# The Two Biggest Mistakes Every Founder Makes Why Founders Are Not Ambitious Enough Today, Why Having a Narrow Target Customer is Dangerous & The Three Possible Outcomes in Company Building with Matthew Prince, Co-Founder @ Cloudflare 20VC · Oct 16, 2023 · 54 min · 11,155 words Speakers: Matthew Prince, Harry Stebbings Source: https://www.996.fm/episodes/20vc--ep-857d795e/ ## Cold open **Matthew Prince** [0:00]: The biggest mistake that entrepreneurs make is picking bad cofounders. The second biggest mistake is not setting their sights on an ambitious enough target. So the eBay example. You're like eBay star with Beanie Babies. That's complete and utter BS. Almost nobody wants to tell the story of hugely ambitious entrepreneur sets out on hugely ambitious task and succeeds. Everyone who bet on us pre IPO made at least 10 times the money that they invested with us. **Harry Stebbings** [0:31]: This is 20 VC ## Intro **Harry Stebbings** [0:32]: with me, Harry Stebbings, and what a show we have in store for you today. This show all started from a tweet that I sent. The guest vehemently disagreed, and we have a debate on the show today. On the other side of the aisle, we have Matthew Prince, cofounder and CEO at Cloudflare on a mission to help build a better internet. Matthew has scaled Cloudflare to over $1,000,000,000 in revenue, $20,000,000,000 in market cap, and over 3,200 employees. And also fun fact, Matthew is one of only three technology execs alongside Marc Benioff and Mark Zuckerberg to be sanctioned by Russia, which we discuss in the show today. But before we dive into the show today, ## Sponsor read **Harry Stebbings** [1:08]: did you know that every 20 VC episode you listen to is recorded with Riverside? Riverside is insanely good. 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Automate your security and privacy compliance with Secure Frame. Schedule a demo stay at secureframe.com. You have now arrived at your destination. ## Conversation **Harry Stebbings** [4:03]: Matthew, I am so excited for this. I've wanted to see this one for a while. So first, thank you so much for joining me, Stebb. **Matthew Prince** [4:08]: I'm happy to be here, although I feel a little bit like a cheap date. I see your posts where you're saying, like, you had to email Benioff, like, 70 times before he wrote back. You had to icily reply to one tweet, and the next thing you know, I'm on a podcast. So, anyway, next time, I'm gonna be harder to get. **Harry Stebbings** [4:24]: And you strongly disagreed, Matthew. Which is a much better way to start a podcast though. I think it's fantastic. Before we get into the debate, let's call it, take me back to when you were a child, Matthew. What did you wanna be when you were growing up? **Matthew Prince** [4:38]: A magician. Both my parents this isn't how they would have described themselves, but they were both entrepreneurs and and both bootstrapped entrepreneurs. They weren't going and talking to people like you. They were building, you know, small businesses. And I think as a result, I I didn't know how to do anything else. Like, I didn't know how to apply for a job. I didn't know how to do anything else. So I think that I just assume that, you know, kinda what you did when you were adult was you started businesses, most of which failed, but sometimes they occasionally worked. And you hopefully made enough money to put food on the table for your family. How did you first **Harry Stebbings** [5:07]: make money? I asked this of every founder that I meet on the investing side. I think it's very indicative of one's mindset. **Matthew Prince** [5:13]: I mean, the first thing that comes to mind, and I don't know if there's something earlier, was, you know, in about fourth grade or so, I had access to a bunch of illegal fireworks, and I would sell them at school, which made me really popular with the other kids, but not so popular with their parents. But that was probably the first thing that I charged someone money for. **Harry Stebbings** [5:30]: Final one before we actually get into the need. What was the moment for Cloudflare? When was that, I'm starting the company. **Matthew Prince** [5:36]: We're doing this. I had started another company that was in the anti spam space. It was not particularly successful. And then we actually, for Paul Graham, who's someone a lot of your listeners will will know, Paul, before he started Y Combinator, would host a a conference at MIT called the MIT Anti Spam Conference, and he would invite me to come out and speak. And and one year, I was trying to figure out what to talk on, and I was I was talking to a engineer on our team at at Unspam, which is the name of the the old company. And I said, hey. Could we build a system that would track basically how spammers harvest your email address online? And that turned into something called Project Honey Pot. It it allowed us to hold together a bunch of data, like like things like if somebody is, you know, a spammer for Viagra, are they also spamming for, you know, fake university diplomas? The answer is no, by the way. People people tend to specialize. What's the length of time between when a spam crawler harvests your email address and then when you get the first spam message? It averages about a week. But sometimes it's been as long as, like, six years, and sometimes it's been as short as, you know, a few seconds. And so we could track all of that. We built this thing, gave kind of a talk at Paul's conference, got written up and wired and a bunch of then sort of put it in the corner and forgot about it. And over over the years, about a 100,000 people signed up for for this thing. And the number one request was, can you not just track the bad guys? Could you actually stop them? And to be totally honest, I ignored that. And we're like, that's a dumb idea. Why did you think it was a dumb idea? I was like, that sounds hard. And and at the time, we we thought it would have to be software. It didn't seem like there was a really clear path on how to build it. It also seemed to do it would be really kinda big and hard, and that sounded daunting. I'd taken a a sabbatical to go to business school largely because the the company I started got sued, and it was a whole big thing. And I met Michelle, and Michelle was just clear was the the person I should start a company with. And I was trying to pitch her on idea after idea after idea, all all of which, by the way, in retrospect, were terrible ideas. And at some point, I was telling her about Project Tiny Pot and how people wanted us to, you know, build the thing to stop it. And it was actually Michelle who was like, that's the idea. We're building that. And so it wasn't really even my moment. It was actually Michelle's. **Harry Stebbings** [7:48]: I mean, clearly, you're not a VC because then you'd take credit for everything. My question to you is, and there's a couple that I have to spin off from that, is often we're taught you have to love what you do, and it has to be kind of the central passion of your life in entrepreneurship. Do you agree with that statement? **Matthew Prince** [8:02]: This is the first job I've had where I