How pivoting after an early discovery with customers led them to sell in just two years for a Billion dollars. Another story of giving the customer what they want, and they will make you successful.

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us. But we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.

[Armadura Metal Roof Ad]

Dave Young:

Welcome to the Empire Builders Podcast. Dave Young here, alongside Stephen Semple. And as we do, Stephen, you just, before we hit the record button, whispered in my ear the topic of today’s podcast. And I always think back to my first interaction with a company. And the one we’re talking about today is Instagram.

Stephen Semple:

That is correct.

Dave Young:

From my adulthood, I’m early in, and then give up on stuff. I was in Twitter early enough to have @DaveYoung. No number, nothing else. There’s a million Dave Youngs, but I’m @DaveYoung. And I get all these direct messages for more famous Dave Youngs. But Instagram was one that was tricky to figure out early on, if you weren’t aware of it. I remember the first time I’m on it, and it was almost like Instagram’s a little voyeuristic. More so than other social media sites. And I learned early on, if you double tapped a picture, you liked it. And then you’re like, “Oh shit, I liked it. And how do I…? Now I’ve raised the flag that I’m creeping on somebody.” It was a weird thing. And now it’s just like, “Oh, everybody wants the likes.” But, yeah, Instagram. I’m trying to even remember when they started because you have to go back to before Facebook owned them.

Stephen Semple:

Yeah, they were founded in 2010. But before we get into the story, there’s just one thing you shared that I’m having a hard time believing. There’s more famous Dave Youngs than you?

Dave Young:

Oh, gosh. Dave Youngs, we’re dime a dozen. I don’t even get recognized when I go to the Dave Young conferences every year.

Stephen Semple:

So going back to the story of Instagram, Instagram was founded by Mike Krieger and Kevin Systrom in 2010, and it went on to be one of the fastest-growing apps of all time. So when it got going, it was a powerhouse. And-

Dave Young:

And in the early days, it was just an app, right? You could only do it on your phone.

Stephen Semple:

Yes. And on April 9th, 2012, basically two years after launch, Facebook comes along and buys it for a billion dollars. A billion. B.

Dave Young:

A billion.

Stephen Semple:

A thousand millions, two years after launch. So let’s face it, that there is an empire. And the idea starts back in 2009. And Kevin is just out of Stanford. He attended Stanford. And he’s coding at night, and he’s working for a travel start-up during the day. And Mike is in this area as well. And Kevin builds an app. The first app he builds is called Burbn. And it’s a check-in app where you can tell your friends where you are. “I’m at this coffee shop,” “I’m at the Dave Young conference.”

Dave Young:

Oh, right. So this is the days of Foursquare, and-

Stephen Semple:

Yeah.

Dave Young:

Yeah.

Stephen Semple:

He thinks it has potential, but there are lots of these apps out at the time. And everybody was looking for ways to use the devices that we now have on our pockets. We now have these smartphones, what are different ways we can do it? And it gave people the ability to share a location. And the app was being used. Burbn was being used, but it wasn’t huge. But they were beta users. He had 80 or 90 users. And he thought, this thing could become a company. He went to a bar where there were investors, and he showed this to Steve Anderson who thought, this is cool, let’s meet. And as they were talking, as he was talking with Steve, an alert came in that said that someone signed up. And all of a sudden, it started to happen, people were signing in. To a degree where Steve Anderson was like, “Was this set up? Did you…” And it was like, “No, no, no. No, I didn’t create-

Dave Young:

This is how this works.

Stephen Semple:

… this thing where-” “This is how this works. I didn’t create this thing where I told people I was meeting with you; please sign up.” So Steve was in. He said, “I will back you guys.” But one of Steve’s rules for supporting start-ups is you need a cofounder to do it with. He’s like, “I won’t fund without a cofounder.” And he has a whole reason behind it. He said, “But go find a cofounder, and I’ll invest 60K.” This then created a bit of a snowball because once people heard Steve was in, another investor said, “I’ll put in 250,000.” Another investor said, “I’ll put in 250,000.” And so now they got $500,000. And he goes out, and he finds a cofounder. This is when he approached Kevin. He found Kevin, and they said, “Okay, let’s do this thing.” And they learned this lean start-up method, which Eric Reese is a big proponent of.

And one of the things that Eric teaches people to ask, and I loved this question, “Don’t ask why someone doesn’t use us. Ask who do and why they do.” So in other words, if somebody goes, “Oh, I don’t like this idea,” don’t talk to them. Talk to the person who says, “I love it. I’m using it.” “Why do you love it? What do you love about it?” Talk to the people who love you.

Dave Young:

Yes.

Stephen Semple:

And what they found was, as they asked, they learned that people liked a feature that was a bolt-on extra feature that they never thought about, which was the photo aspect. That’s what they wanted. This whole sharing of “I’m at this location,” they weren’t really interested in that. They liked sharing their pictures.

Dave Young:

Yeah, they had the little filters.

