Oct 16, 2023 · 1h 7m · news
Matthew Prince: The Two Biggest Mistakes Every Founder Makes | E1072 · 20VC with Harry Stebbings
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In this engaging episode of 20VC, Cloudflare co-founder and CEO Matthew Prince joins host Harry Stebbings to dissect the critical elements of hyper-growth startups, debating the strategic choice between massive initial vision and narrow niche targeting. Prince also shares deeply personal lessons on co-founder dynamics, personal sacrifices, and managing the profound psychological toll of the entrepreneurial journey.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 12.1% of the talking time here. How this is scored →
Harry as informed peer 2.4 Guest teaching 2.7 Guest disagreement 2.1 Harry pushing back 2.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 41:10 Calling Beanie Baby Story PR BS
Matthew forcefully dismisses standard VC narrative examples like eBay's Beanie Babies as 'complete and utter PR retrospective BS' and tells Harry his argument has collapsed into a claim so narrow it is impossible to disagree with.
Hardest push from Harry ▶ 41:50 Host Confronts Guest on Conflating ConceptsHarry directly rejects Matthew's reframing, stating 'You're conflating things, if we're being honest, Matthew,' and firmly insists on the necessity of finding a targeted ICP for the first 1,000 true fans.
Biggest teaching moment ▶ 16:20 Refuting Board Resignation RumorMatthew directly corrects and shuts down Harry's factual premise regarding an alleged board resignation during a security incident, confirming it never happened and explaining the real state-sponsored hacking context.
Harry holds his own ▶ 36:15 Challenging Grandiose Vision PitchingHarry uses his domain expertise in startup hiring to challenge Matthew's pitch model, asserting that elite engineers dismiss 'fluffy vision' pitches without a concrete, stepped operational journey.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| The Podcast Booking: A Swift Agreement | 0 | 1 | 1 | 0 | The interview starts with light banter where Matthew jokes about being a 'cheap date' compared to Marc Benioff because he accepted a podcast invite via tweet. Harry asks casual background questions about childhood ambitions and selling fireworks. | |
| The Genesis of Cloudflare and Project Honeypot | 0 | 2 | 0 | 0 | Harry asks for Cloudflare's founding aha moment. Matthew shares the origin story of Project Honeypot and explains spammer behavior data from Paul Graham's anti-spam conference. | |
| Michelle Zatlyn and the Real 'Aha Moment' | 0 | 1 | 0 | 1 | Harry interjects to ask why Matthew initially dismissed building protection software as a dumb idea. Matthew clarifies that the real aha moment belonged to his co-founder Michelle Zatlyn. | |
| Stepping Away: Lessons from Tech Icons | 1 | 2 | 1 | 0 | Harry asks what is next for Cloudflare at a $19.6B market cap. Matthew ponders stepping away at age 61 and contrasts post-founder lives of Bezos, Gates, and Warnock. | |
| The Crisis of Identity and Startup Success | 2 | 2 | 0 | 1 | Harry shares personal reflections on his identity being tied to venture capital. Matthew validates the struggle, discussing founder superpowers versus blind spots. | |
| The Definition of Success and Global Impact | 3 | 3 | 2 | 2 | Harry asks if Matthew would trade happiness for success, defining success as market cap plus societal impact. Matthew challenges the framing by highlighting geopolitical impact, such as supporting Ukraine's infrastructure during the Russian invasion. | |
| Addressing the Board Resignation Rumor | 2 | 4 | 3 | 3 | Harry asks about a rumor that Matthew offered his resignation to the board during a security breach. Matthew directly refutes the rumor, stating it never happened, and transitions into detailing his failed previous startup. | |
| Defining Lanes: The Cloudflare Structure | 0 | 2 | 0 | 0 | Matthew details the Venn diagram concept of co-founder responsibilities between himself and Michelle Zatlyn, emphasizing complementary lanes over redundant skill sets. | |
| Should Co-founders Be Friends? | 1 | 3 | 1 | 1 | Harry asks whether co-founders should be close friends. Matthew explains why starting as respect-driven colleagues is safer than hiring childhood friends. | |
| Romantic Partnerships vs. Startups | 1 | 1 | 0 | 0 | Harry asks about finding romantic partners while building startups. Matthew recounts being broke in 2009 and stalling his landlord right before closing Cloudflare's Series A. | |
| The Great Niche Debate: Pre-Product Market Fit | 4 | 4 | 5 | 3 | Harry brings up his tweet asserting that pre-PMF startups must target an impossibly narrow customer segment. Matthew strongly disagrees for VC-backed startups and introduces a three-outcome framework consisting of wild success, fast failure, or 'the slog'. | |
