Clay Finck (02:08):

Frederic, let’s get right to it. Now, you co-founded Okta in 2009 and today the company has a market cap of $20 billion. As a guy from the small town in the Midwest, I have to ask, what has the experience of founding a multi-billion dollar company been like for you? And in the early days, did you ever imagine it becoming just so big?

Frederic Kerrest (02:28):

Well, when you put it that way, it certainly gives me room for pause. Look, when we started the company, I think entrepreneurship is great for a lot of reasons that I know we’re going to talk about a little in today’s podcast, we saw a huge opportunity, my co-founder Todd McKinnon and I, to help organizations as they were adopting this new technology, which in 2009, when we started was called software as a service, SaaS, it’s now called enterprise cloud and has all sorts of other fancy terms.

Frederic Kerrest (02:54):

And we thought it was a better way for most companies to consume the most new technology, but they needed a better way of integrating all this. And we thought we had a good idea. Certainly, roll the clock forward today, there’s 5,000 employees, it’s a billion-and-a-half revenue business, growing 50%-plus year over year, with 15,000 customers. I could not have written that. So, if you’d given me all those stats when we started, I would’ve taken them in a heartbeat, but today it feels like we’re in good shape, but I think there’s a huge opportunity ahead. And that’s what’s very exciting for us.

Clay Finck (03:24):

For those not familiar with Okta, could you give us just a quick rundown on what the company does, in layman’s terms?

Frederic Kerrest (03:31):

Yes, of course. Okta, we’re the global leader in enterprise identity. So, there are two big components to our business. The first one is what we call workforce identity. So, if you’re an employee at a large organization or a sector of the government, you’re using modern cloud technology, you’re using maybe Gmail for email, or salesforce.com for CRM. Well, getting access to all that information and doing that in a very easy way as an employee, while at the same time, making sure that it’s very secure for the employer, is one of the things we do. So, that’s workforce identity management. That’s about two thirds of our business, growing just about 40% year over year. So, it’s a good business and it’s where we started and that was the core of it.

Frederic Kerrest (04:11):

The second part of our business has really taken off since we’ve been public over the last five years. I think when we went public, our total addressable market was about $18 billion. Today, that’s quadrupled. But the customer identity management part of the business, that second part of the business was actually zero when we went public, it wasn’t even a thing. It’s now grown to be about a $30 billion total addressable market.

Frederic Kerrest (04:32):

That is digital transformation, the most overused term in the industry, what it really just means is that everyone’s trying to find a better way to interact with their customers, their partners, their vendors, their suppliers. So, if you have a login to TrueBlue, the JetBlue affinity program, or you log into mlb.com to stream the world series, or you go to a Disney entertainment park and you log in to check your tickets, all of that identity infrastructure, we run that as well. That’s a big business for us. It’s about a third of our business now up from about zero when we want public five years ago, growing 60, 70% year over year. And again, something that as more and more organizations just look to use the internet for more and more of their commerce, it’s a huge opportunity for us out there.

Clay Finck (05:14):

Yeah, it definitely seems like the markets you’re operating in are becoming more and more of a need as you grow, yourself. And I mentioned you started Okta in 2009. You mentioned that the company now has 5,000 employees. So, your role has obviously drastically changed as the company has grown. So, I’m curious, what was the driving force for you to just stick with the company for so long and still be with them today?

Frederic Kerrest (05:38):

Well, a couple things. First of all, I’m having a good time. So, you got to make sure that you’re getting up every morning, excited about what you’re doing. And for me, it’s still a lot of fun. I get to work with some fantastic people every day. I’ve gotten to build some amazing relationships with really forward thinking, C-level executives at all sorts of companies, who are trying to move their businesses forward with technology. We’re on the forefront of innovation. There’s never a dull moment. So, first of all, first and foremost, you got to do what makes you happy and what you enjoy. And I still get up every day early in the morning, excited about going to work. So, that’s a good thing.

Frederic Kerrest (06:08):

But secondly, also, when you’re trying to build a business the way we have in enterprise technology or enterprise software, you want a big opportunity out there and something where you really think you could have a big impact. I think that software as a service, or enterprise cloud, as it’s now called, I think enterprise software is great. It’s what I’ve done my entire career. I got a computer science degree in the late ’90s. And since then, moved to the business side of things, but I’ve always been in enterprise software. I think it’s very exciting. I think it’s very interesting. And I think it does a lot of great things for the world.

