Okta's Frederic Kerrest | Instructive Experiences

Hi everyone. Welcome to Grey Matter, the podcast from Greylock, where we share stories from company builders and business leaders. I'm Heather Mack, head of editorial at Greylock. Today, Greylock General partner Sarah Goa interviews Frederick Karras, the executive Vice chairman, COO and co founder of Okta Freddie, who along with co founder Todd McKinnon, left a stable job at Salesforce during the Great Recession to start Okta. Freddie is the author of the recently published book Zero to ipo. The book is a guide to startup building based on his own experience and that of some of the world's most iconic entrepreneurs. Freddie wrote 0 to IPO for the founders of Today to serve as a guidebook he wished he had back when he was an early stage founder. This interview is part of Greylock's iconversation Speaker series. You can find a transcript of this interview on the content section of our website greylock.com blog. It's also linked in the show notes for this episode. And if you aren't already a subscriber to Gray Matter, you can sign up on SoundCloud, Spotify, YouTube, or wherever you get your podcasts.

Hi everyone. Welcome to Iconversations. I'm Sarah Gore, a general partner at Greylock and our guest today is Frederic Carest, who is the executive vice chairman, COO and co founder of Okta. Prior to Okta, Freddy worked in sales and business development at Salesforce and in venture capital at Hummer Winblad. He is the founder of the executive mentorship organization the Operator Network and currently serves in several other advisory and board roles. Freddie started okta with Todd McKinnon in 2009, arguably during one of the riskiest and most uncertain economic periods in recent history, as both Freddie and Todd have openly discussed. And now that Freddie's written the book, the early days of Okta were quite painful, but a few key operational and philosophical shifts set Okta on a strong course, and now the identity management company is used by thousands of businesses around the world every day. We're lucky to be early venture backers of Okta. Freddy's a continual student and has been interviewing founders and startup leaders on his podcast for several years and most recently wrote a book called Zero to ipo, a guide to startup building based on his own experiences and those of some of the world's most successful and recognizable entrepreneurs. Freddie, I'm so honored to have you. Welcome. Thanks for being here today.

Thank you for having me. I'm thrilled to be here today.

All right, let's put your book into context. It's 2022. And the past decade and a half has been a period of absolutely explosive activity for startups. There's more companies than ever, more capital than ever, and entrepreneurship is more broadly accepted than ever. You know, there's a lot of great factors that go into that. The rapid advancement and availability of foundational technology, but also that there's more capital and a lot of educational resources at entrepreneurs disposal. When you think about all of the content out there about entrepreneurship and, you know, your busy life running Okta and doing nonprofit things and mentoring entrepreneurs directly, why did you take the time to write zero to ipo? What's different about it?

The genesis behind the book was it's the field guide that I wish I had had when we started. We have certainly learned a lot of things in the 13 years since we we partnered to start Okta. You can't tell on this video screen, but I was a lot taller and better looking actually when we started. So certainly it has been quite a journey. I think entrepreneurship is fantastic for many, many reasons. I think it's great for personal reasons. I think there's a lot of agency in it. I think that it's a great way to go about building your career to being able to be your own boss, to pursue a vision. It's also great for the economy in general. I think that over the last 50 years in the Western world, entrepreneurship has created all the net new jobs, including replacing all the jobs that have been lost from the dinosaur companies of yesteryear. So it's a very important engine. But if you're sitting on the outside and you're looking in, it looks like certain organizations were destined for greatness. Amazon and Meta and Alphabet, they were always going to be amazing. But if you're an entrepreneur and you go to all these mixers and you ask everyone, oh, how are you doing? Everyone's killing it. They're always killing it all the time, except you. And the reality of it is, even the best companies in the world go through many, many tough periods. And so I wanted to do two things. First of all, I just wanted to empathize with all the entrepreneurs at home and just say, look, it's been hard for everyone. So I went out to many successful entrepreneurs, as you said, and just asked them to tell us some of their hardest stories. When they almost went bankrupt and they almost got fired and they couldn't hire anyone or sell anything. And then I also wanted to just make it actionable. I think a lot of the entrepreneurship literature out there is great, but it's a lot about storytelling and less about what can I do today in my business. And so we were trying to make it a field guide people can put on their desk next to them and use every day as they build their businesses.

This is entirely consistent with my understanding of you as the consummate operator who's taken a lot of action against each of these issues every day. You have said that the proceeds from the book will go to two nonprofits, Build and the Hidden Genius Project. How did you pick those as worthy causes and what should we know about them?

Yeah, thank you for bringing that up. Super important. All the profits for the book are going to these two great nonprofit organizations. They are both focused on entrepreneurship and they're both focused on today's youth, in particular today's disadvantaged youth. So, you know, it's hard not to fall in love with that kind of topic. And it's super important. The two organizations are Build, which is a national organization. It was started in Boston 10, 20, 30 years ago. They do a phenomenal job. And then the Hidden Genius Project, which is local here in my backyard. Founded in Oakland, California. Both organizations are focused on helping black male youth and youth from under resourced communities stay in school using leadership, using entrepreneurship, helping them develop their own sense of agency with specific tools. Both have amazing leaders and are doing great, great things. And I was thrilled and honored and frankly humbled to partner with them on the book.

So amazing. Thank you for doing that. Everybody go buy a second copy of the book. I've got two before we go to talking about you and the Okta journey and advice for entrepreneurs on a bunch of different topics. What's your. I have my own. But what's your favorite story from the book that you tell?

