2 Cutting-Edge Companies to Watch in 2020

In 2020, Zoom Video (ZM 0.05%) grew from 10 million daily meeting participants to 300 million daily meeting participants. How has Zoom managed to scale? How will it maintain its culture? What's it like when your company name becomes a verb? In this episode of Motley Fool Money, senior analyst Bill Mann explores those questions with Zoom Chief People Officer Lynne Oldham.

One of 2020's most successful IPOs was that of insurance company Lemonade (LMND -0.46%). Motley Fool CEO Tom Gardner and Motley Fool contributor Asit Sharma talk with Lemonade co-founder and CEO Daniel Schreiber about disruption, data, and the future of insurance.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on December 25, 2020.

Chris Hill: In terms of daily meeting participants, this year, Zoom grew from $10 million to $300 million. Motley Fool senior analyst Bill Mann talked with Zoom's Chief People Officer Lynne Oldham about the company's incredible growth.

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Bill Mann: I just wanted to start from the beginning, because Zoom in 2020 has been one of the most fascinating, important companies in the country, perhaps the world, and it's been an incredibly unique working environment for all of us. What do you think, in your role, what even is corporate culture in the year 2020?

Lynne Oldham: That's a really good question. Culture is what you feel in the air. I think that the things that drew me to Zoom, when I walked in the door of our lobby, and then every lobby we have across the world, we have two words on the wall. It says "We care." That's the way it feels like everywhere you went. I saw the words in the lobby, and I had worked for a lot of companies that those words are little less meaningful [laughs] than they are at Zoom. You feel it in every interaction you have with employees, which is fantastic, because that tells us all that culture doesn't live in the walls of an office, it lives in your people. That's a critical thing that we all have to remember.

I think it's going to be harder to make sure that remote employees, and I hear that from my compatriots at different companies, to ensure that they feel connected and as important these days. But I think if your culture is pervasive, the pandemic can't keep it down. You've just got to keep doing what you've been doing and not let that fall by the wayside. We've been doing surveys to find out what people are thinking, how they're feeling, we're being responsive to those. We have this great all hands. You've met Eric?

Mann: Yeah.

Oldham: Every two weeks, we have an all hands where people can get on and leave anonymous questions, and we answer everything. It doesn't matter what it is, we answer it, because transparency is a big key to that "We care." We're not hiding anything. We're talking about all of it.

Then finally, the thing we did culturally for our group is we saw that people were struggling. Lots of meetings all day long, back to back, probably a chance to go to the bathroom. We did Wednesday no internal meetings. No internal meetings Wednesday is our day to get stuff done.

Mann: I'm a little excited to hear you say, because it's fair to say that people who work at Zoom have a little bit of Zoom fatigue.

Oldham: I think we were best equipped to do this better than most companies. On March 4th, Eric and team turned it on a dime. But meetings in general, you got to examine your day and its makeup and whether you're getting the things done that you really want to get done. I think that's what we saw, is that we like seeing each other, we care about each other. We're in a lot of meetings, and some of them maybe aren't as necessary as others. We're learning how to parse through them in a bit better way.

Mann: How has Zoom managed to scale, and how have you managed to scale?

Oldham: I think back to February and March, I was in firefighting mode, because you're right, in a couple of weeks' time, we were doing the numbers that we were expecting to do a little bit further in the future, not in that short of a time period. So firefighting mode from how we get ourselves to the size that we need to some of the privacy things we were working on and there was a lot of work to be done in February, March, April, May, it's continuous.

But most important was making sure that we had the people, because with that volume that we were doing, you needed help, you just needed more arms, legs and brains, right? So the shift over the year and now is back, for me, on strategic, and really what does the next year-plus look like, and what is that future work for Zoom and our customers, and how do we make sure that we can get there? This year was ups, downs, sideways, but for sure from firefighting to strategic again.

Mann: Yeah. What is the big work for you now? So obviously, you have added on hundreds of employees. Few of them have set foot into the office. They have been meeting and interacting with each other in the same way that you and I are interacting right now over Zoom. How do you go about getting them integrated in such an unbelievably dynamic environment as we've seen? I think the word "unbelievable" is somewhat overused -- particularly by me; it's one of my top five words -- but I think in this case, it really is unbelievable.

