Webflow - From 4 Failures And Near-Bankruptcy To $2.1 Billion Valuation
How getting rejected from Y Combinator defined Webflow.
Webflow is a story of resiliency.
I could summarise this entire article with this tweet from Vlad Magdalin, Webflow's CEO:
It took 4 failed attempts and 10 years before Webflow was able to take off.
Now, the company is worth $2.1 Billion, with more than 200 employees and 2 million customers around the world.
What are the key takeaways we can get from their journey?
MAIN LEARNINGS
Cash is king - Webflow soon ran out of cash by wasting it with new laptops and preparing a Kickstarter video, when in reality Kickstarter didn't accept software solutions and they had to abandon the idea. The lesson is to never underestimate the importance of money and use it wisely on what adds value to the company.
Never settle - The idea for Webflow didn't take off with 4 attempts. Only in the 5th try - 9 years after Vlad had the original idea - and after putting everything on the line were they able to be accepted in YCombinator and get funded. If you believe that your idea has to be built and if you don't do it you'll regret it, then do everything you can to bring that idea to life.
Ask yourself if the timing is right - It took years until browsers were able to handle a solution like Webflow and for the market to get interested in it. You need to understand not only if the technology is prepared for what you want to build, but also if there is market fit.
Build a sustainable business with long-lasting partners - After seeing money running out, they focused on the financial sustainability of the company that wouldn't require VC funding to survive. In addition, when adding new investors and partners into the company, they chose the ones who were aligned with the company's long-term vision, not just for financial purposes.
HOW IT STARTED
Who is the Founder
Vlad Magdalin was born in Russia in 1982. When he was 9 years old, his family emigrated to the US as refugees. After landing in the US, they found out most of their possessions from the luggage were gone and were devastated. Fortunately, they were able to receive $2400 for compensation.
The first thing his dad bought with that money was a computer. He started a business selling PVC pipe to Russian contractors, and Vlad was in charge of making a Russian catalog for it.
Vlad started working with the family at a very young age.
“I’m glad my father used me for child labor. When I was 14 years old, the entire family would clean dentist offices – we didn’t have a choice. It was embarrassing at times but I knew I had to do my part to live the American dream”
He discovered his passion for graphic design when he was 15, while helping his dad setting up yellow pages and business cards.
He then went on to study computer science at California Polytechnic State University-San Luis Obispo, while also learning in between for one year 3D animation at San Francisco’s Academy of Art University.
"I actually started as a graphic designer. I knew CorelDRAW and Photoshop, and that was sort of my jam. And my dream was to work at Pixar and make these 3D animated movies and apply my creative skills that way, so I went to art school close to here in San Francisco and learned all the classical things around how you become a 3D animator."
He fell in love with programming and created a chat app called Chatterfox, which was unsuccessful.
Starting Webflow
The origins of Webflow are a story of resiliency. Of an idea that did not allow itself to succumb into the abysm. It wanted to stick. Even if it took years to materialise.
The idea for Webflow appeared to Vlad in 2004 during his college senior paper, when he was studying how tools that could translate drag-and-drop design design into clean back-end code.
Vlad then got an internship working at a creating design agency that was making websites and applications for large companies.
It was then when he had his aha moment.
"And all of a sudden it's like two completely different worlds presented themselves — like here are creatives working on super powerful software and shipping Toy Story 2 and these amazing stories and amazing movies to the screen. And at this creative agency they're all these creative minds, creating really, really amazing website designs in Photoshop and then handing them over to me as a programmer to translate to HTML and CSS and Javascript and things like that. And it felt like night and day where this creative process goes to production and becomes reality.
And in this other world is something that is equally creative but has this huge constraint of having to be translated to code and it's almost — to me, that was the big aha — why doesn't something like 3D animation software exist for general software creation, for more sophisticated professional website creation? And it was just the clearest aha moment of all time — like this needs to exist, the world can be a better place, there could be a better way. But it started that initial idea around something like Webflow needs to exist, we need visual software to enable other people to create software."
The first attempt was Vlad doing it solo during college and building a product for clients. Vlad already had a company (Webflow LLC) set up with his brother Sergie to do freelance work doing websites. Vlad would take care of the implementation, setting up Wordpress, Joomla and Drupal, while Sergie would do the creative work. However, he couldn't find funding, and decided to go work full-time at Intuit.
In 2007 he got the itch to start working on it again. Those were the early days of Weebly and a lot of value was being built on domains. So he started working on it with two friends at Intuit on the side and were able to raise a bit of money. However, they ran into several problems. They had trademark issues and busy daily jobs that robbed too much attention, so they decided to quit and focus on work.
In 2008 he decided to try again. However, it was too hard to keep the energy, since he was taking care of his kids and also had his day job. The browser technology was also not yet ready for what he wanted to build so he quit.
But the idea was stuck in his head.
He always wanted to use the name Webflow, however he couldn't because the name was already trademarked by a company in Florida. In late 2011, he received an envelope with a trademark certification stating that Vlad was now the owner of the name Webflow, as the other company had let the name rights lapse.
He considered it as a sign that he needed to come back to work on his project.
“This is a sign from the universe, I told myself then, I’m doing this fulltime”
After watching a presentation from Brett Victor called Inventing on Principle – Why Do You Do the Work You Do?, everything clicked and he realised it was his moment to do it.
“This has to happen.”
So, in 2012, he decided to go all in. After leaving the design agency he was working for, he convinced his coworker Chou to join the project along with his brother.
He gave his notice to Intuit and went all in. He put all his life savings of $20k into the company (while having two young kids aged 1 and 3 years old) and convinced his wife that they were going to be able to raise funding a few months in and would be set to go.
His first thought was to buy brand new MacBooks for the business and pour in money to do a Kickstarter campaign. They've put $12.000 into the Kickstarter video, which left them almost out of money.
