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By Peter High, President, Metis Strategy
This article is by Featured Blogger Peter High from his Forbes.com column. Republished with the author’s permission.
Slack is the fastest growing workplace software ever. The company's CEO Stewart Butterfield co-founded the company in August of 2013, as a cloud-based team collaboration tool.
As fast as the organization has grown, interestingly enough, Butterfield underestimated the true opportunity for the idea that he and his co-founders developed. Originally, when he first pitched Slack, he believed the market for this software was $100 million, which they recently exceeded in revenue in roughly three years.
As the organization has grown at such an impressive clip, Butterfield has been forced to grow the team substantially in parallel. He has done so with a laser focus on certain cultural attributes, aligning recruiting practices to his established mission in order to ensure the continued addition of high quality employees. As Butterfield notes below, the mission is: "to make people's working lives simpler, more pleasant, and more productive."
Peter High: I thought we would begin with the beginning of Slack itself. It was the result of a pivot when you were running a company called Tiny Speck, and it was a component to a game called Glitch, as I understand it. Can you talk a little bit about the genesis of that, the original intent of it, and how this became the idea itself?
Stewart Butterfield: Sure. It was not part of the game, but a tool that we used internally to communicate. The company was started by myself and three other members of the original team. At the time we started it, we had one person in New York, one person in San Francisco, and two in Vancouver, British Columbia, so the natural thing for us to use was IRC. As you know, IRC is now twenty-seven years old and predates the web by a couple of years. By modern standards, it is a clunky and ancient technology. For example, if you and I are using IRC to communicate and you are not connected to the server at a given moment, I cannot send you a message. We built a system to log messages so people could catch up when they got back online. Once we had those messages in a database, we wanted to be able to search, so we added search. I could keep going for a long time with the features we added.
I think one of the critical things was that we were doing this in a subconscious or pre-conscious way, which is not the normal method of software development. There was no ego and no speculation. Whenever a problem got so irritating that we couldn't stand it or whenever an opportunity for improvement was so obvious that we could not help but take advantage of it, we would do it, and then go back to what we were supposed to be working on. The result of that after three and a half years was this system for internal communications that all of us agreed we would never work without again. We decided to see what else was out there in the market, and there wasn't anything good, so we made a product at the moment we decided to shut down the game.
High: In those early days, what were the ambitions for it? Clearly, as you say, there was a need that wasn't being met, even after seeking out something that might be more readily available. How big was the ambition in those early days? There are so many different areas now that Slack covers and so many different products and product categories that it now competes with. Did you see a broader enterprise use in those early days? Did you see this as something that would be taking on the likes of e-mail as well as the Skypes of the world? How did that all occur to you and how quickly did the broader implications of it grow?
Butterfield: It was a little bit of a slow boil in terms of how big it could be. We had taken a bunch of venture capital funding, and when we decided to sit down again, we had five million dollars left. Investors didn't want their money back, they wanted us to try something else, so when we were putting together the pitch deck for Slack and explaining what we were going to do, we had sized the market at $100 million in revenue.
That is what we thought we could accomplish, and we blew past that this summer already. It was what we imagined as the end-state of this whole enterprise, so it turned out to be much bigger than we could have imagined. We were thinking more specifically for teams like us: smaller work groups, typically software development kind of organizations. Those were our earliest customers, but six months or so in, the possibilities were more apparent. The longer we go, the more we see the true nature of the size of the market and the more our ambition grows.
High: You mentioned your extraordinary revenue growth and beating your end state revenue targets already. Aside from revenue growth or daily active users, what are some of the other metrics you're using to gauge the health and momentum of the business, as well as its broader influence?
Butterfield: Well, we have a lot of different metrics across the board. Not all of them are ones that we feel like we need to increase. For example, across all the active users, including people who are just getting started, people spend about two and a quarter hours in active use each day. Across ten hours a day connected to the service, active use would include things like sending a message, changing channels, opening the app, or uploading and commenting on a file. That's a long time, and it might not be that we want to drive up the amount of time people are spending using the app. It might be better for fulfilling our mission, which is to make people's working lives simpler, more pleasant, and more productive, if we reduced that number instead. Maybe it would be better if people were spending an hour and 45 minutes a day.
We look at things like net promoter score (NPS), we look at customer satisfaction scores on our responses to customer support inquiries, and things like time to first response and service availability. We like to look broadly across all points of customer contact and anything we can measure about the service.
High: You mentioned that in the early stages, you were building it for companies like your own. As you saw needs that applied to your own organization, by extension you were serving those companies that were in some ways size-wise and growth-wise not unlike Slack itself. I know now there is an increased emphasis and, in fact, increased adoption among larger enterprises. What are some of the ways in which you are changing the offering or adding different aspects to it in order to cater to the needs of an enterprise that is 1,000, 10,000, or 100,000 folks instead of 5, 10, 20, 100?
