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☎️ The Markets, They Are A-Changin'
Great products can’t escape bad markets. Average products can thrive in great markets
Have you signed up for a service recently and had to confirm your phone number? You enter your number and receive a text with a confirmation code. Often, that text message is powered by Twilio, a tool for developers to programmatically send and receive text messages (among other things). We'll get back to Twilio in a bit.
Let's first take a moment and fondly remember the early 2010s. Facebook had just acquired Instagram for $1 billion. Snapchat was going viral in schools everywhere. And Whatsapp was emerging as the go-to international messaging application. It was the time to be a social network. And everything was happening on your phone.
Being mobile-native, it made sense to tie much of the user authentication of these social networks to your phone number. Forgot your password? No problem, we'll send you a text! This was great for smoothing out early adoption and catering to a mobile-centric audience.
At the time, it took a lot of work to build out these SMS verification and authentication flows. There were a few options out there for developers to build something like this. And Twilio, a developer-friendly communications platform, was well-positioned to capture this massive emerging market.
And capture they did.
And from 2013-2015, their growth from these verification use cases drove significant new revenue. So much so they had to call it out in their 2016 S1.
Twilio did $50m in 2013, $90m in 2014, and $167m in 2015, so WhatsApp alone added $5m, $11.7m, and $28.4m, respectively, to their top line. Read that again, WhatsApp doubled their spending on Twilio year over year! Not bad for sending a few (billion) texts.
WhatsApp wasn't alone in greatly contributing to Twilio's revenue. At one point, Twilio's revenue was so heavily concentrated on Uber that it started reporting financials sans Uber. And when Uber decided to move to cheaper in-app messaging, the share price dropped.
I worked at Twilio for three years after interning there during their IPO. Jeff Lawson and the team are top-notch, and I didn't doubt they would build a great business.
However, I do believe that the startup boom of the 2010s gave Twilio the fuel it needed to get to where it is today. And it’s a reminder of the lesson often repeated to startups: The market matters most.
When I work with early stage startups, I often think about how changing markets could impact their trajectory. Being able to position yourself to take advantage of these changes can give you a massive edge. Sometimes it’s easier to predict them amid a paradigm shift (or a hype cycle). But the non-obvious changes are where the most enduring startups thrive.
I want to end this memo with a shout-out to Lee Kirkpatrick, former CFO at Twilio. Almost everything I know about software businesses came from each All-Hands meeting, where Lee would practically give us an MBA in Twilio. To this day, I believe that teaching your team about the economics of their business is one of the most important things you can do to foster innovation and ownership. Thanks, Lee.