0:00

Kevin and his product insight, his understanding of the consumer has led to building a product that started at 50% DAU MAU and then went to 60 and 70 and it just keeps on going up because he understands the user. It's not about a clever growth hack; it's about understanding the user and what they want.

0:17

Welcome to the Product Market Fit Show brought to you by Mistral, a seed-stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early stage founders like you find product market fit. That was Jeremy Liew. He's a partner at Lightspeed and he's the VC who made the first investment into Snapchat; we're talking back in 2012, so over 10 years ago when the company was valued at just shy of $5 million, if you can believe it. He was able to get 10% of that company for just under 500K. You'll hear from him later about what it was that he saw in Evan and in Snapchat back then and why he thinks that Snapchat had the success that it had. Before we start, I'll just mention that most of what you hear on today's episode is from my own research into a bunch of different sources including the book on Snapchat, "How to Turn Down a Billion Dollars," several Snapchat podcasts and interviews like Acquired and OMR and other online research. Just to set context, today Snapchat is a $18 billion company. They're doing just shy of $5 billion in revenue. They have 800 million monthly active users, 400 million daily active users. It's funny. I always talk about how you don't want to start a startup with this, wouldn't it be cool if, mindset because if you start with that, you tend to be led pretty astray. This is a total exception. If you look at how this started, it's not even Evan by the way. Evan Spiegel, he's the CEO. He's one of the founders of Snapchat. He didn't have the idea. It was his frat bro. It was Reggie Brown. He's like, hey, these guys are 21 years old. They're at Stanford in frat house. They're hanging out, throwing parties every few days. They're doing the classic things that you would expect happen in a frat house when you're 20, 21 years old. Reggie one day is sending pictures to some girl he knows and he just literally has this aha moment, completely textbook classic case of wouldn't it be cool if. He just goes to Evan and he's like, "Dude, wouldn't it be cool if I send somebody a picture and it just automatically disappeared?" Evan loves it. Evan just loves that idea and he jumps on it. That's, believe it or not, how an $18 billion company is born. To understand how it all really played out, you got to understand some of the context because today, I mean we're 2024. It's hard to remember what the world was like back in 2010, 2011. Just some facts to throw at you, I mean, today there's 1.5 billion iPhone users. That's how popular the iPhone is and obviously there's more Android users than that. There are billions and billions of mobile phone users in the world. The iPhone started in 2007. The App Store didn't launch till 2008. By 2011, which is when Snapchat gets created, there's only 150 million total iPhones that have been sold. The market is about 10% what it is today and this is really the age of mobile. If you look at the period from 2008 to 2012, that is when all of the $10 billion plus mobile first companies were created. Uber, Lyft, Postmates, Spotify, Venmo, WhatsApp, they all were created during that time but they were still in their infancy in 2011. Think about WhatsApp, which is probably the best comparable to Snapchat because it's another one of these messaging applications. WhatsApp at 10 million users in 2010, by 2011 it had 50 million users. To give you a comparable, in 2011 when WhatsApp had 50 million users, Blackberry, BBM, if you remember Blackberry Messenger, which was the hottest thing back then, had 60 million users. Blackberry Messenger in 2011 is more popular than WhatsApp. This is the world that Evan's living in. We're talking about people who had flip phones for most of their lives. Even at this point in 2011, only a third of teens have a smartphone and about two-thirds of college students have smartphones. Even in college where they're at, there's a third of their friends that don't have one. I mean, that's unimaginable today, but this is the world they were living in. It's in this context that this idea of a disappearing image comes to Reggie. This is a huge reason why things played out as you'll see the way that they did. There is this tailwind. There is this undercurrent, this tailwind that to be clear, they did not identify. This I think is very -- and I go on these tangents because I think at the end of the day, we're not just telling stories for the sake of it. We're telling stories so we can understand what it takes to get product market fit and hopefully build a massive company. You can see very clearly neither Evan nor Reggie nor the other co-founder, the technical co-founder that comes in later, Bobby, they don't have a thesis about mobile. They haven't really thought through strategically what's happening now that the App Store is out, now that these mobile apps are coming out. They end up landing on it and they end up benefiting from this tailwind. This is super common. I'm not taking anything away from Evan. I'm saying that actually this is the way things typically work out. Now Evan, he's a designer. He's a product designer type. He actually can't code. The first thing he does, going back to when Reggie pops into his room and says, hey, disappearing images, as he starts thinking through this idea and really buys into it, he gets his friend Bobby Murphy who's a couple years older, is 23 years old, he just graduated. At this point to be clear, Evan and Reggie they're sophomores. They're in their second year. Evan's friend, Bobby, he has just graduated. He has a full-time job now. The reason that he goes to Bobby is because actually Evan and Bobby had previously worked together on another startup. This is another thing that I find so interesting about this story is that in a way, Evan did everything