General Partner at Spark, Spark Capital
Building Sticky Products with Cal Henderson and Megan Quinn
Slack co-founder Cal Henderson and Spark Capital general partner Megan Quinn will discuss what it takes to create a ...
About Megan Quinn
Megan Quinn, a general partner at Spark Capital, has spoken about the challenges companies face as they scale, emphasizing the importance of establishing communication processes earlier than feels necessary. She has described a pattern she observes in organizational design, noting that every time a company adds roughly 30 people, its communication strategies break down. Quinn has also discussed the qualities she looks for in founders, stating that the first quality she uniformly seeks is a deep sense of ethics, and that she must be able to trust that the individual is a good person with good intentions. Quinn has shared her perspective on venture capital, describing it as "overrated" and noting that it is only one model for funding entrepreneurs. She has said that the majority of businesses are not suited for venture capital and that many entrepreneurs would be better served by different types of capital. She has also discussed her personal approach to work, stating that she does not believe in work-life balance but rather a "work-life blend," and that she guards early morning hours for reading.
Transcript (37 segments)
M
Megan Quinn0:05
All right, it's been a year for Slack, probably the most important year in the company's history. So I want to talk about the direct listing. I want to talk about everything that happened this year. But I think we should start rewinding a little bit and talk first about Glitch, the game that Slack began as, or tiny speck. Can you just tell us the moment you realized that Glitch wasn't going to work?
S
Stewart Butterfield0:30
Yeah, so I mean, we started the company to work on this video game, and we spent four years on it. I think really in retrospect, the last year we knew that it wasn't working out. It was hard to admit to ourselves that the thing we wanted to build wasn't going to work. It was also in that kind of curse of not being so unsuccessful that it was obviously a failure, and we sat on the fence for too long. We thought the next thing we do is going to really move the needle, bend the curve, and then we'll be successful. So it was a long time coming to the realization that it wasn't going to work out, and making that difficult decision to just stop doing it and wind the company and the product down. That was a really tough choice, a really difficult time. Both from deciding and realizing that what we wanted to do wasn't going to work, and also having to lay off a whole bunch of people that we convinced to come work at our startup. It was a harrowing experience.
M
Megan Quinn1:29
There was no aha moment?
S
Stewart Butterfield1:31
Not really. We'd be talking about it for some time. It was a kind of not even a decline, just we never managed to get the ramp that we needed. We would have this conversation periodically: should we continue, should we do the next thing, what would success or turning the corner look like? We realized we had quite a few months of runway left before we'd have to make the decision to raise capital or not, and we didn't want to hit the end of our runway there.
M
Megan Quinn2:05
So Megan, you've been an investor in Slack for years now, and you first connected with the company in 2013 via a DM with Stewart Butterfield, the CEO and co-founder of Slack. Can you tell us what that message said?
Yes, so I first connected with Stewart at the beginning of 2013. I was about six months into my role as a partner at Kleiner Perkins, but I had previously been the head of product at where. He, I think out of the blue, sent me a DM that said, 'Want a job? Fuck that VC thing.' And I didn't take him up on it, obviously, which in retrospect maybe a mistake. But I did get together with him to learn more about the product and became a beta tester in the beginning-ish of 2013. As I've mentioned, if anyone here is new to Slack, you can understand why Slack in single-player mode is not the most enthralling of products. It's like shouting into the void. But I was really excited about it, and I continued to stay in touch with Stewart for a number of years.
What did Stewart say to you in that coffee meeting you had, what was it, five, six years ago?
S
Stewart Butterfield3:18
He was just talking about his idea and plans for Slack and how it came to be. Obviously, it was a tool that the team had been using while building Glitch. He wasn't an enterprise SaaS guy, but he was a product person, and he really understood and empathized with people in the workplace who were looking for new ways to communicate. He had found something that worked for Cal and him and the team, and they were excited to get the Glitch folks on it. I think at that summer, you should correct me, Cal, I think there was like 30 beta customers at that point before they ended up launching out of beta on Valentine's Day.
