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Investments are an amazing resource, but they are not the end goal, — Aleksey Shevchenko, Grammarly

Few people in Ukraine know about the existence of Grammarly, the English grammar-checking service. The Ukrainian company is quite prominent abroad, however, both in the startup community and among the general public, due to the broad spectrum of its users. Two years ago, a local investor evaluated Grammarly, placing it at $100 million, but the company's user base has grown dozens of times over since then. The astounding addendum to this meteoric rise is that the business has yet to raise any external investments. AIN.UA spoke to Aleksey Shevchenko, one of the founders of the service, about the company's mission, its search for world-class talents, product culture in Ukraine and the founders attitude towards outside investments.

The target audience and the issue of grammar awareness

We’re fairly active in content-marketing and were on the front page of USA Today this year: we conducted a study on the grammar skills of Democrats and Republicans. The reason we place such an emphasis on content-marketing is the idea of raising awareness. The area that we work in and the problems that we solve are quite real and wide-spread. But people get used to basic spell-checker utilities and don’t bother going deeper. Grammar and spelling is studied in school and college, which means most of these skills are forgotten by the time the educational period is over.

Our social and business mission is to make as many people as possible aware of the problem of low-quality texts and poor grammar. We want to start a social discussion. The issue itself defines the perception of conversations in correspondence. The level of trust to the author of a poorly written email usually plummets. A single CV mistake may leave you without a job, one mistake in an essay may mean you don’t get accepted to a college. We’ve been doing content-marketing for several years now and it’s one of our main [public communication] channels.

Aleksey Shevchenko, cofounder of Grammarly. Photos by Olga Zakrevska

[email protected] is our product that deals with metrics, it measures the effects of our service on the literacy of the English-speaking world. This is the product that we sell to colleges and universities. They license the product to their students, who can use the service free of charge. When someone claims that they possess the technology to improve literacy, colleges evaluate these claims on a serious level: they study the product’s effectiveness extensively before buying. They don’t fall for cheap marketing ploys.

There are two respectable studies, conducted by scientific specialists, on how Grammarly influences literacy and the quality of writing. The Central Michigan University study has shown that the grades of students using our service are higher by 1/3 of a point (on a 5-point scale) than the grades of students that don’t use Grammarly. The Flinders University in Australia conducted a poll among its students about the effects of our service on their academic life: 84% of respondents stated that it has helped them improve their grades and gave a general surge of confidence in writing texts. This is the evidence that we quote when engaging colleges.

We have a thorough understanding of when and why people most often use Grammarly. It was initially created as a product aimed at students. It even had a different name. The first year and a half of our business development was directed specifically towards this target audience. It still constitutes a large part of our user base, approximately 25%.

Another large section of our audience is made up of specialists in specific professional areas: lawyers, consultants and other experts that deal with important documents. This is their daily routine and there is no room for mistakes there. Customers like these make up around 40 to 60% of our user base. Grammarly is also often used to verify the quality of technical/technological texts: it’s used while writing user manuals, instructions, medical texts and so on. Another category is the individuals that make a living through writing: journalists, bloggers, content creators.

We have corporate clients as well, but their percentage is relatively low. We integrate the so-called consumerised enterprise into our service. This is a distribution model that is relevant to other services like Slack (for example). When several people in the company start using our product, it spreads to the entire company. It goes something like this: a few company employees buy our product for themselves and soon realize that it’s simply necessary in their work. They spread the word among their colleagues and, sooner or later, the information reaches the procurement department. The latter goes ahead and purchases numerous licenses for the entire office. But the process always starts from regular users.

Two billion people in the world speak English. Less than half of those are native speakers. The rest are either in the process of learning English or use it professionally.

The grammar-check market

There was no fully-fledged spell-checker market before Grammarly came along. There were claims of course, some companies stated in their marketing campaigns that their product can correct any and all mistakes. But these claims never turned out to be true. This solidifies the understanding of one simple fact: the issue exists and Grammarly is the prime solution.

