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The Birth of a Silicon Valley Blockbuster
Photo by Sarah Deragon
Dan Morrell: Hi, this is Dan Morrell, host of Skydeck. I wanted to ask a quick favor. We’re running a two-minute, ten-question listener survey to help us continue to bring you these great, engaging stories of HBS alumni. You can find the survey at alumni.hbs.edu/skydecksurvey. Beyond the survey, if you ever want to drop us a note, you can find us at skydeck@hbs.edu. We’d love to hear from you. Ok, now for today’s show.
Cloudflare is a web performance and security company that runs one of the world’s largest networks. More than 16 million internet properties pass through the company’s network, which acts like a neighborhood watch for the internet—spotting potential threats but also helping websites run faster and better. It was named one of the world’s most innovative companies by Fast Company this year, and employs about 1,000 people in 180 cities around the world.
In this episode of Skydeck, Associate Editor Jen Flint talks to two of Cloudflare’s founders, Michelle Zatlyn (MBA 2009) and Matthew Prince (MBA 2009), about how the business began 10 years ago in the midst of the financial crisis—and how a smart dog collar and a sketch on a Palo Alto bar napkin helped launch a tech giant.
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Jen Flint: I wondered if the two of you could go back and tell us the story of how you wound up writing this business plan together as a school project here at HBS.
Matthew Prince: Michelle and I were in the class of 2009, we were both in section D. Go D! The dinosaurs. As anyone who’s been to HBS knows, you get to know the people who are in your section extremely well. Michelle really stood out as someone who was really trying not just to score points by asking questions in class but to find the right answer and get things done. For quite some time I tried to convince Michelle that we should start something together, and she was not particularly enthusiastic about the ideas that I had.
Michelle Zatlyn: And Matthew, if you spend more than five minutes with him, he will just spew ideas out. He’s very good at generating ideas.
Prince: Not necessarily good ideas.
Zatlyn: But ideas, and that is a huge skill. A lot of people don’t have that skill and so I always liked to engage with him. And a lot of them were good but not particularly ones that I wanted to make happen.
Prince: I think there was a lot of respect that both of us had for each other. Then we went through our first year and went off and in our different directions. And then when we came back in our second year there was an opportunity to go on what at the time was called an immersion and today I think would be called an IXP, which was organized by the school to go to Silicon Valley. Tom Eisenmann, who had been our entrepreneurship professor, was one of the leaders of that. And both Michelle and I ended up on that trip. It was a really interesting time because it was January of 2009. It was right in the height of the financial crisis, and every venture capitalist that we saw along that journey was saying, oh venture is dead. No one’s raising any money, don’t even try to start something.
And then the other side was that we would see entrepreneurs that were still starting businesses. They were these crazy quirky niche-y ideas, and they were still getting funding. And I think that Michelle and I, as we as we were going through this process, it became clearer and clearer that even though you were hearing that no one was starting businesses, people actually still were. And so we were sitting in an office in Sunnyvale, California, at the Plug and Play office, which is an accelerator based in the area, and there was some entrepreneur who was presenting I think like a smart dog caller or something like that. And we both sort of looked at each other and stepped out into the hallway, and Michelle said, you know if they can do that, we can do that. She was like, run through those ideas again.
And one of the ideas was based on an open-source project that I started in my last company with a guy named Lee Holloway, who’s our third co-founder and at Cloudflare. And she’s like that’s it. That’s the idea. Let’s let’s do something around that. And so that evening, we cornered Tom Eisenmann at the Sheraton Hotel in Palo Alto and literally sketched out—about the most cliche thing you can do—sketched out on a napkin how Cloudflare would work. And said will you be our advisor for an independent study this semester. And Tom said, listen, I’ve got way too many projects on my plate but I like you both. I’ll make room for you, but the deliverable is you have to enter the business plan competition. And I’ll make a prediction right now that you guys are you guys are going to win it.
Zatlyn: Four months later, at Burden auditorium, we are in the final four of the business plan competition and next thing I knew we won. I remember it was the very end of school and we walked back to the section afterwards and our whole section stood up and gave us a round of applause, which was a pretty amazing adrenaline rush. You know I think you win a business plan competition and what does that mean? I think both Matthew and I both thought well that doesn’t really mean very much, but you know it did open a lot of doors. And the next thing I knew, we were packing all of our things in a UHaul, and Matthew and his mother drove the UHaul from Boston to San Francisco and we showed up in the summer of 2009 knowing basically nobody with an idea. Ten years later we have a real company with over a thousand people around the world and we helped make the Internet faster safer and more reliable for over 16 million internet properties which is a pretty incredible 10-year journey.
