Jason Citron - Building the Third Place - [Founders Field Guide, EP.4]

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Founders field guide is a series of conversations with founders, CEOS and operator spilling Greek businesses I believe we are all builders in our own way in this series is dedicated stories and lessons from builders. All types you can find more episodes at investor field guide DOT COM. Patrick o'shaughnessy if the CEO of Shaughnessy Asset Management, all opinions expressed Patrick and podcast guests are solely their own opinions and do not reflect the opinion of o'shaughnessy asset management. This podcast is for informational purposes only and should not be relied upon as basis for investment decisions, clients, Shaughnessy Asset Management May, maintain positions in the securities discussed in this podcast. Today's Jason's Citron the founder and CEO of discord discord is one of the largest and fastest growing social networks in the world it started as a place where gamers come to congregate online thanks to how easy it makes it to create a community of any type and it's offering of text audio video. As means of communication, it has expanded far beyond gaming. It has the potential to become the default digital third place that we go to find belonging in a variety of online communities with over one hundred, million active monthly users. It's also one of the most interesting social network businesses since the original social networks rose to power. Our conversation focuses on his background prior to discord discord founding and growth its business model, and how it has evolved over the past eight years and what the future holds for discord as we talked had the sense that I'd be willing to go work for Jason and I think you'll see why I hope you enjoy our wide ranging conversation. So Jason I was wondering how should begin this conversation I'm curious how you sort of made the leap from a video game player in to someone in the video game ecosystem as a creator I know he spent the first part of Your Career Building Games are as game developer before starting open faint in two, thousand, eight, I WANNA learn a little bit about what you learned or picked up at each of those first two stops before discords starting with the years as a game developer. What are the major lessons that you take away from that work? Well, I fell into that Valentine not even the right way to save I ran into it because just love playing video games the kid because of. That they offered and at my thirteenth birthday sleepover party. Everyone fell asleep and being another guy we're up and we were having a conversation. He was like I know how to make video games as just like no doubt there like this magical dark art no is this thing called computer programming I was like what we booted up my pending one computer at the time and fired up this nickel Q. Basic, which is very rudimentary programming environment and he showed me how to draw circles state I was just like holy crap half learn how to do this and I just became obsessed with learning how to program and make games in all through high school in College I just worked on side projects in Games. Screwed around making like tools for Internet and things that would make using Ailsa Messenger more fun, and then I became a developer working professionally in a video game industry was both thrilling and kind of disheartening it was thrilling because I got to work on video. Games was working on titles for playstation two, xbox, three, sixty era, which was really fun. But also like how the entertainment industry in video industry really works and the economics behind it working independent developers for a couple of years. It was tough to be in an environment where as a company you were really depended on this sorta like hit driven nature of the industry that was challenging and so I ended up. Basically going to studio that I was like I'm going to work in one place. I had three jobs in three years. So I changed studios pretty frequently because I was so frustrated with it, and the last place that I ended up was a fantastic experience funding. That's where I had an opportunity to kind of jump to the next part of my career will living with ten. Other people who are going to UC Berkeley I was about age of senior at the time. I graduated college really and one of the people who was living. There was talking to me about how his uncle was starting this kind of tech incubator. He was looking for people that want to start companies, and so I was like that's me. I've always wanted to start a company. My Dad was a small business owner. My grandfather was I always thought it'd be Kinda cool one day to have my own game studios and wanting to another ended up joining up with this Guy Peter and we were building ended up trying to build games on facebook and other social networks that helped bring people together when I learned really quickly from that is it's really hard. To make something that people want I went through probably four projects basically four different start-up ideas that aren't basically went nowhere the first one we literally shut it down the data. We launched it lose another one. We didn't even ship another one that got a little bit attraction, but couple months into working on that actually Steve Jobs announced the APP store and I was like holy crap. This is GonNa be huge and I thought back to my experience working in the medium industry looking at how the industry worked and what I realized was that whenever a new video game console generation comes to market every five to seven years in new videogame. Shifts like playstation and the playstation playstation three. Every time a new consoles ships is always a new set of games. There aren't that many, and if you can be a launch title, you're GonNa make money you're gonna be able to get distribution because there's not a lot of stuff to pick from. So people are more likely to choose your Thailand petition. So I thought that the launch of the APP store might be the launch of the new console and if we could get a game on the shelf, the day it launched, we'd have a really big shot at establishing ourselves in this new market if you can establish yourself in that gives you the to build your next time. You're next title, and maybe we could build an during game sissel saw that. So adult head into building game for iphone and back then it was like there was no technology there was no tools. You basically took apples off the shelf stuff if you wanted to make games like I was in there, trying to work some game engine that worked on Macintosh on. Anyway we ended up chipping a game on the APP store, the date launched, and we got thousands of in into kind of took off. So what I really learned from that was distribution is really important and you have to think about how you're gonNA cut through the noise and not only just build something that people want also get the word out. It's one of my favorite things that I hear from entrepreneurs over and over again, which is the recognition of a platform shift of some sort, and the fact that I always think about it like the literal westward expansion or frontier that if you're just the first, he just started get your pick of the land or out of the goods or whatever, but it's risky right? It's hard to identify them, and usually there's a lot of unknowns on certainty that you have to be comfortable with I'm curious what the leap was like from that early launch of a game to what became open faint, which I think of as like a tool kit for others that recognize the same thing early on that, they wanted to be building on this new platform. We lost this game kind of took off because there wasn't a lot of stuff to choose from. It was cool new experienced using accelerometer and stuff and what we discovered again or maybe that rediscovered that even if you get distribution building business can be difficult. So we got a lot of users, but