What’s it really like to scale a business from a few users to $100m ARR and 7 million users? Michelle Zatlyn, co‑founder and COO of Cloudflare, sits down with Laura Bilazarian, CEO, co‑founder of Teamable, to share her 10 toughest lessons that she learned while scaling Cloudflare into the business it is today. Cloudflare provides a content delivery network, DDoS mitigation, Internet security services and distributed domain name server services by acting as a reverse proxy for websites.
From hiring to customer growth and everything in between– this session from SaaStr Annual 2018 is a must-see for all founders.
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Transcript
Announcer: Please welcome Michelle Zatlyn, co‑founder and COO of Cloudflare and Laura Bilazarian, CEO, co‑founder of Teamable.
[music + applause]
Michelle Zatlyn: Oh, my goodness. Is this what Chrissy Teigen feels like when she’s on the late night talk shows?
Laura Bilazarian: Maybe.
Michelle: It feels very weird.
Laura: I hope I live up to the challenge. We’re all very lucky here to have Michelle, who has a company called Cloudflare. Their mission is helping to build a better Internet. Can you tell what Cloudflare does for setting context? Then we’ll go into it.
Michelle: Sure. Hi. I was literally in your seats about five years ago. Cloudflare, our mission is to help build a better Internet. What that means is if you have a website, an app, a blog, an API, Cloudflare helps to make sure it’s fast, safe, reliable, and you have insights and controls around the world.
We’re about seven years old. In the last seven years, it’s been quite the ride. We’ve over seven million customers now. Every day, about 20,000 new sites sign up for our service. We have about 600 people working at Cloudflare around the world. Our revenue is north of $100 million.
It’s been quite the ride the last seven years. Literally, I was in your seats five years ago. Excited to be here today.
Laura: The thing I’m in awe of here is like, “This is massive scale.” Who wants to have a business that’s $100 million in revenue and over seven million users and so? What I’ve asked Michelle to do is try to give us some of the lessons that are a counter to. The ones that you can’t read on Jason’s blog, the ones you can’t learn by talking other founders your size.
She’s been really generous, and forensically gone back in time for us. It’s going to be really open. Michelle, like you said, a lot of your lessons were around people. [laughs] I think this is something we all saw every day. First, tell about your founder and your founding situation because that’s DNA.
Michelle: Three of us started the company ‑‑ Matthew, Lee, and I. We’re all really, really different. If you’re really early in your company lifecycle and you’re still figuring out who your founders are going to be or you’re still not sure you have the right founders, I’ll just share a little bit about Matthew, Lee, and I.
I remember when I went to tell people…Matthew and I met at business school. We were classmates. We had a lot of mutual friends in common. I remember it was the end of our business school experience. I told people, “Hey, when I graduate, I’m going to go move to California. I’m going to start a company with Matthew.”
People looked at me and said, “Why?” [laughs] “Why Matthew? Do you guys know each other that well?” Matthew would tell people the same thing. They were like, “Why do you want to start it with Michelle?” We are just very different people. Lots of people now know both of us.
I would say that Matthew is very strategic and visionary. If you need a startup idea, he is the person to go find at a bar. He has more ideas than he knows what to do with.
Lee, who is the third cofounder, was the technical architect. He was just the one figuring out the architecture, benchmarking everything, figuring out, “OK, if we’re going to do this, how do we architect it so it scales?” which is really important, having that DNA early on.
I was much more…I didn’t know a lot about the space, but I was really good at getting things done and saying, “OK, if we’re going to go there, what are all the things we need to do to get there?” Also, because I didn’t know a ton about Internet performance and security when we started…and we’re a really technical company. We build infrastructure for the Internet.
I can ask silly questions like, “Nobody knows what you guys are talking about. How are we going to explain this in a way that people needed? A lot of people don’t understand the technical details behind it. Make sure they don’t have to. How do we straddle both?”
I feel like I played a lot on that piece. If Matthew was sitting here, he would say, “Michelle hosts to make the trains run on time.” Anyway, I tell all the story for those who are earlier in here, even those of you that want to start a company. I think of a Venn diagram. Good cofounders have totally different skill sets than you.
The thing is, people are like, “Oh, yeah. That makes tons of sense,” but when you’re starting, it is so hard to have a cofounder that has a totally different skill set than you, because you literally almost can’t relate to one another. You come to problems at different angles. You care about different things.
