Quit like a Champion

Dharma Butterfield was raised in the sleepy fishing village of Lund, British Columbia, growing up in a log cabin without running water or electricity. Dharma, like his parents before him, rebelled against the system he was raised in. His parents rebelled by fleeing the Vietnam draft, running to Canada, and raising their family in a commune. Dharma rebelled by changing his name to Stewart and teaching himself to code.

Stewart had a couple of modest successes early on, including Gradfinder.com, an early social network where users could locate and communicate with others in their graduating classes. He also created the unexpectedly popular 5K competition, where contestants attempted to build the best website under five kilobytes. But Stewart had a clear vision of what he wanted to create, and neither of these projects scratched his itch. His dream was to design a massively multiplayer online game, and his dream has since become a Silicon Valley legend.

Together with a couple of co-founders, including his then wife, Stewart founded Ludicorp and began building Game Neverending. But Game Never-Starting might have been a better name, for despite having a small cadre of informal users, it never reached its official launch.

Clarity sometimes comes upon us in the darkest of situations. On a trip to New York, Stewart fell ill and spent a long night in his hotel barfing his guts out. By the time dawn came around, he’d had an inspiration.

While programming Game Neverending, Stewart and his partners created several elements to make the game function, including social chatting and object sharing. Stewart realized this functionality might have a different market, and if they could successfully spin off a successful side company, its income could fund further game development.

It took some convincing and a few backroom negotiations to get his partners on board with this new plan, but eventually, they accepted the idea of creating a “temporary” startup so they could get back to the core dream of building their video game. They named their app Flickr and built it for online photo sharing. Since the backbone of Flickr had already been built as part of Game Neverending, the team moved from development to launch in a mere three months.

Flickr was an instant hit. As with so many successful startups, growth was rapid and revenue couldn’t keep pace. While paid plans were available, the constant need to upgrade infrastructure required all their money and more. However, when an internet startup generates serious traffic, funding is rarely hard to come by. The Ludicorp team faced a choice. Should they take on venture capital funding to keep the project going under their own auspices, or sell Flickr and resume their core mission?

In 2005, only a year after launching Flickr, the Ludicorp team sold it to Yahoo! for over $20 million. But even after the sale, Stewart and company couldn’t get right back to business. Like so many startup exits, this one contained an earn-out provision that required the team to stay with Yahoo! for three or more years. In 2008, once his three-year commitment expired, Stewart sent in his now famous letter of resignation:

‘In my 87 years service, I’ve accomplished many feats, shared in the ups and downs, made great friends and learned a tremendous amount…Those young baby boomers need their own try without us old ‘uns standing in the way…So please accept my resignation, effective July 12. And I don’t need no fancy parties or gold watches (I still have the one from ’61 and ’76). I will be spending more time with my family, tending to my small but growing alpaca herd and of course getting back to working with tin, my first love.’

Stewart was going back to working with his first love, but it wasn’t tin. It was the dream of creating a massively multiplayer online game. The Game Neverending team were a group of unknown programmers, mostly working without wages to get their product off the ground. But their crazy side strategy actually worked, even if it did take them away from game development longer than they hoped. They had money in hand from the Flickr exit, but more importantly, they were now well-known in the venture capital world as the creators of one of the internet’s hottest apps.

This time, money rolled in, and Stewart and Co. raised $17 million to start their next massively multiplayer online game, Glitch. Internet technology had come a long way since the days of Game Neverending. Not only were browsers better, but bandwidth was higher, allowing for a superior level of graphic interface. To play, players had to “learn how to find and grow resources, identify and build community and, at the higher levels of the game, proselytize to those around them.”

But Glitch suffered from two fatal flaws. Firstly, the game was hard to explain. Stewart describes the world as “Monty Python meets Dr. Seuss.” Gameplay included squeezing chickens to get eggs and milking butterflies (a vial of butterfly milk gave off the “tingly effervescence of a thousand tiny butterfly farts.”) The difficulty of explaining the game slowed its spread, but there was an even bigger flaw: the game was programmed in Flash. Flash worked great on desktop computers, but not on mobile phones. When they started designing Glitch, smartphones were in their infancy. With each passing year, it became ever more clear that they could not just ignore the rapidly growing smartphone market.

While Glitch was steadily building a user-base, its incremental growth and lack of mobile presence signaled big challenges ahead. Silicon Valley VC firms have never subscribed to the “slow and steady wins the race” philosophy. Glitch was burning through cash, and Stewart could already foresee his second massively multiplayer online game ending in failure.

Despite having $5 million left in the bank, Stewart pulled the plug on Glitch. Massive layoffs were announced, and pretty soon only the four co-founders and four other staff members remained. But what would they do now? Most startups only collapse when they run out of money. Five million was still a substantial amount of dough, but what would they develop?

For the second time, Stewart and Co. realized that incidental to their video game creation, they had created something pretty cool with implications outside of gaming. With Game Neverending, the functionality that led to Flickr had been part of the game itself. This time, their discovery was a communications breakthrough their programmers had developed to coordinate their efforts.