There were several attempts to solve the overall problem besides Grammarly itself. The contextual spell-checker, for example: it analyzes a text and corrects orthographic errors. Some services deal specifically with academic writing and the standardization of texts similar to TOEFL and GRE. This relates to essays analyzed by three parties: two humans and one automated system. There’s Microsoft, of course, which has been trying to solve the dilemma of grammar checks from the 1990s to the early 2000s. A large team was involved on their side and their task was to implement the functionality that Grammarly currently has into Word. The team was unsuccessful and eventually ceased to exist.

Competition breeds excellence. It’s great being a trailblazer that creates new paths. It’s quite possible that we will soon see some real competitors. We’re ready for this shift and embrace the challenge.

The reason that there’s no real competition so far is because the issue of text quality improvement is a complex one. It’s technologically difficult and you can’t solve it in one fell swoop. We needed a considerable amount of time to establish a world-class R&D team. It’s currently divided between Kyiv and San Francisco.

There’s also a serious interface-related problem. Microsoft wasn’t able to solve specifically the issue of the UI element. How do you communicate the intricacies of grammar checking to the users? We, on the other hand, are constantly experimenting and have already created a considerable number of innovations in this area.

The team and the search for talents

We have two main offices: one is located in Kyiv and one in San Francisco. The California office is still quite young. Our CEO moved there four years ago. In its infancy, it had only two-three employees. All the engineering drive stemmed from Ukraine in those days and this is still the case. However, the idea was to eventually depart from the development in Ukraine, front office in the U.S. model. We wanted to establish a unified corporate culture in both locations. We wanted the energy and the feeling of ownership to be present both in San Francisco and in Kyiv.

That was a difficult task simply due to physical distance, but we were still quite determined to try. We had the opportunity (which we seized) and there were no investors to tell us: You’re all going to San Francisco right away. What’s important is that we were successful in the end. Today, it doesn’t matter in which office a specific team member is located. It’s a shared vision.

Overall, I have to say that the understanding of the team’s importance came to me through iteration. Nowadays, I’m aware of the fact that if you get a venture investment in San Francisco or enter Y Combinator, you’re told: You need a team. We needed quite a bit of time to realize the importance of this factor. It’s probably the biggest challenge Grammarly faces now. We’re already operating on a global level, which means the company has correspondingly large obstacles to overcome. Consequently, the people that work with us need to be world-class specialists as well.

There’s a crazy race for acquiring talented employees in San Francisco. But it also stimulates us and constantly provides motivation. When we compare our business to other product-based companies in Ukraine or even Western Europe, there’s a feeling that we have some respectable progress and growth. But when you’re in San Francisco, you’re operating alongside true giants of the tech industry. This gives perspective and an understanding of the long path that lies ahead.

The competition for engineering talents in Ukraine is obviously less intense. Our country still has good schools and a number of universities that provide high-quality fundamental skills and knowledge. Logically, there’s quite a lot of young people with the right level of education that can become world-class engineers in time. Hungry talents that are eager to enter the global market can be found here as well. Though there’s much less of them overall, of course. People like that soon realize that the ceiling for their ambition is quite low if they continue to work in Ukrainian product companies. As soon as you reach it it’s time to leave. We’re doing everything in our power to make Grammarly into a platform where global ambitions can be reached without leaving Ukraine.

The fight for talents is an interesting learning experience in and of itself. We have about 20 engineers working in San Francisco at the moment. Some of them moved from Ukraine, some were hired in the U.S. But the core team that develops the Grammarly software is located in Ukraine.

The company employs nearly 80 full-time team members in Kyiv and 35 in San Francisco. We also have around 20-25 contractors that work a full nine-to-five but aren’t in our permanent staff. They’re mostly from the U.S.

The product culture of Ukrainian engineers

The model that we follow looks like this: after a refined selection process in Ukraine, we include the new engineers into our team and do our utmost to bring them to a new professional, technological and cultural level in the startup’s framework.