wrong. It worked out tremendously well, but we talk about, you don't want to start a startup with "would it be cool if." You also don't want to start a startup by forcing it. The last thing you want as a founder is to be like, "I just want to start a startup. I just want to be a founder" and you're just chasing ideas. I did that at Gymtrack and I can tell you it's so likely that you come up with an idea that sounds good on paper but doesn't work in reality. The best way to actually uncover great ideas is to just get interested in spaces and solve problems almost for the sake of it and you end up uncovering more interesting problems most of the time that way. This was not the case. Evan and and Bobby had worked together on previous startup ideas before because they so desperately wanted to be founders and one of these was Future Freshmen. The idea with Future Freshmen was informed by what Evan and Bobby had lived through. I mean, they were students at the time. They were 20 years old. They've only really been students their whole life. They haven't had a job yet. Their whole idea of the world is framed by that. One of the problems that they encounter was, hey look, when you're applying to university, when you're looking for universities to apply to, it's a mess. You have to click through all these websites. You have to go through all these places to just understand what the programs are where you might be a fit, where you might not be a fit. They built out Future Freshmen , which was this website, this portal, let's say, that you could go into. You could figure out which college you should go to, which university you should go to. They wanted to sell it actually to schools. They wanted to sell it to advisors at high schools and these sort of things. They worked on it for over a year. They actually funny enough got their pledges from their fraternity to work on it obviously for free. I mean, Evan talks about this a lot. It just didn't work for a variety of reasons, but I think one of the main reasons is they really weren't building for themselves. They really didn't understand the problems at all that well. They were informed by their own opinions, but the reality is he even said he had his younger sister and Bobby's younger brother, neither of them used it because the honest truth is most high school students they just don't care that much. Even if they use the platform, they're certainly not going to pay for it. Now you got to go sell to schools. These guys have no idea how to sell to schools. They don't actually understand and neither do they do the research to figure out what the problem looks like for the counselors, for the advisors that are in the high schools. This project totally doesn't work, but they obviously enjoyed working together. This is the first person that Evan goes to to work on Snapchat. Bobby ends up playing a critical role because turns out that Reggie, even though he had like the first idea, I mean the idea of disappearing pictures, he beyond that really didn't play much of a role. I mean, initially there were three co-founders, right, Reggie, Evan and , and Bobby. But even in the very early days, Evan and Bobby start really doing kind of all the work. Reggie ends up kind of like leaving the company or getting kicked out of the company depending on who you ask. I mean, there's a whole lawsuit about this that we won't get into here. But the bottom line is that the key people at the beginning were really Bobby and Evan. I mean, Evan spent most of his time on vision and design and Bobby was a key person on product and tech and ultimately built a team that really scaled and pioneered a lot of the computer vision, the lenses, the AR stuff that ended up making Snapchat what it is today. They get to working and their first idea is actually not to build an app but to build a website. Why is that? Today it seems so weird. Back then in 2011, that's where you went first. The age of mobile was really just coming up. If you recall, this is about the time where actually Facebook was making the transition from web to mobile. This is where they start off. They build this web app thing. They call it Peekaboo, by the way. It wasn't called Snapchat back then. It was called Peekaboo. That was the first name. They work on it through summer 2011 while they're on summer break. They launch it and it just falls flat, totally flat. They get zero downloads on day one. They keep pushing and pushing. It's funny. Evan talks about he goes to the mall. He actually goes to the mall to convince people to join this platform. They do at some point end up launching a mobile app, but even still by August, September we're talking five months in, five, six months in after the original idea happens, they have only 127 users. It's certainly not flying off the shelves by any means. And this is a consumer app. I mean, you need tens of thousands, hundreds of thousands of users before this gets interesting at all. Evan with his tail between his legs so to speak, has to go back to school. He wanted to drop out. He wanted to be a founder but the thing just wasn't hitting. Now in the meantime, and to their credit, what they are doing is they're making it as simple to use as possible. This is something that I thought was a huge reason why it ultimately took off, which is when you opened up the app, it was instantly on camera. If you remember back in these days, 2010, 2011, when you opened up the camera on your actual iPhone, you went to the camera app, it had this weird animation. It was the camera lens opening up. That added about a second. And they actually hacked the software to be able to get rid of that animation so that loading up Snapchat's camera was faster than loading up the iPhone camera. They're doing all these little design tweaks, product tweaks to make the product easier and easier to use. The reality is that for the average college student, there just isn't enough here. It's this cool idea and people knew Evan, so they tried it out, but they've got