Capital-Efficient Growth (with Zoom CEO Eric Yuan & Veeva CEO Peter Gassner)

0:00 Yes, it is very appropriate to be On here. On Zoom with you. recording these before uh going into the interview with Eric. If only we had our uh our notes on Viva. Although I think it's a little bit out of our strike zone in terms of like perfect market. We would be the only podcasters in the world using Viva.

0:18 Peter is very focused on clear and correct target markets. Yes. Who got the truth? Is it you, is it you, is it you Who got the truth now? Is it you, is it you, is it you? Me down

0:35 straight Another story on the way Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal and I am an angel investor based.

0:58 In San Francisco. And we Are your hosts. Today we have something very unique to share with you all. It is common for top venture capital firms in Silicon Valley to

1:10 to get all their CEOs together once a year. In one room. for a CEO summit and speak frankly with them. It is uncommon, however, to allow anything discussed to be sharply. Well today we are doing just that.

1:25 The good people at Emergence Capital, in particular friend of the show, Jake Saper. invited David and I to interview two very heavy hitters at their CEO summit last week. Eric Yuan. the founder and CEO of Zoom. And Peter Gasner, the founder and CEO of Viva Systems.

1:43 I think this is the first time that Any content from Any venture firm CEO summit. Has been Specifically created for

1:51 Podcast public consumption. It's so cool. I think Peter has never done a podcast before. I think that's right. And he's built a twenty billion dollar company. Yeah, the Viva system story is amazing, as you will hear we talk about

2:07 They raised. Four million dollars, that's four. Like one after three and on just that four million dollars that they didn't even consume. All of that capital. They've now built a two billion dollar revenue business.

2:20 with incredible margins. It's such a cool story. And Peter is on the board of Zoom. And so as you'll hear, he and Eric. Know each other very well. And it's a super different company that we normally talk about too. It's uh vertical specific, so it's just in the life sciences industry. They sell high dollar software to pharmaceutical companies and uh I think biotech as well, right, David?

2:43 Yep, yep. So the topic that we discussed with both of them is capital efficient growth. And that's something we felt would be super valuable for all the CEOs in the room. And obviously that means that we think it's gonna be really great for everyone to be thinking about right now.

2:58 So rapid scaling on very little capital is something they obviously both know a lot about. David mentioned the four million total funding that Viva raised before going public. As you remember from our Zoom episode with board member Santi Subatovsky. Also an emergence capital partner. Zoom raised thirty million dollars from emergence and another hundred million dollars from Sequoia afterwards. And they never touch the vast majority, if not all of those funds.

3:26 I think they didn't touch any of that hundred and thirty million dollars. Eric had raised. As you'll hear about, he'd raise some money from Angels along the way and that funded. Product development. But none of the venture money was consumed.

3:39 It's crazy. So if you're excited to learn about how these companies manage to pull off enormous impact with very little capital to do so. you are in the right place. And if you want to discuss these topics after you listen, you should come join the rest of the acquired community.

3:53 I think we're twelve thousand strong now, David, at acquire dot fm slash slack. You should join us. It is always a riot. This'll be a great one to discuss in there with the community and other founders and including Jake Saper himself from Emergence, who's active in the Slack.

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6:01 And crazily they went from one million to a hundred million in ARR. In about. Eighteen months.

6:09 truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com slash acquired. And just tell'em that Ben and David sent you. Now, as always, this is not investment advice. Please do your own research.

6:38 David and I may hold positions in things we discuss on this show, and this is certainly not investment advice from anybody that we had on the show today. So now on to our interview at the Emergent CEO summit with Eric Yuan and Peter Gasner. So to set the stage, I thought maybe um Could each of you please give us a brief overview of your fundraising history up to and including

7:05 Viva and Zoom's IPOs. Which ordinarily that would take like an hour. This is gonna be pretty short. This is gonna be very short. Private financing history. Yeah, go ahead. Uh are the simple angel investors when we've just started. And then emergence uh about fifteen months in. So Angel Investors, I think that was three million and uh

7:26 Emergence was four million. We never actually used the emergence four million, but I thought I thought we might at the time and we got w to him within about a hundred thousand of using it. And then and then we went public. It's

7:44 The time frame we started in uh two thousand seven in February and we raised in about two thousand eight, maybe March or so. So that was the environment of the time. Another very simple time to be fundraising and company building in? Yeah, it was hard to even open a bank account because it was the whole know your customer thing and financial crisis, so everything's hard. And I think you know, probably most people uh here here know this, but for for folks listening on the podcast, today you're doing about two billion in revenue at Viva. Yeah. We're doing about two billion. About thirty percent proper, so. Amazing.

8:20 Share your fundraising journey with sure. I started comedy in twenty eleven. First thing I did I opened up a Where's Fago Banger Con. I started can e it's very easy for me to raise capital. That's why I opened up bank account. Unfortunately it took me for several months. No VCs want to invest me. Unfortunately I do not know my brother sending emergency capital, otherwise m life would be much easier. And finally and uh some friends.

8:46 And it reads the the three meaning, state funding. That's how we started. And for w it comes Air On I try to talk VC again. And again, nobody wanted to invest us either. So and uh you know, with talking to friends and g get another six million. And that's how we started.

9:04 Yeah. It's very hard. And nobody wanted to talk to you at that point because most people assumed video conferencing was either a settled frontier or a race to the bottom. Am I thinking about that right? Absolutely right. That's a theme. Everyone mission, Erica, you are crazy. The world does not need to have another video conference solution. And another busy friend, you know, even is his greater friend.

9:26 He he told me that Eric. I have a Tegger for you. As long as you do something else.

9:33 Yeah. Good news, I did not listen, I was very stubborn. I'll show share with a story. And it was uh stalled by a big VC, I do not want to mention the name. I for sure you guys who do not like some. So And uh he told me that

9:47 Eric. I do not think your Australian works. You know, look at the Skype, look at a Google H look at a WebEx dominating, right? And I I debated with him a little bit. I failed.