Yeah, I mean, as you said, because it's not a product that one person could use by themselves, it was a real uphill battle getting our first few test customers. It's not convincing somebody, it's convincing somebody to convince their team. So we went around to friends' companies in San Francisco and spent time trying to convince people. They often took like three or four meetings of going to somebody's office and being like, 'Please use this potentially shitty product.' But those initial users and alpha testers were huge in the development of the product and us understanding what we needed to build. We had a pretty clear vision of the kind of product we wanted to create, and it worked really well for us as a team. But just getting it into the hands of other people and watching them work immediately brought a whole bunch of things to light about the design of the product that we would need to evolve. We spent much of 2013 in that iteration phase of making it work for other teams. At the time, there were other teams that, like us, were smallish software companies based in San Francisco who were very early adopters of technology. But still, finding that product-market fit was what we spent most of the first year doing.
M
Megan Quinn5:19
OK, let's jump to present day. So in June, you guys completed a direct listing, highly anticipated, tons of headlines. It was only the second really of its kind, following Spotify which did it a year prior. Which one of you guys wants to take the difficult task of explaining to the audience what a direct listing is?
S
Stewart Butterfield5:37
Well, I'm happy to take that one. So as a company, we wanted to become a public company, and there are a lot of advantages to us of being a publicly traded company and the rigor and scrutiny that comes along with that. But we didn't need to raise capital. The usual process of the IPO is taking on additional dilution to sell new shares to raise capital for the business. We already had enough capital and didn't need to raise. So it's much of the same process, and you work with the same banks and end up with the same outcome, but we didn't raise capital. And we were able to offer liquidity to our employees and shareholders much sooner as well. There isn't the same lock-up period around it.
M
Megan Quinn6:22
So there's been a lot of talk about direct listings lately, especially just in the last few months. Slack did it. A lot of VCs on Twitter, a lot of VCs blogging about it. There was a conference yesterday about direct listings bringing together much of Silicon Valley's top investors, which you were there, of course. What's your take on direct listings?
I mean, as someone who invests in companies who are upending the status quo, there's something sort of innately appealing about a financial vehicle and instrument that is upending how things have been done for a long time. But I do think it's important to underline that direct listings aren't for everybody. As Cal mentioned right off the bat, one of the unique things about a direct listing today, at least, is that you don't raise capital. So it's really only appropriate for companies that don't need to raise capital as part of their public offering. But there are other requirements too that I think are still being sorted out by the market. You have to have a product and a business that people can easily understand, and you have to have an executive team that's willing to get out there and pound the pavement and tell that story, because you don't have research analysts who are assigned to cover you. And I think frankly, most importantly, you have to have shareholders who are willing to sell, because you need something that's actually going to trade on that first day, and you need enough of it that there's not going to be crazy volatility. So there are a number of requirements for a direct listing, but there are also a lot of benefits. I think some entrepreneurs feel like it's a more transparent and egalitarian process. You can put all your materials online. I think some folks find it appealing that rather than having underwriters line up investors and set the price themselves, you just let the market have at it and come what may. I also think, as Cal mentioned, there's no lock-ups. You don't have this wall of fear at some point in the future. So there are a lot of benefits as well. And of course, yes, the same banks are involved, the fees are less, but they're still the banks that are involved.
One of the things you said backstage was that many of the companies you work with, direct listings are at least part of the conversation now when they're discussing IPOs. So what are your predictions going into the next few years? How many more of these do you think we're going to see?
I think Spotify and then Slack have opened the door for more direct listings for sure. There have definitely been rumors as recently as this week of other big companies that are going to go through that door. So I think we'll continue to see more of them. I think what's unproven right now is to what degree you need to have brand recognition, or more importantly, what degree you need to be super scale for it to be an appropriate vehicle. There can be great companies, great businesses, but maybe they're only going to be valued at a billion at max. Is the direct listing the right vehicle for them, or do they need some more of the support and infrastructure of traditional banks? So I think you will see more of them. I can't predict five years from now if it's going to look like 50/50 or whatnot, but I do think that there's going to be more exploration around alternative paths to public markets.