I remember early on the stuff that Matthew and Lee cared about, and I didn’t care about that at all. I cared a lot more about, “What are people working on?” and making sure people knew. They didn’t care about that at all.
It was more having this mutual vision for the company, a ton of respect for one another, and finding a way to work together. I think that if you can find cofounders that are different than you, you cover a lot of surface area. You need enough overlap to make things work. It’s hard.
Fast forward seven years later, obviously, we’re very good friends. We know each other in a totally different way. We’ve gotten through that awkward, getting‑to‑know, working‑together phase. Early on, having diverse points of view was really, really powerful and a great starting point for Cloudflare.
Laura: As you grew, let’s start with the first 50 people. What were some of the lessons that you wish someone had told you?
Michelle: Oh, my god. If I had known how hard it was to get to 50 people, I don’t know if we would have started. It is so hard to convince somebody to come work for you when you’re just a few people. It’s actually easier when you’re starting out. I think you’re less than 10 people, it’s easier to recruit.
10 to 50, someone has to be a little crazy to come work with you. There’s so many good job options, especially if you’re in the Bay Area, or New York, or Toronto or Austin. You pick any big city, it’s like there are so many other great jobs. Why would they take a chance?
Of course, if you’re one of the first few people, I think the economics make a ton of sense. 10 to 50 is a hard, hard, hard, hard time to attract folks. [laughs] I remember we were growing like mad. On every metric, we were up and to the right.
We had launched at a conference kind of like this, actually. It was called Tech Crunch Disrupt, back in September 2010. We were runners‑up on stage. I remember when we launched there, our sign‑ups went up through the roof, and they never stopped.
We were trying to keep our heads above water. We were working all the time. There was eight of us. Hiring was a big, big priority for us. It’s hard to get [those people to join at…
The right people, and so some things that I think worked for us that hopefully will be helpful to those in the room if you’re at that stage. I think this is when we got crystal around what we were doing as a business. We did not start Cloudflare with this mission to say, “Hey, we’re gonna help build a better Internet.”
If you go back to our business plan in the first year of our existence, those words never left our mouths. It was more once we started to have traction, we started to realize the impact in what we could, and we started to almost fall more and more in love with our idea that we started to crystallize, “OK, what’s, what are we really trying achieve as a business?”
It emerged a little bit more slowly. As soon as we had that, oh, man, was it helpful as we tried to talk to other people and recruit other people to come join. All of a sudden, people were like, “Yeah, I wanna be part of that. I wanna come be part of the team that’s helping to make the Internet a better place.”
If you’re sitting in the audience, and you’re like, “Yeah, getting those people to come recruit,” you can’t compete on salary. You can’t. [laughs] There’s lots of interesting things, but if you can find people who have the same interest in what your business is trying to solve or what your mission is, then it’s easier.
People are like, “OK, I am interested in this, and I could really throw m‑, you know, throw myself into it and take the chance to come join.” I think that was helpful. The other thing that I think that I did not realize at the time that I wish I had is businesses aren’t like a linear line up. They’re much more like step functions.
What I mean by that is, really early, when you’re less than 20 people, and what I always say is the first version of Cloudflare got built on the back of 20 people. It was amazing what 20 people who have a shared vision, who are really smart, and what you can accomplish together, it’s incredible. The back of 20 people, and so you…
I can’t even remember what I was going to say, but anyway.
Laura: You have these crazy missionaries now?
Michelle: Yes.
Laura: Some people say, like, “Give them titles. Titles are free. You’ve recognized, like, you know, you can’t pay them, but titles are free.” You didn’t give titles. I think that’s great. Talk about some of the things you were trying to avoid by giving titles. Now, I’m sure everyone has a title at Cloudflare. Talk about some of the pros and cons of titles.
Michelle: This is one of those things where Marc Andreessen is in one camp of “Titles are free, you should give them to everyone to attract them to come join your company.” Then, there’s another camp that’s the Mark Zuckerberg camp of “Everyone should have to, like, take a demotion to come work at Facebook.”
We did not do a lot of titles for a long time at Cloudflare. I’ll tell you the pros and cons that, again, I didn’t realize at the time. This is how it happened. We had just raised our Series A. We raised a couple million dollars from bedrock.