Oldham: Sometimes, I wake up and I don't know how we got to where we are, but for sure, it's been a lot of sweat equity. Let me tell you that about 40% of our workforce has not seen or stepped foot in a physical office at this point in time. It all starts at the beginning, how do we recruit and make sure that we're speedy, but at that speed, we do not want to compromise quality. That's pretty critical for us. It always has been, and it's even more so now. We've instituted a values interview, where we're asking very deep and experiential questions around how folks feel around that "we care" value. We ask in a bunch of different ways across the interview panel.

Then, once you get here, we've got a whole onboarding setup for you that really gets you from day one, understanding and feeling like one, you joined the company you thought you joined, and two, giving you a sense of how we all live that value. It's very experiential, we built a lot of breakout rooms. We don't talk much at all actually about the products, we talk a lot about delivering happiness and joy, to delighting our customers. That's what we talk about for the day and through experiences that come with these people into the room. It's a very visceral feeling, that first day. So between the interviewing and the onboarding, we're really trying hard to get everybody to feel like a Zoomie from minute one.

Mann: On your LinkedIn page, you set out as your goal that you're trying to deliver happiness to both your employees, the Zoomies, and to customers. I don't know if you've met him, but we have spent a lot of time over the years with Laszlo Bock who was the chief people officer at Google [Alphabet]. I imagine that he is someone who you know or know of. I love how he talks about employees at the organizations and the importance it is at the outset for both these employees and the end customers, about finding and bringing the right people in, the identification from the outset. How do you go about doing that?

Oldham: Yeah. I think there's a couple of things we're looking for in people who join Zoom. We're looking for people who have lived or feel that value of care, however it shows up. I don't mean it always has to show up in a customer perspective; it can be community, it can be your family, it can be of teammates in your last opportunities, and so it's seeing how they demonstrate that.

Mann: You need an empathy gene, right?

Oldham: Exactly. The other is we're very logical thinkers. Our way of doing things is, what's the problem? What's the root cause, and what's the solution? If you bring a solution to the table first, that's not going to work. You have to be that kind of a thinker. I think the other thing is we're looking for voracious learners. Eric instituted this benefit long before I got here, but I love it. We pay for books, subscriptions. We want people to read and learn and keep going. So somebody who's got a penchant for that is someone who would do well here. Then I think finally, just somebody who just wants to get after it. When I say speed, we don't want to compromise that quality, we are speedy. We can turn on a dime. I think those are the things we look for in people who really thrive here.

Mann: What are some of the things that you realized, as May moved into June and to July, as you're growing very quickly, as we are realizing that this is going to go on for a while, were there things that you suddenly needed to pivot and get into your tool chest to be able to operate most effectively during this period of time?

Oldham: If I think about it, Bill, I think about it in three big things that any and every company should be doing. One is listening. Whether that's a survey, whether that's this little thing we did called connecting conversations, where we put intact teams together to talk about how they were doing and not the work per se, but how they're doing. We just did bite-sized gratitude in the month of November. We're trying to get people talking together, because we think listening is mission critical as we progress through and now that the curve deepens again.

The second thing is making sure that wherever your employees sit, now I know we're all remote, but when it is time to potentially go back to a different situation, to make sure that they feel a part of the company. That bleeds into my third thing, which is around leaders. At this point in time, we're building muscle in our leaders to ensure that they can be deliberate, that they have the ability to be empathetic, like we said earlier, right? Because that's really critical. If you're an empathetic leader, you're hearing, you're figuring out how to unite the workforce, you're trying to get the best out of your teams and making sure that they can deliver on results. I think those are the things that I think about as we move through this, are the essentials.

Mann: I think a lot of people would probably describe thinking about Zoom as a cultural phenomenon this year, as something that came on the scene, on the one hand, fairly referential. It is lucky and yet unlucky that we're going through the pandemic at all. But if we went through this five years ago, a lot of the tools that are in place now -- and I think Zoom is at the top of that list -- were not ready for us. But at the same time, there's been some psychological costs for people being isolated. You can go with this question anywhere you want to go, but what would you or your company say? What do you want things to look like, where Zoom is most helpful in a society that's healthy, as we come out of this pandemic?

