The Slack DPO

Summary Notes


In season four, episode nine of Acquired, hosts Ben Gilbert and David Rosenthal delve into the story of Slack, from its origins on a Canadian hippie commune to its transformation from a gaming venture, Tiny Speck, to a leading enterprise communication platform. They explore Slack's evolution, its direct listing, and the impact of its freemium model on growth and market penetration. The episode also features a discussion about Slack's competitor, HipChat, acquired by Atlassian, and the cultural shift towards real-time, persistent messaging in the workplace. Additionally, the hosts touch on the role of venture capital firm Accel as a significant investor and the broader implications of Slack's approach to enterprise software.

Summary Notes

Introduction to Acquired Podcast Season Four, Episode Nine

  • The episode covers Slack, its evolution, and its direct public listing.
  • Slack is referred to as the "spiritual sister" of Zoom, which was the subject of the previous episode.
  • The hosts, Ben Gilbert and David Rosenthal, delve into Slack's history, its business, market cap, and future prospects.

"Today we are covering the spiritual sister of our previous episode on Zoom, Slack, and the largest enterprise IPO in history. And of course, it wasn't even actually an IPO, but rather a direct listing."

This quote sets the stage for the episode's focus on Slack and its unconventional journey to becoming a publicly traded company through a direct listing instead of a traditional IPO.

Sponsorship by Pilot

  • Pilot is a company that provides accounting, tax, and bookkeeping services to startups and growth companies.
  • Pilot has grown to be the largest startup-focused accounting firm in the US.
  • The company is backed by notable investors including Sequoia, Index, Stripe, and Jeff Bezos.
  • Pilot's value proposition is based on Jeff Bezos's axiom that startups should focus on their core product and outsource non-core activities like accounting.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup focused accounting firm in the US."

The quote highlights Pilot's role and status as a leading accounting firm dedicated to serving the startup ecosystem.

The Origins of Slack's Founder, Stewart Butterfield

  • Stewart Butterfield was born in a log cabin on a hippie commune in Lund, British Columbia, Canada in 1973.
  • His parents, David and Norma Butterfield, were active members of the commune.
  • Stewart's father, David, was a Harvard dropout who moved to Canada to avoid the Vietnam War draft.
  • Stewart was initially named Dharma Jeremy Butterfield due to his birthplace and parents' lifestyle.
  • He changed his name to Stewart at age 12 and later attended the University of Victoria, where he studied philosophy.
  • Stewart's interest in computers began at a young age, and he became involved in the early internet community.

"In 1973, there is a boy born in this cabin to parents David and Norma Butterfield, who were, as you can imagine from this scene I am setting here and describing pretty hardcore hippies at the time in 1973. And the boy's name that Norma gives birth to this year is Dharma Jeremy Butterfield."

This quote describes the unconventional background of Slack's founder and the early influences that shaped his life.

Career Beginnings and Early Ventures

  • Stewart Butterfield co-founded a startup called, which was unsuccessful.
  • He then co-founded with Jason Classon, which they sold for a small amount.
  • After the dot-com bubble burst, Stewart started a blog and met his future wife, Katerina Fake, who moved to Vancouver to be with him.
  • Together with Jason Classon, Katerina Fake, and Eric Costello, Stewart founded a company called Ludicorp to develop an online game called Game Neverending.

"Stuart convinces Jason, hey, let's get out of here from this crazy company. Let's go build your website,, as a real company."

The quote explains Stewart's decision to pivot from to a more viable venture, which ultimately led to his first successful exit.

The Creation of Flickr

  • The idea for Flickr came to Stewart during a fever dream while he was sick at a tech conference in New York.
  • The Ludicorp team initially voted against pivoting to a photo-sharing service but later changed their decision.
  • Flickr was developed using technology from the Game Neverending project and launched at the O'Reilly ETech Conference in 2004.
  • Flickr gained traction quickly, especially among bloggers, leading to acquisition interest from companies like Google, Yahoo, and Ask Jeeves.
  • Yahoo acquired Flickr for between $22 to $25 million, but the team had to stay with Yahoo for a three-year earnout period.

"Stewart's like, man, if we make a side project, maybe we could flip it pretty quickly for like, a million dollars or so. We could use those proceeds to keep funding the game."

This quote captures Stewart's strategic thinking in developing Flickr as a means to fund his original gaming project, showcasing his entrepreneurial mindset.

