AcquiredCapital-Efficient Growth (with Zoom CEO Eric Yuan & Veeva CEO Peter Gassner)
EVERY SPOKEN WORD
70 min read · 13,704 words- 0:00 – 4:10
Why this episode is unique: Emergence CEO Summit goes public
- BGBen Gilbert
Yes, it is very appropriate to be on here on Zoom with you, recording [chuckles] these before, uh, going into the interview with Eric.
- DRDavid Rosenthal
If only we had our, uh, our notes on Veeva.
- BGBen Gilbert
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 Veeva.
- DRDavid Rosenthal
Peter is very focused on clear and correct target markets.
- BGBen Gilbert
Yes.
- SPSpeaker
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? Sit me down, say it straight. Another story on the way. Who got the truth?
- BGBen Gilbert
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.
- DRDavid Rosenthal
And I'm David Rosenthal, and I am an angel investor based in San Francisco.
- BGBen Gilbert
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 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 shared publicly. Well, today, we are doing just that. 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 Gassner, the founder and CEO of Veeva Systems.
- DRDavid Rosenthal
I think this is the first time that any content from any venture firm CEO summit has been specifically created for podcast public consumption. It's so cool.
- BGBen Gilbert
I think Peter has never done a podcast before.
- DRDavid Rosenthal
I think that's right.
- BGBen Gilbert
And he's built a twenty billion dollar company?
- DRDavid Rosenthal
Yeah. The Veeva Systems story is amazing, as you will hear. We talk about they raised four million dollars. That's four, like one after three. [chuckles] 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 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.
- BGBen Gilbert
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?
- DRDavid Rosenthal
Yep, yep.
- BGBen Gilbert
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. So rapid scaling on very little capital is something they obviously both know a lot about. David mentioned the four million total funding that Veeva raised before going public. As you remember from our Zoom episode with board member Santi Subotovsky, also an Emergence Capital partner, Zoom raised thirty million dollars from Emergence and another hundred million dollars from Sequoia afterwards, and they never touched the vast majority, i-if not all, of those funds.
- DRDavid Rosenthal
I think they didn't touch any of that hundred and thirty million dollars. Eric had raised... Well, as you'll hear about, he'd raised some money from angels along the way, and that funded product development, but none of the venture money was consumed.
- BGBen Gilbert
It's crazy. So if you're excited to learn about how these companies managed to pull off enormous impact with very little capital to do so, you are in the right place, and if you wanna discuss these topics with us after you listen, you should come join the rest of the Acquired community. I think we're twelve thousand strong now, David, at acquired.fm/slack. You should join us. It is always a riot.
- DRDavid Rosenthal
This will 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.
- 4:10 – 7:25
Sponsor: Solana / GenesysGo — decentralized infra economics
- BGBen Gilbert
It's true. As many of you know, we are excited that these special episodes are brought to you by the Solana Foundation as our presenting sponsor. Now, Solana is a global state machine and the world's most performant blockchain. What does that mean? It means developers can build applications with super low transaction fees, low latency, and not compromise composability, since it is all on a single chain with one global state, and many of you have heard this, Solana is capable of processing tens of thousands of smart contracts at once. Today, we are talking with Frank, the co-founder and CEO of GenesysGo. All right, Frank, welcome to Acquired. Thank you so much for being here. My first question: Can you tell us, what is GenesysGo?
- SPSpeaker
Thanks so much for having me. Super excited to be here. So GenesysGo, at its heart, is an infrastructure project building primarily on the Solana blockchain. We've been bringing decentralized networks to a piece of the Solana network stack that's traditionally been very centralized, and by utilizing our native token, a shadow token, we effectively have been able to take very centralized network architecture, decentralize that in a way where anybody can step in, contribute, compute power, storage power, and receive emissions in exchange for that. And what that's provided software developers on the Solana blockchain is the ability to get highly performant infrastructure at zero cost, thus lowering the barrier for entry for new developers who wanted to come online and needing a stable platform to build on.
- BGBen Gilbert
And how exactly are they able to get zero-cost infrastructure, and how does the decentralization element play into it?
- SPSpeaker
That's kind of like the magic of Web3. We took a page from all these NFT projects out there. We're issuing NFTs and basically used our NFT as a mechanism by which we decentralize our network. Whenever an NFT is traded, there's what's called an NFT royalty that gets paid, and that pays for our network architecture.... And that's kind of like the backbone, right? The foundational aspect of it. But over time, as a network becomes more and more decentralized, the costs associated with running that network, right, the operational costs, are spread out further and further as more and more operators start to come online. And those operators, they carry those costs because they're earning emissions. It's very similar to, uh, if you think about, like, the Bitcoin network, right? The actual Bitcoin blockchain. People contribute compute. They're paying for the hardware and the electricity and everything in order to contribute that compute, but they're doing so because they believe that the emissions in the token, which in our case is in Shadow Tokens, they believe that their Shadow Token emissions are going to be more than enough to offset their own costs.
- BGBen Gilbert
That's awesome. Frank, thank you so much.
- SPSpeaker
Thank you very much.
- BGBen Gilbert
Our thanks to Solana. If you are considering developing on Solana, head on over to solana.com/developers, or click the link in the show notes. Now, as always, this is not investment advice. Please do your own research. 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 Emergence CEO Summit with Eric Yuan and Peter Gassner.
- 7:25 – 11:26
Fundraising histories: Veeva’s $7M total vs. Zoom’s hard early road
- DRDavid Rosenthal
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 Veeva and Zoom's IPOs.
- BGBen Gilbert
And-
- DRDavid Rosenthal
Which ordinarily, that would take, like, an hour.
- BGBen Gilbert
This is gonna be pretty short.
- DRDavid Rosenthal
This is gonna be very short. [chuckles]
- EYEric Yuan
Talking about your-
- PGPeter Gassner
Private financing history. [laughing]
- EYEric Yuan
Go ahead.
- PGPeter Gassner
Yeah, go ahead, Peter. Uh, ours are simple angel investors when we just started, and then Emergence, uh, about fifteen months in. So angel investors, I think that was three million, and, uh, 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 within about a hundred thousand of using it, and then, and then we went public. So that's- [laughing] [clapping] The timeframe, we started in, uh, 2007, in February, and we raised in about 2008, maybe March or so. So that was the environment at the time.
- BGBen Gilbert
Another very simple time to be fundraising and company building in.
- PGPeter Gassner
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. [chuckles]
- DRDavid Rosenthal
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 Veeva?
- PGPeter Gassner
Yeah. We're doing about two billion, about thirty percent proper, so yeah.
- DRDavid Rosenthal
Amazing. Eric, could you, uh, share your fundraising journey with us?
