The Things Nobody Tells You About An $8B Acquisition with Ryan Smith from Qualtrics

I'm Ryan Smith, R-Y-A-N-S-M-I-T-H, co-founder and CEO of Qualtrics. What we do is we help companies close the experience gap. We wanted to automate research that was being outsourced, and then we wanted to take it to the world. We're operating out of the basement and closing Sabre and Travelocity for $75,000. And we're sitting in the airport going, do they know that first of all I'm really young Second, that I'm in a basement. The one thing that my father gave me, number one is there's nothing he wouldn't do. Our big guests of the morning, just pulling off a big deal, SAP CEO Bill McDermott and Qualtrics CEO Ryan Smith. I'm more excited about the future than I have been about the past. We're just getting started. We're already to the point where most companies never get to. It's going to change how everyone thinks about cloud and SaaS forever.

Woo! Let's welcome Ryan Smith. Thanks for coming back.

Thanks for having me, man.

Good to see you.

Good to see you. That picture of me in a robe, that's way back. When was that? You're digging deep.

Digging deep? Well, when it's on YouTube, it's on YouTube forever, I think. That's for sure. Yeah.

That's for sure. So this is impressive, man.

It is.

You've come a long way.

The crowd's pretty big, isn't it? SaaS is getting there, isn't it?

SaaS has arrived.

Yeah. All right. So we added this slide last minute, literally backstage before he came on, but Ryan and I did an event, Traction, with Lloyd Lobo in like 2015. It was probably in the upper right, this guy who turned down, does that sound about right? $500 million?

This was pretty funny stuff. But yeah, that's what we were—

That was 2015. Last year you were kind enough to join us last minute, and Qualtrics was worth a stunning $2.5 billion, and then you blink an eye, it's $8 billion.

That's what happens in SaaS, right? The whole world's waiting for you to just let gravity set in and fall, and if you can just hit that next checkpoint without crashing, it's compounding.

That's what we're talking about, right? And how long did it take you to figure that out?

Um, probably about 17 years.

17 years. Now it's funny, we were laughing a little bit about this backstage because it's literally the same headline, the same headshot done 4 times, but it is also representative of compounding, right? You do it right and you can rewrite this headline in a few years and the number goes up.

The backstory here is we turned down an acquisition offer for $500 million in 2012.

Yeah.

And I had done, I mean, we were about a $50 million sales run rate, but I'd never done a media interview.

Oh, I see.

For the, so the first media interview or press release we did, we said, hey, we're raising a Series A round. And Julie Bourd from Business Insider got on the phone and was like, how old are you? And I was like, well, I'm 30-something years old. She's like, do you know how much money that is? I was like, well, yeah, it's $500 million. You just turned that down? And so she literally wrote, that article, and she scared me because she's like, I like had doubts. I was like, what am I doing? I raised a Series A, I turned down the money. So when we were going out to raise, we raised at a billion our next round. The first person I called was Julia. And I was like, hey, you remember when you told me that I was crazy and this is what happened? Like, here's a billion. So when we raised at 2.5, first phone call, Julia again. When we sold, first phone call, Julia again. And she, to her credit, literally just put the same headline on, on Business insider.

Now, when they make you CEO of SAP, are you gonna call her first?

Yeah, 100%, 100%, right?

That's at least 8 years out.

Yeah, yeah, I'll be translate to German.

Yeah. Now, do they say— we'll talk on— but, but, uh, you're obviously, um, super inspirational, charismatic. Do they already say Ryan's gonna be the next CEO of SAP? They say this when all these deals happen.

They don't really say that. I don't say that. I don't ask, and I've never, like, tried to be. I didn't even want to be the CEO of Qualtrics, but my brother— we're sitting in Sequoia's office, we're both there, And we're like, someone's got to be the CEO. And I was like, actually, I think, I think there's a bunch of companies that have half a CEO right now.

Yeah.

Because I work for last companies.

Yeah.

And my brother, like, no one's talking. And the whole Sequoia partnership's like, well, which one's it going to be? And Jared's like, I don't do media. I'm out. And he doesn't do media. You've maybe one media article. And so that's how I became CEO.

And what did the deck— actually, we might have that on the next slide. Let's look. This is back then. This is a little earlier than that. Let's go to this. You went to Sequoia, because I haven't heard this story. And you're raising— what was the round? $500?

No, we raised—

$1 billion? You had $400 million?

Yeah, we raised $400 million, $350 million with Sequoia and Accel.

So you're going in. You're at $30-something million run rate. And the team deck doesn't say who the CEO is?