haven't been imagining what else I could do. And people now are like, why do you still, you know, work at Cloudflare? And I'm like, because I can't imagine anything where I'm happier and can have more impact and make more of a difference in the world. You either, I think, have to have to really love what you're doing, or you've gotta fall in love with it. If you had asked me, you know, fourteen years ago, was the thing that I cared about most in the world helping defend, you know, the internet? I would have probably said I I would said no. But I think having then spent the time doing this, I feel fall more and more in love with our mission and what we're doing as a company every every day. **Harry Stebbings** [8:38]: Do you ever get a hard moment of, like, what now? You know, Cloudflare is a $19,600,000,000 market cap company. Think it was what I checked yesterday. Public company. You have an incredible team. It's like, now what? Do you ever get that? **Matthew Prince** [8:52]: It was interesting. We celebrated our our thirteenth anniversary of launching, which we we truly think it was our birthday, which was on September 27. And I was in our office in Austin, and we had a had a little birthday party with a cake and things. And I was talking to an engineer, and they said, hey. What do you think you're gonna be doing, you know, thirteen years from now? And usually when people ask that, they ask it on a on a more civilized time frame. And my answer is always like, I'll be at Cloudflare because I can't imagine anything else that I I would do. And I'm 48. So thirteen years from now, I would sort of did the math out in my head, and I was like, I'll be 61. And I was like, wow. That's really old. And it was the first time where I thought, There is a right time to step away from the company that you founded. And I and I think there are people who held on to it too long and sometimes at the detriment of their company and and some of the really smart people that could take the company over. You may have had some of them on your podcast. But on the other hand, it's hard to look out at successful founders, you know, the really successful founders, that have stepped away from the thing they started and are actually living a life that I admire. And for a long time, I I looked at, like, you know, Jeff Bezos. I was like, wow. He seems like he has a pretty good life. He's a pretty happy person. And now today, it seems like he's optimizing his life for Instagram, which is weird. Kate seems like he's made a a bunch of, you know, strange decisions. You go you kinda go down the list. I went through this exercise a little while ago with Michelle. We had to get all the way down to, like, the Adobe founders, Warnock, who who just passed away, who actually seemed like he had a really pretty happy and successful life. So I I think that, unfortunately, there's a lot of founders who, after they leave their companies, end up either miserable or or dead. I think it's a really interesting question of why that's the case, and I and I have a great explanation. **Harry Stebbings** [10:34]: Do you think it's tied to identity? And I it's something that I struggle with. Yeah. I never go on holiday because never know what to do with myself. And then I have to look in the mirror, Matthew, and go, like, I didn't really like this person. Just likes venture capital, and it's horrible. And so my my identity is my word. **Matthew Prince** [10:49]: I mean, that's a lot think that's absolutely what it is, and it gets back to your your original question, which is do you have to love what you do? I think that to be as successful as Gates, to be as successful as Bezos, to be as successful as Benioff, not only do you have to love it, but it becomes you. And you have an enormous stake in the success of the firm. And that's very different than if you're hired to be the CEO of of a company, or you work work your way up through the ranks and become CEO of a company. And there are unique superpowers that as a founder, you have, but there are also unique blind spots that you have as well. And I think that it is a very rational thing to look out and see the wasteland of former very successful founders who you know, we've all made more money than we need. We like, that's not really what motivates. **Harry Stebbings** [11:40]: I do just wanna ask you, on on the kind of founder theme, are you willing to trade off happiness for success? And what I mean by that is, you know, you're banning off your gates, you're Bezos. They have given up massive elements of life that others don't for things that others don't have. Are you willing to do the same? **Matthew Prince** [11:56]: To answer that question, have to define what success is. And so what do you mean by success? **Harry Stebbings** [12:01]: Success, I mean seismic impact on society combined with market cap. I would put in those two buckets. **Matthew Prince** [12:08]: Yeah. So I think they those two things are linked, but I think that the that happiness for me at some level is the seismic impact. Like, if I think of, like, what are the things that really motivate me today? The the fact that we detected in December 2021 the early indicia of Russia probing in a way that was similar to how they probed before they went into Georgia, before they went into Crimea, when they got more involved in Syria, and, you know, briefed government officials in both The US and in Europe on what we were seeing, offered our services at no cost to Ukrainian, you know, government and infrastructure companies. And then, to be totally honest, felt a little bit like Chicken Little because December passed, then January passed. Nothing was happening. Nothing was happening. And then, unfortunately, on, you know, 02/24/2022, Russia invaded. And we helped make sure the Ukrainian infrastructure stayed online. Had we not done that, it would have been much harder for president Zelensky to get get the message out on what was happening. It would be much harder to see what was happening on the front. It be much harder to see the atrocities that the the Russians continue to commit, and I think it would be harder for Ukraine to be able to defend themselves. In exchange for that, like, I've been personally sanctioned by the Russian government, which is somewhat surreal. But, like, I am super proud of that, and I'm proud of the fact that we are continuing to help Ukraine win the war. I'm I'm proud of the fact that in Iran, there are women who are organizing protests that are using our technology to do it in a in a private and secure way. And I think that those are the things that motivate me and and the work that I do. **Harry Stebbings** [13:36]: How does it feel when you get sanctioned by Russia? I'm sorry. I'm used to interviewing VCs. This is **Matthew Prince** [13:41]: a Yeah. I was on a I was on an airplane, and I remember thinking, god, I hope we're not flying over Russia, which which we obviously weren't because the war had started and and no aircraft flying over Russia at that point. There are three tech executives. That it has actually the same time. Yeah. You already interviewed Benioff, who's one of them. It was me, and