464: Silicon Valley Outsider Michelle Zatlyn on Building a Tech Disruptor

26:43But, you know, again, I think as these, if you're a founder, you're not sure that's okay. I mean, to me, that's okay. It's, you're never really sure. And sometimes you just got to go for it. And, and what I kept coming back to were, you know, again, I talked about these survey results, but then as we started to have customers on board to the service, I'm just like, these were validation points for me. The data, we had no revenue, the data was not there, but these were the sorts of validation points I had along the way where we, you know, we were building the first iteration of our product. and just like probably hopefully some or not hopefully just like maybe some of you who are listening it was took us longer and it's cost us more you know we had a deadline to hit and we missed it and and and we are like trying to get this demo out or sorry the pilot out and open it up and we're trying to get to 100 customers and i just remember and everyone was kept saying well this isn't the analytics are done and finally we're like just ship it ship it ship the mvp we have much more language as startup founders today.

27:43But back then, it was like, all the stuff was all very new. So we shipped it. And we were so embarrassed what we shipped. I mean, very embarrassed. We were fighting a lot internally. There was about six of us at the time about whether it was ready or not. I said, just ship it. And people signed up for it. And I'm not an engineer, but I actually called a lot of these initial employees. And I did all these, sorry, initial customers, not employees. And I did Skype interviews with them and recorded them to get kind of the voice of the customer feedback. And what was amazing was these customers who had signed up for this product that I was really like very embarrassed about were writing in saying, oh my God, your product stopped all the trash traffic coming to my site.

28:26It offloaded all the bots coming to my server that I actually, for the first time in five years, my pager didn't go off last night. I actually had a full night's sleep for the first time in five years. What was so interesting is customers didn't even need the analytics. The product was so good at stopping the bots and the search engine traffic and all these call rollers and all these hidden things that none of us see on a daily basis that if you run a website or app have to deal with, it was stopping that, that all of these initial customers who are technical and could see it themselves were so happy.

29:01And there's just so many points along the way where we had customers writing in saying, oh my God, you saved this or you did this for me or thank you so much because they felt like they were alone and all of a sudden they had an ally in what we were building with Cloudflare. We were supercharging their site, supercharging their online presences and it was creating a lot of joy for them. And that's what I kept coming back to. And even though our revenue metrics were low, when you're charging$20 a month and$250 a month, you don't grow your revenue very fast. we had these kind of qualitative data points that gave me a lot of validation that I'd made the right choice, that we are working on the right things.

29:41And then over time, I was like, okay, we're solving a real meaningful problem. And then I was like, and then at some point, a few years, and I was like, wow, we have a real business model here too. It's going to be a great business. And so I think you can fall more and more in love with your idea over time too. Hey guys, I hope you're enjoying this episode and learning a ton. As you know, in this series, we interview some of the greatest founders of our generation to find out how they did it. However, if you're thinking of starting your own business and you want to hear from some incredible stories from everyday people like you or I who are actually in the trenches, only been building their business for maybe one year or two years, like they're building right now and they're really in the early stages, but they're getting success.

30:24You should come and check out our new podcast from zero to founder hosted by our community manager molly flynn these are in the trenches stories from our very own successful students that have gone through some of our programs people just like you who are deep within the process of building their very own successful business these are the founders of tomorrow you can find the from zero to founder podcast on all platforms and remember it's founder without the e all right now let's jump in the show Did you guys launch with Freemium? We did. We launched at, again, back to System Nostalgia, we launched at a conference called TechCrunch Disrupt.

31:05At the time, I thought of it as gold standard. And again, I did not have a Twitter following. In fact, Twitter was a brand new service at the day. And today may be different. But back then, no media company, no podcaster wanted us to have us on our show. So we entered this pitch competition, TechCrunch Disrupt. and when we stepped on stage we had a free service um a 20 a month service that's now 25 a month we just raised our prices last uh in december and um and then we had a um call us if you're interested in enterprise that's what we launched with and today we have a we have more we have a 250 a month service and we have uh kind of a 50 to 100 000 service and a million hundred thousand dollar plus million dollar plus ten million dollar plus service but we started it It was free,$20 a month.