Flint: What was the vision at the outset?
Zatlyn: Well if you read the first sentence of our business plan competition that we had to write: Cloudflare is a service that will accelerate internet properties or digital properties, will protect them from a range of online cyber attacks, from spam to large DDoS attacks, and will make it easy to add third-party services. That first sentence of the business plan is what we do today. I think that it’s gotten broader, but we didn’t really pivot along the way. Every month we had many a-has: There’s a real problem here was the first a-ha, and then the next a-ha was that we came up with a really elegant solution to it. And then we were like, wow there’s a really interesting business model around this. We did a lot of upfront work. We crystallized that we wrote it down and we executed it over time. One of the things that’s been really exciting and if you’re an entrepreneur or thinking about your business is a lot of times in businesses people start and over time the opportunity narrows because it turns out they didn’t think about something or some other industry kind of started to creep up on their market share or whatnot and so the opportunity narrows.
That was not the case with Cloudflare. A couple of years in we realized our opportunity had expanded and that we were thinking too narrowly. And that actually we should really think of Cloudflare as a much bigger opportunity. And as soon as we got over that hump, I mean then you’re like wow, we could really build an iconic company that really changes the way that the internet works for the better, kind of fixes a lot of the shortcomings. And I think that as soon as we had that a-ha we were able to really build out our product roadmap and how we think about go to market and all these sorts of things that kind of followed behind that.
Flint: And you started out really focusing your services on small and medium-sized companies, though that’s changed over time.
Prince: We did start off thinking about small and mid-sized companies, and you know one of the things which we realized as we were looking at the shift from again on premise hardware and software that you buy to services in the cloud that you rent is that inherent in that transition is a massive market expansion. If you’re selling a $200,000 firewall, there are thousands of companies that can afford to buy that—but there aren’t millions. And it’s very difficult to price discriminate on something which is a physical asset that you sell. Because if you’ve got effectively the exact same box that you’re selling to one customer for $1,000 and another customer for $200,000 at some point someone’s going to figure that out and close that market.
Flint: You continue to offer a free service: What is the value of that at this point in the company.
Zatlyn: Cybersecurity actually comes back to data. For us we have 16 million Internet properties using Cloudflare, and some of those are on the free service and some are our pro and business, which is more of our small-business offering, and then we have all these large organizations also using us. Because we have such a breadth of types of customers we have a really good data set that tells us this visitor coming to your site, is it a visitor like Jen and yes let’s make the experience better for your customer Jen or is it a hacker or a malicious bot trying to do something malicious. And so first it helps us provide better cybersecurity solutions to everybody, having a larger data set and we think that’s really really important.
And the fact that we have a free service means people can use it on their hobby sides or maybe they have a small business that they’re running and a lot of those folks that come in want to work for us. They’re like this is amazing, I want to be part of the team that helps them bring this to the world. And so it’s great for recruiting because people can use it. And if we only service the Global 2,000 then those engineers or those salespeople or those product folks that we need to come built Cloudflare can’t play with it because they can’t afford the $100,000 hardware box. Of course is a path where they start to pay us. We have many examples of where the CTO of a company like Salesforce was a longtime personal customer of Cloudflare and now Salesforce is a large customer of ours.
At the end of the day our mission is to help build a better Internet. And if you don’t help all those Internet properties—I mean there over 350 million around the world, all of those internet properties don’t have technical ability or budget. And if you don’t help provide a service to them, then the internet starts to kind of bifurcate behind the large organizations and I think that kind of takes away from what has made the Internet so amazing for the economy in the world.
Prince: For us, whenever we go to roll out a new function we’ll often reach out to our free customers and say hey we’re thinking of building this really high end function. It still has a lot of bugs, it’s still in beta, but would any of you like to test it? And we’ll literally have hundreds of thousands of people that will raise their hand and volunteer to be our virtual QA team. And what that means is that when we get ready to roll a feature out to our largest customers, it’s been battle tested in real internet conditions and we know that it’s going to work incredibly well. And so that has allowed us to continue to have a pace of innovation that matches consumer internet companies, while we are primarily a business to business internet company.
Zatlyn: I love that Cloudflare’s a service where all of our customers, bonded together, makes the whole service better for everyone. It’s just one subtle thing that with what’s going on in the world today, is a feel-good story. The power of we.
Flint: Was that something you set out to cultivate or was it a surprise?
