How to Turn Failure into Success: Lessons from Slack’s Stewart Butterfield on the Masters of Scale podcast

In Silicon Valley, entrepreneurs tend to celebrate a daring pivot. They see an opportunity. They act — and they don’t look back. Later on, they sound a bit like Caesar reporting to the Roman Senate: “I came, I saw, I conquered.”

But the truth is a lot messier.

There’s more to a pivot than a sharp left turn. First, there’s the opportunity you’re pivoting toward. Can you see it clearly enough to navigate toward it? Can you convince others to come along?

Then you have to pivot away from your old idea. This can be incredibly difficult, because it involves humans. And humans don’t tend to let go of old ideas easily. You risk blowback from your co-founders, your staff, your investors and your users.

This will likely be the single greatest test of your leadership skills, because your credibility will come under scrutiny. Are you even believable anymore?

Stewart Butterfield has pulled off two uncanny pivots. He has twice launched game companies, only to pivot toward game-changing communication platforms: first, as the co-founder of Flickr, the pioneer in photo-sharing; and second, as the co-founder and CEO of Slack — a platform for group communication within teams that has taken off in Silicon Valley and beyond. Both companies, believe it or not, started as online video games.

Here are 4 lessons on reinventing your business from Stewart Butterfield’s appearance on Masters of Scale. These lessons may help guide your decisions when things look bleak. To hear the entire episode and others, you can listen to the entire episode here, or subscribe on iTunes, Stitcher, or Art19.

Lesson #1: A great pivot almost always springs from failure.

Stewart’s first startup began as a game company. The game was failing. But from that failure sprung… Flickr.

“We had this game interface. In the game, you had an inventory, you could pick up objects. We made that inventory a shoebox full of photos. And you could do interesting things, like drag photos around on to group conversations, and they would pop up on the other person’s screen. You could annotate them in real time. And there was chatting in the game, so you could talk to the fellow players — that became a cornerstone of Flickr.
The game didn’t work. But we had something.”

This was the beginning of Flickr, but it wasn’t as simple as it might seem.

“That was the first idea for Flickr, which was actually really a terrible idea that had a lot of technological innovation, and so it wowed a lot of people, but it wasn’t a very useful product. Maybe three months in, it was pretty obvious that Flickr had legs. So people started to use it, people were talking about it, it got a lot of good press.
Almost all the photo sharing at that time was entirely centered around printing, and that was the idea of what people wanted to do with their general photographs. So that in one sense made it very easy. There was a lot of competition at the time — there was Snapfish, Shutterfly, there was Ofoto, which Kodak had bought, and Kodak had put a lot of muscle behind it.”

The difference maker? As it turns out, it was not just the technology. It was the understanding of a new type of media — social media.

“None of [the competition] thought of the Internet, as far as I could tell, as a social medium in itself, and a worthwhile place to put photos. Gradually, over time, we layered on the photos having titles, and descriptions. People could comment on them. Joshua Schachter from Delicious convinced me that tagging photos would be a good idea, and so we added tags.
And soon, we had a place where people could really play with them. I remember the very first tag for what just happened — someone posted a photo of a street lamp in the dark, and it was glowing in the mist. And they tagged it “glow project,” and they said, “Hey, other people, why don’t you upload things that are glowing and tag it with ‘glow project?’” And that was something that, as far as I could tell, had never happened on the Internet before — that invitation for joint creative exploration based on tags.
It all happened so fast. We launched in February 2004, and by March 2005, the acquisition by Yahoo! had closed. Basically a year in market, and maybe 10-and-a-half months before we were in the middle of negotiations.”

Lesson #2: Stack rank your best idea, dig in… and know when to quit.

Stewart’s second startup launched with a multi-player game called Glitch. It was conceptually fascinating, but it was failing… He couldn’t have known it at the time, but shutting it down created the opportunity to launch Slack.

