How Cloudflare CEO Matthew Prince grew to $100M revenue and 10M customers in 2024.

hello everyone my guest today is matthew prince he's the co-founder and ceo of cloudflare their mission is to help build a better internet today the company runs one of the most the world's largest networks powering more than 10 trillion requests per month nearly 10 of all internet requests and more than 2.5 billion people worldwide matthew are you ready to take us to the top absolutely thanks nathan for having me on so my research team put in bold at the top of the notes they said nathan we read this scott sandell rosewood nea sandwich story and you've got to clear the air quickly and ask the question everyone wants to know which is what is matthew's favorite sandwich since he didn't touch him that day gosh i don't i i uh i i don't know what my favorite sandwich is maybe uh maybe a good turkey sandwich um on some on some good bread that's everything sourdough bread there you go there you go all right let's jump into cloudflare what's the company do and how do you make money is it pure place ass yeah so we we we have a really simple model where people pay us to help make their whatever they're putting online faster more secure more reliable and more efficient um and we we have over 10 million uh web properties apis mobile applications that sit behind our network and we run a network that literally spans the world everywhere from not very exotic places like san jose to djibouti and uh all across mainland china and uh and and it's it's uh it's been really amazing to watch the company grow so walk me through kind of the average you know someone listening right now if they want to use you and they're not already right what would they pay per month on average so it really depends we have a free version of our service uh that people can get started with it's really designed for entrepreneurs that are just getting getting started trying to put something online up to we have companies that pay us over a million you know over a million dollars a year what's that minimum sorry a zero so free throw free there's a complete free version of the service uh which which we love our our free customers and they're great uh and then and then it graduates up so free 20 a month 200 a month and then and then hire from there if i just because matthew i know you have tons of products tons of different cohorts i i don't want to go down every single story i'm sure you're analyzing all of them but if i forced it kind of into some kind of average would you say generally 200 300 bucks a month something like that is fair i think that yeah our business really splits into two halves so we have what we think of as our self-service business which are people who come in give us a credit card and and pay for the service and that's going to be around 100 a month on on average and then we have what our mid-market and enterprise customers which we have a traditional uh enterprise sales team for and those will be you know it it really varies but sort of starting at five thousand dollars a month and and up from there that's great i want to put this on a timeline quickly uh when did you launch the company we launched a company in september of 2010 so we're coming up on our eighth birthday 2010 congratulations you've also raised you know chosen to go kind of the raised route versus bootstrapping how much have you raised to date a 183 million dollars and why did you decide to go down that path that's obviously a significant amount there was a point where you said you know what it's time to raise let's do it well caller it was clubhouse was either going to be kind of a one or a zero it was either going to be a company that didn't work or it was going to be a really big company and we knew that in order to build uh what we were doing out we had to build a global network so we own equipment in uh nearly 100 countries around the world 100 over 150 cities around the world you're talking about physical physical hardware physical hardware so we're not running on top of aws or or on top of azure or google we actually had to build the network out ourselves that takes a significant capital expenditure and so that was something that would have made this a very cost prohibitive business to to bootstrap that said i think we've been incredibly uh cash efficient we knew from the beginning that our business was about how can we process a bite of information cheaper than anyone else and so we've always respected that cash and you know i'm proud that we have still to this day um you know more than half that still in the bank have you leveraged those physical assets to raise non-dilutive capital from traditional banks that understand what physical assets look like yeah we haven't we haven't as much um we we experimented with that a little bit but the challenge with that is that because most of our equipment is deployed outside the united states it becomes a lot harder to get uh traditional like equipment financing uh or otherwise especially when you're at a smaller scale today where we're at a much larger scale and we can we can actually talk to more sophisticated global banks uh that's been that's been an option that we've explored but it's it's not something that we have that we prioritize today i'd like to dive more into kind of security and really what you guys are focused on from a technical perspective but first can you give me a general sense of scale in terms of what you guys are at now in terms of run rate um i mean i think the only thing that we've said publicly is north of 100 million dollars uh and and we're well north of that now that's great and what year did you break that number uh gosh a couple of years ago now um uh i don't i can't remember i think that we we got to then the metric i remember is that we went from zero to 50 million dollars in i think four and a half years which um puts us in some pretty pretty amazing company with companies like salesforce and workday and others yep so that was you know 50 million in arr by the end of 2015 kind of time frame right yep that's great um i think it was also public the last round of finance it well when was a was it public the valuation when you passed kind of the billion