My First Million - Asking The Founder Of Grammarly How He Built A $13 Billion Company

Episode Date: February 16, 2022

Sam Parr (@theSamParr) sits down with Max Lytvyn (@Max_lytvyn), co-founder and head of revenue at Grammarly, to talk about the founding story of the company, how he grew it from 0 to $13B in revenue, why he decided to hire an outside CEO, and much more. ----- Show Notes: (00:00) - Max's background (05:15) - Why people underestimate Grammarly (12:00) - Grammarly's breakthrough moment (24:40) - Business ideas that go with Grammarly ----- Links: * Do you love MFM and want to see Sam and Shaan's smiling faces? Subscribe to our Youtube channel. * Want more insights like MFM? Check out Shaan's newsletter. * Grammarly.com ----- Past guests on My First Million include Rob Dyrdek, Hasan Minhaj, Balaji Srinivasan, Jake Paul, Dr. Andrew Huberman, Gary Vee, Lance Armstrong, Sophia Amoruso, Ariel Helwani, Ramit Sethi, Stanley Druckenmiller, Peter Diamandis, Dharmesh Shah, Brian Halligan, Marc Lore, Jason Calacanis, Andrew Wilkinson, Julian Shapiro, Kat Cole, Codie Sanchez, Nader Al-Naji, Steph Smith, Trung Phan, Nick Huber, Anthony Pompliano, Ben Askren, Ramon Van Meer, Brianne Kimmel, Andrew Gazdecki, Scott Belsky, Moiz Ali, Dan Held, Elaine Zelby, Michael Saylor, Ryan Begelman, Jack Butcher, Reed Duchscher, Tai Lopez, Harley Finkelstein, Alexa von Tobel, Noah Kagan, Nick Bare, Greg Isenberg, James Altucher, Randy Hetrick and more. ----- Additional episodes you might enjoy: • #224 Rob Dyrdek - How Tracking Every Second of His Life Took Rob Drydek from 0 to $405M in Exits • #209 Gary Vaynerchuk - Why NFTS Are the Future • #178 Balaji Srinivasan - Balaji on How to Fix the Media, Cloud Cities & Crypto #169 - How One Man Started 5, Billion Dollar Companies, Dan Gilbert's Empire, & Talking With Warren Buffett • ​​​​#218 - Why You Should Take a Think Week Like Bill Gates • Dave Portnoy vs The World, Extreme Body Monitoring, The Future of Apparel Retail, "How Much is Anthony Pompliano Worth?", and More • How Mr Beast Got 100M Views in Less Than 4 Days, The $25M Chrome Extension, and More

So basically, we're Facebook friends down, so we talk a little bit there. But I first met you at HustleCon, I think, this event that I hosted in 2019. And you're one of the best people we've ever had. We've had hundreds of people. And I'll tell you why. Two things. The first, I think you spoke right when, so this is Max. He started Grammarly.

We'll do an intro in a second. But I think you spoke when you guys had just raised, maybe $100 million at a billion dollar valuation or something like that. Is that right? Yeah, that was 120. And we didn't disclose valuation at the time. But if I had to get, yeah, you didn't. But I think I heard rumors and like I just am guessing it was like in that range.

And it doesn't matter. But basically I made a comment to you. I'm like, that's pretty cool, right? And you you kind of replied back, you weren't. cocky, but you were very confident and still humble, but you kind of had a grin. And I forget exactly what you said, but it was something like, yeah, it's going to get much bigger too. And I loved that like subtle confidence. And then at the event, what you talked about, I don't even remember the title, but the idea was basically like, you're an engineer, but you've done a really good job of

evolving past just engineering. And you like said, this is how like I engineer like good products. And This is how, like, everything you looked at was from an engineer, like, about reverse engineering, different stuff. And I thought that was incredibly fascinating. Do you remember what I'm talking about? Oh, yeah, I do. I remember that. I actually use it mantra a lot inside a company as well when we look at different markets and where to go next. And it's just a universally good framework that works for many things.

Yeah, just kind of looking at things narrowly, identifying the sweet spot and then just going broader. So this is Max Litvin. Litvin. He started this company called Grammarly. Before Gramerly, you had another company called Blackboard, I think, right? That was not my company. That was a company that bought my company. So my company was my Dropbox. Not to be confused with Dropbox. It was a plagiarism detection company. And it was bought by Blackboard in 2007. And then they spent two years was blackboard, kind of a part, earn out part, just being there. And that was like a, compared to grammarly, a mild success, right? Like it was financially good, but it wasn't like this huge, huge multi-billion dollar company.

