Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. Joining me today is a founder who says that, “If you want to build a big business, you should look at boring, boring areas.” Mikkel Svane is the co-founder of Zendesk, which creates software for better customer service. If you send customer support email to companies like Shopify, Redfin, ModCloth, and so many others, chances are good you’ll get a response from them via Zendesk software. You’ve seen them.
We’re going to hear their story, probably built up the business here today. He recently wrote a book about his experiences. It’s called “Startupland: How Three Guys Risked Everything to Turn an Idea into a Global Business.” It’s a great read. I urge you to check out “Startupland.”
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Mikkel, thanks for being here.
Mikkel: No, thanks so much for having me.
Andrew: Boring. I’m so surprised by how many times your name comes up with the word, boring. Meanwhile, Zendesk is, according to the market today, a $1.7 billion business. What’s boring about that?
Mikkel: I think when we started Zendesk, nobody cared a lot about the industry. Customer service was a [inaudible 00:01:58]. Our customer service was something you needed to have and not really something we enjoyed having. I think a lot of things have happened since then also because of Zendesk, but a lot of things are changed in the industry overall. Then, you know, it wasn’t a boring industry. Amongst the founders, we said that nobody picked up any girls and they helped us. That was very true. It’s not a very sexy industry. It is, in many ways, a very boring industry.
Andrew: What kind of companies used to buy Help Desk software?
Mikkel: Well, I think that it used to be something that was primarily available for large organizations. As soon as you were a small organization, you just couldn’t fathom or you couldn’t embrace the investment both in terms of setting up the software and running all the software, and all of these different things that will require to run and maintain traditional enterprise customer service software. The big systems used to be reserved for like the big enterprises.
It looked like old school enterprise software. It was these big green screens and a lot of 500 buttons. You could just feel the burden of the system on the customer service reps that had to navigate all of this stuff and nothing was really optimized for either them or the customer.
Andrew: I can see how that would be a boring industry, not just boring but it felt taxing to even look at it. We’ll talk about how you understood that market in a moment. First, let’s talk about a previous business. One called Caput. You graduated from business school and this is where you were going to set your mark. What was Caput? Am I pronouncing it right?
Mikkel: Yes. It was a terrible name but we thought it was really clever and funny in the beginning. We did white label community software. If you wanted like chat rooms or forums or something like that on your website, we could deliver the software. We built it on with J2EE, Java 2 Enterprise. There was WebBear, WebLogic, and Oracle. Databases now are all very complicated and expensive. It was a lot of fun for us and a fun stint. I have to say that in Latin, you have the “corpus” which is the body and the “capit” which is the head. That was the origin of the name. Of course, everybody said Caput. Ultimately, that’s the how the company went to.
Andrew: That’s what happened to it. I’m curious about why it happened. I know that it that happened at the time when the dot-com bubble burst. You got money, got funding, got excitement, generated the software at the time when people were on a high, when we are in a bubble, and then it went away when the bubble burst. Is it just a matter of outside environment or was there something else that played here that you took away as a lesson and you brought in to Zendesk?
Mikkel: Well, I think we were, in many ways, bootstrapped. We had almost taken no external funding. We financed the untagged [inaudible 00:05:21] through sale revenues and that’s what…
Andrew: Oh, I misunderstood that. The software is the only thing that funded the growth?
Mikkel: Yeah, exactly.
Andrew: Okay.
Mikkel: We had a little, of course, but very, very little from the outside. Of course, that’s a very tight line to operate a company on it. Unfortunately, it can drive you to make bad decisions because you constantly have to optimize for the creativity and for being able to pay the salaries of your employees. It wasn’t like a super healthy environment for a startup.
Andrew: Give me an example, something that I can take away and say, “Here is a lesson. Here is an example of what you took away from it.”
Mikkel: I think as soon you start having inquiries, as soon as you start having 20, 30, 40, 50 employees, you need to really think about having enough cash on the balance to not to ensure that you don’t make short-sighted decisions. Because the mental pressure of knowing that we have to pay all these salaries and then not being able to risk is like it makes you make the wrong decision. I think it’s one of these things. As soon as you start having a bunch of employees, you have to take the responsibility to watch those employees and to watch the picture very seriously.
Andrew: I see. You know what? One of the things that I did back then, I had a business in the late ’90s. I had employees, and when the market started to get a little bit tough, I ran pop-unders. Remember those? You’d come to my website and you’d see pop-unders, not pop-ups but the pop-under would meant that when you close the tab, then the pop-up would come forward. That’s the sacrifice that I meant for short-term liquidity. Did you do anything like that?
