Billion Dollar Baby

I am hard pressed to think of a company run by just a handful of people— with less than 100 million users and no revenue at its peak — that has had such a transformational impact on the consumer Web than Instagram.

Had Instagram stayed independent, it may well have wound up looking a lot like Twitter, today.

Had Twitter bought Instagram, everything would look different: Facebook struggles more with teens and mobile just after it’s IPO, and Twitter doubles down on photos/expression/celebrity and pop culture.

But instead, Facebook bought Instagram and that one move made the strongest market player way stronger than the $1 billion it “overpaid” for the asset. Not only did Instagram give Facebook youth again, celebrity, it’s first successful “mobile first” product, and a continued hold over photo sharing. But it robbed Twitter of all of that. And, Instagram has mostly been Mark Zuckerberg’s sandbox for ripping off and blunting the rise of Snapchat.

Instagram also gave future Facebook acquisitions the confidence that they would indeed be left alone, be able to run their businesses, and keep their properties distinct.

It was a huge risk as Facebook was nearing its IPO. But Zuckerberg saw what Jack Dorsey didn’t: He had to own this asset at any cost.

I interviewed Instagram’s co-founder and CEO Kevin Systrom just months after the combined companies went public. We talk about the company’s early days, why he sold, and a story I’d never heard before about how he and Zuckerberg first met.

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Sarah Lacy: Let’s talk about the beginning of Instagram, because you guys were a company that a little bit came out of nowhere, and was a fanboy favorite, and then really started looking legit. The next thing we knew, you were bought. You didn’t have as long of a time in the public eye as a lot of companies that wind up as big.

First of all, tell us something about you. Were you one of these guys who grew up always wanting to be an entrepreneur? Do your parents find it strange, the journey your life has taken?

Kevin Systrom:  No. In fact, looking back on it, I actually think that our history makes complete sense, a hundred percent complete sense ‑‑ not the speed with which it happened, but rather what we worked on, the people we worked with, and in what order, frankly.

As a kid, I was the guy in fourth grade who wanted to start companies in my classroom, and I was charging people for candy out of our lockers. I won’t say I was a natural entrepreneur, I think I was actually pretty bad at that. People didn’t really buy the candy, and people were like, “Why are you doing this?”

I’m like, “Buy some candy out of my locker.” They’re like, “Who’s this creepy guy?” Honestly, growing up, I grew up in Boston, Massachusetts, or outside of, I went to this small little private school in Concord, and I guess an example is I decided…I loved music, and I loved DJing, and I decided I wanted to start a radio station.

I got an alumni to donate some money to buy an antenna. I hung this antenna outside of our dorm room, and I just started a radio station with a transmitter. It was me and a couple of friends.

This is one example. It was having ideas and wanting to make things happen, and not really having that part of your brain that tells you not to do something because either it’s illegal or it’s not the right thing to do.

You just do it anyway, because you’re having fun and because you want to start something that people love. That carries through, I think, into college where I would start little websites on the side.

One of them was called Swap‑Swap, it was Craigslist, but for colleges. I think the idea has been done 40 times, all unsuccessfully.

That’s actually how I met Mark Zuckerberg and those folks, initially, because they were doing the stuff out in Palo Alto, and I was working on this site.

I guess it’s just an example of me loving to start things and never really having the attention span to follow through on it. I guess it’s kind of fitting that this took such a short time.

Sarah Lacy:  You might have lost interest right before Mark called.

Kevin Systrom:  I might have lost interest. I don’t know.

Sarah Lacy:  Wait. How did you meet him? Was there a convention of dorm room founders? How did that happen?

Kevin Systrom:  It’s really weird. The history between our company and Facebook goes back probably seven‑ish years or so. Basically, at Stanford, they had moved out. I remember hearing about this thing, Facebook, and I signed up for it. Everyone was obsessed, and they were trying to get the most friends.

A couple months later, it was like, “Oh, I think the guys that started that are in the fraternity house right now. They’re walking around.” I was in this small fraternity at Stanford, not the cool one. I won’t say which one, but it was the one where we like to study a little bit more.

They came, and I remember walking in a room, and Mark was sitting and talking to one of my friends, Mike. That’s how we met initially, and we got to talking about the websites that I was working on. He was like, “Oh, I have this thing called Facebook. You should come check it out.” That’s where the relationship started.

You guys chuckle, but Facebook back then, it was literally just Facebook, the website. It wasn’t this thing that everyone knew about.

I remember telling my friends, “Oh, they’re looking for interns for the summer.” They’re like, “Ah, it’s a fad.” I had mentors over the summer tell me, “Oh, no. It’s a fad. It’ll be gone in a year,” like, “Get a real job.”

I know. Everyone is laughing now, right?

Sarah Lacy:  This is the thing that’s crazy about the Valley. Everyone rewrites these things like it was always successful, we always knew it, it was this overnight success. When I first started covering Facebook, people were passing on that thing left and right. They were like, “This is the next Friendster. It will never go anywhere.”

You could count on one hand the people in the Valley who were bullish on it at that point.