Oh yeah, that was just a start. It could have grown big, but education is, was at the point, a relatively difficult market to be in and wasn't as big of a market. Plus, our product was fairly narrow. It was just doing one thing for one group of people. So we kind of saw that it can grow to this point, but further is going to be very slow and very difficult. So that's why we decided to sell.

Plus, we had bigger ideas. And you started Gramerly, and at this point, can you reveal how big it is? Because it's shockingly large. Yeah. So we raised that 13 billion valuation and we disclosed that valuation. I still think it's a conservative one. Why?

Because grammarly is a very non-standard company and very non-standard product. It's easy to see it for less when it is. And that's kind of reflected often in perceptions of everyone, if investors of sometimes even potential team members, we have to explain why it's big and, you know. But that also helps with the last competition. Well, and like, and by the way, you guys bootstrapped it for a long time. So, like, you and your co-founder, like, it's not like you own like 4% of this company.

You guys probably, you own like a very substantial amount. So, like, actually, so you're on paper, you're probably a multi-billionaire at this point. It depends on whom you believe. There is some information that's not fully accurate. But yeah, we managed to keep significant portion of a company with the founders and employees. Employees own actually quite a lot. When I heard about Gramerly, the reason why I wanted you to come on to the podcast and at HustleCon is because I think my reaction is the same reaction most people in business had, which is like, A, this is just a Chrome plugin. B, this is just spell check.

Like, there's no way that either of those things are interesting. And then I learned about it. And I was like, oh, this is like way bigger than... It just looks like that. It's way more than that. Did most people... Were most people dismissive of, like, it just being a Chrome plugin? Some people are dismissive, quite a lot.

And I wouldn't say dismissive. It's not like completely, oh, there's nothing. But underestimate the impact and the importance of it. And that's an interesting conversation, always very similar, because they kind of think, oh, this is a good product, this is a cool product, but not for me because, well, I know what I'm doing. And then they try it and it helps. It helps the material ways and especially when you measure results. Because, you know, when you don't measure things and I'm just, you know, typing away,

it saves you from an embarrassment or helps you raise something more clearly. Kind of, yeah, that's cool, but what's the impact of that? Show me the money. But when it's done on the business scale and it's measured and it's kind of assessed, you can see like percentages, improvements in different metrics, productivity, satisfaction, so on. And that adds up. We bought it at the hustle. So I had it for the whole company.

I don't remember what it costs, but I remember seeing the bill every month, hundreds of dollars a month, and everyone loved it. And I loved it. I still use it. So like I totally, I totally buy. I totally, once I started using it, it was like, oh, my God, I get it. But one thing that I've always been fascinated with is, is just plugins as a business, particularly two types of plugins.

WordPress plugins. There's a bunch of guys to have like some substantially size, substantial size businesses selling WordPress plugins, you know, like $25, $50 million a year, and then Chrome plugins, which I don't know if you like describe yourself as a Chrome plugin as a business. I don't think you are, but like it's definitely like one of the main ways in which most people interact with you, right? For now, yes. We just recently switched over to our flagship product being operating system level integration.

So it works similarly to Chrome plugin, except. it integrates with all the apps, not just web apps. So that was a big switchover that happened in December, so just a lot of months ago. So that expands the surface area for Gramerly. Now it's in Microsoft PowerPoint and Oracle applications and wherever you want. Wow. Did you, why'd you hire a CEO? When did you do that? That's kind of jumping topics. But yeah, we brought in a CEO, I think, in 2011.

And one big reason for that was that both Alex, Mikelinder and I, we have a philosophy that everybody should be doing, should be in their zone of genius doing what they like and what they're good at. And nobody, no one of us was really. experienced or even that passion about scaling organizations. And that's what we're kind of the biggest thing we were looking for from CEO, teaching us and doing that, basically, scaling the company. Because we realize that to do what we need to do, we need a lot of people.

We need a big company. It's kind of a number of people and size is not a kind of a desired outcome in itself. it is a necessity because the goals are so big that you can't do it with 20 people or 30. How many employees did you have when you hired Brad? I think 20 something. Oh, wow. Nothing. I mean, small.

Small, yeah. Yeah, we were fairly small. We were making good revenue and being profitable at the time already. But the company was still very small. And that's kind of a that realization. We need to, their opportunity is big and we need to scale. That pushed us to look for kind of external expertise. How did you, because at that point, you, I guess you didn't raise money.

