Sand Hill Road. Infinite Loop. University Ave. There are a lot of iconic addresses in tech, most of them in Silicon Valley. But for his inspiration, Zapier cofounder Wade Foster looks to the 65203 — his hometown of Columbia, Missouri.
“One of my old bosses has a mortgage company, Veterans United, with 1,500 employees, and he’s never raised a dime. Profitable since the start, but no one ever talks about them because it’s a boring, old mortgage company in the Midwest right?”
If there’s such a thing as good Midwestern founder values, Foster has them. He’s no tech outsider, though; after all, he’s a graduate of Y Combinator, and Zapier’s very raison d’être is linking all the web apps the tech world can dream up. But he credits getting started in Missouri with his willingness to ask a simple question: Do we all have to follow the same fundraising playbook?
In Zapier’s case, the answer is no. The company is one of an elite group of startups, including Clearbit, CB Insights, Trello and a handful of others, that, to date, have raised only one institutional round of funding. He’s not making the case for bootstrapping — the $1.2 million Zapier raised in 2012 gave it much-needed room to grow — but for taking just the fuel you need to get where you’re going.
In this exclusive interview, Foster explains why thinking outside the Silicon Valley box positioned Zapier to build a uniquely customer- and employee-first culture. He walks through three key areas where most founders can be more capital efficient. And he explains why a conservative approach to fundraising may actually be the best way to keep your options open.
But First A Caveat
It bears stating from the outset that this type of lean fundraising isn’t for everyone. Any company that requires extensive physical resources — “a rocket manufacturer needs rocket fuel, for example”— will need a lot of capital up front. Startups operating exclusively in the enterprise space, too, may need more in the bank early on to accommodate its longer sales cycles and higher customer acquisition costs.
Traditional SMB software companies, on the other hand, usually exist in the sweet spot. “The margins are so good,” says Foster. “You can build a great product, sell it for a fair price, and pretty much start making money from day one.”
Still, many founders get caught up in the fundraising cycle, whether they have a clear need for cash or not. “There’s a lot of VC in the Bay Area, and the tech media spotlights companies that fundraise. A lot of reporters will tell you, ‘I don’t want your news unless it’s a funding round,’” says Foster. “That kind of mindset perpetuates the idea that success is contingent on fundraising. Of course, that’s not always the case.”
Moreover, Foster notes, there are plenty of counterexamples, demonstrating a variety of paths to success, but you may need to look beyond tech blog headlines to learn about them. “You see a lot more companies that are going at it for a long time with minimal funding or no funding at all. A lot of times these companies don’t get talked about as much. The media isn’t as drawn to those stories, so there’s less visibility into companies that do it that way.”
Trapped Against The Tropes
“Fundraising is a tool to get you where you need to go,” says Foster. Too often, though, he’s seen startups so caught up in the frenzy to fill their bank accounts that they raise funds against their own interests or intuition. When that happens, he can often attribute it to one (or both) of two archetypal players:
The Captivating Founder: Great founders need to be able to pitch a compelling vision — it’s a skill that serves them well as they get investors, employees, and customers to take a chance on improbable new ideas. Some founders, though, may be a little too good at selling their vision. “Sometimes it allows them to talk people into giving them money for an idea that’s not working so well. They’ve been at it for a couple of years, and it’s clear that the unit economics aren’t really working out very well. They go back out to raise again, but because they’re so good at delivering that vision or the promise of their potential. They get more money than may be deserved based on what the business has done so far. And as a result, they keep limping along for another 12 or 18 months.”
The By-the-Book Investor: Other times, faced with the daunting prospect of actually building a company, inexperienced founders are eager to get any guidance they can on their next steps. And since many of a startups’ earliest advisers come from the fundraising world, they’re likely to offer advice from one particular perspective. “Traditional VCs have a playbook that they run across their companies, and their business model works for them. Their goal is to place strategic bets in a handful of companies,” says Foster. Founders, though, aren’t managing a portfolio. They need to base their decisions on the specific needs of one company — theirs. Advice is crucial, and should be welcome, but think critically about the experiences and motivations behind it.