10:00 And I cannot convince him. On the way back I told it myself I'm gonna change my Windows screen saver, but back then I was gonna use a Windows machine. I change the window s windows a screen saver. You are wrong. So

10:15 Yeah. For several years. Yeah. And if just to make sure I have my facts straight. I believe you raised a thirty million dollar round led by emergence and then another hundred million dollar round after that. And similar to Peter Peter, you did not dip into

10:31 Any of that hundred and thirty million, is that correct? To to build the business. For me actually after a certain media you know from a emergent capital, I think uh yeah we are on the right track. you know, to be honest with you with you actually we even do not need to read the series of D actually, because at that time You know, I think uh we're that certain meeting I think a c a company completely

10:51 into a uh I feel feel like a different game. So yeah. Wow. What uh I mean that's one thing we wanted to ask is a a difference between your two companies. Peter, you obviously Once you got to cash flow profitability, which was immediately. Uh basically y you never raised another round. Eric, you did make the decision.

11:09 to raise some more capital even after you were generating Cash. Uh and and Peter, you were on Eric's board when that process happened. Why d why did you make that decision? Oh well for Viva I

11:23 Didn't raise more just because I thought I don't need it, you know, it's just that simple, right? So And then as far as um for for Eric, right, when you're on the board, right, that's really Eric's decision. So You know. So

11:35 Yeah, as I mentioned earlier, right after the raise of Sir Hill from uh emergency capital as at that time seriously they had a new plan or so ever to raise another round of capital. And uh the reason why we still uh move forward to have a series of digs. Course I thought our economy will win will go down quite dramatically. This was two thousand seventeen? Sixteen, seventeen high frame. I was completely wrong. So but anyway. It had been the seven year bull run, of course the the end was near, right? Yeah. So and uh long story, but anyway, so

12:10 Yeah. raising that money at the time I thought, yeah, maybe we don't need to do it, but also I thought It doesn't matter, right? What matters for Zoom is The great product and the customers. Whether you take some more money, you don't take some more money. Right, it's all fine. It would all work out.

12:26 Yeah. O our first thought Was if we just had one of you up here. uh and we were interviewing you about capital fit efficiency, it'd be easy to chalk it up to business model and cash flow cycle. You know, multi-million dollar contracts up front on you know in the case of Viva or in Zoom, customers flocking with their credit cards uh for a you know a self-serve experience. These are two completely different models. And so I think one of the things that it illustrated to David and I is

12:56 Uh capital efficiency is a mindset and culture thing more than a business model thing. And I'm curious to hear. U both of your reactions to that, but but also what are the things that enabled you uniquely more so than ninety-nine percent of startups to be so capital efficient. Well I can take that one. I I guess I've seen a little bit of Zoom in, a little bit of Eva. Uh I would say Probably it'

13:25 Starts with a mindset, you know Just run a profitable lemonade stand for my point of view for me it was There's safety in that cash generating business business is always going to be valuable to somebody. At some point a business is not cash generating

13:40 Is gonna be valuable to nobody, right? You might be able to sell it before it Becomes It no not valuable, but You can only there's only there's security in long term. Uh you know, so it starts with a mindset. I think Eric sh uh shared that and then

13:56 Uh you have to have uh product excellence too. Right, and that's something I think Eric and I share we're both Product people. I think also we both work really hard, you know, and we work really hard now. I think especially Eric probably in the first five years I worked really hard and I saw you didn't see me working really hard, but I saw you working really hard. So Work really hard, work really focused. Anything that wasn't related to the product or the customer was just

14:23 You know, and and just don't do it. Like uh first five years I was not at a conference like this, for example, right? I was just maniacally focused. And then the market really helps too. Um and that's something you just have to Get lucky on, right? You have to

14:38 It was the right timing for Viva, it was the right timing for Zoom. Maybe if you started Zoom five Years earlier or five years later it would have been hard hard. So Product excellence. real focus, mindset, and then you have to have some luck in your market. I'm sure there are some things that

14:55 I could have s tried to do, or Eric could have tried to do. And it was We might have picked a bad market. And then and then it just wouldn't work. And that's I think

15:05 You You have to So we're outlier, right? And so is Eric? You have to

15:12 Pick something that most people think is gonna fail to be an outlier. Otherwise, by definition, you're picking something that most people think is gonna work, and therefore a lot of people are picking it, therefore you're not an outlier. So just like Eric. You know Most VCs, all VCs except for emergence All all VCs of any kind of note except for emergence turn this down, right? And ours is really simple. Vertical specific software, that's a small market and it doesn't work.

15:37 Right. That's what they would say. And I was encouraged by that because I thought well It has an opportunity to be really good because it's something non obvious. Well one thing I I want to double click on that we were talking about beforehand. Yes, like you need to be non obvious.

15:55 But you also need to be correct. But I think what you did, what you both did was not Hey, I'm gonna pick some random idea that other people think is crazy. You know, I know Viva has as one of your core values clear and correct target markets that you have like written on the wall.

16:15 You do. ahead of time that led to you to like really genuinely believe yes. The world thinks this is crazy, but I I really think this is going to work. Although first it's real easy. I I talked to three or four potential

16:27 customers for our first product. And uh they all said we don't need that, you know, that's not interesting, it's not a good thing to do. But I wasn't listening for that. I was listening are they emotionally attached to where they're getting their product now. Are they emotionally attached to those people? Do I feel like they're getting

16:46 value out of that thing. And I could tell in their responses that they weren't attached and they weren't getting value. So yeah, all four customers said it's a bad idea. Let me understand the Peter formula to build a business. Ask a customer if they want your product, they say no. you dig deeper and say, what are you using now? And they say, uh yeah,'cause I have a solution for this, but they just don't love it. So you build for them anyway on the bet that you can be better than their current thing. Yeah, you have to listen to what they feel, not what they say. They would say, yes, we're very happy with this solution, but then you dig, oh tell me more, why is that? What is it that you get out of it? And it's like oh well um uh

17:27 And that's when you know. That that sounds like The video conferencing market circa about twenty fifteen, twenty sixteen. Yeah, so y for me it's very straightforward because I was uh a regional founding team member of Web of WebEx. So the year the two years before I started a company, I know actually you know WebEx really sucks, right? So and uh Did you did you try and tell Cisco that's uh I I I tell my team. I do not dare dare to tell others. So

17:57 But anyway, so n uh uh uh S Sky also not reliable, right? Google How gonna work. Every day I spend a lot of time talking with the every customer. I know if I can build a better solution. I think at least I can survive. I never thought about everybody's going to standardize on Zoom platform. Well at least I know for sure is If a customer they do not like something, if you can build something better, you have chance.

