Capital-Efficient Growth (with Zoom CEO Eric Yuan & Veeva CEO Peter Gassner)
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Yes, it's very appropriate to be on here on zoom with you recording this before, if .

only notes viva.

Although I think it's a little bit out of our strike zone in terms of like perfect market, we will be the only podcasts ers in the world using vivo.

Peter is very focused on a clear and correct .

target markets. yes.

Easy, you wait, you wait, you who got to? Easy you with you with you sit me down, say welcome to this special episode of acquired .

the podcast about great technology companies and the stories and playbooks behind them. I'm then gilbert, and I am the cofounder and managing director of seattle based pioneer square labs in our venture fund, psl ventures and .

David rosen poll. And I am nino investor based in sanford skettle.

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 C, E, O 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, front of the show, jake sapper invited David night to interview two very heavy hitters at their CEO summer last week. Eric kwan, the founder and CEO of zoom, and Peter gaster, the founder and C, E. O of viva systems.

I think this is the first time that any content from any venture firm, C E, O, summit has been specifically created for 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.

Yes, the viva system story is amazing. As you here we talk about, they raised four million dollars that's four like one after three and on just that four million dollars that they didn't even when consume all of that capital. They've now built a two billion dollar revenue business with incredible margins. It's such a cool star in Peter is on the board of zoom. And so as well here, he and eric know each other very well.

And it's a super different company that we Normally talk about to its uh vertical specific s so it's just in the life sciences industry, they sell high dollar software to from the companies and I think biotech as well, right?

Given yep, yep.

So the topic that we discussed with both of them is capital efficient growth and that something we felt would be super valuable for all the CEO in the room. And obviously, that means that we think it's going to 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 viva rays before going public, as you remember from our zone episode with board members santi superos ki, also an emergence capital partner. Zoom raised thirty million dollars emergence and another hundred million dollars from sqa afterwards. And they never touch the vast majority, if not all.

of those funds. I think they didn't touch any of that hundred and thirty million dollars eric could raised, who, as you'll hear about, he d raise some money for intl along the way and that funded product development, but none of the venture money was consumed 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 want to 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 a quired dota FM slash slack, you should join us. IT is always a riot.

And this will be a great one to discuss in there with the community and other founders and including jg saper himself from emergence who's active in the slack is true.

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Now, as always, this is not investment advice. Please do your own research, David. 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 C E. O summit with iraq on and Peter gasser.

So to set the stage, I thought maybe could each of you please give us a brief overview of your fundraising history up to and including given zoo s ipos, which IT we're nearly that would take like an hour.

This is to be pretty short. This be very short private financing history.

uh, are the simple Angel investors when we just started and then emergence, uh, about fifteen months in so of Angel investors, I think that was three million and uh, emergence was four million. We never actually use the emergence four million, but I thought I thought we might at the time and we got to him within about one hundred thousand of using IT.

And then and then we were public. so.

The time for when we started in 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 a very simple time to be fundraising in company building in yeah was hard to even open .

a bank account because that was the whole know your customer thing and financial crisis. So everything is hard. yes.

And I think you problem most people uh here here know this. But for folks listening on the podcast today, you're doing about two billion in revenue.

Viva, yes, we're doing about two billion, about thirty percent proper. So .

amazing. Could you share your fundraising journey?

So I start a company twenty eleven. First of thing I did A, I open up a wheel go bank. I thought IT can is very easy forming the risk capital.

That's why I open up bank account. Unfortunate took me for seven months. No, this is wanted to invest.

Unfortunately I do not know my brother send an emergence capital, otherwise life would be much easier. And finally and talk summer friends and read the the three minute set funding that's how we started. And for when eight couples iron, I tried to talk V C.

Again and again. Nobody wanted to invest us easier. So and you know we're talk to the friends and going to get another six and that's how we started. Yeah is very hard and nobody .

wants to talk to at that point because most people assumed video conference thing was either a settled frontier or a race to the bottom. My thinking about that.

right? I was right. That's a theme. Every mission area, you are crazy.

The world does not need to have another video, common solution and another V, C friend. You know, even this is great. A friend.

Hey, he told me that, eric, I have a check for you as long as you do something else. Good and youth, I know. Listen, I was very start bed.

I'll show, share your story. And once I stole by a big V C, I do not want to mission the name. I for sure you guys do not like them.

So and he told me that, erg, I do not think your related works, you know, look at the skype, look at the google, how, look at the web as a dominating right. And I I debated with him a little bit. I failed and I cannot convince him on the way bag.

I told him myself, i'm gonna change my windows, a screen server. But I think new is a windows machine, a training the windows, windows, the screen server. You are wrong.

so. There were years. Yeah and if just to .

make sure of my facts straight, I believe you raised a thirty million dollar around LED by emergence and then another hundred million dollars after that. And similar to the Peter, you did not dip into any of that hottest and thirty million as that correct to build the business for me.