Oh, man, there's so many of them. You know, when I first gave one of the copies to or the early manuscripts to Todd McKinnon, my co founder at Okta, he read it and came back. He's like, but these are all true stories. I was like, yeah, that's the point. He's like, but. But is everyone going to know their true stories? I was like, it doesn't really matter, you know, in many of the topics that are in the book. And we've designed them. I designed them by chapter, hopefully of the type of opportunity challenge. But opportunity you'll go through as you build companies. So start with an idea and then a team and then raising money and selling things and building culture and kind of all going all the way through. And most of the chapters start with a true story of me Absolutely. Train wrecking the topic at hand and then bringing in other very successful entrepreneurs to tell their same train wreck story. So hopefully they give folks at home a little confidence and comfort that they're not alone in the struggle. I don't know. One of my favorite stories is from 2011. I was telling someone the other day and I had to go find it in the book when I had to fly to Tulsa, Oklahoma to close our biggest customer at the time. It was a $49,000 deal, one year deal only, unfortunately. And I had planned my flight for the right day, but the wrong month. So I showed up at the airport in San Francisco to fly there, but I was there in February and my flight was for March and February has 28 days. So of course it was the right day both of the week and the right day of the month, but the wrong month. So I ended up having to take a red eye through Chicago to get to Tulsa in a snowstorm where there was no car. I called them from the airport in sfo. I'm like, I'm really sorry I can't make it tomorrow. Maybe in a couple of days. They're like, nope, you're going tomorrow and the other guy's going the next day. And then we're picking one. So you know it'll be good if you showed up. It was like, fill it or kill it. I was like, okay. So I flew through Chicago, I got to a snowstorm in Tulsa, couldn't get a cab, had to walk like a mile and a half down to Oklahoma highway just getting hammered with snow and mud. And I showed up dripping wet and freezing cold. We ended up getting the deal. I did get some comments from the CIO later on after we saw successfully implement them. He's like, I gotta tell you, seeing you show up, I wasn't sure if that was like a good thing, wow, look how serious this guy is. Or a bad thing. Like this guy is dripping wet, he's freezing cold, like he's here for a sales pitch. Like, what are we doing? Yeah, I mean that's the reality of it, you know, that's the guts and the glory and those are the stories people don't tell. And that's what happens to most entrepreneurs most of the time.

It's clearly like a very challenging path to be a continual repeat entrepreneur. Let's hear what set you personally on the path to startup life. Did you always want to be an entrepreneur?

Well, I was actually. I'm a multi time failed entrepreneur before we started Okta as the stories Go that my parents have reminded me of. I started my first startup when I was 7 years old. @ the time, you could recycle aluminum cans and you get 5 cents for them. And so I started a business called the can man. And I bought one of those little carts and I'd go around to all my neighbors and I'd get all their cans and I'd give them 50% of the proceeds. Two and a half cents on every can from what I understand. A lot of times they didn't really take their share, so I got all five cents. I don't think it became a huge cash flow business as I recall, but you know, it was good enough to go play some video games at the arcade. I had a failed tennis racket restringing business in high school. I went to high school in France. They play a lot of tennis and I played a lot of tennis and I started restring my own rackets and then other people's rackets. That business did not work either. So I had plenty of certain experience in having it not work in the professional world. The last example is when I, right after I graduated college, I wrote software for a little bit and then I went to South America and helped some other folks start and run a high tech consulting business. We ran into a lot of problems, including a revolution in Argentina where they took half our money. So again, it was not necessarily the beautiful story you always read about. So I had a number of false starts or efforts before we started. Okta. Again, it is not always a normal, easy glide path as it appears from the outside.

Did it ever occur to you to just take normal people jobs instead of starting companies?

Repeatedly, I did. So after that experience in Argentina, I came back to the Bay Area and I started at a small company called salesforce.com in 2002. So 20 years ago now. And there was, you know, 100 people at that time. It was a $50 million revenue business headquartered here in San Francisco. I had a couple friends who had started working there and I didn't really want a job. It had been quite a harrowing experience for two years in South America and I'd saved enough money I didn't have to work like next month. Next thing I knew I was interviewing and then I got a job and I started working at Salesforce. And you know, the company grew from 100 or 200 people to 3,500 while I was there. I went public in 2004. I met Todd there. So certainly a great experience. So yeah, I did have a real person Job.

What are one or two of the most important things you learned while you were at Salesforce at that time?

The first thing macro is I had a front row seat to drinking a lot of Kool Aid on the value of delivering software over the Internet. So I got a computer science degree in the late 90s. I learned how to write three tiered client server and then three tiered architecture software. But it was still on Prem. In fact, all the software we delivered in South America and implemented was on Prem software with Siebel technology. And an epiphany, ATG on Prem. And then for the first time in Salesforce we were selling software. Yeah, yeah, right. I mean, but that's, that is how most companies develop technology back in the day. That's why it has changed so quickly and so dramatically now. Democratization of it and all the rest of it. But so Salesforce was competing against Siebel and Siebel was selling On Prem software and Salesforce had a subscription model. And so I had this front row seat to this dramatic change. That's the first thing probably from Salesforce, just this dramatic change of a delivery model from on Prem software to software as a service. What we called, you know, software as a service. Now it's called enterprise cloud. But it made a lot of sense, right? The return on investment is much quicker for so many more companies. The total cost of ownership is so much lower. So the risk is so much lower and the time to value is so much quicker because the things are running. So it's like you subscribe and it's running. You don't have to spend all the months installing software. So seeing that, that could actually work, right, in enterprise software. Because when I started with $50 million revenue, when I left it was 750 million or a billion dollars of revenue, right. This year they're going to do 30 plus. So clearly it seems like it works pretty well. I mean, that's the first thing. The second thing is I just learned a lot about leadership. I mean the, you know, enterprise sales was something that there's art, but there's a lot of science to it too. And I saw a really good combination of both of those things at Salesforce. Just some great leadership from some amazing people, but also the nuts and bolts of how you do it, how you build a sales organization, how you should think about it, how you should structure it, both small, medium business, enterprise, inside, outside sales. That was huge. And then finally I was very fortunate. I met Todd. So that's where we originally met and got to know each other a little bit. And then that's what led to us getting together and starting Okta a few years later.

You actually spent a brief time in venture capital, which I have, you know, never as a friend asked you about what, what was that like? And, you know, did that change your view on fundraising or being an operator or a founder at all?