BBM, they've got WhatsApp, they've got texting. They've got all these other ways to communicate with their friends and of course they've got Instagram and they've got Facebook, so they've got all these other social media apps. There's just no hair on fire reason to start using Snapchat, which is why Snapchat ended up taking off with an entirely different set of users. It wasn't 20 year olds. They were effectively too old. It was actually high school students and it's pretty insane the way that this works out. It turns out that Evan's mom tells her niece, so this is Evan's cousin who's a high school student, about the app, and her niece in Orange County starts using it with her friends during school. Evan didn't know any of this. Actually he's looking at his dashboards and at some point in September, October-ish of 2011 starts to see these spikes between 8 AM and 3 PM and this is his cousin, it turns out, with her friends using it in high school. Then the big question, the obvious question is why did it take off there? We've talked about another concept before, which is find the weak spot. When you're putting out something new into market, you've got to find the angle, the spot where competition is extremely weak. Talk about David and Goliath. You are very much David versus the Goliaths. At that point, the Goliaths are BBM, they're WhatsApp, they're Instagram, they're Facebook for sure. They're much bigger than Snapchat was. In the places where those apps are already used, already popular, it's really hard to penetrate. What's going on? What's going on is that when Evan's cousin is in school, first of all, phones are not allowed. Like I said before, only a third of teens had smartphones. Most people don't have smartphones and phones of course are not allowed in class. iPads, though, those were allowed but the iPads are provided by the school and popular apps like Facebook are blocked out. WhatsApp, to be clear, you need a phone number associated. That doesn't work either. They actually have no good means to communicate with each other and that is where Snapchat fills a clear void. That's how it comes in because the hardest thing is to get you to download something and to just start using it. Once they get used to Snapchat, now we're in a totally different world because now what they start to realize is, wow, this app is so much better to communicate. These are people that have not been used to texting. They haven't been used to any other world because this world didn't exist yet. All of a sudden, they have this really rich communication platform through images plus text. Remember that was another feature they added in, which wasn't just the idea of disappearing pictures. It was a picture with some text that you could add. This is how these teens start talking to each other, and of course they take it outside of the class as well. There are a few other things that really matter too. Evan talks in the early days about how he has this thesis in Jeremy Liew. You'll hear about him talking about it later about how everything on Facebook, everything on Instagram is by default there forever. That doesn't really make sense. I mean most conversations are ephemeral. As soon as you have a conversation with someone in real life, it goes away. It's not recorded and it would be weird if it was recorded. He talks about that being an underlying reason why Snapchat took off. I think at the end of the day, if you think about a teen, they're not that forward looking. I think at the end of the day what Snapchat became is a really compelling way at first to talk during class, which is a thing that teens have been doing in classes forever. You write a little note on paper, you pass it on. That was never going to stop, and this was just a much better way of doing that. Of course, the fact that it disappeared also meant guess what? You can't get caught. The teacher can't actually grab the piece of paper and read in front of everybody by the time the teacher notices, the picture's gone. Now when these high school students go back home and they do have a phone they can use or an iPad, guess what? The parents also can't see what they're talking to their friends about. This is a no-brainer better way of communicating with your friends. Once you've gotten used to it and you've tried it out, there's just no reason to stop and there's no reason to go to anything else. There's all the reason to tell your friends about it. This is what starts to take it off. It turns out that none of the marketing mechanics that Evan tried, including, like I said, the hand-to-hand combat of going to malls, but every single thing that he did didn't work. The only thing that worked was ultimately finding a weak spot, which he stumbled upon, but it doesn't really matter. That's what ended up happening and then word of mouth. Once that happened, things just took off. The numbers are staggering. In August, he has 127 users. By December of that year, he has 2000 users, January 20,000 users, and by April of 2012 he's up to 100,000 daily active users. This is the power of finding a market that is very underserved and having an experience that's natively viral, not in the way that Zoom or Hotmail is viral where you send it to somebody who doesn't have it and they're exposed to it. This is where the power of network effects really play out because of course once you're exposed to it, you're so likely to tell your best friends about it because you want them to have it so you can talk to them on iPads or iPhones or Android phones and in a way that nobody else can see the images, and then they tell their friends and then they tell their friends. This is what drove growth. The other thing that's important to remember is even texting back then, texting images was quite slow. It took a lot of time to upload and it was very expensive. It was another piece that also made Snapchat so compelling. Evan on the OMR podcast actually mentioned specifically how disappearing photos wasn't actually the reason why it took off.

