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

Yes, it is very appropriate to be on here on Zoom with you recording these before going into the interview with Eric.

If only we had our notes on Viva.

Although I think it's a little bit out of our strike zone in terms of like perfect market.

We would be the only podcasters in the world using Viva.

Peter is very focused on clear and correct target markets.

Yes.

Who got the truth?

Is it you? Is it you? Is it you? Who got the truth now? Clear and correct target markets. Yes.
Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.
And I'm David Rosenthal, and I am an angel investor based in San Francisco. And we are your hosts.
Today, we have something very unique to share with you all. It is common for top venture capital firms in Silicon Valley to 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 Viva Systems. 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. I think Peter has never done a podcast before.
I think that's right. And he's built a $20 billion company.
Yeah, the Viva Systems story is amazing, as you will. We talk about, they raised $4 million.
That's four, like one after three and on just that $4 million that they didn't even consume all of that capital. They've now built a $2 billion 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. And it's a super different company that we normally talk about too.
It's vertical specific. So it's just in the life sciences industry.
They sell high dollar software to pharmaceutical companies. And I think biotech as well, right, David? Yep.
Yep. So the topic that we discussed with both of them is capital efficient growth.
And that's something we felt would be super valuable for all the CEOs in the room. And obviously that means that we think it's 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 4 million total funding that Viva raised before going public.
As you remember from our Zoom episode with board member Santi Subotovsky, also an Emergence Capital partner, Zoom raised $30 million from Emergence and another $100 million from Sequoia afterwards, and they never touched the vast majority, if not all of those funds. I think they didn't touch any of that $130 million.
Eric had raised, 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. 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 want to discuss these topics with us after you listen, you should come join the rest of the Acquired community.

I think we're 12,000 strong now, David, at acquired.fm slash Slack.

You should join us.

It is always a riot.

This will be a great one to discuss in there with the community and other founders, including Jake Saper himself from Emergence, who's active in the Slack. It's true.
All right, listeners, we want to share with you a new friend of the show, AnRock. AnRock helps modern companies scale globally with automated sales tax and VAT, that's VAT, compliance.
Yeah, AnRock came on our radar screen because they're behind the scenes of many companies in the acquired universe like Vanta, Mutiny, Statsig, and like them, they're also backed by Sequoia Capital. Anrock is the first tax platform built specifically for modern business models like SaaS.
As the digital economy has grown, it sparked new regulations and compliance requirements from governments in a natural move to capture some of that revenue. But most tax solutions are still stuck in the retail era.
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Definitely not. AnRock is trusted by thousands of finance leaders at the fastest growing companies out there, companies like Anthropic and Notion, to handle billions in revenue for them.
We know everyone has their eye on efficiency goals right now, and AnRock is a great way to do that. They help eliminate the hidden costs of manual tax compliance.
They're offering a free study on your tax nexus for acquired listeners, which is typically a $7,000 cost to see your current sales tax exposure. So if you're scaling a company and you want to see how modern businesses are protecting their revenue against sales tax risk, head on over to anrock.com slash acquired.
That's A-N-R-O-K dot com slash acquired or click the link in the show notes. All right, listeners, it is time to talk about one of our favorite companies, Statsig.
It's funny, David, Statsig has gone from this little startup when we first started working with them a couple years ago to this total powerhouse now. I know, it's wild.
I was looking it up and they have added all these customers since we started working together. OpenAI, Figma, Atlassian, Vercel, Notion, tons more.
At this point, if there's a growth stage tech company out there, there's pretty good chance they're using Statsig. Yep.
So listeners, if you are unfamiliar with Statsig, they basically took what was the standard product infrastructure at every big tech company, and they built it as a standalone company. This includes advanced experimentation tools, A-B testing, feature flags, product analytics, session replays, and more.
So if you're building the next great software company, this sort of infrastructure is essential because it allows your product and engineering teams to release things quickly, measure the impact of them, and track progress over time. Totally.
So, I mean, as we've talked about on the show forever at companies like Facebook or Netflix, data was just a part of how everything was built, which contributed to all the crazy bottoms-up organic growth that they had. Now with Statsig, you can get that from day one at your startup.
And today they're not only trusted by startups, but also by more mature enterprises like Bloomberg and Microsoft and Electronic Arts. Turns out that a single system for data-driven product decisions is useful at any scale.
Yeah. And by the way, the scale they're operating at is completely insane.
They process over 2 trillion events per day now. By the way, David, this is updated.
The last I checked it was 1 trillion, and then this morning I pulled it up, 2 trillion. And they handle releases to billions of end users.
If you're listening to this podcast and you've used software in the last few years, there is a very good chance you've been a part of many experiments orchestrated by Statsig. Yeah, it's just awesome.
And as they've gone upmarket, they've also started to offer some interesting deployment models, like being able to run the whole thing natively inside your existing data warehouse or just using Statsig's fully hosted solution.

