Capital-Efficient Growth (with Zoom CEO Eric Yuan & Veeva CEO Peter Gassner)

Yes, it is very appropriate to be on here, on Zoom, with you, recording these before I'm going into the interview with Eric. If only we had our notes on Viva. Although, I think it's a little bit out of our strike zone in terms of, like, perfect market. We would be the only podcasters in the world using Viva. Peter is very focused on clear and correct target markets. Yes. Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund PSL Ventures. And I'm David Rosenthal and I'm an angel investor based in San Francisco. And we are your hosts. Today we have something very unique to share with you all. It is common for top venture capital firms in Silicon Valley to get all their CEOs together once a year in one room for a CEO summit and speak frankly with them. It is uncommon, however, to allow anything discussed to be shared publicly. Well, today we are doing just that. The good people at Emergence Capital, in particular, friend of the show Jake Saper, invited David and I to interview two very heavy hitters at their CEO summit last week, Eric Yuan, the founder and CEO of Zoom, and Peter Gasner, the founder and CEO of Viva Systems. I think this is the first time that any content from any venture firm CEO summit has been specifically created for podcast public consumption. It's so cool. I think Peter has never done a podcast before. I think that's right. And he's built a $20 billion company. Yeah. The Viva Systems story is amazing as you all. Here we talk about. They raised $4 million that's $4, 1 after 3, and on just that $4 million that they didn't even consume all of that capital, they've now built a $2 billion revenue business with incredible margins. It's such a cool story. And Peter is on the board of Zoom, and so as you'll hear, he and Eric know each other very well. And it's a super different company that we normally talk about too. It's a vertical specific, so it's just in the life sciences industry, they sell high dollar software to pharmaceutical companies. And I think biotech as well, right, David? Yep. Yep. So the topic that we discussed with both of them is capital efficient growth. And that's something we felt would be super valuable for all the CEOs in the room. And obviously that means that we think it's going to be really great for everyone to be thinking about right now. The rapid scaling on very little capital is something they obviously both know a lot about. David mentioned the four million total funding that Viva raised before going public. As you remember from our Zoom episode with board member, Santi Subitowski, also an emergence capital partner, Zoom raised $30 million from emergence and another hundred million dollars from Sequoia afterwards. And they never touched the vast majority. If not all of those funds, I think they didn't touch any of that hundred and thirty million dollars. Eric had raised the way as you'll hear about it raised some money from angels along the way and that funded product development. But none of the venture money was consumed. It's crazy. So if you're excited to learn about how these companies managed to pull off enormous impact with very little capital to do so, you are in the right place. And if you want to discuss these topics with us after you listen, you should come join the rest of the acquired community. I think we're twelve thousand strong now, David at acquired.fm/slack. You should join us. It is always a riot. This will be a great one to discuss in there with the community and other founders and including Jake Saper himself from Emergence who's active in the slack. It's true. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF than everyone would not and you're done. But in an AI first world, that doesn't hold up anymore. Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this "shadow" AI running with no security review at all. Right. And that's where Vanta comes in. They're the leading agent trust platform, meaning they've built the thing that closes the gap. 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Now as always, this is not investment advice. Please do your own research. David and I may hold positions in things we discuss on this show. And this is certainly not investment advice from anybody that we had on the show today. So now onto our interview at the Emergent CEO Summit with Eric Yuan and Peter Gasner. So to set the stage, I thought maybe could each of you please give us a brief overview of your fundraising history up to and including Viva and Zoom's IPOs, which ordinarily that would take like an hour. This is going to be pretty short. This is going to be very short. We're trying to get financing history. Go ahead. You go ahead, Peter. I was a simple angel investors when we just started and then Emergence about 15 months in. So angel investors, I think that was 3 million and Emergence was 4 million. We never actually used the Emergence 4 million but I thought we might at the time and we got to him within about 100,000 of using it and then we went public. The timeframe we started in 2007 in February and we raised in about 2008 maybe March or so. So that was the environment at the time. Another very simple time to be fundraising and company building in. Yeah. It was hard to even open a bank account because it was the whole know your customer thing and financial crisis so everything was hard. And I think you'd probably know most people here know this but for folks listening on the podcast today you're doing about 2 billion in revenue at Viva. Yeah. We're doing about 2 billion, about 30% proper so yeah. Amazing. Eric could you share your fundraising journey with us? Sure. I started company 2011. The first thing I did, I opened up a warehouse for a bank account. I started it. It's very easy for me to read the capital. That's why I opened up a bank account. And fortunately it took me for several months. No VCs wanted to invest in me. Unfortunately, I do not know my brother sent him an emergency capital otherwise life would be much easier. And finally I talked to some friends and it was the 3 million state of funding. That's how it started. And for eight companies around, I tried to talk VCs again and again nobody wanted to invest us either. And you know, we talk to the friends and get another 6 million and that's how we started. Yeah. It's very hard. And nobody wanted to talk to you at that point because most people assumed video conferencing was either a settled frontier or a race to the bottom. Am I thinking about that right? Absolutely right. That's a thing. Everybody mentioned, Eric, you are crazy. The world does not need to have another video conference solution. And another VCs friend, you know, even this is great a friend. Hey, he told me that Eric, I have a cheque for you. As long as you do something else. Good news. I didn't know a lesson. It was very stubborn. I'll show you every story and once I was told by a big VCs, I do not want to mention the name. I for sure you guys do not like them. And he told me that, Eric, I do not think your straight it works. You know, look at the sky. Look at the Google Hound. Look at the web. I do not think about it right, and I do not think about it, and I can not convince him. On the way back, I told him myself, I'm going to change my window as a screen saver. Back in the last few years, I changed my window as a screen saver. You are wrong, so for several years. And just to make sure I have my facts straight, I believe you raised a $30 million around led by emergence, and then another $100 million around after that. And similar to Peter, you did