Moonshot

Cloudflare: Reflections on Leadership with Michelle Zatlyn

Episode Summary

Michelle Zatlyn, Co-founder, President, and Chief Operating Officer at Cloudflare, chats with Peak XV CMO Gayatri Yadav about building Cloudflare, the global powerhouse that stops 209 billion cyber threats a day. In this conversation, Michelle reflects on the initial struggle to garner support for Cloudflare’s offerings and emphasizes the importance of perseverance, especially in the face of skepticism from potential investors, customers, and employees. She delves into why founders should listen to their own voice and not be deterred by doubters. Michelle also talks about Cloudflare’s approach to customer acquisition as well as the evolution of the company’s go-to-market strategy. While talking about the complexities of building and scaling a company, she also delves into the importance of hiring the right people, as well as the leadership principles that guide her.

Episode Notes

Michelle Zatlyn, Co-founder, President, and Chief Operating Officer at Cloudflare, chats with Peak XV CMO Gayatri Yadav about building Cloudflare, the global powerhouse that stops 209 billion cyber threats a day. 

In this conversation, Michelle reflects on the initial struggle to garner support for Cloudflare’s offerings and emphasizes the importance of perseverance, especially in the face of skepticism from potential investors, customers, and employees. She delves into why founders should listen to their own voice and not be deterred by doubters. Michelle also talks about Cloudflare’s approach to customer acquisition as well as the evolution of the company’s go-to-market strategy. While talking about the complexities of building and scaling a company, she also delves into the importance of hiring the right people, as well as the leadership principles that guide her.

Episode Transcription

Chelsea Ng: Hello and welcome to Moonshot, a show by Peak XV that profiles innovative startups, founders, and thought leaders who are dreaming big, making an impact, and driving change across the region and beyond. We hope this podcast will give you fresh ideas on how to start and scale an enduring company.

Michelle Zatlyn, Co-founder, President, and Chief Operating Officer at Cloudflare, chats with Peak XV CMO Gayatri Yadav about building Cloudflare, the global powerhouse that stops 209 billion cyber threats a day.

In this conversation, Michelle reflects on the initial struggle to garner support for Cloudflare’s offerings and emphasizes the importance of perseverance, especially in the face of skepticism from potential investors, customers, and employees. She delves into why founders should listen to their own voice and not be deterred by doubters. Michelle also talks about Cloudflare’s approach to customer acquisition as well as the evolution of the company’s go-to-market strategy. While talking about the complexities of building and scaling a company, she also delves into the importance of hiring the right people, as well as the leadership principles that guide her.

Gayatri Yadav: We have a room full of female founders and some other founders as well and some folks from Peak XV, all eager to hear from you. We're super stoked to welcome Michelle Zatlyn, Co-Founder, President and COO of CloudFlare, which is a public company at the forefront of technological security and reliability, which­­—hold your breath—as of last year, had a market cap north of $30 billion and revenues of $1.2 billion. You know, that's super impressive, you definitely represent this aspiration to so many, including myself, of what you’ve built. And what we now know as Cloudflare actually began in 2009, which was just after the bubble when Michelle and her co-founder, Matthew Prince, were MBA students at Harvard and they were later joined by Lee Holloway. And I think Michelle was very early on, not just recognizing internet threats, but stopping them in their tracks. And fast forward to today, 13 years later, after they incorporated, Cloudflare has an employee base of 3,600 employees, 190,000 paying customers, and boasts one-third of Fortune 1000 companies as Cloudflare customers, which is super impressive. And to give you another dimension of Cloudflare's scale and impact, Cloudflare services 20% of internet traffic in the world and stops 182 billion threats a day! So thank you, Michelle, for keeping us safe.

