How Grammarly reached a $13B valuation helping you communicate

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Here’s what’s in store for you today:

• Deep dive of Grammarly, helping more than 30M people communicate more effectively.

• Interesting things around the community.

Grammarly: Reaching $13B as one of the first AI powerhouses

Written communication is ineffective. It leads to $1.2 trillion in economic loss in the USA alone.

In 2008, Max Lytvyn and Alex Shevchenko fresh off of selling their previous business realized how much of a problem ineffective communication was. And so along with Dmytro Lider, they set out to build a solution that helps solve it.

And Grammarly was born.

What started as a spelling and grammar checker, is now a fully-fledged communication enhancement product - helping with tone, structure, research, clarity, and ultimately, effectiveness. Serving over 30M users every day.

This is the story of how Grammarly went from Zero to One. 🚀

Business model: How Grammarly makes money

Grammarly’s business model has evolved over the years.

Initially, Grammarly was a premium-only tool. Students and universities had to pay ~$90/y upfront to get any of the features.

They were also focused more on selling to the universities themselves rather than individual customers, as they still had relationships from their previous business - MyDropBox, a plagiarism checker they scaled to 800+ universities and ~2M students.

Grammarly was profitable pretty much from Day 1 of launching. Partly due to their extensive network, but mainly due to them engaging with this network before launch on how to build a solution fit for them (but more on this later).

Around 2012, so four years after its launch, Grammarly expanded its focus beyond students, academia, and professional writers.

And in 2015 Grammarly introduced their Freemium model, something that although common now, was not super popular back then.

Today, Grammarly has three non-enterprise plans today:

1. Free: Basic Grammarly features to create mistake-free writing.

2. Premium ($12/m): More advanced features to help make your writing clearer. 

3. Business ($15/m): Introduces team features to help communication at work.

Then Grammarly also has an enterprise offering for bigger teams and companies (150+ seats) wanting to use the tool with additional security and support features.

Grammarly is quite unique in that it started with enterprise sales at Universities. Used that entry to build a better product and improve their messaging so that they could enter the B2C (Consumer) market. And now that they’ve scaled this, they are re-focusing on enterprises. But now with hundreds to thousands of employees at each company already using Grammarly.

Grammarly’s Growth

Grammarly’s growth numbers have been kept quite private. Intentionally so.

Grammarly wanted to avoid being noticed as a serious competitor by tech giants like Google and Microsoft, so that they could remain the industry leader for more effective communication.

But we do know some things.

The idea for Grammarly stems from the co-founders’ previous plagiarism detection business, MyDropBox, when most of their customers asked them why people plagiarize. They didn’t have the answer. But enough people asked that they got curious and looked.

One of the biggest reasons they found was that it is incredibly difficult, and often intimidating, for people to effectively put their thoughts into writing.

They ended up selling MyDropBox, but this learning stayed with them.

And so a few years later, Grammarly was formed.

But critically different to MyDropBox. They were now addressing an issue from a fundamental direction - they were making it easier for people to write something of their own.

Oh, and they decided to bootstrap it. Which they did for 9 years!

They spent a few months, and ~$1M in development, constantly speaking to potential customers (both the universities and students) to understand what they wanted and needed.

Because of this, they launched to a waiting customer base and were profitable pretty much straight away. And have been since.

In 2010, they reached 150k students as users, and by 2011, this number had reached 300k students - with 250+ universities as customers.

Using these numbers with the ~$90/y subscription fee, Grammarly were probably making somewhere around $20M - $30M per year. Just two years after launch.

From 2008 to 2013, we know that Grammarly doubled in key metrics every year - i.e., doubled their users, revenue, and team members. And so by the end of 2013, was probably making between $60M - $120M per year.

Side note: I just want to say, this was one of the trickiest deep dives to do because there was very little legitimate information on Grammarly’s growth. So these revenues are estimates based on information I’ve put together from multiple sources and can’t say I’m 100% sure I’m accurate. But I’m very confident.

Around this time, Grammarly went all-in on their consumer business and then in 2015 switched to a freemium business model. Which took the company to a new level over the next decade.

By the start of 2018, they had 7M+ Daily Active Users (DAUs), and over 10M total downloads.

And by the end of the year, Grammarly had increased this to over 10M DAUs and 30M total users, with ~200 employees.

As of today, this number has boomed!

Grammarly has over 30M Daily Active Users. This is incredible. 30M people use Grammarly daily - their total number of users is probably around 60M if I had to guess (but this could be wildly off).

What’s even more impressive is that they did this bootstrapped for the first 9 years. First raising in 2017 - $110M at over a $1B valuation.

Since then, they have raised two more rounds, a $90M round in 2019 and then a $200M round at the end of 2021. Which gave them a $13B valuation.

Putting it as the 10th most valuable US startup according to a CB Insights report.

Key Success Factors (KSFs)

There have been plenty of reasons for Grammarly’s rocketship growth. Too many to count. But here are three that stood out to me, particularly in their beginning stages and their switch to a consumer focus.

