Building a $5 Billion Company With Little to No Funding with Mike Knoop, Zapier

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The story of every single product ever in the history of the world is eventually they decelerate into sort of irrelevance. Somebody else is going to beat you if you don't continue to keep pushing on and keep making it great over time. So we're very much trying to get back into that founder mindset really for these expansion projects where okay, yeah, how do we do things that don't scale? How do we get back in that 01 and been trying to spend a lot more time with founders in that space, knowing that's really important for us. I need some traction. You need some traction? Let's get some traction.

Hey, what's up innovators, entrepreneurs, visionaries and disruptors. This is your Traction podcast host, Lloyd Lobo. We're a community of over a hundred thousand people just like yourself on a mission to help you get the methods, the money and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio, Asana and many more.

Exceptionally happy able to interview Mike, the co founder and president of Zapier. I'm sure many in the audience here know about Zapier, but for those who don't, would love for you to tell me a little bit about Zapier. What does the company do? And particularly maybe you can take me back to the founding. How did you guys get your start?

Sure. So Zapier is the leading no code automation platform. We have millions of customers who use Zapier to automate workflows across about 5,000 plus integrations and apps nowadays. We just hit that milestone this year. We originally got our roots back. We started in Collegetown actually in the Midwest, United States, Columbia, Missouri, I had known, I think. So we got started to Startup Weekend actually. So for those who are familiar with sort of the hackathons of Startup Weekend, that was the founding moment where Brian and Wade, my two co founders, we all got together for the first time. I had never met, wait, before that event. And I had met Brian maybe about a year before. We got in beers a bunch and wanted to work on something together, but really hadn't found that idea. And that Startup Weekend was the initial thing that brought us together. I was actually going to pitch my own idea at that Startup Weekend. It was a terrible idea and I'm thankful Brian pitched his idea first. It was called API Mixer was the original name for Zapier for about six hours before we found a better name. And as soon as I heard him pitch it, I was like, that's a way better thing. I'm going to work on that this weekend. And that was the original kind of genesis moment. And that weekend we worked on building a prototype and started to try to understand is this actually a problem that a lot of people actually have? We thought it was a cool thing. APIs were getting really widespread adoption in SaaS and we thought we were doing all of our side projects and consulting projects on freelancing. We're all just connecting these APIs together for our clients. And wouldn't it be cool if maybe more people could do that? We could put a GUI user interface on top of connecting APIs and maybe there's something interesting there. And that weekend we spent a lot of time just going online and trying to find who would want this. And you can go back to the 29 to 2010 era where you'd go. Forums were still really popular. Almost every SaaS company sold a forum. I remember viscerally the like Wufoo, which is a form software support forums. And there was like these threads of hundreds of customers begging these SaaS vendors to build integrations. And these SaaS vendors are making rational decisions. They're like, we'll build the top one or two. We're never going to build the number 10 or 50 or 100. It just doesn't make sense sense business wise to do it. There's just not enough people in the world who want it. That was our key insight. Okay, we're probably never going to replace the number one or number two integrations, but if we could serve that long tail, that might be able to build a big business out of that.

So you have a really interesting market product insight, but obviously that needed to materialize. You have a great idea. And one thing that Zapier is now known for is effectively bootstrapping your way to a $5 billion company. Bessemer is one of the few firms that was fortunate enough to participate in the only primary capital raise that Zapier.

Had got in early.

Only A million dollars. And so one thing that I think would be really interesting for especially the founders in the audience to know is kind of what the dynamics were of Zapier. Obviously we have the product and the market insight that allowed it to be self funding for this long.

