From Freemium to Explosive Growth in a Crowded Market - 8 Years of Learnings with Zoom

Overall, we want to be very open, flexible integration with any other software, hardware or business workflow applications. To have the best experience, you got to take a different approach. You need to take a step back, really understand the customer problem and then invest your engineer time into the product. You make sure it's very easy to use. It's too hard, nobody's going to use it. That's why simplicity is number one important thing to drive the video conferencing usage. They think about growing fast. You always pretty sure you always think about how to get more customers. Most prospect, right? If you do that, you probably are going to lose the focus to focus on making the existing customer happy. And also we always prioritize the features requested by our existing customers over the new prospect.

Come together.

Right now.

Please welcome saster co founder and coo mallon yen and zoom founder and CEO eric yuan. Right. Good afternoon. Welcome, Eric.

Thank you.

Did you walk over here over from Zoom?

Yes, just five minutes, very close.

All these people who have never been down from San Francisco before, welcome. So I am so thrilled to be back here on stage with you. It was two years ago actually where we sat on stage at the Bill Graham Auditorium and I remember you had just close your unicorn round, but you wouldn't let me say unicorn with Sequoia for 100 million. And so today we're going to revisit a couple of things, deconstruct it a bit. So Eric started Zoom eight years ago as a solo founder after being an early WebEx employee. Despite what everyone on Sandhill was telling you about video being maybe a little bit saturated, you were convinced that there was a better video solution out there. And it turns out you were right. So fast forward two years. I think it's safe to say that Zoom is probably past unicorn status, maybe Decacorn or beyond, but I won't push you on that. So congratulations, Eric, on Zoom's continued success. So we are going to take a little walk through time and deconstruct the past eight years a little bit and, and look at a few of the learnings that we chatted about last time. Okay, so first of all, let's start with the fact that when you first went to get funding, you were turned down by some of the folks on Sandhill. I mean, first of all, you were a solo founder. It was in a space that everyone told you was saturated. You did not look like the normal, no offense, 20 something year old, hoodie wearing, swagger type of individual. But here you are now. So let's start with Being a solo founder because it's incredibly hard to start a company. And tell us about why you decided to go solo.

Yeah, so when I started a company 2011, I was already 41 years old, but I still feel I was very young. And that's okay. So again, so. Because when you start a company, every company is different. Because I learned a lot when I was at WebEx, for sure. If I was 24, 25 years old when I started a company, I ideally have two co founders or three co founders. And when I started a company already 41 years old, I really think I can handle the pressure. And my left brain can help. Right one so. And for sure there's a pros and cons, right? You have multiple co founders, for sure. Whenever you have something very important, you can discuss with your co founders to collectively make a decision. But also as a sole founder, quite often you also can make this decision in a very timely manner. I do not need to talk with any other co founders because speed is everything. Especially I learned a lot when I was at WebEx, not only for the product side, but also for sales and marketing side. Yeah, it really depends if you think you have. You learn a lot. You were before at other companies, you really can start as a sole founder. I do not think that's a problem.

So. Well, you clearly have done something right. So you were an engineer by training, and then you became an engineering leader with the CTO of WebEx and then you became a CEO. And I would say you've made that transition pretty well. In fact, Glassdoor last year named you number one CEO on top of folks like Marc Benioff and Jeff Weiner and Satya Mandela. Just saying. I think you figured it out a bit. So tell me how that transition was between being an engineer to saying, okay, now I'm a founder, but now I'm also, I'm a CEO.

So you know, to start a company, you know, product is everything, right. If you have engineer background, I would say it's probably much better cause you really understand the product, right? And otherwise you need to have a co founder to help you to drive the product side. And to be an engineer really can help you because you really understand what's going on in the market. However, transition from engineer to engineer manager, probably straightforward. But if you transition from engineer manager to the CEO and it's not that easy, not that straightforward, you got to learn a lot about sales, about marketing and otherwise, you need to hire a lot of other people around you to help. And another thing is to Be a CEO is not only the product side, you also manage the overall the business. I think as long as you think you can do it and learn as fast as you can. Also keep working hard, I think you will get there. Don't think about, hey, my background is engineer. I do not think I can be a CEO. I do not think that's the case. I see lots of great company like Facebook, Mark Zuckerberg, his engineer background, Yahoo and Facebook, so Yahoo, Google, same same thing. I think to have an engineer background and we will help you to transition to be a much better CEO because you really understand the product.