I'd been at Salesforce for a while. I said, hey, you know what? The company got very big. It went from a few hundred to maybe 3,500 people, which was big for me. And I was like, you know, I want to start something small again. And I said, one of the big things I don't know anything about is what goes on behind the magic curtain of venture capital. So I went back to school at MIT and got an mba and in the summer between those two years, I went and got a venture capital internship to just kind of see what happened behind the curtain. And I learned a lot. I mean, that was certainly very instructional in terms of how we went about thinking about designing and then building and ultimately growing Okta not just from a structural perspective. Right. Because now there's a lot more information out there. If you're a startup founder in 2022, there's amazing information that you know that you publish and your peers publish, and there's a lot of peer review information from other entrepreneurs. There was not in the late 2000s. Right. Or 2000, coming up on 2010. There wasn't just. Wasn't that much information. There was like published books. Right. So that's the first thing is just kind of seeing what happened and how it happened. And what I learned, I learned a lot about what I thought good entrepreneurs did and probably some of the pitfalls to avoid, number one. And then number two is just the beginning of understanding how you build the right network around a company to be successful, which I think is super important. I mean, it's the ultimate team sport. Right. So I know that the media glorifies, you know, a lot of times the founder, CEO and certainly they get plenty of. They should, as they should get plenty of credit or the founding team. But I mean, there's so much more goes into it. It's the entire stakeholder environment. It's the early employees who took a bet on joining you, it's the early customers who took a bet on your technology. It's the early investors who are like, I'm going to take a bet on this team. So there's just so much more that goes into it. And that was something that also really, it was eye opening when I sat on that, on your side, the investor side of the table full time, even just for three months, and saw what happened.

Let's switch gears to Okta and that whole journey. In your book, you talk about technology, economics and psychology coming together to create the right environment for good ideas. You also mentioned what seems like an obvious thing, but is somewhat taboo to say. Like, there are also plenty of bad ideas out there. You know, where did the idea for Okta come from? What gave you guys confidence about it? And did you immediately, did you immediately know that this was going to be, you know, the ten $40 billion company it could become?

Actually, the idea of identity management was not actually our first idea. So the first drawings in like early 2009 that Todd had mocked up in Balsamiq and was trying to sell me on at like the little coffee shops around San Francisco were not identity management. They were actually about system management. So one of the things that Todd had had a lot of experience with as the head of engineering and product at Salesforce was he would go out and talk to, you know, the larger customers at the time and explain to them the value that they were going to get instead of putting in their data centers, of having Salesforce run it in their data centers. And his perspective was, yeah, you know, one thing that I think a lot of these large companies might want that is not out there today is basic system management. There was a very good, but an older generation product called Opsware that HP had that would basically give you a bunch of instrumentation on the health of your software and server environments in your data center. And so Todd's first idea was, wow, if I give them a version of that for their software as a service infrastructure, they could put it side by side and probably give them a lot of confidence in how they go about building their hybrid infrastructure. And it was a good idea. I think it was probably. And as I say in the book, a lot of times they're good ideas. It's just the wrong time. And it was the wrong time. It was way too early. And there was probably a few large companies that would have bought that for a limited set of software as a service tools, but it's not. The proliferation that we've seen in the last 15 years had not happened yet. So we actually went out and talked to 50 or 75 managers of it, directors of it, frankly, anyone in it who would take our phone call and showed them these drawings and we heard a bunch of times, yeah, yeah, that's pretty interesting. But that's problem number four. Like, great. What's problem number one? They're like, same problem we all have at home still today. Too many usernames, too many passwords. If I let someone go, I have no idea who had access to these mission critical, publicly available information servers. But it always gets in trouble. They get the speeding ticket because someone was not deprovisioned from the sales system or the HR system right back in the day. And we said, okay, well that's interesting. So it was really like a feedback of like, yeah, yeah, that's a good idea, guys. But like, here, start with this. And so that's really what got us to turn it around as we went out to raise our seed round in the summer 2009. By the way, seed round was a million dollars back then. For all of you watching now, I know your Pre seeds are $10 million. Our seed round was a million dollars. Our series A was $10 million. I just want to kind of frame where we are. And that gave us that first idea of, hey, maybe there's something there. And our first product ever integrated with two. You could integrate if you had Salesforce and or Google Okta worked. Anything else didn't work just for single sign on. That was the first product. So yeah, it was a lot of that talk about pivot. There you go. That's the ultimate pivot before we even started the company of going out, you know, and that's, that's a very good lesson. The takeaway there is if you're a technology founder, get out of your, you know, ivory tower and go and talk to potential customers and ask them and show them the product and get their feedback because ultimately, you know, they're gonna be the ones buying your product. So.

So given it was 2009 and the middle of the last recession when you started the company, what was that like? I'm sure there are a lot of entrepreneurs looking at the current uncertain macro and thinking about, what wisdom do you have?

For me now, yeah, it was certainly a scary time. Less so for me than it was, I think even for Todd. He had. He still was at Salesforce and had a very prestigious job. He was married. He had just welcomed his first child into the world. So his wife was probably like, what are you doing, man? You know, like the world's exploding and you're doing what? And then, you know, for me it was a little less so because I wasn't yet married, I didn't have any children yet. So it was kind of like, well, I'm going to do this anyway, we might as well take a gamble. That being said, yeah, I mean, you know, Lehman imploded, like when I went back to school for my second year of NBA, like I think the first week or something, I mean, it was not a good scene. There's a couple things. First of all, historically, I think if you look, there have been many great companies built during those kinds of times. You know, everything from like Cisco and Google down to, you know, just look at what happened in 08 09. There was plenty of innovation came out, especially if you're in the enterprise software business. It takes a while to build enterprise technology. It's not like you can, even with today's AWS environments. It's not like you're going to have a product today. If you start today, tomorrow, that enterprise is going to buy. It's going to take a couple years to build the infrastructure, build the, build the support systems, build all that stuff. So that's actually a very good time to do it because then when the economy kind of starts coming out, you're going to be in great shape. You're going to have a product that's ready for market. So that's the first thing is just I think that those are actually huge opportunities for time to start to build those kinds of generational companies. People are looking to say, okay, well, this is a tough time. I'm going to reconsider what I'm doing. What should I be doing? It's a good time to see, it's a good time to find amazing people to come join your team. And you know, as NASCAR racers will tell you when they're going 200, whatever, 50 miles an hour, it's like they need to know where that wall is right next to them. But don't stare at the wall. If you stare at the wall, you're going to hit the wall. And so you have to know that, like, yeah, this is a tough time. And I'm aware of all those things. Maybe be a little more cash conscious. Like, there's plenty of tips and tricks you can specifically do. But like, that doesn't mean that the dream is not there. And in fact, I think those are the times when there's a lot of opportunity.

