The Building of the Next Great Enterprise Software Company

By Tien Tzuo November 9, 2010

by Tien Tzuo

 

This morning brought yet another milestone for Zuora as we announced our Series C round of funding. The $20 million we received from Redpoint Ventures and our existing investors means we can exponentially accelerate our business plan—from defining the subscription economy and delivering a steady stream of innovations to enable it, to building a fast-growing worldwide customer base spanning company sizes and industry sectors, to achieving a rate of financial growth rivaling the best companies in the SaaS space.

 

In fact, the remarkable progress Zuora has made during our fast start makes it hard to believe that only three years ago, the company was little more than a concept. The story begins in 2007, when I was working as chief strategy officer at Salesforce.com, the pioneering SaaS company I’d helped Marc Benioff build from zero to nearly a billion dollars in revenue. A chance meeting I had with my co-founders from WebEx led to a conversation on what we thought was the single most needed on-demand service for today’s businesses. The answer we all came up with: subscription billing. By the end of that year, I’d joined forces with K.V. Rao, Zuora’s chief strategist, and CTO Cheng Zou, who had built the subscription billing system at WebEx, to make the vision a reality.

 

Proving the concept
By early 2008, our work showed enough promise to attract $6.5 million in Series A funding from Benchmark Capital and salesforce.com founder Marc Benioff. Our operating premise was as simple as it was powerful: more and more companies are adopting subscription revenue models, from SaaS and cloud providers to consumer companies like NetFlix, ZipCar, and Pandora. The diverse billing models for this new breed of companies, as well as the increasingly complex billing models in established industries like publishing and telecommunications, have pushed legacy billing systems to the breaking point. By providing a simple, modular, and highly scalable offering to enable on-demand billing, we can remove this friction, save time and money, and enable growth and innovation for customers across a broad range of industries.

 

Our first product, Z-Billing, made a strong impression by giving subscription companies a way to quickly launch new products and customized pricing models without getting bogged down in back-end complexity. Within two months of the product’s May 2008 launch, we had won 17 customers; soon, industry pundits were calling us a company to watch.

 

Then came with our partnership with PayPal, whose president, Scott Thompson, joined our board in September 2008. Having played a vital role in the evolution of the online economy, the fact that PayPal would turn to us to automate its invoicing and billing processes represented a strong vote of confidence in our operational capabilities as well as the benefits we made possible.

 

Reaching critical mass
Our second round of venture funding came just over two years ago, with $15 million raised from Shasta Ventures and Tenaya Capital along with Benchmark Capital and Marc Benioff doubling down on their investments. By this time, our product development efforts were setting the standard for subscription billing:

 

  • Z-Payments provided subscription businesses with a complete PayPal-compatible payment solution.
  • Z-Force, a 100 percent native Force.com application, linked Z-Billing and Z-Payments with Salesforce CRM for a fully integrated lead-to-cash system with 360-degree visibility into all customer activity.
  • Z-Commerce, an open platform for developers to build custom subscription commerce solutions, and integrate Z-Billing and Z-Payments into their provisioning and metering interfaces.
  • Z-Store, a prepackaged store front that can be set up quickly and easily.

 

Only six months after the launch of our first product launch, more than 45 customers had signed on with Zuora. Small and mid-sized companies such as Marketo, Cloud9, and Coremetrics were joined by major enterprises including Sun Microsystems, Reed Publishing, and EMC as we expanded our reach—but we were only getting started.

 

2009 brought Zuora a steady drumbeat of new customer wins, new products and innovations, and industry accolades, as we achieved more than 300 percent growth. It was also the start of a our monthly product releases – something our cloud peers chuckled at given the industry standard is quarterly releases at best. With our 21st consecutive release coming later this month, our customers couldn’t be more pleased with our decision to put our foot on the innovation gas.

 

All that hard work led to huge results in 2010 as the business model started proving itself out, and we announced something historic – we had signed up more than $1 billion in contracted annual subscription revenue in a single quarter. This came at a time when analysts sized the whole market at $7.1B, suggesting Zuora had secured a commanding share. To top it off, we reported that we were cash flow positive in the quarter — the fastest that any SaaS company had reached that milestone to my knowledge.

 

Today, our customer base speaks to the breadth and depth that the subscription economy has spread throughout our lives. We work with Consumer Internet companies like Ning and SafetyWeb to implement their business model innovations. Media companies use our Z-Commerce for Media to drive their online content monetization strategies. Technology companies and service providers moving quickly to cloud computing use our Z-Commerce for the Cloud to meter, price and bill for their cloud services. We’re seeing a new wave of telecommunication companies, and wireless businesses services, all asking for a more nimble billing system that traditional solutions from companies like Amdocs. And finally, we continue to work with some of the best SaaS companies in the world, from Concur to Xactly to InsideView to LiveOffice and more.

 

The view from here
Zuora has come a long way since that first conversation at Salesforce.com. Still, even with our rapid growth and the dominant position we now enjoy, a little perspective is in order. As satisfying as it was earlier this year to have reached positive cash flow faster than any SaaS company to date, we were more focused on what that billion-dollar figure for the first quarter said about the subscription economy as a whole. While many companies across many markets have shifted to subscription billing, many more have yet to make the transition, but will soon be driven by consumer and business demand to do so. In that sense, the volumes we are seeing today represent the tip of the iceberg of the subscription economy, and the full potential of our own business. It’s humbling to consider—and it keeps us as inspired and committed today as we were that first afternoon three years ago.

 

It’s also been a great personal journey these last three years to build a company from scratch. There have certainly been ups and downs, and lessons learned, built on top of the decade I spent with Salesforce. In the upcoming months, I hope to find more time to share these lessons in this blog. Stay tuned for more.