Slack is currently one of the most popular business communication platforms. It launched in 2013 and went public in 2019 with a market value of $19.5 billion.
Slack is a lightweight communication tool that helps teams stay organized. Users can easily share documents, images, and messages in the workplace or across remote distances.
With Evernote, Trello, Dropbox, and dozens of other business tools as competition, how did Slack manage to succeed?
The success of Slack is a unique story that includes the rise and fall of two separate video game companies and the sale of one of the most popular photo-sharing tools. Here’s a closer look at how Stewart Butterfield & Cal Henderson built Slack.
Video Game Project Leads to Surprisingly Useful Tool
Slack was not the first successful platform developed by Stewart Butterfield. It’s also not the first platform that he originally designed as a tool for a video game.
Butterfield was born in British Columbia, which is also where he built his first company. He founded Ludicorp in 2002 to develop a video game called ‘Game Neverending’.
The game focused on social interaction & had no set objectives, giving players the freedom to do whatever they choose. Players could also upload screenshots and photos using a built-in tool. The innovative project was a massively multiplayer online (MMO) game played on web browsers. However, it failed to attract an audience.
Game Neverending went live in 2002 and shut down two years later. The game was not a hit, but players seemed to enjoy using the built-in photo-uploading tool.
Butterfield saw the potential for the built-in tool and developed a new platform out of it – Flickr. Flickr was launched by Ludicorp in 2004. Butterfield sold it to Yahoo a year later for $22 million to $25 million. Yahoo kept Butterfield as the general manager of the photo-sharing platform until he quit in 2008.
Tiny Speck Develops Another Useful Tool
Stewart Butterfield left Yahoo to pursue his original passion of building an MMO game. He cofounded Tiny Speck in 2009 to start work on his new video game project. Butterfield was joined by Cal Henderson on this project.
Henderson was the administrator of a fan website for Butterfield’s previous game, which is how the two became acquainted. Henderson co-founded the new company and acted as the VP of engineering.
The new game was called Glitch and included many of the design elements introduced in Game Neverending. Butterfield wanted the game to be entirely web-based and accessible to a wide range of players.
Tiny Speck managed to raise $5 million in funding from investors Andreessen Horowitz and Accel Partners. Another $10.7 million was raised in 2011 during the second round of funding.
Glitch Fails to Build an Audience
Glitch featured a 2D environment with casual gameplay. It focused more on gathering items & crafting new items instead of combat. Players could also work together to complete quests and build new things.
The game was free to play and included in-game purchases. Butterfield hoped that the game would become profitable after gaining about 100,000 users. Unfortunately, Glitch was another doomed project for Butterfield.
Glitch officially launched on September 27, 2011. It was generally well-received by critics. The AV Club gave the game a score of B+. Despite the positive reviews, the game didn’t gain enough users.
Butterfield and Henderson also wanted to work out a few of the kinks in the game. Less than two months after the official launch, Tiny Glitch reverted the game to beta status.
The game never fully recovered. It was shut down in December 2012.
As with Game Neverending, Butterfield and his team built a unique tool during the development of Glitch. The developers created an internal communication tool to connect the company’s US and Canadian offices.
An Internal Tool Becomes a Commercial Success
In August 2013, Stewart Butterfield announced a “preview release” of Slack. Tiny Speck had continued working on the tool after shutting down Glitch.
Butterfield and Henderson knew that Slack was incredibly useful for connecting their small teams of developers. However, they also recognized that large-scale use would bring additional challenges.
Tiny Speck initially limited new users to test and improve the features of Slack. Users had to request an invitation to receive login credentials. They didn’t rely on advertising to attract its users. Business professionals in the tech sphere were already eagerly anticipating the arrival of Slack.
Butterfield was already well-known in Silicon Valley after selling Flickr to Yahoo. After closing Glitch and announcing a potential new communications tool, people were waiting to see what Butterfield would release next.
Eight thousand people requested to be invited on the first day. Another 15,000 people requested invites the following week.
Slack Finally Releases
Tiny Speck released Slack publicly in February 2014. The software grew its user base at a rate of 5% to 10% of new users each week throughout the rest of the year.
The company had over 60,000 daily users & 15,000 paid users within 10 weeks of the public launch.
In April, the company raised $42.8 million during a round of Series C funding. Another $120 million was raised during its Series D funding in October. By August 2014, Slack had acquired over 120,000 daily users. The same month, Tiny Speck officially changed its name to Slack Technologies.
Slack continued to grow, despite the company not using traditional advertising. The tool grew in popularity through word-of-mouth advertising and positive media coverage.
The success of Slack was bolstered by the large companies that started using the software. Medium, Lonely Planet, BuzzFeed, and SoundCloud are a few of the major businesses that were early adopters of Slack.
Slack Becomes the Victim of a Cyber Crime
The success of Slack also led to new risks, including the potential for data theft. Businesses use Slack to collaborate on projects and keep teams connected. As a popular business communications tool, Slack naturally became a target for cybercriminals.
Shortly after receiving $160 million in funding during its Series E round, Slack announced that its central database had been compromised. Hackers gained access to usernames, email addresses, passwords, phone numbers, and Skype IDs.
After the attack, Slack decided to add two-factor authentication to the login process. The company also added a “kill switch” for instantly resetting passwords.
Slack Delivers What Users Need
Butterfield stuck with the freemium business model that he used for his video games. Slack is free to use but includes a variety of paid plans for those that need access to more features.
One of the main advantages of Slack over the competition is the ability to view thousands of previous messages. Most communication tools make it difficult to easily search past conservations and threads. Other tools also often cap the total messages stored.
With a free account, users can access up to 10,000 of their most recent messages. The paid plans allow users to access all messages from the organization’s message history.
Slack also integrates with some of the most popular business apps, including Office 365 and Google Drive. It also includes multiple built-in features that simplify the way that workers collaborate.
For example, users can use Slack to send messages, share files, and manage workflows. It also provides the flexibility to meet the needs of any organization.
Developers enjoy using Slack due to the variety of integration tools. Companies can alter the software to integrate with existing platforms for a seamless transition. General users like using Slack due to its ease of use and streamlined interface.
Slack Releases its Direct Public Offering
Butterfield decided to go with a direct public offering (DPO) instead of an initial public offering (IPO). With a DPO, banks don’t underwrite the offering. The executives at Slack were confident that their product was ready for a public offering. Slack had over 10 million daily active users and was still experiencing significant growth.
Slack shares started trading on the New York Stock Exchange on June 19, 2019. The exchange set a reference price of $26, but the shares opened at $38.50. The jump in stock prices put Slack’s market cap at close to $19.5 billion.
The software was a major success. Slack went public just before the start of the COVID pandemic. The year of 2020 saw a large shift in the way businesses operate. The sharp increase in remote work arrangements led to increased demand for tools such as Slack.
By the end of 2020, companies were starting to show interest in acquiring Slack. Salesforce, the leading customer relationship management (CRM) platform, managed to set the right price.
Salesforce acquired Slack for $27.7 billion on July 21, 2021. In the end, the success of Slack proves that entrepreneurs should look for opportunities in unexpected places.
Stewart Butterfield & Cal Henderson had built and sold a multibillion-dollar company in less than a decade. They managed to develop an intuitive communications tool during the development of a video game. The duo then spun that tool into an enterprise-level platform.
Creating one of the most popular online communications tools was not Butterfield’s original goal. However, he saw the opportunity and went for it. The result was a $27.7 billion acquisition.
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 100k entrepreneurs to start, run, and grow their businesses.