title: "The Slack DPO"
author: "Acquired"
source_type: podcast
content_hash: 93c489d4cab2b6fe0e0a6c0c1d9bbf92615a72747ceab96e2553e7df1689fd94
extraction_method: generic_website
Transcript:
(disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Ben: Welcome to Season Four, Episode Nine of Acquired, the podcast about technology acquisitions, IPOs, and direct public listings. I’m Ben Gilbert.
David: I’m David Rosenthal.
Ben: And we are your hosts. Today we are covering the spiritual sister of our previous episode on Zoom, Slack, the largest enterprise IPO in history. Of course it wasn’t even actually an IPO but rather a direct listing.
David: Barry McCarthy, he rides again, the Acquired superhero.
Ben: Today we’ll talk about what all of that means, the crazy history of Slack’s evolution from even before it was founded, where its roots really are, and break down their business and their market cap today, and what it could do in the future. In lieu of promoting the Limited Partner program this episode, we have a request. Please fill out the Acquired Season Four survey. It is tremendously important to us here at Acquired World HQ to know who our audience is. First of all to make better content, but second of all to make sure we work with the most relevant and interesting sponsors for everyone and produce a great content there as well.
To sweeten the deal, if you fill out the survey, you will be entered into a raffle where we’ll give out one pair of second generation AirPods and there will be 10 other lucky winners of free LP subscriptions for one year. You can click the link in the show notes or go to acquired.fm/survey. Again, we really, really appreciate you doing this. If you have five minutes to spare right now, I’ll even invite you to pause right here and we promise we will be here when you get back.
David: The Slack.
Ben: It’s definitely Slack but I said the Slack more than 50% [...].
David: It’s our Slack.
Ben: It’s your Slack, listeners.
David: All of our collective Slacks.
Ben: David, that literally is the only time that that will be a good transition unless Slack makes a big acquisition some time in the near future.
David: It’s an embedded transition because collectivism is exactly where we’re going to start here. We start pretty far away from Slack’s gleaming, new downtown San Francisco headquarters, pretty far away from Wall Street, in fact very, very far away from Wall Street. We start in 1973 in Lund, British Columbia. Lund is, I’m not sure exactly how far, maybe an hour to north of Vancouver in British Columbia. It was where Highway 101 ended in the mid 70s, north of Vancouver.
We start there in a small log cabin located on a hippie commune. This cabin does not have electricity, it does not have running water. In 1973, there is a boy born in this cabin to parents David and Norma Butterfield who were, as you can imagine from the scene I am setting here and describing, pretty hardcore hippies at the time in 1973. The boy’s name that Norma gives birth to this year is Dharma Jeremy Butterfield.
Ben: Dharma is an incredible name for someone born on a hippie commune.
David: Incredible, so perfect. Let’s rewind this a little bit, though. How and why did we get here? We start with David Butterfield, the father of Dharma. David was an American, originally. He was from Connecticut and he was a college student at Harvard during 1968, during the Summer of Love. After the Summer of Love, he decides he’s going to drop out of school, dropped out of Harvard. He’s been disillusioned by RFK and Martin Luther King assassinations, both great and terrible things that happened that year in 1968. He drops out of Harvard and he moves to France. Certainly after he gets to France, he receives a telegram one day from the United States government informing him that he has been drafted for the Vietnam War.
Ben: This has explained the Canada thing.
David: This does eventually explain the Canada thing. He comes back to the US, he does enlist, and he goes to basic training. He learns, while he was in training, that he’d wanted originally to be a medic. He learns though that he’s going to become sergeant and he’s going to get assigned to active combat duty and he’s going to get shipped off to Vietnam, very probably he knows to his death. He decides one day before he gets shipped off, I don’t know exactly where he was stationed for training, somewhere in the North of the US, he decides to just drive to Canada and not come back one day.
He drives across the border, he ends up in Montreal. While he’s in Montreal, he meets Norma who, I believe, is a student at McGill at the time in Montreal. They fall in love, they get married, and they decide that they’re going to move out west to British Columbia so they just start driving. They drive across Canada, across the country, they get to Vancouver, and then they turned north and then the highway ends in Lund. It turns out there is actually a hippie commune already in Lund so they joined the commune. It’s an amazing story and we’re going to continue a bit. David sadly passed away in 2017. In his obituary, I just love this, it says, if you asked David who he was, he often said, “Who I am is I love my wife.” It’s just so nice, so great. What a cool person.