So when Slack launched, it was this very innovative tool to communicate with employees at your company. But since then, there have been many copycats, as there often are with companies like this. One of those was Microsoft, which launched Teams, I think it was maybe 2016, 2017, so years after Slack launched. And you guys had published an ad in the New York Times kind of playfully saying, 'Welcome to the market, it's not easy.' I'm wondering, has the sentiment around Microsoft and the force of Teams changed at Slack?
S
Stewart Butterfield9:49
Having Microsoft in the space is definitely a company to be very aware of. They are a very capable large company with an incredible track record on the sales side. On the one side, I think it's been good for us as a kind of market validation. Sure, there are a lot of other small companies that try something like Slack, but if Microsoft is building a product in this space, it's a clear marker that this is a category that is going to continue to exist into the future, and that there is a strong belief that this kind of tool is something every enterprise is going to want at some point. I think we have uniquely, maybe for an enterprise software company, from the beginning really focused on the user experience and what it is like to use Slack. A lot of our early growth was driven from people just picking it up and trying it and finding it useful and liking it, which is definitely not the way people used to build enterprise software. I think we are continuing to take that approach to making a really great experience that people love to use, and I think that can be a strong competitive advantage for us in an enduring way.
M
Megan Quinn11:07
And I just have to add, if you go to Google Trends right now and you look up Microsoft Teams, the top trending associated terms are 'how do I uninstall Microsoft Teams' and 'how do I get rid of Microsoft Teams.' So there are definite benefits to owning your distribution channel, but also from a consumer standpoint, some real drawbacks.
But that's the thing. Microsoft can bundle Teams. A lot of people use Microsoft products, and they have the upper hand, or they have an advantage in that they can just sort of be like, 'Take it,' even if you desperately want to uninstall it. So I think many see that as a threat to Slack, and I think partially why maybe some are bearish on Slack stock.
S
Stewart Butterfield11:49
The majority of enterprise companies in the world are Microsoft customers, the vast majority. But many of those companies are Slack customers too. So I don't think that we see their distribution power as a threat. One of the goals with the product is that we want every bit of software that your company uses to be made a little bit more useful, a little bit more valuable by using it with Slack. If you're an enterprise company, some of those tools come from Microsoft, and we want to make them better using them with Slack. And a whole bunch of them don't come from Microsoft. The trend over the last decade in software in the workplace is a proliferation of categories and tools. The average medium-size company today is buying a thousand different software tools to use in the workplace, and an increasingly smaller portion of that over time is coming from Microsoft or the very big vendors. So we see part of the vision of the integration platform in Slack is that we want those 5% of apps that come from the very big software vendors and the other 95% of apps that you're using to be productive in your marketing team, your sales team, your accounting team, your accounts payable team. That's how we look at it.
M
Megan Quinn13:04
So one of the things you mentioned, you were able to do a direct listing because you guys were so well capitalized. You raised what, a billion dollars? A lot of money as a private company. And one of your investors was SoftBank. So do you want to ask... going into the IPO, SoftBank owned 7%. And there have been many conversations over the last few years around SoftBank and the fact that much of their capital is from the Saudi Arabian government. So I'm just curious how you have felt about Slack taking money from SoftBank over the years.
S
Stewart Butterfield13:34
I think the way that I feel towards the actions of the Saudi Arabian government, there is definitely... the anniversary of the murder, that's abhorrent. How we think about it is a very hypothetical question because this is the situation today. We're a public company that's very well capitalized. If we were still a private company and we needed to raise capital today, raise a large amount of capital, then we would use all the information that we could when assessing and doing our due diligence on each investor. Which is to say, you may very well not have taken capital from SoftBank knowing what you know now. We would have a lot more information today than we did when we took that capital from SoftBank.
M
Megan Quinn14:20
Megan, similar for you. I mean, you co-invested obviously. I think you were in Slack first, an investor before them. I'm not sure if you've co-invested in other cases. But how does that feel? Is that something that you want? And how do you feel about SoftBank and its role in Silicon Valley venture capital?
