Living in San Francisco and growing a company there was fantastic. It was everything I had hoped it could be.
But my early innocence and naïve gratitude also received a few punches.
I very much considered San Francisco and Silicon Valley a meritocracy where the best product, the best technology, and the best people always won. As Zendesk grew and we saw more competition, I started to see how investor “families”—angel investor relationships across startups and “Barney agreements” (“I love you, you love me”)—changed the competitive landscape in a way we were too young and naïve to really understand.
It was a surprise for us when brand-new companies claimed they were a much better Zendesk alternative. And it was a bigger surprise when we found customers who would echo their claim. We weren't used to this, and it left us a little shell-shocked. As founders we obsessed over every single new startup in our space, sharing extensive paranoid emails on all the areas where they had smart solutions. Even Mie noticed and suffered from the FUD (fear, uncertainty, and doubt). She read tweets that mocked Zendesk and proclaimed our impending demise.
“Is that really true?” she would ask me. “Do we have to sell the house now?”
Some of it was very blunt, with rivals asking our customers, “Why are you using this piece of shit Zendesk product—use this grown-up product instead, these guys are killing it!” (There's a lot of “crushing it” and “killing it” and other aggressive verbiage in the local vernacular.)
You could argue that all this is just the nature of competition, or that success and failure rises and falls based on this kind of hype. Making it in Silicon Valley is not all about letting the best product win. Ultimately it is all about winning the order, closing the deal. It's about the money. Okay, not all about the money. But definitely a lot about the money.
I lost my innocence in Silicon Valley. Maybe we were just so out of touch before. Maybe we were cocky and naïve teenagers for longer than I thought—idealistic and in love with our own story. We thought success was entirely determined by building a great product. I came to realize it was not only about the product but also about the total execution, and that there seemed to be no wrong tactic when it comes to winning the customer.
Until we reached about ten thousand customers, all of them were self-served. That meant they went to our website, signed up for a trial, kicked the tires, got help from our advocates, submitted their credit card, and became a paying customer.
Then we experienced one event that was an eye-opener for the constraints of that model. A great local company was considering using Zendesk, but when they reached out to us to set up a meeting and get some help, we basically told them that if they couldn't figure out setting up a trial themselves, we were probably not a solution for them. That was a little harsh, yes, but in many ways it was true, and it was also how we had defined our business all along.
But I started to wonder if just because it was the way we had done it so far, it was the right way—or the way we should do it in the future. After all, that local company was a company I truly respected and cared about, and I had to recognize that their behavior was probably very typical for a lot of companies.
So we changed the model. We set up sales. Initially, it was just quick inside sales for small and medium businesses and fast-growing companies, but over time we also added midmarket sales reps, sales development people, account managers, and ultimately field salespeople. None of this happened overnight; it was always one step at a time and always with a tight eye on the metrics.
But in some ways the hardest part of the process was the aspect of letting go. As founders of a company whose mission was to disrupt an industry by also disrupting the traditional sales model, we had a healthy portion of skepticism about going gung-ho on sales. But we were willing to make the change because not doing so in order to stick to some old ideal was wrong, and it's been rewarding to see us getting into large, interesting opportunities on a global scale because of a fantastic team of salespeople, which has taken our relationship with some of our key customers to new heights.
Having a product that is easy to discover, easy to understand, and easy to acquire on a self-service basis makes life easier for everybody, including your sales organization. And for us it's the foundation of how we think about ourselves and how we have built the company.
The thing is, the world is complicated. And businesses are complicated. And you can't always just take for granted that smart people are buying your software and are taking ownership of it. Businesses are organic creatures and processes; roles and priorities change all the time. Often companies need help in making the right decisions and anchoring products in their organizations, regardless of how easy you make software for your customers, and how smart they are. The point is that companies, especially as they get bigger, need help with more than just understanding and configuring the product. They need help with their business case, managing change, dealing with internal compliance and legalese, and many other things. For this they need people who care, and who are incentivized and motivated by caring. They need sales.
I believe that our new generation of enterprise software players will be companies that push the ultimate consumerization of their products while catering to the needs and requirements of the large, complex enterprises.
