Last week Instagram was acquired by Facebook for the incredible sum of one billion dollars after just 18 months since founding. Even in the frothy world of internet software startups this was an unusual event. Here are some of the lessons that I took from Instagram’s success:
Design Matters. The sheer ugliness of the Web, popularized by Google during the previous decade, is being replaced with apps like Instagram that make the world more beautiful and interesting. Instagram’s founders, Kevin Systrom and Mike Krieger, obsessed over the look and feel of the their app, and it shows.
Size Doesn’t Matter. That Instagram only had 13 employees at the time it was acquired is affirmation that a billion dollar business can now be created with just a handful of people. In fact, during the first couple of years, having small team can be a benefit because you can move faster and focus more squarely on the product.
Category Matters. Let’s face it: If Instagram wasn’t built in a category like photo sharing where Facebook also wanted to dominate the company would never have been acquired for a billion dollars. Huge exits like this depend on a category with at least one company with billions of dollars of cash on hand to spend on acquisitions.
Ideas Don’t Matter. During the initial stages of a startup, the founders’ concept for a new product can be flawed. When the first idea for Instagram proved unworkable, the founders tried another until they got it right. The important thing is to have entrepreneurs that are creative enough to come up with better ideas and smart enough to change direction.
Scale Matters. Instagram’s decision to expand beyond the iPhone and develop an app for Android mobile phones showed that the product could scale and triggered an unlikely series of events that lead to its acquisition.
Revenue Doesn’t Matter. At least when it comes to consumer applications like Facebook and Instagram, it doesn’t seem to make sense to focus on generating revenue for the first few years. This assumes that there is ample cash on hand to pay everyone—which leads to the next point.
Relationships Matter. The media will often portray an entrepreneur becoming successful after a long, lonely journey. This is not how the world usually works. The cost of hiring software engineers is significant and entrepreneurs need to find money to pay them. The founders of Instagram had relationships that provided the funding and knowledge that they needed to make it. Their supporters included Adam D’Angelo, the former Chief Technology Officer of Facebook, Jack Dorsey, the co-founder of Twitter, and Marc Andreessen, the Netscape founder and venture capitalist.
Instagram’s billion-dollar exit is a once in a decade type of event, similar to Google’s purchase of YouTube in 2006. Like with YouTube, the team at Instagram proved that a small, creative group of people working on the right project at the right time can lead to an incredible result.