Beyond $1B ARR: Lessons from Zendesk on Why the Cloud is Unstoppable (Video + Transcript)


This post is by Faith Storey from SaaStr


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The cloud’s biggest days are yet to come. The rise of the public cloud is driving a massive replatforming of the tech stack and customer experiences for every company. What’s next? A deep dive with Ophelia Brown, Founder of Blossom Capital Want to see more content like this? Join us at SaaStr Annual 2020.   Mikkel Svane – CEO @ Zendesk
Ophelia Brown – Founder @ Blossom Capital
FULL TRANSCRIPT BELOW Ophelia: Hi everyone! Thank you for taking time to listen to us this morning. So I am here, I guess, about 7 years after we first met. It was 7, 6 years. Tables have turned because I first met Mikkel when just after I was working for previous fund index, he had just invested. I use to send every founder to Mikkel’s way, European founder, Mikkel’s way to help them figure out how to relocate to San Francisco.
6 years later Mikkel is an investor in my firm Blossom and I’m trying to get him to tell every founder in Europe to stay there rather than to move. So Mikkel, it’s been an amazing quarter for you. And recently you released plans to reach a billion of revenue next year. Mikkel: 2020. Easy, easy, easy. Ophelia: Next year. Mikkel: Oh yeah, it is next year. Sorry. Yeah, yeah. Ophelia: Hate to break it to you. How’s that going? Mikkel: Now fantastic. Fantastic. Zendesk, we had our Q4 in 2018 earnings call yesterday. We ended just shy of $600 million dollar in revenue for the year. We had a $700 million dollar run rate. Close to $700 million dollar run rate right now. We guided towards $800,000,000 for 2019. So we feel very confident, increasingly confident, about getting to a billion dollars in revenue by 2020 and that’s gonna be a fun milestone, you know? I still remember getting to ten thousand and a hundred thousand. It will be an amazing milestone. Thank you. Ophelia: And what do you think are the biggest challenges facing any SaaS company today? What do you think has changed since you started about 10 years ago? Mikkel: Everything. Everything. First of all, do we have any European SaaS startups here today? Oh there are plenty. First and foremost, you guys are so spoiled, you know. 10 years ago, I tell you guys, kids, that was a very different back then. I think it’s one of those things that you forget how quickly things have developed. Like the notion, was cloud going to be the future? Like that wasn’t something that was a fact 10 years ago. There were still a lot of people that told us we needed to build on premise software. This cloud thing isn’t a certain thing yet, etc, etc. This model of trialing and buying a software that doesn’t make any sense. Stop that. It was a very, very different environment back then. And when you build your software, you had nothing. We had to build everything from scratch. Our web server, how we handle email, how we billed our customers. All these different things, we had to build the entire stack ourselves. And we ran it on own software in someones basement. Not today where you can get the entire stack, you can combine the entire stack. You have everything running on a WS in no time. So very, very different back then. Mikkel: Being just a little bit different back then was like being very different. Today it’s much harder. Differentiating yourself today so much harder. But what we have seen is part of differentiating yourself today is also providing a different customer experience. We’ve been very fortunate about being a company that helps companies providing a fantastic customer experience and fortunate enough to work with a bunch of you guys. And helping you provide that customer experience. Mikkel: I do think because we have European founders here today. I think it is very interesting because you can tell from the broken english that I’m not from around here. I came to the area 10 years ago, almost exactly 10 years ago. You could not build a business in Europe. Forget about it. There was no money. There were no VCs. You had talent. Of course, you had talent but you had zero experience. Zero experience for building software companies. And there were no startup communities. No startup environment. There was nothing. Index was one of the few VC firms in Europe back then. Ophelia: Yeah Mikkel: For us, we had no choice. If we wanted to succeed we had to get out of Europe and land in Silicon Valley. And that is different now. That’s what you put your business on. Ophelia: The picture has become brighter. He’s not for everyone. So now you are saying things have changed now. Mikkel: No I’m not saying that. You’re saying that. Ophelia: I’m saying that. I believe there is much more accessibility to talent. And new firms that, I have to do a promo for Blossom, that can back you and help you build from the early stages. You mentioned how things have changed. Obviously customers are always somewhat demanding. But how are you seeing your customers demands have changed? And how’s demand for customer experience changed over time? Mikkel: Yeah it is funny to think