The Top 5 Side Projects That Became Billion Dollar Tech Companies and What You Can Learn From Them
Success is typically a combination of talent, hard work and luck. Luck often doesn’t just mean a chance occurrence like winning the lottery but instead having a mindset that creates, recognizes and seizes opportunities for success.
The ability to turn lemons into lemonade is a defining characteristic of successful people who seek how to turn even the biggest misfortune to their advantage. Today we’ll discuss a number of household names that grew to success exactly because their founders seized opportunities and snatched victory from the jaws of defeat.
Many know Instagram as the mobile photo app with 400 million monthly active users which was acquired for $1 billion by Facebook less than 2 years after it launched. However Instagram was not the original project its founders, Kevin Systrom and Mike Krieger developed.
Kevin Systrom’s original app was named Burbn and was intended to combine elements of Foursquare and Mafia Wars by allowing users to check-in to locations, make future plans with acquaintances, earn points for hanging out with friends, and post pictures.
As detailed in the Atlantic article Instagram was first called ‘Burbn’ after looking at how customers reacted to Burbn they decided to rewrite it from scratch with a new focus
Burbn was not, however, terribly successful. The app was too complicated, Sawyer points out, and had “a jumble of features that made it confusing.” Systrom, however, kept tweaking the app. He paid attention to how people were using it. He brought on another programmer, Mike Krieger; the pair used analytics to determine how, exactly, their customers were using Burbn. Their finding? People weren’t using Burbn’s check-in features at all. What they were using, though, were the app’s photo-sharing features. “They were posting and sharing photos like crazy,” Sawyer notes.
At that point, Systrom and Krieger decided to double down on their data: They focused on their photo-sharing infrastructure and scrapped almost everything else. Burbn would become a simple-photo-sharing app.
Lesson #1: The customer is always right. Mike & Kevin’s initial hypothesis was that users wanted a “better FourSquare” but once it became clear their users didn’t find that as interesting as photo sharing they decided to focus on that instead. It is very easy as an entrepreneur or product manager to get attached to an idea even after users tell you it isn’t very good and then tell you what they want instead. I’ve watched many products crash and burn because they had very good reasons at the time for ignoring their users.
Slack
Slack is one of the fastest growing enterprise apps of all time and went from launch to being valued at over $2.8 billion less than two years after it exited beta.
7 million people used for Slack daily and there were about half a million paying users the last time they shared their sales metrics in 2015. Slack’s success is reminiscent of a phoenix rising from the ashes.
The Pando Daily article, Third life: Flickr co-founder pulls unlikely success from gaming failure. Again details the challenging circumstances that led to the birth of Slack
The team spent months — then years — painstakingly designing critically lauded artwork and solving tough engineering challenges. But at some point, it became clear that Glitch did not appeal to the masses. “It was so weird and unfamiliar to people,” Butterfield says. “They’d be half an hour into this and they’d still be like, ‘What is this game?’”
The Glitch team experimented with different ways to onboard people: Explainer videos, different customer acquisition strategies. Nothing worked. Only five percent of people who tried the game stuck with it.
Then came that fateful day in November 2012, when Butterfield told the team he’d made the tough decision to shut down the company, tears rolling down his face.
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Before the holidays struck, they had decided to do a complete 180. They’d go from an imaginative and beautiful game to an enterprise communication application. Two ideas that could not be more drastically different.
Why enterprise communication? Well, it was the only product they had up their sleeve that made sense.
The Glitch team had built an internal chat system while they developed the game. Every employee would work on it in their spare time. Although it was clunky, its features were robust.
When it came time for the pivot, Butterfield and his remaining team decided they’d spin out that feature and try to turn it into a company.
Lesson #2: Internal users can be just as good as external customers in validating that an idea is great. The Glitch team worked on, tested and continuously improved an internal communication tool that eventually worked so well that when they released it they were overwhelmed by how much their users loved it. If a product team doesn’t care about the product they are building enough to love using it then how can their customers? Although seemingly obvious, it is amazing how often teams build and deliver products that they themselves believe are clunky and unusable but decide that this is acceptable because building a great experience is too hard or costly and that their users wouldn’t care. One thing that we’ve learned over the past decade is that there is always room for a well designed experience to completely dominate a market when it shows up.
Groupon
At the start of the decade, Groupon won the achievement of becoming the fastest growing company of all time by making $500 million in revenue within the second year of its existence. Groupon then went on to have the largest IPO since Google’s which ended up valuing the company at over $13 billion.
Before there was Groupon, there was The Point. A website dedicated to organizing people around a cause. So how did this evolve into the group buying website and app that we all know today? This history is detailed in Business Insider’s INSIDE GROUPON: The Truth About The World’s Most Controversial Company which states
In January 2007, with Lefkofsky’s backing, Mason started working on a company — a do-gooder enterprise called The Point. The Point was a social media platform designed to get groups of people together to solve problems.
The Point was not intended to be a big money-making enterprise, and by one early employee’s account, that was fine with most of the staff.The Point launched in June. It gained modest traction in Chicago, but basically went nowhere.
Every Monday, Lefkofsky, Mason, and a handful of early employees would meet to talk about the Point’s progress. One Monday, in the middle of 2008, Lefkofsky raised an idea he thought could revitalize the struggling start-up, based on a campaign he’d seen launched on The Point.
Ordinarily, people used The Point to organize around some sort of cause that might make the world a better place.
But in this case, a group of users decided their cause should be saving money. Their plan was to round up 20 or so people who all wanted to buy the same product and see if they could get a group discount.