Kevin Systrom:  One of the things that I think is most interesting about Silicon Valley in general is just how hard it is to predict what is going to be the next Google, Facebook, Apple, whatever, and how, in hindsight, it all seems so clear. But when you’re pitching an idea, how many people look at you like you’re crazy.

When I told people I wanted to work on a photo website, I remember the looks on their faces being like, “You left your job at Google to do what?” and, “Why would you work on photos? Photos is this thing that’s been covered by Flickr, Facebook does it now,” and like, “Why would you work on photos?”

It’s hard in the moment, to have the wherewithal to actually push through and say, “I believe in this.” But I didn’t really have a choice, because I had quit my job, I wanted to do something. Frankly, like, we had to do something.

Photos was the one thing that I did all the time. I took photos. I had a bunch of different cameras. I was obsessed with lenses. I took darkroom classes.

In retrospect, I think it makes a lot of sense that we did the company that we did. But at the starting point, I think we were just searching for an idea, and we were searching for that thing that would become the next Facebook, and it was hard to do.

Sarah Lacy:  What was your impression of Mark when you first met him, to go back to that?

Kevin Systrom:  I don’t really remember, other than thinking he is a lot like he is today, which is like a relatively humble, like, smart, driven guy. I think it says a lot for a guy to have gone through that much and still be more or less the same person.

Obviously, a lot more people know him now and he’s older. But back then, I think he was just super driven and focused on building Facebook. Even back then, he talked about Facebook as being this thing that was going to be something that everyone in the world used. I’ll liken it to a story.

Another random tidbit is that I worked on a company called Odeo that was pre‑Twitter. It was a group of people, Evan Williams, Jack Dorsey, and a bunch of others that were working on a podcasting startup.

I remember distinctly one of the co‑founders of Odeo, when they were working on Twitter, saying to me, “Someday every celebrity in the world’s going to use this, and bands are going to use this to communicate to their friends.”

I remember thinking, like, this guy is crazy. Like, no one’s going to use this thing. I barely used it at the time. I think I’m user number 270 or something, and I had no idea what it was for.

It comes back to, in the moment, ideas can seem really random. In fact, when they seem random, when they seem hard to wrap your head around, that’s almost when you need to pay twice as much attention.

I think that’s what I’ve learned, at least over the last few years, is that success comes out of nowhere and it isn’t always the celebrity founder that does the next big startup.

Sarah Lacy:  It’s frequently not.

Kevin Systrom: Mike and I were two random guys working at a pier in San Francisco that no one knew about. It came out of nowhere.

Sarah Lacy:  Yeah, versus Bill Nguyen, who’s a celebrity founder, raises a boatload of money, starts Color.

Kevin Systrom:  Right? I remember hearing about Color launching. I remember the dinner I was at. I literally heard something like $40 million, and I was like, “14?” and they’re like “4‑0.”

I remember being like, “Wow, we didn’t raise enough money. Like, fuck.”

Sarah Lacy:  So, Color. Were you legitimately nervous when you heard about Color?

Kevin Systrom:  I just didn’t know what it was.

Sarah Lacy:  Turned out no one did.

Kevin Systrom:  It launched, and it had all this funding. Well, that’s the thing is, I started using it, I was like, “I still don’t know what this is.”

It’s not that they were bad. I think they were just pushing the limits of what people understood as an app and they had custom UI and it was complicated.

I think that’s part of what they will say didn’t work about the first version was they were pushing the limits. Frankly, more power to them, because often those are the startups that end up doing really well.

But yeah, I think, in our history, look at, there was Path, there was Treehouse, there were all these photo sharing startups at the beginning. Picplz was one of them. Right?

All these photo sharing startups that people talked about and we were one of the little guys at the time, and we were fighting for attention. We didn’t have celebrity co‑founders.

I guess at the time, we had angel investors from Andreessen Horowitz and people like that. I guess Jack Dorsey came in in our series A.

Sarah Lacy:  But come on, you guys were a total darling. I mean, you were the ones written about every day on the blogs, not those other guys.

Kevin Systrom:  Eventually. Eventually.

Sarah Lacy:  Not at the beginning?

Kevin Systrom:  Not at the beginning. At the beginning, it was like, war of Picplz versus Instagram. I remember thinking, “But we have users.”

Actually, most people don’t realize that we were doing a completely different startup before we did Instagram. We were doing something called Burbn, B‑U‑R‑B‑N.

It was actually a check‑in app. I remember we had maybe a hundred users using the service. It was a check‑in app. a lot like Foursquare meets Gowalla meets everything else. That’s part of why we stopped working on it. It was like, “OK, why are we going to work on this thing if there are a bunch of other solutions?”

It’s funny, because at the time, we were dead‑set on killing Foursquare, killing Gowalla, and all this stuff.

Sarah Lacy:  Let’s jump back a minute. Did you want to come out here to Stanford, because of Silicon Valley, or unrelated?

