Building a Better Internet with Cloudflare's Michelle Zatlyn

KRIS: From Lawson Media - This is Building A Unicorn, the show exploring what it takes to build a big, global business. I’m Kristofor Lawson.

KRIS: Have you ever been to your favourite website only to find out that it was down… and later the business tells you that they’ve had a denial of service attack. For those who don’t know - that’s a cyber attack where someone will flood your service with so many requests that your server can’t handle all the information. Denial of service attacks are common and they can be hard to prevent - however today’s founder set out to make it easy for any website owner to get the tools they need to keep their website online.

KRIS: Michelle Zatlyn is the Co-Founder and Chief Operating Officer of Cloudflare. A 6.5 Billion dollar company that is on a mission to build a better internet… and their infrastructure is used by more than 26 Million websites worldwide.

Michelle Zatlyn: I think another way to think about it is if you have been a large business in the last 10 years, all of those businesses have been thinking about how do I make my customers connect faster, safer, and more reliable online. And for the last 10 years, they've been using hardware to do that. And as more services shift to the cloud, whether it's compute or the SAAS applications, at the network tier, where used to buy hardware boxes to be fast, safe and reliable, you can't ship a hardware box to do load balancing anymore or firewall anymore, or DDoS or caching. You need it to be a service and CloudFlare does that all as an integrated cloud platform. So our customers come to us and to be you know, for us to load balance their traffic to do a lot of cybersecurity sorts of things like TLS, or HTTPS or firewalls, or DDoS mitigation, or rate limiting, or bot mitigation, all these things that you have to deal with, that you used to buy a hardware box for, we do as a service. And then on the performance, side caching, route optimising, all these sorts of things that make things faster. And so we do that all as an integrated cloud platform on behalf of all of our customers.

KRIS: Michelle grew up in Saskatchewan, Canada, along with her parents and sisters. Her father was a Lawyer, and her mother was a teacher… Michelle was an A student, and had a keen interest in sports. Although she can remember interacting with technology from a fairly young age. But she never saw a life for herself in technology, what she really wanted to be was a doctor.

Michelle Zatlyn: I loved science. I really loved math, I loved science. You know, I just again, I got good grades in those, in those subjects and I thought it was interesting. I worked hard at it, I took it seriously. And, you know, if my mother was on this podcast, she would say Michelle was such a caring person. So I think a lot of people kind of said, Oh, you like science, you're caring you like to help people you have such a scientific mind. Like you, you would be great doctor. And you look back when I grew up, being a doctor, I mean, it still is, was an amazing profession. And so I think that, you know, between some of the things I like to do, and then it being a profession, that was the career path to becoming a doctor is really well defined, you kind of get also this pressure around you like that's a great career path. And so, I mean, as early as like 13, I really liked it, and I just I did a lot of extracurriculars around it. And all those kind of side programmes that you apply to in high school that I applied to in high school, had a lot to do with medicine. So I remember one summer getting selected and going to Boston. I mean, I literally I grew up in a really rural city and I was selected as one of the students that came across from like, North America, wasn't all of North America but certain regions, where we went to Boston for a week and got to go to like Tufts Medical School and do cadavers. And all these sorts of things where you're really like, in your spare time, you know, I was 15-16 years old, showing up in Boston with a group of people to learn more about medicine and what that meant. And I did a lot of extracurriculars that set me up for that. And then when I went to university, you'd figure out what you're going to major in and I picked chemistry and really the reason I picked chemistry is because it was a very clear path to med school. And that was one that I was like, great and I again thought I was going to med school so I kind of set my whole life up in that, in that path until that path became less clear.

KRIS: Michelle studied Science at McGill University, with the intention of becoming a doctor. But as she studied she started realising that there might be something else for her in life. A life that maybe didn’t involve medicine. And she says that was a quite surprise for her and also for her family who had seen her grow up with this dream and desire of becoming a doctor.

Michelle Zatlyn: You know, I was on paper, I made a great doctor. I was studying chemistry, I did all this pre work, and I was doing all the prerequisites. And, you know, I loved it. And I had done all these summer internships that kind of directly related to going into the medical profession. And this is basically what happened. It was about, it was kind of like the end of my second year and my third yea,r and going into my third year where I started to be like, I don't know if I want to be a doctor. But you know, I didn't really tell anybody that because again, I just it was there's pressure on me to do that and pressure that I created myself because you kind of define… say, I'm going to go to med school right and your whole path is up and I was like 18-19 years old, you know, and basically what happened was the following. And I was, it was my, I kind of had these thoughts in the back of my mind and then I signed up as a summer intern to do this research project for these three doctors at this really well known Institute, medical institutions in Montreal, where I was studying and I spent the summer there working on this research project. And it was like a retroactive, like retrospective research project, so it was like you go through all the old records to figure it out. And, and, and my research project went very well, like the work actually won all these accolades and I was an undergrad student and I won, it literally won an award for students in their MD, PhD category. So it was kind of like the best possible outcome. I remember I got to fly up to San Francisco with these physicians for this big medical conference and present my work in the exhibit. I had literally doctors coming up to me saying, I deal with this every single day. Like, tell me what the latest is cause I'm like, my patients are desperate to know the answer. So it's really like very meaningful work. And it was literally probably the most successful outcome you can imagine as an undergrad student, you know, I wasn't, I was literally studying chemistry. So it was really good. And I just, I remember coming back from that San Francisco trip saying, I am like performing at the top of my field right now, given my age and where I am, and I'm not getting great joy from this. And I thought, like, I just remember thinking to myself, and no one told me it was really like an internal thing. And, you know, the thing you learn is you are in charge of your career, Nobody else. I just remember thinking, What if I don't want to be a doctor? And it wasn't that I didn't know for sure. I just said like, I've never even considered something else and at this point, I'm 20 years old. That's all that's a big bet. And and I kind of, it was almost like this awakening of, I want to at least examine other options before going all in on this option.

KRIS: Michelle picked up some other subjects in business so she could start expanding her options. And as she came towards graduating decided to defer med school so she could try her hand at a career in business. But there wasn’t anyone else that she knew who had this background in chemistry, whilst also having a focus on business. So she started looking for a job and it didn’t take long before she started working for a financial services company who could see the benefit of hiring someone with that scientific mindset and then teaching them everything else they needed to know.