If you want to leverage Statsig to grow your business, there are a bunch of great ways to get started. Statsig has a very generous free tier for small companies, a startup program with a billion free events that's $50,000 in value, and significant discounts for enterprise customers.
To get started, go to statsig.com slash acquired and just tell them that Ben and David sent you. Thank you, Statsig.
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 Emergent CEO Summit with Eric Yuan and Peter Gassner.
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 Viva and Zoom's IPOs, which ordinarily that would take like an hour.

This is going to be pretty short.

This is going to be very short.

Private financing history.

Go ahead. Are the simple angel investors when we just started and then emergence about 15 months in.

So angel investors, I think that was

3 million, and Emergence was 4 million. We never actually used the Emergence 4 million, but I thought we might at the time.
And we got to him within about 100,000 of using it, and then we went public.

The time frame we started in 2007 in February, and we raised in about 2008, maybe March or so. So that was the environment at the time.
Another very simple time to be fundraising and company building in. Yeah, it was hard to even open a bank account because it was the whole know your customer thing and financial crisis so everything's hard yeah and i think you know probably most people uh here here know this but for for folks listening on the podcast today you're doing about two billion in revenue at viva yeah we're doing about two billion about 30 percent profit or so amazing eric could you uh share your fundraising journey with us? Sure, sure.
I started a company in 2011.

First thing I did, I opened up a West Fargo bank account. I thought it's very easy for me to raise capital.
That's why I opened up a bank account. Unfortunately, it took me for several months.
No VC wanted to invest me. Unfortunately, I do not know my brother sent me an emergency capital.
Otherwise, life would be much easier and finally and uh talking to some friends and it raised the the three million seed funding that's how we started and for when it comes to a round i try to talk vc again and again nobody wanted to invest us either so and you know we talked to friends and i could get another six million and that's we started. Yeah.
It's very hard. And nobody wanted to talk to you at that point because most people assumed video conferencing was either a settled frontier or a race to the bottom.
Am I thinking about that right? Absolutely right. That's a thing.
Everyone mentioned, Eric, you are crazy. The world does not need to have another video conferencing solution.
And another VC friend, you know, even is this great friend. He told me that Eric, you are crazy.
The world does not need to have another video conference solution. And another VC friend, even, is this great friend.
He told me that, Eric, I have a check for you as long as you do something else. 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.
For sure you guys do not like them. And he told me that, Eric, I do not think your strategy works.
You know, look at Skype, look at Google Home, look at WebEx, it's dominating, right? And I debated with him a little bit. I failed, and I cannot convince him.
On the way back, I told myself, I'm going to change my Windows screen saver. Back then I used a Windows machine.
I changed my Windows screen saver. You are wrong.
For several years. And just to make sure I have my facts straight, I believe you raised a $30 million round led by emergence and then another $100 million round after that.
And similar to Peter, you did not dip into any of that $130 million. Is that correct? To build the business? For me, actually, after the $30 million from Emergent Capital, I think we are on the right track.
To be honest with you, actually, we even do not need to raise a serious deal actually, because at that time, I think with that certain meeting, I think the company completely into, I feel like a different game, so yeah. Wow.
What, 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, which was immediately, basically, you never raised another round.
Eric, you did make the decision to raise some more capital even after you were generating cash. And Peter, you were on Eric's board when that process happened.
Why did you make that decision? Well, for Viva, I didn't raise more just because I thought I don't need it. It's just that simple.
And then as far as for Eric, when you're on the board, that's really Eric's decision. So, yeah, as I mentioned earlier, I offered to raise a certain meeting from emergency capital.
At that time, seriously, we had a new plan or to raise another round of capital. And the reason why we still move forward to have a serious deal is, because I thought the economy will go down dramatically.
This was 2017? 16, 17 timeframe. I was completely wrong, but anyway.
It had been the seven-year bull run. Of course, the end was near, right? Yeah.
So, and long story, but anyway, so. Yeah.
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, it's all fine. It would all work out.
So as we were preparing for this interview, our first thought was if we just had one of you up here and we were interviewing you about capital efficiency, it'd be easy to chalk it up to business model and cash flow cycle. You know, multi-million dollar contracts up front on, you know, in the case of Viva or in Zoom, customers flocking with their credit cards 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 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 also what are the things that enabled you uniquely, more so than 99% of startups, to be so capital efficient? I can take that one. I guess I've seen a little bit of Zoom and a little bit of Viva.
I would say probably it starts with a mindset, you know, just run a profitable lemonade stand. From my point of view, for me, it was their safety in that.
Cash generating business is always going to be valuable to somebody. At some point, a business that's not cash generating is going to be valuable to nobody, right? You might be able to sell it before it becomes not valuable, but there's security in long-term.
So it starts with a mindset. I think Eric shared that.
And then you have to have 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. 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 just don't do it. Like first five years, I was not at a conference like this, for example, right? I was just maniacally focused.
And then the market really helps too. And that's something you just have to get lucky on, right? You have to, it was the right timing for Viva.
It was the right timing for Zoom. Maybe if you started Zoom five years earlier or five years later, it would have been hard.
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 Eric could have tried to do, and it was, we might have picked a bad market, and then it just wouldn't work.
And that's, I think you have to, so we're outlier, right? And so is Eric. You have to pick something that most people think is going to fail to be an outlier.
Otherwise, by definition, you're picking something that most people think is going to work, and therefore, a lot of people are picking it, therefore, you're an outlier. So just like Eric, most VCs, all VCs, except for emergence, 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? That's what they would say. And I was encouraged by that because I thought, well, it has an opportunity to be really good because it's something non-obvious.