Kevin Systrom:  Remember, at the time, it was post‑bubble. I don’t think people were really believing that there was going to be a next wave at all. To me, it was way more about the weather. No, I mean, right? These are serious decisions college students make. They’re like, “Where do I go? Where the palm trees are.”

By the way, to anyone watching online that thinks Stanford is warm, you get up there fall, and you’ve got three sweaters on. You’re like, “Why are there palm trees, then?”

Sarah Lacy:  The palm trees lie.

Kevin Systrom:  They do. I thought I was out for the weather, and actually, honestly, it was the academics. I think that I wanted to be a computer science major. Some of the most interesting companies had come out of Stanford ‑‑ Google, Yahoo, you name it.

I was like, “I want to go there.” I remember taking my first intro to CS class, called CS106X, for extreme, or whatever. It was the hard one. It was a very intense class. I remember doing that class, and I think I got a C+ in it or something. For a kid that did well in high school, and then got to Stanford, to get a C+ in a class of the major you really want to do, it was totally and utterly demotivating.

It was like, “I guess I’m not meant to be a computer scientist. I guess I’m never going to do this in life. What do I do? Maybe I’ll become an art major.”

I kid you not. Art history was something I was thinking of doing. Actually, art history was a big influence on Instagram, but I’ll get to that. I took that class, and I remember thinking to myself, “There’s no way I’m going to be a computer scientist.”

I remember trying out to be, I think, it’s like a course assistant, where you basically help the next year. I was very kindly told I probably shouldn’t go to the next round of interviews. It was like, “We love you. You’re great, but, um…Here’s the door.”

It’s funny, actually, because a couple of our current employees were in that class with me. I know that some of the most interesting entrepreneurs that have done stuff in the Valley have all been in that class. I was the one guy who didn’t do well in the class.

[So I] decided I wasn’t going to be a computer science major, and then decided banking was my future, and that I wanted to be…

Sarah Lacy:  Banking?

Kevin Systrom:  Yeah.

Sarah Lacy:  Have you met yourself?

Kevin Systrom:  I was like, “Finance is going to be awesome. I’m going to study finance and spreadsheets.” I spent the next three years basically doing management science and engineering.

Honestly, it was one of the best tracks I could have done, because it was analytical, involved a lot of math, but also a lot of business. I think those things together are exactly what I do today. It’s what I did fundraising for Instagram.

I lost sight, I think, of what really, truly made me happy, which was coding, and building stuff, but I was never quite good enough to be an engineer.

I didn’t realize at the time you don’t need to be an engineer to start something. Instead, what I did was I was studying finance throughout college. On the side, I ended up starting things like Swap‑Swap and something called Photobox.

Back in the day ‑‑ this was pre‑Facebook photos ‑‑ people would take photos at college parties with digital cameras, and people would be sending them around afterward. This was one place to upload them, and it would basically show them all in chronological order.

It was cool. I would start these different ideas, but none of them actually ended up following through on. It was a fun way to scratch the itch. I should have listened to that itch way earlier, I think, because it’s clearly something I love doing, is building things.

No one believes you until they believe you. No one is a fan until they’re a fan. Even when you get a lot of people that are fans of you, there are still non‑believers.

Part of being an entrepreneur is being like, “Yeah, these two sides are going to exist always. Sometimes, it’s going to be weighted towards hate. Sometimes it’s going to be weighted towards love.”

At the end of the day, you need to love what you’re doing, and care about what you’re doing. That’s what gets you up in the morning. If it happens to succeed underneath you, and really, in some ways, bring on a life of its own, which happened to us, then that’s a great thing.

You can’t be swayed by people telling you one way or the other. It’s important to hear feedback. Sometimes, you just don’t need to listen to it. I think it’s important to seek it out, but I don’t think it should be the end‑all, be‑all. I have had plenty of people give me terrible advice in my life.

Sarah Lacy:  What’s the worst piece of advice you ever got?

Kevin Systrom:  “Don’t work with Facebook.”

No, seriously. I would have loved to have seen that company in the first year of its life, even as a summer intern, which is what I would have been. That would have been amazing.

I think, when someone said, “Don’t work with Facebook, because oh, this thing’s a fad, or it’s not going to be around,” I realize, looking back, the people that were telling me didn’t have context, because they weren’t a part of that generation. They weren’t using the product.

At the end of the day, you just have to follow what you love, and what gets you amped and up in the morning. As long as you make enough to put a roof over your head, and maybe some food on the table every now and then, what do you care if people are right? At least you’re enjoying yourself.

Sarah Lacy:  You’ve had this gargantuan success quickly, but it didn’t look like it at the beginning of the company. You’ve also had a fair bit of struggle, and probably tearing some hair out. Tell me about the early days of Burbn, why you guys decided to start it.

Were you just casting around for something to do? Because usually people who do that are not successful.

Kevin Systrom: The decision to do Burbn was really out of just wanting to create something by yourself that had nothing to do with what I was doing at the time, and had everything to do with casting about for trying to do something.