- EYEric Yuan
Sure, sure. I started company in 2011. The first thing I did, I opened up a Wells Fargo bank account. I thought it ca- it, 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 wanted to invest in me. Unfortunately, I do not know my brother, Sandy, and Emergence Capital, otherwise, m- life would be much easier. And finally, and, uh, talking to some friends, and raised the, the three million seed funding. That's how we started. And for when it comes to A round, I tried to talk to VC again, and again, nobody wanted to invest us either. So... And, uh, you know, we talked to the friends, and I could get another six million, and that's how we started. Yeah. It's very hard.
- BGBen Gilbert
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?
- EYEric Yuan
Absolutely right. That's a thing. Everyone mentioned, "Eric, you are crazy. The world do not need to have another video conference solution." And another VC friend, you know, even is this great friend, he, he told me that, "Eric, I have a check for you as long as you do something else." [laughing] Good news, I did not listen, and I was very stubborn. I should share with you a story. And once I was stopped by a big VC, I do not want to mention the name. Uh, for sure, you guys do not like them. So... [chuckles] And, uh, he told me that, "Eric, I do not think your strategy works. You know, look at Skype. Look at Google Hangouts. Look at WebEx. Dominating, right?" And I, I debated with him a little bit. I failed, and I cannot convince him. On the way back, I told myself, "I'm gonna change my Windows screen saver." Back, back then, I used a Windows machine. I changed the Windows's, Windows' screen saver, "You are wrong." So... [laughing] For several years.
- PGPeter Gassner
Yeah.
- BGBen Gilbert
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 Pete, uh, Peter, you did not dip into any of that hundred and thirty million. Is that correct, to, to build the business?
- EYEric Yuan
For me, actually, offered a certain meeting, you know, from Emergence 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 raise a Series D, actually, because at that time, you know, I think with that certain meeting, I think the company completely into a, a, I feel, feel like a different game. So yeah.
- BGBen Gilbert
Wow!
- 11:26 – 12:58
Why raise extra capital at all? Zoom’s ‘just in case’ round
- DRDavid Rosenthal
What, uh... That's one thing we wanted to ask, is a difference between your two companies. Peter, you obviously, once you got to cash flow profitability, [chuckles] which was immediately, uh, basically, y- you never raised another round. Eric, you did make the decision 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 did, why did you make that decision?
- PGPeter Gassner
Uh, well, for Veeva, I 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. [chuckles] So, you know.
- EYEric Yuan
So yeah, as I mentioned earlier, I offered to raise a certain meeting from, uh, Emergence Capital. At, at that time, seriously, we had no plan whatsoever to raise another round of capital. And, uh, the reason why we still, uh-
- EYEric Yuan
... uh, when, move forward to have a Series C, 'cause I thought our economy will win- will go down, like, dramatically. [laughing]
- PGPeter Gassner
[laughing]
- DRDavid Rosenthal
[laughing] This was 2017?
- EYEric Yuan
Uh, '16, '17 timeframe.
- DRDavid Rosenthal
Yeah.
- EYEric Yuan
I was completely wrong. So, but anyway, so-
- BGBen Gilbert
It had been the seven-year bull run. Of course, the, the end was near, right?
- EYEric Yuan
Yeah. So, and, um, long story, but anyway, so.
- DRDavid Rosenthal
Yeah.
- PGPeter Gassner
Yeah. I, I think that 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.
- EYEric Yuan
That- that's right.
- PGPeter Gassner
Yeah.
- 12:58 – 16:17
Capital efficiency as culture: focus, product excellence, and being ‘non-obvious but correct’
- BGBen Gilbert
S- so as we were preparing for, um, this interview, our, our first thought was, if we just had one of you up here, uh, and we were interviewing you about capital ef- efficiency, it'd be easy to chalk it up to business model and cash flow cycle. You know, multimillion-dollar contracts up front on, you know, in the case of Veeva, 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, uh, capital efficiency is a mindset and culture thing more than a business model thing. And I'm curious to hear y- both of your reactions to that, but, but also, what are the things that enabled you, uniquely, more so than 99% of startups, to be so capital-efficient?
- PGPeter Gassner
I can take that one. I, I guess I've seen a little bit of Zoom and a little bit of Veeva. Uh, I would say probably i- it starts with a mindset. You know, just run a profitable lemonade stand. From my point of view, for me, it was... There's safety in that. Cash-generating business, business is always gonna be valuable to somebody. At some point, a business that's not cash generating is gonna be valuable to nobody, right? You might be able to sell it before it becomes ir- you know, not valuable, but you can only s- there's only s- there's security in long-term, uh, you know... So it starts with a mindset. I think Eric sh- uh, shared that, and then, 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 worked really hard. You know, 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 worked really hard, worked really focused. Anything that wasn't related to the product or the customer was just BS, you know, and, and just don't do it. Like, uh, first five years, I was not at a [chuckles] 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... It was the right timing for Veeva. It was the right timing for Zoom. Maybe if you started Zoom five years earlier or five years later, it would've been hard-
- EYEric Yuan
Totally
- PGPeter Gassner
... 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 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 you, you have to... So we're outlier, right? And so is Eric. You have to 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, turned us down, right? And ours was really simple. Vertical-specific software, that's a small market, and it doesn't work, right?
- BGBen Gilbert
[chuckles]
- PGPeter Gassner
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."
- 16:17 – 19:49
How they gained conviction: listening for customer emotion, not customer words
- DRDavid Rosenthal
Well, one thing that I want to double-click on that we were talking about beforehand, um, yes, like, you need to be non-obvious to have a chance of a great outlier outcome, but you also need to be correct.
- PGPeter Gassner
Yeah.
- DRDavid Rosenthal
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 Veeva has, as one of your core values, clear and correct target markets-
- PGPeter Gassner
Yeah
- DRDavid Rosenthal
... that you have, like, written on the wall.
- PGPeter Gassner
[chuckles]
- DRDavid Rosenthal
What did each of you do, you know, 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?"
- BGBen Gilbert
[chuckles]
- PGPeter Gassner
I'll go first. It's real easy. I, I talked to three or four potential 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 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. [laughing]
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
[laughing] All right, so let me-
- PGPeter Gassner
They're all customers now, though. [laughing]
- BGBen Gilbert
Let, let me understand the Peter formula to build a business. Ask a customer if n- they want your product. They say, "No." You dig deeper and say, "What are you using now?" And they say, "Oh, 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.
- PGPeter Gassner
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, "Well, well, um, uh..." And that's when you know.