Actually, you offered a certain meeting, you know, for the emerging capital. I think yeah, we are on the right to track, you know, to be honest with with you, actually we even do not need read a seriously actually because at that time, you know, I think of is that a certain meeting I think the completely completely into a uh, I feel feel like a different game. So yeah yeah.

what that's one thing we want to is a difference between the two companies. Peter, you obviously, once you got to cash flow profitability, which was immediately, basically you never raised another round. Archie did make the decision to raise some more capital even after you are generating cash.

A and and Peter, you are on air export when that process happened. why? Why did you make that decision?

Uh well, for viva, I didn't raise more just because I thought I don't need IT. You know is just that simple, right? So and then as far as um for for eric, right when you're on the board write that's really eric decision. So you know so yeah .

earlier I offered raise a certain meeting from an emerging capital at at that time. Seriously, we had a new plan or forever to raise the another round of capital. And the reason why we still ah we move forward to have a serious of dix because I thought the economy, we will win. We will go down I dramatically .

this was two thousand seventeen.

sixteen, seventeen, five friend, I was completed so but anything .

the seven year bull run, of course the end was near right ah .

so and long story by me so yeah, I I think that raising that money at the time, I thought, well, maybe we don't need to do IT. But also I thought IT doesn't matter, right? What matters resume 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. We could all work out. That's right. yeah.

So as we were preparing for the um this interview, our first thought was if we just had one of you appear and we were interviewing you about capital efficiency and be easy to chalk IT up to business model and cash flow cycle. You know multimillion dollar contracts up front in the case of viva or in sum, customers flocking with their credit cards for you know a self serve experience. These are two completely different models.

And so I think one of the things that are illustrated to David and eyes is capital efficiency is a mindset and culture thing more than a business model thing. And i'm curious to hear 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?

I can take that when I I guess i've seen a little bit of zoom and a little bit of via, uh, I would say probably IT starts to the mindset, you know just run a profitable lemond stand for my point of view. For me, IT was there are safety in that casino business.

Business is always going to be valuable to somebody at some point of businesses, not cash generating is going to be valuable to nobody, right? You might be able to sell IT before IT becomes IT. No, not valuable.

But you can only the only their security and long term, uh, no, so that starts to the mindset, I think share that. And then, uh, you have to have a product excEllent too, right? And that's something I think eric and I share with both product people.

I think also, we both work really hard. No, we work really hard now. I think, especially eric, probably in the first five years, I work really hard and nice.

You couldn'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 B S.

You know, then just don't do IT like that. First five years, I was not that conference like this, for example, right? I was just moni focused.

And then the market really helps to um and that's something you just have to get lucky on, right? You have to IT was the right timing for vivo. IT was the right timing for zoom. Maybe if you started zoo m 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 I could have tried to do or ever could have tried to do, and I was we might have picked about market and then and then I just won't working that. 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 the most people who think is going to work and therefore, a lot of people are picking IT. Therefore, you're not an outlier.

So just like eric, you know, most VS all VS except for emergence, all all VC of any kind of note except for emergence. Turn this down, right? And r is really simple vertical specific software that's a small market and doesn't work, right? That's what they would say. And I was encouraged by that because I thought, well, IT has an opportunity be really good because it's something non obvious.

Well, one thing I want to double click on that we are talking about beforehand. Yes, like you need to be non obvious to have a chance of a great out layer outcome, but you also need to be correct. But I think what you did, what you both did, was not, hey, i'm going to 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 written on the wall. What did each of you do, you do ahead of time that LED to you to like, really, genuinely believe? Yes, the world thinks this is crazy, but I really think this is going to work off.

Of course, it's really easy. I talk to three, four potential customers for our first product and uh, they also 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 can tell their responses that they weren't attach and they weren't getting value. So yeah, offer customers said it's a bad idea.

right.

So little all customers. Now though.

let me understand the Peter formula in a bit of business. As 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, because 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. You have to listen to what they feel, not what they say. They would say, yes, we were very happy with the solution. But then you dig oh, tell me more, why is that what is that you get out of IT. And so and that's when .

you know that sounds like the video conferencing market is cira about twenty, fifty and twenty sixteen.

Yes, for me is very straight forward because I was uh a regional funding team member of of where backs. So the year the two years before I start a company, I know actually, you know web backs really sucks, right? So and did you did you try .

and tell esco .

that I I I tell my team, I do not are dare to tell others so, but anyway, so h sky also not reliable, right? Google, how to do not work everyday. I spent a lot of time talking to the area customer. I know if I can build a Better solution, I think at least I can survive. I never thought about every is going to stand alizon zom platform, but at least I know for sure is if customer they do not like something, if you can build something Better, you have chance.

Or 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 to see where IT went from there?

