Slack and Pigeonly

You're listening to Zero to IPO. I'm Joshua Davis, the co founder of Epic Magazine.

And I'm Frederic Kerrest, chief operating officer and co founder of Okta. As you know, we're dealing with a global pandemic and we're excited to bring you more episodes of Zero to IPO, but we had to figure out how to record in isolation.

So if it sounds like we're all in different rooms, it's because we are. Now let's get on with our show.

We are very excited to have two amazing guests on the show today. Stewart Butterfield, I think as many people know, is the founder and CEO of Slack, which has just really become an integral part of many of our lives and has seen record growth. And we're going to talk about that on the show. I want to introduce also Frederick Hutson, the CEO and founder of Pigeonly. Frederick, you can correct me if I've got this wrong, but last I heard you had a valuation of about $5 million, 20 employees.

20 million.

20 million? Ah, so I missed around I guess. I missed a round. And essentially what Pigeonly does is enable easier communication with inmates who are incarcerated across the United States.

Yeah, yeah. For family members with their incarcerated loved ones. So connecting people who mostly live in an analog world with all of us who live in a digital world.

Frederick, one of the things that caught my attention about Pigeonly was that there's a lot of predatory pricing essentially to make a phone call. Say like a 15 minute phone call could cost almost $20, like a dollar a minute. And that was one of the animating things here. There's like a market imbalance, right? It's ripe for innovation.

Yeah. Yeah. And that's one of the things that we set out to fix is, in a lot of cases, because this is one of the few industries that operate on a system that allows kickbacks and that's how contracts get awarded, it creates a very predatory situation that ultimately the friends and families of whoever's incarcerated, they bear that cost. So it's not even the person who's in prison that's bearing this burden, it's the family, friends and that support network on outside that really are holding up this 40, $50 billion industry.

One of the goals of this show is to be very granular and to dive into issues and try to workshop them and see what kind of insights we can gain that are applicable both to your specific business, but are also useful for all of our listeners out there. And Stewart, Slack sells to everybody. Big companies, small companies. But you have had really good success working with government agencies. The state department, for instance. I would love to learn a little about how do you sell to such a specific channel, like a government? What kind of insights have you developed?

There's definitely problems with government, generally, but I think we have this Reagan era mentality across the country that six scariest words are, "I'm from the government and I'm here to help." Most of the men and women that I have met who work in the federal government are well intentioned, trying their best. I don't mean to suggest that every federal government employee's a saint or anything like that, but I think it's not well understood and the attitude that we have, which is largely, I don't know, dismissive, largely kind of throwing up your hands and what can you do, kind of pessimistic about the possible outcomes, helps determine a set of negative outcomes. And I think helps in trench exactly those problems that we would most like to see progress on. Economic inequality, criminal justice reform. I can go down the list. But as long as we treat government as the enemy, I think we're going to have a hard time solving any of the problems that are going to require government help.

Frederick, what are you seeing in your business? What is it like working with the government?

Stewart raised some good points. My first trip to D.C. was last year, somewhere around last year, this was my first trip going with our lobbyists and meeting with different members of Congress and different congressional offices. And my eyes was opened to basically what Stewart was just saying, that there's individuals, a lot of people have these individual offices, they definitely are really trying to be the best that they can and really trying to make a positive difference and want to support initiatives that they believe is going to make a difference.

But there's just so much red tape, there's so much bureaucracy, there's so many things, there's so many layers in order to get something to happen. And I actually started to get an understanding of the inner workings of government and I saw it less as this big beast and I started to see it more as the individuals that I actually got to know throughout that time.

Yeah. I would just add that we've been fortunate, like Stewart, to work with a lot of awesome constituents inside the government, both federal and state and local. They're in a tough position because there is these folks who are in the government, they have to deal with all the different constituencies, they have to deal with regulation, compliance, privacy, security. They also have to deal with the political aspects of this. Certainly we are very fortunate, I think, in the United States and in the government to have folks who are nonpartisan and who are there for a long, long time and who know how all the processes actually work. But you also have teams, we have it at Okta, that are very focused on working with the government.