Michelle Zatlyn: I was just really searching for something. And for me, I just realised I need to try some other things. And either that's going to make it clear that medicine is the right path for me, or it's going to make it clear that it's not. And that was when I was really true to myself. And I worked very, very hard to find that other thing just to try different sorts of things. And that's how I got this first job doing financial services, research and consulting. I knocked on a lot of doors. I knew nothing about the industry, but I was great at analysis from my science, all the science labs running numbers, the numbers and the analysis and synthesis was really easy for me. And they're like, normally people can't do the numbers, they know a lot about the industry, we’ll teach you about the industry. And I'm really grateful to that first firm who took a huge chance on me and, you know, kind of just started to open up my options for what I could do with my life.

KRIS: After some time in the financial services industry, Michelle met an entrepreneur working on a startup called I Love Rewards. At the time there was only a handful of people working at the company, and it gave her a really good idea of life in a startup environment.

Michelle Zatlyn: You know, I went from a small partnership, a financial partnership to a small startup, which was very tech focused, and we were building B2B software that helped build reward and recognition programmes for businesses. And I like that was a huge aha for me where people wear their hearts on their sleeves. And we were winning million dollar contracts with these big four accounting firms, away from kind of the incumbents, because we have a better technology solution and we hustled. And I mean, we worked so hard, but man, was it fun. And you know, it just like our customers were happy with what we were doing, and they are rooting for our success. And I was there really early like, I mean, that was it messy and chaotic. But it just it opened my eyes up. And if I ever learned anything about my career is like, the.. life is a collection of experiences, you want to go collect a lot of experiences. And, you know, I think I was always really jealous, or I really envied, maybe that's a better word, of the people who knew exactly what they wanted and went certainly down that path. And that's what I was on where I kind of had this abrupt change and took me a while to figure out what that meant, and it was hard. But now that I've found that I just like it's so rewarding that I've done all these different things and worked in all these different sorts of places. And now I'm really appreciative for all these experiences. And I wish someone had told me when I was 20, go collect a bunch of experiences, because that's how you have a really rich career. And I think we need to tell people that more.

KRIS: Wanting new experiences led Michelle to work at Toshiba - a company that is at the forefront of technology… and so she thought there would be plenty to learn about how you create effective processes in a global business.

Michelle Zatlyn: What does a good process look like? What does a good, what does a good system look like at scale? I just didn't know what that meant. And I really wanted to get that experience. So I, so I went, what I did, what every good person would do is I went and joined a really big company. And for me, that was Toshiba as a product manager, and I ran a what ended up being about a $60 million P&L eventually, which is you know, pretty big profit... I mean, that's pretty big business unit. It wasn't growing very quickly, but I kind of managed this $50 to $60 million business unit and within the consumer electronics team. And I thought great like this, I'm gonna have to learn so much. This is a big company with real market share, it had just won a bunch of market share in Canada. And I was really excited to go like there's a brand, people know this company. And the last two companies I worked at had no brand like we, you know, and so outside of the kind of their space, and so I was excited about that. And, man, I knew two weeks in it was not the job for me. And I like I stuck with it for two years, over two years, because at that point, I realised I really wanted to go to business school to round out my skill set. And I was like, Hey, I'm gonna learn what I can from here. And, I mean, I learned a lot, but it certainly wasn't the most fun job I've had.

KRIS: And coming up after this break - business school leads Michelle down a new path with Cloudflare.

[AD BREAK]

KRIS: Michelle Zatlyn had left her job at Toshiba to go to business school to help fill the gaps in her knowledge. So she started applying for as many business schools as she could, and a chance conversation led her to apply for Harvard. She got in and it was at Harvard that she felt like her mind was finally being opened to the possibilities of global business.

Michelle Zatlyn: Being at Harvard really opened my mind to what global really means both from a content and the people there like it just was, you know, you'd be discussing, I don't know some macroeconomic environment. I just realised Wow, I have no earthly idea what's going on in the world. Like it was just was this huge learning, it was two years of learning and two years of getting to try things, and meeting people and everyone came to campus and you get to go meet John Chambers in a small group dinner and… Like that’s the only place you could do that as a student, or if you end up, you know, performing at such a level now in your career, you get to do that. Like that's just you just get access to so many things that I feel like business school doesn't get credit for. And the professors are amazing and, and you're the other students, everyone there is just incredible. And what I loved about you know, HBS was, it was 900 students, just my year alone. Some people came from, you know, the private equity investment banks, some like so had financial backgrounds, there are some people who more like the consultants, other nonprofits, military, you know, operating roles, there's just such different industries and verticals, and you just kind of think, Wow, we're now friends. Like you get to meet all these really interesting people and we're 10 years out of school now and I just, what people are doing now, you just think that's pretty special experience that I got to experience and so I loved it. Like I loved it and obviously I loved it because it also changed my life. So I met one of my classmates, Matthew Prince, we were section mates in the same class of 90 students. 90 where they kind of take 900 students and break you up into groups of 90. And you know, Matthew and I, if you know both of us, we’re so different. He's… this is his third company. He's an entrepreneur. He went to law school before business school, he's got a computer science and English background. He's incredibly intelligent, incredibly cerebral, incredibly well spoken. And, and I you know, I think that if you met me, you wouldn't use any of those words to describe me. Not that I'm not, but like those are the words that come to mind to describe him whereas I'm maybe more personable and warm and, Oh wow, like up for things and open to trying things. And so it was together that we started to work on this idea of, hey, there's this huge shift going on where as store compute go from kind of on premise servers to store compute that you rent in the cloud through companies like Azure, and AWS, and Google Cloud. And as as the applications kind of go software on premise, till the SAAS applications like Atlassian, Workday and Salesforce and Dropbox, like the same thing has to happen at the network level. We're getting used to by these load balancers and firewalls and LAN optimizers and DDoS hardware boxes, it just hardware you can't ship your hardware box, your load balancer, to Workday. They're just not going to install it for you. And so, you, the network has to also turn into a service so we saw this trend and we kind of said could we start a company that helped capitalise on that and, and help solve the problems for both big customers, companies and small companies like developers and startups and, and small businesses and nonprofits. And if you look at what CloudFlare does today, it's exactly what we do. We saw the shift, and we've been able to execute on it and build a pretty, so far a large company. You know, we're about a $6-$7 billion market cap company, and feels like we have a lot of opportunity ahead.

