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Every Company Needs to Become a Software Company | SXSW 2021

Jeff Lawson
Co-Founder & CEO at Twilio Inc.
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SXSW 2021
March 16, 2021, Online, Austin, USA
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About speaker

Jeff Lawson
Co-Founder & CEO at Twilio Inc.

About the talk

By making digital business a necessity, the pandemic gave us final proof that every company must become a software company in order to survive. That’s every company, from Ford to Starbucks, and not just digital, but a software company, whose leaders turn to their developers for strategic direction. Instead of envying the nimble innovation machines of Silicon Valley, any company can learn how to become one by tapping the power of software, unleashing the creativity of their developers, and bridging the divide between their technical people and their business leaders. Author and Twilio CEO and Cofounder, Jeff Lawson and Amazon.com VP & CTO, Werner Vogels, will explore how our current crisis will accelerate this trend and provide a playbook for companies on how to run a company using the methodologies of Silicon Valley disruptors.

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Okay, that's fine. That's a long time ago. To have you seen each other and I think I'm going to be working is that these days you're also a French writer and publisher. And I would like to sign up for what was the coach in the book. We DVD? Interesting is that the shift from built by the shifting to build forces by Young. And so basically you to make the case that that's if companies don't be going digital Builders they're most likely to buy so by. So, yeah, absolutely. You know it's like you

start to see in every industry like every industry used to be the you know, companies thought of it and and software is like this, I was just back a house thing, is that why you ran the financials of the company? Or it was the, it was about the laptops for the employees and making sure the printers had paper and it was like, usually you wanted to There's a cost center. So you want to spend less, you want to Outsource it, made sense and like you needed a you whenever you need the HR software updated, going to be like a

builder by that, and a vendor would come in and say, well clearly you should buy the HR solution and it's either want to reinvent the wheel and all this kind of stuff. And you look the vendors were usually, right? And she's buying a big piece of software and implementing. It was the end of the day but over the last 20 years what's happened is that the software has moved from the back office. You know all the Call Centre stuff and it's moved into the to the to front of house. It's moved to be the thing that you use. Differentiate yourself in the eyes, your customer. I think about your bank

right used to be your bank if you walked your you walk in the front door of the physical building and if they had a nice in your new paint job and the teller was friendly and they gave your kid a lollipop. You tell Carol. I like my bank nowadays. Spot your back. It's an app on your phone and you like your bank. If the app is easy to use, if it gets new features and makes your life easier, my laptop doesn't crash those the things that lead you to say. I like my bank and so has soccer has moved from the back of house to the customer facing functions. It's become the point of differentiation and

the thing that happens in every industry is you know there's like the status quo and then Along Comes usually some sort of digital destruct or like a startup who's really good at building software and they build this amazing experience in customer. Start taking notice and then something about that. Digital disruptor is there Builders of software. So what's their core thing that they do, is they listen to customers. They hear about the big unsolved problems that customers have Lego build those men, build the answers to those problems. The industry turns to a builder's software and you

literally get this darwinian Evolution which is the company's they can adapt the quickest to changing customer needs and compete on that front. Those are the companies that we The hearts and minds and wallets of customers and the companies that can't do that. That on, Advil the can't listen to customers next to for customers while they start to die off. And that's when you get this idea that it's no longer billed versus by. It is billed versus die because if you are unable to listen to your customers and execute on a road map, to serve your customers better than their competition will

eventually, you just going to go the way of the dodo. Yeah, yeah. It is, Stowe transfer mation the whole notion because it's all these younger businesses that are starting to eat Mufasa, But it still must have showed of survival, kind of thing. Yeah. And you notice it in the book of saying, no, it's not about. You need to go digital or digital because you can see if you're posting this paper and only thinking about the competition but still doesn't change the mindset of

the leaders in the company, to become customer-centric it to adopt a different way of thinking about your customers because more than ever like a man in a physical like bricks and mortar type world like you really relied on your people to be customer-centric. And so like me. I'm going back to my bank. The bank teller was was your well-trained and was the right kind of mentality, serve customers than, you know, the customer a good experience but in a digital world, what you're touching. Millions and even some companies. Billions of

people through software, it really requires your roadmap and your, your Innovative, your Innovation thinkers in your product, tankers in your engineers to all be customer-focused. Instead of just what you might think of an old world as our front-line workers. And so it really is a cultural shift inside a company's first, how you build, how you prioritize, and how you keep all of those functions in the company close to the customer and what are things that I observed like it through building twilio, is that in the very early days of Kaleo. Like, you know, when we were

five employees like I might in any one day Yeah, right some code designer product, do customer support, do sales and pay the bills right now in that Universe, like you've got the whole picture of like the whole company. And in fact, the customer needs translating all the way back into the code to writing. Like it's all in your head and what's interesting is as a company grows. What happens you know you you hire a sales team cuz you want the sales team to specialize in selling. You her support team was going to specialize in supporting your

