20VC Qualtrics' Ryan Smith on Building A $Bn Company & Raising The Largest Series A Since 2008 From Sequoia & Accel

Summary Notes


In this episode of Founders Friday on the 20 minutes VC, host Harry Stebbings interviews Ryan Smith, the founder and CEO of billion-dollar unicorn startup Qualtrics. Smith shares insights on Qualtrics' journey from a bootstrap operation to securing a $150 million Series B from top-tier investors like Sequoia, Accel, and Insight Venture Partners. He emphasizes the importance of patience, execution, and maintaining optionality without the pressure of a ticking clock. Smith also discusses the company's culture of radical transparency, the iterative process of innovation, and the value of resource constraints in fostering creativity. Additionally, he touches on the significance of having the right business partners and the company's focus on building a lasting enterprise.

Summary Notes

Introduction to Founders Friday on 20 minutes VC

  • Harry Stebbings is the host of Founders Friday on the 20 minutes VC podcast.
  • This particular episode was also intended for the official Sasta podcast.
  • The guest, Ryan Smith, gave a unique perspective on fundraising.
  • Ryan Smith is the founder and CEO of Qualtrics, a unicorn startup in online surveys.
  • Qualtrics has a billion-dollar valuation and 1200 employees.
  • The company has raised significant funding, including a $150 million Series B in 2014.
  • Investors include Sequoia, Accel, and Insight Venture Partners.
  • Ryan is noted for his kindness, work-life balance, and being a father to five children.
  • Qualtrics is based in Utah, outside traditional tech hubs.

"And this is a first for me as I recorded today's episode deliberately intended for the official Sasta podcast, which I host with support from Jason Lemkin at Sasta."

This quote introduces the unique crossover episode between Sasta and the 20 minutes VC, highlighting the significance of the guest and the conversation.

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Founding Story of Qualtrics

  • Ryan Smith co-founded Qualtrics with his father in 2002.
  • The startup landscape was different in 2002, with the term "startup" not being as prominent as today.
  • Qualtrics aimed to democratize sophisticated research technology.
  • The goal was to simplify complex data collection and analysis processes.
  • Early adoption of Qualtrics was in academia.
  • Ryan's brother, who was at Google, was recruited to join Qualtrics.
  • Convincing Ryan's brother to join was a challenging task.
  • The product and market fit, along with timing, contributed to Qualtrics' success.
  • Ryan believes that building a significant enterprise often takes 10-12 years.

"So starting a business was very different in 2002 than it is now."

This quote sets the stage for the founding story of Qualtrics, highlighting the different business environment at the time.

"I recruited my brother out of Google, who was running product and a third of the world's Internet traffic search, and I convinced him to come work with us."

This quote explains a pivotal moment in Qualtrics' history, where Ryan Smith successfully recruited his brother from Google to join the company, significantly impacting its trajectory.

Building Business on First Principles

  • Ryan Smith and his team built Qualtrics with the intention of keeping the business, not just for funding or selling it.
  • The aim was to create a business that would last for decades.
  • Building with this long-term perspective requires a different approach than building for short-term gains.
  • Ryan emphasizes the importance of building something bigger than any individual team member.

"We built a business to keep. And we built a business where it's got to be bigger than Ryan and it's got to be bigger than the founding team and Jared."

This quote reflects Ryan Smith's philosophy on building a business with longevity in mind, focusing on creating something that transcends individual contributions.

Building Qualtrics and Embracing Long-Term Vision

  • Qualtrics was built with a long-term vision, focusing on what's right for employees, customers, and the product.
  • The company spent five years in a basement focusing on the academic market, which was not considered a good business model by VCs.
  • Despite skepticism, the strategy paid off, with Qualtrics now being used by every higher education institution and having a million academic users annually.

"For five years we stayed in a basement and called on the academic market. There wasn't a VC in the world that would sit and bet on that plan."

This quote illustrates the company's early focus and commitment to a market segment that was not initially attractive to venture capitalists.

