From Tiny Startup to Microsoft Acquisition with Kevin Henrikson

In This Episode

• [02:39] – Kevin Henrikson shares his origin story, acquiring his first company and later being acquired by Microsoft.
• [07:31] – Kevin advises first-time founders to adopt an advisor mindset during the acquisition process rather than trying to “fix” the acquired company in order to maximize the successful outcome for all parties involved.
• [10:50] – Kevin emphasizes the importance of speed and frequent releases in software development.
• [22:26] – Kevin reveals the applications he uses for task management and journaling.
• [26:59] – Kevin and Stephan discuss the challenges of providing constructive feedback while avoiding being too critical or aggressive.
• [33:29] – Kevin explains the evolution of Web1 to Web3, highlighting the ambiguity and excitement of Web3’s potential to change everything.
• [38:11] – Stephan and Kevin talk about the importance of decentralization and permissionless systems in protecting individual rights and preventing financial censorship.
• [43:37] – Stephan and Kevin speak about the challenges of building a web3 community without leveraging existing audiences and the importance of proper strategy and planning.
• [47:52] – Kevin predicts a shift towards digital collectibles.
• [53:51] – Stephan and Kevin include in their discussion some books that tackle the potential impact of NFTs on the future of technology.

Jump to Links and Resources

Kevin, it’s so great to have you on the show.

Likewise, thanks for having me.

We’ve known each other for a very long time. We might have met in 2010 or something like that, maybe at DK’s Think Tank.

DK’s Think Tank is in San Diego or Southern California.

Yeah, a long time ago, 13 years. 

It’s pretty cool. Each of us has had various paths over the years, so it’s cool to reconnect. I am excited to chat today.

Let’s talk about, first of all, your origin story because it’s a dream for a lot of folks to get acquired by Microsoft. That’s not how you started. What were your humble beginnings? And how did that all evolve?

I was born and raised in California in the Bay Area. I was born in Oakland. I grew up on a pig farm in central California, a really small town. I went to LA for college at UCLA. As I was growing up, I always just loved tinkering on building things.

My mom always used to joke. I’d spend a week working on a go-kart or a motorcycle, spend 10 minutes going to ride it and break it, and then spend another week fixing it. I just enjoyed breaking things, taking them apart, and sometimes getting them back together.

By the way, I love that too. I did that as a kid, teenager, and young adult. I remember scrounging a satellite system from parts I got for free, following an FAQ I found on Usenet. This was before the web—crazy stuff. Buy a car for $65 and then find an alternator to replace the broken one at a junkyard. 

Totally. I reupholstered my car, painted it, built truck beds, and did just really fun, cool projects that had that tinkerer in me. A high school auto shop teacher said, “You should be a mechanical engineer.” I was like, “What’s that?” He’s like, “Well, that’s what happens when you’re really good at math and want to build stuff.” I was like, “Okay.”

I applied for college, checked the mechanical engineering box, got into UCLA, and started down that path. At home, I had dial-up internet, the old-school modem, the connector thing that many younger folks listening probably won’t remember. I got to UCLA and plugged in ethernet for the first time, and I was like, “Whoa, this is cool.” That was when I got hooked on the Internet.

At that point, I was convinced I would play with computers more. I finished my degree as a mechanical engineer. The one thing that hit me is I talked to this guy who worked at Boeing. He’s like, “Yeah, in our career, we usually work on one, maybe two projects over a 40-year career.” He’s in a car company, maybe working on four or five. Every ten years, you put on a new platform.

I was like, “Man, this internet thing. I’ve been building little websites, and every five minutes, I’m making new creations. I type something, I save it, and it changes.” For me, that difference of, well, I don’t want to work on four things, I want to work on 40,000 things, that was where the Internet clicked for me.

I took what I thought was an internship. I applied off Craigslist. They sent me a full-time offer between my junior and senior years at a software company in LA. I was like, “Okay, I’ll just take it.” I worked all summer. At the end of summer, I said, “Hey, I got to go back to school.”

I’d been promoted. I was managing the web team at that point. They were like, “What do you mean you got to go back to school?” It’s like, “Well, I just was applying as an intern, and you must have been convinced and thought I was hired full-time.” I ended up doing a part-time schedule. I’d go to work three days a week and go to school two days a week because it was my senior year. I only had a couple of classes left. That was it.

That company went out of business, as they did in 1999 when many companies folded. It was a resume-processing business that didn’t work. I moved to the Bay Area, independent in 2000, and have been San Francisco-based for the last 20 years, building many email companies. Starting with carrier-class emails, so emails for big telecom providers internationally.

I co-founded Acompli with a couple of friends. After 18 months, we raised about $7 million building an email app, building what we thought was going to be a great email app for your phone for people who had two things: a Gmail account and a work account with Exchange. 

What we saw was that great apps were being built for Gmail, but people had to go to work and work on Microsoft Exchange, which was the most of the business world at that time—this was 2013, and even now, Microsoft is still in the traditional workforce outside of Silicon Valley startups and small things. Microsoft Exchange is the dominant. We were like, “What if we built a really cool app that we wanted to use that combined our personal and email accounts in a delightful way?” And that was the idea. Eighteen months later, Microsoft acquired us for $200 million. Six weeks after that, they just sent the logo file.

Amazing. Congratulations.

Thanks. They sent us the logo file and asked if we could rename the app to Outlook. We thought we were joining the team and going to get to work on the cool stuff at Microsoft. They were like, “No, we just want that app shipped as Microsoft Outlook on iPhone and Android.” 

That’s what we did, then spent about three years. On the first day, we had 3 million users, and by the time I left three years later, we had several hundred million monthly active users.

