Siddhartha Ahluwalia

Hi, this is Siddhartha Ahluwalia, your host today.

I’m super excited for today’s show. The show today is based on one of my favorite hobbies that I had as a kid. I started learning chess at the age of 10.

I got my first set of chess from my grandfather. It was a chess made up of marbles. And India has been a land of chess, right?

It was invented here. Earlier the Rajas and Maharajas, the rulers used to play chess with humans and real animals. Now, thankfully, we have shifted to digital means.

And I have today with me, Erik Allebest. He’s the founder of Chess.com, the world’s largest community for chess players. They have 160 million users, above $100 million in revenue, a very unusual company, a very unusual consumer internet company because they are profitable, right?

So Erik, welcome to the podcast. So excited to have this conversation today.

Erik Allebest

Thanks so much for having me. It’s an honor to speak with you and to share with your audience. Hello to everybody in India and all around the world.

And thank you, India, for giving us chess. So I’m just really happy to be here and talk about anything you want to talk about.

Siddhartha Ahluwalia

Yeah, so I want to start by your background, your family background, right? Where you grew up.

Erik Allebest

Yeah, I grew up in California. You know, in some ways, you know, in Southern California, so not Silicon Valley. But, you know, had a very stable home and two brothers.

And my mom taught me chess when I was eight years old. And I didn’t play much after that. I didn’t play much until I was older in high school, maybe 16 or 17.

My grandfather started to play with me a little bit here and there. So that’s kind of when I started playing again.

Siddhartha Ahluwalia

And describe, right, what your parents did and over a period of time, what made you start your own businesses?

Erik Allebest

Yeah, so my mom was a great stay home mom. She spent all of her energy with us. Later in life, she went and got a master’s degree.

But, you know, didn’t ever work outside of the home after that. My dad, on the other hand, was starting a lot of different businesses. He did many different things.

Software business that was too early. Real estate, you know, content sites. He did all sorts of things, but his main job was being a lawyer.

And that has been his staple career throughout. So he was able to provide for the family through being a lawyer, plus doing some real estate and some other things. But he was always busy doing something.

My dad had 10 different things going on at any given time. Nobody works harder still. He’s in his 70s.

And I think he is still working harder than most people. And he was a big inspiration to me.

Siddhartha Ahluwalia

That’s amazing to have such parents to look up to, especially, you know, when you are dabbling into entrepreneurship. So I have been a similar story. My dad, who is no longer more, he passed away in 2018.

But I saw him build four businesses over his lifetime. One was selling second-hand automobiles. Other was, again, real estate.

One was, he had a liquor shop. All of those businesses crashed. But what I learned from him is that in entrepreneurship, nothing can kill you.

And if it can’t kill you, you can survive the next day and live it.

Erik Allebest

That’s right. Yeah, I mean, look, failure is just an opportunity to learn, you know. I’ve had my failures as well.

And, you know, sometimes it’s not as fun. But there’s always a lot to learn. So anyone who has had their business not succeed, I hope that, you know, they look at that as positive.

I tell kids who are learning chess, you never lose a game if you learn from it. So…

Siddhartha Ahluwalia

I think chess has been the game on which, if I’m not wrong, the most amount of books have been written about, like, I never felt like when I was playing chess, I’m wasting my time. I was always, you know, it seemed like it was a sharpening my mind. And at least in my home, I never got rebuked for playing chess. I got rebuked for playing cricket or video games.

Erik Allebest

That’s true. We hear that a lot. It’s great.

Siddhartha Ahluwalia

Yeah, so I want to understand at what age and how many years ago did chess become such an obsession for you that you started a business and decided that, hey, I don’t care what people think. I’ll survive by making people play chess.

Erik Allebest

Well, I got into the game as a super fan when I was 18. I saw very late compared to most people. But as you said, there are so many books written about chess.

And when I went to the bookstore and asked about, you know, to see if they had maybe one book about chess, and it turns out they had hundreds of books about chess. I was like, well, there’s something crazy going on here. I bought my first book called Weapons of Chess.

I read that and then I have bought hundreds of books since. So I was 18 when I started to be a chess player. It wasn’t until I was 21 that I decided to start working in chess.

And, you know, started like a lot of people, which is teaching chess to kids. And that was, you know, my very first business was, you know, setting up after school chess clubs. But instead of doing it in one school, did it in, you know, many schools.

And while I was going to college or university as an undergraduate, I was already running chess clubs in, you know, a dozen schools and had a lot of people, you know, other students working for me. And so I was already, you know, even at a very early age, making money and, you know, starting a business while finishing my college degree.

Siddhartha Ahluwalia

And at what time did you feel that, right? You tried multiple versions, right? You mentioned you started the chess club where you were making students learn chess.

The second is, I think you started the e-commerce store way before Amazon was selling any other thing than books. You started the e-commerce store for that. And I think the third thing was, finally, you landed on the chess.com.

Erik Allebest

Yes, the other businesses were great. I would say, you know, the teaching kids business was very stressful at times and, you know, did great as a small business. And then selling equipment online grew to a medium-sized business of a few million dollars in revenue per year, which was great and surpassed our expectations.

And I learned a lot through that about technology and customer acquisition and operating and hiring and all sorts of things. And then, you know, started chess.com in many ways to support the e-commerce business. But I sold the e-commerce business because I think through some miracle, I got into Stanford Business School.

I’m still not sure exactly how I got in, but they let me in. And so I sold the e-commerce business while I was starting chess.com. And so kind of while I was at business school at Stanford, I was working on kind of launching chess.com.

But I didn’t really think it was going to be a big thing. I looked at other jobs. I thought I would go into gaming.

I thought I would go to big tech. I didn’t know what to do. But this chess thing just kind of kept going in the background.

And then as I was graduating, I thought I’ll just give this like six months, maybe a year, grow it to get some like some kind of income so I can then go and do something else. But it was always supposed to be something small and short lived in some ways.

So never had any like idea how big chess.com would be. I mean, I remember maybe in 2017 or 2018 doing, you know, $10 million in revenue or something like that. And someone asked, like, well, how are you going to get to $20 million in revenue? And I said, we’re not. We’re just not. So I think we blew by that one. Just because, frankly, the power of the game of chess.