not dip into any of that $130 million, is that correct? To build the business. - For me actually offered a certain meeting from an emerging capital. I think we are on the right track. To be honest with you actually, we even do not need to raise a series of D actually, because at that time, I think with that certain meeting, I think the company completely I feel like a different game. So yeah. - Well, that's one thing we wanted to ask is a difference between your two companies. Peter, you obviously, once you got the cash flow profitability, which was immediately basically, you never raised another round. Eric, you did make the decision to raise some more capital even after you were generating cash. And Peter, you were on Eric's board when that process happened. Why did you make that decision? - Well, for Viva, I didn't raise more just because I thought, I don't need it. You know, it's just that simple, right? So, and then as far as for Eric, right? When you're on the board, right? That's really Eric's decision, so. - You know, so yeah, as I mentioned earlier, I offered to raise a certain meeting from an emergency capital. At that time, seriously, we had a new plan all the way to raise another round of capital. And the reason why we still move forward to have a series of D's, 'cause I thought our economy will go down automatically. (laughs) - This was 2016, 2017 high print. I was completely wrong. So, by any means. - It had been the seven year bull run. Of course, the end was near, right? - Yeah, so, and a long story, by any means. So, yeah. - I think that raising that money at the time, I thought, maybe we don't need to do it, but also I thought it doesn't matter, right? What matters for Zoom is the great product and the customers. Whether you take some more money, you don't take some more money, right? It's all fine. It would all work out. That's what, yeah. - So as we were preparing for this interview, our first thought was if we just had one of you up here, and we were interviewing you about capital efficiency, it'd be easy to chalk it up to business model and cash flow cycle. Multimillion dollar contracts up front on, in the case of Viva, or in Zoom, customers flocking with their credit cards for a self-serve experience. These are two completely different models. And so I think one of the things that it illustrated to David and I is, capital efficiency is a mindset and culture thing more than a business model thing. And I'm curious to hear both of your reactions to that, but also what are the things that enabled you uniquely, more so than 99% of startups to be so capital efficient? - I could take that one. I guess I've seen a little bit of Zoom and a little bit of Viva. I would say probably it starts with a mindset, just run a profitable lemonade stand. For my point of view for me, it was their safety in that. Cash generating business is always going to be valuable to somebody. At some point, a business is not cash generating, it's going to be valuable to nobody. You might be able to sell it before it becomes not valuable, but you can only, there's security in long term. So it starts with a mindset, I think Eric shared that. And then you have to have product excellence too, right? And that's something I think Eric and I share were both product people. I think also we both worked really hard. We worked really hard now, I think especially Eric, probably in the first five years, I worked really hard. And I saw, you didn't see me working really hard, but I saw you working really hard. So worked really hard, worked really focused. Anything that wasn't related to the product or the customer was just BS and just don't do it. First five years, I was not at a conference like this. For example, I was just maniacally focused. And then the market really helps too. And that's something you just have to get lucky on. It was the right timing for Viva, it was the right timing for Zoom. Maybe if you started Zoom five years earlier or five years later, it would have been hard. So product excellence, real focus, mindset, and then you have to have some luck in your market. I'm sure there are some things that I could have tried to do or Eric could have tried to do. And it was, we might have picked a bad market. And then it just wouldn't work. And that's, I think you have to-- so we're outlier, right? And so is Eric. You have to pick something that most people think is going to fail to be an outlier. Otherwise, by definition, you're picking something that most people think is going to work. And therefore, a lot of people are picking it. Therefore, you're not an outlier. So just like Eric, most VCs, all VCs, except for emergence, all VCs of any kind of note, except for emergence, turned this down. And ours is really simple. Vertical specific software, that's a small market, and it doesn't work. That's what they would say. And I was encouraged by that, because I thought, well, it has an opportunity to be really good, because it's something non-obvious. Well, one thing that I want to double click on that, we were talking about beforehand, yes, you need to be non-obvious to have a chance of a great outlier outcome. But you also need to be correct. But I think what you did, what you both did, was not, hey, I'm going to pick some random idea that other people think is crazy. I know Viva has one of your core values clear and correct target markets that you have written on the wall. What did each of you do ahead of time that led to you to really genuinely believe, yes, the world thinks this is crazy, but I really think this is going to work. Of course, it's really easy. I talked to three or four potential customers for our first product, and they all said, we don't need that. That's not interesting. It's not a good thing to do. But I wasn't listening for that. I was listening, are they emotionally attached to where they're getting their product now? Are they emotionally attached to those people? Do I feel like they're getting value out of that thing? And I could tell in their responses that they weren't attached and they weren't getting value. So all four customers said it's a bad idea. All right, so look at all customers now, though. Let me understand the Peter formula to build a business. As a customer, if they want your product, they say no. You dig deeper and say, what are you using now? And they say, oh, yeah, because I have a solution for this, but they just don't love it. So you build for them anyway on the bet that you can be better than their current? Yeah, you have to listen to what they feel, not what they say. They would say, yes, we're very happy with this solution. But then you dig, oh, tell me more. Why is that? What is it that you get out of it? And it's like, oh, well, and that's when you know. That sounds like the video conferencing market circa about 2015, 2016. So for me, it's very straightforward. Of course, I was a regional founding team member of WebEx so the year, the two years before I started company, I know actually WebEx really sucks, right? So-- And-- Did you try and tell us this go that? I tell my team. I do not dare to tell others. But anyway, so Skype was also not reliable, right? Google haven't done all work. Every day, I spent a lot of time talking to every customer. I know if I can build a better solution, I think at least I can survive. I never thought about everyone's going to standardize on Zoom platform. But at least I know for sure is if a customer needs to not like something, if you can build something better, you have a chance. Eric, did you think from the outset that you were trying to build Zoom as a big company? Or