In 2011 we were running out of space on Townsend Street. It was getting really cozy. All the meeting rooms were occupied with work desks. There was quite the staring contest going on between Yammer and Eventbrite about which one would grow out of its current spaces first and move out, and the rest of the building tenants were eager to see it happen and to take over the vacated space. But when Eventbrite moved out first, Yammer had dibs on its office, extending its time to grow in the building. Now there was no room left for us to grow there, and we would need a new home.
We started to look for a new space, but the market had become really expensive since we moved to San Francisco. We were hesitant to commit to some of the really longer-term deals we were being pitched. When we first negotiated our 410 Townsend lease, we were paying less than $20/square foot a year—now prices were double that. (You can't imagine where they are today.)
One morning, our brokers called me and told me about a new space on the market; the neighborhood was a little sketchy, so they were a little hesitant about it. The building was on the corner of Sixth and Market Street, and the moment I saw it I completely fell in love. The building itself was awesome: the facade had survived the 1906 earthquake and boasted big columns facing Market Street. The office space was also awesome: an architectural firm had formerly occupied it and had invested in some really nice features like a meeting room with a barn wall. And then there was the neighborhood. The Tenderloin—about fifty square blocks downtown. One legend has it that the name was a reference to the “soft underbelly” of the city, riddled with vice and corruption. Another says the name refers to the amount of bribery—this was where the police officers could afford tenderloin instead of chuck steaks. Although the neighborhood was once home to some of San Francisco's most ritzy hotels and theaters, the area took a blow during the catastrophic earthquake of 1906 and was slower to rebuild than other parts of the city. For a long period it was a seedy, dangerous area, known for fleabag hotels, poverty, and prostitution. Then Vietnamese refugees made this area home and brought more of a family character, along with some fantastic restaurants. But now there were efforts under way to revitalize it and stimulate an exciting upswing so it could experience a cultural renaissance and a tech boom.
I liked being at the crossroads of the neighborhood's history with its turn-of-the-twentieth-century architecture, its storied past, and its future. And I really liked the hustle and bustle of the streets. I liked our corner in the heart of it all, with the little offbeat restaurants like Tu Lan, Showdogs, and farmerbrown. I liked The Warfield, originally built as a vaudeville theater and still one of the coolest concert venues in the Bay Area. I liked the city vibe, and I liked that this was one of the up-and-coming neighborhoods, where rents were still relatively low and where there was a lot of legroom and “heartroom” for new creative businesses. Burning Man had set up headquarters in the area. I knew that technology businesses like Zendesk need creative businesses and inspiration around them in order to evolve. And placing ourselves at what I saw as literally a physical intersection between technology and creativity could only do the business good.
Also, I was used to the area. My favorite hotel in the days of traveling back and forth between Copenhagen and San Francisco had been the Phoenix on Eddy Street, and from my many stays I had come to appreciate the neighborhood.
Moving there was a little controversial, though. The neighborhood had a reputation for crime and drugs; the same weekend we moved in, a guy was shot at Sixth and Mission, just around the corner. But most of the crime in the neighborhood rarely involves “outsiders” or bystanders. It can be intimidating, with some of the loud or mentally ill people in the streets, but it's very rare that one is actually threatened. Nevertheless, we implemented procedures for how people should try to leave the office after dark (in pairs), we always compensated for taxi fare if people worked late, and we subsidized parking at the local parking lot over cheaper but more remote lots.
We have loved San Francisco since we arrived in 2009—its energy meshed with our own disruptive aspirations, and its signature quirkiness was often in line with our own. This city was very good to us, and in return, we wanted to be good to it. We would be one of the first tech companies to move to the Mid-Market neighborhood. This was around the time the city introduced the so-called Twitter tax break—basically a deal that gave companies that moved to the longtime blighted area a reprieve from the San Francisco payroll tax and reduced taxes on stock options. The benefit required that companies enter into a Community Benefits Agreement (CBA) with the city that committed them to being good neighbors and investing in the neighborhood.
It became transformational for our business to focus our employees on the neighborhood and to have them take responsibility in being part of it. We have dedicated a small team to take care of our community responsibility efforts, and their work and dedication has been incredible and has massively affected the company. We believe in the concept of an urban campus: using the city for our pathways, with offices located within a block a two of each other, connected at street level by the sidewalks, restaurants, and cafes that make up the neighborhood. And it's the many little things that make that work—such as our lunch policy. Many startups make free onsite meals one of their employee perks. We debated whether to follow suit but ultimately decided not to offer free lunch or meals designed to keep employees locked onsite, so that our employees would spend their lunch money locally instead, thereby supporting the many little ground-floor retail businesses that are so important for a neighborhood.
