There are a million different ways things can go wrong when running a startup. Most founders learn the hard way.
Frederic Kerrest’s experience was no different. The early days of Okta, which he co-founded with Todd McKinnon in 2009, were rife with challenges. From flawed go-to-market strategies and missed sales targets to struggles with hiring, Kerrest and McKinnon dealt with it all. On top of it all, it was in the midst of the Great Recession.
“I can pick specific dates because they’re burned into my brain when Okta almost died multiple times,” says Kerrest, who now serves as the Chief Operating Officer and Executive Vice Chairman of the identity management company.
That experience is why Kerrest wrote Zero to IPO, a collection of some of the best actionable advice from some of the world’s most influential entrepreneurs. The book, which was published earlier this year, details his early days at Okta as well as those of other iconic entrepreneurs such as Workday’s Aneel Bhusri. Kerrest outlines the key operational and philosophical shifts that set Okta on a strong course, and the identity management company is now used by thousands of businesses around the world every day.
The goal was to create the guidebook Kerrest wished he had back then.
“If you’re an entrepreneur and you go to all these mixers and you ask everyone, ‘Oh, how are you doing?’ Everyone’s killing it. They’re always killing it all the time, except you,” says Kerrest. “And the reality of it is even the best companies in the world go through many, many tough periods.
As part of our Iconversations speaker series, Kerrest joined Greylock general partner Sarah Guo to discuss the key themes of the book and share detailed examples of how they played out at Okta. You can watch the video of the interview on our YouTube channel here. You can also listen to the podcast version at the link below or wherever you get your podcasts.
Hi, everyone. Welcome to Iconversations. I’m Sarah Guo, a General Partner at Greylock, and our guest today is Frederic Kerrest, who is the Executive Vice Chairman, COO, and Co-Founder of Okta. Prior to Okta, Freddie worked in sales and business development at Salesforce and in venture capital at Hummer Winblad. He is the Founder of the executive mentorship organization, the Operator Network, and currently serves in several other advisory and board roles.
Freddie started Okta with Todd McKinnon in 2009, arguably during one of the riskiest and most uncertain economic periods in recent history. As both Freddie and Todd have openly discussed, and now that Freddy’s written the book, the early days of Okta were quite painful, but a few key operational and philosophical shifts set Okta on a strong course, and now the identity management company is used by thousands of businesses around the world every day. We’re lucky to be early venture backers of Okta.
Freddie’s a continual student and has been interviewing founders and startup leaders on his podcast for several years. And most recently wrote a book called Zero to IPO, a guide to startup building based on his own experiences and those of some of the world’s most successful and recognizable entrepreneurs.
Freddie, I’m so honored to have you. Welcome. Thanks for being here today.
Thank you for having me. I’m thrilled to be here today.
All right. Let’s put your book into context. It’s 2022 and the past decade and a half has been a period of absolutely explosive activity for startups. There’s more companies than ever, more capital than ever, and entrepreneurship is more broadly accepted than ever. There’s a lot of great factors that go into that, the rapid advancement and availability of foundational technology, but also that there’s more capital and a lot of educational resources at entrepreneur’s disposal.
When you think about all of the content out there about entrepreneurship and your busy life – running Okta and doing nonprofit things and mentoring entrepreneurs directly – why did you take the time to write Zero to IPO? What’s different about it?
Yeah, well, the genesis behind the book was that it’s the field guide that I wish I had had when we started. We have certainly learned a lot of things in the 13 years since we partnered to start Okta. You can’t tell on this video screen, but I was a lot taller and better looking actually when we started. So certainly it has been quite a journey. I think entrepreneurship is fantastic for many, many reasons. I think it’s great for personal reasons. I think there’s a lot of agency in it. I think that it’s a great way to go about building your career, from being able to be your own boss, to pursuing a vision. It’s also great for the economy in general. I think that over the last 50 years in the Western world, entrepreneurship has created all the net new jobs, including replacing all the jobs that have been lost from the dinosaur companies of yesteryear.
So it’s a very important engine, but if you’re sitting on the outside and you’re looking in, it looks like certain organizations were destined for greatness, right? Amazon and Meta and Alphabet, they were always going to be amazing. But if you’re an entrepreneur and you go to all these mixers and you ask everyone, “Oh, how are you doing?” Everyone’s killing it. They’re always killing it all the time, except you. And the reality of it is even the best companies in the world go through many, many tough periods.
And so I wanted to do two things. First of all, I just wanted to empathize with all the entrepreneurs at home and just say, “Look, it’s been hard for everyone.” So I went out to many successful entrepreneurs, as you said, and just asked them to tell us some of their hardest stories when they almost went bankrupt and they almost got fired and they couldn’t hire anyone or sell anything.
And then I also wanted to just make it actionable. And I think a lot of the entrepreneurship literature out there is great, but it’s a lot about storytelling and less about, What can I do today in my business? And so we were trying to make it a field guide people can put on their desk next to them and use every day as they build their businesses.
“If you’re an entrepreneur and you go to all these mixers and you ask everyone, ‘Oh, how are you doing?’, everyone’s killing it. They’re always killing it all the time – except you. And the reality of it is even the best companies in the world go through many, many tough periods.”
This is entirely consistent with my understanding of you as the consummate operator, who’s taken a lot of action against each of these issues every day. You have said that the proceeds from the book will go to two nonprofits, BUILD and the Hidden Genius Project. How did you pick those as worthy causes and what should we know about them?
Yeah. Thank you for bringing that up. Super important. All the profits for the book are going to these two great nonprofit organizations. They are both focused on entrepreneurship and they’re both focused on today’s youth in particular, today’s disadvantaged youth. So, it’s hard not to fall in love with that kind of topic and it’s super important.
The two organizations are BUILD, which is a national organization. It was started in Boston, I don’t know, 10 years ago. They do a phenomenal job. And then the Hidden Genius Project, which is local here in my backyard, founded in Oakland, California. Both organizations are focused on helping Black male youth and youth from under-resourced communities stay in school using leadership, using entrepreneurship, helping them develop their own sense of agency with specific tools. Both have amazing leaders and are doing great, great things and I’m thrilled and honored and frankly, humbled to partner with them on the book.
Amazing. Thank you for doing that. Everybody go buy a second copy of the book. I’ve got two.
Before we get to talking about you and the Okta journey and advice for entrepreneurs on a bunch of different topics – I have my own – but what’s your favorite story from the book that you tell?