Butterfield: There are a couple aspects to it. One is compliance or features that are required as part of someone's regulatory environment, things like digital loss prevention or e-discovery message retention settings. There are those that are checklist requirements, and then there is another set that are more about how to interact with people at that large scale, because you can have a different relationship with a group of people that you most immediately work with towards some common goal. Your primary team might be five, thirty, or in some cases it might be 80 people, but looking at 10,000, 50,000, or 100,000 people, that is never one team except in some metaphorical sense. We looked hard at how Slack was used by larger and larger groups.
We sent our user research team out to sit with customers for periods of time and get some insight into how Slack is working. We also get tens of thousands of points of contact via Twitter and our customer support ticketing system every month and can synthesize those results. We ended up with something that is a little bit more like a team of teams approach to workplace communication. There is one simpler, more horizontal version of Slack that provides identity and direct messaging across the whole enterprise, but then there is an unlimited number of teams with an unlimited number of shared channels across the those teams. People can be members of more than one team. For example: let’s say Amy has a team that corresponds to her business unit, but she also works in marketing, so there is a global marketing team that she is a part of. She also works in the Dallas office, so she is a part of the Dallas office team. There may be other teams that are based either on communities, practices, or employee resource groups. It took us a while to get to whether we wanted a version of Slack that scaled to a larger and larger number of participants, or something slightly different, and we ended up with something slightly different.
High: It has been said that Slack is becoming the operating system of the office, and I wonder if that's a moniker that you accept? If so, what does that entail from your perspective?
Butterfield: I think we struggle with what the right terminology is. Internally, we sometimes say Slack is like a nervous system, connective tissue, or the internal network. Operating system is an interesting one though. Obviously, we don't do things like control file input and output or disk arrays and network cards, but as those technologies increasingly stabilize and become commodified, the real operating system to a certain extent is about not only connecting people to each other, but also people to the applications that they use and their workflows and business processes. We look at our own usage of Slack, with a little over 600 employees, and we send something like 100,000 messages a day between people, but triple, quadruple, or even five times that number of messages from external systems.
Every time we get a customer support ticket, every time someone Tweets at us, every time we make a sale, and every time a new account is assigned to an account manager, all that stuff flows in Slack and becomes searchable and accessible to a much larger number of people than it would otherwise be available to. We are also simultaneously seeing people build entirely new kids of applications on top of Slack that either would not have been possible in any other context, or while they were technically possible, they never would have been used by anyone. We see people building bots for things like project management, where they assist in doing and coordinating the daily stand up meetings. That is exiting, and I think there is a big future for those kinds of applications
High: You referenced the fact that part of what makes Slack effective is the ecosystem that you are building. Between the app directory and the Slack Fund, you have an active developer ecosystem. I wonder how you think about that, how you think about developing the ecosystem, and the advantages you have garnered by making it so easy for others to develop on top of it or partner within Slack?
Butterfield: If you go back to the origins, we noticed an interesting phenomenon where the more people paid attention to that internal tool, the more information we routed into it. The more information we routed into it, the more people paid attention to it, so there was this virtuous cycle. When I say routing information, I mean things like when someone uploaded a file to the file server, that would get announced into IRC, or when there was a problem with the database, that page or alert would get pushed into IRC. One thing that was clear from the beginning was that if Slack was the one application that everyone on the team has open all day every day, it is the perfect place to surface applications which are either occasionally used across the organization, or are otherwise not accessed.
To unpack that a little bit, we, like many companies, use Concur for expense reporting. That was a decision driven by Finance, since they are the people that care about which tool we use because they have a handful of people who are heads down in that tool all day every day. On the other hand, expense reporting is something that happens once a month, or once a quarter from the perspective of an individual employee. Rather than remember to go to and entirely distinct service, that is a great process to initiate from inside of Slack, given that you are there and you have it open. It does not mean that we do not have an expense reporting system, we are not trying to subsume those applications, but we are trying to give another front end or another interface between those applications and the human beings who would use them.
High: Late last year you started the Slack Fund, which is an investment fund in partnership with a number of venture capital firms as well. Can you talk about the rationale for doing so and where you have been placing bets?
Butterfield: We heard from a lot of people that either they wanted to try a business idea that was Slack-first in the sense that people would say mobile-first, or relied on Slack for a chunk of its functionality. Because this is a brand-new thing, it was perceived as risky. One of the things we wanted to do was encourage investment in this area and show people that we were serious about it. Ideally we also make money on those investments, but that is not the primary motivator. It is more to kick-start that ecosystem. To that extent, we have been successful.
There are tens of thousands of unique paid customers using Slack, which from the perspective of a new startup, is a huge number of potential customers. Even from the perspective of an established dominant player in the industry, it is a pretty lucrative group of people to get in front of. We have seen partnerships with some of the largest companies in the world and have seen integrations develop, but we have also seen a large number of brand new products that principally reach their customers through Slack. At this point, we've done about a dozen investments, we have a full time manager, and we are continuing to make more. Over the last couple weeks, I have seen two new deals proposed.
