The Perfect Business Model - $0 to $1B in 8 months

I spent $100 at a lemonade stand 🍋 Not because I wanted to, but because I had to.

I spent $100 at a lemonade stand 🍋 

Not because I wanted to, but because I had to.


I was in LA and it was HOT

So hot it would make a “the moon landing was faked”, “the earth is flat”, conspiracy theorist believe in global warming. 

I was hiking the Hollywood sign with some friends and after 5 miles we were beyond thirsty 🥵. 

At the end of the trail, I saw a lemonade stand. It had a large sign with freshly painted yellow letters. 

“Ice-cold lemonade” 🧊 🍋 

I asked for a cup, and then one for each of my friends. 

“That’ll be $10 each” 

I’ll always remember this story as the moment of perfect startup execution. 

The price didn’t matter…there was nothing else around and we were thirsty. I happily paid full price to this money-hungry 7-year-old. 

This lemonade stand mogul focussed on Product + Distribution…a lethal combination that allowed them to charge 10x the price.

As Justin Khan, founder of Twitch (acquired for $1B) says…

How you get your product into customers' hands is just as important as what you sell. 

Today we’re going to discuss a particularly effective business model used by some of today’s fastest-growing startups. It’s called “bottoms-up SaaS”, or “Product-led growth”. Companies using this model are reaching billion-dollar valuations faster than ever before. 

Let’s dig in!

Today we’ll explore: 

  1. How Slack reached hyper-scale 🚀 : From startup to $1B in 8-months. 
  2. Bottom-up SaaS 🍻: A model for capital-efficient growth.

Since COVID-19, 80% of people expect to work at least three days from home per week. This has dramatically impacted the types of companies being built and the rate of adoption.

A company that benefited greatly from this remote-work shift was Slack. If you are reading this while sitting in your home office connected with your team on the other side of the world, you definitely are familiar with Slack and its super-integrative platform.  

Slack Founders: Stuart Butterfield & Cal Henderson

"Slack" is an acronym standing for "Searchable Log of All Conversation and Knowledge"

Slack made history by becoming the fastest-growing SaaS startup - in only 8 months the company grew from startup to $1B in valuation. Today almost 80% of the Fortune 100 companies use Slack to increase productivity🔝 

  • Previously named “Linefeed”, Slack was founded by Stewart Butterfield, Eric Costello, Cal Henderson, and Serguei Mourachov, and started as an internal tool built for Tiny Speck while working on Glitch development 🎮
  • After its launch for the public in February 2014, the # of users of the tool grew at a 5-10% a week rate reaching 16k users within the first six months without any advertising 🚀 and reached $1B valuation within the first eight months of its existence💥
  • By the end of 2015, Slack had over 2M daily active users (DAU) and $340M raised 💰
  • In June 2019, Slack went public through a direct public offering and reached a market cap of $21.4B 💸
  • Last year Salesforce acquired Slack for a value of approximately $27.7B 🤝

But then what made it so special both for users and investors?

  1. 🙏 It was made of necessity: Butterflied and his team made Slack after finding the outdated alternative Internet Relay Chat (IRC) inefficient and complicated to use. 
  2. 🤙 It had a seamless adoption approach: Slack’s paid plans were so inexpensive that managers could expense Slack just for their own team, and there were just enough limitations in the freemium product to make Slack’s paid plans more enticing, making the paid user conversion a lot faster and cheaper. 
  3. ⏱️ It was tested and improved long before the launch: the Tiny Speck team located in 3 different cities developed and kept on adding ad-hoc need-based features to the tool over the course of 2 years, making it a ready-made product for small remote teams like theirs. 
  4. 📈 Instead of growing rapidly, Slack grew steadily: the team took their time to always ask for feedback and invite larger companies to use the tool, allowing them to build a solid product before pushing it to bigger clients. 
  5. 😅 It made work fun: Slack was created by game developers who already knew how to make repetitive tasks more engaging and exciting. From interface to use of emojis and gifs made the boring daily work life of the users more colorful.  
  6. 💪 It was founded by an experienced and trusted founder: prior to building Tiny Speck and raising $16M in funding within a year by VCs like Accel and a16z, Butterflied co-founded Flickr and sold it to Yahoo for $35M in 2005. 
  7. ⚙️ The right metrics: Butterflied was convinced that what kept people coming back was its addictive easiness, and the more it was used, the more the users will retain. And so they came up with the “2000 message” rule - users who send 2k+ messages are much more likely to keep using and eventually to pay for the service.
  8. 💻 It moved from a simple SaaS to a platform: in 2016, Slack launched its automated bot feature and gave the users more freedom to be creative, making Slack more extensible. This was the biggest boost in client conversion and the most valid guarantee of continuous growth. 

Bottom-up SaaS 🍻: A model for capital-efficient growth

As a SaaS product, you’d imagine Slack using the traditional B2B acquisition model in which they target enterprises and sell to their top decision-makers. 

But as a team product, Slack heavily depended on the user experience of EVERY SINGLE USER. If 18 of a 20 employee team loved using Slack, but the other 2 hated it, the tool would become useless for the entire team. So Slack’s mission was to become a tool for everyone - the developers, project managers, marketers, and even accountants. 

Slack would use the Bottom-Up or B2C2B sales model to convert the leads: 

Instead of targeting company leadership (e.g CEO, COO) and spending thousands convincing them to buy, companies using the B2C2B tactic to target those who have strong enough influence on those decision-makers and cut acquisition costs. 

Slack would target the enterprises as their clients and go for their employees as end-users, speaking to them, understanding their needs, and selling the solution to those employees. Handing out the freemium license to teams allowing them to use and get the whole experience of the product, Slack would get the users “hooked” to the solution and influence the management to sign the contract with Slack. 

Another successful implementation of the tactic is heavily used by job and recruitment platforms like LinkedIn, Glassdoor, and others. Job seekers are free to sign up and create an account, making it easy for the platforms to generate a large number of users. This growing number then results in employers finding themselves with a simplified way to recruit online through their own profiles. The ease of the process brings paying B2B clients. 

Unlike B2B and B2C, B2C2B is not very common among all company types because not all can benefit from it. Best fit for SaaS cloud companies offering subscription-based services to end-users, there are unique success use cases by hardware producers as well. 

An example of the adoption of the B2C2B strategy by a hardware company is Apple at times when Windows was dominating the IT industry. When Apple introduced its new MacBook and iPhone in 2006 and 2007, the vast majority of IT companies used Windows computers and notebooks. The widespread consumption of the new Apple products by the employees pushed the companies to move to Apple products for easier operations. 

After all, as an investor, your biggest takeaway from this week’s story should be looking into the acquisition strategy - quality leads turn into paying customers in their turn growing the business and your earnings. And very often, the bigger marketing and sales budgets do not guarantee higher conversion. The best opportunities are companies that know how to hack the process.