Oh man, there’s so many of them. When I first gave one of the copies, or the early manuscripts to Todd McKinnon, my Co-Founder at Okta, he read it and he came back and he’s like, “But these are all true stories.” I was like, “Yeah, that’s the point.” He’s like, “But is everyone going to know they’re true stories?” I was like, “It doesn’t really matter.”
Most of the chapters start with a true story of me absolutely train-wrecking the topic at hand, and then bringing in other very successful entrepreneurs to tell their same train wreck stories. So, hopefully they give folks at home a little confidence and comfort that they’re not alone in the struggle.
One of my favorite stories is from 2011. I was telling someone the other day, and I had to go find it in the book, when I had to fly to Tulsa, Oklahoma to close our biggest customer at the time. It was a $49,000 deal, one-year deal only unfortunately, and I had planned my flight for the right day but the wrong month. So I showed up at the airport in San Francisco to fly there, but I was there in February and my flight was for March and February has 28 days. So of course, it was the right day both of the week and the right day of the month, but the wrong month.
So I ended up having to take a red eye through Chicago to get to Tulsa in a snowstorm where there was no car. I called them from the airport and in SF, I’m like, “I’m really sorry. I can’t make it tomorrow. Maybe in a couple days.” They’re like, “Nope, you’re going tomorrow and the other guy’s going the next day and then we’re picking one. So, it would be good if you showed up.”
Make it here.
Yeah. This is before Zoom. Yeah, it was like, “Fill it or kill it.” And I was like, “Okay.”
So I flew through Chicago, I got to a snowstorm in Tulsa, couldn’t get a cab, had to walk a mile and a half down an Oklahoma highway, just getting hammered with snow and mud. And I showed up dripping wet and freezing cold and we ended up getting the deal. And yep, I did get some comments from the CIO later on, after we’d successfully implemented, he’s like, “I got to tell you, seeing you show up I wasn’t sure if that was a good thing. Wow, look how serious this guy is. Or a bad thing like, this guy is dripping wet, he’s freezing cold, he’s here for a sales pitch. What are we doing?”
So, yeah. I mean that’s the reality of it. That’s the guts and the glory and those are the stories people don’t tell and that’s what happens to most entrepreneurs most of the time.
So it’s clearly a very challenging path to be a continual repeat entrepreneur. Let’s hear what set you personally on the path to startup life. Did you always want to be an entrepreneur?
Oh, let’s see. Well, actually I’m a multi-time failed entrepreneur before we started Okta. As the stories go that my parents have reminded me of, I started my first startup when I was seven years old. At the time you could recycle aluminum cans and you’d get five cents for them and so I start a business called The Can Man, and I bought one of those little carts and I’d go around to all my neighbors and I’d get all their cans and give them 50% of the proceeds, so two and a half cents on every can. And from what I understand, a lot of times they didn’t really take their share, so I got all five cents. I don’t think it became a huge cash flow business, as I recall, but it was good enough to go play some video games at the arcade.
I had a failed tennis racket re-stringing business in high school. I went to high school in France, they played a lot of tennis and I played a lot of tennis, and I started restringing my own rackets and then other people’s rackets. That business did not work either. So I had plenty of certain experience in having it not work.
In the professional world, the last example is right after I graduated college, I wrote software for a little bit and then I went to South America and helped some other folks start and run a high tech consulting business. We ran into a lot of problems, including the revolution in Argentina where they took half our money. So again, it was not necessarily the beautiful story you always read about. So I had a number of false starts or efforts before we started Okta. Again, it is not always a normal, easy glide path as it appears from the outside. So…
And did it ever occur to you to just take normal people jobs instead of starting companies repeatedly?
I did, actually. I did. So after that experience in Argentina, I came back to the Bay Area and I started at a small company called Salesforce.com in 2002, so 20 years ago now. And there were 100 people at that time. It was a $50 million revenue business, headquartered here in San Francisco. I had a couple friends who had started working there and I didn’t really want a job. It had been quite a harrowing experience for two years in South America and I’d saved enough money that I didn’t have to work next month. And next thing I knew I was interviewing and then I got a job and I started working at Salesforce and the company grew from 100 to 200 people to 3,500 while I was there. We went public in 2004. I met Todd there, so it was certainly a great experience. So yeah, I did have a real person job before we started Okta.
Yes. What are one and two of the most important things you learned while you were at Salesforce at that time? What was that organization great at?
Yeah. Well, first of all is, I mean transformational for enterprise software. So the first thing macro is I had a front row seat to drinking a lot of Kool-Aid on the value of delivering software over the internet. So I got a computer science degree in late 90s. I learned how to write a three-tiered client server and then three-tiered architecture software, but it was still on-prem. In fact, all the software we delivered in South America and implemented was on-prem software. It was Siebel technology and Epiphany, ATG on-prem. And then for the first time in Salesforce, we were-
Bring us back. Yeah.
… selling software… Yeah, yeah. Right? I mean but that is how most companies developed technology back in the day. That’s why it has changed so quickly and so dramatically now with democratization of IT and all the rest of it.
So Salesforce was competing against Siebel and Siebel was selling on-prem software and Salesforce had a subscription model. And so I had this front row seat to this dramatic change.
That’s the first thing probably from Salesforce, just this dramatic change of a delivery model from on-prem software to software as a service, what we called software as service, now it’s called enterprise cloud, but it made a lot of sense, right? The return on investment is much quicker for so many more companies. The total cost of ownership is so much lower, so the risk is so much lower. And the time to value is so much quicker because the thing’s already running, so it’s like you subscribe and it’s running, you don’t have to spend all the months installing software.
So, seeing that that could actually work in enterprise software, because when I started it was $50 million revenue, when I left it was $750 million or a billion dollars of revenue. This year they’re going to do $30+. So clearly it seems like it works pretty well. And I mean that’s the first thing.
The second thing is I just learned a lot about leadership. I mean enterprise sales was something that there’s art, but there’s a lot of science to it too. And I saw a really good combination of both those things at Salesforce, just some great leadership from some amazing people, but also the nuts and bolts of how you do it, how you build a sales organization, how you should think about it, how you should structure it, both small, medium business enterprise, inside, outside sales. That was huge.
And then finally, I was very fortunate, I met Todd. So that’s where we originally met and got to know each other a little bit. And then that’s what led to us getting together and starting Okta a few years later.