of 10 years ago what a different world it was like. I was thinking about in the 90s when I came to the Silicon Valley. You had physical maps and that is how you found your places that you had to go. You had to agree on meeting at a special time and a special place because not everybody had cellphones, etc. if you think about just over the last 10 years how much has changed because now we all have smartphones and we have the maps going with us everywhere. We have the GPS and everybody is reachable all the time. It’s a completely different time. Mikkel: Our expectations as consumers to the services we are using are completely different. Things are so easy for us in so many ways. We can order anything from anywhere and it’s here instantaneous. If I want to sit down and have a pizza in a car while streaming I don’t know what, I can do that. Everything is instantaneously available. And that is also changing our expectations to business software. Business software used to be terrible. I think we guys, you guys, have helped change that. Now the bar is so much higher. Businesses have a very different expectation to the kind of software that they put in their business. They want to be agile, they want to be quick, they want to see results. They don’t want to train a thousand people. They want to get them up and running instantaneously. They don’t want to have a big manual to read. They don’t want binders and instructions. They just want to make things intuitive and easy so people can hit the ground running and can focus on the business and focus on the customers. Mikkel: That is such a different mindset to how it was years ago. Business software back then were two year projects. Everybody had to train and go to school. The good ole days of SAP. Everything just took forever. That is not the world we live in today and businesses are not going to accept that going forward. They need to be able to take these things in and out the same way we do with our consumer services with our consumer apps. And I think that is fascinating. It’s been fascinating being part of that giant change. I say just years because it feels like yesterday but it’s really like the world has truly changed. Ophelia: And you mentioned very briefly the demand for on premise. Obviously that’s not really so relevant today. What kind of role do you think the rise of the public has paid? And how important is that for SaaS companies today? Mikkel: Well again, the public cloud, AWS, was the dominant leader. They can just provide an infrastructure and a platform for companies to move really, really quickly. So if you are a startup today what we spend nine months, twelve months initially, you could do that in like weeks today. You could get up and running so ridiculously quickly today. So that’s less about the differential and less about the kind of idea and concept, it’s more about the execution of your business and the results you bring to the business out of the gates. Mikkel: The public cloud has become the weapon of choice, not only for new startups, but for established businesses. We are seeing platform shifts from how they traditionally run their infrastructure and services and business to seeing them run that stuff on AWS. I think the real opportunity here is these public clouds can be the ultimate kind of dream for how we want collaborate and have all these applications work together. Because why do we all need to maintain our own API’s and all these different things if we are all on the same infrastructure and can use native services to have data flow seamlessly between applications. Mikkel: That is part of how we think at Zendesk and our promise to a new generation of developers, new generation of companies, is that if you build on AWS we will make it incredibly easy for you to use data coming out of the sender’s portfolio of systems but also make it easier for you to collaborate with applications that we have built. We think that the public cloud can be a paradigm shift and it’s the beginning of a new cloud generation. Where it is less about getting your infrastructure out of your basement and more about take benefit from having this worldwide phenomenon that basically connect all of us people and all of our data. Ophelia: So lots of exciting developments for Zendesk in the last year. The acquisition of Base and now the launch of your new CRM platform, Sunshine. Mikkel: Sunshine. Ophelia: We could use some more of that in here. Tell us a bit more about that. Why now? And do we need another platform? What’s the motive? Mikkel: I think we need a new generation platform. I think we are sick and tired of the old vendor login platform. Just because a vendor, company comes and says “you can use our platform” it locks you into that vendor and everything happens at the pace of that vendor. I think that thinking about the cloud infrastructure as your platform, and that is really our ambition with Sunshine. it’s to say that we are gonna provide a lot of components, lot of helping stuff, a lot of infrastructure, a lot of reference stuff, but you should think about the public cloud as your platform. Instead of