Frederic Kerrest (06:40):

I also started writing software in a client server world on-premises in the old days, and that moved to enterprise cloud. I was fortunate to be working at Salesforce and had a front row seat to drinking a lot of Kool-Aid in the early 2000s, when the company went public and just saw a lot of value in organizations using subscribing, renting software over the internet, as opposed to installing it themselves.

Frederic Kerrest (07:03):

ROI, the return on investment is higher. The TCO, the total cost of ownership is lower. And frankly, a TTV, time to value, is just so much quicker that it just makes sense for most companies to rent most software over the internet, if it’s just not core software that drives their own businesses. And we find ourselves today in a market where, when we started this 13 years ago, everyone said, “Putting identity in the cloud. That’s crazy. That’s never going to work.” Identity management had typically been a sleepy industry. I think the total TAM for what we were doing was rated at two or 4 billion or something by Gartner. Fast forward today, it’s an $80 billion TAM that’s growing 10, 20% year over year, where we’re the clear market leaders with a huge opportunity ahead.

Frederic Kerrest (07:44):

As a business executive, there’s not much more exciting situation you could find yourselves in than where we are today. And so, I’m very proud of the results. I think we’ve done a fantastic job. The team’s worked very hard over the last 13, 14 years in building the company. But frankly, I think the next three, five, 10 years are going to be way more interesting and exciting. And that’s the fun part for me.

Clay Finck (08:04):

Very cool. Now, I got a chance to read your book, Zero to IPO, and I wanted to talk a little bit about that, but before we dive into some of the details, I couldn’t help but notice in your book, you mentioned that your dad was the CFO at a number of publicly traded companies. Not too many people can say that their father just is so successful and is able to learn so much from him as you grow up. So, what are some of the biggest lessons you learned from him?

Frederic Kerrest (08:30):

Yeah, absolutely. My father was the typical immigrant entrepreneur story. He came to America from France in his early 20s with a suitcase in his hand and $500 in his pocket. He tells me now, he’s like, “It was 250 bucks in his pocket.” Fine. Let’s just say it was $500 in his pocket, didn’t really speak the language, and built an amazing career for himself. And was a six-time public company CFO, as you said, what did I learn? I mean, I learned a lot of things. First of all, when we started the company, I was the CFO and I’d spent my entire career trying not to become a CFO, because of course, you don’t want to do exactly what your dad did. So, he found that endlessly entertaining and chided me for a long time and always said, “Oh, let me know if you need me to review your books.”

Frederic Kerrest (09:10):

When you’re a small company, there’s not much to review. It’s like, how much are you spending and how much do you have left? But I was the CFO for the first two years. I’m glad I got out of that job and I was able to hire much more seasoned professionals. So then I didn’t have to take the heckling anymore at home, which was good. I learned a lot of things. First of all, just organization and efficiency, just understanding where things are and how to build a plan and how to follow that plan, how to adjust those things.

Frederic Kerrest (09:35):

I remember when I was six years old, I was able to sign my name, because that’s how I got a library card, back in the day, when we went to the library. And the day he found out from my mom that I could sign my name, he took me down at the bank, because turns out that all you need to open a checking account back in the day was also to be able to sign your name. He’s like, “Well, you can sign your name. I know because you did it for the library card, so you can do it now.” So, by the time I was six, I had a checking account with one of those little books where you would write the balance of, “I have this much and this much went out and here’s the interest.” And so, we were certainly taught a lot of good financial education at a young age.

Frederic Kerrest (10:08):

The other thing I would just say is focus on hard work. I mean, my dad just got up every day, worked very hard, built an amazing career. Those things don’t happen by themselves. Certainly, there’s plenty of luck involved, but there’s also just a lot of hard work. And I think that focus and that dedication and determination certainly served me and my siblings very, very well. And then I think the last thing is just to have a big dream. My father always had this vision of where he would go and how he would do it. And certainly, he did a fantastic job, personally and professionally for himself. But also, I think instilled in me and my siblings, the idea of having big dreams and going for those big goals. And look, if you set a high bar, even if you miss it by a little bit, you’re still going to be in really good shape. And I think those are a few of the big takeaways.

Clay Finck (10:48):

That’s funny you mentioned going to the bank. I remember my dad taking me to the bank as a child to open up my first checking and savings account. So, it’s pretty funny that memories tends to stick with us, even though it seems like a pretty basic thing to do nowadays.