then Zuckerberg. So now you've just gotta get Zuckerberg on, and and you've completed the trifecta. **Harry Stebbings** [14:01]: Oh, I mean, that that's wonderful. I'm two thirds of the way there. I'm very glad to hear that. **Matthew Prince** [14:06]: I think that success and anonymity is, like, the best possible thing, and I love that I've that I've got that. So I I think it would be a lot scarier if you're like, being up and walks down the street, people recognize him. I walk down the street, nobody recognizes me, and that's awesome. **Harry Stebbings** [14:20]: I have to ask, you mentioned your cofounder quite a few times, Michelle. What's your biggest advice to others on partner and cofounder selection, having the great relationship you do with Michelle? **Matthew Prince** [14:30]: This is an incredibly important topic. We're at a point now where other founders come and ask us for advice all the time. And one of the most common pieces of advice that we get asked is, how did you and Michelle split up your responsibility? And usually, comes from, I've picked a cofounder. We're having a hard time figuring out who does what. And I don't say this at the time, but what I think is, wow, they're doomed. Because if it's not totally clear, then it can become really, really bad. So let me take you back to my previous startup, which is called Unspam. Started also with two other people, and those two other people, basically, I picked as as cofounders because we'd had lockers next to each other in primary school. We were three white guys. We were all basically the same height. We all basically looked the same. We'd all grown up within a few blocks of each other. We were great, great friends going in. And by the time we came out the other side, I still don't talk to one of the three of them, or one of the other two, I guess. And the other one I had went years not speaking to. We fought like dogs. And what was interesting was when two of us stepped away from operating roles in the company, the company went on just fine without the two of us. Because fundamentally, the problem was the three of us were the same person, and you didn't need all three of us. What we might have made up different reasons to fight every day, but the fundamental reason we were fighting is that, yeah, you know, we had cast the die, and I was CEO, and somebody else was CTO, and somebody else was effectively like COO. But you could have just rotated everyone, and it would have been the same, which was another way of saying that fundamentally what we were fighting over was who was in charge. And that is completely different. When I started at Cloudflare, I said, because I've done this now long enough to know what my strengths and weaknesses are. And instead of picking someone who I'm friends with, let me pick somebody who is actually kind of the opposite to me. And Michelle and I went to France. You know, we were in the same business school cohort together. There were 90 people in the cohort. If she'd if we she'd had a birthday party and she'd invited 40 people, I would not have made the list out of the 90. If she'd invited 60, I think I would have. But I think we both had an enormous amount of respect for each other because we were each very good at different things. And so when we went public, we had to go through, like, a succession planning exercise. You know, if if Matthew gets hit by a bus, who steps in as as CEO? And the board decided, and I think this is publicly filed, that, you know, Michelle would step in on a temporary basis, and then the board would do a search and figure out what the long term basis was. In my last company, if we went through that exercise, the other two cofounders would have been studying the bus schedule and suggesting times that I should run across the street, you know, looking the wrong way. Whereas at Cloudflare, Michelle texted me, don't you dare get hit by a bus. It's really clear that each of us have our own strengths, and each of us have our own lanes. If you think about it, the way Michelle would describe it is the problem space that you're trying to solve when you're starting starting a company is so big, and you want people to help with that. And ideally, you want to cover as much of that problem space as possible. So it's like a Venn diagram where you want circles that have a tiny bit of overlap so that there's some ability for the people involved to relate to one another. But ideally, each of those circles has a ton of space covering the problem area to do that. So because we each had our own lane, I think that was a big tribute to the the early success that we had and stability that we've had. **Harry Stebbings** [18:05]: Matthew, do you think cofounders should be friends? You have two people two types of people. Some that say every weekend, yes. Every minute, you're, like, so into the friendship. Then I was like, no. I didn't particularly wanna see my cofounder on the weekend. Not badly, but, like, we work together. People make **Matthew Prince** [18:20]: this work, so there's an exception to to every rule. But the worst is being married to your cofounder. Like, that's really tough. Today, I mean, we're incredibly close friends. Like, I'm turning 50 soon. She's gonna be first one on the on the invite list. But it's because we've had a lot that we've done together. But when we started out, like, we didn't hang out. We had totally different social circles. We did totally different things, and we were very, very different. So I think you inevitably, if you do it right, become friends. But I think what you wanna start out as is is colleagues. **Harry Stebbings** [18:48]: Final one, and then I do wanna discuss the Twitter disagreement. You said about having hard conversations that with her and discussing pretty challenging topics. How do you do that well? I'm never sure whether it's, like, minimize the time between, you know, action and discussion, good conversation as one had now. How do you do hard conversations well? **Matthew Prince** [19:06]: You each have the thing that you're an expert in, and you're the decision maker for that thing. So so I think that it comes back to don't pick the people who you had lockers next to in junior high school. Really assess yourself. Think about what your strengths and weaknesses are, and look for people who maybe, again, you don't wanna socialize with, but that fill in the gaps that that you have. And I think this is where a lot of people get the diversity conversation wrong. I think diversity is something that they do because, you know, they look good in the newspaper or some government report. That's not why you do diversity. The reason you do diversity is because more diverse teams win. People who have different perspectives and have different ways of looking at the world are going to see the things that you don't see. And so for the same reason that you want diversity in your stock portfolio, for the same reason you want diversity in a, you know, population of rhinos, you want diversity in what your original team was. And the fact that Michelle, Lee, and I were all such different people, I think, has helped us build a team of