So you and Todd have worked together for more than a decade now. You didn't actually know each other very well before you started the company. How did you know that was going to work? And like, how did you think about complementarity and sort of what are the roles you guys serve within Okta?

So we have worked together for over 13 years now, day in, day out, I have probably spent more waking time with him than I have with my wife, who I love dearly. And so I would say that we have navigated a lot of things together and gotten to know each other pretty well. We did not know each other that well at Salesforce. He ran a big part of the technology side. I was on the business side. We kind of knew of each other. We started basically founder dating in early 2009. We went on a couple of dates, you know, kind of talked a little bit, saw how it might work. I think our reference lists were very similar. He said, well, you can call these 12 people or 15 people at Salesforce, these execs. And I looked at list, and I was like, that's great. You can call the same people. We had a sense of commonality there. We had a couple close friends who kind of spoke to both of us and said, this might work. And then, frankly, we. Before we decided to go out in business together, we went on a double date with our significant others. He brought his wife, and I brought my fiance, and we basically had our significant other interview the other person. So I got thrilled by his. It was super scary. And I wasn't exactly sure what was going down until I realized what was happening. And I don't know if you've ever met Roxanne, Todd's wife. She's an amazing person, and she does not suffer fools. So it was certainly something where I had to be on my game. And he was on his home turf. It was one of his favorite restaurants. He'd order his favorite bottle of wine. Like, I realized I was at a disadvantage. So I was, like, trying to kick my wife under the table, Be like, you got to make sure this works out. That went well. And then, you know, I would say that taking a step back, though, there's probably one at a high level. We had a very common understanding. We both came from. Both came from engineering backgrounds in enterprise software. We both grew up. Grew up a little bit in the on prem world. We saw this transformation happening to the cloud. We knew this was going to be a big opportunity, and we were both looking for something that we could do to be part of that big journey that's kind of at the macro level, I think if you take it down one level. We had an overlapping set of skills, but the Venn diagram was not perfect. And so we both understood enterprise technology. He had spent more time on the technology development side, and I had spent more time on the business side of Things both with customers, but also kind of in the back office of building, you know, building small companies. And so that was really good. There was a common language we could speak around what the challenges were and what the problems were. But we still like the jobs were not the exact same jobs. And I think that gave us a very good footing to get started with.

You have a number of amazing superpowers as an entrepreneur, but one that is commonly attributed to you is the ability to consistently move the ball forward. Another that I think Todd would attribute to you is just like being the culture carrier at the company. These are both super important qualities. How can others emulate those?

That's a good question. I guess on the first one that's just part and parcel of being an entrepreneur is you got to be able to, as one of our other investors likes to remind me, you got to be able to walk and chew gum at the same time, which is a very big simplification. But you have to be able to manage at a lot of different levels. And I think like extreme multitasking is a skill and it is one that you can have a certain innate ability to, but you can also develop and hone that skill if you read nothing else in the book. At the very beginning of the book I put like on the second page, three of my important rules to live by. And I'm like, if people like don't take anything else away and they stop reading it, that's fine. They got these three. One of them is keep the main thing the main thing. And so there is so many things happening and coming at you when you're trying to build a company of any size, whether it's today as a public company or when it's when we started, that you really have to prioritize and realize that. Another one of the lessons is time is your most precious resource. And so figuring out how to optimize, you can use all sorts of tips and tricks. One that I've found that works really well is the Eisenhower Matrix, which is, it was attributed to Dwight D. Eisenhower, who was obviously a general in World War II and then became a two term President of the United States. And basically it's like, what do I have to do? I have to do things that are super important and super urgent. If they're important but not urgent, I schedule them. If they're urgent but not important, I delegate them. If they're not urgent and not important, I just delete them. There's a lot of tools that are available today where they are available on the Web. They're available on all your devices. And I update my priority list still today, three to five times a day, every single day. And I have it everywhere on every device, and it's always available. And at three in the morning, I'll think of something. And I try not to turn on my phone. So I write down a piece of paper and then put on my phone when I wake up. But I am updating my priority list all the time. So that is the first thing. Just understanding what needs to happen today, what needs to happen tomorrow, what else? And you got to hire amazing people and empower them to do their job so that. That's how you're going to scale up. That's what I would say about. About operating and just moving those balls forward on the culture piece, you know, the. I actually. It's funny that you say that. I'm flattered if Todd actually said that, that I'm the culture bearer at the company, because when we started the company, I gave a lot less weight and credence to culture than Todd did. For whatever reason. I was like, really? You know, like, come on, like, we'll make it a fun place to work. And like, let's just go and get shit done. I actually had a sign when we started on the wall that said, I have. We have a strategic plan. It's called doing things, which was a quote from the founder of Southwest Airlines and Herb Keller. And that was my idea. I was like, well, let's just go. And. No, it turns out that actually it's easy when there's two of you, because either one of you is doing it or the other one's doing it, and you're doing it at the same desk so you can talk to each other. And you're like, I didn't like how you did that. Let's do it another way. But, you know, as soon as there's like 10, 20, 50 people, multiple offices, whatever, culture actually, it's easy to build in easy times, but it really comes to play in tougher times. And so when it's something that you're like, I don't need to do anything about it right now because things are going fine, that's exactly when you need to actually have the opposite attitude and do something about it. So a couple tactical tricks. The first one is write down what the values are of the company, right? That at 3 or 5, we had seven people told me they couldn't remember seven things, which I was shocked at. So we limited back to four. It grew back to five. Fine. Today we have five. Write them down. And if you're in high growth, you know, we added hundreds of people last month. You got to keep repeating them over and over and over because every 90 days there's so many new people, they don't even know what you're talking about anymore. And then the final thing is, it's not about what you say, it's about what you do and how you behave. Because ultimately, culture is about how everyone else is going to act. Like, it's what your company's going to stand for for all stakeholders, right? Your customers, your employees, your investors. And so that's not about what you say, it's about how people act. And it's really about, you know, I used to be the only salesperson, so I talk to every customer. Well, now we have hundreds and hundreds of salespeople, and I talk to, you know, 10 basis points of customer conversations or ones. I participated. So it's how people behave when no one else is there. That is actually the definition of culture. And so you want to try and emphasize, in my world, in my mind is a simplified version definition. So you want to try and just emphasize when people do things well and bring it into bright lights. And then when something, when someone behaved the way you didn't like, what I tend to do at all hands is if I see activity I didn't like, you don't single that person out. Obviously, I usually say, hey, here's something I did that if I had to do it again, I would do differently. And here's why. And look, that person is going to know that you're talking about them. But the whole point is to the entire company, they're going to say, oh, okay, yeah, like, that's good to know because you just have to keep repeating it and behaving it over and over and over again. So. And then the final thing I would just say on that is it has to be genuine because, like, if you're going to do it every single day, I mean, we're in. We're in year 14 now business. You're not going to be able to carry it all the way through. You're not going to have any credibility. There's going to be no integrity. People are going to see very quickly that you're like, yeah, this is what we stand for. But I'm actually doing the entire opposite thing. Like this. That's going to get out pretty quickly. You know, what do they say? It takes 10 years to build a reputation, 10 minutes to kill it. Like, that's A perfect example when it comes to your cultural values as a company.

