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

0:00Yes, it is very appropriate to be on here on Zoom with you, recording these before 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.

0:31Welcome 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 in our venture fund PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts.

1:02Today, 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.

1:26The 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.

1:55I think Peter has never done a podcast before. I think that's right. And he's built a 20 billion dollar company. Yeah, the Viva system story is amazing as you will. Here we talk about they raised four million dollars that's four like one after three. And on just that four million dollars that they didn't even consume all of that capital, they've now built a two billion dollar revenue business.

2:20with 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 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.

2:45So 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. So rapid scaling on very little capital is something they obviously both know a lot about. David mentioned the 4 million total funding that Viva raised before going public. As you remember from our Zoom episode with board members, Auntie Subatowski, also an emergency capital partner.

3:15Zoom 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 12,000 strong now, David at acquired.fm slash 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.

4:12Listeners. Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

4:41So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

5:00drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lugora's bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

5:20And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries. And crazily, they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers. And that is the real test.

6:12Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm, or you're in-house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Now, as always, this is not investment advice. Please do your own research.

6:39David 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 on to 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?

7:07Which ordinarily, that would take like an hour. This is going to be pretty short. This is going to be very short. I have good financing history. Thank God. Thank you. Are the 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.

7:37And 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 have probably most people.

8:06Here you know this but for folks listening on the podcast today you're doing about two billion in revenue at Viva Yeah, we're doing about two billion about 30% proper. So amazing Eric, could you share your fundraising journey with us? Sure. I started company in 2011. The first thing I did I opened up a Wells Fargo bank account. I saw it can it's very easy for me to reach capital. That's why I opened up 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 an emergency to the capital otherwise life would be much easier. And finally, I talked to some friends. And it was the three meetings, state of funding. That's how we started. And for eight companies around, I tried to talk with VC again. And again, nobody wanted to invest us either. And we talked to the friends and get another six meetings.

9:03And 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 Erica, you are crazy. The world don't know you don't have another video conference solution. And another VC friend, you know, even, is this great friend. Hey, he told me that, Erica, I have a cheque for you. As long as you do something else.

9:33Good news, I did not listen. I was very stubborn. I should share your story. And once I was told by a big VC, 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 threaded works. Look at the sky, look at the Google Hub, look at the web, it's dominating, right? And I debuted with him a little bit, I failed, and I cannot convince him.

10:02On the way back, I told myself, I'm going to change my window as a screen saver. Back in the last few years, a window was a machine. I changed my window as a screen saver. You are wrong. For several years. And if 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, you know, from an emerging capital, I think, yeah, we are on the right track. You know, to be honest with you, with you actually, we even do not need to read the series of D actually, because at that time, you know, I think of, is that a certain meeting? I think the company, the completely, into a feel like a different game. So yeah. Wow. That's one thing we wanted to ask is a difference between your two companies. Peter, you obviously

11:01Once 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 was just that simple, right?

11:28And then, as far as for Eric, right, when you're on the board, right, that's really Eric's decision. 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 serious disease, Of course, I thought our economy will go down automatically. This was 2017-17. I was completed along. So, by any means. It had been the seven-year bull run. Of course, the end was near, right? Yeah. And a long story, by any means. I think that raising that money at the time, I thought, man, maybe we don't need to do it. But also, I thought it doesn't matter. What matters for Zoom is,

12:20the great product and the customers. Whether you take some more money, you don't take some more money, but it's all fine. It would all work out. 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 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. 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. I'm curious to hear

13:05both 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, you know?

13:27just 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 there's security in long-term. So it starts with a mindset, I think Eric, shared that.

13:56You have to have product excellence too. Right, and that's something I think Eric and I share with both product people. I think also we both worked really hard. You know, we work really hard now. I think especially Eric probably in the first five years I worked really hard. You didn't see me working really hard but I saw you working really hard. So, work really hard, work really focused. Anything that wasn't related to the product or the customer was just...

14:23Yes, you know and then just don't do it like first five years. I was not that conference like this for example, right? I was just maniacally focused and then the market really helps to And that's something you just have to get lucky on right you have to 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 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.