customers, your hair and Engineering engineering and a lot of good intentions you build up these silos of people who are specialist in the unintended consequence of that. If you end up isolating a lot of your company from customers, they're trying to serve to what happens like new leaders to come me, I'm an engineer, I'm running code, a must-win customer support. Let's let's let the engineers Focus their time and write in code and let's not bother them with customers so that they can actually focus on doing their job. And so, with these good You pick up walls between the

people who are serving customers that you've erected building for customers? And so I think one of the things I talk about the buckets, how you have to be very intentionally hook holes in those walls and like, Mike, I'm not saying you want your engineers doing customer support 24/7. But, but if you perfectly execute this world of like siloed and protect your developers from all the stuff, what you end up with is that really disconnected from the customers are serving and she have to be really smart about. How do you, how do you create that? In fact, one of the key roles

and doing that, I believe, is the product manager. And a lot of product managers, I believe, internalize their role as protecting their team from the distractions of customers, whether it's via the sales team to support team or directly with customers. Yeah, I think the best product managers are those that see their role as facilitating the right interactions between their team and the customers are there to serve. And I think that that is a really something that I kind of just can internalized to actually make sure that their teams are very customer-focused. And also talked a lot about

small teams in this is something that I learned during my time at Amazon, right? If I think the goal, as you build a company, is to try to continually maintained that sense of urgency and that closeness to the customer and the mission that you have when you are an early-stage startup. And the way you do that, if I continually subdivide in the company down into small teams in small teams of give or take ten people, and the way we Define those small teams is with a mission, Like why do they exist customer there to serve internal or external and metrics the define whether or not

they're serving a customer in kind of once you a line and this idea of like the mission, the customer and the metrics. Now you've actually unleash that team to release print every day. It's really own that problem. That mission and serve that customer by, by having that fool like, it your intrinsic dryer that you have in the early days of a startup. And I think that's one of the key. Things 2 release killing a company, but keeping that urgency in that intensity and that, that incentive Drive, making it personal that people really want to do their best work.

Of course, it's the way that you hire people are 14. Yeah, but the first two, I mean, of course, I mean tries to be the most customer-centric company. Hello for a million in proceeds benefit. The second one, you know, ownership hiring people, that really won't own the problem. And I think we don't sweat the small teams come in there, so they can be owners. You don't have to worry about the big pig, that's the really about their peace and I think ownership is

equally important in all of that hiring people that want to be owners of their people will good things happen. Your first of all, in a small team, everyone's got to pull their weight and you can't have a low performer hanging out on a small team of 10 people. It's really obvious and it's not fair to everyone else on the team and so people really have high expectations of each other and universes. The world we're out like, you know, but my, my my division is, you know, 300 people.

And I'm just one of the cogs in the machine is like that's really easy for some of the kind of get checked out and just to keep floating along in that world where is a small team. No one can do that. The other thing, I think is interesting about small teams, which kind of goes along with the notion of those small teams are led by what we call a single shred of beaver, they wake up everyday. And they only care about succeeding at this thing in the company, that's like the ownership model. And so, when the leader who's who who's the owner, who makes the decisions who can make the tough decision,

is really close to that. You don't get this in her New York at this time. They make or it's like, well, you know this seems pretty stupid, but somebody far away in your chart made this decision and now we have to implement whatever. It's like, no like if you disagree with the decision, it's probably your manager who who may be made the tie-breaking call and you can just challenged it. You can discuss it and you or you can disagree and commit right. But it's not like somebody Faraway who's Anonymous whose name? I just know because they have a VP title. Made some decisions and I have

to go do it. Just like know this is a decision. I think there's a sense of like how close you are to the decision-maker is directly impactful for how much you buy into the decisions and how much you believe in the execution there for the comes from it. And I love that that I give it like decisions are made locally and therefore you can own those decisions are or may be taken with your company now because I think that's sort of, I mean, starting from scratch is one thing. But you know, a Lawrence

conglomerates or maybe large companies, That won't change my race. That's a great question. And one that I talk about with, with leaders all the time, we're struggling to make that transition. And, you know, I think the way I think about it is starting small and one of the nice things about this small team approach means that your unit of execution in your unit of progress here is like. Your first small team and you're not talking about I have to hire a thousand people and you know it in an open a that R&D Centre in Silicon Valley, it's like not even that

can some dancing but all you have to all you really have to do is hurt. Your first leader, are your first single Friend in Me, Toy Story in the book of Domino's Pizza. And Domino's Pizza is this sleeper success story like a look at the stock market like their stock prices. They've all performed many tech companies over the past decade because they have transformed from a pizza company in ecology Company CEO. Patrick Doyle about 10 years ago. Realize like he woke up and he said huh, you know, all these new food delivery companies like they're going to literally and figuratively, eat our