So a lot of the folks out in the audience, a lot of the founders are first time CEOs and so is there any advice that you would give him in terms of how do you get up to speed and how do you become an effective CEO?

I would say be patient. So you know, everybody knows that to build a successful company is a long journey. Don't think about overnight success. Keep working as hard as you can, be patient and every day think about what you can do differently to improve. And I think you will get there down the road.

Well, they also say that you should hire people who have different backgrounds than you. However, your first 33 hires were all engineers.

Yep.

And so what led you to decide that, okay, my first 33 hires are going to be engineers?

Cause at that time we really need a product. Why we do not have a product? Why do we need to have a sales? Why do we need to have a marketing? So another interesting stuff is a lot of customer told us our product is very simple. The reason why one of the key reasons why our product is simple is that we wouldn't have engineers. We even do not have UI designers. So we have to make the UI very simple and quite often just one button rather than two or three buttons. Otherwise we need a UI designer to help. We also do not have a qa because engineers, they got to be responsible about the quality. Right. I think to start with, just to focus on the most important thing, I think product engineers is much better.

So when did you hire employee 34?

34. I think probably one year later.

One year later. And that was a product manager, A product marketing manager. And then what did the last next step dozen hires look like?

What's that?

The next dozen hires.

After that it's skilled engineers.

Okay, at what point, let's ask this again, at what point did you hire someone who wasn't an engineer besides that product?

I think until we decided to monetize our Service. You know, we hired our first the sales person, right. It's through our head of sales. That's the first non as a second announced engineer hiring.

Wow. So you had a whole bunch of engineers and then one salesperson.

Yep.

Okay, so let's talk about. So sort of the joke, not quite a joke because it's painful is like who was your first VP of sales? Right. Because inevitably there's more than one VP of sales. But you are on your first VP of sales and in fact he was a senior manager, right. When you hired him. That was his most senior position.

He was senior manager a long time ago at WebEx and then he went to CA as our director of SAL and because we really want to hire those people with a huge potential. You know, when you started a company after your product ready. When you try to monetize if you hire a senior VP or VP from other bigger companies. Most, most of. Most of the time I do not think that works. You want to hire someone with huge potential, they can stay with you for a long time. Right. You want to learn everything I think of hire someone with potential. I think we will give you long term sustainable.

And you've done that with a number of your executive team and in fact most of your executive team are the ones that you hired early on in the day. But I would say that there's skill sets that you have to succeed in the early days of a startup, right. Where you have to be okay with chaos. Natural athletes are okay. You just have to pitch in and do whatever. But sometimes those people don't necessarily graduate to the next level of company. What have you done to get them ready to do that?

I think you really need to do community. Well before you hire those people. Right. You should tell them. Right. So you know, our business probably is different than those companies you worked for before, right. You really wanted them to learn. Right. It's kind of, you know, very hands on really. Can grow themselves along with the company grows. Right. And otherwise you hire someone in two years, you know, they might, you know, they might have grown to the next level. If your companies grow so well, they may not grow. You have a problem. As long as they all understand on D1 they have to grow themselves along with the company growth. That would be a perfect scenario because.

You'Re not a big fan of highly structured like training programs.

I hear that actually I think I hit all those layers of management or the process and no management is the best management.

Well, I think one interesting thing that you have in spite of build on Your team though, and this is something that you do yourself, right, is what's the 15 minutes a day?

Yeah, so, yeah, so because we really want to develop all of our employees, myself included. One thing, you know, I tried to let our employees do is so every day in their calendar, right? To come out like 10 to 15 minutes time, you know, I call that a thinking meditation. Right. Really think about if you start over today, what are you going to do differently? You know, what's your strengths? You got to leverage more. What's your weakness? Every day you got to think about that. If we all do that, you know, given some time, I think all of us will get better. If all of us get better, guess what? Your business will get better. Because it's really hard for us, you know, for managers, leaders, you know me as CEO, to drive employee growth to next level. They have to drive by themselves. We are very supported. So they got to spend time to think about that.

So you're about 1700 employees?

Yep.

Right?

Yeah.

Roughly two years ago you were at around 650. Yeah. So that's a lot of growth in the past. And you've hired some people who aren't engineers now, I presume. And so there's certain people say, there's certain inflection points. When you're starting a company and you're scaling a company, when you're sort of under, like I say 20 to 50, you can kind of do things the way that you need to do things. You can email everyone in the company, you can fit everyone in the same room. You can have all engineers if you want. But at some point it becomes, it's just not. You have to actually put in a little bit of process. You have to figure about scaling. You have to figure out, okay, do we not just hire natural athletes, but someone who's actually done these things before? At what point did you find that there was an inflection point where you really started to have to think about those things? And what are some of the things that you do did to help get.