did you just think that you wanted to build a profitable company to survive? And then you would sort of see where it went from there? I think two things. First of all, as every time my passion was very straightforward, because WebEx, more like my baby, right? I feel like I worked so hard for so many years. I let the customer down. I really wanted to fix that problem. But Cisco does not want me to start over. And I had no choice but to live to build a Zoom. That's the number and reason. And after I started a company, I realized, wow, it's so hard to raise the capital, right? And by living with the money, they give to you, don't think about that as money. You know, that's a trust. Every dollar matters, right? That's why every day, I was thinking about how to survive. How to survive, how to survive? Even today, seriously, I still think about woke up at the night, how to survive, so. The-- you mentioned people in your team. When you started Zoom, you were a solo founder, but you brought a large number of people with you. One of the first sort of operational topics we wanted to dig into around this topic of capital-efficient growth is hiring and people. That feels like such an important part of the culture and DNA of having people who are going to get on board with, yeah, there's not going to be the spiritual equivalent of kind bars and exposed brick in our office here. How did you select for-- maybe both of you, but Eric, to start because you brought so many people with you from WebEx. How did you select for the people that you brought? So all of them are very good engineers, right? Except for me, so I didn't know right any code, so. And on Devam, we had around 25. Very soon, we got another 15, 2, to 40 people, and myself included. All the certain people, they all write all kinds of code. And this was all funded with AngelMoney? Yes, exactly. But I know actually, we can-- we'll run rate probably less than two years, right? That's my lead arm, I had a serious A, but we would We only have engineers just to get a product done and I'm going to model a product manager, UI designer, and also the facility guy, everything else, you know, seriously on D1. I bought it, I used the furniture, you know, assemble everything by myself and also write it on the company culture and value, that's pretty much what I did. So I would say even for the first several years of the product already and some investor mentioned, hey, you already have money in the bank now, why not build a marketing team, look at your competitors, they spend a lot of money, you know, build a board in one or one. As I talked about, I said no. For the first four years, we do not have any marketing team, only until 2015, we started you know, building up a marketing team, so I have to be very disciplined, yeah, to just highlight this. So, you know, you started the company with 25, quickly growing to 40 people, but those were 39 engineers and you, no product managers, no marketing, no sales. Yeah, yeah, yeah. That's the reason why I know how to use a Krieger books, I never know how to use that. So seriously, I had to learn how to use it, and so it sounds very easy to say, don't buy billboards, you got to eat your customers somehow, how did you get the snowball going? A little bit lucky, because seriously, and luck does appear though, because you know, several weeks before we launched the product, seriously we had no idea how to get a first customer. Luckily, you know, when, you know, the very famous, you know, the reporter, the more, what the most bug, right, he valued our service, and we were so nervous, you know, he was very interested forward, right, and good news, he did write down a very nice article published in World's Real Journal, and also he personally recorded a video, and overnight we got 50, 50,000 users from that article, but most of them, they left, you know, after several weeks. But those who stayed, I imagine now was the kernel of the virality of telling their friends, who told their friends, who told their friends. They didn't hear a very good personal relationship with either VIP or Khan or some of them a small gift, somewhere they canceled, back then we were 99, 99, I posted a third of the email. Why are you kind of our service? What do we kind of do different, and yeah, we still maintain a relationship today, even today. So, we had, so one of the CEOs wrote in and asked us about different metrics to track, did you have a North Star, after you had those 50,000 people, where you realized, okay, I'm holding something in my hand, and the sand could slip through my fingers, but is there something I can measure to see if this 50,000 can turn into something. What were you paying attention to? To those of very early, very loyal, early adopters, you know, even 100 good enough. They are the early, you know, I would say is the most loyal users, double down to make sure they are happy. If they are very happy, guess what? You know, network effects, they are going to bring a lot of new users, so that's why, even 49,000 users left, as long as 100 good state, we doubled on that, so, yeah, that's a strategy to better. For Peter, on the hiring and people and organizational front, you had a very, very different type of business, your customers don't buy with credit cards. Basically by multi-million dollar deals cash up front in a year, for a year deal, you need a sales force to sell them, which usually means you need a lot of cash comp to compensate that sales force. How do you think about the right people to hire as you were building and how to compensate them? Yeah, I think one thing Eric and I have in common art, you know, in the early days, there's no wasted people, like no optional people, no wasted people, because it just adds, "Hey, it'll burn through your money," and it'll just make your decision making smaller, and sorry, more complicated, it's like sand and machines, so no wasted people, and for us, yeah, we needed, 'cause a long sales cycle, so we needed sales right away, right? So yeah, I was the first sales person, right? I started selling before I signed the articles of incorporation, show up at the customer, "Hey, I think she'd buy something for me, this thing that I'm going to make." Well, have you hired anybody? No. Well, okay, well, can you show us a demo you're going to do? No. How about a PowerPoint? No. Okay. And then come back a month later. I got a PowerPoint now. Have you hired anybody? No, not yet. You know, and then just keep selling, 'cause the relationship-based business, funny story, the first customer bought, small customer, actually somehow through a relationship with my co-founder, we got to this guy, he was a CEO. He wanted to buy some software for the small department just because he was really peeved with his IT team. So this guy had no idea what we're selling, he's like, "I know that my IT team doesn't want you, so I'm going to make a point and show them that I'm actually in charge here." So that's how we got our first sale. You could barely log into the system at that time. Could you do that? I didn't know that. But then you got a hustle, right? Then just like Eric, right? Then you got a hustle, "Oh my God, this customer wants to buy something, and then you're working super hard to make them successful." And Eric, I'm not sure I never asked you about this, but we never had customer satisfaction surveys for even the beginning. I always thought, "If I talk to those early adopter people, I will know, I will get the feeling. And if I have some survey, maybe I won't get the feeling." Totally. You're right. I agree with you. You just, yeah. You can hide