One of the hardest disciplines in business and in life is tearing down what you’ve built to build something better—and knowing when to do it, especially if everything is going well. At Qualtrics, the company my father, brother, a friend, and I founded in 2002, we’ve reinvented our business multiple times. At first we did it out of necessity. But we soon learned that it’s much easier to change from a position of strength than when your hand is forced by the market or your competition. No major bet or pivot was successful in less than three or four years, so we learned to change when times were good. Still, sometimes you have no choice but to rebuild in the middle of a crisis.
Qualtrics started as a single-product survey company used primarily by academics to conduct research. It was an unconventional business model for a start-up—serving a small market with demanding customers who didn’t have a lot of money. No venture capitalist would want to bet on that market. But by the early 2010s we had evolved into a multiproduct company helping organizations manage customer experience, employee insights, and market research. In 2017 we launched the experience management (XM) category and created the first platform on which organizations could oversee the four core experiences of business: customer, employee, product, and brand. That led to our acquisition by SAP for $8 billion in January 2019 and an IPO two years later in which the opening price valued Qualtrics at three times that amount.
Each pivot along the way required us to rebuild our tech stack, replace previous code, adjust our talent strategy, and realign the company, and each entailed large costs and risks. But we recognized that if we were going to fundamentally shape the market we were in, we had to reinvent ourselves and create a more robust platform. Our motivation has always come from the quest to reach our highest potential as a company rather than continue with what’s already working. We have always looked at our market, products, and people and asked, How can we continue to improve and better serve our customers?
In the end, it’s not change but complacency that kills a business.
A New Way to Gather Data
Qualtrics was born in our family basement in Provo, Utah. In the early 2000s my father, Scott, was a marketing professor at Brigham Young University. During a consulting project for BellSouth, he came upon the idea of using the internet to accelerate market research, thereby disintermediating expensive market-research firms. Not long after, he was diagnosed with throat cancer (now, thankfully, in remission). During the course of his treatments, we began building a software company. I was a junior at BYU’s Marriott School of Business, but I saw the potential of our project and dropped out to be with my dad and work on it.
We always believed that the future of Qualtrics lay in helping large organizations, but at first it was hard to get those customers to embrace a new way of doing things. We were ahead of our time in measuring customer sentiment online. I remember one rejection from an airline executive in 2005: “If our customers are upset,” he said, “they’ll just call us.” That was basically the way the world thought about customer experience. Companies that were interested in hearing from customers were happy to pay consultants and traditional research firms huge amounts of money, even though it took months to get results. They lived by the mantra “If it ain’t broke, don’t fix it.”
That mentality led us to focus initially on a smaller market: academics like my father, who could use our product to conduct research online. We figured that if he was enthusiastic about our software, others would be too. Although we first approached CTOs and CIOs at universities, and they loved the product, they weren’t willing to sign up on behalf of their schools. We had to come up with a new model. So we went directly to marketing professors at business schools, who had almost no budget. We would get one or two on board, and they would get the entire marketing department signed up.
That was definitely a hard way to do it, but the ripple effect, from the marketing department to the rest of the business school, ultimately came after that. Then the social science and psychology departments would join in. We’d go back to the same CTO or CIO two or three years later, and this time the entire university would sign up.
One benefit of this strategy was that it forced us to make our software robust yet flexible. Academics weren’t paying us enough that we could afford to provide telephone support, so if the technology didn’t work for everyone out of the box, we wouldn’t make it as a company. That meant we had to build our technology in a way that could meet each professor’s unique demands. Our tagline in those early days was “Sophisticated enough for a PhD, but easy enough for an intern.” It defined our user experience from the start.
Another benefit was that we created future corporate customers: Students took their software preferences with them to internships and, after graduation, to their full-time jobs. One MBA who went to work for Heineken over the summer used Qualtrics for a field study project. The company wanted to keep using Qualtrics after he returned to school, so it bought a $60,000 license from us. Another student, from the University of Washington, did a project at Expedia, prompting the travel company to sign on as well.
Then the 2008–2009 financial crisis hit. We were based in Utah, far from Wall Street, but we still felt vulnerable. We had 40 employees, no venture money or outside capital, and an academic user base. We needed to proactively change before the crisis changed us. We sensed an opening with the enterprise market. The recession put intense cost pressure on every organization we were talking to, which was good news for us because we were faster and less expensive than traditional consulting and market research firms at a time when companies had to be right and needed to make decisions quickly. Ironically, during the downturn the number of our corporate clients began to skyrocket. That’s when we saw the data revolution beginning. Data had become currency, and being right became a premium.
