The CEO of $2.8 billion Slack shares the most horrible thing about shutting down a startup

Stewart Butterfield is the founder and CEO of Slack, the $2.8 billion startup that makes a popular business communication app. It took less than two years for Slack to get there, making it one of the fastest growing business apps of all time.

Butterfield's story may sound like an overnight success, but he's had his own share of failure before Slack - like TinySpeck, the online game company he worked on before pivoting to Slack.

At TinySpeck, Butterfield raised $17 million to build an online game called Glitch. The game unfortunately never took off, and he pretty much ran out of most of his money within three years. Glitch eventually shut down in 2012 and Butterfield had to lay off 37 of the 45 employees he had at the time.

"It's f---ing horrible," Butterfield said in a Re/code podcast, discussing the time he had to accept the fact that his startup had failed. "First of all, it's humiliating, you want your reputation, everyone wants to look like they're smart and capable."

But Butterfield said dealing with personal defeat and all the upset investors is the easy part. The actual "horrible" part is delivering the news to the employees about to face layoffs.

To illustrate this point, Butterfield told a story of an employee he had to layoff after having him make personal sacrifices to join the company. He said:

"I remember that morning, we were going to have an all-hands…getting up in front of the whole company, and then locking eyes with this guy who just had started maybe 3 months before, and I had really pursued him. I got him to move to a new city, he had a 2 year old daughter, he bought a new house, he was moving away from his in-laws who were helping to take care of the kids, it was just how much of a disruption to someone's life that was…And then to say, 'Thank you for your faith in me, you no longer have a job.' So that was really, really hard."

Fortunately, Butterfield later set up a portal site for all the laid off employees to post their resumes, which he says helped them find new jobs shortly after.

Having been through this kind of experience only makes Butterfield more appreciate his current success. To that point, Butterfield told Swisher he would advise young entrepreneurs to think beyond just making a lot of money, especially when the market gets as hot as it is today, and enjoy the job.

"There's something untoward, or unpleasant about the Valley generally when it's frothy, which is there's just a lot of people who want to make a lot of money," he said. "If that's the reason you're doing this, you might as well be in finance."

"I really like making software and I have for 20 years, and I work with a whole bunch of people who also really like it...It should be something you really like. I really like working on Slack. It's great to be working on something almost everyone I know uses."