With commencement and summertime upon us, Philip Levinson, HKS alum and Learn Capital Venture Advisor, shares the updated story of how two HBS students turned their five-day class trip in 2009 into CloudFlare.
More than 900 HBS 1st-year students are now embarking on their summer endeavors and travels before returning this fall for their EC year. For those thinking of starting their own company, the CloudFlare founding story about may serve as inspiration.
It is common for students at top business schools to travel and go on class trips. It is not common for two students to go on a field trip and turn it into a billion-dollar company. But in 2009, two 2nd-year HBS students did just that.
Six years ago, Matthew Prince and Michelle Zatlyn turned their five-day Silicon Valley Immersion trip into CloudFlare, a flagship member of the Unicorn Club with a billion-dollar valuation and over two million customers. Co-founded with engineer Lee Holloway, the company now handles 5% of all Web traffic with over 500 billion page views per month. If not for one pivotal HBS field trip in 2009, it would not have launched.
While most HBSers have probably heard or read about CloudFlare, many do not know the four key steps Prince and Zatlyn took during their five-day class trip to get it launched.
Here’s what happened:
Step 1: They discussed leveraging Prince’s small, already-existing business (Unspam Technologies).
Sectionmates Prince and Zatlyn (Section D) had previously talked about the possibility of starting a company together. When they embarked for Silicon Valley on January 4, 2009, however, Zatlyn remained unconvinced.
Prince’s previous venture, Unspam Technologies, was inching ahead thanks to Holloway, who was essentially running it while Prince was at HBS. “We were primarily a government contractor that worked in the anti-email spam space. We built something like the do-not-call list, but for email.”
Prince was determined to launch something new, so he bounced a number of other ideas off of Zatlyn. “A lot of them were very good business ideas,” says Zatlyn. “But none were businesses I personally got passionate about.”
How many ideas did they discuss? A lot. “I had pitched Michelle on about 30 other business ideas,” Prince said. “I had lots of crackpot ideas. One time she just looked at me and said, ‘You’re insane.’”
During their Silicon Valley trip, Prince and Zatlyn reconsidered Unspam Technologies. They discussed the idea of using what Prince and Holloway had built – as well as what they had learned from that bootstrapped venture. The focus Prince and Zatlyn discussed was helping small website operators enhance site performance and prevent security attacks. “We thought there would be some way that we could help stop bad guys,” says Prince. “We knew there was a market. We would pull data and make determinations on visitors.”
Adds Zatlyn: “We would proxy all the traffic, and we would do a look-up to see whether the visitor coming is a threat or not.”
The result would be enhanced security for small website operators.
Would this idea work? Maybe. But probably not. Zatlyn describes concerns about latency and scalability: “We would introduce latency to the website, and most websites won’t, won’t, won’t tolerate that.”
That’s three “won’ts.” Not promising. She remained unconvinced when they checked in to their respective rooms at the Sheraton in Palo Alto.
Step 2: They realized a business plan was a good shortcut to getting HBS course credit for spring semester.
Prince decided he was definitely going to start something, if for no other reason than he could get course credit for writing a business plan. “I just looked at the list of courses and said, ‘I don’t want to sit in a classroom for all this time for my last semester,’” said Prince. “If we started something, we’d get credit and wouldn’t have to take a course.”
To do so, they would need a faculty advisor to sign on. Fortunately, one of the two leaders of their HBS Silicon Valley trip was Tom Eisenmann who taught Prince and Zatlyn’s Entrepreneurship course the previous year. Prince had already forged a working relationship with him, serving as an advisor to Eisenmann’s next first-year Entrepreneurship class in fall, 2008.
Before their Silicon Valley trip, Eisenmann liked Prince and was impressed with him. “Matthew was already an entrepreneur going into business school,” says Eisenmann. “He’d done a start-up before. He also has a law degree and had taught law somewhere. He was very helpful to me in class.”
With the deadline to register for spring term courses now days away, Zatlyn’s interest spiked – but only in working with Prince on a class project. “HBS is pretty strict when you register for classes,” says Zatlyn. “The deadline was right there. I really wanted to work on a business idea and get practice around researching businesses. I also wanted to work with a professor at school as our advisor. I started thinking, yes, perhaps we should do something.”
The focus remained squarely on doing this as a class project. “HBS is a safe place to practice,” says Prince. “We stopped thinking about launching a business—just a class project.”
Step 3: Meeting other VC-backed companies in Silicon Valley motivated them to take real action.
