Get to $100m ARR While Burning Almost Nothing: 6 Learnings in 6 Years

Want to know who has sold over a billion dollars in subscription products? There aren't too many, and we've got perhaps the only one. Welcome back, second-time SASTR annual speaker and Executive Vice President of RPX Corporation, Malin Yen.

So Eric, I am so happy to be here with you today. Thank you. So many of you may have noticed that the title of this talk used to be Building a Super Efficient Preenicorn: Get 60, Spend 6. But due to some events of a couple weeks ago, we had to change the title. And so we were going to change it briefly to Building a Super Efficient Unicorn, but Eric is so humble and so modest, he said we can't use the U word. So, so we've changed it again. But you know what, getting to $100 million ARR while burning almost nothing is pretty good, I think. So congratulations on your, your recent raise, Eric, and your phenomenal growth. Now I think the hard part starts, right? So you started Zoom 6 years ago.

Yeah, 5 and a half.

5, 5 and a half years ago. So, so take us back. What was it like leaving Webex and deciding, okay, I'm gonna start another video company?

It's not an easy decision 'cause it was very emotional. I was one of the first several founding engineers. Ultimately, I became Vice President of Engineering at Webex. I was there for so many years and sort of the product is your baby, right? And also you build a product, have so many team members there. Every time I thought about I'm going to leave, it's really hard. It's very emotional. But finally, I made it.

And so, OK, so then you leave. And you decide, OK, I'll just start a company.

Let's see, before I left, I did spend a lot of time talking with all kinds of customers. Because the market we are playing is the video conferencing market. It's sort of very crowded. Many friends told me that it's too crowded. You cannot build a sustainable solution. But guess what? After I talk with all the customers, none of those customers, they feel happy. All the solutions they are using, they do not feel comfortable. That's why I saw there's the opportunity for me to build a much better solution.

So take us back to the early days. So you have this idea. You know that the customers aren't happy. And you know, OK, I think I can do this better. I know something about video. And so you go and did you start developing the product first or go raise money first?

For sure, we raise the money first. And this is the tough part, to raise the money. And probably that's one of the key lessons I learned. We live in Silicon Valley, and we have advantage to have access to many good VCs and also great investors. But to find the right investor and VC is really not easy. And, you know, many VCs there, you know, always, you know, tell you they are better. However, I think our philosophy is to find the investor who would like to invest in me, you know, not just in our business. Because the business can be up and down. Your original founding ideas might default to being wrong for the market, which because when to pivot the business. So if that happens and if your investors, they invest not in you, in your business, guess what? You know, there's a conflict down the road, right? It's very likely, you know, we see they might bringing in the new CEO, they are going to replace you, right? So, you know, however, to find the investor who, you know, are going to invest in you, not in your, in your business, is very tricky because almost everyone of them, they tell you they are interested in investing in you. So you got to test them. So in my case, and I did a lot of tests. So that's why I found the investor who truly bet on me, invested in me. So my analogy is more like, say, when you were young, you thought about who to marry. So for sure, you— You wanted to marry the one who really liked you or loved you, right? And you do not want to date the one who always asks about, hey, you know, how much money you have, you know, how healthy you are, what's your family background. I think that's not sustainable. So ultimately, I found an investor who really liked to invest in me.

So that's learning number one, right? Go with the investors who invest in you. Parentheses, or someone you might want to be married to. Yep. Got it. Okay, so, so after your seed round, you raised $6 million in an A, $6.5 million in a B, $30 million in a C, and now $100 million. And so when you took the $30 million in your C, which was led by Emergence, you had all of the previous round in the bank, right? And then now that you've raised $100 million from, from Sequoia, you have all of the $30 million in the bank. So tell us a little bit about this philosophy. Why raise if you have all of the money previously still in the bank?

So in our case, for any new initiatives, we always would like to test the water first. And then we double down or triple down on that. So quite often, it will take some time to test the water. So after you finish testing the water, you try to double down on something. If you do not have a budget, right? And at that time you thought about a reason wrong, it probably takes some time, you know, the opportunity window might be gone. So that's why, you know, we always thought about if we should have enough budget in case there's a huge opportunities down the road, we can double down on that. So ideally, you know, you, you really focus on the customer experience, make sure your customer happy. And if you do that, the VCs, they are, they are going to know you. They probably are going to stop by to ask about if you need money or not. You know, in that case, even if you do not need the money, you better take it because, you know, in the future you have more opportunities down the road. You make sure have the capital ready.