We invest a considerable amount into working with consultants and mentors in San Francisco. Do you remember the Fail Whale that constantly popped up on Twitter? The engineer that worked there in the initial team and helped with the scaling of the service made his fortune by the age of 35 but still consults with a few companies that he personally likes. We’re one of them. He’s so enthusiastic about the problems that we’re solving that he consults even our Kyiv-based engineers. They openly communicate with him, ask questions and he helps them reach new professional heights. The vice-president of Airbnb is also one of our advisers.

There aren’t many people like that available for consultations, but we do everything we can to provide our Ukrainian team with mentorship and guidance from Silicon Valley. It’s fascinating to watch how our people grow, to see their skills and mentality compared to the time when they just arrived at the company, armed with considerable technical skills and potential. It’s very rewarding to observe the progress and new heights attained by our team. The people working in our Kyiv office are already Silicon Valley-level engineers in terms of thinking and culture.

The stark difference is obvious specifically in the rhythm, the drive, the hunger, a desire to create something that will change the world. These things are in the air in San Francisco. This is why people go there, despite the sky-high prices. We’re demonstrating that this can be replicated in Kyiv.

Mentorship

It’s possible that the desire to engage high-class mentors is also a side-effect of an inferiority complex (in a positive sense) in Max (another cofounder of Grammarly) and me. We love to learn new things and are aware there are always aspects of life and business that we don’t yet know about.

Grammarly is our second business. MyDropbox was the first one, we worked on it from 2004 to 2007 and eventually sold it. It was built on a more traditional model: the development office was located in Kyiv and we operated from Toronto. Even though it was a very successful exit for us (we had no startup experience at the time), we had no idea where the sphere of our knowledge began and ended. We simply moved full steam ahead through brick walls. The result was a shift from we don’t know what exactly we don’t know to we know there’s still a lot to learn.

We realized that the brick walls on the higher levels of business were even more solid. They can’t be charged through. They can only be overcome by surrounding yourself with people that know more than you do. From the very inception of Grammarly, we had no illusions about doing everything ourselves. I’m proud to say that now I can point to any person in the company and say that he/she is smarter than I am.

Changing the business model

Approximately two years ago we moved from a premium model to a freemium one. The process took nearly an entire year, but it gave us a huge burst of energy. During our initial period, you needed an activation number to get access to a seven-day trial. This paywall was in place from the start. The user’s need for Grammarly’s functions had to be pretty high to pass that obstacle.

Only 2-3% (rarely 5%) of users buy the product in a premium model scenario. This meant that 95% of our potential customers simply left after taking their first look at Grammarly. In a freemium model, 100% of the users constitute the target audience and many of them become returning clients after using the service even once.

We never get complacent: we’re constantly experimenting with the balance between free and paid features. Our goal is to eventually move the paywall as far as possible to allow the maximum amount of functions to be free. Simultaneously, we plan to make the premium version more and more powerful for our professional users.

This approach is already showing positive results. Our Chrome extension (launched a little over a year ago) already has almost 9 million active weekly users. This makes us extremely happy since it shows that people have made Grammarly their default grammar tool.

The service has a rating of 4.66 stars out of five in the Chrome Store and nearly 13 000 reviews. This borders on a platform-level record. We also have a Slack channel where the Chrome Store and Twitter reviews are directed. It’s a stream of positive feedback that serves as a huge inspiration. After the switch to freemium, the amount of Grammarly users has grown exponentially. The product energy, the user energy empowered the team in a very obvious way.

We can’t disclose the exact figures yet, but the number of installations has reached tens of millions.

Speaking of our financial results, we regard them as a tool and not our end goal. It’s always been a question of discipline in our worldview. That’s why we’ve been able to reach this level of development without any outside investments. There are precious few companies in San Francisco that can say the same.

The shift to freemium didn’t really affect the team growth rate. It may have made it obvious though, that we need to invest more into our interface and presence. We currently have three web browser extensions (Firefox, Chrome and Safari), two desktop applications (Mac and Windows), an Office application and a web-editor which is quite customizable for the three browsers. That adds up to nine interface systems. When we worked through a premium model, we didn’t have as much users. Now, millions of people can find the bugs in our software. This motivates us to invest more into interface development and scalability.

