The basic justification? The market for video conferences grew, remote work became the norm, and Zoom was the market leader at the optimal time.
There is, however, a lot more to the narrative in this instance.
The financial success of Zoom involves more than simply a pandemic windfall. There are four strategic financial lessons you can take away from Zoom's sustained growth, according to CFO Kelly Steckelberg, that can help lead your business in the same direction.
Lesson #1: Adapt Your Business Performance Measurement Methods
The way you measure business and financial performance has to evolve alongside the business because the metrics that matter most today may not be most important a few months from now.
When the pandemic hit, Zoom found this to be especially true. As demand skyrocketed, the metric Steckelberg and her team typically used as a measure of Zoom's performance no longer aligned with business and customer needs.
Steckelberg told CFO Dive that before the pandemic, she was using daily active users to track the software’s performance.
However, with server capacity pushed to its limits, the finance department was forced to start prioritizing concurrent users as the leverage point for Zoom's success.
Changing the success metric enabled Steckelberg and her team to make a difficult strategic financial decision: to increase their reliance on public cloud infrastructure.
In the same CFO Dive interview, she said, “[The public cloud] gives us the ability to flex [server capacity] up and down as we need to going forward. We’re being thoughtful about not getting over-committed from a resource perspective and looking where we can use third-party resources to flex. We’re going to have this hybrid approach.”
Strengthening budget variance analysis makes it easier to dig into your numbers and ultimately helps you solve strategic business challenges as circumstances change. Steckelberg was able to more effectively understand server capacity needs and manage Zoom's hybrid infrastructure by focusing on concurrent daily meeting attendees.
Lesson #2: Take a Strict, Yet Collaborative Approach to Hiring
Headcount planning becomes your company's most pressing challenge when you're going through hypergrowth. It takes close collaboration with business leaders and a strict focus on ROI to scale to meet that challenge.
Zoom’s rigorous, ROI-focused approach to hiring didn’t start because of the pandemic. In a 2018 interview, Steckelberg explained Zoom’s high-growth hiring challenges:
In the years that followed that interview, the company maintained its high-growth trajectory. Zoom now employs more than 3,800 people, according to Owler.
Each step of the way, Steckelberg says, “we have been very thoughtful about every incremental headcount addition, to ensure the ROI on it makes sense.”
However, a strict concentration on headcount ROI can quickly spiral out of control and have a detrimental impact on company culture. To find the right balance, Steckelberg made collaboration a critical component of her headcount planning processes.
During her time as CEO of Zoosk, an online data site and app, Steckelberg said she gained “a much greater understanding of how marketing, engineering, and product development come together,” and she became “more able to prompt people to think, if we’re adding all this headcount over here, don’t we need something on this side as well?” She brought this collaborative approach to Zoom, where she oversees the HR function.
It's crucial to leave the spreadsheets and establish relationships with business executives when you play such a significant part in your company's headcount planning. Sustainable growth can be fueled by a strict ROI emphasis, but only when it's combined with a collaborative approach.
Lesson #3: Embrace a Customer-First Mindset in Finance
It's not solely the front-office departments like sales and marketing that should have a customer-first mindset. Drawing on experience as CEO of Zoosk, Steckelberg embraced the customer-first mantra that has driven Zoom’s financial success and guided the company to new heights.
For Zoom, putting the needs of the customer first forms the foundation of the entire business. After becoming frustrated with how Cisco's acquisition of WebEx impacted customer experience, CEO Eric Yuan founded Zoom. He said, “I was paid very well as a VP at Cisco. But WebEx was my baby. In 2010 and 2011, I did not see happy customers. I was very embarrassed that I spent so much time on the technology.”
Reflecting on Zoosk’s main issue, she said, “There were aspects of our product that were making money but causing great customer dissatisfaction.” Steckelberg was able to pay off all of Zoosk's debt and accumulate some cash in the bank by eliminating those revenue-generating features in favor of enhancing consumer satisfaction.
Due to her previous experience, Steckelberg found it simple to apply Zoom's customer-first mindset to the financial department. The increased use of public cloud infrastructure during the pandemic is the perfect example of that customer-first mindset in action.
Without a customer-first mindset, Zoom might have tried to scale by building additional private infrastructure. While they would would have maintained profit margins, call quality would have declined, and Zoom might have fallen behind its competitors in the long term. Instead, Steckelberg and Zoom gave up their profit margins, worked with Oracle to establish a public cloud relationship, and allowed the business to put call reliability and customer experience first at the scale the pandemic required.
Steckelberg told CFO Dive, “We’re always listening to our customers and learning from them what is most beneficial to them.” It may sound basic, but that relentless customer focus is the foundation of Zoom’s sustainable growth.
Lesson #4: Strike a Balance Between Planning and Accounting
As your business scales, it becomes increasingly important for finance to balance forward-looking planning with backward-looking accounting tasks. That is one of the main reasons Steckelberg was added to the Zoom leadership team before to the company's initial public offering (IPO).
When Steckelberg first joined Zoom, “accounting was in good shape, but planning wasn’t in place.” That didn’t necessarily seem like a problem for the company at the time. According to Forbes, “Zoom grew 300% in 2016 and raised $100 million in January 2017 at a $1 billion valuation” before she joined in November 2017.
However, without the planning component of finance, Zoom was bound to fail when it came time to adhere to the public company's quarterly forecast cadence. To ensure Zoom's expansion was sustainable, Steckelberg took over and gave priority to recruiting a head of financial planning and analysis (FP&A).
The company's decision to institutionalize the forward-looking aspect of finance is what set it on the route to become one of the few profitable tech IPOs. Zoom's revenue increased by nearly twice between 2017 and 2018—from $60.8 million to $151.5 million—and then again between 2018 and 2019.
It’s never too early to prioritize balancing the accounting side of finance with the planning side. The sooner you find that happy medium, the easier it will be to build a strategic finance function that drives sustainable growth.
Want to Promote Sustainable Growth? It Comes Down to Financial Fundamentals
Flashy headlines accompany every account of Zoom's rapid expansion throughout the pandemic. The numbers are eye-catching.
But don't let that divert your attention from the success story's central theme. At the most basic level, Zoom has been successful in recent years because of the partnership between CFO Kelly Steckelberg and CEO Eric Yuan. In an interview conducted in 2019 after Zoom's IPO, Steckelberg stated:
Not every business will experience the same level of growth as Zoom. However, any finance function can adopt the lessons presented here and work toward more sustainable growth.