It’s an amazing game. And the more people who get exposed to it, they fall in love with it. It’s a positive habit, as you’ve mentioned. It can build your mind. It can be a great way to spend time. It can be a very social thing.

There’s content and community. There’s events to watch. You can be a spectator.

It’s just such a rich canvas as a fan. And then that has turned into a business. And it’s been amazing to be part of that journey.

Siddhartha Ahluwalia

And the current avatar of chess.com, which is the exact year that you started this community and sold your previous business?

Erik Allebest

You tell me. Because in 2005, we bought the domain name in 2005. But then kind of slowly worked on it through 2006. And then launched it publicly in 2007. So you tell me, what’s our birth year? I don’t know which one of those it is.

Siddhartha Ahluwalia

And 2007 is when you sold the e-commerce business. Is that right?

Erik Allebest

No, that was 2005. I sold the e-commerce business.

Siddhartha Ahluwalia

And just before COVID happened, right, almost for 15 years, did you wonder, Hey, I’m living my passion. I’m living my dream. But the total revenue of this business, as you said, is $10 million just before COVID.

So in 15 years, the amount of revenue that you are earning is the same.

Erik Allebest

Well, it was growing. At the beginning, it was small revenue. We did a few hundred thousand dollars in revenue.

Then we did a million dollars in revenue. Then we were profitable at a million dollars in revenue because we only had a small number of people working there. And then maybe get 2 million. Then we did 4. And then we did 5. And then we did 7. And then we did 10.

And then we did 12. And then we did 17. And then we did 35. And then we did 80. and then we did over a hundred. So it went fast. But our team also went fast. I mean, we’ve hired every dollar we get, you know, we’ve invested back in because it’s the content and the product that drive the business.

And so we need people to build product, to make content. And so our team has scaled at that. So every dollar we get, we put back into the business.

I mean, and it’s really shown that, but we have been profitable basically since the very beginning.

Siddhartha Ahluwalia

But you mentioned that in your e-commerce business, you were already doing X million dollars of revenue before you sold it, right?

Erik Allebest

Yeah. So it was two and a half million dollars in revenue.

Siddhartha Ahluwalia

And I believe you would have sold it for what, eight or 10 million at a 4x or 5x multiple back then?

Erik Allebest

No, because the margins are small, right? In e-commerce. So we were doing maybe $400,000 a year in profit.

I think I sold the business for a little under $2 million, something like that. It was actually less than that. It was like one and a half million, if I remember correctly.

So after I paid taxes, I had about a million dollars. And then I paid for graduate school and I had about $700,000 left. And then I took that $700,000 and invested it all into chess.com. So that’s kind of how that happened.

Siddhartha Ahluwalia

Wow. What an amazing story. And during this period of 15 years, what kept you so patient about the business?

Because you are a Stanford graduate school business MBA, and you were seeing all the people around you maybe doing a lot of stuff in Silicon Valley. The entire Silicon Valley was actually happening maybe in front of your eyes, right? Uber, Google, Facebook, now Meta.

Erik Allebest

It’s a good question. First of all, I’m not a very comparative person. Secondly, a lot of people just going from Stanford Business School, especially back in my year, yes, a few of them went on to start businesses, but a lot of people got jobs at companies.

And I just knew that wasn’t for me. Working at a company just didn’t feel like me. Whatever is wrong with my personality makes me unemployable.

So it didn’t work for me. So I wasn’t very jealous of friends who had jobs at big tech companies. That didn’t feel that way.

I’m not jealous in general. That said, Silicon Valley is alluring. And in 2009, I think, I started to get a little bit like, maybe this is my chance to build a bigger business.

Chess is going to be small. And we started a business called exercise.com. And it was all about fitness. But after about two and a half years, that business, it failed. I couldn’t stand it. I hated it because it wasn’t a product I believed in.

The fitness space can be very challenging because it’s a lot of promises. And people like playing chess, but they don’t like exercise. But what’s funny is that through doing that, before starting that business, I was not an exercising person.

But in doing that business, I became an exercising person. And I’ve actually exercised every day since 2009. And so that’s the best gift that that gave me, was a love for fitness and exercise.

But I spent money and I lost money and time on that business and went back to chess full time in 2012. And maybe in 2011, and have been with it ever since. And again, I was always making enough money to provide for my family.

I had the freedom to do what I want, to build the team, to build the kind of company I wanted to work at. And after that, I didn’t really ever feel like, oh, I missed my chance in Silicon Valley. I never felt that way.

I was very happy with a business doing $10 million a year. It felt like a huge success to me.

Siddhartha Ahluwalia

And at what point in time after 2012, you tried exercise.com. You said to the world, ** I don’t care about your measure of success for me, I’ll create my measure of my own success. And I’m happy growing the business at my pace.

Erik Allebest

What’s wrong with that? I mean, I had four beautiful, wonderful kids, a great wife. I lived in a wonderful place. Good friends. You don’t need more than that in life. I was healthy.

I was very happy with that. In many ways, I was happier than I am today because the stress of chess.com today is so much more than it was back then. So I don’t wish huge success on anyone. It can be quite a burden at times, to be totally honest.

Siddhartha Ahluwalia

Yeah. And at that point of time, now you have 600 employees in a way that you are responsible for. You have General Atlantic on your cap table. And the folks also look up to you to provide their return of their fund. So I imagine the little bit of stress. But I assume that in 2012 to 2018, it would have been almost like a stress-free period.

Erik Allebest

Comparatively, it was probably stress-free. I’m sure I had some moments there. There’s some wild stories in there.

But there were also some technology challenges, constantly scaling up the business and dealing with refactoring and rebuilding and always trying to make things better. So we did have some challenging periods. I would say 2016 and 2017 were probably some of least favorite years.

We were just so stuck rebuilding on technology. We couldn’t build a lot of new product. So that was very hard for me emotionally. Not my favorite years. I’ll say that.

Siddhartha Ahluwalia

And what are one or two of those wild stories that you can recall?

Erik Allebest

I remember the first time I got sued. That was interesting. You’re just going along, running your business.