That’s quite an impressive feat. Congratulations on all that. Did you stay for those three years because you had the golden handcuffs, the earnout? Or did you stay because you just loved the project and the team at Microsoft?

It’s a cash deal. We got paid the day that we started. We had incentives to continue employment. They would give you a really good job offer. We were at a startup. We weren’t making that much money. Getting a standard offer at our level at Microsoft was a big raise, and they have stock incentives.

The thing others said that was really important is that while the three founders obviously got a very big windfall the day the deal closed, I’d worked with the same team for most of the last 10 or 15 years. It was really important for us to integrate the team deeply.

A previous acquisition I was part of was when Zimbra was acquired by Yahoo, another email company—I’ve been doing email for a while—we took a different approach. I was younger; the team was younger. We’re like, “Hey, we’re the startup guys.” My mental thing was like, “Hey, we’re here to fix all your problems. We’re the smart guys you bought,” and it’s this cocky attitude rolling into Yahoo.

I had to learn the hard way from the previous acquisitions I went through.

It ended up not working out. We ended up migrating Yahoo calendar over to our technology, but ended up into a pretty big political war with the Yahoo Mail team, so much so that when Carol Bartz joined—this is super dating me to become the CEO—she’s like, “Wait, we’ve got this business that’s running, that’s not actually integrated, why don’t we just sell that?” We sold the whole business to VMware a second time.

That experience and the organ rejection that the organization that acquired us felt, and we felt it was cool to hunker down. We would joke we were the 300, we all threw our shields up, and when the corporate overlords came at us, we’d all hunker down in our cubes and hide. It wasn’t a cool story to talk about. It’s not like our technology is used. It’s literally used by zero people. They’ve migrated off of it and those kinds of things.

When we got the acquisition with Microsoft, that was deeply in our minds. We want this to be the most successful thing. It’s something that I tell a lot of people that got acquired because they get acquired, and they’re like, “Oh, they’re hiring me because I’m so smart, and I’m going to go and change this large company.” The mindset should be, “No, they’re hiring you as a highly-paid advisor to help their larger company succeed. And that can be that people will be more successful to learn from you.”

I spent the first six months at Microsoft traveling to offices, doing almost inspirational speaker stuff, talking about startups, and being agile. What it is like to work on a 14-person team that built something arguably that the 400 or 500 people at Microsoft had not been able to build, that was working on mail at that time, and understanding, “How do we think about user-centric design? How do you think of product/market fit?” That kind of stuff.

That was a big mindset shift where I knew going in I was not there to change Microsoft. I was there just to be an advisor and help Microsoft. There will be times when, if I were trying to fix and change everything, I would get frustrated. But again, I had to learn the hard way from the previous acquisitions I went through.

How perfect was all that? It’s like a divine setup to have that organ rejection situation with Yahoo so that you could learn all those mistakes in a lower-stakes environment and then utilize all that to maximize the value for you and for your co-founders, team, and all the users around the world who use Outlook Mobile. That’s cool.

Still, today, it’s delightful to get on a plane, be in an airport, or be walking around and see somebody on their phone over their shoulder using Microsoft Outlook. I’m like, “Man, that tab row was the same way we set it eight years ago or when we were laying it out on a whiteboard. It’s pretty cool to see.”

There are still people on the team who have stayed at Microsoft, are promoted, and are running much bigger jobs because we didn’t have this organ rejection environment. We represented a more advisor-positive experience. The rest of the team acted that way, too. It was just a vastly more successful outcome.

It’s funny because we acquired several other companies at Microsoft then. There were many little mobile apps When I was in this same space. Many of them were deeply unsuccessful because it was the first time the founder sold a company. Even with me telling them, “Hey, you’re an advisor, take off your company A hat, put on your Microsoft hat, change your email address, and go all in.” I’m like, “You’re Microsoft’s biggest fanboy or fangirl.”

As a first-time founder, it’s hard to see that as the right thing. You’re like, “No, I’m so passionate about my baby. I’ve built this thing.” I’ve seen this now in a lot of my angel investing, that when you get acquired for an add-on–type technology, you have to go with this advisor-helper mindset and not with this I’m-here-to-fix-you mindset because that’s generally not what these organizations are buying you for, even if they tell you that during the deal. Like, “Oh, we don’t want to change anything; we just want to run this as a separate business.” They say that to make you feel good about the acquisition, but they want their company to grow faster and learn from you.

If they would present it that way, and the founders were prepared to receive it, to your point, nothing can replace that experience of living the hard way firsthand. But I wish I could teach that lesson to every founder out there thinking about selling or just about to sell in terms of integrating and being a good partner to your acquirer.

We didn’t have this organ rejection environment. We represented a more advisor-positive experience.

You’re doing some of that right now for founders thinking of exiting at some point and listening to this very podcast. When you were going around for those first six months evangelizing to different Microsoft Office divisions about user-centric design product/market fit, what were some of the key points and key takeaways for the audiences that you would speak to?

The biggest ones were speed and the amount of time between releases. If you think of Microsoft, which I grew up with or knew in my early days of being on the Internet, they would ship a new version every three years. Then they were proud, and they got to one year. 

When we got to Microsoft, most of the mobile apps were shipping in 4–6 weeks. We were religiously shipping every Friday as a startup. Honestly, some Fridays would have very little in them, and then we would test from Friday at 6 PM until Monday morning. We would have a team that worked over the weekend. It was remote that did testing over the weekend.

That simple thing that the train is going to run every Friday, you’re going to do a release, you’re really good at releasing. You’re never worried about, “Oh, there are many, many weeks of untested code that we’re going to have to drop on the users.” It was small bites. That mechanic and snapping to that mechanic fixes so many things. It allows you to take small incremental steps and get feedback along the way because you’re actually shipping to real users.