You ready for the next level? Yes. You know, to me it's more like, you know how good your memory is. So I mean, if you still can't remember all the employees name, I still do not think you need to have any process. That's okay. Whenever you have employees, you have more than 400 employees, it's really hard for you to remember every employee's name. Plus you have more and more big, large enterprise customers. You have to, you know, establish sustainable process or system to help you Further skill the business. Yeah.

And so at what? So for you it was. You can keep track of 400.

It's more than 500, so. And before we have 500 employees, I still can't remember most of employees name.

So when you get to the point that you're at so happiness, right. We all know that happiness is not just a marketing campaign for you. It's something that is something that you focus on with respect to your customers, but also with respect to your employees as well. When you start to get to 1700, are there any ways that you have been able to keep that culture going and that homey feeling? Because at some point, obviously you're going to make some bad hires.

Yes. That's the one thing that really keeps me up in the night. I do not know when could it be tomorrow it'd be broken. It's really hard. It's not that easy because you have over 1500 employees. But we want to make sure everything transparent. At Zoom, we have once every two weeks, all hands meeting every employee. They can submit questions anonymously. Any questions we do not modify, we just share with all and talk about that. And also we will hire those employees with a self learning and a self motivation mentality. So every day we talk about our company value already very simple just to care care about the community, customer, company teammates as well as ourselves. If we all care about each other, starting from so many smaller things, I think we'll be okay. The problem is quite often when you grow the business, you forget about your company value and culture. Employee sometimes probably get a little bit selfish. You do not look at it from a company perspective. You always look at their perspective. Then you are going to have a problem. So for now we just make sure everything we are doing transparent. Let employees really understand every initiative from our perspective. Really want to help our employees to grow to the next level. And they can help us grow our business to the next level. If we do that Also keep everything transparent. I think by and large probably we are going to be okay.

So last question before I move on to product and growth. The 1700 employees though, how do you communicate with all of those employees?

Oh, we use Zoom every day.

Right.

So for sure we have an email, I have a chat, I have lots of video calls and all has meeting. I think just make sure every communication is transparent. Always assume every employee they have to know everything. Don't hide anything good and bad is just the services employees.

So let's turn to product now. So two years after you started your company is when you Released the first product in general availability. So that was January 2013. And by May 2013, I think you had a million participants already.

Yeah, that's right.

And then by June 2014 it was 10 million. And by February 2015 you were at 40 million. And I'm sure it compounds as we know. So tell us about how did you do that?

I think to start with, we were very lucky because Walt Mossberg wrote a very nice article, even published a video and published in Wall Street Journal. And over the night we had over 60,000 hosts who tried our product. And we started from there. And we keep some of them very happy and probably 50% already gone. But 50%, whoever still with us really help us because every time you schedule a meeting, you invite four or five people to join. If a product really works, guess what, those four or five people, they will become our host as well. That's why we have organic growth for a long time.

But having Walt Mossberg write about you wasn't just luck or random. It certainly took some effort, didn't it? How did you do that?

Yeah, we tried to let him evaluate our product. You know, he's a great guy. He also cannot guarantee you to write something. And you know, we hired a product marketing person. He flew to see the Walter Mortzburg and unfortunately the WI fi does not work. Right. But you know, Nick, he was there, he used the 3G hotspot, right. And tried a product. Product works so well. This very unreliable network. I think Ward, he was very impressed. That's why he tested the product for the whole summer and wrote a very good article. So it still boils down to the product. It works well.

And then early on also, I think you made a concerted effort toward industry reports and industry analysts. Right. How soon did you do that after you had the product?

I think very soon, actually just, you know, around four to five months after that. It's very important because you wanted to.

Share the story and how hard was it? Earlier today we talked about creating a new category. Video was clearly a category. What was the mindset that you had to the shift that you had to say as opposed to this is just another video product, it's just better or maybe that was enough.

I think it's really hard to create a new category. You need to spend lots of resources on that. So ideally you let end user have a first hand experience. Right. Especially we are a little bit lucky because the product does have a network effect. If a product really works better than any other solutions, I think you have a chance and early stage, many of our users really help us. Really help us to share the world with other users and bringing a lot of new users to us.

So now you serve customers that range from consumer, just online single seats.

Yeah. Enterprise as well.