When we talk about tens of millions of users (the point where we are today), that’s one thing. When we talk about hundreds of millions that’s quite another scale of magnitude, for which we have to prepare.

As a result of these investments, the growth rate of the team increased in the areas of front-end and platform development, since our tasks increased in complexity.

The growth of the project

Growth is a subject I can talk about endlessly. There’s a famous Paul Graham quote: «Startup equals growth». Any growth rate below 30% isn’t considered relevant by Silicon Valley standards. If a business has been around for 10 years, that’s probably normal. For a newer project, 30% is the minimum that potential employees and investors expect. We’re developing much faster than that. And Grammarly is eight years old, we’re not that young. We’ve had to wind our way through the business world to find our product and market fit. But during the last five years, we’ve been moving into the consumer segment of the internet with concrete goals as to the number of users we want to have. If one were to compare the number of active users before the launch of our freemium model to the amount we have now, the increase can be measured in the tens of thousands of percentage points.

Grammarly is a startup and this influences many aspects of what we do: our philosophy, culture and sense of urgency. Startups should grow fast. The people that come to the company now see a comfortable office and an established product. They think that we’re probably a miniature version of Microsoft or Google. But those businesses have proven everything they needed to prove and have defended their position where needed. Grammarly isn’t up in that echelon and it’s extremely important to us that everyone within the company understands that startups need to grow constantly. Every person in the office is responsible for making his or her contribution to that growth. All of this is part of the shared platform and culture that we’re creating.

Investments

When you raise money, you have to understand what you’re going to do with it. You also need an understanding of what you might lose if you take in outside financing. That’s something about which you should be very pragmatic.

Two years ago, we took second place in the Bootstrapped Startup category of The Crunchies contest. Nerdwallet, the company that took third place, raised $102 million in a year. It had a well-functioning business model and initially they didn’t really know how they would use the external investments. Later on, they understood that their business is very dependent on SEO and they needed strong investment partners that could talk to Google if any problems arose in that area. They engaged the investors as a strategic move to have a lever related to their main operating channel. At the end of the day, Nerdwallet had a clear understanding of the why and how of their investment relationship.

Up until today, we didn’t have that understanding: where can we benefit from having a strategic investment partner and what purpose would the raised money serve? What we had was a strong sense of discipline in regards to our business model and our goals.

Any sort of fundraising takes attention and energy, more so if you have an investor on your board of directors. A lot of effort goes into preparing such meetings. Venture investing is a great model and it’s a big reason that companies like Facebook and Google exist. But this model requires very specific goals and the discipline to achieve them. You also need to evaluate what you lose in the process. We’re currently so focused on our goals that we don’t allow ourselves to be distracted by anything else, including raising investment funds.

That’s not to say we have never engaged with investors in any way. We have very good relationships with many. We’re always open for communication because we understand that the situation may change in the future.

Don’t get me wrong, I’m in no way saying that you shouldn’t attract outside financing. The core of my message here is that you should always remember to focus on your business’s goals and needs (what strategic goals are you pursuing in the fundraising process?). The experience of Brad, our CEO [Brad Hoover was the partner of the General Catalyst venture fund for six years] has been invaluable in this regard, since we, as the cofounders, have never been involved in attracting external investments. Many companies that raise money don’t even know what to do with it. This sometimes leads to disastrous results when the funds are simply directed towards fancy offices and higher salaries. The money is exhausted with no positive results. Nothing good can come out of that.

Investments are an amazing resource, and you should have a way to attain them, but they aren’t the end goal.

I don’t know how venture capitalists work in Ukraine, but in Silicon Valley they’re very active: they get one-two seats on the board of directors, depending on the investment round. In essence, they are the external managers of the company. Not all investors are equally good for the business. Some of them might not even understand what the company does and may lead it into a dead end. Â Or consider this scenario: the company’s growth slows for a bit, the managers may believe it’s a temporary situation, but the investors may panic and replace the managers. It all depends on what kind of investors you engage and on what stage of your development. When you handle all the responsibility and the fate of your company is in your hands, it simplifies the decision-making process.

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