Michelle has also been quoted as being on the Mount Rushmore of women in infrastructure—I would say all leaders in infrastructure—I would say on Mount Everest or the Peak XV of the internet and infrastructure. So, really excited to welcome you today, Michelle. We have a lot of early-stage founders, and we have some founders at the growth stage and at the scaling stage. I'm going to focus this conversation a little bit more on the early-stage, but we'll keep toggling between the past, somewhere in the middle, and the present. But I want to take you back to 2009. Markets were down, we had just been through a financial crisis, and that was the time you chose to fundraise. It was the best of times and it was the worst of times. We have a lot of founders here who are preparing for their seed round. And I want you to go back, 14, 15 years and sort of talk through what were your reflections and learnings as you set out to fundraise? I know a lot of people said, “No,” a lot of people you looked up to and admired said, “You're out of your mind.” How do you follow your internal voice versus listen to naysayers? Walk us through that.

Founders, it’s ok if others don’t see what you see  [04:19]

Michelle Zatlyn: We’re coming up on being 14-years-old at Cloudflare, and so I was an early-stage founder, not that long ago. But it's interesting going back to the early days, you know, Matthew, Lee, and I… We were three co-founders when we started Cloudflare. We were really in love with our idea. But some people we met were not in love with the idea. They kind of didn't get it, or they asked a lot of questions that I found were annoying. It was clear they were just trying to find a reason to say, “No, we're not going to give you money,” or “No, I'm not going to come to work there,” versus believing in what was possible. Early on, you're not sure whether your idea is a good idea. You're constantly ebbing and flowing between, “Is this something I believe in? Maybe we are crazy. Like, maybe they're right and we're wrong,” or that's how I was anyway, early on. And so I think that one of the things I learned really early is you can't… Just because other people don't see what you see, that’s okay. Don’t take it personally and I think that was really hard for me to learn. If it was so good, I could be able to do a good job explaining it, but some people just see things at different rates than you possibly could. And that goes for employees and customers, it goes for investors.

What I ended up eventually doing, which I think might be helpful to some of you, is I stopped taking it so personally. So when people would say “No,” whether it was an investor, customer, or an employee that I was trying to recruit and they said, “No, I would never work for you,” or “I would never buy your service,” or an investor said, “This is never going to work”... Instead of taking it personally, I said, “Okay, no problem. We're going to keep working on it. We'll come back to you.” Almost gave them an out, so that I could go back to them because it turns out a lot of people that I wanted to work for me early on eventually did work for us [Cloudflare]. It might be years later, once we kind of were further along and by making a joke of it, it gave them a way to come back. And the same with investors. The ones that were like a little bit… I would say I took the high road, or we took the high road, the ones that were kind of very naysayers, we left the door open. We would go back to them and share the updates. And over time, some of those wanted to invest. We didn't necessarily take money from them, but it's always good to have options when it comes to fundraising. And then customers, I mean, this is a true story. There was a, I sell to a lot of CISOs (Chief Information Security Officers). And there was somebody who worked at one of the biggest tech companies. And I remember meeting him about five years in and he looked at me and said, “Michelle, I will never buy your service.'' And six years later, just last week, he was on a call with someone on our team saying, “Oh my God, I love your service. I'm such a fanboy, I read all your blogs.” I was like, “Six years is a long time, but it’s not that long of a time from ‘I’m never going to buy your service’”... As founders, we see things that other people don't see. And so don't take it personally when someone doesn't see it. You just kind of got to take the high road, let the water roll off your back and keep going because you might need them along the way.

Finding PMF isn’t always a slam dunk [07:20]

Gayatri Yadav: That's such a powerful line: “As founders, we see things that others don't see.” Fast forwarding a bit to early customer acquisition and the pursuit of PMF (product-market fit). One of the most frequent questions we’re asked by founders in the room­ is, "How do we get to that elusive Holy Grail, PMF?” I was reading about how, in the early days, you didn't have servers, and this is pre-AWS. You actually asked the Honey Pot community for servers and drove around collecting servers from potential customers, which I thought was an incredible hustle and a great story. So can you walk us through the early days of customer acquisition, and when did you know you had PMF? 