Suddenly, someone shows up at your door with a FedEx package, an envelope. You sign for it. You open it. And it’s a lawsuit. Since then, every time a large envelope shows up at my house, I panic just a little bit. I’ve had a few.

But we got some kind of shakedown legal situation where some predatory lawyer was suing some kind of fake class action lawsuit where his brother-in-law was the plaintiff. It was such a bullshit lawsuit. Our lawyer was like, I’ll take care of this one.

We ended up settling that lawsuit in exchange for two cases of vodka. That’s what he wanted. And so, no money.

I had to ship two cases of vodka. And then he settled the lawsuit. It was clearly such a shakedown.

It was ridiculous. Anyway, I was glad that one was over. I had another lawsuit which was actually someone sued us because we had closed their account for cheating, which is a theme.

You’ve heard about the most recent one. But this one was a case of mistaken identity and character. Someone had pretended to be another person and then kind of did like an identity takeover and then admitted to cheating.

It was a very unusual situation. We ended up apologizing because someone on our team had been fooled into thinking it was the actual person, but it was actually really an identity fraud by a third person.

That was a wild case that really made me wake up and understand the depths to which people go to do crazy things. So, I don’t know. A lot of learnings in there. Those are just two of the wild stories, at least on the legal side, that I can share.

Siddhartha Ahluwalia

Yeah. Probably in the first case, if they would have put on the letter itself when they send it to you that we want 10 cases of vodka, you would have shipped them happily 20.

Erik Allebest

Exactly. Right. Exactly. Anyway. Yeah.

Siddhartha Ahluwalia

And you mentioned for the first five years of chess.com, you were fundraising and you were rejected because the target addressable market is really small. Even I had the same. What I created was a platform for paediatricians that they can store their clinical parents’ data for their kids and an app for parents that had all the healthcare data for your kids.

Imagine as a father, you would happily pay $10 a month per kid for that kind of software. And VC told us that even if at the point that we had a million kids a month on our platform, their parents accessing that data, this is not a huge time business. We were not making so much revenue, so we decided to sell it. But kudos to you. You didn’t take that rejection so personally.

Erik Allebest

Yeah. I mean, we didn’t spend five years fundraising. Let me just say that I, I, I spent kind of, sometime in 2016 talking to venture capitalists about the idea, a little, no, sorry, 2006 and then in 2007.

But by the time we launched it and, you know, we had already been, you know, so it was kind of a two-year period where I was just talking to different investors and things. And, you know, by the time we launched it and, and a little bit after, you know, I already knew what, what, what, all investors were going to say. They were just going to say, look, you know, you’re a nice guy and, you know, all blah, you know, chess is a fun game, but it’s too small.

And, you know, so I just kind of stopped and just, you know, I thought, Hey, maybe they’re right. That’s okay. Like, we’ll just, we’ll just see where it goes.

But he kept growing, just, you know, kind of slowly kept growing and enough for us to, you know, keep doing it.

Siddhartha Ahluwalia

And, and why do you think like what convinced general Atlantic to come in at 600 million valuation? I think back then your revenue was not so much like your revenue, what 20, 30 million in ARR?

Erik Allebest

No, it was more than that by the time they came in.

Siddhartha Ahluwalia

Okay. But they bought all secondary, right? You never sold, I think, except the first time primary. And you mentioned how you regretted selling it afterwards.

Erik Allebest

Yeah, that’s a, it’s a tough story. I think a lot of people are enamored or with the idea of, of raising money and how good that would feel. And, you know, don’t get me wrong there.

Many businesses need money because they don’t, they can’t get revenue quickly enough and, you know, fundraising and having a good investor can be helpful, but I think people are a little bit naive about the downsides of raising money. Ultimately your investors will want an exit and it may not be at the same time as you.

And for a business that’s as mission-driven as chess.com is, it’s, it has at times been irritating to me to, to have investors that feel like they need to exit the business. And it’s been a distraction to me sometimes. So I understand why I understand money makes the world go around. I understand that, you know, people have to have jobs, people have to eat, investors need returns, you know, there’s an economy.

But I wish the system were different. I don’t know how, maybe that’s my next project is to figure out how to have a healthier investment environment. But of all the investors that I have worked with, I think we’ve had good ones.

You know, Michael at Flashpoint Ventures now, you know, still a friend. I’ve texted with him this morning, appreciative of him. He, you know, I learned a lot from him.

You know, maybe, maybe I wish he’d still been with us, but he, you know, he handed us off to, you know, the Scheinberg family and, you know, they’ve actually been, were always wonderful and still are wonderful to work with.

You know, they, they have had a genuine interest and passion in chess and, and frankly helped us a lot because they had really helped grow the poker world and poker community. And, you know, I learned a lot from them and I think they were patient with me as I learned how to be a CEO in many ways.

And then they decided it was time to exit for them. And then, you know, I went on the road show, I guess, as you call it, a lot of Zoom meetings and met with a lot of private equity and venture firms. And, you know, most of them passed.

They still couldn’t see the vision of where chess could go. I still thought they said the same things, you know, the market isn’t big enough, et cetera, et cetera. But, you know, General Atlantic was, was a believer in us and a believer in chess.

And, you know, they, they, they wrote us a check to buy out the previous investors. And I’ve been surprisingly very happy with them. We work well together.

I have learned so much from them. I mean, yes, I went to Stanford Business School. Yes, I had done entrepreneurship before, but I had, I had, have had so much to learn in the last few years.

And, you know, it’s, it’s been really great to work with them and have everything that I’ve learned about being a CEO, about managing a growing company, about, you know, being a global company. There’s been a lot of learning. So I’ll tell you that. And it’s been, it’s been great.

Siddhartha Ahluwalia

And what are the, let’s say one or two learnings that have stuck by you and after your relationship with General Atlantic?

Erik Allebest

Yeah, you know, up until about 400 people on our team, we had a, kind of everybody was reporting to me in some ways. It was extremely flat company. You know, everybody was emailing me their weekly reports.

I was responding to, you know, two, three, 400 emails every weekend. And, you know, I was kind of directing and I was at the center of everything going on at the business, whether it was content and, you know, community, product design, compliance, legal operations. I was really, you know, I was, I was in everything.