behind, when it's small, you can sort of hide behind metrics sometimes and it doesn't work. So if you actually talk to the human and you figure it out, you'll know what's going on. Can you tell us also the story of landing your first big customer there, which I believe is probably the deal that really made the business? Yeah. There was a set, right? There was the first, like the guy who was just peved at this IT team and then worked up to the next size deal and the next size deal and it was always a step function, right? And so the first multi-million dollar annual deals were a big customer, a Pfizer, and it was just hand-to-hand combat. There was a partner at the time, actually salesforce.com, actually at the time, said, "Oh, send a note that Vivo will never win this deal." And I replied back. I said, "We will win this deal." They sent it to you during the bake-off. Yeah. They didn't want to even come into the meeting with us, right? They were like, "Oh, we're going to go with this other system." I'm an integrator, or something like that. So I sent an email back and said, "We will win this deal." Why? Because we have better people, little work harder, and we're, Pfizer's only shot at greatness, and I think they want to shoot for greatness. And so, and I remember there was this big meeting with Pfizer. There was a guy in there in charge of it. We had a certain amount of people in the meeting and the guy stood up, and Pfizer said, "We have more people in this meeting room than you have in your company. Why should we buy anything from you?" And I just said the same thing, "We're your only shot. We're going to make something great, and we have the best people." So it seems simple to me. And then we got lucky. And we want it. And then, and then I remember after winning it, thinking, "Oh, my God, now what, now how are we going to make them successful?" So the whole company got a bonus when that customer was what we called live and happy, which didn't have a formulaic metric, it was based on interviews. So did you use the invoice from that customer to then go fund product development? Yeah. I was, I thought, "Oh, we've just raised a $3 million round of capital here, and it didn't cost us any delusion, right? The check came in, so that's exactly what happened." Yeah. Do you think that's still doable today? Like I imagine there's lots of folks out there that are like, "Well, I would love to go and voice a customer and get cash in the bank." And what, what situations is it possible to fund your product with customer revenue versus not? I think it's, first of all, you can't be wasteful every person has to matter. I would almost think that we're hiring that person. Let's say we have to pay them $100,000 a year. I came from, my father was in the business of metalworking and machinery, and he, I remember him. I got to buy that lathe. How much is that lathe going to cost? Is it worth it? So I would think of people like, "I'm buying a $1 million machine because I got to pay him $100,000 a year." Is that $1 million machine worth it or not? So frugal? And then make a really excellent product because that's the best way you can lower your cost of sales. So like Eric's product, you probably all notice it that it's easy to use, but he made it easy to consume the whole product. So he didn't have to convince a bunch of people. So that's how to do it. Excellent product, get a good price. Easy to consume. You don't have to spend your money on salespeople because you have a differentiated product. Salespeople, that's where it's really, really expensive. Right. But I read it. The Peter's S-Wend document many years ago, at that time, I still remember, wow, my God. This is being in the model. It's so awesome. But in our case, our first Peter customer, largest Peter customer, only $2,000 a year. So we cannot use that to find a new product development. Because most of users pay us only for $9.99 a month. Right. So that's really hard. But I do think, you know, for all the founders, right. The business model, very, very, very important. If you can figure out we do something similar as water Peter and River does, that's the best. Do spend time on that, not only for products, but also the business model. As Peter mentioned, product excellence and how to sell the product and how to leverage big enterprise customers as it's very important to build a long-term sustainable company. In our case, actually, I can tell you today the biggest challenge is our online business. It's very profitable, however, it's very hard to predict. As it comes today, next two months, we might leave, the cancel the service as it's not a good business, but enterprise portion is very good. That's why I've learned a lot from Peter, how to manage a big enterprise customer. We met an emergency event way back when that's how we first met Eric and I, it was smaller at that time. Hopefully there'll be some more connections like that today. One thing I want to highlight on this topic of contracts and funding development, because I think it's really counterintuitive. Again, the topic is capital-efficient growth. You would think that what you would want to do with the Pfizer deal, for example, or Eric, when you started selling enterprise contracts, is multi-year deals. Let's make this contract number as big as possible. Let's get as much cash upfront. Let's lock people in for two, three, four years. That's not what you did at all, right? Yeah, we didn't do that because I was always optimizing for the long-term value, which is the annual value per customer. If I had to give the customer terms that would lock them in, I thought that's actually shrinking my market because they'll pay less if they're locked in. That's one thing. Then the other one, I didn't want us getting lazy. I wanted to turn the business every year. It was just like that. The driver was really optimizing to the long-term value. It makes so much sense now, thinking about it, that you would have had to give in a 30% annual discount or lock in the price, then raising prices is harder later. That's unique to us. I think we're selling in a very confined vertical. It's not really fair if there's two companies and one's paying 30% less than the other. They end up knowing about it and feeling bad about it. That's something specific to this confined market. To put some shape around it for folks that don't know Viva's business as well, you've a couple of thousand customers of which there's a hundred or so that are really big customers. There's basically no one else out there who could be a customer without you expanding the market. Right. We sell into a defined set of customers, life sciences industry. There's top 20 and then there's another 1,000 or so that are doing smaller things. We've just expanded our product footprint. When we sell to a customer, we might have 20 things that we can sell to them. They start in this area. They start in that area. Gordon calls it layering the cake. We have a lot of different layers of the cake that are all into the same customer. We leverage relationships. It's fine for us to spend a hundred thousand dollars a year maintaining free relationships. Just putting into developing relationships. That's not wasteful. Because we're showing up the door with a hundred million dollars worth of product. So if you have a relationship, it's worth it. Like a bank. A bank. Investment banking is worth it in this. So it's a different type of business. Now is a great time to thank our longtime friend of the show ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower. 