Asking The Founder Of Grammarly How He Built A $13 Billion Company
So basically, I, I'm, we're Facebook friends now, so we talk a little bit there, but I first met you at HustleCon, I think, this event that I hosted in 2019. And you're one of the best people we've ever had. We've had hundreds of people and I'll, 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 billion-dollar valuation or something like that. Is that right?
Yeah, that was, uh, yeah, that was, uh, $120, uh, and, uh, we didn't disclose valuation at the time.
Yeah. But if I had to get— yeah, you didn't. Uh, but I think I'd heard rumors and like, I just am guessing it was like in that range and it doesn't matter, but, but basically I made a comment to you. I'm like, that's pretty cool, right? And you, you kind of replied back. You weren't cocky, but you were very confident and still humble, but you kind of had a grin. And I forget exactly what you said, but it was something like, yeah, it's going to get much bigger too. And I loved that, like a subtle confidence. And then at the event, what you talked about, I don't even remember the title, But the idea was basically like, you're an engineer, but you've done a really good job of like evolving past just engineering. And you like said, this is how like I engineer like good products. And this is how like everything you looked at was from an engineer, like about reverse engineering different stuff. And I thought that was incredibly fascinating. Do you remember what I'm talking about?
Oh yeah, I do. I 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. And it's just a universally good framework that works for many things. Yeah, just kind of looking at things narrowly, identifying the sweet spot, and then just going broader from there.
So this is Max Litvin. Litvin. He started this company called Grammarly. Before Grammarly, you had another company called like Blackboard, I think, right?
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 2010. 2007. Um, and then they spent 2 years with Blackboard, uh, kind of a part earnout, part just being, uh, being there.
And that was like a, a, a compared to Grammarly, a mild success, right? Like it was, it was financially good, but it wasn't like this huge, huge multi-billion dollar company.
Oh yeah. That was, uh, that was, uh, just a start. It could have grown big. Uh, but Education is— was at that point a relatively difficult market to, to be in and wasn't as big of a market. Uh, plus our product was fairly narrow. It was just doing one thing for one group of people. So we kind of saw that it can grow to this point, but further is going to be very slow and very difficult. So that's why we decided to sell. Plus we had bigger ideas.
And you started Grammarly. And at this point, can you reveal, can you reveal how big it is? Because I like, it's shockingly large.
Yeah. Uh, so we raised at a $13 billion valuation and we disclosed that valuation. I still think it's a conservative, it's conservative one. Why? Because Grammarly is a very non-standard company and very non-standard product. It's easy to see it for less when it is. And that's kind of reflected often in perceptions of everyone, of investors, of sometimes even potential team members. We have to explain why it's big. And, you know, but that also helps with less competition.
Well, and like, and by the way, you guys bootstrapped it for a long time. So like you and your co-founder, like it's not like you own like 4% of this company. You guys probably, you own like a very small substantial amount. So like, actually, so you're on paper, you're, you're probably a multi-billionaire at this point.
Uh, it depends on whom you believe. Uh, there is some information that's not fully accurate. Uh, but, uh, yeah, we, we, we managed to keep significant portion of the company with the founders and employees. Um, employees own actually quite a lot.
Did, um, when I heard 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, which is like, A, this is just a Chrome plugin. B, this is just spellcheck. Like, there's no way that either of those things are interesting. And then I learned about it and I was like, oh, this is like way bigger than— it just looks like that. It's way more than that. Did most people— were like, there's no— were most people dismissive of like it just being a Chrome plugin?
Some people are dismissive, uh, quite a lot. And, uh, I wouldn't say dismissive, it's not like completely, oh, there's nothing, uh, but, uh, underestimate the impact and the importance of it. And that's, that's an interesting, uh, conversation, always, always very similar, because, um, they kind of think, oh, this is a good product, this is a cool product, but not for me because, well, I know what I'm doing. And then they tried and it helps. It helps in material ways. And especially when you measure results, because, you know, when you don't measure things and then just, you know, typing away, it saves you from an embarrassment or helps you phrase something more clearly. Kind of. Yeah, that's cool. But what's the impact? And show me the money. But when it's done on the business scale and it's measured and it's kind of assessed, you can see like percentages, improvements in different metrics, productivity, satisfaction, so on. And that adds up, that adds up pretty quickly.
We bought it at The Hustle. So I had it for the whole company. I don't remember what it costs, but I remember seeing the bill every month, hundreds of dollars a month and everyone loved it. And I loved it. I still use it. So like, I totally, I totally buy it. I, I totally, once I started using it, I was like, oh my God, I get it. But one thing that I've always been fascinated with is, is just plugins as a business. Um, particularly two types of plugins, WordPress plugins. Um, there's a bunch of guys that have like some substantially size, substantial size businesses selling WordPress plugins, you know, like $25, $50 million a year. And then Chrome plugins, which. Do you— I don't know if you like describe yourself as a Chrome plugin as a business. I don't think you are, but like, it's definitely like the one of the main ways in which most people interact with you, right?
