As we started hiring in San Francisco, we probably felt more comfortable hiring engineers and technical people than we did for other roles. The technical side was our turf; for that, we mostly knew what we were looking for. But when it came to other roles, we didn't know what we were doing. Design and marketing were areas that we cared about profoundly. But we had very little experience hiring product designers or marketers, and we had a hard time framing what we needed. The world of product management was an issue in itself. I think we didn't intrinsically understand that the people speccing and defining the product were a separate species from the people building it. Denmark is probably the leading country in the world with the least established tradition for “product management,” primarily because there are so few companies building software on a larger scale.
In hindsight, it was impressive how little we knew about building up an organization—and how forgiving the people that we met were with this fact. Building a product is so different from building an organization and a company. We relied a bunch on recruiters and consultants and on their advice, but in truth most of our hires were completely hit or miss.
We recruited Amanda Kleha, who had worked at Google after the Postini acquisition but was looking for a smaller startup where she could have more impact. She was an all-around marketing person and came highly recommended. Alex said, “I don't understand why we need marketing right now,” and I'm not sure I knew why either, but I was still managing our AdWords account myself, and that alone was becoming a full-time job.
My interview skills were weak. I knew we needed to build a marketing team, but I didn't know what to ask a potential head of marketing. I had such a chaotic interview with Amanda that I cannot fathom why she signed on. She also met Michael, and she passed his test. I think we were all a little scared of Amanda. She was so professional.
Then, after Amanda accepted our offer, we demonstrated that we had no idea how to onboard a new team member. We were still in startup mode and acting not all that differently from when we were working in the loft.
When Amanda showed up her first day, I was surprised to see her empty-handed. “Did you bring your computer?” I asked.
“What? I thought you'd have one,” she said.
“Fuck!” She was right. We were supposed to provide computers for our employees. “Can you go to the Apple store and buy one?” I asked.
She went out in the rain and came back with a computer.
“Guess I just joined a startup,” she said.
She handled it pretty well, but we needed to put a process in place to get people off to the right start. For a long time we expected people to hit the ground running and “figure it out.” We did, however, do one thing right: we expected everybody to spend the first week in support with our customer advocates. That way, understanding our product and spending time with our customers became most employees' introduction to the company. I still believe it's the best way for anybody to understand what we're doing.
But onboarding people was not my forte. Our first HR person was employee number fifty, and that was probably the first time somebody in the organization thought about building a structured onboarding process. To the previous forty-nine: I'm sorry.
Things weren't easy, and Peter Fenton quickly convinced me that a lot of the pain of running the organization would go away with a professional and experienced VP of engineering. He said we needed somebody who was used to building out engineering teams and driving efficiency and—not least—shipping. We needed this expertise, but when you haven't hired for this role before, it's hard. And it was even harder because Morten and Alex technically would have to report to that role. We needed someone who could manage that relationship properly.
We had a long search, working with Riviera Partners, an executive search firm for VC-backed companies, which did a fantastic job. I also enlisted Nancy Connery, an HR and recruiting professional who was an early hire at salesforce.com and worked closely with Marc Benioff to help me with the interviews and assess the candidates.
Our finalist was Adrian McDermott, who was the first engineer on the original Plumtree Software team and worked there through the IPO and the acquisition by BEA, before it was sold to Oracle. Adrian had passed all the tests—which mostly meant having conversations with Alex and Morten about random things—and people really liked him. But in what was becoming an annoyingly familiar story, he wasn't completely sold on joining us.
We agreed to meet for (another) dinner, and it became a very late evening where Adrian introduced me to a number of San Francisco bars I didn't know existed. I got so drunk that when I finally made it home I couldn't get my shoes off. But I did remember that the last thing we had done before separating was to shake hands and agree on Adrian's joining Zendesk.
I happily informed our recruiter, and the very same morning he sent an email to Adrian saying, “Congratulations on your new job.”
I don't think Adrian really remembered that much from the evening, as he responded, “I beg your pardon?”
Clearly, negotiations weren't really over, and Adrian probably hadn't involved his wife Cindy in the decision. Peter stepped in and helped us get to the finish line. Very fittingly, he sat in his car outside RN74 in the pouring rain and convinced Adrian that his current job trapped not only him, but all of the people who had pledged their loyalty to him. Ultimately we did formally agree, and Adrian joined our team. Today Adrian runs all of engineering, product, and technical operations—a team of more than three hundred people distributed all over the world.