the time our business model idea was to kind of do shareware harking back to the nineties is in early July phone there was no internet purchases you either makes think free or you could sell something. So my thought was, let's give the game away for free and then build A. Premium version that has multiplayer experiences in we basically built in eight dollar sequel that had all these really interesting multi-player dynamics where you could level up your character you could ask friends and then you could compete on leaderboards and then you could even compete in kind of ghost matches. It was pretty fun but no one was lying game three bucks. We launched the first winter after the APPS came out and it was clear at that point games we're going to be a dollar. Some developers were the system to basically do in purchases by selling coin packs that you could buy a separate apps. And we made. Thirty. Grand. On that game in very quickly realized it wasn't GonNa Fund. We were five people time. It wasn't going to be a business. We started thinking like what also begin to do ahead maybe three weeks runway left in the bank we were sitting around trying to think about what to do and I remember calling my dad. and talking to him and just basically telling him I think I might be moving home soon because I think this whole startup, it's GonNa. Come to an end for me in a couple of weeks. Gambling is it working? We don't have any more money not going to. Get, my room ready. Turns out. We had this idea to take all of this a synchronous social stuff that we built inside of our game and turn into toolkit further develop pursues and the idea came from looking at the ecosystem on mobile and looking at the ecosystem in consoles PC. I realized that xbox live style services should exist on old vices and they didn't time. We had basically built them inside of this game in. So we had the ideal what if we effectively launched the Xbox live fraud phone? I bet that developers would WANNA? leaderboards and ghosts play and all this stuff to their games. But. We didn't have actually enough money to fund really taking the technology out of the game and turning into a standalone project. So this is another really interesting lesson I learned about validating hypotheses. We put together a landing page at open dot com and it basically said xbox live for Iphone leaderboards chat multiplayer game no servers required sign up to get access to the Beta I made fake screen shots in Photoshop or what the system look like. And we convinced tech crunch to cover it. We got like a couple hundred developers to sign up, and we took that mailing list an raised a bridge round financing than gave us enough time to go and actually build an MVP of the service for recruit the first ten developers and we launched it three or four months later with fifteen games, and we we managed to get one of the big indie titles time. To, really cool to integrate just Kinda. Start to take offs in two years. Later, at one hundred employees, they were like seven thousand games in service and we we sold it for decent Chonkin. I really learned how to go from being an engineer to being in that experience. Of Love that story and I love the cell build ship ordering versus bill sell ship. I think that's a common trait amongst good entrepreneurs but it's all sequencing and timing you sort of have to work your butt off to make it possible. What was the transition like from that sale of that business into the kind of early prime real? WHO's of idea around discord? How did you move from the lessons you learned at open faint into the first iteration of discord it. Was Not a straight line. These things always seem neat clean from the outside, but they're often not after I sold my company threshold faint I thought that I was going to stay on and really build a bigger thing I really wanted to help people spend more time together in have these amazing experiences around video games because so many the best memories of my life have been. Around playing games in those moments of playing games the so I really wanted to keep doing that and turned out grit. That's just not what was in store for me of we Kinda didn't see eye to eye with the company acquired. Awesome. Actually asked me to step aside so that they could run the business way they saw fit and I felt like actually the best thing to do would be to leave I left actually after maybe three or four months and I sat in my car and cried for about fifteen twenty minutes when apple's because. I thought I had failed I had poured my heart into building this and it's so hard to build something that gets that kind of scale that I kind of thought that that was my shot and I messed it up which strange financially, it was a pretty decent outcome but emotionally, it was very tangled moments for me and so I ended up taking a couple of months and just kind of relaxing taking a deep breath re-centering myself I'm spending time with my girlfriend down my wife's playing video games one thing led to another in six months left. I was working on concept and just thought to myself. You know what? Let me try again. Twenty six time I'm not done. Let me try. Let me start unaccompanied. What zeroed zero on was this was in two thousand, twelve and IPAD was relatively new platform and had been growing for the first couple of years in what was looking like it was going to become another hockey stick. I thought that perhaps the kinds of long form cooperative multiplayer games that I love playing on P. C. would become popular on tablets because I thought that you'd be sitting in a place. For were extended period of time in that tablets report sessile than PC's so games like world of warcraft League of legends, counterstrike would become popular unease devices. So I thought there aren't any of these games really at this point in time why don't I start a company to build really amazing deep immersive, cooperative multiplayer games on tablets. So that was the original thought. My idea was that if this is true then. There's also going to be an opportunity to build a communication service for groups of Gamers that is mobile focused and possibly more of the ecosystem that exists PC will shift to mobile. So the Vision for this company when I started in two thousand twelve was build a competitive multiplayer game with team dynamics to bootstrap a group communication service, and then once we mass. Bill Business by distributing games on top of making are Oh that was the plan because I thought get to pursue my passions of helping people spend time together around. Games I. GET TO MAKE Games. Having spent so much time in the industry I understood that it was difficult to build a hit. You have to have something durable and what's durable about entertainment is the need for more of it whereas most entertainment content have novelty in sort of people move on from them although that's starting to shift over the last decade now with his service, but at the time I thought. If, we could have a distribution mechanism for games. The need for more games never goes away. That could be the durable core of the business and I thought what better way to have a durable core of distribution services having communication poplin that. So it was sort of interesting confluence of all of the things I had seen in my life at that point of what I thought. Needed to come together to build an enduring important company that could help bring people together out games it turns out. That's kind of what we built sort of if you squint were there early examples in discord of the hypothesis testing mindset that you described a few minutes ago with fake Photoshop images how did you apply if you did that same idea at discord I mean a bazillion time. Honestly, it's just how I approach product development now is treated almost like science. You Express Art through the framework of the scientific process, which is like you have my policies you come up. With. The minimum