Path to $3B: Culture, Creativity and Cash Flow w/ Bandwidth CEO David Morken and CMO Noreen Allen

We are ready to rock and roll. Hand it over to you, Noreen. Wonderful. Thank you. Good afternoon, everyone, and welcome. Thank you for joining us. I'm Noreen Allen. I head marketing for Bandwidth. I'm joined today by David Markin, our CEO and co founder. We're excited to be here with you today to share a little bit about our journey at Bandwidth. We say the path to $2 billion in market cap. It's actually 3 billion since we wrote this slide. And we're going to talk to you about the journey that we took to get there. So our journey is not your traditional software company, VC backed software company. Over the last 20 years, we've had an interesting journey to get to this point and we're going to talk about the role that culture, creativity and cash flow have played along the way. So let's jump right in and get started. So just some very quick background on bandwidth to set a little bit of context. So we're a software company. We're based in Raleigh, North Carolina. We've been around for 20 years now. We are officially a CPAAS company. Communications platform. As a service, we offer cloud ready voice messaging and 911 for the enterprise. So what is that? It's essentially you. You want to add text messaging services or voice services into an application or you want to build a solution around those services. You come to Bandwidth. We, for the first 18 years or so were a bootstrapped company. Founder led by David, took the company public on NASDAQ at the end of 2017. And we're really proud of some of the relationships we've got in place with big names, some of the most exciting names in business today. Names like Google, Microsoft, Ringcentral, Cisco, Zoom, Dialpad, and many others. You are very likely using Bandwidth every day where you live, work and play. Wake up in the morning, you get an alert from your doctor's office about an appointment that's coming from Bandwidth. You go into the office, you're using any one of a dozen UC platforms like Microsoft, Teams, Zoom, any of those. That's Bandwidth as well. So very, very likely that you're using bandwidth. All right, cool. Let's get to it. So, David, let's talk about the journey to get here. So 20 years in here at Saster, everyone is talking about unicorns and being the next unicorn. Is this a unicorn story?

Noreen? This is not a unicorn story as much as it is a mule story. We are a pretty stubborn team that has charted our own course and really been in control of our own destiny. And 20 years in, it's very different than a unicorn. That often is associated with getting revenues very quickly, profit perhaps never, and achieving a billion dollar valuation overnight. We, for example, didn't raise capital early at all. The first source of capital was a spare credit card. I was in a spare bedroom. And then it got really ugly. We went over 40 on Sand Hill Road at places like Sequoia and Benchmark and Kleiner Perkins. We didn't raise any money. And this is two years after starting. We failed. We were ofer. And that is not a unicorn. That's. I say mule. It's probably something even worse. In fact, that wasn't the only time that we failed to raise capital. Over the last 20 years, we were successful in raising a small amount of money to do a small acquisition about 11 years in. But in 2016, we had two divisions, bandwidth and another company, Republic Wireless, that was a division. And we tried again to raise institutional capital. And this time we were on Wall Street. We were in San Francisco and Boston and Seattle, and we were working with one of the biggest banks on Wall street. That is not Morgan Stanley. Morgan Stanley is our great bank. We work with a lot. We're very happy with Morgan Stanley. It was a different bank. In any event, we went over again and failed to raise capital. So very different story. In the early days, we got capital from my college roommate's mom and my business partner's next door neighbor and then twice failed to raise capital. And it's important in that context for lots of the teams. For example, at Saster, if you're a young founding team, you got to focus on cash. You've got to focus on not just revenue, but cash flow. And when everyone says no, you got to keep the faith in your vision. And by focusing on cash, you preserve your ability to persist. And why is that so important? Because you're a founder, you have a vision. And if you preserve your ability to persist by making sure that you have a handle on cash flow, your vision and your journey can continue. Sounds pretty straightforward, but people often lose sight of that. So for us, without outside capital, we didn't have a choice. We had cheap desks, we had real estate that was extremely spartan, and we focused on cash and we focused on culture and preserving our ability to persist and our own ability to control our destiny.

