From Side Hustle to Decacorn with Wade Foster, Zapier

Our early beta. We charged customers for the beta. So our first customers, we said, pay 100 bucks, you get access to the lifetime of the beta, which is a pretty rare thing to do, but we felt like if you were willing to pony up some cash, you probably have a big enough problem. 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 100,000 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, this episode is brought to you by Boast AI. Each year, the US and Canadian governments give out billions of dollars in R and D tax credits and innovation incentives to fund businesses like yours. But the application process is cumbersome, prone to frustrating audits, and receiving the money can take up to 16 months. Boast AI gets you access to research and development tax credits and innovation funding opportunities without the headache and red tape. Join thousands of North American companies leveraging Boast AI software to maximize cashback. Check out Boast AI. This episode is also brought to you by Launch Academy, an international tech hub that provides mentorship, resources, network and the environment for entrepreneurs to launch, fund and grow their startups. Since 2012, Launch Academy has incubated over 6,000 entrepreneurs, of which 300 have grown their startups past Seed and Series A and have collectively raised over $1.2 billion in funding. To learn more about Launch Academy's programs, check out LaunchAcademy CA.

There's a lot of great stuff, a lot of great insights that you have. We'd love to just dive right into it.

Let's do it.

So in Missouri, with. With your co founder playing saxophone, belting out the blues, and then all of a sudden you guys have this vision that SaaS applications want to get connected. How did that happen?

Turns out you're playing the blues for a reason and there's not much in your savings account. So you're looking. In our case, Brian and I and Mike were doing a lot of freelancing. You know, we started to use tools like Mailchimp, Stripe, QuickBooks. See the emergence of these tools playing around in their message boards and forums. Notice that there are a lot of recurring themes asking for integrations. And a lot of these message board threads are pretty old, you know, year two years old Tens hundreds of comments asking for these, and for whatever reason, they're not getting built. So we felt like, hey, there's an opportunity here to try and help connect all these emerging SaaS tools together and make these integrations a lot easier for the end customer to use. So we felt like the risk wasn't that we were building something that people didn't care about, we felt like people cared about. It was just, could we make it easy enough that they could actually do it? And so we just started there.

And did you guys, for those in the audience who are looking or in the throes of a startup at this point, when did you guys feel like, okay, this could be a thing, this is putting potentially going to be our life's work. We're going to put in a lot of effort and make this happen. Did you guys give yourselves some sort of time frame that you want to spend trying to make this into a real business before you move back to being a side project? How did you think through that?

We didn't actually have a lot of those discussions. We probably should have. We mostly just started working on it nights and weekends as a side project. I remember the first time I felt like, wow, we have something. Was our very first customer. We just gotten it to like a beta alpha ready stage, emailed him and said, hey, here you can have access. He emails back and says, hey, can we jump on Skype? I'm having a little problems using this. And I'm like, oh, great, so get on Skype, help him use the product. And he's stumbling through it left and right, can't figure out how to use it at all. And I'm like, oh boy, we're in trouble. Then we get to the very end and his zap works for the first time. And he goes, oh my God, this is going to be so great for my business. Where do I send you money? And I'm like, we just put him through the worst experience possible and the guy still wants to pay us. And so I was like, okay, if we can pull this off, it's going to work. And so I felt like that was enough to keep working on this thing.

Paul Graham, the founder of yc, is famous for having said, life short, build something people want. So you guys decide that you're going to pack your bags, potentially, at least for the short term, head out to California, join Y Combinator. What made you decide that's the spot for you guys to be at, and what were the aspirations for you guys coming out of that?

Yeah, at the Time. Our hope was, our goal is to connect all these different companies, all these different vendors, and we're in the middle of Missouri, which I love, my hometown, but there's not a lot of software going on there. For better or worse, most of those companies are happening in California. So we felt like if we were closer to there would make it a lot easier for us to build relationships with our partners being close to where their headquarters are. And so YC felt like a way for us to tap into an ecosystem that would help us build out this connection of apps that was really important for the product we were building.

How did you guys pick the first few apps that you're going to go? There were the ones that, I guess newfound Buddy and Skype was wanting to get you guys to build. Did you do a lot of market research on that side? How did you think that. Okay, I think we're going to go with Salesforce next and connect to Expensify. How did you work through that process?