different people. And I think that that's part of how we've reimagined the space that we've taken on and at a lot of the success that we've had. **Harry Stebbings** [20:16]: Do you think it's the same in terms of marriage? How does finding a romantic partner differ? I'm **Matthew Prince** [20:21]: definitely not a couples therapist. And it's interesting. I feel very fortunate to have dated some just incredible people over the years and and especially during the time of starting Cloudflare. And and they could've worked out with almost any of them. But I I think what happened was company came first, and I screwed up a whole bunch of relationships because of that. And then I think finally when I got to a place where I felt like I had some stability and comfort and met an amazing woman, that was the the point in time where I I sort of said, k. I'm ready to get married. **Harry Stebbings** [20:56]: What what about transition, Matthew? Because I'm in the company comes first stage, and I haven't made the transition. What was that transition? **Matthew Prince** [21:03]: I felt like, okay. I've done it. And been successful enough and made enough that I wouldn't worry about. And when when we started Cloudflare, I was debt broke. Like, I if we hadn't raised money in November 2009, I wasn't sure how I was gonna pay my rent. I'd already borrowed a bunch of money from my mom. And, by the way, he's a 30 year old. Super embarrassing. And it was 2,008, 2009, and, like, there was there wasn't a really good other option. And over the years, I've had I was a bartender. I was a test prep instructor. I had a bunch of just odd jobs to just basically cover my living expenses. We had to close that first round so that we could set up payroll so that I could pay my rent. And I remember it when the VCs were like, yeah. We know we have to we've signed everything, but it's gonna take a few days for us to wire it. I was, like, trying to stall my landlord, so I think it'd A few days? Not not a week. Right? Just a few days. Like, a week would be really bad. It was my rent was due on the fifteenth of the month, and I remember we we I think we closed the the rent on, like, the seventeenth or something. And so we had everything wired up where immediately it was like, and and here's our payroll. So it was Mackey, are are you ready to discuss this? I am. I am. This is almost like the Zuckerberg, like, fight. I mean, this is I will say I am quite surprised how many people this morning have been, like, sending me notes on LinkedIn and and things being like, can't believe you don't believe in the sort of niche. I can't there's even a term for this. And I was like, I guess I guess **Harry Stebbings** [22:33]: You underestimated. I You're right. You're right, Matthew. No one listens. No one listens. You know, what whatever. It's okay. People listen. I just don't think that that any of them will run into me on the street. I'm looking forward to this. This honestly, I advise a lot of companies, and I advise them this. And so if you can teach me something else that's better, game on. But I tweeted for audience, the single biggest mistake pre product market fit that companies make is they don't focus on a narrow enough customer segment, target an almost impossibly small audience, earn the right to do the next thing. You then responded **Matthew Prince** [23:09]: At what hour, by the way, was it when I responded? **Harry Stebbings** [23:11]: At 02:38AM. No. I'm joking. I'm not too sure. But you responded pretty strongly disagree with this, full stop. Why **Matthew Prince** [23:22]: do you disagree with this statement? So let's see if we agree on a framework, and then we can get to this. So the venture fundraising path, which again is not the path for everyone. It's not even close to the path for most people, but it's a path that has a certain set of characteristics and has a certain set of rules and has a certain set of outcomes that can be good and bad. So I think there are sort of three potential outcomes for businesses, one of which is amazing, right? You're wildly successful, and you sell the business, or you take it public, or what and it doesn't even have to be Cloudflare. It can be similar things, but you have what people would call a success. And so let's take that one, and that's great. But that's kind of the it's hard to optimize for that. So let's look at the other two outcomes. If the wild success is the best outcome, the second best outcome, I would argue, is quick failure. It just doesn't work. And it falls on its face and dies. That's actually a really great outcome. You know, yeah, you lose some VC's money, but that's kind of the game. And it's fine. And it's, by the way, one of the reasons why I, you know, I I talked to a bunch of folks in there, like, having all these angels. They're like, hi. Yeah. I love my aunt Marge invest. The the problem is that the second best outcome is quick failure. One of the ways to make that second best outcome more likely than the bad outcome is not have your aunt Marge you know, half professional investors over your investors. So, like, at Cloudflare, we never raised, like, angel money. We never raised from friends and family. Literally, until we were going public. I know we let folks like that invest in the IPO, but we didn't do it otherwise, in large part because we were like, listen, we were gonna be a one or a zero, and most likely, we were gonna be a zero. And if we were a zero, like, yeah, it sucked if we lost lost Venrock's money. But that's their job, and it was good. So I I actually think the quick failure is a it's a good outcome. The worst outcome by far is the slog, where you have these companies that are growing just enough that it feels like success is just over the next hill. And so they can't stop, but nobody cares about them anymore. And their investors are tuned out and dread every board meeting. And you've got, I would guess, a bunch of slog. And I've got a bunch of friends who I love and admire and respect. They're in the slog. And you can wake up very quickly, and ten years of your life has gone like that. And you look back, and again, you can talk about this from you get deluded. You get all this. But the real thing is, like, you just aren't proud of anything that you've done, and you've stopped learning about interesting things. That's the really bad outcome, and that's the outcome to try and avoid. Again, as a framework, does that sound like it kind of makes sense? We are totally aligned on that. A 100% agree. So then you start to look at, okay, what is the path to doing this? And I think that the number one most important thing that you can do as a founder to try to get to success is hire and recruit incredible people. Companies are just collections of people. The hardest thing by far that you do early on is is recruiting. It is so incredibly difficult. So now the question is and and maybe, again, this is gonna get down to somewhat semantics. But now the question is, let's say that you're Toby and you're starting Shopify, and you have two different options. You can be like, I'm going to build software that's really good for snowboard shops in Ottawa, Canada