⛔ 1. Focused on a smaller entry point: Everybody writes. ~1.5B people write in English every day. Grammarly has a huge potential market, with a bunch of different segments - each with different needs. Grammarly started by focusing on one subset of customers: students and academia, in order to test, improve, and set the foundation for the future of Grammarly.

🪜 2. Phased-in their vision: Grammarly started with a vision to be much more than a grammar checker. But they knew in 2008 that this was not technically feasible, nor would it be easy to understand for people. So to tackle this problem they split their development into parts that could each stand on their own. The first being spelling and grammar.

🤝 3. Met users where they were at: After Grammarly had validated their product with students, they looked to grow their consumer base. The problem was that a more diverse target audience meant more places people were writing and more reasons for writing. Grammarly realized that to continue their wide growth, they needed to meet people where they were writing to remove any friction. So they introduced their browser plugins to transform any online textbox into somewhere Grammarly would work.

⛔ 1. Focused on a smaller entry point

When they launched, the founders of Grammarly had an idea in mind for what the company could eventually be, enabling more effective communication for everyone.

In particular for the shift from a manufacturing economy to a knowledge economy.

But their TAM (total addressable market) was just too wide and varied. Studies have shown that the negative effects of communication (miscommunications, misunderstood tone, etc.) lead to over $1.2T (yes Trillion) of economic loss per year. In the US alone. And the problem is just getting worse.

This figure shows how ineffective communication is a truly widespread issue. It affects everyone.

But Grammarly couldn’t tackle this enormous challenge from day one. They needed to find a wedge that they could use to leverage and grow from.

So they picked the market they believed was the easiest to get to - the one with the strongest and most obvious pain they could solve intuitively.

Students and academic researchers.

They have high-stakes and easy-to-understand consequences for correct and consistent spelling and grammar.

Students' marks depend on their spelling and grammar. And they understand this clearly.

Researchers need their grammar, spelling, and consistency to be almost flawless to be able to publish papers.

Papers they spend years writing.

The consequences are substantial for academics and their criteria for success with spelling and grammar were super well defined. Grammarly understood this given their experience with universities from the MyDropBox days.

It also helped that they had plenty of universities they could reach back out to and sell to - which they did.

Within 2 years Grammarly had 300k+ students and researchers registered as users at over 250 universities (who were ultimately their customers).

Alongside this growth, Grammarly started experimenting with the consumer market, and quickly attracted another key segment: Professional writers (journalists and authors).

But their diversity in users didn’t stop here. Consultants, salespeople, government officials, and more started using the product.

Grammarly knew they had successfully managed to expand from their first core users and went all in on the consumer market, who now use Grammarly for all sorts of professional and personal uses, even including dating profiles.

One reason this strategy was so successful was them understanding who Grammarly could serve effectively at the time, given its constraints in product.

An online text editor that you pasted your writing into and took 30 minutes.

Students and researchers, who took days, weeks, or even years to write something were fine to wait an extra 30 minutes. But a banker who needs to reply to an email instantly just wouldn’t have been able to wait that long.

Now this old copy-paste version of Grammarly is probably completely unfamiliar to you - what happened to the Chrome extension? Well, let’s talk about that.

🪜 2. Phased-in their vision

Grammarly’s use cases might sound so obvious now. But back in 2009, their idea was a bit out there.

The technology wasn’t really where it needed to be. And people didn’t understand how a computer could achieve the things Grammarly can do now - they couldn’t see beyond a spell checker.

So because of these two things, Grammarly broke the problem of improving communication down into pieces which they phased in:

1. Spelling and Grammar 

2. Clarity

3. Style and Tone

4. Effectiveness

They knew that the easiest thing for people to understand was spelling and grammar.

They also knew that the capabilities of technology were capped at the time. They were years off where they needed to be technology-wise for anything more than spelling and grammar.

But they wanted to be the first one to take on the technology, so instead of waiting until they could build the “perfect” product, they started with what they could, given the resources they had.

Spelling and Grammar were things that computers could predictably and accurately correct.

Grammarly was actually one of the very first startups to successfully use AI as a core enabler of their product. Very cool.

But importantly, in breaking their vision down into pieces, Grammarly made sure that each piece was solving its own tangible problem - i.e., it could stand as a business on its own.

Think about the early example of academia.

A spelling and grammar checker solved its own tangible problem. Students and researchers didn’t need it to do more to be useful.

Grammarly today is so much more than this simple spell checker. It’s moved far along its mission of improving effective communication, with even more to come with the boom of generative AI.

🤝 3. Met users where they were at

A key inflection point for Grammarly was the introduction of their Chrome extension.

After they switched their focus to the consumer market, Grammarly still had quite a high level of friction.

You had to copy your writing. Go to their website. Paste your writing. Make the adjustments. Copy it again. And then paste it back.

All pretty simple, but a lot of steps. Especially for quick communication, such as email.

To address this, Grammarly introduced a Microsoft Plugin. This made a big difference as millions of businesses use Microsoft - it’s the most common suite of work software in the world.

