Scaling with intent: Building bold companies in a shifting world

Hello, Web Summit. I'm Hannah Murphy. I'm a tech correspondent with the Financial Times, and delighted to be joined by Michelle and Courtney here. We are here to talk about scaling with intent. It's a topic I enjoy because we have these dramatic words like blitzscaling and super scaling. But at its core, you know, we're looking at making the right moves at the right time for you as a company so that you can expand sustainably. So first off, I just want to ask you both, what does intentional scaling mean for you? What does it look like in practice? Michelle?

Yes. Well, it's so interesting. It means doing the right things at the right time, which is what you described. And sometimes it's hard to know because when you're scaling, it means there's way more to do than time and people to do it. And that is the crux of the issue. And so one of the things for me when it comes to intent scaling is spending time with customers, because customers will tell you exactly what you need to do, and then you work back from that to figure out what the order that you need to get done internally to deliver for your customers.

Yeah, I would build on that and just say, I think to me, in a word, in this moment in time, it's all about efficiency. You know, I think to say what it's not, with all respect to like a Reid Hoffman, the blitz scaling, I'm sure in some industries, but in most of the ones we're seeing, it's really about doing it if efficiently and in the right time, in the right context, as you said.

Got it. So, Michelle, Cloudflare has pioneered these big changes and shifts in the tech landscape. How do you ensure that your company anticipates market changes rather than is sort of reactive?

So it's interesting, there's so many founders here, and I love this model of, I think founders are all about hearts, smarts, luck, and guts. And so part of being able to anticipate changes comes down to those four things, but two matter a lot. Smart and heart. And so I think that a club for being founder led is a superpower. And again, if you're. There's a lot of founders in this audience, it's a superpower. And when you're a founder and you own it, it's just different than when you are a professional operator. You just obsess over this thing you've created. And so it turns out obsession is helpful when there are market changes, because when you see shifts, you're like, how does that impact my business? You're thinking about it all the time, it might be unhealthy, but that is the life we choose. And so I think being founder led and innovative is very helpful. So that's the first thing. The second thing I would say is tied to the smarts. And I think we've done two smart things at Cloudflare that might be helpful to a lot of folks in the audience to help with this innovation, anticipating market changes. The first is we actually have two R&D teams. We have one that takes the products that have product market fit, that are scaling, that generate the revenue to help operationalize and scale them. And those are amazing. But we actually have a second team and they have constrained resources and there's product managers and engineers and their job is to see the future and their jobs are to go from zero to one. And so we fund that in the budget. And there's so many things that today seem like big businesses for Cloudflare, but actually started out of this, this innovation team, Emerging Technology Innovation Team, which is a separate R and D team. So that's the first thing we do. And I think that's just a really good place to leave it.

Courtney, from the VC perspective, how do you help founders differentiate between scaling because it's working versus scaling because they're supposed to?

Yeah, I think that is the, the big thing is, you know, recently someone like Warren Buffett's been on my mind, right, because he's obviously stepping down after such an illustrious career. But it's, it's just those going back to those basic principles of. We're seeing a lot of people who, as I think he says, you know, wait till you've nailed it before you scale it. Right. Really making sure you found product market fit. And we're seeing a lot of companies go out there who haven't really found it and they're kind of stretching or reaching or all the buzzwords that people have been talking about like AI. And you're like, this isn't an AI company, this is a data company. And you don't even necessarily know how to use your data yet. So we can't say you're an AI company and you're definitely not ready to, to scale it efficiently yet.

What distinguishes those companies that sort of scale intentionally and last versus those that do so quickly and flame out?

Well, I do think in the world we're living in right now, it's almost like it has to be AI and then everybody else in the a high world of it, you know, things are what used to be considered Exciting growth for a SaaS company and, you know, getting to 1 million or 10 million or 100 billion in a certain amount of time, that's changed. I think some of these AI companies are growing even faster than that. But at the same time, it's the early innings. There might not be product market fit, there might be a lot more churn happening. The full stack might not have been realized. So I think those are the things it all depends on, on the industry and what they're, what they're doing. But I think we have to separate those things because the non AI companies, it's still about kind of knowing. We, we wrote a book a few years ago. One of the chapters was called know if you're a sailboat or speedboat. And almost everything in AI has to be a speedboat. A sailboat, you know, catches a gust of wind, you make some progress, then things kind of flatten out. When there's no breeze, then you catch another gust. Almost every company I've been a part of, that's what it is. But in the world we live in now, the Ubers and the Airbnb's, those are speedboats because they're powered by gasoline, AKA our venture dollars. But it's a new world out there where you can't forget that most of us are meant to be sailboats. And eventually, when you're sure you've nailed it, put down the sail and you can, you can become a speedboat.

It's okay to be the sailboat.

It's okay to be a sailboat. Yes, that's my key takeaway.

And Michelle, on the AI question, how has the advent of generative AI changed? Sort of how you're thinking about scaling it at Cloudflare?

