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 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. Who got the truth? Is it you? Is it you? Is it you?

Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it's straight. Another story on the way. Who got the truth? 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 am 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 Gassner, 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 will hear. We talk about they raised $4 million. That's four, like one after three. 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 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. 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 member Santi Subotovsky, also an Emergence Capital partner, Zoom raised $30 million from Emergence and another $100 million 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 $130 million. Eric had raised, as you'll hear about, he'd 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, listeners. 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.

Yep. 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? So 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 drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagora's bet 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.

And 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.

Lagora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test. Plenty 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 lagora.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. 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, on to our interview at the Emergent CEO Summit with Eric Yuan and Peter Gassner. 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 talking about private financing history. Go ahead. Go ahead, Peter. Are the simple angel investors when we just started? And then Emergent's about 15 months in. So angel investors, I think that was $3 million. And Emergent's was $4 million. We never actually used the Emergent's $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. So that's... The time frame, 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's hard. And I think probably 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% profit or so. Amazing. Eric, could you share your fundraising journey with us? Sure, sure. I started a company in 2011. First thing I did, I opened up a West Fargo bank account. I thought it's very easy for me to raise capital. That's why I opened up a bank account. Unfortunately, it took me for several months. No VC wanted to invest me. Unfortunately, I do not know my brother sent any emergency capital.

Otherwise, life would be much easier. And finally, I talked to some friends and raised the $3 million seed funding. That's how we started. And when it comes to A round, I tried to talk VC again. And again, nobody wanted to invest us either. And we talked to friends and could 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. Everyone mentioned, Eric, you are crazy. The world does not need to have another video conferencing solution. And another VC friend, even is this great friend. He told me that, Eric, I have a check for you as long as you do something else. Good news, I did not listen. I was very stubborn. I should share your story. And once I was stopped by a big VC, I do not want to mention the name.

For sure you guys do not like them. And he told me that, Eric, I do not think your strategy works. You know, look at Skype. Look at Google Home. Look at WebEx. It's dominating, right? And I debated with him a little bit. I failed. And I cannot convince him. And on the way back, I told him myself, I'm going to change my Windows screen saver. Back then I used to use a Windows machine. I changed my Windows screen saver.

You are wrong. For several years. And just to make sure I have my facts straight, I believe you raised a $30 million round led by emergence and then another $100 million round 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, after the $30 million from 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 D, actually.

Because at that time, I think with that $30 million, I think the company completely into a different game. So, yeah. Wow. That's one thing we wanted to ask is a difference between your two companies. Peter, you obviously, once you got to 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? 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 emerging capital. So, at that time, seriously, we had no plan whatsoever to raise another round of capital.

And the reason why we still moved forward to have a serious deal is because I thought the economy will go down dramatically. This was 2017? 16, 17 timeframe. I was completely wrong. So, but anyway. It had been the seven-year bull run. Of course, the end was near, right? Yeah. So, and long story. But anyway. So, yeah. I think that raising that money at the time, I thought, yeah, 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 right. 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. You know, multimillion-dollar contracts up front, you know, in the case of Viva or in Zoom, customers flocking with their credit cards for a, you know, 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 can 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, just run a profitable lemonade stand. From my point of view, for me, it was there's safety in that. Cash-generating business is always going to be valuable to somebody. At some point, a business that's not cash-generating is going to be valuable to nobody, right? You might be able to sell it before it becomes, you know, not valuable. But you can only, there's security in long-term, you know.

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. We're 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, worked really hard, worked really focused.

Anything that wasn't related to the product or the customer was just BS, you know, and just don't do it. Like, first five years, I was not at a conference like this, for example, right? I was just maniacally focused. And then the market really helps too. 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.

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, you know, most VCs, all VCs, except for emergence, all VCs of any kind of note, except for emergence, turned us down, right? And ours was really simple. Vertical specific software, that's a small market and it doesn't work, right? 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. You know, I know Viva has, as one of your core values, clear and correct target markets that you have written on the wall.

What did each of you do, you know, ahead of time that led to you to like really genuinely believe, yes, the world thinks this is crazy, but I really think this is going to work. I'll go first. It's real easy. I talked to three or four potential customers for our first product and they all said, we don't need that. You 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 in their responses that they weren't attached and they weren't getting value. So, yeah, all four customers said it's a bad idea. All right. So let me. They're all customers now, though. Let me understand the Peter formula to build a business. Ask 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 thing. 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, 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 because I was a regional founding team member of WebEx. So the two years before I started a 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.

