You Only Have to Be Right Once

by Randall Lane

  He wound up warming to the selections and even bought a few items on the spot. And he happily donned what had been requested, whistling Sinatra as he changed.

  On my way to the airport, I thanked him via e-mail for his hospitality and for introducing us all to his children. His quick response was typically to the point: “You’re welcome. Things are good with business and kids. Just need to figure out the romantic side (or become a monk).”

  CHAPTER 4

  Kevin Systrom, Instagram:

  No Revenues? No Revenue Model? No Problem!

  What does $1 billion look like in this new era? Fourteen twentysomethings—the entirety of Instagram’s head count—banging away on keyboards in the company’s small office in San Francisco’s SoMa neighborhood. How fast does it take to get to $1 billion? In this case, twenty-two months, from idea to exit. And what kind of financial metrics equate to $1 billion? For Instagram, there were none. No revenue, no expressed way to get any. These kind of facts led many to conclude that Facebook’s $1 billion purchase, in 2012, was a sure sign of a bubble. In reality, it was one of the great deals of the Internet age—by 2014, the company was likely worth $10 billion. Instagram—and its 200 million active users, who share 60 million photos a day—offered a seamless path onto mobile phones.

  When Steven Bertoni sat down with founder Kevin Systrom, now thirty, for his first-ever in-depth profile, Instagram was in limbo. The deal was done, yet the check hadn’t arrived and Facebook corporate minders were nowhere to be found. Systrom was in limbo, too. He knew he was about to be incredibly wealthy, but he was still living on a bootstrap budget. Perhaps outside the money, little has changed since: Systrom remains at the helm of the company—which operates independently from Facebook’s Menlo Park campus—his lean team of coders trying to scale, hopeful that the app can become the eyes of the world.

  Kevin Systrom was working behind a hissing espresso machine at Palo Alto’s Caffé del Doge in the spring of 2006 when Facebook founder Mark Zuckerberg approached the counter with a puzzled look on his face. The previous summer Zuckerberg had taken Systrom to dinner at Zao Noodle Bar on University Avenue and asked him to ditch his senior year at Stanford to develop a photo service for his nascent social network, The Facebook. Systrom turned down the offer. Now Facebook, sans the “The,” was worth $500 million—en route to a valuation more than 300 times greater—and making headlines. Systrom was making cappuccinos.

  “I had been like, ‘No, I don’t want to work at this thing,’ and here I am working at a cafe,’” Systrom, then twenty-eight, told me over our $4.50 cups of artisanal coffee in the warehouse-like room of Sightglass Coffee in San Francisco’s SoMa district. By opting to stay at Stanford he had turned down what surely would have amounted to tens of millions in Facebook options. “Working at a startup to make a lot of money was never a thing, and that’s why I decided to just finish up school. That was way more important for me,” shrugged Systrom. “I’m sure in retrospect it would have been a nice deal, but it’s funny where you end up.”

  In Systrom’s case, the place you end up is exactly the place you turned down—Facebook. But thanks to his Stanford detour, instead of eight figures, Systrom, by doing it his own way—developing the white-hot photo network Instagram, which Zuckerberg agreed to buy in 2012—now stood atop a $1 billion score. The purchase price, which made Systrom’s stake of 40 percent or so worth $400 million, is all the more shocking given that his startup had zero revenues and no revenue model. Instagram, just twenty-two months old, still had all of fourteen employees.

  But what Systrom also had—and which Facebook, at the time reeling after a choppy public debut, desperately needed—was buzz, and a mobile platform that had prompted more than eighty-five million users to share four billion photos, with six new members joining every second.

  “This is the first thing I’ve seen that feels like it’s truly native to mobile,” said Matt Cohler, the former VP of product management at Facebook and current general partner with Instagram investor Benchmark Capital. “To have scaled the product, the network of users, and the infrastructure behind it, is nothing short of extraordinary under any circumstance; to do it with such a small team is unique in the annals of technology.”