It also creates a really good internal environment around. You may have a very senior engineer who’s very confident in their change. They can ship large change five minutes before 6 PM on Friday. You may have a more junior engineer who may want to ship something and leave it in there for a week or two in the testing branch before they integrate it into the main branch, and they want to integrate it on Monday so they have a full week of watching that land.

Of course, people learned the hard way whether they’re on the, “I’m senior, and I can ship late,” or “I’m junior, and I can ship early.” But that notion of being able to really guide when changes come in has an incredible trickle-down effect. The quality of the code just gets way better because you’re never like, “Oh, I’ve got this really unstable thing that Microsoft traditionally would say, ‘Hey, we worked for five or six weeks, and then we spent three or four weeks stabilizing.’”

The actual time between code getting written and code getting to the users was sometimes 8, 9, or 10 weeks, even though this is their fast mobile mode. This is an app code, and “I’m like, that just doesn’t work.” In our case, we never have more than literally four or five days of unreleased code, and that small amount of unreleased code changed it. That’s, I think, the one big mechanic.

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The second one is treating support as a gift. Having a support button in the app makes it incredibly easy to talk to the team and get that feedback directly to the team. Even today, if you go into Outlook, you can go into settings, help, and literally file a ticket. It grabs all the context of what you’ve been doing. You tell it a problem, and then there’s a really good automated system that captures that feedback that’s reviewed by a team that’s essentially an engineering team.

It’s not like, “Hey, there’s a support team somewhere else.” We send all those support tickets to engineering so that they can feel when things are going wrong and get really quick feedback. 

Those two things, when people say, “Oh, it’s user-centric design, or it’s very product-friendly, they think of the marketing version of that.” What you want is for your engineers to feel the pain, feel that direct raw feedback from users, and also make it easier to give feedback.

If you just assume that that’s the support team’s problem, the support team will build scar tissue around how to protect feedback from getting to engineering, that by the time it does get to engineering, it’s late, and it’s been deeply watered down. 

For me, you want to remove all that, so if you’re getting hundreds of support tickets, we probably should look at it. Those are hundreds of users that are calling you.

I always joke there are very few things in life that you call support and don’t care about. I can be mad, and I want a refund, or I want something, but generally, you’re calling support because you want them to fix it so you can continue to use the product and keep using it and keep doing it. 

If you actually don’t care, and you’re like, “I never ever want to use this app again, you’ll just call your credit card company, do a chargeback, and then just block it.” If I didn’t want to use Uber again, I would just charge back my last Uber ride, say, “They’re terrible,” and then delete the app. 

Trying to make a better support experience.

Going through the support experience, you’re actually trying to make them better. Not a lot of people don’t think of it that way, and I think that was the other one. 

Those are the two big things: ship frequently and provide a high signal and direct connection between the people building the product and those using it.

Yeah, because your users are invested in the platform if they take the time to submit a support request.

A hundred percent.

You mentioned earlier that you would see people using your app. Eight years later, the nav functionality and stuff would still carry over year after year. That all started from just a whiteboard when you’re in startup mode. 

How did you bake in user-centric design with just you guys as developers and startup founders riffing in a conference room, service office space, or something with a whiteboard and capturing what users needed?

I think we were users. I am a heavy email user. I’m inbox zero. I’m very tight in terms of keeping my email needy. And then my other co-founders were not. We were users, but we took inspiration from Outlook itself.

Outlook on Windows was the pinnacle of email apps. It is a monster email app. When you think of using email in the corporate world, email, calendar, and contacts are really one thing. We actually fundamentally believed the way Apple, the operating system, had designed it in Android by separating this into this app thing; it was one of the rare cases in collaboration where having the three together in a single app actually made the experience better.

Outlook on Windows was the pinnacle of email apps. It is a monster email app.

I don’t think of managing my contacts as a Rolodex on my desk, and then a calendar with a paper calendar, and then my inbox as messages. That is a very old desktop way of thinking. It’s just better together.

I think what’s funny is we’ve seen that now in China with WeChat and some of these other super apps, or Grab as a great example in Southeast Asia, where they’ve really combined a lot of functionality into a single app because it actually just works better together. Maybe I want to get food, I’m on the way home from my airport, or I want to make an order on Uber Eats. You’re starting to see that.

For us, again, we were 15 years ahead of that trend. It was honestly just first principles thinking around, let’s put them together. We took inspiration from Outlook itself because that’s what people had used on the desktop for 20 years. There was an email, calendar, and contacts tab. Now, they have journals, notes, and some features that people never use. We didn’t add those. We talked about it.

That was the first move, and then we literally released it, as Reid Hoffman would say when we were quite embarrassed that the beta barely worked but started just getting feedback. People were like, “Oh, I like this, I don’t like this.” Some people were like, “Oh, I wish you could move this, or I wish you could hide the tabs when this particular view was open, and that stuff started to build into it.” It took a pretty collaborative approach to editing, but the initial move was literally just first principles thinking of, like, “Man, these things should be in one app.”

How did you know that Journal and Notes should not go into your app?

I just didn’t use them. Honestly, we didn’t use them. When we got to Microsoft, it was funny that there was this lore that less than 1% of our users use this. Now, they will be very angry if we delete it, but we used to joke it’s like the trash raft of features because Outlook from the original version was very much designed by IT.

If you think about it, Outlook was not sold to an end user. It was sold to an IT department that implemented Exchange and Outlook for their company. It wasn’t actually sold to end users. This notion of, “Wait, we’re selling a consumer product to the end user.” They’re using it or choosing us. Because in the old generation, you got to a company, and they just gave you the software to use. But now, most jobs are at companies where I have a phone. I’m self-managing whether I use this note-taking app, this journaling app, or this email app.

