Latest / Startup Stories with Fexingo: Conversations About Founders, Funding, and Building Companies from Zero / How Notion Built a Product Without a Category
Transcript
- Lucas: There's this assumption in venture capital that the best startups fit neatly into an existing market category. You're either a CRM company, a project management tool, a note-taking app. But every once in a while a company comes along that refuses to be boxed in. Luna: And Notion is probably the poster child for that. It's a notes app, a wiki, a database, a project manager — all in one. But it took years for investors to take it seriously. Lucas: Right. When Ivan Zhao and Simon Last founded Notion back in 2013, the pitch was basically 'build your own productivity tool.' Blocks that you could arrange into anything. But the market wasn't ready. They launched version 1.0, it flopped. Luna: Yeah, I remember reading that they nearly ran out of money. They had to let go of their early team and rebuild from scratch. Lucas: Exactly. They raised a small seed round — about two million dollars — and burned through most of it on a product that was too flexible. People didn't know what to do with it. So they went back to the drawing board, fired almost everyone, and spent a year rewriting the entire codebase. Lucas: The second version, Notion 2.0, launched in 2016. And this time they made a crucial change: instead of offering infinite flexibility with no guidance, they shipped templates. Pre-built pages for project tracking, meeting notes, OKRs. That gave users a starting point. Luna: So they reduced the cognitive load. Which is ironic, because the whole promise of Notion is that you can build anything — but you need a scaffold to get started. Lucas: Exactly. And that's when growth started to pick up. By 2018, they had about a million users. But here's the thing — they were still mostly individual power users, not teams. And enterprise software is where the money is. Luna: Which brings us to the freemium model. Notion's free tier is famously generous — unlimited pages, unlimited collaborators. How did they make that work? I think that's where the 'category creation' argument gets interesting. Lucas: It's a classic product-led growth play. Give away the product for free to individuals, let them fall in love with it, and then they bring it into their workplace. And because Notion is so sticky — once you've built your personal wiki and database in it, you don't want to leave. Lucas: The viral loop is real. One person shares a Notion page with a colleague, that colleague signs up for free, and soon the whole team is using it. And then the company pays for the team plan. By 2020, Notion had 4 million users and had raised $50 million at a $2 billion valuation. Luna: And just a year later, in 2021, they raised another round at a $10 billion valuation. That's a fivefold increase in twelve months. What changed? Lucas: A few things. First, remote work exploded during the pandemic, and Notion was perfectly positioned as a digital HQ. Second, they launched Notion API, which let developers connect it to other tools like Slack, Google Drive, and Jira. Third, they started targeting teams directly with better collaboration features. Luna: So they went from a 'productivity toolkit for individuals' to a 'collaboration platform for teams.' That's a subtle shift, but it opened up a much bigger market. Lucas: Right. And this is where the category question gets murky. Is Notion competing with Evernote? Confluence? Airtable? Monday.com? The answer is yes to all of them, but none of them capture the full picture. Notion is its own category — you could call it 'modular productivity.' Luna: But that's a tough sell to VCs who want to see your market sizing. How did Ivan Zhao pitch it? Lucas: He didn't pitch it as a category. He pitched it as a better way to work. The TAM argument was: every knowledge worker needs a tool to organize information, and that's essentially everyone. So the market is huge, even if you can't label it. Lucas: And the numbers back him up. By 2022, Notion had over 20 million users and was generating hundreds of millions in annual recurring revenue. They didn't need to fit into a box — they built their own. Luna: One thing that's interesting is that Notion was bootstrapped for the first few years. They only raised VC money after they had product-market fit. That's rare. Lucas: It's a great point. Most founders raise a big round and then try to find product-market fit. Notion did the opposite. They built a product that a small number of people loved intensely, and then scaled from there. Lucas: Another lesson: they were willing to kill their first baby. Version 1.0 was a failure, but they didn't give up. They started over. That takes a lot of humility and conviction. Luna: And now they're a $10 billion company. But I wonder — as they add more features, do they risk becoming too complex again? The original problem was too much flexibility. Lucas: It's a real tension. Every new feature adds surface area. But I think they've managed it by keeping the core block model intact. AI features, databases, automations — they all work the same way. The building blocks stay simple, even as the possibilities expand. Luna: So what's the takeaway for founders building in ambiguous spaces? Lucas: Don't worry about category. Worry about solving a real problem for a specific user. If you do that well enough, the category will define itself around you. Notion didn't set out to create a new category — they set out to make a tool people love. The rest followed. Luna: And they didn't try to be everything to everyone from day one. They started with power users, then expanded to teams, then enterprises. A very deliberate crawl walk run. Lucas: Exactly. And that's a good note to end on. Thanks for listening.