Clay Finck (11:01):

Now, things weren’t always so smooth from the beginning and starting your company. You tell the story in your book that you presented to the board, that you missed your revenue target by 70% back in 2011, which obviously didn’t make the board and investors too happy, if I had to guess, how were you able to bounce back from that?

Frederic Kerrest (11:19):

Yeah. Well, that’s a true story. Some of those dates are indelibly imprinted in your brain. It was June 30th, 2011. So, at the time we hadn’t changed our fiscal year to be a Feb 1 fiscal year yet. So, the fiscal year was the calendar year. So, the end of our second quarter was June 30. Turns out we were also trying to close our series B financing at that time. So, not only did we miss the quarter by 70%, but I was talking to the theoretical new investor who had given us a term sheet and he said, “Oh yeah, so how’d the quarter end? Before I give you guys all this money.” And I said to him on the phone, “Well, we missed by 70%.” And he said, “17%?” I said, “No, no, no, 70%.” And he’s like, “That’s a huge problem. I’m going to be there in 60 minutes.” And he drove up from his office.

Frederic Kerrest (11:59):

So, it was a tough time. I think one of the big reasons that I told that story and I had a lot of very successful entrepreneurs tell similar stories in the book is because there’s this impression from the outside that these companies, Meta, or Amazon, or Salesforce, or even Okta, if we’re fortunate enough to be considered in that group, they were destined for greatness from the beginning. And that, “Entrepreneurs struggling at home, well it’s just very different and they’re never going to succeed.” And nothing could be further from the truth. I mean, all of these “amazing, predestined companies” they’ve all almost died 20 times.

Frederic Kerrest (12:32):

And so, I think just demystifying that process and letting everyone know that it’s hard for everyone all the time, was one of the goals. Certainly I think in that situation, that was very, very hard. I mean, first of all, we almost didn’t bounce back, to answer your question. 2011 almost was the end of the company. We were fortunate to raise that series B round of financing, thanks to David Weiden and Vinod Khosla and the team at Khosla Ventures, who really pulled through for us and did a great job.

Frederic Kerrest (12:57):

But we also had to take a hard look in the mirror and figure some things out. It turns out we had one big piece of the puzzle wrong, which was our go to market strategy. We were focused on small to medium businesses who, first of all, don’t pay you a lot of money. Second of all, they didn’t have a big identity management problem. Turns out the bigger problem was in the enterprise. And once we pivoted to that, and once we got a little more leadership on board and it wasn’t just me and Todd trying to do everything, those were two of the big reasons that things turned around. But we almost didn’t bounce back, it was almost the defining moment. And we wouldn’t be here talking about Okta anymore, at this time.

Clay Finck (13:30):

As a technology company, you’re often competing against some of the biggest companies in the world. Today, that includes Apple, Google, Amazon, some of the ones you mentioned. How are smaller companies like what Okta was in the past, able to fend off competition that has what feels like unlimited pools of capital at their disposal?

Frederic Kerrest (13:50):

Yeah. In fact, the biggest one that we compete with you didn’t even mention, is Microsoft. And so for us, first of all, as an entrepreneur, that’s quite something because I remember as a kid growing up, writing on Microsoft operating systems and now competing with them as the number one competitor in their market, who is beating them by the way in the Gartner Magic Quadrants and everything else. That’s pretty exciting as an entrepreneur.

Frederic Kerrest (14:08):

Yeah. I think the number one thing, frankly, is just focus. I mean, those companies that you mentioned, they have so much going on that they’re basically a private equity portfolio of balanced properties at this point, that they’re all trying to push forward. There’s competing priorities inside there. There’s different initiatives that the CEO has. The different GMs are running good businesses, but it’s really about what does the CFO want to talk about at earnings? And that’s going to be the focus.

Frederic Kerrest (14:34):

Big difference for us is we have 5,000 people and all they do every day is get up and think about identity management and they think about how they can help our customers move forward and adopt all of this modern technology. And I think that’s a huge advantage. Now, certainly, is it something that we think about every day? Yeah, of course. We live in a competitive environment and we got to make sure that our products are working well and that we’re driving more value for our customers.

Frederic Kerrest (14:57):

But it’s like the race car drivers, if you talk to any of them who drive a NASCAR or something at 200 miles an hour, they’ll say, “Yeah, well you have to know where that wall is right next to you, but you don’t want to stare at it, because otherwise you’re going to crash into it.” So, you have to have a plan and a program and a vision of where you’re going. You have to be aware of what’s going on in the competitive environment, because we’re selling to companies and Microsoft’s trying to sell them software too. But at the same time, I think that that focus and that determination really to put customer success first, I think that has really played out well for us and frankly, for our customers. And so far, so good.