So you and your partner, like, oh, it was like your business. It was your company and like your money. How did you, how did you not micromanage Brad? Because I did the same thing. And not micromanaging is tough because you're like, oh, my God, if you make a mistake, you're going to lose money. And that's like my money. And so it's like really stressful.

to let someone fail sometimes and learn. Were you micromanaging or were you pretty emotionally healthy about it? I'd like to think we were emotionally healthy. Maybe Brett would disagree. I don't know. I wish I actually will ask him. But I think part of it was out of necessity. There was just so much to do that if you're micromanage, you get stuck.

You don't make progress. So there was just no time or resources or energy to micromanage anybody. We had to divide and conquer to actually. keep making progress. Because that's a lot of work. So just from the volume of things to do, everybody had to do their own thing. So that happened naturally.

And part of it is a philosophy that, again, Alex and I share that basically if you bring in smart people on board, not listening to them or not letting them think independently is a waste. Basically, there is no point in bringing smart people on board. So that's that made. it easy to kind of give freedom and give space to bread and other leadership team members at Memphis. What were your goals early on?

Like when you started the business, we're like, man, I think this can make $10 million a year and provide a good lifestyle. Or like I think this could, or was it like I think this could be like a multi-billion dollar thing? Like what were your goals early on? I think we decided that it could be a multi-billion dollar business due to. our conversations with Brad partially. So kind of Alex and I, we hoped that it could be,

but then once we started talking with Brad about valuation, plans and all that, when he was thinking about joining, then it become pretty clear that, yes, there is a multi-billion dollar market out there. Are we going to capture it or not to be determined at that point? but there is definitely an opportunity. So the size of the opportunity became clear fairly early, but passed there that took years. What was the vision that made,

or what did you see that made you feel that it could be a multi-billion dollar opportunity and what was the vision? And were there any numbers that you saw early on that would say like, oh my gosh, there's something here? Yeah. So I think they bring. breakthrough moment was when we saw that it is possible to help not just professional writers,

people who write for living every day, but also help casual writers or people who write as part of their job or part of their life, but not like a key part. So writing is not their main product. They're no, no like novelists or researchers who are published and so on. So when we saw that it's possible to make a product that's useful for everybody else, Then it clicked. And a very simple formula. If you look at amount of time we spend communicating and creating knowledge as a humanity, as all people in the world, it is a huge percentage of our time. And it's increasing because we spend less time doing things with our hands.

Manufacturing is being automated. It's not like we were doing it manually anymore as much. so if you take this time that we spend communicating and creating knowledge and make it even one percent more effective the impact is in trillions not not even billions uh so can we do something that makes communication one percent more effective on average for everybody that doesn't sound impossible that sounds like something is doable uh that's doable so so we just i had that aim same insight except I did it in such a horrible worst way. So basically I learned how to be a copywriter.

So like I read books on copywriting and like on persuasive writing. And my theory was like, oh my gosh. Like with texting or like online dating. I was single at the time in 21. So it was all about like dating. I'm like, oh man, if I weren't learn how to write better in my messages to girls who I match with, like my life is going to be better. And then I was like, wait a minute.

If I learned how to write better, I could sell more stuff. If I learn how to write better, I can make people feel emotions about like this cause that I want them. I'm like just writing better like it changes. It makes it life more practical. But also it makes you think better. So like if you can if you have an idea for something and you're forced to write it out, you'll see all the holes in an idea. And you'll and you'll force yourself to like lay it out. And so I was like, oh, I'll teach people how to write better.

And so I created a course on how to write better. of course, like, obviously creating a software product, it was out of my league, but like, that was clearly the better move to do. But the same insight was like, everything that we do is via a text, whether it's a text message or an email or a website. And even if it's via like the spoken word, I have to write that anyway. So like writing is like the most important thing that you can master. I just wish I would have approached it in a software way as opposed to just selling a $300 course.

Yeah, software is more scalable. That's true. And actually, what you said about writing, it also applies to speech. When we do user research, we notice that people who use Grammally repeatedly adopt patterns of communication, more effective patterns of communication and translate it to non-written communication as well. So, for example, if Gramerly keeps suggesting that you don't use kind of a wordy or vague or weak sentence structures, you stop or reduce use of them in speech as well. So I, so kind of good habits rub off and translate to other modes of communication. Here's my opinion. So have you ever heard of copywork? No. So in like the 1700s, 1800s and up until like 1910, one of the ways in America that we would teach children how to write well, it's the same way that we would teach them how to play an