  While the Web-based biggies tried to jam their products into mobile apps like an overstuffed suitcase into an overhead bin, Instagram’s photo network was jet-set from the start: fast, stylish, and elegant. With a few simple thumb taps you could snap, edit (with awesome filters), and share an Instagram photo with the world. A few more taps let you do all the things that built Facebook, including comments and likes. “You can look at Facebook as this bundle of so many different things, but it turns out that people just like photos more than anything else,” said Adam D’Angelo, the former Facebook CTO who took over the question site Quora and invested early in Instagram. “So if you specialize in photos and do photos really well, that’s in some way more powerful than this bundle of everything else.”

  Systrom offered early proof that in the digital economy a great idea can grow into a billion-dollar company in a matter of months. But these windfalls, serendipitous as they seem from the outside, are almost never accidental. In Systrom’s case, his good fortune can be traced directly to Stanford.

  The Palo Alto campus provided Systrom his first look at the worlds of tech and venture capital, his first internship at a startup, and his first job at Google. He discovered his love for vintage photography through a Stanford study-abroad program and met Zuckerberg and his young Facebook crew at a Stanford fraternity party. When he was searching for a cofounder to launch the company that later morphed into Instagram, it was a Stanford connection that brought the pair together. “When people say that college isn’t worthwhile and paying all this money isn’t worthwhile, I really disagree,” said Systrom. “I think those experiences and those classes that may not necessarily seem applicable in the moment end up coming back to you time and time again.”

  • • •

  SYSTROM, A LANKY SIX foot five, loved technology well before his college years. At age twelve he was pranking his friends in Holliston, Massachusetts over AOL with programs that allowed him to control their cursors or knock them offline (his Bart Simpson antics got the family AOL account blocked). He applied early to Stanford, with the intent of studying computer science, but after enrolling in an advanced programming course in his freshman year, Systrom found himself over his head, spending forty hours a week on one class just to squeak out a B: “I loved it but started to think maybe I shouldn’t be a computer scientist.” Instead, he majored in management science and engineering. “It basically taught me how to be an investment banker.”

  Long interested in entrepreneurship and startups (his mom was an early employee of Monster.com and then worked at Zipcar), Systrom spent his free time building websites, such as a Stanford version of Craigslist. Another site, which he called Photobox, was a place for his fraternity, Sigma Nu, to post photos from the latest keg party.

  During junior year Systrom traveled abroad to study photography in Florence, Italy. He arrived in Italy with a high-powered SLR camera only to see his photo teacher swap it for a Holga camera. The cheap plastic device produced quirky square images with soft focus and light distortions that yielded a retro look. Systrom loved the aesthetic. “It taught me the beauty of vintage photography and also the beauty of imperfection.” It was Systrom’s Steve Jobs moment—a flash of artistic inspiration that he would later combine with technology to rocket Instagram ahead of its competitors.

  While in Florence, Systrom applied to Stanford’s elite Mayfield Fellows Program: a work-study seminar that threw twelve students into the world of startups and paired them with entrepreneur and VC mentors. “It taught you fundraising, how deals were structured, how they came up with ideas and hired people. It was a crash-course business school for startups,” Systrom said. The program’s codirector, Tina Seelig, said Systrom stood out as an obvious
entrepreneur: “He was always building things—always experimenting. It was in his nature to be looking at the world through the lens of ‘Where’s the opportunity here?’”

  Through the Mayfield program, Systrom snagged a summer internship at Odeo, a podcast company founded by Evan Williams that would later birth Twitter. Odeo gave Systrom his first taste of the adrenaline-filled startup environment and showed him how quick, flexible thinking was vital to a company’s survival. During his internship Systrom created apps with a young engineer named Jack Dorsey, who would soon start Twitter and the payment company Square. It was a key connection: The two nonvegans in the office quickly bonded on runs for deli sandwiches, and Dorsey would later help Instagram get off the ground, building demand for its filtered photos by posting images on his much-followed Twitter account.

  Senior year, with help from Stanford career services, Systrom passed on a six-figure project manager role at Microsoft to stay local with a Google marketing gig that paid about $60,000. Google was a recent graduate’s dream—oyster lunches, team-building retreats in Brazil—but Systrom grew bored writing marketing copy for Gmail and Google Calendar. Denied a role in product development (Google required a computer science degree) he switched to corporate development, where he modeled discounted cash flows for companies Google aimed to acquire and saw firsthand how big technology deals got done.