Clay Finck (15:28):

Right off the bat in your book, Zero to IPO, you list three rules to live by. Could you discuss those three rules for the audience?

Frederic Kerrest (15:37):

Yeah. Happy to. And in fact, Clay, the reason I put that in there is in case no one read anything else from the book, hopefully they would take away those three rules. The first one is, time is your most precious asset. So, entrepreneurs, there’s a lot coming at you when you’re trying to build businesses. People have all sorts of ideas. You’re trying to hire employees. You’re trying to build products. You got to realize that there are some things you should be doing, but there are some things you should not be doing, first of all.

Frederic Kerrest (16:01):

Second of all, you need to prioritize what you’re doing, because only you know what is most important. Great example of that is email. Email is largely what other people want you to do, not what you should be doing. And so, thinking about where you should be spending your time is the most important thing. Right in line with that is number two, which is keep the main thing, the main thing. I had an amazing professor in grad school who gave me that very simple lesson. And I was like, “Wow, that’s actually pretty transformative.”

Frederic Kerrest (16:25):

More than once a day when I’m in my office with other teammates, they will probably hear me say out loud, “What is the most important thing I should be doing next?” Because thinking about your priorities and again, trying to get rid of all the noise around that, that is the key to really getting anything done and locking in to get specific projects done.

Frederic Kerrest (16:43):

And then the last thing is about sales. Nothing happens till somebody sells something. I think the CEO of yesteryear was a salesperson, the CEO of today or tomorrow’s a technologist. What do technologists know? A lot about technology, but they don’t realize that you can’t just sit in an ivory tower and build something and like the Field of Dreams, “They will come.” In a lot of situations and particularly in the enterprise, you have to go out and sell that. And you’re really going to only learn what you need to be building in detail, when you start talking to prospects about what they need and what they want and how you’re going to build that for them.

Clay Finck (17:13):

I really like the point, keep the main thing, the main thing, it reminds me of my co-host, Robert Leonard. He recently had Jay Papasan on the show and he wrote the book, The ONE Thing, and just another brilliant book that hits on that brilliant idea. Now, many people might be wondering whether starting a company is right for them. What do you think are some of the key traits to being a successful entrepreneur and starting a company?

Frederic Kerrest (17:38):

Well, first of all, you got to want to do it. So, more than anything else, it’s the big unknown. So, going out there and realizing that you’re the only one who’s going to decide what’s going to happen today or tomorrow or the day after that. Thinking about the vision that you’re going to have to have, and that you’re going to have to paint. We talked a little bit about sales just now. Convincing a lot of amazing people to come along for the ride, whether that’s investors who are going to give you their money, whether that’s employees who are going to leave their cushy jobs at Meta and Amazon and everywhere else, to come and join you for a piece of the vision in the future. Whether that’s your landlord, are they even going to rent you the office space that you need, because you might run out of money the next day? All those kinds of things are very important and you need to get excited about that.

Frederic Kerrest (18:22):

The other thing is you need to have conviction. You need to have a vision and a plan of where you’re going. That works for whether you’re trying to build a high growth technology company with a billion dollars of revenue, or frankly, even open a bodega down on the corner. You need to have a plan and a vision of what you’re trying to do and where you’re trying to go, and how you’re going to get there. And then you need to paint that vision and then you need to be able to execute. You can’t just sit there and have all these great ideas and then not put them into play.

Frederic Kerrest (18:45):

So, there’s a number of those different things. If it is for you, I think the upside is amazing. I think it’s a fantastic career. I think entrepreneurship has a lot of great skills, innately qualities that entrepreneurs get to benefit from, things like self-determination and motivation and excitement and energy. And then frankly, you got to remember, entrepreneurship has basically created all the net job growth in the Western world over the last 50 years. Not only all the gross job growth, but also it’s replaced all the jobs that we’ve lost from the dinosaurs of yesteryear. So, it’s a very important engine for the economy and something that I think the more we can get information into people’s hands and give them the opportunity to be successful entrepreneurs, the better off we’ll all be.

Clay Finck (19:27):

Growing up, did you always want to be an entrepreneur? I often wonder whether some people are almost born for it, like it’s almost in their DNA from the very beginning, or do you think many of these traits are self-taught along the way?