I didn’t have a specific idea in mind. The idea was basically a check‑in app. Who wasn’t starting a check‑in app at that time? Everyone was doing badges and check‑ins. It was probably the worst idea we could have been working on at the time.

At the same time, it was something to sink your teeth into, and realize that A, you had to raise money. B, you had to convince people to like something. C, it wasn’t clear what direction it was going in.

What I realized over that time is it’s all about finding something that resonates with people. Unless you seek out that resonance, you can find yourself just doing a startup because it’s a lifestyle. You can go to events like this, and you can go to hackathons, and literally just not have a boss for a really long time. That can be really exciting.

Sarah Lacy:  It’s the one job you can say you have, even if you’re not doing it.

Kevin Systrom:  Yeah, totally. I’m not sure I had a job, meaning I showed up to work, and I’d work on Burbn, but no one was using it.

Sarah Lacy:  It’s like a tree in a forest.

Kevin Systrom:  At the same time, that led us somewhere. What it did was it taught us very quickly, “Listen, there are a lot of check‑in apps. Why are we doing a check‑in app?”

Sarah Lacy:  Was there anything different about Burbn?

Kevin Systrom:  Totally. You could post videos, and you could post photos. One thing I still haven’t seen done very well, you could make plans. It was like a future check‑in. You could say, instead of, “I am here now,” it’s like, “I’m going to be here next week,” or, “I’m going to be at this bar at 5:00 PM on Friday.”

That was awesome. You can ask the Burbn users at the time, I swear to god…

Sarah Lacy:  All five of them.

Kevin Systrom:  No, there were like 80 of us. Honestly, when we were using Burbn, it became the center of our social life for those 80 people. People met my parents that way, because there was no notion of friends. There was one main feed, and people could check in. It was everyone who used the service.

It was this really interesting dynamic where we had a small group of people that actually liked it, but not enough to make it a business.

Sarah Lacy:  I think that’s really interesting, because it’s hard to know when to quit. People always say, “If there’s a core group of people who really love what you’re doing, you can keep iterating, and you can keep pushing.”

Why weren’t you seduced by that? There were 80 people who loved it. At what point do you know it is just not going to get bigger, and you need to move on?

Kevin Systrom:  I remember a saying from a previous startup that I was at: “We’re just waiting for hockey stick growth.” That just doesn’t happen in the world. It just doesn’t happen. You don’t just sit around, and out of nowhere, all of a sudden, you start growing really quickly.

Maybe it’s happened somewhere, but for everything I know, it’s always because of a fundamental change in what you’re doing. Burbn, we knew it wasn’t working when we would give it to people, and they’d just keep bouncing off. The one thing that people would continue to do on the service was post square images from either Hipstamatic, or CameraBag, or whatever filter app existed out in the world, and people loved these posts.

They got the most likes. They got the most comments. I would ignore every other post on Burbn except for the photos.

One day, Mike, my cofounder and I, sat down, and we were like, “Alright, we have to change something, because no one knows what we’re doing.”

We were like, “You know what? Let’s do what everyone’s doing on our service anyway. Let’s cut everything except for photos. Let’s build the filters in, and let’s allow for likes and comments, and see what happens.” I swear, the first day we launched it, we got 25,000 users.

Honestly, we had no idea that it was going to blow up like that. It turns out if you just follow what people are doing naturally on your service, look at the examples.

YouTube was just a dating site. Actually, has anyone done this, gone to the Wayback Machine? You know this thing online, the Internet archive? You can actually look at websites, and what they were in the past.

You go to YouTube, and initially, it was a dating site. Actually, the home page says, “I am male or female, interested in male or female.” It’s got a bunch of videos on the home page of people. It turns out that had nothing to do with their $1.6 billion exit. It was about viral videos.

PayPal was very different, too.

Sarah Lacy:  It was beaming money between PalmPilots.

Kevin Systrom:  At the core of these ideas, the core was the same. Instagram’s core was communication, and photos was part of it, but not necessarily the focus. Over time, what you do is you simply take in data about what your users are doing, and you focus on the stuff that people love the most.

The second we focused on the photos with the filters, it became a phenomenon. Look, we have over a hundred million registered users today. That’s just unheard of in two years.

It’s something that comes from following what people love.

Sarah Lacy:  Obviously, Instagram could not have been built pre‑iPhone. Did you get how transformative that was? I think the reason so many people doubted you ‑‑ probably me included ‑‑ is because we had seen things like Flickr before.

We had seen all of these photo sharing apps. They always had a core audience, and people loved them, but they didn’t turn into big businesses. They didn’t turn into big exits. I think one thing that was so different about you guys was the iPhone. Did you see that?

Kevin Systrom:  Absolutely. We launched October 6th. The iPhone 4, I think, came out a couple weeks later. We realized that there was this fundamental shift in how people we’re going to communicate based on the fact that they had a decent camera in their pocket finally.

A lot of people talk about the iPhone as, “Oh, now a phone has a great camera.” We looked at it the other way around. We were like, “Now, a good, decent camera has a network.” What can you do when a camera has a network?