Yeah, this is a good thing to ask about. I often like to think of Zapier as a existence proof of of alternative ways to build and grow companies. I think there's standard Silicon Valley advice that you'll get from Twitter and Substack and wherever you might listen to. And I think it often gets highly polished in terms of the advice and stories that get told. And I often like to try and tell our origin decision making tool or like how we thought about these early decisions just to show, oh, there are other ways, other decisions you can make that end up being a largely successful company. And at the end of the day there's no right answer for everyone. You sort of have to apply like a first principle set of what's right for your business and customers and what your goals are. But I like to talk about it that. So for us it was after we went through Y Combinator. This is about six months after that Startup Weekend event. And this was the first and only time the entire company was all ever in one spot. We had a two bedroom a place in Sunnyvale, had to get super creative on the third bedroom. But that was the first time we were all together and still just the three of us co founders. We had launched Zapier Self Serve at this point. This is I think a decade ago now, this summer. So almost right at the 10 year anniversary of our first launch and 2, 3 months post launch, we were just waking up and doing support every single morning until 1pm and at this era support, doing support at Zapier was not very fun. We had one support email inbox and it would shard the email to all three of us. So you literally had to sit next to each other in order to do support because otherwise you would like double up the tickets. And we were like okay, this isn't working because we need more time back to go make the product better so that we don't have the customers writing in with the problems they have. So we wanted to start hiring and even though we did have early revenue, we had Self serve sign up at that point with subscription billing. That revenue hadn't caught up yet to enable us to go confidently start hiring. And this was at the tail end of YC and we were talking with Sam Altman who was the just A partner at the time at yc. And his advice to us was, if you ever think that in the future fundraising is aligned with something that you think you'll need as an organization, now's a great time in the market to do it. Now, this was 2012. It's gotten even better since then. But I think we really internalized that to think, okay, that's something we're not dogmatic about not doing it. We certainly had a preference to bootstrapping and self funding if we could, because we wanted to control more of our own destiny as a business. But we weighed those dynamics and we. We think we need to hire. That's the most important blocker to getting more customers successfully using Zapier right now is we need support. So let's go do that. Let's make that decision. And I think the interesting thing about it was actually by time we actually went through the hiring and got that help into the team, revenue had caught up. But I still think it was the right decision, even in retrospect, because it allowed us to be more aggressive making that decision faster than sitting on our heels for another three months, sweating it out, waiting for revenue to catch back up.

And on that kind of revenue topic, I think one of the things that's a little bit difficult early on is actually getting customers to monetize initially. Kind of what was the customer pull and the draw early on that you saw such and you knew that you were building something that people wanted to buy.

Another sort of, I think, common piece of startup advice is with your original product is make sure it does one thing really well, and that was not our original product. Another sort of unique thing. Zapier's original product had thousands of use cases. We launched with 60 integrations. So 60 squared was like the number of use cases that Zapier supported. In fact, even through today, I think if you go look at our top use case, it's only a couple percentage points of all the usage on Zapier. So it's really a bunch of a long tail. And that's again, like counter to the traditional advice that you'd hear of. You need to have a wedge, you need to have a very clear sort of individual use. I think what gave us sort of sort of confidence when we were started looking at the early users and success from that was we were doing the thing that didn't scale. The product was so hard to use. At this point. You basically have Wade, who was a person doing all this, get on the phone with you and walk you through setting it up, he had to use your computer on your behalf to set it up. And still, even with that degree of difficulty of using the earlier product, people still walked out of those first calls being like, holy shit, this solved my problem here. Whatever you want, I'll pay you whatever you want to keep using this thing. And we didn't. This was right in the era where we even, we didn't even have self serve signup yet. And those were the early signals that we got from. Even though the product was really hard to use, even though you couldn't even use it yourself, the amount of pain that our like initial customers were feeling even for these like long tail sets of use cases was sufficiently high to give us a lot of confidence to say, okay, that's something that can continue to scale.

So now we've learned a little bit about some of the early decision making, the fundraising decision, early product decision. But there was another product decision that helped to bend the growth curve around 2016, which was multi Step Zapps. Yes, I'd love to hear a little bit about the story of multi steps apps, how you thought about it and how you thought that might map into your existing customer profile.