KRIS: Finding that project which your company wants to focus on can often be quite challenging. It requires a lot of market research - to see what customers might be willing to purchase. It’s not just about having an idea, but it’s having an idea that will gain market traction. And in the case of CloudFlare - Michelle says it wasn’t an issue that she was familiar with until she realised the potential in a separate project her co-founders were working on.

Michelle Zatlyn: Yeah, so I do not know a lot about this issue. Um, I would say this is one of those things where opportunities present itself anytime, anyplace, and sometimes you’ve got to take it. It's kind of back to this art and science as a judgement call. It’s the same with opportunities, things pop up all the time and you’ve got to decide what's worth, what's worth leaning into and doing. And Matthew knew a lot about web security online for like small businesses and developers, because him and our third co-founder, Lee Holloway, who was with us for a long time and he's not in business anymore, but they had started a community based project as a hobby project, a side project, that they had run for six years or many years before I'd met Matthew, and it was called Project Honeypot.

Michelle Zatlyn: And Project Honeypot was something where like if you were a small website or developer, you put a honeypot on your website and the whole idea of Project Honeypot was where does webspam come from? Again, this is back in the 2000s. No one would use this language anytime soon, anymore, and that he was really proud of project honeypot. I mean, he talks about all the time. And I didn't really understand what he was ever talking about. I just literally, I was like, Aha. And then finally we had the following conversation. I said, Matthew, you always talk about Project Honeypot. What is it? He's like, it's a community based project that tracks web spammers online. I said, ‘and who signs up for it?’ He's like about 80,000 webmasters, again, a sign of the times, have signed up for Project Honeypot. I was like, ‘What? 80,000, That's a lot. How do they hear about it?’ He's like, well, they talk about it... they talk about it on forums and to their friends. I was like, What? And what do they get for signing up? He's like, well, they put honey pots on their website, and then honey pots track bad behaviour that doesn't... that aren't humans. And then all that data kind of comes back to a central source. And I was like, and what do you guys do with it? He's like, well, we work with law enforcement agencies to go take the go find the offenders and get them offline. And I was like, doesn't that take a long time? He's like, yes, years. And I literally at some point is like, I just, I kept like, peppering him with questions like this. I was like, Matthew, I have no idea why anyone ever signs up for Project Honeypot? It sounds like you sign up to help something that happens years later, like makes no sense to me. And he got very annoyed at me. And he kind of threw his hands up in the air and he said, Michelle, one day Project Honeypot users want us to create a service that actually stops the malicious behaviour. And that was kind of like the first Aha, where I was like, Huh, and, and then when we started to look at it, we realised there's a shift going on. And again, big companies had good solutions, but the rest of the internet didn't. And could you create a service that helps protect the rest of the internet? And then over time, go and help the large enterprises as the shift continues to play out? And that was what we did as a school project. I just remember that first Aha, of like, Huh. And then we kept working on it, the first month, Wow, there's a real problem here. Like you just we did a survey to these Project Honeypot users and got feedback. I was like, Wow, there is a major problem here. And then we came up with this really elegant solution where we're going to be a service in a distributed manner on the world and we're going to do these different things for our customers. And we're like, Is there a business model? And we're like, wow, there's a real business and next thing I knew, we were packing our things in a U-Haul, and moving to California to give it a go.

KRIS: Why make the move to California? Like, I mean, surely you could have you could have started this business anywhere?

Michelle Zatlyn: Yeah, well, you know, I know I… so today maybe but not back in 2009. I, you know, it was 2009. There's just, 2009 was a very… well actually a month ago, 2009 was a very different place, today this is a very different place to 2009 given everything going on with the coronavirus, but um, back in 2009 if you were going to build a global company, and you were really swinging for the fences, and Matthew and I, and Lee, were swinging from the fences from day one, like we just we knew this was either gonna be a big company or not exist as a company. So if you're going to swing from the fences, we knew that meant two things, so Cloudflare, the way that we make the internet faster, safer, more reliable for other customers is that we've built a globally distributed network. So we run a network where we have real capex costs in over 200 cities around the world. So we buy routers and switches and servers, and we run it in 200 cities around the world so our customers don't have to and then our customers get the benefit of all that and we do performance and security and reliability from each of those 200 locations. It makes a tonne of sense, but that actually costs a lot of money. And so we knew back in 2009 when it was like... like some of the things we just knew early on was, if Cloudflare’s going to be a big company, we are going to need to invest ahead of revenue because you can't go after the big companies until we build the network. And if we're going to build the network, we need real money for capex. And so we knew that if we were gonna raise a lot of money, that the valley is the best place to do it. And I actually think today, that's still the case. If you're building a company that needs a lot of capital, now, it's better if you build a company that doesn't need a lot of capital, but if you do have a capital intensive business, I think the Valley is still one of the best places in the world. I say that as I think about Amazon and Microsoft as exceptions, but it's still the place where a lot of financial investors are and they write a lot of checks and, and they want to be part of the next big thing. So that was one reason why we came. And the second reason was, we also knew if Cloudflare was going to be successful, we were going to have to service a lot of internet traffic. Because again, we are the thought we were going to be a big company or not exist as a company. And so we needed engineers and leadership that I've seen how to work at Internet scale. And again, I think from a talent perspective, 10 years ago, the Bay Area was the only place that really had that. Now, I think. So that's why we came here. And you're right, people said, You should go to Atlanta, there's a big cybersecurity scene in Atlanta and other people said you should stay in Boston, you're already here. And in 2009, really, the Bay Area was really the only obvious choice for us. And so we packed up our stuff and we showed up here, really knowing nobody, like knowing nobody we showed up here.

KRIS: With the team now in the bay area. Cloudflare worked on their initial product so they could raise some capital. In November of 2009 they closed their first $2.1 Million US investment. They knew they were building a big company, and they would be infrastructure intensive. So the money was going towards building infrastructure and attracting great talent so they could execute on their ambitious plans.