  Hungry for the startup environment he found while interning with Odeo, Systrom jumped to a social travel guide site called Nextstop, where he turned himself into a Valley-grade coder, designing e-mail programs that suggested users to follow and building Facebook photo games. “All of a sudden I had a new skill that I could actually put to use,” says Systrom. “When you had an idea you could actually create it.”

  Soon he found something he wanted to create: a site that would combine his passion for photos with location check-ins and social gaming, mimicking the then-surging Foursquare and Zynga, respectively. He chatted up his idea—then known as Burbn, after his favorite booze—at a VC meet-up at the Madrone Art Bar and caught the ear of Baseline Ventures’ Steve Anderson. Anderson says he liked Systrom’s humble confidence and that Systrom’s site would be written in the then “it” code of HTML5. In the winter of 2010, Anderson offered him $250,000 to launch the company (and venture capital firm Andreessen Horowitz matched that stake) on one condition—Systrom needed to bring in a cofounder.

  • • •

  SYSTROM’S STANFORD DIVIDENDS CONTINUED long after graduation. He launched Burbn in the living room of his one-bedroom San Francisco apartment and would often work on the prototype at Coffee Bar in the Mission so that he could see other humans. There he’d sometimes bump into Mike Krieger, a Brazilian native who had graduated from Stanford’s Mayfield program two years behind Systrom and was working on apps of his own. Krieger had majored in symbolic systems—a Stanford mash-up of technology and psychology that counts LinkedIn’s Reid Hoffman and Yahoo’s Marissa Mayer as alumni—and was working at a chat site, Meebo. On one occasion, Systrom let Krieger download his new check-in app. “I wasn’t superenthusiastic about location-based things, but Burbn was the first one that I loved,” Krieger told me, noting it was the ability to view photos of his friends’ various adventures that had him hooked.

  A month later Systrom invited Krieger to breakfast to convince him to quit Meebo and join Burbn as a cofounder. Krieger’s response: “Count me interested; we’ll talk more.” The pair field-tested the partnership—working on small programs after work and over weekends—and after a few weeks Systrom proved more persuasive than Zuckerberg had been years earlier. Krieger quit Meebo and started what would be a three-month process to obtain a U.S. work visa.

  On Krieger’s first day on the job, though, Systrom declared that Burbn wouldn’t survive—Foursquare had too much traction. They had to build something new and decided to streamline Burbn into a photo-only, mobile-focused service. “The iPhone was so new, and people were creating really cool stuff and creating new behaviors,” Systrom said. “It was an opportunity to create a new type of service, a social network that wasn’t based on a computer but the computer in your hand.”

  Over the course of two weeks the cofounders hunkered down at Dogpatch Labs near AT&T Park, cranking out a photo app they called Codename. Krieger designed the Apple iOS software while Systrom worked on the back-end code. The prototype was basically an iPhone camera app with social and commenting functions. Neither was too excited about what they had built. Frustrated, Systrom needed a break.

  He rented a cheap house at an artist colony in Baja California, Mexico for a week’s vacation. While walking down the beach, his girlfriend, Nicole Schuetz, asked how one of their friends posted such amazing-looking photos over the app. His answer? Filters. Suddenly Systrom remembered his experience with the cheap camera in Florence. He spent the rest of the day lying on a hammock, a bottle of Modelo beer sweating by his side, as he typed away at his laptop researching and designing the first Instagram filter that would become X-Pro II.

  Back in San Francisco, new filters soon followed, like Hefe (named after the hefeweizen beer Systrom drank while designing it) and Toaster (in honor of the labradoodle owned by Digg founder Kevin Rose). They renamed the product Instagram and gave the new app to friends—many of them tech influencers like Twitter’s Dorsey—who started posting their filtered photos to social networks. Buzz began to build.

  Instagram gives low-quality camera phone pics a hip, retro feel. One tap on the touchscreen and an average sunset changes into a tropical postcard, an old bicycle gets a sting of nostalgia, and a half-eaten hamburger turns poignant. “Imagine if there was a funny button in Twitter or a clever button in Tumblr,” said Systrom. “Most photo apps before asked something of the users. They said, You produce, act, and perform. Instagram said, Let us take care of the secret sauce.”