15:16Otherwise, 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, turn 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, like, 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.

16:10clear 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. First, 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.

16:33You know, 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 them their responses that they weren't attached and they weren't getting value. So yeah, all four customers said it's a bad idea.

16:58All right, so let me help 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,

17:27And 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 funding team member of WebEx. So the year, the two years before I started company, I know actually WebEx really sucks, right? Did you try and tell Cisco that? I tell my team. I do not dare to tell others.

17:57But anyway, so Skype was also not reliable, right? Google how to download work. Everyday I spend 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 did not like something, if it 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, at the very time, my passion was very straightforward because, you know, 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, you know, but to live to build a Zoom. That's the number one reason.

18:54And after I started the company, I realized, wow, it's so hard to raise a 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 night, how to survive. You mentioned people in your team.

19:24When you started Zoom, you were a solo founder, but you brought a large number of people with you. You know, one of the kind of 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 gonna get on board with Yeah, there's not going to be, you know, the spiritual equivalent of kind bars and, you know, exposed brick in our office here. How did you select for, maybe both 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? It's about for me. So I didn't know right any code.

20:13On Devam, we had around 25, where soon we got another 15, 20 or 40 people and myself included. All of a sudden, people were all right, all kinds of cold. And this was all funded with angel money? Yes, exactly. But I know actually, you know, we can, we can run rate probably less than two years, right? That's why Leetam had a Series A. But we only have engineers, just to get a protocol down.

20:37And I'm a model of a product manager, UI designer, and also the facility guy, everything else. Seriously, on day one, I bought it, used the furniture, assembled everything by myself, and also righted 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.

20:59And 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 on the build board in one and one. As I tell you, I think no. For the first four years, we do not have any marketing team. Only until 2015, we started building up a marketing team. So I have to be very disciplined. Yeah. Just highlight this. So you started the company with 25 quickly growing to 40 people.

21:28but those were 39 engineers and you, no product managers, no marketing, no sales. Yeah, yeah. That's the reason why I know how to use the Cricabooks. I never know how to use it. Seriously, I had to learn how to use it. 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 of lucky because, seriously, and luck doesn't play a role 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 the very famous reporter, the Morton Mossberg, he valued our service. And we were so nervous, he was very straightforward. And good news, he did write down a very nice article published in Wall Street Journal, and also he personally recorded a video. And overnight,

22:27We got 50,000. 50,000 users from that article. But most of them, they left, you know, after several weeks. But those who stayed, I imagine now it's the kernel of the virality of telling their friends, who told their friends, who told their friends. They're very good at personal relationship with them. Either VIP or con or send them a small gift. Someone they canceled back then when they 9.99. I personally sent them an email.

22:56why you're kind of our source. What do we kind of do differently? And, yeah, obviously we maintain a relationship even today. We had 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...

23:25Very early, very loyal, early adopters, even 100 good enough. They are the early, I would say, the most loyal users, double down to make sure they are happy. If they are very happy, guess what, network effects. They are going to bring a lot of new users. That's why, even 49,000 users left, as long as 100 is good state, we double down on that. So, yeah, that's a strategy.

23:56For 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. They buy multi-million dollar deals cash upfront in a year for a year deal. You need a sales force to sell that, which usually means you need a lot of cash comp to compensate that sales force.

24:24How did 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 machine, so no wasted people.

24:52And for us, yeah, we needed, because a long sales cycle. So we needed sales right away, right? So yeah, I was the first salesperson, 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 gonna make. Well, have you hired anybody? No. Well, okay, well, can you show us a demo you're gonna do? No, how about a PowerPoint? No.

25:16Okay, 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 because the relationship-based business, funny story, the first customer bought, small customer. We 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 pived with his IT team.

25:39So 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. And you could barely log into the system at that time. 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.

26:05super 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 can hide behind when it's small. You can hide behind metrics sometimes and it doesn't work. But if you actually talk to the human and you figure it out, you'll know what's going on.