Michelle Zatlyn: When you're building a scale company, it's the right way to do it is you kind of building 1.0, and then 2.0 and 3.0. And, and you're kind of playing whack-a-mole a lot, because you can't build it to perfection, otherwise you're never done. And so, you know, the initial investment was, we had to prove that we... that this would actually work. It is one thing to have an idea, it's a whole nother idea to execute on that idea. And, you know, this is about how to build the next unicorn. And, you know, I think that, like, if you're an entrepreneur listening to this episode, you really want to ask yourself, do you have a big market? Because again, Cloudflare, early on, I knew that... like, really our market was anybody with an Internet property. And you think people were like, That's crazy, you have to start somewhere. I'm like, No, no, if we do this, right, anybody with an Internet property can use Cloudflare. And that is that like, that is a big market. And, you know, that's how you get to… Can you get to 100 million in revenue? Or can you get 100 million people using this If you're a consumer business. And if you're a b2b business, it's how do you get to 100 million plus in revenue. And like the way to do that is to have a big market. And so we just knew this was a huge like we like we knew it was a big market and a big opportunity. Now we had to go execute on it. And so back in the early days, no it was not building everything to perfection. And like, by the way, there's way more things to do when people do it and resources to do it, when you first start building a company. Even today, we have way more things to do than people to do it like that is the definition of a startup like you just you are not in. Like you're not you, you have way more things to do than people to do it like and I just think, and that's really hard. It's hard to manage. It's hard to prioritise, hard to know what's more important. Like that's your job as a founder to figure it out. And early on, we like we had to show like a beta or pilot or whatever you want to call it. And so the idea was like, we had a working prototype, but a prototype, how do you get a prototype and get it into production? And so like that first year we raised a couple million dollars and we had some investors. Again, this is back in ‘09 our Series A was a priced A at $2 million. Like today that would be unheard of. But like back then that's the environment. And then Venrock and a firm called Pelion were our first investors. And we were the only tech investment Venrock did all of 2009. So it was just such a bad financial time. But they had done a lot of cyber security investments. And the partner in particular that and his associate knew a tonne about cyber security. And they just saw us opening up the market with this really interesting technology solution… And so step one was, can we make this work? And so, you know, we, we created a private pilot, and we had to create the technology and, and get our first customers and I remember the first 10 customers, we invited to Cloudflare like it did not work for them. You know, it don't work for all first 10 then we invited and we fixed all those problems, we invited the next 10 and it worked for eight of them. And you know, or sorry, we're for two out of the eight, and like we just kept banging down this private beta of saying hey, can we get the service working? And you know, we ran a private beta for about six months and and you know, it was really hard because that first year just we had five points of presence around the world. And even getting those five up was a lot and you think oh That's not enough to make it faster. But it turns out for the segment of the customers we were working with it did make it faster and more secure. Because they had nothing, we were competing with nothing. We still do compete with nothing for most of our most of our customers today. And so if you go from nothing to being distributed caching in five locations around the world, it does make it faster. And if you get rid of all the cyber attack traffic and bought traffic off your server, it frees up your server resources to stand to have the horsepower to work on the legitimate visitors. And so it just, you know, you don't need to go from zero to 200 in the first chapter. And so you kind of have to figure out what's the most important thing What are you got to prove out and start there and then, and then when it's working, we just kept saying, Hey, we got to keep going, got to keep going, got to keep going and kind of what was good enough last year is not good enough anymore.

KRIS: How are you thinking about balancing the workload amongst your team? I mean, you coming from a non technical background, you had two technical founders as well. So how are you sort of like figuring out the dynamics of that when you're in the early stages of the business and trying to build out your team?

Michelle Zatlyn: Right? Well, look, so step one is if you want to build a unicorn, is you gotta… are you operating in a market that is a big market? So like, are you solving a meaningful problem in a big market? And, again, if you kind of think back to Cloudflare’s early stage, you don't really know exactly what that means. But it was clearly a yes… Then step two is you got to get good people to come work for you because no matter how talented you and your founders are, if you can't get, assemble, the people to come… great people to come work for you, you will end up nowhere, you will not be able to execute on the idea. And the idea is one thing, but you got to execute, which is a whole other thing. And so you really need to get great people to come work for you and the right people early on. And you know, you asked about dividing, dividing things up. I mean… I know, most listeners don't know us. But if, if if your listeners knew Matthew, Lee, and I, we were so different. We had such different skill sets, we approach problems differently. And so if there was a Venn diagram, we covered a lot of surface area as a founding team, and we had a very little bit of overlap among all of us. And, you know, I think that we were, we were, had high moral people, good values, I think we believed in what we were doing or we wanted to do a good job. And we believed this idea of if Cloudflare could be successful, we would really be able to make a big impact. Like again, at this time our our mission was not to help build a better internet, it was, we were just an idea phase, but what has that become, we were just like Cloudflare feels like a company that really lives up to his promise. It would be a company like for me I was like it would pass my ‘Am I proud to be part of this’ test and I think for Matthew and Lee too that was important. And so we, we covered a lot of surface area as a founding team. And so the first couple people we hired rounded out that surface area. You know, for us, we needed someone who really understood analytics and big data so we found someone to go do, do that. Because we just didn't have that skill set on our team. We needed a really like low level C level programmer because we were doing, you know, we proxy a lot of internet traffic. So we needed some who could write really low level code. And so and then, and then we need someone do the front end, we need someone to help us build the network on the technical operation side, and then actually an employee number eight was someone to help us with the community because we had so many developers and small businesses and nonprofits that started to use Cloudflare we grew to 1000 pretty quickly in our private beta. And Matthew and I were basically doing that. And you know, you want to, you want to invest in that community, but like we really needed someone. And so very early on, we kind of we realised that Cloudflare is this service that it was like really a community that we were building. So we, we hired one; our employee number eight was somebody on the community side. And so if you look at the first eight people, we just, very little overlap over all of us, a lot of surface area. And you just think, what does this business need? Those are the things we needed unique to our business, your idea will look different, like someone else's idea will look different in the first eight or 10 people, but being kind of smart about like, what do we need next was important, and I'd say up to kind of employee number 20. Like everyone looked different and you start to get a little bit more overlap when you go from 10 to 20, which is good because you're just so desperately scared of man if this person leaves I have no idea how to do their job, which a terrifying place to be as a business, you want redundancy, you want to know that if someone leaves the business will carry on.