18:19 Eric, did you think from the outset that you were trying to build Zoom as a big company, or did you just think That you wanted to build. a profitable company to survive and then you would sort of see where it went from there. I think two things. First of all, at that time my passion was very straightforward because you know Webex more like my baby, right? I feel like I worked so hard for so many years. I let a customer down.

18:44 I really want to want it to fix that apart. But Cisco don't know wrong YouTube. And I had no choice, you know, but to leave to build a Zoom. That's the number one reason. And after I started a company I realized wow, it's so hard to raise capital, right?

18:59 And the by the way with the money, the basic give it to you. Don't just think about that as a money. You know, that's a trust. You know, every dollar matters, right? That's why every day I I was thinking about How to survive.

19:11 How to survive. How to survive. Even today. Seriously, I still think about I woke up in the night. you know how to lie. So And the um

19:20 Yeah, you you mentioned uh People in your team. When you started Zoom. You were A solo founder, but you brought

19:28 A large number of people. with you um Yeah, one of the the kind of first sort of operational topics we wanted to dig into around this this topic of of capital efficient growth is hiring and and people uh

19:43 That feels like such an important uh part of the culture and DNA of having people who are gonna get on board with Yeah, there's not gonna be, you know, the spiritual equivalent of kind bars and you know exposed brick in our in our office here. How how did you select for uh maybe both you but Eric to Eric to start because you brought so many people with you from WebEx, how did you select for the people that you brought? So all of them are very good engineers. Right. Except for me. So I'm I I did not write any code.

20:13 On Divan we had around 25, very soon we we we get another 15, total 40 people, and myself included, all the certain people we all write all kinds of a code. And this was all funded with angel money. Yes, exactly. But uh probably I know actually, you know, we can with the run rate probably less than two years, right? That's why Nytham had a series A. But uh we won't have engineers just get a product done and I'm on more like a product manager, UI designer, and also the the facility guy, everything else. You know, seriously, on the one.

20:45 I I I bought the use the furnicure. You know, I stand by everything by myself. And also write it on the company culture and value. That's pretty much what I did. So it's I would say is uh And even for the sever for the several years. After Product already.

20:59 And uh uh some investor mentioned, hey you already have money in the bank now, why not build a a marketing team, look at your competitors, they spend a lot of money and all the you know, billboard and one on one. For the first four years, we do not have any marketing team. Only until twenty fifteen we started, you know, building up a marketing team. So we have to be very disciplined. Yeah. You know, you started the company with twenty five quickly growing to forty people.

21:28 But those were thirty nine engineers and you. No product managers, no marketing, no sales. Yeah, yeah. That's the reason why I know how to use the quick books. I never know how to use it. Seriously, I had to learn how to use it. And uh So so it sounds very easy to say uh don't buy billboards. Um You gotta get your customers somehow. How did you get the snowball going?

21:51 Uh uh little bit of lucky,'cause seriously. And uh luck it does a pollute at all because The several weeks before we launch the product. Seriously we had no idea how to get a first customer. Luckily you know and uh you know the very famous uh you know the uh uh reporter, the the Water Water Mostburg, right?

22:13 He evalued our service. And we were so nervous, you know, it's very straightforward, right? But the good news he he he did write down a very nice article. publishing Wall Street Journal. And also he personally recorded a video. And over the night.

22:27 We got a fifty Fifty thousands. fifty thousand users from that article. But most of them they left. You know, half of the stuff. After several weeks.

22:39 But those who stayed, I imagine that was the kernel of the the virality of telling their friends and told their friends and told their friends. Uh someone they canceled back then only nine ninety nine. I personally send them an email. Why you can solve our service. What are we can do different? And uh Yeah.

23:00 We still maintain a relationship. Today given today. Mm. We we had uh some one of the CEOs wrote in and and asked us about different metrics to track. W w did you have a North Star after you had those fifty thousand people where you realized okay, I'm holding something in my hand and this the sand could slip through my fingers. But is there something I can measure to see if

23:20 this fifty thousand can turn into something. What were you paying attention to? U uh very early very loyal. early adopters. Yeah. You know, even one hundred is good enough. They are they are the early, you know, in I would say is the most loyal users. Double down.

23:38 To make sure they are happy. If they are very happy, guess what? You know, network effects. They are going to bring a lot of new users. So that's why. Even ninety forty nine thousand p users left. As long as one hundred still stayed. We we we doubled on that. So yeah, that's a strategy debugging. Mm.

23:56 For Peter on the hiring and people on organizational front. Um You had a very, very different Type of

24:04 Business. Uh Your customers don't buy with credit cards. They buy multi million dollar deals. cash up front in a year for a year deal. Um

24:15 You need a sales force to to sell that, which usually means You need a lot of cash comp. To compensate that sales force. How did you think about the right people to hire as you were building and and and How to compensate them.

24:30 Yeah. I think one thing Eric and I have in common are You know, in the early days there's no wasted people. Like no optional people, no wasted people because it just adds a it'll burn through your money and it'll just make your decision making smaller and Sorry, more complicated.

24:49 It's like sand and machine, so no wasted people. And for us Yeah, we needed 'Cause a long sales cycle. So we need the sales right away.

24:58 Right. So yeah, I was the first salesperson. Right. I I started selling before I I think she should buy something.

25:08 For me, this thing that I'm gonna make. Well, do you have you hired anybody? No. Well, okay, well, can you show us a demo what you're gonna do? No. How about a PowerPoint? No. Okay, and then come back a month later. I got a PowerPoint now. Have you hired anybody? No, not yet. You know, and then just Keep Selling'cause it's a relationship based business. Funny story, the first customer who bought small customer.