And I remember I went to like an offsite with General Atlantic and sitting there with other CEOs of companies. And the theme was like building a great team around you. And I’m like, well, I have a great team around me, you know?

And it was like, no, no, no, no, no, not a great team that does everything you tell them to, but a great team that on their own are doing all the things. And I was like, well, that sounds scary. I don’t know that I trust anyone enough to, you know, do that.

But I, it was a very pivotal moment. And since then, I have worked much more on coaching and building the people around me to make great decisions and to be on mission and to do those things rather than me getting into the weeds of every single decision and, you know, kind of managing all the way through and compensating and controlling. So, that’s been a hard transition for me personally.

And what I’ve discovered is we have a lot of amazing people at our company. And so, I do a lot more coaching. I’ll do a lot more vision.

I do a lot more kind of support. I do, and leadership rather than management. I’m not sure I love it as much you know, it’s in some ways it’s harder and I still do management inside of product. All my product managers are like, that’s not true. He’s micromanaging everything.

Okay, yes, in product, I micromanage everything. I’m sorry, I have to. It’s what I love.

But I’ve really learned about how a company organization can grow to be self-sustaining and self-healing and larger and, you know, not just all focused around one person. That’s not healthy long-term. It might work to a certain scale, but, you know, I’m not going to be here, you know, at chess.com for the rest of my life.

And, you know, I need to build an organization that’s going to outlast me. And that comes with building culture and building great people who can then build other great people and keep the culture going.

Siddhartha Ahluwalia

That’s super interesting because I think many founders today, when they start, because of the high sense of ownership that they have in their business, they automatically try to micromanage everything and they don’t know, right? When the bubble just burst and they’re overburdened.

Erik Allebest

Look, I don’t know that that’s so bad. I mean, I think that being an entrepreneur is one thing. I think transitioning from an entrepreneur to a CEO and leader is a different job.

It’s a different thing. Some people can make that jump. Some people can’t make that jump.

Some people, you know, I held on as long as I could to the entrepreneur role because maybe I like that better in some ways. And I think that’s fine. I think, you know, companies can get to a hundred, maybe 200, maybe beyond in an entrepreneurship mindset.

I’m not sure that’s so bad. But at some point, you know, you have to jump to leadership. I also know some people who have tried to be leaders at startups.

Well, I’m sorry, but there’s not really a role for a leader in a startup. That’s, you know, you got to get your hands dirty. You got to roll up your sleeves.

You have to have vision. You have to be directive. You know, and so I think, you know, being a CEO leader at a company of under 20 people doesn’t really make sense to me. But, you know, that’s my perspective.

Siddhartha Ahluwalia

And how many direct reporters do you have today?

Erik Allebest

I don’t know. I don’t know. We don’t have a very clear org chart in some ways.

We also don’t, we operate a little bit differently because we don’t really do direct reports in the same way. It’s more like how many people do I support? So instead of reporting, it’s supporting.

It’s a bit, so I support everybody in the product organization, the head of design, multiple people inside of marketing. I support, you know, Danny as he runs the content side and Bryce as he runs kind of finance and operations. But so it’s more about supporting than reporting.

But it’s a lot, you know, I still deal with a lot of people. I message individual people on Slack and tell them I’m grateful for them. And, you know, I’m in a lot of different channels and, you know, I’m everywhere still that I can be because I think that, you know, being there and seeing what’s going on and interacting with people on your team is extremely important. I never want to lose touch with that.

Siddhartha Ahluwalia

Understood. Another area that I want to cover today is, can you share some of the key lessons that you understood in product that scaled to 160 million users and the lessons in distribution is my next question.

Erik Allebest

In product, well, it’s a big topic. It’s been easy for me in some ways because I love our product. I’m a daily user.

I play chess on the phone and, you know, all the time. So I can sense and feel what I like. And I try to have a deep sense of kind of empathy for what our users and members are going through.

So it’s easy in some ways to do that. Building a game is kind of fun and interesting. I think there’s different products that are more transactional.

I’m sure when you were building your business and platform, you know, as a parent, you might try to put yourself in their shoes, but it can be challenging to do. But I think a sense of empathy and putting yourself in their shoes is a key part of that. And then just, you know, knowing when to build an MVP versus building a fully fledged, you know, deep product and where in between, how high do you set your, you know, your goals, that can be challenging at times.

So, you know, but my biggest joy is building a product, the whole life cycle, the idea. So you start with the goal and then, OK, what are you trying to achieve? What’s your primary and secondary and tertiary objectives?

And how do we put those into some, you know, some wireframes? I kind of skip the product specs part sometimes and go straight to the wireframes, which then drive product specs for me. But I love to jump in and, you know, move boxes around and, you know, buttons and things and all that.

This should be here. And then to see it work, sit next to a designer and have them put color and shape and beauty to the whole thing. And it’s a little bit, oh, can we move this?

Can we get bigger space here? This is too loud. And so those are things that I love.

And then to work with amazing engineers who then take those and then say, hey, I’m done. Check out the latest test flight build on iOS and to get in there and touch it and push the buttons. It’s amazing.

I love all of that. And we have just a great product organization. And just the engineering team that supports all of that is just fantastic.

It’s a huge honor to work with engineers from all around the world, you know, from, you know, just every continent and just every walk of life. And to have just this, you know, kind of fun, thriving Slack ecosystem where, you know, people are in channels working and sharing and, you know, it’s really fun to see that. And I think a product organization, a product driven organization like chess.com is really needs to have that culture of users and deep belief in the product they’re building.

Siddhartha Ahluwalia

And this is about product. What are the lessons on distribution? How did you grow organically to 160 million users?

Because I remember right you telling on various forums that you have never spent on paid marketing. And whenever you have spent on paid marketing, it has almost backfired.

Erik Allebest

Yeah. I’m not sure. I’m not saying that’s the truth for all businesses.

I think some businesses probably need to do customer acquisition through paid. I think some people can succeed there. The problem, you know, the problem for chess is the average revenue per user.

The ARPU is very low. So, you know, trying to acquire customers that, you know, and then to have a small, you know, ARPU at the other side is not good math. But, you know, we’ve always done very well in search engine optimization and app store optimization. It’s been a strength of ours.