You actually spent a brief time in venture capital, which I have never as a friend asked you about. What was that like? And did that change your view on fundraising or being an operator or a founder at all?
Yeah, it seemed like, I’d been at Salesforce for a while, I said, “Hey, you know what?” The company got very big. It went from a few hundred to maybe 3,500 people, which was big for me and I was like, “I want to start something small again.” And I said, “One of the big things I don’t know anything about is what goes on behind the magic curtain of venture capital.”
So I went back to school at MIT and got an MBA and in the summer between those two years, I went and got a venture capital internship to just see what happened behind the curtain. And I learned a lot. I mean that was certainly very instructional in terms of how we went about thinking about designing and then building and ultimately growing Okta, not just from a structural perspective, because now there’s a lot more information out there.
If you’re a startup founder in 2022, there’s amazing information that you publish and your peers publish. And there’s a lot of peer-review information from other entrepreneurs. There was not in the late 2000s, or coming up on 2010. There just wasn’t that much information, there was published books, right? And so that’s the first thing is just seeing what happened and how it happened and what I learned. I learned a lot about what I thought good entrepreneurs did and probably some of the pitfalls to avoid, number one.
And then number two, it was just the beginning of understanding how you build the right network around a company to be successful, which I think is super important. I mean, it’s the ultimate team sport, right? So I know that the media glorifies, a lot of times, the founder-CEO, and certainly as they or the founding team should get plenty of credit, I mean, there’s so much more that goes into it. It’s the entire stakeholder environment. It’s the early employees who took a bet on joining you. It’s the early customers who took a bet on your technology. It’s the early investors who are like, “I’m going to take a bet on this team.” So there’s just so much more that goes into it and that was something that also really, it was eye-opening when I sat on your side, the investor side of the table full time, even just for three months and saw what happened.
All right. Let’s switch gears to Okta and that whole journey. In your book, you talk about technology, economics, and psychology coming together to create the right environment for good ideas. You also mentioned what seems like an obvious thing, but is somewhat taboo to say: there are also plenty of bad ideas out there. Where did the idea for Okta come from? What gave you guys confidence about it? And did you immediately know that this was going to be the $10, $40 billion company it could become?
Actually the idea of identity management was not actually our first idea.
So the first drawings in early 2009 that Todd had mocked up in Balsamic and was trying to sell me on at the little coffee shops around San Francisco were not identity management. They were actually about system management.
So one of the things that Todd had had a lot of experience with (as the Head of Engineering and Product at Salesforce) was he would go out and talk to the larger customers at the time and explain to them the value that they were going to get instead of putting in their data centers of having Salesforce run it in their data centers, and his perspective was, “Yeah. One thing that I think a lot of these large companies might want that is not out there today is basic system management.”
There was a very good (but an older generation) product called Opsware that HP had that would basically give you a bunch of instrumentation on the health of your software and server environments in your data center.
And so Todd’s first idea was, “Wow, if I give them a version of that for their software as a service infrastructure, they could put it side by side and probably give them a lot of confidence in how they go about building their hybrid infrastructure.” And it was a good idea. I think it was probably, and as I say in the book, a lot of times they’re good ideas, it’s just the wrong time, and it was the wrong time. It was way too early. And there was probably a few large companies that would’ve bought that for a limited set of software as a service tools, but it’s not the proliferation that we’ve seen in the last 15 years had not happened yet.
So, we actually went out and talked to 50 or 75 managers of IT, Directors of IT, frankly anyone in IT who would take our phone call, and showed them these drawings. And we heard a bunch of times, “Yeah, yeah, that’s pretty interesting, but that’s problem number four.” We’re like, “Great, well what’s problem number one?” They’re like, “Same problem we all have at home still today, too many usernames, too many passwords. If I let someone go, I have no idea who had access to these mission critical, publicly available information servers,” but IT always gets in trouble. They get the speeding ticket because someone was not de-provisioned from the sales system or the HR system back in the day. And we said, “Okay, well, that’s interesting.”
So it was really a feedback of like, “Yeah, yeah, that’s a good idea guys. But here, start with this.” And so that’s really what got us to turn it around as we went out to raise our seed round in the summer of 2009.
By the way, a seed round was a million dollars back then, for all of you watching now. I know your pre-seeds are $10 million. Our seed round was a million dollars, our Series A was $10 million. I just want to frame where we are.
And that gave us that first idea of, “Hey, maybe there’s something there.” And our first product ever integrated, if you had Salesforce and/or Google, Okta worked. Anything else, it didn’t work. So, just for a single sign on, that was the first product.
There you go. That’s the ultimate pivot before we even started the company of going out, and that’s a very good lesson.
“If you’re a technology founder, get out of your ivory tower and go and talk to potential customers and ask them and show them the product and get their feedback because ultimately, they’re going to be the ones buying your product.”
So given it was 2009 and the middle of the last recession when you started the company, what was that like? I’m sure there are a lot of entrepreneurs looking at the current uncertain macro and thinking about what wisdom do you have for me now?
Yeah. It was certainly a scary time, less so for me than it was, I think even for Todd. He still was at Salesforce and had a very prestigious job. He was married. He had just welcomed his first child into the world, so his wife was probably like, “What are you doing, man? The world’s exploding and you’re doing what?” And then for me, it was a little less so because I wasn’t yet married and I didn’t have any children yet. So it was kind of like, “Well, I’m going to do this anyway. We might as well take a gamble.” That being said, yeah. I mean Lehman imploded when I went back to school for my second year of MBA, I think the first week or something. I mean it was not a good scene.
There’s a couple things. First of all, historically I think if you look, there have been many great companies built during those kinds of times. Everything from Cisco and Google down to just look at what happened in ’08, ’09. There was plenty of innovation that came out, especially if you’re in the enterprise software business, it takes a while to build enterprise technology.
It’s not like you can – even with today’s AWS environments – it’s not like you’re going to have a product today, if you start today, tomorrow the enterprise is going to buy. It’s going to take a couple years to build the infrastructure, build the support systems, build all that stuff. So that’s actually a very good time to do it because then when the economy starts coming out, you’re going to be in great shape, you’re going to have a product that’s ready for market.
