From zero to half-a-billion: CEO Jeff Lawson writes the perfect story for Twilio

It was almost five years ago when I sat down with Jeff Lawson to talk about his vision for Twilio, and how he wanted to offer a way for all app developers to embed voice into their applications. His pitch at the time was simple and barebones, but his ambition wasn’t. Hard work and fortuitous timing turned that simple little pitch into a company that is becoming a core part of the post-broadband communication network.

Jeff Lawson pitches me at my local Starbucks in 2008

It is one of the reasons why the company raised a whopping $70 million in new funding from Bessemer Venture Partners and Redpoint Ventures, who co-led the most recent round of financing. The company has so far raised a total of $102.7 million in funding in three rounds. Its early backers include Dave McClure, Chris Sacca, Founders Fund, Manu Kumar, and Union Square Ventures. That is quite something for a company that got turned down by twenty odd investors before the first dollars rolled into the bank account.

My sources tell me the company — while still unprofitable — is growing at break-neck speed and is on track to do $50 million in 2013 revenues.  While it doesn’t have profit margins that are as rich as classic software-as-a-service companies, it still has a gross margin in excess of 45 percent. This scorching growth is one of the reasons why the company is now valued at close to $500 million.

An initial public offering is a distinct possibility, although I also wonder if Amazon (s AMZN) will bring Jeff (who in a past life was chief technology officer of StubHub) back home by buying this company. In a nutshell, Twilio is a cloud-based communications platform that allows app developers to add voice and texting capabilities to their applications by including a few lines of code.

We, in Silicon Valley, collectively celebrate the fast and the furious, the pretty and the sexy, the nouveau. Somehow we have lost appreciation for the simple fact that it takes (what seems like a lifetime of) agony, sacrifice and ingenuity to build something of lasting value. And that is the reason I wanted to tell the story of Jeff is because he has done what very few founders get to achieve — to build what it seems is a business that has stayed true to its roots and succeeded by helping others succeed.

The Telecom Disruptor

I was introduced to Lawson by McClure, who had been helping me in the early days of GigaOM and started jumping up and down, insisting I meet Jeff. So, I did. And as Jeff sat next to me in my favorite Starbucks, giving me the pitch, I couldn’t help but think to myself: Twilio looks like a dozen odd startups, that were providing voice APIs and betting on telecom minutes arbitrage.

As someone who had been following voice-over-the-internet and telecom for over a decade, I knew it was a sucker’s game and it would take a lot more than just founder-bluster to build a real business. I guess that skepticism is a natural byproduct of watching an industry chase pennies.

Apparently, I wasn’t alone: Lawson met a total of twenty angels and VCs and they all were not keen on his company. He didn’t care and just launched the product right after the 2008 financial crisis had hit. Of course, what I had missed was that this was a non-telecom guy who was  fed up with the telecom industry’s practices.

In his previous life, he had wanted to find a simple way to add communications into his businesses’ work flow much like he would add code to his software. Instead he was left dealing with expensive contracts and massive gear, which he didn’t need. He and his two co-founders (Evan Cooke and John Wolthuis), essentially set-out to replace that archaic architecture. They saw what Amazon was doing with its cloud platform, and they wanted to do the same for communication. “The company started to meet our own needs,” said Lawson, a 35-year-old quirky and charming engineer from Michigan.

Hackathons Rule

Photo of Jeff Lawson at a company event, courtesy of Twilio via Flickr

Despite strong competition from more entrenched companies, Twilio kept plugging along. They stayed hyper-focused on developers. Quite a few of my friends were playing around with Twilio and built very basic apps on it. Others hacked together personal messaging systems. Some wanted to make voice-to-blog plugins. Twilio, it seemed, had found its people. We stayed in touch and we often wrote about this tiny company that kept beating the odds.

Our stories dovetailed again when they moved into the first GigaOM office on Pier 38, just after we moved out. That office had a lot of good karma (if not enough heat). It wasn’t until they offered an easy way to integrate SMS into their apps that their star zoomed.

Jeff jokes that while Amazon didn’t really have to work at finding their customers, Twilio had to seek out its potential customers. Enter, Hackathons!  “The art of creating software and building new things was starting to get celebrated at these hackathons,” Lawson said. Twilio embraced the hackathons with gusto and became an active participant — where there was a hackathon, there was Twilio. I remember seeing Danielle Morrill, one of the early Twilio employees pretty much at every hackathon I attended — carrying the proverbial company flag.

My colleague Stacey Higginbotham wrote a prescient piece and observed:

…future isn’t voice, but apps that provide the context for the best means for communication. It may be voice, it may be video or it may be text, but Lawson (while not committing to anything beyond expressing interest in video) expects Twilio to be there on the back end enabling developers to offer communication with a minimum of fuss.

Over a period of time, Twilio turned their voice-inside-apps service into a platform and the apps based on that platform started to grow big, some almost overnight. One of them, GroupMe was acquired by Skype for $85 million. Another similar app, Beluga was snapped up by Facebook(s fb). Just as Amazon Web Services (AWS) was making it dead simple for startups to get started, Twilio was making it easy to add communications capabilities.