But content marketing, partnership marketing, you know, I guess some people used to call it influencer marketing or creator marketing. But working with amazing partners who have audiences, doing great collaborations with other industries, businesses and games has been tremendous for us.

But you have to have a customer acquisition strategy. It can’t just be building a great product. You know, that can be a part of it. Product virality and shareability is important. And we have that in chess. You know, people like to share their games. They like to play with friends.

So, we’ve definitely done that. But we had to do good SEO so that when somebody said, oh, I want to play chess, we were the first result and the first thing for them to find, whether on the web or in an app store.

But then along came the media side of things. And Netflix made The Queen’s Gambit, which is, first of all, an amazing show. If you haven’t watched it, I highly recommend it.

Really well produced and acted. And people fell in love with the show and that made them fall in love with chess and then made them get on Google and search for chess and then made them find us. So, it was huge for us.

So, anytime, we realized at some point that we weren’t just serving the chess audience. That was our main mission. But a second mission was that we could grow the chess audience by exposing people to the game.

So, that was a real turning point for us kind of in 2018 through 2021. And we’ve since worked hard on that, whether it’s through content, through socials. And our media strategy has been a major part.

And this year is a bit of a quiet year for media. 2023 was big. This year is going to be a little quiet.

But next year is going to be huge for chess media. There’s going to be many different shows. There’s many different movies coming out.

There are books coming out. There’s going to be so much chess in the media next year. It’s going to be crazy.

Siddhartha Ahluwalia

And at what point of time do you think that you became synonymous with the category that anybody thinks about chess? Hey, I already have the domain chess.com. And now I’m the first place that you have to come to.

Erik Allebest

Well, that’s a very interesting question. I mean, when we started chess.com, there were dozens of places you could play chess online. Yahoo Chess, Internet Chess Club, Red Hot Pond, GameNut.

Oh, I could name fly or die, you know, Chess360. I mean, there’s so many to play. OK. There’s so many different ones. Some of them are still around and have a community there.

And I think that’s great. I’m not saying that everybody needs to play on chess.com. If you want to, great.

If we earn your business and patronage, then I’m very happy about that. But we did, over time, become the largest and significantly the largest. I think today we are probably, depending on which aspect of chess you mean, but we’re definitely the place where the majority of people play and learn.

And that’s, frankly, an honor. And it’s also a burden and a stewardship because we can’t let people down. A lot of people think that, oh, well, now that you’re the largest, you won, so now you can do whatever you want.

That’s not true. I mean, social networks and businesses can thrive and crash. If you squander the trust of your community, if you don’t deliver a product, if you focus on making money above everything else, you will fail.

You can lose your position. So we’re very aware of that. And we take it very seriously and do everything we can to stay on the mission, which is to serve our community and to grow the game.

So, you know, being number one doesn’t mean that you’ve won. It just means you’re number one for now.

Siddhartha Ahluwalia

I’m very driven by mission-related businesses. As you said, your mission today is to grow probably the 160 million user base to probably a billion user base today of overall chess players.

And it’s a very positive game because the more number of chess players the world has, the more high IQ of people, the better they are at focus, strategy, humongous advantage of chess rather than just a stupid mobile game, which are made up of cartoons and which I think most kids are attracted by.

Erik Allebest

I agree with you. I would love to have a billion people playing chess, not just because it would mean chess.com is bigger, but because I think that the skills that you mentioned, you know, patience and thoughtfulness, you know, I think those are wonderful skills for people to have.

Siddhartha Ahluwalia

I think a lot of people misuse the word strategy, right? Actually, the first time any kid really uses strategy is while playing chess.

Erik Allebest

I agree with you. I think that what a strategy is, is to look at the situation in front of you and to weigh the factors and to then have an action plan based on the factors that are in front of you. And I think that a lot of people miss that and they think that a strategy is something that you take and then come into a situation with a strategy.

But that’s not a because you have to see the situation and read it. And that’s why in any given chess game, your strategy will change many different times. And I think some people think that a strategy is something that you bring from the outside and apply it to everything all the time, but that’s not really what it should be.

Every different moment, your strategy might change. So you have to keep reading the board and adjusting your strategy or changing your strategy. So that’s something that I really like about chess.

And frankly, I think that’s a personal strength of mine. If I had to say, I think that being able to change quickly and adjust to the new position on the board, I’m not saying I’m a great chess player. I’m an okay chess player.

So I’m not saying I’m the best at this in chess. But in my life, I feel like being able to see the situation and make adjustments to it quickly is something that I’m fairly good at. And I think it’s because my dad was much that way.

You know, he wasn’t a very fixed person with one idea about one thing. He was always in the growth mindset. Learn something new, change your mind. And I try to live by that today.

Siddhartha Ahluwalia

And I think another positive aspect of chess is it tries to make you objective rather than reactive.

Erik Allebest

Absolutely. Yeah. I mean, look, your opinions on the chess board don’t matter.

It’s just how it plays out. That’s all that matters. So I agree with that.

Siddhartha Ahluwalia

Now, I want to understand, you didn’t have a luxury of funding. So you couldn’t say in the initial years that, hey, I’ll grow to 100 million users and then I’ll monetize, which usually I think a lot of consumer businesses have made the mistake. You had to monetize from day one to build your team for survival.

So can you share that kind of journey, which is very different from all the consumer companies that happened?

Erik Allebest

Yeah. I mean, I think there are some other great consumer companies that have built with kind of sustainability from the outset. So I’m not saying chess.com is the only one, but we do see a lot of other stories, whether it was Facebook or Uber or DoorDash or all the other different companies where making money was never a priority.

It was always just grow, grow, grow, grow, grow. Could chess.com have gotten this big sooner if we had money? Maybe, but maybe we would have made the wrong decisions at the same time.

It’s very hard to know. So I’m not saying that the only playbook is the way we did it. There are companies that successfully focus only on growth and don’t worry about monetizing.

But I like the discipline that it gave us as a company to not overgrow, to focus on things that made an impact, to be very frugal about who we hired. I liked that. And I think that that kind of clarity, again, it’s just the pieces on the board, right?

