• by Matt Straz , April 16, 2012

Last week fellow Online Spinner Dave Morgan wrote a great column about what has to happen for a company like Instagram to be acquired for a billion dollars by Facebook. Dave made the point that perhaps only one in a million companies will ever have a result like Instagram, because of the many things that have to occur in 18 months to achieve this level of success. Here are some additional lessons that I took from Instagram’s success:

Design matters. The sheer ugliness of the Web, popularized by Google during the previous decade, is being replaced with apps like Instagram that make the world more beautiful and interesting. Instagram’s founders, Kevin Systrom and Mike Krieger, obsessed over the look and feel of the their app, and it shows.

Size doesn’t matter. That Instagram only had 13 employees at the time it was acquired is affirmation that a billion-dollar business can now be created with just a handful of people. In fact, during the first few years, having small team can be a benefit because you can move faster and focus more squarely on the product.

Category matters. Let’s face it: If Instagram wasn’t part of a category like photo-sharing -- one that Facebook also wanted to dominate -- the company would never have been acquired for a billion dollars. Huge exits like this depend on a category where at least one company has billions of dollars of cash on hand to spend on acquisitions.

Ideas don’t matter. At least during the initial stages of a startup, the founders’ idea for a new product can be a little imperfect. When the first idea for Instagram proved unworkable, the founders tried another until they got it right. The important thing is to have entrepreneurs creative enough to come up with better ideas, and smart enough to change direction.

Scale matters. Instagram’s decision to expand beyond the iPhone and develop an app for Android mobile phones showed that the product could scale, triggering the unlikely series of events that led to its acquisition.

Revenue doesn’t matter. At least when it comes to consumer applications like Facebook and Instagram, it doesn’t seem to make sense to focus on generating revenue for the first few years. This assumes that there is ample cash on hand to pay everyone -- which leads to the next point….

Relationships matter. The media will often portray an entrepreneur becoming successful after a long, lonely journey. This is not how the world usually works. The cost of hiring software engineers is significant, and entrepreneurs need to find money to pay them. The founders of Instagram had relationships that provided the funding and knowledge that they needed to make it. Their supporters included Adam D’Angelo, a former chief technology officer of Facebook, Jack Dorsey, co-founder of Twitter, and Marc Andreessen, Netscape founder and venture capitalist.

Instagram’s billion-dollar exit is a once-in-a-decade type of event, similar to Google’s purchase of YouTube in 2006. As with YouTube, the team at Instagram proved that a small, creative group of people working on the right project at the right time can lead to an incredible result.