dollar mark and what round was that do you remember um so we uh again we you know i've always thought that that entrepreneurs who brag about how much they raised or or what their valuation are it's sort of like if you brag about how big your mortgage is um it's it it feels sort of distasteful but we you know we've said that we crossed over a billion dollars uh in valuation in uh the round that we did in december of 2014 but you know one of the things that i think that we've always done is um we don't we don't talk a lot about the money that we raise or or anything else so every round that we've done we've kept secret for at least nine months after we did it so the round that we that we raised in december of 2014 uh we actually announced finally in september of of 2015 so it's um you know i think that raising money is is is sort of a necessary part often of building a business like cloudflare but it's not necessarily something to be proud of it just means that you didn't actually generate enough revenue yourself to cover the cost that you had and so you know i i wish that more people would focus on you know how how quickly you've gotten to sort of break even how quickly have you actually ramped kind of your revenue rates um because that's that's what really matters for for a business let's focus on that so how if i started growing today so we're growing still high double digits um at the at the rate that that we're at which is uh which is really really really um you know amazing and so put a minute max on that and say between 50 and 99 percent you're over your growth is that fair that's right that's great which again very difficult at the levels you're at there was speculation you'd go public in 2017 right which you know ultimately i think you pulled the plans for why when you talk about using capital to drive your growth and your business in an efficient way uh whether you considered ipo or not walk me through the pros and cons of using that in terms of a capital form yeah we certainly weren't considering going public in in 2017 um and i think that what we're we're really proud of is that we've built a real business that can be a standalone uh sustained business and um you know we're we run the business at basically break even uh today and i i think that as you get to a certain size whether you're public or not public you have a responsibility to run your business as if it is a public company and so making sure that you have the controls in place that you're doing the right the right auditing the right other systems and so those are things that matthew there's a lot of though when you're in a public company stuff you have to do that is just like no entrepreneur who's creative thinking about how to solve security issues would ever want to spend a moment of his time thinking about so i'd push back on that i you know i think that there um there are reasons that you have rules and if you're taking people's money and if you're taking people's time especially and trading that for equity in the company then it's really important that you make sure that you're actually putting in place the systems and controls to to run that business responsibly and so i think that that while it is it absolutely is the case that when you're you know there were three of us that started the business in a in a small office over a nail salon in palo alto california so you know back then it would not have made sense for us to do full kpmg style audits today when we're north of 100 million dollars in revenue we have over 700 employees um it's the right time for you to make sure that you've got you know a responsible board with outside directors to make sure that you're going through accounting and and the procedures that are that are correct that you're doing full audits and whether you're a public company or not there's a time that you you've got to grow up and and sort of companies that sort of say we're going to be peter pan forever i i i i would i would worry about what's going on behind the scenes there yeah i have had other security companies on that are in the call at 80 to 150 million arranged when i ask them the question about the pros and cons of going public many of them will articulate one of the only big pros they see besides obvious capital is there's something about being public that communicates trust and in a business like security that can potentially help you you know land and expand and retain enterprise kinds of customers would you generally agree that's the one big upside and and do you again see any big cons to that you know we haven't had i i think that that's that's potentially you know something that people say that hasn't been something that has held us back um nobody i mean maybe there would be some marketing benefit from being public but but again i i think it's there's actually a responsibility to an organization to your investors to create some liquidity and i also think that you know the it's pretty amazing that you could have invested in an apple or a microsoft or an amazon as a public market investor and had there be significant upside from there i think this sort of allergy to being a public company is a disservice to public markets uh generally and you know i think we we it was probably too easy i was a i was a securities attorney back in in 2000 it was probably too easy to become a public company in the late 90s it's probably too hard uh to do it now and and again you want to write that have the right balance between those things but allowing public market investors and not just you know venture capitalists or or people who are accredited to be able to make angel investments be able to benefit from the innovation and the wealth that that creates i think it's actually a really important thing for markets generally yeah we recently had david scott on who runs obviously for entrepreneurs a lot of data on sas companies and brian halligan at the same time and they talked about the challenges of deciding which variable pricing axes you would price your tools around based off the value that your users are getting you know when i look at your site it looks like those metrics for you specifically are a per domain cost and the second measurable one it looks