From Salesforce to Netflix to subscription-based toothbrushes, the subscription economy has substantially transformed how businesses do business. A phrase first coined by Zuora CEO Tien Tzuo, the subscription economy refers to a business era that put less emphasis on selling products and more focus on providing them as a service or experience to build better customer relationships.
Over the past decade (and then some), Tien has been the leading authority on the subscription economy and co-founded Zuora, a SaaS company that helps businesses launch and manage their own subscription-based services. An entrepreneur and author, Tien has raised roughly $250 million dollars for Zuora, led the company to a successful IPO, in addition to helping pioneer the subscription economy category.
Here, Tien shares what inspired him to co-found Zuora, his secrets to successful fundraising, and why storytelling and relationships are at the core of every Silicon Valley success story.
From a Salesforce Trailblazer to a new kind of trailblazer
Tien had always toyed with the idea of starting a company; however, it was a lot harder for founders back in the late 90s and early 2000s. Seed rounds didn’t exist, angel investors were scarce, and the internet was in its infancy. Putting the idea temporarily in his back pocket, Tien instead joined Salesforce as its 11th employee in 1999. He later became the company’s first chief marketing officer and chief strategy officer.
When Salesforce started out, most people didn’t have high-bandwidth internet in their homes and Wi-Fi in hotels was nonexistent. As Tien puts it, Salesforce was essentially asking salespeople to check in at night by unplugging their phone cord to plug it into their computer and do a 56k dial-up modem. The company even had to ensure that its pages were under 50k because the internet was so slow back then.
Fast forward just eight years to 2007 and the environment had evolved drastically: Salesforce was approaching a billion dollars and the internet offered exponential ways to redefine the future of business.
Closing in on over nine years with Salesforce, Tien saw how Salesforce disrupted the software industry with its subscription business model. At the same time, Netflix was coming for Blockbuster with a similar business model.
Tien, along with his two co-founders, Web-Ex engineers K.V. Rao and Cheng Zou, questioned whether subscription-based business models could eventually disrupt every industry. If they could (which they did), the team wanted to build a software platform that helps other companies implement their own subscription-based models.
What founders get wrong when it comes to fundraising
Asked about the secret to successful fundraising, Tien will tell you exactly the opposite: why people get fundraising wrong. It all comes down to the mental model. That the Silicon Valley show of going door to door asking for money just doesn’t make any sense.
Instead, he advises founders to think about fundraising and the relationship with VCs as the equivalent to a marriage or partnership. It’s an open secret that the Bay Area has no shortage of founders who pick VCs they end up hating. This can quickly turn into a nightmare because it’s extremely difficult to divorce your VC, especially when they’re a board member.
Fundraising is a relationship game and thinking about it like dating is a much better mental model for founders. Take the time to really get to know the folks that are interested in investing in you. The same mentality goes both ways: VCs have a limited amount of board seats and the investments that they can do. They’re also betting their careers, and as such, they need to feel really good about you.
If a VC invests in you, there’s always some sort of angle. After all, if they see 500 deals every year, why should they invest in you? There has to be a narrative in their head that says, “This feels like the right one for me because of XYZ.”
Treat the fundraising process as a relationship-building exercise—not the equivalent of going into the bank to see if you can get a loan.
At its core, fundraising is a relationship game
In 2006, Tien received an email from Peter Fenton asking him to grab breakfast. Looking back on that fateful day, he shares that his initial reaction was, “Who is Peter Fenton?” (He further clarifies that this was before all the IPOs, Twitter, and current demi-god status that Peter holds in the Valley today.) After speaking with a few people, he was quickly told that he should probably take the offer of breakfast.
Tien spent an hour just talking. At the end of the conversation, Peter said it was a good meeting and they should do it again in six months. Tien left the meeting puzzled and questioning exactly what Peter was looking for—he didn’t ask for anything.
Peter emailed him a few months later asking to grab breakfast again. Tien didn’t realize it at the time, but in hindsight, it was clear to see that Peter wanted to build a relationship with him. By the time Zuora did its Series A, the relationship was already established, and Peter and Benchmark Capital led their round.
From a process perspective, fundraising is similar to selling a house. There can be multiple buyers but there’s just one property. Real estate agents don’t take pre-emptive offers; they show the house, line up demand, and get a sense of price and demand. If the price and the demand are right, then they light up the process.
As a founder, you want to line up as many folks as possible. You should have a sense of who you’d like as an investor. You’re also looking for the dark horse—somebody who gives you the first offer which sets the rest of the process in motion. Then you can start calling other VCs to let them know that there’s demand and gauge their interest.
Final reflections on fundraising
One common piece of feedback about the fundraising process is that it’s not fun. And if that’s your mindset, then yes, fundraising is probably not going to be a thrilling experience for you. So, how do you shift your mindset to make fundraising a more enjoyable activity?
Tien likes fundraising because he is able to share his story. As a founder, he enjoys hearing feedback on where the story works and, equally important, where it doesn’t.
Also, take the opportunity to really understand the VC community and figure out what makes them tick. Tien’s top piece of advice to founders is to go out and get to know the community. That way when you’re ready to fundraise, the relationships you’ve built will already be in place.