Mikkel: No. I think we’ve never done pop-unders. We did make wrong decisions that we only did customers with [inaudible 00:07:19] and projects we got involved in, how we invested our people and so on that we primarily did for the short-term liquidity rather than the kind of what was the right long-term mission for the company. That’s always a top spot to be in because we had no funding, we were very tight in terms of those decisions.
Andrew: One more thing about those days… David Heinemeier Hansson, you said in your book, “Startupland,” was one of the people who worked for you, who you had to let go of when times were tough. What was he like before he became the father of Ruby on Rails and Base Camp? What was he like back then?
Mikkel: He was just a young kid back then. I think it was obvious that he was a very talented, also a very opinionated young man.
Andrew: What kind of opinions did he spread back then? I know today he’s really big on don’t take funding and all kinds of other things?
Mikkel: He has opinions on a lot of things, building great software, and building teams and all these things. In a lot of instances, he has some very good points. I think it’s been very rewarding, and it’s been a pleasure to see him go on and become so successful.
Andrew: All right. You then went on and worked at a consulting company where you helped implement Help Desk technology. right?
Mikkel: Correct.
Andrew: Why do they need a consultant to implement Help Desk technology? I guess maybe I’m missing what life was, what the world was like back then. We’re not even talking about more than 10 years ago or more?
Mikkel: Yes, it’s 10 years ago. Well, there’s still a lot of that business going around. People are just implementing these tools, implementing workflow, implementing business processes to ensure that the actual processes fits into the rest of the organization, like implementing search level targets and all these different things that we need to run in the Call Center and the Help Desk.
Andrew: What’s the service level target that you help them implement, like last time on email?
Mikkel: For example, very basic things like that. There’s just a lot of how things are being handed off between departments. All the basic stuff just to support like a good customer service process and I think back then, more importantly, how people could measure on the ability to deliver on the promises.
Andrew: I see. When you looked at that software, do you remember comparing it to the web software that you were seeing getting developed and say, “What are we doing here?”
Mikkel: Yes. I think that was exactly the point that one of the motivators building sent us is that we were of a generation, where we look at things like 37signals, to mention David’s company again and other companies that had shown that software could be used, embraced, consumed, and discovered on a completely new and much more consumer-friendly premise.
Then having to deal with all these all school systems that took a week just to get up and running. There were four other systems that you had to maintain just to get the one up running and where like there was no investment and no focus on the user experience, and how everybody in the [inaudible 00:10:31] in those giant processes. I think we were just from a different generation. We saw an industry that was, in many ways, incredibly sad as if like simply by making the software better and focusing on the user experience like we can change that industry.
Andrew: I see. David’s blog post and the things that he was saying at the time actually had impact on you, too. I remember even actually David and Jason Fried, the founder of 37signals saying, “You don’t need. It’s okay if your software doesn’t work when the internet goes down.” When does the internet go down anymore? Stop thinking of software as a desktop-only application and think of it as something that works in the cloud. He had to convince people of that. Okay, you’re seeing this and… Sorry?
Mikkel: Yes, and that is the world we live in today.
Andrew: Yes, they were absolutely right. One of the phrases from your book that caught my attention was you said, “As you are working as a consultant, we’re on our 30s, time is running out. If we don’t do this now, we’ll end up as “butt cheek consultants.” I still don’t know what that means. What does it mean? What were you worried about?
Mikkel: Well, I think we at the point in time where the three of us, we’re three founders. When we got together and decided to build this, we’re all working as independent consultants, like Michael Morton worked on bank systems. Alex, my other co-founder worked on some various web projects. I did some business and IT process consultancy and the like. It’s a very tempting world in many ways because you can make good money and it’s relatively free of obligations. You just have to go in and deliver on a project and so on. If you’re smart, it’s a good way of making a living.
At the same time, there’s no pride about what you build. You just become one of many other consultants that could go in. You’re just a hired meat in many different ways. This “butt cheek consultant”, it’s a terminology that Morton was using. It comes from like some standard Danish topics that have these butt cheek patterns on it in the carpets…
Andrew: Curtains.
Mikkel: Curtains on it.
Andrew: Yes.
Mikkel: It’s just a way of describing something that is an extreme commodity. It’s a terrible analogy, but it sounds fantastic.
Andrew: I see. I just didn’t want to become ordinary and blend into the environment and not do anything that actually stood out and you were proud of.
Mikkel: I think especially the latter. Just building something that you’re proud of and having always that opportunity to iterate and improve and just takes things. As in your life, just to make sure that you do better every single day and I think that was the big part.
Andrew: You guys got together and you started building the software and it took you 18 months… six months you say in the book… of sketching out. Is that about right?
