Inventing an Engine for the Subscription Economy

By Jayne Scuncio December 18, 2017

Zuora CEO and Founder Tien Tzuo is the latest guest on the Fortt Knox Podcast: rich ideas, powerful people. Jon Fortt, co-anchor of CNBC’s Squawk Alley interviews Tzuo about founding the company, his experience at Salesforce and the future of the Subscription Economy.

Listen to the full interview here.

Summary:

We used to buy things. Remember that? Hard drives, hit singles, our favorite movies. But for now at least, the hot trend is subscriptions.

 

Instead of buying hard drives, we subscribe to cloud storage from Amazon, Google, Microsoft or Dropbox. For music there’s Spotify. For movies there’s Netflix. And it seems a new subscription service is born every minute.

 

They say that during a gold rush, the surest way to strike it rich is to sell picks and shovels. That’s what Tien Tzuo is doing in this new subscription economy. His company, Zuora, is the engine that powers the subscription process for companies like Box, SurveyMonkey and TripAdvisor.

 

I talked to Tien Tzuo about how he founded Zuora, and grew it into a company that’s raised nearly a quarter of a billion dollars and is pushing for more growth. He’s got some unique ideas about managing people, and stepping out on your own.

 

Full Interview Transcript:

 

Tien Tzuo:             What is the industry that’s going to be last to go into subscription? We always went to heavy industrial, like cement, big things. How do you subscribe to that? With Caterpillar, the question was, are you subscribing to a tractor? But we always said, “Hey, look, the goal is not to look at the product. The goal is to look at what you’re trying to do with the product.” So how do you move to a world where you can just simply pay based on the metric tons of earth moved?

Jon Fortt:              We used to buy things. Remember that? Hard drives, hit singles, our favorite movies. But, for now, at least, the hot trend is subscriptions. Instead of buying hard drives, we subscribe to cloud storage from Amazon, Google, Microsoft, or Dropbox. For music, there’s Spotify. For movies, there’s Netflix. It seems a new subscription service is born every minute. They say that during a gold rush the surest way to strike it rich is to sell picks and shovels. That’s what Tien Tzuo is doing in this new subscription economy. His company, Zuora, is the engine that powers the subscription process for companies like Box, SurveyMonkey, and TripAdvisor.

I’m Jon Fortt from CNBC, and you’re listening to the Fortt Knox podcast, rich ideas and powerful people. I do this weekly, bringing you the highest achievers. We’re going to learn how the very best climb to the top and pull out lessons along the way. If that sounds good to you, make this a habit. Apple’s podcast app is the most popular way to tune in, but Overcast, Stitcher, Google Play, there are lots of them. Mainly, just subscribe so we can keep this thing automatically.

I talked to Tien Tzuo about how he founded Zuora and grew it into a company that’s raised nearly a quarter of a billion dollars and is pushing for more growth, one of the fastest-growing software as a service companies out there. He’s got some unique ideas about managing people and stepping out on your own. Here’s Tien Tzuo.

Tien Tzuo:             The roots of the company really come from our previous experiences, me and my co-founder. I was at Salesforce.com. My co-founder was at WebEx. Most people think of salesforce.com, fairly well-known at this point, as a company that disrupted the software industry with a new way of delivering software. Instead of giving it to you in a CD, I’ll just deliver it to you over the internet. We’re all used to it today, but at the time it was a revolutionary concept. But what sometimes gets lost is that the alternative business model that Salesforce use, which is to say, “You don’t have to buy my software. Why don’t you just pay as you go? Pay every month. Pay based on how much you use, how many users.”

This is a very revolutionary concept. We call this a subscription-based business model today. In 2007, after being at Salesforce for nine years and being part of Marc’s team and running that, Marc Benioff, our question was, “Gosh, if we can use a subscription-based business model to disrupt our industry, could other companies do the same?” We looked at what Netflix was doing at the time, and this was before video streaming, so they were just sending out-

Jon Fortt:              That’s when they were shipping DVDs.