to sell snowboards. That's, again, that's the impossibly small audience, the impossibly niche product. And now you gotta go out and recruit people to do that versus I'm going to build the thing that is the replacement for Amazon, but allow anyone to have control over their brand and their identity and give them the power to do that. Which of those pitches gets you better engineers? **Harry Stebbings** [27:16]: Honestly, I I I don't see it in that way. I think you have to show a journey from one to the other. But I think if you have an engineer that just sees a fluffy vision of we're gonna take on Amazon, they go, yeah. Good luck. You live in London. **Matthew Prince** [27:29]: Right? Yeah. Yeah. And, you know, it's one of the really interesting things. It's like, why is the Bay Area still the best place to start companies? **Unknown** [27:39]: Oh, the unbridled optimism and the view that you can change the world. When we were starting **Matthew Prince** [27:44]: and by the way, it's like the best place to start companies, but it's a terrible place to scale companies. Early on, we were like, we're going to run the internet. Like, if you go and you watch the TechCrunch pitch, there's a judge at the end of it. And he asked, what's your vision? And I was like, our vision is to run the Internet. Mic drop. Right? And and it didn't that didn't seem absurd. Right? Early on, we would ask questions like, if Cloudflare ran the entire Internet, what would the right thing be? Technically, from a policy perspective, from a product perspective. And because of that, we were able to attract incredible people. If we had said that what we were going to do was help protect small business websites from cyber attacks, which is even that's a pretty big vision, we would not have gotten the people that we got early on. **Harry Stebbings** [28:34]: But my point is I don't think it's binary, Matthew, which is like you can say we're starting here, and when we do this, this, and this, that leads to this unlocking, and we then have the greater chance to But then you're **Matthew Prince** [28:45]: you're you're still you're still pitching them the big the big piece. And I would say also, it's really hard to know that the thing is going work initially. So for instance, when Cloudflare launched, we had a problem. We knew in order for this to be a big business, we needed to sell to really big banks and governments and financial hospitals. And we needed to sell multimillion dollar contracts on a regular basis. And that's what we do today. But in order to do that, we had to build models to give them some level of security. In order to do that, we needed to have data. In order to do that, needed to have customers. So in order to get customers, we had to have data. In order to get data, we had to have customers. So we had this chicken and egg problem. And so we set out, and we said, we're going to launch with a free version of the service, and we're going to just make it available to everyone. We didn't target who it was. But in the back of our mind, we thought that who would sign up for the free version of service was going to be a bunch of startups and individual developers and things like that. And that's not what happened at all. And if we had really said, we're going to focus on this and start there and constrain it. And marketing copies said, Cloudflare is a service for startups and small businesses and did all those things. If we'd started with the narrow funnel, then we wouldn't have figured out what happened, which is we made it and the reason why, the way, why that worked is if you imagine an x y axis, and the x axis is budget, and the y axis is how many cyber threats you face, there's almost a perfect line that is the smaller your budget is, the less cyber threats you face. The bigger your budget the bigger the cyber threats you face, with one notable exception, which is civil society and human rights organizations. We would have never thought to go talk to civil society and human rights organizations. And yet, when we opened it up, civil society and human rights organizations have almost no budget, but they have huge, huge, huge security risks. And so when this company came along and said, hey, we're here with this free version of the service, all of a sudden, they flocked to what we were doing. Because, again, we started with a really big vision, and we had no one who would initially sign up, but it was open anyway. Mean, Yahoo could have signed up for I mean, which would have been crazy. But they didn't because it didn't make sense. We really had no specific focus. That was what allowed us to find the market in a way which was very different than you would than you would otherwise. **Harry Stebbings** [31:07]: I think that's a very specific example related to Cloudflare for being on No. No. The examples you gave. **Matthew Prince** [31:14]: So the eBay example. You're like eBay star with Beanie Babies. So I've talked to the founders of eBay about that. That's complete and utter PR retrospective BS. And the reason that a lot of stories look like that is because almost nobody wants to tell the story of hugely ambitious entrepreneur sets out on hugely ambitious task and succeeds. What they like is the story of cute thing started small and then turned really big. So the Beanie Baby story is a complete and total made up PR. **Harry Stebbings** [31:48]: But I'm not saying you're conflating things if we're being honest, Matthew. I'm not saying I'm against hugely ambitious founders. I'm just saying that having a very targeted ICP to find your first a thousand true fans is a core tenant to what it takes to build a successful business. **Matthew Prince** [32:09]: And if that's all you're saying, fine. That but that's a very, very, very narrow claim. And the risk of it is, again, if you start out with, we're gonna build the snowboard power shop in Ottawa. If you don't get that right, it could be that it's actually people selling teapots where you find that initial task. And so if all you're saying is cast a wide net, but then appreciate your early customers, and double down and focus and really understand them, then that's fine. In our case, the first thousand customers were all over the place. I can't tell any discernible pattern between them, except for that they were crazy enough to sign up for us. We spent a ton of time getting to know them and focusing on them, but it was always to just learn and improve the product. What we were trying to solve was still pretty ambitious for them. But if all you're trying to claim is focus on your initial customers and really love and respect them, that's great. But where it runs a risk is if you start to say, we've got to do x. First of all, you'll attract people that think x is even though you say the journey is much longer, that they'll think that that's the end state. And then secondly, it might be that you start to optimize for that end state, where you're like, yeah, we're going to have the snowboard wax module and the bindings module, and we're going to focus on those very nichey things, which turn out to actually then hamper you in terms of building towards that