The advice I'd give myself is you have good instincts and you should trust your instincts even if you may be at a size and scale now where before you thought you might have to stop. Trust in your instincts. Welcome to the Logan Bartlett Show. On this episode, what you're going to hear is a conversation I have with co-founder and CEO of Okta, Todd McKinnon. Todd and I talk about his journey to founding Okta, picking a co-founder that he didn't know particularly well in the early days, as well as the motivations that have kept him on the journey to nearly 8 years in the public market and what keeps him motivated today as he looks out into the future of what Okta can be. You'll hear that discussion here.
Now thanks for doing this. An interesting thing I heard you say, which was, I think there's lessons in any founder journey. Sometimes you need to believe even if you don't believe. Is that a Todd McKinnon original?
It was a heartfelt original, really a realization. Before I started Okta, I worked at PeopleSoft as an engineer and then manager, and then at Salesforce where I ran engineering. In those jobs, if I worked hard and was good with people, I'd have some success. But with Okta, the hardest part was that there was so much to chance. I could work perfectly and it just might not work. I learned to compartmentalize that and aggressively focus on executing day-to-day, even though logically I knew the odds were against me. It was a psychological switch I had to make. There's a reason so many startups fail. When you're the CEO or founder, you have to fix things yourself; no one cares. At Salesforce, I was decisive, but at Okta I slowed down because there was no safety net. I took more time to think about all angles. I didn't have a super structured framework, but I married more measured decision-making with a strong culture of day-to-day execution. My co-founder and I had a daily to-do list from the start. That inertia and execution focus provided a check and balance.
Did you have a framework like one-way door versus two-way doors, or how did you think about speed of execution while still being thoughtful?
Not super structured. But being more measured was married with a very strong culture of day-to-day execution. From the first days, we had a list of what to get done that day. The slowdown in decision-making would be a big negative without that relentless to-do list. So we had a check and balance with that inertia and execution focus.
In the early days of a startup, the line between unemployment and being a founder can be a thin one if you don't create that urgency to get stuff done in a meaningful way.
I'm trying to think where that came from. Maybe it's a personality trait I had and my co-founder had. Part of it was filling in the void of a bigger organization. When you take away the organization, the only thing left is what you got done today. If you didn't get stuff done, nothing happened. So it was from that urgency.
That's interesting. Did you have a point in the future you worked towards? Monthly cycles, quarterly, yearly? How did you keep your head in the distance while moving forward?
We had milestones. We wanted a live paying customer relatively early. We got a seed round in June 2009 and by six or seven months later we had a $400 order on Christmas Eve from Exact Corporation, our first customer. We also had milestones for 50 customers. On product development, we did weekly sprints and agile processes. The big milestones were raise money, get a customer live, hire salespeople.
I want to be the first long-form interview you've ever done without talking about the PowerPoint to your wife. For people who haven't heard the story, Todd delivered a PowerPoint to his wife to convince her to start Okta. I'm curious, what was the core insight gnawing at you in the early days that made you leave a great job at Salesforce?
There were a few key things. Personally, I'm challenge-driven. Starting a company was a personal goal. But a significant part was seeing at Salesforce how cloud computing was disruptive. We had management offsites with no section on competition because it was so disruptive. I realized that if you're going to start a company, a disruptive technology wave is the best time. Also, it wasn't just applications; email and infrastructure were moving to the cloud with Google Apps and AWS. So personal ambition and knowing this was fertile ground. Then it took a lot of iteration to find a product that would be valuable and could build a big company over time.
You referenced Salesforce, but before that you alluded to PeopleSoft. Most listeners probably don't know that business. There was a nexus of talent at PeopleSoft and a unique culture. I'm curious, from your PeopleSoft experience, was there anything you particularly took away that you wanted to instill in Okta's culture?
Hugely impactful. It was my first job out of college for eight years. The biggest impression was Dave Duffield, the founder. He and the management team made it feel like the employees' company. I remember feeling 'this is my company' – as hard as I work, I'll advance and be rewarded. That feeling was incredibly motivating. At Okta, I've tried hard to create that. It's about how the founder acts – giving credit, trusting people with more than expected, asking them to step up. I never wanted it to feel like my company; I want it to feel like your company. That's empowering and the best way to win.
In picking your co-founder Freddy, you worked together at Salesforce but weren't super close. Is that fair?
We worked together on a few things – he was in partnerships and business development, I was in engineering. It was a small company, so we got to know each other socially. When I left to start Okta, he had left a year before to get his MBA. The key advice I give is you don't want to start a company with family or best friends, but you also need a good reference. We knew each other a little but knew a lot of the same people who vouched for us. It was the best of both worlds. We were both passionate about the move to the cloud. We had an original idea for systems management, but through conversations we got excited about identity management. We went to dinner with our spouses, which was important. It just clicked. We're both super competitive but not with each other – that drive was focused on execution.
I heard a reflection from you that some of the first 10 hires didn't work out or weren't as deliberate as with your co-founder. Any reflections on that and what you would have done differently?
