What startup founders can learn from the story of Zoom.
In our minds, the rise of Zoom will always be associated with the pandemic. But in fact the Zoom team worked hard for eight years to build the company before Covid, and embedded in the story are several key success patterns that every startup founder should take note of.
I was first introduced to Zoom in mid-2013. I was running a company in San Francisco at the time, and for video calls we used Skype, GoToMeeting, WebEx, etc. We used them all and we hated them all.
And then one day Dariusz, the head of our engineering team in Europe, sent me a Zoom link and said “Hey, let’s try this”. I tried it, loved it, and bought a subscription the next day. The domain was Zoom.us, and since I’d been introduced to it by Dariusz we called our new video platform “Zoomiusz”. And Zoomiusz was awesome.
Today we all use Zoom, and looking back on the story of the company there are several key startup success patterns, most of which I teach at Stanford today.
Zoom was founded by Eric Yuan, who several years earlier had the experience of being in college while his girlfriend was in another college thousands of miles away. He missed her. So that brings us to the first and most obvious startup success pattern:
➵ Success Pattern #1: Many great startups begin with a founder who notices a problem worth solving.
Eric finished his studies, came to the US, and landed a job with WebEx, which then got acquired by Cisco. He did well there, and ended up running the engineering group. WebEx was the leading video conference platform, and many large companies standardized around it. But users hated it — people used it because they had to, not because they wanted to.
Eric Yuan says “Before I left Cisco, I spent a lot of time talking with WebEx customers. And every time, when I talked with a WebEx customer, after the meeting was over, I felt very, very embarrassed because I did not see a single happy customer. And I tried to understand, why is that?”. By that time WebEx was a mature product, doing very well in the marketplace, and Cisco wasn’t interested in plowing money into re-inventing an existing product. So Yuan decided to leave and try to build something better.
➵ Success Pattern #2: The decision to found a startup should be informed by conversations with actual potential customers (not just a wild-ass idea you have).
The product development was tightly informed by what had been learned from customers — the key drivers were ease-of-use, interoperability across desktop and mobile, and reliability. So they built the core engine such that it would operate on low-bandwidth or high-bandwidth connections, automatically detect your device and browser, and not require any plugins or special hardware. They wanted anyone who received a Zoom link to be able to just simply click and be on the call. Seems obvious now, but that’s not how other video conference platforms worked at the time.
The video call sector was extremely crowded. WebEx was the market leader in the enterprise market, and Skype had the largest share of consumers. GoTo Meeting was very popular amongst SMB’s, Apple had just released FaceTime, and Google was putting a lot of effort into the product that became Google Meet. BlueJeans had raised a lot of venture capital in order to own the high-end enterprise market, while private equity-backed Avaya was working hard to make their video conference platform part of the communications infrastructure at every company in the world.
In other words, absolutely no one looked at the video call market and thought there was opportunity for yet another company in the crowded space. No one, apparently, except for Eric Yuan.
➵ Success Pattern #3: A crowded space is often a good thing — it indicates solid market demand. Now you just need to build something that is differentiated enough to get a slice. That’s usually much easier than trying to create demand where there isn’t any.
They considered many different names for the new product, including Saasbee, Hangtime, Poppy, and Zippo. They finally settled on Zoom, even though they couldn’t get the “.com” domain. They got “.us” instead.
They launched the product, but Yuan didn’t want to spend a lot of money on customer acquisition — he knew that in a crowded sector with a product that hadn’t yet proven Product-Market Fit you can waste a lot of money on marketing and advertising. Zoom had no dedicated marketing team at that point. They relied on word-of-mouth and when a customer cancelled their account Yuan would email them personally, asking to interview them to find out why the product didn’t meet their needs.
He monitored Twitter and if he saw anyone complain about a problem with Zoom he’d contact them personally, even offering to write new code over a weekend, fixing bugs customers found.
➵ Success Pattern #4: At a startup, the CEO has to be the top salesperson and the top customer service agent. Once you launch a product, you are in a race to build a base of happy paying customers before the money runs out. The CEO has to lead this race for it to be successful.
The pricing for the Zoom product was $9.99 per host per month, with a Freemium model that allowed users free calls up to forty minutes. Eric Yuan knew that the big players — WebEx, Bluejeans, Avaya– were battling to own the enterprise space so he decided the right beachhead for Zoom might be education. So they offered Zoom to the education sector for just $.99/month and got almost immediate traction. Soon universities and students were using Zoom as their primary video call platform.
By mid-2013, more than 1.2 million participants had joined over 400,000 meetings in 2,500 cities across the globe. The company had entered into agreements with a range of higher-education institutions. And, of course, graduating students went out, got jobs, and introduced their new bosses to the Zoom experience. Today Zoom is used by 90% of the universities in the US.