Michelle Zatlyn: But it's just like early on, you have such different backgrounds and skill sets, that you really couldn't do each other's job for the most part, like it's hard to put the Big Data person on the Front-end job, like most of those other usually different skill sets. And so that's that's how we thought about it. And, and, and I hope that other founders… but that's early, and then what happens is, like, it is so hard to I mean, I actually think the first 10 people are one thing but you get to be say you're a part of the founding team. I actually think that's easier than employee number 30 to 100. Like, I think that is so hard. And I just, it is so hard to get someone to join as employee number 50 even if you're a unicorn because guess what, when you're 50 people, no one knows you're a unicorn. And the chances of you going out of business are so high because most startups fail. And all the bad stories you hear in the press, turns out there's a lot of crappy tech companies. And you just think, man, how do you separate yourself from that? It is so hard. And it is because most people are highly employable, the people you want to come work for you are highly employable other places, and they're like, why would I take a chance to come work for you? I'll come when I see that you actually have traction. And so what, what we got really great at is this idea, like we knew we had to get great people on the team. And I think, again, the first 10-20 people were a lot easier than the next group. And you just this is where our vision started become really important, like the mission, and this is when we really started to crystallise, what do we stand for? And we ended up sticking on ‘helping to better build a better internet’. And like, it turns out, some people really care about that and want to come work for us just because of that. And so this is kind of back to, if you’re solving a real, meaningful problem, in a big market, it probably matters and the faster you as a founder can articulate that, the higher chances are, you're able to recruit that next person, great person that you need to come to your company to help get to the next level.

Michelle Zatlyn: You know, we were so involved in hiring as founders, I mean, Matthew, Lee, and I spent over 50% of our time hiring, plus all of our day jobs, which means we’re just working all the time. And I just, you know, it's just you can't outsource it to someone else. It's so hard to get someone to join as employee number 50. And the reason they do is they believe in the mission and because they like the founders or the person they're going to work for. And at 50 people, you probably don't have that many managers in your company yet. So that means it's you. And so you're just you were just doing so much, way more than you possibly should be doing. And, and, and you'd have to be involved. And even to this day, you know, I would say all hiring managers at Cloudflare spend 20% of their time hiring and we're at 1400 people around the world now. And so it's a, it's something that doesn't go away. So if you don't like it, you have to get better at it. Because it's like, the more successful you become, the more important is to continue to build great people, get great people to come join your company to execute on this huge vision. And if you're going to build a unicorn, you're going to need a lot of people. And I think like that, that's one of those things where I didn't fully realise that when I was starting my company. So that's important and just like as a rule of thumb, if you're a B2B SAAS company, for every hundred million in revenue, you kind of need between 300 and 350 people. You just look at every b2b SaaS company… they almost all fit into that, there's some exceptions but not really. Okay. So so that's like 350 people that's a lot of people you’ve got to get good at hiring, so we got really good at it.

KRIS: Cloudflare started inviting users into their private beta. And as Michelle said - often the solution didn’t work exactly how it was meant to, which meant the team was always trying to manage expectations of those initial users as they ironed out the bugs. But as the service became more stable the team gave themselves a deadline for when Cloudflare would release to the public. And that deadline was Techcrunch Disrupt in September of 2010.

Michelle Zatlyn: So when you're shipping software, this might resonate with a few listeners is it's so easy to find a reason not to ship something, oh, it's not ready yet this feature didn't get done, oh it’s taking longer. And you just kind of make up an arbitrary deadline that's easy to move. And so I think that's part of the reason why, you know, programmes like Y Combinator with Demo Day and like, these deadlines, you can't move are actually an entrepreneur's best friend, because they just, nothing motivates a team like a deadline you can't move. And so what we did is we were running this private beta and like, Look, I'm making it sound like it was all so easy. It was not. Like I remember the first version in the private beta we released and we kept pushing back to the date cause it wasn't ready. It wasn't ready. We were so embarrassed by the service. And finally, Matthew, you know, my business partner and CEO just said, we're releasing it. Doesn't matter. Like start inviting people to sign up for it. And I just remember thinking, no, it's not ready yet. You know? I remember one of the things that I thought was on the must have list was, you know, we're telling people that it's gonna make their website faster, safer, more reliable, but we don't have any analytics, a UI for the analytics, to actually prove that yet. And but he's like, doesn't matter, send it out, invite them, invite them. And so we invited customers and again we brought the first ten, and then we got the next… we finally got some customers using it and we fixed all those bugs. And I just remember, like, it was kind of those aha moments. We got someone writing in, one of our early customers, who wrote in saying, ‘Oh my God, not only does Cloudflare make my site more secure, it actually speeds it up’. And like they had parroted it back to us. And the reason he saw that is he had a third party monitoring tool that he used for website performance. And so it was kind of like this big aha where he's like he could… he had other tools to monitor the value, you're like delivering, and that was something that I just hadn't considered. And, and so it's kind of a good less of get it into the hands of customers, feedback is a gift. And so anyhow, so again, it was very hard getting our first customers was very hard. But anyway, back to when we finally felt so getting to the first hundred customers was so hard that we used to all sit in the same room, the eight of us. Had like a, we were so scrappy, we were like so cheap and frugal. You just our job is not to run out of money. And so like I took a Amazon box and like made a barometer. And every day we had every day I would update it with how many new customers we added. And the idea was that when we got to 100 customers, we’d take the team, all eight of us to, or at the time, there was five of us, six of us to Vegas. And so like we were like marking it up with a marker every day and it was so hard to get the first hundred customers.