Still have premium customers.

We do.

And you have large, large enterprises. So let's talk about the early days, because one struggle that I think everyone tests out various options is pricing. So in the early days, tell us about how you did pricing, what you might have done differently, and what you might have done that ended up working well.

Yeah. So, you know, to build a great company, there are so many areas where you probably need to put efforts on wanting to be very creative. But when it comes to pricing, don't be creative. Make it very, very simple. Make sure your kids can understand that if you make the pricing is too complex, you know, I think you have a huge problem. And they want to make a price very simple, straightforward. And also, ideally, you make your product the best and the price is the lowest. It's more like a restaurant business. Your food is great, and when you try to pay, you, wow, this is awesome. You know, this is very good price. I think that's the way I look at this. Very simple, you know, don't be creative about the price.

But. So how did you. So most founders I know test pricing by saying, I've said, oh, how do you come up with the pricing? They said, well, we just picked a number that I thought people would pay, and if they say yes too quickly, then we raise the price.

I did that exactly because we started. Seriously, when we started, I would say we got to make sure that have a best price. We charged a producer per host $9.99 less than $10. We think that's a great price. However, after they launched the service realized quite often the customer really like our product. But when it comes to pricing, they say, they told us, are you sure this is the price? They cannot believe that price is too low. Essentially, they told us, you better increase the price. We increase it by 50%. After that, we maintain that price $14.99 until today. So it's a very low price to start with.

Okay, so that method works. So anyone's testing their pricing by just getting to the point where someone finally pushes back. It can work.

You start from very low price. Right. And for sure you have a room to increase, you know, by 20 or 30% down the road. If it does not work, if you start a very high price, guess what, you got to lower the price. I think worse.

So we Talked earlier about how you have your first VP sales. He was still your VP of sales. And for most of your life cycle you have had just a direct sales team. But recently you announced a partnership with Atlassian and Dropbox. So partnerships as we know can be incredibly valuable and accelerating, but they can also be a time sink. How do you decide when to do a partnership? When is the timing right? And your partners?

For sure, Dropbox, Atlassian are two great companies. So we look at this from any user perspective. Cause you know, we have lots of mutual customers. You know, they use Atlassian, Jira, Jiva Ops or Dropbox at the same time you Zoom, they really want to have a similar simulates integration. Meaning, see, from a Dropbox interface I can launch a Zoom call. Right. And after that I can send a recorded meeting files back to Dropbox. Right. You know, today customer, they have to switch back and forth. Why not make that experience frictionless? That's why we listen to our customers carefully. And that's why, you know, if your integration partnership can benefit customers, I think that partnership will be sustained. We do not look at it from partnership, you know, for the partnership perspective.

So any tips to making sure that you've got the right partnership in place?

If any user customer really likes that, especially most likely if a customer will tell you, hey, I'm using Atlassian, I also use Zoom. I do not like this experience. Can you two work together to integrate? I think that's the right signal. You got to start working on that.

Well, you've always been very customer driven, right? Customer is always first. And in 2017, which is six years after you started the company and you were already, let's see, 2017, even though he doesn't talk about revenue, he did let me put two years ago, going to 100 million ARR while spending almost nothing. So that may give you a hint as to what the revenue might have been in 2017. So 2017 is when you actually had your first user conference called Zoomtopia.

Yep.

So tell us a little bit about what brought that on and, and any suggestions on that? Because Community, as we heard earlier from the initial presentation this morning, is key.

We had our second user conference, Zoom Topia also here last year.

That's great. I came.

Yeah, thank you. Looking back, I will say we made a huge mistake because when we had the first user conference, we already passed 100 million ARR. I think looking back, if you already see like I have 10 minute ARR, ideally you should have user conference because you get all those customers together, they share the best practice and you appreciate what they did for you and also share the product roadmap. You know, one day event can really help your business, help your customers. So. And we just made a mistake too late.

Well, I think you made up for it because you had some great speakers.

I think you had, oh, Serena Williams and also the Jeff winner from LinkedIn and the author of the Spirit of Trust and author Stephen Covey. This is great. And customer really like it.

So if you remember from two years ago, one of Eric's philosophies is you test something out, he doesn't spend anything. He's notoriously disciplined about spending money. But once you test it out and it works, then. Then you double down. Sounds like you double down on Zoomtopia.

Yes, everything. That's our philosophy because we wanted to test everything. We see the organic growth, we see something already works, we double down. We never wanted to invest to create a market, to create something, do a small test and then we double down that.

