Staying a Startup Even as You Grow: A Q&A with Zoom’s Eric Yuan

What is a startup? For a term that is used as frequently as it is, when you take a step back to consider it, and speak with those in the tech industry, you find the definition varies from person to person more than you might expect.

Early Adopter Research’s Dan Woods has written about this very idea in his Forbes column. And during a recent interview on the Early Adopter Podcast, he spoke about defining a startup with Eric Yuan, the CEO and founder of Zoom, the video conferencing company that has experienced tremendously rapid growth. Woods has focused on four characteristics that can define a startup:

  1. Are you searching for a business model?
  2. Are you accepting venture capital financing?
  3. Are you focused on rapid growth?
  4. Do you strongly embrace aspects of startup culture?

For his article, Woods spoke with a number of executives from companies that had figured out their business models but still considered themselves startups. And companies like WeWork that are considering taking billions in investments are still talked about as if they’re startups. For many businesses then, even as they grow, it’s important to maintain many aspects of startup culture so that the nature of innovation keeps the company fresh and innovative.

This is an edited version of the conversation Woods and Yuan had about startups.

Woods: What was it that led you to need to found Zoom?

Yuan: Zoom is still a very young startup company. It’s just seven years old, and I’m the founder and the CEO. Prior to founding Zoom, I was at Cisco for almost five years, and I was Cisco’s Corporate Vice President of Engineering, in charge of its collaboration software development. I came to Cisco as a part of the WebEx acquisition. I joined WebEx very early on as well. I was the first of several founding engineers. Ultimately, I became vice president of engineering. Before I left Cisco, every day when I talked with the WebEx customers, I didn’t see a single happy customer. And personally, I felt very embarrassed. I really wanted to fix that problem. At Cisco, I could not do that because Cisco was unwilling to change its collaboration strategy. So I had to leave to build a new solution to bring the happiness back to WebEx customers.

What was it that you thought was making them unhappy?

When WebEx was built 20 years ago, in 1997, the use case was about screen sharing, how to facilitate sharing your desktop content, like your PowerPoint or your browser. Back then we never thought about video. We never thought about mobile; we never thought about global availability. You can’t tweak WebEx. The only way to fix that problem is to build something from the ground up.

That’s very interesting you mention that because my experience, and I used WebEx and I used GoToMeeting, you had to set up a meeting and then you could do your collaboration. Now I’m a Zoom user, and the magic of Zoom is about creating a presence and then if there’s a meeting associated with that, then you can take that presence and attach it to a meeting. But the presence is first, not the meeting.

I think you are right on. So in our words, it’s more like an experience. And it just works. It’s very easy. You do not think that’s a meeting. It’s a real conversation.

You decided that you needed to fix this by fixing the fundamental architecture. And then you obviously have to go through and become a startup company. What did you want to imbue in your company when you started it out? How did you define what you were all about culturally so you could attract the right people so that you could make the right decisions as you grew?

The way I look at this is that a startup is a long journey. You cannot do something overnight. You’ve got to focus on something for many years to achieve something. So having sight of that, how can you make sure you always enjoy that startup journey, not just for one year, two years, or ten years? That’s very important. One thing I learned when I was with Cisco and WebEx was to make sure every employee is happy. Otherwise, there’s no productivity. If the employee is not happy, the customer is not happy. So our culture is to focus on delivering happiness internally. Ultimately, our goal as a business is to make sure customers are happy. So happiness is our culture.

Happiness is a large goal. How do you do that with the pressures of a startup, where you have to compete against well-funded competitors, you have to make the investment capital that you have go as far as you possibly can, you have to innovate, but also be efficient at innovating and be operationally efficient? How do you devolve that tactically into a set of policies that actually achieve happiness, but also achieve high performance and innovation?

On the surface, you feel that those two things are very different. However, our philosophy is that we need to spend more time to make sure our existing customer is happy. If the existing customer is happy, they are going to refer other potential prospects to us. Otherwise, even if you get more customers, if your existing customer is not happy, then they might cancel your service and you still can’t grow.

I also look at the employees. If they’re not happy, even if they are in the office for eight hours, you do not dare to let those employees talk to customers. So ultimately if the employee is happy, a lot more things can be done more effectively. At that’s why we think growth and employee happiness are the same thing.

