Provo, Utah / July 18, 2017
The State of Utah is the last place that you would expect to find a Unicorn, not the mythical kind but the ones that are the rage in Silicon Valley. Turns out it is not only mountain ranges that abound there but multi-billion dollar startups as well. Ryan Smith, co-founder of Qualtrics plays host to both. His office has snow-capped mountains as a backdrop and his experience management company’s last capital raising round valued it at $2.5 billion. Not bad for a startup which spent countless nights in a basement wondering if it would live to see another day. Except its humble beginning, Qualtrics breaks all the norms associated with a successful startup. It is founded and run by a family, it established itself by selling to academia and it restrained from raising capital as long as it could. And when it went out to seek funding none other than Accel Partners and Sequoia Capital came calling. Customer-centricity defines it but as Ryan and his elder brother Jared work on catapulting Qualtrics to the next level, its core values of scrappiness, transparency and teamwork will hold it in good stead.
Qualtrics was born after you quit your internship to be with your father who was diagnosed with cancer. Take us through that germination stage.
We were simply looking for something to do. I don’t think back in 2002, it was cool to launch a start-up. It was an interesting process and I was fascinated with the idea that you could gather data online. In fact, by cheating a little bit, you could understand what everyone was thinking. I remember the first project I did. I was working in Los Angeles then and we would have these huge debates on where to go for lunch. I was able to create survey forms and gather everyone’s feedback. For the next three weeks, it was simple [to decide] where we would go for lunch. That’s when I thought, how could we use this to streamline everything else?
Now-a-days, it doesn’t feel that revolutionary, but at the time, it really was. How do we create something where we can question anything that we have and do it in real time? I think the idea of getting customer data, feedback, and getting analytics done on a real-time basis was a novel idea. That’s how we got started. We wanted to take this into the enterprise and corporate world. But they weren’t ready for it. I remember calling one major airline and it said, “If our customers are unhappy, they’ll call us.” And we all know how that works out now! No one would say that today. But back then, it was very common. The real crux was — how do we get people to use it? And once they use it, their eyes will open to all the other possible use cases.
What we found however was that the academic market — higher education — was passionate about using Qualtrics. We started with one business school and it expanded. Professors were using it as a tool to do their research. From Kellogg Business School to Columbia and Wharton, everyone was on Qualtrics and endorsing it publicly without letting us know. What happened then was that they were all teaching courses to MBA students. The students would have to do a field study or a marketing project. All of a sudden, they started taking to this new way of doing research. That’s where it really took off. We had a goal of signing up 250 universities, and that’s what we focused on for the first four to five years. Then 2006 and 2007, was our second phase, where we started targeting enterprises, as students graduated and continued to use Qualtrics. We went after different departments. And 2012 onwards, we decided to go top-down and go after the whole enterprise.
What was your driving force initially? Was it the excitement around the new idea or was it about helping your father? Or, was it a mix of everything?
I’ve never looked at myself as an entrepreneur. I’ve always looked at myself as an opportunist. There are entrepreneurs, who start something but they never get anywhere. There are not very many opportunists that are true opportunists, who don’t get anywhere. Look at Qualtrics, the academic market was a horrible business model. First, it took a long time. They [academics] don’t have any money. They are incredibly difficult to support and make happy because they are the smartest people in the world and they are all doing something unique to differentiate themselves from the other researchers. Everyone has to come up with something that has never been thought of. If they are not unique, they are not going to be published and they are not going to win awards. That’s a real hard model. We had to create something and figure out when and where to go in an enterprise.
If you look at Qualtrics, it’s a series of probably 10 different start-ups. I think people have this idea, “I’m seeing the Googles and the Amazons of the world.” But if you look at Amazon, it would be a bookstore, and a failing bookstore, if Jeff Bezos wasn’t an opportunist because the first idea is always wrong anyway. That’s how I think about the world. I really understood that where you start is not where you end up. The reality is I don’t really think, even to this day, that hard about five years down the road. I think about what we are doing in the next 90 days? How is it going to change? I also don’t look backwards a lot and say, “We’ve come so far and done all this.” It’s probably the number one negative feedback people have around me, that’s how I think you get somewhere. That’s why Amazon is doing what they’re doing because they keep making bets on opportunities that they see out there.