retraining your developers on building on this and that platform, and using these and those APIs and libraries, just train them on the public clouds and AWS. And you kind of run so much faster and stay true to your business and actually work in an environment that is familiar. Mikkel: So that is our big bent. That is how we kind of think the future of enterprise technology is going to be built. That’s gonna live up to the expectation of businesses today that don’t want lock in, that want to be agile, that want to move quickly, and want to stay relevant for their customers. it’s one of the biggest challenges today. It is so hard to stay relevant for your customers. Businesses are coming and going at crazy pace because we don’t stay relevant to our customers. Once we get to a certain size we become slow, we become outdated, we become hard to satisfy for our customers. So giving businesses today the tools to stay agile, to stay relevant, to be able to run quickly I think is going to be critical for a new generation of businesses. Ophelia: So do you think that’s the opportunity for all of next generation SaaS companies? And you’ve spoken a bit about what’s driving it. But do you think anyone who doesn’t jump on that bandwagon is going to be left behind? Mikkel: I think we’re still in the very early stage of redefining all of our enterprise technology out there. There are still a tremendous amount of companies that spend all their money on Oracle on SAP, on a lot of outdated technology and they are locked in and they can’t move anywhere. It’s hurting the business, it’s hurting the customer experience, and it’s ultimately hurting us as consumers. Mikkel: I think we have an opportunity to provide these businesses with a new set of much more agile technology that doesn’t lock them in, makes it so much easier for them and ultimately will help these businesses be much better. More successful. Able to help them provide a much better customer experience and always keep up to the expectation of the customers. And ultimately it will be good for people, for us as consumers, that the business we are dealing with are able and can provide us with a great experience. I think we have all known that, we have all experienced that where a large organization becomes so big that suddenly product experience, the customer experience becomes terrible but now they are so big it’s actually hard to move away from them. We’ve all tried that with our phone providers, our cable providers, our internet providers, all these. At some point the sexiness of the application or service goes away and the customer service, customer experience becomes terrible but now it’s become super hard to move away from them. I think that is one of the things we have the opportunity as businesses today, provide a new generation of technologies that can make these businesses stay relevant. Ophelia: When you started out you spoke a lot about the differentiator being that Zendesk is focused on user experience. That is what the key selling point was. Mikkel: Yeah Ophelia: Do you think that is enough of a differentiator today? Is just solely focusing on UI is going to make a new SaaS company stand out? Is it enough for you to stand out? Mikkel: I think a fantastic user experience is table steaks today. You can build the smartest product in the world, if you don’t make it sleek, easy, beautiful, relevant for your customers, forget about it. it’s like your phone apps. If it looks like a piece of bricks, you’re not going to use it. it’s table steaks. It’s a new bar for apps today is that they have to be super easy, intuitive to use. So I think the ease of use grows now beyond just the user experience. Goes on to what extent does this login us in, to what extent is it easy to get developers to work on it, to what extent is it easy to scale it? Just scaling software. We have opportunities to scale software from very small implementations to very large implementations due to cloud technology today. That ease of use is going to be importation to that whole live experience around a product and not just how does it look in the interface. So I think there is a new kind of front. There is a new battle front for you to use if you will. Ophelia: And you have a stellar roster of customers. How do you think some of those, to name a few, like Slack or MailChimp, Xero, how do you think those SaaS companies stand out today? Mikkel: That’s one of the things that has been amazing in our journey is that we have worked with the coolest companies in the world. All of these companies that have completely changed how we do stuff today. Companies like Uber, Slack, as you say, MailChimp, Shopify, Pinterest, Netflix, Postmates. All these new generation of services and we work with these type of companies all over the world and we have learned so much from them. But even for these guys, they know it is the ease of use, it is the transparency of the applications, it’s the responsiveness, it’s the empowerment to the user that ultimately is gonna make these companies successful or not. It’s obvious that these guys know the experience and the ease of use of