I think two things. First, at that time, my patient was very straight ward course, you know, web s molech my baby, right? I feel like I work so hard for so many years.

I let the customer down. I really wanted to, wanted to fix that a problem. But cisco do not want you to to start over. And I had no choice, you know, about to leave to build a room. This is a number of reason.

And after I started the company, I realized, wow, it's so hard with capital, right? And by of the money invisible they give to you don't think about that money. You know, that's a trust.

You know, every dollar matters, right? That's why everyday I was thinking about how to survive, how to survive, how to survive, even today. Seriously, I still think about wall over night. You know, how to survive.

So would the, you know, you you mentioned, uh, people in your team when you started zoom. You are a solo founder, but you brought a large number of people with you.

Um you know one of the we kind of first sort of Operational topics we wanted to dig into around this this topic of of capital efficient growth is higher and and people that feels like such an important uh part of the culture in DNA of having people who are going to get on board with yeah there's not going to be the spiritual equivalent of kind bars and no exposed brick in our in our office here. How did you select for? Maybe, but are to start, because you brought some many people with you from webbs. How do you select for the .

people that you brought? So all of them are very good engineers, right? Exit for me. So I did not write any code. So and the on the van, we had around a twenty five. Very soon we, we, we get another fifteen total, forty people, and myself included, all the the, all right, all kinds of a cold.

And this was all funded with Angel money.

Yes, exactly. But probably I know actually you know we can with run rate, the problem with less than two years less, but I had a serious a but we won't have engineers, just get a protocol down. And I want to take a port of manager, U I designer and also the the facility guy, everything else you know seriously on the one I, I, I bordered, use the furniture, you know, a stand by everything by myself, and also ride on the comedy culture in the value. That's pretty much what I did.

So I would say and even for the sever for several years after product ready and uh uh some investor mission, hey, you already have money in the back now why not build the, uh, marketing team? Look at your competitors, spend a lot of money, the big board in one one as I time, I think no, 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 have to be very discipline to just .

highlight that. So you started the company with twenty five quickly growing forty people, but those were thirty nine engineers. And you no product managers, no marketing, no sales. Yes.

let's reason why I know how to use the quick books. I never know how to use that. So seriously I had to learn how to use that.

And so that sounds very easy to say don't buy billboards um you got at your customer somehow. How did you get the snowball going?

Little, little lucky because seriously and lucky doesn't play though because you know h several weeks before we launched product series sly, we had a no idea how to get the first customer. luckily.

You know um uh you know the very famous uh you know uh reporter, the water mosbacher, he evaluate our service and we were so nervous, you know, he is very looking forward, right? But the good news, he he did write down a very nice article, publishing worthy journal, and also who he personates recorded the video. And over the night we got to fifty, fifty thousands.

fifty thousand yeah users.

most of them, they. How over to several weeks.

but those who stayed, I imagine that the kernel of the vary of telling their .

friends who told their friends who tell uh someone they cancelled magazine only nine and nine. I personally found on the email why you cancel service, one of the can do different. And yeah, we still maintain a realistic today even today. So we had uh.

some one of the CEO wrote in and asked us about different metrics s to track, did you have a north star after you have those fifty thousand people where you realized to come holding something in my hand and the sand could slip through my fingers? But is there is something I can measure to see if this fifty thousand can turn into something? What were you paying .

attention to to to those very early, very loyal early adopters? Yeah, no, even one hundred. Good enough. They are. They are.

The early, you know, I would see, is the most loyal uis double down to make sure they are happy. If you are very happy, guess what? You know, that were effects.

They are going to bring a lot of a new users. No, that's why even forty nine thousand users left as as long as one hundred school state, we doubt on that. So yeah, that's a thread magazine .

for Peter on the hiring and people in organizational front. Um you had a very, very different type of business. Are your customer s don't buy with credit cards. They buy million dollar deals, cash on front in a year for a year deal. Um you need a sales force to to sell that which usually means you need a lot of cash cmp to compensate that sales force ah how did you think about the right people to hire as you are building? How to compensate them?

Yeah, I think one thing here, can I have in common? Or no, in early days, there is no wasted people like no optional people, no wasted people because they just adds a burn to your money and it'll just make your decision making smaller and sorry, more complicated. It's like sand machines.

So no ways to people. And for us, yeah, we needed because a long sales cycle. So we needed sales right away, right? So yeah, I was the first sales person, right? I started selling before I sign the articles of incorporation, show up at the customer.

And I think sh'd buy something for me. This thing that I want to make, well, do you have you hired anybody know? Okay, what can you show us a demo you're going to do? no.

How about a powerpoint? no. okay. And then come back a month later, i've got a powerpoint now if you heard anybody, you know, not yet, you know. And then just keep selling because the relationship based business. Funny story, the first customer bought small customer.