You can share images instantly to anyone in the world. You can cover events instantly. You can discover places instantly. What we did was we built a product around that shift. I think that’s part of what filters did to people, was say, “Listen. Yeah, you have this great camera, but let’s make this more fun, and actually addictive.”

Sarah Lacy:  At what point did you feel like, “OK, this is it. This is going to be a big company”? Was there a certain milestone?

Kevin Systrom:  Day one.

Sarah Lacy:  Really?

Kevin Systrom:  Yeah.

Sarah Lacy:  Because you had 25,000 users?

Kevin Systrom:  I literally remember looking to my side, to my cofounder Mike, and being like, “I think this thing’s going to be big.” He’s like, “Nah.” Seriously. You can ask him. It’s not actually anything against his judgment at the time at all.

I was just the one looking at this thing saying, “I’ve never seen anything like this day one.” Frankly, I was probably guessing. I’m not sure that I can say I had any evidence, but I had never seen people fall in love with something so quickly.

I’m not going to take credit for it, and I’m not going to say that we knew exactly what we were doing. We just had all the elements all at the right time. The addition of hashtags, the addition of new filters, making filters fast, making browsing better. All the things we did just captured the people’s imagination at the beginning, and frankly, just put fuel behind it. I think that’s how we got to where we are today.

Sarah Lacy:  Why did none of the other photo apps catch up with you?

Kevin Systrom:  One of the most amazing things, I think, about Instagram was that you could take a photo on one network and share it to multiple networks at once.

That was one of the things no one else did. Everyone was really protective of their data. We were like, “You know what? In order to succeed, and bootstrap this thing, we’re going to let you share anywhere.” To this day, a quarter of our photos are shared out to Facebook or Twitter, each.

That’s a really powerful medium to say, “No, don’t worry about it. Come to this place, share out to these places. We know you don’t care about our network yet, because there aren’t enough, people, but guess what? A year down the road, a year and a half down the road, all your friends are using it.”

You’re like, “Actually, I really love the fact that there’s a network in this thing, and I can follow interesting people. It’s totally different than Twitter, and it fits a different need, and it’s totally different than Facebook, and it fits a different need.” It became this thing. I think it was all these elements lined up right in a row that helped us grow.

Sarah Lacy:  You mentioned earlier about Instagram changing the world. I don’t think that’s a commonly‑held belief.

Kevin Systrom:  It never is in any company. Look at Facebook. It’s like, “College social network. How are they going to change the world?” Now, entire governments are overthrown because of social media.

We’re still a baby social network. We have a hundred million users‑plus. That’s still relatively small compared to where we need to get. Look at the things that can happen. If a riot breaks out overseas, you can tune in instantly if we build the correct tools.

We have this map on the wall at our office if anyone comes to the office ever, and walks by where we’re sitting. It’s the world. It’s got these little colorful dots that pop up every time someone takes a photo in real time.

It is the coolest thing to look out at the world, and say at any given moment, there are like 600‑ish photos a second being taken, and it’s all in real time. It’s not photos from your vacation. It’s not that birthday party last week. It’s like, “Here’s what’s happening right this second.”

Never before has a service done that. Never before has a service allowed you to look into the world, peer into the world in real time, and frankly record the world in real time.

Sarah Lacy:  You could post photos on Twitter before. How is that substantially different?

Kevin Systrom:  You can, but it’s just not what you do on Twitter. Sure, it’s a nice add‑on, but when people look at Twitter, it’s like, “It’s my news source. It’s where I understand breaking news or breaking info.” It’s where people can tell a story.

Instagram is just fundamentally different. We actually put very little emphasis on text. We put a lot of emphasis on imagery and messages through images.

I actually don’t think we’re a photography company, period. I think a lot of people out here, if asked in a multiple choice test, they would pick photography company. At the end of the day, we’re a communications company. We’re a messaging company. It’s just the medium in which that message lives is a photo. It’s not a piece of text.

The old saying goes, “A photo is worth a thousand words.” It’s true. You can speak any language in the world, and look at any photo in the world, and know exactly what that person is telling you.

I was following a couple people in Japan, because they were taking interesting photos of food in the fish markets. Then the earthquake happened. All of a sudden, they’re driving up and down the coast, taking pictures of the damage.

That’s something you can’t explain in words. That’s something you have to see to believe. It’s something you have to see in real time to believe, too.

It was pretty moving, actually. That day, our popular page was taken over by images of support for Japan, but also people taking pictures of what was happening over there.

Everyone in the world is going to own a smartphone, and every one of these smartphones is going to have a camera. I can’t say that everyone in the world’s going to own a computer. I think that’s really powerful.

We want to be the network that takes those images that you’re going to take anyway, and broadcast them to the people that care most about them.

Sarah Lacy:  It’s interesting that you have brought up several times getting a lot bigger. You’re bigger than a lot of mobile companies who are focused now on monetization. But you still talk about being 10 times, 100 times bigger. It’s important to you to get to the size of Facebook?