It was driven by customer demand predominantly. So a couple things we did. One, we had our app directory that had landing pages for the different apps that we could support. And so we paid attention to the traffic that was coming into those pages. We collected email addresses for people to vote on what they wanted next. And then also our early beta, we charged customers for the beta. So our first customers, we said, pay 100 bucks, you get access to the. The lifetime of the beta. Which is a pretty rare thing to do, but we felt like if you were willing to pony up some cash, you probably have a big enough problem. So through a combination of those three things, we basically were just able to build a list that was like, okay, this should be next, this should be second, this should be third. And we just started to work down that list of adding those services to the platform.

And has that philosophy continued through the evolution of the company? Are you more in the the Bezos camp, which is in God we trust everybody else brings data, or the Apple and Steve Jobs camp, which was customers don't know what they want, they will buckle at the brilliance of my product.

Yeah, we tend to be closer to the data driven side, but there is certainly a place for intuition in building products. I think a good example of this is early on we built out our developer platform. So that was a way to allow partners to build apps onto Zapier. We didn't have a lot of data that supported that partners would build apps. In fact, we really had one anecdote which was we'd gotten to. We built out the first 50 apps ourselves. And then on a it was like a Saturday morning at 2am, we got an email from Aaron at Box saying, why isn't Box on Zapier? And we were like, it's still just three of us, we just haven't gotten to it yet. Of course Box should be on Zapier through that. We thought if Aaron cares enough, we maybe he would devote an engineer or two to help build this out.

Especially if he's tweeting at 2 in the morning.

Yeah, exactly. So we thought maybe if we were able to have a developer platform, we could accelerate the number of apps coming on the platform by getting the vendors to build the integrations directly. And we had one anecdote that sort of supported that with some intuition that, hey, that could be useful. And so we built out the first prototype of our developer platform in a couple weeks. And since then, 99% of the apps on of the 1500 apps on Zapier have been built by our partner ecosystem. There's moments where you have a bit of intuition around it and I think you have to chase that. But also you're like the early days of deciding what apps to build next, that was predominantly data driven. I think there's a place for both.

Sure. As you guys are going out building these apps, I'm sure it takes a lot of work, there's a lot of effort. So you got to figure out, okay, how do we convince our customers to pay us money? There's various ways in which we've seen companies do this. There's the value based pricing, there's the how much does it cost? It depends on how much you got. Deal. There's usage based pricing, there's per user per month subscription pricing. We haven't really seen cases where people have come up with an algorithm or try to get be inspired by an algorithm, which is how you guys got started. So could you talk a little bit more about how you initially priced the product and how that's evolved over time?

Yeah, we initially had our beta pricing, but then as we started to launch we needed like an actual set of price. So we knew people were going to pay for it, but we didn't know how much people would pay for this thing. And this is our first company. We don't have a lot of experience with pricing. So of course we go to the place everyone goes, which is Google, and we start going how to price a product. And you hear things like three landing pages or four pricing models and they should end with nines. No, they should End with zeros. And each of us had read these articles, and so we're up late debating this and just arguing over what's the perfect pricing model for this product. And the three of us couldn't agree at all on what we should do. And finally, we just got fed up with each other and said we should just do something random like the Fibonacci sequence. And so we actually committed our first pricing to be $11, $23 and $58 a month as our pricing model. Now, obviously, that's not great pricing, but, you know, we had that live for several months, and we got subscriptions and people paid us, and it was working. Now, eventually, I think there might be a couple of users still on those plans. Not a lot, but maybe a couple. Eventually we evolved from there. But I think pricing is part art, and so you have to just start somewhere, especially when you don't have any data around it. And then as you get more and more customers, you learn where the value is, you learn what the levers are that you can pull, and then you refine it to be, hopefully, something that more aligns with what your customers need rather than the Fibonacci sequence.

Yeah, and pricing is a great way to being massively obvious. Get a lot of revenue in the business, which you guys have very successfully managed to do. 50 million bucks plus in revenue at this point. And you've done that on the back of very little capital raised. I work for a venture capital firm in the Valley. We're seed investors. We've seen some of the best companies in the world go through us or our friends. It is extremely rare. I don't know if everybody appreciates how rare this is, but it harkens back to the old days where Microsoft went public after raising just a million dollars. There's mailchimp, you know, Viva Systems, which is at about 61 million the year before they went public. They're $15 billion company today. But outside of that, there's really very little folks who do that. Everybody's on this venture treadmill. They feel like they have to be in the Valley to raise that. They tend to raise a lot more money. That money gets spent on higher and higher costs that go out. Before you know it, you've got five flavors of coconut water at the office that you're offering all the employees, and it just. It spirals out of control. You guys have resisted that temptation. I'm sure folks like myself have been beating down your door. How have you managed to do that? What's your philosophy? About fundraising, how do you stay so lean and capital efficient? Please shine some light on that.