Mikkel: It was in that neighborhood. It felt like a very long time from when we started to talk about it to actually releasing the software. It took us quite a while.
Andrew: What were you spending your time on?
Mikkel: Well, it was a lot about specifying the software. It was a lot about designing the features. Of course, we also spent a lot of time on making money on other jobs.
Andrew: It wasn’t a continuous 18 months. When you had consulting work, you had to focus on the consultant work. When you had time for this, you focused on this. One of the things I’m curious about is you come from an environment where Help Desk is such a natural to you, that you understand the problems of it, you understand how it works, you understand how people use it and pass it from department to department. You also understand the bigger companies. What did you do to understand the smaller businesses that were more likely to be customers of Zendesk?
Mikkel: Well, in all fairness and to be frank, we didn’t focus on a certain customer size or segment or anything like that. We didn’t say, “Zendesk, let’s build that for small businesses.” We had a lot of our background from large enterprises. I think just in really distilling things in the business processes down and all the best practices and embedding them in how the tool works and optimizing it for the user experience. I feel that we democratized access and made it much more accessible to a much wider audience and early adopters of new technology are often smaller businesses or fast growing companies, or startups for that matter. That kind of defined our early customer base. We have today just as many enterprise customers as we do have smaller businesses. It’s definitely changed our business also over time, but we never focused on a certain industry or certain segment, or certain size of businesses.
Andrew: Then how did you know you wanted to make something that was simple, that was easier, that was smaller? How did you know that this would make sense to your users? How did you know that it wasn’t overly simplistic or still too complicated or too esoteric?
Mikkel: We had no idea. We just put it out there and started to get user feedback. I think that’s one of the great things about the Internet. We can put things out there. We can get people to start using it and you can get a lot of feedback and quickly change and adopt the different things that the customers give you in feedback.
Andrew: Mikkel, you didn’t do any customer research beforehand. You didn’t talk to them. You didn’t show it to them. That’s pretty interesting.
Mikkel: Yes, that is pretty interesting. We built it on our gut, and we built on what we think made a lot of sense. There’s no doubt that the early days of getting it out to customers was a lot about getting their feedback into the system. We learned a lot in the early days over a very short period.
Andrew: I’m looking at the another version of your site. It says, “Help Desk 2.0 tender loving customer care. No downloads, no install, no worries.”
Mikkel: That was another thing and also in our messaging and in our magazine that we went away from the traditional enterprise talk about optimize your business processes, return of investment, and go watch your customer ownership. All these different things and just talk about and address your ability to create at your relationship with your customers and really show some of the basic human emotions in interacting with your customers. That’s always been very important to us. We see the technology as something that should be invisible and shouldn’t take up that space between you and your customers. It should be a facilitator for building new relationships with your customers because that is what we want as consumers. We want people to talk to us as people.
Andrew: At the time as you’re building it up, how were your finances doing? As you were writing it, excuse me. In the first 18 months or so before you launched, how did you do financially? I know that you had lots of tough times.
Mikkel: We did terribly. I look back at that period as an almost romantic period because we had nothing. We had to go out and make a little money from time to time, and then go back and spend it all on coding and building. Even after we launched, it took us quite a while before we could raise some money. We had to go initially to our friends and families to raise money. I look at it as romantic. I look back at it in this romantic glow, but it was also a very tough period.
Andrew: What was the toughest time? Was there something that you couldn’t do because money was tight?
Mikkel: There’s a lot of things especially I started a new family back then and had small kids. It’s hard balancing that you want to cocoon your family. You want to give them a safe environment while at the same time you try to risk it all to follow your dreams. I think a lot of startup entrepreneurs know that feeling. It’s a tough balance.
Andrew: I remember one entrepreneur I interviewed said he went to the grocery store try to check out and couldn’t. There wasn’t enough money on his credit card and the humiliation of having to return some things back was really painful for him. Did you have any memories like that?
Mikkel: Well, yes.
Andrew: Come on, share them. Give me one.
Mikkel: No, but it’s definitely like you’re always on a very tight budget. You can’t tell your wife about these things and so on.
Andrew: You literally hid it from her and I think you’ve even said you lied about it.
Mikkel: Well, you just had to. As an entrepreneur, you can probably deal with a lot more uncertainty and ambiguity than you can as a non-entrepreneur and it’s hard to share like that. Definitely. It was better and safer for everybody to keep it to myself, but it was also fun in many ways. I remember all our initial AdWords budget was on my credit card.
Andrew: How much was the AdWords budget?
Mikkel: It’s nowhere near where it is today. Regardless, it’s like figuring out how to always make sure that we had a working credit card. It was an interesting challenge.
Andrew: You also said that The DECK was really powerful for you, the Ad Network?
