Asking The Founder Of Grammarly How He Built A $13 Billion Company
Grammarly: From Zero to $13 Billion - February 16, 2022 (about 3 years ago) • 30:53
Transcript:
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Sam Parr | So basically, I'm... we're Facebook friends now, so we talk a little bit there. But I first met you at Hustle Con, I think, this event that I hosted in 2019. You're one of the best people we've ever had. We've had hundreds of people, and I'll tell you why.
Two things. The first, I think you spoke right when... so this is Max, he started Grammarly. We'll do an intro in a second. But I think you spoke when you guys had just raised maybe $100 million at a $1 billion valuation or something like that. Is that right?
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Max Lytvyn | Yeah, that was... that was 120, and we didn't disclose the valuation at the time.
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Sam Parr | But if I had to get you... yeah, you didn't. But I think I heard rumors, and like, I'm just guessing it was in that range. It didn't matter.
But yeah, basically, I made a comment to you, and I'm like, "That's pretty cool," right? You kinda replied back. You weren't cocky, but you were very confident and still humble. You kinda had a grin, and I forget exactly what you said, but it was something like, "Yeah, it's gonna get much bigger too." I loved that subtle confidence.
Then, at the event, what you talked about... I don't even remember the title, but the idea was basically that you're an engineer. You've done a really good job of evolving past just engineering. You said, "This is how I engineer good products," and this is how everything you looked at was from an engineering perspective about reverse engineering different stuff. I thought that was incredibly fascinating. Do you remember what I'm talking about?
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Max Lytvyn |
Oh yeah, I do remember that. I actually use that mantra a lot inside the company as well when we look at different markets and where to go next. It's just a universally good framework that works for many things.
It's about looking at things narrowly, identifying the sweet spot, and then just going broader from there.
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Sam Parr | So, this is Max Litvin. He started this company called Grammarly. Before Grammarly, he had another company called Blackboard, I think, right?
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Max Lytvyn |
That was not my company. That was a company that bought my company. So, my company was **MyDropbox** (not to be confused with Dropbox). It was a plagiarism detection company, and it was bought by Blackboard in 2007. Then I spent 2 years with Blackboard, kind of as part earn-out, part of just being there.
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Sam Parr | And that was like a mild success compared to Grammarly. It was financially good, but it wasn't like this huge, huge multibillion-dollar company. | |
Max Lytvyn | Oh yeah, that was just a start. It could have grown big, but education is a relatively difficult market to be in and it wasn't as large of a market. Our product was fairly narrow; it was just doing one thing for one group of people.
So, we kind of saw that it could grow to this point, but further growth would be very slow and very difficult. That's why we decided to sell. We had bigger ideas.
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Sam Parr | And you started Grammarly. Can you reveal how big it is? Because I find it shockingly large.
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Max Lytvyn | Yeah, so we raised that $13,000,000,000 valuation and we disclosed that valuation. I still think it's a conservative one.
Why? Because Grammarly is a very nonstandard company and a very nonstandard product. It's easy to see it for less when it is, and that’s kind of reflected often in perceptions of everyone—investors, and sometimes even potential team members.
We have to explain why it's big, and you know, but that also helps with less competition. | |
Sam Parr | Well, and by the way, you guys bootstrapped it for a long time. So, you and your co-founder, it's not like you own just 4% of this company. You guys probably own a very substantial amount. So, on paper, you're probably a multibillionaire at this point.
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Max Lytvyn |
It depends on whom you believe. There is some information that's not fully accurate, but yeah, we managed to keep a significant portion of the company with the founders and employees. Employees actually own quite a lot.
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Sam Parr | Did you hear about Grammarly? The reason why I wanted you to come on to the podcast and at HustleCon is because I think my reaction is the same reaction most people in business had.
First, I thought, "This is just a Chrome plug-in." Second, I thought, "This is just spell check." There’s no way that either of those things are interesting.
Then I learned about it, and I was like, "Oh, this is way bigger than it just looks like." It's way more than that.
Were most people dismissive of it, thinking it was just a Chrome plug-in?
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Max Lytvyn | Some people are dismissive quite a lot. I wouldn't say completely dismissive; it's not like it's all or nothing. However, they underestimate the impact and importance of it.
That's an interesting conversation. It's always very similar because they kind of think, "Oh, this is a good product. This is a cool product, but not for me because I know what I'm doing." Then they try it, and it helps in material ways, especially when you measure results.