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But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out ServiceNow.com/quired and tell them that Ben and David sent you. Eric, for you, I'm curious maybe you can talk to us both in the beginning days and then also now, it's, how do you think about pricing and account strategy? Yeah, so our case is a little bit different. Ideally when you start a SaaS company, either fix on vertical market or fix on departments, that's probably the best business model. Unfortunately, you start from building up a horizontal collaboration solution, it's really hard, because there's a lot of other competitors over there. So our strategy- >> They're really free competitors. >> Exactly, a lot of free solutions. So our strategy, more like open up a new restaurant business, so you have a better service and a better price and a better food. That's pretty much even today. Want to make sure our product is better than our competitors, make sure we're in the constant pricing also better. And they also make sure all for the better service. So you look at any time our product always, always a better price across the board, any product compared to any competitors. So life is about trade-offs. And if you're telling a customer, we're better, faster and cheaper, what has to give? Is it something organizationally? Is there some efficiency? >> Efficiency. >> Efficiency. >> Yeah, exactly. You know, see like a customer, they are probably going to spend a lot of money on marketing. You know, what we can do to live in network effects, right? You know, we hire like a 100 or the sales rep, what do we can do to have a 50 sales rep, you know, can deliver a single value, right? So that's why it is very important to have, you know, internal, you know, the efficiency. >> Which is, you know, so funny, that efficiency translates to capital efficiency, which translates to gross margin, not gross, but to operational margins, which translates to cash flow. >> Which is the whole point. >> Yeah, give you more flexibility, right? >> Yeah. But I would say the key also is just the product excellence, right? >> Yeah, that comes from the core set of engineers you hired, I think. And then also the, you were especially very focused in the early days, right? >> Totally. >> You were not thinking about something else, right? You were thinking about video processing. >> Absolutely. >> And I would say, you know, that's why I got to know Eric. I got to know Eric. I thought, that's a pretty focused guy. I bet his product is good. And then I tried out his product here. Oh, this is really good. I want to join his board. So, I think that's the product excellence can make you more efficient. Your sales cycle is more efficient. Everything's better. If your product was, your product was twice as good as WebEx, right? If your product was only 10 times better. >> No, no 10 times better. >> 10 times better. But I guess my point is, if your product was only 20 percent better, it wouldn't have been enough. It wouldn't have been enough. That's why I always like this restaurant analogy, right? You know, you start buying a restaurant, a brand new restaurant, it's full of download work. Even for free, you do not need to start buying it, right? So, again, I think back to the Peter's point, it's extremely important. Everything starts from one thing to the product. Product excellence, that's a foundation. You can open up a lot of things. If your product download work, forget it. Everything else. Just double down, triple down on the product. That's number one thing. You know, Peter write down. That's a lot about people, right, Eric? Which people you put on the product? Yes, Eric was very particular about getting the best people. >> Yeah, so people, we can come back to that. You know, I remember when we talked about with Santi on the episode we did on Zoom's IPO years ago now. You know, your named executive officers in your S1 were not like, you think typical, "Oh, here's High Flying Sass Company. There's going to be VP of Sales from Sales Force. There's going to be a chief marketing officer from HubSpot, you know, whatever." Like, nothing wrong with those companies and those people. But I think at both of your companies, the people you brought in as leaders were up and comers. They weren't, you know, the established superstars. >> Yeah, I think you, I always wanted to have some people with some range, you know, they could get very hands-on, but also grow into managing. I guess I've always thought to try to get people to do something that they haven't done before, you know, so they would have a little bit more mojo, have an opportunity to do something that they haven't done before. And the team is very important. The chemistry of the team is much more important than the skills of the individual players. >> And in a lot of ways, that comment reminds me. There's a parallel between you and you not signing multi-year deals, where you're forcing the product to earn the customers, and you promoting internally, where you're keeping people hungry and forcing them to do their best work to earn that job. - Well, it's more thrilling when you can give somebody a chance to do something that they haven't done before. For me and for them, there's more fulfillment. Otherwise, it's why you're doing the same thing you've done three times. And what's your lure? Well, I can get rich. The kid just, at some point, that doesn't keep you going at the end of the day. - Well, it also comes. I imagine there's an element of compensation to this strategy, too, which translates to capital efficiency. - No, not really. - No. - I always think of equity versus cash. But I don't think so. I never really made any kind of decision on people based on that. Are you going to get the right person and then pay the right compensation for the right person? But what was the right person first and then figure out the compensation? - The future right now, actually, back then, when we try to make it all for, right, to some executives, right? At that time, the feedback, why not hire someone very experienced in season leaders from all sides? It's not really not about a common package because when it comes to hiring at a Zoom, we really like to hire those people with a self-motivision and a self-learning mentality, right? Including the senior executives. And they can't grow themselves along with their company growth. And plus, they are very loyal. I think that's our philosophy. I thought that's the best philosophy. After the COVID, I think I was wrong, actually, there's a big flaw or so. Because when you bring this auto growth to your team, and guess what, the executives or team, they are not ready. You know, like we use it like 15 times 20 times more. The revenue, like seven times more. You know, our team, even not myself included, even not twice better. This is one challenge, I learned. That's a mistake. Another mistake is, we think all those executives or KT members, they can learn along with their company growth. However, the pace is different, right? You know, it's somewhere you can learn quickly, somewhere very slow, right? That's why I also, that's another flaw, right? That's why looking back, I feel like, ah, we should have a mixed team structure, right? If someone, you know, they have a potential, they can grow themselves, somewhere else, you have to hide some season of leaders. You never know, right? In case someone in your business is going to take off, at that time, your team know already, you know, that's a challenge we are facing today. So, so you need to have some members of the team who have experienced scale bigger than your company, but other people that