Michelle Zatlyn: Getting the first 100 customers was really hard for us, and the first thousand, and then the next 1000. So even in successful stories, it can be hard. Really early on, like when we were five of us working on this idea, getting people to try something new was hard or it was for us anyway, because we were selling to businesses. I think for [the] consumer [business] is a little bit easier. And we had a piece, we were very frugal, we did not have a lot of money back then. We had raised $2 million, and we were really trying to get that $2 million to stretch a long way. And so, we also sat all in the same room—a very different time than today—where people might be distributed, but we had a piece of cardboard that every day we would fill in how many customers we had signed up. And we had told our team when we get to 100 customers, we're going to take the team to Vegas. It took us several months to get to 100 customers, and when we got to 100 customers, we took six of us to Vegas—and it was really fun—for a weekend. And at first, we reached out to a lot of friends and other folks, to get them to use it and to get feedback, and there were a lot of people who said, “I will never use this,” and there's other people that said that, “I love it,” and other people who told me that they hated it. And so it was a little bit noisy… The reason why I tell that story, [is that] it wasn't like a slam dunk. The people that loved it, of course, we spent more time with them. We looked to find other customer profiles that looked like they’d love it. The ones that were indifferent were good too, and there were some that hated it, and we were like, “Okay, that's good too. Tell me why you hated it,” so that we could fix those things. And so that was kind of our approach. And what was interesting about us is we did not have a reputation. Today, if I were to start another company, I would have a reputation, like a reporter would cover it, and some people would follow me and like, try it. Like I have a reputation today, but I didn't when we started Cloudflare. We really kind of were nobodies or like just regular people with an idea. So we knew that we had to make a splash, and a lot has changed and how you would make a splash today, but then we decided to launch a kind of tech conference to get our name out there. And what ended up happening was we really took that very seriously, like probably too seriously, but we took it very seriously. We launched one of these startup competitions, on a stage. We ended up making it to the finals. We got to pitch again in front of a big audience. We sell to technical people.

Anybody with anything online can use our service, we make things faster, safer, and more reliable, and so people in the audience started to sign up. And that ended up being this catalyst where people around the world started to use our service. And we went from like a thousand customers or users that we had been running in a pilot to like 15% or 20% week-over-week growth, which is really good—like that compounds—that's a lot of growth over a very short period of time, and that was a really good place to be. And we've kind of just never stopped growing because of that. People started to talk about us and tell others, “Oh, my God, this is great,” and it kind of started to build a flywheel. But that was how we did it. So the first couple [of months] were really hard, and how did I know we had product-market fit? I mean, on one side early on, I remember that we got some emails from early customers that were so visceral, like so emotional. They were like, “Oh my God, for the first time in five years, I slept through the night. Thank you.” And the reason why they said that is, before Cloudflare, their servers kept going offline because they had to get out of these crawlers, and junk traffic, and their server would go over a line. They were, you know, using something like Bluehost or GoDaddy, way before AWS. And then with Cloudflare, all of a sudden their pager didn't go off because we took off all this bad traffic. [It was the] silliest thing, but for them it made all the difference in the world. And you said, “Wow, like clearly we've hit a nerve.” And that was what I used to keep going on, because you know, early on there's 10 highs and lows every single day. You might believe… But gosh, there are good things and bad things happening 10 times a day, so it's a roller coaster. And as you get bigger, like today, I still have a roller coaster, but it's much more spread out, so it's much more manageable. But in those early days, it was hot, cold, hot, cold every hour within a day. And by the end of the day, you're like “Oh my God, am I ending high or low? I don't know.” But that kind of qualitative feedback from early customers is what we held onto in droves because we knew we had tapped into something. And sometimes I just think to myself, “When would I, when have I last written into a service that I use to tell them how much I love them?” That doesn't happen very often. And so the fact that like this technical person was doing it was, I think kind of at the gut level, how we knew we had product-market fit, even if it didn't hit some definition. We kind of used some of those North stars to keep going.

Understand why potential customers don’t buy your product [12:53]

Gayatri Yadav: That's amazing. So you had a core set who were in love with your product. That’s often this debate that we sometimes have about how you build and scale, you know, GTM (go-to-market). So now fast forward from starting up to PMF to GTM, scaling… one of the biggest challenges for both B2B (business-to-business) and B2C (business-to-consumer) founders here is, how do you scale efficiently? What I've heard about Cloudflare is you sort of follow an inverted marketing pyramid where you get the customers and then you expand versus expand and then get the customers, and you build on [the] core. So can you share some of those insights for both B2B and B2C founders in the room?