16:07

Is that people weren't really using it to send photos that disappeared; they didn't care that much about that part. What they were really focused on was talking with pictures because it became a much more expressive way to show your friends what you were doing or how you feel. Text messaging can be very boring. It's hard to understand sometimes but when you send a photo, you can show your emotion in a split second. I think people really enjoyed talking visually. We renamed the app Snapchat and that was in 2011, and I guess the rest is history.

16:35

Clearly at this point Snapchat is starting to have some success. From talking to Jeremy, what the data showed was that it was all organic. It was really the right product at the right time and it went viral through word of mouth. Jeremy explains how you could clearly see that in the data.

16:51

There is a good amount of luck involved in social software. It's not just about the right product and the right features; it's about resonate with the right users at the right time to create a culture that wants to propagate itself. When that happens, when the lightning strikes, it really can propagate. That was one of the things that we saw is we looked at the growth over time and those are only a few months of data, but what you could see is that it was highly geographic. It was growing in LA. There was a little segment in Georgia that had just started to grow, but it was growing at the same rate. What that told you is that this was genuine word of mouth. People were telling people nearby who were then using it with each other. You continue to see that over time, not just in those first few months, but somehow it picked up a little following in Sweden and it started to grow in Scandinavia. It hadn't picked up in the UK yet. Eventually Saudi Arabia became a really big local growth opportunity. Because all this growth was happening through genuine word of mouth, these geographic hotspots were evidence that this is real, not manufactured virality, not invitation driven virality, virality driven by people like sharing it with the people that were right by them, right close by, going to school with them, their friends.

18:14

With all the success, I mean people send sending more and more images and Evan is not making any revenue, and so literally the server costs started to go up to a point where can't afford it. I mean, he put in $10,000 into this business, Bobby had put in a little bit of money and his dad was funding it as well, but his dad was like, "I'm not going to keep money into a business that earns no revenue so people can just send pictures to each other." Evan starts to think about fundraising. He talks to Sequoia, he goes after Chris Saka, he meets many different VCs, all of them pass. Some of them won't even meet with him. As this is happening though, Barry Eggers, who is a partner at Lightspeed, sees his daughter using Snapchat and he tells Jeremy Liew about it and that's how Jeremy Liew and Lightspeed ended up getting involved. I asked Jeremy to share the entire story with us.