“I heard a great tip from someone who said whenever he’d get to a crossroads, an inflection point in the company, he’d try to get advice from somebody on both sides. He’d quietly write down the pros and cons of both, and then he’d put the paper aside and make the choice that felt right,” says Foster. “I like this because he treated each perspective as input, not wholesale options — and stepped away from all of them to make the final call. I’d rather go down doing it the way that I feel in my heart is the right way to do it. If I got convinced to do it some other person’s way, and it didn’t work out, I’d always wonder, ‘What if we’d done it my way?’”
The key is not letting headwinds or tailwinds determine where you sail, but how you sail. To inform how you’ll tack to hit your mark.
What’s paramount is ensuring that “my way” isn’t just the “default way” you’ve become accustomed to hearing. “So when you gather those pros and cons at forks in the road, heed who is sharing their pros and cons. In cases like fundraising, it may take time to find a representative of the ‘cons,’” says Foster. “So as much as you’re comfortable doing so, try moving to your periphery — outside your industry, zip code and stable of advisers — so that you really have to explain the fundamentals of the decision to someone who won’t just play back known points and counterpoints.”
That’s why Foster harkens back to his old boss at Veteran’s United, as well as a handful of other individuals — in and outside of the tech startup world — to give input that has led to more unconventional business decisions, starting with fundraising — and the outcomes have lead to equally unconventional results.
Spend Money Like It’s Your Own
Part of taking that kind of ownership of your company means deeply understanding your cash flow, and making every decision about those dollars a personal one. In that respect, the (relatively) open checkbooks of Silicon Valley may be a mixed blessing. Back in Columbia, new business owners spend money like it’s their own — because it probably is.
“You have to think, ‘All right, where is the money going to come from?’” said Foster. “And in our case, it came from our day jobs.” He and his cofounders, Bryan Helmig and Mike Knoop, worked nights and weekends on the project for months, coming home from work and cranking until 1am. “That forced us to have a lot of discipline in how we ran the company. We understood what money we had — and didn’t — from the very beginning.”
They didn’t have the luxury of aiming for perfection — they were just getting tasks done when and how they could. “Doing that for so long taught us that it’s possible. We can do this. It’s a bit insane, but it’s not impossible to not spend a ton of money.” There were tradeoffs, of course. It took longer to get the company off the ground, since hiring help was not an option. But after about six months, in 2012, Zapier went live, integrated with all of 34 apps.
When the team did ultimately elect to raise a round later that year, it was in many ways less about cash than cred. As a workflow automation tool, Zapier connects apps, and they needed to be able to talk to the startups behind those apps with authority.
“For us, YC was a way to get a stamp of approval, someone to say, ‘This company is worth paying attention to.’ That’s the calculus we made. It helped us get connected to other partnerships and open just enough doors to get things going a little faster,” says Foster. “But the introductions were more the primer than the capital. They allowed us to do just more of what we were already doing — not runway to figure out what to do. So if you do choose to raise, think of credibility as currency, too. Thought of in that way, if you do choose to raise capital, it may not have to be a lot. Maybe you want to hire one or two people, or get some marketing experiments running. Just a little bit of ‘kick’ can get key things going.”
And Save Money Like It’s For Someone Else
The best way to keep your options on the table — and to make funding decisions from a place of strategy, not desperation — is to run your startup as fiscally efficiently as possible. In Foster’s experience, there are three key areas where founders may be spending a lot more than they need to.
Fixed Assets: Office Space vs. Distributed Teams
After graduating from YC, the Zapier team finally had enough money, and demand, to start hiring. Perhaps fortuitously, though, they had no idea how to do it.
“We’d never done that before, and we didn’t really have a network here in the Bay Area,” says Foster. “So when we thought about who we would hire, we just thought of the smart people we’d worked with in the past, people who might be willing to take a bet on us. I had a buddy in Chicago who was running one of the biggest Cubs message boards online. I figured if he could handle unruly Cubs fans he could probably do support for us.”