25:28 We actually somehow through a relationship with my co founder we got to this guy who was the CEO. He wanted to buy some software for the small department just because he was really peeved with his IT team. So this guy had no idea what we're selling. He's like, I know that my IT team doesn't want you, so I'm gonna make a point and show them that I'm actually in charge here. So uh that's how we got our first sale. And uh you could barely log into the system at that time. Could you could you t But then you gotta hustle, right? Then just like Eric, right, then you gotta hustle Oh my God, this customer wants to buy something and then you're working Super hard to make them successful. And Eric, I'm not sure I never asked you about this, but we never had customer satisfaction surveys.

26:12 For Viva in the beginning, I always thought if I talk to those early adopter people, I will know, I will get the feeling. And if I have some survey maybe I won't get the feeling. You are right. I I I agree with you. It is yeah. When it's small, you can sort of hide behind metrics sometimes and it doesn't work. But if you actually talk to the human and you f figure it out, you'll know

26:33 What's going on? How can you tell us also? The story of Landing your first big customers. Which I I believe is probably the deal that really made the business. Yeah.

26:46 Uh there was a set. Right. There was the first the the guy who was just peeved at this IT team and then worked up to the next Size deal and the next size deal and it was always a step function, right? And So the first multi million dollar annual deals were a a big customer, Pfizer and uh It was just hand to hand combat, um There was a partner at the time actually

27:11 Salesforce.com actually at the time said, Oh, you know, send a note that Vivo will never win this deal. And I replied back, I said, We we will win this deal. And they sent it to you during the bake off. Yeah, because they didn't want to even come into the meeting with us, right? They were like, oh, we're gonna go with this other system integrator or something like that. So uh I sent an email back and said we will win this deal. Why? Because we have better people that'll work harder and we're Pfizer's only shot at greatness and I think they wanna shoot for greatness.

27:43 And so and on the cause and I remember there was this big meeting with Pfizer, there was a guy in there in charge of it and we had certain amount of people in the meeting and the guy stood up for Pfizer he said, We have more people in this meeting room than you have in your company. Why should we buy anything from you? And I just said the same thing. We're your only shot. We're gonna make something great and we have the best people. So Seems simple to me. And then we got lucky. And uh we want it. And then And then I remember after winning it thinking, oh my God.

28:12 Now what? You know, now how are we gonna make them successful? So we The whole company got a bonus when that customer was what we called live and happy, which didn't have a Uh formulaic metric. It was based on interviews. So did you use the

28:31 Invoice. From that customer. to then go fund product development. Yeah. I was I thought oh we've just raised uh Three million dollar round of capital here.

28:41 It didn't cost us any dilution, right? The check came in. So that's exactly what happened. Yeah. Do you think that's still doable today? Like I imagine there's lots of folks out there that are like, well, I would love to go invoice a customer and get cash in the bank and Yeah, what what situations is it possible to fund your product? uh with customer revenue versus not. I think it's first of all, you can't be wasteful. Every person has to matter. I would almost

29:06 Think about oh we're hiring that person. Let's say we have to pay them Hundred thousand dollar a year. I came from my father was in the business of metal working and machinery and he I remember him, he would like, Oh, I gotta buy that lathe. How much is that lathe gonna cost? Is it worth it worth it? So I would think of people like I'm buying a million dollar machine because I gotta pay'em

29:27 Hundred thousand dollar a year. Is that million dollar machine worth it or not? So frugal and then make a really excellent product'cause that's the best way you can Lower your cost of sales. You probably all all notice it that it's easy to use, but he made it easy to

29:44 Consume the whole product. So he didn't have to convince a bunch of people. So that's how to do it. Excellent product, get a good price. Easy to consume, you don't have to spend your money. On salespeople because You have a differentiated product'cause salespeople, that's where it's really, really expensive.

30:02 Right. You you didn't know. I when when I read uh the Peter's uh the Swan document many years ago, at that time I still remember, wow, my God, this is being in the model is so awesome. So And but in our case Our first to pay the customer, uh largest to pay the customer, only two thousand a year. So we cannot use that to find the new product development. Because most of users pay us only for nine ninety nine a month. Right.

30:29 Real hard. But I do think you know, it for all the founders, right? The business model very, very, very important. Right. If you can figure out a way to do something similar as what a Peter and Weaver does. That's the best. Do spend the time on that. But not only for product, but also the business model, right, as Peter mentioned.

30:45 product excellence and how to sell the product, you know, and how to level the big enterprise customer as is very important. build a long term sustainable company. In our case actually I can tell you today the bigger challenge is our online business. I it's very profitable, however, it's very hard to predict.

31:03 But they come today, next two months we might leave, they cancel the service, this is not a the great business. So but enterprise portion is very good. No, that's why I learn a lot from Peter, you know, how to manage a big enterprise customer. We met at an emergen emergence event. Way back when that's how we first met, Eric and I. It was smaller at that time. Connections like that today.

31:29 I wanna highlight on on this topic of of contracts and funding development that because I think it's really counterintuitive. Again, the topic is capital efficient growth. You would think that what you would want to do with the you know the Pfizer deal, for example, or Eric when you started selling enterprise contracts is Multi year deals.

31:47 Let's get let's make this contract number as big as possible. Let's get as much cash up front. Let's lock people in for Two, three, four. Years. Uh that's not what you did at all. Yeah, we didn't do that. Uh because I th I was always optimizing for the the long term value, which is the annual value per customer. So if I had to give the customer terms that would lock them in, I thought that's actually shrinking my market because they'll pay less if they're locked in. That's one thing. Then the other one I I didn't want us sort of getting lazy.

