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How Instagram Grew From Foursquare Knock-Off to $1 Billion Photo Empire

How do you make a billion dollars in two years? Here's a narrative look through the brief, hectic, (and lucky), 14 months of Kevin Systrom's life growing Instagram.

Portrait of the multi-millionaires as young men: Blogger and tech evangelist Robert Scoble snapped this Instagrammed shot of Instagram founders Kevin Systrom (left) and Mike Krieger back in November of 2010, when they were building their photo-sharing app out of a $500-a-month desk rented from Dogpatch Labs on Pier 38, which was so structurally unsound San Francisco forced tenants to vacate within a year.

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News of Facebook's acquisition of Instagram boomeranged around the Web yesterday with near-light-speed velocity. The interest made complete sense. Instagram, a start-up which had existed for a mere 551 days, which had never made a cent in revenue, and which employed just a dozen people, had pulled off one of the most impressive exits in recent memory. And it all seemed to happen overnight.

So how did Kevin Systrom, the 28-year-old company's founder, pull it off?

The common, almost Tweet-sized narrative, is that Kevin Systrom, a freshly pedigreed member of Silicon Valley's nouveau elite—he graduated from Stanford University, interned at Twitter, and worked at Google—founded Instagram in March 2010. But this is only a sliver of the story.

Beginning in January 2009, Systrom spent his days toiling as a product manager for Nextstop.com, a travel recommendation start-up which Facebook would acquire in September of 2010.

On the nights and weekends, Systrom, who has no formal computer-science training, poured his time and energy into side projects that, he says, would help him learn to code.

On the nights and weekends, Systrom, who has no formal computer-science training, poured his time and energy into side projects that, he says, would help him learn to code. Perhaps from his time at Odeo—the proto-Twitter—Systrom developed an entrepreneurial bug that made him restless. 

At the time, in late 2009, Foursquare was just beginning to hit its stride of popularity, and location-based check-in apps were the quickly becoming the focus of investors and entrepreneurs throughout San Francisco and the Valley. Systrom had developed a few concepts in his spare time, but in late 2009, he concentrated his attention on one: An iPhone app that would combine elements of Foursquare with elements of Mafia Wars, a popular game developed by Zynga.

"I figured I could build a prototype of the idea in HTML5 and get it to some friends," Systrom wrote on Quora. "Those friends ended up using the prototype without any branding elements or design at all."

Systrom called his idea Burbn, and the app's primary functions were to let users check-in to locations, make future plans with acquaintances, earn points for hanging out with friends, and post pictures.

But there was just one thing missing: Money. Systrom was still working full-time at Nextstop.com, so he would need an infusion of cash that would allow him to focus full time on developing his product.

Of course, no great start-up story would be complete without just a bit of luck. For Systrom, his good fortune came over cocktails in early 2010 at a party for Hunch, a start-up based in Silicon Valley.

"At that party there were two people from Baseline Ventures and Andreessen Horowitz," Systrom writes on Quora. "I showed [them] the prototype, and we decided we'd meet up for coffee to talk about it. After the first meeting, I decided to take the dive and leave my job to go solo and see if Burbn could be a company. Within two weeks of leaving, I raised $500k from both Baseline and Andreessen Horowitz, and started work on finding a team."

That was March 2010.

Systrom's first hire and eventual co-founder was Mike Krieger, a Brazilian-born 25-year-old engineer who worked at Meebo at the time. The pair had met at Stanford's Mayfield Fellows program, a nine-month work-study program at Stanford designed to educate eager young students in running technology companies. Kim-Mai Cutler, writing for TechCrunch, describes Krieger as one of the "sweetest, most self-effacing engineers and user-experience designers."

"Once he joined, we took a step back and looked at the product as it stood," Systrom reflected on Quora. "We decided that if we were going to build a company, we wanted to focus on being really good at one thing."

But Systrom and Krieger were unhappy with Burbn.

It was "cluttered" and "overrun with features," Systrom noted on Quora, adding that the photo feature was by far the most popular. So in August, the founders made an incredibly risky, but perhaps prophetic, decision: They'd scrap Burbn almost entirely in order to build an entirely new app from the ground up.

"It was really difficult to decide to start from scratch, but we went out on a limb, and basically cut everything in the Burbn app except for its photo, comment, and like capabilities," Systrom continued.

The founders settled on the name, Instagram, as a portmanteau of "instant" and "telegram." "It also sounded camera-y," Systrom wrote.

The founders settled on the name, Instagram, as a portmanteau of "instant" and "telegram." "It also sounded camera-y," Systrom wrote.

For the next eight weeks, Systrom and Krieger methodically stripped down Burbn and worked day and night to perfect Instagram. They shared it with friends, tested it in beta, and fixed bugs. One bug, for example, would make the app crash on a user's phone if their password contained an "@" symbol. Another decision, to use 11 filters, was pared down from a batch of more than 30 filters.

Decisions like these were made with "No rhyme or reason—just lots of experimentation and feedback from beta users," Systrom wrote. It was, essentially, crunch time.