31:57And call us if you want to be part of our enterprise advisory board. There you go. That's crazy. And why did you guys decide to launch with a freemium model? And that inherently allowed you guys to really get strong product-led growth? Yeah, it's interesting. So product-led growth, again, in some ways, Nathan, I feel like I'm a dinosaur being on the show because I run a publicly traded company, real revenue. and just so many things are different today. Like where back when we launched, product-led growth was not a term. I feel like a dinosaur saying that, but it's true. So there you go. And today it is.

32:36And there's a lot more understanding about these go-to-market models of which we absolutely have one of those. So I'm very proud of that. Okay, so a couple of things I'll say. And this is Michelle's view of the world. And there's probably lots of folks who are much smarter about it today because it's what they do all day long. But here's my take. A freemium business only makes sense if there's a reason to have a free plan. And one of the reasons can be because sometimes they convert to pay you, but it's much better if there's more than just that reason. And so at Cloudflow, there's actually six reasons why they have a free plan.

33:10There are six good business reasons that make our business better because we service everyone. And I can articulate it much better today than I can at the beginning, but we did have a sense of we needed traffic using our service because we were the way that we were going to deliver this performance security and reliability for our customers is we had to build something called a global network. And I'm not going to go into all the details, but to build a global network, it costs money, but you also need internet traffic. And so one of the ways that we were going to get internet traffic to be able to do that, because I didn't think Disney was going to buy from Matthew and Michelle on day one was we federated together all of the small businesses and the blogs and the small websites that nobody was focusing on.

33:56And this is actually was a very deliberate distribution strategy. We are very deliberate about it. It's Clay Christensen called the innovators dilemma. Like there's like some business strategy behind why we did this. And it was very effective. And so if you're saying, hey, traffic is helpful to our business model. How do you get traffic? We said, hey, we want to federate together everybody, the long tail internet. I don't really like calling it the long tail because if you're a small business owner, you run an IT administration shop, you don't feel like you're the long tail internet. I always felt like that was a disservice.

34:29But these freelancers, small business owners, they had nothing. Nobody else was servicing them. And so we said, hey, let's make sure we can capture that part of the market. And so for when we launched, it was give us five minutes and we'll supercharge your site. It took us less than five minutes to sign up for our service. And we had a free service offering and a$20 a month service offering. And overnight, Nathan, we disrupted the market. We opened up what was possible. We launched on stage at TechCrunch Disrupt. And our audience were all technical folks in the audience. All those people had blogs or small businesses, a bunch of them signed up.

35:04And it's interesting. I don't have a graph here. but literally our numbers have been up until the right ever since the day we launched. They've never stopped growing. And part of it is it was so easy to sign up less than five minutes. And just by comparison, if you went to a competitor at the day, the average time to sign up was six weeks. To go from six weeks to five minutes is just like, that's like magic. And so we did some really smart things to help service this large audience with this free premium plan. And so back to the insight of the product-led growth is, yes, some of our free customers end up paying us.

35:42We're very grateful. Some of our free customers never pay us, but they bring us to work. Happens a lot today where they use us on their personal sites, their personal blog, or they just want to keep their tech skills sharp. sharp. But then at work, their employer is thinking about using Cloudflare and enterprise version and they spend a million dollars a year and they're part of the decision-making process. That's two of the reasons. There's a revenue. But the other four reasons have nothing to do with them paying us. It has to do with things helping to build our global network around the world.

36:15It has to do with helping us build better products because we have better cyber data and better performance data around the world. No one else has that. None of the enterprise only companies have that because they don't have a free service. Helps us with QA when we're very consumer-like, even though we're a B2B company, where we can roll out a new service to all of our free customers, learn, make sure the product works, and then we roll it out to our enterprise customers. And we can say it's totally battle-tested, which is what Google and Facebook does. They take 1 % of their traffic, make sure it works, and they roll it out to everyone.