Multisteps apps was not just a feature launch, it really was an evolution of the entire product and company. So up until 2016, Zapier only supported one to one integrations. That was the generic use case. Right. But not having to copy and paste data from one app to another. And we saw a pattern in our user. It was a very quick, specific pattern there people were trying to do, I remember night and day, they were trying to connect form software to QuickBooks. They were trying to create new customers in QuickBooks or new invoices in QuickBooks. When somebody submitted a form. Problem is, QuickBooks had a quirk in their API where you had to attach the new invoice to a customer that existed. So you needed three steps at minimum in order to make that use case work. And we had some customers who figured out a way to hack Zapier to make that work, even though Zapier didn't support it officially. And we'd have customers who had hundreds of these zaps in their account. And that was really interesting to us because we knew how hard it was to use the product to do it. And yet customers were demonstrating that they were willing to put up with that pain to do that use case. So we sat down and said, well, we're going to solve this problem. And while we were designing the solution for it, how do we make lookups in Three steps work. I think Brian, my co founder, was the. He had the key insight to say, you know, well, it's just about as much work to support n number of steps as it is to do three. We have no signal from our users that's something they want. It's, it's just a cool thing we think would be fun to build as a tool. But we went forward with the confidence that as long as it does solve that QuickBooks use case, we knew that there was going to be a subset of our customers that absolutely loved that product launch. And that's what really gave us the confidence to go forward. And I think the generic tool, the sort of framework we've used many times in Zapier's history, is a similar one. I think a lot of tool builders often get into this product. You end up building things that you think are cool and interesting for your customers, but you don't know until you actually put that tool sort of in their hands. And this is how we've always made product decisions to try and avoid that happening is we always got really clear on, even if it's super narrow, even if it's only, you know, 100 customers in our ebay, so we can actually name by email address and say, these are the people that are going to love it. We've always tried to make sure we could point to it and crisply name like, yeah, there's going to be some users here that when this thing launches, it's going to be loved by somebody. And I think I can't make the point. Even the strongest evidence I can share of this is like when we launched multi step Zaps, we had a limit of 30 steps in the editor just artificially. We were like, no one didn't probably want more than 30 steps. We launched on a Tuesday. By Friday night we had extended it to 100 because we had customers that just literally writing in and surprised us and said, I need more. I don't. Why did you cap it at 30? And it just blew our mind that there were customers who would want that. So we really, in that build had no sense of how that would get used. But it was really much more like basing it on like a cornerstone customer.

No, I think it's an interesting and actionable insight for the folks in the room because it's, it's a little bit of a chicken and an egg. You're trying to make a bet on how the market's going to evolve. But you also want some proof points that there are people who are going to use it. And it seems like the confluence came together here. Another dynamic of Zapier which I've gotten to see firsthand is just almost the entire time you've been relentlessly focused on the same user profile, very small businesses and developer first. I think it would be really helpful because again in somewhat of a contrarian narrative on fundraising and then again now on users profile, how you made the decision to stick with that core user profile and then maybe we can turn to what's next.

Yeah, so we're just now starting to build sales team 10 years in is the TLDR on that. I'll actually maybe adjust one thing. You said developer first. I think of it as builder. 4 out of 5 of our users would not self identify as technical or a developer or an engineer. We really, the mission of Zapr is really to put the power of this tech in more folks hands. And that's what we've been working on for 10 years is trying to do that. And I think there's a very pragmatic decision here which is, and this goes actually for how we built the company remote and whether we kept scaling it that way. Is, is our team happy, is the business growing, our customers happy? If those things are true, we're doing something right. Why change and jump off course when those three things, those boxes are getting checked? And that was very true for us serving the segment that we are, that we're serving have served all the way through today, which is like very small businesses and micro businesses. I think one to ten sized teams and companies is really where our suite has been historically. Now Zap, I think every great company, every great SaaS company goes through sort of a transition where they have to be originally a feature, then they become a product and then they become a platform where the platform, not just a technical platform but like a go to market platform, a brand platform where they can successfully expand and bring new products or new segments and take advantage of the like infrastructure that they've built as an organization to do that. Zapier is in that mode right now. We are figuring out, going through the hard work of trying to do the unusual unnatural work to figure out how do we take our initial product and turn it into a platform so that we can continue to have progress towards our mission for decades and decades to come. So it's a very pragmatic decision to say okay, we've gotten to this point if we want to keep growing. If we look at our peer set of other great companies, other grad that have continued to make progress towards their missions over decades. This is what needs to happen happen right now. So we're very much in sort of an expansion mode of looking at expanding the customer segments we serve, which you alluded to is we're starting to expand at market and this is very, I think of this as a very mission aligned thing too where there's a lot of customers that we could reach inside larger organizations where we already have one or two or three people using Zapier, it's a lot easier to get their colleagues aware of Zapier and using Zapier than it is to go land a brand new account or a new customer. So that's very much that. And then obviously we have our product expansion and bets that we're investing in as well. But yeah, very much an expansion mode of the business right now.