So they've been doing this for a long time. They know the people, they know the business partners because the government also wants to work with other different business partners. Those partners are pre-certified to work with the government, to make that whole process easier. And I think the challenge that you have when you are a smaller organization trying to ramp up is, it can be suffocating, the amount of requirements they'll put on you, the amount of information. I mean, Frederick, I can only imagine those RFPs and RFIs when they came at you, they are pages and pages and pages of excels. And you're like, "Hey, we got like three people. How am I going to do this? And should this be the priority? Should I be working on other things?" Because it will consume all of your resources very quickly.

I wish I would have started a government strategy a lot earlier in our business life cycle than I did. So we just started this 2019, but had I really thought through and saw how I can incorporate government as a part of a fundamental part of our strategy, a lot of the stuff that's just coming to fruition now could have been accelerated 12 months ago. It's really about playing a long game. You'll start something today, and government doesn't move fast by no means, no stretch of the imagination, but you'll still get the results. So you may have to be committed to it for 12 to 18 months, but when it starts clicking, when it starts hitting, then it's really meaningful.

What's motivating the shift. You have a consumer business and explain how that consumer business works as compared to the government side.

Yeah, exactly. And what is the appeal? What is the drive to do government? Is it because your customers are asking you that's an opportunity or you see that as a much bigger distribution opportunity or how are you thinking about that?

We started the company, basically what Pigeonly is today, a platform that allows you to search, find and connect with an incarcerated loved one. Which led to our government initiatives, we have our mail services, which allows people to be able to send printed letters, greeting cards, postcards, photos, et cetera. So what we realized is that we had already been, on a consumer side of the business, sending mails institutions all over the country for the past five years or so, and we realized that we was well suited to also take the additional step and provide authentication for institutions so they can authenticate that mail is coming from a secure facility so that they know it doesn't have contraband in it.

And then that expanded to giving them software that allowed them to streamline the screening. Because, for example, in Pennsylvania they're getting a million pieces of mail a month and all that mail has to be screened, all that mail has to be read, all that mail has to be sorted. So we realized we can build software to do a lot of that for them that instead of having, for example, I'll use Texas for example, Texas has over 500 people in the Department of Corrections that are strictly working in a mail room. With our service it cuts it down to less than 200. So that's how this process started.

That's quite a journey.

Yeah.

Tell us about the growth. I know, in the early days you were at Y Combinator, a startup accelerator. Why don't you tell us how the business has evolved? How much growth have you seen?

On the consumer side, leading up to this pandemic, we're processing little over 2 million phone minutes a month. We have customers across 88 countries that are all communicating with incarcerated loved one here in the States. We're shipping three to 4,000 pieces of mail a day all across the United States. And as far as how the pandemic has affected it, what's happened is a lot institutions have had to become more restrictive and most places have eliminated visits. So there's no more in-person visits because they're trying to stem the flow of COVID-19.

So what that has then created is it's created a bigger influx of mail, which creates a bigger risk and bigger concern. So we've actually, since this has all started, have had more institutions that we've already been talking to, that was already in our pipeline, they had a higher sense of urgency to do something and to implement a system like ours for their mail room.

It's a smart idea. It's a great insight. It's growing. How do you scale? One of the poster companies for that is Slack. Frederic, I know you had some questions, both for Freddie and for Stewart, about how to do it in an intelligent way.

I think, for us, where we are now, is we've figured, out over the years, our consumer business really well. It was getting to the point now where we have nowhere near a million people signing up, but we have a couple thousand people signing up every day on the consumer side. But now, when we realized that it has to be this mix of collaboration with the government that we'd never had before, our wheels is kind of slowing down now trying to figure out what framework do we need to have, what people do we need to have in place, what does hiring look like. How do I vet someone that can help me sort through these RFPs? How can I vet someone that has relationships that can call the decision makers? How do I even know who the decision makers are?