Tien Tzuo:             They were shipping DVDs. But they were just destroying Blockbuster. We looked at Zipcar at the time, which was fairly early. The idea that Zipcar was going to disrupt GM was a little far-fetched, but there was a visit to New York here where I had a series of meetings. I asked everybody, “Do you own a car?” Of course, New Yorkers live in Manhattan. They don’t own cars. But then the next question was, “Do you have a Zipcar membership?” 80% of them said they did, because it was so convenient to grab a car and go out to New Jersey, go do some shopping, whatever it is that they needed to do.

So we didn’t anticipate … Again, this is in 2007, before Uber. We didn’t anticipate Uber. That would be a little far-fetched, but we could see that the next iterations of these ideas were going to get better and better and this idea that you didn’t have to own cars was eventually going to become a reality. This is where we stepped back and said, gosh, there’s a broader shift, if you will, towards subscription services, a subscription economy, so to speak. We didn’t know if it was going to take two years, five years, or 20 years. But we just believe that this idea of selling a product was fundamentally a broken business model. When you look at technology, when you look at consumer preferences, when you look at the things that we were able to do at Salesforce by reinventing what we did as a service you subscribe to, those things were universal.

Jon Fortt:              Who are your big customers now?

Tien Tzuo:             Fast forward now, initially we had a whole block of software as a service companies, companies like Box, companies like Zendesk. But these days, the Wall Street Journal’s a customer, General Motors, Caterpillar, British Gas, Schneider Electric. The traditional industrial manufacturing companies have had over 100 years of shipping product. They’re all now moving into the subscription economy as well. So this is pretty exciting.

Jon Fortt:              Caterpillar?

Tien Tzuo:             Caterpillar.

Jon Fortt:              What do they need to use a subscription model for? How do they-

Tien Tzuo:             When we used to sit around and we used to talk about, “What is the industry that’s going to be last to go into subscription?” we always went to heavy industrial, like cement, big things. How do you subscribe to that? With Caterpillar, the question was, are you subscribing to a tractor? But we always said, “Hey, look, the goal is not to look at the product. The goal is to look at what you’re trying to do with the product.” So how do you move to a world where you can just simply pay based on metric tons of earth moved, and you don’t care about the infrastructure?

Well, it turns out that Caterpillar, along with probably every large manufacturing company, has been investing in this thing called IOT, internet of things. The way they tell the story is they have two million assets, tractors, engines. They showed us a picture of a truck that holds 200 vehicles. This is a-

Jon Fortt:              A truck that holds 200 vehicles.

Tien Tzuo:             200 vehicles. Again, this is like a mining truck. This truck is actually, it drives itself. It’s an autonomous vehicle that holds 200 cars. Now, it’s not driving down the New Jersey turnpike.

Jon Fortt:              I hope not.

Tien Tzuo:             It’s driving in a specialized condition, a specialized site. But they’ve been investing in IOT and they have two million of these assets and about, they said, a quarter of them, 500,000 of them, are already outfitted with sensors collecting data, sending it to the internet. They weren’t sure at first what they were going to with this. This is the same story with GE, same story of Schneider Electric. But they realized at some point, “Gosh, we can provided a service that our customers are trying to do much better with these intelligent devices than they could do themselves.”

But this new thing, these things that we’re offering, are services that people need to subscribe to. What are these services? There’s safety services where, look, we’ll outfit everybody on the construction site with an RFID tag that signals where they are and these big industrial equipment will know if a person is close by and it’ll shut down. These are predictive maintenance services where every hour, or every day that these machines go offline is really, really expensive. So rather than take two weeks after a machine breaks, you’re waiting for the parts, you’re waiting for the technician, we’ll know that, look, this machine is probably going to break in the next 90 days. Let’s take a two-hour downtime right now and plan it and service it.