Michelle Zatlyn: But back to my point of nothing motivates team like a deadline, is we we were, no one knew Matthew and I early, we had no reputation. It would be different today. If I was starting a new company like we just, we had no reputation. We were so under the radar. No one knew Cloudflare, because we basically talked to one, two VC firms, and those are the two we raised money from. So no one knew us. It was like we were like this, under the radar startup and getting media exposure, or for people to hear about your company is very hard. Today, I think it's a little bit easier with Kickstarter and YC, and Product Hunt. Those… those did not exist. I mean, YC existed, but not in the way it does today. And so it's actually really hard, like, so we are kept thinking about how can we, how can we punch above our weight in our launch, and again, we didn't have money for our marketing launch. And plus, those don't really work. And so we really, at the time, again it was September 2010 at this point, we're going to launch at TechCrunch Disrupt, which was the big tech conference, and they kind of had this battlefield for startups. And for us, we felt like that was a great place to debut what we were doing, because it would give us a larger stage than we could have created ourselves. I think this is different if you have a, you know brand, or have some other asset. But we did not have those things. And so we launched at TechCrunch Disrupt. And the thing with TechCrunch Disrupt is, we were launching on September 27 2010, because that was our launch date. Like That was when the conference was and we couldn't move it. And, you know, the six weeks leading up to that, it was like, Well, how are we going to get ready? How are we going to get ready, we don't have enough time. And people will… like at this point, there was eight of us on the team, we were just working tirelessly to get you know, all the lists things on the to do list like knocked off and even as Matthew and I were walking on stage to launch the company, there was a kind of like a shared Google Sheet with 50 things and our whole team was there and they like they had their laptops in the audience crossing things up as we were going on stage. And so and, you know, we flipped to a new website at the moment we walked on stage and it was just this real. I mean, it was just this real catalysing event because you just couldn't move the deadline and and it had to get done and it got done.

KRIS: Cloudflare came second at Disrupt, but despite missing out on the main prize - they saw a huge rush of users wanting to try out their product, and along with those users came the investors. Everyone in the Valley wanted to know who this new, hot startup was.

Michelle Zatlyn: And we went from, you know, 1000 customers to a we were kind of growing. I remember for 30 40% week over week, like it was very high growth. And we were still only eight people, soon to be 10. And Oh, and by the way, all the venture capitalists in the valley who were at TechCrunch Disrupt who didn't know us all sudden were like, wow, I don't know you, I need to know you. So we had invitations from all these people that you've heard of by name that are famous wanting to meet us. And so you're doing, you're trying to run your business and go meet all these investors because again, that's part of your job is not to run out of money, and it's important to meet these smart people. I just remember at the end of October, I was like, I am so tired. I had like, I was, again, small team, we were all just working basically all the time. And that basically continued for the next four years. I mean, I got I got a little bit better but I mean look, growth, we were growing. So we were a huge success story we grew so quickly and, and we had so much demand and everything everyone was like we just, we became a huge success story in the tech startup world. And I just, I, you know, if I'd been on this podcast back in 2015, I probably would have said, I don't know why anyone starts companies because it was just really hard.

KRIS: But that hard work quickly paid off. By 2012, Cloudflare had already become a unicorn, with a funding round valuing the business at more than a billion dollars. And right after this break - Cloudflare expands their team globally.

[AD BREAK]

KRIS: Cloudflare’s business was growing rapidly. Their user base was growing, their team size was growing, and they were raising a lot of money. The initial offering was a freemium model - with a free tier, and then some plans at $20 a month. Enterprises users also wanted in on the action, so they introduced an enterprise plan… and as they grew their users were wanting more and more from the product, which left the team with some difficult decisions as to what contracts they would pursue and which ones they had to turn away.

Michelle Zatlyn: If you are a founder with a successful company, like leadership matters so much where you'll just be there'll be many times where you're faced with a decision and what you decide actually matters a lot for the business. And so for us, we've had that over and over again, and again, this is easy in hindsight, but even the moment I just remember thinking like, oh, okay, we got to decide. And for us, I just remember when, we we started with these small businesses and developers using our service and they loved it, and we kind of were a free service, a $20 month service, a $200 a month service. And kind of back to managing expectations, if someone's paying you $20 a month, they kind of have a set expectation. And we have these larger organisations saying, Hey, we want you to do the same thing for us. And we're willing to pay you a lot more $60,000 a year, $100,000 a year, and someone paying you $100,000 a year has a very different expectation to someone paying you $20 a month. And so we as an organisation invested in that and we have to come up to speed but like you can't do that overnight. So we were investing in that and we were kind of early to middle in that stage. We kind of had a customer who was willing to pay us over a million dollars a year. Now, the salesperson who brought that in was delighted. Like this is huge. This is gonna make my number for the year. The head of sales was delighted too, ‘Oh, awesome. I joined as an executive of this company, I can close million dollar deals. Awesome’. I can tell you who was not excited, Matthew and I. We were like a million dollar plus customer a year has a very different expectation, and this was a very internet heavy traffic site, then our customers paying us $60,000 a year, and we are not ready yet. And, look, there was no magic eight ball that we could go to consult to say what should we do? Like it was literally this leadership moment where it was, should we take the customer and work really, really hard to meet their expectations, but for us, we just thought is at the detriment of everything else. And, and we're all for for pushing the organisation, but like we don't want to break the organisation… And we're just we're not ready. And that was again, there are many leadership moments I remember us saying we're not ready. And you know, what we did in this particular case is we you know, we called the head of sales and the salesperson called the customer said, hey, look, we really want you as a customer, but not yet. What we'd love to do is stay in touch and like let's revisit this next year. And you should stay with who you're using, and let's revisit this in a year or year and a half. And we did, we kept in touch. And we kept them abreast of all the tech because they love that we are so technical, and innovative, they love the technologists in us, and that we were so innovative, and we love what you're doing. We said, we love what you're doing too, we want you as a customer, but just not yet. And in this case, we like stayed in touch and the next year, but 15 months later, we actually did close the deal. And they became You know, one of our first million dollar plus customers. And like, that's great. But there's so many moments along the company like, and I just think like leadership matters. And I just wish more people would say that because it is we could have made a different decision and the outcome would have been different. And again, I don't have a I can't it's not a sliding door where you get to look at both paths. But I just know, it was too early to take on that kind of customer. And so No, you're in charge of your company. And for us, we're really long term focused, we want to build a very large, iconic tech company that helps make the internet faster, safer, more reliable for a lot of people online. And we knew that then and so for us, we're like one term, we are long term greedy. We are in this for the long term, we are long term focus, we want to do the right thing long term because we want this business to be around for a long term long term. And that was, I really think I think speaks to how, like we took our leadership roles very seriously. And I want more founders to do that. And some do, and that's amazing. And some don't. And that's how you hear all these terrible stories in the news and you just think Come on, guys, you can do better than that.