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We have a lot more choices. I think that notion of choice hadn’t been impressed on Microsoft as deeply in the org as it should have been when we got there. For us, it literally was like, “We don’t use journals, we don’t use notes. We don’t need that; let’s not add that.”

Even our contacts app and calendar app, when we first added it, were incredibly bare bones. We’re like, “Let’s just add the minimum thing to get this out.” We’re shipping every Friday. For literally months, we didn’t have recurring meetings, so you couldn’t edit a recurring meeting. You could only do single-instance meetings. We didn’t have a delegation.

I don’t think we ever added tasks when I was there. The number one requested feature was to add tasks. But the same thing. We didn’t really use them, and we’re like, “Oh, there are lots of other task apps for that.” But I’d have to go look now, honestly, to see if Outlook added it. I know it was something we deeply debated because, obviously, Microsoft Exchange has it in the back end.

I’m curious about what you use personally for task management, journaling, and note-taking.

I use Asana for tasks. I’ve used it for years. I just really like their mobile app. It’s really simple. It has some lightweight delegation. For journaling, I use an app called Day One. It syncs to a Mac and an iPhone.

I use that one, too. Yeah, it’s good.

For journaling, I use an app called Day One. It syncs to a Mac and an iPhone.

I can put pictures in there. I have an insane streak of 3000 days or something. I’ve been pretty consistently ripping on Day One for a long time. I migrated away from a different platform that I’m going to forget the name of, but they would literally send me an email that said, “What did you do today?” And I would just reply to the email. That was the way that I journaled for six or eight years. It was a very Web1-type product.

The company finally shut down because it wasn’t really a company. I figured out a way to export that into a CSV file and get that implemented into Day One. I switched to Day One probably two or three years ago. But now it’s great because I can throw in pictures; it’s not just text. It has this really cool calendar and location view.

It’s cool to think back. I’ll jump on a day, and it’s like, “What did you do on this day 8, 9, 10 years ago?” It’s fascinating. My daughter is one year old or something. There are cool memories that pop up when I look back.

That’s fun. 

The other thing just to add to that is to think smarter as an entrepreneur. It’s incredible, the things that I was stressed about six years ago, five years ago, four years ago, arguing over the about page of a company that completely failed or went out of business. It just was mind-blowing to me when you’re in the thick of things, how worried you get or obsessed over the details. It’s something that I try to impress on my co-founders, who are a lot younger. They’re all in their 20s today at my current company.

I’m like, “Man, we’re really passionate about this thing, but I can assure you a year from now, probably even six months from now, and definitely five years from now, we’re going to be like, ‘Why did we worry about this? It’s not actually going to be that big of a deal.’” I’m just trying to take things that really get crazy in business or products a little more lightheartedly because the market is going to move, things are going to change, companies are going to change, and people are going to change. So keep a positive view.

The number of very frustrating journal entries that are in my journal from 6, 8, and 10 years ago, when we were building Acompli or building other companies, that today I giggle about. I’m like, “Man, that’s funny. We never shipped that feature or that thing we ended up deleting from the app, and it was a terrible idea.” Being more willing to just be humble, and it’s going to work itself out surprisingly well.

Conversely, what would be the opposite of that, where you really should have taken it much more seriously but didn’t?

Relationships, both personal and business, are important.

I think relationships, both personal and business, are important. When you do a business deal with a vendor or a person, really understanding who the humans are, or even just hiring co-founders like hiring employees, while the business piece of it, the technology piece, or the product piece, those can drift differently.

Humans are very complex beings. Understanding the humans, your motivation, and what you really want out of a relationship, whether business or personal, can’t underscore how important it is just to have those critical conversations up front.

When you start to feel uncomfortable like this isn’t working, don’t harbor those bad thoughts. Just say it. Go out and be like, “Man, I’m frustrated,” or “This really rubbed me the wrong way,” or “I really think we should do something else.” 

A lot of the deep regret and anger comes from harboring these thoughts, where if you probably would have mentioned it upfront, nine times out of 10, the other person’s like, okay, cool, I’ll just do the other thing. And then the one time out of 10 they don’t, you can have that conversation and really get to an understanding when the stakes are a lot lower.

Good advice. You know the old expression that people don’t remember what you told them, but they remember how you made them feel?

Yeah. It’s understanding the feelings—how do emotions, how do feelings work, and how does that track?

Can you think and share with us an experience, an exchange that you had with somebody who, maybe at the time, wasn’t even that important to you but became very important, and you would have rather have had that advice early on about people remembering how you made them feel? 

Just curious if there’s some scenario that played out where somebody said something, you reacted, or you could have said something, and you didn’t, and it changed the course of your business, work life, career, and personal life?

I have two answers to that. One is compliments in the positive are deeply underrated. A lot of times, I definitely find myself asking for more, pushing for more. Finding the thing that’s wrong, focusing on that, and not saying, “Wow, you did the whole compliment sandwich thing of like, ‘You did an amazing job on these nine things, but here’s the one thing I want you to fix. I personally default to the one thing you fix, and I think a lot of that’s just the way I was grown up.’”

Start with a compliment. Find positives before you go into critiquing.

My dad, in particular, was hammering down on the wrong things and infrequently commented on positive things. It’s funny because I received that as a very positive, motivating thing. Man, I have one more thing to focus on, but the general human psyche is not that way. For me, remembering to start with the things you appreciate and the things that you compliment on is a deeply underused skill that I’ve had. Start with a compliment; find positives before you go into critiquing.