generic larger vision. So again, if your claim is as small as it's sounding like, then yeah, but then it's impossible to disagree with. But I think that it is very hard to find an actual startup founder that started out saying, we're going to do this small, niche y thing, and then it grew into this big task. Almost everyone early on, you know, it's why founders can come across as so crazy, is because of the fact that they do have these wild, big visions. **Harry Stebbings** [34:06]: I get you, but they start off with a very specific ICP, which is not what I'm saying, which is a thousand true fans. The **Matthew Prince** [34:11]: bigger challenge that I see, typically, founders actually, like, set the box that they're shooting for much too small, where, you know, you I I just got a pitch from from someone who I have a ton of respect for, you know, is building something. Even if you're wildly successful at this, it's still just not that big a market. **Harry Stebbings** [34:30]: Does it unlock something else? Does it open the door for them to be able to do another product? **Matthew Prince** [34:35]: Maybe. But it is Ray Rothrock is one of the early investors in Cloudflare. And he said, you know, usually, you start a company that he backs. He's like, usually, you start with this big vision, and it just gets narrower and narrower and narrower, and you end up in this smaller box. I I think it's actually very hard. And I spent some time this morning trying to think of an example. I think it's really hard to find the counterexample of you start with what is a more limited vision. And and what you're gonna say is, well, your vision and where you start, those are different things. I think you've you gotta be careful, though, because it turns out where you start, people start to optimize for that, and you can find just local minimums. And you can spend a whole bunch of time on that local minimum. I think you really do have to articulate what that bigger vision is. And in doing so, I think it's very rare to find someone who said, I started out just trying to build, you know, the the platform for people to sell snowboards, and I ended up building Shopify, or I or I started out, you know, building that small thing. I think it's a that's a very, very, very rare case. **Harry Stebbings** [35:39]: We're aligned there. Yeah. When you're fundraising, you have to present the big picture. You have to present why When **Matthew Prince** [35:44]: you're fundraising, you have to present a big picture. When you're recruiting, you have to present a big picture. Even when you're just trying to keep your mental health of why is this so hard, you have to believe in that big vision. The curse is that founders try and do all the things. They they try to understand all four corners of the problem that they're trying to solve. **Harry Stebbings** [36:06]: But so I'm totally with you there. But you do have to show a tie back to where you are today and the proof points and milestones that you think you unlock over time that will get you there. And just put just run with me on this one. And on the customer acquisition side, we talked about funding acquisition and talent acquisition. Customers actually, generally, they do care where you're going long term, but they do also wanna know about the efficiency that you've driven for existing customers. They wanna resonate with your messaging today. If you have super horizontal product messaging, it is much harder to resonate with people. They wanna resonate with your go to market. It's gotta be a channel fit with them and how they engage with their product buying. And so, actually, the here and now does matter there. **Matthew Prince** [36:44]: Yeah. But, again, I think that if your claim is as narrow as as you're making it, then, yeah, sure, you're you're right. But then just any entrepreneur who's listening to this recognize that Harry's claim is extremely narrow and that really, again, that VCs want you to shoot for very big outcomes. They want you to take on tasks that if they're successful, you know, can get you sanctioned by Russia, find you in incredibly world changing opportunities. And sure, there's a journey along the way, and it is very rare that you build the small thing. And then it's like, wow. And then we realize we could build this bigger thing after that. When Zuckerberg starts Facebook, you know, everyone's like, well, he was just trying to build something for Harvard. You know, again, I I think he has to be on your bingo card of I don't know if you don't play bingo in London, but do you you know how that game works? Yeah. Yeah. Yeah. They it has to be on the bingo card of people that you have on the show simply to ask, like, okay. You know, sure you were building the thing for Facebook. Well, what was in the back of your mind? How early on did you think, wow. Someday, we could connect everyone online. And my hunch is it was within the first week. I didn't disagree with that. Cool. We agree. It's really important, again, when VCs say something like, you need to focus, people can mishear that as it's important to start with a small thing and be very successful in that that small thing and then from that, and, you know, stay within the four corners of what you do. The biggest mistake that entrepreneurs make is picking bad cofounders. The second biggest mistake that they make is not setting their sights on an ambitious enough target. I think it's picking bad markets. There are some markets that are just shitmacky. That's an ambitious enough target. Right? It's like if all of a sudden you, you know, have quartered the market on providing services to sell people like me, you know, a new car, that's a bad market. Even if you're wildly successful, it's just not a big enough thing. **Harry Stebbings** [38:37]: Is there any other BS that you hear from investors you see on Twitter that you're like, god, I wish these guys would just not? **Matthew Prince** [38:44]: There's a ton. Like, Michelle and I went just went back to TechCrunch Disrupt, which was a few weeks ago. And I remember we were like, I wonder if anyone still comes to Disrupt because we don't really think about it anymore. And you walked in, and it was, you know, record attendance. And there's a lot in the early stage, you know, startup and VC ecosystem that's a lot of sort of the court intrigue of, oh, you know, what what does Harry think about this? Or what does Keith Raboy think about, you know, this? Or and I I have to confess, I haven't thought about that in a really in a really, really, really long time. I think part of Cloudflare's success was we were nobodies. We didn't know anyone. We didn't get invited to all the fun parties. We weren't part of the cool kids. And I think as a result, we just focused on how do we build a company. And so I just haven't I didn't spend a ton of time thinking about it early on, and I didn't spend a ton of time, you know, thinking about it today. And and, yeah, every once in a while, I'll see, you know, a tweet from someone like you. I actually think there's a duty as somebody who has been successful. And you can be wildly successful as an entrepreneur and have an