36:48We use that same sort of mechanism. And so we don't have to staff a QA team because we can use our network to be able to do that, our customer segments to do that. And then it also is a great recruiting. I was spending time with our new hire class this morning. We have a bunch of new folks that joined. And I asked that how many of you use Cloudflare personally before you applied to work here? Over half of them. And if we only sold to large enterprises, you know, at a million dollars a year, that's$100 ,000 a year, we can do that today. A lot of those engineers would never have us on their personal site.

37:20And so we have six reasons why we have a free service. And when I think entrepreneurs get into trouble is when there's only one reason they have a free service. They think it's a marketing ploy, and some of them pay you. And that's pretty well understood of how that works. You time box the trial. You do all these sorts of things. But it's really good if you can figure out other business reasons why you need that free service that helps make your business model better. I think that's super interesting. Yeah, that's great advice. Thank you for sharing. You talked about B2B. I'd love to hear your take on founders that are building a B2B SaaS or B2B software company or B2B service.

38:02um you know what what are some common mistakes you see founders making in the early stages when it comes to i guess finding their first users winning their first few deals i mean okay so first of all being a startup founder is so hard especially early so so so keep at it uh i think if you work on something meaningful that you got purpose around that really helps so a couple things that maybe things I gray hair or scar tissue I have that hopefully will pass on to others so things I would do again ease of use again we obsessed over our signup process and and literally it took less than five minutes to onboard to cloud player but that didn't just happen that wasn't easy like it was a lot of engineering work on the back end and UI work to make that happen a lot um a lot of toiling over the details but like that ease of use was a huge differentiation appreciation early on for customer acquisition because we didn't lose people because of that.

39:02And so people who really weren't set up for Cloudflare could. And I just think like obsessing over that, I would definitely do again. The other thing I would do again, and then I'll tell you the things I wouldn't do again or things, mistakes I see others make, including myself, is it's interesting. You're a founder. You can have a personality. And for some of you, that'll be really great. For some of you others, it'll be very hard. But for those who can, you should. It becomes a differentiation. And so have a Twitter account, have beyond Discord, you know, do your LinkedIn and update and talk about the industry or things or whatnot.

39:35You'll develop a following. You'll get invited on panels, podcasts, you'll get invited to speak. And all of a sudden you seem, your company seems bigger than it is. And that gives validation. People are, other people start to talk about you. It's easier to recruit. It's all these sorts of things. And so I think that that was something, and we were lucky, it was right when Twitter was starting, Matthew was on, I was on it. We ended up, we went to a couple startup things, speaking. Once you do one, you get invited to others because your name's on the schedule and other people who are planning something else, just look up the speakers from that and invite you.

40:09And again, you do some of that and it makes you feel, seem bigger than you are. People hear about your service, they sign up, they apply to work for you, all these sorts of things where you can have that. It's interesting. Today, I'm a publicly traded company. I'm an executive officer. But what you can say publicly is so different than when you're a private company. You have a lot more of a personality. And so kind of use that to your advantage. So I think that without being a jerk, in my opinion, but you can let your personality come through. And just all the things that come along with that for your business.

40:44And the third thing I would definitely do again is we started a company blog very early on. And at first it was very marketing focused and no one read it. And then we started to write really technical blogs. And again, we built infrastructure for the internet. We're a super geeky technical company. I mean, yesterday we stopped 136 billion cyber attacks. Like we're literally building infrastructure for the internet that helps provide privacy, security and performance and reliability. It's plumbing for the internet. Turns out plumbing is really important. And so we started to write blog posts that would talk about like hey here's our technical problem here's what we did and all of a sudden nathan we had huge read like followership and readership around the world and so to this day like our blog gets it's it's it's read more than most media properties it gets a lot of views because we're talking about interesting things related to cloudflare and the internet and cyber security performance and how the internet works and all these things that are important to cloudflare but it turns out we become experts on.