I mean, I tend to say that if we are looking at the same deal as SoftBank, one of us is looking at the wrong deal. They are traditionally looking at extremely large investments, $100 million is famously the minimum, but $200, $300, $400 million. They are really capitalizing, I think some people argue over-capitalizing, businesses to an extent that it's just not appropriate for us. We're writing $30 million checks, and so we really think about venture growth as opposed to sort of that late-stage equity that they're doing. I have general views on raising that much capital. It's not necessarily even specific to SoftBank. There are other vehicles for raising that amount of capital that I think we're seeing a little bit of a backlash against right now. I think it's really important to understand your business and understand how you're going to put that type of money to work before you raise it. I think we've seen some loosening of that over the past few years that I feel and sense there is a tightening around now.
If SoftBank went away today, do you think that would be a net positive or negative for the ecosystem?
It's hard to imagine the Japanese tech ecosystem without SoftBank, so that's kind of hard to say. I wish they weren't writing quite such big checks, that's for sure. It does feel like a lot of companies raise more capital than they really know what to do with responsibly. So I can't imagine a world where there's no SoftBank, but I can imagine a world where potentially SoftBank isn't writing the types of checks that they're writing today.
And the last question I'm going to ask about SoftBank. I'm curious, what kind of value would you say they added just to Slack?
S
Stewart Butterfield16:19
The expertise in the market in Japan is huge for us. They are the market category leaders in understanding enterprise in that market, which is a very important market for us. It's one of our larger markets as well. That was why they were such a strategic investor for us.
M
Megan Quinn16:37
So we are rapidly running out of time, but I do want to end by talking just quickly about notification fatigue. So before we get into it, could you just tell us what Slack is intended to be used for?
S
Stewart Butterfield16:48
Intended to be used for work, work teams and collaboration in the workplace. Regardless of the industry you're in or the role that you fulfill, if you're in a role where you communicate with other people in the workplace, then Slack is for that.
M
Megan Quinn17:03
So I mean, as you know, many people do say Slack has been detrimental to work because of constant notifications. Some have written that it's actually ruined productivity, which is maybe an extreme or hot take. And Megan, you said you are quite... you're shaking your head because you're a power user of Slack, you like Slack. But I guess, how can we... do you think people are using Slack wrong?
S
Stewart Butterfield17:24
I think that a lot of this sentiment comes really from the rise of the smartphone in the workplace. This really changed completely how we work over the last decade. Because you have this device with you all the time that's always connected, it's very easy to always be in a state of semi-working, where you're never like you used to be at work or not. Now you can always be in the workplace. I think that's a general global trend rather than something that's more specific to Slack. But I think we're very cognizant of that and have built features around the product to try and put those controls in the hands of the users. That's things like Do Not Disturb hours when you don't want to be notified of things, or being able to hook up Slack to your Outlook calendar so that when you're in a meeting or when you're traveling, your status is automatically there and lets people know whether you're available or not. Or other custom status or fine-grained notification preferences to put that control back in the hands of the user. There's the social aspect or societal aspect of it, and then there's the what controls can we give users to be able to control when they want to be interrupted.
M
Megan Quinn18:34
So it's impossible that people aren't leveraging these tools that you created to help them manage their notifications?
S
Stewart Butterfield18:41
To the extent that that's true, that's our fault. We're the providers of those tools and can always do a better job of educating our customers around how we think Slack can best be used and set up.
M
Megan Quinn18:55
I will say, as a minute-less active user, if that's a thing, one of the things that Slack has really enabled is actually the reduction in using other different types of applications and having to constantly go check lots of different types of apps. Because the nature of Slack as an integrator means that I can gather insights and data and information right where I'm having the conversation with my team about the very things that we would have to be going off and pulling from elsewhere. So I do think that's another feature and functionality of the platform that's really been extremely powerful for me.
S
Stewart Butterfield19:24
Yeah, I think that as there has been that explosion of software categories in the workplace, work has become fragmented. Part of Slack is pulling that all into one place so that all of the different work that happens across your organization is in a single pane of glass.
M
Megan Quinn19:41
Well, I wish we had more time, but we are sadly out of time. So thank you both so much. I hope you'll come back. Thank you so much.