But there’s a balance here in every regard. Everybody who comes to work wants to make a good salary. They want to have a chance to become wealthier through growth of the company, whether it’s stock options or restricted stock. They want to have a good work-life balance. They want to be part of making important decisions and doing important work. So how do you make sure that all of that is balanced? What are the specific cultural values you decided to pursue? What are the more specific things that ensure people are happy?

If you think about the balance, it’s really hard. Because whenever it comes to balance, there’s no perfect answer. So from our perspective, we look at whatever we’re doing to make sure that it’s sustainable. If you make a lot of money, is that sustainable? Will that make you very happy in the long run or not? That’s why when we talk about the business, when we talk about happiness, we tell employees the most important thing every day when you come in the office is to make sure you ask yourself a question: are you happy or not? If you’re not, try to understand what happened, what’s the root cause, and fix that. If you are happy, everything else will follow. Because the company will grow, the stock price will be up, and we’ll have more revenue. Your team will also be happy, and they will make you happy as well. So that’s why happiness is sustainable.

Let’s talk about your focus on growth and your focus on startup culture. There are so many different ways of being a startup. Some companies are very focused on metrics, and they want to do whatever makes their metrics work. You talk about happiness as a value, but then how does that evolve into a style? Does that mean that you want to make sure everyone only works 50 hours a week, 40 hours a week? Does it mean that you give everybody lunch? What are the specific practices that you have at Zoom to keep the happiness?

For sure, we offer free lunch Monday to Thursday. Friday we can go outside for lunch. And also, we like employees to keep learning. That’s why they can buy any book. We reimburse all books, not only for themselves, but also for their families.

Every two weeks, we have an all-hands meeting. Prior to the meeting, they can ask any questions anonymously. We never want to hide anything because we want to create an open and transparent culture. Because ultimately, when it comes to a startup, speed is everything, right? We listen to our employees quite often and then we quickly implement those ideas in our company. Because our focus is not on rapid growth. I don’t like rapid growth. We like sustainable growth. That’s more important.

What’s the difference between rapid growth and sustainable growth?

Rapid growth means you just look at a number, metrics quarter over quarter, year over year. But what if next year, you always focus on a number and forget about sustainability. That’s why you focus on the foundation, make sure your product really works, make sure the price is also better. Make sure your existing customers are happy. Make sure your employees are all very happy to come to the office. Those metrics are more important than just looking at a number.

What’s the cost of rapid growth as opposed to sustainable growth? Can you think of any company that famously pursued rapid growth and then was not able to sustain it?

Yeah, I’ll give you one example. Look at social networking, a company like Friendster.  They were the first social networking company, way before Facebook. They had grown very well and had many users. I was also one of the early users. But it was very slow. The product wasn’t good. They should have stopped everything to make the product better before they talked about anything else. They did not do that. And look what happened. Even if you have so many users, but the product doesn’t work very well, that’s not sustainable.

They had rapid growth, but they ignored sustainability. They didn’t look at what was going to preserve sustainability. So what are the things that you’ve done at Zoom to preserve the sustainability of your growth?

First of all, when it comes to growth, we not only look at a number, but the most important thing is to make sure I ask the question, Is that sustainable or not? So even if your number is good and your customer likes it, we want to make sure what about next year, what about next quarter, can you still achieve that same success or not? I’ll give you one example. Customers like our product today better than any other competitors, but we cannot just stop there. We always say what if the competitor catches up with the same product? Can we still survive? What are the other cool things in the pipeline? We’ve got to be very paranoid. When you are paranoid enough, quite often, whatever you’re doing is sustainable.

So you have to be suspicious of your success and looking out for threats. Now, do you find that the way you train your managers has developed into a methodology? How would you describe the leadership principles at Zoom?

Two things from our perspective are very important. First of all, Zoom has a company value, just one word, care. We care about the community, care about the customer, care about the company, care about our teammates and care about our sales. I want to make sure all the employees here, not only leaders, but every employee follows the company value. Number two, for our leaders and managers, I really want them every day, every weekday,  to spend five to ten minutes and put it into the calendar, to think if you start over today what can you do differently? And also, every day spend some time, really think about the business, what can go wrong, what works, what does not work? As long as every leader starts thinking like that every day, I would say everything else is relatively easy. They are very smart. They can fix all the problems. The problems quite often are that they’re too busy. They don’t take a step back to think.

In a product that must have five or six major engineering components, how do you organize that rapid innovation inside each of the components, but then across all of the components as well so you can maintain that rapid cycle?