Ben: David, this is exactly how I thought the episode of the largest enterprise software IPO in history would start.
David: Exactly. Back to Dharma. He grows up initially, still no running water or electricity, he’s on this commune. When he gets to be about five, though, David and Norma are starting to question their life choices and anti-capitalist philosophy. It’s now the late 70s, the Vietnam War is long over and they said, “Maybe it’s time to start to rejoin normal society, we have a five-year old now.” They moved down to beautiful Victoria, the capital of British Columbia, beautiful, beautiful town. Listeners, if you haven’t been, highly recommended.
Ben: Especially [...] is way too easy to take the clipper. Don’t miss it.
David: Definitely don’t miss it. They moved down to Victoria and they rejoined mainstream society there. He had built the log cabin himself. He ends up getting into real estate development and he becomes a prominent, sustainable real estate developer, really cool in Victoria. Dharma, though, he’s now growing up. He gets his first computer at age seven in Victoria and becomes immediately enamored of it. When he is 12, he decides to change his name to Stewart because he’s probably getting teased at school at this point in time and he wants to be a little more normal. Stewart is the most normal name that he can think of.
He illegally changes his own name at 12 to Stewart Butterfield. He ends up staying local for college. He goes to college at the University of Victoria. He studies philosophy and as you might imagine, given the lineage of his parents, he’s quite smart and does very well in school. He thinks he’s going to become a philosophy professor. That’s his goal. He goes off to Cambridge in the UK and he gets a Masters in Philosophy. I assume those part of a PhD program that he was intending to complete.
Ben: For listeners who have not heard Stewart speak before, it is very apparent when you hear him speak that he has a background in philosophy. He can’t help but dive into the existential and the metaphysical in any topic. I think there’s a great episode with Kara Swisher on Recode Decode where he’s talking about why gaming is interesting for the world, why communication is interesting for the world, entice it to such a strong base in philosophy. I feel like every time I watched her, heard an interview with this guy, you have these aha moments that you otherwise would never ever have.
David: He’s cut from a different cloth, for sure, than your normal tech CEO. We mentioned, though, he got his first computer at age seven. He always also been fascinated by computers and this was the early days of the internet. He also, as legend has it, became really interested in the internet because he was a huge, of course, Phish fan. Phish had a news group at rec.music.phish and apparently young Dharma/Stewart was all over this news group.
Ben: David, what is a news group?
David: We might ask what is IRC. News groups, of course, were the predecessor to Reddit, I guess on the spiritual predecessor.
Ben: It’s the pre BBS, bulletin board system, way of finding community on the internet.
David: Stewart, even though he’s pursuing his academic career in philosophy, he is really into the internet, has gotten in decoding on the side, making websites all through college. After he finishes the master’s portion of his program at Cambridge, it’s now 1998. The web 1.0 bubble is fully inflated and he says, “You know what, I got to throw it. Now is the time. I can’t miss this train.” He moves back to Vancouver in British Columbia and he joins a startup called Communicate.com.
Ben: The domain names were so easy to come by.
David: I know and domain names was the name of the game here. The idea of Communicate.com is they were going to build the everything store on the internet, the ecommerce platform, and they were going to do it by owning domain names for all of the things that you might buy or things you might be interested in. Now is going to be the frontend so you would go to whatever.com and you would buy stuff powered by Communicate.com.
Ben: Which is so funny because this was the year that Amazon IPO, Amazon was already definitely a thing but was books.
David: Only for books at the time. As you might expect, given that business plan I just described and being in Vancouver, it was a total disaster. Stewart shows up and he’s quickly like, “I thought I was going to get rich here, sell out for academia, get into the dot-com.” He decides to head for the exits pretty quickly and that was very prescient because shortly after he does, of course, the company blows up. He leaves and he meets somebody really important there. He meets his co-worker Jason Classon who [...] at Communicate.