So, that’s the first thing is just, I think that those are actually huge opportunities for time to start to build those kinds of generational companies. People are looking to say, “Okay, well, this is a tough time. I’m going to reconsider what I’m doing. What should I be doing?” It’s a good time to find amazing people to come join your team. And as NASCAR racers will tell you, when they’re going 200, whatever, 50 miles an hour, they need to know where that wall is right next to them, but don’t stare at the wall. If you stare at the wall, you’re going to hit the wall. And so you have to know that, yeah, this is a tough time and I’m aware of all those things, maybe be a little more cash conscious, there’s plenty of tips and tricks you can specifically do, but that doesn’t mean that the dream is not there. And in fact, I think those are the times when there’s a lot of opportunity.
You and Todd have worked together for more than a decade now. You didn’t actually know each other very well before you started the company. How did you know that was going to work? And how did you think about complementarity and what are the roles you guys serve within Okta?
Yeah. So we have worked together for over 13 years now, day in, day out. I have probably spent more waking time with him than I have with my wife, who I love dearly. And so I would say that we have navigated a lot of things together and gotten to know each other pretty well. We did not know each other that well at Salesforce. He ran a big part of the technology side, I was on the business side, we kind of knew of each other.
We started basically founder dating in early 2009. We went on a couple dates, talked a little bit, saw how it might work. I think our reference lists were very similar. He said, “Well, you can call these 12 people or 15 people at Salesforce, these execs.” And I looked at the list and I was like, “Well, that’s great, you can call the same people.”
So we had a sense of commonality there. We had a couple close friends who spoke to both of us and said this might work. And then frankly, before we decided to go out in business together, we went on a double date with our significant others. He brought his wife and I brought my, we were engaged, my fiancee and we basically had our significant other interview the other person. So, I got grilled by his-
That’s so scary.
It was super scary and I wasn’t exactly sure what was going down until I realized what was happening. And I don’t know if you’ve ever met Roxanne, Todd’s wife, she’s an amazing person and she does not suffer fools.
So it was certainly something where I had to be on my game. And he was on his home turf, it was one of his favorite restaurants, he’d order his favorite bottle of wine. I realized I was at a disadvantage. So I was trying to kick my wife under the table and be like, “You got to make sure this works out.” But that went well.
And then I would say that taking a step back though, there was probably at a high level, we had a very common understanding. We both came from engineering backgrounds in enterprise software. We both grew up a little bit in the on-prem world. We saw this transformation happening to the cloud. We knew this was going to be a big opportunity. And we were both looking for something that we could do to be part of that big journey. That’s at the macro level.
I think if you take it down one level, we have an overlapping set of skills, but the Venn diagram was not perfect. We both understood enterprise technology, he had spent more time on the technology development side and I had spent more time on the business side of things, both with customers, but also in the back office of building small companies, and so that was really good. There was a common language we could speak around what the challenges were and what the problems were, but we still, the jobs were not the exact same jobs. And I think that gave us a very good footing to get started with.
“We saw this transformation happening to the cloud. We knew this was going to be a big opportunity. And we were both looking for something that we could do to be part of that big journey.”
So you have a number of amazing superpowers as an entrepreneur, but one that is commonly attributed to you is the ability to consistently move the ball forward. Another that I think Todd would attribute to you is just being the culture carrier at the company. These are both super important qualities. How can others emulate those?
Wow, that’s a good question. I guess on the first one, that’s just part and parcel of being an entrepreneur. As one of our other investors likes to remind me, you’ve got to be able to walk and chew gum at the same time, which is a very big simplification, but you have to be able to manage at a lot of different levels. I I think extreme multitasking is a skill and it is one that you can have a certain innate ability for, but you can also develop and hone that skill.
So if you read nothing else in the book, at the very beginning of the book (I put on the second page) three of my important rules to live by, and I’m like, “If people don’t take anything else away and they stop reading it, that’s fine. They got these three.”
One of them is to keep the main thing, the main thing. And so there are so many things happening and coming at you when you’re trying to build a company of any size – whether it’s today as a public company, or whether it’s when we started – that you really have to prioritize and realize that another one of the lessons is time is your most precious resource. And so figuring out how to optimize, you can use all sorts of tips and tricks.
One that I’d found that works really well is the Eisenhower Matrix, which it was attributed to Dwight D. Eisenhower, who was obviously a General in World War II and then became a two-term president in the United States. And basically it’s like, what do I have to do? I have to do things that are super important and super urgent.
If they’re important but not urgent, I schedule them. If they’re urgent but not important, I delegate them. If they’re not urgent and not important, I just delete them. There’s a lot of tools that are available today where they are available on the web, they’re available on all your devices, and I update my priority list, still today, three to five times a day every single day. And I have it everywhere on every device and it’s always available. And at 3:00 in the morning I’ll think of something, and I try not to turn on my phone so I write it down on a piece of paper and then put it on my phone when I wake up. But I am updating my priority list all the time.
So that is the first thing, just understanding what needs to happen today, what needs to happen tomorrow, what else, and you got to hire amazing people and empower them to do their job so that’s how you’re going to scale up.
That’s what I would say about operating and just moving those balls forward. On the culture piece, I actually, it’s funny that you say that, I’m flattered if Todd actually said that, that I’m the culture bearer at the company because when we started the company, I gave a lot less weight and credence to culture than Todd did, for whatever reason. I was like, “Really? Come on. We’ll make it a fun place to work and let’s just go and get shit done.” And I actually had a sign when we started on the wall that said, “We have a strategic plan. It’s called doing things,” which was a quote from the founder of Southwest Airlines, Herb Kelleher, and that was my idea. I was like, “Well, let’s just go.”
And no, it turns out that actually it’s easy when there’s two of you, because either one of you is doing it or the other one’s doing it and you’re doing it at the same desk so you can talk to each other and you’re like, “I didn’t like how you did that. Let’s do it another way.” But as soon as there’s 10, 20, 50 people, multiple offices, whatever, culture actually, it’s easy to build in easy times, but it really comes to play in tougher times. And so when it’s something that you’re like, “Ah, I don’t need to do anything about it right now because things are going fine,” that’s exactly when you need to actually have the opposite attitude and do something about it.
So a couple tactical tricks. The first one is, write down what the values are of the company, right? Three or five, we had seven, people told me they couldn’t remember seven things, which I was shocked at. So we limited it back to four. It grew back to five. Fine, today we have five. Write them down. And if you’re in high growth, we added hundreds of people last month, you’ve got to keep repeating them over and over and over because every 90 days, there’s so many new people, they don’t even know what you’re talking about anymore.