So do you ever get pressure from your investors who have put in, say, the $6.5 million and then the $30 million and now the $100 million to say, Eric, we gave you the money not to have it sit in your bank account?

I think I mentioned, you know, the We already married them, right? So I do not think they're going to give us pressure. But for sure, we want to spend, I think, in a smarter way. We cannot burn all the money. So we always thought about how to spend more but burn less. Every day, we think about if we invest this month, this quarter, can we be cash flow positive or reach profitability next quarter or next month or not? Every time, every month, we test We test it.

So that's worked well for you till this stage. Do you think that will work for you for this next stage going forward? And could your growth have been even higher if you had actually spent more?

I think ultimately, we do not want to grow too fast, because our philosophy is we really focus on making our existing customers happy. We do not aggressively pursue the new prospect. And also we always prioritize the features requested by our existing customers, you know, over the, you know, the new prospect. Because we truly believe if you do not make your existing customer happy, you know, even if you get more new prospect, it may not be, you know, sustainable. You know, that's why I think, you know, I always share with my team, it's more like I drive here from San Jose to San Francisco. If I drive like 80 miles, 1 hour, and I might get here in 1 hour, right? What's this, like 65 miles per hour, maybe just a similar 50 minutes. But however, the risk is very high. It may not be manageable because you might get a ticket to drive too fast. Your car might crash because of the road conditions. We really want to focus on the sustainable growth, focus on existing customers, rather than aggressively targeting the new prospects.

So, um, so let's, let's, uh, so the, so the learning number 2, to summarize what you said a moment ago, was basically don't wait till you need it to raise, right?

That's right.

And, and in fact, you were fortunate enough that you actually weren't even looking to raise when you were approached by some of these, uh, the investors.

Yeah. By the way, also many people told me that actually if you needed to raise money You may not get it. However, if you do not need the money, it's very likely you get it. I have no idea why this is the case, but I can tell you that's absolutely right.

So, so, so let's, let's, let's, let's talk a little bit about the, the spend more, burn less, and how are you able to go to $100 million ARR while spending very little. So, so you went from zero to $100 million in 5 and a half years. Tell us actually a little bit about how the first revenue came. Like, tell us about your first six-figure deal, your first sales.

Maybe let me take— share with you a little bit about the first deal, and then I can share the first, the big deal. I think the first deal is— I really appreciate Stanford because Stanford Continuing Study Group is our first customer. Customer even before our solution ready, you know, give us a huge confidence, right? So at that time, no sales team, no marketing team, just the engineers, you know, we sold that solution and give us a greater confidence. So in terms of the, the six-figure deal, I think, uh, that's, uh, the first one. I think also important one because, sorry, I, I don't want to mention the company name, you know, that company got a new CIO. The new CIO came from Microsoft. At that time we spent a lot of time, I'm pretty sure they are going to standardize on Microsoft solution. However, he did not do that. And his IT team is very smart. They tested 42 solutions out of there. I probably only know a dozen solutions.

I was gonna say, I didn't know there were 42 solutions.

I do not know. They tested 42 solutions and finally they pick up 3. And then they also did not make a final decision and they give the, You know, they pick up the employees across multiple departments and they choose 100 employees, give them 90 days to test the solution. Finally, 99 out of 100 employees, they selected Zoom and we got that big deal.

Was this your— I'm sorry, this is your first 6-figure deal? Or this is the first— this is not the continuing education? Okay.

Yeah, it's a big deal.

Yeah. And so were you worried, uh, during that 90-day period?

Yeah, before Yeah, 'cause we thought we are going to lose that deal, and I was very nervous at that time. But anyway, so we got to give the credibility to that company, CIO.

Yeah. So 0 to $100 million in 5.5 years. At what revenue bucket do you think was the hardest?

I think to get the first $1 million. Mm-hmm. It's very difficult because nobody know you. And also, at that time, we only have our engineer team. We do not have marketing team because we did it on purpose. So before we reach 1 million, we do not want to create a marketing team, only sales team. We do not want to— of course, most of the leads are organic leads. We do not want to spend money to generate leads. I think the first 1 million— MRR is very, very hard because just the sales team just to sell.

So, and did you have a VP of sales or a head of sales on board?

Uh, I think, uh, yes, you know, after, after, you know, our founding team, we closed several deals and we hired a VP of sales and he hired a bunch of the sales guys. So, uh, yes.

So, so one of the, um, one of the things that I've heard you say, well, well, actually, let's, let's look at this for a second. So Those of you who live in the Bay Area have probably seen these billboards. And so I first saw this billboard. And where did you first get this idea for a billboard?