Frederic Kerrest (19:41):

I had a number of companies that I started when I was younger and they all failed. When I was seven years old, I started a aluminum can recycling business. So, I would go to my neighbor’s house and for 5 cents you could go down to the store and bring them your cans and they’d give you a nickel for the recycled aluminum. And I had these posters, the posters said I was the can man. And I would walk around with my little cart and I would split the 5 cents with my neighbors. So, for every can I get two-and-a-half, they get two-and-a-half cents. I don’t know how well that business went in the end, but that was the first one.

Frederic Kerrest (20:13):

The second one, I had a failed tennis racket re-stringing business in high school. I played a lot of tennis in France. It’s one of the big sports. And I started re-stringing my own tennis rackets and then I started re-stringing other people’s tennis rackets. And that business didn’t go very well either. So certainly, I had plenty of failures to start off with, but no, I think it’s something that probably has always been in my blood. It’s something I saw my dad do at certain points in his career. I had it in the extended family, there were some pretty good examples. And I thought it was interesting.

Frederic Kerrest (20:42):

Don’t get me wrong, I’ve worked at large organizations. When I joined Salesforce in 2002, there was about 100 people there. The company grew to be 3,000 people-plus when I left. So, I learned a lot of good things there as well and made some great friends and some great frankly, professional mentors, who I still speak with very frequently today. But I do think it’s one of those things that I’m probably … It’s a defective gene that I have, that I’m not going to be able to get rid of.

Clay Finck (21:04):

For those who are bold enough to start a business that disrupts the status quo of an industry, how much better does the product have to be over what currently exists in the market?

Frederic Kerrest (21:15):

That is a very good point and I’m glad you bring that up. People think that if they come up with a widget that is 5% or 10% better, that that’s going to be a great way to move the dial and people are going to get excited about that. The reality is they aren’t. You have to come up with something that is an order of magnitude more effective, efficient, that return on capital driving business, whatever it is, to really move the needle and have any chance.

Frederic Kerrest (21:39):

Look, if you come to me and you tell me that … Everyone complains all the time about their iPhone battery. If you came and gave me an iPhone battery that was 10% better, that’s not something that anyone was going to invest in. If you showed up and said, “I can triple the length of the iPhone battery.” I bet Apple will listen. So, you really have to think about what is that massive step function? Not just that rounding error that you’re going to be able to add to that business.

Clay Finck (22:01):

You co-founded Okta with Todd McKinnon. While starting a company with two people can be much more manageable than going at it alone, going at it alongside a partner can bring its own set of challenges as well. So, how did you know that Todd was the right partner for you?

Frederic Kerrest (22:18):

Yeah. My co-founder Todd McKinnon, is amazing. He and I met a long time ago, way before we decided to go into business together. The data is very clear for founding teams. I think professor Ed Roberts, who was a professor of mine at MIT, came out with one of the seminal studies on this, indicating that really ideal founding teams are between two and four people. At one person, it’s just too hard, the ups and the downs, and there’s no one to bounce anything off. And then I think if you have five people-plus, there’s just too many people. There’s too many cooks in the kitchen, right? You can’t really get anything done or make any decisions.

Frederic Kerrest (22:50):

So, there was two of us as co-founders. Today, we still run the company together and it’s going very well. Certainly, we have been in business for 13 years now, so I spend a lot of time with Todd. And it’s like any good relationship that you have with a significant other, a spouse, a good friend, a teammate, someone you’ve known for 20 years, you get to know people pretty well and you get to understand how they operate, what they’re thinking about, where they’re going next. And in a lot of cases, it actually, frankly, cuts down on a lot of the back and forth, because you can have very clear conversations.

Frederic Kerrest (23:22):

We also have a lot of trust and confidence, and there’s a lot of transparency in our conversations, because we were both there when there was nothing else. We were both there in 2011 when we almost died a couple times as a company. So, at this point, I think the other person gets a lot of credit and the conversations are very high bandwidth and there’s a lot of trust that the other person is doing what they should be doing, and so forth. So, it’s a very good relationship. I’ve been very fortunate to work with Todd for the last 13, 14 years. He’s done an amazing job as the CEO of the company. And yeah, I couldn’t have picked a better co-founder if I tried.

Clay Finck (23:54):

I love that. And I just can’t help but wonder how people like Elon Musk and Jeff Bezos are able to oversee and run so many successful companies and really not even feel like they’re skipping a beat.

Frederic Kerrest (24:08):

Yeah. That is a great point. Right now, I am also the chairman and co-founder of a neurotherapeutics company. We’re working to find new cures for central nervous system disease. We have some great breakthroughs in Alzheimer’s and Rett syndrome to start with, a company called Herophilus. And my co-founder there is actually one of my best friends for the last 25 years, an amazing professor named Saul Kato.