No.

What does it say?

It just says we're the founders.

The Smith brothers?

The Smith family. Yeah, that's it. We called ourselves a team of 4, actually. Who operate and make decisions. And it's just how we rolled. And, you know, Jared, Jared started, this is in 2002. He's got the Antonio Banderas look going on there. And then he took off to Google, which was really weird. He's not— we talked about this before.

Did it break your heart or were you supportive?

No, at the time, because I don't think we thought like we were going to do a startup. I mean, I remember debating for a week and a half whether to buy that sign there. It was $50, right? And my dad had kind of operated in the dot-com and had a massive bust.

Yeah.

So he was—

He had scar tissue.

Major scar tissue.

I still have a little myself.

Yeah. I mean, most people who haven't been through that, it's not fun, right? When every single budget's cut and you don't matter. And, you know, we operate in— so Jared took off and he ended up running Google China and a third of the world's internet search. I convinced him to come back in 2009, and, you know, kind of the rest is history. We've been working together ever since. We're, we're working together now.

So, um, one thing on the slide, because we'll talk about the next one— what is Survey Professional? Survey Product?

Yeah, that's who we were back in the day. We were the Survey Pros. And, you know, I think we, we decided— actually, unfortunately, we won the domain name, but we got in a lawsuit.

Oh, someone had a trademark.

Someone had the trademark on it, but they didn't even know how to rule.

Pet exterminators were the survey pros.

So we had to switch and we chose Qualtrics, and it was the best thing we've ever done because everything we ever wanted to do or pivot the company or get away from surveys, which, you know, in 2007 we're like, whoa, this is way bigger. Um, we could do it under the Qualtrics umbrella and so everyone would get it. After us and say, well, it's not descriptive. I don't know what it is. And you know, reality is people don't know what anything anyone's creating is. You know, I'll never forget when, you know, so first of all, for the first 10 years we didn't do one media interview and we got to $50 million in sales. Think about that, right? Not one media interview, not one press release. Then we, I feel like we put on a clinic the last 6 years. You know, I've been on CNBC 13 times, been in Forbes, Fortune, you name it.

Yeah. And what was the goal of it?

Just you were supposed to do it, right? You were supposed to get out there. You could recruit, you could do fundraising rounds, you could do all this stuff, and then you would have arrived. We close the deal with SAP. I get on the phone that night. It's myself and Bill and all the investors. First phone call. Hey, Bill, you spent $8 billion on a company that no one's heard of. And I was like, what the hell? 300, 300 articles about our IPO out there.

Yeah.

And no one's heard of us. And so I think that as founders, and it might be helpful, you know, there's this whole rationale of fundraising and marketing that you're going out there so people will know who you are. They're not going to know who you are. So just go build a good business.

Yeah.

You'll be happier.

Um, but it does help for recruiting and other things as you scale, doesn't it? You don't think so?

I think so. I think a little bit, but I think it's overrated. I wouldn't raise a round just because there's this hope that people know who I am.

Yeah. Uh, what about bigger partners and things like that? Bigger? Does that help to have that impact?

Ish. Ish.

I'm just continuing to be a student of brand, right? And then you have a phase transition, you have a mini brand. And then you have a brand, and then once you have a brand investing in it, it actually is more important than we realize. We think it's silly in the beginning as founders, right? But then this Qualtrics brand is so important that what you've got to think about, what can you do to support it?

Yeah, and brands, absolutely, it's worth every ounce of investment, but I think I wouldn't make decisions solely around that. It's like making your whole life decision around avoiding taxes. It's not a good strategy, right? So, so you're going to have to do it. It's important, but But at the same time, it's the same with brand. Go build your brand. But I think brand and marketing are different, where I see a lot of companies raising around and plugging their cap table into the marketing engine. Yeah.

Well, that does happen today.

Yeah. Which is like, okay, that campaign was worth 5% of your company. When's that ever been effective?

Well, wait until you run a scooter company, my friend.

Yeah. Yeah. Yeah.

You get a new set of skills.

I run over those scooters. I haven't really run a scooter company yet, but maybe in the future.

—This is a fun chart. I think this was in— I stole a bunch of slides from Alex Clayton at Spark Capital from his Medium post. Thank you. But I think this was from your perspectives, right? And I wanted to talk— 'cause just a couple— we could talk about this for the whole session. But Qualtrics is— I still consider it a bootstrap company in my definition. Because bootstrapped is, do you hit escape velocity without capital? And whether you're like Qualtrics or Atlassian or others and you choose and escaped to raise money to, for whatever reason, secondary acceleration, but you did it the hard way, right? And so it was— now I'm trouble reading squinting, but it actually wasn't a rocket ship in the early days. So it took you 10 years to get to $30 million in revenue. Um, and the first couple of years was as close to zilch, right? Yeah.