Adrian was a very significant hire not only because of his much-needed expertise but also because he was the first person we hired who gave me the feeling that this was really truly a person who was both way smarter and way more experienced than me. And that left me with a new kind of role and relationship. I realized that I wasn't supposed to manage a guy like Adrian. This would be teamwork, and Adrian wouldn't just run his organization but would also have an impact on the entire strategy and ultimately the destiny of the company.
Hiring people who are way smarter than you and who have a lot more experience is actually really hard. And it's something you have to learn. You don't really have a frame of reference for evaluating them, and you have to perform intense back channeling to truly understand how they operate and what kind of people they are. Ideally, you will want to spend quality time with them and get them into situations where they're uncomfortable in order to learn everything you can about them. It's not that different from dating.
But when you get it right, it's transformative for the business. We would never have gotten to where we are today without Adrian. Not only with regard to getting our processes straight, our recruiting efficient, and our platform in place, but also and especially with regard to building a team. Adrian is to a great extent a self-made man. He grew up in a small village in Northern England before teaching himself to code and taking on increasingly bigger tasks with increasingly bigger companies all around the world. He sees and appreciates that “eye of the tiger” in people that defines whether they can figure things out and get shit done. We needed that spirit.
And somehow, he does it all so nicely that his team loves him—so much so that they also let him win the annual soccer tournament, his true passion.
We might have seemed a little disorganized in some areas, and the truth is we really were. When it came to something as core as the customer experience, we were of course all about providing a great and smooth experience, but we realized that's also really hard to scale properly.
We learned this the hard way—by messing up on multiple occasions.
Our business was built as a self-service subscription service, so we didn't think about ourselves as “selling” anything. Our customers bought from us on their own initiative. They could stop using the service whenever they liked, and they wouldn't be charged any further. Based on that, we didn't offer refunds. Additionally, we didn't really have the flexibility in our billing backend to provide refunds; it was always our goal to keep things simple.
But of course, from time to time, customers did ask for refunds. And normally we were good at explaining that we didn't do them. But on one occasion a new employee was a little too blunt in the response to a customer's request. He said something like “Sorry. No can do,” and he didn't give the impression of trying to understand the customer's situation. Of course the customer got upset. And his fury knew no limit. Even as we escalated the situation internally and tried to save it, the customer was long gone and hell-bent on revenge and retaliation.
Less than six months later that same person joined a competing startup on a mission to disrupt our business. We had probably made an enemy for life.
He didn't prevail in that goal—we're still here and doing well—but he did teach us an invaluable lesson. I learned that even if your intentions are the best and you are trying to make things simple, you can still destroy everything with a single wrong interaction in which you forget the basic principle for any type of personal interaction: empathy.
We still abide by our no-refunds principle, but we no longer approach the policy in the same way. Our execution varies depending on the situation. It is more mindful of the customer's unique circumstances.
In some ways the customer relationship is just like any other relationship. You have to consistently put in effort and not rely on the past. The moment you take anything for granted and stop investing in the relationship is the moment you start messing things up. For many businesses, building customer loyalty means creating loyalty programs that reward repeat behavior: Buy our coffee ten times and your eleventh cup is free. But are your customers loyal because they want that free cup of joe, or are they loyal because they truly enjoy your product and their interactions with you?
Companies need to face the new realities of the customer economy. Customer relationships matter more than ever, because your future revenue depends on those relationships lasting well beyond a single transaction. The voice of the customer has never been louder; your customers have the power to bring you more business—or drive it away—via recommendations or rants that are amplified by social channels like Yelp. Customer service interactions are becoming your primary means of creating true customer relationships. To be a successful business today, you must understand how relationships actually work and how to build them.
May 2010. Overall, things were going really really well. Then, at the same time that we were releasing a major product update with what we considered innovative new capabilities, we planned a price plan reconfiguration that would raise prices for some of our customers, so that the customers that were the most expensive for us to serve would pay us more, while customers that caused our business less strain got a cheaper option and could pay us less. We felt that our pricing was out of step with the current market, and we thought customers would be understanding, especially because at the same time we introduced a whole slew of new features and capabilities.
At this moment, we were crossing the five-thousand-customer mark—a huge deal for us and cause for celebration. All of the engineers arrived at 6 a.m., and we had T-shirts made to celebrate the occasion. (T-shirts, the business card of San Francisco.)
But soon this went from a celebration to a slaughter. Customers were very upset about the price change—and they revolted. We had always prided ourselves in being transparent and accessible. That meant that customers and competitors could complain on the site without even logging in. Now they flooded the Zendesk forums and were not shy about how they felt about us. Hundreds of comments piled up on the site. And the competition had a field day exploiting the situation:
We were also getting tons of phone calls. Within hours there was a story on TechCrunch: “Zendesk raises prices, pisses off customers.” It included more comments from customers (“What are you playing at Zendesk?” and “Seriously????”) Worse, the story itself accused us of using a “bait and switch” tactic.
