9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk (Part 5)

Sramana: Who were your first customers? Were they in the financial industry?

Nir Zuk: No, the finance industry is hard to get into. Our first customers were high-tech companies here in Silicon Valley. One of our first customers was SanDisk, a cutting-edge company. We also had an Constellation Energy, a Fortune 500 company on the East Coast. We found that new customers came on quickly because companies started to recognize that their existing solutions were not solving the problems they were facing.

Sramana: What changed?

Nir Zuk: We became pretty good at convincing customers to evaluate our product. We would get them to commit to having our product on their network for one week, in a completely unobtrusive way. Once they had our appliance on the network, they were able to really see what was going on. We had compelling marketing and great customer references. Once you have that, it is like a snowball.

Sramana: What happened after you gained your first few customers?

Nir Zuk: We spent most of 2006 working and started selling the product in August 2007.

Sramana: How have your sales ramped up?

Nir Zuk: Today our bookings run-rate is north of $100 million. Our plan is to more than double revenue in 2011.

Sramana: What is an average deal size?

Nir Zuk: We have many six figure and even some seven figure deals happening every quarter now. In the early days we sold directly even though we are a company that conducts 100% of sales through channel partners. My people had to do the hard work in the early days to build momentum for our channel partners. Today, most deals come from partners.

Sramana: How long did it take for you to build up your channels?

Nir Zuk: Our channel partners were interested even before we had a product ready to sell. We were completely stealth about what we were doing, so the only people who knew what was going on were people who we had worked with in the past. They were people who had sold for us at Juniper and Check Point.

Sramana: However, your product was behind the firewall, so you were not going against Juniper and Check Point, correct?

Nir Zuk: In the early days we were sitting behind their products. We did not want to wake those companies up or provoke them. We sold our product as a complementary item. Our channel partners were having problems making sales with Juniper because Juniper was taking a lot of sales directly. Check Point kept squeezing their channel parnters as well. That led to us getting a good number of hungry channel partners.

Sramana: What is the next big milestone or inflection point in the history of Palo Alto Networks?

Nir Zuk: Until the beginning of 2008, we were running the company with an interim CEO. At that point we realized we needed a professional CEO. I have seen the process of bringing on a CEO work in some companies and fail in others. We as founders had to recognize that we were not necessarily the best people to actually run the company.

Dave Stevens was brought in by Sequoia. We wanted to have a business partner and we spent a good deal of time in our search. We did not just meet with potential CEOs; we tried to sit down and work with them. Our business plan was not complete at the time, so we would have them work on that with us. I did believe the company had some key values and I wanted to make sure the CEO shared those values.

Sramana: What were those values?

Nir Zuk: One value which was hard to find someone to support was that we, as a company, would be 100% U.S.-based. It was very important for me that we did not offshore or outsource. We do all our development and manufacturing here. That was important to be for several reasons. I am a U.S. citizen, even though I did not grow up here. I want to support the United States, not India and China.

I believe that it is a social responsibility of entrepreneurs who were educated in the United States, or learned how to be entrepreneurs in the United States, to give back to the United States. They should not take their skills to China or India. The second side of that is that I just do not believe in offshoring. In the early days of a company, everybody needs to be in the same building. It is easy to find a partner who says they will share that philosophy. It was hard to find a partner who would make that fight with investors.

Sramana: Was it a lot more expensive to do it all in the U.S.?

Nir Zuk: I think it is cheaper to do it here rather than to offshore it. The perception is otherwise, and it is hard to convince investors. We built a product with 25 engineers that is much more feature rich than anything our competitors have.

This segment is part 5 in the series : 9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk
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