How do you know if you are being an opportunist or simply being foolhardy? You chose to work on this untested project while your brother worked for Google at that time but your partner chose to join you for a fraction of the salary he was getting at that time.
It’s different for everyone. Sometimes, the reality is that you don’t know. It’s really easy to look back and say, “I knew”. That was definitely not the case with Qualtrics. I think that we knew that there was something special. We didn’t realise that it could be a multi-billion dollar company probably until 2009 and 2010. And even when we realised that it was possible to be a multi-billion dollar company, we didn’t realise how it would actually take place. We needed the fundamentals for that. We knew that the fundamentals were big on this idea. In a sense, we knew something that no one else knew. If you look at most innovation, it comes out a little bit earlier than people anticipated it or when no one knows.
When Gmail launched, I was using Yahoo and most people were on Hotmail. I specifically remember saying, “Why in the world should I be using Gmail.” But Google knew something that a lot of people didn’t know, but I’m sure they didn’t have 100% clarity. Reality is that there is never 100% clarity, but you have to believe in something. I think you can have a good sense of what’s going to happen. Some people are just right more than others. Amazon has a principle that they follow for promotion or hiring, they ask, “Is this person right or wrong?” I know a lot of them are really smart, but they are just wrong. For whatever reasons, the way they think about the world is just always wrong. They can’t see how X and Y are going to impact something else. There are other people, who might not be smarter but they have a sense to tell how it’s going to play out. I think Bill Gates, Paul Allen and Steve Ballmer are really thoughtful about how it would look like when they haven’t been through it yet. I’ve heard of exercises where they would get it through and actually plan out what their third building would look like before their first one was built. So when they got there, they knew that they were right. We don’t run through that painful exercise of chasing down the decision all the way through.
When I think about why Qualtrics has been successful, little bit is because if you look at our founding team, my brother, father and Stuart, we were able to take an idea and iterate it not three, four and five times but about 15 times. A lot of pain is required to go that deep. Most people push back on each other to go to the third iteration, but we were able to fight harder against each other to make sure that we ended up in a great spot. That’s probably because we had to wake up in the morning and still love each other. One advice for founders is you’ve to really be able to go hard on each other and get deep into the idea, both from a contrarian and supportive view. You saw that a lot with Steve Jobs. He would sit and debate with his team on one side of an issue, and say, “We’re not getting anywhere. I want everyone to switch and argue the other person’s side.”
What are some of the challenges of bootstrapping? Is it something that you can do only as an upstart, creating a category or a market, as opposed to competing with an existing software?
If I were to enter the storage market right now, which is the Dropbox, Amazon, Google, you’re not going to be able to tiptoe into there. Where the wave already is at is going to determine whether you can bootstrap or not. Now if you’re competing against Amazon, Microsoft and some of these big players, you really need to go and get their attention, and the market is moving really quickly. You’re probably better off to try to trim off four to five years of hard work. The downside is, you’re probably not going to get that muscle memory in those learnings that are going to help you in Year 15. So there is not a day that goes by when we’re not thinking about the lessons that we’ve learnt. I say that because we probably wouldn’t have made the decisions that we made because we would’ve just thought that we could just earn more and things will figure themselves out. When reality is, when we’re bootstrapping, we’re much closer to the ground, you had to ensure the bets worked. If we hired someone, it had to pay off. If we hired a sales rep or a marketer, they had to deliver. They couldn’t be average because we had to go make money to pay for them. And everyone who came in had to pay for themselves. There was a lot of truth seeking, and everyone was trying to see the truth because if not, it would take the company down.
When did you discover that what you had to offer went much beyond the academic world? Was there any particular incident or client that drove that transition?