All the way to they’re talking about … The technology’s all here today, so this is probably still months or quarters away, but let’s say you want to build a golf course and the land right now looks like this and you want it to be reshaped. Well, they’ll send out the aerial drones. They’ll do a 3D mapping of the entire site. They’ll download all the information into a bunch of CAD tools. They’ll send the instructions to semi-autonomous tractors that are doing precision excavation. You can just say, “Well, look. Tell me how much it’s going to cost,” and there’s a service that takes care of it all for you. This is where the world is going. It’s all happening. It’s all happening pretty fast.

Jon Fortt:              How many employees have you got? What can you tell me sales-wise how big you are?

Tien Tzuo:             Yeah. We’re still a private company, so we haven’t announced sales, but we did say we’re over $100 million of revenue. We’re about 850 employees right now.

Jon Fortt:              All right. That’s doubled in the past three years or so?

Tien Tzuo:             It’s at least doubled in the last three years, yeah.

Jon Fortt:              Yeah. Tell me about you.

Tien Tzuo:             Sure.

Jon Fortt:              How did you become an entrepreneur?

Tien Tzuo:             Well, I don’t know that I have this story of a lemonade stand when I was a kid. I actually grew up here in New York. I grew up in Brooklyn, right across the river. But my family always had an entrepreneurial spirit. I think it comes from being an immigrant family.

Jon Fortt:              You got here when you were three?

Tien Tzuo:             I came here when I was three years old. My parents came from Taiwan, so classic New York City immigrant family story. We were, call it middle class immigrants. But rather than getting a job in a big corporation, my dad used to just do his own thing. He opened up a few stores.

Jon Fortt:              What kind?

Tien Tzuo:             Sold some real estate. There’s always this entrepreneurial drive-

Jon Fortt:              What kind of stores?

Tien Tzuo:             … inside the company. I’ve always been attracted to-

Jon Fortt:              What kind of stores did your dad open up?

Tien Tzuo:             Gosh, what kind of store? It was a few. We had a stationery store on 18th Avenue there in Brooklyn, and they sold just knickknacks, toys, greeting cards back when they were popular. A classic story, me and my brother would have to get up early Saturday morning, Sunday morning at like 5 or 6 am and put together the Sunday paper. There’s the Sunday Daily News, the Sunday New York Times. They would ship it to you in all these different sections. Very much a family business where, as the kids, you got roped in as cheap labor to work on the family business.

Jon Fortt:              Your mom, was she an academic? Did I read that-

Tien Tzuo:             They were both academics. They both came here, they were psychology majors. But it was statistical-

Jon Fortt:              Must’ve been hard to get away with anything at home.

Tien Tzuo:             You do feel like you’re under a microscope at times, but they weren’t therapists. They were statistical psychologists. They were doing lots of tests in their post-doc program. In 1980, ’81, when Reagan came to power, he wound up shutting down a lot of the academic funding and their projects got axed. This is when they had to go back into the real world and get jobs.

Jon Fortt:              Okay.

Tien Tzuo:             At that point, yeah, my mother decided to go back to school. She got a computer science degree, and she-

Jon Fortt:              Why computer science?

Tien Tzuo:             I think there was a good job market back then in the ’80s for computer science. But back then, it wasn’t the personal computer days. She got a job working on mainframes for TWA, the airline at the time. So I did get to fly free on standby as a teenager, which was a lot of fun.

Jon Fortt:              That’s pretty cool. You also got to be kind of technically inclined by your late teenage years, right?

Tien Tzuo:             Yeah. Because my mother was taking some of these classes, which was back in Brooklyn College, I wound up taking some summer classes as well, because they just let me sit in on these classes. I found I liked it. I was probably on the borderline, but my first class was actually using punch cards and writing mainframe applications. Probably the only experience I had, this was a borderline, when a lot of that there was about to come to an end. But that was my one brief exposure to that first generation of computers.

Jon Fortt:              From there, tell me about college.