So now sending emails on Outlook and writing your next memo could become a lot more effective with Grammarly. They had started to meet their users where they were at.

But this was just scratching the surface.

Their introduction of web browser plugins, beginning with Chrome, turned Grammarly into an easy-to-use every day staple for millions of users.

Their browser plugins gave users a consistent experience. Every text box, the same.

Grammarly could be in places Words and Docs couldn’t - like your next job application (I won’t let your boss know don’t worry).

And it still worked in Word and Docs.

Users have loved this consistent experience.

But most of all, users have loved not having to change their habits or places of work.

In just a few clicks you can install Grammarly and you won’t even notice it’s there.

Until you need it. Perfectly and subtly integrated into all your writing.

It makes its users' lives better, without them having to change anything.

Actions you can take to replicate Grammarly’s success

Speak to your ICP (Ideal Customer Profile) before launch 📢

I’ve done over 10 of these deep dives now, and this has popped up in most of them: Speaking to your ICPs before launching.

There’s a few reasons this works so well:

1. Takes the pressure of sales off

Sales can often be stressful. There’s a lot of pressure to sell a new product.

I’m not here to argue whether this is right or wrong, or to give a solution on how to deal with it, for the sake of this, I just want to acknowledge that it happens.

You have no/few customers and you need money.

By speaking to your ICP before launching, you remove this pressure.

You have nothing to sell them (at least not yet).

You just want to ask them some questions, validate your idea, and see how you can make it a better fit to solve their problems.

It becomes a conversation rather than a sales call. This is a lot easier for most people.

Especially those new to sales.

2. Builds a pipeline of hot leads

By speaking to people from your ICP, you’re making them aware of you and your product.

You’re showing you care enough to try and solve their problem.

This builds trust.

As well as creating a group of people you know have the problem you’re solving for. And who know you’re building to solve it.

So when you do decide to launch, you have a qualified pool of people who need your product, that you can reach back out to, and say you’ve finished building a solution for their exact problem.

3. Refine your product and its messaging for launch

Another benefit of speaking to your target audience before launching is that it can be super useful in shaping the development of your product and refining your messaging.

You can learn what features your customers truly need, what are nice to-haves, and what aren’t so relevant.

But more than this, it helps you learn how to market to people similar to them. How do they speak about their problems, what language do they use, and where do they say the roadblocks are?

Bringing your ICP along the launch to MVP can be super useful in not starting from zero.

There’s an awesome video that touches on this that I went into last week if you’re interested.

Be okay with bringing in a CEO if you need to 👨‍🏫

Max Lytvyn, Alex Shevchenko, and Dmytro Lider are truly bought into their mission. They want to improve lives by improving communication.

That is their driving force.

One thing they did early on, in 2011, to move forward along their mission was to bring in a CEO.

Someone who had experience growing a business of this scale. Someone who had a history of excelling at this.

Max is great at growth. That was his zone of genius. Alex is great at product, that is his zone of genius. And Dmytro is great at development, and you guessed it, that is his zone of genius.

And so rather than thinking because they were the founders, that they needed to be the CEO, they stepped into their zones of genius - and hired a CEO to do the same.

Realizing you’re not the right person to be CEO of your startup is a hard process. It needs you to have no ego and a willingness to let go control of your baby.

It’s not easy.

It’s also not always the right decision. And sometimes it’s hard to know if it is.

Are you just scared to take the next step in growth or is it actually something your business needs at the stage it and you are at?

You need to be honest with yourself and your co-founders.

Remember, you want the best for your company, your team, you, and your customers.

And sometimes there’s someone better positioned to lead that growth.

That’s okay.

So if you think your and your co-founders’ zones of genius lie elsewhere. Be okay with looking to bring in a CEO.

A lot of successful companies have done this.

Don’t be afraid of paid advertising when starting 💳

There seems to be a movement nowadays of organic marketing or bust when you’re starting.

But I don’t agree with this.

Yes, I think organic marketing is great. Creating content is the best way to give value to as many people as possible. It’s also cheaper and easier to do when you’re starting.

But performance marketing still has its place. In more than one way as well.

Even, and particularly, if you’re bootstrapping.

One of the great things about performance marketing is that the feedback cycle is almost instant.

You know in a few hours if there’s a return on your money.

When you’re bootstrapping this can be super helpful. Because you need cash flow. And something this instant can literally save your business.

Yes, it is a double-edged sword in that it costs money to begin with. And it could fail. You could lose your money.

So I’m not saying do it blindly or ignore content marketing.

But using paid ads is the best way to instantly understand your marketing’s effectiveness.

Use language that doesn’t resonate with your potential customers?

You can identify this straight away and test something else.

This is the other benefit of paid ads.

Not only are they great for a quick revenue cycle. But they can be awesome for testing features, copy, and messaging quickly and super accurately.

For example, highlighting different features of your product in different ads will help you see which to prioritize in development and branding.

I’m a big believer in organic marketing.

But don’t ignore paid ads. They can set you up massively for success.

Have a great week, speak soon!

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