How Slack Accidentally Built a $27B Business

The Failed Game That Started It All (2009-2012)

Stewart Butterfield had already failed once. Flickr, his photo-sharing startup, sold to Yahoo for $35M in 2005—a modest exit, but not the massive success he'd hoped for. By 2008, he was building a new startup: Tiny Speck, a massively multiplayer online game called Glitch.

The team of 45 employees was distributed across San Francisco, New York, and Vancouver. They needed better communication tools. Email was too slow. IRC was too technical. Campfire (37signals) was too limited.

The Internal Tool: Butterfield's team built a custom communication platform using IRC protocols but with modern features: persistent chat history, file sharing, search, and integrations.

By 2010, Glitch had raised $17M from Accel and Andreessen Horowitz. But the game wasn't working. Only 10,000 active players after two years of development.

November 2012: Butterfield shut down Glitch and laid off most employees. He kept 8 engineers to work on their internal communication tool.

The Pivot Decision (December 2012)

Butterfield had a choice: Return investor money or pivot. He called Accel's Andrew Braccia.

Butterfield's pitch: "We've built something internally that I think is bigger than the game ever was. The 8 people left want to keep working on it. Can we try for 6 months?"

Braccia agreed. Tiny Speck had $5M left in the bank—enough for 18 months of runway with 8 people.

Critical Insight: The team had already been using the tool for 2 years. They had 100,000+ messages archived. They knew exactly what worked and what didn't.

The Name: "Slack" stands for "Searchable Log of All Conversation and Knowledge." Butterfield hated it at first—it sounded lazy. But it stuck.

| Early Slack Stats | Dec 2012 | |-------------------|----------| | Team Size | 8 people | | Remaining Capital | $5M | | Runway | 18 months | | Internal Messages | 100,000+ | | External Beta Users | 0 |

The Preview Release (August 2013)

Slack launched in "preview" mode—not beta, not full release. Butterfield personally invited 8 companies he knew through his network.

The Selection Criteria:

Teams of 10-50 people (not too big, not too small)
Working on software or technical products
Distributed or remote teams
Willing to give detailed feedback

Critical Decision: Free for unlimited users during preview. No pricing pressure.

Results after 24 hours:

8 invited companies signed up
1,400 messages sent
0 crashes or major bugs

Results after 1 week:

Word spread organically
45 companies signed up
10,000 messages sent daily
Feedback pouring in via—ironically—email

Butterfield's Response: He personally replied to every piece of feedback within 2 hours, 24/7.

| Preview Growth | Week 1 | Week 4 | Week 8 | |----------------|--------|--------|--------| | Companies | 45 | 300 | 1,200 | | Daily Messages | 10,000 | 50,000 | 200,000 | | Daily Active Users | 500 | 2,500 | 8,000 | | Feedback Emails/Day | 50 | 200 | 500 |

The Public Launch and Explosion (February 2014)

Slack officially launched February 12, 2014. They had 15,000 daily active users across 1,500 teams.

The Launch Strategy:

TechCrunch exclusive (Butterfield's relationship from Flickr days)
No paid advertising
Free plan: Unlimited users, 10,000 message history
Paid plan: $8/user/month for unlimited history and integrations

Day 1 Results:

8,000 new signups
Server crashes (they weren't ready)
24 hours to restore service
Product became invitation-only temporarily

Month 1 Results:

60,000 daily active users
$1M ARR (annual recurring revenue)
6,000 paying teams
100+ integrations in the directory

| Launch Metrics | Feb 2014 | May 2014 | Aug 2014 | |----------------|----------|----------|----------| | Daily Active Users | 60,000 | 171,000 | 320,000 | | Paying Teams | 6,000 | 18,000 | 35,000 | | ARR | $1M | $3M | $8M | | Team Size | 30 | 50 | 80 | | Valuation | $220M | $440M | $1.12B |

The Enterprise Challenge (2015-2017)

Slack's early growth came from small tech startups. But to reach $1B revenue, they needed enterprise companies.

The Problem:

Enterprises needed security certifications (SOC 2, ISO 27001)
They required data residency (EU data stays in EU)
They wanted admin controls and audit logs
Procurement took 6-18 months

Critical Decision: Launch Slack Enterprise Grid (January 2017)

What Changed:

Multiple workspaces connected under one organization
Centralized admin controls
HIPAA compliance for healthcare
99.99% uptime SLA
Dedicated customer success managers

Results:

By 2017: 50,000+ paying teams including IBM (all 350,000 employees), Airbnb, Target, and Oracle
6M daily active users
$200M ARR

| Enterprise Adoption | 2015 | 2016 | 2017 | |---------------------|------|------|------| | Enterprise Customers | 100 | 500 | 2,000+ | | Fortune 100 Users | 10 | 30 | 65 | | Security Certifications | 2 | 5 | 12 | | Data Centers | 2 | 5 | 8 |

The Microsoft Threat (2017-2020)

November 2016: Microsoft launched Teams, bundling it free with Office 365 (200M+ business users).

The Threat: Microsoft could undercut Slack's $8/user/month pricing by including Teams free with Office 365 subscriptions ($8-20/user/month for full suite).

