Executive Summary:

Slack is a messaging application that allows users to collaborate via chat, phone, or video. Users can organize groups in so-called channels to work on projects or exchange information about certain topics. The Slack app is available via desktop as well as mobile.

The business model of Slack is centered around charging customers a monthly subscription. The company offers three different plans. These plans are aimed at small-, medium-, and enterprise-sized businesses.

Founded by experienced entrepreneurs in 2013, the company became an immediate success with users. Eight months after the Slack’s inception, they were able to reach a valuation of $1.12 billion. The continued success culminated in Slack going public in 2019.  

How Slack Works

Slack (short for Searchable Log of All Communication and Knowledge) is a SaaS messaging app that allows users to communicate with each other individually or in groups (so-called channels).

Slack is available on both desktop as well as mobile (on Android and iOS). The tool is primarily aimed at businesses and helps to facilitate and organize conversations across all teams and departments.

Channels can be used for teams, projects, office locations, or anything else that is relevant to a company.

Furthermore, users can share files with each other. Meanwhile, all (team) interactions are stored and searchable within the Slack app. And should you be tired of chatting, then Slack allows you to voice-call other users in your network.

Lastly, Slack lets you connect with your favorite third-party tools. Example applications include Zoom, HubSpot, or Trello.

A (Not So) Short History Of Slack

Slack was founded and launched in 2013 by Stewart Butterfield (CEO), Eric Costello, Cal Henderson, and Serguei Mourachov. To understand the company’s rise to prominence, it is worth taking a look at the life history of its main spokesperson – CEO Stewart Butterfield.

REUTERS/Brendan McDermid

His father David Butterfield moved to Canada in the 1970s after fleeing the North Carolina army base that prepared him to fight alongside other Americans in Vietnam. He met his future wife Norma and the pair joined a hippie commune in the fishing village of Lund, British Columbia.

Norma gave birth to Stewart in 1973, naming him Dharma, a Hindu term that can be translated to “virtue”. When Stewart was five, the family moved to Victoria, where his father started a successful construction business later on.

Meanwhile, Stewart began messing around with computers and taught himself how to code. At the age of 12, he changed his name from Dharma to Stewart. But instead of pursuing Computer Science route, Butterfield went on to study philosophy at the University of Victoria as well as Cambridge University, where he completed his master’s degree in 1998.

At the turn of the millennium, when the thirst for tech startups was at its all-time high, Butterfield moved back to Canada to start a gaming company. Game Neverending was, as the name indicates, a multiplayer fantasy game where users created characters that explored an infinite world (similar to Minecraft).

One of the game’s biggest fans was a young London-based programmer named Cal Henderson. In fact, he was such a big fan that he moved to Vancouver to work on the game together with Butterfield and his then-wife Catarina Fake.

By 2004, it became evident that the game was failing. But as part of the game, the team had developed a tool that allowed users to upload and share images. The day before a big tech conference in San Diego, the team scrambled together a quick prototype and presentation of the tool.

That demo ended up becoming Flickr.com, one of the world’s first platforms that allowed people to share photos with each other. And because of the platform’s focus on open-source, users were able to alter Flickr to their liking.

Flickr became an instant sensation with users all over the world, attracting millions of photo enthusiasts every month. A year later, Butterfield and company sold Flickr for a reported $25 million to Yahoo. At that time, funding for tech startups pretty much dried up, hence the team was somehow forced to sell the service to keep it running.

As part of the deal, Butterfield agreed to work at Yahoo and lead all development efforts regarding Flickr. But, as with any big corporation, he soon saw himself fighting for precious development and funding resources. Furthermore, many teams at Yahoo wanted to use Flickr’s photos for their own product development, which ultimately slowed down the progress of Flickr as well.

So in 2008, Butterfield (as well as Fake and Henderson) packed his bags and left Yahoo – with the goal of working on another game. This time, the company was named Tiny Speck and aimed to develop a game called Glitch.

Glitch, as the company wrote on its website, took place “in the far-distant and totally-perfect future, the world starts becoming less and less probable, things fall apart, the center cannot hold, and there occurs what comes to be called the “glitch” — a grave danger of disemprobablization.”