Well, one thing that I want to double click on that we were talking about beforehand.

Yes, like you need to be non-obvious to have a chance of a great outlier 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. I know Viva has

Thank you. 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. 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 ahead of time that led to you to really genuinely believe, yes, the world thinks this is crazy, but I really think this is going to work. I'll go first.
It's real easy. I talked to three or four potential customers for our first product, and they all said, we don't need that.
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. They're all customers now, though.
Let me understand the Peter formula to build a business. Ask a customer if they want your product.
They say no. You dig deeper and say, what are you using now? And they say, oh, 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 thing. Yeah, you have to listen to what they feel, not what they say.
They would say, yes, we're very happy with this solution. But then you dig, oh, tell me more.
Why is that? What is it that you get out of it? And it's like, well, uh, and that's when you know. That sounds like the video conferencing market circa about 2015, 2016.
So for me, it's very straightforward because I was a regional founding team member of WebEx. So the two years before I started the company, I know actually WebEx really sucks, right? Did you try and tell Cisco that? I tell my team.
I do not dare to tell others. But anyway, so Skype also not reliable, right? Google and how it does not work.
Every day I spend 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. Eric, did you think from the outset that you were trying to build Zoom as a big company? Or did you just think that you wanted to build a profitable company to survive and then you would sort of see where it went from there? I think two things.
First of all, at that time, my passion was very straightforward because, you know, WebEx is 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 fix that problem, but Cisco did not want me to start over. And I had no choice, but to leave to build a Zoom.
That's the number one reason. And after I started the company, I realized, wow, it's so hard to raise capital.
And by the way, the money that they give to you, don't think about that's money. You know, that's a trust.
You know, every dollar matters, right? That's why every day 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.
You mentioned people in your team. when you started Zoom, you were a solo founder, but you brought a large number of people with you.
One of the first operational topics we wanted to dig into around this topic of capital efficient growth is hiring and people. that feels like such an important part of the culture and 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 exposed brick in our office here.
How did you select for, maybe both of you, but Eric to start, because you brought so many people with you from WebEx, how did you select for the people that you brought? So all of them are very good engineers, right? Except for me. So I did not write any code.
So and on the end, we had around 25. Very soon, we get another 15, total of 40 people.
And myself included, all the certain people, they all write all kinds of code. And this was all funded with angel money.
Yes, exactly. But I know actually, you know, we can, with a run rate probably less than two years, right? That's why later on we had a series A.
But we wouldn't have engineers just get the product done. And I'm more like a product manager, UI designer, and also the facility guy, everything everything else.
You know, seriously, on day one, I bought it, used the furniture, you know, assembled everything by myself and also write it down the company culture and value. That's pretty much what I did.
So I would say, even for the first several years, after product ready, and some investor mentioned, hey, you already have money in the bank now, why not build a marketing a marketing team look at your competitors they spend a lot of money and all the you know billboard and one-on-one at that time i think 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 so i just want to make sure we have to be very disciplined yeah to just highlight this so you, so you started the company with 25, quickly growing to 40 people, but those were 39 engineers and you. No product managers, no marketing, no sales.
Yeah, yeah. And that's the reason why I know how to use QuickBooks.
I never know how to use that. So seriously, I had to learn how to use it.
So it sounds very easy to say, don't buy billboards. You got to get your customers somehow.
How did you get the snowball going? A little bit of lucky, because seriously, and luck doesn't play a role. Because several weeks before we launched the product, seriously, we had no idea how to get a first customer luckily, you know, and you know the where famous, you know, the reporter and the more a water most book, right? He evaluated our service and We were so nervous, you know, he's very straightforward, right? And the good news He did write down a very nice article published in Wall Street Journal.
And also he personally recorded a video. And over the night, we got 50,000.
50,000 users from that article. But most of them, they left, you know, after several weeks.
But those who stayed, I imagine that was the kernel of the virality of telling their friends, who told their friends, who told their friends. I maintain a very good personal relationship with them.
Either VIP account or send them a small gift. And someone they canceled back then when it was 9.99.
I personally sent them an email. Why you cancel our service? What do we can do differently? And yeah, we still maintain a relationship even today.
We had, so one of the CEOs wrote in and asked us about different metrics to track. 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 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? To those very early, very loyal early adopters.
Even 100 is good enough. They are the early, I would say, most loyal users.
Double down to make sure they are happy. If they are very happy, guess what? Network effects.
They are going to bring a lot of new users. So that's why.
Even 49,000 users left. As long as 100 still stayed, we doubled on that.
So that's a strategy back then. For Peter, on the hiring and people and organizational front, you had a very, very different type of business.
Your customers don't buy with credit cards. They buy multi-million dollar deals, cash up front in a year for a year deal.
You need a sales force to sell that, which usually means you need a lot of cash comp to compensate that sales force. How do you think about the right people to hire as you were building and how to compensate them? Yeah.
I think one thing Eric and I have in common are, you know, in the early days, there's no wasted people, like no optional people, no wasted people, because it just adds, A, it'll burn through your money, and it'll just make your decision-making smaller and, sorry, more complicated. It's like sand in the machine.
So, no wasted 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 salesperson, right? I started selling before I signed the articles of incorporation. Show up at the customer.
Hey, I think you should buy something for me, this thing that I'm going to make. Well, have you hired anybody? No.
Well, okay. Well, 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 got a PowerPoint now.
Have you hired anybody? No, not yet. And then just keep selling because it's a relationship-based business.
Funny story, the first customer who bought, small customer, actually somehow through a relationship with my co-founder, we got to this guy. He was the CEO.
He wanted to buy some software for the small department just because he was really peeved with his IT team. So this guy had no idea what we're selling.
He's like, I know that my IT team doesn't want you, so I'm 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. I didn't know that.
But then you got to hustle, right? Then just like Eric, right? Then you got to hustle. Oh my God, this customer wants to buy something and then you're working super hard to make them successful.
And Eric, I'm not sure I never asked you about this, but we never had customer satisfaction surveys for Viva in the beginning. I always thought if I talk to those early adopter people, I will know, I will get the feeling.
And if I have some survey, maybe I won't get the feeling. Totally, you are right.
I agree with you. You just, you can hide behind, when it's small, you can sort of hide behind metrics sometimes and it doesn't work.
But if you actually talk to the human and you figure it out, you'll know what's going on. Can you tell us also the story of landing your first big customer, which I believe is probably the deal that really made the business.
Yeah. There was a set, right? There was the first, 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 big customer, Pfizer, and it was just hand-to-hand combat. There was a partner at the time, actually, Salesforce.com actually at the time said, oh, send a note that Viva will never win this deal.
And I replied back. I said, we will win this deal.
They sent it to you during the bake-off. Yeah, because they didn't to even come to the meeting with us.
They were like, oh, we're going to go with this other system integrator or something like that. So I sent an email back and said, we will win this deal.
Why? Because we have better people that will work harder and Pfizer's only shot at greatness and I think they want to shoot for greatness. 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 for Pfizer. He said, we have more people in this meeting room than you have in your company.
Why should we buy anything from you? And I just said the same thing. We're your only shot.
We're going to make something great and we have the best people. So it seems simple to me.
And then we got lucky and we won it. And then I remember after winning it thinking, oh my God, now what? You know, now how are we going to make them successful? So the whole company got a bonus when that customer was what we called live and happy, which didn't have a formulaic metric.
It was based on interviews. So did you use the invoice from that customer to then go fund product development? Yeah.
I thought, oh, we've just raised a $3 million round of capital here. It didn't cost us any dilution, right? The check came in.
So that's exactly what happened. Yeah.
Do you think that's still doable today? Like, I imagine there's lots of folks out there that are like, well, I would love to go invoice a customer and get cash in the bank. And what situations is it possible to fund your product with customer revenue versus not? I think it's, first of all, you can't be wasteful.
Every person has to matter. I would almost think about, oh, we're hiring that person.
Let's say we have to pay them $100,000 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 got to buy that lathe. How much is that lathe going to cost? Is it worth it? So I would think of people like, I'm buying a million dollar machine because I got to pay him $100,000 a year.
Is that million dollar machine worth it or not? So frugal. And then make a really excellent product because that's the best way you can lower your cost of sales.
So like Eric's product, you probably 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 sales.
So like Eric's product, you probably 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. Because salespeople, that's where it's It's really, really expensive.