- DRDavid Rosenthal
That, that sounds like the video conferencing market, circa about- [laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... 2015, 2016. [chuckles]
- EYEric Yuan
Yeah, so y- for me, it's very straightforward because I was, uh, original 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- [laughing]
- PGPeter Gassner
[laughing]
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
[laughing]
- EYEric Yuan
And, uh, so-
- DRDavid Rosenthal
... Did you, did you try and tell Cisco that, or?
- EYEric Yuan
I, I, I tell my team. I do not dare, dare to tell others. So, [laugh] and but anyway, so, mm, uh, Skype also not reliable, right? Google Hangout do not work. Every day I spent a lot of time talking to every customer. I know if I can build a better solution, I think at least I can survive. I never thought about everyone is going to standardize on Zoom platform. But at least I know for sure is, if a customer, they do not like something, if you can build something better, you have a chance.
- BGBen Gilbert
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?
- EYEric Yuan
I think two things. First of all, at that time, my passion was very straightforward, 'cause, you know, Webex more li- more like my baby, right? I feel like I worked so hard for so many years. I let the customer down. I really wanted to, wanted to fix that problem.
- BGBen Gilbert
[chuckles]
- EYEric Yuan
But Cisco do not want me to, to start over, and I had no choice, you know, but to leave to build Zoom. That's the number one reason. And after I started the company, I realized, wow, it's so hard to raise capital, right? And by the way, the money that investor they gi- they give to you, don't think about as 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, how to survive, how to survive. Even today, seriously, I still think about, I woke up at night, you know, how to survive, so.
- 19:49 – 22:12
Hiring for efficiency: engineer-heavy Zoom vs. sales-first Veeva
- DRDavid Rosenthal
But the, um... You, you mentioned, uh, you know, people in your, your team.
- EYEric Yuan
Mm.
- DRDavid Rosenthal
When you started Zoom, you were a solo founder, but you brought a large [chuckles] number of people with you. Um, you know, one of the, the kind of first sorta operational topics we wanted to dig into around this, this topic of, of capital-efficient growth is hiring and, and people. Uh, 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. [chuckles] How, how did you select for, uh... Maybe both of 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?
- EYEric Yuan
So all of them are very good engineers, right? Except for me. So [chuckles] I, I did not write any code.
- BGBen Gilbert
[laughing]
- EYEric Yuan
So... And, uh, on day one, we had around 25. Very soon, we, we, we get another 15, total of 40 people, and myself included. All the certain them, people, they all write all kinds of code.
- DRDavid Rosenthal
And this was all funded with angel money?
- EYEric Yuan
Yes, exactly.
- DRDavid Rosenthal
Wow!
- EYEric Yuan
But the problem, I know actually, you know, we can, we run rate probably less than two years, right? That's why later on we had a Series A. But, uh, we only have engineers, just get the product done, and I'm more like a product manager, UI designer, and also the, the facility guy, everything else. You know, seriously, on day one, I, I, I bought the, uh, used furniture, you know, assemble everything by myself, and also write down the company culture and value. That's pretty much what I did. So I would say is, uh... And even for the several, first several years, after product ready, 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 on the, you know, billboard and what, what." At that time, I said, "No." For the first four years, we do not have any marketing team. Only until 2015, we started, you know, building up a marketing team, so-
- DRDavid Rosenthal
So I just want to make sure we-
- EYEric Yuan
I have to be very disciplined, yeah.
- DRDavid Rosenthal
To just highlight this, so, you know, you started the company with 25, quickly growing to 40 people, but those were 39 engineers and you.
- EYEric Yuan
Yes.
- DRDavid Rosenthal
No product managers-
- EYEric Yuan
Yeah
- DRDavid Rosenthal
... no marketing, no sales.
- EYEric Yuan
Yeah, yeah. And that's the reason why I know how to use QuickBooks. [laughing]
- BGBen Gilbert
[laughing]
- EYEric Yuan
I never know how to use that. So seriously, I had to learn how to use it, and, uh-
- 22:12 – 27:05
Getting the first customers: Mossberg’s breakout for Zoom; hustle and a ‘revenge buy’ for Veeva
- BGBen Gilbert
So, so it sounds very easy to say, uh, "Don't buy billboards." Um, you got to get your customers somehow. H- How did you get the snowball going?
- EYEric Yuan
Uh, a little bit of lucky, 'cause seriously, and luck doesn't play a role. Because, y- y- you know, the several weeks before we launched the product, seriously, we had no idea how to get a first customer. Luckily, you know, when, uh, you know, the very famous, uh, you know, the, uh, uh, reporter, the, the Mort- Walter Mossberg, right? He evaluated our service, and we were so nervous. You know, he's very straightforward, right? And the good news, he, he, he did write down a very nice article, published in Wall Street Journal, and also he personally recorded a video. And overnight, we got fifty, fifty thousands.
- BGBen Gilbert
Fifty thousand-
- DRDavid Rosenthal
Wow!
- EYEric Yuan
Yeah. Users
- BGBen Gilbert
... users from that article?
- DRDavid Rosenthal
Wow!
- EYEric Yuan
But most of them, they left, you know, after [laugh] several-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
[laughing]
- EYEric Yuan
After several weeks.
- BGBen Gilbert
But those who stayed, I imagine-
- EYEric Yuan
Stayed
- BGBen Gilbert
... that was the kernel of the, the virality of telling their friends-
- EYEric Yuan
Absolutely
- BGBen Gilbert
... who told their friends, who told their friends.
- EYEric Yuan
I maintain a very good personal relationship with them. Either VIP account or send them a small gift. And sometime they canceled, back then only $9.99. I personally send them an email: "Why you cancel our service? What we can do differently?" [chuckles] And, yeah, we still maintain a relationship today, even today, so.
- BGBen Gilbert
Mm. We, we had, uh, so one of the CEOs wrote in and, and asked us about different metrics to track. W- Did you have a North Star? After you had those 50,000 people, where you realized, "Okay, I'm holding something in my hand, and the, the sand could slip through my fingers, but is there something I can measure to see if this 50,000 can turn into something?" What were you paying attention to?
- EYEric Yuan
To, to those of, uh, uh, very early, very loyal early adopters.
- BGBen Gilbert
Yeah.
- EYEric Yuan
You know, even 100 are good enough. They are, they are the early, you know, uh, I would say is the most loyal users. Double down 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. You know, that's why even ninety- 49,000 users left, as long as 100 still stayed, we, we, we double down on that, so.
- BGBen Gilbert
Mm.
- EYEric Yuan
Yeah, that's a strategy back then.
- BGBen Gilbert
Mm, all right-
- DRDavid Rosenthal
... for Peter, on the hiring and people and organizational front, um, you had a very, very different type of business. Uh, your customers don't buy with credit cards. [chuckles]
- PGPeter Gassner
Right.