Frederic Kerrest (24:30):

And Saul and I have known each other for so long and have been such close friends, that it’s a different kind of partnership actually than I have with Todd, because Todd and I mainly have been business partners, whereas Saul and I can have also very high bandwidth conversations and skip a lot of steps, but in a completely different way. So, maybe I’ll have to write my next book on different types of co-founders or things like that.

Clay Finck (24:54):

In your book, you walk through essentially the whole process of taking your company from zero all the way to the IPO stage. And that includes receiving funding along the way. How should founders know when it’s time to raise outside funding from new investors, such as through something like venture capital?

Frederic Kerrest (25:11):

Yeah. Well, one of the great things of being an entrepreneur is you get to decide how you want to build your business. And certainly, in the book, Zero to IPO, I talk a lot about the vision and the mission that we had around high-tech entrepreneurship. A lot of the entrepreneurs I speak with in the book are folks who have raised institutional venture capital. So, we can certainly talk about that. I just want to be clear though, there’s a lot of other ways as an entrepreneur to build your business. First of all, I know a lot of people who are successful “serial entrepreneurs” who build a company for a few years, they sell it, then they start another company, build it for a few years and sell it. Maybe they’re experts in a specific industry or type of technology. That’s a very good way to build a business.

Frederic Kerrest (25:51):

Another very good way is a cash flow. Back to the bodega, I mean, that’s how those businesses are usually run, they don’t raise institutional venture capital, certainly. But if you are going to raise institutional venture capital, that is a special beast in and of itself, certainly. Specifically when founders know that it’s time. That’s a good question. I think if you ask a lot of different entrepreneurs, you’ll get slightly different answers and it’ll be somewhere between when you have confidence in your business, to when you see things working, to when it’s time to take it to the next step.

Frederic Kerrest (26:21):

I think all of those are probably accurate. They probably depend a little bit on what kind of business, again, what the entrepreneur’s trying to do, what the stage is and what the industry is and what kind of products that you’re building. But what I would probably say is, look, there’s a lot of good use of outside capital. One of the biggest ones obviously, is just accelerating the growth of your business. A lot of times you can reinvest the profits from your business into that business and keep growing it, but if you think that you’re really onto something that is a big market, and we’re talking about a market that starts with a B, so billions of dollars.

Frederic Kerrest (26:52):

Second of all, where there are some large incumbent organizations, like we mentioned a number of them earlier on. You could be going up in an industry against Amazon and Alphabet and Meta and all the rest of them. Third, a big growing industry is a big one. It’s going to be very hard to go into an industry like chip manufacturing, where you’re going to need to upfront, have tens of billions of dollars just to build the fabs and go and compete with Intel.

Frederic Kerrest (27:16):

So, I think there’s a lot of different components to it, but yeah, I would say that when you have a lot of confidence and you know that it’s time to accelerate, to hit that next level, that’s always a good time to start talking to folks about outside capital.

Clay Finck (27:28):

One question that just came to my mind, oftentimes when you raise funding, that leads to dilution of your own equity and dilution of your voting rights in the company. I’m curious if that was a difficult hurdle for you to make, given that you were giving up some of that control of the company that you started from the very beginning?

Frederic Kerrest (27:48):

Well, it really wasn’t, because that was the plan. So again, we could have built a cash flow business and there’s nothing wrong with being the 100% owner of the little store. That’s great. In fact, that’s how America was built largely. But if you plan to build a high-growth technology company, if you plan to build a public company, which we always knew, that was one of our goals to build a large, independent, public software technology company. Ultimately, at some point, you’re going to have to give up some of the equity and that’s part of the deal.

Frederic Kerrest (28:13):

First of all, when it comes to the equity and the voting rights, I would really focus on the equity. Voting rights really don’t come into play until much later. I can’t remember ever having had a real vote as a private company. People ask me this a lot, “Well, how many board members?” And so forth. Look, if you’re coming into it and it’s going to be a voting story as a private company, things are already in a bad place. And frankly, even when you become public, there’s not a lot of voting going on. I mean, the votes are all in line. Certainly, over time, when you’ve been around 50 years, the voting matters. We’ve been in public for five years and there’s still not a lot of voting.

