Data Domain has been nothing
short of a spectacular success story. The firm
is the leading provider of Deduplication Storage systems
for disk backup and network-based disaster recovery. From
zero revenues in 2003, the
firm recorded net revenue for the third quarter of 2008
of $75.0 million, an increase of 23% from the second quarter
of 2008 and an increase of 134% from the third quarter
of 2007. Having gone public in June 2007, with
a valuation of close to $1billion the company continues
to grow at a breath taking pace with ambitions
to be the ‘next Net App’.
Frank Slootman joined the company as CEO in 2003. The
firm was very small, with no management team, less than
$3M in available cash, and no revenues in sight. The outlook
for technology startups was bleak. Frank was also
a first time CEO from out of the category.
Schweichler-Price and Partners
interviewed Frank Slootman about his tremendous journey
in building Data Domain, lessons learned and the firm’s
ambitious path going forward.
Frank, why did you join
Data Domain in the first place?
I really liked the investors.
I knew that I was joining the right portfolios of companies.
(NEA, Greylock and Sutter Hill were the investors). Second,
I liked the technical team a lot and thought “if this
team is working here, the problem must be hard”. It
was an impressive technical core team. Third, I appreciated
the basic idea based on my own experience. I didn’t
know if the technology would work, but I knew if it did,
we could be quite successful.
What were the key moves
you made, looking back, in setting up Data Domain to be
a billion dollar exit?
the battle is starting the game with a good hand of cards.
In hindsight, that is what I
had, and I focused on playing them well, no mystery
there. Building companies is a lot of one foot in front of
the other, brick by brick type work, conserving resources
as much as you can early on. We focused on execution
99% of the time, trusted our strategy. Whether your
strategy is any good or not becomes more apparent when
your execution is solid. It will also tell you where you
need to go next. We resisted the temptation to
chase too many priorities, and concentrated on
solving the customer problem. Strategy is
not something you can fool around with on a daily basis. Strong execution makes
you better at strategy, paradoxically. There is no point debating strategy options if you are still weak
on the execution end of things.
Second, startups get caught up in thinking
they are smarter than their customers, and second guess
them. We listened
very hard to customers and delivered what they asked for,
time and again. It worked, and it’s that
simple. We were never technology-led. If we ever were confused
along the way, we'd go back to basics, and reiterate to ourselves
what customers were demanding from us.
Going back to the card game analogy,
you need to know when to hold and when to fold. When we
were strictly in investment-mode,
we conserved cash as much as we possibly could. During the first
two years of selling we were getting traction, but added
sales resources sparingly because sales wasn't paying for
itself yet, and we were still figuring out the model. Once
sales started covering their own cost, and the contribution
margin opened up, we shifted gears in dramatic fashion,
opened the flood gates and staffed as fast as we could without
much restraint. We were a growth machine at that point, and
the game totally changed to how fast we could ramp
the sales organization. Knowing when to have your foot
over the brake and when to floor the accelerator
are key aspects of managing start up ventures.
How did you attract and
keep people through the “dark
years” and how do you plan to hang onto and motivate
them now that several are wealthy from the IPO?
Recruiting is interesting. I like to feel “tugging
of the line” when recruiting candidates. If there’s
no tug, it's a red flag. Good hires want you as much as you
want them. One of our most successful sales hires told me
during the interview that his wife told him not to come home
if he didn't land the job at Data Domain. You can't help
but be attracted to people like that. Early on, we were often
aiming too high, especially with executives. We'd get interested
in people that we simply were not in a position to attract
because we were so early stage and unproven. So we switched
gears and went for people for whom we represented a career
breakthrough. We shied away from “been there and done
that” people, and instead focused on the next
generation of talent, unproven as many of them were. So
many have turned out to be stars. But you didn’t
know they were stars coming in. We like to bet on passion,
hunger and talent rather than experience and track
record. We like to say that we look for people whose best
days were ahead of them and not behind them, and it is still
a key hiring principle for us. VCs are still scratching
their head on this one, they have such an ingrained mentality
of wanting to hire proven players.
What do you look for in hiring great people?