I remember those cheap desks. I remember them well. So let's talk about that more though. Over 0 for 40, twice over 80. Like what was that? Like that. That had to be like a gut punch. A gut punch 80 times over. Like, just how do you. How do you have the strength and just how are you able to wake up and come back into the office and keep hammering after hearing no so many times. Hearing your baby's ugly 80 times.

Not just your babies ugly, Noreen. We had VCs fall asleep on us in meetings. We had no shows. We had audible outright laughter at certain slides in our deck. At the time, I was gravely offended. I was also sleeping in our rental car because that's all I could afford to do. But I was also offended. Looking back, we were a disaster. Like, they were justified in not investing in us back then. But gut punch, ugly, baby. Those are absolutely appropriate. And you got to have conviction that you're going to really do something meaningful just to continue to hammer in that context.

Absolutely, absolutely. And so I remember the 2016 round. And by the way, I'm just going to say, as the head of marketing, the slides that people fell asleep at and started laughing at, they weren't.

That wasn't you.

That wasn't me. That was before me. But in 2016, I'll never forget came in and said, all right, you know, we had been working on this roadshow to get out and try and raise money. And you said, I want to tell the employees about this. We have an all hands meeting next week. I want to tell employees. And I said, can't tell employees. What if this doesn't go through? We can't tell employees. I've been at places before where you go out and try and raise money. It doesn't work. You said, gotta tell the employees. I want to be open with everybody. You know, got to tell them, bring them into the mix. You know, we're fired up about this. So we go out and hear no 40 times. And then all of a sudden it's like, okay, we gotta tell employees that this didn't work. And that was a really scary moment for us, just thinking about, what is this gonna mean for our employees? What are they gonna think here? We were so excited about the business, so fired up about the business and the future and the mission. And to hear from you, you were so honest with everyone that, hey, I went out and we failed. It didn't work. That was tough. That was a tough experience going through with employees. But I think the aftermath of that, taking a close, hard look at the business and saying, why didn't it work? Why did we go out and meet with so many folks? And they said, interesting, but not the right time for me. And having to really take a close look at the business and make some tough calls at that business. And at the time, we were going out with a story that was the bandwidth that we described. But we also had a consumer arm, Republic Wireless, and they were both really successful businesses. They had both grown to over 100 million in revenue and had great growth paths, but very different, very different growth paths, very different businesses. And it was hard for investors to get their arms around that. And we had to make the tough decision at the end of 2016 to say, we're going to split off Republic Wireless into its own business and really let it fly on its own. But the coolest part, David, is that after that it was all right. We're getting up, we're going to make another run at this in the beginning of 2017. And this time it was, we're going straight for IPO. We were going straight for IPO, and in November of 2017 made it happen. So I think just a fantastic example for everybody that keeping the faith, no matter what happens, is super, super important. Don't get discouraged.

Well said.

And that part, I think the example, my moment of what do we tell employees on this? Was worried that employees are going to lose faith themselves. But they didn't. And they didn't because you were so honest with them and were so honest with them all along about everything and just super open and transparent and authentic, I think, in a way that folks just weren't used to. But also because we have such a strong culture and always invested in the culture. And I think that was just one example of many of where the culture really allowed us to really weather so many different storms.

Well, as a founder and many of the folks here, founders, you want to control your destiny and you are creating a culture. You are responsible for the way in which your team goes through this amazing journey together. Culture is absolutely the foundation and would love for you to talk more about that.