Jason, of course, had a side hustle at the time, because everybody had a side hustle. Jason’s side hustle was he was building another website called Gradfinder.com and this was like a competitor to Classmates.com, a Seattle company. They were early, early proto Facebook, find people that you went to high school with or you went to college with, stay in touch with them online, actually a pretty good idea. Steward convinces Jason, “Hey, let’s get out of here from this crazy company. Let’s go build your website, Gradfinder.com as a real company.” They leave and very quickly, I think within a year, they end up selling Gradfinder.com to another dot-com for a small amount of money.
Ben: Stewart’s first exit.
David: Everybody celebrates. They decide they’re going to take the year off. They didn’t make life-changing money but enough money to take the year off and enjoy life. During that year, of course, the bubble burst. They all come back to a nuclear wasteland in the internet sector. During that time, though, Stewart starts a blog. He’s always on the leading edge of what’s going on on the internet and he meets somebody in the blogosphere. He meets a woman named Caterina Fake who also famously had and still has a very popular blog during the time. They strike up a relationship through blogging. One thing leads to another, they end up getting married, and Caterina moves out to Vancouver.
Another relationship that Stewart fosters online, Stewart launches this thing initially during the year off as just a fun little competition he wants to launch called the 5k competition. I think it was a play on a 5k running [...]. The 5k competition was a challenge for people around the world to build websites that were five kilobytes or less.
Ben: Difficult then, literally impossible now.
David: I think a lot of these websites were black and white, very simple. It was like how cool of a website could you make, this was the challenge, in less than five kilobytes of memory.
Ben: Constraints inspire creativity.
David: Indeed. This probably wasn’t Stewart’s idea at the time, but if you could devise some rules to identify really talented programmers out there, what better way or thing could you come up with than something like this? A guy named Eric Costello, who I believe was in Saint Louis at the time, enters the 5k competition and Stewart is like, “Wow, what you’ve created is amazing. We should work together on something.” Eric ends up also moving out to Vancouver. This ragtag team of Stewart and Jason, his co-founder from Gradfinder.com, Caterina, his wife, and Eric of this whole web community, they decide, “We should do something together.”
Ben: The whole internet gets together in one place.
David: It’s almost like a commune, one might way, an internet commune. This is now 2002, it is nuclear wasteland in tech and the internet from a business perspective, but the four of these folks, they’re really inspired by these relationships they’ve built online, the power that they’re seeing still exist in the internet. They decide, “We can use web browser technology to create something pretty cool. Wouldn’t it be cool if we made a game where people could socialize and interact with each other and build these types of relationships just online in a browser through a more rich experience than these groups, bulletin boards, and things that people are using.”
Ben: Of course that would be very cool. Listeners, just think back to yourselves about websites you were using in 2002, web technology that was available in 2002, and then even think today how difficult it would be to implement a massive multiplayer online game using the web today. David, I suspect that that was quite a trying undertaking.
David: I think they knew this because they decided like most gaming companies, they’re going to have a name for the company and then they’re going to have a name for the game. The name for the company was Ludicorp. I think they knew the skill of the undertaking that they were embarking on here. They decided to name the game, Game Neverending.
Ben: Which would be prescient.
David: Also a prescient thing. The four of them, they worked on it for a while, they shipped an early version. These folks are already internet celebrities to the extent of that meant something back then. People started using it and there’s a community of people that really liked this early version. The team, it’s just the four of them, they can’t get enough money and resources to actually build out the real full vision of what they want to try and achieve. They’re trying to raise money, they can’t raise money.
Ben: In 2002, if you’re raising venture capital at all, it’s on terrible terms. It’s only for basically sure things or big enterprise software place. No one’s getting funded on a consumer dream to be able to do something like this.
David: Not to mention here are these equivalent of modern hippies hanging out in Vancouver who all met on the internet and two of them are married. I could just imagine a venture capitalist’s reaction at this point in time. They realized they got to do something. They’re not going to be able to raise venture capital, but they got to get some more money to make this happen.
Stewart and Caterina, as the story goes and Stewart swears that this is true, go to New York for a tech conference. This is all swirling in their heads. When they get there, Stewart gets food poisoning. He gets really, really sick. He’s up all night in their hotel room in New York, he can’t sleep, very sick. He starts getting basically fever dreams and hallucinating. I’m pretty sure this isn’t the first time Stewart has hallucinated, but in this particular time, when he’s hallucinating, this idea comes to him. The idea is, “Hey, we’re using some pretty cool technology in the browser that we’re trying to make this game with but we could use the same technology to build some other cool tools and services for consumers more broadly. If we did that and we built something, we could probably sell it pretty quickly.” Remember, he and Jason have sold Gradfinder.com already. They’re used to these quick flip ideas. Stewart is like, “If we make a side project, maybe we could flip it pretty quickly for a million dollars or so. We could use those proceeds to keep funding the game and then we can build out the game.”