32:17 I wanted to start in the business every year. So it was just sort of like that. The driver was really optimizing to the long term value. Yeah. It makes so much sense now thinking about it that you would have had to have given a I don't know, thirty percent annual discount or lock in the price, then raising prices is harder later. And that's unique to us. I think we're selling in a very confined vertical. So it's not really fair if

32:41 There's two companies and one p one's paying thirty percent less than the other. And they they they end up knowing about it and feel b feeling bad about it. So that's something specific to this confined market. And to put some shape around it for folks that don't know Viva's business as well. You've couple thousand customers, of which there's a hundred or so that are your like really big customers. Yeah. And there's basically no one else

33:05 out there. who could be a customer without you expanding the market. Right. We we have a we sell into a defined set of customers, life sciences industry, there's kinda top twenty and then there's another thousand or so that are doing smaller things. And we've just expanded our product footprint. So when we sell to a customer we we might have

33:24 twenty things that we s can sell to them. They start in this area, they start in that area. So Uh Gordon calls it layering the cake, right? We have a lot of lift different layers to the cake that are all into the same customer. We leverage relationships and we spend a It's fine for us to spend a hundred thousand dollars a year

33:45 Maintaining Free relationships. And just putting into developing relationships. That's Not wasteful.

33:53 Because we have a lot of showing up the door with hundred million dollars worth of product. So if you have a relationship it's it's worth it. Like a bank. A bank investment banking it's worth it to invest. So it's a different type of business. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta.

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35:59 I'm curious maybe maybe you can talk to us both in the beginning days and and then also now, at Zoom. How do you think about pricing an account? Strategy. Yeah, so

36:09 You know. Yeah, our case is a little bit different. You know, ideally when you start a sus company either focus on vertical market or focus on departments. That's that's probably the best business model. Unfortunately, you start from building up a horizontal collaboration solution. is is really hard, right? Because you know, a lot of other competitors are there, right? So our strategy free competitors. Exactly a lot of you know free solutions. So our strategy to you know more like uh you know

36:36 You open up a new restaurant of business, right? So And uh you have a better service. Right, and a better price. And a bit of food. That's pretty much even today.

36:46 You know, wanna make sure our product is better than our competitors. Make sure in the comes in pricing also better. And they also make sure, you know, offer the better service. So you look at any time our product always, always a better price. No. across the board any product compared with any competitors. So life is about trade offs.

37:06 And if you're telling a customer, oh, we're better, faster, and cheaper. What has to give? Is it something organizationally? Is there something efficiency. Yeah, exactly. You know, see like a customer they are they are probably going to spend it uh lot of money on on marketing, you know, what we can do to level the network effects, right? You know, they hire like a one hundred a C web, I mean, what do we can do?

37:29 to have a fifty SUS re can deliver the same value, right? So that's why it's very important to have uh you know internal You know, the efficiency. Yeah. Which is you know, d uh is so funny. That efficiency. Translates to

37:43 Capital efficiency. Which translates to Gross margin well, not gross margin to operational margins, which translates to Cash flow. Which is the whole point. Yeah, give you more flexibility, right? Yeah. Yeah. But I would say the key also is just the product excellence, right? And that comes from the core set of engineers you hired, I think.

38:03 And then also the You were you were especially very focused in the early days, right? Totally. You were not Thinking about something else, right? I would say Yeah.

38:15 Got to know Eric. I got to know Eric, I thought that's a pretty focused guy. I bet his product is good. And then I tried out his product, Oh, this is this is really good. I wanna join his board. So I think that's so is the Product excellence can make you more efficient. Your sales cycle's more efficient. Every everything's better. If your product was

38:34 Your product was twice as good as WebEx, right? If your product was only but I guess my point is if your product was only twenty percent better It wouldn't have been enough. It wouldn't have been enough. That's why I always like this restaurant analogy, right? You know, you start buying a restaurant, a brand new restaurant, it's food that don't work. Even for free you do not want to stop buy anymore, right? So Well one again, you know, I think back to the Peter's point is extremely important. Everything starts from one thing, the product.

39:06 Product excellent. That's a foundation. you can optimise a lot of things if a product does not work. Forget it. everything else. Just a double don't triple down on product. That's the number one thing, you know, Peter Rider. And that's a lot about people, right, Eric? About who which people you put on the product. Yes.

39:22 Eric was very particular about getting the best people. People, we can come back to that. You know, I remember we when we talked about with Santi on the episode we did on Zoom's IPO years ago now. Um You know, you're named executive officers in your S one. We're not like you think typical, oh here's high flying SaaS company, there's gonna be a VP of sales from Salesforce, there's gonna be a chief marketing officer from HubSpot, you know, whatever, like not and nothing wrong with those companies and those people, but.

39:53 Alright. I think at both of your companies the people you brought in as leaders were Up and comers. They weren't, you know, the the established superstars. Yeah, I I think you're I always wanted to have some people with some range.

40:08 You know, they could get h very hands on, but also grow into managing I guess I've always thought to try to get people to do something that they haven't done before. You know, so they would have a little bit more mojo, have a opportunity to do something that they haven't done before. And uh the team is very important, the chemistry of the team.

40:27 is much more important than the skills the individual players Um in a lot of ways you that comment reminds me there's a parallel between you not signing multi-year deals where you're forcing the product to earn the customers. And you promoting internally where you're keeping people hungry and forcing them to Do their best work. to earn job.

40:48 Well, I it's more thrilling when you can give somebody a chance to do something that they haven't done before for for me and for them. There's more fulfillment. Otherwise it's why you're doing the same thing you've done three times and what's the allure, well I can get rich. Okay just at some point it I imagine there's an element of compensation to this.

41:11 strategy too, which translates to capital efficiency. Uh, not really, no. I always think of equity versus cash, but uh I don't think so. I never really made any kind of decision on people b based on that. You gotta get the right. the right person.

41:27 And then pay the right compensation for the right person. But Always the right person first and then figure out the conversation. Peter right on actually back then when we try we try to make an offer, right, to some executives, right? You know, at that time, you know, the feedback, why not hire someone very experienced and seasoned leaders from all side is not really not about a calm package. Because You know, it accomplished hiring, you know, uh uh uh at a Zoom.

41:53 we really like to hire those people with a self motivation and a self learning mentality, right? Including the senior executives and uh they can grow themselves along with their company growth. And plus, you know, they are very loyal. I think that's our that was our philosophy. I I I thought that's the best of the philosophy. uh after the Covid I think I was I was wrong, actually there's a bigger flaw also.