But anyway, so Skype also is not reliable, right? Google and how it does not work. Every day 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 is going to standardize on Zoom platform. But at least I know for sure is if a customer, they do 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, at that time, my passion was very straightforward because, you know, WebEx is 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 did not want me to start over. And I had no choice, you know, but to leave to build a Zoom. That's the number one reason. And after I started the company, I realized, wow, it's so hard to raise capital, right? And by the way, the money that they give to you, don't think about that money. You know, that's a trust. You know, 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 I woke up at night, you know, how to survive. 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. 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 going to 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 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 did not write any code. And on the event, we had around 25. Very soon, we get another 15, total of 40 people, and myself included. All the 39 people, they all write all kinds of code. And this was all funded with angel money. Yes, exactly. But probably, I know, actually, you know, we can, with a run rate, probably less than two years. That's why later on, I had a series of A. But we wouldn't have engineers just get the product done.

And I'm more like a product manager, UI designer, and also the facility guy, everything else. You know, seriously, on day one, I bought the, used the furniture, you know, assembled 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, after product ready, 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, and all the, you know, billboard and one-on-one. At that time, 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 you have to be very disciplined, yeah. And 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. That's the reason why I know how to use QuickBooks. I never know how to use that. So seriously, I had to learn how to use that. So it sounds very easy to say, don't buy billboards. You got to get your customers somehow. How did you get the snowball going? A little bit of lucky, because seriously, and luck does 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, the very famous reporter, Walter Mossberg, right? He evaluated our service. And we were so nervous, you know, he's very straightforward, right? And the good news, he did write down a very nice article published in Wall Street Journal. And also, he personally recorded a video. And over the night, we 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 that was the kernel of the virality of telling their friends, who told their friends, who told their friends.

I've been in a very good personal relationship with them. Either VIP account, I sent them a small gift. And someone, they canceled. Back then, it was only 9.99. I personally sent them an email. Why are you canceled our service? What are we going to do differently? And, yeah. We still maintain a relationship, even today. 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 very early, very loyal early adopters. Yeah. You know, even 100 are 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 still stayed, we doubled on that. So, yeah. That's a strategy back then. 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. They buy multi-million dollar deals, cash up front 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.

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 are, you know, in the early days, there's no wasted people. Like, no optional people. No wasted people. Because it just adds, A, it'll burn through your money and it'll just make your decision making smaller. And, sorry, more complicated. It's like sand in the machine. So, no wasted people.

And 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 you should 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 because it's a relationship-based business. Funny story. The first customer who bought, small customer, actually somehow through a relationship with my co-founder, we got to this guy. He was the 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. And you could barely log into the system at that time. Could you? I didn't know that. But then you got to hustle, right? Then just like Eric, right? Then you got to 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 Viva in 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 are right. I agree with you. You just, you can hide behind, when it's small, you can sort of 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. Can you tell us also the story of landing your first big customer? The big customer. Which I believe is probably the deal that really made the business. Yeah. There was a set, right? There was the first, the guy who was just peeved at his 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 multimillion dollar annual deals were a big customer, 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, you know, send a note that Viva will never win this deal. And I replied back. I said, we will win this deal. And I... They sent it to you during the bake-off. Yeah. They didn't want to even come to the meeting with us, right?

They were like, oh, we're going to go with this other system integrator or something like that. So I sent an email back and said, we will win this deal. Why? Because we have better people that'll 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. And we had a certain amount of people in the meeting.

And the guy stood up for Pfizer. He said, we have more people in this meeting room than you have in your company. You know, 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 won it. And then I remember after winning it thinking, oh, my God.

Now what? You know, now how are we going to make them successful? So we... 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 thought, oh, we've just raised a $3 million round of capital here. It didn't cost us any dilution, 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 invoice 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 to matter. I would almost think about, oh, 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. He would like, oh, 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 million dollar machine because I got to pay him $100,000 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 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.

Because salespeople, that's where it's really, really expensive. You didn't have that. I read Peter's S1 document many years ago. At that time, I still remember, wow, my God, this has been a model. It's so awesome. But in our case, our first paid customer, largest paid 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. So that's really hard. But I do think for all the founders, the business model is very, very, very important.

If you can figure out we do something similar as what Peter and Weaver 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 level the big enterprise customer is very important. 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.