Stewart Butterfield's Experience at Yahoo

  • The integration of Flickr into Yahoo was challenging and did not meet the team's expectations.
  • Stewart learned valuable lessons about running a large company during his time at Yahoo.
  • He worked under Brad Garlinghouse, who was a respected executive at Yahoo during that era.

"I don't think the thought even crossed their minds once. Not to then. You know, he talks about the experience at Yahoo. And I think it actually, as we've, I think, seen so far in this history, Stuart has a lot of raw potential, certainly creatively, but also on the business and leadership side."

The quote reflects on Stewart's potential and the learning experience he gained from his time at Yahoo, despite the difficulties in integrating Flickr into the larger company.

Earnout Period at Yahoo

  • The entire team from Flickr stayed at Yahoo for a three-year earnout period.
  • At the end of the earnout, most of the team, including Katerina, left Yahoo.
  • Yahoo was in disarray during this period, known as the Carol Bartz days.
  • Kara Swisher was actively covering Yahoo's internal issues on All Things D.

"The whole team stayed for the three-year earnout. But right at the end of it, everyone else leaves, Katerina leaves." "These are the days when Yahoo is a mess. These are the Carol Bartz days and everything."

The quote highlights the conclusion of the earnout period for the Flickr team at Yahoo and the turmoil within Yahoo during that time, emphasizing the significance of Katerina's departure.

Katerina's Impact on Flickr

  • Katerina was the public face of Flickr and represented the community lifestyle of the platform.
  • Her departure was impactful because users felt a deep connection to the community.
  • The social aspect of Flickr was a significant part of its appeal.

"And one thing to remember about why Katerina leaving was such a big deal was because even though Flickr was a photo-sharing website, everyone who was on it felt like they were a member of the community."

This quote explains the importance of Katerina to the Flickr community and why her leaving Yahoo had such a strong impact on the platform's users.

Stewart's Resignation and Post-Yahoo Careers

  • Stewart stayed at Yahoo a few months longer than the rest of the team but eventually left.
  • He was asked to write a resignation memo, which he did in an absurd style.
  • After leaving Yahoo, Katerina moved to New York, co-founded Hunch, and became chairwoman of Etsy.
  • Stewart took a break and moved back to Vancouver.

"And so in the summer of 2008, he leaves and Brad, his boss, makes him write a resignation memo that's still on the Internet where it's just complete absurdism." "Katerina ends up moving back to New York. She then co-founds the company Hunch with Chris Dixon in New York, ends up getting acquired by eBay."

These quotes detail the post-Yahoo activities of Stewart and Katerina, highlighting Stewart's humorous resignation and Katerina's successful ventures after Flickr.

The Formation of Tiny Speck and Glitch

  • After leaving Yahoo, Stewart and former Flickr colleagues decided to start a new company called Tiny Speck.
  • They developed an online game named Glitch, aiming for a non-violent, collaborative gaming experience.
  • Despite the initial buzz and significant funding, Glitch failed to gain traction and was eventually unlaunched.

"They start the company... they call the company Tiny Speck... and they call the game Glitch." "But by the beginning of 2009, the other folks... they're like, K Stewart, we're ready to get the band back together. What's next, man?"

These quotes outline the formation of Tiny Speck and the development of the game Glitch, emphasizing the team's reunion and their vision for a new kind of online game.

Transition to Slack

  • The team at Tiny Speck faced challenges with remote collaboration and started using Internet Relay Chat (IRC).
  • They built tools around IRC to facilitate communication, which they internally called Line Feed.
  • After the failure of Glitch, the team pivoted to focus on developing Line Feed into a product, later named Slack.

"They realize they need some tools to help them get work done and collaborate remotely." "They build a bunch of tools they internally call the system Line Feed and it really helps them be productive."

These quotes describe the origins of Slack as a set of tools designed to improve the team's remote collaboration, which later evolved into a standalone product.

Slack's Early Success

  • Slack was officially launched in preview release in August 2013.
  • The platform quickly gained popularity, with thousands of companies signing up on the waitlist.
  • Slack's user-friendly design and effective onboarding process contributed to its rapid adoption.
  • Within a short period, Slack reached a significant ARR and had a growing user base, including large enterprises.

"On the first day that they launch, 8000 companies sign up for the waitlist." "Within two weeks, there's 15,000 companies that are signed up or teams that are signed up on the waitlist to use it."

These quotes highlight the immediate popularity of Slack upon its release, with a large number of companies eager to try the new communication tool.