If you have too many pieces, you might sacrifice your pieces and then end up with no pieces on the chessboard. So fundraising can sometimes make you not focus on what’s right. The other thing is that chess is more than just a product.

Chess is a community. Chess is, you know, it’s something bigger. And not having too much money kind of flooding in, I think, made us focus on what was important, which was high-quality product and content and community.

I mean, we’ve seen many businesses come into chess having raised millions of dollars and seen them flame out. And they, you know, money can’t buy you success. What can buy you success is a great product of respect for your community and a strong mission.

And then probably a fair amount of luck on top of that. But you can’t always buy success. So money, money isn’t the answer to everything.

Siddhartha Ahluwalia

And I remember that before COVID and before Queen’s Gambit, you were at 20 mill ARR and suddenly those two, three years gave you a 5X kind of a jump. What made you ready? Because many businesses, when tailwind happened, they are not ready.

But in your case, you were completely ready for that tailwind to happen.

Erik Allebest

Where did you, what makes you think we were ready for that? We were not ready for that. We survived, but I wouldn’t say that we were ready.

What I would say is that people rallied. What I’d say is our team was the right team to be ready. Amazing people working their asses off to keep things alive.

I mean, we had so much drama and the server couldn’t handle it and the database was failing and the this and the that. I mean, it was not, we were not ready. I will say that we were not ready, but we adapted.

We read the, we tactically took down all the different problems that we had. Oh, this page is too heavy. Reduce the queries, turn off this feature, limit this thing, protect this, buying hardware, scaling up in the cloud. We did it all. We did it all. And there were bumps.

I mean, there were a lot of bumps, but that’s life. You know, you lose, you learn, repeat, you lose, you learn, repeat. And that’s what we did for years and years.

And now we’re in so much better place. Our technology is better. Our infrastructure is better.

Our team is better. Our scalability is better. I think now we’re ready.

Okay. We’re now ready for the next 5X that’s coming, but we were not before, but we learned our lesson and we’re ready for the next, for the next scale. And I think it’s going to come.

We’re at 5 million daily active users. Now, you know, 40, 50 million monthly active users. I think we’re ready for 20 million daily active users and a hundred million monthly active users.

I think we’re ready for that. And I think it’s coming. So, this time around, this time around, we’re going to be ready.

We probably won’t be, but we we’re doing our best.

Siddhartha Ahluwalia

And then what, what I’ve kept your focus because I assume, right. Even sometime GA might’ve said, Hey, you have built a hundred million ARR chess business. Why don’t you expand and apply the same lessons to poker?

Or why don’t you apply the same lessons to another game and build a hundred million ARR company this time in three years?

Erik Allebest

Chess has a long way to go. Also I don’t play, I play poker casually. I don’t know the community and coming in from the outside.

Now, could we build a great product? Probably. Do we have an audience we could market to? We do. There’s a lot of legs left in chess. I’ll just say that. Every, every year we say, you know, next year we’ll start on other games. We say it every year. So I’ll just tell you next year we’ll start.

And then maybe in 2030, we’ll, we’ll actually do it. There’s a lot of other great games out there. It’s, it’s definitely something that could be possible.

I think we have the right team to do it. I think we have the right technology to do it. We have the right understanding. So you’re not wrong, it’s a possibility.

Siddhartha Ahluwalia

Yeah. And, and do you see a chess.com as a public company soon? Because you’re not just a hundred million ARR, you are profitable by, by a lot.

Erik Allebest

You know, there’s a lot of pros and cons to being a public company. The pros are investors can come and go, the community can be part owners. It’s more liquid.

You know, it also cements it as a standalone company rather than, you know, another possible thing. So there’s a lot about it that, that is appealing. The downsides are, the regulatory hurdles and compliance, the cost of, you know, millions and millions of dollars every year, just to do your audits and your things, which again, I understand why a lot of that is needed, but the compliance and fees just associated with being a public company are, are massive.

There’s also a lot of pressure and I’m not sure I want to be the CEO of a public company. There’s, there’s, there’s a lot of things I would love to do more than, you know, getting grilled in a quarterly call by a short-term investor who doesn’t like our stock price. You know, I’m not sure I would react very positively to the, that type of questioning.

I’m a long-term person and anybody who’s worried about short-term stock prices is looking at the wrong thing. So if I could snap my fingers and be public now, you know, I, I think there’s a lot of positives there, but I think we have a, we have a ways to go. I don’t think we have, the growth story figured out just yet.

I think a lot of people would look at, you know, single digit growth, like we’re going to have this year, and say, ah, well, you’re not ready to be a public company.

You know, you know, the public companies want to see, you know, they want to see 20% growth every year, or it’s a failure and I’m not ready to commit to that. I, you know, I, I think, that that’s a lot to, to promise. And, but I do, I do think we’ll be there one day.

Siddhartha Ahluwalia

And because you have been profitable from day one, you have a war chest of capital, right? And it kept on compounding. What, what do you do with that capital?

Erik Allebest

Oh, I wouldn’t call it a war chest of capital. You know, we have distributed money out to, and people who are investors, we have hired a lot of people. So I wouldn’t, I wouldn’t say we’re swimming in, in dollars.

But you know, we pay our bills and we pay our team and, and you know, we keep some money on hand. We, we take a trip every year with everybody at our company and we all go to Mexico or somewhere and, and have a, have a, an offsite. You know, and then we, yeah, we keep some, we keep some money on hand just for, for a rainy day, but, you know, we, we’ve been growing at the speed of cash. And so we don’t have just tons and tons of excess cash.

Siddhartha Ahluwalia

And do you think it’s a limitation? What do you want to take then? Extra money from GA or some other investor to grow the business from a hundred to 200 million?

Erik Allebest

I don’t, money is not our problem. We have a great technology team. We’re building our team more now to be a little bit more, funnel oriented.

I think that that’s an area we haven’t been as good at is to be better a little bit at, you know, the first-time user experience, the onboarding, the retention, those are areas that I think we can improve at. And, and we’re hiring to try to get better in those areas. We’re bringing in people who, you know, have experience from other, other fields to do that.