instrument. So if I wanted to teach you how to play the piano, I'm not going to say, like, go ahead, like write a piano song. I would say, well, let's play jingle bells. Let's learn how to play happy birthday. Then after that, we can move to like some more pop songs that you really like. And then you do that for like two years and you like see patterns and you like understand you just copy other people's music. And in doing that, you see patterns. And then eventually you're like, oh, I know the rules to the game now. Now I can decide to follow them to break them, but I can make my own. And it's the same thing with writing. But we don't do that. And so what that means is I think one of the easiest ways to learn is you find great writing that you really like and you just literally copy it by hand. And in doing

that, you like see the patterns. And that's called copywork. It's not a very popular way to learn how to write now. But in my opinion, it's one of the most powerful. I would say grammarily, in a sense, it's doing that because in real time, you're learning. But it's far better than just saying like, go and write, like just like spend a lot of time writing your own stuff. I think copy. copying other people is far better. Anyway, it's something I've been playing with. Not a lot of people have heard of copywork. I thought maybe you would have, but it's like not very well known.

No, I haven't heard about it, but I've seen it done in many, many fields. Like at one point, I was passionate about photography. And same there. You just basically try different, try to basically copy different photographs and recreate. them and this way you learn the language of that art. So yeah, that applies to many, many areas. How technical were you and your co-finder? Were you technical enough to build the first handful of iterations? So I was very technical. So for example, the previous plagiarism detection company, I wrote the core algorithm and most of the code originally, most of the kind of

backend code, not the front end. But when we were working on grammarly, I don't think I did any production code. I coded some of the like experiments, landing pages, payment, checkout process. Like some stuff. Some that you don't even need to code anymore today if you didn't want to. Yeah. Yeah, yeah. Yeah.

So I coded some of that, but I didn't code like a real production grade stuff. mostly because I'm not formally a software engineer. I'm kind of a self-trained coder, but kind of building a real complex software is not my thing. Plus, I had to manage the business full-time. So when we started out, I was responsible for finance, marketing, like pretty much, like lots of things. Basically, everybody has to wear a lot of hats in a small company.

so the branding of the business occupied pretty much my whole time so there was no time for for so you just hired you did you guys just self-fund it and hire a couple people to help build the first version uh we hired quite a number quite a significant number of people uh we also had a technical co-founder on board uh uh dema leader uh who helped to build out the technical team uh so he was responsible for um for the technical side initially. But yeah, because of our previous exit, we had some savings that we could put into Gramerly, some substantial savings we could put into Grammally.

So basically we were both founders and the first investors. How much did you spend to make it work until like it was a sellable product? I don't remember. Like a million or 10 million, 500,000? Do you remember? I think it was close to a million but it was a product that worked only for very small audience

very small use case and it was not real time so basically what happened was you write a book a chapter of a book because it couldn't check the whole book at once or you write a research paper you submit it to the initial

like the old grammarly. And then you go make a cup of coffee and then you drink the cup of coffee and then you wait a little bit more. And then it spits out the result. And the result was probably half of it was real issues and half of it was false positives. But at the time, the audience,

the target market was fine with that because if you spent like two months writing a book, like what's extra half an hour to review all the potential issues? right, even if they're not real. But that wouldn't fly with business writers, for example. If you're writing a business email that you need to send in 20 seconds, you're not going to deal with false positives. And did that version get you to profitability?

Yeah. Oh, shit. What'd you charge for, $100 a year? We charged, I think, $90 a year or something like that. Yeah, or $100. Yeah, I think $95 a year. How did the people hear about it? the first users.

So that was interesting because we launched two parallel streams, one to consumers and one to businesses, educational institutions, publishers, publishers, basic companies, consulting companies, and the consumer channel two cough. Like it grew exponentially from basically week one. And enterprise or B2B, it took a longer to build. So once we kind of pushed both of them in parallel for about half a year, we saw that, well, kind of makes sense to focus on consumer for now because it's just growing like wildfire.

But B2B requires much more pushing, much more hiring, more people-intensive because you need sales team and all that. So we kind of decided to slow roll. follow it a little bit and focus on consumer for the first few years. And do it through paid marketing or organic? We did everything. We tried all the channels available to us and obviously different channels have different benefits.

At the time, social was also easier to get free promotion from. Right now, obviously, kind of Facebook and others just want to capture all. all the value they create. But back then, it was easier to get stuff viral and social and just get free promotion from that. SEO was easier as well. So many things were just like many channels were quite easier to do. But we relied on paid early on quite a bit because it's a very quick feedback.

You design an ad, you send it or, kind of put it in the system, and then you get back, resolve, like, within hours. And it tells you if the message resonates, if there is a market for that, if you're finding that market correctly, you know that within, like, hours. It's in more traditional world, it's a weeks of... And hundreds of thousands of dollars. Yeah. So that's, that was, that was kind of why we were so bullish on paid from early on, even though it costs a lot of money.