amount of thing you can do to actually get real signal back on that I've offices you take the learnings from that in a new plight to the next one, and you just run that flywheel. The biggest mistakes that I've made building. This company had been where we went too long before getting signal back it was a hypothesis destruction where it was just too hard to get signal back without doing audit work and I'll give you some examples. So when we started in two thousand twelve, the idea was, let's network by building a game and so we spent. Six. Months doodling around game ideas basically prototyping, using the same framework of like wouldn't it be kind of cool if Howard offensive popular. So like what would a clock tower defense game possibly be like very quickly iterative building that with just ray blocks in cylinders to kind of get the experience together had a couple of ideas like that didn't end up creating enough conviction around them though perhaps not due to getting enough signal, and so then we decided to bring one of the more popular. Titles Chonreznick on PC kind of do a platform court. You see this happen a lot where there's a game that will exist genre that exists on a platform and when a new platform emerges, there's interpretation of that. John NRA. That ends up becoming really popular because I think the game design to actually code a reflection of the way human brains work. There aren't that many new genres because it's hard to discover new fundamental sort of gizmos gimmicks that really enthralled people but they happen from time. I. Thought One way to do risk could be by taking something in interpreting it. So we decided to riff on the mobile concept, which is sort of multiplayer online battle arena concept where it's realistic. Don't play video games. You basically have a team of people three to five people playing against another team five people, and it's conceptually like soccer except there's dragons in fireballs and wizards and stuff like that, and so we built a three version of that game on tablets and we spent about a year and a half on it, but we tried to chunk it in ways that we could de risk the product by getting signal. Back earlier. So one example is test starts style. We actually did concert and put it up on read it and said Hey. We're studio making a mobile like what do you think of this this art style and we tried it with actually a couple of different things in. We got some great feedback that caused us to iterating on the art style. Ultimately, what we ended up with was much better because of that early signal that we got, we did something similar with the game play mechanics where we were testing out different ways it control games can work and different sort of ways at the map could be designed sort of. Sin We got a lot of good early feedback on with the right mix could be that ended up guiding us to launching the game that we launched, which was called fates forever in two thousand fourteen unfortunately though even though we got lots of good signal on away. Ultimately wasn't a hit because I think we picked the wrong platform who picked IPAD and I also think we were a little bit early today. If you look around people are playing these kinds of games on their smartphones constantly, and so I think this was a situation where as it entrepreneur I had perhaps the right hunch about where the market was going, but I mistimed platform and also the timing of the whole thing. What did you learn about the right amount of signal reference at a few times like it almost sounds like the key in all of this is I have to have the mentality, but then second, you need to know what signal is real and strong enough to build upon any broad ideas maybe from. Or for mistakes at signal interpretation when you're running these experiments, one caveat I will just start with is that I have yet to make a hit game using using this approach. So take that for what it's worth with this approach has done is I think the games that I built have been modest successes but I think trevor would have been a modest success but I was looking to build something massive scale and I just knew it wasn't going to get there. So maybe the learning from that is that if you're trying To build something that's GonNa be at scale frequency of usage and jeopardy usage of a product in the early days needs to be astronomically high because as you get to scale, you're GONNA. Get people that are slightly less and less interested. The most passionate people about what you're building are going to be the ones that find you in the early days when you're looking at the sort of behavior of people using your service the early days the people need to be rapidly obsessed with it and this was true with open faint. With our game. This was true with discord when I think about early retention. Metrics Timespan and these kind of things that are good indicators of the objective utility of which are building the amount of time. That people were spending using discord in the early days was just totally ridiculous because people really really really liked it whereas when you look at our game, even in the context of what great teams should look like it just wasn't there and we could have realized that earlier in probably hit it harder to something else. What was that early intense usage of discord? What was the original early adopter use case in what are the product look like at that point? The idea was really about building a better version of the tools that me and my co-founder stand had used when we were playing those games on the Internet using battle net, and early in the most the communication tools that existed actually hadn't changed that much from when we were teenagers to them, and that was probably fifteen years or so two thousand to two, thousand, fifteen when we were starting discord, the tools headingley changed that much. So Stan my co-founder actually as a really story to where he was also sort of like me passionately obsessed playing multiplayer games in his particular story was around falling in love with frontal. Fantasy Eleven, which was the version of that game and really using it as a way to find connection and friendship because of where he lives and sort of how his friends were spread around La you try building a bunch of tools to improve that service in ended up joining up with me to build our game. We were thinking about, what do we do next because the idea was to take the game to bootstrap network and we don't have a game with a lot of users like how do you truck network and Stan actually had a really interesting insight which was that perhaps instead of bootstrapping networks through the game. On mobile if we actually started with P C, where people were already playing competitive player games a lot cleaning us. That we could build a better version of the APPS that people were using then and then be ready when the wave took off on mobile for the next billion people. So the original idea that he actually pitched me for discord was, let's build came speak meets skype with a modern twist that works great across desktop mobile for people who play games like fantasy world of warcraft. and. What literally did it feel like I'm thinking about like the computer screen right now five got some game up on the screen is discord on in the background is it also on my screen? I'm just curious how you shoehorned communication and the different styles of it into the activity that it was surrounding. We didn't shoehorn anything. It fits snugly license gracefully even better even better. Yeah. This is an APP that you would download on your computer in the early days was mostly people on Windows who were playing cooperative competitive multiplayer games and you download the APP on your computer. You create what we call the server, which is kind of a group where you can invite your friends. It's an invite only space that lets you text chat and voice chat at the time. So you could have