When I came to the Valley in 1997, somehow I fell in love with the billboard. At that time, I was thinking, someday when I start a business, I will have a billboard.

And it loves you back apparently. So describe your approach to billboards, because this was the single billboard in 2015. And then fast forward 2 years later, we have not only billboards, but we have— and I think we cut off the picture of Steph Curry in there, but he's in there as well. So we've got what, the Warriors, you've got the airports. So tell us about your philosophy behind this approach, because we know that you're very frugal, right? You can't just be buying, sponsoring the Warriors for the heck of it.

So when it comes to spending, we always test the water. And then we decide, are we going to double down or not? For the billboard, any marketing initiatives, that's also the same. In terms of billboard, actually, we do not know Even today, I still do not know if it works or not, because it's more like on a brand, right? It's to promote our brand. It's hard to measure the brand within a short period of time. However, after we had the first billboard, my neighbor, she told me that, I saw your billboard. I said, wow, this is great. And then I told our marketing team, let's have another one. And soon, a lot of other people, they see, we saw your billboard, OK, let's We just had a third one. So we keep adding more and more. Probably we have about 4 or 5 billboards now.

And so I meant to, by stalking all the companies that sell the banners in the airports before I asked you this question on stage, but I didn't. But I'm going to ask it anyway, which is then you started showing up in all the airports as well. And from there, did you know what would happen when you started being in the airports?

I think first of all, in terms of brand awareness, certainly helped us a lot, right? So a lot of business knowledge workers, whenever they travel, they saw our billboard. However, I think even today, you know, I think most of our leads are still coming from organic growth, you know, not from those billboard from any airport ads. Easy.

Yeah, so marketing is hard to get right. We all, we all know that. And so how do you see this approach fitting in with marketing? Because it's organic growth, this is, this is not how much of this results in lead gen?

It's not that much at all. Again, you know, our lead generation, you know, I think primarily coming from our organic leads, you know. So our existing happy customers refer to other customers. A lot of freemium product also give us a lot of qualified leads. Again, this is just the brand awareness. Maybe in next, you know, 2 to 3 years, looking back, we will know, okay, if this is effective or not.

So do you do any lead gen marketing?

Everybody, yes, for sure. You know, today I talk with you, I try to get a customer, you know. So I think essentially all of us, you know, marketing, sales, engineer, you know, product, we, you know, we all work on selling, you know, as well.

You know, freemium is another thing that can be hard to do right, and you still have a freemium product today. So tell us a little bit about that.

I think it's very important because In our case, we really want to get the customers to test our product. This market is extremely crowded. It's really hard to tell customers you've got to try Zoom. Without a freemium product, I think you are going to lose the opportunity to let many users test your product. We make our freemium product work so well. We give most of the features for free. And one-to-one is no limitation. That's why almost every day there's so many users coming to our website, free users. If they like our product, very soon they are going to pay for the subscription.

So you basically give them all the features as opposed to a subset of the features, but you cut them off at 40 minutes, right? Is that what—

Yeah, so you're right. Sorry, I forgot to mention that. So 1-to-1 is always free, more than 2, up to 50 participants. The meeting has a limitation, duration is 40 minutes. Because I came from Webex, I built that product, we know the most effective meeting in terms of duration is 45 minutes. So that's why we give you 40 minutes.

So know your customer and know when to have the conversation cut off midstream. So the key to what's allowed you to conserve your cash is basically Eric does not allow anything to be funded until you prove it works. And then once you prove it works, you go big, like the billboards. You double down.

For anything.

Anything.

Anything, not only billboard. For almost everything, we always keep that philosophy.

And so you talked a little bit about this next one already, which is don't grow too fast. Which in some ways can be counterintuitive, but I like your analogy, right, of you can get from San Jose to San Francisco, but if you go too fast, you might have an incident on the way here.

Because if you always, every day, think about growing fast, you always, pretty sure you always think about how to get more customers, most prospect, right? If you do that, you probably are going to lose the focus to focus on making the existing customer happy. But the most important thing is to make sure their existing customer happy rather than chasing after the new prospect.

And so I know your NPS score is something that you're proud of. So what is that again, your NPS score?

It's 69 last quarter. The quarter before is 68. Yeah, always in that 67 to 69 range.

And without mentioning any names, what are your peer companies? Hovering around?

I don't want to mention the name, but none of them are above 20.

And NPS is something you focused on from day one, would you say?

Yes. Yes.