Mikkel: Yes. That was a relatively new thing when we launched. We were in a position where we could experiment with some of these new ad networks. The DECK was a relatively new network at that point. Because we didn’t want to address the traditional gray customer service market, we wanted to talk more to people who just ran a business. We’re online. We’re like millennia’s new generation and thought about customers in a different way. We look for all these new ways where we could address them and reach them. The DECK was one of these things. It’s a very fun experience. In a few months, we had thousands and thousands of sign-ups all over the world and learned a lot from that.
Andrew: What did you learn from them? You did say you’ve got a lot of… it wasn’t just about that you had thousands of sign-ups… I’m looking at the book, but you received so much feedback. We discovered many new audiences. Let’s talk about the kind of feedback. How did it shape your product now that your real users were using your software?
Mikkel: Well, there was a lot of different learnings. One of the things that stood out to me and still stands out is that in the old world, the relationship between our business and the customers is a very well-defined relationship. Between the bank and its customers, it’s like they have an agreement. There’s an account number, all these different things, whereas you have a new generation of businesses where the relationship between being just a website visitor and a user of the service. Actually, being a customer to-be and a recurring customer is much more like floating grey [inaudible 00:22:06].
If you think about it, how you use the app [inaudible 00:22:07]. Sometimes, you just use this to explore. Sometimes, you use it to find and actually replace. Sometimes, you use it to show something to friends or rent out your own place. I put relationship between businesses and consumers because of the Internet and because of the new economy and all these different things. it’s very different.
Andrew: You’re saying that in the old world a user wouldn’t have thought to email the founder and say, “Hey, here’s some piece of feedback about your software.” In this new world, people were engaging with you. What do they say that helped shape your product?
Mikkel: I think that’s one element. I think also, you can’t just contact a company out of the blue and say, “I need these services from you. Can you can give me some help?” The first thing they will ask you, “What is your account number? Who are you? Are you one of our customers?” Whereas that’s a whole new generation of companies where it’s much more the lines between what is a user, what is a customer and much more blurred out. It’s all stakeholders that we need to serve. I think that changed a lot of some very basic initial things about how to think about the user concept between the business end.
Andrew: Can give me an example of a feature that was added or changed because of this new dynamic?
Mikkel: We actually made basic things in the software that previously, in the first iteration of the software, you had to be a registered customer of an organization to be able to receive support. If you reached out through the website through email or whatever, you would get rejected if you weren’t a recognized, already registered customer of the organization. We changed that. We set it up so that as soon as you reach out to a company, we create the whole customer record for you with all the information we have on you and start that record of your relationship with the company.
Andrew: I see. Yes, that really is completely different. Was that an easy change?
Mikkel: Exactly. Well, in many ways it wasn’t a big change. It was a fundamental change in how we thought about it. It sounds very trivial today. For us actually, mentally, it was a big change in how we thought about the software.
Andrew: What was the toughest change that you had to make because of this feedback?
Mikkel: I don’t know. I think some of the toughest things were around scale. Some of the early businesses had a few hundred customer service requests a day. A company that has a thousand customer services requests a day, that’s still a lot. At some point, we started to get these customers that suddenly had tens of thousands of customer requests a day. Keeping up with that scale while giving our customers freedom to run all these analytics and through all these smart things, was a little overwhelming.
One of very early customers was Twitter. I remember how they went on Oprah. From one day to the other, they just became a phenomenon. Suddenly, everybody in the world were using them and everybody was contacting them one way or the other. We learned a lot of about scaling on software, but that has also made us stronger. That made us a lot stronger going forward. Suddenly, we could deal with these very fast growing startups, these very large enterprises that had scaled at a complete different level.
Andrew: What about the different kinds of customers that you discovered because you started advertising, who surprised you? What kind of customers surprised you that they would need Help Desk?
Mikkel: The cool thing about Zendesk, we had customers from all over the world. We have customers in 150 countries. In the early days, we had this Korean web shop. We had these churches. We had all these different types of organizations all over the world that used Zendesk to provide very, very different kinds of customer service. That was really, really cool that we discovered that, although the world is very different in many different ways, there is a core that is very similar across industries, across regions, across the world, where people need to be receptive and need to be responsive and want to engage better with their customers.
Andrew: Your first client was an Irish company call Cubic Telecom.
Mikkel: Yes, exactly. They’re still around. They’re still a customer of ours. They do roaming-free sim cards and light technology for some of these newer things roaming across geos and across carriers. Just some really cool stuff.
Andrew: They just found you through those ads?
Mikkel: I have to say I can’t remember how they found us.