lunch. If we don't actually become as good at technology as all these other companies were not willing to deliver food from like every restaurant out there. And so he set out to hire the leader and, you know, any higher this leader named Kevin to leave the charge and was interesting, I talked to Kevin, their customer philias and I talked to Kevin about that process. He said, you know, I took the interview like, just the meeting. I have no intention of joining a pizza company. I was just kind of doing it, you know, someone a favor until I take the meeting but he was a Patrick Doyle said

he said, look Kevin Domino's. The tummy has been around for fifty years. We have to train It's becoming a technology company or elsewhere, dad and I want you to leave the charge. I want you to be the person who I'm going to trust that my right hand side is going to really take Domino's into the future and be the best at technology, not just in like the pizza filled, not just in Rapid service, but like of all the food options at anybody has, Domino's has to be the best. And and Kevin was like, wow, like what a mission that is like, you know, I can go see, someone could go

work at, you know, one of the big tech companies, you know, you're coming to be a small fish in a big pond. But if you're at, like, a company that's been around for a hundred years and you were literally saying, like, look, the Legacy. This company is getting bitten right now and whether we're even in business in 10 years, is an existential question and Technology leader, I want to trust you to do it, why Amanda? That is so I think it starts with hiring hiring your first leader and telling that story a big impact. And then the second thing is, what's going to do what I have to start small. I do

that first team start with a customer a mission and the metrics of one area, where you're going to innovate to start. And it Domino's the challenge that Patrick gave that team. He said, get this realization, he said, you know, it seems to me like a lot of busy parents are in their commute home from work and they realize, they didn't, they don't know what's for dinner tonight. If someone could order dinner from a stoplight, And we can be the preferred way, the busy parents feed their kids, and so he gave them a challenge. You said, can you make it so? So a busy parent can order order

dinner during the amount of time you stopped at the red light. And that simple observation, that simple challenge. You post that team gave them years of innovation that was mobile apps and Alexa integration and even ordering pizza with a text message and they had to build a whole CRM system to they destroy your preferences. They do not feel like enter your address every time and you think it needs to be to call the store and you have to read your address again and again or order it. Like if you want to order it in 20 seconds like we need to know your address. We need to know your favorite

pizzas and you basically say we order it so that gave them years of Rope app. Is that one small observation with the starting point to them building out even the Pizza Tracker. With everybody talks about all the pizza tracker that came from the quick. Am I going to get home before the pizza is here. Right? And so start small and it didn't think I should have to just melt of you mentioned is the CEO of GE or was it Cogeco board member and yeah I talked to him about his attempt to steer that ship and that's an enormous ship back to steer in a New Direction and what he would

have done differently now. He said, he said, you know what I did? I started big because I believe that you have for this huge company, the way to steer, it was to make big bats and big Proclamation so I invested half a billion dollars. We open the big R&D Centre in Silicon Valley and I heard a bunch of these big leaders and you know what, and we made one big bat. This industrial iot platform that it didn't work out. And what I now realize is that I should have started small. What I should have done is instead of funding one, giant team with one giant Mission. If

I'd funded 10 small teams with 10 different ideas, Then, you know that our chances of success would have gone up because we would have had 10 shots at goal, not one. And by the way, I would have spent attempt the amount of money and then when I found the one that was working, then we could have poured the resources into it. And so I think the other piece of advice that I give a lot of leaders were undergoing this thing which is have an experimental mindset. You can put it literally at the Vanguard of technology and business, right? Inventing the future and nobody knows the

answers to like, what is going to be the next big thing in technology. Like it's not like it isn't knowable, we are all inventing this in real time and so what you need to do is have a lot of shots on goal so have an experimental mindset and so every new area that you enter start small have a hypothesis that you're trying to prove or disprove and then measure the progress about proving or disproving hypothesis. By the way reward, the people who do the work and realize that that business idea is a bad idea. Customers don't want it. A lot of it in a lot of businesses. You like you failed

customers. Don't want this thing. Now that's not failure, if they learned that lesson cheaply and inexpensively and quickly, that's progress, learning something customers don't want, is just as I was wanting something they do want to do. It's like those are some of the things I advise leaders to do in order to create an environment of innovation and one where teens can move fast Phish live at the shareholders. I mean, like a blind experiment measure and

learning from the phone 6s. And so failure, basically means in the back of your career in the company, where the hierarchy becomes more important than solar to progress, which means you've been a long time. So coming back to measurements are metrics, what is the importance of all time? Well, I think you have a hard thing is. If you don't have a scorecard, it's you can of accountability in like, that's kind of well-known, right? But then Morgan, something isn't like having metric a lot of companies have