What companies, are you guys trying to buy companies? Not specifically. I mean, we're open to that, but we're not like hunting to buy companies. Is there a problem that you need to be solved and you saw that this other company was solving that problem that you'd buy it? So like, let me give me an example.

The founder of Jet, you know, Jet.com, they sold a Walmart for some billions of dollars and he's like, man, if Walmart, if we could figure out a way how to reduce returns by helping people pick the right sizes, we would buy that company for a lot of money. Is there anything inside of Gramerly, we're like, man, we haven't figured out blank yet,

but if someone did figure out blank, that's a cool company we would buy. That's a cool problem solved that we would buy. Yeah, there are many things, like things around doing more on device. doing more and more processing on device. I think that would be very interesting to us because it enables better user experience,

lower lag, potentially higher performance. It also helps alleviate some potential privacy concerns. So kind of a no-brainer to do more stuff on device. And it's cheaper for us to... Sorry, what does that mean? you mean like instead of you paying for all this cloud space for everything for the yeah yeah calculating the suggestions on device so basically whenever uh we say oh this needs to be shorter or rephrase it like that making that determination on your phone or on your laptop rather than sending it to cloud

and and having our servers crunched numbers so that's uh that's kind of a that that has number of benefits for for both us. Actually, I don't know what those costs are. So how much does it cost to, like, what percentage of your revenue do you spend on, or maybe like, how does the payroll compare, the payroll cost compared to like your hosting costs? I would say it's comparable. Hosting costs are, like, even though we don't host much of the data, like we're not like Dropbox where we store files, but the processing, the processing is quite expensive, especially if you consider that we have tens of millions of, free users who are not paying us anything.

And we don't monetize them in any way at all because we don't sell user data. We don't show ads. We don't do any of that. So basically all the free users are not monetized until they subscribe. So that makes it that makes us be conscious of

trusting costs, especially for regions where not many people can upgrade to premium, like developing countries. How many employees do you have? I don't recall exactly, but I would say somewhere around 800. So then you're paying a shit ton for that hosting. Yeah, I would say it could be less than payroll. I don't remember exactly.

But yeah, it is a significant amount. I mean, supporting that many users and providing a reliable service, it does. Who do you pay? It's mostly Amazon. Isn't that crazy, man? Like, it just runs the internet. It's crazy. well yeah we evaluate from time to time bringing some things in house um and actually some things we do

have in house not not necessarily like the hosting infrastructure but like some train model training and all that stuff we do in house but uh so we look into that uh so it's not like we're just amazon and forget it uh but it is an effective way to skill business it is an effective way to run yeah it's just like crazy that it's crazy that it always freaks me out a little bit that like we used cloud flare and i remember one time cloud flare went out and like our website was dead and so was like a quarter of the internet yeah yeah it's uh it is uh this concentration it is kind of scary um yeah it freaks me out a little bit yeah it has its benefits but it is uh you Yeah, a lot of places have a single point of failure for significant portions of our infrastructure.

Are you, and we'll wrap up here in a second, but I asked you about Hemingway earlier. Do you view them as competitors at all? Not really, no. They do something that's similar and something that's basically part of what we do, and a number of people use both products simultaneously. so we don't view them as a competitor because they don't take business from us. So yeah, so it's not like... Who do you view as a competitor?

Who do we use a competitor? Well, the biggest one is complacency. Just people not realizing that they can benefit from this. I think that's the biggest thing, that by far bigger than any other competitor. But other than that, once you get to certain size, everybody becomes a potential competitor. because when you look at big tech companies, they all compete in some ways and all do some things that are similar or the same.

So that's kind of the mindset. That basically at any point, anybody can become a competitor. Yeah, but are there any, I've never seen any like upstarts or any small companies try to compete with you guys. Is there many? There are some, but most are focusing on either niche, like a grammarly for a specific. market and I think that's a good way to start and obviously we're watching them and

seeing what they're doing right what they're doing wrong and so on there's similar products Microsoft I think has a similar product but again it only does part of what we do so it doesn't take away much business from us so if any so yeah so I wouldn't I wouldn't say that there are any kind of direct competitors at this point and I'm not too worried about competition, frankly, because it's just such a new field that most of the market is just untouched by anybody. Cool, thanks for coming on.

I'm going to, we're going to wrap up now and I'm going to let you know when this is live. It should be live in like a week, I think. But I appreciate you coming on. It means a lot. Great. Thank you. Thank you so much for having.