- DRDavid Rosenthal
They buy mul- multi-million dollar deals, cash up front in a year for a year deal. Um, y- you need a sales force to-
- PGPeter Gassner
Right
- DRDavid Rosenthal
... to sell that, which usually means you need a lot of cash comp to compensate that sales force. [chuckles]
- PGPeter Gassner
Right.
- 27:05 – 31:57
Enterprise as a growth engine: the Pfizer deal and funding product via revenue
- DRDavid Rosenthal
How... Can you tell us also the story of landing your first big customer? The-
- PGPeter Gassner
The big customer.
- DRDavid Rosenthal
The- which I, I believe is probably the deal that really made the business.
- PGPeter Gassner
Yeah. Uh, there was a set, right? There was the first, the, the guy who was just peeved at his 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 multimillion-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, salesforce.com, actually, at the time, said, "I'll, you know, send a note that Veeva will never win this deal," and I replied back, I said, "We, we will win this deal." And I-
- BGBen Gilbert
They sent it to you during the bake-off?
- PGPeter Gassner
Yeah, 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. And so, and, uh, the co- and I remember there was this big meeting with Pfizer. There was a guy in there in charge of it, and we had a certain amount of people in the meeting, and the guy stood up from Pfizer. He said, "We have more people in this meeting room than you have in your company." [laughing] You know, "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 it seems simple to me, and then we got lucky, and-
- DRDavid Rosenthal
Good
- PGPeter Gassner
... uh, we won it. And then, and then I remember after winning it, thinking: Oh, my God, 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, a formulaic metric. It was based on interviews.
- BGBen Gilbert
So did you use the invoice from that customer to then go fund product development?
- PGPeter Gassner
Yeah. I was- I thought, "Oh, we've just raised a three-million-dollar round of capital here," [laughing] and it didn't cost us any dilution, right? The check came in, so that's exactly what happened. Yeah.
- BGBen Gilbert
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 i- invoice a customer and get cash in the bank," and, you know, what, what situations is it possible to fund your product, uh, with customer revenue versus not?
- PGPeter Gassner
I think it's... First of all, you can't be wasteful. Every person has to matter. I would almost 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 metalworking 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 him a 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. So like Eric's product, you probably all, all notice it, that it's easy to use, but he made it easy to 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, right? You, you didn't have any salespeople.
- EYEric Yuan
By the way, I, I, I read it, uh, the Peter's, uh, S1 document many years ago. At that time, I still remember, "Wow, my God, this business model is so awesome." [chuckles] So, and but in our case, our first repeated customer, uh, largest repeated customer, only 2,000 a year. So we cannot [laugh] use that-
- DRDavid Rosenthal
[laughing]
- EYEric Yuan
-to fund the new product development. 'Cause most of users, they pay us only for $999 a month, right? So that's really hard. But I do think, you know, you know, 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 Peter and Veeva does, uh, that's the best. Do spend the time on that, right? Not only for product, but also the business model, right? As Peter mentioned, product excellence and how to sell the product, you know, and how to leverage the big enterprise customer, as is very important to build a long-term sustainable company. In our case, actually, I can tell you, today, the biggest challenge is our online business.
- PGPeter Gassner
Mm.
- EYEric Yuan
Right? It's very profitable. However, it's very hard to predict, right? They come today, next two months, they might leave, they cancel the service, as it's not a, a great business. So, but enterprise portion is very good. You know, that's why I learned a lot from Peter, you know, how to manage a big enterprise customer.
- PGPeter Gassner
We met at an Emergen- Emergence event way back when. That's how we first met, Eric and I.
- DRDavid Rosenthal
Yeah, wow!
- PGPeter Gassner
It was smaller at that time. [laughing]
- DRDavid Rosenthal
[laughing] Hopefully, there'll be some more connections like that today.
- PGPeter Gassner
Yeah.
- 31:57 – 34:39
Contracting strategy: avoid multi-year lock-ins to maximize long-term value
- DRDavid Rosenthal
One, one, um, thing I wanna highlight on, on this topic of, of contracts and funding development, because I think it's really counterintuitive. Again, the topic is capital-efficient growth. You would think that what you would wanna do with the, you know, that Pfizer deal, for example, or Eric, when you started selling enterprise contracts, is multi-year deals. 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, right? [chuckles]
- PGPeter Gassner
Yeah. Yeah, we didn't do that, uh, 'cause 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," 'cause 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. I wanted us to earn the business every year. So it was just sort of like that. The driver was really optimizing to the long-term value.
- DRDavid Rosenthal
Yeah. Which is, you know, uh, 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-
- PGPeter Gassner
Thirty percent
- DRDavid Rosenthal
... or lock in the price.
- PGPeter Gassner
Yeah.
- DRDavid Rosenthal
Then raising prices is harder later.
- PGPeter Gassner
And that's unique to us. I think we're selling in a very confined vertical, so it's not really fair if there's two companies and one, one's paying thirty percent less than the other, and they, they, they end up knowing about it and feel ba- feeling bad about it.
- DRDavid Rosenthal
[chuckles]
- PGPeter Gassner
So that's something specific to this confined market.
- BGBen Gilbert
A- and to put some shape around it, for folks that don't know Veeva's business as well, you've a couple thousand customers, of which there's a hundred or so that are your, like, really big customers?
- PGPeter Gassner
Yeah.
- BGBen Gilbert
And there's basically no one else out there who could be a customer without you expanding the market.
- PGPeter Gassner
Right. We, we have a... We sell into a defined set of customers, life sciences industry. There's kind of 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 twenty things that we can sell to them. They start in this area, they start in that area. So, uh, Gordon called 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 $100,000 a year maintaining free relationships.
- BGBen Gilbert
Mm-hmm.
- PGPeter Gassner
You know, just putting into developing relationship. That's not wasteful. So-
- BGBen Gilbert
Right
- PGPeter Gassner
... because we have a lot of, we're showing up at the door with $100 million worth of product.
- BGBen Gilbert
Right.
- PGPeter Gassner
So if you have a relationship, it's, it's worth it. Like a bank, a bank, investment banking, it's worth it in this. So it's a different type of business.
- 34:39 – 38:52
Sponsor break: Mystery — managed team experiences + engagement measurement
- DRDavid Rosenthal
For our second sponsor, just a company that is so special to us and the community, Mystery. I think at this point, probably everybody listening knows about Mystery and their story, but we've had these guys on the LP show back in the day. They've pivoted twice. It's been this incredible journey, and they have landed on something that is just... I- it's just, frankly, incredible to watch.
- BGBen Gilbert
And we know for a fact that a lot of the Acquired community took the Mystery folks up on their last offer from the last episode, so we are excited to share more details on that. But certainly, many more of you are familiar with Mystery than were even a couple months ago.
