B
Sotbank 7% $1.4B
Stewart Butterfield (CEO) 8% $1.6B
Cal Henderson (CTO) 3% $0.6B
Winners from the Direct Listing:
Copyright Success Diaries - Kalaari Capital 2020
20. Exponential growth to IPO and beyond
20
21x ARR
Multiple
$17B
Valuation
$28B market
opportunity
$800M
ARR
Avg ticket size
= $6700
Strong
community
790K+
Active
Developers
16x Capital
Efficiency
120K+
Paid
users
Industry-best
65
F-100 Cos
Across 150+
countries
High-value
users
87.3%
Gross
Margin
12M+
DAU*
$1.3B
Funding
raised
Source: Slack Earnings Call; DAU as of Oct-19
Copyright Success Diaries - Kalaari Capital 2020
21. Learnings from Slack
💡 Fun Fact:
Doing things that don’t scale: “We begged and cajoled our friends at other companies to try it out and give us
feedback,” Butterfield recalls. There was Cozy, rental management software for landlords and tenants, and the
music service Rdio. “We had maybe six to ten companies to start with that we found this way.” - Stewart
Copyright Success Diaries - Kalaari Capital 2020
22. Maintain laser focus on core features & customer obsession
22
Do a few things but do them exceptionally well.
Make your product and company known for them.
• In the world of super-apps and platforms, focus is contrarian
• Right from the get-go, Slack has been focused on customer obsession,
service quality, and responsiveness. Even today, Slack handles more than
8K Zendesk tickets and 10K Tweets à treating customer service as not a
cost but an asset.
• Slack’s S-1 for IPO in 2019 reads
“What Sets Us Apart: Singular focus
Our development, design, partnerships, customer engagement, and
investments are targeted at realizing the enormity and simplicity of Slack’s
singular mission: to make people’s working lives simpler, more pleasant, and
more productive. We have no legacy products or competing priorities.”
Slack’s excess
customer love
on social
media led to
them having a
separate
handle to
share the
appreciation
Copyright Success Diaries - Kalaari Capital 2020
23. Sell the vision & not the product
23
Stewart’s Medium Post: We sell saddles, not horses
• Alongside Slack, there were several competitors building on the same IRC
(Internet Relay Control) protocol. Then, what was Slack’s right to win?
• In a now famous medium post, Stewart outlined that he was not in the
business of selling chat systems but organizational transformation. He
said:
“We’re selling a reduction in information overload, relief from stress, and a
new ability to extract the enormous value of hitherto useless corporate
archives. We’re selling better organizations, better teams. That’s a good thing
for people to buy and it is a much better thing for us to sell in the long run.
We will be successful to the extent that we create better teams.”
What is the core vision for which your product or company exists?
What is the value you are creating for the customer?
Copyright Success Diaries - Kalaari Capital 2020
Source: Stewart Butterfield Medium
24. Know your magic number
24
• In a traditional B2B company, the key metrics would be ARR, customer
retention and churn. Slack went a step beyond that.
• Since Slack’s GTM was bottoms-up versus the traditional GTM strategy,
they figured out another metric to measure success
“For Slack the Magic number is 2000. If a team exchanged 2000 messages,
they would likely use Slack forever”
• This also drives decisioning of freemium features – if user had to retrieve
conversations from 6mo ago à they were hooked enough to pay
• Magic Number can be hypothesized by intuition but needs validation by
data
Each company has its own magic number – what is yours?
What single metric indicates that your customer uses the product for something important?
Send 2000 Messages
Follow 30 people
Send Friend Requests
to 10 others
Magic Number
Copyright Success Diaries - Kalaari Capital 2020
Source: First Round Review
25. Have a world view and drive your company in that direction
25
• Stewart and his team believed that collaboration and communication is the
biggest time sink within organizations and that it was big enough problem
that email could not solve
• From the company’s blog in 2016,
“We live in an exciting time for work. Instead of three or four big vendors
providing end-to-end software suites, we have a variety of top-notch
products at our fingertips ready to make us more powerful and productive in
our jobs. But all of these great products come with a small cost: the tools we
use every day don’t always play well together. Progress and productivity can
end up in silos instead of being reviewed and tracked by the whole team. And
so today we’re taking a few big steps forward in bringing them all together.”
Have a view in the general direction in which the world is heading.
And then, build.
The First Earnings Presentation of the Company
Copyright Success Diaries - Kalaari Capital 2020
26. Learnings for startups
26
Maintain laser focus on core features & customer obsession
Do a few things but do them exceptionally well. Make your product and company known for them.
Sell the vision & not the product
What is the core vision for which your product or company exists? What is the value you are creating for the customer?
Know your magic number
Each company has its own magic number – what is yours? What single metric indicates that your customer uses the
product for something important?
Have a world view and drive your company in that direction
Have a view in the general direction in which the world is heading. And then, build.
👁
🔢
🌏
💡
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