Makes total sense. Also a high bar for everybody to be reaching for. You talk about times where it was more challenging at Okta. Right. Like, you didn't have product market fit. You were aimed after the wrong customers. You missed plan. You missed plan again. How did you retain talent during those periods of time? Because that's got to be a cultural and an individual leadership issue.

Yeah. That was summer 2011. I can pick specific dates because they're burned into my brain. And Okta almost died multiple times. That's a perfect example of people thinking from the out. No one ever tells those stories. And so now if you read about Okta, it's like, oh, yeah, it's up and to the right. It's a beautiful success story and these guys must be geniuses. It's like, no, we almost died five times. That was actually also, by the way, when I realized how wrong I was about company culture being like, get an espresso machine and a keg and everything will be fine. You know, we'll do bring your dog to work day on Thursdays or something and everyone will be happy. Happy. I couldn't have been more wrong. We were not doing a good job of transparency. We were not doing a good job of community. We didn't really have all hands. We still do weekly all hands. Today we take them off for like, end of quarter. We take them off for the holiday periods. But I mean, we probably do over 40 all hands every year. Yeah. Which is a lot. We've even moved them to Thursday mornings and Friday mornings so that we can accommodate a global population. Because otherwise, you know, the Australians are always like, it's 2am on Saturday morning. Like, I'm not watching it now. At least it's 2am Friday morning. So they have no excuse. I don't know. But we're trying to move around the time zones to accommodate everyone, but we didn't have those. And so, you know, things were not going well. We had these projections that were like this, and our revenue was actually flatlining like this. And we were not sharing that with the 20 or 30 super smart people we had in the company and just being open and getting ideas and we all need to figure this out together. And exactly what you just said happened. We lost some really, really good people. And it was like, oh, man. Like, this might be bad news. Our kind of chief architect quit. And, you know, all. All the engineers were like, oh, that's not good news. And we realized we had to take A different approach. And there was a lot of things in that, you know, there was cultural values, as you said. Turns out that we actually had to change. Our go to market targeting was incorrect. We were more focused at the time on small medium businesses because that's what we'd learned at Salesforce how to do. Whereas in fact, identity management. First of all, small medium businesses don't have that much of a problem. Of course they're the only people who take our phone calls, but that's not a reason to sell to them. The large enterprise had a much bigger problem and we're willing to write much bigger checks and actually be thought partners on building the company. And that was such a painful pivot. We almost didn't survive. We did, but that's again, a lot of good lessons learned that I wrote down and put in the book. So hopefully others will be able to get the lessons learned without the pain that we incurred at the time.

You also describe in your book realizing at some point relatively early in Okta's life that you need to bring in engineering and sales leaders. And you and Todd were each doing two to three jobs each. And like, that's all of them a little bit subpar. I think a dynamic that often happens with many of our early stage founders is being too busy to hire leaders or not knowing when they should do that. Can you talk about, like, how you think about that?

Absolutely. So that was actually at the same time, that's another Lesson learned in 2011, where basically it was like, 2011 sounds.

Like a hard year, man.