But then reality hits.
They got rejected from Kickstarter because it doesn't support SaaS software. They also applied to YCombinator and were rejected. All in a matter of two days.
At the end of 2012 his daughter got very sick with a life-threatening condition, which left Vlad completely out of money, borrowing money on credit cards. They were scrapping for money, had to sell the family cars and were sustaining themselves by eating every day the cheapest burritos they could find from a local restaurant.
They had to make a decision: either shut down the company or return to their old jobs. However, they wanted to give it a final shot and gave themselves two months to work on it and try again.
They decided to do a demo that showed what the product could be and shared it with Hacker News. And it went viral. In the span of several hours, 10.000 people signed up and in the course of one day that number increased to almost 20.000 people.
That's when they knew they got it.
They then decided to use that traction to apply again to YCombinator, which was another surreal story on itself, but ultimately they got in.
GROWTH FACTORS
Here are four factors that have defined the company and how it scaled:
How Webflow started monetising
As they worked on the product they started thinking about how could they monetise it. They were comparing themselves with their competitors like Squarespace, Wix, Weebly, which had a lot more functionalities than Webflow. As such, they didn't feel comfortable charging for something that they felt was still incomplete.
Ultimately YCombinator said to them "If you don't launch this thing, even if you're embarrassed by it to a certain degree, we might kick you out". That was one of the goals of YC - to accelerate the time to market and launch before you think you're ready.
And there was so much demand for their initial version that they just had to ship it. This was a key lesson for Webflow because the product that they wanted to charge for wasn't ready until a couple of years later.
Raising money
After some initial traction from YCombinator Demo Day, they were able to raise close to $300k. However, after that initial spike of interest, there was less enthusiasm from investors and responses were taking longer and longer to get.
Eventually they met with Paul Graham from YCombinator which advised them to focus on building and improving the product and not on raising money. So they shifted their approach with investors to let them know that they were going to revisit those conversations later and wanted to target their efforts in developing the product.
Unexpectedly, that made investors more interested in the company, since it signalled that Webflow was in control and able to prioritise. The fear of missing out kicked in and ultimately Webflow was able to finish the round with a $1.4M investment.
But then Webflow went back to normal startup mode. They started increasing the team, doing parties, got better offices and equipment and cash started running out again and soon they were with less than one year of runway. They were spending faster than they were earning money. Worried about having to go back searching for more money, Vlad decided to focus on the company's financial sustainability.
They targeted three key metrics: definition of the pricing, improve the product with the launch of a visual CMS, and slowed down the hiring. With that, the revenues started increasing and the expenses stabilising, which led to them realise that the company could now be sustainable.
They were able to continue growing the company on a sustainable path on their own terms, reaching over 150 employees, while being cash flow positive and profitable in certain quarters.
Accelerating growth without compromising the company's sustainability
"What does it mean to scale as a team to take our vision and mission and bring it to more people sooner?"
As the company was looking for expanding, they decided to get true partners and believers to take it to the next level. They talked to hundreds of investors, however only a few rose as true partners - those who really believed in the company's vision. This effort was done not just externally, but also internally with the employees, by growing a team aligned with the mission and that believed they were creating an impact in the world.
"It was important to level set with each partner around the importance of reframing this idea that a board or a set of investors was like a boss to a company and they're there to keep the company in check, but as partners and equals with more resources and connections to help us unblock certain problems and tackle challenges as we scale. Not see it as a financial outcome that they're seeking, the most important thing we're sowing for was the expansion of Webflow's mission and vision."
Aligned with the company's sustainability vision, they did a social contract with each of the partners - a set of terms that were out of the term sheet and that were more in line with the company's aspirations and impact.
"We're really playing an infinite game where our goal is to expand and promote this cause that is much greater than ourselves and create this company that will outlast all of us. That requires a focus on relationships, on people, on sustainability. That might not be the most natural when you see a business opportunity, but if it risks the sustainability of the company that becomes a problem. You have to find partners who really align with that perspective, because then they are truly partners, not people you're constantly disagreeing."
Vlad was motivated to start again working on Webflow in 2012 after seeing a presentation from Bret Victor called Inventing on Principle, so it is fitting to finish this article with a quote from that presentation:
"There are many ways to live your life: that's maybe the most important thing you can realise in life. Every aspect is a choice. But there are default choices. You can choose to sleepwalk through your life and walk the path that's been laid out for you. You can choose to accept the world as it is. But you don't have to. If there is something in the world you feel is wrong, and you a vision for what a better world could be, you can find your guiding principle."
Don't settle for default. As Vlad said in the tweet: Keep trying!
1 ARTICLE
https://news.ycombinator.com/item?id=25792719
A post from Vlad thanking the Hacker News community on the support they gave to the company yearly days and talking about the challenges they had then.
"I’m 1000% convinced that if that HN post did not take off, we would have gone back to our jobs and that early Webflow demo would have been a mere mention on our resumes somewhere. Thousands of people wouldn’t be empowered to build for the web the way they can now. I can’t imagine what that alternate future would be like, and it hinged seemingly on just one submission to this community."
1 VIDEO
The original pitch video they used to apply to YCombinator.
"We're creating an integrated solution for designers to create responsive websites in the browser. Our goal is to combine the best of Photoshop and text editors into one solution for designers."
1 PODCAST
Great interview from Jason Calacanis to Vlad about how they grew to $20M in revenue, how the company started and how they approach funding.
1 QUOTE
"A business is just a vehicle to advance a cause greater than yourself, to bring more value into the world that hopefully makes other people lives easier and to serve the people on your team. This is a group of people who are committing so much of their life to building a product and company that's such a big part of their lives so those people matter too and the people that you bring on as partners."
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