And then the final thing is, it’s not about what you say, it’s about what you do and how you behave, because ultimately culture is about how your company’s going to stand up for all stakeholders, right? Your customers, your employees, your investors, and so that’s not about what you say, it’s about how people act and it’s really about, I used to be the only salesperson so I talked to every customer. Well now we have hundreds and hundreds of sales people and I talk to 10 basis points of customer conversations or ones I participate in. So, it’s how people behave when no one else is there. That is actually the definition of culture.
So you want to try and just emphasize when people do things well and bring it into bright lights. And then when someone behaved the way you didn’t like, what I tend to do at all hands is, if I see activity I didn’t like, you don’t single that person out, obviously, I usually say, “Hey, here’s something I did that if I had to do it again, I would do differently and here’s why.” And look, that person’s going to know that you’re talking about them, but the whole point is to the entire company, they’re going to say, “Oh, okay. Yeah, that’s good to know,” because you just have to keep repeating it and behaving it over and over and over again.
And then the final thing I would just say on that is, it has to be genuine because if you’re going to do it every single day, I mean we’re in year 14 now of business, you’re not going to be able to carry it all the way through, you’re not going to have any credibility, there’s going to be no integrity. People are going to see very quickly that you’re like, “Yeah, this is what we stand for, but I’m actually doing the entire opposite thing.” That’s going to get out pretty quickly. What do they say? It takes 10 years to build a reputation, 10 minutes to kill it. That’s a perfect example when it comes to your cultural values as a company.
Yes. Makes total sense. Also, a high bar for everybody to be reaching for. You talk about times where it was more challenging at Okta, right? You didn’t have product market fit, you were aimed after the wrong customers, you misplanned, you misplanned again. How did you retain talent during those periods of time? Because that’s got to be a cultural and an individual leadership issue.
Yeah. That was summer 2011. I can pick specific dates because they’re burned into my brain and Okta almost died multiple times. So, that’s a perfect example of people thinking from the out, no one ever tells those stories. And so now if you read about Okta, it’s like, “Oh yeah, it’s up and to the right. It’s a beautiful success story and these guys must be geniuses.” It’s like, “No, we almost died five times.”
That was actually also, by the way, when I realized how wrong I was about company culture being like, “Get an espresso machine and a keg and everything will be fine. We’ll do Bring Your Dog to Work Day on Thursdays or something and everyone will be happy.” I couldn’t have been more wrong.
We were not doing a good job of transparency. We were not doing a good job of community. We didn’t really have all hands, we still do weekly all hands today. We take them off for end of quarter, we take them off for the holiday periods. But I mean we probably do over 40 all hands every year.
That’s a lot.
Yeah, which is a lot. We’ve even moved them to Thursday mornings and Friday mornings so that we can accommodate a global population because otherwise, the Australians are always like, “It’s 2:00 AM on Saturday morning. I’m not watching it,” which is understandable. Now at least it’s 2:00 AM Friday morning, so they have no excuse. I don’t know. But we’re trying to move around the time zones to accommodate everyone, but we didn’t have those.
And so, things were not going well. We had these projections that were like this and our revenue was actually flat lining like this and we were not sharing that with the 20 or 30 super smart people we had in the company and just being open and getting ideas and we all need to figure this out together. And exactly what you just said happened.
We lost some really, really good people and it was like, “Oh man. This might be bad news.” Our Chief Architect quit and all the engineers were like, “Uh-oh. That’s not good news.” And we realized we had to take a different approach. And there was a lot of things in that. There was cultural values, as you said. Turns out that we actually had to change: our go-to-market targeting was incorrect. We were more focused at the time on small, medium businesses because that’s what we’d learned at Salesforce how to do. Whereas in fact, identity management, first of all, small medium businesses don’t have that much of a problem. Of course, they’re the only people who’d take our phone calls, but that’s not a reason to sell to them.
The large enterprise had a much bigger problem and were willing to write much bigger checks and actually be thought partners on building the company. And that was such a painful pivot, we almost didn’t survive. We did, but yeah, I mean that’s, again, a lot of good lessons learned that I wrote down and put in the book. So hopefully, others will be able to get the lessons learned without the pain that we incurred at the time.
You also describe in your book realizing at some point relatively early in Okta’s life that you need to bring in engineering and sales leaders and you and Todd were each doing two to three jobs each, and thus all of them a little bit subpar. I think a dynamic that often happens with many of our early stage founders is being too busy to hire leaders or not knowing when they should do that. Can you talk about how you think about that?
Absolutely. So, that was actually at the same time. That’s another lesson learned in 2011 where basically it was like-
2011 sounds like a hard year, man.
It was not good, I got to tell you. I think my wife was wrapping up residency, so other than me coming home being like, “It’s not going well,” she was so exhausted anyway, she’s like, “Sure, whatever. Are you employable? Can you get another job? Okay, fine. Good enough. We’re going to have to pay off my med school debt someday, right?”
But it was not a good year. That was another takeaway. We had a very clear board meeting where our board member said, “Okay, well we should talk to the Head of Sales.” And I was like, “Yeah, I’m right here.” And they’re like, “Okay, well we should talk to the Head of Engineering.” Todd was like, “Yeah, I’m right here.” And they’re like, “What about the Head of Product?” Todd’s like, “Yeah, I’m still here.” And so they’re like, “I mean this is a big problem folks.”
So yeah, in January 2012, we had our first non-Todd Head of Engineering and our first non-Frederic Head of Sales – I guess CRO is now the term, Chief Revenue Officer, but at the time it was just Head of Sales – start. And those were transformational hires for us without a doubt. But it doesn’t even have to be that extreme. I mean I remember hiring our first Head of Customer Support who was not me or the sales engineer, customer support, do everything, amazing person that the two of us did everything. I remember hiring the first Head of Customer Support because I was just drowning and I was like, “I don’t have time.” One of my entrepreneur mentors who was in the generation ahead of me said, “Yeah, now is the time you got to stop.” And I was like, “I don’t even have time to write the job description.”
And if that’s happening to you, that is exactly when you need to stop and write the job description. And I know you feel like it’s 11:00 PM and there’s one more hour of work I’ve got to get done and I can’t believe I’m going to waste this hour of work on writing a job description. It’s like, “No, incorrect because that one step back is going to be not two steps forward, four steps forward for you. Not just for the company, but for you personally.” And all of a sudden you have an expert. I mean when we started the company, I was the General Counsel, the CFO, the CIO, I mean the Head of Sales. I mean you go through it, I’m none of those things now. Why? Because we have amazing people who are so better qualified than I am to lead in all those roles. I mean we’re fortunate that we can hire those people, but I mean we would not be where we are if I’d been like, “No, no, no. I need to keep it.”