the server setup for your killed ten or twenty people who you were playing. And when you turn on your computer, 'cause you WanNa, go play dischord will be there and you can see if your friends are there. So wait would work as people would click on what we call voice channel You could name them whatever you want. So you could call the lounge at one CACTUS card and right now you can click on that and it would show that you're in voice chat and Then other people in your server could see that you run voice chat and Click and show up there with you. So it was kind of always on conference call experience this concept. So we didn't actually invent it. They were advocate came before us speak at bumble and early going back to the first one I think was called Roger. Willcox that had this kind of voice communication feature and it was popular. Really popular with a small group of people that played MNO's online, and our thought was like this is the best way to talk while you're gaming. So let's make it really easy really accessible. You could hop into that voice channel and then open up your video game in the video game would be your full screen, but your friends were in your headphones and then because you're playing in a virtual state, your friends, you also see their characters and it created this really amazing experience that made it really easy. So more people were able to do it. And then because it worked on your phone, you could also see if your friends were invoice and talk to them when you weren't at your computer, so you could coordinate between games. I read somewhere about the sort of early days of growing this concept. I always love out businesses are distributed in the early days and how the word spreads. I'd love to hear a bit about how you use existing networks of people that you cared about to reach them whether that's or subsets specific games. What did you learn about distribution and getting the word out about discord once you knew you had something that was popular or was it mostly just word of mouth? It was both but word of mouth start slowly when there's no mouths to have words, you need people to be excited to share it to generate momentum. So I had learned in my early experiences a distribution is really really important in one of the insights that we had was that. People were not gonNA download another voice chat out, and at the time there were other companies trying to innovate in the space game box was one voice was another. They were a couple of the other ones but there was a reason why really one of them was most popular it's because the way that they would work is you have to download APP on your computer and then to join with a group of people, send you an IP address for those who don't know it's basically I think it's twelve numbers basically type in a password in order to join in and you have to pay for it. So it was pretty hard to use the stuff and if someone was using teams. Speak in you had mumble and you want her to go on a raid with them in the game sometimes, you just wouldn't do it because he didn't want to down in salt or APPS. So we knew that it had to be really easy to get people in. This is another one timing things that were just sort of lucky but into thousand fifteen, it was the staying I'm GonNa, technical for second but there's this thing called Web RTC that was becoming part of the new web browser standard html five and just the year before it had shift in in the web browser chrome and it was shipping fire Fox just a couple of months active you're playing launch will stand had the idea of. Louis could solve this friction issue is by. Using web RTC building the APP in web technology frameworks we could make the whole application run inside of a web browser so that you could join it by sending someone a link you don't have to install anything. And then if you really like the APP in the browser, which is just thoroughly a website, you could download it to your computer, and then we had essentially a customized web browser that looked like an APP. That had extra features because we were able to run native your computer, and so having it work in the web browser was a fundamental part of the experience of getting people to even try it. So the way we ended up being people to try it was I were like, Hey, friends go check this after renew a lot of people who play games like this and Our friends were pretty excited about it. It took them a couple of months actually switch to use it, which is a different story, but they were cited about it but once we got them to really use it just through friends. We probably had no twenty daily active users, twenty people maybe using it to actually get the word out and grow at scale. We basically went to where people who play games hung out and congregated in the initial growth hack. If you. WanNa call it was read it where we got one of our friends to post in the final fantasy fourteen Fantasy fourteen was the other that they made and there was a new expansion coming out at the time, and so we thought why don't we focus on this game which can have a new expansion coming out when new expansion comes out there's new content new reason to play. So we thought let's focus there. He knew that blatantly advertising people was probably not gonNA work. So we thought why don't we just ask people what they think about this maybe they'll tell us that they like it maybe they'll give us feedback make it better but that's the approach we took, and so we ask our friend to just make a post. Like asking people what they think about it. So he posted hey, everyone as anyone tried this new voice over Ip call discord. And in the retina posts, actually we went in and responded like, Hey, where the devs here's a link, here's a url to a server that we set up come and talk to us. If you WANNA learn more, this is another thing with the link. So we were basically basically sitting in a discord server, which is what we call the groups and people were finding the thread on reddit clicking the link because they'd have to install anything they'd open the website come into the APP. See us in those voice channels click jumped in and then be talking voice chat to us to the dogs and they thought it was the coolest thing they go back to the reddit thread comment I just clicked the wink was talking to them that seems really cool. Check it out. Try It. We ended up getting a couple of hundred people register that day, and that was kind of the first kicking the snowball, the mountain kind of thing that helped us start to generate or. I love that story I. Love How it's progressed from there discord. Now, a lot of people have used some version of discord whether it's slack or discord quarter teams or something else we're discord has very distinct feel to it and feels like just a place to go to be with people that you wanna be with in a digital sense and there's that famous story about like starbucks and the inside being that it sort of this other place of. Your home and your work that you go to hang out and it seems like discord more than any that I can tell from using the products has that third place tight feel to it and even beyond games obviously, we'll talk about that in a minute but I'm curious how much of that was intentional like as you thought, okay, we got the initial traction I know you said the early engagement was off the charts. High people were using a ton. How did you think about products late from there what has been your product philosophy for how to grow the platform and was this third place idea intentional. The third place idea it's funny question ask if it's intentional because it was intentional. We didn't know that we were making a third place. We were intentionally trying to create the experience of a communication service that like your friends were around. Where you could interact with them without having a lot of friction and do it in ways that Phelps playful and had low commitment. And it turns out