Stephen Semple:

People were using it, not at all how they planned, and loving features that they not at all thought people would love. And what they realized is, people loved the photo aspect. And they went, “You know what? Burbn’s not what it’s at.” Now, there’s still a lot of money left, and so they came up with a new idea, and they wanted to focus on photos.

At this point, Kevin’s kind of burned out, and he goes on a vacation with his girlfriend, Nicole, to Mexico. And he gets talking to her about this whole idea of focusing on photos and sharing photos. And she immediately said to him, “Oh, I’m not going to use it. I’m not going to post. My pictures aren’t great. I’m not like Greg,” who is a buddy of theirs, “who takes these amazing pictures. My pictures are terrible.” And what Kevin noticed was, bing, bing to Dave, Greg uses filters on his pictures.

Dave Young:

Think about, was this before they named it Instagram?

Stephen Semple:

This was before… Yeah, so basically, this is right at the launch of Instagram, because it was Burbn and people were posting pictures on Burbn. Greg would filter his pictures and then post them on Burbn. And what Kevin realized is, what we actually need to do is create an app that has filters so that, inside the app, you can filter the pictures and then post them. Because you need to make people feel like they got photos worth sharing.

Dave Young:

And again, this is my aha moment, Instagram. You had filters that made it look like you took the picture with an old Instamatic camera.

Stephen Semple:

Yeah, yeah.

Dave Young:

Right? Insta isn’t that it’s quick; it’s that it’s an old Instamatic. I remember as a kid, you’d take the little roll of 110 film in your cheap-ass little Kodak camera. I used to like to get the ones back where you had the big picture, which was 2.5 inches by 2.5 inches, and then there would be a little tinier one that you could cut off. That’s the flavor of images that you get when you apply those filters. You can make it look retro, you can make it look Polaroid, you can make it look warm, you can make it look cold. You can do all those little things.

Stephen Semple:

And what I wonder about all of this, that’s so interesting, and people should really go back and listen to the Kodak episode because right when Instagram was taking off is when Kodak went bankrupt. And Kodak had a photo sharing app. And you even talked about it. “Make the pictures feel like one of those old Kodak pictures.” If Kodak had figured this out, where the hell would Kodak be today? It was all there in front of Kodak, and they missed it.

Meanwhile, we got these two guys who are not from the photo industry and, in fact, didn’t even start… They didn’t start with the idea of photo sharing. They figured out the photo sharing because they had this other idea, and this is the thing that people liked and they were using. So what ended up happening is, when this light bulb goes off, rushes back to his room and immediately starts researching filters.

And this idea came from an insight from users. So they rebuild it, and eight weeks later they launch Instagram. So they put the Instagram app in the store. It’s October 10th, 2010, and in the first 24 hours, 25,000 people download the app. And it quickly got overloaded because they had all their stuff sitting on one little server. And they thought, oh great, it’s popular, and we blew it.

In a lot of way, the guys talk about how they should never have succeeded. But it was also a time when mobile networks were not great. And fortunately, people blamed their mobile network rather than blaming Instagram. They immediately went, “Oh, the mobile network is down.” So they kept at it, they kept learning, they rebuilt the app. And at this point, because they knew something great was going on, they wanted to have a launch strategy to really blow this thing out of the water.

And they sent out a hundred introductions. And a lot of them were journalists and designers because what they knew is designers love to show their work off, designers love photography. So they sent this to the top designers who were not photographers. So it showed, back in 2010, you could take a great picture with your phone.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Empire Builders Ad]

Dave Young:

Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.

Stephen Semple:

That was the thing. We were walking around the phone, we were not taking lots of pictures on the phone; you could take a great picture of the phone and post it. A year later, in 2011, they have 10 million users, and investors are banging on the door. And they’re valued, at that point, at $20 million. And they raise another 8 million, everyday thinking of scale: how can we grow this? And if he knew what he knew now, it’s all about people sticking around. You can tell it’s successful when people are sticking around. That’s the key. Key’s not attracting people. Key is holding on people. Look, and this started to become a really competitive space. There was people with lots of money, more money than them, bigger names than them. Kodak was in this space and did not make it.

Dave Young:

Yeah.

Stephen Semple:

And you think about it, Kodak was still in the business with a photo sharing platform and NFTs, and they failed. There’s lots of cool apps launched by hardworking people that failed.

Dave Young:

Here’s what Kodak was blind to. They thought that the images that people got in 1975 from their Instamatic camera, well, that was the best we could do back then. And what Instagram found was, you know what? We’re providing people with a little bit of nostalgia.

Stephen Semple:

Yeah. Yeah.

Dave Young:

We’re giving you pictures that were the best they could be in ’75, and they look kind of hip and cool today because of the nostalgia factor. And Kodak would look at that as probably a badge of shame, like, “I’m sorry those look so bad. Those were the best we could do back then.”

Stephen Semple:

Yeah, Instagram looked at the opportunity different. What they looked at, and they said, “For the first time, we’ve got a camera with us all the time.”

