How Zoom grew 30x almost overnight

ERIC YUAN: The market was extremely crowded. However, I did spend a lot of time talking with those users. Do you like Skype? Do you like Webex? I did not see a single happy customer who told me that they really liked the existing solution. Then I realized, what if I build a better solution? I think I have a chance to survive.

JEFF BERMAN: Eric Yuan was determined to build a challenger to video call tools like Skype and WebEx, but he knew a great product would only be part of the equation. The Zoom founder, like many of the guests on Masters of Scale, believes a strong culture is essential for scaling a business.

YUAN: If you do not have a great culture, you really cannot scale your business. You can grow your business to a level and very soon you are going to hit the wall because you do not have great culture.

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BERMAN: This is Masters of Scale. I’m Jeff Berman, your host. This week on the show, Zoom founder and CEO, Eric Yuan, reveals how feeling stuck at a big tech company led him to strike out on his own, how Zoom handled astronomical overnight growth at the start of the COVID pandemic, and how the company is now evolving in the age of AI. 

Copy LinkThe moment Eric Yuan was sold on Silicon Valley

Eric still remembers the moment he decided to move to Silicon Valley. It was the early 1990s, and he had a chance to see Bill Gates speak. Bill’s message? Computers were about to upend the world.

YUAN: I was so fascinated by his speech. I realized the internet was going to change everything. I was blown away, and I thought about, what should I do? And the best way to embrace the first wave of the internet revolution is to go to Silicon Valley. And I tried so many times. I was in Beijing, China, and I applied for the visa. Long story, every time the reason is different, and they did not give me the visa.

BERMAN: Eric’s visa applications were denied eight times. His ninth attempt finally worked.

YUAN: I still remember that moment when they gave me the green light and said, “Yeah, this is your visa.” I was so excited because I dreamed of going to Silicon Valley for a long time.

BERMAN: Eric, did you have a job lined up in Silicon Valley?

YUAN: Yeah, yeah, I did. Because that is the H1 working visa. The company, Webex, sponsored me to come here to write software.

BERMAN: And what was it like for you coming to the U.S. in the late ’90s to join Webex and start a Silicon Valley life? On a personal level, how did you experience that transition?

YUAN: Mentally, I was ready because when I was a kid, I always liked reading books about what’s happening in Silicon Valley, like HP, Apple, Oracle. And Silicon Valley has a wonderful culture. I think after three or four months, I felt like I was a part of Silicon Valley because everyone here is so friendly, and they all want to support you, help you, and there is a very inclusive culture here. No matter where you come from, as long as you can contribute, you stay humble, you work hard, the culture here really welcomes you. So I felt extremely excited after a few months.

BERMAN: And Eric, you’re joining Webex. We’re still in the dial-up days. We’re in the web 1.0 era. I mean, we have audience members who were not born in this timeframe. What was it like trying to scale Webex in that era?

YUAN: Yeah, so I remember the Webex office was very small. Our next door neighbor was Hotmail. So Hotmail was acquired by Microsoft. I think at that time, all the engineers, including two co-founders, we all realized the huge potential of the internet. However, back then, the internet was extremely slow. The PCs were not powerful enough. And we were working so hard on optimizing the technology. Essentially, Webex was the first generation of content sharing, screen sharing. At that time, the way for Webex users to use our technology is to use a phone call and share your screen.

Copy LinkHow good ideas get blocked in big companies

BERMAN: Cisco acquires WeeEx. You’re not a founder of Webex, but you’re early. It’s your only Silicon Valley job, and you’d been there for something on the order of 10 years at that point. You stayed at Cisco for a while. What was it like joining a big company and learning to work inside that structure rather than in the environment of a real Silicon Valley start-up?