I mean, we targeted the academic market, right? Which is a horrible business model. You have PhDs who are all power users. They can really, spend all day in your system because they have nowhere to go. And what's their budget? What's their— zero. And they have no money. So you're not running your MBA exercise and saying, hey, let's do a startup. Let's, let's get our swag and all of our, all of our backpacks and go target the academic market. Yeah. Who's not going to pay us anything. And no one would ever invest in that period of time. But it's actually funny because In hindsight, it was the most brilliant thing that we did. Everywhere I go, when we were on the roadshow and everything, it was, "Wow, that was the most brilliant model I've ever seen," because millions of academics used Qualtrics and then took it with them into the workforce. It's kind of an interesting— and that's happening every single year. As we grew, we actually learned to develop great products in that phase, because you You know, if you've got to develop a product where a PhD or a researcher calls in, imagine the support system you've got to have on the other side to support Dan Ariely, who is a behavioral economist, and he's calling in because he's running his projects on Qualtrics, or Dan Pink, right, the author. And they're all doing that. They're really smart people. So your product has to work. And that was what prepared us for the enterprise. Now let's, let's.

I want to talk— there's a lot of benefits to doing it this way. We'll talk about dilution and cap tables in a minute, because it's a topic we're both interested in. But let's step back for a minute. We can talk about Bird Lime and all these funded companies. We can do it in SaaS. But no one wants— everyone would love to bootstrap. If it were simply a binary choice, shall I sell 90% of my company or zero, I think we can all make the same choice. But looking back, you started in 2002. And it was a terrible time to start, but also good. Because there weren't 10,000 companies each year out of Y Combinator and EF and others. Would that playbook work today? Would you have enough— the question is, do you have enough time to go out in the desert for 3 or 4 years if there's 48 other SurveyPros or Qualtrics out there today?

Yeah, so I think if you look at this, this is a great way to look at the— for those who are new into tech, if you look at 2002, we were in the shadow of the dot-com. So everyone was still a little cautious, right? Dot-bomb. Dot-bomb, yeah. Then we had like 5 years of really good time. And then it hit again hard, hard, hard. And everyone who had raised capital, like, went to— like, they were all in the fetal position. Yeah. And we were bootstrapped. I stopped hiring salespeople. Yeah. Yeah. Which never happened.

Hiring salespeople ever. Right.

And so we, we went through and we were saying, you know, we're probably not going to— and it was my father and my brother. They're like, hey, look, We're not doing this if we're going to have outside bosses. And actually the amount that we would have given up was, it was expensive. I mean, I'll just tell you from 2009, '10, and '11, every year we waited, our valuation went up $100 million back then. Yeah. Right. And so basically the longer you can spread it out, the more money you end up with. For your employees and for your— and aside from the financial side, I will tell you this is your cap table is your number one asset as a founder and as a company. If my kid was joining a company, the number one thing I would say is, hey, great, that's a great market. This is all what's going on. What's the cap table look like? Yeah, because I've watched in the, in the areas that we compete in, I've watched really smart people, really smart founders just get lapped by us because they had a bad cap table.

And you say that, but let's dig in for a second because, um, what do you really mean by that? By— you mean overwhelmed by too much capital? Because there's all— there's all these stories out there.

But yes, so if we would have had capital, we would have never gone after the academic market. It actually— sometimes an influx of capital can make you take the shortcuts, and you need the scar tissue to run a business in the out years that you can only get from the suffering in the in years. Well, that, that is true. Yeah. Right. So we know as a company that we could pivot from the academic market to the corporate market. We couldn't buy it. We had to pivot. We had to go through and stand this up in an efficient way that worked and scaled. So when we got to 2016, it was in our DNA. We had it. We knew we could innovate. We knew we didn't have to follow the rest of the markets that were going this way. No, we're going that way. Why? Because we didn't follow them in academia. We didn't follow them when we went into corporate. And then when we went into enterprise, we did it a different way. If we would have just bought our way through, I don't think we would have had that confidence or DNA to pivot the whole company and create this new category of experience management, which is really what SAP wanted.

Yeah, but let's step back because there's an interesting thing that a lot of founders think about. So I should know this. So, uh, Qualtrics doing plus or minus $500 million at the time of the deal, right?