outcome, which is you don't have to go public. You don't have to it doesn't have to be a billion dollar idea. But I think that you you can have a amazing bootstrapped, you know, business that gets to it's actually Michelle, my business partner, her husband. He's got two other guys, and the three of them just churn out bootstrap businesses, and they try to get each of them to cash flow basically $3,000,000 apiece. Basically, each take a million dollars, you know, out, and then they just do it with the next one. They do it with the next one. In some ways, that's, like, the best possible business. **Harry Stebbings** [40:14]: Do you not think in that case, I wonder what they could do if they actually focused? Clearly, talented individual. **Matthew Prince** [40:19]: If you can have reliably, from a SaaS business that you don't have to spend that much time on, a million dollars that comes off of it, and then you can, with two other people who have different skill sets and you work well with, can go off and build a second one, a third one, a fourth one. That's pretty good. **Harry Stebbings** [40:33]: It is, but why didn't you just build the first one or a second one to something much bigger? It could things compound over time and get easier, generally speaking. **Matthew Prince** [40:41]: Again, that's the place where, like, focusing on a niche makes a ton of sense. I the there's a guy, you know, I went to business school with. We were in the same business buying competition. So you have Cloudflare on one side, and then the other person, you know, Will Dean, who started Tough Mudder, which is a mud race. And, like, I think it's an open question whether they've been more successful or we've been more successful. They have no costs. They've got this thing that's just a machine that just kicks off a ton of cash, and he can go and focus on other things that he cares about, whereas I think I've to show up every single day. And yes, on paper, it's much less likely you're going to have Will on your show, but I'm not sure that that's optimizing for what real success is. I remember he told me to somebody. He's like, you know, success will be when you're walking through an airport and you see someone wearing a Tough Mudder T shirt. And every time I walk through an airport now, there's someone wearing a Tough Mudder T shirt. So they've done they've done really well. Matthew, does money make you happy? Not having money sucks. Like, when I couldn't pay my rent, that made me very unhappy. But I think that there's a certain level of wealth that you get to where it turns out that cars are cars, and I've never really been that into cars. So, like, you know, I drive a fine car, but I've I've never optimized for that. Houses are basically houses. And so once you can, you know, afford a car, you can afford a house, you can live in a place which you enjoy, you can know that your kids are gonna not only eat, but be able to go to school wherever they are, that the marginal value from each additional dollar is, I think, not the thing that motivates many people. I think that some people use it as a way to keep score. How do you keep score then? Do I feel like we're making the world better? And I hope that we're then generating enough wealth across the entire company where the people who have come on this journey with us can can do it. Another late night tweet, I was in I was in DC meeting with some of our team, one person out of team was, like, got emotional. It was, like, talking about I was able to buy the house of my dreams because, you know, I I came and worked at Cloudflare. And I was like, that's what's really cool about being an entrepreneur is it's not about you. It's the fact that the people who are around you are able to be successful. And that's true, you know, with the broader ecosystem. And I think it's actually really important as you think about who even your partners are from, you know, a financing perspective. You know, everyone who bet on us pre IPO made at least 10 times the money that they invested with us. Do VCs add value, Matthew? Of course. VCs are great. Public market investors are even better in in a strange way, but for sure. Why public markets investors better? For the same reason that in places where you have no fault divorce, you have fewer abusive marriages. Tons of research into into that. It turns out that being able to get divorced makes for a better relationship. The hard thing with VCs is it's really hard for them to fire you or you to fire them. Like, it's gotta get really bad before that happens. And so it's harder then for each side to tell each other the truth, and it it risks becoming a really unhealthy healthy marriage, which is part of the reason why it's so important to, you know, really think not about the firm, but about the people who you're gonna bring on and be a part of it because you're stuck with them for a really long time, and there's really no good, easy, clean divorce from VCs. Vice versa is true as well. Public market investors are great because they'll tell you the truth. If You they don't like what you're doing, they sell your stock. Everyone's like, but they're so short term focused. They're so short Bailey Gifford, who's one of Cloudflare's top investors in a Scottish firm, their average holding period is sixteen years. That's the average. Right? So that's way longer than any VC that's out there. Again, if you can find the right public market investors, they're super smart. They'll tell you the truth. And then it's in part because of the fact that if they don't like you, it's it's easier for them to get divorced. **Harry Stebbings** [44:35]: I wanna move into a quick firearm, Matthew. So I say a short statement, and you give me your immediate thoughts. Does that sound okay? Sure. What's your biggest regret? **Matthew Prince** [44:42]: I'll get choked up if I talk about it. So Lee, who's the third cofounder, unfortunately, isn't at the company anymore, but you someone I knew Lee longer than than I knew Michelle. And at some point in sort of the 2014, 2015 time frame, he just started becoming a jerk. And it was hard because it was like he was just being a jerk at work, and it was incredibly disruptive. We burned through a lot of of great people because of his behavior. I assumed that it was because, you know, he'd made some money and he basically had been married, had a kid, and then he got divorced and married someone from work. And and I I figured he just was sort of like, some people are successful, then they become jerks. And I figured that was what was happening with him. Instead, it turned out he had a pretty rare neurological condition called frontotemporal dementia. It's the same thing that Bruce Willis has, but, you know, Lee was in his thirties, which is extremely rare for something like this. I I have tons of regrets around that. I regret being as angry as I was at him because I basically had to, you know, fire him. And that was a super hard decision for me. And then where I was a mess, he was like, yep. You're probably right. Time to leave. And the reason why is the frontal lobe of your brain is the thing that is what helps you process