those are actually the attributes of a third place. We were doing it because we thought that those were the things that we wanted to has as a Gamer in our communications service and it was only four years later in two thousand and nineteen. When we started really realizing that people were using discord were so much more than just playing games with their friends that I. Actually. Did Research on this concept of the third place and I read the book the great good place by Rail Limburg which was written in the eighties where he actually talks about this and starts to put labels in words to describe the concepts of how these third-place work and as I was reading the book I was just like holy crap this is what we built accepted digital. It's this. Incredible Q. Say a bit about how you're thinking has evolved on who your audience is. So I mean it's incredibly clear early on very often I think companies fail because they don't know who their actual customers and you clearly knew it was yourself and it was built sort of versions of it. Before you knew the community, you knew how to attack it. I think what's so cool about discord. Is that my engagement with it was not for gaming when I first tried it it was for a separate type of community and I think there's all sorts of communities. Now that exist on discord how do you think about that from a philosophical standpoint about starting with a very, very specific audience and core and sort of having more pulled out of you by other types of communities beyond gaming. I think it's wonderful and fascinating. The journey has been really interesting because you start building a company in focusing on a customer set of problems. A lot of that comes from personal connection. It wouldn't founder. Does it truly authentically I? Think like I did have normally interested in video games when they played a big role in my life when we started realizing how people are using. Discord for other things, we started having a lot of conversations around what should we do about it it's cool. Definitely it's great that our work is helping other people find belonging and spend time together. It's not within our mission. Our mission was to bring people together around Games. What does that mean? If we want to acknowledge this and we did a bunch of research to figure out Really how big the phenomenon was and when we look in two thousand nineteen, we ran a survey in self reported that actually not thirty percent it was thirty percent of the people who took our survey self reported that they did not primarily use dischord for gaming. Clearly, we have to engage this because it's not like two percent. It's a lot of people we started having some really. Deep conversations around what are we trying to do in the world? What is our mission really about what we really care about an standing night did this exercise where we both kind of went into separate rooms and starting with our mission bringing people together on Games? We did the five wives exercise I have heard this, but it's a great technique for doing root cause analysis kind of. You just ask why and then you write down the answer and then you ask why that and you write down the answer and you ask why of that you do it five times and why about the fifth time you start to get at fundamental truths that Radyr backup to what you're doing. Standard both did it and then we shared her answers with each other and what was fascinating was the fourth or fifth why we both said? To find belonging in the world or something to the effect of belonging, and that we both realized that bringing people together around games for us was about belonging and connection with humanity in a deep. Social need and the more we sat on this thought about it we realized how profound this was Maslow's hierarchy belonging I think is the third one started to become clear as the started talking to more users and listening to them about what they're doing with this. Gordon how it's about talking in its place and it's about friendship we realized that actually people are just using. This tool that we built to actually help us cultivate belonging in the context of games you're using it to cultivate long in the context of all sorts of shared experiences and activities, and that actually we could just go more fundamental with our mission expand the aperture to what we're doing to be valuable to literally everybody we sort of rewrote our mission as giving people the power. To create belong in their lives, and now that we actually imagine a world where everyone has the ability to belong in a more easier way than they could before because they can using these amazing communications services that we have in our pocket powered by the Internet can keep in touch with friends that may have moved across the country or across the world or you can't hang. Out with your friends on an evening because whatever reason you can hop on your phone or hop online and there there you can talk to them in pop in and pop out and how this experience of running into your friends almost like have your own private cafe or shopping mall or living room but it's online it's in your pocket and we think that it's just amazing. I love it, and I love it makes me just think of and. Listening to be too young to remember AOL instant. Messenger. But just the Internet has been a place where oftentimes you're not there together and the cool thing about him was you'd see that color dot whatever it was and see someone was there and it was like this cool opportunity to just jump in and start talking and it seems like that is belonging in many ways and that's what you've built. Really curious how The business itself has evolved. So people familiar with business models like say slack and other communications like these how do you think or think about or describe discords business model and how much time cumulatively as part of the pie do you spend thinking about that part of things versus say like the product might thing was offers it just seems like there's always so many different choices for how to build the model and. How to charge people I'm just curious what your deliberations were and how that lined up with product thinking. Originally, our plan was to sell video games, the people, and we actually tried to do that. We launched it video game store on E. C. at the end of two, thousand eighteen with that a dozen games and very quickly. What we learned was that people actually just wanted us to build a better communication service. And this was kind of one of the first pieces of signal that we got that. Maybe we were actually over emphasizing video games in our mental model in our audience was in addition to competitive that the market at the time which ended up being rather sleepy for awhile got very, very competitive fast. I think the other big companies saw similar created we did. So while we had a large audience, we actually were not. Capitalized in a way to fight a real content war with Microsoft and epic who makes fortnight it was there was going to become a battle of who can throw the most money at game developers to get exclusive content and as a startup that had scale that didn't seem like a prudent thing to be doing. So we very quickly actually backed out of the Games business and kind of pivot away from it. And then double down on communication services. We had launched this service called discord nitro in two thousand seventeen as a way for users to basically support US gets them chat brooks and it was like a five dollars description service and it was modestly successful as covering I. Think about a third of our burn rate in early two, thousand nineteen when we were moving away from the game store end, we were debating whether we should double down on that the concept of selling ads came up again, we've talked about selling out before it came up because it's a way that other companies have been successful in sort of social media space. But I really didn't