How Slack Became the Fastest Growing B2B SaaS Business (Maybe) Ever

  • Defining their market space and identifying user pain
  • Nailing the product experience by focusing on doing a few things exceptionally well
  • Using a freemium model that fueled bottom-up word of mouth growth

Defining Their Own Market

Though Slack was certainly not the first office chat app, HipChat, Skype and other tools have served that space for years, they’ve seen far and away the most impressive early growth. One the biggest keys to accomplishing this has involved working to create a market where, despite a handful of competitors, one really didn’t exist before. Butterfield says that an estimated 20 to 30% of Slack’s users switch from another centralized messaging system like HipChat, Campfire, or IRC, yet, as he goes on to explain:

“Life is too short to do mediocre work and it is definitely too short to build shitty things.”

Alongside “selling the innovation,” perhaps the most critical factor in Slack’s growth is their attention to detail in creating a genuinely useful, high quality product. The team has worked hard to ensure that Slack is simple to set up, pleasant to use, compatible with a wide range of other services, and as reliable as email. Additional functionality comes from mobile apps and a Mac desktop app. As of November 2014, around half of Slack’s users were on the Mac app, and around 55% accessed Slack via both mobile and desktop on a given day. [1] In the “We Don’t Sell Saddles Here” memo sent out prior to Slack’s Preview Release, Butterfield acknowledged the natural tendency to ignore the petty irritations and problems in one’s own product, yet nevertheless reminded the Slack team that they needed to do “an exceptional, near-perfect job of execution,” explaining:

Laser Focus on Core Features

One concept that was incredibly important to the founders during Slack’s development was Gmail creator Paul Buchheit’s influential blog post, “If your product is Great, it doesn’t need to be Good.” In essence, Buchheit’s argument is that it’s more important to do a few things really well than for every single thing to be perfect. As Butterfield explains:

Gaining Initial Users

Slack had taken shape enough by March of 2013 that the team was using it for themselves, but they knew they needed to observe how Slack worked in the wild, so in May of 2013 they began, according to Butterfield, “begging and cajoling friends at other companies,” including Cozy and Rdio, to try Slack. These six to ten initial companies allowed the company to observe how the product functioned for teams of different needs and sizes, helping them to work out the service’s initial kinks. Butterfield explains:

User Feedback

Listening to, learning from, and responding to feedback has always been important to Slack’s team — not just from a customer satisfaction perspective, but also for product development purposes. Slack responds to around 8,000 Zendesk help tickets and an additional 10,000 tweets per month. [3] While this is certainly a massive undertaking, the company takes user feedback very seriously. Butterfield explains:

Bottom Up Word of Mouth

In October of 2014, Butterfield attributed much of Slack’s initial growth to word of mouth, claiming, “The growth has been completely insane and almost entirely on word of mouth. In fact, we just hired our first marketing person, but he doesn’t begin until next week.” [11] Within the organizations that adopt Slack, use tends to spread in a grassroots, bottom-up fashion — from one team to another until the entire company is communicating via Slack. As Butterfield explains:

Freemium

Like many SaaS companies — notable examples include Evernote and Dropbox — Slack operates on a freemium model. Quartz.com’s Dan Frommer refers to Slack’s freemium tier as “an actually-useful free service,” explaining that “many groups (including Quartz) are happily communicating on Slack for free.” [1] Nevertheless, by November of 2014, more than 73,000 Slack users were paying for the the premium service, which includes a full message archive. It’s not hard to see the benefit: as more and more work takes place via Slack, the ability to call up details and conversations via search becomes well worth the 22 cents per day. In November of 2014, Slack business analytics lead Josh Pritchard claimed that, without taking new sales into consideration, Slack’s subscription revenue was growing at around 8% monthly. He went on to assert that “This is, as far as I know, unheard for an enterprise SaaS company less than seven months after launch.” [5] In February of 2015, Business Insider’s Eugene Kim reported that Slack’s paid users had risen to 135,000, and that the company was adding $1 million in annual recurring revenue every 11 days, in addition to the $12 million in annual recurring revenue established over the previous year. [2] And in November 2014, Slack’s free-to-paid conversion rate was 30%, which Nir Eyal and Ciara Byrne cited as “one of the highest in the enterprise business.” [5] So what is it in particular about Slack that’s so conducive to the freemium model?

Onboarding

One of the key’s to Slack’s success is their simple, painless onboarding. As Dan Frommer explains: “Many competing group-messaging or collaboration services are either over-engineered or poorly designed. Slack has a great balance. It has an obvious interface, focused around channels — communal chat rooms, typically organized around a topic or team — and direct messaging. Chats can be live in real time, or asynchronous, depending on who’s online when. Teams can sign up and start talking to each other right away.” [1] Slack’s signup process is straightforward: a new user enters his or her email address and then receives a link, which takes them to a simple registration form. After this, new users are prompted to add team members — the most crucial step — as well as integrations with other apps. Of the close to 220,000 teams created in Slack, more than 30,000 are actively using it. According to Butterfield, “Most people who fill out the form and hit submit — more than 90% — never invite anyone or start using the software.” Nevertheless, as Butterfield goes on to explain:

Slack’s “Magic Number”

Though, as First Round asserts, there are industry-standard metrics for engagement and retention, “at the end of the day, only you can really determine your company’s magic numbers — the numbers that shed light on who is really using your product (and how you can get them to keep using it).” [3] For Twitter, that magic number was 30 — users who followed 30 others were much more likely to remain engaged with the service over time. For Facebook, that number was 10 — users who added 10 friends within a week were likely to stay active on Facebook. The magic number concept has also been significant for Slack, as Butterfield explains:

“Hooks”

Another potential explanation for Slack’s stickiness comes from Nir Eyal and Ciara Byrne. They attribute Slack’s high levels of customer loyalty and engagement to the habit-forming nature of the app, explaining:

Acquisitions

In September of 2014, Slack acquired the document editing and collaboration app Spaces for an undisclosed price and terms from entrepreneur Simon Vallee and former Google engineer Hans Larsen. Of the acquisition, Butterfield said that Spaces was to be integrated into the current Slack format. The Slack blog post announcing the acquisition explained:

Potential Concerns and Future Growth

When asked by Dan Primack in October 2014 if his experience selling Flickr to Yahoo had any impact on whether he’d eventually sell Slack, Butterfield responded:

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Imagination is the key to unlock the world. I am trying to unlock mine.

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Lonare

Lonare

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Imagination is the key to unlock the world. I am trying to unlock mine.