We actually somehow, through a relationship of my co founder, got to the sky with the CEO he wanted to buy himself often are for the small department just because he was really peeved with his I. T. team. So this guy had no idea what we're selling is like, I know that my I T team doesn't want you, so I am going to make a point and show them that i'm actually in charge here. So that's how we got our first sale and you could barely log into the system at that time.

You me.

I didn't know that, but then you got a hostile then just like you right then you got a hole. Oh my god, this customer wants to buy something, 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. For even the beginning, I was 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 totally.

You are right. I agree with you.

Yeah, just yeah, you can hide behind when it's small. You can sort of hide behind metric. Sometimes that doesn't work. But if you actually talk to him and then you figured IT out you'll know what's going on.

How can you tell us also the story of learning your first big customer, which I believe is probably the deal that really made the business? Yeah.

uh, there was a sad right. There was the first, the guy who was just picked this I T. Team and then worked up to the next size deal. In the next size deal, that was always a step function, right? And so the first multimillion dollars null deals were a big customer visor and uh IT was just in the hand combat. Um there was a partner at the time actually sales first economic actually at the time said, oh, you know so and a note that vivo will never win this deal and I reply back, I said we will win this deal and they set .

out to you during the bake off yeah .

they didn't want even come in the meeting with us. They were like out we're going to go with the other system integrator, something like that. So um I send an e mail back, said we will win the deal.

why? Because we have Better people, little work harder. And where fighters only shot at greatness, and I think they want to shoot for greatness.

And so and caught and I remember there was a big meeting with fisa. There was a guy in there in charge of IT. We had certain amount of people in the meeting and the guy stood up propose.

You said, we have more people in this meeting room that you have in your company, you know, why should we buy anything from you? And I just said the same thing where you're only shot. We're going to make something great and we have the best people. So seems simple than me. And then we get lucky and we want to.

And then then I remember after winning at thinking, oh my god, now what you know now, how are we going to 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 formulate metric. IT was based .

on interviews. So did you use the invoice from that customer to then go fund project development? Yeah.

I was I thought, oh, we've just raised three million around the capital here and IT didn't cost the same solution, right? The check came in. So that's exactly what happened.

Yeah do think that still doable today? Like I imagine there's lots of folks out there are like what I would love to go in voice of customer and get cash in the bank. And what what situation is that possible to fund your product with customer revenue versus not?

I think it's, first of all, you can be wasteful, every personas. The matter I would almost think about over hiring that person, let's we have to pay the hundred thousand dollars a year I came from. My father was in the business of metal, working in machinery, and he, I remember him, he would like, I gotto buy that.

leave. How much is that leave gna cost as IT worked. And so I would think of people like on behind a million dollar machine, because I got A P. M. Hundred thousand here.

Is that million dollar machine worth IT or not so frugal and then make a really excEllent product, that's the best way you can lower your cost of sales. So like eric product, you probably all all notice IT that is easy to use, but he made IT easy to consume the whole product. So he didn't have the convinced bunch of people.

So that's how to do a excelling product, get a good Price, easy to consume. You don't have to spend your money on sales people because you have a different shade product because sales people, that's where it's really, really expensive. You you my .

read uh the Peters uh H S one document many years ago at that time, I still remember, wow, my god, this is being model so awesome. So and but in our case, our first paid customer, a largest paid customer, only two thousand a year. So we can not you 在 to find the new product development because most of users pay us for nine， nine, nine month, right? So this is really hard.

But I do think you know for all the founders, right, the business is model very, very, very important. Like if you can figure out do something similar as what Peter and river doh, that is best to spend the time on that, right? Not a wonderful product, but also the bit is model right?

As a Peter mission, product excEllence and how to sell the product know and how to level the big in service customer, as is very important, build a long term sustainable company in our case. Actually, I can tell you today, the biggest chAllenge is our online business is very profitable, however, is very hard to predict, but they come today. Next two months, we might leave the cancelled the service as is not the great business. So but interviews portion is very good. No, that's why I learn a lot of from Peter, you know, how to manage a big .

enterprise costume. We met an emergence event wave when that's how we first american, I IT, was smaller than .

hopefully to be some more connections like that today. Thing I want to highlight on, on this topic of of contracts and under development because I think it's really counterintuitive. Again, the topic is efficient growth.

You would think that what you would want to do, what they know, that fires are deal, for example, or erick, when you started telling enterprise contracts, 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?

Yeah, we didn't do that uh, because I thought 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 locked them in, I thought that's actually shrinking my market because i'll pay less if they're locked in. That's one thing.