and have empathy and and have human relations. And he if you look at the brain scans, it's easily missing those. And so I have a ton of regrets around how that all went down. And I try now when people, you know, their behavior changes dramatically to ask, you know, is there something going on in their personal life? Is there is there something going on with their health? Is there something else that's out there? And that was an incredibly hard thing. Lee's still alive, but but can't speak anymore, you know, is a hollow shell of the person he used to be. If you search online for what happened to Lee, there's a wired story that tells the the story of it, but it's I have tons of regret around how we how we handled that. **Harry Stebbings** [46:23]: What one word would you most want to be on your **Matthew Prince** [46:25]: tombstone, and why that word? Internet with a capital I. I I wrote my college thesis on why the Internet was a fad in '96 1996, and I feel like I have a penance to undo that early wrong. I was born in '96, Matthew. Yeah. Well, and so and then and so where where are you gonna God. No. No. Well, mine be reliable. I I'm 48, so I'll be 49 in November. It's only in the last, like, few weeks that there there have been a handful of times where I felt really old, and that was just one of them. So thanks for that, Harry. **Harry Stebbings** [46:56]: Listen. I'm always here **Unknown** [46:57]: to, you know, just bring you up, give you that positive boost. **Matthew Prince** [47:00]: Were you named after the the prince? I thought you were maybe be, like, contemporaries, but you're much, much younger. **Harry Stebbings** [47:06]: No. I'm much, much I don't I don't look that old. I'm I'm 27, Matthew. Like, I'm you know, spring **Matthew Prince** [47:11]: Your your Twitter profile your Twitter profile makes you look much older than you **Harry Stebbings** [47:15]: Yeah. I know. I'm just, you know, devastatingly a good skincare routine, which, you know, is secret to success in all things. You've got a penultimate one. You've got a dinner party. You can have one guest. Who do you dead or alive? Who do you have and why them? You can ask them anything. **Matthew Prince** [47:29]: So alive, I really admire Tim Cook. I think he's a very principled person. Every time I've I've interacted with him, they he's just you know, it's easy to poke at Apple as as the most successful company in the world right now, but Tim just as a human, I think, is really interesting. And having grown up as a gay man in the South and having had the success he has, you know, I I way before Apple was sort of leaning into privacy, I heard him speak about how important privacy was for his life and his career, and and I really admire how principled he is. Dead, I think that probably somebody who's thought really deeply about the sort of principles of rule of law. So maybe maybe Aristotle, maybe Madison. Because I think that the interesting thing is that for us is that when you get to a certain size, we're all in the game of the trust game. How can I prove that we're trustworthy? That's the fundamental problem of governments is how do you continue to be, you know, trustworthy. And I think people who have thought about those challenges and really thought through how you put in place systems that create trust, that's I think those are really interesting people. I'd love to have conversations with **Harry Stebbings** [48:37]: Final one for you, Matthew. If you look at where we are today, which is circa 20,000,000,000 market cap, give or take depending on day, ten years time, what needs to happen for Cloudflare to be a $200,000,000,000 company? **Matthew Prince** [48:49]: I was hanging out with Parker Harris, who's the other cofounder of Salesforce, And this was right before the pandemic. It was January of of twenty twenty. And I was reflecting on the first ten years of Cloudflare. And every single day, including weekends and holidays, I did the math. And at that particular time, we had generated something like $7,000,000 in shareholder value every day since since we had launched, including, again, weekends, and holidays. And I was like, I wonder how that benchmarks against other firms. And so I I looked at Salesforce and what they had done over that same ten year period, which was the second ten years of their life. And I did the math. And every single day, including weekends and holidays, over that same period of time, they had generated something like $48,000,000 of shareholder value, which is extraordinary. And I told I told Parker that, and he's like, wow. That's so cool. I've never thought about I've never thought about it that way. But it's there is something really incredible about subscription businesses. I think it was Einstein, although that might be miscredited, who said that, you know, the most powerful force in the universe is compounding interest. And SaaS businesses have that natural compounding effect to them. And so, you know, I think that as we look forward, you know, we're on a path from a billion dollars of revenue to $5,000,000,000 of revenue. That's inevitable that we'll get there. It's just a matter of how long it takes. And I think that, you know, if you're solving big problems as big as possible, unlike what Harry suggests, and if you're working on things, and if you have a business model, which is, again, SaaS business models are amazing because they they inherently compound, those are the ways to build very large iconic companies. And I think you're gonna see us and and many others over the years to come get to, you know, $200,000,000. And and by the way, that's still not success. We have a lot to go after that. **Harry Stebbings** [50:39]: Listen, Matthew, I'm so thrilled that you did comment back on the tweet regardless of agreement or not. I've **Matthew Prince** [50:43]: loved doing this really well. Your cheap date. Like, everyone else, you've gotta email, like, 10 times. But me, I'm just like, sure. Oh, come on. **Harry Stebbings** [50:50]: Benioff 53 times. Unbelievable. He made me wait. But, Matthew, thank you so much, and this has been amazing. I mean, I thought Matthew was fantastic. I always love a guest who wants a debate. If you wanna see more from us behind the scenes, of course, you can on YouTube by searching for 20 VC. But before we leave you today, ## Sponsor read **Harry Stebbings** [51:07]: did you know that every 20 VC episode you listen to is recorded with Riverside? Riverside is insanely good. Like, I would pay a thousand dollars per month for Riverside. It's that good. Why? Well, first off, ease. Your guests do not need an account. One click and they're in the recording room with you. It is fantastic especially for high profile guests. Second, they record your video and audio track separately and in the background. So they're not only higher quality, but the guest does not need to record their end and then send after which is a total nightmare. But for me, honestly, what I love so much is how much thought they put into the product. Like, when the internet quality is low, they will disable the video for the cool. 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