Uh, $500 million in sales. Yeah.

Okay. What percent now is from that academic market, that original market? I should have pulled this up and read.

Uh, and we don't release it, so you wouldn't have found it, but it's still a heavy, heavy piece of the— But it's a minority, right? Yeah. It's, it's, yeah. It was smaller. 100% of the business to 10% at one point. 10%. Yeah.

So the question is, this is a question for founders, because you're talking about this. When you're doing well in a small market, it can be exhilarating but also frustrating. You see these other TAMs, you look around and you see Dropbox and folks. How do you know when to stick with these smaller markets and dominate it versus move across this chart? How did you know? What's your— Well, it's a timing thing.

I mean, the academic market is not one that you look at and you say, hey, look. I mean, what do you do, look at Blackboard and be like, OK, that's the holy grail. Yes. Right. And we always had a goal that whatever market we were going into, we wanted to be number one at. And we wouldn't go into the market if we didn't believe we could be number one. And if you look at what we're doing right now with the experience management platform, customer experience, we believe we're going to be number one. We believe we are. Brand experience, measuring people's brands. Employee experience, there's been $10 billion in acquisitions in that space. And we're kicking butt. We've already created a unicorn in both customer and employee. And then product. And we're doing it all on one single platform instead of all these different systems. And so we won't go into one of those verticals if we don't believe we're going to be number one. And we're having real conversations with ourselves. We're not drinking our own Kool-Aid saying, hey, we're going to go do it. No, like literally, can we be number one? And we went into employee experience. I was like, I don't know if we can be. There's been $10 billion worth of acquisitions. What, what are we going to do that they missed? And And like sure enough, we've had 2 of our competitors sunset all of their technology and move everything over to Qualtrics, which if you would have told me 3 years ago— Can't predict that, right? Can't predict that. And so I think it's just plowing away and staying focused. We had a goal to focus on 250 universities. And every time I'd call my brother when he was at Google, he'd be like, Ryan, you're all over the place. Every time I talk to you, you want something different. Do not call me unless you're going to talk about the 250 universities. And he literally put me in the box. And guess what? Entrepreneurs, they'll get out of the box. Yeah. So I got to 250 universities. It took 2.5 years. And once that happened, we hit like the tipping point and it went. But I see the same thing now.

So in 250, rough, what was the revenue roughly? Just try to remember back.

Yeah, like $18 million. $18 million. Something like that.

So let me, let me roll out because founders struggle with this. Their TAM in the early days. Let me get your opinion. If you pick, you can pick any AR number you want, but if you're at $1 million in revenue or $2 million and you're growing double digits, is your market too small? $1 million in revenue growing 10% or more a month. I mean, if you're tripling or quadrupling, should I worry about my TAM if I can go from 1 to 3 or 1 to 4 in a year? Does it matter?

I mean, look, I always look at those young companies that if you're not doubling every year, something's wrong. Yeah. Right. So if you're not doubling your market every single year, that's what we did. We went from 1, 1.5 to 3 to to 6 to 12 to— and that was my goal and we always hit it. But there were times where we could have grown faster if we would have executed better. So trying to understand the execution of the market, what I look at in the market is like, okay, I just sold Kellogg Business School. How many Kelloggs are there? How many are globally?

Well, that's what it's going to take to go through a small—

say it's a TAM and then where are the adjacent markets? But the problem with TAM, like I'll give you a great example. We went in the academic market. I said, whoa, we're selling a research platform to a university. Let's go to the CIO. CIO is like, yeah, this is cool, but wouldn't buy it. I was like, well, let's go to the institutional research department. Their institutional research department was like, yeah, we know research is in our title, but we're not going to buy it. And I'm like, whoa, this doesn't make sense. Let's go to the business school because they got all the money. So then we went to the business school and then they wouldn't buy it. And I'm like, 3 months, 6 months, 9 months. I'm already 9 months into this program and haven't found the buyer yet. It's rinse and repeat. So then I called faculty members in the business school. Well, they bought it, convinced the department to buy it, convinced the business school to buy it. Then we got institutional research. Then I show back up to the CIO and I'm like, you want to do this the hard way or the easy way? Right, and then we sold all the universities. So, so part of the TAM problem is you would have looked at that CIO and not realized that you could have gone all the way up through. And that's how it, that's how it happened. And I think, I think Excel and Sequoia totally shorted our TAM.

I bet, right? I bet 100%.

And what I would ask, what I would ask the question is, the, is the TAM growing and at what rate?

Yeah. Or can you redefine the TAM based on what your software does? Yeah.