Co-founder Mike Knoop had moved back to Missouri by then, and they hired another engineer in Columbia. That brought Zapier’s head count to five — in three cities. “That just sent us down the remote path, and we got good at it. It didn’t ever hinder our ability to ship things, to launch new features, to collaborate. So we thought, let’s just keep doing it this way because it’s working really well.”
Five years later? Zapier, somewhat famously, still has no office space. And it’s not that they’ve been successful despite their remote workforce. Foster actually attributes much of the company’s success to the efficiency this strategy has engendered. “A lot of early-stage founders, right as they come out of YC, the first thing they’re doing is raising money, hiring people, and getting an office space,” he says. “We never had to worry about how much square footage we could afford, or whether it could handle our projected growth rates.”
Of course, that’s a choice that won’t work for all — maybe even most — organizations. But either way, Foster advises founders to think about how their infrastructure is helping or hurting them, and where it could be streamlined to support leaner operations. Think you need a grand conference room to meet clients? A coffee shop might do the trick. “To this day, I do that, and no one thinks twice about it,” says Foster.
Building a remote team still requires an investment, though, of time and thoughtful culture building. As Zapier grew beyond its early hires — a group that was busy with families and local communities — it became increasingly important to establish a culture strong enough to unite the company’s far-flung employees. They created a buddy concept, for example, where employees are paired up weekly (founders, too!) for a video chat. A virtual coffee date.
Sometimes two people will get to talking about an idea that turns into a new app or product feature. Most of the time, though, buddy chats are simply about people connecting. (Recently, a funny snapshot spotted on one team member’s desk snowballed into an Inception-style, nested photo featuring a couple dozen team members from all around the country.) “Just because you’re remote doesn’t mean you can’t have some of that camaraderie.”
There are twice-yearly retreats, too. Since the inaugural gathering of seven people (“We all just showed up in Seattle, and that was that,” says Foster), they’ve evolved into properly planned events, with an agenda full of lightning talks, panels, and clear goals for what the team wants to cover. “People like to use the in-person time to do things that they can’t do otherwise, maybe talk a little bit about more pie-in-the-sky stuff. It’s only a week in person, though, so you’ve got to make sure to schedule that stuff or it might not happen.”
Onboarding is another essential process that had to be reinvented for Zapier’s nontraditional setup. And it’s another one that Foster finds they’ve actually improved on. “Think about a co-located office. When you join the company you walk in, get introduced to everybody, maybe meet the executive team for a lunch the first week,” he says. Enter Zapier’s “Airbnonboarding” concept, where a new hire or two join the three cofounders, often with a couple other team members, and work out of a Mountain View Airbnb for a week.
“It really helps build the relationship between us as founders and everyone on the team, because they come out here and for a week and we work in the same room. In the evenings, we hang out and take them out on the town,” he says. “They know we care about them and we want them to be successful. It makes it a lot less scary to interact with us — and everyone else on the team — in Slack.”
Clearly, the Zapier team are big fans of their distributed structure, and they’ve taken pains to make theirs a rich, complete workplace. But whatever your setup, Foster shares one note of caution: think twice before moving toward a hybrid local/distributed workforce. “The toughest scenario seems to be doing the split, because now you have these two cultures. You’ve got your in-office culture and now you’ve got these remote people. It creates a second-class citizen out of remote workers, because they aren’t hooked into the hub. ”
Moreover, do both and not only are you not conserving capital, you’re likely blowing through more of it. Zapier’s decision to invest in a distributed workforce isn’t free — making it work well means paying for all those Airbnbs, retreats, travel costs, and more. “Still, our CFO estimates, versus having an office in San Francisco, we’re saving around $2 million a year now,” says Foster.
Again, it’s not a choice that would work for every company. But if founders can make operational choices that save even a fraction of that each year, the pressure to raise might just let up.
Personnel: Hire vs. Automate
Determining when you need to hire — and when you don’t — is another key skill of the lean startup. Perhaps not surprisingly for a company all about making workflows more efficient, Zapier leans heavily toward automating whatever it can.
We’ve long had and honored this value: don’t be a robot, build a robot.