For now, yes. We just recently switched over to our flagship product being operating system level integration. So it works similarly to Chrome plugin, except it integrates with all the apps, not just web apps. So that was a big switchover that happened in December, so just about a month ago. So that expands the surface area for Grammarly. Now it's in Microsoft PowerPoint and Oracle applications and wherever you want, basically.
Wow. Did you, why'd you hire a CEO and when did you do that?
Uh, that's kind of jumping topics, but, uh, yeah, we, um, we brought in a CEO, I think, in 2011, uh, and, um, one reason, one big reason for that was that, um, both, uh, Alex, my co-founder, and I, we have a philosophy that everybody should be doing, should be in their zone of genius, doing what they like and what, what they're good at. And nobody, no one of us was really experienced or even that passionate about scaling organizations. And that's what we were kind of the biggest thing we were looking for from, from CEO teaching us and doing that basically scaling the company because we realized that to do what we need to do, we need a lot of people. We need a big company. It's kind of a number of people and size is not a kind of 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.
How many employees did you have when you hired Brad?
I think 20-something.
Oh, wow. Yeah, ground up. Nothing. I mean, small.
Small, yeah. Yeah, we were fairly small. We were making good revenue and being profitable at the time already, but the company was still very small. And that's kind of a, that realization that we need to, the opportunity is big and we need to scale, that pushed us to look for kind of external expertise.
How did you, because at that point, I guess you didn't raise money. So you and your partner are like, oh, it was like your business, it was your company. And like your money, how did you, how did you not micromanage Brad? Um, because I did the same thing and not micromanaging is tough because you're like, oh my God, if you make a mistake, you're going to lose money. And that's like my money. And so it's like really stressful to like let someone fail sometimes and learn. Were you micromanaging or were you pretty emotionally healthy about it?
I'd like to think we were emotionally healthy. Uh, maybe Brad would disagree. I don't know. I wish he I actually will ask him, but 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 make progress. So there was just no time or resources or energy to micromanage anybody. We had to divide and conquer to actually keep making progress because it's a lot of work. So just from the volume of things to do, everybody had to do their own thing. So that happened naturally. And part of it is a philosophy that, again, Alex and I share that Basically, if you bring in smart people on board, like not listening to them or not letting them think independently is a waste. Basically, there is no point in bringing smart people on board. So that's, that's, that made it easy to kind of give freedom and give space to, to Brad and other leadership team members.
What were your goals early on? Like when you started the business, were like, man, I think this can make $10 million a year and provide a good lifestyle, or Like, I think this could— or was it like, I think this could be like a multibillion-dollar thing? Like, what were your goals early on?
I think we decided that it could be a multibillion-dollar business during our conversations with Brad, partially. So kind of Alex and I, we 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, then it became pretty clear that, yes, there is a multibillion-dollar market out there. Are we going to capture it or not? To be, to be determined. But at that point, but there is definitely an opportunity. So the size of the opportunity became clear fairly early. But past there, that, that took years.
What was the vision? That made, or what, what did you see that made you feel that it could be a multi-billion dollar opportunity? And what was the vision? And were there any, was there any numbers that you saw early on that would said like, oh my gosh, there's something here?
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 help casual writers or people who write as part of their job or part of their life, but not like a key part. So writing is not their like main product. They're no, no, like novelists or researchers who are published and so on. So when we saw that it's possible to make a product that's useful for everybody else, then it clicked. And very simple formula. If you look at amount of time we spend communicating and creating knowledge as a 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 trillions, not, not even 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 that's doable. So, so we decided—
I had that same insight, except I did it in such a horrible, worse way. So basically, I learned how to be a copywriter. So like I read books on copywriting and like on persuasive writing. And my theory was like, oh my gosh, like with texting or like online dating, I was single at the time and 21. So it was all about like dating. I'm like, oh man, if I were to learn how to write better in my messages to girls who I match with, like my life is going to be better. And 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 like this cause that I want them. I'm like, just writing better, like, it changes, it makes life more practical, but also it, it, uh, makes you think better. So like, if you can, if you have an idea for something and you're forced to write it out, you'll see all the holes in idea and you'll, and you'll force yourself to like lay it out. And so I was like, oh, I'll teach people how to write better. And so I created a course on how to write better. Of course, like obviously creating a software product was outta my league, but like that was, clearly the better move to do. But the same insight was like, everything that we do is via a text, whether it's a text message or an email or a website. And even if it's via like the spoken word, I have to write that anyway. So like writing is like 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.