Michelle Zatlyn: We were really about the tech and all about the engineers and the cool tech we are building. And that's amazing. Solving real problems that are differentiated is really cool. But you know what's even cooler is revenue. Like, revenue is really cool. And I think it took me and Matthew a while to appreciate that. We kind of… We had a little bit of the Silicon Valley attitude of “Meh… The tech is cooler.” Turns out revenue is much more easy to measure between companies. And so it turns out it matters a lot. So if you can build cool tech with a great mission, and tie it to revenue growth, that is what's actually really cool. The reason why I bring this up when you ask me about the go-to market is, I remember, we were 70 people, we had about $5 million in ARR (annual recurring revenue), so we were really early. We hired our first executive on the go-to-market side. We were tiny. We were so geeky. But as a founder, you have to understand the basics of that, even if you don't own it ultimately. There are a lot of parts of Cloudflare in our go-to-market that also is about serving a large audience, which is more consumer-like. And so I've learned a lot about kind of… What are the levers on that? And I think what I wish someone had told me when I was 10 people in, is caring about the go-to market and caring about the tech—differentiated tech—you need to do both. Like, one's not better than the other. And I would say as a tech founder, that's hard, because I remember early on, a lot of people would say, “Oh, are you a product company or are you a sales company?” They were like, “They made me pick,” and I was like, “Well, I think I'm both.” And then I remember someone else saying, “Okay, you're going to start to hire salespeople, put them in a different building than your engineers. Don't let them talk to each other.” And that was some of the advice I got because it's like, “Oh, they speak different languages, going to ruin everything, keep them apart.” And I was like, “Well, aren't we one team?” And so again, you're going to figure out what works for you. There's lots of successful companies out there. There are lots of ways to be successful, but I do think leaning into understanding the mechanics of how do you get customers? Why are they coming? Are there more customers that look like that? Is it repeatable? And, even if you're uncomfortable and feel like, “I don't know how to do sales,” show up to those conversations and learn about it because that is really important to being successful long-term.

And I think that you can't really outsource that. It doesn't mean you always have to own it over time; you're going to hire other people to help systematize it, but I think just understanding why customers come to you and why do they buy from you or why don't they buy from you is actually really helpful. It makes you a better founder and a better leader. And I think that's something that was something that I, again, had to learn along the way. So hopefully, me sharing that story helps you get there faster than I did.

The importance of tracking progress against a goal [16:29]

Gayatri Yadav: Yeah, it makes so much sense and it's so fundamental, when you think about it. So fast forwarding now to leadership. You talked about how this one revenue hire helped you scale to a billion dollars and how getting the right people is so critical. And I know we've had a ton of discussions about both at the early stage, how difficult it is to attract and hire talent and build culture, and then how do you scale? So I want you to talk about, you know, scaling organizations, right from building it. And I know that in the early days you took a lot of contrarian moves, like your first 25 hires, none of them were from infrastructure tech. And, you know, you didn't have any titles for your early hires and now you've scaled a 3,600 employee organization, so walk us through building teams and scaling organizations, both for the early stage and the growth stage founders in the room.