You didn't have that sense.

When I read Peter's S1 document many years ago. At that time, I still remember, wow, my God, this has been a model.
It's so awesome. But in our case, our first paid customer, largest paid customer, only 2,000 a year.
So we cannot use that to find a new product development. Because most of users pay us only for $9.99 a month.
So that's really hard. But I do think, you know, for all the founders, right, the business model is very, very, very important.
If you can figure out we do something similar as what Peter and Weaver does, that's the best. Do spend time on that.
Not only for product, but also the business model. As Peter mentioned, product excellence and how to sell the product and how to live the big enterprise customer 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.
It's very profitable. However, it's very hard to predict.
They come today, next two months, they might leave, they cancel the service, this is not a great business. But the enterprise portion is very good.
That's why I learned a lot from Peter, how to manage a big enterprise customer. We met at an emergence event way back when that's how we first met Eric and I.
It was smaller at that time. Hopefully there'll be some more connections like that today.
One thing I want to highlight on this topic 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 want to do with that Pfizer deal, for example, or Eric, when you started selling enterprise contracts is multi-year deals. 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.
That's not what you did at all, right? Yeah, we didn't do that because I was always optimizing for the long-term value, which is the annual value per customer. So if I had to give the customer terms that would lock them in, I thought that's actually shrinking my market because they'll pay less if they're locked in.
That's one thing. Then the other one, I 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. Yeah, which is, you know, makes so much sense now thinking about it that you would have had to have given a, I don't know, 30% annual discount or lock in the price, then raising prices is harder later.
And that's unique to us. I think we're selling in a very confined vertical.
So it's not really fair if there's two companies and one's paying 30% less than the other, and they end up knowing about it and feeling bad about it. So that's something specific to this confined market.
And to put some shape around it, for folks that don't know Viva's business as well, you've a couple thousand customers, of which there's 100 or so that are 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 a, we sell into a defined set of customers, life sciences industry. There's kind of top 20 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 might have 20 things that we can sell to them.