Personally, I can be very critical. I am very critical because I’m so focused on getting it perfect. I sweat the details; I see the details. I can zoom into the typo when everything else on the page is fine, but that typo is like fingernails on a chalkboard.

Yeah, and then what happens is you obsess over the feedback on that and forget to be like, “Wow, this is incredible work.” Thanks, you got it done. It’s good. Here are some improvements. I think that it just creates a very less positive environment to be around and, again, with no malicious intent.

The other one to me that is more of a specific scenario is there have been multiple times that doing a vendor deal or doing a sales deal, where you’re deep in a negotiation like I’ll cross the line and push too hard, where you’ll probably get more aggressive or more hardline on a specific issue, this is the whole win the battle, lose the war, where you’re like, oh, this comes back around five years from now, that person’s in another environment, and now I’m on the other side of that negotiation. Or worse, people are like, “Oh, you can’t do deals with this type of person because XYZ happened, and it prevents you from winning deals.”

It’s something that I have to work on and always remind myself of. How do you make every exchange a good and positive one, even if there’s something hard at stake, whether it’s a negotiation or critical feedback? I think that helped me a lot. I’ve had to fire or lay off hundreds of people over the last 25 years. I don’t know if I’m getting better at it, but I think I’m more understanding and emotionally able to walk through the why and help people understand.

I’ve had people now. I’d be like, “Wow, that was a cool conversation. We actually enjoyed our one-hour conversation, yet I was firing you.” Try to really give, like, “What are the positives? What didn’t work? Why didn’t it work? What’s the part about me? What are the parts of the company? What are the parts of the individual?”

I think, earlier in my career, I was nervous to be that vulnerable. I felt more like a robot like I must fire you. These are particular words that HR said and not be very human, which came off very cold, but also left deep scars on both myself and the other people involved.

You don’t have to mention the person’s name, but is there somebody you can think of that, yeah, I really wish I would have fired or laid off that person in a different way. It feels like maybe there’s some karmic debt there, unresolved emotional scar, trauma, or whatever that maybe you could reach back out to the person years later and try and heal. I’m just curious.

I think there is in some cases. In some cases, I have. I’ve reconnected. That software and Silicon Valley are pretty small worlds. In a lot of cases, I have reconnected with people where it didn’t work out.

Honestly, a year or two passes, and you’re still connected on LinkedIn. You still see them in another job. You make up and say, “Hey, I’m sorry for this or that.” I would say more of them have been just passive reconnections than actively guiding and seeking ones, where there was something that didn’t work out well.

I think it’s so important to clean up messes, even if it’s been decades. It took a long time, but I finally reached out to a key executive from my previous company that I had sold. We got into a power struggle. He insisted on coming all the way from New Zealand to the US. That’s an expensive trip on the company’s dime. We were in a real pickle, cash flow-wise, at that time. And I told him no.

I’m the founder. He insisted he was going to come anyway, whether I like it or not. Whether I authorize it or not, he’s coming anyway to this board meeting instead of virtually beaming in. I decided to just start a process to take him out of his role because of that.

Web1, for me, was the first early version of bulletin boards, dial-up, and then websites.

There are times when you can be on the surface right, but it’s not a merciful thing to do. It’s either be in judgment or be in mercy. You can’t do both at the same time. It’s a binary thing; it’s a toggle, and I was definitely in judgment mode. I left a deep scar on this person. Many, many years later, he finally reached out and apologized. Hopefully, that was taken on board with the sincerity and love that I sent it with.

I did get a reply back. Thank you for that. It was just over a LinkedIn message exchange; it wasn’t over a phone call or anything. I just think that cleaning up your messes, even if you are in the right, is really important because I believe business is a spiritual game.

Totally. It’s a long game, a very long game.

You mentioned earlier about Web1 and how you used an app that you just emailed back every day. I’d love to talk about the evolution of Web1 to Web2 to Web3 and also how that tracks the evolution of marketing over time.

When I grew up, there was no internet or no web. That was transformational. Web1, for me, was the first early version of bulletin boards, dial-up, and then websites. Web2, I was there. I presented at the first Web2 conference and demoed our app as an email app on the web. Now, I’m participating in Web3.

I found myself attracted to those transitions just because there’s a lot of ambiguity, and there are a lot of things that haven’t been figured out. To me, that’s fun. I see that as this deeply enjoyable curiosity and optimism of like, “Wow, this could change everything–type of approach.” If we think back over the last 20 years, zero to one, to two, and then now we’re in the very early innings of Web3, I’ve seen those always start with marketing in the sense that the first piece of websites were used for marketing before they turned into business tools, and then they turned into business tools.

Some of the cool fancy Web2 techniques transitioned again into marketing lead forms and things like that, and then they went into business tools. I think we saw the same thing on mobile. A lot of people built mobile apps to help market their products before the mobile app became the product.

We’ll start to see over the next five years the transition into more applications and more native use cases that become businesses themselves that aren’t specifically focused on marketing.

I think in Web3, we’re seeing a lot of brands take Web3 with that same first step of like, “Oh, this could be a cool way to reach new users, to reach a new audience, to just expose ourselves to a new brand.” I think we’ll start to see, over the next five years, that transition into more applications and more native use cases that become businesses themselves that aren’t specifically focused on marketing.

What inspired you to get into Web3? Because that’s a core focus for you now. Actually, before you talk about that, can you define for our listener what the heck Web3 is? What makes it so different, exciting, and future-focused?

I always think of Web1 as basic Internet web pages, like being on the Internet as Web1. I think of Web2 as this deeply interactive application experience. For me, that is still centralized.

Web2 is running on servers. There are big players like Google, Facebook, etc. that are running large amounts of data on the user. When I log in to Web2, I’m logging in with a Gmail account, a Facebook account, a Snap account, a Twitter account or X now.