Michelle Zatlyn: It all comes down to people. And there's such a big difference between a great hire and a good hire. There's a difference between a great investor and a good investor. A lot of it comes down to people. A good test we used to employ was, when something goes wrong, because something will go wrong—in startups things go wrong all the time—is, “Would I be worried to call this person?” and for executives that was a good test. Like, do you feel like you would trust them or not? And we use the same thing for investors. Over the years, whether it's investors and board members, there's some that we call all the time when there's an issue and you feel, you know, that they're not going to scold you or you don't feel like your job is at risk. The people matter a lot. In my experience, and this might resonate with somebody who is… There's inflection points to a business. It's like getting to $10 million in revenue if you're a B2B company. And then a $100 million is a totally different inflection point. And then when we hit a billion in revenue, like run rate, which was about a year and a half ago, was a whole new inflection point. You need different people at different stages. Like our CISO on his resume, he was a CISO of HSBC, you know, and again, he would never have joined us when we were $25 million in revenue, but at a billion, he's like, “Oh, this is interesting. I can come to you now.” And being human to those folks, I think, and being good to them is, if you can get that… If you can do that, it makes the culture of your company a lot healthier and you just feel better as a leader, so that's one thing. The second thing I'll just say is that, [and] I don't think it's spoken about enough at all, whether you're a growth company or building something from scratch, there's like a lot to do. And so it's all about like, what are we doing and are we getting it done? And for a long time, we used to have one spreadsheet you could go to—and we did this till [we had] about 2000 people—where you have one spreadsheet where we planned every quarter and you could see exactly what you're doing this quarter, why was that important, and who owned it. And each week that person updated it, whether it was red, yellow, or green, and then “done” was blue. And we used to report back to the company and it was amazing, because I'd go try and hire people and they'd be talking to other startups, and it's like those people [would say], it was a mess. And I'm like, “Well, I can tell you exactly the 200 most important things at Cloudflare.” And they were like, “You can?” And I'm like, “Yeah,” and I'd pull up the spreadsheet and they could see what was green, what was yellow, what was red, who owned it. And all of a sudden, in these conversations, again with investors or people that I was trying to recruit to work at Cloudflare, they just realized, “Wow, you guys are serious.” It gave you more legitimacy. It's like, you're really trying to build your business, this is not just some party time. And I think that, this idea of, are we rowing in the same direction? Do people know what they're supposed to be working on? Are they doing it? Are we hitting goals, instilling that when you're early, when we were five people, we used to do it every two weeks in a room every Friday, we'd get up and people would say, “I was supposed to do these three things this week,” one by one a person would stand up and say, [they] either did it or didn't. It was really binary. And we did that till [we got to] about 30 people. So whether you're one of the early-stage founders or the growth companies, I think it was really, really effective. And again, having people feel like what they're doing matters and they're shipping things, really makes people feel productive. It feels really good to be on a team that's making progress, like progress against a goal.

Reimagining archetypes: “The world needs a new definition of leaders” [20:53]

Gayatri Yadav: Wow. That was so rich with insights from the philosophical to the tactical. Thank you. So one last question from me. Your leadership style is this really amazing blend of functional competence, and warmth, and humility, and just amazing personal qualities. And I’ve heard Matthew’s quote about you that you have an ego, but zero vanity, and you fly fairly below the radar. And you've talked about how a founder is often over-glamorized, whereas it's an entire team that delivers. So walk us through some of your leadership principles or mantras. And we have, you know, people often talk about the challenges of being a female founder. What are some of the opportunities of being a female founder and three takeaways in leadership?