Project Code Names

  • Project Apple was mentioned as a code name without further context.

  • Project Purple was referred to as P42X by Speaker A.

    Project Apple. What is P 42 X. Project Purple.

    These quotes are likely referring to internal project names, possibly within a tech company, used to maintain confidentiality and organization.

Slack's Freemium Model

  • Slack's freemium model was revolutionary for enterprise software.

  • The freemium gate was set on the number of searchable messages rather than the number of users.

  • This model allowed teams to use Slack extensively without paying, unless they needed more message history or integrations.

  • The strategy was influenced by the gaming industry, where extensive usage is encouraged without upfront payment.

    What Slack did that was so brilliant and the parallels to Zoom are perfect is they nailed how to structure the freemium model for this product and service.

    This quote emphasizes Slack's strategic success in structuring a freemium model that was unique in the enterprise software space and drew successful parallels from the gaming industry.

Slack's Growth and Funding Rounds

  • Slack raised significant funding, including a $43 million Series C in April 2014.

  • By the end of 2014, Slack raised $120 million at over a billion-dollar valuation.

  • Slack's growth was characterized by adding a million dollars in paid ARR every month post-launch.

    They raised $43 million in a series C led by Mamoon... they raise $120,000,000 at over a billion-dollar valuation.

    These quotes highlight Slack's rapid growth and the substantial venture capital investment that fueled it.

Slack vs. HipChat and Microsoft Teams

  • Slack was seen as superior to Atlassian's HipChat, which had a freemium gate based on the number of users.

  • Microsoft Teams emerged as a competitor, but Slack's freemium model and brand were considered strong points against Microsoft's traditional enterprise relationships.

  • Slack's approach to the freemium model was considered a key differentiator in its success over competitors.

    Slack was truly, from day one, designed to be something that anybody in the organization could use and not just engineering teams.

    This quote reflects Slack's design philosophy of being an inclusive tool for all teams within an organization, contributing to its widespread adoption.

Slack's Direct Public Offering (DPO)

  • Slack opted for a Direct Public Offering (DPO) rather than a traditional IPO.

  • The DPO allowed Slack to go public without the need for underwriting or creating new shares, thus avoiding dilution.

  • There was no lockup period in the DPO, allowing employees to sell shares immediately.

    Slack is considering a DPO for their public offering, much like Spotify or just before them, 30 years before Ben and Jerry's.

    This quote explains Slack's decision to pursue a DPO, a method of going public that aligns with modern practices and the company's financial position.

Financial Position and Ownership at IPO/DPO

  • At the time of going public, Slack had $800 million in cash and was growing at 82% a year.

  • Major stakeholders included venture firms like Accel and prominent Silicon Valley CEOs who were angel investors.

  • Slack's retention rates and CAC to LTV ratios were strong indicators of its business health.

    Slack is not profitable, but does have 800 million of cash on the balance sheet and has great unit economics.

    This quote provides insight into Slack's financial health and strategic positioning at the time of its DPO.

Slack's Net Dollar Retention and Churn

  • Slack's net dollar retention is still considered world-class but has been declining.
  • The decline could be due to churn, including paid churn and possibly saturation.
  • The situation raises questions about whether customers are leaving for competitors like Microsoft Teams or if Slack disrupts workflows.

"It's still world class, it's still 120, 30, 40%, something like that. But it has been declining."

The quote emphasizes that Slack's net dollar retention rate, while still impressive, is on a downward trend, indicating potential issues with customer retention or market saturation.

Competition and Market Saturation

  • Slack faces competition from Microsoft Teams, which is a viable competitor.
  • Other unconventional competitors, such as Discord, are being used for work purposes.
  • Facebook Work also has a significant presence in organizations, though its level of active use is unclear.

"That's actually saturation happening."

David Rosenthal suggests that the decline in Slack's net dollar retention may be attributed to market saturation.

"Teams is a viable competitor."

Ben Gilbert acknowledges Microsoft Teams as a strong competitor to Slack.

"It seems a lot of people are starting to use Discord for work, actually."

David Rosenthal points out that Discord, originally a platform for gamers, is being adopted for professional use, indicating a shift in workplace communication tools.

"Facebook work has a ton of organizations."

Ben Gilbert notes the widespread activation of Facebook Work, suggesting it as a competitor in the enterprise communication space.