Yeah, you know, I think that there are three buckets when it comes to AI at Cloudflare. The first, and the first is table stakes for every single company in the world, is how are you using AI internally to make your business more productive? And that's. It doesn't matter whether you work at a company that's been around for 150 years old or 2 years old, it's like, hey, how are we making things more efficient internally? Back to your word, Courtney. More productive. Do more with what? Do more, faster with less, using AI first initiatives. And so we are doing that just like everyone else. And in that bucket. Actually, one of the things that we've learned is like making sure that you have a way to share those best practices because it's all so new and everyone's doing it something different. How do you have a place in internally that people can share? Hey, here's how I'm using it to get efficiency gains so that more people across the company can start to use it. So that's table stakes for every company, including a Cloudflare. The second is interesting, and again, this is a question every company has asked themselves. And if you haven't, definitely do it today. Is, is AI a tailwind for my business or headwind for my business? Now you want the answer to be tailwind. But back to Courtney's, like, what he just said is like, if the answer is actually headwind, well then you got to pivot and find a new business. But if it is a tailwind, okay, great. How do you build it into your products? Or how do you, how do you expand what your product does to go win more customers? Because at the end of the day, solving problems for customers is the business we are all in. And so for us, it's interesting, all these companies are using AI, but people want to make sure that sensitive data or proprietary data doesn't go into those models. And so guess what? Cloudflare is a cybersecurity company. We help do that in other places. So now we've expanded that product set to say, hey, we have an AI gateway. You can use AI within your company, but make sure none of your proprietary proprietary data leaks, which is great. So we've been able to be a tailwind to what we do. Also protecting the attack attackers online. It's an AI models that we use. So that's been very good. Not good, but a tailwind to our business. The third, the third lever I actually am the most excited about. I think it's so cool. So the way that we deliver our service that we've been doing, we're 15 years old, is we built this global network and now what we've done is we've said, hey, how do we help power everything everyone in this room is inventing in the future? And so we've kind of said, hey, let's build all the pieces, let's have the MCP protocols, let's have the agents out of the box. Let's make it simple. So whether you're a big company or a small company trying to figure out what your new product is in this new world, you think about Cloudflare's workers product as a way to do that. And so this is something that we've invested in and that is a whole new area of marketable, like total addressable market for us, which didn't exist five years ago. And that's exciting. And so what I love is what I get to do every day. Sometimes people say is, you've been working at Cloud for 15 years. Why do you still come to work? And it's because we get to help invent the future with everybody that's building the future with AI. So that's how I think about it. These three buckets.

Got it. If you're a founder today, you're looking at the AI environment, but you're also facing geopolitical uncertainty, tough macroeconomic conditions. So how does that change how you might navigate scaling today? Courtney?

It's a. It's a great question. I think when I've been starting my own companies, you're always just in the silo of, you know, I'm in control as I can do whatever. Even certainly 10 years ago, maybe even five. I don't even think I ever thought about macro or geopolitical as long as I thought I had the right idea in the right context at the right time. That has totally changed for me in the sense that not all industries, but. But a lot of industries I actually start thinking about. We used to call it frictionless scaling. How far can you get before you hit some crazy roadblock? You know, if you're the case of like an Uber or something, they got very far before regulatory was like, whoa, whoa, whoa. This is getting kind of out of hand. And so I think that's a huge factor. And so you now have to balance things. Thinking about the macro, the geopolitical, realizing that you can control some controllables and other ones, you can't. You can't obsess about all the what ifs of what might happen, what might not, while still trying to peek around the corner and be two steps ahead. That's a lot. And so I think it all comes down to just doing the best you can to manage the appropriate amount of each of those. And we've used the word a lot already, but. And continuing with productivity or efficiency, because that is important in this. In this climate and being able to move quickly.

You know, it's so funny. I think that there were some companies ahead of us who didn't take policy seriously, and now we all have to take policy seriously because of that.

Yes.

So. So thank you for those ahead of us. You know, just the Internet's become a huge part of people's lives and businesses, like, since. Since COVID which is only five years ago, Internet traffic has more than doubled in five years and continues to grow 20% annually. And so it's kind of unprecedented. And so you can imagine these countries around the world are saying, whoa, what laws do we need to make sure it's safe and fair for our citizens? So I kind of understand it. As technologists, I would just kind of echo. What Courtney said is like, be a willing participant in the conversation. I think we'll get a lot further when the policymakers, the academics, and then the industry folks come together, technologists come together to say, hey, what should policy look like that will help us? We get to invent the future together. So the AI is inventing. We're inventing technology on the air side, but we also get to set the rules together. And I think it would be way better that the technologists and the founders are at the table than if we. If they make the laws without us. So I think that's super important. So I would say engage. I think that, you know, if you maybe ask 100 smart founders 8 years ago how much time they spent on public policy, I think the answer was none. I think the best founders today say actually some, because it's important, and it's not going away. It's only becoming more important. And I think that's. Anyway, something doesn't get said enough. The other thing I would just say on navigating all of this is nobody has the playbook like, no one does. I think we're all looking at each other being like, what's the best way to do it? And in this huge instability that there is, it's actually an opportunity for all of us to step up as leaders and. And lead and not shy away, because there really isn't a playbook. So if you're like, hey, this is what feels right to me and what's right for my business, I actually think during a lot of the shifts and this instability is an opportunity for new leaders to emerge and new voices to emerge. And so I think that despite all the hard parts of it, there's actually an opportunity for companies to step into the void, too.