the applications is critical to their success. It’s been a fantastic for us to have the opportunity, the privilege for us to work with these amazing companies that really shape us as a company. And it’s also obvious that they set a new standard for how we as consumers expect to do stuff. Mikkel: My kids are ruthless, ruthless, in how they use applications. On the iPad, on their phones. If they have games and stuff that they are using, if it’s not good they are just not going to use it. If it’s not engaging and super easy they aren’t going to use it. And they don’t think to two seconds about it. That’s the next generation of consumer. The next generation of consumer is going to be ruthless, if things are fantastic they’re not going to use the shit. Ophelia: Keep the level high. Obviously reaching a billion is not enough for you, after that is a multi-billion Mikkel: Multi billion Ophelia: Project for you. What kind of customer experience, what kind of innovation do we need to help do you gather? Mikkel: There is a lot of stuff. We truly do believe in more and more businesses adopting the public cloud as their platform figure. That really is a new generational kind of shift. A new generational change in how you think about your stack. How you think about your infrastructure. You are going to be part of that. We think that’s ridiculously interesting. I think it’s a huge opportunity for a new generation of companies. Mikkel: Our business, we started out helping customers with very basic customer support. Helping businesses be responsive and transparent and empowering to their customers over different channels to engage with their users. And we gonna expand that in all different fields. We are doing more and more investments in machine learning capabilities that can kind of help our customers automate the flow and provide a greater customer experience. We are doing more and more around analytics to help customers, not only understand their customers and operations but to truly like what is the sentiment of the market? Behind the ticket, behind the user, behind the interaction, what is the sentiment of the customer? What do they really think about the business and how can you apply that knowledge to improving your business? Then we are going to help our customers across the entire customer experience. Like anything sales, now we do sales tools too, to marketing, all these other things. Basically anything that touches the customer. We are very excited about that. It’s going to be a fun journey. We are hiring a lot of people. Just saying. Ophelia: They’ve all got their own entrepreneurial journeys to see through. Mikkel: Oh sorry. When you have failed. Sorry. Ophelia: Speaking of hiring people, tenures on 3000 employees, you have multiple offices across the world. How do you find maintaining an integrative culture? How do you give people the promise of something new every day? Mikkel: So we recruit. Ophelia: This is your opportunity to recruit everyone in the crowd. Mikkel: We grew something like 40% last quarter. And a run rate of $600 million dollars. That’s a lot. That’s a lot of change with 2700, 2800 people. It’s a lot of change to the organization. You have to be a little bit crazy to enjoy that. But it’s a fantastic journey. When you are building a startup that you have new challenges, new set of challenges and stuff every single day that’s both the craziness and the excitement about building a startup. That we can keep that at our size gives our employees ton of opportunities. The company today is a completely different company than this company is going to be in a year. When we do our projections we say “oh we are going to be 5000 people at that point”. And then we are like we kind of have to with just the rotation and turn and peoples lives and everything. We probably have to hire 5000 people to get to 5000. It’s just such a ridiculous amount of change and disruption that it’s crazy but it’s also amazing. It gives our employees an amazing opportunity to learn a lot of new stuff. Ophelia: So for a lot of people sitting in this audience, they are probably where you were 10 years ago, thinking about how to get to that first 100k and kind of starting out. If you can take yourself back that point, given all the trends you are describing in the industry and where we are, what would be the few pieces of advice that you would … Mikkel: I would quit whatever I’m doing and take this fantastic job at Zendesk. No. You know how it is, the early days of a startup. They are frightening. There’s a lot of things about building a SaaS company. Like the funnel model, The customer acquisition principles that we didn’t have years ago. We thought all the customers that we got initially that paid monthly we had this constant fear that tomorrow they would all be gone. That we actually retained these customers and that we could predict our retention of these customers was not common knowledge back then. Living with the terror of you don’t know who is gonna pay your salary in 6 months, who was gonna support your family, all these things, the terror of living with that is terrible in the