19:04

My partner Barry Eggers, the reason that we got into Snapchat or we heard about Snapchat is because Barry is an engaged dad. He noticed that his daughter who was in high school at the time had changed the way that she was taking selfies. Historically she took selfies trying to look pretty. He noticed that she had started taking selfies, making weird faces or with only half of her face in the frame, just very different from the look pretty with a pretty background. He asked her, "What's going on? Why are you making these weird faces when you take photos?" She said, "Oh dad, it's this new app called Snapchat. Everybody's using it at school. There's three apps that everybody has on their phone at school, Instagram, Angry Birds, because this was 2011, and Snapchat." At the time he was like, "Huh, interesting. Instagram is pretty big, Angry Birds is pretty big, but hadn't heard the Snapchat thing." He mentioned it to me and put it on my radar. That's how we first heard about the company.

20:05

How did you go from there to actually meeting Evan?

20:07

The thing is Snap is social software and so you're really fully experience using the product unless you're using it with other people and ideally people who have been natively using it. To download the product without that context, at the time, it was primarily used by high school students and I didn't know any high school students. I downloaded it, I looked at it and I was like, "Eh, they really get it." I didn't really take a lot of action on it, but again, credit to Barry, he was pretty – he's like, "Hey, did you find out more about the Snapchat thing? I think it really could be pretty interesting. My daughter and all her friends, they're using it all the time. They're talking about it." I'm like, "Okay, I'll check it out." Obviously the first thing you do is you go to the website and the website at the time was just a single page with the logo and an [email protected] email address. I emailed it and I never heard anything back. Later on he was like, "Hey Jeremy." He was like, "Oh yeah, I'm working on that. I'm going to find out more about it." it's like, well, okay, what do I do? Okay, let me look it up on LinkedIn. It turns out that Snapchat had one employee, CEO and founder and sophomore at Stanford, Evan Spiegel. I was like, "Great, okay." I messaged him through LinkedIn and I never heard anything back. I was like, "Okay, well you know, let me think about what I can do." I did a whois lookup. I saw that the URL was registered to info@topoyagroup. It's like, great. I emailed that and I never heard anything back. I was like, "Oh my gosh! This is becoming a challenge. How am I going to figure out how to get in touch with this guy?" I basically started spamming every variation, [email protected], [email protected], spiegel_evan@snap, every variation of just shooting emails out into the void and I never heard anything back. Barry was constantly like, "Hey, did you get in touch with that guy? I really think it could be interesting. I'm like, "I'm on it." Finally I was like, I don't know what to do, but I noticed that Evan was a student at Stanford and I'd graduated from Stanford from the business school. Back then you could DM anyone on Facebook if you were within the same network and so I DMed him and I got a message back in two minutes. I was like, "Hey, I'm hearing great things about Snapchat from folks, I'd love to hear more about it." He's like, "Sure, happy to tell you about it." I'm like, "Great, I'm just down the road." We set up a meeting for maybe a day or two later and he came over and told us the story, cracked open his analytics. He said, "Look, things are going great but I'm signing max out the credit cards. We're growing so fast that I can't afford my server bills." I was like, "Well maybe we can help you with that," and so that's how we came to invest.

23:21

That's quite an epic story. I think back to that time, and as Evan then admitted, he really needed money, so do you know why he didn't respond to those first requests? Was he just not checking? Did you ever find that out? I'm just curious.

23:36

I think that's largely what it was. If you think about what are the native modalities that you check all the time especially in college when you're in your 19, 20s, something like that, it's definitely not LinkedIn. It's barely email. It's messaging and social. It is mostly messaging. That's where you spend your time. I remember one time because I had donated to the Obama campaign and I was trying to show off. I changed my profile picture to this photo of me shaking hands with Obama. He said like, "Yeah, the reason that I responded to your Facebook message was that I saw that your profile picture was with you at Obama and I figured you must be a halfway decent human being." Best political donation I did.