And that was a hard lesson to learn, especially as someone who prides themselves on getting a lot of things done. You’re like, “Wow, I have to come to terms with the fact I’m not getting all this stuff done. And in fact, I can’t get all this stuff done.”
And you said in the question, whatever I am doing, I’m doing subpar because I’m exhausted and I’m overwhelmed and your Eisenhower Matrix is through the roof. So yeah, I mean those are… When you sense that, and again, I give specific credit to my friend, Alex Asseily, one of the founders of Jawbone who one night at 11:00 PM, he’s like, “What are you doing right now?” I was like, “I’m doing this customer support case.” He’s like, “Why don’t you write the job description for it?” And I was like, “That’s ridiculous.” He’s like, “No, no, no, man. I’m telling you, do it.”
And I gave him a ton of credit because, I mean I remember exactly where I was sitting in my old apartment and it was an eye-opening moment. And then all of a sudden, the weight was lifted; there’s an amazing leader who can do so many other things. By the way that leader probably can bring some amazing talent with them who wants to come join them and work for them again. Instantly, the whole thing just starts spanning out. I was talking yesterday morning to an entrepreneur CEO and he said, “Hey, I have a quick two minute question,” which is never a two minute question over text, and I’m like, “Okay, sure. I’ll call you when I have a second.” It’s always two minutes, but you know?
And he said, “Do I hire a Director of Talent? Here’s where I am and here’s what I have to do. Do I hire a Director of Talent who’s going to be focused on recruiting or do I hire a Director of People who’s going to be focused on HR?” And I was like, “Well talk to me about it.” And I was like, “The answer is, by the way, you should hire both. You need both of those things.” And he’s like, “Yeah, I kind of knew that was the answer, but I wasn’t sure.” I was like, “You’re kidding me, man. It’s very clear.”
And it’s like you said in the question, as a founder you’re like, “No, no, no, I got it. I can do it all. I can do it all.” But the more awesome experience and help you bring on, that’s the definition of leverage and scale and that’s how you’re going to get to build something big and important.
“When we started the company, I was the General Counsel, the CFO, the CIO, the Head of Sales…and now I’m none of those things. Why? Because we have amazing people who are so better qualified than I am to lead in all those roles. And that was a hard lesson to learn, especially as someone who prides themselves on getting a lot of things done.”
Let’s fast forward 11 years to 2022. What are you most excited about? What’s next for Okta?
Well, we went public in April of ’17. Today we are in May of ’22, so it’s been just over five years, 21 earnings calls, not that I’m counting, but if I were, it’d be 21.
The last five years as a public company have been great. I mean the company has grown dramatically. Again, for all the invested parties, whether you’re an employee or a customer, an investor, it’s been fantastic. And certainly it’s been a great period of high growth internationally and all the rest of it, even despite the pandemic and all those challenges. And so I’m very, if you’d given me all the where we are today, 5,000 employees, it’s a billion and a half revenue company, growing north of 50% year over year, 15,000 enterprise customers, I would’ve taken that in a heartbeat.
But based on where I sit today and I look for the next three, five, 10 years are going to be arguably more exciting for us because what we focus on enterprise identity is just starting to really come out of the platforms and become a primary cloud. Large enterprises are more and more talking about, “Hey, I need a foundational partner for my strategy around identity,” which is something you never heard before. It was like, “I need a single sign on.” And now it’s like, “No, no, no, I need a foundational partner because this is going to drive everything I do.” Hybrid IT, I mean you see the growth in all the large software companies, whether it’s the on-demand, the enterprise cloud ones, whether it’s Salesforce or Workday or ServiceNow, or you go down the list. That’s going to continue to go, especially into the large enterprise, so that hybrid IT world.
And then the digital transformation – which is the most overused term in the world – but really everyone needs to find better ways to interact with their customers and partners and vendors and suppliers using mobile apps, using the web. I mean those are huge accelerators for our business.
And then finally, zero-trust architectures, which is a buzzword that I think has been around in the industry for four or five years now is actually something that is coming back to us in RFPs from the largest companies in the world saying, “Hey, can you tell me how else I need to improve my zero-trust architecture using Okta and how that’s going to work?” I mean that’s, for an entrepreneur that’s like catnip and you’re like, “Amazing.”
So the results have been very good. I’m very proud of what the team’s done. I think they’ve done an amazing job, especially through a tough time over the last two years. But the future for us has never been brighter and yeah, I mean the markets we’re in are tens of billions of dollars and they’re growing fast and we’re the number one player, but it’s still not even a $2 billion revenue business. So you’re like, “Holy moly. How much more could we do and how can we do it faster?” So, yeah. There’s a lot. Today is an exciting day if you’re working at Okta, for sure.
If we zoom out a little bit and just, sort of relying on your experience of the last 14 years and view of the SaaS landscape, besides changing customer segmentation you were focused on, you guys have also experienced the change that’s been happening in the market of how software companies interact with their customers and how you sell to them. Is that changing the way you guys do business? Or how do you think about that?
Yeah, for sure. So again, you got to rewind the clock of why we are where we are today. So 30 years ago, all you had was on-prem software and you were an IBM shop or a Microsoft shop or an SAP shop or an Oracle shop. You bought all your software on-prem. By the way, all those four big companies I mentioned and whoever else their competitors were, they only sold to the largest companies in the world. So, there’s only 10,000 potential customers for Oracle products at the time. If you were a small, medium business, there’s no way you would benefit from any of that technology advancement. I think that’s one of the biggest things that has really changed with the democratization of IT as a common term.
Basically every company, no matter how small you are, what industry you’re in, can now benefit from the type of technology that used to only be available to the largest organizations in the world, and that is very exciting and that has been a significant change over the last 15 years. And so that alone means that the traditional enterprise software model of 30 years ago, where Oracle wouldn’t go sell to you if you weren’t big enough, and if you were big enough, they’d bring 10 people in on the sales team.
And so that model still exists because the largest companies in the world, their IT budgets are billions of dollars. So for someone like us, you still have to spend all that time, but the small, medium businesses, or even the prosumer model that has come up in the enterprise, that is something that’s brand new over the last decade and that is certainly something that for enterprise software dinosaurs like me, we needed to wrap our heads around before we were relegated to yesteryear earlier than we should have been.