But even as our corporate revenue started outgrowing our academic revenue, most of our deals were still closing at the grassroots level. As our customer base increasingly shifted, we had some decisions to make. We were growing and profitable, but we were a family-run business with a basement headquarters, and most of our users were PhDs with no money. It would have been very easy to continue running a lifestyle business with a focus only on the academic market, but that wouldn’t have allowed us to reach our full potential. We knew we had to tear down what we had built to create something better.
A Leap into Enterprise
At Qualtrics we have always tried to look at big decisions through the lens of one-way and two-way doors—something we learned from other great tech companies. Some decisions can be reversed; for others there is no going back. A simple example for entrepreneurs: The distribution of equity is a one-way door, because once you’ve given it, you can’t take it back. Introducing different pricing models is a two-way door—although it’s a big decision, you can always iterate and change over time. Start-ups often suffer from “alarm fatigue”—every single business decision is treated as essential and irreversible. Or they run through every door as fast as they can because they think growth is all that matters. So how should you approach things? Train your organization to run as fast as it can through two-way doors, but everyone should stop and think carefully before passing through a one-way door.
By 2012 we knew we were facing a huge one-way-door decision. We had more than 4,700 paying customers, including 600 universities and half of the Fortune 500. The corporate segment was impressive, but we knew we could do more. We received an all-cash $500 million acquisition offer from a private buyer—the first time in our 10 years that someone wanted to buy us. It validated what we were doing to disrupt the market, and it was also enough money for my dad, my brother, my friend, and me to sail off into the sunset. It was a tough decision, but we turned it down after asking ourselves a lot of questions, including What sort of company do we want to be? and What would have to be true for us to not regret passing on this offer? The answers to those questions would become our future road map.
That’s when we knew it was time to walk through a one-way door. It would make sense not to sell only if we were going to go even bigger—and that would mean changing what we were doing even though it was working well. We loved the academic market (and it loved us), but we knew that long-term growth would require us to expand our focus and realign our strategy around enterprise clients—and we weren’t configured for that yet. I had been working directly with the enterprise clients we did have, and I could clearly see the value we were creating. They were willing to coinvest with us to design the right solutions. That pointed to a massive expansion in our potential market, and we believed the time was right to go after it. But it would be a bet-the-business decision because of the capital investment we’d need to make in the product and the go-to-market strategy. The founders would have to sign up for a painful, long-term personal learning process as we worked to develop skill sets we lacked. We would have to break a lot of the rules—such as no remote workers—that had gotten us to where we were.
We moved resources from our thriving academic business and made a commitment to transition from a single-product to a multiproduct company, developing technology to help companies measure customer experience. We also built an employee-insights business for HR professionals. In making this decision, once again, we had to rebuild our technology stack, replace code, and realign a portion of our 300-person workforce with this new direction.
Partnering with VCs
We were confident in this decision, and others in the years following, because we’ve always been close to our customers. I’m both a cofounder and the first salesperson. All our senior leaders, no matter their function, join sales meetings with prospects and clients. Some founders no doubt believe they can intuit what will be a hit without any meaningful contact with customers, but I’m guessing they are few. I gather insights from the front lines. I sit with our prospects and customers and listen to their needs and get a sense of what good feels like to them so that we can develop something they haven’t imagined yet.
Another reason we were able to take the risk of becoming a multiproduct, enterprise-focused company was our commitment to earning buy-in from our internal team. Of course we always make room for dissent and healthy disagreement when we pause at the threshold of a one-way door. When brothers are running things together, dissent is a given. But once a decision is made, we ask everyone to be “all in.” Often that means abandoning old ways of doing things and treasured projects that have consumed hours of employees’ time over the years. I’ve always said that if it feels uncomfortable, it’s probably right.
The same year we declined the $500 million offer, we tapped Silicon Valley for the first time for our Series A funding. That was a huge departure for us. Until then we had bootstrapped the company with no outside money. We were profitable and prided ourselves on being scrappy outsiders who didn’t adhere to the tech industry’s norms. But now we needed partners who had seen this movie before and could help us scale up past the $1 billion threshold.