And the other one, I I didn't want to sort of getting lazy. I wanted turn the business every year. So was just sort of like that. The driver was really optimising to the long term value you.

which is you makes so much sense now thinking about IT that you would have had to a given, I don't know, thirty percent of this count 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 there's two companies in one once paint thirty percent less than the other, and they they they end up knowing about IT and feel feeling bad about IT. So that's something specific to this confined market. And to put some .

shaped around IT for a folks that don't know weave as business as well, couple thousand customers, of which there's a hundred or so that are like really big customers, yeah, and there's basically no one else. Out there who could be a customer without you expanding the market.

right? We have we so under a defines that a customer's life science is industry. There's kind of top twenty and there there's another thousand.

And so they're doing smaller things and we've just expanded our product. And so when we sell to a customer, we we might have twenty things that we can sell to them. They started in this area.

They start in that area. So a gordon calls that layer the cake, right? We have a lot of different layers to the cake that are all into the same customer.

We leverage relationships we spend. It's fine for us to spend a hundred thousand dollars a year maintaining free relationships, just putting into developing relationships. That's not wasteful.

So because we have a lot of showing up the door with hundred million dollars worth of product. So if you have a relationship is it's worth IT like a bank, a bank investment banker is worth IT in this. So it's a different type of business.

eric, for you. And here, maybe you can talk to us both in the beginning days and and then also now as you how do you think about pricing and account strategy?

yeah. So you know this is a little very different. No, I do. When you start a such company, either fox on vertical market or focus on departments, that's problem.

The best business model, unfortunately, you started from a building of a horizontal collaboration solution is really hard, right? Because you know a lot of other competitor there, right? So our state .

exactly .

a lot of free solutions. So I was treated 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 a Better food that's pretty much even today, want to make sure I will enjoy a Better than our competitors, make me in the company pricing also Better and they also make sure you offer the Better service. So you look at any time our product always, always have Better Price, no across to the board any product compared with any competitors.

So life is about trade, ffs. And if you're telling a customer, oh, we're Better, faster and cheaper, what has to give is that something organization ally is there are fictional ency fiction ency. Yeah exactly.

You know. So like customer, they are they are probably going to spend the a lot of money on on marketing. You know what if we can do left the network effects, right?

You know, they hire like a one hundred six rap. And what if we can do to have a fifty six rap? You can deliver system, right? So that's why he is very important, have no internal, you know, the efficiency.

which is no so funny that efficiency translate tes to capital efficiency, which translate tes to gross march newt, that growed to Operational margins, which translate tes to cash. Totally the whole point yeah .

give you more flexibility, right? Yeah yeah.

But I would say the key also just the product dex, right, that comes from the core set of engineers you hired, I think. And then also the you are especially very focused in the early days, right? totally.

You are not thinking about how something else we I would say, you know, that's why I got to know eric. I got to know eric. I thought that's a pretty focus guy, that this product is good.

And then I tried out this product. I over this is really good. I want to join its so I think that so is the product excEllence can make you more efficient.

Your cell cycles more efficient. Every everything's Better if your product was your product was twice as good as well, where bags, right? If your product was only Better. But I guess my point is if your product was only twenty percent Better, IT wouldn't have been enough.

IT wouldn't also right? That's why I always like this, a restaurant right right now, you stop buying a restaurant, brand new restaurant is food down, work even for free. You do not to stop by right anymore, right? So in the back, again, you know, I think a back to the Peters point is extremely important. Everything starts from one thing, the product product excEllent as a foundation, you can optimize a lot of things. If a product does not work, forget IT everything else, just a double tripper down on the product.

That's a number of Peter, right? And that's a lot about people write about which people you put on the product. Yes, though eric was very particularly about getting the .

best people yeah let's so people come back to that um you know I remember that we will we talked about with on years ago now you know your named executive officers in your s one or not like you think typical oh, here's high five test company is going to be a VP of sales from sales force. There's gonna a chief marketing officer from hubby, you know whatever like nothing wrong with those companies in those people. But uh, I think of both of your companies, the people you brought in as leaders were up in commerce, they weren't, you know, the the stability superstars.

I think you I always want to have some people with some range, you know, they could get 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 that they would have a little bit more module, have a opportunity to do something that they haven't done before. And the team is very important. The chemistry of the team is much more important than the skills of the individual players a lot ways.

That comment reminds me there's a parallel between you not signing multi I 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.

Why 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 fulfilment. Otherwise it's what you're doing the same thing you've done three times and what's the a lura or I can get rich OK just at some point that, that doesn't keep you going at the end.

The day would also come. I imagine there's an element of compensation to this strategy to which translate tes .

to capital efficiency. No, not really.

no. I think of quality versus cash, but I don't .

think so. I never really made any kind decision on people based on you get to get the right the right person and then pay the right compensation for the right person, but is the right person first and then figure out the compensation.

Peter, right on actually back then when we try, we try to make offer right to some executives, right, you know, at that time, know the feedback back.