Web3 started with the roots in crypto and blockchain. The idea here is that it’s hyper-decentralized. One of the ideas is if you read the original Bitcoin white paper, which again, from a technology point of view, got me excited years ago when I read it, I’m like, “Wow, this is pretty cool. It’s programmable money. This is a cool way to program.”

Now, extensions of that are around blockchain, where identity, users, ownership, and everything else are permissionless. I own my identity. It’s this cryptographic key, whether that’s a coin, a token, or some interaction. For those of us participating in this new internet or this new Web3, the central actors don’t have all the control. There are companies, obviously, all over the place, but a lot of the blockchain technology is hyper-decentralized.

No one owns the infrastructure for Bitcoin. People own Bitcoin and pieces of it, but it’s really supported by that audience. It’s somewhat akin to open source in the Web2 or previous technology world, where nobody owns the Apache web server or the React code. There’s a foundation around it, but a lot of contributors support it. If any of those were to fail, or many of them, the project would likely still go on.

Web3 has a lot of that ethos behind it, where the infrastructure that’s running the early versions of Bitcoin, Ethereum, and these core blockchain technologies are highly distributed, where many parts of it could fail and go on. 

For example, China banned Bitcoin mining a year or so ago. At the time, a huge percentage of Bitcoin mining was in China. What you saw was these miners getting shut down. They moved to the US, they moved to other countries, and it survived essentially a country banning it. When China banned the Internet or versions of companies, there were still companies that today do not run in China because China banned them. But Bitcoin still runs in China. If you’re in China and you have the right thing, you can actually get to it. 

Web3 started with the roots in crypto and blockchain; it’s hyper-decentralized.

I think Web3 really represents this notion of decentralization, permissionlessness, and having that control come back to the user rather than to the central corporation that runs the servers or companies.

I think the end consumer needs to care about this because censorship spreads beyond countries like China, and you have monolithic companies with the power to de-platform or demonetize your channel. You have rights, and your rights are being violated. If you’re not speaking in the right way to a particular narrative that’s the approved narrative, you can get censored. That is not possible or is a lot less likely if you’re on a decentralized platform where there is no monolithic mega-corporation in cahoots with a particular government or entity behind the scenes that’s pulling the strings.

That’s a great, great point. I would add that the speech was good. Permissionless is actually the name of the conference in Austin by Erik Voorhees. He talked about how when you use your credit card, Venmo, or Apple Pay, you’re actually getting permission from hundreds of different actors that happen very quickly—your bank, different agencies, governments, and things.

When everything is going right, you don’t even notice that you’re getting all these permissions. But then the instant something goes wrong—you have a suspected fraud or something—those permissions can get taken away, and they can lock up your money or lock up your transactions. I think there is this financial censorship that, again, for the average day of the average human, you never notice, but the potential for that to happen is larger.

To your point, if somebody decides that, hey, what you’re doing or your platform is not interesting, you could financially be disconnected from the system. The idea of Web3 is to really democratize that and say, “Hey, it’s really open, permissionless, and decentralized, where you don’t have to have agency to one particular narrative or to another.” That’s a really good point.

I’m wearing a Permissionless T-shirt from the conference last year.

Let’s go. That’s awesome.

Trustless, leaderless, bankless, permissionless, and all that.

You’re on that thing. Yup, I love it.

Web3 really represents this notion of decentralization, permissionlessness, and having that control come back to the user rather than to the central corporation that runs the servers or companies.

We’ve all drunk the Kool-Aid. That’s awesome. From a marketing perspective, something I see a lot of Web3 companies doing is making basic marketing mistakes that you don’t see on Web 2.0 websites and just on the traditional internet. 

There’s this common theme for Web3 companies and projects where they’ll have spinning things on the homepage. They’ll use opaque language that doesn’t make sense to anybody who’s not on the inside. Things moving around on the page distract the user, and there is poor button verbiage, calls to action, and headlines. 

It’s just a lot of stuff that just feels like we’re starting all over again with, maybe 15 years ago, kind of web marketing tactics that didn’t work right. And somehow, they didn’t get the memo.

I worked in collaboration with a friend of mine who owns a design agency called Studio 1. My friend is Greg Merrilees, who was also a past guest on the show, and we created a website called the Worst of Web3, worstofweb3.com. If somebody doesn’t know what your project is about, and you’re throwing around acronyms like TVL (Total Value Locked) and stuff, what does that mean?

Nobody’s going to click on something to see what it is. If it’s not clear what it is, they’re not going to click on it and load a whole new page, a modal box, or something. Anyway, it’s just a fun little project to have a look at. If you’re curious, it’s worstofweb3.com.

I like it. It’s very true. I think a lot of this stems from crypto and Web3 growing up, so internet-native but social media–native. Honestly, most of crypto and Web3 live on Twitter or in message boards. It’s funny because people talk about mass adoption and training. I think even some of our websites fall into this, where we don’t even have a timeline or roadmap. You have all that just lives in this real-time social media lore.

I do think that the real winners in this space will end up (to your point) remembering the lessons of the last 10 or 15 years of the Internet and ensuring that there is a clear migration path. That’s a marketing journey of, like, hey, how do I find a user that knows how to use the Internet, knows how to use Google, a search engine or something, and then migrates onto this Web3 platform in a more natural way? Today, I’ll admit it’s very, very disjointed for our stuff as well as a lot of the projects because you’re connecting this very decentralized thing.

To an extent, it goes a little bit against this permissionless and decentralized way. It’s like, “Why would I build a centralized website for something that’s decentralized?” I do think to grow the audience and education, we’re going to have to bridge that and get to this Web 2.5 thing before we just jump into this new, brave world of everything being disconnected, and you’re just supposed to know how to use it.