They start in this area, they start in that area.

So Gordon calls it layering the cake, right?

We have a lot of different layers to the cake

that are all into the same customer.

We leverage relationships.

It's fine for us to spend $100,000 a year maintaining free relationships and just putting into developing relationships. That's not wasteful.
Right. So, because we have a lot of, we're showing up the door with $100 million worth of product.
Right. So, if you have a relationship, it's worth it.
Like a bank, a bank, investment banking, it's worth it to invest. So it's a different type of business.
Eric, for you, I'm curious, maybe you can talk to us both in the beginning days and then also now at Zoom. How do you think about pricing an account strategy? 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 probably the best business model.
Unfortunately, you start from building up a horizontal collaboration solution, it's really hard, right, because, you know, a lot of other competitors are there, right? So our strategy- Including free competitors. Exactly, a lot of, a lot of free solutions.
So our strategy is more like open up a new restaurant business. And you have a better service, a better price, and a better food.
That's pretty much even today. We want to make sure our product is better than our competitors.
Make sure when the company the company's pricing, also better. And they also make sure we offer the best service.
So you look at any time, our product always have better price across the board, any product, compared to any competitors. So life is about trade-offs and if you're telling a customer, oh, we're better, faster, and cheaper, what has to give? Is it something organizationally? Is there something...
Efficiency. Yeah, exactly.
You know, say like a customer, they are probably going to spend a lot of money on marketing. You know, what we can do to level the network effects, right? You know, they hire like 100 sales reps.
What we can do to have 50 sales reps?

We can deliver the same value.

So that's why it's very important to have internal efficiency.

Which is so funny.

That efficiency translates to capital efficiency,

which translates to operational margins,

which translates to cash flow, which is the whole point. Yeah, it gives you more flexibility, right? But I would say the key also is just the product excellence, right? And that comes from the core set of engineers you hired, I think.
And then also, you were especially very focused in the early days, right? Totally. You were not thinking about something else, right? You were thinking about video conferencing.
And I would say, you know, that's why I got to know Eric. I got to know Eric.
I thought, that's a pretty focused guy. I bet his product is good.
And then I tried out his product. Oh, this is really good.
I want to join his board. So I think that's always the product excellence can make you more efficient.
Your sales cycle is more efficient. Everything's better.
If your product was twice as good as WebEx, right? If your product was only 10 times better. 10 times better.
But I guess my point is if your product was only 20% better, it wouldn't have been enough. It wouldn't have mattered.
You're so right. That's why I always like this is the restaurant analogy right you know you stop buying a restaurant a brand new

restaurant is food that don't work even for free you do not want to stop by right anymore right so again you know I think a big drew that Peter's point is extremely important everything starts from one thing the product product excellent that's a foundation you can optimize a lot of things. If a product don't work,

forget it. Everything else, just

double down, triple down on product. That's the

number one thing. And you put it right on.

And that's a lot about people, right, Eric?

About which people you put on the product.

Yes. Eric was

very particular about getting the best

people. Yeah, so

people, we can come back to that.

You know, I remember when we talked about with Santi on the episode we did on Zoom's IPO years ago now. You know, your named executive officers in your S1 were not like you think typical, oh, here's high-flying SaaS company.
There's going to be a VP of sales from Salesforce. There's going to be a chief marketing officer from HubSpot, you know, whatever.
Like, nothing wrong with those companies and those people. But I think at both of your companies, the people you brought in as leaders were up and comers.
They weren't, you know, the established superstars. I think you I always wanted 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, so they would have a little bit more mojo, 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. In a lot of ways, 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.
Well, it's more thrilling when you can give somebody a chance to do something that they haven't done before for me and for them. There's more fulfillment.
Otherwise, it's why you're doing the same thing you've done three times. And what's the allure? Well, I can get rich.
Okay, just at some point, that doesn't keep you going at the end of the day. I imagine there's an element of compensation to this strategy too which translates to capital efficiency no not really no i always think of equity versus cash but uh i don't think so i never really made any kind of decision on people based on that are you gonna 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 Peter right on actually back then when we try we tried to make an offer right to some executives right you know at that time you know the feedback why not hire someone very experienced and seasoned leaders from all sides it's not really not about a common package because when it comes to hiring

at Zoom, we really

like to hire those people with a self-motivation

and a self-learning mentality,

including the senior executives.