We were a small team, and we were going to our first board meeting. We were really excited. We were hiring our first non‑founding team member. His title is going to be “VP of Technical Operations.” For our business, it mattered a lot.
I remember we went to this board meeting, and one of our well‑known venture capitalists said to us, “How many persons has this person hired? How many persons has this person fired? It’s like, I’m fine if you don’t want him on the team, but, like, why are you giving him a VP title?”
Really pushed on it. We left that meeting. I remember we were driving back. We didn’t have offices at the time, so we were down on the Valley at their offices doing our first board meeting.
I remember driving back to the city, and I turned to Matthew, and I said, “What if we just don’t do titles? Of course, we need a CEO. You can be a CEO, but I don’t know. Do I really deserve a VP title? Does Lee deserve a CTO or VP title?”
Our board member is right. This VP that we wanted to hire, they don’t really deserve it either. What if we just don’t do it? Of course, people need functional areas. Lee was engineering. Then I was user experience for a long time, and that was inspired with what Marissa Mayer did it at Google, and no other reason than that because I didn’t want to be sales or marketing, so I liked user experience.
We had folks who would join technical operations, and it served us really, really well. It was very flexible. It meant you could get people to come join Cloudflare because they want to be there for the right reasons.
It didn’t matter what their title was, and it was really easy to do that because I didn’t have a title. The other co‑founder didn’t have a title. Nobody had a title except for the CEO. Again, people have…
Laura: How did you communicate with the world?
Michelle: Again, I was user experience, and Lee was engineering. I mean, co‑founder, and lead engineer. Engineers were all systems engineers. It was just simple. Very simple.
Laura: Where did it tap out?
Michelle: I’ll say two things, and where it tapped out. It doesn’t work out for everyone, and for us, the first thing I would think if you’re thinking about, “OK, do titles work or not?” the thing that I would say is what do your customers look like?”
Early on, we had a free service, and a $20‑month service. That’s what we launched with back in 2010. Now, we also have a $200‑month service, and we have lots of enterprises paying us $100,000, a million dollars a year. We look very different today than when we launched.
Because our initial customer set were a lot of customers who were on the free plan, or paying us $20 a month, the fact that our organization was pretty fluid, and didn’t have titles, it reflected what our customer base looked like. That worked really well.
If you’re selling to large organizations, or true enterprise with multi‑million‑dollar accounts, I don’t think it’ll work early on. I think that’s something that mirrors. Or really if you’re selling into very process driven organizations, I don’t think it’ll work.
For us, we didn’t have that. We wear this very big self‑serve business. The fluidity match with our customer base looked like, and so the fluidity really works for us as we’ve scaled. It was great, and I’ll give you an example where it worked really well, and then I’ll give you an example where it didn’t work well. There’s always tradeoffs on this sort of thing.
Where it worked well was we had a really early team member who was amazing still on our team. Terrific. If we had given him a title, it would have been a VP title back in the day of technical operations actually. Turns out today, not our VP technical corporations.
Laura: Still on the company.
Michelle: Still on the team.
Laura: Amazing.
Michelle: How do you change that? How do you keep these early folks? People always talk about upgrading your team, and I hate that term, because I feel like it’s such a…I don’t think it does justice to the team that gets you to where you are.
There are people who cross the chasm. Because it is true that different folks, to get you to the first million in ARR, the next $10 million, and then now we’re well over $100 million. The types of people we hire look different, but you still need some of those early folks who cross the chasm because they are the culture keepers of Cloudflare.
They are the ones who really care. They know. You want them on your team, and if you give them a title that they might not grow into overtime, you either then need to have another VP, and now you have a VP reporting to a VP, or you also then have to create a new title. Like a…
Laura: Super senior VP.
Michelle: Yeah. EVP. All of a sudden, it’s like, “Oh my God. I don’t want to be talking about any of this stuff.” That’s a case where it worked really well. The case where it doesn’t work well is it’s hard on the team as you grow.
We probably waited too long. We waited well over 100 people before we even hired our first engineering manager to manage a group of engineers. That was too long.
Laura: What specifically is hard on the team? Just not knowing who the decision maker is?