sell ads because I felt like selling ads would require us to spend a tremendous amount of energy investing in building. This ad technology that actually doesn't make the end user experience directly better. It actually subtraction the end user experience. So it'd be spending ton of energy taking value away from our users so that we could make money and really wanted to build. A business that the incentives of our team and our user base for directly align our users raw customers. That was why we watch the game store and that's why in that moment I said, let's do the easy thing and just slap ads us. Let's double down on Dischord Nitro, which is all about making it more fun to talk and hang out and see if we can build a real business around that. So we spent a lot of two thousand and nineteen probably about a third of our time. In terms of sort of product had space maybe even closer to a half really trying to figure out how do we make discord nitro more exciting and more valuable to people so that or people would pay for it because sort of early support, molly called it. A donation wasn't super-popular even though it was making a little bit of money. So we doubled now that and we launched a number of features including boosting, which is basically like a way for you to give back to your server to your community by spending some money that. makes. You feel good makes everyone else feel good lovely human dynamic happens there and that just took off and as we've added more features to Nitro people have just continued to buy it and now it's a tremendous business that's growing incredibly fast and we haven't shared the revenue numbers of that but it's clear that we can now build a really massive business by making it more fun to talk in a way that doesn't take away from the free experience either which is an important part of what we offer. So everyone can access hang out. I really want to double click on what you've learned so far there because I think history of businesses that get a ton of people like you have is that they become advertising businesses and some of those are incredible businesses, but it is sort of the natural tendency. My friend goes by the student. A modest proposal on twitter says long enough time scale everyone sells ads and I love this idea that you've of flipped it and said, let's take what makes people love US and try to make the experience better and premium instead, what are those enhancements, the literal examples or the kind of frameworks for how you think about enhancing communication through Nitro? The most popular teacher is actually what we call custom animated Emoji. So people love Emoji you can text cat people love text chatting, and the fact that you can insert visual expressions of what you're thinking whether it's a face or a pizza slice or rocket helps you add in express the color and flavor to your which express undescored we have a feature where each group of people each server can set up their own custom Emoji that they can use to allow themselves to express things in a more fun in sort of personalized way and people loved that customer feature that is. What we charge for if you WANNA use those custom emojis in your direct messages. So in your one on one conversations or in other groups that you're with like he's GonNa take them with you. That's a premium feature, and then if you want also allow them to animate that requires you to pay. We took sort of basic emoji feature we added one level of persons to. Which is free and then sort of next level is where we put the paywall. So we try to make sure that the things that are premium on board are exciting and fun but don't feel necessarily because we want people to really feel left out we wanted to be still fun to hang out and talk. So that's one. Another example is we have a feature on dischord. Called go live where you can basically stream video games to your friends and it recreates the experience of sitting next to a friend on the couch watching him play a game but a mind. So it's ultra low latency and it works great with ten people although it's up to fifty you can watch your Prince Games for free you can do it at seven twenty p thirty. FBI. BS, and if you pay, you can do any sixty F. B. or all the way to source. So you can get older high quality for your friends to watch. So really cool but not necessary but a lot of people like it and then boosting is another one that you have to pay that we charged for. So goosing is you can choose to boost the server. Depending on how many times server gets boosted a unlocks a different set of perks for that server which ranged from more customers to the ability to have a banner. Space Field little more personalized to animated icon or splash screen when new people join and so people can contribute consort of pitching together, unlock those perks for their community and people love doing that and you get a little badge next to your name shows your poster. So kind of stuff like that. When you talk about, it doesn't sound like it's necessarily that profound but I think the reality is that it feels profound when you use those things because they're really delightful and people love it. You have the history of humanity. You said earlier the five. Wise. If you just think about how people act, it's sort of the same as buying certain types of close people like to express themselves and have something unique about themselves to show other people and people spend more time on line. So it makes perfect sense that they would want to do the. Same thing in a digital context, I'm curious how talking about company building here. So you mentioned earlier leaving the the acquirer of open faint not seeing eye to eye thinking very carefully about what you want discord obviously the product, but also the company to be having now overseen I. Don't Know How many employees you have raised a few hundred, million dollars. There's. A ton of our D that's gone into that love to know kind of how you think about and D. as well. But what are the big principles that you have for company building specifically at discord? The first one is to be intentional. My last company I wasn't really what I was doing. I was twenty, three, twenty four never really managed people before let alone run a company and somehow had fifty eight hundred employees and I, remember there was a moment around eighty. Seventy people one of the early employees again, Mandy dill good friend of mine quality and actually works with us. Now at discord he came to me and he said Jason it sucks to work with open fame. It's such working here. I was like Oh crap. That's not great, but I'm not going anywhere but I'm saying a way. Okay. Great and we started trying to fix it but we ended up in the company and it's hard to fix culture when you haven't been intentional about it and you have a hundred people. So when I started discord Andy joined within a couple of months and so we were around maybe six people or so it was three people that, December, he and I and Brandon who is another person was with us we were sitting. Around and we were talking about the kind of company we wanted to build and how we've got to be really intentional about the environment that we create. Because if we're not than, it's just going to be by accident and it's going to have is just not necessarily going to be the kind of place that we want for the kind of role they wanna live in having myself also worked in environments earlier in my career that as an individual contributor, I found very frustrating due to the nature of. Konczal stuff I really wanted to go a little bit slower this time building this company and be more deliberate about it. So we did and a lot of the sort of intention -ality resulted in a couple of early values I have read about. But essentially what it boils down to is as you add more people everything harder because you have to communicate more and it's like an N. squared problem because it's a network. So