YUAN: So for the first two years after the acquisition, Cisco let Webex still run independently. And overall, the experience was great until the 2010 timeframe, because at that time, the customer feedback, the video experience was not great, and the mobile experience was not great, and Webex became not so user-friendly. I feel like I have an obligation to fix that problem. The way to fix that problem is you’ve got to build something from the ground up because Webex architecture was not video collaboration. It was more like a data collaboration. Unfortunately, at that time, I did not get enough support. So they thought there’s no need to rebuild Webex, and finally I decided to leave.

BERMAN: I mean, before we get to leaving and starting Zoom, you hear this over and over and over again. You’ve got entrepreneurial teams that are capable of moving quickly and identifying the problems and coming up with the solutions, and they run into bureaucratic roadblocks, the sort of sclerosis that affects large organizations, the inability to get out of their own way and move quickly to the future. I’m just curious if you’d been able to sit with the Cisco leadership at the time, and maybe you were able to do so, why can they not see the need to invest in the rebuild and to build something new for this moment rather than effectively force you to leave and go do it on your own?

YUAN: Great question. This is pretty common, especially for large corporations. I think there’s so many reasons. Later on I realized John Chambers is a great CEO, he really understood the importance. He didn’t know I wanted a new solution. It’s because of so many layers. If he knew that, very likely I would probably still be at Cisco to build a solution. Ultimately, how to make sure, no matter how big your company is, make sure the bottom-up approach always can reach the final decision maker. That’s very important. If you have too many leaders, and quite often the senior leaders, they may not know what’s going on.

Copy LinkLaunching Zoom in a crowded market

BERMAN: Okay. So what inspires you to say, “I’m going to go start a brand new company for the first time in my career and go after this.”

YUAN: I lived within Silicon Valley since 1997. This is the worldwide innovation center. From very early on, I knew someday I’m going to build a new start-up. I just didn’t know when. Mentally, I was already ready. Otherwise, I felt like how to tell my kids, “Oh, I work at a bigger company for my entire career.” I just did not feel good. So the best way to embrace the Silicon Valley culture is to either build a start-up or join a start-up. I was ready.

BERMAN: What was the original vision for what became Zoom?

YUAN: I wanted to be the consumer solution. I didn’t want to build another business solution. Unfortunately, it’s really hard to monetize.

BERMAN: Were you self-funding it? Were you bootstrapping it at this point? Were you raising money? How did you actually fund the new company?

YUAN: Yeah. So to start with, I tried to raise money from some VCs, and they did not think the world needed to have another solution. Luckily, I got the sale funding from a few of my friends in Silicon Valley.

BERMAN: And there were other video solutions at the time. It wasn’t like a wide open space. What did you see the opportunity as that you could differentiate and build a real business there given the entrenched competition? I mean, Skype was already owned by Microsoft at this point, right?

YUAN: Correct.

BERMAN: Yeah. So what gave you the confidence that there was a real opportunity here?

YUAN: You are so right. There were so many solutions out there. That market was extremely crowded. However, I did spend a lot of time talking with those users. Do you like Skype? Do you like Webex? I did not see a single happy customer who told me they really like the existing solution. Then I realized, what if I build a better solution? I think I have a chance to survive.

Copy LinkEric Yuan on the challenge of scaling culture

BERMAN: And Eric, given the experience joining Webex so early, being there and helping drive so much of the scaling journey and then being inside the large company that Cisco is, what about culture? How did you think about building the culture at Zoom?

YUAN: Yeah, so that’s very important. Zoom’s culture on day one until today, exactly the same: Deliver happiness. Meaning we do all weekend as a business. We make a customer happy, build the best solution to delight our customers. And that culture I think really helped Zoom become where we are today. And I’m the CEO. The number one thing for me is to think about how to make sure all Zoom employees are happy. Together we make a customer happy. If you do not have a great culture, you really cannot scale your business. You can grow your business to a level and very soon you are going to hit the wall because you do not have a great culture.

BERMAN: How do you assess and track happiness inside the company? How do you know how you’re doing on internal culture?