Oldham: Yeah. That's what we're thinking about all the time now, Bill. I think we want to ensure that there's enhanced communication, collaboration, because those are the things that really make companies hum. We're trying, whatever remote working trends that we can assist with, the idea is that given the world has embraced Zoom technology along with changes in behavior, we think these trends are going to continue in a post-COVID world. We think the future of work is hybrid, regardless of where our users choose to work, Zoom is going to be there. We're going to have an exciting portfolio of products to fit. They work from anywhere in the world that we're going to experience.

If you were able to attend Zoomtopia, we saw something that I think is the coolest, it's called Smart Gallery. Basically, once we're back into an office setting, the conference rooms are equipped with additional cameras, so that when we were on a Zoom meeting, even if there are three people or four people in a conference room, we all show up this way. Rather than, that picture of everybody sitting in a room and then one or two faces that are remote. That's what I love about what's happening now, is we're all the same size. We have equity. I think that is what I want to preserve of what has happened through the pandemic into the future. This Smart Gallery is just such an awesome addition to that. Yeah.

Mann: Yeah. That's beautiful. I'm sure at some point you have to pinch yourself for where you are in what you're doing. Because I think about where Zoom is and you've literally saved lives this year. You think about telemedicine. My best friend in the world is a cardiologist, and a year ago, none of his patients and none of his fellow doctors would have accepted the thought of having evaluating sessions through a Zoom call.

Oldham: Right.

Mann: Wouldn't have done it. Research has been done over Zoom. Medical appointments have been done over Zoom. All of these assessments have been done over Zoom. What your company has meant to society over these last nine months has really been incredible. I want you to hear it from me. Do you ever think about what it is that you all are doing?

Oldham: You think about it all the time. It is almost a two-sided coin. It is the thing that keeps us going when we're not feeling like we want to keep going, and it's the thing that gives us the most joy about what we do every day. We have, Bill, a cool and inspiring stories chat in our chat tool that is just full. From day one, people just keep putting things in there. If you are down, there's just too much work, too many meetings, you go to that, and you just get all jazzed up all over again.

Mann: It's got to be breathtaking.

Oldham: Yeah, it is. It really is. I think we put it together in almost like an anthology of the year at some point. Yes. But it's great.

Mann: Fantastic.

Oldham: I think that's what keeps us going for sure.

Mann: Here's the degree to which Zoom has meant to society. I actually did some work, and I have figured out that you are one of the few companies that is now a verb. In putting together a spurious correlation portfolio, I was thinking of other companies that are also verbs, and it's not many. There's Uber, there's Google.

Oldham: Yeah.

Mann: There's FedEx.

Oldham: Yeah.

Mann: There's Xerox. You can Tweet. You can use bubble wrap, both of which are verbs, but it's a pretty special place to be.

Oldham: It really is.

[...]

Hill: A tech company that is disrupting the insurance industry. The stock rose 140% on its first day of trading back in July. Recently, Motley Fool CEO Tom Gardner and contributing analyst Asit Sharma talked with Lemonade CEO Daniel Schreiber. Let's kick things off of Tom asking about the problems that Lemonade is trying to solve.

[...]

Tom Gardner: So it's foundational to our lives. It's got a tremendous variety of entrants into the game that even by having a few percentage points of market share can become a Fortune 100 business, and yet, with those qualities, foundational, many entrants, huge potential, it's a category that very few people like as customers. It has very low, let's say, net promoter scores or very low regard in the world. Probably you, as a 13-year-old, weren't dreaming about being a salesman of insurance. I guess we know, and certainly from watching some of your great presentations on YouTube, we know some of that is the conflict that exists between the company and the individual when it comes to a claim.

It's very important, I think, for the understanding of all of our members to hear clearly from you how that claims process is different at Lemonade. What is the problem that Lemonade is addressing? That I would say, clearly, the data is showing that the younger demographic is buying and the older demographic has been working with these tall-building insurance companies in the center of town. It gives them comfort that they exist, but overall, they have some questions about how they're being treated as individuals and they don't like the process very much. Now, Lemonade emerges, they hear about it, maybe they're a member of a Motley Fool service, now they've heard about it and they wonder: what are they doing differently? What's the alignment that they're trying to create between their stakeholders that doesn't exist in this very large category that's 100+, a couple of hundred years old?

