How Zapier’s flywheel helped them build a $250M ARR business with $1.4M of funding
Anyone working in an early stage company or in the tech sector will have heard of Zapier. The company allows you to create no-code automated workflows where events or triggers in one product create an action in another product or series of products via a chained series. For example, maybe you want an inquiry on your website to create an entry in your Airtable CRM, alert your team members on Slack and generate an email nurture sequence in Gmail automatically? Zapier has you covered.
The company is also a true hall of famer for capital efficiency. In 2023 they hit $251M of ARR on the back of just $1.4M of venture funding. That’s a mind blowing 179x efficiency ratio that puts the business in elite territory alongside the likes of Veeva, Atlassian and Cloudinary. How did they achieve that? Lets dig in:
Timing
Zapier undoubtedly had flawless timing. They launched in 2011, right at the time Application Programming Interface (API) usage was becoming common and SaaS was going truly mainstream. APIs are an intermediate layer that enables data transmission between different software systems in a standardised way.
At Zapier’s launch there were 3,422 public APIs. Two years later the figure had tripled to 10,302. Large enterprises were pouring enormous amounts of capital into the cloud transition, and winners like Salesforce and Meta were being crowned. Outside these larger companies were a host of businesses that wanted to reap the rewards of the cloud ecosystem but didn't have the bandwidth to build every integration that their product could possibly be used with. Instead Zapier offered a one stop shop for accessing an ecosystem of thousands of integrations right at the point where API integrations was a high ranking priority for customers and developers alike.
Nevertheless, they were up against venture backed competition right from the outset, making their dominance of the sector as a ‘one and done’ profitable company all the more impressive.
Flywheels
At the core of Zapier’s business model was a flywheel that created an extremely efficient growth loop from community development through organic traffic and round again:
Community Development
When Zapier started they built the early set of core integrations themselves e.g. connecting Gmail to Meta. A major unlock though as they scaled though was the creation of a developer marketplace that allowed startups to build an integration and add their tool/product directly to the Zapier ecosystem. This was a symbiotic relationship: for Zapier it exponentially increased the number of products available on the platform. For the startups integrating it allowed them to market the number of platforms they could seamlessly be connected to and offset churn via deeper integrations with a user’s broader product suite.
SEO
Zapier leveraged each new community integration to build an SEO powerhouse, which in turn drove more developers to the community. Every time a new integration was on-boarded onto the platform, an article on the integration was automatically generated with an overview of the integration.
This strategy creates thousands of new articles with minimal intervention from the Zapier team itself and pushes Zapier integrations to the very top of a litany of Google search queries. Where content is human written it typically originates from Zapier’s own users, published both on their domain and on third party sites that create ever more backlinks to Zapier. Google ‘discord airtable integration’, ‘basecamp slack connection’ or any number of possible links and there they are, usually in the top three alongside one of the companies mentioned. This strategy is so effective that Zapier currently receives up to 8M organic website hits a month and ranks between 1st and 3rd on over 100k unique search terms.
SMB Focus
Part of the reason this flywheel was so effective was down to Zapier’s focus on SMB’s. We’ve talked a lot about the high efficiency potential for SMB oriented software businesses in the past: sales cycles are dramatically shorter and ‘land and expand’ strategies can deliver high ACV contracts as your customer base undertakes their own scaling journey. Zapier leveraged SMB dynamics on both sides of their platform. On the demand side, users were presented with a highly intuitive no-code interface with a generous entry tier that allowed 100 tasks per month for free. As these users grew and the complexity of the tasks / number of users increased, pricing would follow suit, all the way up to the enterprise tier.
Turning to the supply side; companies have increasingly built native API integrations for core use cases e.g. integrating with the Microsoft ecosystem. However the ‘long tail’ of integrations that cover every possible use case for a product isnt economically worthwhile to do that for and hence integrating with Zapier makes sense even for cloud native startups. In this way Zapier is a long tail aggregator, capturing both supply and demand from the infinite potential overlaps for cloud based SaaS products.
Automation
Beyond Zapier’s core business model, management made a series of strategic choices that enhanced the company’s ability to grow in a cost effective manner. The first of those was a heavy commitment to automation from inception.
In an interview with First Round Capital, CEO Wade Foster gave an example of the ‘automation first’ principles his team embraced:
“We get a lot of auto-responders — we’ll send out an email and someone is out of office or something like that. We recently looked into it, and 40% of the emails that come in are auto-responders, so it really fills up our support inbox”.
Foster turned to his engineering team to solve the issue:
“They put this algorithm in place that can detect, with about 99% accuracy, whether a ticket needs a reply or not so we’re able to weed out all those auto-responders.”
The end result was a CX team unburdened from a central cause of noise, able to focus on the items that actually matter. Bear in mind all this is happening in the early 2010’s. What might seem trivial today was a major time saving hack then. The key takeaway here is to focus on where the repeat tasks in your org are that take time to execute, and then find ways to automate part or all of that flow.
Hiring
When Zapier reached the limits of automation they would hire; but only once the organisation was creaking at the seams. Foster claimed that they hired for two reasons:
“One, we’re overworked in some way and we can’t solve it otherwise. That’s most common in areas like support that are demand-driven.
Two, we’re looking to make product investments and don’t have the staff for all the initiatives on the table.”
Hiring people needs to unlock growth. Vanity hires or staffing creep due to inefficiency can be terminal for early stage companies. Alongside a frugal hiring culture, Zapier was an early proponent of remote work, long before COVID-19 made it mainstream. Co-founder Mike Knoop moved back to Missouri early in the company’s journey and a second engineer was hired in the state. Without intentionally embarking on a remote first path the business evolved in that direction. Foster claimed this helped them to scale more naturally. Instead of thinking about their projected growth rate and how much square footage they would need, management focused on the roles the organisation required at any point.
Going fully remote doesn’t work for all companies but Foster’s takeaway from this is more broad. Founders need to think about whether their infrastructure is helping or hindering them and where it could be streamlined to support more lean operations. Do you need a large conference room or will a coffee shop do just fine?
“To this day, I do that, and no one thinks twice about it,” says Foster.
Conclusion
The core enabler for Zapier’s profitability was in creating a textbook growth flywheel where each point in the loop actively fed back to reinforce itself in a short duration. Zapier’s flywheel fed itself which meant the company rapidly created operational leverage. Adding more companies didn’t mean the business needed to hire more staff as the key components of Zapier’s flywheel were community driven. Some of the root causes for Zapier’s efficiency were unique, linked to its timing and the birth of cloud. Just like other bootstrapped success stories though, Zapier stayed efficient even while others around them raised and floundered by keeping a laser focus on automation, hiring only when needed and measuring the ROI of every dollar spent in the business.