41:44And it's not me writing the blog. It's like our engineers and it's our product managers. And what's interesting is people start to read and they're like, can I play it? They apply to work for you. And they say, hey, can I write a blog post for the blog? And we're like, yes, please. And it became this like huge flywheel for us because early on, it's hard to hire people. We found it was hard to hire people because, again, we didn't have a reputation. No one wanted to come to work for Matthew and Michelle. So we had to work really hard to hire. And that was one way to make it easier so those are some things i would do again some things that i absolutely wish i um i had avoided uh that maybe will will be helpful to to these folks um yeah look people are everything relationships are everything and and and i think early on there were some folks that left cloud floor and i was i took it really personally it's really hard not to.

42:37You start this company, you put your blood, sweat and tears in and you're working so hard and people left and especially if it surprised us, me, I took that really hard. And I just, I wish I hadn't. And, you know, I think now taking the high road, I think is a better approach. They end up being customers, end up referring you, they end up referring other people to work for you as you are successful. And so just saying thank you for your contributions. I wish you all the best in your next chapter. And moving past it is, for me, a much healthier way to deal with it. And early on, I took it a lot more personally.

43:16And you share these stories about Michael Bloomberg. I mean, I don't know if this is true, where he's like, if you quit Bloomberg, you're blacklisted from me. I just don't think that works in this day and age, or it didn't work for me. So that's one thing that I would do differently. the second thing and i really took this personally as well i cared so much we had such good intentions and i'll just tell you a story i went to a dinner i went to a dinner that golden golden sacks invited me to and it was awesome they thought they were doing me a favor you know again you're trying to have legitimacy as an early stage founder so they might meet to this dinner they sent me next to a famous founder okay and they think they're doing me a favor which is great and i'm excited i'm like there i'm excited but we're doing a cloud form excited but i'm not gonna say who it was but a very famous founder you would all know him if i said his name and i was telling him up with a cloud flare and he was like grilling me that's fine grill me but he didn't believe anything i said not one thing he didn't believe anything i said and at some point i got like i i did take it personally and i said you're calling me a liar and you can imagine this person did not take that very well when i said that because everything i said he's like that's impossible i'm like it's not we're doing it you got to check your assumptions and it was this really awful thing and so I left that dinner not feeling good but I in the power dynamics of that relationship he had all the power so there's nothing to do about it was fine and again not not that that hurt but every time we saw each other in an event it was awkward everything and all of a sudden he had someone who wasn't a champion for us and in the end we ended up clearing the air and it's fine but I tell that story because especially early on there's going to be a lot of people who don't believe you who are going to be in disbelief and I took that personally there's a lot of people who I wanted to hire they're like I'm not going to come work for you and they would say it like that and you're like this is not like call me when it's real and you're just like okay thanks um and and I think that there's like okay absolutely I'll call you when it's real no problem I'm gonna I'm going to win you over versus you suck.

45:23And so I think don't burn bridges, even when you feel like someone else is in the wrong, because you might need that person is the other thing that I would say that I have some scar tissue over and I've gotten a lot better at. And I see that sometimes today. It's like, you don't need the validation. You don't need to win them over. Just everyone comes around at some point and your job is to keep winning on the field, gaining progress, Yes, gain ground against your idea. Find the people who do want to believe and be championed and spend your time on that. And you'll be much happier and productive for it.

45:54But don't burn all the other bridges because at some point, you're going to need them or they're going to come along. Are you hesitating to take the next step in your e-commerce journey? Founder Plus has you covered. With proven frameworks tailored to your business needs for fast results, a supportive community of over 30 ,000 like-minded entrepreneurs, and weekly live mentorship sessions, Founder Plus is your key to success. Try Founder Plus today for just$1 for seven days and start building your dream business with confidence. You can visit founder.com forward slash start dollar trial or click the link in the description to claim your trial.