It was not good. I gotta tell you. I think my wife was wrapping up residency, so she doesn't. Other than like, me coming home, being like, it's not going well. She was so exhausted anyway. She's like, I'm sure, whatever. Are you employable? Like, can you get another job? Okay, fine. Like, good. Good enough. We're gonna have to pay off my med school debt someday, right? So it was not a good year. That was another takeaway. We had a very clear board meeting where our board members said, okay, well, like, you know, we should talk to the head of sales. I was like, yeah, I'm right here. And they're like, okay, we should talk to the head of engineering. Todd was like, yeah, I'm right here. They're like, what about the head of product? Todd's like, yeah, I'm still here. And so they're like, I mean, this is a big problem, folks. So, yeah, in January 2012, we had our first non Todd, head of engineering and Our first non Frederick head of sales. I guess CRO is now the term chief Revenue Officer. But at the time, it was just head of sales start. And those were transformational hires for us, without a doubt. But it doesn't even have to be that extreme. I mean, I remember hiring our first head of customer support, who was not me or the sales engineer. Customer support. Do everything. Amazing person that the two of us did everything. I remember hiring the first head of customer support because I was just drowning and I was like, I don't have time. One of my entrepreneur mentors who is in the generation ahead of me said, yeah, now is the time you got to stop. And I was like, I don't even have time to write the job description. And if that's happening to you, that is exactly when you need to stop and write the job description. And I know you feel like it's 11pm and there's one more hour work I got to get done. And I can't believe I'm going to waste this hour of work on writing a job description. It's like, no, incorrect. Because that one step back is going to be like four, not two steps. We're four steps forward for you, not just for the company, but for you personally. And you're going to. All of a sudden you have an expert. I mean, when we started the company, I was the general counsel, the cfo, the cio. I mean, the head of sale. I mean, you go through it. I'm none of those things now. Why? Because we have amazing people who are so better qualified than I am to lead in all those roles. We're fortunate that we can hire those people, but, I mean, we would not be where we are if I'd been like, no, no, I need to keep it. And that was a hard lesson to learn, especially as, you know, someone who prides themselves on getting a lot of things done. You're like, wow, I have to, like, I have to come to terms with the fact I'm not getting all this stuff done. And in fact, I can't get this. All this stuff done. And you said in the question, whatever I am doing, I'm doing subpar because I'm exhausted and I'm overwhelmed and I'm there. You know, your Eisenhower matrix is like through the roof when you sense that. And again, I give specific credit to my friend Alex Asale, one of the founders of Jawbone, who one night at like 11:00pm, he's like, what are you doing right now? I was like, I'm doing this customer support Case. He's like, why don't you write the job description for it? And I was like, that's ridiculous. He's like, no, no, man, I'm telling you, like, do it. And I gave him a ton of credit because it was like a. I mean, I remember exactly where I was sitting in my old apartment and it was a eye opening moment. And then all of a sudden, like, the weight's lifted. There's an amazing leader who can do so many other things. By the way, that leader probably can bring some amazing talent with them who wants to come join them and work for them again. Instantly, like the whole thing just starts spanning out. I was talking to final stories. I was talking to yesterday morning an entrepreneur CEO and he said, hey, I have a quick two minute question, which is never a two minute question over text. And I'm like, okay, sure, I'll call you when I have a second. It's always two minutes. But you know, here's where I am and here's what I have to do. Do I hire a director of talent who's gonna be focused on recruiting or do I hire director people who's gonna be focused on hr? And I was like, well, talk to me about it. And I was like, the answer is, by the way, you should hire both. You need both of those things. And he's like, yeah, I kind of knew that was the answer, but I wasn't sure. I was like, you're kidding me, man. Like, it's very clear. So, you know, the more that and I under. It's like you said in the question, like as a founder, you're like, no, no, no, I got it. I can do it all. I can do it all. But the more awesome experience and help you bring on, that's the definition of leverage and scale. And that's how you're going to get to build something big and important.

Let's fast forward 11 years to 2022. What are you most excited about? What's next for Okta?

We went public in April of 17. Today we are in May of 22. So it's been just over five years. 21 earnings calls, not that I'm counting, but if I were to be 21, the last five years as a public company have been great. I mean the company has grown dramatically, you know, for again, for all the, all the invested parties, whether you're an employee or a customer, an investor, it's been fantastic. And certainly it's been a great period of high growth internationally and all the rest of it. Even despite the pandemic and all those challenges. And so I'm very, you know, if you'd give me all the, where we are today, 5,000 employees, it's, you know, billion and a half revenue company growing north of 50% year over year, 15,000 enterprise customers. I would take them in a heartbeat. But based on where I sit today, and I look forward, the next three, five, ten years are going to be arguably more exciting for us because what we focus on, enterprise identity, is just starting to really come out of the platforms and become a primary cloud. Large enterprises are more and more talking about, hey, I need a foundational partner for my strategy around identity, which is something you never heard before. Was like, I need single sign on. And now it's like, no, no, I need a foundational part because this is going to drive everything I do. Hybrid it, you see the growth in all the large software companies, whether it's the on demand, the enterprise cloud ones, whether it's, you know, Salesforce or Workday or Servicenow or you go down the list, that's going to continue to go especially into the large enterprise. So that hybrid IT world and then the, you know, digital transformation, most overused term in the world. But really, everyone needs to find better ways to interact with their customers and partners and vendors and suppliers using mobile apps, using the web. I mean, those are huge accelerators for our business. And then finally zero Trust architectures, which is a buzzword that I think has been around in the industry for four or five years now, is actually something that is coming back to us in RFPs from the largest companies in the world, saying, hey, can you tell me how else I need to improve my zero trust architecture using Okta and how that's going to work? I mean, that's like, you know, for, for an entrepreneur that's like, that's catnip. And you're like, amazing. So the results have been very good. I'm very proud of what the team's done. I think they've done an amazing job, especially through the tough time over the last two years. But, you know, the future for us has, has never been brighter. And yeah, I mean that, you know, the markets we're in are tens of billions of dollars and they're growing fast and, you know, we're the number one player, but it's still like not even a $2 billion revenue business. So you're like, holy moly, how much more could we do and how can we do it faster? So, yeah, there's a lot. Today is an exciting day. If you're working on Aqua for sure.

If we zoom out a little bit and just relying on your experience of the last 14 years and sort of view of the SaaS landscape, besides changing customer segmentation you were focused on, you guys have also experienced the change that's been happening in the market of how software companies interact with their customers and how you sell to them. Is that changing the way you guys do business or how do you, how do you think about that?