| Vision as the Ultimate Recruiting Tool | 5 | 3 | 5 | 6 | Matthew uses Shopify to argue that massive vision is necessary to recruit elite talent. Harry pushes back firmly, stating that top engineers see through fluffy visions unless there is a clear step-by-step roadmap. | |
| Debating the Narrow ICP: The Cloudflare Story | 4 | 4 | 4 | 5 | Harry insists the debate isn't binary and that founders must sequence their approach. Matthew illustrates how early Cloudflare sign-ups defied narrow ICP expectations by attracting human rights groups. | |
| Debunking Startup PR Myths: Beanie Babies and True Fans | 6 | 5 | 7 | 7 | Matthew attacks standard origin stories like eBay starting with Beanie Babies as PR retrospective BS. Harry forcefully counters that Matthew is conflating concepts and asserts that finding an ICP for 1,000 true fans is fundamental. | |
| Niche vs. Massive Vision: Why VCs Want Big Outcomes | 5 | 4 | 5 | 5 | Harry brings up fintech cross-border transfers as examples of niche entry points. Matthew immediately interrupts to claim cross-border transfers are massive markets, arguing founders set their boxes too small. | |
| The Core Alignment: Fundraising, Recruiting, and Customer Buying | 5 | 3 | 4 | 5 | Harry articulates how go-to-market and buying behavior require targeted messaging today. Matthew dismisses Harry's refined claim as so narrow that it becomes impossible to disagree with. | |
| Twitter BS, TechCrunch Disrupt, and the Success of the 'Nobodies' | 2 | 2 | 2 | 1 | Harry asks about other investor myths on Twitter. Matthew shares how being outsider 'nobodies' allowed Cloudflare to focus on building without getting caught up in Valley ecosystem drama. | |
| Bootstrapped SaaS Cash Machines vs. Compound Growth | 4 | 3 | 2 | 3 | Harry questions why cash-flowing bootstrapped founders don't double down on one business to compound growth. Matthew compares cash machines like Tough Mudder with public hyper-scale SaaS. | |
| The Relationship Dynamics of VCs vs. Public Markets | 2 | 4 | 1 | 1 | Matthew uses a no-fault divorce analogy to argue public markets offer healthier relationships than venture capital investors. He then emotionally reflects on his co-founder Lee's frontotemporal dementia diagnosis. | |
| Weakly Held Opinions and the Burden of CEO Influence | 2 | 1 | 1 | 1 | In a quickfire segment, Matthew discusses weakly held opinions, choosing 'Internet' for his tombstone, and teasing Harry about his young age and Twitter profile picture. | |
| Path to $200 Billion: The Natural Compounding of SaaS | 2 | 3 | 1 | 1 | Harry asks how Cloudflare reaches a $200B valuation. Matthew references Salesforce math on daily shareholder value generation to show the power of SaaS compounding before ending with warm closing remarks. |
Statements from this episode (53)
Matthew Prince: Cloudflare's founding vision was to run the internet
“If you go and you watch the TechCrunch pitch, there's a judge at the end of it, and he asked, what's your vision? And I was like, our vision is to run the internet.”
Matthew Prince made his first money selling illegal fireworks in fourth grade
“In about fourth grade or so I had access to a bunch of illegal fireworks. And I would sell them at school, which was, made me really popular with the other kids, but not so popular with their parents. And so I think that that, that probably something around th…”
Prince: AI is fundamentally just statistics under the hood
“Today we'd call it AI, but it's all just statistics under, under the hood.”
Matthew Prince: Throwing noise at data streams preserves user online privacy
“You can't eliminate signal, but if you can throw enough noise at it, that's another way to prevent tracking and preserve privacy.”
Matthew Prince: Online spammers specialize in specific categories rather than general spam
“If somebody is, You know, a spammer for Viagra. Are they also spamming for, you know, fake university diplomas? The answer is no, by the way, people, people tend to specialize.”
Matthew Prince: First spam email arrives an average of one week post-harvesting
“What's the length of time between when a spam crawler harvest your email address and then when you get the first spam message, it averages about a week.”
Prince: Michelle Zatlyn originated the idea for Cloudflare
“And it was actually Michelle who was like, that's the idea. We're building that. And so it wasn't really even my aha moment. It was actually Michelle's.”
Matthew Prince: Founders who stay too long harm their companies
“There is a right time to step away from the company that you founded. And I think there are people who have held on to it too long and sometimes, you know, at the detriment of their company and some of the really smart people that could take the company over.”
Prince: Jeff Bezos is optimizing his life for Instagram
“And for a long time, I looked at like, you know, Jeff Bezos. I was like, wow, he seems like he has a pretty good life. He's not a pretty happy person. And out today, it seems like he's optimizing his life for Instagram, which is weird.”