Tien Tzuo:             I went to Cornell, just a few hours upstate here. Look, you’re a teenager, you’re not sure what you want to do with your life, right? Parents still have a big, heavy influence. My dad said, “Look, just get an engineering degree. Electrical engineering is probably the easiest path to jobs in the future.” So I got an electrical engineering degree, but same thing, I found that I gravitated towards software. I wasn’t really a hardware guy. I like programming, and turns out I like building business applications, applications to help companies, small, large, whatever it is, automate, manage their workflow, collect the data they need to do, and do their work.

Jon Fortt:              Your parents didn’t micro-manage your youth, put a ton of pressure on you to do-

Tien Tzuo:             You know, it was a different generation back then. My parents were probably the opposite of the so-called tiger parents that you hear about these days. My youth was, after school, going to the streets of Brooklyn, stickball. We lived on a dead-end street, so all the kids would gather on our street and there’s no cell phones, no social media. My parents didn’t know where I was. As long as I got home in time for dinner, everything was fine. It was more of that stand by me type of youth.

Jon Fortt:              In a way, I draw a parallel between that and some of the culture of your company. You don’t feel like you want to be constantly keeping tabs on your employees and evaluating them.

Tien Tzuo:             When it comes to the company, we try to adopt very much a non-hierarchical structure. Apparently, org charts do exist somewhere in the company, but I try to ban them. I try to make sure the company … We don’t get caught up in hierarchical org charts. We have more of a-

Jon Fortt:              Because?

Tien Tzuo:             Well, it’s not the way that people want to work. People want to work for themselves. People want a sense of growth, people want a spirit of entrepreneurism inside the company. You got to trust the individuals in the job to know what it is they need to do, and you got to trust their decision making.

Jon Fortt:              How much of that comes from your own roots in Silicon Valley? Because interestingly, I cover Oracle and I’ve followed Salesforce and whatnot. I hear some of the same things from Oracle, as crazy as that might sound to outsiders, so about, yes, it’s a big, complicated organization, but it tries not to be too hierarchical in the influence that people at various levels can have. Did you notice things, good and bad, about the previous places you worked before starting [crosstalk 00:14:31]?

Tien Tzuo:             Well, I worked at Oracle. I worked there for six years here in New York. I would not say Oracle is not a hierarchical place. Every company has these cultural DNA. Oracle’s traditionally has been very much about internal competition. I think the CEO there sets things up in that way. That’s not a structure that works well for too many other companies. I think Oracle’s been able to make it work for themselves, but that’s not one I certainly would advocate.

Jon Fortt:              No fight club for you?

Tien Tzuo:             No fight clubs internally. There’s enough fights out there with competition and with trying to make it in the world.

Jon Fortt:              How is Salesforce different?

Tien Tzuo:             In many ways, because I was at Oracle and at Salesforce, we’re almost a third generation of this. One of the reasons … I interviewed with Salesforce when it was about six or seven folks. It was before we had offices, interviewed out of Marc’s house. There’s definitely a pull into that culture. There’s some commonality. A lot of us in the early stages did come out of Oracle. But Marc is not about internal competition, which is one of the things I liked. Marc is really about alignment. I would say Salesforce tries to retain the aggressiveness of Oracle in terms of growth, in terms of sales, but marry that really with more of an alignment collaborative culture is probably the best way I would characterize it.

Jon Fortt:              Then, Zuora after that is …

Tien Tzuo:             Well, one of the big things that we’re trying to do, and it’s not like Salesforce did not have a spirit of innovation. A lot of things that the software as a service industry now takes for granted were things that we created inside of Salesforce. But we are also trying to create something new. So if you simplify down the software industry over the last 10, 15 years, because of this cloud computing trend, it’s been really taking known concepts that existed before the cloud and moving into the cloud. Here’s a cloud-based version of PeopleSoft, here’s a cloud-based version of Ariba, here’s a cloud-based version of Oracle Financials.

We’re trying to do something different. What we’re trying to do is to say, “Look, gosh, there’s this new business model called subscription-based business models,” and it’s very, very different. In fact, we’ll go on record to say a lot of the concepts they try to teach you in business school are dated. They’re all dated in an era where the main goal of a company was to make as many products and sell as many units of a product as possible, and the world looks very, very different today. How Netflix runs, how Salesforce runs, how Amazon runs is just very, very different. Our view is the software products that people use today, these so-called ERP, or enterprise resource planning systems, that companies use to run themselves are based on an old era.