46:29Yeah, wow. What a great story. You're good. Thank you for sharing. That's a good one. I wish you'd tell me the person. I've died to know the person, but I respect you. We want to be respectful. Okay. All right. Well, look, a couple more questions and then we'll work towards wrapping up. Being a female founder of a publicly listed company, do you ever feel lonely? Do I ever feel lonely? I mean, do you want the half glass full or the half glass empty answer? because I think that that's maybe the realistic answer. I don't, I mean, how about, I'm an optimistic person. So there are definitely more men than women in tech.

47:16Having said that, there's a lot of amazing women and I don't even know all of them. There's still many of us. So there's like a lot of amazing women in technology. There's a lot of women, amazing women founders and we need more. And by the way, what we really need more of also are underrepresented minorities. It's like a great industry. it's a great place to grow your career like i want more we have a lot and we need way more so let me start with that um and i feel like on a daily basis at cloudflare i get treated great and there's a bunch of people like i've created a world where i'm treated like michelle and doesn't matter whether i'm woman or man in fact it's probably a benefit that i'm a woman and like people work at cloudflare because of that and they buy from us because of that and And like I show up every single day and it's awesome.

48:01I have great business partners and shareholders and investors. And so I don't like I love all of that. So I guess that's the positive side. You know, the downside is, you know, the numbers are just so depressing. You want to throw your computer out the window. And that's all true. and while my experience has been mostly positive and i got lots of bad stories there too so though i don't want to paint this i got lots of annoying stories many times along the way at all stages including you know three weeks ago but um the the like the numbers are just so depressing and you just think like what are we gonna do to move the needle on this and it's like a really hard problem and that can be discouraging and so that's like half glass full, half glass empty.

48:46I don't feel lonely. Like I love what I get to do. I think there's lots of great women and I want more. But like the numbers are bad and they're not moving fast enough. And so we got a lot of work to do. And, you know, I think that's up to every single person to be able to influence that. And one of the things that I said to myself a lot along the way, especially like on the dark days, is you got to keep yourself on the field. You got to keep yourself in the game because it like to me that was really important and so I feel I'm glad I did that and and I want more and so the more women um in the industry and uh when uh when uh the the PR um got in touch with us uh part of the pitch for you is you fly relatively under the radar is that on purpose yeah I is interesting I'm having a conversation with someone yesterday where I said, hey, look, I don't need to seek the spotlight at all.

49:46But I'm part of my job as the president and co-founder and CEO of Cloudflare. As a woman running one of the largest publicly traded company, I feel like it's part of my job to be out there speaking. It was interesting. The person who is a PR expert said to me, honestly, that's the best sweet spot to be. I find that the folks who flocked to the spotlight end up burning and crashing pretty fast. And so I thought that was a nice thing to hear from a true professional. And so, you know, Matthew, my business partner, he's not on the cover of Business Week. He should be. It's kind of what's in service of Cloudflare.

50:23I'm willing to do that. The other thing I'll just say, actually, I was interviewing somebody yesterday. We went on, I was interviewing somebody, we're looking for a chief people officer. So if anyone is looking for a chief people officer at a publicly traded company to go from one to 5 billion email me i'm i am hiring i was talking to a candidate and and she said to me you know people work at clappler because you are a woman and i said i do know that and i think that if you'd asked me that 10 years ago nathan as an early stage founder i would have been really uncomfortable with that but today i know that and that's i am a role model for people at clappler and in the industry and other working moms and women and and i'm i'm okay and i'm getting more comfortable of saying that and admitting that and saying, great, I'm proud of that.

51:08And I want to do the best I can. Oh, look, thank you for sharing. We have to work towards wrapping up. We're going to do the hot seat round. Got four or five questions, rapid fire, and we'll wrap there. This has been great. We didn't talk about this, but you're Canadian. So what makes Canadian entrepreneurs special? Probably the same that makes Australian founders special. Yes, I'm proudly Canadian. I live in San Francisco, but also proudly Canadian. You know, I do think Malcolm Gladwell has some really good research around how being an outsider helps you be an entrepreneur. Because you got to see things differently.