Andrew: Okay. After you’ve figured out those early ads, what was the next source of customers because you guys just got really big? What’s the next big source of customers? I was going to say users but for you, it’s all customers?
Mikkel: Yes. As an early startup, you just have to do everything. You have to find something that works for you and to do that you have 500 options. As a startup, you can’t just put all your money on a few of those options. You have to try it all. That’s why it’s such hard work and so much work. We focused on it, just kicking up dust in every possible way. One of the ways, of course, that everybody doing today is to build integrations through other great products out there. So you could make your CRM, then your contact management, and your sales force management. You automate it. You [inaudible 00:28:11], email marketing. All these different things work together with Zendesk. That gives them validation both to our products and to the private products. That was a big part of kind of around the stretch here on the product.
Andrew: I see because that when somebody uses one of those pieces of software, they also knew, “Hey, it integrates with Zendesk.” “What is Zendesk?” Well, if it’s that, we might as well be using it.”
Mikkel: Yes, for example. The main thing that fuels our growth and that continues to fuel our growth. That is so core to how we think about ourselves and how we think about our business is that we rely tremendously on giving our customers a great experience. By giving our customers a great experience, by making sure that they are successful with the product, by making sure they have really true value for themselves, we ensure that they go out and tell their friends about it. We make sure that they go out and tell other people about it. Turning our customers into promoters, into fans, into evangelists of our product it has been so essential for us and it continues to be so essential for us. Today, we get something like 70% of our leads through organic sources. Basically, mostly word of mouth.
Andrew: You said 70%?
Mikkel: Yes.
Andrew: I remember when I emailed Twitter years ago and they emailed back, it said Zendesk. I said, “Oh, this is the software they’re using.” That’s part of the viral growth of the business, right?
Mikkel: I think that Zendesk is relatively recognizable today. I think also we’ve set a standard for the market; a new standard for the market that is based on transparency and empowerment. Especially in the early days, we really, really stood out.
Andrew: The emails that would go back to your customers’ customers would be branded Zendesk or have Zendesk in the URL and so new potential customers were exposed to it.
Mikkel: Of course, that helps but we never forced our customers to use our branding. You didn’t have to use Zendesk anywhere. You didn’t have to use it in your URLs, in your emails, or anything like that but a lot of the customers loved doing that. Of course, if you would go somewhere and you get a great customer service experience, you’re like, “Whoa, this software, this experience was really good. How can I build the same experience for my customer?” That’s where we got a lot of our initial awareness around Zendesk. That was how the word of mouth began to spread.
Andrew: Here’s an interesting thing, too, that I found. Because people also host their help communities on Zendesk’s domain, it looks like Ting.Zendesk.com. Ting bought ads to their Ting.Zendesk.com URL because that’s where they have the unofficial guide to the MotoG on Ting. Some customers created it and they’re buying ads to it. Is it another form of promotion? Am I overestimating it?
Mikkel: Well, I think we make it very easy for our customers to white-label the software if they want to. They don’t have to use our branding and anything like that. Again a lot of our customers are proud of our Zendesk product and talk about their Zendesk and everything. I think that is a core part of the strategy. Whatever can help you create a realm, it’s also all the way out to the end users. It helps your brand value and ultimately helps you with organic word of mouth.
Andrew: We talked about some of the difficulties with bootstrapping. You eventually raised half a million dollars. How difficult was it for you to raise half a million dollars?
Mikkel: It’s a tremendous pain in the ass, to be serious, to be honest here. We were in Copenhagen. All the founders are Danish. Denmark doesn’t have a great tradition of venture funding or risk capital. It was really, really hard for us to raise money, also in the rest of Europe. Also again, this was 2008 and like the credit crunch, it definitely didn’t help us. We were very fortunate to raise some money from our friends and families. That’s a tough decision to make to go out and basically persuade your friends and families to invest in your company. You have to somehow balance that in many ways they’re going to lose their money. In our case, we were lucky, we were successful and it turned out to be a really good investment for them. In most cases, investing in friends’ and families’ businesses is a bad idea.
Andrew: Yes. You don’t recommend it.
Mikkel: No.
Andrew: No.
Mikkel: If you can afford to lose the money, I think that’s fine. If you have a strategy of where you say, “I’m going to spend so and so much money on investments every year and I can afford to lose that money,” I think it’s a great thing to do. That really keeps the wheels running. A lot of good can come out of that. If you are just an average Joe, you know, you have your family. You have your job and all these different things. You basically are not in a position to be able to lose money on stupid stuff. You should never invest in friends or family’s businesses.
Andrew: Do you feel that you had to give up too much, do you feel in retrospect because you were in Europe and not here in San Francisco?