Michelle Zatlyn: Yes, thank you. You know, I feel like the world needs a new definition of leaders or what they think of leaders. So I feel like for all the women on the call, the time is now, people are looking for other types of leadership. There's some wonderful leaders out there, but there's also a lot of research and data that shows that people… Like, confidence is kind of [at an] all-time low for different types of leaders, whether it's public office or business leaders. I kind of get it. There's a lot of people who are scripted, not relatable, not believable, don't look like you, which again, it's fine. Like, nothing against them, but there's probably room for more types out there. And I think that that is something that I appreciate more today than I did 10 years ago, of where it's like, “Yeah, we need more voices and more types of leaders,” more archetypes I guess, where we can keep the ones we have, but we should add more because the line-up is not complete yet. So I guess that's my first point. I was at an event once, recently, and it's interesting—the first part of Cloudflare was hard, but we've lived a pretty charmed existence, if I'm honest with ourselves. I mean, we've been [through], again, lots of low points, but at the end of the day, we've been a very successful company, and I remember we were raising—I told you about this conference we launched at—so we'd raised $2 million, which was a lot back then; today, a lot of you would laugh at that, but that was like a lot of money that we raised back then. It was a priced round, and no one knew who we were. And we launched at this conference and it was interesting. This conference, if you like at Peak XV or any VC firm, their job is to know the good companies, like that is an associate's job at a VC firm, they need to know anything that's at all interesting. So we launched at the stage of this tech conference and all these VCs had no… All these VCs started to reach out to us being like, “We need to know more about you because you weren't on our radar, but now you are.” And it was interesting. Let's put it in an analogy like that, where we had a lot of venture capitalists reaching out to us. And again, Matthew and I, and Lee were not… We were living in San Francisco, but we really didn't know anyone. And all the brand name firms were reaching out, Kleiner Perkins, Sequoia, all the brand name firms wanted to know us. It goes to your head. It's really easy to kind of get wrapped up in this, and anyhow, I have a point to my story about leadership and I'll tell you right now. So fast forward, we ended up running a process. We ended up raising money. We thought we were going to raise $8 million. We ended up raising $20 million. So it was way more than we thought. It was way over-subscribed, all this stuff. And we kind of, you know, Monday's the day you go pitch to partnerships as a founder; and we had like four term sheets at the end of that day. And we were feeling really high on the world, like really high. And I remember, and I'm so thankful for this person. He said to us, “Don't be jerks.” And we're like, “What do you mean?” [And he said], “Look, someone's sticking their neck out, giving you a term sheet on a Monday. Next Monday, the partnership is going to find it, and going to want to be asking that person internally, ‘What's going on with that?’ So if you have a fast note, say ‘no’, or try and get it done by next Monday”. And it kind of brought us back down to earth, like, “Okay, yeah, this is a relationship thing. Let's get back.” And we ended up raising money from NEA (New Enterprise Associates) and negotiated the terms, we politely said “No” to the other people, “We'll go back to you in our next round,” and I think we ended up handling it well. But if that person hadn't said something, I think we probably would have been jerks. And so, I think that as leaders in good times, and that was a good time, we had all these options, we were higher in the world, we were feeling really good. You’ve got to, kind of like bring yourself back down to gravity, like a pilot. You know, if you fly too high as a pilot, you can stall and crash. And so it kind of tempered us, like, things are good, but let's bring ourselves back to reality and like stay grounded, and vice versa, when things are bad, there are times when there's been bad, “Okay, it's our job to bring the nose of the plane up so we don't crash it down,” and provide like the steady hand that you need, to say that “We can weather this,” like “I believe, I'm not going anywhere.” Sometimes saying that is enough to get through a bad moment. And, years later, I was in Davos, [at] this World Economic Forum, there's a great program called the Tech Pioneers Program—you should all look into it, you should all apply to it—it's great. If you do something that's accessible, like trying to better the world, we always say that helping the Internet is bettering the world. We've been part of that, and you find yourself in interesting circles. Anyway, so I was at Davos, I was at the Harvard Business School, the Harvard reception, and the Dean of the Business School of Harvard was speaking, and he was talking about how the true test of leadership is not in bad times, most leaders do the right thing. It's in good times that you see the true character of a leader. And there are so many moments where you see the character of leaders in good times who go off and party, or stop showing up to work, or start doing irresponsible things. And so, I think that you know, Matthew and I, we're still running the business. We keep each other balanced. I have my husband who keeps me balanced, my kids who keep me balanced, my family, and it's kind of like, it's good to stay balanced and you know, not let the success get to your head and take yourself too seriously. And more like at the end of the day, I’m just a person like anyone else who happens to build something that I'm really proud of, and it's a privilege to get to be part of it. And so, that doesn't work for everyone. Some other people are like, “No, I want to be the person”, that's fine. But not every leader needs to be the person. They can just be, “Hey, it's about everyone and gratitude. I'm grateful to be in this role.” And so I think that new archetypal leadership and one that works for me, and I'm lucky that I get to kind of be true to who I want to be as a leader. And so I share that because all of you, you don't have to decide today, but if there's something you see you like, try it. And if there's something you see, you don't like, maybe, you know, just say, “Hey, that's not for me. And I'm going to try it a different way.” And again, I think there's many more types of leadership that we need to be seeing and archetypes that there's still room for more.

Gayatri Yadav: Amen. That was very, very profound. 

Michelle Zatlyn: Thank you.

Chelsea Ng: You’ve been listening to Michelle Zatlyn, Co-founder, Chief Operating Officer, and President of Cloudflare, in conversation with Peak XV CMO Gayatri Yadav. I’m Chelsea Ng, and for more interesting startup stories, visit peakxv.com or follow us on your favorite podcast platform.