Yeah, software is more scalable. That's, that's true. And And actually, what you said about writing, it also applies to speech. We, when we do user research, we notice that people who use Grammarly repeatedly adopt patterns of communication, more effective patterns of communication, translated to non-written communication as well. So for example, if Grammarly keeps suggesting that you don't use kind of a wordy or vague or weak sentence structures, you stop or reduce use of them in speech as well. So I— So kind of good habits rub off and translate to other modes of communication.
So here's my opinion. So have you ever heard of copywork? No. All right. So in like the, um, 1700s, 1800s, and up until like 1910, one of the ways in America that we would teach children how to write well is the same way that we would teach them how to play an instrument. So if I wanted to teach you how to play the piano, I'm not gonna say like, go ahead, like write, go write a piano song. I would say, well, let's play Jingle Bells. Let's learn how to play Happy Birthday. Then after that, we can move to like some more pop songs that you really like. And then you do that for like 2 years and you like see patterns and you like understand, you just copy other people's music. And in doing that, you see patterns and then eventually you're like, oh, I know the rules to the game now. Now I can decide to follow them, to break them, but I can make my own. And it's the same thing with writing. Um, but we don't do that. And so what that means is I think one of the easiest ways to learn is you find great writing that you really like and you just literally copy it by hand. And in doing that, you like see the patterns and that's called copywork. It's not a very popular way to learn how to write now, but in my opinion, it's one of the most powerful. I would say Grammarly in a sense is doing that because in real time you're learning, but it's far better than just saying like, go and write, like, just like 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. I'm sure I'm— not a lot of people have heard of copywork. I thought maybe you would have, but it's like not very well known.
No, I haven't heard of it, but I've seen it done in many, many fields. Like, at one point I was passionate about photography. And same there, you just basically try different— try to basically copy different photographs and recreate them. And this way you learn the language of that art. So, so yeah, that applies to many, many areas.
How technical were you and your co-founder? Were you technical enough to build the first handful of iterations?
So I was very technical. So, for example, the previous plagiarism detection company, I wrote the core algorithm and most of the code originally, most of the kind of backend code, not the frontend. 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 processes.
Some stuff that you don't even need to code anymore today if you didn't want to.
Yeah, yeah, yeah, yeah. So I coded some of that, but I didn't code the, like, like a real production-grade stuff, mostly because I'm, I'm not formally a software engineer. I'm kind of a self-trained coder, but kind of building a real complex software is not my thing. Plus, I had to, I had to manage the business full-time. So when we started out, I was responsible for finance, marketing, like pretty much like lots, lots of things. Like basically everybody has to wear a lot of hats in a small company. So the running of the business occupied pretty much my whole time. So there was no time for—
So you just hired— did you guys just self-fund it and hire a couple of people to help build the first version?
We hired quite a significant number of people. We also had a technical co-founder on board, Dima Lider, who helped build out the technical team. So he was responsible for, 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 we could put into Grammarly. So basically we were Both founders and the first investors.
How much did you spend to get the— to make it work until, like, it was a sellable product?
Uh, I don't remember, but it was quite a million or $10 million, $500,000.
Do you remember?
Uh, I think it was close to a million. Um, but it was a product that worked only for very small audience, very, very small use case. And it was not real time. So basically what happened was you write a book, a chapter of a book, because it couldn't check the whole book at once, uh, or you write a research paper, you submit it to, uh, the initial, like, the old Grammarly, uh, and then you go make a cup of coffee, and then you drink the cup of coffee, and then you wait a little bit more, and then it spits out the result, uh, and The result was probably half of it was real issues and half of it was false positives. But at the time, the audience, the target market was fine with that because if you spent like 2 months writing a book, like what's extra half an hour to review all the potential issues, right? Even if they're not real. But that wouldn'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 gonna deal with false positives.
And did that version get you to profitability?
Yeah.
No shit. What'd you charge for it? $100 a year?
How did the people hear about it? The first users?
Uh, so that was, uh, interesting cuz we launched to parallel streams, one to consumers and one to businesses, educational institutions, publishers, basically companies, consulting companies. And the consumer channel took off, like it grew exponentially from basically week 1. And enterprise or B2B, it took longer to build. So once we kind of pushed both of them in parallel for about half a year, uh, we saw that, well, kind of makes sense to focus on consumer for now because it's just growing like wildfire. Uh, but, uh, B2B requires much more pushing, much more hiring, more people intensive because you need sales team and all that. So we kind of decided to slow roll it a little bit and focus on consumer for first few years.
And do you do it through paid marketing or organic?
We did everything. We tried all the channels available to us and obviously different channels have different benefits. At the time, social was also easier to get free promotion from. Right now, obviously, kind of Facebook and others just want to capture all the value they create. But back then, it was easy to get, easier to get stuff viral on social and just get free promotion from that. SEO was easier as well. So many things were just like, many channels were quite easier to do. But we relied on paid early on quite a bit because it's It's 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 like within hours. And it tells you if the message resonates, if there is a market for that, if you're finding that market correctly, you know that within like hours. It's in more traditional world, it's weeks of marketing.