You know, when you don't measure things and just type away, it saves you from embarrassment or helps you phrase something more clearly. Kind of, "Yeah, that's cool, but what's the impact of that? Show me the money."
But when it's done on a business scale and it's measured and assessed, you can see percentages of improvements in different metrics: productivity, satisfaction, and so on. That ends up being pretty significant.
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Sam Parr | At the hustle, I had it for the whole company. I don't remember what it cost, but I remember seeing the bill every month—hundreds of dollars a month. Everyone loved it, and I loved it. I still use it. Once I started using it, I was like, "Oh my God, I get it."
One thing that I've always been fascinated with is plugins as a business, particularly two types of plugins: WordPress plugins and Chrome plugins. There are a bunch of guys that have substantial-sized businesses selling WordPress plugins, you know, like $25 to $50 million a year.
As for Chrome plugins, I don't know if you would describe yourself as a Chrome plugin business. I don't think you are, but it's definitely one of the main ways in which most people interact with you, right?
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Max Lytvyn | For now, yes. We just recently switched over to our flagship product, which is operating system level integration.
It works similarly to a Chrome plug-in, except it integrates with all the apps, not just web apps. That was a big switchover that happened in December, so just about a month ago.
This expands the surface area for Grammarly. Now it's in Microsoft PowerPoint and Oracle applications, and wherever you want, basically.
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Sam Parr | did you why'd you hire a ceo when did you do that | |
Max Lytvyn | It's kind of a jumping topics, but yeah, we brought in a CEO, I think in 2011. One big reason for that was that both Alex, my co-founder, and I have a philosophy that everybody should be in their zone of genius, doing what they like and what they're good at.
No one of us was really experienced or even that passionate about scaling organizations, and that was the biggest thing we were looking for from a CEO: teaching us and basically scaling the company. We realized that to do what we need to do, we need a lot of people. We need a big company.
Size is not a desired outcome in itself; it is a necessity because the goals are so big that you can't do it with 20 people or 30.
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Sam Parr | how many employees did you have when you hired brad | |
Max Lytvyn | I think 20 something | |
Sam Parr | oh wow nothing I mean small small | |
Max Lytvyn | Yeah, we were fairly small. We were making good revenue and being profitable at the time already, but the company was still very small.
That realization—that the opportunity is big and we need to scale—pushed us to look for external expertise. | |
Sam Parr | How did you... because at that point, I guess you didn't raise money. So you and your partner, it was like your business, your company, and your money.
How did you not micromanage Brad? Because I did the same thing, and not micromanaging is tough. You're like, "Oh my God, if you make a mistake, you're going to lose money, and that's like my money."
It's really stressful to let someone fail sometimes and learn. Were you micromanaging, or were you pretty emotionally healthy about it?
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Max Lytvyn | I'd like to think we were emotionally healthy. Maybe Brett would disagree; I don't know. I wish he were here, and I will actually ask him.
I think part of it was out of necessity. There was just so much to do that if you micromanage, you get stuck. You don't need to not make progress. There was just no time, resources, or energy to micromanage anybody. We had to divide and conquer to actually keep making progress because that's a lot of work.
So, just from the volume of things to do, everybody had to do their own thing. That happened naturally. Part of it is a philosophy that, again, Alex and I share. Basically, if you bring in smart people on board, not listening to them or not letting them think independently is a waste.
There is no point in bringing smart people on board. So, that made it easy to kind of give freedom and space to Brad and other leadership team members at Magic. | |
Sam Parr | Your girl goals early on, like when you started the business, were like, "Man, I think this can make $10,000,000 a year and provide a good lifestyle." Or was it like, "I think this could be a multibillion-dollar thing?" What were your goals early on?
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Max Lytvyn | I think we decided that it could be a multibillion-dollar business during our conversations with Brad. Partially, Alex and I hoped that it could be, but then once we started talking with Brad about valuation plans and all that, when he was thinking about joining, it became pretty clear that yes, there is a multibillion-dollar market out there.
Are we going to capture it? That is to be determined. But there is definitely an opportunity. So, the size of the opportunity became clear fairly early, but past that, it took years to come.
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Sam Parr |
Was the vision that may, or... What did you see that made you feel that it could be a multibillion-dollar opportunity? What was the vision? And were there any... Was there any numbers that you saw early on that said like, "Oh my gosh, there's something here"?
