By Cho Jin-seo
Not many IT startups can survive two years without showing results. In this respect, Kakao's CEO Lee Je-beom can consider himself lucky. Until its free text-messaging service KakaoTalk emerged as the most widely used smartphone application in Korea last year, Lee had launched a series of unsuccessful web and mobile services.
Most of them are no longer available. But were they really flops? Lee asserts that what made today's KakaoTalk a whirlwind success is the company's extremely flexible corporate culture that had been evolving during those first two years of mediocrity.
"Over the past three years, I reorganized the company more than 40 times," Lee said in his office in Pangyo, south of Seoul, when he met Business Focus on April 28. "It's a company that has a special mission of spotting and challenging new markets. So our strategy must be able to change as the market environment changes. Our organization structure must be able to change as our strategy changes. Flexibility is our greatest asset."
The trials and errors have made Kakao learn how to forget failure quickly and recover after making mistakes. KakaoTalk is now used by around 11 million smartphone subscribers in Korea and over 2 million abroad and available in three languages -- Korean, Japanese and English. The firm has about 1 million new users signing up every month and hopes it can become the next Facebook or Twitter in the realm of social networking and communication services.
Better than WhatsApp
The success of KakaoTalk was not a fluke. It is rather a product of a continuous work in progress, like the "kanban" system of Toyota. "We had many failures," Lee recalls. The first lesson was taught in the form of a social networking site called buru.com. Aimed at the American audience, Lee and his whole staff spent a year developing it. But Buru was unable to make an impact there.
The experience encouraged him to establish a management principle -- the rule of 4-2. For each business item, he allocated no more than 4 people (usually two programmers, one designer and one project manager) and let them work on it only for 2 months. If there were no convincing results after this period, the team was disbanded with no remorse and the employees then reorganized into new teams with fresh ideas.
In a like manner the KakaoTalk project came to life in early 2010. They were monitoring free text-messaging applications such as WhatsApp as they were gaining popularity in Korea and elsewhere.
"One day, WhatsApp began to charge users for downloading. I thought this was a fatal choice for them and in turn could provide a chance for us."
By the rule of 4-2, he had four of his staff work together for two months to develop KakaoTalk. The reaction from the Apple Appstore after two months was tremendous. So Lee did what he is good at -- a reorganization of the whole company to focus on KakaoTalk. He even changed the name of the company from "Iwi-lab" to "Kakao." The rule of 4-2 is still intact and projects to improve KakaoTalk are assigned to small teams within a limited time frame.
A brainstorming session resulted in Kakao for the name of the reincarnation. An employee suggested that Cacao is easy to pronounce and pleasant to imagine. Since it is hard to buy internet domains with that name, they replaced the C with a K.
KakaoTalk spread purely by word of mouth. People like it because it is free, easy to use and its unique color tone of yellow and brown is pleasing to the eyes.
No sign-up was required as the phone number acts as the ID. A person can chat in a group with others. It is also possible and convenient to send photos, video clips and voice messages. Moreover, there is no need to "add friends" like one does with other messaging and social networking sites. In KakaoTalk, the people you have on your phone's contact book are automatically added to your friends' list.
Meeting with Kim Beom-soo
Kakao began as Iwi-lab in June 2008 created by Kim Beom-soo, 45, the co-founder of NHN, the largest internet firm in Korea. Kim invited Lee to head the company while he himself remains the chairman of the board and major shareholder.
The two have an age gap of 12 years but they are both alumni of Seoul National University's Industrial Engineering department, and have known each other through academic connections. Though he is rather young to be a CEO in Korea's conservative corporate culture, Lee says age or title matters very little in the company.
A rule strictly enforced at Kakao is that everyone must call each other by English nicknames. So even the youngest designer can, or must, refer to Kim as "Brian" not as "Chairman" or ''Kim euijang-nim." Lee prefers to be called JB after the initials of his first name.
"We share three virtues -- mutual trust; freely voicing objection to ideas; and dedication to decisions we make as a team. The most difficult part of the three is giving honest opinions, because in Korea it is difficult to disagree with seniors," he said.
"We wanted to have a horizontal organization where people debate regardless of their title and seniority. It is easier to say 'JB, I don't agree with you,' then to say 'Lee daepyo-nim (CEO Lee), I beg to differ.'"
The result is an open culture where people are welcome to think outside the box and challenge the ideas of others. Recently the firm invited users to post suggestions and complaints regarding the KakaoTalk app. In one month, more than 30,000 items were posted. The company started working on implementing 100 of the suggestions. One of them, for example, is to add a function to enlarge the font size in the messaging window for people with poor eyesight. The feedback has been positive.
Lee admits that in honesty sometimes it is tiresome as his staff is neither shy, nor afraid to challenge his authority. It is a minor issue however when English nicknames and the liberal atmosphere makes the whole organization more productive and efficient.
Valuing the invaluable
Soft spoken with a Daegu regional accent, Lee has a round, white face that makes him appear quite amiable. He said he has dreamed of being an entrepreneur like his uncles since he was very young. He worked in several startups throughout college and while completing his alternative military duty as a software engineer.
Meeting Kim, the chairman, through the Seoul National University's network was quite fortuitous, he admits. The chairman had earned a fortune from his previous creation Hangame, the largest online game company in Korea. Kim was wealthy enough to fund Kakao for two and a half years by himself, so Lee and the other employees did not have to work in a garage like Bill Gates or in a dorm room like Mark Zuckerberg.
Now KakaoTalk is a household name for every smartphone user in the nation, and Lee wants to develop it as a 'social hub.' Unlike PCs, people carry their mobile phone all day so it is an ideal platform for networking. The broad plan is to link KakaoTalk with other business models such as shopping and blogging. Numerous firms in Korea and overseas have proposed partnerships, and Lee is reviewing the proposals.
When asked about his valuation of the company, Lee laughs and says it's difficult to put a price on something that is in a high-risk, high-return growth stage. Maybe it's in his mind that Facebook is valued at $50 billion in the U.S. Actually, eclipsing Facebook is one of his goals.
"Facebook and Kakao so far have different business models. But I believe someday we will face off at some point. Facebook is expanding into personal communication services, while we are also trying to expand into various communication models," he says. "It's a battle between David and Goliath, but it's a battle worth fighting."
Kakao is growing so fast that this reporter had to check the headcount only two weeks after the interview. On April 28, they had a staff of 45. On May 13, it grew to 70. By the time Business Focus is published it could be more than that. Lee plans to hire 200 more by the end of this year for the headquarters and branches in Japan and the U.S. In need of more space, they are moving offices again in only 10 months.
Overflowing with confidence, Lee says he is in no hurry to make profits from KakaoTalk. This year, he has been testing a "gift" function on KakaoTalk, which allows users to send electronic coupons as gifts to their friends. But it was allowed only for a limited number of items, in order not to distract users too much, he says.
A more critical challenge for Kakao than money is the service itself. Processing more than 200 million messages, including photos, voice recordings and video clips, is not an easy task. It is even more daunting since the messages should be processed in real time, in cooperation with the mobile service operators in different countries.
There has been no big accident, but minor glitches are not unheard of. In the middle of the interview on April 28, Lee received several text messages and there was noticeable anxiety in his face. Later this reporter found that there was a 20-minute disruption of services at the time due to a problem with the computer server.
The office remained calm while the bug was being fixed. After all, Kakao is a battle-hardened, time-tested company that has survived two years of continuous failures. Like a ripe Cacao fruit, the firm has a sturdy exterior with mellow flesh and sweet seeds on the inside.
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