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Shut Down
Bad Business Model
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Name of Founders:
Steward Butterfield
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Why did Glitch Shut Down?

If you go through our failed startups, you might notice a pattern. A significant portion of the interviewed founders of unsuccessful projects is currently working for new, successful ventures.

It’s not a rare occurrence for a failed startup project to succeed, directly or indirectly (due to accumulated experience, know-how, etc.). There are few better examples of this than Glitch - the failed online game that gave birth to Slack, an internal communication tool for companies recently acquired by Salesforce for the whopping $27.7 billion in cash and stock.

Glitch was a project of Steward Butterfield’s game development studio, Tiny Speck. Steward was already a prominent entrepreneur in the tech industry, as he had previously founded Flickr, one of the social web pioneers, which Yahoo bought in 2005. This allowed him to enjoy a head start for his new game dev company - he secured a $1.5 million seed round followed by an additional $10.7 million from Andreessen Horowitz and Accel Partners - the VC funds which backed Facebook and Instagram.

Tiny Speck used their newly-acquired resources to create their first product - a creative and highly non-standard game called Glitch.

Glitch Game Illustration
 “The game was absolutely preposterous. And yet, we kind of liked it.”

Glitch was an innovative project mainly because it mixed massive multiplayer online (commonly known as MMO) gameplay in a casual browser game. Glitch deliberately steered away from combat mechanics, and instead focused on collaborative gathering of resources and crafting. The main reason to perform the crafting was the ability to shape the shared online world - for example by growing plants and trees or by cooking food.

The game was leaning heavily on social interactions - players could join groups that functioned like chat rooms (and were equivalent to the guild mechanic that traditional MMORPGs like WoW have). Moreover, in the later stages of the game’s development Guides were introduced, who were players chosen by the staff to help new players learn the game in a specially-made introductory area.

The business model of Glitch was free-to-play with in-game transactions. This means that the average customer lifetime value is comparatively low (e.g. Farmville averages $1 per player), and in order to be profitable the game needs a substantial player number - the Tiny Speck team was aiming at 200,000 players. Despite finding a dedicated core audience, Glitch never managed to reach this milestone.

In 2011 the team reverted the game to beta status to work on several core improvements with the hope to attract a larger audience, but this attempt to iterate ultimately wasn’t successful.

In 2012 the decision was taken to close Glitch down. The official announcement of the closure said that Tiny Speck had failed to find a buyer for the game who was willing to keep it running, as it was expensive to run.

The announcement also noted that the company had bet heavily on Adobe’s Flash technology, which was quickly becoming dated and was very poorly adapted to mobile - the direction most online games of this nature were going. This created production problems - it was taking the development team too much time to develop and introduce fun features, which is a big problem for a product that is already launched. Every day the core gameplay loops are not fun-enough, the game is losing players. It’s very hard to find sustainable growth with bad customer retention.

Glitch was a very innovative game, but this was also a major reason it faced problems attracting an audience. Most gamers were uncertain what they were looking at and a large majority lacked the patience to explore and find out where the fun was. As a whole, the game made a poor job of onboarding new players, which is a fatal flaw for a totally innovative and unfamiliar product.

In an interview for gamedeveloper.com Butterfield said: "A lot of people were just like 'I don't know what the fuck I'm supposed to do.' Some people took 'I don't know what I'm supposed to do' as an invitation to explore and ended up loving it. Other people closed the browser. That's it."

After it became obvious the game was failing to generate meaningful player base growth, closing doors became the obvious choice from the viewpoint of the founder and the investors. Even though the shutdown decision was abrupt for employees, Tiny Speck actively tried to help their former employees find new employment opportunities and avoided any backlash.

The company was left with $6m in cash at the moment of Glitch’s closure, but instead of returning the money to investors, Butterfield convinced them to allow him to keep a small core team and to try to develop and commercialize a communication tool that the team had developed internally while working on Glitch.

Despite initially thinking “it sounds like a really horrible idea,”, Ben Horowitz (of Andreessen Horowitz) was eventually convinced and let Butterfield run with it.

The communication tool that allowed the Tiny Speck team to avoid internal email grew to become Slack (an acronym for “Searchable Log of All Communication and Knowledge”) - one of the most successful enterprise communication tools and one of the fastest-growing business software in history, having reached 60k daily active users and 15k paying customers just 10 weeks after exiting closed beta.

Arguably, one of the most valuable takeaways from the Glitch to Slack story is the importance of avoiding the sunk cost fallacy. Plenty of experienced startup founders have noticed the importance of the ability to “kill your darlings”. It’s easy to get attached to your creation and to try to fix it in perpetuity, but this is usually a losing strategy in the land of startups. Most startup projects fail - an inability to let go of bad ideas would prevent you from discovering good ones. 

Steward Butterfield could have easily decided to use the remaining $6m to try to fix Glitch. Still, the game’s outlook wasn’t great, so he made the correct decision to kill it and invest the remaining resources into a new idea.

This was not an easy decision to make:

“I remember that morning; we were going to have an all-hands…getting up in front of the whole company, and then locking eyes with this guy who just had started maybe 3 months before, and I had really pursued him. I got him to move to a new city, he had a 22-year-old daughter, he bought a new house, he was moving away from his in-laws who were helping to take care of the kids, it was just how much of a disruption to someone’s life that was…And then to say, 'Thank you for your faith in me, you no longer have a job.' So that was really, really hard.”

Yet, as the well-known stoic quote from Jerzy Gregorek states: “Hard choices, easy life. Easy choices, hard life.”

Not downsizing the company and continuing work on the game because of the expectations of the users and employees would have just delayed the inevitable end and would have made it more painful as a whole. And more importantly - it wouldn’t have left the space needed for Slack to become a reality.

Slack (and by extension Glitch) is one of the projects that we explore in our Product-Market Fit e-book, so if you want to dive deeper and see how some great companies managed to find the startup Holy Grail make sure to check it out!

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