They come today, next two months, they might leave. They cancel the service. This is not a great 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 at an emergence 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 up front. 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 sort of getting lazy. I wanted us to earn the business every year. It was just sort of like that. The driver was really optimizing to the long-term value. Yeah, which 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. 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. So that's something specific to this confined market. And to put some shape around it for folks that don't know Viva's business as well, you've a couple thousand customers of which there's a hundred or so that are really big customers.

Yeah. 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. So 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 calls it layering the cake. Right. We have a lot of different layers to the cake that are all into the same customer. We leverage relationships. We spend it's fine for us to spend a hundred thousand dollars a year maintaining free relationships and just putting into developing relationships. That's not wasteful. So because we have a lot of we're showing up the door with a hundred million dollars worth of product. So if you have a relationship, it's worth it.

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Eric, for you, I'm curious, maybe you can talk to us both in the beginning days and then also now at Zoom. How do you think about pricing an account strategy? Yeah, so, you know, our case is a little bit different. You know, ideally, when you start a SaaS company, either focus on vertical market or focus on departments. That's probably the best business model. Unfortunately, you start from building up a horizontal collaboration solution. It's really hard, right, because, you know, a lot of other competitors are there.

Right. So our strategy. Free competitors. Exactly. A lot of, you know, free solutions. So our strategy, you know, more like, you know, you open up a new restaurant business. Right. So and you have a better service. Right. And a better price and a better food. That's pretty much even today. You know, we want to make sure our product is better than our competitors. Make sure when it comes to pricing, also better. And they also make sure, you know, offer the best service.

So you look at any time our product always, always have better price, you know, across the board, any product compared to any competitors. So life is about tradeoffs. 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, say 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 100 sales reps. What we can do to have 50 sales reps, you know, can deliver the same value. Right. So that's why it is very important to have, you know, internal, you know, the efficiency. Yeah. Which is, you know, it's so funny. That efficiency translates to capital efficiency, which translates to operational margins, which translates to cash flow. Totally. Which is the whole point. Yeah. Give you more flexibility. Right. Yeah. Yeah.

But I would say the key also is just the product excellence. Right. Yeah. And 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 conferencing. I was thinking, 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. Oh, this is really good. I want to join his board. So I think that's always the product excellence can make you more efficient. Your sales cycle is more efficient. Everything's better. If your product was twice as good as WebEx, right? If your product was only 10 times better. 10 times better. But I guess my point is if your product was only 20% better, it wouldn't have been enough.

It wouldn't have mattered. You're so right. That's why I always like this restaurant analogy, right? You know, you start buying a restaurant, a brand new restaurant. It's a food that don't work. Even for free, you do not want to start buying it anymore, right? So, again, you know, I think back to Peter's point, it's extremely important. Everything starts from one thing, the product. Product is excellent. That's a foundation. You can optimize a lot of things. If a product doesn't work, forget it.

Everything else. Just double down, triple down on product. That's the number one thing. You know, Peter right on. And that's a lot about people, right, Eric? About 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, you're named executive officers in your S1 were not, like, you think typical, oh, here's high-flying SaaS company.

There's going to be a VP of sales from Salesforce. 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. In 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. There's more fulfillment. Otherwise, it's why you're doing the same thing you've done three times, and what's the allure? Well, I can get rich. Okay, just at some point, that doesn't keep you going at the end of the day. Would also come, 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. You've got 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. Peter, right on. Actually, back then, when we tried to make an offer to some executives, at that time, the feedback, why not hire someone very experienced and seasoned leaders from all sides?

It's really not about a common package. Because when it comes to hiring at Zoom, we really like to hire those people with a self-motivation and a self-learning mentality, right? Including the senior executives. And they can grow themselves along with their company growth. And plus, you know, they are very loyal. I think that was our philosophy. I thought that's the best philosophy. After COVID, I think I was wrong, actually. That's a big flaw also. Because when business auto-grows your team.

And guess what? The executives or team, they are not ready. You know, like usage, 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, in some ways, you can learn quickly.

Some are very slow, right? That's why also that's another flaw, right? That's why looking back, I feel like, ah, we should have a mixed, you know, team structure, right? Someone, you know, they have a potential. They can grow themselves. Someone else, you have to hire some seasoned leaders. You never know, right? In case suddenly your business is going to take off. At that time, your team is not ready. You know, that's a challenge we are facing today.