So again, you got to rewind the clock of where, why we are where we are today. So right, 30 years ago, all you had was on PREM software. You were an IBM shop or a Microsoft shop or an SAP shop or an Oracle shop. You bought all your software on prem, by the way, all those four big companies I mentioned and whoever else their competitors were, they only sold to the largest companies in the world. So, you know, there's only 10,000 potential customers for Oracle products at the time. If you were a small medium business, there's no way you would benefit from any of that technology advancement. I think that's one of the biggest things that has really changed with the democratization of IT as a common term. Basically every company, no matter how small you are, what industry you're in, can now benefit from the type of technology that used to only be available to the largest organizations in the world. And that is very exciting. And that has been a significant change over the last 15 years. And so that alone means that the traditional enterprise software model of 30 years ago, where you bring, you know, Oracle wouldn't go sell to you if they, if you weren't big enough. And if you were big enough, they'd bring 10 people in on the sales team. And so that model, it still exists because the largest companies in the world, you know, their IT budgets are billions of dollars. So for someone like us, you still have to spend a lot of time. But the small medium businesses or even the, you know, the prosumer model that has come up in the enterprise, that is something that's brand new over the last decade and that is certainly something that for enterprise software dinosaurs like me, we needed our wrap our heads around before we were relegated to yesteryear earlier than we should have been. A good example for us in our business is Auth0, which is a phenomenal company that we joined forces with just over a year ago. Actually the anniversary was earlier this week of one year. They are the leaders in customer identity and access management, which is one of the things we focus on. We which is the part of digital transformation it's like if you log into mlb.com to watch a game, or if you log into JetBlue to manage your miles, or you log into one of your banks. That idea is customer identity management. We have a very good business that is building relationships with those enterprise software leaders in those companies and selling to them and then working down through the organization. Auth0 had the exact opposite. The Bottoms up motion, where they had this amazing toolkit, much better than ours, but amazing instrumentation. You could get your own POC up and running in five minutes on a website. And that led them to have this whole developer up motion where developers would love their products and then kind of naturally bring it up into the organization. And that's a brand new motion in general in enterprise software. If you roll the clock back at the history of enterprise software the last 50 years, but certainly even for us tactically in our little company and getting your head wrapped around that and how that works and the power of that, I mean, you know, in your business you see it every day and you know, twice on Sundays. I mean, that is a huge opportunity. You know, they talk about the power of the developer. I mean, you know, software is eating the world is like a common term that, you know, I think today that Marc Andreessen put in some Wall street journal article in 2011 and everyone thought he was bonkers. And it certainly has come out to play. And it turns out, by the way, there's a shortage of 300,000 developers in North America alone today, and we're only printing 30,000 a year in our universities. So even if there was no growth in software, which I think we all believe there will be a lot in the future, we're 10 years behind where we need to be. Which means that if you are not naturally a high tech company sitting in Silicon Valley or somewhere else, if you are a traditional manufacturing Fortune 500 company, you're just not going to get all the software developers that you need at your company to remain competitive and take advantage of the technology innovation that's happening and that's potential in your market. And so the more tools that we can provide to those Fortune 500 companies, the better off they're going to be, the better off everyone's going to be. And I think that is a huge opportunity that we are just starting to see the tip of the spear on.

For the early stage founders in our audience. You know, you have a particularly interesting background for them because you both knew how to do sales, know how to do sales, and actually had an engineering background originally. How should they think about what the right first couple customers are and how to judge whether or not there's product market fit versus, you know, their, their friends and customers just being nice to them. What are the signals they should look for?

Well, the first thing I'll tell you is that I was actually not an amazing engineer. So I do have a computer science degree, but I think the world is better off that I have not written a line of production code in the last 20 years. So that's the first thing. So I have a lot of respect, eminent respect for what real engineers are able to do. That is a very important question because you can get tricked very easy. You know, the CEO and founder of yesteryear was a salesperson. The CEO and founder today and tomorrow is a technologist. What do technologists know a lot about technology? What do they know a little less about go to market gna like the basics that are tractable problems, but if you get them wrong, they can be very expensive. In particular with your time, as we mentioned. Right. Time is your most precious resource. If you mess that up, that can derail your whole company. It could be the end. That is a very, very important thing. And we can certainly talk more about how we can help technology founders do that. But there are some very simple rules. The first one is one that Todd put in place that I think is very good. It's the rule of five customers. You need to make sure that your first five what you think are target customers are fully deployed. And I'm not talking about like they bought the product and signed the PO because you're good at convincing them, but they are fully deployed and live on the product. And you should do things that are non scalable and unnatural acts to make them fully deployed. Your best engineers can get on the phone with them like all those kinds of things. So and in fact we don't consider that a product at Okta. Even today any of our new products are really launched until 5 paying customers, by the way. Paying. I should have highlighted paying. Don't talk to me about free POCs. We can talk about that. Free POCs are not worth it. We'll talk about that. But paying customers, getting them fully deployed and live, you are going to learn so much in that process that actually the closer you can be to the metal of talking to exactly who's deploying that, the better off you're going to be. You know, taking a step back, you said, yeah, a very important thing, which is a lot of people who's willing to talk to you when you're a small company. Well, probably not Fortune 500 companies, probably your friends. And in fact, that was a fallacy. We fell into. Our friends would talk to us, but they were running small companies and that was not going to be the right business, and it almost cost us. So, you know, I think you, you need to take a good hard look at things like the roi, the total cost of owner return on investment, the total cost of ownership for the customer. Right. And really get them to sign up and do that with you. Understand? Like, what's the pain? Why are they doing this? Like, what's the return that they're going to get? And why is this so important that they have a lot of things to do that they're going to do this for you? By the way, that ties right into making sure it's not free. No free POCs ever. People are like, I have 15 customers. Really? How many are paying you? Well, three. Because you have three customers. No, I have 15. You don't. Because here's the thing about human nature, is if you ask me to do something, yeah, sure, that sounds great. Of course I want to help you. It's much easier for me to say, yes, Sarah, I'll do whatever you want than say, no, it's not a good idea. So if you're like, here, I'll give you free. Oh, yeah, that sounds great. Do you need this? Oh, absolutely, I need it. But am I going to do anything about it? No. Am I going to implement it? No. And then you're going to be like, oh, they're not really using it. And why is that? But if you try and separate someone from their wallet, you are going to learn a lot of things. And so it's like, oh, well, you need to pay me. It's like, whoa, whoa, whoa. What do you mean, whoa, whoa, whoa? I thought you were getting all sorts of value out of this, so. Well, no, I'm not really. Oh, okay. Well, now I'm actually learning. So what would be valuable? These five things. And so having that partnership with your first customers is super important. Hey, having people trial things for free, I'm fine with it. But don't call that a customer and don't even call that a proof of concept. Like, all POCs should be paying. Or if not, at least the contract should say, you're going to do this POC. And when it works in 30 days, you're paying this bill for $10,000. Like, peer to end the story and have them sign that, because at least then they're like, oh, man. Now I'm gonna have to justify to my boss why there's this $10,000 line item in my budget and they're gonna be like, what is that thing? Like now I gotta get behind it. Now I gotta commit resources to doing it. Now I'm gonna get invested with you, this startup. And so, yeah, like you said, your friends are not gonna tell you hard things. There's no upside for them to be like, nah, Sarah, I think your product stinks. I'd never use it. That's a terrible idea. Like, you'd be like, what? There's no upside, but really trying to get the, you know, get the key resource involved, which a lot of times is money. And you will learn a lot of things very, very quickly.

