SaaS Interviews with CEOs, Startups, Founders
1048 How Zendesk Figures Out Pricing and Product Strategy
07 Jun 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode.
Chapter 2: What is Zendesk's core business model?
Hello, everyone. My guest today is Matt Price. He's the Senior Vice President of Zendesk's product portfolio. Now, prior to this role, he served as SVP of Marketing and as Vice President and General Manager of Europe, Middle East, and Africa. Before joining Zendesk, he served as the Chief Marketing Officer at another technology company. Matt, are you ready to take us to the top?
I'm really excited to be here, Nathan. Yeah, let's go. Thanks for joining. So usually I have founders on, but you've been around Zendesk so long.
Chapter 3: How did Zendesk achieve early success without salespeople?
You've seen a lot of the story. When did Zendesk launch and what year did you join? Zendesk launched almost exactly 10 years ago and I joined six years ago. And in fact, I kind of like to characterize myself as a founder. I was the first hire in Europe. So part of that and helped set up the business, helped set up the business then. Fell in love with Zendesk and SaaS.
And so walk us through, obviously Zendesk does many things. In fact, I've had one entrepreneur on, I forget his name, but it was with Outbound and you guys acquired him. So we got some of the Zendesk story through those guys. But tell us what Zendesk does today and what's the core business model? How do you make money? Yeah, I mean, Zendesk is a customer service platform, quite simply. And
What made Zendesk so successful in the early days? I mean, Zendesk got its first 10,000 customers without any salespeople. And what they figured out was a way to actually take something that was
kind of simple that everybody needed, which was customer service, but cost hundreds of thousands of dollars and loads of consultants in order to get it up and running and make that super simple for any type of business to get up and running. And that's what we're still doing today.
We're trying to take complex things, make them very consumable, allow people to buy them from a subscription model, allow them to try it before they buy.
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Chapter 4: What factors influenced Zendesk's pricing strategy during its IPO phase?
So really classic SaaS. And I want to dive into pricing strategy, product positioning, that kind of stuff, because what you're focused on, but just real quick, some rapid fire stuff. Zendesk today, team size is what? Just over 200, sorry, just over 2000 employees. Okay, 2000. And mainly spread between which two cities or three or more?
Yeah, I mean, headquarters in San Francisco, but we have large offices in Melbourne, in Australia, Dublin. We have a big facility in Madison, Wisconsin as well. Okay, great. And then in terms of funding, total funding raised is what today? We raised $85 million pre-IPO, $100 million IPO, and then $200 million on secondary. Yep. So let's go back pre-IPO. Remind us again what IPO date was.
Oh, now you're saying it was May the 15th, what do we say, 2015. Okay, good. So pre-IPO, you would have been at the company about three years, I think, at that point, or four years. What was shaping product strategy, and how did you think about pricing? Yeah, it changed.
At that stage, we were really just starting our evolution from being a single product company to become a multi-product company.
Chapter 5: How does Zendesk determine its product positioning and pricing for larger businesses?
And so that was one dynamic in thinking about pricing. The other dynamic is that we were really starting to move up market for larger businesses at that point in time. Zendesk was for small businesses to begin with, but really started to acquire a lot larger business. We think of that as people have more than 100 seats. What we really started to think about
at that time was how do we put a pricing model that allows companies to pay for the value they're getting out of the software, allows them to scale really simply, and keeps complexity out of the business model. So a lot of these enterprise software vendors had super, super complex menus of purchasing options, and we just wanted to keep it very simple. So we stayed true. We had a per agent cost.
And, um, you know, you could have a plan type of, of just a simple plan or a more enterprise plan as well. And that's pretty much where we are today. We have a few variations on that, but it's where we are. Was it accidental that you ended up moving upstream? Was that intentional? You know, at the board meeting investors are going, we've got to charge more. Like we need margins to be higher.
We need less touch. No, it was never, it was never really a factor of, of, uh, you know, the commercial aspects. I mean, send this business really great.
Chapter 6: What role does customer feedback play in Zendesk's product development?