So we're really just starting at that point and trying to figure a lot of that stuff out to really scale, because having that relationship on the government side then in turn grows the consumer side, because once the government says, "Okay, I guess we're going to accept Pigeonly as the exclusive way to receive mail," then automatically that drives up a huge uptick on the consumer side, because now if they want to send mail, they want to stay in touch, now Pigeonly becomes the only option. So that's the crossroads we're at now, is making that transition to marry those two sides of the business together.

I love what you're doing. I mean, I think it's a really important project and I'm also a capitalist so I like that it's a business as well and I think it's kind of found a really sweet spot there. I think one of the things that occurs to me is working with a lot of the NGOs or other organizations that are there, whether it's like the Anti-Recidivism Coalition or more kind of faith based ministries who have access, because there's just so many organizations that are doing good work, even inside some of the toughest prisons, at least in the California system, I have no idea about federal, who I think would agree with you that communication is important for lowering rates of recidivism. It's important for the kind of like emotional and mental and spiritual health of the incarcerated people. It's important to the families on the outside.

I like Stewart's idea of what are the other groups that are going in and might be interested in working with you Frederic, to find these a ways in. I think another one would be, I imagined that there are, of the approved vendors to the government, I imagine that there are some that are going to be stayed in their ways and are going to be very entrenched in providing the legacy software guys, whoever it is you're competing against, which by the way might be like AT&T and Verizon, from what I can tell, or I'm not exactly sure, but the alternative might be, there is no technology that is helping you do this.

So there is a vested interest in maintaining the status quo, but there's definitely going to be a group of people who are saying, "Hey, I'm looking at what the next five or 10 years are going to be in opportunities to work with the government. I'm a trusted partner of the government." These are groups like, in our world they have names like KeroDoft, General Dynamics, or there's some of the big providers that have historically done these contracts with the government and they have these preapproved rate lists where, if you can get on that, so it's called a schedule, you can get through a lot of those hoops. And like you said, you can find the sole sourced agreements or the agreements where you're going to have a prequalification because you're on the rate card with one of these providers.

So I'd be curious, and I don't know what the answer, but have you looked at any of those that might be good distribution channels that have the existing relationships into those government agencies that would be looking for new solutions to bring in?

Yeah. Interesting you bring that up. Recently that's what I started looking at because for the corrections industry there are groups that basically bundle a bunch of vendors together and group approve a bunch of vendors, and then they go into institutions and they basically a la carte and say, "Okay, we have a vendor to do this, we have a vendor to do that." Because pretty much every function is out of a correctional environment is outsourced. Everything from food to healthcare, to the soap, to the toothbrushes, everything.

Sanitation. Yeah, totally.

So everything is outsourced. I did discover that list. And then to your other point, as far as finding groups to work with, we found an unlikely partnership with the labor unions for the correctional officers. And they supported and cared about what we was doing because they view us as a safety platform that protect their union members from being exposed to the virus.

To the secrets. Yeah, totally.

And then on the other side, you had a lot of the organizations that are focused on recidivism and things like that, and they want to support us because they see how communication is important. So one of the things I learned is that you're offering may be the same, but the reasons why people may support it can be completely different, two opposite ends of the spectrum. And that's what we experienced. On one side, for example, a lot of our Senate co-sponsors on the bill that we're pushing, a lot of them, they cared about employee safety. And then on the House side, a lot of democratic sponsors, they cared about recidivism. So we was able to find that support where both sides would be able to come in the middle and agree, even though for two different reasons, but that they felt that this product was important and they need it to exist.

Yeah. I think being opportunistic there is really interesting. And skipping back one, that's the support of the correctional officers unions is really interesting because I had been thinking probably individual CEOs or wardens have some incentive here just because happier population is going to present fewer problems for them. But I love that idea of finding who else either is naturally going to benefit when you're successful or who else you can help make or create a benefit for them.