The concept of the CBA is something we have rolled out to our other offices. Not to gain a tax break, but to give our employees a better and more meaningful relationship with the community and neighborhood around them.
In 2011, the idea of Zendesk becoming a public company started to take shape. I had to think about the team required for that. Rick was our CFO and was doing a fantastic job, but he was still based in Boston, and he didn't spend a lot of time with bankers. To even start actual planning of an IPO, Zendesk would need someone who had done it before—someone who had the network, and first and foremost someone who was local. I needed Rick to stay focused, and I needed the decision about a new CFO to be made without emotions. So I ran the process without involving Rick. And not until we had secured a final candidate, Alan Black, who had led an IPO before and who was based in California, did I let Rick know.
I wanted to tell him in person. I flew to Boston so we could have dinner together, but I didn't share with him why I was coming. I figured that we'd talk it through and I'd fly back the next morning.
Rick picked me up at the airport. “Why do you just have a backpack with you?” he asked.
“I'm just here for the night,” I said. I could tell he sensed something was wrong, which made the car ride a bit awkward.
We arrived at the restaurant, and before we got our appetizers I told him what was going on: “We've hired someone to be our new CFO,” I said.
Rick was devastated. He didn't know we were talking to anyone else about his job. He didn't think we were close to going public. We had just raised a big round of funding, $19 million from Matrix Partners, and Rick had been fully focused on that. He said he felt ambushed and backstabbed.
“It was like my wife saying she is having an affair. I can't believe after all we had gone through together, I can't believe you'd transition like this,” he said. “I don't know if I could ever trust you again.”
He was especially unhappy with the way the situation had unfolded; he felt it was unexpected and that there was no reason for him to have been left in the dark about what was happening.
I don't think there's a good way of doing these things. It's always going to be painful, so I tend to just get them done and over with.
But I realize that my resistance to sharing the bad news with Rick sooner stemmed in large part from his having been such a tremendous personal help to my family in Boston. In hindsight, it was probably a mistake that I didn't involve Rick in the process, and I was probably way too blunt when I finally delivered the message. It left him completely unprepared, and that put a dent in our relationship. I'm sorry, Rick.
There are so many things I have had to change, to curb, as I've grown into the role as CEO of a company that works out of an office rather than a friend's kitchen. It hasn't always come easily. I would often say the wrong thing, and I would often get into trouble. Whereas at one time I never watched what I said and I was appreciated for being myself, all of a sudden I had to watch myself more carefully.
In one instance, I described how we had quickly built the first version of our billing system that supported the company for many years. In my excitement, I said something like “It was built in a four-day, LSD-induced stupor!”
I was chastised for that. Apparently, unless you are Steve Jobs, CEOs are not supposed to allude to recreational drug use.
Sometimes it's just hard to remember to hold back. One time I was rehearsing for a town hall where I would have to introduce a new hire in Asia Pacific with a name that sounded strikingly like a term for the male organ. My instinct, unfortunately, was always to make an inappropriate joke. But that's no longer totally acceptable, and I was told so by my staff. At the town hall I introduced him, and I did not make the joke. But of course I made a joke about not making a joke about it. Sometimes it's hard to be official and upstanding and at the same time be your goofy and authentic and human self.
And that is the big question for Zendesk: how do we grow, while also staying true to ourselves—true to what got us here?
For so long, for a number of years, it was all about survival, getting shit done, ship, ship, ship, sell, sell, sell. Now we are figuring out the story of the company and the identity of the company. What does all of it mean?
And how do we explain it? As I write this, the company has almost a thousand people, and most of them I don't know at all. I can't sit down with each of them and build a relationship or tell them what Zendesk is about. With more than fifty thousand customer accounts in more than 150 countries and close to half a billion people having received service via Zendesk, I can no longer build a personal relationship with the people who are using our products either. But it's my responsibility to relay this story to an even broader audience. And that is my next challenge.