I will I guess just quote you against yourself, which is nothing happens until somebody sells something. And it's such a, such a great clarifying point. Maybe last thing on just overall startups and how you think looking forward, you talk about the competitive advantage of startups being speed and then you reference Eric Yuan at Zoom, who's a friend of ours who says, like, the legacy vendors are just too slow. Don't worry about them. Okta is now 5,000 plus people, very big company. How do you think about maintaining Okta speed and innovation at scale and like, where to invest in sort of continued innovation?

Yeah, you're absolutely right. That is something we think about all the time and we are petrified about. We have to balance. You know, when you, when you become a public company and then when you even grow beyond there, you have to bring in all sorts of process and systems and resources, sometimes because of compliance reasons like SOCs audits and. But other times just so that you can keep scaling and growing internationally, where there's different currencies and people sell in different ways and they get billed in different ways. So all those things are real. But you are definitely right. We are petrified of becoming one of those ships. So if you think about it in nautical terms. Right. I think it takes three miles for a fully loaded tanker to stop once they've decided to stop. Whereas if you're in like a little speedboat, you can like turn on a dime. And those are. That is a very good analogy for, you know, in our case, startups versus large enterprise. Large enterprise has so much momentum going, it's hard to turn things on a dime. Whereas startups can, you can pivot. Just like we did before we even had any customers or any employees, we changed our business entirely different, different segment. And so that is Something we worry a lot about. There are, first of all, we try, you know, we're always trying to do that from the top down again, culturally, like, talk about that. We talk about innovation, we talk about as one of our core corporate values, but you have to act that way, not just talk about it. So how do you do that? We have throughout all the groups we try and put in that innovation. We started Okta Ventures a couple years ago so that we could keep a good eye and that group has done very well on what's happening in the markets that we want that. We know there's a lot of innovation around everything we're doing, but we can't watch it all. So we can learn that way. We've started Octa X, which is incubation group, as our whole company should be about innovation. An incubation group of starting the kinds of businesses that we know we need to start on the side, outside of our core so that they're not going to three years from now be super important businesses that we didn't do anything about. But also, even inside our company, we have thousands of engineers and folks in EPD engineering, product and design, helping them optimize those tools and even how you check in source code and how long it takes to do a build. And we monitor all those things and we're always trying to work through them. It's not easy. It has certainly been a big learning experience just scaling to this size and, you know, knock on wood, someday it'll be 10,000, 20,000 people and whatever. Yeah, those are very important. It's something we, you know, I'm paranoid that we're going to miss. But it's tricky because at the same time there are some amazing employees, folks who maybe they have a mortgage and a family and two kids they have to put to college. They actually want to join public companies because of the stability and because there is going to be a little more. And those folks are actually used to a certain set of process and systems and you want to bring them in because of all the expertise, but at the same time you want to be like, yeah, yeah, I know you know how to do it. But like, be careful because we don't want to do too much of it too quickly. It is a risk and it's something we need to watch very, very carefully. So, yeah, if anyone in the audience has any tips or tricks, please email me. I'd love to hear about them.

So you obviously wrote this book to share more of the advice you felt like you didn't get. Or couldn't get as you guys were growing Okta. There's plenty of other advice out there. There's plenty of people who can be advisors. Like, how did you. How did you think about where to go for advice as you were growing the company over the last decade and a half?

I would say that the advice that's in the book is advice that I got as we built it, but that I didn't know. And so I wanted to write it down so that hopefully others would be able to just read it as opposed to having to learn it maybe the hard way. One of the reasons, frankly, that I put it together was because we were fortunate to benefit from a mentor group of entrepreneurs who were ahead of us in the journey. From Marc Benioff and Anil Bushri on down the list, there's way too many names to list. But every senior executive at a company who is willing to take calls from entrepreneurs, even for 20 minutes, when you're driving back from the BART station or whatever it is, you know, thank you. Because you're helping the next generation build the innovation that we need in the world. And I know it's hard because a lot of times people aren't in the right geography or they're not in the right social network or they didn't go to the right schools. And, you know, that is one thing that I was trying to do is democratize that information by putting it in a book that everyone can get. But that is, I think that one of the benefits of what we've seen in both the technology changes that we've talked about here, but also in the pandemic is that people are building amazing companies everywhere in the world. And I think that there are really going to be some very good centers of excellence for entrepreneurship that are going to grow up not just in the traditional places we all expect. And so three, five years from now, hopefully there will be a lot of regional places where people can get entrepreneurial advice or they can join regional groups of peers who they can talk to as they walk through this. But, you know, also, I would say if you're an entrepreneur out there and you're not sure how to get in touch with someone, like, be bold, go on LinkedIn and buy a bunch of those credits and, like, send them an email. I would say a couple things. It's in the book. First of all, make your. Make sure that your note you sent is like, executive level. Okay? Everyone's really busy. So, like, three bullets on exactly what you want. You can put as much detail as you want and attach 50 things. I don't mind, but, like, make it really, really clear. Then 20 seconds. I know what you need, but you should reach out to everyone and ask them and just say, hey, I have this specific problem. Can you help me or do you know someone else who can? And frankly, like, there are so many amazing people I've gotten to work with in my career who now are experts at all these other things that I'm not that I'll say, hang on, I'm not the best at answering that question for you, Sarah, but I think I know someone who is. Give me a minute and I'll go to them. I'll say, hey, I don't even know Sarah really well, but she has this question. You're the expert. Would you be willing to take a call and, like, who's going to say no? I mean, again, some people say no. Most people will not say no. So I would just say, be bold. And what's the worst that's going to happen? People are going to say no. That's okay. As an entrepreneur, by the way, you need to learn how to deal with that all the time, so you might as well get used to it. So that's what I would say.

We've come to the end of our time today. Freddie, thank you so much for being here. It's a privilege to speak with you, everybody. Read the book. I love the book. I learned a lot from the book. I'm handing it out to my founders. Freddie, thanks again for being here today, for being an amazing entrepreneur, for, you know, democratizing some of the advice you've gotten and are able to give. Thanks so much.

Thank you very much for having me, Sarah. I really enjoyed it.

That concludes this episode of Gray Matter. If you enjoyed this interview and want to hear more like it, Please subscribe on SoundCloud, Spotify, YouTube, or wherever you get your podcasts. I'm Heather Mack, and thanks for listening.