like are something you've maybe invented or branded called page rules um are those accurate in terms of that's what allows you to kind of figure out a drive expansion revenue and how did you decide that those were the key metrics that you could tie pricing to yeah so i mean i think great sas companies have have three characteristics they they have a low cost of customer acquisition um they have low churn and they have the ability to expand revenue from those existing customers i'd say we're really good at the first two things our customer cost of customer acquisition is is remarkably low um matthew sorry can you maybe put some kind of number around that what do you mean remarkably low as a percentage or a fixed number well i mean i think that more than half of our business comes from just straight inbound no marketing involved that is built around sort of the halo of the brand word of mouth and and otherwise you know we on a traditional marketing basis we've been terrible traditional marketers like we spent very little on you know you don't see cloudflare billboards on the 101 in san francisco you're we don't spend a lot on on any of the traditional marketing channels um and yet every day you know 15 000 new sites sign up uh for our service most of whom heard about us with whether there were zero uh customer acquisition costs um you know as you go up you know for our larger customers we've got we've got sales teams that support those but our sales team you know our our inside sales team is doing uh on average over 1.3 million dollars in acv on a per ramped rep basis which is over one period of time that's new new ar per quarter yeah over 12 months 1.3 million new and new ar per year which is about twice what you would get from a high-performing uh other sas company where that's usually around seven hundred thousand dollars per fully ramped trap um and so that's um you know we've been very very efficient at being able to acquire our customers um our churn rates are are very low again it varies between the self-service business where um we don't typically lose to other competitors if we lose self-service businesses it's usually because they go out of business um on the enterprise business matthew sorry on the on the self on the self serve so like i mean are you would you say less than three percent logo churn per month in that cohort yeah that's a that's around it that would be around that and then and then in the in the enterprise business it's much much much less than that you know and we have negative dollar churn and all the things that you would want from from uh from a business like that i think the weakness that we've had in our business is that our expansion has been something which has been has been more challenging um and and and the reason for that is early on we we said like we're competing with hardware where you would buy a firewall you'd buy a little on-prem kind of thing and and you don't pay more for hardware if you get an attack versus if you don't get an attack and frankly if you're charging more when someone gets attacked that feels a little bit like extortion yeah and so we um we said we wanted we should have prevented that in the first place we wanted to make uh our pricing incredibly predictable and so our original pricing was very you know you pay us 200 bucks a month and it doesn't matter how large the attack is we're going to make sure that you're that you're protected and so we have had to try to figure out ways to either by adding features uh or building in things that are usage based to get those to drive expansion and i think that's that's very much the piece of our business that we're we're figuring out i think we're better at it in the high-end you know enterprise and mid-market business and the self-service business it's um it's it's been something that we're still working well matt look i've interviewed about three or three b2b sas founders you know you know maybe a sub cohort maybe five percent are actually at your scale very rarely do you see a sub 100 per month price point where net revenue retention breaches a hundred percent because the expansion opportunities don't exist but it sounds like in your enterprise cohort where you've got the sales machine ramped you guys are well north of 100 net revenue retention annually yeah that's that's right but but i think you know there are opportunities for us to do that i think that you know we took some things that used to be that people would price on a on a usage base so we have a cdn like product that that traditionally would be based on the sort of bandwidth used we think that that you know part of what's disruptive about what we've done is we've made that basically free across across all our plans that said we now have effectively a private virtual network where we can get packets from one side of the internet to the other side of the internet faster more securely more reliably and more efficiently than anyone else and and that's something that is a really unique asset and so that's something that we are willing to price on a on a on a usage basis and i think that's those those new products are what will really drive uh net expansion dollars for existing our existing customer set lifetime value can be a vanity metric it's very easy to let that number lie to you when you start saying what could be an infinity because our cac is nothing and but here's how it works do you use lifetime value to drive your day-to-day decision making that are related to products or not really we i mean to be honest we haven't as much largely because we have not been as traditional of marketers you know lifetime value is a great way to figure out how much you should spend then to acquire a potential customer and so you know it's something that um you know i i'm sure we calculate as part of as part of the business we try and try and figure it out but the the challenge for us has been i mean i guess the opportunity has been that since we have not been spending as much on the traditional marketing channel focusing on lifetime value has has been less of uh sort of the focus for the the first you know eight years of cloudflare's history i think going forward as we're becoming more sophisticated on the