- DRDavid Rosenthal
I know, I know. It's so cool. So when Mystery had originally started as a consumer-facing, magical recommendation platform to take care of, you know, a night out for you and your significant other or your friends, make it magical, you don't have to do any planning. COVID hit, that obviously [chuckles] was not a great business to be in during COVID. They pivoted to doing virtual and remote teams and office culture, and [chuckles] man, God, those Zoom happy hours that teams were doing and companies were doing were just terrible.
- BGBen Gilbert
I'm glad we're through that.
- DRDavid Rosenthal
Oh, I'm glad we're through that, and I'm glad we have Mystery because they take all of that over for your company. I- it's crazy. They work with Amazon, Microsoft, Apple, McKinsey, Uber, Twitter, Autodesk. All of these companies use Mystery to completely take over the planning, the organizing, running all of the team experiences for their internal teams, oftentimes also for external-facing customer events with their partners, and it is way, way, way better than the Zoom happy hours. [chuckles]
- BGBen Gilbert
Yeah, not only do you have to, like-... not do the work that you would've had to do to plan it before, but they're just, like, way better, too, because the Mystery team, I know there's a bunch of, like, former wedding event planners.
- PGPeter Gassner
And they get amazing performers. It's super cool. And this is what's cool, what they've built out, like, obviously, there's this, you know, events aspect. They've built out the software side of this, too. So Mystery now tracks employee engagement and customer and partner en- engagement, participant engagement with your events, and the impact on employee satisfaction, retention afterwards. You know, before Mystery, ninety-plus percent of a company's morale budget was frankly misspent, [chuckles] and the reason why was there was no way to track whether, you know, going go-karting with your team or anything actually had any impact or moved the needle. Mystery solves all of that, not by- by not only taking care of the events, but then giving you full insights into what the actual impact was on your team and on your employees. So they have, you know, today, executed thousands and thousands of these events. This scales up and down as big or small as you want. Modern Treasury uses them, Convoy uses them, so many other friends of the show. Mystery just raised a giant Series A from Greylock to blow everything out further.
- BGBen Gilbert
Yeah, and for listeners, uh, in case you missed it on the last episode, they have the greatest deal ever offered to the Acquired audience. I looked it up, and I was trying to do some quick math to figure out, has anyone ever discounted this well or offered this great of a free, you know, early experience? Uh, no. So Mystery is giving you three Mysteries for the price of one, which means that the first event is just twenty-five dollars per person, regardless of the team size, and the next two are free. And of course, because Mystery is Mystery, and this is what they do, they sort of learn from that first event about you and your team and get tighter on how to tailor the next two experiences to sort of build on that and be even better. So you should totally, totally click the link in the show notes and take them up on this screaming deal to try this out with your team. That is trymystery.com/acquired for three Mysteries for the price of one.
- PGPeter Gassner
Super great. Thank you, Mystery.
- BGBen Gilbert
Thanks, Mystery.
- 38:52 – 42:21
Zoom pricing, efficiency, and the ‘10x product’ standard
- DRDavid Rosenthal
Eric, for, for you, I'm curious, may- maybe you can talk to us both in the beginning days and, and then also now at Zoom. How do you think about pricing and account strategy? [chuckles]
- EYEric Yuan
Yeah, so, you know, our case is a little bit different. You know, ideally, when you start a SaaS 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 competitor are already there, right? So our strategy-
- DRDavid Rosenthal
Including free competitors.
- EYEric Yuan
Exactly, a lot of, you know, free solutions. So our strategy to, you know, more like a, you know, you open up a new restaurant business, right? So... And, uh, you have a better service, right, and a better price, and better food. That's pretty much even today. You know, we wanna make sure our product are better than our competitors, make sure when it comes to pricing, also better. And also make sure, you know, offer the better service. So you look at any time, our product always, always a better price, you know, across the board, any product, compared with any competitors.
- BGBen Gilbert
So life is about trade-offs, and if you're telling a customer, "Oh, we're better, faster, and cheaper," wh- what has to give? Is it something organizationally? Is there something-
- EYEric Yuan
Efficiency.
- BGBen Gilbert
Efficiency.
- EYEric Yuan
Yeah, exactly. You know, say, like, a customer, they are, they are probably going to spend a lot of money on, on marketing. You know, what we can do to leverage the network effects, right? You know, they hire, like, uh, one hundred sales rep. What we can do to have a fifty sales rep, you know, can deliver the same value, right? So that's why it is very important to have a, you know, internal, you know, efficiency. Yeah.
- DRDavid Rosenthal
Which is, you know, uh, it's so funny [chuckles] that efficiency translates to capital efficiency, which translates to gross margin- well, not gross, to operational margins, which translates to cash flow. [chuckles]
- EYEric Yuan
Totally.
- DRDavid Rosenthal
Which is the whole point.
- EYEric Yuan
Yeah, give you more flexibility, right? Yeah.
- DRDavid Rosenthal
Yeah.
- PGPeter Gassner
But I would say the key also is just the product excellence, right?
- EYEric Yuan
Yeah, totally.
- PGPeter Gassner
And that comes from-
- EYEric Yuan
Yeah
- PGPeter Gassner
... the core set of engineers you hired, I think, and then also the... You were, you were especially very focused in the early days, right?
- EYEric Yuan
Totally.
- PGPeter Gassner
You were not thinking about something else, right?
- EYEric Yuan
Absolutely.
- PGPeter Gassner
You were thinking about video conferencing-
- EYEric Yuan
Absolutely
- PGPeter Gassner
... I would say, you know, that's why I got to know Eric. I, I got to know Eric. I thought, "That's a pretty focused guy. I bet his product is good." [chuckles]
- DRDavid Rosenthal
[chuckles]
- PGPeter Gassner
And then I tried out his product, and I, "Oh, this is, this is really good. I want to join his board."
- EYEric Yuan
[chuckles] Thank you.
- PGPeter Gassner
So I think that's so... As the product excellence can make you more efficient, your sales cycle's more efficient, every- everything's better. If your product was, your product was twice as good as Web- Webex, right? If your product was only-
- EYEric Yuan
No, no, ten times better
- PGPeter Gassner
... Ten, ten times better. [laughing]
- 42:21 – 47:15
Leadership scaling lessons: promote potential, but add seasoned execs before hypergrowth hits
- DRDavid Rosenthal
Yeah, let's-- So people, we can come back to that. Um, you know, I remember when we talked about with Santi on the episode we did on Zoom's IPO years ago now, um-... you know, your named executive officers in your S-1 were 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-
- EYEric Yuan
Right
- DRDavid Rosenthal
... and those people, but, uh, 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.