High: You have been an entrepreneur several times over. You founded or co-founded a number of companies prior to Slack, including Flickr perhaps most prominently. I am wondering, as somebody who is a serial entrepreneur, who are some of the people who were particularly important mentors or people of influence to you as you were rising in your business career?
Butterfield: There have been so many, and some of them have been people who have the strengths that I traditionally have lacked. When I first got started, I was a capable leader but a lousy manager. I remember working with a guy named Andrew Braccia at Yahoo, and Yahoo was the company that bought Flickr. Everyone on his team was hard working and reliable, did what they said they were going to do, on top of everything, and seemed to be operating at this level of productivity and effectiveness that I found difficult to manage to. I asked him, "How do you find such good people?", because at that time I was struggling to manage a group of about fifty. He said he did not find any better people than me, he just fired people more quickly. That was an eye opener for me.
I think we are reluctant to move people out of an organization when there is not a good fit. It is typically not because someone is stupid or lazy or incompetent, it is a lot more subtle than that. The extent to which people are kept around beyond the point where it is an effective working relationship can be demoralizing to everyone else and it can impede progress. More recently, a woman named Kim Scott who was an engineer at Google and Apple gave a talk called Radical Candor, which went viral a year ago, and has since started a company called Candor which is about giving effective feedback and management. I feel like the business side came more naturally to me along with the product design side, but managing and effectively leading large organizations of people is something that is perpetually challenging and the topic on which I am constantly looking for good advice.
High: Sticking with the people topic for a moment, Peter Drucker famously said that culture eats strategy for breakfast. I wonder if you could describe the culture that you have shaped at Slack, and what are some of the ways in which you describe that?
Butterfield: I think it is highly mission driven. I think we do a great job in making that clear to the candidates before they even start the process. The company's mission is to make people's working lives simpler, more pleasant, and more productive. We like that, because it does not have the kind of false grandiosity that you sometimes hear from Silicon Valley companies, but it also has a lot of ambition. We want to raise the productivity of the entire world of knowledge workers, and that is a pretty profound thing. In addition to looking for people who share that mission and who would like to work within the set of values that we have identified, we are also trying to build a high performance organization. That means one in which responsibility is taken, there is accountability for people's actions, and where candid and direct feedback is welcome. That can be tough.
If you look at professional sports teams, they will analyze the tape of a game and give feedback that is not meant to blame people for mistakes that they made or make them feel bad about them, but drive towards improvements the next time. That is the kind of culture that we would like to create, where we can look at things that we have done that have been successful or that have failed, learn from them, and improve continuously. That philosophy of continuous improvement is one that we take seriously. I absolutely agree with that sentiment from Drucker, especially given the position that we are in. We have exceptional product market fit. People love to use Slack. As an enterprise software company, we have grown tremendously on the basis of recommendation and customer love. We are in a good position visa-vi competition. We have landed in probably the most strategic area of enterprise software, and I would love to take credit for that as something that we thought about in advance, but we just found ourselves there. Everything is going great, and the way that we cannot succeed, the way that we can fail to live up to the potential, is unforced errors.
We are growing incredibly quickly. At beginning of 2015 we had eighty people, and by the end we had 320. Since then, so far this year, we have about doubled again. We go to all hands meetings and if you asked people to put up their hands if they have been here for less than six months, half of the company would put up their hands. If you look inside of any given team, it is frequent that you find half the team is brand new, or sometimes even 3/4 of the team. That is a big challenge to the cohesion and the ability to execute at the highest level because you need to establish trust. You need to have some knowledge of your co-workers and your colleagues and figure out how to work effectively together, and that is hard when the growth has been so rapid.
High: Do you worry about the watering down of talent? Surely there was a time not long ago in fact where you were probably interviewing everyone who got a job at the organization. Obviously, that is not feasible at the scale of hiring that is happening now. What are some of the ways in which you ensure that the 1,000th employee is of equal talent and merit to your tenth employee?
Butterfield: We have a good process. We have an outstanding recruiting team, but also there is support from hiring managers to be involved in the recruiting process. Even though I'm not there, there are a lot of good people, and the standards are kept high. To be honest, I look at some of the best employees that we have, and it is rarely because they have some special native ability, like if they were born good at arithmetic or something like that. They are good at elevating the people around them. They are good to work with, they have low ego, they work hard, they focus and are not distracting others, and they are supportive of their colleagues. A lot of that stuff you can be trained for.
When people say talent, a thing that comes to mind is maybe how good you are complex algorithms. The element of teamwork is perhaps underappreciated. You can take a team of absolute all-stars in terms of their native abilities, but if they are not working together, they are much less effective than a team where there is less native ability but a higher degree of teamwork and cohesion. Assuming that there is some baseline level of competence, if the goals and the priorities are clear and there is a structure or process for how decisions are made and how work gets done, then we should be able to operate at the highest level.
Originally published on Forbes.com