YUAN: So early on, we were very small. You know almost everyone. It’s very easy. But later on it becomes bigger and bigger. It’s really hard. You’ve got to look at everything from a senior management team, middle layer, individual employees, and do surveys. And also based on interaction with the customers, based on the feedback, how you build a product, how you treat employees, how you recruit employees, how to retain employees. 

This is your background or this is your – I see a lot of books, right?

BERMAN: This is my real background. These are my books.

YUAN: Real background. See, because Zoom, we have a book club.

BERMAN: They’re real, I’ll pull off the shelf.

YUAN: Very early on we had a book club, and we let employees buy books. We always reimburse books. And no matter what kind of books they buy, as long as they want to learn. And even today we have the same policy. This is a lot of smaller things together. Employees feel like the company does care about them.

BERMAN: I mean, obviously I love books. You can tell from my backdrop here, but even a very aggressive reader who might buy 40 or 50 books in a year, you’re talking about maybe $1,000 all in, and I’m not trivializing spending $1,000 on an aggressive reading employee, but the perceived value is far greater than a $1,000 bonus, right?

YUAN: Totally.

BERMAN: The investment the company’s making in you, your growth, I love that as an insight for how to build and drive that culture. Eric, given the experience at Cisco, I’m curious how as Zoom has grown, you’ve made sure that the layers that inevitably have to come in and leading a company of this scale still allow the version of you who wanted things to change at Cisco to get to you or someone on your leadership team with their idea for how to leapfrog competition and do something new at the company.

YUAN: So very early on, I think Zoom was very flat. I managed all those engineers. For now, actually every day I spend time talking with those individual contributors. They do not need to worry about, hey, they have to go through their manager. Feel free to reach out to any senior executives, including myself, because we have that policy. And because of the hybrid work, when we work remotely, it’s really hard to stop by the individual employees’ desks to talk with them. But again, I also told our employees, “You still can send me a Zoom chat message. I live on Zoom team chat and always respond.”

BERMAN: Still ahead, how the team at Zoom handled the sudden 30X growth of their business in 2020.

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Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel and be sure to check out the show notes for a link to our newsletter. 

The first subscription business I had a chance to lead was at the NFL. I always felt that I learned more from someone who canceled their subscription than someone who kept it. I’m curious how you approach people who leave being Zoom customers and what process you have to learn from them.

YUAN: I still remember early on at that time, Zoom subscription cost was less than $10.99 per month. And some users, they canceled the service. I personally reached out to each of them to understand what’s going on. Sometimes they even did not believe that’s a message from me. They thought it’s from the marketing team. So it’s very important for those customers to really understand what’s going on because they spend the time going to your website, subscribing to your service, using your service, and then they cancel. It’s extremely important for us to understand, why is that? From individual subscribers all the way to the enterprise. So even today, we have a team, a dedicated team, to focus on that.

Copy LinkInside Zoom’s 30X growth during COVID

BERMAN: So many people became either familiar with or more familiar with or certainly became Zoom customers in COVID. I’m not sure that people realize how big you were before COVID hit. Could you talk about the growth journey, the scaling journey of Zoom from when you launched it up to 2020?

YUAN: We became a very happy public company back in 2019. And our revenue was less than $1 billion and a little bit over 2,000 employees in December of 2019. On a peak day around 10 million daily meeting participants. And a few months later, all the way jumped to more than 300 million daily meeting participants.

BERMAN: 30X growth in daily meeting participants in a few months.

YUAN: Yeah, more than 30X.

BERMAN: Yeah. A billion in revenue and 10 million daily video participants, those are not small numbers in that pre-COVID era. How’d you get there?

YUAN: For the first many years, we didn’t have a marketing team at all. Word of mouth, you cannot use Zoom by yourself. It does have network effects. Meaning if you are a happy user, you schedule a Zoom call, somebody else will join. For the first time, really like, wow, I never tried this tool before. It works so well. It just works. They are going to start using that as well. They are going to invite more participants. So the word of mouth is so powerful. And later on, actually we did recruit the marketing team. We sponsored the Warriors basketball stadium. I think ultimately if you have a great product and make sure customers are happy, be patient. Sooner or later, the world will recognize your product.