The purpose was to perfect the product, but also to get it launched as quickly as possible. Finally, that day came.

On 12:15 a.m., October 6, 2010, Instagram went live. Mike Krieger liked to joked that the app, which took barely eight weeks to build, was a year in the making. This was the moment of they had been waiting for.

"We figured we'd have at least six hours before anyone discovered the app so we could grab some shut-eye," Systrom wrote on the company's blog. "No problem, we figured."

But within minutes, downloads began pouring in from all corners of the globe.

"We crossed 10,000 users within hours, and I was like, 'this is the best day of my life.' This is amazing, right?" Systrom told Inc.com last year.  "At the end of the day, it kept growing so much I thought, 'are we counting wrong?'"

"The night of sleep we were hoping for turned into a few meager hours before we rushed into the office to add capacity to the service," he wrote on the company blog.

At the end of the first week of the company's launch, Instagram had been downloaded 100,000 times. Another week passed, and another 100,000 people had downloaded the app. By the middle of December, the community had grown to a million users.

"We believe it's the beginning of something bigger," Systrom wrote in December of 2010, a few days before his 27th birthday. "It was both rewarding and humbling to see people embrace Instagram as both a new home on their iPhone—and a new way of communicating visually with people around the world. We believe this is only the beginning. With 6.7 billion people in the world, we're a tiny fraction of the way there, but we're extremely happy with the progress."

"For better or for worse, I've done most of the pixel pushing in our app."
—Kevin Systrom

Investors, too, began to take notice. As the company coasted through January 2011, the company began meeting with institutional investors.

In February 2011, a group of investors led a Series A financing of $7 million. The round of funding, which was led by Adam D'Angelo—an early casual advisor of Systrom, who'd founded Quora—Jack Dorsey, Chris Sacca, Baseline Ventures, and Benchmark Capital, valued the company at $20 million.

Not bad for a start-up that launched just five months ago.

Media were quick to notice the fledgling start-up, which had just four employees centered around four desks in a ramshackle office in San Francisco.

"Instagram represents a new kind of stylish startup on the Web—one whose skyrocketing popularity, thanks to the prominence of outlets like Apple's App Store, largely precedes its evolution into a traditional company with such accoutrements as financing, office space—or even a permanent Web address," noted BusinessWeek shortly after the financing was announced in February.

By that time, Instagram had about 1.75 million members, who were uploading about 290,000 photos per day. And the growth never slowed down.

But even as the company scaled, and the company's financing gave Systrom the opportunity to hire more employees, the founders kept the company super-lean.

"For better or for worse, I've done most of the pixel pushing in our app," Sytrom wrote on Quora in August of 2011.

The company still had fewer than 10 employees.

What's remarkable about Instagram, aside from its colossal acquisition, is how little the product has changed since launch. Few add-ons or features have been added, and the company has demurred from adding premiums to generate revenue. Instead, the founders have focused exclusively on the core product, and responded to the needs of the community with aplomb.

Even back in November 2010, in an audio interview with Robert Scoble, Systrom was devoted to focusing on a core product.

"In the long-run we'll make or break this company based on focus," Systrom told Scoble. When asked about how the company will make money, Systrom responded, "I'm absolutely certain that we're not going to be one of those start-ups that you talk about five years from now, that hasn't even looked at making money. I care deepy about it. But we're eight weeks old. It's the time to be stable and grow."

At the same time, Systrom envisioned a huge future for the company. "We don't want it to be another photo-sharing service," Systrom said.  We "want to make big leaps into the Web."

From the summer of 2011 until the beginning of 2012, little changed inside the walls of Instagram. It hired a few community managers, and posted on a jobs section looking for design and engineering candidates, noting "we're a small team, and we're looking for people to make a big impact." In January 2012, the company had 15 million registered users. By March, that number jumped 27 million, and rumors began swirling that the the company was planning on raising $50 million at a $500 million valuation.

"We've had an amazing time watching Instagram grow into a vibrant community of people from all around the globe."
—Kevin Systrom

Those rumors were confirmed in the beginning of April, when it was announced that Sequoia Capital, Thrive Capital, Greylock Partners, Benchmark Capital, and Baseline Ventures had led the Series B round of financing.

Overnight—well, four full days later—those investors enjoyed a 100% return on their investments when Facebook acquired Instagram for $1 billion, drawing comparisons to Google's $1.65 billion purchase of YouTube in 2006. Perhaps it wasn't the 10x return firms like Sequoia generally pine for, but on an annualized basis, it wasn't too shabby, either.

So far, the company has declined to comment publicly about the acquisition. Perhaps that makes sense, considering Facebook's pre-IPO quiet period it might be honoring. But on the company's blog, Systrom did recount some of his feelings about the acquisition.

"When Mike and I started Instagram nearly two years ago, we set out to change and improve the way the world communicates and shares," Systrom, who is now worth a reported $400 million, wrote. "We've had an amazing time watching Instagram grow into a vibrant community of people from all around the globe."

IMAGE: Robert Scoble
Last updated: Apr 10, 2012




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