Prince: Most founders end up miserable or dead after leaving
“So I think that they, I think that there's, unfortunately, there's a lot of founders who, after they leave their companies end up either miserable or dead.”
Prince: Elite founder success requires identity to become the company
“To be as successful as Gates, to be as successful as Bezos, to be as successful as Benioff, not only do you have to love it, but it becomes you.”
Matthew Prince: Low-drama co-founder dynamics set an organization's overall culture
“And I think a lot of times the fact that, you know, she and I have been doing this now for, you know, over 14 years and We have hard conversations, but we get along. We don't have fights. We're really, we're low drama. I think that that echoes down through the…”
Prince: Choosing co-founders is a founder's second most important life decision
“And, you know, the probably most important thing that you do in your life is pick who your partner is in, in, in, in, you know, whether it's marriage or whatever, whatever you believe in. And I think then the private second most important thing, if you're a fo…”
Cloudflare detected Russian cyber probing in Dec 2021 and warned governments
“We detected in December of 2021 the early indicia of Russia probing in a way that was similar to how they probed before they went into Georgia, before they went into Crimea, when they got more involved in Syria, and, you know, briefed government officials in b…”
Prince: Without Cloudflare, Ukrainian Defense and Global Communications Would Have Struggled
“Had we not done that, it would have been much harder for President Zelenskyy to get, get the message out on what was happening. It would be much harder to see what was happening on the front. It would be much harder to see the atrocities that the Russians Cont…”
Russia sanctioned three tech CEOs together: Benioff, Prince, and Zuckerberg
“There's, there are three tech executives that that got sanctioned at the same time. Yeah, you already interviewed Benioff, who was one of them, it was me, And then, ah, and then Zuckerberg.”
China employs more people to hack Cloudflare than Cloudflare has employees
“There are more people employed by the Chinese government to hack Cloudflare than there are employees at Cloudflare.”
Prince: Startups are doomed if co-founders struggle to split responsibilities
“If it's not totally clear, Then it can become really, really bad.”
Prince: Founders should pick complementary opposites rather than friends as co-founders
“Instead of picking someone who I'm friends with, let me pick somebody who is actually kind of the opposite to me.”
Cloudflare designated Michelle Zatlyn as temporary CEO in public succession plan
“When we went public we had to go through, like, a succession planning exercise, you know, if Matthew gets hit by a bus who steps in as a CEO and the board decided, and I think this is publicly filed that, you know, Michelle would step in on a temporary basis a…”
Co-founders should minimize skill overlap to maximize total problem coverage
“So it's like a Venn diagram where you want circles that have a tiny bit of overlap so that there's some ability for the people involved to relate to one another. But ideally each of those circles has a ton of space covering the problem area to do that.”
Prince: Being married to your co-founder is the worst dynamic
“I mean, the worst, and people make this work, so there's an exception to every rule, but the worst is being married to your co-founder.”
Prince: Co-founders should start as colleagues, not friends
“So I think you inevitably, if you do it right, become friends. But I think what you want to start out as is colleagues.”
Cloudflare splits decisions: Prince controls product, Zatlyn controls go-to-market and HR
“Today at Cloudflare, as we think about things, when we have a question of what product to build, ultimately, I'm the one who makes the decision on, on that. But Michelle has a ton of input and is, is helpful. But at the end of the day, it's my decision. On the…”
Matthew Prince: Prioritizing Cloudflare ruined personal relationships during early startup years
“I feel very fortunate to have dated some just incredible people over, over the years, and especially during the time of starting, starting Cloudflare, and it could have worked out with almost any of them but I think what happened was, you know, your company ca…”
Matthew Prince Was Debt Broke When Starting Cloudflare in 2009
“When we started Cloudflare, I was debt broke. Like I, if we hadn't raised money in November of 2009, like I wasn't sure how I was going to pay my rent. I'd already borrowed a bunch of money from my mom”
Prince: Quick failure is the second-best outcome for venture startups
“If the wild success is the best outcome, the second best outcome. I would argue is quick failure.”
Prince: Cloudflare never raised angel or friends and family money pre-IPO
“So like at Cloudflow, we never raised like angel money. We never raised from friends and family literally until we were going public.”
Prince: 'The slog' is the worst outcome for venture startups
“The worst outcome by far Is the slog. Where you have these companies that are growing just enough that it feels like success is just over the next hill. And they, and so they can't stop. But there, nobody cares about them anymore, and their investors are tuned…”
Prince: The Bay Area is best for starting companies, terrible for scaling
“It's why it's the best place to start companies, but it's a terrible place to scale companies.”