I know there's no playbook, but is there advice you can give on sort of maintaining strong culture while expanding rapidly?

Well, I think the most basic advice is pay attention to it, because in the world of, like, AI or geopolitical things, you can just lose track of. I might be a small company of 20 employees, or how many do you have?

4,400.

Roughly 4,400. I mean, it is. I'm amazed how quickly culture can go south with 20 people, much less 4450, you can be looking so external and forget that. You know, in my opinion, culture is something that's earned every day. And mostly it's not Michelle setting the culture at Cloudflare, it's someone eight levels below her. But that person's really important. So how does that person feel engaged to Matthew and Michelle and feel like they want to be torchbearers. So I think it's. It's really important to just acknowledge it and realize, at least for now, there's no, there's no AI for it, there's no easy fix and it has to be earned every day.

Yeah. Sometimes I say it's one of the only true democracies of the company is the culture side. The other things I would add I 100% agree with Courtney is just, I think it's really easy to get tied up into headlines and what's going on in the world and people. You can spend hours and hours talking about it, but at the end of the day when it comes to work, it's like, are we adding how do we make things better for our customers today or our team today or our business today, today? And so one of the best north stars to help with preserving culture is like just radical focus on getting stuff done in the pursuit of whatever your company needs to do. Back to in your. The premise of scaling, it's like there's a long list of things to do more than time people to do it. And so if you make progress on that of the things that really matter and you're solving problems for your customers, if you're making things better for your internal teams, you can also celebrate that. And I actually think that is the greatest antidote for helping maybe become a little bit of a distraction to some of the changing landscape of the world, which sometimes is happy news and often recently kind of more sad hard news.

And what about sort of lessons learned, mistakes made? Is there any time you've had to sort of reverse pivot that you can share what you took from that?

We need like a whole day on this topic because there's so many lessons learned. I just, you know, I think that there's just a couple things that come to mind. Honestly, it's all about the people. There's such a big difference between like a great hire and a good hire. An amazing co founder, a not amazing co founder. Who you marry or not, who you bring onto your board, who you take money from. Like do not take shortcuts on people you want, people who are aligned, shared values. It helps for sure with the low moments. And it's better to make the hard choice before versus after. And an example I like to give is we were raising our series C at some point and a very prominent venture capitalist. We are very excited. It was gonna give us legitimacy. It was a huge valuation. But as we spent more time with this individual, we just were like, we didn't quite have alignment on where we saw our company going and this person's vision. And so we had a term sheet. Our board was excited. We actually like walked away from that term sheet six months later, which in startup LED is an eternity. We ended up raising money from Union Square Ventures, who we loved, Brad Burnham at a much lower valuation. Like that was a hard choice in the moment, but I am 100% sure the right choice. That saved us many headaches down the road. And so I just think optimizing for the people is one that I could not overstate. Even with all the AI, you are going to need to interact with some people in the world and so optimize for the really good ones.

You're on the other side of that. Courtney, those decisions, what are the kind of common mistakes that you see?

We've kind of touched on it, but I love the phrase the best entrepreneurs have a microscope in one eye and a telescope in the other and they can both get out of whack. Right. If you're too myopic in the we have to get this done today and tomorrow and the deadlines and the project management, then you miss the tidal wave that comes over of, you know, you might miss the AI trend of it all. And conversely, if you're all thinking in the clouds and nothing's getting done day to day, we've all been part of those companies where I read the Slack channel, I'm like, what, what actually happened today? There was a, a lot of discussion, not much action. And so I think balancing those two and realizing that sometimes you have to be out of balance to get stuff done and then come back into balance. But I think that's the challenge.

So in sum, I want your three top pieces of advice to a first time founder. Thinking about scaling as we wrap up. Michelle.

Get stuff done, be an amazing visionary and see the opportunity to bring great people along for the ride.

I probably would have taken two of the three of those. But I would also say, like, I'm.

Glad I went first.

Yeah, I think like, you know, the idea of like move fast and break stuff, I'm kind of over that idea. But I like the idea of pretty good decisions made quickly are better than, like, perfect decisions made slowly. Because we're living in a world where time kills all deals. Pun intended. So I think you do have to move quickly. And then I think, you know, choosing your bedfellows really early. Right. Everything. A marriage, a business partnership is so much work. It's just who you want to do the work with. And I think that gets glossed over because so and so had an idea or this seemed flashy, or they were my partner in business school in your case, but yours really worked out so well.

There's a great note to end on. Choose your bedfellows wisely. Thank you both, and please join me for a round of applause.

Thank you, Anna. Thank you.