Michelle: Who to go to, and again, we had this philosophy of like, “Well, you guys are all so smart. You get to work when you want to do,” but it turns out when your team is begging you for a manager, it’s probably you waited too long. Because it’s like, “Ah, yeah. They’re begging, but really maybe you were a little bit too late.”
Some processes that maybe didn’t get implemented because all of a sudden, there’s no centralization point to say, “Hey, this isn’t breaking anymore. Let’s implement this.” I think we waited a little bit too late, and we fixed it, and we continue to fix it along the way.
What that means is some people are unsatisfied. They feel like my career path, how do I show career progression. Because people, again, they see their friends getting promoted at work to senior engineer, and then a tech lead, or an engineering manager, and they’re like, “Hey, I want career paths.” How do you do that if you don’t have it setup?
I think that’s the flip side of waiting a little bit longer. Too long. Again, I think maybe we waited a little bit too long.
Laura: You have a magic phrase for that for people that long that progression?
Michelle: I think everybody does. That’s just like human nature. I don’t think it’s bad. I just think people want to do different things in their career.
Laura: Did you have a magic phrase for getting them to accept that they’re still progressing without these titles or did you get good at…?
Michelle: Oh no. Anybody knows what that is, tweet at me. That one, I’d love to know. I don’t know what the magic phrase is. Its growth solves some problems. I guess if you’re on the right rocket ship or on the right bus, who knows what…Don’t worry so much about the seat, but I don’t think that works very well.
Laura: You do mention things or step functions. I’m sure you had step functions. People don’t have titles. You are growing, but it’s $20 a month, so multiplying that times number of customers to get to where you want to be. It’s hard. How do you keep momentum during those flack parts of the step function with all that situation?
Michelle: This is one thing that I really don’t think people about enough. Again, if you’re a founder in the room, or a senior leader in a growing company, you think you have a ton of control over it.
We start at a free plan, a $20 a month plan. It is really hard to show revenue growing up into the right when you use $20 a month. You need a lot of $20 a month customers to make the revenue chart grow into the right.
Now, when you’re doing $100,000 contracts or a million, it’s a totally different story, but those $20 customers, we have a $200 plan…Revenue was not a good metric for us to communicate momentum early on, so we didn’t use it.
Now, if you read all the Y Combinator stuff, and a lot of…Actually, I went through a lot of the different decks that have circulated here, you’d have been like a lot of it, people are really focused on revenue as a metric, and of course that’s important. I get it.
The one thing you have as the founding team in charge of your business is figuring out what metrics do you want to communicate to the external world that shows momentum? What I think you should do is pick ones that make it easy to show momentum.
We picked metrics that made sense for us that changed really quickly, and that helped communicate both internally we’re onto something. It helped make recruiting better because we could say, “Look, these are the metrics we care about, and look how they’re changing.”
When we go back to our board, we’d have the same…Every time we have a board meeting, we open the deck with the exact same slide. Then we’ve changed it once to a new slide with all the metrics that with five KPIs we track. We just updated them after five years because we said, “Hey, we’re a different business now,” and revenue made it on the second time.
For the first five years of our existence, revenue was not a metric that we used as one of our five KPIs. We used other things that matter to our business. I’ll give you some examples because you should figure out what those are for your business. You have a lot of control for setting the context for that. I don’t think people tell founders that enough but you can pick.
Laura: I just want to dig on something here. You said you would actually change the metrics that you were focusing on. How would that feel authentic to the employees? This time it’s customers. That time it’s websites. How would that not seem inauthentic to the employees that had been there for a long time?
Michelle: We kept the same one for a long time, five years, but then at some point, when you start to generate over $5 million to $10 million in ARR, then you need to say, “A KPI we care about is revenue per employee.”
When you’re less than $10 million ARR, it doesn’t really matter but when you have over $10 million ARR, it matters a lot. That’s something where we started to help and it helped to say, “Is our hiring’s pace in line with our revenue growth?”
We want that metric to stay within a range but when you’re smaller and earlier, it wasn’t an important metric for us.
Again, I think, of course we had to report the financials to the board so of course we knew what our revenue was but it was not one of our five key metrics that we ever talked about and I think it served us really well.
I’ll give you one or two examples of what we did use because I really think, as a founder or as a leader in these early stage companies, you have so much control over setting the context of what’s important.
For us, we use number of customers and that’s great but that also grows slowly. It’s like one for one. Another metric we used early, and again it worked for our business, you have to find your version for your business, is this notion of page views that we’re making faster or safer every month.