We follow the standard. I do not think there’s any new process to come up with a new innovation model to develop a product. But ultimately, I think, for every engineer, whenever you write code, you also want to make sure the code is sustainable. So quite often developers work very hard, but guess what? Several months later, they need to rewrite that code. Because either the architecture isn’t right or they misunderstood the use case.

We want to make sure that the code our engineers are writing is sustainable for the next several years. So that’s really important. Otherwise, quite often, you see the team is very busy. Guess what? They are trying to fix all the bugs. They are trying to refactor the code. They are trying to optimize and fix the security issues. That’s too late. On day one they need to make sure the code is clean, make sure they do not need to spend the time to go back to fix all the issues.

Number two, when you try to build some individual features, some people want to hurry up to add new features. I would say take a step back. Really ask the question is this a feature the customers need not only this year, but also next year? Quite often, when you talk to customers, they not only share their problem with you, but also share the solution with you. If you take their solution, you might fix the wrong problems. That’s why to start with, we’ve got to go a little bit slow to really understand why we need that feature. If you focus on those two things, quite often, I think your productivity is pretty healthy.

So you’re saying that the engineers have to have a deep feature level user experience understanding before they start writing code.  And so it’s a conversation. The product managers say we’re ready to go on these features, but then the engineers have to absorb them and really understand them in order for you really to do it?

Absolutely. They need to understand the problem they are trying to solve. Why do they need to build this feature? If they don’t understand the problem and just blindly follow the PM, very often the code is not good. It’s not sustainable. They need to take some time to refactor the code to support other features. It’s not flexible.  

Writing code that is good for the long term, that is secure, that doesn’t have to be refactored — now, that is an art. I don’t see how you could implement a methodology that would say, okay, our methodology will prevent refactoring. Do you have a methodology or is that more of a cultural thing?

Earlier, you asked about the difference between rapid growth and sustainable growth. This is another example. So quite often you know you are going to build a feature. There are two ways. One way is to just to quickly code that feature. You know, in one week I’ll have this feature, I can ship it to a customer and let a customer test and I can release that. But guess what? Several weeks later a customer finds a security issue. Maybe the performance isn’t great, or there are other issues. So sustainable growth is that on day one you not only write code to implement this feature, but also consider how scalable, how easy it is to deploy, how secure it is to make sure the architecture is right. When you have ten million users, that feature will be broken. You know, quite often in startup companies we say, hey let’s not worry about that. When we have ten million users, we’ll worry about scalability. Let’s fix the security issues. That’s too late. That’s not sustainable.

You’re asking a lot of the engineering team. How does the engineering team maintain that awareness of all of those dimensions at once?

Well, it’s very hard. We make mistakes every day. Ultimately, you’ve got to focus on education, and make sure you always communicate with the team. Don’t always focus on that feature. Think about if that feature not only works, but also if that feature is sustainable so you do not need to go back and fix the security issues, you don’t need to fix the performance issues. So on the one hand, education.

On the other hand, you also need to have a process. The manager needs to review the code and always ask more questions. If we have 100 times more users, will that feature still work or not? How about performance? How about security? And those two things, process and education, even if you do them, I do not think you’re going to achieve a perfect result. You’ll still have problems here and there. But again, I do not have a secret sauce how to make it perfect.

Do you think that Zoom will always stay in some sense a startup?

I think from a culture perspective, we will always want to make sure we have a startup culture. Meaning always focusing on speed. Speed is everything. And otherwise, we’ll grow bigger, and with a bigger company, customers share feedback with you and a month later you still do not get back to the customer. That’s not the right culture. Like Amazon’s day one philosophy.

How would you explain their day one philosophy?

No matter how successful you are, always think about where you are coming from, and always be paranoid. Work hard to serve the customer well. I think that’s startup culture. Because on day one, at every startup company, they all work very hard; otherwise they cannot survive on day two. They need to serve the customer well.

What do you see as the mistakes that startups make most often?

There are some very obvious common mistakes. Because this ecosystem is so healthy, every startup company has VC, and they all help those companies. One common mistake is that they really focus on growth,  trying to become ten times bigger or gain more customer revenue. I would say, don’t think about growth that much. Always think about how to make sure your existing customer is happy. Even if you don’t grow that much but your existing customer is happy, sooner or later you will achieve that growth. Just be patient.