Twilio Timeline
Date Event
2007 Jeff Lawson, Evan Cooke and John Wolthuis found Twilio.
Jan. 2009 Raises $1 million in seed money.
Dec. 2009 Raises $3.7 million in Series A funding.
Feb. 2010 Launches SMS service that allows web app developers to add SMS-based functionality into their web apps
Sept. 2010 500 Startups earmarks a quarter-million dollars for a Twilio Micro Fund, which invests in startups using Twilio.
Nov. 2010 Raises $12 million in a Series B round led by Bessemer Venture Partners.
March 2011 AppSumo creates discounted bundle of SaaS products that includes credit for using Twilio.
July 2011 Offers developers the option to use all IP communications as well as traditional phone and mobile networks.
Dec. 2011 Raises $17M (Series C) to expand communications platform worldwide.
Feb. 2012 Lets iOS app makers add VoIP as a feature.
March 2012 Twilio and other companies face class action lawsuits for its “club-texting.”
July 2012 Activates global SMS service.
Dec. 2012 SendGrid announced tie ins to the popular Twilio APIs that enable SMS text and voice integration into mobile apps.
June 2013 Twilio raises a $70 million in Series D as it weighs going public.

The success of GroupMe was the aspirational story that helped cement Twilio’s story into the app ecosystem. I guess, when you look back, the rise of iPhone app economy was the best thing that happened to Twilio, which saw a big boom in the number of developers using its messaging and voice platform. “I see API replacing the dial tone,” says Lawson, who is convinced that the future of communications is through application interfaces.

In a blog post announcing the funding, one of Twilio’s new investors, Scott Raney, wrote:

Twilio is also a part of a broader trend towards services and APIs catering directly to developers.  More and more, developers are making critical decisions regarding the nature of the products they are building. Like Redpoint’s earlier investments in Heroku and Stripe, Twilio is at the forefront of this movement.

Since the heady days of Beluga and GroupMe, others have embraced Twilio and started to build their businesses based on Twilio’s services. I recently came across a company called SendHub, that has built a brian-dead simple phone and messaging system that marries two crucial trends — “bring your own device” and “distributed workforces.”

SendHubThe premise behind this Silicon Valley company is pretty simple: if there are no desk-phones and employees are spread across the country, how can a PBX system invented for monolithic mid-20th century organizations be useful, regardless of the fact it uses voice-over-the-internet for transporting technologies? How can we think just about voice as a communication tool, when we are texting more, sharing files, doing conference and constantly tapping into the CRM systems. It reminded me of Google Voice, except reinvented for today’s needs.

In the past a similar company would have spent its entire first few years trying to build the network underpinning its business (think Google Voice & RingCentral), but these guys signed up for Twilio (and Amazon) and focused all there resources on building the new communication experience. It has allowed the company to start bringing in hundreds of thousands of dollars in sales.

Culture Defines Customer Experience

Photo courtesy of Twilio, via Flickr.

When I asked Lawson what has made his company work, he pointed to his company’s nine core values and how they add up to creating the best experience – whether it is for customers or for the employees. “Experience is how something makes you feel,” he said. “When you see a U2 concert, that is an experience and has a lasting impression.”Lawson is pretty convinced that Twilio’s model of customer acquisition and keeping them around works, mostly because they are hell bent on creating an awesome experience.

“Telecom services are worse than enterprise software,” he said. The industry wants to conduct a transaction before you as a customer taste any success. “We want you to succeed and then willingly conduct a transaction,” he added. “A transaction before success is stupid.” It is one of the reasons why they only have four-percent annual churn in their customer base.

“This is what creates the long term customer and that is what makes our model work.” In order to create that experience, Twilio has done a few unusual things. For instance, the company expects every employee (even non-technical ones) to create an app based on Twilio and also handle customer service for a few days. “It is because we want everyone to have empathy with our customers’ problems,” Lawson said.

The Evolution of the CEO

A company’s culture is set by its leader and that is why I find Jeff quite fascinating. A brilliant engineer, he has found a way to overcome the challenges of being an engineer-founder. When I asked him what has made him work, Lawson said his attitude has been: to adapt and reinvent. “I think you learn that what worked for past nine months when you were only 10 people doesn’t work when you are 30 people, so you adapt and learn [a] new way,” he said.

To illustrate the point I want to tell the story of the company’s mascot – an Owl. During its early days, the company fell in love with a Reddit meme about drawing an Owl. You draw a circle and figure rest of it out! That is how Lawson sees the company — there are no instructions. Just start, figure the rest of it out, learn and improve. And that is how he sees his job as the CEO.

Today Twilio is 160 people. By the end of the year it will be 200 people, but by then, Lawson said that he will have changed once again as a CEO and have learned to do things differently. “There is a new playbook every 6-to-9 months,” he said. “You just need to know what are non-negotiable values.”

“We are not telecom people and we don’t want to be those guys,” Lawson said. “We are hackers and [are] for the hackers.” That’s non-negotiable.