you're developing. Exactly. There's a house in Mix, you know, Bexon pride to panic. You know, I was, I was thinking too stubborn. I should learn more from people. As I say, everyone, you have to have a potential. You do not need to have a greater background. Actually, looking back, that's not right. Interesting. Maybe a mix would be better. Mix is much better. Do you think that applies even? Do you think you should have done that even in the early stages of the company? Not early stage, right? You know, for the first and four years, no need. But, down the road, you've already seen the market of feet, right, the product of feet. You want to scale your business, at that time, you have the chin of your philosophy. There's another, I just keep, parallels keep popping up for me where Zoom is one of the greatest product-led growth companies of all time. And yet, here you are talking about the beauty of predictable revenue that comes from enterprise contracts. And it's the same thing. It's not that experienced people are better or that in-house talent is better as that you need that mix. Totally. Yeah, it makes this very important. So the last, one of the last sort of disciplines within a software company that I want to talk about operationally in this context is marketing with both of you, but particularly with Eric. We were chatting with Saddi and with Peter. Anyway, so I asked this question really. You scaled, once you got the product developed, you scaled with such beautiful capital efficiency, but you did spend money on marketing. I mean, you joked about the billboards, but there are Zoom billboards now. I asked them, how did Eric and Zoom think about spending money on marketing? And well, I'll let you tell the punchline, but how did you think about it? Yeah, and that's even today. Every Tuesday, we have three hours stuff in between. This morning, the first topic read about reviewing our marketing, competent marketing programs. Even today, still. I think it's very cheeky. The reason why is you do not have, I would say, sort of like a formula, right? When to spend more, when to spend less. It's not like that. As a founder, you have to spend time on marketing as well. Do not always function on product or the sales. Marketing also is very important. However, when to invest in marketing is very cheeky. Every business is different. In our case, we specifically made it a decision. No marketing team for the first several years. Because this is not something new. This is a product that is very, very mature, market, and understand the video conferencing. If your product works, you really don't have marketing team, right? We try to prove that point. After that, after we have paid a customer a lot of customers, customer told us, I never heard about Zoom, but I try to product a product works. Why is that? We received a very consistent feedback like that. I know that's a signal. Then we doubled on that. Then 2015, we created a marketing team. And also, even after that, we also measure every marketing program spending. Early on, I spent a lot of time trying to extend, a given example, like SEM, right? Every company, you spend money on SEM. First time, I send a check. Oh my god, this is a price of Peter Google. Oh my god, this is the largest check. I'm making a sign. Do you remember how large that check was for a contract? That's more than 200,000 a month. Oh my god, this is crazy. That's why I wanted to extend. But by the way, marketing team is all very, very educated by Google, right? In more than a talk about our right, you give me one dollar. I give you one dollar 50 cents a bag. It's pretty cool, right? But I tell them, no, it should have $3 a bag. $25. So, particularly, what I ask you about that. The time free you want to get money back. How to optimize that, right? And again, marketing team is very important, but quite often, very creative. If you do not know how to measure that, do not spend. That's the story. The story is we heard where most founders, CEOs, marketing teams think about CAC to LTV with marketing. And there's more complexity to it than that. But I'm going to spend a dollar. I'll get a dollar 50, or I'll get $3 back. If that pays back within a year, I don't believe that. That's the mistake for all the SaaS companies. It's not a $1.50 cents a bag. In all the $3, it should be $4, right? It should optimize. Just for the last minute. That's a common mistake, I think, for most of a SaaS company. And Eric, when, how fast do they pay back? As I would say, it's as big as possible, right? It's got every brain is different, but you got to optimize. Keep it optimized every day. Do not feel the service wise. Or give $1.00 to get $1.50 cents a bag. No, optimize, go to get $1.00, $2.00. $2.00, $3.00. You have to optimize. Just to be an example, for every market in dollars. However, if it works, you'll have to double down. I remember, first time, I had a billboard. In one way, many customers shared a very positive feedback with us. They feel like, early on, we decided to deploy Zoom. I saw the billboard. They feel like, you guys are a bigger company. We're going to ride this city, right? We're not validating the decision, then. Exactly. And plus employees, they feel very happy. They say, oh my god, Zoom has a billboard now. After that, I realized, why not double down that? I told our team, how many billboards do we have in one? I said, no, three. It works. So that's why you have to know when to double down. When to fix that back. If you know how to effectively marry that, that's very important. Well, we spent most of today talking about how to build the castle and how to have a profitable castle. I'm not sure that really extends. But now, let's talk about the defending the castle. I'm curious. Maybe let's start with Eric and then Go to Peter, since we've been on a good Zoom streak. Where do you see the source of Zoom's defensibility as a business over the next 30 years? Yeah, so I think it's more like a sport, right? We need to focus on both offers and at difference, right? It's the both side, right? So I think back to the Peter report, you still need to-- even your product is works today, even better than other competitors. You have to be paranoid. You have to keep thinking about what you can do differently, keep innovating, keep innovating, either the new services or new features. That's the most important thing, right? By doing that, at the same time, you also need to think about what's next, right? For our perspective, we started from a unified communication. The next step will be not a unified communication. It's collaboration platform, right? At the same time, how do you build multiple new departmental applications? You also need to put it offensive as well. The better offensive play is probably it's for the defense as well, right? So that's our strategy. Here? Hi. I'm very similar. So product excellence is-- you. You can get there, but you also have to work hard to stay there and keep reinventing yourself. Also, you do want to expand to different areas because if, critically, and I think something that people don't realize, if you get a high market share in an area and you don't expand to another area, what will happen just because the nature of your company and the creative people, you'll do more stuff in your established area than you should, right? And that creates its own set of problems if you do more stuff and if Eric is constantly rewriting his codec, unnecessarily, right? It's disruptive. So you've got to expand to give yourself a creative outlet and then this may be more particular to us. I don't know, but we also have a goal that