With the recession still depressing the outlook for high-tech startups in early 2009, Prince remembers being told that it was a terrible to launch a company. “During the trip, Jim Breyer spoke to us and said, ‘It’s a really tough time,” says Prince. “Every VC said you couldn’t raise any money. The spigot’s shut down.”
But then something happened near the end of the trip that changed Prince’s and Zatlyn’s outlook. During the trip, they met with entrepreneurs that had succeeded in raising money. The duo concluded they could do better than these companies in actually launching a real company. Perhaps much better.
“These companies were working on ideas that sounded really stupid,” says Prince. “We were sitting in one presentation—it was some virtual dog grooming service or something. Michelle and I looked at each other in the middle of the presentation, got up, and walked out into the hall. We said, ‘If they can get funded, we can get funded.’”
Thanks to that dog grooming company, the two returned to discussing their idea but doing it for real this time. Prince looked at Zatlyn and pointedly asked, “But what idea do we have? What if we do this Internet security thing?”
She reflected for a moment, recalling something her sister said about her having “slow starts and strong finishes.” She admitted to herself, “I always like time to ruminate over things.”
It was Wednesday, January 12th, and her time for ruminating was slipping away. Harvard’s registration deadline was days away. She thought about the VC-backed companies they had met that week. She was also inspired by a Mark Pincus speech to the HBS group at the Harvard Alumni Club earlier in the trip. Their Silicon Valley trip would be over in 1 ½ days. And Prince just would not give up.
Zatlyn finally turned to Prince. She said, “Okay, let’s do this.”
Step 4: Convincing Tom Eisenmann to Serve as Their Faculty Advisor
Before they could earn credit and register their business plan project as an official HBS course, they needed a faculty member to sign on as an advisor. Both Prince and Zatlyn were determined to work with Eisenmann, which was a particularly big motivator for Zatlyn. Though he was supportive, he was completely booked.
The pair had one chance to convince him. Says Prince: “We pulled Tom aside later that day at the Sheraton. We said, ‘Hey, will you meet us for a drink? We’d like to talk about doing this.’”
Many great Silicon Valley launch stories include a scene in which an entrepreneur scribbles out a plan on a napkin in a restaurant – and this one is no exception. Says Prince: “We met in the Sheraton Lobby Bar and had a cocktail napkin. We called this ‘Project WebWall.’ And we basically sketched it all out.”
Says Eisenmann: “I listened. Somewhere along the line I said, ‘Yeah, you guys are basically a CDN—a low-end disrupter in the CDN market.’”
Prince and Zatlyn nodded their heads and readily agreed. Later, Zatlyn had to look up “CDN” on the Internet to find out what it actually means (it is a “Content Delivery Network”). But at the time, they decided whatever Eisenmann had just said sounded pretty good.
Eisenmann then raised his concern. Prince recalls him saying, “You know, I am way overcommitted being a mentor on too many of these things. Way overcommitted.”
Prince and Zatlyn looked at each other. Eisenmann leaned back and took a sip of his beer. He had just gotten tenure that past semester, he had a full teaching slate, and he had six other business plan groups he agreed to advise. He put his beer down and looked at them.
Zatlyn describes what he said next: “I remember Tom saying, ‘I already have a full roster this semester. More than I can possibly handle,’” says Zatlyn. “But since it’s you two, I’ll make an exception. I’ll add you – but only if you also agree to enter the Business Plan Contest.”
The HBS duo agreed. They smiled, and the three of them shook hands. “Knowing a little bit about the two of them, I suspected how well they would work as co-founders,” says Eisenmann. “So, that’s why I agreed to be their advisor.”
Prince and Zatlyn added the project as a course the next day. That was January 13, 2009.
Prince and Zatlyn entered the HBS Business Plan Contest (joined by co-founder Holloway). Their venture, called CloudFlare, won the Competition three and a half months later. Six months later CloudFlare opened its office in Silicon Valley and closed a seed round of funding from Venrock and Pelion. The company solved the latency problem that Zatlyn worried about and is now adding 5,000 customers per day. This year, CloudFlare will reach an $80 million annual run rate, with the company aiming for an IPO by 2017.
Eisenmann’s suspicions were right – Prince and Zatlyn worked well as co-founders. They still work well today, overseeing a fast-growing billion-dollar company. The two now regularly return to HBS to work with MBA students who, in turn, flock to them to pitch their ideas. And it all started in 2009 with a five-day class trip to Silicon Valley. Safe travels.
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