one of the original insights that I had which to stay holds true is if you can hire slower. Everything is easier. We had this sort of company that small mighty teens. which is this notion you can get a lot of stuff done with really really really smart people that make high quality decisions that compound. If you choose the right technologies in the past to building and realizing your vision, it means you'll have to communicate as much evenings loves management overhead less coordination issues in his largely worked for us anywhere around two hundred eighty people now and given that we have over one hundred million. Monthly users I think are like employees to user base scale is quite unusual for this kind of service. Another one is I really wanted to create an environment where people came because they were in love with the change we're trying to create in the world and so early on we instituted this concept of what I call mission fit when looking to hire people. So we really screened for people who cared about our mission in nearly as that was adopting together out games, and now it's about giving people the power to creep in their life, and so we look for people who have had experiences that allow them to personally connect with the products that we're building. In a change we're making and when people really care about the purpose of your mission, they just naturally care more about everything about the details they work a little bit harder. They pay attention to the details. They don't let the garbage on the floor sit in picks it up, go get it because they wanna make sure that everything is great. So people try a little harder when they really care about what changes Harnett create third is creating an environment that fosters intrinsic motivation. The really wanted people to feel motivated and purpose is part of it and actually there's this guy, the pink who wrote this book called drive which I discovered pen of after thinking about this. In helped me sort of codify these ideas more. But there is some science behind this notion of how you create intrinsic motivation and it goes down to basically three things autonomy mastery and purpose, which is the mission fitting I talked about naiad compassion to it because I think it's important that we acknowledge that real humans. So I wanted to create environment where people felt relatively autonomous were treated like adults they could learn and grow and be challenged cared about rebuilding and felt supported by the people around them, and then the phone, which is the last one is taking a long-term view. So I say it's a marathon. Not, a sprint building enduring companies and creating change in the world is a result of compounding value over time, which takes time having ten twenty year view on what we're doing allows us to make decisions that can result in incredible yields in the future that may not seem necessarily the best in the short term it causes you do things like invest in management training. We did this thing early on route twenty people that we went from just me and twenty people to like okay. Now we need managers Accu was me and my co-founder stand and are early Cmo Aeros, and we now we need middle layer of managers. Instead of just continuing to hire. We actually froze hiring for three months created a management training program asked who wanted to be manager. Those people took the program, and then we restarted hiring and I'll tell you are silicon valley vs they thought we were crazy for not hiring people for three months. But I knew it was the right thing to do. So to this day, we spent a tremendous amount of time on training and learning in development because investing in your people while in a month may not have great returns in two three or four years have credible returns, and if you come back to the notion of smaller mighty teams, had you get more done you either make your people more productive by giving them better tools or you make them smarter? Those are two big things that we do so. Long winded answer. But that's kind of my philosophy for hiking about a workplace knock on wood so far so good. You're obviously very team focused very product focus. I'm curious given the scale you've now achieved in this is with me with my investor had on how often you think about competitive advantage around discord the business I mean obviously, you've got the most prized thing on your side, which is a network effect communications companies tend to have that it's hard to get where you've gotten and and that sort of its own best defense. But you think beyond that intentionally about competitive advantage as a business. Definitely, I, think if you're trying to build a business scale, you have to think about competition no business exists in a vacuum I think it's important to pay attention to competition to think about. Where your weaknesses might be where your strengths might be where you need to shore up defense where you can go on fouts which core is all of these things but I don't think you want to focus too much on competition because this is sort of weird analogy because I don't really play sports but I just sort of remember this thing that learning this when I was a kid like when you're throwing a baseball, you need to look where you WanNa throw the ball. And if you look somewhere else, you're not GonNa get the ball where you want it to go and I've heard this off soon the concept of driving go look at the wall look at the road you're GonNa go where you're looking. Human behavior that you will go where you focus. So if you focus on your competition, you just end up copying them chasing things instead of focusing on customers and their needs at going where they want you to go. So we spend a tremendous amount of time mostly focusing on fundamental human needs. What are people doing what our service heck we better serve them. I love the idea that discord is almost like a bundle of communications because you're able to do text and video and voice, and all these different things. How does the usage shakedown I feel like you're a petri dish for how people like to communicate digitally because they have every option? What is the breakdown of those methods in how often people use each? Well, I think what's important actually kind of take a step back to that third place concepts and really talk about the holistic experience because what really makes this scored? Magical is the particular concoction of what happens when you put all these things together. You have an invite only space with just the people you want to be there. You can organize your communication channels, which prompts people talk in certain places in helps keeps multiple conversations going. So you can have different people gather. We have this thing called permissions enrolls, which allows you to set the rules norms for your space, which in real life is such a fundamental part of how people gather you have hosts and you have regulars and you have entry areas and you have people sitting in you sort of have waste Organiz people. The fact that we allow you to have roles organized people, and then actually have power to have the conversation areas or to kick people out really gives you the feeling of having a space with people that can invite you in and that you have to behave, and then the way that sort of the live features work like presence and voice video makes it feel like people are around. So because you got the green dot are you can see if someone's playing a game or listening to music or if they're on voice chat with two other people, it gives you this sort of I. Call it the busy restaurant phenomenon you look at a restaurant and it's full of people. You'll like that place is cool. It's fun. It's alive. You look at a restaurant it's empty like a that's not so exciting just for service feel like busy restaurant because it's full of people who you know if you don't know them that you want to talk to and so at least three things