Yeah, a couple things. One, we've always felt like the success of our business was about making our customers successful. It wasn't about dollars raised. And so even from the very get go, we were ferociously focused on helping our customers, you know, be more productive at work, helping their business grow. And so we spent our time chasing that. And as long as we were shipping product, customers were growing, revenue was going, we were pretty happy with how the business was being run. We didn't feel like adding more money to the equation was our bottleneck. And so that focus on our customers was really where things went. And then if your business is growing at the healthy clip that you like, if you're meeting your goals, why take on the dilution of what a capital raise would bring? Especially when series A and series B rounds these days, you're often diluting yourselves. 20, 25% in one round, the next round's 15, 20%. So that's a lot of capital that you're taking in and dilution that you're giving to yourself, to your other shareholders that you don't need at that point in time. So we made sure that we fixated on the thing that we felt success was, which was our, our customer success. And then as long as we were driving towards that, nothing else mattered. And so for us, capital was never the bottleneck to making our customers successful. So we just never chased after it.

The thing we've tended to see for what it's worth is there's this notion that we find with companies pursuing fake growth, and we feel it's as poisonous to a company and a startup as fake news is to politics, so to speak. Right. Where you're spending a lot of money, there's, if you haven't seen the site, there's a site called VC Fund My Life where you get all these promotions from companies where VC dollars are basically giving you free stuff. They're trying to pursue growth, which is not real. How do you guys think about your budgeting and forecasting and the kind of sales machine to fuel a 250 plus person company at this point.

Yeah.

And how do you go through that process to keep the, keep the systems aligned?

Yeah. Before we hired a cfo, it was basically me just paying attention to, here's what went out the door this month, and here's how much we made this month and making mostly hiring decisions based on that. Because in a software company, your payroll tends to be your biggest expense and so it was just paying attention to saying, we made this much this month, we spent this much. That means we have the budget to hire 1, 2, 3 more people next month. So that's where it started. When we brought in a cfo, the business got larger. We started to develop more, some forecasting mechanisms, and they're still pretty simple to this day. I think simple forecasting is way better than complex models because that stuff that people can understand and relate to. What we've done this year is we projected out a sort of baseline forecast that said if we don't invest anything in the business, if we don't change anything, this is what we think it will grow at. We set our budgets according to that baseline forecast. So we give all of our teams and say, here's what your budgets are for you, here's what you can spend on things. And then we step back and say, okay, now what if we do make investments in marketing and product in these areas? What do we think incrementally we can grow based on. And usually we set a pretty beefy goal based on that. We say, hey, we think we can get to this rate. We don't always get to it, but usually we far surpass that baseline model, and then that becomes incremental revenue that goes onto the balance sheet that for the next year we can use to fund operations from there. So it's not a super fancy or sophisticated forecasting model, but it works for us.

And as you mentioned, if a big portion of your costs are payroll, as Lloyd mentioned, you guys have no offices. I know you've written extensively about that. There's a few seminal tweet, seminal blog posts that Wade's put out. I'll tweet those out on just the tools of trade that you've used, but you were also innovative for doing the delocation package that you offered people. Could you talk a little bit more about how you've thought about growing the team and how you've thought about the location and where they work?

Early days, we started hiring folks. Actually, our former colleagues is where we started hiring. Our former colleagues happened to be in the Midwest, so we were in California. There in the Midwest, we notice one customers continue to grow, we continue to ship product, we're hitting our goals. So we realized location isn't the thing that's slowing us down. So why not open us up to a strategic advantage, which is hiring great talent anywhere it is in the world. And so we have a team of 250 across 30 states in the U.S. 20 countries, in fact, we have 20 people here in Vancouver that work at Zapier. That has allowed us to build up a team of some of the best people in the world at the things that they do. And our retention rates are so much better because we don't have. We have a way of working that sort of aligns with their personal life and their work life can align together. And as a result we get that sort of continuity and knowledge that is really hard to build in companies when you're constantly turning over your workforce every two years, like many companies, companies in the Valley are doing. And it allows us to just grow better and more efficiently because we have people who've been around for a while.