Is your technology applicable to any other industries?

Yeah. It could be used in the military. For example, mail authentication can be used for different government offices. So basically, so that mail that's going to a congressman or going to some political office, so they can make sure, if you remember the anthrax scare that happened five, six years ago, whenever that was. So it prevents that. So that could be a use case. It also could be used for, for example, credit card offers so that you know that something is not a ploy to basically steal your identity. You can authenticate a letter that you got, that it's actually coming from a certain person. Because today's world, I can put Stewart's name and Slack's logo on an envelope and send it to someone and no one knows it didn't come from Stewart. Like there's no way to authenticate that that's actually coming from him, and that's what we're offering. So that has a number of uses.

The analogy for us, completely different, is we decided early on for whatever tools our customers already use or whichever they choose to use in the future, we want to make their experience with those tools better because they use Slack. So in other words, if you use Box, the file sharing service, if you use OneDrive, SharePoint, if you use Google Drive, if you use Dropbox, we want to make your experience of those products better because you use Slack.

Because if we can do that, if we can be a multiplier in the value of everything else, I think there's more incentive for everyone to support us and there's just kind of more well for us to win. So those kinds of opportunities are really, it's fascinating to me that you've already not just spotted that, but taken advantage. And if there's others that also can benefit from your success, that are totally independent of you, and doesn't have to be explicitly not a financial arrangement where you're, you're giving them some points on your earnings or something like that, but just that they benefit, then they will support you and they can try to help make you successful.

We definitely can go a lot deeper on that, looking for more and identify more relationships like that.

You're in a kind of a unique position as the CEO of this company to talk about purpose. You spent, I think it was four years in prison, and so the insight for the company, I believe, came from your own personal experience.

Yeah, yeah. It was actually close to five. Trust me, I was counting. But it was during that time, I personally experienced and saw how difficult and expensive it was for people to stay in touch. And I didn't know until later that my general observation of seeing that the people who had the financial means and resources to be able to stay in touch, be able to afford the expensive phone calls, those are the folks that once their time was done, I didn't see come back. And the people who didn't have that, I would see them come back over and over and over again.

And I started making that connection. It wasn't till later that I realized that my observation was backed by many, many, many years of research that show how important communication and having a support network of family and friends is as far as being successful once you're released. And there was a time starting the company I didn't know how my experience fit into what I was doing in a sense of how much should I talk about it, should I lead with it when I go into these rooms, when I pitched these investors. A lot of our investors are between Silicon Valley and New York. And I quickly got comfortable with the fact that it's because I had that domain expertise that made me the most qualified person to address this issue.

And then once I embraced that, it really became the reason why we were able to win the support of investors and employees and the people that we need to actually build a company. It became one of those things that became our nucleuses, is that we attracted the people that not only wanted to be a part of a company that was building a solution to an issue that probably could take the flip side of policy years to fix, just attacking from the policy side, that we was able to build a commercial solution relatively quickly that was able to make an impact right away versus just being afraid of the market or the problem that we're solving in general.

And that's one of the things that I carry going forward is just making sure that, even as a company, we do what we say and we say what we do. I think that's really important. And I think it's just having the level of trust. That's one of our core values is being respectfully direct, going the extra mile, those are all things that those are really fundamentally how my life was during that time in prison, just because it really takes a strong mentality to be able to go through that time and to not lose yourself in the midst of it and be able to stay mentally strong is really important. So a lot of those things, and I noticed as we started building the company, we attracted people like that, that also were interested in those same things.

Stewart, it seems like in your case, the purpose question has actually shifted and changed and evolved because, as you said at the beginning, you were just looking at eight person software teams, right? You weren't like, "I'm going to go create a productivity tool that's going to help the US government run, and the world's largest organizations." You had a relatively narrow purpose at the beginning. And how did that grow for you? And how did you use that growth to fuel more growth?