And then what, what are you going to get? Because people are like, oh, when we were starting, oh, it's a $50 billion research TAM. And I was like, yeah, but Nielsen isn't going away. Right? So it's like, just how much of that are you going to get? Yeah. So when I went and presented to the VCs, I was like, look, here's the TAM. I don't care about it. This is how much we're going to own. And I got it from $50 down to like a billion and say, "Hey, this is realistic." And they're like, "Wow, no one's ever presented it that way." I was like, "Well, what you're going to present to me isn't going to be right." So you can win a TAM argument with VCs is the learning, right? Yeah. I mean, look, everyone wants to know what VCs care about. Cash. Yeah. It's a universal language. You got cash, they'll invest in you.

So this chart I love, but I want to hit some other stuff unless you want to talk about this nice growth here. —hit some other fun things in terms of—

I mean, it is— power laws are real. Yeah, it's compounding interest, and the whole world's sitting back, like I said, waiting for gravity to set in and when that's gonna flip. And if you can maintain— I mean, we grew at 47% last year, $500 million in sales. Yeah. So everyone's like, SAP paid a lot of money for Qualtrics. Well, did they? Fast forward that.

In 2 years, it'll seem cheap, right? Very cheap. I think it'll seem cheap. Yeah. That's, that's the magic of compounding. Let's hit that in a minute. I want to get one thing in here and then let's talk a little bit about M&A, make sure we have enough time. But this is the SAP sales, sales. Yeah. So 100,000 strong, 1 million sales reps. How big is this SAP? So, so how do I get access to them? Yeah, yeah, yeah.

So one of the things that's interesting is, you know, I didn't know a lot about SAP, right? I knew every other CEO. I knew what the companies could do. I'd recruited people. But when I met Bill, it was like, hey, Ryan, I'm really passionate about your vision and what you want to do. I want to go empower that, and we would love to have it. And I'm like, well, what do you bring to the table? And he's like, well, you know, outside of a check, what do you bring? And it was like, I bring the ability to go to market globally. I was like, well, we have a good engine. They're like, no, we have an engine. And I was like, okay. So 2 Thursdays ago, I was in Vegas at our sales kickoff for North America, and there was 8,000 sales reps in the room. And I was like, holy cow. I got on stage and it's like 4 times the size of this. And I was like, wait, all of you are selling our products that we're developing? And that was really why we did this. We have this category of experience management. We think the whole world's going to be competing on experience. And we want to get it out there. Our developers want to develop products that everyone's going to use. And so this was a compelling event. And, you know, everything's been as advertised so far.

And related, this is a topic that's probably more fascinating to me than some folks, but this is, this is an incredible sales force. But how do they sell another product? Do you know the answer to this yet? Because this is what I learned. Like sales reps, they can only sell so many products. So you bolt on this rocket ship, but how do they tack that on to their inventory management system, ERP system, and sell it all together?

And so I think, I think with most companies, this is a longer discussion, but most companies, You're bolting on something here. The cool thing about SAP and Qualtrics is we're here. So you've got ERP, which they're doing like 70% of the world's products come out on, but they don't have something to measure the experience of that product when two-thirds of the products fail. So now they have Qualtrics. They have an upsell. Yeah. And it's part of that vertical, or like 90 million people are on SuccessFactors. Yeah. Right? But there's nothing to get— gauge that's easy for the employee experience. Well, now that's there. So it's actually out of everything, it's not like they're going in back to Sellerie, but it's like, it's right there. Yeah. And so it's, it's really, it's really, this is why we did it because most companies I would, or who had expressed interest, we were kind of the runaway bride when it came to selling us. But most companies, they were one-dimensional. They were only marketing or they were only sales. and SAP has product and employee and then the CRM and everything else. And we're like, whoa, we have product, employee, you know, customer. And so that worked. Well, let's—

I want to talk about MA, but let's go back to this slide and talk about something different for a minute that I think will— people don't get if they haven't done it. So $8 billion, this number doesn't come out of nowhere, does it? It sounds like a lot of money, and it is a fair amount of money by historical standards, but you're IPOing at a certain number, right? The market actually— there's a, there's a comp out there, and you're, you're, you're days away from IPOing. And who'd you have, Goldman, Morgan Stanley? Morgan and Goldman. Morgan and Goldman. It's either Goldman or Morgan or Morgan or Goldman, it's one of them. And they're telling you, they're looking at the comps and they're saying you're worth $5.68234 billion and this is just a premium, isn't it? At some level it's that simple, isn't it?

