This Week in Startups - Best of This Week in Startups: Week of November 30th, 2020

Episode Date: December 5, 2020

E1145 featuring Jason on the Slack acquisition: https://rb.gy/syqdgq E1146 featuring LAUNCH Accelerator Cohort 19's top 3 vote-getting companies: https://rb.gy/wjfft8 E1147 featuring Saastr's Jason Lemkin: https://rb.gy/yltewx E1148 featuring Apps Without Code's Tara Reed: https://rb.gy/21a6vd

On episode 1145, Jason explains how Slack's product stagnation could have led them to sell to Salesforce. Okay, everybody, it is an exciting day if you are a Slack shareholder or it might be disappointing because people thought Slack was going to be this independent company that grew forever and maybe became worth hundreds of millions of dollars. but it seems the company with the headwinds of Microsoft Teams constantly blowing them back and the inability to grow really fast. They seem to have put themselves in a position to be forced to be acquired by a larger company. It's kind of a bummer, you know, I think that the company couldn't keep growing and then

use its public stock to acquire other companies. And it does seem like there is some sort of a product roadblock inside the company. where they just couldn't get new features out, couldn't get new competitive products in market to get people excited. They just did a good job of being solid, right? And there was no real competitor except for Microsoft Teams to come out of this, HipChat, gave up, and wound up selling to them. So you have to wonder, is there going to be a new chat enterprise software that emerges? Now that Salesforce has bought this, I think you're going to see another round of people looking and saying, hmm, maybe now is a good time to launch a competitor. Now you'd say, why would that be? Very simple.

When these big companies acquire them, they get a bunch of indigestion, right? We talked about that. Like, can they acquire this without squashing it? Can they acquire it and accelerate its growth as opposed to slow it down? Who's going to run it? Do you have somebody great? Is Stewart going to stay with the company or is Salesforce going to run it? Those are all the questions that are going to come up and let me the second order questions if, in fact, this deal goes through. But either way, congratulations to all the investors. For me, it would be disappointing if, for example, Uber were to sell as an sole shareholder in Uber. If they were to sell, you know, to Google or to, you know, Amazon, I would feel good in a way, but, you know, because it would be the end of the journey and it would be an exit. But I would also be kind of bum that they didn't keep that independent spirit alive and become a trillion-dollar company eventually or become, you know, a $500 billion company.

You really, as an investor, want to see them become independent concerns that exist forever, like Amazon and Facebook and Google have, and Tesla has. Tesla could have been taken out at $50 billion, $75 billion by Apple or Google, but now, at $500 billion or whatever their market cap is, they're going to be a strong independent company for some time to come. So great job. It's opportunistic, right? You have these, the stock market is on a tear, but Slack's stock has not gone up and appreciated

the way other companies have. So when they have that funny money and you've got a lot of equity, that's why probably half of this is cash, is because the people who are selling their shares in Slack. If that report is in fact correct, they would like to cash in some chips and get cash, but they probably won't have the upside of maybe owning it. Now, if Salesforce stock goes up 10%, like Amazon did after Whole Foods, it went up, not 10%, but the value of Whole Foods. Theoretically, on paper, Beninoff could get this for free. If the market cap goes up $25 billion, because people believe that Salesforce is a bigger player and that this is accretive and that this is going to be a catalyst for Salesforce's existing products and that Salesforce's existing team is going

to be a catalyst to drive more people to use Slack and adopt it because it's more trusted in the large enterprises. I wouldn't be surprised if Salesforce goes up $10 billion, $20 billion in the month after this acquisition, if it in fact occurs because that'd be a great sign that it was a great acquisition and the market believed in it. So we'll be a great acquisition. and the market believed in it. So we'll see. It's a bittersweet, bittersweet, if true,

for the shareholders. I'm sure they would have rather seen it become a large, independent company. And if you just think about, like, if you're a Slack user, they have built an audio and video that hasn't changed

and it's kind of buried in the product. And it hasn't changed in a year or two. I haven't seen any new features. And I always thought to myself, why are people even using Zoom if they're using Slack? Because when you're in a Slack room, you just click, start a call,

and you don't have to install another piece of software. You don't have to leave that piece of software. You can use the same chat room as opposed to firing up a second chat room. And I just think Slack didn't do a great job of marketing these products to existing users. I never got an upsell inside of Slack like, hey, would you like to set up a call or, you know, can you make a channel that is a reoccurring weekly meeting? So let's say you had a weekly Wednesday staff meeting could you make a room that was also the call and have it be a calendar item, you know, sort of thing. it just didn't seem like the product vision, it almost like it topped out, right?

And they didn't have somebody there making bold visionary bets. On episode 1146, recent launch accelerator graduate Pablo Stanley details his top learnings from the program. I was blessed that I learned a lot of things, but if I have to pick three of them, one is like you've got to stay focused,

which is something that, like, in every startup, I think it's really hard, right? Because there are so many directions you can take. But if you stay focused, that will allow you to just like focus on your goals, on your strategy, how you're going to get there. You keep people motivated. But also, it looks well with investors because investors want to see clearly what is coming next and if you have a clear path there.

Also, something that I think investors really gravitated to, was of being authentic, which is something that I think you should work on something that is crucial for you and use your startup as a vehicle for those ideas. And maybe that's a little bit hippie, but it's actually true. Investors also gravitated towards that. They saw that my co-founders were really creative coders. I'm also an artist, illustrator, so that it all kind of like made sense. So that that was also something that they, that I think they appreciated of our team. And also, well, as a lesson for myself, also, it was just like being able to listen. And after being in so many calls, because by the way, we do this every week, every week we have

to pitch and we have to talk to the investors. 16 weeks straight of just pitching. Pitching, pitching. On episode 1147, Jason Lemkin explains the keys to maintain a high growth at a public tech company. I'm a huge fan of Slack. We chatted about it the first time you had me on your show. You were a hip chat fan. I was all in on hip chat.