Mikkel: What do you mean given up?
Andrew: Too much, too big of a portion of your business.
Mikkel: Oh, equity-wise?
Andrew: Yes.
Mikkel: No, I never thought about those things.
Andrew: That is in volume.
Mikkel: No, no. I think that what really matters is that you can always negotiate these things and back and forth and you can spend eternal cycles on that. What really matters is that you focus on just making the business a lot bigger.
Andrew: Christoph Janz was your investor?
Mikkel: Yes. He was an angel investor who contacted us first when we got a little blue, right around the point where we did the family and friends run.
Andrew: You say that in addition to helping with funding, he also helped you guys rethink your business. He did lots of Excel work at that stage. He helped with the business plan. What was his way of thinking that was new that we could learn from?
Mikkel: Well, I think that he just helped us kind of structure our thinking and how we thought about our metrics and how we thought about our business. He just helped us structure all of that in a way that he knew that people like himself would appreciate, so invest on people. People who thought about like scaling a company and so on, like he put the company down onto a formula and helped us frame and work our business in a way that makes sense in a formula. And that wasn’t something that…
Andrew: What is that formula? What does it look like? I really want to understand the shape that he gave it to you, that he gave your business.
Mikkel: Well, it was a journey. It’s not like anything like this template and then…
Andrew: Right.
Mikkel: …then we go for that. But it’s about thinking about like the funnel model, for example. Nowadays, the funnel model is an acknowledged business practice like you get visitors to your website. You convert them into some kind of use or a trial or something like that and after a while, you convert them into a customer. And then you upgrade them and you maintain them, blah, blah, blah. Or you have all these funnel metrics. Like back then, funnel metrics is still very, very new. And I like trying to understand, like conversion rates and all these different things but still it wasn’t a proven business model back then.
Andrew: Interesting.
Mikkel: Starting to help like, for us in the early days, it was very hard for us to understand that we had a certain amount of customers and we had them one month because they were paying us on a monthly basis. What kept them also being customers the next month and the month after that, and so on? How could we grow them in? We didn’t have formulas. We didn’t have ways to think about custom acquisition costs to lifetime value and all of these different things that are so standard terminology today to assess businesses. He helped us shape a lot of that initially.
Andrew: Let me break that down. What did that original funnel look like? What brought people to your site in the early days? What got them to sign up to … I see you’re smiling as we’re saying it. Who got them to sign up to a trial and then how did you convince people to buy? What was the three stages of that funnel? What did they look like back then?
Mikkel: Well, I think in the early days, things were relatively simple. Nowadays, our funnel is very complicated also because it’s so big and we have so many things going on. But I think in the early days, like we could probably convert something like 4% of all the website businesses we had. We could convert them into some kind of a trial where we get them to use the product in some kind of way. Like one out of every four who actually tried the product, we converted into a customer.
Andrew: And how did you get people to their site? Was it still buying traffic at the time or did you start doing content marketing?
Mikkel: It was always with the focus on the organic sources, like content marketing, like we wrote a blog. There’s a few years before we even knew the term, content marketing. We wrote a blog and we tried to have some interesting things there, and it didn’t become a discipline until many years later. But, being relevant, talking to customers in a relative way, giving them a great experience, doing a lot of things with partners and events and being visible in the market and getting customers to recommend us and so on was, of course, a big part of it and that fueled the top of our funnel and it still does.
Andrew: Events are tough to do because they’re hard to measure the results of. You can bring back if you hire a writer. You can figure out how many new customers came from that article that a writer did and see if they’re paying for themselves. But with an event, where people just talk about you, it’s really hard. How do you justify that, or how do you add that to a spreadsheet?
Mikkel: Well, I think that especially as you grow, like events become more complicated to calculate like an ROI, or return of the investment. But I think that if we were to think about it, we were very, very bootstrap, very basic. What we typically did was that we joined just as a… We signed on the cheapest possible way to join a conference and a band or whatever, and then we hosted a bar meet-up. And basically what we did, we just went into our bar and we paid the tab.
Andrew: Right.
Mikkel: We spent maybe $500 in bills and stuff just to meet a bunch of people and make sure they all got some swag, a t-shirt, or whatever. It was just a way of showing everybody that we were there. We were present and we traveled a lot and we had some early good friends in the company that just helped us be super visible whenever something happened. There was always somebody from Zendesk, with a Zendesk t-shirt buying beers.
Andrew: What happened?
Mikkel: What you’d say?
Andrew: Where was it that someone had to buy beers?
Mikkel: We were always like, whenever there was a conference, whenever there was an event, we just made sure there was somebody from Zendesk, with a Zendesk t-shirt, buying people beers. That worked.