You can think about it as, every time a website signed up for cloud flare and they had about 50,000, let’s say, page views a month, all of a sudden, we had one new customer but our page view count went up by 50,000‑page views that month.
Whereas, if we got a really big customer that maybe did a million‑page views that month then all of a sudden, we’re at a million with 50,000‑page views and it grew much, much faster.
For us, the reason why we use that and why the board was OK with us doing it, it was, how well were we delivering on our promise to our customers?
We had to be able to execute on that growth. For us, there was a huge amount of work to execute on that growth and being able to actually deliver on the promise to all of that page views going through.
That metric looked up and to the right. It was growing really quickly. Way faster than our $20 a month revenue graph. Again, page views isn’t going to work for most businesses but find one that does work, that helps communicate what you’re trying to do with your business and again, no one told us that when we were starting out.
I think, again, of course LTV, CAC, all those things matter as you get bigger but there are other things you can use to help bridge that will help you with your psyche, will help you recruit and will help you manage expectations with partners and boards and potential investors and all sorts of goodness.
Laura: That’s really good advice. I know you’re not charging $20 a month to all your customers now. Talk about your fist big opportunity, how you thought about making the leap. Were there any counter‑intuitive lessons in that?
Michelle: Yeah, customers. We love our customers. The best of my job are the people I get to work with and then the second best part of my job at my customers.
We really started with this free plan, $20 a month plan and really quickly this is what happened. Customers would contact us, and we had an enterprise advisory council, contact us. That was it, it was free, pro for $20 a month or enterprise advisory council, contact us.
That’s what our website pricing page looked like back in 2010. People would sign up for the free and $20 a month plan and then also, we had these customers writing into the enterprise advisory council saying, “I love your service. I use it on my personal blog. I want to bring it to my office but I have to pay you more than $20 a month or otherwise, I will get fired.”
[laughs] “I cannot in good faith go to my boss and say, ‘Hey, we’re going to pay this company $240 to run all of our performance and security and reliability infrastructure,'” which is a great problem to have.
It took us two years ‑‑ and trust me, I wish it had been faster ‑‑ to come up with what we called a business plan, which was $200 a month. 10 times above what we were charging, and an enterprise plan, which was basically originally $3,000 a month and now it’s up to $5,000 a month, a magnitude order.
It took us two years to get there. I think the lesson I learned is to be patiently impatient. We always wanted to get there faster but we weren’t quite ready because the types, what your organization needs to do those larger customers, are totally different than what we had to do for our free and $20 a month customers.
If we made a mistake and someone was on the free plan, they were very forgiving. If somebody was paying us 3,000…Our customers who were paying us $60,000 a year, they not as forgiving, nor should they be because they’re a real business and it’s mission critical and it’s totally unacceptable.
We went through this whole transformation and then this happened. We got onto these larger account types and we have a sales team now fielding them, which is great with our free plan, our $20 a month plan, we have no sales team but, again, to close a $60,000 deal, they want to talk to somebody.
They want somebody to ask technical questions to. You can’t just point them to your documentation. They want to talk to somebody. Then once they sign up, you need to service them. We built that all out and I remember, this is what happened.
We started to get better at these $60,000, $100,000 contracts and then it’s like this oracle walked through the door where we had a customer, a brand name customer, amazing Internet property, it was a $1 million contract and our sales team was all over this contact.
They wined and dined them and they were so excited and they were promising them the world.
Laura: What was their quota at the time? Do you remember?
Michelle: Pardon me?
Laura: What was their quota at the time?
Michelle: I don’t…
Laura: You don’t remember.
[crosstalk]
Michelle: It was a big deal. It would’ve totally made our year, our revenue number for the year. It was a big deal. I remember, Matthew and I literally having a panic attack, like a heart attack. We said, “We are not going to take on this customer. We are not ready.”
It was this friction where the sales team were saying, “They’re brand name. They want to pay us a million dollars. Of course, we need to get there. We have to drop all our priorities and focus on winning this contract.”
I remember thinking, no, no we don’t. No, we can’t. We weren’t ready yet. What ended up happening, and it was not obvious, but what ended up happening ‑‑ and this is really hard to do ‑‑ is we told the customer, “We admire what you guys are doing.