  Recipe in hand, Systrom and Krieger launched Instagram on the Apple app store at midnight on October 6, 2010. Users flowed in, and Systrom and Krieger rushed to Dogpatch Labs to keep the servers stable. By 6:00 a.m. media sites like Bits Blog and TechCrunch had published stories about the debut. The servers melted. Systrom and Krieger worked a straight twenty-four hours to keep the app running—in that period 25,000 iPhone users downloaded the free service.

  “From that day on we never had the same life,” said Systrom. They called on Quora’s Adam D’Angelo, whom Systrom had met with Zuckerberg at a Stanford frat party, who helped Instagram get on Amazon.com servers and scale the platform. After one month, Instagram had a million users. Soon Systrom found himself sitting in the fourth row at Apple’s keynote watching Steve Jobs highlight the app before the crowd. They had made it to technology’s biggest stage, but keeping the Instagram servers running as users joined by the millions was still proving to be a major challenge.

  • • •

  AS WE HUNG OUT in a booth at a cocktail bar called Tradition—Systrom, Krieger, and two early employees, Josh Riedel and Shayne Sweeney—it was easy to forget that these four twentysomethings in indigo jeans and untucked button-downs were running a billion-dollar tech company. But when Krieger noticed that a photo he snapped of the bar menu had yet to receive any likes (with 177,000 followers, the response was usually instantaneous), a MacBook Air, a Verizon Hotspot, and a pile of iPhones materialized among the glasses of cask-finished bourbon.

  Krieger dug through code on his laptop as the others texted with Instagram engineers via Facebook chat. They found the glitch and went to work. A few minutes later the problem was solved, the gadgets were tucked away, and another round was ordered. “It’s our baby,” said Systrom. “It keeps us up at night and wakes us up in the morning.” Company policy requires engineers to keep a laptop on them at all times. Computers have been whipped out during birthday parties, date nights, and wedding receptions. Once, Krieger was dining at a farm-to-table restaurant when the system crashed. He frantically roamed the grounds for a wireless connection until he fin
ally found one bar of service—inside a chicken coop.

  These feats of server acrobatics ended once the Facebook deal was finalized in September 2012. The growing team could tap into Zuckerberg’s massive network infrastructure. The deal, Systrom said, happened during a frenzied week in April after he returned from a UK vacation. That Wednesday Instagram was wired $50 million in a series B round from venture capitalists including Greylock, Sequoia, and Thrive Capital, valuing the company at $500 million. On Saturday Zuckerberg invited Systrom to his Palo Alto home. This time Systrom took Zuck’s offer. By Monday the billion-dollar deal—including $300 million in cash—was done.

  Facebook’s purchase of Instagram—a company that, at the time of the purchase, had yet to earn a dollar—caused many in the media to scream, “Bubble!” Meanwhile, some insiders were whispering, “Bargain!” “It was worth much more than that. I think Facebook got a great deal,” said Quora’s D’Angelo. “It was probably very scary to Facebook that someone else might own Instagram or that it might turn into its own social network. . . . The fact is that everyone is coordinated on this one thing to share photos, and you can’t move them all out onto something else. The network has been built out. It’s too late.”

  With the benefit of time, it now appears that Facebook did get a bargain. Instagram, today with 200 million active users, was a cheap way for Zuckerberg to jump into the mobile game. In fact many barstool philosophers around the Valley—prompted by Facebook’s failed $3 billion acquisition of Snapchat and successful bids for WhatsApp ($19 billion) and Oculus VR ($2 billion)—theorize that, as of 2014, an independent Instagram would have been worth $10 billion. We’ll never know.

  What is certain: Systrom is now both very wealthy and still in charge of the company he cofounded. Unlike his other acquisitions, which are quickly absorbed into Facebook, Zuckerberg publicly pledged to let Systrom run Instagram independently. Systrom and Krieger now use Facebook’s muscle to scale and shape Instagram into a more substantial service. Their goal: transforming Instagram from a photo app for sharing pics of puppies and pizza into a media company that communicates through photos.