KRIS: Cloudflare’s team started growing internationally, with a view of being able to follow the sun. That is having staff members in locations around the world so there is always someone on deck to support customers who need help. And if you’re trying to build a global business - this is a really important point. You need to think about the experience your customers will have with your service, and deploy resources to the locations where those customers will get the most benefit.

Michelle Zatlyn: This is not true for everyone. But for us, like we, we had a lot of customers early on and we had a lot of people outside the United States using our service early on. And even to this day, about 50% of our revenue comes from outside the United States. And so we had customers around the world very early, and so so, so it's great. We also want a 24 hour, seven day a week service where the internet never stops. And so we have a technical operations team whose job is to make sure that our customers internet properties are fast, safe and reliable all the time. And so we we employ a follow the sun model. So very early on, we had, you know, people in San Francisco and London and Singapore because they're kind of all eight hours apart. To run this follow the sun model. And you know, even to this day, it's kind of hand off at the end of the day to the next office when we employ this model. So, for us, we looked pretty global early on books with customers around the world. And because of what we do, I think it changes depending on who, what kind of business you are. Today, we have actually 13 offices around the world, because now you kind of have that dimension. But also, we just have a lot of larger customers, you know, now, you know, those million dollar customers used to be a big deal back in the day, but now we do them all the time. And turns out if you're servicing these large organisations in, I don’t know, in Germany, it's better to have people in Germany to go visit them. And again, servicing a million dollar plus customers is different than servicing a $20 a month customer, and we do both and we do them in different ways. And so we've, we have these other offices based on the demand where our business is. What's really cool I would say about CloudFlare, which is a kind of a, I think, we will help define kind of this next evolution of go to market for SAAS and we we've been able to learn from those ahead of us where We were very self serve early on where we kind of had this free, and $20 a month, and $200 a month plan, where its customers come to your website and signing up and just having high conversion. And there are other businesses who have that Shopify, Dropbox where they are just getting pulled from around the world, which is, which is great. And then you can have this enterprise software where it's like the Workdays and of the world where they have shown the world how Yeah, if you have a really great sales organisation service in these high end customers that works well. And I think that what's interesting, the next wave of really amazing SAAS companies will be the Goldilocks approach, where you both self serve for like you're opening up the market, you're creating this very high velocity mode, but you're also servicing these mid market and large enterprises and you're doing the mid market with an inside sales team. You're doing enterprise with it with a Field Sales Team. And what I think the next generation companies have which I see us having which again is kind of an aha, as we've built this business around this awesome technology, is we look at the data of our customer for pulling for pulling for us, we have customers first, and we see a tonne of revenue in let's say Germany. So then therefore, we then put salespeople in Germany to help go and nurture that. And then we invest marketing. And so it's kind of like customer, sales, and then marketing. We still invest in sales and marketing, but it's behind the demand curve. Versus traditionally in an enterprise model, what you do is you invest in marketing, you hire salespeople, and then you get customers. And so I think that's a very kind of new dynamic and go to market for SAAS companies. And I think other companies have it too. I think we're one we also have it but it's kind of a new model. And I think that'll be kind of the next go to market aha for the next generation entrepreneurs where you can make that work. It means your sales and marketing resources are much more efficient and productive. Then your peers which means it should show up in your, in the way you run your business. metrics.

KRIS: Given that you've got you've got so many locations, how do you, how do you maintain your company culture when, when you have so many different dynamics to the business in so many different countries, and each country has its own culture?

Michelle Zatlyn: Yeah, I mean, what the biggest compliment I can say is that when someone goes to Cloudflares, I don’t know, London office, we have a big office in London, they come back and say, Wow, that felt like Cloudflare with a London feel, like that is the best compliment. And we've had that. I mean, I think we really want to keep that going forward. I think there's some things we did that that were smart that uh, you know, that are good lessons learned. We are. When we, I remember when we spun up our, when we opened our Singapore office, we kind of did San Francisco first, London, and Singapore was third. We asked people at the company, who wants to go spend six months in Singapore, three months to six months in Singapore to help seed the office, and actually a lot of people raised their hands and they went there for between three and six, some people stay for a year or year and a half, to help open the office and and then we hired a lot of people locally. And that helps give it the the Cloudflare feel but with a South Eastern flair, which is a great, again what you want. We just opened our Lisbon office, that's our one of our latest offices. And we had over 60 people across the company raise their hand saying I'd love to go spend time in that market. Now, not all 60 went on for the first time, but we kind of had 10 people go seed the office, now we're hiring locally. They're going to come home, the next wave is going to go. And so part of it is actually taking our people who've been at Cloudflare and letting them move to other locations around the world. Now, if you work at Cloudflare, that gives you a great career opportunity for people who want, who say, wow, I would love the opportunity to live in another country and and for you know, three months, six months a year, everyone kind of has a different or year and a half. And that becomes a professional development opportunity. And so that's worked really well. In addition, we do things like people go spend the week, like go to London for the week, to you know to work if there's a good business need so we've been pretty open about that which like allowed that which has been great. And then this idea of, you know we have our weekly all hands we rotate the time between morning and evening California time. So that in the morning when we do it morning, California time Europe joins and Austin are these other offices in New York, East Coast, New York, DC. And when we do it at night, Asia joins, but we still record it regardless once, and then all the offices will watch it together the next day as their team now, everyone's working from home right now from coronavirus, so we'll have to rethink that. But that's worked really well because it makes you feel like a team connected. It's, it's, you know, anyone across the world can can sign up for an open floor slot. And so you're hearing things from around the world. We host that meeting at different offices. And so it's this idea of we play as a team, we win as a team. And we try and have local leadership, we have local management team, you know, teams, you know helping running those offices, but we have this connective glue. And then finally, most recently, we've kind of actually have a real, we have a role called site leads where people in addition to their role can sign up to be a site lead, and they're compensated for it, and it's an additional responsibility, where they're also helping to be the connective tissue between offices. Sharing best practices, kind of being the heartbeat where, hey, we're doing this, oh, cool, we'll do that, and just sharing and they kind of become these bridges. And again, you don't want islands and you don't also just want bridges between teams. You need bridges in different ways. And so those are some of the things we've done. But if there are listeners on this call with good ideas of the things they've seen as they've scaled, we're on this new path from 1000 people plus, and I'd love to hear them so email me with your ideas if you're listening.