Andrew: That’s a really good way of getting to know people for very little money. You had to do that because you came from a bootstrap background. You’ve also said in your book that money is a thing that’s in your head. What do you mean by that? Yes, it exists in the real world, but also it exists in the head. What do you mean?
Mikkel: Well, I think that it’s definitely one of the things, especially in the early days and like what kind of risk profile can you live with when you build a company? Like how long can you go without money and what does it actually mean to have a salary versus not having a salary and so on. I think we just have to acknowledge and we had to acknowledge that as founders too that we came from different backgrounds and had different ideas about how much risk could be taken.
Andrew: [inaudible 00:41:03]
Mikkel: Yeah, exactly. That’s the same thing with the early release of a company. Depending on who they are, they can live with different kind of risk profiles. Like one of the very earliest people we had, Michael who still works for us and built up our APEC region, a lot about additional customer advocate organization and so on. Like for the first nine months, he worked for us without a salary. He said like, “If at one point you can pay me a salary, make it worth for me those nine months and I’m happy.” He could live with that risk profile. He could live with that.
Andrew: Why were you able to live with such a high risk tolerance? You had a family. You had obligations. You already were in your 30s. It’s not like you’re a guy right out of school who could live on Ramen noodles, though you did live on spaghetti. Why did you have such a high risk tolerance? What was it about you?
Mikkel: I don’t know why. I think it’s like when you feel excited about something, when you believe in it and like I’m excited about it and then also to some extent when you are in your 30s and you also know that you don’t have that many more shots left. It takes a while to build a company and even though seven years from your garage to the IPO, it’s a relative very short while. It’s not something you can do several times in a row. It is like we don’t have that many shots, so we really, really, wanted to succeed and we really believed in it. We saw early signs that we had a good chance.
There’s a lot of things you don’t know and a lot of things you have to figure out and time has to be your friend. Well, I don’t know what it is, but like it’s, you know, being an entrepreneur is like really balancing these extremes. Like on one side, you just have to be so dedicated and motivated and passionate about what you’re doing, and on the other side you also have to realize that there’s very little chance that you would succeed with this stuff. As an entrepreneur, you have to be able to deal with these two extremes and live with that. I don’t have a formula for that. You probably have to be a little bit crazy.
Andrew: I was looking for big setbacks. I always like to hear an entrepreneur’s big setbacks. I read the book and it seems like your biggest setback was when you raised prices and people were upset and then you grandfathered people in. I remember at the time, it seemed dramatic. But it wasn’t going to cost your company. I remember on Hacker and those people said, “Can you believe what Zendesk did?” I said, “Wait, business is supposed to raise prices.” I get it and you solved the problem by grandfathering people in and addressing it.
But beyond that, was there really a big crisis in the business? Otherwise, it seems like it was just an easy company. Yes, it took seven years. Yes, you had to tough it in the beginning, I mean, financially. But it seemed like there wasn’t a big setback. Was there?
Mikkel: I don’t know if we had big setbacks. I would say that everything about building a startup is a struggle. You have to learn every day and you have to be hyper motivated and you have to work really, really hard. When we moved from Copenhagen to San Francisco, we had zero networks. We really relied a lot on getting help from our investors and our board and we had to learn everything from scratch, like hiring and renting offices and all these processes, HR, lawyers, and all these things we knew nothing about. And we had to learn all of these things in such a short condensed timeframe. That’s incredibly hard, especially when you had to balance also. You had to have a life and you’ve got to take care of your wife and family. So that was a very hectic period for us.
Andrew: Was that the period when you said, “It’s too hectic, I’m going to give it up. We’ll go do something else. I’ll bring someone else in.”
Mikkel: No, but I was like, I remember that I had parts of my life when it was so stressful dealing with all these things while. You know, I had three young kids at that point and I had to find school and you don’t know anything about the American school system and you have to trust them. You have to get insurance and you have to understand how hospitals and doctors and dentists and all these things work. And my wife had to find some kind of meaning with everything and for her everything was new to her. The personal investment you do, the personal sacrifices you do, that’s a big bet that we made off and we made early and financially we would come out well, we’ve been successful. But it’s been a big tax to pay as a family.
Andrew: What did you miss?
Mikkel: What did I miss?
Andrew: Yes, I mean, what did you miss? Did you miss a child’s event, did you miss some part of being at home? Or did you just have to stretch yourself to do it all?
Mikkel: I think we’ve been lucky. We’ve been successful and I think in many ways, we can’t complain about anything because we’ve had success with our journey here. But it is a huge distraction to build a fast growing company and balancing, spending, investing in your wife and family while building a company is really, really complicated. And you never want to be in a situation where you have to choose one over the other. But you have to, unfortunately. Sometimes, you have to make that choice all the time.