I was in a really big hurry to get progress fast. I didn't want to go a year without success. That led to some hasty people decisions. The people were good and helped, but looking back, if we had been more careful and slower on hiring, we probably would have gotten more done in the first three years. We made progress fast in the first year but then had to rework stuff. It's easy to say now, but at the time you're worried about survival.
I've heard a reflection from you that market insight is maybe the most important thing. Can you share your reflections on that?
The market matters a lot, and timing matters. You have to thread two needles: pick a problem that is relatively immature so a startup can solve it in the short term, but also something that can grow into something big. At PeopleSoft, I built a product similar to Okta – hooking up HR to an LDAP directory – and customers loved it. For Okta, customers said they were moving apps to the cloud but it didn't work well with Box and Google Apps. That was short-term pain they'd pay for. But to build that, you need infrastructure like directory services and replication, which are underpinnings for something big companies would buy for a long time.
There's an irony: you almost need a very small market initially because if it were big, someone would have solved it. You want a fast-growing small market. I imagine your TAM initially was a couple million bucks, but on the path to billions. It reminds me of the Pelican trying to eat a massive fish – sometimes people pitch huge ideas with no disruptive means. Big markets can be a fool's gold.
We heard that the market Okta was going after wasn't big enough – we still hear it. It reminds me that if you don't feel it's too early, you're too late. Perfect timing feels way too early. You have to suspend belief and go. You won't know if it's too early; if it's too comfortable, it's too late. Your job is to start too early and survive until the market catches up. For us, the third full year was really hard. We had been doing it for two and a half years, raised money, and sales weren't rolling. But it was still too early – not enough cloud apps. We had to hang on for three quarters. Then Q3 2011, the dam broke. The target was $200K and we did $280K. It felt like the market caught up to us.
So what would you ask yourself if you're in that valley, balancing delusion that it's almost there versus reality that maybe not? How do you know if you're waiting for a moment or banging your head against the wall?
That's the $64,000 question. For us, the only reason we knew Q3 2011 was going to be good was because it was good. Two months before, it was rocky – we whiffed the previous quarter and barely closed our Series B. There wasn't tons of signal. It comes down to true customer value – are people paying and using it? For us, it was relatively easy because people were paying. But other businesses might only know through true customer value.
Is there an element of fulfillment in the process that you enjoy most about building a company? Sometimes we lionize fundraising or IPOs, but you need to find beauty in the process because there's always a new number to hit.
I love the challenge. I love hearing 'that can't be done' – like 'you can't build a big company out of single sign-on' or 'Microsoft will crush you.' Microsoft launched a competitive product in 2014 and we're still here 10 years later. Overcoming challenges and continuing to grow is satisfying. Also, seeing people at Okta grow and take on more responsibility, even leaving to be successful elsewhere – I'm super proud of them.
One thing I always try to say but sounds self-serving: dilution and valuations are markers along the journey, not means to an end. I've heard you talk about how at one point those things felt more important than they do today. Can you share? I'll clip this and send it to people when negotiating over 10% here or there.
I wish I owned 100% of Okta, but that's survivorship bias. I've given a little on funding rounds. On the IPO, we had demand to price at $19 a share, but I decided to do $17 a share because these investors would be long-term partners. Giving a little now helps build the relationship. In other rounds, letting more partners in with a bit more dilution – it's long-term thinking. It's worked well.
You've hired thousands of people. I'm curious about interview questions. I've heard you say things about teasing out motivations. Can you speak to that and how assessing motivations can lead to success or problems?
When I interview, I focus on why they made career decisions. It gives insight into what they're looking for now. History is the best predictor. I try to figure out what tasks and projects they were put on, whether they got more responsibility, whether it was in a key area. Let the people who managed them tell you how good they are. If you see they worked at great companies but didn't get put on important things, you're basically overruling their managers – odds are not in your favor.
That leads to reference checking. It's amazing how many people don't do it. I'm sure there are people who worked at Okta and subsequent employers didn't check with you. I'm curious what you've learned about reference checking – questions you ask to tease out key characteristics.
First, do it. It's easy to get excited and not be rigorous. Triangulate on multiple references. For important roles, check the reference for the specific project that's applicable. The first conversations map where to focus. Then ask: was the project as important as it seemed? Did it go well? Was the person involved? Also, there's a bias to be positive. I once checked a reference and the person lied. So I ask: what is one thing they're best in the world at? If they're not raving, you see a lack of super positive strength. Another technique is to ask if they were top 5% or 10% of people you've worked with. That forces ranking. When people call me for references, if I think the person is awesome, I say 'hire this person' right away. If I don't say that, it's implicit. Also, a non-raving reference isn't a veto – you need to calibrate strengths to the role.
Have you found ways of framing the question such that people's bias to say positive things is overcome? I once checked a reference and the person lied. I think the 'best in the world' question is great. Also, asking 'were they top 5%?' gives a barometer. I also like the negative framing: 'If this doesn't work out, what would be the reason?' That forces them to think about weaknesses. And I don't think one non-raving reference is a veto. You need to calibrate. I forget who said it, but Brian Chesky couldn't be CEO of Tesla and Elon Musk couldn't be CEO of Airbnb – they originally said Twitter, but had to change it.