BERMAN: A lot of companies would break under the kind of growth that Zoom experienced. How did you manage the hyper growth of those first few months of COVID?

YUAN: Number one is that Zoom’s architecture was very scalable. Before we built a product, there’s one guiding principle. Every engineer, they knew that. What if there’s a 10X or 20X in traffic? Do we need to modify our code? We have that message sent. That’s the reason why during COVID, you have a 30X traffic, we did not need to change our code. The architecture itself was very scalable. That’s number one. 

Number two is luckily, we heavily invested in the company culture. During COVID, a lot of Zoom employees, myself included, we worked extremely hard. I had way more sleepless nights than any time in my career during the COVID. I did not see a single Zoom employee who complained about working so hard to support the world. We all realized this is a once in a life opportunity to support the world, to help the world, and to delight our customers to make the world a better place.

BERMAN: One of the things that we hear from entrepreneurs who start out with them and a couple of friends in a garage, and next thing you know, I mean, fast-forward, you’re running a massively scaled public company, is it can be a hard transition to go from being hands-on to your point, you know everything happening in a company, you know everyone’s names, you’re in it, in the minutia of it, to all of a sudden you simply can’t be. And you almost have to make a choice. Am I going to be an internal facing CEO or a largely external facing CEO, and I’m going to have a leadership team that’s managing much more of the day-to-day? How did that evolve for you? How did you experience that transition?

YUAN: Every day I cut out some time, I call that a daily self-reflection. So essentially, I look at what I can do differently, especially in the age of AI. I feel like this is the best time to double down on the product or innovation. If you do not double down, triple down on AI, we are going to be left behind. So I keep thinking about it very hard. What can I do differently to further scale our business?

Copy LinkHow competition changed after COVID

BERMAN: Yeah. Eric, coming out of COVID, Zoom has faced unprecedented competition. Everyone appreciates that remote and hybrid work require video conferencing as part of the suite of tools that we’re using. How has it changed how you’ve led strategically that new era of competition post COVID?

YUAN: Yeah, so you are so right. Competition wise for sure it’s more difficult compared to pre-COVID because all of a sudden competitors realize this is a very important market. I think the way for us to look at competition, first of all, we have to innovate. We have to become better version of ourselves. That’s the number one thing. Either you build a better product or you have a better relationship with the customer. That’s always number one. 

Number two is we needed to build something new. Zoom today is really beyond video conferencing. We have lots of other tools. Essentially it’s an AI work platform. We also have business services.

BERMAN: How are you thinking beyond Teams or other video conferencing platforms about the broader competitive landscape, particularly as we integrate more and more AI fueled tools into our process?

YUAN: I think two things. Number one thing is we need to make sure our system is open because no companies want to standardize a single vendor. It’s really not as scalable. So we built our full collaboration platform. If a customer wants to use any of our solutions, it’s also there. At the same time, we also integrate with any other solutions like a Google ecosystem or Microsoft ecosystem. That’s the number one thing. Open ecosystem.

BERMAN: What excites you most about this next AI fueled era of innovation?

YUAN: In the age of AI, I think for now it’s a lot of start-up companies focused on the technology layer, application layer, data layer. I think it’s very early. Almost every industry, every business I think, goes through this AI transformation.

BERMAN: Yeah. Eric, I am struggling with hybrid and remote work. I’m struggling with it because I love being around people. I feed off of other people’s energy. And importantly, when you’re leading a team, for me, reading the body language, seeing how people are walking down the hallway, interacting with each other. For the more junior members of the team, giving them a chance to sit in on a meeting and listen and watch and then ask questions after. Some of this is, I’m Gen X, this is how I came up, and we tend to over-index on what worked for us. And I appreciate the value and flexibility in the saved commute time and all of it in remote work. 