We would love to be your vendor of choice but truthfully, we’re not ready to do this yet but we’d love to keep in touch and the next time this contract comes up for renewal, we want a bite at the apple then.” Fast‑forward 18 months later, we won the contract.
Laura: Amazing.
Michelle: I tell you, the salesperson was not happy. Our head of sales, not happy because they wanted to use it as a reason to get better as a company, and I totally get that. You lean in a little bit and that company makes you better because they have higher expectations and that’s great and it’s hard but it’s a good hard.
There’s also a thing about whiplash in the organization and I think as a founder, executive, you’re running a company, your job is to figure out, is this good for the company or is it going to be whiplash?
We just thought at the time, it was going to be whiplash. Now, of course, you can’t live life in parallel so I don’t know what would’ve happened but I’m sure to this day we made the right choice.
Laura: I really want to dig in here on some words you said because I think probably by the laughter, a lot of people can relate to this problem.
You had this big customer, what were the tangible things that made you know you’re not ready? As a founder, you’re always doing things that you’re not ready to do, right? How did you know, no, honestly, we’re not ready?
How do you re‑evaluate whiplash? Would be another way to ask the question but I think that’s one piece and then we can talk about the sales team.
Michelle: When the words were uttered, “We need to drop everything and change our product roadmap to meet this customer’s demand, I was like, “No, we don’t. No, we don’t. We’re not going to do that,” because we have all these other customers.
I mean, today we have seven million Internet properties. Back in the day, I don’t know, it was probably a million. It’s like, we have a million other customers we have to care about too and this revenue is super shiny and it’s very attractive and I agree we will get there but it doesn’t have to be right now.
Again, I think it would’ve broken the organization. It would’ve just changed a lot of different sorts of things. I really don’t think the customer would’ve been happy in the end because we were going through scaling, growing pains, which is what every company does and we didn’t want them to have to bear the brunt of those.
Laura: How did you deal with the sales team?
Michelle: One thing I’ve learned, which I also did not know when I started Cloudflare is no is a really powerful word. You’ve just got to say no sometimes and the answer was, “No, understand we want this. Go back, tell them we want to stay in touch and let’s be a good partner here.”
I work with great people and they understood that. They were disappointed, as they should be, that’s their job. They should be disappointed but you play as a team, you win as a team.
Laura: Interesting. That customer came to you, right?
Michelle: Yes. They were unhappy. Yes.
Laura: Cool, are they still a customer?
Michelle: Yes.
Laura: Congratulations. Cool. Let’s talk about, now you obviously have a lot of momentum, you have the market pulling things out of you, you’re making some really tough decisions. It’s time to raise money again, somewhere in this. As you rightly mention, there are a million things on how…
You know, step one, step two, but what are the counter‑intuitive things that you know you’ll know you’ll never read on a VC blog? What are the counter‑intuitive decisions you made around fundraising?
Michelle: I feel like the amount of content around fundraising today is so much better than when I started Cloudflare. You guys are all really lucky. I feel like it’s almost demystified much better, which is great. If you’re the founder, good for you. That’s awesome. Use it to your advantage.
We’ve raised $182 million. We’ve raised a lot of venture but we haven’t raised for over three years. It’s been a long time, which I’m happy about. There’s two things, I would say that I don’t think get talked enough about, although you joked earlier about things that you could learn by not following Jason Lemkin.
Out of every 100 things Jason writes, I agree with 99 of them. Just follow his blog, his tweets, he’s got lots of great insights and he talked about this recently. I still don’t think it’s talked about enough.
There’s two things. The first is, we always optimize for people, both the people we hired as well as investors along the way. What does that mean? I remember during our series C, we had a great firm who wanted to invest in Cloudflare, gave us a huge valuation. I mean, huge.
The person who was going to do the deal is a brand name VC. Top‑tier, it’s great but our visions for the business did not align so these are the sorts of conversations we have. “Why do you have a free plan? Get rid of it.”
It wasn’t quite that forceful. More, “Why do you have a free plan? Are you sure that’s a good use of resources and time?” It was almost like early warning signs of like, “Oh, man. If we get married, we’re going to have a toy to envision where this business is going to go.” That’s the horror stories you hear about investors, and founders is often when the visions don’t align.