And so a good example for us in our business is Auth0, which is a phenomenal company that we joined forces with just over a year ago actually. The anniversary was earlier this week of one year, they are the leaders in customer identity and access management, which is one of the things we focus on, which is the part of digital transformation. It’s like if you log into mlb.com to watch a game, or if you log into JetBlue to manage your miles, or you log into one of your banks, that idea is customer identity management. We have a very good business that is building relationships with those enterprise software leaders in those companies and selling to them, and then working down through our organization.
Auth0 had the exact opposite, the bottoms up motion where they had this amazing toolkit, much better than ours, amazing instrumentation. You could get your own POC up and running in five minutes on a website. And that led them to have this whole developer-up motion where developers would love their products and then naturally bring it up into the organization. And that’s a brand new motion in general in enterprise software, if you roll the clock back on the history of enterprise software in the last 50 years, but certainly even for us tactically in our little company.
And getting your head wrapped around that and how that works and the power of that, I mean in your business you see it every day and twice on Sundays. I mean that is a huge opportunity.
They talk about the power of the developer. I mean software’s eating the world is a common term today that Marc Andreessen put in some Wall Street Journal article in 2011 and everyone thought he was bonkers, and it certainly has come out to play. And it turns out, by the way, there’s a shortage of 300,000 developers in North America alone today and we’re only printing 30,000 a year in our universities. So even if there was no growth in software, which I think we all believe there will be a lot in the future, we’re 10 years behind where we need to be, which means that if you are not naturally a high tech company sitting in Silicon Valley or somewhere else, if you are a traditional manufacturing Fortune 500 company, you’re just not going to get all the software developers that you need at your company to remain competitive and take advantage of the technology innovation that’s happening and that’s potential in your market.
And so, the more tools that we can provide to those Fortune 500 companies, the better off they’re going to be, better off everyone’s going to be. And I think that is a huge opportunity that we are just starting to see the tip of the spear on.
For the early stage founders in our audience, you have a particularly interesting background for them because you both know how to do sales, and actually had an engineering background originally. How should they think about what the right first couple customers are and how to judge whether or not there’s product market fit versus their friends and customers just being nice to them? What are the signals they should look for?
Yeah, absolutely. Well, the first thing I’ll tell you is that I was actually not an amazing engineer. I do have a computer science degree, but I think the world is better off that I have not written a line of production code in the last 20 years. So, that’s the first thing. So I have a lot of respect, eminent respect for what real engineers are able to do.
I think that is a very important question because you can get tricked very easy. The CEO and founder of yesteryear was a salesperson, the CEO and founder of today and tomorrow is a technologist. What do technologists know a lot about? Technology. What do they know a little less about? Go to market, GNA, the basics that are tractable problems, but if you get them wrong, they can be very expensive, in particular with your time as we mentioned, right? Time is your most precious resource. And if you mess that up, I mean it can derail your whole company. It can be the end.
So, that is a very, very important thing and we can certainly talk more about how we can help technology founders do that. But there are some very simple rules. The first one is one that Todd put in place that I think is very, very good. It’s the rule of five customers. So you need to make sure that your first five, what you think are target customers are fully deployed. And I’m not talking about how they bought the product and signed the PO because you’re good at convincing them, but they are fully deployed and live on the product. And you should do things that are non-scalable and unnatural acts to make them fully deployed. Your best engineers can get on the phone with them, all those kinds of things.
And in fact, we don’t consider that a product at Okta – even today – any of our new products, are really launched until we have five paying customers. By the way, paying, I should have highlighted paying: don’t talk to me about free POCs. Free POCs are not worth it. We’ll talk about that. But paying customers, getting them fully deployed and live, you are going to learn so much in that process that actually the closer you can be to the metal of talking to exactly who’s deploying that, the better off you’re going to be.
Taking a step back, you said, yeah, a very important thing, which is who’s willing to talk to you when you’re a small company? Well, probably not Fortune 500 companies, probably your friends. And in fact, that was a fallacy we fell into. Our friends would talk to us, but they were running small companies and that was not going to be the right business and it almost cost us.
So, I think you need to take a good, hard look at things like the ROI, the return on investment, the total cost of ownership for the customer, right? And really get them to sign up and do that with you. Understand what’s the pain, why are they doing this? What’s the return that they’re going to get and why is this so important that they have a lot of things to do that they’re going to do this for you?
By the way, that ties right into making sure it’s not free, no free POCs ever. People are like, “Oh, I have 15 customers.” “Really? How many of them are paying you?” “Well, three.” “So you have three customers?” “No, I have 15.”
You don’t, because here’s the thing about human nature is if you ask me to do something, “Yeah, sure. That sounds great. Of course I want to help you.” It’s much easier for me to say, “Yes, Sarah. I’ll do whatever you want,” than say, “No, that’s not a good idea.” So if you’re like, “Here, I’ll give you free.” “Oh yeah, that sounds great.” “Do you need this?” “Oh, absolutely. I need it.”
But am I going to do anything about it? No. Am I going to implement it? No. And then you’re going to be like, “Oh, they’re not really using it and why is that?”
But if you try and separate someone from their wallet, you are going to learn a lot of things. And so it’s like, “Oh, well you need to pay me.” It’s like, “Whoa, whoa, whoa.” “Well, what do you mean whoa, whoa, whoa? I thought you were getting all sorts of value out of this.” So, “Well, no, I’m not really.”
“Oh, okay. Well now I’m actually learning. So what would be valuable?”
“These five things.”
And so having that partnership with your first customers is super important. Hey, having people trial things for free, I’m fine with it, but don’t call that a customer and don’t even call that a proof of concept.
All POCs should be paying. Or if not, at least the contract should say, “You’re going to do this POC and when it works in 30 days, you’re paying this bill for $10,000.” Period, end of story. And have them sign that because at least then they’re like, “Oh man, now I’m going to have to justify to my boss why there’s this $10,000 line item in my budget and they’re going to be like, what is that thing? Now I got to get behind it. Now I’ve got to commit resources to doing it. Now I’m going to get invested with you, this startup.”
And so, yeah, like you said, your friends are not going to tell you hard things. There’s no upside for them to be like, “No Sarah, I think your product stinks. I’d never use it. That’s a terrible idea.” You’re going to be like, “What?” There’s no upside, but really trying to get the key resource involved, which a lot of times is money, and you will learn a lot of things very, very quickly.