- EYEric Yuan
[background noise]
- PGPeter Gassner
Yeah, I, I think you- I always wanted to have some people with some range. 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 is much more important than the skills of the individual players. Um, it's kind of-
- BGBen Gilbert
In, 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 that job.
- PGPeter Gassner
Well, 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." It could just... At some point, it, that doesn't keep you going at the end of the day.
- DRDavid Rosenthal
Would also come... I imagine there's an element of compensation to this strategy, too, which translates to capital efficiency, um-
- PGPeter Gassner
No, not really.
- DRDavid Rosenthal
No.
- PGPeter Gassner
No.
- DRDavid Rosenthal
I always think of equity versus cash, but, uh-
- PGPeter Gassner
Mm, I don't think so. I never really made any kind of decision on people ba- based on that. But you got to get the right, the right person, and then pay the right compensation for the right person. But always the right person first, and then figure out the compensation.
- BGBen Gilbert
Mm.
- EYEric Yuan
Yeah. Uh, Peter right on. Actually, back then, when we try, we tried to make a offer, right, to some executives, right? You know, at that time, you know, the feedback, "Why not hire some very experienced and seasoned leaders from outside?" It's not really, not about a comp package. Because, you know, w- when it comes to hiring, you know, uh, uh, at Zoom, we really like to hire those people with the self-motivation and a self-learning mentality, right? Including the senior executives. And they can grow themselves along with the company growth. And plus, you know, they are very loyal. I think that's our- that was our philosophy. Uh, I, I thought that's the best philosophy. Uh, after the COVID, I think I was, I was wrong, actually. There's a big flaw also. Because when business auto flows, auto, auto grows your team, and guess what? The, the executives of your team, they are not ready. You know, like usage, like, uh, fifteen times, twenty, twenty times more. [laughing] The revenue, like, uh, seven times more. You know, our team, even not myself included, even not twice better. This is one challenge I, I learned. That's a mistake. Another mistake is we think all those executives or key team members, they can learn along with the comp growth. 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, you know, team structure, right? Someone, you know, they have a potential-
- BGBen Gilbert
Mm
- EYEric Yuan
... they can grow, grow themselves. Someone else, you have to hire some seasoned leaders. You never know, right? In case, you know, suddenly your business is going to take off, at that time, your team not ready. You know, that's a challenge we are facing today, so.
- BGBen Gilbert
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 who are-
- EYEric Yuan
Exactly, that's a healthy mix. You know, back then, prior to pandemic, you know, I was, I think, uh, too stubborn. I should learn more from Peter. [laughing] Is I think everyone, you have to have a potential. You do not only have a great background. Actually, looking back, that's not right.
- DRDavid Rosenthal
Interesting.
- BGBen Gilbert
Mm.
- PGPeter Gassner
Maybe a mix would be better.
- EYEric Yuan
Mix is much better.
- DRDavid Rosenthal
Do you think that applies even... Do you think you should have done that even in the early stages of the company?
- EYEric Yuan
Not early stage, right? You know, for the first four years, no need. But at down the road, you, you already see the market fit, right, the product fit. You want to scale your business. At that time, you have to change your philosophy.
- BGBen Gilbert
Mm.
- EYEric Yuan
Yeah.
- BGBen Gilbert
There's another... I just keep, these parallels keep popping up for me, where 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-ta- house talent is better, it's that you need that mix.
- EYEric Yuan
Totally. Yeah.
- BGBen Gilbert
Yeah.
- 47:15 – 52:00
Marketing discipline: measurement, payback skepticism, and when to double down
- DRDavid Rosenthal
So the last, um, well, one of the last, uh, sort of disciplines within a software company, um, that I want to talk about operationally in this context is marketing. Uh, with, with both of you, but particularly [chuckles] with Eric. We were, uh, chatting with Sadi and, and with Peter, um, you know, we sort of asked this question where, like, you scaled-- Once you got the product developed, you scaled with such beautiful capital efficiency, but you did spend money on marketing. I mean, you joked about the billboards, but there are Zoom billboards now. [chuckles] Um, uh, and I asked them, "You know, how did, how did Eric and Zoom think about spending money on marketing?" Um, and, uh, well, I'll let you tell the punchline, but, uh, uh, how, how did you think about it? [chuckles]
- EYEric Yuan
Yeah, that's, uh... Yeah, yeah, even today, you know, every Tuesday, you know, we have a three hours, you know, staff meeting, right? You know, this morning, the first topic really about reviewing our marketing, top ten marketing programs. Even today, still. I think it's very tricky. The reason why is, you do not have, uh, I would say, is a sort of like a, a formula, right? You know, when to spend more, when to spend less. It's not like that. 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, right? However, when to invest in marketing is very tricky. Every business is different. In our case, we specifically, you know, uh, uh, made the decision, no marketing team for the first several years. You know, because this is not something new, right? This is a product or, you know, this is very, very, you know, mature market. Everyone understands video conferencing. You know, h- how, if your product works, you really don't need to have marketing team, right? We, we tried to prove that point. You know, after that, after we have a paid customer, a lot of customers, a customer told us, "Eric, I never heard about Zoom, but I tried your product. The product works," right? Why is that? We received a very consistent feedback like that. I know that's a signal, right? Then we doubled down on that. Then 2015, we created a marketing team. And also, even after that, we also measure every marketing program spending. Early on, I spent a lot of time trying to understand. I'll give one example, like SEM, right? Every company, you, you spend money on SEM. First time I, I send a check, oh, my God, this is tr- this is a price I paid to Google. [laughing]
- PGPeter Gassner
[laughing]
- EYEric Yuan
Oh, my God, this is, this is the largest check I'm going to sign.
- PGPeter Gassner
Do you remember how large that check was for context?
- EYEric Yuan
That's, uh, more than $200,000 a, a month.
- PGPeter Gassner
A month? Oh, my goodness.
- EYEric Yuan
Yeah, it's crazy. You know, that's why I say I wanted to deep dive to understand, you know. But by the way, the marketing team is all very well educated by Google, right? In more like a talk about our way, you give me $1, I give $1.50 back. You know, it's-
- BGBen Gilbert
Let's do that.
- EYEric Yuan
Pretty good, right?
- BGBen Gilbert
Yeah.
- EYEric Yuan
But I tell them, "No, it should $3 back." [laughing]
- BGBen Gilbert
[laughing]
- EYEric Yuan
Why $1.25? [laughing]
- PGPeter Gassner
Well, I particularly want to ask you about, uh-
- EYEric Yuan
Exactly
- PGPeter Gassner
... the time frame you wanted that money back.
- EYEric Yuan
Spent a lot of time how to optimize 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. [upbeat music] That's it.