Absolutely. Yeah. Yeah. And you know, David, so you've got six kids, and I think lots of the elements of our culture feel like they're inspired by family. And the fact that family is so important and you personally having such a big family, I think has been wonderful. But so at Bandwidth, you know, lots of companies, particularly tech companies and companies that are at Saster, so many have really great cultures and they weave in really interesting elements into their culture with all kinds of fun benefits and perks. But if you look at some of them, some are designed to really keep you chained to your desk and working all the time. Things like on site, everything on site, gyms and dry Cleaners and doctor's offices and things like that. Beer Fridays and beer Tuesdays and just all of those things. And sometimes those elements, they start to look the same at a lot of different companies. At Bandwidth, we really focused on creating a culture that allows our employees to lead full lives. Yes, we want them to come in every day and rock their mission. Yes, we want them to do great work, but we also want them to lead full lives. So we do something called we make a whole person promise to our employees. And what that means is we want you, if you're an employee of Bandwidth, we want you to lead a full life. We want you to really focus on doing great work, but also focusing on your body, mind and spirit. We want you to go from strength to strength. And so we have some cool benefits in place that allow you to do that. Things like if you. We give everybody 90 minutes at lunch to go work out, and we make it super easy to work out so that you don't have to sacrifice time away from your family in the morning or the evening in order to be healthy. When you're on vacation, we let you fully unplug. We have something called an email vacation embargo, which means no one can email you, no one can call you when you're on vacation. This allows you to unplug and really recharge. It also allows your team back in the office the opportunity to step up and lead and make decisions in your absence. So those are just a couple of the things we have. But what we found is that when you have that really strong foundation, when you have that strong culture, and when employees really feel like you care about them on a very deep, genuine level, they're going to be more committed. And when they're more committed, they're not going to be as likely to move to a cool, hot company down the street for a little more money. So it means you're going to have more consistency in your leadership team, you're going to have more consistency in your overall team, which means you're going to be able to build better relationships, deliver better customer experience, because you have that consistency. And so culture has always been really, really important to us. There are a couple other cool elements, David. One that I love that you rolled out recently, that we're in the process of building out. Ohana. Let's hear more on that. That's a really fun one.

So we're here in Raleigh, North Carolina, and we are coming from a background where, as we talked about, we've had space that I would describe as really effective. It's spartan. But our Project Athens is a local headquarters campus that we're in the midst of planning and building and the beating heart of the Ohana campus, as we call it, which is Hawaiian for family. I spent four years on Oahu in the Marine Corps on active duty. Ohana is our on site integrated Montessori school for babies as young as six months to six years. And an on site integrated Montessori school is an idea that came from a company, Patagonia, out in Ventura, California. A couple years ago we went and visited Patagonia and we got to see firsthand how they integrate on site. A Montessori school, a child development center for the children of their team that is subsidized and there's no waiting list. And this is really important. For 20 years now, I've watched parents have to do the walk of shame. And that walk consists of at the end of the day perhaps having to leave early before their team has stopped working and they are ashamed to leave their team. And the anxiety that comes from saying, hey, I gotta go pick up my child. And they have to walk in shame to their car, Reese to the child development center or the daycare to pick up their child because they've worked the very last second trying to figure out how they can knock out what they need to do with their team. They show up late, perhaps often, and here you have the caregivers looking at you like a bad parent, and then the next morning you have a drop off, traffic's late, and coming back into the office you have the walk of shame a third time. I have seen this catastrophe for two decades and if you're a nursing mother, you, it is an entirely different order of magnitude. So whether it's one parent or two parent households, we believe that an integrated on site Montessori school, where we make an additional whole person promise that every child will have a spot is a core part of who we are going to be going forward. And there are demographics in our community and on our team of single parenthood, where this is compelling to help professional development happen while you're nurturing children. So Ohana is a big deal to us. We're excited about it and it's a key cornerstone to our culture.

Yeah, it's game changing benefits like that and a culture like that. It's, you know, having worked at a lot of really cool, exciting tech companies, being here and experiencing this, it's, I'll never go back to the way it was, you know, and other places it makes such a Big difference for employees.

Well, we have had to change, as this slide indicates. You've got to adapt as you go. And for us, that includes with lots of growing families in a company now of almost 1000 people, and we're promising to hire another 1100 here in the state of North Carolina. You have to adapt. And so what else have we had to adapt with? Recently all of us have been impacted heavily by witnessing what happened with George Floyd in Minneapolis and and across the country with Black Lives Matter. And this is a season of real conviction among people of all ages and all walks of life. And we found it so important to affirm a season of being involved in your local community or your national community that instead of just having a campaign of a hashtag or a post, we said we're going to put our money where our mouth is and we're going to provide an additional paid day off called a go do day for our team to volunteer, to protest, to go be a witness, to go get involved, to volunteer in any number of ways, any way you'd like. Here's a day off annually to make sure you have a contribution to make in your community on the things you're passionate about, you believe in, you have conviction, go be an involved citizen. So we really are excited about adapting in that way with that new policy as well.