Yeah. Well, I will, I guess just quote you against yourself, which is “Nothing happens until somebody sells something,” and it’s such a great clarifying point.
Maybe last thing on just overall startups and how you think looking forward. You talk about the competitive advantage of startups being speed, and then you reference Eric Yuan at Zoom, who’s a friend of ours who says like, “The legacy vendors are just too slow. Don’t worry about them.” Okta’s now 5,000+ people. It’s a very big company. How do you think about maintaining Okta’s speed and innovation at scale and where to invest in continued innovation?
Yeah, you’re absolutely right. That is something we think about all the time and we are petrified about. We have to balance. When you become a public company and then when you even grow beyond there, you have to bring in all sorts of process and systems and resources, sometimes because of compliance reasons like SOX audits, but other times just so that you can keep scaling and growing internationally where there’s different currencies and people sell in different ways and they get billed in different ways. So, all those things are real, but you are definitely right, we are petrified of becoming one of those ships.
So if you think about it in nautical terms, right? I think it takes three miles for a fully loaded tanker to stop once they’ve decided to stop. Whereas if you’re in a little speed boat, you can turn on a dime. And that is a very good analogy for, in our case, startups versus large enterprises. Large enterprises have so much momentum going, it’s hard to turn things on a dime. Whereas startups, you can pivot, just like we did before we even had any customers or any employees. We changed our business entirely, different segment. And so that is something we worry a lot about.
First of all, we’re always trying to do that from the top down, again culturally, talk about that. We talk about innovation. We talk about, as one of our core corporate values, but you have to act that way, not just talk about it. So how do you do that? We have, throughout all the groups, we try and put in that innovation. We started Okta Ventures a couple years ago so that we could keep a good eye, and that group has done very well on what’s happening in the markets that we want, that we know there’s a lot of innovation around everything we’re doing, but we can’t watch it all. So we can learn that way.
We’ve started Okta X, which is an innovation group, or an incubation group rather, because our whole company should be about innovation, an incubation group of starting the kinds of businesses that we know we need to start on the side outside of our core, so that they’re not going to three years from now be super important businesses that we didn’t do anything about. But also even inside our company, we have thousands of engineers and folks in EPD, engineering, product, and design, helping them optimize those tools and even how you check in source code and how long it takes to do a build and we monitor all those things and we’re always trying to work through them. It’s not easy. It has certainly been a big learning experience, just scaling to this size. And knock on wood, someday it’ll be 10,000, 20,000 people and whatever.
But yeah, those are very important. It’s something I’m paranoid that we’re going to miss, but it’s tricky because at the same time, there are some amazing employees, folks who maybe they have a mortgage and a family and two kids they have to put through college, they actually want to join public companies because of the stability and because there is going to be a little more security. And those folks are actually used to a certain set of process and systems and you want to bring them in because of all the expertise, but at the same time you want to be like, “Yeah, yeah, I know you know how to do it, but be careful because we don’t want to do too much of it too quickly.” It is a risk and it’s something we need to watch very, very carefully. So yeah, if anyone in the audience has any tips or tricks, please email me. I’d love to hear about them.
Yeah, we’ll have a couple minutes left, so maybe an audience question. I’ve got just one last one for you, Freddie. So you obviously wrote this book to share more of the advice you felt like you didn’t get or couldn’t get as you guys were growing Okta. There’s plenty of other advice out there, there’s plenty of people who can be advisors, how did you think about where to go for advice as you were growing the company over the last decade and a half?
I would say that the advice that’s in the book is advice that I got as we built it but that I didn’t know. And so I wanted to write it down so that hopefully others would be able to just read it, as opposed to having to learn it maybe the hard way.
One of the reasons, frankly, that I put it together was because we were fortunate to benefit from a mentor group of entrepreneurs who were ahead of us in the journey. From Marc Benioff and Aneel Bhusri, on down the list. There’s way too many names to list, but every senior executive at a company who is willing to take calls from entrepreneurs, even for 20 minutes when you’re driving back from the BART Station or whatever it is, thank you because you’re helping the next generation build the innovation that we need in the world.
And I know it’s hard because a lot of times people aren’t in the right geography or they’re not in the right social network or they didn’t go to the right schools. And that is one thing that I was trying to do is democratize that information by putting it in a book that everyone can get. But that is, I think that one of the benefits of what we’ve seen in both the technology changes that we’ve talked about here, but also in the pandemic, is that people are building amazing companies everywhere in the world. And I think that there are going to be some very good centers of excellence for entrepreneurship that are going to grow up, not just in the traditional places we all expect. And so three, five years from now, hopefully there will be a lot of regional places where people can get entrepreneurial advice or they can join regional groups of peers who they can talk to as they walk through this.
But also I would say if you’re an entrepreneur out there and you’re not sure how to get in touch with someone, be bold. Go on LinkedIn and buy a bunch of those credits and send them an email. I would say a couple things, it’s in the book, first of all, make sure that the note you sent is executive level. Okay? Everyone’s really busy, so three bullets on exactly what you want. You can put as much detail as you want and attach 50 things, I don’t mind, but make it really, really clear that in 20 seconds I know what you need. But you should reach out to everyone and ask them and just say, “Hey, I have this specific problem. Can you help me? Or do you know someone else who can?”
And frankly, there are so many amazing people I’ve gotten to work with in my career who now are experts at all these other things that I’m not that I’ll say, “Hang on. I’m not the best at answering that question for you, Sarah, but I think I know someone who is. Give me a minute.” And I’ll go to them and I’ll say, “Hey, I don’t even know Sarah really well, but she has this question. You’re the expert. Would you be willing to take a call?” And who’s going to say no? I mean, again, some people will say no, most people will not say no. So I would just say, be bold and what’s the worst that’s going to happen? People are going to say no, that’s okay. As an entrepreneur by the way, you need to learn how to deal with that all the time, so you might as well get used to it. So, that’s what I would say.
All right, we’ve come to the end of our time today. Freddie, thank you so much for being here. It’s a privilege to speak with you. Everybody, read the book. I love the book. I learned a lot from the book. I’m handing it out to my founders.
Freddie, thanks again for being here today, for being an amazing entrepreneur, for democratizing some of the advice you’ve gotten and are able to give. Thanks so much.
Thank you very much for having me, Sarah. I really enjoyed it.