26:34Can you tell us also the story of landing your first big customer? I believe it's probably the deal that really made the business. There was a set, right? There was the first, 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?

26:58So 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 bakeoff. Yeah, because they didn't want to even come in the meeting with us, right? They were like, oh, we're going to go with this other system integrator or something like that.

27:29So I sent an email back and said, we will win this deal. Why? Because we have better people, a little work harder. And we're Pfizer's only shot at greatness, and I think they want to shoot for greatness. 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, but Pfizer said, we have more...

27:54people in this meeting room, then 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 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 three million dollar round of capital here and it didn't cost us any delusion, right? The check came in, so that's exactly what happened. Yeah.

28:47Do 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 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 the 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...

29:14business of metal working and machinery and he I remember him he would like oh I got to buy that lathe how much is that lathe gonna cost is it work it worth it so I would think of people like I'm buying a million dollar machine because I got to pay him a hundred thousand dollar a year is that million dollar 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 noticed 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.

30:02I read the Peter's S-Wend document many years ago. At that time, I still remember, wow, my god, this has been a model so awesome. But in our case, our first Peter customer, largest Peter customer, only 2000, a year. So we cannot use that to fund the new product development. Because most of users pay us only for 99 months. So that's really hard. But I do think For all the founders, the business model is very, very important. If you can figure out if we do something similar as World of Peter and Viva does, that's the best. Do spend time on that. Not only for product, but also the business model. As Peter mentioned, product excellence and how to sell the product and how to leverage the big enterprise customer as is very important. Build a long-term sustainable company. In our case, I can tell you today, the biggest challenge is our online business.

30:59It'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 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. Hopefully there'll be some more connections like that today.

31:29I think 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.

31:56That'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. So 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 sort of getting lazy. I want to turn the business every year. So it was just sort of like that. The driver was really optimizing to the long-term value.

32:26which is, you know, makes so much sense now thinking about it that you would have had to have given a, I don't know, 30% annual discount or lock in the price, then raising prices is harder later. And that's unique to us. I think we're selling in a very confined vertical. So it's not really fair if there's two companies and one's paying 30% less than the other. And they end up knowing about it and feeling bad about it. So that's something specific to this confined market.

32:53And 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. And 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 kind of top 20, and then there's another thousand or so that are doing smaller things. And we've just expanded our product footprint.

33:22So 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. So Gordon called it layering the cake, right? 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 $100,000 a year maintaining free relationships. Just putting into developing relationships.

33:53not wasteful. Because we have a lot of showing up the door with $100 million worth of product. So if you have a relationship, it's worth it. Like a bank, investment banking is worth it to this. So it's a different type of business. 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.

34:18It used to be that you proved that you were secure once a year on audit or a static PDF, then 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.

34:41Vanta's own research found that around 70% of companies have this, quote unquote, shadow AI running with no security review at all. Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap and the way that they close that gap is Vanta agent.

34:59Think of it as a GRC engineer that's governance risk and compliance, except that it's software and it doesn't sleep. It finds the issues drafts the fixes and cuts the time that you'd spend on vendor assessments in half. In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like ramp, cursor, and snowflake all stay audit ready and catch the risks that crop up between audits across every vendor.

35:27Every AI tool, the whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

35:57Eric, for you, I'm curious maybe you can talk to us both in the beginning days and then also now, I assume, how do you think about pricing and account strategy? Yeah, so, you know, our case is a little bit different. You know, ideally, when you start a such company, you use a functional vertical market or a functional department. That's probably the best business model. Unfortunately, you start from building up a horizontal collaboration solution.

36:25is really hard because there's a lot of other competitors over there. Our strategy is freaking better. Exactly, a lot of free solutions. Our strategy is more like open up a new restaurant business. You have a better service and a better price and a better food. That's pretty much even today. We want to make sure our product is better than our competitors. Make sure we're in a constant pricing, also better.