Kevin Systrom:  Absolutely. I see our growth, and I understand that we still have yet to touch a lot of users in, say, China, or even Japan or Korea. There are a lot of people in the world that we don’t touch on a daily basis. That’s why I think we can get bigger.

Also, I’m not going to settle with a hundred million users. Why would you?

The other thing I wanted to say is a lot of people that sell their company are like, “Why would you care about getting bigger?”

The one thing that I want everyone to take away from this is that the Instagram team shows up every day to kick butt, and to make Instagram the most successful service the world has ever seen. No one looks at this as a cashing out, or an end. I show up to work every day trying to figure out how we can leverage Facebook to be 10 times as big.

Sarah Lacy:  I think the reason people assume it’s a cash‑out is because we have seen acquisitions before in Silicon Valley, and that’s exactly what happens.

I can speak from experience of being at a TechCrunch which was sold to AOL. The next day, intensity, gone. Breaking news, on decline. People not showing up, people not working as many hours.

You can say whatever you want ‑‑ and we certainly didn’t sell for a $1 billion ‑‑ exactly one person, Michael Arrington, got rich.

There is this certain galvanizing intensity of being a startup, and once your fate is decided, isn’t there just a psychological change that happens?

Kevin Systrom:  Is your fate decided? Maybe your fiscal fate, if you look at it that way, but then you’re in the wrong business.

I think the goal should be about creating value. Listen, everyone has to work. Well, not everyone has to work. People can retire, and do whatever they want, but you get bored really quickly. If you’re going to work and you’re going to be working with great people, why not work on amazing products, and why not change the world?

You’re right. There’s a fundamental change that happens when you’re no longer a startup, and you’re part of something bigger. I agree. Not many people know this, but I actually worked in corporate development, buying companies for Google, before doing Nextstop, and then Instagram. I saw it.

There were also people like the Android folks, who are now building the world’s largest operating system in mobile. That intensity is not gone.

The Google Maps folks, the list goes on of successful integrations, and successful, I call them, amplifications of companies within other companies.

YouTube wouldn’t be around today were it not for Google. Those bills were racking up… They wouldn’t be around. Where we would see all our cats?

Sarah Lacy:  I want to talk about your venture capital that you raised, and particularly lessons and advice that you came out of it. There was obviously a very famous brouhaha between you and Andreessen Horowitz. Do you want to tell us the story, for people who may not know?

Kevin Systrom:  I think the story’s been told in the press a lot. Basically, they had funded a company, Mixed Media Labs. They had funded us, both at a seed level. Mixed Media Labs worked on a product called Picplz. We were working on Burbn.

We pivoted, as it’s called, to Instagram. We launched. Good things happened, and then we were like, “Alright, I think we should probably raise some money to go after this idea, because it’s moving.” We talked to Andreessen Horowitz.

They were like, “Uh, kind of complicated.” We were like, “Huh?” We didn’t realize actually ‑‑ and this was very much my fault ‑‑ I didn’t realize that Mixed Media and Picplz were part of the same family. I don’t know, but I think at that time, they had already signed a term sheet for their series A.

The thing that, at the time, that rubbed me the wrong way ‑‑ and I don’t think this was Andreessen Horowitz, I think this was actually more Mixed Media Labs ‑‑ was just the positioning in the press of, like, “Forget those guys, Instagram, that you’re hearing all about right now. Picplz is where it’s at, because you know what? Andreessen Horowitz, who everyone loves, admires, respects, is decidedly not putting any money into them.”

Sarah Lacy:  “They picked us,” is how it was portrayed.

Kevin Systrom:  Yeah. I’m not sure that that was Andreessen Horowitz’s doing. I think that was much more a startup thing. Frankly, I don’t blame anyone. It’s a catty game in the startup world. You know it in the press world. People are out to win. It was a bummer, because I think we were…

Sarah Lacy:  You were pissed. You can look back now, and be like, “It was a bummer,” but you were furious. One thing I respect about you ‑‑ this is one of the first times I ever talked to you or met you, and this was one of the things that really impressed me about you ‑‑ you were so intense about this, and you were furious.

The Andreessen Horowitz people were like, “Kevin kind of lost it.” There was no pretending this was not a big deal.

Kevin Systrom:  I can’t believe that they said I lost it. I’m going to lose it again. I was furious.

Sarah Lacy:  Was it pride? Was it a sense of betrayal? What made you so mad?

Kevin Systrom:  The reason why I was furious, I don’t think it was Andreessen Horowitz folks. I literally was just furious in how it was being portrayed in the press, mostly because we had worked so hard to get to a point where finally, we broke through, and had a product that people cared about.

Now, it’s portrayed in the press as like, “Forget those guys.” I remember Robert Scoble was one of our first users. He wrote this post like, “Is our love for Instagram misplaced?” I remember being like, “What? We’ve worked so hard to get here.”

You know what it did? It made us work harder at proving ourselves.

As anyone in the Valley will tell you who’s been through anything like that, whether it’s people writing negative articles about you, or not getting the funding you want, and or not getting admitted to the college you want, whatever, if you believe in yourself, it just makes you work harder. That’s what we did.