It’s a little ironic that so many Web3 projects and organizations rely on a centralized company like (say) medium.com for their blog or riffing in article format. They’re relying on Discord, which is a company. They have an app. They could have relied on Signal or Telegram. They could have built a community on Telegram instead of on Discord.

It’s not easy for somebody who’s not a Discord user to suddenly switch everything they’ve known about how to communicate on apps like WhatsApp and Telegram to now install Discord and set up an account there, and that’s the only way that you can participate in the community for that particular project. It just doesn’t seem that user-centric. It’s just that that’s what everybody else does.

That’s what all the other Web3 projects do, so we’re going to use medium.com for our blog as well. We’re going to use Discord for our community. If the users are not clued into this, then that’s just their problem. But of course, it has repercussions like search engine optimization issues if you’re relegating control over your blog to a platform like medium.com.

Now, it’s no longer part of your website. It’s not ideal in terms of leveraging the link equity or domain authority that your website has to put on medium.com a chunk of your site. Anyway, I’m just complaining, I guess.

No, it’s super valid, and I think you’re right. There is this weird bootstrapping thing of, like, how do you bootstrap a Web3 community from zero without leveraging the old stuff or having an audience on the old stuff? I think some of the ones that have done a great job are our friend Luca at Pudgy Penguins. They have a huge Instagram account and a huge Giphy account. They built really big social accounts.

They have a $10 million merchandise business selling their toys on Amazon, but then they have NFTs. They’ve really done a good job of deeply integrating and finding people where they are today. Where do they buy toys today? It’s Amazon. Where do they do cool gifts and cute little images? It’s on Instagram. They built big audiences, built things on Twitter, and then moved that back into an NFT in a more Web3 decentralized thing.

I think they’ve done a good job with it, but I think even them, and you talked about websites, they’ve got a lot of iframes and a lot of different things that aren’t going to be the most natural to a search engine, partly because as you’re building fast and using lots of vendors, that ends up happening. Our stuff is similar to DeGods and y00ts. We have websites that instantly become legacy after six months because the technology is moving so fast; we rebuild something else. And it’s a big challenge.

Honestly, our company, Dust Labs, is looking to build a lot. It’s like, hey, how do we build stuff that is more designed to be that bridge between Web2 and Web3? If you’re a brand coming to Web3, how can you build something that’s delightful and try to get some of those mistakes on your first pass?

You mentioned mistakes on the website side. I think one of the ones that I see brands make consistently and really had a bad run of this in 2021 was every brand was like, I’m just going to go mint something on the blockchain. I’m going to make an NFT. That stuff’s very hard to get rid of. It’s not like a website, or if you put up a bad website, you can delete your web page and change it later. But if you create a token or an NFT, and you put that on the blockchain, it’s permanent. It’s hard to delete it.

Multiple virtual goods are available in gaming and life today. People accrue these virtual goods that will ultimately become valuable digital collectibles. Click To Tweet

I think having a proper strategy and thinking through what you’re doing, just like you would honestly if you were designing a great website, you’d want to think through your link plan and your strategy plan upfront; it’s even more important than Web3 because of the permanents of it. You, as the creator, many times, don’t have full permission for our permissionless idea to be able to actually remove it because it’s now on the blockchain, and it’s going to be there forever. It’s just something to think about as people are looking at leveraging these new technologies to think before you act.

Are you still bullish about NFTs and that technology?

We are. I think many companies or many projects in the space have said, “Hey, we’re going to go build gaming, we’re going to go build physicals, we’re going to go build movies, anime, or IPUs.” For us, we’re, to a fault, deeply interested in digital collectibles and NFTs as a thing.

Our view is that if you think back to when I was growing up, baseball cards and collecting things, and you go through shops in Japan, and there are all these figurines, collectibles have been a thing for a long time. If you think of the audience, our kids are growing up with devices. Literally, at age one or two, they got an iPad. Mom and Dad will put them in front of it, and they say, “Learn to use devices.” They’re digitally native, essentially, from birth.

For them, we deeply believe as that audience grows, the internet-native, device-native audience they’re going to look for more and more things to collect digitally. We’ve seen this in Web2 to an extent with Roblox, CS: GO skins, and Fortnite skins. There are large digital things today, where what people don’t realize is if I buy something in CS: GO, I generally have to sell my account. Or if I buy stuff in Fortnite, I have to sell my account. I can’t resell things that I bought in Fortnite.

I think we view there’s going to be a really rapid shift at some point when a lot of these traditional virtual goods that have been sold over the last 5–10 years, people are going to want real ownership of those like I actually want to own that, I want to be able to trade it, I want to be able to sell it. Why do NFTs, a lot of times in the media or even crypto in mainstream media, get a bad rap for, oh, it’s too early, it’s a scam, there are all these negative things because that sells better press?

We believe that tons of virtual goods are happening in gaming and in life today, where people are collecting things virtually, and that is going to move to a digital collectible. NFTs are going to be one part of the technology to make that happen.

In our view and our company ethos, we want to build luxury digital collectibles, really expensive ones. Today, that manifests with this profile pic PFP project where I’m a picture in our case. It’s a DeGod, and it’s your representation online or your avatar online. We believe, just like if you look at the luxury business around handbags or something like that, people value those because they’re luxury and because they’re built by a company that understands what luxury is about. Our view is that we think it is a long game.

Five or ten years from now, there are going to be luxury digital collectibles, and we’re deeply interested in figuring out what that looks like. There are going to be a lot of low-cost ones. We think that one will be easier to figure out, just like there are lots of ways to figure out what is low cost. I can go to a swap meet or a discount shop and find lots of low-cost clothing, lots of low-cost bags or things like that. But those luxury ones take years to craft that brand and really understand what that audience wants and the experience.