Butterfield's Response:

Double down on integrations: By 2019, Slack had 2,000+ integrations vs. Microsoft's 250
Build Workflow Builder: No-code automation tools (2019)
Launch Slack Connect: Communicate with external partners (2020)
IPO to raise war chest: June 2019

IPO Results (June 2019):

Direct listing (no new shares issued)
Opening price: $38.50 (59% above reference price)
Market cap: $23B
Daily active users: 10M

Competition Impact: Microsoft Teams grew faster (75M daily users by 2020 vs. Slack's 12M), but Slack maintained higher engagement and better user satisfaction scores.

| Competitive Metrics | 2017 | 2019 | 2020 | |---------------------|------|------|------| | Slack DAUs | 6M | 10M | 12M | | Microsoft Teams DAUs | 2M | 20M | 75M | | Slack Integrations | 1,000 | 2,000 | 2,400 | | Teams Integrations | 100 | 200 | 450 | | Slack Paid Customers | 50,000 | 95,000 | 110,000 | | Teams Paid Customers | 10,000 | 50,000 | 200,000+ |

The $27.7B Acquisition (December 2020)

Salesforce announced acquisition of Slack for $27.7B in stock (December 1, 2020).

The Deal:

Purchase price: $27.7B
Premium: 54% above Slack's market cap 30 days prior
Structure: All stock
Closing: July 2021

Why Salesforce Paid $27.7B:

Missing piece: Salesforce had sales, marketing, and service clouds—but no native communication layer
Remote work boom: COVID-19 made workplace communication essential
Integration synergy: Slack + Salesforce = "Digital HQ"
Future of work: Butterfield became CEO of Salesforce's collaboration division

| Acquisition Metrics | Value | |---------------------|-------| | Purchase Price | $27.7B | | Per Share (stock) | $45.50 + Salesforce shares | | Revenue Multiple | 25x (trailing 12 months) | | User Multiple | $2,300 per DAU | | ARR at Acquisition | $900M | | Gross Margin | 87% |

Financial Journey Summary

| Year | ARR | Users | Valuation | Key Milestone | |------|-----|-------|-----------|---------------| | 2013 | $0 | 0 (internal only) | N/A | Preview release | | 2014 | $12M | 500K | $1.1B | Unicorn status | | 2015 | $30M | 2M | $2.8B | Series D | | 2016 | $75M | 4M | $3.8B | Enterprise launch | | 2017 | $200M | 6M | $5.1B | Enterprise Grid | | 2018 | $400M | 8M | $7.1B | Growth acceleration | | 2019 | $630M | 10M | $23B | IPO | | 2020 | $900M | 12M | $27.7B | Acquisition |

Critical Decisions and Their Impact

1. The Pivot from Gaming (Dec 2012)

Decision: Keep 8 engineers and pivot to communication tool instead of returning investor money. Risk: Investors could have demanded their $17M back. Result: $27.7B outcome vs. total loss. Lesson: When your internal tool outshines your main product, follow the engagement.

2. Unlimited Free Plan (Aug 2013)

Decision: Offer unlimited users and full features free during preview. Cost: Missed early revenue, server expenses. Result: 15,000 organic users before spending $1 on marketing. Lesson: Remove all friction from product adoption when building network effects.

3. Founder-Led Support (2013-2014)

Decision: Butterfield personally responded to all feedback emails within 2 hours. Scale: 500+ emails per day at peak. Result: Product-market fit achieved in 6 months vs. typical 18-24 months. Lesson: Founders must stay close to users until you have undeniable traction.

4. Enterprise Grid Investment (2017)

Decision: Invest 40% of engineering in enterprise features (security, admin, compliance). Trade-off: Slower consumer feature development. Result: Landed IBM (350K seats), Oracle, Target. Lesson: Follow the money—enterprise was 70% of revenue by 2019.

What You Can Learn and Apply

For Pivoting Startups:

Your internal tools are market opportunities. Slack was built to solve Tiny Speck's communication problem. If you have this problem, thousands of other teams do too.
Keep investor relationships warm. Butterfield could pivot because he had credibility from Flickr and direct relationships with Accel/A16Z.
Validate before you scale. 8 employees used Slack for 2 years before external launch. They knew exactly what worked.

For Product-Led Growth:

Freemium requires network effects. Slack's free plan worked because 1 user invited 5 teammates. Viral coefficient was 1.4.
Limit free usage strategically. Slack limited message history (10,000) not users. This drove organic upgrade pressure as teams grew.
Integration ecosystem = moat. 2,400 integrations made switching costs prohibitive for enterprise customers.

For Competing Against Giants:

Differentiation beats price. Microsoft Teams was free; Slack was $8/user. But Slack won on user experience and integrations.
Build the platform, not just the product. Slack became the "operating system for work" while Teams remained a chat app.
IPO for optionality. Going public gave Slack strategic options—acquisition, defense, or independence.

Timeline of Major Milestones

| Date | Event | Significance | |------|-------|--------------| | Nov 2012 | Glitch shuts down | Pivot begins | | Aug 2013 | Preview release | First external users | | Feb 2014 | Public launch | 8,000 signups day 1 | | Oct 2014 | $120M Series D | Unicorn valuation | | Apr 2015 | $160M Series E | $2.8B valuation | | Jan 2017 | Enterprise Grid | Fortune 500 adoption | | Sep 2018 | $400M+ round | $7.1B valuation | | Jun 2019 | IPO | $23B market cap | | Dec 2020 | Salesforce acquisition | $27.7B exit |

This case study is based on Slack's S-1 filing, earnings reports, and verified interviews. Revenue and user numbers are accurate as of acquisition date.