So also two years ago, what you said was, so they had raised. So Sequoia was a series D, and before that there was a series C that was led by emergence. And so at every stage, from A and beyond, Eric didn't spend the previous round he raised until he raised the next round. Now, not everyone has the ability to do that, but I think you've always been focused on not spending ahead of your means. And so his B, he didn't. After he raised his B, then he started to spend his A, which was a $6 million round. After he raised his B or his C, you started to spend the emergence, which was the $30 million round. So Sequoia was two years ago and now you've grown from 600 employees to 1700. Is it safe to say you actually started to spend some of that money? And what might have shifted in terms of.

So yeah, we did spend money. Now, otherwise our investor will give me a harder time. So and so. But still, we are very lean startup company. I work here, I did not take Uber here. Right. So. And I think to help us to focus, grow the business, I think you got to think about how to leverage the funding, how to leverage investors. Sequoia, you know, Horizon Ventures and emergency capital, they're all very helpful. It's not only about money, it's about their connections, their experience. Right. You know, quite often when we try to hire, you know, a very important position, always talk with those investors, like get advice from them and sometimes talk with the customer. They might have a connection not only with look at it from a funding from money perspective. Also from their, you know, all kinds of help from their perspective. And for sure we did spend a lot of money on marketing now to create our brand. You see the billboard in 101, you see all the bus ads. I think this, all those from our investors money. But again, you know, we are very lean, so.

But what gave you the confidence to start actually spending?

I still don't have a confidence today. I see. I still do not think we should overall. I would just look at it from end user perspective. If you spend more on the user conference, you know, our head of marketing, she built up a greater program for Zoomotopia. I never reviewed that at all. I think spend more, try to make sure our user conference as, you know, as good as possible and make sure our customer happy. Right. So if you look at everything, every spending from a conference perspective, I think you should be okay. You know, don't waste money for something else.

So at this point, with 1700 employees and revenue that's going up like this, what. Maybe it's many things, but what keeps you up most at night these days?

Nothing keeps me up actually. And I have a good sleep, more like a baby. So. And this is good because you know, if you come to office, really enjoy what you are doing. And I think you got to enjoy that. So if you enjoy that, even if there are some challenges, as long as you can overcome that, focus on customer experience. Make sure your employee happy. For me, if our employee happy every day, I feel very happy. I think I can sleep very well.

So when you look at your different stages of growth, was there a stage at which you thought it was the hardest? I mean, none of it's easy, right?

But I think to get the first 10 million ARR, that's very, very hard. If you can, you know, past, you know, if you can pass, you know, that milestone, I think it probably relatively easier. But first 10 million er, extremely hard because from nowhere to get some customers, you know, they want to pay for your service. It's not that easy.

And so for those people who might be in the first 10 million ARR, do you have any advice for them?

Have a user conference and probably here as well. And you will not regret that to have a first user conference. This is a mistake we made.

So let's shift gears for a second and as we wrap up here. So video people told you six years ago, seven years ago, eight years ago, that it was saturated. It's a crowded market. Where do you see the future of video?

I Think communications. If you look at the communication, I think look at today's workforce. More than one third are millennials. They grown up along with short message or facetime. I think real time communication will become mainstream service. So meaning either the Slack or Zoom. I think most of you probably use Zoom and Slack. You know, driven by the millennials. I do not think those trends are driven by us. Right. They have to use a real time communication. Then we needed to build a better service. So I think video and also the messaging. I think those two will drive the future collaboration.

And what about new technologies like maybe like AI facial recognition, all that you.

That'S very, very important. Like after the meeting is over, we can automatically generate the meeting transcription, have a meeting summary during the meeting time. If I talk too much, you know, maybe too too fast based on your face detection, I think it please slow down. Right. All those AI technology will make our meeting experience better and better.

And do you see Zoom embracing that as part of organic internal development partnerships or acquisitions?

I think it can be both. I think we got as long as anything we can do to help us to kind of gain the trust, make sure our customer happy, we will do it.

Great. Any final words for our folks out here in San Jose?

I think especially for the startup company founders, I do spend a lot of time to read Jesse's blog. I spend all the time. I think if you really want to be good that the building up a great SaaS companies spend all the time to visit Jason's blog. This is my favorite website and spend more time here. And I'm a huge fan of Jason. I think Saskatchewa is a great event as it's probably most of the time, most of the event I do not go. But Saska, I'm a huge fan. Thank you.

Great. Thank you Eric.