Frederic Kerrest (28:46):

Equity is important though. Absolutely. And the way I think about that is, look, you’re trying to build a bigger pie. Ultimately, you want a smaller piece of a bigger pie. That’s what you’re trying to do. You can own the entire pie and then you sell no equity and you run that business. But if you’re trying to build a really big business, it’s going to be a much bigger pie and naturally, you’re going to have a smaller percentage of that, but ultimately that’s going to be more valuable. And then also, you get to bring a lot of amazing stakeholders around the table with you.

Frederic Kerrest (29:12):

I mean, it’s not as though you’re selling your stake, you’re selling a percentage of the company and some stock to people who aren’t going to add value, right? In theory, you’re bringing in others who are experts in the business, the industry, the geography, whatever it is, that can really add to it. And ultimately, it should be additive to the whole picture of the capital that you’re bringing in.

Clay Finck (29:34):

That makes sense. Now, with Okta as big as it is today, you’ve learned the importance of hiring the right people and instilling the right culture within the company, and obviously, developed to be a very effective leader yourself, given your company’s success to-date, I’m curious what your biggest lessons are that you’ve learned over the years on what it takes to be an effective leader?

Frederic Kerrest (29:55):

Yeah. Well, you talked about it first and foremost, it’s people. We are in my business and in software businesses in general, human resources is a pretty funny term, right? It’s like, you’re talking about people as human resources as well. It’s because back in the day, when they had factories, they had other resources and then they brought in people and they became the human resources. Well in our world, it’s just people, I don’t have any factories. I don’t have heavy machinery. North of 50 cents of every dollar that we spend is on hiring, attracting, developing, growing the best people in the world. And so, that’s a big focus for us.

Frederic Kerrest (30:24):

First and foremost, there’s a lot of different successful leadership styles. So, it’s an interesting question, but I’m always hesitant to say, “This is the way you need to lead.” Or, “That’s not a good approach.” Frankly, different things work for different people. I mean, different leaders have their own approach. Now, ultimately, I think there are a few things have to be true. First of all, you got to be genuine to whatever you’re trying to do, because you’re going to have to do it day in and day out. And in our case, we’re fortunate, we’re still in business over 10 years later. And so, you have to be living that every day.

Frederic Kerrest (30:55):

Second of all, you got to think about culture proactively, ahead of time. And it’s not just what you’re going to say and some words you’re going to put up on the whiteboard, but you got to live it every single day. For us, we spend a lot of time working on those things. Love our customers. We talk about innovation, talk about transparency. We talk about empowering our people. We talk about teamwork. We talk about integrity. These are things that you also want to repeat over and over, especially when you’re our size, growing as fast as we are, we add hundreds of new employees every quarter. So, every quarter there’s people who don’t even know what the culture is.

Frederic Kerrest (31:23):

Third of all, it’s not about me anymore. I mean, it was when it was me and Todd, it was pretty easy, either Todd was doing something or I was doing something, or no one was doing it. Well now, there’s thousands of employees out there. Most customer conversations happen without me there. So, culture ultimately is also about, how are other people going to behave when you’re not there? Because it’s got to become their culture, not my culture, not Todd’s culture, but the culture of all the employees and what we want to have.

Frederic Kerrest (31:47):

So, now the last point I’ll make is for me, personally, I just try and hire the best people I can and I try and give them as much room to run as I can. And then I see my job as, how do I make them successful? How do I take down roadblocks? How do I get things out of their way? If they need help with strategy or they have specific questions, I’m happy to give them that feedback, but I’m certainly not a micromanager.

Frederic Kerrest (32:07):

As you mentioned at the beginning of this episode, when we started the company, I did everything. I was the CFO. I was the GC. I was the chief information officer. I was the chief security officer. I was the head of sales. Now I have none of those jobs, by the way. And we are that much more successful. Why? Because I was able to find amazing professionals much more successful and focused on all those areas than I am. I was able to convince them to come and join our company and to run these big parts of it. And I could not be happier. And for all stakeholders, that makes us all much more successful as a group.

Clay Finck (32:38):

Now on our show, we talk about stocks and the stock market quite a bit. So, I can’t help but mention how Okta stock has performed over the last couple of years. And it’s moved alongside many other tech stocks. Pre-COVID, the stock was trading north of $130 a share, rose all the way to nearly $300 and now sits around 125. With how big your company is, how are you able to help tune out just the massive volatility in the stock market, out of the company and make sure that people are focused on the day to day operations?