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. That's a healthy mix. You know, back then, prior to pandemic, you know, I was, I think, too stubborn. I should learn more from Peter. I think everyone, you have to have a potential. You do not even 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 four years, no need. But down the road, you already see the market fit, right? The product fit. You want to scale your business. At that time, you have to change your 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 the same thing. It's not that experienced people are better or that in-house talent is better. It's that you need that mix. Totally. Yeah. Healthy mix is 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 Satya and with Peter.

You know, we sort of asked this question where like, 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, you know, 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, that's, yeah, even today, you know, every Tuesday, you know, we have three hours, you know, staff meeting, right?

You know, this morning, the first topic read about reviewing our marketing, top 10 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 a formula, right? You know, when to spend more, when to spend less. It's not like that. As a founder, you know, you have to spend time on marketing as well. Do not always focus on product or the sales. Marketing also is very important, right?

However, when to invest in marketing is very tricky. Every business is different. In our case, we specifically, you know, made a decision. No marketing team for the first several years. You know, because this is not something new, right? This is a product or, you know, this is very, very mature market. Everyone understands video conferencing. You know, if your product works, you really don't have a marketing team, right? We try to prove that point. You know, after that, after we have paid a customer, a lot of customers, a customer told us, Eric, I never heard about Zoom, but I try to product.

The product works, right? Why is that? We receive that very consistent feedback like that. I know that's a signal, right? Then we doubled down 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 understand. I'll give one example, like SEM, right? Every company, you spend money on SEM. First time, I sent a check. Oh, my God, this is the price of Peter Google.

Oh, my God, this is the largest check. I'm giving you a cent. Do you remember how large that check was for context? That's more than $200,000 a month. A month? Oh, my goodness. This is crazy. You know, that's why I say I wanted to deep dive to understand, you know. But by the way, the marketing team is all very, very educated by Google, right? You want to get talk about ROI. You give me $1, I give $1.50 back.

You know? Let's do that. It's pretty cool, right? Yeah. But I tell them, no, you should have $3 back. Why $5.45? Well, I particularly want to ask you about the time frame you wanted that money back. How to optimize that, right? And again, marketing is very important, but quite often very creative, right? 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 CAC to LTV with marketing, you know.

And there's more complexity to it than that. But I'm going to spend $1.00. I'll get $1.50 or I'll get $3.00 back. If that pays back within a year, I'm doing great. I believe that. That's the mistake for all the SaaS companies. It's not $1.50 back. Not $3.00. It should be $4.00, right? It should optimize. Just put it up in the last minute. Yeah. That's a common mistake, I think, for most of the SaaS companies. And Eric, when, how fast should it pay back?

I would say it's as big as possible, right? It's got to, everything is different, but you've got to optimize. You keep optimizing every day. Do not feel satisfied. Oh, give $1.00, get $1.50 back. No. Optimize, go to get $2.00, you know, $3.00, right? You have to optimize. This is one example, right? For every marketing dollars. However, if it works, you'll have a double down. I remember, you know, first time we had, you know, the billboard in one-on-one.

Many customers shared a very positive feedback with us. They feel like, oh, early on, we decided to deploy Zoom. I saw the billboard. I feel like you guys are a bigger company. We made the right decision, right? To better on Zoom. We're not validating the decision then. Exactly. And plus, employees, they feel very happy, right? They say, oh, my God, Zoom has a billboard now. After that, I realized, why not a double down on that? I told our team, how many billboards do we have in one-on-one?

There's one. I said, no, three. It works. Yeah. So that's why you have to know when to double down, when to take step back. You know, if you know how to effectively measure that, that's very important. Well, we spent most of today talking about how to build the castle and, you know, how to have a profitable castle. I'm not sure that really extends. But now let's talk about 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? Yes. Yeah. So, you know, I think it's more like a sports, right? We need to focus on both offense and defense, right? It's both sides, right? So I think back to the Peter point, you still need to, even your product works today, even better than any other competitor. You have to be paranoid, right? You have to keep thinking about what you can do differently.

Keep innovating. Keep innovating. Either the new services or new features, right? That's the most important thing, right? But doing that, at the same time, you know, you also need to think about what's next, right? You know, from our perspective, right, we started from a unified communication. The next step will be, you know, not a unified communication. It's a collaboration platform, right? At the same time, how to build multiple new departmental applications. You know, you also need to play offensive as well.

You know, the better offensive play is probably for the defense as well, right? So that's our strategy. Peter? Very similar. So product excellence is you can get there, but you also got 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 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 of 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, 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 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 in life.

