Zoom Case Study

I was first introduced to Zoom in mid-2013. I was running a company in San Francisco, and for video calls, we used Skype, GoTo Meeting, Webex, etc. We hated them all.

One day, Dariusz, the head of our engineering team in Europe, sent me a Zoom link and said, “Hey, let’s try this.” I loved it and bought a subscription the next day. The domain was zoom.us, and since I’d been introduced to it by Dariusz, we called our new video platform “Zoomiusz.” And Zoomiusz was awesome. 

Today, Zoom is a household name (a verb, even!). Let’s look at the company’s history and the success patterns that other entrepreneurs can learn from. 

Zoom was founded by Eric Yuan, who several years earlier had experienced the frustration of attending college thousands of miles away from his girlfriend. He missed her. 

Eric finished his studies, came to the US, and landed a job with Webex, which was then acquired by Cisco. He did well there and ended up running the engineering group. Webex was the leading video conference platform at the time, and many large companies standardized on its use. Most individual users, however, hated WebEx—people used it because they had to, not because they wanted to.

Eric Yuan says, “Before I left Cisco, I spent a lot of time talking with Webex customers, and every time … after the meeting was over, I felt very, very embarrassed because I did not see a single happy customer, and I tried to understand, why is that?” By then, Webex was a mature product, doing very well in the marketplace, and Cisco wasn’t interested in plowing money into re-inventing an existing product. So Yuan decided to leave and try to build something better.

The video call sector was extremely crowded. Webex was the leader in the enterprise market, and Skype had the largest share of consumers. GoTo Meeting was very popular amongst small and medium-sized businesses, Apple had just released FaceTime, and Google was putting a lot of effort into the product that became Google Meet. BlueJeans had raised a lot of venture capital in order to own the high-end enterprise market, while private equity-backed Avaya was working hard to make their video conference platform part of the communications infrastructure at every company in the world.

In other words, absolutely no one looked at the video call market and thought there was an opportunity for yet another company in the crowded space—no one, apparently, except for Eric Yuan.

They launched the product, but Yuan didn’t want to spend a lot of money on customer acquisition. He knew that, in a crowded sector with a product that hadn’t yet proven Product-Market Fit, you can waste a lot of money on marketing and advertising.  Zoom had no dedicated marketing team at that point. They relied on word of mouth, and when a customer canceled their account, Yuan would email them personally, asking to interview them to find out why the product didn’t meet their needs.

He monitored Twitter, and if he saw anyone complain about a problem with Zoom, he’d contact them personally, even offering to write new code over a weekend to fix bugs customers had found.

Higher Education was a market that WebEx and the other players didn’t pay much attention to, so Eric decided that might be their beachhead market. The company entered into agreements with a range of higher-education institutions and got great traction. Graduating students then went out, got jobs, and introduced their new bosses to the Zoom experience. Today, ninety percent of US universities use Zoom.

By mid-2013, more than 1.2 million participants had joined over four hundred thousand meetings in 2,500 cities across the globe. As Zoom continued to grow their customer base, Eric Yuan made sure to stay close to customers, understand their needs, and add features based on customer conversations. Over the next couple of years, Zoom added breakout rooms, virtual backgrounds, automated meeting transcripts, support for different languages and webinars, and more.

Large companies were struggling with the trend toward “bring your own device” policies, as employees wanted to use their personal devices instead of being required to carry company-issued ones, so Zoom made sure they could provide a seamless and secure experience across a wide range of computers and phones. Meanwhile, the large legacy incumbent players were struggling to update their products amid the rapidly changing needs of enterprise companies.

As the Zoom team developed the product further, they did more customer interviews than ever, constantly looking for unexpected pain points they could address by adding certain features. Eric Yuan said, “We always prioritize the features requested by our existing customers.… We truly believe if you do not make the existing customer happy, even if you get more new customer prospects, it may not be sustainable.”

By 2015, Zoom was really gathering steam. The company raised $30 million in a round led by Emergence Capital after Yuan insisted that the pitch meetings be conducted over Zoom so that investors could experience the product themselves. The new “breakout rooms” feature was a hit in academia, and Zoom was gaining good traction in enterprise settings, especially in Silicon Valley.

Meanwhile, Slack was changing the way many large companies operate as “enterprise chat” became a fast-growing sector. In response, Zoom developed deep Slack integration. Zoom calls could now be scheduled and launched right within Slack. You could see confirmed Zoom attendees from within Slack, as well as launch ad-hoc calls. Since Outlook was the preferred scheduling system of many large companies, Zoom developed integrations for that as well. Many people at large companies were learning about Zoom because it appeared on their Outlook calendars and Slack channels. 

Zoom continued to grow and succeed. In April 2019, they had their IPO and exceeded analysts’ projections by 72%. I bought some stock and am still a happy shareholder today.

Here’s an extraordinary fact: Zoom raised $146 million from investors but if you look at their balance sheet when they had their IPO they still had most of that sitting in cash accounts!  Zoom effectively built a public company on less than $20 million of outside capital. That’s pretty remarkable. 

A year later, the COVID-19 pandemic hit, and Zoom got an unexpected boost that drove usage into the stratosphere. But that never would have happened without the eight years of hard work Eric Yuan and his team spent building a product customers loved.

Yuan says that money was never his driver for founding Zoom—he was just obsessed with trying to build a better product. When he quit Webex, he never dreamed of making something bigger; he just wanted to make something better. When people referred to his startup as a potential “unicorn,” he said, “I don’t use that word at all. It doesn’t matter. Even if you’re a unicorn for many years, if customers don’t like your product, very soon you become nothing.”

Key takeaways:

There are many great lessons for entrepreneurs everywhere in the Zoom story:

• Eric Yuan entered a very crowded sector with lots of competition. But Yuan knew that all that competition meant there was solid market demand, now, he just needed to build something that was positioned well and focused on what what customers wanted.
• He remained relentlessly focused on engaging with customers and understanding their needs. Because a startup is inherently more nimble than large incumbents, they were able to react more quickly to things like the “bring your own device” trend in the enterprise world. 
• He identified a good beachhead market – education – and after succeeding there, that market helped him spread to others. 
• He successfully rode the coattails of other products with a larger footprint – Slack and Outlook – to gain new customers, using the “land and expand” approach of getting into large organizations. 
• He operated with solid capital efficiency, not spending big money on marketing until Product-Market Fit had been achieved. 
• Like most great entrepreneurs, he wasn’t motivated by riches, per se, but he had fallen passionately in love with building a better way to solve a problem customers have.