Sarah Lacy:  It’s always very motivating to be counted out.

Kevin Systrom:  Totally. In fact, that’s one of the things I think companies that succeed face. The second anyone starts thinking, “Oh, we’ve won,” you just start acting differently. I just think that that’s one of the things in Silicon Valley that companies need to work actively against.

Sarah Lacy:  Aha, but don’t you think you’ve won now that you’ve been sold for a billion dollars?

Kevin Systrom:  No, I don’t. Sure, I’m not going to be coy and say, “Selling for a certain amount of money is not awesome.” It’s great. Let’s all admit it. It’s awesome.

At the same time, it’s not what gets you up in the morning.

Sarah Lacy:  It’s interesting how much chance meetings and serendipity have played in the story. There’s always people who say, “Good, smart people are everywhere. The Internet is everywhere. Why do the bulk of these consumer web companies get started in Silicon Valley?” I think people who don’t live here underestimate that happenstance.

Kevin Systrom:  It’s weird to look back and be like, “We had brushes with Facebook. We had brushes with Twitter.” We had brushes with basically every major Internet company along the way. My friends had this running joke, like, “He missed the Facebook train. He missed the Twitter train.”

They would really lean into me on it, like, “When’s this guy going to do anything?” Now, I’m like “Ha‑ha.”

Sarah Lacy:  Turned out you didn’t miss the Facebook train. You were like the hobo running alongside the Facebook train. You finally caught on.

Was it a psychological change after selling? Going from being the CEO to you’re a project manager at Facebook?

Kevin Systrom:  But I still am essentially the CEO, right? Everyone reports to me, I still have to build the same product, I still have to wake up in the morning and worry about all the competitors we have, and all the problems we have with either, whether it’s spam, or abuse, or whatever. Actually, the responsibilities just keep growing.

To fit into some organization where your title has changed, I don’t care about that. What I care way more about is responsibility, and the level of responsibility, if anything, has increased. A lot because just the notoriety of the deal I think made a lot of people sign up for the product, try the product, and became really intense.

We went from, I think when they bought us, when they announced the acquisition we were at 30 million users. The delta was huge after the announcement. It was huge.

We were on the cover of every major newspaper, everyone was talking about their friends about it, it became advertising in and of itself. So there was this weird, reflexive value thing that went on when they announced it.

I actually should go out of my way to put project manager on my business card, because I think it’s way more humbling, and you can just be like, “Sure, I’m just a project manager.”

Sarah Lacy:  Let’s explicitly get into Facebook. I’m sure once you guys started taking off, there were people sniffing around, looking to buy you. When did this conversation start to become serious?

Kevin Systrom:  I don’t remember exact dates, but I can tell you the process of Instagram going to Facebook started when I met Mark, way back when.

Sarah Lacy:  Way before the company was started?

Kevin Systrom:  Yeah, these things are relationships. Anyone will tell you that it’s very rare that big deals get made without having prior relationships.

I think it’s always a continuous conversation, and yeah, if I were in this for the money, there were three offers two weeks after we launched. It was just not what we were in it for, it was about the right time, and it was about the right people, and it was about getting to the eventual vision faster.

There’s not an exact date that it started. I can’t remember who wrote about it, I think it was in the “Wall Street Journal” or something. There was this play by play, it was like, “And then he drove over, and then they had steak.”

Where did these details come from?

Sarah Lacy:  Is that not true?

Kevin Systrom:  Steak? No, I didn’t have steaks. It was a hamburger. There was this play by play. I’ll admit I’ve never watched “The Social Network,” and I probably should, but I think people thought that it went down like The Social Network, and Justin Timberlake was pacing in the background.

Sarah Lacy:  So, tell us what actually happened.

Kevin Systrom:  What actually happened was we had a conversation and it turned into more conversations. It’s actually kind of boring, and I hate to say it. It’s not that interesting of a process, other than do we do this, do we not do this, and for what price? You talk about things, and you talk to your board, and they talk to their board.

It was a big decision, because I think we were betting the future of a company on a deal, and saying, “Are we going to be able to get to where we want to go faster with this?”

I can say, from the stats I just said, the 27 million to 100 million users… that’s a big leap in just a few months.

Sarah Lacy:  Psychologically, what was going on in your head? You guys have the wind at your backs, and everyone’s paying attention to you, and you’re leading all of the photo apps, and doing all of the things that you’ve said you wanted to do.

It had to be a really difficult thing for you to weigh. At what point did you go from, “No, we’re not going to sell,” which you were obviously saying a couple weeks after launch when you had offers, to, “No, this is something that we need to be serious about”?

Kevin Systrom:  Any company that says they won’t sell is joking. They do it because of either consistency for employees, or whatever. They just say it, they say it, they say it. Then the next thing you see, right?

I think that, for us, it was always an option on the table, but it just wasn’t what we were concentrated on. It just wasn’t what we were thinking about. It was this noise on the side that kept coming up every now and then.

It’s like when you get married. It’s the right time, the right place, the right person. It just feels right. It’s really hard to explain it, other than it just feels right.