Why not hire someone very experience ed in season and leaders from outside? It's not read, not about the calm package because you know when eight comes of Harry, you know ah at the zoom, we really like to hire those people with a self motivation and self learning mentality, right, including the senior executives, and they can grow themselves along with their company growth and plus you know they are very loyal. I think that our that was our philosophy.

Uh, I I thought that the best of philosophy after the covered, I think I was I was wrong actually a bike floor. So because when business auto flows, auto growth, your team and guess what, the executives of our team, they are not already you know like usage, like a fifteen times, 2 times in more revenue， like times more know our team, even not myself included, twice. 这 is one chAllenge。

I I learn that a mistake. Another mistake is we think all those executives or K, T. Members, they can learn along with the comp growth.

However, th Epace i s d ifferent, right? You know someone can learn quickly, someone very slow, right? That's why also that's another floor, right?

That's why looking back, I feel like a you should have a mixed team structure, right? Someone you know they have a potential, they can go grow themselves. Someone else, you have to hide some season leaders you never know, right? In case your suddenly ly your business is going to take off at that time. You're team already, you know that's a china well facing today.

So see, you need to have some members of the team who have experienced scale bigger than your company but other people that you're developed.

And that's a health x you know bazan I I was I think too starring I learn more from Peter is I think everyone you have to have a potential. You do not. You have a great background. Actually looking back, that's not right.

interesting. Maybe a mix would be.

but mix is a much Better.

Do you think that applies you? Do you think you should have one that .

even in the early stages of the company, not the early stage right now for the first of four years in no need, but on the road, you see the market of feet by the product. You want to scare your business at that time, you have to china, your philosophy.

There's another I just keep parallels, keep popping up for me where zoom is one of the greatest product like 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 experience people are Better or that house talent is Better, that you need .

that mix totally yeah and healthy makes this very important .

yeah so the last .

um but one of the last started disciplines within software company um that I want to talk about Operationally in this context is marketing with both view but particularly with thera. We are A T we said and with Peter, um we ask this question when you scale, once you get the product developed, you scale with such beautiful capital efficiency. But you did spend money on marketing.

I mean, you joke about the billboards, but there are zone bill boards now, uh, I asked them, know, how did how did eric consume? Think about spending money on marketing? Well, i'll let you tell the punch line. But how did you think about IT?

Yeah, that's yeah, even today, you know, every tuesday, you know, we have a three hours you know stuff meeting, right? You know this morning the first topic read about reviewing our marketing top ten marketing programs in the even today still 了， i think it's very tRicky. The reason why is you do not have, I would say that sort like a formula, right?

You know when to spend more, when to spend the less is not like that as a founder. You know, you have to spend the time on marketing as well, do not always focus on product or the sales. Marketing also very important.

I however, when to investment, marketing is very tRicky. Every business is different. In our case, we were specifically, you know uh, I made a decision, no marketing team for the force several years.

You know because this is not a something new, right? This is a product or you know this is very, very no matured market. Everyone understands the video conference. You know how if you are product works, you really do only have marketing team, right? We we try to prove that point.

You know after that after we have a paid customer, a lot of customer customer told us I have a purple zoo, but I try to product a product works. But why is that? We received a very consistent feedback back like that.

I know that's a signal, right? We double down on that twenty fifty. We created the marketing and also even offered that we also measure every marketing program spending early on. I spend a lot of time trying to stand.

I give one exam like I E M, right? Every company you you spend model on I, C, M, first time I I send a check, oh my god, this is the Price of Peter google. Oh my god, this this is the largest to check. I became to sign.

do you member how large that .

checks for a kind that's more than two hundred thousands a month a month? Oh my god, it's crazy. You know, that's why I say I wanted to deep dive to understand.

You know, by the, by the way, the marketing team is all very well educated by a google, right? And they talk about our way you give me one dollar, you give one dollar fifty cents back. It's tty good.

right?

But I tell them, no, you should three dollars back, right?

Particular what I ask you about .

that exit and very important, but quite often very created, if you do not know how to matter, that do not the stories we heard .

where you know most founders CEO marketing teams think about c ltv. With marketing and there's more complexity to IT than that. But i'm going to spend a dollar i'll get a dollar fifty year. I'll three dollars back. If that pays back in within a year.

don't leave for all the size companies. It's not a one dollar of fifty cents a back and not a three dollars should be four dollars, right? It's optimize just .

up in the last minute.

That's a common mistake, I think, for most of the last company.

And eric, when how fashion pay back.

as I would say, uh, as big as possible, right? You got to every bin is different, but you got to optimize and keep optimize everyday. Do not a field satisfied.

Give one dollar, get one dollar, sixty cents back. No open mise. Got to get one, two dollars to know, three dollars you have to optimize.

This is one example, right for every marginal dollars. However, if the works, you have a double done. I remember you time I had know the big board in one one.