They can grow themselves

along with their company growth.

Plus, they are very loyal.

I think that was our philosophy.

I thought that's the best

philosophy. After COVID, I think I was wrong actually.
There's a bigger flaw also. Because when business auto flows, auto grows your team.
And guess what? The executives or team, they are not ready. You know, like usage like 15 times, 20 times more.
Revenue like seven times more. You know, our team, even not myself included even not a twice better this is one challenge I learned that's a mistake another mistake is we think all those executives or KT members they can learn along with the company girls however the pace is a different right you know if someone can learn quickly someone 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 team structure, right? Someone, you know, they have a potential, they can grow themselves.
Somewhere else, you have to hide some seasoned leaders. You never know, right? In case suddenly your business is going to take off.
At that time, your team know already. That's a challenge we're facing today.
So you need to have some members of the team who have experienced scale bigger than your company, but other people that you're developing. Exactly.
That's a healthy mix. Back then, prior to pandemic, I was, I think, too stubborn.
I should learn more from Peter. I think everyone, you have to have a potential.
You do not even have a greater background. Actually, looking back, that's not right.
Interesting. Maybe a mix would be better.
Mix is much better. Do you think that applies even, do you think you should have done that even in the early stages of the company? Not early stage, right? You know, for the first four years, no need.
But down the road, 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. 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.
And yet here you are talking about the beauty of predictable revenue that comes from enterprise contracts. And it's the same thing.
It's not that experienced people are better or that in-house talent is better. It's that you need that mix.
Totally. Yeah.
The healthy mix is very important. Yeah.
So the last, one of the last sort of disciplines within a software company that I want to talk about operationally in this context is marketing with both of you,

but particularly with Eric, when we were chatting with Santi and with Peter, we sort of asked this question where like, you scaled, once you had 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.

And I asked them, you knowoked about the billboards, but there are Zoom billboards now.

I asked them, how did Eric and Zoom think about spending money on marketing?

And I'll let you tell the punchline, but how did you think about it? Yeah, even today, every Tuesday, we have three hours staff meeting. This morning, the first topic

read about reviewing

our marketing, top 10

marketing programs, even today

still. I think it's very tricky.

The reason why is you

do not have, I would say,

sort of like a formula.

When to spend more,

when to spend less. It's not like that.

As a founder, 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 everybody is different in our case we