42:16 Because when brain is auto flows, auto auto grows your team. And guess what? The the executive without him, they are not ready. you know, like usage like uh fifteen times, twenty uh twenty times more. The revenue like uh seven times more. You know, our team even not myself included, even not twice better. is one challenge, I I learned. That's a mistake. Another mistake is

42:39 We think all those executives or K T members they can learn along with the Comp g gross However the pace is different. Right? You know, some ways can learn quickly, some are very slow, right? That's why also that's another flaw, right? That's why looking back I feel like ah We should have a mixed

42:57 you know, team structure, right? Someone, you know, they have a potential, they can grow grow themselves. Somewhere else you have to hide some seasoned leaders. You never know, right? In case you know your sudden your business it's going to take off. At that time, your team know ready. you know, that's a challenge we're facing today. So

43:13 So you need to have some members of the team who have experienced scale bigger than your company, but other people that you're developing. Exactly. That's a healthy mix. You know, back then prior to Panemic, you know, I was I think that too stubborn. I should learn more from Peter. You have to have a potential. You do not have a greater background. Actually looking back, that's not right. Interesting. Maybe a mix would be better. Do you think that applies even do you think you should have done that even in the early stages of the company? No early stage, right? You know, for the first or four years in no need. But a download you you already see the market of feet, right? The product of feet. You want to skill your business at that time you have the channel. could also be. There's another I just keep th these parallels keep popping up for me where

43:56 Zoom is one of the greatest product led growth companies of all time. Um And yet here you are talking about the beauty of predictable revenue that comes from enterprise contracts. And it's It's the same thing. It's not that experienced people are better or that in to house talent is better is that you need that mix.

44:15 Todo. Yeah. Mm. So the last um uh one of the last uh sort of disciplines within a software company.

44:26 Um that I wanna talk about operationally in this context is marketing. Uh w with both of you, but particularly with Eric, we were uh chatting with Sati and and with Peter. Um Yeah, we sort of ask this question, we're like You scaled once you got the product developed, you scaled. With such beautiful capital efficiency.

44:46 But you did spend money on marketing. I mean you joked about the billboards, but there are Zoom billboards now. Um Uh and I asked them, you know, how did how did Eric and Zoom Think about spending money on marketing. And uh well I'll let you tell the punchline, but uh Uh how how did you think about it? Yeah, that's uh yeah, even uh today, you know, every Tuesday you know we have a three hours uh you know stuff meeting, right? You know, this morning the first topic read about

45:13 Reviewing. our marketing competent marketing programs. Even today still. I think it's very cheeky. The reason why is You do not have uh I would say is that

45:23 Sort of like uh or formula, right? You know, when to spin a more, when to spin a less. It's not like that. Yeah, as a founder, you know, you have to spend time on marketing as well. Do not always focus on product or the sales. marketing also is very important. However, when to invest in marketing is very tricky. Every business is different. In our case, We specifically, you know, uh made it cell no marketing team for the four several years.

45:48 You know, because this is not a something new, right? It's a product or you know, there's this very very you know mature market, everyone understand the video conferencing. you know, how how if your product works, you really don't have a marketing key, right? We we try to prove that a point. You know, after that, after we have uh pay to customer, a lot of customers, a customer told us. And never trouble Zoom?

46:10 But I try to product the product works. Why why is that? we received a very consistent feedback like that. I know that's a signal. Right. Then we double down on that. Then twenty fifteen, we created a marketing chief.

46:23 And also even after that, we also marry every marketing program spending. Early on I spent a lot of time trying to extend I'll give one example, like SEM, right? Every company you you spend money on S C. First time I I send a check. Oh my God, this is this is a surprise of pay to Google. Oh my God, this is this is the largest check. I'm beginning to sign. Do you remember how large that check was for a contact? That's uh more than two hundred thousand a a month. A month. Oh my goodness. This is crazy.

46:50 You know, that's why I see I wanted to deep dive to understand, you know, but by the way, you know, marketing team is all very well educated by Google, right? in Mallaga talk about our way, you give me one dollar, I give one dollar fifty cents back. Yeah, it's pretty cool, right? Yeah. But I tell them, no, you sort of w treat the hard as a bag. Well I particularly want to ask you about uh money back. How to openemize that. Right. And again, marketing team very important, but quite often very creative, right? If you do not know how to measure that, do not spend.

47:24 Mm. The stories we heard were Yeah, most founders, CEOs, marketing teams think about CAC to LTV with

47:33 marketing, you know, and there's more complexity to it than that, but I'm gonna spend a dollar, I'll get a dollar fifty, or I'll get three dollars back. If that pays back in within a year, don't believe that. That's a mistake for all the size companies. It's not a one dollar or fifty cents a bag, not a three dollar. It should be four dollars, right? It's to optimized. Just in the last minute. Yeah. And and Eric, when How how fast should it pay back? As I would say uh

48:02 As big as possible, right? It's got to every brain is different, but you gotta optimise. You keep optimized every day. Do not feel satisfied. Oh, give one daughter, get a one daughter fifty cents back. No, open a mice, go to get a one. Two dollars, two you know, three dollars, right? You have the optimized. This is by an example, right? For every market in dollars. However, if it works, you have a double down. I remember, you know, first time I had a you know uh b uh the billboard in one way. You know, many customers share the very positive feedback with us. They feel like ah early on

48:31 We decided to deploy Zoom. I I saw the billboard, I feel like you guys are a bigger company, we're gonna write this city, right? Exactly. And plus the employees they feel very happy, right? They say, Oh my god, Zoom has a billboard now. After that I realized Why not double down there? I told our team How many billboards do we have? There's one. I said, no. Three.

48:53 And it works. Yeah. So y that's why you have to know when to double down, when to take step back. You know, if you know how to effectively measure that. That's very important.

49:05 We spent most of today talking about how to um build the castle and you know how to be how to have a profitable castle. Not sure w that really extends. But now let's talk about the the defending the castle. I I'm curious, um, maybe let's start with Eric and then go to Peter since we've been on a good Zoom streak. Where do you see the source of Zoom's defensibility? as a business over the next Thirty years. Yeah, so

49:31 you know, I think of uh it's a monologue sports, right? We've we need to focus on both offense and the defence, right? So I think uh b back to the the Peter the point, you still needed to Even your product is is works today even better than uh any other competitor. You have to be paranoid, right? You have to keep thinking about What do you can do differently? Innovating, cable innovating. Either the new services.