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Max Lytvyn | Yeah, so I think the breakthrough moment was when we saw that it is possible to help not just professional writers—people who write for a living every day—but also casual writers or people who write as part of their job or life, but not as a key part. So writing is not their main product; they're not novelists or researchers who are published, and so on.
When we realized that it's possible to make a product that's useful for everybody else, then it clicked.
It's a very simple formula. If you look at the amount of time we spend communicating and creating knowledge as humanity, as all people in the world, it is a huge percentage of our time. And it's increasing because we spend less time doing things with our hands. Manufacturing is being automated; it's not like we were doing it manually anymore as much.
So, if you take this time that we spend communicating and creating knowledge and make it even 1% more effective, the impact is in the trillions—not even just billions.
So, can we do something that makes communication 1% more effective on average for everybody? That doesn't sound impossible. That sounds like something doable. So, we decided...
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Sam Parr | Had that same insight, except I did it in such a horrible, worst way.
So basically, I learned how to be a copywriter. I read books on copywriting and persuasive writing. My theory was, "Oh my gosh, with texting or online dating..." I was single at the time and 21, so it was all about dating. I thought, "Oh man, if I learn how to write better in my messages to girls I match with, my life is going to be better."
Then I was like, "Wait a minute, if I learn how to write better, I could sell more stuff. If I learn how to write better, I can make people feel emotions about this cause that I want them to." Just writing better changes things. It makes life more practical, but it also makes you think better.
If you have an idea for something and you're forced to write it out, you'll see all the holes in the idea. You'll force yourself to lay it out. So I was like, "Oh, I'll teach people how to write better." I created a course on how to write better.
Of course, creating a software product was out of my league, but that was clearly the better move to do. The same insight was that everything we do is via text, whether it's a text message, an email, or a website. Even if it's via the spoken word, I have to write that anyway.
So writing is the most important thing that you can master. I just wish I would have approached it in a software way as opposed to just selling a $300 course.
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Max Lytvyn | Yeah, software is more scalable. That's true.
What you said about writing also applies to speech. When we do user research, we notice that people who use Grammarly repeatedly adopt more effective patterns of communication.
These patterns translate to non-written communication as well. For example, if Grammarly keeps suggesting that you don't use wordy, vague, or weak sentence structures, you stop or reduce the use of them in speech as well.
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Sam Parr | so I | |
Max Lytvyn | so kind of good habits rub off and and translate to other modes of communication | |
Sam Parr | Here's my opinion: Have you ever heard of copy work?
No?
So, in the 1700s, 1800s, and up until about 1910, one of the ways in America that we taught children how to write well was similar to how we taught them to play an instrument.
If I wanted to teach you how to play the piano, I'm not going to say, "Go ahead, write a piano song." Instead, I would say, "Let's play 'Jingle Bells.' Let's learn how to play 'Happy Birthday.' Then, after that, we can move to some more pop songs that you really like."
You would do that for about two years. You would see patterns and understand music by copying other people's work. In doing that, you learn the rules of the game. Eventually, you think, "Oh, I know the rules now. I can decide to follow them or break them, but I can also create my own."
It's the same thing with writing, but we don't do that anymore. I think one of the easiest ways to learn is to find great writing that you really like and literally copy it by hand. In doing that, you see the patterns.
That's called copy work. It's not a very popular way to learn how to write now, but in my opinion, it's one of the most powerful methods. I would say Grammarly, in a sense, is doing that because, in real time, you're learning.
However, it's far better than just saying, "Go and write," or "Spend a lot of time writing your own stuff." I think copying other people is far better.
Anyway, it's something I've been playing with. Not a lot of people have heard of copy work; I thought maybe you would have, but it's not very well known. | |
Max Lytvyn |
No, I haven't heard of it, but I've seen it done in many fields. At one point, I was passionate about photography, and it's the same there. You basically try to copy different photographs and recreate them. This way, you learn the language of that art. So yeah, that applies to many areas.
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Sam Parr | Were you and your co-founder technical enough to build the first handful of iterations?
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Max Lytvyn | So, I was very technical. For example, at the previous plagiarism detection company, I wrote the core algorithm and most of the code originally. Most of the back-end code, not the front end.
But when we were working on Grammarly, I don't think I did any production code. I coded some of the experiments, landing pages, payment checkout process, or like some stuff.
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Sam Parr | that's something you don't even need to code anymore today if you didn't want to | |
Max Lytvyn | Yeah, yeah, yeah, so I coded some of that, but I didn't code like real production-grade stuff. Mostly because I'm not formally a software engineer; I'm kind of a self-trained coder.