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Through the rest of the summer and early fall of 2008, Lefkofsky would not let that idea go. He’d bring up all the expensive purses his wife and all her friends were buying, and say, “It’s crazy! Couldn’t they buy 20 of them and get a discount?”
Around this time, the global economy entered free-fall as the sub-prime mortgage crisis exploded and credit markets ground to a halt. Then in September 2008, Lehman Brothers filed for bankruptcy and famous Silicon Valley venture capital firm Sequoia sent out a presentation called “R.I.P. Good Times.” Mason and Lefkofsky decided to lay some people off.
“There was this pressure from the market crash [and] looking at our burn rate and revenue — it was time for us to try something to scratch that itch,” says a source close to early employees.
Groupon — a side project launched out of desperation by a team of do-gooders who professed no real desire to make big bags of money — was born.
Lesson #3: Timing is important. A good idea launched at the wrong time is indistinguishable from a bad idea. One of the things that made group buying attractive was that it launched during the Great Recession when consumers would be more amenable to saving money via discounting and business owners were looking for ways to get lots of people in their stores & restaurants.
A few years ago Wired wrote an article titled Turns Out the Dot-Com Bust’s Worst Flops Were Actually Fantastic Ideas where they pointed out that many of the ideas behind failed web companies in the 1990s such as online grocery delivery (Webvan) or same day delivery (Kozmo) are now being competitive markets with lots of players like Instacart, PostMates and Amazon Fresh.
There are few media platforms that can claim to be as influential as Twitter has been in recent years. With over 300 million monthly active users and being on track to make about $3 billion per year, Twitter is a success story. But it is a success story born from failure like the other products in this post.
Business Insider has a great piece on the founding of Twitter titled How Twitter Was Founded
Next, Odeo moved into an office and started hiring more employees — including a quiet, on-again, off-again Web designer named Jack Dorsey and an engineer named Blaine Cook. Evan Williams became Odeo’s CEO.
By July 2005, Odeo had a product: a platform for podcasting.
But then, in the fall of 2005, “the shit hit the fan,” says George Zachary, the Charles River Ventures partner who led the firm’s investment in Odeo.
That was when Apple first announcediTunes would include a podcasting platform built into every one of the 200 million iPods Apple would eventually sell. Around the same time, Odeo employees, from Glass and Williams on down, began to realize that they weren’t listening to podcasts as much as they thought they would be.
Says Cook: “We built [Odeo], we tested it a lot, but we never used it.”
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Odeo co-founder Noah Glass gravitated toward Jack Dorsey, whom Glass says was “one of the stars of the company.” Jack had an idea for a completely different product that revolved around “status” — what people were doing at a given time.
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One day in February 2006, Glass, Dorsey, and a German contract developer Florian Weber, presented Jack’s idea to the rest of the company. It was a system where you could send a text to one number and it would be broadcasted out to all of your friends: Twttr.
Lesson #4: Fail Fast. A common trap for product teams is to work on a failed idea way past its “sell by” date. Once the it became clear to the Odeo team that they couldn’t build a more compelling podcasting experience than the one built natively into the iPhone platform they gave investors back their money and decided to focus on Twitter instead. We all only have a limited time on this planet. Don’t waste it keeping a bad idea alive.
On a side note, it is interesting to back look at the decade old post by Mark Arrington on TechCrunch wondering what Odeo’s shareholders think of the company wasting time on side projects like Twttr.
Last but not least is Pinterest. The company is currently valued at $11 billion and had 78.5 million unique users from the US according to Comscore. The story of Pinterest is very similar to others we’ve just read and is detailed in the Fast Company article The Pinterest Pivot which is excerpted below
Before Pinterest became social media’s fastest growing website, andlanded on the cover of Fast Company, CEO Ben Silbermann set out to transform every cell phone into a clothing retail outlet with an app called Tote.
He didn’t succeed.
Designed to change shopping on your phone from being a “pain” to “easy and fun,” according to its Facebook site, Tote connected consumers with dozens of retailers, including Banana Republic, Anthropologie, and American Apparel.
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While the app was a suitable replacement for bulky catalogs, what Tote didn’t do was make mobile payments easy. At the time, the payment technology just wasn’t advanced enough to allow for simple, on-the-go transactions, said Cohen in a telephone interview. “There wasn’t the level of sophistication that there is today.” (Cohen, chairman of New York Angels, made clear he was not speaking on behalf of the company, only giving his perspective as an investor — and he declined to disclose how much he’s invested.) The lack of a workable transaction system was more than a little inconvenient for an app that marketed itself as making shopping more convenient. It threatened its very existence.
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Cohen claims he wasn’t concerned that Tote was a dud and Silbermann decided to move in another direction. He was backing Silbermann, not any particular business model. And besides, Cohen said, he viewed the Tote-to-Pinterest transformation as an “iterative” one, a “direct outgrowth of what he learned from the first business.” Silbermann, Cohen said, saw “an unmet need, and obviously a huge opportunity.”
There are lots of similarities with the elements of our previous lessons in this story. There is the notion of failing fast once it was clear that the timing wasn’t right to provide a mobile shopping experience given mobile payments weren’t seamless at the time. Most importantly there’s the element of listening to customers by watching what features resonated the most in the original app and then focusing on those in the new app similar to the Burbn ➡Instagram transition.
Lesson #5: Treat every failure as an opportunity. The overall lesson from all of these companies is that it is possible to snatch victory from even the most terrible defeat in business if you seize opportunities as you encounter them instead of giving up. Remember, according to research luck is mostly just another name for creating and taking advantage of opportunities.
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