Scale Venture Partners

The Startup Tapes #009

Simple rules to take over the world

with Michelle Zatlyn (Cloudflare)

How does one go from friends & family using a prototype, to a global software behemoth used around the world by hundreds of millions of people? Michelle Zatlyn, co-founder of Cloudflare, shares the surprisingly simple principles that guided their growth: being global from day one, prioritizing ruthlessly even if it hurts the bottom line, and finding fans that will overlook your faults.

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Tim Anglade, Executive in Residence at Scale Venture Partners: But so it’s kind of crazy, ‘cause I remember being a CloudFlare user years ago, and eventually a customer, and always feeling like, oh, it’s a cool little startup, it’s a little technology, sure, and I used it. And now you’re this gigantic company, you’re in tons of countries, a ton of places, you’re doing everything from your startup sales to your big enterprise contracts, your government sales. You’re in tons of countries, and I feel like that’s something a lot of startups have to do as they grow, but very few are doing very, very well. So I was really interested in chatting with you about that process of scaling, but almost in the geographic sense of like how do you start from San Francisco, doing software stuff for yourself or for friends or for companies you know, small startups, I imagine, and how do you go at taking over the entire world, in a metaphorical sense. What was that process like?

Michelle Zatlyn, Co-founder at Clouflare: Well, the first thing is that we’ve been doing this for six years. So it was not an overnight evolution. And I think that that’s a really important perspective to keep in mind for other founders.

Tim: It feels really instantaneous, right?

Michelle: It does. It does, and everybody thinks around you, like you’ve been doing this forever, and there’s a process, right? And so, if you think about back to CloudFlare, is when we started we were really focused on both our free plan and our $20 a month plan. And so that really attracted a certain set of customers, and early on we grew very really quickly. It was anybody with a blog, a small business. People who were putting web content online. Almost like pro users who were really our market. And, again, that worked well. Two years of that. So we did that for two years. And then we introduced kind of a true small business plan, our business plan at $200 a month. And then we started to go into the enterprise which are much larger contracts. $100,000 a year, $1,000,000 a year. And that took us two years. And now, four years later, that business has become a very big business for us, and now there’s an evolution of how do you do government sales, right? Focus more on that.

Tim: Right. Let’s talk about the first part a little bit, because that, I think, is a very interesting phase. Everybody starts on those low-end plans, a lot of this straight-to-developers, straight-to-startup ensuring this kind of software developer tools and enterprise tooling. And is it true that that market is mostly startups, mostly San Francisco type of vibe? Or, back at 20, were you already seeing that kind of nation-wide or international adoption for your product?

Michelle: For us, we were very global from day one. So, from day one, because if you go to CloudFlare, CloudFlare, if you have internet property, we make sure it’s fast and safe around the world. And that’s a universal problem around the world. In fact, it’s almost a bigger problem internationally. And so, we had a lot of international success early on, on the self-serve plans. And which was great, and we were really excited about that. And we often get asked, “How do they find out about you?” Right? Like, “How do they find out about you?” And we were not spending a lot of money on marketing. Because again, early on you’re spending your time building the product. And it was much more organic growth early on. And so, how do they hear about us? I think we did some things to help amplify that. So, for example, we ran a lot on our corporate blog. But we don’t use it as a marketing angle. It’s much more technically what’s going on. And so, we often talk about why we chose a particular programming language, or hey, here’s a bug that our technical team had, and how we’re fixing it. And, it turns out that developers around the world are reading things like Hacker News or whatnot, and they discover this content, and they’re like, “Oh, my god, I need this service,” and they just end up signing up because it’s so easy.

Tim: It’s so effective, right? It was with that developer audience, that indirect marketing of saying, “Let’s look at the difficult choices that I am making “at the company, and if you respect that, “you might want to try my product.” And any kind of variance around that, yeah, that can work really well. And work globally very, very well, for sure. And you guys did an amazing job with all of that through the years. Well, so it’s interesting, there’s a bit of that notion sometimes, like things start in that $20 a month, in that range. They’re for startup, they’re for Silicon Valley, and a lot of the VCs I’ve talked to, they’ll look at those and they’ll be like, “It’s just a startup, we’ll have “the ability to grow past that.” And so you’re saying that sometimes you can find at that price point, selling something that is very, very technical, you can find international adoption very early on. But I assume that that must have created a lot of challenges, because you still rely on having datacenters, you rely on leniency, security, I’m sure on a lot of legal constraints, on different things. So, how do you guys manage that process, right? Like, okay, you’re a young company, you’re a few years old, you have a bunch of small customers at 20 bucks a month, and you’re already in so many different markets and you have to deal with so many different countries.

