How to Turn Down a Billion Dollars

• The PayPal Mafia, a group of roughly two dozen entrepreneurs who left PayPal after selling the company to eBay in 2002. Members of the group went on to found Tesla, SpaceX, LinkedIn, YouTube, Yelp, and Palantir, among many other successful companies and venture capital firms. Not coincidentally, many of the members of the PayPal Mafia had studied at Stanford, often as classmates.
• If you take a hundred startups that manage to raise seed funding, only thirty-one of them on average will raise Series A funding. Only seventeen will raise a Series B; seven will raise a Series C; and two will raise a Series D. It isn’t, or at least shouldn’t be, surprising that the success rate hits single digits by a Series C, as these are large funding rounds in the tens of millions of dollars set aside for highly successful companies. But the descent from seed-funded startups to Series A and B is often much steeper than people expect. Raising some money for an idea is not that difficult. Staying in the game round after round, as the world changes and targets are met or not met, is extraordinarily difficult. At each stage, the company gets a valuation. This is often confused with what the company is actually “worth,” and it is this number that usually has talking heads up in arms about how a no-revenue app is “worth” hundreds of millions of dollars. But these are not publicly traded companies; this valuation is merely what one private investor is willing to pay. The company is almost certainly worth far less than this number if you break down its assets. Odds are, it will be worth zero or close to zero in the years to come. But a minuscule number of these companies will break out and be worth billions, if not hundreds of billions, of dollars.
• In October, Evan opened up Flurry, the analytics dashboard he was using to monitor Snapchat’s users, and noticed that new users were signing up in Orange County, California, and their activity was spiking between 8 a.m. and 3 p.m. Evan’s mother had told his cousin, a high school student, about Snapchat. She and her friends downloaded the app on school-distributed iPads, which blocked Facebook. They started using the app as a way to pass notes in class. Snapchat fed the high schoolers’ desire for attention, as they could see when the recipient opened their snap. Snapchat started catching on in small clusters at various high schools in Orange County and Los Angeles that fall. Then, these high school students went home for the holidays and many found iPhones with front-facing cameras in their stockings. Teenagers began taking selfies using the front-facing camera and sending them to each other via Snapchat, having entire conversations through images of their faces. From December to January, Snapchat’s user base grew by a factor of ten, growing from just over two thousand daily active users to over twenty thousand. Snapchat broke out from a note-passing gimmick to a full-fledged communication tool, replacing texting for many teens.
• Conforming happens so naturally that we can forget how powerful it is—we want to be accepted by our peers—we want to be a part of the group. It’s in our biology. But the things that make us human are those times we listen to the whispers of our soul and allow ourselves to be pulled in another direction.
• When users first signed up for Facebook, it was amazing. All their friends were on it, and they could post funny things and goofy pictures. But all these posts built up over time and started becoming representations of people—their so-called “personal brand.” It turns out it was a lot of work to curate a personal brand that spanned many years and was cool to your peers and acceptable to parents and work colleagues—not to mention future friends and colleagues who might want a different you. At some point were you supposed to go back and unlike Sean Paul? Or would your friends understand that ten years ago the song “Temperature” was just that good? What about seventeen “new phone, need numbers” groups? Is there a button for deleting every photo of you before 2011? Why did you think that haircut was a good idea? And so users started posting less frequently and started sharing news articles instead of silly pictures. The spontaneity, goofiness, and lightness of social media was replaced; instead of throwing Polaroids at friends across the room, you were curating a gallery of professionally framed, high-gloss photos.
• In 2013, Facebook acquired a Tel Aviv–based mobile-analytics company called Onavo. Onavo made a free app called Onavo Protect that creates a virtual private network, or VPN, to encrypt internet traffic. Because Onavo Protect handled users’ internet traffic, it could create a log of users’ action on Facebook’s servers; Facebook’s product teams could then look at detailed information, like how frequently and for how long people are using specific apps, from this aggregated data. If apps didn’t encrypt their data, Facebook could see user behavior as granularly as the number of photos the average user likes per day. Apple and Google can monitor user activity in a similar way because they own the mobile platforms in iOS and Android. This is just one of the major advantages that comes with owning the platform, which is why Facebook and Amazon have both tried to make phones. With Onavo, Facebook managed to capture this data advantage without owning the operating system. From Onavo’s data, Facebook saw that WhatsApp was installed on 99 percent of Android phones in Spain; this unique data helped drive its aggressive pursuit of WhatsApp, and promised to inform its acquisitions and product strategy in the future.
• Traditional social media required that we live experiences in the offline world, record those experiences, and then post them online to recreate the experience and talk about it. For example, I go on vacation, take a bunch of pictures, come back home, pick the good ones, post them online, and talk about them with my friends. This traditional social media view of identity is actually quite radical: you are the sum of your published experience. Otherwise known as: pics or it didn’t happen. Or in the case of Instagram: beautiful pics or it didn’t happen AND you’re not cool.
• Krishnan explained how these metrics often have unforeseen side effects, as people focus on simply making the metric increase, but not in the way the original system designers intended: For example, in terms of what designers wanted, what they built/measured and what they unintentionally caused: Quality journalism → Measure Clicks → Creation of click-bait content
• In the spring of 2014, the illusionist David Blaine visited Snapchat’s offices in Venice. Snapchat’s head of content, Nick Bell, thought he might be able to figure out Blaine’s magic if he watched all his colleague’s Snapchat Stories, and was thus able to see the performance from dozens of different angles. This idea, which closely aligned with a product Snapchat had been working on internally, ended up being much more valuable than cracking Blaine’s secrets. An individual’s Snapchat Story showed their life from their point of view. But a group story, if done around a collective event like a concert or game, could show an engaging, interesting evening from everyone’s point of view. Or, better yet, from the very best points of view. Instead of My Story, it would be Our Story.