have like invite only space where easy to hang out in control the rules and norms really Chris this experience of having place that you can go now to answer your question critically when is happening is that people use text voice video kind of evenly split because depending on the amount of focus and attention and intensity you WanNa have in that moment, you can pick a different tool. So chat sort of lower energy lower attention required to be in a text conversation voices. The next level in video takes your whole being it turns out Texas voice about even in video is kind of an up and comer. We just launched video chat actually after the virus that happened mostly because from the context of gaming video chat wasn't that important. But when we started thinking about moving beyond gaming video chat became very it. So we added. You mentioned earlier this idea of. Slow -I and begs a couple of questions on people and hiring everyone always asked what do you look for in somebody bill ask the opposite question, which is when you're interviewing somebody what bothers you the most? Two things come to mind. ONE IS PEOPLE WHO Are Not Humble. You GotTa be humble because if you're not humble I think it's too easy to sort of drink your own kool aid and get carried away with things you have to be curious and open minded and I think being humble is an important part of that. But like a random pet peeve in all-share it, maybe we'll give away part of our interview process Detroit, but I think it's really really great to watch for it to see if people are passionate which. Is, our interview processes. We take a buffet lunch. We have three people who are not part of the rest of the interview loop go out to lunch with the person and we watch for how they treat the waiters and if they don't respect the waiters eye contact polite than we assume that they don't respect people who don't have power over them, we want people who are going to be kind and polite and compassionate when they don't have to be our culture is all about. So we're looking for people that are warm and wanting enjoy being around that. But so that's like a little kind of human behavior that we look for obviously now that we don't take people out to lunch because of the coronavirus, it's harder to check for that interview. So we look for more around when they have our quote ritual lunch, are they speaking to each person? Are they focusing on men more than women, these kinds of behaviors to try and get a sense for are they just like a kind warm person? Are they ignoring junior people talking to? The senior people conflict when people do those kinds of things like we've rejected senior couple of EP candidates because stuff like that. It's a hard line for us. I've so loved the story your story is so specifically unique and interesting. Maybe I'm biased because I like so many the same things that you loved as a kid, a lot of the same games, etc and I think given a lot of what you said about how you hire people. You'll like my traditional closing question for everyone, which is to ask for the kindest thing anyone's ever done for you. I really think that so much of life is about the little things and about the consistency of a little things that people do making coffee for her husband, my wife popping for me it sort of in exceptional grandiosely like it's not the most time thing that everyone's silly ever done to be. But where that comes from in that kind of kindness I think is really what's magical about relationships and when a co worker thanks for doing something nice for the more for a job. Well, done that kind of consistent kindness I think is really what makes the world go round? I'm GonNa go with that is kind of similar to the five wise exercise like there's something behind it all that's most pure interesting I love it as a different kind of answer to a question really appreciate your time here today Jason I've learned a lot it's great to meet you Patrick was fine. Thanks for having me. This episode was brought to you by Microsoft for startups. Microsoft startups Global Program dedicated to helping enterprise ready to be startups successfully scale their companies. In our five part miniseries we were talking to Evan Riser CEO of Admiral Security about his experience with Microsoft startups. In this week's episode with Evan, we talk about choosing to work with Microsoft for startups and his advice for B. Two B. Enterprise entrepreneurs. I think one of the tendencies would be to think about choosing a cloud provider vendor as a pretty near term decision of the you're about to start working with immediately. But maybe there's a case to be made that the decision has a lot to do with where your business will be many years into the future curious what you think about that and how that Wade into your decision choosing Microsoft. So I think that's a great point I do think entrepreneurs tend to be a little bit shortsighted focused on the here now, which is, which is natural. I think is an opportunity for entrees a lot more about what? They want to be when they grow up and where they WANNA be if you're trying to build consumer mobile application, right you probably want to be on the APP store and you're GonNa have a tight partnership with apple other handwrite. If you're trying to build enterprise software product for large enterprises, you'd think about where our enterprises and reality is the grand majority of large enterprises are building investing in the Microsoft ecosystem and I think that you'll Microsoft's critic great ecosystem enterprise startups to help with go to market distribution to help with practice elements and help with procurement purchasing to make it easier for both your startups and customers. Evan I'd be curious even though you're only a couple years into this company, what your advice would be looking back for those that are starting new companies enterprise facing companies for the first time. When advice would you give them? That's a great question I. Mean there's three things or maybe top of mind for me. One is like we talked earlier you want to start with the end in mind if you WANNA create you WanNa have a snowflake or crowd strike Calabro Pio need to kind of understand what in. That business is going really well and build that into the plan from day one if you WANNA have high-speed sales that's very effective cost effective but then you want to invest in things that celebrate your sale cycle in your billy to allow enable customers to procure it. The second thing is a lot of founders to be more clear about what their job is. There's a lot of chaos superhero personalities that start companies tried to everything at some level I think the founder and CEO job also comes down to. Identify the right roles, getting the right people in those roles, host the high bar and getting out of their way, and then finally, just like ours awarded the existential risks business what is the most important thing to focus that team on and the final thing? I'd say is a lot of steps tend to focus on the SNP markets and I don't think they shy away from the enterprise i. think that was me good advice ten years ago but I think it's easier than ever to get into the enterprise. With, all these cloud deployments where customers can install on one click, they can see results they can buy through Microsoft right and they had the credibly behind that. That enables customers to find innovative solutions and procure them very quickly, and just as an example, know we we started the company in. April. Two, thousand, Eighteen I. Think by December we had our first fortune five hundred company and we couldn't have done that without us new cloud native platforms because I getting back quickly and then kind of your accessory best also. To find more episodes or sign up for our weekly summary visit investor field guide dot com. Thanks for listening to founders field guy. Own

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