we set out about five years ago to be the leader and light. That was our code name for it because if you get to be quite dominant, there's a few things that will knock you off, arrogance, the customers will get turned off over that and they'll naturally find an escape hatch. Also we audit for integrity of the leadership team because when you're quite well established that can throw you off, integrity issues in the leadership team. So we audit myself and others and also energy in the leadership team because these are things that you got to audit for 'cause if you wait for the results to show those things, it's too late. So, you know, determined to have product excellence have a goal to be the leader and light. We actually tell our customers about that and that holds us to a higher standard so we want to be the leader and light and then they bring that up sometimes like, "Yeah, that's not the leader and light." Oh God, why did I tell you that? But I mean, it's a way to be set yourself out there, right? Not only do we want to be the leader, we want to be light, product innovation as outlet and then avoid that arrogance. You talked about that. I think as we did with this question, I want to share with you a conversation ahead of its Peter. I think probably can help some of the founders as well. I think I've got a which quarter a year before we went public and I look at our growth plan. I realized, wow, we wouldn't have one service, right? If we have another service, also can monetize, you know, the growth trajectory would be very different. At that time, Peter took me to that era that's sort of like the ideal case but that decision should be made two years ago or three years ago, right? If you wanted to have a new service, you cannot have a new service today, right? You need to think about, you know, trying to make this in two or three years, you know, before that, right? I clearly remember that a conversation, you know, that's what, that's looking back, that's a big and a mistake, a big and a mistake. The reason why, you know, because you have one service, at the same time, how do you think about what's the next service, right? You know, always plan ahead, right? This is probably the better way, right, back to your question, you know, all the single head, to build another service, another service, so. That's exactly what I was going to ask as a follow-up, Peter, I know you, Viva launched a second service after the first CRM service around, around content, CMS, content management. When did you start planning for that second product and then when did you launch it relative to your first product? That was, we started thinking about it the first part of 2010, I remember Gordon and Ryan, others started thinking about it the first part of 2010, so we had 150 people in the company or something like that. That was four years into the company, three, four years. So three and a half, yeah. And then we made our first tire in the fall of 2010, and that's when we started going. So I viewed that as critical, it was a turning point, I thought, hey, I could have a single product company do really well of that, maybe go public, but then it probably has to be sold to somebody or something like that, or I can try to make it a multi-product company. And the decision was to pick something that was clearly not an add-on to our first product. Like it was clearly so far away from our first product, I was worried that our second product would maybe become an add-on to our first product. And so I just picked something that was just way out here, just way, way different, sold into the same company, but different buyer, different product, different co-line, different everything. So I thought, this is a way to become a multi-product company, and it'll either make us, or it'll break us, and I thought the odds were more likely that it was going to sink us. That's so counterintuitive, because normally you would think you'd want to give the same sales rep something that they could sort of bundle in for an incrementally higher ticket price and leverage what assets you already have. But that you will do anyway. Like if you don't go out of business, gravity will take you there, right? As you go along, it's like, oh, well, maybe we should make an add-on product or not. Like, yeah, duh. You know, but if you get confused, you know, and you think that add-on product is really going to float your boat, it's not. Your new product, if you have a chance, it should be way out here, and maybe have the potential to be bigger. So that's, but it's risky. What's the scale of the two revenue lines today? The second one is a bit bigger, but the second one has also quite a bit more potential. Maybe it's a 5X or 10X potential. But it was risky, right? We debated that at the board level, because that could have sunk the company, because our rocket ship on our first product was going up. And we had to take our eye, had to take my eye off that ball to start this thing. And it did cause that first thing to suffer, but overall, the trade-off was worth it, but it could have worked. It was risky. Our most recent episode was about Nvidia, which had a tiger by the tail with gaming. As everyone knows, they totally took their eye off that ball to start building for life sciences, for scientific computing, for what became neural networks and machine learning. And boy, was it a good thing they took their eye off that ball? You know the hidden thing that there? You need a CEO that was an engineering type that went to Oregon State University. Does that's what Nvidia and Diva have in common? I don't know him, but we both, with a very few of us Oregon State Beavers as CEOs, let me tell you. That's amazing comedy, I know Jensen Wow actually, look at the Nvidia stock price. It was flat 10 years in a row, 42 golf. That's such an amazing story. The conviction, really he had to persevere through that decade is amazing. It's really hard work, right? He's a hard worker. He's very hard worker. He is focused. Yeah, there's no, I remember when starting Viva, the first time I started a company, I asked a friend who had started some other companies, because I realized about three months in, "God, this is really hard work. I'm working every day, really hard, every hour." So I asked my friend, "Is there any way to do this without working that hard?" And he very quickly said, "No, there's not." So, isn't that true, Eric? That's true. So I do not think that's a work, because we all enjoy that. This is a part of life. Otherwise, what can you do? Are you going to play golf? No. There's no short, exactly, no short card. Now is a great time to talk about one of our favorite companies, LaGora, the agentic operating system for legal work. Yes. Most of you have dropped a contract into a chatbot by now, but as a lawyer, how far can that really take you? It's never seen your firm's precedence. It doesn't respect confidentiality, and you can't check where its answer came from. So LaGora's founders approached this the way that great founders do. Early on, the team moved into the office of a big law firm in Stockholm and learned four months. How the work actually gets done. A couple of thousands of enterprise customers, and a hundred thousand users later, they still work that way. They employ 100 legal engineers on staff. These are lawyers sitting inside of firms and legal departments to deploy LaGora onto live situations like the deal closing this week, or the policy review due Friday. The product has gotten very powerful in a short period of time. A year ago, the goal was a good answer from a chatbot. With the LaGora agent, you