Daniel Schreiber: Well, it's certainly something that's near and dear to our heart and we've given a lot of thought to. Myself and my co-founder, Shai, we don't come from the world of insurance. We came to insurance after 20 years of entrepreneurship in the field of direct consumer, digital, and tech products. When we came to insurance, we were asking ourselves the exact question that you just asked me. Why [laughs] is this product, which is so foundational, which at a mathematical level is a social good, it's about people pooling resources to help the weakest. That's almost a dictionary definition of a social good. Why is it so despised? I saw some surveys saying it's distrusted even more than politicians in the U.S. Quickly, we did a Google survey in the early days, just asking people to classify insurance as either social good or necessary evil. The overwhelming majority of Americans said necessary evil. Did another one, asking them, do you believe that the insurance company is going to pay your claims without putting you through a rigmarole? The answer was no, overwhelmingly. Certain insurance companies have exactly the kind of association that you were saying a minute ago. Then, the question to us was why, and how could we do something differently?

I've heard you, Tom, quote Charlie Munger talking about incentives. The idea that he says, "Show me the incentive and I'll show you the outcome." That was something that preoccupied us a lot, to quote somebody else, Ice-T, he says, [laughs] "Don't hate the player, hate the game." That was really part of what animated our thinking early on, which is to say, I'm assuming that every passive market at every insurance company has a wonderful moral fiber, mine is certainly superior to theirs. This isn't about picking good people in order to engender trust, it's about a system and about incentives. I talked about the game, but I really do think in terms of game theory. In fact, in founding the company, I reached out to a Nobel laureate in game theory and spent some time with him, trying to think through the elements of the game.

The problem with the insurance game is that it pits insurance companies against their customers. Certainly, in the eye of the customer, this is true; we have the data to support that. The reason is that, insurance companies, one of the ways they make money is through underwriting profit, which basically means after I've paid the claims, how much money is left over? Which means that, if I don't pay your claim, I make more money. Basically, it means we're fighting over the same coin. Maybe I'll zoom out a bit and broaden the point a little bit more, which is to say the following: It is such an obvious thing, it almost doesn't bear saying that insurance companies' results depend on how many claims they pay out.

But there are actually three problems that ensue from that at a business model level. The first we're talking about now, which is the distrust that it engenders. One of the founding team members at Lemonade is Professor Dan Ariely, one of the most preeminent behavioral scientists. He wrote a book called the Honest Truth About Dishonesty. He spent 10 years studying what makes people honest and dishonest. He concluded that, if you set out to create a system with a stated aim of bringing out the worst in humanity, [laughs] it would look a lot like a modern insurance company. That everything that his research said you should not do is manifest in spades in insurance companies. Asymmetry of information -- I understand the policy, you don't. Asymmetry of power -- I have your money, you want it extracted from me. A win-lose value proposition -- If you get it, I don't. Zero sum. All these elements of his research said that that's not a good thing to do and Ford indeed is a huge form of insurance. So that's one problem.

The second one at a financial level is volatility of results. One of the beautiful things about insurance companies is that they have highly predictable, highly recurring top lines. The problematic things about insurance companies is that they have massively volatile bottom lines that literally fluctuate with the weather. What would the wildfires like in California this year and what were the hurricanes are like in Texas, answer those two and I'll tell you what the profitability of the insurance company was. The third one, which is a corollary of that, is they become capital-intensive because I've got these massive surprises waiting for me, I'd better put aside a chunk of change in order to take care of those rainy days. So you end up with a conflicted business model, highly unpredictable bottom lines, and capital intensivity in order to contend with that volatility.