36:52And they also make sure, you know, all for the better service. So you look at any time our product always, always a better price, you know, across the board, any product, compared to any competitors. So life is about trade-offs. And if you're telling a customer, oh, we're better, faster and cheaper, what has to give? Is it something organizationally? Is there something? 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 level the network effects, right? You know, they hire like a 100 or the sales rep, you know, what 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, yeah. Which is, you know, so funny, that efficiency translates to capital efficiency, which translates to gross margin, it would not gross me to operational margins, which translates to...

37:51cashflow. 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? And that comes from the core set of engineers you hired, I think. And then also the, you were, you were especially very focused in the early days, right? Totally. You were not thinking about something else, right? I was thinking about video processing. And I would say, you know, that's why I got to know Eric.

38:17I 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. Oh, this is really good. I want to join its board. So I think that's so. 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% better. Oh, the 10% is better. 10% is better. But I guess my point is if your product was only 20% better.

38:46It 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 want to start buying anymore, right? So, you know, again, I think back to the Peter's point, it's extremely important. Everything starts from one thing, the product. Product is excellent. That's a foundation. You can open up a lot of things. If a product download work, forget it.

39:13everything else. It's just a double-don, triple-don, on the product. That's a number-wrench thing, you know, Peter Wright on. And that's a lot about people, right, Eric, about which people you put on the product. Yes, both of them. 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.

39:39We're not like you think typical. Oh, here's high-flying SaaS company. There's gonna be a VP of sales from Salesforce. There's gonna 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 in commerce. They weren't, you know, the established superstars. I think you, I always wanted to have some people with some range.

40:08You 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. 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.

40:30It's a lot of ways that comment reminds me there's a parallel between 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.

40:55There'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. A 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.

41:25You get to get the right person, and then pay the right compensation for the right person. But always the right person first, and then figure out the compensation. The computer right now, actually, back is when we try to make an offer to some executives, right? You know, at that time, you know, the feedback, why not hire someone very experienced in season and leaders from all sides. It's not really not about a compact. Because, you know, when it comes to hiring, you know, at Zoom, We really like to hire those people with the self-motivision and self-learning mentality, including the senior executives. And they can't grow themselves along with the company growth. Plus, you know, they are very loyal. I think that's our philosophy. I thought that's the best philosophy. After COVID, I think I was wrong. Actually, there's a big flaw also. Because when the brain is all the growth, all the growth is your team. And guess what?

42:22the 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. 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 the difficult growth. However, the pace is different, right? You know, somewhere you can learn quickly, somewhere very slow, right?

42:51That's why, also, that's another flaw. That's why, looking back, I feel like, ah, we should have a mixed team structure. Someone, you know, they have a potential. They can grow themselves. Someone else, you have to hide some seeds in the leaders. You never know, right? In case they're in your son and your business, it's going to take off. At that time, your team know already. You know, that's a challenge about facing today. So, so you need to have some members of the team who have experienced scale.

43:18bigger than your company, but other people that you're developing. Exactly. There's a house in Mix, you know, Bexon Pride of Panagic, you know, I was, I was singing a two-star band. I should learn more from people. I sing Erwin, 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?

43:38Do you think you should have done that even in the early stages of the company? Not in the early stages, right? You know, for the first or four years, no need. But in Donald Trump, you already see the market of feed, right? The product of feed. You want to scale your business. At that time, you have the chin oil philosophy. There's another... I just keep... these 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...

44:08It's the same thing. It's not that experience people are better or that in-house talent is better as that you need that mix. Totally. Yeah. The hair of the mix is very important. So the last about one of the last sort of disciplines within a software company.

44:27that I want to talk about operationally in this context is marketing with both of you, but particularly with Eric. We were chatting with Saudi and with Peter. Anyway, so I asked this question really, once you get 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, you know, how did Eric and Zoom Think about spending money on marketing, and I'll let you tell the punchline, but how did you think about it? Yeah, that's, even today, every Tuesday, we have three hours in the stuff in between, right? This morning, the first topic read about reviewing our marketing, competent marketing programs, even today, still. I think it's very tricky. The reason why is you do not have, I would say, sort of like,

45:25or 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 tricky. Every business is different. In our case, we specifically made a decision. No marketing team for the first several years.