hand it the work, and it comes back with a plan, tasks like running diligence on a data room or reviewing a new vendor contract, get completed inside the tool you use every day, like Microsoft Word, and against your own precedence and playbooks. Every finding is sourced, the lawyer directs the work and signs off before the system executes any steps. Every legal team can get access to the same AI models. So the models themselves do not give you an edge. What you can do with your own data, people, playbooks, that's the whole game. Today, over a hundred thousand legal professionals at more than 1800 law firms and in-house legal teams in over 50 markets use LaGora. And when LaGora goes head to head with its top competitor in a pilot, it wins 70% of the time. A demo is one thing, but what matters most is an associate who reaches for it at two in the morning during a closing, or whether a general counsel trusts what it says before the board meeting. So if your legal team wants to check it out, whether you're at a firm or in-house, go to LaGora.com/acquired and be sure to tell them that Ben and David sent you. All right. We got to wrap up, but there's a quick way that we end every acquired episode, which is with grading, and for companies that are in the middle of their journey, like both of yours, we like to ask it as a little bit of an open-ended question. What makes the future of Zoom and Viva an A+? What's the scenario where it goes incredibly well, paint that for us, and what's the failure case? Cool. Let's see. I don't think he's telling me about the failure case, honestly. I just not wired that way. A+ is we really help automate this big industry, right? It's a $2 trillion industry, and if we can help to automate it, and be that trusted partner that is essential. to that industry and using that word very specifically essential and appreciate it. There's not been anything like that before where you're automating a whole industry in a meaningful way, right? Essential. You can be a life sciences company, you got to use Viva and man, you like that. So that would be a big success and then we have a bit of a social mission too to prove that you can, you know, you can be a good company, profitable, etc. but also be a good contributor to society and the employees. So that would be success. You were the first public company to convert to a B corporation. To a public benefit corporation, but that's just the more the formality of it is, you know, the way we've operated the company is always like that. So that's success. Essential appreciated really automating this industry and contributing to a good, you know, being an example of a good employer so that other people could copy it. Love that. Yeah, so in all the case, I would see the, that's a good question. A+ scenario would be, you know, zoom would be a very successful plan of a company. We are going to introduce a multiple new services and the people can count on zoom to achieve more. At the same time, we can also grow our revenue every year. That's probably A+ scenario for many years to come, right? In terms of a failure scenario, I would say maybe you go back to use WebEx, that's a failure scenario. And, yeah, Peter, right. And I did not think about the failure scenario, but we just think about it be very optimistic thing about the future. Otherwise, seriously, you know, we're all founders. We all feel the huge failure. But at some times, you cannot be, you know, too paranoid. Otherwise, every day you think about too much about a failure case, failure case, guess what? You do not dare to move forward. So that's why I say, do not think about that. So next time, do not ask me this question. So only the paranoid survive, but don't let it consume you. I think you're paranoid about not doing your best, right? I think Eric, you put a ton of pressure on yourself. You don't feel good if you don't do your best, right? So I think that's, I see that in Eric. I love that. All right. Thank you all. Thank you for being here in the room with us, and mostly thank you to both of you. Thank you to Emergence for facilitating this, making it happen. Yeah, but thank you Emergence Capital. Thank you Sandy. Thank you all for your real appreciate. Thank you, my great mentor Peter. Yeah, thanks. Thank you. Thank you. Thank you. Well done. Well done. Thank you Peter. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system. So teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to Statsig.com/acquired to get started. Well, thank you so much for joining us for this. I actually cannot imagine a more useful topic right now than dissecting how to build great companies on little capital based on the era that we're going into. I think, David and I don't need to debate this endlessly. You can hear the drum beats on Twitter of how much the market is changing, but the reality is it is, and where everyone has to play the game on the field, and Peter and Eric have just, it's just unbelievable and impressive what they have built on so little capital. They're two of the greatest of all time. Literally two of the goats at this, which is so funny. Now everybody thinks of Zoom as a pandemic, high-flyer, and it's like, I was just thinking every time for the last few years that people would talk about Zoom and whatever context. Do you people realize how much cash flow this company is generating? And it's all because of this DNA and mindset and everything we talked about with them? And after spending time with Eric, I mean, it feels to me like the amount of time that he spends thinking about, oh no, the stock was going crazy. And oh no, now it's going down is like approximately zero. They're thinking about how do you build a great company and how do you generate happiness for customers, build a profitable enterprise and grow that profitable enterprise. And it was a nice refreshing viewpoint to get to spend time with him and Peter. Well, if you want to chat about this with us, we would love to do that with you. You should join the acquired community Slack at acquired.fm/slack12000. Smart, courteous, and kind people have done so before you. So you would be in great company. We also have our limited partner show. And if you want more acquired between now and our next special, which we have recorded and is awesome and we are very excited to release, you can search acquired LP show in any podcast player, Spotify, overcast, Apple podcasts, anywhere you listen to podcasts and find that there. We have a job board, acquired.fm/jobs where we curate the most interesting jobs that we think we should make available to the acquired community. Huge thanks as well to our friends and emergence for making this possible. That's so true. So happy I'm wearing my emergence capital fleece right now. You got to wrap the swag with pride. You got to wrap the swag. Seriously, I was thinking as you were saying that. I mean, no, we talk about the slack at the beginning and end of every episode. It really is like, it's not just like, oh, you should join the slack because you're like acquired. If you're listening to this, you are probably a founder, an employee, an investor, working at companies of any size where this is relevant. And so is everybody else. And people are, this community is amazing. People are talking about this. It's like Jake from emergence is right there in Slack to talk about this. People DM each other. There's so much vibrant discussion. Can't underline it enough. It's such a great part of the acquired community. And if you're not part of it, you should absolutely join. That you should. See you next time. We'll see you next time. [ Music ]