Frankly, we needed to grow up. My brother, who left us in the early years to join Google, had returned in 2009, and we had lots of other A-level talent. But we hadn’t yet built an executive team with experience selling to large enterprises or managing a company as it approached unicorn status. So we went out and found people who were smarter and more seasoned than we were. In the end we partnered with two leading VC firms—Accel and Sequoia. We knew they were committed: Accel, an early investor in Facebook, sent me 17 unsolicited emails before I even engaged with the firm, and Sequoia had a partner who had worked closely with my brother at Google. He knew us and our business intimately.
I certainly had concerns about this part of our strategy shift. I remember waking up in a cold sweat the night before my first meeting with Sequoia’s Mike Moritz. I thought that as a condition of the investment, he would make me move the company—and my family—from Utah to California. But he didn’t. He asked if we wanted to do something great, because he believed we could. And he said he believed we could do it from Utah. No one place has an exclusive on smart people. Moritz knew what we knew—that Utah has many of the same advantages the Bay Area does and then some. For example, we live where people come to vacation, and that offers a tremendous quality of life that top talent has come to appreciate. This was in 2012, and since then “Silicon Slopes” (as the cluster of high-growth companies in and around Provo, Utah, is now known) has blossomed into one of the best tech hubs in the United States.
With customer, employee, and investor support lined up, it was full steam ahead. We transitioned from a single-product market research company primarily serving academia to a multiproduct company serving enterprises with customer-experience, employee-insights, and market research products. We crossed the threshold, and there was no looking back.
Launching the XM Category
The next major one-way-door decision came in early 2017. Our business could not have been doing better. I gathered all our senior leaders in a conference room at our headquarters, which we’d named NORAD (after the U.S. military’s early-warning command center), and asked them to speak now or forever hold their peace. On the table was a transition away from multiple products to a single platform, where enterprise clients could manage customer, employee, product, and brand experience in one place. We were going to burn the boat on our previous products and launch the XM category. This was another bet-the-company move while our business was at an all-time high. It would require the same type of reinvention we’d executed five years earlier. And again the risks were huge.
But we all agreed it was the right thing to do. Customers would benefit. Employees would buy in. And our investors were confident that we would figure it out. In fact, just a couple of months after we launched the XM Platform, they bet on us once again with a $180 million Series C investment.
Less than two years later it was clear that we’d been right: Organizations had signed on with Qualtrics faster than ever before. Having proved the power of XM, we were gearing up for our fall IPO road show when we started conversations with SAP about working together. We had built a stable, high-growth company that had remained cash-flow positive since its inception. We had always been told you had to choose between cash-flow positivity and high growth, but we had always optimized our business model for both, and it was paying off. Our business looked like a distant cousin of its early self. That’s when we arrived at the ultimate one-way door. Three days before we were scheduled to ring the bell on Wall Street, SAP made a compelling offer that we couldn’t refuse. Our goal since launching the XM category had been to take it to the world as fast and as effectively as possible. Every organization needs it. When SAP offered us $8 billion—the largest private-enterprise-software acquisition in history—we accepted, because the opportunity to take XM to SAP’s 437,000 customers would allow us to achieve that goal. SAP’s bet and all our reinventions were rewarded when the company took Qualtrics public, in January 2021. (SAP retains the controlling stake in Qualtrics, including all Class B shares that give it extra voting rights.)
On the day in 2019 that SAP acquired us, I sat in on an investor call with its then-CEO, Bill McDermott. One of the first questions was “How come I have never heard of Qualtrics?” I smiled inside. We’ve always bucked conventional wisdom, quietly focusing on building a long-term, profitable company that our customers value. We have continually transformed it to provide even greater value to more and more organizations with every pivot we’ve made. Even after our successful IPO, and nearly two decades into our journey, we all still feel as if we’re just getting started.
I’m confident about our ability to keep adapting to dynamic markets and customer needs. After some 20 years of pivots, we know how to reinvent ourselves. But as I write this, Qualtrics (and every other organization across the globe) is facing a whole new world—and not one of our choosing. Covid-19 has disrupted traditional ways of doing business, causing upheaval in workforces and everywhere else. We have created new products and services that help employers, governments, and educators around the world monitor and act in the best interests of their employees, constituents, health care workers, and students.
We have to be light on our feet. We’re leveraging the muscles and gears we’ve built through years of practice to ensure that everyone can adjust and adapt quickly. The good news is that reinventing ourselves is what we do best. Every time we’ve torn something down, our business has come back stronger and better.