It’s a philosophy that’s played out most clearly and regularly in the company’s customer support operations. For starters, that’s an area of the company that every team member touches — Foster makes sure of it. “Everyone spends time in support,” he says. “One of the great things that’s come out of this is our engineers realize that there’s tooling that could help them be a lot faster at support. So they build those internal tools.”
Over time, support queries that once required a lot of digging or guesswork have been simplified to one-click processes. “A single person can now do probably twice what they could previously thanks to the tools that we’ve built,” says Foster. “Not only that, but the quality of support has improved dramatically. Whereas support personnel once had to guess why a customer’s account was wonky, now they can instantly tell them what’s up with help from real-time data logs.”
Providing better, faster help to customers is obviously top priority. Automation can also help do that by lightening the load that makes it to a human in the first place. “We get a lot of auto-responders — we’ll send out an email and someone is out of office or something like that. We recently looked into it, and 40% of the emails that come in are auto-responders, so it really fills up our support inbox,” says Foster.
Clearing out all that junk used to be a manual job, which, while effective, is about the most expensive way you could do it. Then the data scientists and infrastructure engineers stepped in. “They put this algorithm in place that can detect, with about 99% accuracy, whether a ticket needs a reply or not so we’re able to weed out all those auto-responders.” The result? A supercharged support team that suddenly has that much more time for real tickets.
Of course, eliminating 40% of your support inbox is a pretty clear-cut case for automation. Other times, it won’t be worth your engineers’ time to tackle a project. So where’s the line? “There’s a really good XKCD comic about this. Several of our engineers have it sitting next to their machines,” says Foster. “It talks about how you know when to automate things. How often do you do the task? You just have to do an opportunity cost analysis.”
Streamlining your operations is only part of the equation. Even after you automate what you can, hiring will remain essential to scaling a business. It’s another area where Foster urges fellow founders to make thoughtful choices. Done too liberally, it can quickly add a lot to a fledgling company’s bottom line.
“Generally when we decide to hire it’s for one of two reasons,” says Foster. “One, we’re overworked in some way and we can’t solve it otherwise. That’s most common in areas like support that are demand driven. Two, we’re looking to make product investments and don’t have the staff for all the initiatives on the table.”
Zapier’s team has grown slowly and deliberately to under 100 people in five years, and Foster notes that they generally only hire when they’re feeling a pinch. “We’re always going to expose the work that needs to get done and the opportunities that exist. We’re never going to say, ‘I think Janice is getting a little overworked, so I’m going to hide some work from her.’” The goal, supported by weekly one-on-ones and a culture of open communication, is to allow hiring needs to become so obvious that there’s no choice but to tackle them.
“We want to avoid a situation where managers are hoarding tasks because they don’t want their teams to feel burdened by them,” says Foster. “That’s not helping anyone. You think you’re doing as much as you possibly could and that may not necessarily be true.” When key opportunities are known, though, and they’re still being put off month after month? Everyone can agree it’s time to post a job description.
Perhaps because roles are only created once they are mission critical, Zapier’s hiring process prioritizes one simple factor: skill. “We tend to not care as much about credentials or resumes or cover letters. I couldn’t tell you where most of our people went to school, for example, and quite frankly I don’t really care,” says Foster.
Of course, it’s a lot easier to determine alma mater than design chops or coding proficiency. So here, too, Zapier has invested on the front end to design a process that cuts through the noise. It begins with an application form that vets for certain key skills; those responses then go to a hiring panel that scores them against a role-specific rubric. Interviews, too, are heavy on skills tests — and not just hypothetical exercises.
“These aren’t whiteboard tests. Engineers, for example, work on an actual engineering problem that you might encounter in the wild. They code on it together with one of our other devs,” says Foster. “We try to vet people against the actual skills they’ll be doing on the job rather than some sort of hypothetical scenario or code trick questions.”