metrics it's which metrics to track it. So when you're trying to innovate, you shouldn't be measuring those early-stage projects by things like Revenue. Right? Because revenue is a later State Alchemist, an output metric. Will you really should start looking as an input metrics? And I was thinking of Eric Reese, who wrote the foreword, my book, and his New York Times bestselling author for his books to Lean Startup in and the others. He talked about Innovation accounting, which is like when you start a new project, you have essentially a spreadsheet. That is a model of like what you

think is going to happen. So you have an idea for a new product, you going to build a model by before you find it. That says, well, if we succeed here, this is the path to making that you a hundred million dollars and this is assumptions about all we're going to have, you know, like we got a thousand customers, are we going to have a million customers? He's paying $100 a year. The first step to validating that bottle is checking with those assumptions are likely to be true. And so, can I find One customer to pay me? $100 a month or $100 a year? If I can't find one, that's by a bad sign.

That's how you find one. You might also want to validate great other a million such customers out there in the world. You do research to try to answer that question and if you are validate, the assumptions that went into the model of why you're embarking on a business, Endeavor, that is the Kiwi. Construction saying, is this endeavor, likely to succeed. So instead of starting an Endeavor and then a year later being like what this thing's only making, you know, $500,000 is a stupid shut this off which, you know, that big companies are moving this and that. And obviously, the move the needle

at a company. With a lot of Revenue, it's got to be a big number, but you can't expect that happen overnight. But if anybody knew what was going to be the needle moving thing on day 1, of course, you only invest in those things. But the reality of the world that nobody knows on day, one, which is going to be the big needle moving idea. Instead, you have a very experimental mindset and one where you're looking at those truly metrics as predictors of future, success, and future real Possession of the assumption that you had in your early business plan and like that sticky thing to

look at that. I have so many times you going to twilio. I've seen this Behavior where it's like, hey this really think that's not making, you know, a ton of Revenue yet, what's the deal with that? Maybe we should kill that is like, whoa, whoa, whoa, slow down, like Revenue at this stage of the idea is not about Revenue about validating the assumptions. And so really, it's having the right metrics to look at in the early stages of a product life cycle, in order to predict and extrapolate out. Do we think that we've proven the right things to say that five years from now, this will be the

needle moving thing at the early indicators of it or different. It's like you know, if you use an analogy like if you if you don't plant the seed, you're never going to get a tree or in the seed starts growing. Of course, it's not yet a tree. It's a little sapling, right? And you can't look at the South when you feel like you're a stupid tree and step on it. Now, you have to water it to get a tree in the same thing. You know, I think we're we're almost out of Time Warner. What did we get to? Republicans have it talk about the importance of operations,

forces development and I wear I mean, so fair needs to be into Chinese. This is the time that you actually run and operate it is if this don't, I don't know. I'm sorry, I think it's not just about developers, it's actual to have in the future where developers open right now, I'm ready. We called the devil's or hangouts or whatever you want to call it operation. Indeed, what you mean to do it? If you have to build a silo sweetie open late this evening somewhere else,

you help us over the wall and soda importance of having two small teams also, open late, that's over there. That's almost the most of the software that it can be operated and can be managed 78. We not interesting, I'll just close with an observation that because of the sophistication of software and writing software is easier than ever. But because of the scale of the internet operating at software is harder than ever. And that's why the value of this software supply chain is. It's so great

companies like a w s or twilio. That don't just give you soft in the kitty. Go run it yourself. Operate it for you at internet scale with high. I so lazy and security and everything else that goes along with the challenges of operation. Make it so your team's can focus. On the building and not have to focus as much energy on the operating and that the value of that is actually unlocked so much ability for companies to execute at internet scale, who don't actually have the the need or the desire to actually spend all the Cycles figuring out. How do we even the scale on how we keep the

thing off? How do you make sure it's secure? You're relying on the software supply chain that is grown up to enable every company to be great. Builders and operators of software is so critical. If I look at the security I mean the different models have changed dramatically over the past years and larger companies, start to realize that they can't make those Investments and that there's almost can make those Investments for them. And no Strife is another one for

payments. You know, we are some of the fastest-growing companies in the history of software, and it's interesting because a lot of people think of software is apps, but actually the infrastructure companies, the ones that are enabling every company to get good at software and technology is turned out to be a great business for for us. But also one that is so needed by every company in the world. It's really the pool at every company feeling the need to get really good at the things that we can help them do that is when I think one of the biggest Trends is going out of business

today and that's the only way that's why I wrote the book. It's like how to unleash the talents of those developers, how to cook that culture of innovation, and how to actually build and use the right infrastructure to enable yourself to compete in this Digital World Mission. And, you know which of us at 3:00 with the book and looking forward to you next week. Thank you very much. I appreciate it. And thank everybody for listening again.

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