I had some fun. I've been a fan. At the first Sastrianial ever, the only speaker I didn't know was Stuart Butterfield, I begged him to come when Slack was doing six million in revenue. I'm OG fan, right? Yes. And I think Stuart is the kind of person we all want to work for. someone that deeply cares about people that cares about inclusion,

that cares about doing the right thing, that cares about product, right? He's a match. He really is. And I have no criticisms, it's only admiration. But what I have learned, now that there's so many SaaS companies,

there weren't any SaaS companies at a billion in ARR when Slack was found, now there's a ton of a billion, Zendes is a billion, HUBS at a billion, we can go on and on. Slack's coming in a billion. And what we've learned is the ones they approach a billion and don't have a second product line that's equally,

is big, slow down. Ultimately, there's only so many consumers. Now, there are exceptions, but even Zoom, I would say has two product lines, B2C and B2B. Right. Schools and families. Zoom's at three billion, but the pure old Zoom is only at a billion, and that Zoom is adding phone to get bigger

because the old Zoom isn't big enough to get to 10 billion. It needs to add phone, right? Phone. Yeah, phone is the B2B2Bush. Yeah, a huge amount. Zoom has two big pushes, Enterprise and phone. And then there's this weird thing that, other than revenue market, I don't think Eric ever wanted, which was the yoga and the jazzer

side of Zoom and schools. It's a headache. I mean, it's great. But so, and the ones that slow down, the drop boxes in the box, and I love that you and I love these products, but their growth rates are slow. The survey monkeys, they start to slow into the teens, 15, 16, 18. And that's the death knell for a high growth company. You're not a high growth tech company.

And you have, and you look at folks like Viva, you know, Viva was this pharmacy around that spun out of sales force. another great success. But their vault product, which is where you archive compliance-based content, the vault product's larger than the pharma product today.

It's larger than the initial product. Look at Twilio. Twilio is at $3 billion in a rocket ship, but it's added send grid. It's added segment. It's added call center. It's added a whole bunch of things. If Twilio had just been Twilio,

that lovely API would have, it was never going to get to $10 billion, and Slack didn't do it. And Stewart could do it. This is a great team. but I think culturally they didn't want to do it. And I think you have to decide, okay, guys, are we going to reboot our company? Are we going to reboot our company and be more?

Or should we be the slack arm of a bigger company? And I think it's a logical choice for that reason because there's only one product. On episode 1148, Apps Without Code Founder Tara Reid detail some lessons that she teaches her students. There are two things that we're looking at for success. One is that you got a completed product, an app built and launched. And then two is that you're generating some revenue from it. And so those are the two main things that we're looking at. Although we actually were just talking about this inside a team.

We have 18 people on our team now. We were just talking about we have a Slack channel of student wins. And we do see student wins in there that are like, actually, I ended up getting a promotion at work. Because I showed all these new skill sets. And I came up with, I proposed an idea to my team. of a product we can build to automate something in house and they were so impressed that I got a promotion. So we are seeing that. I'm wondering if we should track that in a more robust way about the promotions too. That was not an intended focus, though. Really, the intention focus was around

entrepreneurship and launching your own business. So examples of things that people are building, because this is my favorite part of it, are usually people are building ideas in non-sexy industries. I'll give you some examples. I have an alum who has a, had a ton of experience in manufacturing in the Midwest. And he told me, I didn't know this, but the assembly lines in like Chicago, Detroit, they're still tracking everything with pen paper and a clipboard. Like, yep, that's done. Check.

Yep, that's done. But everybody's got a phone in their pocket. And he's like, this is so dumb. So he built an app for manufacturing companies to track their process of what's completed, what's not so that headquarters can see when the process is moving a little bit too slowly, when machines may be about to break down because of time lags so they can see that real time. So like a checklist kind of app. It's more or less like it.

Yeah. Yeah. Checklist with analytics to be able to see and then people can sort of log their each individual parts of the process, right? And this is probably done on paper before or an email or some unstructured data. He probably built it in two weeks. Yeah. They're doing it on paper now.

They're doing it on paper. So, so he, his first customer was Coca-Cola who licensed this. What? Right? So one of the things of the directions that I often will direct my students into is the concept of white labeling. Because for many of them going after like a consumer business means that they need a lot of customers. They have to be really good marketers. And it means that there's a long lag of time between starting and having enough money to pay your bills.

I always say like you need a lot of 99 cents to pay your bills. If you want to do the math, you are welcome to do it. So instead And it winds up being 70 cents after you give Apple their cut. Right, right. So we have a no 99 cent app rule, right? Yeah. And then we talk about the concept of white labeling.

There are other ways that other students do it. But a lot of them will white label their products and go get a handful of customers who are paying anywhere from $5,000, maybe something even down to $3,000 all the way up to like $20,000 plus a year for access to it. And if you just made something and started something and you already have industry expertise, you have people maybe on your LinkedIn that you can contact to start, you know, some deals to get some first customers. And it took you a couple weeks, maybe four weeks to build this, five weeks to build this because you're doing it for the first time. And you then spent a couple more weeks actually starting to land the customers. And you land a couple

$5,000 deals, a couple $20,000 deals. That's huge. The best of this week in startups is brought to you by Our Crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing,

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