Lessons From Palo Alto Networks
Companies in Silicon Valley are well known for their ability to scale quickly. Talent and capital in the area are abundant, enabling startups to grow to hundreds of employees and “unicorn” level valuations at an unprecedented pace. However, companies experiencing hyper growth also have a unique challenge: Maintaining the culture and energy that made them so disruptive in the first place. “One of the things that small companies excel at is innovation— having a culture of innovation. But what they don’t think about later is, when you get big, how do you keep that?” notes Palo Alto Networks CEO and Chairman Mark McLaughlin.
Palo Alto Networks is in the handful of tech companies that has endured in the public market in the past decade. Last fiscal year, the network security company brought in $928.1M in revenue — a 55% YOY increase — now boasting a market cap of over $15B. McLaughlin and Zuk believe that prioritizing culture early on has been key to sustaining growth as they’ve scaled to over 2,600 employees.
When the company was building out its engineering team, some potential investors suggested outsourcing to other countries for cheaper talent. But CTO and cofounder Nir Zuk told them, “Look, we’re going to do engineering in Silicon Valley. Nowhere else. Take it or leave it.” An experienced engineer, Zuk knew the best products get built when engineers exchange ideas and talk to each other. Both McLaughlin and Zuk place emphasis in creating a creating a collegial environment where employees get to work with like-minded people and solve challenging problems, and make a conscious effort not to invest in flashy perks in benefits like gourmet food, spas, and massages. To this day, all engineering and manufacturing for Palo Alto Networks is done in Silicon Valley.
Often times, high growth companies hit a wall when they’re scaling too fast. When things are going well, companies get comfortable and continue its course instead of preparing for its next stage of growth. According to McLaughlin, “It’s exactly when something is working very very well that you should break it intentionally so you can get through the next gate of growth without having massive disruption.” In short, companies need to make deliberate changes to accommodate for scale: if it’s working, break it.
“If you believe that it’s impossible to maintain this culture at size and we all believe that, then I guarantee you that will be the case” says McLaughlin. “But if you reject that like I do, and like Nir does, and everybody else here does, then it doesn’t mean for sure that we’ll be able to do that, but it does mean when we’re making decisions, we’ll prioritize that as a point in whatever decision we’re about to make.”