Building really complex software is not my thing. Plus, I had to manage the business full-time. So when we started out, I was responsible for finance, marketing, and pretty much a lot of things. Basically, everybody has to wear a lot of hats in a small company.
So running the business occupied pretty much my whole time, so there was no time for... | |
Sam Parr | so you just hired you you did you guys just self fund it and hire a couple of people to help build the first version | |
Max Lytvyn | We hired quite a significant number of people. We also had a technical co-founder on board, Dimonider, who helped build out a technical team. He was responsible for the technical side initially.
But yeah, because of our previous exit, we had some savings that we could put into Grammarly—some substantial savings. So basically, we were both founders and the first investors.
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Sam Parr | how much did you spend to get the to to make it work until like it was a sellable product | |
Max Lytvyn | I don't remember but it was quite a | |
Sam Parr | long time before 10,000,000 500,000 do you remember | |
Max Lytvyn | I think it was close to $1,000,000, but it was a product that worked only for a very small audience with a very specific use case. It was not real-time.
So basically, what happened was you would write a chapter of a book because it couldn't check the whole book at once. Or you would write a research paper, submit it to the initial version of Grammarly, and then you would go make a cup of coffee. You would drink the cup of coffee and then wait a little bit.
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Sam Parr | more and | |
Max Lytvyn | Then it spits out the result. The result was probably half real issues and half false positives. But at the time, the audience, the target market, was fine with that. Because if you spent like two months writing a book, what's an extra half an hour to review all the potential issues, right? Even if they're not real.
But that won't fly with business writers. For example, if you're writing a business email that you need to send in 20 seconds, you're not going to deal with false positives.
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Sam Parr | And did that version get you to profitability?
Yeah.
Oh, shit! What'd you charge for it?
$100 a year.
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Max Lytvyn | We charged, I think, $90 a year. Something like that. Yeah, or $100. So, yeah, I think it's $99.95 a year.
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Sam Parr | how did the people hear about it the first users | |
Max Lytvyn | So that was interesting because we launched two parallel streams: one to consumers and one to businesses, including educational institutions, publishers, basic companies, and consulting companies.
The consumer channel took off; it grew exponentially from basically week one. In contrast, the enterprise or B2B side took longer to build.
Once we kind of pushed both of them in parallel for about half a year, we saw that it made sense to focus on the consumer for now because it's just growing like wildfire. However, B2B requires much more effort, more hiring, and is more people-intensive because you need a sales team and all that.
So, we decided to slow roll it a little bit and focus on the consumer for the first few years. | |
Sam Parr | and you was it through paid marketing or organic | |
Max Lytvyn | We did everything. We tried all the channels available to us, and obviously, different channels have different benefits. At the time, social media was also easier to get free promotion from. Right now, obviously, Facebook and others just want to capture all the value they create.
But back then, it was easier to get stuff viral on social media and just get free promotion from that. SEO was easier as well. Many channels were quite easier to navigate.
However, we relied on paid advertising early on quite a bit because it provides a very quick feedback loop. You design an ad, you send it, or kind of put it in the system, and then you get back results within hours. It tells you if the message resonates, if there is a market for that, and if you're finding that market correctly. You know that within hours. In the more traditional world, it takes weeks to get market feedback. | |
Sam Parr | 100 of 1,000 of dollars | |
Max Lytvyn |
Yeah, so that's... that was kind of why we were so bullish on paid [advertising] from early on, even though it costs a lot of money.
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Sam Parr | what companies are you guys trying to buy companies | |
Max Lytvyn | Not specifically. I mean, we're open to that, but we're not like hunting to buy a company.
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Sam Parr | Is there a problem that needs to be solved? Then you saw that this other company was solving that problem that you'd buy it.
Let me give you an example: the founder of Jet, you know, Jet.com, they sold to Walmart for some $1,000,000,000. He said, "Man, if Walmart could figure out a way to reduce returns by helping people pick the right sizes, we would buy that company for a lot of money."
Is there anything inside of Grammarly where you're like, "Man, we haven't figured out [blank] yet, but if someone did figure out [blank], that's a cool company we would buy"? That's a cool problem solved that we would buy.
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Max Lytvyn | Yeah, there are many things, like doing more processing on the device. I think that would be very interesting to us because it enables a better user experience, lower lag, and potentially higher performance. It also helps alleviate some potential privacy concerns. So, it's kind of a no-brainer to do more stuff on the device, and it's cheaper for us too.