24:26

That's incredible ROI.

24:32

I know, right?

24:34

The other thing I had read, so maybe now that you're meeting with Evan at this point, how was that meeting? How quickly did you decide that, you know what? Because at that point you weren't actually fully bought in, you have this meeting –

24:46

Not only was I not fully bought in, I just didn't understand it because I couldn't natively use the product the way that it was being used. First of all, he did a couple of things. He just told me some of the metrics and then he cracked open his analytics dashboard and he showed me. What I saw was 50% daily active user to monthly active user ratio. I saw 50% D30 retention, extraordinary. I thought 50% month on month growth on a statistically significant number of users. I can't remember exactly what it was. It was 10 or 20,000 DAUs and that had been persistent over time. It didn't matter whether I got it or not. The dot was very clear that this was resonating, but then he explained it. That's the other importance. Today everybody understands, you know, principles behind Snapchat and how a lot of social media creates this performance anxiety, which means that you don't post, and so you get this more of a social media perspective with a small number of posters, large number of consumers. He talked about how the disappearing messages really reduced performance anxiety because there wasn't going to be persistence. You could put something that didn't look perfect and that was consistent with the behavior that I heard that people were sending these photos where they were deliberately trying to look weird or funny or ugly making faces and so forth. The context was less about the photo, it was the sub message which is, "Hey, I'm thinking about you. You're my friend, I'm thinking about you. I want to make you laugh." He went on to explain in a really clear way that – I mean he made this example like, hey, if you were with your friend and you're catching up and you're talking and I haven't seen each other a while, that at the end of the conversation he says, "Oh by the way, I recorded all of this," wait, what? What do you mean you recorded? He's like, "Yeah, I just recorded. Is that okay?" He's like, no, it's not okay, because historically when humans had conversations, nothing was recorded. He said that default changed when we started communicating digitally with the default is everything is recorded. That changed the way that people have human interactions. When you're in high school, it's a time of high drama. People have fights all the time. If you and your best friend get into some dispute and it's like, fuck you, no, fuck you, I never want to see you again, fine with me. You have that fight. If you have that fight in person the next time you see each other, you could both pretend that it never happened and go back to normal, and that's what people do all the time. If you have that in other text chain, the next time you open that thread with your friend, you are looking at this last exchange which says, fuck you, no, fuck you, I never want to see you again, it's much harder to just pretend that never happened. He said what he was doing was restoring the default in digital communications as well as in the real world. This was an important point. He said there is no digital world in real world. There is just the world and the world should work the same. When you communicate with your friends, that should be history. It should disappear. It wasn't about ephemeral communication. It was about restoring the defaults. No one chose the defaults in digital communication that everything is recorded. That was not a deliberate design decision by anybody. He's in his view, which has turned out to be correct, it was an error which he since fixed and that's why we got disappearing messages. But if you have that either text chain, the next time you open that thread with your friend, you are looking at this last exchange which says, you, no, you're afford to see you again. It's much harder to just pretend that never happened. And he said like what he was doing was restoring the default in digital communications as well as in the real world. And he , this was an important point. He said, there is no digital world. In real world. There is just the world and the world should work the same when you communicate with your friends, that should be history. It should disappear. It wasn't about ephemeral communication, it was about restoring the defaults. No one chose the defaults in digital communication that everything is recorded. Like that was not a deliberate design decision by anybody. And he's in his view, which has turned out to be correct, it was an error which he since fixed and that's why we got disappearing messages.