- PGPeter Gassner
The, the stories we heard where, you know, most founders, CEOs, marketing teams think about CAC to LTV with marketing, you know, and there's more complexity to it than that, but I'm going to spend a dollar, I'll get $1.50, or I'll get $3 back. If that pays back in within a year, I'm doing great.
- EYEric Yuan
Don't believe that.
- PGPeter Gassner
Yeah, yeah, yeah. [laughing]
- EYEric Yuan
That is a mistake for all the SaaS companies. It's, it's not $1.50 back, not $3, should be $4, right? You should optimize.
- BGBen Gilbert
Just went up in the last minute.
- PGPeter Gassner
Yeah. [laughing]
- EYEric Yuan
But that's a common mistake, I think, for most of the SaaS companies.
- BGBen Gilbert
And, and Eric, when... How, how fast should it pay back?
- EYEric Yuan
As I would say, it's, uh, as big as possible, right? It's got- every business is different, but you've got to optimize and keep optimize every day. Do not feel satisfied. Oh, give $1, get $1.50 back. No, optimize, go to get, uh, $2, to, you know, $3, right? You have to optimize. This is one example, right? For every marketing dollars. However, if it works, you have to double down. I remember, you know, first time I had, uh, you know, uh, the billboard in one way. You know, many customers shared a very positive feedback with us, and they feel like, "Ah, early on, we decided to deploy Zoom. I, I saw the billboard. I feel like you guys are a bigger company. We made the right decision," right? "To bet on Zoom."
- PGPeter Gassner
It's more about validating your decision then.
- EYEric Yuan
Exactly. Exactly. And plus, the employees, they feel very happy, right? They say: "Oh, my God, Zoom has a billboard now." [laughing] After that, I realized, why not double down on that? I told our team, "How many billboard do we have in Wyoming?" "There's one." I said, "No, three." [laughing]
- BGBen Gilbert
[laughing]
- 52:00 – 1:00:36
Defensibility and the next act: innovate, expand product lines, and stay ‘leader and liked’
- BGBen Gilbert
Well, 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 that really extends. But now let's talk about the, the defending the castle. Uh, 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?
- EYEric Yuan
Yeah, so, you know, I think of- it's more like a sports, right? We've- we, you know, focused on both offense and defense, right? So both sides, right? So I think back to the, the Peter point, you still need to... Even your product is, is works today, even better than any other competitor, you have to be paranoid, right? You have to keep thinking about what you can do differently. Keep innovating, keep innovating. Either the new services or new features, right? That is- that's the most important thing, right? By doing that, at the, at the same time, you know, you also need to think about what's next, right? You know, from our perspective, right, we f- we started from a unified communication. The next step will be, you know, the not a unified, uh, communication, is collaboration platform, right? At the same time, how to build multiple new departmental applications. You know, you also need to play offensive as well.
- BGBen Gilbert
Mm-hmm.
- EYEric Yuan
You know, the, the better offensive play is probably, is, is for the defense as well, right? So that's our strategy. Yeah.
- BGBen Gilbert
Hmm. Peter?
- PGPeter Gassner
I, uh, very similar. So product excellence is you, you, you, you can get there, but you also got to work hard to stay there, right? And, and keep reinventing yourself. Uh, also, you do want to expand to different areas because if critically, and I think, uh, something that people don't realize, if you, if you get a high market share in an area and you don't expand to another area, what will happen, just because 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 in... You know, if Eric is constantly rewriting his codec unnecessarily, right? It's, it's disruptive. So you got to expand to give yourself a creative outlet. And then, that- this may be more particular to us, I don't know, but we also have a goal that we set out about five years ago to be the leader in light. 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 will knock you off. 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, integrity issues in the leadership team, so we audit myself and others, and also energy in the leadership team.... because these are things that you gotta audit for them, 'cause if you, if you wait for the results to sh- show those things, it's too late. So, m- you know, determined to have product excellence, have a goal to be the leader and liked. We actually tell our customers about that, and that holds us to a higher standard. So we wanna be the leader and liked, and then they bring that up sometimes. Like, "Hey, that's not the leader and liked!" "Oh, God, why did I tell you that?" [laughing] You know? But, I mean, it's a way to be- set yourself out there, right? Not only do we wanna be the leader, we wanna be liked. Product innovation as a outlet, um, and then avoid, avoid that arrogance.
- DRDavid Rosenthal
You talked about-
- EYEric Yuan
But, but by the way, I think it related to this question, I wanna share with you a conversation I had with, with Peter. I think probably can help some of the, the founders here as, as well. I think the... I forgot which quarter. A year before we went public, and I look at our growth plan, I realized, wow, we only have one service, right? If we have another service, also can monetize, you know, the, the growth's tra- tra- tra- trajectory will be mar- very different. At that time, Peter told me that, "Eric, that I- that's sort of like the ideal case, but that decision 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 and, you know, try to make a decision two or three years, you know, before that, right? I, I, I clearly remember that conversation. You know, 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? Back to your question. You know, always the single ahead and build another service, another service, so-
- DRDavid Rosenthal
That's, that's exactly what I was gonna ask as a follow-up. Um, Peter, I know you, Veeva 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-
- PGPeter Gassner
Ah
- DRDavid Rosenthal
... to your, your first product?
- PGPeter Gassner
That was... We started thinking about it the first part of 2010. Uh, I remember Gordon and I, and others, started thinking about it the first part of 2010. So we had, uh, a hundred and fifty people in the company or something like that.
- DRDavid Rosenthal
That was four years into the company, three, four years into the-
- PGPeter Gassner
Uh, so three and a half, yeah. And then we made our first hire in the fall of 2010, 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 of that, maybe go public, but it, then it probably has to be sold to somebody or something like that. Or I can try to make it a multi-product 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-
- DRDavid Rosenthal
Mm
- PGPeter Gassner
... just way, way different. Sold into the same company, but different buyer, different product, different code line, different everything. So I thought, becau- this is the way to become a multi-product company, and it'll either make us or it'll break us, and I thought the odds were more likely that it was gonna sink us.
- BGBen Gilbert
That's so counterintuitive, 'cause 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-
- PGPeter Gassner
Yeah
- BGBen Gilbert
... and leverage what assets you already have.
- PGPeter Gassner
But that you will do anyway. Like, if you don't go out of business, gravity will take you there, right? [chuckles] It's, as you go along, it's like, "Oh, well, maybe we should make an add-on product or not?" Like, yeah, duh! You know. [laughing]
- BGBen Gilbert
[laughing]
- PGPeter Gassner
But i- 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.
- BGBen Gilbert
Mm.