But we don’t need more money to do that. What we need is relationships in media. That’s why we recently did, you know, take money, a little bit of cash, and then some secondary from, WME and Endeavor, which is a large media company.

And we’re working with them to, you know, look at different ways we can grow the game. But we’re only really looking for media partnerships at this time because we believe that while we work on our core business, our top-of-funnel and new, new users are going to come through media partnerships. And luckily we have some amazing, great media partnerships coming next year.

Siddhartha Ahluwalia

And today what’s the geographical distribution of your users?

Erik Allebest

Everywhere. I mean, all over except China, big, big, no nothing in China, maybe some V slow VPN from China, but, everywhere. I mean, English is our primary language of people who join, mostly because that’s the US and all of India together.

And, you know, because most users from India, you know, use English as their primary on the apps. Interestingly, Spanish is our second, a lot of Latin America and Spain, really, really enjoy chess a lot and we see great growth there.

Russian is our, our, our next language, even though chess.com is banned in Russia, we still get up. I think everybody in Russia is using a VPN at this point because the Russian government has banned so many websites and things. You know, everybody does it. And then, you know, you know, French and German and all the major kind of European languages.

But it’s very much a global game and we see a lot of growth everywhere. The, I will say this, the growth in India is amazing. The people in India love our chess content.

Like we put out a great video about, you know, one of the great Indian chess players. I mean, millions of views, people love it. And it’s kind of fun to watch.

You know, chess, you know, the chess community, India, is just phenomenal. And so it’s been really awesome to watch that. I think maybe the next world chess championship, you know, is very possibly going to be in India.

You know, Gukesh surprised everybody, by becoming, you know, you know, the next world chess challenger, might play Ding Liren might not, who knows. And, anyway, there’s going to be a lot of growth in India, for, for, chess as a game. Interestingly, India is not a top monetizing country for chess.

You know, the audience there, is unique and, you know, India has its, you know, socioeconomic differences from other countries. And, you know, for us, that doesn’t matter. I, I, it, it doesn’t matter.

People want to use free apps and use it for free. That’s great. I have no, no problem with that.

We’re here to serve the community and, you know, offer free play and, and, and, and some free learning services. That’s great for us. And for that, you know, we’re grateful to all those who do subscribe from India.

They, you know, help us on our mission and to grow the game, but, you know, every different, every country is different.

And our subscriber rate in certain countries is higher than some countries is lower. I think, I think, I think we looked at the numbers, some ridiculously large number, a percentage of people in Norway have chess.com on their phone. It’s like, it’s massive. I don’t want to say it’s half, but it feels like it’s close just because of Magnus Carlsen. And probably 10% of them are paying subscribers because economically that’s how they do it.

And then in, you know, and then in some countries there’s, you know, Indonesia has so many chess players also as well. And I think that our subscriber rate there is, you know, a tiny, tiny, tiny fraction of a percent. So, you know, every country is different and, and, we appreciate the fans and we appreciate the, you know, the community in, in every part of the world.

Siddhartha Ahluwalia

Yeah. And I think in India is soon going to change. One reason is because even the mission of our fund is, right that how can we contribute even in a small way, taking India from a $4 trillion economy to a $10 trillion economy in the next 10 to 15 years. And that’s why, and that’s why, you know, growing entrepreneurship in India and taking Indian entrepreneurship global.

Erik Allebest

I believe it because the, the spirit and the attitude that I see coming out of India with so much hope, and so much belief, and so much hard work and so much pride. But also India is different from other countries in that instead of going insular of like, well, we’re just focused inside, like China, sorry, is like only China, like it’s very closed. And our India is like, give us the world.

We want to be on the stage. We want to do it. We want to be there.

And that is going to pay off economically for India massively, massively. And I’m a huge believer. So count me in for that.

Siddhartha Ahluwalia

Yeah. And I think one time you mentioned that you were, you received a threat on dark web for your life because you had said something about Russia.

Erik Allebest

Yeah. Yeah. I mean, I’ve had death threats. It’s not fun. It’s part of the, you know, being in the public eye a little bit. And, you know, I take all the criticism, including death threats.

I take it as a sign of how much people love chess and how passionate they are. You know, when I get on Reddit and see somebody flaming me as, you know, the evil CEO of chess.com and I’m a horrible person. First of all, I’m like, you don’t know me.

If you had lunch with me, you’d probably love me. I’m a nice guy and I’m really fun to be with. And I really care about chess.

So first of all, you don’t know me. But second of all, I think you, you’re saying these things because you love and care about chess. And I appreciate that.

And I appreciate you for that. So I try to take it in the most positive possible way. But, you know, social media can be hard to read.

I don’t go in there all that often. It’s a tough place in there. But my main takeaway is people love chess and I’m critical of that.

I’m not saying I handle every situation perfectly. It’s very easy to be an armchair quarterback to sit in the, you know, to sit and criticize from the outside when, you know, I get it. We all do it.

But, you know, I will say that as, you know, the CEO of this company, I believe I’m making the right moves to grow the game, to protect the game, to, you know, be a good steward of it. And, you know, I do my best every day, but I also learn. I also make mistakes.

And I’m appreciative of everybody who works with me, who’s patient with me. I’m appreciative of the chess community as they are patient with us, as we’re learning and doing our very best in sometimes some complicated situations. So I understand that criticism happens. I don’t like when it reaches death threats, but I can understand that it’s from a place of passion and love.

Siddhartha Ahluwalia

Yeah. And you took it very sportingly. Really appreciate it.

What are the things that you have given you sleepless nights lately or in the last journey of five to six years?

Erik Allebest

Oh, do you have to remind me? No, it’s a fair question. I had some sleepless nights about the Hans Niemann situation.

But there’s enough stories. I’ve said enough about that. Wait for the TV show next year.

You’ll hear more about it. I’m going to try not to be emotional, but sometimes the hardest thing is letting people go sometimes because I know that’s the job that no one ever wants to have. But when it’s not working out with someone on your team or if a project gets canceled or something, having to say goodbye to people that are amazing people that I enjoy working with and I think are wonderful people to say goodbye to them from our company, I really hate doing that.

It breaks my heart. Super tough. So those are things that really pull at my heart a lot.