27:54

Clearly at this point, Snapchat is growing exceptionally well. They've got product market fit in terms of usage, but they're also not making any revenue and they're about to face a massive competitive threat, because as we all know, Facebook tried to buy Snapchat at one point and after Evan decided not to sell in late 2012 Facebook launches this copycat app called Poke and it quickly – I mean they have billion users at this point. It quickly goes to the top of the chats and it's a bit of an existential moment for Snapchat. It turns out all that, that did was actually make Snapchat more popular because every single article talked about how Poke was a copycat of Snapchat. It just created all this publicity for Snapchat and frankly the audience that Facebook went after, either they were already using Snapchat or their friends were using Snapchat and so they weren't willing to move to another platform or they were much older in which case they just didn't care about the disappearing nature of it. It turns out that actually was a tailwind for Snapchat in the long run. Even still, there's so many consumer apps that get to a certain point and then crater off. I don't know if you remember the Yo app? That was really cool until it wasn't. Clubhouse lately became a Unicorn and then just exploded and went away. What I asked Jeremy Liew is why did Snapchat not just take off but continue to stay relevant when so many other consumer apps don't.

29:11

When we invest I think there's four things we look for in a consumer app. Can this become part of pop culture? One of the early indicators for that is that it's primarily used by young women because I think young women are culture carriers. You think about a bunch of guys get together. They'll go play basketball, they'll play a video game or something because then they don't have to talk to each other. You don't have to have a meaningful conversation with your guy friends when you're doing an activity. You can just talk about the activity, pick up your man, you suck, shoot again, all that. You can avoid having any meaningful conversation whatsoever with your friends. When women get together, and this is obviously a massive generalization, but I think there's a gem of truth to it. Women get together, they choose an activity as an excuse to talk to each other, whereas men choose an activity as an excuse to not talk to each other. Women go to a book club, 10% of the conversation is about the book, 90% of the conversation about what's going on with your life. That's why women are carriers of pop culture because they talk to each other. Men don't. Obviously that propagation is going to happen when there are real conversations happening, like this thing that you just tried or whatever. What we saw with Snap was heavy concentration in young women, which is a pretty good indicator that it could become part of pop culture over time. That's the first thing we saw. Second thing we looked for is, is it creating new habits? With the DAU of MAU ratio and the D30 retention, it was very clear this was creating new habits. That's one of the interesting things about the difference between social media and messaging. With social media, there is no expectation that you respond. You can look at it and do nothing; totally fine. Your friend isn't like, "Oh dude, why didn't you hide it? Why didn't you respond?" No comment, what's going on? If you send someone a message, there's an expectation of response. If you don't respond, you are the ass hole. Don't leave me on unread. That was creating this habit, this ping pong, ping pong, which institutionalized the streaks that was creating habituation. The third thing that we look for is a scalable repeatable way to grow. With Snapchat, firstly the data showed that it was obviously happening, 50% month to month growth, something's going on. What's really important in all of this is that the founder needs to have a unique insight. It's explaining what is going on. He was able to do that in this really clear way that I think we all know it's common knowledge. At that time, no one was talking about this. No one was talking about how historically human communication was ephemeral. No one was talking about performance anxiety and social media. No one was talking about the fact that when you were posting on social media, you were just posting the highlight reels of your life. When you're happy, when you're proud, when you're excited, when you're doing something new and novel and fun and interesting and Evan's perspective was if you want to make real lasting friendships, you can't only be sharing the top 10% of your life. You've got to see the full 100% of your life; when you're happy and excited and proud and nervous and anxious and sad and angry and all of the emotions that you have. That wasn't happening on social media but it had a place on Snap, and that was creating stronger relationships. That was what was driving this organic viral growth; not viral because people were sending out invites because historically that's the way people measure virality is like how many invites did you send and what's the response rate? Is K greater than one? But viral in the sense that people are talking about it to each other. You see someone get a message, open their phone, laugh, and then put their phone away and be like, what was it? What did you see? What's so funny? Why are you laughing? Your friend would be like, "Oh, I can't show you. It's disappeared." It's like, "What do you mean it's disappeared?" Oh well it's this new app Snap. I use it with my good friends. Tell me more. How can I get on it? The only way you could get on it that time, you remember there was no digital invitation process. In the beginning, the only way you could be at it is for someone to give you their username so that people were telling someone about the app they downloaded. They would have to give you the username to get connected. Then the first thing they would do was they would send them a snap of themselves making a funny face or something. Then the user culture grew because the propagation of new users wasn't through some blast invitation, like you show up and you try to figure out how to use it. It happened because a person who used it who knew how to use it properly, whatever that means, but that culture of how do you snap in the beginning would send you a funny picture or a random picture or a picture is what they were looking at. You started to understand through the process of actually receiving snaps, how to send snap, what's a good snap, what are you supposed to do here? That was incredibly powerful.