Yeah, and they did a great job and we would have had a wildly successful IPO. We were all in on the IPO. That's what people don't understand.

I was watching. I was tweeting.

I was not running a dual track. I invited 300 of my closest friends friends to take mortgages on their house to go buy into the friends and family. And then I was like, oh, J/K. It was like a pump fake, and everyone went flying by, and then we laid in. But that's just what happened. Yeah. And, you know, we've always done unconventional things at Qualtrics, and this was just one more unconventional thing that we did. And, and we're gonna keep running it, which is also unconventional. Everyone asked me, Ryan, what are you gonna do next? Your check just came in. What's going on? I was like, My wife only let me do one tech company. This is it. Can't— I mean, they're gonna have to tell you all goodbye.

Yeah, or it's a generational company.

It's a generational company, and my goal was to get Qualtrics everywhere, and this is the best way I've seen to do it.

So, so $8 billion to some folks on reading Business Insider may seem crazy. It's not. It's a premium to IPO, as it should be, because if you're gonna take something off the table, you can't pay under market, right? It's actually fairly— but let me— let's Let's do the second math, which is even less intuitive. Let's talk about the dilution related to that. So an $8 billion acquisition is equivalent to how big of an IPO?

Probably $11 or $12. $11 or $12.

This is, it's just an interesting thing to think of. And this is, this will also be true with your Series B and your Series D and your Series E if you do them, because you're, you're, you're going to sell a quarter of the company. Well, you're gonna sell 15% of the IPO plus the other taxes associated with it.

Yeah. I mean, I always looked at our IPO as our Series D round. Series D round. Yeah. And everyone's like, okay, I'm going to raise here. I'm going to raise here. I'm going to raise here. There's two things that are happening that scare me. If I look out at tech and I watch a lot of companies I advise, there are two things that scare me. Number one, founders and companies are not thinking it's, it's long enough. It's going to take longer than they think.

All of them, right?

All of them. Everyone. Everyone. All of them. Yeah. Nothing we've ever done has been shorter than we thought. Yeah. Right? And we've seen this. And I've got a great peer group in Utah. It's— and you're going to hear from Aaron Sconard, who we're the same cloth. I mean, it's like 12 years. I mean, we've been going. It takes longer than you think. And everyone's going to be like, no, no, no. And I'm like, just watch. Because all it takes is one little hiccup in 2007, '06, and '08. I mean, look, look, here's a prime example. Look at November this year. Right? We're ready to go on the road. The stock market crashes a little bit. We show up in New York. We are the only company on the road. Oh, is that right? Everyone stopped. And all it takes is one little hiccup and then, okay, we lost a year. No one's going public. The second thing is you talked about however many unicorns there are. Yeah. There's a myth that I didn't know about. And I've learned, you know, when you get over $1 billion or $2 billion, there's not that many companies that can acquire you.

That's for sure.

Right. And they don't buy all the time. So if I look at it now, SAP is not buying anything for a while.

We took all their powder and they go through waves, right? SAP bought SuccessFactors and Concur and then digested. —And they have to digest.

Adobe just bought Marketo.

It's a lot to digest.

It's a lot to digest. Yes.

It's a lot to digest, right?

And you've got to go to an outside public board and say, "Hey, this is why we're going to do it." So if I'm a founder and I'm running, I need to protect my cap table and say, "This is going to take longer than we think. Don't get emotional. Just play the long game." And number 2, prepare to go public and be perfectly okay with that and build your company to be able to do that.

How early do you mean prepare to go public? Just know that there's no other option. Well, that, that's, that's, that is a, an important insight, right? I talked, I bumped into like 5 founders at registration this morning asking me about potential M&A for companies they don't really know. Like that doesn't help, does it? No. Prepare to prepare. Your only option is to IPO. It may take 20 years, right?

However long it is, if you're not building a company that can stand up and go public, then you're probably going to be, no one's going to want it anyways. And there's going to be an outlier or two where you're going to point to and say that, but no one ever really— I mean, SAP came in because we were ready to go public. That's what— that's what they're not going to move without a compelling event. And that was great. And it worked out for everyone.