51:48You got to be okay with going against the grain. You got to be okay with being uncomfortable. I think that there's something around that. So I think it's more about being an outsider that has helped me be super successful. plus I grew up in a in a place in Canada that's called Saskatchewan it's a place where hard work is rewarded and relationships matter and you have a lot of great there's really long harsh winters and a lot of community and I feel like that's something that I've brought to our founding team at Cloudflare that's paid dividends but so that's that's more of the the Canadian side smart get things done don't complain a lot low drama proud of all those things too when did a negative moment transform into a motivator.

52:30You got to make lemonade out of lemons all the time, Nathan. I feel like without lying to yourself, but there's like, okay, lemonade out of lemons. I do think you can't let a crisis go to waste. Crisis, you suck. You let a customer down, you lose a key employee, you mess up, you miss a deadline, you lose a big contract. I mean, all these things will happen to you and it'll be awful. It'll be awful. You'll find fraud in your company like what like what how is that possible and i and some have different degrees of difficulty i one of the things i've learned i've gotten really good at is like use the crisis to your favor to drive change and so one of the i work with an executive coach and we were talking about not this but something else and it was interesting she has a formula change equals vision plus pain.

53:25And so when there's high pain, like in a crisis, great way to drive change, or you have to have a lot of vision and bring people along. And so I think of that equation a lot. It's like vision plus pain equals change. And so when there's a crisis, don't let it go to waste. Drive the change you need in your organization because there's for sure something. that's a good one last year cloudflare was named a top 100 most loved workplace by newsweek why do you love working at cloudflare i was really proud of that one nathan i care a lot about that uh you know i want to win hard i want to be a great place to work i want people to be able to have the career of their lives at cloudflare and so i best part of my job are the people i get to work with like the people i work with they're smart they care the sweet the details they're not jerks Like we really are trying to do the right thing for the most part.

54:18And I just love that. I love being on a team where people are rowing in the same direction. And the other best part of my job are our customers because they are rooting for our success. We help solve their problems. I was one of our customers did a case study recently where they were saying they had 36 million cyber attacks last year and all 36 million were stopped by Cloudflare. I mean, that's real value. We, you know, we make the internet faster for a lot of our customers. We help protect their employees at workloads and give them like, like we're doing so much value. So our customers are rooting for our success.

54:50And, and I've worked at companies where that's not the case, where customers, you were just another vendor or they didn't care about you. And so for me, I love the people I get to work with. I love our mission to help build a better internet and our customers, helping them with their business needs because the internet's becoming more important for every single business. and like if you're using the internet in the business you need cloudflare and the fact that we're there every step of the way helping them be a strategic partner like i'm so proud of that awesome last question and uh can you hear your response for this one because i think it'll be interesting or maybe because you've you've you probably met a lot of really really interesting founders if you could have dinner with any entrepreneur dead or alive who would it be and why so many people um i'd love i'd love to have who wouldn't want to have dinner like oprah winfrey i mean she's a woman black woman i mean what she's built it's amazing so i guess oprah can you make that happen nathan i'm putting it out into the universe okay all right this is let's make this happen team yeah we were really close to interviewing her at one time and then it never happened but we're really close at one stage a long time ago actually well let's go let's make that happen Nathan and let's have dinner together with her.

56:04Awesome. Well look Michelle thank you so much for your time that was incredible. Really enjoyed the conversation. A lot of wisdom, experience, incredible story so thank you so much. Well thanks so much for having me and I'm really all the best to all the founders listening to this call. I can't wait to see what you build and keep at it. Hey guys I hope you enjoyed this interview. As you might already know our mission at Founder is to help tens of millions of people every single week with our content, either start or grow their business, which is exactly why we're partnering with world-class founders such as Damon John, Alexa Von Tobel, Greta Van Riel, and so many more to teach crucial skills such as negotiation, finance, e-commerce, and so much more.

56:54So if you'd like to get access to these free exclusive trainings, please go to founder.com forward slash free. These are 100%. We go super in depth on teaching a particular topic and I know that you're going to love them if you enjoy this podcast. So just go to founder.com forward slash free. All right, guys, I'll see you in the next episode.