Once you automate your way out of mundane tasks and hire for the roles that only humans can fill, a gray area will inevitably remain. “We’d love to semi-formalize a way to manage that,” says Foster. “Create an internal auditing team that serves the whole org, going around and looking for tasks that people are spending time on every week that we might cut out.” He’s not there yet, and don’t worry if you’re not either. Just thinking in these terms can go a long way toward establishing a culture of conservation.
Customer Development: Sales vs. Dev Platform
When Zapier was founded in 2012, its process was simple: the team identified popular apps — the Google apps, Salesforce, MailChimp, Facebook, etc. — found their public APIs, and got them up and running. Quickly, as the company became more popular, they started fielding thousands of requests to add new apps.
Then they started hearing from potential partners themselves. “We’d hear ‘How can we get on Zapier?’ That phrasing made it sound like people might be willing to put some effort in,” says Foster. Realizing that they could never build integrations for every app out there, the Zapier team did a little digging to see if companies would be open to investing a little engineering time of their own. A lot of them said yes, and the Zapier Developer Platform was born.
It’s been a resounding success — there are now nearly 800 apps on Zapier — and Foster attributes that to his company’s strategic positioning. “SaaS companies don’t want to be in the business of integration; they want to be in the business of CRM or email marketing or customer success or what have you,” he says. “When it comes to integration, they’re thinking, ‘What are the one or two I can build that are really strategic.’ Zapier is just a really easy way to just get that breadth right out of the gate. It’s an easy way to go from telling their customers ‘no’ to saying ‘yes.’”
Not every product lends itself to a developer platform, but every product can benefit from building for an engaged community of users and would-be users. “Tap into communities that already exist in some way and be a relevant participant for those folks,” says Foster. If you’re building a recruiting app, for example, work hard to engage with people who are already providing recruiting best practices. “Try to get into those areas that will get customers coming to your inbound funnel so you don’t have to be dialing-for-dollars all day long. Because dialing-for-dollars is really expensive.”
The result is a sort of self-reinforcing, mutually beneficial ecosystem: Zapier continues to improve its platform to make it easier and faster for partners to use. And developers, for their part, continue to release integrations that build Zapier’s value and expand its potential reach. “Each of those 800 apps is a user base that we can tap into. With our partners, we work hard to make sure there’s a landing page for each integration, with the necessary docs and directories.” Between co-promotion of new integrations and search traffic to each of those landing pages, Zapier derives nearly all of its sales from inbound traffic.
In fact, the company has never had a sales team. Instead of spending time and money getting customers, they can devote their time to serving customers. “We’ve tried really hard to make the UX super, super easy so that people can self-serve, for example. We wanted to serve small businesses so we knew we had to keep the price point low.”
Because at the end of the day, Zapier answers, almost exclusively, to its customers. “The only thing we need to care about is making our customers happy. That’s who we want to solve problems for. We don’t have to worry about investors or stakeholders or things like that. We have a few of them, but not so many that it’s deafening,” says Foster.
Raise a Company, Not Just Another Round
Being sparing with fundraising and operating leanly doesn’t mean creating some sort of Dickensian workplace. On the contrary, in Foster’s experience it’s about giving yourself the freedom to — and keeping the discipline of — trying creative ideas that not only enable, but also preserve the ability to have a wider range of choices down the line. Being one-and-done with fundraising isn’t suited for every business model, but it’s an option that many could consider, but don’t. Seek input outside of the mutually reinforcing founder and investor stereotypes to determine if it’s a possibility. If you raise money, spend it like it’s your own and save money like it’s for someone else. Rein in early startup expenditure on fixed assets, personnel and customer development to stave off the hunger pains for future financing.
“We have nearly four profitable years behind us. It’s not only a point of pride, but a release. We feel like we determine our runway, versus build on borrowed time. That goes a long way in helping us follow our instincts at Zapier,” says Foster. “That may mean spending six figures to get everyone together to Texas for a retreat or pouring all our energy into building a feature the way we see fit. There are early choices that make this type of agency possible for startups, but you’ll have to consider key milestones differently, starting with fundraising. This isn’t the ‘disruption’ one normally thinks about when it comes to entrepreneurship, but it should be.”
Photography by Bonnie Rae Mills.