The company received a seed round of $1.5 million and was backed by the likes of Accel and Andreessen Horowitz. Butterfield knew Bradley Horowitz from his time at Yahoo where he served as an executive responsible for company acquisitions.

Tiny Speck raised two additional rounds in April 2010 and 2011 respectively, bringing its funding to over $17 million. Furthermore, the team finally released Glitch into beta testing, making it available to the wider public two years after they started working on the game.

After numerous attempts of launching the product and pulling back, Glitch had to shut down in November 2012. The company cited the inability to attract a big enough audience as the reason for closing down.

Luckily, the story does not end here – again. The company still had some cash reserves available from its previous funding rounds. And more important than that, they had something of much greater value.

Since the staff working at Tiny Speck was geographically dispersed, its engineers had developed an in-house tool that allowed them to communicate with each other. It became so ingrained in the team’s daily practices that Butterfield decided it would be worth selling it to other startups.

In May 2013, Tiny Speck began testing what would later become Slack with a total of 45 startup companies. Three months later, in August, Slack opens to the wider public.

Within 24 hours after launch over 8,000 companies sign up to use Slack. Tiny Speck officially rebranded to Slack Technologies in August 2014.

A year later, over 140,000 people used Slack on a daily basis. That number rose to 2.7 million within two years of operation. Furthermore, the average user spent over 10 hours a day using the Slack app.

With numbers like that, it came at no surprise that Slack became the fastest unicorn in startup history. Just eight months after the official launch, the company’s valuation rose to a staggering $1.12 billion.

Part of the reason why Slack grew at this unprecedented space was simply word of mouth. Existing users began recommending the tool to their friends and family, speeding up adoption at a rapid pace.

Another reason for its stellar growth was how easy and intuitive it was to sign up and use the tool. While many other competing chat applications had to be integrated into a company’s IT infrastructure, using Slack was just a few clicks and a download away.

Over the coming years, Slack continued to add new features (e.g. its infamous Slack bot or GIFs’s) as well as users to its platform. The continuous growth resulted in the company going public in June 2019. Today, over 2,000 people work at Slack across 19 different locations worldwide.

How Does Slack Make Money?

Slack utilizes a freemium model to attract users. This means that everyone interested can try out Slack and its applications for free – as long as they please.

Free users are restricted from accessing parts of Slack’s ecosystem as well as limited on the number of messages and files they can share.

To use some of the more advanced features, users will have to opt into one of the three premium subscription plans Slack offers. These include Standard, Plus, and Enterprise Grid.

Plans are charged on a monthly and user basis. For instance, the Standard plan costs $6.67 per month per user onboarded.

Some of the premium features include no limits on conversation history, group voice and video calls, advanced identity management, a dedicated customer support team and many more.

Slack customers include the likes of Shopify, AirBnB, Lyft, Oracle, Electronic Arts, and many others. More specifically, Slack now counts a total of 110,000 paying customers.

Slack Funding, Valuation & Revenue

According to Crunchbase, Slack has raised a total of $1.4 billion in 12 rounds of venture capital funding. Investors into the company include Accel, Andreessen Horowitz, Social Capital, Google Ventures, Kleiner Perkins, General Atlantic, and many others.

For its IPO in June 2019, the company pursued a direct public offering (DPO) instead of an IPO. In a DPO, companies raise capital directly from investors while IPO’s have investment banks or brokers underwriting (i.e. helping to sell stock to investors) the deal.

The company decided on the DPO route to avoid diluting existing shareholders. Furthermore, the company did not need to raise additional funds, but wanted access to the capital markets in case it plans to raise additional funds in the future.

Lastly, Slack shares won’t be bound to any lock-up periods, meaning existing shareholders (i.e. investors and employees) were able to immediately sell their stock. IPO’s normally have a lock-up period of 90 to 180 days.

For 2019, Slack reported revenues of $630.4 million, up 57 percent from the previous year. The company now counts over 110,000 paying customers (representing a 25 percent year-over-year increase). 70 of those customers pay Slack over $1 million every year.

Avatar
Author

Hi folks, my name is Matthew! During the day, I lead a tech team of 10 folks for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..