Let me just make sure I got this one, one, because I know we moved it around, but I want to hit that dilution one. Where did we have these statistics? Let me flip through. I think this one didn't move, but I want to hit your— or we'll just talk about it. This one. 'Cause I know it's a passionate— Let's hit these two topics, 'cause we'll run out of time. But somehow this took 17 years, right? And for all intents and purposes, the founders alone maintained almost the majority of the company, put together the rest of the employee board. The team owned the majority of this company, right? And so you have a lot of thoughts on this, and it's not just raising money. If you talk to— I was on a board with John Doerr a while ago, you know, the legend of venture capital, He modeled 6% dilution a year, like every— because he's doing— and when he tries to figure out what the valuation of— as founders, we think it's 30 pre. He's like, no, no, no, no, no. Like, I got to figure out how long my money is, and I'm getting inflated by 6 to 7% a year. Plus he's doing his own math and it's going up. So how do you manage a cap table for, for the better part of two decades like this?

Yeah. So we didn't give away stock. I know that's weird here, but we didn't give away stock till 2007. 2012. So 2000— oh, 2012.

Yeah. And did you pay up more, or you just created the best work environment?

And we just created a great work environment. People had to buy in on the mission, and I think that was, that was part of it. I mean, one of the things that I'm really proud of is that there's $8 billion and only $30 million of it went to people who weren't in the building at the time of the transaction.

Yeah, I think I've sold more out to people that weren't in the building myself, and I didn't sell for $8 billion. Yeah, you beat me on that one too.

And I see I see a lot of people, and so some people are like, okay, why do the founders have so much? Well, we were phenomenal stewards over it. It's not that we wanted it all, it's just our job, once again, think you're going to be doing it forever, right? Our jobs are to protect that. If you look at Mike and Scott at Atlassian, same model. If you look at Larry and Sergey, if you look at Gates and Allen, it's the same thing. Thing where it's the one commonality that they have. I wouldn't even invest in a company if a founder didn't own— if we're raising a Series A, if they didn't own 20% or more.

Yeah, my rule, they got to be double digits by IPO.

Yeah, 100%, because the staying power— and they've got to care more than I do, right? And then I think if you look at it, you might look and say, whoa, they've raised $400 million, they didn't put any of it in the company. Our VCs returned more than, I mean, I think it was the top 3 in Accel's portfolio, maybe number 1 in Insight's. They both—

I know Accel's talking a lot about it on the roadshow.

Yeah, yeah. They, they took over a billion dollars out, so they won. Yeah. I think the founders did pretty well, and we created more millionaires than any company I've seen.

You know, there's a related— this is a learning for me over time. When I, um, uh, if you're going long, we're talking about generational companies. You want to treat our— I mean, your employees love you, team loves you, but when the capital walks out the door, it's tough, right? What you want to have when that exit comes, you want as much of it concentrated on the folks going long, right? So I'm all into crazy, especially for founders, like a decade vesting schedule for founders, right? Because there's nothing worse than when your co-founder leaves a week in, and you found a way to do that, right? Is to concentrate that on the folks that were there.

And what's interesting is with With SAP now, it's pretty clear that outside of about 6 or 7 people, every single person in the company will make more money over the next 5 years than they did the prior 17.

So there's power laws there too. Power laws.

Massive power laws going forward, which is what's exciting and why we're all pretty excited to go do this. Yeah. So, I mean, it's just— just think about it. I think it's something to think about is what, what does your cap table look like? When we raised our Series A, we never thought we were gonna raise another round. You're gonna raise. Once you're on that track, you're gonna raise. So what does it look like? And, you know, I see these companies that are like, okay, I'm raising my Series F, and it's like they're $150 million in sales. I was like, plus the, the IPO round and all of that. You know, if you offered someone in the Series C 1% of the company, they might end up with 10 basis points by the time they get there, right?

It can be rough. It can be rough.

So you got to manage that carefully.

So just two things I want to hit, 'cause we're running over, but this is always fun. Um, two things I want to talk about. Uh, maybe not this one. It's not here. Oh, I'll jump around too much. But two last things in terms of building generational companies and decades, revenue retention, 'cause I, I hit on it before, but, but this is such, this is so hard to understand in the early days. At $500 million in revenue, you're retaining 120-some-odd percent of your revenue from the S1, right?

Yeah. Across 10,000 customers.

10,000 customers. And again, you said this to me backstage and I brought it up. That meant if you didn't close, if you don't close another customer ever, but you keep your customers happy, you can eventually build a many billion dollar company without closing a deal. Right. And, and this is the power and any quick lessons beyond getting that number as high as possible. What are the Zen lessons on this net negative churn and this, and this positive revenue retention?

First of all, you've got to have good products that people want to use. That's the ultimate thing is, is like we can market ourselves, we can say, hey, Qualtrics is this or that, or it's overhyped, or this or that. But if you've got 10,000 brands— yes— and 122% net retention, and then the enterprise, it's 140%, that, that means that you've got a solid foundation, a solid junja where people are living and it's mission-critical to them. Yeah. And we had triple-digit growth through 2007, '08, and '09, and no one knows what's gonna happen in those environments and where they sit on the pecking order of budget cuts. You didn't know, right?