But for me, there’s no substitute for being in-person. And I’m just curious, particularly leading Zoom, how you’re leading the team there and making sure that you’re staying in touch with people beyond the video interface and that they’re staying in touch with each other.

YUAN: Yeah. So the way I look at this, hybrid works, five days in office works, five days fully remote also works. Every company is different. But in the case of Zoom, we’ve got to look at everything from a customer’s perspective, meaning we build a collaboration platform and tools. A lot of our customers, they embrace hybrid work. So we have to embrace hybrid work as well because otherwise how to eat our own dog food? That’s how we decided to let employees back to the office twice a week. You cannot really go back five days a week, to force every employee to do that. It’s not scalable, but how to leverage the technology, how to leverage AI to still achieve the same goal. That’s become important.

Copy LinkHow Zoom dealt with post-Covid layoffs

BERMAN: Like a lot of companies in the last few years, Zoom had a round of layoffs a couple of years ago. Could you talk about what it was like for you to lead the company through a reduction force process?

YUAN: Wow, that’s extremely painful. Very early on, I told our staff, no matter how small or how big Zoom will become, the one thing I didn’t want was to lay off employees. I mentioned it many, many times every year. Because of that, we hired employees very slowly.

We didn’t want to grow our business too quickly. We did very well 2011 to 2019. Unfortunately, we made a huge mistake. I made a huge mistake during COVID. To support the traffic, to support the world, we hired over 6,000 employees. Within a two year window: 6,000. And that’s a huge mistake. And after the crisis is over, we realized it’s not scalable. The cost is very high, and the productivity is not great. To address that mistake, we had to go through that very painful 15% reduction. 

Looking back, it’s very difficult because they join you. They are Zoom employees. This is my mistake. And we noticed. We are very, very careful in terms of recruiting employees.

BERMAN: Well, and I think it’s important to note you also assessed yourself a huge reduction in compensation as a part of your layoff process, which I know it doesn’t solve the challenge for the people who lost their jobs or for their colleagues who remain, but is a sign of real leadership and something folks can learn from as they contemplate how they’re going to lead through those moments as well. 

Copy LinkZoom CEO on U.S. immigration policy

Eric, I’m conscious of not having a political conversation. I’m also aware that you didn’t get the chance to come work in Silicon Valley until your ninth visa application. And you have helped build one iconic company, and you have built with the help from your team, another iconic company. You’ve worked at one of the most iconic companies in Silicon Valley. You’ve created thousands of jobs, built billions of dollars in value as an immigrant here. When you look at what’s happening with visa policy in the U.S. and both the challenge and opportunity of immigrants coming to the U.S. to help build this next generation, what advice would you offer lawmakers who are struggling to find the right balance with immigration policy right now?

YUAN: The right balance is very important. The reason why I look at it today is the larger companies, right? The Google CEO and Microsoft CEO, a lot of great CEOs, they are immigrants. One of the reasons America is so successful is because of this inclusive culture, no matter where you were born, as long as you think you can contribute. You think you have a greater vision, and you really want to be part of this American dream. So I think the key is really about the balance. I’m not saying it should open up to everyone. That’s not scalable either, but I trust government leaders. They will figure out a way because they will talk with all those private sector leaders and look at all those immigration policies, look at all those success stories. I’m pretty sure they are going to have a very well-balanced policy. Otherwise, where are all those AI start-ups, the engineers or founders are coming from?

BERMAN: Eric, wonderful being in conversation with you. Thank you so much for being on Masters of Scale.

YUAN: My pleasure. Thank you for having me.

BERMAN: The meteoric rise of Zoom offers so many valuable lessons. It is, of course, an inspiring story of immigrating to America, becoming a start-up founder in your 40s, and building an iconic company. After all, it’s not every company whose name becomes a verb. It’s also a cautionary tale of what happens if your scaled company can’t keep its brightest talent. As Eric shared, if he had been able to convince his old boss to let him build a better tool at Cisco, he never would have had to leave to start Zoom. I’m Jeff Berman. Thank you for listening.