Zuora in 2017: Leading the Subscription Economy Revolution
2018 | Case No. SM284 | Length 22 pgs.
Long before Spotify had become a household name, and when Netflix was still mailing off DVDs to customers’ homes, Tien Tzuo had foreseen a major transformation in the business world: from one-off sales to subscription business models. He realized that no one was making billing software to serve the complex needs of such companies, so he founded Zuora in 2007 to automate billing, commerce, and finance operations for companies built on a recurring revenue model. Initially, Zuora catered mostly to start-ups, but the world rapidly evolved. By 2017 its customers included companies such as Box, the Financial Times, Ford, GM, GE, Caterpillar, and Zendesk. In 2016, Zuora had crossed a major threshold: $100 million in annual recurring revenue. In 2017, Tzuo could see that Zuora was positioned to hit $300 million, and before then, he believed he would take Zuora public. The company was growing rapidly, and Tzuo had begun that he needed to approach this next phase of scaling more deliberately than he had with Zuora’s early growth. “A company that is going from $100 million to $300 million has to be different than a company going from $30 million to $100 million,” said Tzuo. “That $30 million to $100 million was a sprint; making the transition from $30 million, we were not so thoughtful. I wanted to be more thoughtful this time.” In 2014, Tzuo had identified four major areas in which the company needed to transform: sales, finance, products, and people. Tzuo knew the transformation plan meant he would have to make a wave of leadership changes, managing hirings and terminations. And he would have to change his own leadership style to match the company’s increasing size. Meanwhile, he had to think strategically about how Zuora could fend off challenges both from software behemoths like Salesforce.com and Oracle, and nimble upstarts. To successfully IPO, and satisfy investors over the long term, Tzuo knew that Zuora had to deliver consistency and predictability. “What’s at the top of my mind is how do we build predictability into the machine?” he said. “Can we build a company that just consistently is very boring, that delivers 30 percent annual growth over the next decade?”
Learning ObjectiveThis case prompts students to consider the structural and leadership changes necessary as a company grows from a three-tier to a five-tier organization and contemplates going public. Taking the vantage point of a CEO, the case looks at areas including scaling sales, improving employee leadership skills, advancing the company’s technology development, and developing more robust in-house financial and legal teams. The case also examines how this software-as-a-service business needs to position itself in the marketplace vis-à-vis larger competitors and smaller, more niche upstarts.
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