Figma | How To Become a $20B Threat
The layers of innovation that built an un-crossable moat and forced Adobe to pay up
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In case you missed it, Adobe has struck a deal to buy Figma for $20,000,000,000.
There's a LOT to unpack there...
the strategic move to both take out a strong competitor AND acquire some much-needed browser-based tech
Adobe's position and reputation in the marketplace
But in this article, I want to answer perhaps the biggest question in our minds:
In a climate where tech companies are scratching a 10x multiple, how the heck did Figma sell for a 50x multiple?
In this particular instance, I believe The Road to 50x™ started the day the company was founded and it all has to do with something called "innovation stacking."
Let's dive in.
New File (⌘N)
When Dylan Field and Evan Wallace (co-founders of Figma) met in college, WebGL had just come out. It was a powerful new technology that allowed you to use your computer's GPU to render more complex graphics in the browser.
With this new technology, Dylan and Evan knew that the future of the creative industry would be in the browser and they wanted to be part of that future.
Only problem was… they didn't know what to build.
The behemoth in the world of creative tools was Adobe. They absolutely dominated every digital creative discipline. But in 2012 they were still selling software as one-off applications. Creative Cloud wouldn't get launched for another year. They were the ones to beat.
As Dylan and Evan continued to debate the merits of 3D modeling vs. photo editing vs. video, Adobe happened to shut down a product called Adobe Fireworks.
Fireworks was a graphics editor for web designers that let you rapidly create website prototypes and interfaces. With Adobe out of the race, Dylan and Evan figured they'd at least have a shot at goal. It was the opportunity they had been looking for. So they chose to run hard toward building a browser-based interface design tool.
Now, at the time, the two challenges to building a browser-based design tool were:
And as we've said, the technology had just emerged and the competition had just disappeared. Basically…
Their time was now.
Zoom Out (⌘-)
I don't think the concept of an “innovation stack” was on Dylan and Evan's minds when they started Figma. But hindsight is 20/20 right? After watching a bunch of interviews and reading a bunch of articles, it's pretty clear to me that Figma is a classic example of Innovation Stacking.
The concept of the Innovation Stack was pioneered by the co-founder of Square, Jim McKelvey.
"An Innovation Stack is a series of inventions that build a compelling value proposition."
You might be thinking that this sounds a lot like the idea of a "value chain" that’s taught in Business 101. A value chain is simply the series of steps required to bring a product from idea to reality, including everything from sourcing raw materials all the way to marketing the final product.
But Jim's idea of the innovation stack is much less structured than that. It's more akin to the concept of the "Idea Maze" by Balaji Srinivasan.
“A good idea means a bird’s eye view of the idea maze, understanding all the permutations of the idea and the branching of the decision tree, gaming things out to the end of each scenario.”
—Balaji Srinivasan, Market Research, Wireframing & Design
Rather than simply a series of steps to bring an idea to life, an Innovation Stack is a series of small innovations that branch off into a new portion of the maze, distancing yourself from your competitors one turn at a time.
An example that Jim gives is from IKEA.
Create Instance (⌥⌘K)
As summarized by Bart Krawczyk for Product Coalition
They were boycotted in Sweden, so they had to
move production overseas. But the quality of workers was lower, so they had to
create efficient factory processes. But the shipping cost was expensive, so they had to
create knocked down furniture. But the assembly process was labour-intensive, so they had to
sell it as self-assembled furniture. But assembly process was tricky, so they had to
create easy custom designs. But the demand grew really fast, so they had to
create global supply chains. But the warehouse costs grew high so they had to
keep the furniture in catalogue showrooms. But the stores got big and complex so they had to
create windings paths. But people started spending a long time in the stores, so they had to
provide food and childcare services. All of this further accelerated by
As you may have noticed from the IKEA example, unlike Balaji's Idea Maze where an entrepreneur has a bird's eye view of the maze and how it'll play out, Jim posits that innovation will naturally uncover new challenges that naturally lead to new innovations.