There’s too many to count. Understanding that it is a large market and actually capturing that large market are two very different things. Part of it is timing. Like I said, you have to be positioned when a market turns. I would argue that Amazon was messing around with their little online shopping in 1996, they were just surviving and waiting for what actually happened. Or you can say that they were smart; they created it. But the reality is we woke up, as all of humanity, and went their way. We decided, and they caught one of the biggest waves that we have seen in time. Whereas, if you were starting again right now from fresh, it’s going to be real hard to take their position on that wave. I believe that there are waves that happen once a decade. I think we wandered in the wilderness for a long time, and then caught the wave that we knew we could catch, or we knew would come.
Nothing just happens. I can count the number of customers that have called us and said, “We want Qualtrics.” Still to this day, we are pushing all the time. Now we have 8,300 brands on the product, a number of use cases and we’re running all of the customer experience for those brands. How do you understand if someone has had a negative or positive experience, so you can fix it, and fix it quickly, and turn that into an opportunity? How do you do that on scale? The idea that every brand should be measuring, and knowing everything about their customer, so that they can take action, is truly possible today.
Would you describe Qualtrics as a product success or a marketing success. What made it go viral?
I think what makes Qualtrics interesting is that we’ve taken something which is very advanced and sophisticated, and made it easy. And that’s hard to do and it takes a long time. It took 10 years to build thousands and thousands of features, and we continue to add new features on top of that. That’s what our customers love about us. They’re not going to outgrow us because we’re always innovating. We build technology that helps people be right in their decision-making, avoid disasters, essentially know the truth before anyone else so you can fix things internally. That’s really cool.
There’s a great video of Yamaha who was trying to decide what their customers wanted on the keyboard. They didn’t know, on a keyboard, whether they should have faders for someone playing in front of a large audience or knobs; and they got on Qualtrics, and figured out within 24 hours that faders were the way to go. So if you look at their keyboards, it’s all faders. If you’re right on every decision, you’re going to win.
You went without any outside capital for nearly 10 years — the first time you raised was in 2012. We are sure along the way there might have been stress points in terms of supporting your venture. What did you tell yourself during those times?
I’m not a very patient person. For me personally that period is worth more than any money or any success that I will make at Qualtrics. Because, I had to learn — we all had to learn — that time solves a lot of problems. You need to be patient; you need to keep building one block at a time and keep pushing forward. As we moved ahead, there were a lot of people, who had money, that were trying to copy or leapfrog. And I don’t think it did them any good. I’m a big believer of ‘nail it and scale it’ — that it’s easy to use the money to scale.
But it was hard to have no one know your name. We couldn’t really market. So all we had to do was build phenomenal products that would market themselves. Our customers had become very happy and that was a real great way. It shows that you can a build a great business without having to talk about yourself. Yes, it took longer and was harder than anyone thought. That’s the part of Qualtrics that has to continue for it to be great. We have to be willing to do something that hard for that long.
Do you remember any particular episode that really stressed you out?
The whole time was stressful. We had probably 25 to 30 near-death experiences as a company just trying to figure out how we would scale with very limited resources. If you look at people who are constrained economically and study their lives and homes, you will find a tonne of creativity in how they manage it all. When people live in abundance or have a bunch of resources, they don’t use the gears that they have. I believe that it’s very hard to artificially constrain yourself when you have resources. It’s very hard to have $50 million in the bank and clip coupons. Then how do you do that? One of the challenges was going into an amazing building that we had just built. How do we maintain that scrappiness when, clearly, economically we were in a little bit different situation than in the basement? And that starts with the mindset, people and higher hiring. Being scrappy doesn’t mean that you’re frugal, it means you’re actually not trying to take the easy way out on everything, going deep on all of these decisions and getting to the right thing.
Can you recall some failures or setbacks that you learnt from?
There’s a lot of failures over 15 years — too many. I had to grow up a lot, and the team had to as well. I probably wasn’t a great manager for a really long time. I remember the first academic client that we brought in. We didn’t do a great job with their data and how they used Qualtrics, so it took 10 years to get them back as a customer. That was a really hard lesson and we’re glad we went through it. I thought we always get to the right answer, sometimes it takes a little too long.