That was our code name for it. Because if you get to be quite dominant, arrogance is your, 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 them. Because if you, 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 life. We actually tell our customers about that. And that holds us to a higher standard. So we want to be the leader in life. And then they bring that up sometimes. Like, hey, that's not the leader in life.

Oh, God, why did I tell you that? You know? 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 liked. Product innovation as an outlet. And then avoid that arrogance. You talked about... But, Levi, I think related to this question, I want to share with you a conversation I had with Peter. I think probably can help some of the founders here as well.

I think the... I forgot which quarter. A year before we went to public and I looked 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 will be very different. At that time, Peter told me that, Eric, 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 a decision two or three years before that, right? I clearly remember that conversation. You know, that's why... Looking back, that's the biggest mistake. The biggest 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, always think ahead and build another service, another service.

So... That's exactly what I was going to ask as a follow-up. Peter, I know you... We've launched a second service after the first CRM service around 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 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 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. 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 code line, different everything. So I thought, this is the 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?

It's as you go along, it's like, oh, well, maybe we should make an add-on product or not. Like, yeah, duh. But if you get confused 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. 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.

You know, 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, I 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 there? You need a CEO that was an engineering type that went to Oregon State University.

Because that's what NVIDIA and NVIDIA have in common. I don't know him, but there are very few of us Oregon State Beavers as CEOs, let me tell you. That's amazing comedy. I know Jensen well, actually. Look at the immediate stock price. It was flat 10 years in a row. Before they took off. That's such an amazing story. I mean, the conviction, really, he had to persevere through that decade is amazing. It's hard work, right? He's a hard worker, too.

We're a 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. 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 shortcut. Exactly. No shortcut. 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. Yeah.

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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? 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 slash acquired and tell them that Ben and David sent you. All right. Well, we got to wrap, 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 plus? What'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 spend any time thinking about the failure case. Honestly, I'm 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're going to 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 be a good company, profitable, et cetera, 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 more the formality of it. It's 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 our case, I would say that's a good question.

A-plus scenario would be, you know, Zoom would be a very successful platform company. We are going to introduce multiple new services, and 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, right? In terms of a failure scenario, I would say maybe you go back and use WebEx. That's a failure scenario. So, yeah, Peter, right. And I do not think about a failure scenario, but we just think about it, be very optimistic, think about the future.

Otherwise, seriously, you know, we're all founders, right, the CEOs. We all feel the huge pressure. But sometimes you cannot be, you know, too paranoid. Otherwise, every day you think too much about a failure case, failure case. Guess what? You do not dare to move forward, right? 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? Totally. So I think that's, I see that in Eric. I love that. Well, 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 of you.

I really appreciate it. Thank you, my great mentor, Peter. Yeah. Thanks. Wonderful. Thanks. Thank you. Thank you. That was good. Well done. Thank you. Well done. Thank you, Peter. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsing. Yes. Long time acquired partner. There is a reason why the best product teams at companies like OpenAI and Notion, Atlassian, Figma, Rippling, Brex, and more rely on Statsing, 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. Whether it's a feature tweak, a pricing change, a performance improvement, or an AI update like a model change or prompt adjustment, they're not relying on instinct.

They're measuring what actually moved engagement, retention, and ultimately revenue. And as more teams build with AI, that learning loop becomes even more important. Building with LLMs introduces non-determinism into your product experience. The same input doesn't always produce the same output, and behavior can shift in subtle ways in real-world use. So doing offline evals will give you part of the picture, but you can really only understand the impact once your product is live with real users, and then you can measure how their behavior actually changes.

It's very different than the way that you would ship features in a pre-AI world where you knew exactly what the software was going to do in production. Yeah, exactly. So 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. The result is a tighter feedback loop and learning that compounds over time so you don't just ship more, you ship better.

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 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. I think, you know, David and I don't need to debate this endlessly.

Like you can hear the drum beats on Twitter of how much the market is changing. But, you know, the reality is it is. And where everyone has to play the game on the field. And Peter and Eric have 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. You know, now everybody thinks of Zoom as, you know, pandemic, you know, high flyer.

And it's like I was just thinking every time over the last few years, like that people would talk about Zoom in whatever context. I'm like, do you people realize how much cash flow this company is generating? And it's all because of, you know, 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 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, 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 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 at 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 rep the swag with pride. You got to rep the swag. Seriously, I was thinking as you were saying that, I mean, I know 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 like, this community is amazing. People are talking about this in Slack. 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. All right, listeners. We'll see you next time. We'll see you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Huh.