Walking into a Louis Vuitton store is an experience no matter where you go in the world. They’ve spent an enormous amount of time getting that right. Our view is understanding that the audience is where we’re putting most of our attention. We believe that digital collectibles will be a space that will grow, and NFTs will be part of that, but it’s going to take a while for that transition to happen.

I remember hearing a speaker at; I don’t think it was Permissionless, I think it was DCENTRAL Miami, talking about how NFTs will be used as a virtual place to store things like all your medical records, your driver’s license, your birth certificate, marriage license, and all these important digital documents.

If you lost it in a physical form, you’re screwed. You have to go to the DMV and get a new one. If you lose your passport, it’s a big deal to go and replace it. You would get assigned an NFT upon birth. That’s all right; here’s your birth certificate, here are all your medical records from your birth, and here are the NFT that stores it. What do you think about that?

I think it’s coming. I think that technology arguably supports that today. If you just said, “Hey, I’m going to implement this.” Obviously, there’s a ton of regulation to make that possible. The US is pretty far behind in supporting and regulating this or defining what the gray areas are and what’s going to be allowed.

The central developers of Web3 don’t completely control its evolution. Although many companies utilize blockchain, much of the technology is hyper-decentralized. Click To Tweet

I think countries like Asia, where I’ve spent the last five weeks in Bangkok, Tokyo, Singapore, and Seoul, Korea, are all much farther ahead in terms of regulation. Dubai is another country that’s much farther ahead in regulation in terms of understanding what’s possible and what’s legal. There’s Busan, which is actually a blockchain city in Korea, where they’re doing all kinds of very deeply native things with the city government. Japan has a couple of trials out where they’re digitizing museum passes and things like that.

They’re starting to get into this government’s getting familiar with, “Hey, how do you use this technology to quite frankly reduce their costs, simplify things, to your point, and make it more permanent?” If you do lose something, it’s digitally able to look it up and prove that it’s me or prove that I own it.

I think ticketing is one that people have talked about for a while. I think in the US, it’s tough because Ticketmaster and Live Nation own the venues, the artists, and the presentation. They have a little bit of a monopoly to make that possible, but we’re seeing ticketing again. A concert ticket has lower stakes than a birth certificate or driver’s license in terms of that technology flushing itself out.

I definitely think that the infrastructure around that will support it, and it’s just going to be time for the government and corporations that hold those keys today to decide when they’re comfortable making that transition. But again, much like mobile and the Internet. It took time for it to evolve.

I know we’re out of time. I just want to wrap up with one last quick question. What would be a favorite book or audiobook that you would recommend for listeners that would help them to see or glimpse into the future of what’s coming and how vastly different 5, 10, 20 years from now is going to be versus what we’re seeing and experiencing today? 

I’ll go first and just offer either Neal Stephenson‘s Snow Crash or The Diamond Age as a great novel of what’s likely to come down the pike in the very near future. I’m curious to hear what your recommendation is.

Bobby Hundreds wrote a book with a cool title. It’s NFTs Are a Scam / NFTs Are the Future. It just talks about the early years. I think Bobby Hundreds is a fashion brand. They have some really cool clothing. He was really early into NFTs and was a proponent of them.

I think it walks through an interesting view of NFT as, like any early technology, it gets abused in good and bad ways. But over time, some of the formative things of what’s valuable about ownership and what’s valuable about being able to trade things, people will start to see that there’s a lot of intrinsic goodness about that. It’s going to be something that we’re going to see increase in use over the next 5–10 years.

Awesome. 

Of course, if our listener or viewer wants to learn more from you, Kevin, where can they follow you, learn from you, and maybe even work with you if they have a project they want to build out with your services company, Dust Labs?

dustlabs.com. Follow me on Twitter at @kevindegods, and then our two NFT projects are degods.com and y00ts.com.

Awesome. All right. Thank you, Kevin. Thank you, listener. We’ll catch up with you in the next episode. I’m your host, Stephan Spencer, signing off.

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Your Checklist of Actions to Take

Allow users to easily provide feedback to my development team. Draw inspiration from successful apps. Consider successful designs and user experiences.

Include a support button within my application to facilitate direct communication with users. Send support tickets directly to my engineering team for quicker resolution and feedback.

Establish a mechanism for continuous and direct feedback from users to my engineers. Ensure feedback loops are quick. Minimize the time between user input and my product adjustments.

Design intentional functionalities for timeless relevancy. Incorporate user-centric design principles in my early design stages, even in startup mode.

Release a minimal viable product, gather feedback, and implement improvements based on my user responses.

Stay ahead of trends. Anticipate future trends and accordingly prepare my product. 

Simplify my app features. Only include features that my team actively uses and finds valuable. Discard any unnecessary elements.

Embrace humility. Take a lighthearted approach to my business challenges and product development. My concerns may become trivial over time.

Strive to make every exchange positive, even in my difficult negotiations. A positive history can impact future business opportunities.

To dive deeper into the world of Web3, entrepreneurship, and innovative digital art, connect with Kevin Henrikson by visiting dustlabs.com. Follow his insights on Twitter @kevindegods, and explore the fascinating NFT projects at degods.com and y00ts.com.

About Kevin Henrikson

Kevin Henrikson is a San Francisco-based entrepreneur and angel investor known for his email, collaboration, and web3 software work. Previously, he co-founded Acompli (which became Outlook Mobile) and currently leads Dust Labs. His recent projects include DeGods and y00ts, innovative digital art collections with associated online communities.