Frederic Kerrest (33:10):

Yeah, absolutely. I mean, that’s one of the things being a public company, is there’s a stock market out there and there are the vagaries of the stock market. So, I think there’s a few things to that. First of all, specifically to this stock market, look, it’s a pendulum that swings back and forth. Especially if you’re in a high-growth technology company, it swings from growth to profitability and back to growth. Interest rates are involved. Certainly right now, there’s a lot of external factors with a massive war that’s still going on in Russia and Ukraine, unfortunately, that’s impacting a lot of things.

Frederic Kerrest (33:38):

So, as a high-growth company, I think we have a very good plan that we’ve laid out to the street, that I’m very confident in of FY ’26, where we’ll have $4 billion of revenue that will be growing 35%-plus each year from now, until then. And that when we get there, it’ll be 20%-plus FCF margins. And I feel really good about that. I think that’s a great place to be, and we’re tracking very well to that. And frankly, if we do that, it will be an exceptional success. So, that’s the first thing at the macro level.

Frederic Kerrest (34:08):

When you double click into the stock price, you can’t look at the stock price every day. I mean, it’s not helpful. First of all, there’s only two days when the stock price matters, it’s the day you buy and the day you sell. And I tell everyone, “Look, when you’re coming to Okta, we’re going to pay you well, because you need to put a roof over your head. You need to send your kids to college. Life’s expensive. We understand that.” But also, you’re basically buying low and whether that’s 130 or $300, look, I’m not going to be a prognosticator of stock, if I were, I would have a different job, I’d be on Wall Street. But I’ll tell you that if you’re going to buy and hold this stock for three or five or 10 years, you’re going to do very well. Had you bought the stock when we went public in April of 2017, today it would be even at $125, that’s a 700% return. I feel pretty good about that for shareholders overall.

Frederic Kerrest (34:48):

The final thing is when I talk to prospective employees about this, I said, “Look, you have to believe in the long-term vision.” It doesn’t matter, I mean, otherwise you’re going to be day trading. I think our long-term vision is very, very good. I think the markets that we’re in are very big markets. I think the tailwinds that we’re riding right now, the massive trends of number one, hybrid IT transformation. Number two, digital transformation, and when adopting more digital technology to better interact with their customers, partners, vendor suppliers. Number three, the underpinnings of zero trust security, which are now prevalent everywhere.

Frederic Kerrest (35:18):

These are very big waves. They are in the early innings and we are very well-positioned to capitalize on them. Again, I’m very excited about the progress we’ve made. Look, billion-and-a-half revenue, 5,000 employees in 12 years, I’ll take that in a heartbeat. But if I roll the clock forward, these markets are $80 billion and growing fast. We’re the clear leader. There’s a lot of incumbent legacy, on-premises software, that needs to be ripped and replaced over the next decade. And I’m very excited about the opportunity that we have and the markets we’re in. So yeah, I mean, the stock market is a real deal and if you’re a public company, you got to deal with that, but overall, I’m very excited about the position we’re in today.

Clay Finck (35:53):

Very exciting. Frederic, thank you so much for coming onto the show. Congratulations with all of your success with Okta and the launch of your new book. If you enjoyed this conversation, for those of you in the audience, check out his new book, Zero to IPO. Before we close out the episode, I’d like to give you, Frederic, the opportunity to give any thoughts and a hand-off to your book.

Frederic Kerrest (36:14):

I appreciate that, Clay. I just want to say thank you very much for having me here today. I really appreciate it. I’m very excited about the book. I’m glad that it’s launching. It’s the field guide, effectively, that I wish I had had when I’d started Okta. So, we tried to make it very practical.

Frederic Kerrest (36:27):

And then finally, I’ll just say that it’s for a good cause. All the profits for the book are going to fantastic nonprofit organizations, BUILD, and The Hidden Genius Project. One’s national, the other one’s in my backyard here in Oakland, who use entrepreneurship and leadership skills to help Black youth and youth from under-resourced communities more broadly, stay in school, using some of those skills. So, there’s no better way for me to try and share what I’ve learned with the entrepreneurs out there while at the same time putting it back into the future generations as well.

Clay Finck (36:56):

Wonderful. Thank you so much, Frederic.

Frederic Kerrest (36:58):

Thanks, Clay. Have a good day.

Clay Finck (37:00):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app, so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on. This will really help us in the search algorithm so others can discover the show as well.

Clay Finck (37:19):

And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP Finance Tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (37:36):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to the investorspodcast.com. This show is for entertainment purposes only. Before making any decision, consultant a professional. This show is copyrighted by the Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.