I think that the purpose is probably actually more common. Like that's a change in the audience or like the go to market strategy or what you think about your total addressable market or something like that. And I wouldn't say that we really deeply understood it in the beginning. What we said was our mission is to make people's working lives simpler, more pleasant, and more productive. What we liked about that was it's kind of like this being of service, it's benefiting these other people, so it's kind of suitably humble, but it's also extremely ambitious. You raise the productivity of the entire world, and that's a difference that can make trillions of dollars of economic value appear.

So that kind of remains constant. But I think what we realized was, here's how people are. And I think this kind of gets to the heart of being a leader, being a CEO, and kind of what the job is and maybe the kind of fundamental to this whole series. In a world where there's increasing technological change that drives change in consumer behavior which drives change in like what your competitors are doing and changes in the macro economic landscape, you need to be adaptive. You need to be responsive. You need to be able to change the orientation of the company. And that really is what agility is. I think there's multiple levels of the purpose and all of them count. But it's usually not as narrow as like the business outcome that you want to drive or what the market looks like.

It's fascinating that the initial purpose, the initial mission is something, and this is one of the most interesting and exciting and challenging things is to see where else that purpose might have value. So that for you, Stewart, it was like, "We're looking at small groups," and then, "Well, wait a second, it could be useful here. It could be useful here." And similarly for you, Frederick, you're looking at the inmate population, the idea that purpose can open up the aperture for where the opportunity is, is an interesting one.

Yeah. We had the exact same thing happen. We were very focused on organizations, meaning companies in the private sector, who were just trying to modernize their infrastructure and take advantage of new technology. And then nowadays we are working with a lot of large state governments who are trying to find better ways to interact with citizens who have to vote or submit taxes.

So that was certainly not the main goal, but that is a very, not only is it an interesting business initiative and opportunity, but it's also very motivating, when we can help states actually enhance the interaction with civilians. That becomes something where you're like, "Okay, now we're having a meaningful impact beyond just helping companies function better."

Well, on that note, we are going to let our guests go back to changing the world one person at a time. And in some cases, millions of people at a time. I want to thank Frederick for being on the show today and sharing your opportunities and your challenges and your questions with us. It's been very interesting to think about and see how big of a company it actually could be, not just for the market that you originally thought about.

Absolutely.

And to Stewart, thank you. We are so thankful to have had you on the show and thrilled to hear about your insights and advice for Frederick and all of our listeners.

Thank you. It's pleasure to be here.

Thank you. Happy to be here. Thanks.

Thanks, Frederick. Thanks Stewart. We really appreciate it.

Okay, Freddy. It's take away time. That was a great talk with Stewart Butterfield of Slack and Frederick Hutson of Pigeonly. What have you got? What did you take from this?

First one I loved is Frederick's approach to one of his corporate values being respectfully direct. That is something I am going to absolutely adopt and see how I can implement myself.

Something that I took away from this was a point that originated with Stewart and then was elaborated on by Frederick, which was find the partnerships, the experience of being an entrepreneur, of running your own company, can be very lonesome. And you oftentimes feel like you're the only ship out at sea, but it oftentimes turns out that if you're a little bit creative and look at adjacent industries or people who are, in some way, thinking about the problems you're thinking about, if you form some kind of coalition or a collaboration, it can be very empowering, can unlock a lot of opportunities, and also illuminate new markets.

My final takeaway was the passion that you heard in both Stewart and Frederick. I think that having that passion, not only the vision of what you're going to do, but the passion and why you do something is really going to drive extreme entrepreneurial success over the longterm.

It was a great conversation. Thank you to all of our listeners for being with us today. I'm Joshua Davis.

I'm Frederic Kerrest.

And this is Zero to IPO. If you like the show, subscribe on Spotify, Stitcher, wherever you listen to your podcasts, and we will be back soon with more illuminating business insights.

Thank you very much. Look forward to speaking with you all again soon.