You know many customers share a very positive feel about with us. They feel like early on, we decided deploy zone. I I saw the bill board feel like you guys, the bigger company, we ve been .

the right decision.

right to bet the pass employees feel very happy. Oh my god. After that, I realized why not a doubt on that.

I told our team how many big board of have in well. And this one, I know three IT IT works. yeah. So you that's why you have to know when to dopper down, when to take that back. You know if you know how to effectively measure that is very important.

Will 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 defending the castle. I'm curious um maybe let's start with eric and then good to Peter. Sce, we've on a good zoom street. Where do you see the source of zoe's defensive ability as a business over the next thirty years?

You are. So you know I think of is more like a sports, right? We need a foot on both offers and difference, right? Both side, right? So I think back to the Peter point, you still needed to even your product is works today even Better than any other competitor. You have to be paralo.

You have to keep things about what you can do differently, keep innovating, keep innovating either the new services or new features, right? The most important thing, right, by doing that. And at the same time, you know you also need to think about IT.

What's the next right? You form of our perspective, right? We started from a united communication. The next step will be, you know not a uniform, a communication is collaboration time for 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 place is probably for the defence as well, right? So that's all .

a strategy here. I would have very similar. So product excEllences you can get there, but you also have a work card to stay there right then and keep reinventing yourself.

Uh, also, you do want to expand different areas because if critically, and I think 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 do more stuff in your establishment 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, is 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 test, I don't know, but we also have a goal that we set out about five years ago to be the leader and light that was our code name for IT because uh, if you if you get to be quite dominant um arrogance ces your there's few things that will knock you off. Arrogance the customers will get turned off over that and they will naturally find in this cape patch. Also we we audit for integrity of the leadership team because when you when you're quite well established, that can threw you off integrity, integrity issues in the leadership teams.

So we ought IT myself and others and also energy in the leadership team because these are things that you got a audit form because if you if you wait for the results to show those things is too late. So no determined to have product excEllence, have a gold, be the leader and likely actually tell our customers about that and that holds us to a higher standards. So we want to be the leader and light and then they bring that up sometimes like that's not the leader like a god, why do I tell you that you know but I mean, it's a way to be set yourself out there, right? Not only do what you want to be litter, we won't be liked. Product innovation as outlet um and then avoid avoid that arguments you talk to.

Believe you, I think I really do this question. I want to save you a conversation ahead of this, Peter. I think probably can help some of the the founder as well.

I think the i've got of this quarter, a year before we went in public and I look at our gross plan, I realized why w we want to have warn service. If you have another service, also can money. As know, the gross is trading very different at that computer to me that eric, that I that sort of like that I do case.

But that decision should be made to 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, you know, try to make this in two years, years now, before that, as I clearly remember that conversation, that's why that's looking back.

That's the biggest mistake, the biggest mistake. The reason why you know, because you have one service at same time, how do you think about what's the next service, right? You know, always plan ahead, right? This is probably the Better way right back to request you know all of the single head to build another service in other service.

So that's exactly what I was going to ask as a follow up. Um Peter, I know you vivo launched a second service after the first crm service a around around count cm s content management. When did you start planning for the second product? And then when did you launch IT relative to your your first product?

That was we started thinking about the first part of two thousand and ten. I remember gordon and I and others started thinking about the first part of two thousand ten. So we had a hundred and fifty .

people in the company or something like that.

that three and half, yeah. And then we made our first tire in the fall, two thousand and ten. And that's when we started going. So I view that is critical, was a turning point.

I thought he I could have a single product company do really well that maybe go public, but IT, then he probably has to be sold to somebody or something like that or I can try to make in a multicenter company. And the decision was to pick something that was clearly not an ad 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 pick something that was a way out here, just way, way different, solved into the same company, but different buyer or different, different, different code line, different everything. So I thought because this is a way to become a monday product company in italy, make us or IT would break us. And I thought the odds were more likely that IT was gona think us .

that's so counter intuitive because Normally, you would think you'd want to give the same sales rep something that they could sort of bundle in for an incremental higher ticket Price and leverage what assets already have.

But that you'll 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 out on product or not like, yeah the you know but if you if you get confused, um you know you think that out on product is really onna float your boat. It's not your new product if you have a chance that should be way out here and maybe have the potential to be bigger. So that's but risk.

What's the scale? The two revenue lines today.

uh, there the second one is a bit bigger um but the second one has also quite a bit more potential. Maybe it's a five x or ten x potential, but I was risky, right? We debated that at the board level because that could have sunk the company because 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. They 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 IT was risky.

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 scientific computing, for what became neural network in in machine learning. And boy, was a good thing. They took their .

eye off that ball. You know, the hidden thing that there you need a CEO that was an engineering type that went to organ state university, because that's what we die. And they haven't common. I don't know him, but with a very few of us organ state beavers, as you let me tell.

that's amazing comedy. I knew janson well, actually. Look at the immediate stock Price. IT was flat ten years in a road .

to that. Such an amazing story. I think the conviction, really he had to persevere through that decade is amazing.