We set out to rethink all of that, and we decided we're going to try to create an insurance company where our results, at least at first blush, are not so intimately connected with how many claims we pay out. We do that through two ballasts that stabilize our business. What we say to you as our customer is the following: "You'll pay us for insurance, every dollar that you pay us, we tell you right now, we're going to take a 25% fee out of that, and we're going to keep it. That's going to pay for our salaries and for everything else, and come what may, we're going to take 25%. Now, we don't know how many claims there are going to be this year, so the remaining 75% may be enough to pay all the claims and there may be money left over, or it maybe inadequate and then maybe insufficient money." We take care of that volatility with these two ballasts. One is reinsurance, which is that residual risk we pass onto reinsurance partners. You can actually do that, you can trade in risk in insurance companies. We take an element of a risk, and we say beyond this, it's your risk and we pay a fee for that every year.

Then we say, if there's excess claims, the reinsurance pays the excess claims, not us. To you as a customer, it's entirely invisible, this is behind the scenes financial work that we do with them. But it means that our books aren't hit if there are a lot of claims, and conversely, if there's money left over at the end of the year, we say we're not going to keep it, we're going to give it to a charity. Hey, Tom, which charity is near and dear to your heart? That really changes everything. It changes, first of all, the relationship between us, because beforehand, it was an adversarial relationship with a two-party system, where you and me are fighting over the same coin. Now, we've introduced a non-profit into the room to try the actual relationship, where I didn't make money by denying you a claim because my fee is capped and fixed. And you might think twice before embellishing your claim because you're not hurting the nameless, faceless behemoth with whom you have a conflicted relationship; you're hurting your church or your kid's school or the soup kitchen you volunteer at, or whatever is near and dear to your heart as a giveback, and that changes the whole nature of the relationship from being transactional to being much more meaningful.

Gardner: You've now spoken about the behind-the-scenes system that you all created. We're very big fans of Dan Ariely at The Motley Fool. We'll dig a little bit into the system with some more challenging questions for the fun of it in the next segment. But I just wanted to end this segment getting the backdrop of the business by hearing you express what happens on the front end for the users, so somebody who signs into Lemonade for the first time and is going to get pet insurance or renters insurance. Who are they, on average, out there in the world? Who is buying, and what's the difference in the experience that they have when they signed into Lemonade versus a traditional insurer?

Schreiber: This part of our talk is something that everyone can experience for themselves. If nothing else, I'd love to get some sales out of this. Everybody just get on the phone, download the app, and give it a try. We do renters insurance, homeowners insurance, condos, pets, and we're about to launch life insurance as well. The user experience in all of those cases is a delightful chat with a chatbot. You go to lemonade.com, you download the app, and you're talking to a bot called Maya. She is the alter ego of a real person; Maya was one of our founding team members in the early days and runs a big chunk of our business today. But that's a day job. Her alter ego is busy selling insurance as an AI.

You chat to Maya. The median time to buy a policy at Lemonade is about 90 seconds. I read that the median time to buy a coffee at Starbucks is three minutes. So you're talking about, really, you can order the espresso, and while they're making it, you can insure your home, that's the experience. And generally speaking, you'll find it a fun experience. It's no jargon, no insurance-speak, it's playful, she's kind of in-person, she makes jokes and it's just a delightful experience. You buy insurance without any trouble at all.

I think the most striking thing is not so much how easy it is to buy insurance but how easy it is to make a claim, because that's really where the gotchas come in. Actually, it's the same thing. You do that by chatting to a bot this time, the bot is called Jim. AI Jim, based on our chief claims officer, by the same name. Jim will ask you a few questions, say, "Hey, Tom, what happened?" You'll say, "I was at Starbucks actually and I was getting an espresso and I turned around and the laptop was gone." But you'll do that by picking up your phone and talking into the app. So you're just talking to the app, plain, natural language, explaining what happened.

In about a third of our claims, the bot will handle the entire process, start to finish, and will approve, or if needs be, to deny a claim without any human intervention and we pay about a third of our claims in as little as three seconds quite literally. It's one of those wonderful things, and hopefully, this will be a recurring theme that will come back to you. But crushing costs while delighting consumers, because you do end up with a really fun experience, simple experience, easy experience.

That is the front-end experience. It's entirely digital. You can call and speak to a human if you want to, but people don't. 100% of our policies are sold through the bot, 97% of our claims are handled through the bot as well, although sometimes some of those will require human intervention on the back end as well, many will not.