49:55 or new features, right? That's is the that's the most important thing, right? But doing that At is at the same time, you know, you also need to think about what's next, right? You know, from our perspective, right? We were f we started from a unified communication. the next step will be you know the not a unified uh communication is collaboration platform.

50:14 Right. At the same time how to build a multiple new departmental applications. You know, you also need to play offensive as well. You know, the the better offensive play is is probably is for the defense as well, right? So that's our strategy. Mm.

50:28 Here. Uh I'm very similar. So product excellences you you you you can get there, but you also gotta work hard to stay there. Right, and and keep reinventing yourself. Uh also you do want to expand to different areas because if

50:45 Critically and I think uh Something that people don't realize. If you if you get a high market share in a area and you don't expand to another area, what will happen just'cause of the nature of your company and the creative people, you'll do more stuff in your established area than you should. Right? And that creates its own set of problems if you do more stuff. And you know, if Eric is constantly rewriting his codec. Unnecessarily. Right? It's it's disruptive. So you gotta expand to give yourself a creative outlet. And then that this may be more

51:16 Particular tasks, I don't know, but we also have a goal that we set out about five years ago to be the leader in life. That was our code name for it. Because uh if you if you get to be quite dominant Um arrogance is your There's a few things that we'll Knocked you off.

51:30 arrogance, the customers will get turned off over that and they'll they'll naturally find an escape hatch. Also we we audit for integrity of the leadership team because when you're when you're quite well established, that can throw you off. Integrity issues in the leadership team. So we audit myself and others, and also energy in the leadership team. 'Cause these are things that you gotta audit for'em'cause if you if you wait for the results to show those things it's too late. So You know.

51:59 Determined to have product excellence, have a goal to be the leader in liked. We actually tell our customers about that, and that holds us to a higher standard. So we want to be the leader in liked. And then they bring that up sometimes, like, hey, that's not the leader in liked. Oh God, why did I tell you that? You know? But I mean it's a way to be set yourself out there, right? Not only do we want to be the leader, we want to be liked. Product innovation as a outlet. Um and then avoid avoid that arrogance. I think as we related to this question, I want to share with you a conversation ahead of his Peter. I think probably can help some of the the founders here as well. I think the I forgot a which quarter a year before we went public and I look at our uh growth plan. I realized wow, we wouldn't have one service, right? If we have another service also can monetize, you know, the the growth is tr tr tr trajectory would be mar very different.

52:48 At that time, teacher told me that Eric That I that's sort of like the ideal case. But that they said it should be made two years ago or three years ago, right? If you wanted to have new service You cannot have a new service today, right? you need to think about um you know try to make a decision twice three years you know before that, right? I I clearly remember that a conversation

53:07 No, that's why that's looking back, that's a bigger mistake. Biggest mistake. The reason why You know, because you have one service. At the same time, how to think about what's the next service, right? You know, always plan ahead, right? This is probably the the better way, right? So that's exactly what I was gonna ask as a follow up.

53:28 Peter, I know you Viva launched A second service after the first CRM service uh around around um content CMS, content management. Um When did you start planning for that second product and then when did you launch it relative to your your first product? That was we started thinking about it the first part of two thousand ten. I remember Gordon and I and others started thinking about it the first part of two thousand ten, so we had uh hundred and fifty people in the company or something like that. That was four years into the company, three, four. So three and a half, yeah.

54:00 And then we made our first hire in the fall of two thousand ten, and that's when we started going. So I viewed that as critical. It was a turning point. I thought hey, I could have a single product company do really well at that, maybe go public, but it then it ha probably has to be sold to somebody or something like that. Or I can try to make it a multiproduct company. And the decision was to pick something that was clearly not an add-on to our first product. Like it was clearly so far away from our first product. I was worried that our second product would maybe become an add-on to our first product. And so I just picked something that was just way out here, just way, way different.

54:36 Sold into the same company, but different buyer, different product, different code line, different everything. So I thought Bec this is the way to become a multiproduct company and it'll either make us Or it would break us and I thought the odds were more likely that it was gonna sink us. That's so counterintuitive, because normally you would think you'd wanna give the same sales rep something that they could sort of bundle in for an incrementally higher ticket price and leverage what assets you already have. But that you will do anyway. Like if you don't go out of business, gravity will take you there, right? It's as you go along, it's like oh well maybe we should make an add on product or not. Like yeah duh.

55:12 You know? But y if you If you get confused Um You know, and you think that add on product is really gonna float your boat, it's not. Your your new product, if you have a chance it should be

55:25 Way out here. And maybe have the potential to be bigger. So that's But it's risk. What's the scale of the two revenu revenue lines today? Uh there the second one is a bit bigger. Um But the second one has also quite a bit more potential.

55:39 Yeah, maybe it's a Five X or ten X potential. Well, but it it was risky, right? We debated that at the board level'cause that could have sunk the company'cause our rocket ship on our first product was going up. And we right we had to take our eye, had to take my eye off that ball. to start this thing and it it did cause that first thing to suffer.

55:59 But overall the trade off was worth it. But It could have wor it was risky. Our our most recent episode was about NVIDIA, which had a tiger by the tail with gaming, as everyone knows. They totally took their eye off that ball to start building for life sciences, for um scientific computing, for what became neural networks and and machine learning. And boy was it a good thing they took their eye off that ball. You know the hidden thing that there?

56:26 You need a CEO that was engineering type that went to Oregon State University. I don't know him, but we We b there are very few of us organs state beavers as CEOs, let me tell you. I know Jensen well, actually. Lo look at the NVIDIA stock price. It was flat ten years in a row. Before they took off. Really he.

56:55 Had to. Persevere through that decade is amazing. Yeah. I remember when starting Viva first time I started a company I asked a friend who had started some other companies I I'cause I realized about three months in, God, this is really hard work. I'm working every day really hard every hour. So I asked my friend, Is there any way to do this without working that hard? And he very quickly said, No. There's not.