How do you ensure collaboration and retain the hunger, now that you have a $2.5 billion valuation?
It is part of our DNA, it’s a part of who we are, and we bring people who fit into that. Here’s the problem: one of the challenges I’m seeing is that when everything is going well, you find people doing great. If things go bad, people jump ship, leave the company and everyone runs for the hills. As a founder, when I recruit people, I tell them, “I’m hiring you to solve the problems when things are going bad.” If I hire you, and you run off when something goes bad, I don’t need you when things are going good. Your job is to make sure that things don’t go bad, fix them if they do and ensure that they don’t go bad again. That’s why you’re here.
What are your hiring filters to preserve your culture as you cannot micro-manage given your stupendous growth?
We have five core values. Transparency — we want people who are transparent and seekers of truth, who are willing to see and not hide behind something. Second, we want people who are all in. What does that mean? They are all-in in the missions that we have. They are able to commit and own something. Anything that I have in my life, I believe in going all-in. If you’re married and half-way in, it’s not going to work out. If you are half-in in school, it’s not going to work and so on. Unfortunately, some of the younger generation people have never been all-in in anything in their life. Educating a whole population around that is very tough, where they have to understand and say, “When it gets hard — which it will — I’m not going to run off the field or get a new toy.” No, you stick on and get your toy back. The middle one is we need all to be customer-obsessed. Without customers, we don’t have a business. We’d all run into organisations which just aren’t customer-obsessed. The fourth one is that we’re one team. We act like one team, work like one team, it’s not about an individual or egos, it’s about the team. By putting the team first, you’re going to put all the people first. If you’re optimising for one or two people or one or two beliefs, you think you’re helping but you’re actually hurting all the other people. If you lock arms and say, “We’re going to work as a team, and sometimes make unpopular decisions for one or two people” it works better for everyone in the company. The last value is scrappy. We hire for scrappy and weed out everyone who is a victim. We ask, “Tell us the hardest thing you’ve ever done in your life.”
Now, if you look at our culture and values they’re aspirational, you got to wake up every morning and keep practising them. Coming up with that is not hard for anyone, it’s what you do after that and how you actually sustain it. That’s the interesting piece — how do you continue to work, drive, innovate?
You have tools like ODO which kind of ensure that the hunger stays and you manage your things. How did you think of that?
ODO is an internal tool, we put some of our best engineers on internal development tools to help us internally scale and grow the business. ODO is definitely not my idea. My brother Jared built a lot of the development tools at Google as it started to scale. The idea is most companies don’t metric their company correctly until they are on their way down. When everything starts breaking, they start looking at metrics. Jared’s philosophy is when you’re on the way up, you don’t know what you don’t know. It is a self-check mechanism: when everyone is high-fiving about the growth, the reality could be we shouldn’t, because we just might have done something wrong on the way up. That’s where ODO comes from. How do we look at business the right way all the time.
How is it helping?
It has helped because we’ve scaled employees. It has taken out a lot of middle management jobs where everyone can see everything and it is transparent. That’s really important because people know what and who to follow and what to believe. I’d rather share information as opposed to hold information. We’re hiring people to do a job. We can’t control how they think. All we can do is give them the information that they need to go do it. I still think a lot of the older school companies haven’t realised that the workers of today are very different than the workers of 20 years ago. You hire them to think.
What is the next frontier for predictive analytics?
We are really solid when it comes down to stats and are becoming intelligent about what the key drivers are. We basically allow everyone in the world to play Moneyball. Then we’re taking all the text comments and running sentiment analysis for the first time ever and tying it to stats. What we’re doing around experience data is very different than operational data. Operational data is showing you your financial data, HR numbers. It’s telling you what’s going on, but it’s not telling you why. Experience data is where companies get surprised. For example, you know that many people are leaving, but you don’t know why. So that’s what Qualtrics does. It gives them the ‘why’ data side. As we look at that, we’re able to really make it smarter on the data and help them say, “Look, you have 10 factors why someone is leaving. If you fix these two, then you’re going to be good.” That’s making it predictive. That’s where we are pushing big.