In this special episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with guests Eric Yuan of Zoom and Peter Gassner of Viva Systems, delve into the intricacies of capital-efficient growth. They explore how both companies, despite operating in mature markets with established players, managed to scale rapidly with minimal capital. Yuan and Gassner emphasize the importance of product excellence, customer focus, and a disciplined approach to hiring and marketing as key drivers of their success. The conversation also touches on strategic decision-making for long-term sustainability, such as when to introduce new services and the balance between promoting internal talent and hiring experienced leaders. The CEOs share insights on maintaining a competitive edge through continuous innovation and cultivating a company culture that is both performance-driven and socially responsible.
"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."
This quote explains the rarity of the content being shared and sets the stage for the interview's focus on capital efficiency in the context of a CEO summit.
"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?"
This quote highlights Viva Systems' niche market focus and its capital efficient growth within that sector.
"I started comedy 2011. 1st thing I did, I opened up a Wells Fargo bank account. It's very easy for me to raise capital, that's why I opened up bank account. Unfortunately, it took me for several months, no visits wanted to invest me."
Eric Yuan humorously refers to his initial optimism about raising capital and the subsequent difficulties he faced, which is indicative of the challenges in securing early-stage investment.
"I would say probably it starts with a mindset, 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."
Peter Gassner's quote encapsulates the philosophy of building a business that is fundamentally profitable and sustainable, which is central to the theme of capital efficiency.
"Anything that wasn't related to the product or the customer was just know and just don't do it." "So product excellence, real focus mindset, and then you have to have some luck in your market."
These quotes highlight the speakers' strategy of maintaining a laser focus on product development and customer satisfaction, while recognizing the element of fortune in finding the right market at the right time.
"You have to pick something that most people think is going to fail to be an outlier." "What did each of you do ahead of time that led to you to really genuinely believe, yes, the world thinks this is crazy, but I really think this is going to work."
These quotes convey the idea that successful entrepreneurs often pursue ideas that are not widely accepted but have a strong belief in their potential success based on their understanding of the market.
"I talked to three or four potential customers for our first product, and they all said, we don't need that." "You have to listen to what they feel, not what they say."
These quotes emphasize the importance of deep customer insights, looking beyond their initial reactions to understand their true feelings and unmet needs.
"I was a regional founding team member of Webex... I know if I can build a better solution, I think at least I can survive." "For the first four years, we do not have any marketing team."
These quotes reflect the speakers' strategies of leveraging their expertise to create a superior product and focusing on essential functions, delaying the development of teams like marketing until the product was established.
"All of them are very good engineers, right? Except for me." "No wasted people, no optional people, no wasted people, because it just adds a, it'll burn through your money."
These quotes discuss the speakers' approach to building a team where every member is crucial and productive, avoiding unnecessary hires that could drain resources.
"Luckily, the very famous reporter Walter Mossberg... he did write down a very nice article published in Wall Street Journal." "I maintained a very good personal relationship with them, either vip account or sending them a small gift."
These quotes illustrate how positive media attention and personal customer engagement can be pivotal in gaining an initial user base and fostering organic growth through satisfied customers.
"Even 49,000 users left, as long as 100 still stayed. We doubled on that." "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."
These quotes highlight the speakers' preference for direct feedback over formal surveys to gauge customer satisfaction and their strategy of concentrating on a core group of dedicated users to drive growth.
"We will win this deal. Why? Because we have better people that will work harder." "I thought, oh, we've just raised a $3 million round of capital here, and it didn't cost us any dilution."
These quotes recount the experience of acquiring a major customer and using the revenue as a non-dilutive funding source for further development, emphasizing the need for a sound business model for long-term success.
"That's how we first met, Eric and I. It was smaller at that time."
The quote reflects on the beginnings of a relationship and the context of a smaller group setting, emphasizing the significance of initial connections in business and personal networks.
"Yeah, we didn't do that because I was always optimizing for the long term value, which is the annual value per customer."
Eric explains his strategic choice to prioritize long-term customer value over short-term gains from multi-year contracts, suggesting a focus on sustainable growth.
"And that's unique to us. I think we're selling in a very confined vertical, so it's not really fair if there's two companies and one's paying 30% less than the other, and they end up knowing about it and feeling bad about it."
This quote emphasizes the need for fairness and transparency in pricing within a niche market, where customers are likely to compare notes and feel aggrieved by disparities.
"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."
The quote summarizes Viva's targeted market within the life sciences industry and their strategy of selling multiple products to a defined customer base, illustrating a focused and layered approach to sales.
"So our strategy more like, you open up a new restaurant business, right? And you have a better service and a better price and a better food."
Eric uses the restaurant analogy to explain Zoom's strategy of excelling in service, pricing, and product quality to stand out in the market, indicating a comprehensive approach to competition.
"That efficiency translates to capital efficiency, which translates to gross margin, not gross to operational margins, which translates to cash flow."
This quote connects the concept of organizational efficiency with financial metrics, showing how internal practices can lead to improved financial outcomes.
"And that's a lot about people, right, Eric? About which people you put on the product."
The quote underlines the connection between product excellence and the people working on the product, suggesting that the right team is crucial for creating an exceptional product.
"Yeah, I always wanted to have some people with some range they could get very hands on, but also grow into managing."
Speaker E expresses a desire to hire versatile individuals who can contribute at multiple levels and grow within the organization, emphasizing the value of potential and adaptability in team members.
"Even today, every Tuesday we have a 3 hours staff meeting, right? This morning, the first topic read about reviewing our marketing toppedin marketing programs."
Eric explains that Zoom continues to scrutinize its marketing programs regularly, highlighting the ongoing importance of strategic marketing decisions even as the company matures.
"So, you know, I think it's more like a sports. Right. We need to focus on both offense and defense."
The quote draws a parallel between business strategy and sports, where a balance of offensive and defensive tactics is necessary for long-term success, implying the need for agility and foresight in business.
"That's the most important thing. Right. By doing that, at the same time, you also need to think about what's next."
This quote emphasizes the importance of not only focusing on current innovations but also considering future developments and directions to keep the company moving forward.
"Also, you do want to expand to different areas because 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?"
This quote highlights the risks associated with having a high market share without seeking expansion, which can lead to over-investment in one area and potential issues.
"We also have a goal that we set out about five years ago to be the leader in light."
This quote discusses the importance of setting aspirational goals that align with company values and the impact of sharing those goals with customers for accountability.
"If you wanted to have new service, you cannot have a new service today. Right. You need to think about trying to make a decision two or three years before that."
This quote underscores the necessity of foresight in planning for new services, highlighting that these decisions need to be made well before the intended launch date.
"So I thought, this is the way to become a multiproduct company, and it'll either make us or it'll break us."
The quote reflects the calculated risk taken when diversifying into a new, distinctly different product, acknowledging the potential for both significant success and failure.
"The good news, I do not think that's a work, because we all enjoy that this is a part of life."
This quote conveys the idea that hard work is an integral and enjoyable part of life and building a company, suggesting a positive attitude towards the challenges faced.
"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."
This quote acknowledges the importance of discussing strategies for building successful companies with limited capital, especially given the changing economic landscape.
"Essential. Appreciated. Really automating this industry and contributing to being an example of a good employer so that other people could copy it."
The quote outlines a vision of success where a company becomes essential to an industry, appreciated by customers, and serves as a model for positive societal impact.