➵ Success Pattern #5: As Geoffery Moore pointed out in his seminal book Crossing the Chasm, the way to grow a wide customer base is to first establish a small one. Look for a “beachhead” — a small subset of the market that you can take first. If you choose well, that beachhead market will be an influential one that will help you to expand to additional markets.
As they continued to grow their customer base, Eric Yuan made sure to stay close to customers, understand their needs, and add features based on customer conversations. Over the next couple of years Zoom added breakout rooms, virtual backgrounds, automated meeting transcripts, support for different languages, webinar support, and more.
Large companies at the time were struggling with the trend toward “Bring your own device” policies, as employees wanted to use their personal devices instead of being required to use company-issued devices, so Zoom made sure they could provide a seamless and secure experience across a wide range of computers and phones. Meanwhile, the large legacy incumbent players were struggling to update their products with the rapidly-changing needs of enterprise companies.
➵ Success Pattern #6: The biggest competitive advantage a startup has is agility. You may not be able to compete with the big incumbent players on price, or feature set, or raw muscle, but a startup has inherent agility that incumbent competitors don’t have. Smart founders leverage this.
As they developed the product further, they did more customer interviews than ever, constantly looking for unexpected pain points they could address for customers by adding certain features. Eric Yuan said “We always prioritize the features requested by our existing customers … We truly believe if you do not make the existing customer happy, even if you get more new customer prospects, it may not be sustainable.”
➵ Success Pattern #7: Successful startups execute on a product roadmap driven by actual customer interviews. It’s tempting to add features that you think would be awesome, or features that you think would get you new customers in a new sector, but the first priority always needs to be making existing customers happy. They will become evangelists for you.
By 2015, the company was really gaining steam. The company raised $30M in a round led by Emergence Capital after Yuan insisted that the pitch meetings be conducted over Zoom so that investors could experience the product themselves. The new Breakout Rooms feature was a hit in academia, and Zoom was starting to get good traction in enterprise settings, especially in Silicon Valley.
Meanwhile, Slack was changing the way many large companies operate, as “enterprise chat” became a fast-growing sector. And so Zoom developed deep Slack integration. Zoom calls could now be scheduled and launched right within Slack. You could see confirmed Zoom attendees from within Slack, as well as launch ad-hoc calls. Since Outlook was the scheduling system many large companies used, Zoom developed integrations for that as well. Now many people at large companies learned about Zoom because it appeared on their Outlook calendar or a Slack channel.
➵ Success Pattern #8: Getting customers one-at-a-time is hard. Always look for opportunities to get a bunch of customers at once by riding the coattails of existing user networks.
Zoom continued to grow and succeed. In April of 2019 they had their IPO and exceeded analysts’ projects by 72%, with an initial market capitalization of almost $16 billion (I bought some stock, and am a happy shareholder still today).
And here’s an extraordinary fact: At a time when other startups were raising ungodly amounts of money, Zoom reached IPO on only $146M raised. But it’s actually even more impressive than that — if you look at their S-1 balance sheet, they had most of that still in the bank when they IPO’d! They effectively built a public company on less than $20M in outside capital. In today’s world, that’s almost unheard-of.
A year later the COVID-19 pandemic hit, and Zoom got an unexpected boost that drove usage into the stratosphere. But that never would have happened without the eight years of hard work that Eric Yuan and his team spent building a product customers loved.
Interestingly, Yuan says that money was never his driver for founding Zoom — he was just obsessed with trying to build a better product. When he quit WebEx he never dreamed of making something bigger, he just wanted to make something better. When people referred to his startup as a potential “unicorn” he said “I don’t use that word at all — it doesn’t matter. Even if you’re a unicorn for many years, if customers don’t like your product, very soon you become nothing.”
When he left WebEx, they were the market leader with $400M in annual revenue — today Zoom’s revenue is more than 10x that. Read that again.
Eric Yuan entered a very crowded sector with lots of competition and made a success out of it. He took on a space filled with products we hated — video calls were notoriously buggy, over-complicated, and unreliable. And within that crowded sector filled with crappy products, he created a product that people actually like. That’s not an easy achievement.
And that leads us to the final observation on startup success patterns. The one rule to rule them all:
➵ Success Pattern #8: Build something people want.
If you focus on that, everything else will fall into place. If you don’t focus on that, then nothing else matters.
This post was adapted from my weekly missive for entrepreneurs and innovators.
- Stanford Graduate School of Business case study: Zoom: Cultivating a Human Connection in a Digital World.
- Nira: How Zoom became the best web-conferencing product in the world in less than 10 years.
- Amory Poulden: Scaling efficiently in a crowded market: Zoom.
- SEC: S-1 filing for Zoom Communications