Until this time, most internal company communications took place via email. Picture the following: a new hire joins a three-year-old startup. Day one, she’s given her own corporate email address. She logs in and finds what? A standard welcome message from the CEO? Some notes on her health plan from HR? Most likely, she finds absolutely nothing.

She’s joining a team that’s had three years of collaboration before her arrival, much of that by email, and she has no access to their past conversations. Sure, one of her coworkers might go through his own inbox and forward her some of the more important messages, but the email system has severe limitations.

Emails systems are arranged for individuals, with everyone having a unique address. But the Glitch team built a more effective form of communication, divided by subject. Private conversations could still be held when necessary, but most team communications could be arranged topically. Each team member could join the topics relevant to their position and avoid the ones irrelevant. New staff members would have access to the entire history of a conversation, and the input of departing staff members wouldn’t be deleted with their email accounts.

When the remaining Glitch team presented this software idea as a possible new direction for the company, their existing funders were hardly ecstatic. However, Glitch had already squandered the vast majority of its funding and their investors stood little chance of seeing any returns. So despite their lack of enthusiasm, they green-lighted the pivot from an online video game to an enterprise business software play.

These investors now look back at that decision as one of the wisest investments they’ve ever made. The new business communication tool, named Slack, became one of the fastest-growing apps in history, and on the day of its IPO in 2019, it opened at a $23 billion valuation.

Stewart Butterfield may now be the poster child for the startup pivot, but to me, he represents something much greater: The ability to see value hidden in plain sight. If his games were more successful, he might never have built his iconic companies. Until Glitch failed, their team had only developed Slack for their own internal use, oblivious they were sitting on a goldmine of innovative technology.

Quitters get a bad rap. I once had a friend brag he’d spent fourteen years in a job he hated. “You have to give me credit, I stuck it out and didn’t quit until I was absolutely sure I couldn’t make it work.” I was stunned. I could understand if he had a family to feed and no other source of income. Then perhaps I’d admire his resolve to keep pushing despite his misery. But the guy had no such financial pressure. He just didn’t want to be a “quitter.”

While quitters get mocked, the Stewart Butterfields of the world are praised for identifying what’s not working and pivoting to something better. And before you object, saying quitting and pivoting are two different things, remember Stewart pulled the plug on Glitch with no contingency plan before he and his team came up with the idea for Slack.

In my personal experience, as long as I’m following a failing path, I rarely have the mental bandwidth to pivot. While it’s possible Butterfield could’ve thought of Slack while working on Glitch, having a blank slate gave his team room to think and be creative.

Is it time for you to put on the breaks and maybe consider a new path? How can you tell if you just need to hunker down and push through your challenges or if it really is time to blow up your old strategy and pivot to a new one? There’s no clear-cut formula that can answer the question, but considering the following factors can help you gain clarity:

1. Key performance indicators (KPI’s). KPI’s are specific and quantifiable measurements that help businesses track progress towards strategic goals. Common business examples include sales revenue, conversion rate, lifetime customer value, and customer acquisition cost, but you can have KPI’s in non-business settings as well. If your KPI’s are consistently below expectations or targets, despite your attempts to improve them, it might be time to pivot.
2. Market response. How quickly are you gaining traction in the marketplace? If your customer feedback is phenomenal and your sales traction slow, you might just need to pivot your marketing strategy. But if sales are slow and feedback only lukewarm, it might be time to pivot entirely.
3. Changes in the market. Are there any changes in the market like new competition, technology advancements or regulatory changes? Stewart Butterfield saw the technological advancement of smart phones and realized that a game programmed in Flash would become more and more obsolete if he didn’t pivot.
4. Financial health. Are you burning through cash with no remedy in sight? You might want to pivot before your resources run out.
5. Team morale. If your team is frustrated, unmotivated, or burnt out, it could be an indication that your current path isn’t working.
6. Innovation and opportunity. If there’s a new opportunity or innovation that aligns with your business’s strengths and could offer better growth prospects, it might be worth pivoting.

Once you make the decision to pivot, here are a few steps to help make your new direction more successful than your last.

1. Strategic planning. Clearly define your new direction, goals, and strategies. This might involve a new business model, new target market, new product or service, or new marketing strategy.
2. Market research. Understand your new market, including customer needs, competitor landscape, and potential challenges. This will help you refine your strategies and offerings.
3. Get all stakeholders on board. You want everyone involved, including staff, investors, customers, and partners, to embrace the change in direction. Explain why the pivot is necessary and how it will benefit them. Note that you might not retain everyone, and that parting ways with those who can not embrace the new direction might be a necessary cost of pivoting.
4. Make sure you have sufficient resources. Do you have sufficient financial, human, and technical resources to successfully pivot?
5. Monitoring and adjustments. Just because you pivoted once doesn’t mean you won’t need to do so again. Continue to monitor your KPI’s and be open to making further adjustments if necessary.

A successful pivot requires commitment, flexibility, and resilience. It’s a challenging process, but with careful planning and execution, it can breathe new life into a struggling project.