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Sam Parr | Process that? You mean like instead of you paying for all this cloud space for everything? For the... for yeah.
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Max Lytvyn |
Yeah, calculating the suggestions on-device. So basically, whenever we say, "Oh, this needs to be shorter" or "Rephrase it like that," making that determination on your phone or on your laptop rather than sending it to the cloud and having our servers crunch numbers. That has a number of benefits for both us and the users:
1. **Improved privacy**: Data stays on the user's device
2. **Faster response times**: No need to wait for server communication
3. **Reduced server load**: Less strain on our infrastructure
4. **Offline functionality**: Suggestions can work without an internet connection
This approach enhances user experience while also being more efficient for our systems.
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Sam Parr | Actually, I don't know what those costs are. So, how much does it cost? What percentage of your revenue do you spend on payroll? Or maybe, how does the payroll cost compare to your hosting costs?
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Max Lytvyn | I would say it's comparable. Hosting costs are like... even though we don't host much of the data—like we're not Dropbox where we store files—the processing is quite expensive.
Especially if you consider that we have tens of millions of free users who are not paying us anything. We don't monetize them in any way at all because we don't sell user data, we don't show ads, and we don't do any of that.
So basically, all the free users are not monetized until they subscribe. This makes us conscious of processing costs, especially for regions where not many people can upgrade to premium, like developing countries.
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Sam Parr | how many employees do you have | |
Max Lytvyn | I don't recall exactly but I I would say somewhere around 800 | |
Sam Parr | so then you're paying a shit ton for those that hosting | |
Max Lytvyn |
Yeah, I would say it could be less than payroll. I don't remember exactly, but yeah, it is a significant amount. I mean, when you're supporting that many users and providing a reliable service, it does [require substantial resources].
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Sam Parr | who do you pay | |
Max Lytvyn | it's mostly amazon | |
Sam Parr | crazy man like it it just runs the internet it's crazy | |
Max Lytvyn |
Well, yeah, we evaluate from time to time, bringing some things in-house. Actually, some things we do have in-house, not necessarily like the hosting infrastructure, but like some train model training and all that stuff we do in-house. So we look into that. It's not like we are just "Amazon and forget it," but it is an effective way to scale business. It is an effective way to run.
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Sam Parr | Yeah, it's just crazy. It always freaks me out a little bit that we use Cloudflare. I remember one time Cloudflare went out, and our website was dead. So was like a quarter of the internet. | |
Max Lytvyn | Yeah, it is this concentration. It is kind of scary.
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Sam Parr | it freaks me out a little bit | |
Max Lytvyn |
Yeah, it has its benefits, but it is... yeah, a lot of places have a single point of failure for significant portions of our infrastructure.
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Sam Parr | Are you... we'll wrap up here in a second. But I asked you about Hemingway earlier. Do you view them as competitors at all?
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Max Lytvyn |
Not really, no. They do something that's similar and something that's basically part of what we do. A number of people use both products simultaneously, so we don't view them as a competitor because they don't take business from us. So yeah, it's not like... who do...
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Sam Parr | you view as a competitor | |
Max Lytvyn | Who do we view as a competitor? Well, the biggest one is **complacency**—just people not realizing that they can benefit from this. I think that’s the biggest thing, by far, bigger than any other competitor.
But other than that, once you get to a certain size, everybody becomes a potential competitor. You know, when you look at big tech companies, they all compete in some ways and all do some things that are similar or the same. So that’s kind of the mindset: basically, anybody can become a competitor.
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Sam Parr | I've never seen any upstarts or small companies try to compete with you guys. Is there many?
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Max Lytvyn | There are some, but most are focusing on either a niche or primarily a specific market. I think that's a good way to start.
Obviously, we're watching them and seeing what they're doing right and what they're doing wrong, and so on. There are similar products; Microsoft, I think, has a similar product, but again, it only does part of what we do. So it doesn't take away much business from us, if any.
So, yeah, I wouldn't say that there are any direct competitors at this point. I'm not too worried about competition, frankly, because it's just such a new field that most of the market is untouched by anybody. Cool.
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Sam Parr | Well, thanks for coming on. I'm going to wrap up now, and I'll let you know when this is live. It should be live in about a week, I think. I appreciate you coming on; it means a lot.
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Max Lytvyn | great thank you thank you so much for having |