No, I didn't know.

How mission critical are we? I thought we were in trouble. Yeah. And then I was like, whoa, all their outsource money is now going on Qualtrics and they can do more with less.

No one canceled the products they really relied on in those days, did they?

They did, but I was amazed. I mean, I'll give you a great example. Sears was in bankruptcy and Kmart, they were all using Qualtrics even up to the last couple of days. And I was like, wow, this is phenomenal.

That's the story, right?

Because they were trying to figure out experience data and how they could maybe pull out of it without just looking at the operational numbers. Yeah, like, what do people think? How can I go? And so I think that was what, what we benefited from.

Alright, so this is great. I want to know about one last just fun question. Let's flip back to my mic drop slide of the crazy deals of my journey in SaaS. This one quick, we don't have time. This is the leaderboard for last year. It's not a competition, is it? Not even close, but it's still fun to be number one. GitHub was a cool one too, wasn't it? Just as student of SaaS, GitHub's pretty cool.

Well, GitHub, we raised a Series A in 2012, which was the largest Series A since 2008. GitHub came out a month later and raised $100 million. Yeah. And that was then the largest Series A, and then all hell broke loose in fundraising.

There is some interesting parallels. But on this one, I put together a slide of the, as a student and founder, my mic-drop deals. And they're for different reasons. Right? Trello coming, we all love Trello. Michael's been here. But then all of a sudden, $450 million for 10% of Atlassian's market cap. That was unbelievable. That's a big bet to add to—

I was with Mike. When he was going out to do that, and he's like, I'm all in on Atlassian. And I was like, that's a good—

that was a smart bet if he was all in, right? All in. Take all stock, my friend. And then I made the slide, and then Qualtrics at the end, and then this 90-year-old— I mean, like, 20, 30-year-old company, Ultimate Software, from the old HR days, right? Gets bought by PE, private equity, for $11 billion. Was it even this week? I mean, the pace— I'm overwhelmed with the pace. Like, is this Is this chart going to keep going up and to the right? Is it going to plummet? I mean, how many $11 to $20 billion SaaS deals can we do? $40 billion?

Yeah. Does this end the cycle here? $12, $15. It's got to be the new— it's got to be the new number. I mean, as market caps keep increasing, then I think the number goes up. So this is going to keep going up into the night, right? If the market caps keep increasing, like if you look at like Adobe or SAP or whoever else, the— if they're going to $200, $300 billion SaaS companies, or then the low— the low or the high bar that they could do actually will go up as well.

Yeah.

So if the most they could do was a $7 billion acquisition, if you're Microsoft and GitHub and they keep accelerating, it's going to be $14. Now they can do a lot more because they've done LinkedIn and others like that. But I think that that's going to continue. When you're having to give up 10% of your market cap, you only do that once or twice.

All right. One last fun question. We got to break. So on the slide, we're all— if I somehow build a billion-dollar company, a billion-dollar company, and I'm growing 50% a year or more, should I sell? I can get a billion dollars from my startup, or should I keep pushing on?

You know, everyone wants to run through these. We teach a little case study about when we turned down the $500 million. Yeah. Qualtrics. Yeah. At Stanford, and everyone's like, oh, what was in that decision? And it was really like me getting in the car with my wife, and she's like, Ryan, you don't need a bunch of money, and I don't want you home more. So like, like, that is the decision though.

Let's just go. Yeah.

And so I think everyone thinks it's this math equation. Like when I got— when we wired our money last week, nothing changed for me.

Nothing changed, right? There was like no emotional reaction.

The only emotional reaction I had was we created wealth for a ton of people. And that's the only thing— that's the only thing that hit home. Yeah. And so if you think that you're gonna go through and all of a sudden, okay, I've arrived, you're gonna be seriously let down. You will be. Because it's about building, it's about the journey, it's about being in tech, it's about building software that people are gonna use, it's about creating, it's about giving back. And I just think that You know, it's really about changing the world, and I think that you're either changing it or you're not, and this isn't gonna matter. Like, we're super fortunate to be working in tech at this time, and we just got to realize we could have been born in the wild, wild west doing something else like that. And so I'm just trying to appreciate every minute of it.

All right, Ryan, this is amazing. We're way over, but thanks for all this again and coming back. Terrific.

Yeah, all right, take care.