When Facebook announced that it was purchasing Instagram for $1 billion, there was immediately a large scale outcry from seemingly everyone from entrepreneurs to loyal Instagram users. How does an 18 month old startup with 13 employees and zero revenue go for that kind of money? That was the question on everyone’s minds.
I’m not here to argue whether or not it was worth the money (it was), or if this is the start of the next tech bubble (it probably is) but I think it’s safe to say that as with any large scale success story, there are always core lessons we can learn from. As one of the best success stories of our generation, Instagram is the perfect case study for young entrepreneurs who want to know how they can break it big themselves someday.
Here are the top 3 lessons from Instagram’s $1 Billion Sale:
1. Act Small but Think Big
From the start, Instagram founder Kevin Systrom wasn’t shy about his large scale ambitions. In an interview with Time Magazine in 2011, he said he wanted to build a “social tool for social life on the go… we want to change the way people communicate and share in the real world.” There’s no doubting the fact that the Stanford graduate who had no experience running a company was determined and confident in his abilities.
What Systrom was shy about though, was scaling up his business operations. Unlike many other ambitious startups (who didn’t break it big), Systrom kept his organization lean and efficient. With only 13 employees, that’s a remarkable average of $76.9 million of value per employee. There’s no doubt Systrom could’ve gone out there and hired 25 more engineers, coders and marketers. But would that have increased Instagram’s $1 billion valuation? I doubt it. By keeping his company small and efficient, Systrom was able to focus on his core message without becoming a larger, less dynamic organization.
2. Build users first, worry about revenue later
This is tough to swing if you don’t have the capital or funding, but the core value remains the same either way. I don’t care what kind of business you’re running: you absolutely need a critical mass of users and followers. Whether you’re the new pizza shop in town or creating the world’s largest mobile sharing app, it doesn’t matter what kind of revenue you have today so much as what kind of loyal customer base you’re building. Without a loyal customer base, you’re dead in the water.
Instagram could have easily charged up to $5 a download for its iPhone app, and made a solid amount of revenue doing so. But was that in the best interest of the company’s future? No, and Instagram was well aware of this, which is the company decided to keep the app free. They knew that what was important wasn’t the revenue they were losing today, but rather the incremental value they were gaining with each additional subscriber. Without their critical mass of millions of users, Instagram never would’ve grown fast enough to catch Facebook’s eye and earn their $1 billion valuation.
3. Build an emotional connection with your audience
Hans Roxas-Chua, co-founder of the Internet and Mobile Marketing Association of the Phillippines (IMMAP), said that “Facebook didn’t seem to have that kind of emotional connection. It didn’t have the soul of Instagram,”. He noted that those who use Instagram take the time to get just the right angle and the perfect filter to capture the mood of the picture. In the end, they are more invested in the product. “It’s more emotional.” This is another lesson that is relevant to just about every business or startup.
If you aren’t able to create an emotional connection with your customer, whether you own a restaurant (see: McDonald’s) or a theme park (see: Walt Disney), you will have a tough time setting yourself apart from your competitors. McDonald’s excelled at creating a playful emotional connection with their Happy Meals, golden arches and toys. Similarly, Walt Disney was all about creating a strong emotional connection of magic and mystery with its theme parks and movies. Instagram was able to add emotion to a seemingly mundane and saturated space: mobile photo sharing.
While not every startup can reasonably expect to go from business plan to $1 billion sale as quickly as Instagram did, there are many things aspiring young entrepreneurs can learn from this. Overall, the core message is to stay ambitious, and know the value of what you’re creating, stay lean before you overextend yourself, and find a way to make a connection with your customer. Instagram succeeded at all of these things, which is why regardless of whether you believe it was worth the large sum or not, it was able to make it as one of the best success stories of our generation.
Does your startup have what it takes? Share your story in the comments below.
Puneet Lakhi is the Co-Founder of EntreRev.com, a fully functional young entrepreneur social network. EntreRev allows young entrepreneurs from around the world to share their startup ideas, activities and events, and network without the unrelated noise of Facebook or the stifling corporate atmosphere of LinkedIn.