Each time you uncover and solve a new challenge, you add a new link to the innovation chain. The longer that chain of innovations, the harder it becomes for competitors to copy you. At some point, they can't just copy a couple pieces of your stack. To win, they'd have to copy most of your stack, all at once.
Zoom In (⌘+)
I believe this is exactly what Dylan and Evan experienced as they built Figma. Each decision was another turn in the maze, distancing themselves from competitors like Adobe who weren't nimble enough to catch up.
Having been a Figma user since the beginning, I’ve seen this play out in real time. Even if I didn’t know what was happening at the time, I got to watch the innovations layer one on top of another and experience the way it changed the company and the community they built around it.
Detach Instance (⌥⌘B)
They knew they wanted to build creative tools. But Adobe dominated all creative tools, so they had to...
build where the competition wasn't. Adobe had just shut down Adobe Fireworks, so they had to...
pursue interface design tools. But of course, Adobe fought back and launched Adobe XD in their Creative Cloud bundle so they had to...
offer a free tier. But when they built the first version of Figma, they realized browser-based design files could lead to conflicting changes so they had to...
offer a multi-player experience. But non-designers began using Figma for non-designer things, so they had to...
create Figjam for digital white boarding. But people wanted to do more things than Figma could build so they had to...
release a developer ecosystem for plugins. And naturally people wanted to share, copy and remix their files with their friends so they had to...
launch a Figma Community marketplace.
All of those decisions compounded to create an un-crossable moat. Adobe tried to catch up, even implementing multi-player mode in Adobe XD, but by then it was too late. They didn’t copy enough of Figma’s stack at one time. And that mistake cost them billions.
So… how did Figma sell for a 50x multiple?
I believe it was a combination of 3 key layers in Figma’s Innovation Stack:
Innovation #1 — Technology
Figma’s technology was browser-based from the beginning. Adobe’s is file-based. This made it impossible for Adobe to pivot and overtake Figma. They tried with Adobe XD, but the file-based format was too deeply embedded in their cross-compatible ecosystem.
—Ben Thompson, Stratechery
Innovation #2 — Community
Figma cultivated a die-hard community even from their days in stealth. Designers got excited about the product because it pushed the limits of what was possible. As more and more designers found Figma, a community began to form that Adobe couldn’t replicate even if they could clone Figma. That community had to be purchased, not persuaded.
“We really didn’t want to launch and just hear crickets from our audience. So as we continued hosting demos, I was looking for strong positive reactions — even if they weren’t quite ready to use Figma full-time in their day jobs. There started to be a series of meetings where designers would literally push Dylan out of the way during the demo so they could test Figma out themselves. That was a signal to me that designers were excited to try it, even if we hadn’t finished every single feature on our wish list.”
—Claire Butler, First Round Review
Innovation #3 — Price
Adobe’s shareholders were essentially addicted to their $8 billion of annual free cashflow. So the idea of cutting 25% of their cashflow to offer a free tier and compete with Figma directly was off the table from the start.
“Adobe has one thing they have not done which I think is the real reason they had to buy Figma. Adobe and all of their investors got very addicted to the free cash flow generation of that stock. So they refused, in Creative Cloud, to go to that free tier that Figma has. One of the most powerful things they did was basically allow people to use it for free, effectively forever. That’s a business model disruption that Adobe could not afford in the public markets.”
—Chamath Palihapitiya, All-In Podcast
These three “innovations” in Figma’s stack forced Adobe’s hand. They were backed into a corner. So they paid out the nose.
Okay, wrapping up. Innovation is a messy process. There are definitely right answers… but there’s no ONE right answer. And as you chase down your innovation stack, I hope this has sparked your curiosity and imagination. I wish you the best of luck as you look for the next turn in the maze.
Thanks for reading!
Add Comment (C)
I’m curious… what do you think about the Figma acquisition?
Did Adobe pay too much?
Was Figma foolish to accept?
Will Figma get bundled into Creative Cloud?
Let me know in the comments!
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