I didn't think that was true, or fair, and I replied to that story, explaining:
Yes, we are raising our prices on two of our plans. We now have three plans at three different price points (starting at $9). This is the first time EVER that we have increased pricing. But we have added new functionality to the service for every week for the last two and a half years . . .
We will deliver on our promise. Are we the cheapest show in town? No. But we do think that we have an excellent offering for almost every budget starting at $9 per agent seat. And we do offer to grandfather our existing customers for one additional year at their current price point with all of their current functionality grandfathered indefinitely.
The price per agent has gone up $10 and $20 on the Regular and Plus+ plans respectively. That's a 50% increase. Some customers may experience disproportional price hikes due to earlier introductory discounts, and we will look into these accounts on a case-by-case basis.
Let me finally point out that we have been completely open and transparent about the price changes. We don't try to sneak it in.
I tried hard to get all the facts into the response. The problem was, at this point it wasn't really about the facts anymore.
Customers were storming the castle. My phone would not stop ringing. Emails, tweets, and text messages came in at such a volume that I had absolutely no chance of replying properly to all of them. At one point we decided to route my email directly to our own Zendesk and have the advocate team reply to them.
This was our first major customer service issue, and we really didn't know how to handle it. For some customers the price increase made sense, but for others—a big and loud constituency—it didn't. We couldn't control the messages that were coming from them. There was no way of explaining our way out.
We realized we had taken the whole relationship for granted; we had fucked it up.
This was a wake-up call to the organization. But there was a lot of disagreement about what to do to correct the situation. We locked ourselves up in a conference room for the most of the day trying to figure out the correct way of responding.
Alex took it to heart. “We violated their trust and hurt the business very very badly,” he said. “We talk about being transparent and fair and honest, and we were not meaning to not be, but we didn't think it through.” He later called it “the single worst day of my life.” He talked about packing his suitcase and going back home.
Michael Hansen wasn't as perturbed. “If you take the daily crap and noise out, it's fantastic that we have customers who care so much to give feedback and show more passion for product. I've never felt so alive.”
Despite the different interpretations of the issue, everyone envisioned the same solution: go back to the old pricing. But I wasn't happy about it. I still felt that the new pricing made sense and was much better for both our business and our customers long term. I was afraid that the violent media reaction blurred our vision and made us overreact. We even performed a quick survey to get a feeling for how the silent majority of our customers really felt about the new changes. But nothing really gave us clarity. The truth was that for a lot of our customers, the actual price change didn't mean too much, but the way we had forced it on them made them doubt our motives—and ultimately undermined their trust in us.
It was tough to know the right next move. Suddenly you see the reaction and you feel, if we were way smarter we could have foreseen this. I had felt really good about the decision to raise the price, and I'd felt good about the way we made that decision as a team. It's hard to believe you are right and made a good decision, and then have to reverse it. It goes against every cell in your body.
But we needed to set the right precedent going forward. The only thing to do was go back and say sorry and reverse the decision: we'd grandfather in all existing customers into existing prices.
We officially responded. I bared my soul on the Internet.
This was the biggest problem that company had faced, and the first big trauma we had felt as a team. However, it also put a real face on customers we normally never heard from. Michael Hansen was right about that. We learned in a short time that passionate users are a great help in selling the business, but if they feel mistreated, they will turn around and in no time be just as passionate about hating you. We were reminded of how important it is to listen to customers and the power of their voices to help make the right decisions.
Relationships are not about reasoning; they are about how people feel. It is not about who's right and who's wrong. It's about spending time listening to each other and respecting one another's viewpoint even when you think the other person is wrong.
When it comes to pricing, we also learned that you don't raise your price for an existing product for existing customers. That's the relationship of a subscription service. And this makes sense; things get cheaper over time as you democratize the product stack and make it more accessible to more people. And if the mission is to democratize software, that inherently means that it becomes cheaper and cheaper. That's what makes the model great for everybody. SaaS companies must show ingenuity to prove the value of new features and incentivize their customers to upgrade or buy add-ons to their products in a way that feels natural and organic.
Ultimately, by acknowledging our mistake and fixing it, we survived our first fiasco. And we tried to make it memorable: in typical Zendesk style, we made T-shirts printed with some of the hateful responses (“This is outrageous. Are you insane?” and “You guys are assholes stop justifying your bullshit”) that filled 405 pages of comments. A bunch of us still wear them today.