If I may, just one afterthought, because I gave an incomplete answer to Tom. You asked me not only about the front end but about the customers. About 75% of our customers are under the age of 35. I don't think that would be shocking. We do have people of all ages, but since this is such a digital experience and an irreverent brand that has a second peel that's used young. Most striking, I think, is that 90% of our customers tell us that they're not switching from another insurance company; they're first-time buyers of insurance. That is shocking. If you watch more than five minutes of TV, you'll know that the TV commercials bombard you with "I switched" and "I saved" messages. I switched deliver to Mutual and I saved 913 dollars, all that kind of stuff, 15 minutes can save you 15%.

The whole business model of insurance is predicated on this "I switch," "I saved." At Lemonade, we're not actually playing that game, we're competing with nonconsumption. We have become, I think, in terms of market share, probably the lead market share in terms of first-time buyers of insurance. Perhaps nothing is more predictable of the ultimate market share than new market share, where the new customers are joining the funnel. Where are they going? They're going in troves, thankfully, to Lemonade. We are seeing this skew of younger consumers, first-time buyers of insurance, not limited to them, but a big part of our business is predicated on capturing customers at the time that they're not really attractive to large insurance companies. Because our cost acquisition, our cost to serve, the digital experience just changes the whole economics in a pretty fundamental way, which allows us to offer insurance at about 50% the cost of a traditional insurance broker for these first-time buyers of insurance and then, as we delight them, they stay with us as they go through life cycle events. Maybe we'll come back to that a bit later.

Asit Sharma: One of the things that everyone is excited about is your commitment to charity. There's something great at the end of the day. If the company does well, it's got something left over in the kitty, you make a donation and I, who paid in my premiums, can select some of that for charities of my choice. But what do you say to the skeptics who remember Etsy's early stumbles, is a great example, another B-Corp, a company that everyone really loved in terms of melding a great business model with a sustainable bent, a commitment to its base of artisans. I remember so vividly that the very inspiring CEO, God forbid this should happen to you, Daniel, Chad Dickerson, eventually had to leave. Etsy has done enormously well since then. I think they would have succeeded anyway. What do you say to those who say, look, the commitment to charity is a distraction, and in fact, it may be harmful to your business model?

Schreiber: I can't talk to your Etsy example, I haven't followed them closely enough to be able to do a compare and contrast. But I think that the most costly problem in insurance is distrust. People estimate that $40 billion a year goes on fraud in insurance, which is staggering and stunning. And it's not hackers from the Ukraine, that's people like you and me, who consider ourselves law-abiding citizens in other aspects of our lives, and when it comes to insurance, something, I prefer what Dan Ariely said, something about insurance triggers us and makes us feel it's OK to embellish claims, to level the playing field.

It also means that it's a category with incredibly low loyalty. Most people can't even name their insurance company. So the brands don't matter, the insurance companies don't matter. It's perceived as a necessary evil. Just think about it. If you're trying to change insurance and bring it back to being a social good, and for people to have an emotional connection with the brand, something's got to change. Then you start asking yourself, what is it that needs to change, and then I go back to the business model and the game theory. I think about what we're doing with charity as enlightened self-interest, and I say to you, and through you, to our investors out there, I'm not apologetical for our charity. Now, I would be if I thought I was being charged about their expense, I would have a problem with that. I don't think it's real charity to be charitable about somebody else, to take your money and give it to charity. There is nothing admirable about that.

But I think we've created a business model and this was so important to Shai and I in founding the company, where we think this is a win-win-win. We think that we are solving a real problem that the industry suffers from, which is distrust, using game theory to restructure the business model so it becomes a trilateral relationship rather than a bilateral one. Keeps you honest, keeps me honest, takes away temptation, and makes it more fun to work at Lemonade, makes it more meaningful to work at Lemonade, makes it more meaningful to have a relationship with Lemonade as a customer, and you start getting to a virtuous cycle. Instead of distrust and tit for tat, you get to a place of pride, and then word of mouth spreads, and Tom, you asked about NPS. We've got NPS that is Apple and Tesla level, 70% to 80%, whereas the insurance sector struggles to get into positive territory.

[...]

Hill: That's going to do it for this week's Motley Fool Money.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

The show is mixed by Dan Boyd. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week for our preview of 2021, so be safe on New Year's Eve.