And hundreds of thousands of dollars.
Yeah. So that's, that was, that was kind of why we were so bullish on paid from early on, even though it costs a lot of money.
What companies are you guys trying to buy?
Companies? Not specifically. I mean, we're open to that, but we're not like hunting to buy.
Is there a problem that you need to be solved and you saw that this other company was solving that problem that you'd buy it? So like, let me give you an example. The, uh, the founder of Jet, you know, Jet.com, they sold to Walmart for some billions of dollars. And he's like, man, if Walmart— if we could figure out a way how 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 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 solve that we would buy?
Yeah, there are many things, like things around doing more on device, like doing more and more processing on device. I think that would be very interesting to us because it enables better user experience, lower lag, potentially higher performance. It also helps alleviate some potential privacy concerns. So kind of a no-brainer to do more stuff on device and it's cheaper for us to—
Sorry, what does that mean? You mean like instead of you paying for all this cloud space for everything, for the—
Yeah, yeah. Calculating the suggestions on device. So basically whenever we say, oh, this needs to be shorter or we rephrase it, like that, making that determination on your phone or on your laptop rather than sending it to cloud and having our servers crunch the numbers. So that's, that's kind of a, that, that has a number of benefits for, for both.
Actually, I don't know what those costs are. So how much does it cost to host? Like, what percentage of your revenue do you spend on, or maybe like, how does the payroll compare, the payroll costs compared to like your hosting costs?
I would say it's comparable. Hosting costs are, even though we don't host much of the data, we're not like Dropbox where we store files, but the processing is quite expensive, especially if you consider that we have tens of millions of free users who are not paying us anything. And we don't monetize them in any way at all, because we don't sell user data, we don't show ads, we don't do any of that. So basically all the free users are not monetized until they subscribe. So that makes it, that makes us be conscious of processing costs, especially for regions where not many people can upgrade to premium, like developing countries.
How many employees do you have?
I don't recall exactly, but I would say somewhere around 800.
Damn, so then you're paying a shit ton for that hosting.
Uh, yeah, I would say it could be less than payroll. I don't remember exactly. Uh, but, uh, yeah, it is significant amount. I mean, that many— you supporting that many users, uh, and providing a reliable service, it does.
Who do you pay?
Uh, it's mostly Amazon.
Crazy, man. Like, it just runs the internet. It's crazy.
Well, yeah, we evaluate from time to time, bring in some things in-house. Um, and actually some things we do have in-house, not, uh, not necessarily like the, the hosting infrastructure, but like some train model training and all that stuff we do in-house. But so we look into that. So 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.
Yeah. It's just like crazy that it's crazy that it always freaks me out a little bit that like we use Cloudflare and I remember one time Cloudflare went out. And like our website was dead and so was like a quarter of the internet.
Yeah. Yeah. It's, uh, it is, um, uh, this concentration, it is kind of scary. Um, yeah.
It freaks me out a little bit.
Yeah. It has its benefits, but it is, uh, yeah, a lot of places have a single point of failure for significant portions of our infrastructure.
Are you— and we'll wrap up here in a second, but I asked you about Hemingway earlier. Do you view them as competitors at all?
Not really, no. They do something that's similar and something that's basically part of what we do, and a number of people use both products simultaneously. So we don't view them as competitors because they don't take business from us. So yeah, so it's not like—
who do you view as a competitor?
Uh, who do we use a competitor? Well, the biggest one is complacency, just people not realizing that they can benefit from this. I think that that's the biggest thing, that by far bigger than any, any other competitor. Um, but other than that, once you get to a certain size, everybody becomes a potential competitor. 'Cause 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, that's kind of the mindset that basically at any point anybody can become a competitor.
Yeah, but are there any, I've never seen any like upstarts or any small companies try to compete with you guys. Is there many?
There are some, but most are focusing on either niche, like a, primarily for a specific market. Um, and I think that's, that's a good way to start. And obviously we're watching them and seeing what they're doing right, what they're doing wrong, and so on. Um, there, there, there's similar products. Uh, Microsoft I think has a similar product, but again, it only does part of what we do. Uh, so it doesn't take away much business from us, if any. Um, so So yes, I wouldn't, I wouldn't say that there are any kind of direct competitors at this point. And I'm not too worried about competition, frankly, because it's just such a new field that most of the market is just untouched by anybody.
Cool. Well, thanks for coming on. I'm gonna, we're gonna wrap up now and I'm gonna let you know when this is live. It should be live in like a week, I think, but I appreciate you coming on. It means a lot.
Ah, great, thank you, thank you so much for having me.