“You’ll go through a period where you try a series of experiments: “What if we did this?”, “What if we tried that?”, “Maybe it’s just missing this feature.”
But they just didn’t work. The game was incredibly powerful for the small minority of people for whom it worked. So they spent 20 hours a week playing, and they were very committed, it was a super-tight community. But most people, like 97% percent who signed up, would be out of there within five minutes.
The thing that killed it was just leaky bucket — I mean, just like very classic, you can put it into Excel in five minutes, and see that this is not going to work.
There was this night where I just lost faith. I just realized, OK, I had tried the 15 stack-ranked best ideas we could possibly come up with to turn this around, and I don’t think the 16th was going to work if the first 15 didn’t.”

Lesson #3: Take responsibility for and care of your employees.

It’s never easy to shut a product or company down. And even when it’s the right business decision, you have to uphold the human side of the equation. Stewart’s human-centered approach to shuttering Glitch served him well in the long term.

“We had built up this community, they were very enthusiastic. And every death of an online community is its own kind of tragedy, because those people think they will be able to maintain those relationships, but if the community is gone, they often aren’t.
That’s really the hard part, and that’s the part that is difficult for people to get over — even at the point where it was apparent that continuing wouldn’t ever result in something that was going to be economically viable, or even sustainable.”

For an entrepreneur, sometimes the toughest moments are when the hard choices are not the obvious choices — even if it is for the best.

“And that was a tough conversation with our board and our investors because they actually wanted us to keep going. It was a tough conversation with the other co-founders, who also wanted to keep going.
We had those conversations, and then we called an all-hands. And I walk into the room — and it was an unusual all-hands; we hadn’t announced it before, so there was already some nervousness in the room. And I stand up, and start, and I didn’t even get to the first sentence and I was starting to cry. I locked eyes with one employee, who just three months ago had moved to Vancouver to come work with us.
He had moved away from where his in-laws lived, and his in-laws helped take care of his — I think at the time 18-month-old, or 2-year-old daughter — bought a house, and now I was telling him they didn’t have a job any more.
We made a website called Hire A Genius, and we put everyone’s LinkedIn up there, and everyone’s portfolio, and everyone’s photo. And we worked on writing reference letters and doing resume coaching.
We ended up getting every single person a job. We were able to give customers a choice of their money back, or they could let us keep it, or we could donate it to a set number of charities. So we were able to do that in a way that was really kind of elegant, and built a lot of good will that would be useful for us later.”

Note: That employee who lost his job 3 months after moving? He ended up coming back to work with Stewart at Slack.

Lesson #4: Storytelling may be the most potent tool in a pivot.

Start-ups often pivot their way to success; it’s just not possible to predict every stumbling block — or every opportunity. What matters most? Stewart argues, and I agree: It’s your ability as a founder to tell the story and bring others along.

“[With Slack] We went out and started trying to convince other people to use it, which was way harder than we thought it was going to be.
Social proof was a thing that we needed. So, we needed to be able to point to teams other than our own because, of course, we used our own product. So we had some friends who worked at Rdio — the music-streaming service, now defunct. And I was on the board of a company called Cozy, which is a landlord-tenant app, and I had a friend who had a company called Wantful, which is a gifting service. And we just went to their offices over and over again, and tried to figure out ways to explain why we thought it was valuable.
They were friends, first of all, and they were very tech-forward, they were enthusiasts, and they would want to try new products. But what actually made it hard was, you have to get a whole group of people to change all at once; it wasn’t just one person.
The benefit of that, though, once you’re able to break through, is once the group starts doing it, what was difficult about it becomes its benefit. It’s very hard to get the group to change to anything else once they switch. So Slack was a really interesting product to scale in the early days because it had very, very little network effect between companies, but a huge binary, 100% or just nothing, inside of companies.
We weren’t competing with anything else that was out there,other than the use of email, which is pretty much impossible to compete with, and whatever it was that people did — whether that was using a bug tracker, or a wiki, or Google Hangouts, or Skype. No one thought that they needed Slack.
If there was one piece of advice I wish I could phone back and give to myself was just concentrate on that storytelling part, on the convincing people. Because if you can’t do that, it doesn’t matter how good the product is. It doesn’t matter how good the idea was for the market, or what happens in the external factors if you don’t have the people believing.”

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