The Importance of Resource Constraints for Innovation

  • Qualtrics grew without venture capital, being cash flow positive from the start.
  • Ryan Smith believes that resource constraints force creativity and innovation.
  • He shares the journey of how Qualtrics discovered the right customer approach in academia, which took two and a half years to figure out.

"I believe that creativity comes from resource constraint. And I believe innovation comes from resource constraint."

This quote underscores Ryan Smith's belief that limitations can lead to greater creativity and innovation, a principle that guided Qualtrics' growth.

Venture Capital and Strategic Partnerships

  • Qualtrics was cash flow positive and did not initially seek venture capital.
  • When VCs reached out, Ryan Smith and his team were selective, waiting for the right partners who shared their vision.
  • Excel and Sequoia became their partners because of their understanding of Qualtrics' vision and their impressive track record in tech investments.

"We were cash flow positive. In 2009, people started reaching out to us. I remember Excel partners who Excel and Sequoia, they led our series A."

This quote details the point at which Qualtrics began to consider venture capital, choosing partners who had been persistent and aligned with their vision.

Decision to Raise Series A Funding

  • The decision to raise venture funding was tough, with Qualtrics already having high sales and profit margins.
  • The team saw a multi-billion-dollar opportunity as their product began to be used for customer feedback and employee 360 reviews in various industries.
  • The founders chose to go all-in and raised a $70 million Series A in 2012, the largest since 2008, with Sequoia and Excel.

"We raised a $70 million series A. It was Sequoia and Excel, and it was the largest series A or first time investment since 2008."

This quote captures the significance of their Series A funding round and the strategic decision to go big with their fundraising efforts.

Partner Selection for Success

  • Importance of choosing partners that contribute to the highest chance of success.
  • The value of having partners you enjoy working with and trust.
  • Partners should be the first call when problems arise.
  • Respect and closeness with partners enhance the feedback process.

"Anyways, get in with the partners that are going to help you with the largest chance of success to get there, and people that you jive with and people that you want to go into work with every single day and people that you want to be your first call when you've got a problem."

This quote emphasizes the importance of selecting partners based on their potential to contribute to success, their compatibility with your work style, and their reliability in times of trouble.

The Role of Transparency in Business

  • Transparency is a core principle at Qualtrics.
  • Radical transparency helps make every employee an insider.
  • The company's rapid growth has necessitated over-communication to ensure success.
  • Transparency aids in dispelling internal misconceptions and promotes clear visibility of everyone's contributions.

"Yeah, I mean, transparency is the number one component of qualtrics."

This quote highlights the fundamental role transparency plays in the culture and operations of Qualtrics, positioning it as a critical element of the company's ethos.

The Importance of Execution in Business

  • Companies fail due to internal focus or being spread too thin externally.
  • The abundance of money and smart engineers does not guarantee success without execution.
  • Sharing information and learning from mistakes is encouraged at Qualtrics.
  • Internal systems are developed to maintain visibility and accountability.

"So it comes down to execution."

This quote distills the essence of what differentiates successful companies from the rest, emphasizing that proper execution is key, regardless of resources.

The Balance of Transparency

  • Transparency must be managed thoughtfully.
  • Avoiding minor lapses in integrity is a principle at Qualtrics.
  • Openness is preferred over opaqueness, which is likened to government secrecy.
  • Founders have the freedom to create their own transparent environments.

"Look, you have to be thoughtful, but I'm pretty straight up and I'm pretty straightforward, and that's just my style."

Ryan Smith explains his personal approach to transparency, suggesting that while it must be handled with care, he favors a direct and open style.

Qualtrics' Workplace Culture

  • The basketball court in the lobby symbolizes not taking oneself too seriously.
  • A relaxed and playful work environment is part of the company's culture.

"Yeah, we have a basketball court in our lobby, and I couldn't figure out what to do with the lobby, and someone said, let's put a basketball court in."

Ryan Smith describes a distinctive feature of the Qualtrics office that reflects the company's approach to maintaining a light-hearted and enjoyable workplace.