We’re trying to invent a whole new category of software for these modern businesses. There’s a certain amount of software innovation that we really need to do and business applications that we really need to do. There has to be a spirit of innovation. There has to be a spirit of reinvention that permeates every part of our organization. We have to assume that the playbooks of other companies might not work. You want to take the best ideas and experience, but you got to throw it out, take out a clean sheet of paper, and reinvent every step of the way. We try to embed that into our organization.

Jon Fortt:              You said that there’s this false idea out there that inspiration strikes, a great idea hits, and that’s most of the work. From there, you just chase the idea and become a gazillionaire. What is the real, more common model you’ve found for how people end up pursuing a brilliant idea that leads to success?

Tien Tzuo:             It’s iteration. It’s iteration over a concept over a long period of time. If you look at the movie Social Network and people say, “Gosh, that’s not really Mark Zuckerberg in the movie.” It’s true, but the essence of that movie was obsession and compulsion and how you create a great company from that.

People talk about the iPhone as this amazing invention. It certainly is, but there’s a video or a story, I think, of Steve Jobs, probably 15, 20 years before the iPhone where someone gives him a keyboard and says, “Can you sign this keyboard?” Classic Steve Jobs story, he takes the keyboard, he takes out his pen, and he hates this keyboard, and he basically pops off one of the function keys, like the F10 key, and says, “This key really shouldn’t belong on this keyboard. We don’t really need this key.” Then he proceeds to pop off the F9 key. In the meantime, the owner of the keyboard is staring in horror as Steve Jobs is demolishing his keyboard.

People love telling that story, but you could just tell that obsession with getting rid of the keyboard over a 20-year period is how you wind up with an iPhone. Because who else would’ve thought about that? It’s not like you woke up one day and the apple fell off the tree like Newton and you’re like, “You know what? We just need to get rid of the keyboard.” He obsessed about it and worked out all the details. Well, how is it going to work if it doesn’t have a keyboard? What do you have to do about that user interface? What do you have to do about the form factor? What are the implications of this?

That takes time. Iterating, it’s like swinging a golf club. You don’t hit the ball the first time. Anybody that swings a golf club the first time, you rarely hit the ball. By the tenth time, maybe you’re hitting the ball. By the hundredth time, maybe you’ve got some consistency. But you’ve got to do it like a million times before you start getting good at golf. It’s that iteration of working through an idea that’s really where the power lies.

Jon Fortt:              Is that how it works with the skills necessary for leadership too? What’s the golf ball that took you 100 tries to learn how to hit consistently?

Tien Tzuo:             How do you set up a cadence in learning is one of the key things. As a leader, I force myself to take out a blank sheet of paper and redefine my job several times a year. If I could do it every day, I would do it every day. That’d probably drive everybody crazy. It’d probably drive me crazy, so these days, I try to redefine my job about once a year. But-

Jon Fortt:              Redefine your job.

Tien Tzuo:             Yeah. I’ll give you a quick story. When we were about 150, 200 people-

Jon Fortt:              What is this, five years ago?

Tien Tzuo:             It’s about five years ago. I started hearing, and management started, a lot of noise in the organization in terms of, “Gosh, our culture is really suffering. Leadership doesn’t know what’s going on. The left hand doesn’t know what the right hand is doing. We don’t really have any values.” You dig into this thing and you do have values. It’s just like, well, everybody kind of agrees on what their values are. In fact, the values always boil down to the things that you all agreed upon.

So what I realized was that the company was scaling beyond the way I was leading, and it really required me to look in the mirror and realize the root of a lot of the issues in the company was myself. It’s really easy for everyone to externalize this and blame things that you see outside, but once you’re able to connect it back to, gosh, I guess this is really related to how I lead, that the journey back can start.