Michelle: So, our approach has always, that you have to ruthlessly prioritize. So, the list of things you need to do is always longer than the resources you have available to do them. And so, early on there were some things that we chose not to do. And I think because we chose not to do them it helped us succeed. So, yes, we were global from very early on, but we did not, and to this day we still don’t, although we should eventually, we only sell in US dollars. Because it’s simple. It’s simple. It’s like, this is what you’re signing up for. And so we didn’t do the work to say, “If you’re buying in France, here’s the Euro, “then if you’re buying around the world.” Now, I think that there’s a way to optimize that and going forward there are definitely optimizations that we can do and we’ll get a lift if we can start to sell in local currencies. But early on we said that we don’t have the resources to do that well, so it’s okay if we don’t do it. If someone really wants it they will sign up for it. And so, things like that. Some of the translations, localization, early on we did crowd sourcing, we basically used our community to help us translate the most important pieces. Now, today I would never do that. But when you’re small it’s okay because the risk is really low, and you’re just trying to go as fast as you possibly can, right?

Tim: In a sense is it also a way for you to say, “Oh, we’re going to do this thing that works for “most cases, and we’re going to see “where we’ll get traction, we’ll see who’s grabbing it, “we’ll see if Europe is okay, cool, “we’ve got everything, we’re going to go there,” and you can just kind of let the market come to you, I guess, in a sense.

Michelle: Yes, exactly. You just don’t want to over-complicate things early on, and, again, we had a long list of things to do, we were very focused on building the product and the service. And again, we wanted to have customers along the way and make sure we were delivering real value. And our general premise was, we don’t want to optimize now, we just kind of want to keep going and do things that are step change functions and we can go back and optimize later.

Tim: So what about, let’s say, Asia? That’s something that comes up quite a bit. And in my experience it requires maybe a bit of specific marketing, a bit of cultural adaptation, a bit of local force. Did you have that experience as well? How did you think about expanding towards other territories beyond the usual Western countries?

Michelle: So, for our usual self-serve product, no, it was just, this is what you get, right? And there were some other things where it was more support 24 hours a day, where we had people writing in because they were an Asia-based customer and they had questions at two in the morning California time. We had to make sure that we could respond to those. So it actually made us more build up internal teams to be able to service those markets. But on the self-serve side we didn’t really change the product or anything. Now, you’re right, now that we’ve gone into the enterprise it’s very different, because, you’re right, there are a lot more cultural differences and you need different marketing material. How you do business with markets is very different. And again, today we’re a much larger organization that can support those needs than we were early on. And so, our general sense was early on let’s build a product that’s really, really good. And again, we had to do certain things to service it, and now as we’ve gone into these markets we’ve built out the different functions internally to be able to do that.

Tim: So, in a way, it’s like you grab a lot of territory, but then there’s still spots. You’re not addressing the enterprising needs of that country, you’re not addressing this particular sub-market. And so, I imagine, your government is also something within the US that, maybe, as you grew and you were everywhere, like maybe Washington DC was still a little bit of a blind spot on the map and you had to do something different to recover that, right?

Michelle: You do, exactly, and so today we we’re just starting to do more sales in DC, and we think that’s a huge opportunity. Those can be really big business for large enterprise companies, but if you actually look at CloudFlare’s customer list, we do have a lot of .gov customers because we solve such a problem for them. We’ve solved such a need that they’ve found a way to use our service even though we’re not fully selling to the government yet. We’re not fully doing federal sales, and so as a founder and entrepreneur, I think what we’ve done is like, “Let’s go find “who has a problem that we’re really solving, “who will also jump through hoops to use it, “and then let’s find the rinse and repeat, “the repetitive scaling, and build up our “full federal sales program.” But not the cart before the horse. And I think that’s generally been our motto all along, and, again, it’s very uncomfortable, but if you can get that right as an entrepreneur and as a founder, it’s so powerful.

Tim: Right, that’s such great advice. Like, don’t try to, like, and make it into something where you have zero traction and zero people. But if you can take a little bit of traction and really invest and grab that market, that usually pays off so well.

Michelle: I agree. Momentum.

Tim: Yeah, absolutely. It makes a lot of sense. Thank you so much.

Michelle: Thank you, Tim.

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The Startup Tapes chronicle the highs & lows of building a startup, through candid, immersive interviews with founders, operators & advisors. Tim Anglade, an Executive-in-Residence at Scale Venture Partners and formerly with Realm, Apigee, and Cloudant leads the project with the goal to de-mystify the process through which startups emerge, grow & succeed. His unfiltered interviews transcribe the conversations we often hear in the boardroom, amongst our portfolio community and with entrepreneurs and partners we engage with every day.

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