Originally published on Forbes.
by Bruce Rogers, co-author of the recently published book Profitable Brilliance: How Professional Service Firms Become Thought Leaders.
A Series of Forbes Insights Profiles of Thought Leaders Changing the Business Landscape: Tien Tzuo, Co-Founder and CEO, Zuora
How does Dollar Shave Club go from start-up to $150 million in annual revenue and get scooped up for $1 billion by Unilever in only four years? Certainly part of the answer lies in the magic of recurring revenue from a subscription business model. Subscription-based purchasing models are transforming virtually every business category, from retail to industrial electronics and avionics. And the primary software powering this model is itself a subscription-based, SaaS platform from “unicorn” start-up, Zuora.
The company provides an end-to-end subscription management platform helping businesses in automating recurring billing and collections, configuring, pricing as well as quoting for recurring revenue businesses. (Forbes previously wrote about it here.)
It’s co-founding CEO, Tien Tzuo, famously coined the phrase “the subscription economy” to both contextualize the service he offers and to evangelize for a new category of business software that enables it. Today the Foster City, California-based Zuora is a juggernaut. The company has over 600 employees, an annual run rate north of $100 million and a gaudy $1 billion valuation based on $242 million in venture funding over 6 rounds from 17 Investors (most notably BlackRock, Wellington Management, Next World Capital, Northgate Capital, Vulcan Capital, Greylock Partners, Index Ventures, Redpoint, Shasta Ventures and Benchmark) plus additional undisclosed financing through the secondary market.
“What inspired us to start the company is that there’s a big shift in business models taking place, from a product centric view of business to a service people subscribe to. Whether you look at transportation – why buy a car if you can go from point A to point B just by pulling up one of these services on your phone, or walking to the closest Zipcar? Why buy movies and songs when you can get the whole library? We’re seeing that model really permeate all aspects of our lives,” says Tzuo.
Tzuo and his co-founders K.V. Rao and Cheng Zou, both formerly of Webex, founded Zuora to provide the software backbone to make it easy for businesses to adopt a subscription model and not have to worry about developing their own back-end system to manage an otherwise complicated finance and customer relationship process. In fact, Tzuo began working on the idea that would become Zuora to solve the problem when he was working at Salesforce (he was employee number 11).
“Our experience at Salesforce at that time was that when we looked at what kind of software we would need to run our company; the only choices were these traditional ERP systems. These systems were really good at shipping product. They help you source raw material, track the transformation of raw material to finished goods, store it in a warehouse, put it out in a truck, sell it through a store, whatever it happens to be. But we required something different. The closest thing was these telecom billing systems that would cost like $10 million, $20 million, $50 million,” says Tzuo.
“If every industry was going to go through this transformation, where you and I would simply subscribe to something versus buying something, and the leaders of all these industries were going to be services companies, not product companies, then a huge market will now exist that serves the purpose that SAP or Oracle served, but in a fundamentally different technology stack, if you will. And so that’s what we set out to do.”
While software companies shifting to a subscription model formed the basis of Zuora’s early customers, today Tzuo says they also have the likes of General Motors and Ford as customers. “They’re seeing the future of their areas as not selling cars. In ten years, they’re not going to be selling more cars than they are today. You can just feel it. It’s going to be a connected car world.” Even industrial companies like GE and Schneider Electric are developing subscription service businesses. “We take the complexity out,” says Tzuo.
While it seems like the “subscription economy” is all around us, Zuora’s road to leading that effort has been a long and steady drive.
“We’re a little over eight years old. And the first five or six years, we’d be out there evangelizing this thing called the “subscription economy”. We coined the term to create the vision and the expression of it. And the first couple years were met with a lot of skepticism. When we started, companies like Uber weren’t around, so we talked about Zipcar. We talked about Netflix, but it was still a DVD company at the time. But is Blockbuster really going to go away? Are people going to stop renting or buying DVDs? And this whole idea that you can just sign up for a library of movies-every movie in the world ever produced for $10.00 a month, just didn’t exist.”
Eventually, Zuora became the inevitable beneficiary of an inexorable trend.
“Now it’s just been an explosion. So that’s really what we’re focused on now–how to keep up with the demand and to make sure we’ve got the capacity.”
Tzuo grew up in Brooklyn, New York. “I went to P.S. 152,” says Tzuo. His parents were Psychology professors at Brooklyn College. He stumbled onto his love of computers when his parents bought him a Commodore 64 and learned some early versions of Visual basic programming. He then graduated to an IBM PC and discovered he liked designing and building business apps. “I wound up really liking dBASE at the time,” says Tzuo.
In his late teens he built an app for his dad’s insurance broker. He would then build other apps for pocket money along the way. He went on to study electrical engineering at Cornell and after graduation he moved on to the “dBase big leagues” as he referred to it, when he took a job at Oracle working in Manhattan. There he went from a consultant building databases and made the jump into sales.
“You had to teach the customer how to use database and tools to build the things they wanted to do. So the skill set I had of consulting was very helpful in that sales context. I was probably one of the youngest salespeople at the time. I was 24, 25. It gave me a platform to engage at a fairly high level inside my customers and help them work through these business decisions. I don’t think I appreciated the value of that at the time. But it was definitely a great place to train how to do sales.”
He would spend time at Oracle headquarters in Redwood City, California for training and customer visits and that’s where he met Marc Benioff in 1994. “Benioff was the only person at Oracle that understood the internet. Nobody else did. Marc was the only person, alongside of Larry (Oracle founder and CEO Larry Ellison), that can actually present – Larry basically presented Marc’s slides. But I saw the allure of Silicon Valley. So I wound up considering either transferring or going to Stanford,” says Tzuo. He chose Stanford where he earned his MBA.
Tzuo considers himself part of the Oracle extended family. After graduating from Stanford, he went to CrossWorlds, which was founded by two people that spun out of Oracle. “I was there for about a year. But it was a classic enterprise software company back in ‘98/’99 that was not taking advantage of the internet. I wanted to go to an internet company that combines enterprise apps and internet. Don Clark at the Wall Street Journal had just published an article on what Benioff was up to. I went to the website and sent my resume to CoolJobs@Salesforce.com.
“I figured Marc didn’t remember me. But I got an email back. And next thing you know I’m at his house, meeting him. He’s interviewing me. Because there was no office at the time. So it was still pretty raw. Who knows if this is going to work out, but it’s got the internet, it’s got enterprise software And so I signed up. And that was the beginning of the nine-year journey with Salesforce.”
Tzuo began working on the billing project at Salesforce in 2001 that would eventually become the idea for Zuora, with Benioff encouraging and ultimately investing in the new venture.
What’s next for Zuora given its significant venture funding and investor expectations?
“It’s a really interesting time right now. Five, six years ago, you hear of a company of our size, and there’d be a lot of pressure to say, hey, is it time? Now, I think our investors are comfortable leaving the company private longer. You see the up and down turmoil in public markets. There’s proliferation of other private funding sources. We’re lucky that our early investors are not in a rush to see any liquidity on their investments.”
“We still feel like despite our size that this space is new. And there’s so much more work we need to do as the leaders of this space. And that’s what we want to focus on. So maybe 2017 would be a good time (for an IPO). But right now, we’re heads down, building the company,” concludes Tzuo.
For more information about the subscription economy, download our free guide: 9 Keys to Building Success in the Subscription Economy.