specifically you know made a decision no marketing team for the first several

years you know because this is not something new right is a product or you

know this is very very mature market ever everyone understands video conferencing. If your product works, you really don't have a marketing team.
We try to prove that point. After that, after we have paid a customer, a lot of customers, the customer told us, Eric, I never heard about Zoom, but I tried to product, product works.
Why is that? We received a very consistent feedback like that. I know that's a signal.
Then we doubled down on that. Then 2015, we created a marketing team.
Also, even after that, we also measured every marketing program spending. Early on, I spent a lot of time trying to stand.
I'll give one example, like SEM, right? Every company, you spend money on SEM. First time I sent a check, oh my God, this is the price I paid to Google.
Oh my God, this is the largest check I'm gonna send. Do you remember how large that check was for context? That's more than 200,000 a month.
A month, oh my goodness. This is crazy.
You know, that's why I say I wanted to deep dive to understand. But by the way, the marketing team is all very, well educated by Google, right? You want to get talk about ROI.
You give me $1, I give $1.50 back. Let's do that.
It's pretty cool, right? But I tell them, no, you should have $3 back. Why $5.25? Well, I particularly want to ask you about the time frame you wanted that money back.
How to optimize that, right? And again, marketing is very important, but quite often very creative, right? If you do not know how to measure that, do not spend. The stories we heard were, 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 gonna spend a dollar, I'll get $1.50, or I'll get $3 back.
If that pays back within a year, I'm doing great. Don't believe that.
That's the mistake for all the SaaS companies. It's not $1.50 back, not $3.00, it should be $4.00, right? It should optimize.
Just Just up in the last minute. Yeah.
That's a common mistake, I think, for most of such companies. And Eric, when, how fast should it pay back? As I would say, as big as possible, right? It's got, every bin is different, but you got to optimize.
You keep optimizing every day. Do not feel satisfied.
Oh, give $1, get $1 get one dollar 50 cents back no optimize go to get about two dollars two you know three dollars right you have to optimize this is one example right for every marketing dollars however if it works you'll have a double down i remember you know first time i had a you know the billboard in one way you know many customers shared a very positive feedback with us they feel like ah early on we decided to deploy zoom i i saw the billboard feel like-on-one. Many customers shared a very positive feedback with us.
They feel like, ah, early on, we decided to deploy Zoom. I saw the billboard, I feel like you guys are a bigger company, we made the right decision, right? To better on Zoom.
It was more about validating the decision then. Exactly, and plus employees, they feel very happy, right? They say, oh my God, Zoom has a billboard now.
After that, I realized, why not double down on that? I told our team, how many billboards do we have in one? There's one. I said, no, three.
It works. So that's why you have to know when to double down, when to take step back.
If you know how to effectively measure that, that's very important. Well, we spent most of today talking about how to build the castle and how to have a profitable castle.
I'm not sure that really extends. But now let's talk about defending the castle.
I'm curious, 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 30 years? Yeah, so I you know, I think it's more like a sports, right? We need to focus on both offense and defense, right? It's both sides, right? So I think back to the period of porn, you still need to, even your product 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. That's the most important thing.
By doing that, at the same time, you also need to think about what's next. From our perspective, we started from unified communication.
The next step will be not you know, not a unified communication, it's a collaboration platform, right? At the same time, how do you build multiple new departmental applications? You know, you also need to play offensive as well. The better offensive play is probably is for the defense as well, right? So that's our strategy.
Peter? I'm 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 keep reinventing yourself 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 of the nature of your company and the creative people, you'll do more stuff in your established area than you should, right? And that creates its own set of problems. If you do more stuff in, you know, if Eric is constantly rewriting his codec unnecessarily, right, it's disruptive.
So you got to expand to give yourself a creative outlet. And then 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 if you get to be quite dominant, 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 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 got audit for them. Because if you wait for the results to show those things, it's too late.
So, you know, determined to have product excellence, have a goal to be the leader in like. We actually tell our customers about that.
And that holds us to a higher standard. So we want to be the leader in like.
And then they bring that up sometimes. Like, hey, that's not the leader in like.
Oh, God, why did I tell you that? You know? But I mean, it's a way to be, set yourself liked and then they bring that up sometimes like hey that's not the leader and like oh god why did i tell you that you know but i mean it's a way to be set yourself out there right not only do we want to be the leader we want to be liked product innovation as an outlet and then avoid avoid that arrogance you talked about but by the way i think related to this question i want to share with you a conversation ahead of his peter i think probably can help some of the founders here 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 wouldn't have one service, right? If we have another service, also can monetize, you know, the growth trajectory will be very different.
At that time, Peter told me that, Eric, 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, you know, trying to make a decision two or three years, you know, before that, right? I clearly remember that conversation. You know, that's why, looking back, that's the biggest mistake, the biggest mistake.
The reason why, you why, because you have one service, at the same time, how do you think about what's the next service? Always plan ahead. This is probably the better way, back to your question.
Always think ahead, build another service. That's exactly what I was going to ask as a follow-up.
Peter, I know Viva launched a second service after the first CRM service around CMS, content management. When did you start planning for that second product, and then when did you launch it relative to your first product? We started thinking about it the first part of 2010.
I remember Gordon and I and others started thinking about it the first part of 2010. So we had 150 people in the company or something like that.
That was four years into the company, three, four years? 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 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, just way, way different.
Sold into the same company, but different buyer, different product, different code line, different everything. So I thought, this is a 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 going to sink us. That's so counterintuitive, because normally you would think you'd want to give the same sales rep something that they could sort of bundle in for an incrementally higher ticket price and leverage what assets you already have.
But that you will do anyway. Like, if you don't go out of business, gravity will take you there, right? As you go along, it's like, oh, well, maybe we should make an add-on product or not.
Like, yeah, duh. But if you get confused and you think that add-on product is really going to float your boat, it's not.
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, but it's risky.

What's the scale of the two revenue lines today?

The second one is a bit bigger, but the second one has also quite a bit more potential.

You know, maybe it's a 5x or 10x potential.

But it 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 had to 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 worked it was risky our most recent episode was about nvidia which had a tiger by the tail with gaming everyone knows. They totally took their eye off that ball to start building for life sciences, for scientific computing, for what became neural networks and machine learning.
And boy, was it a good thing they took their eye off that ball. You know the hidden thing there? You need a CEO that was engineering type that went to Oregon State University.
Because that's what me and NVIDIA have in common. I don't know him, but there are very few of us Oregon State Beavers as CEOs, let me tell you.
That's an amazing company. I know Jensen well, actually.
Look at the immediate stock price. It was flat 10 years in a row before they took off.
That's such an amazing story. The conviction, really, he had to persevere through that decade is amazing.
Hard work, right? He's a hard worker. He's very hard work.
He is focused. Yeah.
There's no... I remember when starting Viva, the first time I started a company, I asked a friend who had started some other companies, because I realized about three months in, God, this

is really hard work.

I'm working every day, really hard, every hour.

So I asked my friend, is there any way to do this without working that hard?

And he very quickly said, no, there's not.

So isn't that true, Eric?

That's true.

The good news is I do not think that's a work, because we all enjoy that.