Yeah. So let's move to the next one, which is— OK, so another thing that's always of great interest of the folks here, and in fact, it was a panel that I was on yesterday, which is how do you hire a management team? How do you hire your first management team? Some people are of the theory that you hire the natural athlete and allow them to grow into the position. Others are, okay, the person that you hire who can bring you from $0 to $5 million or $10 million is not the person who can take you to $5 to $100 million. What's your philosophy?

So our philosophy is we always hire those people with the potential for growth. I really hated the idea of hiring those overqualified people. Because we truly believe there are multiple benefits by doing that, right? If you hire either managers or leaders, employees with potential for growth, first of all, they're loyal to your company. And secondly, they would like to adapt to your business rather than we adapt to them, right? And also they tend to be more humble. Rather than rest on what they accomplished in the past. So take our head of sales, Greg Holmes, for example. Before I hired him, many of my friends, they told me that you've got to hire a VP of sales who already worked for somebody else. You cannot hire just a direct-level person. I said no, because he has a huge potential, because he's a self-learning mentality, self-motivation mentality. Also have a huge positive impact on other employees. So since then, almost for every position, we always hire for the potential, with potential growth. We do not hire those people too qualified.

I think you told me that your entire management team now is the original management team that you hired.

Yes. At least nobody left yet.

Yeah. Or no one's been replaced or topped, I guess. The, the, there's a word that appears on this slide, as soon as it appears, that appears 7 times on this slide. Can you guys figure out what that word is? It's, it's happy or happiness. So, so talk about being happy. In fact, it's even, I think, 3 times in your LinkedIn, on your LinkedIn title. Tell us about happiness.

So This sort of back to my personal story. So before I left Cisco to start a company, I always thought about what kind of company I wanted to build, I wanted to work for. I know to build a long-term, successful, sustainable company is a long journey. It's really hard, not easy. And as you work on something very hard for many years, see, you are successful, but guess what? You might celebrate for one day, right? If you are crazy enough, you might celebrate one week. But however, looking back, many years of hard work, I think that's the most important thing. So outcome is more important, I think the process is more important, sorry, than the outcome. And during that journey, if you do not build a company to deliver happiness to your employees, you know, you feel like, you know, it's kind of like a torture to your employees, right? Many years of hard work, your employee every day when they wake up, they really don't want to go to office to work. I think that's not a company I wanted to build. I really want to make sure every employees, you know, many years after they retire, when they look back, you know, they can enjoy a sweet memory of those happy moments they shared, you know, at Zoom.

So that leads to the 6th learning, which is culture is number 1. And I want to close with just 2 questions, actually. The first is, what's the hardest thing you've had to go through in building Zoom?

I think it is along the way, right? Sometimes you do not know what triggered that. Suddenly you wake up in the night, you see so many problems down the road. Suddenly you lost the confidence. But however, the good news, after you wake up the following day, you're OK. I think that's the hardest part. Suddenly at that moment, almost everything is wrong. You sort of, do I work on the right thing? Are those customers happy? Are those employees happy or not? Suddenly you lost the confidence during the night sometimes.

So was there a point when you thought, you know what, maybe we're not going to make it?

Yeah, it's just maybe once a year, maybe.

Maybe once a year.

Good news, not in the daytime, so no impact to our employees.

And would you say it's the first million dollars that's the hardest for you, or what was the hardest point for you?

The first million for sure is the hardest part, because we do not have a marketing team, just engineers and just a bunch of sales guys. We did it on purpose. We really want to test, is this product happy or not? Can we deliver happiness to our customer or not? We do not want to spend money on marketing side to generate leads. So that's why the first 1 million is very hard. It's more like to test water. If we know we can deliver first 1 million, we know we can deliver second, third, and—

Finally, so given the recent events, and Jason talked a little bit about this in his opening, given the recent executive order, what are your thoughts on the executive order and the limitation on immigration? You're an immigrant, and you're a founder, and what can you share with us?

So the way I look at it is, you know, the reason why I would say that, take Silicon Valley for example, the reason why Silicon Valley is so a worldwide innovation center is because we embrace diversity. A lot of companies' founders are coming from all kinds of backgrounds. That's where the innovation coming from. If you lose that, I think down the road, I think I do not know what is going to happen. For sure, I'm an immigrant. I think all the high-tech companies, I think it's hard to see, but I really think that it's not a smart decisions.

Well, great. Any final thoughts, Eric? You want to share?

I want to say special thanks to Jason M. Lemkin. And when I stopped by, I feel like for all the software service companies, this is our Super Bowl moment, right? So we got to enjoy and have fun. Thank you.

Great.