• Our Story expanded to daily college campus and city stories, which you could only watch if you were at those locations, and global stories covering sports games, concerts, and other events. Snapchat renamed it to Live Stories, as all the content had been shot within the previous twenty-four hours, giving it an almost-live feeling. Snapchat figured out a way to take an age-old question—What is happening around me?—and reinvent the medium in a gripping, addictive way.
• New hires started off working on the Live college campus stories, then moved up to the local team, curating city stories. If they did well on local, they would become content analyst leads and would be in charge of covering big stories like the Grammys or the Super Bowl. Chloe recruited students from nearby colleges like UCLA to offer their perspective on college campus stories, and remote workers overseas helped Snapchat translate Live Stories. As Snapchat became more and more of a household name, content team members started going to events like the Video Music Awards and Grammys to record content for Live Stories. In addition to user-submitted snaps, analysts back in Venice would look at what Snapchat team members were submitting from the red carpet, backstage, and afterparties.
• Every Wednesday night, Snapchat employees have Council, where they sit in a circle with nine colleagues and talk about their feelings. Council ranges from deep, introspective talks to community service, like serving meals or furnishing a home for homeless families, to typical team-bonding activities like boxing classes, volleyball, karaoke, painting, and happy hours. When employees join Snapchat, they become part of three core teams: their starting class, their actual work team, and their Council group, which is randomly assigned. Council has three rules (Evan likes the number three). One, speak from the heart. Two, you are obligated to listen. Three, everything that happens in Council stays in Council. Evan believes this privacy creates a space for employees to make themselves vulnerable and share their deepest thoughts and feelings.
• Snapchat cheekily tried to poach San Francisco startup employees by adding Snapchat geofilters to their offices. At Uber’s headquarters, a geofilter read, “THIS PLACE DRIVING YOU MAD?” along with Ghostface Chillah sadly driving a cab. At Airbnb’s office, the ghost lay scared in bed, underneath the caption “NOT SLEEPING WELL?” At Twitter, the shtick was a ghost with a halo and angel wings to the tune, “FLY HIGHER!” And finally, at Pinterest, a ghost lay next to falling bowling pins, asking, “FEELING PINNED DOWN?” All of the filters featured an address for Snapchat’s jobs page.
• Snapchat has also locked employees up by requiring nonlinear stock vesting, where employees get 10 percent of their stock options after their first year, an additional 20 percent after their second, 30 percent after their third, and the final 40 percent after their fourth year.
• From the beginning, it was clear that without headlines and links, Discover publishers couldn’t rely on gimmicks to drive traffic. They would have to consistently produce good content to develop a loyal audience. This was supposed to be a good thing—freed of the incessant stream of Facebook and Twitter, journalists could get back to making pure, great content that users loved. The problem, of course, was that the content was actually crap. But we can’t pin all the blame on publishers. Snapchat spent years building a distinctive brand that made it difficult for Facebook to copy; but this same youthful, fun aesthetic made it difficult for Discover, Snapcash, and other serious endeavors to work. Teenagers didn’t want to use the same app to send dumb drunk photos to friends and get serious world news. And as much as Snapchat thought they might be starting a revolution, they didn’t believe their own hypothesis enough. Discover still placed too much emphasis on the publishers’ brands. But users didn’t care if the CNN logo was popping up in Discover. They cared about individual stories.
• If you compare Facebook and Snapchat right now, you can do the same things on Facebook and Instagram that you do on Snapchat: post photos, message friends, send money, read articles, watch celebrities’ videos, etc. But you don’t do the same things because the different apps were built in different orders for different audiences. They have different aesthetics and different customs. Snapchat’s ethos was so directly antithetical to that of Facebook that anyone who chose to work at the latter would struggle to understand the former. It wasn’t merely arrogance that promoted this misunderstanding, though that was the case in the beginning. Rather, if you believed in the mission of connecting the world through a permanent online social network, believed so strongly that you chose to spend your time working on that network, how could you ever fully appreciate the long-term potential of an app where everything disappeared every twenty-four hours? It became an ideological holy war. You were part of the Facebook-Instagram religion, based on permanence and data, or you were part of the Snapchat religion, focused on ephemerality and a small group of people’s decisions without data. You couldn’t believe in both.
• One of the biggest problems with Snapchat the app is that it takes you out of the moment. You and your friends are having a silly dance party, or just hiked to a beautiful view, or are surrounded by costumed people running through the streets. So you stop to pull your phone out to Snapchat it, and in doing so you lose the magic. What’s more, because all your friends are snapping too, the awesome moment is now ugly, with half of your friends also recording during your shot. If you and your friends have Spectacles, none of that happens. You can instantly record something, then add filters and effects and send it later. Although this isn’t happening in real time, that’s okay—the cultural norm around Snapchat that its content is curated yet close to live is so ubiquitous that people will continue to post close to real-time content.
• We should look at Snapchat through the lens of three acts: (1) luck, (2) recording the world, (3) controlling the world. In act one, Snapchat was a simple picture and video sharer that came out at the perfect time and exploded in popularity. In act two, Evan and Bobby brilliantly made Snapchat the must-have app, packed with fun filters and lenses and engaging content with Stories and Live. If they can successfully pull off act three, Snapchat will take another leap, larger than the twenty-fold valuation jump from $800 million to $16 billion that Snapchat took from act one to act two.
• Famed business consultant and writer Jim Collins, the author of manager-bibles Built to Last and Good to Great, has written about three things that make a company truly spectacular: (1) superior financial results; (2) making a distinctive impact, where if you didn’t exist, you wouldn’t easily be replaced; and (3) lasting endurance beyond multiple cycles of technology, marketing, and people. Very, very few companies satisfy all three criteria.