So I guess on that journey though, when you're doubling down on this core user profile, I'm sure you got advice to do the opposite. Move up market, invest in a sales team, basically make bets that you didn't make and it seems like they've paid off incredibly well. I guess maybe you can help the folks in the audience with the decision making framework. And then I guess what changed such that now you knew it was the time time to make those investments.

Yeah, we certainly got lots of advice. When are you going to grow up and get an office? When are you going to grow up and get a sales team? I remember lots of people asking us these same questions and I think for us along for on the sales side specifically, I think it came down to two things. One was we didn't see the path. Like I think if you would have put any other three founders in the seat of Zappy or Waden, I think they would have said yes to do it earlier on, if I'm being honest. I think we really fundamentally felt like our mission drove us on some of those decision making things. We really love the fact that we were serving individual people. At the end of the day, I think automation often has a negative reputation in pop culture and often this is because I think automation is perceived as happening to people. And our sort of mission, what we've always tried to strive for is how do we put automation to work for individual people. Right. And in small teams and companies. That felt like the most mission aligned way that we could focus our limited attention. We were only an 80 person, 100 person company up to that point. We couldn't go do multiple bets. Right. So we had to really pick our investment spot and we chose to Align our efforts and our focus with what we thought was right for the business. Now these days, what's changed about that? I think one of the biggest things is we've identified and we've started to see individual people inside larger organizations adopting and using Zapier and telling us the exact same sort of heartfelt stories of what it's meant for them personally, their team, their own career growth and I think expanded our mindset of oh yeah, there is a way to do that in a very mission aligned way. This is not like the 80s and 90s where you're selling a big top down automation solution into an org to the IT leader and deploying some use case across the org. This is really about giving this superpower to everybody inside any team or company from small startups all the way up to huge Fortune 100 companies and putting that leverage into the individual users.

It's interesting in the context of a market downturn, VCs myself included are always talking about making sure that you understand what you're doing and sure making making the right decisions with the capital you have. And Zapier obviously did that from the get go. And now you're investing because you know the time is right, the buyer profiles are there and to your point, you have millions of users already, you can expand already live and work in these organizations and expanding more fulsomely makes a ton of sense. How does that map to your product roadmap? We're talking about going from building into a larger platform. What is the vision from here?

Yeah, alluded to it. I think we've got these, we're in expansion mode. I think that's like the easiest way to summarize it. I mentioned that this is an unusual thing for businesses to do because you've got this huge gravity well of your existing company. Everyone knows and has been hired to grow the current thing that you're known for. Right. And it is a completely different mindset to go back to zero. Right. Even when you're thinking about expanding a new customer segment, you still are having to get back in that founder mindset. Right. Of going zero to one. I have zero of these customers, how do I get to one? Right. You gotta do things that don't scale and that is a very unnatural thing. Once you've started to hire more specialized roles and teams into the organization. I think this is one of our big challenges actually. And what we've spent a lot of time is okay, how do you create that clarity internally of who's working on what and how do you create clarity of what bets really matter so that you can create space for the stuff that you know on paper only has 100k annual revenue against the huge machine that's got hundreds of millions of annual revenue that we don't invest in that next S curve. Eventually that first one is going to decelerate. I think this is the story of every single product ever in the history of the world is eventually they decelerate into sort of irrelevance. Somebody else is going to beat you if you don't continue to keep pushing on and keep making it great over time. So we're very much trying to get back in that founder mindset really for these expansion projects where it's okay. Yeah. How do we do things that don't scale? How do we get back to that 01 and been trying to spend a lot more time with founders in that space knowing that's really important for us.

Yeah, I mean it's great to keep that ethos and like making sure that you're continuing to building, innovating and the like I guess. Before we leave, do you have any final words of wisdom for the folks in the audience? And it's. It seems easy when you put it on the slide building a $5 billion company, but any final parting words?

So think of Zapier as an existence proof. You're going to encounter a lot of decisions. I know a lot of you're building companies from zero right now. Think from first principles, what's right for your business, what are your goals and look at things like where you hire or are you going to take for fundraising or how much. Think of those as tools that you get to use and choose when you want to use them or not. They're up. It's up to you. You get to have the final call here. Right. No one else gets to tell you what is right for your business. Only you do. So I think that's probably the key takeaway. And then also if there are any founders here that are working in the no code low code automation space, I'm trying to get back into that space and meet network. If you're working there, come say hi or you can shoot me an email. Mike zapier.com awesome.

Thanks so much for joining.

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