I mean, right from the day when the guys just put the first website out and the first customers bought, we were very much a product and demand driven company. And so we would look at early demand or early adoption patterns and then start to test, say, okay, is this where we can take things? And if we invest in these areas, you know, will it help? And what we found from enterprise software
was all of a sudden we're getting these large businesses who say, hey, we love the simplicity of what you do. We love that we can test them. But we found that we were finding buyers in customer service whose IT departments couldn't help them. And they could set up and run the things themselves rather than having to hire outside parties. And so we doubled down on it.
And that's what we try and do today. Even as we move more upmarket, we try and make our software such you don't need to spend hundreds of thousands of dollars on consulting, but you can deploy it very quickly. And that's where a lot of the enterprise traction is coming from. And now you have chat, support, guide, and talk as kind of your big beachheads, correct?
Those are the main products for the channels. And then, obviously, as you mentioned, we made recent acquisition on Outbound, which is a new product we're bringing into the portfolio. You're public. The price had to have been released, right? What did you guys pay for them? No, it hasn't been released, actually. Oh, it hasn't?
Chapter 7: How does Zendesk manage product cannibalization among its offerings?
Okay. No, no, no, no. But I mean, you know, but when we looked at them... it's interesting to think about how we do value these. They gave a really interesting strategic value because we see support moving from being not just a reactive thing, but a proactive thing where you can push messages out when you realize a customer might be having problems.
So taking what they built from a marketing perspective and applying that to proactive service was super interesting. And we love the talent that we acquired and the vision. And so for us, it was a It offered a lot of value on a number of vectors, and that's what we look for on acquisition. Are you talking right now to Front App for an acquisition? We are not. You're not. How do you decide?
As far as you're aware, that's a good answer. You can always plausible deniability if it happens tomorrow. You can say, Nathan, I had no idea. You're welcome to be in a public company. Exactly. In all seriousness, though, how do you decide? I mean, that space, I could point to 30 companies very similar to Outbound, very similar teams, very similar tech stack.
Chapter 8: What strategies does Zendesk use to identify new market opportunities?
How do you make decisions around where to focus your time? We have a reasonable understanding based upon what our customers are asking for and some of the market dynamics as to where things are moving. And then from that, really, it's just a case of, okay, you know, Should we build in order to, you know, based upon our own tech stack?
Or are there some people and some tech that's there that can really help to accelerate that and also enhance our knowledge of a particular domain? And that's, you know, that's what we found from the outbound guys. But, you know, there's some stuff we built ourselves. Our latest machine learning product, Answerbot, we built ourselves, and we have data scientists on staff.
Because a lot of the work on that is how does it integrate very, very smoothly into the other products that you've got. Walk me through pricing axes.
And what I mean by that is when Brian Halligan came on the show, he talked about a key driver of HubSpot's growth was to break from just a Cartesian plane where there were two things that you could upsell on, maybe seats and some feature and adding a third and a fourth and a fifth and a sixth. But you can't add too much complexity.
How do you make a decision whether to add something as a pricing based utility access or just let it be included for free? Yeah, I think it's a really good question.
I think that sometimes putting things in as free can actually add complexity to the customer if they're not going to want to use it and also makes them feel that they may be overpaying because they're getting things that they actually don't want to use. I mean, the traditional pricing model calls them killers.
I think McDonald's did testing, and that's why they add the fries, but they don't throw in the apple pie. Because they add apple pies into their suite and the sales of it went down, regardless if somebody was getting for free. So that's the first consideration. There's been a lot of work and a lot of studies on that. Then the question really is, how do you equate the pricing model to value?
And an example of that is AnswerBot. So, for example, this is an ML product that we bought that will actually solve customer questions for you. based upon looking at the question and then finding resources.
And we looked at that and the value to a customer of them not having to have that question go to a support agent, which tends to cost, you know, can toss tens, 15, tens, $20 is very, very high. So we decided to price that separately and we charge $1 per resolution on that as well. And it's very easy for the customer. Starting at the 50 bucks per month. Uh-huh. Yeah. Yeah.
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