It's hard work, a hard work.

very hard, hard work. He is focused.

Yeah, those notes. I remember when starting viva, the first time I started a company, I ask a friend who I started some other companies. I realized about three months.

And god, this is really hard work. I'm working everyday, really hard every hours. So I asked my friend this, there are any way to do this without working that hard, and you very quick. He said, no.

是 吧？

So in that true, good.

you so I do not think that's a work because we all enjoy that. But this is a part of life. What are otherwise? What can you do? Are you going to play golf? no. Is no sure exactly no short card.

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Yeah, fanta is the perfect example of the quote that we talk about all the time here and acquired jeff basis, this idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that does IT. Every company needs compliance and trust with their vendors and customers. IT plays a major role in enabling revenue because customers and partners demand IT. But yet IT add zero flavor to your actual product that .

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And thanks to friend of the show, Christina anta CEO, all acquired listeners get a thousand dollars of free credit vta com slash acquired, we are. We ve got to rap that 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.

We like to ask IT as a little bit an open and ended question. What makes the future of zoom in viva and a plus? What's the like scenario? Work is incredibly well paint that for us. And what's the failure case?

See, I don't then he times about the failure case. Honestly, I just not wired that way. A plus, we really help automate this big industry.

It's a 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, we're 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 can be a live sciences company. You got to use river and mean you like that. You so that would be a big success. And then we have a bit of a social mission to to prove that you can no, you can be a good company, profitable at set, but also be a good contribute to society and and the employees. So that would be suck.

You were the first public company to convert to A B .

corporation to a public benefit CoOperation. But that's just the more the formality of IT know the way we've Operated the company is always like that. So that success, so 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.

Well that yeah .

so in all case, I would see the as good question a plus scenario would be, you know zoom, we will be averse, successful plan of the company. We are going introduce multiple new services and people can count zoom to achieve more. At the same time, we can also grow revenue every year.

That's probably a plus in for many years to come, right? In tumor of failure scenario, I would say maybe you go back, use web ags, that's a failure scenario. So and um yeah Peter, right? And I do not think about IT the failure scenario, but we just think about to be very open to missing think about the future otherwise seriously, you know we are all founders by the CEO.

We all feel a huge pressure, but at sometimes you cannot be, you know, too paranoid. Otherwise every day you think, but too much about faure case for your case, because what you do not dare to move forward. So that's why I say do not, do not think about that. So next time, do not ask this.

So so only the paranoid survive, but don't let .

IT consume you. I think your paranoid about doing your best, right. I think, eric, you got a ton of pressure on yourself. You, you, you don't feel good if you don't do your best, right? So I think I see that in eric.

I love .

that right.

Thank you all. Thank you for being here in the room with us. And mostly thank you to both of you. Thank you to emergence for filing this making and happen.

yeah. Thank you. Emergence capital. Thank you. Thank you.

Thank you of your appreciate. Thank you. My great of interpreter.

Yeah, thanks. Thanks to thank you.

Thank you.

Well, thank you. Well, thank you, Peter.

All right, listeners, well, thank you so much for joining us for this. I actually cannot imagine a more useful topic right now than dissection how to build great companies on little capital, uh, based on the era that we're going into a David and I don't need to debate this endlessly like you can hear the the drum beats on twitter of 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 Peter and eric have have just it's just unbelievable and impressive what they have built on so little capital there .

are 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 you know, pandects no high fire. And I was just thinking every time with the last few years like that, people would talk about zoom. And whatever context do you people realize how much cash flow this company is generating? And it's all because of, you know, this DNA and mindset, everything we talked about with them.

And after spending time with eric, I mean, IT 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 this zero. They're thinking about how do you build a great company and how do you 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 df m.

Slash slack, twelve thousand, smart, curious and a 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 the now and our next special, which we have recorded and is awesome and we are very excited to release, uh, you can search acquired L P show in any podcast player, spotify overcast apple podcast anywhere you listen a podcast and find that there we have a job board, acquire data, F, M, slash jobs, where we curates the most interesting jobs that we think we should make available to the acquired community.

Huge thanks as well to our friends and emergence for making this possible.

That so true and so happy wearing my .

emergence capital face right now you ve got to .

wrap the swag with .

pride GTA wrap the swag. seriously. The I was thinking, as you were saying, that I know we talk about the slack at the beginning and end of every episode really is like it's not just like, oh, you should join this lack of you like acquired.

If you're listening to this, you are probably a founder and employee and 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 is like jake from emergence is black to talk about this, you people, D. M, each other, there's so much viBrant discussion can't underlined that enough. It's such a great part of the acquire community. And if you're not part of that, you should absolutely join that.

You should vary list, see the next .

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