KRIS: Throughout their journey as a private company, Cloudflare raised more than $300 Million US dollars, and in September of 2019 the company went public with a successful IPO. They now have a market cap of close to $6.5 Billion. And Michelle says one of the most important things when raising money is to make sure you’re optimising for the individual person who’s investing, rather than chasing a specific valuation or even chasing a big, well-known firm.

Michelle Zatlyn: Who you raise money from matters and who I mean like literally the person. Like the partner, the associate that you're taking money from, matters way more than the firm. And we literally at one point in Cloudflare’s history took a valuation that was like, significantly less, like half what the other valuation was, to work with, who we thought was a better partner. Like so this is not 5%. I mean, 50% is a totally different valuation. Or 40%, or whatever it was, it was like it was massive, massive. Whereas we picked, we optimised for the person. And again, this kind of comes back to it's a leadership moment. And because of that, I think we have a more stable board and less drama. And so sometimes people are like, ‘Oh, my board, my investors’, I'm like, why did you raise money from them? Oh, well like they gave me a high valuation? Well, that's like, that's the worst reason to raise money and optimise for the person because they are going to be around for a long time. So we first raised our Series A, November of 2009. And then we raised money four or five times privately before we went public, and we went public in September of 2019… Many of our initial investors came to the New York Stock Exchange to be there for it. And so it's… they've given us money, they've shown up to our board meetings, but they've been so much more, they've helped us close senior executives, they've rooted for our success. They want us to be the, they want, they want to see Cloudflare reach its full potential as an idea of this business idea. Because again, they believe that we're on something big, and coming back to do you want to build a unicorn, you got to build something meaningful and meaningful means big. And the investors who are part of the Cloudflare, like cap table, believe in what we're doing. And like that's, you want people like that, in my opinion, involved in the business. And the other thing that I think is not obvious is like even, even, you're gonna have many investors like it's not one you're going to need many. So you have to get good at it, you have to get good at talking to these people. You have to get good at, like taking their feedback, you have to get good at managing them. Like, not all of their ideas are good ideas, but like, but some of them are. Like, it's just so, so important. And and then, you know, that's that's that those are some of the things that I would say were important. And that even today, like we're a public company, and part of my job is talking to shareholders, which our investors often, like we go do, you do, you know roadshows when you're about to go public. We've since gone, we since went public, we've done non deal roadshows, which means you're back to talking to investors, you go to investor conferences, and the whole point is to be able to explain your business to very smart investors to get them to understand why they should invest, want to buy your shares instead of someone else. And why that, why what you're doing is interesting. And so it's like a job never goes away. And I just, no one told me that when I was raising my series A or B. So again, I hope listeners or I used to be like, I hate this, like it's so much work. It's such a distraction. It's kind of back to like you’ve got to embrace it and get good at it because it is not... the more successful you are, the more you have to do it.

KRIS: With going public last year, what's the differences that that you've seen in the transition like of going from, from private, private company, where you know, yeah, you're accountable to shareholders, but it's not like out there in the open as much, to transitioning to a public corporation?

Michelle Zatlyn: I loved going public. It was an amazing experience, like an amazing experience. Not just for me personally, but like for our whole team like we were so proud. Like, it is a big deal and we were so proud and not just me, like all 1200 people at the company, we're proud or almost… you know, I guess it's like lots of people are proud. And you know, it was just this moment where you just realise you... we couldn't have done it without all 1200 people. Plus, you know, the people who used to work at Cloudflare that never work there, you just kind of realise, wow, it kind of was 1500 in total, all of us carrying, sweating the details, because people do… like the best part of my job, oh, people get work, work with, they sweat the details. They care so much. They want to do a good job and whatever their job is. And it was just this crystallising moment where all of it mattered. And nothing didn't matter before. You just realise how rare it is. It’s just most companies never make it to that point. And it was just kind of like wow, we did this together. And it definitely made us a better company. You know, it's a lot of work to get ready to go public but building companies are a lot of work, so that didn't scare us. It was just more, it made us a better company. And I think that's great because we are in this for the long term. And so, so now we continue to execute and whatnot. But that's, that's sometimes I hear this counter narrative Oh, like going public is terrible don't do it, And that was not my experience at all. And I think if you asked Matthew and our CFO Thomas, like they would say it was, it was great. It was really fun. If you ask most people a cloud for they would say it was a very positive experience and one that we're really proud of. And that was kind of the end of one chapter on the start of the new chapter and can't wait to deliver on this next chapter.

KRIS: With where you are now, with everything that you've achieved building this 1400 person, global team, how do you feel?

Michelle Zatlyn: I feel proud and humbled that I get to be in this… Like, I'm both proud and humbled and I feel like a big immense responsibility to continue to execute on it. So like, what do I mean by that? I just okay, if you zoom out, and so we're a b2b sales company. We sell services to businesses and and we have a lot of them, but we did $287 million in revenue last year. And, you know, we're last year we grew 50% year over year about, we've grown about 50% year over the last four years. So if you look at if you just ask yourself the following, because some of it's like what are we for. So we're a b2b SaaS company, how many public companies do over 200 million in revenue that are growing over 30 percent year over year and then have gross margins above 75%. How many companies fit that description? So that was kind of like the framing? And the answer is 10. And we are one of the 10. So it's not it's not it's not one, but it's not it's certainly not dozens, it's 10. And so you just realised, wow, we have a big opportunity here to do something. And, you know, again, it's how do we get to a billion in revenue? How do you get to 20 billion in revenue and, and, and we're really focused on we're on to something we want to execute on it. And so I'm, I'm proud and humbled and I feel a big responsibility to make sure Cloudflare reaches its full potential as a business, because as an opportunity, because like, I've met so many entrepreneurs at this point, and people search their whole life for this, like they search their whole life to be like, I want to be part of something that's going to be big like a unicorn, more than a unicorn. I want to be part of something that like makes a difference. And we have that, and we're just getting started. Like there's like, I'm really proud of what we’ve done the last 10 years, but man, there's so many things left to do. And so, I'm, I want us to reach our full potential as a company and as an opportunity. And I think that we have an opportunity to do that.

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