I did this thing eventually where I took out a clean sheet of paper and I said, “Look, I’m just doing too many things. Yesterday in the company, every project that I am personally involved in gets done. Today, every project I personally get involved in is a disaster.” So something happened. There’s just not enough time in the day for me to actually get involved with things. I’ve got to let go. I’ve got to let people do what they need to do. So I said, “Look, how do I reinvent my job so I’m doing the minimal set of things possible?” I made a list of everything I did and I tried to chop it off and chop it off, and my goal was to get it down to one thing. I got it down to about four.

Jon Fortt:              Do you know what the four were?

Tien Tzuo:             It was I had to be the lead evangelist. It was something that is hard for me to push off. I said I had to lead and align the organization through the top two layers of management. That was very specific. I said I didn’t want the word “manage” in there, so I had to find out how to get the organization to be self-managing, but I needed to lead and align. Those are the two things I really need to do, and I need to do this across the top two layers of management underneath me, my top two layers of managers.

Jon Fortt:              Sounds a little wonky. What’s the difference between leading and aligning versus managing?

Tien Tzuo:             I do not know what people are doing day-to-day. I’m not sitting down with them, understanding what they’re doing on a day-to-day basis, helping them through obstacles. I have to set a direction and I have to make sure everybody’s aligned to the direction, but I do not know how we get to that place. I’m there to help. I can be part of the team that helps, but the organization has to figure it out. Those are the two things. I think at the time we did not have a head of HR, so I had to be the chief people officer. That was something I immediately said, “Well, gosh, it’s time to go hire an HR leader.”

The fourth thing was, this is related to a software product. I was still the chief functional architect, is the words I used at the time. I was still trying to make sure how the product fits together. That was one of the things I had to make sure I removed myself from as well, so to really get it down. Now, I would say I’m down to two things. You never quite get it down to zero, but that mindset of trying to get it down to zero is where the forcing function that forces me to reinvent.

Jon Fortt:              You don’t know what people are doing day-to-day. You set a direction, make sure people are aligned along it. I guess you know when you’re supposed to hit certain checkpoints, though. It’s like if the runners in your team don’t show up at the checkpoint at the given time, you know that something went wrong.

Tien Tzuo:             I’m not a negligent leader.

Jon Fortt:              Right, right.

Tien Tzuo:             The big question is, how do you get a group of people all channeling the same direction? If you simplify it down, look, capitalism versus communism. You can get political like that, but command and control, centralized structures, ultimately break down. It’s just too big. The centralized control has no idea. So you need market forces guided by some kind of regulation that guides everybody in the same direction.

How do you create that for your organization? We actually have a structure that we said, “Look, what is the minimal set of things that if everybody agrees to these things and everybody understands these things, then we can work out all the issues that come up as you’re running a company on a day-to-day basis?” We had a mission that we all have a common vision, so we’re all seeing the same future. We all have a clear visualization of the future that we want to create. We call that our vision, and we have a word for it. There’s a phrase for it. We call it the world subscribed. We want to create a world that’s run by a subscription economy.

Then it gets harder. It probably took us a few days to just come up with that. Well, the mission is, what do you do on a day-to-day basis to get to that vision? It’s the most tight definition of mission that I’ve heard. Here’s a trick, you can only pick one thing. You have to do that thing over and over again. You have to define the mission in a way that you’re doing it over and over and over again, and this is where the iteration and the learning comes in. Again, this took like six months, and it sounds funny when I say it now because it sounds so obvious, but the mission is we have to help companies be successful in the subscription economy. That’s something that guides every single employee.

Then it’s like, okay, well gosh, what are the minimal set of systems, mental frameworks, if you will, that you need? The first is, well, how do we operate as an organization? The first step is, well, look, let’s just throw out the org charts or let’s just throw out the classic functions of a company, marketing, sales, and we say, “Look, we don’t want to think of it that way, because functions change, org charts change.”