I love it. I love it. So we said one of the other Cs we had here was creativity. Creativity. So culture, cash flow, creativity. So when we say creativity, one of the elements when you were talking earlier about the fact that we hadn't raised money and we had this spartan approach and had to be really careful and a lot of operating discipline when it came to really the go to market approach and attracting customers and scaling the business, we had to be really creative with that light budget.

We did. And I'll tell a lighthouse story, customer story to start with, Noreen. So I'm going to take you all the way back to 405. We're working with Google. We're a partner that's powering something that's no longer around called Google Chat. And Google acquired Grand Central, an incredible startup founded by Craig Walker and Vincent Paquet. And they joined Wesley Chan and others at Google and they're launching Google Voice, a phone number for life. And we say, hey, we're a current small partner, but we think that a nationwide network and software platform would be fantastic for Google to scale this. And they said, no chance. So we went back again and, and again lobbied hard and said, we think this is something that you should really consider doing with us. And it was only through happenstance that a partner that they were utilizing kind of fell down, that we suddenly looked brilliant and they asked us, please come back and talk to us about that. We did and ended up having a decades long, incredible relationship with Craig and Vincent and Google and Wesley and that whole team. And it came from thinking big and being creative. Even though we were a tiny company and we were not ready for it at all, but they believed in us, we delivered. And I think that should encourage small teams that may think we're not good enough to work with X, Y and Z. Large company, be bold, think big. Even if you have doubts about being ready.

Yeah, we were tiny at the time. We were tiny at the time. You know, this little Raleigh, North Carolina company marching into Google. And I have to tell you, that story is always a great inspiration for me when I'm wrestling with a decision or thinking, are we ready for this? Are we ready to go for this or that? It's like, yeah, we are. You know what, it's scary. I'm uncomfortable. But you gotta dive in. You gotta dive in, you gotta ask for the business. You gotta be bold. So I love it. That's such an awesome example.

But you're right, we didn't have a marketing budget. So please tell everybody how in the world we've been successful under your leadership in marketing.

Well, so yeah, those early days, you had to be creative. It was fun. I will often say to folks on my team that when you have this giant budget and can spend money on everything, it's not as fun. When you're forced to be creative, it's a lot more fun. And so, yeah, the early days, really small team, two, three people, really small sales team, couldn't spend a bunch of money on ads and trade shows and billboards and all that. So the first thing was we focused on building great products and building really strong relationships. So that Google story you talked about is the perfect one. The team built such a strong relationship with Craig and everyone else on the team that few years later, when Craig Walker left Google to start Dialpad, bandwidth was one of his first calls. And so when you have those really strong relationships in the early days, one, it gives you great source of referrals, but two, when you have those reference customers, we march into a prospect, they may not have heard of bandwidth, but, but they've certainly heard of Google. And if they know that Google's placed their trust in bandwidth, it really builds credibility. So that was a big one for us. The other big thing is even though we always had a really small marketing team, we always had about two research interns off to the side and we would spend a ton of time and energy on the ideal customer profile and really honing in on who is that ideal customer and identifying those companies building out, you know, maybe it's a list of 100 companies having the researchers go in super deep on those companies to determine who the people are, you know, what are their interests, personally, professionally. So while we may not have been big broadly with ads and billboards and everything else, we seemed very big to the people that mattered to those prospects that mattered. So that was, that was a big part of the approach. We also went to market, we talk about courageous co creation. So the Google story is a great one. There are a lot of others where we would get our product team in the room with the product team from a prospect and put our heads together, tackle a big product, a big problem and go to market with that lighthouse customer. In the early days we did that versus build it and hope that they will come. So that was a big part of the approach in the early days as well. But yeah, had to be creative. Things have changed now since we've taken the company public and have had that infusion of capital. But I think that that discipline that is such a big part of our DNA, you still see it in everything that we do.

Agreed.