Zatlyn: Early on our very first video that we created for Cloudflare, because early on you have to describe what you’re trying to do to get people to sign up. We’re one year into the business —before we had any customers—and there is a line in the video that says Cloudflare is like a neighborhood watch. Like the more people that are part of the neighborhood, the more people there are watching, and the stronger the community is and it makes it better. You know helps keep the bad guys out and helps make the experience better for the community. So yes, the community side of it. But again I think that you don’t really realize—like we often get asked, Did you ever think Cloudflare become what it would become? And it’s like not really. You could just never imagine the journey and all the incredible people we get to work with every day who care passionately, our customers who are so excited.
Flint: And what about internally within the company: I read a story that early on an engineer wanted to institute happy hour Fridays and a decision was made not to do that for reasons having to do with culture. Can you tell us what happened and the decision making that went into that?
Prince: Early on in Cloudflare’s history there were eight of us, and we were all some version of 20- to 30-something single geeks. And we were spending a lot of time together at work. One of the engineers said hey wouldn’t it be great if on Friday afternoons we went out and picked a different bar and grabbed a drink and promised not to talk about work and get to know each other better outside of the office. And that was a very popular idea. And so it was very unpopular when Michelle and I said we’re not going to do that. And people like what are you, the fun police? And I said no actually it sounds like a lot of fun to us too. But at some point the organizations that win over time are the ones that can draw from the broadest set of potential employees.
Today we look a certain way but we want to make sure that we don’t look this way forever and that we will be an attractive place for people who don’t think that that’s a lot of fun. You know the single dad or single mom who’s got to pick up their kid from soccer practice on Friday afternoon. If all of a sudden being part of the Cloudflare team requires you to come out drinking with us, they’re not going to think that that’s a very attractive place to work. I think that you can learn a lot about companies by you know what they named their conference rooms. We have friends and peers who have started other companies that have conference rooms named things like the Boom Boom Room, and things that you know you might see at a fraternity. And that’s just never been us are our conference rooms are named after HTTP status codes.
Zatlyn: Very nerdy but we love it. We’re just so proud of the name. We love our conference room names.
Flint: Let’s hear some examples.
Prince: So I mean 404, which is page not found. We inadvertently made the room that we do most of our interviews in as payment required, which I think is 401 or 402. But again I think that we’ve always tried to be a place where people would be judged on the work that they do. And today we have thousands of employees and I’m sure people go out to drinks every afternoon. But you don’t have to do that to be part of the team and I think that has allowed us to have what is a very diverse team from almost any measure that you measure it. That diversity is good for lots of different reasons but the primary reason is that it makes it more likely that we’re going to have someone on the team think of or think up a solution that someone else might not have come up with before.
Flint: And what about looking to the future: What are the challenges ahead that most interest you in thinking about where Cloudflare will be years from now.
Prince: The trend that we spotted back in 2009 of this macro shift from on-premise hardware and software that you buy to services in the cloud that you rent: I don’t think we’re coming coming anywhere close to the end of it. In fact I think we’re we’re we’ve got a lot to still do in that. And so we’re really focused and really proud of the fact that we’ve built a company that can really define its own future and control what its destiny is. We say that our mission is to help build a better Internet, and people sometimes sort of smile, but if you talk to the people at Cloudflare they go, No no we’re serious. We think that the internet from the beginning was never designed to be the thing that it has become and that it has some inherent bugs and it has some inherent flaws. And there’s no work that we can do that’s more important than figuring out how we can make the internet something that really lives up to its promise. I make fun of Michelle when she says it, but Michelle likes to say we’re just getting started. And I think that that’s probably if I’m being honest kind of a really truthful way of looking at Cloudflare.
Zatlyn: I do say that, and Matthew does make fun of me. Matthew, Lee, and I started this 10 years ago, but really Cloudflare is eight and a half years old. You know for the first year, it was a school project and it was just the three of us. But you know we launched eight and a half years ago. I look at where we are today and I’m so proud. But I think we’ve just scratched the surface of what’s possible with Cloudflare. I think we have the opportunity ahead of us and when I think about what my responsibility is it’s to make sure Cloudflare reaches its full potential because it’s not a given. Know you do a lot of that hard work get through the messy things that make good decisions and whatnot and there’s lots of things that can still go wrong. But if we can help Cloudflare reach its full potential, like the opportunity is there.
Skydeck is produced by the External Relations department at Harvard Business School and edited by Craig McDonald. It is available at iTunes or wherever you get your favorite podcasts. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.
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