How Erik Bootstrapped Chess.com To $100M in Revenue

Hey! Shamus here, and welcome to another edition of The Dealroom, a newsletter (and podcast) sharing the stories of world-class entrepreneurs to inspire the next generation. Now, onto Chess.com!

Note: This story has been edited for reading clarity

Founder, Erik Allebest shares the story:

I needed a change, and my wife told me ‘You need to do something different.’ Our business was flat. I was playing too many video games, wasn't taking care of my health, and I needed a big reset. 

She’s said, ‘You’ve got to go to business school. I'm going to help you write your essays. I think this is your last chance to use that really lucky GMAT score you got coming out of college.’ 

I decided, ‘Alright, let's do it.’ 

But I will say I went there with a fair amount of ego. I'm a pretty different person than when I first got there because I didn't have a lot of other peers who were doing similar things as me. Most people were in entry-level jobs right out of college, and I was here running a business and making a lot of money. 

I thought, ‘Hey, I'm an entrepreneur. I know what I'm doing. I'm going to go to Stanford. I don't know what I'm going to learn there...’ 

It turns out I didn't know anything. 

Q: What do you think is the biggest thing you learned? 

Wow. That's a huge question.

I realized that building a company is bringing together an orchestration of so many different elements. You’re a conductor in an orchestra, and you're moving people around to create something. In order to do that, you have to put the best people in the right seats. There are a lot of different types of leaders from sales leaders, cultural leaders, product leaders, and technology founders. You have some people who have a ruthless mission and are jerks to work for, but they pay people a lot of money. But when I went to business school, my personal life philosophy was much different. 

I wanted to know, ‘How do you create an amazing culture that people want to be a part of and do great things together?’ That’s what I’ve learned. 

Q: What's the founding story behind Chess.com? How did you come up with the idea? And why did you decide to start the business? 

We started with wholesale chess, and when you searched on Google, there were two sections:

1. Ads
2. Search Results

We were constantly battling who was first for organic search results on Google, and there was immense competition between the top sites. We were nickel-and-diming each other down on price. Meanwhile, we were spending more and more money to get clicks to our site, and our margins were evaporating. I was like, ‘This is going to break and fail.’

That’s when I noticed this platform called MySpace, which at the time was very popular. I thought to myself, ‘Why don't we build a community for chess players?’

Then they'll come to play and learn about chess. Eventually, they'll buy the chess equipment, and we can have a better chess-selling business. 

While this was percolating, I got into Stanford Business School and realized I couldn't keep running this business. So, I sold the business but kept the domain name. 

While I was at the business school, I built all the wireframes and began work with my co-founder, Jay. He was on the technical side and two of us would do school during the day and work until 3 AM. I was staying up and building Chess.com with Jay. It was a grind. Also, I had two or three kids at the time. I was a pretty busy person, not taking care of myself. It was a period of investment. But when I graduated, I had some job offers at Facebook, Palantir, YouTube, Mint and other companies. 

Yet I decided to try this chess thing, and everyone was like, ‘You're crazy!’ 

I was like, ‘Maybe. I'll go get a job later, but I'm just going to see this out.’ 

And as I graduated, we started Chess.com using some money from having sold the other companies.

Q: How did you get your first thousand people in Chess.com’s community?

Through online communities and forums.

It was a simpler world. Social media was different back then. There used to be tiny pockets, like subreddits. One would be a place for talking about cars, then you'd go to Golf.com to talk about golf, etc.

Chess.com was where we had the community forum. Every single day, a thousand people would type chess into the browser, and Google would put a .com on it, and people would sign up. Eventually, Google Chrome stopped putting the .com on the end. So people would search chess, and we were already number one. There was a lot of natural growth from search engine optimization (SEO) and the virality of people sharing their experiences. 

Q: Why did every investor say “no” to you?

I met so many great people. When you're an investor, you have to be very careful in choosing businesses because your hit rate is so low. You have to choose businesses that can do outsized returns. 

So everyone looked at chess and thought, ‘Chess is tiny. It's insignificant. Why are you spending your time on this?’ 

And so it just wasn't big enough for anybody. I ended up funding it myself.

Q: What were the key inflection points that kind of led Chess.com to where it is today? 

So being excellent at SEO and being excellent at content.

People don't want ads; they want content. That's where they're putting their eyeballs. We knew very early on that instead of investing a ton of money into buying ads, we should invest in content because that's where people want to be. 

People are more inclined from short-form content and creator partnerships. All of it’s just content, and the community builds around the content.

There are a lot of people who do well using ads, but it just wasn't our strategy. Content and community have always been our strategy plus product excellence. 

For the full story of Chess.com, you can listen to my interview with Erik Allebest on Apple Podcasts, Spotify, or by clicking the image below.

Have a productive week!

Shamus