Dave Young:

Yeah.

Stephen Semple:

All the time.

Dave Young:

All the time.

Stephen Semple:

And they knew digital would be a big thing. And also, the quality of the cameras were starting to become decent. You could do point and shoot. But the other issue was there was nowhere to put pictures, and it was hard. And they provided that: an easy way to post photos; the right tool at the right time. And one of the other decisions they made that was different was create an open network. It wasn’t one of these things where you got to be invited and all. There was no friend request. Choose an open model. And everyone else was closed before that.

Now, when they knew it was going to be a big thing is the day Obama joined. That was number one. When Obama became a user, they knew it was a big deal. The other thing they noticed around the same time, the Wall Street Journal, which had been doing lots of articles about them, stopped saying Instagram, the photo sharing app and just referred to Instagram.

Dave Young:

Just Instagram, wow.

Stephen Semple:

Just Instagram. And it was at that time that Facebook came along, bought them for a billion dollars, on April 9th, 2012. And it’s estimated that Instagram today is worth $50 billion. So Facebook did not overpay. Isn’t that crazy?

Dave Young:

As you talk, I’m looking at my Instagram, and I’m trying to thumb back to my very earliest pictures. I’m trying to scroll and scroll and scroll. And yeah, they’re retro-looking.

Stephen Semple:

Yeah. Well, that’s the filter you chose. That was the one that you liked. Yeah. But there’s a few lessons here. There’s a few lessons here that we can all learn from Instagram. And time with the customer. Remember this? Time with the customer. And I know we’ve talked about this before and before. But what was really incredible is, had they not done that, they created this Burbn app; it was having some success. And when they talked to the customers, what they found is what the customers liked was not the thing that they thought. It was a bolt-on… And they could have easily continued the march on thinking, well, this is the thing people love because I created it for this and people are using it. And it was like, “Oh no dude. That’s okay. But that’s not what we love. We love this thing over here.”

And it was that discovery that made them go, “Oh, well maybe we should make something that does that better.” And this is, I think, what Kodak got wrong. Because again, we talk about, at this time, when Facebook is buying Instagram for a billion, Kodak is going bankrupt. And they worked really hard to get to know that small group of early adopters. I think far too often, people want, in their first-year plan… I see this all the time from startups, is they want it to be really big in the first year. And it’s like, “It’s not going to be really big in the first year.” And not only that; being small in the first year is fine because that gives you an opportunity to really dig in and get to know the people using your service. Really dig into them, really talk to them, get to know. Because that’s where you’re going to learn what they love, what they don’t love, and how to make this better.

And look, we heard these sets of lessons already. We heard this in Airbnb. This is exactly what Airbnb did. Same thing. Get to know the customer, look at the features they like, figure out where the problems are. But it all comes from spending time with the customer.

Dave Young:

Yeah. Yeah. Great story. It’s something that’s just become something that you have, something that you do.

Stephen Semple:

Yeah. Today, I forget how many pictures are taken on phones, but what we know is even just like-

Dave Young:

That’s crazy.

Stephen Semple:

It was incredible. And I know I keep going back to Kodak, but it’s really the dream that Kodak had when it founded. And I still, in my head, cannot figure out how Kodak didn’t seize this opportunity. Instead, you had a couple of outsiders, Mike and Kevin, come along and make this happen.

And look, the other part that I will give tons of credit to Mike and Kevin is, it wasn’t like they did not have competitors. They had tons of competitors. But I think what they recognized that others didn’t was the spirit of taking these pictures and sharing. And it was all about how can I easily help you make your pictures look like something you’re proud to post, and how do I make it easy to post, and how do I make it easy to share? It was all of those friction points that they really dug in hard on to make Instagram the success it is today. Now we don’t think anything about taking a picture and sharing it. It’s a regular occurrence.

Dave Young:

Great story, Stephen. Now I’ve got to go back through my Instagrams and look at all those pictures from years ago. I think all our listeners should do the same. Follow me, I’m wizdy, W-I-Z-D-Y. I got on there in 2010, 2011. So-

Stephen Semple:

Awesome.

Dave Young:

… again, early adopters. I need to post more. Are you on Instagram, Stephen?

Stephen Semple:

I’ve been kicking and fighting and screaming, and I’ve just only recently started to do stuff on Instagram. So-

Dave Young:

I see-

Stephen Semple:

I’ve-

Dave Young:

You take-

Stephen Semple:

I’ve been a late adopter.

Dave Young:

You take amazing pictures of sunsets and things and on your hikes, so-

Stephen Semple:

I know. And I post them all of Facebook, but I’m going to change. I’ll [inaudible 00:19:49].

Dave Young:

All right. Yeah.

Stephen Semple:

All right.

Dave Young:

Get on there. Thanks, Stephen.

Stephen Semple:

Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big, fat, juicy five-star rating and review. And if you have any questions about this or any other podcast episode, email to questions@theempirebuilders podcast.com.