So another fun one, I think that is a good example of co creation was in the early days starting Republic Wireless. So rewind to 2011 and we were in a market where to get a cell phone. It was super expensive. You were locked into a crazy long term contract. Maybe you're in a three year contract paying over 100 bucks a month for unlimited everything. It was crazy. We looked at that market and said man, this is a market so ripe for disruption and looked at what was available, what was available all around us and it was WI fi. And we said man, can't we take, can't we create a service that leverages the WI fi that is plentiful and available everywhere? Can we create a hybrid service with WI fi and cellular? So we did. We worked with Sprint to bring this offering to market and said, okay, we're going to launch a beta. So In November of 2011 we launched this beta and it was a $99 a month phone, $19 a month unlimited, everything. We are hoping to get 500 people to sign up for this beta. In the first 24 hours we had 100,000 people sign up 100,000. It was insane. It was another one of those moments where it's like, okay, clearly there's a market for this and holy cow, how do we now become a consumer wireless company and meet this demand? It was crazy. And so you talk about thinking big. It was another think big take on Giant. Don't be afraid to take on the giants. Don't be afraid to disrupt. And it's cool to look back and see here where we are today that you don't see a lot of those long term cell phone contracts. The prices have come way down and so fun to look back at that and see. But that was another exciting experience along the way. So we're going to open it up for questions here in just a minute. But before we do, wanted to leave you with just a couple parting thoughts. Just a couple different ways to maybe think about your business and think about your growth path as we move forward.

So I'll start. Noreen, instead of focusing only on top line revenue, consider cash flow. Preserve your ability to persist, control your destiny as a founder or a young founding team. Revenue doesn't matter if you don't make profit. And that's a key takeaway from our.

Story, especially in a season like this. Revenue important, but yeah.

In fact, as I think about it, Noreen, we started the company in 1999 and survived the 01.com meltdown, the 2004 telecom meltdown, the housing crisis, and here we are today growing through yet another crisis. We have the very same focus on reconciling that tension between top line revenue and profitability and cash.

And when you're so focused on this as a business and when everyone down through the ranks thinks this way and really has that CEO mentality and really has that discipline in terms of how they operate, it makes it a heck of a lot easier to make it through a season like this. So the other big takeaway is instead of just thinking, maybe you're launching your company, maybe you're trying to scale, maybe you just got an infusion of capital and you think, I gotta pump a ton of money into a big ad spend to build a big brand presence and to acquire customers instead of just that. You know, ad spend's important and there's a time and place for it, but it's a noisy world out there. Really focus on building those relationships early on. They're gonna be super important to your continued growth and to your credibility. But consider taking a surgical approach where you look at those ideal customers and really focus on engaging them in a meaningful, relevant way.

And last, as Noreen talked about, relative to culture, benefits without balance don't matter. Consider benefits that empower your employees to lead full lives, to go from strength to strength that really grows them physically, mentally and spiritually. While they're a part of your team, you want them to look back and say that their season on your team was a season of vitality, where they learned a huge amount and did meaningful work and had a full life. That's awesome.

That's awesome. So, all right, we've got a couple questions, David. And if anyone else has a question, please feel free to add it right in directly to Zoom. So this first question is, did you ever run into major cash flow issues in the early days or has it been relatively smooth sailing?

It was incredibly rough sailing. We had cash flow issues all the time. And what I mean by that is we would constantly, every day or week get an update about how many days of cash we had left. And we would constantly regulate ourselves as to hiring or budgeted spend based upon the cash position of the company. And so cash was the ultimate constraint on your product strategy. It was the limitation on your go to market. It was the ultimate taskmaster as to how you deployed capital. And so it wasn't that we had issues running out of money. It was we were so disciplined about not running out of money, every other activity had to happen with an intensity that is hard to replicate without that cash pressure.

The second one is, how are you adjusting and maintaining the importance of culture since having gone remote?

Oh my goodness. Our frontline senior managers, not our C level Execs, not our SVPs or VPs, but the real sergeants. The senior managers and managers at our company are vital to the ongoing morale, esprit de corps and chemistry of our teams. Every day, folks with five and 10 person teams at our company are doing standups over video once, twice a day and checking in with their people and sending care packages and conducting hilarious contests or challenges across their teams. And so it's not a charismatic front person that beats a drop in this season that we're in today. It is the individual unit leader at a very small level who has the genuine relationship with their people and who invests in the long term well being, which means loves their people. That's the leader that gets our team, our company, through this season, and I think yours as well.

So.