Productivity Insights

  • Productivity strategies must evolve as roles and responsibilities change.
  • Personal productivity varies by individual and over time.
  • Ryan Smith is most productive in the early morning hours.
  • Planning the day in advance is crucial to ensure daily success.

"Look, my job as CEO changes every three months, and so does the way I go about the job."

This quote captures the dynamic nature of the CEO role at Qualtrics and the need for adaptive productivity strategies.

Fostering Culture and Engagement at Work

  • Understanding and empathy among employees are key to a cohesive culture.
  • Transparency helps in building empathy across the organization.

"Yeah, there's a lot of tips. I think understanding what everyone else is doing so that there's empathy for the rest of the organization is probably number one."

Ryan Smith shares his perspective on the importance of mutual understanding and empathy in fostering a positive workplace culture and engagement.

Transparency and Open Communication

  • Transparency is crucial in fostering innovation and problem-solving within an organization.
  • Open conversations and feedback are encouraged to solve issues and remove the mediator from the equation.
  • Complete escalation is a practice where discussions about interpersonal issues are held with all involved parties present.
  • Teaching and practicing open and positive feedback aligns with Kim Scott's concept of radical candor.

"We don't want them totally focused on that, but we have that entirely transparent." "One of the things that I believe in is complete escalation, where if someone's talking to me about someone else, we're doing it in the room together." "Kim Scott calls us radical. Candor throughout the organization solves a lot of problems."

  • Transparency is not about distraction but about openness to innovation from all groups.
  • Complete escalation is a conflict resolution method that involves direct communication between the parties involved, with the mediator stepping back.
  • Radical candor is a feedback method that emphasizes caring personally while challenging directly, leading to problem-solving and growth.

Entrepreneurial Mindset and Growth

  • Confidence in one's unique approach and perseverance are key to entrepreneurial success.
  • Understanding that success takes time and maintaining funding and partnership optionality is crucial for long-term growth.
  • Iteration is the essence of successful execution; all successful ventures go through periods of doubt.
  • Patience is a learned trait for entrepreneurs who must balance urgency with the long-term vision.

"It's kind of been us against the world the whole time." "Rome wasn't built in a day and it's going to take time." "Success and execution comes from a lot of little iterations."

  • The "us against the world" mentality is a driving force for entrepreneurial resilience and determination.
  • The phrase "Rome wasn't built in a day" emphasizes the importance of patience and time in building something significant.
  • Continuous improvement through iterations is a common theme in successful projects and companies.

Work-Life Integration and Daily Routine

  • A CEO's role is to facilitate and remove obstacles for their team, rather than predict daily occurrences.
  • Starting the day on the right foot is crucial for a successful workday.
  • Feeling like an individual contributor each day can lead to greater happiness and productivity.
  • Effective time management and personal fulfillment are essential for leadership and overall job satisfaction.

"I don't try to really predict what's going to happen in the workday." "How in the world can you make sure that, first of all, we don't want to feel like we're individual contributors?" "Most people only have three or four productive hours in the day where they're actually getting stuff done."

  • Predictability in a CEO's day is less important than readiness and adaptability.
  • Ensuring that employees feel valued and have a sense of individual contribution is key to their happiness and productivity.
  • Recognizing that productivity may be concentrated in a few hours each day can help in planning and maximizing those hours.

The Role of Luck and Writing Your Own Story

  • Acknowledging the role of luck in entrepreneurial success is important.
  • Entrepreneurs have the ability to craft their own narrative and should do so intentionally.
  • The media often paints an overly positive picture of success, which can be misleading.

"I think the media paints a pretty rosy picture." "I think a lot of entrepreneurs don't think about luck." "You just need to be thoughtful and you get to write your own story, so write it the way you want."

  • The media's portrayal may not always reflect the full reality of entrepreneurial challenges and successes.
  • Luck is a factor that entrepreneurs should consider in their journey, as it can play a significant role.
  • Entrepreneurs have the agency to shape their journey and outcomes by being deliberate in their actions and decisions.

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