Those made us really nervous. There was also like, “Why are you in the city? You should be down in the Silicon Valley where all the talent is.” There’s a lot of things we were like, “Oh.”
We walked away from that deal, and we had gone…The board was on board with it, and we walked away just saying, “This doesn’t feel right.” That was really hard. Fast forward a few months later, we kept getting to know an investor who we really liked a lot. I think they’re just high quality human beings. The best Internet investors they are, was Union Square Ventures out in New York.
We knew them, but we kept getting to know them better, and better. Eventually they came in, and did our Series C months later, and at a much lower valuation one than this other firm. Not because the business ventures were done. Just because they were willing to do the deal with different terms. We wanted them.
I know lots of founders, and you can read online, of almost root of all issues is when they take money from somebody that doesn’t have the same alignment as them, and they chase evaluation. I really don’t think that’s a good strategy, and we’ve never done that. I’d say we have a great relationship with our investor. That’s one thing I learned.
The other thing that I will say is it is a very connected world, and don’t burn bridges. No matter how awful someone treats you, you might need them. I hate saying that, but it is true. It’s a connected world. The world of tech.
The valley is so connected. The world of tech, the world of business. I am amazed by how somebody who we met years ago has come back and played some role today. That’s not obvious in the moment where you just want to tell somebody what you really think about them. It’s a connected world.
Laura: Bite your tongue. On the other side, you’re punching above your weight. You have this personality as a company, as a human. How do you let that shine, and bite your tongue? What’s the balance?
Michelle: This is the thing. The greatest asset you have as a founder is you could have a personality. Because you think about all of…You think of Google, you think of Amazon, you think of Apple, you think of Facebook, all those people, they have rules by the SEC.
Everything that needs to be met by their communications team. You have none of that. I think that really played to our strengths early on. Matthew definitely has a personality, and he’s got lots of Twitter followers, and he speaks. We write blog posts where we draw lines in the sand, and I think that’s worked really well for us.
It can for you too. You can play it up. People are looking for great contents whether you’re writing your own blog, or you place it in other places. People want to hear from you, and you can have a point of view, or say things a little bit more firmly than somebody who has a comms team that has to get a totally synthesized.
You just have a different set of rules, and that only lasts for a certain amount of time. You should use it to your advantage.
Laura: You still have a personality, so it’s going for you.
Michelle: Yeah. I still do.
Laura: This is a big counter intuitive for this space you’re in. Security reviews are a big part of what we’re doing now as we’re going up market. The speech I gave before we go in is don’t have a personality. Because I consider it a liability.
Has there been anywhere it came back to bite you, or you think it’s just been an asset all the way?
Michelle: There are no silver bullets in life, so yes. There are definitely times where it’s come back to bite us, and we’ve just adjusted. This is my rule. How I think about it is whatever I write publicly, or even internally, I want to be proud that that gets attributed to me five years from now.
It’s like the company I want to be in five years, will I still be OK if I said that? That’s my measure of whether what we’re saying is OK. I think if you stick to that, you’re fine. You can go a long way because people want a point of view. They want personality.
I don’t want to say, “Don’t be a jerk.” Just say like, “Actually, this is how I see it,” or, “This is why I think it’s that way.” It’s refreshing. It’s authentic. People like it. It’s great. Though the one thing I will say, and this idea of like momentum, and when you’re small, you want to punch way above your weight, that’s what you’re trying to do. You’re trying to punch above your weight.
I use an analogy, puffer fish. It’s so funny. I use this all the time. You want to be a puffer fish. You want to be a little ahead of your skis, but you don’t want to be so ahead that you’re a fraud. That’s a really fine line, but you do.
I remember early on when we were raising money, originally, we were raising money. I can’t remember. $5 million, $8 million, and the round just kind of really was Series B. I remember all of a sudden, the numbers ended up being 12 or 15, and we ended up raising 20.
Matthew, and I literally had to practice in the mirror saying, “Hey, we’re raising $20 million,” because it just felt so crazy to us that that was even a reality. This is something where it was like a puffer fish where you practice. You’re like OK. You walk in a room saying, “Yeah. We’re looking for $20 million.”
The other side thought it was perfectly normal. This is an example of something, but again, there’s a fine line to being a fraud, and I think that’s really important.