Andrew: And it has to be towards the business in order to get to where you are?
Mikkel: Well, sometimes, yes.
Andrew: Is it inappropriate for me to ask you if you and your wife are still together?
Mikkel: Yes, that’s highly inappropriate.
Andrew: It is inappropriate?
Mikkel: <inaudible hesitation>Eb. Em.<inaudible>No, I think my point is more of that. It’s definitely like it’s that period even so… In my case, I have a family. For my co-founders, they had other things to deal with. Like, for example, my co-founder, Morgan, it was an incredibly stressful time right after we arrived in San Francisco. And like we saw scalability issues and we saw a lot of problems with scale that we had never done before.
I think for the first six months, he just worked all the time. He had no social life. He found a place to live, but lived on a mattress for like six months and being able to just take six months out of your life just to sit with your head in the service. And it’s also that’s in a city where you have no friends and no networ. That’s also a big sacrifice in it. We’ve tried these things.
Andrew: I felt that. I mean, frankly I didn’t hit nearly as big as you, but I remember sacrificing so much that I felt like all my friends had gone out dating, all my friends had had a chance to live, all my friends had gotten the chance to even pick someone up at a party. I never got to do that and I hated it.
Mikkel: Yes.
Andrew: Let’s get away from family for a moment. The other day you tweeted out that the book that you recommend that people read is “The First $20 Million Is Always The Hardest” by Paul Bronson. Why?
Mikkel: Yes, that’s true. I read that when I was relatively young and I thought it was such a fun book. What I’d really enjoyed about that book was that it really, really described well in a humorous way but still in a very honest way, some of the completely crazy things that happen in a small startup between the founders and the other staff. The dysfunction going on at that point, keeping the early team and the three founders and keeping everybody on the same page about what matters. And how you do stuff, and just like you’re so tight.
You almost know each other better than your families know you. You know everything about each other. And I remember like when I worked with my two co-founders out of Alex’s kitchen in Copenhagen. It was so intimate. We were in each other’s homes all the time. If somebody uses the restroom, it’s right out there. And you will think, “Oh, what they do to my restroom.” It gets so personal and so close to you and so intimate. And that whole period is crazy in many ways. And I thought he described that really, really well in his book.
Andrew: And it’s a novel. So he can say a lot of things that he wouldn’t be able to reveal if it was true.
Mikkel: Yes, true.
Andrew: From the year 2000, go figure.
Mikkel: Yes.
Andrew: All right, so you went through it all. You took your company public. You hit the dream that so many people in this city are frankly aspiring to. What’s the best part of having done it all?
Mikkel: I very much feel that we still have the best part ahead of us. We’re in such a fortunate position. We have so much legroom. We have so much wind in our backs. We are really well funded. We have a great team. And we had such a huge opportunity ahead of us that we really feel that we have this real opportunity to define a new generation of enterprise software companies.
An ideal leader in that space and I think that is just a tremendously interesting opportunity. And like really having a team behind that. They’re just truly motivated to go out and [inaudible 00:50:50] all the time. I think it’s really, really inspiring and so that’s also why I think we have the best time ahead of us, too.
Andrew: You really did. It really is inspiring. We’ve watched you for years. I’m so glad to see that you’ve written a book about your experience. Most people will wait until they’re like they’re 60 and talk about it. I’m so glad that you’re here talking about how you did it.
I should say this. That if there’s anyone out there in my audience who’s where you were years ago, maybe in San Francisco for the first time, don’t know anyone, you’re feeling alone and you’re here to build something big. You do know someone, you know me. I’m right here. Right on Mission Street, near the Ferry Building. Email me. Email someone on the team. They’ll find a way for you to come out here and have a drink so we can talk and see what you’re up.
Before I say thanks to you, Mikkel, for doing this interview, I want to say thanks to a couple of people who helped me put this interview together. The first is… we were introduced to you by Jodi Machet [SP], of… Jodi Machet, do you know her?
Mikkel: Jodi Machet?
Andrew: Machet, she probably works for a company that works for a company that knows you. But they made sure that they connected us to you and I want to thank them for it. I also want to thank Ben Nesvig and Andrea Schumann for doing research on you and giving me photos like the one of you in the Copenhagen loft that I’ve been looking at that’s really inspiring. Just a couple of you guys coding up in there. And I want to thank Ari for posting this interview on the site. Thank you so much for doing this.
Mikkel: No, thank you so much.
Andrew: All right, the company is Zendesk and the book, of course, “Startupland”, really great read. Thanks for putting it out there. Bye, everyone.