Ben: All in the service of the game, of course.
David: He writes out all the ideas of things they could do on scraps of paper at 5:00 AM in the hotel in New York. He realizes that photo sharing and photo uploading is something they could do. I believe it was that they had built a photo uploader for the game that you could upload your profile picture, I believe that was the core of the technology.
Ben: I think, if I’m remembering it right, there was even an ancillary thing where you could upload alternative photos other than the profile picture. If people looked at your profile in the game, there were photos in there that you could use for other things.
David: “We could just repurpose this technology and let people share photos, more probably digital cameras are a thing.”
Ben: It should, theoretically, be an explosion of digital photography.
David: Totally. I was heading off to college at this point in time and all my classmates that were showing up as freshmen at college, everybody had their point and click digital camera.
Ben: You get your cool pics, you get your power shy, you get your Sony Digital ELPH. This is the era.
David: Oh man, the Sony Digital ELPH, I haven’t thought of that in years. The four of them, they decided, “We’re going to have a vote on this. Are we going to keep plugging away at the game or should we pause the game, go work on this photo sharing idea?” They do the vote and they decided not to do it. Stewart is outvoted.
Ben: Look Stewart, you seem like you got to get ahead on your shoulders.
David: But he literally came up with this during a fever dream. This would presage his skills and power as an executive, a CEO, and a broker of influence. He starts going to work on Eric. He sees Eric as the weak link here. He thinks he can get him to change his vote and he does. He gets Eric to change his vote, that pushes it over the edge, and the service that would become known as Flickr is born. We’re now in December of 2003.
Ben: Keep in mind, too, that the proposal that we should do, a photo sharing site, is still seven or eight years from being a meme. The notion of, “Yeah, we’re just going to pivot into photo sharing.” Not only were they the first ones to do that, they were a whole technology way before the set of people that you’re all laughing about in your heads on, “You had another photo sharing app. We are so far in the early innings.”
David: Photo sharing is not on anybody’s mind in technology. They realize, though, that if they’re going to really commercialize this service, they need some extra engineering resources. It’s just the four of them, again, isn’t going to be enough. What turns out, where do they turn, there is this guy in the UK, just outside of London, named Cal Henderson who is a hardcore fan of Game Neverending in the early prototype.
Ben: That’s how Cal and Stewart met?
David: This is how Cal and Stewart meet. Cal was such a hardcore fan. He’s active on the bulletin boards about Game Neverending. He wants to really get in there and help. He hacks their email servers.
Ben: “Hey, guys. I just want to say hi. I’m super talented.”
David: “Look at me, look at me.” I imagined, before this idea to start working on Flickr, they were like, “What are we going to do with this guy?” Stewart, again, in just showing these flashes of brilliance as an executive and marshal way of resources, he’s like, “You know what? Cal really cares about the game. We’re doing this new thing to get the resources to build the game, maybe Cal would help us.” He gets in touch with Cal and he convinces him to not work on the game but come help them build this service. It turns out, of course, as you would imagine, by Cal hacking into their email service, Cal is an incredible developer, a truly world-class developer.
Ben: Do they move him from the UK to Vancouver?
David: Eventually they do, but at first, remember they don’t have any money, Stewart’s like, “The way I’ll pay you is,” Cal [...] like all nerds at this time, he has an Amazon wish list, “how about as you start working for us, I’ll just buy you stuff off your Amazon wish list?”
Ben: Raised on a commune and somehow never left.
David: Amazing. Once Cal is onboard, things just fly very quickly. It was December 2003 when they decided to build Flickr, by February 2004 it’s ready. We’re talking 60 days or less, like 45 days.
Ben: You have some existing infrastructure to build it on because Game Neverending had servers and the ability to bring different people together on the internet. There was infrastructure, but it’s not like there was cloud services.
David: No, and no development frameworks, no Web 2.0 technologies. This is the invention of Web 2.0 technologies here.