early days of building a company. Mikkel: And then you have this amazing part. You learn all these amazing things and you are trying to push the boundaries and envelope on these things and you are out there at the forefront of innovation. Meeting all these cool people, doing on these cool things, and working with cool companies. That is fantastic. So you have to live with this dilemma constantly. Mikkel: You also know that you are probably gonna fail. That’s crazy. Ophelia: You’re suppose to inspire not scare. Mikkel: Realizing that you are going to fail is what helps you succeed in the end. If you are unrealistic about your own mortality. You’re not going to truly live. It’s not until you realize that you die that you’re truly gonna live. Sorry that is very dark. Very dark suddenly. No I think that realizing that your company could be gone tomorrow or next month, or next year, that is what truly gives you the grind to build a successful company. But living with that dynamics of the early days, terrible, terrifying. Ophelia: And when you started out, did you worry a lot about competition? And more so today or lesser today? Mikkel: I think we worried a lot about the market. There were so many people who told us “don’t go into anything with customer service. No one gives a shit. No one is going to pay any money there. And all the innovation has been done.” that was kind of the common sense. I could name a few VCs that told us that. And one day I will. We didn’t worry so much about competition, we worried about market, was it truly a market. of course when you grow a company you have to navigate what are the other players in the market. There is always competition one way or another. I think the most interesting competition is the companies that are trying to redefine the market, redefine the playing field. These are the kind of things that are both inspiring and scary. Ophelia: So we are almost running out of time. If you had one thing to leave the audience with, other than the fact that they might all fail and die, lets leave them with something a bit more positive. What do you want to say? Other then apply to Zendesk. Mikkel: Think about what a fantastic journey this is. Your on a journey now with your second fund, first fund, second fund. A lot of you guys are on your initial journey with your startup, with your company. Really appreciate this time in your life. Outside of this little bottle we call Silicon Valley and some places in Europe, etc. So few people have this opportunity. Regardless of how you are doing with your company you are going to learn so much from this. It is important to think about it, first and foremost, as a big learning experience. Because as I said you really have to learn to enjoy the journey. In case, you know. In case. Ophelia: And all that note Mikkel: In case. Yeah. It’s inspiring for us as a company to meet all this innovation. It’s inspiring to be part of this community. We have a booth here today. We make sure that startups can use our software free of charge for a year. And I think part of the life blood of companies as Zendesk is the constant kind of innovation that you are being exposed to from the startup community. So like we feel very much at home at conferences like this. It’s very inspiring to work with so many of you guys. I know a lot of you guys are working on our platform, billing to our customers. We have a huge community of customers. We have 130,000 customer accounts or something like that. Building such a platform such community for others to do their business too is very exciting. I also want to say, we are both having a Q&A, both of us. Ophelia: Both of us. So come and join. Mikkel: We don’t know where and we don’t know whats it going to be about. I think that’s up to you. But we both have Q&A sessions. Ophelia is going to talk about why you should stay in Europe. Ophelia: Excuse me Mikkel: And I don’t know what I’m going to talk about. I think I’m going to talk a lot about death. Ophelia: I think we have time for one more question. This just occurred to me. When you started out who were your role models in the industry? And how has that changed today? Which companies do you look to and really aspire to what they’re building? Mikkel: Whew. I don’t think we had that many role models back then. I think as an industry if you are building enterprise cloud software today, I think we all owe a lot to Sales Force. They are probably sponsoring this thing too. Even though everybody is competing with them. We all owe it to them for kind of starting the cloud trend. And back then they were, more or less, the only company. I think there are a lot fewer. It was fun back then in San Francisco, 10 years ago it was fun. You met all the other cool founders on the streets and so on. When I say all the other cool founders, I mean you met all the cool founders on the street. Ophelia: Mikkel, thank you so much. It’s been a pleasure. Mikkel: Thanks everybody. The post Beyond $1B ARR: Lessons from Zendesk on Why the Cloud is Unstoppable (Video + Transcript) appeared first on SaaStr.

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