After the initial panic of establishing ourselves in San Francisco and starting to build out the initial team, my job changed radically. It's hard to not be very hands-on when you're passionate about your job and love to build and market products. But I had to balance that with building a vision that people worked toward without being managed directly…and I had to lay the foundation for a culture that our employees could mirror themselves in and extend and customize in a way that took it further…and I had to learn how to address the team and inspire them—not something that came naturally to me…and I had to learn how to build a functioning executive team, and balance functional expertise with executive experience and attitude, and figure out how to manage people indirectly, by managing their managers and later, their managers' managers. There were so many things to learn.
All of this, I had to figure out for myself. But everybody—from executives to investors to Mie—had different advice on how to do it.
“Have you talked to Alex about this?” Mie would ask.
“I haven't seen Alex in two weeks,” I'd tell her. She couldn't imagine that. Zendesk as a company was changing radically every six months, and I think Mie still thought of us as Morten, Alex, and me sitting around that kitchen table making decisions.
An interesting thing about building a fast-growing company is that your management structure constantly changes. We still have weekly management meetings, and originally that was just Alex, Morten, and me. Then we added Rick. Then we added Amanda. And as the team grew, everybody we added got a director title. Then that became too many people and super inefficient, so we narrowed it down to vice presidents only—until that also became too many people. Today we have executive staff meetings where it's primarily my direct reports plus key people.
I've learned something. I'm not very good at running meetings. I'm not very good at the traditional management processes. I need strong, independent people like Adrian, who don't need management—maybe a grain of leadership, but not management—but more important, I need people who can build great relationships with the other executive members. When you have a management team of people who appreciate spending time together, who can have a good time together going out for dinner, who are not afraid of calling out each other's bullshit, and who are comfortable having real hard conversations and can laugh and cry together, and in general just figure stuff out together without making it more complicated than necessary, your life as a CEO is so much easier.
It can be hit-and-miss recognizing these personalities. It's really hard to figure out up front. You have to do some serious dating in a very condensed format. But if there is one thing that I truly have learned from building Zendesk, it is that if you cannot have a good, natural personal relationship with somebody, you will never have a good, natural professional relationship either, and you will never be an efficient team. More and more, my role as a CEO will be to ensure that we have right key people in place and that these people like each other, respect each other, and trust each other. I realize how banal that sounds. But it has taken me a long time to trust my instincts and come to this conclusion. And I also realize that what is true for me may not be true for everyone. After all, there are many ways to build a business.
In telling our story, I have skipped over huge parts of how we built this company. Most of this book focuses on our experiences in the early startup days, and how we got out of the garage—or loft. Building a global company and all that that entailed is for another book.
For now, I wanted to focus on us and what happened now after we chased—and caught—the American Dream. I traded in my Volvo; I was customer No. 319 for the Tesla Model S and so incredibly proud about not only buying a car made in California, but also buying a car that was the first model in a new generation of cars, built by a startup. Morten, too, finally bought a nice car; he had said this was the first thing he was going to do in the United States, where, unlike Denmark, there was not an enormous tax on cars (to discourage car-dependency and incent people to ride bicycles). Unsurprisingly, it took him four years to decide on a model.
Despite all the changes and all the disagreements, we all have remained loyal to one another. Yes, there was a lack of innovation in the industry that presented an opportunity, but it was also just three guys who were feeling old, to some extent, and this was our way out. We knew that if we didn't do it at that moment, there wouldn't be a second chance for us. Maybe that kept us loyal to each other and dependent on each other. We knew the alternative would be so much less interesting.
Morten had a similar feeling: fear of complacency. “Complacency is the worst,” he said. “It kills everything; we will die if we don't do anything, and that will be so sad.”
But we will never know complacency and that less-interesting story. This hasn't always been the easiest route, but this is the most interesting thing I could imagine doing. And think about the privilege of finding out what you're good at in life and then doing that and then living in a place that is created for people like you, where the whole ecosystem is made for people like you. And at the same time, the family's healthy, and I'm arguing with Mie only twice a week!
I realize how very lucky and fortunate we've also been, because this could have gone wrong so many times.
Not long ago, Alex, Morten, and I went to Las Vegas to celebrate Morten's fortieth birthday. We had eighteen hours together—as much as I could negotiate with Mie—just the three of us, and it was almost like old times. But not exactly. It was more like when old soldier buddies meet. You love each other, and you've saved each other's asses, but you also know that you never want to go through that stuff with them again. Ever. I think we can see that in each other's eyes. And we're all aware that the world we used to share is so different from the one we live in today.