marketing channel that'll be something that we we think about and then you know part of our challenge is um it really is one funnel like you know sometimes people start as a free customer um but then they take off like um you know what a major ride hailing service in in europe started as a free customer as they would as they started up they then graduated paying us 200 a month they now pay us you know hundreds of thousands of dollars a year and so trying to figure out when someone starts as a free customer what the lifetime value of that customer is is i mean that that obviously is the exception but getting those exceptions a lot of what drives our business about 25 of our mid-market enterprise business actually graduates from the self-service business um and so that it really is one funnel but because there's so much you know we're not our prices aren't 29 39 49 and we're sort of trying to you know get people to move between that you know zero to 20 is a big jump 20 to 200 is a big jump 200 to 5 000 is a big jump five thousand you know fifty thousand five hundred thousand you know is a is a really big jump and so it's it really is different segments of the business uh where we're trying to segment it based on the value that we're being able to deliver 700 people i assume they're based all over the world i'm curious about your kind of scale what are you what is your direct report what does your management team look like have you structured that yeah so we you know the way that you uh the the variable that you turn up or turn down in order to determine how much hierarchy there is in an organization is how many direct reports can anyone have as a max if you go to the harvard business school they say the right number is between six and seven we tend to think that we we hire people who have a little bit more um self-direction and so we think the right number is between nine and ten um i've got about nine uh direct reports uh to me um my co-founder michelle uh is is our is our ceo um so that people who would report to me would be our head of sales um uh that our head of security our cto um had a product um those sorts of there were so sorts of folks from the other people that report to me and and again fairly fairly traditional uh organization i i think we're a little bit flatter than some organizations because again we've allowed more direct reports per individual than some people do yep last question here before we wrap up with the famous five growing through acquisitions you've done four how do you think about acquisitions and and is it something you're looking to ramp up you're you're currently on the hunt for additional acquisitions that make sense um i would say that every acquisition that we've done um the the first and foremost uh question is is there a real talent there is there in are there individuals and real talent here who who we feel will be um uh will be able to contribute the team fit in with our culture and that would work out most of the acquisitions that we've done have been aqua higher types of acquisitions i think we've done two that have had a little bit of a technology component to them but again still very very small teams 10 or fewer people as part of that nothing so far in order to in order to grow revenue so i think we're always looking for smart fully formed teams that we can kind of bring in and that they can then very quickly ramp up and you know i they're there there's sort of two different ways that you can do technology acquisitions um i think the challenge with most cloud companies is we're so tightly coupled that it's really difficult to take an outside product and have it naturally fit into into our ecosystem so usually when we're doing technology thinking about technology acquisitions it's what are things that are in sort of adjacencies that we don't have to deeply integrate into our technology stack but they could maybe have some sort of benefit uh on on the side uh lettuce on the hamburger or ketchup on the hamburger or things in the sandwich yup yeah which i mean as opposed to changing the you know underlying structure of the patty yeah would you go ever i mean it sounds like a malwarebytes might be a very interesting lettuce to your hamburger right you keep the pattern structure but that would obviously be a major deal considering you know martian's funding and and what their revenues at would you ever go try and pull off a half billion or billion dollar you know acquisition like that um i mean i i think it's a very different that that in that particular case is a very different um uh sort of animal than we are i mean they're they're trying to protect uh that their their buyer would be different what they're they're they're selling what is effectively uh software that is a client software these are all things that we would be terrible at doing um so you know that that in particular doesn't seem like it that said you know there are there are plenty of people that kind of are are around the space and if we thought there was something that could be a creative um to to us and i mean we're very rational about um you know if we can buy something at you know a certain multiple and and that revenue is is worth a higher multiple for us then then you know that that can make a lot of sense um but generally i think that we are um less likely to grow through acquisition than we are through uh products that we develop in-house yep last round of funding when was that announced it was announced in september of 2015 but we closed it in december of 2014. so we kept it secret for nine months that's great yeah so here's what i'm gonna ask you it's been many years uh don't tell me an amount but have you already raised capital that you you have not yet released and you're still keeping it a secret no none none we haven't raised any money since december of 2014. i mean again we uh and we have still way more than half that round in in the bank so you know we've we have been very michelle and i are little squirrels at heart and i have i think a very healthy respect for um for capital and one of my jobs is making sure that we don't run out of money and and uh the best way to do that is run a great business that that has you know high margins matthew