57:25 Isn't that true Eric? Good news, I do not think that's a work, because we all enjoy that, right? This is a part of life. What uh uh otherwise what can you do? Are you gonna play golf? No. So there's no shortcut. Exactly. No shortcut. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part.

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59:09 And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is. Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale. Go check out service now dot com slash acquired and tell'em that Ben and David sent you. All right, well we uh we gotta wrap, but there's a a quick way that we end every acquired episode, which is with grading and for companies that are in the middle of their journey like both of yours. Um we like to ask it as a little bit of an open-ended question.

59:42 What makes the future of Zoom and Viva an A plus? what's the like scenario where it goes incredibly well, paint that for us. And what's the failure case? Oh, let's see. I don't Any time to think about the failure case, honestly, I just not wired that way. A plus is We really help.

1:00:03 Automate this big industry. two trillion dollar industry and if we can help to automate it and be that trusted partner that that is essential to that industry. And using that word very specifically essential. And appreciate it. There's not been anything like that before where you're automating a whole industry in a meaningful way, right? Essential. You're gonna be a life sciences company, you gotta use Viva. And man, you like that.

1:00:29 Yeah. So That would be a big success and then We have a bit of a social mission too, to prove that you can

1:00:38 You know, you can be a good company. profitable, etc., but also be a a good contributor to society and And the employees so That would be success. You were the first public company to convert to a B corporation, exactly. Uh to a public benefit corporation. But that's just the more the formality of it. It's you know the way we've operated the company is always So that's success.

1:01:01 really automating this industry and contributing to a good You know Being an example of a good employer. So that other people could copy it. Love that.

1:01:14 Yeah, so in our case I would say the that's a good question. A process scenario would be You know, Zoom be w will be a very successful plan of a company. We are gonna introduce a multiple new services and uh people can count on Zoom. To achieve a more At the same time we can

1:01:30 also grow up revenue every year. That's probably a plus scenario for managers to come, right? In Tumor So a failure scenario, I would say maybe you go back to WebEx. That's a failure scenario. So and uh Yeah, Peter right. And I did not think about it a failure scenario, but uh we've just thing about it be very optimistic. Think about the future. Seriously, I you know, w we're all founders, right? The CUs. We all feel the huge pressure.

1:01:58 But uh sometimes it cannot be, you know, too paranoid. otherwise every day you think about too much about a failure case. Failure case. Guess what? You do not dare to move forward. Right.

1:02:08 That's why I see To not to not think about that. So. Next time do not ask me this question. So only the paranoid survive, but don't let it consume you. I think you're paranoid about not doing your best, right? I think Eric you put a ton of pressure on yourself. You don't feel good if you don't do your best, right? So I think that's I see that in Eric.

1:02:31 Love that. Right. Thank you all. Thank you for being here in the room with us and uh

1:02:38 Mostly Thank you to both of you, thank you to Emergence for facilitating this, making it happen. Yeah, but thank you, emergent capital. Thank you, Sandy. Thank you all for you. Yeah. Thanks. Thank you. Thank you. Well done. Thank you, Peter.

1:03:04 All right listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig. whether they are iterating on their core product features or shipping AI powered experiences at scale. Yep.

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1:03:53 So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. All right, listeners. Well, thank you so much for joining us for this. I actually cannot imagine a more useful topic right now than dissecting how to build great companies on little capital, uh, based on the era that we're going into. I think, you know, David and I don't need to debate this endlessly like you can hear the the drum beats on Twitter of

1:04:26 how much the market is changing, but um You know? The reality is it is. And where everyone has to play the game on the field and uh Peter and Eric have have just

1:04:36 It's just unbelievable and impressive the what they have built on so little capital. They're Two of the greatest of all time. Literally two of the goats at this. Which is so funny, you know, now everybody thinks of Zoom is the you know, pandemic, you know, high flyer and it's like I was just thinking every time for the last few years, like that people would talk about Zoom in whatever context.

1:04:57 Do you people realize how much cash flow this company is generating? And it's all because of, you know, this DNA and mindset and everything we talked about with them. And after spending time with Eric. I mean, it f feels to me like the amount of time that he spends thinking about Oh no, the stock was going crazy and oh no, now it's going down is like approximately zero. they're thinking about how do you build a great company and how do you

1:05:22 Generate. Happiness for customers. build a profitable enterprise and grow that profitable enterprise and It was a nice refreshing viewpoint to get to spend time with him and Peter. Well, if you want to chat about this with us, uh, we would love to do that with you. You should join the acquired community Slack at acquired.fm slash slack.

1:05:43 twelve thousand smart, courteous, and uh kind people have done so. before you, so you would be in great company. We also have our limited partner show, and if you want more acquired between uh now and our next special, which we have recorded and is awesome and we are very excited to release. uh you can search acquired LP show in any podcast player. Spotify Overcast Apple Podcasts.

1:06:07 Anywhere you listen to podcasts and find that there. We have a job board. acquire.fm slash jobs where we curate the most interesting jobs that we think we should make available to the acquired community. Huge thanks as well to our friends.

1:06:22 An emergence for Making this possible. That's so true. I'm so happy I'm wearing my emergence capital fleece right now. You gotta rep the swag with pride. Gotta rep the swag. Seriously, I was thinking as you were saying that, I mean, no we Talk about the slack at the beginning and end of every episode. It really is like It's not just like oh you should join the slack'cause you like acquired like

1:06:41 You know, if you're listening to this, you are probably a founder, an employee, an investor, you know, working at companies of any size where this is relevant and so is everybody else. And people are like this community is amazing. People are talking about this in Slack. Jake from Emergence is right there in Slack to talk about this. Uh yeah, people DM each other There's so much vibrant discussion. Can't underline it enough. It's such a great part of the acquired community. And if you're not part of it, you should absolutely join.

1:07:09 That you should. All right, listeners. See you next time. We'll see you next time. Who got the truth? Is it you, is it you, is it you Who got the truth now?

1:07:20 Oh.

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