Slack's Profitability and Marketing Efficiency

  • Slack is not yet profitable but shows promising unit economics and customer stickiness.
  • Marketing efficiency and low churn rates justify the significant investment in marketing.
  • A quote from Ben Rush at Pioneer Square Labs suggests that Slack's return on investment is substantial in the long term.

"It's a machine where a dollar in gets you close to $10 out over eight years."

Ben Rush's quote, shared by Ben Gilbert, highlights the long-term profitability potential of Slack despite its current lack of profitability.

The Potential of Glitch as a Game

  • There was significant interest in the gaming community about the potential of Glitch.
  • Discussion about non-violent games like Minecraft and Roblox and their success.
  • Speculation on whether Slack's team could have created a successful game if they had not shifted focus.

"We could have had like the coolest game ever."

Ben Gilbert reflects on the potential of Glitch, the game that Slack was initially intended to be, suggesting that it had the promise to be a significant hit within the gaming community.

Impact of Slack and Zoom on Enterprise Software

  • Slack and Zoom have revolutionized enterprise software with their user journey analytics.
  • Slack identified a "magic moment" of 2000 messages that correlates with high retention rates.
  • Both companies were their own first customers, which contributed to their deep understanding of user needs.

"Slack has world class metrics around this."

David Rosenthal credits Slack's success in part to their application of gaming industry analytics to the user journey in enterprise software.

"A team that has sent 2000 messages back and forth... 93% of teams that hit that 2000 message threshold didn't churn."

Ben Gilbert explains how Slack used data to identify a critical usage threshold that, once reached, significantly reduces customer churn.

Slack's Distribution Strategy and Customer Acquisition Costs

  • Slack's bottom-up distribution strategy and freemium model have contributed to high growth rates.
  • Analysis of marketing spend reveals a high cost of customer acquisition but a much lower cost of sales.
  • The free product offering, while effective, is expensive to maintain.

"You end up finding a cost of customer acquisition around $8,000 per company."

Ben Gilbert breaks down the cost of acquiring a new paying customer for Slack, highlighting the investment required to grow their customer base.

Slack vs. Zoom: Virality and Sales Efficiency

  • Slack is internally viral, while Zoom benefits from external virality, impacting their sales efficiency.
  • Zoom's sales efficiency is higher than Slack's, demonstrating the power of external promotion.
  • Slack and Zoom have different impacts on work culture, with Slack creating a new communication paradigm.

"Slack's return on sales and marketing costs, 111%. Great. But Zoom's is 180%."

Ben Gilbert compares the sales efficiency of Slack and Zoom, showing that Zoom has a higher return on sales and marketing investment.

Value Creation and Value Capture

  • Slack has created significant value by enabling real-time and interactive communication.
  • However, there are concerns about the impact of interrupt-driven workflows on productivity.
  • The discussion contrasts Slack with companies like Uber and Lyft regarding their societal impact.

"It is the always on, always sort of stimulated, always interrupting you."

Ben Gilbert discusses the potential negative impact of Slack's communication style on work habits and productivity.

Future of Slack and Enterprise Communication

  • Speculation on whether Slack will expand beyond chat communication to own more of the productivity suite.
  • The potential for Slack to become a platform for external communication, possibly replacing email.
  • Consideration of how Slack might evolve, including the possibility of acquisitions to grow its suite of products.

"Slack allows for frictionless, always on seamless communication inside of an organization, but everybody still has email for outside their organization."

Ben Gilbert and David Rosenthal discuss Slack's role in organizational communication and ponder its potential to disrupt traditional email usage.

Corrections and Apologies

  • Correction regarding the "delete Uber" story from a previous episode.
  • Clarification that Uber turned off surge pricing during the taxi strike at JFK airport, not the other way around.

"We apologize for the error and wanted to correct it."

Ben Gilbert and David Rosenthal issue an apology for the misinformation provided in the Uber episode, emphasizing the importance of accuracy and accountability.

Personal Recommendations (Carve Outs)

  • Ben Gilbert recommends "The Expanse" for fans of gritty Sci-Fi.
  • David Rosenthal highlights Alma, a platform for charitable giving, and its new feature allowing donations to any nonprofit in America.

"Boy, is that show a masterpiece."

Ben Gilbert shares his personal recommendation of "The Expanse" TV series, expressing his enthusiasm for its quality and storytelling.

"You can now give to anything, which is really cool in and of itself."

David Rosenthal explains the new feature of Alma, illustrating its convenience and impact on charitable giving.

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