are you married i am if you went home tonight and told and told your wife and you said hey listen we just turned down a two and a half billion dollar acquisition from bezos does she kill you no she'd say thank god she no every once in a while when i say you know gosh i might want to although she likes jeff but uh the um uh no not no uh any time i've i've sort of said you know i think at some point we might sell this she says no you're not allowed to do that because i think she just wants you to have free time and be home right well i don't know i mean she she's uh she works she works as well but i think that um i think that you know what we do is um you don't you don't get to do this again you know we have we uh we we're we're in a pretty privileged position where we get to really influence uh internet policy globally we get to work at a scale which is just unheard of um you know we've built a business that is that is running along and those are those are things that you don't get to you don't get to do again and so i think that she thinks that we still have some really good work to do on on things like internet policy um you know what it's it's pretty amazing that you know you think about the a day in a life in my life i i get to to talk to um politicians around the world talking about ideas like network neutrality and and we're really listened to we we really get to influence browser design um you know we're working on things like encrypted s i which closes one of the real privacy uh holes in the internet um that's um that's that that's pretty rarefied error that uh that we get to that we get to breathe and and i think that she's she's really proud of the work that we're that we're doing and and uh and doesn't doesn't really think that i could i could do it again and real quick sorry bullish or bearish on things like bravo right these crypto kind of related things in the in your space i don't even know what that is but um is that uh so so tell me more what that is hey no no it's obviously a bad question if it's not on your radar it would be on your radar if it was important so we'll skip it over we'll skip over but but generally crypto as it relates to security and decentralization in your space is it something you're thinking about or no not really well i mean i think um you know if i wasn't the ceo of cloudflare i'd be worried about cloudflare because because we are you know we are a centralizing force um and i think that um the internet goes through waves of technology in general goes through waves of centralization decentralization jim barksdale one of the co-founders of netscape said there are only two ways to make money in in technology you can either bundle or unbundle and so you know i i think it is obvious that there will be um great forces trying to figure out how to unbundle who the leaders are today and whether that's cloudflare or facebook or google or otherwise um that you know history doesn't stop and so um it's something that that we're watching i think it's smart that you know mark over at facebook is is thinking about that um i don't know whether it's going to be crypto in any of the forms that it is today but i do think that something decentralized is is uh is important and i think that that that is likely to be disruptive to a number of companies that are that are very successful today including potentially ours yep all right let's wrap up here with the famous five quick answers number one favorite business book uh i was a student at clay christensen's and so i think innovator's dilemma number two is there a ceo you're fong are studying right now and off the radar one um off the radar uh you know i i um i mean i so i i really admire bezos he's obviously not not off the radar i think that's about the most off that's about the most on the radar thing they uh who often someone where just they always impress they always give you something to think about when you meet but just no one really knows about them um yeah the the the founders behind there's a there's a company called scout rfp um that they're they're doing just incredibly boring work um on you know helping improve the rfp process i i love people who do sort of boring companies i don't do much angel investing but um i i put a little bit of money in in their company and um stan and alex over there i think are just really smart grinding entrepreneurs that are doing that are doing unsexy work in in what is a really big space number three what's your favorite online tool uh favorite online tool twitter twitter okay interesting a twitter twitter fan good and what's your situ sorry how old are you i'm how old am i 43 i think 43. how many 44. and uh in november good good good and how many hours of sleep you get every night seven days any kiddos nope all right last question take us back to your 20 year old self what do you wish she knew um i got my 20 year old self is a lot smarter than i am today uh i i think that you know don't take yourself so seriously was probably is probably good advice um uh you know and and all the sort of weird random hobbies that you have on the side are uh are are actually going to pay off so so so keep investing in them uh because you know tinkering and and and hacking on things actually uh turns out to be a pretty pretty useful skill later in life guys there you have it cloudflare founder matthew tinker it's important he tinkered his way in 2010 into launching cloudflare now today uh you know they've raised 182 million bucks but more importantly is to understand again how they've been able to drive growth in an efficient effective way to solve a real problem they went from zero to 50 million bucks in their first four and a half years by 2015. today again growing between 50 and 100 year-over-year and these are much larger numbers doing north of 100 million bucks per year today again our poo and the self-serve market that they've got about a hundred bucks in that same cohort less than three percent ghost gross logo turn per month when you go to their enterprise cohort you've gotten well north of 100 uh yearly net revenue retention which is healthy healthy payback period team of 700 folks based all around the world again focused on security uh and internet...