So we broke down our company into what we call eight subsystems. The company is a system. There’s eight subsystems. There’s a part of the company that focuses on, how do we engage in the marketplace and generate pipeline, generate companies that want to engage with us? How do we acquire them as a customer? How do we deploy our software? How do we keep them happy as they’re using our software, they’re running subsystem? How do we expand? How do we build product? How do we manage our people? And then, how do we allocate our resources, our money? We call this [inaudible 00:28:01] PPM. We created this five or six years ago. Once everybody understands that, they can see it. They can see where they fit in the company.

The other thing is, because it transcends org charts, we can say, “Gosh, the part of the company that we really want to work on right now as a management team is, say, the deploy subsystem.” We don’t say, “Well, gosh, you’re the functional leader. That’s your problem.” No, this is all our problems. It turns out that the seeds of success in the deployment subsystem permeates all parts of the company. How you build the product affects it, what type of customers you go chase after, how you talk about yourself in the marketplace, the people that you hire. Everybody’s got to engage in how to really improve that part of the company.

This is how we think about ourselves, and we have a few other things. We have a whole formula of how we make customers successful that we call the nine keys. That’s a mental constant we had to create and train everybody on. But if you have all these tools in your head, then we go out and say, “Just figure it out.” These are the guiding principles that direct us all.

Jon Fortt:              What do you do with that really talented employee who’s just used to affirmation, to getting tons of feedback about, “Yeah, this is great. This is fantastic. Keep doing that”?

Tien Tzuo:             Is this the millennial conversation? Yeah. Well, there’s anything a fourth component of our mental model that says what we all need is feedback. This is a structure that this consultant, Derek Cabrera, actually introduced to us. But he described a restaurant. If you ever watched a movie like Ratatouille or you walk into the kitchen of a restaurant, it looks like mad chaos.

Jon Fortt:              It’s Jack Dorsey’s favorite movie, Ratatouille.

Tien Tzuo:             Ratatouille?

Jon Fortt:              Yep.

Tien Tzuo:             Yeah. Well, it’s either that or Kung Fu Panda. It feels like it’s mass chaos in the restaurant, but it all works. It all works because they have a common vision. We want to be the best Italian restaurant on the Upper East Side, whatever it happens to be. We have a mission, which is easy to define, where we serve food. We can test it. There’s a mission moment. When the customer takes that first bite, everything’s got to come together, the ambiance, the length of time they waited, the heat of the food, the taste. Everything’s got to come together, and you can test. Did we accomplish the mission or not? Where did we fall short?

But then you also need feedback. There’s a system. There’s all these stations, cutting station and I don’t know how it all works. But is there actually a system in place where you just need to understand your part of the system. Then there’s constant feedback, right? There’s constant feedback, and that feedback is really, really important. In a company setting, it all comes down to what are the metrics? What are the data that you give to people so they know? They know, am I on track or not? A lot of the setup of the system is to uncover those things so that people are armed with the data they need to know. So feedback is important.

People laugh about the millennials and how they want constant feedback, but look, they’re used to it. There’s a reason why you post something on Instagram you get a bunch of likes. This is how the system self-adjusts. This is how you know whether you’re on track or not. What I find is often what the millennials want is the natural state of things that perhaps us in the older generation just got used to not having.

Jon Fortt:              Your millennials in your company, they’ve latched onto that?

Tien Tzuo:             Probably half our company these days are millennials. It’s an unavoidable trend, right? But the question for us is, how do we give them access? I’m an angel investor sometimes, and I invest in this company. Interesting idea that says when you come out of a meeting everybody in the meeting gets a little text message or a Slack, a chat bot on Slack, that says, “Well, what’d you think of the meeting?” One to five stars, or one to five hearts or whatever it happens to be. Then, here’s a little text box to see what you thought of the meeting. The millennials love it. They come out of this meeting and they get all this information. This is what they want. Well, how do I know? How do I know how the meeting went?

Jon Fortt:              Really?

Tien Tzuo:             Yeah, when I post-

Jon Fortt:              Because I feel like it was a meeting.