So, yeah. Sorry, that just made me feel a little bit sad there. I really love who we work with.

I love our team and I love working in chess.

Siddhartha Ahluwalia

And I think one of the reasons for that is that you build the team very organically from the profits of the company. You never hyperscale on VC money, which I think 80% of the companies that at least at your size have done it. So they hire people kind of in, I should not say the word, the cold blood way and then fire people in the same way.

Like you daily hear about these days, like Microsoft, Google firing 500 people. I think those folks, at least in case when the teams are organically built, are almost like families.

Erik Allebest

Yeah. And that’s what makes it hard, right? Because you don’t really fire your family very often and that can be painful.

So I’ve tried to avoid calling chess.com a family because I don’t want people to feel betrayed if it ever doesn’t work out in the future. But in some ways, it feels that way. I will say one thing we tell people who work at chess.com, every single person who gets hired, they hear the same thing, which is chess.com will never be your highest paying job.

We’re just economically not set up for it. We’re not trying to attract people who just want to make the most money because those people will come, and then they’ll get another job offer and then they’ll leave. That’s just not us.

Chess.com is certainly not my highest-paying opportunity either as CEO of the company. I mean, my salary would probably make you surprised.

But I think that what we’ve done with that is we’ve hired people, we pay them a fair wage, we pay them a good solid wage, but it’s not the most money they could make, but it’s a life-enabling amount that they’re happy and comfortable with.

And then they stay here by choice, not because we’re paying them to stay here. That’s not who we want at our company. It’s a different point of view.

Siddhartha Ahluwalia

And then why do you think, what’s the most important thing that people stay for? Is it the culture? Is it the lifestyle?

Is it people who are passionate about chess? I ask Max.

Erik Allebest

All of that.

I would hands down put our company culture up against any company. Hands down. I would absolutely enter that contest and feel good about our odds.

We’ve built a really special company culture. That said, it’s also a mission. I mean, chess is a great mission to get behind.

Whether it’s working with kids or growing a global game and a community, that’s a great mission to be behind on a very positive game. And then thirdly, chess is just fun. I mean, it’s fun to work at a company where you love their product and their content.

I mean, people love it. People love our merch. People love our memes.

People love our, you know, everything about what we do. So, you know, those are reasons. And then the other reason that people like to be at chess.com as a company is because we’re operating at scale and with growth. It’s fun to be part of a growing company. It’s fun to do stuff at scale. You can make a really funny video and have a hundred people watch it.

Or you can make a really funny video and have 10 million people watch it. It’s more fun at scale. You know, you can build a product for a thousand users or you can build a product for a hundred million users.

It’s more fun at scale. And so those are reasons why people like working here.

Siddhartha Ahluwalia

And does the fear of failure that, hey, today the revenue is a hundred, tomorrow, you know, God forbid that, you know, things happen. If it goes to zero, does that fear keep you ticking as a CEO?

Erik Allebest

No, I don’t think fear is a good motivator. I also don’t think that’s a realistic scenario. I think there’s a world, you know, some chance that chess could shrink back down to, you know, a smaller size.

You know, don’t tell our investors this, but if it does, like, I’m okay with that. Like, you know, like it’s life. I mean, things go up, things go down, things are popular.

Then they’re not like, I, you know, I would be disappointed, but it’s not a fear. And I actually think our growth story is great. I think the game of chess is so great.

It’s going to keep growing. And I think, I think if we do stumble and I think if we do stop growing and if we shrink or something, I think it’s not because the game of chess gets less popular. I think it’s because we as a company focused on the wrong thing.

And that’s why, as like CEO, this company is so critical for me to keep us focused on the right thing. And that is to serve the community, to grow the game, to build a great product. And if we start to get greedy or focus on something else, you know, maybe other games with, and then forget about chess, we’re going to lose it.

And I’m never going to let that happen while I’m, while I’m CEO.

Siddhartha Ahluwalia

And thankfully, I believe the majority of the company is still owned by you. So there is no investor tomorrow that’s going to say, Hey, I want to bring in a professional tomorrow.

Erik Allebest

Yep.

Siddhartha Ahluwalia

Right here. You still have the voting rights. And tell me what are the few things that you think you made mistakes on your journey besides the things that we covered?

Erik Allebest

Oh man. Again, I don’t really, I don’t really mind mistakes because mistakes are only judged as mistakes in hindsight. No one makes a mistake in, you know, beforehand, you know, when you play a chess move, it might turn out to be a mistake, but you didn’t think it was a mistake when you did it.

You thought it was the best move. So it’s fine. I, so I, you know, I don’t, I kind of don’t even think about the word mistakes for things.

I just think what were things that didn’t work out? What were ideas that in hindsight don’t, you know, weren’t the right ideas, but at the time they all felt like the right ideas. So it’s just, you know, it’s just how I look at life and how I look at things.

I’ve made some wrong hires before. That’s always tough to metabolize and, you know, deal with. And sometimes I wonder what I missed when I made the hire.

I have sometimes spent time building a product that was not well received. And, you know, it’s just things to learn from. I mean, product is a bit of science.

It’s a bit of art and it’s a bit of magic, right? And sometimes the magic doesn’t happen and you think something interesting will take off and it doesn’t. So I don’t know, just a lot of things to learn from.

Siddhartha Ahluwalia

I think the difference between life and chess is, chess is a reversible decision. If you lose a game, make mistakes, you can play another game. In life, many decisions are irreversible.

Erik Allebest

That is very true, actually. Yeah.

Siddhartha Ahluwalia

Thank you so much, Erik. Loved our conversation. Learned so much from it.

And thank you so much for being on The Neon Show.

Erik Allebest

Hey, it’s been an honor to speak with you. Thank you so much for having me. I hope that something I’ve said may resonate with you or someone in your audience and may help them along in their own, you know, life journey or entrepreneurial journey.

If you’re listening to this podcast and you’re not playing chess, well, you’re missing out on an opportunity every day to hone your strategic thinking and your patience and your skills and being part of an amazing community. So I encourage you to be a part of that. And if not, that’s OK, too.

There’s a lot of great activities out there in the world. But again, thank you so much for having me and to everybody who spent the time listening.