Laura: How do you know the difference? Because you felt like a fraud…
Michelle: I’m not…
Laura: …saying $20 million, but you weren’t. How do you know where…?
Michelle: Well, that’s not a fraud. That’s just practice.
Laura: No. You aren’t a fraud. As the founder, you have to continually push yourself past feeling a fraud. What are some stopgaps you have for yourself to know something is just too much?
Michelle: I think that’s why you need…The rate at which you learn is really important. It was George Lee who runs the investment banking in Goldman Sachs. This is his line. Not mine.
If you think about somebody like Goldman, or Morgan Stanley, they meet with all the founders, and they do a really good job meeting these companies early. Then they see them. They’re trying to get to know Snapchat when it’s like 10 people. They do that really, really well.
What George said once that I thought, “Oh, that’s so smart,” is the best founders are the ones where they have a really high rate of learning. The ones who learn really quickly. Then I heard Evan Williams speak once, and he’s like, “Everyone’s just making up as they go along,” and I’m like, “Yes.”
Those two things together, I was like, “Yes. It sounded like…You asked…You go to every single session at this conference, and I’m sure people will tell you five different things than I just told you, and they were successful, and then someone else.
If you asked 10 people, you got eight different answers. There’s lots of different paths of success. At the end of the day, you have to listen. You have to get feedback. There’s so many resources. Whether it’s conferences like this, or you meet people, or you read online, there’s lots of inputs of what you want to do.
You talk to your mentors. You talk to your co‑founders. You ask your team. At the end of the day, you have to decide what’s right for your business, and only you, and only truly you will be able to decide.
If you get it wrong, then you adjust. There are very few things if you make the wrong decision that is company ending. There might be a couple to take those, but otherwise, it’s like better just to make the decision, and adjust along the way, and if you have to change it, you change it.
It’s like the back to the momentum. Momentum is more important than analysis paralysis, and it’s really easy, especially to get bigger to be like, “Oh, I have to make the perfect decision.” It’s just like, “No, you don’t. You just have to make a decision.”
Laura: That’s really good. Keep the momentum, and decide, and commit is more important than the ultimate decision. I think that’s a good reminder. As you get bigger, you have to communicate these decisions. It’s not the three you’re in a room, and then it’s many, many people. How many people are actually at Cloudflare now?
Michelle: We have 600. We’ll be 850 by the end of the year.
Laura: Well, congrats.
Michelle: It’s a lot of people.
Laura: You’re also doing a lot with not a ton of people. Talk about some of your communication tips throughout the ages.
Michelle: Sure. This is also something that’s not obvious when you start that I wish we had we had known. I think that you can never over communicate. It sounds so obvious now, but when we started, we were eight people, 20 people all in the exact same room. Communication was easy.
We were sitting next to one another. You’re talking to each other all the time. You over hear every conversation. We were not a distributed team at all. We were all in the exact same room for a while, and then it was amazing because the speed at which you can move is great.
That quickly changes as you grow. All of a sudden, you have people in other offices, or people are working different hours, or whatnot. We do a couple of things that I think I didn’t realize when we were setting it up that’s been really helpful.
We have like a weekly meeting. We call beer meeting. For us, it was end of day Friday. We just moved it to Thursdays, and it’s just a weekly cadence of things that are going on. Whether there’s something really good or really bad, we always had a meeting.
Most of the time, there’s not really good or bad information. It’s just like here’s what’s going on, but then when there’s something really great happens, it’s a thing to communicate, and when something really bad happens, you don’t have to setup a town hall. It’s just like always there as this regular cadence.
That has come in to save us so many times. It’s a great thing. We also plan quarterly. We have a quarterly kick off. We do all those things. The one thing I’ll say, and then I’ll let everyone get on with their day is that the one thing that…
Something that I learned about communication that we did not do well is we did not write enough stuff down. If you’re moving so fast, you just think, “Oh, what a waste of time. Let’s just get it done,” it still haunts us today that we don’t have things written down from back when were 20, 30, 40 people. I really think you can never start too early.
Laura: Mitchell, you also said to take more photos. Let’s do the selfie.
Michelle: Oh yeah. Let’s do a selfie. Awesome.
Laura: Everyone take more photos along the way.
Michelle: Anyway, thank you everyone.
Laura: Thank you.
Michelle: Awesome. Thank you.
[applause]