Tien Tzuo:             Well, but they’re learning. These can be 22, 24 … You imagine, if you remember, your first job out of college. You’re just bumbling along. You don’t know whether you’re doing well or not.

Jon Fortt:              Absolutely not.

Tien Tzuo:             Eventually, someone sits down with you and maybe, if you’re lucky, gives you some feedback.

Jon Fortt:              Or a swift kick, yeah.

Tien Tzuo:             Or a swift kick, right? But wouldn’t you rather get that swift kick in a little summary about your meeting that says, “You know, look, six out of ten people thought it was a big waste of time.” Well, good. Now I know. Now I know and now I can course-correct. Now I can learn.

Jon Fortt:              Yeah. You Instagram the meeting.

Tien Tzuo:             You Instagram the meeting. That’s exactly right.

Jon Fortt:              That’s interesting. What’s the company called?

Tien Tzuo:             The company?

Jon Fortt:              Yeah.

Tien Tzuo:             The company’s called CareerLark.

Jon Fortt:              Okay. Huh. Where are we headed? If you look at the skills that young people are going to need to either succeed at your company, to create whatever type of company is going to be required over the next wave of disruption we’ve got coming down the road, what do you think that is?

Tien Tzuo:             Well, you read a lot of stuff about robots, artificial intelligence, and all that kind of stuff. Once you start clearing through the clutter, a lot of it comes down to the same place. Let’s avoid the Elon Musk and robots going to take over, Skynet thing. At the end of the day, these are all tools. With every successive introduction of a massive tool, people adapt. People adapt, and they learn how to use the tool. It’s no difference whether it’s a hammer, it’s a car, it’s a steam engine. The question is, if we are going to have all these smart devices as tools at our disposal, who are going to be able to master these tools? When software comes out, the programmer that’s able to master these tools are going to have a greater impact on the world.

So the question has to be, how can the new generation, and we can even go to Generation Z. The next generation’s where a lot of the stuff is going to hit. I’ve got an eight-year-old daughter, so I certainly think about this quite a bit. What are the tools that they need? What are the skills that they need to be able to use this new class of smart tools? So I just watch. I watch my daughter interact with the Amazon Echo. I watch how she interacts with smart toys. It’s all about combining different things, doing things, and taking these leaps that AI engines or bots are unable to do. There’s something about creativity. There’s something about thinking out of the box. There’s something about connecting people on a social basis that still winds up being really, really important that you leverage with the tools that you have.

Jon Fortt:              Yeah. I’ve got a six, almost seven-year-old and a nine-year-old too. We’re not terribly focused on technology at home, which is kind of weird because I’ve covered technology for a long time. Yes, they have screen time and whatnot, but I like books and Legos and hands-on time and just opportunities to make up a story and tell it.

Tien Tzuo:             Yeah. My daughter loves books. This summer we sent her to the Joffrey School here in summer camp because she loves musical theater, so something about self expression, something about connecting with other folks, something about creativity, something about storytelling. These things are still really, really important.

Jon Fortt:              Yeah. It’s going to take AI probably a while to create a Pixar movie.

Tien Tzuo:             That’s right.

Jon Fortt:              Right?

Tien Tzuo:             Or what’s going to happen is if AI starts creating good movies, humans will take it to the next level. Can we imagine what the next level is? Probably not yet, but we’ll know it when we see it.

Jon Fortt:              Because some really talented, smart people can create really mediocre movies.

Tien Tzuo:             That’s right.

Jon Fortt:              There’s something in the process and the way different people and ideas come together in blending it that makes something great. I don’t know if computers are going to be able to crunch a bunch of numbers and tell the difference between The Good Dinosaur and Ratatouille.

Tien Tzuo:             That’s right. That’s right. There’s still some spark.

Jon Fortt:              All right. Well, Tien, thanks.

Tien Tzuo:             Sure, absolutely. Enjoyed being here.

Jon Fortt:              My thanks to Tien Tzuo. I’m Jon Fortt from CNBC, and this has been Fortt Knox, rich ideas and powerful people.