Resumes are an interesting study. I am
not that impressed
with resumes that have Ivy league email addresses at the top
of the page. I'd like to know what you did with
that fancy education. I also like people to show consistent longevity
where they have been. Changing jobs every 18 months doesn't
impress. I like resumes that show a cohesive career
focus over the years rather than a haphazard melee of jobs, especially those
with repeated misfires on jobs.
People should be able to
show success where they have been, but make sure the fires
are still stoked if they have hit a jackpot along the way. When
we moved into high growth mode, we obviously could contend
much better for top talent but we'd still look for the passion,
the hunger, the people that have something to prove
to themselves and the world. It's our culture,
we are all people with something to prove. You
would not fit in without it.
You’re growing your business
against very large competitors who have semi-publicly stated
that they are out to kill your company. How did you accomplish
A classic startup mistake is to charge the incumbent where
they are strongest. You will get your head blown off.
Enter the market where the incumbency is weak.
Everybody has weak flanks. Get yourself a
toehold, then a foothold. Concentrate your force,
rapidly ramp your customer count, treat it as a
land grab, customers will begin to choose your side
because they are now invested in you and defend you against
the incumbent. The only power in business is having
strong customers, nothing else is even remotely as valuable.
Our competition had a thousand times
more feet on the street, so we hire their best. It strengthens us,
and weakens them, one hire at a time. You fight
fire, with fire. Our business is a fight for the data center.
It is a ground war, you can only move over the ground. It
means building an ever growing ground force. We are now in
25 countries with our own companies and people. We use the
channel heavily, but we don't let them get between us and the customer. You
have to rely on your own distribution to control your destiny.
What advice would you
give other first time CEO’s
on how to succeed in their first “at bat?”
CEOs set the tone, the pace, the intensity at which you want everyone to operate.
Establish strong culture and explicit company values very early on,
and be prepared to drive compliance, you will get many opportunities.
CEOs need to drive overwhelming clarity on everything, all day long. Be
a player coach. No job too small. Travel alone, no entourage. I also believe
CEOs should swarm to the fight. You are the chief warrior,
make no mistake about that. Managing Board members? My strategy was to treat them
as a partner. Share the good, the bad and the ugly. They were in it with me, through thick
and thin. I never tried to tell them a fair weather version of what's going
on. They demanded intellectual honesty and I gave it to them.
What about veteran CEO’s.
Any advice for them?
Can you still get up in the morning? Are the fires
still stoked? I have heard of CEOs who live in Hawaii half
the time. I can't understand why any board would put up with
that. CEOs are plow horses, not show horses. It's not that
easy to generate the drive, intensity and energy
24/7 when you have been around the block a few
times. Gut check time, do you still have it? There might
be a younger, hungrier turk out there you can't match. I've
said there should be term limits for CEOs.
Any thoughts on market timing? Why
did you IPO when you did?
The rule on IPOs is simple: you go if and
when you can, period, you don't wait, or try to optimize
timing. IPO windows come and go, and you can't time it much.
We did a secondary last November, and we saw the market
crater around us, virtually in real time. We completed the
offering but we could not have waited another day. An IPO
is the biggest marketing debut you can have, your intro
to the capital markets, it is a rite of passage.
How do you keep the talent
now that you’ve IPO’d?
The second billion in market value is easier than the first. It
was murder growing the company in value from zero to one
billion as it represents infinite value creation.
Going from one to two billion is only a double, yet
represents the same amount of value to shareholding employees.
What advice would you give Boards of Directors on building companies through
Boards need to decide if they support or don't support their CEOs.
A half hearted vote of confidence leads to dysfunctional situations.
If you support your CEO, don't shoot at his or her feet and leave the
screw driver at home. A lot of former operators have trouble functioning as board
members. Downturn or not, we need to build our companies. It takes time and resources.
Cutting back when companies are already conserving resources may be misguided.
Either commit to build the company or shut the place down. The best companies
get started and emerge during downturns. That said, make sure your companies
are selling antibiotics, not vitamins. In a downturn you will find out very quickly
which category you’re in if that wasn't clear yet.
This interview was published courtesy
of Schweichler-Price and Partners, an Access Search Partners
Access Search Partners is an alliance of
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