45:48You know, because this is not something new, right? This is a product or, you know, this is a very, very mature market, an event and a standard video conferencing. You know, if your product works, you really don't need a marketing team, right? We try to prove that point. You know, after that, after we have paid a customer, a lot of customers, customer told us, and have a verbal zoom. But I try to product a product works, right? Why is that? We received a very consistent feedback like that. I know that's a signal.

46:18Then we double down on that. Then 2015, we created a marketing chip. 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 SCM, every company you spend money on, SCM. First time, I sent a check, oh my god, this is a surprise, I paid a Google. Oh my god, this is the largest check, I'm going to send.

46:43Do you remember how large that check was for your contract? That's more than 200,000 a month. A month, oh my goodness. It's crazy. That's why I see I wanted to deep dive to understand. By the way, marketing team is all very, very educated by Google, right? And more than they talk about our right, you give me $1. I give $1.50 cents back. It's pretty good, right? Yeah.

47:06But I tell them, no, you should have $3 back. Why? Well, I particularly want to ask you about that. Exactly. There's been a lot of 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. The stories we heard were, you know, most founders, CEOs, marketing teams, think about...

47:31CAC to LTV with marketing, you know, and there's more complexity to it than that, but I'm gonna 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 agree with that. That's one of the mistakes for all the SaaS companies. It's not a $1 or 15 cents a bag, it's not a $3. It should be $4, right? It should optimize. Just for the last minute. That's a common mistake, I think, for most of the SaaS companies. And Eric, when, how fast should it pay back?

48:00As I would say, it's as big as possible, right? It's got everything is different, but you got to optimize and keep it open to my eyes every day. Do not feel satisfied. Or give one dollar, get one for a dollar, fifty cents back. No, open to my eyes, go to get one, two dollars, two, you know, three dollars, right? You have to open my eyes. This is my example, right? For every market in dollars. However, if it works, you'll have to double down. I remember, you know, first time I had a, you know, a billboard in one way.

48:27many customers shared a very positive feedback with us. They feel like, oh, early on, we decided to deploy Zoom. I saw the build board feel like you guys are a bigger company, we're going to write this in, right? We're not validating the decision, then. Exactly. And the plus employees feel very happy. They say, oh my god, Zoom has a build board now. After that, I realized, why not double down that? I told our team, how many build board have in one? I said, no, three. It works. Yeah.

48:57So that's why you have to know when to dub a don, when to fix that bad. If you know how to effectively bury 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, 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.

49:22Where do you see the source of Zoom's defensibility as a business over the next 30 years? Yeah, so, you know, I think it's more like a sports, right? We need to focus on both the offense and the defense, right? It's both sides, right? So, I think back to the period report, you still need to, even your product is works today, even better than other competitors. You have to be paranoid, right? You have to keep thinking about what you can do differently.

49:53innovating, cable innovating. Either the new services or new features. That's the most important thing. By doing that, at the same time, you also need to think about what's next. For our perspective, we started from a unified communication. The next step, not a unified communication, is collaboration platform. At the same time, how do you build multiple new departmental applications? You also need to put it offensive as well.

50:21The better offensive play is probably for the defense as well, right? So that's our strategy. Here? I'm very similar, so product excellence is you can get there, but you also have to work hard to stay there, right, and keep reinventing yourself. Also, you do want to expand to different areas, because if critically, and I think...

50:46something that people don't realize if you 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 in you know if Eric is constantly rewriting his codec unnecessarily right it's disruptive so you got to expand to give yourself a creative outlet and then that this may be more In 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 in 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. Errogance, 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.

51:43Integrity 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 them, because 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 in like, we actually tell our customers about that, and that holds us to a higher standard, so we want to be the leader in like, and then they bring that up sometimes, like, hey, that's not the leader in like, oh god, why did I tell you that?