The good news is there haven’t been any changes to the product. Instagram is not shut down. The founders are still there. We’re still working hard.

To me, that’s what was most important. If we were going to do a deal with anyone, it was about being set up for success. I had worked in corporate development. I had seen companies get bought, and it go really sideways. I knew the elements that made this succeed.

Sarah Lacy:  From your experience at Google, were there things that you knew to insist on in the deal?

Kevin Systrom:  Insist on? I really wanted a dog on campus, and they don’t allow dogs. Mark told me I could take a dog.

Insist on? No, listen, I knew the basic terms. Deals are vanilla. You’d be surprised.

Honestly, for us, it was about just having the context of how deals are structured. Whether it’s everything from vesting schedules, to what happens for termination, and all these different things that you take into account.

What’s interesting is actually the guy who did the deal on the Facebook side used to be my boss at Google. We already had an established relationship. He knew what I knew, and I knew what he knew.

There was just a mutual respect. Never was it a tense situation, where people were arguing. It was just like, “Let’s get this done. Let’s get it done quickly, and let’s move forward.”

Sarah Lacy:  There was no twisting your arm? You knew you wanted to do it once the talks got that serious?

Kevin Systrom:  You have to understand something about me is that I’m very pragmatic. I’m not very emotional about these things. I’m like, “Put the information in front of me, analyze it, and make a decision.”

Of course, it’s gut‑wrenching, because you think about, “Well, what if they’re not telling the truth, or what if it’s taken wrong in the press? What are people going to think for selling for a billion dollars? Are you going to get all these calls of a sudden?”

There’s all this stress that comes out of it, but it’s stress. In psychology, there’s good stress, there’s bad stress, but whatever it’s called, it’s stress. I think that’s what existed, but it wasn’t like, “Do I do this? Don’t I do this?”

It was more like, “Listen, I need the information on the table, and then we can make a decision.” I was only going to go into those conversations if the future of Instagram had a clear trajectory within a company.

It wasn’t going to become some niche part of some photo sharing app, or it wasn’t going to become some niche part of social network. It was going to be an entity itself. The people sitting out here today, I don’t know if everyone uses Instagram, but the people that love Instagram love Instagram. They want it to remain that way.

Our employees love Instagram. I love Instagram. That’s what I want to make sure continues. I think the Facebook deal is just one part of making sure that Instagram is going to be around for 50 years.

Sarah Lacy:  Why does Facebook need two social networks?

Kevin Systrom:  Do you think Instagram is a social network like Facebook is a social network?

Sarah Lacy:  You described it as a social network earlier.

Kevin Systrom:  When I say, “Social network,” I think it’s a different type of social network. On Instagram, you can multiple identities. You can have an anonymous identity. On Facebook, it’s like, “This is me, and this is me once.” It’s a very different connection.

They’re a symmetrical relationship. You have friends on Facebook, and on Instagram, it’s like, “I can follow you, but you don’t have to follow me back if you don’t like my cappuccino pictures.”

Sarah Lacy:  What was the biggest mistake you made running Instagram?

Kevin Systrom:  I think not hiring people quickly enough, but it was also one of our strengths. I don’t know what we would have been, had we hired people more quickly, but just looking back, what I know now, I just would have hired people way more quickly.

I think it’s a confidence that those people are going to have the same care and detail‑orientedness for your product that you had. Looking back, I think we could have coached that.

We were just four guys in a room initially. I wish we had hired more quickly, but it’s hard to say that was a mistake, given all the success we’ve had. At the same time, who knows? Maybe we could have been three times as big.

Sarah Lacy:  Did that play in the decision to sell, that fact that you guys were just 12 people or so. Was there part of feeling of we’re going to have to do so much to build this?

Kevin Systrom:  When someone comes along and says, “I’m going to put a price tag on your company and it’s a billion dollars,” the calculus in your head is how much does it take to get to a billion dollars in fake VC valuation? And then, is someone actually going to pay that?

Then you start thinking about it and you’re like actually there are a handful of people who would actually pay for something like this, a smaller number that I would work for. If you don’t do that, then you’re going public and that’s maybe, I don’t know, the road for most companies to go public, but it’s a long time.

Even then, you have to hire out sales organizations. You have to have these channels to sell. You have to have ads in your product, etc., and at the end of the day, I think we just wanted to focus on building a really great product and the value trade I thought was really fair and like if anything, unprecedented for a company of our size.

I don’t want the legacy of Instagram to be that company that sold for a billion dollars. That would make me really sad.

I want the legacy of Instagram to be either that company that really makes a lot of money or the legacy that captured a moment in the world whether it’s that photo from Iwo Jima or Tiananmen Square or the moon landing, or whatever.

I want Instagram to capture those moments that we all remember and identify with significant parts of the history of the world.

That’s what Instagram is. We’re capturing daily life and I want that to be our legacy. I want to be able to have grandkids and say “We created that, we captured that, and let’s look back at what Grandpa was doing 50 years ago.”