This is a part of life. Otherwise, what can you do? Are you going to play golf? No.
There's no shortcut. Exactly.
No shortcut. Okay, listeners.
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Yep. We're excited to be partnering with them because Claude represents exactly the kind of step change technology that we love covering here on Acquired.
It's a powerful tool that fundamentally changes how people work. I know, Ben, you have used Claude for some acquired work recently.
Yes. So listeners, I used to take four plus hours the day before recording to take all the dates for my raw notes and put them in a table at the top of my script for recording day.
On the Rolex episode, I actually fed my raw notes into Claude and asked it if it could do that for me, which was amazing. I just got my most important hundred dates for the episode done in like 20 seconds.
You texted me this table. It was awesome.
Yeah, that freed up an extra half day that I used instead to focus on explaining how a mechanical watch works, which I'm so glad I got to spend the time doing that instead of making the table. Totally.
So cool. I was actually just chatting with Claude to brainstorm ideas for something big that you and I are working on for later this summer, and it was insanely helpful.
Listeners, stay tuned to hear all about that. Yes.
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All right, well, we got to wrap, but there's 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 of an open-ended question.
What makes the future of Zoom and Viva an A plus? What's the like scenario where it goes incredibly well? Paint that for us. And what's the failure case? Oh, let's see.
I don't spend time thinking about the failure case. Honestly, I'm just not wired that way.
A plus is we really help automate this big industry. It's a $2 trillion industry.
And if we can help to automate it and be that trusted partner that is essential to that industry, and using that word very specifically, essential, and appreciate it. There's not been anything like that before where you're automating a whole industry in a meaningful way, right? Essential.
You're going to be a life sciences company. You got to use Viva.
And man, you like that. So that would be a big success.
And then we have a bit of a social mission too, to prove that you can be a good company, profitable, et cetera, but also be a good contributor to society and the employees. So that would be success.
You were the first public company to convert to a B corporation? To a public benefit corporation. But that's just more the formality of it.
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. Love that.
Yeah, so in our case, I would say that's a good question. A-plus scenario would be, you know, Zoom will be a very successful plan of a company.
We are going to introduce multiple new services, and people can count on Zoom to achieve more. At the same time, we can also grow up revenue every year.
That's probably A-plus scenario for many years to come, right? In terms of affiliate scenario, I would say maybe you go back and use WebEx. That's a failure scenario.
So, yeah, Peter, right. And I do not think about an affiliate scenario, but we just think about it be very optimistic think about it a future otherwise seriously you know we are all founders why the CEOs we all feel the huge pressure but sometimes you cannot be you know too paranoid otherwise every day is thing but too much but a failure case failure case guess what you do not dare to move forward right that's why I say not do not think about that So next time do not ask me this question So so only the paranoid survive, but don't let it consume you I think you're paranoid about not doing your best right? I think Eric you put a ton of pressure on yourself.
You you you don't feel good if you don't do your best, right? So I think that's, I see that in Eric.

I love that.

Well, 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 facilitating this, making it happen.

Yeah, but thank you, Emergence Capital.

Thank you, Sandy.

Thank you, all of you.

I really appreciate it.

Thank you, my great mentor, Peter.

Yeah, thanks. Wonderful.
Thanks for that group. Thank you, Sandy.
Thank you. All of you really appreciate it.
Thank you, my great mentor, Peter. Yeah.
Thanks. Thanks.
Thanks. Thank you.
Thank you. All right, listeners.
Well, thank you so much for joining us for this. I actually cannot imagine a more useful topic right now than dissecting how to build great companies on little capital based on the era that we're going into.
I think, you know, David and I don't need to debate this endlessly. Like you can hear the drum beats on Twitter of how much the market is changing.
But, you know, the reality is it is it is, and where everyone has to play the game on the field. And, uh, Peter and Eric have, have just, it's just unbelievable and impressive what they have built on so little capital.
They're two of the greatest of all time, literally two of the goats at this, which is so funny. You know, now everybody thinks of zoom as the pandemic, you know, high flyer.
And it's like, was just thinking every time over the last few years that people would talk about Zoom in whatever context. I'm like, do you people realize how much cash flow this company is generating? And it's all because of this DNA and mindset and everything we talked about with them.
And after spending time with Eric, 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 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, we would love to do that with you. You should join the acquired community Slack at acquired.fm slash Slack.
12,000 smart, courteous, and 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 now and our next special, which we have recorded and is awesome, and we are very excited to release, you can search Acquired LP Show in any podcast player, Spotify, Overcast, Apple Podcasts, anywhere you listen to podcasts and find that there.
We have a job board acquired.fm slash jobs, where we curate the most interesting jobs that we think we should make available to the acquired community. Huge thanks as well to our friends at Emergence for making this possible.
That's so true. I'm so happy.
I'm wearing my Emergence capital fleece right now. You got to rep the swag with pride.
You to rep the swag. Seriously, I was thinking as you were saying that, I mean, I know we talk about the Slack at the beginning and end of every episode.
It really is like, it's not just like, oh, you should join the Slack because you like acquired. Like, you know, if you're listening to this, you are probably a founder, an employee, an investor, you know, working at companies of any size where this is relevant.
And so is everybody else.

And people are like, this community is amazing.

People are talking about this in Slack.

Jake from Emergence is right there in Slack to talk about this.

People DM each other.

There's so much vibrant discussion.

Can't underline it enough.

It's such a great part of the acquired community.

And if you're not part of it, you should absolutely join.

That you should.

All right, listeners.

We'll see you next time.

We'll see you next time. Who got the truth?

Is it you?

Is it you?

Is it you?

Who got the truth now?