33:57

By 2013, Snapchat has about 50 million daily active users. They raise a series A from benchmark. They keep growing just later that year, raise a series B, they have an acquisition offer for $3 billion from Facebook, which they turn down, and for many, many years they keep growing in a pretty crazy rate. By 2015, they cross 100 million daily active users. By 2018, they cross 200 million daily active users. Like I said, now they have 400 million daily active users, and in many cases in the younger gen demographic they've got 90% penetration. The other thing I wanted to understand was what was so special about Evan? What did Evan get right? What did he do right that led to the Snapchat that we know today?

34:37

I think that product has always been the magical superpower for Snap and it has come from this unique insight, this understanding of the user base. I think there are plenty of people who are great product who will take current best practices and iterate on that. What Evan had this superpower was his ability to not just look at current best practices and think, okay, how can I make that better, but he would question the basic premises and come up with something that was entirely novel. The ephemeral messaging was a good example of that. We said, okay, well historically have we recorded our communications? No, we have an occasion. Another thing that he did was when he came up with stories, historically social media had always been reversed chronological order. The most recent thing was on the top of the feed. He explained it to me, how do you tell stories beginning, middle, end? How does social media tell stories end, middle, beginning? That makes no sense. We are going to tell stories in chronological order and they're going to disappear because that is part of what's so important about Snap. We are going to tell stories beginning, middle, end. Now everybody does that. Now it's obvious. It's the new best practice. It was a complete innovation at that time. It's just one of a bunch of examples of how Evan and his product insight is understanding of the consumer has led to building a product that started at 50% DAU MAU and then went to 60 and 70 and it just keeps on going up because he understands the user. It's not about a clever growth hack, it's about understanding the user and what they want.

36:14

Maybe just as a final question, obviously you've seen the growth of Snap and you've seen many other consumer apps. From the perspective of let's say there's a founder of a consumer app, they're getting some growth and they want to get a sense of do they have real product market fit, as you think through that question, what are some of the top things that you look for?

36:33

I would say it's those four questions that I led with the beginning, could this become part of pop culture, and a subset of that is, what's demographics of the power users if they're still young and female. That's definitely a good indicator. If you think about a lot of it's not just Snap, Instagram, Facebook, MySpace, they all started with young female users. Pinterest, maybe older female users, I think Reddit's really the only big social media example that started with a primarily male audience, which doesn't mean – I'm not suggesting that – obviously Reddit exists, it can happen, but if you look at the preponderance of the data –

37:06

The pattern, yeah.

37:07

There is a pattern that says young female users is very positive for that, so could it become part of pop culture? Is it building new habits? Is there a scalable repeatable way to grow? By the way, that doesn't have to be real world virality. That's the best form, but it doesn't have to be that. You can do manufactured virality, you can do invitations many people do. You can do paid marketing. Is it scalable and repeatable? Then finally, does the founder have a unique insight that explains it all? Both parts of that are important. Is it an insight? Is this something that really explains what's going on and is it unique? To say, oh, well this is working because everybody has a milk float now, that's not a unique insight, but what Evan came up with was a unique insight.

37:47

We'll stop it there. Thank you very much for taking the time. That was some great anecdotes and I think will really help founders understand how Snapchat happened, but I think more generally what it takes to build one of these NF1 companies.

38:03

Terrific. Good. Glad to be able to help.