How do you think about which teams are located nearer or closer to others? There's certain teams that need to potentially communicate in real time. There are other teams that may not need that. And there's benefits that you get from teams being in different time zones. In other cases, it's a curse. How do you think about setting all that straight?

Yeah, I think it's evolving. Early on we were very optimistic about time zone diversity being hugely beneficial for us. So for example, with Support having a 24. 7 Follow the sun model, all of a sudden you're able to give 24. 7 support. If you have a follow the sun model for your ops team, all of a sudden no one's getting 3am Pager duty calls. So we are really optimistic about the benefits of hiring globally because we could do that. As we've continued to grow, we've seen that on certain teams. Think like your product teams, your pizza teams and the Amazon model, there is benefits for time zone overlap. And so we are a little bit more intentional about trying to shape that where there is some continuity or overlap in time zone to make it easier. Because it is difficult when you have a product team with an individual in Americas and in Europe and in Asia to collaborate, the cycle times are just a little bit slower. So we are a little bit more intentional. But we still are a very global company in how we operate.

Yeah. And speaking of teams, how do you guys think about your sales team that goes out and gets you net new logos versus your customer success success team that once you've closed a particular customer, they're going to spend the time to land and expand within that account and get you the quote unquote negative churn that at least in this case. Investors love to see that you care about that. But how do you think about the your go to market and the sales motion?

Yeah, our go to Market is primarily driven through marketing and in product. We don't have a sales Org today. We do have a large customer support team, about 60 to 60 people working on supporting the customer base. But mostly what we're trying to do is hear through our customer support teams where the product is being successful, where it's not what is causing churn. And then our product teams are paying attention to how do we make it simpler, how do we make it easier, how do we make it more valuable, how do we reduce friction in the buying process so that through the product we're able to sell more and more and we're able to drive more and more adoption of the product. That way you don't have to have a person doing the selling. Instead your product is doing it, your marketing, your education materials are doing that selling for you rather than having to staff up with a pretty expensive sales. Org.

And since you guys are breaking new ground in several of these areas or there's very few other examples and the ones that are there are not completely the same as what you're doing. How do you think about people that you tap into to get insight from, to learn from? So what, your kind of personal set of mentors, how do you seek them out, how do you work with them, how do you select the people that have done what you'd like to see done when there's so few examples in the market?

Yeah, I think the thing that I've tried to do is reach out to CEOs, founders, C level people who are in companies that are just beyond where we're at. We're at 20 million, we're looking at 40 million. If we're at 50 million, we're looking at people who are at 100 million trying to understand what have they done, what are the sort of successes they've seen, what are the challenge they've seen as they've scaled through that? And we tend to get people who have just experienced that, who just lived that, because they tend to have very real visceral opinions on what those things are. And then we step back and try and apply those to our situations to understand, okay, what of that experience is relevant to Zapier, what if that experience isn't relevant to Zapier? And think through first principles about, okay, given that, where should we make investments, where are the things that we should improve? A good example is I remember hearing from a bunch of folks at about the time we got to 25 million in ARR, a bunch of CEOs started asking me, do you have a CEO, coach. And I'd been pretty like, skeptical, the coaching industry as a whole, but a whole bunch started suggesting that. And so I started going, okay, a bunch of smart people are suggesting that maybe I should look into it. Turns out like it's pretty valuable at that point in time to have a sort of objective third party that doesn't have a vested interest in the business. Just looking out for you. And so we started using them. So those types of that way of seeking out advice has allowed me to have, just in time, learning that is relevant to the business.

Fascinating. And in the few seconds that we've got left, I got to squeeze one more question in for the folks in the audience who have companies going. With hindsight, what are the few things you wish you had done less of?

Wish I would have done less of. I think there's not a lot that I wish I would have done less of. There's a lot more that I wish I would have done more of. The number one thing is we spent a lot of time on Zapner as a side project, and knowing what I want know now, like, I would have just dived right in and gotten right onto it because of how successful it has continued to be and how big the opportunity I think is for us to, to help a lot of people grow their businesses. And so I wish we would have just gone full throttle and right out the gate.

If it's going to be your life's work, get it done.

Totally.

Thank you so much.

I need some traction. You need.

Thank you for listening and we hope you enjoyed this week's episode of the Traction podcast. If you enjoyed the show, please leave us a five star review and you can find more information and all the resources mentioned in today's episode at Boast AI that's B o a s t a I blog.