Prince: Cloudflare required multi-million dollar enterprise contracts to achieve scale
“We knew in order for this to be a big business, we needed to sell to really big banks and governments and financials, hospitals, and we needed to sell like multi-million dollar contracts on a regular basis.”
Prince: Cyber threat levels correlate with budget size, except for human rights groups
“There's almost a perfect line that is, the smaller your budget is, the less cyber threats you face, the bigger your budget, the bigger the cyber threats you face, with one notable exception, which is civil society and human rights organizations.”
Prince: The eBay Beanie Babies origin story is a PR myth
“So I've talked to the founders of eBay about that. That's complete and utter PR retrospective BS. And the reason that a lot of stories look like that is because almost nobody Once, if you're in the, you're the journalist that, that, that you said before we sta…”
Prince: Cloudflare's first 1,000 customers shared no discernible pattern
“In our case, you know, it was the first thousand customers were all over the place, and they, I can't tell any, like, discernible pattern between them, except for that they were, you know, crazy enough to sign up for us.”
Prince: Almost all startup founders begin with wild, massive visions
“It is very hard to find an actual startup founder that, that started out saying, we're going to do this small niche thing, and then it grew into this, is this big task. Almost everyone early on, you know, it's why founders, you know, can come across as so, so …”
Matthew Prince: Broad platforms rarely originate from narrow product niches
“I think it's very rare to find someone who said, I started out just trying to build, you know, the platform for, you know, People to sell snowboards, and I, and, you know, and I ended up building, building Shopify, or I started out, you know, building that sma…”
Matthew Prince: Founders need a big vision for fundraising, recruiting, and resilience
“When you're fundraising, you have to present a big picture. When you're recruiting, you have to present a big picture. When, even, even when you're just trying to keep your mental health of why is this so hard? You have to believe in that big vision.”
Harry Stebbings: Super horizontal product messaging makes it harder to resonate with buyers
“If you have super horizontal product messaging, It's much harder to resonate with people.”
Prince: Picking bad co-founders is the biggest mistake entrepreneurs make
“The biggest mistake that no, the biggest mistake that entrepreneurs make is picking bad co-founders. The second biggest mistake that they make is not setting their sights on an ambitious enough target”
Stebbings: Picking bad markets is a fatal mistake for founders
“I think it's picking bad markets. There's some markets that are just shit, Matthew.”
Prince: Cloudflare Succeeded Because Its Founders Were Silicon Valley Outsiders
“I think part of Cloudflare's success was we were nobodies. Like we didn't know anyone and we didn't get invited to all the fun parties and we weren't part of the cool kids group. And I think as a result, there was, we just focused on, How do we, you know, buil…”
Michelle Zatlyn's husband runs bootstrapped ventures aiming for $3M cash flow
“It's actually Michelle my business partner, her husband, he's got two other guys and the three of them just churn out bootstrap businesses and they try to get each of them to cash flow basically three million dollars a piece. Cause then they can basically each…”
Prince: Tough Mudder May Be More Successful Than Cloudflare
“I think it's an open question whether, you know, they've been more successful or we've been more successful. Like, they have no costs. They've got this thing that's just a machine that just kicks off a ton of cash, and he can go and focus on, you know, other t…”
Prince: Every pre-IPO Cloudflare investor generated at least 10x returns
“Everyone who bet on us pre IPO made at least 10 times the money that they invested with us.”
Prince: Public market investors are better partners than VCs
“Public market investors are great because if they'll tell you the truth, because, you know, if they don't like what you're doing, they sell your stock.”
Prince: Baillie Gifford's average holding period is 16 years
“Like Bailey Gifford, who's, you know, one of Kleffler's, you know, top investors in a Scottish firm, their average holding period is 16 years.”
Cloudflare co-founder Lee Fahlberg was diagnosed with frontotemporal dementia in his 30s
“Instead, it turned out he had a pretty rare neurological condition called frontotemporal dementia. It's the same thing that Bruce Willis has, but, you know, Lee was in his thirties, which is extremely rare for something like this.”
Prince's management rule: Check personal health issues when employee behavior abruptly changes
“And I try now when people you know, their behavior changes dramatically. To ask, you know, is there something going on in their personal life? Is there something going on with their health? Is there something else that's out there?”
Prince: 'Strong opinions weakly held' fails when employees blindly follow CEOs
“What I've found is hard about that is that as, you know, a successful CEO, you will say something and everyone thinks, well, that, that must be right.”
Prince wrote his 1996 college thesis arguing the internet was a fad
“I wrote my college thesis on why the internet was a fad in 96 1996.”
Cloudflare generated $7M daily shareholder value in its first decade
“At that particular time, we had generated something like seven million dollars in shareholder value every day since, since we had launched, including, again, weekends and holidays.”