- PGPeter Gassner
Your, your new product, if you have a chance, it should be way out here and maybe have the potential to be bigger. So that's-
- DRDavid Rosenthal
What-
- PGPeter Gassner
But it's risky.
- DRDavid Rosenthal
What's the scale of the two revel- revenue lines today?
- PGPeter Gassner
Uh, they're... The second one is a bit bigger, um, but the second one has also quite a bit more potential. You know, maybe it's a five X or ten X potential.
- DRDavid Rosenthal
Wow.
- PGPeter Gassner
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- I had to take my eye off that ball to start this thing, and it, it did cause that first thing to suffer, but overall, the trade-off was worth it, but it could have wor- it was risky.
- 1:00:36 – 1:03:52
Sponsor: Modern Treasury — APIs for payment operations at scale
- DRDavid Rosenthal
All right, everyone, for our final sponsor of the episode, we have another of our favorite companies here at Acquired. This is so fun.... Modern Treasury, and by this point, you know, probably longtime listeners of Acquired know everything about Modern Treasury, but they are by far the best way to manage your company's payment operations. Their platform allows you as a company and your developers to build right into your product the ability to move money. [chuckles] So you can imagine that is pretty important for probably just about anything your company does or any application or service these days, and you can do it using code, not manual finance operations. It's literally a software layer on top of your bank account that connects with all of your users, customers, partners, everything. They have direct integrations with almost every major commercial bank at this point, and they allow you to move money using APIs and web apps versus managing, [exhales] oof, managing the complexity of banking rails yourself. I mean, I know, gosh, companies I remember five, ten years ago, especially marketplaces, where you're moving money around, [chuckles] managing all of that complexity themselves was brutal.
- SPSpeaker
You're just building so much software, and then you're thrusting your own internal software onto your finance teams. It's a mess.
- DRDavid Rosenthal
Your finance team was doing so much of that manually.
- SPSpeaker
Yeah.
- DRDavid Rosenthal
And now Modern Treasury just takes over all of that. It's been incredible to watch this company. They're just a few years old. Two years ago, right after they started, they were reconciling about ten million dollars of payments every month, which, you know, like, that's a lot, about ten million a month moving on the platform. Today, they are doing well over two billion dollars of payments every single month moving on the platform.
- SPSpeaker
And just so folks understand, Modern Treasury is not only the workflow software that gets used by the product team and by the ops team and by the finance team, they're also the literal underlying money movement. So they have bank integrations to actually facilitate those movements for you. So you're not just clicking a button, and then you also need to go do something with the bank. No, it is all actually integrated.
- DRDavid Rosenthal
It's so great. They are used by companies like Gusto. They're moving a lot of money at Gusto. [chuckles] Marqeta, Revolut, Pipe, TripActions, ClassPass, BlockFi, LedgerX. Lots of crypto companies are now using them for ramps on and off and connections between fiat and crypto and Web3. You can do so many use cases with Modern Treasury: automatic payouts, direct debits, incoming payment reconciliation, digital wallets. So whether you're building a fintech app, if you're building something in fintech, you absolutely need Modern Treasury. You for sure already know about them. But even if you're not in fintech, if you're looking to add payments or any aspect of money and money movement to your software product, Modern Treasury's APIs are super simple. Absolutely go check them out. You can go to moderntreasury.com/acquired to learn more, and when you get in touch with them, just tell them Ben and David sent you.
- 1:03:52 – 1:11:18
Closing grades: A+ futures, mission, and the capital-efficiency takeaway
- SPSpeaker
Thanks, Modern Treasury. All right, well, we, uh, we gotta wrap it. 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. W-what makes the future of Zoom and Veeva an A plus? What's the, like, scenario where it goes incredibly well? Paint that for us, and what's the failure case?
- PGPeter Gassner
Oh, let's see. I don't spend any time thinking about the failure case. Honestly, I just not wired that way. A plus is we really help automate this big industry, right? It's a two, 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 appreciated. 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 Veeva, and man, you like that. You... So that would be a big success, and then we have a bit of a social mission, too, to prove that you can, you know, you can be a good company, profitable, et cetera, but also be a, a good contributor to society and, and the employees. So that would be success. And-
- DRDavid Rosenthal
You, you were the first public company to convert to a B corporation; is that correct?
- PGPeter Gassner
Uh, 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 like that. So that's success. Essential, appreciated, 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.
- SPSpeaker
Love that. Yeah, so in your case, I would say the... That's a good question. A-plus scenario would be, you know, Zoom be, will be a very successful platform company. We are gonna introduce multiple new services, and, uh, people can count on Zoom to achieve more. At the same time, we can also grow our revenue every year. That's probably A-plus scenario for many years to come, right? In terms of a failure scenario, I would say maybe you go back to use WebEx. That's a failure scenario. So [laughing] ... And, uh, yeah, Peter, right, I, I do not think about the failure scenario, but, uh, we just think about it, be very optimistic, think about the future. Otherwise, seriously, you know, w- we're all founders, right? The CEOs, we all feel the huge pressure, but, uh, sometimes you 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? So that's why I say, do not, do not think about that. So next time, do not ask me this question. [laughing] So, so only the paranoid survive, but don't let it consume you.
- PGPeter Gassner
Yeah.
- DRDavid Rosenthal
I think you're paranoid about not doing your best, right? I think, Eric, you put a ton of pressure on yourself. You, you-
- PGPeter Gassner
... you don't feel good if you don't do your best, right?
- EYEric Yuan
Totally.
- PGPeter Gassner
So I think that's-
- EYEric Yuan
Totally.
- PGPeter Gassner
I see that in Eric.
- BGBen Gilbert
I love that.
- DRDavid Rosenthal
Love that.
- BGBen Gilbert
All right.
- DRDavid Rosenthal
Thank you all. Thank you for being here in the room with us, and, uh, mostly thank you to both of you. Thank you to Emergence for facilitating this, making it happen, and-
- EYEric Yuan
Yeah, but thank you, Emergence Capital. Thank you, Sandy. Thank you, all of you. I really appreciate. Thank you, my great mentor, Peter. [laughing]
- PGPeter Gassner
[laughing] Yeah. Thanks.
- DRDavid Rosenthal
Wonderful.
- PGPeter Gassner
Thanks to-
- DRDavid Rosenthal
Thank you.
- PGPeter Gassner
Thanks to the group.
- BGBen Gilbert
Thank you. [clapping]
- EYEric Yuan
That was great.
- BGBen Gilbert
That was great!
- EYEric Yuan
Thank you.
- BGBen Gilbert
Well done.
- DRDavid Rosenthal
Thank you.
- BGBen Gilbert
Well done.
- DRDavid Rosenthal
Thank you, Peter.
Episode duration: 1:11:18
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