52:12But I mean, it's a way to be set yourself out there, right? Not only do we want to be leader, we want to be liked, product innovation, as an outlet, and then avoid that arrogance. You talked about that. But I think as we did with this question, I want to share with you a conversation ahead of its Peter. I think public can help some of the founders here as well. I think I've got a wish quarter a year before we went public, and I look at our growth plan.

52:39I realized, wow, we wouldn't have one service. If we have another service, it also can monetize the growth trajectory very different. At the time, it took me that Eric, that's sort of like the ideal case. But that decision should be made two years ago or three years ago. If you wanted to have a new service, you cannot have a new service today. You need to think about trying to make this in two or three years before that. I clearly remember that composition.

53:08That's right, that's looking back, that's a big mistake, a big 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, 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...

53:36content, 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 I and others started thinking about it the first part of 2010, so we had a 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.

54:00And then we made our first hire 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.

54:24Like 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...

54:42because 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.

55:03If you don't go out of business, gravity will take you there. As you go along, it's like, oh, maybe we should make an add-on product or not. Like, yeah, duh. But if you get confused, when you think that add-on product is really going to float your boat, it's not. If you have a chance, it should be way out here, and maybe have the potential to be bigger.

55:30What'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. We had to take my eye off that ball to start this thing, and it did cause that first thing to suffer.

55:59But 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?

56:26You need a CEO that was engineering type that went to Oregon State University. Does that's what Indian people have in common? I don't know him, but we both were very few of us Oregon State beavers as CEOs. Let me tell you. That's amazing comedy. I know Jensen Wow actually look at a video stock price. It was flat 10 years in a row. It was. It was. That's such an amazing story. I mean the conviction really he had to.

56:56Persevere through that decade is amazing. It's hard work, right? He's a hard worker. He is focused. 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.

57:25Isn't that true, Eric? That's true. Good news, 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 card. Exactly, no short card. All right, listeners. 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.

57:55Yeah, 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.

58:19Yep, AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible, and secure in one place. And service now can do this.

58:38because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

58:56billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

59:19So 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 slash acquired and tell them that Ben and David sent you. All right, well, we got to wrap it. 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-plus?

59:46what's the scenario where it goes incredibly well, paint that for us, and what's the failure case? Oh, let's see. I don't think he's talking about the failure case, honestly. I just not wired that way. A plus is we really help automate this big industry. 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've 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, et cetera, but also be a good contributor to society and the employees.

1:00:46That 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 of a case, I would see the That's a good question. A-plus scenario will be a very successful platform company. We are going to introduce 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-plus scenario for many years to come. In terms of a failure scenario, I would say maybe you go back to use WebEx, that's a failure scenario.

1:01:44Yeah, Peter, right. And I do not think about the failure scenario, but we just think about the very optimistic thing about the future. Otherwise, seriously, you know, all founders, right, the CEOs, 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 the failure case, failure case, guess what? You do not dare to move forward, right? So that's why I see, do not think about that.

1:02:11Next 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? I think that's... I see that in Eric. I love that. Right. Thank you all. Thank you for being here in the room with us, and mostly...

1:02:39Thank 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 really appreciate. Thank you, my great mentor Peter. Yeah, thanks. Thank you. Thank you. Thank you. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

1:03:10Yes, 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.

1:03:27It'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 shipped 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.

1:03:54So 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 slash acquired to get started. All right, listeners. 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. 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. Peter and Eric have just, it's just unbelievable and impressive what they have built on so little capital.

1:04:41two 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-flier. I was just thinking every time for the last few years that people would talk about Zoom in 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.

1:05:08I 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.

1:05:34Well, 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 slash Slack, 12,000 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.

1:06:01you 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 slash 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. I'm so happy I'm wearing my emergence capital fleece right now. You got to wrap the swag with pride. I 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 like acquired like, you know, if you're listening to this, you are probably a founder, an employee, an investor, you know, working at companies of any size where this is relevant. And so is everybody else. And people are

1:06:53Like, this community is amazing. People are talking about this. It's like Jake from Emergence is right there. It's like to talk about this. You know, 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. All right, listeners. We'll see you next time. We'll see you next time.